8-K

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): September 11, 2017

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 944555

(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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Item 2.02. Results of Operations and Financial Condition.

On September 11, 2017, Electronics For Imaging, Inc. (the “Company”) announced financial results for the fiscal quarter ended June 30, 2017. A copy of the press release relating to the foregoing is attached hereto as Exhibit 99.1.

Item 7.01. Regulation FD Disclosure

On September 11, 2017, an increase of $125 million for the Company’s share repurchase program was approved. This authorization will increase the existing share repurchase program approved by the Board of Directors in November 2015 that provided for the repurchase of up to $150 million of the Company’s common stock. As of September 8, 2017, there is approximately $28.8 million remaining available for purchases under the previous program. With the increase, under the program, the Company is now authorized to repurchase up to $153.8 million of its outstanding shares of common stock from time to time until December 31, 2018. The share repurchase program allows the Company to repurchase its shares through open market purchases, privately negotiated transactions or otherwise, subject to market conditions, applicable legal requirements and other factors, including the conditions specified under any 10b5-1 plan. Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without notice. The Company intends to fund repurchases under the share repurchase program from cash on hand. The Company has no obligation to repurchase shares under the authorization.

The information included in Items 2.02 and 7.01, including Exhibit 99.1 is intended to be furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (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 of 1933, as amended (the “Securities Act”), or the Exchange Act, except as expressly set forth by specific reference in such filing.

Safe Harbor for Forward Looking Statements

The information included in Items 2.02 and 7.01, including Exhibit 99.1 contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Statements other than statements of historical fact including words such as “anticipate”, “believe”, “consider”, “continue”, “estimate”, “expect”, “look”, “plan”, and “progress” and statements in the future tense are forward looking statements. The statements in this Current Report on Form 8-K that could be deemed forward-looking statements include statements regarding the Company’s strategy, plans, expectations regarding its revenue growth, introduction of new products, product portfolio, productivity, future opportunities for the Company and its customers, demand for products, source of funds for the share repurchase program 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: our ability to remediate the material weaknesses identified in EFI’s internal control over financial reporting; the uncertainty of the outcome of the pending securities lawsuits against EFI; intense competition in each of our businesses, including competition from products developed by EFI’s customers; unforeseen expenses; fluctuations in currency exchange rates; the difficulty of aligning expense levels with revenue; management’s ability to forecast revenues, expenses and earnings; our ability to successfully integrate acquired businesses; changes in the mix of products sold; the uncertainty of market acceptance of new product introductions; 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; 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; the impact of changing consumer preferences on demand for our textile products; litigation involving intellectual property rights or other related matters; 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; and any other risk factors that may be included from time to time in the Company’s SEC reports.

Readers are cautioned not to place undue reliance on the forward-looking statements included in the information included in Items 2.02 and 7.01, including Exhibit 99.1, which are made as of the date of this Current Report on Form 8-K. The Company undertakes no obligation to update information contained in Items 2.02 and 7.01, including Exhibit 99.1. For further information regarding risks and uncertainties associated with the Company’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, as amended and its quarterly reports on Form 10-Q, copies of which may be obtained by contacting the Company’s Investor Relations Department by phone at 650-357-3828 or by email at investor.relations@efi.com or the Company’s Investor Relations website at www.efi.com.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Description
99.1	Press Release dated September 11, 2017 — EFI Reports Second Quarter 2017 Results

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: September 11, 2017	ELECTRONICS FOR IMAGING, INC.
	By:	/s/ Marc Olin
	Name:	Marc Olin
	Title:	Chief Financial Officer

INDEX TO EXHIBITS FILED WITH

THE CURRENT REPORT ON FORM 8-K DATED SEPTEMBER 11, 2017

Exhibit No.	Description
99.1	Press Release dated September 11, 2017 — EFI Reports Second Quarter 2017 Results

EX-99.1

Exhibit 99.1

For more information:	Investor Relations:
Marc Olin	JoAnn Horne
Chief Financial Officer	Market Street Partners
EFI	415-445-3235
650-357-3500

EFI REPORTS SECOND QUARTER 2017 RESULTS

Company Announces Incremental $125 million

Share Buyback Authorization

Fremont, Calif. – September 11, 2017 – Electronics For Imaging, Inc. (Nasdaq: EFII), a world leader in customer-focused digital printing innovation, today announced its results for the second quarter of 2017.

For the quarter ended June 30, 2017, the Company reported record second quarter revenue of $247.0 million, up 1% compared to second quarter 2016 revenue of $245.7 million. GAAP net income was $2.8 million, down 47% compared to $5.2 million for the same period in 2016 or $0.06 per diluted share, down 45% compared to $0.11 per diluted share for the same period in 2016. Non-GAAP net income was $25.5 million, down 4% compared to non-GAAP net income of $26.7 million for the same period in 2016 or $0.54 per diluted share, down 4% compared to $0.56 per diluted share for the same period in 2016. Cash flow from operating activities was $24.1 million, up 5% compared to $22.9 million during the same period in 2016.

For the six months ended June 30, 2017, the Company reported revenue of $475.7 million, down 1% year-over-year compared to $479.8 million for the same period in 2016. GAAP net income was $7.5 million or $0.16 per diluted share, compared to $7.3 million or $0.15 per diluted share for the same period in 2016. Non-GAAP net income was $51.3 million or $1.09 per diluted share, compared to non-GAAP net income of $52.9 million or $1.10 per diluted share for the same period in 2016. Cash flow from operating activities for the six months ended June 30, 2017, was $39.0 million, up 22% compared to $31.9 million during the same period in 2016.

“While we sincerely regret the delay in announcing our second quarter results and the impact on our shareholders, we are pleased to report that the EFI team delivered record Q2 revenue with solid cash generation,” said Guy Gecht, CEO of EFI. “We expect this momentum to continue into the second half of the year, with anticipated record Q3 revenue, while making additional progress on our pipeline of new industry leading products, including the planned commercialization of the Nozomi.”

Share Buyback Program

Separately, EFI announced that its Board of Directors has approved a $125 million increase in the firm’s share buyback authorization and supplemented the prior program, which, as of September 8, 2017, had $28.8 million available for purchases.

Conference Call

EFI will discuss the Company’s financial results by conference call at 8:00 am ET/5:00 am PT 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™ is a global technology company, based in Silicon Valley, and is leading the worldwide transformation from analog to digital imaging. We are passionate about fueling customer success with products that increase competitiveness and boost productivity. To do that, we develop breakthrough technologies for the manufacturing of signage, packaging, textiles, ceramic tiles, and personalized documents, with a wide range of printers, inks, digital front ends, and a comprehensive business and production workflow suite that transforms and streamlines the entire production process. (www.efi.com)

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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 “address”, “anticipate”, “believe”, “consider”, “continue”, “develop”, “estimate”, “expect”, “further”, “look”, “plan”, and “progress” 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, introduction of new products, 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, intense competition in each of our businesses, including competition from products developed by EFI’s customers; our ability to remediate the material weaknesses identified in EFI’s internal control over financial reporting; the uncertainty of the outcome of the pending securities lawsuits against EFI; unforeseen expenses; fluctuations in currency exchange rates; the difficulty of aligning expense levels with revenue; management’s ability to forecast revenues, expenses and earnings; our ability to successfully integrate acquired businesses; changes in the mix of products sold; the uncertainty of market acceptance of new product introductions; 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; 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; the impact of changing consumer preferences on demand for our textile products; litigation involving intellectual property rights or other related matters; 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; 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. Amounts are subject to rounding.

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 costs, expenses, and gains. A reconciliation of the adjustments to GAAP results for the three and six months ended June 30, 2017 and 2016 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. Non-GAAP financial measures have limitations in that 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.

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Electronics For Imaging, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Revenue	$	247,047		$	245,650		$	475,738		$	479,783
Cost of revenue		119,795			120,603			224,956			236,339
Gross profit		127,252			125,047			250,782			243,444
Operating expenses:
Research and development		38,989			37,676			78,616			74,798
Sales and marketing		43,714			42,770			86,749			84,300
General and administrative		21,135			21,446			42,164			42,278
Amortization of identified intangibles		11,752			9,736			22,530			18,965
Restructuring and other		3,671			1,710			4,589			4,425
Total operating expenses		119,261			113,338			234,648			224,766
Income from operations		7,991			11,709			16,134			18,678
Interest expense		(4,966	)		(4,375	)		(9,626	)		(8,733	)
Interest income and other income, net		755			420			1,042			199
Income before income taxes		3,780			7,754			7,550			10,144
Provision for income taxes		(1,021	)		(2,519	)		(4	)		(2,806	)
Net income	$	2,759		$	5,235		$	7,546		$	7,338
Diluted EPS calculation
Net income	$	2,759		$	5,235		$	7,546		$	7,338
Net income per diluted common share	$	0.06		$	0.11		$	0.16		$	0.15
Shares used in diluted per share calculation		47,150			47,830			47,199			47,930

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Electronics For Imaging, Inc.

Reconciliation of GAAP Net Income to Non-GAAP Net Income

(in thousands, except per share data)

(unaudited)

	Three Months Ended									Six Months Ended
	June 30,									June 30,
							Ex-Currency									Ex-Currency
	2017			2016			2017			2017			2016			2017
Net income	$	2,759		$	5,235		$	2,759		$	7,546		$	7,338		$	7,546
Cost of revenue related to fair value inventory adjustment		159			—			159			1,183			—			1,183
Ex-currency adjustment		—			—			264			—			—			1,421
Stock based compensation – Cost of revenue		665			534			665			1,499			1,544			1,499
Stock based compensation – Research and development		2,346			1,886			2,346			5,916			6,570			5,916
Stock based compensation – Sales and marketing		1,773			1,550			1,773			4,068			4,385			4,068
Stock based compensation – General and administrative		2,829			3,135			2,829			6,410			8,624			6,410
Amortization of identified intangibles		11,752			9,736			11,752			22,530			18,965			22,530
Restructuring and other		3,671			1,710			3,671			4,589			4,425			4,589
General and administrative:
Acquisition-related transaction costs		454			788			454			1,183			1,266			1,183
Changes in fair value of contingent consideration		494			2,263			494			1,777			2,058			1,777
Litigation settlements		259			521			259			278			841			278
Interest income and other income, net
Non-cash interest expense related to our convertible notes		3,249			3,078			3,249			6,420			6,082			6,420
Foreign exchange fluctuation related to contingent consideration		19			(51	)		19			(86	)		456			(86	)
Balance sheet currency remeasurement impact		—			—			635			—			—			1,694
Tax effect of non-GAAP adjustments		(4,954	)		(3,733	)		(5,180	)		(12,026	)		(9,613	)		(12,673	)
Non-GAAP net income	$	25,475		$	26,652		$	26,148		$	51,287		$	52,941		$	53,755
Non-GAAP net income per diluted common share	$	0.54		$	0.56		$	0.55		$	1.09		$	1.10		$	1.14
Shares used in diluted per share calculation		47,150			47,830			47,150			47,199			47,930			47,199

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Electronics For Imaging, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

	June 30,		December 31,
	2017		2016
Assets
Cash and cash equivalents	$	158,577	$	164,313
Short-term investments		272,666		295,428
Accounts receivable, net		235,241		220,813
Inventories		124,065		99,075
Other current assets		43,884		36,637
Total current assets		834,433		816,266
Property and equipment, net		105,853		103,304
Goodwill		383,251		359,841
Intangible assets, net		133,666		122,997
Other assets		92,789		79,088
Total assets	$	1,549,992	$	1,481,496
Liabilities & Stockholders’ equity
Accounts payable	$	131,739	$	114,287
Accrued and other liabilities		178,061		139,318
Income taxes payable		11,634		10,256
Total current liabilities		321,434		263,861
Convertible senior notes, net		311,603		304,484
Imputed financing obligation related to build-to-suit lease		14,111		14,152
Noncurrent contingent and other liabilities		39,264		42,786
Deferred tax liabilities		13,459		16,351
Noncurrent income taxes payable		12,016		12,030
Total liabilities		711,887		653,664
Total stockholders’ equity		838,105		827,832
Total liabilities and stockholders’ equity	$	1,549,992	$	1,481,496

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Electronics For Imaging, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Six Months Ended
	June 30,
	2017			2016
Cash flows from operating activities:
Net income	$	7,546		$	7,338
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		30,911			26,503
Deferred taxes		(1,571	)		(6,409	)
Stock-based compensation, net of cash settlements		17,893			18,216
Provision for inventory obsolescence		1,465			3,240
Provision for bad debts and sales-related allowances		6,401			5,737
Non-cash accretion of interest expense on convertible notes and imputed financing obligation		7,459			6,574
Other non-cash charges and gains		2,890			(1,329	)
Changes in operating assets and liabilities, net of effect of acquired businesses		(33,984	)		(28,010	)
Net cash provided by operating activities		39,010			31,860
Cash flows from investing activities:
Purchases of short-term investments		(62,431	)		(137,323	)
Proceeds from sales and maturities of short-term investments		85,306			165,634
Purchases of restricted investments and cash equivalents		(14,191	)		—
Purchases, net of proceeds from sales, of property and equipment		(5,711	)		(13,694	)
Businesses purchased, net of cash acquired		(13,512	)		(19,614	)
Net cash used for investing activities		(10,539	)		(4,997	)
Cash flows from financing activities:
Proceeds from issuance of common stock		6,643			4,982
Purchases of treasury stock and net share settlements		(41,326	)		(43,923	)
Repayment of debt assumed through business acquisitions and debt issuance costs		(1,489	)		(8,312	)
Contingent consideration payments related to businesses acquired		(1,294	)		(1,868	)
Net cash used for financing activities		(37,466	)		(49,121	)
Effect of foreign exchange rate changes on cash and cash equivalents		3,259			1,815
Decrease in cash and cash equivalents		(5,736	)		(20,443	)
Cash and cash equivalents at beginning of period		164,313			164,091
Cash and cash equivalents at end of period	$	158,577		$	143,648

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Electronics For Imaging, Inc.

Revenue by Operating Segment and Geographic Area

(in thousands)

(unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Revenue by Operating Segment
Industrial Inkjet	$	141,693	$	140,124	$	264,956	$	265,922
Productivity Software		39,063		36,351		74,121		68,891
Fiery		66,291		69,175		136,661		144,970
Total	$	247,047	$	245,650	$	475,738	$	479,783
Revenue by Geographic Area
Americas	$	114,014	$	115,459	$	223,909	$	235,725
EMEA		101,513		95,877		189,546		179,460
APAC		31,520		34,314		62,283		64,598
Total	$	247,047	$	245,650	$	475,738	$	479,783
Revenue Ex-Currency Adjustment		2,527		—		5,274		—
Total	$	249,574	$	245,650	$	481,012	$	479,783

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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 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 certain costs, expenses, gains, and significant 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 our activities and other factors, facilitates comparability of our 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 amortization of acquisition-related intangibles, stock-based compensation expense, restructuring and other expenses, acquisition-related transaction expenses, costs to integrate such acquisitions into our business, incremental cost of revenue due to the fair value adjustment to inventories acquired in business combinations, changes in the fair value of contingent consideration, litigation settlement charges, and non-cash interest expense related to our 0.75% convertible senior notes (“Notes”). We use a constant non-GAAP tax rate of 19%, which we believe reflects the long term average tax rate based on our international structure and geographic distribution of revenue and profit.

Ex-Currency. To better understand trends in our business, we believe it is helpful to adjust our statement of operations to exclude the impact of year-over-year changes in the translation of foreign currencies into U.S. dollars. This is a non-GAAP measure that is calculated by adjusting revenue and non-GAAP net income by using historical exchange rates in effect during the comparable prior year period and removing the balance sheet currency remeasurement impact from interest income and other income (expense), net, including removal of any hedging gains and losses. We refer to these adjustments as “ex-currency.” Management believes the ex-currency measures provide investors with an additional perspective on year-over-year financial trends and enables investors to analyze our operating results in the same way management does. The year-over-year currency impact can be determined as the difference between year-over-year actual growth rates and year-over-year ex-currency growth rates.

These excluded items are described below:

• Inventory acquired in the acquisition of Free Flow Print Server business (“FFPS”) is required to be recorded at fair value rather than historical cost in accordance with ASC 805. The fair value of FFPS inventory reflects the manufacturing cost plus a portion of the expected gross profit. We have adjusted our cost of revenue to reflect the expected gross profit that was included in the inventory valuation under ASC 805. We believe this adjustment is useful to investors to understand the gross profit trends of our ongoing business.

• Intangible assets acquired to date are being amortized on a straight-line basis.

• Stock-based compensation expense of $17.9 and $21.1 million during the six months ended June 30, 2017 and 2016, respectively, consists of $17.9 and $18.4 million of stock-based compensation expense recognized in accordance with ASC 718, Stock Compensation, and the non-cash settlement of $2.7 million of vacation liabilities settled through the issuance of RSUs during the six months ended June 30, 2016, which is not included in the GAAP presentation of our stock-based compensation expense.

8

• Restructuring and other expenses 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.

• Expenses incurred to integrate businesses acquired of $0.4 and $0.8 million for the three and six months ended June 30, 2017, respectively, and $0.7 and $0.9 million for the three and six months ended June 30, 2016 respectively.

• Acquisition-related transaction costs associated with businesses acquired during the periods reported and anticipated transactions of $0.5 and $1.2 million for the three and six months ended June 30, 2017, respectively, and $0.8 and $1.3 million for the three and six months ended June 30, 2016, respectively.

• 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 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, including the related foreign exchange fluctuation impact. 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

• Non-cash interest expense on our Notes. Our Notes may be settled in cash on conversion. We are required to separately account for the liability (debt) and equity (conversion option) components of the Notes in a manner that reflects our non-convertible debt borrowing rate. Accordingly, for GAAP purposes, we are required to amortize a debt discount equal to the fair value of the conversion option as interest expense on our $345 million of 0.75% convertible senior notes that were issued in a private placement in September 2014 over the term of the Notes.

• Litigation settlements. We settled or accrued reserves related several litigation claims of $0.3 during the three and six months ended June 30, 2017, and $0.5 and $0.8 million during the three and six months ended June 30, 2016, respectively.

• We use a constant non-GAAP tax rate of 19%, which we believe reflects the long-term average tax rate based on our international structure and geographic distribution of revenue and profit. The long-term average tax rate is calculated in accordance with the principles of ASC 740, Income Taxes, to estimate the non-GAAP income tax provision in each jurisdiction in which we operate after excluding the tax effect of the non-GAAP items described above.

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