What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-05 compared with 2020-02-07 · 165 added, 185 removed, 715 unchanged (33% of the section changed)

4 unchanged sentences

We have audited the accompanying consolidated balance sheets of Power Integrations, Inc.

and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements").

and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with the accounting principles generally accepted in the United States of America.

13 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Gain Contingency - Refer to Note 13 , Legal Proceedings and Contingencies, in the accompanying financial statements

Critical Audit Matter Description

On October 4, 2019, the Company entered into a binding term sheet (the “Term Sheet”) with ON Semiconductor Corporation and its wholly owned subsidiaries (collectively, “ON”) pursuant to which the parties agreed to end all outstanding legal and administrative disputes.

Pursuant to the Term Sheet, ON agreed to pay the Company $175.0 million in cash.

In addition, each party agreed to release the other party from any claims to damages or monetary relief for certain alleged acts of patent infringement across the various patent infringement litigations, occurring on or before June 30, 2020, and not to file any additional action for legal or equitable relief prior to June 30, 2023 (although following that date a party may file a legal action for alleged patent infringement

occurring after June 30, 2020).

Neither party granted any licenses to the other.

On October 19, 2019, the parties memorialized the terms of the Term Sheet in a definitive agreement (the “Definitive Agreement”).

On October 22, 2019, the Company received ON’s payment of $175.0 million.

The Company recorded a net $169.0 million favorable litigation settlement within operating expenses for the year ended December 31, 2019 in the consolidated statement of income.

We identified the accounting for the Definitive Agreement with ON Semiconductor Corporation to be a critical audit matter because of the significant management judgments including the (a) identification of the elements in the Definitive Agreement, and (b) determination of the appropriate timing of recognition of the elements in the Definitive Agreement.

Given these significant management judgments, performing audit procedures of the Definitive Agreement involved significant auditor judgment and an increased extent of effort, including the need for us to involve professionals with expertise in the accounting for such transactions, when performing the audit procedures to evaluate the appropriateness of the accounting conclusions.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the accounting for the elements of the Definitive Agreement included the following, among others:

We tested the effectiveness of controls over management’s evaluation of the accounting for the settlement including the technical evaluation of the elements of the agreement and timing of recognition of those elements.

We obtained and reviewed the agreement to identify the elements that exist in the agreement and evaluated the nature of the elements that arose.

We utilized professionals in our firm having expertise in accounting for contingencies to assist in our evaluation of the Company’s accounting for the agreement.

We performed audit procedures to understand the nature of the elements of the agreement including an evaluation of the appropriateness of the recognition and timing of the amounts received.

Critical Audit Matters

Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ DELOITTE & TOUCHE LLP

4 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts and par value)

(In thousands, except par value)

CURRENT ASSETS:

1 unchanged sentence

Short-term marketable securities

Accounts receivable, net of allowance for doubtful accounts of $763 and $706 in 2019 and 2018, respectively

Accounts receivable, net

Prepaid expenses and other current assets

42 unchanged sentences

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

The Earnings Per Share and Shares Used in Per Share Calculation information presented above reflects the effect of the August 2020 stock split.

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

POWER INTEGRATIONS, INC.

4 unchanged sentences

Foreign currency translation adjustments, net of $ 0 tax in 2020, 2019 and 2018

Unrealized gain (loss) on marketable securities, net of $0 tax in 2019, 2018 and 2017

Unrealized gain on marketable securities, net of $ 0 tax in 2020, 2019 and 2018

Unrealized actuarial gain (loss) on pension benefits, net of tax of ($ 308 ), $ 497 , and ($ 144 ) in 2020, 2019 and 2018, respectively

4 unchanged sentences

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Other Comprehensive

Comprehensive

Stockholders’

1 unchanged sentence

BALANCE AT JANUARY 1, 2018

Cumulative-effect adjustment from adoption of ASC 2016-09

Issuance of common stock under employee stock option and stock award plans

5 unchanged sentences

Unrealized actuarial gain on pension benefits

Unrealized loss on marketable securities

Unrealized gain on marketable securities

Foreign currency translation adjustment

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Issuance of common stock under employee stock purchase plan

Stock-based compensation expense related to employee stock options and awards

Stock-based compensation expense related to employee stock awards

Stock-based compensation expense related to employee stock purchases

Payment of dividends to stockholders

Unrealized actuarial gain on pension benefits

Unrealized actuarial loss on pension benefits

Unrealized gain on marketable securities

7 unchanged sentences

Payment of dividends to stockholders

Unrealized actuarial loss on pension benefits

Unrealized actuarial gain on pension benefits

Unrealized gain on marketable securities

2 unchanged sentences

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

The Shares presented above reflects the effect of the August 2020 stock split.

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

POWER INTEGRATIONS, INC.

9 unchanged sentences

Deferred income taxes

Increase (decrease) in accounts receivable allowances

Increase (decrease) in accounts receivable allowance for credit losses, net

Change in operating assets and liabilities:

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Purchases of property and equipment

Proceeds from sale of property and equipment

Acquisition of technology licenses

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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid (refund) for income taxes, net of refunds (Note 11)

Cash paid (received) for income taxes, net (Note 11)

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

10 unchanged sentences

The Company also offers 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 and high-voltage DC transmission systems.

SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS:

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In order to achieve that core principle, the Company applies the following five-step approach:

(1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

Product revenues consist of sales to original equipment manufacturers, or OEMs, merchant power supply manufacturers and distributors.

The Company considers customer purchase orders, which in some cases are governed by master sales agreements,

to be the contracts with a customer.

The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a customer.

In situations where sales are to a distributor, the Company has concluded that its contracts are with the distributor as the Company holds a contract bearing enforceable rights and obligations only with the distributor.

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Inventories (which consist of costs associated with the purchases of wafers from domestic and offshore foundries and of packaged components from offshore assembly manufacturers, as well as internal labor and overhead associated with the testing of both wafers and packaged components) are stated at the lower of cost (first-in, first-out) or market.

Provisions, when required, are made to reduce excess and obsolete inventories to their estimated net realizable values.

Provisions, when required, are made to reduce inventories to their estimated net realizable values.

Income-tax expense is an estimate of current income taxes payable or refundable in the current fiscal year based on reported income before income taxes.

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Resolution of these uncertainties in a manner inconsistent with the Company’s expectations could have a material impact on the Company’s results of operations and financial position.

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.

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

The Company adjusts the preliminary purchase price allocation, as necessary, during the measurement period of up to one year after the acquisition closing date as it obtains 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

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As a result, the Company classifies its investment portfolio as available-for-sale.

The Company classifies all investments with a maturity date greater than three months at the date of purchase as short-term marketable securities in its consolidated balance sheet.

The Company classifies all investments with a

maturity date greater than three months at the date of purchase as short-term marketable securities in its consolidated balance sheet.

As of December 31, 2020, and December 31, 2019, the Company’s marketable securities consisted primarily of commercial paper, corporate bonds, government securities and/or other high-quality commercial securities.

3 unchanged sentences

The Company is not required to contribute;

however, the Company contributes a certain percentage of employee annual salaries on a discretionary

basis, not to exceed an established threshold.

however, the Company contributes a certain percentage of employee annual salaries on a discretionary basis, not to exceed an established threshold.

The Company provided for a contribution of approximately $ 1.8 million, $ 1.4 million and $ 1.3 million in 2020, 2019 and 2018, respectively.

8 unchanged sentences

Gains and losses arising from the remeasurement of non-functional currency balances are recorded in other income in the accompanying consolidated statements of income.

In the year ended December 31, 2019 , the Company realized a foreign exchange transaction loss of $ 0.3 million and a loss of $ 0.1 million in each of 2018 and 2017 .

The Company realized a foreign exchange transaction loss of $ 0.5 million, $ 0.3 million and $ 0.1 million in 2020, 2019, and 2018 respectively.

The functional currencies of the Company’s other subsidiaries are the local currencies.

6 unchanged sentences

Returns under warranty have historically been immaterial, and as a result, the Company does not record a specific warranty reserve.

Advertising costs are expensed as incurred.

In 2019 , advertising costs amounted to $ 1.4 million and were $ 1.2 million and $ 1.3 million in each of 2018 and 2017 .

Advertising costs are expensed as incurred and amounted to $ 1.2 million, $ 1.4 million and $ 1.2 million in 2020, 2019 and 2018, respectively.

Research and Development

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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 right to replace an infringing product.

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 right to replace an infringing product.

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

4 unchanged sentences

Adoption of New Accounting Standards

In February 2016, the FASB amended the existing accounting standards for leases, Accounting Standards Update (ASU) 2016-02 , Leases (Topic 842) .

The amendments require lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases.

The accounting by lessors will remain largely unchanged from that applied under previous U.S.

The Company adopted the new standards in the first quarter of 2019, effective January 1, 2019, using the optional transition method, under which the new standards were applied prospectively rather than restating the prior periods presented.

The Company elected the practical expedients under the transition guidance, which includes the use of hindsight in determining the lease term and the practical expedient package to not reassess whether any expired or existing contracts are or contain leases, to not reassess the classification of any expired or existing leases, and to not reassess initial direct costs for any existing leases.

In addition, the Company elected the practical expedient to recognize lease and non-lease components as a single lease component.

The Company has elected not to record on the balance sheet leases with an initial term of twelve months or less.

Upon adoption, the Company recognized both right-of-use assets and corresponding lease liabilities of approximately $ 7.3 million and $ 7.2 million , respectively, on the consolidated balance sheet.

The difference between the right-of-use assets and lease liabilities was due to prepaid rent.

There was no impact on the consolidated statement of income or the consolidated statement of cash flows.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) , which modifies the measurement of expected credit losses on certain financial instruments.

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326) , which modifies the measurement of expected credit losses on certain financial instruments.

In addition, for available-for-sale debt securities, the standard eliminates the concept of other-than-temporary impairment and requires the recognition of an allowance for credit losses rather than reductions in the amortized cost of the securities.

The Company is required to adopt the new standards in the first quarter of fiscal 2020, with early adoption permitted.

The amendments require a modified-retrospective approach with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period.

The Company does not expect the standard to have a material impact on its financial statements upon adoption.

The Company adopted the new standard in the first quarter of 2020, effective January 1, 2020, using the modified-retrospective approach.

For available-for-sale debt securities, the Company has made a policy election to present separately accrued interest receivable within prepaid expenses and other current assets on the consolidated balance sheet.

Upon adoption, there was no impact on the Company’s consolidated financial statements.

COMPONENTS OF THE COMPANY’S CONSOLIDATED BALANCE SHEETS:

1 unchanged sentence

(In thousands)

December 31, 2019

December 31, 2018

Accounts receivable trade

1 unchanged sentence

Allowance for stock rotation and rebate

Allowance for doubtful accounts

Allowance for credit losses

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

This allowance is established using estimates formulated by the Company’s management based upon factors such as the composition of the accounts receivable aging, historical losses, changes in payments patterns, customer creditworthiness, and current economic trends.

Receivables determined to be uncollectible are written off and deducted from the allowance.

Allowance for Credit Losses

(In thousands)

December 31, 2020

December 31, 2018

Beginning balance

Provision for credit loss expense

Receivables written off

Recoveries collected

Ending balance

(In thousands)

Raw materials

1 unchanged sentence

Finished goods

Prepaid Expenses and Other Current Assets

(in thousands)

December 31, 2019

December 31, 2018

Prepaid income tax

Prepaid legal fees

Prepaid maintenance agreements

Advance to suppliers

Interest receivable

Property and Equipment

(In thousands)

December 31, 2019

December 31, 2018

Construction-in-progress

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Total property and equipment (excluding accumulated depreciation) located in the United States at December 31, 2020, 2019 and 2018, was approximately $ 167.0 million, $ 160.7 million and $ 167.6 million, respectively.

In 2019 , approximately 14 % of total property and equipment (excluding accumulated depreciation) was held in Thailand by one of the Company’s subcontractors.

In each of 2018 and 2017 , 12 % of total property and equipment was held in Thailand.

In 2020, 2019 and 2018 approximately 14 %, 14 % and 12 %, respectively, of total property and equipment (excluding accumulated depreciation) was held in Thailand by one of the Company’s subcontractors.

Also in 2020, approximately 14 % of total property and equipment was held by one of the Company’s subcontractors in Malaysia.

No other country held 10 % or more of total property and equipment in the periods presented.

1 unchanged sentence

Changes in accumulated other comprehensive loss for the three years ended December 31, 2020:

Unrealized Gains

and Losses on

Available-for-Sale

Defined Benefit

(In thousands)

Unrealized Gains and Losses on Available-for-Sale Securities

Defined Benefit Pension Items

Foreign Currency Items

Pension Items

Balance at January 1, 2018

5 unchanged sentences

Amounts reclassified from accumulated other comprehensive loss

Other comprehensive income

Other comprehensive loss

Balance at December 31, 2019

1 unchanged sentence

Amounts reclassified from accumulated other comprehensive loss

Other comprehensive loss

Other comprehensive income

Balance at December 31, 2020

_______________

(1) This component of accumulated other comprehensive loss is included in the computation of net periodic pension cost for the years ended December 31, 2020, 2019 and 2018.

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December 31, 2020

Quoted Prices in

Active Markets for

Significant Other

Identical Assets

Observable Inputs

(In thousands)

Total Fair Value

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

Significant Other Observable Inputs

Corporate securities

3 unchanged sentences

December 31, 2019

Quoted Prices in

Active Markets for

Significant Other

Identical Assets

Observable Inputs

(In thousands)

Total Fair Value

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

Significant Other Observable Inputs

Corporate securities

1 unchanged sentence

Money market funds

The Company did not transfer any investments between level 1 and level 2 of the fair value hierarchy in the years ended December 31, 2019 , and 2018 .

The Company did no t transfer any investments between level 1 and level 2 of the fair value hierarchy in the years ended December 31, 2020, and 2019.

MARKETABLE SECURITIES:

4 unchanged sentences

Investments due in 3 months or less:

Commercial paper

Corporate securities

1 unchanged sentence

Corporate securities

Investments due in 12 months or greater:

Corporate securities

Total marketable securities

The Company did not have any investments due in twelve months or greater as of December 31, 2020.

Accrued interest receivable was $ 0.8 million at December 31, 2020 and was recorded within prepaid expenses and other current assets on the condensed consolidated balance sheet.

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:

9 unchanged sentences

Total marketable securities

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.

As of December 31, 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.

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 was not recorded at December 31, 2019:

Less Than 12 Months

12 Months or Longer

(In thousands)

December 31, 2019

Corporate securities

Total marketable securities

The weighted average interest rate of investments at December 31, 2020 and 2019, was approximately 0.89 % and 2.17 %, respectively.

As of December 31, 2019 and 2018 , there were no individual securities that had been in a continuous loss position for 12 months or greater.

In the year ended December 31, 2020, no unrealized losses on marketable securities were recognized in income.

GOODWILL AND INTANGIBLE ASSETS:

5 unchanged sentences

Amortization of acquired intangible assets was approximately $ 4.4 million, $ 5.2 million and $ 5.3 million in the years ended December 31, 2020, 2019 and 2018, respectively.

During the year ended December 31, 2019, the Company placed in service $ 4.7 million of in-process research and development intangible assets.

The Company does not believe there is any significant residual value associated with the following intangible assets:

2 unchanged sentences

(In thousands)

In-process research and development

Developed technology

5 unchanged sentences

STOCK PLANS AND SHARE BASED COMPENSATION:

The share and per share information for all periods presented in this Form 10-K has been adjusted for the effect of the August 2020 stock split.

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

As of December 31, 2020, the Company had three stock-based compensation plans (the “Plans”) which are described below.

7 unchanged sentences

however previous grants under this plan shall remain outstanding until they are exercised, vest, forfeited or expire.

Beginning January 27, 2009, grants pursuant to the Directors Equity Compensation Program (which was adopted by the board of directors on January 27, 2009) to non-employee directors have been made primarily under the 2007 Plan.

The Directors Equity Compensation Program provides for grants to outside directors as follows:

effective annually, upon the first trading day of July, each outside director would receive a grant of an equity award with an aggregate value of $ 120,000 .

At each outside director’s election, such award would consist entirely of RSUs or entirely of stock options.

The quantity of options would be calculated by dividing $ 120,000 by the Black-Scholes value on the date of grant.

The quantity of RSUs issued would be calculated by dividing $ 120,000 by the grant-date fair value.

Further, on the date of election of a new outside director, such new director would receive such grant as continuing outside directors receive on the first trading day of July;

provided, however, that such grant is prorated for the portion of the year that such new outside director will serve until the next first trading day of July.

The Directors Equity Compensation Program will remain in effect at the discretion of the board of directors or the compensation committee.

2016 Incentive Award Plan

2 unchanged sentences

No other forms of equity-based awards, including stock options and stock appreciation rights, may be granted under the 2016 Plan.

As of December 31,

2019 , 0.8 million awards have been issued and approximately 1.7 million shares of common stock remain available for future grant under the 2016 Plan.

As of December 31, 2020, 2.2 million awards have been issued and approximately 2.8 million shares of common stock remain available for future grant under the 2016 Plan.

1997 Employee Stock Purchase Plan

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Unrecognized Compensation

Expense for Unvested

(in thousands)

Weighted Average

Expense for Unvested

Remaining Recognition

(In thousands)

Long-term performance-based awards

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

(shares and intrinsic value in thousands)

Weighted Average

Remaining Contractual

Intrinsic Value

(In thousands)

Outstanding at January 1, 2018

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Options Exercisable

Weighted Average

(shares in thousands)

Contractual Term

Range of Exercise Prices

Options Outstanding

Weighted Average

Remaining Contractual Term

Weighted Average Exercise Price

Options Exercisable

Weighted Average Exercise Price

$ 18.48 - $ 19.75

1 unchanged sentence

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.

The number of shares that are released

at the end of the performance year can range from zero to 200 % of the target number depending on the Company’s performance.

The number of shares that are released at the end of the performance year can range from zero to 200 % of the target number depending on the Company’s performance.

The performance metrics of this program are annual targets consisting of a combination of net revenue, non-GAAP operating earnings and strategic goals.

3 unchanged sentences

A summary of PSU awards outstanding as of December 31, 2020, and activity during the three years then ended, is presented below:

(shares and intrinsic value in thousands)

Weighted Average Grant-Date Fair Value Per Share

Weighted Average Remaining Contractual Term

Aggregate Intrinsic

Grant Date Fair

Contractual Term

Intrinsic Value

(In thousands)

Value Per Share

(In thousands)

Outstanding at January 1, 2018

6 unchanged sentences

Outstanding and expected to vest at December 31, 2020

The grant-date fair value of PSU awards released, which were fully vested, in the years ended December 31, 2019 , 2018 and 2017 were approximately $ 1.6 million , $ 5.1 million and $ 4.6 million , respectively.

The grant-date fair value of PSU awards released, which were fully vested, in the years ended December 31, 2020, 2019 and 2018 was approximately $ 4.2 million, $ 1.6 million and $ 5.1 million, respectively.

PRSU Awards (Long-term Performance Based)

2 unchanged sentences

The actual number of shares the recipient receives is determined at the end of a three-year performance period based on results achieved versus the Company’s performance goals, and may range from zero to 200 % of the target number.

The performance goals for PRSUs granted in fiscal 2019 , 2018 and 2017 were based on the Company’s annual revenue growth over the respective three -year performance period.

Recipients of a PRSU award generally must remain employed by the Company on a continuous basis through the end of the applicable three-year performance period in order to receive shares subject to that award.

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

The fair value of PRSU awards is determined using the fair value of the Company’s common stock on the grant date, reduced by the discounted present value of dividends expected to be declared before the awards vest.

The performance goals for PRSUs granted in fiscal 2020, 2019 and 2018 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 based on an 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.

A summary of PRSU awards outstanding as of December 31, 2020, and activity during the three years then ended, is presented below:

(shares and intrinsic value in thousands)

Weighted Average Grant-Date Fair Value Per Share

Weighted Average Remaining Contractual Term

Aggregate Intrinsic Value

Weighted-Average

Grant Date Fair

Contractual Term

(In thousands)

Value Per Share

(In thousands)

Outstanding at January 1, 2018

6 unchanged sentences

Outstanding and expected to vest at December 31, 2020

The grant-date fair value of PRSU awards released, which were fully vested, in the year ended December 31, 2019 and 2018 were approximately $ 3.0 million and $ 2.0 million , respectively.

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 2020.

The grant-date fair value of PRSU awards released, which were fully vested, in the years ended December 31, 2019 and 2018 was approximately $ 3.0 million and $ 2.0 million , respectively.

RSUs granted to employees typically vest ratably over a four-year period, and are converted into shares of the Company’s common stock upon vesting on a one-for-one basis subject to the employee’s continued service to the Company over that period.

2 unchanged sentences

A summary of RSU awards outstanding as of December 31, 2020, and activity during the three years then ended, is presented below:

(shares and intrinsic value in thousands)

Weighted Average Grant-Date Fair Value Per Share

Weighted Average Remaining Contractual Term

Aggregate Intrinsic Value

Weighted-Average

Grant Date Fair

Contractual Term

(In thousands)

Value Per Share

(In thousands)

Outstanding at January 1, 2018

11 unchanged sentences

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

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

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

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

Year Ended December 31,

Honestar Technologies Co., Ltd.

________________________

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

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

19 unchanged sentences

Common Stock Repurchases

Over the years the Company’s board of directors has authorized the use of funds to repurchase shares of the Company’s common stock, including $ 60.0 million , $ 30.0 million and $ 110.0 million in 2015, 2017, and 2018, respectively, with repurchases to be executed according to pre-defined price/volume guidelines.

Over the years the Company’s board of directors has authorized the use of funds to repurchase shares of the Company’s common stock, including $ 110.0 million in 2018, with repurchases to be executed according to pre-defined price/volume guidelines.

In 2018, 2019 and 2020 the Company purchased approximately 3,144,000 , 242,000 and 63,000 shares, respectively, for approximately $ 103.2 million, $ 7.3 million and $ 2.6 million, respectively.

10 unchanged sentences

In January 2018, the Company’s board of directors declared a $ 0.080 per share quarterly dividend for each quarter in 2018.

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.

The declaration of any future cash dividend 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, as well as a determination that cash dividends are in the best interest of the Company’s stockholders.

In January 2019, the Company’s 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, 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 $ 0.01 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, the Company’s 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, the Company’s 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, the Company’s board of directors raised the quarterly cash dividend again by $ 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.

EARNINGS PER SHARE:

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Weighted-average common shares

Effect of dilutive securities:

Effect of dilutive awards:

Employee stock plans

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Diluted earnings per share

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(1) The Company includes the shares underlying performance-based awards in the calculation of diluted earnings per share if the performance conditions have been satisfied as of the end of the reporting period and excludes such shares when the necessary conditions have not been met.

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In the years ended December 31, 2020, 2019, and 2018, no outstanding stock awards were determined to be anti-dilutive and therefore were 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, payable on August 18, 2020, to stockholders of record as of the close of business on August 14, 2020.

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

The share and per share information for all periods presented in this Form 10-K has been adjusted for the effect of the stock split.

PROVISION (BENEFIT) FOR INCOME TAXES:

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Tax Act - transition tax

Tax Act - deferred tax asset and liability adjustment

Deferred tax asset and liability adjustment

Valuation allowance

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Additionally, in 2018 the Company’s effective tax rate was favorably impacted by revisions to the Tax Act resulting in a $ 9.7 million income tax benefit.

In 2017 our effective tax rate was also impacted by a $ 37.5 million charge resulting from the enactment of the Tax Act.

The components of the net deferred income tax assets (liabilities) were as follows:

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As of December 31, 2020, the Company continues to maintain a valuation allowance primarily as a result of capital losses for federal purposes, and on its California, New Jersey and Canada deferred tax assets as the Company believes that it is not more likely than not that the deferred tax assets will be fully realized.

As of December 31, 2019 , the Company had utilized all of its federal research and development tax credit carry-forwards.

As of December 31, 2019 , the Company had California research and development tax credit carry-forwards of approximately $ 27.5 million (there is no expiration of research and development tax credit carry-forwards for the state of California) and California net operating losses of $ 24.6 million which will begin to expire in 2031.

As of December 31, 2019 , the Company had Canadian scientific research and experimental development tax credit carry-forwards of approximately $ 3.1 million and New Jersey research and experimental development tax credit carry-forwards of approximately $ 0.7 million , which will start to expire in 2030 and 2026, respectively.

As of December 31, 2020, the Company had utilized all of its federal research and development tax credit carryforwards.

As of December 31, 2020, the Company had California research and development tax credit carryforwards of approximately $ 30.2 million (there is no expiration of research and development tax credit carryforwards for the state of California) and California net operating losses of $ 44.7 million which will begin to expire in 2032 .

As of December 31, 2020, the Company had Canadian scientific research and experimental development tax credit carryforwards of approximately $ 3.4 million and New Jersey research and experimental development tax credit carryforwards of approximately $ 0.7 million, which will start to expire in 2030 and 2026 , respectively.

The Tax Act signed into law on December 22, 2017, generally allows companies to repatriate accumulated foreign earnings without incurring additional U.S.

federal taxes beginning after December 31, 2017.

Accordingly, the Company has not provided for U.S.

Local foreign and U.S.

states taxes may still be incurred upon repatriation.

The Company has not provided for U.S.

taxes on its undistributed earnings of foreign subsidiaries.

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(In thousands)

Unrecognized Tax Benefits

Unrecognized Tax Benefits Balance at January 1, 2018

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Tax Court decision;

The Company has reviewed this case and its impact and concluded that no adjustment to the consolidated financial statements is appropriate at this time.

The Company will continue to monitor ongoing developments and potential impacts to the consolidated financial statements.

LEASES AND COMMITEMENTS:

finding that the Government had adequately supported in the record that stock-based compensation should be treated as an intangible development cost in a cost-sharing arrangement and Treasury’s position on the issue was not a policy change, holding stock-based compensation to be a compensable cost under IRC Section 482.

On February 10, 2020, Altera filed a petition for a writ of certiorari asking the Supreme Court to review the Ninth Circuit’s decision.

The Supreme Court’s denied the petition for certiorari, and thus the Ninth Circuit’s decision stands.

The decision above does not impact the Company as it treats stock-based compensation as a compensable cost under IRC Section 482.

LEASES AND COMMITMENTS:

Facilities and Leases

The Company owns its main executive, administrative, manufacturing and technical offices in San Jose, California.

The Company also owns a research and development facility in New Jersey and a test facility in Biel, Switzerland.

The Company’s leases consist of operating leases for administrative office spaces, research-and-development facilities, design centers and sales offices in various countries around the world.

The Company also owns a research and development facility in New Jersey, a design center in Germany and a test facility in Switzerland.

The Company’s leases consist of operating leases for administrative office spaces, research-and-development facilities and sales offices in various countries around the world.

Effective January 1, 2019, the Company adopted Accounting Standards Update 2016-02, Leases (Topic 842), using the optional transition method.

The Company determines if an arrangement is a lease at inception.

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Initial lease terms are determined at commencement and may include options to extend or terminate the lease when it is reasonably certain the Company will exercise the option.

Remaining lease terms range from one to nine years , some of which include options to extend for up to six years , and some of which include options to terminate within one year .

Remaining lease terms range from one to eight years , some of which include options to extend for up to six years , and some of which include options to terminate within one year .

Leases with an initial term of twelve months or less are not recorded on the balance sheet.

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Supplemental cash flows information related to leases was as follow:

Year Ended December 31,

(In thousands)

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In accordance with ASC 450-10, Contingencies , the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

On October 4, 2019, the Company entered into a binding term sheet (the “Term Sheet”) with ON Semiconductor Corporation and its wholly owned subsidiaries Fairchild Semiconductor International, Inc., Fairchild Semiconductor Corporation, Fairchild (Taiwan) Corporation, and Semiconductor Components Industries, LLC (collectively, “ON”) pursuant to which the parties agreed to end all outstanding legal and administrative disputes.

Pursuant to the Term Sheet, ON agreed to pay the Company $ 175.0 million in cash.

Neither party granted any licenses to the other.

On October 19, 2019, the parties memorialized the terms of the Term Sheet in a definitive agreement (the “Definitive Agreement”).

On October 22, 2019, the Company received ON’s payment of $ 175.0 million .

Subject to the Definitive Agreement, the Company and ON have dismissed, withdrawn, and/or terminated all legal proceedings between the parties.

The Company recorded a net $ 169.0 million favorable litigation settlement within operating expenses for the year ended December 31, 2019 in the consolidated statement of income.

On April 1, 2016, Opticurrent, LLC filed a complaint against the Company in the United States District Court for the Eastern District of Texas.

In its complaint, Opticurrent alleges that the Company has infringed and is infringing one patent pertaining to transistor switch devices.

The Company filed a motion to transfer the case to California, which the Court granted, and the case was assigned to a new judge in San Francisco following the transfer.

On April 1, 2016, Opticurrent, LLC filed a complaint against the Company in the United States District Court for the Eastern District of Texas alleging that the Company infringed one patent pertaining to transistor switch devices and seeking damages for the alleged infringement.

The Company filed a motion to transfer the case to the Northern District of California, which the Court granted, and the case was assigned to a new judge in San Francisco following the transfer.

On December 21, 2018, the Court granted the Company’s challenge to Opticurrent’s damages expert but denied the Company’s motion for summary judgment.

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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.

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.

Although the Court of Appeals affirmed the original findings and the reduced damages award, the Company believes it has strong defenses, and intends to continue to vigorously defend itself against Opticurrent’s claims, including through a pending motion to set aside the judgment in view of a disclaimer that Opticurrent made during reexamination proceedings, which has been fully briefed and argued, with rulings expected in the coming months.

On June 19, 2019, Opticurrent, LLC filed a follow-on lawsuit in the United States District Court for the Northern District of California accusing more of the Company’s products of infringement and seeking damages for the alleged infringement of the same claim of the same patent asserted in the parties’ prior litigation, as described above.

Limited discovery has taken place, but proceedings are currently stayed pending resolution of the Company’s motion to set aside the judgment in the parties’ prior litigation, and 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 in the United States District Court for the District of Delaware 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, so CogniPower’s claims for infringement initially went forward separately in their lawsuit against the Company’s customers in the District of Delaware, but the Company filed a motion to intervene in that lawsuit and received a ruling allowing the Company to intervene in CogniPower’s customer lawsuit on February 1, 2021.

Fact discovery and claim construction proceedings are now under way, 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.

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As of December 31, 2019, the projected benefit obligation was $ 14.8 million, the plan assets were $ 8.2 million, and the net pension liability was $ 6.6 million.

The Company has recorded the unfunded amount as a liability in its consolidated balance sheet at December 31, 2019 and 2018 , under the other liabilities caption.

The Company has recorded the unfunded amount as a liability in its consolidated balance sheet at December 31,

2020 and 2019, under the other liabilities caption.

The Company expects to make contributions to the Pension Plan of approximately $ 0.4 million during 2021.

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BANK LINE OF CREDIT:

On July 27, 2016, the Company entered into a credit agreement with a bank (the "Credit Agreement") that provides the Company 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.

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

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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.

The Company was compliant with all covenants and had no advances outstanding under the Credit Agreement.

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Shares used in per share calculation (2)

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In October 2019 the Company entered into a favorable l itigation settlement with ON Semiconductor Corporation which resulted in a $ 169.0 million net gain (Refer to Note 13, Legal Proceedings and Contingencies , in our Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K).

(1) In October 2019, the Company entered into a favorable litigation settlement with ON Semiconductor Corporation which resulted in a $ 169.0 million net gain.

(2) 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 received one additional share of common stock for each share of common stock held on August 14, 2020.

The share and per share information for all periods presented in this Form 10-K has been adjusted for the effect of the stock split ( Refer to Note 10, Earnings Per Share , in this Form 10-K for details ) .

Valuation and Qualifying Accounts

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This reserve is established using the Company’s historical ship and debit amounts and levels of inventory in the distributor channels.

The f ollowing is a summary of the activity in the allowance for ship and debit credits:

The following is a summary of the activity in the allowance for ship and debit credits:

Balance at End

(In thousands)

Balance at Beginning of Period

Charged to Costs and Expenses

Deductions(1)

Balance at End of Period

Allowance for ship and debit credits:

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Year ended December 31, 2020

_______________

(1) Deductions relate to ship and debit credits issued which adjust the sales price from the standard distribution price to the pre-approved lower price.

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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 8. Financial Statements and Supplementary Data