NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited in thousands, except share and per share data)
1. Description of the Business
Cimpress is a strategically focused group of more than a dozen businesses that specialize in mass customization, via which we deliver large volumes of individually small-sized customized orders for a broad spectrum of print, signage, photo merchandise, invitations and announcements, writing instruments, packaging, apparel and other categories. We invest in and build customer-focused, entrepreneurial mass customization businesses for the long term, which we manage in a decentralized, autonomous manner. Mass customization is a core element of the business model of each Cimpress business. We drive competitive advantage across Cimpress through a select few shared strategic capabilities that have the greatest potential to create Cimpress-wide value. We limit all other central activities to only those which absolutely must be performed centrally.
Irish Merger
On December 3, 2019, Cimpress moved its place of incorporation from the Netherlands to Ireland through a cross-border merger in which Cimpress N.V., a Dutch public limited company, merged with and into Cimpress plc, an Irish public limited company, with Cimpress plc surviving the Irish Merger. As a result of the Irish Merger, all of Cimpress N.V.'s outstanding ordinary shares, par value €0.01 per share, were exchanged on a one-for-one basis for newly issued ordinary shares, nominal value of €0.01 per share, of Cimpress plc, and Cimpress plc assumed all of Cimpress N.V.'s existing rights and obligations.
In conjunction with the Irish Merger, 25,000 Cimpress plc deferred ordinary shares were issued to meet the Irish statutory minimum capital requirements of an Irish public limited company. The deferred ordinary shares remain outstanding following the completion of the Irish Merger and will continue to be outstanding until redeemed or surrendered. These deferred ordinary shares (i) do not have any voting rights; (ii) do not entitle the holders thereof to any dividends or other distributions of Cimpress plc; and (iii) do not entitle the holders thereof to participate in the surplus assets of Cimpress plc on a winding-up beyond, in total, the nominal value of such deferred ordinary shares held. Accordingly, these deferred ordinary shares do not dilute the economic ownership of Cimpress plc shareholders.
The Irish Merger was accounted for as a merger between entities under common control. The historical financial statements of Cimpress N.V. for periods prior to the Irish Merger are considered to be the historical financial statements of Cimpress plc. The Irish Merger has not had and is not expected to have a material impact on how Cimpress conducts its day-to-day operations, its financial position, consolidated effective tax rate, results of operations or cash flows.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We believe our most significant estimates are associated with the ongoing evaluation of the recoverability of our long-lived assets and goodwill, estimated useful lives of assets, share-based compensation, accounting for business combinations, and income taxes and related valuation allowances, among others. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ from those estimates.
Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. Subsequent to March 31, 2020, we are not aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of May 6, 2020, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and, accordingly, do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting primarily of normal recurring accruals, considered necessary for fair presentation of the results of operations for the interim periods reported and of our financial condition as of the date of the interim balance sheet have been included. Operating results for the three and nine months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending June 30, 2020 or for any other period.
The consolidated financial statements include the accounts of Cimpress plc, its wholly owned subsidiaries, entities in which we maintain a controlling financial interest, and those entities in which we have a variable interest and are the primary beneficiary. Intercompany balances and transactions have been eliminated. Investments in entities in which we cannot exercise significant influence, and the related equity securities do not have a readily determinable fair value, are accounted for using the cost method and are included in other assets on the consolidated balance sheets.
Given the expected impact of the COVID-19 pandemic on our business we evaluated our liquidity position as of the date of the issuance of these consolidated financial statements. Based on this evaluation, management believes, despite the expected impact of COVID-19 on our business, that the Company’s financial position, net cash provided by operations combined with our cash and cash equivalents, borrowing availability under our revolving credit facility, and the May 2020 temporary maintenance covenant suspension and capital raise as described in Note 16, will be sufficient to fund our current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months.
Significant Accounting Policies
Our significant accounting policies are described in Note 2 in our consolidated financial statements included in the Form 10-K for our year ended June 30, 2019. There have been no material changes to our significant accounting policies during the three and nine months ended March 31, 2020, except the adoption of the new lease accounting standard, as discussed below.
Assets and Liabilities Held for Sale
We classify assets and liabilities (disposal groups) to be sold as held for sale in the period in which all of the criteria within ASC 360-10-45-9 are met. We measure a disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met.
In March 2020, we decided to exit the VIDA business due in part to the impacts of COVID-19 as we would eliminate the loss generation of this early stage business, but also due to uncertainty associated with the long-term financial outlook for the business. As of March 31, 2020, we met the held-for-sale criteria for our planned sale of our shares in the VIDA business, which is part of our All Other Businesses reportable segment. The related held for sale assets and liabilities are included within prepaid expenses and other current assets and other current liabilities, respectively, as the balances were not material. We recognized a loss of $999 for the measurement of the disposal group at fair value, which was recognized within general and administrative expense in our consolidated statements of operations for the three and nine months ended March 31, 2020. The sale of our shares in VIDA back to the company closed on April 10, 2020.
Other Income (Expense), Net
The following table summarizes the components of other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Gains on derivatives not designated as hedging instruments (1)
|
$
|
18,039
|
|
|
$
|
1,258
|
|
|
$
|
25,730
|
|
|
$
|
19,802
|
|
|
Currency-related gains (losses), net (2)
|
3,950
|
|
|
(4,085
|
)
|
|
3,183
|
|
|
(3,011
|
)
|
|
Other gains
|
548
|
|
|
332
|
|
|
258
|
|
|
595
|
|
|
Total other income (expense), net
|
$
|
22,537
|
|
|
$
|
(2,495
|
)
|
|
$
|
29,171
|
|
|
$
|
17,386
|
|
_____________________
|
|
|
|
(1)
|
Primarily relates to both realized and unrealized gains on derivative currency forward and option contracts not designated as hedging instruments.
|
|
|
|
|
(2)
|
We have significant non-functional currency intercompany financing relationships that we may change at times and are subject to currency exchange rate volatility. The currency-related gains (losses), net for the three and nine months ended March 31, 2020 and 2019 are primarily driven by this intercompany activity. In addition, we have certain cross-currency swaps designated as cash flow hedges, which hedge the remeasurement of certain intercompany loans, both presented in the same component above. Unrealized gains related to cross-currency swaps were $1,807 and $3,627 for the three and nine months ended March 31, 2020, respectively, as compared to unrealized gains of $2,146 and $3,389 for the three and nine months ended March 31, 2019, respectively.
|
Net (Loss) Income Per Share Attributable to Cimpress plc
Basic net (loss) income per share attributable to Cimpress plc is computed by dividing net (loss) income attributable to Cimpress plc by the weighted-average number of ordinary shares outstanding for the respective period. Diluted net (loss) income per share attributable to Cimpress plc gives effect to all potentially dilutive securities, including share options, restricted share units (“RSUs”), restricted share awards ("RSAs") and performance share units ("PSUs"), if the effect of the securities is dilutive using the treasury stock method. Awards with performance or market conditions are included using the treasury stock method only if the conditions would have been met as of the end of the reporting period and their effect is dilutive.
The following table sets forth the reconciliation of the weighted-average number of ordinary shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Weighted average shares outstanding, basic
|
26,024,229
|
|
|
30,763,055
|
|
|
27,608,387
|
|
|
30,837,207
|
|
|
Weighted average shares issuable upon exercise/vesting of outstanding share options/RSUs/RSAs
|
—
|
|
|
751,738
|
|
|
709,053
|
|
|
943,934
|
|
|
Shares used in computing diluted net (loss) income per share attributable to Cimpress plc
|
26,024,229
|
|
|
31,514,793
|
|
|
28,317,440
|
|
|
31,781,141
|
|
|
Weighted average anti-dilutive shares excluded from diluted net (loss) income per share attributable to Cimpress plc (1)
|
464,638
|
|
|
—
|
|
|
—
|
|
|
—
|
|
_____________________
|
|
|
|
(1)
|
In the periods in which a net loss is recognized, the impact of share options, RSUs and RSAs is not included as they are anti-dilutive.
|
Lease Accounting
Lease accounting - adoption of ASC 842
On July 1, 2019, we adopted ASC 842, Leases, using a modified retrospective transition approach. Under the modified retrospective approach, we recognized any cumulative impacts as of the adoption date within retained earnings on our consolidated balance sheet. We did not adjust the prior comparable period. Additionally, as part of our transition, we elected several practical expedients that streamlined the transition to the new guidance whereby we did not reassess the following:
|
|
|
|
•
|
whether a lease under the prior standard continues to meet the definition of a lease under the new standard;
|
|
|
|
|
•
|
whether the application of the new standard would have an impact on the classification of our existing leases, with the exception of our build-to-suit leases; and
|
|
|
|
|
•
|
the existence of any initial direct costs associated with our leases.
|
We also elected the practical expedient to account for our lease components as a single lease component rather than separating them into lease and nonlease components, which would have resulted in recognizing only the lease components in the measurement of our lease assets and liabilities. This expedient was applied to all underlying classes of assets we lease.
We elected the short-term lease exception policy, permitting us to not apply the recognition requirements of ASC 842 to short-term leases, which are defined as leases with a term of twelve months or less. Short-term leases are not recorded on our consolidated balance sheet and are expensed on a straight-line basis over the lease term in our consolidated statement of operations. We determine the lease term by including the exercise of renewal options that are considered reasonably certain at lease inception.
The following table summarizes the cumulative effect of adopting the new lease standard as of the adoption date of July 1, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet
|
As reported at
June 30, 2019
|
|
ASC 842 adjustments
|
|
Adjusted balance at
July 1, 2019
|
|
Assets
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
$
|
78,065
|
|
|
$
|
(59
|
)
|
|
$
|
78,006
|
|
|
Property, plant and equipment, net
|
490,755
|
|
|
(121,254
|
)
|
|
369,501
|
|
|
Operating lease assets, net
|
—
|
|
|
169,668
|
|
|
169,668
|
|
|
Deferred tax assets
|
59,906
|
|
|
(817
|
)
|
|
59,089
|
|
|
Liabilities and shareholders' equity
|
|
|
|
|
|
|
Operating lease liabilities, current
|
$
|
—
|
|
|
$
|
37,342
|
|
|
$
|
37,342
|
|
|
Other current liabilities
|
27,881
|
|
|
(12,569
|
)
|
|
15,312
|
|
|
Lease financing obligation
|
112,096
|
|
|
(112,096
|
)
|
|
—
|
|
|
Operating lease liabilities, non-current
|
—
|
|
|
139,041
|
|
|
139,041
|
|
|
Other liabilities
|
53,716
|
|
|
(7,169
|
)
|
|
46,547
|
|
|
Retained earnings
|
537,422
|
|
|
2,989
|
|
|
540,411
|
|
The new standard impacted the classification of our build-to-suit leases for our Waltham, Massachusetts and Dallas, Texas building leases, which resulted in a change of their classification to operating leases. On July 1, 2019, we de-recognized the existing lease assets included within property, plant and equipment, net of $121,254, the related lease financing obligations of $124,665, and associated deferred rent of $418. This change resulted in an $817 decrease to deferred tax assets and a net increase to retained earnings of $2,989. In addition, on July 1, 2019, we recognized operating lease assets of $169,668 and operating lease liabilities of $176,383, inclusive of our Waltham, Massachusetts lease which commenced prior to the transition date. The difference between the operating lease assets and liabilities resulted from the reclassification of deferred rent and tenant allowance balances presented in other financial statement lines of the consolidated balance sheet, which are now included in the operating lease assets.
For the three and nine months ended March 31, 2020, the change in lease classification for our build-to-suit leases resulted in a reduction to operating income within our consolidated statement of operations of $1,860 and $5,580, respectively, with a corresponding decrease to interest expense, net. In our consolidated statement of cash flows, the change in classification resulted in a decrease to cash from operating activities and increase to cash from financing activities of $3,058 during the nine months ended March 31, 2020. Other than the impact from our build-to-suit leases, the new standard did not have a material impact on our consolidated statement of operations and consolidated statement of cash flows. Refer to Note 13 for additional lease disclosure.
Lease accounting policy
We determine if an arrangement contains a lease at contract inception. We consider an arrangement to be a lease if it conveys the right to control an identifiable asset for a period of time.
Lease right-of-use ("ROU") assets and liabilities for operating and finance leases are recognized based on the present value of the future lease payments over the lease term at lease commencement date. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the lease commencement date. Our incremental borrowing rate approximates the interest rate on a collateralized basis for the economic environments where our leased assets are located, and is established by considering the credit spread associated with our existing debt arrangements, as well as observed market rates for instruments with a similar term to that of the lease payments. ROU assets also include any lease payments made at or before the lease commencement, as well as any initial direct costs incurred. Lease incentives received from the lessor are recognized as a reduction to the ROU asset.
Variable lease payments are excluded from the operating lease assets and liabilities and are recognized as expense in the period in which the obligation is incurred. Variable lease payments primarily include index-based rent escalation associated with some of our real estate leases, as well as property taxes and common area maintenance payments for most real estate leases, which are determined based on the costs incurred by the lessor. We also make variable lease payments for certain print equipment leases that are determined based on production volumes.
Our initial determination of the lease term is based on the facts and circumstances that exist at lease commencement. The lease term may include the effect of options to extend or terminate the lease when it is reasonably certain that those options will be exercised. We consider these options reasonably certain to be exercised based on our assessment of economic incentives, including the fair market rent for equivalent properties under similar terms and conditions, costs of relocating, availability of comparable replacement assets, and any related disruption to operations that would be experienced by not renewing the lease.
Operating leases are included in operating lease assets and current and non-current operating lease liabilities in the consolidated balance sheets. Finance lease assets are included in property, plant, and equipment, net, and the related liabilities are included in other current liabilities and other liabilities in the consolidated balance sheets.
We have subleased a small amount of our equipment and real estate lease portfolio to third parties, making us the lessor. Most of these subleases meet the criteria for operating lease classification and the related sublease income is recognized on a straight-line basis over the lease term within the consolidated statement of operations. To a lesser extent, we have leases in which we are the lessees, classify the leases as finance leases and have subleased the asset under similar terms, resulting in their classification as direct financing leases. For direct financing leases, we recognize a sublease receivable within prepaid expenses and other current assets and other assets in the consolidated balance sheets.
Recently Issued or Adopted Accounting Pronouncements
New Accounting Standards Adopted
In August 2018, the FASB issued Accounting Standards Update No. 2018-15 "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40)" (ASU 2018-15), which requires a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. The standard would be effective on July 1, 2020 and we early adopted the new standard on July 1, 2019. The standard did not have a material impact on our consolidated financial statements.
In August 2017, the FASB issued Accounting Standards Update No. 2017-12, "Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (Topic 815)," (ASU 2017-12), which better aligns a company’s financial reporting for hedging activities with the economic objectives of those activities. We adopted the amendment on its effective date of July 1, 2019. The standard requires a modified retrospective transition approach, and we recognized the cumulative effect of the change within shareholders' equity as of the date of adoption. Upon transitioning to the new standard on July 1, 2019, we reversed the cumulative effect of expense previously recognized in earnings for the ineffective portion of our interest rate swap contracts, which resulted in an adjustment to retained earnings and accumulated other comprehensive loss within our consolidated balance sheet of $153, net of tax. We will prospectively recognize any ineffectiveness associated with our effective and designated
cash flow hedges within accumulated other comprehensive loss, rather than in earnings. These changes did not have a material impact on our consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-02, "Leases (Topic 842)" (ASU 2016-02), which requires the recognition of lease assets and lease liabilities by lessees for those leases currently classified as operating leases. The standard also retains a distinction between finance leases and operating leases. We adopted the standard on its effective date of July 1, 2019. Refer to the information above for additional details of the adoption.
Issued Accounting Standards to be Adopted
In December 2019, the FASB issued Accounting Standards Update No. 2019-12 "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" (ASU 2019-12), which modifies certain aspects of income tax accounting. The standard is effective for us on July 1, 2020. We do not expect the effect of ASU 2019-12 to have a material impact on our consolidated financial statements.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13 "Financial Instruments—Credit Losses (Topic 326)" (ASU 2016-13), which introduces a new accounting model for recognizing credit losses on certain financial instruments based on an estimate of current expected credit losses. The standard is effective for us on July 1, 2020. We do not expect the effect of ASU 2016-13 to have a material impact on our consolidated financial statements.
3. Fair Value Measurements
We use a three-level valuation hierarchy for measuring fair value and include detailed financial statement disclosures about fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
|
|
|
|
•
|
Level 1: Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
|
|
•
|
Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
|
|
•
|
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following tables summarize our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
Total
|
|
Quoted Prices in
Active
Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
Cross-currency swap contracts
|
$
|
5,895
|
|
|
$
|
—
|
|
|
$
|
5,895
|
|
|
$
|
—
|
|
|
Currency forward contracts
|
17,795
|
|
|
—
|
|
|
17,795
|
|
|
—
|
|
|
Currency option contracts
|
4,542
|
|
|
—
|
|
|
4,542
|
|
|
—
|
|
|
Total assets recorded at fair value
|
$
|
28,232
|
|
|
$
|
—
|
|
|
$
|
28,232
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Interest rate swap contracts
|
$
|
(37,674
|
)
|
|
$
|
—
|
|
|
$
|
(37,674
|
)
|
|
$
|
—
|
|
|
Cross-currency swap contracts
|
(3,558
|
)
|
|
—
|
|
|
(3,558
|
)
|
|
—
|
|
|
Currency forward contracts
|
(5,514
|
)
|
|
—
|
|
|
(5,514
|
)
|
|
—
|
|
|
Total liabilities recorded at fair value
|
$
|
(46,746
|
)
|
|
$
|
—
|
|
|
$
|
(46,746
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
Total
|
|
Quoted Prices in
Active
Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
Interest rate swap contracts
|
$
|
144
|
|
|
$
|
—
|
|
|
$
|
144
|
|
|
$
|
—
|
|
|
Currency forward contracts
|
15,268
|
|
|
—
|
|
|
15,268
|
|
|
—
|
|
|
Currency option contracts
|
4,765
|
|
|
—
|
|
|
4,765
|
|
|
—
|
|
|
Total assets recorded at fair value
|
$
|
20,177
|
|
|
$
|
—
|
|
|
$
|
20,177
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Interest rate swap contracts
|
$
|
(12,895
|
)
|
|
$
|
—
|
|
|
$
|
(12,895
|
)
|
|
$
|
—
|
|
|
Cross-currency swap contracts
|
(915
|
)
|
|
—
|
|
|
(915
|
)
|
|
—
|
|
|
Currency forward contracts
|
(2,486
|
)
|
|
—
|
|
|
(2,486
|
)
|
|
—
|
|
|
Currency option contracts
|
(42
|
)
|
|
—
|
|
|
(42
|
)
|
|
—
|
|
|
Total liabilities recorded at fair value
|
$
|
(16,338
|
)
|
|
$
|
—
|
|
|
$
|
(16,338
|
)
|
|
$
|
—
|
|
During the quarter ended March 31, 2020, and year ended June 30, 2019, there were no significant transfers in or out of Level 1, Level 2 and Level 3 classifications.
The valuations of the derivatives intended to mitigate our interest rate and currency risk are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each instrument. This analysis utilizes observable market-based inputs, including interest rate curves, interest rate volatility, or spot and forward exchange rates, and reflects the contractual terms of these instruments, including the period to maturity. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparties' nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to appropriately reflect both our own nonperformance risk and the respective counterparties' nonperformance risk in the fair value measurement. However, as of March 31, 2020, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall
valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 in the fair value hierarchy.
As of March 31, 2020 and June 30, 2019, the carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable, other current liabilities, and goodwill approximated their estimated fair values. As of March 31, 2020 and June 30, 2019, the carrying value of our debt, excluding debt issuance costs and debt premiums and discounts, was $1,677,490 and $1,035,585, respectively, and the fair value was $1,606,445 and $1,045,334, respectively. Our debt at March 31, 2020 includes variable-rate debt instruments indexed to LIBOR that resets periodically, as well as fixed-rate debt instruments. The estimated fair value of our debt was determined using available market information based on recent trades or activity of debt instruments with substantially similar risks, terms and maturities, which fall within Level 2 under the fair value hierarchy. The estimated fair value of assets and liabilities disclosed above may not be representative of actual values that could have been or will be realized in the future.
4. Derivative Financial Instruments
We use derivative financial instruments, such as interest rate swap contracts, cross-currency swap contracts, and currency forward and option contracts, to manage interest rate and foreign currency exposures. Derivatives are recorded in the consolidated balance sheets at fair value. If the derivative is designated as a cash flow hedge or net investment hedge, then the change in the fair value of the derivative is recorded in accumulated other comprehensive loss and subsequently reclassified into earnings in the period the hedged forecasted transaction affects earnings. On July 1, 2019, we adopted the new hedge accounting standard, in which we no longer recognize the ineffective portion of an effective hedge within earnings, rather any ineffectiveness associated with any effective and designated hedge is recognized within accumulated other comprehensive loss. Refer to Note 2 for additional details.
The change in the fair value of derivatives not designated as hedges is recognized directly in earnings as a component of other income (expense), net.
Hedges of Interest Rate Risk
We enter into interest rate swap contracts to manage variability in the amount of our known or expected cash payments related to a portion of our debt. Our objective in using interest rate swaps is to add stability to interest expense and to manage our exposure to interest rate movements. We designate our interest rate swaps as cash flow hedges. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the contract agreements without exchange of the underlying notional amount. Realized gains or losses from interest rate swaps are recorded in earnings as a component of interest expense, net.
Amounts reported in accumulated other comprehensive loss related to interest rate swap contracts will be reclassified to interest expense, net as interest payments are accrued or made on our variable-rate debt. As of March 31, 2020, we estimate that $9,488 will be reclassified from accumulated other comprehensive loss to interest expense during the twelve months ending March 31, 2021. As of March 31, 2020, we had ten outstanding interest rate swap contracts indexed to USD LIBOR. These instruments were designated as cash flow hedges of interest rate risk and have varying start dates and maturity dates through December 2026.
|
|
|
|
|
|
|
|
|
Interest rate swap contracts outstanding:
|
|
Notional Amounts
|
|
Contracts accruing interest as of March 31, 2020
|
|
$
|
500,000
|
|
|
Contracts with a future start date
|
|
50,000
|
|
|
Total
|
|
$
|
550,000
|
|
Hedges of Currency Risk
Cross-Currency Swap Contracts
From time to time, we execute cross-currency swap contracts designated as cash flow hedges or net investment hedges. Cross-currency swaps involve an initial receipt of the notional amount in the hedge currency in exchange for our reporting currency based on a contracted exchange rate. Subsequently, we receive fixed rate payments in our reporting currency in exchange for fixed rate payments in the hedged currency over the life of the
contract. At maturity, the final exchange involves the receipt of our reporting currency in exchange for the notional amount in the hedged currency.
Cross-currency swap contracts designated as cash flow hedges are executed to mitigate our currency exposure to the interest receipts as well as the principal remeasurement and repayment associated with certain intercompany loans denominated in a currency other than our reporting currency, the U.S. dollar. During the quarter ended March 31, 2020, we terminated one of our cross-currency swaps, resulting in cash proceeds of $9,177 which were recognized within cash provided by operating activities in our consolidated statement of cash flows. As of March 31, 2020, we had two outstanding cross-currency swap contracts designated as cash flow hedges with a total notional amount of $120,874, both maturing during June 2024. We entered into the two cross-currency swap contracts to hedge the risk of changes in one Euro-denominated intercompany loan entered into with one of our consolidated subsidiaries that has the Euro as its functional currency.
Amounts reported in accumulated other comprehensive loss will be reclassified to other income (expense), net as interest payments are accrued or paid and upon remeasuring the intercompany loan. As of March 31, 2020, we estimate that $3,133 of income will be reclassified from accumulated other comprehensive loss to interest expense, net during the twelve months ending March 31, 2021.
Other Currency Contracts
We execute currency forward and option contracts in order to mitigate our exposure to fluctuations in various currencies against our reporting currency, the U.S. dollar.
During the quarter ended March 31, 2020, we terminated eight forward contracts designated as net investment hedges, resulting in cash proceeds of $27,732 which continues to be recognized in accumulated other comprehensive income (loss). The cash proceeds were recognized as cash provided by investing activities within our consolidated statement of cash flow. As of March 31, 2020, we had six currency forward contracts designated as net investment hedges with a total notional amount of $180,292, maturing during various dates through April 2025. We entered into these contracts to hedge the risk of changes in the U.S. dollar equivalent value of a portion of our net investment in two consolidated subsidiaries that have the Euro as their functional currency. Amounts reported in accumulated other comprehensive loss are recognized as a component of our cumulative translation adjustment.
We have elected to not apply hedge accounting for all other currency forward and option contracts. During the three and nine months ended March 31, 2020 and 2019, we have experienced volatility within other income (expense), net in our consolidated statements of operations from unrealized gains and losses on the mark-to-market of outstanding currency forward and option contracts. We expect this volatility to continue in future periods for contracts for which we do not apply hedge accounting. Additionally, since our hedging objectives may be targeted at non-GAAP financial metrics that exclude non-cash items such as depreciation and amortization, we may experience increased, not decreased, volatility in our GAAP results as a result of our currency hedging program.
As of March 31, 2020, we had the following outstanding currency derivative contracts that were not designated for hedge accounting and were used to hedge fluctuations in the U.S. dollar value of forecasted transactions or balances denominated in Australian Dollar, British Pound, Canadian Dollar, Danish Krone, Euro, Indian Rupee, Mexican Peso, New Zealand Dollar, Norwegian Krone, Philippine Peso and Swedish Krona:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Effective Date
|
|
Maturity Date
|
|
Number of Instruments
|
|
Index
|
|
$556,679
|
|
June 2018 through March 2020
|
|
Various dates through October 2024
|
|
526
|
|
Various
|
Financial Instrument Presentation
The table below presents the fair value of our derivative financial instruments as well as their classification on the balance sheet as of March 31, 2020 and June 30, 2019. Our derivative asset and liability balances will fluctuate with interest rate and currency exchange rate volatility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
Balance Sheet line item
|
|
Gross amounts of recognized assets
|
|
Gross amount offset in Consolidated Balance Sheet
|
|
Net amount
|
|
Balance Sheet line item
|
|
Gross amounts of recognized liabilities
|
|
Gross amount offset in Consolidated Balance Sheet
|
|
Net amount
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
Other current assets / other assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other liabilities
|
|
$
|
(37,674
|
)
|
|
$
|
—
|
|
|
$
|
(37,674
|
)
|
|
Cross-currency swaps
|
Other assets
|
|
5,895
|
|
|
—
|
|
|
5,895
|
|
|
Other liabilities
|
|
(3,558
|
)
|
|
—
|
|
|
(3,558
|
)
|
|
Derivatives in net investment hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forward contracts
|
Other assets
|
|
1,541
|
|
|
—
|
|
|
1,541
|
|
|
Other liabilities
|
|
(4,702
|
)
|
|
—
|
|
|
(4,702
|
)
|
|
Total derivatives designated as hedging instruments
|
|
|
$
|
7,436
|
|
|
$
|
—
|
|
|
$
|
7,436
|
|
|
|
|
$
|
(45,934
|
)
|
|
$
|
—
|
|
|
$
|
(45,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forward contracts
|
Other current assets / other assets
|
|
$
|
18,473
|
|
|
$
|
(2,219
|
)
|
|
$
|
16,254
|
|
|
Other current liabilities / other liabilities
|
|
$
|
(1,346
|
)
|
|
$
|
534
|
|
|
$
|
(812
|
)
|
|
Currency option contracts
|
Other current assets / other assets
|
|
4,554
|
|
|
(12
|
)
|
|
4,542
|
|
|
Other current liabilities / other liabilities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
$
|
23,027
|
|
|
$
|
(2,231
|
)
|
|
$
|
20,796
|
|
|
|
|
$
|
(1,346
|
)
|
|
$
|
534
|
|
|
$
|
(812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
Derivatives designated as hedging instruments
|
Balance Sheet line item
|
|
Gross amounts of recognized assets
|
|
Gross amount offset in Consolidated Balance Sheet
|
|
Net amount
|
|
Balance Sheet line item
|
|
Gross amounts of recognized liabilities
|
|
Gross amount offset in Consolidated Balance Sheet
|
|
Net amount
|
|
Derivatives in cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
Other non-current assets
|
|
$
|
144
|
|
|
$
|
—
|
|
|
$
|
144
|
|
|
Other current liabilities / other liabilities
|
|
$
|
(12,895
|
)
|
|
$
|
—
|
|
|
$
|
(12,895
|
)
|
|
Cross-currency swaps
|
Other non-current assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other liabilities
|
|
(915
|
)
|
|
—
|
|
|
(915
|
)
|
|
Derivatives in net investment hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forward contracts
|
Other non-current assets
|
|
4,514
|
|
|
—
|
|
|
4,514
|
|
|
Other liabilities
|
|
(2,397
|
)
|
|
—
|
|
|
(2,397
|
)
|
|
Total derivatives designated as hedging instruments
|
|
|
$
|
4,658
|
|
|
$
|
—
|
|
|
$
|
4,658
|
|
|
|
|
$
|
(16,207
|
)
|
|
$
|
—
|
|
|
$
|
(16,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forward contracts
|
Other current assets / other assets
|
|
$
|
11,865
|
|
|
$
|
(1,111
|
)
|
|
$
|
10,754
|
|
|
Other current liabilities / other liabilities
|
|
$
|
(127
|
)
|
|
$
|
38
|
|
|
$
|
(89
|
)
|
|
Currency option contracts
|
Other current assets / other assets
|
|
4,793
|
|
|
(28
|
)
|
|
4,765
|
|
|
Other current liabilities / other liabilities
|
|
(42
|
)
|
|
—
|
|
|
(42
|
)
|
|
Total derivatives not designated as hedging instruments
|
|
|
$
|
16,658
|
|
|
$
|
(1,139
|
)
|
|
$
|
15,519
|
|
|
|
|
$
|
(169
|
)
|
|
$
|
38
|
|
|
$
|
(131
|
)
|
The following table presents the effect of our derivative financial instruments designated as hedging instruments and their classification within comprehensive (loss) income for the three and nine months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Net Gain (Loss) on Derivatives Recognized in Comprehensive (Loss) Income
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Derivatives in cash flow hedging relationships
|
|
|
|
|
|
|
|
|
Interest rate swaps (1)
|
$
|
(24,645
|
)
|
|
$
|
(6,102
|
)
|
|
$
|
(24,841
|
)
|
|
$
|
(10,916
|
)
|
|
Cross-currency swaps
|
3,444
|
|
|
(1,273
|
)
|
|
2,583
|
|
|
(2,656
|
)
|
|
Derivatives in net investment hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
—
|
|
|
1,542
|
|
|
—
|
|
|
6,557
|
|
|
Currency forward contracts
|
14,284
|
|
|
7,050
|
|
|
22,849
|
|
|
14,369
|
|
|
Total
|
$
|
(6,917
|
)
|
|
$
|
1,217
|
|
|
$
|
591
|
|
|
$
|
7,354
|
|
___________________
(1) Upon transitioning to the new hedge accounting standard on July 1, 2019, we reversed the cumulative effect of expense recognized for the ineffective portion of our interest rate swap contracts, which resulted in an adjustment to accumulated other comprehensive loss of $153, net of tax, which is included within the interest rate swap loss recognized for the nine months ended March 31, 2020.
The following table presents reclassifications out of accumulated other comprehensive loss for the three and nine months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Net Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income
|
Affected line item in the
Statement of Operations
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
Derivatives in cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
691
|
|
|
$
|
(314
|
)
|
|
$
|
1,146
|
|
|
$
|
(105
|
)
|
Interest expense, net
|
|
Cross-currency swaps
|
|
2,665
|
|
|
2,146
|
|
|
6,203
|
|
|
5,920
|
|
Other income (expense), net
|
|
Total before income tax
|
|
3,356
|
|
|
1,832
|
|
|
7,349
|
|
|
5,815
|
|
(Loss) income before income taxes
|
|
Income tax
|
|
(825
|
)
|
|
(458
|
)
|
|
(1,812
|
)
|
|
(1,454
|
)
|
Income tax (benefit) expense
|
|
Total
|
|
$
|
2,531
|
|
|
$
|
1,374
|
|
|
$
|
5,537
|
|
|
$
|
4,361
|
|
|
The following table presents the adjustment to fair value recorded within the consolidated statements of operations for derivative instruments for which we did not elect hedge accounting and de-designated derivative financial instruments that no longer qualify as hedging instruments in the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in Net Income
|
Affected line item in the
Statement of Operations
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
Currency contracts
|
|
$
|
18,039
|
|
|
$
|
1,258
|
|
|
$
|
25,730
|
|
|
$
|
19,802
|
|
Other income (expense), net
|
|
Interest rate swaps (1)
|
|
—
|
|
|
29
|
|
|
—
|
|
|
(185
|
)
|
Other income (expense), net
|
|
Total
|
|
$
|
18,039
|
|
|
$
|
1,287
|
|
|
$
|
25,730
|
|
|
$
|
19,617
|
|
|
_____________________
(1) Upon our adoption of the new hedge accounting standard on July 1, 2019, we prospectively recognize any ineffectiveness associated with effective and designated hedges within accumulated other comprehensive loss, rather than in earnings.
5. Accumulated Other Comprehensive Loss
The following table presents a roll forward of amounts recognized in accumulated other comprehensive loss by component, net of tax of $1,741 for the nine months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on cash flow hedges (1)
|
|
Gains (losses) on pension benefit obligation
|
|
Translation adjustments, net of hedges (2)
|
|
Total
|
|
Balance as of June 30, 2019
|
$
|
(11,282
|
)
|
|
$
|
(204
|
)
|
|
$
|
(68,371
|
)
|
|
$
|
(79,857
|
)
|
|
Other comprehensive (loss) income before reclassifications
|
(22,258
|
)
|
|
—
|
|
|
3,773
|
|
|
(18,485
|
)
|
|
Amounts reclassified from accumulated other comprehensive loss to net income
|
5,537
|
|
|
—
|
|
|
—
|
|
|
5,537
|
|
|
Net current period other comprehensive (loss) income
|
(16,721
|
)
|
|
—
|
|
|
3,773
|
|
|
(12,948
|
)
|
|
Balance as of March 31, 2020
|
$
|
(28,003
|
)
|
|
$
|
(204
|
)
|
|
$
|
(64,598
|
)
|
|
$
|
(92,805
|
)
|
________________________
(1) Gains (losses) on cash flow hedges include our interest rate swap and cross-currency swap contracts designated in cash flow hedging relationships.
(2) As of March 31, 2020 and June 30, 2019, the translation adjustment is inclusive of the effects of our net investment hedges, of which, unrealized gains of $22,118 and unrealized losses of $731, respectively, net of tax, have been included in accumulated other comprehensive loss.
6. Goodwill
The carrying amount of goodwill by reportable segment as of March 31, 2020 and June 30, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vistaprint
|
|
PrintBrothers
|
|
The Print Group
|
|
National Pen
|
|
All Other Businesses
|
|
Total
|
|
Balance as of June 30, 2019
|
$
|
145,961
|
|
|
$
|
124,089
|
|
|
$
|
198,363
|
|
|
$
|
34,434
|
|
|
$
|
216,033
|
|
|
$
|
718,880
|
|
|
Acquisitions (1)
|
—
|
|
|
6,879
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,879
|
|
|
Impairment (2)
|
—
|
|
|
—
|
|
|
(40,391
|
)
|
|
(34,434
|
)
|
|
(26,017
|
)
|
|
(100,842
|
)
|
|
Adjustments (3)
|
3,919
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,919
|
)
|
|
—
|
|
|
Effect of currency translation adjustments (4)
|
(171
|
)
|
|
(3,644
|
)
|
|
(5,769
|
)
|
|
—
|
|
|
—
|
|
|
(9,584
|
)
|
|
Balance as of March 31, 2020
|
$
|
149,709
|
|
|
$
|
127,324
|
|
|
$
|
152,203
|
|
|
$
|
—
|
|
|
$
|
186,097
|
|
|
$
|
615,333
|
|
_________________
(1) During the first quarter of fiscal 2020, we recognized goodwill related to an immaterial acquisition within our PrintBrothers reportable segment.
(2) During the third quarter of fiscal 2020, we recognized impairment in our Exaprint, National Pen, and VIDA reporting units. Refer below for additional details.
(3) Due to changes in the composition of our reportable segments during the first quarter of fiscal 2020, we reclassified the goodwill associated with our Vistaprint Corporate Solutions reporting unit from All Other Businesses to our Vistaprint reportable segment. Refer to Note 12 for additional details on the changes in our reportable segments.
(4) Related to goodwill held by subsidiaries whose functional currency is not the U.S. dollar.
Impairment Review
Fiscal 2020
Our annual goodwill impairment test is performed as of May 31; however, during the third quarter of fiscal 2020, nearly all of our businesses have experienced significant declines in revenue during the month of March, due to the disruptions associated with the COVID-19 pandemic. As a result, we concluded that a triggering event existed for all ten reporting units with goodwill, which required us to perform an impairment test in the current quarter. We have estimated the near-term financial impacts of this economic disruption and utilized different scenarios that evaluate outcomes that would indicate more or less severe demand declines, as well as different time horizons for the post-pandemic recovery period. Although we currently expect the impacts to be temporary, the negative effects of the pandemic on revenue and profitability triggers an assessment of goodwill, as we expect some of our businesses to achieve materially lower financial results than previously expected.
For seven of our reporting units, a significant level of headroom existed between the estimated fair value and carrying value of the reporting units at our May 31, 2019 test date, and significant headroom remained after considering the deterioration in cash flow due to COVID-19, resulting in no indication of impairment. For three of our reporting units, we identified triggering events that extend beyond the near-term impacts of the pandemic, which include reductions to the long-term profitability outlooks for our Exaprint, National Pen and VIDA reporting units. The triggering events in these specific reporting units were due to a combination of the near-term disruptions outlined above, along with reductions to the long-term profitability expected from each business, as compared to prior expectations, which was informed by recent underperformance relative to expectations. For our VIDA reporting unit, in light of our decision to exit the business, which was completed on April 10, 2020, the negotiated sale price was the primary input in our goodwill analysis. Refer to Note 2 for additional details. As a result of the considerations noted, we concluded it was more likely than not that the fair value of each of these three reporting units are below each of their respective carrying amount.
As required, prior to performing the quantitative goodwill impairment test, we first evaluated the recoverability of long-lived assets as the change in expected long-term cash flows is indicative of a potential impairment. We performed the recoverability test using undiscounted cash flows for the asset groups of all of our reporting units and concluded that no impairment of long-lived assets existed. Subsequent to performing the recoverability of long lived assets test, we performed a quantitative assessment of goodwill of all reporting units and compared the carrying value to the fair value. For those with significant headroom, we did not believe any indication of impairment exists, and for those where the carrying value exceeded the fair value, we recognized an impairment as outlined below.
Our goodwill impairment test resulted in impairment charges to our Exaprint reporting unit, included within The Print Group reportable segment, the National Pen reporting unit, and our VIDA reporting unit, included within our All Other Business reportable segment. In order to execute the quantitative goodwill impairment test, we compared the fair value of each reporting unit to its carrying value. We used the income approach, specifically the discounted cash flow method, to derive the fair value. This approach calculates fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate. We selected this method as being the most meaningful in preparing our goodwill assessment as we believe the income approach most appropriately measures our income producing assets. We considered using the market approach but concluded it was not appropriate in valuing these particular reporting units given the lack of relevant market comparisons available for application of the market approach. The cash flow projections in the fair value analysis are considered Level 3 inputs, and consist of management's estimates of revenue growth rates and operating margins, taking into consideration historical results, as well as industry and market conditions. The discount rate used in the fair value analysis is based on a weighted average cost of capital (“WACC”), which represents the average rate a business must pay its providers of debt and equity, plus a risk premium. The respective WACC percentages used for each reporting unit within our goodwill impairment test and noted below were derived from a group of comparable companies for each respective reporting unit, adjusted for the risk premium associated with each reporting unit.
Based on the goodwill impairment test performed, we recognized the following impairment charges:
|
|
|
|
•
|
A partial impairment of the goodwill of our Exaprint reporting unit of $40,391, using a WACC of 14.5%, resulting in $23,767 of goodwill that remains after the impairment as of March 31, 2020
|
|
|
|
|
•
|
A full impairment of the goodwill of our National Pen reporting unit of $34,434, using a WACC of 13.0%
|
|
|
|
|
•
|
A full impairment of the goodwill of our VIDA reporting unit of $26,017, based upon our negotiated sale price
|
Our goodwill analysis requires significant judgment, including the identification of reporting units and the amount and timing of expected future cash flows. While we believe our assumptions are reasonable, actual results could differ from our projections. There have been no indications of impairment that would require analysis for any of our other reporting units as of March 31, 2020.
7. Other Balance Sheet Components
Accrued expenses included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
June 30, 2019
|
|
Compensation costs
|
$
|
58,668
|
|
|
$
|
58,864
|
|
|
Income and indirect taxes
|
37,340
|
|
|
40,102
|
|
|
Advertising costs
|
21,357
|
|
|
22,289
|
|
|
Shipping costs
|
4,754
|
|
|
7,275
|
|
|
Production costs
|
6,865
|
|
|
9,261
|
|
|
Interest payable (1)
|
12,747
|
|
|
2,271
|
|
|
Sales returns
|
3,964
|
|
|
5,413
|
|
|
Purchases of property, plant and equipment
|
3,606
|
|
|
2,358
|
|
|
Professional fees
|
3,050
|
|
|
2,786
|
|
|
Other
|
37,746
|
|
|
44,096
|
|
|
Total accrued expenses
|
$
|
190,097
|
|
|
$
|
194,715
|
|
___________________
(1) The increase in interest payable as of March 31, 2020, is due to the interest on our 2026 Notes being payable semi-annually on June 15 and December 15 of each year combined with the additional offering of $200,000 of Senior Unsecured Notes during the current quarter. Refer to Note 8 for further detail.
Other current liabilities included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
June 30, 2019
|
|
Current portion of finance lease obligations
|
$
|
7,833
|
|
|
$
|
10,668
|
|
|
Current portion of lease financing obligation (1)
|
—
|
|
|
12,569
|
|
|
Short-term derivative liabilities
|
3,348
|
|
|
1,628
|
|
|
Other
|
1,963
|
|
|
3,016
|
|
|
Total other current liabilities
|
$
|
13,144
|
|
|
$
|
27,881
|
|
___________________
(1) Due to our adoption of the new leasing standard on July 1, 2019, our Waltham, MA, and Dallas, TX leases, which were previously classified as build-to-suit, are now classified as operating leases and therefore the lease financing obligation has been de-recognized. Refer to Note 2 for additional details.
Other liabilities included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
June 30, 2019
|
|
Long-term finance lease obligations
|
$
|
19,360
|
|
|
$
|
16,036
|
|
|
Long-term derivative liabilities
|
46,163
|
|
|
15,886
|
|
|
Other
|
11,449
|
|
|
21,794
|
|
|
Total other liabilities
|
$
|
76,972
|
|
|
$
|
53,716
|
|
8. Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
June 30, 2019
|
|
Senior secured credit facility
|
$
|
1,063,836
|
|
|
$
|
621,224
|
|
|
7.0% Senior unsecured notes due 2026
|
600,000
|
|
|
400,000
|
|
|
Other
|
13,654
|
|
|
14,361
|
|
|
Debt issuance costs and debt premiums (discounts)
|
(5,912
|
)
|
|
(12,018
|
)
|
|
Total debt outstanding, net
|
1,671,578
|
|
|
1,023,567
|
|
|
Less: short-term debt (1)
|
24,364
|
|
|
81,277
|
|
|
Long-term debt
|
$
|
1,647,214
|
|
|
$
|
942,290
|
|
_____________________
(1) Balances as of March 31, 2020 and June 30, 2019 are inclusive of short-term debt issuance costs, debt premiums and discounts of $1,296 and $2,419, respectively.
Our Debt
Our various debt arrangements described below contain customary representations, warranties and events of default. As of March 31, 2020, we were in compliance with all financial and other covenants related to our debt.
Senior Secured Credit Facility
On February 13, 2020, we amended the terms of our senior secured credit facility, resulting in an increase in loan commitments to our revolving loans and an offsetting decrease in commitments to our term loans. Additionally, the maturity date of all loans under the credit facility was extended to February 13, 2025, and all other terms and covenants of the senior secured credit facility remain unchanged.
As of March 31, 2020, we had a committed credit facility of $1,551,419 as follows:
|
|
|
|
•
|
Revolving loans of $1,099,409 with a maturity date of February 13, 2025
|
|
|
|
|
•
|
Term loans of $452,010 amortizing over the loan period, with a final maturity date of February 13, 2025
|
Under the terms of our credit agreement, borrowings bear interest at a variable rate of interest based on LIBOR plus 1.375% to 2.0%. Interest rates depend on our leverage ratio, which is the ratio of our consolidated total
indebtedness to our consolidated EBITDA, as defined by the credit agreement. As of March 31, 2020, the weighted-average interest rate on outstanding borrowings was 2.87%, inclusive of interest rate swap rates. We are also required to pay a commitment fee on unused balances of 0.225% to 0.35% depending on our leverage ratio. We have pledged the assets and/or share capital of a number of our subsidiaries as collateral for our outstanding debt as of March 31, 2020.
Debt covenants
Our credit agreement contains financial and other covenants, including but not limited to limitations on (1) our incurrence of additional indebtedness and liens, (2) the consummation of certain fundamental organizational changes or intercompany activities, for example acquisitions, (3) investments and restricted payments including the amount of purchases of our ordinary shares or payments of dividends, and (4) the amount of consolidated capital expenditures that we may make in each of our fiscal years through June 30, 2025.
|
|
|
|
•
|
Our consolidated leverage ratio, which is the ratio of our consolidated indebtedness to our TTM consolidated EBITDA (as such terms are defined in the credit agreement), will not exceed 4.75, but may, on no more than three occasions during the term of the Credit Agreement, be increased to 5.00 for four consecutive quarters for certain permitted acquisitions.
|
|
|
|
|
•
|
Our senior secured leverage ratio, which is the ratio of our consolidated senior secured indebtedness (as defined in the credit agreement) to our TTM consolidated EBITDA, will not exceed 3.25 to 1.00, but may, on no more than three occasions during the term of the Credit Agreement, be increased to 3.50 for four consecutive quarters for certain permitted acquisitions.
|
|
|
|
|
•
|
Our interest coverage ratio, which is the ratio of our consolidated EBITDA to our consolidated interest expense, will be at least 3.00.
|
As of March 31, 2020, we were in compliance with all financial and other covenants under the credit agreement and senior unsecured notes indenture.
On May 1, 2020, we entered into an amendment to our senior secured credit agreement to suspend maintenance covenants, including the total and senior secured leverage covenants and interest coverage ratio covenant, until the publication of results for the quarter ending December 31, 2021, for which quarter the pre-amendment maintenance covenants will be reinstated. In addition, we have raised $300,000 to pay down a portion of our term loan in order to secure the suspension of our quarterly maintenance covenants. Refer to Note 16 for additional details.
Indenture and Senior Unsecured Notes
On February 13, 2020, we completed an additional offering of $200,000 in aggregate principal of 7.0% notes under the senior notes indenture between Cimpress plc and U.S. Bank National Association (as successor trustee to MUFG Union Bank, N.A.) at a premium of 105.25%. These notes were issued in addition to the existing principal balance under the indenture of $400,000, and are collectively referred to as the 2026 Notes. All terms and covenants of the senior notes indenture remain unchanged. The net proceeds from this add-on offering were used to repay a portion of the indebtedness outstanding under our senior secured credit facility and related transaction fees and expenses.
The 2026 Notes bear interest at a rate of 7.0% per annum and mature on June 15, 2026. Interest on the Notes is payable semi-annually on June 15 and December 15 of each year to the holders of record of the 2026 Notes at the close of business on June 1 and December 1, respectively, preceding such interest payment date.
The 2026 Notes are senior unsecured obligations and rank equally in right of payment to all our existing and future senior unsecured debt and senior in right of payment to all of our existing and future subordinated debt. The Notes are effectively subordinated to any of our existing and future secured debt to the extent of the value of the assets securing such debt. Subject to certain exceptions, each of our existing and future subsidiaries that is a borrower under or guarantees our senior secured credit facilities also guarantees the 2026 Notes.
We have the right to redeem, at any time prior to June 15, 2021, some or all of the 2026 Notes at a redemption price equal to 100% of the principal amount redeemed, plus a make-whole amount as set forth in the
indenture, plus accrued and unpaid interest to, but not including, the redemption date. In addition, we have the right to redeem, at any time prior to June 15, 2021, up to 40% of the aggregate outstanding principal amount of the 2026 Notes at a redemption price equal to 107% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date, with the net proceeds of certain equity offerings by Cimpress. At any time on or after June 15, 2021, we may redeem some or all of the Notes at the redemption prices specified in the indenture, plus accrued and unpaid interest to, but not including, the redemption date.
Other Debt
Other debt consists primarily of term loans acquired through our various acquisitions or used to fund certain capital investments. As of March 31, 2020 and June 30, 2019, we had $13,654 and $14,361, respectively, outstanding for those obligations that are payable through March 2025.
9. Income Taxes
We have calculated our year-to-date income tax on ordinary income based on the actual year-to-date effective tax rate rather than the estimated annual tax rate for the nine months ended March 31, 2020. We determined that the annual estimated effective tax rate would not provide a reliable estimate as small changes in the estimated annual income would result in significant changes in the estimated annual tax rate. Our income tax expense was $1,039 for the three months ended March 31, 2020 and a tax benefit of $86,641 for the nine months ended March 31, 2020, compared to expense of $4,091 and $23,971 for the three and nine months ended March 31, 2019. The decreased tax expense for the three months ended March 31, 2020 was primarily due to a lower actual effective tax rate for the nine months ended March 31, 2020, excluding goodwill impairments with no tax benefit and the deferred tax benefit related to Swiss Tax Reform of $114,114 discussed below, as compared to the estimated annual effective tax rate for the same prior year period. Without this benefit, tax expense would have increased for the nine months ended March 31, 2020 as compared to the same prior year period, primarily attributable to increased pre-tax income, excluding goodwill impairments with no tax benefit. The decrease in effective tax rate year-over-year was primarily due to a more favorable mix of earnings, offset by tax impacts of changing Cimpress N.V.'s tax residency from the Netherlands to Ireland in February 2019. Our effective tax rate continues to be negatively impacted by losses in certain jurisdictions where we are unable to recognize a tax benefit in the current period.
During the three months ended March 31, 2020, we recognized tax expense of $28,465 to record a full valuation allowance against our U.S. deferred tax assets. The change in judgment to no longer recognize the deferred tax assets was driven by decreased profits due to impacts of the COVID-19 pandemic and goodwill impairments. Also during the three months ended March 31, 2020, we recognized tax benefits of $15,350 related to excess tax benefits from share based compensation and $10,894 for the re-measurement of U.S. tax losses that will be carried back to tax years with higher U.S. federal tax rates under the U.S. Coronavirus Aid, Relief, and Economic Security Act, enacted March 27, 2020. In addition, during the nine months ended March 31, 2019, we recognized "Patent Box" tax benefits of $3,547 granted to our Pixartprinting business in Italy and tax expense of $5,574 related to a decrease in deferred tax assets under Notice 2018-68 issued by the United States Internal Revenue Service, which provided guidance regarding amendments to Section 162(m) of the Internal Revenue Code contained in the Tax Cuts and Jobs Act.
On October 25, 2019, the canton of Zurich enacted tax law changes by publishing the results of its referendum to adopt the Federal Act on Tax Reform and AHV Financing (TRAF), which we refer to as Swiss Tax Reform. Swiss Tax Reform is effective as of January 1, 2020 and includes the abolishment of various favorable federal and cantonal tax regimes. Swiss Tax Reform provides transitional relief measures for companies that are losing the tax benefit of a ruling, including a "step-up" for amortizable goodwill, equal to the amount of future tax benefit they would have received under their existing ruling, subject to certain limitations. We recognized a tax benefit of $114,114 to establish new Swiss deferred tax assets related to transitional relief measures and remeasuring our existing Swiss deferred tax assets and liabilities. We don't expect to realize the majority of this benefit until fiscal 2025 through fiscal 2030.
As of March 31, 2020, we had unrecognized tax benefits of $5,909, including accrued interest and penalties of $336. We recognize interest and, if applicable, penalties related to unrecognized tax benefits in the provision for income taxes. If recognized, the entire amount of unrecognized tax benefits would reduce our tax expense. It is reasonably possible that a reduction in unrecognized tax benefits may occur within the next twelve months in the range of $70 to $400 related to the lapse of applicable statutes of limitations.
We conduct business in a number of tax jurisdictions and, as such, are required to file income tax returns in multiple jurisdictions globally. The years 2014 through 2019 remain open for examination by the IRS and the years 2014 through 2019 remain open for examination in the various states and non-US tax jurisdictions in which we file tax returns. We believe that our income tax reserves are adequately maintained taking into consideration both the technical merits of our tax return positions and ongoing developments in our income tax audits. However, the final determination of our tax return positions, if audited, is uncertain, and there is a possibility that final resolution of these matters could have a material impact on our results of operations or cash flows.
10. Noncontrolling Interests
For some of our subsidiaries, we own a controlling equity stake, and a third party or key member of the business' management team owns a minority portion of the equity. The balance sheet and operating activity of these entities are included in our consolidated financial statements and we adjust the net income in our consolidated statement of operations to exclude the noncontrolling interests' proportionate share of results. We present the proportionate share of equity attributable to the redeemable noncontrolling interests as temporary equity within our consolidated balance sheet and the proportionate share of noncontrolling interests not subject to a redemption provision that is outside of our control as equity. We recognize redeemable noncontrolling interests at fair value on the sale or acquisition date and adjust to the redemption value on a periodic basis with the offset to retained earnings in the consolidated balance sheet. If the formulaic redemption value exceeds the fair value of the noncontrolling interest, then the accretion to redemption value is offset to the net (income) loss attributable to noncontrolling interest in our consolidated statement of operations.
Redeemable Noncontrolling Interests
PrintBrothers
During the fourth quarter of fiscal 2019, we sold a minority equity interest in each of the three businesses within our PrintBrothers reportable segment to members of the management team. We received proceeds of €50,173 ($57,046 based on the exchange rate on the date we received the proceeds) in exchange for an equity interest in each of the businesses ranging from 12% to 13%. As of June 30, 2019, we recognized the redeemable noncontrolling interest at fair value of $57,046. The put options associated with the redeemable noncontrolling interest are exercisable beginning in 2021, while the associated call options become exercisable in 2026. During the second quarter of fiscal 2020, we recorded an adjustment of $5,493 to increase the carrying value to the estimated redemption amounts, with the offset recognized in retained earnings in the consolidated balance sheet, since the estimated redemption amounts were less than the fair value. As of March 31, 2020, the redemption value was less than the carrying value, and therefore no adjustment was required.
All Other Businesses
On October 1, 2018, we acquired approximately 99% of the outstanding equity interests of Build A Sign LLC. The remaining 1% is considered a redeemable noncontrolling equity interest, as it is redeemable for cash based on future financial results through put and call rights and not solely within our control. On the acquisition date, we recognized the redeemable noncontrolling interest at fair value of $3,356. As of March 31, 2020, the redemption value was less than the carrying value, and therefore no adjustment was required.
On July 2, 2018, we acquired approximately 73% of the shares of VIDA Group Co. The remaining 27% is considered a redeemable noncontrolling equity interest, as it is redeemable in the future not solely within our control. The shares we hold include certain liquidation preferences to all other share classes, and therefore the noncontrolling interest will bear any losses until the recoverable value of our investment declines below the stated redemption value. As of March 31, 2020, the redemption value is less than the carrying value and therefore no adjustment has been made. On April 10, 2020, VIDA Group Co. repurchased all of the shares we held in the VIDA business. Refer to Note 2 for further detail.
The following table presents the reconciliation of changes in our noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests
|
|
Balance as of June 30, 2019
|
|
$
|
63,182
|
|
|
Acquisition of noncontrolling interest (1)
|
|
3,995
|
|
|
Accretion to redemption value recognized in retained earnings (2)
|
|
5,493
|
|
|
Net income attributable to noncontrolling interest
|
|
1,630
|
|
|
Distribution to noncontrolling interest
|
|
(3,955
|
)
|
|
Foreign currency translation
|
|
(663
|
)
|
|
Balance as of March 31, 2020
|
|
$
|
69,682
|
|
___________________
(1) During the first quarter of fiscal 2020, we acquired majority equity interests related to two immaterial businesses within our PrintBrothers reportable segment.
(2) Accretion of redeemable noncontrolling interests to redemption value recognized in retained earnings is the result of the redemption amount estimated to be greater than carrying value but less than fair value.
11. Variable Interest Entity ("VIE")
Investment in Printi LLC
As of March 31, 2020, we have a 53.7% equity interest in Printi LLC, which owns an operating company in Brazil, and the shareholders of Printi share profits and voting control on a pro-rata basis. We agreed to acquire all of the remaining equity interests in Printi through a reciprocal put and call structure, contractually exercisable from April 1, 2021 through a mandatory redemption date of July 31, 2023. This contractual obligation is presented as a liability on our consolidated balance sheet and we adjust the liability to its estimated redemption value each reporting period and recognize any changes within interest expense, net in our consolidated statement of operations. As of March 31, 2020 and June 30, 2019, the carrying value of these liabilities is zero, based on their estimated redemption values.
In May 2017, we entered into an arrangement with two Printi equity holders to provide loans, which represent prepayments for our future purchase of their equity interests. The loans are payable on the date the put or call option is exercised and the loan proceeds will be used to offset our purchase of their remaining outstanding equity interest, which also serves as collateral. As of March 31, 2020 and June 30, 2019, the net loan receivable including accrued interest was zero, since the collateral value of the related liabilities is estimated to have no value.
12. Segment Information
Our operating segments are based upon the manner in which our operations are managed and the availability of separate financial information reported internally to the Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”) for purposes of making decisions about how to allocate resources and assess performance. During the first quarter of fiscal 2020, we revised our internal organizational and reporting structure leading to changes in our Vistaprint and All Other Businesses reportable segments. Our Vistaprint Corporate Solutions, Vistaprint India, and Vistaprint Japan businesses, which were previously aggregated based on materiality in our All Other Businesses, are now directly managed within the Vistaprint business. These businesses are close derivatives or adjacencies of the Vistaprint business and leverage the Vistaprint brand, customers, technology, and/or other assets. This change in reporting structure positions them closer to the Vistaprint operations, capabilities, and resources. We have revised our presentation of all prior periods presented to reflect our revised segment reporting.
As of March 31, 2020, we have numerous operating segments under our management reporting structure which are reported in the following five reportable segments:
|
|
|
|
•
|
Vistaprint - Includes the operations of our global Vistaprint websites and our Webs-branded business, which is managed with the Vistaprint-branded digital business. Also included is our Vistaprint Corporate Solutions business which serves medium-sized businesses and large corporations, as well as a legacy revenue stream with retail partners and franchise businesses
|
|
|
|
|
•
|
PrintBrothers - Includes the results of our druck.at, Printdeal, and WIRmachenDRUCK businesses
|
|
|
|
|
•
|
The Print Group - Includes the results of our Easyflyer, Exaprint, Pixartprinting, and Tradeprint businesses
|
|
|
|
|
•
|
National Pen - Includes the global operations of our National Pen business, which manufactures and markets custom writing instruments and promotional products, apparel and gifts
|
|
|
|
|
•
|
All Other Businesses - Includes a collection of businesses grouped together based on materiality:
|
|
|
|
|
◦
|
BuildASign is an internet-based provider of canvas-print wall décor, business signage and other large-format printed products, based in Austin, Texas.
|
|
|
|
|
◦
|
Printi is an online printing leader in Brazil, which offers a superior customer experience with transparent and attractive pricing, reliable service and quality.
|
|
|
|
|
◦
|
VIDA was part All Other Businesses segment through March 31, 2020; however we sold our shares in the business on April 10, 2020. Refer to Note 2 for further detail.
|
|
|
|
|
◦
|
YSD is a startup operation that provides end-to-end mass customization solutions to brands and IP owners in China, supporting multiple channels including retail stores, websites, WeChat and e-commerce platforms to enhance brand awareness and competitiveness and develop new markets.
|
Central and corporate costs consist primarily of the team of software engineers that is building our mass customization platform; shared service organizations such as global procurement; technology services such as hosting and security; administrative costs of our Cimpress India offices where numerous Cimpress businesses have dedicated business-specific team members; and corporate functions including our Board of Directors, CEO, and the team members necessary for managing corporate activities, such as treasury, tax, capital allocation, financial consolidation, internal audit and legal. These costs also include certain unallocated share-based compensation costs.
During the first quarter of fiscal 2020, we changed our segment profitability measure to an adjusted EBITDA metric. The financial metric that we use to hold our businesses accountable on an annual basis is unlevered free cash flow. Historically, we have reported segment profit based on adjusted net operating profit; however, this is not a direct input to unlevered free cash flow. We believe this change simplifies both our internal and external reporting, while also increasing the focus on a profitability metric that is a direct input into our internal operating measure, our steady-state free cash flow analysis that we report annually and our estimates of intrinsic value per share.
The primary difference between the segment profit we previously reported and the revised metric is depreciation and amortization. The prior adjusted NOP-based metric only removed amortization of acquired intangibles, and the new segment EBITDA metric removes all depreciation and amortization, except for depreciation expense related to our Waltham, Massachusetts lease, which we treat in our historical results as operating expense. The new segment EBITDA metric does include the cost of long-term incentive programs, including share-based compensation, just as the prior adjusted NOP-based metric.
For awards granted under our 2016 Performance Equity Plan, the PSU expense value is based on a Monte Carlo fair value analysis and is required to be expensed on an accelerated basis. In order to ensure comparability in measuring our businesses' results, we allocate the straight-line portion of the fixed grant value to our businesses. Any expense in excess of the amount as a result of the fair value measurement of the PSUs and the accelerated expense profile of the awards is recognized within central and corporate costs. All expense or benefit associated with our supplemental PSUs is recognized within central and corporate costs.
Our definition of segment EBITDA is GAAP operating income excluding certain items, such as depreciation and amortization (with the exception of depreciation expense associated with our Waltham, Massachusetts lease for periods prior to our adoption of the new leasing standard on July 1, 2019), expense recognized for contingent earn-out related charges including the changes in fair value of contingent consideration and compensation expense related to cash-based earn-out mechanisms dependent upon continued employment, share-based compensation related to investment consideration, certain impairment expense, and restructuring charges. For historical periods presented, a portion of the interest expense associated with our Waltham, Massachusetts lease is included as expense in segment EBITDA and allocated based on headcount to the appropriate business or corporate and global function. The interest expense represents a portion of the cash rent payment and is considered an operating expense for purposes of measuring our segment performance. Beginning in fiscal 2020, as part of our adoption of the new leasing standard, the accounting treatment for our Waltham, Massachusetts lease has changed to an operating lease, so the expense associated with this lease is reflected in operating income and no longer requires
an adjustment to segment EBITDA. We do not allocate non-operating income, including realized gains and losses on currency hedges, to our segment results.
Our All Other Businesses reportable segment includes businesses that have operating losses as they are in the early stage of investment relative to the scale of the underlying businesses, which may limit its comparability to other segments regarding segment EBITDA.
Our balance sheet information is not presented to the CODM on an allocated basis, and therefore we do not present asset information by segment. We do present other segment information to the CODM, which includes purchases of property, plant and equipment and capitalization of software and website development costs, and therefore include that information in the tables below.
Revenue by segment is based on the business-specific websites or sales channel through which the customer’s order was transacted. The following tables set forth revenue by reportable segment, as well as disaggregation of revenue by major geographic region and reportable segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Vistaprint (1)
|
$
|
316,310
|
|
|
$
|
358,660
|
|
|
$
|
1,092,786
|
|
|
$
|
1,147,920
|
|
|
PrintBrothers (2)
|
109,496
|
|
|
109,305
|
|
|
345,403
|
|
|
327,008
|
|
|
The Print Group (3)
|
68,537
|
|
|
79,027
|
|
|
228,494
|
|
|
237,767
|
|
|
National Pen (4)
|
68,362
|
|
|
79,721
|
|
|
266,510
|
|
|
278,643
|
|
|
All Other Businesses (5)
|
39,237
|
|
|
38,016
|
|
|
131,287
|
|
|
93,987
|
|
|
Total segment revenue
|
601,942
|
|
|
664,729
|
|
|
2,064,480
|
|
|
2,085,325
|
|
|
Inter-segment eliminations
|
(3,982
|
)
|
|
(2,915
|
)
|
|
(12,228
|
)
|
|
(8,963
|
)
|
|
Total consolidated revenue
|
$
|
597,960
|
|
|
$
|
661,814
|
|
|
$
|
2,052,252
|
|
|
$
|
2,076,362
|
|
_____________________
(1) Vistaprint segment revenues include inter-segment revenue of $1,607 and $5,460 for the three and nine months ended March 31, 2020, respectively, and $1,279 and $4,616 for the prior comparative periods, respectively.
(2) PrintBrothers segment revenues include inter-segment revenue of $250 and $822 for the three and nine months ended March 31, 2020, respectively, and $243 and $955 for the prior comparative periods, respectively.
(3) The Print Group segment revenues include inter-segment revenue of $920 and $2,338 for the three and nine months ended March 31, 2020, respectively, and $113 and $608 for the prior comparative periods, respectively.
(4) National Pen segment revenues include inter-segment revenue of $981 and $2,928 for the three and nine months ended March 31, 2020, respectively, and $1,280 and $2,784 for the prior comparative periods, respectively.
(5) All Other Businesses segment revenues include inter-segment revenue of $224 and $680 for the three and nine months ended March 31, 2020. There was no inter-segment revenue for the three and nine months ended March 31, 2019. Our All Other Businesses segment includes the revenue from our BuildASign acquisition from October 1, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
|
Vistaprint
|
|
PrintBrothers
|
|
The Print Group
|
|
National Pen
|
|
All Other
|
|
Total
|
|
Revenue by Geographic Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
222,294
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
41,093
|
|
|
$
|
35,040
|
|
|
$
|
298,427
|
|
|
Europe
|
74,335
|
|
|
109,246
|
|
|
67,617
|
|
|
21,146
|
|
|
—
|
|
|
272,344
|
|
|
Other
|
18,074
|
|
|
—
|
|
|
—
|
|
|
5,142
|
|
|
3,973
|
|
|
27,189
|
|
|
Inter-segment
|
1,607
|
|
|
250
|
|
|
920
|
|
|
981
|
|
|
224
|
|
|
3,982
|
|
|
Total segment revenue
|
316,310
|
|
|
109,496
|
|
|
68,537
|
|
|
68,362
|
|
|
39,237
|
|
|
601,942
|
|
|
Less: inter-segment elimination
|
(1,607
|
)
|
|
(250
|
)
|
|
(920
|
)
|
|
(981
|
)
|
|
(224
|
)
|
|
(3,982
|
)
|
|
Total external revenue
|
$
|
314,703
|
|
|
$
|
109,246
|
|
|
$
|
67,617
|
|
|
$
|
67,381
|
|
|
$
|
39,013
|
|
|
$
|
597,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2020
|
|
|
Vistaprint
|
|
PrintBrothers
|
|
The Print Group
|
|
National Pen
|
|
All Other
|
|
Total
|
|
Revenue by Geographic Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
753,724
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
137,035
|
|
|
$
|
114,667
|
|
|
$
|
1,005,426
|
|
|
Europe
|
269,936
|
|
|
344,581
|
|
|
226,156
|
|
|
104,346
|
|
|
—
|
|
|
945,019
|
|
|
Other
|
63,666
|
|
|
—
|
|
|
—
|
|
|
22,201
|
|
|
15,940
|
|
|
101,807
|
|
|
Inter-segment
|
5,460
|
|
|
822
|
|
|
2,338
|
|
|
2,928
|
|
|
680
|
|
|
12,228
|
|
|
Total segment revenue
|
1,092,786
|
|
|
345,403
|
|
|
228,494
|
|
|
266,510
|
|
|
131,287
|
|
|
2,064,480
|
|
|
Less: inter-segment elimination
|
(5,460
|
)
|
|
(822
|
)
|
|
(2,338
|
)
|
|
(2,928
|
)
|
|
(680
|
)
|
|
(12,228
|
)
|
|
Total external revenue
|
$
|
1,087,326
|
|
|
$
|
344,581
|
|
|
$
|
226,156
|
|
|
$
|
263,582
|
|
|
$
|
130,607
|
|
|
$
|
2,052,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
Vistaprint
|
|
PrintBrothers
|
|
The Print Group
|
|
National Pen
|
|
All Other
|
|
Total
|
|
Revenue by Geographic Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
250,229
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
41,697
|
|
|
$
|
32,880
|
|
|
$
|
324,806
|
|
|
Europe
|
86,332
|
|
|
109,062
|
|
|
78,914
|
|
|
29,895
|
|
|
—
|
|
|
304,203
|
|
|
Other
|
20,820
|
|
|
—
|
|
|
—
|
|
|
6,849
|
|
|
5,136
|
|
|
32,805
|
|
|
Inter-segment
|
1,279
|
|
|
243
|
|
|
113
|
|
|
1,280
|
|
|
—
|
|
|
2,915
|
|
|
Total segment revenue
|
358,660
|
|
|
109,305
|
|
|
79,027
|
|
|
79,721
|
|
|
38,016
|
|
|
664,729
|
|
|
Less: inter-segment elimination
|
(1,279
|
)
|
|
(243
|
)
|
|
(113
|
)
|
|
(1,280
|
)
|
|
—
|
|
|
(2,915
|
)
|
|
Total external revenue
|
$
|
357,381
|
|
|
$
|
109,062
|
|
|
$
|
78,914
|
|
|
$
|
78,441
|
|
|
$
|
38,016
|
|
|
$
|
661,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2019
|
|
|
Vistaprint
|
|
PrintBrothers
|
|
The Print Group
|
|
National Pen
|
|
All Other
|
|
Total
|
|
Revenue by Geographic Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
781,654
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
137,603
|
|
|
$
|
76,518
|
|
|
$
|
995,775
|
|
|
Europe
|
293,734
|
|
|
326,053
|
|
|
237,159
|
|
|
113,404
|
|
|
—
|
|
|
970,350
|
|
|
Other
|
67,916
|
|
|
—
|
|
|
—
|
|
|
24,852
|
|
|
17,469
|
|
|
110,237
|
|
|
Inter-segment
|
4,616
|
|
|
955
|
|
|
608
|
|
|
2,784
|
|
|
—
|
|
|
8,963
|
|
|
Total segment revenue
|
1,147,920
|
|
|
327,008
|
|
|
237,767
|
|
|
278,643
|
|
|
93,987
|
|
|
2,085,325
|
|
|
Less: inter-segment elimination
|
(4,616
|
)
|
|
(955
|
)
|
|
(608
|
)
|
|
(2,784
|
)
|
|
—
|
|
|
(8,963
|
)
|
|
Total external revenue
|
$
|
1,143,304
|
|
|
$
|
326,053
|
|
|
$
|
237,159
|
|
|
$
|
275,859
|
|
|
$
|
93,987
|
|
|
$
|
2,076,362
|
|
The following table includes segment EBITDA by reportable segment, total income from operations and total (loss) income before income taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Segment EBITDA:
|
|
|
|
|
|
|
|
|
|
|
Vistaprint
|
$
|
67,444
|
|
|
$
|
82,550
|
|
|
$
|
280,184
|
|
|
$
|
239,507
|
|
|
PrintBrothers
|
8,686
|
|
|
8,099
|
|
|
35,922
|
|
|
30,361
|
|
|
The Print Group
|
10,934
|
|
|
15,658
|
|
|
42,673
|
|
|
43,872
|
|
|
National Pen
|
(1,244
|
)
|
|
113
|
|
|
17,005
|
|
|
10,279
|
|
|
All Other Businesses
|
3,187
|
|
|
(1,149
|
)
|
|
8,572
|
|
|
(8,165
|
)
|
|
Total segment EBITDA
|
89,007
|
|
|
105,271
|
|
|
384,356
|
|
|
315,854
|
|
|
Central and corporate costs
|
(32,008
|
)
|
|
(25,754
|
)
|
|
(90,645
|
)
|
|
(68,165
|
)
|
|
Depreciation and amortization
|
(41,840
|
)
|
|
(44,055
|
)
|
|
(126,731
|
)
|
|
(129,275
|
)
|
|
Waltham, MA lease depreciation adjustment (1)
|
—
|
|
|
1,030
|
|
|
—
|
|
|
3,090
|
|
|
Share-based compensation related to investment consideration
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,893
|
)
|
|
Certain impairments and other adjustments (2)
|
(101,976
|
)
|
|
(786
|
)
|
|
(102,736
|
)
|
|
(764
|
)
|
|
Restructuring-related charges
|
(919
|
)
|
|
(7,866
|
)
|
|
(5,006
|
)
|
|
(9,062
|
)
|
|
Interest expense for Waltham, MA lease (1)
|
—
|
|
|
1,775
|
|
|
—
|
|
|
5,457
|
|
|
Total (loss) income from operations
|
(87,736
|
)
|
|
29,615
|
|
|
59,238
|
|
|
114,242
|
|
|
Other income (expense), net
|
22,537
|
|
|
(2,495
|
)
|
—
|
|
29,171
|
|
|
17,386
|
|
|
Interest expense, net
|
(17,262
|
)
|
|
(16,787
|
)
|
—
|
|
(48,050
|
)
|
|
(47,372
|
)
|
|
(Loss) income before income taxes
|
$
|
(82,461
|
)
|
|
$
|
10,333
|
|
|
$
|
40,359
|
|
|
$
|
84,256
|
|
___________________
(1) Upon the adoption of the new leasing standard on July 1, 2019, our Waltham, MA lease, which was previously classified as build-to-suit, is now classified as an operating lease under the new standard. Therefore, the Waltham depreciation and interest expense adjustments that were made in comparative periods will no longer be made beginning in the first fiscal quarter of 2020, as any impact from the Waltham lease will be reflected in operating income. Refer to Note 2 for additional details.
(2) Includes impairments of goodwill defined by ASC 350 - "Intangibles - Goodwill and Other" of $100,842, as well as losses of $999 recognized for fair value adjustments to the disposal group associated with held for sale assets and liabilities as defined by ASC 360 - "Property, Plant, and Equipment" related to our VIDA business for the three and nine months ended March 31, 2020. During the three and nine months ended March 31, 2019, we recognized reserves for loans as defined by ASC 326 - "Financial Instruments - Credit Losses".
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
Vistaprint
|
$
|
15,466
|
|
|
$
|
17,347
|
|
|
$
|
47,522
|
|
|
$
|
52,025
|
|
|
PrintBrothers
|
5,064
|
|
|
5,364
|
|
|
15,872
|
|
|
17,440
|
|
|
The Print Group
|
6,083
|
|
|
7,338
|
|
|
18,925
|
|
|
22,756
|
|
|
National Pen
|
6,294
|
|
|
5,371
|
|
|
17,398
|
|
|
15,814
|
|
|
All Other Businesses
|
6,049
|
|
|
5,905
|
|
|
17,910
|
|
|
11,747
|
|
|
Central and corporate costs
|
2,884
|
|
|
3,009
|
|
|
9,104
|
|
|
9,772
|
|
|
Total depreciation and amortization
|
$
|
41,840
|
|
|
$
|
44,334
|
|
|
$
|
126,731
|
|
|
$
|
129,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Purchases of property, plant and equipment:
|
|
|
|
|
|
|
|
|
Vistaprint
|
$
|
134
|
|
|
$
|
4,718
|
|
|
$
|
10,831
|
|
|
$
|
26,152
|
|
|
PrintBrothers
|
2,397
|
|
|
395
|
|
|
3,396
|
|
|
2,771
|
|
|
The Print Group
|
4,949
|
|
|
557
|
|
|
13,943
|
|
|
5,340
|
|
|
National Pen
|
728
|
|
|
745
|
|
|
3,505
|
|
|
7,780
|
|
|
All Other Businesses
|
1,523
|
|
|
12,138
|
|
|
3,893
|
|
|
14,785
|
|
|
Central and corporate costs
|
813
|
|
|
614
|
|
|
3,070
|
|
|
1,106
|
|
|
Total purchases of property, plant and equipment
|
$
|
10,544
|
|
|
$
|
19,167
|
|
|
$
|
38,638
|
|
|
$
|
57,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Capitalization of software and website development costs:
|
|
|
|
|
|
|
|
|
Vistaprint
|
$
|
7,552
|
|
|
$
|
7,078
|
|
|
$
|
19,842
|
|
|
$
|
20,544
|
|
|
PrintBrothers
|
90
|
|
|
437
|
|
|
712
|
|
|
1,241
|
|
|
The Print Group
|
374
|
|
|
525
|
|
|
1,249
|
|
|
1,723
|
|
|
National Pen
|
775
|
|
|
1,035
|
|
|
2,590
|
|
|
2,511
|
|
|
All Other Businesses
|
890
|
|
|
1,098
|
|
|
2,969
|
|
|
2,059
|
|
|
Central and corporate costs
|
2,726
|
|
|
2,543
|
|
|
8,462
|
|
|
6,559
|
|
|
Total capitalization of software and website development costs
|
$
|
12,407
|
|
|
$
|
12,716
|
|
|
$
|
35,824
|
|
|
$
|
34,637
|
|
The following table sets forth long-lived assets by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
June 30, 2019
|
|
Long-lived assets (1):
|
|
|
|
|
|
|
United States
|
$
|
166,395
|
|
|
$
|
57,118
|
|
|
Netherlands
|
90,956
|
|
|
73,601
|
|
|
Canada
|
71,300
|
|
|
73,447
|
|
|
Switzerland
|
61,346
|
|
|
57,488
|
|
|
Italy
|
48,147
|
|
|
43,203
|
|
|
Jamaica
|
21,873
|
|
|
21,267
|
|
|
Australia
|
18,162
|
|
|
20,749
|
|
|
France
|
24,505
|
|
|
18,533
|
|
|
Japan
|
16,132
|
|
|
17,768
|
|
|
Other
|
101,502
|
|
|
79,006
|
|
|
Total
|
$
|
620,318
|
|
|
$
|
462,180
|
|
___________________
(1) Excludes goodwill of $615,333 and $718,880, intangible assets, net of $220,827 and $262,701, and deferred tax assets of $143,571 and $59,906 as of March 31, 2020 and June 30, 2019, respectively. Build-to-suit lease assets of $124,408 are excluded for the year ended June 30, 2019, and upon our adoption of ASC 842 on July 1, 2019, our Waltham, MA and Dallas, TX build-to-suit lease asset balances were de-recognized.
As of March 31, 2020, all operating lease assets are recognized within the balances above. Refer to Note 2 for additional details.
13. Leases
We lease certain machinery and plant equipment, office space, and production and warehouse facilities under non-cancelable operating leases that expire on various dates through 2034. Our finance leases primarily relate to machinery and plant equipment.
The following table presents the classification of right-of-use assets and lease liabilities as of March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
Consolidated Balance Sheet Classification
|
|
March 31, 2020
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
Operating right-of-use assets
|
|
Operating lease assets, net
|
|
$
|
164,391
|
|
|
Finance right-of-use assets
|
|
Property, plant, and equipment, net
|
|
22,243
|
|
|
Total lease assets
|
|
|
|
$
|
186,634
|
|
|
Liabilities:
|
|
|
|
|
|
Current
|
|
|
|
|
|
Operating lease liabilities
|
|
Operating lease liabilities, current
|
|
$
|
37,405
|
|
|
Finance lease liabilities
|
|
Other current liabilities
|
|
7,833
|
|
|
Non-current
|
|
|
|
|
|
Operating lease liabilities
|
|
Operating lease liabilities, non-current
|
|
134,267
|
|
|
Finance lease liabilities
|
|
Other liabilities
|
|
19,360
|
|
|
Total lease liabilities
|
|
|
|
$
|
198,865
|
|
The following table represents the lease expenses for the three and nine months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
March 31, 2020
|
|
March 31, 2020
|
|
Operating lease expense
|
|
$
|
10,962
|
|
|
$
|
32,416
|
|
|
Finance lease expense:
|
|
|
|
|
|
Amortization of finance lease assets
|
|
1,409
|
|
|
4,614
|
|
|
Interest on lease liabilities
|
|
195
|
|
|
635
|
|
|
Variable lease expense
|
|
2,808
|
|
|
8,433
|
|
|
Less: sublease income
|
|
(719
|
)
|
|
(2,478
|
)
|
|
Net lease cost
|
|
$
|
3,693
|
|
|
$
|
11,204
|
|
Future minimum lease payments under non-cancelable leases as of March 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
Operating lease obligations
|
|
Finance lease obligations
|
|
Total lease obligations
|
|
Less than 1 year
|
$
|
42,136
|
|
|
$
|
8,393
|
|
|
$
|
50,529
|
|
|
2 years
|
35,915
|
|
|
7,822
|
|
|
43,737
|
|
|
3 years
|
29,907
|
|
|
5,308
|
|
|
35,215
|
|
|
4 years
|
23,618
|
|
|
3,338
|
|
|
26,956
|
|
|
5 years
|
18,075
|
|
|
1,933
|
|
|
20,008
|
|
|
Thereafter
|
37,878
|
|
|
1,925
|
|
|
39,803
|
|
|
Total
|
187,529
|
|
|
28,719
|
|
|
216,248
|
|
|
Less: present value discount
|
(15,857
|
)
|
|
(1,526
|
)
|
|
(17,383
|
)
|
|
Lease liability
|
$
|
171,672
|
|
|
$
|
27,193
|
|
|
$
|
198,865
|
|
As previously disclosed in our 2019 Annual Report on Form 10-K and under the previous lease accounting standard, the following is a summary of future minimum lease payments under non-cancelable leases and build-to-suit arrangements as of June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
Build-to-suit lease obligations (1)
|
|
Finance lease obligations
|
|
Total lease obligations
|
|
2020
|
$
|
30,269
|
|
|
$
|
13,482
|
|
|
$
|
11,468
|
|
|
$
|
55,219
|
|
|
2021
|
22,849
|
|
|
13,836
|
|
|
6,414
|
|
|
43,099
|
|
|
2022
|
16,592
|
|
|
13,877
|
|
|
3,724
|
|
|
34,193
|
|
|
2023
|
12,553
|
|
|
12,426
|
|
|
2,544
|
|
|
27,523
|
|
|
2024
|
9,032
|
|
|
12,163
|
|
|
1,565
|
|
|
22,760
|
|
|
Thereafter
|
8,338
|
|
|
40,656
|
|
|
2,403
|
|
|
51,397
|
|
|
Total
|
$
|
99,633
|
|
|
$
|
106,440
|
|
|
$
|
28,118
|
|
|
$
|
234,191
|
|
___________________
(1) Build-to-suit minimum payments at June 30, 2019 related to our Waltham, MA and Dallas, TX leases, refer to Note 2 for additional details.
Other information about leases is as follows:
|
|
|
|
|
|
|
|
Lease Term and Discount Rate
|
|
March 31, 2020
|
|
Weighted-average remaining lease term (years)
|
|
|
|
Operating leases
|
|
6.17
|
|
|
Finance leases
|
|
4.63
|
|
|
Weighted-average discount rate
|
|
|
|
Operating leases
|
|
3.17
|
%
|
|
Finance leases
|
|
2.77
|
%
|
Our leases have remaining lease terms of 1 year to 15 years, inclusive of renewal or termination options that we are reasonably certain to exercise.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Supplemental Cash Flow Information
|
|
March 31, 2020
|
|
Cash paid for amounts included in measurement of lease liabilities:
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
32,379
|
|
|
Operating cash flows from finance leases
|
|
635
|
|
|
Financing cash flows from finance leases
|
|
8,354
|
|
14. Commitments and Contingencies
Purchase Obligations
At March 31, 2020, we had unrecorded commitments under contract of $102,822, including third-party web services of $64,289 and inventory and third-party fulfillment purchase commitments of $12,217. In addition, we had purchase commitments for professional and consulting fees of $4,056, production and computer equipment purchases of $1,204, commitments for advertising campaigns of $652, and other unrecorded purchase commitments of $20,404.
Other Obligations
We deferred payments for several of our acquisitions resulting in the recognition of a liability of $2,369 in aggregate as of March 31, 2020.
Legal Proceedings
We are not currently party to any material legal proceedings. Although we cannot predict with certainty the results of litigation and claims to which we may be subject from time to time, we do not expect the resolution of any of our current matters to have a material adverse impact on our consolidated results of operations, cash flows or financial position. For all legal matters, at each reporting period, we evaluate whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance
that addresses accounting for contingencies. We expense the costs relating to our legal proceedings as those costs are incurred.
15. Restructuring Charges
Restructuring costs include one-time employee termination benefits, acceleration of share-based compensation, write-off of assets and other related costs including third-party professional and outplacement services. During the three and nine months ended March 31, 2020, we recognized restructuring charges of $919 and $5,006 consisting of charges of $472 and $3,829, respectively, within our Vistaprint reportable segment as we continue to evolve our organizational structure. We also incurred charges of $417 and $535 in our National Pen and All Other Businesses reportable segments, respectively, and immaterial charges within The Print Group reportable segment during the nine months ended March 31, 2020.
During the three and nine months ended March 31, 2019, we recognized restructuring charges of $7,866 and $9,062, respectively, related primarily to a restructuring action within our Vistaprint business, which included changes to the leadership team as well as other reductions in headcount and associated costs.
The following table summarizes the restructuring activity during the nine months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Related Benefits
|
|
Other Restructuring Costs
|
|
Total
|
|
Accrued restructuring liability as of June 30, 2019
|
$
|
3,045
|
|
|
$
|
167
|
|
|
$
|
3,212
|
|
|
Restructuring charges
|
4,662
|
|
|
344
|
|
|
5,006
|
|
|
Cash payments
|
(4,637
|
)
|
|
(433
|
)
|
|
(5,070
|
)
|
|
Non-cash charges (1)
|
(756
|
)
|
|
—
|
|
|
(756
|
)
|
|
Accrued restructuring liability as of March 31, 2020
|
$
|
2,314
|
|
|
$
|
78
|
|
|
$
|
2,392
|
|
___________________
(1) Non-cash charges primarily include acceleration of share-based compensation expenses.
16. Subsequent Events
Temporary Maintenance Covenant Suspension and Capital Raise
On May 1, 2020, we entered into an amendment to our senior secured credit agreement to suspend maintenance covenants, including the total and senior secured leverage covenants and interest coverage ratio covenant, until the publication of results for the quarter ending December 31, 2021, for which quarter the pre-amendment maintenance covenants will be reinstated. The covenant suspension period could end earlier at the company’s election if we have total leverage equal to or lower than 4.75x annualized EBITDA for each of two consecutive quarters and are compliant with pre-amendment maintenance covenants. During the suspension period, we are required to to comply with new maintenance covenants requiring minimum liquidity (defined in the credit agreement as cash plus unused revolver) of $50,000 and EBITDA above zero in each of the quarters ending June 30, 2021 and September 30, 2021. The amendment increased pricing to LIBOR +3.25% during the covenant suspension period and to LIBOR plus 2.50% to 3.25% after the covenant suspension period, and changed the maturity date from February 2025 to November 2024. The amendment to the senior secured credit agreement described above reduced the credit facility from $1,551,419 to $1,000,000, made up of an $850,000 revolver and $150,000 term loan.
Related to the amendment, on May 1, 2020, we issued notes and warrants to raise $300,000 from funds managed by affiliates of Apollo Global Management, Inc. (the "Apollo Funds") via a private placement of securities. We used the proceeds to pay down a portion of the term loan under our senior secured credit facility and to pay fees and expenses incurred in connection with the financing and the above-described amendment.
The investment by the Apollo Funds is structured as 5-year second lien notes with a 12% coupon, of which up to 50% can be paid-in-kind at our option. We may prepay these notes in whole or in part after the first anniversary with a 3% premium, after the second anniversary with a 1% premium, and after the third anniversary with no premium with proceeds from certain debt financings. The Apollo Funds also received 7-year warrants to purchase 1,055,377 ordinary shares of Cimpress, representing approximately 3.875% of our outstanding diluted ordinary shares. The warrants have an exercise price of $60 per share, representing an approximately 17% premium to the 10-day VWAP as of April 28, 2020. If the Apollo Funds undertake a cashless exercise on their own
or if we use a mandatory exercise feature in the warrants, the maximum resulting net share issuance would be approximately 740,000 ordinary shares.