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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003

OR

[    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-18805

ELECTRONICS FOR IMAGING, INC.

303 Velocity Way, Foster City, CA 94404
(Address of principal executive offices, including zip code)

(650) 357 - 3500
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]   No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X]   No [  ]

The number of shares of Common Stock outstanding as of November 4 was 53,973,462.

An Exhibit Index can be found on Page 38.

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ELECTRONICS FOR IMAGING, INC.

INDEX

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PART I FINANCIAL INFORMATION
     ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Electronics for Imaging, Inc.
Condensed Consolidated Balance Sheets

See accompanying notes to condensed consolidated financial statements.

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Electronics for Imaging, Inc.
Condensed Consolidated Statements of Income
(unaudited)

See accompanying notes to condensed consolidated financial statements.

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Electronics for Imaging, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)

See accompanying notes to condensed consolidated financial statements.

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Electronics for Imaging, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

1.

Basis of Presentation

The unaudited interim condensed consolidated financial statements of Electronics for Imaging, Inc., a Delaware corporation (the “Company”), as of and for the interim periods ended September 30, 2003, have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2002, contained in the Company’s Annual Report to Stockholders on Form 10-K, as amended. In the opinion of management, the unaudited interim condensed consolidated financial statements of the Company include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Company and the results of its operations and cash flows, in accordance with accounting principles generally accepted in the United States of America. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements referred to above and the notes thereto. Certain prior year balances have been reclassified to conform with the current year presentation.

The preparation of the interim condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the interim condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

The interim results of the Company are subject to fluctuation. As a result, the Company believes the results of operations for the interim periods ended September 30, 2003 are not necessarily indicative of the results to be expected for any other interim period or the full year.

2.

Recent Accounting Pronouncements

SFAS 148

In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure. This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The disclosure provisions of this Standard are effective for fiscal years and interim periods beginning after December 15, 2002.

SFAS 149

In December 2002, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This Statement amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,

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to provide clarification on the financial accounting and reporting of derivative instruments and hedging activities. We do not anticipate that SFAS No. 149 will have a material impact on our financial condition or results of operation.

SFAS 150

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards on the classification and measurement of financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, or otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The implementation of the pronouncement has not had a material impact on our financial condition or results of operations.

FASB Interpretation No. 46

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”). The primary objectives of FIN 46 are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights (“variable interest entities” or “VIEs”) and how to determine when and which business enterprise should consolidate the VIE (the “primary beneficiary”). This new model for consolidation applies to an entity in which either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is sufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures regarding the nature, purpose, size and activities of the VIE and the enterprise’s maximum exposure to loss as a result of its involvement with the VIE. The interpretation is effective immediately for any VIEs created after January 31, 2003 and for VIEs in which an enterprise obtains an interest after that date. The interpretation is effective for interim or annual periods commencing after December 15, 2003 for pre-existing VIEs. Based upon our analysis, the implementation of the interpretation will not have any material impact on our financial statements.

3.

Accounting for Derivative Instruments and Hedging

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of SFAS No. 133 requires companies to reflect the fair value of all derivative instruments, including those embedded in other contracts, as assets or liabilities in an entity’s balance sheet. The Company had no such derivative or hedging instruments outstanding as of September 30, 2003.

4.

Comprehensive Income

The Company’s comprehensive income, which encompasses net income, market valuation adjustments and currency translation adjustments, is as follows:

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5.

Earnings Per Share

The following table represents unaudited disclosures of basic and diluted earnings per share for the periods presented below:

		Anti-dilutive weighted average shares of common stock of 4,881,344 and 5,093,311 as of September 30, 2003 and 2002, respectively, have been excluded from the effect of dilutive securities because the options’ exercise prices were greater than the average market price of the common stock for the periods then ended. The convertible debentures issued June 4, 2003 are considered contingently convertible securities and were excluded from the earnings per share calculations for all periods presented. The debentures represent 9,084,192 potential shares of common stock issuable upon conversion.
6.		Acquisitions

In January 2003 the Company acquired Best GmbH, a German-based software company that provides proofing products for worldwide print and publishing markets for approximately $9.3 million in cash. The acquisition was accounted for as a purchase business combination and accordingly, the purchase price has been allocated to the tangible and identifiable intangible assets acquired and liabilities assumed on the basis of their fair values on the date of acquisition. The following table summarizes the allocation of the purchase price to assets acquired and liabilities assumed:

The intangible assets consist of developed technology, trademarks and trade names, licenses and distributor relationships. The amount allocated to the purchased in-process research and development (“IPR&D”) was determined using established valuation techniques and was expensed upon acquisition because technological feasibility had not been established and no future alternative uses existed. The value of this IPR&D was determined by estimating the costs to develop the purchased IPR&D into a commercially viable product, estimating the resulting net cash flows from the sale of the products resulting from the completion of the IPR&D and discounting the net cash flows back to their present value at rates ranging from 25% to 30%. The excess of the purchase price over tangible and identifiable intangible assets acquired and liabilities assumed has been recorded as goodwill. The intangible assets are being amortized over estimated useful lives of 5 to 10 years.

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On October 21, 2003, the shareholders of Printcafe approved the merger between Printcafe and the Company. The purchase price was approximately $33.5 million, paid in cash and common stock of the Company. Approximately 12.8 million shares of Printcafe common stock were issued and outstanding on that date. Approximately 8.8 million shares of Printcafe common stock will be redeemed for $2.60 per share, and approximately 1.9 million shares will be exchanged for approximately 0.2 million shares of the Company common stock. The remaining 2.1 million shares of stock, acquired by the Company for $5.5 million earlier in 2003, will be cancelled. We anticipate that the valuation of the acquired technology of Printcafe will be completed during the fourth quarter of 2003. See Note 10, Commitments and Contingencies, for a discussion of the lawsuits filed by Creo, Inc. related to the merger.

On November 3, 2003, the Company acquired T/R Systems, Inc. for approximately $20.7 million in cash. We anticipate that the valuation of the acquired technology of T/R Systems, Inc. will be completed during the fourth quarter of 2003.

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Balance Sheet Components

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8.

Goodwill and Other Identified Intangible Assets

As required under SFAS 142, the Company has performed an annual review and has determined that no impairments need to be recorded against the goodwill account at this time.

Aggregate amortization expense was $1.3 million and $4.0 million for the three and nine months ended September 30, 2003, respectively and $1.1 million and $3.2 million for the three and nine months ended September 30, 2002, respectively. As of September 30, 2003 future estimated amortization expense related to intangible assets is estimated to be:

9.

Long-term Debt

On June 4, 2003 the Company issued $240.0 million convertible senior debentures due in 2023 (the “Debentures”). The Debentures were offered only to qualified institutional buyers in reliance on the exemption from registration provided by Rule 144A. The Debentures are unsecured senior obligations of the Company, paying interest semi-annually in arrears at an annual rate of 1.50%. Additional interest at a rate of 0.35% per annum will be paid under certain conditions, beginning in the sixth year after issuance. The Debentures are convertible before maturity into shares of EFI common stock at a conversion price of approximately $26.42 per share of common stock but only upon the stock trading at or above $31.70 per share for 20 consecutive trading days during the last 30 consecutive trading days of the preceding fiscal quarter, or upon the occurrence of certain other specified events. The Company may redeem the Debentures at its option, on or after

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June 1, 2008 at a redemption price equal to par plus accrued interest, if any. In addition, holders of the Debentures may require the Company to repurchase all or some of the Debentures on June 1, 2008, 2013 and 2018 at a price equal to 100% of the principal amount plus accrued interest, including contingent interest, if any. The Company will pay the repurchase price for any debentures repurchased on June 1, 2008 in cash, but may choose to pay the repurchase price in cash, common stock of the Company, or any combination thereof in 2013 and 2018. Additionally, a holder may require us to repurchase all or a portion of that holder’s debentures if a fundamental change, as defined in the indenture, occurs prior to June 1, 2008 at 100% of their principal amount, plus any accrued and unpaid interest, including contingent interest, if any. We may choose to pay the repurchase price in cash, common stock of the Company, or any combination thereof. A registration statement on Form S-3 was filed with respect to the resale of the Debentures and the shares of common stock issuable upon conversion of the Debentures with the Securities and Exchange Commission on August 29, 2003. As of the filing of this document the registration statement was not deemed effective.

Maturities of long-term debt are approximately $58 thousand per year for the next five years.

10.

Commitments and Contingencies

Off-Balance Sheet Financing - Synthetic Lease Arrangement

In 1997, the Company purchased a 35-acre parcel of land in Foster City, California and began development of a corporate campus. In July 1999 the Company completed construction of a ten-story, 295,000 square foot building funded under a lease agreement entered into in 1997 (the “1997 Lease”) and began making rent payments. Also in conjunction with the 1997 Lease, the Company has entered into a separate ground lease with the lessor of the building for approximately 35 years at a nominal rate. If the Company does not renew the 1997 Lease, the ground lease converts to a market rate.

In December 1999 the Company entered into a second lease agreement (the “1999 Lease” and together with the 1997 Lease, the “Leases”) to lease additional buildings, to be constructed adjacent to the first building discussed above. A 165,000 square foot building was completed in December 2001 at a cost of approximately $43.1 million. Rent obligations for the 1999 Lease began in January 2002 and bear a direct relationship to the funded amount, as described below. In connection with the 1999 Lease, the Company entered into a separate ground lease of the related parcels of land in Foster City with the lessor of the buildings at a nominal rate and for a term of 30 years. If the Company does not renew the 1999 Lease, the ground lease converts to a market rate.

Each Lease has an initial term of seven years, with an option to renew subject to certain conditions. The Company may, at its option, purchase the facilities during or at the end of the term of the lease for the amount expended by the respective lessor to construct the facilities ($56.8 million for the 1997 Lease and $43.1 million for the 1999 Lease). The Company has guaranteed to the lessors a residual value associated with the buildings equal to approximately 82% of their funding. The Company may be liable to the lessor for the amount of the residual guarantee if it either fails to renew the lease or does not purchase or locate a purchaser for the leased building at the end of the lease term. During the term of each of the Leases, the Company must meet certain financial covenant requirements related to cash to debt, fixed charge coverage ratio, leverage ratio and consolidated tangible net worth as defined by the underlying agreements. If the Company maintains pledged collateral, then a limited subset of these covenants must be met. The tangible net worth financial covenant requires that the Company maintain a minimum tangible net worth as of the end of each quarter. There are other covenants regarding mergers, liens and judgments, and lines of business. The Company was in compliance with all of the

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covenants, either directly, or through the existence of the pledged collateral as of September 30, 2003. The pledged collateral under the 1997 Lease ($69.5 million at September 30, 2003) has been classified as restricted cash and short-term investments. The Company is liable to the lessor for the full purchase amount of the buildings if it defaults on its covenants ($56.8 million for the 1997 Lease and $43.1 million for the 1999 Lease). The Company could be required to purchase the building if (1) it defaulted on any indebtedness in excess of $10.0 million, (2) it failed to appeal a judgment in excess of $10.0 million, or (3) a creditor has commenced enforcement proceedings on an order for payment of money in excess of $10.0 million. In addition, the Company has pledged certain marketable securities, which are in proportion to the amount drawn under each lease. The funds pledged under the 1999 Lease (approximately $43.1 million at September 30, 2003) are in a LIBOR-based interest bearing account and are restricted as to withdrawal at all times. The Company is considered a Tranche A lender of $35.3 million of the $43.1 million, while the lessor is considered a Tranche B lender for the remaining $7.8 million.

The Company is treated as the owner of these buildings for federal income tax purposes.

Under each Lease, the Company has first loss guarantees to the lessors, which make the Company liable for declines in the value of the buildings up to approximately 82% of the cost of the construction of the buildings. The first loss guarantee requires payment upon the end of the lease. The Company has assessed its exposure in relation to the first loss guarantees for both of the buildings under the Leases and has determined there is no deficiency to the guaranteed value at the current time. The Company will continue to assess the real estate market conditions to evaluate whether it needs to record any reserves under its first loss guarantee obligations.

Purchase Commitments

The Company sub-contracts with other companies to manufacture most of its products. During the normal course of business the sub-contractors procure components based upon orders placed by the Company. If the Company cancels all or part of the order, it may still be liable to the sub-contractors for the cost of the components purchased by the sub-contractors for placement in its products. The Company periodically reviews the potential liability and the adequacy of the related reserve. The Company’s consolidated financial position and results of operations could be negatively impacted if the Company were required to compensate the sub-contract manufacturers in an amount significantly in excess of the accrued liability.

Product Warranties

The Company adopted FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantors, Including Direct Guarantees of Indebtedness of Others (“FIN 45”) during the fourth quarter of 2002. FIN 45 requires specific disclosures concerning the Company’s obligations under certain guarantees. The Company’s products are generally accompanied by a 12-month warranty, which covers both parts and labor. The warranty provision is based upon historical experience, by product, configuration and geographic region.

Changes in the warranty reserves for the three months ended September 30, 2003 were as follows:

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Legal Proceedings

Over the past five years, Mr. Jan R. Coyle, an individual living in Nevada, has repeatedly demanded that the Company buy technology allegedly invented by his company, Kolbet Labs. In December 2001, Mr. Coyle threatened to sue the Company and its customers for allegedly infringing his soon to be issued patent and for misappropriating his alleged trade secrets. The Company believes Mr. Coyle’s claims are baseless and without merit. On December 11, 2001, the Company filed a declaratory relief action in the United States District Court for the Northern District of California, asking the Court to declare that the Company and its customers have not breached any nondisclosure agreement with Mr. Coyle or Kolbet Labs, nor has it infringed any alleged patent claims or misappropriated any alleged trade secrets belonging to Mr. Coyle or Kolbet Labs through its sale of Fiery, Splash or EDOX print controllers. The Company also sought an injunction enjoining both Mr. Coyle and Kolbet Labs from bringing or threatening to bring a lawsuit against the Company, its suppliers, vendors, customers and users of its products for breach of contract and misappropriation of trade secrets. On March 26, 2002, the Northern District of California court dismissed the Company’s complaint for lack of jurisdiction over Mr. Coyle. The Company appealed the Court’s dismissal and on August 18, 2003, the Court of Appeals for the Federal Circuit reversed the dismissal of the Company’s case and remanded it to the Northern District of California. The Company is now vigorously pursuing its case against Mr. Coyle and Kolbet Labs.

On February 26, 2002, Coyle’s company, J & L Electronics, filed a complaint against the Company in the United States District Court for the District of Nevada alleging patent infringement, breach of non-disclosure agreements, misappropriation of trade secrets, violations of federal antitrust law, and related causes of action. The Company denies all of these allegations and management believes this lawsuit is without merit and intends to defend the action vigorously. On March 28, 2003, the Federal District Judge dismissed the complaint for lack of jurisdiction over the Company. J & L Electronics appealed the dismissal to the Court of Appeals for the Federal Circuit. The Company is opposing the appeal. However, due to the inherent uncertainties of litigation, the Company cannot predict the ultimate outcome of the appeal. Any unfavorable outcome of the litigation could have an adverse impact on the Company’s financial condition and results of operations.

On September 16, 2002, ArrivalStar, Inc., a Delaware corporation, filed a complaint in the U.S. District Court for the Northern District of Georgia against fourteen defendants, including EFI, alleging that each of the defendants has infringed one or more claims of six identified patents owned by the plaintiff. The named defendants are Delta Air Lines, Inc.; Sabre, Inc.; Travelocity.com, L.L.P.; The City of Atlanta; Worldspan, L.L.P.; Flytecomm Corporation; Centerpost Corporation; Continental Airlines, Inc.; Japan Air Lines Company, Ltd.; American Airlines, Inc.; Roadway Express, Inc.; EFI; American Express Company; and SITA Information Networking Computing USA, Inc. The complaint alleges that the defendants infringe the claims by providing vehicle location communication services, arrival notifications and other related services. EFI believes that the plaintiff’s claims are without merit and intends to vigorously defend itself in this litigation. However, due to the inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of the litigation. Any unfavorable outcome of the litigation could have an adverse impact on the Company’s financial condition and results of operations.

On February 13, 2003, the Company entered into agreements with Printcafe to facilitate a merger between the two companies. On February 19, 2003, Creo Inc. (a Printcafe shareholder) commenced litigation in the Delaware Court of Chancery against the Company, Printcafe and certain of Printcafe’s principal officers and directors, challenging those agreements and seeking to restrain the Company and Printcafe from proceeding to enter into any further agreements with respect to a business merger. On February 21, 2003, the Delaware Court of Chancery denied the temporary restraining order sought by Creo. On February 26, 2003 the Company and Printcafe entered into a merger agreement providing for the Company’s acquisition of Printcafe and the Company completed the acquisition on October 21, 2003. This litigation is still pending and, due to the inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of the litigation. Any unfavorable outcome of the litigation could have an adverse impact on the Company’s financial condition and results of operations.

On June 25, 2003, a securities class action complaint was filed against Printcafe Software, Inc., now a wholly-owned subsidiary of the Company, and certain officers in the United States District Court for the Western District of Pennsylvania. The complaint alleges that the defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act of

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1933 due to allegedly false and misleading statements in connection with Printcafe’s initial public offering and subsequent press releases. The Company, which acquired Printcafe in October 2003, believes that the lawsuit is completely without merit and intends to defend itself accordingly.

In addition, the Company is involved from time to time in litigation relating to claims arising in the normal course of its business.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our financial statements and the related notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. Except for the historical information contained herein, the discussion in this Quarterly Report on Form 10-Q contains certain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, beliefs, expectations, forecasts and intentions. The cautionary statements made in this document should be read as applicable to all related forward-looking statements wherever they appear in this document. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include those discussed below in “Factors that Could Adversely Affect Performance,” as well as those discussed elsewhere herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update any forward- looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported. Please see the discussion of critical accounting policies in our Amendment No. 2 to the Annual Report on Form 10-K/A for the year ended December 31, 2002.

Recent Events

On October 21, 2003, our merger with Printcafe was approved by the Printcafe shareholders. The purchase price was approximately $33.5 million, $28.5 million paid in cash and the balance paid by issuing approximately 0.2 million shares of common stock. Of the approximately 12.8 million shares of Printcafe common stock outstanding at the time of the merger, 8.8 million shares were redeemed in cash for approximately $23.0 million. The remaining 1.9 million shares were converted into approximately 0.2 million shares of our common stock. The remaining 2.1 million shares, which we acquired for $5.5 million earlier in the year, were cancelled. We intend to buy back approximately the same number of shares issued in the merger from the market during the fourth quarter of 2003, which will require approximately $5.0 to 6.0 million dollars, depending upon the stock price at the time of the buy back. In addition, we paid off $16.8 million of debt owed by Printcafe that was immediately callable upon the completion of the merger. We anticipate that the valuation of the acquired intangibles of Printcafe will be completed during the fourth quarter of 2003.

On November 3, 2003, the Company acquired T/R Systems, Inc. for approximately $19.7 million in cash. We anticipate that the valuation of the acquired intangibles of T/R Systems, Inc. will be completed during the fourth quarter of 2003.

Results of Operations

The following tables set forth items in our consolidated statements of income as a percentage of total revenue for the three and nine-month periods ended September 30, 2003 and 2002 and the percentage change from 2003 over 2002. These operating results are not necessarily indicative of results for any future period.

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