10-K 1 cmpr630201610k.htm 10-K Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
Form 10-K
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended June 30, 2016
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from               to               
Commission file number 000-51539
_________________________________
Cimpress N.V.
(Exact Name of Registrant as Specified in Its Charter)
_________________________________
The Netherlands
 
98-0417483
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.) 
Hudsonweg 8
5928 LW Venlo
The Netherlands
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: 31-77-850-7700
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Exchange on Which Registered
Ordinary Shares, €0.01 par value
 
NASDAQ Global Select Market
_________________________________
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  Yes o     No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Exchange Act Rule 12b-2).
Large accelerated filer  þ
 
Accelerated filer  o
 
Non-accelerated filer  o
 
 
Smaller reporting company  o
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).  Yes o     No þ
The aggregate market value of the ordinary shares held by non-affiliates of the registrant was approximately $2.38 billion on December 31, 2015 (the last business day of the registrant’s most recently completed second fiscal quarter) based on the last reported sale price of the registrant’s ordinary shares on the NASDAQ Global Select Market.
As of August 5, 2016, there were 31,593,022 of Cimpress N.V. ordinary shares, par value 0.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended June 30, 2016. Portions of such proxy statement are incorporated by reference into Items 10, 11, 12, 13, and 14 of Part III of this Annual Report on Form 10-K
 




CIMPRESS N.V.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended June 30, 2016

TABLE OF CONTENTS
 
 
Page
PART I
 
 
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
 
 
 
PART II
 
 
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issued Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements With Accountants and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
 
 
 
PART III
 
 
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
 
 
 
PART IV
 
 
Item 15.
Exhibits and Financial Statement Schedules
Signatures
 





PART I
Item 1. Business
Overview
We are a technology driven company that aggregates, via the Internet, large volumes of small, individually customized orders for a broad spectrum of print, signage, apparel and similar products. We fulfill those orders with manufacturing capabilities that include Cimpress owned and operated manufacturing facilities and a network of third-party fulfillers to create customized products for customers on-demand. We bring our products to market through a portfolio of focused brands serving the needs of micro, small and medium sized businesses, resellers and consumers. These brands include Vistaprint, our global brand for micro business marketing products and services, as well as brands that we have acquired that serve the needs of various market segments, including resellers, small and medium businesses with differentiated service needs, and consumers purchasing products for themselves and their families.
Our Priorities
We manage our business according to two uppermost objectives:
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Strategic: To be the world leader in mass customization.
2.
Financial: To maximize intrinsic value per share, defined as (a) the unlevered free cash flow per share that, in our best judgment, will occur between now and the long-term future, appropriately discounted to reflect our cost of capital, minus (b) net debt per share.

World Leader in Mass Customization
Cimpress’ strategic objective is to defend and extend our position as the world leader in mass customization. Mass customization is a business model that allows companies to deliver major improvements to customer value across a wide variety of printed product categories. Companies that master mass customization are able to produce, with the reliability, quality and affordability of mass production, small individual orders where each one embodies the personal relevance inherent to customized products.

 
          The chart illustrates this concept. The horizontal axis represents the volume of production of a given product; the vertical axis represents the cost of producing one unit of that product. Traditionally, the only way to manufacture at a low unit cost was to produce a large volume of that product: mass-produced products fall in the lower right hand corner of the chart. Custom-made products (i.e., those produced in small volumes for a very specific purpose) historically incurred very high unit costs: they fall in the upper left hand side of the chart.
          Mass customization breaks this trade off, enabling low volume, low cost production of individually unique products. Very importantly, relative to traditional alternatives mass customization creates value in many ways, not just lower cost. Other advantages can include faster production, greater personal relevance, elimination of obsolete stock, better design, flexible shipping options, more product choice, and higher quality.

Mass customization delivers a breakthrough in customer value particularly in markets in which the worth of a physical product is inherently tied to a specific, unique use or application. For instance, there is limited value to a marketing brochure that is the same brochure as is used by many other companies: the business owner needs to describe what is unique about his or her endeavor. Likewise, a photo mug is more personally relevant if it shows pictures of someone’s own friends and family. Before mass customization, producing a high quality custom product

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required high per-order setup costs, so it simply was not economical to produce a customized product in low quantities.
Cimpress’ focus on mass customization lies at the intersection of three overlapping areas:
Empowering People to Make an Impression (what we are passionate about) - Cimpress empowers people to make an impression through individually meaningful physical products. In other words, we make it easy and affordable for our customers to convey, in tangible and enduring media, the thoughts, design aesthetics, messages and/or sentiments that are important to them, their customers, their organization or their loved ones.
Computer Integrated Manufacturing (where we can be the best in the world) - Low-volume custom products traditionally have a very high per-unit cost because of significant fixed costs related to conveying and using information that is required to process each order. Throughout our history, a differentiating capability of Cimpress has been our ability to develop systems to integrate every step of the value chain, from design creation to delivery. This greatly reduces the marginal cost of processing information related to each individual, customized order. We use computer integrated manufacturing, which harnesses the power of software and IT networks to automate the flow of information, allowing individual processes to exchange information with each other, to schedule activities, to initiate actions, and to route and control a broad range of activities related to the specification and production of physical goods.
Large Scale in Small Quantities (what drives our economic engine) - By large scale we mean a large volume of orders; by small quantities we mean small individual orders. Large scale is an important driver of our competitive advantage because increasingly larger volumes of orders allow us to sort and then produce those orders in increasingly focused processes. This allows us to generate economic value by capturing a portion of the per-unit cost difference that exists between relatively high-volume, specialized processes and low volume (job shop) processes. When we have increased the volume of orders that we process and produce we have seen material improvements in quality, product selection, speed and cost. In fiscal 2016, we processed over 46 million uniquely customized items.
Our Corporate Strategy

A key corporate strategy is to build a mass customization platform (MCP) and a related ecosystem of owned and third party merchants and fulfillers. We are designing the Cimpress platform to consist of a robust collection of software micro services that enables mass customization that provides:
Merchants with tools and services such as pre-press document processing and production capabilities.
Fulfillers with tools and opportunities to expand their business.
By “merchants” we mean organizations that sell mass customized products to customers, including both our Cimpress-owned business units and third parties. By “fulfillers” we mean organizations that produce mass-customized products; these include both our own production facilities and those of third parties.

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As of July 2016, the Cimpress MCP is currently still under development and functioning only in small initial increments. However, we anticipate that, in the future when the MCP is more established, we can create significant value via the platform. As more fulfillers join the platform, merchants would be able to get access to more products, more delivery options, more finishing options and lower cost. As new merchants join, fulfillers would be able to gain access to markets and production volume that would have otherwise been inaccessible to them. Both fulfillers and merchants would get access to a robust set of software services that they can assemble into solutions according to their needs. We are designing the mass customization platform to sort individual orders from many different merchants into homogeneous streams of production workflow that are routed to specialized production lines.
Market and Industry Background
Mass Customization Opportunity
Product:
Geography:
Customer:
 - Small format
 - North America
 - Businesses (micro, small,
 - Large format
 - Europe
    medium, large)
 - Promotional products,
 - Australia/New Zealand
 - Graphic designers, resellers,
   apparel and gifts
 - Other
    and print providers
 - Packaging
 
 - Teams, associations and
 - Photo products, invitations
 
    groups
    and announcements
 
 - Consumers (home and family)
Large traditional markets undergoing disruptive innovation
We believe that our mass customization business model can deliver great customer value across a diverse set of product applications, including marketing materials such as business cards, brochures, catalogs and flyers; signage and displays; promotional products; decorated apparel and bags; fabrics and textiles; keepsakes and gifts, packaging, photo products, invitations and announcements. Many different customers appreciate access to affordable, high quality, customized products in these categories, including businesses of all sizes, teams, associations and groups, consumers, and resellers and designers who serve customers in these groups.
The product categories and customers listed above constitute a large market opportunity that is highly fragmented. We believe that a vast majority of the markets to which mass customization could apply is still served by traditional business models that force customers either to produce in large quantities per order or to pay a high price per unit.
We believe that these large and fragmented markets are moving away from small traditional suppliers that employ job shop business models to fulfill a relatively small number of customer orders and toward companies such as Cimpress that aggregate a relatively large number of orders and fulfill them via focused supply chain and production capabilities at relatively high volumes, thereby achieving the benefits of mass customization. We believe we are early in the process of what will be a multi-decade shift from job shop to mass customization.
Cimpress' current revenue represents a very small fraction of this market opportunity. Even though we believe Cimpress is the largest single player in this market, there are many other companies who are pursuing mass customization and/or business models that incorporate many of the tenets of mass customization. These non-traditional suppliers include both large firms and hundreds of focused smaller firms. We believe that Cimpress and other competitors who have built their business around a mass customization model are “disruptive innovators” to these large markets because we enable small volume production of personalized high quality products at an affordable price. Disruptive innovation, a term of art coined by Harvard Business School professor Clayton Christensen, describes a process by which a product or service takes root initially in simple applications at the bottom of a market (such as free business cards for the most price sensitive of micro-businesses) and then moves up market, eventually displacing established competitors (such as the markets mentioned above).
We believe this opportunity to deliver substantially better customer value and to therefore disrupt very large traditional industries can translate into tremendous future opportunity for Cimpress if we execute well and constantly improve our business model over a long period of time. Until recently, we focused primarily on a narrow set of customers within the list above (micro businesses and consumers) with a very limited product offering. With acquisitions and via internal investments over the last several years, we have extended our ability to serve our

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traditional customers and have also gained a capability to serve larger businesses as well as resellers who, in turn, serve many different types of customers.
As we continue to evolve as a business, our understanding of these markets and their relative attractiveness will also evolve. Our expansion into the “upload and print” space via acquisition, promotional products, apparel, packaging and gifts, as well as new geographic markets has significantly increased the size of our addressable market opportunity. We base our market size and inherent profitability estimates upon considerable research and analysis; however we consider our estimates to be only approximate. Despite the imprecise nature of our estimates, we are confident that our understanding is directionally correct and that we operate in an enormous aggregate market with significant opportunity for Cimpress to grow should we be successful in delivering a differentiated and attractive value proposition to customers.
Today, we believe that the global revenue opportunity for low-to-medium order quantities (i.e. still within our focus of small-sized individual orders) in the four product categories below is over $100 billion annually in North America and Europe. The addition of other geographies and the consumer products space adds at least 50% to this number:
Small format marketing materials such as business cards, flyers, leaflets, inserts, brochures and magazines. Businesses of all sizes are the main end users of short-and-medium run lengths (per order quantities below 2,500 units for business cards and below 20,000 units for other materials).
Large format products such as banners, signs, tradeshow displays, and point-of-sale displays. Businesses of all sizes are the main end users of short-and-medium run lengths (less than 1,000 units).
Promotional products, apparel and gifts including decorated apparel, bags and textiles, and hard goods such as pens, USB sticks, and drinkware. The end users of short-and-medium runs of these products range from businesses to teams, associations and groups, as well as consumers.
Packaging products, such as corrugated board packaging, folded cartons, bags and labels. Businesses are the primary end users for short-and-medium runs (below 10,000 units).
Our Business
Today’s Cimpress includes 12 previously independent companies which we have acquired plus Vistaprint, which we grew organically. Prior to their acquisitions, each of our acquired entities pursued business models which embodied the principles of mass customization. In other words, each provided a standardized set of products that could be configured and customized by customers, ordered in relatively low volumes, and would produce via relatively standardized, homogeneous production processes either internally and/or at sub-contractors.
At the largest of our constituent brands, which include Vistaprint, Pixartprinting, Albumprinter, WIRmachenDRUCK and Exaprint, our business is driven by sophisticated, standardized processes and software. These technologies are designed to readily scale as the number of orders received per day increases. In particular, the more individual jobs we receive in a given time period, the more efficiently we can sort and route jobs with homogeneous production processes to given nodes of our production systems or of our third party supply chain. This sortation and subsequent process automation improves production efficiency. We believe that our strategy of systematizing our service and production systems enables us to deliver value to customers much more effectively than traditional competitors.
We operate internal production facilities in Canada, the Netherlands, Australia, Austria, France, Italy, the UK, Japan, India, Brazil and China. Importantly, we also work with a network of several hundred external fulfillers located across the globe. We believe that the improvements we have made and the future improvements we intend to make in software technologies that support the design, sortation, scheduling, production and delivery processes provide us with significant competitive advantage. In many cases we can produce and ship an order the same day we receive it. Our systems and processes seek to drive reduced inventory and working capital requirements as well as faster delivery to customers. In certain of our company-owned manufacturing facilities, software schedules the near-simultaneous production of customized products that have been ordered by the same customer, allowing us to produce and deliver multi-part orders quickly and efficiently.
We believe that the standard business cards sold by our Vistaprint business unit provide a concrete example of the potential of our mass customization business model to deliver significant customer value and to develop strong

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profit franchises in large markets that were previously low growth and commoditized. The current Cimpress operations for a typical order of 250 business cards in Europe and North America require less than 14 seconds of human labor for all of pre-press, printing, cutting and packaging, versus an hour or more for traditional printers. Combined with advantages of scale in purchasing of materials, our self-service ordering, pre-press automation, auto-scheduling and automated manufacturing processes enable us to produce standard business cards at a fraction of the cost of typical traditional printers with very consistent quality and delivery reliability. Achieving this type of efficiency took us more than a decade and required massive volume, significant engineering investments and significant capital. Standard Vistaprint business cards (which account for approximately 29% of the Vistaprint business unit total bookings for fiscal 2016) represent a mature, highly refined, and highly profitable example of the power of mass customization. Even though we do not expect many other products to reach this extreme level of automation, we do currently produce multiple other product categories (such as flyers, brochures, signage, mugs, calendars, t-shirts, hats, embroidered soft goods, rubber stamps, photobooks, labels and holiday cards) via analogous methods whose volume and processes are well along the spectrum of mass customization relative to traditional suppliers and thus provide great customer value and a strong, profitable and growing revenue stream.
We believe that the potential for scale-based advantages are not limited to large, automated production lines. Other advantages include the ability to systematically and automatically sort through large volumes of diverse orders for the “long tail” (i.e. those formats and process requirements that are relatively uncommon), to group these diverse orders into more homogeneous categories, and to route them to production nodes that are specialized for that category of operations and/or which are geographically proximate to the customer. In such cases, even though the daily production volume of a given production node is small in comparison to our highest volume production lines, the homogeneity and volume we are able to achieve is nonetheless significant relative to traditional suppliers of the long tail product in question; thus our relative efficiency gains remain substantial. For this type of long tail production, we rely heavily on third-party fulfillment partnerships, which allow us to offer a very diverse set of products. We acquired most of our capabilities in this area via our investments in Exaprint, Printdeal, Pixartprinting and WIRmachenDRUCK. For instance, the product assortment of each these four brands are measured in the tens of thousands, versus just a few hundred at Vistaprint traditionally. This deep and broad product offering is important to many customers.
Our products
Customers visiting our websites can select the type of product they wish to design from our broad range of available products and services for the business, reseller and home and family markets. The combined product assortment across our brands is extensive, including offerings in the following product categories: business cards, marketing materials such as flyers and postcards, digital and marketing services, signage, decorated apparel, promotional products and gifts, packaging, textiles and magazines and catalogs.

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Supply chain management
We are focused on achieving the lowest total cost in our strategic sourcing efforts by concentrating on quality, logistics, technology and cost, while also striving to use responsible sourcing practices within our supply chain. Our efforts include the procurement of high quality materials and equipment that meet our strict specifications at a low total cost across a growing number of manufacturing locations, with an increasing focus on supplier compliance with our sustainable paper procurement policy as well as our Supplier Code of Conduct. Additionally, we work to develop and implement logistics, warehousing, and outbound shipping strategies to provide a balance of low-cost material availability while limiting our inventory exposure. We believe investing in a strategic supply chain management capability that is tightly integrated with our other manufacturing teams helps us benefit from our large scale, improve efficiency and reduce costs, and increase the sustainability of our business.
As part of our corporate social responsibility program, we regularly evaluate ways to minimize the impact of our operations on the environment. Past efforts have substantially reduced the energy consumption of our operations. In fiscal 2017, we will be initiating a program to convert a substantial portion of the paper we use in our Cimpress owned production facilities to FSC (Forest Stewardship Council) certified paper. FSC is an international non-profit organization committed to promoting the practice of sustainable forestry worldwide. FSC certification confirms that the paper comes from responsibly managed forests that meet FSC’s environmental and social standards.
Our Proprietary Technology
We rely on our advanced proprietary technology to market to, attract and retain our customers, to enable customers to create graphic designs and place orders on our websites, and to aggregate and produce multiple orders from all over the world. We separate our software teams into teams that focus on customer-facing brands (merchant technologies) and teams that focus on manufacturing, supply chain and logistics technologies (fulfiller technologies).
Merchant Technologies
Each of our customer-facing brands sells via an e-commerce model and uses a mix of proprietary and third-party software to support the marketing and sale of its offerings. Since our upload and print businesses require the upload of press-ready files from their customers, there is less proprietary technology for upload and print merchants than there is for our Vistaprint and Albumprinter business units, which target a broader base of smaller customers and offer those customers the ability to create or modify designs within their web browser via functionality that is intuitive to customers who are not skilled in more sophisticated graphic design software.
Our proprietary merchant technology includes:
Design and Document Creation Technologies - Our design creation technologies, primarily deployed through our Albumprinter business unit and our Vistaprint-branded websites, enable customers, by themselves or together with the assistance of our design support staff, to design and create high quality customized products in a "do it yourself" (DIY) manner. We also have proprietary technologies to help customers see their designs in on-screen simulations of real-world settings in real time in order to gain an appreciation for what the finished product will look like, as well as software that algorithmically generates customized product designs in real time based on key-word searches, enabling professional-looking graphic layouts to be easily and quickly created by customers without the need for graphic arts training.
Cross-Selling and Content Management Technologies - On our Vistaprint-branded websites, we combine the aforementioned proprietary document creation technologies with proprietary cross-selling technologies to automatically generate and display additional products incorporating the customer’s initial design, facilitating the cross-sale of related products and services. In addition, through a global content management system, we ensure that changes and updates to our site experience are reflected across our network of localized Vistaprint websites in multiple languages and currencies. Our Vistaprint software automatically generates and displays one or more additional customized product designs based upon a customer’s existing design.


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Fulfiller Technologies
Across our company, our pre-production and production technologies efficiently process and aggregate customer orders, prepare orders for high-quality production and manage production, addressing and shipment of these orders. These technologies allow us to efficiently store, process and aggregate tens of thousands of orders every day. Automated workflows help lower production cost while ensuring quality conformance and on-time delivery to our customers.
Technology Development
We intend to continue developing and enhancing our merchant and fulfiller technologies and our manufacturing processes. We have designed our website technologies and infrastructure to accommodate future geographic expansion and growth in the number of customer visits, orders, and product and service offerings. This architecture makes our applications highly scalable and offers our customers fast system responsiveness. In addition, our production technologies for aggregating jobs in preparation for manufacturing are designed to readily scale as we grow. We have engineering and research and development centers in Winterthur, Switzerland and Quarto d'Altino, Italy that are constantly seeking to strengthen our manufacturing and supply chain capabilities through engineering disciplines such as automation, manufacturing, choice of equipment, product manufacturability, materials science, process control and color control. We also have software engineering teams located around the world. Our technology and development expenses were approximately $221 million (12% of total revenues), $194 million (13% of total revenues) and $176 million (14% of total revenues) in the fiscal years ended June 30, 2016, 2015, and 2014, respectively.
Our Brands
We have adopted a multi-brand approach, which we believe will help us effectively develop value propositions that resonate strongly with very different parts of our large and heterogeneous addressable market for mass customization. As such, we have structured our organization to provide significant autonomy and decentralization for the individual business units who manage our brands. We believe that this autonomy allows for greater customer responsiveness, increased focus, and more innovation than if we were to manage our customer value proposition centrally.

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We have many localized websites serving countries in North America, Europe, Asia Pacific and South America. Our websites offer a broad assortment of tools and features allowing customers to create a product design or upload their own complete design, and place an order on a completely self-service basis or with varying levels of assistance. There are many types of customer needs that can be addressed differentially. Some examples of where we expect differential approaches by our various business units and brands are customer targets, advertising levels and methods, website user experience, nationally or regionally-specific content or product formats, product breadth and depth, merchandising, creation methods for graphic designs, price, quantity focus, quality attributes, delivery speed and service.
Brands that target micro businesses
Our Vistaprint brand helps micro businesses create beautiful, professional quality marketing products at affordable prices and at low volumes. Today, micro businesses make up a large part of our customers. To help our customers market in the digital world, the teams at our Pagemodo and Webs brands develop intuitive DIY solutions that are brought to market via their own brands as well as via the Vistaprint brand.

 
Brands that target graphic professionals
Businesses regularly turn to trusted graphic professionals (either internal to their firm or at third parties) for advice and design services in order to create great looking, customized products like magazines, brochures, flyers, catalogs, packaging, posters, presentation folders, signs, banners, logo apparel, business cards, labels, corporate gifts and more. These Cimpress brands focus on serving graphic professionals: local printers, print resellers, graphic artists, advertising agencies and other customers with professional desktop publishing skillsets.

 
Brands that target consumers (home and family)
Our photo and consumer product brands help preserve and share memories of friends and loved ones, commemorate important life events, and more. Each brand goes to market in a specific country or set of countries. But together, these brands constitute one of the world’s leading suppliers of photo merchandise such as photo books, wall décor, photo gifts, calendars, invitations, announcements, Christmas cards, New Year cards and other seasonal greeting cards. 



 
Many of our brands that target graphic professionals also market their product and service offerings to a wider customer base which includes small and micro businesses. In addition to these brands, our Corporate Solutions business unit is focused on developing products and solutions for the needs of small and medium sized businesses as well as larger enterprises through partnership relationships with a value proposition that differs from the traditional Vistaprint brand.

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Plans for our Mass Customization Platform
By “mass customization platform” we mean a constellation of software services and application programming interfaces, plus related technology, services and management operations, which matches fulfiller capabilities and capacity (our manufacturing and supply chain network) with demand from our merchants (our brands). As of July 2016, this shared platform is still under development: we expect to shift a significant portion of our activity to the platform by the end of fiscal 2017. That being said, we expect that we will continue to improve and further develop the mass customization platform for years to come.
Once the mass customization platform is in use, we plan to route production jobs to the production node in the fulfiller network that is best suited and cost efficient for the type of product ordered, inclusive of delivery. We believe that we can generate significant future customer and shareholder value from increased specialization of production facilities, aggregated scale from multiple brands, increased product offerings and shared technology development costs.
Competition
The markets for the products we produce and sell are intensely competitive, highly fragmented and geographically dispersed, with many existing and potential competitors. We compete on the basis of breadth and depth of product offerings; price; convenience; quality; technology; design content, tools, and assistance; customer service; ease of use; and production and delivery speed. It is our intention to offer a broad selection of high-quality products as well as related services at low price points and in doing so, offer our customers an attractive value proposition. Our current competition includes a combination of the following:

online companies, many of which provide products and services similar to ours;

providers that outsource production to third party suppliers;

online photo product companies;

internet firms and retailers;

traditional offline printers, sign shops, t-shirt suppliers and graphic design providers;

wholesale printers;

office superstores, drug store chains, food retailers and other major retailers targeting small business and consumer markets;

self-service desktop design and publishing using personal computer software with a laser or inkjet printer and specialty paper;

suppliers of customized apparel, promotional products and gifts;

email marketing and other digital services companies;

website design and hosting companies; and

providers of other digital marketing such as social media, local search directories and other providers.
As we expand our geographic reach, product and service portfolio and customer base, our competition increases. Our geographic expansion creates competition with companies that have a multi-national presence as well as experienced local vendors. Product offerings such as photo products, websites, email marketing, signage, apparel and promotional products have resulted in new competition as we entered those markets. We encounter competition from large retailers offering a wide breadth of products and highly focused companies specializing in a subset of our customers or product offerings. Given the state of maturity of the online mass customization market, we believe our biggest competition is still offline providers.
Barriers to entry have been lowered in many of our markets, and new players have entered the mass customization space, enabled by asset-light models, software-driven print-fulfillment platforms, innovation in

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production technology, and/or benefits of an intense focus on a niche product or geographic market. We believe that the long-term leaders in mass customization will be the companies that are innovative and agile, but also bring significant scale-based advantages to drive value to customers in the form of product selection, quality and cost, as well as service.
Intellectual Property
We seek to protect our proprietary rights through a combination of patents, copyrights, trade secrets, and trademarks and contractual restrictions. We enter into confidentiality and proprietary rights agreements with our employees, consultants and business partners, and control access to, and distribution of, our proprietary information.
As of June 30, 2016, we held 263 issued patents worldwide, and we continue to file new patent applications around the world. Subject to our continued payment of required patent maintenance fees, our currently issued patents will expire between December 2017 and May 2034. We hold 73 trademark registrations in various jurisdictions globally.
Business Segment and Geographic Information
As of June 30, 2016, our reportable operating segments consisted of the (a) Vistaprint business unit, (b) Upload and Print business units, which includes our druck.at, Exagroup, Easyflyer, Printdeal, Pixartprinting, Tradeprint, and WIRmachenDRUCK branded businesses, and (c) All Other business units, which includes our Albumprinter business unit, our Most of World business units and our newly formed Corporate Solutions business unit. Our Most of World business unit operates in India and in Brazil and Japan (via partial equity ownerships), and we have nascent fully owned operations in China. For more segment and geographic information about our revenues, adjusted net operating profit and long-lived assets, see Item 8 of Part II, “Financial Statements and Supplementary Data — Note 17 — Segment Information” and Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The descriptions of our business, products, and markets in this section apply to all of our operating segments.
Seasonality
Our profitability has historically been highly seasonal. Our second fiscal quarter, ending December 31, includes the majority of the holiday shopping season and has become our strongest quarter for sales of our consumer-oriented products, such as holiday cards, calendars, photo books, and personalized gifts. Operating income during the second fiscal quarter represented 86%, 62%, and 61% of annual operating income in the years ended June 30, 2016, 2015, and 2014, respectively. The increase in operating income seasonality for fiscal 2016 was impacted by a goodwill impairment charge recognized during the third quarter of the current period. When excluding the impact of the goodwill impairment charge, operating income seasonality is consistent with prior periods.
Employees
As of June 30, 2016, we had approximately 7,500 full-time and approximately 500 temporary employees worldwide.
Corporate Information
Cimpress N.V. (formerly named Vistaprint N.V.) was incorporated under the laws of the Netherlands on June 5, 2009 and on August 30, 2009 became the publicly traded parent company of the Cimpress group of entities. We maintain our registered office at Hudsonweg 8, 5928 LW Venlo, the Netherlands. Our telephone number in the Netherlands is +31-77-850-7700. As a result of our change of domicile from Bermuda to the Netherlands on August 30, 2009, the common shareholders of Vistaprint Limited became ordinary shareholders of Vistaprint N.V. and Vistaprint N.V. became the publicly traded parent company of the Vistaprint group of entities. Vistaprint Limited, the immediate predecessor corporation to Vistaprint N.V., was incorporated under the laws of Bermuda in April 2002.
Available Information
We are registered as a reporting company under the U.S. Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. Accordingly, we file or furnish with the U.S. Securities and Exchange Commission, or the SEC, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements as required by the Exchange Act and the rules and regulations of the SEC. The public may

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read and copy our reports, proxy statements and other materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room is available by calling 1-800-SEC-0330. In addition, the SEC maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers, such as Cimpress N.V, that file electronically with the SEC. The address of this website is www.sec.gov. We make available, free of charge through our United States website, the reports, proxy statements, amendments and other materials we file with or furnish to the SEC as soon as reasonably practicable after we electronically file or furnish such materials with or to the SEC. The address of our United States website is www.cimpress.com. We are not including the information contained on our website, or information that can be accessed by links contained on our website, as a part of, or incorporating it by reference into, this Annual Report on Form 10-K.
Item 1A. Risk Factors
Our future results may vary materially from those contained in forward-looking statements that we make in this Report and other filings with the SEC, press releases, communications with investors, and oral statements due to the following important factors, among others. Our forward-looking statements in this Report and in any other public statements we make may turn out to be wrong. These statements can be affected by, among other things, inaccurate assumptions we might make or by known or unknown risks and uncertainties or risks we currently deem immaterial. Consequently, no forward-looking statement can be guaranteed. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
Risks Related to Our Business
If our long-term growth strategy is not successful, our business and financial results could be harmed.

We may not achieve the objectives of our long-term investment and financial strategy, and our investments in our business may fail to impact our results and growth as anticipated. Some of the factors that could cause our business strategy to fail to achieve our objectives include, among others:

our failure to adequately execute our operational strategy or anticipate and overcome obstacles to achieving our strategic goals;

our failure to develop our mass customization platform or the failure of the platform to drive the efficiencies and competitive advantage we expect;

our failure to manage the growth, complexity, and pace of change of our business and expand our operations;

our failure to acquire, at a value-accretive price or at all, businesses that enhance the growth and development of our business or to effectively integrate the businesses we do acquire into our business;

our inability to purchase or develop technologies and other key assets to increase our efficiency, enhance our competitive advantage, and scale our operations;

the failure of our current supply chain to provide the resources we need at the standards we require and our inability to develop new or enhanced supply chains;

our failure to acquire new customers and enter new markets, retain our current customers, and sell more products to current and new customers;

our failure to identify and address the causes of our revenue weakness in some markets;

our failure to sustain growth in relatively mature markets;

our failure to promote, strengthen, and protect our brands;

our failure to effectively manage competition and overlap within our brand portfolio;

the failure of our current and new marketing channels to attract customers;

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our failure to realize expected returns on our capital allocation decisions;

unanticipated changes in our business, current and anticipated markets, industry, or competitive landscape;

our failure to attract and retain skilled talent needed to execute our strategy and sustain our growth; and

general economic conditions.
If our strategy is not successful, or if there is a market perception that our strategy is not successful, then our revenue, earnings, and value may not grow as anticipated or may decline, we may not be profitable, our reputation and brands may be damaged, and the price of our shares may decline. In addition, we may change our strategy from time to time, which can cause fluctuations in our financial results and volatility in our share price.

Purchasers of customized products may not choose to shop online, which would limit our acquisition of new customers that are necessary to the success of our business.

Although we increasingly sell our products and services via reseller channels, our interface to those channels is almost exclusively through the Internet. The online market for most of our products and services is not mature, and our success depends in part on our ability to attract customers who have historically purchased products and services we offer through offline channels. Specific factors that could prevent prospective customers from purchasing from us as an online retailer include:

concerns about buying customized products without face-to-face interaction with design or sales personnel;

the inability to physically handle and examine product samples;

delivery time associated with Internet orders;

concerns about the security of online transactions and the privacy of personal information;

delayed shipments or shipments of incorrect or damaged products;

limited access to the Internet; and

the inconvenience associated with returning or exchanging purchased items.

In addition, our internal research shows that an increasing number of current and potential customers access our websites using smart phones or tablet computing devices and that our website visits using traditional desktop computers may be declining. Designing and purchasing custom designed products on a smart phone, tablet, or other mobile device is more difficult than doing so with a traditional computer due to limited screen sizes and bandwidth constraints. If our customers and potential customers have difficulty accessing and using our websites and technologies, then our revenue could decline.

We may not succeed in promoting and strengthening our brands, which could prevent us from acquiring new customers and increasing revenues.     

A primary component of our business strategy is to promote and strengthen our brands to attract new and repeat customers to our websites, and we face significant competition from other companies in our markets who also seek to establish strong brands. To promote and strengthen our brands, we must incur substantial marketing expenses and establish a relationship of trust with our customers by providing a high-quality customer experience. Providing a high-quality customer experience requires us to invest substantial amounts of resources in our website development, design and technology, graphic design operations, production operations, and customer service operations. Our ability to provide a high-quality customer experience is also dependent on external factors over which we may have little or no control, including the reliability and performance of our suppliers, third-party carriers, and communication infrastructure providers. If we are unable to promote our brands or provide customers with a high-quality customer experience, we may fail to attract new customers, maintain customer relationships, and sustain or increase our revenues.

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We manage our business for long-term results, and our quarterly and annual financial results will often fluctuate, which may lead to volatility in our share price.

Our revenues and operating results often vary significantly from period to period due to a number of factors, and as a result comparing our financial results on a period-to-period basis may not be meaningful. We prioritize our two uppermost objectives (leadership in mass customization and maximizing intrinsic value per share) even at the expense of shorter-term results and generally do not manage our business to maximize current period financial results, including our GAAP net income and operating cash flow and other results we report. Many of the factors that lead to period-to-period fluctuations are outside of our control; however, some factors are inherent in our business strategies. Some of the specific factors that could cause our operating results to fluctuate from quarter to quarter or year to year include among others:
 
investments in our business in the current period intended to generate longer-term returns, where the shorter-term costs will not be offset by revenue or cost savings until future periods, if at all;

seasonality-driven or other variations in the demand for our products and services, in particular during our second fiscal quarter;

currency and interest rate fluctuations, which affect our revenues, costs, and fair value of our assets and liabilities;

our hedging activity;

our ability to attract visitors to our websites and convert those visitors into customers;

our ability to retain customers and generate repeat purchases;

shifts in revenue mix toward less profitable products and brands;

the commencement or termination of agreements with our strategic partners, suppliers, and others;

our ability to manage our production, fulfillment, and support operations;

costs to produce and deliver our products and provide our services, including the effects of inflation;

our pricing and marketing strategies and those of our competitors;

expenses and charges related to our compensation arrangements with our executives and employees, including expenses and charges relating to the new long-term incentive compensation program we launched at the beginning of fiscal year 2017;

costs and charges resulting from litigation;

significant increases in credits, beyond our estimated allowances, for customers who are not satisfied with our products;

changes in our income tax rate;

costs to acquire businesses or integrate our acquired businesses;

impairments of our tangible and intangible assets including goodwill; and

the results of our minority investments and joint ventures.
 
Some of our expenses, such as office leases, depreciation related to previously acquired property and equipment, and personnel costs, are relatively fixed, and we may be unable to, or may not choose to, adjust operating expenses to offset any revenue shortfall. Accordingly, any shortfall in revenue may cause significant variation in operating results in any period. Our operating results may sometimes be below the expectations of public market analysts and investors, in which case the price of our ordinary shares will likely decline.

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We may not be successful in developing our mass customization platform or in realizing the anticipated benefits of the platform.
A key component of our strategy is the development of a mass customization platform that acts as an interface between fulfillers (owned and third party production facilities) and our merchants (business units and brands). The process of developing new technology is complex, costly, and uncertain, and the development effort could be disruptive to our business and existing systems. We must make long-term investments, develop or obtain appropriate intellectual property, and commit significant resources before knowing whether our mass customization platform will be successful and make us more effective and competitive. As a result, there can be no assurance that we will successfully complete the development of the platform or that we will realize expected returns on the capital expended to develop the platform.
In addition, we are aware that other companies are developing platforms that could compete with ours. If a competitor were to develop and reach scale with a platform before we do, our competitive position could be harmed.
Our global operations and expansion place a significant strain on our management, employees, facilities, and other resources and subject us to additional risks.

We are a global company with production facilities, offices, and localized websites in multiple countries across six continents. We expect to establish operations, acquire or invest in businesses, and sell our products and services in additional geographic regions, including emerging markets, where we may have limited or no experience. We may not be successful in all regions in which we invest or where we establish operations, which may be costly to us. We are subject to a number of risks and challenges that relate to our global operations and expansion, including, among others:

difficulty managing operations in, and communications among, multiple locations and time zones;

difficulty complying with multiple tax laws, treaties, and regulations and limiting our exposure to onerous or unanticipated taxes, duties, and other costs;

our failure to improve and expand our financial and operational controls to manage our business and comply with our legal obligations;

local regulations that may restrict or impair our ability to conduct our business as planned;

protectionist laws and business practices that favor local producers and service providers;

our inexperience in marketing and selling our products and services within unfamiliar countries and cultures;

challenges of working with local business partners;

our failure to properly understand and develop graphic design content and product formats and attributes appropriate for local tastes;

disruptions caused by political and social instability that may occur in some countries;

corrupt business practices, such as bribery or the willful infringement of intellectual property rights, that may be common in some countries;

difficulty expatriating cash from some countries;

difficulty importing and exporting our products across country borders and difficulty complying with customs regulations in the many countries where we sell products;

disruptions or cessation of important components of our international supply chain;

the challenge of complying with disparate laws in multiple countries;


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restrictions imposed by local labor practices and laws on our business and operations; and

failure of local laws to provide a sufficient degree of protection against infringement of our intellectual property.

There is considerable uncertainty about the economic and regulatory effects of the June 23, 2016 referendum in which United Kingdom voters approved an exit from the European Union (commonly referred to as "Brexit"). The UK is one of our largest markets in Europe, but we currently ship products to UK customers primarily from continental Europe. If the Brexit results in greater restrictions on imports and exports between the UK and the EU or increased regulatory complexity, then our operations and financial results could be negatively impacted.

In addition, we are exposed to fluctuations in currency exchange rates that may impact items such as the translation of our revenues and expenses, remeasurement of our intercompany balances, and the value of our cash and cash equivalents and other assets and liabilities denominated in currencies other than the U.S. dollar, our reporting currency. While we engage in hedging activities to mitigate some of the net impact of currency exchange rate fluctuations, our financial results may differ materially from expectations as a result of such fluctuations. For example, the Brexit vote has caused significant currency volatility that was mitigated in the near term by our currency hedging programs but that could potentially hurt our financial results in the future.

Acquisitions and strategic investments may be disruptive to our business.

An important way in which we pursue our strategy is to selectively acquire businesses, technologies, and services and to make minority investments in businesses and joint ventures. The time and expense associated with finding suitable businesses, technologies, or services to acquire or invest in can be disruptive to our ongoing business and divert our management's attention. In addition, we have needed in the past, and may need in the future, to seek financing for acquisitions and investments, which may not be available on terms that are favorable to us, or at all, and can cause dilution to our shareholders, cause us to incur additional debt, or subject us to covenants restricting the activities we may undertake.

Our acquisitions and strategic investments may fail to achieve our goals.

An acquisition or investment may fail to achieve our goals and expectations for a number of reasons including the following:

The business we acquired or invested in may not perform as well as we expected.

We may overpay for acquired businesses, which can, among other things, negatively affect our intrinsic value per share.

We may fail to integrate acquired businesses, technologies, services, or internal systems effectively, or the integration may be more expensive or take more time than we anticipated.

The management of our minority investments may be more expensive or may take more resources than we expected.

We may not realize the anticipated benefits of integrating acquired businesses into our mass customization platform.

We may encounter unexpected cultural or language challenges in integrating an acquired business or managing our minority investment in a business.

We may not be able to retain customers and key employees of the acquired businesses, and we and the businesses we acquire or invest in may not be able to cross sell products and services to each other's customers.

We generally assume the liabilities of businesses we acquire, which could include liability for an acquired business' violation of law that occurred before we acquired it. In addition, we have historically acquired smaller, privately held companies that may not have as strong a culture of legal compliance or as robust financial controls as

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a larger, publicly traded company like Cimpress, and if we fail to implement adequate training, controls, and monitoring of the acquired companies, we could also be liable for post-acquisition legal violations.

Our acquisitions and minority investments can negatively impact our financial results.

Acquisitions and minority investments can be costly, and some of our acquisitions and investments may be dilutive, leading to reduced earnings. Acquisitions and investments can result in increased expenses including impairments of goodwill and intangible assets if financial goals are not achieved, assumptions of contingent or unanticipated liabilities, amortization of acquired intangible assets, and increased tax costs.

In addition, the accounting for our acquisitions requires us to make significant estimates, judgments, and assumptions that can change from period to period, based in part on factors outside of our control, which can create volatility in our financial results. For example, we often pay a portion of the purchase price for our acquisitions in the form of an earn-out based on performance targets for the acquired companies, which can be difficult to forecast. We accrue liabilities for estimated future contingent earn-out payments based on an evaluation of the likelihood of achievement of the contractual conditions underlying the earn-out and weighted probability assumptions of the required outcomes. If in the future our assumptions change and we determine that higher levels of achievement are likely under our earn-outs, we will need to pay and record additional amounts to reflect the increased purchase price. These additional amounts could be significant and could adversely impact our results of operations. In addition, earn-out provisions can lead to disputes with the sellers about the achievement of the earn-out performance targets, and earn-out performance targets can sometimes create inadvertent incentives for the acquired company's management to take short-term actions designed to maximize the earn-out instead of benefiting the business.
If we are unable to attract visitors to our websites and convert those visitors to customers, our business and results of operations could be harmed.
Our success depends on our ability to attract new and repeat customers in a cost-effective manner. We rely on a variety of methods to draw visitors to our websites and promote our products and services, such as purchased search results from online search engines such as Google and Yahoo!, email, direct mail, advertising banners and other online links, broadcast media, and word-of-mouth customer referrals. If the search engines on which we rely modify their algorithms, terminate their relationships with us, or increase the prices at which we may purchase listings, our costs could increase, and fewer customers may click through to our websites. If we are not effective at reaching new and repeat customers, if fewer customers click through to our websites, or if the costs of attracting customers using our current methods significantly increase, then traffic to our websites would be reduced, our revenue and net income could decline, and our business and results of operations would be harmed.
Seasonal fluctuations in our business place a strain on our operations and resources.
Our profitability has historically been highly seasonal. Our second fiscal quarter includes the majority of the holiday shopping season and accounts for a disproportionately high portion of our earnings for the year, primarily due to higher sales of home and family products such as holiday cards, calendars, photo books, and personalized gifts. Our operating income during the second fiscal quarter represented 86%, 62%, and 61% of annual operating income in the years ended June 30, 2016, 2015, and 2014, respectively. In anticipation of increased sales activity during our second fiscal quarter holiday season, we typically incur significant additional capacity related expenses each year to meet our seasonal needs, including facility expansions, equipment purchases and leases, and increases in the number of temporary and permanent employees. Lower than expected sales during the second quarter would likely have a disproportionately large impact on our operating results and financial condition for the full fiscal year. In addition, if our manufacturing and other operations are unable to keep up with the high volume of orders during our second fiscal quarter, we and our customers can experience delays in order fulfillment and delivery and other disruptions. If we are unable to accurately forecast and respond to seasonality in our business, our business and results of operations may be materially harmed.

Our hedging activity could negatively impact our results of operations and cash flows.

We have entered into derivatives to manage our exposure to interest rate and currency movements. If we do not accurately forecast our results of operations, execute contracts that do not effectively mitigate our economic exposure to interest rates and currency rates, elect to not apply hedge accounting, or fail to comply with the complex accounting requirements for hedging, our results of operations and cash flows could be volatile, as well as

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negatively impacted. Also, our hedging objectives may be targeted at non-GAAP financial metrics, which could result in increased volatility in our GAAP results.

We face risks related to interruption of our operations and lack of redundancy.

Our production facilities, websites, infrastructure, supply chain, customer service centers, and operations may be vulnerable to interruptions, and we do not have redundancies or alternatives in all cases to carry on these operations in the event of an interruption. In addition, because we are dependent in part on third parties for the implementation and maintenance of certain aspects of our communications and production systems, we may not be able to remedy interruptions to these systems in a timely manner or at all due to factors outside of our control. Some of the events that could cause interruptions in our operations or systems are, among others:

fire, natural disasters, or extreme weather

labor strike, work stoppage, or other issues with our workforce

political instability or acts of terrorism or war

power loss or telecommunication failure

attacks on our external websites or internal network by hackers or other malicious parties

undetected errors or design faults in our technology, infrastructure, and processes that may cause our websites to fail

inadequate capacity in our systems and infrastructure to cope with periods of high volume and demand

human error, including poor managerial judgment or oversight

Any interruptions to our systems or operations could result in lost revenue, increased costs, negative publicity, damage to our reputation and brands, and an adverse effect on our business and results of operations. Building redundancies into our infrastructure, systems and supply chain to mitigate these risks may require us to commit substantial financial, operational, and technical resources, in some cases before the volume of our business increases with no assurance that our revenues will increase.

We face intense competition, and we expect our competition to continue to increase.

The markets for small business marketing products and services and home and family custom products, including the printing and graphic design market, are intensely competitive, highly fragmented, and geographically dispersed. The competitive landscape for e-commerce companies continues to change as new e-commerce businesses are introduced and traditional “bricks and mortar” businesses establish an online presence. Competition may result in price pressure, reduced profit margins and loss of market share and brand recognition, any of which could substantially harm our business and financial results. Current and potential competitors include (in no particular order):

traditional offline suppliers and graphic design providers;

online printing and graphic design companies, many of which provide products and services similar to ours;

office superstores, drug store chains, food retailers and other major retailers targeting small business and consumer markets;

wholesale printers;

self-service desktop design and publishing using personal computer software;

email marketing services companies;

website design and hosting companies;

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suppliers of customized apparel, promotional products and gifts;

online photo product companies;

Internet firms and retailers;

online providers of custom printing services that outsource production to third party printers; and

providers of other digital marketing such as social media, local search directories and other providers.

Many of our current and potential competitors have advantages over us, including longer operating histories, greater brand recognition or loyalty, more focus on a given subset of our business, or significantly greater financial, marketing, and other resources. Many of our competitors currently work together, and additional competitors may do so in the future through strategic business agreements or acquisitions. Competitors may also develop new or enhanced products, technologies or capabilities that could render many of the products, services and content we offer obsolete or less competitive, which could harm our business and financial results.
In addition, we have in the past and may in the future choose to collaborate with some of our existing and potential competitors in strategic partnerships that we believe will improve our competitive position and financial results, such as through a retail in-store or web-based collaborative offering. It is possible, however, that such ventures will be unsuccessful and that our competitive position and financial results will be adversely affected as a result of such collaboration.

Failure to meet our customers' price expectations would adversely affect our business and results of operations.

Demand for our products and services is sensitive to price for almost all of our brands, and changes in our pricing strategies have had a significant impact on the numbers of customers and orders in some regions, which in turn affects our revenues and results of operations. Many factors can significantly impact our pricing and marketing strategies, including the costs of running our business, our competitors' pricing and marketing strategies, and the effects of inflation. If we fail to meet our customers' price expectations, our business and results of operations may suffer.

Failure to protect our networks and the confidential information of our customers, employees, and business partners against security breaches or thefts could damage our reputation and brands and substantially harm our business and results of operations.

Businesses like ours are increasingly becoming targets for cyber attacks and other thefts of data. We may need to expend significant resources to protect against security breaches and thefts of data or to address problems caused by breaches or thefts. Any compromise or breach of our network, websites, offices, or retail locations, our employee personal data, or our customer transaction data, including credit and debit card information, could, among other things:

damage our reputation and brands;

expose us to losses, litigation, and possible liability;

result in a failure to comply with legal and industry privacy regulations and standards;

lead to the misappropriation of our and our customers' proprietary or personal information; or

cause interruptions in our operations.

In addition, some of our vendors collect and maintain personal data about our employees, and some of our partners collect information from transactions with our customers. We may be liable or our reputation may be harmed if our vendors or partners fail to protect this information or use it in a manner that is inconsistent with legal and industry privacy regulations or our practices.


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If we fail to address risks associated with payment fraud, our reputation and brands could be damaged, and our business and results of operations could be harmed.

We may be liable for fraudulent transactions conducted on our websites, such as through the use of stolen credit card numbers. To date, quarterly losses from payment fraud have not exceeded 1% of total revenues in any quarter, but we continue to face the risk of significant losses from this type of fraud.

We rely heavily on email to market to and communicate with customers, and email communications are subject to regulatory and reputation risks.

Various private entities attempt to regulate the use of commercial email solicitation by blacklisting companies that the entities believe do not meet their standards, which results in those companies' emails being blocked from some Internet domains and addresses. Although we believe that our commercial email solicitations comply with all applicable laws, from time to time some of our Internet protocol addresses appear on some of these blacklists, which can interfere with our ability to market our products and services, communicate with our customers, and operate and manage our websites and corporate email accounts. In addition, as a result of being blacklisted, we have had disputes with, or concerns raised by, various service providers who perform services for us, including co-location and hosting services, Internet service providers and electronic mail distribution services.

Further, we have contractual relationships with partners that market our products and services on our behalf, and some of our marketing partners engage third-party email marketers with which we do not have any contractual or other relationship. Although we believe we comply with all applicable laws relating to email solicitations and our contracts with our partners require that they do the same, we do not always have control over the third-party email marketers that our partners engage. If such a third party were to send emails marketing our products and services in violation of applicable anti-spam or other laws, then our reputation could be harmed and we could potentially be liable for their actions.

We are subject to safety, health, and environmental laws and regulations, which could result in
liabilities, cost increases or restrictions on our operations.

We are subject to a variety of safety, health and environmental, or SHE, laws and regulations in each of the jurisdictions in which we operate. These laws and regulations govern, among other things, air emissions, wastewater discharges, the storage, handling and disposal of hazardous and other regulated substances and wastes, soil and groundwater contamination and employee health and safety. We use regulated substances such as inks and solvents, and generate air emissions and other discharges at our manufacturing facilities, and some of our facilities are required to hold environmental permits. If we fail to comply with existing SHE requirements, or new, more stringent SHE requirements applicable to us are imposed, we may be subject to monetary fines, civil or criminal sanctions, third-party claims, or the limitation or suspension of our operations. In addition, if we are found to be responsible for hazardous substances at any location (including, for example, offsite waste disposal facilities or facilities at which we formerly operated), we may be responsible for the cost of cleaning up contamination, regardless of fault, as well as to claims for harm to health or property or for natural resource damages arising out of contamination or exposure to hazardous substances.

In some cases we pursue self-imposed socially responsible policies that are more stringent than is typically required by laws and regulations, for instance in the areas of worker safety, team member social benefits and environmental protection. The costs of this added SHE effort are often substantial and could grow over time.

The loss of key personnel or an inability to attract and retain additional personnel could affect our ability to successfully grow our business.

We are highly dependent upon the continued service and performance of our senior management and key technical, marketing, and production personnel, any of whom may cease their employment with us at any time with minimal advance notice. We face intense competition for qualified individuals from many other companies in diverse industries. The loss of one or more of our key employees may significantly delay or prevent the achievement of our business objectives, and our failure to attract and retain suitably qualified individuals or to adequately plan for succession could have an adverse effect on our ability to implement our business plan.

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Our credit facility and the indenture that governs our senior notes restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

Our senior secured credit facility, which we refer to as our credit facility, and the indenture that governs our 7.0% senior unsecured notes due 2022, which we refer to as our senior notes, contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our best interest, including restrictions on our ability to:

incur additional indebtedness, guarantee indebtedness, and incur liens;

pay dividends or make other distributions or repurchase or redeem capital stock;

prepay, redeem, or repurchase certain subordinated debt;

issue certain preferred stock or similar redeemable equity securities;

make loans and investments;

sell assets;

enter into transactions with affiliates;

alter the businesses we conduct;

enter into agreements restricting our subsidiaries’ ability to pay dividends; and

consolidate, merge, or sell all or substantially all of our assets.

As a result of these restrictions, we may be limited in how we conduct our business, grow in accordance with our strategy, compete effectively, or take advantage of new business opportunities. In addition, the restrictive covenants in the credit facility require us to maintain specified financial ratios and satisfy other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and we may be unable to meet them.

A default under our indenture or credit facility would have a material, adverse effect on our business.
    
Our failure to make scheduled payments on our debt or our breach of the covenants or restrictions under the indenture that governs our senior notes or under our credit facility could result in an event of default under the applicable indebtedness. Such a default would have a material, adverse effect on our business and financial condition, including the following, among others:

Our lenders could declare all outstanding principal and interest to be due and payable, and we and our subsidiaries may not have sufficient assets to repay that indebtedness.

Our secured lenders could foreclose against the assets securing their borrowings.

Our lenders under the credit facility could terminate all commitments to extend further credit under that facility.

We could be forced into bankruptcy or liquidation.

Our material indebtedness and interest expense could adversely affect our financial condition.

As of June 30, 2016, our total debt was $685.9 million, made up of $275.0 million of senior notes, $400.8 million of loan obligations under our credit facility and $10.1 million of other debt. We had unused commitments of $427.5 million under our credit facility (after giving effect to letter of credit obligations).


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Subject to the limits contained in the credit facility, the indenture that governs our senior notes, and our other debt instruments, we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our level of debt could intensify. Specifically, our level of debt could have important consequences, including the following:

making it more difficult for us to satisfy our obligations with respect to our debt;

limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions, or other general corporate requirements;

requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions, and other general corporate purposes;

increasing our vulnerability to general adverse economic and industry conditions;


exposing us to the risk of increased interest rates as some of our borrowings, including borrowings under our credit facility, are at variable rates of interest;

limiting our flexibility in planning for and reacting to changes in the industry and marketplaces in which we compete;

placing us at a disadvantage compared to other, less leveraged competitors; and

increasing our cost of borrowing.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to economic and competitive conditions and to various financial, business, legislative, regulatory, and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital, or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all.

If we cannot make scheduled payments on our debt, we will be in default. Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under our credit facility are at variable rates of interest and expose us to interest rate risk. If interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even if the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. As of June 30, 2016, a hypothetical 100 basis point increase in rates, inclusive of our outstanding interest rate swaps, would result in an increase of interest expense of approximately $3.1 million over the next 12 months. Although we generally enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility, we might not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.

Border controls and duties and restrictions on cross-border commerce may impede our shipments across

21




country borders.

Many governments impose restrictions on shipping goods into their countries, as well as protectionist measures such as customs duties and tariffs that may apply directly to product categories comprising a material portion of our revenues. The customs laws, rules and regulations that we are required to comply with are complex and subject to unpredictable enforcement and modification. As a result of these restrictions, we have from time to time experienced delays in shipping our manufactured products into certain countries. For example, we produce substantially all physical products for our United States customers at our facility in Ontario, Canada and have occasionally experienced delays shipping from Canada into the United States. If we experience difficulty or delays shipping products into the United States or other key markets, or are prevented from doing so, or if our costs and expenses materially increased, our business and results of operations could be harmed.
If we are unable to protect our intellectual property rights, our reputation and brands could be damaged, and others may be able to use our technology, which could substantially harm our business and financial results.

We rely on a combination of patents, trademarks, trade secrets and copyrights and contractual restrictions to protect our intellectual property, but these protective measures afford only limited protection. Despite our efforts to protect our proprietary rights, unauthorized parties may be able to copy or use technology or information that we consider proprietary. There can be no guarantee that any of our pending patent applications or continuation patent applications will be granted, and from time to time we face infringement, invalidity, intellectual property ownership, or similar claims brought by third parties with respect to our patents. In addition, despite our trademark registrations throughout the world, our competitors or other entities may adopt names, marks, or domain names similar to ours, thereby impeding our ability to build brand identity and possibly leading to customer confusion. Enforcing our intellectual property rights can be extremely costly, and a failure to protect or enforce these rights could damage our reputation and brands and substantially harm our business and financial results.

Intellectual property disputes and litigation are costly and could cause us to lose our exclusive rights, subject us to liability, or require us to stop some of our business activities.

From time to time, we receive claims from third parties that we infringe their intellectual property rights, that we are required to enter into patent licenses covering aspects of the technology we use in our business, or that we improperly obtained or used their confidential or proprietary information. Any litigation, settlement, license, or other proceeding relating to intellectual property rights, even if we settle it or it is resolved in our favor, could be costly, divert our management's efforts from managing and growing our business, and create uncertainties that may make it more difficult to run our operations. If any parties successfully claim that we infringe their intellectual property rights, we might be forced to pay significant damages and attorney's fees, and we could be restricted from using certain technologies important to the operation of our business.

Our business is dependent on the Internet, and unfavorable changes in government regulation of the Internet, e-commerce, and email marketing could substantially harm our business and financial results.

Due to our dependence on the Internet for our sales, laws specifically governing the Internet, e-commerce, and email marketing may have a greater impact on our operations than other more traditional businesses. Existing and future laws, such as laws covering pricing, customs, privacy, consumer protection, or commercial email, may impede the growth of e-commerce and our ability to compete with traditional “bricks and mortar” retailers. Existing and future laws or unfavorable changes or interpretations of these laws could substantially harm our business and financial results.

The failure of our suppliers and manufacturing fulfillers to use legal and ethical business practices could negatively impact our business.

We source the raw materials for the products we sell from an expanding number of suppliers in an increasing number of jurisdictions worldwide, and we contract with third-party manufacturers to fulfill customer orders. Although we require our suppliers and fulfillers to operate in compliance with all applicable laws, including those regarding corruption, working conditions, employment practices, safety and health, and environmental compliance, we cannot control their business practices, and we may not be able to adequately vet, monitor, and audit our many suppliers and fulfillers (or their suppliers) throughout the world. If any of them violates labor, environmental, or other laws or implements business practices that are regarded as unethical, our reputation could

22




be severely damaged, and our supply chain and order fulfillment process could be interrupted, which could harm our sales and results of operations.

If we were required to review the content that our customers incorporate into our products and interdict the shipment of products that violate copyright protections or other laws, our costs would significantly increase, which would harm our results of operations.

Because of our focus on automation and high volumes, the vast majority of our sales do not involve any human-based review of content. Although our websites' terms of use specifically require customers to make representations about the legality and ownership of the content they upload for production, there is a risk that a customer may supply an image or other content for an order we produce that is the property of another party used without permission, that infringes the copyright or trademark of another party, or that would be considered to be defamatory, hateful, obscene, or otherwise objectionable or illegal under the laws of the jurisdiction(s) where that customer lives or where we operate. If we were to become legally obligated to perform manual screening of customer orders, our costs would increase significantly, and we could be required to pay substantial penalties or monetary damages for any failure in our screening process.

We are subject to customer payment-related risks.

We accept payments for our products and services on our websites by a variety of methods, including credit or debit card, PayPal, check, wire transfer or other methods. In some geographic regions, we rely on one or two third party companies to provide payment processing services. If any of the payment processing or other companies with which we have contractual arrangements became unwilling or unable to provide these services to us or they or we are unable to comply with our contractual requirements under such arrangements, then we would need to find and engage replacement providers, which we may not be able to do on terms that are acceptable to us or at all, or to process the payments ourselves. Any of these scenarios could be disruptive to our business as they could be costly and time consuming and may unfavorably impact our customers.

As we offer new payment options to our customers, we may be subject to additional regulations, compliance requirements and fraud risk. For some payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower our profit margins or require that we charge our customers more for our products. We are also subject to payment card association and similar operating rules and requirements, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules and requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments from our customers or facilitate other types of online payments, and our business and operating results could be materially adversely affected.

We may be subject to product liability claims if people or property are harmed by the products we sell.

Some of the products we sell may expose us to product liability claims relating to issues such as personal injury, death, or property damage, and may require product recalls or other actions. Any claims, litigation, or recalls relating to product liability could be costly to us and damage our brands and reputation.

Our inability to use or maintain domain names in each country or region where we currently or intend to do business could negatively impact our brands and our ability to sell our products and services in that country or region.

We may not be able to prevent third parties from acquiring domain names that use our brand names or other trademarks or that otherwise infringe or decrease the value of our trademarks and other proprietary rights. If we are unable to use or maintain a domain name in a particular country or region, then we could be forced to purchase the domain name from an entity that owns or controls it, which we may not be able to do on commercially acceptable terms or at all; we may incur significant additional expenses to develop a new brand to market our products within that country; or we may elect not to sell products in that country.

We do not collect indirect taxes in all jurisdictions, which could expose us to tax liabilities.

In some of the jurisdictions where we sell products and services, we do not collect or have imposed upon us sales, value added or other consumption taxes, which we refer to as indirect taxes. The application of indirect

23




taxes to e-commerce businesses such as Cimpress is a complex and evolving issue, and in many cases, it is not clear how existing tax statutes apply to the Internet or e-commerce. For example, some state governments in the United States have imposed or are seeking to impose indirect taxes on Internet sales. A successful assertion by one or more governments in jurisdictions where we are not currently collecting sales or value added taxes that we should be, or should have been, collecting indirect taxes on the sale of our products could result in substantial tax liabilities for past sales.

If we are unable to retain security authentication certificates, which are supplied by a limited number of third party providers over which we exercise little or no control, our business could be harmed.

We are dependent on a limited number of third party providers of website security authentication certificates that are necessary for conducting secure transactions over the Internet. Despite any contractual protections we may have, these third party providers can disable or revoke, and in the past have disabled or revoked, our security certificates without our consent, which would render our websites inaccessible to some of our customers and could discourage other customers from accessing our sites. Any interruption in our customers' ability or willingness to access our websites if we do not have adequate security certificates could result in a material loss of revenue and profits and damage to our brands.

Risks Related to Our Corporate Structure

Challenges by various tax authorities to our international structure could, if successful, increase our effective tax rate and adversely affect our earnings.

We are a Dutch limited liability company that operates through various subsidiaries in a number of countries throughout the world. Consequently, we are subject to tax laws, treaties and regulations in the countries in which we operate, and these laws and treaties are subject to interpretation. From time to time, we are subject to tax audits, and the tax authorities in these countries could claim that a greater portion of the income of the Cimpress N.V. group should be subject to income or other tax in their respective jurisdictions, which could result in an increase to our effective tax rate and adversely affect our results of operations. For more information about audits to which we are currently subject refer to Note 14 “Income Taxes” in the accompanying notes to the consolidated financial statements included in Item 8 of Part II of this Report.

Changes in tax laws, regulations and treaties could affect our tax rate and our results of operations.

A change in tax laws, treaties or regulations, or their interpretation, of any country in which we operate could result in a higher tax rate on our earnings, which could result in a significant negative impact on our earnings and cash flow from operations. We continue to assess the impact of various international tax reform proposals and modifications to existing tax treaties in all jurisdictions where we have operations that could result in a material impact on our income taxes. We cannot predict whether any specific legislation will be enacted or the terms of any such legislation. However, if such proposals were enacted, or if modifications were to be made to certain existing treaties, the consequences could have a materially adverse impact on us, including increasing our tax burden, increasing costs of our tax compliance or otherwise adversely affecting our financial condition, results of operations and cash flows.

Our intercompany arrangements may be challenged, which could result in higher taxes or penalties and an adverse effect on our earnings.

We operate pursuant to written transfer pricing agreements among Cimpress N.V. and its subsidiaries, which establish transfer prices for various services performed by our subsidiaries for other Cimpress group companies. If two or more affiliated companies are located in different countries, the tax laws or regulations of each country generally will require that transfer prices be consistent with those between unrelated companies dealing at arm's length. With the exception of certain jurisdictions where we have obtained rulings or advance pricing agreements, our transfer pricing arrangements are not binding on applicable tax authorities, and no official authority in any other country has made a determination as to whether or not we are operating in compliance with its transfer pricing laws. If tax authorities in any country were successful in challenging our transfer prices as not reflecting arm's length transactions, they could require us to adjust our transfer prices and thereby reallocate our income to reflect these revised transfer prices. A reallocation of taxable income from a lower tax jurisdiction to a higher tax jurisdiction would result in a higher tax liability to us. In addition, if the country from which the income is reallocated does not agree with the reallocation, both countries could tax the same income, resulting in double taxation.

24





Our Articles of Association, Dutch law and the independent foundation, Stichting Continuïteit Cimpress, may make it difficult to replace or remove management, may inhibit or delay a change of control or may dilute shareholder voting power.

Our Articles of Association, or Articles, as governed by Dutch law, limit our shareholders' ability to suspend or dismiss the members of our management board and supervisory board or to overrule our supervisory board's nominees to our management board and supervisory board by requiring a supermajority vote to do so under most circumstances. As a result, there may be circumstances in which shareholders may not be able to remove members of our management board or supervisory board even if holders of a majority of our ordinary shares favor doing so.

In addition, an independent foundation, Stichting Continuïteit Cimpress, or the Foundation, exists to safeguard the interests of Cimpress N.V. and its stakeholders, which include but are not limited to our shareholders, and to assist in maintaining Cimpress' continuity and independence. To this end, we have granted the Foundation a call option pursuant to which the Foundation may acquire a number of preferred shares equal to the same number of ordinary shares then outstanding, which is designed to provide a protective measure against unsolicited take-over bids for Cimpress and other hostile threats. If the Foundation were to exercise the call option, it may prevent a change of control or delay or prevent a takeover attempt, including a takeover attempt that might result in a premium over the market price for our ordinary shares. Exercise of the preferred share option would also effectively dilute the voting power of our outstanding ordinary shares by one half.

We have limited flexibility with respect to certain aspects of capital management and certain corporate transactions.

Dutch law requires shareholder approval for the issuance of shares and grants preemptive rights to existing shareholders to subscribe for new issuances of shares. Our shareholders have granted our supervisory board and management board authority to issue ordinary shares without obtaining specific shareholder approval for each issuance, and to limit or exclude shareholders' preemptive rights, but this authorization expires in May 2017. Although we plan to seek renewal of this authority from our shareholders from time to time in the future, we may not succeed in obtaining future renewals. In addition, subject to specified exceptions, Dutch law requires shareholder approval for many corporate actions, such as the approval of dividends, authorization to purchase outstanding shares, and corporate acquisitions of a certain size. Situations may arise where the flexibility to issue shares, pay dividends, purchase shares, acquire other companies, or take other corporate actions without a shareholder vote would be beneficial to us, but is not available under Dutch law.

Because of our corporate structure, our shareholders may find it difficult to pursue legal remedies against the members of our supervisory board or management board.

Our Articles and our internal corporate affairs are governed by Dutch law, and the rights of our shareholders and the responsibilities of our supervisory board and management board are different from those established under United States laws. For example, under Dutch law derivative lawsuits are generally not available, and our supervisory board and management board are responsible for acting in the best interests of the company, its business and all of its stakeholders generally (including employees, customers and creditors), not just shareholders. As a result, our shareholders may find it more difficult to protect their interests against actions by members of our supervisory board or management board than they would if we were a U.S. corporation.

Because of our corporate structure, our shareholders may find it difficult to enforce claims based on United States federal or state laws, including securities liabilities, against us or our management team.

We are incorporated under the laws of the Netherlands, and the vast majority of our assets are located outside of the United States. In addition, some of our officers and management board members reside outside of the United States. In most cases, a final judgment for the payment of money rendered by a U.S. federal or state court would not be directly enforceable in the Netherlands. Although there is a process under Dutch law for petitioning a Dutch court to enforce a judgment rendered in the United States, there can be no assurance that a Dutch court would impose civil liability on us or our management team in any lawsuit predicated solely upon U.S. securities or other laws. In addition, because most of our assets are located outside of the United States, it could be difficult for investors to place a lien on our assets in connection with a claim of liability under U.S. laws. As a result, it may be difficult for investors to enforce U.S. court judgments or rights predicated upon U.S. laws against us or our management team outside of the United States.

25





We may not be able to make distributions or purchase shares without subjecting our shareholders to Dutch withholding tax.

A Dutch withholding tax may be levied on dividends and similar distributions made by Cimpress N.V. to its shareholders at the statutory rate of 15% if we cannot structure such distributions as being made to shareholders in relation to a reduction of par value, which would be non-taxable for Dutch withholding tax purposes. We have purchased our shares and may seek to purchase additional shares in the future. Under our Dutch Advanced Tax Ruling, a purchase of shares should not result in any Dutch withholding tax if we hold the purchased shares in treasury for the purpose of issuing shares pursuant to employee share awards or for the funding of acquisitions. However, if the shares cannot be used for these purposes, or the Dutch tax authorities successfully challenge the use of the shares for these purposes, such a purchase of shares may be treated as a partial liquidation subject to the 15% Dutch withholding tax to be levied on the difference between our average paid in capital per share for Dutch tax purposes and the redemption price per share, if higher.
 
We may be treated as a passive foreign investment company for United States tax purposes, which may subject United States shareholders to adverse tax consequences.

If our passive income, or our assets that produce passive income, exceed levels provided by law for any taxable year, we may be characterized as a passive foreign investment company, or a PFIC, for United States federal income tax purposes. If we are treated as a PFIC, U.S. holders of our ordinary shares would be subject to a disadvantageous United States federal income tax regime with respect to the distributions they receive and the gain, if any, they derive from the sale or other disposition of their ordinary shares.

We believe that we were not a PFIC for the tax year ended June 30, 2016 and we expect that we will not become a PFIC in the foreseeable future. However, whether we are treated as a PFIC depends on questions of fact as to our assets and revenues that can only be determined at the end of each tax year. Accordingly, we cannot be certain that we will not be treated as a PFIC in future years.

If a United States shareholder acquires 10% or more of our ordinary shares, it may be subject to increased United States taxation under the “controlled foreign corporation” rules. Additionally, this may negatively impact the demand for our ordinary shares.

If a United States shareholder owns 10% or more of our ordinary shares, it may be subject to increased United States federal income taxation (and possibly state income taxation) under the “controlled foreign corporation” rules. In general, if a U.S. person owns (or is deemed to own) at least 10% of the voting power of a non-U.S. corporation, or “10% U.S. Shareholder,” and if such non-U.S. corporation is a “controlled foreign corporation”, or “CFC,” for an uninterrupted period of 30 days or more during a taxable year, then such 10% U.S. Shareholder who owns (or is deemed to own) shares in the CFC on the last day of the CFC's taxable year, must include in its gross income for United States federal income tax (and possibly state income tax) purposes its pro rata share of the CFC's “subpart F income”, even if the "subpart F income" is not distributed. In general, a non-U.S. corporation is considered a CFC if one or more 10% U.S. Shareholders together own more than 50% of the voting power or value of the corporation on any day during the taxable year of the corporation. “Subpart F income” consists of, among other things, certain types of dividends, interest, rents, royalties, gains, and certain types of income from services and personal property sales.
The rules for determining ownership for purposes of determining 10% U.S. Shareholder and CFC status are complicated, depend on the particular facts relating to each investor, and are not necessarily the same as the rules for determining beneficial ownership for SEC reporting purposes. For taxable years in which we are a CFC for an uninterrupted period of 30 days or more, each of our 10% U.S. Shareholders will be required to include in its gross income for United States federal income tax purposes its pro rata share of our "subpart F income", even if the subpart F income is not distributed by us. We currently do not believe we are a CFC. However, whether we are treated as a CFC can be affected by, among other things, facts as to our share ownership that may change. Accordingly, we cannot be certain that we will not be treated as a CFC in future years.
The risk of being subject to increased taxation as a CFC may deter our current shareholders from acquiring additional ordinary shares or new shareholders from establishing a position in our ordinary shares. Either of these scenarios could impact the demand for, and value of, our ordinary shares.

26




We will pay taxes even if we are not profitable on a consolidated basis, which could harm our results of operations.
 
The intercompany service and related agreements among Cimpress N.V. and its direct and indirect subsidiaries ensure that many of the subsidiaries realize profits based on their operating expenses. As a result, if the Cimpress group is less profitable, or even not profitable on a consolidated basis, many of our subsidiaries will be profitable and incur income taxes in their respective jurisdictions.

Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We own real property including the following manufacturing operations that provide support across our business units:
A 582,000 square foot facility located near Windsor, Ontario, Canada primarily services our North American market.
A 362,000 square foot facility located in Venlo, the Netherlands primarily services our European market.
A 130,000 square foot facility located in Kisarazu, Japan primarily services our Japanese market.
A 124,000 square foot facility located in Deer Park, Australia primarily services our Asia-Pacific markets.
Two facilities, a total of 125,000 square feet, located near Montpellier, France primarily service our French market.

As of June 30, 2016, a summary of our currently occupied leased spaces is as follows:
Business Segment (1)
 
Square Feet
 
Type
 
Lease Expirations
Vistaprint business unit
 
617,248

 
Technology development, marketing, customer service and administrative
 
June 2017 - November 2026
Upload & Print business units
 
608,475

 
Technology development, marketing, customer service, manufacturing and administrative
 
August 2016 - December 2025
All Other business units
 
346,873

 
Technology development, marketing, customer service, manufacturing and administrative
 
September 2016 - August 2023
Other (2)
 
83,135

 
Corporate strategy, technology development and prototyping laboratory
 
July 2020 - June 2023
___________________
(1) Many of our leased properties are utilized by multiple business segments, but each have been assigned to the segment that occupies the majority of our leased space.
(2) Includes locations that are exclusively corporate or global functions.

We believe that the total space available to us in the facilities we own or lease, and space that is obtainable by us on commercially reasonable terms, will meet our needs for the foreseeable future.

Item 3. Legal Proceedings
The information required by this item is incorporated by reference to the information set forth in Item 8 of Part II, “Financial Statements and Supplementary Data — Note 18 — Commitments and Contingencies,” in the accompanying notes to the consolidated financial statements included in this Report.
Item 4. Mine Safety Disclosures
None.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The ordinary shares of Cimpress N.V. are traded on the NASDAQ Global Select Market (the "NASDAQ") under the symbol “CMPR.” As of July 29, 2016, there were approximately 18 holders of record of our ordinary

27




shares, although there is a much larger number of beneficial owners. The following table sets forth, for the periods indicated, the high and low sale price per share of our ordinary shares on the NASDAQ:
 
High
 
Low
Fiscal 2015:
 

 
 

First Quarter
$
55.06

 
$
37.05

Second Quarter
$
76.68

 
$
52.13

Third Quarter
$
86.78

 
$
67.41

Fourth Quarter
$
91.75

 
$
79.81

 
 
 
 
Fiscal 2016:
 

 
 

First Quarter
$
86.95

 
$
63.15

Second Quarter
$
94.57

 
$
74.57

Third Quarter
$
91.84

 
$
67.89

Fourth Quarter
$
101.77

 
$
86.93

Dividends
We have never paid or declared any cash dividends on our ordinary shares, and we do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain all future earnings to finance the growth and operations of our business, purchase our ordinary shares, or pay down our debt. Under Dutch law, we may pay dividends only out of profits shown on our annual accounts prepared in accordance with Dutch generally accepted accounting principles and adopted by our shareholders, and only to the extent our equity exceeds the sum of the paid and called up portion of our ordinary share capital and the reserves that must be maintained in accordance with provisions of Dutch law and our articles of association. In addition, the terms of our outstanding indebtedness restrict our ability to pay dividends.
Issuer Purchases of Equity Securities
On February 22, 2016, in order to provide us with flexibility to repurchase our ordinary shares at times when our management believes it may be beneficial for our business, our Supervisor Board authorized the repurchase of up to 6,300,000 of our issued and outstanding ordinary shares on the open market (including block trades that satisfy the safe harbor provisions of Rule 10b-18 pursuant to the U.S. Securities Exchange Act of 1934), through privately negotiated transactions, or in one or more self-tender offers. This share repurchase program expires on May 17, 2017, and we may suspend or discontinue the repurchase program at any time.
We did not repurchase any shares under this February 2016 program during the three months ended June 30, 2016, and 6,300,000 shares remain available for repurchase under this program, subject to certain limitations imposed by our debt covenants.



28




Performance Graph
The following graph compares the cumulative total return to shareholders of Cimpress N.V. ordinary shares relative to the cumulative total returns of the NASDAQ Composite index and the RDG Internet Composite index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our ordinary shares and in each of the indexes on June 30, 2011 and the relative performance of each investment is tracked through June 30, 2016.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Cimpress N.V., the NASDAQ Composite Index
and the RDG Internet Composite Index


 
 
Year Ended June 30,
 
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
Cimpress N.V. 
 
$
100.00

 
$
67.50

 
$
103.18

 
$
84.56

 
$
175.88

 
$
193.27

NASDAQ Composite
 
100.00

 
108.58

 
128.19

 
169.08

 
192.10

 
187.57

RDG Internet Composite
 
100.00

 
105.91

 
135.80

 
188.50

 
206.24

 
249.77

The share price performance included in this graph is not necessarily indicative of future share price performance.


29




Item 6. Selected Financial Data
The following financial data should be read in conjunction with our consolidated financial statements, the related notes and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Report. The historical results are not necessarily indicative of the results to be expected for any future period.
 
Year Ended June 30,
 
2016 (a)
 
2015 (b)
 
2014 (c)
 
2013 (d)
 
2012 (e)
 
(In thousands, except share and per share data)
Consolidated Statements of Operations Data:
 
 
 

 
 

 
 

 
 

Revenue
$
1,788,044

 
$
1,494,206

 
$
1,270,236

 
$
1,167,478

 
$
1,020,269

Net income attributable to Cimpress N.V.
54,349

 
92,212

 
43,696

 
29,435

 
43,994

Net income per share attributable to Cimpress N.V.:
 
 
 
 
 
 
 

 
 

Basic
$
1.72

 
$
2.82

 
$
1.33

 
$
0.89

 
$
1.16

Diluted
$
1.64

 
$
2.73

 
$
1.28

 
$
0.85

 
$
1.13

Shares used in computing net income per share attributable to Cimpress N.V.:
 
 
 
 
 
 
 

 
 

Basic
31,656,234

 
32,644,870

 
32,873,234

 
33,209,172

 
37,813,504

Diluted
33,049,454

 
33,816,498

 
34,239,909

 
34,472,004

 
38,953,179


 
Year Ended June 30,
 
2016 (a)
 
2015 (b)
 
2014 (c)
 
2013 (d)
 
2012 (e)
 
(In thousands)
Consolidated Statements of Cash Flows Data:
 
 
 

 
 

 
 

 
 

Net cash provided by operating activities (f)
$
247,358

 
$
242,022

 
$
153,739

 
$
141,808

 
$
146,749

Purchases of property, plant and equipment
(80,435
)
 
(75,813
)
 
(72,122
)
 
(78,999
)
 
(46,420
)
Purchases of ordinary shares
(153,467
)
 

 
(42,016
)
 
(64,351
)
 
(309,701
)
Business acquisitions, net of cash acquired
(164,412
)
 
(123,804
)
 
(216,384
)
 

 
(180,675
)
Net proceeds of debt
167,316

 
54,207

 
207,946

 
8,051

 
227,181


 
As of June 30,
 
2016 (a)
 
2015 (b)
 
2014 (c)
 
2013 (d)
 
2012 (e)
 
(In thousands)
Consolidated Balance Sheet Data:
 
 
 

 
 

 
 

 
 

Cash, cash equivalents and marketable securities (g)
$
85,319

 
$
110,494

 
$
76,365

 
$
50,065

 
$
62,203

Working capital (g)
(135,095
)
 
(89,580
)
 
(83,560
)
 
(54,795
)
 
(26,762
)
Total assets (i)
1,463,869

 
1,299,794

 
985,495

 
598,632

 
590,785

Total long-term debt, excluding current portion (h)(i)
656,794

 
493,039

 
408,150

 
227,700

 
227,356

Total shareholders’ equity
166,076

 
249,419

 
232,457

 
189,561

 
189,287

___________________
(a) Includes the impact of the acquisitions of Litotipografia Alcione S.r.l. on July 29, 2015, Tradeprint Distribution Limited on July 31, 2015, and WIRmachenDRUCK GmbH on February 1, 2016. See Note 8 in our accompanying financial statements in this Report for a discussion of these acquisitions.
During fiscal 2016, we adopted Accounting Standards Update (ASU) 2016-09 requiring the recognition of excess tax benefits as a component of income tax expense, these benefits were historically recognized in equity. As the standard required a prospective method of adoption, our fiscal 2016 net income includes a $3.7M income tax benefit due to the adoption that did not occur in the comparable periods presented above. In addition, the standard updates the method of calculating diluted shares resulting in the inclusion of 205,000 additional shares in our diluted EPS calculation that is not comparable to the other periods presented. Refer to Note 2 for further discussion of this new accounting standard.
(b) Includes the impact of the acquisitions of FotoKnudsen AS on July 1, 2014, FL Print SAS on April 9, 2015, Exagroup SAS on April 15, 2015 and druck.at Druck-und Handelsgesellschäft mbH on April 17, 2015, as well as our investment in Printi LLC on August 7, 2014. See Notes 8, 15 and 16 in our accompanying financial statements in this Report for a discussion of these transactions.
(c)
Includes the impact of the acquisitions of Printdeal B.V. on April 1, 2014 and Pixartprinting S.p.A. on April 3, 2014, as well as our investment in a joint business arrangement with Plaza Create Co. Ltd. in February 2014. See Notes 8 and 15 in our accompanying financial statements in this Report for a discussion of these transactions.
(d) Includes the impact of our July 10, 2012 equity investment in Namex Limited. During the fourth quarter of fiscal 2014 we disposed of this investment and recognized a loss on the sale of $12.7 million. See Note 16 in our accompanying financial statements in this Report for a discussion of this investment.

30




(e) Includes the impact of the acquisitions of Albumprinter Holding B.V. on October 31, 2011 and Webs, Inc. on December 28, 2011.
(f) During fiscal 2016, we early adopted the new share-based compensation accounting standard. In addition to impacts disclosed in (a) above, the standard requires excess tax benefits, previously presented as financing activity, to be classified as operating activities. As retroactive adoption for this component of the standard was allowable, we have adjusted all periods presented to reflect this change in classification.
(g) We define working capital as current assets less current liabilities. Our working capital profile has evolved since fiscal 2012 as we have made long-term investments that seek to drive shareholder value through acquisitions, ordinary share purchases, and other strategic initiatives. We have financed these investments through a mix of cash on hand, cash flows generated from operations and external debt financing.
(h) On March 24, 2015, we completed a private placement of $275.0 million of 7.0% senior unsecured notes due 2022. The proceeds from the sales of the notes were used to repay existing outstanding indebtedness under our unsecured line of credit, the indebtedness outstanding under our senior secured credit facility and for general corporate purposes. See Note 11 in our accompanying financial statements in this Report for additional discussion.
(i) During fiscal 2016, we early adopted a new accounting standard to present capitalized debt issuance costs net of the related debt obligation. Previously, these capitalized costs were classified as current and long-term assets. As required by the standard, we applied this change retrospectively for all periods presented.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
    
This Report contains forward-looking statements that involve risks and uncertainties. The statements contained in this Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including but not limited to our statements about anticipated income and revenue growth rates, future profitability and market share, new and expanded products and services, geographic expansion and planned capital expenditures. Without limiting the foregoing, the words “may,” “should,” “could,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “designed,” “potential,” “continue,” “target,” “seek” and similar expressions are intended to identify forward-looking statements. All forward-looking statements included in this Report are based on information available to us up to, and including the date of this document, and we disclaim any obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain important factors, including those set forth in this “Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” and elsewhere in this Report. You should carefully review those factors and also carefully review the risks outlined in other documents that we file from time to time with the United States Securities and Exchange Commission.
Executive Overview
Cimpress, the world leader in mass customization, is a technology driven company that aggregates, via the Internet, large volumes of small, individually customized orders for a broad spectrum of print, signage, apparel and similar products. We fulfill those orders with manufacturing capabilities which include Cimpress owned and operated manufacturing facilities and a network of third-party fulfillers to create customized products for customers on-demand. We bring our products to market through a portfolio of focused brands serving the needs of micro, small and medium sized businesses, resellers and consumers. These brands include Vistaprint, our global brand for micro business marketing products and services, as well as brands that we have acquired that serve the needs of various market segments, including resellers, small and medium businesses with differentiated service needs, and consumers purchasing products for themselves and their families.
During the first quarter of fiscal 2016, we modified our internal organizational and reporting structure, resulting in the Vistaprint business unit, the Upload and Print business units, and the All Other business units constituting our reportable segments. The Vistaprint business unit represents our Vistaprint-branded websites focused on the North America, Europe, Australia and New Zealand markets, and our Webs-branded business, which is managed with the Vistaprint-branded digital business. The Upload and Print business units segment includes the druck.at, Exagroup, Easyflyer, Printdeal, Pixartprinting, Tradeprint, and WIRmachenDRUCK branded businesses. The All Other business units segment includes the operations of our Albumprinter and Most of World business units and newly formed Corporate Solutions business unit, which historically was part of the Vistaprint business unit and is focused on delivering volume and revenue via partnerships.
In evaluating the financial condition and operating performance of our business, management focuses on revenue growth, constant-currency revenue growth, operating income, adjusted net operating profit after tax (NOPAT) and cash flow from operations. A summary of these key financial metrics for the fiscal year ended June 30, 2016, as compared to the fiscal year ended June 30, 2015 are as follows:

31




Fiscal Year 2016
Reported revenue increased by 20% to $1,788.0 million.
Consolidated constant-currency revenue increased by 24% and excluding acquisitions increased by 11%.
Operating income decreased $18.1 million to $78.2 million.
Adjusted NOPAT increased $14.7 million to $139.8 million.
Cash provided by operating activities increased $5.3 million to $247.4 million.
For our fiscal year 2016 results, reported revenue growth was primarily due to the addition of the revenue of our recently acquired WIRmachenDRUCK, Exagroup and druck.at brands, as well as continued growth in the Vistaprint business unit and Upload and Print businesses acquired in fiscal 2014. The decrease in operating income was primarily due to a goodwill impairment loss during the third quarter of fiscal 2016 related to our Exagroup business, as well as losses recognized for the abandonment of production equipment during fiscal 2016, partially offset by increased profits in the Vistaprint business unit and Upload and Print business units. Adjusted NOPAT, which excludes several non-operational items including the impairment related charges, increased versus the comparative period a year ago. The increases in adjusted NOPAT are primarily due to increased profits in the Vistaprint business unit and Upload and Print business units, partially offset by planned increased investments in our Most of World businesses, product expansion, and the mass customization platform.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). To apply these principles, we must make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. In some instances, we reasonably could have used different accounting estimates and, in other instances, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from our estimates. We base our estimates and judgments on historical experience and other assumptions that we believe to be reasonable at the time under the circumstances, and we evaluate these estimates and judgments on an ongoing basis. We refer to accounting estimates and judgments of this type as critical accounting policies and estimates, which we discuss further below. This section should be read in conjunction with Note 2, "Summary of Significant Accounting Policies," of our audited consolidated financial statements included elsewhere in this Report.
Revenue Recognition. We generate revenue primarily from the sale and shipping of customized manufactured products, as well as providing digital services, website design and hosting, email marketing services, and order referral fees. We recognize revenue arising from sales of products and services, net of discounts and applicable indirect taxes, when it is realized or realizable and earned. We consider revenue realized or realizable and earned when there is persuasive evidence of an arrangement, a product has been shipped or service rendered with no significant post-delivery obligation on our part, the net sales price is fixed or determinable and collection is reasonably assured. For arrangements with multiple deliverables, we allocate revenue to each deliverable based on the relative selling price for each deliverable. We determine the relative selling price using a hierarchy of (1) company specific objective and reliable evidence, then (2) third-party evidence, then (3) best estimate of selling price. Shipping, handling and processing charges billed to customers are included in revenue at the time of shipment or rendering of service. Revenues from sales of prepaid orders on our websites are deferred until shipment of fulfilled orders or until the prepaid service has been rendered.
For promotions through discount voucher websites, we recognize revenue on a gross basis, as we are the primary obligor, when redeemed items are shipped. As the vouchers do not expire, any unredeemed vouchers are recorded as deferred revenue. We recognize revenue on the portion of unredeemed vouchers when the likelihood of redemption becomes remote (referred to as "breakage") and we determine there is no legal obligation to remit the value of the unredeemed coupons to government agencies. We estimate the breakage rate based upon the pattern of historical redemptions. During fiscal 2015, we accumulated sufficient historical data from a large pool of homogeneous transactions to allow us to reasonably and objectively determine a pattern of historical redemptions in accordance with our accounting policy. Accordingly, we recognized $4.0 million of breakage revenue during the fourth quarter of fiscal 2015 as a result of this change in estimate. We continue to apply this approach for our unredeemed voucher activity but the impact of the breakage estimate is immaterial to our current annual results.

32




A reserve for estimated sales returns and allowances is recorded as a reduction of revenue, based on historical experience or specific identification of an event necessitating a reserve. This reserve is dependent upon customer return practices and will vary during the year due to volume or specific reserve requirements. Sales returns have not historically been significant to our net revenue and have been within our estimates.
Share-Based Compensation. We measure share-based compensation costs at fair value, and recognize the expense over the period that the recipient is required to provide service in exchange for the award, which generally is the vesting period.
We use the Black-Scholes option pricing model to measure the fair value of most of our share options and use a lattice model to measure the fair value of share options with a market condition, as well as the subsidiary share option liability award granted in conjunction with the Pixartprinting acquisition. The Black-Scholes model requires significant estimates related to the award’s expected life and future share price volatility of the underlying equity security. The lattice model considers market condition attributes in its valuation assessment where relevant and simulates various sources of uncertainty in order to determine an average value based on the range of resultant outcomes. The lattice model requires estimation of inputs such as future share price volatility and future operating performance. The fair value of restricted share units and restricted share awards is determined based on the number of shares granted and the quoted price of our ordinary shares on the date of the grant. During fiscal 2016, we adopted the new share-based compensation accounting standard and elected to prospectively recognize the impact of forfeitures as they occur.
For awards with a performance condition vesting feature, when achievement of the performance condition is deemed probable, we recognize compensation cost on a graded-vesting basis over the awards' expected vesting periods. Management continually monitors the probability of vesting that is impacted by the achievement of certain business targets and milestones. Independent factors such as market acceptance, technological feasibility or economic market volatility could impact the achievement of such awards and contribute to variability in management's estimate and the recognition of the underlying share-based compensation expense. As the recognition of the compensation expense is reliant upon management's estimate of the likelihood of achievement of the award, if the probability increases during any given period, the compensation cost associated with that award would be accelerated in order to match the estimated outcome. These changes in estimate could result in expense volatility.
Income Taxes. As part of the process of preparing our consolidated financial statements, we calculate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax expense, including assessing the risks associated with tax positions, together with assessing temporary and permanent differences resulting from differing treatment of items for tax and financial reporting purposes. We recognize deferred tax assets and liabilities for the temporary differences using the enacted tax rates and laws that will be in effect when we expect temporary differences to reverse. We assess the ability to realize our deferred tax assets based upon the weight of available evidence both positive and negative. To the extent we believe that it is more likely than not that some portion or all of the deferred tax assets will not be realized, we establish a valuation allowance. Our estimates can vary due to the profitability mix of jurisdictions, foreign exchange movements, changes in tax law, regulations or accounting principles, as well as certain discrete items. In the event that actual results differ from our estimates or we adjust our estimates in the future, we may need to increase or decrease income tax expense, which could have a material impact on our financial position and results of operations.
We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are in accordance with applicable tax laws. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, new tax legislation, or the change of an estimate based on new information. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. Interest and, if applicable, penalties related to unrecognized tax benefits are recorded in the provision for income taxes.
Software and Website Development Costs. We capitalize eligible salaries and payroll-related costs of employees who devote time to the development of our websites and internal-use computer software. Capitalization begins when the preliminary project stage is complete, management with the relevant authority authorizes and commits to the funding of the software project, and it is probable that the project will be completed and the software

33




will be used to perform the function intended. These costs are amortized on a straight-line basis over the estimated useful life of the software, which is three years. Our judgment is required in determining whether a project provides new or additional functionality, the point at which various projects enter the stages at which costs may be capitalized, assessing the ongoing value and impairment of the capitalized costs, and determining the estimated useful lives over which the costs are amortized. Historically we have not had any significant impairments of our capitalized software and website development costs.
Business Combinations. We recognize the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The fair value of identifiable intangible assets is based on detailed cash flow valuations that use information and assumptions provided by management. The valuations are dependent upon a myriad of factors including historical financial results, estimated customer renewal rates, projected operating costs and discount rates. We estimate the fair value of contingent consideration at the time of the acquisition using all pertinent information known to us at the time to assess the probability of payment of contingent amounts or through the use of a Monte Carlo simulation model. We allocate any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed to goodwill. The assumptions used in the valuations for our acquisitions may differ materially from actual results depending on performance of the acquired businesses and other factors. While we believe the assumptions used were appropriate, different assumptions in the valuation of assets acquired and liabilities assumed could have a material impact on the timing and extent of impact on our statements of operations.
Goodwill is assigned to reporting units as of the date of the related acquisition. If goodwill is assigned to more than one reporting unit, we utilize a method that is consistent with the manner in which the amount of goodwill in a business combination is determined. Costs related to the acquisition of a business are expensed as incurred.
Goodwill, Indefinite-Lived Intangible Assets, and Other Definite Lived Long-Lived Assets. We evaluate goodwill and indefinite-lived intangible assets for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We consider the timing of our most recent fair value assessment and associated headroom, the actual operating results as compared to the cash flow forecasts used in those fair value assessments, the current long-term forecasts for each reporting unit, and the general market and economic environment of each reporting unit. In addition to the specific factors mentioned above, we assess the following individual factors on an ongoing basis such as:
A significant adverse change in legal factors or the business climate;
An adverse action or assessment by a regulator;
Unanticipated competition;
A loss of key personnel; and
A more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of.
If the results of the qualitative analysis were to indicate that the fair value of a reporting unit is less than its carrying value, the quantitative test is required. Under the quantitative approach, we estimate the fair values of our reporting units using a discounted cash flow methodology. This analysis requires significant judgment and is based on our strategic plans and estimation of future cash flows, which is dependent on internal forecasts. Our annual analysis also requires significant judgment including the identification and aggregation of reporting units, as well as the determination of our discount rate and perpetual growth rate assumptions.
During the third quarter of fiscal 2016, we recognized a partial impairment loss of $30.8 million associated with the goodwill of our Exagroup reporting unit. Estimating the fair value of a reporting unit requires the use of estimates and significant judgments that are based on a number of factors including actual operating results and forecasts. It is reasonably possible that the judgments and estimates described above could change in future periods. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit. For example, a 1% variation in the discount rate utilized in our Exagroup impairment analysis results in a reduction (or increase) of the estimated fair value of the reporting unit of

34




approximately $7.0 million. Since our third quarter analysis, there have been no indications that additional impairment exists in any of our reporting units of June 30, 2016.
We are required to evaluate the estimated useful lives and recoverability of definite lived long-lived assets (for example, customer relationships, developed technology, property, and equipment) on an ongoing basis when indicators of impairment are present. For purposes of the recoverability test, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The test for recoverability compares the undiscounted future cash flows of the long-lived asset group to its carrying value. If the carrying values of the long-lived asset group exceed the undiscounted future cash flows, the assets are considered to be potentially impaired. The next step in the impairment measurement process is to determine the fair value of the individual net assets within the long-lived asset group. If the aggregate fair values of the individual net assets of the group are less than the carrying values, an impairment charge is recorded equal to the excess of the aggregate carrying value of the group over the aggregate fair value. The loss is allocated to each long-lived asset within the group based on their relative carrying values, with no asset reduced below its fair value. The identification and evaluation of a potential impairment requires judgment and is subject to change if events or circumstances pertaining to our business change.
Recently Issued or Adopted Accounting Pronouncements
See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 2 — Summary of Significant Accounting Policies — Recently Issued or Adopted Accounting Pronouncements."
Results of Operations
The following table presents our operating results for the periods indicated as a percentage of revenue:
 
Year Ended June 30,
 
2016
 
2015
 
2014
As a percentage of revenue:
 

 
 
 
 
Revenue
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of revenue
43.3
 %
 
38.1
 %
 
35.5
 %
Technology and development expense
12.4
 %
 
13.0
 %
 
13.9
 %
Marketing and selling expense
30.1
 %
 
32.8
 %
 
34.6
 %
General and administrative expense
8.1
 %
 
9.7
 %
 
9.2
 %
Impairment of goodwill
1.7
 %
 
 %
 
 %
Income from operations
4.4
 %
 
6.4
 %
 
6.8
 %
Other income (expense), net
1.4
 %
 
1.3
 %
 
(1.7
)%
Interest expense, net
(2.1
)%
 
(1.1
)%
 
(0.6
)%
Income before income taxes and loss in equity interests
3.7
 %
 
6.6
 %
 
4.5
 %
Income tax provision
0.9
 %
 
0.6
 %
 
0.8
 %
Loss in equity interests
 %
 
 %
 
0.2
 %
Net income
2.8
 %
 
6.0
 %
 
3.5
 %
Add: Net loss attributable to noncontrolling interest
0.2
 %
 
0.2
 %
 
 %
Net income attributable to Cimpress N.V.
3.0
 %
 
6.2
 %
 
3.5
 %

In thousands
 
Year Ended June 30,
 
Year Ended June 30,
 
2016
 
2015
 
2014
 
2016 vs. 2015
 
2015 vs. 2014
Revenue
$
1,788,044

 
$
1,494,206

 
$
1,270,236

 
20
%
 
18
%

35




Revenue
We generate revenue primarily from the sale and shipping of customized manufactured products, and by providing digital services, website design and hosting, and email marketing services, as well as a small percentage from order referral fees and other third-party offerings.     
Total revenue by reportable segment for the fiscal years ended June 30, 2016, 2015 and 2014 is shown in the following tables. Fiscal 2016 includes the impact of Tradeprint, Alcione and WIRmachenDRUCK from their respective acquisition dates in our Upload and Print business units segment. Fiscal 2015 includes from their respective acquisitions dates, the impact of FotoKnudsen which is part of our All Other business units, as well as Easyflyer, Exagroup and druck.at which are part of our Upload and Print business units segment:
In thousands
Year Ended June 30
 
 
 
Currency
Impact:
 
Constant-
Currency
 
Impact of Acquisitions:
 
Constant- Currency Revenue Growth
 
2016
 
2015
 
%
Change
 
(Favorable)/Unfavorable
 
Revenue Growth (1)
 
(Favorable)/Unfavorable
 
Excluding Acquisitions (2)
Vistaprint business unit
$
1,217,162


$
1,149,706


6%

4%

10%

—%

10%
Upload and Print business units (3)
432,638


197,075


120%

7%

127%

(100)%

27%
All Other business units
138,244


147,425


(6)%

8%

2%

—%

2%
Total revenue
$
1,788,044


$
1,494,206


20%

4%

24%

(13)%

11%
Fiscal 2014 includes the impact of Printdeal and Pixartprinting from their respective acquisition dates in our Upload and Print business units segment:
In thousands
Year Ended June 30,
 
 
 
Currency
Impact:
 
Constant-
Currency
 
Impact of Acquisitions:
 
Constant- Currency Revenue Growth
 
2015
 
2014
 
%
Change
 
(Favorable)/Unfavorable
 
Revenue Growth (1)
 
(Favorable)/Unfavorable
 
Excluding Acquisitions (2)
Vistaprint business unit
$
1,149,706

 
$
1,103,217

 
4%
 
5%
 
9%
 
—%
 
9%
Upload and Print business units (3)
197,075

 
43,590

 
352%
 
26%
 
378%
 
(344)%
 
34%
All Other business units
147,425

 
123,429

 
19%
 
9%
 
28%
 
(17)%
 
11%
Total revenue
$
1,494,206

 
$
1,270,236

 
18%
 
5%
 
23%
 
(14)%
 
9%
_________________
(1) Constant-currency revenue growth, a non-GAAP financial measure, represents the change in total revenue between current and prior year periods at constant-currency exchange rates by translating all non-U.S. dollar denominated revenue generated in the current period using the prior year period’s average exchange rate for each currency to the U.S. dollar.
(2) Constant-currency revenue growth excluding acquisitions, a non-GAAP financial measure, excludes revenue results for businesses and brands in the period in which there is no comparable year over year revenue. Revenue from our fourth quarter fiscal 2015 and fiscal 2016 acquisitions is excluded from fiscal 2016 revenue growth. For example, revenue from Easyflyer, Exagroup and druck.at, which we acquired in Q4 2015, is excluded from Q1, Q2, and Q3 2016 revenue growth but included in Q4 2016 revenue growth.
We have provided these non-GAAP financial measures because we believe they provide meaningful information regarding our results on a consistent and comparable basis for the periods presented. Management uses these non-GAAP financial measures, in addition to GAAP financial measures, to evaluate our operating results. These non-GAAP financial measures should be considered supplemental to and not a substitute for our reported financial results prepared in accordance with GAAP.
(3) The Upload and Print business units include the impact of our fiscal 2016 and 2015 acquisitions from their respective acquisition dates.
Vistaprint business unit
Reported revenue for the year ended June 30, 2016 increased 6% to $1,217.2 million, as compared to the year ended June 30, 2015. Our reported revenue growth was negatively affected by currency impacts during the year ended June 30, 2016 of 4%. The Vistaprint business unit constant-currency growth of 10% was primarily due to repeat customer bookings growth, with improving growth in new customer bookings. We experienced strong revenue growth in our focus product categories which include signage, marketing materials and promotional products and apparel. Performance continues to be stronger in North American and Australian markets than most markets in Europe where we have more substantial customer value proposition changes to make in order to appeal more broadly to higher expectations customers. Some of these customer value proposition efforts continue to create

36




revenue headwinds in certain markets including recent changes and tests we have implemented in a limited number of markets to reduce shipping pricing which are expected to have a greater impact in future periods. However, we are realizing benefits from these investments in fiscal 2016 through improved customer retention rates and positive results in our current period Net Promoter Score™ (which polls our customers on their willingness to recommend us to friends and colleagues based on a score of 0 to 10) in markets around the world.
Reported revenue for the year ended June 30, 2015 increased 4% to $1,149.7 million as compared to the year ended June 30, 2014 as the Vistaprint business unit experienced growth from the higher expectations market segment, increased average order value and improved activity from our repeat customer base. During the year we delivered improved revenue growth trends in the U.S., U.K., French and German markets where we made major pricing and channel marketing changes in fiscal 2014. Our reported revenue growth was negatively affected by currency impacts of 5% during the year ended June 30, 2015 resulting in constant-currency revenue growth of 9%. Our constant-currency revenue growth for the Vistaprint business unit more than doubled from fiscal 2014 to fiscal 2015. In addition we have seen year over year improvement in our customer Net Promoter Score™.
Upload and Print business units    
Reported revenue for the year ended June 30, 2016 increased 120% to $432.6 million from $197.1 million in the prior comparable period. Our reported revenue growth includes the addition of aggregate revenue of $205.4 million for the year ended June 30, 2016, from the brands we acquired in fiscal 2016 and fiscal 2015 for quarters with no comparable revenue. The Upload and Print business units constant-currency revenue growth excluding revenue from businesses acquired in the past twelve months was 27% for the year ended June 30, 2016, due to continued strong performance from our Pixartprinting and Printdeal brands, which we acquired in fiscal 2014.
Reported revenue for the year ended June 30, 2015 increased 352% to $197.1 million from $43.6 million, in the prior comparable period due to the addition of aggregate revenue from the brands we acquired in fiscal 2015 and fiscal 2014 for quarters with no comparable revenue. The Upload and Print business units constant-currency revenue growth excluding revenue from businesses acquired in the prior twelve months of 34%, represents revenue growth from our Pixartprinting and Printdeal brands acquired in fourth quarter of fiscal 2014 with comparable revenue for the fourth quarter of the prior fiscal year.
All Other business units
Reported revenue for the year ended June 30, 2016 decreased 6% to $138.2 million, as compared to the prior comparable period. Our reported revenue growth was negatively affected by currency impacts during the year ended June 30, 2016 of 8%. The All Other business units constant-currency revenue growth of 2% for the year ended June 30, 2016 was primarily due to strong growth in our Most of World business units, as well as the direct to consumer portion of our Albumprinter brand partially offset by the decline in partner revenue in both our Corporate Solutions and Albumprinter businesses of $10.1 million. The Most of World portfolio continues to grow faster than other parts of this segment, but is small relative to the size of the other components.
Reported revenue for the year ended June 30, 2015 increased 19% to $147.4 million, as compared to the year ended June 30, 2014. Our reported revenue included the addition of aggregate revenue of $20.7 million from the brands we acquired in fiscal 2015. The All Other business units constant-currency revenue growth excluding revenue from businesses acquired in the prior twelve months was 11%, primarily driven by continued growth in our Albumprinter brand, as well as in our smaller markets in our Most of World business.

37




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

In thousands
 
Year Ended June 30,
 
 
 
 
 
2016
 
2015
 
2014
 
2016 vs. 2015
 
2015 vs. 2014
Cost of revenue
$
775,005

 
$
568,599

 
$
451,093

 
36
%
 
26
%
% of revenue
43.3
%
 
38.1
%
 
35.5
%
 
 
 
 
Technology and development expense
$
220,981

 
$
194,360

 
$
176,344

 
14
%
 
10
%
% of revenue
12.4
%
 
13.0
%
 
13.9
%
 
 
 
 
Marketing and selling expense
$
537,664

 
$
489,743

 
$
440,311

 
10
%
 
11
%
% of revenue
30.1
%
 
32.8
%
 
34.6
%
 
 
 
 
General and administrative expense
$
145,360

 
$
145,180

 
$
116,574

 
%
 
25
%
% of revenue
8.1
%
 
9.7
%
 
9.2
%
 
 
 
 
Cost of revenue
Cost of revenue includes materials used to manufacture our products, payroll and related expenses for production personnel, depreciation of assets used in the production process and in support of digital marketing service offerings, shipping, handling and processing costs, third-party production costs, costs of free products and other related costs of products sold by us. Cost of revenue as a percent of revenue increased during the year ended June 30, 2016, as the operations within the Upload and Print business units have, as a percent of revenue, higher cost of revenue than our traditional business and are growing faster; however, these companies also have lower marketing and selling costs as a percent of revenue.
The Vistaprint business unit cost of revenue increased to $399.5 million for the year ended June 30, 2016 from $367.6 million in the prior year period. The increase was primarily due to increased costs associated with production volume and product mix of $38.6 million and was partially offset by the aggregate benefits of currency, productivity and efficiency gains of $6.7 million.
The Vistaprint business unit cost of revenue increased to $367.6 million for the year ended June 30, 2015 from $364.5 million for the year ended June 30, 2014, due to increased costs associated with production volume and product mix of $33.9 million. This increase was partially offset by currency related benefits, reductions in raw material pricing, shipping costs and other productivity and efficiency gains of $30.8 million.
The Upload and Print business units cost of revenue increased to $295.0 million for the year ended June 30, 2016 from $136.4 million in the prior comparable period primarily due to incremental manufacturing costs of $149.3 million for the operations acquired in the fourth quarter of fiscal 2015 and fiscal 2016. The remaining increase is due to increased manufacturing volume from our Pixartprinting and Printdeal brands. For the year ended June 30, 2015 cost of revenue increased to $136.4 million from $30.3 million in the prior comparable period due to incremental manufacturing costs for the operations acquired in the fourth quarter of fiscal 2014 and fiscal 2015.
The All Other business units cost of revenue increased to $65.2 million for the year ended June 30, 2016 from $62.0 million for the year ended June 30, 2015, primarily due to increased manufacturing costs. For the year ended June 30, 2015 cost of revenue increased to $62.0 million from $48.5 million in the prior comparable period primarily due to $11.8 million of incremental manufacturing costs for the operations acquired in fiscal 2015, as well as $4.7 million for growth in our Most of World business units.
During the years ended June 30, 2016, 2015 and 2014 we had cost of revenue that was not allocated to our business units for management reporting of $15.3 million, $2.5 million and $7.8 million, respectively. These costs for the year ended June 30, 2016 include $11.0 million of losses for the abandonment of various proprietary production technologies and other print production equipment. The remaining costs for each of the periods primarily relate to certain start-up costs related to new product introductions and manufacturing technologies.

38




Technology and development expense
Technology and development expense consists primarily of payroll and related expenses for our employees engaged in software and manufacturing engineering, information technology operations and content development; amortization of capitalized software, website development costs and certain acquired intangible assets, including developed technology, hosting of our websites, asset depreciation, patent amortization, legal settlements in connection with patent-related claims, and other technology infrastructure-related costs. Depreciation expense for information technology equipment that directly supports the delivery of our digital marketing services products is included in cost of revenue.
The growth in our technology and development expenses of $26.6 million for the year ended June 30, 2016 as compared to the prior comparative period was due to increased payroll, share-based compensation and facility-related costs of $14.7 million, as a result of increased headcount in our technology development and information technology support organizations. The increase in headcount is partly due to increases in software and manufacturing engineering resources related to one of our core corporate strategies to build a software-based mass customization platform as well as expand product offerings, and partly due to headcount from acquired businesses. Depreciation and amortization expense increased by $5.5 million, primarily due to expense related to our fiscal 2015 fourth quarter and fiscal 2016 acquisitions. Technology infrastructure-related costs increased by $8.8 million, primarily due to increased software maintenance and licensing costs, as well as increased IT cloud service costs. The increase was partially offset by a decrease in other technology and development expense of $1.4 million primarily due to decreased third party services. Also during the year ended June 30, 2016, we had higher net capitalization of software costs of $1.0 million, due to an increase in costs that qualified for capitalization during the fiscal year.
The growth in our technology and development expenses of $18.0 million for the year ended June 30, 2015 as compared to the year ended June 30, 2014 was primarily due to increased payroll and facility-related costs of $13.9 million as a result of increased headcount in our technology development and information technology support organizations. The increase in headcount is partly due to hiring in this strategic investment area, and partly due to headcount from acquired businesses. Amortization expense increased by $1.6 million primarily due to a full year of expense related to our fiscal 2014 acquisitions, as well as the fourth quarter impact of Exagroup and druck.at. Other technology expense increased $9.3 million primarily due to increased consulting fees and severance related expenses. These expenses were partially offset by a decline in share-based compensation expense of $2.9 million for the year ended June 30, 2015, as the restricted share awards granted as part of our fiscal 2012 Webs acquisition were fully vested as of December 31, 2013. Also during the year ended June 30, 2015, we had higher net capitalization of software costs of $3.9 million due to an increase in costs that qualified for capitalization during the fiscal 2015 as compared to fiscal 2014.
Marketing and selling expense
Marketing and selling expense consists primarily of advertising and promotional costs; payroll and related expenses for our employees engaged in marketing, sales, customer support and public relations activities; amortization of certain acquired intangible assets, including customer relationships and trade names; and third-party payment processing fees. Our Upload and Print business units have a lower marketing and selling cost structure compared to the Vistaprint business unit.
    Our marketing and selling expenses increased by $47.9 million during the year ended June 30, 2016 as compared to the prior comparative period primarily due to increased advertising expense of $19.6 million as a result of product-focused television ad investments in both the U.S. and Canada during the first quarter of fiscal 2016 as well as strategic investments in certain European markets which included increased paid search and television ad spend during the fourth quarter of fiscal 2016 for the Vistaprint business unit. In addition, increased activity from our recently acquired brands also contributed to the increase in advertising expense. Amortization expense increased by $11.0 million, as a result of the customer and trademark related intangible assets related to our fourth quarter fiscal 2015 acquisitions and fiscal 2016 acquisitions. Our payroll and facility-related costs, inclusive of share-based compensation, increased $8.6 million, as we expanded our marketing and customer service, sales and design support organization through our recent acquisitions and continued investment in the Vistaprint business unit customer service resources in order to provide higher value services to our customers. Payment processing and third-party services were $5.7 million higher than the prior period, primarily due to increased order volumes. Other marketing and selling costs increased by $2.9 million, primarily due to increased travel and training costs.

39




The increase in our marketing and selling expenses of $49.4 million during the year ended June 30, 2015, as compared to the year ended June 30, 2014, was partially due to increased advertising costs of $18.5 million. Our advertising cost increase was primarily due to the Vistaprint business unit as it launched its first brand-orientated television ad in both the U.S. and UK, as well as increased activity from our acquired operations. Our payroll and facility-related costs increased by $13.9 million, as we expanded our marketing and customer service, sales and design support organization through our recent acquisitions and continued investment in Vistaprint business unit customer service resources in order to provide higher value services to our customers. Amortization expense increased by $10.1 million for the year ended June 30, 2015 as a result of the customer and trademark related intangible assets related to our 2014 and 2015 acquisitions. Other marketing and selling expenses also increased by $10.0 million due to increased payment processing fees, depreciation costs, employee travel, training, and recruitment costs. The increase in marketing and selling expense was partially offset by decreased share-based compensation expense of $3.1 million during the year ended June 30, 2015 influenced by the restricted share awards granted as part of our fiscal 2012 Webs acquisition that were fully vested at December 31, 2013.
General and administrative expense
General and administrative expense consists primarily of transaction costs, including third-party professional fees, insurance and payroll and related expenses of employees involved in executive management, finance, legal, and human resources.
During the year ended June 30, 2016 our general and administrative expenses increased by $0.2 million, as compared to the prior comparative period. The increase in fiscal 2016 was partially driven by increased payroll and facility-related costs of $4.5 million, as compared to the prior comparative period. We incurred additional expense of $6.0 million during the year ended June 30, 2016, related to contingent compensation arrangements from our WIRmachenDRUCK and Easyflyer acquisitions. In addition, our employee travel, training, and recruitment costs and third-party professional fees increased by $3.8 million, as compared to the prior comparative period. Other general and administrative costs increased by $0.8 million, which primarily related to third-party consulting fees. The increase was partially offset by the recognition of $14.9 million of expense during the year ended June 30, 2015, to remeasure the contingent consideration liabilities related to the Printdeal and Pixartprinting acquisitions which did not recur in the current period. Due to an amendment to the terms of the WIRmachenDRUCK contingent compensation arrangement, as discussed in Note 8, we will recognize approximately $7.0 million (based on the June 30, 2016 fair value) of general and administrative expenses in the first quarter of fiscal 2017.
During the year ended June 30, 2015 our general and administrative expenses increased as compared to fiscal 2014 by $28.6 million primarily due to an increase of $14.9 million attributable to the increase in the fair value of the contingent consideration liabilities for Printdeal and Pixartprinting since June 30, 2014. Payroll and share-based compensation expense increased by $10.7 million and $2.5 million, respectively during the year ended June 30, 2015 as compared to the prior year. Other general and administrative expenses also increased by $2.9 million due to increased employee travel, training, and recruitment costs. The increase in general and administrative expense was partially offset by decreased professional fees of $2.4 million during fiscal 2015, as fiscal 2014 included more expenses incurred primarily for certain strategic initiatives.
Impairment of goodwill
During the year ended June 30, 2016, we recognized a $30.8 million goodwill impairment loss related to our Exagroup business. As we began our annual capital allocation and budgeting process, we determined that the revenue and profit outlook for this business was lower than the initial deal model upon which we based our purchase accounting. This is due in part to Exagroup's need to, and plans to, react to heightened competition in its target market, which led to a reduction in our expectations for long-term margins in this business. We performed a quantitative goodwill analysis which concluded that the fair value of our goodwill was less than the carrying amount, resulting in an impairment loss. No goodwill impairment losses were recognized for the years ended June 30, 2015 and 2014.

40




Other income (expense), net
Other income (expense), net generally consists of gains and losses from currency exchange rate fluctuations on transactions or balances denominated in currencies other than the functional currency of our subsidiaries, as well as the realized and unrealized gains and losses on some of our derivative instruments. In evaluating our currency hedging program and ability to achieve hedge accounting in light of our legal entity cash flows, we considered the benefits of hedge accounting relative to the additional economic cost of trade execution and administrative burden. Based on this analysis, we decided to execute certain currency forward contracts that do not qualify for hedge accounting. The following table summarizes the components of other income (expense), net:
 
Year Ended June 30,
 
2016
 
2015
 
2014
Gains (losses) on derivatives not designated as hedging instruments
$
14,026

 
$
9,317

 
$
(7,473
)
Currency related gains (losses), net
6,864

 
10,245

 
(1,764
)
Loss on disposal of Namex

 

 
(12,681
)
Other gains
5,208

 
572

 
288

Total other income (expense), net
$
26,098

 
$
20,134

 
$
(21,630
)
During fiscal 2016 and 2015, we recognized net gains of $26.1 million and $20.1 million, respectively and net losses of $21.6 million during fiscal 2014. The increase in other income (expense), net for the year ended June 30, 2016 was primarily driven by higher net gains on our currency forward contracts not designated as hedging instruments of $14.0 million as compared to $9.3 million during the prior comparable period. During the year ended June 30, 2014 we recognized net losses of $7.5 million on our currency forward contracts not designated as hedging instruments. We expect this volatility to continue in future periods as we do not currently apply hedge accounting for most of our currency forward contracts.
The remaining currency related gains of $6.9 million recognized during fiscal 2016 were lower than fiscal 2015 due to the currency exchange rate volatility on our non-functional currency intercompany relationships. These lower net gains are partially offset by the impact of certain cross-currency swap contracts designated as cash flow hedges executed during fiscal 2016. During the year ended June 30, 2014, we recognized a net loss of $1.8 million.
Other gains primarily consists of $3.9 million for the year ended June 30, 2016, related to insurance proceeds received for damaged equipment and business interruption lost profits which resulted from a fire at our Venlo, Netherlands production facility.
In addition, in fiscal 2014 we recognized a loss of $12.7 million on the sale of our equity investment in Namex Limited which did not occur in fiscal 2016 or 2015.
Interest expense, net
Interest expense, net was $38.2 million, $16.7 million and $7.7 million for the years ended June 30, 2016, 2015 and 2014, respectively. Interest expense, net primarily consists of interest paid on outstanding debt balances, amortization of debt issuance costs, interest related to capital lease obligations and realized gains (losses) on effective interest rate swap contracts and certain cross-currency swaps. The increase in interest expense, net is primarily a result of the issuance of our senior unsecured notes in March 2015, as well as increased interest expense associated with our Waltham lease arrangement. We expect interest expense to increase in future periods relative to historical trends as a result of our senior unsecured notes, our Waltham lease arrangement, and increased capital lease obligations for machinery and equipment.
Income tax provision
 
Year Ended June 30,
 
2016
 
2015
 
2014
Income tax provision
$
15,684

 
$
10,441

 
$
10,590

Effective tax rate
23.7
%
 
10.5
%
 
18.7
%
Income tax expense was $15.7 million, $10.4 million and $10.6 million for the years ended June 30, 2016, 2015 and 2014, respectively. The increase in income tax expense for the year ended June 30, 2016 as compared to

41




the same period ended in 2015 is primarily attributable to an increase in tax on earnings of newly acquired companies and a decrease in tax benefits related to tax losses in certain jurisdictions in fiscal 2016 as compared to fiscal 2015. Our annual effective tax rate in fiscal 2016 is higher than fiscal 2015 due to the Exagroup goodwill impairment charge (discussed in Note 9), which is non-deductible for tax purposes, greater losses recognized in fiscal 2016 as compared to fiscal 2015 in certain jurisdictions where we are unable to recognize a tax benefit, and an increased deferred tax liability on unremitted earnings. In addition, fiscal 2016 had a decrease in consolidated pre-tax income and a less favorable geographical mix of earnings as compared to fiscal 2015. These impacts to the fiscal 2016 effective tax rate are partially offset by share-based compensation tax benefits as a result of the adoption of ASU 2016-09, deferred tax benefits due to future tax rate decreases in various jurisdictions, and a current tax benefit related to the extension of the U.S. federal research and development credit.
Our cash paid for income taxes for fiscal 2016 is higher than our income tax expense primarily as a result of non-cash tax benefits relating to tax losses for which the cash benefit is expected to occur in a future period.
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. See Note 14 in our accompanying consolidated financial statements for additional discussion.
Segment profitability
Our primary metric used to measure segment financial performance is adjusted net operating profit which excludes certain non-operational items including acquisition-related expenses, certain impairments and restructuring charges. For the year ended June 30, 2016, the Vistaprint business unit adjusted net operating profit increased by $26.9 million, as compared to the prior comparative period primarily due to $35.6 million in additional gross profit as a result of revenue growth, partially offset by an increase in planned advertising spend. The Upload and Print business units adjusted net operating profit increased by $34.4 million primarily due to the addition of aggregate adjusted net operating profit of $21.4 million from the brands we acquired during the fourth quarter of fiscal 2015 and fiscal 2016. In addition, both the Pixartprinting and Printdeal brands have increased their contribution to our consolidated adjusted net operating profit due to growth in revenue and improvements in gross margin. Our All Other business units adjusted net operating profit decreased by $18.1 million as we continued to invest in our Most of World portfolio and experienced a decline in partner related profits of $5.7 million.
For the year ended June 30, 2015, the Vistaprint business unit adjusted net operating profit increased by $31.0 million, as compared to the prior comparative period primarily due to $43.4 million in additional gross profit as a result of revenue growth, partially offset by an increase in advertising spend. The Upload and Print business units adjusted net operating profit increased by $20.6 million due to the addition of aggregate adjusted net operating profit from the brands we acquired during the fourth quarter of fiscal 2014 and fiscal 2015. Our All Other business units adjusted net operating profit increased by $0.6 million as we continued to invest in our Most of World portfolio and experienced a decline in partner related revenue and profits.
Liquidity and Capital Resources
Consolidated Statements of Cash Flows Data:
In thousands
 
Year Ended June 30,
 
2016
 
2015

2014
Net cash provided by operating activities
$
247,358

 
$
242,022

 
$
153,739

Net cash used in investing activities
(265,538
)
 
(217,190
)
 
(306,984
)
Net cash (used in) provided by financing activities
(5,338
)
 
25,166

 
164,449

At June 30, 2016, we had $77.4 million of cash and cash equivalents and $685.9 million of outstanding debt, excluding debt issuance costs and debt discounts. Cash and cash equivalents decreased by $26.2 million during the year ended June 30, 2016. We expect cash and cash equivalents to fluctuate over time depending on our working capital needs, as well as our organic investment, share repurchase and acquisition activity. The cash flows during the year ended June 30, 2016 related primarily to the following items:

42




Cash inflows:
Net income of $50.4 million;
Adjustments for non-cash items of $170.0 million primarily related to positive adjustments for depreciation and amortization of $131.9 million, goodwill impairment of $30.8 million, share-based compensation costs of $23.8 million and abandonment of long-lived assets of $11.0 million, offset by negative adjustments for non-cash tax related items of $15.9 million and unrealized currency-related gains of $17.4 million;
Proceeds of debt of $167.3 million, net of payments;
Changes in working capital balances of $38.7 million primarily driven by improved management of accounts payable and accrued expenses and the cash receipt of a tax refund of $8.5 million;
Proceeds from a completed insurance claim settlement of $11.9 million, of which $8.3 million is presented as cash from operations and $3.6 million is presented as cash from investing activities; and
A capital contribution from a noncontrolling interest of $5.1 million.
Cash outflows:
Payments for acquisitions, net of cash acquired, of $164.4 million;
Purchases of our ordinary shares of $153.5 million;
Capital expenditures of $80.4 million of which $31.0 million were related to the purchase of manufacturing and automation equipment for our production facilities, $23.4 million were related to the purchase of land, facilities and leasehold improvements, and $26.0 million were related to purchases of other capital assets, including facility improvements and office equipment;
Internal costs for software and website development that we have capitalized of $26.3 million;
Payments of acquisition-related contingent consideration arrangements of $15.9 million
Payments for capital lease arrangements of $13.9 million; and
Payments of withholding taxes in connection with share awards of $7.5 million.
Additional Liquidity and Capital Resources Information. During the year ended June 30, 2016, we financed our operations and strategic investments through internally generated cash flows from operations and debt financing. As of June 30, 2016, approximately $76.9 million of our cash and cash equivalents was held by our subsidiaries, and undistributed earnings of our subsidiaries that are considered to be indefinitely reinvested were $23.3 million. We do not intend to repatriate such funds as the cash and cash equivalent balances are generally used and available, without legal restrictions, to fund ordinary business operations and investments of the respective subsidiaries. If there is a change in the future, the repatriation of undistributed earnings from certain subsidiaries, in the form of dividends or otherwise, could have tax consequences that could result in material cash outflows. During fiscal 2016, our indefinitely reinvested earnings decreased due to our determination that the undistributed earnings of one of our subsidiaries can no longer be considered indefinitely reinvested. Refer to Note 14 for additional discussion.
Debt. On March 24, 2015, we completed a private placement of $275.0 million of 7.0% senior unsecured notes due 2022. The proceeds from the sales of the notes were used to repay existing outstanding indebtedness under our unsecured line of credit and senior secured credit facility and for general corporate purposes. As of June 30, 2016, we have aggregate loan commitments from our senior secured credit facility totaling $830.0 million. The loan commitments consist of revolving loans of $690.0 million and the remaining term loans of $140.0 million.
We have other financial obligations that constitute additional indebtedness based on the definitions within the credit facility. As of June 30, 2016, the amount available for borrowing under our senior secured credit facility was as follows:

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In thousands

June 30, 2016
Maximum aggregate available for borrowing
$
830,000

Outstanding borrowings of senior secured credit facilities
(400,914
)
Remaining amount
429,086

Limitations to borrowing due to debt covenants and other obligations (1)
(1,636
)
Amount available for borrowing as of June 30, 2016 (2)
$
427,450

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

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

The indenture under which our 7.0% senior unsecured notes due 2022 are issued contains various covenants, including covenants that, subject to certain exceptions, limit our and our restricted subsidiaries’ ability to incur and/or guarantee additional debt; pay dividends, repurchase shares or make certain other restricted payments; enter into agreements limiting dividends and certain other restricted payments; prepay, redeem or repurchase subordinated debt; grant liens on assets; enter into sale and leaseback transactions; merge, consolidate or transfer or dispose of substantially all of our consolidated assets; sell, transfer or otherwise dispose of property and assets; and engage in transactions with affiliates.
Our credit agreement and senior unsecured notes indenture also contain customary representations, warranties and events of default. As of June 30, 2016, we were in compliance with all financial and other covenants under the credit agreement and senior unsecured notes indenture.

44




Other debt. Other debt primarily consists of term loans acquired as part of our fiscal 2015 acquisition of Exagroup SAS. As of June 30, 2016 we had $10.1 million outstanding for those obligations that are payable through September 2024.
Our expectations for fiscal year 2017. Our current liabilities continue to exceed our current assets; however, we believe that our available cash, cash flows generated from operations, and cash available under our committed debt financing will be sufficient to satisfy our liabilities and planned investments to support our long-term growth strategy for the foreseeable future. We endeavor to invest large amounts of capital that we believe will generate returns that are above our weighted average cost of capital. We consider any use of cash that we expect to require more than 12 months to return our invested capital to be an allocation of capital. For fiscal 2017 we expect to allocate capital to the following broad categories and consider our capital to be fungible across all of these categories:
Large, discrete, internally developed projects that we believe can, over the longer term, provide us with materially important competitive capabilities and/or positions in new markets, such as investments in our software, service operations and other supporting capabilities for our integrated platform, new business units such as Corporate Solutions and expansion into new geographic markets
Other organic investments intended to maintain or improve our competitive position or support growth, such as costs to develop new products and expand product attributes, production and IT capacity expansion, merchant related advertising costs and continued investment in our employees
Purchases of ordinary shares
Corporate acquisitions and similar investments
Reduction of debt
Contractual Obligations
Contractual obligations at June 30, 2016 are as follows:
 In thousands
Payments Due by Period
 
Total
 
Less
than 1
year
 
1-3
years
 
3-5
years
 
More
than 5
years
Operating leases, net of subleases
$
90,246

 
$
14,713

 
$
26,217

 
$
24,542

 
$
24,774

Build-to-suit lease
121,294

 
12,569

 
25,139

 
25,139

 
58,447

Purchase commitments
55,328

 
37,828

 
17,500

 

 

Senior unsecured notes and interest payments
390,500

 
19,250

 
38,500

 
38,500

 
294,250

Other debt and interest payments
444,296

 
34,941

 
124,007

 
283,572

 
1,776

Capital leases
29,893

 
10,648

 
14,340

 
4,603

 
302

Other
13,543

 
3,315

 
10,228

 

 

Total (1)
$
1,145,100

 
$
133,264

 
$
255,931

 
$
376,356

 
$
379,549

___________________
(1) We may be required to make cash outlays related to our uncertain tax positions. However, due to the uncertainty of the timing of future cash flows associated with our uncertain tax positions, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. Accordingly, uncertain tax positions of $4.2 million as of June 30, 2016 have been excluded from the contractual obligations table above. For further information on uncertain tax positions, see Note 14 to the accompanying consolidated financial statements.
Operating Leases. We rent office space under operating leases expiring on various dates through 2024. Future minimum rental payments required under our leases are an aggregate of approximately $90.2 million. The terms of certain lease agreements require security deposits in the form of bank guarantees and a letter of credit in the amount of $4.5 million.
Build-to-suit lease. Represents the cash payments for our leased facility in Waltham, Massachusetts, USA. Please refer to Note 6 in the accompanying consolidated financial statements for additional details.
Purchase Commitments. At June 30, 2016, we had unrecorded commitments under contract of $55.3 million, which were primarily composed of commitments for production and computer equipment purchases of approximately $35.4 million. Production and computer equipment purchases relates primarily to a two year

45




purchase commitment for equipment with one of our suppliers. In addition, we had purchase commitments for third-party web services of $9.5 million, professional and consulting fees of approximately $3.4 million, inventory purchase commitments of $1.7 million, commitments for advertising campaigns of $0.8 million, and other unrecorded purchase commitments of $4.5 million.
Senior unsecured notes and interest payments. Our 7.0% senior unsecured notes due 2022 bear interest at a rate of 7.0% per annum and mature on April 1, 2022. Interest on the notes is payable semi-annually on April 1 and October 1 of each year and has been included in the table above.
Other debt and interest payments. The term loans of $140.0 million outstanding under our credit agreement have repayments due on various dates through September 23, 2019, with the revolving loans outstanding of $260.8 million due on September 23, 2019. Interest payable included in this table is based on the interest rate as of June 30, 2016 and assumes all revolving loan amounts outstanding will not be paid until maturity, but that the term loan amortization payments will be made according to our defined schedule. Interest payable includes the estimated impact of our interest rate swap agreements. In addition, we assumed term loan debt as part of certain of our fiscal 2015 acquisitions, and as of June 30, 2016 we had $10.1 million outstanding for those obligations that have repayments due on various dates through September 2024.
Capital leases. We lease certain machinery and plant equipment under capital lease agreements that expire at various dates through 2022. The aggregate carrying value of the leased equipment under capital leases included in property, plant and equipment, net in our consolidated balance sheet at June 30, 2016, is $29.4 million, net of accumulated depreciation of $17.1 million. The present value of lease installments not yet due included in other current liabilities and other liabilities in our consolidated balance sheet at June 30, 2016 amounts to $29.3 million.
Other Obligations. Other obligations include an installment obligation of $9.6 million related to the fiscal 2012 intra-entity transfer of the intellectual property of our subsidiary Webs, Inc., which resulted in tax being paid over a 7.5 year term and has been classified as a deferred tax liability in our consolidated balance sheet as of June 30, 2016. Other obligations also includes the fair value of the contingent earn-out payment related to the WIRmachenDRUCK acquisition of $1.2 million. The WIRmachenDRUCK earn-out is payable at our option in cash or ordinary shares, based on the achievement of a cumulative gross margin target for calendar years 2016 and 2017. In addition, we have deferred payments related to our fiscal 2015 and 2016 acquisitions of $2.7 million, in aggregate.
Non-GAAP Financial Measure
Adjusted net operating profit after tax (NOPAT) presented below is a supplemental measure of our performance that is not required by, or presented in, accordance with GAAP. This metric is the primary metric by which we measure our consolidated financial performance and is intended to supplement investors' understanding of our operating results. Adjusted NOPAT is defined as GAAP operating income excluding certain items such as acquisition-related amortization and depreciation, expense recognized for earn-out related charges, including the change 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. The interest expense associated with our Waltham lease, as well as realized gains (losses) on currency forward contracts that do not qualify for hedge accounting, are included in adjusted NOPAT. We do not, nor do we suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

46




The table below sets forth operating income and adjusted net operating profit after tax for each of the years ended June 30, 2016, 2015 and 2014:
 
Year Ended June 30,
 
2016
 
2015
 
2014
GAAP operating income
$
78,193

 
$
96,324

 
$
85,914

Less: Cash taxes attributable to current period (see below)
(32,236
)
 
(24,986
)
 
(20,123
)
Exclude expense (benefit) impact of:
 
 


 
 
Acquisition-related amortization and depreciation
40,834

 
24,264

 
12,723

Earn-out related charges (1)
6,378

 
15,275

 
2,192

Share-based compensation related to investment consideration
4,835

 
3,570

 
4,363

Certain impairments (2)
41,820

 

 

Restructuring costs
381

 
3,202

 
5,980

Less: Interest expense associated with Waltham lease
(6,287
)
 

 

Include: Realized gains on currency forward contracts not included in operating income
5,863

 
7,450

 
(7,048
)
Adjusted NOPAT (3)
$
139,781

 
$
125,099

 
$
84,001


 
 
 
 
 
Cash taxes paid in the current period (4)
$
19,750

 
$
14,284

 
$
18,485

Less: cash taxes (paid) received and related to prior periods (4)
934

 
(5,477
)
 
(6,521
)
Plus: cash taxes attributable to the current period but not yet paid
9,298

 
6,667

 
6,036

Plus: cash impact of excess tax benefit on equity awards attributable to current period
5,574

 
12,932

 
5,551

Less: installment payment related to the transfer of intellectual property in a prior year
(3,320
)
 
(3,420
)
 
(3,428
)
Cash taxes attributable to current period
$
32,236

 
$
24,986

 
$
20,123

_________________
(1) Includes expense recognized for the change in fair value of contingent consideration and compensation expense related to cash-based earn-out mechanisms dependent upon continued employment.
(2) Includes the impact of impairments or abandonments of goodwill and other long-lived assets as defined by ASC 350 - "Intangibles - Goodwill and Other" or ASC 360 - "Property, plant, and equipment."
(3) Adjusted NOPAT will include the impact of discontinued operations as defined by ASC 205-20 in periods in which they occur.
(4) For the year ended June 30, 2016, cash taxes paid in the current period includes a cash tax refund of $8,479, which is subsequently eliminated from cash taxes attributable to the current period as it relates to a refund of a prior years' taxes generated as a result of a prior year excess share-based compensation deduction. Therefore, the impact is not included in adjusted NOPAT for the current period.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. Our exposure to interest rate risk relates primarily to our cash, cash equivalents and debt.
As of June 30, 2016, our cash and cash equivalents consisted of standard depository accounts which are held for working capital purposes. We do not believe we have a material exposure to interest rate fluctuations related to our cash and cash equivalents.
As of June 30, 2016, we had $400.8 million of variable rate debt and $9.6 million of variable rate installment obligation related to the fiscal 2012 intra-entity transfer of Webs' intellectual property. As a result, we have exposure to market risk for changes in interest rates related to these obligations. In order to mitigate our exposure to interest rate changes related to our variable rate debt, we execute interest rate swap contracts to fix the interest rate on a portion of our outstanding long-term debt with varying maturities. As of June 30, 2016, a hypothetical 100 basis point increase in rates, inclusive of our outstanding interest rate swaps, would result in an increase of interest expense of approximately $3.1 million over the next 12 months.
Currency Exchange Rate Risk. We conduct business in multiple currencies through our worldwide operations but report our financial results in U.S. dollars. We manage these risks through normal operating activities and, when deemed appropriate, through the use of derivative financial instruments. We have policies governing the use of derivative instruments and do not enter into financial instruments for trading or speculative purposes. The

47




use of derivatives is intended to reduce, but do not entirely eliminate, the impact of adverse currency exchange rate movements. A summary of our currency risk is as follows:
Translation of our non-U.S. dollar revenues and expenses: Revenue and related expenses generated in currencies other than the U.S. dollar could result in higher or lower net income when, upon consolidation, those transactions are translated to U.S. dollars. When the value or timing of revenue and expenses in a given currency are materially different, we may be exposed to significant impacts on our net income and non-GAAP financial metrics, such as EBITDA.
Our most significant net currency exposures by volume are in the British Pound, Canadian Dollar, Euro and Swiss Franc, although our exposures to these and other currencies fluctuate, particularly in our fiscal second quarter. Beginning in the fourth quarter of fiscal 2015, our currency hedging objectives are targeted at reducing volatility in our forecasted U.S. dollar-equivalent EBITDA in order to protect our debt covenants. Since EBITDA excludes non-cash items such as depreciation and amortization that are included in net income, we may experience increased, not decreased, volatility in our GAAP results due to our hedging approach.
In addition, we elect to execute currency forward contracts that do not qualify for hedge accounting. As a result, we may experience volatility in our consolidated statements of operations due to (i) the impact of unrealized gains and losses reported in other income, net on the mark-to-market of outstanding contracts and (ii) realized gains and losses recognized in other income, net, whereas the offsetting economic gains and losses are reported in the line item of the underlying cash flow, for example, revenue.
Translation of our non-U.S. dollar assets and liabilities: Each of our subsidiaries translates its assets and liabilities to U.S. dollars at current rates of exchange in effect at the balance sheet date. The resulting gains and losses from translation are included as a component of accumulated other comprehensive (loss) income on the consolidated balance sheet. Fluctuations in exchange rates can materially impact the carrying value of our assets and liabilities.

We have currency exposure arising from our net investments in foreign operations. We enter into cross-currency swap contracts to mitigate the impact of currency rate changes on certain net investments.
Remeasurement of monetary assets and liabilities: Transaction gains and losses generated from remeasurement of monetary assets and liabilities denominated in currencies other than the functional currency of a subsidiary are included in other income, net on the consolidated statements of operations. Certain of our subsidiaries hold intercompany loans denominated in a currency other than their functional currency. Due to the significance of these balances, the revaluation of intercompany loans can have a material impact on other income, net. We expect these impacts may be volatile in the future, although our largest intercompany loans do not have a U.S. dollar cash impact for the consolidated group because they are either 1) U.S. dollar loans or 2) we elect to hedge certain non-U.S. dollar loans with cross currency swaps. A hypothetical 10% change in currency exchange rates was applied to total net monetary assets denominated in currencies other than the functional currencies at the balance sheet dates to compute the impact these changes would have had on our income before taxes in the near term. The balances are inclusive of the notional value of any cross currency swaps designated as cash flow hedges. A hypothetical decrease in exchange rates of 10% against the functional currency of our subsidiaries would have resulted in an increase of $21.3 million, $18.8 million and $10.1 million on our income before taxes for the years ended June 30, 2016, 2015 and 2014, respectively.

48




Item 8. Financial Statements and Supplementary Data
CIMPRESS N.V.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


49




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Supervisory Board and Shareholders of
Cimpress N.V.

In our opinion, the accompanying consolidated balance sheets as of June 30, 2016 and 2015 and the related consolidated statements of operations, of comprehensive income, of shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of Cimpress N.V. and its subsidiaries at June 30, 2016 and 2015, and the results of their operations and their cash flows for each of the two years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audit. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A, management has excluded Tradeprint Distribution Limited (formerly known as Fairprint Distribution Limited), Litotipographia Alcione S.r.l. and WIRmachenDRUCK GmbH (the “Acquired Companies”) from its assessment of internal control over financial reporting as of June 30, 2016 because they were acquired by the Company in purchase business combinations during fiscal 2016. We have also excluded these Acquired Companies from our audit of internal control over financial reporting. The aggregated total assets and total revenues of these wholly-owned Acquired Companies represent approximately $35.6 million and $93.4 million, respectively, of the related consolidated financial statement amounts as of and for the year ended June 30, 2016.


/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
August 12, 2016

50




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Supervisory Board and Shareholders of
Cimpress N.V.
We have audited the accompanying consolidated statement of operations, comprehensive income (loss), shareholders’ equity and cash flows of Cimpress N.V. (formerly known as Vistaprint N.V.) for the year ended June 30, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of the operations and cash flows of Cimpress N.V. for the year ended June 30, 2014, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Boston, Massachusetts
August 15, 2014

Except for Notes 9 and 17, as to which the date is

August 12, 2016



51




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

June 30,
2016

June 30,
2015
Assets
 


 

Current assets:
 


 

Cash and cash equivalents
$
77,426


$
103,584

Marketable securities
7,893

 
6,910

Accounts receivable, net of allowances of $490 and $372, respectively
32,327


32,145

Inventory
18,125


18,356

Prepaid expenses and other current assets
64,997


55,103

Total current assets
200,768


216,098

Property, plant and equipment, net
493,163


467,511

Software and web site development costs, net
35,212


22,109

Deferred tax assets
26,093


17,172

Goodwill
466,005


400,629

Intangible assets, net
216,970


151,063

Other assets
25,658


25,213

Total assets
$
1,463,869


$
1,299,795

Liabilities, noncontrolling interests and shareholders’ equity
 


 

Current liabilities:
 


 

Accounts payable
$
86,682


$
65,875

Accrued expenses
178,987


172,826

Deferred revenue
25,842


23,407

Deferred tax liabilities


1,043

Short-term debt
21,717


21,057

Other current liabilities
22,635


21,470

Total current liabilities
335,863


305,678

Deferred tax liabilities
69,430


48,007

Lease financing obligation
110,232

 
93,841

Long-term debt
656,794


493,039

Other liabilities
60,173


52,073

Total liabilities
1,232,492


992,638

Commitments and contingencies (Note 18)





Redeemable noncontrolling interests
65,301


57,738

Shareholders’ equity:
 


 

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



Ordinary shares, par value €0.01 per share, 100,000,000 shares authorized; 44,080,627 shares issued; and 31,536,732 and 33,203,065 shares outstanding, respectively
615


615

Treasury shares, at cost,12,543,895 and 10,877,562 shares, respectively
(548,549
)

(412,132
)
Additional paid-in capital
335,192


324,281

Retained earnings
486,482


435,052

Accumulated other comprehensive loss
(108,015
)

(98,909
)
Total shareholders’ equity attributable to Cimpress N.V.
165,725


248,907

Noncontrolling interest
351

 
512

Total shareholders' equity
166,076

 
249,419

Total liabilities, noncontrolling interests and shareholders’ equity
$
1,463,869


$
1,299,795

See accompanying notes.

52




CIMPRESS N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
 
Year Ended June 30,
 
2016
 
2015
 
2014
Revenue
$
1,788,044

 
$
1,494,206

 
$
1,270,236

Cost of revenue (1)
775,005

 
568,599

 
451,093

Technology and development expense (1)
220,981

 
194,360

 
176,344

Marketing and selling expense (1)
537,664

 
489,743

 
440,311

General and administrative expense (1)
145,360

 
145,180

 
116,574

Impairment of goodwill
30,841

 

 

Income from operations
78,193

 
96,324

 
85,914

Other income (expense), net
26,098

 
20,134

 
(21,630
)
Interest expense, net
(38,196
)
 
(16,705
)
 
(7,674
)
Income before income taxes and loss in equity interests
66,095

 
99,753

 
56,610

Income tax provision
15,684

 
10,441

 
10,590

Loss in equity interests

 

 
2,704

Net income
50,411

 
89,312

 
43,316

Add: Net loss attributable to noncontrolling interest
3,938

 
2,900

 
380

Net income attributable to Cimpress N.V.
$
54,349

 
$
92,212

 
$
43,696

Basic net income per share attributable to Cimpress N.V.
$
1.72

 
$
2.82

 
$
1.33

Diluted net income per share attributable to Cimpress N.V.
$
1.64

 
$
2.73

 
$
1.28

Weighted average shares outstanding — basic
31,656,234

 
32,644,870

 
32,873,234

Weighted average shares outstanding — diluted
33,049,454

 
33,816,498

 
34,239,909

____________________________________________
(1) Share-based compensation is allocated as follows:
 
Year Ended June 30,
 
2016
 
2015
 
2014
Cost of revenue
$
72

 
$
78

 
$
251

Technology and development expense
5,892

 
4,139

 
7,041

Marketing and selling expense
1,591

 
1,952

 
5,082

General and administrative expense
16,273

 
17,906

 
15,412


See accompanying notes.



53




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

 
Year Ended June 30,
 
2016
 
2015
 
2014
Net income
$
50,411

 
$
89,312

 
$
43,316

Other comprehensive income (loss), net of tax:

 

 
 
Foreign currency translation (loss) gain, net of hedges
(7,537
)
 
(93,627
)
 
8,019

Net unrealized loss on derivative instruments designated and qualifying as cash flow hedges
(2,504
)
 
(1,417
)
 
(1,285
)
Amounts reclassified from accumulated other comprehensive income to net income on derivative instruments
1,587

 
815

 
396

Unrealized gain (loss) on available-for-sale-securities
517

 
(6,275
)
 
9,246

Gain (loss) on pension benefit obligation, net
561

 
(388
)
 
(2,724
)
Comprehensive income (loss)
43,035

 
(11,580
)
 
56,968

Add: Comprehensive loss attributable to noncontrolling interests
2,208

 
2,770

 
397

Total comprehensive income (loss) attributable to Cimpress N.V.
$
45,243

 
$
(8,810
)
 
$
57,365

See accompanying notes.


54




CIMPRESS N.V.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
 
Ordinary Shares
 
Treasury Shares
 
 
 
 
 
 
 
 
 
Number of Shares
Issued
 
Amount
 
Number
of
Shares
 
Amount
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive
Income (Loss)
 
Total
Shareholders’
Equity
Balance at June 30, 2013
44,080

 
$
615

 
(11,289
)
 
$
(398,301
)
 
$
299,659

 
$
299,144

 
$
(11,556
)
 
$
189,561

Issuance of ordinary shares due to share option exercises, net of shares withheld for taxes
 
 
 
 
297

 
9,011

 
(8,001
)
 
 
 
 

 
1,010

Restricted share units vested, net of shares withheld for taxes
 

 
 

 
285

 
8,205

 
(14,220
)
 
 

 
 

 
(6,015
)
Excess tax benefits from share-based compensation
 

 
 

 
 

 
 

 
5,159