What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-29 compared with 2020-07-30 · 88 added, 74 removed, 198 unchanged (45% of the section changed)

52 unchanged sentences

Recent Results

Our net revenues were $106.8 million and $102.9 million in the three months ended June 30, 2020 and 2019, respectively and $216.5 million and $192.1 million in the six months ended June 30, 2020 and 2019.

The increase in revenue was primarily due to growth in the communications and industrial end markets, reflecting increased adoption of higher-power chargers for mobile phones and growth across a broad range of industrial applications.

In the three-month period these increases were partially offset by lower revenues from the consumer end market, while strong demand for appliance applications in the first quarter of 2020 provided year-over-year growth in the consumer end market for the six-month period.

Our top ten customers, including distributors that resell to original equipment manufacturers, or OEMs, and merchant power supply manufacturers, accounted for 59% and 56% of our net revenues in the three and six months ended June 30, 2020, respectively and 56% and 54% of net revenues in each of the respective corresponding periods of 2019.

In the three and six months ended June 30, 2020, one customer, a distributor of our products, accounted for approximately 13% and 12% of our net revenues.

In the three months and six ended June 30, 2019, the same customer accounted for approximately 10% and 12% of our net revenues.

International sales accounted for 97% of our net revenues in each of the three and six months ended June 30, 2020 and 2019.

Our gross margin was 50.1% in each of the three months ended June 30, 2020 and 2019, respectively, and 50.8% and 50.5% in the six months ended June 30, 2020, and 2019, respectively.

The increase in gross margin in the six-month period was due to a favorable change in end-market mix with a greater amount of revenues coming from higher-margin end markets.

Total operating expenses were $40.6 million and $41.8 million in the three months ended June 30, 2020 and 2019, respectively, and $82.0 million and $81.2 million in the six months ended June 30, 2020 and 2019, respectively.

The decrease in

the three-month period was due primarily to lower legal expenses following the conclusion of our patent litigation with ON Semiconductor in October 2019, as well as lower travel expenses due to restrictions associated with the COVID-19 pandemic.

These decreases were partially offset by higher salary and related expenses driven by the expansion of our workforce, as well as higher stock-based compensation expense related to performance-based awards.

The increase in the six-month period was primarily due to higher salary and related expenses from the expansion of our workforce and higher stock-based compensation expense related to performance awards.

These increases were mostly offset by lower legal expenses following the conclusion of our litigation with ON Semiconductor and lower travel expenses due to COVID-19 pandemic related restrictions.

Our net revenues were $121.1 million and $114.2 million in the three months ended September 30, 2020 and 2019, respectively, and $337.6 million and $306.2 million in the nine months ended September 30, 2020 and 2019, respectively.

The increase in revenues in the three-month period was primarily due to growth in the communications and computer end markets, reflecting increased adoption of higher-power chargers for mobile phones and tablets, as well as increased sales for desktop computers and monitors.

These increases were partially offset by lower sales in the industrial end market across a broad range of applications.

The increase in revenues in the nine-month period was due to growth across all end markets including the applications discussed above as well as a broad range of industrial and consumer-appliance applications.

Our top ten customers, including distributors that resell to original equipment manufacturers, or OEMs, and merchant power supply manufacturers, accounted for 65% and 56% of our net revenues in the three and nine months ended September 30, 2020, respectively, and 55% and 54% of net revenues in each of the respective corresponding periods of 2019.

In the three months ended September 30, 2020, two customers, distributors of our products, accounted for approximately 18% and 14% of our net revenues.

In the nine months ended September 30, 2020, one of the two customers accounted for approximately 14% of our net revenues.

In the three and nine months ended September 30, 2019, the same customer accounted for approximately 11% of our net revenues.

International sales accounted for 98% of our net revenues in each of the three and nine months ended September 30, 2020, and 97% of our net revenues in each of the three and nine months ended September 30, 2019.

Our gross margin was 49.2% and 50.9% in the three months ended September 30, 2020 and 2019, respectively, and 50.2% and 50.7% in the nine months ended September 30, 2020, and 2019, respectively.

The decrease in gross margin in the three- and nine-month periods of 2020 as compared to the same periods in 2019 was due to an unfavorable change in end-market mix with a greater amount of revenues coming from lower-margin end markets.

Total operating expenses were $44.8 million and $40.6 million in the three months ended September 30, 2020 and 2019, respectively, and $126.8 million and $121.8 million in the nine months ended September 30, 2020 and 2019, respectively.

The increase in the three- and nine-month periods was due primarily to higher stock-based compensation expense related to performance-based awards along with higher salary and related expenses from the expansion of our workforce.

These increases were partially offset by lower legal expenses following the conclusion of our litigation with ON Semiconductor and lower travel expenses due to COVID-19 pandemic related restrictions.

COVID-19 Pandemic

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While we have been able to conduct our day-to-day operations effectively in spite of the restrictions caused by the pandemic, the pandemic has caused disruptions in our supply chain.

While the supply of wafers from our foundry partners has not been interrupted, government-mandated closures in China, Malaysia, Sri Lanka and the Philippines have caused temporary shutdowns at our assembly and test sub-contractors in those countries;

While the supply of wafers from our foundry partners has not been interrupted, government-mandated closures in China, Malaysia, Sri Lanka and the Philippines in the early stages of the pandemic caused temporary shutdowns at our assembly and test sub-contractors in those countries.

All of the affected sub-contractors have now resumed operations.

While these disruptions have resulted in delayed shipments to some customers, we believe we have thus far prevented a material impact to our results through a variety of mitigation measures including higher-than-normal inventories of wafers and finished goods, safety stocks of certain key inputs, and multiple sources for most of our products.

The economic downturn stemming from the pandemic has resulted in reduced demand for goods incorporating our products.

While these disruptions resulted in delayed shipments to some customers, our results were not materially affected due to a variety of mitigation measures including higher-than-normal inventories of wafers and finished goods, safety stocks of certain key inputs, and multiple sources for most of our products.

The economic downturn stemming from the pandemic has impacted demand for goods incorporating our products.

While the future trajectory of demand is highly uncertain, we have adjusted our near-term operating-expense and capital-spending plans, in anticipation of a continued period of reduced demand.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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Net income 12.2 % 15.0 % 12.9 % 11.5 %

Comparison of the Three and Six Months Ended June 30, 2020 and 2019

Comparison of the Three and Nine Months Ended September 30, 2020 and 2019

Net revenues.

Net revenues consist of revenues from product sales, which are calculated net of returns and allowances.

Net revenues for the three and six months ended June 30, 2020 were $106.8 million and $216.5 million, respectively and $102.9 million and $192.1 million, respectively, for the corresponding periods of 2019.

In the three-month period these increases were partially offset by lower revenues from the consumer end market following strong sales from appliance applications in the prior quarter as reflected in the higher rate of year-over-year growth for the six-month period.

Our revenue mix by end market for the three and six months ended June 30, 2020 and 2019 was as follows:

Net revenues for the three and nine months ended September 30, 2020 were $121.1 million and $337.6 million, respectively, and $114.2 million and $306.2 million, respectively, for the corresponding periods of 2019.

The increase in revenues in the three months ended September 30, 2020 as compared to same period in 2019 was primarily due to growth in the communications and computer end markets, reflecting increased adoption of higher-power chargers for mobile phones and tablets, as well as increased sales for desktop computers and monitors.

These increases were partially offset by lower sales in the industrial end market across a broad range of applications.

The increase in revenues in the nine months ended September 30, 2020 as compared to same period in 2019 was due to growth across all end markets including the applications discussed above as well as a broad range of industrial and consumer-appliance applications.

Our revenue mix by end market for the three and nine months ended September 30, 2020 and 2019 was as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

End Market 2020 2019 2020 2019

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Industrial 28 % 34 % 32 % 35 %

International sales, consisting of sales outside of the United States of America based on “bill to” customer locations, were $103.9 million and $210.8 million in the three and six months ended June 30, 2020, respectively, and $100.3 million and $186.8 million, respectively, in the corresponding periods of 2019.

International sales, consisting of sales outside of the United States of America based on “bill to” customer locations, were $118.7 million and $329.6 million in the three and nine months ended September 30, 2020, respectively, and $111.3 million and $298.1 million, respectively, in the corresponding periods of 2019.

Although power converters using our products are distributed to end markets worldwide, most are manufactured in Asia.

As a result, sales to this region represented 81% and 78% of our net revenues in the three and six months ended June 30, 2020, respectively, and 78% and 77%, respectively, in the corresponding periods of 2019.

As a result, sales to this region represented 82% and 80% of our net revenues in the three and nine months ended September 30, 2020, respectively, and 77% in the corresponding periods of 2019.

We expect international sales, and sales to the Asia region in particular, to continue to account for a large portion of our net revenues in the future.

Sales to distributors accounted for 82% and 79% of net revenues in the three and six months ended June 30, 2020, respectively and 73% and 75% in the corresponding periods of 2019.

Sales to distributors accounted for 70% and 76% of net revenues in the three and nine months ended September 30, 2020, respectively and 68% and 73% in the corresponding periods of 2019.

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

In each of the three and six months ended June 30, 2020, and 2019, one customer, a distributor of our products, accounted for more than 10% of our net revenues.

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

The following customers represented 10% or more of the Company’s net revenues for the respective periods:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

Customer 2020 2019 2020 2019

Avnet 18 % 11 % 14 % 11 %

Honestar Technologies Co., Ltd.

________________________

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

No other customers accounted for 10% or more of our net revenues in these periods.

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Gross margin is gross profit divided by net revenues.

The table below compares gross profit and gross margin for the three and six months ended June 30, 2020 and 2019:

The table below compares gross profit and gross margin for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(dollars in millions) 2020 2019 2020 2019

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Gross margin 49.2 % 50.9 % 50.2 % 50.7 %

Gross margin increased in the six months ended June 30, 2020, compared with the corresponding period in 2019, due primarily to a favorable change in end-market mix with more revenues coming from higher-margin end markets.

Gross margin decreased in the three and nine months ended September 30, 2020, compared with the corresponding periods in 2019, due primarily to an unfavorable change in end-market mix with a greater amount of revenues coming from lower-margin end markets.

Research and development expenses.

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We also record R&D expenses for prototype wafers related to new products until such products are released to production.

The table below compares R&D expenses for the three and six months ended June 30, 2020 and 2019:

The table below compares R&D expenses for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(dollars in millions) 2020 2019 2020 2019

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R&D expenses as a % of net revenue 17.2 % 15.7 % 17.7 % 18.0 %

R&D expenses increased in the three and six months ended June 30, 2020 as compared to the corresponding periods in 2019, due primarily to higher salary and related expenses driven by increased headcount, as well as higher stock-based compensation expense related to performance-based awards.

R&D expenses increased in the three and nine months ended September 30, 2020 as compared to the corresponding periods in 2019, due primarily to higher salary and related expenses driven by increased headcount, as well as higher stock-based compensation expense related to performance-based awards.

Sales and marketing expenses.

Sales and marketing (“S&M”) expenses consist primarily of employee-related expenses, including stock-based compensation, commissions to sales representatives, amortization of intangible assets and facilities expenses, including expenses associated with our regional sales and support offices.

The table below compares S&M expenses for the three and six months ended June 30, 2020 and 2019:

The table below compares S&M expenses for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(dollars in millions) 2020 2019 2020 2019

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S&M expenses as a % of net revenue 11.3 % 11.8 % 11.9 % 13.0 %

S&M expenses decreased in the three months ended June 30, 2020, as compared to the corresponding period in 2019, due to lower travel expenses and promotional activities resulting from restrictions associated with the COVID-19 pandemic, along with lower amortization of intangibles, which were partially offset by higher salary and related expenses driven by the expansion of our sales force and higher stock-based compensation expense related to performance-based awards.

S&M increased in the six months ended June 30, 2020, as compared to the corresponding period in 2019, as the higher salary and related expenses driven by the expansion of our sales force and higher stock-based compensation were only partially offset by lower travel expenses and promotional activities resulting from restrictions associated with the COVID-19 pandemic, and lower amortization of intangibles.

S&M expenses increased in the three and nine months ended September 30, 2020, as compared to the corresponding periods in 2019, driven by higher salary and related expenses from the expansion of our sales force and higher stock-based compensation expense primarily related to performance-based awards.

These factors were partially offset by lower travel expenses and promotional activities resulting from restrictions associated with the COVID-19 pandemic, as well as lower amortization of intangibles.

General and administrative expenses.

General and administrative (“G&A”) expenses consist primarily of employee-related expenses, including stock-based compensation expenses, for administration, finance, human resources and general management, as well as consulting, professional services, legal and audit expenses.

The table below compares G&A expenses for the three and six months ended June 30, 2020 and 2019:

The table below compares G&A expenses for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(dollars in millions) 2020 2019 2020 2019

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G&A expenses as a % of net revenue 8.5 % 8.1 % 8.0 % 8.8 %

G&A expenses decreased in the three and six months ended June 30, 2020 as compared to the corresponding periods in 2019 due to lower patent-litigation expense following our settlement with ON Semiconductor in October 2019, partially offset by higher stock-based compensation expense related to performance-based awards.

G&A expenses increased in the three months ended September 30, 2020 as compared to the corresponding period in 2019 due to higher stock-based compensation expense related to performance-based awards, partially offset by lower patent-litigation expense following our settlement with ON Semiconductor in October 2019.

G&A expenses were flat in the nine months ended September 30, 2020 as compared to the corresponding period of 2019 as higher stock-based compensation expense was offset by lower patent-litigation expense.

Other income .

Other income consists primarily of interest income earned on cash and cash equivalents, marketable securities and other investments, and the impact of foreign exchange gains or losses.

The table below compares other income for the three and six months ended June 30, 2020 and 2019:

The table below compares other income for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(dollars in millions) 2020 2019 2020 2019

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Other income as a % of net revenue 0.7 % 0.9 % 1.2 % 1.2 %

Other income increased in the three and six months ended June 30, 2020 as compared to the corresponding periods in 2019 due primarily to an increase in interest income earned on higher cash and investment balances.

Other income decreased in the three months ended September 30, 2020 as compared to the corresponding period in 2019 due primarily to lower interest income, reflecting lower yields earned on our cash and investments despite higher cash and investment balances.

Other income increased in the nine months ended September 30, 2020 as compared to the corresponding period in 2019 due primarily to an increase in interest income earned on higher cash and investment balances offset in part by lower yields.

Provision for income taxes .

Provision for income taxes represents federal, state and foreign taxes.

The table below compares income-tax expense for the three and six months ended June 30, 2020 and 2019:

The table below compares income-tax expense for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(dollars in millions) 2020 2019 2020 2019

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

Our 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.

Our effective tax rates for the three and nine months ended September 30, 2020 were 5.1% and 6.4%, respectively, and 8.0% and 4.7%, respectively, for the corresponding periods of 2019.

The effective tax rate in these periods was lower than the statutory federal income-tax rate of 21% due to the geographic distribution of our world-wide earnings in lower-tax jurisdictions, the impact of federal research tax credits and the recognition of excess tax benefits related to share-based payments.

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Liquidity and Capital Resources

As of June 30, 2020, we had $445.9 million in cash, cash equivalents and short-term marketable securities, an increase of approximately $34.8 million from $411.1 million as of December 31, 2019.

As of June 30, 2020, we had working capital, defined as current assets less current liabilities, of $512.5 million, an increase of approximately $21.6 million from $490.9 million as of December 31, 2019.

Operating activities generated cash of $63.0 million in the six months ended June 30, 2020.

As of September 30, 2020, we had $443.9 million in cash, cash equivalents and short-term marketable securities, an increase of approximately $32.8 million from $411.1 million as of December 31, 2019.

As of September 30, 2020, we had

working capital, defined as current assets less current liabilities, of $526.7 million, an increase of approximately $35.8 million from $490.9 million as of December 31, 2019.

Operating activities generated cash of $79.3 million in the nine months ended September 30, 2020.

Net income for this period was $43.9 million;

we also incurred non-cash stock-based compensation expense, depreciation, amortization and deferred income taxes of $22.0 million, $17.1 million, $3.3 million and $0.1 million, respectively.

Sources of cash also included a $11.6 million

decrease in accounts receivable due to the timing of cash receipts, a $5.9 million increase in accounts payable (excluding payables related to property and equipment) due primarily to the timing of payments, and a $4.1 million decrease in prepaid expenses and other assets, primarily driven by taxes refunded.

These sources of cash were partially offset by a $13.6 million increase in inventories in order to support future demand and a $1.7 million decrease in taxes payable and accrued liabilities.

Operating activities generated cash of $20.5 million in the six months ended June 30, 2019.

Sources of cash also included a $6.4 million increase in accounts payable (excluding payables related to property and equipment) due primarily to the timing of payments, and a $6.1 million decrease in prepaid expenses and other assets, primarily driven by taxes refunded.

These sources of cash were partially offset by a $14.4 million increase in inventories in order to support the current and future demand environment, a $5.3 million increase in accounts receivable due to the increase and timing of customer shipments, and a $0.9 million decrease in taxes payable and accrued liabilities.

Operating activities generated cash of $42.3 million in the nine months ended September 30, 2019.

Net income for this period was $35.2 million;

we also incurred non-cash stock-based compensation expense, depreciation, amortization and deferred income taxes of $15.0 million, $14.3 million, $3.8 million and $1.3 million, respectively.

Sources of cash also included a $4.2 million increase in accounts payable (excluding payables related to property and equipment) due primarily to the timing of payments, and a $1.2 million increase in taxes payable and accrued liabilities.

These sources of cash were partially offset by a $14.5 million increase in accounts receivable due to the timing of customer shipments, an $8.3 million increase in inventory reflecting a combination of the recent market slowdown and anticipation of future demand, and a $3.6 million increase in prepaid expenses and other assets, primarily driven by prepaid taxes and advances to suppliers.

Our investing activities provided $17.8 million of cash in the six months ended June 30, 2020, primarily consisting of $39.1 million from sales and maturities of marketable securities, net of purchases, partially offset by $21.6 million for purchases of property and equipment, primarily production-related machinery and equipment as well as construction of our office in Switzerland.

Our investing activities in the six months ended June 30, 2019, resulted in a $43.6 million net use of cash, primarily consisting of $35.0 million for purchases of marketable securities, net of sales and maturities, and $8.3 million for purchases of property and equipment, primarily production-related machinery and equipment.

Our financing activities in the six months ended June 30, 2020, resulted in a $8.3 million net use of cash, consisting of $11.9 million for the payment of dividends to stockholders and $2.6 million for the repurchase of our common stock.

Sources of cash also included a $1.1 million increase in taxes payable and accrued liabilities.

These sources of cash were partially offset by a $14.8 million increase in accounts receivable due to increased customer shipments, a $7.9 million increase in inventories reflecting the impact of a market slowdown during the first half of the year and anticipation of future demand, a $2.6 million decrease in accounts payable, excluding payables related to property and equipment, due primarily to the timing of payments, and a $3.0 million increase in prepaid expenses and other assets, primarily driven by prepaid legal fees, prepaid taxes and advances to suppliers.

Our investing activities used $14.5 million of cash in the nine months ended September 30, 2020, primarily consisting of $35.7 million for purchases of property and equipment, primarily production-related machinery and equipment as well as construction of a new office building in Switzerland, partially offset by $20.9 million from sales and maturities of marketable securities (net of purchases of marketable securities).

Our investing activities in the nine months ended September 30, 2019, resulted in an $83.8 million net use of cash, primarily consisting of $69.1 million for purchases of marketable securities, net of sales and maturities, and $14.3 million for purchases of property and equipment, primarily production-related machinery and equipment.

Our financing activities in the nine months ended September 30, 2020, resulted in an $11.5 million net use of cash, consisting of $18.5 million for the payment of dividends to stockholders and $2.6 million for the repurchase of our common stock.

These uses of cash were offset in part by $9.7 million from the issuance of common stock, including the exercise of employee stock options and the issuance of shares through our employee stock purchase plan.

Our financing activities in the six months ended June 30, 2019, resulted in a $11.5 million net use of cash, consisting of $9.9 million for the payment of dividends to stockholders and $7.3 million for the repurchase of our common stock.

Our financing activities in the nine months ended September 30, 2019, resulted in a $12.5 million net use of cash, consisting of $14.9 million for the payment of dividends to stockholders and $7.3 million for the repurchase of our common stock.

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all advances under the revolving line of credit will become due on such date, or earlier in the event of a default.

As of June 30, 2020, $6.2 million was reserved against the available credit in the form a standby letter of credit.

No advances were outstanding under the agreement as of June 30, 2020.

As of September 30, 2020, $7.4 million was reserved against the available credit in the form a standby letter of credit.

No advances were outstanding under the agreement as of September 30, 2020.

In January 2019, our board of directors declared four quarterly cash dividends of $0.085 per share to be paid to stockholders of record at the end of each quarter in 2019.

In October 2019, our board of directors raised the cash dividend per share with the declaration 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 October 2019, our board of directors raised the cash dividend per share with the declaration five cash dividends, consisting of (a) a dividend of $0.01 per share to be paid to stockholders of record at the end of the fourth quarter in 2019, that was in addition to the dividend of $0.085 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 $0.095 per share to be paid to stockholders of record at the end of each quarter in 2020.

In April 2020, our board of directors raised the cash dividend further with the declaration of three cash dividends of $0.105 per share (in lieu of the $0.095 per share previously announced) to be paid to stockholders of record at the end of each of the second, third and fourth quarters in 2020.

Dividend payouts of $5.6 million and $6.3 million occurred on March 31, 2020 and June 30, 2020, respectively.

In July 2020, our board of directors raised the cash dividends further with the declaration of two cash dividends of $0.11 per share (in lieu of the $0.105 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.

Dividend payouts of $5.6 million, $6.3 million, and $6.6 million occurred on March 31, 2020, June 30, 2020 and September 30, respectively.

The declaration of any future cash dividend is at the discretion of the board of directors and will depend on our financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination that cash dividends are in the best interests of our stockholders.

As of December 31, 2019, we had approximately $43.9 million remaining under our stock-repurchase program.

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

As of June 30, 2020, we had approximately $41.3 million remaining in our repurchase program, which has no expiration date.

In the nine months ended September 30, 2020 we repurchased approximately 64,000 shares of our common stock for approximately $2.6 million.

As of September 30, 2020, we had approximately $41.3 million remaining in our 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 our financial condition, results of operations, capital requirements, business conditions and other factors.

As of June 30, 2020, we had a contractual obligation related to income tax, which consisted primarily of unrecognized tax benefits of approximately $20.8 million.

As of September 30, 2020, we had a contractual obligation related to income tax, which consisted primarily of unrecognized tax benefits of approximately $20.8 million.

A portion of the tax obligation is classified as long-term income taxes payable and a portion is recorded in deferred tax assets in our condensed consolidated balance sheet.

As of June 30, 2020, there were no material changes in our contractual commitments from those reported in our Annual Report on Form 10-K for the year ended December 31, 2019.

As of September 30, 2020, there were no material changes in our contractual commitments from those reported in our Annual Report on Form 10-K for the year ended December 31, 2019.

Our cash, cash equivalents and investment balances may change in future periods due to changes in our planned cash outlays, including changes in incremental costs such as direct and integration costs related to future acquisitions.

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federal taxes beginning after December 31, 2017.

Accordingly, as of June 30, 2020, our worldwide cash and marketable securities are available to fund capital allocation needs, including capital and internal investments, acquisitions, stock repurchases and/or dividends without incurring additional U.S.

Accordingly, as of September 30, 2020, our worldwide cash and marketable securities are available to fund capital allocation needs, including capital and internal investments, acquisitions, stock repurchases and/or dividends without incurring additional U.S.

federal income taxes.

If our operating results deteriorate during the remainder of 2020 as a result of a decrease in customer demand, pricing pressure, or other factors, our ability to generate positive cash flow from operations may be jeopardized.

If our operating results deteriorate as a result of a decrease in customer demand, pricing pressure, or other factors, our ability to generate positive cash flow from operations may be jeopardized.

In particular, the economic disruption around the world caused by COVID-19 such as business shutdowns, stay-at-home directives, travel restrictions, border closures as well as factory closures, delays on deliveries, and disruptions to freight infrastructure could significantly disrupt our sales and marketing activities, manufacturing and product shipments and demand for our products which could have a material adverse impact on our cash flows.

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Off-Balance-Sheet Arrangements

As of June 30, 2020, we did not have any off-balance-sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As of September 30, 2020, we did not have any off-balance-sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Recent Accounting Pronouncements

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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 2. Management’s Discussion and Analysis