x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended: March 31, 2017 | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
Israel (State or other jurisdiction of incorporation or organization) | 98-0233400 (I.R.S. Employer Identification Number) |
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o | |||
Emerging growth company o |
Page No. | ||
March 31, | December 31, | ||||||
2017 | 2016 | ||||||
(In thousands, except par value) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 58,357 | $ | 56,780 | |||
Short-term investments | 266,833 | 271,661 | |||||
Accounts receivable, net | 126,236 | 141,768 | |||||
Inventories | 75,347 | 65,523 | |||||
Other current assets | 23,007 | 17,346 | |||||
Total current assets | 549,780 | 553,078 | |||||
Property and equipment, net | 123,913 | 118,585 | |||||
Severance assets | 16,857 | 15,870 | |||||
Intangible assets, net | 267,375 | 278,031 | |||||
Goodwill | 471,228 | 471,228 | |||||
Deferred taxes and other long-term assets | 49,902 | 36,713 | |||||
Total assets | $ | 1,479,055 | $ | 1,473,505 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 63,452 | $ | 59,533 | |||
Accrued liabilities | 107,142 | 105,042 | |||||
Deferred revenue | 23,363 | 24,364 | |||||
Current portion of term debt | 14,225 | 23,628 | |||||
Total current liabilities | 208,182 | 212,567 | |||||
Accrued severance | 20,955 | 19,874 | |||||
Deferred revenue | 15,485 | 15,968 | |||||
Term debt | 208,673 | 218,786 | |||||
Other long-term liabilities | 31,517 | 30,580 | |||||
Total liabilities | 484,812 | 497,775 | |||||
Commitments and Contingencies - (see Note 8) | |||||||
Shareholders’ equity: | |||||||
Ordinary shares: NIS 0.0175 par value, 200,000 shares authorized, 49,690 and 49,076 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively | 212 | 209 | |||||
Additional paid-in capital | 801,835 | 774,605 | |||||
Accumulated other comprehensive income (loss) | 3,385 | (928 | ) | ||||
Retained earnings | 188,811 | 201,844 | |||||
Total shareholders’ equity | 994,243 | 975,730 | |||||
Total liabilities and shareholders' equity | $ | 1,479,055 | $ | 1,473,505 |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
(In thousands, except per share data) | |||||||
Total revenues | $ | 188,651 | $ | 196,810 | |||
Cost of revenues | 64,450 | 70,481 | |||||
Gross profit | 124,201 | 126,329 | |||||
Operating expenses: | |||||||
Research and development | 88,491 | 71,034 | |||||
Sales and marketing | 35,757 | 31,228 | |||||
General and administrative | 12,519 | 27,938 | |||||
Total operating expenses | 136,767 | 130,200 | |||||
Loss from operations | (12,566 | ) | (3,871 | ) | |||
Interest expense | (1,993 | ) | (998 | ) | |||
Other income, net | 683 | 61 | |||||
Interest and other, net | (1,310 | ) | (937 | ) | |||
Loss before taxes on income | (13,876 | ) | (4,808 | ) | |||
Provision for (benefit from) taxes on income | (1,632 | ) | 2,360 | ||||
Net loss | $ | (12,244 | ) | $ | (7,168 | ) | |
Net loss per share — basic | $ | (0.25 | ) | $ | (0.15 | ) | |
Net loss per share — diluted | $ | (0.25 | ) | $ | (0.15 | ) | |
Shares used in computing net loss per share: | |||||||
Basic | 49,337 | 47,358 | |||||
Diluted | 49,337 | 47,358 |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
(In thousands) | |||||||
Net loss | $ | (12,244 | ) | $ | (7,168 | ) | |
Other comprehensive income, net of tax: | |||||||
Change in unrealized gains/losses on available-for-sale securities, net of tax | 69 | 600 | |||||
Change in unrealized gains/losses on derivative contracts, net of tax | 4,244 | 3,492 | |||||
Other comprehensive income, net of tax | 4,313 | 4,092 | |||||
Total comprehensive loss, net of tax | $ | (7,931 | ) | $ | (3,076 | ) |
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (12,244 | ) | $ | (7,168 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 25,181 | 20,614 | ||||||
Deferred income taxes | (942 | ) | 1,265 | |||||
Share-based compensation | 14,768 | 18,266 | ||||||
(Gain) loss on investments, net | (858 | ) | 112 | |||||
Changes in assets and liabilities, net of effect of acquisitions: | ||||||||
Accounts receivable | 15,532 | (4,677 | ) | |||||
Inventories | (10,457 | ) | 4,361 | |||||
Prepaid expenses and other assets | (3,693 | ) | 2,305 | |||||
Accounts payable | 4,931 | 3,340 | ||||||
Accrued liabilities and other liabilities | 2,783 | 10,177 | ||||||
Net cash provided by operating activities | 35,001 | 48,595 | ||||||
Cash flows from investing activities: | ||||||||
Purchase of severance-related insurance policies | (315 | ) | (226 | ) | ||||
Purchase of short-term investments | (50,302 | ) | (64,908 | ) | ||||
Proceeds from sales of short-term investments | 54,242 | 199,932 | ||||||
Proceeds from maturities of short-term investments | 1,815 | 77,715 | ||||||
Purchase of property and equipment | (15,911 | ) | (8,283 | ) | ||||
Purchase of intangible assets | (1,115 | ) | — | |||||
Purchase of investments in private companies | (11,000 | ) | (107 | ) | ||||
Acquisition, net of cash acquired of $87.5 million | — | (681,189 | ) | |||||
Net cash used in investing activities | (22,586 | ) | (477,066 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from term debt | — | 280,000 | ||||||
Principal payments on term debt | (20,000 | ) | — | |||||
Term debt issuance costs | — | (5,521 | ) | |||||
Payments on capital lease and intangible asset financings | (2,514 | ) | (274 | ) | ||||
Proceeds from issuances of ordinary shares through employee equity incentive plans | 11,676 | 8,979 | ||||||
Net cash provided by (used in) financing activities | (10,838 | ) | 283,184 | |||||
Net increase (decrease) in cash and cash equivalents | 1,577 | (145,287 | ) | |||||
Cash and cash equivalents at beginning of period | 56,780 | 263,199 | ||||||
Cash and cash equivalents at end of period | $ | 58,357 | $ | 117,912 | ||||
Supplemental disclosure of non-cash investing and financing activities | ||||||||
Intangible assets financed with debt | $ | 3,220 | $ | — | ||||
Unpaid property and equipment | $ | 1,510 | $ | 581 | ||||
Transfer from inventory to property and equipment | $ | 633 | $ | 975 |
Three Months Ended March 31, | |||||
2017 | 2016 | ||||
Hewlett Packard Enterprise | 13 | % | 20 | % | |
Dell | 13 | % | * | ||
____________________ | |||||
* Less than 10% |
March 31, 2017 | December 31, 2016 | ||||
Hewlett Packard Enterprise | 12 | % | 23 | % | |
Ingram Micro | 11 | % | * | ||
____________________ | |||||
* Less than 10% |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
(In thousands) | |||||||
Balance, beginning of the period | $ | 1,474 | $ | 1,641 | |||
Assumed warranty liability from acquisition | — | 290 | |||||
New warranties issued during the period | 436 | 369 | |||||
Reversal of warranty reserves | (356 | ) | (134 | ) | |||
Settlements during the period | (343 | ) | (348 | ) | |||
Balance, end of the period | 1,211 | 1,818 | |||||
Less: long-term portion of product warranty liability | (162 | ) | (386 | ) | |||
Current portion, end of the period | $ | 1,049 | $ | 1,432 |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
(In thousands, except per share data) | |||||||
Net loss | $ | (12,244 | ) | $ | (7,168 | ) | |
Basic and diluted shares: | |||||||
Weighted average ordinary shares outstanding | 49,337 | 47,358 | |||||
Effect of dilutive shares | — | — | |||||
Shares used to compute diluted net loss per share | 49,337 | 47,358 | |||||
Net loss per share — basic | $ | (0.25 | ) | $ | (0.15 | ) | |
Net loss per share — diluted | $ | (0.25 | ) | $ | (0.15 | ) |
March 31, 2017 | December 31, 2016 | ||||||
(In thousands) | |||||||
Accounts receivable, net: | |||||||
Accounts receivable, gross | $ | 126,868 | $ | 142,400 | |||
Less: allowance for doubtful accounts | (632 | ) | (632 | ) | |||
$ | 126,236 | $ | 141,768 | ||||
Inventories: | |||||||
Raw materials | $ | 7,227 | $ | 8,243 | |||
Work-in-process | 28,579 | 26,118 | |||||
Finished goods | 39,541 | 31,162 | |||||
$ | 75,347 | $ | 65,523 | ||||
Other current assets: | |||||||
Prepaid expenses | $ | 10,424 | $ | 9,053 | |||
Derivative contracts receivable | 3,398 | 257 | |||||
VAT receivable | 6,013 | 6,093 | |||||
Other | 3,172 | 1,943 | |||||
$ | 23,007 | $ | 17,346 | ||||
Property and equipment, net: | |||||||
Computer, equipment, and software | $ | 227,100 | $ | 214,719 | |||
Furniture and fixtures | 5,270 | 5,210 | |||||
Leasehold improvements | 49,619 | 46,693 | |||||
281,989 | 266,622 | ||||||
Less: Accumulated depreciation and amortization | (158,076 | ) | (148,037 | ) | |||
$ | 123,913 | $ | 118,585 | ||||
Deferred taxes and other long-term assets: | |||||||
Equity investments in private companies | $ | 19,720 | $ | 12,720 | |||
Deferred taxes | 23,355 | 22,413 | |||||
Other assets | 6,827 | 1,580 | |||||
$ | 49,902 | $ | 36,713 | ||||
Accrued liabilities: | |||||||
Payroll and related expenses | $ | 63,580 | $ | 62,969 | |||
Accrued expenses | 36,079 | 33,125 | |||||
Derivative contracts payable | 6 | 1,006 | |||||
Product warranty liability | 1,049 | 1,263 | |||||
Other | 6,428 | 6,679 | |||||
$ | 107,142 | $ | 105,042 | ||||
Other long-term liabilities: | |||||||
Income tax payable | $ | 24,553 | $ | 24,184 | |||
Deferred rent | 2,437 | 2,504 | |||||
Other | 4,527 | 3,892 | |||||
$ | 31,517 | $ | 30,580 |
(in thousands) | ||||
Consideration: | ||||
Cash payment for all outstanding common shares of EZchip at $25.50 per share | $ | 781,237 | ||
Fair value of awards attributable to pre-acquisition services | 972 | |||
Total consideration: | 782,209 | |||
Less: cash acquired | 87,545 | |||
Fair value of total consideration transferred, net of cash acquired | $ | 694,664 |
(in thousands) | ||||
Short-term investments | $ | 108,862 | ||
Other current assets | 34,114 | |||
Other long-term assets | 9,638 | |||
Intangible assets | 288,246 | |||
Goodwill | 270,485 | |||
Total assets | 711,345 | |||
Current liabilities | (10,253 | ) | ||
Long-term liabilities | (6,428 | ) | ||
Total liabilities | (16,681 | ) | ||
Total preliminary purchase price allocation | $ | 694,664 |
Fair value | Weighted Average Useful Life | |||||
(in thousands) | (in years) | |||||
Purchased intangible assets: | ||||||
Trade names | $ | 5,600 | 3 | |||
Customer relationships | 56,400 | 9 | ||||
Backlog | 11,300 | 1 | ||||
Developed technology | 181,246 | 4 - 6 | ||||
In process research and development (1) | 33,700 | - | ||||
Total purchased intangible assets | $ | 288,246 | ||||
(1) In-process research and development ("IPR&D") will not be amortized until the underlying products reach technological feasibility. Upon completion, each IPR&D project will be amortized over its useful life. |
Level 1 | Level 2 | Total | |||||||||
(in thousands) | |||||||||||
Money market funds | $ | 4,098 | $ | — | $ | 4,098 | |||||
Certificates of deposit | — | 79,147 | 79,147 | ||||||||
U.S. Government and agency securities | — | 44,636 | 44,636 | ||||||||
Commercial paper | — | 30,316 | 30,316 | ||||||||
Corporate bonds | — | 89,082 | 89,082 | ||||||||
Municipal bonds | — | 8,635 | 8,635 | ||||||||
Foreign government bonds | — | 15,017 | 15,017 | ||||||||
4,098 | 266,833 | 270,931 | |||||||||
Derivative contracts | 3,398 | 3,398 | |||||||||
Total financial assets | $ | 4,098 | $ | 270,231 | $ | 274,329 | |||||
Derivative contracts | — | 6 | 6 | ||||||||
Total financial liabilities | $ | — | $ | 6 | $ | 6 |
Level 1 | Level 2 | Total | |||||||||
(in thousands) | |||||||||||
Money market funds | $ | 1,833 | $ | — | $ | 1,833 | |||||
Certificates of deposit | — | 78,643 | 78,643 | ||||||||
U.S. Government and agency securities | — | 56,347 | 56,347 | ||||||||
Commercial paper | — | 29,483 | 29,483 | ||||||||
Corporate bonds | — | 94,162 | 94,162 | ||||||||
Municipal bonds | — | 7,706 | 7,706 | ||||||||
Foreign government bonds | — | 5,320 | 5,320 | ||||||||
1,833 | 271,661 | 273,494 | |||||||||
Derivative contracts | — | 257 | 257 | ||||||||
Total financial assets | $ | 1,833 | $ | 271,918 | $ | 273,751 | |||||
Derivative contracts | — | 1,006 | 1,006 | ||||||||
Total financial liabilities | $ | — | $ | 1,006 | $ | 1,006 |
March 31, 2017 | |||||||||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | ||||||||||||
(in thousands) | |||||||||||||||
Cash | $ | 54,259 | $ | — | $ | — | $ | 54,259 | |||||||
Money market funds | 4,098 | — | — | 4,098 | |||||||||||
Certificates of deposit | 79,147 | — | — | 79,147 | |||||||||||
U.S. Government and agency securities | 44,741 | 1 | (106 | ) | 44,636 | ||||||||||
Commercial paper | 30,318 | 7 | (9 | ) | 30,316 | ||||||||||
Corporate bonds | 89,131 | 51 | (100 | ) | 89,082 | ||||||||||
Municipal bonds | 8,642 | 1 | (8 | ) | 8,635 | ||||||||||
Foreign government bonds | 15,021 | 5 | (9 | ) | 15,017 | ||||||||||
Total | 325,357 | 65 | (232 | ) | 325,190 | ||||||||||
Less amounts classified as cash and cash equivalents | (58,357 | ) | — | — | (58,357 | ) | |||||||||
Short-term investments | $ | 267,000 | $ | 65 | $ | (232 | ) | $ | 266,833 |
December 31, 2016 | |||||||||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | ||||||||||||
(in thousands) | |||||||||||||||
Cash | $ | 54,947 | $ | — | $ | — | $ | 54,947 | |||||||
Money market funds | 1,833 | — | — | 1,833 | |||||||||||
Certificates of deposit | 78,643 | — | — | 78,643 | |||||||||||
U.S. Government and agency securities | 56,431 | 2 | (86 | ) | 56,347 | ||||||||||
Commercial paper | 29,486 | — | (3 | ) | 29,483 | ||||||||||
Corporate bonds | 94,292 | 37 | (167 | ) | 94,162 | ||||||||||
Municipal bonds | 7,718 | — | (12 | ) | 7,706 | ||||||||||
Foreign government bonds | 5,327 | — | (7 | ) | 5,320 | ||||||||||
Total | 328,677 | 39 | (275 | ) | 328,441 | ||||||||||
Less amounts classified as cash and cash equivalents | (56,780 | ) | — | — | (56,780 | ) | |||||||||
Short-term investments | $ | 271,897 | $ | 39 | $ | (275 | ) | $ | 271,661 |
March 31, 2017 | December 31, 2016 | ||||||||||||||
Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | ||||||||||||
(in thousands) | |||||||||||||||
Due in less than one year | $ | 155,609 | $ | 155,499 | $ | 157,270 | $ | 157,163 | |||||||
Due in one to three years | 111,391 | 111,334 | 114,627 | 114,498 | |||||||||||
$ | 267,000 | $ | 266,833 | $ | 271,897 | $ | 271,661 |
(in thousands) | |||
Carrying amount of goodwill at December 31, 2016 | $ | 471,228 | |
Acquisitions | — | ||
Adjustments | — | ||
Balance as of March 31, 2017 | $ | 471,228 |
Gross Carrying Value | Accumulated Amortization | Net Carrying Value | |||||||||
(in thousands) | |||||||||||
Licensed technology | $ | 28,916 | $ | (8,732 | ) | $ | 20,184 | ||||
Developed technology | 250,043 | (86,178 | ) | 163,865 | |||||||
Customer relationships | 69,776 | (19,494 | ) | 50,282 | |||||||
Trade names | 5,600 | (2,056 | ) | 3,544 | |||||||
Total finite-lived amortizable intangible assets | 354,335 | (116,460 | ) | 237,875 | |||||||
In-process research and development | 29,500 | — | 29,500 | ||||||||
Total intangible assets | $ | 383,835 | $ | (116,460 | ) | $ | 267,375 |
Gross Carrying Value | Accumulated Amortization | Net Carrying Value | |||||||||
(in thousands) | |||||||||||
Licensed technology | $ | 24,583 | $ | (6,559 | ) | $ | 18,024 | ||||
Developed technology | 250,043 | (75,591 | ) | 174,452 | |||||||
Customer relationships | 69,776 | (17,731 | ) | 52,045 | |||||||
Backlog | 11,300 | (11,300 | ) | — | |||||||
Trade names | 5,600 | (1,590 | ) | 4,010 | |||||||
Total finite-lived amortizable intangible assets | 361,302 | (112,771 | ) | 248,531 | |||||||
In-process research and development | 29,500 | — | 29,500 | ||||||||
Total intangible assets | $ | 390,802 | $ | (112,771 | ) | $ | 278,031 |
(in thousands) | |||
2017 (remaining nine months) | $ | 45,466 | |
2018 | 54,826 | ||
2019 | 47,194 | ||
2020 | 36,145 | ||
2021 | 30,618 | ||
Thereafter | 23,626 | ||
Total | $ | 237,875 |
Other current assets | Accrued liabilities | Other current assets | Accrued liabilities | |||||||||||||
March 31, 2017 | December 31, 2016 | |||||||||||||||
(in thousands) | ||||||||||||||||
Derivatives designated as hedging instruments | ||||||||||||||||
Currency forward and option contracts | $ | 3,398 | $ | 3 | $ | 257 | $ | 999 | ||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||
Currency forward and option contracts | $ | — | $ | 3 | $ | — | $ | 7 | ||||||||
Total derivatives | $ | 3,398 | $ | 6 | $ | 257 | $ | 1,006 |
March 31, 2017 | December 31, 2016 | ||||||
(in thousands) | |||||||
Derivatives designated as hedging instruments | |||||||
Currency forward and option contracts | $ | 86,729 | $ | 105,730 | |||
Derivatives not designated as hedging instruments | |||||||
Currency forward and option contracts | $ | 44,879 | $ | 34,330 |
(in thousands) | |||
December 31, 2016 | $ | (692 | ) |
Amount of gain recognized in OCI (effective portion) | 5,680 | ||
Amount of gain reclassified from OCI to income (effective portion) | (1,436 | ) | |
March 31, 2017 | $ | 3,552 |
Derivatives designated as hedging instruments | Derivatives not designated as hedging instruments | |||||||||||||||
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(in thousands) | ||||||||||||||||
Operating income | $ | 1,436 | $ | 138 | $ | — | $ | — | ||||||||
Other income | $ | — | $ | — | $ | 2,066 | $ | 272 |
(in thousands) | |||
2017 (remaining nine months) | $ | 17,050 | |
2018 | 18,569 | ||
2019 | 13,553 | ||
2020 | 11,466 | ||
2021 | 8,093 | ||
Thereafter | 10,388 | ||
Total minimum lease payments | $ | 79,119 |
(in thousands) | |||
2017 (remaining nine months) | $ | 116,229 | |
2018 | 3,400 | ||
2019 | 610 | ||
2020 | 154 | ||
2021 | 51 | ||
Thereafter | — | ||
$ | 120,444 |
Options Outstanding | ||||||
Number of Shares | Weighted Average Exercise Price | |||||
Outstanding at December 31, 2016 | 1,634,485 | $ | 32.79 | |||
Options exercised | (105,010 | ) | $ | 14.54 | ||
Options canceled | (6,960 | ) | $ | 59.28 | ||
Outstanding at March 31, 2017 | 1,522,515 | $ | 33.93 |
Restricted Share Units Outstanding | ||||||
Number of Shares | Weighted Average Grant Date Fair Value | |||||
Non-vested restricted share units at December 31, 2016 | 3,324,519 | $ | 46.67 | |||
Restricted share units granted | 101,760 | $ | 44.83 | |||
Restricted share units vested | (239,568 | ) | $ | 44.55 | ||
Restricted share units canceled | (93,776 | ) | $ | 47.07 | ||
Non-vested restricted share units at March 31, 2017 | 3,092,935 | $ | 46.76 |
Number of Shares | ||
Share options outstanding | 1,522,515 | |
Restricted share units outstanding | 3,092,935 | |
Shares authorized for future issuance | 525,692 | |
ESPP shares available for future issuance | 3,724,647 | |
Total shares reserved for future issuance as of March 31, 2017 | 8,865,789 |
Three Months Ended March 31, | |||||
2017 | 2016 | ||||
Dividend yield | — | % | — | % | |
Expected volatility | 25.3 | % | 37.6 | % | |
Risk free interest rate | 0.91 | % | 0.46 | % | |
Expected life, years | 0.5 | 0.5 |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
(in thousands) | |||||||
Cost of goods sold | $ | 482 | $ | 475 | |||
Research and development | 8,690 | 9,152 | |||||
Sales and marketing | 3,338 | 3,648 | |||||
General and administrative | 2,258 | 4,991 | |||||
Total share-based compensation expense | $ | 14,768 | $ | 18,266 |
Unrealized Gains (Losses) on Available-for-Sale Securities | Unrealized Gains (Losses) on Derivatives Designated as Hedging Instruments | Total | |||||||||
(in thousands) | |||||||||||
Balance at December 31, 2016 | $ | (236 | ) | $ | (692 | ) | $ | (928 | ) | ||
Other comprehensive income/(loss) before reclassifications, net of taxes | 73 | 5,680 | 5,753 | ||||||||
Realized (gains)/losses reclassified from accumulated other comprehensive income | (4 | ) | (1,436 | ) | (1,440 | ) | |||||
Net current-period other comprehensive income/(loss), net of taxes | 69 | 4,244 | 4,313 | ||||||||
Balance at March 31, 2017 | $ | (167 | ) | $ | 3,552 | $ | 3,385 | ||||
Balance at December 31, 2015 | $ | (578 | ) | $ | (1,091 | ) | $ | (1,669 | ) | ||
Other comprehensive income/(loss) before reclassifications, net of taxes | 40 | 3,630 | 3,670 | ||||||||
Realized (gains)/losses reclassified from accumulated other comprehensive income | 560 | (138 | ) | 422 | |||||||
Net current-period other comprehensive income/(loss), net of taxes | 600 | 3,492 | 4,092 | ||||||||
Balance at March 31, 2016 | $ | 22 | $ | 2,401 | $ | 2,423 |
Realized (Gains)/Losses Reclassified from Accumulated Other Comprehensive Income | Affected Line Item in the Statement of Operations | |||||||||
Three Months Ended March 31, | ||||||||||
2017 | 2016 | |||||||||
(in thousands) | ||||||||||
Realized (gains)/losses on derivatives designated as hedging instruments | $ | (1,436 | ) | $ | (138 | ) | Cost of revenues and Operating expenses: | |||
(84 | ) | (12 | ) | Cost of revenues | ||||||
(115 | ) | 33 | General and administrative | |||||||
(145 | ) | (21 | ) | Sales and marketing | ||||||
(1,092 | ) | (138 | ) | Research and development | ||||||
Realized (gains)/losses on available-for-sale securities | (4 | ) | 560 | Other income, net | ||||||
Total reclassifications for the period | $ | (1,440 | ) | $ | 422 | Total |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
(in thousands) | |||||||
Interest income and gains (losses) on short-term investments, net | $ | 878 | $ | 115 | |||
Foreign exchange loss, net | (162 | ) | (9 | ) | |||
Other | (33 | ) | (45 | ) | |||
Other income, net | $ | 683 | $ | 61 |
(in thousands) | ||||
Term Debt, principal amount | $ | 226,000 | ||
Less unamortized debt issuance costs | 3,102 | |||
Term Debt, principal net of unamortized debt issuance costs | $ | 222,898 | ||
Effective interest rate | 3.4 | % |
(in thousands) | |||
2017 remainder of year | $ | 5,500 | |
2018 | 63,000 | ||
2019 | 157,500 | ||
$ | 226,000 |
Three Months Ended | |||||||
March 31, | |||||||
2017 | 2016 | ||||||
Total revenues | 100 | % | 100 | % | |||
Cost of revenues | 34 | 36 | |||||
Gross profit | 66 | 64 | |||||
Operating expenses: | |||||||
Research and development | 47 | 36 | |||||
Sales and marketing | 19 | 16 | |||||
General and administrative | 7 | 14 | |||||
Total operating expenses | 73 | 66 | |||||
Loss from operations | (7 | ) | (2 | ) | |||
Interest expense | (1 | ) | (1 | ) | |||
Other income, net | — | 1 | |||||
Interest and other, net | (1 | ) | — | ||||
Loss before taxes on income | (8 | ) | (2 | ) | |||
Provision for (benefit from) taxes on income | (1 | ) | 2 | ||||
Net loss | (7 | ) | % | (4 | ) | % |
Three Months Ended March 31, | |||||||||||||
2017 | % of Revenues | 2016 | % of Revenues | ||||||||||
(In thousands) | |||||||||||||
ICs | $ | 42,422 | 22.5 | % | $ | 28,531 | 14.5 | % | |||||
Boards | 64,292 | 34.1 | % | 92,932 | 47.2 | % | |||||||
Switch systems | 47,146 | 25.0 | % | 43,823 | 22.3 | % | |||||||
Cables, accessories and other | 34,791 | 18.4 | % | 31,524 | 16.0 | % | |||||||
Total Revenue | $ | 188,651 | 100.0 | % | $ | 196,810 | 100.0 | % |
Three Months Ended March 31, | |||||||||||||
2017 | % of Revenues | 2016 | % of Revenues | ||||||||||
(In thousands) | |||||||||||||
InfiniBand: | |||||||||||||
EDR | $ | 39,623 | 21.0 | % | $ | 21,003 | 10.7 | % | |||||
FDR | 49,829 | 26.4 | % | 80,342 | 40.8 | % | |||||||
QDR/DDR/SDR | 7,533 | 4.0 | % | 11,828 | 6.0 | % | |||||||
Total | 96,985 | 51.4 | % | 113,173 | 57.5 | % | |||||||
Ethernet | 80,477 | 42.7 | % | 68,625 | 34.9 | % | |||||||
Other | 11,189 | 5.9 | % | 15,012 | 7.6 | % | |||||||
Total revenue | $ | 188,651 | 100.0 | % | $ | 196,810 | 100.0 | % |
Three Months Ended March 31, | |||||||||||||
2017 | % of Revenues | 2016 | % of Revenues | ||||||||||
(In thousands) | |||||||||||||
Salaries and benefits | $ | 45,981 | 24.4 | % | $ | 36,978 | 18.8 | % | |||||
Share-based compensation | 8,690 | 4.6 | % | 9,152 | 4.7 | % | |||||||
Development and tape-out costs | 13,064 | 6.9 | % | 8,866 | 4.5 | % | |||||||
Other | 20,756 | 11.0 | % | 16,038 | 8.1 | % | |||||||
Total Research and development | $ | 88,491 | 46.9 | % | $ | 71,034 | 36.1 | % |
Three Months Ended March 31, | |||||||||||||
2017 | % of Revenues | 2016 | % of Revenues | ||||||||||
(In thousands) | |||||||||||||
Salaries and benefits | $ | 21,015 | 11.1 | % | $ | 17,293 | 8.8 | % | |||||
Share-based compensation | 3,338 | 1.8 | % | 3,648 | 1.9 | % | |||||||
Trade shows and promotions | 5,511 | 2.9 | % | 5,675 | 2.9 | % | |||||||
Other | 5,893 | 3.2 | % | 4,612 | 2.3 | % | |||||||
Total Sales and marketing | $ | 35,757 | 19.0 | % | $ | 31,228 | 15.9 | % |
Three Months Ended March 31, | |||||||||||||
2017 | % of Revenues | 2016 | % of Revenues | ||||||||||
(In thousands) | |||||||||||||
Salaries and benefits | $ | 5,296 | 2.8 | % | $ | 5,299 | 2.7 | % | |||||
Share-based compensation | 2,258 | 1.2 | % | 4,991 | 2.5 | % | |||||||
Professional services | 3,311 | 1.8 | % | 15,757 | 8.0 | % | |||||||
Other | 1,654 | 0.8 | % | 1,891 | 1.0 | % | |||||||
Total General and administrative | $ | 12,519 | 6.6 | % | $ | 27,938 | 14.2 | % |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
(in thousands) | |||||||
Cost of goods sold | $ | 482 | $ | 475 | |||
Research and development | 8,690 | 9,152 | |||||
Sales and marketing | 3,338 | 3,648 | |||||
General and administrative | 2,258 | 4,991 | |||||
$ | 14,768 | $ | 18,266 |
March 31, 2017 | December 31, 2016 | ||||||
(in thousands) | |||||||
Cash and cash equivalents | $ | 58,357 | $ | 56,780 | |||
Short-term investments | 266,833 | 271,661 | |||||
Total | $ | 325,190 | $ | 328,441 | |||
Working capital | $ | 341,598 | $ | 340,511 |
Contractual Obligations: | |||||||||||||||
Total | Non-cancelable operating lease commitments | Purchase commitments | Term Debt including interest | ||||||||||||
(in thousands) | |||||||||||||||
2017 (remainder of the year) | $ | 143,269 | $ | 17,050 | $ | 116,229 | $ | 9,990 | |||||||
2018 | 90,207 | 18,569 | 3,400 | 68,238 | |||||||||||
2019 | 172,264 | 13,553 | 610 | 158,101 | |||||||||||
2020 | 11,620 | 11,466 | 154 | — | |||||||||||
2021 | 8,144 | 8,093 | 51 | — | |||||||||||
Thereafter | 10,388 | 10,388 | — | — | |||||||||||
Total | $ | 435,892 | $ | 79,119 | $ | 120,444 | $ | 236,329 |
• | increasing our vulnerability to adverse general economic and industry conditions; |
• | requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts, the execution of our business strategy, acquisitions and other general corporate purposes; |
• | making it more difficult to borrow additional funds in the future to fund growth, acquisitions, working capital, capital expenditures and other purposes. |
• | difficulties in integrating the operations, systems, technologies, products, and personnel of the acquired companies, particularly companies with large and widespread operations and/or complex products; |
• | the diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations resulting from acquisitions; |
• | possible disruption to the continued expansion of our product lines; |
• | potential changes in our customer base and changes to the total available market for our products; |
• | reduced demand for our products; |
• | potential difficulties in completing projects associated with in-process research and development intangibles; |
• | the use of a substantial portion of our cash resources and incurrence of significant amounts of debt; |
• | significantly increase our interest expense, leverage and debt service requirements as a result of incurring debt; |
• | the impact of any such acquisition on our financial results; |
• | internal controls may become more complex and may require significantly more resources to ensure they remain effective; |
• | negative customer reaction to any such acquisition; and |
• | assuming the liabilities of the acquired company. |
• | reduced control over product cost, delivery schedules and product quality; |
• | potential price increases; |
• | inability to achieve sufficient production, increase production or test capacity and achieve acceptable yields on a timely basis; |
• | increased exposure to potential misappropriation of our intellectual property; |
• | shortages of materials used to manufacture products; |
• | capacity shortages; |
• | labor shortages or labor strikes; |
• | political instability in the regions where these subcontractors are located; and |
• | natural disasters impacting these subcontractors. |
• | unpredictable volume and timing of customer orders, which are not fixed by contract but vary on a purchase order basis; |
• | the loss of one or more of our customers, or a significant reduction or postponement of orders from our customers; |
• | our customers' sales outlooks, purchasing patterns and inventory levels based on end-user demands and general economic conditions; |
• | seasonal buying trends; |
• | the timing of new product announcements or introductions by us or by our competitors; |
• | our ability to successfully develop, introduce and sell new or enhanced products in a timely manner; |
• | changes in the relative sales mix of our products; |
• | decreases in the overall average selling prices of our products; |
• | changes in the cost of our finished goods; and |
• | the availability, pricing and timeliness of delivery of other components used in our customers' products. |
• | people may not be deterred from misappropriating our technologies despite the existence of laws or contracts prohibiting it; |
• | policing unauthorized use of our intellectual property may be difficult, expensive and time-consuming, and we may be unable to determine the extent of any unauthorized use; and |
• | the laws of other countries in which we market our products, such as some countries in the Asia/Pacific region, may offer little or no protection for our proprietary technologies. |
• | manage and enhance our relationships with customers, distributors, suppliers, end users and other third parties; |
• | implement additional, and enhance existing, administrative, financial and operations systems, procedures and controls; |
• | address capacity shortages; |
• | expand and upgrade our technological capabilities; |
• | manage the challenges of having U.S., Israeli and other foreign operations; and |
• | hire, train, integrate and manage additional qualified engineers for research and development activities as well as additional personnel to strengthen our sales and marketing, financial and IT functions. |
• | reduced protection of intellectual property rights in some countries; |
• | difficulties in staffing and managing foreign operations; |
• | longer sales and payment cycles; |
• | greater difficulties in collecting accounts receivable; |
• | adverse economic conditions; |
• | seasonal reductions in business activity; |
• | potentially adverse tax consequences; |
• | laws and business practices favoring local competition; |
• | costs and difficulties of customizing products for foreign countries; |
• | compliance with a wide variety of complex foreign laws and treaties; |
• | compliance with the United States' Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions; |
• | compliance with export control and regulations; |
• | licenses, tariffs, other trade barriers, transit restrictions and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets; |
• | restrictive governmental actions, such as restrictions on the transfer or repatriation of funds and foreign investments; |
• | foreign currency exchange risks; |
• | fluctuations in freight rates and transportation disruptions; |
• | political and economic instability; |
• | variance and unexpected changes in local laws and regulations; |
• | natural disasters and public health emergencies; and |
• | trade and travel restrictions. |
• | quarterly variations in our results of operations or those of our competitors; |
• | announcements by us, our competitors, our customers or rumors from sources other than our company related to acquisitions, new products, significant contracts, commercial relationships, capital commitments or changes in the competitive landscape; |
• | our ability to develop and market new and enhanced products on a timely basis; |
• | disruption to our operations; |
• | geopolitical instability; |
• | the emergence of new sales channels in which we are unable to compete effectively; |
• | any major change in our board of directors or management; |
• | changes in financial estimates, including our ability to meet our future revenue and operating profit or loss projections; |
• | changes in governmental regulations or in the status of our regulatory approvals; |
• | general economic conditions and slow or negative growth of related markets; |
• | anticompetitive practices of our competitors; |
• | commencement of, or our involvement in, litigation; |
• | whether our operating results meet our guidance or the expectations of investors or securities analysts; |
• | continuing international conflicts and acts of terrorism; and |
• | changes in accounting rules. |
• | no cumulative voting; |
• | a requirement for any merger involving the Company shall require the approval of the shareholders of at least a majority of the voting power of the Company; |
• | a requirement for the approval of at least 75% of the voting power represented at the general meeting of the shareholders for the removal of any director (not including external directors) from office, and election of any director instead of the director so removed; and |
• | an advance notice requirement for shareholder proposals and nominations. |
3.1 | (1) | Amended and Restated Articles of Association of Mellanox Technologies, Ltd. (as amended on May 9, 2016) | ||
3.2 | † | Mellanox Technologies, Ltd. Second Amended and Restated Global Share Incentive Plan (2006) | ||
10.1 | † | Lease Agreement, dated April 9, 2017, by and between the Company, as tenant, and Rubinstein Buildings Ltd., as landlord (as translated from Hebrew) | ||
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
101.INS | XBRL Instance Document | |||
101.SCH | XBRL Taxonomy Extension Schema Document | |||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
(1) | Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q (SEC File No. 001-33299) filed on July 29, 2016. |
Date: | May 5, 2017 | Mellanox Technologies, Ltd. |
/s/ Jacob Shulman | ||
Jacob Shulman | ||
Chief Financial Officer | ||
(Duly Authorized Officer and Principal Financial Officer) |
1. | NAME AND PURPOSE. |
2. | DEFINITIONS. |
3. | ADMINISTRATION OF THE PLAN |
4. | ELIGIBLE PARTICIPANTS. |
5. | RESERVED SHARES. |
6. | AWARD AGREEMENT. |
7. | OPTION PRICES. |
Whereas | The Lessor is entitled to be registered as the full owner of the Land (as defined below) located on 4-6 Yitzchak Sadeh Street, Tel Aviv; and |
Whereas | The Lessor has established on the Land a Project that includes, inter alia, two buildings - the eastern building and the western building - each of which contains 33 floors, including a commercial floor (on the ground floor), office floors, parking spaces, underground levels, technical floors and storage spaces, and whereas use will be made of all of the above in accordance with the purposes and designations permitted under the city building plan (hereinafter: the “Project”); and |
Whereas | Within the Project, the Building (as defined in the addendum to this Agreement) as well as the Leasehold as defined in this Agreement below will be established; and |
Whereas | The Lessee would like to lease the Leasehold from the Lessor with an unprotected lease pursuant to the terms and based on the arrangements set forth in this Agreement; |
1. | Preamble |
2. | Appendices |
2.1. | The Agreement includes the following appendices: |
2.1.1. | Appendix A - Blueprint of the Leasehold. |
2.1.2. | Appendix B - Management Agreement. |
2.1.3. | Appendix C - Insurance Appendix. |
2.1.4. | Appendix D - Wording of the Bank Guarantee. |
2.1.5. | Appendix E – Outer frame Specifications. |
2.1.6. | Appendix F - Guidelines for the Performance of Adjustment Work to the Leasehold. |
3. | Definitions |
3.1. | In this Agreement, the following terms will have the meanings provided beside them: |
The “Agreement” or “This Agreement” - | This Lease Agreement and all of its appendices and changes made from time to time. |
The “Land” - | Plots 45-46 in block 7077. |
The “Building” - | The western building of the Project in which the Leasehold is located. |
The “Leasehold” - | As set forth in Section 5 below. |
The “Blueprint | The blueprint of the Leasehold attached as Appendix A to this Agreement. |
The “Management Agreement” - | The Management Agreement attached as Appendix B to this Agreement. |
The “Management Company” - | As defined in the Management Agreement attached as Appendix B. |
The “Index” - | “The Consumer Price Index - General” published by the Central Bureau of Statistics and Financial Research, and including the same index even if it is published by any official body or entity that shall replace it, regardless of whether it is based on the same data. |
The “Base Index” - | The index of the month of May 2016 (5/2016) which was published on June 15, 2016. |
The “New Index” - | The last index known before the actual clearance of any payment. |
“Index-Linked” - | With respect to any amount in this Agreement - if it is clarified, on the actual payment date of any amount under this Agreement, that the New Index is higher than the Base Index, the amount will be increased by the increase rate of the New Index compared to the Base Index. If, on the actual payment date, the New Index is equal to or lower than the Base Index, the aforesaid amount will remain unchanged. |
4. | The Lease |
5. | Description of the Leasehold |
5.1. | The Leasehold and the area of the Leasehold are as set forth below: (hereinafter: the “Leasehold” and the “Area of the Leasehold,” respectively). |
5.2. | Area comprising 15 floors, located on floors 4-18 (four through eighteen, inclusive) of the Building, including the balcony attached to floor 4 with an area of about 359 sq.m (hereinafter: the “Balcony”), and that is delineated with a green line on the Blueprint attached as Appendix A to this Agreement. |
5.3. | Additionally, the Leasehold includes: |
5.3.1. | A parking space (one) that is reserved and marked in the Project’s parking lot; |
5.3.2. | 100 reserved and unmarked parking subscriptions in the parking lot of the “Rubinstein Building”; |
5.3.3. | 249 reserved and unmarked parking subscriptions in the Project, of which the Lessor can transfer up to 100 reserved and unmarked parking spaces to the parking lot adjacent to the Project. |
5.4 | The parking rights in the parking spaces mentioned in Sections 5.3.2 and 5.3.3 above will be available to the employees of the Lessee alone, such that the Lessee will transfer to the Lessor a list which includes the names of the 349 employees entitled to parking, and only the employees noted on the list will be allowed entry to these parking spaces (hereinafter: the “Parking Subscriptions by Name”). Notwithstanding the foregoing, the Lessee may, at any time (whether before transferring possession or thereafter, and for the entire duration of the Lease Period, the first Additional Lease Period and the Second Additional Lease Period, as applicable), convert the Parking Subscriptions by Name (in whole or in part) into parking spaces that are reserved, and unmarked, that are not listed by name, and are designated for all of the employees of the Mellanox group in Israel, such, that the Lessee will provide the Lessor with a list of all of the employees of the Mellanox group in Israel, and the Lessor will allow all Mellanox employees appearing on the list to enter said parking spaces, until the use of the number of parking spaces converted from Parking Subscriptions by Name into parking spaces designated for all Mellanox employees (hereinafter: the “Parking Spaces Designated for All Mellanox Employees”). Without derogating from the foregoing, the Lessee will be able, at any time, to convert the Parking Spaces Designated for All Mellanox Employees (in whole or in part) back into Parking Subscriptions by Name, and vice versa. |
5.5 | The gross Area of the Leasehold is about 18,760 sq.m (some 1,245 gross sq.m on each floor. The precise Area of the Leasehold will be measured and calculated in accordance with the terms of Sections 5.8 through 5.11 below. |
5.6 | Canceled |
5.7 | An option is hereby given to the Lessee to notify the Lessor by December 31, 2018, that it would like to reduce the Area of the Leasehold and return to the Lessor area from the Leasehold (hereinafter: the “Returned Area”). The Returned Area will be no more than seven complete floors from the upper floors of the Leasehold, and only the floors for which the floor above is not leased to the Lessee (including a floor that the Lessee requested to cease to lease in accordance with this section) such that even after the waiver of the floor/s, the |
5.8 | Additionally, in addition to the option granted to the Lessee in Section 5.7 above, an option is hereby given to the Lessee to notify the Lessor by January 1, 2024 and until the end of the Lease Term or option (as applicable), that it would like to reduce the Area of the Leasehold and return Additional Area of the Leasehold to the Lessor (hereinafter: the “Additional Returned Area”). The Additional Returned Area will be no more than three complete floors from the upper floors of the Leasehold, and only the floors for which the floor above is not leased to the Lessee (including floors that the Lessee requested to cease to lease in accordance with this section) such that even after the waiver of the floor/s, the sequence between the floors included in the Leasehold will be maintained. Together with each floor from the Returned Area, 20 Parking Subscriptions by Name, or Parking Spaces Designated for All Mellanox Employees. |
5.9 | Canceled |
5.10 | The Area of the Leasehold will be calculated as the area of the space within the outer contour line of the floor on which it is located (including the area of the pillars, interior walls, exterior walls, areas of the elevator shafts, floor-based elevator lobbies, floor-based hallways, floor-based restrooms, stairwells, safe rooms and shafts), but excluding the lobby area on the ground floor - in addition to 5% for shared areas outside of the floor. The area of the storage space in the Leasehold will be calculated when including the exterior walls in addition to 10% for the area of shared passageways outside of the storage spaces. |
5.11 | For the avoidance of doubt, only the precise area measured (and not an assessment set forth above) will serve as the basis for the calculation of the lease fees and the management fees and for any other calculation that is derived from the Area of the Leasehold. |
5 | Delivery of the Leasehold |
6.1 | The Lessor will transfer possession of the Leasehold to the Lessee in order to execute the adjustment construction no later than July 1, 2020 (hereinafter: the “Transfer of Possession Date” or the “Delivery Date”). |
6.2 | The Lessee will appear in the Leasehold on the Delivery Date, accept possession of the Leasehold and will comply with all of the obligations that it is required to fulfill on the Delivery Date. In the event that the Lessee does not appear to accept possession on the Delivery Date, the same will not exempt him from any obligations that he has undertaken in this Agreement. For the avoidance of doubt, it is hereby clarified that in the event that the Transfer of Possession Date is postponed for the reasons set forth in Section 6.4 of this Agreement, the Lessor will not be considered as having violated this Agreement. |
6.3 | The Lessor will transfer possession of the Leasehold to the Lessee after the Leasehold is completed in the outer frame level, as set forth in Appendix E in this Agreement. The Lessee is aware that on the Transfer of Possession Date therefore for the execution of the adjustment construction of the Leasehold to its needs (hereinafter: the “Adjustment Works”), it is possible that the Lessor will not have a Form 4 for the Leasehold. The Lessor will complete, by the completion date of the Adjustment Works, all of the tasks for which he is responsible and that are listed in the specifications and required for the issue of a Form 4. Additionally, the Lessor will make efforts to receive a Form 4 for the Leasehold by the commencement date of the lease term subject to the Lessee completing the execution of the Adjustment Works required as a condition for the receipt of a Form 4 and received approvals of the Standards Institute as a condition for the receipt of a Form 4 - by the end of seven months from the Delivery Date. Additionally, the same is contingent on there being no impediment that is dependent on the Lessee for the receipt of the Form 4. |
6.4 | If as a result of factors outside of the Lessor’s control and that the Lessor could not foresee, or their timing, and that have an impact on the construction of the Leasehold (hereinafter: the “Inhibiting Factor”), a delay occurs in the construction of the Leasehold or the option of the Lessor to deliver to the Lessee possession of the Leasehold (hereinafter: the “Delay”), the commencement date of the lease term will be postponed for the duration of the period in which the Delay continues, in addition to a period of time of no more than 30 additional days required for an effective and complete return to the work process. The Lessor will not be considered, in such a case, as violating its obligations under this Agreement, provided that it has acted with due prudence to shorten the length of the Delay. The Inhibiting Factors for the purpose of this Agreement are: force majeure, a state of war, riots, hostilities, full or partial mobilization, strikes or general lockouts in the construction industry, general shortage of materials, general shortage of professionals, orders that prevent or prohibit construction (excluding orders that are issued at the fault of the Lessor), delays originating with the electric company, the local water company, the government or local authorities, provided that they are not created as a result of an action or omission of the Lessor and a party on its behalf (hereinafter: “Non-Breaching Delays”). |
6.5 | Regarding delays in the Delivery Date or the date of receipt of a Form 4 that is not a Non-Breaching Delay (as defined in Section 6.4 above), the parties agree that the following provisions shall apply: |
6.5.1 | The Lessor will notify the Lessee in writing, at least three months in advance, of a delay in the Delivery Date or a delay in the date of receipt of the Form 4. |
6.5.2 | A delay of three months in the Delivery Date or the date of receipt of a Form 4 or both will not be considered a delay and will not entitle the Lessee to any remedy under the provisions of this Agreement. |
6.5.3 | In the case of a delay in the Delivery Date to a date later than October 1, 2020, but earlier than July 1, 2021, the Lessor will pay the Lessee for each month of delay (or part thereof) compensation in an amount equal to the difference between the lease fees that the Lessee is required to pay for the Leasehold that it is currently leasing on Habarzel Street in Ramat Hachayal (hereinafter: the “Leasehold in Ramat Hachayal”) and between the Lease Fees as defined in this Agreement. In the event that the extension of the lease term of the Leasehold in Ramat Hachayal is contingent on the Lessee leases the Leasehold in Ramat Hachayal for a period of time that ends after the delayed delivery date, the Lessor will pay the aforesaid compensation for the period of time after the delayed delivery date as well. For the avoidance of doubt, the Lessee will not be entitled to compensation for a delay in the date of receipt of a Form 4, if it received compensation for a delay in the Delivery Date under the circumstances described in this subsection 6.5.3. |
6.5.4 | Without derogating from any remedy and/or relief to which the Lessee is entitled in accordance with the terms of this Agreement and/or under any law, in the case of a delay in the transfer of possession to a date after July 1, 2021, the Lessee may notify the Lessor of the termination of the Lease Agreement within seven days from the date of written notice to the Lessor. Under these circumstances, this Agreement will be null and void on the same date and the Lessor waives any claim and/or demand and/or suit in connection with the termination of the Agreement under the circumstances set forth in this subsection. |
6 | Purpose of the Lease |
7.1 | The Lessee leases the Leasehold in order to operate offices therein and for the accompanying uses under any law (hereinafter: the “Purpose of the Lease”), and for this purpose alone. The Lessee will not use the Leasehold or any part thereof for any other purpose other than the Purpose of the Lease. |
7.2 | The Lessee is aware that the Building may contain, inter alia, various businesses, some on the commercial floor (the ground floor), and undertakes that it will not have any claim in connection with the lease of areas in the Project, yet the same |
7 | Term of the Lease |
8.1 | The Lessor hereby leases to the Lessee and the Lessee hereby leases from the Lessor, for a lease term of 10 (ten) years as of the end of 12 months from the end of the Transfer of Possession Date or as of the end of 12 months from the delayed transfer of possession date (as stated in Section 6 above) and therefore the expected lease term will begin on July 1, 2021 and continue until June 30, 2031 (hereinafter: the “Commencement Date of the Lease Term” and the “Lease Term,” respectively). The Commencement Date of the Lease Term will not change as a result of delays in the transfer of possession that arise from any action or omission of the Lessee. |
8.2 | Upon the conclusion of the Lease Term, the Lease Term will be extended by an additional term of 60 months commencing immediately after the end of the Lease Term (hereinafter: the “First Additional Lease Term”). Upon the conclusion of the first Lease Term, the Lease Term will be extended by an additional term of 60 months commencing immediately after the end of the First Additional Lease Term (hereinafter: the “Second Additional Lease Term”). The Lease Term or the First Additional Lease Term will not be extended to the First Additional Lease Term or the Second Additional Lease Term (respectively) if the Lessee providers prior written notice to the Lessor no later than 180 days before the end of the Lease Term or the end of the First Additional Lease Term regarding the intent not to extent the Lease Term for the First Additional Lease Term or the Second Additional Lease Term. |
8.3 | In the event that the Lease Term/s is/are extended under the terms of this Agreement, the provisions of this Agreement will also apply to the First Additional Lease Term or the Second Additional Lease Term, mutatis mutandis. |
8.4 | The Lessee will not be entitled to terminate the lease under this Agreement before the end of the Lease Term other than for a breach of the Agreement by the Lessor. Any cessation of use of the Leasehold or vacating the Leasehold on the part of the Lessee before the end of the Lease Term, excluding for a breach of the Agreement by the Lessor or finding an alternative lessee (as set forth in Section 17.4 below), will not release the Lessee from its obligations under this Agreement, including the Lessee’s obligations to pay the Lessor all of the payments that it owes under this Agreement. |
8 | Lease Fees and Manner of Payment |
9.1 | The monthly lease fees will include the lease fees for the Leasehold, the lease fees for the areas of the Balconies and the storage rooms and the parking fees set forth in Sections 9.5 through 9.8 below (all jointly hereinafter: the “Lease Fees”). The Lease Fees will be linked to the Base Index and subject to lawful VAT as set forth below. |
9.2 | The Lease Fees for the Lease Term as defined above will be paid once per quarter in advance by the 15th of each calendar quarter (15.1, 15.4, 15.7 and 15.10) in each relevant calendar year. The Lessor will provide the Lessee with a payment demand by no later than fifteen (15) days before the first day for each calendar quarter and an invoice by the 5th of the calendar month in which the quarterly payment is made. The payment demand will include a calculation for the purpose of linkage differentials. |
9.3 | For the avoidance of doubt, it is clarified that for the period of the execution of the Adjustment Construction that begins on the Delivery Date, or the delayed delivery date as stated in Section 6 above, and ending on the Commencement Date of the Lease Term as defined above, the Lessee will be exempt from payment of the Lease Fees and/or any other payment (including, but not limited to, the Management Fee) for the Leasehold. |
9.4 | The Lessee will pay the Lease Fees by bank transfer to the bank account of which the Lessor will notify the Lessee. As long as the Lessor does not instruct otherwise, the Lease Fees will be paid to the bank account mentioned in Section 18 below. The Lessee will transfer to the Lessor a copy of the payment deposit as stated immediately upon the Lessor’s demand. The date of the execution of the payments will be no later than the dates set forth in Section 9.2 above. |
9.5 | The monthly Lease Fees for the Leasehold for the Lease Term will be in the amount of NIS 52 (fifty two new shekels) for each 1 square meter of the Area of the Leasehold (hereinafter: the “Lease Fees for the Leasehold”). |
9.6 | The monthly Lease Fees for the areas of the Balcony and the storage spaces are NIS 25 (twenty five new shekels) for each 1 square meter (hereinafter: the “Lease Fees for the Balcony and Storage Areas”). |
9.7 | The price for a subscription for a reserved parking space and storage area is NIS 1,200 (one thousand and two hundred new shekels) per month during the entire Lease Term. The price includes management and property tax payments. The Lessor may require the Lessee to register with the municipality as a holder of the parking spaces and bear the property tax charges for the same area. In the event that the Lessee is registered as a holder as stated, the price for the aforesaid parking spaces will be reduced by the property tax amount that the Lessee is charged for the same areas. |
9.8 | The price for a Parking Subscription by Name is NIS 800 (eight hundred new shekels) monthly, for the duration of the Lease Period. The price includes municipal taxes and management fees. The price for a Parking Space Designated for All Mellanox Employees is NIS 1,100 (one thousand and one hundred new shekels) per month during the entire Lease Term. The price includes management and property tax payments. |
9.9 | The Lease Fees in the First Additional Lease Term and the Second Additional Lease Term will be in accordance with the market price customary in the aforesaid periods, and will be agreed by the parties in advance and in writing by no later |
9.9.1 | The parties will, within the 14 aforesaid days, appoint an agreed upon assessor whose decision will bind the parties as set forth below. |
9.9.2 | In the event that the parties do not reach an agreement regarding the identity of the assessor, each of the parties may contact the Chairman of the Real Estate Appraisers Association in Israel and request that he appoint an assessor in order to determine the monthly Lease Fees. |
9.9.3 | No later than 90 days before the end of the Lease Term or the end of the First Lease Term, a certified real estate assessor will be appointed in accordance with the determination of the chairman of the Real Estate Appraisers Association, who will survey and determine within 30 days at the latest the Lease Fees that should be paid for the Leasehold, considering the state of the Leasehold when the appraisal is performed. The appraisal expenses will be borne by the parties in equal parts. |
9.10 | For the avoidance of doubt, it is clarified that the Lease Fees during the First Additional Lease Term and the Second Additional Lease Term (including for the Balcony and storage areas) will be paid based on the Area of the Leasehold as stated in Section 5 of this Agreement. |
9.11 | The Lease Fees in the First Additional Lease Term and the Second Additional Lease Term will be linked to the Base Index as determined on the date of signing the addendum to the Lease Agreement, which will define the Lease Fees for the First Additional Lease Term and the Second Additional Lease Term (as applicable) and be subject to VAT by law. |
9 | Taxes and Other Payments |
10.1 | Without derogating from the provisions of Section 9.3 above, in addition to the Lease Fees, the Lessee will pay, as of the Commencement Date of the Lease Term and for the entire Lease Term, the following payments: |
10.1.1 | Any taxes, fees, property tax, charges, compulsory payments and expenses, whether government or municipal, that are paid and will be paid in the future for the Leasehold or for the business that is operated therein or both (hereinafter: the “Taxes”). The Lessee will notify the Tel Aviv Municipality in advance of the lease of the Leasehold within 14 days from the Transfer of Possession Date of |
10.1.2 | Any fees and payments that relate to the consumption of water and sewage at the Leasehold. The Lessee will sign, near the Commencement Date of the Lease Term, the suitable contracts in connection with the supply of the water with the entities related to the same and will pay all of the amounts and deposits required. |
10.1.3 | Value added tax (in its rate by law) applicable to the Lease Fees and any other payment that the Lessee is required to pay under this Agreement. The VAT will be paid together with any payment for which it is paid. |
10.1.4 | Any payments that the Lessee is required to make in accordance with the Management Agreement attached as Appendix B to this Agreement, and applicable as of the Effective Date in the Management Agreement, if a date is determined. |
10.1.5 | Additional charges under any law and additional charges listed in the addendum. |
10.1.6 | Compulsory payments that are imposed in the future and that will apply under law or naturally to a holder of the Leasehold (as opposed to the owner) or a business owner, as applicable. The Lessor or the owners will pay any tax or charge that is imposed in the future and that will apply under the law or naturally to a lessor or owner. |
10.2 | The Lessee will not contact the local authority requesting an exemption from property tax for an asset unsuitable for use or an empty property and will not use an exemption as stated unless provided in another manner. |
10.3 | The Lessee will present to the Lessor from time to time and at the request of the Lessor or the Management Company (or both) the copies of any receipts and confirmations testifying that all of the payments applicable thereto under this Agreement have indeed been paid. |
10.4 | In the event that a party pays, for any reason, any payment that under the provisions of this Agreement applies to the other party, the paying party will repay the debtor party any such amount, immediately upon its first request. |
10 | Changes to the Leasehold after the Commencement of the Lease |
11.1 | The Lessee undertakes to perform all of the Adjustment Construction in the Leasehold in accordance with the provisions of Appendix F to this Agreement. Before the commencement of the execution of the Adjustment Construction, the Lessee will receive the prior written consent from the Lessor for the plans for the Adjustment Construction that it is seeking to execute (hereinafter: the “Approved |
11.2 | After the Lessee performs the Approved Adjustment Construction and after the Lessor receives a Form 4, the Lessee will not perform additional Adjustment Construction without the consent of the Lessor in advance and in writing to the same work. The Lessor will not refuse to provide approval as stated other than for reasonable and professional grounds alone. |
11.3 | The Lessee will not make any interior or exterior change to the Leasehold, will not add any addition thereto, demolish any part of the Leasehold or installation from its fixtures and will not permit any repair, change, addition, renovation and demolition in the Leasehold without the consent of the Lessor in advance and in writing. The Lessor will be entitled to prevent the execution of any action that conflicts with this section and to demolish any change, addition, renovation and repair that is done contrary to the terms of this section, all at the expense of the Lessee. In addition, in the cases listed in this section, the Lessee will bear all of the expenses required in order to return the Leasehold to its status quo ante. |
11.4 | In any case in which the Lessor approves the performance of changes, repairs, improvements and additions for the Lessee as stated above, the obligation to pay for the same actions will be borne by the Lessee. |
11.5 | Any work and action performed by the Lessee or on its behalf will be performed in coordination with the Lessor and Management Company and will not cause unreasonable nuisance to the other lessees and Lessor. The Lessee will be responsible for any damage of any type or kind that is caused in the Leasehold, to the other lessors and any person for the performance of the aforesaid work. |
11.6 | Any repairs, changes, additions, improvements and renovations that are done by the Lessee in the Lease Term that are permanently connected to the Leasehold, whether with or without the Lessor’s consent, will be the property of the Lessor and transferred upon the conclusion of the Lease Term to the Lessor’s possession and ownership. The Lessee will not be entitled to dismantle or remove them from the Leasehold when vacating the Leasehold and will not be entitled to any consideration for them. Despite the above, the same will not be considered to be additional compensation by the Lessor. |
11.7 | The Lessee may place at the top of the Building, on one of its facades, a sign with the words: “Mellanox Building” or any other wording in a similar spirit at the discretion of the Lessee. The precise size and location of the sign will be agreed upon by the parties. The Lessor will not permit the placement of additional signage in the upper part of the Building. The Lessee will bear the costs of preparing the sign, its placement, maintenance and the receipt of a permit or license for its placement. Additionally, it will bear the signage fee required for the same. The |
11 | Licenses and Permits |
12.1 | The Lessee will obtain all of the licenses and permits required on behalf of the competent authorities in order to manage the business at the Leasehold. The Lessee will renew the licenses and permits required such that during the entire Lease Term, the activity in the Leasehold will be managed in accordance with the terms of the license and permits. Failure to receive a license and permit or non-renewal of a license and permit will not serve as any justification for the non-fulfillment of the obligations of the Lessee under this Agreement. |
12.2 | In the event that any authority demands from the Lessee the performance of changes in the Leasehold or the installation of various fixtures therein (or both) as a condition for the receipt of a business license, it will be required to receive the consent of the Lessor in advance and in writing to the changes and installations above. In the event that as a result of the demands of the authorities as stated, the need arises to perform changes in the central systems of the Project and the Lessor agrees to make the same changes, the Lessor or the Management Company will make the changes at the expense of the Lessee and the Lessee will repay the Lessor the expenses immediately upon its demand. The Lessor may refuse to execute the changes or installations as stated for reasonable grounds related to safety or the structure of the Project (or both) and for any other reasonable and substantive grounds. |
12.3 | The Lessee will comply with all of the laws, regulations, and bylaws applicable and that will apply during the Lease Term to the Leasehold, use thereof, the business and the actions and activity performed therein. In the event that the Lessee violates this obligation, it will compensate the Lessor for any damage and expense caused to the Lessor following the breach. |
12 | Maintenance of the Leasehold and Use Thereof |
13.1 | The Lessee will maintain the completeness of the Leasehold and its systems and will maintain them at all times in working, good and proper order for use in accordance with the Purpose of the Lease. The Lessee will repair at its expense, as instructed by the Lessor, any damage that is caused thereby or by a party on its behalf or its visitors. |
13.2 | In the event that the Lessee does not keep the Leasehold as stated in Section 13.1 above or does not repair that which requires repair in the Leasehold within 60 days from the Lessor’s notice, the Lessor may perform any repair and any action in order to repair the damage, at the expense of the Lessee. The Lessor or a party on its behalf may enter the Leasehold in order to exercise the Lessor’s right as stated after providing reasonable notice to the Lessee. Any damage that is repaired |
13.3 | The Lessor will repair defects in the Leasehold or its systems (for the avoidance of doubt, this excludes attachments and property in the Leasehold, excluding attachments provided on the Date of the Transfer of Possession), provided that the defects prevent reasonable use of the Leasehold. The obligation to perform repairs will not apply to defects that arise from the work and changes performed by a party other than the Lessor (i.e. any Adjustment Construction performed by the Lessee in the Leasehold and its systems that it installed in the Leasehold), to defects arising from materials and products acquired by the Lessee directly and defects arising from lack of proper maintenance or negligent maintenance of the Leasehold on the part of the Lessee or on its behalf. |
13 | Liability and Indemnification |
14.1 | The Lessee is liable under law vis-a-vis the Lessor and any third party for any loss and damage of any type and kind that is caused to the Leasehold, the Project, to any person and property (including visitors in the Leasehold, Project, employees of the Lessee and any other person that is located within the Area of the Leasehold or the Project) following the management of the business of the Lessee in the Leasehold, the possession of the Leasehold, the use of the Leasehold and any other action of the Lessee in the Leasehold and the Building. |
14.2 | The Lessee will compensate and indemnify the Lessor and the Management Company for any damage and expenses that it may be required to pay or that it will be required to pay for any damage for which the Lessee is responsible under this Agreement and under law, including all of the expenses incurred thereby due to a claim that is filed against or due to the need to defend itself against a claim as stated. The Lessor will notify the Lessee in writing of a claim and demand that it receives and that the Lessee has undertaken to indemnify the Lessor, within five days from the receipt by the Lessor. The Lessor will allow the Lessee to defend itself against any claim or demand as stated, at the request of the Lessee, provided that all of the expenses and payments involved in the same proceedings will be borne by the Lessee. The Lessee will indemnify the Lessor or the Management Company solely for the same amounts that are ordered against them under a final and un-appealable judgment. |
14.3 | The Lessor is liable under law vis-a-vis the Lessee and any third party for any loss and damage of any type and kind that is caused to the Leasehold, the Project, to any person and property (including visitors in the Leasehold, Project, employees of the Lessor and any other person that is located within the Area of the Leasehold or the Project) following an action or omission of the Lessor or the Management Company. |
14.4 | The Lessor will compensate and indemnify the Lessee for any damage and expenses that it may be required to pay or that it will be required to pay for any damage for which the Lessor or Management Company is responsible under this |
14 | Insurance |
15 | Non-Application of Tenant Protection Laws |
16.1 | The parties hereby emphasize that the construction of the Leasehold has been completed after 1968 and that they have agreed that the protections of the various tenant protection laws will not apply to the lease under this Agreement. |
16.2 | The Lessee confirms that other than the Lease Fees, it has not paid and will not pay the Lessor, directly or indirectly, any key moneys or other consideration or benefit in consideration for its consent to lease the Leasehold in accordance with this Agreement, and it is not a protected tenant under the Tenant Protection Law (Combined Version), 5732-1972 or under any other law. |
16.3 | Without derogating from the generality of the above in this section, when vacating the Leasehold, the Lessee will not be entitled to any payment from the Lessor, the Management Company and any other person for its investment in the Leasehold, including the adjustment of the Leasehold, during the Lease Term. No investment made by the Lessee in the adjustment of the Leasehold and its improvement will grant it any right to the Leasehold or grant it any right or claim vis-a-vis the Lessor or the Management Company (or both) and the Lessee hereby waives any claim or demand in connection with any investments in the Leasehold. |
16 | Transfer of Rights on behalf of the Lessee |
17.1 | Without derogating from the provisions of Sections 17.3 and 17.4 below, the Lessee will not transfer the lease in the Leasehold to another, will not transfer, delivery or lease the Leasehold to another, will not permit another to use the Leasehold, will not share possession of the Leasehold with another, use thereof, benefit therefrom, and will not share another in the business held in the Leasehold and will not grant another any right in the Leasehold - all for consideration or otherwise. The terms of this section regarding the Leasehold will also apply to |
17.2 | The Lessee will not pledge and will not lien its rights under this Agreement, in whole or in part. |
17.3 | Notwithstanding the above, the Lessee may, at any time during the term of this Agreement, transfer all of its rights in the Leasehold or any part thereof (but not part that is not a complete floor or floors) to an alternative lessee whose identity has been approved in advance and in writing by the Lessor (the Lessor undertakes that it will not object other than for reasonable grounds), provided that the alternative lessee engages with the Lessor in a lease agreement and management agreement that are acceptable at the time with the Lessor in accordance with the conditions agreed upon between the Lessor and the alternative lessee. |
17.4 | Without derogating from the terms in Section 17.3 above, it is hereby agreed that the Lessee may at any time lease the Leasehold or parts thereof with a sub-lease to a third party (without the same derogating from any of the obligations of the Lessee vis-a-vis the Lessor and vis-a-vis the Management Company under this Agreement or under the Management Agreement). A sub-lease as stated is contingent on the following: |
17 | Assignment of Rights and Pledge |
18.1 | The Lessor may assign its rights under this Agreement, in whole or in part, pledge and lien them in favor of others as it sees fit and for any purpose, without requiring permission of the Lessee, provided that the Lessee’s rights under this Agreement are not harmed. |
18.2 | The Lessee is aware that the Lessor intends to undertake vis-a-vis a bank in Israel (hereinafter: the “Bank”) to pledge to the bank all of the receipts that are owed to the Lessor from the Lessee (hereinafter: the “Pledge of the Lease Fees”). |
18.3 | The Lessor hereby provides the Lessee with irrevocable instructions to pay the Lease Fees to the credit of the bank account whose details are provided on the relevant date (hereinafter: the “Irrevocable Instructions”). The Lessee will act in accordance with the Irrevocable Instructions unless notice is received from the Lessor and the Bank (together) to pay the Lease Fees to the Lessor or any party that it instructs. |
18.4 | The Lessor will not sell areas in the Building as long as 10 (ten) years have not passed from the Transfer of Possession Date in the Leasehold to the Lessee. Notwithstanding the above, the Lessor may sell the Building in its entirety at any time, all provided that the Lessee is not harmed in any manner from the sale of the areas in the Building. |
18 | Management of the Project |
19.1 | The Lessee is aware of the paramount importance attributed by the Lessor to the manner of managing the Leasehold, its operation and maintenance, in order to maintain the level and quality of the Project, and that the Project will be managed through the Management Company. |
19.2 | Upon signing this Agreement, the Lessee will sign the Management Agreement attached as Appendix B to this Agreement. |
19.3 | The gross Area of the Leasehold for the purpose of Management Fees is the Area of the Leasehold as defined in Section 5 above, less half of the area of the storage space and less the entire area of the Balcony. |
19.4 | A breach of any of the obligations of the Lessee vis-a-vis the Management Company and under Sections 4.11 through 4.15 and 5 of the Management Agreement that is not remedied within 30 days from the warning of the Management Company or Lessor (or both) of the same will be considered to be a material breach of this Agreement and all of the remedies granted to the Lessor under this Agreement or under the law in the case of delay in payment of the Lease Fees or breach of another undertaking of the Lessee vis-a-vis the Lessor will be valid only in the case of a breach of any of the aforesaid sections in the Management Agreement. |
19 | Without derogating from the above, the Management Company will have an independent and direct right to claim against the Lessee in the case in which it breaches any of its obligations against it. Additionally, it will be entitled to the remedies set forth in the Management Agreement, without derogating from the above. |
20 | Vacating the Leased Property |
21.1 | Without derogating from the provisions of Section 11.6 above, upon the end of the Lease Term under this Agreement or prior thereto, if this Agreement is lawfully terminated for any reason, the Lessee will vacate the Leasehold and return possession thereof to the Lessor. On the date of vacating the Leasehold and returning it to the Lessor. The Leasehold will be free and clear of any person and item, in good condition, in working order and an orderly state, as received by the Lessee upon the commencement of the Lease Term and subject to wear and tear |
21.2 | The Lessee will not be entitled to any payment or reimbursement for its investment in the Leasehold upon its vacating. |
21.3 | In the event that the Lessee does not comply with any of its obligations to vacate the Leasehold as stated in Sections 11.6 and 21.1 above and any other section in this Agreement and the Management Agreement, then without derogating from the Lessor’s right to exercise its rights in any manner that it sees fit, and without derogating from any other right available to the Lessor under any law and under this Agreement, the Lessee will pay the Lessor for each day of delay in the transfer of the Leasehold liquidated damages assessed in advance in the amount equal to twice (2x) the Lease Fees in addition to VAT that will be paid by the Lessee to the Lessor for a day of lease in the last month that precedes the date designated for vacating the Leasehold (hereinafter: the “Liquidated Damage”). The Liquidated Damages amount was determined after a careful and thoughtful assessment and is reasonable in relation to the damage that may be foreseen in advance when forming this Agreement that would be caused to the Lessor following failure to vacate the Leasehold on the date as stated. In addition to the Liquidated Damages, the Lessee will pay the Management Fees for the Leasehold for the entire term of arrears in vacating the Leasehold. Additionally, the Lessee will pay, during the period of arrears, any payment that is required under the provisions of Section 10 above. |
21.4 | In the case that when vacating the Leasehold and returning it to the Lessor, the Leasehold is not in the condition described in Sections11.5, 11.6 and 21.1 above, and any other section in this Agreement and the Management Agreement, the Lessee will be required to return to the Lessor, immediately upon its first request, all of the expenses incurred by the Lessor in order to bring the Leasehold to the state that is required from the Lessee, and all of the expenses involved in the same. |
21.5 | Vacating the Leasehold and returning it to the Lessor will be done in the presence of the Lessor and Lessee. On the vacating date, a protocol will be kept that reflects the state of the Leasehold. In any event of vacating that is not in the presence of the Lessee, the Lessor will prepare the protocol alone and its contents will bind the Lessee. |
21 | Breaches and Remedies |
22.1 | A breach of any of the terms of this Agreement will grant the upholding party (the party that is not in breach) with all of the remedies and reliefs granted thereto under the Contracts Law (Remedies for Breach of Contract), 5731-1970 in addition to any remedies and reliefs granted thereto under the provisions of this Agreement. |
22.2 | Without derogating from the generality of the above, the Lessor may terminate this Agreement and remove the Lessee from the Leasehold with notice of 30 days, which will be provided in addition to the following dates: |
22.2.1 | The Lessee has not paid the Lessor or the Management Company (or both) on any payment date applicable thereto under this Agreement and under the Management Agreement (as applicable), and within 14 days from the date on which it receives a written warning of the same. |
22.2.2 | The Lessee has violated any of the provisions of Sections 7, 8.4,10, 11, 13,14.4,, 17, 21 and 23 of this Agreement, and does not remedy the breach within 14 days from the Lessor’s warning, and in the case of a repeated breach, within seven days from the Lessor’s warning. |
22.2.3 | The Lessee has breached any other condition of this Agreement and has not remedied the breach within 14 days from being requested in writing to do so. |
22.2.4 | The Lessee has resolved to voluntarily liquidate. |
22.2.5 | A motion to liquidate has been filed against the Lessee, for the appointment of a receiver, or a receiver or liquidator has been appointed, whether temporary or permanent, and the grounds for the appointment as stated is insolvency of the Lessee and a request or appointment as stated is not terminated within 90 days. |
22.3 | In the event that the Lessee does not vacate the Leasehold as stated in this Agreement, without derogating from any right of the Lessor in accordance with this Agreement and under law, the Lessor may, whether on its own or through a receiver appointed at its request, receive possession of the Leasehold, gather the Lessee’s belongings, remove them from the Leasehold and receive possession of the Leasehold. The expenses for the appointment of the receiver and its wages will be borne by the Lessee alone. The Lessee may receive the property, however, the Lessor will be entitled to delay them until the clearance of the Lessee’s debts towards it, including debts under the provisions of this section. The expenses for the storage of the property will be borne by the Lessee, and for the avoidance of doubt, the Lessor will not be responsible for the state of the property that it delays. At the end of 60 days from the removal of the property from the Leasehold, the Lessor may sell it and make use of the consideration from the sale to cover the losses incurred. The balance, if any, will be transferred to the Lessee. |
22.4 | In any event of failure to vacate the Leasehold on the date of the Lease Term or prior thereto (if the Lease Agreement is lawfully terminated), the Lessor will be entitled, without derogating from its right to any remedy available thereto under the provisions of this Agreement and any law, immediately discontinue the supply to the Lessee and Leasehold of electricity, water, air conditioning, and any other services, in whole or in part, at its discretion, and the Lessee will not have any |
22 | Securities |
23.1 | As a security for the fulfillment of all of the obligations of the Lessee under this Agreement and under the Management Agreement and as a condition for the validity of the Agreement, the Lessee will provide the Lessor, within 30 days from the signing of this Agreement, an autonomous and unconditional bank guarantee in the form attached as Appendix D, in an amount equal to the Lease Fees (provided without management fees and parking spaces) for nine floors during three months of lease in addition to lawful VAT, in a total amount of NIS 2,043,522 (in words: two million and forty three thousand and five hundred and twenty two new shekels) that is valid for a period of 365 days (hereinafter: the “Bank Guarantee”). The Bank Guarantee will be extended each year for a period of 365 additional days, and in the last year of the lease - for a period of up to 60 days after the end of the Lease Term. The amount of the Bank Guarantee will be linked to the Consumer Price Index. The basis for the calculation of the indexation will be the Base Index. It is clarified that if the Area of the Leasehold is decreased in accordance with the provisions of Sections 5.7 and 5.8 above, the Bank Guarantee will be replaced by a bank guarantee of three months of lease in accordance with the actual Area of the Leasehold, within 30 days from the notice of the Lessee as stated in Sections 5.7 through 5.8 above. |
23.2 | In the event that the Lessor lawfully exercises the Bank Guarantee or part thereof, the Lessee will provide the Lessor immediately with a new or additional guarantee such that the balance of the Bank Guarantee will not be less than the amount of the Bank Guarantee described in Section 23.1 above. The Lessor will provide the Lessee within notice seven days in advance and in writing before exercising the Guarantee or any part thereof. |
23.3 | The Bank Guarantee will be issued in favor of the Lessor. |
23.4 | In any event in which this Agreement grants the Lessee a right to extend the Lease Term and the Lessee makes use of the aforesaid right, the Lessee will extend the validity of the Bank Guarantee each year and up to 60 days after the end of the Additional Lease Term. The Lessor may exercise the Bank Guarantee as long as the Lessee has violated the obligations under this Agreement or the Management Agreement (or both), and does not remedy the breach within 30 days from the date of the request. At the end of 60 days from the end of the Lease Term and after the Lessee complies with all of its obligations under this Agreement and under the Management Agreement, the Bank Guarantee will be returned to the Lessee, unless it is used in accordance with the provisions of this Agreement. The return of the Guarantee will take place subject to the presentation of confirmation |
23.5 | As an additional security, Mellanox Technologies, Ltd., company no. 512471962, shall sign as a guarantor on this Agreement for the fulfilment of the Lessee’s financial undertakings in this Agreement and in the Management Agreement. |
23 | Delays in Payments |
24.1 | Without derogating from any other right or remedy available to the Lessor under law and under this Agreement, any arrear in payments owed from the Lessee to the Lessor under this Agreement and any arrear in the payments owed to the Management Company under the Management Agreement will require the Lessee to pay arrears interest on the amount in arrears in the rate of the arrears interest practiced by Bank Hapoalim Ltd. for overdrafts in debit accounts, as of the day on which the Lessee was required to pay the aforesaid amount and until the actual payment date. |
24.2 | In the case of a payment in arrears as stated, the order of imputation of the payments will be as follows: first, the amount on account of the interest, and then on account of the linkage differentials, and finally on account of the principal. |
24.3 | Any expense of the Lessor in the collection of any amount as stated will be charged to the Lessee, and the Lessee will be required to repay it, including legal expenses and attorney fees. |
24.4 | Any amount that the Lessee is charged under this Agreement to third parties that the Lessee has not paid after 30 days from the effective date for its payment will be considered to be a debt of the Lessee to the Lessor that is payable within 21 days from the Lessor’s written demand in addition to any other remedy available to the Lessor under this Agreement and under any law. |
24 | General |
25.1 | The Lessor may, at any time, without requiring any consent on behalf of the Lessee, perform any change or addition (or both) to the Building (hereinafter in this section and in Section 25.2 below: the “Changes”), at its sole discretion, both before the commencement of the Lease Term or thereafter, provided that there is no change made to the Leasehold (including the Area of the Leasehold) and the Lessee’s reasonable use of the Leasehold is not impaired. The Changes may include, inter alia, the addition or reduction of spaces, additional construction, cancellation of part of the construction, the addition of floors, areas or divisions to the Building, the conversion or open public spaces into areas exclusively used by various users, the change of openings, passageways, and the like. For the execution of the Changes, the Lessor will be entitled to use part of the shared property that it requires, connect thereto and to the technical systems therein, the plumbing, sanitation and electrical systems therein, submit requests to change a city building plan, submit requests for a construction permit, cause a change to a registration order of the shared building and generally perform any action required in order |
25.2 | The Lessee will not disturb or object to Changes for any reason, including due to interruptions that are caused thereto during the execution of the Changes, provided that the Changes do not affect the Lessee’s reasonable use of the Leasehold. The Lessor will carry out the Changes such that the disturbance that will be caused to the Lessee will be as minimal as possible under the circumstances and will not harm the completeness of the Leasehold and the reasonable use thereof and will not block access routes thereto. The Lessor may perform the Changes in stages, in the manner and form that it sees fit. |
25.3 | No delay, waiting, inaction or failure to take measures on behalf of any of the parties or the Management Company (or the three of them) in any event of breach of contract of one of the parties will be considered to be a waiver on their part of any of their rights under the Agreement and under any law or consent to the aforesaid breach. |
25.4 | This Agreement supersedes all prior agreements between the parties, whether agreed verbally or in writing. No change to this Agreement will have force unless made in writing and signed by the parties to this Agreement. |
25.5 | This Agreement also includes provisions in favor of a third party (the Management Company) and establishes rights of a third party vis-a-vis the Lessor. |
25.6 | The Lessee will not offset amounts that it is required to pay to the Lessor or the Management Company (or both) against amounts that it is entitled to receive from the Lessor or Management Company (or both). The Lessee waives the right to offset despite the provisions of any law. |
25.7 | The sections titles have been written for the sake of convenience alone and no reference or tool will be used in the interpretation of this Agreement. |
25.8 | The exclusive jurisdiction to hear an action in connection with this Agreement, its execution and all matters arising herefrom will be granted to the competent courts of Tel Aviv Jaffa and to them alone. |
25.9 | The addresses of the parties for the purpose of this Agreement are as set forth in the preamble. After the commencement of the Lease Term, the address of the Lessee for the purpose of the Agreement will be in the Leasehold. Any notice that is sent by one party to the other will be considered to be delivered, if delivered by courier - on the date of delivery, and if sent by registered mail - within five business days from the date on which it was sent by registered mail. |
/s/ Gil Rubinstein | /s/ Ronnen Lovinger | |
The Lessor | The Lessee | |
Rubinstein Buildings Ltd. | Mellanox Technologies TLV Ltd. |
/s/ Ronnen Lovinger | April 3 2017 | |
Mellanox Technologies, Ltd. | Date |
By: | /s/ EYAL WALDMAN | ||||
Name: | Eyal Waldman | ||||
Title: | President and Chief Executive Officer |
By: | /s/ JACOB SHULMAN | ||||
Name: | Jacob Shulman | ||||
Title: | Chief Financial Officer |
By: | /s/ EYAL WALDMAN | |||||||
Name: | Eyal Waldman | |||||||
Title: | President and Chief Executive Officer |
By: | /s/ JACOB SHULMAN | |||||||
Name: | Jacob Shulman | |||||||
Title: | Chief Financial Officer |
Document and Entity Information - shares |
3 Months Ended | |
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Mar. 31, 2017 |
Apr. 28, 2017 |
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Document and Entity Information | ||
Entity Registrant Name | Mellanox Technologies, Ltd. | |
Trading Symbol | MLNX | |
Entity Central Index Key | 0001356104 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Well-known Seasoned Issuer | Yes | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 49,693,548 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q1 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Ordinary shares, par value (in NIS per share) | $ 0.0175 | $ 0.0175 |
Ordinary shares, shares authorized | 200,000,000 | 200,000,000 |
Ordinary shares, shares issued | 49,690,000 | 49,076,000 |
Ordinary shares, shares outstanding | 49,690,000 | 49,076,000 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Income Statement [Abstract] | ||
Total revenues | $ 188,651 | $ 196,810 |
Cost of revenues | 64,450 | 70,481 |
Gross profit | 124,201 | 126,329 |
Operating expenses: | ||
Research and development | 88,491 | 71,034 |
Sales and marketing | 35,757 | 31,228 |
General and administrative | 12,519 | 27,938 |
Total operating expenses | 136,767 | 130,200 |
Loss from operations | (12,566) | (3,871) |
Interest expense | (1,993) | (998) |
Other income, net | 683 | 61 |
Interest and other, net | (1,310) | (937) |
Loss before taxes on income | (13,876) | (4,808) |
Provision for (benefit from) taxes on income | (1,632) | 2,360 |
Net loss | $ (12,244) | $ (7,168) |
Net income per share - basic (in USD per share) | $ (0.25) | $ (0.15) |
Net income per share - diluted (in USD per share) | $ (0.25) | $ (0.15) |
Shares used in computing income per share: | ||
Basic (in shares) | 49,337 | 47,358 |
Diluted (in shares) | 49,337 | 47,358 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Statement of Comprehensive Income [Abstract] | ||
Net loss | $ (12,244) | $ (7,168) |
Other comprehensive income (loss), net of tax: | ||
Change in unrealized gains/losses on available-for-sale securities, net of tax | 69 | 600 |
Change in unrealized gains/losses on derivative contracts, net of tax | 4,244 | 3,492 |
Other comprehensive income, net of tax | 4,313 | 4,092 |
Total comprehensive loss, net of tax | $ (7,931) | $ (3,076) |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) PARENTHETICAL |
Mar. 31, 2016
USD ($)
|
---|---|
Statement of Cash Flows [Abstract] | |
Cash acquired | $ 87,500 |
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: | THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Company Mellanox Technologies, Ltd., an Israeli corporation (the "Company" or "Mellanox"), was incorporated and commenced operations in March 1999. Mellanox is a supplier of high-performance interconnect products for computing, storage and communications applications. Principles of presentation The unaudited condensed consolidated financial statements include the Company's accounts as well as those of its wholly owned subsidiaries after the elimination of all intercompany balances and transactions. The unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The year-end balance sheet data were derived from audited consolidated financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States ("GAAP"). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained in this quarterly report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, for a quarterly report on Form 10-Q and are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on February 17, 2017. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2017 or thereafter. Risks and uncertainties The Company is subject to all of the risks inherent in a company which operates in the dynamic and competitive semiconductor industry. Significant changes in any of the following areas could have a material adverse impact on the Company's financial position and results of operations: unpredictable volume or timing of customer orders; ordered product mix; the sales outlook and purchasing patterns of the Company's customers based on consumer demands and general economic conditions; loss of one or more of the Company's customers; decreases in the average selling prices of products or increases in the average cost of finished goods; the availability, pricing and timeliness of delivery of components used in the Company's products; reliance on a limited number of subcontractors to manufacture, assemble, package and production test the Company's products; the Company's ability to successfully develop, introduce and sell new or enhanced products in a timely manner; product obsolescence and the Company's ability to manage product transitions; the timing of announcements or introductions of new products by the Company's competitors; and the Company's ability to successfully integrate acquired businesses. Use of estimates The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of net revenue and expenses in the reporting periods. The Company regularly evaluates estimates and assumptions related to revenue recognition, allowances for doubtful accounts, allowances for price adjustments, investment valuation, warranty reserves, inventory reserves, share-based compensation expense, long-term asset valuations, useful lives of property, equipment, and intangibles, accounting for business combinations, goodwill and purchased intangible asset valuation, investments in privately-held companies, accounting and fair value of financial instruments and derivatives, deferred income tax asset valuation, uncertain tax positions, and litigation and other loss contingencies. These estimates and assumptions are based on current facts, historical experience and various other factors that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. The actual results that the Company experiences may differ materially and adversely from the Company's original estimates. To the extent there are material differences between the estimates and actual results, the Company's future results of operations will be affected. Significant accounting policies In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718); Improvements to Employee Share-Based Payment Accounting. The Company adopted ASU No. 2016-09 during the quarter ended March 31, 2017. The standard requires, among other things, excess tax benefits to be recognized in the statement of operations as an income tax benefit as opposed to additional paid in capital. This change was adopted prospectively and did not have a material effect on the Company's condensed consolidated financial statements. The standard also requires, among other things, excess tax benefits to be included in operating activities in the statement of cash flows as opposed to in financing activities. This change was adopted retrospectively and did not have a material effect on the Company's condensed consolidated financial statements. The standard further requires excess tax benefits to be recognized when they arise, instead of when they actually reduce taxes payable under the prior guidance. This change was adopted using a modified retrospective method through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. The impact of the adoption was to increase deferred tax assets by $4.6 million, which in turn was offset by an increase in the valuation allowance in the same amount, resulting in no change in net deferred tax assets and retained earnings as of January 1, 2017. The standard also establishes an alternative practical expedient for estimating the effects of forfeitures of an award by recognizing such effects in compensation cost when the forfeitures occur. Adoption of the alternative practical expedient was applied using a modified retrospective method through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. The impact of the adoption was to reduce retained earnings and to increase additional paid-in capital by $0.8 million as of January 1, 2017. Other than the adoption of ASU No. 2016-09 as discussed above, there have been no changes in the Company’s significant accounting policies that were disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on February 17, 2017. Concentration of credit risk The following table summarizes the revenues from customers (including original equipment manufacturers) in excess of 10% of the total revenues:
The following table summarizes accounts receivable balances in excess of 10% of total accounts receivable:
Product warranty The following table provides changes in the product warranty accrual for the three months ended March 31, 2017 and 2016:
Net loss per share The following table sets forth the computation of basic and diluted net loss per share for the three months ended March 31, 2017 and 2016:
The Company excluded 4.6 million and 5.9 million outstanding share options and restricted share units ("RSUs") from the computation of diluted net loss per share for the three months ended March 31, 2017 and 2016, respectively, because including them would have had an anti-dilutive effect. Recent accounting pronouncements In October 2016, the Financial Accounting Standards Board, ("FASB") issued ASU No. 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted as of the beginning of a fiscal year. The new standard should be adopted on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently in the process of evaluating the impact of this new pronouncement on its condensed consolidated financial statements and related disclosures. In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The standard clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The standard becomes effective for the Company beginning January 1, 2018. The Company is currently evaluating the impact that the standard will have on its condensed consolidated financial statements and related disclosures. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. Assumptions, models, and methods used in estimating an allowance for loan and lease losses are required disclosures under the standard. A cumulative-effect adjustment to retained earnings is recorded in the period of adoption and a prospective transition approach is applied for certain assets. The standard becomes effective for the Company beginning January 1, 2020. Early application is permitted beginning January 1, 2019. The Company is currently evaluating the effect that the standard will have on its condensed consolidated financial statements and related disclosures. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize almost all leases on the balance sheet as a right-of-use asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. Early adoption of the standard is allowed. The standard becomes effective for the Company beginning January 1, 2019. The Company is currently evaluating the effect that the standard will have on its condensed consolidated financial statements and related disclosures. In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10). The standard requires entities to carry all investments in equity securities, with certain exceptions, at fair value with adjustment recorded through net income ("FVTNI"). The standard eliminates the requirement of recognizing unrealized gains or losses in other comprehensive income for trading or available-for-sale marketable equity securities. The standard requires the total fair value change attributable to instrument-specific credit risk, excluding derivative liability instruments, to be reflected in other comprehensive income. The standard requires an evaluation for the need of a valuation allowance for deferred tax assets related to debt securities classified as available-for-sale in combination with the Company's other deferred tax assets. The standard becomes effective for the Company beginning January 1, 2018 and early adoption is allowed. The Company is currently evaluating the effect that the standard will have on its condensed consolidated financial statements and related disclosures. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and may be applied retrospectively to each prior period presented, or applied using a modified retrospective method with the cumulative effect recognized in the beginning retained earnings during the period of initial application. Subsequently, the FASB has issued several additional ASUs related to ASU No. 2014-09, collectively they are referred to as the “new revenue standards”, which become effective for the Company beginning January 1, 2018. The Company expects to adopt the new revenue standards using the modified retrospective method. Under the current guidance, the Company recognizes distributor revenue based on the sell-through method. Upon the adoption of the new revenue standards, the Company will recognize distributor revenue based on the sell-in method, net of the estimated allowances for price adjustments. The Company is still in the process of evaluating the other effects that the new revenue standards will have on its condensed consolidated financial statements and related disclosures. |
BALANCE SHEET COMPONENTS: |
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Balance Sheet Related Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE SHEET COMPONENTS: | BALANCE SHEET COMPONENTS:
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BUSINESS COMBINATION: |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BUSINESS COMBINATION: | BUSINESS COMBINATION: On February 23, 2016, the Company completed its acquisition of EZchip. Under the terms of the Agreement of Merger dated as of September 30, 2015 (as amended on November 17, 2015), by and among the Company, Mondial Europe Sub Ltd. and EZchip (the "Merger Agreement") the total consideration was $782.2 million including $1.0 million attributable to assumed RSUs. The net cash purchase price of $693.7 million consisted of a $781.2 million cash payment for all outstanding common shares of EZchip at the price of $25.50 per share and net of $87.5 million cash acquired. The Company also assumed 891,822 EZchip RSUs and converted them to 499,894 equivalent Company RSU awards. The fair value of the converted RSUs was determined based on the per share value of the underlying Mellanox ordinary shares of $46.40 per share as of the acquisition date. The 499,894 RSUs had a total aggregate value of $23.2 million, of which $1.0 million was recorded as a component of the purchase price for service rendered prior to the acquisition date and $22.2 million will be recognized as share-based compensation expense over the remaining required service period of up to 2.25 years from the acquisition date. In connection with the acquisition, the Company entered into a $280.0 million variable interest rate Term Debt maturing February 21, 2019. For additional information on the Term Debt, see Note 13 in the notes to the unaudited condensed consolidated financial statements. The Company accounted for the transaction using the acquisition method, which requires, among other things, that the assets acquired and liabilities assumed in a business combination be recognized at their respective estimated fair values as of the acquisition date. The following summarizes consideration paid for EZchip at the acquisition date:
The following summarizes the Company's allocation of the total purchase price, net of cash acquired for the EZchip acquisition after consultation with third party valuation specialists:
Acquisition-related expenses for the EZchip acquisition for the three months ended March 31, 2017 were $0.3 million and primarily consisted of employee-related expenses. Acquisition-related expenses for the EZchip acquisition for the period ending March 31, 2016 were $6.7 million and primarily consisted of investment banking, consulting and other professional fees. Identifiable finite-lived intangible assets
Trade name represents the fair values of brand and name recognition associated with the marketing of EZchip’s products and services. The Company used the income approach and utilized a discount rate of 10.0% to determine the fair value of trade name assets. Customer relationships represent the fair value of future projected revenues that will be derived from the sale of products to existing customers of EZchip. The Company used the comparative method ("with/without") of the income approach to determine the fair value of this intangible asset and utilized a discount rate of 10.0%. Backlog represents the fair value of sales order backlog as of the valuation date. The Company used the income approach to determine the fair value of this intangible asset and utilized a discount rate of 8.0%. Developed technology represents completed technology that has passed technological feasibility and/or is currently offered for sale to customers. The Company used the income approach to value the developed technology. Under the income approach, the expected future cash flows from each technology are estimated and discounted to their net present values at an appropriate risk-adjusted rate of return. Significant factors considered in the calculation of the rate of return are the weighted average cost of capital and the return on assets. The Company applied a discount rate of 9.0% to value the developed technology assets taking into consideration market rates of return on debt and equity capital and the risk associated with achieving forecasted revenues related to these assets. The IPR&D intangible asset represents the value assigned to an acquired research and development project that, as of the acquisition date, had not established technological feasibility. The fair value of IPR&D was determined using a discount rate of 12.0%. This intangible asset will be capitalized on the balance sheet and evaluated periodically for impairment until the project is completed, at which time it will be transferred to developed technology and become subject to amortization over its useful life. IPR&D consists of one project related to the development of two network processors. The project is expected to be completed over the next several years. The estimated remaining costs to complete the IPR&D project was $22.3 million as of the acquisition date, which will be charged to operating expense in the condensed consolidated statements of operations as incurred. During the three months ended September 30, 2016, one component of the IPR&D project reached technological feasibility and $4.2 million was transferred to developed technology and will be amortized over three years. Goodwill Goodwill arising from the acquisition represents the value of the skilled assembled workforce and projected growth in overall revenues. The EZchip acquisition is a step in the Company's strategy to become a leading broad-line supplier of intelligent interconnect solutions for data centers. The addition of EZchip’s products and expertise in network processing is expected to enhance the Company's leadership position, and ability to deliver complete end-to-end, intelligent 10, 25, 40, 50, and 100Gb/s interconnect and processing solutions for advanced data center and edge platforms. The combined company will have diverse and robust solutions to enable customers to meet the growing demands of data-intensive applications used in high-performance computing, Web 2.0, cloud, secure data center, enterprise, telecom, database, financial services, and storage environments. These significant factors were the basis for the recognition of goodwill. Goodwill is not expected to be deductible for tax purposes. Goodwill will not be amortized but instead will be tested for impairment annually or more frequently if certain indicators are present. |
FAIR VALUE MEASUREMENTS: |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE MEASUREMENTS: | FAIR VALUE MEASUREMENTS: Fair value hierarchy: The Company measures its cash equivalents and marketable securities at fair value. The Company’s cash equivalents are classified within Level 1. Cash equivalents are valued primarily using quoted market prices utilizing market observable inputs. The Company's investments in debt securities and certificates of deposits are classified within Level 2 as the market inputs to value these instruments consist of market yields, reported trades and broker/dealer quotes. In addition, foreign currency contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. The Level 3 valuation inputs include the Company's best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument's valuation. As of March 31, 2017 and December 31, 2016, the Company did not have any assets or liabilities valued based on Level 3 valuations. Financial Liabilities Measured at Fair Value on a Nonrecurring Basis: As of March 31, 2017, the remaining principal of $226.0 million on the Company's $280.0 million Term Debt is classified as a Level 2 fair value measurement in the fair value hierarchy. The Company calculated a fair value amount of $225.9 million at March 31, 2017 based on a discounted cash flow model using observable market inputs and taking into consideration variables such as interest rate changes, comparable instruments, and long-term credit ratings. Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis: The following table represents the fair value hierarchy of the Company's financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2017:
The following table represents the fair value hierarchy of the Company's financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2016:
There were no transfers between Level 1 and Level 2 securities during the three months ended March 31, 2017 and the year ended December 31, 2016. |
INVESTMENTS: |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVESTMENTS: | INVESTMENTS: Cash, cash equivalents and short-term investments: The short-term investments are classified as available-for-sale securities. The cash, cash equivalents and short-term investments at March 31, 2017 and December 31, 2016 were as follows:
Interest income and gains (losses) on short-term investments, net were $0.9 million and $(0.1) million for the three months ended March 31, 2017 and 2016, respectively. At March 31, 2017, gross unrealized losses on investments that were in a gross unrealized loss position for greater than 12 months were immaterial. These investments were not deemed to be other-than-temporarily impaired and the gross unrealized losses were recorded in other comprehensive income (loss) ("OCI"). The contractual maturities of short-term investments at March 31, 2017 and December 31, 2016 were as follows:
Equity investments in privately-held companies: As of March 31, 2017 and December 31, 2016, the Company held a total of $19.7 million and $12.7 million, respectively, in equity investments in privately-held companies. |
GOODWILL AND INTANGIBLE ASSETS: |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND INTANGIBLE ASSETS: | GOODWILL AND INTANGIBLE ASSETS: The following table represents changes in the carrying amount of goodwill:
The carrying amounts of intangible assets as of March 31, 2017 were as follows:
The carrying amounts of intangible assets as of December 31, 2016 were as follows:
Amortization expense of intangible assets totaled approximately $15.0 million and $11.7 million for the three months ended March 31, 2017 and 2016, respectively. The estimated future amortization expense from amortizable intangible assets is as follows:
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DERIVATIVES AND HEDGING ACTIVITIES: |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVES AND HEDGING ACTIVITIES: | DERIVATIVES AND HEDGING ACTIVITIES: Fair Value of Derivative Contracts The fair value of derivatives contracts in the unaudited condensed consolidated balance sheets at March 31, 2017 and December 31, 2016 were as follows:
The gross notional amounts of derivative contracts were New Israeli Shekels (“NIS”) denominated. The notional amounts of outstanding derivative contracts in U.S. dollars at March 31, 2017 and December 31, 2016 were as follows:
Effect of Derivatives Designated as Hedging Instruments on Accumulated Other Comprehensive Income The following table represents the unrealized gains (losses) of derivatives designated as hedging instruments, net of tax effects, that were recorded in accumulated other comprehensive income as of March 31, 2017 and December 31, 2016 and their effect on OCI for the three months ended March 31, 2017:
Effect of Derivative Contracts on the Unaudited Condensed Consolidated Statement of Operations The effect of derivative contracts on the unaudited condensed consolidated statements of operations for the three months ended March 31, 2017 and 2016 was as follows:
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COMMITMENTS AND CONTINGENCIES: |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES: | COMMITMENTS AND CONTINGENCIES: Commitments Leases At March 31, 2017, future minimum payments under non-cancelable operating leases are as follows:
Purchase commitments At March 31, 2017, the Company had the following non-cancelable purchase commitments:
Other Commitments Operating lease On May 3, 2016, the Company entered into a lease agreement for additional office space expected to be built in Yokneam, Israel. The lease term expires 10 years after lease inception with no options to extend the lease term. The Company's occupancy of the additional office space and its obligation under the lease agreement is contingent on the lessor's attainment of stated milestones in the lease agreement. As such, the Company cannot make a reliable estimate as to the timing of cash payments under the lease. At March 31, 2017, the estimated total future lease obligation is approximately $29.3 million. Over a twelve month period an estimated rental expense is approximately $2.9 million, and if recognized, would increase the Company's operating expenses in its condensed consolidated statement of operations. Royalty-bearing grants We are obliged to pay royalties to the Israeli National Authority for Technological Innovation, previously known as the Office of the Chief Scientist of Israel's Ministry of Economy and Industry (the "OCS"), for research and development efforts partially funded through grants from the OCS and under approved plans in accordance with the Israeli Law for Encouragement of Research and Development in the Industry, 1984 (the "R&D Law"). Royalties are payable to the Israeli government at the rate of 4.5% of the revenues of the Company's products incorporating OCS-funded know-hows, and up to the amount of the grants received. The Company's obligation to pay these royalties is contingent on actual sales of the products, at which time a liability is recorded. In the absence of such sales, we cannot make a reliable estimate as to the timing of cash settlement of the royalties. At March 31, 2017, the Company estimated a total future royalty obligation of approximately $35.8 million, and if recognized, would increase the Company's cost of revenues in its condensed consolidated statement of operations. Unrecognized tax benefits Due to the inherent uncertainty with respect to the timing of future cash outflows associated with the Company's unrecognized tax benefits, it is unable to reliably estimate the timing of cash settlement with respective taxing authorities. As of March 31, 2017, the Company's unrecognized tax benefits totaled $42.0 million, out of which an amount of $25.1 million would reduce the Company's income tax expense and effective tax rate, if recognized. Contingencies Legal proceedings The Company is involved in a variety of claims, suits, investigations and proceedings that arise from time to time in the ordinary course of its business, including actions with respect to contracts, intellectual property, taxation, employment, benefits, securities, personal injuries and other matters. The results of these proceedings in the ordinary course of business are not expected to have a material adverse effect on the Company’s condensed consolidated financial position or results of operations. The Company records a liability when it believes that it is both probable that a liability will be incurred, and the amount of loss can be reasonably estimated. The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously accrued and makes adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount of a loss or potential loss. The Company may be unable to reasonably estimate the reasonably possible loss or range of loss for a particular legal contingency for various reasons, including, among others: (i) if the damages sought are indeterminate; (ii) if proceedings are in the early stages; (iii) if there is uncertainty as to the outcome of pending proceedings (including motions and appeals); (iv) if there is uncertainty as to the likelihood of settlement and the outcome of any negotiations with respect thereto; (v) if there are significant factual issues to be determined or resolved; (vi) if the proceedings involve a large number of parties; (vii) if relevant law is unsettled or novel or untested legal theories are presented; or (viii) if the proceedings are taking place in jurisdictions where the laws are complex or unclear. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any. |
SHARE INCENTIVE PLANS: |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHARE INCENTIVE PLANS: | SHARE INCENTIVE PLANS Stock Option Plans On April 25, 2017, the Company's shareholders approved the Mellanox Technologies, Ltd. Second Amended and Restated Global Share Incentive Plan (2006) (the “Second Restated Plan”) during the 2017 annual shareholder meeting. Please see Note 14, "Subsequent Events" for further detail. Assumed EZchip restricted stock units In connection with the acquisition of EZchip, the Company assumed 891,822 unvested EZchip RSUs and converted them into 499,894 Mellanox RSUs using an exchange ratio of 0.56. The aggregate value of the 499,894 Mellanox RSUs was $23.2 million of which $1.0 million related to service prior to the acquisition date and was included in the EZchip purchase price consideration. The remaining fair value of $22.2 million represents post-acquisition share-based compensation expense that will be recognized over the requisite service period of approximately 2.25 years from the date of acquisition. The assumed RSUs retained all applicable terms and vesting periods. Share option activity Share option activity under the Company's equity incentive plans in the three months ended March 31, 2017 is set forth below:
The total pretax intrinsic value of options exercised in the three months ended March 31, 2017 and 2016 was $3.6 million and $3.4 million, respectively. This intrinsic value represents the difference between the fair market value of the Company's ordinary shares on the date of exercise and the exercise price of each option. Based on the closing price of the Company's ordinary shares of $50.95 on March 31, 2017, the total pretax intrinsic value of options outstanding at March 31, 2017 was $37.5 million. The total pretax intrinsic value of options outstanding at December 31, 2016 was $29.0 million. There were 1,517,015 and 1,624,756 options exercisable at March 31, 2017 and December 31, 2016, respectively. The total pretax intrinsic value of exercisable options at March 31, 2017, was $37.4 million. The total pretax intrinsic value of exercisable options at December 31, 2016 was $28.9 million. Restricted share unit activity RSU activity under the Company's equity incentive plans in the three months ended March 31, 2017 is set forth below:
The weighted average fair value of RSUs granted in the three months ended March 31, 2017 and 2016 was $44.83 and $49.93, respectively. The total intrinsic value of all outstanding RSUs as of March 31, 2017 and December 31, 2016 was $157.6 million and $136.0 million, respectively. Employee Stock Purchase Plan activity There were 269,698 and 218,943 shares purchased under the ESPP for the three months ended March 31, 2017 and 2016 at an average price per share of $37.63 and $33.30, respectively. Shares reserved for future issuance The Company had the following ordinary shares reserved for future issuance under its equity incentive plans as of March 31, 2017:
Share-based compensation The Company accounts for share-based compensation expense based on the estimated fair value of the share equity awards as of the grant dates. The following weighted average assumptions were used to value ESPP shares issued pursuant to the Company's share incentive plans for the three months ended March 31, 2017 and 2016:
The following table summarizes the distribution of total share-based compensation expense in the unaudited condensed consolidated statements of operations:
Share-based compensation expense for the three months ended March 31, 2016 included cash payments of $4.8 million for the settlement of accelerated RSUs for individuals terminated on the closing date of the EZchip acquisition. At March 31, 2017, there was $119.8 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 approximately 2.68 years. |
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): |
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Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended March 31, 2017 and 2016:
The following table provides details about reclassifications out of accumulated other comprehensive income (loss) for the three months ended March 31, 2017 and 2016:
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INCOME TAXES: |
3 Months Ended |
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Mar. 31, 2017 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES: | INCOME TAXES: As of March 31, 2017 and December 31, 2016, the Company had gross unrecognized tax benefits of $42.0 million and $41.5 million, respectively. It is the Company’s policy to classify accrued interest and penalties as part of the unrecognized tax benefits and record the expense in the provision for income taxes. The amount of accrued interest and penalties related to unrecognized tax benefits totaled $2.0 million at March 31, 2017 and $1.8 million at December 31, 2016. On January 5, 2016, the Israeli Government legislated a reduction in corporate income tax rates from 26.5% to 25.0%, effective in 2016. Deferred tax assets and liabilities at December 31, 2015 were measured using the 26.5% tax rate. As a result of the reduction noted above, deferred tax assets and liabilities as of January 1, 2016 were remeasured using the 25.0% tax rate. The change in the corporate income tax rate from 26.5% to 25.0% resulted in a reduction of approximately $1.3 million to the Company's deferred tax assets and a corresponding increase in the Company's income tax expense during the first quarter of 2016. On December 29, 2016, the Israeli Government legislated a reduction in corporate income tax rates from 25.0% to 24.0% in 2017 and to 23.0% in 2018 and thereafter. This change in the corporate income tax rates from 25.0% to 24.0% and 23.0% resulted in a reduction of approximately $1.4 million to the Company's deferred tax assets as of December 31, 2016, and a corresponding increase in the Company's income tax expense during the fourth quarter of 2016. On January 12, 2017, the Company received a ruling from the Israeli Tax Authorities ("ITA"), which approved a succession of mergers in a tax-exempted manner, subject to certain limitations ("the Tax-Exempted Merger"), in which EZchip Technologies Ltd., fully owned by EZchip Semiconductor Ltd., merged into EZchip Semiconductor Ltd., which in turn merged into the Company. The Tax-Exempted Merger resulted in a net increase of approximately $0.9 million in deferred tax assets and a corresponding increase in benefit from taxes on income during the first quarter of 2017. As of March 31, 2017, the 2013 through 2016 tax years are open and may be subject to potential examinations in the United States. The Company has net operating losses in the United States from prior tax periods beginning in 2002 which may be subject to examination upon utilization in future tax periods. As of March 31, 2017, the 2011 through 2016 tax years are open and may be subject to potential examinations in Denmark and Israel. As of March 31, 2017, the income tax returns of the Company and one of its subsidiaries in Israel are under examination by the ITA for certain years from 2011 to 2014. The Company's operations in Israel were granted "Approved Enterprise" status by the Investment Center in the Israeli Ministry of Economy and "Beneficiary Enterprise" status from the Israeli Income Tax Authority, which makes the Company 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 the Company's operations in Yokneam, Israel, is exempt from income tax commencing fiscal year 2011 through 2021. Income that is attributable to the Company's operations in Tel Aviv, Israel is subject to a reduced income tax rate (generally between 10% and the current corporate tax rate, depending on the percentage of foreign investment in the Company) commencing fiscal year 2013 through 2021. The Company’s effective tax rate is highly dependent upon the geographic distribution of its worldwide earnings or losses, tax regulations and tax holiday benefits in Israel, and the effectiveness of the Company’s tax planning strategies. The Company’s effective tax rates were 11.8% and (49.1)% for the three months ended March 31, 2017 and 2016, respectively. The difference between the Company’s effective tax rate and the 35% federal statutory rate for the three months ended March 31, 2017 resulted primarily from the tax holiday in Israel and foreign earnings taxed at rates lower than the federal statutory rates, partially offset by the accrual of unrecognized tax benefits, interest and penalties associated with unrecognized tax positions, non-tax-deductible expenses such as share-based compensation and losses generated from subsidiaries without tax benefit. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous, and the Company is required to make many subjective assumptions and judgments regarding its income tax exposures. In addition, interpretations of and guidance surrounding income tax laws and regulations are subject to change over time. Any changes in the Company’s subjective assumptions and judgments could materially affect amounts recognized in its condensed consolidated balance sheets and statements of operations. The Company has maintained a valuation allowance against deferred tax assets of certain subsidiaries. The Company assesses its ability to recover its deferred tax assets on an ongoing basis. Significant management judgment is required in determining any valuation allowance recorded against deferred tax assets. In evaluating the ability to recover deferred tax assets, the Company considers available positive and negative evidence including its recent cumulative losses, its ability to carry-back losses against prior taxable income and its projected financial results. The Company also considers, commensurate with its objective verifiability, the forecast of future taxable income including the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. A valuation allowance may be recorded in the event it is deemed to be more-likely-than-not that the deferred tax asset cannot be realized. Previously established valuation allowances may also be released in the event it is deemed to be more-likely-than-not that the deferred tax asset can be realized. Any release of valuation allowance will be recorded as a tax benefit which will positively impact the Company’s operating results. Management has determined on the basis of the quarterly assessment performed at March 31, 2017, that these deferred tax assets are not more-likely-than-not to be realized. |
OTHER INCOME, NET: |
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Other Income and Expenses [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OTHER INCOME, NET: | OTHER INCOME, NET: Other income, net is summarized in the following table:
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TERM DEBT: |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TERM DEBT: | TERM DEBT: In connection with the Company’s acquisition of EZchip, on February 22, 2016, the Company and its wholly owned subsidiary, Mellanox Technologies, Inc., entered into a $280.0 million variable interest rate Term Debt note maturing February 21, 2019. Debt issuance costs of $5.5 million on the Term Debt are being amortized to interest expense at the effective interest rate over the contractual term of the Term Debt. The Term Debt provides for additional term loan borrowings under certain conditions. The following table presents the Term Debt at March 31, 2017:
Principal on the Term Debt is paid in quarterly installments. Principal payments were scheduled at a rate of (i) 2.50% of the original principal amount beginning on June 30, 2016 and ending on March 31, 2017, (ii) 3.75% of the original principal amount beginning on June 30, 2017 and ending on March 31, 2018 and (iii) 6.25% of the original principal amount beginning on June 30, 2018 and ending on December 31, 2018, with the balance due on February 21, 2019. During the three months ended March 31, 2017 the Company made a prepayment of $20.0 million on the principal, which were applied to future payment requirements. The Company is also required to make mandatory prepayments of loans under the Term Debt, subject to specified exceptions, with the proceeds of asset sales, debt issuances and specified other events. At March 31, 2017, future scheduled principal payments on the Company's Term Debt is summarized as follows:
The Term Debt bears interest through maturity at a variable rate based upon, at the Company’s option, either (a) the LIBOR rate for Eurocurrency borrowing or (b) an Alternate Base Rate (“ABR”), which is the highest of (i) the administrative agent’s prime rate, (ii) one-half of 1.00% in excess of the overnight U.S. Federal Funds rate, and (iii) 1.00% in excess of the one-month LIBOR), plus in each case, an applicable margin. The applicable margin for Eurocurrency loans ranges, based on the applicable total net leverage ratio, from 1.25% to 2.00% per annum and the applicable margin for ABR loans ranges, based on the applicable total net leverage ratio, from 0.25% to 1.00% per annum. The Company’s obligations under the Term Debt are guaranteed by all of its significant domestic and foreign subsidiaries, subject to certain agreed upon exceptions. The obligations under the Term Debt are also, subject to certain agreed upon exceptions, secured by a lien on substantially all of the Company's and certain of its subsidiaries tangible and intangible property, including 100% of the Company's and certain of its subsidiaries’ equity interests in shares of its domestic and certain foreign subsidiaries. The Term Debt contains a number of covenants and restrictions that among other things, and subject to certain agreed upon exceptions, require the Company and its subsidiaries to satisfy certain financial covenants and restricts the ability of the Company and its subsidiaries to incur liens, incur additional indebtedness, make loans and investments, engage in mergers and acquisitions, engage in asset sales, declare dividends or redeem or repurchase capital stock, prepay, redeem or purchase subordinated debt and amend or otherwise alter debt agreements, in each case, subject to certain agreed upon exceptions. A failure to comply with these covenants could permit the lenders under the Term Debt to declare all amounts borrowed under the Term Debt, together with accrued interest and fees, to be immediately due and payable. At March 31, 2017, the Company was in compliance with the covenants for the Term Debt. |
SUBSEQUENT EVENTS |
3 Months Ended |
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Mar. 31, 2017 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | SUBSEQUENT EVENTS: On April 9, 2017, the Company entered into a lease agreement for office space expected to be built in Tel-Aviv, Israel. The Company plans to relocate its Tel-Aviv offices to these premises, once construction is complete and the lease in its current office space expires on or about the end of 2021. The lease term expires 10 years after lease inception. The Company has an option to extend the lease term up to 10 years after the end of the original lease term. The estimated total future lease obligation is approximately $53.9 million. Over a twelve-month period, an estimated rental expense is approximately $5.4 million, and if recognized, would increase the Company's operating expenses in its condensed consolidated statement of operations. On April 25 2017, the Company's shareholders approved the Mellanox Technologies, Ltd. Second Amended and Restated Global Share Incentive Plan (2006) (the “Second Restated Plan”), which constitutes a second amendment and restatement of the Mellanox Technologies, Ltd. Global Share Incentive Plan (2006) and its appendices (the “2006 Plan”), as amended and restated by the Mellanox Technologies, Ltd. Amended and Restated Global Share Incentive Plan (2006) as of March 14, 2016 (the “First Restated Plan”). The Second Restated Plan became effective on February 14, 2017. The Second Restated Plan increases the ordinary shares reserved for issuance under the First Restated Plan by 1,640,000 shares to 2,390,000 shares plus any shares subject to issued and outstanding awards under the other equity incentive plans that existed prior to the First Restated Plan that expire, are cancelled or otherwise terminate after the effective date of the First Restated Plan. The Second Restated Plan also extends the term of the First Restated Plan to February 14, 2027. In addition, the Second Restated Plan implements additional amendments to reflect compensation and governance best practices. |
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Policies) |
3 Months Ended |
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Mar. 31, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Principles of presentation | Principles of presentation The unaudited condensed consolidated financial statements include the Company's accounts as well as those of its wholly owned subsidiaries after the elimination of all intercompany balances and transactions. The unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The year-end balance sheet data were derived from audited consolidated financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States ("GAAP"). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained in this quarterly report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, for a quarterly report on Form 10-Q and are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on February 17, 2017. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2017 or thereafter. |
Risks and uncertainties | Risks and uncertainties The Company is subject to all of the risks inherent in a company which operates in the dynamic and competitive semiconductor industry. Significant changes in any of the following areas could have a material adverse impact on the Company's financial position and results of operations: unpredictable volume or timing of customer orders; ordered product mix; the sales outlook and purchasing patterns of the Company's customers based on consumer demands and general economic conditions; loss of one or more of the Company's customers; decreases in the average selling prices of products or increases in the average cost of finished goods; the availability, pricing and timeliness of delivery of components used in the Company's products; reliance on a limited number of subcontractors to manufacture, assemble, package and production test the Company's products; the Company's ability to successfully develop, introduce and sell new or enhanced products in a timely manner; product obsolescence and the Company's ability to manage product transitions; the timing of announcements or introductions of new products by the Company's competitors; and the Company's ability to successfully integrate acquired businesses. |
Use of estimates | Use of estimates The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of net revenue and expenses in the reporting periods. The Company regularly evaluates estimates and assumptions related to revenue recognition, allowances for doubtful accounts, allowances for price adjustments, investment valuation, warranty reserves, inventory reserves, share-based compensation expense, long-term asset valuations, useful lives of property, equipment, and intangibles, accounting for business combinations, goodwill and purchased intangible asset valuation, investments in privately-held companies, accounting and fair value of financial instruments and derivatives, deferred income tax asset valuation, uncertain tax positions, and litigation and other loss contingencies. These estimates and assumptions are based on current facts, historical experience and various other factors that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. The actual results that the Company experiences may differ materially and adversely from the Company's original estimates. To the extent there are material differences between the estimates and actual results, the Company's future results of operations will be affected. |
Recent accounting pronouncements | Recent accounting pronouncements In October 2016, the Financial Accounting Standards Board, ("FASB") issued ASU No. 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted as of the beginning of a fiscal year. The new standard should be adopted on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently in the process of evaluating the impact of this new pronouncement on its condensed consolidated financial statements and related disclosures. In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The standard clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The standard becomes effective for the Company beginning January 1, 2018. The Company is currently evaluating the impact that the standard will have on its condensed consolidated financial statements and related disclosures. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. Assumptions, models, and methods used in estimating an allowance for loan and lease losses are required disclosures under the standard. A cumulative-effect adjustment to retained earnings is recorded in the period of adoption and a prospective transition approach is applied for certain assets. The standard becomes effective for the Company beginning January 1, 2020. Early application is permitted beginning January 1, 2019. The Company is currently evaluating the effect that the standard will have on its condensed consolidated financial statements and related disclosures. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize almost all leases on the balance sheet as a right-of-use asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. Early adoption of the standard is allowed. The standard becomes effective for the Company beginning January 1, 2019. The Company is currently evaluating the effect that the standard will have on its condensed consolidated financial statements and related disclosures. In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10). The standard requires entities to carry all investments in equity securities, with certain exceptions, at fair value with adjustment recorded through net income ("FVTNI"). The standard eliminates the requirement of recognizing unrealized gains or losses in other comprehensive income for trading or available-for-sale marketable equity securities. The standard requires the total fair value change attributable to instrument-specific credit risk, excluding derivative liability instruments, to be reflected in other comprehensive income. The standard requires an evaluation for the need of a valuation allowance for deferred tax assets related to debt securities classified as available-for-sale in combination with the Company's other deferred tax assets. The standard becomes effective for the Company beginning January 1, 2018 and early adoption is allowed. The Company is currently evaluating the effect that the standard will have on its condensed consolidated financial statements and related disclosures. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and may be applied retrospectively to each prior period presented, or applied using a modified retrospective method with the cumulative effect recognized in the beginning retained earnings during the period of initial application. Subsequently, the FASB has issued several additional ASUs related to ASU No. 2014-09, collectively they are referred to as the “new revenue standards”, which become effective for the Company beginning January 1, 2018. The Company expects to adopt the new revenue standards using the modified retrospective method. Under the current guidance, the Company recognizes distributor revenue based on the sell-through method. Upon the adoption of the new revenue standards, the Company will recognize distributor revenue based on the sell-in method, net of the estimated allowances for price adjustments. The Company is still in the process of evaluating the other effects that the new revenue standards will have on its condensed consolidated financial statements and related disclosures. |
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Tables) |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of revenues and accounts receivable from customers | The following table summarizes the revenues from customers (including original equipment manufacturers) in excess of 10% of the total revenues:
The following table summarizes accounts receivable balances in excess of 10% of total accounts receivable:
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Schedule of changes in the entity's liability for product warranty | The following table provides changes in the product warranty accrual for the three months ended March 31, 2017 and 2016:
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Schedule of computation of basic and diluted net income per share | The following table sets forth the computation of basic and diluted net loss per share for the three months ended March 31, 2017 and 2016:
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BALANCE SHEET COMPONENTS: - (Tables) |
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance Sheet Related Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of balance sheet components |
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BUSINESS COMBINATION: (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of business combination consideration transferred | The following summarizes consideration paid for EZchip at the acquisition date:
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Schedule of recognized identified assets acquired and liabilities assumed | The following summarizes the Company's allocation of the total purchase price, net of cash acquired for the EZchip acquisition after consultation with third party valuation specialists:
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Finite-lived and indefinite-lived intangible assets acquired as part of business combination | Identifiable finite-lived intangible assets
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FAIR VALUE MEASUREMENTS: (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of the fair value hierarchy of the Company's financial assets and liabilities measured at fair value | The following table represents the fair value hierarchy of the Company's financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2017:
The following table represents the fair value hierarchy of the Company's financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2016:
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INVESTMENTS: (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of cash, cash equivalents and short-term investments | The short-term investments are classified as available-for-sale securities. The cash, cash equivalents and short-term investments at March 31, 2017 and December 31, 2016 were as follows:
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Schedule of contractual maturities of short-term investments | The contractual maturities of short-term investments at March 31, 2017 and December 31, 2016 were as follows:
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GOODWILL AND INTANGIBLE ASSETS: (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of goodwill | The following table represents changes in the carrying amount of goodwill:
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Schedule of carrying amounts of intangible assets | The carrying amounts of intangible assets as of March 31, 2017 were as follows:
The carrying amounts of intangible assets as of December 31, 2016 were as follows:
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Schedule of estimated future amortization expense from amortizable intangible assets | The estimated future amortization expense from amortizable intangible assets is as follows:
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DERIVATIVES AND HEDGING ACTIVITIES: (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of fair value of derivative contracts | The fair value of derivatives contracts in the unaudited condensed consolidated balance sheets at March 31, 2017 and December 31, 2016 were as follows:
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Schedule of notional amounts of outstanding derivative positions | The notional amounts of outstanding derivative contracts in U.S. dollars at March 31, 2017 and December 31, 2016 were as follows:
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Schedule of designated derivative contracts as cash flow hedges and their impact on OCI | The following table represents the unrealized gains (losses) of derivatives designated as hedging instruments, net of tax effects, that were recorded in accumulated other comprehensive income as of March 31, 2017 and December 31, 2016 and their effect on OCI for the three months ended March 31, 2017:
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Effect of derivative contracts on the condensed consolidated statement of operations | The effect of derivative contracts on the unaudited condensed consolidated statements of operations for the three months ended March 31, 2017 and 2016 was as follows:
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COMMITMENTS AND CONTINGENCIES: (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||
Schedule of future minimum payments under non-cancelable operating and capital leases | At March 31, 2017, future minimum payments under non-cancelable operating leases are as follows:
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Purchase commitment, excluding long-term commitment | At March 31, 2017, the Company had the following non-cancelable purchase commitments:
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SHARE INCENTIVE PLANS: (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of share option awards activity under equity incentive plans | Share option activity under the Company's equity incentive plans in the three months ended March 31, 2017 is set forth below:
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Summary of restricted share units activity | RSU activity under the Company's equity incentive plans in the three months ended March 31, 2017 is set forth below:
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Summary of ordinary shares reserved for future issuance under equity incentive plans | The Company had the following ordinary shares reserved for future issuance under its equity incentive plans as of March 31, 2017:
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Schedule of weighted average assumptions used to value share options granted | The following weighted average assumptions were used to value ESPP shares issued pursuant to the Company's share incentive plans for the three months ended March 31, 2017 and 2016:
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Summary of the distribution of total share-based compensation expense | The following table summarizes the distribution of total share-based compensation expense in the unaudited condensed consolidated statements of operations:
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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of the changes in accumulated balances of other comprehensive income (loss) | The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended March 31, 2017 and 2016:
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Reclassification out of accumulated other comprehensive income | The following table provides details about reclassifications out of accumulated other comprehensive income (loss) for the three months ended March 31, 2017 and 2016:
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OTHER INCOME, NET: (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Income and Expenses [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of other income, net | Other income, net is summarized in the following table:
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TERM DEBT: (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | ||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||
Schedule of debt | The following table presents the Term Debt at March 31, 2017:
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Contractual obligation, fiscal year maturity schedule | At March 31, 2017, future scheduled principal payments on the Company's Term Debt is summarized as follows:
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THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (ASU adoption) (Details) - Accounting Standards Update 2016-09 [Member] - USD ($) $ in Millions |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Deferred tax assets, valuation allowance | $ 4.6 | |
Deferred tax assets, net | $ 4.6 | |
Retained Earnings [Member] | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Cumulative effect of new accounting principle in period of adoption | $ (0.8) | |
Additional Paid-in Capital [Member] | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Cumulative effect of new accounting principle in period of adoption | $ 0.8 |
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Concentration of credit risk) (Details) |
3 Months Ended | 12 Months Ended | |
---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
|
Hewlett Packard Enterprise [Member] | Net sales revenue [Member] | |||
Concentration of credit risk | |||
Percentage of consolidated revenue by major customer | 13.00% | 20.00% | |
Hewlett Packard Enterprise [Member] | Accounts receivable [Member] | |||
Concentration of credit risk | |||
Percentage of consolidated revenue by major customer | 12.00% | 23.00% | |
Dell [Member] | Net sales revenue [Member] | |||
Concentration of credit risk | |||
Percentage of consolidated revenue by major customer | 13.00% | ||
Ingram Micro [Member] | Accounts receivable [Member] | |||
Concentration of credit risk | |||
Percentage of consolidated revenue by major customer | 11.00% |
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Product warranty) (Details) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
|
Changes in the entity's liability for product warranty | |||
Product warranty liability, beginning of period | $ 1,474 | $ 1,641 | |
Assumed warranty liability from acquisition | 0 | 290 | |
New warranties issued during the period | 436 | 369 | |
Reversal of warranty reserves | (356) | (134) | |
Settlements during the period | (343) | (348) | |
Product warranty liability, end of period | 1,211 | 1,818 | |
Less: long-term portion of product warranty liability | (162) | (386) | |
Current portion, end of the period | $ 1,049 | $ 1,432 | $ 1,263 |
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Basic and diluted earnings per share) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 12 Months Ended | |
---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
Net loss | $ (12,244) | $ (7,168) | |
Basic and diluted shares: | |||
Weighted average ordinary shares (in shares) | 49,337 | 47,358 | |
Dilutive effect of employee share options and restricted stock units (RSUs) (in shares) | 0 | 0 | |
Shares used to compute diluted net income per share (in shares) | 49,337 | 47,358 | |
Net income per share - basic (in USD per share) | $ (0.25) | $ (0.15) | |
Net income per share - diluted (in USD per share) | $ (0.25) | $ (0.15) | |
Employee Stock Option [Member] | |||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
Antidilutive securities excluded from computation of earnings per share | 4,600 | 5,900 |
BUSINESS COMBINATION: CONSIDERATION (Details) - USD ($) |
Feb. 23, 2016 |
Mar. 31, 2016 |
---|---|---|
Business Acquisition [Line Items] | ||
EZchip purchase price (in USD per share) | $ 25.50 | |
Total consideration: | $ 87,500 | |
EZchip [Member] | ||
Business Acquisition [Line Items] | ||
EZchip purchase price (in USD per share) | $ 25.50 | |
Cash payment for all outstanding common stock of EZchip at $25.50 per share | $ 781,237,000 | |
Fair value of awards attributable to pre-acquisition services | 972,000 | |
Total consideration: | 782,209,000 | |
Less: cash acquired | 87,545,000 | |
Fair value of total consideration transferred, net of cash acquired | $ 694,664,000 |
BUSINESS COMBINATION: ASSETS AND LIABILITIES (Details) - USD ($) $ in Thousands |
3 Months Ended | |||
---|---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
Feb. 23, 2016 |
|
Business Acquisition [Line Items] | ||||
Short-term investments | $ 108,862 | |||
Other current assets | 34,114 | |||
Other long-term assets | 9,638 | |||
Intangible assets | 288,246 | |||
Goodwill | $ 471,228 | $ 471,228 | 270,485 | |
Total assets | 711,345 | |||
Current liabilities | (10,253) | |||
Long-term liabilities | (6,428) | |||
Total liabilities | (16,681) | |||
Total preliminary purchase price allocation | $ 694,664 | |||
Material business combination EZchip [Member] | ||||
Business Acquisition [Line Items] | ||||
Business combination, acquisition related costs | $ 300 | $ 6,700 |
INVESTMENTS: (Fair value due by period) (Details) - USD ($) $ in Thousands |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Amortized Cost | ||
Due in less than one year | $ 155,609 | $ 157,270 |
Due in one to three years | 111,391 | 114,627 |
Available-for-sale securities, amortized cost basis | 267,000 | 271,897 |
Estimated Fair Value | ||
Due in less than one year | 155,499 | 157,163 |
Due in one to three years | 111,334 | 114,498 |
Estimated fair value | 266,833 | 271,661 |
Investment in a privately-held companies accounted for under the cost method | $ 19,700 | $ 12,700 |
GOODWILL (Details) $ in Thousands |
3 Months Ended |
---|---|
Mar. 31, 2017
USD ($)
| |
Changes in the carrying amount of goodwill | |
Goodwill | $ 471,228 |
Acquisitions | 0 |
Adjustments | 0 |
Goodwill | $ 471,228 |
INTANGIBLE ASSETS: (By maturity date) (Details) $ in Thousands |
Mar. 31, 2017
USD ($)
|
---|---|
Finite-Lived Intangible Assets, Amortization Expense, Maturity Schedule [Abstract] | |
2017 (remaining nine months) | $ 45,466 |
2018 | 54,826 |
2019 | 47,194 |
2020 | 36,145 |
2021 | 30,618 |
Thereafter | 23,626 |
Total | $ 237,875 |
SHARE INCENTIVE PLANS: SHARE INCENTIVE PLANS: ESPP (Details) - $ / shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
Stock issued during period, shares, employee stock ownership plan | 269,698 | 218,943 |
Employee Stock Ownership Plan (ESOP), weighted average purchase price of shares purchased (in USD per share) | $ 37.63 | $ 33.30 |
SHARE INCENTIVE PLANS: (Shares reserved, ESPP assumptions) (Details) - shares |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
|
Ordinary shares reserved for future issuance under equity incentive plans | |||
Shares outstanding | 1,522,515 | ||
Common stock, capital shares reserved for future issuance | 8,865,789 | ||
Restricted Stock Units (RSUs) [Member] | |||
Ordinary shares reserved for future issuance under equity incentive plans | |||
Restricted share units outstanding | 3,092,935 | 3,324,519 | |
Employee Stock [Member] | |||
Ordinary shares reserved for future issuance under equity incentive plans | |||
Shares authorized for future issuance | 3,724,647 | ||
Weighted average assumptions | |||
Dividend yield (as a percent) | 0.00% | 0.00% | |
Expected volatility (as a percent) | 25.30% | 37.60% | |
Risk-free interest rate (as a percent) | 0.91% | 0.46% | |
Expected life (in years) | 6 months | 6 months | |
Global plan [Member] | |||
Ordinary shares reserved for future issuance under equity incentive plans | |||
Shares authorized for future issuance | 525,692 |
SHARE INCENTIVE PLANS: (Share-based compensation) (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Share-based compensation expense | ||
Allocated share-based compensation expense | $ 14,768 | $ 18,266 |
Total unrecognized share-based compensation costs related to non-vested awards | $ 119,800 | |
Weighted average period for recognition of unrecognized share-based compensation costs (in years) | 2 years 8 months 5 days | |
Cost of sales [Member] | ||
Share-based compensation expense | ||
Allocated share-based compensation expense | $ 482 | 475 |
Research and development expense [Member] | ||
Share-based compensation expense | ||
Allocated share-based compensation expense | 8,690 | 9,152 |
Sales and marketing [Member] | ||
Share-based compensation expense | ||
Allocated share-based compensation expense | 3,338 | 3,648 |
General and administrative expense [Member] | ||
Share-based compensation expense | ||
Allocated share-based compensation expense | $ 2,258 | 4,991 |
EZchip [Member] | ||
Share-based compensation expense | ||
Liabilities paid | $ 4,800 |
OTHER INCOME, NET: (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Other Nonoperating Income (Expense) [Abstract] | ||
Interest income and gains (losses) on short-term investments, net | $ 878 | $ 115 |
Foreign exchange loss, net | (162) | (9) |
Other | (33) | (45) |
Other income, net | $ 683 | $ 61 |
SUBSEQUENT EVENTS (Details) - USD ($) $ in Thousands |
Apr. 09, 2017 |
Feb. 14, 2017 |
Mar. 31, 2017 |
---|---|---|---|
Subsequent Event [Line Items] | |||
Total minimum lease payments | $ 79,119 | ||
Common stock, capital shares reserved for future issuance | 8,865,789 | ||
Tel Aviv [Member] | |||
Subsequent Event [Line Items] | |||
Total minimum lease payments | $ 53,900 | ||
Estimated rental expense | $ 5,400 | ||
Tel Aviv [Member] | Subsequent Event [Member] | |||
Subsequent Event [Line Items] | |||
Operating leases, term of contract (in years) | 10 years | ||
Operating leases, renewal term (in years) | 10 years | ||
Second Restated Plan [Member] | |||
Subsequent Event [Line Items] | |||
Number of additional shares authorized | 1,640,000 | ||
Common stock, capital shares reserved for future issuance | 2,390,000 |
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