e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2008
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period to
Commission File No. 001-33299
MELLANOX TECHNOLOGIES, LTD.
(Exact Name of Registrant as Specified in Its Charter)
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ISRAEL
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98-0233400 |
(State or Other Jurisdiction of
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(I.R.S. Employer |
Incorporation or Organization)
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Identification No.) |
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HERMON BUILDING, YOKNEAM, ISRAEL
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20692 |
(Address of Principal Executive Offices)
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(Zip Code) |
Registrants Telephone Number, Including Area Code: +972-4-909-7200
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act) Yes o No þ
The total number of outstanding shares of the registrants Ordinary Shares, nominal value of NIS
0.0175 per share, as of June 30, 2008, was 31,531,001.
MELLANOX TECHNOLOGIES, LTD.
2
PART I. FINANCIAL INFORMATION
ITEM 1 UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MELLANOX TECHNOLOGIES, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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June 30, |
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December 31, |
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2008 |
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2007 |
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(In thousands) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
73,848 |
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$ |
100,650 |
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Short-term investments |
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90,361 |
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52,231 |
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Restricted cash |
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826 |
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709 |
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Accounts receivable, net |
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21,776 |
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17,353 |
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Inventories |
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5,997 |
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5,396 |
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Deferred taxes |
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7,243 |
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12,312 |
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Prepaid expenses and other |
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2,171 |
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1,509 |
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Total current assets |
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202,222 |
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190,160 |
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Property and equipment, net |
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8,652 |
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8,449 |
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Severance assets |
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4,056 |
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3,152 |
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Intangible assets, net |
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497 |
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395 |
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Other long-term assets |
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1,758 |
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244 |
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Total assets |
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$ |
217,185 |
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$ |
202,400 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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5,565 |
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$ |
6,703 |
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Other accrued liabilities |
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11,172 |
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11,282 |
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Capital lease obligations, current |
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1,065 |
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1,560 |
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Total current liabilities |
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17,802 |
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19,545 |
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Accrued severance |
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5,548 |
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4,058 |
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Capital lease obligations, net of current portion |
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1,142 |
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1,609 |
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Other long-term obligations |
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523 |
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71 |
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Total liabilities |
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25,015 |
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25,283 |
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Shareholders equity |
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Ordinary shares |
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134 |
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128 |
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Additional paid-in capital |
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216,575 |
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210,618 |
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Accumulated other comprehensive income (loss) |
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(83 |
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54 |
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Accumulated deficit |
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(24,456 |
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(33,683 |
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Total shareholders equity |
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192,170 |
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177,117 |
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Total liabilities and shareholders equity |
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$ |
217,185 |
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$ |
202,400 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
MELLANOX TECHNOLOGIES, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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(In thousands, except per share data) |
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Total revenues |
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$ |
28,201 |
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$ |
19,779 |
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$ |
53,356 |
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$ |
36,634 |
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Cost of revenues |
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(5,706 |
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(4,926 |
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(11,641 |
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(9,196 |
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Gross profit |
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22,495 |
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14,853 |
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41,715 |
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27,438 |
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Operating expenses: |
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Research and development |
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10,015 |
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5,592 |
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18,272 |
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11,536 |
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Sales and marketing |
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4,009 |
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3,004 |
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7,362 |
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5,795 |
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General and administrative |
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2,064 |
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1,503 |
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3,895 |
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2,860 |
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Total operating expenses |
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16,088 |
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10,099 |
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29,529 |
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20,191 |
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Income from operations |
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6,407 |
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4,754 |
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12,186 |
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7,247 |
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Other income, net |
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941 |
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1,780 |
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1,984 |
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2,737 |
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Income before taxes on income |
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7,348 |
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6,534 |
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14,170 |
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9,984 |
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Provision for taxes on income |
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(2,758 |
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(929 |
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(4,943 |
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(1,093 |
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Net income |
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$ |
4,590 |
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$ |
5,605 |
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$ |
9,227 |
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$ |
8,891 |
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Net income per share basic |
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$ |
0.15 |
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$ |
0.19 |
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$ |
0.30 |
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$ |
0.35 |
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Net income per share diluted |
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$ |
0.14 |
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$ |
0.17 |
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$ |
0.28 |
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$ |
0.32 |
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Shares used in computing income per share: |
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Basic |
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31,328 |
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29,850 |
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31,208 |
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25,107 |
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Diluted |
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32,969 |
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32,419 |
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32,881 |
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27,572 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
MELLANOX TECHNOLOGIES, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Six Months Ended June 30, |
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2008 |
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2007 |
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(In thousands) |
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Cash flows from operating activities: |
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Net income |
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$ |
9,227 |
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$ |
8,891 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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1,761 |
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796 |
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Deferred income taxes |
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5,069 |
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Share-based compensation expense |
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3,911 |
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1,425 |
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Gain on sale of investments |
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(1,456 |
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(211 |
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Changes in assets and liabilities: |
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Accounts receivable, net |
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(4,423 |
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(26 |
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Inventories |
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(601 |
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(1,121 |
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Prepaid expenses and other assets |
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(694 |
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1,697 |
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Accounts payable |
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(1,138 |
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177 |
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Accrued liabilities and other payables |
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1,832 |
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63 |
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Net cash provided by operating activities |
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13,488 |
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11,691 |
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Cash flows from investing activities: |
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Purchase of severance-related insurance policies |
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(904 |
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(246 |
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Purchases of short-term investments |
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(136,602 |
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(60,927 |
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Maturities and sale of short-term investments |
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99,791 |
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2,438 |
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Restricted cash deposit |
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(99 |
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71 |
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Purchase of property and equipment |
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(1,572 |
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(1,172 |
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Purchase of preferred stock |
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(1,500 |
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Net cash used in investing activities |
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(40,886 |
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(59,836 |
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Cash flows from financing activities: |
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Proceeds from initial public offering, net of issuance costs |
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105,953 |
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Principal payments on capital lease obligations |
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(1,456 |
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(291 |
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Proceeds from issuance of common stock to employees |
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2,052 |
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246 |
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Net cash provided by financing activities |
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596 |
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105,908 |
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Net increase (decrease) in cash and cash equivalents |
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(26,802 |
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57,763 |
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Cash and cash equivalents at beginning of period |
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100,650 |
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20,570 |
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Cash and cash equivalents at end of period |
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$ |
73,848 |
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$ |
78,333 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
MELLANOX TECHNOLOGIES, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Company
Mellanox Technologies, Ltd., an Israeli company, and its wholly-owned subsidiary, Mellanox
Technologies, Inc., a California corporation (collectively referred to as the Company or
Mellanox), were incorporated and commenced operations in March 1999. Mellanox is a supplier of
semiconductor-based, high-performance interconnect products for computing, storage and
communications applications.
Principles of presentation
The 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, or the SEC. The year-end condensed balance sheet data was
derived from audited financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States. Certain information and footnote
disclosures normally included in consolidated financial statements prepared in accordance with U.S.
generally accepted accounting principles 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 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 condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto contained in the Companys 2007 annual
report on Form 10-K dated March 24, 2008. The results of operations for the six months ended June
30, 2008 are not necessarily indicative of the results to be anticipated for the entire year ending
December 31, 2008 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 Companys financial position and results of operations:
unpredictable volume or timing of customer orders; the sales outlook and purchasing patterns of the
Companys customers, based on consumer demands and general economic conditions; loss of one or more
of the Companys 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 Companys products; reliance on a limited number of subcontractors to manufacture,
assemble, package and production test our products; the Companys ability to successfully develop,
introduce and sell new or enhanced products in a timely manner; product obsolescence and the
Companys ability to manage product transitions; and the timing of announcements or introductions
of new products by the Companys competitors.
Additionally, the Company has a significant presence in Israel, including research and
development activities, corporate facilities and sales support operations. Uncertainty surrounding
the political, economic and military conditions in Israel may directly impact the Companys
financial results.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentration of credit risk
6
Financial instruments that potentially subject the Company to a concentration of credit risk
consist of cash, cash equivalents, short-term investments and accounts receivable. The Companys
accounts receivable are derived from revenue earned from customers located in North America, Europe
and Asia. The Company performs ongoing credit evaluations of its customers financial condition and
generally requires no collateral from its customers. The Company maintains an allowance for
doubtful accounts receivable based upon the expected collectibility of accounts receivable. The
Company reviews its allowance for doubtful accounts quarterly by assessing individual accounts
receivable over a specific aging and amount, and all other balances based on historical collection
experience and an economic risk assessment. If the Company determines that a specific customer is
unable to meet its financial obligations to the Company, the Company provides an allowance for
credit losses to reduce the receivable to the amount management believes will be collected.
The following table summarizes the revenues from customers (including original equipment
manufacturers) in excess of 10% of the total revenues:
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2008 |
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2007 |
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2008 |
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2007 |
Sun Microsystems |
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18 |
% |
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* | |
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11 |
% |
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* |
QLogic |
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14 |
% |
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13 |
% |
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13 |
% |
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12 |
% |
Hewlett-Packard |
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12 |
% |
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14 |
% |
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12 |
% |
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15 |
% |
Supermicro |
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11 |
% |
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* | |
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* | |
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* |
Cisco |
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* | |
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17 |
% |
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* | |
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21 |
% |
Voltaire |
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* | |
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23 |
% |
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* | |
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22 |
% |
At June 30, 2008, QLogic, Solectron and Voltaire accounted for 14%, 13% and 12%, respectively,
of the Companys total accounts receivable.
Short-term investments
The Companys short-term investments, which are classified as available-for-sale securities in
accordance with Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities, or SFAS No. 115, are primarily invested in marketable
government agency obligations and commercial papers.
Short-term investments are reported at fair value at June 30, 2008 and 2007. Unrealized gains
or losses are recorded in stockholders equity and included in Accumulated other comprehensive
income (loss). Realized gains and losses and declines in value judged to be other than temporary
on available-for-sale securities are included in interest and other income, net. In order to
determine if a decline in value on an available-for-sale security is other than temporary, we
evaluate, among other factors, general market conditions, the duration and extent to which the fair
value is less than cost, as well as the Companys intent and ability to hold the investment. Once a
decline in fair value is determined to be other than temporary, an impairment charge is recorded
and a new cost basis in the investment is established.
The contractual maturities of marketable securities classified as short-term investments at
June 30, 2008 and 2007 are one year or less.
Investment in preferred stock
The Company has an investment of $1.5 million in the preferred stock of a
privately-held company. This investment is accounted for at cost because the Company does not have the
ability to exercise significant influence over the operating and financial policies of this
company. This investment is included in other long-term assets on the accompanying balance sheets.
The Company monitors this investment for impairment by considering available evidence generally
including financial, operational and economic data and makes appropriate reductions in carrying
values when an impairment is deemed to be other than temporary.
7
Product warranty
The Company typically offers a limited warranty on its products for periods of up to three
years. The Company accrues for estimated returns of defective products at the time revenue is
recognized based on historical activity. The determination of these accruals requires the Company
to make estimates of the frequency and extent of warranty activity and estimated future costs to
either replace or repair the products under warranty. If the actual warranty activity and/or repair
and replacement costs differ significantly from these estimates, adjustments to cost of revenues
may be required in future periods. Changes in the Companys liability for product warranty during
the six months ended June 30, 2008 and 2007 are as follows:
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Six Months Ended June 30, |
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2008 |
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2007 |
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(In thousands) |
|
Balance, beginning of the period |
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$ |
704 |
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$ |
528 |
|
New warranties issued during the period |
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430 |
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168 |
|
Settlements during the period |
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(68 |
) |
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(140 |
) |
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|
Balance, end of the period |
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$ |
1,066 |
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$ |
556 |
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Net income per share
Basic and diluted net income per share is computed by dividing the net income for the period
by the weighted average number of ordinary shares outstanding during the period. The calculation of
diluted net income per share excludes potential ordinary shares if the effect is antidilutive.
Potential ordinary shares are comprised of ordinary shares subject to repurchase rights,
incremental ordinary shares issuable upon the exercise of share options or warrants and shares
issuable in accordance with employee share purchase plan.
The following table sets forth the computation of basic and diluted net income per share for
the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands, except per share data) |
|
Net income |
|
$ |
4,590 |
|
|
$ |
5,605 |
|
|
$ |
9,227 |
|
|
$ |
8,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstanding |
|
|
31,328 |
|
|
|
29,852 |
|
|
|
31,208 |
|
|
|
25,109 |
|
Weighted average unvested ordinary shares subject to repurchase |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute basic net income per share |
|
|
31,328 |
|
|
|
29,850 |
|
|
|
31,208 |
|
|
|
25,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities ordinary share options |
|
|
1,641 |
|
|
|
2,569 |
|
|
|
1,673 |
|
|
|
2,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute diluted net income per share |
|
|
32,969 |
|
|
|
32,419 |
|
|
|
32,881 |
|
|
|
27,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to ordinary shareholders basic |
|
$ |
0.15 |
|
|
$ |
0.19 |
|
|
$ |
0.30 |
|
|
$ |
0.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to ordinary shareholders diluted |
|
$ |
0.14 |
|
|
$ |
0.17 |
|
|
$ |
0.28 |
|
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
The Company uses the U.S. dollar as its functional currency. Foreign currency assets and
liabilities are remeasured into U.S. dollars at the end-of-period exchange rates except for
non-monetary assets and liabilities, which are remeasured at historical exchange rates. Revenue and
expenses are remeasured each day at the exchange rate in effect on the day the transaction
occurred, except for those expenses related to balance sheet amounts, which are remeasured at
historical exchange rates. Gains or losses from foreign currency transactions are included in the
Consolidated Statements of Operations as part of Other income, net.
Segment reporting
Statement of Financial Accounting Standards No. 131, Disclosure about Segments of an
Enterprise and Related Information, or SFAS No. 131, requires that companies report separately in
their financial statements certain financial and descriptive information about operating segments
profit or loss, certain specific revenue and expense items and segment assets. Additionally,
companies are required to report information about the revenues derived from their products and
service groups, about geographic areas in which
8
they earn revenues and hold assets and about major customers. The Company has one reportable
segment: the development, manufacturing, marketing and sales of interconnect semiconductor
products.
Recent accounting pronouncements
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair
Value Measurements, or SFAS No. 157, which defines fair value, establishes a framework for
measuring fair value under generally accepted accounting principles and expands disclosures about
fair value measurements. SFAS No. 157 does not require any new fair value measurements, but
provides guidance on how to measure fair value by providing a fair value hierarchy used to classify
the source of the information. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2,
Effective Date of FASB Statement No. 157, or
FSP 157-2, which provides a one year deferral of the effective
date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are
recognized or disclosed in the financial statements at fair value on a recurring basis. We adopted
SFAS 157 as of January 1, 2008, with the exception of the application of the statement to
non-recurring non-financial assets and non-financial liabilities
described in FSP 157-2. The adoption of this statement
did not have a material impact on the Companys consolidated results of operations, financial
condition or cash flows. Refer to Note 3 to the Condensed Consolidated Financial Statements for
additional discussion on fair value measurements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities including an amendment of FASB Statement No. 115, or SFAS 159, which
is effective for fiscal years beginning after November 15, 2007. This statement permits entities to
choose to measure many financial instruments and certain other items at fair value. This statement
also establishes presentation and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes for similar types of assets and
liabilities. Unrealized gains and losses on items for which the fair value option is elected would
be reported in earnings. We have adopted SFAS 159 and have elected not to measure any additional
financial instruments and other items at fair value.
In June 2007 the FASB ratified Emerging Issuers Task Force No. 07-3, or EITF 07-3, Accounting
for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and
Development Activities. EITF 07-3 requires non-refundable advance payments for goods and services
to be used in future research and development activities to be recorded as an asset and the
payments to be expensed when the research and development activities are performed. EITF 07-3 was
effective for us on January 1, 2008. The adoption of this standard did not have a material effect
on the Companys financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133, or SFAS 161. This statement is
intended to improve transparency in financial reporting by requiring enhanced disclosures of an
entitys derivative instruments and hedging activities and their effects on the entitys financial
position, financial performance, and cash flows. SFAS 161 applies to all derivative instruments
within the scope of SFAS 133, Accounting for Derivative Instruments and Hedging Activities, or
SFAS 133, as well as related hedged items, bifurcated derivatives and non-derivative instruments
that are designated and qualify as hedging instruments. Entities with instruments subject to SFAS
161 must provide more robust qualitative disclosures and expanded quantitative disclosures. SFAS
161 is effective prospectively for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application permitted. We are currently evaluating
the disclosure implications of this statement.
NOTE 2 BALANCE SHEET COMPONENTS:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
11,596 |
|
|
$ |
8,028 |
|
Money market funds |
|
|
52,761 |
|
|
|
4,330 |
|
Government agency discount notes |
|
|
|
|
|
|
58,735 |
|
Commercial paper |
|
|
9,491 |
|
|
|
29,557 |
|
|
|
|
|
|
|
|
|
|
$ |
73,848 |
|
|
$ |
100,650 |
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Short-term investments: |
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
52,761 |
|
|
$ |
4,330 |
|
Commercial paper |
|
|
38,427 |
|
|
|
40,970 |
|
Corporate notes |
|
|
5,710 |
|
|
|
|
|
Government agency discount notes |
|
|
55,715 |
|
|
|
99,553 |
|
|
|
|
|
|
|
|
Total investments in marketable securities |
|
|
152,613 |
|
|
|
144,853 |
|
Less amounts classified as cash equivalents |
|
|
(62,252 |
) |
|
|
(92,622 |
) |
|
|
|
|
|
|
|
|
|
$ |
90,361 |
|
|
$ |
52,231 |
|
|
|
|
|
|
|
|
Accounts receivable, net: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
21,995 |
|
|
$ |
17,539 |
|
Less: Allowance for doubtful accounts |
|
|
(219 |
) |
|
|
(186 |
) |
|
|
|
|
|
|
|
|
|
$ |
21,776 |
|
|
$ |
17,353 |
|
|
|
|
|
|
|
|
Inventories: |
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
585 |
|
|
$ |
642 |
|
Work-in-process |
|
|
1,539 |
|
|
|
1,379 |
|
Finished goods |
|
|
3,873 |
|
|
|
3,375 |
|
|
|
|
|
|
|
|
|
|
$ |
5,997 |
|
|
$ |
5,396 |
|
|
|
|
|
|
|
|
Prepaid expense and other: |
|
|
|
|
|
|
|
|
Prepaid expenses |
|
$ |
1,244 |
|
|
$ |
512 |
|
Federal taxes recoverable |
|
|
787 |
|
|
|
914 |
|
Other |
|
|
140 |
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
$ |
2,171 |
|
|
$ |
1,509 |
|
|
|
|
|
|
|
|
Property and equipment, net: |
|
|
|
|
|
|
|
|
Computer equipment and software |
|
$ |
25,278 |
|
|
$ |
24,030 |
|
Furniture and fixtures |
|
|
1,373 |
|
|
|
1,146 |
|
Leasehold improvements |
|
|
801 |
|
|
|
666 |
|
|
|
|
|
|
|
|
|
|
|
27,452 |
|
|
|
25,842 |
|
Less: Accumulated depreciation
and amortization |
|
|
(18,800 |
) |
|
|
(17,393 |
) |
|
|
|
|
|
|
|
|
|
$ |
8,652 |
|
|
$ |
8,449 |
|
|
|
|
|
|
|
|
Other accrued liabilities: |
|
|
|
|
|
|
|
|
Payroll and related expenses |
|
$ |
6,226 |
|
|
$ |
5,311 |
|
Professional services |
|
|
1,587 |
|
|
|
1,418 |
|
Royalties |
|
|
373 |
|
|
|
1,233 |
|
Warranty |
|
|
1,066 |
|
|
|
704 |
|
Income tax payable |
|
|
386 |
|
|
|
997 |
|
Sales commissions |
|
|
714 |
|
|
|
888 |
|
Other |
|
|
820 |
|
|
|
731 |
|
|
|
|
|
|
|
|
|
|
$ |
11,172 |
|
|
$ |
11,282 |
|
|
|
|
|
|
|
|
Other long-term obligations: |
|
|
|
|
|
|
|
|
Federal income tax payable |
|
$ |
523 |
|
|
$ |
64 |
|
Other |
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
$ |
523 |
|
|
$ |
71 |
|
|
|
|
|
|
|
|
NOTE 3 FAIR VALUE:
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, or SFAS 157, which
was effective for fiscal years beginning after November 15, 2007 and for interim periods within
those years. This statement defines fair value, establishes a framework for measuring fair value
and expands the related disclosure requirements. This statement applies under other accounting
pronouncements that require or permit fair value measurements. The statement indicates, among other
things, that a fair value measurement assumes that the transaction to sell an asset or transfer a
liability occurs in the principal market for the asset or liability or, in the absence of a
principal market, the most advantageous market for the asset or liability. SFAS 157 defines fair
value based upon an exit price model.
Relative to SFAS 157, the FASB issued FASB Staff Positions, or FSP, 157-1 and 157-2. FSP 157-1
amends SFAS 157 to exclude SFAS No. 13, Accounting for Leases, or SFAS 13, and its related
interpretive accounting pronouncements that address leasing
10
transactions, while FSP 157-2 delays the effective date of the application of SFAS 157 to
fiscal years beginning after November 15, 2008 for all non-financial assets and non-financial
liabilities that are recognized or disclosed at fair value in the financial statements on a
nonrecurring basis.
We adopted SFAS 157 as of January 1, 2008, with the exception of the application of the
statement to non-financial assets and non-financial
liabilities described in FSP 157-2.
Valuation Hierarchy
SFAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to
measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level
1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs
that are observable for the asset or liability, either directly or indirectly through market
corroboration, for substantially the full term of the financial instrument. Level 3 inputs are
unobservable inputs based on our own assumptions used to measure assets and liabilities at fair
value. A financial asset or liabilitys classification within the hierarchy is determined based on
the lowest level input that is significant to the fair value measurement.
The following table represents the Companys fair value hierarchy for its financial assets
(cash equivalents and investments) measured at fair value on a recurring basis as of June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
(In thousands) |
|
Money market funds |
|
$ |
52,761 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
52,761 |
|
Commercial paper |
|
|
|
|
|
|
38,427 |
|
|
|
|
|
|
|
38,427 |
|
Corporate notes |
|
|
|
|
|
|
5,710 |
|
|
|
|
|
|
|
5,710 |
|
Government agency discount notes |
|
|
|
|
|
|
55,715 |
|
|
|
|
|
|
|
55,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
52,761 |
|
|
$ |
99,852 |
|
|
$ |
|
|
|
$ |
152,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4 COMMITMENTS AND CONTINGENCIES:
Leases
As of June 30, 2008, future minimum lease payments under non-cancelable operating and capital
leases, and future minimum sublease rental receipts under non-cancelable operating leases are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
Capital |
|
|
Operating |
|
|
Sublease |
|
Year Ended December 31, |
|
Leases |
|
|
Leases |
|
|
Income |
|
|
|
(In thousands) |
|
2008 |
|
$ |
496 |
|
|
$ |
1,488 |
|
|
$ |
80 |
|
2009 |
|
|
730 |
|
|
|
1,939 |
|
|
|
40 |
|
2010 |
|
|
537 |
|
|
|
1,336 |
|
|
|
|
|
2011 |
|
|
316 |
|
|
|
807 |
|
|
|
|
|
2012 |
|
|
158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments and sublease income |
|
$ |
2,237 |
|
|
$ |
5,570 |
|
|
$ |
120 |
|
|
|
|
|
|
|
|
|
|
|
|
Less: Amount representing interest |
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of capital lease obligations |
|
|
2,207 |
|
|
|
|
|
|
|
|
|
Less: Current portion |
|
|
(1,065 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of capital lease obligations |
|
$ |
1,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase commitments
As of June 30, 2008, the Company had no non-cancelable purchase commitments with suppliers
beyond one year.
11
Contingencies
The Company is not currently subject to any material legal proceedings. The Company may, from
time to time, become a party to various legal proceedings arising in the ordinary course of
business. The Company may also be indirectly affected by administrative or court proceedings or
actions in which the Company is not involved but which have general applicability to the
semiconductor industry.
NOTE 5 SHAREHOLDERS EQUITY:
Comprehensive income
The components of comprehensive income, net of taxes, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Net income |
|
$ |
4,590 |
|
|
$ |
5,605 |
|
|
$ |
9,227 |
|
|
$ |
8,891 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on securities |
|
|
(214 |
) |
|
|
17 |
|
|
|
(83 |
) |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
4,376 |
|
|
$ |
5,622 |
|
|
$ |
9,144 |
|
|
$ |
8,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income reflected on the unaudited condensed consolidated
balance sheet at June 30, 2008 and 2007 represents accumulated unrealized gains on securities.
NOTE 6 SHARE INCENTIVE PLANS:
The Company has four share option plans: the 1999 United States Equity Incentive Plan, 1999
Israeli Share Option Plan and 2003 Israeli Share Option Plan (collectively, the Prior Plans) and
the 2006 Global Share Incentive Plan, or the Global Plan. The Global Plan was adopted by our board
of directors in October 2006, approved by our shareholders in December 2006 and became effective on
February 6, 2007. Upon the effectiveness of the Global Plan, all Prior Plans were replaced by the
Global Plan and a total of 3,554,044 of the Companys ordinary shares were reserved for the
granting under this plan. On July 7, 2008 the Company reserved additional 680,513 ordinary shares.
The number of ordinary shares reserved for issuance under the Global Plan will increase
automatically on the first day of each fiscal year by a number of ordinary shares equal to the
least of: (i) 2% of ordinary shares outstanding on a fully diluted basis on such date, (ii) 685,714
ordinary shares or (iii) a smaller number determined by our board of directors. In any event, the
maximum aggregate number of ordinary shares that may be issued or transferred under the Global Plan
during the term of the Global Plan may in no event exceed 15,474,018 ordinary shares.
The following table summarizes the activity under the Global Plan during the six months ended
June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Shares |
|
|
Number |
|
|
Average |
|
|
|
Available |
|
|
of |
|
|
Exercise |
|
|
|
for Grant |
|
|
Shares |
|
|
Price |
|
Outstanding at December 31, 2007 |
|
|
1,510,811 |
|
|
|
6,029,526 |
|
|
$ |
9.68 |
|
Options granted |
|
|
(495,980 |
) |
|
|
495,980 |
|
|
$ |
15.08 |
|
Options exercised |
|
|
|
|
|
|
(424,530 |
) |
|
$ |
2.80 |
|
Options canceled |
|
|
155,808 |
|
|
|
(155,808 |
) |
|
$ |
15.65 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008 |
|
|
1,170,639 |
|
|
|
5,945,168 |
|
|
$ |
10.46 |
|
|
|
|
|
|
|
|
|
|
|
The weighted average fair value of options granted was approximately $8.84 and $11.10 for the
three months ended June 30, 2008 and 2007, respectively, $8.76 and $11.16 for the six months ended
June 30, 2008 and 2007, respectively.
The total pretax intrinsic value of options exercised in the six months ended June 30, 2008
and 2007 was $5.7 million and $0.6 million, respectively. This intrinsic value represents the
difference between the fair market value of our ordinary shares on the date of exercise and the
exercise price of each option. As of June 30, 2008, 5,945,168 options were outstanding with a
weighted-average exercise price of $10.46 per share and weighted-average remaining contractual term
of 7.32 years. Based on the closing price of our ordinary shares of $13.54 on June 30, 2008, the
total pretax intrinsic value of all outstanding options was $29.1 million. As of June 30,
12
2008, 2,913,867 options were exercisable, out of which 2,661,797 options were fully vested and
252,070 options were unvested but exercisable. The total pretax intrinsic value of exercisable
options at June 30, 2008 was $25.7 million.
Our Employee Share Purchase Plan, or ESPP, was adopted by our board of directors in November
2006 and approved by our shareholders in December 2006, and became effective immediately prior to
our initial public offering on February 7, 2007. The ESPP is designed to allow our eligible
employees to purchase our ordinary shares, at semi-annual intervals, or offering periods, with
their accumulated payroll deductions. 571,428 shares have been initially reserved for issuance
pursuant to purchase rights under the ESPP. A participant may contribute up to 15% of his or her
compensation through payroll deductions, and the accumulated deductions will be applied to the
purchase of shares on the purchase date, which is the last trading day of the offering period. The
purchase price per share will be equal to 85% of the fair market value per share on the start date
of the offering period in which the participant is enrolled or, if lower, 85% of the fair market
value per share on the purchase date. In addition, the number of ordinary shares reserved under our
ESPP will increase automatically on the first day of each fiscal year during the term, beginning in
2008, by a number of ordinary shares equal to the least of (i) 0.5% of the total number of ordinary
shares outstanding on a fully diluted basis on the date of the increase, (ii) 171,428 shares, or
(iii) a smaller number of shares as determined by our board of directors. In 2008 the board of
directors decided not to reserve any additional shares under our ESPP program. In any event, the
maximum aggregate number of ordinary shares that may be issued over the term of the ESPP may in no
event exceed 2,114,285 shares. In addition, no participant in our ESPP may be issued or transferred
more than $25,000 worth of ordinary shares pursuant to purchase rights under the ESPP per calendar
year. During the six months ended June 30, 2008, 66,365 shares were issued under this plan at
average per share prices of $13.01. At June 30, 2008, 442,930 shares were available for future
issuance under the ESPP.
Share-based compensation
The following weighted average assumptions are used to value share options granted in
connection with the Companys share incentive plans for the six months ended June 30, 2008 and
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock |
|
Employee Stock |
|
|
Options |
|
Purchase Plan |
|
|
Six Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Dividend yield, % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility, % |
|
|
59.0 |
|
|
|
65.3 |
|
|
|
52.9 |
|
|
|
59.4 |
|
Risk free interest rate, % |
|
|
3.17 |
|
|
|
4.67 |
|
|
|
2.68 |
|
|
|
4.96 |
|
Expected life, years |
|
|
6.25 |
|
|
|
6.25 |
|
|
|
0.50 |
|
|
|
0.56 |
|
Estimated forfeiture rate, % |
|
|
8.20 |
|
|
|
9.03 |
|
|
|
|
|
|
|
|
|
For share options granted since January 1, 2006, the Company estimates the fair value of the
options as of the date of grant using the Black-Scholes valuation model and applies the
straight-line method to attribute share-based compensation expense. For the three and six months
ended June 30, 2008, the Company recorded share-based compensation expense for employees and
non-employees totaling approximately $2,037,000 and $3,911,000 respectively, compared to
approximately $827,000 and $1,425,000, respectively for the three and six months ended June 30,
2007.
The following table summarizes the distribution of total share-based compensation expense in
the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Cost of goods sold |
|
$ |
49 |
|
|
$ |
18 |
|
|
$ |
97 |
|
|
$ |
33 |
|
Research and development |
|
|
1,259 |
|
|
|
415 |
|
|
|
2,446 |
|
|
|
690 |
|
Sales and marketing |
|
|
457 |
|
|
|
271 |
|
|
|
835 |
|
|
|
482 |
|
General and administrative |
|
|
272 |
|
|
|
123 |
|
|
|
533 |
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense |
|
$ |
2,037 |
|
|
$ |
827 |
|
|
$ |
3,911 |
|
|
$ |
1,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
At June 30, 2008, there was $24.2 million of total unrecognized share-based compensation costs
related to non-vested share-based compensation arrangements. The costs are expected to be
recognized over a weighted average period of 2.96 years.
NOTE 7 INCOME TAXES:
Income taxes are accounted for using an asset and liability approach in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, which requires
the recognition of taxes payable or refundable for the current year and deferred tax liabilities
and assets for the future tax consequences of events that have been recognized in the Companys
financial statements or tax returns. The measurement of current and deferred tax liabilities and
assets are based on the provisions of enacted tax law; the effects of future changes in tax laws or
rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the
amount of any tax benefits that, based on available evidence, are not expected to be realized.
Deferred tax assets and liabilities are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to affect taxable income. Valuation allowances are
provided if based upon the weight of available evidence, it is considered more likely than not that
some or all of the deferred tax assets will not be realized.
On January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, or FIN 48. Under FIN 48, the impact of an uncertain income tax position on income
tax expense must be recognized at the amount that is more-likely-than-not of being sustained. As of
June 30, 2008, the Company has $1,188,000 of unrecognized benefits compared to $1,139,000 as of
December 31, 2007. It is the Companys policy to classify accrued interest and penalties as part of
the unrecognized tax benefits, or tax contingencies, and record the expense in the provision for
income taxes. As of June 30, 2008 the amount of accrued interest and penalties totaled $14,293. As
of June 30, 2008, calendar years 2003 through 2007 are open and subject to potential examination in
one or more jurisdictions. The Company is not currently under federal, state or foreign income tax
examination.
Our effective tax rate is highly dependent upon the geographic distribution of our worldwide
earnings or losses, the tax regulations and tax holiday benefits in Israel, and the effectiveness
of our tax planning strategies. The tax provision for income taxes reported for the six months
ended June 30, 2008 reflects the estimated annual tax rate applied to the year to date net income,
adjusted for certain discrete items which are fully recognized in the period they occur. 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 our
subjective assumptions and judgments could materially affect amounts recognized in the consolidated
balance sheets and statements of income.
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition as of June 30, 2008 and
results of operations for the three and six months ended June 30, 2008 and June 30, 2007 should be
read together with our financial statements and related notes included elsewhere in this report.
This discussion and analysis contains forward-looking statements that involve risks, uncertainties
and assumptions. Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of many factors, including but not limited to those set
forth under the section entitled Risk Factors in Part II, Item 1A of this report. We urge you not
to place undue reliance on these forward-looking statements, which speak only as of the date of
this report. All forward-looking statements included in this report are based on information
available to us on the date of this report, and we assume no obligation to update any
forward-looking statements contained in this report. Quarterly financial results may not be
indicative of the financial results of future periods.
Overview
General
We are a leading supplier of semiconductor-based, high-performance interconnect products that
facilitate data transmission between servers, communications infrastructure equipment and storage
systems. Our products are an integral part of a total solution focused on computing, storage and
communication applications used in enterprise data center, high-performance computing and
14
embedded systems. We operate in one reportable segment: the development, manufacturing,
marketing and sales of interconnect semiconductor products.
We are a fabless semiconductor company that provides high-performance interconnect products
based on semiconductor integrated circuits, or ICs. We design, develop and market adapter and
switch ICs, both of which are silicon devices that provide high performance connectivity. We also
offer adapter cards that incorporate our ICs. Growth in our target markets is being driven by the
need to improve the efficiency and performance of clustered systems, as well as the need to
significantly reduce the total cost of ownership.
It is difficult for us to forecast the demand for our products, in part because of the highly
complex supply chain between us and the end-user markets that incorporate our products. Demand for
new features changes rapidly. Due to our lengthy product development cycle, it is critical for us
to anticipate changes in demand for our various product features and the applications they serve to
allow sufficient time for product design. Our failure to accurately forecast demand can lead to
product shortages that can impede production by our customers and harm our relationships with these
customers. Conversely, our failure to forecast declining demand or shifts in product mix can result
in excess or obsolete inventory.
Revenues. We derive revenues from sales of our ICs and cards. To date, we have derived a
substantial portion of our revenues from a relatively small number of customers. Revenues were
approximately $53.4 million for the six months ended June 30, 2008 compared to approximately $36.6
million for the six months ended June 30, 2007, representing an increase of 46%. Total sales to
customers representing more than 10% of revenues accounted for 36% and 70% of our total revenues
for the six months ended June 30, 2008 and 2007, respectively. The loss of one or more of our
principal customers or the reduction or deferral of purchases of our products by one of these
customers could cause our revenues to decline materially if we are unable to increase our revenues
from other customers.
Cost of revenues and gross profit. The cost of revenues consists primarily of the cost of
silicon wafers purchased from our foundry supplier, Taiwan Semiconductor Manufacturing Company, or
TSMC, costs associated with the assembly, packaging and production testing of our products by
Advanced Semiconductor Engineering, or ASE, outside processing costs associated with the
manufacture of our HCA cards by Flextronics, royalties due to third parties, including the Office
of the Chief Scientist of Israels Ministry of Industry, Trade and Labor, or the OCS, the
Binational Industrial Research and Development (BIRD) Foundation and a third-party licensor,
warranty costs, excess and obsolete inventory costs and costs of personnel associated with
production management and quality assurance. In addition, after we purchase wafers from our
foundries, we also have the yield risk related with manufacturing these wafers into semiconductor
devices. Manufacturing yield is the percentage of acceptable product resulting from the
manufacturing process, as identified when the product is tested as a finished IC. If our
manufacturing yields decrease, our cost per unit increases, which could have a significant adverse
impact on our cost of revenues. We do not have long-term pricing agreements with TSMC and ASE.
Accordingly, our costs are subject to price fluctuations based on the cyclical demand for
semiconductors.
We purchase our inventory pursuant to standard purchase orders. We estimate that lead times
for delivery of our finished semiconductors from our foundry supplier and assembly, packaging and
production testing subcontractor are approximately three to four months and that lead times for
delivery from our HCA card manufacturing subcontractors are approximately eight to ten weeks. We
build inventory based on forecasts of customer orders rather than the actual orders themselves. In
addition, as customers are increasingly seeking opportunities to reduce their lead times, we may be
required to increase our inventory to meet customer demand.
We expect our cost of revenues to increase over time as a result of the expected increase in
our sales volume. Generally, our cost of revenues as a percentage of sales has decreased over time,
primarily due to manufacturing cost reductions and economies of scale related to higher unit
volumes. This trend may not continue in the future, and will depend on overall customer demand for
our products, our product mix, competitive product offerings and related pricing and our ability to
reduce manufacturing costs.
Operational expenses
Research and development expenses. Our research and development expenses consist primarily of
salaries, share-based compensation and associated costs for employees engaged in research and
development, costs associated with computer aided design software tools, depreciation expense and
tape out costs. Tape out costs are expenses related to the manufacture of new products, including
charges for mask sets, prototype wafers, mask set revisions and testing incurred before releasing
new products. We anticipate these expenses will increase in future periods based on an increase in
personnel to support our product development
15
activities and the introduction of new products. We anticipate that our research and
development expenses may fluctuate over the course of a year based on the timing of our product
tape outs.
We received grants from the OCS for several projects. Under the terms of these grants, if
products developed from an OCS-funded project generate revenue, we are required to pay a royalty of
4-4.5% of the net sales as soon as we begin to sell such products until 120% of the dollar value of
the grant plus interest at LIBOR is repaid. All of the grants we have received from the OCS have
resulted in IC products sold by us. We received no grants from the OCS during the year ended
December 31, 2007 or the six months ended June 30, 2008. In total we have received grants from OCS
in amount of $2.8 million. As of June 30, 2008, our obligation in respect of royalties accrued and
payable to the OCS totaled approximately $261,000.
The terms of OCS grants generally prohibit the manufacture of products developed with OCS
funding outside of Israel without the prior consent of the OCS. The OCS has approved the
manufacture outside of Israel of our IC products, subject to an undertaking by us to pay the OCS
royalties on the sales of our OCS-supported products until such time as the total royalties paid
equal 120% of the amount of OCS grants.
Under applicable Israeli law, OCS consent is also required to transfer technologies developed
with OCS funding to third parties in Israel. Transfer of OCS-funded technologies outside of Israel
is permitted with the approval of the OCS and in accordance with the restrictions and payment
obligations set forth under Israeli law. Israeli law further specifies that both the transfer of
know-how as well as the transfer of intellectual property rights in such know-how are subject to
the same restrictions. These restrictions do not apply to exports of products from Israel or the
sale of products developed with these technologies.
Sales and marketing expenses. Sales and marketing expenses consist primarily of salaries,
share-based compensation and associated costs for employees engaged in sales, marketing and
customer support, commission payments to external, third party sales representatives, sales-related
legal costs for contract reviews, and charges for trade shows, promotions and travel. We expect
these expenses will increase in absolute dollars in future periods based on an increase in sales
and marketing personnel and increased commission payments on higher sales volumes.
General and administrative expenses. General and administrative expenses consist primarily of
salaries, share-based compensation and associated costs for employees engaged in finance, human
resources and administrative activities and charges for accounting and corporate legal fees. We
expect these expenses will increase in absolute dollars in future periods based on an increase in
personnel to meet the requirements associated with our anticipated growth and costs associated with
being a public company.
Taxes on Income. Our operations in Israel have been granted Approved Enterprise status by
the Investment Center of the Israeli Ministry of Industry, Trade and Labor, which makes us eligible
for tax benefits under the Israeli Law for Encouragement of Capital Investments, 1959. Under the
terms of the Approved Enterprise program, income that is attributable to our operations in Yokneam,
Israel will be exempt from income tax for a period of ten years commencing when we first generate
taxable income (after setting off our losses from prior years). Income that is attributable to our
operations in Tel Aviv, Israel will be exempt from income tax for a period of two years commencing
when we first generate taxable income (after setting off our losses from prior years), and will be
subject to a reduced income tax rate (generally 10-25%, depending on the percentage of foreign
investment in our company) for the following five to eight years.
The change in our effective income tax rate in 2008 reflects the impact of releasing the
valuation allowance in Israel as of December 31, 2007. The 35% effective tax rate is the blend of
geographic income in the U.S. and Israel at their respective statutory rates, adjusted for
permanent differences. Management currently expects the Israeli Approved Enterprise Tax Holiday
will begin in 2009 and our effective tax rate will be materially reduced as a result.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted
accounting principles. The preparation of these consolidated financial statements requires us to
make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis.
Our estimates are based on historical experience and various other assumptions that we believe to
be reasonable under the circumstances. Our actual results could differ from these estimates.
16
We believe that the assumptions and estimates associated with revenue recognition, allowance
for doubtful accounts, inventory valuation, warranty provision, income taxes and share-based
compensation have the greatest potential impact on our consolidated financial statements.
Therefore, we consider these to be our critical accounting policies and estimates. For further
information on all of our significant accounting policies, please see Note 1 of the accompanying
notes to our consolidated financial statements.
See our Annual Report on Form 10-K for the year ended December 31, 2007, filed with the SEC on
March 24, 2008, for a discussion of additional critical accounting policies and estimates. We
believe there have been no significant changes in our critical accounting policies as compared to
what was previously disclosed in the Form 10-K for the year ended December 31, 2007.
Results of Operations
The following table sets forth our consolidated statements of operations as a percentage of
revenues for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Total Revenues |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Cost of revenues |
|
|
(20 |
) |
|
|
(25 |
) |
|
|
(22 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
80 |
|
|
|
75 |
|
|
|
78 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
36 |
|
|
|
28 |
|
|
|
34 |
|
|
|
31 |
|
Sales and marketing |
|
|
14 |
|
|
|
15 |
|
|
|
14 |
|
|
|
16 |
|
General and administrative |
|
|
7 |
|
|
|
8 |
|
|
|
7 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
57 |
|
|
|
51 |
|
|
|
55 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
23 |
|
|
|
24 |
|
|
|
23 |
|
|
|
20 |
|
Other income, net |
|
|
3 |
|
|
|
9 |
|
|
|
3 |
|
|
|
7 |
|
Provision for taxes on income |
|
|
(10 |
) |
|
|
(5 |
) |
|
|
(9 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
16 |
|
|
|
28 |
|
|
|
17 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of the Three Months Ended June 30, 2008 to the Three Months Ended June 30, 2007
Revenues. Revenues were approximately $28.2 million for the three months ended June 30, 2008
compared to approximately $19.8 million for the three months ended June 30, 2007, representing an
increase of 43%. This increase in revenues resulted from increased unit sales of approximately 14%
and an increase in average sales prices of 25% primarily due to changes in product mix. The
increase in unit sales was primarily due to increased purchases by Sun Microsystems, QLogic and
Supermicro Computer, which accounted for 18%, 14% and 11%, respectively, of our revenues for the
three months ended June 30, 2008 and increased purchases by SGI and Network Appliance, each of
which accounted for less than 10%, of our revenue for the three months ended June 30, 2008. These
increases in unit sales were partially offset partially by reduced purchases by Cisco and Voltaire.
Current quarter revenues are not necessarily indicative of the results to be anticipated for the
entire year ending December 31, 2008 or thereafter.
Gross Profit and Margin. Gross profit was approximately $22.5 million for the three months
ended June 30, 2008 compared to $14.9 million for the three months ended June 30, 2007,
representing an increase of 51%. As a percentage of revenues, gross margin increased to 79.8% in
the three months ended June 30, 2008 from 75.1% in the three months ended June 30, 2007. This
increase in gross margin was due to higher mix of ICs versus HCA cards, increased sales of
double-data rate, or DDR, products and the introduction of our next generation quadruple-data rate,
or QDR, products for which we receive higher margins, partially offset by costs related to the
in-house manufacturing of newly introduced products. Revenues attributable to DDR products were 84%
and 57% of total revenues for the three months ended June 30, 2008 and 2007, respectively. Revenues
attributable to QDR products were 4% of total revenues in the three months ended June 30, 2008. In
addition, part of the gross margin improvement was due to a reduction in production costs
associated with outsourced labor, raw materials and volume discounts, and the conclusion of our OCS
obligation. This trend may or may not continue in the near term.
Research and Development. Research and development expenses were approximately $10.0 million
in the three months ended June 30, 2008 compared to approximately $5.6 million in the three months
ended June 30, 2007, representing an increase of 79%. The
17
increase consisted of approximately $2.2 million in higher employee related expenses
associated with increased headcount and merit-based salary increases, an increase in share based
compensation of $844,000 primarily due to new option grants, an increase in new product
introduction expenses of $830,000, and higher depreciation and amortization expenses of
approximately $272,000 related to purchases of equipment and technology licenses. We expect that
research and development expense will increase in absolute dollars in future periods as we continue
to devote resources to develop new products, meet the changing requirements of our customers,
expand into new markets and technologies, and hire additional personnel.
For a further discussion of share-based compensation included in research and development
expense, see Share-based compensation expense below.
Sales and Marketing. Sales and marketing expenses were approximately $4.0 million for the
three months ended June 30, 2008 compared to approximately $3.0 million for the three months ended
June 30, 2007, representing an approximate increase of 33%. The increase was attributable to higher
employee related expenses of $353,000 associated with increased headcount and merit-based salary
merit, an increase in external sales commissions of $208,000 due to the increase in sales, an
increase in share based compensation of $186,000 primarily due to new option grants, and increases
in advertising and public relations expenses of $156,000 due to increased tradeshow participation.
For a further discussion of share-based compensation included in sales and marketing expense,
see Share-based compensation expense below.
General and Administrative. General and administrative expenses were approximately $2.1
million for the three months ended June 30, 2008 compared to approximately $1.5 million for the
three months ended June 30, 2007, representing an increase of 37%. The increase was due to an
increase in employee related expenses of $187,000 associated with increased headcount and
merit-based salary increases, an increase of $175,000 in accounting
and audit fees, an increase of $160,000 in facilities and
maintenance expenses, higher share based compensation of $150,000 due to new option grants, and an
increase in other expenses of $118,000, partially offset by a decrease in legal expenses of
$100,000.
For a further discussion of share-based compensation included in sales and marketing expense,
see Share-based compensation expense below.
Other Income, net. Other income, net consists of interest earned on cash and cash equivalents
and short-term investments, and foreign currency exchange gains and losses. Other income, net was
approximately $941,000 for the three months ended June 30, 2008 compared to approximately $1.8
million for the three months ended June 30, 2007. The decrease consisted of approximately $750,000
of lower interest income associated with lower average interest rates paid on investments and lower
foreign currency exchange gains of approximately $129,000.
Provision for Taxes on Income. Provision for taxes on income was approximately $2.8 million
for the three months ended June 30, 2008 compared to approximately $0.9 million for the three
months ended June 30, 2007. The increase was primarily a result of utilization of certain deferred
tax assets related to net operating losses in Israel that are currently expected to be utilized
before the Approved Enterprise Tax Holiday begins in 2009.
Comparison of the Six Months Ended June 30, 2008 to the Six Months Ended June 30, 2007
Revenues. Revenues were approximately $53.4 million for the six months ended June 30, 2008
compared to approximately $36.6 million for the six months ended June 30, 2007, representing an
increase of 46%. This increase in revenues resulted from increased unit sales of approximately 19%
and an increase in average sales prices of 22%. The increase in unit sales was primarily due to
increased purchases by Sun Microsystems, which accounted for 11% of our revenues for the six months
ended June 30, 2008 and increased purchases by Supermicro Computer, IBM, Network Appliance and
Dell, each of which accounted for less than 10%, of our revenue for the six months ended June 30,
2008. These increases in unit sales were partially offset by reduced purchases by Cisco and
Voltaire. Year-to-date revenues are not necessarily indicative of the results to be anticipated for
the entire year ending December 31, 2008 or thereafter.
18
Gross Profit and Margin. Gross profit was approximately $41.7 million for the six months ended
June 30, 2008 compared to $27.4 million for the six months ended June 30, 2007, representing an
increase of 52%. As a percentage of revenues, gross margin increased to 78.2% in the six months
ended June 30, 2008 from 74.9% in the six months ended June 30, 2007. This increase in gross
margin was due to a reduction in production costs associated with outsourced labor, raw materials
and volume discounts and increased sales of our next generation double data rate, or DDR, products
for which we receive higher margins. Revenues attributable to DDR products were 84% and 51% of
total revenues for the six months ended June 30, 2008 and 2007, respectively.
Research and Development. Research and development expenses were approximately $18.3 million
in the six months ended June 30, 2008 compared to approximately $11.5 million in the six months
ended June 30, 2007, representing an increase of 58%. The increase consisted of higher employee
related expenses of $4.1 million associated with increased headcount, approximately $1.8 million of
increased share base compensation, higher depreciation and amortization expenses of approximately
$659,000, an increase in facilities related expenses of $319,000, and an increase in equipment
expenses of $106,000 partially offset by a decrease in new product introduction expenses of
$300,000 associated with introduction of our Connect X product in the prior year.
For a further discussion of share-based compensation included in sales and marketing expense,
see Share-based compensation expense below.
Sales and Marketing. Sales and marketing expenses were approximately $7.4 million for the six
months ended June 30, 2008 compared to approximately $5.8 million for the six months ended June 30,
2007, representing an increase of approximately 27%. The increase was attributable to higher salary
related expenses of $580,000 associated with increased headcount, an increase in external
commissions of $353,000 due to higher sales, an increase in share based compensation of $353,000
and higher tradeshow and marketing related expenses of approximately $189,000.
For a further discussion of share-based compensation included in sales and marketing expense, see
Share-based compensation expense below
General and Administrative. General and administrative expenses were approximately $3.9
million for the six months ended June 30, 2008 compared to approximately $2.9 million for the six
months ended June 30, 2007, representing an increase of 36%. The increase was due to higher salary
related expenses of $366,000 associated with increase headcount, higher share based compensation of
$314,000, an increase in accounting fees of approximately $257,000, and an increase in other
professional services of $193,000 associated with consulting and listing fees partially offset by a
decrease in legal expenses of $160,000.
Share-based compensation expense. The following table presents details of total share-based
compensation expense that is included in each functional line item in our consolidated statements
of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Cost of goods sold |
|
$ |
49 |
|
|
$ |
18 |
|
|
$ |
97 |
|
|
$ |
33 |
|
Research and development |
|
|
1,259 |
|
|
|
415 |
|
|
|
2,446 |
|
|
|
690 |
|
Sales and marketing |
|
|
457 |
|
|
|
271 |
|
|
|
835 |
|
|
|
482 |
|
General and administrative |
|
|
272 |
|
|
|
123 |
|
|
|
533 |
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense |
|
$ |
2,037 |
|
|
$ |
827 |
|
|
$ |
3,911 |
|
|
$ |
1,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008, there was $24.2 million of total unrecognized share-based compensation costs
related to non-vested share-based compensation arrangements. The costs are expected to be
recognized over a weighted average period of 2.96 years.
Other Income, net. Other income, net consists of interest earned on cash and cash equivalents
and foreign currency exchange gains and losses. Other income, net was approximately $2.0 million
for the six months ended June 30, 2008 compared to approximately $2.7 million for the six months
ended June 30, 2007. The decrease consisted of approximately $328,000 of lower interest income
associated with lower average interest rates paid on investments and higher foreign exchange losses
of approximately $439,000.
Provision for Taxes on Income. Provision for taxes on income was approximately $4.9 million
for the six months ended June 30, 2008 compared to approximately $1.1 million for the six months
ended June 30, 2007. The increase was primarily a result of
19
utilization of certain deferred tax assets related to net operating losses in Israel that are
currently expected to be utilized before the Approved Enterprise Tax Holiday begins in 2009.
Liquidity and Capital Resources
From our inception until our initial public offering in February 2007, we financed our
operations primarily through private placements of our convertible preferred shares totaling
approximately $89.3 million. We incurred net losses from operations since inception until the
second quarter of 2005. On February 13, 2007, we closed the initial public offering of our ordinary
shares. We sold 6,900,000 ordinary shares in the offering, which number of shares included the
underwriters exercise in full of their option to purchase up to 900,000 shares to cover
over-allotments, at an offering price of $17.00 per share. Net proceeds generated by the offering,
after adjusting for offering costs, totaled approximately $106 million.
As of June 30, 2008, our principal source of liquidity consisted of cash and cash equivalents
of approximately $73.8 million and short-term investments of approximately $90.4 million. We
currently anticipate that our existing cash and cash equivalents and short-term investments and our
cash flows from operating activities will be sufficient to fund our operations over the next 12
months after taking into account potential business and technology acquisitions, if any, and
expected increases in research and development expenses, including tape out costs, sales and
marketing expenses, general and administrative expenses, primarily associated with increased
headcount, and capital expenditures to support our infrastructure and growth.
Operating Activities
Net cash provided by our operating activities amounted to approximately $13.5 million and
$11.7 million in the six months ended June 30, 2008 and 2007, respectively. Net cash provided by
operating activities in the six months ended June 30, 2008 was primarily attributable to net income
of approximately $9.2 million adjusted for non-cash items
including $5.1 million for the
utilization of deferred taxes, $3.9 million for share-based compensation and $1.8 million for
depreciation and amortization, partially offset by gains on sale of investments of $1.5 million.
Furthermore, net cash provided by operating activities was reduced by an increase in accounts
receivables, net of approximately $4.4 million due to an increase in the percentage of sales
shipped later in the quarter and a decrease of approximately $1.1 million in accounts payable,
partially offset by a decrease of approximately $1.8 million in accrued liabilities primarily
associated with payroll related items.
Net cash provided by operating activities in the six months ended June 30, 2007 was primarily
attributable to net income of approximately $8.9 million, a decrease in prepaid expenses and other
assets of approximately $1.7 million partially offset by an increase in inventory of approximately
$1.1 million, non-cash charges of $1.4 million for share-based compensation and non-cash charges of
$796,000 for depreciation and amortization.
Investing Activities
Net cash used in investing activities amounted to approximately $40.9 million in the six
months ended June 30, 2008, and approximately $59.8 million in the six months ended June 30, 2007.
Net cash used in investing activities in the six months ended
June 30, 2008 was primarily attributable to purchases of short term
investments of $136.6 million, purchases of property and equipment of $1.6 million, an investment
in preferred stock of a privately-held company of $1.5 million, partially offset by the maturities
and sales of short term investments of $99.8 million.
Net cash used in investing activities in the six months ended June 30, 2007 was primarily
attributable to purchases of short-term investments of approximately $60.9 million, partially
offset by maturities and sales of short-term investments of approximately $2.4 million and
purchases of property and equipment of $1.2 million.
Financing Activities
Our financing activities provided approximately $596,000 in the six months ended June 30,
2008, primarily due to proceeds from stock option exercises and ESPP purchases of $2.1 million,
partially offset by principal payments on capital lease obligations of $1.5 million. Financing
activities provided approximately $106.0 million in the six months ended June 30, 2007, primarily
due to proceeds from our initial public offering.
20
Off-Balance Sheet Arrangements
As of June 30, 2008, we did not have any off-balance sheet arrangements.
Contractual Obligations
The following table summarizes our contractual obligations at June 30, 2008, and the effect
those obligations are expected to have on our liquidity and cash flows in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less Than |
|
|
|
|
|
|
Beyond |
|
|
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
|
3 Years |
|
|
|
(In thousands) |
|
Commitments under capital lease |
|
$ |
2,207 |
|
|
$ |
1,065 |
|
|
$ |
848 |
|
|
$ |
294 |
|
Non-cancelable operating lease commitments |
|
|
5,570 |
|
|
|
2,350 |
|
|
|
2,833 |
|
|
|
387 |
|
Service commitments |
|
|
957 |
|
|
|
590 |
|
|
|
307 |
|
|
|
60 |
|
Purchase commitments |
|
|
8,558 |
|
|
|
8,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
17,292 |
|
|
$ |
12,563 |
|
|
$ |
3,988 |
|
|
$ |
741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For purposes of this table, purchase obligations for the purchase of goods or services are
defined as agreements that are enforceable and legally binding and that specify all significant
terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price
provisions; and the approximate timing of the transaction. Our purchase orders are based on our
current manufacturing needs and are fulfilled by our vendors within short time horizons. In
addition, we have purchase orders that represent authorizations to purchase rather than binding
agreements. We do not have significant agreements for the purchase of raw materials or other goods
specifying minimum quantities or set prices that exceed our expected requirements.
Recent Accounting Standards
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair
Value Measurements, or SFAS No. 157, which defines fair value, establishes a framework for
measuring fair value under generally accepted accounting principles and expands disclosures about
fair value measurements. SFAS No. 157 does not require any new fair value measurements, but
provides guidance on how to measure fair value by providing a fair value hierarchy used to classify
the source of the information. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2,
Effective Date of FASB Statement No. 157, or
FSP 157-2, which provides a one year deferral of the effective
date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are
recognized or disclosed in the financial statements at fair value on a recurring basis. We adopted
SFAS 157 as of January 1, 2008, with the exception of the non-financial assets and non-financial liabilities
described in FSP 157-2. The adoption of this statement
did not have a material impact on the Companys consolidated results of operations and financial
condition. Refer to Note 3 to the Condensed Consolidated Financial Statements for additional
discussion on fair value measurements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities including an amendment of FASB Statement No. 115, or SFAS 159, which
is effective for fiscal years beginning after November 15, 2007. This statement permits entities to
choose to measure many financial instruments and certain other items at fair value. This statement
also establishes presentation and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes for similar types of assets and
liabilities. Unrealized gains and losses on items for which the fair value option is elected would
be reported in earnings. We have adopted SFAS 159 and have elected not to measure any additional
financial instruments and other items at fair value.
In June 2007, the FASB ratified EITF No. 07-3, or EITF 07-3, Accounting for Nonrefundable
Advance Payments for Goods or Services to Be Used in Future Research and Development Activities.
EITF 07-3 requires non-refundable advance payments for goods and services to be used in future
research and development activities to be recorded as an asset and the payments to be expensed when
the research and development activities are performed. EITF 07-3 is effective for us on January 1,
2008. The adoption of this standard did not have a material effect on the Companys financial
statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133, or SFAS 161. This statement is
intended to improve transparency in financial reporting by
21
requiring enhanced disclosures of an entitys derivative instruments and hedging activities
and their effects on the entitys financial position, financial performance, and cash flows. SFAS
161 applies to all derivative instruments within the scope of SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, or SFAS 133, as well as related hedged items, bifurcated
derivatives, and non-derivative instruments that are designated and qualify as hedging instruments.
Entities with instruments subject to SFAS 161 must provide more robust qualitative disclosures and
expanded quantitative disclosures. SFAS 161 is effective prospectively for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008, with early
application permitted. We are currently evaluating the disclosure implications of this statement.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The recent decline in the market value of certain securities backed by residential mortgage
loans has led to a large liquidity crisis effecting the broader U.S. housing market, the financial
services industry and global financial markets. Investors in many industry sectors have experienced
substantial decreases in asset valuations and uncertain market liquidity. Furthermore, credit
rating authorities have, in many cases, been slow to respond to the rapid changes in the underlying
value of certain securities and pervasive market illiquidity, regarding these securities.
As a result, this credit crisis may have a potential impact on the determination of the fair
value of financial instruments or may result in impairments in the future should the value of
certain investments suffer a decline which is determined to be other than temporary. We do not
currently believe that the impact of this credit crisis on the value of our marketable securities
would be material or warrant a determination of other than a temporary write down.
Interest rate fluctuation risk
We do not have any long-term borrowings. Our investments consist of cash and cash equivalents,
short-term deposits and interest bearing investments in marketable securities with maturities of
one year or less, consisting of commercial paper, government and non-government debt securities.
The primary objective of our investment activities is to preserve principal while maximizing income
without significantly increasing risk. We do not enter into investments for trading or speculative
purposes. Our investments are exposed to market risk due to a fluctuation in interest rates, which
may affect our interest income and the fair market value of our investments. Due to the short term
nature of our investment portfolio, we do not believe an immediate 5% change in interest rates
would have a material effect on the fair market value of our portfolio, and therefore we do not
expect our operating results or cash flows to be materially affected to any degree by a sudden
change in market interest rates.
Foreign currency exchange risk
We derive all of our revenues in U.S. dollars. The U.S. dollar is our functional and reporting
currency. However, a significant portion of our headcount related expenses, consisting principally
of salaries and related personnel expenses, are denominated in new Israeli shekels, or NIS. This
foreign currency exposure gives rise to market risk associated with exchange rate movements of the
U.S. dollar against the NIS. Furthermore, we anticipate that a material portion of our expenses
will continue to be denominated in NIS. To the extent the U.S. dollar weakens against the NIS, we
will experience a negative impact on our profit margins. To manage this risk, we have on occasion
converted U.S. dollars into NIS within two to three weeks of monthly pay dates in Israel to lock in
the related salary expense given the different currencies. We do not currently engage in currency
hedging activities but we may choose to do so in the future. These measures, however, may not
adequately protect us from material adverse effects due to the impact of inflation in Israel. At
June 30, 2008, approximately $2.2 million of our monthly operating expenses were denominated in
NIS. This amount may increase in the future due to hiring additional employees in Israel and
expanding our facilities there.
Inflation related risk
We believe that the rate of inflation in Israel has not had a material impact on our business
to date. Our cost in Israel in U.S. dollar terms will increase if inflation in Israel exceeds the
devaluation of the NIS against the U.S. dollar or if the timing of such devaluation lags behind
inflation in Israel.
22
ITEM 4 CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commissions rules and
forms and that such information is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate, to allow for timely decisions
regarding required disclosure. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and
with the participation of our management, including our chief executive officer and chief financial
officer, of the effectiveness of the design and operation of our disclosure controls and procedures
as of the end of the period covered by this quarterly report on Form 10-Q. Based on the foregoing,
our chief executive officer and chief financial officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level.
There has been no change in our internal control over financial reporting during our most
recent quarter that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
We provided a management report on internal control over financial reporting, in connection
with our Annual Report on Form 10-K for the year ending December 31, 2007. In addition, we will be
required to provide both a management report and an independent registered public accounting firm
attestation report on internal control over financial reporting in connection with our Annual
Report on Form 10-K for the year ending December 31, 2008.
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
We are not currently party to any material legal proceedings.
ITEM 1A RISK FACTORS
Investing in our ordinary shares involves a high degree of risk. You should carefully consider
the following risk factors, in addition to the other information set forth in this report, before
purchasing our ordinary shares. Each of these risk factors could harm our business, financial
condition or operating results, as well as decrease the value of an investment in our ordinary
shares.
There have been no material changes from risk factors previously disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2007, except for the following:
Risks Related to Our Business
We have a history of losses, have only recently become profitable and may not sustain or increase
profitability in the future.
We have only recently become profitable, and we first recorded a profit in the year ended
December 31, 2005. We incurred net losses prior to the quarter ended June 30, 2005 and incurred a
net loss during the quarter ended March 31, 2006. Although we recorded a profit in the six months
ended June 30, 2008, we had an accumulated deficit as of June 30, 2008 of approximately $24.5
million. We may not be able to sustain or increase profitability on a quarterly or an annual basis.
This may, in turn, cause the price of our ordinary shares to decline. To sustain or increase our
profitability, we will need to generate and sustain substantially higher revenues while maintaining
reasonable cost and expense levels. We expect to increase expense levels in each of the next
several quarters to support increased research and development, sales and marketing and general and
administrative efforts. These expenditures may not result in increased revenues or customer growth,
and we may not remain profitable.
We do not expect to sustain our recent revenue growth rate, which may reduce our share price.
Our revenues have grown rapidly over the last four years, approximately doubling in size from
each of 2003 to 2004 and 2005, and increasing by 15% and 73% in 2006 and 2007, respectively. Our
revenues increased from $10.2 million to $20.3 million to $42.1
23
million to $48.5 million and to $84.1 million for the years ended December 31, 2003, 2004,
2005, 2006 and 2007, respectively. We do not expect to sustain our recent growth rate in future
periods. You should not rely on the revenue growth of any prior quarterly or annual periods as an
indication of our future performance. If we are unable to maintain adequate revenue growth, we may
not have adequate resources to execute our business objectives and our share price may decline.
We have limited visibility into end-user demand for our products, which introduces uncertainty
into our production forecasts and business planning and could negatively impact our financial
results.
Our sales are made on the basis of purchase orders rather than long-term purchase commitments.
In addition, our customers may defer purchase orders. We place orders with the manufacturers of our
products according to our estimates of customer demand. This process requires us to make multiple
demand forecast assumptions with respect to both our customers and end users demands. It is more
difficult for us to accurately forecast end-user demand because we do not sell our products
directly to end users. In addition, a larger portion of our revenues is derived from sales to Tier
1 original equipment manufacturers, which typically demand shorter lead times compared to system
integrators. Also, the majority of our adapter card business is conducted on a short order
fulfillment basis, introducing more uncertainty into our forecasts. Because of the lead time
associated with fabrication of our semiconductors, forecasts of demand for our products must be
made in advance of customer orders. In addition, we base business decisions regarding our growth on
our forecasts for customer demands. As we grow, anticipating customer demand may become
increasingly difficult. If we overestimate customer demand, we may purchase products from our
manufacturers that we may not be able to sell and may over-budget company operations. Conversely,
if we underestimate customer demand or if sufficient manufacturing capacity were unavailable, we
would forego revenue opportunities and could lose market share or damage our customer
relationships.
We depend on a small number of customers for a significant portion of our sales, and the loss of
any of these customers will adversely affect our revenues.
A small number of customers account for a significant portion of our revenues. For the six
months ended June 30, 2008, sales to QLogic Corporation, Hewlett-Packard and Sun Microsystems
accounted for 13%, 12% and 11%, respectively, of our total revenues. For the year ended December
31, 2007, sales to Hewlett-Packard accounted for 19% of our total revenues, sales to Voltaire
accounted for 15% of our total revenues, and sales to Cisco Systems and QLogic Corporation
accounted for 11%, each, of our total revenues. Because the majority of servers, storage,
communications infrastructure equipment and embedded systems are sold by a relatively small number
of vendors, we expect that we will continue to depend on a small number of customers to account for
a significant percentage of our revenues for the foreseeable future. Our customers, including our
most significant customers, are not obligated by long-term contracts to purchase our products and
may cancel orders with limited potential penalties. If any of our large customers reduces or
cancels its purchases from us for any reason, it could have an adverse effect on our revenues and
results of operations.
We face intense competition and may not be able to compete effectively, which could reduce our
market share, net revenues and profit margin.
The markets in which we operate are extremely competitive and are characterized by rapid
technological change, continuously evolving customer requirements and declining average selling
prices. We may not be able to compete successfully against current or potential competitors. With
respect to InfiniBand products, we compete with QLogic Corporation who introduced their latest
generation 20Gb/s adapter products in the second quarter of 2008. We also compete with providers of
alternative technologies, including Ethernet, Fibre Channel and proprietary interconnects. The
companies that provide IC products for these alternative technologies include Marvell Technology
Group, Broadcom Corporation, Intel, Emulex Corporation, QLogic Corporation and Myricom. Many of our
current and potential competitors have longer operating histories, significantly greater resources,
greater economies of scale, stronger name recognition and larger customer bases than we have. This
may allow them to respond more quickly than we are able to respond to new or emerging technologies
or changes in customer requirements. In addition, these competitors may have greater credibility
with our existing and potential customers. If we do not compete successfully, our market share,
revenues and profit margin may decline, and, as a result, our business may be adversely affected.
If we fail to develop new products or enhance our existing products to react to rapid
technological change and market demands in a timely and cost-effective manner, our business will
suffer.
We must develop new products or enhance our existing products with improved technologies to
meet rapidly evolving customer requirements. We are currently engaged in the development process
for next generation products, and we need to successfully design
24
our next generation and other products successfully for customers who continually require
higher performance and functionality at lower costs. The development process for these advancements
is lengthy and will require us to accurately anticipate technological innovations and market
trends. Developing and enhancing these products can be time-consuming, costly and complex. Our
ability to fund product development and enhancements partially depends on our ability to generate
revenues from our existing products. For example, we recently introduced our next generation of
products that also support the industry standard Ethernet interconnect specification. Also, during
the second quarter of 2008 we introduced our next generation 40GB/s Infiniband switch silicon
device.
There is a risk that these developments or enhancements, such as migrating our next generation
products from 130nm to 90nm to lower geometry process technologies will be late, fail to meet
customer or market specifications and will not be competitive with other products using alternative
technologies that offer comparable performance and functionality. We may be unable to successfully
develop additional next generation products, new products or product enhancements. Our next
generation products that include Ethernet support or any new products or product enhancements may
not be accepted in new or existing markets. Our business will suffer if we fail to continue to
develop and introduce new products or product enhancements in a timely manner or on a
cost-effective basis.
We depend on key and highly skilled personnel to operate our business, and if we are unable to
retain our current personnel and hire additional personnel, our ability to develop and
successfully market our products could be harmed.
Our business is particularly dependent on the interdisciplinary expertise of our personnel,
and we believe our future success will depend in large part upon our ability to attract and retain
highly skilled managerial, engineering, finance and sales and marketing personnel. The loss of any
key employees or the inability to attract or retain qualified personnel could delay the development
and introduction of, and harm our ability to sell, our products and harm the markets perception of
us. Competition for qualified engineers in the markets in which we operate, primarily in Israel
where our engineering operations are based, is intense and, accordingly, we may not be able to
retain or hire all of the engineers required to meet our ongoing and future business needs. If we
are unable to attract and retain the highly skilled professionals we need, we may have to forego
projects for lack of resources or be unable to staff projects optimally. We believe that our future
success is highly dependent on the contributions of Eyal Waldman, our president and chief executive
officer. We do not have long-term employment contracts with Mr. Waldman or any other key personnel,
and their knowledge of our business and industry would be extremely difficult to replace.
On July 25, 2008, Thad Omura, Vice President of Product Marketing, informed us of his
intention to resign from the Company effective August 22, 2008. We are actively seeking a
replacement for Mr. Omura.
Risks Related to Our Industry
The demand for semiconductors is affected by general economic conditions, which could impact our
business.
The semiconductor industry is affected by general economic conditions, and a downturn may
result in decreased demand for our products and adversely affect our operating results. Our
business has been adversely affected by previous economic downturns. For example, during the global
economic downturn in 2002 to 2003, demand for many computer and consumer electronics products
suffered as consumers delayed purchasing decisions or changed or reduced their discretionary
spending. As a result, demand for our products suffered and we had to implement restructuring
initiatives to align our corporate spending with a slower than anticipated revenue growth during
that timeframe. Additionally, general worldwide economic conditions have recently experienced a
downturn due to slower economic activity, concerns about inflation and deflation, increased energy
costs, decreased consumer confidence, reduced corporate profits and capital spending, adverse
business conditions and liquidity concerns. These conditions make it extremely difficult for our
customers, our vendors and us to accurately forecast and plan future business activities, and they
could cause U.S. and foreign businesses to slow spending on our products and services, which would
delay and lengthen sales cycles. We cannot predict the timing, strength or duration of any economic
slowdown or subsequent economic recovery, worldwide, or in the semiconductor industry. If the
economy or markets in which we operate do not continue at their present levels, our business,
financial condition and results of operations will likely be materially and adversely affected.
Risks Related to Operations in Israel and Other Foreign Countries
Regional instability in Israel may adversely affect business conditions and may disrupt our
operations and negatively affect our revenues and profitability.
25
We have engineering facilities and corporate and sales support operations and, as of June 30,
2008, 193 full-time and 43 part-time employees located in Israel. A significant amount of our
assets are located in Israel. Accordingly, political, economic and military conditions in Israel
may directly affect our business. Since the establishment of the State of Israel in 1948, a number
of armed conflicts have taken place between Israel and its Arab neighbors, as well as incidents of
civil unrest. During the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a
Lebanese Islamist Shiite militia group and political party. This conflict involved missile strikes
against civilian targets in northern Israel, and negatively affected business conditions in Israel.
In addition, Israel and companies doing business with Israel have, in the past, been the subject of
an economic boycott. Although Israel has entered into various agreements with Egypt, Jordan and the
Palestinian Authority, Israel has been and is subject to civil unrest and terrorist activity, with
varying levels of severity, since September 2000. The election in early 2006 of representatives of
the Hamas movement to a majority of seats in the Palestinian Legislative Council and the tension
among the different Palestinian factions may create additional unrest and uncertainty. Any future
armed conflicts or political instability in the region may negatively affect business conditions
and adversely affect our results of operations. Parties with whom we do business have sometimes
declined to travel to Israel during periods of heightened unrest or tension, forcing us to make
alternative arrangements when necessary. In addition, the political and security situation in
Israel may result in parties with whom we have agreements involving performance in Israel claiming
that they are not obligated to perform their commitments under those agreements pursuant to force
majeure provisions in the agreements.
We can give no assurance that security and political conditions will have no impact on our
business in the future. Hostilities involving Israel or the interruption or curtailment of trade
between Israel and its present trading partners could adversely affect our operations and could
make it more difficult for us to raise capital. While we did not sustain damages from the recent
conflict with Hezbollah referred to above, our Israeli operations, which are located in northern
Israel, are within range of Hezbollah missiles and we or our immediate surroundings may sustain
damages in a missile attack, which could adversely affect our operations.
In addition, our business insurance does not cover losses that may occur as a result of events
associated with the security situation in the Middle East. Although the Israeli government
currently covers the reinstatement value of direct damages that are caused by terrorist attacks or
acts of war, we cannot assure you that this government coverage will be maintained. Any losses or
damages incurred by us could have a material adverse effect on our business.
We are susceptible to additional risks from our international operations.
We derived 43% and 44% of our revenues in the six months ended June 30, 2008 and 2007,
respectively, from sales outside North America. As a result, we face additional risks from doing
business internationally, including:
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reduced protection of intellectual property rights in some countries; |
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licenses, tariffs and other trade barriers; |
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difficulties in staffing and managing foreign operations; |
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longer sales and payment cycles; |
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greater difficulties in collecting accounts receivable; |
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seasonal reductions in business activity; |
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potentially adverse tax consequences; |
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laws and business practices favoring local competition; |
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costs and difficulties of customizing products for foreign countries; |
26
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compliance with a wide variety of complex foreign laws and treaties; |
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tariffs, trade barriers, transit restrictions and other regulatory or contractual
limitations on our ability to sell or develop our products in certain foreign markets; |
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fluctuations in freight rates and transportation disruptions; |
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political and economic instability; and |
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variance and unexpected changes in local laws and regulations. |
Our principal research and development facilities are located in Israel, and our directors,
executive officers and other key employees are located primarily in Israel and the United States.
In addition, we engage sales representatives in various countries throughout the world to market
and sell our products in those countries and surrounding regions. If we encounter any of the above
risks in our international operations, we could experience slower than expected revenue growth and
our business could be harmed.
Exchange rate fluctuations between the U.S. dollar and the NIS may negatively affect our
earnings.
Although all of our revenues and a majority of our expenses are denominated in U.S. dollars, a
significant portion of our research and development expenses are incurred in new Israeli shekels,
or NIS. As a result, we are exposed to risk to the extent that the inflation rate in Israel exceeds
the rate of devaluation of the NIS in relation to the U.S. dollar or if the timing of these
devaluations lags behind inflation in Israel. In that event, the U.S. dollar cost of our research
and development operations in Israel will increase and our U.S. dollar-measured results of
operations will be adversely affected. To the extent that the value of the NIS increases against
the U.S. dollar, our expenses on a U.S. dollar cost basis increase. We cannot predict any future
trends in the rate of inflation in Israel or the rate of appreciation of the NIS against the U.S.
dollar. The Israeli rate of inflation (deflation) amounted to 2.4%, (0.1)% and 3.4% for the years
ended December 31, 2005, 2006 and 2007, respectively. The increase in value of the NIS against the
U.S. dollar amounted to 8.2% and 8.9% in the years ended December 31, 2006 and 2007, respectively.
In the six months ended June 30, 2008 the increase in the value of the NIS against the U.S. dollar
amounted to 12.8% and in the six months ended June 30, 2007 the increase in value of U.S. dollar
against NIS amounted to 0.6%. If the U.S. dollar cost of our research and development operations in
Israel increases, our dollar-measured results of operations will be adversely affected. Our
operations also could be adversely affected if we are unable to guard against currency fluctuations
in the future. Further, because all of our international revenues are denominated in U.S. dollars,
a strengthening of the dollar versus other currencies could make our products less competitive in
foreign markets and collection of receivables more difficult. We do not currently engage in
currency hedging activities but we may choose to do so in the future. These measures, however, may
not adequately protect us from material adverse effects due to the impact of inflation in Israel
and changes in value of NIS against the U.S. dollar.
The Israeli government grants that we received require us to meet several conditions, and may be
reduced or eliminated due to government budget cuts, restrict our ability to manufacture and
engineer products and transfer know-how outside of Israel and require us to satisfy specified
conditions.
We have received, and may receive in the future, grants from the government of Israel through
the Office of the Chief Scientist of Israels Ministry of Industry, Trade and Labor, or the OCS,
for the financing of a portion of our research and development expenditures in Israel. When
know-how or products are developed using OCS grants, the terms of these grants restrict the
transfer of the know-how out of Israel. Transfer of know-how abroad is subject to various
conditions, including payment of a percentage of the consideration paid to us or our shareholders
in the transaction in which the technology is transferred. In addition, any decrease of the
percentage of manufacturing performed locally, as originally declared in the application to the
OCS, may require us to notify, or to obtain the approval of the OCS, and may result in increased
royalty payments to the OCS. These restrictions may impair our ability to enter into agreements for
those products or technologies without the approval of the OCS. We cannot be certain that any
approval of the OCS will be obtained on terms that are acceptable to us, or at all. Furthermore, in
the event that we undertake a transaction involving the transfer to a non-Israeli entity of
technology developed with OCS funding pursuant to a merger or similar transaction, the
consideration available to our shareholders may be reduced by the amounts we are required to pay to
the OCS. Any approval, if given, will generally be subject to additional financial obligations. If
we fail to comply with the conditions imposed by the OCS, including the payment of royalties with
respect to grants received, we may be required to refund any payments previously received,
27
together with interest and penalties. In total we have received grants from OCS in the amount
of $2.8 million. We received no grants from the OCS during the year ended December 31, 2007 or the
six months ended June 30, 2008. Our royalty obligation to the OCS was completed during the first
quarter of 2008 and our outstanding payable to the OCS as of June 30, 2008, was approximately
$261,000.
Risks Related to Our Ordinary Shares
The price of our ordinary shares may continue to be volatile, and the value of an investment in
our ordinary shares may decline.
We sold ordinary shares in our initial public offering in February 2007 at a price of $17.00
per share, and our shares have subsequently traded as low as $10.85 per share. An active and liquid
trading market for our ordinary shares may not develop or be sustained. Factors that could cause
volatility in the market price of our ordinary shares include, but are not limited to:
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quarterly variations in our results of operations or those of our competitors; |
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announcements by us or our customers of acquisitions, new products, significant
contracts, commercial relationships or capital commitments; |
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our ability to develop and market new and enhanced products on a timely basis; |
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disruption to our operations; |
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geopolitical instability; |
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the emergence of new sales channels in which we are unable to compete effectively; |
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any major change in our board of directors or management; |
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changes in financial estimates, including our ability to meet our future revenue and
operating profit or loss projections; |
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changes in governmental regulations or in the status of our regulatory approvals; |
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general economic conditions and slow or negative growth of related markets; |
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commencement of, or our involvement in, litigation; and |
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changes in earnings estimates or recommendations by securities analysts. |
In addition, the stock markets in general, and the markets for semiconductor stocks in
particular, have experienced extreme volatility that often has been unrelated to the operating
performance of the issuer. These broad market fluctuations may adversely affect the trading price
or liquidity of our ordinary shares. In the past, when the market price of a stock has been
volatile and declined, holders of that stock have sometimes instituted securities class action
litigation against the issuer. If any of our shareholders were to bring such a lawsuit against us,
we could incur substantial costs defending the lawsuit and the attention of our management would be
diverted from the operation of our business.
The ownership of our ordinary shares will continue to be highly concentrated, and your interests
may conflict with the interests of our existing shareholders.
Our executive officers and directors and their affiliates, together with our current
significant shareholders, beneficially owned approximately 49% of our outstanding ordinary shares
as of June 30, 2008. Moreover, three of our shareholders, Fidelity Management and Research, Sequoia
Capital Partners and Fred Alger Management, beneficially owned approximately 33% of our outstanding
ordinary shares as of June 30, 2008. Accordingly, these shareholders, acting as a group, have
significant influence over the outcome of corporate actions requiring shareholder approval,
including the election of directors, any merger, consolidation or sale of all or substantially all
of our assets or any other significant corporate transaction. These shareholders could delay or
prevent a change of
28
control of our company, even if such a change of control would benefit our other shareholders.
The significant concentration of share ownership may adversely affect the trading price of our
ordinary shares due to investors perception that conflicts of interest may exist or arise.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Unregistered Sales of Equity Securities
None
(b) Use of Proceeds
Our initial public offering of 6,900,000 ordinary shares was effected through a Registration
Statement on Form S-1 (File No. 333-137659) that was declared effective by the Securities and
Exchange Commission on February 7, 2007. We issued all 6,900,000 shares on February 13, 2007 for
gross proceeds of $117,300,000. The underwriters of the offering were Credit Suisse Securities
(USA) LLC, J.P. Morgan Securities Inc., Thomas Weisel Partners LLC and Jefferies & Company, Inc. We
paid the underwriters a commission of $8,211,000 and incurred additional offering expenses of
approximately $3,136,000. After deducting the underwriters commission and the offering expenses,
we received net proceeds of approximately $105,953,000. No payments for such expenses were made
directly or indirectly to (i) any of our directors, officers or their associates, (ii) any
person(s) owning 10% or more of any class of our equity securities or (iii) any of our affiliates.
The net proceeds from our initial public offering have been invested into short-term marketable
government agency obligations and commercial paper. There has been no material change in the
planned use of proceeds from our initial public offering as described in our final prospectus filed
with the SEC pursuant to Rule 424(b).
(c) Repurchases of Equity Securities
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our 2008 Annual Meeting of Shareholders on May 19, 2008. The following summarizes the
matters submitted to a vote of our shareholders:
1. The election of each of the following nominees to serve on our Board of Directors until the
next annual meeting of shareholders and/or his successor is duly elected and qualified or until
their earlier resignation or removal.
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For |
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Withheld |
Eyal Waldman
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28,285,873 |
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824,353 |
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Rob S. Chandra
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28,182,677 |
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927,549 |
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Irwin Federman
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28,283,173 |
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827,053 |
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Thomas Weatherford
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28,004,605 |
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1,105,621 |
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The Board of Directors currently consists of six members. The other members of our Board of
Directors, Amal M. Johnson and Thomas J. Riordan, were elected at the 2007 Annual Meeting of
Shareholders to serve as outside directors, each for a three-year term until our general meeting in
2010, or until his or her successor shall be dully elected or appointed, or until his or her
resignation or removal, subject to and in accordance with the provisions of the Israel Companies
Law, 1999. As a result, they were not subject to re-election by shareholders this year and continue
in the office.
29
2. The approval of (i) the increase in the annual base salary of Eyal Waldman to $325,000,
effective April 1, 2008, and (ii) the cash bonus to Mr. Waldman in the amount of $100,000, paid
on February 1, 2008, for services rendered for the fiscal year ended December 31, 2007.
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For |
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Against |
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Abstain |
28,727,019
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214,397 |
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168,807 |
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3. The approval of the increase in the annual retainer paid to the audit committee chairperson
from $22,000 to $25,000 effective immediately following the general meeting.
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For |
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Against |
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Abstain |
28,869,786
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86,861 |
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153,576 |
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4. The approval of the amendment of the Companys articles of association to allow the Company
to satisfy Israeli law notice requirements by publishing a notice of a general meeting in two
daily newspapers in Israel and uploading a notice of a general meeting to the United States
Securities and Exchange Commissions Electronic Data Gathering, Analysis and Retrieval system, or
EDGAR, when appropriate.
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For |
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Against |
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Abstain |
28,171,596
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767,478 |
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171,149 |
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5. The approval of the appointment of PricewaterhouseCoopers LLP as the independent registered
public accounting firm of Mellanox Technologies, Ltd. for the fiscal year ending December 31,
2008 and the authorization of the audit committee to determine the remuneration of
PricewaterhouseCoopers LLP
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For |
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Against |
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Abstain |
28,710,487
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10,839 |
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388,899 |
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ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS
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31.1 |
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Certification of the Companys Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
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Certification of the Companys Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 |
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Certification of the Companys Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2 |
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Certification of the Companys Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized as of
the 5th day of August, 2008.
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Mellanox Technologies, Ltd.
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/s/ Michael Gray
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Michael Gray |
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Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer) |
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30
Exhibit Index
31.1 |
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Certification of the Companys Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
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Certification of the Companys Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
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Certification of the Companys Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
32.2 |
|
Certification of the Companys Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
31