Caching while applying XSL using SAX

Hi,

In my application I'm using SAX based approach for parsing xml and
applying xsl on it. As SAX is event based, I just want to know that how
the reference in xsl, to out of context elements is  resolved.

e.g.
<xsl:template
match="*[local-name(.)='Database']/*[local-name(.)='Employees']"
mode="mode1">

    <xsl:variable name="refNode2"
select="../../*[local-name(.)='Departments'][*[local-name(.)='deptId'] =
$ref1]"/>

    .....
</xsl:template>

In example above, how line 2 is evaluated.
Do the processor cache all the elements after and including 'Employees',
till the  element 'deptId' arrives? or Even in SAX approach object model
of XML being parsed is made by the processor, to resolve the references
to element previously arrived.

Thanks,
Amrit