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MELLANOX TECHNOLOGIES, LTD. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis of our financial condition as of March 31, 2013 and results of operations for the three months ended March 31, 2013 and March 31, 2012 should be read together with our financial statements and related notes included elsewhere in this report. This discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that involve risks, uncertainties and assumptions. Words such as "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "predict," "potential" and similar expressions, as they relate to us, our business and our management, are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this report. The identification of certain statements as "forward-looking" is not intended to mean that other statements not specifically identified are not forward-looking. All statements other than statements about historical facts are statements that could be deemed forward-looking statements, including, but not limited to, statements that relate to our future revenues, product development and introductions, customer demand, our dependence on key customers for a substantial portion of our revenue, performance of our subcontractors, our ability to consummate acquisitions and integrate their operations successfully, growth rates, market adoption of InfiniBand, competitive factors, gross margins, levels of research, development and other related costs, expenditures, protection of our proprietary rights and patents, tax expenses and benefits, cash flows, management's plans and objectives for current and future operations, conditions in the Middle East and worldwide economic conditions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth under the section entitled "Risk Factors" in Part II, Item 1A of this report and in the section entitled "Risk Factors" in Part 1, Item 1A of our Annual Report on Form 10-K for fiscal year ended December 31, 2012. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. All forward-looking statements included in this report are based on information available to us on the date of this report, and we assume no obligation to update any forward-looking statements contained in this report. Quarterly financial results may not be indicative of the financial results of future periods. Unless the context requires otherwise, references in this report to the "Company," "we," "us" and "our" refer to Mellanox Technologies, Ltd. and its wholly owned subsidiaries. Overview We are a fabless semiconductor company that produces and supplies high-performance interconnect products that facilitate efficient data transmission between servers, storage systems and communications infrastructure equipment and other embedded systems. We offer adapter, gateway and switch integrated circuits ("ICs"), adapter cards, switch systems, long-haul systems, gateway systems, software, services and cables as an integral part of a total end-to-end networking solution focused on computing, storage and communication applications used in multiple markets, including high-performance computing, or HPC, Web 2.0, storage, financial services, database and cloud. Our adapters and switch ICs provide per port bandwidth up to 10Gb/s, 40Gb/s and 56Gb/s Ethernet, and 10Gb/s (Single Data Rate or SDR), 20Gb/s (Double Data Rate or DDR), 40Gb/s (Quad Data Rate or QDR) and 56Gb/s (Fourteen Data Rate or FDR) InfiniBand. Our switch systems range in port density from 8, 18, 36, 48 and 64 port top-of-rack switches to director-class switches ranging in size from 108 to 648 ports. Connectivity between the adapters and switches is supported with our short reach copper cables and long reach active optical cables, and our management software provides visibility, monitoring and diagnostics for the system. 19 -------------------------------------------------------------------------------- Table of Contents As a leader in developing multiple generations of high-speed interconnect solutions, we have established strong relationships with our customers. Our products are incorporated in servers and associated networking solutions produced by the four largest server vendors, Hewlett-Packard, IBM, Dell and Fujitsu. We supply our products to leading storage and communications infrastructure equipment vendors such as Data Direct Networks, Hewlett-Packard, IBM, Isilon/EMC, NetApp, Oracle, TeraData and Xyratex. Additionally, our products are used as embedded solutions by companies such as Advantech, Dalsa Medical, Fujitsu, Mercury, GE Fanuc, Toshiba Medical and Sea Change International. We are one of the pioneers of InfiniBand, an industry-standard architecture that provides specifications for high-performance interconnects. We believe InfiniBand interconnect solutions deliver industry-leading performance, efficiency and scalability of clustered computing and storage systems that incorporate our products. In addition to supporting InfiniBand, our products also support industry-standard Ethernet transmission protocols providing unique product differentiation and connectivity flexibility. Our products serve as building blocks for creating reliable and scalable InfiniBand and Ethernet solutions with leading performance. Revenues. We derive revenues from sales of our ICs, cards, switch systems, cables, software and accessories. Our sales have historically been made on the basis of purchase orders rather than long-term agreements. Following the introduction of Romley and Sandy Bridge server and storage platforms by Intel Corporation in March 2012, end users began to upgrade their systems. As a result, the company's quarterly revenues increased sequentially from the first quarter through the third quarter of 2012. Revenues have decreased sequentially from the third quarter of 2012 through the first quarter of 2013. The recent decrease was attributed primarily to a weaker demand environment, challenging macroeconomic conditions and a build-up of inventory at an OEM customer Revenues were $83.1 million for the three months ended March 31, 2013, compared to $88.7 million for the three months ended March 31, 2012, representing a decrease of approximately 6%.Our fiscal first quarter 2013 revenues are not necessarily indicative of future results. To date, we have derived a substantial portion of our revenues from a relatively small number of customers. Sales to our top ten customers represented 74% and 79% of our total revenues for the three months ended March 31, 2013 and 2012, respectively. Sales to customers representing 10% or more of revenues accounted for 35% and 42% of our total revenues for the three months ended March 31, 2013 and 2012, respectively. The loss of one or more of our principal customers, the reduction or deferral of purchases, or changes in the mix of our products ordered by any one of these customers could cause our revenues to decline materially if we are unable to increase our revenues from other customers. Our customers, including our most significant customers, are not obligated by long-term contracts to purchase our products and may cancel orders with limited potential penalties. If any of our large customers reduces or cancels its purchases from us for any reason, it could have an adverse effect on our revenues and results of operations. At March 31, 2013 and December 31, 2012, based on information filed with the SEC or reported to us, Oracle Corporation held approximately 3.8 million of our ordinary shares. Sales to Oracle mainly through its contract manufacturers in the three months ended March 31, 2013 were $6.9 million, and were conducted at arm's-length. There were no other material transactions with Oracle during the three months ended March 31, 2013. Sales to Oracle mainly through its contract manufacturers for the three months ended March 31, 2012 were $4.8 million, and were conducted at arm's-length. At March 31, 2013 and December 31, 2012, accounts receivable from Oracle totaled $0.3 million and $0.2 million, respectively. Cost of revenues and gross profit. The cost of revenues consists primarily of the cost of silicon wafers purchased from our foundry supplier, costs associated with the assembly, packaging and production testing of our ICs, outside processing costs associated with the manufacture of our adapter cards, and switch systems, purchased cable costs, royalties due to third parties, warranty costs, excess and obsolete inventory costs, depreciation and amortization, and costs of personnel associated with production management, quality assurance and services. In addition, after we purchase wafers from our foundries, we also face yield risk related to manufacturing these wafers into semiconductor devices. Manufacturing yield is the percentage of acceptable product resulting from the manufacturing process, as identified when the product is tested as a finished IC. If our manufacturing yields decrease, our cost per unit increases, which could have a significant adverse impact on our cost of revenues. We do not have long-term pricing agreements with foundry suppliers and contract manufacturers. Accordingly, our costs are subject to price fluctuations based on the overall cyclical demand for semiconductors. We purchase our inventory pursuant to standard purchase orders. We estimate that lead times for delivery of our finished semiconductors from our foundry supplier and assembly, packaging and production testing subcontractor are approximately three to four months, lead times for delivery from our adapter card manufacturing subcontractor are approximately eight to ten weeks, and lead times for delivery from our switch systems manufacturing subcontractors are approximately twelve weeks. We build inventory based on forecasts of customer orders rather than the actual orders themselves. Our inventory levels increased as a result of our revenues being lower than forecast at the time inventory purchase orders were placed. 20 -------------------------------------------------------------------------------- Table of Contents We expect our cost of revenues as a percentage of sales to increase in the future as a result of a reduction in the average sale price of our products and a higher percentage of revenue deriving from sales of switch systems and cables, which generally yield lower gross margins. This trend will depend on overall customer demand for our products, our product mix, composition of our revenues by respective data rate, competitive product offerings and related pricing and our ability to reduce manufacturing costs Operational Expenses Research and Development Expenses. Our research and development expenses consist primarily of salaries, share-based compensation and associated costs for employees engaged in research and development, costs associated with computer aided design software tools, depreciation, allocable facilities and administrative expenses and tape-out costs. Tape-out costs are expenses related to the manufacture of new ICs, including charges for mask sets, prototype wafers, mask set revisions and testing incurred before releasing new ICs into production. We anticipate these expenses will increase in future periods based on an increase in personnel to support our product development activities and the introduction of new products. We anticipate that our research and development expenses will increase as we continue to invest in development of new products and technologies. Sales and Marketing Expenses. Sales and marketing expenses consist primarily of salaries, incentive compensation, share-based compensation and associated costs for employees engaged in sales, marketing and business development, commission payments to external, sales representatives, advertising, and charges for trade shows, promotions, travel and allocable facilities and administrative expenses. We expect these expenses will increase in absolute dollars in future periods based on an increase in sales, marketing and business development personnel and increased marketing activities. General and Administrative Expenses. General and administrative expenses consist primarily of salaries, share-based compensation and associated costs for employees engaged in finance, legal, human resources and administrative activities, and other professional service expenses for accounting, corporate legal fees and allocable facilities expenses. We expect these expenses will increase in absolute dollars in future periods based on an increase in personnel to support our business activities. Amortization of Intangible Assets. Amortization of intangible assets relates to intangible assets resulting from our acquisition of Voltaire Ltd. and purchases of patents and other license rights, which will be amortized over their estimated useful lives. Amortization is included in cost of revenues, research and development, sales and marketing or general and administrative expenses based upon the nature of the intangible asset. Taxes on Income. Our operations in Israel have been granted "Approved Enterprise" status by the Investment Center of the Israeli Ministry of Industry, Trade and Labor and "Beneficiary Enterprise" status by the Israeli Income Tax Authority, which makes us eligible for tax benefits under the Israeli Law for Encouragement of Capital Investments, 1959. Under the terms of the Beneficiary Enterprise program, income that is attributable to our operations in Yokneam, Israel will be exempt from income tax for a period of ten years commencing when we first generate taxable income after setting off our losses from prior years. Income that is attributable to our operations in Tel Aviv, Israel will be exempt from income tax for a period of two years commencing when we first generate taxable income and will be subject to a reduced income tax rate (generally 10 to 25%, depending on the percentage of foreign investment in the Company) for five to eight years thereafter. The Beneficiary Enterprise tax holiday associated with our Yokneam and Tel Aviv operations began in 2011. The Yokneam tax holiday is expected to expire in 2020 and the Tel Aviv tax holiday is expected to expire between 2015 and 2018. In the first quarter of 2013, we realigned some of our business activities and, as a result, may utilize carryforward net operating losses in one of our subsidiaries in the future. The valuation allowance established for deferred tax assets will be released if it becomes more likely than not that the subsidiary will generate sufficient future taxable income. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. 21 -------------------------------------------------------------------------------- Table of Contents We believe that the assumptions and estimates associated with revenue recognition, allowance for doubtful accounts, fair value of financial instruments, short-term investments, inventory valuation, valuation and impairment of goodwill and acquired intangibles, warranty provision, share-based compensation and income taxes have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. For further information on all of our significant accounting policies, please see Note 1 of the accompanying notes to our consolidated financial statements. See our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on February 25, 2013, for a discussion of additional critical accounting policies and estimates. There have been no changes in our critical accounting policies as compared to what was disclosed in the Form 10-K for the year ended December 31, 2012. Results of Operations The following table sets forth our consolidated statements of operations as a percentage of revenues for the periods indicated: Three Months Ended March 31, 2013 2012 Total revenues 100 % 100 % Cost of revenues 35 33 Gross profit 65 67 Operating expenses: Research and development 46 33 Sales and marketing 20 14 General and administrative 9 5 Total operating expenses 75 52Income (loss) from operations (10 ) 15 Other income, net 1 0 Provision for taxes on income (1 ) (1 ) Net income (loss) (10 )% 14 % Comparison of the Three Months Ended March 31, 2013 to the Three Months Ended March 31, 2012 The following table represents our total revenues for the three months ended March 31, 2013 and 2012 by product category, interconnect protocol and data rate. Three Months Ended March 31, % of % of Product category: 2013 Revenues 2012 Revenues (in thousands) (in thousands) ICs $ 11,098 13.4 % $ 14,938 16.8 % Boards 23,668 28.5 % 28,165 31.8 % Switch and gateway systems 35,558 42.8 % 31,414 35.4 % Cables, accessories and other 12,756 15.3 % 14,221 16.0 % Total revenue $ 83,080 100.0 % $ 88,738 100.0 % Three Months Ended March 31, % of % of Interconnect protocol and data rate: 2013 Revenues 2012 Revenues (in thousands) (in thousands) InfiniBand: FDR $ 41,832 50.4 % $ 27,730 31.2 % QDR 24,962 30.0 % 40,296 45.4 % DDR 3,643 4.4 % 8,049 9.1 % SDR 503 0.6 % 232 0.3 % Total 70,940 85.4 % 76,307 86.0 % Ethernet 7,840 9.4 % 8,671 9.8 % Other 4,300 5.2 % 3,760 4.2 % Total revenue $ 83,080 100.0 % $ 88,738 100.0 % 22 -------------------------------------------------------------------------------- Table of Contents Revenues. Revenues were $83.1 million for the three months ended March 31, 2013 compared to $88.7 million for the three months ended March 31, 2012, representing a decrease of 6.4%. The year-over-year revenue decrease was primarily due to increased revenues in the three months ended March 31, 2012 related to pent up demand associated with the launch of Romley and Sandy Bridge platforms by Intel Corporation. In addition, our revenues in the three months ended March 31, 2013 were negatively impacted by depletion of inventory accumulated at an OEM customer during the second half of 2012. Revenues for the three months ended March 31, 2013 are not necessarily indicative of future results. Gross Profit and Margin. Gross profit was $54.1 million for the three months ended March 31, 2013 compared to $59.9 million for the three months ended March 31, 2012, representing a decrease of 9.6%. As a percentage of revenues, gross margin decreased to 65.2% in the three months ended March 31, 2013 from 67.4% in the three months ended March 31, 2012. The gross margin percentage decrease was mainly due to product mix and increased warranty expenses associated with our expansion into new markets. Specifically, the portion of revenues attributed to ICs and boards declined in the three months ended March 31, 2013 while the portion of revenues attributable to switch and gateway systems increased. We garnish higher gross margins on sales of ICs and boards. Gross margin for the three months ended March 31, 2013 is not necessarily indicative of future results. Research and Development. The following table presents details of our research and development expenses for the periods indicated: Three Months Ended March 31, % of % of 2013 Revenues 2012 Revenues (in thousands) (in thousands) Salaries and benefits $ 18,549 22.3 % $ 16,151 18.2 % Share-based compensation 5,808 7.0 % 4,181 4.7 % Development and tape-out costs 5,366 6.5 % 2,999 3.4 % Other 8,426 10.1 % 5,627 6.3 % Total Research and development $ 38,149 45.9 % $ 28,958 32.6 % Research and development expenses were $38.1 million in the three months ended March 31, 2013 compared to $29.0 million in the three months ended March 31, 2012, representing an increase of 31.7%. The increase in salaries and benefits and share-based compensation was attributable to headcount additions. Development and design costs increased due to tape-out of our new product Connect X-3 Pro, and higher product test, software and qualification expenses. The increase in other research and development costs was primarily attributable to an increase in facilities and maintenance costs as well as higher depreciation expenses. We expect that research and development expenses will increase in absolute dollars in future periods as we continue to devote more resources to develop new products, meet the changing requirements of our customers, develop new technologies and hire additional personnel. For a further discussion of share-based compensation included in research and development expense, see "Share-based Compensation Expense" below. Sales and Marketing. The following table presents details of our sales and marketing expenses for the periods indicated: Three Months Ended March 31, % of % of 2013 Revenues 2012 Revenues (in thousands) (in thousands) Salaries and benefits $ 9,314 11.2 % $ 6,907 7.8 % Share-based compensation 2,124 2.6 % 1,642 1.8 % Trade shows and promotions 2,502 3.0 % 2,007 2.3 % Other 2,474 3.0 % 2,249 2.5 % Total Sales and marketing $ 16,414 19.8 % $ 12,805 14.4 % 23 -------------------------------------------------------------------------------- Table of Contents Sales and marketing expenses were $16.4 million for the three months ended March 31, 2013 compared to $12.8 million for the three months ended March 31, 2012, representing an increase of 28.2%. The increase in salaries and benefits and share-based compensation was attributable to headcount additions. The increase in trade show and promotion costs was primarily due to higher expenses related to advertising and cost of equipment for customer product evaluations. The increase in other sales and marketing costs was primarily attributable to higher facilities and maintenance related costs. For a further discussion of share-based compensation included in sales and marketing expense, see "Share-based Compensation Expense" below. General and Administrative. The following table presents details of our general and administrative expenses for the periods indicated: Three Months Ended March 31, % of % of 2013 Revenues 2012 Revenues (in thousands) (in thousands) Salaries and benefits $ 2,537 3.1 % $ 2,224 2.5 % Share-based compensation 1,979 2.4 % 1,090 1.2 % Professional services 1,769 2.1 % 1,220 1.4 % Other 1,200 1.4 % 323 0.4 % Total General and administrative $ 7,485 9.0 % $ 4,857 5.5 % General and administrative expenses were $7.5 million for the three months ended March 31, 2013 compared to $4.9 million for the three months ended March 31, 2012, representing an increase of 54.1%. The increase in salaries and benefits and share-based compensation was attributable to headcount additions. The increase in professional services costs was primarily due to increased legal fees. The increase in other general and administrative costs was due to higher facilities and maintenance, depreciation and travel expenses. For a further discussion of share-based compensation included in general and administrative expense, see "Share-based Compensation Expense" below. Share-based Compensation Expense. The following table summarizes the distribution of total share-based compensation expense in the consolidated statements of operations: Three Months Ended March 31, 2013 2012 (in thousands) Cost of goods sold $ 464 $ 329 Research and development 5,808 4,181 Sales and marketing 2,124 1,642 General and administrative 1,979 1,090Total share-based compensation expense $ 10,375 $ 7,242 Share-based compensation expenses were $10.4 million for the three months ended March 31, 2013, compared to $7.2 million for the three months ended March 31, 2012, representing an increase of 43.3%. The increase in share-based compensation expense was primarily due to restricted share units granted to existing employees in April 2012 and grants to new employees throughout 2012. At March 31, 2013, there was $104.1 million of total unrecognized share-based compensation costs related to non-vested share-based compensation arrangements. The costs are expected to be recognized over a weighted average period of 2.74 years. 24 -------------------------------------------------------------------------------- Table of Contents Other Income, Net. Other income, net primarily consists of interest earned on cash and cash equivalents and short-term investments, and foreign currency exchange gains and losses. Other income, net remained unchanged at $0.2 million for the three months ended March 31, 2013 and 2012. Provision for Taxes on Income. Provision for taxes on income was $0.8 million for the three months ended March 31, 2013, compared to $1.0 million for the three months ended March 31, 2012. The effective tax rate was approximately (9.8%) and 7.2% for the three months ended March 31, 2013 and 2012, respectively. The difference between our effective tax rates and the 35% federal statutory rate is primarily due to profits earned in Israel where the tax rate is lower than the U.S. tax rate, partially offset by non-tax-deductible expenses such as share-based compensation expense, accrued unrecognized tax benefits and interest and penalties associated with unrecognized tax positions. Liquidity and Capital Resources Since our inception, we have financed our operations through a combination of sales of equity securities and cash generated by operations. As of March 31, 2013, our principal source of liquidity consisted of cash and cash equivalents of $126.3 million and short-term investments of $269.9 million. We expect that our current cash, cash equivalents, short-term investments, and cash flows from operating activities will be sufficient to fund our operations over the next twelve months after taking into account expected increases in research and development expenses, including tape out costs, higher sales and marketing and general and administrative expenses, and capital expenditures to support our infrastructure and growth. Our cash position, short-term investments, restricted cash and working capital at March 31, 2013 and December 31, 2012 were as follows: March 31, 2013 December 31, 2012 (in thousands) Cash and cash equivalents $ 126,259 $ 117,054 Short-term investments 269,935 302,593 Restricted cash, current 3,316 3,229 Restricted cash, long-term 3,393 3,388 Total $ 402,903 $ 426,264 Working capital $ 428,682 $ 431,745 Our ratio of current assets to current liabilities was 5.6:1 at March 31, 2013 compared to 5.0:1 at December 31, 2012. Operating activities Net cash used by our operating activities amounted to $6.6 million and net cash provided by our operating activities amounted $23.6 million in the three months ended March 31, 2013 and 2012, respectively. Net cash used by operating activities in the three months ended March 31, 2013 was primarily attributable to the net loss of $8.5 million, adjusted by net non-cash items of $15.5 million and changes in assets and liabilities of $13.7 million. Non-cash expenses consisted primarily of $9.4 million of share-based compensation, net of the excess tax benefits, $7.4 million for depreciation and amortization, offset by a decrease of $1.1 million for deferred income taxes. The $13.7 million cash outflow from changes in assets and liabilities resulted from a decrease in accounts payable of $6.9 million due to lower manufacturing related purchases during the quarter, a decrease of $3.1 million in accrued liabilities primarily due to lower payroll accruals and manufacturing related liabilities, an increase in inventories of $2.9 million, and increases in accounts receivable of $0.6 million and in prepaid expenses and other assets of $0.2 million. Net cash provided by our operating activities amounted to $23.6 million in the three months ended March 31, 2012. Net cash provided by operating activities in the three months ended March 31, 2012 was primarily attributable to the net income of $12.4 million, adjusted by net non-cash items of $11.0 million and changes in assets and liabilities of $0.1 million. Non-cash expenses consisted primarily of $6.3 million of share-based compensation, net of the excess tax benefits, and $5.3 million for depreciation and amortization. The $0.1 million cash inflow from changes in assets and liabilities resulted from an increase in accounts payable of $2.1 million due to the timing of purchases during the quarter, an increase of $4.2 million in accrued liabilities primarily due to higher payroll obligations and decreases in accounts receivable of $1.1 million and in prepaid expense and other assets of $0.4 million, partially offset by an increase in inventories of $7.7 million to support increased demand from our customers. 25 -------------------------------------------------------------------------------- Table of Contents Investing activities Net cash provided by investing activities was $9.5 million in the three months ended March 31, 2013. Cash provided by investing activities was primarily attributable to net sales and maturities of short-term investments of $32.9 million, partially offset by purchases of property and equipment of $13.9 million, purchases of intangible assets of $6.3 million and an equity investment of $3.0 million in a private company. Net cash used in investing activities was $100.7 million in the three months ended March 31, 2012. Cash used in investing activities was primarily attributable to net purchases of short-term investments of $96.1 million and purchases of property and equipment of $4.5 million. Financing activities Our financing activities generated $6.3 million in the three months ended March 31, 2013. Cash provided by financing activities was primarily due to proceeds of $5.7 million from share option exercises and purchases pursuant to our employee share purchase plan, and an excess tax benefit from share-based compensation of $0.9 million, partially offset by principal payments on capital lease obligations of $0.3 million. Our financing activities generated $7.1 million in the three months ended March 31, 2012. Cash provided by financing activities was primarily due to proceeds of approximately $6.2 million from share option exercises and purchases pursuant to our employee share purchase plan, and an excess tax benefit from share-based compensation of approximately $1.0 million, partially offset by principal payments on capital lease obligations of $0.1 million. Off-Balance Sheet Arrangements As of March 31, 2013, we did not have any off-balance sheet arrangements. Contractual Obligations The following table summarizes our contractual obligations at March 31, 2013, and the effect those obligations are expected to have on our liquidity and cash flows in future periods: Payments Due by Period Less Than Contractual Obligations: Total 1 Year 1-3 Years 3-5 Years Beyond 5 Years (in thousands) Commitments under capital lease $ 3,865 $ 1,270 $ 2,595 $ - $ - Non-cancelable operating lease commitments 51,935 13,420 17,823 11,721 8,971 Purchase commitments 46,714 45,177 1,387 150 - Total $ 102,514 $ 59,867 $ 21,805 $ 11,871 $ 8,971 For purposes of this table, purchase obligations for the purchase of goods or services are defined as agreements that are enforceable and legally binding and that specify all significant terms including: fixed or minimum purchase quantities; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Our purchase orders are based on our current manufacturing needs and are fulfilled by our vendors within short time horizons. We do not have significant agreements for the purchase of raw materials or other goods specifying minimum quantities or set prices that exceed our expected requirements. Recent Accounting Standards See Note 1, "The Company and Summary of Significant Accounting Policies-Recent accounting pronouncements" of the Notes to the Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, for a full description of recent accounting standards, including the respective dates of adoption and effects on our condensed consolidated financial position, results of operations and cash flows. 26 -------------------------------------------------------------------------------- Table of Contents |