| The Company and Its Significant Accounting Policies (Policies) | 12 Months Ended |
| Dec. 31, 2017 |
| The Company | The Company
We are a world leader in customer-centric digital printing
innovation focused on the transformation of the printing,
packaging, ceramic tile decoration, and textile industries from the
use of traditional analog based printing to digital on-demand
Our products include industrial super-wide and wide format display
graphics, corrugated packaging and display, textile, and ceramic
tile decoration digital inkjet printers that utilize our digital
ink, industrial digital inkjet printer parts, and professional
services; print production workflow, web-to-print, on-demand
Our product portfolio includes Industrial Inkjet including VUTEk
display graphics super-wide and wide format, Nozomi corrugated
packaging, Reggiani textile, Cretaprint ceramic tile decoration and
building material industrial digital inkjet printers and ink; print
production workflow, web-to-print, |
| Correction of Prior Period Financial Information | Correction of Prior Period Financial Information
We identified certain errors at our Italian manufacturing
subsidiary attributable to the valuation and classification of
certain finished goods inventory during the year ended
December 31, 2017. The errors related to finished goods that
should have been impaired and expensed in 2015, inventory utilized
in research and development projects that expired and should have
been expensed in 2016, and certain assets included in inventory
that should have been capitalized and depreciated over their
estimated useful lives. The preceding resulted in an understatement
of cost of revenue in 2015 and operating expenses in 2016 due to
failure to properly impair and expense certain items, properly
classify certain amounts included in inventories on the balance
sheet, and appropriately depreciate those amounts.
As a result, we have corrected the accompanying consolidated
balance sheet as of December 31, 2016 as follows:
December 31, 2016
(in thousands) As Previously Adjustments As Adjusted
Inventories $ 99,075 $ (2,737 ) $ 96,338
Property and equipment, net 103,304 170 103,474
Total assets 1,481,496 (2,567 ) 1,478,929
Deferred tax liabilities 16,351 (750 ) 15,601
Total liabilities 653,664 (750 ) 652,914
Accumulated other comprehensive loss (24,694 ) 119 (24,575 )
Retained earnings 419,825 (1,936 ) 417,889
Total shareholders’ equity 827,832 (1,817 ) 826,015
We consider this correction to previously issued financial
statements to be immaterial.
The impact to net income for the years ended December 31, 2016
and 2015 for this correction is a decrease of $0.6 and
$1.3 million, respectively, from amounts previously reported
of $45.5 and $33.5 million, respectively |
| Out-of-Period Adjustments | Out-of-Period
During the year ended December 31, 2017, we recorded
out-of-period out-of-period |
| 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 expenses, restructuring
activities, fair value of financial instruments, stock-based
compensation, income taxes, valuation of goodwill and intangible
assets, business combinations, build-to-suit |
| 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 government, 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 Available-for-sale
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, 2017, 2016, and 2015. We have determined
that gross unrealized losses on short-term investments at
December 31, 2017 and 2016 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. |
| Restricted Cash Equivalents and Investments | Restricted Cash Equivalents and Investments
As explained further in Note 15—Property and Equipment, net,
we have restricted cash equivalents and investments of $32.5 and
$6.3 million as of December 31, 2017 and 2016 related to
a lease with BTMU related to the construction of manufacturing and
warehouse facilities in Manchester, New Hampshire, in our
Industrial Inkjet operating segment.
The funds pledged under the lease represent 115% of the total
expenditures made by BTMU through December 31, 2017 and 2016.
The funds are invested in $32.5 million of cash equivalents at
December 31, 2017, and $5.1 and $1.2 million of U.S.
government securities and cash equivalents at December 31,
2016, respectively, with a third party trustee, which are
restricted during the construction period. Upon completion of
construction, the funds will be released as cash and cash
equivalents. The portion of released funds representing 100% of the
total expenditures made by BTMU will be deposited with BTMU and
restricted as collateral until the end of the underlying lease
period. |
| 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 and because
accounts receivable are reduced by an allowance for doubtful
accounts. The fair value of our available-for-sale |
| 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 SAB 104, Revenue Recognition, and
when applicable, ASC 605-25.
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 and
not considered perfunctory, 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 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 various 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
We hold certain products manufactured by us on a “bill and
hold” basis for our customers’ convenience. Revenue is
recognized for these “bill and hold” arrangements in
accordance with SAB 104, which requires consideration of, among
other things, whether the customer has made a fixed commitment to
purchase the product; the existence of a substantial business
purpose for the arrangement; the “bill and hold”
arrangement is at the request of the customer; the scheduled
delivery date must be reasonable and consistent with the
buyer’s business purpose; title and risk of ownership must
pass to the customer, including any decline in the market value of
the product; the product is complete and ready for shipment; the
product has been segregated from our inventory; payment terms for
such arrangements have not been modified from our normal billing
and credit terms; our custodial risks must be insurable and
insured; and no further performance obligations by us exist.
Extended procedures are not necessary to assure that there are no
exceptions to the customer’s commitment to accept and pay for
the product. There are no bill-and-hold
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, 605-25,
We enter into contracts to sell our products and services. While
the majority of our sales agreements contain standard terms and
conditions, there are agreements containing multiple elements or
non-standard
Multiple-Deliverable Arrangements
We recognize revenue in multiple element arrangements involving
tangible products containing software and non-software 605-25. non-software non-software 985-605.
We have calculated BESP for software licenses and non-software
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. Tangible
products containing software and non-software 985-605 985-605. Non-software
Multiple element arrangements containing only software elements
remain subject to the provisions of ASC 985-605 985-605.
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,
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 $3.5 and $3.4 million as of December 31, 2017 and
2016, respectively, and is included in other current assets in our
Consolidated Balance Sheets. |
| 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. |
| 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 $28.7 and $31.0 million consisting
of $16.6 and $17.8 million of sales-type lease receivables,
included within other current assets and other assets at
December 31, 2017 and 2016, respectively, and $12.1 and
$13.2 million of trade receivables having an original
contractual maturity in excess of one year, included within
accounts receivable, net of allowance, at December 31, 2017
and 2016, respectively. The trade receivables of $12.1 and
$13.2 million having an original total contractual maturity in
excess of one year, at December 31, 2017 and 2016, include
$4.4 and $7.1 million, respectively, which are scheduled to be
received in less than one year. The credit quality of financing
receivables is 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 27% of revenue
for the year ended December 31, 2017, 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 integrate Fiery technology into the
design and development of 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 32% of our receivables are with European customers as
of December 31, 2017. Of this amount, 30% of our European
receivables (10% of consolidated gross receivables) are in the
higher risk southern European countries (mostly Italy, Spain, and
Portugal) and Ireland.
We rely on a limited number of suppliers for certain key
components, including textile ink, and a few key contract
manufacturers for our Fiery DFEs, and certain Industrial Inkjet
subassemblies. 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
In accordance with ASC 860-20,
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 $21.4 and
$19.8 million during the years ended December 31, 2017
and 2016, respectively, which approximates the cash received.
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 $5.9 and
$3.5 million during the years ended December 31, 2017 and
2016, respectively, which approximates the cash received.
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 generally stated at standard cost, which
approximates the lower of actual cost, using the first-in, first-out Work-in-process
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 equipment
(seven years), 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 (five years), land improvements
such as parking lots or sidewalks (seven years), leasehold
improvements (the lease term), building improvements (five to ten
years), building and improvements under a build-to-suit
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.
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, Other—Internal-Use re-engineering, |
| 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 interim 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, two-step |
| 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 two to six years for developed
technology, three to nine years for customer
contracts/relationships, four to five years for covenants not to
compete, and three to sixteen 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. The
useful lives of certain amortizable identifiable intangible assets
were reduced during 2017 and 2016, respectively, based on a
re-assessment
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. An asset is considered impaired if its
carrying amount exceeds the undiscounted future cash flow the asset
is expected to generate. 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 discounted 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.
An impairment loss is recorded for long-lived assets held-for-sale held-for-sale.
We recorded an impairment loss of $0.9 million during the year
ended December 31, 2017 related to the Meredith facility. For
additional information, please refer to Note 15—Property and
Equipment, net, for details. There were no asset impairment charges
recognized during the years ended December 31, 2016 and
2015. |
| Warranty Reserves | Warranty Reserves
Our Industrial Inkjet printers are generally accompanied by a
13-month cost-per-claim,
Warranty reserves were $16.3 and $10.3 million as of
December 31, 2017 and 2016, 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 $157.4, $151.4, and
$141.4 million for the years ended December 31, 2017,
2016, and 2015, respectively. 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. We expense research and
development costs associated with new software products as incurred
until technological feasibility is established. 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. |
| Advertising | Advertising
Advertising costs are expensed as incurred. Total advertising and
promotional expenses were $5.9, $4.6, and $4.3 million for the
years ended December 31, 2017, 2016, and 2015,
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 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. Accordingly, the tax bases of assets and liabilities
reflect the impact of the tax reform legislation that was enacted
on December 22, 2017. We estimate our actual current tax
expense including permanent charges and benefits and the temporary
differences resulting from differing treatment of items for tax and
financial accounting purposes such as deferred revenue. These
temporary differences result in deferred tax assets and
liabilities, which are included in our Consolidated Balance Sheets.
In some cases, provisional amounts were recorded based on
reasonable estimates. We record the provisional amounts of the tax
effects of the 2017 Tax Act in the first reporting period in which
a reasonable estimate can be determined. SAB 118 provides that the
measurement period may not extend beyond one year from the
enactment date.
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, Luxembourg, Israel, Netherlands, and Turkey deferred
tax assets, we have determined that it 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.
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 assessed for 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,
• upon final determination of the fair
value of assets acquired and liabilities assumed during the
measurement period, any subsequent adjustments are recorded in 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.
We account for forfeitures when they occur. Prior to adoption of
ASU 2016-09
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
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, was an unrealized gain of
$8.8 million at December 31, 2017, and an unrealized loss
of $24.1 million at December 31, 2016.
Based on our assessment of the salient economic indicators
discussed in ASC 830-10-55-5, |
| Computation of Net Income (Loss) Per Common Share | Net Income (Loss) per Common Share
Net income (loss) per basic common share is computed using the
weighted average number of common shares outstanding during the
period. Net income (loss) 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 non-vested
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 (loss) 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 hedges of
British pound sterling, Brazilian real, Israeli shekel, Japanese
yen, Chinese renminbi, and Euro-denominated intercompany balances;
hedges of Brazilian real, British pound sterling, Australian
dollar, Israeli shekel, and Euro-denominated trade receivables; and
hedges of British pound sterling, Indian rupee, Israeli shekel, and
Euro-denominated other 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
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 |
| 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 foreign currency exchange 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
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. non-U.S.
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 trade
receivables denominated in currencies other than their respective
reporting entity’s functional currency, and the settlement of
intercompany balances denominated in currencies other than their
functional currency). Under our master netting agreements with our
foreign currency derivative counterparties, we are allowed to net
transactions of the same currency with a single net amount payable
by one party to the other. The derivatives held by us are not
subject to any credit contingent features negotiated with these
counterparties. We are not required to pledge cash collateral
related to these foreign currency derivatives 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 $3.9
and $3.2 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, 2017 and
2016. 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
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
Forward contracts not designated as hedging instruments with
notional amounts of $235.5 and $158.7 million are used to
hedge foreign currency balance sheet exposures at December 31,
2017 and 2016, 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 |
| Segment Reporting | Operating segment information is required 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 (“CODM
group”). The CODM group is focused on assessment and resource
allocation among the Industrial Inkjet, Productivity Software, and
Fiery operating segments.
Our operating segments are integrated through their reporting and
operating structures, shared technology and practices, shared sales
and marketing, shared back office support functions, 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
group to allocate resources and assess the performance of each
operating segment. |
| Performance-based and market-based restricted stock [Member] | |
| Computation of Net Income (Loss) Per Common Share | ASC 260-10-45-48. non-GAAP non-GAAP |
| ASU 2016-18 Restricted Cash [Member] | |
| Recent Accounting Pronouncements | Restricted Cash. 2016-18, beginning-of-period end-of-period
ASU 2016-18 off-balance |
| ASU 2016-13 Financial Instruments [Member] | |
| Recent Accounting Pronouncements | Financial Instruments. 2016-13, available-for-sale available-for-sale
ASU 2016-13 available-for-sale |
| ASU 2017-05 Other Income [Member] | |
| Recent Accounting Pronouncements | Nonfinancial Asset Derecognition. 2017-05, 2014-09)
ASU 2017-05 |
| ASU 2017-09 Sock Compensation: Modification Accounting [Member] | |
| Recent Accounting Pronouncements | Stock Compensation Modification. 2017-09,
ASU 2017-09 |
| ASU 2017-01 Business Combinations [Member] | |
| Recent Accounting Pronouncements | Definition of a Business. 2017-01,
Under ASU 2017-01,
Our consolidated financial statements may be impacted if an
acquisition does not qualify as a business combination after ASU
2017-01 |
| Tax Cuts and Jobs Act [Member] | |
| Recent Accounting Pronouncements | Income Taxes. |
| ASU 2015-11 Inventory Valuation [Member] | |
| Recent Accounting Pronouncements | Inventory Valuation. 2015-11, ASU 2015-11 2015-11 |
| ASU 2016-15 Statement of Cash Flows [Member] | |
| Recent Accounting Pronouncements | Settlement of Convertible Debt. 2016-15,
ASU 2016-15 |
| ASU 2016-02 Lease Arrangements [Member] | |
| Recent Accounting Pronouncements | Lease Arrangements. 2016-02, right-of-use right-to-use
The recognition, measurement, and presentation of expenses and cash
flows by a lessee will not be significantly changed from previous
guidance. There will continue to be a differentiation between
finance leases and operating leases. The criteria for determining
whether a lease is a financing or operating lease will be
substantially the same as existing guidance except that the
“bright line” percentages have been removed.
• For finance leases, interest is
recognized on the lease liability separately from depreciation of
the right-of-use
• For operating leases, a lessee is
required to recognize lease expense generally on a straight-line
basis. All operating lease payments are classified as operating
activities in the statement of cash flows.
The current build-to-suit build-to-suit
We have not quantified the impact, but the requirement to recognize
a right-of-use |
| ASU 2017-12 Hedge Accounting [Member] | |
| Recent Accounting Pronouncements | Hedge Accounting. 2017-12,
Our foreign currency derivative contracts include notional amounts
of $3.9 million that have been designated as cash flow hedges
of our Indian rupee operating expense exposure at December 31,
2017. Under current guidance, changes in the fair value of the
effective portion of these contracts are reported as a component of
OCI and reclassified to operating expense in the periods of payment
of the hedged cash flows. The ineffective portion is recognized as
a component of interest income and other income, net. Under the new
guidance, the entire change in the fair value of hedging
instruments designated as cash flow hedges that are included in the
assessment of hedge effectiveness will be recorded in OCI. Those
amounts are reclassified to earnings in the periods of payment in
the same income statement line item as the hedged operating
expenses. Upon adoption, a cumulative-effect adjustment will be
required to charge the ineffective portion of derivative contracts
designated as cash flow hedges existing at the date of adoption to
accumulated OCI with a corresponding adjustment to the retained
earnings as of the beginning of the fiscal year of the
adoption.
The new guidance continues to require an initial prospective
quantitative hedge effectiveness assessment unless the hedging
relationship qualifies for the critical-terms-match method or facts
and circumstances method, which permit an assumption of perfect
hedge effectiveness. After the initial quantitative assessment, the
new guidance permits a qualitative ongoing effectiveness assessment
for certain hedges if we can reasonably support an expectation of
high effectiveness throughout the term of the hedge. The new
guidance also requires additional disclosure related to the effect
on the income statement of cash flow hedges.
ASU 2017-12 |
| ASU 2014-09 and ASU 2016-10 Revenue Recognition [Member] | |
| Recent Accounting Pronouncements | Revenue Recognition. 2014-09, ASU 2016-10,
ASU 2014-09 ASU 2014-09: (pre-tax) (pre-tax)
The new standard requires comprehensive annual and interim
disclosures regarding the nature, amount, timing, and uncertainty
of recognized revenue, which will be provided in the year of
adoption along with the impact on recognized revenue compared with
revenue that would have been recognized under prior guidance.
Qualitative and quantitative disclosures will be required
regarding:
• disaggregation of our current
disclosures of revenue by segment and geographic area into
categories that depict how revenue and cash flows are impacted by
economic factors,
• timing of recognition, contract
duration, and sales channel,
• billed and unbilled 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,
• assets recognized from the costs to
obtain or fulfill a contract (e.g., commissions), and
• bad debt provisions related to billed
and unbilled receivables.
We are assessing the full impact on our consolidated financial
statements, systems, and controls upon adoption. |
