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EXCEL - IDEA: XBRL DOCUMENT - CIMPRESS plc | Financial_Report.xls |
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EX-31.2 - EX-31.2 - CIMPRESS plc | b85466exv31w2.htm |
EX-31.1 - EX-31.1 - CIMPRESS plc | b85466exv31w1.htm |
EX-10.1 - EX-10.1 - CIMPRESS plc | b85466exv10w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended March 31, 2011
OR
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to .
Commission File Number: 000-51539
VISTAPRINT N.V.
(Exact Name of Registrant as Specified in its Charter)
The Netherlands (State or Other Jurisdiction of Incorporation or Organization) |
98-0417483 (I.R.S. Employer Identification No.) |
Hudsonweg 8
5928 LW Venlo
The Netherlands
(Address of Principal Executive Offices, Including Zip Code)
5928 LW Venlo
The Netherlands
(Address of Principal Executive Offices, Including Zip Code)
31-77-850-7700
(Registrants Telephone Number, Including Area Code)
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a small reporting company. See definitions of large accelerated
filer, accelerated filer, non-accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act. (check one):
Large accelerated filer þ
|
Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of April 22, 2011, there were outstanding 43,004,859 ordinary shares of the registrant, par
value .01 per share.
FORM 10-Q
INDEX
2
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
VISTAPRINT N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands, except share and per share data)
(Unaudited in thousands, except share and per share data)
March 31, | June 30, | |||||||
2011 | 2010 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 208,065 | $ | 162,727 | ||||
Marketable securities |
| 9,604 | ||||||
Accounts receivable, net of allowances of $90 and $53, respectively |
11,754 | 9,389 | ||||||
Inventory |
8,445 | 6,223 | ||||||
Prepaid expenses and other current assets |
16,968 | 15,059 | ||||||
Total current assets |
245,232 | 203,002 | ||||||
Property, plant and equipment, net |
260,220 | 249,961 | ||||||
Software and website development costs, net |
6,041 | 6,426 | ||||||
Deferred tax assets |
6,998 | 7,277 | ||||||
Other assets |
10,753 | 11,223 | ||||||
Total assets |
$ | 529,244 | $ | 477,889 | ||||
Liabilities and shareholders equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 17,114 | $ | 16,664 | ||||
Accrued expenses |
68,640 | 65,609 | ||||||
Deferred revenue |
7,672 | 4,138 | ||||||
Current portion of long-term debt |
| 5,222 | ||||||
Total current liabilities |
93,426 | 91,633 | ||||||
Deferred tax liabilities |
2,994 | 3,151 | ||||||
Other liabilities |
7,854 | 6,991 | ||||||
Total liabilities |
104,274 | 101,775 | ||||||
Commitments and contingencies (Note 9) |
||||||||
Shareholders equity : |
||||||||
Ordinary shares, par value 0.01 per share, 120,000,000 shares
authorized; 49,950,289 and 49,891,244 shares issued and 42,995,043
and 43,855,164 shares outstanding, respectively |
699 | 698 | ||||||
Treasury shares, at cost, 6,955,246 and 6,036,080 shares, respectively |
(86,052 | ) | (29,637 | ) | ||||
Additional paid-in capital |
267,777 | 249,153 | ||||||
Retained earnings |
234,237 | 166,525 | ||||||
Accumulated other comprehensive income (loss) |
8,309 | (10,625 | ) | |||||
Total shareholders equity |
424,970 | 376,114 | ||||||
Total liabilities and shareholders equity |
$ | 529,244 | $ | 477,889 | ||||
See accompanying notes.
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Table of Contents
VISTAPRINT N.V.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited in thousands, except share and per share data)
(Unaudited in thousands, except share and per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue |
$ | 203,667 | $ | 166,029 | $ | 608,218 | $ | 505,732 | ||||||||
Cost of revenue (1) |
70,738 | 59,659 | 212,405 | 180,400 | ||||||||||||
Technology and development expense (1) |
22,766 | 19,601 | 68,260 | 57,770 | ||||||||||||
Marketing and selling expense (1) |
66,602 | 54,530 | 200,546 | 161,076 | ||||||||||||
General and administrative expense (1) |
17,998 | 14,427 | 50,926 | 43,543 | ||||||||||||
Income from operations |
25,563 | 17,812 | 76,081 | 62,943 | ||||||||||||
Interest income |
129 | 113 | 320 | 327 | ||||||||||||
Other expense, net |
532 | 14 | 1,035 | 648 | ||||||||||||
Interest expense |
| 123 | 196 | 670 | ||||||||||||
Income before income taxes |
25,160 | 17,788 | 75,170 | 61,952 | ||||||||||||
Income tax provision |
2,243 | 1,621 | 7,458 | 5,861 | ||||||||||||
Net income |
$ | 22,917 | $ | 16,167 | $ | 67,712 | $ | 56,091 | ||||||||
Basic net income per share |
$ | 0.53 | $ | 0.37 | $ | 1.55 | $ | 1.30 | ||||||||
Diluted net income per share |
$ | 0.51 | $ | 0.35 | $ | 1.50 | $ | 1.24 | ||||||||
Weighted average shares outstanding basic |
42,851,295 | 43,569,607 | 43,563,447 | 43,234,283 | ||||||||||||
Weighted average shares outstanding diluted |
44,521,585 | 45,661,139 | 45,037,863 | 45,265,012 | ||||||||||||
(1) | Share-based compensation cost is allocated as follows: |
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Cost of revenue |
$ | 161 | $ | 186 | $ | 561 | $ | 633 | ||||||||
Technology and development expense |
1,035 | 1,307 | 3,275 | 4,581 | ||||||||||||
Marketing and selling expense |
917 | 1,161 | 3,051 | 3,781 | ||||||||||||
General and administrative expense |
3,004 | 2,489 | 9,825 | 7,905 |
See accompanying notes.
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Table of Contents
VISTAPRINT N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
(Unaudited in thousands)
Nine Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Operating activities |
||||||||
Net income |
$ | 67,712 | $ | 56,091 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
37,701 | 32,702 | ||||||
Abandonment of acquired intangible assets |
| 920 | ||||||
Loss on sale, disposal, or impairment of long-lived assets |
154 | 131 | ||||||
Amortization of premiums and discounts on marketable securities |
163 | 45 | ||||||
Share-based compensation expense |
16,712 | 16,900 | ||||||
Tax benefits derived from share-based compensation awards |
(1,550 | ) | (4,877 | ) | ||||
Deferred taxes |
1,004 | (50 | ) | |||||
Changes in operating assets and liabilities, excluding the effect of an acquisition: |
||||||||
Accounts receivable |
(1,943 | ) | (4,584 | ) | ||||
Inventory |
(1,665 | ) | (1,656 | ) | ||||
Prepaid expenses and other assets |
3,216 | 1,527 | ||||||
Accounts payable |
(396 | ) | 5,991 | |||||
Accrued expenses and other liabilities |
5,219 | 20,030 | ||||||
Net cash provided by operating activities |
126,327 | 123,170 | ||||||
Investing activities |
||||||||
Purchases of property, plant and equipment |
(29,224 | ) | (73,828 | ) | ||||
Proceeds from sale of equipment |
| 177 | ||||||
Business acquisition, net of cash acquired |
| (6,496 | ) | |||||
Purchases of marketable securities |
| (9,804 | ) | |||||
Maturities and redemptions of marketable securities |
9,570 | 100 | ||||||
Purchases of intangible assets |
(148 | ) | | |||||
Capitalization of software and website development costs |
(4,656 | ) | (4,804 | ) | ||||
Net cash used in investing activities |
(24,458 | ) | (94,655 | ) | ||||
Financing activities |
||||||||
Repayments of long-term debt |
(5,222 | ) | (13,514 | ) | ||||
Payments of withholding taxes in connection with vesting of restricted share units |
(4,102 | ) | (4,366 | ) | ||||
Repurchases of ordinary shares |
(56,935 | ) | | |||||
Tax benefits derived from share-based compensation awards |
1,550 | 4,877 | ||||||
Proceeds from issuance of shares |
5,202 | 13,407 | ||||||
Net cash (used in) provided by financing activities |
(59,507 | ) | 404 | |||||
Effect of exchange rate changes on cash |
2,976 | (322 | ) | |||||
Net increase in cash and cash equivalents |
45,338 | 28,597 | ||||||
Cash and cash equivalents at beginning of period |
162,727 | 133,988 | ||||||
Cash and cash equivalents at end of period |
$ | 208,065 | $ | 162,585 | ||||
See accompanying notes.
5
Table of Contents
VISTAPRINT N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited in thousands, except share and per share data)
(Unaudited in thousands, except share and per share data)
1. Description of Business
The Vistaprint group of companies (the Company) offers micro businesses the ability to
market their businesses with a broad range of brand identity and promotional products, marketing
services and digital solutions. Through the use of proprietary Internet-based graphic design
software, localized websites, proprietary order receiving and processing technologies and advanced
computer integrated production facilities, the Company offers a broad spectrum of products, such as
business cards, website hosting, apparel, signage, promotional gifts, brochures, online marketing
and creative services. The Company focuses on serving the marketing, graphic design and printing
needs of the micro business market, generally businesses or organizations with fewer than 10
employees and usually 2 or fewer. The Company also provides personalized products for home and
family use.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Vistaprint N.V., its wholly
owned subsidiaries, and those entities in which the Company has a variable interest and is the
primary beneficiary. Intercompany balances and transactions have been eliminated.
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (GAAP) for interim financial
information and, accordingly, do not include all of the information and footnotes required by GAAP
for complete financial statements. In the opinion of management, all adjustments, consisting
primarily of normal recurring accruals, considered necessary for a fair presentation of the results
of operations for the interim periods reported and of the Companys 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, 2011 are not necessarily indicative of the results that may be expected for
the year ending June 30, 2011 or for any other period. The condensed consolidated balance sheet at
June 30, 2010 has been derived from the Companys audited consolidated financial statements at that
date but does not include all of the information and footnotes required by GAAP for complete
financial statements. These unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements for the year ended June 30, 2010
included in the Companys Annual Report on Form 10-K filed with the United States Securities and
Exchange Commission (the SEC).
Treasury Shares
Treasury shares are accounted for under the cost method and included as a component of
shareholders equity. During the nine months ended March 31, 2011, the Company repurchased
1,326,933 of its ordinary shares for a total cost of $56,935, inclusive of transaction costs, in
connection with the Companys publicly announced share repurchase program authorized by the
Companys Supervisory Board on November 4, 2010.
6
Table of Contents
Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted-average number
of ordinary shares outstanding for the fiscal period. Diluted net income per share gives effect to
all potentially dilutive securities, including share options and restricted share units (RSUs)
using the treasury stock method as the Companys unvested share options and RSUs do not have
non-forfeitable rights to dividends.
The following table sets forth the reconciliation of the weighted-average number of ordinary
shares:
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Weighted
average shares
outstanding, basic |
42,851,295 | 43,569,607 | 43,563,447 | 43,234,283 | ||||||||||||
Weighted average
shares issuable
upon exercise /
vesting of
outstanding share
options/RSUs |
1,670,290 | 2,091,532 | 1,474,416 | 2,030,729 | ||||||||||||
Shares used in
computing diluted
net income per
share |
44,521,585 | 45,661,139 | 45,037,863 | 45,265,012 | ||||||||||||
Weighted
average
anti-dilutive
shares excluded
from diluted net
income per share |
297,575 | 37,692 | 681,705 | 284,962 |
Share-Based Compensation
During the three and nine months ended March 31, 2011, the Company recorded share-based
compensation costs of $5,117 and $16,712, respectively, and $5,143 and $16,900 during the three and
nine months ended March 31, 2010, respectively. Share-based compensation costs capitalized as part
of software and website development costs were $69 and $263 for the three and nine months ended
March 31, 2011, respectively, and were $108 and $372 for the three and nine months ended March 31,
2010, respectively.
At March 31, 2011, there was $32,301 of total unrecognized compensation cost related to
unvested share-based compensation arrangements, net of estimated forfeitures. This cost is expected
to be recognized over a weighted average period of 2.4 years.
Income Taxes
The Company is subject to income taxes in certain jurisdictions, including but not limited to
the Netherlands, Canada, Australia, Spain, and the United States. Significant judgments, estimates
and assumptions regarding future events, such as the amount, timing and character of income,
deductions and tax credits, are required in the determination of the Companys provision for income
taxes. These judgments, estimates and assumptions involve interpreting the tax laws in various
international jurisdictions, analyzing changes in tax laws and regulations, and estimating the
Companys levels of revenues, expenses and profits in each jurisdiction and the potential impact of
each on the tax liability in any given year.
The Company operates in many jurisdictions where the tax laws relating to the pricing of
transactions between related parties and the determination of permanent establishments and
attribution of effectively connected income are open to interpretation, which could potentially
result in tax authorities asserting additional tax liabilities with no offsetting tax recovery in
other countries.
As of March 31, 2011, the Company had a liability for unrecognized tax benefits included in
the balance sheet of approximately $2,315, including accrued interest of $249. During the nine
months ended March 31, 2011, the Company recorded increases in the liability for unrecognized tax
positions of $655 offset by transfers to income tax payable for audit settlements of $667,
including accrued interest. The total amount of unrecognized tax benefits will reduce the effective tax rate if recognized. The Company recognizes interest and penalties related to unrecognized
tax benefits in the provision for income taxes.
One of the Companys U.S. subsidiaries and one of its Bermuda subsidiaries are under audit by
the Internal Revenue Service. Also, the same U.S. subsidiary is under audit by the Commonwealth of
Massachusetts, and the Canada Revenue Agency is auditing one of the Companys Canadian
subsidiaries.
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Table of Contents
Goodwill
The Company evaluates goodwill for impairment annually or more frequently when an event occurs
or circumstances change that indicate that the carrying value may not be recoverable. Goodwill is
tested for impairment by first comparing the book value of net assets to the fair value of the
reporting units. If the fair value is determined to be less than the book value, a second step is
performed to compute the amount of impairment as the difference between the estimated fair value of
goodwill and the carrying value. The Company estimates the fair value of the reporting units using
discounted cash flows. Forecasts of future cash flows are based on the Companys best estimate of
future net sales and operating expenses.
The Company conducts its annual impairment test in the third fiscal quarter of each year and
has determined there to be no impairment for any of the periods presented. There were no events or
circumstances from the date of the Companys assessment through March 31, 2011 that would impact
this conclusion.
Cash, Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments purchased with an original maturity of
three months or less to be the equivalent of cash for the purpose of balance sheet and statement of
cash flows presentation. Marketable securities, when held, consist primarily of investment-grade
corporate bonds, U.S. government agency issues, and certificates of deposit. At both March 31, 2011
and June 30, 2010, the Company held one auction rate security, included in other assets, for which
the recovery period is expected to be greater than twelve months as a result of failed auctions.
During the nine months ended March 31, 2011, the Company received a partial redemption on this
auction rate security of $100 at par. The Companys marketable securities are classified as
available-for-sale securities and carried at fair value, with the unrealized gains and losses
reported in a separate component of accumulated other comprehensive income (loss). For information
on fair value measurements refer to Note 3. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as available-for-sale are
included in interest income.
The Company reviews its investments for other-than-temporary impairment whenever the fair
value of an investment is less than amortized cost and evidence indicates that an investments
carrying amount is not recoverable within a reasonable period of time. There were no
other-than-temporary impairments during the three and nine months ended March 31, 2011 and 2010.
Cash, cash equivalents and marketable securities as of March 31, 2011 consisted of the
following:
Gross | ||||||||||||
Amortized | Unrealized | |||||||||||
Cost | Losses | Fair Value | ||||||||||
Cash and cash equivalents |
$ | 208,065 | $ | | $ | 208,065 | ||||||
Marketable securities: |
||||||||||||
Municipal auction rate security |
600 | (40 | ) | 560 | ||||||||
Total long-term marketable securities |
600 | (40 | ) | 560 | ||||||||
Total cash, cash equivalents and marketable securities |
$ | 208,665 | $ | (40 | ) | $ | 208,625 | |||||
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Cash, cash equivalents and marketable securities as of June 30, 2010 consisted of the
following:
Gross | ||||||||||||
Amortized | Unrealized | |||||||||||
Cost | Losses | Fair Value | ||||||||||
Cash and cash equivalents |
$ | 162,727 | $ | | $ | 162,727 | ||||||
Marketable securities: |
||||||||||||
Corporate debt securities |
6,772 | (27 | ) | 6,745 | ||||||||
U.S. government and agency securities |
1,900 | | 1,900 | |||||||||
Certificates of Deposit |
960 | (1 | ) | 959 | ||||||||
Total current marketable securities |
9,632 | (28 | ) | 9,604 | ||||||||
Municipal auction rate security |
700 | (40 | ) | 660 | ||||||||
Total long-term marketable securities |
700 | (40 | ) | 660 | ||||||||
Total cash, cash equivalents and marketable securities |
$ | 173,059 | $ | (68 | ) | $ | 172,991 | |||||
Recently Adopted Accounting Pronouncements
Effective July 1, 2010, the Company adopted ASU 2009-13 Multiple-Deliverable Revenue
Arrangements, which amends ASC Subtopic 650-25 Revenue RecognitionMultiple-Element Arrangements
to eliminate the requirement that all undelivered elements have vendor-specific objective evidence
(VSOE) or third-party evidence (TPE) before an entity can recognize the portion of an overall
arrangement fee that is attributable to items that already have been delivered. In the absence of
VSOE or TPE of the standalone selling price for one or more delivered or undelivered elements in a
multiple-element arrangement, entities will be required to estimate the selling prices of those
elements. The overall arrangement fee will be allocated to each element (both delivered and
undelivered items) based on their relative selling prices, regardless of whether those selling
prices are evidenced by VSOE or TPE or are based on the entitys estimated selling price.
Additionally, the new guidance will require entities to disclose more information about their
multiple-element revenue arrangements. The adoption of this ASU did not have a material impact on
the Companys consolidated financial statements.
Effective July 1, 2010, the Company adopted ASU 2009-14 Certain Revenue Arrangements that
Include Software Elements, which amends ASC Subtopic 985-605 Software-Revenue Recognition, and
addresses the accounting for revenue transactions involving software, to exclude from its scope
tangible products that contain both software and non-software components that function together to
deliver a products essential functionality. The adoption of this ASU did not have any impact on
the Companys consolidated financial statements.
3. Fair Value Measurements
Carrying amounts of financial instruments held by the Company, which may include cash
equivalents, marketable securities, accounts receivable, accounts payable, debt and accrued
expenses, approximate fair value due to the short period of time to maturity of those instruments.
The Company uses a three-level valuation hierarchy for measuring fair value and expanding
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, 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 instruments categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. The Company measures the
following financial assets at fair value on a recurring basis.
9
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The fair value of these financial assets was determined using the following inputs at March
31, 2011:
Quoted Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Significant Other | Unobservable | ||||||||||||||
Identical Assets | Observable Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Cash and cash equivalents |
$ | 208,065 | $ | 208,065 | $ | | $ | | ||||||||
Long-term investments (1) |
560 | | | 560 | ||||||||||||
Total assets recorded at fair value |
$ | 208,625 | $ | 208,065 | $ | | $ | 560 | ||||||||
(1) | Long-term investments consist of an auction rate security. |
The Company has the intent and the ability to hold the Level 3 asset until the
anticipated recovery period which it believes will be more than twelve months. The following table
presents a roll forward of assets measured at fair value using significant unobservable inputs
(Level 3) for the nine months ended March 31, 2011:
Balance at June 30, 2010 |
$ | 660 | ||
Redemptions |
(100 | ) | ||
Balance at March 31, 2011 |
$ | 560 | ||
4. Comprehensive Income
Comprehensive income is composed of net income, unrealized gains and losses on marketable
securities and derivatives less amounts reclassified to net income, and cumulative foreign currency
translation adjustments. The following table displays the computation of comprehensive income:
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income |
$ | 22,917 | $ | 16,167 | $ | 67,712 | $ | 56,091 | ||||||||
Unrealized gain (loss) on marketable securities |
2 | (19 | ) | 28 | (19 | ) | ||||||||||
Reclassification of gain on cash flow hedge to net income |
| | (49 | ) | | |||||||||||
Unrealized gain on cash flow hedge, net of tax of $7 and
$26, for the three and nine months ended March 31, 2010 |
| 16 | | 57 | ||||||||||||
Change in cumulative foreign currency translation adjustments |
6,221 | (6,361 | ) | 18,955 | (5,183 | ) | ||||||||||
Comprehensive income |
$ | 29,140 | $ | 9,803 | $ | 86,646 | $ | 50,946 | ||||||||
5. Segment Information
During the quarter ended September 30, 2010, the Company changed its reportable segments to
align with how operating results are reported internally to the Chief Executive Officer, who
constitutes the Companys Chief Operating Decision Maker (CODM) for purposes of making decisions
about how to allocate resources and assess performance. Beginning July 1, 2010, the CODM reviews
revenue and income or loss from operations based on three geographic operating segments: North
America, Europe and Asia-Pacific.
The costs associated with shared central functions are not allocated to the operating segments
and instead are reported and disclosed under the caption Corporate and global functions, which
includes expenses related to corporate support functions, software and manufacturing engineering,
and the global component of the Companys information technology, marketing and customer service,
sales and design support operations. The Company does not allocate non-operating income to its
segment results. There are no internal revenue transactions between the Companys operating
segments and all intersegment transfers are recorded at cost for presentation to the CODM, for
example, products manufactured by the
Companys manufacturing facility in Europe for the Asia-Pacific segment; therefore, there is
no intercompany profit or loss recognized on these transactions for management reporting. At this
time, the Company does not allocate various support costs across operating segments, which may
limit the comparability of income from operations by segment. For example,
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North America customer
service, sales and design support provides some support to customers of other operating segments;
however, these costs are reported in North America.
Revenue by segment and geography is based on the country-specific website through which the
customers order was transacted. The following tables set forth revenue and income from operations
by operating segment:
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue: |
||||||||||||||||
North America (1) |
$ | 115,516 | $ | 95,411 | $ | 333,525 | $ | 283,299 | ||||||||
Europe |
77,675 | 63,630 | 243,949 | 202,114 | ||||||||||||
Asia-Pacific |
10,476 | 6,988 | 30,744 | 20,319 | ||||||||||||
Total revenue |
$ | 203,667 | $ | 166,029 | $ | 608,218 | $ | 505,732 | ||||||||
(1) | Includes referral fee revenue from membership discount programs of $5,247 for the nine months ended March 31, 2010 and $0 for all other periods presented. |
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Income from operations: |
||||||||||||||||
North America |
$ | 35,416 | $ | 24,691 | $ | 96,895 | $ | 78,821 | ||||||||
Europe |
22,647 | 17,540 | 72,918 | 57,412 | ||||||||||||
Asia-Pacific |
1,851 | 2,458 | 5,634 | 7,460 | ||||||||||||
Corporate and global functions |
(34,351 | ) | (26,877 | ) | (99,366 | ) | (80,750 | ) | ||||||||
Total income from operations |
$ | 25,563 | $ | 17,812 | $ | 76,081 | $ | 62,943 | ||||||||
The following tables set forth revenue and long-lived assets by geographic area:
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue: |
||||||||||||||||
United States |
$ | 109,533 | $ | 92,015 | $ | 317,063 | $ | 273,607 | ||||||||
Non-United States |
94,134 | 74,014 | 291,155 | 232,125 | ||||||||||||
Total revenue |
$ | 203,667 | $ | 166,029 | $ | 608,218 | $ | 505,732 | ||||||||
March 31, | June 30, | |||||||
2011 | 2010 | |||||||
Long-lived assets (1): |
||||||||
Canada |
$ | 105,088 | $ | 110,780 | ||||
Netherlands |
82,779 | 73,992 | ||||||
Australia |
42,730 | 36,485 | ||||||
Bermuda |
16,160 | 17,152 | ||||||
United States |
11,116 | 12,879 | ||||||
Jamaica |
7,344 | 6,191 | ||||||
Switzerland |
3,438 | 1,771 | ||||||
Spain |
1,974 | 2,180 | ||||||
Other |
2,217 | 2,012 | ||||||
$ | 272,846 | $ | 263,442 | |||||
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(1) | Excludes goodwill of $4,168 for both periods presented, and deferred tax assets of $6,998 and $7,277 as of March 31, 2011 and June 30, 2010, respectively. |
6. Acquisition of Soft Sight, Inc.
On December 30, 2009, the Company acquired 100% of the outstanding equity of Soft Sight, Inc.
(Soft Sight), a privately held developer of embroidery digitization software based in the United
States, for $6,500 in cash. Soft Sights proprietary software enables a customers uploaded graphic
artwork to be automatically converted into embroidery stitch patterns for subsequent manufacturing.
The transaction was accounted for under the acquisition method of accounting. All of the
assets acquired and liabilities assumed in the transaction were recognized at their
acquisition-date fair values, while transaction costs and restructuring costs associated with the
transaction were expensed as incurred. The transaction and restructuring costs did not have a
material impact on the Companys consolidated results of operations or cash flows. The Company
launched a line of embroidered products to customers in fiscal 2011.
Allocations of Assets and Liabilities
The Company allocated the purchase price for Soft Sight to net tangible assets of $52,
deferred tax assets of $691, intangible assets of $2,647, goodwill of $4,168 and a deferred tax
liability of $1,059. Of the $2,647 of acquired intangible assets, $920 was immediately expensed as
there was no economic value to the Company. The carrying value of the remaining intangible assets
relate to developed embroidery technology and customer lists, which are being amortized over a
weighted average life of approximately 3.8 years.
The deferred tax assets primarily relate to net operating loss carryforwards that have been
utilized to reduce tax liabilities. The deferred tax liability primarily relates to the tax impact
of future amortization or impairments associated with the identified intangible assets acquired,
which are not deductible for tax purposes.
The difference between the consideration transferred to acquire the business and the fair
value of assets acquired and liabilities assumed was allocated to goodwill. This goodwill relates
to the potential synergies from the integration of the Soft Sight embroidery software capabilities
into the Companys existing product offering. The goodwill will not be deductible for income tax
purposes.
7. Long-Term Debt
During the three months ended December 31, 2010, the final balloon payment on the Companys
amended Canadian credit agreement became due and was paid in full in the amount of $4,667. The
Company had no remaining long-term debt obligations outstanding as of March 31, 2011.
8. Accrued Expenses
Accrued expenses included the following:
March 31, | June 30, | |||||||
2011 | 2010 | |||||||
Compensation costs |
$ | 22,503 | $ | 16,263 | ||||
Advertising costs |
20,655 | 17,627 | ||||||
Income and indirect taxes |
12,437 | 12,403 | ||||||
Shipping costs |
2,609 | 2,351 | ||||||
Professional costs |
1,510 | 2,475 | ||||||
Purchases of property, plant and equipment |
1,049 | 7,129 | ||||||
Other |
7,877 | 7,361 | ||||||
Total accrued expenses |
$ | 68,640 | $ | 65,609 | ||||
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9. Commitments and Contingencies
Purchase Commitments
At March 31, 2011, the Company had unrecorded commitments under contract for site development
and construction of a Jamaican customer service, sales and design support center of approximately
$1,820, and to purchase production equipment for our Canadian, Australian, and Netherlands
production facilities of approximately $1,062, $595, and $446, respectively.
Legal Proceedings
On July 21, 2009, Vistaprint Limited and OfficeMax Incorporated were named as defendants in a
complaint for patent infringement filed by ColorQuick LLC in the United States District Court for
the Eastern District of Texas. The complaint alleges that Vistaprint Limited and OfficeMax
Incorporated are infringing U.S. patent 6,839,149, relating generally to systems and methods for
processing electronic files stored in a page description language format, such as PDF. The
plaintiff is seeking a declaration that the patent at issue is valid and enforceable, a declaration
that Vistaprint Limited infringes, the entry of a preliminary and permanent injunction, and
damages. In March 2011, the U.S. District Court dismissed all of ColorQuicks claims against
OfficeMax pursuant to an agreement among ColorQuick and the defendants, but the Company remains a
defendant. Based on the Companys evaluation of available information, including the results of
discovery, pretrial motions filed by both parties, communications between the Company and the
plaintiff and the judgment of internal and external counsel, the Company is unable to express an
opinion as to the likely outcome of this matter and cannot reasonably estimate a potential range of
loss; however, the Company does not expect the outcome to have a material adverse effect on its
results of operations, financial condition or cash flows.
In October 2010, the Company entered into a settlement agreement with Soverain Software LLC
related to a complaint for patent infringement, under which Soverain agreed to dismiss its lawsuit.
Refer to the Companys Form 10-Q filed for the period ended December 31, 2010 for further details.
The Company is not currently party to any other material legal proceedings. The Company is
involved, from time to time, in various legal proceedings arising from the normal course of
business activities. Although the Company cannot predict with certainty the results of litigation
and claims, it does not expect resolution of these matters to have a material adverse impact on its
consolidated results of operations, cash flows or financial position. In all cases, at each
reporting period, the Company evaluates 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. Legal proceedings previously disclosed in the
Companys SEC filings may not be presented in its Form 10-Q, to the extent such matters are no
longer believed to be material or have not had significant activity during the period. Legal costs
are expensed as incurred.
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ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Report contains forward-looking statements that involve risks and uncertainties. The
statements contained in this Report that are not purely historical are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including but not limited to our statements about anticipated income and
revenue growth rates, future profitability and market share, new and expanded products and
services, geographic expansion and planned capital expenditures. Without limiting the foregoing,
the words may, will, should, could, expect, plan, intend, anticipate, believe,
estimate, predict, designed, potential, continue, target, seek and similar
expressions are intended to identify forward-looking statements. All forward-looking statements
included in this Report are based on information available to us up to, and including the date of
this document, and we disclaim any obligation to update any such forward-looking statements. Our
actual results could differ materially from those anticipated in these forward-looking statements
as a result of certain important factors, including those set forth in this Managements
Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors and
elsewhere in this Report. You should carefully review those factors and also carefully review the
risks outlined in other documents that we file from time to time with the United States Securities
and Exchange Commission.
Executive Overview
For the three and nine months ended March 31, 2011, we reported 23% and 20% revenue growth
over the same prior year periods to revenue of $203.7 million and $608.2 million, respectively.
Constant-currency revenue growth was 22% for both periods. Diluted earnings per share (EPS) grew
46% and 21% for the three and nine months ended March 31, 2011 over the same prior year periods to
$0.51 and $1.50, respectively. The strong EPS growth for the three months ended March 31, 2011
compared to the prior year period was primarily due to strong revenue performance, gross margin
improvements from manufacturing and procurement efficiencies, and favorability in operating
expenses as a percent of revenue from the timing of investments and technology and development
costs, which grew more slowly than revenue in the period. We manage our business against annual targets,
and believe investors should analyze our performance that way as well.
We focus on the following target markets:
All Things Marketing for Micro Businesses
Our long-term goal is to become the leading online provider of micro business marketing
solutions for businesses with fewer than ten employees. We believe that the strength of our
solution gives us the opportunity not only to capture an increasing share of the existing printing
needs in our targeted markets, but also to address other marketing services demand by making
available to our customers cost-effective solutions to grow their businesses. Examples of these
other solutions include customized apparel, signage, promotional products, websites, graphic design
and on-line marketing.
We believe our customers currently spend only a small portion of their annual budget for
marketing products and services with us. By expanding the scope of our services and by improving
the quality and selection of our products and services along with the customer experience, we seek
to increase the amount of money our customers spend with us each year. During fiscal 2010, we added
personalized notebooks, mugs, on-line search profiles, new business card options, ladies t-shirts,
stickers, mailing labels and other offerings. We also acquired Soft Sight to support our entry into
the custom embroidered product market. During the nine months ended March 31, 2011, we launched
engraved pens, extra-large banners, embroidered polo shirts, hats and hooded sweatshirts, and
several electronic services products or enhancements, including blogs, a search engine optimization
tool for website customers, and personalized email domain names. We plan to continue to expand and
enhance our product and service offerings in order to provide a greater selection to our existing
customers and to attract customers seeking a variety of products and services. Additionally, by
continuing to improve our customer acquisition and retention marketing programs, our customer
service, sales and design support, and our value proposition, we seek to increase the number of
products purchased by each customer.
Expanded Geographic Reach
For the nine months ended March 31, 2011, revenue generated from our North American, European
and Asia-Pacific segments accounted for approximately 55%, 40% and 5% of our total revenue,
respectively. We believe that we have significant opportunity to expand our revenue both in the
countries we currently service and in additional countries worldwide. We have a European marketing
office in Barcelona, Spain that focuses on our European growth initiatives. We completed
construction of a production facility near Melbourne, Australia and launched a marketing office in
Sydney,
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Australia in June 2010 to better support our business and customers in our existing
Asia-Pacific markets, and prepare for further expansion into new markets. In addition, in fiscal
2010 we opened two new design, sales and services centers that support European customers (one in
Tunis, Tunisia, and the other in Berlin, Germany). We intend to further extend our geographic reach
by continuing to introduce localized websites in different countries and languages, expanding our
marketing efforts and customer service capabilities, and offering graphic design content, products,
payment methods and languages specific to local markets. Over the last twelve months we have
introduced localized websites in the Czech Republic, Finland, Portugal, Singapore and South Korea.
Home and Family
Although we expect to maintain our primary focus on micro business marketing products and
services, we also participate in the market for customized home and family products such as
invitations, announcements, calendars, holiday cards and apparel, particularly in our second fiscal
quarter. We intend to add new products, design content and services targeted at the home and family
market. We believe that the economies of scale provided by cross selling these products to our
extensive micro business customer base, our large production order volumes and integrated design
and production software and facilities support and will continue to support our effort to
profitably grow our home and family business.
Recent Developments
Although our revenue has continued to grow year over year, our revenue growth rate has
declined recently, and we have a near and mid-term objective to stem this growth rate decline. One
component of our plan to do so is the changes to our management and organization structure which we
announced on October 28, 2010. This reorganization resulted in the creation of the roles of Chief
Customer Officer and Chief Operating Officer, the promotion of two executive officers who will lead
the North American and European business units, and a broad series of promotions, organizational
changes, and the evolution of our reporting structure in our marketing, manufacturing and
technology organizations. The new structure is designed in light of the current size and complexity
of our business, with the objectives of improving value to our customers, increasing our
competitive advantage through manufacturing excellence, and developing leadership talent throughout
our business.
On November 4, 2010, our Supervisory Board authorized the repurchase of up to $160 million of
our outstanding ordinary shares in open market or privately negotiated transactions. The terms of
the repurchase program are described further in Item 2 of Part II of this Report. During the three
and nine months ended March 31, 2011, we repurchased our ordinary shares for a total cost of $1.5
million and $56.9 million, respectively, which we funded using our cash balances.
On November 18, 2010, we announced Michael Giannettos decision to resign as Chief Financial
Officer and the appointment of Ernst Teunissen as Executive Vice President and Chief Financial
Officer effective March 1, 2011. Mr. Giannetto will remain employed by Vistaprint as an Executive
Vice President through June 30, 2011. There are no significant charges related to this transition.
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Results of Operations
The following table presents our historical operating results for the periods indicated as a
percentage of revenue:
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of revenue |
34.7 | % | 35.9 | % | 34.9 | % | 35.7 | % | ||||||||
Technology and development expense |
11.2 | % | 11.8 | % | 11.2 | % | 11.4 | % | ||||||||
Marketing and selling expense |
32.7 | % | 32.9 | % | 33.0 | % | 31.9 | % | ||||||||
General and administrative expense |
8.8 | % | 8.7 | % | 8.4 | % | 8.6 | % | ||||||||
Income from operations |
12.6 | % | 10.7 | % | 12.5 | % | 12.4 | % | ||||||||
Interest income |
0.1 | % | 0.1 | % | 0.1 | % | 0.1 | % | ||||||||
Other expense, net |
0.3 | % | 0.0 | % | 0.2 | % | 0.1 | % | ||||||||
Interest expense |
0.0 | % | 0.1 | % | 0.0 | % | 0.1 | % | ||||||||
Income before income taxes |
12.4 | % | 10.7 | % | 12.4 | % | 12.3 | % | ||||||||
Income tax provision |
1.1 | % | 1.0 | % | 1.3 | % | 1.2 | % | ||||||||
Net income |
11.3 | % | 9.7 | % | 11.1 | % | 11.1 | % | ||||||||
Comparison of the Three and Nine Month Periods Ended March 31, 2011 and 2010
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
March 31, | March 31, | |||||||||||||||||||||||
2011-2010 | 2011-2010 | |||||||||||||||||||||||
2011 | 2010 | % Change | 2011 | 2010 | % Change | |||||||||||||||||||
Revenue |
$ | 203,667 | $ | 166,029 | 23 | % | $ | 608,218 | $ | 505,732 | 20 | % | ||||||||||||
Cost of revenue |
$ | 70,738 | $ | 59,659 | 19 | % | $ | 212,405 | $ | 180,400 | 18 | % | ||||||||||||
% of revenue |
34.7 | % | 35.9 | % | 34.9 | % | 35.7 | % |
Revenue
We generate revenue primarily from the sale and shipment of customized manufactured products,
as well as the sale of certain electronic services, such as website design and hosting and email
marketing services. We also generate a small percentage of our revenue from third-party offerings,
which represented less than 1% of total revenue for the three and nine months ended March 31, 2011.
Revenue in each second fiscal quarter includes a favorable impact from increased seasonal product
sales.
To understand our revenue trends, we monitor several key metrics including:
| Website sessions. A session is measured each time a computer user visits a Vistaprint website from his or her Internet browser. We measure this data to understand the volume and source of traffic to our websites. Typically, we use various advertising campaigns to increase the number and quality of shoppers entering our websites. The number of website sessions varies from month to month depending on variables such as product campaigns and advertising channels used. | ||
| Conversion rates. The conversion rate is the number of customer orders divided by the total number of sessions during a specific period of time. Typically, we strive to increase conversion rates of customers entering our websites in order to increase the number of customer orders generated. Conversion rates have fluctuated in the past and we anticipate that they will fluctuate in the future due to, among other factors, the type of advertising campaigns and marketing channels used. | ||
| Average order value. Average order value is total bookings, which represents the value of total customer orders received on our websites, for a given period of time divided by the total number of customer orders recorded during that same period of time. We seek to increase average order value as a means of increasing revenue. Average order values have fluctuated in the past and we anticipate that they will fluctuate in the future depending upon the type of products promoted during a period and promotional discounts offered. For example, among other things, seasonal product offerings, such as holiday cards, can cause changes in average order values. |
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We believe the analysis of these metrics provides us with important information on customer
buying behavior, advertising campaign effectiveness and the resulting impact on overall revenue
trends and profitability. While we continually seek and test ways to increase revenue, we also
attempt to increase the number of customer acquisitions and to grow profits. As a result,
fluctuations in these metrics are usual and expected. Because changes in any one of these metrics
may be offset by changes in another metric, no single factor is determinative of our revenue and
profitability trends and we assess them together to understand their overall impact on revenue and
profitability.
Total revenue for the three months ended March 31, 2011 increased 23% to $203.7 million
compared to the three months ended March 31, 2010, due to increases in sales across our product and
service offerings, as well as across all geographies. The overall growth during this period was
driven by increases in conversion rates, which grew by 140 basis points to 7.3%, and average order
value, which grew by 3.6% to $36.03. These increases were partially offset by a decrease in website
sessions, which declined by 3.1% to 79.4 million. In addition, the weaker U.S. dollar positively
impacted our revenue growth by an estimated 110 basis points in the three months ended March 31,
2011, as compared to the three months ended March 31, 2010.
Bookings from repeat customers accounted for 68% of total bookings for the three months ended
March 31, 2011 as compared to 67% of total bookings for the three months ended March 31, 2010.
Total revenue for the nine months ended March 31, 2011 increased 20% to $608.2 million
compared to the nine months ended March 31, 2010, due to increases in sales across our product and
service offerings, as well as across all geographies. The overall growth during this period was
driven by increases in website sessions, which grew by 3.8% to 236.0 million, conversion rates,
which grew by 100 basis points to 7.3%, and average order value, which grew by 1.1% to $35.70.
These increases were partially offset by a decrease in referral fee revenue from membership
discount programs, which was $5.2 million for the nine months ended March 31, 2010, but zero for
the nine months ended March 31, 2011 as a result of the termination in the second quarter of fiscal
2010 of the third-party membership discount programs previously offered on our websites. In
addition, the stronger U.S. dollar negatively impacted our revenue growth by an estimated 140 basis
points in the nine months ended March 31, 2011, as compared to the nine months ended March 31,
2010.
Bookings from repeat customers accounted for 67% of total bookings for the nine months ended
March 31, 2011 as compared to 66% of total bookings for the nine months ended March 31, 2010.
Total revenue by geographic segment for the three and nine months ended March 31, 2011 and
2010 are shown in the following tables:
Currency | Constant- | ||||||||||||||||||||
Three Months Ended | Impact: | Currency | |||||||||||||||||||
March 31, | (Favorable) | Revenue | |||||||||||||||||||
2011 | 2010 | % Change | / Unfavorable | Growth(1) | |||||||||||||||||
North America |
$ | 115,516 | $ | 95,411 | 21% | | % | 21% | |||||||||||||
Europe |
77,675 | 63,630 | 22% | (1) | % | 21% | |||||||||||||||
Asia Pacific |
10,476 | 6,988 | 50% | (15) | % | 35% | |||||||||||||||
$ | 203,667 | $ | 166,029 | 23% | (1) | % | 22% | ||||||||||||||
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Currency | Constant- | ||||||||||||||||||||
Nine Months Ended | Impact: | Currency | |||||||||||||||||||
March 31, | (Favorable) | Revenue | |||||||||||||||||||
2011 | 2010 | % Change | / Unfavorable | Growth(1) | |||||||||||||||||
North America (2) |
$ | 333,525 | $ | 283,299 | 18% | (1) | % | 17% | |||||||||||||
Europe |
243,949 | 202,114 | 21% | 5 | % | 26% | |||||||||||||||
Asia Pacific |
30,744 | 20,319 | 51% | (13) | % | 38% | |||||||||||||||
$ | 608,218 | $ | 505,732 | 20% | 2 | % | 22% | ||||||||||||||
(1) | Constant-currency revenue growth, a non-GAAP financial measure, measures the change in total revenue between current and prior year periods at constant-currency exchange rates by translating all non-U.S. dollar denominated revenue generated in the current period using the prior year periods average exchange rate for each currency to the U.S. dollar. We have provided this non-GAAP financial measure because we believe it provides meaningful information regarding our results on a consistent and comparable basis for the periods presented. Management uses this non-GAAP financial measure, in addition to GAAP financial measures, to evaluate our operating results. This non-GAAP financial measure should be considered supplemental to and not a substitute for our reported financial results prepared in accordance with GAAP. | |
(2) | Includes referral fee revenue from membership discount programs of $0.0 million and $5.2 million for the nine months ended March 31, 2011 and 2010, respectively. |
Cost of revenue
Cost of revenue includes materials used to manufacture our products, payroll and related
expenses for production personnel, depreciation of assets used in the production process and in
support of electronic service offerings, shipping and postage costs, third-party production costs,
and other miscellaneous related costs of products sold by us.
The increase in cost of revenue for the three and nine months ended March 31, 2011 compared to
the same periods in fiscal 2010 was primarily attributable to the increased volume of product
shipments during the current year period. The decrease in the cost of revenue as a percentage of
total revenue for the three and nine months ended March 31, 2011 compared to the same periods in
fiscal 2010 was primarily attributable to favorable shifts in product mix including an increase in
sales of digital services, improved pricing in relation to shipping costs, and productivity
improvements at our manufacturing locations. These improvements were partially offset by lower
overhead absorption resulting from the opening of our new production facility in Deer Park,
Australia in June 2010.
The strengthening of the Canadian dollar, which negatively impacted the raw material and labor
costs of our Canadian production operations, was offset by the positive impact on revenue from the
change in European currencies, which benefited cost of revenue as a percentage of revenue.
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
March 31, | March 31, | |||||||||||||||||||||||
2011-2010 | 2011-2010 | |||||||||||||||||||||||
2011 | 2010 | % Change | 2011 | 2010 | % Change | |||||||||||||||||||
Technology and development expense |
$ | 22,766 | $ | 19,601 | 16 | % | $ | 68,260 | $ | 57,770 | 18 | % | ||||||||||||
% of revenue |
11.2 | % | 11.8 | % | 11.2 | % | 11.4 | % | ||||||||||||||||
Marketing and selling expense |
$ | 66,602 | $ | 54,530 | 22 | % | $ | 200,546 | $ | 161,076 | 25 | % | ||||||||||||
% of revenue |
32.7 | % | 32.9 | % | 33.0 | % | 31.9 | % | ||||||||||||||||
General and administrative expense |
$ | 17,998 | $ | 14,427 | 25 | % | $ | 50,926 | $ | 45,543 | 12 | % | ||||||||||||
% of revenue |
8.8 | % | 8.7 | % | 8.4 | % | 8.6 | % |
Technology and development expense
Technology and development expense consists primarily of payroll and related expenses for
software and manufacturing engineering, content development, amortization of capitalized software
and website development costs, information technology operations, hosting of our websites, asset
depreciation, patent amortization, legal settlements in connection with patent-related claims, and
miscellaneous technology infrastructure-related costs. Depreciation expense for
information technology equipment that directly supports the delivery of our electronic
services products is included in cost of revenue.
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The increase in our technology and development expenses of $3.2 million and $10.5 million for
the three and nine months ended March 31, 2011, respectively, as compared to the same periods in
fiscal 2010 was primarily due to increased payroll and facility-related costs of $2.4 million and
$6.2 million, respectively, associated with increased headcount in our technology development and
information technology support organizations. At March 31, 2011, we employed 413 employees in these
organizations compared to 356 employees at March 31, 2010. In addition, during the three and nine
months ended March 31, 2011, we continued to invest in our website infrastructure, which resulted
in increased depreciation, hosting services expense and other website related expenses of $0.5
million and $4.0 million, respectively, as compared to the same periods in fiscal 2010. The
increase in other website related expenses during the nine months ended March 31, 2011 includes the
impact of a legal settlement of a patent claim, offset by expenses in the prior year related to the
abandonment of certain acquired intangible assets recorded in conjunction with the Soft Sight
acquisition.
Marketing and selling expense
Marketing and selling expense consists primarily of advertising and promotional costs, payroll
and related expenses for our employees engaged in marketing, sales, customer support and public
relations activities; and third-party payment processor and credit card fees.
The increase in our marketing and selling expenses of $12.1 million for the three months ended
March 31, 2011 as compared to the same period in fiscal 2010 was driven primarily by increases of
$10.2 million in advertising costs and commissions related to new customer acquisition and costs of
promotions targeted at our existing customer base, and increases in payroll and facility-related
costs of $2.6 million. The increase in our marketing and selling expenses of $39.5 million for the
nine months ended March 31, 2011 as compared to the same period in fiscal 2010 was driven primarily
by increases of $30.0 million in advertising costs and commissions related to new customer
acquisition and costs of promotions targeted at our existing customer base, and increases in
payroll and facility-related costs of $8.8 million. We continued to expand our marketing
organization and our customer service, sales and design support centers and at March 31, 2011, we
employed 967 employees in these organizations compared to 835 employees at March 31, 2010. In
addition, payment processing fees paid to third parties increased by $0.7 million and $2.4 million
during the three and nine months ended March 31, 2011, respectively, as compared to the same
periods in fiscal 2010 due primarily to increased order volumes. These increases were partially
offset by a non-recurring charge of $1.5 million related to indirect taxes that is included in the
three and nine month periods ended March 31, 2010.
General and administrative expense
General and administrative expense consists primarily of general corporate costs, including
third-party professional fees and payroll and related expenses of employees involved in executive
management, finance, legal, and human resources. Third-party professional fees include finance,
legal, human resources, and insurance.
The increase in our general and administrative expenses of $3.6 million and $7.4 million for
the three and nine months ended March 31, 2011, respectively, as compared to the same periods in
fiscal 2010 was primarily due to increased payroll and facility-related costs of $3.3 million and
$9.3 million, respectively, resulting from the continued investment in our executive management,
finance, legal and human resource organizations to support our expansion and growth. At March 31,
2011, we employed 232 employees in these organizations compared to 185 employees at March 31, 2010.
The increase for the nine months ended March 31, 2011 was offset by decreased third-party
professional fees of $2.5 million as compared to the same period in fiscal 2010 due primarily to
the completion of our change of domicile to the Netherlands in fiscal 2010 and decreased costs of
ongoing litigation and other general and administrative activities.
Other expense, net
Other expense, net, which primarily consists of gains and losses from currency transactions or
revaluation, increased to $0.5 million for the three months ended March 31, 2011 as compared to
$0.0 million for the same period in fiscal 2010. Other expense, net, increased to $1.0 million for
the nine months ended March 31, 2011 as compared to $0.6 million for the same period in fiscal
2010. Increases in other expense, net are due to currency exchange rate fluctuations on
transactions or balances denominated in currencies other than the functional currency of our
subsidiaries.
Interest expense
Interest expense, which consists of interest and penalties, if any, paid to financial
institutions on outstanding balances on our credit facilities, decreased to $0.0 million for the
three months ended March 31, 2011 as compared to $0.1 million for the same period in fiscal 2010.
Interest expense decreased to $0.2 million for the nine months ended March 31, 2011 as
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compared to
$0.7 million for the same period in fiscal 2010. The decrease in interest expense from the
prior-year periods was due to a decrease in the outstanding principal on our bank loans including
payment of the remaining balance of our amended Canadian credit agreement.
Income tax provision
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Income tax provision |
$ | 2,243 | $ | 1,621 | $ | 7,458 | $ | 5,861 | ||||||||
Effective tax rate |
8.9 | % | 9.1 | % | 9.9 | % | 9.5 | % |
Income tax expense increased to $2.2 million for the three months ended March 31, 2011 as
compared to $1.6 million for the same period in fiscal 2010. Income tax expense increased to $7.5
million for the nine months ended March 31, 2011 as compared to $5.9 million for the same period in
fiscal 2010. The changes in the effective tax rate for the three and nine months ended March 31,
2011 as compared to the same periods in fiscal 2010 is primarily attributable to changes in our
geographic earnings mix, offset favorably by the retroactive renewal of the U.S. federal research
and development tax credit as a result of the Tax Relief, Unemployment Insurance Reauthorization,
and Job Creation Act of 2010 enacted in the quarter ended December 31, 2010.
Liquidity and Capital Resources
Consolidated Statements of Cash Flows Data:
Nine Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Capital expenditures |
$ | (29,224 | ) | $ | (73,828 | ) | ||
Capitalization of software and website development costs |
(4,656 | ) | (4,804 | ) | ||||
Business acquisition, net of cash acquired |
| (6,496 | ) | |||||
Depreciation and amortization |
37,701 | 32,702 | ||||||
Cash flows provided by operating activities |
126,327 | 123,170 | ||||||
Cash flows used in investing activities |
(24,458 | ) | (94,655 | ) | ||||
Cash flows (used in) provided by financing activities |
(59,507 | ) | 404 |
At March 31, 2011, we had $208.1 million of cash and cash equivalents primarily consisting of
money market funds. During the three and nine months ended March 31, 2011, we financed our
operations through internally generated cash flows from operations. We believe that our available
cash and cash flows generated from operations will be sufficient to satisfy our working capital and
capital expenditure requirements for the foreseeable future.
We currently plan to spend approximately $40 million to $45 million on capital expenditures in
fiscal 2011, which represents a decrease of 56% to 61% from fiscal 2010 primarily due to the
expansion of our Windsor production facility and construction of our Australian production facility
in the prior year. We may also use our cash, cash equivalents, and cash flow generated from
operations to repurchase our ordinary shares pursuant to our publicly announced share repurchase
program, of which there remains $103.1 million approved for repurchase.
Operating Activities. Cash provided by operating activities in the nine months ended March 31,
2011 was $126.3 million and consisted of net income of $67.7 million, positive adjustments for
non-cash items of $54.2 million and $4.4 million provided by working capital and other activities.
Adjustments for non-cash items included $37.7 million of depreciation and amortization expense on
property, plant, and equipment and software and website development costs, $16.7 million of
share-based compensation expense, $1.0 million of deferred taxes, and $0.3 million of other
adjustments, offset by $1.6 million of tax benefits derived from share-based compensation awards.
The change in working capital and other activities primarily consisted of an increase of $5.2
million in accrued expenses and other liabilities, and a decrease of $3.2 million in prepaid
expenses and other assets, offset by an increase of $1.9 million in accounts receivable, an
increase in inventory of $1.7 million, and a decrease of $0.4 million in accounts payable. The
increase in accrued expenses and other
liabilities was driven primarily by increases in accrued payroll and benefit costs, accrued
marketing expenses and deferred revenue, offset by a decrease in accrued professional costs.
Cash provided by operating activities in the nine months ended March 31, 2010 was $123.2
million and consisted of net income of $56.1 million, positive adjustments for non-cash items of
$45.8 million and $21.3 million provided by working
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capital and other activities. Adjustments for
non-cash items included $32.7 million of depreciation and amortization expense on property and
equipment, and software and website development costs, $16.9 million of share-based compensation
expense, and $0.9 million for the write-off of acquired intangible assets, offset in part by $4.9
million of tax benefits derived from share-based compensation awards. The change in working capital
and other activities, excluding the impact of an acquisition, primarily consisted of an increase of
$20.0 million in accrued expenses and other liabilities, an increase of $6.0 million in accounts
payable, and a decrease in prepaid expenses and other assets of $1.5 million, offset by an increase
in accounts receivable of $4.6 million and an increase in inventory of $1.7 million. The increase
in accrued expenses and other liabilities is driven primarily by increases in accrued payroll and
benefit costs, increases in tax liabilities including value-added and other indirect taxes related
to tax to be remitted on sales, increases in accrued marketing expenses, and increases in accrued
shipping costs.
Investing Activities. Cash used in investing activities in the nine months ended March 31,
2011 of $24.5 million consisted primarily of capital expenditures of $29.2 million, capitalized
software and website development costs of $4.7 million, and purchases of intangible assets of $0.1
million, offset by $9.6 million of investment maturities and redemptions. Capital expenditures of
$14.2 million were related to the purchase of manufacturing and automation equipment for our
production facilities, $8.4 million were related to the purchase or expansion of land and
facilities, and $6.6 million were related to purchases of other assets including information
technology infrastructure and office equipment.
Cash used in investing activities in the nine months ended March 31, 2010 of $94.7 million
consisted primarily of capital expenditures of $73.8 million, purchases of marketable securities of
$9.8 million, the purchase of Soft Sight, net of cash acquired, of $6.5 million, capitalized
software and website development costs of $4.8 million, partially offset by proceeds from sales of
equipment and maturities of marketable securities totaling $0.3 million. Capital expenditures of
$43.7 million were related to the purchase of land and facilities, $19.3 million were related to
the purchase of manufacturing and automation equipment for our production facilities, and $10.8
million were related to purchases of other assets including information technology infrastructure
and office equipment.
Financing Activities. Cash used in financing activities in the nine months ended March 31,
2011 of $59.5 million was primarily attributable to the use of $56.9 million for the repurchase of
our ordinary shares, payments in connection with our loan facilities of $5.2 million, which
included the final balloon payment on our amended Canadian credit agreement, and $4.1 million to
pay minimum withholding taxes related to ordinary shares withheld on vested RSUs. These uses were
partially offset by proceeds from the issuance of ordinary shares pursuant to share option
exercises of $5.2 million and tax benefits derived from share-based compensation awards of $1.6
million.
Cash provided by financing activities in the nine months ended March 31, 2010 of $0.4 million
was primarily attributable to the issuance of ordinary shares pursuant to share option exercises of
$13.4 million and tax benefits derived from share-based compensation awards of $4.9 million. These
cash inflows were offset by payments in connection with our loan facilities of $13.5 million,
including payment of the remaining principal balance of the euro revolving credit agreement in the
Companys Dutch subsidiary in the amount of $5.9 million and the final balloon payment on our
original Canadian credit facility of $6.0 million. We also used $4.4 million to pay minimum
withholding taxes related to ordinary shares withheld on vested RSUs.
Contractual Obligations
Contractual obligations at March 31, 2011 were as follows:
Payments Due by Period | ||||||||||||||||||||
Less | More | |||||||||||||||||||
than 1 | than 5 | |||||||||||||||||||
Total | year | 1-3 years | 3-5 years | years | ||||||||||||||||
Operating lease obligations |
$ | 43,696 | $ | 8,298 | $ | 14,603 | $ | 13,464 | $ | 7,331 | ||||||||||
Total |
$ | 43,696 | $ | 8,298 | $ | 14,603 | $ | 13,464 | $ | 7,331 | ||||||||||
Long-Term Debt. There are no remaining long-term debt obligations outstanding as of March
31, 2011.
Operating Leases. We rent office space under operating leases expiring on various dates
through 2018. We recognize rent expense on our operating leases that include free rent periods and
scheduled rent payments on a straight-line basis from the commencement of the lease.
Purchase Commitments. At March 31, 2011, we had unrecorded commitments under contract for site
development and construction of a Jamaican customer service, sales and design support center of
approximately $1.8 million, and to purchase
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production and automation equipment for our Canadian,
Australian, and Netherlands production facilities of approximately $1.1 million, $0.6 million, and
$0.4 million, respectively.
Recently Issued and Adopted Accounting Pronouncements
For a discussion of recently issued and adopted accounting pronouncements refer to Note 2
Summary of Significant Accounting Policies in the accompanying notes to the condensed
consolidated financial statements included in Item 1 of Part I of this Report.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with accounting principles generally
accepted in the United States (GAAP). To apply these principles, we must make estimates and
judgments that affect our reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. In some instances, we reasonably could
have used different accounting estimates and, in other instances, changes in the accounting
estimates are reasonably likely to occur from period to period. Accordingly, actual results could
differ significantly from our estimates. To the extent that there are material differences between
these estimates and actual results, our financial condition or results of operations will be
affected. We base our estimates and judgments on historical experience and other assumptions that
we believe to be reasonable at the time under the circumstances, and we evaluate these estimates
and judgments on an ongoing basis. We refer to accounting estimates and judgments of this type as
critical accounting policies and estimates. Management believes there have been no material changes
during the nine months ended March 31, 2011 to the critical accounting policies reported in the
Managements Discussion and Analysis of Financial Condition and Results of Operations section of
our Annual Report on Form 10-K filed with the Securities and Exchange Commission on August 27,
2010.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk. Our exposure to interest rate risk relates primarily to our cash, cash
equivalents and marketable securities that at March 31, 2011 consisted of money market funds and a
long-term investment in a municipal auction rate security. These cash equivalents and marketable
securities are held for working capital purposes and we do not enter into investments for trading
or speculative purposes. Due to the nature of our investments, we do not believe we have a material
exposure to interest rate risk.
Currency Exchange Rate Risk. As we conduct business in multiple currencies through our
worldwide operations but report our financial results in U.S. dollars, we are affected by
fluctuations in exchange rates of such currencies versus the U.S. dollar as follows:
| Translation of our non-U.S. dollar revenues and expenses: Revenue and related expenses generated in currencies other than the U.S. dollar could result in higher or lower net income when, upon consolidation, those transactions are translated to U.S. dollars. When the value or timing of revenue and expenses in a given currency are materially different, we may be exposed to significant impacts on our net income. | |
| Remeasurement of monetary assets and liabilities: Transaction gains and losses generated from remeasurement of monetary assets and liabilities denominated in currencies other than the functional currency of a subsidiary are included in other expense, net on the consolidated statements of income. Our subsidiaries have intercompany accounts that are eliminated in consolidation and cash and cash equivalents denominated in various currencies that expose us to fluctuations in currency exchange rates. We considered the historical trends in currency exchange rates. A hypothetical 10% change in currency exchange rates was applied to total net monetary assets denominated in currencies other than the functional currencies at the balance sheet dates to compute the impact these changes would have had on our income before taxes in the near term. A hypothetical decrease in exchange rates of 10% against the functional currency of our subsidiaries would have resulted in an increase of $1.0 million and a decrease of $1.2 million on our income before income taxes for the three months ended March 31, 2011 and 2010, respectively. | |
| Translation of our non-U.S. dollar assets and liabilities: Each of our subsidiaries translates its assets and liabilities to U.S. dollars at current rates of exchange in effect at the balance sheet date. The resulting gains and losses from translation are included as a component of accumulated other comprehensive income (loss) on the balance sheet. Fluctuations in exchange rates can materially impact the carrying value of our assets and liabilities. |
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Foreign currency transaction losses included in other expense, net for the three months ended
March 31, 2011 and 2010, were $0.5 million and $0.0 million, respectively. Foreign currency
transaction losses included in other expense, net were $1.0 million and $0.6 million for the nine
months ended March 31, 2011 and 2010, respectively.
ITEM 4. | CONTROLS AND PROCEDURES |
Our management, with the participation of our chief executive officer and our chief financial
officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31,
2011. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, means controls and other procedures of a company that
are designed to ensure that information required to be disclosed by a company in the reports that
it files or submits under the Securities Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits under the Securities
Exchange Act is accumulated and communicated to the companys management, including its principal
executive and principal financial officers, as appropriate to allow timely decisions regarding
required disclosure. Management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving their objectives and
management necessarily applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on the evaluation of our disclosure controls and procedures as of
March 31, 2011, our chief executive officer and chief financial officer concluded that, as of such
date, our disclosure controls and procedures were effective at the reasonable assurance level.
There were no changes in our internal control over financial reporting (as defined in the
SECs rules) during the fiscal quarter ended March 31, 2011 that materially affect, or are
reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
The information required by this item is incorporated by reference to the information set
forth in Note 9 Commitments and Contingencies in the accompanying notes to the condensed
consolidated financial statements included in Item 1 of Part I of this Report.
ITEM 1A. | RISK FACTORS |
We caution you that our actual future results may vary materially from those contained in
forward looking statements that we make in this Report and other filings with the Securities and
Exchange Commission, press releases, communications with investors and oral statements due to the
following important factors, among others. Our forward-looking statements in this Report and in any
other public statements we make may turn out to be wrong. These statements can be affected by,
among other things, inaccurate assumptions we might make or by known or unknown risks and
uncertainties or risks we currently deem immaterial. Many factors mentioned in the discussion below
will be important in determining future results. Consequently, no forward-looking statement can be
guaranteed. We undertake no obligation to update any forward-looking statements, whether as a
result of new information, future events or otherwise.
Risks Related to Our Business
If we are unable to attract customers in a cost-effective manner, our business and results of
operations could be harmed.
Our success depends on our ability to attract customers in a cost-effective manner. We rely on
a variety of methods to draw visitors to our websites and promote our products and services, such
as purchased search results from online search engines, e-mail, telesales, direct mail, and
advertising banners and other links on third parties websites directing customers to our websites.
In addition, we rely heavily upon word of mouth customer referrals. If we are unable to develop or
maintain effective means of reaching micro businesses and home and family customers, if the costs
of attracting customers using these methods significantly increase, or if we are unable to develop
new cost-effective means to obtain customers, then our ability to attract new and repeat customers
would be harmed, traffic to our websites would be reduced, and our business and results of
operations would be harmed.
Purchasers of micro business marketing products and services, including graphic design and
customized printing, may not choose to shop online, which would prevent us from acquiring new
customers that are necessary to the success of our business.
The online market for micro business marketing products and services is less developed than
the online market for other business and home and family products. If this market does not gain or
maintain widespread acceptance, our business may suffer. Our success will depend in part on our
ability to attract customers who have historically purchased products and services we offer through
traditional printing operations and graphic design businesses or who have produced using
self-service alternatives. Furthermore, we may have to incur significantly higher and more
sustained advertising and promotional expenditures or price our services and products more
competitively than we currently anticipate in order to attract additional online consumers to our
websites and convert them into purchasing customers. Specific factors that could prevent
prospective customers from purchasing from us include:
| concerns about buying graphic design services and marketing products without face-to-face interaction with sales personnel; | ||
| the inability to physically handle and examine product samples; | ||
| delivery time associated with Internet orders; | ||
| concerns about the security of online transactions and the privacy of personal information; | ||
| delayed shipments or shipments of incorrect or damaged products; and | ||
| the inconvenience associated with returning or exchanging purchased items. |
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We may not succeed in promoting, strengthening and continuing to establish the Vistaprint brand,
which would prevent us from acquiring new customers and increasing revenues.
A primary component of our business strategy is the continued promotion and strengthening of
the Vistaprint brand in order to attract new and repeat customers to our websites. In addition to
the challenges posed by establishing and promoting our brand among the many businesses that promote
products and services on the Internet, we face significant competition from graphic design and
printing companies marketing to micro businesses who also seek to establish strong brands. If we
are unable to successfully promote the Vistaprint brand, we may fail to increase our revenues.
Customer awareness of our brand and its perceived value depend largely on the success of our
marketing efforts and our ability to provide a consistent, high-quality customer experience. To
promote our brand, we have incurred and will continue to incur substantial expenses related to
advertising and other marketing efforts. We may choose to increase our branding expense materially,
but we cannot be sure that this investment will be profitable. Underperformance of significant
future branding efforts could materially damage our financial results.
A component of our brand promotion strategy is establishing a relationship of trust with our
customers by providing a high-quality customer experience. In order to provide a high-quality
customer experience, we have invested and will continue to invest substantial amounts of resources
in our website development, design and technology, graphic design operations, production
operations, and customer service operations. Our ability to provide a high-quality customer
experience is also dependent, in large part, on external factors over which we may have little or
no control, including the reliability and performance of our suppliers, third-party carriers and
communication infrastructure providers. If we are unable to provide customers with a high-quality
customer experience for any reason, our reputation would be harmed, and our efforts to develop
Vistaprint as a trusted brand would be adversely impacted. The failure of our brand promotion
activities could adversely affect our ability to attract new customers and maintain customer
relationships, and, as a result, substantially harm our business and results of operations.
Our quarterly financial results will often fluctuate, which may lead to volatility in our share
price.
Our revenues and operating results often vary significantly from quarter to quarter due to a
number of factors, some of which are inherent in our business strategies but many of which are
outside of our control. In particular, we often make additional discretionary investments in line
with our stated financial strategy of targeting annual, rather than quarterly, EPS objectives,
which can lead to fluctuations in our quarterly results. For example, if our earnings during the
first two quarters of our fiscal year are higher than expected, we will often increase our
investments in our business in the second half of the fiscal year, which may lead to earnings that
are lower than our investors may expect for that period. Other factors that could cause our
quarterly revenue and operating results to fluctuate or result in earnings that are lower than our
guidance, or both, include among others:
| seasonality-driven or other variations in the demand for our products and services; | ||
| currency fluctuations, which affect our revenues and costs; | ||
| our ability to attract visitors to our websites and convert those visitors into customers; | ||
| our ability to retain customers and generate repeat purchases; | ||
| business and consumer preferences for our products and services; | ||
| shifts in product mix toward less profitable products; | ||
| our ability to manage our production and fulfillment operations; | ||
| costs to produce our products and provide our services, including the effects of inflation; | ||
| our pricing and marketing strategies and those of our competitors; | ||
| investments in our business to generate or support revenues and operations in future periods, such as marketing, engineering or consulting spend in a current period for revenue growth or support in future periods; | ||
| improvements in the quality, cost and convenience of desktop printing; |
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| costs of expanding or enhancing our technology or websites; | ||
| compensation expense and charges related to agreements entered into with our executives and employees; | ||
| costs and charges resulting from litigation; and | ||
| a significant increase in credits, beyond our estimated allowances, for customers who are not satisfied with our products. |
We base our operating expense budgets in part on expected revenue trends. A portion of our
expenses, such as office leases and personnel costs, are relatively fixed, and we may be unable to
adjust spending quickly enough to offset any revenue shortfall. Accordingly, any shortfall in
revenue may cause significant variation in operating results in any quarter. Based on the factors
cited above, among others, we believe that quarter-to-quarter comparisons of our operating results
may not be a good indication of our future performance. Our operating results may sometimes be
below the expectations of public market analysts and investors, in which case the price of our
ordinary shares will likely fall.
Seasonal fluctuations in our business place a strain on our operations and resources.
Our second fiscal quarter includes the majority of the holiday shopping season and has become
our strongest quarter for sales of home and family products such as holiday cards, calendars and
personalized gifts. In the fiscal year ended June 30, 2010, sales during our second fiscal quarter
accounted for more of our revenue and earnings than any other quarter, and we believe our second
fiscal quarter is likely to continue to account for a disproportionate amount of our revenue and
earnings for the foreseeable future. In anticipation of increased sales activity during our second
fiscal quarter holiday season, we typically incur significant additional capacity related expenses
each year to meet our seasonal needs, including facility expansions, equipment purchases and
increases in the number of temporary and permanent employees. Lower than expected sales during the
second quarter would likely have a disproportionately large impact on our operating results and
financial condition for the full fiscal year. If we are unable to accurately forecast and respond
to seasonality in our business, our business and results of operations may be materially harmed.
A significant portion of our revenues and operations are transacted in currencies other than the
U.S. dollar, our reporting currency. We therefore have currency exchange risk.
We are exposed to fluctuations in currency exchange rates that may impact items such as the
translation of our revenues and expenses, remeasurement of our intercompany balances, and the value
of our cash and cash equivalents denominated in currencies other than the U.S. dollar. For example,
when currency exchange movements are unfavorable to our business, the U.S. dollar equivalent of our
revenue and operating income recorded in other currencies is diminished. As we have expanded and
continue to expand our revenues and operations throughout the world and to additional currencies,
our exposure to currency exchange rate fluctuations has increased and we expect will continue to
increase. Our revenue and results of operations may differ materially from expectations as a result
of currency exchange rate fluctuations.
If we are unable to market and sell products and services beyond our existing target markets and
develop new products and services to attract new customers, our results of operations may suffer.
We have developed products and services and implemented marketing strategies designed to
attract micro business owners and consumers to our websites and encourage them to purchase our
products and services. We believe we need to address additional markets and attract new customers
to further grow our business. To access new markets and customers, we expect that we will need to
develop, market and sell new products and services, expand our marketing and sales channels, expand
our business and operations geographically by introducing localized websites in different
countries, and develop new strategic relationships, such as co-branded or strategic partner-branded
websites and retail in-store offerings. Any failure in these areas could harm our business,
financial condition and results of operations.
If we are unable to manage our expected growth and expand our operations successfully, our
reputation would be damaged and our business and results of operations would be harmed.
In recent years, our number of employees has grown rapidly, and within the last year we have
added new production facilities and offices in diverse geographies, including Australia, Germany,
Hong Kong and India. Our growth, combined with the geographical separation of our operations, has
placed, and will continue to place, a strain on our management, administrative and operational
infrastructure. Our ability to manage our operations and anticipated growth will require us to
continue to refine our operational, financial and management controls, human resource
policies, reporting systems and
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procedures in the locations in which we operate. We expect the
number of countries and facilities from which we operate to continue to increase in the future.
We may not be able to implement improvements to our management information and control systems
in an efficient or timely manner and may discover deficiencies in existing systems and controls. If
we are unable to manage expected future expansion, our ability to provide a high-quality customer
experience could be harmed, which would damage our reputation and brand and substantially harm our
business and results of operations.
If we are unable to manage the challenges associated with our international operations, the growth
of our business could be negatively impacted.
We operate production facilities or offices in Australia, Bermuda, Canada, France, Germany,
Hong Kong, India, Jamaica, the Netherlands, Spain, Switzerland, Tunisia and the United States. We
also have 24 localized websites to serve various geographic markets. We are subject to a number of
risks and challenges that specifically relate to our international operations. These risks and
challenges include, among others:
| difficulty managing operations in, and communications among, multiple locations and time zones; | ||
| local regulations that may restrict or impair our ability to conduct our business as planned; | ||
| protectionist laws and business practices that favor local producers and service providers; | ||
| interpretation of complex tax laws, treaties and regulations that could expose us to unanticipated taxes; | ||
| failure to properly understand and develop graphic design content and product formats appropriate for local tastes; | ||
| disruptions caused by political and social instability that may occur in some countries; | ||
| disruptions or cessation of important components of our international supply chain; | ||
| restrictions imposed by local labor practices and laws on our business and operations; and | ||
| failure of local laws to provide a sufficient degree of protection against infringement of our intellectual property. |
Our international operations may not be successful if we are unable to meet and overcome these
challenges, which could limit the growth of our business and may have an adverse effect on our
business and operating results.
We face risks related to interruption of our operations and lack of redundancy.
Our production facilities, websites, transaction processing systems, network infrastructure,
supply chain and customer service operations may be vulnerable to interruptions, and we do not have
redundancies in all cases to carry on these operations in the event of an interruption. Some of the
events that could cause interruptions in our operations or systems are, among others:
| fire, flood, earthquake, hurricane or other natural disaster or extreme weather; | ||
| labor strike, work stoppage or other issue with our workforce; | ||
| political instability or acts of terrorism or war; | ||
| power loss or telecommunication failure; | ||
| undetected errors or design faults in our technology, infrastructure and processes that may cause our websites to fail; and | ||
| inadequate capacity in our systems and infrastructure to cope with periods of high volume and demand, particularly during promotional campaign periods and in the seasonal peak we experience in our second fiscal quarter. |
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In particular, both Bermuda, where substantially all of the computer hardware necessary to
operate our websites is located in a single facility, and Jamaica, the location of most of our
customer service, sales and design support operations, are subject to a high degree of hurricane
risk and extreme weather conditions. In addition, we produce the vast majority of our products
internally and do not have an alternative supplier to supplement our production capacity.
We have not identified alternatives to all of our facilities, systems, supply chains and
infrastructure to serve us in the event of an interruption, and if we were to find alternatives,
they may not be able to meet our requirements on commercially acceptable terms or at all. In
addition, we are dependent in part on third parties for the implementation and maintenance of
certain aspects of our communications and production systems, and because many of the causes of
system interruptions or interruptions of the production process may be outside of our control, we
may not be able to remedy such interruptions in a timely manner, or at all.
Any interruptions that cause any of our websites to be unavailable, reduce our order
fulfillment performance or interfere with our manufacturing, technology or customer service
operations could result in lost revenue, increased costs, negative publicity, damage to our
reputation and brand, and an adverse effect on our business and results of operations. Building
redundancies into our infrastructure, systems and supply chain to mitigate these risks may require
us to commit substantial financial, operational and technical resources, in some cases before the
volume of our business increases with no assurance that our revenues will increase.
We face intense competition.
The markets for small business marketing products and services and home and family custom
products, including the printing and graphic design market, are intensely competitive, highly
fragmented and geographically dispersed, with many existing and potential competitors. We expect
competition for online small business marketing and home and family custom products and services to
increase in the future. The increased use of the Internet for commerce and other technical advances
have allowed traditional providers of these products and services to improve the quality of their
offerings, produce and deliver those products and services more efficiently and reach a broader
purchasing public. Competition may result in price pressure, reduced profit margins and loss of
market share, any of which could substantially harm our business and results of operations. Current
and potential competitors include:
| traditional storefront printing and graphic design companies; | ||
| office superstores, drug store chains, food retailers and other major retailers targeting small business and consumer markets, such as Staples, UPS Stores, Office Depot, Costco, CVS, Schleker, Walgreens, Carrefour and Wal-Mart; | ||
| wholesale printers such as Taylor Corporation and Business Cards Tomorrow; | ||
| other online printing and graphic design companies, many of which provide printed products and services similar to ours, such as Overnight Prints, 123Print, Moo.com and UPrinting for small business marketing products and services; TinyPrints, Invitation Consultants and Fine Stationery for invitations and announcements; | ||
| self-service desktop design and publishing using personal computer software with a laser or inkjet printer and specialty paper; | ||
| other email marketing services companies such as Constant Contact and iContact; | ||
| other website design and hosting companies such as United Internet, Web.com and Network Solutions; | ||
| other suppliers of custom apparel, promotional products and customized gifts, such as Zazzle, Café Press and Customization Mall; | ||
| online photo product companies, such as Kodak Gallery, Snapfish by HP, Shutterfly and Photobox; and | ||
| other Internet firms, such as Google, Yahoo, Amazon, Facebook, MySpace, the Knot and many smaller firms. |
Many of our current and potential competitors have advantages over us, including longer
operating histories, greater brand recognition, more focus on a given sub-set of our business,
existing customer and supplier relationships, or
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significantly greater financial, marketing and
other resources. Many of our competitors currently work together, and additional competitors may do
so in the future through business agreements or acquisitions. For example, Taylor Corporation sells
printed products through office superstores such as Staples and Office Depot.
Some of our competitors that either already have an online presence or are seeking to
establish an online presence may be able to devote substantially more resources to website and
systems development than we can. In addition, larger, more established and better capitalized
entities may acquire, invest or partner with online competitors as use of the Internet and other
online services increases. Competitors may also develop new or enhanced products, technologies or
capabilities that could render many of the products, services and content we offer obsolete or less
competitive, which could harm our business and results of operations.
In addition, we have in the past and may in the future choose to collaborate with certain of
our existing and potential competitors in strategic partnerships that we believe will improve our
competitive position and results of operations, such as through a retail in-store or web-based
collaborative offering. It is possible, however, that such ventures will be unsuccessful and that
our competitive position and results of operations will be adversely affected as a result of such
collaboration.
Failure to meet our customers price expectations would adversely affect our business and results
of operations.
Demand for our products and services is sensitive to price. Changes in our pricing strategies
have had, and are likely to continue to have, a significant impact on our revenues and results of
operations. Many factors can significantly impact our pricing strategies, including the costs of
running our business, such as production, customer acquisition, marketing and personnel costs, our
competitors pricing and marketing strategies, and the effects of inflation. We offer certain free
products and services as a means of attracting customers, and we offer substantial pricing
discounts as a means of encouraging repeat purchases. These free offers and discounts may not
result in an increase in our revenues or the optimization of our profits. If we fail to meet our
customers price expectations, our business and results of operations will suffer.
Failure to protect our network and the confidential information of our customers against security
breaches and to address risks associated with credit card fraud could damage our reputation and
brand and substantially harm our business and results of operations.
Online commerce and communications depend on the secure transmission of confidential
information over public networks. Currently, a majority of our sales are billed to our customers
credit card accounts directly, and we retain our customers credit card information for a period of
time that varies depending on the services we provide to each customer. We rely on encryption and
authentication technology licensed from third parties to effect secure transmission of confidential
information, including credit card numbers. Advances in computer capabilities, new discoveries in
the field of cryptography or other developments may result in a compromise or breach of our network
or the technology that we use to protect our network and our customer transaction data including
credit card information. Any such compromise of our network or our security could damage our
reputation and brand and expose us to losses, litigation and possible liability, which would
substantially harm our business and results of operations. In addition, anyone who is able to
circumvent our security measures could misappropriate our proprietary information or cause
interruptions in our operations. We may need to expend significant resources to protect against
security breaches or to address problems caused by breaches.
In addition, we may be liable for fraudulent credit card transactions conducted on our
websites, such as through the use of stolen credit card numbers. To date, quarterly losses from
credit card fraud have not exceeded 1% of total revenues in any quarter, but we continue to face
the risk of significant losses from this type of fraud. Although we seek to maintain insurance to
cover us against this risk, we cannot be certain that our coverage will be adequate to cover
liabilities actually incurred as a result of such fraud or that insurance will continue to be
available to us on economically reasonable terms, or at all. Our failure to limit fraudulent credit
card transactions could damage our reputation and brand and substantially harm our business and
results of operations.
We depend on search engines to attract a substantial portion of the customers who visit our
websites, and losing these customers would adversely affect our business and results of operations.
Many customers access our websites by clicking through on search results displayed by search
engines such as Google, Bing and Yahoo!. These search engines typically provide two types of search
results, algorithmic and purchased listings. Algorithmic listings cannot be purchased, and instead
are determined and displayed solely by a set of formulas designed by
the search engine. Purchased listings can be purchased by companies and other entities in
order to attract users to their websites. We rely on both algorithmic and purchased listings to
attract and direct a substantial portion of the customers we serve.
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Search engines revise their algorithms from time to time in an attempt to optimize their
search result listings and to maximize the advertising revenue generated by those listings. If the
search engines on which we rely for algorithmic listings modify their algorithms, this could result
in fewer customers clicking through to our websites, requiring us to resort to other more costly
resources to replace this traffic. This could prevent us from maintaining or increasing, or
potentially reduce, our revenues and operating and net income and could harm our business. If one
or more search engines on which we rely for purchased listings modifies or terminates its
relationship with us, our expenses could rise, our revenues could decline, and our business may
suffer. The cost of purchased search listing advertising could increase as demand for these
channels continues to grow quickly, and further increases could have negative effects on our
ability to maintain or increase profitability. In addition, some of our competitors purchase the
term Vistaprint and other terms incorporating our proprietary trademarks from Google and other
search engines as part of their search listing advertising. Courts do not always side with the
trademark owners in cases involving search engines, and Google has refused to prevent companies
from purchasing search results that use the trademark Vistaprint. As a result, we may not be able
to prevent our competitors from advertising to, and directly competing for, customers who search on
the term Vistaprint on search engines.
Various private spam blacklisting and similar entities have in the past, and may in the future,
interfere with our e-mail solicitation, the operation of our websites and our ability to conduct
business.
We depend primarily on e-mail to market to and communicate with our customers. Various private
entities attempt to regulate the use of e-mail for commercial solicitation. These entities often
advocate standards of conduct or practice that significantly exceed current legal requirements and
classify certain e-mail solicitations that comply with current legal requirements as unsolicited
bulk e-mails, or spam. Some of these entities maintain blacklists of companies and individuals,
as well as the websites, Internet service providers and Internet protocol addresses associated with
those companies and individuals, that do not adhere to what the blacklisting entity believes are
appropriate standards of conduct or practices for commercial e-mail solicitations. If a companys
Internet protocol addresses are listed by a blacklisting entity, e-mails sent from those addresses
may be blocked if they are sent to any Internet domain or Internet address that subscribes to the
blacklisting entitys service or purchases its blacklist.
Some of our Internet protocol addresses are currently listed with one or more blacklisting
entities despite our belief that our commercial e-mail solicitations comply with all applicable
laws. In the future, our other Internet protocol addresses may also be listed with one or more
blacklisting entities. We may not be successful in convincing the blacklisting entities to remove
us from their lists. Although the blacklisting we have experienced in the past has not had a
significant impact on our ability to operate our websites, send commercial e-mail solicitations, or
manage or operate our corporate email accounts, it has, from time to time, interfered with our
ability to send operational e-mailssuch as password reminders, invoices and electronically
delivered productsto customers and others, and to send and receive emails to and from our
corporate email accounts. In addition, as a result of being blacklisted, we have had disputes with,
or concerns raised by, various service providers who perform services for us, including co-location
and hosting services, Internet service providers and electronic mail distribution services. We are
currently on certain blacklists and there can be no guarantee that we will not be put on additional
blacklists in the future or that we will succeed in removing ourselves from blacklists.
Blacklisting of this type could interfere with our ability to market our products and services,
communicate with our customers and otherwise operate our websites, and operate and manage our
corporate email accounts, all of which could have a material negative impact on our business and
results of operations.
We may not succeed in cross selling additional products and services to our customers.
We seek to acquire customers based on their interest in one or more of our products and then
offer additional related products to those customers. If our customers are not interested in our
additional products or have an adverse experience with the products they were initially interested
in, the sale of additional products and services to those customers and our ability to increase our
revenue and to improve our results of operations could be adversely affected.
Our customers create products that incorporate images, illustrations and fonts that we license from
third parties, and any loss of the right to use these licensed materials may substantially harm our
business and results of operations.
Many of the images, illustrations, and fonts incorporated in the design products and services
we offer are the copyrighted property of other parties that we use under license agreements. If one
or more of these licenses were terminated, the amount and variety of content available on our
websites would be significantly reduced. In such an event, we could
experience delays in obtaining and introducing substitute materials, and substitute materials
might be available only under less favorable terms or at a higher cost, or may not be available at
all. The termination of one or more of these licenses covering a significant amount of content
could have an adverse effect on our business and results of operations.
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The loss of key personnel or an inability to attract and retain additional personnel could affect
our ability to successfully grow our business.
We are highly dependent upon the continued service and performance of our senior management
team and key technical, marketing and production personnel, and any of our executives may cease
their employment with us at any time with minimal advance notice. The loss of one or more of our
key employees may significantly delay or prevent the achievement of our business objectives. We
face intense competition for qualified individuals from numerous technology, marketing, financial
services, manufacturing and e-commerce companies. We may be unable to attract and retain suitably
qualified individuals, and our failure to do so could have an adverse effect on our ability to
implement our business plan.
Acquisitions may be disruptive to our business.
Our business and our customer base have been built primarily through organic growth. However,
from time to time we may selectively pursue acquisitions of businesses, technologies or services in
order to expand our capabilities, enter new markets, or increase our market share, such as our
acquisition of Soft Sight, Inc. in December 2009. We have limited experience making acquisitions.
Integrating any newly acquired businesses, technologies or services may be expensive and time
consuming. To finance any acquisitions, it may be necessary for us to raise additional funds
through public or private financings. Additional funds may not be available on terms that are
favorable to us, or at all. If we were to raise funds through an equity financing, such a financing
would result in dilution to our shareholders. If we were to raise funds through a debt financing,
such a financing may subject us to covenants restricting the activities we may undertake in the
future. We may be unable to operate any acquired businesses profitably or otherwise implement our
strategy successfully. If we are unable to integrate newly acquired businesses, technologies or
services effectively, our business and results of operations could suffer. The time and expense
associated with finding suitable and compatible businesses, technologies or services to acquire
could also disrupt our ongoing business and divert our managements attention. Acquisitions could
also result in large and immediate write-offs or assumptions of debt and contingent liabilities,
any of which could substantially harm our business and results of operations.
Our business and results of operations may be negatively impacted by general economic and financial
market conditions, and such conditions may increase the other risks that affect our business.
Despite recent signs of economic recovery in some markets, many of the markets in which we
operate are still in an economic downturn that we believe has had and will continue to have a
negative impact on our business. Turmoil in the worlds financial markets materially and adversely
impacted the availability of financing to a wide variety of businesses, including micro businesses,
and the resulting uncertainty led to reductions in capital investments, marketing expenditures,
overall spending levels, future product plans, and sales projections across industries and markets.
These trends could have a material and adverse impact on the demand for our products and services
and our financial results from operations.
The United States government may substantially increase border controls and impose duties or
restrictions on cross-border commerce that may substantially harm our business by impeding our
shipments into the United States from our Canadian manufacturing facility.
For the three and nine months ended March 31, 2011, we derived 54% and 52%, respectively, of
our revenue from sales to customers made through Vistaprint.com, our United States-focused website.
We produce substantially all physical products for our United States customers at our facility in
Windsor, Ontario, and the United States imposes restrictions on shipping goods into the United
States from Canada. The United States also imposes protectionist measures such as customs duties
and tariffs that limit free trade, some of which may apply directly to product categories that
comprise a material portion of our revenues. The customs laws, rules and regulations that we are
required to comply with are complex and subject to unpredictable enforcement and modification. We
have from time to time experienced delays in shipping our manufactured products into the United
States as a result of these restrictions which have, in some instances, resulted in delayed
delivery of orders.
In the future, the United States could impose further border controls and restrictions,
interpret or apply regulations in a manner unfavorable to the importation of products from outside
of the U.S., impose quotas, tariffs or import duties, increase the documentation requirements
applicable to cross border shipments or take other actions that have the effect of restricting the
flow of goods from Canada and other countries to the United States. For example, if there were a
serious threat to U.S.
security, such as war or an attack on the United States, the U.S. government could shut down
the U.S.-Canadian border for an extended period of time, impose policies that would result in
significant Canadian export delays or otherwise disrupt our North American business operations. If
we experienced greater difficulty or delays shipping products into the United States
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or were
foreclosed from doing so, or if our costs and expenses materially increased, our business and
results of operations could be harmed.
We may not be able to protect our intellectual property rights, which may impede our ability to
build brand identity, cause confusion among our customers, damage our reputation and permit others
to practice our patented technology, which could substantially harm our business and results of
operations.
We rely on a combination of patent, trademark, trade secret and copyright law and contractual
restrictions to protect our intellectual property. These protective measures afford only limited
protection. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy aspects of our trademarks, our websites features and functionalities or to obtain and use
information that we consider proprietary, such as the technology used to operate our websites and
our production operations.
As of June 30, 2010, we had 47 issued patents and more than 50 patent applications pending in
the United States and other countries. We intend to continue to pursue patent coverage in the
United States and other countries to the extent we believe such coverage is justified, appropriate,
and cost efficient. There can be no guarantee that any of our pending applications or continuation
patent applications will be granted. In addition, we have in the past and may in the future face
infringement, invalidity, intellectual property ownership or similar claims brought by third
parties with respect to any of our current or future patents. Any such claims, whether or not
successful, could be extremely costly, damage our reputation and brand and substantially harm our
business and results of operations.
Our primary brand is Vistaprint. As of June 30, 2010, we held trademark registrations for
the Vistaprint trademark in 21 jurisdictions, including registrations in our major markets in North
America, Europe, and Asia Pacific.
Our competitors or other entities may adopt names or marks similar to ours, thereby impeding
our ability to build brand identity and possibly leading to customer confusion. There are several
companies that currently incorporate or may incorporate in the future Vista into their company,
product or service names. There could be potential trade name or trademark infringement claims
brought by owners of other registered trademarks or trademarks that incorporate variations of the
term Vistaprint or our other trademarks, and we may institute such claims against other parties.
Any claims or customer confusion related to our trademarks could damage our reputation and brand
and substantially harm our business and results of operations.
Intellectual property disputes and litigation are costly and could cause us to lose our exclusive
rights, subject us to liability or require us to stop some of our business activities.
From time to time, we are or may be involved in lawsuits or disputes in which third parties
claim that we infringe their intellectual property rights or that we improperly obtained or used
their confidential or proprietary information. In addition, from time to time we receive letters
from third parties who claim to have patent rights that cover aspects of the technology that we use
in our business and that the third parties believe we must license in order to continue to use such
technology.
The cost to us of any litigation or other proceeding relating to intellectual property rights,
even if resolved in our favor, could be substantial, and litigation diverts our managements
efforts from managing and growing our business. Potential adversaries may be able to sustain the
costs of complex intellectual property litigation more effectively than we can because they have
substantially greater resources. Uncertainties resulting from any litigation could limit our
ability to continue our operations. If any parties successfully claim that our sale, use,
manufacturing or importation of technologies infringes upon their intellectual property rights, we
might be forced to pay significant damages and attorneys fees, and a court could enjoin us from
performing the infringing activity, which could restrict our ability to use certain technologies
important to the operation of our business.
Alternatively, we may be required to, or decide to, enter into a license with a third party
that claims infringement by us. Any such patent license may not be made available on commercially
acceptable terms, if at all. In addition, such licenses are likely to be non-exclusive, and
therefore our competitors may have access to the same technology licensed to us. If we fail to
obtain a required license and are unable to design around a third partys patent, we may be unable
to effectively conduct certain of our business activities, which could limit our ability to
generate revenues or maintain profitability.
In addition, from time to time, we initiate lawsuits, proceedings or claims to enforce our
patents, copyrights, trademarks and other intellectual property rights or to determine the scope
and validity of third-party proprietary rights. Our ability to enforce our intellectual property
rights is subject to general litigation risks, as well as uncertainty as to the enforceability of
our intellectual property rights in various countries. When we seek to enforce our rights, we may
be subject
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to claims that our intellectual property rights are invalid or unenforceable or are
licensed to the party against whom we are asserting a claim. There is also a risk that our
assertion of intellectual property rights could result in the other partys seeking to assert
alleged intellectual property rights of its own against us, which may adversely impact our business
in the manner discussed above. Our inability to enforce our intellectual property rights may
negatively impact our competitive position and business.
If we are unable to acquire or maintain domain names for our websites, then we could lose
customers, which would substantially harm our business and results of operations.
We sell our products and services primarily through our websites. We currently own or control
a number of Internet domain names used in connection with our various websites, including
Vistaprint.com and similar names with alternate URL names, such as .net, .de and .co.uk. Domain
names are generally regulated by Internet regulatory bodies. If we are unable to use a domain name
in a particular country, then we would be forced to purchase the domain name from the entity that
owns or controls it, which we may not be able to do on commercially acceptable terms or at all;
incur significant additional expenses to market our products within that country, including the
development of a new brand and the creation of new promotional materials and packaging; or elect
not to sell products in that country. Any of these results could substantially harm our business
and results of operations. Furthermore, the relationship between regulations governing domain names
and laws protecting trademarks and similar proprietary rights is unclear and subject to change. We
might not be able to prevent third parties from acquiring domain names that infringe or otherwise
decrease the value of our trademarks and other proprietary rights. Regulatory bodies could
establish additional top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, we may not be able to acquire or maintain the
domain names that utilize the name Vistaprint in all of the countries in which we currently or
intend to conduct business.
Our revenues may be negatively affected if we are required to charge sales, value added or other
taxes on Internet sales.
In many jurisdictions where we sell products and services, we do not collect or have imposed
upon us sales, value added or other consumption taxes, which we refer to as indirect taxes. The
application of indirect taxes to e-commerce businesses such as Vistaprint is a complex and evolving
issue. Many of the fundamental statutes and regulations that impose these taxes were established
before the growth of the Internet and e-commerce, and in many cases, it is not clear how existing
statutes apply to the Internet or e-commerce. Bills have been introduced in the U.S. Congress that
could affect the ability of state governments to require out of state Internet retailers to collect
and remit indirect taxes on goods and certain services, and some state governments have imposed or
are seeking to impose indirect taxes on Internet sales. The imposition by national, state or local
governments, whether within or outside the United States, of various taxes upon Internet commerce
could create administrative burdens for us and could decrease our revenue. Additionally, a
successful assertion by one or more governments in jurisdictions where we are not currently
collecting sales or value added taxes that we should be, or should have been, collecting indirect
taxes on the sale of our products could result in substantial tax liabilities for past sales,
discourage customers from purchasing products from us, decrease our ability to compete with
traditional retailers or otherwise negatively impact our results of operations.
Our business is dependent on the Internet, and unfavorable changes in government regulation of the
Internet, e-commerce and email marketing could substantially harm our business and results of
operations.
Due to our dependence on the Internet for our sales, regulations and laws specifically
governing the Internet, e-commerce and email marketing may have a greater impact on our operations
than other more traditional businesses. Existing and future laws and regulations may impede the
growth of e-commerce and our ability to compete with traditional graphic designers, printers and
small business marketing companies, as well as desktop printing products. These regulations and
laws may cover taxation, restrictions on imports and exports, customs, tariffs, user privacy, data
protection, commercial email, pricing, content, copyrights, distribution, electronic contracts and
other communications, consumer protection, the provision of online payment services, broadband
residential Internet access and the characteristics and quality of products and services. It is not
clear how existing laws governing many of these issues apply to the Internet and e-commerce, as the
vast majority of applicable laws were adopted before the advent of the Internet and do not
contemplate or address the unique issues raised by the Internet or e-commerce. Those laws that do
reference the Internet, such as the Bermuda Electronic Transactions Act 1999, the U.S. Digital
Millennium Copyright Act and the U.S. CAN-SPAM Act of 2003, are only beginning to be interpreted by
the courts, and their applicability and reach are therefore uncertain. Those current and
future laws and regulations or unfavorable resolution of these issues may substantially harm our
business and results of operations.
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We face judicial and regulatory challenges to our practice of offering free products and services,
which, if successful, could hinder our ability to attract customers and generate revenue.
We regularly offer free products and services as an inducement for customers to try our
products and services. Although we believe that we conspicuously and clearly communicate all
details and conditions of these offersfor example, that customers are required to pay shipping
and processing charges to take advantage of a free product offerour customers, competitors,
governmental regulators and others in Europe, the United States and other countries have in the
past complained and filed claims with and initiated inquiries by governmental and standards bodies
that our free offers are misleading or do not comply with applicable legislation or regulation, and
we may receive similar complaints, claims and inquiries in the future. If we are compelled or
determine to curtail or eliminate our use of free offers as the result of any such actions, our
business prospects and results of operations could be materially harmed.
If we were required to review the content that our customers incorporate into our products and
interdict the shipment of products that violate copyright protections or other laws, our costs
would significantly increase, which would harm our results of operations.
Because of our focus on automation and high volumes, our operations do not involve any
human-based review of content for the vast majority of our sales. Although our websites terms of
use specifically require customers to represent that they have the right and authority to reproduce
a given content and that the content is in full compliance with all relevant laws and regulations,
we do not have the ability to determine the accuracy of these representations on a case-by-case
basis. There is a risk that a customer may supply an image or other content that is the property of
another party used without permission, that infringes the copyright or trademark of another party,
or that would be considered to be defamatory, hateful, racist, scandalous, obscene, or otherwise
objectionable or illegal under the laws of the jurisdiction(s) where that customer lives or where
we operate. There is, therefore, a risk that customers may intentionally or inadvertently order and
receive products from us that are in violation of the law or the rights of another party. If we
should become legally obligated in the future to perform manual screening and review for all orders
destined for a jurisdiction, we will encounter increased production costs or may cease accepting
orders for shipment to that jurisdiction, which could substantially harm our business and results
of operations. In addition, if we were held liable for actions of our customers, we could be
required to pay substantial penalties, fines or monetary damages.
The third party membership programs previously offered on our website may continue to draw customer
complaints, litigation and governmental inquiries, which can be costly and could hurt our
reputation.
During each of the last three fiscal years, we generated a small portion of our revenue from
order referral fees, revenue share and other fees paid to us by third party merchants for customer
click-throughs, distribution of third party promotional materials, and referrals arising from
products and services of the third party merchants we offer to our customers on our website, which
we collectively refer to as referral fees. Some of these third party referral-based offers were for
memberships in discount programs or similar promotions made to customers who have purchased
products from us, in which we received a payment from a third party merchant for every customer
that accepted the promotion. Some of these third party membership discount programs have been, and
may continue to be, the subject of consumer complaints, litigation, and governmental regulatory
actions alleging that the enrollment and billing practices involved in the programs violate various
consumer protection laws or are otherwise deceptive. For example, various state attorneys general
have brought consumer fraud lawsuits against certain of the third party merchants asserting that
they have not adequately disclosed the terms of their offers and have not obtained proper approval
from consumers before debiting the consumers bank account or billing the consumers credit card.
Similarly, in May 2009, Senator John D. Rockefeller IV, Chairman of the United States Senate
Committee on Commerce, Science and Transportation, announced that the Commerce Committee was
investigating membership discount programs marketed by third party merchants Vertrue, Inc.,
Webloyalty.com, Inc. and Affinion Group, Inc. through e-commerce retailers, and in December 2010
the U.S. Congress passed legislation introduced by the Commerce Committee that regulates certain
aspects of the membership programs. From time to time we have received complaints from our
customers and inquiries by state attorneys general and government agencies regarding the membership
discount programs previously offered on our websites. Although we removed all such membership
discount program offerings from our websites as of November 2009 and terminated our relationship
with the third party merchant responsible for these programs, we have continued to receive
complaints and inquiries about these programs.
Any private or governmental claims or actions that may be brought against us relating to these
third party membership programs could result in our being obligated to pay substantial damages or
incurring substantial legal fees in defending
claims and have an adverse affect on our results of operations. Even if we are successful in
defending against these claims, such a defense may result in distraction of management and
significant costs. In addition, customer dissatisfaction or damage to our reputation as a result of
these claims could have a negative impact on our brand, revenues and profitability.
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We are subject to customer payment-related risks.
We accept payments for our products and services on our websites by a variety of methods,
including credit card, debit card and bank check. In many geographic regions, we rely on one or two
third party companies to provide payment processing services, including the processing of credit
cards, debit cards and electronic checks. If these companies became unwilling or unable to provide
these services to us, then we would need to find and engage replacement providers, which we may not
be able to do on terms that are acceptable to us or at all, or to process the payments ourselves,
which could be costly and time consuming. Either of these scenarios could disrupt our business.
As we offer new payment options to our customers, we may be subject to additional regulations,
compliance requirements and fraud risk. For certain payment methods, including credit and debit
cards, we pay interchange and other fees, which may increase over time and raise our operating
costs and lower our profit margins or require that we charge our customers more for our products.
We are also subject to payment card association and similar operating rules and requirements, which
could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to
comply with these rules and requirements, we may be subject to fines and higher transaction fees
and lose our ability to accept credit and debit card payments from our customers or facilitate
other types of online payments, and our business and operating results could be materially
adversely affected.
We may be subject to product liability claims if people or property are harmed by the products we
sell.
Some of the products we sell may expose us to product liability claims relating to personal
injury, death, or property damage, and may require product recalls or other actions. Although we
maintain product liability insurance, we cannot be certain that our coverage will be adequate for
liabilities actually incurred or that insurance will continue to be available to us on reasonable
terms, or at all.
If we are unable to retain security authentication certificates, which are supplied by third party
providers over which we exercise little or no control, our business could be harmed.
We are dependent on a limited number of third party providers of website security
authentication certificates that may be necessary for some of our customers web browsers to
properly access our websites and upon which many of our customers otherwise rely in deciding
whether to purchase products and services from us. Despite any contractual protections we may have,
these third party providers can disable or revoke, and in the past have disabled or revoked, our
security certificates without our consent, which would render our websites inaccessible to some of
our customers and could discourage other customers from accessing our sites, unless we are able to
procure a replacement certificate from one of a limited number of alternative third party
providers. Any interruption in our customers ability or willingness to access our websites if our
security certificates are disabled or otherwise unavailable for an extended period of time could
result in a material loss of revenue and profits and damage to our brand.
Risks Related to Our Corporate Structure
Challenges by various tax authorities to our complex international structure could, if successful,
increase our effective tax rate and adversely affect our earnings.
We are a Dutch limited liability company that operates through various subsidiaries in a
number of countries throughout the world. Consequently, we are subject to tax laws, treaties and
regulations in the countries in which we operate. Our income taxes are based upon the applicable
tax laws and tax rates in the countries in which we operate and earn income as well as upon our
operating structures in these countries. Many countries tax laws and international treaties impose
taxation upon entities that conduct a trade or business or operate through a permanent
establishment in those countries. However, these applicable laws or treaties are subject to
interpretation. The tax authorities in these countries could contend that a greater portion of the
income of the Vistaprint N.V. group should be subject to income or other tax in their respective
jurisdictions. This could result in an increase to our effective tax rate and adversely affect our
results of operations.
A change in tax laws, treaties or regulations, or their interpretation, of any country in
which we operate could result in a higher tax rate on our earnings, which could result in a
significant negative impact on our earnings and cash flow from operations. We continue to assess
the impact of various international tax proposals and modifications to existing tax treaties
between the Netherlands and other countries that could result in a material impact on our income
taxes. We cannot predict
whether any specific legislation will be enacted or the terms of any such legislation.
However, if such proposals were enacted, or if modifications were to be made to certain existing
treaties, the consequences could have a materially adverse
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impact on us, including increasing our
tax burden, increasing costs of our tax compliance or otherwise adversely affecting our financial
condition, results of operations and cash flows.
Our intercompany arrangements may be challenged, resulting in higher taxes or penalties and an
adverse effect on our earnings.
We operate pursuant to written intercompany service and related agreements, which we also
refer to as transfer pricing agreements, among Vistaprint N.V. and its subsidiaries. These
agreements establish transfer prices for production, marketing, management, technology development
and other services performed by these subsidiaries for other group companies. Transfer prices are
prices that one company in a group of related companies charges to another member of the group for
goods, services or the use of property. If two or more affiliated companies are located in
different countries, the tax laws or regulations of each country generally will require that
transfer prices be consistent with those between unrelated companies dealing at arms length. With
the exception of the transfer pricing arrangements applicable to our Dutch, French and Australian
operations, our transfer pricing arrangements are not binding on applicable tax authorities and no
official authority in any other country has made a determination as to whether or not we are
operating in compliance with its transfer pricing laws. If tax authorities in any country were to
successfully challenge our transfer prices as not reflecting arms length transactions, they could
require us to adjust our transfer prices and thereby reallocate our income to reflect these revised
transfer prices. A reallocation of taxable income from a lower tax jurisdiction to a higher tax
jurisdiction would result in a higher tax liability to us. In addition, if the country from which
the income is reallocated does not agree with the reallocation, both countries could tax the same
income, resulting in double taxation.
Our Articles of Association, Dutch law and the independent foundation, Stichting Continuïteit
Vistaprint, may make it difficult to replace or remove management, may inhibit or delay a change of
control or may dilute your voting power.
Our Articles of Association, or Articles, as governed by Dutch law limit our shareholders
ability to suspend or dismiss the members of our management board and supervisory board or to
overrule our supervisory boards nominees to our management board and supervisory board by
requiring a vote of two thirds of the votes cast representing more than 50% of the outstanding
ordinary shares to do so under most circumstances. As a result, there may be circumstances in which
shareholders may not be able to remove members of our management board or supervisory board even if
holders of a majority of our ordinary shares favor doing so.
In addition, we have established an independent foundation, Stichting Continuïteit Vistaprint,
or the Foundation, to safeguard the interests of Vistaprint N.V. and its stakeholders, which
include but are not limited to our shareholders, and to assist in maintaining Vistaprints
continuity and independence. To this end, we have granted the Foundation a call option pursuant to
which the Foundation may acquire a number of preferred shares equal to the same number of ordinary
shares then outstanding, which is designed to provide a protective measure against unsolicited
take-over bids for Vistaprint and other hostile threats. If the Foundation were to exercise the
call option, it may prevent a change of control or delay or prevent a takeover attempt, including a
takeover attempt that might result in a premium over the market price for our ordinary shares.
Exercise of the preferred share option would also effectively dilute the voting power of our
outstanding ordinary shares by one half.
We have limited flexibility with respect to certain aspects of capital management.
Dutch law requires shareholder approval for the issuance of shares and grants preemptive
rights to existing shareholders to subscribe for new issuances of shares. In August 2009, our
shareholders granted our supervisory board and management board the authority to issue ordinary
shares and preferred shares as the boards determine appropriate, without obtaining specific
shareholder approval for each issuance, and to limit or exclude shareholders preemptive rights.
However, this authorization expires in August 2014. Although we intend to seek re-approval from our
shareholders before the 2014 expiration date, we may not succeed in obtaining this re-approval. In
addition, subject to specified exceptions, Dutch law requires shareholder approval for many
corporate actions, such as the approval of dividends and authorization to repurchase outstanding
shares. Situations may arise where the flexibility to issue shares, pay dividends, repurchase
shares or take other corporate actions without a shareholder vote would be beneficial to us, but is
not available under Dutch law.
Because of our corporate structure, you may find it difficult to pursue legal remedies against the
members of our supervisory board or management board.
Our Articles and our internal corporate affairs are governed by Dutch law, and the rights of
our shareholders and the responsibilities of our supervisory board and management board are
different from those established under United States laws. For example, class action lawsuits and
derivative lawsuits are generally not available under Dutch law, and our
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supervisory board and
management board are responsible for acting in the best interests of the company, its business and
all of its stakeholders generally (including employees, customers and creditors), not just
shareholders. Furthermore, we are obligated to indemnify the members of our supervisory board and
management board against liabilities for their good faith actions in connection with their service
on either board, subject to various exceptions. As a result, you may find it more difficult to
protect your interests against actions by members of our supervisory board or management board than
you would if we were a U.S. corporation.
Because of our corporate structure, you may find it difficult to enforce claims based on United
States federal or state laws, including securities liabilities, against us or our management team.
We are incorporated under the laws of the Netherlands, and the vast majority of our assets are
located outside of the United States. In addition, some of our officers and management board
members reside outside of the United States. In most cases, a final judgment for the payment of
money rendered by a U.S. federal or state court would not be directly enforceable in the
Netherlands. The party in whose favor such final judgment is rendered would need to bring a new
suit in the Netherlands and petition the Dutch court to enforce the final judgment rendered in the
United States, and there can be no assurance that a Dutch court would impose civil liability on us
or our management team in such a suit or in any other lawsuit predicated solely upon U.S.
securities laws. In addition, because most of our assets are located outside of the United States,
it could be difficult for investors to place a lien on our assets in connection with a claim of
liability under U.S. laws. As a result, it may be difficult for investors to effect service of
process within the United States upon us or our management team, enforce U.S. court judgments
obtained against us or our management team outside of the U.S., or enforce rights predicated upon
the U.S. securities laws.
We may not be able to make distributions or repurchase shares without subjecting our shareholders
to Dutch withholding tax.
A Dutch withholding tax may be levied on dividends and similar distributions made by
Vistaprint N.V. to its shareholders at the statutory rate of 15% if we cannot structure such
distributions as being made to shareholders in relation to a reduction of par value, which would be
non-taxable for Dutch withholding tax purposes. In November 2010, our Supervisory Board authorized
a share repurchase program under which we may periodically repurchase our ordinary shares. Under
our Dutch Advanced Tax Ruling, a repurchase of shares should not result in any Dutch withholding
tax if we hold the repurchased shares in treasury for the purpose of issuing shares pursuant to
certain stock awards and other potential uses. However, if the shares cannot be used for these
purposes, or the Dutch tax authorities challenge the use of the shares for these purposes, such a
repurchase of shares for the purposes of capital reduction may be treated as a partial liquidation
subject to the 15% Dutch withholding tax to be levied on the difference between our recognized paid
in capital for Dutch tax purposes and the redemption price.
We may be treated as a passive foreign investment company for United States tax purposes, which may
subject United States shareholders to adverse tax consequences.
If our passive income, or our assets that produce passive income, exceed levels provided by
law for any taxable year, we may be characterized as a passive foreign investment company, or a
PFIC, for United States federal income tax purposes. If we are treated as a PFIC, U.S. holders of
our ordinary shares would be subject to a disadvantageous United States federal income tax regime
with respect to the distributions they receive and the gain, if any, they derive from the sale or
other disposition of their ordinary shares.
We believe that we were not a PFIC for the tax year ended June 30, 2010 and we expect that we
will not become a PFIC in the foreseeable future. However, whether we are treated as a PFIC depends
on questions of fact as to our assets and revenues that can only be determined at the end of each
tax year. Accordingly, we cannot be certain that we will not be treated as a PFIC for our current
tax year or for any subsequent year.
If a United States shareholder acquires 10% or more of our ordinary shares, it may be subject to
increased United States taxation under the controlled foreign corporation rules.
Each 10% U.S. Shareholder of a non-U.S. corporation that is a controlled foreign
corporation, or CFC, for an uninterrupted period of 30 days or more during a taxable year, and
that owns shares in the CFC directly or indirectly through non-U.S. entities on the last day of the
CFCs taxable year, must include in its gross income for United States federal income tax purposes
its pro rata share of the CFCs subpart F income, even if the subpart F income is not
distributed. A non-U.S. corporation is considered a CFC if one or more 10% U.S. Shareholders
together own more than 50% of the total combined voting power of all classes of voting shares of
the non-U.S. corporation or more than 50% of the total value of all shares of
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the corporation on
any day during the taxable year of the corporation. The rules defining ownership for these purposes
are complicated and depend on the particular facts relating to each investor. For taxable years in
which we are a CFC for an uninterrupted period of 30 days or more, each of our 10% U.S.
Shareholders will be required to include in its gross income for United States federal income tax
purposes its pro rata share of our subpart F income, even if the subpart F income is not
distributed to enable such taxpayer to satisfy this tax liability. Based upon our existing share
ownership, we do not believe we are a CFC. However, whether we are treated as a CFC depends on
questions of fact as to our share ownership that can only be determined at the end of each tax
year. Accordingly, we cannot be certain that we will not be treated as a CFC for our current tax
year or for any subsequent year.
We will pay taxes even if we are not profitable on a consolidated basis, which would cause
increased losses and further harm to our results of operations.
The intercompany service and related agreements among Vistaprint N.V. and our direct and
indirect subsidiaries in general guarantee that the subsidiaries realize profits. As a result, even
if the Vistaprint group is not profitable on a consolidated basis, the majority of our subsidiaries
will be profitable and incur income taxes in their respective jurisdictions. If we are unprofitable
on a consolidated basis this structure will increase our consolidated losses and further harm our
results of operations.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
On November 9, 2010, we announced that our Supervisory Board had authorized a repurchase of up
to an aggregate of $160.0 million of our ordinary shares in open market or privately negotiated
transactions. The timing and amount of any shares repurchased have been and will continue to be
determined by our management based on its evaluation of market conditions and other factors and the
purchase parameters set by our shareholders and Supervisory Board. The share repurchase
authorization from our Supervisory Board expires on May 4, 2012, but we may suspend or discontinue
our repurchase program at any time.
The following table outlines the purchases of our ordinary shares during the three months
ended March 31, 2011:
Total Number of | Approximate | |||||||||||||||
Shares Purchased as | Dollar Value of | |||||||||||||||
Total Number | Average | Part of a Publicly | Shares that May | |||||||||||||
of Shares | Price Paid | Announced | Yet be Purchased | |||||||||||||
Purchased | Per Share (1) | Program | Under the Program | |||||||||||||
January 1, 2011 through January 31, 2011 |
32,852 | $ | 44.94 | 32,852 | $ | 103,098,536 | ||||||||||
February 1, 2011 through February 28, 2011 |
| $ | | | $ | 103,098,536 | ||||||||||
March 1, 2011 through March 31, 2011 |
| $ | | | $ | 103,098,536 | ||||||||||
Total |
32,852 | $ | 44.94 | 32,852 | ||||||||||||
(1) | Average price paid per share includes commissions paid in connection with our publicly announced share repurchase program and is rounded to the nearest two decimal places. |
ITEM 6. | EXHIBITS |
We are filing the exhibits listed on the Exhibit Index following the signature page to this
Report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: April 29, 2011 |
||||
VISTAPRINT N.V. |
||||
By: | /s/ Ernst Teunissen | |||
Ernst Teunissen | ||||
Chief Financial Officer
(Principal Financial and Accounting Officer) |
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EXHIBIT INDEX
Exhibit | ||||
No. | Description | |||
10.1 | * | Contrat de travail (Employment Agreement) dated December 7, 2009 between Vistaprint and
Ernst Teunissen |
||
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Rule
13a-14(a)/15d-14(a), by Chief Executive Officer |
|||
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Rule
13a-14(a)/15(d)-14(a), by Chief Financial Officer |
|||
32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, by Chief Executive Officer and Chief Financial Officer |
|||
101 | The following materials from this Quarterly Report on Form 10-Q, formatted in Extensible
Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed
Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Cash Flows,
and (iv) Notes to Condensed Consolidated Financial Statements. |
* | Management contract or compensatory plan or arrangement. |
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