| The Company and Its Significant Accounting Policies (Policies) | 12 Months Ended |
| Dec. 31, 2015 |
| Basis of Presentation | Basis of
Presentation
The
accompanying consolidated financial statements include the accounts
of EFI and our subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation. |
| Use of Estimates | Use of
Estimates
The
preparation of consolidated financial statements requires estimates
and judgments that affect the reported amounts of assets,
liabilities, revenue, expenses, comprehensive income, cash flows,
and related disclosure of contingent assets and liabilities. We
evaluate our estimates, including those related to revenue
recognition, bad debts, inventory valuation and purchase commitment
reserves, warranty obligations, litigation reserves, restructuring
activities, fair value of financial instruments, stock-based
compensation, income taxes, valuation of goodwill and intangible
assets, business combinations, build-to-suit lease accounting,
functional currency determination, and contingencies on an ongoing
basis. Estimates are based on historical and current experience,
the impact of the current economic environment, and various other
assumptions believed to be reasonable under the circumstances at
the time of the estimate, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different
assumptions or conditions. |
| Cash, Cash Equivalents, and Short-term Investments | Cash, Cash
Equivalents, and Short-term Investments
We invest our
excess cash on deposit with major banks in money market, U.S.
Treasury and government-sponsored entity, corporate, municipal,
asset-backed, and mortgage-backed residential securities. By
policy, we invest primarily in high-grade marketable securities. We
are exposed to credit risk in the event of default by the financial
institutions or issuers of these investments to the extent of
amounts recorded in our Consolidated Balance Sheets.
We consider
all highly liquid investments with an original maturity of three
months or less at the time of purchase to be cash equivalents.
Typically, the cost of these investments has approximated fair
value. Marketable investments with a maturity greater than three
months are classified as available-for-sale short-term investments.
Available-for-sale securities are stated at fair value with
unrealized gains and losses reported as a separate component of
OCI, adjusted for deferred income taxes. The credit portion of any
other-than-temporary impairment is included in net income. Realized
gains and losses on sales of financial instruments are recognized
upon sale of the investments using the specific identification
method.
We review
investments in debt securities for other-than-temporary impairment
whenever the fair value is less than the amortized cost and
evidence indicates the investment’s carrying amount is not
recoverable within a reasonable period of time. We assess the fair
value of individual securities as part of our ongoing portfolio
management. Our other-than-temporary assessment includes reviewing
the length of time and extent to which fair value has been less
than amortized cost; the seniority and durations of the securities;
adverse conditions related to a security, industry, or sector;
historical and projected issuer financial performance, credit
ratings, issuer specific news; and other available relevant
information. To determine whether an impairment is
other-than-temporary, we consider whether we have the intent to
sell the impaired security or if it will be more likely than not
that we will be required to sell the impaired security before a
market price recovery and whether evidence indicating the cost of
the investment is recoverable outweighs evidence to the
contrary.
In
determining whether a credit loss existed, we used our best
estimate of the present value of cash flows expected to be
collected from each debt security. For these cash flow estimates,
including prepayment assumptions, we rely on data from widely
accepted third party data sources or internal estimates. In
addition to prepayment assumptions, cash flow estimates vary based
on assumptions regarding the underlying collateral including
default rates, recoveries, and changes in value. Expected cash
flows were discounted using the effective interest rate implicit in
the securities.
Based on this
analysis, there were no other-than-temporary impairments, including
credit-related impairments, during the years ended
December 31, 2015, 2014, and 2013. We have determined that
gross unrealized losses on short-term investments at
December 31, 2015 and 2014 are temporary in nature because
each investment meets our investment policy and credit quality
requirements. We have the ability and intent to hold these
investments until they recover their unrealized losses, which may
not be until maturity. Evidence that we will recover our
investments outweighs evidence to the contrary.
We classify
our investments as current or noncurrent based on the nature of the
investments and their availability for use in current
operations. |
| Fair Value of Financial Instruments | Fair Value
of Financial Instruments
We assess the
fair value of our financial instruments each reporting period. The
carrying amounts of cash, cash equivalents, accounts receivable,
accounts payable, and accrued and other liabilities, approximate
their respective fair values due to the short maturities of these
financial instruments. The fair value of our available-for-sale
securities, contingent acquisition-related liabilities,
self-insurance liability, and derivative instruments, are disclosed
in Note 6—Investments and Fair Value Measurements of the
Notes to Consolidated Financial Statements. |
| Revenue Recognition | Revenue
Recognition
We derive our
revenue primarily from product revenue, which includes hardware
(DFEs, design-licensed solutions including upgrades, industrial
digital inkjet printers including components replaced under
maintenance agreements, and ink), software licensing and
development, and royalties. We receive service revenue from
software license and printer maintenance agreements, customer
support, training, and consulting.
We recognize
revenue on the sale of DFEs, printers, and ink in accordance with
the provisions of SEC Staff Accounting Bulletin (“SAB”)
104, Revenue Recognition, and when applicable, ASC 605-25. As such,
revenue is generally recognized when persuasive evidence of an
arrangement exists, the product has been delivered or services have
been rendered, the fee is fixed or determinable, and collection of
the resulting receivable is reasonably assured.
Products
generally must be shipped against written purchase orders. We use
either a binding purchase order or signed contract as evidence of
an arrangement. Sales to the leading printer manufacturers are
generally evidenced by a master agreement governing the
relationship together with a binding purchase order. Sales to our
resellers are also evidenced by binding purchase orders or signed
contracts and do not generally contain rights of return or price
protection. Our arrangements generally do not include product
acceptance clauses. When acceptance is required, revenue is
recognized when the product is accepted by the customer.
Delivery of
hardware generally is complete when title and risk of loss is
transferred at point of shipment from manufacturing facilities, or
when the product is delivered to the customer’s local common
carrier. We also sell products and services using sales
arrangements with terms resulting in different timing for revenue
recognition as follows:
•
if the title and/or risk of loss is transferred at a location
other than our manufacturing facility, revenue is recognized when
title and/or risk of loss transfers to the customer, per the terms
of the agreement;
•
if title is retained until payment is received, revenue is
recognized when title is passed upon receipt of payment;
•
if the sales arrangement is classified as an operating lease,
revenue is recognized ratably over the lease term;
•
if the sales arrangement is classified as a sales-type lease,
revenue is recognized upon shipment;
•
if the sales arrangement is a fixed price for performance
extending over a long period and our right to receive future
payment depends on our future performance in accordance with these
agreements, revenue is recognized under the percentage of
completion method.
We assess
whether the fee is fixed or determinable based on the terms of the
contract or purchase order. We assess collectibility based on a
number of factors, including past transaction history with the
customer, the creditworthiness of the customer, customer
concentrations, current economic trends and macroeconomic
conditions, changes in customer payment terms, the length of time
receivables are past due, and significant one-time events. We may
not request collateral from our customers, although down payments
or letters of credit are generally required from Industrial Inkjet
and Productivity Software customers as a means to ensure payment.
If we determine that collection of a fee is not reasonably assured,
we defer the fee and recognize revenue when collection becomes
reasonably assured, which is generally upon receipt of
cash.
We license
our software primarily under perpetual licenses. Software revenue
consists of licensing, post-contract customer support, and
professional consulting. We apply the provisions of ASC 985-605,
Software—Revenue Recognition, and if applicable, SAB 104 and
ASC 605-25, to all transactions involving the sale of software
products and hardware transactions where the software is not
incidental.
We enter into
contracts to sell our products and services and, while the majority
of our sales agreements contain standard terms and conditions,
there are agreements that contain multiple elements or non-standard
terms and conditions. As a result, significant contract
interpretation is sometimes required to determine the appropriate
accounting, including whether the deliverables specified in a
multiple element arrangement should be treated as separate units of
accounting for revenue recognition purposes, and, if so, how the
price should be allocated among the elements and when to recognize
revenue for each element. We recognize revenue for delivered
elements only when the delivered elements have stand-alone value,
uncertainties regarding customer acceptance are resolved, and there
are no customer-negotiated refund or return rights for the
delivered elements. If the arrangement includes a
customer-negotiated refund or right of return relative to the
delivered item and the delivery and performance of the undelivered
item is considered probable and substantially in our control, the
delivered element constitutes a separate unit of accounting. We
limit revenue recognition for delivered elements to the amount that
is not contingent on the future delivery of products or services,
future performance obligations, or subject to customer-specified
return or refund privileges. Changes in the allocation of the sales
price between elements may impact the timing of revenue
recognition, but will not change the total revenue recognized on
the contract.
Multiple-Deliverable Arrangements
We recognize
revenue in multiple element arrangements involving tangible
products containing software and non-software components that
function together to deliver the product’s essential
functionality by applying the relative sales price method of
allocation in accordance with ASC 605-25. The sales price for each
element is determined using VSOE when available (including
post-contract customer support, professional services, hosting, and
training). When VSOE is not available, then TPE is used. If VSOE or
TPE are not available, then BESP is used when applying the relative
sales price method for each unit of accounting. When the
arrangement includes software and non-software elements, revenue is
first allocated to the non-software and software elements as a
group based on their relative sales price. Thereafter, the relative
sales price allocated to the software elements as a group is
further allocated to each unit of accounting in accordance with ASC
985-605. We then defer revenue with respect to the relative sales
price that was allocated to any undelivered element.
We have
calculated BESP for software licenses and non-software
deliverables. We considered several different methods of
establishing BESP including cost plus a reasonable margin,
stand-alone sales price of the same or similar products, and if
available, targeted rate of return, list price less discount, and
company published list prices to identify the most appropriate
representation of the estimated sales price of our products. Due to
the wide range of pricing offered to our customers, we determined
that sales price of the same or similar products, list price less
discount, and company published list prices were not appropriate
methods to determine BESP for our products. Cost plus a reasonable
margin and targeted rate of return were eliminated due to the
difficulty in determining the cost associated with the intangible
elements of each product’s cost structure. As a result,
management believes that the best estimate of the sales price of an
element is the median sales price of deliverables sold in
stand-alone transactions and/or separately priced deliverables
contained in bundled arrangements. Elements sold as stand-alone
transactions and in bundled arrangements during the four quarters
immediately preceding the end of each reporting period were
included in the calculation of BESP.
When
historical data is unavailable to calculate and support the
determination of BESP on a newly launched or customized product,
then BESP of similar products is substituted for revenue allocation
purposes. We offer customization for some of our products.
Customization does not have a significant impact on the discounting
or pricing of our products.
We have
insignificant transactions where tangible and software products are
sold together in a bundled arrangement. Accounting Standards Update
(“ASU”) 2009-14, Certain Revenue Arrangements that
Include Software Elements, determined that tangible products
containing software and non-software components that function
together to deliver the product’s essential functionality are
not required to follow the software revenue recognition guidance in
ASC 985-605 as long as the hardware components of the tangible
product substantively contribute to its functionality. In addition,
hardware components of tangible products containing software
components shall always be excluded from the guidance in ASC
985-605. Non-software elements are accounted for in accordance with
SAB 104.
Multiple
element arrangements containing only software elements remain
subject to the provisions of ASC 985-605 and must follow the
residual method. When several elements of a multiple element
arrangement, including software licenses, post-contract customer
support, hosting, and professional services, are sold to a customer
through a single contract, the revenue from such multiple element
arrangements are allocated to each element using the residual
method in accordance with ASC 985-605. Revenue is allocated to the
support elements and professional service elements of an agreement
using VSOE and to the software license elements of the agreement
using the residual method. We have established VSOE for
professional services and hosting based on the rates charged to our
customers in stand-alone orders. We have also established VSOE for
post-contract customer support based on substantive renewal rates.
Accordingly, software license fees are recognized under the
residual method for arrangements in which the software was licensed
with maintenance and/or professional services, and where the
maintenance and professional services were not essential to the
functionality of the delivered software.
Subscription Arrangements
We have
subscription arrangements where the customer pays a fixed fee and
receives services over a period of time. We recognize subscription
revenue ratably over the service period. Any up front setup fees
associated with our subscription arrangements are recognized
ratably, generally over one year. Any up front setup fees that are
not associated with our subscription arrangements are recognized
upon completion.
Leasing
Arrangements
If the sales
arrangement is classified as a sales-type lease, then revenue is
recognized upon shipment. Leases that are not classified as
sales-type leases are accounted for as operating leases with
revenue recognized ratably over the lease term.
A lease is
classified as a sales-type lease with revenue recognized upon
shipment if the lease is determined to be collectible and has no
significant uncertainties and if any of the following criteria are
satisfied:
•
present value of all minimum lease payments is greater than or
equal to 90% of the fair value of the equipment at lease
inception,
•
noncancellable lease term is greater than or equal to 75% of
the economic life of the equipment,
•
bargain purchase option that allows the lessee to purchase the
equipment below fair value, or
•
transfer of ownership to the lessee upon termination of the
lease.
Long-term
Contracts Involving Substantial Customization
We have
established our ability to produce estimates sufficiently
dependable to require that we follow the percentage of completion
method with respect to fixed price contracts where we provide
information technology system development and implementation
services.
Revenue on
such fixed price contracts is recognized over the contract term
based on the percentage of development and implementation services
that are provided during the period compared with the total
estimated development and implementation services to be provided
over the entire contract using guidance from ASC 605-35, Revenue
Recognition—Construction-Type and Production-Type Contracts.
These services require that we perform significant, extensive, and
complex design, development, modification, or implementation
activities of our customers’ systems. Performance will often
extend over long periods, and our right to receive future payment
depends on our future performance in accordance with these
agreements.
We recognize
losses on long-term fixed price contracts in the period that the
contractual loss becomes probable and estimable. We record amounts
invoiced to customers in excess of revenue recognized as deferred
revenue until the revenue recognition criteria are met. We record
revenue that is earned and recognized in excess of amounts invoiced
on fixed price contracts as trade receivables.
Deferred
Revenue and Related Deferred Costs
Deferred
revenue represents amounts received in advance for product support
contracts, software customer support contracts, consulting and
integration projects, or product sales. Product support contracts
include stand-alone product support packages, routine maintenance
service contracts, and upgrades or extensions to standard product
warranties. We defer these amounts when we invoice the customer and
then generally recognize revenue either ratably over the support
contract life, upon performing the related services, under the
percentage of completion method, or in accordance with our revenue
recognition policy. Deferred cost of revenue related to
unrecognized revenue on shipments to customers was $8.7 and $2.0
million as of December 31, 2015 and 2014, respectively, and is
included in other current assets in our Consolidated Balance
Sheets. |
| Allowance for Doubtful Accounts and Sales-related Allowances | Allowance
for Doubtful Accounts and Sales-related Allowances
We establish
an allowance for doubtful accounts to ensure that trade receivables
are not overstated due to uncollectibility. We record specific
reserves for individual accounts when we become aware of specific
customer circumstances, such as bankruptcy filings, deterioration
in the customer’s operating results or financial position, or
potential unfavorable outcomes from disputes with customers or
vendors.
We perform
ongoing credit evaluations of the financial condition of our
printer manufacturer, third-party distributor, reseller, and other
customers and require collateral, such as letters of credit and
bank guarantees, in certain circumstances. The past due or
delinquency status of a receivable is based on the contractual
payment terms of the receivable. The need to write off a receivable
balance depends on the age, size, and determination of
collectibility of the receivable. Balances are written off when we
deem it probable that the receivable will not be
recovered.
We make
provisions for sales rebates and revenue adjustments based on
analysis of current sales programs and revenue in accordance with
our revenue recognition policy. |
| Financing Receivables | Financing
Receivables
ASC 310,
Receivables, requires disclosures regarding the credit quality of
our financing receivables and allowance for credit losses including
disclosure of credit quality indicators, past due information, and
modifications of our financing receivables. Our financing
receivables were $14.8 and $2.6 million consisting of $10.2 and
$1.3 million of sales-type lease receivables, included within other
current assets and other assets, and $4.6 and $1.3 million of trade
receivables having a contractual maturity in excess of one year at
December 31, 2015 and 2014, respectively. The credit quality
of financing receivables are evaluated on the same basis as trade
receivables. We do not have material past due financing
receivables. |
| Concentration of Risk | Concentration of Risk
We are
exposed to credit risk in the event of default by any of our
customers to the extent of amounts recorded in the Consolidated
Balance Sheet. We perform ongoing evaluations of the collectibility
of accounts receivable balances for our customers and maintain
allowances for estimated credit losses. Actual losses have not
historically been significant, but have risen over the past several
years as our customer base has grown through
acquisitions.
Our Fiery
products, which constitute approximately 34% of revenue for the
year ended December 31, 2015, are primarily sold to a limited
number of leading printer manufacturers. Although end customer and
reseller channel preference for Fiery products drives demand, most
Fiery revenue relies on these significant printer manufacturer /
distributors to design, develop, and integrate Fiery technology
into their print engines. We expect that we will continue to depend
on a relatively small number of leading printer manufacturers for a
significant portion of our revenue, although their significance is
expected to decline in future periods as our revenue increases from
Industrial Inkjet and Productivity Software products. We generally
have experienced longer accounts receivable collection cycles in
our Industrial Inkjet and Productivity Software operating segments
compared to our Fiery operating segment as, historically, the
leading printer manufacturers have paid on a more timely basis.
Down payments are generally required from Industrial Inkjet and
Productivity Software customers as a means to ensure
payment.
Since Europe
is composed of varied countries and regional economies, our
European risk profile is somewhat more diversified due to the
varying economic conditions among the countries. Approximately 31%
of our receivables are with European customers as of
December 31, 2015. Of this amount, 30% of our European
receivables (9% of consolidated net receivables) are in the higher
risk southern European countries (mostly Spain, Portugal, and
Italy).
We rely on a
limited number of suppliers for certain key components, including
textile ink, and a few key contract manufacturers to manufacture
our Fiery DFEs, label and packaging digital inkjet printer, certain
Industrial Inkjet subassemblies, and solvent ink. Any disruption or
termination of these arrangements could materially adversely affect
our operating results.
Many of our
current Fiery and Productivity Software products include software
that we license from Adobe. To obtain licenses from Adobe, Adobe
requires that we obtain quality assurance approvals from them for
our products that use Adobe software. |
| Accounts Receivable Sales Arrangements | Accounts
Receivable Sales Arrangements
We have
facilities in Spain and Italy that enable us to sell to third
parties, on an ongoing basis, certain trade receivables without
recourse. Trade receivables sold without recourse are generally
short-term receivables with payment due dates of less than one
year, which are secured by international letters of credit. Trade
receivables sold under these facilities were $3.7 and $6.2 million
during the years ended December 31, 2015 and 2014,
respectively, which approximates the cash received.
We have
facilities in the U.S. and Italy that enable us to sell to third
parties, on an ongoing basis, certain trade receivables with
recourse. The trade receivables sold with recourse are generally
short-term receivables with payment due dates of less than 10 days
from the date of sale, which are subject to a servicing obligation.
Trade receivables sold under these facilities were $23.2 and $20.8
million during the years ended December 31, 2015 and 2014,
respectively, which approximates the cash received.
In accordance
with ASC 860-20, Transfers and Servicing, trade receivables are
derecognized from our Consolidated Balance Sheet when sold to third
parties upon determining that such receivables are presumptively
beyond the reach of creditors in a bankruptcy proceeding. The
recourse obligation is measured using market data from similar
transactions and the servicing liability is determined based on the
fair value that a third party would charge to service these
receivables. These liabilities were determined to not be material
at December 31, 2015 and 2014.
We report
collections from the sale of trade receivables to third parties as
operating cash flows in the Consolidated Statements of Cash
Flows. |
| Inventories | Inventories
Inventories
are stated at standard cost, which approximates the lower of actual
cost, using the first-in, first-out cost flow assumption, or
market. We periodically review our inventories for potential excess
or obsolete items and write down specific items to net realizable
value as appropriate. Work-in-process inventories consist of our
product at various levels of assembly and include materials, labor,
and manufacturing overhead. Finished goods inventory represents
completed products awaiting shipment.
We estimate
potential future inventory obsolescence and purchase commitments to
evaluate the need for inventory reserves. Current economic trends,
changes in customer demand, product design changes, product life,
demand, and the acceptance of our products are analyzed to evaluate
the adequacy of such reserves. |
| Property and Equipment, Net | Property
and Equipment, Net
Property and
equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets
as follows: desktop and laptop computers (two years); computer
server equipment (three years); software under perpetual licenses
(three to five years); manufacturing, testing, and other equipment
(three years); tooling (lesser of three years or the product life);
research and development equipment with alternative future uses
(three years); equipment leased to customers on operating leases
(greater of three years or the lease term); furniture (seven
years); land improvements such as parking lots or sidewalks (seven
years); leasehold improvements (lesser of five years or the lease
term); building improvements (five to ten years); building and
improvements under a build-to-suit lease (forty years); and
purchased buildings (forty years). When assets are disposed, the
asset and accumulated depreciation are removed from our records and
the related gain or loss is recognized in our results of
operations.
Depreciation
expense was $12.2, $9.9, and $9.4 million for the years ended
December 31, 2015, 2014, and 2013, respectively. Repairs and
maintenance expenditures are expensed as incurred, unless they are
considered to be improvements and extend the useful life of the
property and equipment. |
| Internal Use Software | Internal
Use Software
In accordance
with ASC 350-40, Intangibles—Goodwill and
Other—Internal-Use Software, software development costs,
including costs incurred to purchase third party software, are
capitalized during the application development stage when certain
factors are present including, among others, that technology exists
to achieve the performance requirements, management has committed
to funding the project, and conceptual formulation, design, and
testing of possible software alternatives (preliminary project
phase) have all been completed. Costs incurred during preliminary
project phase, post-implementation /operational phase, process
re-engineering, training, and maintenance must be expensed as
incurred. The accumulation of software costs to be capitalized
ceases when the software is substantially developed and is ready
for its intended use. Capitalized internal use software is
amortized over an estimated useful life of three years using the
straight-line method. |
| Goodwill | Goodwill
Goodwill is
recorded when the consideration paid for an acquisition exceeds the
fair value of net tangible and intangible assets acquired. We
perform our annual goodwill impairment analysis in the fourth
quarter of each year or more frequently if we believe indicators of
impairment exist. Triggering events that may require an impairment
analysis include indicators such as adverse industry or economic
trends, restructuring actions, significant changes in the manner of
our use of the acquired assets, significant changes in the strategy
for our overall business, lower projections of profitability,
significant decline in our stock price for a sustained period, or a
sustained decline in our market capitalization.
According to
the provisions of ASC 350-20-35, a two-step impairment test of
goodwill is required, unless the simplified method is elected. In
the first step, the fair value of each reporting unit is compared
to its carrying value. If the fair value exceeds carrying value,
goodwill is not impaired and further testing is not required. If
the carrying value exceeds fair value, then the second step of the
impairment test is required to determine the implied fair value of
the reporting unit’s goodwill. The implied fair value of
goodwill is calculated by deducting the fair value of all tangible
and intangible net assets of the reporting unit, excluding
goodwill, from the fair value of the reporting unit as determined
in the first step. If the carrying value of the reporting
unit’s goodwill exceeds its implied fair value, then an
impairment loss must be recorded equal to the difference. We have
not been required to perform this second step of the process
because the fair value of our reporting units have exceeded their
carrying value as of December 31, 2015, 2014, and
2013. |
| Long-lived Assets, including Intangible Assets | Long-lived
Assets, including Intangible Assets
Purchased
intangible assets are amortized on a straight-line basis over their
economic lives of three to seven years for developed technology,
four to nine years for customer contracts/relationships, five years
for covenants not to compete, and three to eighteen years for
trademarks and trade names as we believe this method most closely
reflects the pattern in which the economic benefits of the assets
will be consumed. No changes have been made to the useful lives of
amortizable identifiable intangible assets in 2015, 2014, or 2013.
Intangible amortization expense was $26.5, $20.7, and $19.4 million
for the years ended December 31, 2015, 2014, or 2013,
respectively.
We review the
carrying values of long-lived assets whenever events and
circumstances, such as reductions in demand, lower projections of
profitability, significant changes in the manner of our use of
acquired assets, or significant negative industry or economic
trends, indicate that the net book value of an asset may not be
recovered through expected future cash flows from its use and
eventual disposition. If this review indicates that an impairment
has occurred, the impaired asset is written down to its fair value,
which is typically calculated using quoted market prices
and/or expected future cash flows. Our estimates regarding
future anticipated net revenue and cash flows, the remaining
economic life of the products and technologies, or both, may differ
from those used to assess the recoverability of assets. In that
event, impairment charges or shortened useful lives of certain
long-lived assets may be required, resulting in charges to our
Consolidated Statements of Operations when such determinations are
made. No asset impairment charges were recognized during the years
ended December 31, 2015, 2014, or 2013. |
| Warranty Reserves | Warranty
Reserves
Our
Industrial Inkjet printer and Fiery DFE products are generally
accompanied by a 12 to 15-month limited warranty from date of
shipment, which covers both parts and labor. Estimated future
hardware and software warranty costs are recorded as a cost of
product revenue when the related revenue is recognized, based on
historical and projected warranty claim rates, historical and
projected cost-per-claim, and knowledge of specific product
failures that are outside our typical experience. Factors that
affect our warranty liability include the number of installed units
subject to warranty protection, product failure rates, estimated
material costs, estimated distribution costs and estimated labor
costs.
Warranty
reserves were $9.6 and $9.7 million as of December 31, 2015
and 2014, respectively. |
| Litigation Accruals | Litigation
Accruals
We may be
involved, from time to time, in a variety of claims, lawsuits,
investigations, or proceedings relating to contractual disputes,
securities laws, intellectual property rights, employment, or other
matters that may arise in the normal course of business. We assess
our potential liability in each of these matters by using the
information available to us. We develop our views on estimated
losses in consultation with inside and outside counsel, which
involves a subjective analysis of potential results and various
combinations of appropriate litigation and settlement strategies.
We accrue estimated losses from contingencies if a loss is deemed
probable and can be reasonably estimated. |
| Restructuring Reserves | Restructuring Reserves
Restructuring
liabilities are established when the costs have been incurred.
Severance and other employee separation costs are incurred when
management commits to a plan of termination identifying the number
of employees impacted, their termination dates, and the terms of
their severance arrangements. The liability is accrued at the
employee notification date unless service is required beyond the
greater of 60 days or the legal notification period, in which case
the liability is recognized ratably over the service period.
Facility downsizing and closure costs are accrued at the earlier of
the lessor notification date, if the lease agreement allows for
early termination, or the cease use date. Relocation costs are
incurred when the related relocation services are performed. Costs
related to contracts without future benefit are incurred at the
earlier of the cease use date or the contract cancellation
date. |
| Research and Development | Research
and Development
Research and
development costs were $141.4, $134.7, and $128.1 million for the
years ended December 31, 2015, 2014, and 2013, respectively.
We expense research and development costs associated with new
software products as incurred until technological feasibility is
established. Research and development costs include salaries and
benefits of employees performing research and development
activities, supplies, and other expenses incurred from research and
development efforts. To date, we have not capitalized research and
development costs associated with software development as products
and enhancements have generally reached technological feasibility,
as defined by U.S. GAAP, and have been released for sale at
substantially the same time. We have capitalized research and
development equipment that has been acquired or constructed for
research and development activities and has alternative future uses
(in research and development projects or otherwise). Such research
and development equipment is depreciated on a straight-line basis
with a three year useful life. |
| Shipping and Handling Costs | Shipping
and Handling Costs
Amounts
billed to customers for shipping and handling costs are included in
revenue. Shipping and handling costs are charged to cost of revenue
as incurred. |
| Advertising | Advertising
Advertising
costs are expensed as incurred. Total advertising and promotional
expenses were $4.3, $4.3, and $4.1 million for the years ended
December 31, 2015, 2014, and 2013, respectively. |
| Income Taxes | Income
Taxes
We account
for income taxes in accordance with the provisions of ASC 740,
which requires that deferred tax assets and deferred tax
liabilities be determined based on the differences between the
financial statement and tax bases of assets and liabilities by
using enacted tax rates in effect for the year in which the
differences are expected to reverse. We estimate our actual current
tax expense, including permanent charges and benefits, and the
temporary differences resulting from differing treatment of items,
such as deferred revenue, for tax and financial accounting
purposes. These differences result in deferred tax assets and
liabilities, which are included in our Consolidated Balance
Sheets.
We assess the
likelihood that our deferred tax assets will be recovered from
future taxable income by considering both positive and negative
evidence relating to their recoverability. If we believe that
recovery of these deferred tax assets is not more likely than not,
we establish a valuation allowance. Significant judgment is
required in determining any valuation allowance recorded against
deferred tax assets.
In assessing
the need for a valuation allowance, we considered all available
evidence, including recent operating results, projections of future
taxable income, our ability to utilize loss and credit
carryforwards, and the feasibility of tax planning strategies.
Other than a valuation allowance related to realization of existing
California and Luxembourg deferred tax assets, we have determined
that is more likely than not that we will realize the benefit
related to all other deferred tax assets. To the extent we increase
a valuation allowance, we include an expense in the Consolidated
Statement of Operations in the period in which such determination
is made.
In accordance
with ASC 740-10-25-5 through 17, we account for uncertainty in
income taxes by recognizing a tax position only when it is more
likely than not that the tax position, based on its technical
merits, will be sustained upon ultimate settlement with the
applicable tax authority. The tax benefit to be recognized is the
largest amount of tax benefit that is greater than fifty percent
likely of being realized upon ultimate settlement with the
applicable tax authority that has full knowledge of all relevant
information. Tax benefits that are deemed to be less than fifty
percent likely of being realized are recorded in noncurrent income
taxes payable until the uncertainty has been resolved through
either examination by the relevant taxing authority or expiration
of the pertinent statutes of limitations. |
| Business Combinations | Business
Combinations
We allocate
the purchase price of acquired companies to the tangible and
intangible assets acquired, including IPR&D, and liabilities
assumed based on their estimated fair values. Such a valuation
requires management to make significant estimates and assumptions,
especially with respect to intangible assets. The results of
operations for each acquisition are included in our financial
statements from the date of acquisition.
Our
acquisitions are accounted for as purchase business combinations
using the acquisition method of accounting in accordance with ASC
805. Key provisions of the acquisition method of accounting include
the following:
•
one hundred percent of assets and liabilities of the acquired
business, including goodwill, are recorded at fair value,
regardless of the percentage of the business acquired;
•
contingent assets and liabilities are recognized at fair value
at the acquisition date;
•
contingent consideration is recognized at fair value at the
acquisition date with changes in fair value recognized in earnings
as assumptions are updated or upon settlement;
•
IPR&D is recognized at fair value at the acquisition date
subject to amortization after product launch or otherwise subject
to impairment;
•
acquisition-related transaction and restructuring costs are
expensed as incurred;
•
reversals of valuation allowances related to acquired deferred
tax assets and liabilities and changes to acquired income tax
uncertainties are recognized in earnings;
•
when making adjustments to finalize preliminary accounting
during the measurement period, which may be up to one year, we
recognize measurement period adjustments in the reporting period in
which the adjustment amounts are determined as required by ASU
2015-16, Simplifying the Accounting for Measurement Period
Adjustments; and
•
upon final determination of the fair value of assets acquired
and liabilities assumed during the measurement period, any
subsequent adjustments are recorded to our Consolidated Statements
of Operations. |
| Stock-Based Compensation | Stock-Based Compensation
We account
for stock-based compensation in accordance with ASC 718, which
requires stock-based compensation expense to be recognized based on
the fair value of such awards on the date of grant. We amortize
stock-based compensation expense on a graded vesting basis over the
vesting period, after assessing the probability of achieving the
requisite performance criteria with respect to performance-based
awards. Stock-based compensation expense is recognized over the
requisite service period for each separately vesting tranche as
though the award were, in substance, multiple awards.
Forfeitures
are estimated at the grant date and revised on a cumulative basis,
if necessary, in subsequent periods if actual forfeitures differ
from those estimates. We use historical data and future
expectations of employee turnover to estimate forfeitures. The tax
benefit resulting from tax deductions in excess of the tax benefits
related to stock-based compensation expense recognized for those
awards are classified as financing cash flows.
Our
determination of the fair value of stock-based payment awards on
the date of grant using an option pricing model is affected by
volatility, expected term, and interest rate assumptions. Expected
volatility is based on the historical volatility of our stock over
a preceding period commensurate with the expected term of the
option. The expected term is based on management’s
consideration of the historical life of the options, the vesting
period of the options granted, and the contractual period of the
options granted. The risk-free interest rate for the expected term
of the option is based on the U.S. Treasury yield curve in effect
at the time of grant. Expected dividend yield was not considered in
the option pricing formula since we do not pay dividends and have
no current plans to do so in the future. |
| Foreign Currency Translation | Foreign
Currency Translation
In preparing
our consolidated financial statements, for subsidiaries that
operate in a U.S. dollar functional currency environment, we
remeasure balance sheet monetary items into U.S. dollars. Foreign
currency assets and liabilities are remeasured from the transaction
currency into the functional currency at current exchange rates,
except for non-monetary assets, liabilities, and capital accounts,
which are remeasured at historical exchange rates. Revenue and
expenses are remeasured at monthly exchange rates, which
approximate average exchange rates in effect during each period.
Gains or losses from foreign currency remeasurement are included in
interest income and other income (expense), net. Net gains or
losses resulting from foreign currency transactions, including
hedging gains and losses, are reported in interest income and other
income (expense), net, and were a loss of $4.2, $6.8, and $0.3
million for the years ended December 31, 2015, 2014, and 2013,
respectively.
For
subsidiaries that operate in a local functional currency
environment, all assets and liabilities are translated into U.S.
dollars using current exchange rates, while revenue and expenses
are translated using monthly exchange rates, which approximate the
average exchange rates in effect during each period. Resulting
translation adjustments are reported as a separate component of
OCI, adjusted for deferred income taxes. The cumulative translation
adjustment balance, net of tax, at December 31, 2015 and 2014
was an unrealized loss of $17.0 and $7.2 million,
respectively.
Based on our
assessment of the salient economic indicators discussed in ASC
830-10-55-5, Foreign Currency Matters, we consider the U.S. dollar
to be the functional currency for each of our international
subsidiaries except for our Brazilian subsidiary, Metrics, for
which we consider the Brazilian real to be the subsidiary’s
functional currency; our German subsidiaries, EFI GmbH and
Alphagraph, for which we consider the Euro to be the
subsidiaries’ functional currency; our Italian subsidiary,
Reggiani, for which we consider the Euro to be the functional
currency; our Spanish subsidiary, Cretaprint, for which we consider
the Euro to be the subsidiary’s functional currency; our U.K.
subsidiaries, Electronics For Imaging United Kingdom Limited and
Shuttleworth, for which we consider the British pound sterling to
be the subsidiaries’ functional currency; our Israeli
subsidiary, Matan, for which we consider the shekel to be the
functional currency; our Japanese subsidiary, Electronics For
Imaging Japan KK, for which we consider the Japanese yen to be the
subsidiary’s functional currency; our New Zealand subsidiary
contains the Prism Group Holdings Limited (“Prism”)
operations in New Zealand for which we consider the New Zealand
dollar to be the functional currency; our Australian subsidiary
contains the Prism, OPS, and Metrix operations in Australia for
which we consider the Australian dollar to be the functional
currency; and our subsidiary in the People’s Republic of
China, which contains the operations of our Cretaprint sales and
support center and our Industrial Inkjet demonstration center for
which we consider the renminbi to be the functional
currency. |
| Computation of Net Income Per Common Share | Net Income
per Common Share
Net income
per basic common share is computed using the weighted average
number of common shares outstanding during the period. Net income
per diluted common share is computed using the weighted average
number of common shares and dilutive potential common shares
outstanding during the period. Potential common shares result from
the assumed exercise of outstanding common stock options having a
dilutive effect using the treasury stock method, non-vested shares
of restricted stock having a dilutive effect, non-vested restricted
stock for which the performance criteria have been met, shares to
be purchased under our ESPP having a dilutive effect, the assumed
issuance of shares to be issued from escrow related to the
acquisitions of Reggiani and CTI, the assumed conversion of our
Notes having a dilutive effect using the treasury stock method as
well as the dilutive effect of our warrants when the stock price
exceeds the conversion price of the Notes. Any potential shares
that are anti-dilutive as defined in ASC 260, Earnings Per Share,
are excluded from the effect of dilutive securities.
Performance-based and market-based restricted stock and stock
options that would be issuable if the end of the reporting period
were the end of the vesting period, if the result would be
dilutive, are assumed to be outstanding for purposes of determining
net income per diluted common share as of the later of the
beginning of the period or the grant date in accordance with ASC
260-10-45-48. |
| Derivative Instruments and Risk Management | Derivative
Instruments and Risk Management
Our
derivative instruments consist of foreign currency exchange
contracts as described below:
Cash Flow
Hedges
We utilize
foreign currency exchange forward contracts to hedge foreign
currency exchange exposures related to forecasted operating
expenses denominated in Indian rupees. These derivative instruments
are designated and qualify as cash flow hedges and in general,
closely match the underlying forecasted transactions in duration.
The changes in fair value of these contracts are reported as a
component of OCI and reclassified to operating expense in the
periods of payment of the hedged operating expenses. We measure the
effectiveness of hedges of forecasted transactions by comparing the
fair value of the designated foreign currency exchange forward
purchase contracts with the fair values of the forecasted
transactions. The ineffective portion of the derivative hedging
gain or loss, as well as changes in the derivative time value
(which is excluded from the assessment of hedge effectiveness), are
recognized as a component of interest income and other income
(expense), net.
Balance
Sheet Hedges
We utilize
foreign currency exchange forward and option contracts to hedge
against the short-term impact of foreign currency exchange rate
fluctuations related to certain foreign-currency-denominated
monetary assets and liabilities, primarily consisting of Brazilian
real, British pound sterling, Australian dollar, Canadian dollar,
Chinese renminbi, and Euro-denominated intercompany balances,
British pound sterling and Euro-denominated trade receivables, and
Indian rupee net monetary assets. These derivative instruments are
not designated for hedge accounting treatment since there is a
natural offset for the remeasurement of the underlying foreign
currency denominated asset or liability. We recognize changes in
the fair value of non-designated derivative instruments in earnings
in the period of change. Gains and losses on foreign currency
forward contracts used to hedge balance sheet exposures are
recognized in interest income and other income (expense), net, in
the same period as the remeasurement gain or loss of the related
foreign currency denominated assets and liabilities.
Factors that
could have an impact on the effectiveness of our balance sheet and
cash flow hedging program include the accuracy of forecasts and the
volatility of foreign currency markets. These programs reduce, but
do not entirely eliminate, the impact of currency exchange
movements. The maturities of these instruments are generally less
than one year. Currently, we do not enter into any foreign exchange
forward contracts to hedge exposures related to firm commitments or
nonmarketable investments. We do not have any leveraged
derivatives, nor do we use derivative contracts for speculative
purposes. The related cash flow impacts of our derivative contracts
are reflected as cash flows from operating activities in the
Consolidated Statements of Cash Flows. |
| Variable Interest Entities | Variable
Interest Entities
In accordance
with the Variable Interest Entities (“VIE”) sub-section
of ASC 810, Consolidation, we perform a formal assessment at each
reporting period regarding whether any consolidated entity is
considered the primary beneficiary of a VIE based on the power to
direct activities that most significantly impact the economic
performance of the entity and the obligation to absorb losses or
rights to receive benefits that could be significant to us. We do
not have any arrangements that meet the definition of a
VIE. |
| Recent Accounting Pronouncements | Recent
Accounting Pronouncements
Deferred
Taxes.
This guidance
may be implemented either retrospectively or prospectively. We have
elected to apply this guidance retrospectively to all prior periods
to maintain the comparability of presentation between periods.
Early adoption is permitted, so we have elected to early adopt this
standard in the current period, which has resulted in the
reclassification of deferred tax assets and liabilities of $17.2
and $0.1 million, respectively, from current to noncurrent as of
December 31, 2014.
Measurement Period Adjustments.
Debt
Issuance Costs.
Inventory
Valuation.
Revenue
Recognition.
The guidance
requires comprehensive annual and interim disclosures regarding the
nature, amount, timing, and uncertainty of recognized revenue.
Qualitative and quantitative disclosures will be required
regarding:
•
contracts with customers, including revenue and impairments
recognized, disaggregation, and information about contract balances
and performance obligations,
•
significant judgments and changes in judgments required to
determine the transaction price, amounts allocated to performance
obligations, and the timing for recognizing revenue resulting from
the satisfaction of performance obligations, and
•
assets recognized from the costs to obtain or fulfill a
contract.
ASU 2014-09
will be effective in the first quarter of 2018. We are evaluating
its impact on our revenue and results of operations. |
| Derivatives and Hedging | We are
exposed to market risk and foreign currency exchange risk from
changes in foreign currency exchange rates, which could affect
operating results, financial position, and cash flows. We manage
our exposure to these risks through our regular operating and
financing activities and, when appropriate, through the use of
derivative financial instruments. These derivative financial
instruments are used to hedge monetary assets and liabilities,
intercompany balances, trade receivables, anticipated cash flows,
and to reduce earnings and cash flow volatility resulting from
shifts in market rates. Our objective is to offset gains and losses
resulting from these exposures with losses and gains on the
derivative contracts used to hedge them, thereby reducing
volatility of earnings or protecting fair values of assets and
liabilities. We do not have any leveraged derivatives, nor do we
use derivative contracts for speculative purposes. ASC 815,
Derivatives and Hedging, requires the fair value of all derivative
instruments, including those embedded in other contracts, to be
recorded as assets or liabilities in our Consolidated Balance
Sheet. The related cash flow impacts of our derivative contracts
are reflected as cash flows from operating activities.
Our exposures
are primarily related to non-U.S. dollar-denominated revenue in
Europe, the U.K., Latin America, China, Israel, Australia, Canada,
and to non-U.S. dollar-denominated operating expenses in Europe,
India, Japan, the U.K., China, Israel, Brazil, and Australia. We
hedge our operating expense cash flow exposure in Indian rupees. We
hedge balance sheet remeasurement exposure associated with
Brazilian real, British pound sterling, Israeli shekel, Australian
dollar, Japanese yen, Canadian dollar, Chinese renminbi, and
Euro-denominated intercompany balances; Brazilian real, British
pound sterling, Australian dollar, Canadian dollar, and
Euro-denominated trade receivables, and Indian rupee-denominated
net monetary assets.
By their
nature, derivative instruments involve, to varying degrees,
elements of market and credit risk. The market risk associated with
these instruments resulting from currency exchange movement is
expected to offset the market risk of the underlying transactions,
assets, and liabilities being hedged (i.e., operating expense
exposure in Indian rupees; the collection of Brazilian real,
British pound sterling, Australian dollar, Canadian dollar, and
Euro-denominated trade receivables; and the settlement of Brazilian
real, British pound sterling, Israeli shekel, Australian dollar,
Japanese yen, Chinese renminbi, and Euro-denominated intercompany
balances). We do not believe there is significant risk of loss from
non-performance by the counterparty associated with these
instruments because, by policy, we deal with counterparties having
a minimum investment grade or better credit rating. Credit risk is
managed through the continuous monitoring of exposures to such
counterparties.
Cash Flow
Hedges
Foreign
currency derivative contracts with notional amounts of $3.2 and
$2.9 million and net asset/liability amounts that are immaterial
have been designated as cash flow hedges of our Indian rupee
operating expense exposure at December 31, 2015 and 2014,
respectively. The changes in fair value of these contracts are
reported as a component of OCI and reclassified to operating
expense in the periods of payment of the hedged operating expenses.
The amount of ineffectiveness that was recorded in the Consolidated
Statements of Operations for these designated cash flow hedges was
immaterial. All components of each derivative’s gain or loss
were included in the assessment of hedge effectiveness.
Balance
Sheet Hedges
Forward
contracts not designated as hedging instruments with notional
amounts of $115.4 and $86.6 million are used to hedge foreign
currency balance sheet exposures at December 31, 2015 and
2014, respectively. They are not designated for hedge accounting
treatment since there is a natural offset for the remeasurement of
the underlying foreign currency denominated asset or liability. We
recognize changes in the fair value of non-designated derivative
instruments in earnings in the period of change. Gains (losses) on
foreign currency forward contracts used to hedge balance sheet
exposures are recognized in interest income and other income
(expense), net, in the same period as the remeasurement gain (loss)
of the related foreign currency denominated assets and liabilities.
Forward contracts not designated as hedging instruments consist of
hedges of Brazilian real, British pound sterling, Israeli shekel,
Australian dollar, Japanese yen, Chinese renminbi, and
Euro-denominated intercompany balances with notional amounts of
$63.7 and $63.8 million at December 31, 2015 and 2014,
respectively, hedges of Brazilian real, British pound sterling,
Australian dollar, Canadian dollar, and Euro-denominated trade
receivables with notional amounts of $49.1 and $20.8 million at
December 31, 2015 and 2014, respectively, and hedges of Indian
rupee net monetary assets with notional amounts of $2.6 and $1.9
million at December 31, 2015 and 2014,
respectively. |
| Segment Reporting | ASC 280,
Segment Reporting, requires operating segment information to be
presented based on the internal reporting used by the chief
operating decision making group (“CODM”) to allocate
resources and evaluate operating segment performance. Our CODM is
comprised of our Chief Executive Officer and Chief Financial
Officer. The CODM group is focused on assessment and resource
allocation among the Industrial Inkjet, Productivity Software, and
Fiery businesses.
Our operating
segments are integrated through their reporting and operating
structures, shared technology and practices, shared sales and
marketing, and combined production facilities. Our enterprise
management processes use financial information that is closely
aligned with our three operating segments at the gross profit
level. Relevant discrete financial information is prepared at the
gross profit level for each of our three operating segments, which
is used by the CODM to allocate resources and assess the
performance of each operating segment. |
| Performance-based and market-based restricted stock [Member] | |
| Computation of Net Income Per Common Share | ASC
260-10-45-48. Accordingly, performance-based RSUs, which vested on
various dates during the years ended December 31, 2015, 2014,
and 2013 based on achievement of specified performance criteria
related to revenue and non-GAAP operating income targets and
market-based RSUs and stock options, which vested on various dates
during the years ended December 31, 2015 and 2013 based on
achievement of specified stock prices for defined periods are
included in the determination of net income per diluted common
share as of the beginning of the period. |
