Document



 

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 December 31, 2018
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 every Interactive Data File required to be submitted 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 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. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  þ
 
Accelerated filer  o
 
Non-accelerated filer  o
 
 
Smaller reporting company  o
 
 
 
 
Emerging growth company  o
 
 
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.  Yes o     No þ
     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 January 25, 2019, there were 30,844,541 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 Six Months Ended December 31, 2018

TABLE OF CONTENTS
 
 
Page
PART I FINANCIAL INFORMATION
 
Item 1. Financial Statements (unaudited)
     Consolidated Balance Sheets as of December 31, 2018 and June 30, 2018
     Consolidated Statements of Operations for the three and six months ended December 31, 2018 and 2017
     Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended December 31, 2018 and 2017
     Consolidated Statements of Cash Flows for the six months ended December 31, 2018 and 2017
     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)


December 31,
2018

June 30,
2018
Assets
 


 

Current assets:
 


 

Cash and cash equivalents
$
48,264


$
44,227

Accounts receivable, net of allowances of $7,307 and $6,898, respectively
68,100


55,621

Inventory
75,171


60,602

Prepaid expenses and other current assets
95,903


78,846

Total current assets
287,438


239,296

Property, plant and equipment, net
495,107


483,664

Software and website development costs, net
62,176


56,199

Deferred tax assets
59,336


67,087

Goodwill
727,577


520,843

Intangible assets, net
290,242


230,201

Other assets
50,295


54,927

Total assets
$
1,972,171


$
1,652,217

Liabilities, noncontrolling interests and shareholders’ equity
 


 

Current liabilities:
 


 

Accounts payable
$
204,429


$
152,436

Accrued expenses
237,564


186,661

Deferred revenue
32,132


27,697

Short-term debt
46,549

 
59,259

Other current liabilities
46,642

 
54,971

Total current liabilities
567,316


481,024

Deferred tax liabilities
46,979


51,243

Lease financing obligation
106,971

 
102,743

Long-term debt
1,001,900


767,585

Other liabilities
67,447


69,524

Total liabilities
1,790,613


1,472,119

Commitments and contingencies (Note 14)
 
 
 
Redeemable noncontrolling interests
53,371


86,151

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 30,843,950 and 30,876,193 shares outstanding, respectively
615


615

Treasury shares, at cost, 13,236,677 and 13,204,434 shares, respectively
(696,499
)

(685,577
)
Additional paid-in capital
396,648


395,682

Retained earnings
496,745


452,756

Accumulated other comprehensive loss
(69,322
)

(69,814
)
Total shareholders’ equity attributable to Cimpress N.V.
128,187


93,662

Noncontrolling interests

 
285

Total shareholders' equity
128,187

 
93,947

Total liabilities, noncontrolling interests and shareholders’ equity
$
1,972,171


$
1,652,217


See accompanying notes.

1


CIMPRESS N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited in thousands, except share and per share data)
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
Revenue
$
825,567

 
$
762,054

 
$
1,414,548

 
$
1,325,338

Cost of revenue (1)
411,496

 
360,285

 
713,967

 
644,040

Technology and development expense (1)
55,405

 
59,228

 
112,468

 
121,331

Marketing and selling expense (1)
211,963

 
200,785

 
394,751

 
366,878

General and administrative expense (1)
40,216

 
44,988

 
81,392

 
83,766

Amortization of acquired intangible assets
14,846

 
12,558

 
26,147

 
25,191

Restructuring expense (1)
1,026

 
11,501

 
1,196

 
12,355

(Gain) on sale of subsidiaries

 

 

 
(47,545
)
Income from operations
90,615

 
72,709

 
84,627

 
119,322

Other income (expense), net
9,629

 
(7,732
)
 
19,881

 
(24,044
)
Interest expense, net
(16,808
)
 
(12,529
)
 
(30,585
)
 
(25,611
)
Income before income taxes
83,436

 
52,448

 
73,923

 
69,667

Income tax expense
14,399

 
21,825

 
19,880

 
15,638

Net income
69,037

 
30,623

 
54,043

 
54,029

Add: Net (income) loss attributable to noncontrolling interest
(23
)
 
(688
)
 
332

 
(731
)
Net income attributable to Cimpress N.V.
$
69,014

 
$
29,935

 
$
54,375

 
$
53,298

Basic net income per share attributable to Cimpress N.V.
$
2.24

 
$
0.96

 
$
1.76

 
$
1.71

Diluted net income per share attributable to Cimpress N.V.
$
2.17

 
$
0.93

 
$
1.70

 
$
1.65

Weighted average shares outstanding — basic
30,863,339

 
31,026,043

 
30,873,478

 
31,123,177

Weighted average shares outstanding — diluted
31,820,497

 
32,319,022

 
31,913,510

 
32,325,592

____________________________________________
(1) Share-based compensation is allocated as follows:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
Cost of revenue
$
163

 
$
95

 
$
278

 
$
135

Technology and development expense
(1,528
)
 
2,818

 
680

 
4,674

Marketing and selling expense
(1,877
)
 
1,858

 
(514
)
 
2,843

General and administrative expense
522

 
8,037

 
5,752

 
11,965

Restructuring expense

 
506

 

 
609


See accompanying notes.

2


CIMPRESS N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited in thousands)
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
Net income
$
69,037

 
$
30,623

 
$
54,043

 
$
54,029

Other comprehensive income, net of tax:

 

 
 
 
 
Foreign currency translation gains (losses), net of hedges
2,463

 
11,827

 
(82
)
 
39,134

Net unrealized (losses) gains on derivative instruments designated and qualifying as cash flow hedges
(6,807
)
 
3,159

 
(6,197
)
 
6,730

Amounts reclassified from accumulated other comprehensive loss to net income on derivative instruments
2,184

 
(1,370
)

2,987

 
(4,134
)
Comprehensive income
66,877

 
44,239

 
50,751

 
95,759

Add: Comprehensive loss (income) attributable to noncontrolling interests
3,401

 
(1,650
)
 
4,116

 
(4,734
)
Total comprehensive income attributable to Cimpress N.V.
$
70,278

 
$
42,589

 
$
54,867

 
$
91,025

See accompanying notes.

3


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

Six Months Ended December 31,
 
2018

2017
Operating activities
 


 

Net income
$
54,043


$
54,029

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


 

Depreciation and amortization
85,220


83,683

Share-based compensation expense
6,196


20,226

Deferred taxes
8,244


(6,869
)
Gain on sale of subsidiaries

 
(47,545
)
Change in contingent earn-out liability

 
1,774

Unrealized (gain) loss on derivatives not designated as hedging instruments included in net income
(9,581
)

4,541

Effect of exchange rate changes on monetary assets and liabilities denominated in non-functional currency
(2,663
)

13,275

Other non-cash items
2,420


817

Changes in operating assets and liabilities:
 


 

Accounts receivable
(11,866
)

(16,456
)
Inventory
(9,454
)

(7,357
)
Prepaid expenses and other assets
(8,397
)

(4,174
)
Accounts payable
48,839


43,604

Accrued expenses and other liabilities
42,489


37,194

Net cash provided by operating activities
205,490


176,742

Investing activities
 


 

Purchases of property, plant and equipment
(38,767
)
 
(38,674
)
Proceeds from the sale of subsidiaries, net of transaction costs and cash divested


93,779

Business acquisitions, net of cash acquired
(289,269
)
 
(110
)
Purchases of intangible assets
(22
)
 
(278
)
Capitalization of software and website development costs
(21,921
)
 
(18,114
)
Proceeds from the sale of assets
523


334

Other investing activities
(52
)
 
(1,003
)
Net cash (used in) provided by investing activities
(349,508
)

35,934

Financing activities
 
 
 
Proceeds from borrowings of debt
692,938

 
311,349

Payments of debt
(474,997
)
 
(487,466
)
Payments of debt issuance costs
(1,471
)
 
(3,251
)
Payments of withholding taxes in connection with equity awards
(2,125
)
 
(2,098
)
Payments of capital lease obligations
(8,780
)
 
(9,462
)
Purchase of ordinary shares
(14,043
)
 
(55,139
)
Purchase of noncontrolling interests
(41,177
)
 

Distribution to noncontrolling interest
(3,375
)
 

Proceeds from issuance of ordinary shares
2,891

 
9,019

Issuance of loans

 
(12,000
)
Proceeds from sale of noncontrolling interest

 
35,390

Other financing activities

 
(83
)
Net cash provided by (used in) financing activities
149,861

 
(213,741
)
Effect of exchange rate changes on cash
(1,806
)
 
3,390

Change in cash held for sale

 
12,042

Net increase in cash and cash equivalents
4,037

 
14,367

Cash and cash equivalents at beginning of period
44,227

 
25,697

Cash and cash equivalents at end of period
$
48,264

 
$
40,064


See accompanying notes.

4


CIMPRESS N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(unaudited in thousands)
 
Six Months Ended December 31,
 
2018
 
2017
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
29,805

 
$
25,863

Income taxes
10,961

 
10,452

Non-cash investing and financing activities:
 
 
 
Capitalization of construction costs related to financing lease obligation
6,223

 

Property and equipment acquired under capital leases
7,225

 
112

Amounts accrued related to business acquisitions
5,729

 
52,472

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
Cimpress is a strategically focused group of more than a dozen businesses that specialize in mass customization, via which we deliver large volumes of individually small-sized customized orders for a broad spectrum of print, signage, photo merchandise, invitations and announcements, writing instruments, packaging, apparel and other categories. We invest in and build customer-focused, entrepreneurial mass customization businesses for the long term, which we manage in a decentralized, autonomous manner. Mass customization is a core element of the business model of each Cimpress business. We drive competitive advantage across Cimpress through a select few shared strategic capabilities that have the greatest potential to create Cimpress-wide value. We limit all other central activities to only those which absolutely must be performed centrally.
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 presentation of the results of operations for the interim periods reported and of our financial condition as of the date of the interim balance sheet have been included.

The consolidated financial statements include the accounts of Cimpress N.V., its wholly owned subsidiaries, entities in which we maintain a controlling financial interest, and those entities in which we have a variable interest and are the primary beneficiary. Intercompany balances and transactions have been eliminated. Investments in entities in which we cannot exercise significant influence, and the related equity securities do not have a readily determinable fair value, are accounted for using the cost method and are included in other assets on the consolidated balance sheets.

Operating results for the three and six months ended December 31, 2018 are not necessarily indicative of the results that may be expected for the year ending June 30, 2019 or for any other period. The consolidated balance sheet at June 30, 2018 has been derived from our audited consolidated financial statements at that date but does not include all of the information and notes 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, 2018 included in our Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (the “SEC”).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We believe our most significant estimates are associated with the ongoing evaluation of the recoverability of our long-lived assets and goodwill, estimated useful lives of assets, share-based compensation, accounting for business combinations, and income taxes and related valuation allowances, among others. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ from those estimates.
Revenue Recognition
Revenue Recognition - Adoption of ASC 606
On July 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers, using the modified retrospective transition approach. Under the modified retrospective approach, we applied the new standard for any contracts that were not complete as of the adoption date and recognized any cumulative impacts as of the adoption date within retained earnings on our consolidated balance sheet. We did not adjust the prior comparable period.

6


The following table summarizes the cumulative effect of adopting the new revenue standard as of the adoption date of July 1, 2018:
Consolidated Balance Sheet
As reported at
June 30, 2018
 
ASC 606 adjustments
 
Adjusted balance at
July 1, 2018
Assets


 


 


Prepaid expenses and other current assets
$
78,846

 
$
(3,738
)
 
$
75,108

Deferred tax assets
67,087

 
595

 
67,682

Liabilities and Shareholders' Equity


 


 


Deferred revenue
$
27,697

 
$
103

 
$
27,800

Retained earnings
452,756

 
(3,246
)
 
449,510

The following table summarizes the impact as of and for the three and six months ended December 31, 2018 from adopting the new revenue standard as compared to the previous revenue standard:

As reported
(current revenue standard)
 
Current period adjustments
 
As adjusted
(previous revenue standard)
Consolidated Statement of Operations for the Three Months Ended December 31, 2018


 


 


Marketing and selling expense (1)
$
211,963

 
$
12,002

 
$
223,965

Income tax expense
14,399

 
(2,623
)
 
11,776

Net income
69,037

 
(9,379
)
 
59,658

Consolidated Statement of Operations for the Six Months Ended December 31, 2018
 
 
 
 
 
Marketing and selling expense (1)
$
394,751

 
$
(1,973
)
 
$
392,778

Income tax expense
19,880

 
169

 
20,049

Net income
54,043

 
1,804

 
55,847

Consolidated Balance Sheet as of December 31, 2018
 
 
 
 
 
Assets
 
 
 
 
 
Prepaid expenses and other current assets
$
95,903

 
$
5,711

 
$
101,614

Deferred tax assets
59,336

 
107

 
59,443

Liabilities and Shareholders' Equity
 
 
 
 
 
Accrued expenses
$
237,564

 
$
(275
)
 
$
237,289

Deferred revenue
32,132

 
(103
)
 
32,029

Retained earnings
496,745

 
6,196

 
502,941

_____________________
(1) During the three and six months ended December 31, 2018, the adjustment to marketing and selling expense was the impact from National Pen's direct mail costs that resulted in lower expense of $12,002 and higher expense of $1,973, respectively. The timing of the expense recognition would have been different under the previous revenue standard since they would have been capitalized within prepaid expense and other current assets and amortized over the customer response period to marketing and selling expense. These impacts were partially offset by the cumulative effect adjustment recognized within retained earnings of $3,738.
The material impact of our adoption of ASC 606 is related to the timing for recognizing direct-response advertising costs, which were costs previously capitalized and expensed based on the guidance outlined in ASC 340 - "Other Assets and Deferred Assets". The guidance included in ASC 340 is eliminated by ASC 606, and under the new revenue standard these costs are expensed as incurred because they do not meet the requirements for capitalization since they are not direct and incremental to obtaining a contract. Historically the direct mail costs were capitalized and amortized over the customer response period (typically 3-4 months) and now costs are recognized when the direct mail is sent to the customers. This creates volatility in our quarterly profitability but should not have a significant impact on an annual basis and has no impact on cash flow. By applying the modified retrospective approach for implementing the standard, we adjusted the cumulative impact of capitalized costs of $3,738, resulting in a decrease to prepaid expenses and other current assets and a decrease to retained earnings, as well as the related tax impact of $595, resulting in an increase to deferred tax assets and an increase to retained earnings on July 1, 2018.

7


We also identified an impact related to customer loyalty programs that are offered by several of our businesses. Under the new revenue standard, the rewards associated with these programs are recognized as an additional performance obligation, resulting in an allocation of the transaction price and deferral of revenue until the subsequent reward redemption. By applying the modified retrospective approach for implementing the standard, we adjusted the cumulative impact of $103, resulting in an increase to deferred revenue and a decrease to retained earnings on July 1, 2018. All other impacts during the current periods were not considered material.
Revenue Recognition Policy
We generate revenue primarily from the sale and shipment of customized manufactured products. To a much lesser extent (and only in our Vistaprint business) we provide digital services, website design and hosting, and email marketing services, as well as a small percentage from order referral fees and other third-party offerings. Revenues are recognized when control of the promised products or services is transferred to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services. Shipping revenues are recognized when control of the related products are transferred to the customer.
We recognize revenue upon shipment of the fulfilled orders, which generally occurs upon delivery to the shipping carrier, but for certain revenues occurs upon delivery to the customer. If multiple products are ordered together, each product is considered a separate performance obligation, and the transaction price is allocated to each performance obligation based on the standalone selling price and revenue is recognized upon satisfaction of each performance obligation. We generally determine the standalone selling prices based on the prices charged to our customers.
We record deferred revenue when cash payments are received in advance of our satisfaction of the related performance obligation. The satisfaction of performance obligations generally occur shortly after cash payment and we expect to recognize our deferred revenue balance as revenue within three months subsequent to December 31, 2018.
We periodically provide marketing materials and promotional offers to new customers, as well as existing customers intended to improve customer retention. These incentive offers are generally available to all customers, and therefore these do not represent a performance obligation since customers are not required to enter into a contractual commitment to receive these offers. These discounts are recognized as a reduction to the transaction price when used by the customer. Costs related to free products are included within cost of revenue and sample products are included within marketing and selling expense.
We have elected to apply the practical expedient under ASC 340-40-25-4, to expense incremental direct costs as incurred, which primarily includes sales commissions, since our contract periods generally are less than one year and the related performance obligations are satisfied within a short period of time.
Additional revenue disaggregation disclosure requirements resulting from the adoption of ASC 606 are included in Note 13.     
Share-based Compensation
During the three months ended December 31, 2018, we recognized a net benefit in our consolidated statement of operations for share-based compensation costs of $2,720 and expense of $6,196 during the six months ended December 31, 2018. For the three and six months ended December 31, 2017, we recognized $13,314 and $20,226 of share-based compensation expense, respectively.
During the first quarter of fiscal 2018, we issued supplemental performance share units ("supplemental PSUs") to certain members of management (excluding Robert Keane, our Chairman and CEO) that were incremental to our typical long-term incentive award grants. Since these awards are incremental to our typical long-term incentive awards, the supplemental PSUs are subject to a three-year cumulative financial performance condition intended to provide a stretch goal for participants in addition to service vesting and share price performance conditions. The evaluation of achievement of the performance condition is at the discretion of the Compensation Committee and, therefore, the awards are subject to mark-to-market accounting throughout the performance vesting period. Beginning in the second quarter of fiscal 2018, we concluded that the achievement of the performance condition was probable and recognized $15,397 of expense cumulatively through the first quarter of fiscal 2019. Based on our current quarter results (which are seasonally significant for several of our businesses),

8


we concluded that the achievement of the three-year cumulative performance condition was no longer probable as of December 31, 2018, and we have reversed the previously recognized expense of $15,397. If in a future period we determine that it is probable that the financial performance condition will be achieved based on our financial performance, we will cumulatively catch-up the expense in that period.
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 income (expense), net in our consolidated statements of operations.
Other Income (Expense), Net
The following table summarizes the components of other income (expense), net:
 
Three Months Ended December 31,

Six Months Ended December 31,
 
2018

2017

2018

2017
Gains (losses) on derivatives not designated as hedging instruments (1)
$
11,171


$
(1,752
)

$
18,544


$
(10,001
)
Currency-related (losses) gains, net (2)
(1,023
)

(6,449
)

1,074


(14,652
)
Other (losses) gains
(519
)

469


263


609

Total other income (expense), net
$
9,629


$
(7,732
)

$
19,881


$
(24,044
)
_____________________
(1) Primarily relates to both realized and unrealized gains (losses) on derivative currency forward and option contracts not designated as hedging instruments.
(2) We have significant non-functional currency intercompany financing relationships that we may change at times and are subject to currency exchange rate volatility. The currency-related gains (losses), net for the three and six months ended December 31, 2018 and 2017 are primarily driven by this intercompany activity. In addition, we have certain cross-currency swaps designated as cash flow hedges, which hedge the remeasurement of certain intercompany loans, both presented in the same component above. Unrealized gains related to cross-currency swaps were $2,080 and $1,243 for the three and six months ended December 31, 2018, respectively, as compared to unrealized losses of $2,016 and $6,126 for the three and six months ended December 31, 2017, respectively.
Net Income Per Share Attributable to Cimpress N.V.
Basic net income per share attributable to Cimpress N.V. is computed by dividing net income attributable to Cimpress N.V. by the weighted-average number of ordinary shares outstanding for the respective period. Diluted net 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 performance share units ("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 December 31,
 
Six Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
Weighted average shares outstanding, basic
30,863,339

 
31,026,043

 
30,873,478

 
31,123,177

Weighted average shares issuable upon exercise/vesting of outstanding share options/RSUs/RSAs
957,158

 
1,292,979

 
1,040,032

 
1,202,415

Shares used in computing diluted net income per share attributable to Cimpress N.V.
31,820,497

 
32,319,022

 
31,913,510

 
32,325,592

Weighted average anti-dilutive shares excluded from diluted net income per share attributable to Cimpress N.V.

 

 

 
4,582


9


Build-to-Suit Lease Arrangements
For accounting purposes, we were deemed to be the owner of two projects during their respective construction periods: the Waltham, Massachusetts office building lease and a lease executed during the first quarter of fiscal 2019 for a production facility in Dallas, Texas. For both build-to-suit leases, property, plant and equipment, net, was $116,089 and $111,926 as of December 31, 2018 and June 30, 2018, respectively, related to the buildings. The financing lease obligation and deferred rent credit related to the buildings on our consolidated balance sheets was $119,540 and $115,312 as of December 31, 2018 and June 30, 2018, respectively. All additions during the current period were capitalized construction costs related to the Dallas facility.
Treasury Shares
    
Treasury shares are accounted for using the cost method and are included as a component of shareholders' equity. During the six months ended December 31, 2018 and 2017, we repurchased 117,552 and 574,264, respectively, of our ordinary shares for a total cost of $14,043 and $55,139, respectively, inclusive of transaction costs, in connection with our publicly announced share repurchase programs.
Recently Issued or Adopted Accounting Pronouncements
New Accounting Standards Adopted
In May 2017, the FASB issued Accounting Standards Update No. 2017-09, "Compensation - Stock Compensation (Topic 718)," (ASU 2017-09), which clarifies the application of Topic 718 when accounting for changes in the terms and conditions of a share-based payment award. Under the new standard, changes to the terms or conditions of a share-based payment award are to be accounted for under modification accounting unless there is no change to the fair value, vesting conditions and classification of the award after modification. We adopted the amendment on its effective date of July 1, 2018. The amendment is applied prospectively, and the new standard did not have a material impact on our consolidated financial statements.
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 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. We adopted the new standard on July 1, 2018. The new standard did not have a material effect 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 should be applied either retrospectively to each period presented or by means of a cumulative adjustment to retained earnings as of the beginning of the fiscal year adopted. We adopted the new standard on July 1, 2018. The new standard did not have a material effect 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 replaced most existing revenue recognition guidance in U.S. GAAP. The new standard is effective for us of July 1, 2018. The standard permits the use of either the retrospective or modified retrospective method. We adopted the new standard during the first quarter of fiscal 2019. Refer to the information above for additional details of the adoption.

10


Issued Accounting Standards to be Adopted
In August 2018, the FASB issued Accounting Standards Update No. 2018-15 "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40)" (ASU 2018-15), which requires a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. The new standard is effective for us on July 1, 2020. We are currently evaluating the requirements of the standard, and we have not yet determined the impact of adoption on our consolidated financial statements.    
In August 2017, the FASB issued Accounting Standards Update No. 2017-12, "Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (Topic 815)," (ASU 2017-12), which better aligns a company’s financial reporting for hedging activities with the economic objectives of those activities. The amendment is effective for us on July 1, 2019 and permits early adoption, including adoption in an interim period. The standard requires a modified retrospective transition approach, in which we will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. We do not expect this standard to have 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 leases. The standard also retains a distinction between finance leases and operating leases. The new standard is effective for us on July 1, 2019 and we expect to adopt the new standard using the modified retrospective approach. We also plan to use the transition relief package, in which we will not reassess the classification of our existing leases, whether any expired or existing contracts contain leases and if our existing leases have any initial direct costs. We are in the process of collecting our existing lease contracts and implementing changes to our systems and processes. While we expect the new standard to have a material impact on our consolidated balance sheet, we have not yet determined the full impact of adoption on our consolidated financial statements.
3. Fair Value Measurements
We use a three-level valuation hierarchy for measuring fair value and include detailed financial statement disclosures about fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Level 1: Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. 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:

11


 
December 31, 2018
 
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
$
6,732

 
$

 
$
6,732

 
$

Currency forward contracts
16,691

 

 
16,691

 

Currency option contracts
4,035

 

 
4,035

 

Total assets recorded at fair value
$
27,458

 
$

 
$
27,458

 
$

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Cross-currency swap contracts
$
(17,019
)
 
$

 
$
(17,019
)
 
$

Currency forward contracts
(5,527
)
 

 
(5,527
)
 

Total liabilities recorded at fair value
$
(22,546
)
 
$

 
$
(22,546
)
 
$


 
June 30, 2018
 
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
$
13,370

 
$

 
$
13,370

 
$

Currency forward contracts
9,202

 

 
9,202

 

Currency option contracts
1,782

 

 
1,782

 

Total assets recorded at fair value
$
24,354

 
$

 
$
24,354

 
$

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Cross-currency swap contracts
$
(25,348
)
 
$

 
$
(25,348
)
 
$

Currency forward contracts
(14,201
)
 

 
(14,201
)
 

Currency option contracts
(85
)
 

 
(85
)
 

Total liabilities recorded at fair value
$
(39,634
)
 
$

 
$
(39,634
)
 
$

During the quarter ended December 31, 2018 and year ended June 30, 2018, there were no significant transfers in or out of Level 1, Level 2 and Level 3 classifications.
The valuations of the derivatives intended to mitigate our interest rate and currency risk are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each instrument. This analysis utilizes observable market-based inputs, including interest rate curves, interest rate volatility, or spot and forward exchange rates, and reflects the contractual terms of these instruments, including the period to maturity. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparties' nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to appropriately reflect both our own nonperformance risk and the respective counterparties' nonperformance risk in the fair value measurement. However, as of December 31, 2018, 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.


12


As of December 31, 2018 and June 30, 2018, the carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable, and other current liabilities approximated their estimated fair values. As of December 31, 2018 and June 30, 2018 the carrying value of our debt, excluding debt issuance costs and debt discounts, was $1,060,321 and $839,429, respectively, and the fair value was $1,048,771 and $847,520, respectively. Our debt at December 31, 2018 includes variable-rate debt instruments indexed to LIBOR that resets periodically, as well as 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 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 income (expense), 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 seven of our interest rate swap contracts was deemed to be ineffective during the three and six months ended December 31, 2018 and during the three and six months ended December 31, 2017, a portion of seven of our interest rate swap contracts was deemed to be ineffective.
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 December 31, 2018, we estimate that $1,446 of income will be reclassified from accumulated other comprehensive loss to interest expense during the twelve months ending December 31, 2019. As of December 31, 2018, we had eight outstanding interest rate swap contracts indexed to USD LIBOR. These instruments were designated as cash flow hedges of interest rate risk and have varying start dates and maturity dates through December 2025.
Interest rate swap contracts outstanding:
 
Notional Amounts
Contracts accruing interest as of December 31, 2018
 
$
210,000

Contracts with a future start date
 
170,000

Total
 
$
380,000

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.

13


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 December 31, 2018, 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.
Amounts reported in accumulated other comprehensive loss will be reclassified to other income (expense), net as interest payments are accrued or paid and upon remeasuring the intercompany loan. As of December 31, 2018, we estimate that $1,068 will be reclassified from accumulated other comprehensive loss to interest expense, net during the twelve months ending December 31, 2019.
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 December 31, 2018, 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. Amounts reported in accumulated other comprehensive loss are recognized as a component of our cumulative translation adjustment.
We did not hold any ineffective cross-currency swaps during the three and six months ended December 31, 2018 and 2017.
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 December 31, 2018, we had six currency forward contracts designated as net investment hedges with a total notional amount of $181,344, maturing during various dates through October 2023. 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 two consolidated subsidiaries that have Euro as their functional currency. Amounts reported in accumulated other comprehensive loss are recognized as a component of our cumulative translation adjustment.
We have elected to not apply hedge accounting for all other currency forward and option contracts. During the three and six months ended December 31, 2018 and 2017, we have experienced volatility within other income (expense), 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 December 31, 2018, 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, British Pound, Canadian Dollar, Danish Krone, Euro, Indian Rupee, Mexican Peso, New Zealand Dollar, Norwegian Krone, Philippine Peso and Swedish Krona:
Notional Amount
 
Effective Date
 
Maturity Date
 
Number of Instruments
 
Index
$614,831
 
September 2017 through December 2018
 
Various dates through December 2020
 
541
 
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 December 31, 2018 and June 30, 2018. Our derivative asset and liability balances will fluctuate with interest rate and currency exchange rate volatility.
 
December 31, 2018
 
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 current assets / other assets
 
$
6,732

 
$

 
$
6,732

 
Other current liabilities / other liabilities
 
$

 
$

 
$

Cross-currency swaps
Other current assets
 

 

 

 
Other current liabilities
 
(6,600
)
 

 
(6,600
)
Derivatives in net investment hedging relationships
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cross-currency swaps
Other current assets
 

 

 

 
Other current liabilities
 
(10,419
)
 

 
(10,419
)
Currency forward contracts
Other non-current assets
 
991

 

 
991

 
Other current liabilities / other liabilities
 
(5,458
)
 

 
(5,458
)
Total derivatives designated as hedging instruments

 
$
7,723

 
$

 
$
7,723

 

 
$
(22,477
)
 
$

 
$
(22,477
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currency forward contracts
Other current assets / other assets
 
$
17,216

 
$
(1,516
)
 
$
15,700

 
Other current liabilities / other liabilities
 
$
(177
)
 
$
108

 
$
(69
)
Currency option contracts
Other current assets / other assets
 
4,076

 
(41
)
 
4,035

 
Other current liabilities / other liabilities
 

 

 

Total derivatives not designated as hedging instruments
 
 
$
21,292

 
$
(1,557
)
 
$
19,735

 

 
$
(177
)
 
$
108

 
$
(69
)

15



June 30, 2018

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

$
13,374


$
(4
)

$
13,370


Other current liabilities / other liabilities

$


$


$

Cross-currency swaps
Other non-current assets







Other liabilities

(10,659
)



(10,659
)
Derivatives in net investment hedging relationships
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cross-currency swaps
Other non-current assets







Other liabilities

(14,689
)



(14,689
)
Currency forward contracts
Other non-current assets







Other liabilities

(13,387
)



(13,387
)
Total derivatives designated as hedging instruments


$
13,374


$
(4
)

$
13,370




$
(38,735
)

$


$
(38,735
)
















Derivatives not designated as hedging instruments















Currency forward contracts
Other current assets / other assets

$
10,433


$
(1,231
)

$
9,202


Other current liabilities / other liabilities

$
(1,080
)

$
266


$
(814
)
Currency option contracts
Other current assets / other assets
 
1,782

 

 
1,782

 
Other current liabilities / other liabilities
 
(85
)
 

 
(85
)
Total derivatives not designated as hedging instruments


$
12,215


$
(1,231
)

$
10,984




$
(1,165
)

$
266


$
(899
)
The following table presents the effect of the effective portion of our derivative financial instruments designated as hedging instruments and their classification within comprehensive income (loss) for the three and six months ended December 31, 2018 and 2017:
Derivatives designated as hedging instruments
Amount of Gain (Loss) Recognized in Comprehensive Income (Loss) on Derivatives (Effective Portion)
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
Derivatives in cash flow hedging relationships
 
 
 
 
 
 
 
Interest rate swaps
$
(5,686
)
 
$
1,593

 
$
(4,436
)
 
$
1,656

Cross-currency swaps
(1,121
)
 
1,566

 
(1,761
)
 
5,074

Derivatives in net investment hedging relationships
 
 
 
 
 
 
 
Cross-currency swaps
3,225

 
(2,222
)
 
5,015

 
(7,345
)
Currency forward contracts
5,433

 
(3,148
)
 
7,319

 
(9,542
)
Total
$
1,851

 
$
(2,211
)
 
$
6,137

 
$
(10,157
)

16


The following table presents reclassifications out of accumulated other comprehensive loss for the three and six months ended December 31, 2018 and 2017:
 
Amount of Net Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income
 
Affected line item in the
Statement of Operations
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
 
 
2018
 
2017
 
2018
 
2017
 
 
Derivatives in cash flow hedging relationships
 
 
 
 
 
 
 
 
 
Interest rate swaps
$
378

 
$
(164
)
 
$
209

 
$
(106
)
 
Interest expense, net
Cross-currency swaps
2,534

 
(1,688
)
 
3,774

 
(5,435
)
 
Other income (expense), net
Total before income tax
2,912

 
(1,852
)
 
3,983

 
(5,541
)
 
Income before income taxes
Income tax
(728
)
 
482

 
(996
)
 
1,407

 
Income tax expense (benefit)
Total
$
2,184

 
$
(1,370
)
 
$
2,987

 
$
(4,134
)
 
 
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 Income
 
Affected line item in the
Statement of Operations
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
 
 
2018
 
2017
 
2018
 
2017
 
 
Currency contracts
$
11,171

 
$
(1,999
)
 
$
18,544

 
$
(10,279
)
 
Other income (expense), net
Interest rate swaps
(418
)
 
247

 
(214
)
 
278

 
Other income (expense), net
Total
$
10,753

 
$
(1,752
)
 
$
18,330

 
$
(10,001
)
 
 
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 $3,069 for the six months ended December 31, 2018:

Gains (losses) on cash flow hedges (1)
 
Translation adjustments, net of hedges (2)
 
Total
Balance as of June 30, 2018
$
8,195

 
$
(78,009
)
 
$
(69,814
)
Other comprehensive income (loss) before reclassifications
(6,197
)
 
3,702

 
(2,495
)
Amounts reclassified from accumulated other comprehensive loss to net income
2,987

 

 
2,987

Net current period other comprehensive income (loss)
(3,210
)
 
3,702

 
492

Balance as of December 31, 2018
$
4,985

 
$
(74,307
)
 
$
(69,322
)
________________________
(1) Gains (losses) on cash flow hedges include our interest rate swap and cross-currency swap contracts designated in cash flow hedging relationships.
(2) As of December 31, 2018 and June 30, 2018, the translation adjustment is inclusive of the effects of our net investment hedges, of which, unrealized losses of $9,681 and $22,014, respectively, net of tax, have been included in accumulated other comprehensive loss.

17


6. Goodwill and Acquired Intangible Assets
Goodwill
The carrying amount of goodwill by reportable segment as of December 31, 2018 and June 30, 2018 was as follows:

Vistaprint

Upload and Print

National Pen
 
All Other Businesses

Total
Balance as of June 30, 2018
$
146,207

 
$
328,771

 
$
34,434

 
$
11,431

 
$
520,843

Acquisitions (1)

 
2,024

 

 
212,768

 
214,792

Effect of currency translation adjustments (2)
(558
)
 
(7,500
)
 

 

 
(8,058
)
Balance as of December 31, 2018
$
145,649

 
$
323,295

 
$
34,434

 
$
224,199

 
$
727,577

_________________
(1) Refer to Note 7 for additional details related to our acquisitions of BuildASign and VIDA. We also recognized goodwill related to a small acquisition of a supplier by one of our businesses within our Upload and Print reportable segment.
(2) Related 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 six months ended December 31, 2018 was $14,846 and $26,147, respectively, compared to $12,558 and $25,191 for the prior comparative periods, respectively.

7. Business Combinations

Acquisition of Build A Sign LLC

On October 1, 2018, we completed the acquisition of Build A Sign LLC ("BuildASign"), a vertically integrated U.S. web-to-print canvas wall dècor and signage company. We acquired approximately 99% of the outstanding equity interests of BuildASign for a purchase price of $275,079 in cash, which includes a post-closing adjustment paid during the second quarter of fiscal 2019 and was based on BuildASign's cash, debt and working capital position as of the acquisition date.

The acquisition supports our strategy of investing in and building customer-focused, entrepreneurial, mass customization businesses for the long term, which we manage in a decentralized and autonomous manner. BuildASign brings strong talent, a customer-centric culture, low-cost production operations and strong e-commerce capabilities that work seamlessly together to serve customers with market-leading prices, fast delivery and great customer service.

Noncontrolling Interest

At the closing, Build A Sign Management Pool, LLC (the "Management Pool"), one of the sellers, retained approximately 1% of the outstanding equity interests of BuildASign for the benefit of certain BuildASign employees who hold equity interests in the Management Pool. We entered into a put and call option agreement with respect to the retained BuildASign equity interests, which provides the holders of the Management Pool the right to sell to us all or any portion of their shares, beginning with our fiscal year ending June 30, 2022 and for each fiscal year thereafter. We have the right to buy all (but not less than all) of the retained equity interest of any holder that is no longer an active employee of the company, beginning with our fiscal year ending June 30, 2022. The put and call purchase price is based on BuildASign's revenue growth and EBITDA for the fiscal year as to which the option is exercised. Due to the presence of the put arrangement, the noncontrolling interest is presented as redeemable noncontrolling interest as redemption is not solely within our control. We initially recognized the noncontrolling interest at fair value of $3,356 and will adjust the balance for the pro rata impact of the BuildASign earnings or loss, as well as adjustments to increase the balance to the redemption value, if necessary.

The excess purchase price over the fair value of BuildASign'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 Cimpress' scale-based sourcing channels. Goodwill is deductible for tax purposes and has been attributed to the All Other Businesses reportable segment.

18



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 2019.
The fair value of the assets acquired and liabilities assumed was:
 
Amount
 
Weighted Average
Useful Life in Years
Tangible assets acquired and liabilities assumed:
 
 
 
      Cash and cash equivalents
$
4,093

 
n/a
      Accounts receivable, net
510

 
n/a
      Inventory
1,107

 
n/a
      Other current assets (1)
6,937

 
n/a
      Property, plant and equipment, net
12,080

 
n/a
      Deferred tax assets
1,023

 
n/a
      Accounts payable
(3,369
)
 
n/a
      Accrued expenses (1)
(12,839
)
 
n/a
      Other current liabilities
(2,658
)
 
n/a
      Long-term liabilities
(3,949
)
 
n/a
Identifiable intangible assets:
 
 
 
Trade name
47,600

 
15 years
Developed technology
28,900

 
3 - 7 years
Customer relationships
12,430

 
2 - 5 years
Noncontrolling interest
(3,356
)
 
n/a
Goodwill
186,570

 
n/a
Total purchase price
$
275,079

 
 
_________________
(1) In connection with the BuildASign acquisition, we recorded an indemnification asset of $5,500, which represents the seller's obligation under the merger agreement to indemnify us for a portion of their potential contingent liabilities related to certain tax matters. We also recognized a contingent liability of $10,106, which represents our estimate based on guidance within ASC 450 - "Contingencies," as of the acquisition date.

BuildASign Pro Forma Financial Information

BuildASign 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 BuildASign acquisition had occurred on July 1, 2017. 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, interest associated with debt used to finance the acquisition, and transaction related costs.
 
Six Months Ended December 31,
2018
 
2017
Pro forma revenue
$
1,446,678

 
$
1,387,578

Pro forma net income attributable to Cimpress N.V.
48,806

 
46,440

We utilized proceeds from our credit facility in order to finance the acquisition. In connection with the acquisition, we incurred $1,047 and $1,140 in general and administrative expenses during the three and six months ended December 31, 2018, primarily related to legal, financial, and other professional services.


19


Acquisition of VIDA Group Co.

On July 2, 2018, we acquired approximately 73% of the shares of VIDA Group Co. ("VIDA"), a rapidly growing U.S.-based startup, with options to increase our ownership beginning in fiscal 2023. For the noncontrolling interest, we entered into put and call options with each employee who holds shares, which become exercisable starting in fiscal 2023, or earlier if the employee terminates their employment. The total consideration was $19,897, net of cash acquired. VIDA brings manufacturing access and an e-commerce marketplace to artists, thereby enabling artists to convert ideas in beautiful, original products for customers, ranging from fashion, jewelry and accessories to home accent pieces. This investment supports our strategy to build a competitively differentiated portfolio of focused brands by providing access to the textiles marketplace.

We recognized the assets, liabilities and noncontrolling interest on the basis of their fair values at the date of the acquisition, with any excess of the purchase price paid over the fair value of the net assets recorded as goodwill. The aggregate allocation to goodwill, net liabilities and noncontrolling interest was $26,198, $647, and $5,705, respectively.

The revenue and earnings included in our consolidated financial statements for the three and six months ended December 31, 2018 are not material. We utilized proceeds from our credit facility to finance the acquisition.
8. Other Balance Sheet Components
Accrued expenses included the following:
 
December 31, 2018
 
June 30, 2018
Compensation costs
$
54,779

 
$
57,024

Income and indirect taxes (1)
58,506

 
33,557

Advertising costs (1)
43,824

 
28,140

Production costs (1)
14,029

 
8,903

Shipping costs (1)
9,204

 
5,241

Sales returns
6,501

 
5,076

Purchases of property, plant and equipment
2,675

 
4,489

Professional fees
2,195

 
3,802

Interest payable
1,758

 
1,653

Other
44,093

 
38,776

Total accrued expenses
$
237,564

 
$
186,661

_______________________
(1) The increase in income and indirect taxes, advertising, production, and shipping costs is due to increased sales volumes during our peak holiday season in the second quarter of our fiscal year.
Other current liabilities included the following:
 
December 31, 2018
 
June 30, 2018
Short-term derivative liabilities
$
20,069

 
$
31,054

Current portion of lease financing obligation
12,569

 
12,569

Current portion of capital lease obligations
10,837

 
10,747

Other
3,167

 
601

Total other current liabilities
$
46,642

 
$
54,971


20


Other liabilities included the following:
 
December 31, 2018
 
June 30, 2018
Long-term capital lease obligations
$
17,490

 
$
16,883

Long-term derivative liabilities
4,143

 
10,080

Mandatorily redeemable noncontrolling interest (1)
5,178

 
4,366

Other (2)
40,636

 
38,195

Total other liabilities
$
67,447

 
$
69,524

_______________________
(1) Relates to the mandatorily redeemable noncontrolling interest of Printi LLC. Refer to Note 12 for additional details.
(2) As of December 31, 2018 and June 30, 2018, other liabilities includes $18,371 and $15,464, respectively, of share-based compensation awards associated with our investment in Printi LLC. Refer to Note 12 for additional details.
9. Debt

December 31, 2018
 
June 30, 2018
Senior secured credit facility
$
650,107

 
$
432,414

7.0% Senior unsecured notes due 2026
400,000

 
400,000

Other
10,214


7,015

Debt issuance costs and debt discounts
(11,872
)
 
(12,585
)
Total debt outstanding, net
1,048,449

 
826,844

Less: short-term debt (1)
46,549

 
59,259

Long-term debt
$
1,001,900

 
$
767,585

_____________________
(1) Balances as of December 31, 2018 and June 30, 2018 are inclusive of short-term debt issuance costs and debt discounts of $2,047 and $2,012, respectively.
Our Debt
Our various debt arrangements described below contain customary representations, warranties and events of default. As of December 31, 2018, we were in compliance with all financial and other covenants related to our debt.
Senior Secured Credit Facility
As of December 31, 2018, we had a committed credit facility of $1,113,172 as follows:
Revolving loans of $839,422 with a maturity date of June 14, 2023
Term loans of $273,750 amortizing over the loan period, with a final maturity date of June 14, 2023
Under the terms of our credit agreement, borrowings bear interest at a variable rate of interest based on LIBOR plus 1.375% to 2.0%. Interest rates depend 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 December 31, 2018, the weighted-average interest rate on outstanding borrowings was 3.91%, inclusive of interest rate swap rates. We are also required to pay a commitment fee on unused balances of 0.225% to 0.35% depending on our leverage ratio. We have pledged the assets and/or share capital of a number of our subsidiaries as collateral for our outstanding debt as of December 31, 2018.
On January 7, 2019, we amended the terms of our senior secured credit facility, resulting in an increase of loan commitments to $1,613,172 in the aggregate, which includes $1,087,257 of revolving loans and $525,915 of term loans. The terms and covenants of the senior secured credit facility remain unchanged.

21


Indenture and Senior Unsecured Notes
On June 15, 2018, we completed a private placement of $400,000 in aggregate principal amount of 7.0% senior unsecured notes due 2026 (the “2026 Notes”). We issued the 2026 Notes pursuant to a senior notes indenture dated as of June 15, 2018, among Cimpress N.V., our subsidiary guarantors, and MUFG Union Bank, N.A., as trustee (the "Indenture"). We used the net proceeds from the 2026 Notes during fiscal 2018 to redeem all of the outstanding 7.0% senior unsecured notes due 2022, repay a portion of the indebtedness outstanding under our revolving credit facility and pay all related fees and expenses.
The 2026 Notes bear interest at a rate of 7.0% per annum and mature on June 15, 2026. Interest on the Notes is payable semi-annually on June 15 and December 15 of each year, commencing on December 15, 2018, to the holders of record of the 2026 Notes at the close of business on June 1 and December 1, respectively, preceding such interest payment date.

The 2026 Notes are senior unsecured obligations and rank equally in right of payment to all our existing and future senior unsecured debt and senior in right of payment to all of our existing and future subordinated debt. The Notes are effectively subordinated to any of our existing and future secured debt to the extent of the value of the assets securing such debt. Subject to certain exceptions, each of our existing and future subsidiaries that is a borrower under or guarantees our senior secured credit facilities will guarantee the 2026 Notes.
The indenture under which the 2026 Notes are issued contains various covenants, including covenants that, subject to certain exceptions, limit our and our restricted subsidiaries’ ability to incur and/or guarantee additional debt; pay dividends, repurchase shares or make certain other restricted payments; enter into agreements limiting dividends and certain other restricted payments; prepay, redeem or repurchase subordinated debt; grant liens on assets; enter into sale and leaseback transactions; merge, consolidate or transfer or dispose of substantially all of our consolidated assets; sell, transfer or otherwise dispose of property and assets; and engage in transactions with affiliates.
We have the right to redeem, at any time prior to June 15, 2021, some or all of the 2026 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, we have the right to redeem, at any time prior to June 15, 2021, up to 40% of the aggregate outstanding principal amount of the 2026 Notes at a redemption price equal to 107% 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 June 15, 2021, 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.
Other debt
Other debt consists primarily of term loans acquired through our various acquisitions. As of December 31, 2018 and June 30, 2018 we had $10,214 and $7,015, respectively, outstanding for those obligations that are payable through September 2024.
10. Income Taxes
    
Our income tax expense was $14,399 and $19,880 for the three and six months ended December 31, 2018, as compared to $21,825 and $15,638 for the prior comparable periods. The decrease in tax expense for the three months ended December 31, 2018 from the same prior year period is primarily due to "Patent Box" tax benefits of $3,547 granted to our Pixartprinting business in Italy and recognized as a discrete adjustment to our tax expense for the three months ended December 31, 2018 as well as increased tax expense of $4,701 related to the impacts of U.S. tax reform recognized in the same prior year period. The increase in tax expense for the six months ended December 31, 2018 from the same prior year period is primarily due to higher profits and a decrease in deferred tax assets of $5,574 recognized as a discrete adjustment during the three months ended September 30, 2018 related to guidance issued by the Internal Revenue Service regarding limitations on tax deductions for compensation granted to certain executives. Excluding the effect of these discrete tax adjustments, our estimated annual effective tax rate is lower for fiscal 2019 as compared to fiscal 2018 primarily due to an expectation of a more favorable geographical mix of consolidated earnings. Our effective tax rate continues to be negatively impacted by losses in certain jurisdictions where we are unable to recognize a full tax benefit in the current period.
    

22


In response to the U.S. Tax Cuts and Jobs Act ("The Act") enacted in December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin 118 ("SAB 118"), which allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The one-year measurement period has expired for us during this quarter and our analysis under SAB 118 is complete. There have been no changes to our tax balances in the three months ended December 31, 2018 as a result of changes to our interpretation of nor the issuance of new guidance on The Act. However, we will continue to evaluate our tax positions to the extent additional guidance relating to The Act is issued in the future.

As of December 31, 2018, we had a liability for unrecognized tax benefits included in the balance sheet of $5,552, including accrued interest and penalties of $552. We recognize interest and, if applicable, penalties related to unrecognized tax benefits in the provision for income taxes. If recognized, the entire liability for unrecognized tax benefits would reduce our tax expense. It is reasonably possible that a reduction in unrecognized tax benefits may occur within the next twelve months in the range of $800 to $1,000 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 2018 remain open for examination by the IRS and the years 2013 through 2018 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 own a controlling equity stake, but a third party owns a minority portion of the equity. The balance sheet and operating activity of these entities are included in our consolidated financial statements and we adjust the net income in our consolidated statement of operations to exclude the noncontrolling interests' proportionate share of results. We present the proportionate share of equity attributable to the redeemable noncontrolling interests as temporary equity within our consolidated balance sheet and the proportionate share of noncontrolling interests not subject to a redemption provision that is outside of our control as equity. We recognize redeemable noncontrolling interests at fair value on the sale or acquisition date and adjust to the redemption value on a periodic basis, if that amount exceeds the fair value. If the formulaic redemption value exceeds the fair value of the noncontrolling interest, then the accretion to redemption value is offset to the net (income) loss attributable to noncontrolling interest in our consolidated statement of operations.
Redeemable noncontrolling interests
On December 20, 2018, we purchased the outstanding 12% equity interest of our WIRmachenDRUCK subsidiary for €36,173 ($41,177 based on the exchange rate as of the redemption date). During the six months ended December 31, 2018, we increased the carrying amount of the redeemable noncontrolling interest by $7,133, to reflect the change in the redemption value, offset to retained earnings, since the redemption value remained below the fair value.

On October 1, 2018, we acquired approximately 99% of the outstanding equity interests of Build A Sign LLC. The remaining 1% is considered a redeemable noncontrolling equity interest, as it is redeemable for cash based on future financial results through put and call rights and not solely within our control. On the acquisition date, we recognized the redeemable noncontrolling interest at fair value of $3,356. As of December 31, 2018, the redemption value was less than the carrying value, and therefore no adjustment was required. Refer to Note 7 for additional details.

On July 2, 2018, we acquired approximately 73% of the shares of VIDA Group Co. The remaining 27% is considered a redeemable noncontrolling equity interest, as it is redeemable in the future not solely within our control. The shares we hold include certain liquidation preferences to all other share classes, and therefore the noncontrolling interest will bear any losses until the recoverable value of our investment declines below the stated redemption value. As of December 31, 2018, the redemption value is less than the carrying value and therefore no adjustment has been made. Refer to Note 7 for additional details.


23


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 first redemption date in which a put option can be exercised is April 15, 2019. The Exagroup noncontrolling interest is redeemable at a fixed amount of €39,000. As of December 31, 2018, the redemption value was less than the carrying value, and therefore no adjustment was required.

The following table presents the reconciliation of changes in our noncontrolling interests:
 
 
Redeemable noncontrolling interests
 
Noncontrolling interest
Balance as of June 30, 2018
 
$
86,151

 
$
285

Acquisition of noncontrolling interest (1)
 
9,061

 

Reclassification to redeemable noncontrolling interest (2)
 
308

 
(308
)
Accretion to redemption value recognized in retained earnings (3)
 
7,133

 

Net loss attributable to noncontrolling interest
 
(326
)
 
(6
)
Distribution to noncontrolling interest
 
(3,375
)
 

Purchase of noncontrolling interests (4)
 
(41,177
)
 

Shares forfeited by noncontrolling interest
 
(591
)
 

Foreign currency translation
 
(3,813
)
 
29

Balance as of December 31, 2018
 
$
53,371

 
$

___________________
(1) Includes the noncontrolling interests related to our VIDA and BuildASign acquisitions. Refer to Note 7 for additional details.
(2) During the first quarter of fiscal 2019, we amended our agreement with one noncontrolling interest holder and agreed to put and call options related to their existing noncontrolling interest. As such, we reclassified the noncontrolling interest to redeemable noncontrolling interest since the exercise is not solely within our control.
(3) Accretion of redeemable noncontrolling interests to redemption value recognized in retained earnings is the result of the redemption amount estimated to be greater than carrying value but less than fair value.
(4) During the second quarter of fiscal 2019, we purchased the WIRmachenDRUCK noncontrolling interest for $41,177.
12. Variable Interest Entity ("VIE")
Investment in Printi LLC
On August 7, 2014, we made a capital investment in Printi LLC, which operates in Brazil. This investment provided us access to a new market and the opportunity to drive longer-term growth in Brazil and other geographies as Printi expands internationally in the future. 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. Based upon the level of equity investment at risk, Printi is considered a variable interest entity. Due to certain unilateral participating voting rights for certain transactions and the presence of a de facto agency relationship, we concluded that we were most exposed to the variability of the economics and therefore considered the primary beneficiary.
As of December 31, 2018, we have a 53.69% equity interest in Printi. In addition, we will acquire the remaining equity interest in Printi through a reciprocal put and call structure, exercisable from March 31, 2021 through a mandatory redemption date of July 31, 2023. As the remaining equity interests are mandatorily redeemable by all parties no later than a specified future date, the noncontrolling interest is within the scope of ASC 480 - "Distinguishing Liabilities from Equity" and is required to be presented as a liability on our consolidated balance sheet. As of December 31, 2018 and June 30, 2018, we recognized a liability of $5,178 and $4,366, respectively, based on our current estimate of the redemption value. During the three and six months ended December 31, 2018, we recognized an adjustment within interest expense, net of $813. We did not recognize any adjustments within interest expense, net during the prior comparative periods. We will continue to adjust the liability to its estimated redemption value each reporting period and recognize any changes within interest expense, net in our consolidated statement of operations.
We also have liability-based awards for Printi restricted stock held by Printi employees that are fully vested and marked to fair value each reporting period until cash settlement. As of December 31, 2018, our estimated

24


redemption value was $18,371 and we have recognized $2,904 in general and administrative expense for the three and six months ended December 31, 2018, compared to $1,007 and $1,047 in the prior comparative periods.
We also have an arrangement to lend two Printi equity holders up to $24,000 that is payable on the date the put or call option is exercised, which will occur no later than July 31, 2023. As of December 31, 2018 and June 30, 2018, the long-term loan receivable, including accrued interest, is $23,167 and $22,234, respectively, and is classified within other assets in our consolidated balance sheets. The loans carry 8.5% annual interest, and are not contingent upon continued employment. We expect that the loan proceeds will be used to offset our purchase of the remaining noncontrolling interest in the future.
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 December 31, 2018, we have numerous operating segments under our management reporting structure which are reported in the following four reportable segments:
Vistaprint - Includes the operations of our Vistaprint 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 - Includes the results of our druck.at, Easyflyer, Exagroup, Pixartprinting, Printdeal, Tradeprint, and WIRmachenDRUCK businesses.
National Pen - Includes the global operations of our National Pen businesses, which manufacture and market custom writing instruments and promotional products, apparel and gifts.
All Other Businesses - Includes a collection of businesses grouped together based on materiality:
BuildASign, acquired October 1, 2018, is a fast-growing internet-based provider of canvas-print wall décor, business signage and other large-format printed products, based in Austin, Texas. 
Printi is an online printing leader in Brazil, which offers a superior customer experience with transparent and attractive pricing, reliable service and quality.
VIDA, acquired on July 2, 2018, is an innovative startup that brings manufacturing access and an e-commerce marketplace to artists, thereby enabling artists to convert ideas into beautiful, original products for customers, ranging from custom fashion, jewelry and accessories to home accent pieces.
Vistaprint Corporate Solutions serves medium-sized businesses and large corporations, as well as a legacy revenue stream with retail partners and franchise businesses.
Vistaprint India operates a derivative of the Vistaprint business model, albeit with higher service levels and quality, fully domestic, Indian content, pricing that is a slight premium to many traditional offline alternatives, and almost no discounting.
Vistaprint Japan operates a derivative of the Vistaprint business model with a differentiated position relative to competitors who tend to focus on upload and print, not the self-service, micro-business customer which Vistaprint Japan serves.
Albumprinter through its divestiture date of August 31, 2017.
Central and corporate consists primarily of the team of software engineers that is building our mass customization platform; shared service organizations such as global procurement; technology services such as hosting and security; administrative costs of our Cimpress India offices where numerous Cimpress businesses have dedicated business-specific team members; and corporate functions including our Board of Directors, CEO, and the team members necessary for managing corporate activities, such as treasury, tax, capital allocation, financial consolidation, internal audit and legal. These costs also include certain unallocated share-based compensation costs.
For awards granted under our 2016 Performance Equity Plan, 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 businesses' results, we allocate the straight-line portion of the fixed grant value to our businesses. Any expense in excess of the amount as a result of the fair value measurement of the PSUs and the accelerated

25


expense profile of the awards is recognized within Central and corporate costs. All expense or benefit associated with our supplemental performance share units is recognized within Central and corporate costs.
Segment profit (loss) is the primary profitability metric by which our CODM measures segment financial performance and allocates resources. Certain items are excluded from segment 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, Massachusetts lease is included as expense in segment profit (loss) and allocated based on headcount to the appropriate business 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. We do not allocate non-operating income to our segment results.
Our All Other Businesses reportable segment includes businesses that have operating losses as they are in the early stage of investment relative to the scale of the underlying businesses, which may limit its comparability to other segments regarding 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. We do present other segment information to the CODM, which includes purchases of property, plant and equipment and capitalization of software and website development costs, and therefore include that information in the tables below.
Revenue by segment is based on the business-specific websites or sales channel through which the customer’s order was transacted. The following tables set forth revenue by reportable segments, as well as disaggregation of revenue by major geographic regions and reportable segments.
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
Revenue:
 
 
 
 
 
 
 
Vistaprint (1)
$
434,326

 
$
428,908

 
$
771,255

 
$
747,951

Upload and Print (2)
203,799

 
192,527

 
375,964

 
352,917

National Pen (3)
132,951

 
126,098

 
198,922

 
185,815

All Other Businesses (4)
61,827

 
20,994

 
80,715

 
49,048

Total segment revenue
832,903

 
768,527

 
1,426,856

 
1,335,731

Inter-segment eliminations
(7,336
)
 
(6,473
)
 
(12,308
)
 
(10,393
)
Total consolidated revenue
$
825,567

 
$
762,054

 
$
1,414,548

 
$
1,325,338

_____________________
(1) Vistaprint segment revenues include inter-segment revenue of $3,549 and $6,265 for the three and six months ended December 31, 2018, respectively, and $2,803 and $5,006 for the prior comparative periods, respectively.
(2) Upload and Print segment revenues include inter-segment revenue of $537 and $728 for the three and six months ended December 31, 2018, respectively and $480 and $808 for the prior comparative periods, respectively.
(3) National Pen segment revenues include inter-segment revenue of $754 and $1,504 for the three and six months ended December 31, 2018, respectively, and $1,024 and $1,470 for the prior comparative periods, respectively.
(4) All Other Businesses segment revenues include inter-segment revenue of $2,496 and $3,811 for the three and six months ended December 31, 2018, respectively, and $2,166 and $3,109 for the prior comparative periods, respectively. The All Other Businesses segment includes the revenue of the VIDA and BuildASign's businesses since its acquisition of July 2, 2018 and October 1, 2018, respectively, as well as the Albumprinter business during the six months ended September 30, 2017 until the sale completion date of August 31, 2017.
 
Three Months Ended December 31, 2018
 
Vistaprint
 
Upload and Print
 
National Pen
 
All Other
 
Total
North America
$
279,769

 
$

 
$
57,348

 
$
47,447

 
$
384,564

Europe
129,932

 
203,262

 
62,473

 
799

 
396,466

Other
21,076

 

 
12,376

 
11,085

 
44,537

Inter-segment
3,549

 
537

 
754

 
2,496

 
7,336

   Total segment revenue
434,326

 
203,799

 
132,951

 
61,827

 
832,903

Less: inter-segment elimination
(3,549
)
 
(537
)
 
(754
)
 
(2,496
)
 
(7,336
)
Total external revenue
$
430,777

 
$
203,262

 
$
132,197

 
$
59,331

 
$
825,567


26


 
Three Months Ended December 31, 2017
 
Vistaprint
 
Upload and Print
 
National Pen
 
All Other
 
Total
North America
$
271,547

 
$
1,079

 
$
55,286

 
$
4,722

 
$
332,634

Europe
131,977

 
190,968

 
60,820

 
518

 
384,283

Other
22,581

 

 
8,968

 
13,588

 
45,137

Inter-segment
2,803

 
480

 
1,024

 
2,166

 
6,473

   Total segment revenue
428,908

 
192,527

 
126,098

 
20,994

 
768,527

Less: inter-segment elimination
(2,803
)
 
(480
)
 
(1,024
)
 
(2,166
)
 
(6,473
)
Total external revenue
$
426,105

 
$
192,047

 
$
125,074

 
$
18,828

 
$
762,054


 
Six Months Ended December 31, 2018
 
Vistaprint
 
Upload and Print
 
National Pen
 
All Other
 
Total
North America
$
520,854

 
$

 
$
95,906

 
$
54,211

 
$
670,971

Europe
205,931

 
375,236

 
83,509

 
1,470

 
666,146

Other
38,205

 

 
18,003

 
21,223

 
77,431

Inter-segment
6,265

 
728

 
1,504

 
3,811

 
12,308

   Total segment revenue
771,255

 
375,964

 
198,922

 
80,715

 
1,426,856

Less: inter-segment elimination
(6,265
)
 
(728
)
 
(1,504
)
 
(3,811
)
 
(12,308
)
Total external revenue
$
764,990

 
$
375,236

 
$
197,418

 
$
76,904

 
$
1,414,548


 
Six Months Ended December 31, 2017
 
Vistaprint
 
Upload and Print
 
National Pen
 
All Other
 
Total
North America
$
494,359

 
$
2,095

 
$
90,287

 
$
8,920