UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): January 28, 2014 (January 24, 2014)

 

 

Electronics For Imaging, Inc.

(Exact name of Registrant as Specified in its Charter)

 

 

 

Delaware   000-18805   94-3086355

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

6750 Dumbarton Circle

Fremont, California 94555

(Address of Principal Executive Offices)

(650) 357-3500

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 2.02. Results of Operations and Financial Condition.

On January 28, 2014, Electronics For Imaging, Inc. (the “Company”) announced its preliminary financial results for the fiscal quarter and year ended December 31, 2013. A copy of the press releases relating to the foregoing is attached hereto as Exhibit 99.1 and is being furnished under Item 2.02 of this Current Report on Form 8-K.

 

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

(e) Compensatory Arrangements of Certain Officers.

On January 24, 2014, the Compensation Committee (the “Compensation Committee”) of the Board of Directors of the Company approved the EFI 2014 Section 16 Officer—Executive Performance Bonus Program (the “Program”), which is a performance-based equity and cash bonus program applicable to the Company’s Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, respectively, Guy Gecht, Marc Olin and David Reeder (each, an “Executive Officer” and together, the “Executive Officers”). For the year ending December 31, 2014, subject to the achievement by the Company of certain financial performance objectives, each Executive Officer is eligible to receive an equity bonus up to a target equity bonus amount based on a percentage of such Executive Officer’s current annual base salary and is provided with an opportunity to receive an additional cash bonus up to the target cash bonus amount if the Company achieves results above the Company’s 2014 operating plan approved by the Board of Directors (“2014 Operating Plan”) on January 24, 2014. Each of the 2014 equity bonus target amount and cash bonus target amount of Messrs. Gecht, Olin and Reeder is set forth in the table below:

 

Name   

Target Bonus as a

Percentage of Annual Base
Salary

    Target Amount for Each of
Equity and Cash Bonuses
 

Guy Gecht

     105   $ 651,000   

Marc Olin

     70   $ 217,000   

David Reeder

     70   $ 245,000   

Mr. Gecht’s annual base salary of $620,000 salary remains unchanged from 2013. Mr. Olin served as Interim Chief Financial Officer of the Company for four months in 2013 and currently serves as its Chief Operating Officer with an annual base salary of $310,000. Mr. Reeder joined the Company as its Chief Financial Officer in January 2014 with an annual base salary of $350,000.

For 2014, 50% of each Executive Officer’s 2014 performance-based equity and cash bonus will be based on the achievement of targets, set by the Compensation Committee, relating to the Company’s non-GAAP operating income and the other 50% will be based on the achievement of Company revenue targets, subject in each case to the Company’s achieving a minimum threshold for non-GAAP operating income determined by the Compensation Committee. However, the financial targets applicable to the cash bonus opportunity are higher than the financial targets applicable to the equity bonus opportunity and will be paid only if the Company achieves results significantly above both the revenue and non-GAAP operating income targets in the 2014 Operating Plan.

In execution of the equity bonus component of the Program, on January 24, 2014, the Compensation Committee approved the grants of performance-based restricted stock unit awards to the Executive Officers under the Company’s 2009 Equity Incentive Award Plan, as amended, with a grant date of January 24, 2014, with the aggregate number of units subject to each Executive Officer’s awards being determined by dividing the Executive Officer’s target equity bonus by the closing price of the Company’s common stock on January 17, 2014. The awards will vest in full or on pro-rata basis, if and as applicable, following confirmation by the Compensation Committee that the vesting conditions described above for these awards have been satisfied.


The text of the Program is attached as Exhibit 10.1 and is incorporated by reference herein. The foregoing description is qualified in its entirety by reference to Exhibit 10.1.

On January 27, 2014, Mr. Gecht and the Company entered into an employment agreement (the “Current Employment Agreement”) that supercedes the employment agreement (the “2006 Employment Agreement”) dated August 6, 2006 between Mr. Gecht and the Company. In general, the Current Employment Agreement does not change the compensation, severance benefits or other terms of Mr. Gecht’s employment with the Company. Mr. Gecht and the Company agreed to enter into the Current Employment Agreement in order to eliminate certain rights to tax gross-up payments that Mr. Gecht had under the 2006 Employment Agreement and to update Mr. Gecht’s agreement to be on the same form as the Company’s other agreements with its executive officers.

The Current Agreement provides that Mr. Gecht’s employment with the Company is at-will and has a one-year term, with automatic one-year renewals unless either party provides notice the term will not be extended. The Current Agreement provides that Mr. Gecht will receive an annual base salary and will participate in the Company’s annual management bonus program and other benefit programs provided to management. The Current Agreement provides that, if the Company terminates Mr. Gecht’s employment without cause or Mr. Gecht voluntarily terminates his employment for good reason, he will be paid a severance benefit equal to 24 months of his base salary, as well as an annual bonus for the year in which the termination occurs (pro-rated for the portion of the year he was actually employed by the Company), and he will be entitled to six months of additional vesting for his Company equity awards that are subject to time-based vesting requirements, any unvested Company equity awards that vest based on the Company’s stock price will remain outstanding and will vest if the applicable performance condition(s) are satisfied in the six-month period following the termination of employment, and any other performance-based vesting Company equity awards granted to Mr. Gecht will vest (if the applicable performance condition(s) are satisfied following the termination of employment) on a pro-rated basis. The Current Agreement also provides that if such a termination of Mr. Gecht’s employment occurs within 24 months following certain change in control events involving the Company, Mr. Gecht will instead be paid a severance benefit equal to 36 months of his base salary and his target annual bonus for the year in which the termination occurs, and his Company equity awards will vest in full. In any such circumstances, Mr. Gecht’s severance benefits would be subject to his providing a release of claims to the Company.

The text of the Current Agreement is attached as Exhibit 10.2 and is incorporated by reference herein. The foregoing description is qualified in its entirety by reference to Exhibit 10.2.


Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

 

Exhibit No.    Description
10.1    EFI Section 16 2014 – Executive Team Bonus Program
10.2    Employment Agreement Effective January 27, 2014 by and between the Company and Guy Gecht
99.1    Press Release dated January 28, 2014 – EFI Reports Fourth Quarter and Full Year 2013 Results

The information included in Exhibit 99.1 is intended to be furnished and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act, or the Exchange Act, except as expressly set forth by specific reference in such filing.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 

Date: January 28, 2014     ELECTRONICS FOR IMAGING, INC.
    By:   /s/ Guy Gecht
    Name:   Guy Gecht
    Title:   Chief Executive Officer, President


INDEX TO EXHIBITS FILED WITH

THE CURRENT REPORT ON FORM 8-K DATED JANUARY 28, 2014

 

Exhibit No.    Description
10.1    EFI 2014 Section 16 Officer—2014 Executive Team Bonus Program
10.2    Employment Agreement Effective January 27, 2014 by and between the Company and Guy Gecht
99.1    Press Release dated January 28, 2014 — EFI Reports Fourth Quarter and Full Year 2013 Results

Exhibit 10.1

 

LOGO

EFI 2014 Section 16 Officer—Executive Performance Bonus Program

We are pleased to offer you participation in the EFI 2014 Executive Performance Bonus Program (the “ Program ”) on the terms set forth below.

Each participant (the “ Participant ”) in the Program will, provided that the Participant remains employed by EFI through the date of grant of such awards, be granted an award of restricted stock units that is subject to vesting requirements based on the performance of Electronics For Imaging, Inc. (“ EFI ” or the “ Company ”) for 2014 and the Participant’s continued employment as set forth below. In addition, each Participant has an opportunity to earn a cash accelerator bonus based upon the performance of the Company for 2014 and the Participant’s continued employment as set forth below.

Performance Equity Bonus Terms

 

    Per the approval by the Company’s Compensation Committee (the “ Compensation Committee ”) and subject to your continued employment with the Company through the date of grant, you will be granted two performance-based restricted stock unit (“ RSU ”) awards with respect to the Program. The first RSU award will be eligible to vest based on the Company’s non-GAAP operating income for 2014 and your continued employment as set forth below (“ Operating Income RSUs ”). The second RSU award will be eligible to vest based on the Company’s revenue for 2014 and your continued employment as set forth below (“ Revenue RSUs ”). In addition, no portion of the Revenue RSUs will vest if the RSU threshold operating income goal (identified in the table below) is not achieved for 2014.

 

    The total number of RSUs that you will be granted will equal your “Equity Bonus Eligibility” amount (expressed in U.S. Dollars) set forth below, divided by the closing price of EFI’s common stock on January 17, 2014. Fifty percent (50%) of your total RSUs will be Operating Income RSUs and fifty percent (50%) of your total RSUs will be Revenue RSUs, in each case rounded down to the nearest whole share.

 

    The RSUs will be granted under and will be subject to the terms and conditions of EFI’s 2009 Equity Incentive Award Plan, as amended (the “ 2009 Equity Plan ”) and the Restricted Stock Unit Award Notice and Restricted Stock Unit Award Agreement used by EFI to evidence RSU awards granted under the 2009 Equity Plan, except as otherwise expressly set forth herein. Each RSU Award will have a grant date that is the grant date that the Compensation Committee approves such award (the “ Grant Date ”). The RSU awards are also subject to the individual and other share limits of the 2009 Plan.

 

    The Compensation Committee will meet during the first quarter of 2015 to determine whether (and the extent to which) the performance conditions applicable to the RSUs were achieved for 2014 (the date on which the Compensation Committee makes such determination is referred to as the “ Determination Date ”). Subject to your continued employment by the Company through the applicable Vesting Date, if the Compensation Committee determines that the applicable performance condition related to the RSUs was achieved for 2014, the related RSUs will vest (the “ Vesting Date ”) on the later of (1) the first anniversary of the Grant Date or (2) the Determination Date. In the event any performance condition applicable to an RSU is not satisfied, the RSU will be deemed to have been forfeited.


Performance Cash Accelerator Bonus Terms

 

    Your “target” cash accelerator bonus opportunity for 2014 is set forth below.

 

    Subject to approval by the Compensation Committee and to your continued employment by the Company through the Vesting Date applicable to your RSU awards referred to above, your cash accelerator bonus for 2014 will be based on your target cash accelerator bonus opportunity and the Company’s performance for 2014 against non-GAAP operating income and revenue goals as set forth below. In addition, in no event will you be entitled to any cash accelerator bonus for 2014 unless both the Cash Accelerator Bonus threshold operating income and the Cash Accelerator Bonus threshold revenue for the Company are achieved for 2014, as set forth below.

 

    On the Determination Date referred to above, the Compensation Committee will also determine whether (and the extent to which) the performance conditions applicable to your cash accelerator bonus opportunity were achieved for 2014. Any cash accelerator bonus payment due to you for 2014 will be paid after the Vesting Date of your RSU awards granted with respect to this Program. Payment will be subject to applicable tax withholding.

 

    The Cash Accelerator Bonus will be paid under and will be subject to the terms and conditions of Article 9 of EFI’s 2009 Equity Plan.

Performance Targets and Equity and Cash Accelerator Target Bonus

Your Equity Bonus Eligibility amount and Target Cash Bonus Opportunity are set forth below.

Equity Bonus Eligibility: [$]

Target Cash Bonus Opportunity: [$]

The performance goals applicable to your RSUs and cash bonus opportunity are set forth below. In no event will any portion of your RSUs vest unless the RSU threshold level of operating income set forth below is achieved by the Company in 2014. In no event will you be entitled to any portion of your cash accelerator bonus opportunity unless both the cash accelerator bonus threshold level of revenue and the cash accelerator bonus threshold level of operating income set forth below are achieved by the Company in 2014.

 

Performance Metric

   RSU
Threshold
     RSU Target      Cash Accelerator
Threshold
     Cash Accelerator
Target
 

Revenue (millions)

   $ __M       $ __M       $ __M       $ __M   

Non-GAAP Operating Income (millions)

   $ __M       $ __M       $ __M       $ __M   

The number of Revenue RSUs that will vest will be determined based on the Company’s achieved revenue for 2014 as certified by the Compensation Committee. If the RSU threshold levels are achieved, the Revenue RSUs will vest on a pro-rata, straight-line basis between 0% and 100% vesting, starting at the RSU threshold revenue level up to the RSU target revenue level. In other words, none of the Revenue RSUs will vest at the threshold level; from there, the percentage of Revenue RSUs that vest will increase on a straight-line basis up to 100% at the target level.

The number of Operating Income RSUs that will vest will be determined based on the Company’s achieved operating income for 2014 as certified by the Compensation Committee. If the RSU operating income threshold level is achieved, the Operating Income RSUs will vest on a pro rata, straight-line basis between 0% and 100% vesting, starting at the RSU threshold operating income level up to the RSU target operating income level. In other words, none of the Operating Income RSUs will vest at the threshold level; from there, the percentage of Operating Income RSUs that vest will increase on a straight-line basis up to 100% at the target level.


In each case, the number of RSUs that vest (if any) will be rounded down to the nearest whole share.

The amount of your cash accelerator bonus opportunity will be determined based on the Company’s achieved revenue and the Company’s achieved operating income for 2014 as certified by the Compensation Committee. No cash accelerator bonus will be paid unless both cash bonus thresholds are achieved.

If both cash bonus threshold levels are achieved, then:

50% of your target cash accelerator bonus amount will be determined based on the Company’s achieved revenue. This portion of your target cash accelerator bonus opportunity will be paid on a pro-rata, straight-line basis from zero to 100%, starting at the cash accelerator bonus threshold revenue level up to the cash accelerator bonus target revenue level. In other words, none of this portion of the cash accelerator bonus will be paid for revenue at the threshold level; from there, the percentage of this portion of the cash accelerator bonus that will be paid will increase on a straight-line basis up to 100% of this portion at the target level;  and

50% of your target cash accelerator bonus amount will be determined based on the Company’s achieved operating income. This portion of your target cash accelerator bonus opportunity will be paid on a pro-rata, straight-line basis from zero to 100%, starting at the cash accelerator bonus threshold operating income level up to the cash accelerator bonus target operating income level. In other words, none of this portion of the cash accelerator bonus will be paid for operating income at the threshold level; from there, the percentage of this portion of the cash accelerator bonus that will be paid will increase on a straight-line basis up to 100% at the target level.

In addition, the Committee has the discretion to decrease (but not increase) the amount of the cash accelerator bonus (if any) payable related to revenue in the event that such revenue is not, in the Committee’s judgment, delivering appropriate levels of profitability. In each case, vesting of any RSUs and earning of any cash accelerator bonus is subject to your continued employment in good standing through the Vesting Date.

Non-GAAP Operating Income is defined as operating income determined in accordance with GAAP, as adjusted to remove the impact of certain recurring and non-recurring expenses and the tax effect of these adjustments, in each case consistent with the determination of non-GAAP operating income in the Company’s financial reporting.

Maximum Award —In no event shall any RSU award vest with respect to more than 100% of the RSUs subject to such award. In no event will more than 100% of your target cash accelerator bonus become payable.

Adjustments —The Committee shall, to the extent it determines appropriate in order to preserve the intended incentives, adjust (1) the performance thresholds and targets set forth above to mitigate the unbudgeted impact of material, unusual or nonrecurring gains and losses, the financial statement impact of changes in capital structure, mergers, acquisitions, dispositions, and similar transactions, and changes in applicable accounting rules, and/or (2) the calculation of the 2014 Company’s performance metric in order to more properly reflect the Company’s actual performance against the thresholds and targets to mitigate for items such as currency fluctuations or backlogs.


Other Terms

Termination of Employment

Except as may otherwise be expressly provided below, in the applicable Restricted Stock Unit Award Notice and Restricted Stock Unit Award Agreement (as to RSUs), or your written employment agreement (if any) with the Company, you will have no right to any cash accelerator bonus for 2014 and no right to any payment with respect to your RSUs for 2014 (and your RSUs will automatically and immediately terminate) should you cease to be employed by the Company or one of its subsidiaries before the Vesting Date set forth above (regardless of the reason for such termination of employment).

Notwithstanding anything to the contrary in the applicable Restricted Stock Unit Award Notice and Restricted Stock Unit Award Agreement or your written employment agreement (if any) with the Company, if you are involuntarily terminated Without Cause or are terminated for Good Reason outside of a Change of Control (as these terms are defined in the applicable employment agreement), you will be eligible for (i) pro-rata vesting of your RSUs related to this Program and (ii) a pro-rata payment of your 2014 cash accelerator bonus. The pro-rata RSU vesting and pro-rata bonus will be determined with respect to the number of RSUs that would have vested and amount of cash accelerator bonus that would have been payable under this Program, respectively, had your employment continued through the Vesting Date, in each case multiplied by a fraction (x) the numerator of which is the number of whole months you were employed by the Company during 2014, and (y) the denominator of which is twelve. Payment of such pro-rata amounts will be made at the same time that payment would have been made had you continued to be employed through the Vesting Date. In the event that you are entitled to a pro-rata payment of your RSUs, payment will be made in cash (as opposed to shares or other property) with the cash payment in respect of a vested RSU to equal (subject to applicable tax withholding) the closing price of a share of EFI common stock on the Determination Date.

With respect to any RSUs granted under this Program, in the event of any conflict between the provisions of your employment agreement regarding acceleration of performance equity outside of a Change of Control and this Program, this Program shall control.

No Right to Continued Employment

Nothing contained in this Program, the RSUs, or any related document constitutes an employment or service commitment by the Company (or any affiliate), affects your status (if you are employed at will) as an employee at will who is subject to termination at any time and for any reason, confers upon you any right to remain employed by or in service to the Company (or any affiliate), or interferes in any way with the right of the Company (or any affiliate) to terminate your employment or to change your compensation or other terms of employment at any time.

Administration

The Compensation Committee will administer this Program. The Compensation Committee has the authority to construe and interpret this Program and any agreement or other document relating to this Program. All actions taken and all interpretations and determinations made by the Compensation Committee in respect of such documents and matters shall be conclusive and binding on all persons and shall be given the maximum deference permitted by law.

Amendment

This Program may not be amended other than in writing signed by an authorized officer of the Company, upon approval of the Compensation Committee, as required.

Clawback Policy

This Program, the RSU Awards, any securities or other consideration you may receive in payment of or with respect to the RSU Awards, as well as any cash bonus or bonus opportunity under this Program, is subject to the terms of the EFI recoupment, clawback or similar policy as it may be in effect from time to time, as well as any similar provisions of applicable law, any of which could in certain circumstances require repayment or forfeiture of your bonus, awards or any shares of stock or other cash or property received with respect to your bonus or awards (including any value received from a disposition of any shares of stock you may receive in payment of the RSU Awards).


Construction

The RSU Awards and cash accelerator bonus contemplated above are intended as qualified performance-based compensation within the meaning of Section 162(m) of the Internal Revenue Code. This Program, the RSU Awards, and the cash bonus opportunities contemplated above are also intended to satisfy, and not be subject to any tax, penalty or interest under, Section 409A of the Internal Revenue Code. These arrangements shall be construed in accordance with such intents.

I have read and understand the terms of this Program and the documents referred to herein and agree to these terms and the terms of such other documents.

 

[Participant Name]

     [Date]  

Exhibit 10.2

 

LOGO

EXECUTIVE EMPLOYMENT AGREEMENT

On January 27, 2014 (“the Effective Date”), Guy Gecht, an individual (“Executive”), and Electronics For Imaging, Inc., (“the Company”), hereby enter into an Executive Employment Agreement (the “Agreement”).

 

1. Position.

Executive will be employed as the Chief Executive Officer. Executive and the Company may mutually agree to change Executive’s position(s) or title(s), and the Company may from time to time alter the duties, responsibilities or functions initially associated with the position(s).

 

2. Primary Duties.

Executive will perform such duties and functions as are generally associated with the position of Chief Executive Officer as well as such other specific duties and functions that are reasonably assigned to him from time to time by the Company’s Board of Directors.

 

3. Base Salary.

Beginning on the Effective Date, Executive will receive an annual base salary of $620,000, which will be paid in accordance with the Company’s regular payroll practices, and which will be subject to withholding required by law. Thereafter, Executive’s annual base salary will be reviewed periodically to determine whether, in the Company’s sole discretion, Executive’s base salary should be changed.

 

4. Management Bonus Program.

Beginning on the Effective Date, Executive will be eligible to participate in the Company’s annual management bonus program for executives under which he will be eligible to receive a bonus based on a percentage of his annual base salary and the achievement of performance targets established by the Company at the beginning of the year. The award and payment of the executive bonus will be governed by the terms of the applicable management bonus program. The Company shall have the sole discretion to change or eliminate its management bonus program, to determine whether Executive is entitled to any such bonus and to determine the amount of any such bonus. Except as provided in Section 9.a, if Executive’s employment terminates for any reason prior to the end of the calendar year, Executive’s entitlement to any portion of the executive bonus or commission for that year will be determined pursuant to the then applicable management bonus program.

 

5. Executive Benefits.

Executive will be eligible to participate in any employee benefit plans or programs as in effect from time to time, including but not limited to group medical benefits and 401(k) plan, maintained or established by the Company to the same extent as other employees at Executive’s level within the Company, subject to the generally applicable terms and conditions of the plan or program in question and the determination of any person or committee administering such plan or program.


If Executive becomes entitled to any Severance Pay or Change of Control Severance Pay (as defined in section 9.a), the Company shall (i) continue to fully subsidize Executive’s health insurance coverage under Part 6 of Title I of ERISA (“COBRA”) for the lesser of (x) the period of COBRA continuation coverage applicable to the Executive, or (y) the duration of the Severance Pay or Change of Control Severance Pay and (ii) provide outplacement services to the Executive for a minimum of one (1) week of onsite counseling and ninety (90) days of counseling follow-ups (subject to a maximum of $35,000).

 

6. Equity.

Executive may periodically be granted equity awards based on his performance.

 

7. Other Obligations.

Executive will be subject to and agrees to adhere to all policies and procedures of the Company, as amended from time to time, applicable to Executive’s position or level within the Company. Executive’s employment agreement is conditioned upon Executive’s faithful observance of the Company’s Employment, Confidential Information and Invention Assignment Agreement (the “Confidential Information Agreement”), a copy of which is attached.

 

8. At-Will Employment.

Executive’s employment with the Company is for no specified duration and is at-will. Either Executive or the Company may terminate Executive’s employment or the terms of his employment at any time and for any reason, with or without cause and with or without notice. The at-will nature of Executive’s employment with the Company may be altered only in writing expressly so stating signed by the Company’s Board. However, as described in this Agreement, Executive may be entitled to severance benefits depending upon the circumstances of the termination of Executive’s employment.

 

9. Termination of Employment.

 

  a. Termination Before and After a Change of Control Without Cause or By Executive for Good Reason or for Good Reason Outside of a Change of Control .

 

  (i) Termination Before a Change of Control by the Company Without Cause or by the Executive for Good Reason Outside of a Change of Control . If, before a Change of Control (as defined in section 9(f)) or more than 24 months after a Change of Control, the Company terminates Executive’s employment Without Cause (as defined in section 9.d) or Executive voluntarily terminates his or her employment for Good Reason Outside of a Change of Control (as defined in section 9(f)), provided that the termination of Executive’s employment constitutes a “separation from service” within the meaning of Treasury Regulation Section 1.409A-1(h) (a “Separation from Service”), the Executive shall be entitled to the following: (i) an amount equal to (A) twenty-four (24) months of his then-existing base salary, plus (B) an amount equal to the bonus the Executive would have earned had he been employed by the Company at the end of the calendar year in which such Separation from Service occurred based on actual Company performance for that year multiplied by a fraction (x) the numerator of which is the number of completed months in that year through the date of such Separation from Service, and (y) the denominator of which is twelve (12) (the “Current Bonus”) (in total, the “Severance Pay”), (ii) the equity acceleration or extension of vesting benefits, as the case may be, described below in this Section 9.a(i).


In such circumstances, in addition to Executive’s equity awards (such as Restricted Stock Awards, Restricted Stock Units and the like) and stock options that were granted by the Company and vested immediately prior to such termination, the vesting of additional equity awards and options that were granted by the Company to Executive and are outstanding and otherwise unvested immediately prior to such termination and are subject to only time-based (as opposed to performance-based) vesting conditions shall accelerate and become immediately vested and exercisable by the Executive or the Executive’s estate, as if the Executive had remained continuously employed for a period of six (6) months following such termination (and if any of such awards vest other than on a monthly basis, the appropriate credit shall be given as if the vesting accrued monthly).

In addition, as to any equity awards and options that were granted by the Company to Executive and are outstanding and otherwise unvested immediately prior such termination and are subject to performance-based vesting conditions measured by the average per-share closing price of the Company’s common stock, vesting of such awards shall be extended and the share price shall continue to be measured as if the Executive had remained continuously employed for a period of six (6) months following such termination.

In addition, as to any equity awards and options that were granted by the Company to Executive and are outstanding and otherwise unvested immediately prior to such termination and are subject to any other performance-based vesting conditions, such awards shall continue to remain outstanding and unvested through the Determination Date or equivalent, as the case may be, and shall vest and become exercisable by the Executive or the Executive’s estate upon the review of the performance goals and confirmation that the vesting conditions have been satisfied (the “Determination Date”) by the Company or authorized committee, as the case may be, with the number of shares underlying such award or options vesting as determined by the Company or such committee, multiplied by a fraction (x) the numerator of which is the number of completed months in that year through the date of such Separation from Service plus six (6) but under no circumstances shall the numerator exceed twelve (12), and (y) the denominator of which is twelve (12); provided, however, that any options vested on such Determination Date shall remain exercisable for the earlier of the period prescribed in the Executive’s applicable stock option agreement or the expiration of its term; provided further, that should the term of any option occur prior to the Determination Date, such option shall terminate according to its term; and provided further that in the event of a Change of Control (as defined in section 9.f hereto) occurring between the date of termination of employment and the Determination Date, the Company or its successor shall have the right to terminate such equity awards and options.

The Severance Pay other than the Current Bonus amount will be paid in a lump sum payment on the date that is sixty (60) days following the Executive’s Separation from Service, and the Current Bonus portion of Executive’s Severance Pay, if any, shall be payable following the Company’s determination with regard to whether the performance targets in respect of such bonus have been attained and in any event no later than two and one half (2-1/2) months following the calendar year in which Executive terminates employment. The Company is not obligated to pay the Severance Pay and accelerate the vesting of Executive’s options and other equity awards unless the Executive signs and delivers to the Company’s Chief Executive Officer or President (within twenty-one (21) days after the date of Executive’s termination of employment) a “Separation Agreement and Full Release Of All Claims” in the form of the attached agreement and the release becomes irrevocable.

 


  (ii) Termination After Change of Control by the Company Without Cause or by the Executive for Good Reason. If within twenty-four (24) months following a Change of Control (as defined in section 9.f), Executive’s employment with the Company is terminated by the Company Without Cause or is voluntarily terminated by Executive for Good Reason (as defined in section 9.e), provided that the termination of Executive’s employment constitutes a Separation from Service, Executive will receive the following: (i) an amount equal to (A) thirty-six (36) months of base salary, plus (B) the bonus the Executive would have earned had he been employed by the Company at the end of the calendar year (and as if 100% of the performance targets, if any, were attained), with the amounts described in both (A) and (B) payable in a lump sum on the date that is sixty (60) days following the Executive’s Separation from Service, (ii) in addition to Executive’s stock options that were vested immediately prior to such termination, the vesting of additional options shall accelerate in full and become exercisable by the Executive or the Executive’s representative, as the case may be, and such Stock Options shall be exercisable until the earlier of either: (a) one (1) year from the termination date or (b) the date the stock options would have expired pursuant to their original terms on the date of grant or been terminated in connection with a Change of Control or similar event, and (iii) in addition to Executive’s equity awards other than options (such as Restricted Stock Awards, Restricted Stock Units and the like) that were vested immediately prior to such termination, all of the Executive’s other equity awards shall become fully vested and nonforfeitable (assuming the maximum level of performance in the case of any such outstanding equity awards with performance-based vesting conditions). This obligation to pay Executive the Change of Control Severance Pay will be binding on the successor entity following the Change of Control, but shall remain an obligation of the Company if the successor entity fails to discharge it; provided, however, the Company is not obligated to pay the Change of Control Severance Pay and accelerate the vesting of Executive’s options and other equity awards in the event of a Change of Control unless the Executive signs and delivers to the Company’s Chief Executive Officer or President (within twenty-one (21) days after the date of Executive’s termination of employment) a “Separation Agreement and Full Release Of All Claims” in the form of the attached agreement and the release becomes irrevocable.

 

  (iii) Section 409A Delay . Notwithstanding any provision to the contrary in the Agreement, if Executive is deemed by the Company at the time of his Separation from Service to be a “specified employee” (within the meaning of Section 409A of the Code and regulations promulgated thereunder), to the extent delayed commencement of any portion of the termination benefits to which Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of Executive’s termination benefits shall not be provided to Executive prior to the earlier of (A) the expiration of the six-month period measured from the date of Executive’s Separation from Service with the Company or (B) the date of Executive’s death. Upon the expiration of the applicable Code Section 409A(a)(2)(B)(i) deferral period, all payments deferred pursuant to this Section 9.a.iv shall be paid in a lump sum to Executive, and any remaining payments due under the Agreement shall be paid as otherwise provided herein.


  b. Other Terminations . If Executive’s employment with the Company terminates for any reason other than in the circumstances described in Section 9.a.i or 9.a.ii above (including a termination for Cause or due to Executive’s death or disability), then Executive will (i) receive the base salary through the date of termination of employment and (ii) not be entitled to any other compensation or benefits (including, without limitation, accelerated vesting of stock options) from the Company except to the extent provided under the applicable stock option agreements(s) or as may be required by law (for example, “COBRA” coverage under Section 4980B of the Code).

 

  c. Cause . For all purposes under this Agreement, a termination for “Cause” shall mean a determination by the Company that the Executive’s employment with the Company is terminated for any of the following reasons: (i) the Executive’s willful act of fraud, embezzlement, dishonesty or other misconduct; (ii) the Executive’s willful failure to perform his duties to the Company, failure to follow Company policies as set forth in writing from time to time, or failure to follow the legal directives of the Company (other than failure to meet performance goals, objectives or measures), that is not corrected within thirty (30) days following written notice thereof to the Executive by the Executive’s supervisor or the Company’s Chief Executive Officer, such notice to state with specificity the nature of the failure; (iii) the Executive’s material misappropriation of any material asset of the Company; (iv) the Executive conviction of, or a plea of “Guilty” or “No Contest” to a felony; (v) Executive’s use of alcohol or drugs so as to interfere with the performance of his duties; (vi) the Executive’s willful unauthorized use or disclosure of any proprietary information, customer lists or trade secrets of the Company or its affiliates or a breach by Executive of confidentiality agreement(s) with the Company; (vii) conduct which, in the Company’s determination, is a material violation of Executive’s fiduciary obligations to the Company; or (viii) intentional material damage to any property of the Company.

 

  d. Without Cause . For all purposes under this Agreement, a termination of the Executive’s employment by the Company “Without Cause” shall mean a termination by the Company in the absence of “Cause”, as defined above.

 

  e. Good Reason . For all purposes under this Agreement, “Good Reason” for the Executive’s resignation will exist if he resigned from employment with the Company, unless otherwise agreed to in writing by the Executive, within 60 days after the initial occurrence of any of the following that is not corrected within thirty (30) days following written notice thereof to the Company by the Executive such notice to state with specificity the nature of the failure: (i) any material reduction in his Base Salary or target bonus in local currency of 10% or more (excluding any voluntary reductions); (ii) any material reduction in his benefits, including the termination of this Agreement by the Company without the written consent of the Executive; (iii) a change in his position with the Company or successor company that materially reduces his duties and responsibilities; (iv) a material office relocation of more 30 miles further from the Executive’s primary residence; or (v) any other material breach by the Company of its obligations to the Executive under this Agreement.

 

  f. Good Reason Outside of a Change of Control . For all purposes under this Agreement, “Good Reason Outside of a Change of Control” for the Executive’s resignation will exist if he resigned from employment with the Company, unless otherwise agreed to in writing by the Executive, within 60 days after the initial occurrence of any of the following that is not corrected within thirty (30) days following written notice thereof to the Company by the Executive such notice to state with specificity the nature of the failure: (i) any material reduction in his Base Salary or target bonus in local currency of 20% or more (excluding any voluntary reductions); (ii) a change in his position with the Company that materially reduces his duties and responsibilities, including the termination of this Agreement by the Company without the written consent of the Executive (it being understood that the non-renewal of this Agreement under Section 13 below shall not constitute a termination of this Agreement by the Company without the written consent of the Executive); (iv) a material office relocation of more 60 miles further from the Executive’s primary residence; or (v) any other material breach by the Company of its obligations to the Executive under this Agreement.


  g. Change of Control . For purposes of this Agreement, a “Change of Control” means the occurrence of any of the following events:

 

  (i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the “beneficial owner” (as defined under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities; or

 

  (ii) A change in the composition of the Board of Directors of the Company occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (a) are directors of the Company as of the date hereof, or (b) are elected, or nominated for election, to the Board of Directors of the Company with the affirmative votes of at least a majority of the Incumbent directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or

(A) A merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) a plan of complete liquidation of the Company approved by the stockholders of the Company, or (C) the disposition by the Company (in a sale, transaction or other corporate event, or series of related sales, transactions or related corporate events) of all or substantially all of the Company’s assets (on a consolidated basis) unless, in the case of a transaction or event referred to in clause (C), immediately after such transaction the assets that are sold or otherwise disposed of are owned by an entity that is owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the Company’s common stock immediately preceding such transaction or event.

 

10. Non-Solicitation.

During the Executive’s Employment Term, Executive, directly or indirectly, whether as an employee, owner, sole proprietor, partner, director, member, consultant, agent, founder, co-venture or otherwise, will not engage, participate or invest in any business activity anywhere in the world which develops, manufactures or markets products or performs services which are competitive with the products or services of the Company or products or services which the Company has under development or which are the subject of active planning. Executive is not prohibited from purchasing equities or derivatives in any publicly traded any company.

For a period of twelve (12) months following the date the Executive ceases to be employed with the Company for any reason (the “Restricted Period”), the Executive will not (i) directly or indirectly through any other person induce or attempt to induce any employee or independent contractor of the Company or any affiliate of the Company to leave the employ or service, as applicable, of the Company or such affiliate, or in any way interfere with the relationship between the Company or any such affiliate, on the one hand, and any employee or independent contractor thereof, on the other hand, or (ii) directly or indirectly make any statement that disparages the Company or any of its affiliates or has the purpose or effect of harassing or disrupting the business of the Company or any of its affiliates.


During the Restricted Period, the Executive will not directly or indirectly through any other person solicit, influence or attempt to influence customers, vendors, suppliers, licensors, lessors, joint venturers, associates, consultants, agents, or partners of the Company or any affiliate of the Company to divert their business away from the Company or such affiliate, and the Executive will not otherwise interfere with, disrupt or attempt to disrupt the business relationships, contractual or otherwise, between the Company or any affiliate of the Company, on the one hand, and any of its or their customers, suppliers, vendors, lessors, licensors, joint venturers, associates, officers, employees, consultants, managers, partners, members or investors, on the other hand.

The Executive acknowledges that, in the course of his employment with the Company and/or its affiliates, he has become familiar, or will become familiar, with the trade secrets of the Company and its affiliates and with other confidential and proprietary information concerning the Company and its affiliates and that his services have been and will be of special, unique and extraordinary value to the Company and its affiliates. The Executive agrees that the foregoing nonsolicitation covenants are reasonable and necessary to protect the trade secrets and other confidential and proprietary information, good will, stable workforce, and customer relations of the Company and its affiliates.

 

11. Written Amendment or Modification; Waiver.

Except as provided in this paragraph, this Agreement may be altered, modified, or amended only by a writing signed by Executive and the Company’s Chief Executive Officer or President of the Company expressly acknowledging that it is altering, modifying or amending the Agreement. No modification, waiver or discharge of this Agreement will be effective unless in writing signed by the Executive and by the Company’s Chief Executive Officer or President of the Company. No waiver by either party of any condition or provision of this Agreement shall be considered a waiver of any other condition or provision or a waiver of the same condition or provision at another time.

 

12. Successors and Assigns.

This Agreement shall be binding upon Executive’s heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors and assigns. This Agreement is specific to Executive and may not be assigned or substituted for without the express written consent of the Company’s Chief Executive Officer or President of the Company.

 

13. Term.

The term of this Agreement shall begin on the Effective Date and continue until the first anniversary of the Effective Date and will automatically be renewed for one (1) year periods thereafter unless terminated by either party upon sixty (60) days written notice prior to the expiration of the term as then in effect and unless otherwise terminated in accordance with the terms thereof.

 

14. Entire Agreement.

This Agreement, and the attached Confidential Information Agreement, sets forth the entire agreement and understanding between the Company and Executive relating to its subject matter, is fully integrated and supersedes all prior of contemporaneous discussions, representations, and agreements, whether oral or in writing, between the parties on that subject matter.


15. Governing Law; Consent to Personal Jurisdiction.

This Agreement shall be governed by the laws of the State of California, without regard to the choice of law provisions thereof. Executive hereby expressly consents to personal jurisdiction in the State and federal courts located in California for any lawsuit arising from or relating to this Agreement, without regard to his then-current residence or domicile.

 

16. Severability.

The invalidity or unenforceability of one or more provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect to the maximum extent of the law.

 

17. Tax Matters.

All forms of compensation referred to in this Agreement are subject to applicable withholding and payroll taxes. It is intended that the terms of this Agreement will not result in the imposition of any tax liability pursuant to Section 409A of the Code, and this Agreement shall be construed and interpreted consistent with that intent.

 

18. Clawback Rules and Policy.

This Agreement and all forms of compensation referred to in this Agreement are subject to the “clawback” provisions of applicable law, rules and regulations as well as any Company clawback policy, as each may be adopted and in effect from time to time.

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer.

 

Electronics For Imaging, Inc.      
By:   /s/ Bryan Ko     Date:   1/27/2014
Title:   Vice President      

 

Executive:      
/s/ Guy Gecht     Date:   1/27/2014
     

Exhibit 99.1

 

For more information:       Investor Relations:
David Reeder       JoAnn Horne
Chief Financial Officer       Market Street Partners

EFI

650-357-3500

      415-445-3235

EFI Reports Record Fourth Quarter and Full Year 2013 Results

 

    Q4 2013 Revenue Increases 13% to a Record $197 Million
    Q4 2013 Non-GAAP Net Income Increases 20%
    Q4 2013 Double-Digit Growth in All Business Segments & Regions
    FY 2013 Revenue Increases 12% to a Record $728 Million
    FY 2013 Non-GAAP Net Income Increases 25%

Fremont, Calif. – January 28, 2014 – Electronics For Imaging, Inc. (Nasdaq: EFII), a world leader in customer-focused digital printing innovation, today announced its results for the fourth quarter and full year of 2013.

For the quarter ended December 31, 2013, the Company reported record revenue of $197.2 million, up 13% compared to fourth quarter 2012 revenue of $174.1 million. Fourth quarter 2013 non-GAAP net income was $23.8 million or $0.49 per diluted share, up 20% and 17%, respectively, compared to non-GAAP net income of $19.8 million or $0.42 per diluted share for the same period in 2012. GAAP net income was $75.2 million or $1.54 per diluted share, up 33% and 29%, respectively, compared to $56.6 million or $1.19 per diluted share for the same period in 2012.

For the twelve months ended December 31, 2013, the Company reported record revenue of $727.7 million, up 12% year-over-year compared to $652.1 million for the same period in 2012. Non-GAAP net income was $76.6 million or $1.58 per diluted share, up 25% and 22%, respectively, compared to non-GAAP net income of $61.5 million or $1.29 per diluted share for the same period in 2012. GAAP net income was $109.1 million or $2.26 per diluted share, up 31% and 30%, respectively, compared to GAAP net income of $83.3 million or $1.74 per diluted share for the same period in 2012.

“The EFI team delivered a record fourth quarter with strong execution, driving double-digit growth across all segments and regions and capping a terrific 2013,” said Guy Gecht, Chief Executive Officer of EFI. “Looking ahead, we are excited about our opportunities from the ongoing migration of analog to digital printing, and continue to be very focused on helping customers become more productive and competitive.”

EFI will discuss the Company’s financial results by conference call at 2:00 p.m. PDT today. Instructions for listening to the conference call over the Web are available on the investor relations portion of EFI’s website at www.efi.com .

About EFI

EFI™ ( www.efi.com ) is a worldwide provider of products, technology, and services leading the transformation of analog to digital imaging. Based in Silicon Valley with offices around the globe, the company’s powerful integrated product portfolio includes digital front-end servers; superwide, wide-format, label, and ceramic inkjet presses and inks; production workflow, web-to-print, and business automation software; and office, enterprise, and mobile cloud solutions. These products allow users to produce, communicate and share information in an easy and effective way, and enable businesses to increase their profits, productivity, and efficiency.

 

1


Safe Harbor for Forward Looking Statements

Certain statements in this press release are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements other than statements of historical fact including words such as “anticipate”, “believe”, “consider”, “continue”, “estimate”, “expect”, and “plan” and statements in the future tense are forward looking statements. The statements in this press release that could be deemed forward-looking statements include statements regarding EFI’s strategy, plans, expectations regarding its revenue growth, product portfolio, productivity, future opportunities for EFI and its customers, demand for products, and any statements or assumptions underlying any of the foregoing.

Forward-looking statements are subject to certain risks and uncertainties that could cause our actual future results to differ materially, or cause a material adverse impact on our results. Potential risks and uncertainties include, but are not necessarily limited to, unforeseen expenses; the difficulty of aligning expense levels with revenue; management’s ability to forecast revenues, expenses and earnings; any world-wide financial and economic difficulties and downturns; adverse tax-related matters such as tax audits, changes in our effective tax rate or new tax legislative proposals; the unpredictability of development schedules and commercialization of products by the leading printer manufacturers and declines or delays in demand for our related products; changes in the mix of products sold; the uncertainty of market acceptance of new product introductions; intense competition in each of our businesses, including competition from products developed by EFI’s customers; challenge of managing asset levels, including inventory and variations in inventory levels; the uncertainty of continued success in technological advances; the challenges of obtaining timely, efficient and quality product manufacturing and supply of components; litigation involving intellectual property rights or other related matters; our ability to successfully integrate acquired businesses; the uncertainty regarding the amount and timing of future share repurchases by EFI and the origin of funds used for such repurchases; the market prices of EFI’s common stock prior to, during and after the share repurchases; any disruptions in our operations, the difficulty to retain employees, and additional expenses that we may incur as a result of our relocation to the Fremont campus; the compliance with the new requirements regarding the “conflict minerals,” if they are found to be used in our products, and any other risk factors that may be included from time to time in the Company’s SEC reports.

The statements in this press release are made as of the date of this press release. EFI undertakes no obligation to update information contained in this press release. For further information regarding risks and uncertainties associated with EFI’s businesses, please refer to the section entitled “Risk Factors” in the Company’s SEC filings, including, but not limited to, its annual report on Form 10-K and its quarterly reports on Form 10-Q, copies of which may be obtained by contacting EFI’s Investor Relations Department by phone at 650-357-3828 or by email at investor.relations@efi.com or EFI’s Investor Relations website at www.efi.com .

Use of Non-GAAP Financial Information

To supplement our condensed consolidated financial results prepared under generally accepted accounting principles, or GAAP, we use non-GAAP measures of net income and earnings per diluted share that are GAAP net income and GAAP earnings per diluted share adjusted to exclude certain recurring and non-recurring costs, expenses and gains. A reconciliation of the adjustments to GAAP results for the three months and year ended December 31, 2013 and 2012 is provided below. In addition, an explanation of how management uses non-GAAP financial information to evaluate its business, the substance behind management’s decision to use this non-GAAP financial information, the material limitations associated with the use of non-GAAP financial information, the manner in which management compensates for those limitations, and the substantive reasons management believes that this non-GAAP financial information provides useful information to investors is included under “About our Non-GAAP Net Income and Adjustments” after the tables below.

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.

 

2


Electronics For Imaging, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 

     Three Months Ended
December 31,
     Years Ended
December 31,
 
     2013     2012      2013     2012  

Revenue

   $ 197,213      $ 174,105       $ 727,693      $ 652,137   

Cost of revenue

     91,103        79,820         332,527        297,316   
  

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit

     106,110        94,285         395,166        354,821   

Operating expenses (gains):

         

Research and development

     32,944        30,103         128,124        120,298   

Sales and marketing

     35,450        32,035         137,583        125,513   

General and administrative

     10,246        13,893         47,755        50,727   

Amortization of identified intangibles

     4,798        5,160         19,438        18,594   

Restructuring and other

     737        1,273         4,834        5,803   

Gain on sale of building and land

     (117,562     —          (117,216     —    
  

 

 

   

 

 

    

 

 

   

 

 

 

Total operating expenses (gains)

     (33,387     82,464         220,518        320,935   
  

 

 

   

 

 

    

 

 

   

 

 

 

Income from operations

     139,497        11,821         174,648        33,886   

Interest and other income (expense), net

     608        336         (1,510     1,137   
  

 

 

   

 

 

    

 

 

   

 

 

 

Income before income taxes

     140,105        12,157         173,138        35,023   

Benefit from (provision for) income taxes

     (64,924     44,462         (64,031     48,246   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net income

   $ 75,181      $ 56,619       $ 109,107      $ 83,269   
  

 

 

   

 

 

    

 

 

   

 

 

 

Fully Diluted EPS calculation

         

Net income

   $ 75,181      $ 56,619       $ 109,107      $ 83,269   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net income per diluted common share

   $ 1.54      $ 1.19       $ 2.26      $ 1.74   
  

 

 

   

 

 

    

 

 

   

 

 

 

Shares used in diluted per share calculation

     48,774        47,566         48,359        47,734   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

3


Electronics For Imaging, Inc.

Reconciliation of GAAP Net Income to Non-GAAP Net Income

(in thousands, except per share data)

(unaudited)

 

     Three Months Ended     Years Ended  
     December 31,     December 31,  
     2013     2012     2013     2012  

Net income

   $ 75,181      $ 56,619      $ 109,107      $ 83,269   
  

 

 

   

 

 

   

 

 

   

 

 

 

Amortization of identified intangibles

     4,798        5,160        19,438        18,594   

Stock based compensation – Cost of revenue

     482        367        1,817        1,193   

Stock based compensation – Research and development

     2,044        1,532        7,568        5,719   

Stock based compensation – Sales and marketing

     1,362        915        4,500        3,320   

Stock based compensation – General and administrative

     3,174        2,572        11,886        9,490   

Restructuring and other

     737        1,273        4,834        5,803   

Gain on sale of building and land

     (117,562     —         (117,216     —    

General and administrative:

        

Acquisition-related transaction costs

     597        993        1,433        2,200   

Change in fair value of contingent consideration

     (5,340     44        (5,743     (1,360

Litigation settlements

     202        —         (3,075     256   

Sublease income related to our deferred property sale

     (341     (480     (3,080     (480

Depreciation expense related to our deferred property sale

     137        273        1,367        273   

Interest and other income (expense), net:

        

Interest expense related to our deferred property sale

     52        584        1,851        584   

Gain on sale of minority investment in a privately-held company

     (75     —         (75     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Tax effect of non-GAAP adjustments

     58,395        (50,022     42,016        (67,375
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income

   $ 23,843      $ 19,830      $ 76,628      $ 61,486   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income per diluted common share

   $ 0.49      $ 0.42      $ 1.58      $ 1.29   
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per share calculation

     48,774        47,566        48,359        47,734   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

4


Electronics For Imaging, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 

     December 31,      December 31,  
     2013      2012  

Assets

     

Cash and cash equivalents

   $ 177,084       $ 283,996   

Short-term investments

     177,957         80,966   

Accounts receivable, net

     130,717         135,110   

Inventories

     68,345         58,343   

Other current assets

     46,471         74,877   
  

 

 

    

 

 

 

Total current assets

     600,574         633,292   

Property and equipment, net

     84,829         86,582   

Goodwill

     233,203         219,456   

Intangible assets, net

     68,722         80,244   

Other assets

     39,320         55,397   
  

 

 

    

 

 

 

Total assets

   $ 1,026,648       $ 1,074,971   
  

 

 

    

 

 

 

Liabilities & Stockholders’ equity

     

Accounts payable

   $ 75,132       $ 63,446   

Deferred proceeds from property transaction

     —          180,216   

Accrued and other liabilities

     121,084         119,247   

Income taxes payable

     4,917         7,562   
  

 

 

    

 

 

 

Total current liabilities

     201,133         370,471   

Imputed financing obligation

     11,500         —    

Contingent and other liabilities

     6,815         17,742   

Deferred tax liabilities

     6,738         6,210   

Long term taxes payable

     33,012         29,755   
  

 

 

    

 

 

 

Total liabilities

     259,198         424,178   

Total stockholders’ equity

     767,450         650,793   
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 1,026,648       $ 1,074,971   
  

 

 

    

 

 

 

Note: In accordance with ASC 805, we revised previously issued financial information to reflect adjustments to the accounting for business acquisitions as if they occurred on the acquisition date. Accordingly, we have increased goodwill and accrued and other liabilities by $1.2 million at December 31, 2012 to reflect opening balance sheet adjustments related to our acquisitions of Cretaprint, OPS, and Technique.

 

5


Electronics For Imaging, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

     Years Ended
December 31,
 
     2013     2012  

Cash flows from operating activities:

    

Net income

   $ 109,107      $ 83,269   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     28,830        27,032   

Deferred taxes

     53,397        (52,821

Tax benefit from employee stock plans

     6,868        417   

Excess tax benefit from stock-based compensation

     (7,024     (1,360

Stock-based compensation

     25,770        19,721   

Provisions for inventory obsolescence

     4,508        3,231   

Provisions for bad debts and sales-related allowances

     9,595        3,250   

Contingent consideration payments related to businesses acquired

     (1,563     —    

Gain on sale of building and land, net of relocation costs paid

     (118,492     —    

Other non-cash charges and adjustments, net of effect of acquired companies

     (4,085     2,777   

Changes in operating assets and liabilities

     (17,572     (32,162
  

 

 

   

 

 

 

Net cash provided by operating activities

     89,339        53,354   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of short-term investments

     (145,088     (64,528

Proceeds from sales and maturities of short-term investments

     47,375        80,992   

Purchases, net of proceeds from sales, of property and equipment

     (49,815     (6,147

Proceeds from sale of building and land, net of direct transaction costs

     91        179,173   

Businesses purchased, net of cash acquired

     (14,688     (61,591

Proceeds from sale of minority investment in a privately held company

     75        —    

Proceeds from notes receivable of acquired businesses

     188        5,216   
  

 

 

   

 

 

 

Net cash provided by (used for) investing activities

     (161,862     133,115   
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from issuance of common stock

     12,303        18,958   

Purchases of treasury stock and net share settlements

     (35,735     (35,176

Repayment of debt assumed through business acquisitions

     (1,860     (6,914

Contingent consideration payments related to businesses acquired

     (15,122     (969

Excess tax benefit from stock-based compensation

     7,024        1,360   
  

 

 

   

 

 

 

Net cash used for financing activities

     (33,390     (22,741
  

 

 

   

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

     (999     210   
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (106,912     163,938   

Cash and cash equivalents at beginning of year

     283,996        120,058   
  

 

 

   

 

 

 

Cash and cash equivalents at end of year

   $ 177,084      $ 283,996   
  

 

 

   

 

 

 

 

6


Electronics For Imaging, Inc.

Revenue by Operating Segment and Geographic Area

(in thousands)

(unaudited)

 

     Three Months Ended
December 31,
     Years Ended
December 31,
 
     2013      2012      2013      2012  

Revenue by Operating Segment

           

Industrial Inkjet

   $ 99,191       $ 86,219       $ 354,614       $ 320,228   

Productivity Software

     33,639         29,423         118,409         103,466   

Fiery

     64,383         58,463         254,670         228,443   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 197,213       $ 174,105       $ 727,693       $ 652,137   
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenue by Geographic Area

           

Americas

   $ 115,321       $ 102,762       $ 412,127       $ 354,114   

EMEA

     55,446         47,574         207,665         195,397   

APAC

     26,446         23,769         107,901         102,626   

Japan

     4,594         5,580         21,977         27,870   

APAC, ex Japan

     21,852         18,189         85,924         74,756   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 197,213       $ 174,105       $ 727,693       $ 652,137   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

7


About our Non-GAAP Net Income and Adjustments

Use of Non-GAAP Financial Information

To supplement our condensed consolidated financial results prepared in accordance with GAAP, we use non-GAAP measures of net income and earnings per diluted share that are GAAP net income and GAAP earnings per diluted share adjusted to exclude certain recurring and non-recurring costs, expenses, and gains.

We believe that the presentation of non-GAAP net income and non-GAAP earnings per diluted share provides important supplemental information regarding non-cash expenses and significant recurring and non-recurring items that we believe are important to understanding financial and business trends relating to our financial condition and results of operations. Non-GAAP net income and non-GAAP earnings per diluted share are among the primary indicators used by management as a basis for planning and forecasting future periods and by management and our Board of Directors to determine whether our operating performance has met specified targets and thresholds. Management uses non-GAAP net income and non-GAAP earnings per diluted share when evaluating operating performance because it believes the exclusion of the items described below, for which the amounts and/or timing may vary significantly depending on the Company’s activities and other factors, facilitates comparability of the Company’s operating performance from period to period. We have chosen to provide this information to investors so they can analyze our operating results in the same way that management does and use this information in their assessment of our business and the valuation of our Company.

Use and Economic Substance of Non-GAAP Financial Measures

We compute non-GAAP net income and non-GAAP earnings per diluted share by adjusting GAAP net income and GAAP earnings per diluted share to remove the impact of recurring amortization of acquisition-related intangibles and stock-based compensation expense, as well as restructuring-related and non-recurring charges and gains and the tax effect of these adjustments. Such non-recurring charges and gains include acquisition-related transaction expenses and the costs to integrate such acquisitions into our business, changes in the fair value of contingent consideration, litigation settlement charges and credits, gain on sale of our corporate headquarters building and related land, and imputed interest expense and depreciation, net of accrued sublease income and capitalized interest, related to the sale of our corporate headquarters facility and related land.

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-based Compensation.

 

    Non-recurring charges and gains, including:

 

    Restructuring and other consists of:

 

    Restructuring charges incurred as we consolidate the number and size of 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.

 

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    Changes 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 changes in the fair value of the contingent consideration. Because our management believes the final purchase price paid for each 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 our acquisitions and that investors benefit from a supplemental non-GAAP financial measure that excludes the impact of this adjustment.

 

    Imputed net expenses related to sale of building and land. On November 1, 2012, we sold the 294,000 square foot building located at 303 Velocity Way in Foster City, California, which at that time served as our corporate headquarters, along with approximately four acres of land and certain other assets related to the property, to Gilead Sciences, Inc. for $179.7 million. We used the facility until October 31, 2013, for which period rent was not required to be paid. This constituted a form of continuing involvement that prevented gain recognition. Until we vacated the building, the proceeds from the sale were recognized as deferred proceeds from property transaction on our condensed consolidated balance sheet, which were $183.2 million, including imputed interest costs, at October 31, 2013. Imputed interest expense and depreciation, net of accrued sublease income, of $1.6 million had been accrued at October 31, 2013, related to the deferred property transaction, partially offset by capitalized interest of $1.1 million related to the Fremont facility.

 

    On November 1, 2012, we sold the aforementioned building and land to Gilead for $179.7 million. We used the facility until October 31, 2013, while searching for a new facility, building it out, and relocating our corporate headquarters, for which period rent was not required to be paid. Because we vacated the facility on October 31, 2013, we have no continuing involvement with the property and have accounted for the transaction as a property sale during the fourth quarter of 2013, thereby recognizing a gain of approximately $117 million on the sale of the property.

 

    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 considered to be strategic to us. We sold one of these investments in 2013 for $0.1 million, which had been fully reserved in prior years, because it was no longer considered to be strategic.

 

    In conjunction with our acquisition of Cretaprint, which closed on January 10, 2012, we assumed a contingent liability related to the alleged infringement of certain patents owned by Jose Vicente Tomas Claramonte, the President of Kerajet. Because the former owners of Cretaprint agreed to indemnify EFI against any potential liability in the event that Mr. Claramonte were to prevail in his action against Cretaprint, we accrued a contingent liability based on a reasonable estimate of the legal obligation that was probable as of the acquisition date and we accrued a contingent asset based on the portion of any liability for which the former Cretaprint owners would indemnify EFI. The net obligation accrued in the opening balance sheet on the acquisition date was EU 2.5 million (or approximately $3.3 million). The Spanish Court of Appeal reached a final determination on July 15, 2013, which resulted in EFI having no liability related to any potential infringement of the Claramonte patent. Because this matter is no longer subject to appeal, we have reversed this liability in 2013 by recognizing a credit against general and administrative expense.

 

    In 2013, we settled pre-acquisition litigation-related indemnification claims of $0.2 million. In 2012, we settled a dispute with the lessor of a facility in the U.K. for $0.5 million, which was partially offset by the receipt of an additional $0.2 million in insurance proceeds, net of legal fees and costs, related to our previously disclosed settlement of the shareholder derivative litigation concerning our historical stock option granting practices.

 

9


    Tax effect of non-GAAP adjustments

 

    After excluding the items described above, we apply the principles of ASC 740, Income Taxes, to estimate the non-GAAP income tax benefit (provision) in each jurisdiction in which we operate.

 

    To facilitate comparability of our operating performance between 2013 and 2012, we have excluded the following from our non-GAAP net income:

 

    Tax benefit of $43.6 million during the year ended December 31, 2012 resulting from a capital loss related to the liquidation of a wholly-owned subsidiary.

 

    Tax benefit of $6.5 million during the year ended December 31, 2012 resulting from the increase in value of acquired intangibles for tax purposes due to an operational restructuring in Spain.

 

    Tax charge of $19.8 million during the year ended December 31, 2013 resulting from the establishment of a valuation allowance related to the realization of tax benefits from existing California deferred tax assets.

 

    Tax benefit of $6.0 and $11.8 million for the years ended December 31, 2013 and 2012, respectively, resulting from the release of previously unrecognized tax benefits resulting from the expiration of U.S. federal and state statutes of limitations.

 

    Tax benefit of $3.2 and $0.2 million for the year ended December 31, 2013, resulting from the retroactive renewal of both the 2012 U.S. federal research and development tax credit and certain international tax provisions, respectively, on January 2, 2013. The tax benefit for these items had been previously recognized in our non-GAAP net income for the year ended December 31, 2012.Interest expense accrued (released) on prior year tax reserves of $(0.1) and $0.3 million for the years ended December 31, 2013 and 2012, respectively.

 

    Please note that starting in Q1 2014 and continuing for the balance of the year, we will be using a constant Non-GAAP tax rate of 19%, which we believe reflects the long term average tax rate based on our tax structure and geographic distribution of revenue and profits.

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.

 

10