UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Amendment No. 1
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended: December 31, 2017
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to
Commission FileNumber 001-33299
MELLANOX TECHNOLOGIES, LTD.
(Exact name of registrant as specified in its charter)
Israel | 98-0233400 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
Mellanox Technologies, Ltd.
Beit Mellanox, Yokneam, Israel 20692
(Address of principal executive offices, including zip code)
+972-4-909-7200
(Registrant'sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class: | Name of Each Exchange on Which Registered: | |
Ordinary shares, nominal value NIS 0.0175 per share | The |
Securities registered pursuant to Section 12(g) of the Act:
None(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x☒ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of Registrant'sRegistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. ☒x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated filer" "smaller” “accelerated filer,” “smaller reporting company"company” and "emerging“emerging growth company"company” inRule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | Accelerated filer | ☐ | ||||
Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ||||
☐ | ||||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Exchange ActRule 12b-2). Yes o☐ No ☒x
The aggregate market value of the registrant'sregistrant’s ordinary shares, nominal value NIS 0.0175 per share, held bynon-affiliates of the registrant on June 30, 2017, the last business day of the registrant'sregistrant’s most recently completed second fiscal quarter, was approximately $2.2 billion (based on the closing sales price of the registrant'sregistrant’s ordinary shares on that date). Ordinary shares held by each director and executive officer of the registrant, as well as shares held by each holder of more than 10% of the ordinary shares known to the registrant, have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not a determination for other purposes.
The total number of shares outstanding of the registrant'sregistrant’s ordinary shares, nominal value NIS 0.0175 per share, as of February 9,March 31, 2018, was 51,781,340.
EXPLANATORY NOTE
Mellanox Technologies, Ltd. (“Mellanox,” the registrant's Definitive Proxy Statement, to be“Company,” “we,” “us” or “our”) filed its Annual Report on Form10-K for the fiscal year ended December 31, 2017 (“Form 10-K”) with the U.S. Securities and Exchange Commission pursuant(the “SEC”) on February 16, 2018. The Company is filing this Amendment No. 1 to Regulation 14A in connection withthe Form10-K, or “Form 10-K/A,” solely for the purpose of including the Part III information that was to be incorporated by reference from its Definitive Proxy Statement for the 2018 Annual General Meeting of ShareholdersShareholders. This Form10-K/A hereby amends and restates in their entirety Items 10 through 14 of Mellanox Technologies, Ltd. (hereinafter referred to as the "Proxy Statement") are incorporated by reference in Part III of the Form10-K.
Pursuant to Rule12b-15 under the Securities Exchange Act of 1934, as amended, this report. Such Proxy Statement willForm10-K/A also contains new certifications by the principal executive officer and the principal financial officer as required by Section 302 of the Sarbanes-Oxley Act of 2002. Accordingly, Item 15(b) of Part IV is amended to include the currently dated certifications as exhibits. Because no financial statements have been included in this Form10-K/A and this Form10-K/A does not contain or amend any disclosure with respect to Items 307 and 308 of RegulationS-K, paragraphs 3, 4, and 5 of the certifications have been omitted.
Except as expressly noted in this Form10-K/A, this Form10-K/A does not reflect events occurring after the original filing of the Form10-K or modify or update in any way any of the other disclosures contained in the Form10-K including, without limitation, the financial statements. Accordingly, this Form10-K/A should be filedread in conjunction with the SecuritiesCompany’s Form10-K and Exchange Commission not later than 120 days after the conclusion ofCompany’s other filings with the registrant's fiscal year ended December 31, 2017.
PART III | |||||||
ITEM 10. | |||||||
3 | |||||||
ITEM 11. | Executive Compensation | 9 | |||||
ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters | 26 | |||||
ITEM 13. | Certain Relationships and Related Transactions, and Director Independence | 29 | |||||
ITEM 14. | Principal Accountant Fees and Services | ||||||
30 | |||||||
PART IV | |||||||
ITEM 15. | Exhibits and Financial Statement Schedules | 31 | |||||
34 |
PART III
Directors of the Registrant The names of each member of our board of directors (our “Board”), the year in which each director was first elected to the board, the age of each director as of March 31, 2018 and the principal occupation of each director are as follows: Name Principal Occupation Irwin Federman Eyal Waldman Dov Baharav Shai Cohen Glenda Dorchak Amal Johnson Umesh Padval David Perlmutter Thomas Riordan Steve Sanghi Thomas Weatherford Irwin Federman has served as a member of our Board since June 1999 and as chairman of our Board since June 2013. He has also served as our lead independent director since March 2010. Mr. Federman was a general partner of U.S. Venture Partners (“USVP”), a venture capital firm, from April 1990 to October 2015. He is now a Senior Advisor to USVP. Mr. Federman was president and chief executive officer (“CEO”) of Monolithic Memories, Inc., a semiconductor company, from 1978 to 1987. Mr. Federman serves on the boards of directors of Intermolecular, Inc., a materials analysis and discovery company, Check Point Software Technologies Ltd., a security software company, and a number of private companies and charitable trusts. Mr. Federman previously served on the board of directors of SanDisk Corporation. Mr. Federman holds a Bachelor of Science in Economics from Brooklyn College and was awarded an Honorary Doctorate of Engineering from Santa Clara University. Mr. Federman has received Lifetime Achievement awards from the International Business Forum, Silicon Valley Bank and Deloitte and Touche. Mr. Federman is located in the United States. Mr. Federman’s intimate knowledge of the business, financial and operational aspects of technology companies in all stages of development over the past forty plus years uniquely qualifies him to serve as chairman of our Board and, in that capacity as anon-executive director, to serve as our lead independent director. Eyal Waldman is aco-founder of Mellanox, and has served as our president and CEO and as a member of our Board since March 1999. From March 1999 until June 2013, he also served as our chairman of our Board. From March 1993 to February 1999, Mr. Waldman served as vice president of engineering and was aco-founder of Galileo Technology, Ltd., a semiconductor company, which was acquired by Marvell Technology Group, Ltd. in January 2001. From August 1989 to March 1993, Mr. Waldman held a number of design and architecture related positions at Intel Corporation (“Intel”), a manufacturer of computer, networking and communications products. Mr. Waldman also serves and previously served on the boards of directors of a number of private companies. Mr. Waldman holds a Bachelor of Science in Electrical Engineering and a Master of Science in Electrical Engineering from the Technion—Israel Institute of Technology (“Technion”). Mr. Waldman is located in Israel. Mr. Waldman’s qualifications to serve on our Dov Baharav has served as a from July 2011 until October 2013. From March 2013 to December 2014, Mr. Baharav served on the board of directors of Allot Communications, Ltd., a foreign private issuer which provides intellectual property service optimization solutions for fixed and mobile broadband operators and large enterprises. From July 2002 until November 2010, Mr. Baharav served as president and CEO of Amdocs Management Limited (“Amdocs”), a communications services company. He also served as a member of Amdocs’ board of directors and executive committee from July 2002 until November 2010. Mr. Baharav joined Amdocs in 1991 as vice president and then president of Amdocs’ principal U.S. subsidiary, Amdocs, Inc., and served as chief financial officer of Amdocs from 1995 until July 2002. From 1983 until 1991, Mr. Baharav served as chief operating officer of Optrotech Ltd., an electro-optical device company. Mr. Baharav is the chairman of scholarships fund with the College of Management Academic Studies in Rishon Lezion, Israel. He was also a member of the board of directors of SeamBI, a private advertising technology company, from July 2006 to November 2012. Mr. Baharav holds a Bachelor of Science degree in Physics and Accounting, as well as a Master of Business Administration, from the University of Tel Aviv. Mr. Baharav is located in Israel. Mr. Baharav’s qualifications to serve on our Board include his extensive experience serving on boards of directors in industries served by the Company and his experience as a chief executive officer and chief financial officer, which roles further qualify him to chair our audit committee. Shai Cohen has served as a member of our Board since December 2015. Mr. Cohen is the CEO andco-founder of Proteantecs Ltd., an Israeli startup. Mr. Cohen is aco-founder of Mellanox and served as our chief operating officer from May 2011 until February 2016. Previously, Mr. Cohen served as our vice president of operations and engineering from June 1999 until May 2011. From September 1989 to May 1999, Mr. Cohen worked at Mr. Cohen’s qualifications to serve on our Board include his role as aco-founderof Glenda Dorchak has served as a member of Mellanox’s board of directors since July 2009 and chairs our nominating and corporate governance committee. Ms. Dorchak currently serves on the board of Energy Focus Inc., a public company providing energy efficient LED lighting and technology, where she chairs the nominating and corporate governance committee and the Ms. Dorchak’s qualifications to serve on our Board include her executive and director experience in the software and technology industries. Our Board particularly values Ms. Dorchak’s deep knowledge, experience and understanding of global markets gained from over 30 years in the technology industry. Amal M. Johnson has served as a member of our Board since October 2006 and chairs our compensation committee. Ms. Johnson is the former executive chairperson of the board ofAuthor-it Software Corporation, aSoftware-as-a-Service private company that provides a platform for creating, maintaining, and distributing single-sourced technical content. Prior to joiningAuthor-it, Ms. Johnson served as the chairman of MarketTools, Inc., an Internet-based market research company, from August 2008 through January of 2012, and as its CEO from March 2005 through August 2008. Prior to joining MarketTools, Ms. Johnson was a general partner at ComVentures L.P., an investment fund, from April 2004 to March 2005 and, from March 1999 to March 2004, a general partner at Lightspeed Venture Partners, a venture capital firm, focusing on enterprise software and infrastructure. Ms. Johnson was president of Baan Supply Chain Solutions, an enterprise resource planning software company, from January 1998 to December 1998, president of Baan Affiliates from January 1997 to December 1997, and president of Baan Americas from October 1994 to December 1996. Prior to that, Ms. Johnson served as president of ASK Manufacturing Systems, a defense and space company, from August 1993 to July 1994 and held executive positions at IBM from 1977 to June 1993. Ms. Johnson also serves on the board of directors of Intuitive Surgical Inc., a medical device company, CalAmp, a wireless networking company, and Essex Property Trust, Inc. Ms. Johnson holds a Bachelor of Arts in Mathematics from Montclair State University, and studied computer science at Stevens Institute of Technology graduate school of engineering. Ms. Johnson is located in the United States. Ms. Johnson’s qualifications to serve on our Board include her extensive executive and public company director experience in the software and technology industries. Our Board particularly values Ms. Johnson’s significant enterprise infrastructure knowledge acquired from executive leadership roles at software and market research focused companies. Umesh Padval has served as a member of our Board since February 2018. He has also served as a venture partner at Thomvest Ventures since 2016. Previously, Mr. Padval served as a partner at Bessemer Ventures Partners from 2007 to 2016 and as vice president of LSI Corporation from 2001 to 2007. From 1998 to 2001, Mr. Padval served as President and then CEO ofC-Cube Microsystems, Inc. (“C-Cube”) from 1993 to 1998, Mr. Padval served as vice president and general manager at VLSI Technology, Inc (“VLSI”). From 1987 to 1993, Mr. Padval held various management positions at VLSI related to marketing and sales. Prior to joining VLSI, Mr. Padval served in various engineering and product marketing roles at Advanced Micro Devices, Inc. from 1984 to 1987. Since 2008, Mr. Padval has served on the board of directors of Integrated Device Technology, Inc. Mr. Padval also previously served on the board of directors of Silicon Image, Inc., Monolithic Power Systems, Inc., Elantec Semiconductor, Inc.,C-Cube and Entropic Communications, Inc. Mr. Padval holds Master of Science degrees from Stanford University and Pennsylvania State University and a Bachelors of Technology from Indian Institute of Technology, Bombay. Mr. Padval is located in the United States. Mr. Padval’s qualifications to serve on our Board include his 30 years of senior leadership experience in the semiconductor industry. Our Board particularly values Mr. Padval’s extensive engineering and product marketing experience. David Perlmutter has served as a member of our Board since May 2014 and chairs our technology, strategy and M&A committee. Since March 15, 2016, Mr. Perlmutter has also served as a managing general partner of Eucalyptus Growth Capital, focusing on investing in Israeli Hi Tech growthstart-ups. Mr. Perlmutter previously served, since 2009 and until February 2014, as an executive vice president, general manager of Intel’s Architecture Group and chief product officer of Intel. During this Mr. Perlmutter’s qualifications to serve on our Board include his executive experience in the software and Thomas Riordan has served as a member of our Board since May 2007. Mr. Riordan previously served as a member of our Board from February 2003 to February 2005. Currently, Mr. Riordan serves as a consultant to several technology companies usingRISC-V open instruction set architecture and, since June 2013, has been a member of the Mr. Riordan’s qualifications to serve on our Board include his extensive executive, management and Steve Sanghi has Mr. Sanghi’s qualifications to Thomas Weatherford has served as a member of our Board since November 2005. From August 1997 until his retirement in January 2003, Mr. Weatherford served as executive vice president and chief financial officer of Business Objects SA, a provider of business intelligence software. Mr. Weatherford also serves on the board of directors of Guidewire Software, Inc., an insurance technology company. Mr. Weatherford also previously served on the board of directors of Spansion Inc., a provider of flash memory products from May 2010 until its merger with Mr. Weatherford’s qualifications to Executive Officers of the Set forth below is Name Position(s) Eyal Waldman Michael Kagan Jacob Shulman Marc Sultzbaugh Eyal Waldmanis aco-founder of Michael Kagan is aco-founder of Mellanox and has served as our chief technology officer since January 2009. Previously, Mr. Kagan served as our vice president of architecture from May 1999 to Jacob Shulman has served as our Marc Sultzbaugh has served as our senior vice president of worldwide sales since December 2012. Previously Mr. Sultzbaugh served as vice president of worldwide sales from April 2007 until December 2012. Mr. Sultzbaugh joined Mellanox in 2001 as director of high performance computing and director of central area sales and was later promoted to senior director of sales in October 2005. Prior to joining Mellanox, he held various executive sales and marketing positions with Brooktree Semiconductor, a semiconductor company. From 1985 to 1989, Mr. Sultzbaugh was an engineer at AT&T Microelectronics, a microchip and fiber-optic component manufacturing company. He holds a Bachelor of Science degree in Electrical Engineering from The University of Missouri-Rolla and a Masters of Business Administration from The University of California, Irvine. Mr. Sultzbaugh is located in the United States. Family Relationships There are Section Section 16(a) of the Audit Committee Our Board has a Code of PART ISPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSThis report includes forward-looking statements. We have based these forward-looking statements largelyITEM 10—DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Year
Director
First
Elected Age 1999 82 Chairman of the Board of Directors, Mellanox Technologies, Ltd.; Senior Advisor, U.S. Venture Partners 1999 57 President and Chief Executive Officer, Mellanox Technologies, Ltd. 2010 67 Chairman of Gilat Satellite Networks Ltd. 2015 54 Chief Executive Officer andCo-Founder of Proteantecs Ltd. 2009 63 Advisor to and board member of technology companies 2006 65 Advisor to and board member of technology companies 2018 60 Partner, Thomvest Ventures 2014 64 Managing General Partner of Eucalyptus Growth Capital 2007 61 Consultant to early stage technology companies 2018 62 President, Chief Executive Officer and Chairman of the Board of Directors of Microchip Technology Incorporated 2005 71 Advisor to technology companies and former financial executive current expectationsBoard include his decades-long experience in the semiconductor industry, his role as aco-founder of Mellanox, eighteen years of service as our president and projections about future events and financial trends affecting the financial conditionCEO, service as our chairman of our business. Forward-looking statements should not be readBoard between March 1999 and June 2013, and his design, engineering and architecture expertise. Our Board particularly values Mr. Waldman’s extensive experience in the semiconductor industry and as our CEO, which gives him unique insights into the Company’s challenges, opportunities and operations.guaranteemember of future performance or results,our Board since November 2010 and will not necessarily be accurate indicationscurrently chairs the audit committee. Mr. Baharav is the chairman of Gilat Satellite Networks Ltd., a provider of products and services for satellite-based broadband communications, and Cyberint Technologies Ltd., which specializes in Information and Cyber Security. Mr. Baharav has served as the chairman of the timesboard of directors of Israel Aerospace Industries, Ltd., a defense and civil aerospace technology company,or by which, such performance or results will be achieved. Forward-looking statements are based on information availableIntel, where he was a senior staff member in the Pentium processors department and a circuit design manager at the time those statements are made and/or management's good faith beliefcache controllers group. Mr. Cohen holds a Bachelor of Science in Electrical Engineering from Technion. Mr. Cohen is located in Israel.that time with respect to future events,Mellanox, his previous service as our chief operating officer, and are subject to riskshis design, engineering and uncertainties that could cause actual performance or results to differ materially from those expressedarchitecture expertise. Our Board particularly values Mr. Cohen’s extensive experience in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:impact of worldwide economic conditions on us, our customers and our vendors;the impact of any acquisitions or investments in other companies;our ability to resume and maintain adequate revenue growth;market adoption of our Ethernet and InfiniBand solutions;our ability to accurately forecast customer demand;our dependence on a relatively small number of customers;competition and competitive factors;our ability to successfully introduce new products and enhance existing products;our dependence on third-party subcontractors;our ability to carefully manage the use of "open source" software in our products;a potential proxy contest for the election of directors at our annual meeting, which could distract our management, divert our resources and, the outcome of which may significantly impact the strategic directioninner workings of the Company, which gives him unique insights into the Company’s operations, challenges and opportunities.Company's financial performance;compensation committee, andother risk factors included under "Risk Factors" Mirametrix Inc, a private software company that providesgaze-tracking software. She is also an operating advisor to OMERS Private Equity, a private equity investment fund for a Canadian pension plan. Ms. Dorchak was executive vice president and general manager of Global Business for Spansion, Inc., a Sunnyvale, California based flash memory provider, from April 2012 to June 2013. From January 2009 until September 2010, when it was acquired by Red Bend Software, Ms. Dorchak was the CEO and vice chairman of VirtualLogix, Inc., a Sunnyvale, California based provider of virtualization software for wireless and embedded devices. Prior to VirtualLogix, Inc., she served as chairman and CEO of Intrinsyc Software International, Inc., a product development company of hardware, software, engineering and production services, from August 2006 to November 2008 where she had also served as an independent director from September 2003 to December 2004. Ms. Dorchak was an executive at Intel from 2001 to 2006, including serving as vice president and chief operating officer of Intel’s Communications Group; vice president and general manager of Intel’s Consumer Electronics Group; and vice president and general manager of the Broadband Products Group. Prior to her tenure at Intel, she served as chairman and CEO of Value America, Inc., an online retailer, from September 1999 to November 2000 and president from September 1998 to August 1999. From 1974 to 1998, Ms. Dorchak worked for IBM Corporation (“IBM”), a global technology and consulting corporation, both in Canada and later in Raleigh, North Carolina, where she held executive positions with the IBM’s Personal Systems Group, including directorships with the Ambra Systems Group and IBM PC North America. Ms. Dorchak is located in the United States.report.In addition, in this report,period, Mr. Perlmutter was responsible for the words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "predict," "potential" and similar expressions, as they relate to us, our business and ourdevelopment of Intel’s platform solutions for all computing and communication segments including datacenters, desktops, laptops, handhelds, embedded devices, and computer electronics. Prior to that period, Mr. Perlmutter served at Intel for 29 years, during which he held various management are intended to identify forward-looking statements. In lightpositions and was instrumental in developing several major products at Intel. Since April 2014, Mr. Perlmutter has served as a board member of these risksseveral private technology companies, including Stratoscale Ltd., a virtualization technology company, OptimaTest Ltd., a security and uncertainties, the forward-looking eventsinvestigations company, and circumstances discussed in this report may not occurKili Technology Corporation, a silicon, electronic and actual results could differ materially from those anticipated or impliedsoftware design company. He also currently chairs two nonprofit organizations, The Israel Innovation Institute, and Mishelanu—Strengthening Jewish and Israeli Identity of 2nd Generation Israelis in the forward-looking statements.You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.When used in this report, "Mellanox," the "Company," "we," "our" or "us" refers to Mellanox Technologies, Ltd.US, and its consolidated subsidiaries unless the context requires otherwise.3ITEM 1—BUSINESSWe are an integrated supplier of end-to-end high-performance interconnect products and solutions based on the Ethernet and InfiniBand standards. Our products facilitate efficient data transmission between servers, storage systems, communications infrastructure equipment and other embedded systems. We operate our business globally and offer products to customers at various levels of integration. The products we offer include integrated circuits ("ICs"), adapter cards, switch systems, multi-core and network processors, systems onhas been a chip (“SOCs”), cables, modules, software, services and accessories. Together these products form a total end-to-end networking solution focused on computing, storage and communication applications used in multiple markets, including high-performance computing ("HPC"), cloud, Web 2.0, Big Data, machine learning, storage, telecommunications, financial services, and enterprise data centers ("EDC"). These solutions increase performance, application efficiency and improve return on investment. Through the successful development and implementation of multiple generations of our products, we have established significant expertise and competitive advantages.As a leader in developing multiple generations of high-speed interconnect solutions, we have established strong relationships with our customers. Our products are incorporated in servers and associated networking solutions produced by the largest server vendors. We supply our products to leading storage and communications infrastructure equipment vendors, original design manufacturers ("ODMs"), distributors, and large end customers. Additionally, our products are used in embedded solutions.We are one of the pioneers of InfiniBand, an industry-standard architecture for high-performance interconnects. We believe InfiniBand interconnect solutions deliver industry-leading performance, efficiency and scalability for clustered computing and storage systems that incorporate our products. In addition to supporting InfiniBand, our products also support industry-standard Ethernet transmission protocols providing unique product differentiation and connectivity flexibility. Our products serve as building blocks for creating reliable and scalable Ethernet and InfiniBand solutions with leading performance. We also believe that we are one of the major suppliers of 25, 50, and 100Gb/s Ethernet adapters, switches, and cables to the market, and the only end-to-end supplier of these products today. We are the leading provider of adapters at the 25, 40, 50, and 100Gb/s speeds, which helps to drive demand for our switch and cable products and provides us the opportunity to gain share in the Ethernet market as users upgrade from 1Gb/s or 10Gb/s directly to 25, 40, 50 or 100Gb/s.On February 23, 2016, we completed our acquisition of EZchip Semiconductor, Ltd. ("EZchip"), for approximately $782.2 million. The EZchip acquisition is a critical enabler of our strategy to become the leading broad-line supplier of intelligent interconnect solutions for the software-defined data centers. The addition of EZchip’s products and expertise in security, deep packet inspection, video, and storage processing enhances our leadership position, and ability to deliver complete end-to-end, intelligent 10, 25, 40, 50, and 100Gb/s interconnect and processing solutions for advanced data center and edge platforms. The addition of multi-core and network processors allows us to offer our customers diverse and robust solutions to meet the growing demands of data-intensive applications used in high-performance computing, Web 2.0, cloud, secure data center, enterprise, telecom, database, financial services, and storage environments. The transaction closed on February 23, 2016 and was financed with cash on hand, and with $280.0 million in term debt ("Term Debt").We have been shipping our InfiniBand products since 2001 and our Ethernet products since 2007. During 2008, we introduced Virtual Protocol Interconnect, ("VPI"), into our ConnectX family of adapter ICs and cards. VPI provides the ability for an adapter to automatically sense whether a communications port is connected to Ethernet or InfiniBand. In 2015, we introduced the Spectrum family of 25, 50, and 100Gb/s Ethernet switches and the Switch-IB 2 smart InfiniBand switch.In order to accelerate adoption of our high-performance interconnect solutions and our products, we work with leading vendors across related industries, including:processor and accelerator vendors such as AMD, ARM, IBM, Intel, Nvidia, Oracle, and Qualcomm;operating system vendors such as Microsoft and Red Hat; andsoftware applications vendors such as Oracle, IBM and VMware.We are a Steering Committee member of the InfiniBand Trade Association, ("IBTA"),Board of Governors of Technion since January 2005. Mr. Perlmutter holds patents on branch target buffers and multiprocessing cache coherency protocols. In addition, he received an award for innovation in industrial development from the OpenFabrics Alliance, ("OFA"), both of which are industry trade organizations that maintain and promote InfiniBand technology. Additionally, OFA supports and promotes Ethernet solutions. We are a founding memberIsraeli president in 1987 for the development of the 25 Gigabit Ethernet consortium. We are alsoi387 math coprocessor and was elected as a participating memberFellow of the Institute of Electronics and Electrical Engineers in 2008 for his contributions to the mobile computer industry. Mr. Perlmutter graduated from the Technion, with a B.Sc. in Electrical Engineering. Mr. Perlmutter is located in Israel.Electronic Engineers ("IEEE"), an organization that facilitatestechnology industries. Our Board particularly values the advancementsignificant knowledge he has acquired from executive leadership roles at Intel.Ethernet standard, Ethernet Alliancecomputer science faculty of Foothill College in Los Altos, CA, teaching computer architecture. Mr. Riordan served as the executive vice president and other industry organizations advancing various networking and storage related standards.Our business headquarters are in Sunnyvale, California, and our engineering and manufacturing headquarters are in Yokneam, Israel. Our total assets aschief operating officer of Mosys, Inc., a semiconductor company, from April 2011 to April 2017. Prior to joining Mosys, Mr. Riordan was the CEO of Exclara, Inc., a semiconductor company, from August 2006 until March 2011. Prior to Exclara, from January 2005 until July 2006, Mr. Riordan was anentrepreneur-in-residence at Bessemer Venture Partners, an investment fund. From August 2000 to December 31, 2017 and 2016 were approximately $1,401.9 million and $1,473.5 million, respectively. During the years ended December 31, 2017, 2016 and 2015, we generated approximately $863.9 million,4$857.5 million and $658.1 million in revenues, respectively, and approximately $(19.4) million, $18.5 million and $92.9 million in net income (loss), respectively.We manage our business based on one reportable segment: the development, manufacturing, marketing and sales of interconnect products. Additional information required by this item is incorporated herein by reference to our consolidated financial statements and Note 13, "Geographic information and revenues by product group,"2004, Mr. Riordan was vice president of the Notesmicroprocessor division ofPMC-Sierra, Inc. (“PMC”), a semiconductor company. From August 1991 to Consolidated Financial Statements, includedAugust 2000, Mr. Riordan was CEO, president and a member of the board of directors of Quantum Effect Devices, Inc., a semiconductor design company that Mr. Riordanco-founded and was purchased by PMC. From February 1985 to June 1991, Mr. Riordan served in Part IV, Item 15various design and managerial roles, most recently as director of this report. The risks relatedresearch and development at MIPS Computer Systems, Inc., a semiconductor design company. From March 1983 to foreign operationsJanuary 1985, Mr. Riordan served as a design engineer at Weitek Corporation, a semiconductor company. From October 1979 to February 1983, Mr. Riordan was a design engineer at Intel. Mr. Riordan holds a Bachelor of Science degree in Electrical Engineering from Florida Technological University and dependence on foreign operations are discussed under the section entitled "Risk Factors—Risks Related to Operationsa Master of Science degree in Israel and Other Foreign Countries" under Part I, Item 1A of this report.Industry BackgroundHigh-Performance Interconnect Market Overview and TrendsComputing and storage systems such as servers, supercomputers and storage arrays in today's data centers face a critical challenge of handling exponentially expanding volumes of transactions and data while delivering improved application performance, high scalability and reliability within economic and power constraints. High-performance interconnect solutions remove bottlenecks in communications between compute and storage resources through fast transfer of data, latency reduction, improved application processing by central processing unit ("CPU") utilization and efficient sharing of resources. The result is higher efficiency and better resource utilization, thereby delivering higher application performance with lower capital expenditures and operating expenses. Leading companies in HPC, cloud, Web 2.0, Big Data, machine learning, storage, telecommunications, financial services, and EDC utilize these technologies to develop distributed applications and services which are able to scale to serve millions of end customers.Demand for computing power and data storage capacity continue to rise, fueled by the increasing reliance by enterprises on information technology ("IT") for everyday operations. Due to greater amounts of information to be processed, stored and retrieved, data centers rely on high-performance computing and high-capacity storage systems to optimize price/performance, minimize total cost of ownership, utilize power efficiently and simplify management. We believe that several IT trends impact the demand for interconnect solutions and the performance required from these solutions. These trends include:Transition to clustered computing and storage using connections among multiple standard components;Transition to multiple and multi-core processors in servers;Use of solid state Flash memory drives for data storage;Increasing deployments of software defined scale out storage;Enterprise data center infrastructure consolidation;Increasing deployments of mission critical, latency, or response time sensitive applications;Increasing deployments of converged and hyperconverged infrastructure;Increasing deployment of virtualized computing and virtualized networking resources to improve server utilization;Requirements by cloud providers to perform system provisioning, workload migrations and support multiple users' requests faster and more efficiently;Requirements by Web 2.0 data centers to increase their hardware utilization and to instantly scale up to large capacities;Big Data Analytics requirements for faster data access and processing to analyze increasingly large datasets and to provide real-time analysis; andIncreasing deployment of artificial intelligence and machine learning applications that utilize massive amounts of data and compute resources and often require generating real-time results.A number of semiconductor-based interconnect solutions have been developed to address different application requirements. These solutions include proprietary technologiesElectrical Engineering as well as standard technologies, including Fibre Channel, Etherneta Bachelor of Arts degree in Government from the University of Central Florida and InfiniBand, which was specifically created for high-performance computing, storage and embedded applications.Challenges Addressed by High-Performance InterconnectThe trends described above indicate that high-performance interconnect solutions will play an increasingly important rolehas done post-graduate work in IT infrastructures and will drive strong growth in unit demand. Performance requirements for interconnect solutions,5however, continue to evolve and lead to high demand for solutions that are capable of resolving the following challenges to facilitate broad adoption:Performance limitations. In clustered computing, cloud computing and storage environments, high bandwidth and low latency are key requirements to capture the full performance capabilities ofElectrical Engineering at Stanford University. Mr. Riordan served as a cluster. With the usage of multiple multi-core processors in server, storage and embedded systems, I/O bandwidth has not been able to keep pace with processor advances, creating performance bottlenecks. Fast data access has become a critical requirement to take advantagemember of the increased compute powerboard of microprocessors. In addition, interconnect latency has becomedirectors of PLX Technology, Inc., a limiting factorsemiconductor and software company, from November 2004 until its acquisition by Avago Technologies Ltd. in a cluster's overall performance.Increasing complexity. The increasing usageAugust 2014. Mr. Riordan also serves on the boards of clustered serversdirectors of several private companies. Mr. Riordan is located in the United States.storage systemsboard member experience in the semiconductor and technology industries. Our Board particularly values Mr. Riordan’s more than 30 years of experience as a critical IT tooldeveloper, manager and executive in semiconductors and microprocessors.led to an increase in complexityserved as a member of interconnect configurations. The number of configurations and connectionsour Board since February 2018. He has also proliferatedserved as the President of Microchip Technology Inc. (“Microchip”) since August 1990, the CEO of Microchip since October 1991 and the chairman of the board of directors of Microchip since October 1993. Prior to joining Microchip, Mr. Sanghi served as vice president of operations at Waferscale Integration, Inc., a semiconductor company, from 1988 to 1990. Mr. Sanghi served at Intel Corporation from 1978 to 1988, where he held various positions in EDC, making systems increasingly complicated to manage and expensive to operate. Additionally, managing multiple software applications utilizing disparate interconnect infrastructures has become increasingly complex.Interconnect inefficiency. The deployment of clustered computing and storage has created additional interconnect implementation challenges. As additional computing and storage systems, or nodes, are added to a cluster, the interconnect must be able to scale in order to provide the expected increase in cluster performance. Additionally, increased attention on data center energy efficiency is causing IT managers to look for ways to adopt more energy-efficient implementations.Limited reliability and stability of connections. Most interconnect solutions are not designed to provide reliable connections when utilized in a large clustered environment, causing data transmission interruption. As more applications in EDCs share the same interconnect, advanced traffic management and application partitioning become necessaryengineering, including serving as general manager of programmable memory operations. Mr. Sanghi currently serves on the board of directors of Myomo, Inc., a biotechnology company. Mr. Sanghi’s previously served on the boards of directors of Hittite Microwave Corporation from 2013 until its sale in 2014 and Xyratex, Ltd. from 2004 until its sale in 2014. Mr. Sanghi was also a member of the board of FIRST® (For Inspiration and Recognition of Science and Technology) Robotics, anon-profit company formed to maintain stabilityinspire young students in the vital areas of Science, Technology, Engineering and reduce system down time. Such capabilities are not offeredMath from 2007 to 2016. Mr. Sanghi has won numerous industry awards, including “Executive of the Year” by most interconnect solutions.Poor price/performance economics. In orderElectronic Engineering Times in 2010 and 2016. He also won the “Arizona Entrepreneur of the Year” award by Ernst and Young in 1994. Mr. Sanghi holds a Master of Science degree in Electrical and Computer Engineering from the University of Massachusetts, and a Bachelor of Science degree in Electronics and Communication from Punjab University, India. Mr. Sanghi is located in the United States.provideserve on our Board include over 30 years of operations and senior management experience, leading large-scale organizations and teams in the required system bandwidthsemiconductor industry. Our Board particularly values Mr. Sanghi’s decades of experience as the president, CEO and efficiency, most high-performance interconnects are implementedchairman of the board of directors of Microchip.complex, multi-chip semiconductor solutions. These implementations have traditionally been extremely expensive.In addition to Ethernet and InfiniBand, proprietary and other standards-based interconnectCypress in March 2015, Tesco Corporation, a global provider of technology-based solutions including Fibre Channel, are currently used in EDC, HPC and embedded markets. Performance and usage requirements, however, continue to evolve and are now challenging the capabilities of these interconnect solutions.Proprietary interconnect solutions have been designed for use in supercomputer applications by supporting low latency and increased reliability. These solutions are only supported by a single vendor for product and software support, and there is no standard organization maintaining and facilitating improvements and changes to the technology. The numberupstream energy industry, from May 2004 to May 2013 and several privately held companies. Mr. Weatherford has also served on an SEC advisory committee on accounting standards. Mr. Weatherford holds a Bachelor of supercomputers that use proprietary interconnect solutions has been declining largely dueBusiness Administration from the University of Houston. Mr. Weatherford is located in the United States.the required use of proprietary software solutions, a lack of compatible storage systems and the availability of industry standards-based interconnects that offer superior price/performance.Fibre Channel is an industry standard interconnect solution limited to storage applications. The majority of Fibre Channel deployments support 2, 4, 8 and 16Gb/s. Fibre Channel lacks a standard software interface, does not provide server cluster capabilities and remains more expensive relative to other standards-based interconnects. There have been industry efforts to support the Fibre Channel data transmission protocol over interconnect technologies including Ethernet (Fibre Channel over Ethernet) and InfiniBand (Fibre Channel over InfiniBand). The Fibre Channel market is declining as legacy storage area network moves to more modern Web 2.0 and cloud architectures based on converged, software defined, and scale out storage.Ethernet is an industry-standard interconnect solution that was initially designed to enable basic connectivity between a local area network of computers or over a wide area network, where latency, connection reliability and performance limitations due to communication processing are non-critical. While Ethernet has a broad installed base at 1/10Gb/s and lower data rates, its overall efficiency, scalability and reliability have been less optimal than other interconnect solutions in high-performance computing, storage and communication applications. An increase to 25/40/50/100Gb/s bandwidth, a significant reduction in application latency and more efficient software solutions have improved Ethernet's capabilities to address specific high-performance applications that do not demand the highest performance or scalability.In the HPC, cloud, Web 2.0 and storage markets the predominant interconnects today are Ethernet and InfiniBand. In the EDC and embedded markets, the predominant interconnects today are Ethernet, Fibre Channel and InfiniBand. Basedserve on our6knowledge Board include his accounting and financial expertise, experience in the semiconductor and technology industries and service on the boards of directors of several companies. Our Board particularly values Mr. Weatherford’s experience on public company audit committees and overseeing the preparation of financial statements, as well as his familiarity with accounting standards.industry, we believe thereRegistrantsignificant demand for interconnect products that provide high bandwidth and better overall performance in these markets.Advantagescertain information regarding each of InfiniBandWe believe that InfiniBand-based solutions have advantages compared to solutions based on alternative interconnect architectures. InfiniBand addresses the significant challenges within IT infrastructures by providing solutions for more demanding requirementsour executive officers as of the high-performance interconnect market. More specifically, we believe that InfiniBand has the following advantages:Superior performance. Compared to other interconnect technologies that were architected to have a heavy reliance on communication processing, InfiniBand was designed for implementation in an IC that relieves the CPU of communication processing functions. InfiniBand is able to provide superior bandwidth and latency relative to other existing interconnect technologies and has maintained this advantage with each successive generation of products. For example, our current InfiniBand adapters and switches provide bandwidth up to 100Gb/s, with end-to-end latency lower than a microsecond. In addition, InfiniBand fully leverages the I/O capabilities of PCI Express, a high-speed system bus interface standard.The following table provides a bandwidth comparison of the various high-performance interconnect solutions:Proprietary FibreChannel Ethernet InfiniBandSupported bandwidth of available solutions2Gb/s - 100Gb/s57 2Gb/s - 16Gb/sPresident and Chief Executive Officer 1Gb/s - 100Gb/s60 10Gb/s - 100Gb/sChief Technology Officer 47 Chief Financial Officer 54 Sr. Vice President of Worldwide Sales Performance in termslatency varies depending on system configurationsMellanox, and applications. According to independent benchmark reports, latency of InfiniBand solutions was less than half that of tested Ethernet solutions. Fibre Channel, which is used onlyhas served as a storage interconnect, is typically not benchmarked on latency performance. HPC typically demands low latency interconnect solutions. In addition, there are increasing numbers of latency-sensitive applications in the cloud, Web 2.0, storage, machine learning and embedded markets, and, therefore, there is a trend towards using industry-standard Ethernet and InfiniBand solutions of 10Gb/s and faster, which are able to deliver lower latency than 1Gb/s Ethernet.Reduced complexity. While other interconnects require use of separate cables to connect servers, storage and communications infrastructure equipment, InfiniBand allows for the consolidation of multiple I/Os on a single cable or backplane interconnect, which is critical for blade servers and embedded systems. InfiniBand also consolidates the transmission of clustering, communications, storage and management data types over a single connection.Highest interconnect efficiency. InfiniBand was developed to provide efficient scalability of multiple systems. InfiniBand provides communication processing functions in hardware, relieving the CPU of this task, and enables the full resource utilization of each node added to the cluster.Reliable and stable connections. InfiniBand is one of the only industry standard high-performance interconnect solutions which provides reliable end-to-end data connections within the silicon hardware. In addition, InfiniBand facilitates the deployment of virtualization solutions, which allow multiple applications to run on the same interconnect with dedicated application partitions. As a result, multiple applications run concurrently over stable connections, thereby minimizing down time.Superior price/performance economics. In addition to providing superior performance and capabilities, standards-based InfiniBand solutions are generally available at a lower cost than other high-performance interconnects.Our InfiniBand SolutionsWe provide comprehensive end-to-end 40/56/100Gb/s InfiniBand solutions, including switch and gateway ICs, adapter cards, switch, gateway and long-haul systems, cables, modules and software. We expect to introduce our 200Gb/s solutions in fiscal 2018. InfiniBand enables us to provide products that we believe offer superior performance and meet the needs of the most demanding applications, while also offering significant improvements in total cost of ownership compared to alternative interconnect technologies. As part of our comprehensive solution, we perform validation and interoperability testing from the physical interface to the applications software. Our expertise in performing validation and testing reduces time to market for our customers and improves the reliability of the fabric solution.Our Ethernet SolutionsAdvances in server virtualization, network storage and compute clusters have driven the need for faster network throughput to address application latency and availability problems in the Enterprise. To service this need, we provide a7complete industry leading, end-to-end 10/25/40/50/100Gb/s Ethernet product portfolio for use in EDC, HPC, embedded environments, hyperscale, Web 2.0, and cloud data centers. Our portfolio of advanced Ethernet switch products supports the latest generation of Ethernet speeds and deliver wire speed forwarding for telco and data center environments. In addition, we provide a full range of Ethernet adapters at these speeds which incorporate the latest in Ethernet technology, including support for virtualization and RDMA over Converged Ethernet (RoCE). These solutions remove I/O bottlenecks in mainstream servers that limit application performance and support hardware-based I/O virtualization, providing dedicated adapter resources and guaranteed isolation and protection for virtual machines within the server.VPI: Providing Connectivity to Ethernet and InfiniBandOur VPI technology enables us to offer fabric-flexible products that concurrently support both Ethernet and InfiniBand with network ports having the ability to auto sense the type of switch to which it is connected and then take on the characteristics of that fabric. In addition, these products extend certain InfiniBand advantages to Ethernet fabrics, such as reduced complexity and superior price/performance, by utilizing existing, field-proven InfiniBand software solutions.Our StrengthsWe apply our strengths to enhance our position as a leading supplier of semiconductor-based, high-performance interconnect products. We consider our key strengths to include the following:We have expertise in developing high-performance interconnect solutions. We were founded by a team with an extensive background in designing and marketing semiconductor solutions. Since our founding, we have been focused on high-performance interconnect and have successfully launched several generations of Ethernet and InfiniBand products. We believe we have developed strong competencies in integrating mixed-signal design and developing complex ICs. We also consider our software development capability as a key strength, and we believe that our software allows us to offer complete solutions. We have developed a significant portfolio of intellectual property ("IP"), and have 487 issued patents and pending design applications. We believe our experience, competencies and IP will enable us to remain a leading supplier of high-performance interconnect solutions.We have expertise in developing high speed analog and optical components. We have unique design expertise and manufacturing capabilities required to build state of the art optical components, modules, and cable assemblies. We have developed significant know-how related to building advanced electrical and electro-optical components and sub-assemblies which combine electrical and optical components. In addition, we have design expertise to enable advanced transceiver chipsets for driving and receiving multimode optical signals and interfacing to low cost lasers and optical sensor technologies. We have developed significant manufacturing know how and automated assembly techniques to combine these optical and electrical components and build complete optical module and cables that are high performance, cost effective, high quality, and offer high reliability.We believe we are the leading merchant supplier of InfiniBand ICs. We have gained in-depth knowledge of the InfiniBand standard through active participation in its development. We were first to market with InfiniBand products (in 2001) and InfiniBand products that support the standard PCI Express interface (in 2004), PCI Express 2.0 interface (in 2007) and PCI Express 3.0 (in 2011). We have sustained our leadership position through the introduction of several generations of products. Because of our market leadership, vendors have developed and continue to optimize their software products based on our semiconductor solutions. We believe that this places us in an advantageous position to benefit from continuing market adoption of our InfiniBand products.We believe we are a leading merchant supplier of end to end Ethernet solutions and the leading merchant supplier of high performance Ethernet Adapters. We have gained significant expertise in Ethernet adapters and are the leading supplier of adapters with speeds of 25Gb/s and above with over 60% market share of adapters with speeds greater than 10Gb/s. We have developed significant expertise in Ethernet switches hardware and software and are gaining market share with our top of rack switch products and optical and copper cables and transceivers. Nine out of the top ten hyperscale, cloud and Web 2.0 data centers are using our products. Our engagement with these customers through several generations of designs has allowed us to understand the challenges faced by large scale deployments, and to develop features that solve these problems. We are the first to market with a complete end-to-end product portfolio of adapters, switches, and cables for the latest 25, 50, and 100Gb/s speeds of Ethernet. Our leading time to market, customer engagements, advanced feature set, and rapid development cadence provides a significant competitive advantage over other vendors. We believe that this places us in an advantageous position to benefit from continuing market adoption of our Ethernet products.We have a comprehensive set of technical capabilities to deliver innovative and reliable products. In addition to designing our ICs, we design standard and customized adapter card products, switch products, and optical cables and transceivers - providing us a deep understanding of the associated circuitry and component characteristics. We believe8this knowledge enables us to develop solutions that are innovative and can be efficiently implemented in target applications. We have devoted significant resources to develop our in-house test development capabilities, which enables us to rapidly finalize our mass production test programs, thus reducing time to market. We have synchronized our test platform with our outsourced testing provider and are able to conduct quality control tests with minimal disruption. We believe that because our capabilities extend from product definition, through IC design, and ultimately management of our high-volume manufacturing partners, we have better control over our production cycle and are able to improve the quality, availability and reliability of our products.We have extensive relationships with our key original equipment manufacturers ("OEM") and hyperscale customers and many end users. Since our inception we have worked closely with major hyperscale customers and OEMs, including leading server, storage, communications infrastructure equipment and embedded systems vendors, to develop products that accelerate market adoption of our Ethernet and InfiniBand products. During this process, we have obtained valuable insight into the challenges and objectives of our customers, and gained visibility into their product development plans. We also have established end-user relationships with influential IT executives who allow us access to firsthand information about evolving market trends. We believe that our OEM customer and end-user relationships allow us to stay at the forefront of developments and improve our ability to provide compelling solutions to address their needs.Our StrategyOur goal is to be the leading supplier of end-to-end interconnect solutions for servers and storage that optimize data center performance for computing, storage and communications applications. To accomplish this goal, we intend to:Continue to develop leading, high-performance interconnect products. We will continue to expand our technical expertise and customer relationships to develop leading interconnect products. We are focused on extending our leadership position in high-performance interconnect technology and pursuing a product development plan that addresses emerging customer and end-user demands and industry standards. Our unified software strategy is to use a single software stack to support connectivity to Ethernet and InfiniBand with the same VPI enabled hardware adapter device.Capture Ethernet market share with our adapter, switch, and cable products. We believe we are the market leader in Ethernet adapters with performance greater than 10Gb/s and the only provider of end-to-end solutions of adapters, switches, and cables at the latest 25, 40, 50, and 100Gb/s speeds. We plan to capture Ethernet market share as data centers transition from 10Gb/s to 25/40/50 or 100Gb/s. We believe we will be able to leverage our strength in the Ethernet adapter business to grow our Ethernet switch and cable business during the market transition to these advanced speeds.Facilitate and increase the continued adoption of InfiniBand. We will facilitate and increase the continued adoption of InfiniBand in the high-performance interconnect marketplace by expanding our partnerships with key vendors that drive high-performance interconnect adoption, such as suppliers of processors, operating systems and other associated software. In conjunction with our OEM customers, we will expand our efforts to promote the benefits of InfiniBand and VPI directly to end users to increase demand for high-performance interconnect solutions.Expand our presence with existing server OEM customers. We believe the leading server vendors are influential drivers of high-performance interconnect technologies to end users. We plan to continue working with and expanding our relationships with server OEMs to increase our presence in their current and future product platforms.Broaden our customer base with storage, communications infrastructure and embedded systems OEMs. We believe there is a significant opportunity to expand our global customer base with storage, communications infrastructure and embedded systems OEMs. In storage solutions specifically, we believe our products are well suited to replace existing technologies such as Fibre Channel. We believe our adapter, SOC, and switch products are the basis of superior interconnect fabrics for unifying disparate storage interconnects, including back-end, clustering and front-end connections, primarily due to their ability to be a unified fabric and superior price/performance economics.Leverage our fabless business model to deliver strong financial performance. We intend to continue operating as a fabless semiconductor company and consider outsourced manufacturing of our ICs, adapter cards, switches and cables to be a key element of our strategy. Our fabless business model offers flexibility to meet market demand and allows us to focus on delivering innovative solutions to our customers. We plan to continue to leverage the flexibility and efficiency offered by our business.9Our ProductsWe provide complete solutions which are based on and meet the specifications of the Ethernet and InfiniBand standards. Our products include adapter ICs and cards (ConnectX®, Quantum, and Connect-IB™ product family) and switch ICs (InfiniScale®, SwitchX®, SwitchX®-2, Spectrum®, and Switch-IB™ product families) and systems, gateway ICs (BridgeX® product family) and gateway systems, long-haul systems (MetroX®), Bluefield family SOC multicore and SmartNIC processors, software, and LinkX® cables and transceivers. Our ConnectX® family of adapters and cards support both the Ethernet and InfiniBand interconnect standards. Our SwitchX® and SwitchX®-2 family of silicon and systems supports both Ethernet and InfiniBand, and includes gateways that support bridging from InfiniBand to Ethernet. Our Spectrum® switches support Ethernet standard and our Switch-IB switches support InfiniBand standard. Our long-haul systems expand the reach of InfiniBand and lossless Ethernet up to 80 kilometers.We have registered "Mellanox" and its logo, "Bluefield", "BridgeX", "Connect-IB", "ConnectX", "CoolBox", "CORE-Direct", "GPUDirect", "InfiniBridge", "InfiniHost", "InfiniScale", "Kotura" and its logo, "Mellanox Federal Systems", "Mellanox Hostdirect", "Mellanox Open Ethernet", "Mellanox Peerdirect", "Mellanox ScalableHPC", "Mellanox Technologies Connect. Accelerate. Outperform", "Mellanox Virtual Modular Switch", "MetroDX", "MetroX", "MLNX-OS", "Open Ethernet" logo, "PhyX", "SwitchX", "TestX", "The Generation of Open Ethernet" and its logo, "UFM", "Virtual Protocol Interconnect", "Quantum", "EZchip", "Tilera", and "Voltaire" and its logo as trademarks in the United States.We have trademark applications pending to register in the United States "25G is the New 10G", "Accelio", "CloudX" logo, "CompustorX", "CYPU", "FPGADirect", "HPC-X", "LinkX", "Mellanox Care", "Mellanox CloudX" and its logo, "Mellanox Multi-host", "Mellanox NEO", "Mellanox Opencloud" and its logo, "Mellanox OpenHPC", "Mellanox Socket Direct", "Mellanox Spectrum", "Mellanox StorageX", "Mellanox TuneX, "NVMEDirect", "One Switch. A world of options" slogan, "PlatformX", "PSiPHY", "SiPhy", "Spectrum", "StoreX", "STPU", "Switch-EN", "Switch-IB", "TuneX", "UCX", "UCX Unified Communication X" and "Unbreakable-Link".We provide adapters to server, storage, communications infrastructure and embedded systems OEMs as ICs or standard card form factors with PCI Express interfaces. Adapter ICs or cards are incorporated into OEMs' server and storage systems to provide Ethernet and/or InfiniBand connectivity. All of our adapter products interoperate with standard programming interfaces and are compatible with previous generations, providing broad industry support. We support server operating systems including Linux, Windows, AIX, HPUX, Solaris and VxWorks.We provide our switch ICs and systems to server, storage, communications infrastructure and embedded systems OEMs to create switching equipment. To deploy an Ethernet or InfiniBand fabric, any number of server or storage systems that contain an adapter can be connected to a communications infrastructure system such as an Ethernet or InfiniBand switch. Our Spectrum Ethernet switch IC supports 10, 25, 40, 50, and 100Gb/s Ethernet throughput while Spectrum-2 is designed to support 200 and 400Gb/s Ethernet throughput. Our 8th generation InfiniBand switch IC (Switch-IB 2) supports up to 100Gb/s InfiniBand throughput. We have introduced switch systems that include 8-port, 12-port, 18-port, 36-port, 48-port, 64-port, 108-port, 216-port, 324-port and 648-port. Our family of multicore processors and the new Bluefield SOC device combine multiple processing cores together with advanced networking connectivity and accelerators for security, storage, and other intelligent networking applications.Our products generally vary by the number and performance of Ethernet or InfiniBand ports, and the number of processor cores supported.We also offer custom products that incorporate our ICs to select server and storage OEMs that meet their special system requirements. Through these custom product engagements we gain insight into the OEMs' technologies and product strategies.We also provide our OEM customers software and tools that facilitate the use and management of our products. Our Linux, Windows, and VMware-based software enables applications to efficiently utilize the features of the interconnect. We have expertise in optimizing the performance of software that spans the entire range of upper layer protocols down through the lower level drivers that interface to our products. We provide a suite of software tools and a comprehensive management software solution, Unified Fabric Manager ("UFM"), Network Orchestration ("NEO"), and MLNX- OS, for managing, optimizing, testing and verifying the operation of Ethernet and InfiniBand switch fabrics. In addition, we provide a full suite of acceleration software (Messaging Accelerator ("VMA"), Fabric Collective Accelerator ("FCA"), and Unstructured Data Accelerator ("UDA")) that further reduce latency, increase throughput, and offload CPU cycles, enhancing the performance of applications in multiple markets while eliminating the need for large investments in hardware infrastructure.We provide an extensive selection of passive and active copper and optical cables and modules to enable Ethernet and InfiniBand connectivity at speeds up to 400Gb/s.10TechnologyWe have technological core competencies in the design of high-performance interconnect ICs that enable us to provide a high level of integration, efficiency, flexibility and performance for our adapter and switch ICs. Our products integrate multiple complex components onto a single IC, including high-performance mixed-signal design, specialized communication processing functions and advanced interfaces.High-performance mixed-signal designOne of the key technology differentiators of our ICs is our mixed-signal data transmission SerDes technology. SerDes I/O directly drives the interconnect interface, which provides signaling and transmission of data over copper cables or fiber optic interfaces for longer distance connections. Additionally, we are able to integrate several of these high-performance SerDes onto a single, low-power IC, enabling us to provide the highest bandwidth, merchant switch ICs based on an industry-standard specification. We have developed a 26Gb/s SerDes I/O that is used in our ConnectX-4 adapter and Switch-IB and Spectrum switch silicon. Our 26Gb/s SerDes enables our ConnectX adapters to support 100Gb/s bandwidth (four 26Gb/s SerDes operating in parallel) in addition to providing a direct 10Gb/s connection to standard XFP and SFP+ fiber modules to provide long range Ethernet connectivity without the requirement of additional components, which saves power, cost and board space.Specialized communication processing and switching functionsWe specialize in high-performance, low-latency design architectures that incorporate significant memory and logic areas requiring proficient synthesis and verification. Our adapter ICs are specifically designed to perform communication processing, effectively offloading this very intensive task from server and storage processors in a cost-effective manner. Our switch ICs are specifically designed to switch cluster interconnect data transmissions from one port to another with high bandwidth and low latency, and we have developed a packet switching engine and non-blocking crossbar switch fabric to address this.We have developed a custom embedded Reduced Instruction Set Computer processor called InfiniRISC® that specializes in offloading network processing from the host server or storage system and adds flexibility, product differentiation and customization. We integrate a different number of these processors in a device depending on the application and feature targets of the particular product. Integration of these processors also shortens development cycles as additional features can be added by providing new programming packages after the ICs are manufactured, and even after they are deployed in the field.Advanced interfacesIn addition to Ethernet and InfiniBand interfaces, we also support other industry-standard, high-performance advanced interfaces such as PCI Express, which also utilize our mixed-signal SerDes I/O technology. PCI Express is a high-speed, chip-to-chip interface which provides a high-performance interface between the adapter and processor in server and storage systems. PCI Express and our high-performance interconnect interfaces are complementary technologies that facilitate optimal bandwidth for data transmissions along the entire connection starting from a processor of one system in the cluster to another processor in a different system.System hardware technologyIn addition to silicon technology, we also provide system hardware technology that enables us to build high-density high-performance network adapters and switch systems. Our technology delivers end-to-end solutions that maximize data throughput through a given media at minimal hardware or power cost at very low Bit Error Rate.Software technologyIn addition to hardware products, we develop and provide software stacks to expose standard I/O interfaces to the consumer applications on the host and to network management applications within the network. We also provide advanced interfaces and capabilities to enable application acceleration, efficient resource management and utilization in data centers, factoring cost, power and performance into the efficiency equation.CustomersHPC, cloud, Web 2.0 and embedded end-user markets for systems utilizing our products are mainly served by leading server, storage and communications infrastructure OEMs and ODMs. In addition, our customer base includes leading embedded systems OEMs that integrate computing, storage and communication functions that use high-performance interconnect solutions contained in a chassis which has been optimized for a particular environment.Our products have broad adoption with multiple end customers across HPC, Web 2.0, cloud, EDC, financial services and storage markets; however, these markets are mainly served by leading server, storage, communications infrastructure and embedded system OEMs and ODMs. Therefore, we have derived a substantial portion of our revenues from a relatively small11number of OEM and ODM customers. In the years ended December 31, 2017, 2016 and 2015 sales to Hewlett Packard Enterprise ("HPE") accounted for 13%, 16% and 14%, respectively, of our total revenues. In the year ended December 31, 2017, sales to Dell Technologies ("Dell") accounted for 11% of our total revenues.BacklogOur sales are primarily made through standard purchase orders for delivery of products. Our manufacturing production is based on estimates and advance non-binding commitments from customers as to future purchases. We follow industry practice that allows customers to cancel, change or defer orders with limited advance notice prior to shipment. Given this practice, we do not believe that backlog is a reliable indicator of future revenue levels.Sales and MarketingWe sell our products worldwide through multiple channels, including our direct sales force, our network of domestic and international sales representatives and independent distributors. We have strategically located marketing and sales personnel in the United States, Europe, China, Japan, India, Taiwan and Australia. Our sales directors focus their efforts on leading OEMs and target key decision makers. We are also in frequent communication with our customers' and partners' sales organizations to jointly promote our products and partner solutions into end-user markets. We have expanded our sales and business development teams to engage directly with end users promoting the benefits of our products which we believe creates additional demand for our customers' products that incorporate our products.Our sales support organization is responsible for supporting our sales channels and managing the logistics from order entry to the delivery of products to our customers. In addition, our sales support organization is responsible for customer and revenue forecasts, customer agreements and program management for our large, multi-national customers.To accelerate design and qualification of our products into our OEM customers' systems, and ultimately the deployment of our technology by our customers to end users, we have a field applications engineering ("FAE") team and a sales engineering team that provide direct technical assistance during the design-in process. In certain situations, our OEM customers will utilize our expertise to support their end-user customers jointly. Our technical support personnel have expertise in hardware and software, and have access to our development team to ensure proper technical expertise is provided to our OEM customers. Our FAE team provides OEM customers with design reviews of their systems in addition to technical training on the technology we have implemented in our products.Our marketing team is responsible for creating and growing the brand of our company, product strategy and management, competitive analysis, marketing communications and raising the overall visibility of our company. The marketing team works closely with both the sales and research and development organizations to properly align development programs and product launches with market demands.Our marketing team leads our efforts to promote our interconnect technology and our products to the entire industry by:assuming leadership roles within IBTA, OFA and other industry trade organizations;participating in tradeshows, press and analyst briefings, conference presentations and seminars for end-user education; andbuilding and maintaining active partnerships with industry leaders whose products are important in driving Ethernet and InfiniBand adoption, including vendors of processors, operating systems and software applications.Research and DevelopmentOur research and development team is composed of experienced semiconductor designers, software developers and system designers. Our semiconductor design team has extensive experience in all phases of complex, high-volume design, including product definition and architecture specification, hardware code development, mixed-signal and analog design and verification. Our software team has extensive experience in development, verification, interoperability testing and performance optimization of software for use in computing and storage applications. Our systems design team has extensive experience in all phases of high-volume adapter card and custom switch designs including product definition and architectural specification, product design, design verification and transfer to production.We design our products with careful attention to quality, reliability, cost and performance requirements. We utilize a methodology called Customer Owned Tooling ("COT"), where we control and manage a significant portion of timing, layout design and verification in-house, before sending the semiconductor design to our third-party manufacturer. Although COT requires a significant up-front investment in tools and personnel, it provides us with greater control over the quality and reliability of our IC products, better product cost and superior time to market as opposed to relying on third-party verification services.12We choose first-tier technology vendors for our design tools and continue to maintain long-term relationships with our vendors to ensure timely support and updates. We also select a mainstream silicon manufacturing process only after it has proven its production worthiness. We verify that actual silicon characterization and performance measurements strongly correlate to models that were used to simulate the device while in design, and that our products meet frequency, power and thermal targets with good margins. Furthermore, we insert Design-for-Test circuitry into our IC products which increases product quality, provides expanded debugging capabilities and ultimately enhances system-level testing and characterization capabilities once the device is integrated into our customers' products.Frequent interaction between our silicon, software and systems design teams gives us a comprehensive view of the requirements necessary to deliver quality, high-performance products to our OEM customers. Our research and development expense was $365.9 million in 2017, $322.6 million in 2016 and $252.2 million in 2015.ManufacturingWe depend on third-party vendors to manufacture, package, assemble and production test our products as we do not own or operate facilities for semiconductor fabrication, packaging or production testing, or for board, cable or system assembly. By outsourcing manufacturing, we are able to avoid the high cost associated with owning and operating our own facilities while managing flexible capacity. This allows us to focus our efforts on the design and marketing of our products.Manufacturing and Testing. We use Taiwan Semiconductor Manufacturing Company ("TSMC") for our CMOS process ICs and STMicroelectronics for our BiCMOS process ICs. We use Advanced Semiconductor Engineering ("ASE") and Amkor Technology Korea Inc. (“Amkor”) to assemble, package and production test our IC products. We use Flextronics International Ltd. ("Flextronics") and Universal Scientific Industrial Co., Ltd. ("USI") to manufacture our standard and custom adapter card products and switch systems. In addition, we also use Comtel Electronics to manufacture some of our switch systems. We use several sub-contractors to manufacture our cables. We maintain close relationships with our suppliers, which improves the efficiency of our supply chain. We focus on mainstream processes, materials, packaging and testing platforms, and have a continuous technology assessment program in place to choose the appropriate technologies to use for future products. We provide all of our suppliers a 6-month rolling forecast, and generally receive their confirmation that they are able to accommodate our needs on a monthly basis. We have access to online production reports that provide up-to-date status information of our products as they flow through the manufacturing process. On a quarterly basis, we generally review lead-time, yield enhancements and pricing with all of our suppliers to obtain the optimal cost for our products.Quality Assurance. We maintain an ongoing review of product manufacturing and testing processes. Our IC products are subjected to extensive testing to assess whether their performance exceeds the design specifications. We own Teradyne IC in-house testers providing immediate test data and the ability to generate characterization reports that are made available to our customers. Our adapter cards, switch system and cable products are subject to similar levels of testing and characterization, and are additionally tested for regulatory agency certifications such as Safety and EMC (radiation test) which are made available to our customers. We only use components on these products that are qualified to be on our approved vendor list.EmployeesAs of December 31, 2017, we had 2,448 full-time employees and 275 part-time employees, including 1,819 full-time employees in research and development, 487 in sales and marketing, 311 in general and administrative and 106 in operations. 1,728 of our full-time employees and 264 of the part-time employees are located in Israel.Certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists' Associations) are applicable to our employees in Israel by order of the Israeli Ministry of Economy and Industry, which extends such collective bargaining agreements to Israeli employers. These provisions primarily concern the length of the workweek, travel expended, and pension fund benefits for all employees. We generally provide our employees with benefits and working conditions above the required minimums.We have never experienced any employment-related work stoppages and believe our relationship with our employees is good.Intellectual PropertyOne of the key values and drivers for future growth of our high-performance interconnect IC, system hardware and software products is the IP we develop and use to improve them. We believe that the main value proposition of our high-performance interconnect products and success of our future growth will depend on our ability to protect our IP. We rely on a combination of patent, copyright, trademark, mask work, trade secret and other IP laws, both in the United States and internationally, as well as confidentiality, non-disclosure and inventions assignment agreements with our employees, customers,13partners, suppliers and consultants to protect and otherwise seek to control access to, and distribution of, our proprietary information and processes. In addition, we have developed technical knowledge, which, although not patented, we consider to be significant in enabling us to compete. The proprietary nature of such knowledge, however, may be difficult to protect and we may be exposed to competitors who independently develop the same or similar technology or gain access to our knowledge.The semiconductor industry is characterized by frequent claims of infringement and litigation regarding patent and other IP rights. We, like other companies in the semiconductor industry, believe it is important to aggressively protect and pursue our IP rights. Accordingly, to protect our rights, we may file suit against parties whom we believe are infringing or misappropriating our IP rights. In addition, we may engage in litigation with parties that claim that we infringed their patents or misappropriated or misused their trade secrets. Such litigations could result in substantial cost and may divert management's attention away from day-to-day operations. We may not prevail in these lawsuits. If any party infringes or misappropriates our IP rights, this infringement or misappropriation could materially adversely affect our business and competitive position.As of December 31, 2017, we had 410 issued patents and five registered designs in the United States, five issued patents in Israel and 72 issued patents and four registered designs in other countries. We had 250 patent applications and one design application pending in the United States, one patent application pending in Israel, and 60 patent applications pending in other countries, which cover aspects of the technology in our products. The term of any issued patent in the United States and Israel is 20 years from its priority date and if our applications are pending for a long time period, we may have a correspondingly shorter term for any patent that may be issued. In addition, the lives of acquired patents may also have a shorter term depending upon their acquisition date and the issue date of respective patent. Our present and future patents may provide only limited protection for our technology and may not be sufficient to provide competitive advantages to us. Furthermore, we cannot assure you that any patents will be issued to us as a result of our patent applications.The risks associated with patents and intellectual property are more fully discussed under the section entitled "Risk Factors" under Part I, Item 1A of this report.CompetitionThe markets in which we compete are highly competitive and are characterized by rapid technological change, evolving industry standards and new demands on features and performance of interconnect solutions. We compete primarily on the basis of:price/performance;time to market;features and capabilities;wide availability of complementary software solutions;reliability;power consumption and latency;customer and application support;product roadmap;intellectual property; andreputation.We believe that we compete favorably with respect to each of these criteria. Many of our current and potential competitors, however, have longer operating histories, significantly greater resources, greater economies of scale, stronger name recognition and a larger base of customers than we do. This may allow them to respond more quickly to new or emerging technologies or changes in customer requirements. Many of our competitors also have significant influence in the semiconductor industry. They may be able to introduce new technologies or devote greater resources to the development, marketing and sales of their products than we can. Furthermore, in the event of a manufacturing capacity shortage, these competitors may be able to manufacture products when we are unable to do so.We compete with other providers of semiconductor-based high-performance interconnect products based on InfiniBand, Ethernet, Fibre Channel and proprietary technologies. With respect to InfiniBand products, we compete with Intel Corporation's proprietary Omni-Path interconnects. The leading IC vendors that provide Ethernet and Fibre Channel products to the market include Intel Corporation (“Intel”), Broadcom Limited ("Broadcom"), Marvell Technology Group, and Cavium. The leading Ethernet switch system vendors include Cisco Systems, Inc., Juniper Networks, Inc. and Arista Networks, Inc. In embedded14markets, we typically compete with interconnect technologies that are developed in-house by system OEM vendors and created for specific applications.AcquisitionIn February 2016, we completed the acquisition of EZchip, for approximately $782.2 million. EZchip was a public company formed under the laws of the State of Israel specializing in network-processing semiconductors. The EZchip acquisition is a step in our strategy to become the leading broad-line supplier of intelligent interconnect solutions for the software-defined data centers. The addition of EZchip’s products and expertise in security, deep packet inspection, video, and storage processing enhances our leadership position, and ability to deliver complete end-to-end, intelligent interconnect and processing solutions for advanced data center and edge platforms. The combined company has diverse and robust solutions to enable customers to meet the growing demands of data-intensive applications used in high-performance computing, Web 2.0, cloud, secure data center, enterprise, telecom, database, financial services, and storage environments.Under the Agreement, EZchip became our wholly owned subsidiary. The acquisition closed on February 23, 2016. At the closing, we assumed each unvested option and restricted share units ("RSUs") of EZchip on the same terms and conditions as were applicable to such EZchip option or RSUs (including with respect to vesting), and converted it to an equivalent equity award to receive our ordinary shares appropriately adjusted to take into account the transaction consideration. All vested, in-the-money EZchip stock options and RSUs, after giving effect to any acceleration or vesting that occurs as a result of the transaction, were cashed out. Any vested out-of-the-money EZchip options were cancelled for no consideration. The acquisition and related transaction expenses were financed with cash on hand and with $280.0 million in term debt. For additional information regarding the debt financing, see Note 15 to the consolidated financial statements. Acquisition-related expenses for the EZchip acquisition for the years ended December 31, 2017 and 2016 were $0.3 million and $8.3 million, respectively, and primarily consisted of investment banking, consulting, and other professional fees.For further discussion of our acquisitions, see Note 3 to the consolidated financial statements.Additional InformationWe were incorporated under the laws of Israel in March 1999. Our ordinary shares began trading on The NASDAQ Global Market as of February 8, 2007 under the symbol "MLNX". Prior to February 8, 2007, our ordinary shares were not traded on any public exchange.Our principal executive offices in the United States are located at 350 Oakmead Parkway, Suite 100, Sunnyvale, California 94085, and our principal executive offices in Israel are located at Beit Mellanox, Yokneam, Israel 20692. The majority of our assets are located in Israel. Our telephone number in Sunnyvale, California is (408) 970-3400, and our telephone number in Yokneam, Israel is +972-4-909-7200. Jacob Shulman, our Chief Financial Officer, is our agent for service of process in the United States, and is located at our principal executive offices in the United States. Our website address is www.mellanox.com. Information contained on our website is not a part of this report and the inclusion of our website address in this report is an inactive textual reference only.Available InformationWe file reports with the Securities and Exchange Commission ("SEC"), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any other filings required by the SEC. We post on the Investor Relations pages of our website, ir.mellanox.com, links to our filings with the SEC, our Code of Business Conduct and Ethics, our Complaint and Investigation Procedures for Accounting, Internal Accounting Controls, Fraud or Auditing Matters and the charters of our Audit, Compensation, Technology and Nominating and Corporate Governance Committees of our board of directors and the charter of our Disclosure Committee. Our filings with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any other filings required by the SEC, are posted on our website as soon as reasonably practical after they are electronically filed with, or furnished to, the SEC. You can also obtain copies of these documents, without charge to you, by writing to us at: Investor Relations, c/o Mellanox Technologies, Inc., 350 Oakmead Parkway, Suite 100, Sunnyvale, California 94085 or by emailing us at: ir@mellanox.com. All these documents and filings are available free of charge. Please note that information contained on our website is not incorporated by reference in, or considered to be a part of, this report. Further, a copy of this report on Form 10-K is located at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov.15ITEM 1A—RISK FACTORSInvesting 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 and results of operations, as well as decrease the value of an investment in our ordinary shares.Risks Related to Our BusinessThe semiconductor industry may be adversely impacted by worldwide economic uncertainties which may cause our revenues and profitability to decline.We operate primarily in the semiconductor industry, which is cyclical and subject to rapid change and evolving industry standards. From time to time, the semiconductor industry has experienced significant downturns characterized by decreases in product demand and excess customer inventories. Economic volatility can cause extreme difficulties for our customers and vendors to accurately forecast and plan future business activities. This unpredictability could cause our customers to reduce spending on our products and services, which would delay and lengthen sales cycles. Furthermore, during challenging economic times our customers and vendors may face issues gaining timely access to sufficient credit, which could affect their ability to make timely payments to us. As a result, we may experience growth patterns that are different than the end demand for products, particularly during periods of high volatility.We cannot predict the timing, strength or duration of any economic slowdown or recovery or the impact of such events on our customers, our vendors or us. The combination of our lengthy sales cycle coupled with challenging macroeconomic conditions could have a compound impact on our business. The impact of market volatility is not limited to revenue but may also affect our product gross margins and other financial metrics. Any downturn in the semiconductor industry may be severe and prolonged, and any failure of the industry to fully recover from downturns could seriously impact our revenue and harm our business, financial condition and results of operations.Leverage incurred in connection with our acquisition of EZchip in February 2016 could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent the interest rate on our variable rate debt increases and prevent us from meeting our obligations under the terms of the Term Debt.As a result of the acquisition of EZchip and the related Term Debt, we have become leveraged. As of December 31, 2017, we had $74.0 million outstanding principal under the Term Debt. Our indebtedness could have more important consequences, including:increasing our vulnerability to adverse general economic and industry conditions;requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts, the execution of our business strategy, acquisitions and other general corporate purposes;•limiting our flexibility in planning for, or reacting to, changes in the economy and the semiconductor industry;•placing us at a competitive disadvantage compared to our competitors with less indebtedness;•exposing us to interest rate risk to the extent of our variable rate indebtedness; andmaking it more difficult to borrow additional funds in the future to fund growth, acquisitions, working capital, capital expenditures and other purposes.The Term Debt requires payment of principal and accrued interest during the three years after the closing of the acquisition of EZchip. In addition, if we were to experience a change of control, this would trigger an event of default under the Term Debt, which would permit the lenders to immediately declare the loans due and payable in whole or in part. In either such event, we may not have sufficient available cash to repay such debt at the time it becomes due, or be able to refinance such debt on acceptable terms or at all. Any of the foregoing could materially and adversely affect our business, financial condition and results of operations.Our Term Debt imposes certain restrictions on our business.The Term Debt contains a number of covenants imposing certain restrictions on our business. These restrictions may affect our ability to operate our business and to take advantage of potential business opportunities as they arise. The restrictions placed on us include limitations on our ability to:16•incur additional indebtedness and issue preferred or redeemable shares;•incur or create liens;•consolidate, merge or transfer all or substantially all of our assets;•make investments, acquisitions, loans or advances or guarantee indebtedness;•engage in sale and lease back transactions;•pay dividends or make other distributions;•redeem or repurchase shares or make other restricted payments; and•engage in transactions with affiliates.The foregoing restrictions could limit our ability to plan for, or react to, changes in market conditions or our capital needs. We do not know whether we will be granted waivers under, or amendments to, the Term Debt if for any reason we are unable to meet these requirements, or whether we will be able to refinance our indebtedness on terms acceptable to us, or at all.The breach of any of these covenants or restrictions could result in a default under the Term Debt. In addition, the Term Debt contains cross-default provisions that could result in an acceleration of amounts outstanding under the Term Debt if certain events of default occur under any of our material debt instruments. If we are unable to repay these amounts, lenders having secured obligations, including the lenders under the Term Debt, could proceed against the collateral securing that debt. Any of the foregoing would have a material adverse effect on our business, financial condition, and results of operations.Servicing the debt incurred under the Term Debt will require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our debt.Our ability to make scheduled payments of the principal of, to pay interest on, and to refinance our debt, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to satisfy our obligations under the Term Debt and any future indebtedness we may incur and to make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our outstanding indebtedness or future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, when needed, which could result in a default on our indebtedness.We may pursue acquisitions of other companies or new or complementary products, technologies and businesses, which could harm our operating results, may disrupt our business and could result in unanticipated accounting charges.Our growth depends upon market growth, our ability to enhance our existing products, and our ability to introduce new products on a timely basis. We intend to continue to address the need to develop new products and enhance existing products through acquisitions of other companies, product lines, technologies, and personnel.Acquisitions create additional material risk factors for our business that could cause our results to differ materially and adversely from our expected or projected results. Such risk factors include:difficulties in integrating the operations, systems, technologies, products, and personnel of the acquired companies, particularly companies with large and widespread operations and/or complex products;the diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations resulting from acquisitions;possible disruption to the continued expansion of our product lines;potential changes in our customer base and changes to the total available market for our products;reduced demand for our products;potential difficulties in completing projects associated with in-process research and development intangibles;the use of a substantial portion of our cash resources and incurrence of significant amounts of debt;significantly increase our interest expense, leverage and debt service requirements as a result of incurring debt;17the impact of any such acquisition on our financial results;internal controls may become more complex and may require significantly more resources to ensure they remain effective;negative customer reaction to any such acquisition; andassuming the liabilities of the acquired company.Acquisitions present a number of other potential risks and challenges that could disrupt our business operations. For example, we may not be able to successfully negotiate or finance the acquisition on favorable terms. If an acquired company also has inventory that we assume, we will be required to write up the carrying value of that inventory to its fair value. When that inventory is sold, the gross margins for those products are reduced and our gross margins for that period are negatively affected. Furthermore, the purchase price of any acquired businesses may exceed the current fair values of the net tangible assets of such acquired businesses. As a result, we would be required to record material amounts of goodwill, acquired in-process research and development and other intangible assets, which could result in significant impairment and acquired in-process research and development charges and amortization expense in future periods. These charges, in addition to the results of operations of such acquired businesses and potential restructuring costs associated with an acquisition, could have a material adverse effect on our business, financial condition and results of operations. We cannot forecast the number, timing or size of future acquisitions, or the effect that any such acquisitions might have on our operating or financial results. Furthermore, potential acquisitions, whether or not consummated, will divert our management's attention and may require considerable cash outlays at the expense of our existing operations. In addition, to complete future acquisitions, we may issue equity securities, incur debt, assume contingent liabilities or have amortization expenses and write-downs of acquired assets, which could adversely affect our profitability.We have made and may in the future pursue investments in other companies, which could harm our operating results.We have made, and could make in the future, investments in technology companies, including privately-held companies in the development stage. Many of these private equity investments are inherently risky because these businesses may never develop, and we may incur losses related to these investments. In addition, we have written down the carrying value of these investments in the past and may be required to write down the carrying value of these investments in the future to reflect other-than-temporary declines in their value, which could have a material adverse effect on our business, financial position and results of operations.The adoption of InfiniBand is largely dependent on third-party vendors and end users and InfiniBand may not be adopted at prior rates or to the extent that we anticipate.While the usage of InfiniBand has increased since its first specifications were completed in October 2000, continued adoption of InfiniBand is dependent on continued collaboration and cooperation among IT vendors. In addition, the end users that purchase IT products and services from vendors must find InfiniBand to be a compelling solution to their IT system requirements. We cannot control third-party participation in the development of InfiniBand as an industry standard technology. We rely on server, storage, communications infrastructure equipment and embedded systems vendors to incorporate and deploy InfiniBand ICs in their systems. InfiniBand may fail to effectively compete with other technologies, which may be adopted by vendors and their customers in place of InfiniBand. The adoption of InfiniBand is also affected by the general replacement cycle of IT equipment by end users, which is dependent on factors unrelated to InfiniBand. These factors may reduce the rate at which InfiniBand is incorporated by our current server vendor customers and impede its adoption in the storage, communications infrastructure and embedded systems markets, which in turn would harm our ability to sell our InfiniBand products.We have limited visibility into customer and end-user demand for our products and generally have short inventory cycles, which introduce uncertainty into our revenue and 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, the majority of our adapter card, switch system and cable businesses are 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 demand. As we grow, anticipating customer demand may become increasingly difficult. If we overestimate customer demand, we may purchase products from our manufacturers18that we may not be able to sell and may over-burden our 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.In addition, the majority of our revenues are derived from customer orders received and fulfilled in the same quarterly period. If we overestimate customer demand, we could miss our quarterly revenue targets, which could have a material adverse effect on our financial results.We depend on a small number of customers for a significant portion of our sales, and the loss of any one of these customers will adversely affect our revenues.A small number of customers account for a significant portion of our 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. See Part I, Item 1, "Business-Customers” for more information about our customers.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 fluctuating average selling prices. We may not be able to compete successfully against current or potential competitors.Some of our customers are also IC and switch suppliers and already have in-house expertise and internal development capabilities similar to ours. Licensing our technology and supporting such customers entails the transfer of intellectual property rights that may enable such customers to develop their own products and solutions to replace those we are currently providing to them. Consequently, these customers may become competitors to us. Further, each new design by a customer presents a competitive situation. In the past, we have lost design wins to divisions within our customers and this may occur again in the future. We cannot predict whether these customers will continue to compete with us, whether they will continue to be our customers or whether they will continue to buy products from us at the same volumes. Competition could increase pressure on us to lower our prices and could negatively affect our profit margins.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 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.There has been a trend toward industry consolidation in our markets for several years, as companies attempt to improve the leverage of growing research and development costs, strengthen or hold their market positions in an evolving industry or are unable to continue operations. Companies that are strategic alliance partners in some areas of our business may acquire or form alliances with our competitors, thereby reducing their business with us. We believe that industry consolidation may result in stronger competitors that are better able to compete as sole-source vendors for customers. This could lead to more variability in our operating results and could have a material adverse effect on our business, financial condition and results of operations.See Part I, Item 1, "Business-Competition” for more information about our competitors.Winning business is subject to lengthy, competitive selection processes that often require us to incur significant expense, from which we may ultimately generate no revenues.Our business is dependent on us winning competitive bid selection processes, known as “design wins,” to develop semiconductors for use in our customers' products. These selection processes are typically lengthy and can require us to incur significant design and development expenditures and to dedicate scarce engineering resources in pursuit of a single customer opportunity. We may not win the competitive selection process and may never generate any revenue despite incurring such expenditures.Furthermore, winning a product design does not guarantee sales to a customer. We may experience delays in generating revenue as a result of the lengthy development cycle typically required, or we may not realize as much revenue as anticipated. In addition, a delay or cancellation of a customer's plans could materially and adversely affect our financial results, as we may have incurred significant expense in the design process and generated little or no revenue. Customers could choose at any time19to stop using our products or may fail to successfully market and sell their products, which could reduce the demand for our products and cause us to hold excess inventory, thereby materially adversely affecting our business, financial condition and results of operations.The timing of design wins is unpredictable and implementing production for a major design win, or multiple design wins occurring at or around the same time, may strain our resources and those of our contract manufacturers. In such instances, we may be forced to dedicate significant additional resources and incur additional, unanticipated costs and expenses, which may have a material adverse effect on our results of operations.Finally, some customers will not purchase any products from us, other than limited numbers of evaluation units, until they qualify the products and/or the manufacturing line for the products. The qualification process can take significant time and resources and we may not always be able to satisfy the qualification requirements of these customers. Delays in qualification or failure to qualify our products may cause a customer to discontinue use of our products and result in a significant loss of revenue.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 our next generation of products in order to meet the demands of our 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.We may be unable to successfully develop additional next generation products, new products or product enhancements. There is a risk that these developments or enhancements will be late, have technical problems, fail to meet customer or market specifications or otherwise be uncompetitive with other products using alternative technologies that offer comparable performance and functionality. Our next generation products or any new products or product enhancements may not be accepted in new or existing markets. Our business, financial condition and results of operations may be adversely affected if we fail to develop and introduce new products or product enhancements in a timely manner or on a cost-effective basis.We rely on a limited number of subcontractors to manufacture, assemble, package and production test our products, and the failure of any of these third-party subcontractors to deliver products or otherwise perform as requested could damage our relationships with our customers, decrease our sales and limit our growth.While we design and market our products and conduct test development in-house, we do not manufacture, assemble, package and production test the vast majority of our products, and we must rely on third-party subcontractors to perform these services. If these subcontractors do not provide us with high-quality products, services and production and production test capacity in a timely manner, or if one or more of these subcontractors terminates its relationship with us, we may be unable to obtain satisfactory replacements to fulfill customer orders on a timely basis, our relationships with our customers could suffer, our sales could decrease and our growth could be limited. In particular, there are significant challenges associated with moving our IC production from our existing manufacturer to another manufacturer with whom we do not have a pre-existing relationship.In addition, the consolidation of foundry subcontractors, as well as the increasing capital intensity and complexity associated with fabrication in smaller process geometries has limited the diversity of our suppliers and increased our risk of a "single point of failure." Specifically, as we move to smaller geometries, we have become increasingly reliant on IC manufacturers. The lack of diversity of suppliers could also drive increased prices and adversely affect our results of operations, including our product gross margins.We currently do not have long-term supply contracts with any of our third-party subcontractors. Therefore, they are not obligated to perform services or supply products to us for any specific period, in any specific quantities or at any specific price, except as may be provided in a particular purchase order. None of our third-party subcontractors has provided contractual assurances to us that adequate capacity will be available to us to meet future demand for our products. Our subcontractors may allocate capacity to the production of other companies' products while reducing deliveries to us on short notice. Other customers that are larger and better financed than we are or that have long-term agreements with these subcontractors may cause these subcontractors to reallocate capacity to those customers, thereby decreasing the capacity available to us.Other significant risks associated with relying on these third-party subcontractors include:reduced control over product cost, delivery schedules and product quality;20potential price increases;inability to achieve sufficient production, increase production or test capacity and achieve acceptable yields on a timely basis;increased exposure to potential misappropriation of our intellectual property;shortages of materials used to manufacture products;capacity shortages;labor shortages or labor strikes;political instability in the regions where these subcontractors are located; andnatural disasters impacting these subcontractors.See Part I, Item 1, "Business-Manufacturing” for more information about our subcontractors.If we fail to carefully manage the use of "open source" software in our products, we may be required to license key portions of our products on a royalty-free basis or expose key parts of source code.Some portion of our software may be derived from "open source" software that is generally made available to the public by its authors and/or other third parties. Such open source software is often made available to us under licenses, such as the GNU General Public License, which impose certain obligations on us in the event we were to create and distribute derivative works of the open source software. These obligations may require us to make source code for the derivative works available to the public and/or license such derivative works under a particular type of license, rather than the forms of licenses customarily used to protect our intellectual property. In the event that we inadvertently use open source software without the correct license form or a copyright holder of any open source software were to successfully establish in court that we had not complied with the terms of a license for a particular work, we could be required to release the source code of that work to the public and/or stop distribution of that work.The average selling prices of our products have decreased in the past and may do so in the future, which could harm our financial results.The products we develop and sell are subject to declines in average selling prices. We have had to reduce our prices in the past and we may be required to reduce prices in the future. Reductions in our average selling prices to one customer could impact our average selling prices to other customers. If we are unable to reduce our associated manufacturing costs this reduction in average selling prices would cause our gross margin to decline. Our financial results will suffer if we are unable to offset any reductions in our average selling prices by increasing our sales volumes, reducing our costs or developing new or enhanced products with higher selling prices or gross margins.We expect gross margin to vary over time, and our recent level of product gross margin may not be sustainable.Our product gross margins vary from quarter to quarter, and our recent level of gross margins may not be sustainable and may be adversely affected in the future by numerous factors, including product mix shifts, product transitions, increased price competition in one or more of the markets in which we compete, increases in material or labor costs, excess product component or obsolescence charges from our contract manufacturers, warranty related issues, or the introduction of new products or entry into new markets with different pricing and cost structures.Fluctuations in our revenues and operating results on a quarterly and annual basis could cause the market price of our ordinary shares to decline.Our quarterly and annual revenues and operating results are difficult to predict and have fluctuated in the past, and may fluctuate in the future, from quarter to quarter and year to year. It is possible that our operating results in some quarters and years will be below market expectations. This would likely cause the market price of our ordinary shares to decline. Our quarterly and annual operating results are affected by a number of factors, many of which are outside of our control, including:unpredictable volume and timing of customer orders, which are not fixed by contract but vary on a purchase order basis;the loss of one or more of our customers, or a significant reduction or postponement of orders from our customers;our customers' sales outlooks, purchasing patterns and inventory levels based on end-user demands and general economic conditions;21seasonal buying trends;the timing of new product announcements or introductions by us or by our competitors;our ability to successfully develop, introduce and sell new or enhanced products in a timely manner;changes in the relative sales mix of our products;decreases in the overall average selling prices of our products;changes in the cost of our finished goods; andthe availability, pricing and timeliness of delivery of other components used in our customers' products.We base our planned operating expenses in part on our expectations of future revenues, and a significant portion of our expenses is relatively fixed in the short-term. We have limited visibility into customer demand from which to predict future sales of our products. As a result, it may be difficult for us to forecast our future revenues and budget our operating expenses accordingly. Our operating results would be adversely affected to the extent customer orders are cancelled or rescheduled. If revenues for a particular quarter are lower than we expect, we may not be able to proportionately reduce our operating expenses.We rely on our ecosystem partners to enhance and drive demand for our product offerings. Our inability to continue to develop or maintain such relationships in the future or our partners' inability to timely deliver technology or product offerings to the market may harm our revenues and ability to remain competitive.We have developed relationships with third parties, which we refer to as ecosystem partners. Such partners provide their technology products, operating systems, tool support, reference designs and other elements necessary for the sale of our products into our markets. In addition, introduction of new products into the market by these partners may increase demand for our products. If we are unable to continue to develop or maintain these relationships, or if our ecosystem partners delay or fail to timely deliver their technology or products or other elements to the market, our revenues may be adversely impacted and we might not be able to enhance our customers' ability to commercialize their products in a timely manner and our ability to remain competitive may be harmed.We rely primarily upon trade secret, patent, trademark and copyright laws and contractual restrictions to protect our proprietary rights, and, if these rights are not sufficiently protected, our ability to compete and generate revenues could suffer.We seek to protect our proprietary manufacturing specifications, documentation and other written materials primarily under trade secret, patent, trademark and copyright laws. We also typically require employees and consultants with access to our proprietary information to execute confidentiality agreements. The steps taken by us to protect our proprietary information may not be adequate to prevent misappropriation of our technology. In addition, our proprietary rights may not be adequately protected because:people may not be deterred from misappropriating our technologies despite the existence of laws or contracts prohibiting it;policing unauthorized use of our intellectual property may be difficult, expensive and time-consuming, and we may be unable to determine the extent of any unauthorized use; andthe laws of other countries in which we market our products, such as some countries in the Asia/Pacific region, may offer little or no protection for our proprietary technologies.Reverse engineering, unauthorized copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our technologies without paying us for doing so. Any inability to adequately protect our proprietary rights could harm our ability to compete, generate revenues and grow our business.We may not obtain sufficient patent protection on the technology embodied in our products, which could harm our competitive position and increase our expenses.Our success and ability to compete in the future may depend to a significant degree upon obtaining sufficient patent protection for our proprietary technology. Patents that we currently own do not cover all of the products that we presently sell as we have patent applications pending with respect to certain products, while we have not been able to obtain, or choose not to seek, patent protection for other products. Our patent applications may not result in issued patents, and even if they result in issued patents, the patents may not have claims of the scope we seek. Furthermore, any issued patents may be challenged,22invalidated or declared unenforceable. Whether or not these patents are issued, the applications may become publicly available and the proprietary information disclosed in the applications will become available to others. The lives of acquired patents may also be of a shorter term depending upon their acquisition dates and the issue dates. The term of any issued patent in the United States and Israel is typically 20 years from its filing date, and if our applications are pending for a long time period, we may have a correspondingly shorter term for any patent that may be issued. Our present and future patents may provide only limited protection for our technology and may not be sufficient to provide competitive advantages to us. For example, competitors could be successful in challenging any issued patents or, alternatively, could develop similar or more advantageous technologies on their own or design around our patents. Also, patent protection in certain foreign countries may not be available or may be limited in scope and any patents obtained may not be as readily enforceable as in the United States and Israel, making it difficult for us to effectively protect our intellectual property from misuse or infringement by other companies in these countries. Our inability to obtain and enforce our intellectual property rights in some countries may harm our business, financial condition and results of operations. In addition, given the costs of obtaining patent protection, we may choose not to protect certain innovations that later on turn out to be important. In such cases, our lack of intellectual property rights may have a material adverse impact on our business, financial condition and results of operations.Intellectual property litigation, which is common in our industry, could be costly, harm our reputation, limit our ability to sell our products and divert the attention of management and technical personnel.The semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights. From time to time, we receive notices from competitors and other third parties that claim we have infringed upon, misappropriated or misused other parties' proprietary rights. We may also be required to indemnify some customers and strategic partners under our agreements if a third party alleges or if a court finds that our products or activities have infringed upon, misappropriated or misused another party's proprietary rights. We have received requests from certain customers and strategic partners to include increasingly broad indemnification provisions in our agreements with them. Additionally, our products may contain technology provided to us by other parties such as contractors, suppliers or customers. We may have little or no ability to determine in advance whether such technology infringes upon the intellectual property rights of a third party. Our contractors, suppliers and licensors may not be required to indemnify us in the event that a claim of infringement is asserted against us, or they may be required to indemnify us only up to a maximum amount, above which we would be responsible for any further costs or damages.Questions of infringement in the markets we serve involve highly technical and subjective analyses. We are involved in intellectual property litigation today and litigation may be necessary in the future to enforce any patents we may receive and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity, and we may not prevail in any such future litigation. Litigation, whether or not determined in our favor or settled, could be costly, could harm our reputation and could divert the efforts and attention of our management and technical personnel from normal business operations. In addition, adverse determinations in litigation could result in the loss of our proprietary rights, subject us to significant liabilities, and require us to seek licenses from third parties or prevent us from licensing our technology or selling our products, any of which could seriously harm our business.In the normal course of business, we enter into agreements with terms and conditions that require us to indemnify the other party against third-party claims alleging that one of our products infringes or misappropriates intellectual property rights, as well as against certain claims relating to property damage, personal injury or acts or omissions relating to supplied products or technologies, or acts or omissions made by us or our agents or representatives. In addition, we are obligated pursuant to indemnification undertakings with our officers and directors to indemnify them to the fullest extent permitted by law and to indemnify venture capital funds that were affiliated with or represented by such officers or directors. If we receive demands for indemnification under these agreements and terms and conditions, they will likely be very expensive to settle or defend, and we may incur substantial legal fees in connection with any indemnity demands. Our indemnification obligations under these agreements and terms and conditions may be unlimited in duration and amount, and could have an adverse effect on our business, financial condition and results of operations.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 market's perception of us. Competition for qualified engineers in the markets in which we operate 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 believe23that our future success is highly dependent on the contributions of our president and CEO and other senior executives. We do not have long-term employment contracts with our president and CEO, CFO or any other key personnel, and their knowledgeas a member of our business and industry would be extremely difficult to replace.In an effort to retain key employees, we may modifyBoard since March 1999. From March 1999 until June 2013, he also served as our compensation policies by, for example, increasing cash compensation to certain employees and/or modifying existing share options. These modificationschairman of our compensation policiesBoard. From March 1993 to February 1999, Mr. Waldman served as vice president of engineering and was aco-founder of Galileo Technology, Ltd., a semiconductor company, which was acquired by Marvell Technology Group, Ltd. in January 2001. From August 1989 to March 1993, Mr. Waldman held a number of design and architecture related positions at Intel, a manufacturer of computer, networking and communications products. Mr. Waldman also serves and previously served on the requirementboards of directors of a number of private companies. Mr. Waldman holds a Bachelor of Science in Electrical Engineering and a Master of Science in Electrical Engineering from Technion. Mr. Waldman is located in Israel.expenseDecember 2008. From August 1983 to April 1999, Mr. Kagan held a number of architecture and design positions at Intel. While at Intel, between March 1993 and June 1996, Mr. Kagan managed Pentium MMX design, and from July 1996 to April 1999, he managed the fair value of share options and RSUs awarded to employees and officers may increase our operating expenses and result in the dilutionarchitecture team of the holdersBasic PC product group. Mr. Kagan holds a Bachelor of Science in Electrical Engineering from Technion. Mr. Kagan is located in Israel.ordinary shares. We cannot be certainchief financial officer since November 2012. Mr. Shulman joined Mellanox in June 2007 as our corporate controller and served as our vice president of finance from March 2012 until November 2012. From 2005 to 2007, Mr. Shulman was corporate controller at Atrica, a telecom company that thesewas purchased by Nokia Siemens. Prior to Atrica, Mr. Shulman spent seven years in senior finance positions, including controller and any other changes in our compensation policies will or would improve our ability to attract, retaindivisional chief financial officer positions with Matav Cable Systems, an Israeli cable television provider, Thyssenkrupp AG, a multinational conglomerate corporation, and motivate employees. Our inability to attractGuava Technologies, a biotechnology and retain additional key employeesmedical devices company. Mr. Shulman’s background also includes five years of audit-related work with Ernst & Young LLP and the increase in share-based compensation expense could each have an adverse effect on our business, financial condition and results of operations.We may not be able to manage our future growth effectively, and we may need to incur significant expenditures to address the additional operational and control requirements of our growth.We are experiencing a period of company growth and expansion. This expansion has placed, and any future expansion will continue to place, a significant strain on our management, personnel, systems and financial resources. We plan to hire additional employees to support an increase in research and development and strengthen our sales and marketing and general and administrative efforts. To successfully manage our growth, we believe we must effectively:manage and enhance our relationships with customers, distributors, suppliers, end users and other third parties;implement additional, and enhance existing, administrative, financial and operations systems, procedures and controls;address capacity shortages;expand and upgrade our technological capabilities;manage the challenges of having U.S., Israeli and other foreign operations; andhire, train, integrate and manage additional qualified engineers for research and development activities as well as additional personnel to strengthen our sales and marketing, financial and IT functions.Managing our growth may require substantial managerial and financial resources and may increase our operating costs even though these efforts may not be successful. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, develop new products, satisfy customer requirements, execute our business plan or respond to competitive pressures, in which case our business, financial conditions and results of operations may be adversely affected.We are subject to risks associated with our distributors' product inventories.We sell many of our products to customers through distributors who maintain their own inventory of our products for sale to dealers and end customers. We allow limited price adjustments on sales to distributors. Price adjustments may be effected by way of credits for future product or by cash payments to the distributor, either in arrears or in advance, using estimates based on historical transactions. Currently we recognize revenues for sales to distributors upon sell through by the distributors, net of estimated allowances for price adjustments. Upon the adoption of the new revenue standards effective January 1, 2018, we will recognize revenue on sales to distributors upon shipment and transfer of control (known as “sell-in” revenue recognition), net of the estimated allowances for price adjustments. We have extended these programs to certain distributors in the United States, Asia and Europe and may extend them on a selective basis to some of our other distributors in these geographies. The reserves recognized for these programs are based on judgments and estimates, using historical experience rates, inventory levels in distribution, current trends and other factors, and there could be material differences between actual amounts and our estimates.If our distributors are unable to sell an adequate amount of their inventory of our products in a given quarter to dealers and end customers or if they decide to decrease their inventories for any reason, such as adverse global economic conditions or a downturn in technology spending, our sales to these distributors and our revenues may decline. We also face the risk that our distributors may purchase, or for other reasons accumulate, inventory levels of our products in any particular quarter in excess of future anticipated sales to end customers. If such sales do not occur in the time frame anticipated by these distributors for any reason, these distributors may substantially decrease the amount of product they order from us in subsequent periods until their inventory levels realign with end-customer demand, which would harm our business and could adversely affect our revenues in such subsequent periods. Our reserve estimates associated with products stocked by our distributors are based largely on reports that our distributors provide to us on a weekly or monthly basis. To date, we believe this resale and channel inventory data have been generally accurate. To the extent that these data are inaccurate or not received in a timely manner, we may not be able to make reserve estimates for future periods accurately or at all.24We do not always have a direct relationship with the end customers of our products sold through distributors. As a result, our products may be used in applications for which they were not necessarily designed or tested, and they may not perform as anticipated in such applications. In such event, failure of even a small number of parts could result in significant liabilities to us, damage our reputation and harm our business and results of operations.Certain of our customers and suppliers require us to comply with their codes of conduct, which may include certain restrictions that may substantially increase our cost of doing business as well as have an adverse effect on our operating efficiencies, operating results and financial condition.Certain of our customers and suppliers require us to agree to comply with the Electronic Industry Code of Conduct (“EICC”) or their own codes of conduct, which may include detailed provisions on labor, human rights, health and safety, environment, corporate ethics and management systems. Certain of these provisions are not requirements under the laws of the countries in which we operate and may be burdensome to comply with on a regular basis. Moreover, new provisions may be added or material changes may be made to any these codes of conduct, and we may have to promptly implement such new provisions or changes, which may substantially further increase the cost of our business, be burdensome to implement and adversely affect our operational efficiencies and operating results. If we violate any such codes of conduct, we may lose further business with the customer or supplier and, in addition, we may be subject to fines from the customer or supplier. While we believe that we are currently in compliance with our customers and suppliers’ codes of conduct, there can be no assurance that, from time to time, if any one of our customers and suppliers audits our compliance with such code of conduct, we would be found to be in full compliance. A loss of business from these customers or suppliers could have a material adverse effect on our business, financial condition and results of operations.We may experience defects in our products, unforeseen delays, higher than expected expenses or lower than expected manufacturing yields of our products, which could result in increased customer warranty claims, delays of our product shipments and prevent us from recognizing the benefits of new technologies we develop.Our products may contain defects and errors. Product defects and errors could result in additional development costs, diversion of technical resources, delayed product shipments, increased warranty-related returns, including wide-scale product recalls, warranty expenses and product liability claims against us which may not be fully covered by insurance. Our products are complex and our quality control tests and procedures may fail to detect any such defects or errors. Delivery of products with defects or reliability, quality or compatibility problems may damage our reputation and our ability to retain existing customers and attract new customers. As a result, defects in our products could have an adverse effect on our business, financial condition and results of operations.In addition, our production of existing and development of new products can involve multiple iterations and unforeseen manufacturing difficulties, resulting in reduced manufacturing yields, delays and increased expenses. The evolving nature of our products requires us to modify our manufacturing specifications, which may result in delays in manufacturing output and product deliveries. We rely on a limited number of third parties to manufacture our products. Our ability to offer new products depends on our manufacturers' ability to implement our revised product specifications, whichDeloitte & Touche LLP. Mr. Shulman is costly, time-consuming and complex.We have significant intangible assets and goodwill. Consequently, the future impairment of our intangible assets and goodwill, if any, may significantly impact our profitability.Our intangible assets and goodwill are significant. As of December 31, 2017, we had recorded $700.6 million of intangible assets, net and goodwill primarily related to our past acquisitions. Intangible assets and goodwill are subject to an impairment analysis whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Additionally, goodwill and indefinite-lived assets are subject to an impairment test at least annually. The impairment of any goodwill and other intangible assets may have a negative impact on our consolidated results of operations.Unanticipated changes in our tax provisions or adverse outcomes resulting from examination of our income tax returns could adversely affect our results of operations.We are subject to income taxes in Israel, the United States and various foreign jurisdictions. Our effective income tax rate could be adversely affected by changes in tax laws or interpretations of those tax laws, by changes in the mix of earnings in countries with differing statutory tax rates, or by changes in the valuation of our deferred tax assets and liabilities. The U.S. recently enacted significant tax reform, and certain provisions of the new law may adversely affect us. See Note 12 to the consolidated financial statements for more details about the U.S. tax reform and its effects.Our effective income tax rates are also affected by intercompany transactions for sales, services, funding and other items. Given the increased global scope of our operations, and the complexity of global tax and transfer pricing rules and regulations, it has become increasingly difficult to estimate earnings within each tax jurisdiction. If actual earnings within a tax jurisdiction25differ materially from our estimates or new information is discovered in the course of our tax return preparation process, we may not achieve our expected effective tax rate. Additionally, our effective tax rate may be affected by the tax effects of acquisitions, restructuring activities, newly enacted tax legislation, share-based compensation and uncertain tax positions. Finally, we are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities which may result in the assessment of additional income taxes. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. However, unanticipated outcomes from these examinations could have a material adverse effect on our business, financial condition and results of operations.Changes to financial accounting standards may affect our results of operations and cause us to change our business practices.We prepare our financial statements to conform to generally accepted accounting principles ("GAAP")located in the United States. These accounting principlesOn February 21, 2018, the Company announced the resignation of Mr. Shulman, effective May 4, 2018.subject to interpretation by the Financial Accounting Standards Board ("FASB"), the American Institute of Certified Public Accountants ("AICPA"), the SEC and various bodies formed to interpret and create appropriate accounting policies. A change in those policies can have a significant effect on our reported results and may affect our reporting of transactions completed before a change is announced. Changes to those rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business.We may be subject to disruptions or failures in information technology systems and network infrastructures, including theft, misuse of our electronic data or cyber-attacks that could have a material adverse effect on us.We rely on the efficient and uninterrupted operation of complex information technology systems and network infrastructures to operate our business. We also hold large amounts of data in various data center facilities upon which our business depends. A disruption, infiltration or failure of our information technology systems orno family relationships among any of our data centers as a result of softwaredirectors or hardware malfunctions, system implementations or upgrades, computer viruses, third-party security breaches, attempts by others that try to gain unauthorized access through the Internet to our information technology systems, employee error, theft or misuse, malfeasance, power disruptions, natural disasters or accidents could cause breaches of data security, loss of intellectual property and critical data and the release and misappropriation of sensitive competitive information and partner, customer and employee personal data. These attempts may be the result of industrial or other espionage, or actions by hackers seeking to harm us, our products, or our end users. Any of these events could harm our competitive position, result in a loss of customer confidence, cause us to incur significant costs to remedy any damages and ultimately materially adversely affect our business, financial condition and results of operations.While we have implemented a number of protective measures, including firewalls, antivirus, patches, log monitors, routine back-ups, system audits, routine password modifications and disaster recovery procedures, such measures may not be adequate or implemented properly to prevent or fully address the adverse effect of such events, and in some cases we may be unaware of an incident or its magnitude and effects.In addition, our third-party subcontractors, including our foundries, test and assembly houses and distributors, have access to certain portions of our sensitive data. In the event that these subcontractors do not properly safeguard our data that they hold, security breaches and loss of our data could result. Any such loss of data by our third-party service providers, or theft, unauthorized use or publication of our trade secrets and other confidential business information as a result of such cyber threats, could adversely affect our competitive position and reduce marketplace acceptance of our products; the value of our investment in research and development and marketing could be reduced; and third parties may assert against us or our customers claims related to resulting losses of confidential or proprietary information or end-user data, or system reliability. Any such event could have a material adverse effect on our business, financial condition and results of operations.Our business is subject to the risks of earthquakes, fires, floods and other natural catastrophic events.Our U.S. corporate offices are located in the San Francisco Bay Area, a region known for seismic activity. A significant natural disaster, such as an earthquake, fire or flood or tsunami, could have a material adverse impact on our business, financial condition and results of operations. To the extent that such disruptions result in delays or cancellations of customer orders, or the deployment of our products, our business, financial condition and results of operations would be adversely affected.We must comply with a variety of existing and future laws and regulations that could impose substantial costs on us and may adversely affect our business.We are subject to various state, federal and international laws and regulations governing the environment, including restricting the presence of certain substances in electronic products and making producers of those products financially responsible for the collection, treatment, recycling and disposal of those products. In addition, we are also subject to various industry requirements restricting the presence of certain substances in electronic products. Although our management systems26are designed to maintain compliance, we cannot assure you that we have been or will be at all times in complete compliance with such laws and regulations. If we violate or fail to comply with any of them, a range of consequences could result, including fines, import/export restrictions, sales limitations, criminal and civil liabilities or other sanctions.We and our customers are also subject to various import and export laws and regulations. Government export regulations apply to the encryption or other features contained in some of our products. If we fail to continue to receive licenses or otherwise comply with these regulations, we may be unable to manufacture the affected products or ship these products to certain customers, or we may incur penalties or fines.We are also subject to regulations concerning the supply of certain minerals coming from the conflict zones in and around the Democratic Republic of Congo (“DRC”). The Dodd-Frank Wall Street Reform and Consumer Protection Act includes disclosure requirements regarding the use of certain minerals mined from the DRC and adjoining countries and procedures regarding a manufacturer's efforts to identify sourcing of such conflict minerals. The implementation of these requirements could affect the sourcing and availability of minerals used in the manufacture of semiconductor devices.As a result, this could limit the pool of suppliers who can provide us confirmation that the components and parts we source are considered DRC "conflict free," and we may not be able to confirm that we have obtained products or supplies that can be confirmed as DRC "conflict free" in sufficient quantities for our operations. Also, because our supply chain is complex, we may face reputational challenges with our customers, shareholders and other stakeholders if we are unable to sufficiently verify the origins for the minerals used in our products.The costs of complying with these laws could adversely affect our current or future business. In addition, future regulations may become more stringent or costly and our compliance costs and potential liabilities could increase, which may harm our current or future business.If we fail to maintain an effective system of internal controls, we may not be able to report accurately our financial results or prevent material fraud. As a result, current and potential shareholders could lose confidence in our financial reporting, which could harm our business and the trading price of our ordinary shares.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent material fraud. We have in the past discovered, and may in the future discover, areas of our internal controls that need improvement. executive officers.40416(a) Beneficial Ownership Reporting ComplianceSarbanes-OxleyExchange Act of 2002 requires our management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control structure and procedures for financial reporting. We have an ongoing program to perform the system and process evaluation and testing necessary to comply with these requirements. We have incurred, and expect to continue to incur significant expenses and to devote significant management resources to Section 404 compliance. Furthermore, as we grow our business or acquire businesses, our internal controls may become more complex and we may require significantly more resources to ensure they remain effective. Failure to implement required new or improved controls, or difficulties encountered in their implementation, either in our existing business or in businesses that we may acquire could harm our operating results or cause us to fail to meet our reporting obligations. In the event that our CEO, CFO or independent registered public accounting firm determine that our internal controls over financial reporting are not effective as defined under Section 404, investor perceptions of our company may be adversely affected and may cause a decline in the market price of our ordinary shares.Risks Related to Operations in Israel and Other Foreign CountriesRegional instability in Israel may adversely affect business conditions and may disrupt our operations and negatively affect our revenues and profitability.We have engineering facilities, corporate and sales support operations located in Israel. A significant number of our employees and a material amount of 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. These conflicts 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. In addition, there has been recent civil unrest in certain areas in the Middle East, including Egypt, Jordan, Iraq, Syria and Libya. 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.27The security and political conditions may have an 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. Our Israeli operations are within range of Hezbollah or Hamas 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 as a result of such events could have a material adverse effect on our business, financial condition and results of operations.Our operations may be negatively affected by the obligations of our personnel to perform military service.Generally, all non-exempt male adult citizens and permanent residents of Israel under the age of 45 (or older, for citizens with certain occupations), including some of our employees, are obligated to perform military reserve duty for Israel annually, and are subject to being called to active duty at any time under emergency circumstances. In the event of severe unrest or other conflict, individuals could be required to serve in the military for extended periods of time. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists, and some of our employees, including those in key positions, have been called upon in connection with armed conflicts. It is possible that there will be additional call-ups in the future. Our operations could be disrupted by the absence for a significant period of one or more of our officers, directors or key employees due to military service. Any such disruption could adversely affect our operations.Our operations may be affected by labor unrest in Israel.In the past, there have been several general strikes and work stoppages in Israel affecting all banks, airports and ports. These strikes had an adverse effect on the Israeli economy and on business, including our ability to deliver products to our customers and to receive raw materials from our suppliers in a timely manner. From time to time, the Israeli trade unions threaten strikes or work stoppages, which, if carried out, may have a material adverse effect on the Israeli economy and our business.We are susceptible to additional risks from our international operations.We derived 62%, 55% and 54% of our revenues in the years ended December 31, 2017, 2016 and 2015, respectively, from sales outside of the United States. As a result, we face additional risks from doing business internationally, including:reduced protection of intellectual property rights in some countries;difficulties in staffing and managing foreign operations;longer sales and payment cycles;greater difficulties in collecting accounts receivable;adverse economic conditions;seasonal reductions in business activity;potentially adverse tax consequences;laws and business practices favoring local competition;costs and difficulties of customizing products for foreign countries;compliance with a wide variety of complex foreign laws and treaties;compliance with the United States' Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions;compliance with export control and regulations;licenses, tariffs, other trade barriers, transit restrictions and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets;restrictive governmental actions, such as restrictions on the transfer or repatriation of funds and foreign investments;foreign currency exchange risks;28fluctuations in freight rates and transportation disruptions;political and economic instability;variance and unexpected changes in local laws and regulations;natural disasters and public health emergencies; andtrade and travel restrictions.A significant legal risk associated with conducting business internationally is compliance with various and differing anti-corruption and anti-bribery laws and regulations of the countries in which we do business, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar laws in China. In addition, the anti-corruption laws in various countries are constantly evolving and may, in some cases, conflict with each other. Our Code of Ethics and Business Conduct and other policies prohibit us and our employees from offering or giving anything of value to a government official for the purpose of obtaining or retaining business and from engaging in unethical business practices, including kick-backs to or from purely private parties. However, there can be no assurance that all of our employees or agents will refrain from acting in violation of such laws and our related anti-corruption policies and procedures. Any violations of these anti-corruption or trade control laws, or even allegations of such violations, can lead to an investigation, which could disrupt our operations, involve significant management distraction, and lead to significant costs and expenses, including legal fees. If we, or our employees or agents acting on our behalf, are found to have engaged in practices that violate these laws and regulations, we could suffer severe fines and penalties, profit disgorgement, injunctions on future conduct, securities litigation, and other consequences that may have a material adverse effect on our business, financial condition and results of operations. In addition, our reputation, sales activities or stock price could be adversely affected if we become the subject of any negative publicity related to actual or potential violations of anti-corruption, anti-bribery, or trade control laws and regulations.Our principal research and development facilities are located in Israel, and our directors, executive officers and other key employeespersons who own more than 10% of a registered class of our equity securities to file initial reports of ownership and reports of changes in ownership with the SEC and Nasdaq. Such persons are located primarily in Israel andrequired by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of copies of such forms received with respect to the United States. In addition,fiscal year 2017, 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.It may be difficult to enforce a U.S. judgment against us, our officers andbelieve that all directors, or to assert U.S. securities law claims in Israel.We are incorporated in Israel. Two of our executive officers and four of our directors, one of whom is also an executive officer, are non-residents of the United States and are located in Israel, and a significant amount of our assets and the assets of these persons are located outside the United States. Therefore, it may be difficult to enforce a judgment obtained in the United States against us or any of the above persons in Israel.In addition, it may be difficult for a shareholder to enforce civil liabilities under U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws because Israel is not the most appropriate forum to bring such a claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved in an Israeli court as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law.Provisions of Israeli law may delay, prevent or make difficult an acquisition of our company, which could prevent a change of control and therefore depress the price of our shares.The Israeli Companies Law, 1999 (the “Companies Law”) generally requires that a merger be approved by the board of directors and by the general meeting of the shareholders. Upon the request of any creditor of a merging company, a court may delay or prevent the merger if it concludes that there is a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy its obligations. In addition, a merger may generally not be completed unless at least (i) 50 days have passed since the filing of the merger proposal with the Israeli Registrar of Companies and (ii) 30 days have passed since the merger was approved by the shareholders of each of the merging companies.Also, in certain circumstances, an acquisition of shares in a public company must be made by means of a tender offer if, as a result of the acquisition, the purchaser would hold 25% or more of the voting rights in the company (unless there is already a 25% or greater shareholder of the company) orwho own more than 45% of the voting rights in the company (unless there is already a shareholder that holds more than 45% of the voting rights in the company). If, as a result of an acquisition, the acquirer would hold more than 90% of a company's shares or voting rights, the acquisition must be made by means of a tender offer for all of the shares.29In addition, the Companies Law allows us to create and issue shares having rights different from those attached to our ordinary shares, including rights that may delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization of a new class of shares would require an amendment to our articles of association, which requires the prior approval of the holders of a majority of our shares at a general meeting.These provisions could delay, prevent or impede an acquisition of us, even if such an acquisition would be considered beneficial by some of our shareholders.Exchange rate fluctuations between the U.S. dollar and the NIS may negatively affect our earnings.We derive all of our revenues in U.S. dollars. The U.S. dollar is our functional and reporting currency in all of our foreign locations. However, a significant portion of our liabilities, as well as our operating expenses, consisting principally of salaries and related personnel costs and facilities expenses, are denominated in NIS. This foreign currency exposure gives rise to market risk associated with exchange rate movements of the U.S. dollar against the NIS. To the extent that the value of the NIS increases against the U.S. dollar, our expenses on a U.S. dollar cost basis will increase. We cannot predict any future trends in the rate of appreciation of the NIS against the U.S. dollar. If the U.S. dollar cost of our salaries and related personnel costs and facilities expenses 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 hedge 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 the collection of our receivables more difficult. To help manage this risk we have been engaged in foreign currency hedging activities, comprised of currency derivative instruments and natural hedges.Our cost in Israel in U.S. dollar terms will also 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.The results of the United Kingdom’s referendum on withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.The United Kingdom (“U.K.”) held a referendum in June 2016 in which a majority of voters approved an exit from the European Union (“Brexit”). In March 2017, the U.K. began the process to exit the European Union. Negotiations are in progress to determine the future terms of the U.K.’s relationship with the European Union, including, among other things, the terms of trade between the U.K. and the European Union. The effects of Brexit will depend on any agreements the U.K. reaches to retain access to European Union markets either during a transitional period or more permanently. In addition, the exit of the U.K from the European Union could lead to legal and regulatory uncertainty and potentially divergent treaties, laws and regulations as the U.K. determines which European Union treaties, laws and regulations to replace or replicate, including those governing manufacturing, labor, environmental, data protection/privacy, competition and other matters applicable to the semiconductor industry. The referendum has also given rise to calls for the governments of other European Union member states to consider withdrawal. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity and restrict our access to capital, which could have a material adverse effect on our business, financial condition and results of operations and reduce the price of our ordinary shares.The government tax benefits that we currently receive require us to meet several conditions and may be terminated or reduced in the future, which would increase our costs.According to the Israeli Law for Encouragement of Capital Investments, 1959 ("The Law"), the Company's operations in Israel were granted "Approved Enterprise" status by the Investment Center in the Israeli Ministry of Economy and Industry (formerly, the Ministry of Industry Trade and Labor) and "Beneficiary Enterprise" status by the Israeli Income Tax Authority. The Company is eligible for tax benefits under the law with respect to its income derived from its Approved and Beneficiary Enterprises. The availability of these tax benefits is subject to certain requirements, including, among other things, making specified investments in fixed assets and equipment, financing a percentage of those investments with our capital contributions, complying with our marketing program which was submitted to the Investment Center, filing of certain reports with the Investment Center, limiting manufacturing outside of Israel and complying with Israeli intellectual property laws. If we do not meet these requirements in the future, these tax benefits may be cancelled and we could be required to refund any tax benefits that we have already received plus interest and penalties thereon. The tax benefits that our current "Approved Enterprise" and "Beneficiary Enterprise" program receives may not be continued in the future at their current levels or at all. If these tax benefits were reduced or eliminated, the amount of taxes that we pay would likely increase, which could adversely affect our results of operations. Additionally, if we increase our activities outside of Israel, for example, by acquisitions, our increased activities may not be eligible for inclusion in Israeli tax benefit programs.30If we elect to distribute dividends out of exempt income derived from "Approved/Beneficiary Enterprise" income, we will be subject to tax on the gross amount distributed. The tax rate will be the rate which would have been applicable had we not been granted the beneficial status. This rate is generally between 10% and the corporate tax rate in Israel, depending on the percentage of our shares held by foreign shareholders. The dividend recipient is subject to withholding tax at the source at the reduced rate applicable to dividends from Approved Enterprises, which is 15% if the dividend is distributed during the tax exemption period (subject to the applicable double tax treaty) or within 12 years after the period. This 12-year limitation does not apply to foreign investment companies. The Law has defined certain actions that are deemed as dividend distributions and would trigger the recapture of tax benefits.The Israeli government grants that we received require us to meet several conditions and 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 grants from the Israeli National Authority for Technological Innovation, formerly known as the Office of the Chief Scientist of Israel's Ministry of Economy and Industry ("OCS") for the financing of a portion of our research and development expenditures in Israel. When know-how is developed using or in connection with OCS grants, we are subject to restrictions on the transfer of the know-how outside of Israel. Transfer of know-how outside of Israel requires pre-approval by the OCS which may at its sole discretion grant such approval and impose certain conditions, and is subject to the payment of a transfer fee calculated according to the formula provided in the R&D Law which takes into account, inter alia, the consideration for such know-how paid to us in the transaction in which the technology is transferred. In general, transfer fees are no less than the funding received plus interest less the royalties already paid for the transferred know-how and are not higher than six times the amount of the grants received by the company. In addition, any decrease of the percentage of manufacturing performed in Israel, as originally declared in the application to the OCS, requires us to obtain the approval of the OCS and may result in increased amounts to be paid 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, we may be required to refund any payments previously received, together with interest and penalties as well as tax benefits. Also, failure to meet the restrictions concerning transfer of know-how outside of Israel may trigger criminal liability.Your rights and responsibilities as a shareholder will be governed by Israeli law and differ in some respects from the rights and responsibilities of shareholders under U.S. law.We are incorporated under Israeli law. The rights and responsibilities of holders of our ordinary shares are governed by our amended and restated articleshave complied with the reporting requirements of association and by Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, a shareholder of an Israeli companySection 16(a).duty to act in good faith towardstanding audit committee, the companymembers of which are Dov Baharav, chair, Thomas Riordan and other shareholders and to refrain from abusing his, her or its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters.Risks Related toThomas Weatherford. Our Ordinary SharesThe price of our ordinary shares may continue to be volatile, and the value ofboard has determined that Mr. Weatherford is an investment in our ordinary shares may decline.During 2017, our shares tradedaudit committee financial expert as low as $40.70 per share and as high as $65.90 per share. Factors that could cause volatility in the market price of our ordinary shares include, but are not limited to:quarterly variations in our results of operations or those of our competitors;announcements by us, our competitors, our customers or rumors from sources other than our company related to acquisitions, new products, significant contracts, commercial relationships, capital commitments or changes in the competitive landscape;our ability to develop and market new and enhanced products on a timely basis;disruption to our operations;geopolitical instability;the emergence of new sales channels in which we are unable to compete effectively;any major change in our board of directors or management;31changes in financial estimates, including our ability to meet our future revenue and operating profit or loss projections;changes in governmental regulations or in the status of our regulatory approvals;general economic conditions and slow or negative growth of related markets;anticompetitive practices of our competitors;commencement of, or our involvement in, litigation;whether our operating results meet our guidance or the expectations of investors or securities analysts;continuing international conflicts and acts of terrorism; andchanges in accounting rules.We may need to raise additional capital, which might not be available or which, if available, may be on terms that are not favorable to us.We may need to raise additional funds, and we cannot be certain that we will be able to obtain additional financing on favorable terms, if at all. If we issue equity securities to raise additional funds, the ownership percentage of our shareholders would be diluted, and the new equity securities may have rights, preferences or privileges senior to those of existing holders of our ordinary shares. If we borrow money, we may incur significant interest charges, which could harm our profitability. Holders of debt may also have certain rights, preferences or privileges senior to those of existing holders of our ordinary shares. If we cannot raise needed funds on acceptable terms, we may not be able to develop or enhance our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, which could harm our business, financial condition and results of operations.If we sell our ordinary shares in future financings, ordinary shareholders could experience immediate dilution and, as a result, the market price of our ordinary shares may decline.We may from time to time issue additional ordinary shares at a discount from the current trading price of our ordinary shares. As a result, our ordinary shareholders would experience immediate dilution upon the purchase of any ordinary shares sold at such discount. In addition, as opportunities present themselves, we may enter into equity or debt financings or similar arrangements in the future, including the issuance of convertible debt securities, preferred shares or ordinary shares. If we issue ordinary shares or securities convertible into ordinary shares, holders of our ordinary shares could experience dilution.The ownership of our ordinary shares may continue to be concentrated, and certain shareholders may have significant influence over the outcome of corporate actions requiring shareholder approval.As of December 31, 2017, based on information filed with the SEC or reported to us, Starboard Value LP beneficially owned an aggregate of approximately 10.7% of our outstanding ordinary shares, Capital Research Global Investors beneficially owned an aggregate of approximately 5.9% of our outstanding ordinary shares, FMR, LLC beneficially owned an aggregate of approximately 5.5% of our outstanding ordinary shares, and DNB Asset Management AS owned an aggregate of approximately 5.4% of our outstanding ordinary shares. These shareholders and any other shareholders acquiring beneficial ownership of a significant amount of our outstanding ordinary shares may 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.Our business could be negatively affected as a result of a proxy contest.On January 17, 2018, Starboard Value and Opportunity Master Fund Ltd delivered a letter to us notifying us of its intention to nominate director candidates for election to our board of directors at our 2018 Annual General Meeting of Shareholders and solicit proxies from stockholders in support of its nominees. Responding to any proxy contest may be disruptive and costly for our business.If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our ordinary shares or if our operating results do not meet their expectations, the market price of our ordinary shares could decline.The trading market for our ordinary shares could be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause the price of our ordinary shares or trading volume in our ordinary shares to decline. Moreover, if one or more of the analysts who cover our company32downgrades our ordinary shares or if our operating results do not meet their expectations, the market price of our ordinary shares could decline.Provisions of our articles of association could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our shareholders, and could make it more difficult for shareholders to change management.Provisions of our amended and restated articles of association may discourage, delay or prevent a merger, acquisition or other change in control that shareholders may consider favorable, including transactions in which shareholders might otherwise receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempt by our shareholders to replace or remove our current management by making it more difficult to replace or remove our board of directors. These provisions include:no cumulative voting;a requirement for any merger involving the Company shall require the approval of the shareholders of at least a majority of the voting power of the Company;a requirement for the approval of at least 75% of the voting power represented at the general meeting of the shareholders for the removal of any director from office, and election of any director instead of the director so removed; andan advance notice requirement for shareholder proposals and nominations.Furthermore, Israeli tax law treats some acquisitions, particularly share-for-share swaps between an Israeli company and a foreign company, less favorably than U.S. tax law. Under certain circumstances and subject to receiving a ruling from the Israeli Tax Authority, Israeli tax law generally provides that a shareholder who exchanges our shares for shares that are listed for trading on an Exchange in a foreign corporation is treated as if the shareholder has sold the shares. In such a case, the shareholder will generally be subject to Israeli taxation on any capital gains from the sale of shares (after two years, with respect to one half of the shares, and after four years, with respect to the balance of the shares, in each case unless the shareholder sells such shares at an earlier date), unless a relevant tax treaty between Israel and the country of the shareholder's residence exempts the shareholder from Israeli tax. For a further discussion of Israeli laws relating to mergers and acquisitions, please see "Risk Factors - Risks Related to Operations in Israel and Other Foreign Countries - Provisions of Israeli law may delay, prevent or make difficult an acquisition of our company, which could prevent a change of control and therefore depress the price of our shares." These provisions in our amended and restated articles of association and other provisions of Israeli law could limit the price that investors are willing to pay in the future for our ordinary shares.We have never paid cash dividends on our share capital, and, while the Board regularly reviews our cash position and uses for cash, we do not anticipate paying any cash dividends in the foreseeable future.We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our ordinary shares will be your sole source of gain for the foreseeable future.We may incur increased costs as a result of changes in laws and regulations relating to corporate governance matters.Changes in the laws and regulations affecting public companies, including Israeli laws, rules adopteddefined by the SEC rules and has the NASDAQ Stock Market,requisite financial sophistication as defined by Nasdaq rules and regulations. Our board has determined that Mr. Weatherford is independent within the FASBmeaning of the independent director standards of Nasdaq and the Public Company Accounting Oversight Board, may result in increased costs to us as we respond to their requirements. These laws and regulations could make it more difficult or more costly for us to obtain certain typesSEC.insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements.ITEM 1B—UNRESOLVED STAFF COMMENTSNone.ITEM 2—PROPERTIESAs of December 31, 2017, our major facilities consisted of:33 Israel United States Other Total 1,002 120 63 1,185 Our United States business headquarters are located in Sunnyvale, California, and our engineering headquarters are located in Yokneam, Israel. We believe that our existing facilities will be adequate to meet our current requirements and that suitable additional or substitute space will be available on acceptable terms to accommodate our foreseeable needs.ITEM 3—LEGAL PROCEEDINGSSee Note 9 to the consolidated financial statements for a full description of legal proceedings and related contingencies and their effects on our consolidated financial position, results of operations and cash flows.We may, from time to time, become a party to various other legal proceedings arising in the ordinary course of business. We may also be indirectly affected by administrative or court proceedings or actions in which we are not involved, but which have general applicability to the semiconductor industry.ITEM 4—MINE SAFETY DISCLOSURESNot applicable.PART IIITEM 5—MARKET FOR REGISTRANT'S ORDINARY SHARES, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESMarket InformationOur ordinary shares began trading on The NASDAQ Global Market on February 8, 2007 under the symbol "MLNX". Prior to that date, our ordinary shares were not traded on any public exchange.The following table summarizes the high and low sales prices for our ordinary shares as reported by The NASDAQ Global Select Market.2017 High Low First quarter $ 52.80 $ 40.70 Second quarter $ 52.65 $ 41.55 Third quarter $ 47.95 $ 42.05 Fourth quarter $ 65.90 $ 42.25 2016 High Low First quarter $ 55.80 $ 37.54 Second quarter $ 55.45 $ 40.54 Third quarter $ 52.15 $ 39.53 Fourth quarter $ 46.20 $ 38.75 As of February 10, 2018, we had approximately 232 holders of record of our ordinary shares. This number does not include the number of persons whose shares are in nominee or in "street name" accounts through brokers.Share Performance GraphThe graph below compares the five-year cumulative total shareholder return on our ordinary shares with the cumulative total return on The NASDAQ Composite Index and The Philadelphia Semiconductor Index. The period shown commences on December 31, 2012 and ends on December 31, 2017, the end date of our last fiscal year. The graph assumes an investment of $100 on December 31, 2012, and the reinvestment of any dividends. No cash dividends have been declared or paid on our ordinary shares during such period. Shareholder returns over the indicated periods should not be considered indicative of future share prices or shareholder returns.34 12/31/2012 * 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 Mellanox Technologies 100.00 67.31 71.96 70.97 68.88 108.96 NASDAQ Composite Index 100.00 138.32 156.85 165.84 178.28 228.63 Philadelphia Semiconductor Index 100.00 139.31 178.84 172.75 236.02 326.26
Year ended December 31, | |||||||||||||||||||
2017 | 2016 (1) | 2015 | 2014 | 2013 | |||||||||||||||
(In thousands, except per share data) | |||||||||||||||||||
Consolidated Statement of Operations Data: | |||||||||||||||||||
Total revenues | $ | 863,893 | $ | 857,498 | $ | 658,140 | $ | 463,649 | $ | 390,436 | |||||||||
Cost of revenues | 300,450 | 301,986 | 189,209 | 148,672 | 134,282 | ||||||||||||||
Gross profit | 563,443 | 555,512 | 468,931 | 314,977 | 256,154 | ||||||||||||||
Operating expenses: | |||||||||||||||||||
Research and development | 365,878 | 322,620 | 252,175 | 208,877 | 169,382 | ||||||||||||||
Sales and marketing | 150,457 | 133,780 | 97,438 | 76,860 | 70,544 | ||||||||||||||
General and administrative | 52,170 | 68,522 | 44,212 | 36,431 | 37,046 | ||||||||||||||
Impairment of long-lived assets | 12,019 | — | — | — | — | ||||||||||||||
Total operating expenses | 580,524 | 524,922 | 393,825 | 322,168 | 276,972 | ||||||||||||||
Income (loss) from operations | (17,081 | ) | 30,590 | 75,106 | (7,191 | ) | (20,818 | ) | |||||||||||
Interest expense | (7,937 | ) | (7,352 | ) | — | — | — | ||||||||||||
Other income (loss), net | 3,115 | 1,090 | (524 | ) | 1,449 | 1,228 | |||||||||||||
Interest and other, net | (4,822 | ) | (6,262 | ) | (524 | ) | 1,449 | 1,228 | |||||||||||
Income (loss) before taxes on income | (21,903 | ) | 24,328 | 74,582 | (5,742 | ) | (19,590 | ) | |||||||||||
Provision for (benefit from) taxes on income | (2,478 | ) | 5,810 | (18,312 | ) | 18,267 | 3,752 | ||||||||||||
Net income (loss) | $ | (19,425 | ) | $ | 18,518 | $ | 92,894 | $ | (24,009 | ) | $ | (23,342 | ) | ||||||
Net income (loss) per share — basic | $ | (0.39 | ) | $ | 0.38 | $ | 2.00 | $ | (0.54 | ) | $ | (0.54 | ) | ||||||
Net income (loss) per share — diluted | $ | (0.39 | ) | $ | 0.37 | $ | 1.94 | $ | (0.54 | ) | $ | (0.54 | ) | ||||||
Shares used in computing net income (loss) per share: | |||||||||||||||||||
Basic | 50,310 | 48,145 | 46,365 | 44,831 | 43,421 | ||||||||||||||
Diluted | 50,310 | 49,526 | 47,778 | 44,831 | 43,421 |
December 31, | |||||||||||||||||||
2017 | 2016 (1) | 2015 | 2014 (2) | 2013 (2) | |||||||||||||||
(In thousands) | |||||||||||||||||||
Consolidated Balance Sheet Data: | |||||||||||||||||||
Cash and cash equivalents | $ | 62,473 | $ | 56,780 | $ | 263,199 | $ | 51,326 | $ | 63,164 | |||||||||
Short-term investments | 211,281 | 271,661 | 247,314 | 334,038 | 263,528 | ||||||||||||||
Working capital | 310,286 | 340,511 | 540,108 | 396,591 | 344,825 | ||||||||||||||
Long-term assets | 895,015 | 920,427 | 376,144 | 348,982 | 363,939 | ||||||||||||||
Total assets | 1,401,934 | 1,473,505 | 1,053,382 | 863,218 | 806,826 | ||||||||||||||
Current liabilities | 196,633 | 212,567 | 137,130 | 117,645 | 98,062 | ||||||||||||||
Long-term liabilities | 147,853 | 285,208 | 49,571 | 43,821 | 41,953 | ||||||||||||||
Total liabilities | 344,486 | 497,775 | 186,701 | 161,466 | 140,015 | ||||||||||||||
Total shareholders' equity | $ | 1,057,448 | $ | 975,730 | $ | 866,681 | $ | 701,752 | $ | 666,811 |
Year ended December 31, | |||||||
2014 | 2013 | ||||||
(in thousands) | |||||||
Working capital decrease | $ | (2,271 | ) | $ | (7,336 | ) | |
Long-term assets increase | 2,271 | 7,336 |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Total revenues | 100 | % | 100 | % | 100 | % | |||||
Cost of revenues | (35 | ) | (35 | ) | (29 | ) | |||||
Gross profit | 65 | 65 | 71 | ||||||||
Operating expenses: | |||||||||||
Research and development | 42 | 38 | 38 | ||||||||
Sales and marketing | 17 | 16 | 15 | ||||||||
General and administrative | 6 | 7 | 7 | ||||||||
Impairment of long-lived assets | 2 | — | — | ||||||||
Total operating expenses | 67 | 61 | 60 | ||||||||
Income (loss) from operations | (2 | ) | 4 | 11 | |||||||
Interest expense | (1 | ) | (1 | ) | — | ||||||
Other income (loss), net | — | — | — | ||||||||
Interest and other, net | (1 | ) | (1 | ) | — | ||||||
Income (loss) before taxes on income | (3 | ) | 3 | 11 | |||||||
Provision for (benefit from) taxes on income | (1 | ) | 1 | (3 | ) | ||||||
Net income (loss) | (2 | ) | % | 2 | % | 14 | % |
Year Ended December 31, | |||||||||||||
2017 | % of Revenues | 2016 | % of Revenues | ||||||||||
(In thousands) | (In thousands) | ||||||||||||
ICs | $ | 161,216 | 18.7 | % | $ | 170,641 | 19.9 | % | |||||
Boards | 325,845 | 37.7 | % | 337,304 | 39.3 | % | |||||||
Switch systems | 222,836 | 25.8 | % | 204,083 | 23.8 | % | |||||||
Cables, accessories and other | 153,996 | 17.8 | % | 145,470 | 17.0 | % | |||||||
Total Revenue | $ | 863,893 | 100.0 | % | $ | 857,498 | 100.0 | % |
Year Ended December 31, | |||||||||||||
2017 | % of Revenues | 2016 | % of Revenues | ||||||||||
(In thousands) | (In thousands) | ||||||||||||
InfiniBand: | |||||||||||||
EDR | $ | 194,261 | 22.5 | % | $ | 125,249 | 14.6 | % | |||||
FDR | 181,465 | 21.0 | % | 302,093 | 35.2 | % | |||||||
QDR/DDR/SDR | 31,599 | 3.6 | % | 49,987 | 5.9 | % | |||||||
Total | 407,325 | 47.1 | % | 477,329 | 55.7 | % | |||||||
Ethernet | 401,005 | 46.4 | % | 317,241 | 37.0 | % | |||||||
Other | 55,563 | 6.5 | % | 62,928 | 7.3 | % | |||||||
Total revenue | $ | 863,893 | 100.0 | % | $ | 857,498 | 100.0 | % |
Year Ended December 31, | |||||||||||||
2016 | % of Revenues | 2015 | % of Revenues | ||||||||||
(In thousands) | (In thousands) | ||||||||||||
ICs | $ | 170,641 | 19.9 | % | $ | 92,214 | 14.0 | % | |||||
Boards | 337,304 | 39.3 | % | 265,249 | 40.3 | % | |||||||
Switch systems | 204,083 | 23.8 | % | 179,977 | 27.3 | % | |||||||
Cables, accessories and other | 145,470 | 17.0 | % | 120,700 | 18.4 | % | |||||||
Total Revenue | $ | 857,498 | 100.0 | % | $ | 658,140 | 100.0 | % |
Year Ended December 31, | |||||||||||||
2016 | % of Revenues | 2015 | % of Revenues | ||||||||||
(In thousands) | (In thousands) | ||||||||||||
InfiniBand: | |||||||||||||
EDR | $ | 125,249 | 14.6 | % | $ | 39,009 | 5.9 | % | |||||
FDR | 302,093 | 35.2 | % | 347,760 | 52.8 | % | |||||||
QDR/DDR/SDR | 49,987 | 5.9 | % | 63,745 | 9.8 | % | |||||||
Total | 477,329 | 55.7 | % | 450,514 | 68.5 | % | |||||||
Ethernet | 317,241 | 37.0 | % | 155,221 | 23.6 | % | |||||||
Other | 62,928 | 7.3 | % | 52,405 | 7.9 | % | |||||||
Total revenue | $ | 857,498 | 100.0 | % | $ | 658,140 | 100.0 | % |
Year ended December 31, | ||||||||||||||||||||
2017 | % of Revenues | 2016 | % of Revenues | 2015 | % of Revenues | |||||||||||||||
(In thousands) | (In thousands) | (In thousands) | ||||||||||||||||||
Salaries and benefits | $ | 200,125 | 23.2 | % | $ | 174,462 | 20.3 | % | $ | 130,255 | 19.8 | % | ||||||||
Share-based compensation | 40,278 | 4.7 | % | 40,475 | 4.7 | % | 28,821 | 4.4 | % | |||||||||||
Development and tape-out costs | 39,001 | 4.5 | % | 36,091 | 4.2 | % | 36,305 | 5.5 | % | |||||||||||
Other | 86,474 | 10.0 | % | 71,592 | 8.4 | % | 56,794 | 8.6 | % | |||||||||||
Total Research and development | $ | 365,878 | 42.4 | % | $ | 322,620 | 37.6 | % | $ | 252,175 | 38.3 | % |
Year ended December 31, | ||||||||||||||||||||
2017 | % of Revenues | 2016 | % of Revenues | 2015 | % of Revenues | |||||||||||||||
(In thousands) | (In thousands) | (In thousands) | ||||||||||||||||||
Salaries and benefits | $ | 90,419 | 10.5 | % | $ | 76,774 | 9.0 | % | $ | 58,204 | 8.8 | % | ||||||||
Share-based compensation | 15,693 | 1.8 | % | 15,183 | 1.8 | % | 10,309 | 1.6 | % | |||||||||||
Trade shows and promotions | 19,593 | 2.3 | % | 19,893 | 2.3 | % | 15,996 | 2.4 | % | |||||||||||
Other | 24,752 | 2.8 | % | 21,930 | 2.5 | % | 12,929 | 2.0 | % | |||||||||||
Total Sales and marketing | $ | 150,457 | 17.4 | % | $ | 133,780 | 15.6 | % | $ | 97,438 | 14.8 | % |
Year Ended December 31, | ||||||||||||||||||||
2017 | % of Revenues | 2016 | % of Revenues | 2015 | % of Revenues | |||||||||||||||
(In thousands) | (In thousands) | (In thousands) | ||||||||||||||||||
Salaries and benefits | $ | 21,476 | 2.5 | % | $ | 20,976 | 2.4 | % | $ | 16,050 | 2.4 | % | ||||||||
Share-based compensation | 10,893 | 1.3 | % | 13,085 | 1.5 | % | 9,268 | 1.4 | % | |||||||||||
Professional services | 13,179 | 1.5 | % | 26,602 | 3.1 | % | 12,348 | 1.9 | % | |||||||||||
Other | 6,622 | 0.7 | % | 7,859 | 1.0 | % | 6,546 | 1.0 | % | |||||||||||
Total General and administrative | $ | 52,170 | 6.0 | % | $ | 68,522 | 8.0 | % | $ | 44,212 | 6.7 | % |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(in thousands) | |||||||||||
Cost of goods sold | $ | 2,000 | $ | 2,375 | $ | 2,366 | |||||
Research and development | 40,278 | 40,475 | 28,821 | ||||||||
Sales and marketing | 15,693 | 15,183 | 10,309 | ||||||||
General and administrative | 10,893 | 13,085 | 9,268 | ||||||||
$ | 68,864 | $ | 71,118 | $ | 50,764 |
Year ended December 31, | |||||||
2017 | 2016 | ||||||
(in thousands) | |||||||
Cash and cash equivalents | $ | 62,473 | $ | 56,780 | |||
Short-term investments | 211,281 | 271,661 | |||||
Total | $ | 273,754 | $ | 328,441 | |||
Working capital | $ | 310,286 | $ | 340,511 |
Contractual Obligations | |||||||||||||||
Total | Non-cancelable operating lease commitments | Purchase commitments | Term debt including interest | ||||||||||||
(in thousands) | |||||||||||||||
2018 | $ | 178,682 | $ | 23,028 | $ | 153,358 | $ | 2,296 | |||||||
2019 | 95,220 | 18,453 | 2,447 | 74,320 | |||||||||||
2020 | 15,284 | 14,740 | 544 | — | |||||||||||
2021 | 13,492 | 12,950 | 542 | — | |||||||||||
2022 | 10,184 | 9,648 | 536 | — | |||||||||||
Thereafter | 60,091 | 60,091 | — | — | |||||||||||
Total | $ | 372,953 | $ | 138,910 | $ | 157,427 | $ | 76,616 |
Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 (1) | ||||||||||||||||||||||||
2017 | 2017 | 2017 | 2017 | 2016 | 2016 | 2016 | 2016 | ||||||||||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||||||||||||||
Total revenues | $ | 237,581 | $ | 225,699 | $ | 211,962 | $ | 188,651 | $ | 221,676 | $ | 224,211 | $ | 214,801 | $ | 196,810 | |||||||||||||||
Cost of revenues | 85,238 | 77,335 | 73,427 | 64,450 | 73,507 | 78,191 | 79,807 | 70,481 | |||||||||||||||||||||||
Gross profit | 152,343 | 148,364 | 138,535 | 124,201 | 148,169 | 146,020 | 134,994 | 126,329 | |||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||
Research and development | 94,123 | 90,916 | 92,348 | 88,491 | 85,651 | 83,611 | 82,324 | 71,034 | |||||||||||||||||||||||
Sales and marketing | 38,761 | 37,829 | 38,110 | 35,757 | 35,568 | 34,408 | 32,576 | 31,228 | |||||||||||||||||||||||
General and administrative | 14,136 | 13,039 | 12,476 | 12,519 | 13,589 | 13,501 | 13,494 | 27,938 | |||||||||||||||||||||||
Impairment of long-lived assets | 12,019 | — | — | — | — | — | — | — | |||||||||||||||||||||||
Total operating expenses | 159,039 | 141,784 | 142,934 | 136,767 | 134,808 | 131,520 | 128,394 | 130,200 | |||||||||||||||||||||||
Income (loss) from operations | (6,696 | ) | 6,580 | (4,399 | ) | (12,566 | ) | 13,361 | 14,500 | 6,600 | (3,871 | ) | |||||||||||||||||||
Interest expense | (1,932 | ) | (2,016 | ) | (1,996 | ) | (1,993 | ) | (1,944 | ) | (2,195 | ) | (2,215 | ) | (998 | ) | |||||||||||||||
Other income (loss), net | 649 | 956 | 827 | 683 | 108 | 606 | 315 | 61 | |||||||||||||||||||||||
Interest and other, net | (1,283 | ) | (1,060 | ) | (1,169 | ) | (1,310 | ) | (1,836 | ) | (1,589 | ) | (1,900 | ) | (937 | ) | |||||||||||||||
Income (loss) before taxes on income | (7,979 | ) | 5,520 | (5,568 | ) | (13,876 | ) | 11,525 | 12,911 | 4,700 | (4,808 | ) | |||||||||||||||||||
Provision for (benefit from) taxes on income | (5,386 | ) | 2,117 | 2,423 | (1,632 | ) | 2,530 | 874 | 46 | 2,360 | |||||||||||||||||||||
Net income (loss) | $ | (2,593 | ) | $ | 3,403 | $ | (7,991 | ) | $ | (12,244 | ) | $ | 8,995 | $ | 12,037 | $ | 4,654 | $ | (7,168 | ) | |||||||||||
Net income (loss) per share — basic | $ | (0.05 | ) | $ | 0.07 | $ | (0.16 | ) | $ | (0.25 | ) | $ | 0.18 | $ | 0.25 | $ | 0.10 | $ | (0.15 | ) | |||||||||||
Net income (loss) per share — diluted | $ | (0.05 | ) | $ | 0.07 | $ | (0.16 | ) | $ | (0.25 | ) | $ | 0.18 | $ | 0.24 | $ | 0.09 | $ | (0.15 | ) |
ITEM 11—EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
We invest our resources to grow our business in a manner that we believe will increase shareholder value. To further this objective, our compensation committee oversees our compensation program to support and reward the achievement of our financial goals and to promote the attainment of other information required by this item will be containedkey business objectives. In order to conduct our business effectively, we must attract, motivate and retain highly qualified employees. Our compensation program, the principles of which are included in our definitive proxy statementCompensation Philosophy, is designed to be filedreward high performance and innovation, to promote accountability and to ensure that executive interests are aligned with the SECinterests of our shareholders.
In this Compensation Discussion and Analysis section, we discuss the material elements of our compensation programs and policies, including program objectives and reasons for payment of each element of our executives’ compensation. Following this discussion, you will find a series of tables containing more specific details about the compensation earned by, or awarded to, our named executive officers. This discussion focuses principally on compensation and practices relating to the named executive officers for 2017.
Our named executive officers for 2017 were: Eyal Waldman, president and CEO; Jacob Shulman, chief financial officer; Marc Sultzbaugh, senior vice president of worldwide sales; and Michael Kagan, chief technology officer. On February 21, 2018, we announced Mr. Shulman’s resignation from the Company effective May 4, 2018.
Executive Summary—2017 Performance and Link to Pay Decisions
Company Financial Performance.
* | Please see “Reconciliation of GAAP Net Income (Loss) toNon-GAAP Net Income” on page 17 of this Form10-K/A for a reconciliation ofnon-GAAP net income (loss) to GAAP net income. |
Base Salaries. The 2017 base salaries of our named executive officers, other than our CEO, were increased on average over 2016 base salaries by approximately 12.5% in order to maintain competitive positioning. These increases positioned our U.S.-based named executive officers closer to our peer group median, as 2016 salaries for such executives were approximately 20% less than the median of our peer companies, and we increased the base salary of our Israeli-based CTO (who was not included in our 2016 benchmarking analysis) to bring him to relative parity to his named executive officer peers. A 7.0% increase to our CEO’s 2016 base salary was approved by shareholders for 2017 at the 2017 annual meeting of shareholders.
Cash Bonuses Reflected 2017 Company Performance. As in prior years, ten percent of the Company’s earnings, measured on the basis of ournon-GAAP operating income, funded the Company’s annual bonus pool for all eligible employees, including the named executive officers, in accordance with the Annual General Meetingcriteria set forth in our Compensation Philosophy. For 2017, the total profit sharing pool was $13.2 million, representing 10% of our Shareholders,non-GAAP operating income, which was $132.0 million, excluding our bonus pool. Bonus awards for our named executive officers are generally based on Company performance and individual achievement and require the approval of both the compensation committee and the board of directors. The board of directors and compensation committee determined that our CEO would not receive a bonus payout for 2017 based on their evaluation of Company performance in 2017. In addition, the CEO did not recommend a bonus for our chief financial officer due to his resignation. The bonus approved for our chief technology officer was 18% of his annual base salary and the bonus approved for our senior vice president of worldwide sales was 8% of his annual base salary. These bonuses were 50% and 70% lower than the individuals’ 2016 bonuses, respectively.
Equity as a Key Component of Compensation. In April 2017, our compensation committee and board of directors granted each of our named executive officers (other than our CEO) restricted share unit awards as long-term incentives. Our CEO’s grant of 90,000 restricted share units was made following shareholder approval at our 2017 annual general meeting of shareholders. The size of the award granted to Mr. Waldman in 2017 was lower than the award granted to him in 2016 by 10%. Our 2017 restricted share unit awards are subject to vesting over four years, which encourages retention of our executives and encourages and rewards the executives to create shareholder value over the long term. Based on benchmarking against our U.S. peer group in 2016, the 2016 equity grants awarded to three of four named executive officers including our CEO, chief financial officer and vice president of worldwide sales, were at or below the Proxy Statement,peer group median. Comparative data were not available to benchmark the 2016 equity award to our chief technology officer, who is based in Israel.
Compensation Program Governance
Best Practices We Employ | Practices We Avoid | |||||
✓ | Executive stock ownership guidelines of 3x salary for all executive officers and holding requirements to help meet ownership | X | Incentive program designs do not encourage excessive risk taking | |||
✓ | Change in control severance requires a double trigger | X | Pledging or hedging of shares by officers and directors is not permitted | |||
✓ | Compensation committee is comprised entirely of independent directors | X | No repricing of underwater options | |||
✓ | Compensation committee engages an independent consultant | X | No excise taxgross-ups | |||
✓ | Compensation Philosophy allows the clawback of excess payments based on false and restated financial statements | X | No uncapped short-term incentive award or variable compensation |
Shareholder Advisory Vote to Approve Executive Compensation
At our 2017 annual general meeting of shareholders, our shareholders voted 77% (reflecting shares represented in person or by proxy at the meeting and entitled to vote) in favor of thenon-binding advisory vote to approve the compensation of our named executive officers. Our compensation committee reviewed the result of the shareholders’ advisory vote on executive compensation, as well as feedback from shareholders during the 2017 proxy solicitation period and following our annual meeting. In consideration of investor feedback, our compensation committee is exploring introducing performance-based equity awards for at least the chief executive officer. Otherwise, we do not expect to implement significant changes to our executive compensation programs as a result of the shareholders’ advisory vote, although the compensation committee continues to evolve its practices in determining compensation to further align with shareholder interests.
Compensation Philosophy and Objectives
We generally seek to set base salaries near the market median by reference to benchmarking and/or survey data, where available, but the base salary for each individual named executive officer reflects a number of factors, including past performance, scope of responsibility, experience and qualifications. The compensation committee also uses the same criteria for determining bonus awards, with emphasis on the individual’s contributions to the prior year’s success. Bonus awards for 2017 were based on performance during 2017 and the criteria set forth in the Compensation Philosophy.
We seek to align the interests of our executives and other employees with the interests of our shareholders by granting our executives and other employees equity awards. In 2017, our compensation committee and board of directors granted our named executive officers restricted share units. Our compensation committee and board of directors believe that restricted share units can provide value certainty, which is expectedimportant for talent retention, while continuing to be filed no later than 120 days afteralign the endinterests of our executives and other employees with the interests of our shareholders.
In accordance with our Compensation Philosophy, the maximum annual value of variable compensation components (cash bonuses and equity grants) for all office holders of the Company shall not exceed two percent (2%) of the Company’s market capitalization. The compensation approved for payment to our office holders for the year 2017 complies with this requirement.
In order to retain the focus of our named executive officers on our business in the event of a potential change in control, we have entered into executive severance benefits agreements with each of our named executive officers that provide for certain payments and other severance benefits in the event their service is terminated following a change in control of our Company. We believe that these executive severance benefits agreements help attract and retain talented executives by ensuring their efforts remain focused on our shareholders’ long term interests without needing to engage in potential short-term employment planning.
We believe that the total cash compensation (including base salary and annual cash bonus awards) of our named executive officers, the incentive and retention benefit of equity awards in the form of restricted share units, and the security provided by executive severance benefits agreements, created a competitive total compensation package for our named executive officers in 2017.
Pursuant to the Companies Law, the compensation of our named executive officers (other than our CEO) and the compensation of other office holders (who are not directors) who report directly to our CEO must also be approved by our Board following the approval by our compensation committee. In accordance with the Companies Law, our CEO’s compensation must be approved by our compensation committee, board of directors and shareholders holding a majority of the voting power represented at the general meeting provided that (i) at leastone-half of the shares ofnon-controlling shareholders or shareholders that do not have a Personal Interest (as defined in the Companies Law) in the approval voted at the meeting are voted in favor (disregarding abstentions) or (ii) the total number of shares ofnon-controlling shareholders or shareholders that do not have such Personal Interest voted against the terms of service of the CEO does not exceed two percent of the aggregate voting rights in the Company.
Approach for Determining Form and Amount of Compensation
Designing a Competitive Compensation Package. Our executive compensation program is administered by our compensation committee, which is currently comprised of three independent members. Operating under its charter, our compensation committee reviews, in consultation with the management and the board of directors, and evaluates the Compensation Philosophy, including the compensation plans, policies and programs of the Company. In addition, our compensation committee reviews and recommends to our Board the approval of our CEO’s compensation (including base salary, cash bonuses, equity awards, and other forms of individual compensation such as a change in control agreement). Our compensation committee also annually evaluates and approves certain elements of our other named executive officers’ compensation, including compensation of other office holders of the Company (as the term “office holder” is defined in the Companies Law and includes our named executive officers). These annual evaluations include, among others: (i) consideration of the current levels and components of compensation paid to our named executive officers and office holders, (ii) consideration of the mix of cash incentives and long-term equity awards, (iii) a review of available survey and/or peer group data for compensation paid to executives in positions comparable to those held by our named executive officers and office holders, (iv) consideration of the ratio between an office holder’s compensation and the salary paid to other employees of the Company, including without limitation, the ratios to the median and average salaries of such employees, and whether such variation has an effect on employment relationships within the Company, and (v) consideration of the education, skills, expertise, professional experience and accomplishments of the office holder, his or her role, responsibilities and previous compensation arrangement of the office holders. Our executive compensation program has three primary components: (i) base compensation or salary, (ii) annual cash bonuses and (iii) equity awards consisting of restricted share units. Our program is designed to provide incentives and rewards for our short-term,mid-term and long-term performance, and is structured to motivate our named executive officers to meet our strategic objectives, thereby maximizing total return to shareholders. In addition, we provide our named executive officers with benefits that are standard for the local employment market and, therefore, generally make available to all salaried employees in the geographic location where they are based. In Israel, we make contributions on behalf of most of our employees, including our named executive officers, to an education fund and also to a fund known as Managers’ Insurance, which provides a combination of retirement plan, insurance and severance pay benefits to Israeli employees, and we permit employees to participate in the company’s automobile leasing program, under which we pay for gas, maintenance, insurance and the cost of normal wear and tear of the vehicle over the life of the lease. We make matching 401(k) plan contributions in an amount up to 4% of base salary for all employees based in the United States, including our U.S.-based named executive officers. The Company’s match of 401(k) contributions had an implied cap of $10,800 for fiscal year 2017 due to the cap on eligible compensation deferrals to the 401(k), including catchup contributions for persons of age 50 or older.
Recruitment and retention of our named executive officers and other executive management requires a competitive compensation package. Our compensation committee’s approach emphasizes fixing the primary elements of total compensation for executives—base salary, annual cash incentive and long-term incentive awards—at approximately the median of the market.
Historically, in making compensation decisions, our compensation committee and board of directors referenced third-party surveys that provide compensation market data.
For 2017 compensation determinations, our compensation committee and board of directors referred to data from, respectively, a 2017 Radford U.S. Executive Survey, an independent third-party national compensation survey, and the Israel-based Zviran survey, an independent third-party survey of compensation practices by large high-tech companies in Israel, which, together, we refer to as the “Surveys”. The Radford survey consisted of semiconductor companies and companies in the San Francisco Bay Area. The industry data from the Surveys consist of salaries and other compensation paid by companies to executives in positions comparable to those held by our named executive officers to the extent such position was represented in the survey data. Specifically, we reviewed data on named executive officer positions in the United States from the Radford survey and for positions in Israel from the Zviran survey. The companies covered by the Surveys are not identified in the summary reports presented to the compensation committee.
Beginning in the second half of 2016, with the assistance of Compensia, an independent consultant retained by the compensation committee for purposes of establishing a peer group and performing discrete analysis of U.S. executive compensation, and input from our CEO, the compensation committee approved the following peer group consisting of 18 publicly traded companies from the semiconductor industry (the “Peer Group”):
Arista Networks, Inc. | Inphi Corporation | |
Brocade Communications Systems Inc. | Integrated Device Technology, Inc. | |
Cavium, Inc. | Intersil Corporation | |
Cirrus Logic Inc. | Marvell Technology Group Ltd | |
Cray Inc. | Microsemi Corporation | |
Cypress Semiconductor Corporation | Mobileye N.V. | |
Diodes Inc. | NETGEAR, Inc. | |
Electronics For Imagining Inc. | Pure Storage, Inc. | |
Finisar Corporation | Silicon Laboratories Inc. |
For companies within the Peer Group, the median revenues for the preceding four quarters as of September 2016 were approximately $924 million, and the median200-day average market capitalization as of September 15, 2016 was $2.5 billion. The Company’s revenues for the preceding quarters as of September 2016 were at the 42nd percentile of the Peer Group and the Company’s200-day average market capitalization as of September 15, 2016 was at the 45th percentile of the Peer Group.
Compensia’s analysis of the compensation of Messrs. Waldman, Shulman and Sultzbaugh indicated that each of their actual total cash compensation (comprised of their 2016 salaries and 2015 performance bonuses paid in 2016), plus 2016 RSU awards, were at or below the median total compensation of the Peer Group. Compensia’s analysis did not include Mr. Kagan as he is located in Israel and there is a lack of comparable data for his position in Israel.
We typically engage in a formal executive compensation benchmarking exercise every other year, and expect to do so again in the third quarter of 2018. However, we continue to consider market data from the Surveys every year. In July 2017, our compensation committee made minor adjustments to our 2016 peer group, removing Intersil Corporation, Mobileye N.V., due to acquisitions, and adding Macom Technology Solutions because it most closely met our peer criteria.
The Role of the Compensation Committee Consultant. As noted above, in the second half of 2016, our compensation committee engaged Compensia, an independent third party compensation consulting firm, to assist in discrete projects and report to the compensation committee, including selecting the Peer Group, gathering general industry compensation data, conducting a review of total compensation of certain named executive officers and members of the Board, and providing advice with respect to certain executive and Board compensation issues that arose in the latter half of 2016, and Compensia’s studies were referenced in 2017. In February 2018, the Compensation Committee engaged Radford (part of Aon Hewitt, a business unit of Aon PLC) specifically for CEO and CFO compensation review. In order to determine and confirm independence, before engaging any consultant, each consultant completes an independence questionnaire provided by the Company. In addition, each director and executive officer of the Company completes an annual questionnaire which includes questions which ask about any actual or potential conflicts or relationship between such individual and any relevant consultant.
The Role of Our Chief Executive Officer. Our CEO provides our compensation committee with his assessment of the performance levels of the Company and our named executive officers (other than himself) and his recommendations with respect to compensation of our named executive officers (other than himself). Our compensation committee believes it is important to consider and evaluate our CEO’s input on matters concerning compensation of other named executive officers. The compensation committee believes that our CEO’s input regarding our other named executive officers’ individual performances, including the expected contributions and future potential of each of them, is useful because each other named executive officer reports directly to our CEO, and our CEO interacts with our other named executive officers on an ongoing basis throughout the year.
Base Salary
In February 2017, our CEO completed his review of the 2016 performance of each of our named executive officers reporting him, and made recommendations to our compensation committee for base salary increases for each of the other named executive officers for 2017. Our compensation committee evaluated the CEO’s recommendations considering the Peer Group median for U.S. based executives, available survey data, the Company’s growth in revenue and earnings during 2016 and each individual’s performance and contributions to the Company’s success. Our compensation committee and board of directors each then approved the CEO’s 2017 base salary recommendations for the named executive officers reporting to Mr. Waldman, as follows: Mr. Shulman’s base salary was increased 16.7% to $350,000; Mr. Sultzbaugh’s base salary was increased 5.7% to $370,000; and Mr. Kagan’s base salary was increased 18.2% to $279,626. The base salary for Mr. Kagan is converted from New Israeli Shekels to U.S. dollars using the 2017 average exchange rate of 3.57 New Israeli Shekels to 1 U.S. dollar.
In February 2017, the compensation committee also reviewed the 2016 performance of the CEO considering the Company’s financial performance and technology execution, the CEO’s significant contributions to the Company’s performance and the Peer Group data. Following approval by each of the compensation committee and the board of directors, at the April 2017 annual general meeting, our shareholders approved an increase in the annual base salary of our CEO of approximately 7.0% from $570,000 to $610,000 effective from April 1, 2017. Our CEO’s 2017 base salary was slightly below the Peer Group median.
Our compensation committee and our board of directors approved a base salary of $400,000 for Mr. Sultzbaugh effective July 1, 2018, a 10.8% increase over his 2017 base salary of $370,000, to reflect an increase in responsibilities due to an internal reorganization. Our compensation committee and our board of directors did not approve any increases in the base salaries of our other named executive officers, including our chief executive officer and, thus, the 2018 base salaries of our other named executive officers will remain at their 2017 levels.
Annual Cash Bonus Program
We structured our 2017 annual cash bonus award program to reward named executive officers for our Company’s successful performance, measured on the basis of ournon-GAAP operating income, and for each individual’s contribution to that performance.
Under our annual cash bonus award program, our employees in good performance standing, including our named executive officers, are eligible to receive an award, in accordance with the criteria set forth in our Compensation Philosophy from a bonus pool in an amount that is targeted by our compensation committee at generally up to 10% of ournon-GAAP operating income, excluding bonus expenses. In accordance with our Compensation Philosophy, the maximum annual value of the cash bonus payable for each of our office holders shall not exceed two times such office holder’s annual base salary.
Our compensation committee may adjust the available annual bonus pool based on its assessment of our achievement of our operating plan and company profitability. In January 2018, the compensation committee determined that the total profit sharing pool for the fiscal year ended December 31, 2017 was $13.2 million and represented 10% of ournon-GAAP operating income, which was $132.0 million, excluding this bonus expense. The size of each named executive officer’s bonus for 2017 was determined in February 2018 in the discretion of our compensation committee based upon its assessment of a number of factors, including our CEO’s recommendations, overall company performance in 2017, each named executive officer’s individual performance in 2017 and ability to influence our Company’s performance, the relative scope of each named executive officer’s responsibilities and internal equity. Based on consultation with our CEO (other than with respect to himself) and our board of directors, the compensation committee determined that neither the chief executive officer nor the chief financial officer would receive a bonus award for 2017. The board of directors and compensation committee determined that our CEO would not be awarded a bonus for 2017 based on their evaluation of Company performance in 2017. In addition, the compensation committee determined, following our CEO’s recommendation, that our chief financial officer would not be awarded a bonus for 2017 due to his anticipated resignation. The following bonuses were approved for our other executive officers based on their individual contributions to our financial performance for fiscal year 2017: Mr. Sultzbaugh was awarded $30,000, which represents approximately 8% of his 2017 annual base salary and Mr. Kagan was awarded $50,000, which represents approximately 18% of his base salary. Payments of the annual cash bonus program award to Mr. Sultzbaugh and Mr. Kagan were made in the first pay period in April 2018.
Equity Compensation Awards
We provide equity awards to our named executive officers in order to align their interests with the interests of our shareholders by tying the value delivered to our named executive officers to the value of our ordinary shares. Annual equity award grants provide our named executive officers with long-term incentives that aid in retaining executive talent and reward executives for creating shareholder value over the long term. We may also make grants of equity awards at the discretion of our Board and the compensation committee in connection with the hiring or promotion of new executive officers.
Our annual awards of restricted share units made to existing employees in April 2017, including our named executive officers, vest over four years at the rate of 1/4th of the shares on May 1, 2018, and thereafter at the rate of 1/16th of the original number of shares on the first day of each quarterly period of August, November and February and May commencing August 1, 2018, with the last 1/16th of the original number of shares vesting on May 1, 2021, so long as the restricted share unit holder remains an officer or employee of the company. We set these vesting schedules in order to provide an incentive to our employees, including our named executive officers, to continue their employment with us over the long term and, with respect to the restricted share units, generally to provide them the opportunity to sell their vested shares to cover taxes incurred with vesting during a period following the public release of our prior quarter’s fiscal operating results.
As with the other components of our compensation program, we determine the size of each equity award to a named executive officer after considering, among other things, the role of each named executive officer within our Company, the criticality of his function within the organization, and the Peer Group data. Since long-term incentive compensation levels fluctuate from year to year across the companies for whom market data are collected, including the Peer Group (depending on each company’s granting patterns, valuation assumptions, and stock price), we generally review the market data under both a value approach, which is based on the fair value of long-term incentive awards, and a percentage of common shares outstanding approach, which compares the number of shares subject to each long-term incentive award to the number of shares outstanding for each company. The ability of each executive officer to influence our Company’s performance and internal parity are also principal considerations for our compensation committee when determining grant size.
In April 2017, our Board granted each of our named executive officers restricted share units as follows: Mr. Shulman, 15,000; Mr. Sultzbaugh, 17,000; and Mr. Kagan, 17,000. The value of these award levels ranged from 7% below to 17% above the levels awarded in 2016. In April 2017, our Board also approved the grant of 90,000 restricted share units to Mr. Waldman, subject to the approval of our shareholders, which was obtained at our 2017 annual general meeting of shareholders. The value of Mr. Waldman’s 2017 award was lower than his 2016 grant by 10%, reflecting our compensation committee’s assessment of Mr. Waldman’s individual performance and contributions to the company in 2016.
Change in Control Severance Arrangements
We have entered into executive severance benefits agreements with each of our named executive officers which provide for certain severance benefits in the event of an executive’s separation of service following a change in control (aso-called “double trigger” requirement).
Pursuant to the terms of the executive severance benefits agreements in place for 2017, if the executive’s employment with our Company is terminated without cause or if the executive is constructively terminated (as defined below), in each case during the12-month period following a change in control (as defined in the agreements) of our Company (each, a “qualifying termination”), and the executive provides us a general release of all claims, then the executive is entitled to receive the following payments and benefits:
Following a review of the change in control arrangements of our Peer Group, which indicated that our change in control severance benefits are well below market, in April 2018, our compensation committee and our board of directors approved amendments to our NEO’s executive severance agreements, except in the case of Messrs. Waldman and Shulman, to, among other things, increase the cash severance to 12 months’ salary and target bonus and provide for full accelerated vesting of the NEO’s outstanding equity awards in the event of a qualifying termination.
For the purposes of the executive severance benefits agreements,
• | “Cause” means that, in the reasonable determination of the Company (or the Board, in the case of the CEO), the executive: (a) has committed an act of fraud or embezzlement or has intentionally committed some other illegal act that has a material adverse impact on the Company or any successor or parent or subsidiary thereof; (b) has been convicted of, or entered a plea of “guilty” or “no contest” to, a felony which causes or may reasonably be expected to cause substantial economic injury to or substantial injury to the reputation of the Company or any subsidiary or affiliate of the Company; (c) has made any unauthorized use or disclosure of confidential information or trade secrets of the Company or any successor or parent or subsidiary thereof that has a material adverse impact on any such entity; (d) has committed any other intentional misconduct that has a material adverse impact on the Company or any successor or parent or subsidiary thereof; or (e) has intentionally refused or intentionally failed to act in accordance with any lawful and proper direction or order of the Board or the appropriate individual to whom the executive reports, provided such direction is not materially inconsistent with the executive’s customary duties and responsibilities. |
• | “Constructive termination” means that the executive voluntarily terminates his employment with the Company after any of the following are undertaken without the executive’s express written consent: (a) the removal of or a material reduction in the nature or scope of the executive’s responsibilities, or the assignment to the executive of duties that are materially inconsistent with the executive’s position other than a change in reporting relationship; (b) a change in the executive’s direct reporting relationship so that the executive no longer reports directly to the CEO (or the Board in the case of the CEO); (c) a reduction in the executive’s base salary, unless the base salaries of all other executives are similarly reduced; or (d) a relocation of the executive’s place of employment by more than thirty (30) miles from such the executive’s place of employment on the effective date of the severance benefits agreement. The termination of the executive’s employment as a result of the executive’s death or disability shall not be deemed to be a Constructive Termination. |
• | “Change in Control” generally includes each of the following: |
(i) | Which results in the Company’s voting securities outstanding immediately before the transaction continuing to directly or indirectly, at least a majority of the combined voting power of the successor entity’s outstanding voting securities immediately after the transaction, and |
(ii) | After which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the successor entity; provided, however, that no person or group shall be treated as beneficially owning 50% or more of combined voting power of the successor entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or |
The benefits payable under the sections titled “Proposal - Electionchange in control severance agreements are in addition to payments or other benefits, if any, that any named executive officer who resides in Israel may be entitled to receive under applicable Israeli law. Israeli law generally requires severance pay equal to one month’s salary for each year of Directors,” “Security Ownership,”employment upon the retirement, death or termination without cause (as defined in the Israeli Severance Pay Law) of an employee. To satisfy this requirement, we make contributions on behalf of our Israel-based employees to a fund known as Managers’ Insurance or to a pension fund. These funds provide a combination of pension plan, insurance and “Corporate Governanceseverance pay benefits to the employee, giving the employee or his or her estate payments upon retirement or death and Boardsecuring the severance pay, if legally entitled, upon termination of Director Matters”employment. Each full-time Israeli employee and hourly employee as of September 2012, including each of our Israel-based named executive officers, is incorporatedentitled to participate in this report by reference.
Within the context of our Compensation Philosophy, the compensation committee believes the terms of our executive severance agreements with our named executive officers will encourage their continued attention and dedication to their assigned duties through and following any change in control of our Company. We believe that the terms of these agreements will further ensure that each of our named executive officers will continue to remain focused on the long-term objective of delivering shareholder value during and following a change in control event if they are assured that their long-term employment interests are reasonably provided for with a competitive market severance arrangement. We believe that these executive severance agreements thus help ensure the best interests of our shareholders.
Additionally, under the Company’s Global Share Incentive Plan, in the event of a change in control in the Company, each outstanding award will be assumed or substituted by the successor corporation. If the successor corporation in a change in control refuses to assume or substitute an outstanding award, the award will vest in full.
The potential payments under the executive severance benefits agreements as of December 31, 2017 are set forth below under the heading “—Potential Payments Upon Termination Following a Change in Control.”
Perquisites and Other Benefits
Historically, from time to time, our compensation committee and board of directors have provided certain of our named executive officers with perquisites that we believe are reasonable. We do not view perquisites as a significant element of our comprehensive compensation structure, but do believe that these additional benefits may assist our executive officers in neutralizing personal costs associated with performing their duties as expected by the Company and provide time efficiencies for our executive officers in appropriate circumstances, particularly when we require frequent or lengthy travel. In 2017, our named executive officers received the perquisites set forth in the Proxy Statementtable below, which our compensation committee determined were appropriate in order to facilitate the efforts of Mr. Waldman and Mr. Sultzbaugh on behalf of our Company while at our California headquarters.
Name | Perquisite | |
Eyal Waldman | Housing and housing-related expense reimbursement Tax reimbursement related to perquisites provided | |
Marc Sultzbaugh | Housing and housing-related expense reimbursement Select travel reimbursement Tax reimbursement related to perquisites provided |
The table above does not include automobile-related expense reimbursement, insurance reimbursement, retirement fund contributions, severance fund contributions and education fund contributions, all of which are provided to all of our Israel-based employees on anon-discriminatory basis including our named executive officers based in Israel.
In the future, we may provide additional perquisites to our named executive officers as an element of their overall compensation structure. We do not expect these perquisites to be a significant element of our compensation structure. All future practices regarding perquisites will be approved and subject to periodic review by our compensation committee and/or board of directors.
In addition to the termination-related benefits provided to our Israeli employees under Israeli law, each full-time Israeli employee, including each of our Israel-based named executive officers, is entitled to participate in an education fund plan, pursuant to which each employee who participates in the plan contributes an amount equal to 2.5% of his or her salary to the education fund and we contribute 7.5% of his or her salary up to the maximum amount exempted from tax (currently contribution from a monthly salary of NIS15,712). In addition, the Company pays directly to the employee via his or her salary or as additional contribution to the education fund, per the employee’s choice, 7.5% of the portion of the employee’s salary which exceeds the aforesaid maximum salary exempt from tax.
Shareholder-approved Compensation Philosophy
At our 2016 annual general meeting held on May 9, 2016, our shareholdersre-approved our Compensation Philosophy for our office holders, which addresses certain items prescribed by the Companies Law. Our compensation committee reviews its Compensation Philosophy annually and reserves the discretion to amend it from time to time. Regardless of whether the compensation committee amends the Compensation Philosophy or not, pursuant to the Companies Law, our Compensation Philosophy must generally be approved by the board of directors (after considering the recommendations of the compensation committee) and the shareholders every three years.
Tax Considerations
Section 162(m) of the U.S. Internal Revenue Code establishes a limitation on the deductibility of compensation payable in any particular tax year to our named executive officers. Section 162(m) provides that publicly-held companies cannot deduct compensation paid to certain named executive officers (other than, prior to the Tax Cuts and Jobs Act of 2017, our CFO) to the extent that such compensation exceeds $1 million per officer. Prior to the Tax Cuts and Jobs Act of 2017, compensation that is “performance-based” compensation within the meaning of Section 162(m) did not count toward the $1 million limit. As part of the Tax Cuts and Jobs Act of 2017, the ability to rely on this “qualified performance-based compensation” exception was eliminated and the limitation on deductibility was generally expanded to include all NEOs. Historically, the deductibility of compensation under Section 162(m) has not been a factor in the compensation committee’s compensation determination process and as a result of the Tax Cuts and Jobs Act of 2017, subject to the Act’s grandfathering rules, the Company may no longer take a deduction for any compensation paid to its NEOs in excess of $1 million.
Other Policies
Share Ownership and Holding Policy. Effective as of our 2015 annual general meeting of shareholders, each of our executive officers became subject to a policy that he or she hold shares of the Company with an aggregate value of at least three times his or her annual salary by the fifth anniversary that he or she became subject to the policy. Our named executive officers have until February 24, 2020 to comply with this policy. On January 31, 2017, the compensation committee and board of directors adopted amendments to the share ownership policy that adopted holding requirements: executive officers and directors who are subject to share ownership requirements and who have not attained the minimum ownership level in the allotted period, shall retain the lesser of (i) twenty five percent (25%) of the gross number of shares acquired upon an exercise, vesting or settlement or (ii) fifty percent (50%) of the number of shares remaining after satisfying the exercise price, if any, and tax withholding requirements.
Clawback Policy. In addition, pursuant to our Compensation Philosophy, our executives are required to repay to us any excess payments, including cash and equity, made to them that were based on the Company’s performance if such payments were paid based on false and restated financial statements of the Company.
Reconciliation of GAAP Net Income (Loss) toNon-GAAP Net Income
Year Ended December 31, | ||||||||
2017 | 2016 | |||||||
Reconciliation of GAAP net income (loss) tonon-GAAP: | ||||||||
GAAP net income | $ | (19,425 | ) | $ | 18,518 | |||
Adjustments: | ||||||||
Share-based compensation expense: | ||||||||
Cost of revenues | 2,000 | 2,375 | ||||||
Research and development | 40,278 | 40,474 | ||||||
Sales and marketing | 15,693 | 15,183 | ||||||
General and administrative | 10,893 | 13,086 | ||||||
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Total share-based compensation expense | 68,864 | 71,118 | ||||||
Amortization of acquired intangibles: | ||||||||
Cost of revenues | 42,482 | 48,119 | ||||||
Research and development | 779 | 781 | ||||||
Sales and marketing | 8,919 | 7,713 | ||||||
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Total amortization of acquired intangibles | 52,180 | 56,613 | ||||||
Settlement costs : | ||||||||
General and administrative | — | 4,981 | ||||||
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Total settlement costs | — | 4,981 | ||||||
Acquisition and other charges: | ||||||||
Cost of revenues | — | 8,261 | ||||||
Research and development | 734 | 1,834 | ||||||
Sales and marketing | 141 | 206 | ||||||
General and administrative | 1,794 | 6,844 | ||||||
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Total acquisition and other charges | 2,669 | 17.145 | ||||||
Restructuring and related charges | 12,019 | — | ||||||
Tax effects and adjustments | 250 | 1,086 | ||||||
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Non-GAAP net income | $ | 116,557 | $ | 169,461 | ||||
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REPORT OF THE COMPENSATION COMMITTEE
Our compensation committee reviews and recommends our programs, policies and practices relating to the compensation and benefits of our officers and employees. Our compensation committee, in consultation with our CEO (other than with respect to his own compensation) and our Board, decides how much cash compensation should be part of each of our officer’s total compensation by obtaining global market survey data and, for most named executive officers, benchmarking to a peer group of companies, and considering the relative importance of short-term incentives. In addition, our compensation committee, in consultation with our CEO (other than with respect to his own compensation), makes recommendations to our Board regarding equity-based compensation to align the interests of our management with shareholders, considering each named executive officer’s equity holdings. Our compensation committee also manages approvals and processes equity awards under our equity incentive plans. Under the Companies Law and subject to its provisions, compensation for officers (other than directors and our CEO) is required to be approved by the compensation committee and the board of directors. Compensation for our CEO and our director compensation program are required to be approved by the shareholders, following the approval by the compensation committee and the board of directors. Our compensation committee annually reviews and evaluates our incentive compensation plans. All members of our compensation committee are independent under the sections titledapplicable rules and regulations of the SEC, Nasdaq and the U.S. Internal Revenue Service.
Our compensation committee has reviewed and discussed the Compensation Discussion and Analysis, for the year ended December 31, 2017 with management. In reliance on the reviews and discussion referred to above, our compensation committee recommended to our Board that the Compensation Discussion and Analysis be included in the Annual Report onForm 10-K, as amended, for the year ended December 31, 2017, as filed with the SEC.
The foregoing report is provided by the undersigned members of our compensation committee.
Amal Johnson, Chair Dov Baharav Glenda Dorchak |
The Report of the Compensation Committee is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
EXECUTIVE COMPENSATION TABLES
2017 Summary Compensation Table
The following table summarizes the compensation awarded to, earned by, or paid to each named executive officer for the years ended December 31, 2017, 2016 and 2015.
Name and Principal Position | Year | Salary ($) | Bonus ($)(1) | Stock Awards ($)(2) | All Other Compensation ($) | Total ($)(1) | ||||||||||||||||||
Eyal Waldman(7) | 2017 | 604,072 | — | 4,585,500 | 234,988 | (3) | 5,437,679 | |||||||||||||||||
President & Chief | 2016 | 557,819 | 270,000 | 4,149,000 | 221,325 | 5,198,144 | ||||||||||||||||||
Executive Officer | 2015 | 515,000 | 300,000 | 3,864,800 | 203,765 | 4,883,565 | ||||||||||||||||||
Jacob Shulman | 2017 | 337,500 | — | 764,250 | 11,348 | (4) | 1,113,098 | |||||||||||||||||
Chief Financial | 2016 | 293,750 | 100,000 | 696,000 | 10,759 | 1,100,509 | ||||||||||||||||||
Officer | 2015 | 275,000 | 70,000 | 628,425 | 11,681 | 985,106 | ||||||||||||||||||
Marc Sultzbaugh | 2017 | 365,000 | 30,000 | 866,150 | 43,055 | (5) | 1,304,205 | |||||||||||||||||
Senior Vice President | 2016 | 337,500 | 100,000 | 928,000 | 78,145 | 1,443,645 | ||||||||||||||||||
of Worldwide Sales | 2015 | 300,000 | 150,000 | 837,900 | 73,291 | 1,361,191 | ||||||||||||||||||
Michael Kagan(7) | 2017 | 264,680 | 50,000 | 866,150 | 58,670 | (6) | 1,189,500 | |||||||||||||||||
Chief Technology | 2016 | 229,375 | 100,000 | 742,400 | 56,224 | 1,127,999 | ||||||||||||||||||
Officer | 2015 | 215,807 | 75,000 | 733,163 | 53,471 | 1,002,441 |
(1) | These amounts reflect bonuses earned in each fiscal year and paid in the subsequent fiscal year as approved by the compensation committee and the board of directors subject to, in the case of our CEO, approval by our shareholders. |
(2) | Amounts shown in this column represent the aggregate grant date fair value of restricted share units granted, as calculated under FASB ASC Topic 718. The valuation assumptions used in determining such amounts are described in Note 10 to our consolidated financial statements included in our Annual Report on Form10-K for the fiscal year ended December 31, 2017. |
(3) | Includes $50,252 contributed to a severance fund, which is mandated by Israeli law, $45,158 in tax related reimbursements, $45,827 in housing and housing-related expense reimbursements, $39,358 contributed to an employee education fund on behalf of Mr. Waldman, $36,835 contributed to a retirement fund on behalf of Mr. Waldman, $12,708 for automobile related expenses pursuant to the company’s automobile leasing program, $3,156 for 401(k) plan matching contribution, $939 for a recuperation fund, which is required under Israeli law, $531 for Company events and Company cell phone, and $224 in the value of the cash cards given to all Israeli employees for the holidays. |
(4) | Includes 401(k) plan matching contribution of $10,800 and $548 in the value of the cash card given to all US employees for the holidays. |
(5) | Includes housing and housing-related expense reimbursements of $17,220, tax related reimbursements of $12,029, 401(k) plan matching contribution of $10,800, automobile related expense reimbursements of $2,458 and $548 in the value of the cash card given to all US employees for the holidays. |
(6) | Includes $21,376 contributed to a severance fund, which is mandated by Israeli law, $19,246 contributed to an employee education fund on behalf of Mr. Kagan, $15,140 contributed to a retirement fund on behalf of Mr. Kagan, $1,051 for a recuperation fund, $918 for Company events and Company cell phone, $596 of transportation benefits, and $343 in the value of the cash cards given to all Israeli employees for the holidays. |
(7) | Amounts reported for Messrs. Waldman and Kagan in 2017, other than bonuses, are converted from New Israeli Shekels to U.S. dollars using the 2017 average exchange rate of 3.57 New Israeli Shekels to 1 U.S. dollar. Amounts reported for Messrs. Waldman and Kagan in 2016, other than bonuses, are converted from New Israeli Shekels to U.S. dollars using the 2016 average exchange rate of 3.83 New Israeli Shekels to 1 U.S. dollar. Amounts reported for Messrs. Waldman and Kagan in 2015, other than bonuses, are converted from New Israeli Shekels to U.S. dollars using the 2015 average exchange rate of 3.89 New Israeli Shekels to 1 U.S. dollar. |
2017 Grants of Plan-Based Awards
The table below sets forth information regarding grants of plan-based awards made to our named executive officers during the year ended December 31, 2017.
Name | Grant Date | All Other Stock Awards: Number of Shares of Stock or Units (#)(1) | Grant Date Fair Value of Stock and Option Awards ($)(2) | |||||||||
Eyal Waldman | 4/25/2017 | 90,000 | 4,585,500 | |||||||||
Jacob Shulman | 4/25/2017 | 15,000 | 764,250 | |||||||||
Marc Sultzbaugh | 4/25/2017 | 17,000 | 866,150 | |||||||||
Michael Kagan | 4/25/2017 | 17,000 | 866,150 |
(1) | All restricted share units vest with respect to 12/48th of the original number of ordinary shares subject thereto on May 1, 2018 and thereafter at a rate of 3/48th of the original number of shares on the first day of each quarterly vesting period of May, August, November, and February, commencing on August 1, 2018, with the last 3/48ths of the original number of shares vesting on May 1, 2021, subject to continued employment with the Company. |
(2) | Represents the grant date fair value of restricted share units granted in 2017 calculated in accordance with the provisions of FASB ASC Topic 718. |
2017 Outstanding Equity Awards at FiscalYear-End Table
The following table provides information on the stock options and restricted share units held by each of our named executive officers as of December 31, 2017.
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
Name | Vesting Commencement Date | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Option Exercise Price ($) | Option Expiration Date | Vesting Commencement Date | Number of Shares or Units of Stock that Have Not Vested | Market Value of Shares or Units of Stock that Have Not Vested ($)(5) | ||||||||||||||||||||||||
Eyal Waldman | 5/1/2014 | (1) | 5,000 | 323,500 | ||||||||||||||||||||||||||||
5/1/2015 | (2) | 30,000 | 1,941,000 | |||||||||||||||||||||||||||||
5/1/2016 | (3) | 62,500 | 4,043,750 | |||||||||||||||||||||||||||||
5/1/2017 | (4) | 90,000 | 5,823,000 | |||||||||||||||||||||||||||||
Jacob Shulman | 4/22/2009 | 12,590 | — | 10.23 | 4/22/2019 | |||||||||||||||||||||||||||
5/1/2014 | (1) | 1,250 | 80,875 | |||||||||||||||||||||||||||||
5/1/2015 | (2) | 5,062 | 327,511 | |||||||||||||||||||||||||||||
5/1/2016 | (3) | 9,375 | 606,563 | |||||||||||||||||||||||||||||
5/1/2017 | (4) | 15,000 | 970,500 | |||||||||||||||||||||||||||||
Marc Sultzbaugh | 12/26/2008 | 1,739 | — | 8.23 | 12/26/2018 | |||||||||||||||||||||||||||
4/22/2009 | 85,317 | — | 10.23 | 4/22/2019 | ||||||||||||||||||||||||||||
5/1/2014 | (1) | 1,500 | 97,050 | |||||||||||||||||||||||||||||
5/1/2015 | (2) | 6,750 | 436,725 | |||||||||||||||||||||||||||||
5/1/2016 | (3) | 12,500 | 808,750 | |||||||||||||||||||||||||||||
5/1/2017 | (4) | 17,000 | 1,099,900 | |||||||||||||||||||||||||||||
Michael Kagan | ||||||||||||||||||||||||||||||||
5/1/2014 | (1) | 1,250 | 80,875 | |||||||||||||||||||||||||||||
5/1/2015 | (2) | 5,906 | 382,118 | |||||||||||||||||||||||||||||
5/1/2016 | (3) | 10,000 | 647,000 | |||||||||||||||||||||||||||||
5/1/2017 | (4) | 17,000 | 1,099,900 |
(1) | Restricted share units with a vesting commencement date of May 1, 2014 vest with respect to 12/48ths of the original number of ordinary shares subject thereto on May 1, 2015 and thereafter at a rate of 3/48th of the original number of shares on the first day of each quarterly period of May, August, November, and February, commencing on August 1, 2015, with the last 3/48thsof the original number of shares vesting on May 1, 2018, subject to continued service on each applicable vesting date. |
(2) | Restricted share units with a vesting commencement date of May 1, 2015 vest with respect to 12/48thsof the original number of ordinary shares subject thereto on May 1, 2016 and thereafter at a rate of 3/48th of the original number of shares on the first day of each quarterly vesting period of May, August, November, and February, commencing on August 1, 2016, with the last 3/48thsof the original number of shares vesting on May 1, 2019, subject to continued service on each applicable vesting date. |
(3) | Restricted share units with a vesting commencement date of May 1, 2016 vest with respect to 12/48ths of the original number of ordinary shares subject thereto on May 1, 2017 and thereafter at a rate of 1/16th of the original number of shares on the first day of each quarterly vesting period of May, August, November, and February, commencing on August 1, 2017, with the last 3/48thsof the original number of shares vesting on May 1, 2020, subject to continued service on each applicable vesting date. |
(4) | Restricted share units with a vesting commencement date of May 1, 2017 vest with respect to 12/48ths of the original number of ordinary shares subject thereto on May 1, 2018 and thereafter at a rate of 3/48th of the original number of shares on the first day of each quarterly vesting period of May, August, November, and February, commencing on August 1, 2018, with the last 3/48thsof the original number of shares vesting on May 1, 2021, subject to continued service on each applicable vesting date. |
(5) | Amounts are calculated by multiplying the number of units shown by $64.70 per share, which was the closing price of our ordinary shares on December 29, 2017. |
2017 Option Exercises and Share Vested Table
The following table summarizes the share option exercises by our named executive officers in 2017 and RSU awards that vested during 2017.
Option Awards | Share Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(1) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(2) | ||||||||||||
Eyal Waldman | 130,972 | 5,066,599 | 71,563 | 3,337,132 | ||||||||||||
Jacob Shulman | 2,579 | 107,467 | 12,062 | 565,146 | ||||||||||||
Marc Sultzbaugh | — | — | 15,875 | 739,838 | ||||||||||||
Michael Kagan | 22,793 | 880,441 | 13,249 | 617,221 |
(1) | Represents the difference between the option exercise price and the market price of the underlying shares at exercise multiplied by the number of shares covered by the exercised option. |
(2) | Represents the vesting date closing market price of our ordinary shares multiplied by the number of RSUs that vested. |
Pension Benefits
None of our named executive officers participate in or have account balances in qualified ornon-qualified defined benefit plans sponsored by us.
Nonqualified Deferred Compensation
None of our named executives participate in or have account balances innon-qualified defined contribution plans or other deferred compensation plans maintained by us.
Potential Payments Upon Termination Following a Change in Control
The following table sets forth quantitative estimates of the benefits to be received by each of our named executive officers under the executive severance benefits agreements described under “Compensation Discussion and Analysis,Analysis—Change in Control Severance Arrangements,” “Executive Compensation Tables,if his employment were terminated without cause or constructively terminated (as these terms are defined in the executive severance benefits agreements) on December 31, 2017, assuming that such termination occurred during the12-month period following a change in control (as such term is defined in the executive severance benefits agreements) of our Company. Such benefits are in addition to any payments or other benefits that our employees, including our named executive officers, who reside in Israel may be entitled to receive under applicable Israeli law. For more information, see “Compensation Discussion and Analysis—Change in Control Severance Arrangements.” “Director
Name | Salary Continuation ($) | COBRA Coverage ($) | Israeli Severance and Benefits ($)(1) | Value of Accelerated Equity Awards ($)(2) | Total ($) | |||||||||||||||
Eyal Waldman | 380,193 | — | 821,855 | 6,065,625 | 7,267,673 | |||||||||||||||
Jacob Shulman | 210,000 | 23,833 | — | 992,725 | 1,226,558 | |||||||||||||||
Marc Sultzbaugh | 222,000 | 23,833 | — | 1,221,213 | 1,467,046 | |||||||||||||||
Michael Kagan | 166,682 | — | 469,612 | 1,104,947 | 1,741,241 |
(1) | Includes severance pay and benefits in accordance with Israeli law. The executives are also entitled to such payments and benefits upon retirement, death or termination without cause (as defined in the Israeli Severance Pay Law) not in connection with a change in control. |
(2) | The value of accelerated equity awards is calculated based on the closing price of our common stock on December 29, 2017, which was $64.70 per share. |
Additionally, under the Company’s Global Share Incentive Plan, in the event of a change in control of the Company, each outstanding award will be assumed or substituted by the successor corporation. If the successor corporation in a change in control refuses to assume or substitute an outstanding award, the award will vest in full. Assuming that a change in control occurred as of December 31, 2017 and that the outstanding awards were not assumed or substituted, the value of the accelerated equity awards for Messrs. Waldman, Shulman, Sultzbaugh and Kagan would be $12,131,250, $1,985,450, $2,442,426 and $2,209,894.
Pay Ratio Disclosure
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of RegulationS-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Waldman, our CEO. For 2017, our last completed fiscal year, the total compensation in 2017 of our CEO was approximately 43.5 times the median total compensation in 2017 of all of our other employees (the “Pay Ratio”). The median of the annual total compensation of all employees of our Company (other than our CEO) was $124,654 and the annual total compensation of our CEO was $5,424,560. The Company chose October 1, 2017 as the date for establishing the employee population used in identifying the median employee and used January 1, 2017 through September 30, 2017 as the measurement period. We identified the median employee using the sum of base salary or wages (based on our payroll records) earned, annual bonus actually paid, and grant date fair value of RSUs approved by the compensation committee during the measurement period for each employee (U.S. andnon-U.S.) employed as of October 1, 2017. Permanent employees who joined in 2017 and permanent employees who were on leave during 2017 were assumed to have worked for the entire measurement period. We captured all full-time, part-time, seasonal and temporary employees located in the U.S., Israel, China and Denmark as of October 1, 2017, consisting of approximately 2,566 individuals, with approximately 17% of these individuals located in the U.S., approximately 77% located in Israel, and approximately 6% located in China and Denmark. As permitted by SEC rules, under the 5% “de minimis” exemption, we excluded 100non-U.S. employees, as described in further detail below. Earnings of our employees outside the U.S. were converted to U.S. dollars using the currency exchange rate as of September 30, 2017. Nocost-of-living adjustments were made. The annual total compensation of the median employee and the annual total compensation of the CEO were calculated in accordance with the requirements of Item 402(c)(2)(x) of RegulationS-K.
Thenon-U.S. excluded employees and their employee populations are as follows: Japan (9 employees); Netherlands (6 employees); Singapore (6 employees); Switzerland (1 employee); Taiwan (11 employees); U.K. (17 employees); Argentina (1 employee); Australia (5 employees); Czech Republic (2 employees); Greece (2 employees); India (5 employees); Indonesia (1 employee); Malaysia (2 employees); Norway (1 employee); Russia (14 employees); South Korea (3 employees); Thailand: (5 employees); Turkey (2 employees); and Canada (7 employees).
RISK ASSESSMENT AND COMPENSATION PRACTICES
Our management assessed and discussed with our compensation committee and board of directors the Company’s compensation policies and practices for our employees as they relate to our risk management and, based upon this assessment, we believe that any risks arising from such policies and practices are not reasonably likely to have a material adverse effect on the Company in the future.
Our employees’ base salaries are fixed in amount and thus we do not believe that they encourage excessive risk-taking. While performance-based cash bonuses and sales commissions focus on achievement of short-term andmid-term or annual goals, which may encourage the taking of short-term andmid-term risks at the expense of long-term results, we believe that our internal controls help mitigate this risk and our performance-based cash bonuses and sales commissions are limited, representing a small portion of the total compensation opportunities available to most employees. We also believe that our performance-based cash bonuses and sales commissions appropriately balance risk and the desire to focus our employees on specific short-term andmid-term goals important to our success and do not encourage unnecessary or excessive risk-taking.
A significant proportion of the compensation provided to our employees andnon-employee directors is in the form of long-term equity-based incentives that are important to help further align our employees’ and directors’ interests with those of our shareholders. We do not believe that these equity-based incentives encourage unnecessary or excessive risk taking because their ultimate value is tied to our share price. In addition, we generally stagger grants of equity-based awards and, in the case of employees, subject them to long-term vesting schedules to help ensure that employees have significant value tied to the long-term performance of our ordinary shares. Certain specified executive officers and ournon-employee directors are also subject to share ownership guidelines and holding requirements to further align our employees’ and directors’ interests with our shareholders’ interests.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Board has a standing compensation committee, the members of which are Amal Johnson, chair, Dov Baharav and Glenda Dorchak. None of the members of our compensation committee has at any time been one of our executive officers or employees. None of our executive officers currently serves, or in the past fiscal year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board or compensation committee.
DIRECTOR COMPENSATION
In October 2006, our Board adopted a compensation program fornon-employee directors which became effective on February 6, 2007 and was last amended at our 2017 annual general meeting of shareholders held on April 25, 2017. The current annual cash compensation amounts payable to eachnon-employee member of our Board for their annual board services are set forth in the table below:
Annual Fees | ||||
Board membership | $ | 45,000 | ||
Additional amounts, as applicable, payable to: | ||||
Chairperson of the Board | $ | 30,000 | ||
Chairperson of the audit committee | $ | 25,000 | ||
Chairperson of the compensation committee | $ | 15,000 | ||
Chairperson of the nominating and corporate governance committee | $ | 10,000 | ||
Chairperson of the technology, strategy and M&A committee | $ | 10,000 | ||
Member of the audit committee (other than chairperson) | $ | 10,000 | ||
Member of the compensation committee (other than chairperson) | $ | 7,400 | ||
Member of the nominating and corporate governance committee (other than chairperson) | $ | 5,000 | ||
Member of the technology, strategy and M&A committee (other than chairperson) | $ | 5,000 |
Ournon-employee directors are reimbursed for expenses incurred in connection with attending board and committee meetings, and are entitled to insurance, exemption and indemnification as customary for officers in the Company.
In addition to cash compensation, under the existing board compensation plan, each of ournon-employee directors receive an annual automatic,non-discretionary award of 4,200 restricted share units. Annual awards to ournon-employee directors who continue to serve as anon-employee director following the annual general meeting will typically be processed on the first day of the month following the date of each annual general meeting. The annual award vests, in equal monthly increments over the 12 months following the applicable annual general meeting and will be 100% vested on the12-month anniversary of the grant date, provided the director continues to serve as anon-employee director.
Our directors have a three-month period following cessation of service to our Company in which to exercise any outstanding vested options, except in the case of a director’s death or disability, in which case the options will be exercisable by the director or his or her estate or beneficiary for a12-month period following the cessation of services. Options and restricted share units granted to ournon-employee directors will fully vest and become immediately exercisable upon a change in control of our Company.
In addition, effective as of our 2015 annual general meeting of shareholders, each of ournon-employee directors became subject to a policy requiring that he or she hold shares of the Company in the value of at least three times his or her annual retainer fees. All ournon-employee directors have until February 2020 to comply with this policy. This policy is set forth in our Executive Officer and Director Share Ownership Policy and our Corporate Governance Guidelines. In January 2017, the board of directors also adopted a holding policy whereby, in the case that anon-employee director (or specified employee) does not hold the minimum share ownership by his or her fifth anniversary of becoming subject to the ownership policy, he or she will be required to retain the lesser of (i) twenty-five percent (25%) of the gross number of shares acquired upon an exercise, vesting or settlement or (ii) fifty percent (50%) of the number of shares remaining after satisfying the exercise price, if any, and tax withholding requirements.
The table below sets forth information regarding compensation provided by us to ournon-employee directors during the year ended December 31, 2017.
Director Compensation in Fiscal Year 2017” “Executive Officers”
Name | Fees Earned or Paid in Cash ($) | Share Awards ($)(1) | Total ($) | |||||||||
Dov Baharav | 71,175 | 213,990 | 285,165 | |||||||||
Shai Cohen | 49,500 | 213,990 | 263,490 | |||||||||
Glenda Dorchak | 61,800 | 213,990 | 275,790 | |||||||||
Irwin Federman | 73,250 | 213,990 | 287,240 | |||||||||
Amal Johnson | 65,000 | 213,990 | 278,990 | |||||||||
David Perlmutter | 56,250 | 213,990 | 270,240 | |||||||||
Thomas Riordan | 61,250 | 213,990 | 275,240 | |||||||||
Thomas Weatherford | 65,875 | 213,990 | 279,865 |
(1) | Amounts shown in this column represent the fair value of restricted share units granted on April 25, 2017. The fair value of the restricted share units is based on the closing market price of our ordinary shares on the grant date, as calculated under FASB ASC Topic 718. |
The aggregate number of ordinary shares subject to outstanding options and “Corporate Governance and Boardrestricted share units awards for each of Director Matters” andour directors as of December 31, 2017 is incorporated in this report by reference.
Name | Shares Subject to Outstanding Options as of 12/31/17 (#) | Shares Subject to Unvested Restricted Stock Units as of 12/31/17 (#) | ||||||
Dov Baharav | — | 1,750 | ||||||
Shai Cohen | — | 1,750 | ||||||
Glenda Dorchak | 34,142 | 1,750 | ||||||
Irwin Federman | — | 1,750 | ||||||
Amal Johnson | 11,428 | 1,750 | ||||||
David Perlmutter | 45,000 | 1,750 | ||||||
Thomas Riordan | 21,428 | 1,750 | ||||||
Thomas Weatherford | — | 1,750 |
Equity Compensation Plan Information
The following table provides certain information requiredwith respect to all of our equity compensation plans in effect as of December 31, 2017.
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights ($) (b)(1) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) | |||||||||
Equity compensation plans approved by security holders(2) | 4,524,766 | (3) | 38.35 | 757,786 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Total | 4,524,766 | 38.35 | 757,786 | |||||||||
|
|
|
|
|
|
(1) | Reflects weighted average price of options only. |
(2) | Consists of the Second Amended and Restated Global Share Incentive Plan (2006), the Global Share Incentive Assumption Plan (2010), the Kotura, Inc. Second Amended and Restated 2003 Stock Plan, the IPtronics, Inc. 2013 Restricted Stock Unit Plan, the EZchip Semiconductor Ltd. 2003 Amended and Restated Equity Incentive Plan, the EZchip Semiconductor Ltd. 2007 U.S. Equity Incentive Plan, and the Amended and Restated EZchip Semiconductor Ltd. 2009 Equity Incentive Plan. |
(3) | Consists of 1,110,061 options and 3,414,705 restricted share units. |
Security Ownership of Certain Beneficial Owners and Management
The following table provides information relating to the beneficial ownership of our ordinary shares as of March 31, 2018, by:
Beneficial ownership is determined according to the sections titled “Compensation Discussionrules of the SEC and Analysis,” “Executive Compensation Tables,” “Security Ownership,” “Executive Officers”generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power of that security, and “Corporate Governanceincludes options that are currently exercisable or exercisable within 60 days of March 31, 2018. Except as indicated by footnote, and Board of Director Matters”subject to community property laws where applicable, we believe the persons named in the table have sole voting and investment power with respect to all ordinary shares shown as beneficially owned by them.
Unless otherwise indicated below, the address for each beneficial owner listed is incorporated in this report by reference.
Beneficial Ownership | ||||||||||||||||||||
Name of Beneficial Owner | Ordinary Shares | Options Exercisable within 60 Days | Restricted share Units Vesting or Settled within 60 Days | Shares Beneficially Owned | Percentage of Shares Outstanding(1) | |||||||||||||||
5% Shareholders: | ||||||||||||||||||||
Starboard Value LP(2) | 5,466,621 | — | — | 5,466,621 | 10.5 | % | ||||||||||||||
777 Third Avenue, 18th Floor New York, New York 10017 | ||||||||||||||||||||
Capital Research Global Investors(3) | 3,811,933 | — | — | 3,811,933 | 7.3 | % | ||||||||||||||
333 South Hope Street Los Angeles, CA 90071 | ||||||||||||||||||||
DNB Asset Management AS(4) | 2,749,192 | — | — | 2,749,192 | 5.3 | % | ||||||||||||||
Dronning Aufemias Gate 30, ByggM-12N 0191 Oslo, Norway | ||||||||||||||||||||
Executive Officers, Directors and Nominees for Director: | ||||||||||||||||||||
Eyal Waldman(5) | 1,747,500 | — | — | 1,747,500 | 3.4 | % | ||||||||||||||
Shai Cohen | 33,232 | — | 350 | 33,582 | * | |||||||||||||||
Michael Kagan | 143,720 | — | — | 143,720 | * | |||||||||||||||
Marc Sultzbaugh | 22,357 | 87,056 | — | 109,413 | * | |||||||||||||||
Thomas J. Riordan | 24,500 | 21,428 | 350 | 46,278 | * | |||||||||||||||
Irwin Federman | 12,500 | — | 350 | 12,850 | * | |||||||||||||||
Jacob Shulman | 10,286 | — | — | 10,286 | * | |||||||||||||||
Amal M. Johnson | 27,500 | 11,428 | 350 | 39,278 | * | |||||||||||||||
Glenda Dorchak | 12,000 | 29,142 | 350 | 41,492 | * | |||||||||||||||
Thomas Weatherford | 9,917 | — | 350 | 10,267 | * | |||||||||||||||
David Perlmutter | 12,500 | 45,000 | 350 | 57,850 | * | |||||||||||||||
Dov Baharav | 6,668 | — | 350 | 7,018 | * | |||||||||||||||
Umesh Padval | 350 | — | 350 | 700 | * | |||||||||||||||
Steve Sanghi | 350 | — | 350 | 700 | * | |||||||||||||||
All executive officers and directors as a group (14 persons) | 2,063,380 | 194,054 | 3,500 | 2,260,934 | 4.3 | % |
* | Represents beneficial ownership of less than one percent (1%) of the outstanding ordinary shares. |
(1) | The applicable percentage ownership for members of our Board and named executive officers is based on 52,159,490 ordinary shares outstanding as of March 31, 2018, together with applicable options and restricted share units for such shareholder. The applicable percentage ownership for the other beneficial owners listed in the table is based on the number of outstanding shares as of the dates indicated in the relevant Schedules 13D and 13G filings described in footnotes 2 through 4 below. Beneficial ownership is determined in accordance with the rules of the SEC, based on factors including voting and investment power with respect to shares. Ordinary shares subject to the options currently exercisable, or |
exercisable within 60 days of March 31, 2018, and ordinary shares underlying restricted share units that vest within 60 days of March 31, 2018 are deemed outstanding for computing the percentage ownership of the person holding such options but are not deemed outstanding for computing the percentage ownership of any other person. |
(2) | This information is as of March 13, 2018 and is based on the Schedule 13D/A filed with the SEC on March 13, 2018 by Starboard Value LP (“Starboard”). Starboard may be deemed to be the beneficial owner and has sole voting and dispositive power of the (i) 3,758,713 ordinary shares owned by Starboard Value and Opportunity Master Fund LTD, (ii) 440,135 ordinary shares owned by Starboard Value and Opportunity S LLC, (iii) 247,597 ordinary shares owned by Starboard Value and Opportunity C LP, (iv) 456,609 ordinary shares owned by Starboard Leaders Papa LLC and (v) 563,567 ordinary shares held in the Starboard Value LP Account. |
(3) | This information is as of December 29, 2017 and is based on the Schedule 13G filed with the SEC on February 14, 2017 by Capital Research Global Investors (“Capital Research”). Capital Research is the beneficial owner and has sole voting and dispositive power of the 3,811,933 ordinary shares owned by Capital Research. |
(4) | This information is as of December 31, 2017 and is based on the Schedule 13G filed with the SEC on February, 13, 2018 by DNB Asset Management AS (“DNB”). DNB is the beneficial owner and has sole voting and dispositive power of the 2,749,192 ordinary shares owned by DNB. |
(5) | Includes 1,426,041 ordinary shares held by Waldo Holdings 2, a general partnership formed pursuant to the laws of Israel, of which Mr. Waldman is a general partner. Mr. Waldman has sole voting and dispositive power over all of these shares. |
Certain Relationships and Related Transactions
In our last fiscal year, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or are to be a party in which the amount involved exceeds $120,000 and in which any of our directors, executive officers, holders of more than 5% of our ordinary shares or any members of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest.
Our audit committee reviews and, where required, approves related party transactions on an ongoing basis as required by this itemthe Companies Law and the regulations promulgated thereunder and as required by Nasdaq Listing Rules. Under the Companies Law, our audit committee must approve specified actions and transactions with office holders and controlling shareholders or in which an office holder or controlling shareholder has a Personal Interest. The audit committee is also required to determine whether any such action is material and whether any such transaction is an extraordinary transaction ornon-negligible transaction, for the purpose of approving such action or transaction as required by the Companies Law. Under the Companies Law, a “controlling shareholder” is a shareholder who has the ability to direct the Company’s activity, excluding an ability deriving merely from holding an office of director or another office in the Company, and a person will be set forthpresumed to control the Company if he holds 50% or more of (i) our voting rights or (ii) the rights to appoint our directors or general managers. For the purpose of “transactions with an interested party,” the Companies Law definition also includes a shareholder that owns 25% or more of the voting rights in the Proxy Statementgeneral meeting of the Company, if there is no other person who holds more than 50% of the voting rights in the Company. Two or more persons holding voting rights in the Company each of which has a Personal Interest in the approval of the transaction being brought for approval of the Company will be considered to be joint holders. The Company is not currently aware of any controlling shareholder, as such term is defined in the Companies Law.
Director Independence
The board of directors currently consists of eleven directors. Our Corporate Governance Guidelines require that our Board be comprised of a majority of directors who qualify as independent directors as required under the section titled “Corporate Governancerules of Nasdaq. Our Board has determined that each of our current directors other than Mr. Waldman, our president and BoardCEO, and Mr. Cohen, our former chief operating officer, is independent under the director independence standards of Directors Matters” and is incorporated in this report by reference.
Audit andNon-Audit
Subject to shareholder approval of the audit committee’s authority to determine remuneration for their services, the audit committee is directly responsible for the appointment, compensation and oversight of our independent auditors. In addition to its retention of EY Israel to audit our consolidated financial statements for the fiscal year ended 2017, the audit committee retained EY Israel to provide othernon-audit and advisory services in 2017. The informationaudit committee has reviewed allnon-audit services provided by EY Israel in 2017 and has concluded that the provision of suchnon-audit services was compatible with maintaining EY Israel’s independence and that such independence has not been impaired.
Set forth below are the aggregate fees billed for professional services rendered for the fiscal year ended December 31, 2017 by EY Israel and the aggregate fees billed for professional services rendered for the fiscal year ended December 31, 2016 by PricewaterhouseCoopers LLP (“PwC”).
Fiscal Year Ended December 31, | ||||||||
Service Category | 2017 | 2016 | ||||||
EY Israel | PwC | |||||||
Audit Fees | $ | 705,000 | $ | 1,900,000 | ||||
Audit-Related Fees | 69,676 | 195,300 | ||||||
Tax Fees | 53,428 | 362,000 | ||||||
All Other Fees | 34,200 | 48,897 | ||||||
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Total | $ | 862,304 | $ | 2,506,197 | ||||
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In the above table, in accordance with the SEC’s definitions and rules, “audit fees” are fees for professional services for the audit and review of our annual consolidated financial statements, as well as fees for issuance of consents and for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements except those not required by this item will be set forthstatute or regulation; “audit-related fees” are fees for assurance and related services that were reasonably related to the performance of the audit or review of our financial statements, including attestation services that are not required by statute or regulation, due diligence and any services related to acquisitions; “tax fees” are fees for tax compliance, tax advice and tax planning; and “all other fees” are fees for any services not included in the Proxy Statement underfirst three categories.
The Sarbanes-Oxley Act of 2002 and the section titled “Audit Matters”auditor independence rules of the SEC require all issuers to obtainpre-approval from their respective audit committees in order for their independent registered public accounting firms to provide professional services without impairing independence. As such, the audit committee has a policy and has established procedures by which itpre-approves all audit and other permitted professional services to be provided by the Company’s independent registered public accounting firm. From time to time, the Company may desire additional permitted professional services for which specificpre-approvalis incorporated in this report by reference.
PART IV
(a) Documents filed as part of this report.
1.
Financial Statements. The2.
Financial Statement Schedules.3.
Exhibits. See Item 15(b) below. Each management contract or compensatory plan or arrangement required to be filed has been identified.(b) Exhibits.
INDEX TO EXHIBITS
Exhibit No. | Description of Exhibit | ||||
2.1 | (1) | ||||
2.2 | (2) | ||||
3.1 | (3) | ||||
10.1 | (4) | * | |||
10.2 | (5) | * | |||
10.3 | (6) | * | |||
10.4 | (7) | * | |||
10.5 | (8) | * | |||
10.6 | (9) | * | |||
10.7 | (10) | * | |||
10.8 | (11) | * | |||
10.9 | (12) | * | |||
10.10 | (13) | * | |||
10.11 | (14) | * | |||
10.12 | (15) | * | |||
10.13 | (16) | * | |||
10.14 | (17) | * | |||
10.15 | (18) | * | |||
10.16 | (19) | * | |||
10.17 | (20) | * | |||
10.18 | (21) | ||||
10.19 | (22) | ||||
10.20 | † | ||||
10.21 | † | ||||
21.1 | |||||
23.1 | |||||
23.2 | |||||
24.1 | |||||
31.1 | |||||
31.2 | |||||
32.1 | |||||
32.2 | |||||
101.INS | XBRL Instance Document | ||||
101.SCH | XBRL Taxonomy Extension Schema Document | ||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
(1) | Incorporated by reference to Exhibit 2.1 to the |
(2) | Incorporated by reference to Exhibit 2.1 to the Company’s Current Report onForm 8-K (SEC FileNo. 001-33299) filed on November 17, 2015. |
(3) | Incorporated by reference to Exhibit 3.1 to the |
(4) | Incorporated by reference to Exhibit 3.2 to the |
(5) | Incorporated by reference to Appendix A to the |
(6) | Incorporated by reference to Exhibit 4.1 to the |
(7) | Incorporated by reference to Exhibit 10.2 to the |
(8) | Incorporated by reference to Exhibit 10.3 to the |
(9) | Incorporated by reference to Exhibit 10.4 to the |
(10) | Incorporated by reference to Exhibit 10.5 to the |
(11) | Incorporated by reference to Exhibit 4.2 to the |
(12) | Incorporated by reference to Exhibit 4.2 to the |
(13) | Incorporated by reference to Exhibit 10.1 to the |
(14) | Incorporated by reference to Exhibit 4.2 to the |
(15) | Incorporated by reference to Exhibit 4.3 to the |
(16) | Incorporated by reference to Exhibit 4.4 to the |
(17) | Incorporated by reference to Exhibit 4.5 to the |
(18) | Incorporated by reference to Exhibit 4.6 to the |
(19) | Incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the |
(20) | Incorporated by reference to Exhibit 10.13 to Amendment No. 1 to the |
(21) | Incorporated by reference to Exhibit 10.17 to the |
(22) | Incorporated by reference to Exhibit 10.1 to the |
(23) | Incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form10-K (SEC FileNo. 001-33299) filed on February 16, 2018. |
(24) | Incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form10-K (SEC FileNo. 001-33299) filed on February 16, 2018. |
(25) | Incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form10-K (SEC FileNo. 001-33299) filed on February 16, 2018. |
(26) | Incorporated by reference to Exhibit 23.1 to the Company’s Annual Report on Form10-K (SEC FileNo. 001-33299) filed on February 16, 2018. |
(27) | Incorporated by reference to Exhibit 23.2 to the Company’s Annual Report on Form10-K (SEC FileNo. 001-33299) filed on February 16, 2018. |
(28) | Incorporated by reference to Exhibit 24.1 to the Company’s Annual Report on Form10-K (SEC FileNo. 001-33299) filed on February 16, 2018. |
(29) | Incorporated by reference to Exhibit 31.1 to the Company’s Annual Report on Form10-K (SEC FileNo. 001-33299) filed on February 16, 2018. |
(30) | Incorporated by reference to Exhibit 31.2 to the Company’s Annual Report on Form10-K (SEC FileNo. 001-33299) filed on February 16, 2018. |
(31) | Incorporated by reference to Exhibit 32.1 to the Company’s Annual Report on Form10-K (SEC FileNo. 001-33299) filed on February 16, 2018. |
(32) | Incorporated by reference to Exhibit 32.2 to the Company’s Annual Report on Form10-K (SEC FileNo. 001-33299) filed on February 16, 2018. |
(33) | Incorporated by reference to Exhibit 101.INS to the Company’s Annual Report on Form10-K (SEC FileNo. 001-33299) filed on February 16, 2018. |
(34) | Incorporated by reference to Exhibit 101.SCH to the Company’s Annual Report on Form10-K (SEC FileNo. 001-33299) filed on February 16, 2018. |
(35) | Incorporated by reference to Exhibit 101.CAL to the Company’s Annual Report on Form10-K (SEC FileNo. 001-33299) filed on February 16, 2018. |
(36) | Incorporated by reference to Exhibit 101.LAB to the Company’s Annual Report on Form10-K (SEC FileNo. 001-33299) filed on February 16, 2018. |
(37) | Incorporated by reference to Exhibit 101.PRE to the Company’s Annual Report on Form10-K (SEC FileNo. 001-33299) filed on February 16, 2018. |
(38) | Incorporated by reference to Exhibit 101.DEF to the Company’s Annual Report on Form10-K (SEC FileNo. 001-33299) filed on February 16, 2018. |
* | Indicates management contract or compensatory plan, contract or arrangement. |
† | Filed herewith. |
December 31, | |||||||
2017 | 2016 | ||||||
(In thousands, except par value) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 62,473 | $ | 56,780 | |||
Short-term investments | 211,281 | 271,661 | |||||
Accounts receivable, net | 154,213 | 141,768 | |||||
Inventories | 64,657 | 65,523 | |||||
Other current assets | 14,295 | 17,346 | |||||
Total current assets | 506,919 | 553,078 | |||||
Property and equipment, net | 109,919 | 118,585 | |||||
Severance assets | 18,302 | 15,870 | |||||
Intangible assets, net | 228,195 | 278,031 | |||||
Goodwill | 472,437 | 471,228 | |||||
Deferred taxes and other long-term assets | 66,162 | 36,713 | |||||
Total assets | $ | 1,401,934 | $ | 1,473,505 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 59,090 | $ | 59,533 | |||
Accrued liabilities | 114,058 | 105,042 | |||||
Deferred revenue | 23,485 | 24,364 | |||||
Current portion of term debt | — | 23,628 | |||||
Total current liabilities | 196,633 | 212,567 | |||||
Accrued severance | 23,205 | 19,874 | |||||
Deferred revenue | 17,820 | 15,968 | |||||
Term debt | 72,761 | 218,786 | |||||
Other long-term liabilities | 34,067 | 30,580 | |||||
Total liabilities | 344,486 | 497,775 | |||||
Commitments and Contingencies (Note 9) | |||||||
Shareholders’ equity | |||||||
Ordinary shares: NIS 0.0175 par value, 200,000 shares authorized, 51,488 and 49,076 shares issued and outstanding at December 31, 2017 and 2016, respectively | 221 | 209 | |||||
Additional paid-in capital | 873,979 | 774,605 | |||||
Accumulated other comprehensive income (loss) | 1,618 | (928 | ) | ||||
Retained earnings | 181,630 | 201,844 | |||||
Total shareholders’ equity | 1,057,448 | 975,730 | |||||
Total liabilities and shareholders' equity | $ | 1,401,934 | $ | 1,473,505 |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(In thousands, except per share data) | |||||||||||
Total revenues | $ | 863,893 | $ | 857,498 | $ | 658,140 | |||||
Cost of revenues | 300,450 | 301,986 | 189,209 | ||||||||
Gross profit | 563,443 | 555,512 | 468,931 | ||||||||
Operating expenses: | |||||||||||
Research and development | 365,878 | 322,620 | 252,175 | ||||||||
Sales and marketing | 150,457 | 133,780 | 97,438 | ||||||||
General and administrative | 52,170 | 68,522 | 44,212 | ||||||||
Impairment of long-lived assets | 12,019 | — | — | ||||||||
Total operating expenses | 580,524 | 524,922 | 393,825 | ||||||||
Income (loss) from operations | (17,081 | ) | 30,590 | 75,106 | |||||||
Interest expense | (7,937 | ) | (7,352 | ) | — | ||||||
Other income (loss), net | 3,115 | 1,090 | (524 | ) | |||||||
Interest and other, net | (4,822 | ) | (6,262 | ) | (524 | ) | |||||
Income (loss) before taxes on income | (21,903 | ) | 24,328 | 74,582 | |||||||
Provision for (benefit from) taxes on income | (2,478 | ) | 5,810 | (18,312 | ) | ||||||
Net income (loss) | $ | (19,425 | ) | $ | 18,518 | $ | 92,894 | ||||
Net income (loss) per share — basic | $ | (0.39 | ) | $ | 0.38 | $ | 2.00 | ||||
Net income (loss) per share — diluted | $ | (0.39 | ) | $ | 0.37 | $ | 1.94 | ||||
Shares used in computing net income (loss) per share: | |||||||||||
Basic | 50,310 | 48,145 | 46,365 | ||||||||
Diluted | 50,310 | 49,526 | 47,778 |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(In thousands) | |||||||||||
Net income (loss) | $ | (19,425 | ) | $ | 18,518 | $ | 92,894 | ||||
Other comprehensive income, net of tax: | |||||||||||
Change in unrealized gains/losses on available-for-sale securities, net | 929 | 342 | (204 | ) | |||||||
Change in unrealized gains/losses on derivative contracts, net (net of tax effect of $105, $47, and $97) | 1,617 | 399 | 2,555 | ||||||||
Other comprehensive income | 2,546 | 741 | 2,351 | ||||||||
Total comprehensive income (loss), net of tax | $ | (16,879 | ) | $ | 19,259 | $ | 95,245 |
Accumulated | ||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||
Ordinary Shares | Paid-in | Comprehensive | Retained | Shareholders' | ||||||||||||||||||
Shares | Amount | Capital | Income (Loss) | Earnings | Equity | |||||||||||||||||
(In thousands, except share data) | ||||||||||||||||||||||
Balance at December 31, 2014 | 45,487,764 | $ | 192 | $ | 615,148 | $ | (4,020 | ) | $ | 90,432 | $ | 701,752 | ||||||||||
Net income | — | — | — | — | 92,894 | 92,894 | ||||||||||||||||
Unrealized losses on available-for-sale securities, net of taxes | — | — | — | (204 | ) | — | (204 | ) | ||||||||||||||
Unrealized gain on derivative contracts, net of taxes | — | — | — | 2,555 | — | 2,555 | ||||||||||||||||
Share-based compensation | — | — | 50,764 | — | — | 50,764 | ||||||||||||||||
Issuances of shares through employee equity incentive plans | 1,267,244 | 6 | 6,043 | — | — | 6,049 | ||||||||||||||||
Issuance of shares through employee share purchase plan | 364,746 | 2 | 12,816 | — | — | 12,818 | ||||||||||||||||
Income tax benefit from share options exercised | — | — | 53 | — | — | 53 | ||||||||||||||||
Balance at December 31, 2015 | 47,119,754 | $ | 200 | $ | 684,824 | $ | (1,669 | ) | $ | 183,326 | $ | 866,681 | ||||||||||
Net income | — | — | — | — | 18,518 | 18,518 | ||||||||||||||||
Unrealized gain on available-for-sale securities, net of taxes | — | — | — | 342 | — | 342 | ||||||||||||||||
Unrealized gains on derivative contracts, net of taxes | — | — | — | 399 | — | 399 | ||||||||||||||||
Share-based compensation | — | — | 66,309 | — | — | 66,309 | ||||||||||||||||
Issuances of shares through employee equity incentive plans | 1,463,884 | 7 | 5,083 | — | — | 5,090 | ||||||||||||||||
Issuance of shares through employee share purchase plan | 491,968 | 2 | 17,463 | — | — | 17,465 | ||||||||||||||||
Income tax benefit from share options exercised | — | — | (46 | ) | — | — | (46 | ) | ||||||||||||||
Fair value of awards attributable to pre-acquisition services | — | — | 972 | — | — | 972 | ||||||||||||||||
Balance at December 31, 2016 | 49,075,606 | $ | 209 | $ | 774,605 | $ | (928 | ) | $ | 201,844 | $ | 975,730 | ||||||||||
Net loss | — | — | — | — | (19,425 | ) | (19,425 | ) | ||||||||||||||
Unrealized gains on available-for-sale securities, net of taxes | — | — | — | 929 | — | 929 | ||||||||||||||||
Unrealized gains on derivative contracts, net of taxes | — | — | — | 1,617 | — | 1,617 | ||||||||||||||||
Share-based compensation | — | — | 68,864 | — | — | 68,864 | ||||||||||||||||
Issuances of shares through employee equity incentive plans | 1,843,168 | 9 | 7,633 | — | — | 7,642 | ||||||||||||||||
Issuance of shares through employee share purchase plan | 568,876 | 3 | 22,088 | — | — | 22,091 | ||||||||||||||||
Effect of adopting ASU 2016-09: Improvements to Employee Share-Based Payment Accounting | — | — | 789 | — | (789 | ) | — | |||||||||||||||
Balance at December 31, 2017 | 51,487,650 | $ | 221 | $ | 873,979 | $ | 1,618 | $ | 181,630 | $ | 1,057,448 |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(In thousands) | |||||||||||
Cash flows from operating activities: | |||||||||||
Net income (loss) | $ | (19,425 | ) | $ | 18,518 | $ | 92,894 | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 103,821 | 97,731 | 41,372 | ||||||||
Deferred income taxes | (2,150 | ) | 809 | (22,607 | ) | ||||||
Share-based compensation | 68,864 | 66,309 | 50,764 | ||||||||
Gains on short-term investments, net | (3,460 | ) | (1,774 | ) | (3,000 | ) | |||||
Impairment charges | 12,019 | — | 3,189 | ||||||||
Changes in assets and liabilities, net of effect of acquisitions: | |||||||||||
Accounts receivable, net | (12,175 | ) | (41,331 | ) | (19,351 | ) | |||||
Inventories | (887 | ) | 8,263 | (24,735 | ) | ||||||
Prepaid expenses and other assets | (681 | ) | 6,948 | (2,619 | ) | ||||||
Accounts payable | 170 | 13,330 | 3,750 | ||||||||
Accrued liabilities and other liabilities | 15,216 | 27,261 | 30,884 | ||||||||
Net cash provided by operating activities | 161,312 | 196,064 | 150,541 | ||||||||
Cash flows from investing activities: | |||||||||||
Purchase of severance-related insurance policies | (1,312 | ) | (1,172 | ) | (743 | ) | |||||
Purchase of short-term investments | (188,745 | ) | (300,858 | ) | (219,459 | ) | |||||
Proceeds from sales of short-term investments | 193,082 | 237,764 | 179,700 | ||||||||
Proceeds from maturities of short-term investments | 59,129 | 149,725 | 129,279 | ||||||||
Purchase of property and equipment | (41,376 | ) | (42,976 | ) | (48,601 | ) | |||||
Purchase of intangible assets | (2,843 | ) | (7,962 | ) | (210 | ) | |||||
Purchase of investments in privately-held companies | (15,021 | ) | (4,982 | ) | — | ||||||
Acquisitions, net of cash acquired | (872 | ) | (693,692 | ) | — | ||||||
Net cash provided by (used in) investing activities | 2,042 | (664,153 | ) | 39,966 | |||||||
Cash flows from financing activities: | |||||||||||
Proceeds from term debt | — | 280,000 | — | ||||||||
Principal payments on term debt | (172,000 | ) | (34,000 | ) | — | ||||||
Term debt issuance costs | — | (5,521 | ) | — | |||||||
Principal payments on capital lease and intangible assets obligations | (7,369 | ) | (1,364 | ) | (1,105 | ) | |||||
Proceeds from issuances of ordinary shares through employee equity incentive plans | 29,733 | 22,555 | 18,867 | ||||||||
Net cash provided by (used in) financing activities | (149,636 | ) | 261,670 | 17,762 | |||||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | 13,718 | (206,419 | ) | 208,269 | |||||||
Cash, cash equivalents, and restricted cash at beginning of period | 56,780 | 263,199 | 54,930 | ||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 70,498 | $ | 56,780 | $ | 263,199 | |||||
Supplemental disclosures of cash flow information | |||||||||||
Interest paid | $ | 5,384 | $ | 5,335 | $ | 27 | |||||
Income taxes paid | $ | 1,218 | $ | 835 | $ | 1,114 | |||||
Supplemental disclosure of non-cash investing and financing activities | |||||||||||
Intangible assets financed with debt | $ | 12,981 | $ | 8,834 | $ | — | |||||
Unpaid property and equipment | $ | 3,962 | $ | 5,425 | $ | 2,228 | |||||
Transfer from inventory to property and equipment | $ | 1,753 | $ | 3,814 | $ | 6,732 |
December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(In thousands) | |||||||||||
Cash and cash equivalents, as reported on the balance sheets | $ | 62,473 | $ | 56,780 | $ | 263,199 | |||||
Restricted cash in other long-term assets, as reported on the balance sheets | 8,025 | — | — | ||||||||
Cash, cash equivalents, and restricted cash, as reported in the statements of cash flows | $ | 70,498 | $ | 56,780 | $ | 263,199 |
Year Ended December 31, | ||||||||
2017 | 2016 | 2015 | ||||||
HPE | 13 | % | 16 | % | 14 | % | ||
Dell | 11 | % | * | * | ||||
____________________ | ||||||||
* Less than 10% |
December 31, 2017 | December 31, 2016 | ||||
HPE | 13 | % | 11 | % |
Year Ended December 31, | |||||||
2017 | 2016 | ||||||
(In thousands) | |||||||
Balance, beginning of the period | $ | 1,474 | $ | 1,641 | |||
Assumed warranty liability from acquisition | — | 290 | |||||
New warranties issued during the period | 1,459 | 1,727 | |||||
Reversal of warranty reserves | (565 | ) | (856 | ) | |||
Settlements during the period | (1,479 | ) | (1,328 | ) | |||
Balance, end of the period | 889 | 1,474 | |||||
Less: long-term portion of product warranty liability | (183 | ) | (211 | ) | |||
Balance, end of the period | $ | 706 | $ | 1,263 |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(In thousands, except per share data) | |||||||||||
Net income (loss) | $ | (19,425 | ) | $ | 18,518 | $ | 92,894 | ||||
Basic and diluted shares: | |||||||||||
Weighted average ordinary shares outstanding | 50,310 | 48,145 | 46,365 | ||||||||
Effect of dilutive shares | — | 1,381 | 1,413 | ||||||||
Shares used to compute diluted net income (loss) per share | 50,310 | 49,526 | 47,778 | ||||||||
Net income (loss) per share—basic | $ | (0.39 | ) | $ | 0.38 | $ | 2.00 | ||||
Net income (loss) per share—diluted | $ | (0.39 | ) | $ | 0.37 | $ | 1.94 |
December 31, 2017 | December 31, 2016 | ||||||
(In thousands) | |||||||
Accounts receivable, net: | |||||||
Accounts receivable | $ | 154,845 | $ | 142,400 | |||
Less: allowance for doubtful accounts | (632 | ) | (632 | ) | |||
$ | 154,213 | $ | 141,768 | ||||
Inventories: | |||||||
Raw materials | $ | 12,656 | $ | 8,243 | |||
Work-in-process | 22,769 | 26,118 | |||||
Finished goods | 29,232 | 31,162 | |||||
$ | 64,657 | $ | 65,523 | ||||
Other current assets: | |||||||
Prepaid expenses | $ | 7,518 | $ | 9,053 | |||
Derivative contracts receivable | 982 | 257 | |||||
VAT receivable | 2,259 | 6,093 | |||||
Other | 3,536 | 1,943 | |||||
$ | 14,295 | $ | 17,346 | ||||
Property and equipment, net: | |||||||
Computer, equipment, and software | $ | 164,707 | $ | 214,719 | |||
Furniture and fixtures | 3,198 | 5,210 | |||||
Leasehold improvements | 47,262 | 46,693 | |||||
215,167 | 266,622 | ||||||
Less: Accumulated depreciation and amortization | (105,248 | ) | (148,037 | ) | |||
$ | 109,919 | $ | 118,585 | ||||
Deferred taxes and other long-term assets: | |||||||
Equity investments in privately-held companies | $ | 29,255 | $ | 12,720 | |||
Deferred taxes | 24,563 | 22,413 | |||||
Long-term restricted cash | 8,025 | — | |||||
Other assets | 4,319 | 1,580 | |||||
$ | 66,162 | $ | 36,713 | ||||
Accrued liabilities: | |||||||
Payroll and related expenses | $ | 71,868 | $ | 62,969 | |||
Accrued expenses | 31,951 | 33,125 | |||||
Derivative contracts payable | 17 | 1,006 | |||||
Product warranty liability | 706 | 1,263 | |||||
Other | 9,516 | 6,679 | |||||
$ | 114,058 | $ | 105,042 | ||||
Other long-term liabilities: | |||||||
Income tax payable | $ | 24,425 | $ | 24,184 | |||
Deferred rent | 2,220 | 2,504 | |||||
Other | 7,422 | 3,892 | |||||
$ | 34,067 | $ | 30,580 |
(in thousands) | ||||
Consideration: | ||||
Cash payment for all outstanding common shares of EZchip at $25.50 per share | $ | 781,237 | ||
Fair value of awards attributable to pre-acquisition services | 972 | |||
Total consideration: | 782,209 | |||
Less: cash acquired | 87,545 | |||
Fair value of total consideration transferred, net of cash acquired | $ | 694,664 |
(in thousands) | ||||
Short-term investments | $ | 108,862 | ||
Other current assets | 34,114 | |||
Other long-term assets | 9,638 | |||
Intangible assets | 288,246 | |||
Goodwill | 270,485 | |||
Total assets | 711,345 | |||
Current liabilities | (10,253 | ) | ||
Long-term liabilities | (6,428 | ) | ||
Total liabilities | (16,681 | ) | ||
Total purchase price allocation | $ | 694,664 |
Fair value | Weighted Average Useful Life | |||||
(in thousands) | (in years) | |||||
Purchased intangible assets: | ||||||
Trade names | $ | 5,600 | 3 | |||
Customer relationships | 56,400 | 9 | ||||
Backlog | 11,300 | 1 | ||||
Developed technology | 181,246 | 4 - 6 | ||||
In-process research and development (1) | 33,700 | - | ||||
Total purchased intangible assets | $ | 288,246 | ||||
(1) IPR&D will not be amortized until the underlying products reach technological feasibility. Upon completion, each IPR&D project will be amortized over its useful life. |
Year Ended December 31, | ||||||||
2016 | 2015 | |||||||
(in thousands, except per share amounts) | ||||||||
Revenues | $ | 867,422 | $ | 769,290 | ||||
Net income | $ | 40,288 | $ | 36,130 | ||||
Net income per share — basic | $ | 0.82 | $ | 0.77 | ||||
Net income per share — diluted | $ | 0.80 | $ | 0.74 |
Level 1 | Level 2 | Total | |||||||||
(in thousands) | |||||||||||
Money market funds | $ | 1,857 | $ | — | $ | 1,857 | |||||
Certificates of deposit | — | 58,003 | 58,003 | ||||||||
U.S. Government and agency securities | — | 43,872 | 43,872 | ||||||||
Commercial paper | — | 27,029 | 27,029 | ||||||||
Corporate bonds | — | 54,447 | 54,447 | ||||||||
Municipal bonds | — | 15,169 | 15,169 | ||||||||
Foreign government bonds | — | 12,761 | 12,761 | ||||||||
1,857 | 211,281 | 213,138 | |||||||||
Long-term restricted cash | — | 8,025 | 8,025 | ||||||||
Derivative contracts | — | 982 | 982 | ||||||||
Total financial assets | $ | 1,857 | $ | 220,288 | $ | 222,145 | |||||
Derivative contracts | $ | — | $ | 17 | $ | 17 | |||||
Total financial liabilities | $ | — | $ | 17 | $ | 17 |
Level 1 | Level 2 | Total | |||||||||
(in thousands) | |||||||||||
Money market funds | $ | 1,833 | $ | — | $ | 1,833 | |||||
Certificates of deposit | — | 78,643 | 78,643 | ||||||||
U.S. Government and agency securities | — | 56,347 | 56,347 | ||||||||
Commercial paper | — | 29,483 | 29,483 | ||||||||
Corporate bonds | — | 94,162 | 94,162 | ||||||||
Municipal bonds | — | 7,706 | 7,706 | ||||||||
Foreign government bonds | — | 5,320 | 5,320 | ||||||||
1,833 | 271,661 | 273,494 | |||||||||
Derivative contracts | — | 257 | 257 | ||||||||
Total financial assets | $ | 1,833 | $ | 271,918 | $ | 273,751 | |||||
Derivative contracts | $ | — | $ | 1,006 | $ | 1,006 | |||||
Total financial liabilities | $ | — | $ | 1,006 | $ | 1,006 |
December 31, 2017 | |||||||||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | ||||||||||||
(in thousands) | |||||||||||||||
Cash | $ | 60,616 | $ | — | $ | — | $ | 60,616 | |||||||
Money market funds | 1,857 | — | — | 1,857 | |||||||||||
Certificates of deposit | 58,039 | — | (36 | ) | 58,003 | ||||||||||
U.S. Government and agency securities | 44,070 | — | (198 | ) | 43,872 | ||||||||||
Commercial paper | 27,073 | 1 | (45 | ) | 27,029 | ||||||||||
Corporate bonds | 54,673 | — | (226 | ) | 54,447 | ||||||||||
Municipal bonds | 15,227 | — | (58 | ) | 15,169 | ||||||||||
Foreign government bonds | 12,809 | — | (48 | ) | 12,761 | ||||||||||
Total | 274,364 | 1 | (611 | ) | 273,754 | ||||||||||
Less amounts classified as cash and cash equivalents | (62,473 | ) | — | — | (62,473 | ) | |||||||||
Short-term investments | $ | 211,891 | $ | 1 | $ | (611 | ) | $ | 211,281 |
December 31, 2016 | |||||||||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | ||||||||||||
(in thousands) | |||||||||||||||
Cash | $ | 54,947 | $ | — | $ | — | $ | 54,947 | |||||||
Money market funds | 1,833 | — | — | 1,833 | |||||||||||
Certificates of deposit | 78,643 | — | — | 78,643 | |||||||||||
U.S. Government and agency securities | 56,431 | 2 | (86 | ) | 56,347 | ||||||||||
Commercial paper | 29,486 | — | (3 | ) | 29,483 | ||||||||||
Corporate bonds | 94,292 | 37 | (167 | ) | 94,162 | ||||||||||
Municipal bonds | 7,718 | — | (12 | ) | 7,706 | ||||||||||
Foreign government bonds | 5,327 | — | (7 | ) | 5,320 | ||||||||||
Total | 328,677 | 39 | (275 | ) | 328,441 | ||||||||||
Less amounts classified as cash and cash equivalents | (56,780 | ) | — | — | (56,780 | ) | |||||||||
Short-term investments | $ | 271,897 | $ | 39 | $ | (275 | ) | $ | 271,661 |
December 31, 2017 | December 31, 2016 | ||||||||||||||
Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | ||||||||||||
(in thousands) | |||||||||||||||
Due in less than one year | $ | 148,232 | $ | 147,921 | $ | 157,270 | $ | 157,163 | |||||||
Due in one to three years | 63,659 | 63,360 | 114,627 | 114,498 | |||||||||||
$ | 211,891 | $ | 211,281 | $ | 271,897 | $ | 271,661 |
(in thousands) | |||
Carrying amount of goodwill at December 31, 2016 | $ | 471,228 | |
Acquisitions | 1,209 | ||
Adjustments | — | ||
Balance as of December 31, 2017 | $ | 472,437 |
Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Useful Life | ||||||||||
(in thousands) | (in years) | ||||||||||||
Licensed technology | $ | 40,407 | $ | (16,478 | ) | $ | 23,929 | 1-8 | |||||
Developed technology | 279,543 | (122,414 | ) | 157,129 | 4-7 | ||||||||
Customer relationships | 69,776 | (24,783 | ) | 44,993 | 4-9 | ||||||||
Trade names | 5,600 | (3,456 | ) | 2,144 | 3 | ||||||||
Total intangible assets | $ | 395,326 | $ | (167,131 | ) | $ | 228,195 |
Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Useful Life | ||||||||||
(in thousands) | (in years) | ||||||||||||
Licensed technology | $ | 24,583 | $ | (6,559 | ) | $ | 18,024 | 1-8 | |||||
Developed technology | 250,043 | (75,591 | ) | 174,452 | 4-7 | ||||||||
Customer relationships | 69,776 | (17,731 | ) | 52,045 | 4-9 | ||||||||
Backlog | 11,300 | (11,300 | ) | — | 1 | ||||||||
Trade names | 5,600 | (1,590 | ) | 4,010 | 3 | ||||||||
Total finite-lived amortizable intangible assets | 361,302 | (112,771 | ) | 248,531 | |||||||||
In-process research and development | 29,500 | — | 29,500 | - | |||||||||
Total intangible assets | $ | 390,802 | $ | (112,771 | ) | $ | 278,031 |
(in thousands) | |||
2018 | $ | 66,718 | |
2019 | 59,344 | ||
2020 | 47,311 | ||
2021 | 30,919 | ||
2022 | 10,355 | ||
Thereafter | 13,548 | ||
Total | $ | 228,195 |
Other current assets | Other accrued liabilities | Other current assets | Other accrued liabilities | ||||||||||||
December 31, 2017 | December 31, 2016 | ||||||||||||||
(in thousands) | |||||||||||||||
Derivatives designated as hedging instruments | |||||||||||||||
Currency forward and option contracts | $ | 980 | $ | — | $ | 257 | $ | 999 | |||||||
Derivatives not designated as hedging instruments | |||||||||||||||
Currency forward and option contracts | 2 | 17 | — | 7 | |||||||||||
Total derivatives | $ | 982 | $ | 17 | $ | 257 | $ | 1,006 |
December 31, | December 31, | ||||||
2017 | 2016 | ||||||
(in thousands) | |||||||
Derivatives designated as hedging instruments | |||||||
Currency forward and option contracts | $ | 52,380 | $ | 105,730 | |||
Derivatives not designated as hedging instruments | |||||||
Currency forward and option contracts | $ | 47,015 | $ | 34,330 |
December 31, 2016 | $ | (692 | ) |
Amount of gains recognized in OCI (effective portion) | 8,651 | ||
Amount of gains reclassified from OCI to income (effective portion) | (7,034 | ) | |
December 31, 2017 | $ | 925 |
Derivatives designated as hedging instruments | Derivatives not designated as hedging instruments | ||||||||||||||||||||||
Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Operating income (expenses) | $ | 7,034 | $ | 623 | $ | (3,630 | ) | $ | — | $ | — | $ | — | ||||||||||
Other income | $ | — | $ | — | $ | — | $ | 3,248 | $ | 384 | $ | — |
December 31, | |||||||
2017 | 2016 | ||||||
(in thousands) | |||||||
Accrued severance liability | $ | 23,205 | $ | 19,874 | |||
Severance assets | 18,302 | 15,870 | |||||
Unfunded portion | $ | 4,903 | $ | 4,004 |
Year Ended December 31, | Operating Leases | ||
(in thousands) | |||
2018 | $ | 23,028 | |
2019 | 18,453 | ||
2020 | 14,740 | ||
2021 | 12,950 | ||
2022 | 9,648 | ||
Thereafter | 60,091 | ||
Total minimum lease payments | $ | 138,910 |
Year Ended December 31, | Purchase Commitments | ||
(in thousands) | |||
2018 | $ | 153,358 | |
2019 | 2,447 | ||
2020 | 544 | ||
2021 | 542 | ||
2022 | 536 | ||
Thereafter | — | ||
Total purchase commitments | $ | 157,427 |
Options Outstanding | ||||||
Number of Shares | Weighted Average Exercise Price | |||||
Outstanding at December 31, 2015 | 2,028,595 | $ | 30.81 | |||
Options exercised | (349,131 | ) | $ | 14.58 | ||
Options canceled | (44,979 | ) | $ | 84.57 | ||
Outstanding at December 31, 2016 | 1,634,485 | $ | 32.79 | |||
Options exercised | (479,105 | ) | $ | 15.95 | ||
Options canceled | (45,319 | ) | $ | 74.59 | ||
Outstanding at December 31, 2017 | 1,110,061 | $ | 38.35 |
Restricted Share Units Outstanding | ||||||
Number of Shares | Weighted Average Grant Date Fair Value | |||||
Non-vested restricted share units at December 31, 2015 | 2,205,083 | $ | 44.39 | |||
Assumed restricted share units from the EZchip acquisition | 499,894 | $ | 46.40 | |||
Restricted share units granted | 2,056,902 | $ | 48.39 | |||
Restricted share units vested | (1,114,753 | ) | $ | 45.32 | ||
Restricted share units canceled | (322,607 | ) | $ | 46.26 | ||
Non-vested restricted share units at December 31, 2016 | 3,324,519 | $ | 46.67 | |||
Restricted share units granted | 1,844,350 | $ | 49.88 | |||
Restricted share units vested | (1,364,063 | ) | $ | 46.25 | ||
Restricted share units canceled | (390,101 | ) | $ | 47.79 | ||
Non-vested restricted share units at December 31, 2017 | 3,414,705 | $ | 48.45 |
Employee Share Purchase Plan | |||||||||
Year ended December 31, | |||||||||
2017 | 2016 | 2015 | |||||||
Dividend yield, % | — | — | — | ||||||
Expected volatility | 24.6 | % | 35.8 | % | 33.7 | % | |||
Risk free interest rate | 1.20 | % | 0.45 | % | 0.10 | % | |||
Expected life, years | 0.50 | 0.50 | 0.50 |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(in thousands) | |||||||||||
Share-based compensation expense by caption: | |||||||||||
Cost of goods sold | $ | 2,000 | $ | 2,375 | $ | 2,366 | |||||
Research and development | 40,278 | 40,475 | 28,821 | ||||||||
Sales and marketing | 15,693 | 15,183 | 10,309 | ||||||||
General and administrative | 10,893 | 13,085 | 9,268 | ||||||||
Total share-based compensation expense | $ | 68,864 | $ | 71,118 | $ | 50,764 | |||||
Share-based compensation expense by type of award: | |||||||||||
Share options | $ | 115 | $ | 2,711 | $ | 6,680 | |||||
ESPP | 6,232 | 6,394 | 4,007 | ||||||||
RSU | 62,517 | 62,013 | 40,077 | ||||||||
Total share-based compensation expense | $ | 68,864 | $ | 71,118 | $ | 50,764 |
Unrealized Gains (Losses) on Available-for-Sale Securities | Unrealized Gains (Losses) on Derivatives Designated as Hedging Instruments | Total | |||||||||
(in thousands) | |||||||||||
Balance at December 31, 2016 | $ | (236 | ) | $ | (692 | ) | $ | (928 | ) | ||
Other comprehensive income before reclassifications, net of taxes | 918 | 8,651 | 9,569 | ||||||||
Realized (gains)/losses reclassified from accumulated other comprehensive income | 11 | (7,034 | ) | (7,023 | ) | ||||||
Net current-period other comprehensive income, net of taxes | 929 | 1,617 | 2,546 | ||||||||
Balance at December 31, 2017 | $ | 693 | $ | 925 | $ | 1,618 | |||||
Balance at December 31, 2015 | $ | (578 | ) | $ | (1,091 | ) | $ | (1,669 | ) | ||
Other comprehensive income/(loss) before reclassifications, net of taxes | (144 | ) | 1,022 | 878 | |||||||
Realized (gains)/losses reclassified from accumulated other comprehensive income | 486 | (623 | ) | (137 | ) | ||||||
Net current-period other comprehensive income, net of taxes | 342 | 399 | 741 | ||||||||
Balance at December 31, 2016 | $ | (236 | ) | $ | (692 | ) | $ | (928 | ) |
Realized (Gains)/Losses Reclassified from Accumulated Other Comprehensive Income | Affected Line Item in the Statement of Operations | |||||||||
Year ended December 31, | ||||||||||
2017 | 2016 | |||||||||
(in thousands) | ||||||||||
Realized (gains) on derivatives designated as hedging instruments | $ | (7,034 | ) | $ | (623 | ) | Cost of revenues and Operating expenses: | |||
(347 | ) | (18 | ) | Cost of revenues | ||||||
(635 | ) | (36 | ) | General and administrative | ||||||
(628 | ) | (25 | ) | Sales and marketing | ||||||
(5,424 | ) | (544 | ) | Research and development | ||||||
Realized losses on available-for-sale securities | 11 | 486 | Other income, net | |||||||
Total reclassifications for the period | $ | (7,023 | ) | $ | (137 | ) | Total |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(in thousands) | |||||||||||
United States | $ | (21,528 | ) | $ | (17,969 | ) | $ | (12,539 | ) | ||
Foreign | (375 | ) | 42,297 | 87,121 | |||||||
Income (loss) before taxes on income | $ | (21,903 | ) | $ | 24,328 | $ | 74,582 |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(in thousands) | |||||||||||
Current: | |||||||||||
U.S. federal | $ | (617 | ) | $ | (1,333 | ) | $ | (1,578 | ) | ||
State and local | 632 | 220 | 284 | ||||||||
Foreign | (261 | ) | 6,161 | 5,737 | |||||||
Total current | (246 | ) | 5,048 | 4,443 | |||||||
Deferred: | |||||||||||
Foreign | (2,232 | ) | 762 | (22,755 | ) | ||||||
Total deferred | (2,232 | ) | 762 | (22,755 | ) | ||||||
Provision for (benefit from) taxes on income | $ | (2,478 | ) | $ | 5,810 | $ | (18,312 | ) |
December 31, | |||||||
2017 | 2016 | ||||||
(in thousands) | |||||||
Deferred tax assets: | |||||||
Net operating loss and credit carryforwards | $ | 42,820 | $ | 75,350 | |||
Reserves and accruals | 11,305 | 13,841 | |||||
Depreciation and amortization | 2,393 | 358 | |||||
Other | 6,645 | 7,128 | |||||
Gross deferred tax assets | 63,163 | 96,677 | |||||
Valuation allowance | (31,648 | ) | (55,827 | ) | |||
Total deferred tax assets | 31,515 | 40,850 | |||||
Intangible assets | (6,952 | ) | (18,437 | ) | |||
Total deferred tax liabilities | (6,952 | ) | (18,437 | ) | |||
Net deferred tax assets | $ | 24,563 | $ | 22,413 |
December 31, | ||||||||
2017 | 2016 | 2015 | ||||||
Tax at statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||
Tax at rates other than the statutory rate | (4.8 | ) | (84.5 | ) | (42.5 | ) | ||
Valuation allowance | 47.3 | 40.8 | (22.0 | ) | ||||
Net change in tax reserves | 8.0 | 17.1 | 6.0 | |||||
Adjustment of deferred tax balances following changes in tax rates | (71.8 | ) | 10.9 | — | ||||
Other, net | (2.4 | ) | 4.6 | (1.1 | ) | |||
Provision for (benefit from) taxes on income | 11.3 | % | 23.9 | % | (24.6 | )% |
December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(in thousands) | |||||||||||
Gross unrecognized tax benefits, beginning of the period | $ | 41,460 | $ | 25,382 | $ | 18,037 | |||||
Increases in tax positions for prior years | 3,655 | 252 | 1,153 | ||||||||
Decreases in tax positions for prior years | — | — | (131 | ) | |||||||
Increases in tax positions for current year | 8,090 | 8,131 | 7,908 | ||||||||
Increases in tax positions acquired or assumed in a business combination | — | 8,990 | — | ||||||||
Decreases due to lapses of statutes of limitations | (8,051 | ) | (1,295 | ) | (1,585 | ) | |||||
Gross unrecognized tax benefits, end of the period | $ | 45,154 | $ | 41,460 | $ | 25,382 |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(in thousands) | |||||||||||
United States | $ | 327,528 | $ | 386,360 | $ | 300,674 | |||||
China | 172,405 | 192,581 | 152,739 | ||||||||
Europe | 176,937 | 149,855 | 93,666 | ||||||||
Other Americas | 92,449 | 52,447 | 24,692 | ||||||||
Other Asia | 94,574 | 76,255 | 86,369 | ||||||||
Total revenue | $ | 863,893 | $ | 857,498 | $ | 658,140 |
December 31, | |||||||
2017 | 2016 | ||||||
(in thousands) | |||||||
Israel | $ | 99,752 | $ | 101,001 | |||
United States | 7,017 | 14,246 | |||||
Other | 3,150 | 3,338 | |||||
Total property and equipment, net | $ | 109,919 | $ | 118,585 |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(in thousands) | |||||||||||
ICs | $ | 161,216 | $ | 170,641 | $ | 92,214 | |||||
Boards | 325,845 | 337,304 | 265,249 | ||||||||
Switch systems | 222,836 | 204,083 | 179,977 | ||||||||
Cables, accessories and other | 153,996 | 145,470 | 120,700 | ||||||||
Total revenue | $ | 863,893 | $ | 857,498 | $ | 658,140 |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(in thousands) | |||||||||||
InfiniBand: | |||||||||||
EDR | $ | 194,261 | $ | 125,249 | $ | 39,009 | |||||
FDR | 181,465 | 302,093 | 347,760 | ||||||||
QDR/DDR/SDR | 31,599 | 49,987 | 63,745 | ||||||||
Total | 407,325 | 477,329 | 450,514 | ||||||||
Ethernet | 401,005 | 317,241 | 155,221 | ||||||||
Other | 55,563 | 62,928 | 52,405 | ||||||||
Total revenue | $ | 863,893 | $ | 857,498 | $ | 658,140 |
Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(in thousands) | |||||||||||
Interest income and gains (losses) on short-term investments, net | $ | 3,748 | $ | 2,244 | $ | 2,998 | |||||
Foreign exchange loss, net | (596 | ) | (840 | ) | (186 | ) | |||||
Impairment of investment in a privately-held company | — | — | (3,189 | ) | |||||||
Other | (37 | ) | (314 | ) | (147 | ) | |||||
Total other income (loss), net | $ | 3,115 | $ | 1,090 | $ | (524 | ) |
(in thousands) | ||||
Term Debt, principal amount | $ | 74,000 | ||
Less unamortized debt issuance costs | 1,239 | |||
Term Debt, principal net of unamortized debt issuance costs | $ | 72,761 | ||
Effective interest rate | 3.8 | % |
(in thousands) | |||
2018 | $ | — | |
2019 | 74,000 | ||
$ | 74,000 |
Description: | Balance at Beginning of Year | Charged to Costs and Expenses | Deductions | Balance at End of Year | |||||||||||
(in thousands) | |||||||||||||||
Year ended December 31, 2017 | |||||||||||||||
Deducted from asset accounts: | |||||||||||||||
Allowance for doubtful accounts | $ | 632 | $ | — | $ | — | $ | 632 | |||||||
Allowance for sales returns and adjustments | — | — | — | — | |||||||||||
Income tax valuation allowance | 55,827 | — | (24,179 | ) | 31,648 | ||||||||||
Total | $ | 56,459 | $ | — | $ | (24,179 | ) | $ | 32,280 | ||||||
Year ended December 31, 2016 | |||||||||||||||
Deducted from asset accounts: | |||||||||||||||
Allowance for doubtful accounts | $ | 621 | $ | 11 | $ | — | $ | 632 | |||||||
Allowance for sales returns and adjustments | — | — | — | ||||||||||||
Income tax valuation allowance | 28,999 | 26,828 | — | 55,827 | |||||||||||
Total | $ | 29,620 | $ | 26,839 | $ | — | $ | 56,459 | |||||||
Year ended December 31, 2015 | |||||||||||||||
Deducted from asset accounts: | |||||||||||||||
Allowance for doubtful accounts | $ | 672 | $ | — | $ | (51 | ) | $ | 621 | ||||||
Allowance for sales returns and adjustments | — | — | — | ||||||||||||
Income tax valuation allowance | 46,220 | — | (17,221 | ) | 28,999 | ||||||||||
Total | $ | 46,892 | $ | — | $ | (17,272 | ) | $ | 29,620 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Mellanox Technologies, Ltd. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 16,April 17, 2018.
MELLANOX TECHNOLOGIES, LTD. | ||||
By: | /s/ EYAL WALDMAN | |||
Eyal Waldman President and Chief Executive Officer (principal executive officer) |
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