Attached files

file filename
EX-10.4 - EXHIBIT 10.4 JACOBS SETTLEMENT AGREEMENT - CIMPRESS N.V.ex104jacobssettlementagree.htm
EX-32.1 - EXHIBIT 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF SARBANES OXLEY ACT - CIMPRESS N.V.ex32103311710-q.htm
EX-31.2 - EXHIBIT 31.2 CERTIFICATION OF CFO - CIMPRESS N.V.ex31203311710-q.htm
EX-31.1 - EXHIBIT 31.1 CERTIFICATION OF CEO - CIMPRESS N.V.ex31103311710-q.htm
EX-10.3 - EXHIBIT 10.3 HUBKA SEVERANCE AGREEMENT - CIMPRESS N.V.ex103hubkaseveranceagmt.htm
EX-10.2 - EXHIBIT 10.2 GOLD SEPARATION AGREEMENT - CIMPRESS N.V.ex102goldseparationagreeme.htm








 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
Form 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2017
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, smaller reporting company, or an emerging growth 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)
 
 
Emerging growth company  ¨
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨    
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).  Yes o     No þ
As of April 21, 2017, there were 31,145,120 of Cimpress N.V. ordinary shares, par value 0.01 per share, outstanding.
 




CIMPRESS N.V.
QUARTERLY REPORT ON FORM 10-Q
For the Three and Nine Months Ended March 31, 2017

TABLE OF CONTENTS
 
 
Page
PART I FINANCIAL INFORMATION
 
Item 1. Financial Statements (unaudited)
     Consolidated Balance Sheets as of March 31, 2017 and June 30, 2016
     Consolidated Statements of Operations for the three and nine months ended March 31, 2017 and
     2016
     Consolidated Statements of Comprehensive Income for the three and nine months ended March 31,
     2017 and 2016
     Consolidated Statements of Cash Flows for the nine months ended March 31, 2017 and 2016
     Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II OTHER INFORMATION
 
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
Signatures





PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIMPRESS N.V.
CONSOLIDATED BALANCE SHEETS
(unaudited in thousands, except share and per share data)

March 31,
2017

June 30,
2016
Assets
 


 

Current assets:
 


 

Cash and cash equivalents
$
43,467


$
77,426

Marketable securities

 
7,893

Accounts receivable, net of allowances of $2,253 and $490, respectively
51,426


32,327

Inventory
44,661


18,125

Prepaid expenses and other current assets
77,240


64,997

Total current assets
216,794


200,768

Property, plant and equipment, net
513,148


493,163

Software and web site development costs, net
47,711


35,212

Deferred tax assets
34,248


26,093

Goodwill
516,013


466,005

Intangible assets, net
280,133


216,970

Other assets
29,860


25,658

Total assets
$
1,637,907


$
1,463,869

Liabilities, noncontrolling interests and shareholders’ equity
 


 

Current liabilities:
 


 

Accounts payable
$
110,339


$
86,682

Accrued expenses
201,213


178,987

Deferred revenue
32,802


25,842

Short-term debt
31,216


21,717

Other current liabilities
53,900


22,635

Total current liabilities
429,470


335,863

Deferred tax liabilities
56,047


69,430

Lease financing obligation
107,540

 
110,232

Long-term debt
860,237


656,794

Other liabilities
57,284


60,173

Total liabilities
1,510,578


1,232,492

Commitments and contingencies (Note 14)
 
 
 
Redeemable noncontrolling interests
42,604


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 31,142,576 and 31,536,732 shares outstanding, respectively
615


615

Treasury shares, at cost, 12,938,051 and 12,543,895 shares, respectively
(597,000
)

(548,549
)
Additional paid-in capital
358,170


335,192

Retained earnings
449,477


486,482

Accumulated other comprehensive loss
(126,858
)

(108,015
)
Total shareholders’ equity attributable to Cimpress N.V.
84,404


165,725

Noncontrolling interests (Note 11)
321

 
351

Total shareholders' equity
84,725

 
166,076

Total liabilities, noncontrolling interests and shareholders’ equity
$
1,637,907


$
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 March 31,
 
Nine Months Ended March 31,
 
2017
 
2016
 
2017
 
2016
Revenue
$
550,585

 
$
436,817

 
$
1,571,149

 
$
1,308,839

Cost of revenue (1)
268,482

 
196,911

 
757,898

 
551,543

Technology and development expense (1)
63,236

 
54,597

 
178,528

 
152,534

Marketing and selling expense (1)
167,284

 
124,655

 
451,310

 
374,795

General and administrative expense (1)
45,730

 
36,532

 
150,471

 
106,468

Amortization of acquired intangible assets
13,450

 
10,812

 
33,542

 
30,114

Restructuring expense (1)
24,790

 

 
25,890

 
381

Impairment of goodwill and acquired intangible assets
9,556

 
30,841

 
9,556

 
30,841

(Loss) income from operations
(41,943
)
 
(17,531
)
 
(36,046
)
 
62,163

Other (expense) income, net
(6,582
)
 
(9,003
)
 
21,835

 
7,929

Interest expense, net
(11,584
)
 
(10,091
)
 
(31,119
)
 
(28,377
)
(Loss) income before income taxes
(60,109
)
 
(36,625
)
 
(45,330
)
 
41,715

Income tax (benefit) provision
(17,431
)
 
(854
)
 
(7,644
)
 
8,473

Net (loss) income
(42,678
)
 
(35,771
)
 
(37,686
)
 
33,242

Add: Net loss (income) attributable to noncontrolling interest
(256
)
 
3,100

 
677

 
4,177

Net (loss) income attributable to Cimpress N.V.
$
(42,934
)
 
$
(32,671
)
 
$
(37,009
)
 
$
37,419

Basic net (loss) income per share attributable to Cimpress N.V.
$
(1.38
)
 
$
(1.04
)
 
$
(1.18
)
 
$
1.18

Diluted net (loss) income per share attributable to Cimpress N.V.
$
(1.38
)
 
$
(1.04
)
 
$
(1.18
)
 
$
1.13

Weighted average shares outstanding — basic
31,103,388

 
31,343,711

 
31,323,451

 
31,734,226

Weighted average shares outstanding — diluted
31,103,388

 
31,343,711

 
31,323,451

 
33,065,970

____________________________________________
(1) Share-based compensation is allocated as follows:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2017
 
2016
 
2017
 
2016
Cost of revenue
$
91

 
$
3

 
$
209

 
$
57

Technology and development expense
1,123

 
1,606

 
6,566

 
4,358

Marketing and selling expense
1,242

 
387

 
3,542

 
1,223

General and administrative expense
4,084

 
3,957

 
19,071

 
12,571

Restructuring expense
6,257

 

 
6,257

 


See accompanying notes.



2




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

 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2017
 
2016
 
2017
 
2016
Net (loss) income
$
(42,678
)
 
$
(35,771
)
 
$
(37,686
)
 
$
33,242

Other comprehensive (loss) income, net of tax:

 

 

 

Foreign currency translation gain (loss), net of hedges
14,884

 
27,563

 
(23,086
)
 
3,426

Net unrealized (loss) gain on derivative instruments designated and qualifying as cash flow hedges
(426
)
 
(4,820
)
 
7,049

 
(5,282
)
Amounts reclassified from accumulated other comprehensive loss to net (loss) income on derivative instruments
895

 
3,160


(4,698
)
 
3,600

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

 
27

 
(5,756
)
 
(1,063
)
Amounts reclassified from accumulated other comprehensive loss to net (loss) income for realized gains on available-for-sale securities




2,268



Gain on pension benefit obligation, net
2,185

 
811


2,221

 
900

Comprehensive (loss) income
(25,140
)
 
(9,030
)
 
(59,688
)
 
34,823

Add: Comprehensive (income) loss attributable to noncontrolling interests
(778
)
 
653

 
3,847

 
2,641

Total comprehensive (loss) income attributable to Cimpress N.V.
$
(25,918
)
 
$
(8,377
)
 
$
(55,841
)
 
$
37,464

See accompanying notes.


3




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


Nine Months Ended March 31,
 
2017

2016
Operating activities
 


 

Net (loss) income
$
(37,686
)

$
33,242

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


 

Depreciation and amortization
115,784


96,517

Impairment of goodwill and acquired intangible assets
9,556

 
30,841

Share-based compensation expense
35,645


18,153

Deferred taxes
(37,849
)

(11,181
)
Abandonment of long-lived assets
1,730

 
9,763

Change in contingent earn-out liability
27,364

 

Gain on sale of available-for-sale securities
(2,268
)


Unrealized loss on derivatives not designated as hedging instruments included in net (loss) income
839


979

Effect of exchange rate changes on monetary assets and liabilities denominated in non-functional currency
(7,215
)

(3,172
)
Other non-cash items
2,393


2,795

Gain on proceeds from insurance

 
(3,136
)
Changes in operating assets and liabilities:
 


 

Accounts receivable
3,434


2,370

Inventory
(7,136
)

(1,316
)
Prepaid expenses and other assets
2,389


(4,269
)
Accounts payable
9,908


12,496

Accrued expenses and other liabilities
6,756


11,136

Net cash provided by operating activities
123,644


195,218

Investing activities
 


 

Purchases of property, plant and equipment
(56,916
)
 
(62,641
)
Business acquisitions, net of cash acquired
(204,875
)
 
(162,440
)
Purchases of intangible assets
(110
)
 
(453
)
Capitalization of software and website development costs
(28,678
)
 
(18,184
)
Proceeds from sale of available-for-sale securities
6,346

 

Proceeds from the sale of assets
4,231



Proceeds from insurance related to investing activities


3,624

Other investing activities
2,496

 
775

Net cash used in investing activities
(277,506
)

(239,319
)
Financing activities
 
 
 
Proceeds from borrowings of debt
612,004

 
516,008

Payments of debt and debt issuance costs
(398,282
)
 
(332,191
)
Payment of purchase consideration included in acquisition-date fair value
(539
)
 
(4,350
)
Payments of withholding taxes in connection with equity awards
(10,816
)
 
(5,768
)
Payments of capital lease obligations
(12,029
)
 
(10,137
)
Purchase of ordinary shares
(50,008
)
 
(153,467
)
Purchase of noncontrolling interests
(20,230
)


Proceeds from issuance of ordinary shares
331

 
3,379

Capital contribution from noncontrolling interest
1,404

 
5,141

Other financing activities
1,281


(303
)
Net cash provided by financing activities
123,116

 
18,312

Effect of exchange rate changes on cash
(3,213
)

(1,069
)
Net decrease in cash and cash equivalents
(33,959
)

(26,858
)
Cash and cash equivalents at beginning of period
77,426


103,584

Cash and cash equivalents at end of period
$
43,467


$
76,726


See accompanying notes.
4


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


 
Nine Months Ended March 31,
 
2017
 
2016
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
27,430

 
$
22,882

Income taxes
35,967

 
11,089

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

 
$
19,264

Property and equipment acquired under capital leases
12,099

 
7,244

Amounts due for acquisitions of businesses
31,613

 
18,361

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, largely 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-sized 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.
Operating results for the three and nine months ended March 31, 2017 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”).
Changes in Presentation of Financial Statements
During the third quarter of fiscal 2017 we changed the presentation of amortization expense for acquired intangible assets. The expense was previously classified within each of the respective expense lines of our consolidated statement of operations and now is presented as a separate financial statement line item, "Amortization of acquired intangible assets". Prior period results have been recast to reflect this change.
In addition, given the significance of our current quarter restructuring charges we are presenting these expenses as a separate financial statement line item, "Restructuring expense", in our consolidated statement of operations. Restructuring expense includes costs associated with restructuring initiatives, including one-time and contractual termination benefits, share-based compensation, consulting or legal fees directly related to the restructuring initiative, costs associated with facility-related exit activities, and other related charges. Prior period results have been recast to reflect this change.    
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

6




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.

Abandonment of Long-Lived Assets

Long-lived assets with a finite life are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. During the three and nine months ended March 31, 2017, we ceased use of certain manufacturing equipment and recognized an abandonment loss of $1,730, of which $1,119 was recognized as part of cost of revenue and $611 as part of restructuring expense. For the comparative three and nine months ended March 31, 2016, we recognized a loss of $6,741 and $9,763, respectively, as part of cost of revenue.
Share-Based Compensation
During the three and nine months ended March 31, 2017, we recorded share-based compensation expense of $12,797 and $35,645, respectively, and $5,953 and $18,209 during the three and nine months ended March 31, 2016, respectively. Our share-based compensation increased primarily as a result of the current quarter restructuring activity. As of March 31, 2017, there was $87,387 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 1.8 years.
During the first quarter of fiscal 2017, we began granting performance share units, or PSUs, associated with our new long-term incentive program. Compensation expense for our 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.

7




Other (expense) Income, net
The following table summarizes the components of other (expense) income, net:
 
Three Months Ended March 31,

Nine Months Ended March 31,
 
2017

2016

2017

2016
(Losses) gains on derivatives not designated as hedging instruments (1)
$
(817
)

$
(1,505
)

$
12,737


$
4,048

Currency-related (losses) gains, net (2)
(6,304
)

(7,656
)

5,719


(149
)
Other gains (3)
539


158


3,379


4,030

Total other (expense) income, net
$
(6,582
)

$
(9,003
)

$
21,835


$
7,929

_____________________
(1) Primarily relates to both realized and unrealized gains on derivative forward currency contracts not designated as hedging instruments.
(2) We have significant non-functional currency intercompany financing relationships subject to currency exchange rate volatility and the net currency related (losses) gains for the three and nine months ended March 31, 2017 and 2016 are primarily driven by this intercompany activity. In addition, we have certain cross-currency swaps designated as cash flow hedges, which hedge against the remeasurement of certain intercompany loans, both presented in the same component above. For the three and nine months ended March 31, 2017, we recognized unrealized losses of $1,709 and gains of $4,684, respectively.
(3) The gain recognized during the nine months ended March 31, 2017, primarily relates to the gain on the sale of Plaza Create Co. Ltd. available-for-sale securities of $2,268. During the prior comparable period, we recognized gains related to insurance recoveries of $3,136.
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 March 31,
 
Nine Months Ended March 31,
 
2017
 
2016
 
2017
 
2016
Weighted average shares outstanding, basic
31,103,388

 
31,343,711

 
31,323,451

 
31,734,226

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

 

 

 
1,331,744

Shares used in computing diluted net (loss) income per share attributable to Cimpress N.V.
31,103,388

 
31,343,711

 
31,323,451

 
33,065,970

Weighted average anti-dilutive shares excluded from diluted net (loss) income per share attributable to Cimpress N.V.
1,262,902

 
1,382,013

 
1,379,481

 
41,919

_____________________
(1) In the periods in which a net loss is recognized, the impact of share options, RSUs, and RSAs is not included as they are anti-dilutive.

Treasury Shares

Treasury shares are accounted for using the cost method and are included as a component of shareholders' equity. During the nine months ended March 31, 2017, we repurchased 593,763 shares for a total cost of $50,008, inclusive of transaction costs. We did not repurchase any of our shares during the three months ended March 31, 2017.

We repurchased 156,778 and 2,159,613 of our ordinary shares, for a total cost of $11,263 and $153,467, respectively, during the three and nine months ended March 31, 2016, in connection with our publicly announced share repurchase authorizations.

8




Waltham Lease Arrangement
In July 2013, we executed a lease agreement to move our Lexington, Massachusetts, USA operations to a then yet to be constructed facility in Waltham, Massachusetts, USA. During the first quarter of fiscal 2016, the building was completed and we commenced lease payments in September 2015 and will make lease payments through September 2026.
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 $117,075 and $120,168 as of March 31, 2017 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 $120,110 and $122,801 as of March 31, 2017 and June 30, 2016, respectively.
Recently Issued or Adopted Accounting Pronouncements
New Accounting Standards Adopted
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," (ASU 2017-04), which changes how an entity is required to test for goodwill impairment by eliminating Step 2 from the goodwill impairment test. We are now required to compare the fair value of the reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The new standard is effective for us on July 1, 2020. We elected to early adopt this standard effective for the third quarter of fiscal 2017. We applied the new standard when performing the goodwill impairment test discussed in Note 7.
Issued Accounting Standards to be Adopted
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, "Statement of Cash Flows (Topic 230) Restricted Cash," (ASU 2016-18), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendment is effective for us on July 1, 2018 and permits early adoption. This amendment will affect the presentation of our statement of cash flows once adopted and we do not expect it to have material impact on our consolidated financial statements.
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

9




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. 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:
 
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 December 22, 2016, we sold all available-for-sale securities held in Plaza Create Co. Ltd recognizing a gain of $2,268 as a part of other (expense) income, net, for the nine months ended March 31, 2017.
(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

10




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.    The following tables summarize our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy:
 
March 31, 2017
 
Total
 
Quoted Prices in
Active
Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets
 
 
 
 
 
 
 
Interest rate swap contracts
$
2,394

 
$

 
$
2,394

 
$

Cross-currency swap contracts
1,661

 

 
1,661

 

Currency forward contracts
10,559

 

 
10,559

 

Total assets recorded at fair value
$
14,614

 
$

 
$
14,614

 
$

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Interest rate swap contracts
$
(355
)
 
$

 
$
(355
)
 
$

Cross-currency swap contracts
(2,706
)
 

 
(2,706
)
 

Currency forward contracts
(622
)
 

 
(622
)
 

Currency option contracts
(341
)
 

 
(341
)
 

Contingent consideration
(3,637
)
 

 

 
(3,637
)
Total liabilities recorded at fair value
$
(7,661
)
 
$

 
$
(4,024
)
 
$
(3,637
)

 
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 March 31, 2017 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

11




adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to appropriately reflect both our own nonperformance risk and the respective counterparties' nonperformance risk in the fair value measurement. However, as of March 31, 2017, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our 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.
As part of the acquisition of WIRmachenDRUCK on February 1, 2016, we agreed to a contingent payment payable at our option in cash or shares 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 $29,677 as of March 31, 2017, of which $3,637 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:
 
Nine Months Ended March 31,
 
2017 (1)
 
2016 (1)(2)
Balance at June 30, 2016 and 2015, respectively
$
1,212

 
$
7,833

Fair value at acquisition date

 
1,185

Fair value adjustment
2,514

 

Foreign currency impact
(89
)
 
139

Balance at March 31
$
3,637

 
$
9,157

_____________________
(1) Classified as long-term liability as of June 30, 2016 and current liability as of March 31, 2017 on the consolidated balance sheet. As of June 30, 2015 and March 31, 2016, contingent considerations were classified as current liabilities on the consolidated balance sheet.
(2) Contingent consideration balance as of March 31, 2016, which related to our Printdeal acquisition, was paid during the fourth quarter of fiscal 2016.

As of March 31, 2017 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 March 31, 2017 and June 30, 2016 the carrying value of our debt, excluding debt issuance costs and debt discounts was $897,570 and $685,897, respectively, and the fair value was $919,973 and $686,409, respectively. Our debt at March 31, 2017 includes variable rate debt instruments 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 and option 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

12




other comprehensive loss 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 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. A portion of two of our interest rate swap contracts was deemed to be ineffective during the three and nine months ended March 31, 2017 and one of our contracts was deemed to be ineffective during the prior comparative periods.
Amounts reported in accumulated other comprehensive loss related to interest rate swap contracts will be reclassified to interest expense as interest payments are accrued or made on our variable-rate debt. As of March 31, 2017, we estimate that $422 will be reclassified from accumulated other comprehensive loss to interest expense during the twelve months ending March 31, 2018. As of March 31, 2017, 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 2024.
Interest rate swap contracts outstanding:
 
Notional Amounts
Contracts accruing interest as of March 31, 2017
 
$
60,000

Contracts with a future start date
 
140,000

Total
 
$
200,000

Hedges of Currency Risk
Cross-Currency Swap Contracts
From time to time, we execute cross-currency swap contracts designated as cash flow hedges or net investment hedges. Cross-currency swaps involve an initial receipt of the notional amount in the hedge currency in exchange for our reporting currency based on a contracted exchange rate. Subsequently, we receive fixed rate payments in our reporting currency in exchange for fixed rate payments in the hedged currency over the life of the contract. At maturity, the final exchange involves the receipt of our reporting currency in exchange for the notional amount in the hedged currency.
Cross-currency swap contracts designated as cash flow hedges are executed to mitigate our currency exposure to the interest receipts as well as the principal remeasurement and repayment associated with certain intercompany loans denominated in a currency other than our reporting currency, the U.S. Dollar. As of March 31, 2017, we had two outstanding cross-currency swap contracts designated as cash flow hedges with a total notional amount of $120,011, both maturing during June 2019. We entered into the two cross-currency swap contracts to hedge the risk of changes in one Euro denominated intercompany loan entered into with one of our consolidated subsidiaries that has the Euro as its functional currency.
During the three and nine months ended March 31, 2017, we recorded unrealized losses of $740 and unrealized gains of $3,971, respectively, net of tax, in accumulated other comprehensive loss. Amounts reported in accumulated other comprehensive loss will be reclassified to other (expense) income, net as interest payments are accrued or paid and upon remeasuring the intercompany loan. As of March 31, 2017, we estimate that $2,224 will be reclassified from accumulated other comprehensive loss to other (expense) income, net during the twelve months ending March 31, 2018.
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 the U.S. Dollar. As of

13




March 31, 2017, 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 three and nine months ended March 31, 2017, we recorded unrealized losses of $841 and unrealized gains of $3,983, respectively, net of tax, in accumulated other comprehensive loss as a component of our cumulative translation adjustment, and unrealized losses of $2,999 and $70, for the three and nine months ended March 31, 2016, respectively.
We did not hold any ineffective cross-currency swaps during the three and nine months ended March 31, 2017 and 2016.
Other Currency Contracts
We execute currency forward and option contracts in order to mitigate our exposure to fluctuations in various currencies against our reporting currency, the U.S. Dollar.
As of March 31, 2017, we had six currency forward contracts designated as net investment hedges with a total notional amount of $175,262, maturing during various dates through October 2022. We entered into these 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.
We have elected not to apply hedge accounting for all other currency forward and option contracts. During the three and nine months ended March 31, 2017 and 2016, 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 and option contracts. We expect this volatility to continue in future periods for contracts for which we do not apply hedge accounting. Additionally, since our hedging objectives may be targeted at non-GAAP financial metrics that exclude non-cash items such as depreciation and amortization, we may experience increased, not decreased, volatility in our GAAP results as a result of our currency hedging program.
As of March 31, 2017, we had the following outstanding currency derivative 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, Japanese Yen, New Zealand Dollar, Norwegian Krone, Swedish Krona, Mexican Peso, and Swiss Franc:
Notional Amount
 
Effective Date
 
Maturity Date
 
Number of Instruments
 
Index
$308,301
 
December 2015 through September 2016
 
Various dates through September 2018
 
449
 
Various

14




Financial Instrument Presentation    
The table below presents the fair value of our derivative financial instruments as well as their classification on the balance sheet as of March 31, 2017 and June 30, 2016:
 
March 31, 2017

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

$
2,705


$
(311
)

$
2,394


Other current liabilities / other liabilities

$
(468
)

$
113


$
(355
)
Cross-currency swaps
Other non-current assets
 
1,661

 

 
1,661

 
Other liabilities
 

 

 

Derivatives in Net Investment Hedging Relationships
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cross-currency swaps
Other non-current assets
 

 

 

 
Other liabilities
 
(2,706
)
 

 
(2,706
)
Currency forward contracts
Other non-current assets
 
895

 
(195
)
 
700

 
Other liabilities
 
(622
)
 

 
(622
)
Total derivatives designated as hedging instruments


$
5,261


$
(506
)

$
4,755




$
(3,796
)

$
113


$
(3,683
)
















Derivatives not designated as hedging instruments















Currency forward contracts
Other current assets / other assets

$
10,846


$
(987
)

$
9,859


Other current liabilities / other liabilities

$


$


$

Currency option contracts
Other current assets / other assets







Other current liabilities / other liabilities

(341
)



(341
)
Total derivatives not designated as hedging instruments


$
10,846


$
(987
)

$
9,859




$
(341
)

$


$
(341
)

15





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 three and nine months ended March 31, 2017 and 2016:
Derivatives in Hedging Relationships
Amount of Gain (Loss) Recognized in Comprehensive (Loss) Income on Derivatives (Effective Portion)
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
In thousands
2017
 
2016
 
2017
 
2016
Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
 
 
Interest rate swaps
$
314

 
$
(905
)
 
$
3,078

 
$
(1,367
)
Cross-currency swaps
(740
)
 
(3,915
)
 
3,971

 
(3,915
)
Derivatives in Net Investment Hedging Relationships
 
 
 
 
 
 
 
Cross-currency swaps
(841
)
 
(2,999
)
 
3,983

 
(70
)
Currency forward contracts
(802
)
 
(730
)
 
137

 
(730
)
 
$
(2,069
)
 
$
(8,549
)
 
$
11,169

 
$
(6,082
)
    

16




The following table presents reclassifications out of accumulated other comprehensive loss for the three and nine months ended March 31, 2017 and 2016:
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 March 31,
 
Nine Months Ended March 31,
 
In thousands
2017
 
2016
 
2017
 
2016
 
Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
 
 
 
Interest rate swaps
$
(61
)
 
$
(180
)
 
$
(100
)
 
$
(768
)
Interest expense, net
Cross-currency swaps
(1,131
)
 
(4,034
)
 
6,366

 
(4,034
)
Other (expense) income, net
Total before income tax
(1,192
)
 
(4,214
)
 
6,266

 
(4,802
)
(Loss) income before income taxes
Income tax
297

 
1,054

 
(1,568
)
 
1,202

Income tax (benefit) provision
Total
$
(895
)
 
$
(3,160
)
 
$
4,698

 
$
(3,600
)
 
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 the ineffective portion and 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 March 31,
 
Nine Months Ended March 31,
 
 
In thousands
2017
 
2016
 
2017
 
2016
 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
Currency contracts
$
(820
)
 
$
(1,505
)
 
$
12,481

 
$
4,058

 
Other (expense) income, net
Interest rate swaps
3

 

 
256

 
(10
)
 
Other (expense) income, net
 
$
(817
)
 
$
(1,505
)
 
$
12,737

 
$
4,048

 
 
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 $3,798, for the nine months ended March 31, 2017:

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 income (loss) before reclassifications
7,049

 
(5,756
)
 
2,221

 
(19,927
)
 
(16,413
)
Amounts reclassified from accumulated other comprehensive loss to net (loss) income
(4,698
)
 
2,268

 

 

 
(2,430
)
Net current period other comprehensive income (loss)
2,351

 
(3,488
)
 
2,221

 
(19,927
)
 
(18,843
)
Balance as of March 31, 2017
$
29

 
$

 
$
(330
)
 
$
(126,557
)
 
$
(126,858
)
________________________
(1) Gains (losses) on cash flow hedges include our interest rates swap and cross-currency swap contracts designated in cash flow hedging relationships.
(2) As of March 31, 2017 and June 30, 2016, the translation adjustment is inclusive of the effects of our net investment hedges, of which, unrealized losses of $845 and $4,965, respectively, net of tax, have been included in accumulated other comprehensive loss.

17




6. Business Combinations
Acquisition of National Pen Co. LLC
On December 30, 2016, we acquired 100% of the equity interests of National Pen Co. LLC, a manufacturer and marketer of custom writing instruments for small- and medium-sized businesses. At closing, we paid $214,573 in cash, subject to post closing adjustments based on acquired cash, debt and working capital balances. During the third quarter of fiscal 2017, we finalized and received payment for the post closing adjustment, which reduced the purchase price by $1,941. The acquisition supports our strategy to build competitively differentiated supply chain capabilities that we can make available via our mass customization platform, which we bring to market through a portfolio of focused brands. We expect National Pen will also complement our organic investments in technology and supply chain capabilities for promotional products, apparel and gift offerings.
The table below details the consideration transferred to acquire National Pen:
Cash consideration
$
214,573

Final post closing adjustment
(1,941
)
Total purchase price
$
212,632

The excess purchase price over the fair value of National Pen's net assets was recorded as goodwill, which is primarily attributable to the value of its workforce, its manufacturing and marketing process and know-how, as well as synergies which include leveraging National Pen's scale-based sourcing channels, integrating into our mass customization platform, and supporting the development of its e-commerce platform. Goodwill has been attributed to the National Pen business unit reportable segment, and we allocated $30,038 of goodwill to the Vistaprint business unit for certain synergies that are expected to be realized by the Vistaprint business unit as a result of the acquisition. This allocation may change upon finalizing goodwill during the fourth quarter of fiscal 2017.
Our preliminary estimate of the fair value of specifically identifiable assets acquired and liabilities assumed as of the date of acquisition is subject to change upon finalizing our valuation analysis, including certain valuation assumptions and tax matters. The final determination may result in changes in the fair value of certain assets and liabilities as compared to our preliminary estimates, which are expected to be finalized prior to the end of fiscal 2017.
 
Amount
 
Weighted Average
Useful Life in Years
Tangible assets acquired and liabilities assumed (1):
 
 
 
      Cash and cash equivalents
$
8,337

 
n/a
      Accounts receivable, net
20,921

 
n/a
      Inventory
19,854

 
n/a
      Other current assets
12,454

 
n/a
      Property, plant and equipment, net
29,472

 
n/a
      Other non-current assets
993

 
n/a
      Accounts payable
(12,590
)
 
n/a
      Accrued expenses
(17,802
)
 
n/a
      Other current liabilities
(1,016
)
 
 
      Deferred tax liabilities (2)
(17,735
)
 
n/a
      Long-term liabilities
(9,746
)
 
n/a
Identifiable intangible assets:
 
 
 
Developed Technology
19,000

 
6
Trade Name
33,000

 
11
Customer Relationships
56,000

 
7
Goodwill (2)
71,490

 
n/a
Total purchase price
$
212,632

 
 

        

18




(1) National Pen will materially impact our working capital balances post-acquisition, resulting in increased accounts receivable, inventory, accounts payable and accrued expenses balances in our consolidated balance sheet.
(2) Calculated based on our preliminary estimates of fair value and subject to change.

National Pen Pro Forma Financial Information

National Pen has been included in our consolidated financial statements starting on its acquisition date. The following unaudited pro forma financial information presents our results as if the National Pen acquisition had occurred on July 1, 2015. The pro forma financial information for all periods presented adjusts for the effects of material business combination items, including estimated amortization of acquired intangible assets and transaction related costs. The unaudited pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented as the pre-acquisition results include revenue and profit related to certain operations that are no longer active:
 
Nine Months Ended March 31,
2017
 
2016
Pro forma revenue
$
1,730,091

 
$
1,525,536

Pro forma net (loss) income attributable to Cimpress N.V.
(42,663
)
 
32,505

We utilized proceeds from our credit facility in order to finance the acquisition. In connection with the acquisition, we incurred $500 and $2,005 in general and administrative expenses during the three and nine months ended March 31, 2017, respectively, primarily related to legal, financial, and other professional services.
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

National Pen business unit
 
All Other
business units

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


$
319,373


$

 
$
24,880


$
466,005

Acquisitions (1)




71,490

 


71,490

Impairments (2)

 
(6,345
)
 

 

 
(6,345
)
Adjustments (3)
30,038




(30,038
)
 



Effect of currency translation adjustments (4)
(2,307
)
 
(12,545
)


 
(285
)

(15,137
)
Balance as of March 31, 2017
$
149,483


$
300,483


$
41,452

 
$
24,595


$
516,013

_________________

(1) See Note 6 for additional details related to our acquisition of National Pen.
(2) During the third quarter of fiscal 2017 we recorded an impairment of $6,345 related to our Tradeprint reporting unit. See below for additional details.
(3) We allocated $30,038 of goodwill to the Vistaprint business unit for certain synergies that are expected to be realized by the Vistaprint business unit as a result of the National Pen acquisition. Refer to Note 6 for additional details.
(4) Relates to goodwill held by subsidiaries whose functional currency is not the U.S. Dollar.
Acquired Intangible Assets
Acquired intangible assets amortization expense for the three and nine months ended March 31, 2017 was $13,450 and $33,542, respectively, compared to $10,812 and $30,114 for the prior comparative periods, respectively. In addition, during the three months ended March 31, 2017, we recognized an impairment of $3,211, related to the acquired intangible assets within the Tradeprint asset group. Refer below for additional discussion of the impairment.





19




Impairment Review
Fiscal 2017
Our annual goodwill impairment test is performed as of May 31; however, during the three months ended March 31, 2017, we had a change in the composition of our Tradeprint reporting unit (a part of our Upload and Print business units reportable segment). This change, when combined with an updated profit outlook that is lower than originally forecasted as of the acquisition date, indicated that it is more likely than not that the fair value of the reporting unit is below the carrying amount.
    As required, prior to performing the quantitative goodwill impairment test, we first evaluated the recoverability of the Tradeprint long-lived assets as the change in expected long-term cash flows is indicative of a potential impairment. We performed the recoverability test using undiscounted cash flows for our Tradeprint asset group and concluded that an impairment of long-lived assets existed. We proceeded to estimate the fair value the assets, using an income and cost approach based on market participant assumptions and recognized a partial impairment charge for our acquired intangible assets of $3,211.
Subsequent to performing the long-lived asset impairment test, we performed our goodwill impairment test which resulted in an additional impairment charge of the total goodwill of the Tradeprint reporting unit of $6,345. In order to execute the quantitative goodwill impairment test, we compared the fair value of the Tradeprint reporting unit to its carrying value. We used the income approach, specifically the discounted cash flow method, to derive the fair value. This approach calculates fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate. We selected this method as being the most meaningful in preparing our goodwill assessment as we believe the income approach most appropriately measures our income producing assets. We considered using the market approach but concluded it was not appropriate in valuing this particular reporting unit given the lack of relevant market comparisons available for application of the market approach. The cash flow projections in the Tradeprint fair value analysis are based on management's estimates of revenue growth rates and operating margins, taking into consideration historical results, as well as industry and market conditions. The discount rate is based on a weighted average cost of capital (“WACC”), which represents the average rate a business must pay its providers of debt and equity, plus a risk premium. The WACC of 11.5% used to test the Tradeprint goodwill was derived from a group of comparable companies.
Fiscal 2016
During the third quarter of fiscal 2016, we concluded that the goodwill of our Exagroup reporting unit, part of our Upload and Print business units reportable segment, was not fully recoverable as the reporting unit was forecasting lower projected revenue and profitability levels than originally estimated as of the acquisition date. The carrying amount of the goodwill as of January 1, 2016 was compared to the implied fair value of the goodwill, resulting in a partial impairment loss of $30,841 during the quarter ended March 31, 2016. A portion of the impairment loss was attributed to the noncontrolling interest based on its third-party shareholders' 30% ownership interest.
Our goodwill analysis requires significant judgment, including the identification of reporting units and the amount and timing of expected future cash flows. While we believe our assumptions are reasonable, actual results could differ from our projections. There have been no indications of impairment that would require analysis for any of our other reporting units as of March 31, 2017.

20




8. Other Balance Sheet Components
Accrued expenses included the following:
 
March 31, 2017
 
June 30, 2016
Compensation costs (1)
$
53,163

 
$
56,965

Income and indirect taxes
43,914

 
39,802

Advertising costs
26,440

 
26,372

Interest payable
9,920

 
5,172

Severance costs (2)
6,402

 
2,242

Shipping costs
8,989

 
6,843

Production costs
7,722

 
3,251

Sales returns
4,581

 
2,882

Purchases of property, plant and equipment
3,077

 
4,614

Professional costs
2,489

 
1,543

Other
34,516

 
29,301

Total accrued expenses (3)
$
201,213

 
$
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.
(2) The increase in accrued severance is due to the restructuring initiatives executed during the three months ended March 31, 2017. Refer to Note 15 for additional details.
(3) The increase in accrued expenses was also impacted by our acquisition of National Pen, resulting in an additional $16,617 of accruals as of March 31, 2017, which are included in each of the respective categories within the table.

Other current liabilities included the following:
 
March 31, 2017
 
June 30, 2016
Contingent earn-out liability (4)
$
29,677

 
$

Current portion of lease financing obligation
12,569

 
12,569

Current portion of capital lease obligations
10,491

 
8,011

Other
1,163

 
2,055

Total other current liabilities
$
53,900

 
$
22,635

Other liabilities included the following:
 
March 31, 2017
 
June 30, 2016
Contingent earn-out liability (4)
$

 
$
3,146

Long-term capital lease obligations
29,962

 
21,318

Long-term derivative liabilities
4,706

 
10,949

Other
22,616

 
24,760

Total other liabilities (5)
$
57,284

 
$
60,173

_____________________
(4) During the third quarter of fiscal 2017, the contingent earn-out liability related to our WIRmachenDRUCk acquisition was re-classed to current liabilities as payment is due in the third quarter of fiscal 2018.
(5) Total other liabilities was impacted by our acquisition of National Pen, resulting in an additional $9,715 of other liabilities as of March 31, 2017, primarily relating to capital lease obligations, which are included in each of the respective categories within the table.
Contingent earn-out liability    
Under the original terms of the WIRmachenDRUCK earn-out arrangement, a portion of the earn-out attributed to the minority selling shareholders was included as a component of purchase consideration as of the

21




acquisition date, with any subsequent changes to fair value recognized within general and administrative expense. This earn-out is calculated on a sliding scale, based on the achievement of cumulative gross profit against a predetermined target. The maximum payout is €40,000 and can be paid at our option in cash or ordinary shares.
The remaining portion of the amount payable to the two majority selling shareholders in the WIRmachenDRUCK acquisition was not included as part of the purchase consideration as of the acquisition date as it was contingent upon their post-acquisition employment and planned to be recognized as expense through the required employment period. During the first quarter of fiscal 2017, 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 was no longer contingent upon continued employment, we accelerated the recognition of the remaining unrecognized compensation expense, $7,034 of additional expense as of the amendment date, as part of 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 in the WIRmachenDRUCK acquisition increased, due to the recent business performance relative to performance targets and the time value impact within the Monte Carlo simulation model. We recognized $4,598 and $20,330 of additional expense for the fair value change during the three and nine months ended March 31, 2017, respectively, as part of general and administrative expense. As of March 31, 2017, the total liability is $29,677, of which $26,040 relates to the majority shareholders and $3,637 relates to the minority shareholders, which is further discussed in Note 3.
9. Debt

March 31, 2017
 
June 30, 2016
Senior secured credit facility
$
614,970

 
$
400,809

7.0% Senior unsecured notes due 2022
275,000

 
275,000

Other
7,600

 
10,088

Debt issuance costs and debt discounts
(6,117
)
 
(7,386
)
Total debt outstanding, net
891,453

 
678,511

Less short-term debt (1)
31,216

 
21,717

Long-term debt
$
860,237

 
$
656,794

_____________________
(1) Balances as of March 31, 2017 and June 30, 2016 are both inclusive of short-term debt issuance costs and debt discounts of $1,693 in both periods.
Our Debt
Our various debt arrangements described below contain customary representations, warranties and events of default. As of March 31, 2017, 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

22




assets securing such debt. Subject to certain exceptions, each of our existing and future subsidiaries that is a borrower under or guarantees our senior secured credit facilities will guarantee the Notes.
The Indenture contains various covenants, including covenants that, subject to certain exceptions, limit our and our restricted subsidiaries’ ability to incur and/or guarantee additional debt; pay dividends, repurchase shares or make certain other restricted payments; enter into agreements limiting dividends and certain other restricted payments; prepay, redeem or repurchase subordinated debt; grant liens on assets; enter into sale and leaseback transactions; merge, consolidate or transfer or dispose of substantially all of our consolidated assets; sell, transfer or otherwise dispose of property and assets; and engage in transactions with affiliates.
At any time prior to April 1, 2018, we may redeem some or all of the Notes at a redemption price equal to 100% of the principal amount redeemed, plus a make-whole amount as set forth in the Indenture, plus, in each case, accrued and unpaid interest to, but not including, the redemption date. In addition, at any time prior to April 1, 2018, we may redeem up to 35% of the aggregate outstanding principal amount of the Notes at a redemption price equal to 107.0% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date, with the net proceeds of certain equity offerings by Cimpress. At any time on or after April 1, 2018, we may redeem some or all of the Notes at the redemption prices specified in the Indenture, plus accrued and unpaid interest to, but not including, the redemption date.
Senior Secured Credit Facility
As of March 31, 2017, we have a senior secured credit facility of $818,000 as follows:
Revolving loans of $690,000 with a maturity date of September 23, 2019
Term loan of $128,000 amortizing over the loan period, with a final maturity date of September 23, 2019
Under the terms of our credit agreement, borrowings bear interest at a variable rate of interest based on LIBOR plus 1.50% to 2.25% depending on our leverage ratio, which is the ratio of our consolidated total indebtedness to our consolidated EBITDA, as defined by the credit agreement. As of March 31, 2017, the weighted-average interest rate on outstanding borrowings was 3.36%, inclusive of interest rate swap rates. We must also pay a commitment fee on unused balances of 0.225% to 0.400% depending on our leverage ratio. We have pledged the assets and/or share capital of several of our subsidiaries as collateral for our outstanding debt as of March 31, 2017.    
Other debt
Other debt consists of term loans acquired primarily as part of our fiscal 2015 acquisition of Exagroup SAS. As of March 31, 2017 we had $7,600 outstanding for those obligations that are payable through September 2024.
10. Income Taxes

Income tax benefit was $17,431 and $7,644 for the three and nine months ended March 31, 2017, respectively, as compared to benefit of $854 and expense of $8,473 for the same prior year periods. The increase in income tax benefit is primarily attributable to greater pre-tax losses for the three and nine months ended March 31, 2017 as compared to a smaller pre-tax loss for the three months ended March 31, 2016 and pre-tax earnings for the nine months ended March 31, 2016. During the three and nine months ended March 31, 2017, we recognized tax benefits of $45 and $4,659, respectively, due to share based compensation as compared to $698 and $2,390 for the comparable prior periods. Income tax benefit for the three and nine months ended March 31, 2017 was increased by $2,583 related to fiscal 2016 US R&D credits and decreased by $1,110 related to a reduction in US state deferred tax assets (largely attributable to the National Pen acquisition). Additionally, income tax expense for the nine months ended March 31, 2016 was reduced by $893 related to the extension of the fiscal 2015 US R&D credit.
Excluding the effect of net discrete tax benefits, we are forecasting a higher annual effective tax rate in fiscal 2017 as compared to fiscal 2016 due to changes in our geographical mix of consolidated pre-tax earnings, including continued losses in certain jurisdictions where we are unable to recognize a full tax benefit in the current period. We also have losses in certain jurisdictions where we are able to recognize a tax benefit in the current period, but for which the cash benefit is expected to be realized in a future period. We expect the acquisition of

23




National Pen will have a favorable impact to income tax benefit for fiscal 2017. Additionally, for the nine months ended March 31, 2017, we excluded certain entities from our estimated annual effective tax rate calculation that is used for purposes of determining our interim tax provision. A separate interim tax provision was recorded for these entities due to an inability to accurately estimate and forecast the impact of these entities on our estimated annual effective tax rate.    
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 March 31, 2017, we had a net liability for unrecognized tax benefits included in the balance sheet of $5,612, including accrued interest and penalties of $350. 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 $2,940 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 in the range of $1,000 to $1,200 related to the lapse of applicable statutes of limitations. We believe we have appropriately provided for all tax uncertainties.
We conduct business in a number of tax jurisdictions and, as such, are required to file income tax returns in multiple jurisdictions globally. The years 2013 through 2016 remain open for examination by the United States Internal Revenue Service 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 (loss) 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 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 March 31, 2017, 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% was considered a redeemable noncontrolling equity interest, as it was redeemable for cash based on financial results and was not solely within our control. During the second quarter of fiscal 2017, we purchased the remaining equity interest for €10,406 ($10,947 based on the exchange rate as of the redemption date).

    We previously owned a 51% controlling interest in a joint business arrangement with Plaza Create Co. Ltd., a leading Japanese retailer of photo products, to expand our market presence in Japan. During the second quarter

24




of fiscal 2017, we purchased the remaining 49% noncontrolling interest for $9,352. The purchase was recognized as an equity transaction, which resulted in the difference between the carrying value of the noncontrolling interest and purchase price, adjusted within additional paid-in capital.
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

Capital contribution from noncontrolling interest
 
1,404

 

Accretion to redemption value recognized in net loss attributable to noncontrolling interest (1)
 
372

 

Net loss attributable to noncontrolling interest
 
(1,054
)
 
2

Purchase of noncontrolling interests
 
(20,299
)
 

Foreign currency translation
 
(3,120
)
 
(32
)
Balance as of March 31, 2017
 
$
42,604

 
$
321

__________________
(1) During the second quarter of fiscal 2017, the Pixartprinting noncontrolling interest was purchased and the adjustment was recognized to adjust the carrying value to the redemption amount.

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 March 31, 2017, 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, share-based compensation will be recognized over the four-year vesting period. The awards are considered liability awards and will be marked to fair value each reporting period. In order to estimate the fair value of the award as of March 31, 2017, we utilized a lattice model with a Monte Carlo simulation. The current fair value of the award is $5,991 and we have recognized $374 and $1,158 in general and administrative expense for the three and nine months ended March 31, 2017, respectively, compared to $372 and $1,153 in the prior periods, respectively.

25




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 March 31, 2017 we have numerous operating segments under our management reporting structure which are reported in the following four 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 - Includes the results of our druck.at, Easyflyer, Exagroup, Pixartprinting, Printdeal, Tradeprint, and WIRmachenDRUCK branded businesses.
National Pen business unit - Includes the global operations of our National Pen branded businesses, which manufacture and market custom writing instruments and promotional products, apparel and gifts.
All Other business units - Includes the operations of our Albumprinter, Most of World, and Corporate Solutions business units. Our Most of World business unit is focused on our emerging market portfolio, including operations in Brazil, China, India and Japan. These business units have been combined into one reportable segment based on materiality.
As part of the reorganization announced in January 2017, several groups that previously were part of our corporate and global functions, including significant portions of our technology, manufacturing and supply chain, finance, legal and other related groups, have been decentralized into our operating segments. This change is intended to improve accountability for customer satisfaction and capital returns, simplify decision-making, improve the speed of execution, further develop our cadre of general managers, and release entrepreneurial energy. The majority of the groups transferred into our operating segments joined our Vistaprint business unit and to a smaller extent our Upload and Print business units. We have revised our presentation of all prior periods presented to reflect our revised segment reporting.
Corporate and global functions now consist primarily of global procurement and supplier research, a central technology team whose primary focus is building the mass customization platform, and essential corporate services, such as the corporate finance, communications, strategy and legal 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 began granting 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 (loss) is the primary metric by which our CODM measures segment financial performance. Certain items are excluded from segment adjusted net operating profit (loss), 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 (loss) 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.

26




Our All Other business units reporting segment includes our Most of World and Corporate Solutions business units, which have operating losses as they're in the early stage of investment relative to the scale of the underlying businesses, which may limit its comparability to other segments regarding adjusted net operating profit (loss).
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 (loss) by reportable segment, total (loss) income from operations and total (loss) income before taxes.
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2017
 
2016
 
2017
 
2016
Revenue:
 
 
 
 
 
 
 
Vistaprint business unit
$
321,254

 
$
289,901

 
$
986,090

 
$
912,153

Upload and Print business units
142,476

 
116,356

 
426,821

 
286,171

National Pen business unit
58,828




58,828



All Other business units
28,027

 
30,560

 
99,410

 
110,515

Total revenue
$
550,585

 
$
436,817

 
$
1,571,149

 
$
1,308,839


 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2017
 
2016
 
2017
 
2016
Adjusted net operating profit (loss) by segment:
 
 
 
 


 


Vistaprint business unit
$
37,003

 
$
42,424

 
$
122,454

 
$
157,352

Upload and Print business units
13,144

 
15,557

 
43,715

 
41,195

National Pen business unit
(3,226
)
 

 
(3,226
)
 

All Other business units
(9,945
)
 
(3,895
)
 
(21,525
)
 
1,844

Total adjusted net operating profit (loss) by segment
36,976

 
54,086

 
141,418

 
200,391

Corporate and global functions
(27,705
)

(23,080
)
 
(80,883
)
 
(62,963
)
Acquisition-related amortization and depreciation
(13,508
)
 
(10,879
)
 
(33,740
)
 
(30,316
)
Earn-out related charges (1)
(4,882
)
 
(883
)
 
(28,139
)
 
(4,585
)
Share-based compensation related to investment consideration
(375
)
 
(1,168
)
 
(5,079
)
 
(3,705
)
Certain impairments (2)
(9,556
)
 
(37,582
)
 
(9,556
)
 
(40,604
)
Restructuring related charges
(24,790
)
 

 
(25,890
)
 
(381
)
Interest expense for Waltham lease
1,897

 
1,975

 
5,823

 
4,326

Total (loss) income from operations
(41,943
)
 
(17,531
)
 
(36,046
)
 
62,163

Other (expense) income, net
(6,582
)
 
(9,003
)
 
21,835

 
7,929

Interest expense, net
(11,584
)
 
(10,091
)
 
(31,119
)
 
(28,377
)
(Loss) income before income taxes
$
(60,109
)
 
$
(36,625
)
 
$
(45,330
)
 
$
41,715

___________________
(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.

27




(2) Includes the impact for certain impairments or abandonments of goodwill and other long-lived assets as defined by ASC 350 - "Intangibles - Goodwill and Other" or ASC 360 - "Property, plant, and equipment."

 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2017
 
2016
 
2017
 
2016
Depreciation and amortization:
 
 
 
 
 
 
 
Vistaprint business unit
$
16,885

 
$
10,049

 
$
42,971

 
$
30,106

Upload and Print business units
14,150

 
12,850

 
41,658

 
33,399

National Pen business unit
5,277

 

 
5,277

 

All Other business units
3,698

 
4,667

 
10,957

 
14,637

Corporate and global functions
3,354

 
6,888

 
14,883

 
18,375

Total depreciation and amortization
$
43,364