TIBCO incurs stock-based compensation expense. TIBCO excludes this item for the purposes of calculating non-GAAP operating income, non-GAAP net income and non-GAAP net income per share because it is a non-cash expense that TIBCO believes is not reflective of its business performance. The nature of the stock-based compensation expense also makes it very difficult to estimate prospectively, since the expense will vary with changes in the stock price and market conditions at the time of new grants, varying valuation methodologies, subjective assumptions and different award types, making the comparison of current results with forward-looking guidance potentially difficult for investors to interpret. The tax effects of stock-based compensation expenses may also vary significantly from period to period, without any change in underlying operational performance, thereby obscuring the underlying profitability of operations relative to prior periods. Finally, TIBCO believes that non-GAAP measures of profitability that exclude stock-based compensation are widely used by analysts and investors in the software industry.
Acquisition-related and Other Expenses
TIBCO incurs acquisition-related and other expenses which consist of costs incurred after the issuance of a definitive term sheet for a particular transaction (whether or not such transaction is ultimately completed, remains in process or is not completed) and include legal, banker, accounting and other advisory fees of third parties and severance costs for employees of the acquired company that are terminated within 90 days of the acquisition date. Management excludes these items, for the purposes of calculating non-GAAP operating income, non-GAAP net income and non-GAAP net income per share. TIBCO believes that eliminating these expenses from its non-GAAP measures is useful to investors, because it generally would not have otherwise incurred such expenses in the periods presented as part of its continuing operations. The acquisition-related and other expenses are not recurring with respect to past transactions, can be inconsistent in amount and frequency from period to period and are significantly impacted by the timing and magnitude of TIBCO's acquisitions. While these expenses are not recurring with respect to past transactions, TIBCO generally will incur these expenses in connection with any future acquisitions.
TIBCO incurs restructuring expenses, included in its GAAP presentation of operating expense, primarily due to workforce related charges such as payments for severance and benefits and estimated costs of exiting and terminating facility lease commitments related to a formal restructuring plan. TIBCO excludes these items, for the purposes of calculating non-GAAP operating income, non-GAAP net income and non-GAAP net income per share, when it evaluates the continuing business performance of TIBCO. TIBCO believes that these items are not consistently recurring and do not necessarily reflect expected future operating expense, nor does TIBCO believe that they provide a meaningful evaluation of current versus past business results or the expense levels required to support TIBCO's operating plan.
Non-Cash Interest Expense Related to Convertible Debt
TIBCO is required to recognize non-cash interest expense related to its 2.25% convertible senior notes issued in April 2012 as an imputed interest expense. Management excludes this incremental non-cash interest expense for purposes of calculating non-GAAP net income and non-GAAP net income per share. Under the relevant accounting guidance, TIBCO is required to separate the conversion option as an equity component from the debt and account for the debt in a manner that reflects TIBCO's non-convertible debt borrowing rate. This results in the debt component of the convertible notes being treated as though it was issued at a discount, with the debt discount being accreted as additional non-cash interest expense over the term of the notes using the effective interest method. TIBCO believes that excluding this expense from its non-GAAP measures is useful to investors because this incremental interest expense does not represent a cash outflow for the company and is not meaningful in evaluating current versus past business results. Finally, TIBCO believes that non-GAAP measures of profitability that exclude non-cash interest accretion expense are widely used by analysts and investors.
TIBCO Software Inc. Reconciliation of GAAP to Non-GAAP Measures (unaudited) (in thousands, except net income per share) Three Months Ended ----------------------------------------------------- March 3, March 4, 2013 2012 ------------------------- -------------------------- Net income Net income attributable attributable to TIBCO to TIBCO Operating Software Operating Software Income Inc. Income Inc. ------------ ------------ ------------ ------------GAAP $ 18,859 $ 9,505 $ 24,153 $ 20,641 Amortization of intangible assets - cost of revenue 4,097 4,097 3,265 3,265 Amortization of intangible assets - operating expense 4,321 4,321 4,548 4,548 Stock-based compensation - cost of revenue 1,603 1,603 1,282 1,282 Stock-based compensation - R&D expense 3,996 3,996 4,005 4,005 Stock-based compensation - S&M expense 5,239 5,239 5,293 5,293 Stock-based compensation - G&A expense 5,554 5,554 4,745 4,745 Acquisition related and other 327 327 396 396 Non-cash interest expense related to convertible debt - 3,819 - - Restructuring adjustment 7 7 (119) (119) Income tax adjustment for non-GAAP - (7,395) - (9,480) ------------ ------------ ------------ ------------Non-GAAP $ 44,003 $ 31,073 $ 47,568 $ 34,576 ============ ============ ============ ============Diluted net income per share attributable to TIBCO Software Inc.: GAAP $ 0.06 $ 0.12 ============ ============ Non-GAAP $ 0.18 $ 0.20 ============ ============Shares used to compute diluted net income per share attributable to TIBCO Software Inc.: 169,130 170,866 ============ ============
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