SEC Filings

10-Q
CIMPRESS N.V. filed this Form 10-Q on 11/03/2017
Entire Document
 

 
Three Months Ended September 30,
 
2017

2016
(Losses) gains on derivatives not designated as hedging instruments
$
(8,250
)

$
77

Currency-related losses, net
(8,202
)

(2,966
)
Other gains
140


757

Total other expense, net
$
(16,312
)

$
(2,132
)
The increase in other expense, net during the three months ended September 30, 2017, when compared to the prior comparative period, is primarily due to the currency exchange rate volatility impacting our derivatives that are not designated as hedging instruments. We expect volatility to continue in future periods as we do not currently apply hedge accounting for most of our derivative currency contracts. We also experienced increased currency-related losses due to currency exchange rate volatility on our non-functional currency intercompany relationships, which we may alter at times. The impact of certain cross-currency swap contracts designated as cash flow hedges are included in our current-related losses, net, offsetting the impact of certain non-functional currency intercompany relationships.
In addition, during the three months ended September 30, 2017 and 2016, we recognized other gains of $0.1 million and $0.8 million, respectively. The gains in the prior comparable period related primarily to insurance recoveries.
Interest expense, net
Interest expense, net was $13.1 million and $9.9 million for the three months ended September 30, 2017 and 2016, respectively. Interest expense, net primarily consists of interest paid on outstanding debt balances, amortization of debt issuance costs, interest related to capital lease obligations and realized gains (losses) on effective interest rate swap contracts and certain cross-currency swap contracts. We expect interest expense to be higher relative to historical trends as a result of increased borrowing levels on our senior secured credit facility which was expanded in July 2017, increased capital lease obligations for machinery and equipment, and higher interest rates. Refer to Note 8 for additional details regarding the credit facility amendment.
Income tax (benefit) expense
 
Three Months Ended September 30,
 
2017
 
2016
Income tax (benefit) expense
$
(6,187
)
 
$
(9,814
)
Effective tax rate
(35.9
)%
 
24.6
%

Our income tax benefit was $6.2 million and $9.8 million for the three months ended September 30, 2017 and 2016, respectively. The income tax benefit for the three months ended September 30, 2017 was lower than the same prior year period primarily due to lower discrete tax benefits from share-based compensation $0.4 million for the current period as compared to $4.2 million for the same prior year period. Excluding the effect of net discrete tax benefits, we are forecasting a higher consolidated annual effective tax rate for fiscal 2018 as compared to fiscal 2017 primarily due to the adoption of ASU 2016-16 (refer to Note 2) as well as a less favorable geographical mix of consolidated earnings. If we had not early adopted ASU 2016-16, the forecasted fiscal 2018 tax expense would be lower by $9.8 million. In addition, we continue to generate losses in certain jurisdictions where we are unable to recognize a full tax benefit in the current period. The gain from the sale of the Albumprinter group, as described in Note 2, had no impact on our income tax benefit for the current period.

We believe that our income tax reserves are adequately maintained taking into consideration both the technical merits of our tax return positions and ongoing developments in our income tax audits. However, the final determination of our tax return positions, if audited, is uncertain, and there is a possibility that final resolution of these matters could have a material impact on our results of operations or cash flows. See Note 9 in our accompanying consolidated financial statements for additional discussion.

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