Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Level Overview

We are primarily engaged in the development, manufacturing and sale of our proprietary Omnipod System, an innovative, discreet and easy-to-use continuous insulin delivery system for people with insulin-dependent diabetes. The Omnipod System features a small, lightweight, self-adhesive disposable tubeless Omnipod device which is worn on the body for approximately three days at a time and its wireless companion, the handheld PDM. Conventional insulin pumps require people with insulin-dependent diabetes to learn to use, manage and wear a number of cumbersome components, including up to 42 inches of tubing. In contrast, the Omnipod System features only two discreet, easy-to-use devices that eliminate the need for a bulky pump, tubing and separate blood glucose meter, provides for virtually pain-free automated cannula insertion, communicates wirelessly and integrates a blood glucose meter. We believe that the Omnipod System’s unique proprietary design and features allow people with insulin-dependent diabetes to manage their diabetes with unprecedented freedom, comfort, convenience, and ease.

We began commercial sale of the Omnipod System in the United States in 2005. We sell the Omnipod System in the United States through direct sales to customers or through our distribution partners. The Omnipod System is currently available in multiple countries in Europe, Canada and Israel. In July 2015, we executed an asset purchase agreement with GlaxoSmithKline (GSK) whereby we acquired assets associated with the Canadian distribution of our products and we assumed the distribution, sales, marketing, training and support activities for the Omnipod system in Canada. Additional information regarding this acquisition is provided in note 4 to the consolidated financial statements included under Item 8 of this Form 10-K.

In addition to using the Pod for insulin delivery, we also partner with global pharmaceutical and biotechnology companies to tailor the Omnipod System technology platform for the delivery of subcutaneous drugs across multiple therapeutic areas.

In June 2011, we acquired Neighborhood Diabetes. Through Neighborhood Diabetes, we provided customers with blood glucose testing supplies, traditional insulin pumps, pump supplies and pharmaceuticals and had the ability to process claims as either durable medical equipment or through pharmacy benefits. In February 2016, we sold Neighborhood Diabetes to Liberty Medical. Additional information regarding the sale of Neighborhood Diabetes is provided in note 3 to the consolidated financial statements included under Item 8 of this Form 10-K.

Highlights and Recent Developments:

•	Strengthened leadership team with appointment of key executives across the Company.

•	Evidence demonstrating Omnipod's improved glycemic control and quality of life published in the Journal of Diabetes Technology & Therapeutics and the Journal of Diabetes Science and Technology.

•	Completed private placement of $345.0 million in principal amount of 1.25% Convertible Senior Notes due in 2021 and the repurchase of $134.2 million in principal amount of the existing 2.00% Convertible Senior Notes due in 2019.

•	Divested Neighborhood Diabetes medical supplies distribution business to focus on growth opportunities in insulin and drug delivery.

•	Expanded development partnership with Eli Lilly and Company for Omnipod delivery of Humalog 200 concentrated insulin, in addition to the Company's already-existing partnership for Humalog U500.

•	Partnered with Joslin Diabetes Center to implement a unique training certification for Insulet's clinical team.

2016 Revenue Results:

•	Total revenue of $367.0 million

◦	U.S. Omnipod revenue of $229.8 million

◦	International Omnipod revenue of $71.9 million

◦	Drug Delivery revenue of $65.3 million

Our long-term financial objective is to achieve and sustain profitable growth. We expect our efforts in 2017 to focus primarily on the expansion of our customer base in the United States and internationally, increasing our gross profit and product development. Achieving these objectives is expected to require additional investments in certain personnel and initiatives, as well as enhancements to our supply chain operation capacity, efficiency and effectiveness. We believe that we will continue to incur net losses in the near term in order to achieve these

objectives. However, we believe that the accomplishment of our near term objectives will have a positive impact on our financial condition in the future.

Components of Financial Operations

Revenue. We derive most of our revenue from global sales of the Omnipod System. Our revenue also includes sales of devices based on the Omnipod System technology platform to global pharmaceutical and biotechnology companies for the delivery of subcutaneous drugs across multiple therapeutic areas.

Cost of revenue. Cost of revenue consists primarily of raw material, labor, warranty, inventory reserve and overhead costs such as freight-in and depreciation and the cost of products we acquire from third party suppliers.

Research and development. Research and development expenses consist primarily of personnel costs and outside services within our product development, regulatory and clinical functions, and product development projects. We generally expense research and development costs as incurred.

Sales and marketing. Sales and marketing expenses consist primarily of personnel costs within our sales, marketing, reimbursement support, customer care and training functions, sales commissions paid to our sales representatives, costs associated with promotional activities and participation in industry trade shows.

General and administrative. General and administrative expenses consist primarily of salaries and other related costs for personnel serving the executive, finance, legal, information technology and human resource functions, as well as legal fees, accounting fees, insurance costs, bad debt expenses, shipping, handling and facilities-related costs.

Results of Operations

This section discusses our consolidated results of operations for 2016 compared to 2015, as well as 2015 compared to 2014, and should be read in conjunction with the consolidated financial statements and accompanying notes included under Item 8 of this Form 10-K.

TABLE 1: RESULTS OF OPERATIONS
	Years Ended December 31,															Years Ended December 31,
(In Thousands)	2016				2015				$ Change				% Change			2015				2014				$ Change				% Change
Revenue
U.S. Omnipod	$	229,785			$	189,604			$	40,181			21	%		$	189,604			$	175,950			$	13,654			8	%
International Omnipod	71,889				40,339				31,550				78	%		40,339				50,025				(9,686		)		(19	)%
Drug Delivery	65,315				33,950				31,365				92	%		33,950				5,346				28,604				535	%
Total Revenue	366,989				263,893				103,096				39	%		263,893				231,321				32,572				14	%
Cost of revenue	155,903				130,622				25,281				19	%		130,622				104,195				26,427				25	%
Gross profit	211,086				133,271				77,815				58	%		133,271				127,126				6,145				5	%
Gross margin	57.5		%		50.5		%						7			50.5		%		55.0		%						-4.5
Operating expenses:
Research and development	55,710				43,208				12,502				29	%		43,208				27,900				15,308				55	%
Sales and marketing	94,483				78,407				16,076				21	%		78,407				50,552				27,855				55	%
General and administrative	71,597				60,392				11,205				19	%		60,392				57,548				2,844				5	%
Total operating expenses	221,790				182,007				39,783				22	%		182,007				136,000				46,007				34	%
Operating loss	(10,704		)		(48,736		)		(38,032		)		(78	)%		(48,736		)		(8,874		)		39,862				449	%
Interest and other income (loss), net	(16,114		)		(12,654		)		(3,460		)		(27	)%		(12,654		)		(39,006		)		26,352				(68	)%
Loss from continuing operations before income taxes	(26,818		)		(61,390		)		(34,572		)		(56	)%		(61,390		)		(47,880		)		13,510				28	%
Income tax expense	392				212				180				85	%		212				60				152				253	%
Net loss from continuing operations	(27,210		)		(61,602		)		(34,392		)		(56	)%		(61,602		)		(47,940		)		13,662				28	%
Loss from discontinued operations, net of tax	(1,669		)		(11,918		)		(10,249		)		(86	)%		(11,918		)		(3,560		)		8,358				235	%
Net loss	$	(28,879	)		$	(73,520	)		$	(44,641	)		61	%		$	(73,520	)		$	(51,500	)		$	(22,020	)		43	%

Comparison of the Years Ended December 31, 2016 and December 31, 2015

Revenue

Our total revenue increased to $367.0 million, up $103.1 million, or 39%, in 2016 compared to 2015, primarily due to strong growth in our U.S. Omnipod revenue, International Omnipod revenue and our on-body injection device for drug delivery. Our U.S. Omnipod revenue increased to $229.8 million, up $40.2 million, or 21%, primarily due to growth in our installed base of Omnipod users which was greatly driven by the expansion in 2015 and 2016 of our sales force and customer support personnel and strategic initiatives introduced in mid-2015 to expand awareness of the Omnipod System. The results for 2015 were also partially impacted by unfavorable distributor ordering patterns in the first quarter of 2015 which stabilized thereafter. Our International Omnipod revenue increased to $71.9 million, up $31.6 million, or 78%, primarily due to growth in distributor sales from continued adoption in existing markets and to a lesser extent from entry into new markets. The results for 2015 included lower International Omnipod sales which partially resulted from unfavorable distributor ordering patterns in the first and second quarters of 2015 which stabilized thereafter. Our drug delivery revenue increased to $65.3 million, up $31.4 million, or 92%, due to strong growth in demand for our primary drug delivery device following regulatory approval in December 2014.

For 2017 we expect strong revenue growth across all of our product lines as we continue our expansion in the U.S. and internationally. We expect strong growth of approximately 20% in our worldwide Omnipod installed base.

Cost of Revenue

Cost of revenue increased to $155.9 million, up $25.3 million, or 19%, in 2016 compared to 2015, primarily due to an increase in sales volumes, partially offset by $11.5 million of costs incurred during 2015 that were considered non-recurring in nature, along with supply chain operation efficiency and effectiveness improvements made in 2016.

Gross Margin

Gross margin increased to 57.5%, up approximately 7 points, in 2016 compared to 2015, primarily due to $11.5 million of costs incurred in 2015 that were considered non-recurring in nature, along with supply chain operation efficiency and effectiveness improvements made in 2016.

For 2017, we expect gross margin to increase primarily from improvements to our supply chain operation efficiency and effectiveness as demonstrated in 2016.

Research and Development

Research and development expenses increased to $55.7 million, up $12.5 million, or 29%, in 2016 compared to 2015, primarily due to an increase in expenses related to our development projects, including our mobile application development which involves interaction with continuous glucose monitoring technology, artificial pancreas program, development efforts with Eli Lilly and Company for the use of concentrated insulin for patients with higher insulin-resistance and other Omnipod product improvement initiatives.

For 2017, we expect overall research and development spending to increase due to the development efforts on our ongoing projects described above.

Sales and Marketing

Sales and marketing expenses increased to $94.5 million, up $16.1 million, or 21%, for 2016, compared to 2015, primarily due to an increase of $16.0 million in personnel-related expenses, including increased incentive compensation costs resulting from growth in the business, as well as costs associated with the expansion in 2015 of our sales force and customer support personnel.

We expect sales and marketing expenses in 2017 to increase due to the expansion of our sales force and customer support personnel.

General and Administrative

General and administrative expenses increased to $71.6 million, up $11.2 million, or 19%, for 2016, compared to 2015. This increase includes a charge of $6.1 million related to in-process internally developed software recorded in the fourth quarter of 2016 due to a change in our longer-term enterprise resource planning (“ERP”) system requirements. In addition, the increase was also due to a $4.6 million increase that was primarily attributable to personnel-related costs on higher incentive compensation associated with growth in our business, as well as additional staff to support our growth expectations and fees paid for external consultants.

For 2017, we expect overall general and administrative expenses to increase as compared to 2016 as we continue to grow the business and make investments in our operating structure to support this continued growth.

Interest and Other Income (Loss), Net

Interest and other income (loss), net increased to $16.1 million, up $3.5 million, or 27%, for 2016, compared to 2015, primarily due to $3.0 million of net additional interest expense associated with the issuance of the 1.25% Notes and a $2.6 million charge recorded for the extinguishment of debt related to the repurchase of $134.2 million in principal of the 2% Notes. This was partially offset from a slight decrease in capital lease interest expense.

Income Tax Expense

In 2016 and 2015, income tax expense was $0.4 million and $0.2 million, respectively. The increase in tax expense is due to foreign taxes due to our acquisition in mid-2015 of the Canadian distribution business. Additional information regarding income tax expense is provided in note 18 to the consolidated financial statements

Loss from Discontinued Operations, Net of Tax

The loss from discontinued operations decreased by approximately $10.2 million in 2016, compared to the year ended December 31, 2015. This decrease was primarily the result of a $9.1 million impairment charge recorded in the fourth quarter of 2015 for the long-lived assets of Neighborhood Diabetes which we sold in February 2016. As the Neighborhood Diabetes business was sold in February 2016, 2016 includes less than two months of full operations compared to a full year for 2015.

Comparison of the Years Ended December 31, 2015 and December 31, 2014

Revenue

Our total revenue increased to $263.9 million, up $32.6 million, or 14%, in 2015, compared to 2014, led by growth in our U.S. Omnipod revenue and our on-body injection device for drug delivery, offset by lower international Omnipod revenue. Our U.S. Omnipod revenue increased to $189.6 million, up $13.7 million, or 8%, due to growth in our installed base of Omnipod users offset in part by unfavorable distributor ordering patterns and a reduction in royalty revenues of $3.2 million. Our drug delivery revenue increased to $34.0 million, up $28.6 million due to strong growth in demand for our on-body injection device following regulatory approval in December 2014. Our International Omnipod revenue decreased to $40.3 million, down $9.7 million, or 19%, primarily reflecting lower distributor sales due to changes in distributor ordering patterns despite continued growth in our installed base of Omnipod users. This decrease internationally was partially offset by growth in Canada (we acquired our Canadian distributor in July 2015).

Cost of Revenue

Cost of revenue increased to $130.6 million, up $26.4 million, or 25%, in 2015 compared to 2014, due to an increase in sales volumes, as well as $11.5 million of costs directly and indirectly attributable to a voluntary Field Safety Notification that we initiated in November 2015 after identifying certain lots of Omnipod product which had a slight increase in the reported cases in which the needle mechanism failed to deploy or there was a delay in the deployment of the needle mechanism. The product manufactured in this condition was contained prior to distribution and was ultimately scrapped.

Gross Margin

Gross margin decreased to 50.5%, down approximately 4.5 points in 2015 compared to 2014, primarily due to approximately $11.5 million of costs directly and indirectly attributable to the voluntary field safety notification. The decrease in gross margin also reflects an increased investment in product quality and related policies and procedures to stand behind our products, which contributed to a $3.3 million increase in warranty expense year over year, of which $0.4 million related to the voluntary field safety notification.

Research and Development

Research and development expenses increased to $43.2 million, up $15.3 million, or 55%, in 2015 compared to 2014, due to expenses related to our development projects, including a new PDM, the use of concentrated insulin for patients with higher insulin-resistance and investment in our artificial pancreas program, as well as expenses related to software development costs of $10.5 million.

Sales and Marketing

Sales and marketing expenses increased to $78.4 million, up $27.9 million, or 55%, for 2015 compared to 2014, primarily due to a $19.5 million increase in employee related expenses associated with the expansion of our sales force and customer support personnel. Additionally, there was a $6.9 million increase in costs associated with marketing campaigns, new market opportunities and other strategic initiatives.

General and Administrative

General and administrative expenses increased to $60.4 million, up $2.8 million, or 5%, for 2015 compared to 2014, mainly the result of an increase of $1.7 million in audit, professional services and consulting fees and an increase of $1.6 million in technology license fees and consulting services. Additionally, there was an increase in shipping costs of $1.4 million, an increase in employee related expenses of $0.9 million, a $0.9 million increase in expenses associated with claims and settlements and a $0.9 million increase in occupancy and depreciation expense. This increase was partially offset by a decrease in legal fees of approximately $6.2 million, mainly related to the Becton, Dickinson and Company litigation settlement in 2014.

Interest and Other Income (Loss), Net

Interest and other income (loss), net decreased to $12.7 million, down $26.4 million, or 68% for 2015 compared to 2014, due to the loss from extinguishment of long-term debt of $23.2 million in 2014 as well as the change in interest rate on our long-term debt to 2% in mid-2014 from 3.75%.

Income Tax Expense

In 2015 and 2014, income tax expense was $0.2 million and $0.1 million, respectively. Income tax expense is comprised of a current portion for 2015 and 2014 and deferred portion for 2015. The current portion primarily related to state and foreign taxes and the deferred portion primarily related to federal and state tax amounts. The increase in tax expense was due to foreign taxes due to our acquisition in 2015 of the Canadian distribution assets. Additional information regarding income tax expenses is provided in note 18 to the consolidated financial statements.

Loss from Discontinued Operations, Net of Tax

The loss from discontinued operations increased by approximately $8.4 million in 2015 compared to 2014. This increase was primarily the result of a $9.1 million impairment charge recorded in the fourth quarter of 2015 for the long-lived assets of Neighborhood Diabetes.

Liquidity and Capital Resources

As of December 31, 2016, we had $137.2 million in cash and cash equivalents and $161.4 million in short-term investments. We believe that our current liquidity, together with the cash expected to be generated from sales, will be sufficient to meet our projected operating and debt service requirements for at least the next twelve months.

To lower our manufacturing costs, increase supply redundancy, add capacity closer to our largest customer base and support growth, we intend to construct a highly-automated manufacturing facility in the U.S., with planned production out of the facility beginning in 2019. We expect capital expenditures to increase above historic levels to fund the construction of the manufacturing facility and related equipment purchases. We believe that our current liquidity will be sufficient to meet our projected expenditures associated with this project.

Convertible Debt

In September 2016, we issued and sold $345.0 million in principal amount of 1.25% Convertible Senior Notes due September 2021 ("1.25% Notes"). The interest rate on the notes is 1.25% per annum, payable semi-annually in arrears in cash on March 15 and September 15 of each year. Interest began accruing on September 13, 2016; the first interest payment is due on March 15, 2017. The 1.25% Notes are convertible into our common stock at an initial conversion rate of 17.1332 shares of common stock per $1,000 principal amount of the 1.25% Notes, which is equivalent to a conversion price of approximately $58.37 per share, subject to adjustment under certain circumstances. The 1.25% Notes will be convertible prior to the close of business on the business day immediately preceding June 15, 2021 only under certain circumstances and during certain periods, and will be convertible on or after June 15, 2021 until the close of business on the second scheduled trading day immediately preceding September 15, 2021, regardless of those circumstances.

Cash interest expense related to the 1.25% Notes in the year ended December 31, 2016 was $1.3 million. Non-cash interest expense related to the 1.25% Notes was comprised of the amortization of the debt discount and debt issuance costs and in the year ended December 31, 2016 was $3.8 million.

In June 2014 we issued and sold $201.3 million in principal amount of 2% Convertible Senior Notes due June 15, 2019 (the "2% Notes"). The interest rate on the notes is 2% per annum, payable semi-annually in arrears in cash on June 15 and December 15 of each year. The 2% Notes are convertible into our common stock at an initial conversion rate of 21.5019 shares of common stock per $1,000 principal amount of the 2% Notes, which is equivalent to a conversion price of approximately $46.51 per share, subject to adjustment under certain circumstances.

In September 2016, in connection with the issuance of $345.0 million in principal amount of 1.25% Notes discussed above, we repurchased approximately $134.2 million in principal amount of the 2% Notes for $153.6 million. The $154.3 million paid to extinguish the debt was allocated to debt and equity based on their respective fair values immediately prior to the transaction. We allocated $121.4 million of the payment to the debt and $32.9 million to equity.

Cash interest expense related to the 2% Notes in the years ended December 31, 2016, 2015 and 2014 was $3.2 million, $4.0 million and $2.3 million, respectively. Non-cash interest expense related to the 2% Notes was comprised of the amortization of the debt discount and debt issuance costs and in the years ended December 31, 2016, 2015 and 2014 was $6.3 million, $7.7 million and $4.0 million, respectively.

Additional information regarding our debt issuances is provided in note 7 to the consolidated financial statements included under Item 8 of this Form 10-K.

Capital Leases

As of December 31, 2016 and December 31, 2015, we had approximately $13.7 million of manufacturing equipment acquired under capital leases. As of December 31, 2016, one capital lease remained outstanding and is being repaid in equal monthly installments over a 24 month term, ending in the first quarter of 2017, and includes principal and interest payments with an effective interest rate of 13%.

Additional information regarding our capital leases is provided in note 8 to the consolidated financial statements included under Item 8 of this Form 10-K.

Summary of Cash Flows

		Years Ended December 31,
(In thousands)		2016				2015				2014
Cash provided by (used in):
Operating activities		$	15,911			$	(12,552	)		$	8,920
Investing activities		(178,010		)		(15,323		)		(11,486		)
Financing activities		176,567				(371		)		4,032
Effect of exchange rate changes on cash		34				(275		)		—
Net increase (decrease) in cash and cash equivalents		$	14,502			$	(28,521	)		$	1,466

Included in our summary of cash flows are the results of our discontinued operations. Refer to note 3 in the consolidated financial statements for further information.

Operating Activities

Our net cash provided by operating activities for the year ended December 31, 2016 was $15.9 million compared to net cash used in operating activities of $12.6 million in the same period of 2015. The increase was primarily due to a lower net loss recorded for the year and improved customer collections, partially offset by timing of cash disbursements and additional inventory purchases in order to support customer demand and to allow for alternative shipping methods which in turn is expected to lower our distribution costs.

Our net cash used in operating activities was $12.6 million for the year ended December 31, 2015 compared to net cash provided by operating activities of $8.9 million in the same period of 2014. The decrease was primarily due to the increased investment in business operations in 2015 to support the growth of the business.

Investing Activities

Our net cash used in investing activities in the year ended December 31, 2016 was $178.0 million compared to $15.3 million in the same period of 2015. In the year ended December 31, 2016, we invested $161.6 million into short-term investments (net of proceeds from redemptions and sales), driven by the net proceeds from the issuance of the 1.25% Notes. There were no such investments in 2015. In addition, the increase in investing activities relates to higher capital purchases of $22.1 million in 2016 compared to $10.6 million in 2015, primarily associated with investments in supply chain operations including $10.7 million for equipment in process of construction to support our U.S. manufacturing initiatives.

Net cash used in investing activities in the year ended December 31, 2015 was $15.3 million compared to $11.5 million in the same period of 2014. The $3.8 million increase primarily related to the acquisition of our Canadian distributor in July 2015 of $4.7 million, partially offset by lower capital purchases.

Financing Activities

Our net cash provided by financing activities for the year ended December 31, 2016 was $176.6 million compared to $0.4 million in net cash used in financing activities in the same period of 2015. The increase was primarily attributable to net proceeds of $333.7 million in September 2016 from the issuance of the 1.25% Notes, offset by repayments of $153.6 million to extinguish $134.2 million or approximately 67% of our outstanding 2% Notes.

Net cash used in financing activities in the year ended December 31, 2015 was $0.4 million compared to $4.0 million in net cash provided by financing activities in the same period of 2014. The $4.4 million decrease was primarily attributable to the increase in capital lease property and equipment in 2015 as well as a $5.0 million net decrease in proceeds related to the 2014 issuance of the 2% Notes.

Commitments and Contingencies

We lease our facilities in Massachusetts, California, Tennessee, Canada and China. Our leases are accounted for as operating leases. The leases generally provide for a base rent plus real estate taxes and certain operating expenses related to the leases.

Certain of our operating lease agreements contain scheduled rent increases. Rent expense is recorded using the straight-line method and deferred rent is included in other liabilities in the accompanying consolidated balance sheets.

The following table summarizes our principal obligations as of December 31, 2016:

(In thousands)
Contractual Obligations		Total				2017				2018				2019				2020				2021				Later
Operating lease obligations		$	14,380			$	2,560			$	2,468			$	2,455			$	2,383			$	2,383			$	2,131
Debt obligations(1)		435,687				5,654				5,654				72,011				4,313				348,055				—
Capital lease obligations(2)		269				269				—				—				—				—				—
Purchase obligations(3)		78,102				67,928				10,174				—				—				—				—
Total contractual obligations		$	528,438			$	76,411			$	18,296			$	74,466			$	6,696			$	350,438			$	2,131

(1)	Debt obligations include principal and interest. Our senior convertible notes incur interest of 2% and 1.25% per annum.

(2)	The effective interest rate on our capital lease obligation is 13%.

(3)

Our purchase obligations include commitments with certain of our suppliers, primarily for the purchase of Omnipod System components and manufacturing equipment along with other commitments to purchase goods or services in the normal course of business. We make such commitments through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. These amounts include an $8.8 million commitment for the purchase of property located in Acton, Massachusetts that will be used for our manufacturing facility in the U.S. and was subsequently paid in February 2017. Total purchase price for the property was $9.3 million. These amounts also include outstanding purchase commitments with various suppliers for the construction and retrofit of the manufacturing facility and the establishment of highly-automated manufacturing operations, including $22.8 million with ATS Automation Tooling Systems Inc for equipment purchases.

Legal Proceedings

The significant estimates and judgments related with establishing litigation reserves are discussed under "Legal Proceedings" in note 15 of the consolidated financial statements included under Item 8 of this Form 10-K.

Off-Balance Sheet Arrangements

As of December 31, 2016, we did not have any off-balance sheet financing arrangements.

Critical Accounting Policies and Estimates

Our financial statements are based on the selection and application of generally accepted accounting principles, which require us to make estimates and assumptions about future events that affect the amounts reported in our financial statements and the accompanying notes. Future events and their effects cannot be determined with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to our financial statements.

Based on the sensitivity of reported financial statement amounts to the underlying estimates and assumptions, the relatively more significant accounting policies applied by us have been identified by management as those associated with the following:

• Revenue recognition

• Stock-based compensation and equity instruments

• Business Combinations

• Goodwill

• Intangibles and other long-lived assets

• Accounts receivable and allowance for doubtful accounts

• Warranty

• Contingencies

• Income Taxes

• Convertible Debt

Additional information on our critical accounting estimates and significant accounting policies, including references to applicable footnotes, is provided in note 2 to the consolidated financial statements included under Item 8 of this Form 10-K.

Recent Accounting Pronouncements

Information with respect to recent accounting developments is provided in note 2 to the consolidated financial statements included under Item 8 of this Form 10-K.