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EX-10.4 - EX-10.4 - CIMPRESS plc | b87964exv10w4.htm |
EX-10.6 - EX-10.6 - CIMPRESS plc | b87964exv10w6.htm |
EX-10.3 - EX-10.3 - CIMPRESS plc | b87964exv10w3.htm |
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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 September 30, 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 | 98-0417483 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) |
Hudsonweg 8
5928 LW Venlo
The Netherlands
5928 LW Venlo
The Netherlands
(Address of Principal Executive Offices, Including Zip Code)
31-77-850-7700
(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 | Smaller Reporting Company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of October 21, 2011, there were outstanding 38,411,630 ordinary shares of the registrant,
par value .01 per share.
FORM 10-Q
INDEX
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)
September 30, | June 30, | |||||||
2011 | 2011 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 161,092 | $ | 236,552 | ||||
Marketable securities |
| 529 | ||||||
Accounts receivable, net of allowances of $183 and $243, respectively |
12,714 | 13,389 | ||||||
Inventory |
8,462 | 8,377 | ||||||
Prepaid expenses and other current assets |
11,704 | 13,444 | ||||||
Total current assets |
193,972 | 272,291 | ||||||
Property, plant and equipment, net |
253,611 | 262,104 | ||||||
Software and website development costs, net |
6,135 | 6,046 | ||||||
Deferred tax assets |
6,438 | 6,522 | ||||||
Other assets |
8,822 | 8,937 | ||||||
Total assets |
$ | 468,978 | $ | 555,900 | ||||
Liabilities and shareholders equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 14,465 | $ | 15,998 | ||||
Accrued expenses |
73,246 | 68,989 | ||||||
Deferred revenue |
9,346 | 8,819 | ||||||
Total current liabilities |
97,057 | 93,806 | ||||||
Deferred tax liabilities |
3,530 | 3,794 | ||||||
Other liabilities |
8,214 | 8,207 | ||||||
Total liabilities |
108,801 | 105,807 | ||||||
Commitments and contingencies (Note 7) |
||||||||
Shareholders equity: |
||||||||
Preferred shares, par value 0.01 per share, 120,000,000 shares
authorized; none issued and outstanding |
| | ||||||
Ordinary shares, par value 0.01 per share, 120,000,000 shares
authorized; 49,950,289 and 49,950,289 shares issued and 40,151,267
and 43,144,718 shares outstanding, respectively |
699 | 699 | ||||||
Treasury shares, at cost, 9,799,022 and 6,805,571 shares, respectively |
(176,019 | ) | (85,377 | ) | ||||
Additional paid-in capital |
276,617 | 273,260 | ||||||
Retained earnings |
256,806 | 248,634 | ||||||
Accumulated other comprehensive income |
2,074 | 12,877 | ||||||
Total shareholders equity |
360,177 | 450,093 | ||||||
Total liabilities and shareholders equity |
$ | 468,978 | $ | 555,900 | ||||
See accompanying notes.
3
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 | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Revenue |
$ | 212,360 | $ | 170,487 | ||||
Cost of revenue (1) |
78,064 | 62,833 | ||||||
Technology and development expense (1) |
26,674 | 23,207 | ||||||
Marketing and selling expense (1) |
76,344 | 57,533 | ||||||
General and administrative expense (1) |
21,532 | 14,581 | ||||||
Income from operations |
9,746 | 12,333 | ||||||
Interest income |
83 | 99 | ||||||
Other income (expense), net |
450 | (252 | ) | |||||
Interest expense |
| 107 | ||||||
Income before income taxes |
10,279 | 12,073 | ||||||
Income tax provision |
2,107 | 1,292 | ||||||
Net income |
$ | 8,172 | $ | 10,781 | ||||
Basic net income per share |
$ | 0.20 | $ | 0.25 | ||||
Diluted net income per share |
$ | 0.19 | $ | 0.24 | ||||
Weighted average shares outstandingbasic |
41,256,341 | 43,895,913 | ||||||
Weighted average shares outstandingdiluted |
42,309,506 | 45,231,388 | ||||||
(1) Share-based compensation expense is allocated as follows: | ||||||||
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Cost of revenue |
$ | 94 | $ | 203 | ||||
Technology and development expense |
859 | 1,132 | ||||||
Marketing and selling expense |
555 | 1,049 | ||||||
General and administrative expense |
3,215 | 2,987 |
See accompanying notes.
4
Table of Contents
VISTAPRINT N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
(Unaudited in thousands)
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Operating activities |
||||||||
Net income |
$ | 8,172 | $ | 10,781 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
13,107 | 12,128 | ||||||
Loss on sale, disposal, or impairment of long-lived assets |
26 | 11 | ||||||
Amortization of premiums and discounts on marketable securities |
| 83 | ||||||
Share-based compensation expense |
4,723 | 5,371 | ||||||
Excess tax benefits derived from share-based compensation awards |
(134 | ) | (149 | ) | ||||
Deferred income taxes |
(253 | ) | (70 | ) | ||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
309 | (1,376 | ) | |||||
Inventory |
(442 | ) | (498 | ) | ||||
Prepaid expenses and other assets |
(1,221 | ) | (894 | ) | ||||
Accounts payable |
(1,951 | ) | (5,106 | ) | ||||
Accrued expenses and other liabilities |
8,205 | (1,479 | ) | |||||
Net cash provided by operating activities |
30,541 | 18,802 | ||||||
Investing activities |
||||||||
Purchases of property, plant and equipment |
(10,998 | ) | (14,147 | ) | ||||
Maturities and redemptions of marketable securities |
529 | 1,900 | ||||||
Purchases of intangible assets |
(89 | ) | | |||||
Capitalization of software and website development costs |
(1,682 | ) | (1,791 | ) | ||||
Net cash used in investing activities |
(12,240 | ) | (14,038 | ) | ||||
Financing activities |
||||||||
Repayments of long-term debt |
| (333 | ) | |||||
Payments of withholding taxes in connection with vesting of restricted share units |
(1,075 | ) | (1,287 | ) | ||||
Repurchases of ordinary shares |
(91,088 | ) | | |||||
Excess tax benefits derived from share-based compensation awards |
134 | 149 | ||||||
Proceeds from issuance of shares |
69 | 661 | ||||||
Net cash used in financing activities |
(91,960 | ) | (810 | ) | ||||
Effect of exchange rate changes on cash |
(1,801 | ) | 2,301 | |||||
Net (decrease) increase in cash and cash equivalents |
(75,460 | ) | 6,255 | |||||
Cash and cash equivalents at beginning of period |
236,552 | 162,727 | ||||||
Cash and cash equivalents at end of period |
$ | 161,092 | $ | 168,982 | ||||
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)
1. Description of the Business
The Vistaprint group of companies 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, we offer a broad spectrum of products, such as business cards, website
hosting, apparel, signage, promotional gifts, brochures, online marketing and creative services. We
focus 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. We also
provide 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 we have a variable interest and are 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 our financial condition as of the date of the
interim balance sheet have been included. Operating results for the three months ended September
30, 2011 are not necessarily indicative of the results that may be expected for the year ending
June 30, 2012 or for any other period. The condensed consolidated balance sheet at June 30, 2011
has been derived from our audited consolidated financial statements at that date but does not
include all of the information and footnotes required by GAAP for complete financial statements.
These unaudited condensed consolidated financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended June 30, 2011 included in the our
Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (the
SEC).
Cash, Cash Equivalents and Marketable Securities
We consider 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 June 30, 2011, we held one
municipal auction rate security (ARS), which was
redeemed in the three months ended September 30, 2011 under a
tender offer initiated by the issuer. We did not
hold any marketable securities as of September 30, 2011.
We review our 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 months ended September 30, 2011 and 2010.
The carrying value of our cash, cash equivalents and marketable
securities at September 30,
2011 and June 30, 2011 is equal to fair value.
Inventories
Inventories consist primarily of raw materials and are recorded at the lower of cost or market
value using a first-in, first-out method.
Treasury Shares
Treasury shares are accounted for under the cost method and included as a component of
shareholders equity. During the three months ended September 30, 2011, we repurchased 3,074,832 of
our ordinary shares for a total cost of $91,088,
6
Table of Contents
inclusive of transaction costs, in connection with our publicly announced share repurchase
program authorized by our Supervisory Board on November 4, 2010. There is no amount remaining
available for future purchases under this program; however, on October 3, 2011, we announced that
our Supervisory Board authorized the repurchase of up to 10% of our outstanding ordinary shares on
the open market (including block trades that satisfy the safe harbor provisions of Rule 10b-18
pursuant to the Securities Exchange Act of 1934) or in one or more self tender offers.
Share-Based Compensation
During the three months ended September 30, 2011 and 2010, we recorded share-based
compensation expense of $4,723 and $5,371, respectively. Share-based compensation costs capitalized
as part of software and website development costs were $57 and $124 for the three months ended
September 30, 2011 and 2010, respectively.
At September 30, 2011, there was $35,953 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 2.7 years.
Income Taxes
Income tax expense increased to $2,107 for the three months ended September 30, 2011, as
compared to $1,292 for the prior year period. The change in the income tax expense for
the three months ended September 30, 2011 as compared to the same period in 2010 is primarily
attributable to growth in our operating expenses, which form the basis upon which our transfer
pricing agreements determine pre-tax profits and related income tax expense for most of our legal
entities.
The intercompany services and related agreements among Vistaprint N.V. and its subsidiaries ensure that our
subsidiaries realize profits based on their operating expenses, which results in taxable profits regardless
of the level of consolidated per-tax income or loss.
Since our income tax expense is mainly a function of our operating expenses and
cost-based transfer pricing methodologies and not a function of our consolidated per-tax income,
our effective tax rate will typically vary inversely to changes in our
consolidated pre-tax income. The change in the effective tax rate from the same prior year period
is largely due to the reduction in our consolidated pre-tax income as a result of planned
investments in support of our long-term growth strategy. Additionally, the scheduled expiration of the U.S. federal
research and development tax credit on December 31, 2011 resulted in a higher projected annual
effective tax rate, which is applied to our quarterly results.
As of September 30, 2011, we had a liability for unrecognized tax benefits included in the
balance sheet of approximately $2,522, including accrued interest of $323. There have been no
significant changes to these amounts during the three months ended September 30, 2011. The total
amount of unrecognized tax benefits will reduce the effective tax rate if recognized. We recognize
interest and, if applicable, penalties related to unrecognized tax benefits in the provision for
income taxes.
One of our U.S. subsidiaries and one of our Bermuda subsidiaries are under audit by the United
States Internal Revenue Service (IRS). In April 2011, the U.S. subsidiary received a Revenue
Agents Report (RAR) from the IRS assessing tax for the years under examination. We disagree with
the position taken by the IRS and have filed a written protest for submission to the IRS Office of
Appeals. However, the matter currently remains at the Examination stage pending further review and
discussion with the IRS. Also, the same U.S. subsidiary is under audit by the Commonwealth of
Massachusetts. In addition, the Canada Revenue Agency is auditing one of our Canadian
subsidiaries. We do not believe that the resolution of these tax examinations will have a material
impact on our financial position or results of operations.
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 our unvested share options and RSUs do not have rights to
dividends.
The following table sets forth the reconciliation of the weighted average number of ordinary
shares for purposes of computing net income per share:
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Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Weighted average shares outstanding, basic |
41,256,341 | 43,895,913 | ||||||
Weighted average shares issuable upon exercise/vesting of
outstanding share options/RSUs |
1,053,165 | 1,335,475 | ||||||
Shares used in computing diluted net income per share |
42,309,506 | 45,231,388 | ||||||
Weighted average anti-dilutive shares excluded from diluted
net income per share |
1,646,549 | 1,138,603 |
Recently Issued Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board issued ASU 2011-04 Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in GAAP and International Financial
Reporting Standards (IFRS), which is intended to result in convergence between GAAP and IFRS
requirements for measurement of, and disclosures about, fair value. The new standard clarifies or
changes certain fair value measurement principles and enhances the disclosure requirements,
particularly for Level 3 fair value measurements. The new guidance is effective for our third
quarter of the current fiscal year, and we do not expect its adoption to have a
material effect on our financial position or results of operations.
In June 2011, the Financial Accounting Standards Board issued ASU 2011-05 Presentation of
Comprehensive Income, which makes the presentation of items within other comprehensive income
(OCI) more prominent. The new standard will require companies to present items of net income,
items of OCI and total comprehensive income in one continuous statement or two separate consecutive
statements, and companies will no longer be allowed to present items of OCI in the statement of
shareholders equity. Reclassification adjustments between OCI and net income will be presented
separately on the face of the financial statements. The new guidance is effective for our fiscal
year ending June 30, 2013, and its adoption will not have a material effect on our financial
position or results of operations.
In September 2011, the Financial Accounting Standards Board issued ASU 2011-08 Testing
Goodwill for Impairment, which provides updated guidance on the periodic testing of goodwill for
impairment. This new standard will allow companies to assess qualitative factors to determine if it
is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the
two-step goodwill impairment test required under current accounting standards. The new guidance is
effective for our fiscal year ending June 30, 2013, with early adoption permitted, and we do not
expect its adoption to have a material effect on our financial position or results of operations.
3. Fair Value Measurements
The fair value of our financial assets was determined using the following inputs at September
30, 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 |
$ | 161,092 | $ | 161,092 | $ | | $ | | ||||||||
Total assets recorded at fair value |
$ | 161,092 | $ | 161,092 | $ | | $ | | ||||||||
The following table presents a roll forward of assets measured at fair value using significant
unobservable inputs (Level 3) at September 30, 2011:
Balance at June 30, 2011 |
$ | 529 | ||
Redemptions |
(529 | ) | ||
Balance at September 30, 2011 |
$ | | ||
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4. Comprehensive (Loss) Income
Comprehensive (loss) income consisted of the following:
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Net income |
$ | 8,172 | $ | 10,781 | ||||
Unrealized gain on marketable securities |
| 24 | ||||||
Reclassification of gain on cash flow hedge to net income |
| (49 | ) | |||||
Change in cumulative foreign currency translation adjustments |
(10,803 | ) | 13,036 | |||||
Comprehensive (loss) income |
$ | (2,631 | ) | $ | 23,792 | |||
5. Segment Information
Operating segments are based upon our internal organization structure, the manner in which our
operations are managed and the availability of separate financial information reported internally
to the Chief Executive Officer, who constitutes our Chief Operating Decision Maker (CODM) for
purposes of making decision about how to allocate resources and assess performance. We have three
geographically based operating segments: North America, Europe and Asia Pacific. The CODM measures
and evaluates the performance of our operating segments based on revenue and income or loss from
operations.
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 our IT operations and customer service, sales and design support. We do
not allocate non-operating income or expenses to our segment results. There are no internal
revenue transactions between our reporting segments and all intersegment transfers are recorded at
cost for presentation to the CODM, for example, products manufactured by our Venlo, the Netherlands
facility for the Asia-Pacific segment; therefore, there is no intercompany profit or loss
recognized on these transactions. At this time, we do not allocate support costs across operating
segments or corporate and global functions, which may limit the comparability of income from
operations by segment.
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 | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Revenue: |
||||||||
North America |
$ | 118,691 | $ | 101,312 | ||||
Europe |
79,979 | 60,989 | ||||||
Asia-Pacific |
13,690 | 8,186 | ||||||
Total revenue |
$ | 212,360 | $ | 170,487 | ||||
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Income from operations: |
||||||||
North America |
$ | 30,061 | $ | 27,482 | ||||
Europe |
19,059 | 14,631 | ||||||
Asia-Pacific |
2,367 | 982 | ||||||
Corporate and global functions |
(41,741 | ) | (30,762 | ) | ||||
Total income from operations |
$ | 9,746 | $ | 12,333 | ||||
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The following tables set forth revenue and long-lived assets by geographic area:
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Revenue: |
||||||||
United States |
$ | 112,939 | $ | 97,013 | ||||
Non-United
States (1) |
99,421 | 73,474 | ||||||
Total revenue |
$ | 212,360 | $ | 170,487 | ||||
September 30, | June 30, | |||||||
2011 | 2011 | |||||||
Long-lived assets (1): |
||||||||
Canada |
$ | 101,869 | $ | 103,005 | ||||
Netherlands |
76,114 | 82,594 | ||||||
Australia |
41,362 | 43,971 | ||||||
Bermuda |
14,327 | 15,022 | ||||||
Jamaica |
11,550 | 8,858 | ||||||
United States |
10,363 | 10,167 | ||||||
Switzerland |
4,127 | 4,288 | ||||||
Spain |
2,120 | 2,317 | ||||||
Other |
2,568 | 2,697 | ||||||
$ | 264,400 | $ | 272,919 | |||||
(1) | Excludes goodwill of $4,168 for both periods presented, and deferred tax assets of $6,438 and $6,522 as of September 30, 2011 and June 30, 2011, respectively. |
6. Accrued Expenses
Accrued expenses included the following:
September 30, | June 30, | |||||||
2011 | 2011 | |||||||
Advertising costs (1) |
$ | 24,703 | $ | 21,407 | ||||
Compensation costs (2) |
16,465 | 23,142 | ||||||
Income and indirect taxes (3) |
11,624 | 8,427 | ||||||
Shipping costs |
4,945 | 2,694 | ||||||
Purchases of property, plant and equipment |
2,376 | 1,236 | ||||||
Professional costs |
1,941 | 1,716 | ||||||
Other |
11,192 | 10,367 | ||||||
Total accrued expenses |
$ | 73,246 | $ | 68,989 | ||||
(1) | The increase in accrued advertising costs is principally a result of our increased customer acquisition and retention promotion costs. | |
(2) | The decrease in accrued compensation costs is principally a result of the payment of our fiscal 2011 annual incentive compensation plans in July, and the timing of payment of our employee payroll and benefits. | |
(3) | The increase in accrued income and indirect taxes is principally a result of the timing of payment of indirect taxes, and the increase in our effective tax rate. |
7. Commitments and Contingencies
Purchase Commitments
At September 30, 2011, we had unrecorded commitments under contract of $25,043, which were
principally composed of site development and construction costs for our Jamaican customer service,
sales and design support center of approximately $13,619, production and computer equipment
purchases of approximately $8,001, and other unrecorded purchase commitments of $3,423.
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Legal Proceedings
We are not currently party to any material legal proceedings, but from time to time we are
involved in various legal proceedings arising from the normal course of business activities.
Although we cannot predict with certainty the results of litigation and claims, we do not expect
resolution of any of our current matters to have a material adverse impact on our consolidated
results of operations, cash flows or financial position. In all cases, at each reporting period, we
evaluate whether or not a potential loss amount or a potential range of loss is probable and
reasonably estimable under the provisions of the authoritative guidance that addresses accounting
for contingencies. Legal costs relating to legal proceedings are expensed as incurred.
8. Subsequent Events
Pursuant to the share repurchase program
approved on October 3, 2011 and discussed in Note 2, we have purchased 1,757,660 of
our ordinary shares subsequent to September 30, 2011 and through October 21, 2011 for a total cost
of $50,415, inclusive of transaction costs.
On October 21, 2011, we entered into a $250,000 senior unsecured revolving credit facility
with a maturity date of October 21, 2016. Any borrowings under the facility will bear interest at
LIBOR plus 1.25% to 1.50%, depending on our leverage ratio, which is
the ratio of our consolidated total indebtedness to our
consolidated earnings before interest, taxes, depreciation and
amortization. We must also pay a commitment fee of 0.175% to 0.225%
depending on our leverage ratio. The credit
agreement evidencing the facility contains customary representations, warranties, covenants and
events of default.
On October 24, 2011, we announced our agreement to acquire Albumprinter Holding, B.V., a
leading provider of photo books and other photo products to consumers in Europe, for total cash
consideration of up to 65,000, consisting of 60,000 payable upon closing subject to net working
capital and net debt adjustments, and up to 5,000 payable based on a performance based earn-out
covering the period from January 1, 2012 to December 31, 2012. The transaction is subject to
customary closing conditions and is expected to close during the quarter ending December 31, 2011.
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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 months ended September 30, 2011, we reported revenue of $212.4 million,
representing 25% revenue growth from the same period in the prior year. Constant-currency revenue
growth was 20% for this period. Diluted earnings per share (EPS) decreased 21% for the three
months ended September 30, 2011 over the same period in the prior year to $0.19 due to planned
investments made in support of our long-term growth strategy. Results for the three months ended
September 30, 2011 also included increased revenue from existing customers, continued geographic
expansion, and revenue growth across our businesses.
Over the last 15 years, we have grown to become a leader in the large and fragmented market
for small business marketing solutions. We have built significant competitive advantages via our
marketing approach, proprietary technology, and manufacturing expertise. We have driven growth and
developed scale advantages by executing on our core strengths in mass customization technologies
and by introducing a broad range of small business marketing products. We believe we are now well
positioned to capitalize on our past success in order to capture more of the market opportunity we
see ahead. To do so, we have adopted an investment approach designed to support our ability to
scale faster and drive significant long-term shareholder returns.
On July 28, 2011, we introduced five-year organic revenue and EPS targets, along with an
evolved financial and investment strategy to achieve our goals. We believe that by making
disciplined but significant investments in fiscal years 2012 and 2013, we will be able to sustain
high organic revenue growth rates over the five-year period, and position ourselves to deliver
longer-term EPS growth at higher rates than we would have been able to achieve at a smaller
investment scale.
Our long-term goal is to be the leading online provider of micro business marketing solutions
for businesses or organizations with fewer than 10 employees. Additionally, we plan to continue to
focus on key market adjacencies where we believe we can drive additional long-term growth by
employing our unique business model and customer value proposition. These adjacencies include
digital marketing services, new geographic markets, personalized products for home and family
usage, and up-market customers.
The strategy for growth in our core micro business marketing opportunity is to make
investments and drive success in the following areas:
| Customer Value Proposition. We believe our customers currently spend only a small portion of their annual budget for marketing products and services with us. By shifting our success metrics from transactionally focused profit measures to longer-term customer satisfaction and economic measures, we believe we can deliver improvements to our customer experience and value proposition that will significantly increase customer loyalty and lifetime value. Examples of these programs include improving the customer experience on our site, such as ease of use, less cross selling before customers reach the checkout, and expanded customer service. | ||
| Lifetime Value Based Marketing. We have traditionally acquired customers by targeting micro businesses who are already shopping online through marketing channels such as search marketing, email marketing, and other online advertising. We believe a significant portion of micro businesses in our core markets do not currently use online |
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providers of marketing services. By investing more deeply into existing marketing channels, as well as opening up new channels such as television broadcast and direct mail, we believe we can accelerate our new customer growth and reach offline audiences that are not currently looking to online partners for marketing needs. | |||
| World Class Manufacturing. We believe our manufacturing processes are best-in-class with respect to the printing industry, but when we compare ourselves to the best manufacturing companies in the world, we believe we have significant opportunities to drive further efficiencies and competitive advantages. By focusing additional top engineering talent on key process approaches, we believe we can make a step-function improvement in product quality and reliability, and significantly lower unit manufacturing costs. | ||
Our strategy to drive longer-term growth by addressing market adjacencies is to develop our business in the following areas: | |||
| Digital Marketing Services. We estimate that less than 50% of micro businesses have a website today, but digital marketing services, including websites, email marketing, online search marketing and social media marketing, are the fastest-growing part of the small business marketing space. We believe there is great value in helping customers understand the powerful ways in which physical and digital marketing can be combined. Our current digital offering includes websites, email marketing, and local search visibility. Additionally, in fiscal 2011, we added several digital marketing services products or enhancements, including blogs, a search engine optimization tool for website customers, and personalized email domain names. Since we launched digital marketing services in April 2008, our number of unique paying digital subscribers has grown to approximately 340,000. | ||
| Geographies outside North America and Europe. For the three months ended September 30, 2011, revenue generated outside of North America and Europe accounted for approximately 6% of our total revenue. We believe that we have significant opportunities to expand our revenue both in the countries we currently service and in new markets. We completed construction of a production facility near Melbourne, Australia and launched a marketing office in Sydney, Australia in June 2010 to better support our business and customers in Asia Pacific. We intend to further extend our geographic reach by continuing to introduce localized websites in additional countries and languages, expanding our marketing efforts and customer service capabilities, and offering graphic design content, products, payment methodologies and languages specific to local markets. | ||
| 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. We intend to add new products and services targeted at the home and family market, such as embroidered stockings. We believe that the economies of scale provided by cross sales of these products to our extensive micro business customer base, our large production order volumes and our integrated design and production software and facilities support and will continue to support our effort to profitably grow our home and family business. In addition, on October 24, 2011, we announced our agreement to acquire Albumprinter Holding, B.V., a leading provider of photo books and other photo products to the home and family market in Europe. | ||
| Up-market Customers. We serve customers across the spectrum of micro businesses with fewer than 10 employees, but our strength has traditionally been in the smallest and most price sensitive of these customers. In comparison to our customer base, which is concentrated in businesses with 2 or fewer employees, the micro businesses in the up-market portion of this spectrum tend to have more sophisticated marketing needs, typically spend more per year on their marketing activities and often have 3 to 10 employees. We believe that as we continue to research customer needs and make customer value proposition improvements for our traditional core customer base, we will develop a stronger ability to focus on up-market small business customers. We expect this adjacency can serve as a driver of longer-term growth 3 to 5 years from now. |
Recent Developments
During the three months ended September 30, 2011, we repurchased 3,074,832 of our ordinary
shares for a total cost of $91.1 million, inclusive of transaction costs, in connection with our
publicly announced share repurchase program authorized by our Supervisory Board on November 4,
2010. There is no amount remaining available for future purchases under this program; however, on
October 3, 2011, we announced that our Supervisory Board authorized a new program for the
repurchase of up to 10% of our outstanding ordinary shares on the open market (including block
trades that satisfy the safe harbor provisions of Rule 10b-18 pursuant to the Securities Exchange
Act of 1934) or in one or more self tender offers.
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Pursuant to our new share repurchase program discussed above, we have purchased 1,757,660 of
our ordinary shares subsequent to September 30, 2011 and through October 21, 2011 for a total cost
of $50.4 million, inclusive of transaction costs.
On October 21, 2011, we entered into a $250.0 million senior unsecured revolving credit
facility with a maturity date of October 21, 2016. Any borrowings under the facility will bear
interest at LIBOR plus 1.25% to 1.50%, depending on our leverage
ratio, which is the ratio of our consolidated total indebtedness to
our consolidated earnings before interest, taxes, depreciation and
amortization (EBITDA). We must also pay a commitment fee
of 0.175% to 0.225% depending on our leverage ratio. The
credit agreement evidencing the facility contains customary representations, warranties, covenants
and events of default.
On October 24, 2011, we announced our agreement to acquire Albumprinter Holding, B.V., a
leading provider of photo books and other photo products to consumers in Europe, for total cash
consideration of up to 65.0 million, consisting of 60.0 million payable upon closing subject to
net working capital and net debt adjustments, and up to 5.0 million payable based on a
performance-based earn-out covering the period from January 1, 2012 to December 31, 2012. The
transaction is subject to customary closing conditions and is
expected to close during the quarter ending December 31, 2011.
Results of Operations
The following table presents our operating results for the periods indicated as a
percentage of revenue:
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Revenue |
100.0 | % | 100.0 | % | ||||
Cost of revenue |
36.8 | % | 36.9 | % | ||||
Technology and development expense |
12.6 | % | 13.6 | % | ||||
Marketing and selling expense |
35.9 | % | 33.7 | % | ||||
General and administrative expense |
10.1 | % | 8.6 | % | ||||
Income from operations |
4.6 | % | 7.2 | % | ||||
Interest income |
0.0 | % | 0.1 | % | ||||
Other income (expense), net |
0.2 | % | (0.1 | )% | ||||
Interest expense |
0.0 | % | 0.1 | % | ||||
Income before income taxes |
4.8 | % | 7.1 | % | ||||
Income tax provision |
1.0 | % | 0.8 | % | ||||
Net income |
3.8 | % | 6.3 | % | ||||
In thousands
Three Months Ended September 30, | ||||||||||||
2011 | 2010 | FY12 vs. FY11 | ||||||||||
Revenue |
$ | 212,360 | $ | 170,487 | 25 | % | ||||||
Cost of revenue |
$ | 78,064 | $ | 62,833 | 24 | % | ||||||
% of revenue |
36.8 | % | 36.9 | % |
Revenue
We generate revenue primarily from the sale and shipment of customized manufactured products,
and the provision of digital services, website design and hosting, email marketing services, as
well as a small percentage from order referral fees and other third-party offerings. Revenue in our
second fiscal quarter includes a favorable impact from increased seasonal product sales.
We seek to increase our revenue by increasing the number of customers who purchase from us
(unique active customers), as well as the amount our customers spend on our offerings (average
bookings per unique active customer). We use the combination of unique active customers and
average bookings per unique active customer to describe our revenue performance as we believe this
approach is aligned with the way we manage our business and our efforts to increase our revenue. We
believe that metrics relating to our unique active customers and average bookings per unique active
customer offer shareholders a useful means of assessing our execution against our strategy. Because
changes in one of these metrics may be offset by changes in the other metric, no single factor is
determinative of our revenue and profitability trends, and we
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assess them together to understand their overall impact on revenue and profitability. A number
of factors influence our ability to drive increases in these metrics:
| Unique active customers. The unique active customer count is the number of individual customers who purchased from us in a given period, with no regard to the frequency of purchase. For example, if a single customer makes 2 distinct purchases within a twelve-month period, that customer is tallied only once in the unique active customer count. We determine the uniqueness of a customer by looking at certain customer data. Unique active customers are driven by both the number of new customers we acquire, as well as our ability to retain customers after their first purchase. During our early growth phase, we focused more resources on the acquisition of new customers through the value of our offering and our broad-based marketing efforts targeted at the mass market for micro-business customers. As we have grown larger, we have supplemented our acquisition focus with expanded retention efforts, such as email offers, customer service, and expansions in our product offerings. Our unique active customer count has grown significantly over the years, and we expect it will continue to grow as we see additional opportunities to drive both the acquisition of new customers and increased retention rates. A retained customer is any unique active customer in a specific period who has also purchased in any prior period. | ||
| Average bookings per unique active customer. Average bookings per unique active customer 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 unique active customers who purchased during that same period of time. We seek to increase our average bookings per unique active customer as a means of increasing revenue. Average bookings per unique active customer are influenced by the frequency that a customer purchases from us, the number of products and feature upgrades a customer purchases in a given period and the mix of tenured customers versus new customers within the unique active customer count, as tenured customers tend to purchase more than new customers. Average bookings per unique active customer have grown over a multi-year period, although they sometimes fluctuate from one quarter to the next depending upon the type of products we promote during a period and the promotional discounts we offer. For example, among other things, seasonal product offerings, such as holiday cards, can cause changes in bookings per customer in our second fiscal quarter ending December 31. |
Total revenue for the three months ended September 30, 2011 increased 25% to $212.4 million
compared to the three months ended September 30, 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
due to increases in the number of unique active customers, driven by growth in both new customer
additions and repeat customers, as well as an increase in average bookings per unique active
customer. New customer additions during the three months ended September 30, 2011 grew 19% to
approximately 1.9 million. The weaker U.S. dollar positively impacted our revenue growth by an
estimated 480 basis points in the three months ended September 30, 2011, as compared to the three
months ended September 30, 2010.
In
addition to the drivers of our quarterly revenue performance, we monitor unique active
customers and average bookings per unique active customer on a
trailing twelve-month (TTM) basis.
The following table summarizes our operational revenue metrics for the TTM ended September 30, 2011
and 2010:
TTM Ended September 30, | ||||||||||||
2011 | 2010 | Increase% | ||||||||||
Unique active customers |
11.9 million | 10.0 million | 19 | % | ||||||||
New customer additions |
7.7 million | 6.6 million | 17 | % | ||||||||
Retained customers |
4.2 million | 3.4 million | 24 | % | ||||||||
Average bookings per unique active customer |
$73 | $70 | 4 | % |
Total revenue by geographic segment for the three months ended September 30, 2011 and 2010
is shown in the following table (in thousands):
Currency | ||||||||||||||||||||
Three Months Ended | Impact: | ConstantCurrency | ||||||||||||||||||
September 30, | (Favorable) | Revenue | ||||||||||||||||||
2011 | 2010 | % Change | / Unfavorable | Growth(1) | ||||||||||||||||
North America |
$ | 118,691 | $ | 101,312 | 17 | % | | % | 17 | % | ||||||||||
Europe |
79,979 | 60,989 | 31 | % | (10 | )% | 21 | % | ||||||||||||
Asia Pacific |
13,690 | 8,186 | 67 | % | (22 | )% | 45 | % | ||||||||||||
Total revenue |
$ | 212,360 | $ | 170,487 | 25 | % | (5 | )% | 20 | % |
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(1) | Constant-currency revenue growth, a non-U.S. generally accepted accounting principles (GAAP) financial measure, represents the change in total revenue between current and prior year periods at constant-currency exchange rates by translating all non-U.S. dollar denominated revenue generated in the current period using the prior year 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. |
Cost of revenue
Cost of revenue includes materials used to manufacture our products, payroll and related
expenses for production personnel, depreciation of assets used in the production process and in
support of digital marketing service offerings, shipping, handling and processing costs,
third-party production costs, production costs of free products, and other related costs of
products sold by us.
The increase in cost of revenue for the three months ended September 30, 2011 compared to the
same periods in fiscal 2011 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 months ended September 30, 2011 compared to the same prior year period was
primarily attributable to favorable shifts in product mix including an increase in sales of digital
services and productivity improvements at our manufacturing locations. The decrease in the cost of
revenue as a percentage of total revenue was partially offset by the weaker U.S. dollar, which was
primarily driven by the net impact of changes in European currencies.
In thousands
Three Months Ended September 30, | ||||||||||||
2011 | 2010 | FY12 vs. FY11 | ||||||||||
Technology and development expense |
$ | 26,674 | $ | 23,207 | 15 | % | ||||||
% of revenue |
12.6 | % | 13.6 | % | ||||||||
Marketing and selling expense |
$ | 76,344 | $ | 57,533 | 33 | % | ||||||
% of revenue |
35.9 | % | 33.7 | % | ||||||||
General and administrative expense |
$ | 21,532 | $ | 14,581 | 48 | % | ||||||
% of revenue |
10.1 | % | 8.6 | % |
Technology and development expense
Technology and development expense consists primarily of payroll and related expenses for our
employees engaged in software and manufacturing engineering, information technology operations,
content development, amortization of capitalized software and website development costs, hosting of
our websites, asset depreciation, patent amortization, legal settlements in connection with
patent-related claims, and other technology infrastructure-related costs. Depreciation expense for
information technology equipment that directly supports the delivery of our digital marketing
services products is included in cost of revenue.
The increase in our technology and development expenses of $3.5 million for the three months
ended September 30, 2011 as compared to the same prior year period was primarily due to increased
payroll and facility-related costs of $4.4 million associated with an increase in headcount in our
technology development and information technology support organizations related to the
implementation of our long-term growth strategy. At September 30, 2011, we employed 475 employees
in these organizations compared to 383 employees at September 30, 2010. In addition, other
technology and development expenses decreased $1.2 million as compared to the same prior year
period due to a legal settlement of a patent claim included in the prior year period, offset by
increased employee travel and training costs and increased depreciation, hosting services and other
costs related to the continued investment in our website infrastructure.
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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 processing fees.
The increase in our marketing and selling expenses of $18.8 million for the three months ended
September 30, 2011 as compared to the same prior year period was driven primarily by increases of
$15.7 million in advertising costs and commissions related to new customer acquisition and costs of
promotions targeted at our existing customer base related to the implementation of our long-term
growth strategy, and increases in payroll and facility-related costs of $2.0 million. We continued
to expand our marketing organization and our customer service, sales and design support centers and
at September 30, 2011, we employed 1,223 employees in these organizations compared to 838 employees
at September 30, 2010. In addition, payment processing fees paid to third parties increased by $0.9
million during the three months ended September 30, 2011 as compared to the same prior year period
due primarily to increased order volumes.
General and administrative expense
General and administrative expense consists primarily of general corporate costs, including
third-party professional fees, insurance and payroll and related expenses of employees involved in
executive management, finance, legal, and human resources.
The increase in our general and administrative expenses of $7.0 million for the three months
ended September 30, 2011 as compared to the same prior year period was primarily due to increased
payroll and facility-related costs of $3.9 million resulting from the continued investment in our
executive management, finance, legal and human resource organizations to support our expansion and
growth. At September 30, 2011, we employed 283 employees in these organizations compared to 207
employees at September 30, 2010. In addition, third-party professional fees increased $1.7 million
during the three months ended September 30, 2011 as compared to the same period in fiscal 2011 due
primarily to increased costs of ongoing litigation including a patent infringement trial that
concluded in July 2011. Furthermore, other general and administrative activities increased $1.1
million as compared to the same prior year period, which includes $0.5 million related to employee
travel and training.
Other income (expense), net
Other income (expense), net, which primarily consists of gains and losses from currency
transactions or revaluation, was $0.5 million of income for the three months ended September 30,
2011 as compared to $0.3 million of expense for the same prior year period. Increases in other
income (expense), net are due to currency exchange rate fluctuations on transactions or balances
denominated in currencies other than the functional currency of our subsidiaries.
Income tax provision
Three Months Ended | ||||||||
In thousands | September 30, | |||||||
2011 | 2010 | |||||||
Income tax provision |
$ | 2,107 | $ | 1,292 | ||||
Effective tax rate |
20.5 | % | 10.7 | % |
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Income tax expense increased to $2.1 million for the three months ended September 30, 2011,
as compared to $1.3 million for the prior year period. The change in the income tax expense for
the three months ended September 30, 2011 as compared to the same period in 2010 is primarily
attributable to growth in our operating expenses, which form the basis upon which our transfer
pricing agreements determine pre-tax profits and related income tax
expense for most of our legal entities. The intercompany services and
related agreements among Vistaprint N.V. and its subsidiaries ensure
that our subsidiaries realize profits based on their operating
expenses, which results in taxable profits regardless of the level of
consolidated pre-tax income or loss. Since our income tax expense is mainly a function of our operating expenses
and cost-based transfer pricing methodologies and not a function of our consolidated pre-tax income, our effective tax rate will typically vary inversely to changes in our consolidated pre-tax income. The change in the effective tax rate from the same prior year
period is largely due to the reduction in our consolidated pre-tax net income as a result of
planned investments in support of our long-term growth strategy. Additionally, the scheduled expiration
of the U.S. federal research and development tax credit on December 31, 2011 resulted in a higher
projected annual effective tax rate, which is applied to our
quarterly results.
Liquidity and Capital Resources
In thousands
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Capital expenditures |
$ | (10,998 | ) | $ | (14,147 | ) | ||
Capitalization of software and website development costs |
(1,682 | ) | (1,791 | ) | ||||
Depreciation and amortization |
13,107 | 12,128 | ||||||
Cash flows provided by operating activities |
30,541 | 18,802 | ||||||
Cash flows used in investing activities |
(12,240 | ) | (14,038 | ) | ||||
Cash flows used in financing activities |
(91,960 | ) | (810 | ) |
At September 30, 2011, we had $161.1 million of cash and cash equivalents and no long-term
debt. Cash and cash equivalents decreased $75.5 million in the three months ended September 30,
2011. The cash flows during the three months ended September 30, 2011 related primarily to the
following items:
Cash inflows:
| Net income of $8.2 million; | ||
| Positive adjustments for non-cash items of $17.5 million including depreciation and amortization of $13.1 million and share-based compensation costs of $4.7 million and $4.9 million provided by working capital and other activities; and | ||
| Redemption of our municipal auction rate security, resulting in proceeds of $0.5 million. |
Cash outflows:
| Repurchases of our ordinary shares of $91.1 million; | ||
| Capital expenditures of $11.0 million of which $4.0 million were related to the purchase of manufacturing and automation equipment for our production facilities, $2.8 million were related to the purchase of land and facilities, and $4.2 million were related to purchases of other assets including information technology infrastructure and office equipment; | ||
| Internal costs for software and website development that we capitalized of $1.7 million; and | ||
| Payments of the minimum withholding taxes related to shares withheld on vested restricted stock units of $1.1 million. |
Additional Liquidity and Capital Resources Information. During the three months ended
September 30, 2011, we financed our operations primarily through internally generated cash flows
from operations. We believe that our available cash, cash flows generated from operations and our
debt financing capacity will be sufficient to satisfy our working capital and planned investments
to support our new growth strategy including capital expenditure requirements for the foreseeable
future. We currently plan to invest approximately $60.0 million to $75.0 million on capital
expenditures in fiscal 2012, which represents an increase of 60% to 101% from fiscal 2011,
primarily due to plans to expand our manufacturing capacity in Europe, construction of our Jamaican
customer service, sales and design support center, and other IT and manufacturing equipment
requirements to support our long-term growth strategy.
We may also use a combination of available cash, cash flow generated from operations, and debt
financing to repurchase our ordinary shares. As discussed in Recent
Developments, on
October 3, 2011, we announced that our Supervisory
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Board authorized a new program for the
repurchase of up to 10% of our outstanding ordinary shares on the open market (including block
trades that satisfy the safe harbor provisions of Rule 10b-18 pursuant to the Securities Exchange
Act of 1934) or in one or more self tender offers. As of October 21, 2011, we have purchased
1,757,660 of our ordinary shares under this new program for a cost of
$50.4 million, inclusive of transaction costs, leaving 2,256,382
ordinary shares available for future purchases.
On October 21, 2011, we entered into a $250.0 million senior unsecured revolving credit
facility with a maturity date of October 21, 2016. Any borrowings under the facility will bear
interest at LIBOR plus 1.25% to 1.50%, depending on our leverage ratio,
which is the ratio of our consolidated total indebtedness to
our consolidated EBITDA. We mast also pay a commitment fee of
0.175% to 0.225% depending on our leverage ratio. The credit agreement evidencing the facility contains customary
representations, warranties, covenants and events of default. We have
begun borrowing under this facility as of the date of filing.
As part of our growth strategy we also expect to be more proactive in assessing potential
merger and acquisition targets, though we will continue to be prudent and selective. For example,
on October 24, 2011, we announced our agreement to acquire Albumprinter Holding, B.V., for total
cash consideration of approximately 65.0 million, consisting of 60.0 million payable upon closing
subject to net working capital and net debt adjustments, and up to 5.0 million payable based on a
performance based earn-out covering the period from January 1, 2012 to December 31, 2012. This will
be funded through existing cash and our revolving credit facility. If we were to make additional
investments incremental to our plan in areas such as mergers and acquisitions, we may need to raise
capital through future debt or equity financing to fund such
investments.
Contractual Obligations
Contractual obligations at September 30, 2011 are as follows:
In thousands
Payments Due by Period | ||||||||||||||||||||
Less | More | |||||||||||||||||||
than 1 | than 5 | |||||||||||||||||||
Total | year | 1-3 years | 3-5 years | years | ||||||||||||||||
Operating lease obligations |
$ | 44,280 | $ | 9,206 | $ | 15,769 | $ | 14,505 | $ | 4,800 | ||||||||||
Purchase obligations |
$ | 25,043 | $ | 25,043 | $ | | $ | | $ | | ||||||||||
Total |
$ | 69,323 | $ | 34,249 | $ | 15,769 | $ | 14,505 | $ | 4,800 |
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 September 30, 2011, we had unrecorded commitments under contract of
$25.0 million, which were principally composed of site development and construction of our Jamaican
customer service, sales and design support center of approximately $13.6 million, production and
computer equipment purchases of approximately $8.0 million, and other unrecorded purchase
commitments of $3.4 million.
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 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
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results could differ significantly from
our estimates. We base our estimates and judgments on historical experience and other assumptions
that we believe to be reasonable at the time under the circumstances, and we evaluate these
estimates and judgments on an ongoing basis. We refer to accounting estimates and judgments of this
type as critical accounting policies and estimates. Management believes there have been no material
changes during the three months ended September 30, 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 17, 2011.
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 September 30, 2011 consisted of money market funds,
which are held for working capital 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 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. 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 $1.6 million and $0.6 million on our income before income taxes for the three months ended September 30, 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 on the balance sheet. Fluctuations in exchange rates can materially impact the carrying value of our assets and liabilities. |
Foreign currency transaction gains (losses) included in other income (expense), net for the
three months ended September 30, 2011 and 2010, were $0.5 million of gains and $0.3 million of
losses, 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 September 30,
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 September 30, 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 during the fiscal
quarter ended September 30, 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 7 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 SEC, press
releases, communications with investors and oral statements due to the following important factors,
among others. Our forward-looking statements in this Report and in any other public statements we
make may turn out to be wrong. These statements can be affected by, among other things, inaccurate
assumptions we might make or by known or unknown risks and uncertainties or risks we currently deem
immaterial. 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, direct mail, advertising banners
and other links on third parties websites directing customers to our websites, and television
broadcast. 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
offline channels. 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 consumers to our websites and convert them into
purchasing customers. Specific factors that could prevent prospective customers from purchasing
from us as an online retailer 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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If our long-term growth strategy is not successful or if our financial projections relating to the
effects of our strategy turn out to be incorrect, our business and financial results could be
harmed.
In July 2011, we announced a new long-term investment and financial strategy and associated
financial projections relating to the growth of our business over the next five years, but we may
not achieve our announced objectives, and our investments in our business may fail to affect our
revenue or diluted EPS growth as anticipated. Some of the factors that could cause our investment
strategy and our overall business strategy to fail to achieve our objectives include, among others:
| our failure to adequately execute our operational strategy or anticipate and overcome obstacles to achieving our strategic goals; | ||
| our failure to make our intended investments because the investments are more costly than we expected or because we are unable to devote the necessary operational and financial resources; | ||
| our inability to purchase or develop technologies and production platforms to increase our efficiency, enhance our competitive advantage and scale our operations; | ||
| the failure of our current supply chain to provide the resources we need and our inability to develop new or enhanced supply chains; | ||
| our failure to acquire new customers and enter new markets, retain our current customers and sell more products to current and new customers; | ||
| our failure to promote, strengthen, and protect our brand; | ||
| the failure of our current and new marketing channels to attract customers; | ||
| our failure to manage the growth and complexity of our business and expand our operations; | ||
| unanticipated changes in our business, current and anticipated markets, industry or competitive landscape; and | ||
| general economic conditions. |
In addition, projections are inherently uncertain and are based on assumptions and judgments
by management that may be flawed or based on information about our business and markets that may
change in the future, many of which are beyond our control. Our actual results may differ
materially from our projections due to various factors, including but not limited to the factors
listed immediately above; currency exchange fluctuations, which may affect our revenues and costs;
change in the laws and regulations or in the interpretations of laws and regulations to which we
are subject, including tax laws, or the institution of new laws or regulations that affect our
business; costs and judgments resulting from litigation; and costs and disruptions caused by
acquisitions.
If
our strategy is not successful, or if there is a market or industry
perception that our strategy is not successful, then our revenue and earnings may not grow as anticipated
or may decline, our reputation and brand may be damaged, and the price of our shares may decline.
In addition, we may change our financial strategy or other components of our overall business
strategy if we believe it is not effective, if our business or markets change, or for other
reasons, which may cause fluctuations in our financial results and volatility in our share price.
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.
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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. We target annual, rather than quarterly, EPS objectives, which can lead to
fluctuations in our quarterly results. 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 home and family preferences for our products and services; |
| shifts in product mix toward less profitable products; |
| our ability to manage our production, fulfillment and support operations; |
| costs to produce and deliver our products and provide our services, including the effects of inflation; |
| our pricing and marketing strategies and those of our competitors; |
| investments in our business to generate or support revenues and operations in future periods, such as incurring marketing, engineering or consulting expenses in a current period for revenue growth or support in future periods; |
| compensation expense and charges related to agreements entered into with our executives and employees; |
| costs and charges resulting from litigation; |
| a significant increase in credits, beyond our estimated allowances, for customers who are not satisfied with our products; |
| costs to acquire businesses or integrate acquired businesses; and |
| charges to earnings if our long-lived assets including goodwill or amortizable intangible assets become impaired. |
We base our operating expense budgets in part on expected revenue trends. A portion of our
expenses, such as office leases, depreciation 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
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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 in each of
the last three fiscal years has accounted for more of our revenue and earnings than any other
quarter, primarily due to higher sales of home and family products such as holiday cards, calendars
and personalized gifts. 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 revenues may not increase or may
decline.
We believe we need to address additional markets and attract new customers to 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. 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 and geographic footprint has grown rapidly, and we
expect the number of countries and facilities from which we operate to continue to increase in the
future. 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
procedures in the locations in which we operate. If we are unable to implement improvements to our
management information and control systems in an efficient or timely manner or if we discover
deficiencies in our existing systems and controls, then 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 global operations, the growth of our
business could be negatively impacted.
We operate production facilities or offices in 13 countries and have 25 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; |
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| difficulty complying with multiple tax laws, treaties and regulations and limiting our exposure to onerous or unanticipated taxes, duties and other costs; |
| 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; |
| 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 global operations may not be successful if we are unable to 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 sales, service and design 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; |
| 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; and |
| human error, including but not limited to poor managerial judgment or oversight. |
In particular, both Bermuda, where substantially all of the computer hardware necessary to
operate our websites is located in a single facility, and Jamaica, our largest customer service,
sales and design support operation, are subject to a high degree of hurricane risk and extreme
weather conditions.
We have not identified alternatives to all of our facilities, systems, supply chains and
infrastructure, including production, 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.
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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. We expect competition 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 home and family markets; |
| wholesale printers; |
| online printing and graphic design companies, many of which provide printed products and services similar to ours; |
| self-service desktop design and publishing using personal computer software with a laser or inkjet printer and specialty paper; |
| email marketing services companies; |
| website design and hosting companies; |
| suppliers of custom apparel, promotional products and customized gifts; |
| online photo product companies; and |
| Internet firms and retailers. |
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 significantly greater financial, marketing and
other resources. Many of our competitors currently work together, and additional competitors may do
so in the future through strategic business agreements or acquisitions. Increased competition may
result in reduced operating margins as well as loss of market share and brand recognition.
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
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pricing strategies, including the production, marketing, personnel and other costs of running
our business, our competitors pricing and marketing strategies, and the effects of inflation. We
offer some free or discounted products and services as a means of attracting customers and
encouraging repeat purchases, but these free offers and discounts reduce our profit margins and may
not result in an increase in our revenues. 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, such as
credit card information. Although we maintain network security 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. 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. Any 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, we may be liable for fraudulent transactions conducted on our websites, such as
through the use of stolen credit card numbers. To date, quarterly losses from payment fraud have
not exceeded 1% of total revenues in any quarter, but we continue to face the risk of significant
losses from this type of fraud. 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!. If the search engines on which we rely modify their
algorithms, terminate their relationships with us or increase the prices at which we may purchase
listings, this could increase our costs and result in fewer customers clicking through to our
websites, requiring us to resort to other more costly resources to replace this traffic, which
could adversely affect our revenues and operating and net income and could harm our business. 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 for 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 significantly 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, and some of
these entities maintain blacklists of companies that do not adhere to what the blacklisting
entity believes are appropriate standards of conduct or practices for commercial e-mail
solicitations, which are often more stringent than currently legal requirements. Although we
believe that our commercial e-mail solicitations comply with all applicable laws, some of our
Internet protocol addresses appear on various private entities blacklists from time to time, which
means that 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. We may not be successful in convincing blacklisting entities to remove us from their
lists, and we may be put on additional blacklists in the future. The blacklisting sometimes
interferes 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. Blacklisting of this type could interfere with our ability to market our
products and
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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.
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 our licenses covering a significant amount of content were terminated, the amount and
variety of content available on our websites would be significantly reduced, and we may not be able
to find, license and introduce substitute content in a timely manner, on acceptable terms or at
all.
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, and while
individuals on our Supervisory Board and management team have experience making acquisitions in
their professional experience outside of Vistaprint, we have limited experience making acquisitions
as a company. However, a component of our strategy is to selectively pursue acquisitions of
businesses, technologies or services in order to expand our capabilities, enter new markets, or
increase our market share. Integrating any newly acquired businesses, technologies or services may
be complex, expensive and time consuming and we may not be able to retain customers and key
employees of acquired businesses. In addition, acquisitions may lead to reduced earnings if the
transaction is dilutive for a period of time. To finance any acquisitions, it may be necessary for
us to raise additional funds, which may not be available on terms that are favorable to us, or at
all, and could cause dilution to our shareholders or subject us to covenants restricting the
activities we may undertake. 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 further 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 fiscal year ended June 30, 2011 and for the first quarter of fiscal 2012, we derived
53% 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
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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
or were foreclosed from doing so, or if our costs and expenses materially increased, our business
and results of operations could be harmed.
If we are unable to protect our intellectual property rights, our reputation and brand could be
damaged, and others may be able to practice our 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, but these protective measures afford only
limited protection. Despite our efforts to protect our proprietary rights, unauthorized parties may
copy aspects of our trademarks, websites features and functionalities or obtain and use information
that we consider proprietary, such as the technology used to operate our websites and our
production operations.
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, but 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 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.
Although we hold trademark registrations for the Vistaprint trademark in jurisdictions
throughout the world, 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 could be potential trade name or trademark infringement claims brought by owners of other
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 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
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conduct certain of our business activities, which could limit our ability to generate
revenues, grow our business 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 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 results of operations 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
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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.
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 offerfrom time to time we face claims,
complaints and inquiries from our customers, competitors, governmental regulators, standards bodies
and others 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 for a product order
that we produce that is the property of another party used without permission, that infringes the
copyright or trademark of another party, or that would be considered to be defamatory, hateful,
racist, scandalous, obscene, or otherwise objectionable or illegal under the laws of the
jurisdiction(s) where that customer lives or where we operate. 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.
We previously offered on our website third party membership discount programs, some of which
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. 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 continue to receive
complaints from our customers and inquiries by state attorneys general and government agencies
regarding 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.
We are subject to customer payment-related risks.
We accept payments for our products and services on our websites by a variety of methods,
including credit or debit card, PayPal, check, wire transfer or other methods. In many geographic
regions, we rely on one or two third party companies to provide payment processing services. 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
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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 are necessary for conducting secure transactions over the
Internet. Despite any contractual protections we may have, these third party providers can disable
or revoke, and in the past have disabled or revoked, our security certificates without our consent,
which would render our websites inaccessible to some of our customers and could discourage other
customers from accessing our sites, 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 we do not have adequate security certificates
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. From time to time, we are subject to tax audits and claims by the tax authorities
in these countries 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. For more information about audits
to which we are currently subject refer to Note 2 Summary of Significant Accounting
PoliciesIncome Taxes in the accompanying notes to the condensed consolidated financial
statements included in Item 1 of Part I of this Report. 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 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
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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 are currently seeking re-approval
from our shareholders , which would extend the expiration date to November 3, 2016, we may not
succeed in obtaining this or future re-approvals. 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, our shareholders may find it difficult to pursue legal remedies
against the members of our supervisory board or management board.
Our Articles and our internal corporate affairs are governed by Dutch law, and the rights of
our shareholders and the responsibilities of our supervisory board and management board are
different from those established under United States laws. For example, class action lawsuits and
derivative lawsuits are generally not available under Dutch law, and our supervisory board and
management board are responsible for acting in the best interests of the company, its business and
all of its stakeholders generally (including employees, customers and creditors), not just
shareholders. 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, our shareholders may find it more
difficult to protect their interests against actions by members of our supervisory board or
management board than they would if we were a U.S. corporation.
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Because of our corporate structure, our shareholders may find it difficult to enforce claims based
on United States federal or state laws, including securities liabilities, against us or our
management team.
We are incorporated under the laws of the Netherlands, and the vast majority of our assets are
located outside of the United States. In addition, some of our officers and management board
members reside outside of the United States. In most cases, a final judgment for the payment of
money rendered by a U.S. federal or state court would not be directly enforceable in the
Netherlands. 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. We have repurchased our shares and may seek to
repurchase additional shares in the future. 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 employee share awards or for the funding of
acquisitions. 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, 2011 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 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.
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Our tax rate may increase if our profitability declines. Additionally, we will pay taxes even
if we are not profitable on a consolidated basis, which would harm our results of operations.
The intercompany service and related agreements among Vistaprint N.V. and our direct and
indirect subsidiaries ensure that the subsidiaries realize profits based on their operating
expenses. As a result, if the Vistaprint group is less profitable, or even not profitable on a
consolidated basis, the majority of our subsidiaries will be profitable and incur income taxes in
their respective jurisdictions. In periods of declining operating profitability or losses on a
consolidated basis this structure will increase our tax rate or 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 authorized a repurchase of up to
an aggregate of $160.0 million of our ordinary shares in open market or privately negotiated
transactions subject to the purchase parameters set by our shareholders and Supervisory Board
including a limit that the repurchases cannot exceed 10% of our issued and outstanding ordinary
shares as of November 4, 2010, the date of our Annual General Meeting of Shareholders. During the
three months ended September 30, 2011 we purchased 3,074,832 of our ordinary shares for a cost of
$91.1 million, inclusive of transaction costs, bringing the total ordinary shares repurchased under the program to 4,401,765 for a
total cost of $148.0 million.
On October 3, 2011, we announced that our Supervisory Board authorized the repurchase of up to
10% of our outstanding ordinary shares on the open market (including block trades that satisfy the
safe harbor provisions of Rule 10b-18 pursuant to the Securities Exchange Act of 1934) or in one or
more self tender offers. We have purchased 1,757,660 of our ordinary shares subsequent to September
30, 2011 and through October 21, 2011 for a total cost of
$50.4 million, inclusive of transaction costs, under this share purchase
program.
The following table outlines the purchases of our ordinary shares during the three months
ended September 30, 2011:
Total Number of | Approximate Dollar | |||||||||||||||
Shares Purchased as | 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 (2) | |||||||||||||
July 1, 2011 through July 31, 2011 |
378,606 | $ | 40.42 | 378,606 | $ | 87,805,832 | ||||||||||
August 1, 2011 through August 31, 2011 |
2,696,226 | $ | 28.11 | 2,696,226 | $ | | ||||||||||
September 1, 2011 through September 30, 2011 |
| $ | | | $ | | ||||||||||
Total |
3,074,832 | $ | 29.62 | 3,074,832 |
(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. | |
(2) | As of August 31, 2011, there was no amount remaining available for future purchases under the November 9, 2010 program as we reached the limit of 10% of our issued and outstanding ordinary shares. |
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:
October 28, 2011
VISTAPRINT N.V. |
||||
By: | /s/ Ernst J. Teunissen | |||
Ernst J. Teunissen | ||||
Chief Financial Officer (Principal Financial Officer) |
||||
By: | /s/ Michael C. Greiner | |||
Michael C. Greiner | ||||
Chief Accounting Officer (Principal Accounting Officer) |
36
Table of Contents
EXHIBIT INDEX
Exhibit No. | Description | |
2.1
|
Share Purchase Agreement between Vistaprint and Albumprinter Beheer B.V. regarding Albumprinter Holding B.V. dated October 24, 2011 | |
10.1*
|
Form of Restricted Share Unit Agreement for employees and executives under our 2011 Equity Incentive Plan | |
10.2*
|
Form of Restricted Share Unit Agreement for Supervisory Board members under our 2011 Equity Incentive Plan | |
10.3*
|
Form of Nonqualified Share Option Agreement under our 2011 Equity Incentive Plan | |
10.4*
|
Form of FY2012 Annual Award Agreement under our Performance Incentive Plan for Covered Employees | |
10.5*
|
Form of FY2012-2015 Four-Year Award Agreement under our Performance Incentive Plan for Covered Employees | |
10.6*
|
Amendment No. 2 to Employment Agreement between Vistaprint USA, Incorporated and Robert S. Keane dated September 28, 2011 | |
10.7*
|
Employment Agreement between Vistaprint USA, Incorporated and Ernst J. Teunissen effective July 1, 2011 | |
10.8*
|
Avenant au Contrat de travail (Amendment to Employment Agreement) between Vistaprint SARL and Ernst Teunissen dated October 14, 2011 | |
10.9
|
Credit Agreement dated as of October 21, 2011 among Vistaprint Limited, Vistaprint Schweiz GmbH and Vistaprint B.V., as borrowers; Vistaprint N.V., as guarantor; the lenders named therein as lenders; JPMorgan Chase Bank N.A., as administrative agent; HSBC Bank USA, National Association, as syndication agent; RBS Citizens, N.A. as documentation agent; and J.P. Morgan Securities LLC as sole bookrunner and sole lead arranger, is incorporated by reference to our Current Report on Form 8-K filed with the SEC on October 26, 2011 | |
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.INS
|
XBRL Instance Document** | |
101.SCH
|
XBRL Taxonomy Extension Schema Document** | |
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document** | |
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document** | |
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document** | |
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document** |
* | Management contract or compensatory plan or arrangement. |
Table of Contents
** | Submitted electronically herewith. |
Attached as Exhibit 101 to this report are 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.
In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this
Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus
for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of
section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.