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EFI Reports Q3 Loss on Charge, Will Investigate Option Grants

Wednesday, October 25, 2006

Press release from the issuing company

FOSTER CITY, Calif.-- EFI, the world leader in digital controllers, super-wide format printers and inks and print management solutions, announced today its quarterly financials and that a Special Committee of its Board of Directors has commenced an independent investigation of EFI's historical stock option grants. For the quarter ended September 30, 2006, revenue was $138.2 compared to third quarter 2005 revenue of $142.1 million. For the nine months ended September 30, 2006, revenue was $409.8 million, compared to $323.1 million for the same period last year. Non-GAAP net income was $18.5 million or $0.29 per diluted share in the third quarter of 2006, compared to $21.8 million, or $0.35 per diluted share for the same period in 2005. Non-GAAP net income was $54.7 million or $0.84 per diluted share for the nine months ended September 30, 2006, compared to $33.5 million or $0.56 per diluted share for the same period in 2005. GAAP net loss was $(27.3) million or $(0.49) per diluted share in the third quarter of 2006, compared to net income of $18.5 million or $0.30 per diluted share for the same period in 2005. As previously announced, in the third quarter the company recognized a GAAP tax charge related to a plan to align the manufacturing and distribution of several product lines with that of its controller business. The tax charge for this alignment was $35.7 million. The charge is expected to result in a cash payment in the fourth quarter of approximately $7.0 million. This alignment is anticipated to result in a reduction of our GAAP and pro-forma effective tax rates beginning in 2007. GAAP net loss was $(3.3) million or $(0.06) per diluted share for the nine months ended September 30, 2006, compared to a net loss of $(15.4) million or $(0.28) per diluted share for the same period in 2005. Non-GAAP net income is computed by adjusting GAAP net income by the impact of recurring amortization of acquisition-related intangibles, stock-based compensation expenses, certain tax charges, as well as other non-recurring charges and gains. "Our Q3 results showed that our increasingly diversified product portfolio can help partially offset the impact of late Fiery product introductions," said Guy Gecht, CEO of EFI. "The enthusiastic marketplace response to our new lineup of VUTEk products combined with our strong ink business provided solid returns in our inkjet category. We look for this trend to accelerate into the fourth quarter while at the same time we expanded our commitment to the industrial inkjet business through our pending acquisition of Jetrion." The Company also announced today that a Special Committee of its Board of Directors has commenced an independent investigation of EFI's historical stock option grants. The independent investigation was recommended by management based on a voluntary review of past option grant practices in which potential errors were discovered related to certain historical grants. The Special Committee will be assisted by independent legal counsel. As part of this process, the Company has voluntarily contacted the staff of the SEC to inform them about the ongoing review. Facts may come to light once the investigation is completed that may require the Company to change its accounting treatment of stock options granted in prior periods. This may or may not have a material adverse effect on its results for those periods or other periods. Because the investigation has only recently commenced, we cannot make any predictions or provide further information about its potential findings at this time. The Company will make a future announcement about the results of the investigation as its findings are known. The Company also announced that two shareholder derivative suits were filed on August 16, and September 11, 2006, in the Superior Court in San Mateo, California. The complaints allege, among other things, that certain of its current and past officers and directors breached their fiduciary duty to the Company by improperly backdating certain grants of EFI stock options to officers of the company and violating the terms of EFI's stock option plans, violating generally accepted accounting practices by failing to recognize compensation expenses with respect to certain option grants during the years 1996-2001, and disseminating inaccurate financial statements. As a result of the ongoing investigation, the Company will delay the filing of its Form 10-Q for the quarter ended September 30, 2006. The Company is focused on resolving any potential issues as quickly as possible and plans to file its Form 10-Q as soon as possible following completion of the investigation.

 

 

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