Reconciliation of GAAP Gross Margin to Non-GAAP Gross Margin

Three Months Ending March 31, 2024

Low

High

GAAP gross margin

58.4 %

60.4 %

Acquisition-related charges

a

1.9 %

1.9 %

Restructuring, severance and other charges

b

0.2 %

0.2 %

Non-GAAP gross margin

60.5 %

62.5 %

a.   

Acquisition-related charges primarily include amortization of intangible assets, transaction costs associated with our acquisitions and dispositions, as well as intangible asset impairment charges. Although we exclude the effect of amortization of all acquired intangible assets from these non-GAAP financial measures, management believes that it is important for investors to understand that such intangible assets were recorded as part of purchase price accounting arising from acquisitions, and such amortization of intangible assets related to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Investors should note that the use of these intangible assets contributed to our revenues earned during the periods presented and are expected to contribute to our future period revenues as well.

b.    

Restructuring, severance and other charges primarily include costs associated with employee severance, gains and losses from exiting non-core businesses and adjustments related to non-controlling interest. Restructuring, severance and other charges in the six months ended Dec. 31, 2022 included a gain on the sale of Orbograph, Ltd. ("Orbograph"), which was sold in the first quarter of fiscal 2023, partially offset by certain transaction bonuses triggered by the sale of Orbograph.

c.    

Impairment of goodwill and purchased intangible assets included non-cash expense recognized as a result of the company's testing for goodwill impairment and long-lived asset impairment performed in the three months ended Dec. 31, 2023. The impairment charge resulted from the downward revision of financial outlook for the PCB and Display reporting units. Management believes that it is appropriate to exclude these impairment charges as they are not indicative of ongoing operating results and therefore limit comparability. Management also believes excluding this item helps investors compare our operating performance with our results in prior periods as well as with the performance of other companies.

d. 

Loss on extinguishment of debt included a pre-tax loss on early extinguishment of the $500 million 4.650% Senior Notes due in Nov. 2024.

e.

Income tax effect of non-GAAP adjustments includes the income tax effects of the excluded items noted above.

f.    

Discrete tax items in the three and six months ended Dec. 31, 2023 included a one-time tax benefit resulting from changes made to our international structure to better align ownership of certain intellectual property rights with how our business operates. Discrete tax items in all periods presented included a tax impact relating to the amortization of the aforementioned tax benefit or similar tax benefits recorded in other periods. Discrete tax items in the three months ended Dec. 31, 2022 included a tax expense of $19.8 million from an internal restructuring. Discrete tax items in the three months ended Sept. 30, 2022 also included an adjustment of the net benefit of the Orbotech Ltd. 2012 to 2018 Israel tax audit settlement, for which the net benefit includes the liability on the audit settlement less reductions in unrecognized tax positions and deferred tax assets and liabilities, as well as a tax impact from the sale of Orbograph.