What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-05 compared with 2020-02-07 · 86 added, 97 removed, 197 unchanged (48% of the section changed)

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Power supplies incorporating our products are used with all manner of electronic products including mobile phones, computing and networking equipment, appliances, electronic utility meters, battery-powered tools, industrial controls, and “home-automation,” or “internet of things” applications such as networked thermostats, power strips and security devices.

We also supply high-voltage LED drivers, which are AC-DC ICs specifically designed for lighting applications that utilize light-emitting diodes.

In 2018, we introduced a new category of power-conversion ICs:

a family of motor-driver ICs addressing brushless DC (BLDC) motors used in refrigerators, HVAC systems, ceiling fans and other consumer-appliance and light commercial applications.

We also supply high-voltage LED drivers, which are AC-DC ICs specifically designed for lighting applications that utilize light-emitting diodes, and motor-driver ICs addressing brushless DC (BLDC) motors used in refrigerators, HVAC systems, ceiling fans and other consumer-appliance and light commercial applications.

We also offer high-voltage gate drivers—either standalone ICs or circuit boards containing ICs, electrical isolation components and other circuitry—used to operate high-voltage switches such as insulated-gate bipolar transistors (IGBTs) and silicon-carbide (SiC) MOSFETs.

These combinations of switches and drivers are used for power conversion in high-power applications (i.e., power levels ranging from a few kilowatts up to one gigawatt) such as industrial motors, solar- and wind-power systems, electric vehicles and high-voltage DC transmission systems.

These combinations of switches and drivers are used for power conversion in high-power applications (i.e., power levels ranging from a few kilowatts up to gigawatts) such as industrial motors, solar- and wind-power systems, electric vehicles (EVs) and high-voltage DC transmission systems.

Our net revenues were $488.3 million, $420.7 million and $416.0 million in 2020, 2019 and 2018, respectively.

In 2020, revenues increased by $67.6 million due to growth across all end markets reflecting increased adoption of higher-power chargers for mobile phones and tablets, increased sales for desktop computers and monitors, as well as a broad range of industrial and consumer-appliance applications.

In 2019, revenues increased by $4.7 million due to growth in sales into the communications end-market, reflecting increased adoption of faster, higher-power chargers for mobile phones;

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Growth in revenues from the communications end-market was largely offset by lower sales into the consumer and industrial markets, primarily reflecting macroeconomic, cyclical and trade-related factors that have affected the broader semiconductor industry.

In 2018 revenues decreased by $ 15.8 million due to weaker unit sales into the communications end-market, reflecting weaker demand for mobile-phone chargers, as well as lower sales into the consumer market, primarily reflecting softness in the consumer-appliance market.

Our top ten customers, including distributors that resell to OEMs and merchant power supply manufacturers, accounted for approximately 62%, 54% and 56% of net revenues in 2020, 2019 and 2018, respectively.

In 2019 , 2018 and 2017 one customer, a distributor of our products, accounted for approximately 11% , 14% and 16% of net revenues, respectively.

International sales represented approximately 97% of net revenues in 2019 and 96% in each of 2018 and 2017 .

In 2020, two customers, distributors of our products, accounted for approximately 19% and 11% of net revenues.

In 2019 and 2018, one of these customers accounted for approximately 11% and 14% of net revenues.

International sales represented approximately 98%, 97% and 96% of net revenues in 2020, 2019 and 2018, respectively.

Because our industry is intensely price-sensitive, our gross margin (gross profit divided by net revenues) is subject to change based on the relative pricing of solutions that compete with ours.

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Our gross profit, defined as net revenues less cost of revenues, was $243.6 million or 50% of net revenues in 2020, compared to $213.4 million or 51% of net revenues in 2019, and $214.8 million or 52% of net revenues in 2018.

Our gross margin decreased in 2019 due primarily to increased wafer substrate costs.

Our gross margin increased in 2018 primarily due to a more favorable end-market mix, particularly reflecting the growth in revenues from the industrial end-market and the decrease in revenues from the communications end-market.

Total operating expenses in 2019 includes a net $169.0 million favorable legal settlement with ON Semiconductor Corporation.

The favorable settlement more than offset our higher salary and related expenses due to the expansion of our workforce along with increased patent-litigation expenses and product-development costs resulting in a $3.6 million gain for the year.

operating expenses in 2018 and 2017 were $159.1 million and $156.0 million , respectively.

Operating expenses increased in 2018 as compared to 2017 due primarily to higher salary and related expenses due to the expansion of our workforce, increased patent-litigation expenses and increased stock-based compensation expense.

Our gross margin decreased in 2020 due primarily to an unfavorable change in end-market mix with a greater amount of revenues coming from lower-margin end markets .

Our gross margin decreased in 2019 primarily due to increased wafer substrate costs.

Total operating expenses in 2020 were $173.1 million, compared to a net gain of $3.6 million in 2019 stemming from the $169.0 million gain on settlement of our litigation with ON Semiconductor.

In 2018, total operating expenses were $159.1 million.

Apart from the effects of the 2019 legal settlement, the increase in operating expenses in 2020 was due primarily to higher stock-based compensation expense related mainly to performance-based awards, along with higher salary and related expenses from annual merit increases and the expansion of our workforce.

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

COVID-19 Pandemic

The COVID-19 pandemic has disrupted everyday life and markets worldwide, and governments around the world have imposed restrictions aimed at controlling the spread of the virus, including shelter-in-place orders, travel restrictions, business shutdowns and border closures.

Beginning March 16, 2020 our San Jose headquarters location was subject to a shelter-in-place order, under which most of our employees were required to work from home;

other locations around the world have also been subject to such restrictions.

We will begin a phased reopening of our San Jose headquarters when these restrictions are lifted.

Some of our employees in other locations around the world have returned to the office under a phased reopening plan.

We have implemented a variety of measures to protect the health and safety of our employees, including the provision of masks, gloves and sanitizers, social-distancing rules, and regular deep cleaning of our facilities.

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 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 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 components for most of our products.

Despite the economic downturn stemming from the pandemic, demand for goods incorporating our products is strong.

While the future trajectory of demand is highly uncertain, we believe our business is fundamentally sound with strong, long-term growth prospects.

We have not reduced headcount and intend to continue investing in research and development and other functions necessary to support our future growth.

We also intend to continue our cash dividend and stock repurchase programs;

however, if the economy deteriorates more than we expect or our business outlook changes, our board of directors may choose to suspend or alter these programs at its discretion.

For additional discussion regarding COVID-19 business risks refer to Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

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● revenue recognition;

stock-based compensation;

estimating write-downs for excess and obsolete inventory;

● income taxes.

business combinations;

goodwill and intangible assets.

Our critical accounting policies are important to the portrayal of our financial condition and results of operations, and require us to make judgments and estimates about matters that are inherently uncertain.

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In determining the transaction price, we consider ship and debit price adjustments to be variable consideration.

Such price adjustments are estimated using the expected value method based on an analysis of actual ship and debit claims, at the distributor and product level, over a period of time considered adequate to account for current pricing and business trends.

to account for current pricing and business trends.

Historically, actual price adjustments for ship and debit claims relative to those estimated and included when determining the transaction price have not materially differed.

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As such, we do not record a specific warranty reserve or consider activities related to such warranty, if any, to be a separate performance obligation.

Stock-based compensation

We apply the provisions of ASC 718-10, Share-Based Payment .

Under the provisions of ASC 718-10, we recognize the fair value of stock-based compensation in our financial statements over the requisite service period of the individual grants, which generally equals a four-year vesting period.

We use estimates of volatility, expected term, risk-free interest rate, dividend yield and forfeitures in determining the fair value of these awards and the amount of compensation expense to recognize.

Changes in the estimated forfeiture rate could result in changes to our current compensation charges for historical grants.

For awards with performance conditions, we recognize compensation expense when it becomes probable that the performance target will be achieved.

A probability assessment is performed on a quarterly basis and requires significant assumptions and estimates made by management related to the projected achievement of the performance targets, which consist of non-GAAP operating earnings, strategic goals and/or net revenues.

Changes in the probability assessment of achieving the performance targets are accounted for in the period of change by recording a cumulative catch-up adjustment as if the new estimate had been applied since the service inception date.

If the actual performance targets achieved differ significantly from those projected by management, additional compensation expense may be recorded for the performance-based awards due to the cumulative catch-up adjustment, which could have an adverse impact on our results of operations.

Estimating write-downs for excess and obsolete inventory

When evaluating the adequacy of our valuation adjustments for excess and obsolete inventory, we identify excess and obsolete products and also analyze historical usage, forecasted production based on demand forecasts, current economic trends and historical write-offs .

This write-down is reflected as a reduction to inventory in the consolidated balance sheets and an increase in cost of revenues in our consolidated statements of income.

If actual market conditions are less favorable than our assumptions, we may be required to take additional write-downs, which could adversely impact our cost of revenues and operating results.

We account for income taxes under the provisions of ASC 740, Income Taxes .

Under the provisions of ASC 740, deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts of existing assets

and liabilities and their respective tax bases, utilizing the tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Under the provisions of ASC 740, deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, utilizing the tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

We recognize valuation allowances to reduce any deferred tax assets to the amount that we estimate will more likely than not be realized based on available evidence and management’s judgment.

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As of December 31, 2020, we continue to maintain a valuation allowance on our California, New Jersey and Canada deferred tax assets as we believe that it is not more likely than not that the deferred tax assets will be fully realized.

Business combinations

The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition.

To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed, such excess is allocated to goodwill.

We determine the estimated fair values after review and consideration of relevant information, including discounted cash flows, quoted market prices and estimates made by management.

We adjust the preliminary purchase price allocation, as necessary, during the measurement period of up to one year after the acquisition closing date as we obtain more information as to facts and circumstances existing at the acquisition date impacting asset valuations and liabilities assumed.

Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred.

Goodwill and intangible assets

In accordance with ASC 350-10, Goodwill and Other Intangible Assets, we evaluate goodwill for impairment on an annual basis, or as other indicators of impairment emerge.

Under the amendments of Accounting Standards Update (ASU) 2017-04, Intangibles - Goodwill and Other (Topic 350) , we compare the fair value of our single reporting unit to the carrying amount, including goodwill.

If the fair value of our single reporting unit exceeds the carrying amount no impairment adjustment is required.

If the carrying amount of our reporting unit exceeds the fair value, then we record an impairment loss equal to the difference, but not in excess of the carrying amount of the goodwill.

Under ASC 350-10, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If, we elect this option and after assessing the totality of events or circumstances, we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then comparing the fair value of a reporting unit to its carrying amount is unnecessary.

We have not elected this option to date.

We evaluated goodwill for impairment in the fourth quarters of 2019 and 2018 , and concluded that no impairment existed as of December 31, 2019 , and December 31, 2018 .

ASC 350-10 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives, and reviewed for impairment in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets .

We review long-lived assets, such as acquired intangibles and property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

We measure recoverability of assets to be held and used by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.

If the carrying amount of an asset exceeds its estimated future cash flows, we recognize an impairment charge by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Results of Operations

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

In 2019 revenues increased by $4.7 million compared to 2018 as growth in the communications end market exceeded a broad-based decline in demand across the consumer and industrial end markets.

Overall, we believe that demand for our products has been affected by a variety of factors including caution among our customers with respect to global trade disputes and a slowdown in demand for consumer products in China.

In 2018 revenues decreased by $15.8 million as compared to 2017 due mainly to weaker unit sales into the communications end-market, reflecting weaker demand for mobile-phone chargers, as well as lower sales into the consumer end-market, primarily reflecting softness in the consumer-appliance market.

These decreases were partially offset by growth in the industrial end-market across a broad range of applications, and by higher revenues from the computer end-market reflecting growth in charger applications for tablets.

In 2020 revenues increased by $67.6 million compared to 2019 due to growth across all end markets reflecting increased adoption of higher-power chargers for mobile phones and tablets, increased sales for desktop computers and monitors, as well as a broad range of consumer appliance and industrial applications.

In 2019 revenues increased by $4.7 million compared to 2018 as growth in the communications end-market more than offset a broad-based decline in demand across the consumer and industrial end markets.

Our approximate net revenue mix by end-markets served in 2020, 2019 and 2018 is as follows:

Communications

Sales to customers outside of the United States were $410.0 million in 2019 , compared to $400.6 million in 2018 and $415.1 million in 2017 , representing approximately 97% of net revenues in 2019 and 96% in each of 2018 and 2017.

Sales to customers outside of the United States were $477.3 million in 2020, compared to $410.0 million in 2019 and $400.6 million in 2018, representing approximately 98%, 97% and 96% of net revenues in 2020, 2019 and 2018, respectively.

Although power supplies using our products are designed and distributed worldwide, most of these power supplies are manufactured by our customers in Asia.

As a result, sales to this region accounted for approximately 77% of our net revenues in each of 2019 and 2018 and 79% in 2017 .

As a result, sales to this region accounted for approximately 81% of our net revenues in 2020, and 77% of our net revenues in each of 2019 and 2018.

We expect international sales to continue to account for a large portion of our net revenues for the foreseeable future.

Sales to distributors accounted for 75%, 72% and 75% of our net revenues in 2020, 2019 and 2018, respectively, with direct sales to OEMs and merchant power supply manufacturers accounting for the remainder in each of the corresponding years.

In each of 2019 , 2018 and 2017 one distributor accounted for more than 10% of revenues.

The following table discloses this customers’ percentage of net revenues for the respective years:

The following customers represented 10% or more of our net revenues for the respective years:

Honestar Technologies Co., Ltd.

________________________

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

No other customers accounted for 10% or more of net revenues during these years.

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Gross profit is net revenues less cost of revenues.

Our cost of revenues consists primarily of the purchase of wafers from our contracted foundries, the assembly, packaging and testing of our products by sub-contractors, product testing performed in our own facility, overhead associated with the management of our supply chain and the amortization of acquired

intangible assets.

Gross margin is gross profit divided by net revenues.

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(dollars in millions)

Our gross margin decreased in 2020 as compared to 2019 primarily due to an unfavorable change in end-market mix with a greater amount of revenues coming from lower-margin end markets.

Our gross margin decreased in 2019 as compared to 2018 primarily due to increased wafer substrate costs.

Our gross margin increased in 2018 as compared to 2017 primarily due to a more favorable end-market mix, particularly reflecting the growth in revenues from the industrial end-market and the decrease in revenues from the communications end-market.

Research and development expenses.

Research and development (R&D) expenses consist primarily of employee-related expenses including stock-based compensation and expensed material and facility costs associated with the development of new processes and new products.

Research and development (R&D) expenses consist primarily of employee-related expenses including salaries and stock-based compensation, as well as expensed material and facility costs associated with the development of new processes and products.

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

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Percentage of net revenues

R&D expenses increased in 2020 compared to 2019 due to higher salary and related expenses driven by expansion of headcount and annual merit increases, increased equipment-related expenses in support of product development as well as higher stock-based compensation expense primarily related to performance-based awards.

R&D expenses increased in 2019 compared to 2018 due to higher salary and related expenses driven by increased headcount as well as increased equipment-related expenses.

R&D expenses increased in 2018 compared to 2017 due to higher salary and related expenses from the expansion of headcount and product development expenses, partially offset by lower stock-based compensation expense related to performance-based stock 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 acquired intangible assets and facilities expenses, including expenses associated with our regional sales and support offices.

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

The following table compares sales and marketing expenses for the years ended December 31, 2020, 2019 and 2018:

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Percentage of net revenues

S&M expenses increased in both 2019 and 2018 due primarily to expansion of our sales force, resulting in higher salary and related expenses.

In 2019 these increases were partially offset by lower amortization of intangibles.

S&M expenses increased in 2020 compared to 2019 due to higher salary and related expenses from the expansion of headcount and higher stock-based compensation expense primarily related to performance-based awards.

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

S&M expenses increased in 2019 as compared to 2018 due primarily to expansion of our sales force, resulting in higher salary and related expenses, partially offset by 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 auditing expenses.

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

The table below compares G&A expenses for the years ended December 31, 2020, 2019 and 2018:

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Percentage of net revenues

G&A expenses increased in 2019 as compared to 2018 as a result of increased expenses related to patent litigation and higher salary and related expenses due to expansion of headcount.

G&A expenses decreased in 2018 as compared to 2017 due primarily to lower stock-based compensation expense related to performance-based awards.

G&A expenses decreased in 2020 due to lower patent-litigation expenses partially offset by higher stock-based compensation expense primarily related to performance-based awards.

G&A expenses increased in 2019 as a result of increased expenses related to patent litigation and higher salary and related expenses due to expansion of headcount.

Litigation settlement.

Litigation settlement in fiscal 2019 represents a $169.0 million gain net of direct legal fees due to a favorable legal settlement with ON Semiconductor Corporation, pursuant to which all outstanding legal and administrative disputes were dismissed, withdrawn, and/or terminated.

For additional details, refer to Note 13, Legal Proceedings and Contingencies , in our Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Other income .

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Percentage of net revenues

Other income increased in both 2019 and 2018 due primarily to an increase in interest income reflecting an increase in our cash and investments along with higher yields earned on those balances.

Other income decreased in 2020 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 2019 due primarily to an increase in interest income reflecting an increase in our cash and investments along with higher yields earned on those balances.

Provision (benefit) for income taxes.

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Effective tax rate

In 2019 and 2018, the effective tax rate was lower than the then-statutory federal income-tax rates 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 compensation.

In 2020, 2019 and 2018, the effective tax rate was lower than the statutory U.S.

federal income-tax rates 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 compensation.

These benefits were partially offset by U.S.

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As of December 31, 2020, 2019 and 2018, we had working capital, defined as current assets less current liabilities, of approximately $538.7 million, $490.9 million and $284.1 million, respectively.

On July 27, 2016, we entered into a credit agreement with a bank (the "Credit Agreement") that provides us with a $75.0 million revolving line of credit to use for general corporate purposes with a $20.0 million sub-limit for the issuance of standby and trade letters of credit.

We amended the Credit Agreement on April 30, 2018, to extend the termination date from July 26, 2019, to April 30, 2022, with all other terms remaining the same.

We have a credit agreement with a bank (the "Credit Agreement") that provides us with a $75.0 million revolving line of credit to use for general corporate purposes with a $20.0 million sub-limit for the issuance of standby and trade letters of credit.

Our ability to borrow under the revolving line of credit is conditioned upon our compliance with specified covenants, including reporting and financial covenants, primarily a minimum liquidity measure and a debt to earnings ratio, with which we are currently in compliance.

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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 December 31, 2019 , $6.2 million was reserved against the available credit in the form a standby letter of credit.

As of December 31, 2020, and 2019, we had no advances outstanding under the Credit Agreement.

Our operating activities generated cash of $125.6 million, $224.5 million, and $84.0 million in the years ended December 31, 2020, 2019 and 2018, respectively.

In 2019 our cash generated from operating activities was favorably impacted by the settlement of our patent litigation with ON Semiconductor Corporation.

In each of 2018 and 2017, we primarily generated cash from operating activities in the ordinary course of business.

We generate cash primarily from operating activities in the ordinary course of business.

In addition, in 2019 our cash generated from operating activities was favorably impacted by the settlement of our patent litigation with ON Semiconductor Corporation.

Cash Provided by Operating Activities

In 2020, our net income was $71.2 million, which reflected non-cash charges of $30.9 million of stock-based compensation expenses, $23.7 million of depreciation and $4.4 million of intangibles amortization.

Sources of cash also included a $9.1 million decrease in prepaid expenses and other assets, primarily driven by taxes refunded , a $5.7 million increase in accounts payable (excluding payables related to property and equipment) and a $4.1 million increase in taxes payable and accrued liabilities, in each case due to the timing of payments.

These sources of cash were partially offset by an $11.3 million increase in accounts receivable due to increased shipments and the timing of collections, a $12.5 million increase in inventories, reflecting impact of a market slowdown during the first half of the year and higher inventory levels to support anticipated future demand.

In 2019, our net income was $193.5 million, which included a $169.0 million gain, net of direct legal fees, from a favorable litigation settlement, $23.3 million of stock-based compensation expenses, $19.2 million of depreciation and $5.2 million of intangibles amortization.

Sources of cash also included an $10.6 million increase in taxes payable and accrued liabilities due primarily to increased taxes payable as result of favorable litigation settlement.

These sources of cash were partially offset by a $13.3 million increase in accounts receivable due to increased shipments and the timing of collections, a $9.5 million increase in inventories, reflecting impact of a market slowdown during the first half of the year and anticipation of future demand, a $6.6 million decrease in accounts payable due to the timing of payments.

Sources of cash also included a $10.6 million increase in taxes payable and accrued liabilities due primarily to increased taxes payable as result of favorable litigation settlement.

These sources of cash were partially offset by a $13.3 million increase in accounts receivable due to increased shipments and the timing of collections, a $9.5 million increase in inventories in anticipation of future demand, and a $6.6 million decrease in accounts payable due to the timing of payments.

In 2018, our net income was $70.0 million, which included stock-based compensation expenses, depreciation and intangibles amortization of $21.6 million, $18.9 million, and $5.3 million, respectively.

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These sources of cash were partially offset by a $23.8 million increase in inventories, partially reflecting lower-than-normal inventory levels at the beginning of the year, but also driven by lower-than-expected sales, particularly in the latter half of the year, and a $9.9 million decrease in taxes payable and accrued liabilities due primarily to a decrease in taxes payable related to the enactment of the Tax Act.

In 2017, our net income was $27.6 million , which included stock-based compensation expenses, depreciation and intangibles amortization of $24.7 million , $18.4 million , and $6.1 million , respectively.

Sources of cash also included a $20.0 million increase in taxes payable and accrued liabilities driven by the long-term portion of the taxes payable related to the transitional impact of the U.S.

Tax Act and a $0.4 million increase in accounts payable due to the timing of payments.

These sources of cash were partially

offset by a $17.6 million increase in prepaid expenses and other assets, primarily driven by advances to suppliers and prepaid legal expenses, a $10.5 million increase in accounts receivable due to the timing of collections along with increased shipments and a $4.5 million increase in inventories to support increased demand.

Cash Provided by (Used in) Investing Activities

Our investing activities in the year ended December 31, 2020 resulted in a $28.3 million net use of cash, consisting primarily of $41.7 million from purchases of marketable securities, net of sales and maturities, and $70.6 million for purchases of property and equipment, primarily machinery and equipment for use in the manufacture of our products and a building for our design center in Germany.

Our investing activities in the year ended December 31, 2019 resulted in a $162.0 million net use of cash, consisting primarily of $136.9 million from purchases of marketable securities, net of sales and maturities, and $24.1 million for purchases of property and equipment, primarily machinery and equipment for use in the manufacture of our products.

Our investing activities provided $69.1 million of cash in the year ended December 31, 2018, consisting primarily of $94.7 million from sales and maturities of marketable securities, net of purchases, partially offset by $24.7 million for purchases of property and equipment, primarily machinery and equipment for use in the manufacture of our products.

Our investing activities in the year ended December 31, 2017 , resulted in a $34.7 million use of cash, consisting primarily of $32.5 million for purchases of property and equipment, primarily machinery and equipment for use in the manufacture of our products and $2.2 million for the purchase of marketable securities, net of maturities.

Cash Used in Financing Activities

Our financing activities in the year ended December 31, 2020, resulted in a net use of $17.2 million of cash.

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Our financing activities in the year ended December 31, 2019, resulted in a net use of $17.9 million of cash.

Financing activities consisted primarily of $103.2 million for the repurchase of our common stock and $18.8 million for the payment of dividends to stockholders, partially offset by proceeds of $9.4 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 year ended December 31, 2017 , resulted in a net use of $15.8 million of cash.

Financing activities consisted primarily of $20.5 million for the payment of dividends to stockholders and $7.3 million for the repurchase of our common stock, partially offset by proceeds of $9.9 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.

In January 2017, our board of directors declared four quarterly cash dividends in the amount of $0.14 per share to be paid to stockholders of record at the end of each quarter in 2017.

In January 2018, our board of directors declared four quarterly cash dividends in the amount of $0.16 per share to be paid to stockholders of record at the end of each quarter in 2018.

Our financing activities in the year ended December 31, 2018, resulted in a net use of $112.6 million of cash.

In January 2018, our board of directors declared four quarterly cash dividends in the amount of $0.08 per share to be paid to stockholders of record at the end of each quarter in 2018.

In October 2019, our board of directors raised the cash dividend per share with the declaration 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.

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 interest of our stockholders.

Over the years our board of directors has authorized the use of funds to repurchase shares of our common stock, including $60.0 million authorized in 2015, $30.0 million authorized in each of July 2017 and January 2018, and $80.0 million in October 2018 with repurchases to be executed according to pre-defined price/volume guidelines.

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 dividends per share with the declaration of 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 dividends with the declaration of three cash dividends of $0.105 per share (in lieu of the $0.095 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, 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.

In January 2021, our board of directors raised the quarterly cash dividend by an additional $0.02 per share with the declaration of four cash dividends of $0.13 per share to be paid to stockholders of record at the end of each quarter in 2021.

other factors, as well as a determination that cash dividends are in the best interest of our stockholders.

The dividends per share presented above reflect the 2-for-1 stock split implemented as a stock dividend in August 2020.

Stock Repurchases

Over the years our board of directors has authorized the use of funds to repurchase shares of our common stock, including $80.0 million in October 2018 with repurchases to be executed according to pre-defined price/volume guidelines.

In 2018, we purchased 3,144,000 shares for approximately $103.2 million.

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The tax obligation was classified as long-term income taxes payable or recorded as contra deferred tax assets in our consolidated balance sheet.

Other Information

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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Contractual Obligations

As of December 31, 2019 , we had the following contractual obligations and commitments, consisting solely of non-cancelable operating lease agreements:

As of December 31, 2020, we had the following contractual obligations:

Payments Due by Period

(in thousands)

Less than 1 Year

Operating lease obligations (1)

Purchase obligations (2)

________________________

(1) Operating lease obligations represent undiscounted non-cancelable remaining lease payments.

(2) Purchase obligations represent commitments to our suppliers and other parties for the purchases of goods and services, which primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, and purchases of property and equipment.

In addition to our contractual obligations noted above we have a contractual obligation related to income tax as of December 31, 2020, which primarily comprises unrecognized tax benefits of approximately $21.1 million, and was classified as contra deferred tax assets or long-term income taxes payable in our consolidated balance sheet.

As of December 31, 2019 we also had approximately $5.1 million classified as long-term income taxes payable related to the estimated one-time transition tax from the enactment of the Tax Act which will be payable in six annual installments.

December 31, 2020 we also had approximately $4.5 million classified as long-term income taxes payable related to the estimated one-time transition tax from the enactment of the Tax Act which will be payable in five annual installments.

Recently Issued 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-K

Item 7. Management’s Discussion and Analysis