Summary of ACCELRYS, INC. - Yahoo! Finance

Results of Operations and Financial Condition, Financial Statements and Exhibits

Item 2.02. Results of Operations and Financial Condition

On February 26, 2013, Accelrys, Inc. ("we", "us", "our" or the "Company") issued a press release announcing its financial results for the quarter and fiscal year ended December 31, 2012. A copy of this press release is attached hereto as Exhibit 99.1.
The press release describes non-GAAP financial measures for revenue, operating income, net income, net income per diluted share and free cash flow that include deferred revenue fair value adjustments, acquisition-related cost of revenue, royalty income fair value adjustments and exclude business consolidation, transaction and restructuring costs, stock-based compensation expense, purchased intangible asset amortization, amortization of note receivable discount, gain on sale of real estate, net gain on sale of equity investment, sale of intangible asset, other operating expense, net and income tax adjustments. These financial measures are not calculated in accordance with generally accepted accounting principles (GAAP) and are not based on any comprehensive set of accounting rules or principles.
Management believes these non-GAAP financial measures provide a useful measure of the Company's operating results, a meaningful comparison with historical results and with the results of other companies and insight into the Company's ongoing operating performance. Further, management and the Board of Directors of the Company utilize these measures, in addition to GAAP measures, when evaluating and comparing the Company's operating performance against internal financial forecasts and budgets. These non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. In addition, these non-GAAP financial measures may be different from non-GAAP financial measures used by other companies. Investors are encouraged to review the reconciliation of the non-GAAP financial measures presented in the press release to their most directly comparable GAAP financial measures included in the press release. As described above, the Company adjusts its GAAP financial statements for the following items:
Deferred revenue fair value adjustment. The deferred revenue fair value adjustment relates to our merger with Symyx Technologies, Inc. ("Symyx") on July 1, 2010 and our acquisitions of Contur Industry Holding AB and Contur Software AB (collectively, "Contur") on May 19, 2011, VelQuest Corporation ("VelQuest") on December 30, 2011 and Aegis Analytical Corp. ("Aegis") on October 23, 2012. At the time of each of these business combination transactions, Symyx, Contur and VelQuest had recorded deferred revenue related to revenue, which would be recognized in future periods as revenue recognition criteria are satisfied. The purchase accounting guidance required us to write down a significant portion of this deferred revenue to its fair value as of the business combination transaction date. Consequently, on a GAAP basis in post-acquisition periods, we do not recognize the full amount of this deferred revenue. When measuring the performance of our business, however, we add back non-GAAP revenue associated with the deferred revenue that would have been recognized during the relevant accounting period but was excluded as a result of these purchase accounting adjustments, as we believe this provides information about the impact on operations of the acquired business in a manner consistent with the revenue recognition for our pre-existing services. We further believe that the inclusion of non-GAAP revenue enables investors to better understand the impact of the acquisitions on the baseline revenue of the Company and provides useful information to investors on revenue trends impacting the business in the post-acquisition periods.
Acquisition-related cost of revenue. The acquisition-related cost of revenue relates to our acquisition of VelQuest and resulted from professional service arrangements under which resulting revenue was deferred at the acquisition date. The acquisition-related cost of revenue is recorded as the associated revenue is recognized. The purchase accounting rules required us to write down the acquisition-related cost of revenue to its fair value as of the business combination transaction date, which we estimated to be zero. When measuring the performance of our business, however, we add back non-GAAP acquisition-related costs of revenue, as we believe this enables investors to better understand the impact of the acquisition on the Company and provides useful information to investors.
Business consolidation, transaction and restructuring costs. Business consolidation, transaction and restructuring costs consist of accounting, legal, litigation, investment banking and other costs incurred in connection with anticipated and completed business combinations, as well as costs incurred by the Company to integrate acquired companies, including consultant and employee related costs incurred during integration and transition periods. Also included are acquisition-related contingent compensation costs, lease obligation exit costs, facility closure costs and severance and other related costs incurred in connection with the various restructuring activities commenced by the Company. The Company excludes these costs because it believes they are not reflective of ongoing operating results.
Stock-based compensation expense. Stock-based compensation expense consists of expenses recorded for employee stock options, restricted stock units and employee stock purchase rights. These expenses are excluded from the Company's non-

GAAP financial measures because they are non-cash expenses that the Company believes are not reflective of ongoing operating results. Further, the Company believes it is useful to investors to understand the impact of stock-based compensation expense to its results of operations. Stock-based compensation expense is recorded in the cost of revenue, product development, sales and marketing, general and administrative and business consolidation, transaction and restructuring costs lines in the Company's consolidated statements of operations.
Purchased intangible asset amortization. Purchased intangible asset amortization reflects the amortization expense recorded for intangible assets acquired through a business combination. These expenses are excluded from the Company's non-GAAP financial measures primarily because they are non-cash expenses that the Company believes are not reflective of ongoing operating results. Purchased intangible asset amortization is recorded in the amortization of completed technology, purchased intangible asset amortization and royalty and other income, net lines in the Company's consolidated statements of operations. Royalty income fair value adjustment. Royalty income fair value adjustment relates to our merger with Symyx. At the time of the merger, Symyx had recorded deferred royalty income for advance payments received on royalty contracts, the revenue resulting from which would be recognized in future periods over the contractual period. The purchase accounting rules required us to write down this amount to its fair value as of the completion of the merger, which we estimated to be zero. We further believe that the inclusion of the royalty income fair value adjustment enables investors to better understand the impact of the acquisition on the Company and provides useful information to investors. Amortization of note receivable discount. Amortization of note receivable discount reflects the amortization of the discount on our promissory note receivable from Intermolecular, Inc. ("IM") in connection with the sale of certain intellectual property to IM in November 2011. We believe it is useful to exclude the amortization of the discount on this promissory note receivable because this incremental income is not part of our direct operations. Gain on sale of real estate. Gain on sale of real estate relates to the sale of real property, comprised of land and an office building located in Santa Clara, California, which we sold in June 2012. This property was acquired as a result of our merger with Symyx and was not utilized in our ongoing operations. Gain on sale of equity investment. Gain on sale of equity investment reflects the net gain recognized upon the sale of our equity investment in IM in November 2011.
Sale of intangible asset. Sale of intangible asset adjustment reflects the write off of our cost basis in the intellectual property sold to IM in November 2011. Other non-operating expense. Other non-operating expense relates to the write off in June 2012 of certain assets in connection with exiting the lease of a restructured facility.
Income tax. Income tax adjustments relate to adjusting our non-GAAP operating results to reflect an effective tax rate that would be applied if the Company was in a taxable income position and was not able to utilize its net operating loss carryforwards. The income tax adjustment also excludes any impact of a release of our valuation allowance against deferred tax assets.
In accordance with General Instruction B.2. of Form 8-K, the information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.