What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-07-30 compared with 2020-05-07 · 244 added, 176 removed, 328 unchanged (56% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

March 31, 2020

December 31, 2019

(In thousands) June 30, 2020 December 31, 2019

CURRENT ASSETS:

2 unchanged sentences

Accounts receivable, net 12,872 24,274

Inventories 103,963 90,380

Prepaid expenses and other current assets 14,512 15,597

2 unchanged sentences

INTANGIBLE ASSETS, net 14,658 16,865

GOODWILL 91,849 91,849

DEFERRED TAX ASSETS 1,514 2,836

OTHER ASSETS 29,956 34,388

Total assets $ 853,777 $ 803,896

LIABILITIES AND STOCKHOLDERS’ EQUITY

11 unchanged sentences

STOCKHOLDERS’ EQUITY:

Common stock 28 28

Additional paid-in capital 168,470 152,117

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands, except per share amounts) 2020 2019 2020 2019

NET REVENUES $ 106,832 $ 102,865 $ 216,496 $ 192,053

COST OF REVENUES 53,296 51,293 106,480 95,007

GROSS PROFIT 53,536 51,572 110,016 97,046

OPERATING EXPENSES:

4 unchanged sentences

INCOME FROM OPERATIONS 12,925 9,760 28,019 15,881

OTHER INCOME 1,480 1,310 3,257 2,462

INCOME BEFORE INCOME TAXES 14,405 11,070 31,276 18,343

PROVISION FOR INCOME TAXES 1,213 225 2,198 265

NET INCOME $ 13,192 $ 10,845 $ 29,078 $ 18,078

EARNINGS PER SHARE:

Basic $ 0.44 $ 0.37 $ 0.98 $ 0.62

Diluted $ 0.44 $ 0.37 $ 0.96 $ 0.61

SHARES USED IN PER SHARE CALCULATION:

Basic 29,856 29,297 29,729 29,125

Diluted 30,312 29,702 30,232 29,597

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

The Earnings Per Share and Shares Used in Per Share Calculation information presented above does not reflect the effect of the August 2020 stock split.

Refer to Note 9, Earnings Per Share , in this Form 10-Q for details.

POWER INTEGRATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2020 2019 2020 2019

NET INCOME $ 13,192 $ 10,845 $ 29,078 $ 18,078

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments, net of $0 tax in each of the three months ended March 31, 2020 and 2019

Unrealized gain (loss) on marketable securities, net of $0 tax in each of the three months ended March 31, 2020 and 2019

Amortization of defined benefit pension items, net of tax of $31 and $5 in the three months ended March 31, 2020, and 2019, respectively

Total other comprehensive income (loss)

Foreign currency translation adjustments, net of $ 0 tax in each of the three and six months ended June 30, 2020 and 2019

( 30 ) ( 250 ) ( 313 ) ( 272 )

Unrealized gain on marketable securities, net of $ 0 tax in each of the three and six months ended June 30, 2020 and 2019

2,566 257 1,614 591

Amortization of defined benefit pension items, net of tax of $ 24 and $ 55 in the three and six months ended June 30, 2020, respectively, and $ 5 and $ 9 in the three and six months ended June 30, 2019, respectively

Total other comprehensive income 2,594 25 1,410 353

TOTAL COMPREHENSIVE INCOME $ 15,786 $ 10,870 $ 30,488 $ 18,431

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2020 2019 2020 2019

11 unchanged sentences

Beginning balance ( 4,314 ) ( 1,361 ) ( 3,130 ) ( 1,689 )

Other comprehensive income (loss)

Other comprehensive income 2,594 25 1,410 353

Ending balance ( 1,720 ) ( 1,336 ) ( 1,720 ) ( 1,336 )

1 unchanged sentence

Beginning balance 585,773 404,865 575,531 402,569

Net income 13,192 10,845 29,078 18,078

Payment of dividends to stockholders ( 6,271 ) ( 4,980 ) ( 11,915 ) ( 9,917 )

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

(In thousands) 2020 2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 29,078 $ 18,078

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 11,069 9,431

Amortization of intangibles 2,207 2,483

3 unchanged sentences

Deferred income taxes 1,279 1,659

Decrease in accounts receivable allowance for credit losses

Increase (decrease) in accounts receivable allowance for credit losses ( 154 ) 57

Change in operating assets and liabilities:

Accounts receivable 11,556 ( 14,453 )

Inventories ( 13,583 ) ( 8,340 )

Prepaid expenses and other assets 4,092 ( 3,614 )

4 unchanged sentences

Purchases of property and equipment ( 21,622 ) ( 8,348 )

Proceeds from sale of property and equipment 331 —

Acquisition of technology licenses — ( 251 )

1 unchanged sentence

Proceeds from sales and maturities of marketable securities 58,962 19,422

Net cash used in investing activities

Net cash provided by (used in) investing activities 17,844 ( 43,601 )

CASH FLOWS FROM FINANCING ACTIVITIES:

10 unchanged sentences

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for income taxes, net

Cash paid (received) for income taxes, net $ ( 2,155 ) $ 890

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

19 unchanged sentences

Accounts Receivable

(In thousands)

March 31, 2020

(In thousands) June 30,

2020 December 31,

3 unchanged sentences

Allowance for credit losses ( 609 ) ( 763 )

Total $ 12,872 $ 24,274

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company maintains an allowance for estimated credit losses resulting from the inability of customers to make required payments.

2 unchanged sentences

Allowance for Credit Losses

Three Months Ended

(In thousands)

March 31, 2020

Three Months Ended Six Months Ended

(In thousands) June 30,

2020 June 30,

Beginning balance $ ( 609 ) $ ( 763 )

3 unchanged sentences

Ending balance $ ( 609 ) $ ( 609 )

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands)

March 31, 2020

(In thousands) June 30,

2020 December 31,

2 unchanged sentences

Finished goods 26,580 25,340

Total $ 103,963 $ 90,380

Prepaid Expenses and Other Current Assets

(In thousands)

March 31, 2020

(In thousands) June 30,

2020 December 31,

4 unchanged sentences

Advance to suppliers 3,877 3,579

Other 4,367 4,289

Total $ 14,512 $ 15,597

Intangible Assets

March 31, 2020

December 31, 2019

(In thousands)

June 30, 2020 December 31, 2019

(In thousands) Gross Accumulated Amortization Net Gross Accumulated Amortization Net

Domain name $ 1,261 $ — $ 1,261 $ 1,261 $ — $ 1,261

Developed technology 37,960 ( 27,529 ) 10,431 37,960 ( 25,933 ) 12,027

1 unchanged sentence

Technology licenses 1,926 ( 405 ) 1,521 1,926 ( 281 ) 1,645

The estimated future amortization expense related to finite-lived intangible assets at March 31, 2020 , is as follows:

(In thousands)

2020 (remaining nine months)

Total $ 57,847 $ ( 43,189 ) $ 14,658 $ 61,177 $ ( 44,312 ) $ 16,865

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The estimated future amortization expense related to finite-lived intangible assets at June 30, 2020, is as follows:

Fiscal Year Estimated

(In thousands)

2020 (remaining six months) $ 2,152

Thereafter 1,884

Total $ 13,397

Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss for three months ended March 31, 2020 and 2019 , were as follows:

Unrealized Gains and Losses on Marketable Securities

Defined Benefit Pension Items

Foreign Currency Items

Three Months Ended

Changes in accumulated other comprehensive loss for three and six months ended June 30, 2020 and 2019, were as follows:

Unrealized Gains and Losses on Marketable Securities Defined Benefit Pension Items Foreign Currency Items Total

Three Months Ended Three Months Ended Three Months Ended Three Months Ended

June 30, June 30, June 30, June 30,

(In thousands) 2020 2019 2020 2019 2020 2019 2020 2019

5 unchanged sentences

_______________

This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the three months ended March 31, 2020 and 2019 .

(1) This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the three months ended June 30, 2020 and 2019.

Unrealized Gains and Losses on Marketable Securities Defined Benefit Pension Items Foreign Currency Items Total

Six Months Ended Six Months Ended Six Months Ended Six Months Ended

June 30, June 30, June 30, June 30,

(In thousands) 2020 2019 2020 2019 2020 2019 2020 2019

Beginning balance $ 583 $ ( 266 ) $ ( 2,484 ) $ ( 712 ) $ ( 1,229 ) $ ( 711 ) $ ( 3,130 ) $ ( 1,689 )

Other comprehensive income (loss) before reclassifications 1,614 591 — — ( 313 ) ( 272 ) 1,301 319

Amounts reclassified from accumulated other comprehensive loss — — 109 (1) 34 (1) — — 109 34

Net-current period other comprehensive income (loss) 1,614 591 109 34 ( 313 ) ( 272 ) 1,410 353

Ending balance $ 2,197 $ 325 $ ( 2,375 ) $ ( 678 ) $ ( 1,542 ) $ ( 983 ) $ ( 1,720 ) $ ( 1,336 )

_______________

(1) This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the six months ended June 30, 2020 and 2019.

FAIR VALUE MEASUREMENTS:

1 unchanged sentence

(Level 1) observable inputs such as quoted prices for identical assets in active markets;

(Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly;

(Level 2) inputs other than the quoted

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

prices in active markets that are observable either directly or indirectly;

and (Level 3) unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.

1 unchanged sentence

The Company's cash equivalents and short-term marketable securities are classified within Level 1 or Level 2 of the fair-value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

The fair-value hierarchy of the Company's cash equivalents and marketable securities at March 31, 2020 , and December 31, 2019 , was as follows:

The fair-value hierarchy of the Company's cash equivalents and marketable securities at June 30, 2020, and December 31, 2019, was as follows:

Fair Value Measurement at

March 31, 2020

(In thousands)

Total Fair Value

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs (Level 2)

June 30, 2020

(In thousands) Total Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2)

Corporate securities $ 191,560 $ — $ 191,560

1 unchanged sentence

Money market funds 8,594 8,594 —

Total $ 403,748 $ 8,594 $ 395,154

Fair Value Measurement at

December 31, 2019

(In thousands)

Total Fair Value

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs (Level 2)

(In thousands) Total Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2)

Corporate securities $ 232,398 $ — $ 232,398

1 unchanged sentence

Money market funds 2,983 2,983 —

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company did not transfer any investments between Level 1 and Level 2 of the fair-value hierarchy in the three months ended March 31, 2020 , and the twelve months ended December 31, 2019 .

Total $ 382,336 $ 2,983 $ 379,353

The Company did not transfer any investments between Level 1 and Level 2 of the fair-value hierarchy in the six months ended June 30, 2020, and the twelve months ended December 31, 2019.

MARKETABLE SECURITIES:

Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at March 31, 2020 , were as follows:

Amortized Cost

Gross Unrealized

Estimated Fair Market Value

(In thousands)

Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at June 30, 2020, were as follows:

Amortized Cost Gross Unrealized Estimated Fair Market Value

(In thousands) Gains Losses

Investments due in 3 months or less:

1 unchanged sentence

Corporate securities 25,030 77 — 25,107

Total 28,026 77 — 28,103

Investments due in 4-12 months:

Corporate securities 133,251 1,597 — 134,848

Total 133,251 1,597 — 134,848

Investments due in 12 months or greater:

Corporate securities 31,082 523 — 31,605

Total 31,082 523 — 31,605

Total marketable securities $ 192,359 $ 2,197 $ — $ 194,556

Accrued interest receivable was $ 1.7 million at March 31, 2020 and was recorded within prepaid expenses and other current assets on the condensed consolidated balance sheet.

Accrued interest receivable was $ 1.1 million at June 30, 2020 and was recorded within prepaid expenses and other current assets on the condensed consolidated balance sheet.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at December 31, 2019, were as follows:

Amortized Cost

Gross Unrealized

Estimated Fair Market Value

(In thousands)

Amortized Cost Gross Unrealized Estimated Fair Market Value

(In thousands) Gains Losses

Investments due in 3 months or less:

Corporate securities $ 15,934 $ 18 $ — $ 15,952

Total 15,934 18 — 15,952

Investments due in 4-12 months:

Corporate securities 71,223 269 — 71,492

Total 71,223 269 — 71,492

Investments due in 12 months or greater:

Corporate securities 144,658 302 ( 6 ) 144,954

Total 144,658 302 ( 6 ) 144,954

Total marketable securities $ 231,815 $ 589 $ ( 6 ) $ 232,398

Accrued interest receivable was $ 1.3 million at December 31, 2019 and was recorded within prepaid expenses and other current assets on the condensed consolidated balance sheet.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes marketable securities classified as available-for-sale (excluding cash equivalents) in a continuous unrealized loss position for which an allowance for credit losses has not been recorded at March 31, 2020 and December 31, 2019 :

Less Than 12 Months

12 Months or Longer

(In thousands)

Estimated Fair Market Value

Gross Unrealized Losses

Estimated Fair Market Value

Gross Unrealized Losses

Estimated Fair Market Value

Gross Unrealized Losses

March 31, 2020

Corporate securities

Total marketable securities

As of June 30, 2020 the Company had no marketable securities classified as available-for-sale (excluding cash equivalents) in a continuous unrealized loss position for which an allowance for credit losses was not recorded.

Less Than 12 Months 12 Months or Longer Total

(In thousands) Estimated Fair Market Value Gross Unrealized Losses Estimated Fair Market Value Gross Unrealized Losses Estimated Fair Market Value Gross Unrealized Losses

December 31, 2019

1 unchanged sentence

Total marketable securities $ 13,069 $ ( 6 ) $ — $ — $ 13,069 $ ( 6 )

In the three months ended March 31, 2020 , no unrealized losses on marketable securities were recognized in income.

The Company does not intend to sell and it is unlikely that it will be required to sell the securities prior to their anticipated recovery.

The issuers are high quality (investment grade) and the decline in fair value is largely due to changes in interest rates and other market conditions.

Additionally, the issuers continue to make timely interest payments on the marketable securities with the fair value expected to recover as they reach maturity.

In the three and six months ended June 30, 2020 , no unrealized losses on marketable securities were recognized in income.

STOCK-BASED COMPENSATION:

The following table summarizes the stock-based compensation expense recognized in accordance with ASC 718-10 for the three months ended March 31, 2020 , and March 31, 2019 :

Three Months Ended

(In thousands)

March 31, 2020

March 31, 2019

The following table summarizes the stock-based compensation expense recognized in accordance with ASC 718-10 for the three and six months ended June 30, 2020, and June 30, 2019:

Three Months Ended Six Months Ended

(In thousands) June 30,

2020 June 30,

2019 June 30,

2020 June 30,

Cost of revenues $ 252 $ 273 $ 648 $ 544

3 unchanged sentences

Total stock-based compensation expense $ 5,981 $ 5,496 $ 12,691 $ 9,903

Stock-based compensation expense in the three months ended March 31, 2020 , was approximately $ 6.7 million , comprising approximately $ 5.0 million related to restricted stock unit (RSU) awards, $ 1.3 million related to performance-based (PSU) awards and long-term performance-based (PRSU) awards and $ 0.4 million related to the Company’s employee stock purchase plan.

Stock-based compensation expense in the three months ended March 31, 2019 , was approximately $ 4.4 million , comprising approximately $ 4.6 million related to RSUs, a reduction to expense of $ 0.6 million related to PSUs and PRSUs and $ 0.4 million related to the Company’s employee stock purchase plan.

Stock-based compensation expense in the three months ended June 30, 2020, was approximately $ 6.0 million, comprising approximately $ 4.5 million related to restricted stock unit (RSU) awards, $ 1.1 million related to performance-based (PSU) awards and long-term performance-based (PRSU) awards and $ 0.4 million related to the Company’s employee stock purchase plan.

Stock-based compensation expense in the six months ended June 30, 2020, was approximately $ 12.7 million, comprising approximately $ 9.5 million related to RSUs, $ 2.4 million related to PSUs and PRSUs and $ 0.8 million related to the Company’s employee stock purchase plan.

Stock-based compensation expense in the three months ended June 30, 2019, was approximately $ 5.5 million, comprising approximately $ 4.2 million related to RSUs, $ 0.9 million related to PSUs and PRSUs and $ 0.4 million related to the

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Company’s employee stock purchase plan.

In the six months ended June 30, 2019, stock-based compensation expense was approximately $ 9.9 million, comprising approximately $ 8.8 million related to RSUs, $ 0.3 million related to PSUs and PRSUs and $ 0.8 million related to the Company’s employee stock purchase plan.

Stock Options

A summary of stock options outstanding as of March 31, 2020 , and activity during the three months then ended, is presented below:

(In thousands)

Weighted-Average

A summary of stock options outstanding as of June 30, 2020, and activity during the six months then ended, is presented below:

(In thousands) Weighted-

Price Weighted-Average

(In years) Aggregate

Intrinsic Value

1 unchanged sentence

Outstanding at January 1, 2020 167 $ 38.88

Exercised ( 90 ) $ 37.22

Forfeited or expired — —

Outstanding at March 31, 2020

Vested and exercisable at March 31, 2020

Outstanding at June 30, 2020 77 $ 40.81 1.51 $ 5,973

Vested and exercisable at June 30, 2020 77 1.51 $ 5,973

Under the performance-based awards program, the Company grants awards in the performance year in an amount equal to twice the target number of shares to be issued if the maximum performance metrics are met.

6 unchanged sentences

the shares were released to the Company’s employees and executives in the first quarter of 2020.

A summary of PSUs outstanding as of March 31, 2020 , and activity during the three months then ended, is presented below:

(In thousands)

Weighted- Average Grant Date Fair Value Per Share

Weighted-Average Remaining Contractual Term

Aggregate Intrinsic Value

A summary of PSUs outstanding as of June 30, 2020, and activity during the six months then ended, is presented below:

(In thousands) Weighted- Average Grant Date Fair Value Per Share Weighted-Average Remaining Contractual Term

(In years) Aggregate Intrinsic Value

(In thousands)

Outstanding at January 1, 2020 61 $ 70.11

Outstanding at March 31, 2020

Outstanding and expected to vest at March 31, 2020

Granted 73 $ 92.12

Vested ( 61 ) $ 70.11

Forfeited — —

Outstanding at June 30, 2020 73 $ 92.12 0.50 $ 8,652

Outstanding and expected to vest at June 30, 2020 50 0.50 $ 5,961

The Company's PRSU program provides for the issuance of PRSUs which will vest based on the Company's performance measured against the PRSU program's established performance targets.

2 unchanged sentences

The performance goals for PRSUs granted in fiscal 2018, 2019 and 2020 were based on the Company’s annual revenue growth over the respective three-year performance period.

Expense associated with these awards, net of estimated forfeitures, is recorded throughout the year depending on the number of shares expected to vest based on progress toward the performance target.

If the performance conditions are not achieved, no compensation cost is recognized and any previously recognized compensation is reversed.

Expense associated with these awards, net of estimated forfeitures, is recorded throughout the year based on an

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

assessment of the expected achievement of the performance targets.

If the performance conditions are not achieved, no compensation cost is recognized and any previously recognized compensation is reversed.

In January 2020 it was determined that no shares subject to the PRSUs granted in 2017 vested in aggregate;

thus no shares were released to the Company’s executives in the first quarter of 2020.

A summary of PRSUs outstanding as of March 31, 2020 , and activity during the three months then ended, is presented below:

(In thousands)

Weighted- Average Grant Date Fair Value Per Share

Weighted-Average Remaining Contractual Term

Aggregate Intrinsic Value

A summary of PRSUs outstanding as of June 30, 2020, and activity during the six months then ended, is presented below:

(In thousands) Weighted- Average Grant Date Fair Value Per Share Weighted-Average Remaining Contractual Term

(In years) Aggregate Intrinsic Value

(In thousands)

Outstanding at January 1, 2020 144 $ 64.05

Outstanding at March 31, 2020

Outstanding and expected to vest at March 31, 2020

A summary of RSUs outstanding as of March 31, 2020 , and activity during the three months then ended, is presented below:

(In thousands)

Weighted- Average Grant Date Fair Value Per Share

Weighted-Average Remaining Contractual Term

Aggregate Intrinsic Value

Granted 73 $ 98.75

Forfeited — —

Outstanding at June 30, 2020 217 $ 75.70 1.50 $ 25,540

Outstanding and expected to vest at June 30, 2020 100 2.23 $ 11,808

A summary of RSUs outstanding as of June 30, 2020, and activity during the six months then ended, is presented below:

(In thousands) Weighted- Average Grant Date Fair Value Per Share Weighted-Average Remaining Contractual Term

(In years) Aggregate Intrinsic Value

(In thousands)

Outstanding at January 1, 2020 860 $ 62.66

Outstanding at March 31, 2020

Outstanding and expected to vest at March 31, 2020

Granted 191 $ 85.96

Vested ( 288 ) $ 60.09

Forfeited ( 11 ) $ 66.16

Outstanding at June 30, 2020 752 $ 69.51 1.89 $ 88,770

Outstanding and expected to vest at June 30, 2020 690 1.82 $ 81,463

SIGNIFICANT CUSTOMERS AND GEOGRAPHIC NET REVENUES:

3 unchanged sentences

Customer Concentration

The Company's top ten customers accounted for approximately 55 % of net revenues for the three months ended March 31, 2020 , and approximately 52 % of net revenues in the corresponding period of the previous year.

The Company's top ten customers accounted for approximately 59 % and 56 % of net revenues for the three and six months ended June 30, 2020, respectively, and approximately 56 % and 54 %, respectively, in the corresponding periods of the previous year.

A significant portion of these revenues are attributable to sales of the Company’s products to distributors of electronic components.

These distributors sell the Company’s products to a broad, diverse range of end users, including original equipment manufacturers, or OEMs, and merchant power supply manufacturers.

Sales to distributors were $ 83.5 million and $ 69.8 million in the three months ended March 31, 2020 and 2019 , respectively.

Sales to distributors were $ 87.3 million and $ 170.8 million in the three and six months ended June 30, 2020, respectively and $ 74.8 million and $ 144.7 million, respectively, for the corresponding periods of 2019.

Direct sales to OEMs and power-supply manufacturers accounted for the remainder.

In the three months ended March 31, 2020 , two customers, distributors of the Company's products, accounted for more than 10 % of the Company’s net revenues.

In the three months ended March 31, 2019 , one of the two customers accounted for more than 10 % of the Company’s net revenues.

The following table discloses the customers’ percentage of revenues for the respective periods:

Three Months Ended

March 31, 2020

March 31, 2019

Powertech Distribution Ltd.

*Total customer revenue was less than 10 % of net revenues.

In each of three and six months ended June 30, 2020, one customer, a distributor of the Company's products, accounted for more than 10 % of the Company’s net revenues.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table discloses the customer’s percentage of revenues for the respective periods:

Three Months Ended Six Months Ended

Customer June 30,

2020 June 30,

2019 June 30,

2020 June 30,

Avnet 13 % 10 % 12 % 12 %

No other customers accounted for 10 % or more of the Company’s net revenues in the periods presented.

2 unchanged sentences

The Company does not have any off-balance-sheet credit exposure related to its customers.

As of March 31, 2020 , and December 31, 2019 , 69 % and 63 % , respectively, of accounts receivable were concentrated with the Company’s top ten customers.

As of June 30, 2020, and December 31, 2019, 65 % and 63 %, respectively, of accounts receivable were concentrated with the Company’s top ten customers.

The following customers represented 10 % or more of accounts receivable:

March 31, 2020

Customer June 30,

2020 December 31,

Powertech Distribution Ltd.

Burnon International Ltd.

________________________

*Total customer accounts receivable was less than 10 % of accounts receivable.

2 unchanged sentences

The Company markets its products globally through its sales personnel and a worldwide network of independent sales representatives and distributors.

Geographic net revenues, based on “bill to” customer locations, for the three months ended March 31, 2020 , and March 31, 2019 , were as follows:

Three Months Ended

(In thousands)

March 31, 2020

March 31, 2019

Geographic net revenues, based on “bill to” customer locations, for the three and six months ended June 30, 2020, and June 30, 2019, were as follows:

Three Months Ended Six Months Ended

(In thousands) June 30,

2020 June 30,

2019 June 30,

2020 June 30,

United States of America $ 2,935 $ 2,612 $ 5,648 $ 5,284

Hong Kong/China 65,680 59,355 126,093 106,584

Taiwan 7,199 10,164 13,678 16,836

Korea 7,284 6,902 17,641 15,444

Western Europe (excluding Germany) 7,995 8,625 18,030 19,526

Japan 4,398 2,909 8,303 6,559

Germany 5,847 3,813 11,414 8,740

Other 5,494 8,485 15,689 13,080

Total net revenues $ 106,832 $ 102,865 $ 216,496 $ 192,053

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

STOCKHOLDERS’ EQUITY:

Common Stock Shares Outstanding

Three Months Ended

(In thousands)

March 31, 2020

March 31, 2019

Three Months Ended Six Months Ended

(In thousands) June 30,

2020 June 30,

2019 June 30,

2020 June 30,

Beginning balance 29,691 29,110 29,431 28,889

Common stock issued under employee stock plans 193 220 477 562

Repurchased ( 8 ) — ( 32 ) ( 121 )

Ending balance 29,876 29,330 29,876 29,330

In July 2020, the Company’s board of directors approved a two -for-one stock split in the form of a stock dividend, payable on August 18, 2020 , to stockholders of record as of the close of business on August 14, 2020 .

The Company’s stockholders will receive one additional share of common stock for each share of common stock held on August 14, 2020.

As the stock split is not effective as of the filing date of this Form 10-Q, the shares outstanding and basic and diluted earnings per share included this Form 10-Q have not been adjusted for the effect of the stock split.

Common Stock Repurchases

As of December 31, 2019, the Company had approximately $ 43.9 million remaining under its stock-repurchase program.

In the three months ended March 31, 2020 , the Company repurchased approximately 24,000 shares of its common stock for approximately $ 2.0 million .

As of March 31, 2020 , the Company had approximately $ 41.9 million remaining under its current repurchase program, which has no expiration date.

In the six months ended June 30, 2020, the Company repurchased approximately 32,000 shares of its common stock for approximately $ 2.6 million.

As of June 30, 2020, the Company had approximately $ 41.3 million remaining under its current repurchase program, which has no expiration date.

Authorization of future repurchase programs is at the discretion of the board of directors and will depend on the Company’s financial condition, results of operations, capital requirements, business conditions and other factors.

Cash Dividends

In January 2019, the Company’s board of directors declared four quarterly cash dividends in the amount of $ 0.17 per share to be paid to stockholders of record at the end of each quarter in 2019.

In October 2019, the Company’s board of directors raised the cash dividends per share with the declaration of five cash dividends, consisting of (a) a dividend in the amount of $ 0.02 per share to be paid to stockholders of record at the end of the fourth quarter in 2019, which is in addition to the dividend in the amount of $0.17 per share to be paid to stockholders of record at the end of the fourth quarter in 2019 previously declared by the board in January 2019, and (b) a dividend in the amount of $ 0.19 per share to be paid to stockholders of record at the end of each quarter in 2020.

In April 2020, the Company’s board of directors raised the cash dividends further with the declaration of three cash dividends in the amount of $ 0.21 per share (in lieu of the $ 0.19 per share previously announced) to be paid to stockholders of record at the end of each of the second, third and fourth quarter in 2020.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the three months ended March 31, 2020 , and 2019, cash dividends declared and paid were as follows:

Three Months Ended

(In thousands, except per share amounts)

March 31, 2020

March 31, 2019

In January 2019, the Company’s board of directors declared four quarterly cash dividends of $ 0.17 per share to be paid to stockholders of record at the end of each quarter in 2019.

In October 2019, the Company’s board of directors raised the cash dividends per share with the declaration of five cash dividends, consisting of (a) a dividend of $ 0.02 per share to be paid to stockholders of record at the end of the fourth quarter in 2019, which is in addition to the dividend of $0.17 per share to be paid to stockholders of record at the end of the fourth quarter in 2019 previously declared by the board in January 2019, and (b) a dividend of $ 0.19 per share to be paid to stockholders of record at the end of each quarter in 2020.

In April 2020, the Company’s board of directors raised the cash dividends with the declaration of three cash dividends of $ 0.21 per share (in lieu of the $ 0.19 per share previously announced in October 2019) to be paid to stockholders of record at the end of each of the second, third and fourth quarter in 2020.

In July 2020, the Company’s board of directors raised the cash dividends further with the declaration of two cash dividends of $ 0.22 per share, equivalent to $ 0.11 on a post-split basis (in lieu of the $0.21 per share announced in April 2020) to be paid to stockholders of record at the end of each of the third and fourth quarter in 2020.

For the three and six months ended June 30, 2020, and 2019, cash dividends declared and paid were as follows:

Three Months Ended Six Months Ended

(In thousands, except per share amounts) June 30,

2020 June 30,

2019 June 30,

2020 June 30,

Dividends declared and paid $ 6,271 $ 4,980 $ 11,915 $ 9,917

3 unchanged sentences

Diluted earnings per share are calculated by dividing net income by the weighted-average shares of common stock and dilutive common equivalent shares outstanding during the period.

Dilutive common equivalent shares included in this calculation consist of dilutive shares issuable upon the assumed exercise of outstanding common stock options, the assumed vesting of outstanding restricted stock units, the assumed issuance of awards under the stock purchase plan and contingently issuable performance-based awards, as computed using the treasury stock method.

Dilutive common equivalent shares included in this calculation consist of dilutive shares issuable upon the assumed exercise of outstanding common stock options, the

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

assumed vesting of outstanding restricted stock units, the assumed issuance of awards under the stock purchase plan and contingently issuable performance-based awards, as computed using the treasury stock method.

A summary of the earnings per share calculation is as follows:

Three Months Ended

(In thousands, except per share amounts)

March 31, 2020

March 31, 2019

Three Months Ended Six Months Ended

(In thousands, except per share amounts) June 30,

2020 June 30,

2019 June 30,

2020 June 30,

Basic earnings per share:

Net income $ 13,192 $ 10,845 $ 29,078 $ 18,078

Weighted-average common shares 29,856 29,297 29,729 29,125

1 unchanged sentence

Diluted earnings per share:

Net income $ 13,192 $ 10,845 $ 29,078 $ 18,078

Weighted-average common shares 29,856 29,297 29,729 29,125

6 unchanged sentences

The Company has excluded the shares underlying the outstanding performance-based awards in the 2020 and 2019 calculations as the shares were not contingently issuable as of the end of the reporting periods.

In the three months ended March 31, 2020 and 2019 , no outstanding stock awards were determined to be anti-dilutive and therefore excluded from the computation of diluted earnings per share.

In the three and six months ended June 30, 2020 and 2019, no outstanding stock awards were determined to be anti-dilutive and therefore excluded from the computation of diluted earnings per share.

In July 2020, the Company’s board of directors approved a two-for-one stock split in the form of a stock dividend to stockholders of record as of the close of business on August 14, 2020.

Refer to Note 8, Stockholders’ Equity , for additional information.

The following table discloses unaudited pro forma weighted average shares outstanding and earnings per share information, as if the additional shares resulting from the stock split had been outstanding since the beginning of each period presented:

Three Months Ended Six Months Ended

(In thousands, except per share amounts) June 30,

2020 June 30,

2019 June 30,

2020 June 30,

Weighted average shares outstanding

Basic 59,712 58,594 59,458 58,250

Diluted 60,624 59,404 60,464 59,194

Earnings per share:

Basic $ 0.22 $ 0.19 $ 0.49 $ 0.31

Diluted $ 0.22 $ 0.18 $ 0.48 $ 0.31

PROVISION FOR INCOME TAXES:

1 unchanged sentence

Accordingly, the interim effective tax rate may not be reflective of the annual estimated effective tax rate.

The Company's effective tax rates for the three months ended March 31, 2020 and 2019, were 5.8 % and 0.5 % , respectively.

In the three months ended March 31, 2020 and 2019 , the effective tax rate was lower than the statutory federal income-tax rate of 21 % due to the geographic distribution of the Company’s world-wide earnings in lower-tax jurisdictions, federal research tax credits and the recognition of excess tax benefits related to share-based payments.

The Company's effective tax rates for the three and six months ended June 30, 2020, were 8.4 % and 7.0 %, respectively and 2.0 % and 1.4 %, respectively, for the corresponding periods of 2019.

In the three and six months ended June 30, 2020 and 2019, the effective tax rate was lower than the statutory federal income-tax rate of 21 % due to the geographic distribution of the Company’s world-wide earnings in lower-tax jurisdictions, federal research tax credits and the recognition of excess tax benefits related to share-based payments.

These benefits were partially offset by foreign income subject to U.S.

tax, known as global intangible low-taxed income.

The Company’s primary jurisdiction where foreign earnings are derived is the Cayman Islands, which is a non-taxing jurisdiction.

The Company’s primary jurisdiction where foreign earnings are derived is the Cayman Islands,

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

which is a non-taxing jurisdiction.

Income earned in other foreign jurisdictions was not material.

The Company has not been granted any incentivized tax rates and does not operate under any tax holidays in any jurisdiction.

As of March 31, 2020 , the Company maintained a valuation allowance on its California deferred tax assets, New Jersey deferred tax assets, and capital losses for federal purposes, and a valuation allowance with respect to its deferred tax assets relating to tax credits in Canada.

As of June 30, 2020, the Company maintained a valuation allowance on its California deferred tax assets, New Jersey deferred tax assets, and capital losses for federal purposes, and a valuation allowance with respect to its deferred tax assets relating to tax credits in Canada.

Determining the consolidated provision for income-tax expense, income-tax liabilities and deferred tax assets and liabilities involves judgment.

The Company calculates and provides for income taxes in each of the tax jurisdictions in which it operates, which

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

involves estimating current tax exposures as well as making judgments regarding the recoverability of deferred tax assets in each jurisdiction.

The Company calculates and provides for income taxes in each of the tax jurisdictions in which it operates, which involves estimating current tax exposures as well as making judgments regarding the recoverability of deferred tax assets in each jurisdiction.

The estimates used could differ from actual results, which may have a significant impact on operating results in future periods.

17 unchanged sentences

The Company challenged those findings in post-trial proceedings, and the Court granted one of the Company’s post-trial motions, reducing the damages award to $ 1.2 million.

The Company believes it has strong defenses, and intends to vigorously defend itself against Opticurrent’s claims through appeals, which are currently under way, with briefing completed and oral argument to follow in the coming months.

The Company believes it has strong defenses, and intends to vigorously defend itself against Opticurrent’s claims through appeals, which are currently under way, with briefing and oral argument completed, and rulings expected in the coming months.

On June 19, 2019, Opticurrent, LLC filed a follow-on lawsuit accusing more of the Company’s products of infringing the same claim of the same patent asserted in the parties’ prior litigation, as described above.

Limited discovery is currently under way, but no schedule has yet been set for expert discovery, dispositive motions, or trial.

The Company believes it has strong defenses, and intends to vigorously defend itself against Opticurrent’s claims, with appeals to follow if necessary.

On January 6, 2020, the Company filed a complaint against CogniPower LLC for infringement of two of the Company’s patents and seeking a declaration of non-infringement with respect to three patents that CogniPower had charged the Company’s customers with infringing.

The case is in its preliminary stages, and no schedule has been set for the case at this time, but the Company believes it has strong claims and defenses, and intends to vigorously defend itself against CogniPower’s infringement claims, with appeals to follow if necessary.

On January 6, 2020, the Company filed a complaint against CogniPower LLC for infringement of two of the Company’s patents and seeking a declaration of non-infringement with respect to patents that CogniPower had charged the Company’s customers with infringing , based on customer use of the Company’s products.

In response, CogniPower filed a motion to dismiss the Company’s declaratory judgment claims on the basis that CogniPower had not threatened the Company directly with suit.

That motion was granted, therefore CogniPower’s claims for infringement will go forward separately in their lawsuit against the Company’s customers, and the Company’s infringement claims against CogniPower likewise will proceed in a separate action.

These cases are in their preliminary stages, and no schedules have been set for the cases at this time, but the Company believes it has strong claims and defenses, and intends to vigorously defend itself against CogniPower’s claims against the Company’s technology, with appeals to follow if necessary.

The Company is unable to predict the outcome of legal proceedings with certainty, and there can be no assurance that Power Integrations will prevail in the above-mentioned unsettled litigations.

These litigations, whether or not determined in Power Integrations’ favor or settled, will be costly and will divert the efforts and attention of the Company’s management and technical personnel from normal business operations, potentially causing a material adverse effect on the business, financial condition and operating results.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

condition and operating results.

Currently, the Company is not able to estimate a loss or a range of loss for the ongoing litigation disclosed above, however adverse determinations in litigation could result in monetary losses, the loss of proprietary rights, subject the Company to significant liabilities, require Power Integrations to seek licenses from third parties or prevent the Company from licensing the technology, any of which could have a material adverse effect on the Company’s business, financial condition and operating results.

2 unchanged sentences

Each DSA contains the relevant terms of the contractual arrangement with the distributor, and generally includes certain provisions for indemnifying the distributor against losses, expenses, and liabilities from damages that may be awarded against the distributor in the event the Company's products are found to infringe upon a patent, copyright, trademark, or other proprietary right of a third party (“Customer Indemnification”).

The DSA generally limits the scope of and remedies for the Customer Indemnification obligations in a variety of industry-standard respects, including, but not limited to, limitations based on time and geography, and a

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

right to replace an infringing product.

The Company also, from time to time, has granted a specific indemnification right to individual customers.

1 unchanged sentence

In addition, the Company requires its employees to sign a proprietary information and inventions agreement, which assigns the rights to its employees' development work to the Company.

To date, the Company has not had to reimburse any of its distributors or customers for any losses related to these indemnifications and no material claims were outstanding as of March 31, 2020 .

To date, the Company has not had to reimburse any of its distributors or customers for any losses related to these indemnifications and no material claims were outstanding as of June 30, 2020.

For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases, the Company cannot determine the maximum amount of potential future payments, if any, related to such indemnifications.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements