EFII » Topics » A reduction in our net income as reported on our financial statements could increase the likelihood of identifying a material weakness in our internal controls.

These excerpts taken from the EFII 10-K filed Mar 2, 2009.

A reduction in our net income as reported on our financial statements could increase the likelihood of identifying a material weakness in our internal controls over financial reporting.

The threshold for determining whether or not we have a material weakness in our internal controls over financial reporting and procedures as defined by the Sarbanes-Oxley Act is, in part, based on our generally accepted accounting principles, or GAAP, net income. Lowered GAAP net income, with an associated lowered materiality threshold, may increase our risk that internal control weaknesses may result in a material misstatement in the financial statements. For example, continued acquisitions, and the associated amortization of intangibles, will increase our amortization expenses and in the future may lower our GAAP earnings which would result in a lower materiality threshold for internal control testing.

A reduction in our net income as reported on our financial statements could increase the likelihood of identifying a material weakness in our internal controls over financial reporting.

The threshold for determining whether or not we have a material weakness in our internal controls over financial reporting and procedures as defined by the Sarbanes-Oxley Act is, in part, based on our generally accepted accounting principles, or GAAP, net income. Lowered GAAP net income, with an associated lowered materiality threshold, may increase our risk that internal control weaknesses may result in a material misstatement in the financial statements. For example, continued acquisitions, and the associated amortization of intangibles, will increase our amortization expenses and in the future may lower our GAAP earnings which would result in a lower materiality threshold for internal control testing.

A reduction in our net income as reported on our financial
statements could increase the likelihood of identifying a material weakness in our internal controls over financial reporting.

The threshold for
determining whether or not we have a material weakness in our internal controls over financial reporting and procedures as defined by the Sarbanes-Oxley Act is, in part, based on our generally accepted accounting principles, or GAAP, net income.
Lowered GAAP net income, with an associated lowered materiality threshold, may increase our risk that internal control weaknesses may result in a material misstatement in the financial statements. For example, continued acquisitions, and the
associated amortization of intangibles, will increase our amortization expenses and in the future may lower our GAAP earnings which would result in a lower materiality threshold for internal control testing.

STYLE="margin-top:18px;margin-bottom:0px">Our synthetic lease arrangements may adversely affect our cash flow.

SIZE="2">As of December 31, 2008, we were a party to two synthetic leases (the “301 Lease” and the “303 Lease”, together “Leases”) covering our Foster City facilities located at 301 and 303 Velocity Way, Foster City,
California. These leases provided a cost effective means of providing adequate office space for our corporate

 


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offices. Both Leases were scheduled to expire in July 2014. The leases included an option to purchase the facilities during or at the end of the term of the
leases for the amount expended by the lessor to purchase the facilities. We have exercised our purchase option in January 2009 with respect to the 301 Lease. On January 29, 2009, we completed the sale of land and building to Gilead for a total
price of $137.5 million, subject to an escrow holdback of $15.5 million. The escrow period expires January 2010. The property sold included approximately thirty acres of land and the office building located on the land at 301 Velocity Way, Foster
City, California, consisting of approximately 163,000 square feet and certain other assets related to the property.

We have guaranteed to the lessor a
residual value associated with the buildings equal to 82% of their funding of the respective Leases. Under the financial covenants, we must maintain a minimum net worth and a minimum tangible net worth as of the end of each quarter. There is an
additional covenant regarding mergers. We were in compliance with all such financial and merger related covenants as of December 31, 2008. We are liable to the lessor for the financed amount of the buildings if we default on our covenants.
Since we exercised our purchase option with respect to the 301 Lease, our exposure under our remaining synthetic lease arrangements is $56.9 million as of January 29, 2009.

FACE="Times New Roman" SIZE="2">Our remaining synthetic lease arrangement with respect to the 303 Lease could have significant negative consequences. For example, it could:

STYLE="font-size:6px;margin-top:0px;margin-bottom:0px"> 







  

increase our vulnerability to general adverse economic and industry conditions, as we are required to maintain compliance with financial covenants regardless of
external conditions;

 







  

limit our ability to obtain additional financing due to covenants and the existing leverage;

STYLE="font-size:6px;margin-top:0px;margin-bottom:0px"> 







  

require the dedication of funds to comply with the financial covenants, thereby reducing the availability of cash flow and/or ability to obtain financing to fund
our growth strategy, working capital, capital expenditures, and other general corporate purposes; and

 







  

limit our flexibility in planning for, or reacting to, changes in our business and our industry by restricting the funds available for use in addressing such
changes; and place us at a competitive disadvantage relative to our competitors.

A reduction in our net income as reported on our financial
statements could increase the likelihood of identifying a material weakness in our internal controls over financial reporting.

The threshold for
determining whether or not we have a material weakness in our internal controls over financial reporting and procedures as defined by the Sarbanes-Oxley Act is, in part, based on our generally accepted accounting principles, or GAAP, net income.
Lowered GAAP net income, with an associated lowered materiality threshold, may increase our risk that internal control weaknesses may result in a material misstatement in the financial statements. For example, continued acquisitions, and the
associated amortization of intangibles, will increase our amortization expenses and in the future may lower our GAAP earnings which would result in a lower materiality threshold for internal control testing.

STYLE="margin-top:18px;margin-bottom:0px">Our synthetic lease arrangements may adversely affect our cash flow.

SIZE="2">As of December 31, 2008, we were a party to two synthetic leases (the “301 Lease” and the “303 Lease”, together “Leases”) covering our Foster City facilities located at 301 and 303 Velocity Way, Foster City,
California. These leases provided a cost effective means of providing adequate office space for our corporate

 


25







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offices. Both Leases were scheduled to expire in July 2014. The leases included an option to purchase the facilities during or at the end of the term of the
leases for the amount expended by the lessor to purchase the facilities. We have exercised our purchase option in January 2009 with respect to the 301 Lease. On January 29, 2009, we completed the sale of land and building to Gilead for a total
price of $137.5 million, subject to an escrow holdback of $15.5 million. The escrow period expires January 2010. The property sold included approximately thirty acres of land and the office building located on the land at 301 Velocity Way, Foster
City, California, consisting of approximately 163,000 square feet and certain other assets related to the property.

We have guaranteed to the lessor a
residual value associated with the buildings equal to 82% of their funding of the respective Leases. Under the financial covenants, we must maintain a minimum net worth and a minimum tangible net worth as of the end of each quarter. There is an
additional covenant regarding mergers. We were in compliance with all such financial and merger related covenants as of December 31, 2008. We are liable to the lessor for the financed amount of the buildings if we default on our covenants.
Since we exercised our purchase option with respect to the 301 Lease, our exposure under our remaining synthetic lease arrangements is $56.9 million as of January 29, 2009.

FACE="Times New Roman" SIZE="2">Our remaining synthetic lease arrangement with respect to the 303 Lease could have significant negative consequences. For example, it could:

STYLE="font-size:6px;margin-top:0px;margin-bottom:0px"> 







  

increase our vulnerability to general adverse economic and industry conditions, as we are required to maintain compliance with financial covenants regardless of
external conditions;

 







  

limit our ability to obtain additional financing due to covenants and the existing leverage;

STYLE="font-size:6px;margin-top:0px;margin-bottom:0px"> 







  

require the dedication of funds to comply with the financial covenants, thereby reducing the availability of cash flow and/or ability to obtain financing to fund
our growth strategy, working capital, capital expenditures, and other general corporate purposes; and

 







  

limit our flexibility in planning for, or reacting to, changes in our business and our industry by restricting the funds available for use in addressing such
changes; and place us at a competitive disadvantage relative to our competitors.

These excerpts taken from the EFII 10-K filed Feb 29, 2008.

A reduction in our net income as reported on our financial statements could increase the likelihood of identifying a material weakness in our internal controls.

The threshold for determining whether or not we have a material weakness in our internal controls and procedures as defined by the Sarbanes-Oxley Act is, in part, based on our generally accepted accounting principles, or GAAP, net income. Lowered GAAP net income, with an associated lowered materiality threshold, may increase our risk of having to disclose control weaknesses. For example, continued acquisitions, and the associated amortization of intangibles, will increase our amortization expenses and in the future may lower our GAAP earnings which would result in a lower materiality threshold for internal control testing. A lower materiality threshold requires us to test more areas of the business. As the number of areas tested increases, the statistical chance of discovering a material weakness increases.

A reduction in our net income as reported on
our financial statements could increase the likelihood of identifying a material weakness in our internal controls.

The threshold for determining
whether or not we have a material weakness in our internal controls and procedures as defined by the Sarbanes-Oxley Act is, in part, based on our generally accepted accounting principles, or GAAP, net income. Lowered GAAP net income, with an
associated lowered materiality threshold, may increase our risk of having to disclose control weaknesses. For example, continued acquisitions, and the associated amortization of intangibles, will increase our amortization expenses and in the
future may lower our GAAP earnings which would result in a lower materiality threshold for internal control testing. A lower materiality threshold requires us to test more areas of the business. As the number of areas tested increases, the
statistical chance of discovering a material weakness increases.

This excerpt taken from the EFII 10-K filed Oct 19, 2007.

A reduction in our net income as reported on our financial statements could increase the likelihood of identifying a material weakness in our internal controls.

The threshold for determining whether or not we have a material weakness in our internal controls and procedures as defined by the Sarbanes-Oxley Act is, in part, based on our generally accepted accounting principles, or GAAP, net income. Lowered GAAP net income, with an associated lowered materiality threshold, may increase our risk of having to disclose control weaknesses. For example, continued acquisitions, and the associated amortization of intangibles, will increase our amortization expenses and in the future may lower our GAAP earnings which would result in a lower materiality threshold for internal control testing. A lower materiality threshold requires us to test more areas of the business. As the number of areas tested increases, the statistical chance of discovering a material weakness increases.

This excerpt taken from the EFII 10-K filed Mar 16, 2006.

A reduction in our net income as reported on our financial statements could increase the likelihood of identifying a material weakness in our internal controls.

The threshold for determining whether or not we have a material weakness in our internal controls and procedures as defined by the Sarbanes-Oxley Act is, in part, based on our generally accepted accounting principles, or GAAP, net income. Lowered GAAP net income, with an associated lowered materiality threshold, may increase our risk of having to disclose control weaknesses. For example, continued acquisitions, and the associated amortization of intangibles, will increase our amortization expenses and in the future may lower our GAAP earnings which would result in a lower materiality threshold for internal control testing. A lower materiality threshold requires us to test more areas of the business. As the number of areas tested increases, the statistical chance of discovering a material weakness increases.

 

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