These excluded items are described below:
- Recurring charges and gains, including:
- Amortization of acquisition-related intangibles. Intangible assets acquired to date are being amortized on a straight-line basis. Post-acquisition non-competition agreements are amortized over their term.
- Stock-based compensation expense recognized in accordance with ASC 718, Stock Compensation.
- Non-recurring charges and gains, including:
- Restructuring and other, that consists of:
- Restructuring charges incurred as we are consolidating our facilities and, as a result, reduce the size of our workforce. - Acquisition-related executive deferred compensation costs, which are dependent on the continuing employment of a former shareholder of an acquired company are being amortized on a straight-line basis. - Expenses incurred to integrate businesses acquired during the periods reported.
- Acquisition-related transaction costs associated with businesses acquired during the periods reported and anticipated transactions.
- On November 1, 2012, we sold our 294,000 square foot building located at 303 Velocity Way in Foster City, California, which serves as our corporate headquarters, along with approximately four acres of land and certain other assets related to the property, to Gilead for $179.6 million. The property is subject to a leaseback of up to one year for which rent is not required to be paid. This constitutes a form of continuing involvement that prevents gain recognition. Until we vacate the building, the proceeds from the sale including imputed interest, net of direct transaction costs, are accounted for as a current liability on our balance sheet. Imputed interest expense and depreciation, net of accrued sublease income of $0.4 million has been accrued as of December 31, 2012.
- Change in fair value of contingent consideration. Our management determined that we should analyze the total return provided by the investment when evaluating operating results of an acquired entity. The total return consists of operating profit generated from the acquired entity compared to the purchase price paid, including the final amounts paid for contingent consideration without considering any post-acquisition adjustments related to the change in the fair value of the contingent consideration. Because management believes the final purchase price paid for the acquisition reflects the accounting value assigned to both contingent consideration and to the intangible assets, we exclude the GAAP impact of any adjustments to the fair value of acquisition-related contingent consideration from the operating results of an acquisition in subsequent periods. We believe this approach is useful in understanding the long-term return provided by an acquisition and that investors benefit from a supplemental non-GAAP financial measure that excludes the impact of this adjustment.
- Gain on sale of minority investment in a privately-held company. Other investments, included within other assets, consist of equity and debt investments in privately-held companies that develop products, markets, and services that are considered to be strategic to us. Each of these investments had been fully impaired in prior years. In 2011, we sold one of these investments for $2.9 million because it was no longer considered to be strategic.
- Settlement of a dispute with the lessor of a facility in the U.K. for $0.5 million in 2012, which was partially offset by the receipt of an additional $0.3 million in insurance proceeds in 2012, net of legal fees and costs, related to our previously disclosed settlement of the shareholder derivative litigation concerning our historical stock option granting practices.
- Tax effect of non-GAAP adjustments as follows:
Usefulness of Non-GAAP Financial Information to Investors These non-GAAP measures are not in accordance with or an alternative to GAAP and may be materially different from other non-GAAP measures, including similarly titled non-GAAP measures, used by other companies. The presentation of this additional information should not be considered in isolation from, as a substitute for, or superior to, net income or earnings per diluted share prepared in accordance with GAAP. Non-GAAP financial measures have limitations as they do not reflect certain items that may have a material impact upon our reported financial results. We expect to continue to incur expenses of a nature similar to the non-GAAP adjustments described above, and exclusion of these items from our non-GAAP net income and non-GAAP earnings per diluted share should not be construed as an inference that these costs are unusual, infrequent, or non-recurring.
- After excluding the items described above, we apply the principles of ASC 740, Income Taxes, to estimate the non-GAAP income tax provision in each jurisdiction in which we operate.
- We have excluded a $43.6 million benefit from our non-GAAP net income for the year ended December 31, 2012 related to a partial recovery of our initial investment in the stock of VUTEk, Inc. This capital loss will never be recognized for financial reporting purposes; consequently, this tax benefit constitutes a permanent tax difference that is recognized in the Consolidated Statement of Operations during 2012.
- We have excluded a $6.4 million benefit from our non-GAAP net income for the year ended December 31, 2012 related to the step-up of the value of acquired intangibles for tax purposes as a result of an operational restructuring in Spain.
- We have excluded the recognition of previously unrecognized tax benefits of $10.9 and $2.7 million from our non-GAAP net income for the years ended December 31, 2012 and 2011, respectively, to facilitate comparability of our operating performance between the years. These tax benefits primarily arose from the release of previously unrecognized tax benefits resulting from the expiration of U.S. federal and state statutes of limitations.
- We have excluded interest accrued on prior year tax reserves of $0.3 and $0.4 million from our non-GAAP net income for the years ended December 31, 2012 and 2011, respectively, as well as other tax benefits of $0.4 million for the year ended December 31, 2011.
CONTACT: Vincent Pilette Chief Financial Officer EFI 650-357-3500 JoAnn Horne Market Street Partners 415-445-3235