UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2021
or
☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______ to ______
Commission File Number 000-23441
POWER INTEGRATIONS, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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94-3065014 |
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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5245 Hellyer Avenue |
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San Jose, |
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California |
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95138 |
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(Address of Principal Executive Offices) |
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(Zip Code) |
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(408) 414-9200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Common Stock |
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POWI |
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The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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Large Accelerated Filer |
☒ |
Accelerated Filer |
☐ |
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Non-accelerated Filer |
☐ |
Smaller Reporting Company |
☐ |
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Emerging Growth Company |
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Class |
Shares Outstanding at July 26, 2021 |
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Common Stock, $0.001 par value |
60,290,603 |
POWER INTEGRATIONS, INC.
TABLE OF CONTENTS
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Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 (Unaudited) |
4 |
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5 |
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7 |
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8 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
9 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
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29 |
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31 |
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32 |
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33 |
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35 |
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2
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes a number of forward-looking statements that involve many risks and uncertainties. Forward-looking statements are identified by the use of the words “would,” “could,” “will,” “may,” “expect,” “believe,” “should,” “anticipate,” “if,” “future,” “intend,” “plan,” “estimate,” “potential,” “target,” “seek,” or “continue” and similar words and phrases, including the negatives of these terms, or other variations of these terms, that denote future events. These statements reflect our current views with respect to future events and our potential financial performance and are subject to risks and uncertainties that could cause our actual results and financial position to differ materially and/or adversely from what is projected or implied in any forward-looking statements included in this Form 10-Q. These factors include, but are not limited to: the novel coronavirus pandemic (COVID-19), which has disrupted and may again disrupt our operations, including our manufacturing, research and development, and sales and marketing activities, which in turn could have a material adverse impact on our business and has or could exacerbate the risks discussed below; if demand for our products declines in our major end markets, our net revenues will decrease; our products are sold through distributors, which limits our direct interaction with our end customers, therefore reducing our ability to forecast sales and increasing the complexity of our business; we depend on third-party suppliers to provide us with wafers for our products, and if they fail to provide us sufficient quantities of wafers, our business may suffer; intense competition in the high-voltage power supply industry may lead to a decrease in our average selling price and reduced sales volume of our products; if our products do not penetrate additional markets, our business will not grow as we expect; we do not have long-term contracts with any of our customers and if they fail to place, or if they cancel or reschedule orders for our products, our operating results and our business may suffer; if we are unable to adequately protect or enforce our intellectual property rights, we could lose market share, incur costly litigation expenses, suffer incremental price erosion or lose valuable assets, any of which could harm our operations and negatively impact our profitability; and the other risk factors described under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, and in Part I, Item 2 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. We make these forward-looking statements based upon information available on the date of this Form 10-Q, and we expressly disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information or otherwise, except as required by laws.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POWER INTEGRATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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(In thousands) |
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June 30, 2021 |
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December 31, 2020 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
297,481 |
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$ |
258,874 |
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Short-term marketable securities |
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217,777 |
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190,318 |
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Accounts receivable, net |
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41,352 |
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35,910 |
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Inventories |
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89,643 |
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102,878 |
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Prepaid expenses and other current assets |
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21,292 |
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13,252 |
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Total current assets |
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667,545 |
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601,232 |
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PROPERTY AND EQUIPMENT, net |
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167,079 |
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166,188 |
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INTANGIBLE ASSETS, net |
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10,601 |
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12,506 |
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GOODWILL |
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91,849 |
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91,849 |
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DEFERRED TAX ASSETS |
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2,072 |
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3,339 |
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OTHER ASSETS |
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28,703 |
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28,225 |
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Total assets |
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$ |
967,849 |
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$ |
903,339 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
41,898 |
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$ |
34,712 |
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Accrued payroll and related expenses |
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16,652 |
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14,806 |
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Taxes payable |
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989 |
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902 |
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Other accrued liabilities |
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8,727 |
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12,106 |
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Total current liabilities |
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68,266 |
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62,526 |
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LONG-TERM INCOME TAXES PAYABLE |
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14,340 |
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15,588 |
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OTHER LIABILITIES |
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14,899 |
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14,814 |
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Total liabilities |
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97,505 |
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92,928 |
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COMMITMENTS AND CONTINGENCIES (Notes 11, 12 and 13) |
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STOCKHOLDERS’ EQUITY: |
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Common stock |
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28 |
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28 |
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Additional paid-in capital |
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185,878 |
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190,920 |
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Accumulated other comprehensive loss |
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(3,155) |
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(2,163) |
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Retained earnings |
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687,593 |
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621,626 |
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Total stockholders’ equity |
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870,344 |
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810,411 |
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Total liabilities and stockholders’ equity |
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$ |
967,849 |
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$ |
903,339 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
POWER INTEGRATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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(In thousands, except per share amounts) |
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2021 |
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2020 |
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2021 |
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2020 |
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NET REVENUES |
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$ |
180,110 |
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$ |
106,832 |
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$ |
353,847 |
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$ |
216,496 |
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COST OF REVENUES |
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88,797 |
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53,296 |
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178,123 |
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106,480 |
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GROSS PROFIT |
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91,313 |
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53,536 |
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175,724 |
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110,016 |
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OPERATING EXPENSES: |
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Research and development |
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21,741 |
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19,770 |
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41,768 |
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38,922 |
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Sales and marketing |
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15,290 |
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13,037 |
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29,413 |
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26,510 |
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General and administrative |
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9,306 |
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7,804 |
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19,381 |
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16,565 |
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Total operating expenses |
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46,337 |
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40,611 |
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90,562 |
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81,997 |
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INCOME FROM OPERATIONS |
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44,976 |
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12,925 |
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85,162 |
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28,019 |
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OTHER INCOME |
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173 |
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1,480 |
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770 |
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3,257 |
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INCOME BEFORE INCOME TAXES |
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45,149 |
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14,405 |
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85,932 |
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31,276 |
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PROVISION FOR INCOME TAXES |
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3,268 |
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1,213 |
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4,253 |
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2,198 |
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NET INCOME |
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$ |
41,881 |
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$ |
13,192 |
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$ |
81,679 |
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$ |
29,078 |
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EARNINGS PER SHARE: |
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Basic |
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$ |
0.69 |
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$ |
0.22 |
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$ |
1.35 |
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$ |
0.49 |
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Diluted |
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$ |
0.68 |
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$ |
0.22 |
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$ |
1.33 |
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$ |
0.48 |
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SHARES USED IN PER SHARE CALCULATION: |
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Basic |
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60,544 |
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59,712 |
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60,366 |
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59,458 |
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Diluted |
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61,466 |
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60,624 |
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61,481 |
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60,464 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. The Earnings Per Share and Shares Used in Per Share Calculation information presented above reflects the effect of the August 2020 two-for-one stock split. Refer to Note 9, Earnings Per Share, in this Form 10-Q for details.
5
POWER INTEGRATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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(In thousands) |
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2021 |
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2020 |
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2021 |
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2020 |
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Net income |
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$ |
41,881 |
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$ |
13,192 |
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$ |
81,679 |
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$ |
29,078 |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments, net of $0 tax in each of the three and six months ended June 30, 2021 and 2020 |
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(40) |
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(30) |
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(58) |
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(313) |
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Unrealized gain (loss) on marketable securities, net of $0 tax in each of the three and six months ended June 30, 2021 and 2020 |
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(331) |
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2,566 |
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(911) |
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1,614 |
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Amortization of defined benefit pension items, net of tax of $6 and $141 in the three and six months ended June 30, 2021, respectively, and $24 and $55 in the three and six months ended June 30, 2020, respectively |
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52 |
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58 |
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(23) |
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109 |
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Total other comprehensive income (loss) |
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(319) |
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2,594 |
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(992) |
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1,410 |
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TOTAL COMPREHENSIVE INCOME |
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$ |
41,562 |
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$ |
15,786 |
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$ |
80,687 |
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$ |
30,488 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
POWER INTEGRATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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(In thousands) |
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2021 |
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2020 |
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2021 |
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2020 |
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Common stock |
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Beginning balance |
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$ |
29 |
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$ |
28 |
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$ |
28 |
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$ |
28 |
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Common stock issued under employee stock plans |
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— |
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— |
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1 |
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— |
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Repurchase of common stock |
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(1) |
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— |
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(1) |
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— |
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Ending balance |
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28 |
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28 |
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28 |
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28 |
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Additional paid-in capital |
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Beginning balance |
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203,051 |
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162,343 |
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190,920 |
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|
152,117 |
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Common stock issued under employee stock plans |
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— |
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|
769 |
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3,651 |
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6,298 |
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Repurchase of common stock |
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(26,373) |
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(623) |
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(26,373) |
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(2,636) |
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Stock-based compensation |
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9,200 |
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5,981 |
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17,680 |
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|
12,691 |
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Ending balance |
|
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185,878 |
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|
168,470 |
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|
185,878 |
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|
168,470 |
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|
|
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|
|
|
|
|
|
|
|
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Accumulated other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
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Beginning balance |
|
|
(2,836) |
|
|
(4,314) |
|
|
(2,163) |
|
|
(3,130) |
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Other comprehensive income (loss) |
|
|
(319) |
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|
2,594 |
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|
(992) |
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|
1,410 |
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Ending balance |
|
|
(3,155) |
|
|
(1,720) |
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|
(3,155) |
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|
(1,720) |
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Retained earnings |
|
|
|
|
|
|
|
|
|
|
|
|
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Beginning balance |
|
|
653,579 |
|
|
585,773 |
|
|
621,626 |
|
|
575,531 |
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Net income |
|
|
41,881 |
|
|
13,192 |
|
|
81,679 |
|
|
29,078 |
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Payment of dividends to stockholders |
|
|
(7,867) |
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|
(6,271) |
|
|
(15,712) |
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|
(11,915) |
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Ending balance |
|
|
687,593 |
|
|
592,694 |
|
|
687,593 |
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|
592,694 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
$ |
870,344 |
|
$ |
759,472 |
|
$ |
870,344 |
|
$ |
759,472 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
POWER INTEGRATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements include the accounts of Power Integrations, Inc., a Delaware corporation (the “Company”), and its wholly owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.
While the financial information furnished is unaudited, the condensed consolidated financial statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for the fair presentation of the results of operations for the interim periods covered and the financial condition of the Company at the date of the interim balance sheet in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The results for interim periods are not necessarily indicative of the results for the entire year. The condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and the notes thereto for the year ended December 31, 2020, included in its Form 10-K filed on February 5, 2021, with the Securities and Exchange Commission.
The share and per share information for all periods presented in this Form 10-Q reflects the effect of the August 2020 two-for-one stock split. Refer to Note 8, Stockholders’ Equity, in this Form 10-Q for details.
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
2. SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS:
Significant Accounting Policies and Estimates
No material changes have been made to the Company’s significant accounting policies disclosed in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements, in its Annual Report on Form 10-K, filed on February 5, 2021, for the year ended December 31, 2020.
Recent Accounting Pronouncements
The Company has considered all recent accounting pronouncements issued, but not yet effective, and does not expect any to have a material effect on the Company’s condensed consolidated financial statements.
3. COMPONENTS OF THE COMPANY’S CONDENSED CONSOLIDATED BALANCE SHEETS:
Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
(In thousands) |
|
2021 |
|
2020 |
||
|
Accounts receivable trade |
|
$ |
78,759 |
|
$ |
66,703 |
|
Allowance for ship and debit |
|
|
(33,738) |
|
|
(26,435) |
|
Allowance for stock rotation and rebate |
|
|
(3,151) |
|
|
(3,931) |
|
Allowance for credit losses |
|
|
(518) |
|
|
(427) |
|
Total |
|
$ |
41,352 |
|
$ |
35,910 |
9
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company maintains an allowance for estimated credit losses resulting from the inability of customers to make required payments. 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.
Inventories
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
(In thousands) |
|
2021 |
|
2020 |
||
|
Raw materials |
|
$ |
23,285 |
|
$ |
32,131 |
|
Work-in-process |
|
|
35,488 |
|
|
39,469 |
|
Finished goods |
|
|
30,870 |
|
|
31,278 |
|
Total |
|
$ |
89,643 |
|
$ |
102,878 |
Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021 |
|
December 31, 2020 |
||||||||||||||
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
Accumulated |
|
|
|
||
|
(In thousands) |
|
Gross |
|
Amortization |
|
Net |
|
Gross |
|
Amortization |
|
Net |
||||||
|
Domain name |
|
$ |
1,261 |
|
$ |
— |
|
$ |
1,261 |
|
$ |
1,261 |
|
$ |
— |
|
$ |
1,261 |
|
Developed technology |
|
|
37,960 |
|
|
(30,500) |
|
|
7,460 |
|
|
37,960 |
|
|
(29,126) |
|
|
8,834 |
|
Customer relationships |
|
|
16,700 |
|
|
(16,095) |
|
|
605 |
|
|
16,700 |
|
|
(15,687) |
|
|
1,013 |
|
Technology licenses |
|
|
1,926 |
|
|
(651) |
|
|
1,275 |
|
|
1,926 |
|
|
(528) |
|
|
1,398 |
|
Total intangible assets |
|
$ |
57,847 |
|
$ |
(47,246) |
|
$ |
10,601 |
|
$ |
57,847 |
|
$ |
(45,341) |
|
$ |
12,506 |
The estimated future amortization expense related to finite-lived intangible assets at June 30, 2021, is as follows:
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
Amortization |
|
|
Fiscal Year |
|
(In thousands) |
|
|
2021 (remaining six months) |
|
$ |
1,589 |
|
2022 |
|
|
2,415 |
|
2023 |
|
|
2,173 |
|
2024 |
|
|
1,279 |
|
2025 |
|
|
832 |
|
Thereafter |
|
|
1,052 |
|
Total |
|
$ |
9,340 |
10
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss for the three and six months ended June 30, 2021 and 2020, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
and Losses on |
|
Defined Benefit |
|
Foreign Currency |
|
|
|
|||||||||||||||
|
|
Marketable Securities |
|
Pension Items |
|
Items |
|
Total |
||||||||||||||||
|
|
Three Months Ended |
|
Three Months Ended |
|
Three Months Ended |
|
Three Months Ended |
||||||||||||||||
|
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
||||||||||||||||
|
(In thousands) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||||||
|
Beginning balance |
$ |
310 |
|
$ |
(369) |
|
$ |
(1,716) |
|
$ |
(2,433) |
|
$ |
(1,430) |
|
$ |
(1,512) |
|
$ |
(2,836) |
|
$ |
(4,314) |
|
Other comprehensive income (loss) before reclassifications |
|
(331) |
|
|
2,566 |
|
|
— |
|
|
— |
|
|
(40) |
|
|
(30) |
|
|
(371) |
|
|
2,536 |
|
Amounts reclassified from accumulated other comprehensive loss |
|
— |
|
|
— |
|
|
52 |
(1) |
|
58 |
(1) |
|
— |
|
|
— |
|
|
52 |
|
|
58 |
|
Net-current period other comprehensive income (loss) |
|
(331) |
|
|
2,566 |
|
|
52 |
|
|
58 |
|
|
(40) |
|
|
(30) |
|
|
(319) |
|
|
2,594 |
|
Ending balance |
$ |
(21) |
|
$ |
2,197 |
|
$ |
(1,664) |
|
$ |
(2,375) |
|
$ |
(1,470) |
|
$ |
(1,542) |
|
$ |
(3,155) |
|
$ |
(1,720) |
| (1) | This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the three months ended June 30, 2021 and 2020. |
| (1) | This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the six months ended June 30, 2021 and 2020. |
4. FAIR VALUE MEASUREMENTS:
The FASB established a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices for identical assets in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
The Company’s cash equivalents and short-term marketable securities are classified within Level 1 or Level 2 of the fair-value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.
11
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The fair-value hierarchy of the Company’s cash equivalents and marketable securities at June 30, 2021, and December 31, 2020, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at |
|||||||
|
|
|
June 30, 2021 |
|||||||
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
Significant Other |
||
|
|
|
|
|
|
Identical Assets |
|
Observable Inputs |
||
|
(In thousands) |
|
Total Fair Value |
|
(Level 1) |
|
(Level 2) |
|||
|
Commercial paper |
|
$ |
341,013 |
|
$ |
— |
|
$ |
341,013 |
|
Corporate securities |
|
|
107,780 |
|
|
— |
|
|
107,780 |
|
Money market funds |
|
|
1,865 |
|
|
1,865 |
|
|
— |
|
Total |
|
$ |
450,658 |
|
$ |
1,865 |
|
$ |
448,793 |
The Company did not transfer any investments between Level 1 and Level 2 of the fair-value hierarchy in the six months ended June 30, 2021, and the twelve months ended December 31, 2020.
5. MARKETABLE SECURITIES:
Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at June 30, 2021, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
Gross Unrealized |
|
Estimated Fair |
||||||
|
(In thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Market Value |
||||
|
Investments due in 3 months or less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
$ |
77,195 |
|
$ |
— |
|
$ |
— |
|
$ |
77,195 |
|
Corporate securities |
|
|
23,948 |
|
|
46 |
|
|
(6) |
|
|
23,988 |
|
Total |
|
|
101,143 |
|
|
46 |
|
|
(6) |
|
|
101,183 |
|
Investments due in 4-12 months: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
|
34,306 |
|
|
— |
|
|
— |
|
|
34,306 |
|
Corporate securities |
|
|
20,675 |
|
|
47 |
|
|
(5) |
|
|
20,717 |
|
Total |
|
|
54,981 |
|
|
47 |
|
|
(5) |
|
|
55,023 |
|
Investments due in 12 months or greater: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities |
|
|
61,674 |
|
|
— |
|
|
(103) |
|
|
61,571 |
|
Total |
|
|
61,674 |
|
|
— |
|
|
(103) |
|
|
61,571 |
|
Total marketable securities |
|
$ |
217,798 |
|
$ |
93 |
|
$ |
(114) |
|
$ |
217,777 |
Accrued interest receivable was $0.6 million at June 30, 2021 and was recorded within prepaid expenses and other current assets on the condensed consolidated balance sheet.
12
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at December 31, 2020, were as follows:
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.
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 June 30, 2021:
In the three and six months ended June 30, 2021 and 2020, no unrealized losses on marketable securities were recognized in income.
The Company does not intend to sell and it is unlikely that it will be required to sell the securities prior to their anticipated recovery. The issuers are high quality (investment grade) and the decline in fair value is largely due to changes in interest rates and other market conditions. Additionally, the issuers continue to make timely interest payments on the marketable securities with the fair value expected to recover as they reach maturity.
6. STOCK-BASED COMPENSATION:
The following table summarizes the stock-based compensation expense recognized in accordance with ASC 718-10 for the three and six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
|
June 30, |
|
June 30, |
||||||||
|
(In thousands) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||
|
Cost of revenues |
|
$ |
640 |
|
$ |
252 |
|
$ |
1,271 |
|
$ |
648 |
|
Research and development |
|
|
3,159 |
|
|
2,351 |
|
|
5,550 |
|
|
4,460 |
|
Sales and marketing |
|
|
1,725 |
|
|
1,258 |
|
|
3,339 |
|
|
2,650 |
|
General and administrative |
|
|
3,676 |
|
|
2,120 |
|
|
7,520 |
|
|
4,933 |
|
Total stock-based compensation expense |
|
$ |
9,200 |
|
$ |
5,981 |
|
$ |
17,680 |
|
$ |
12,691 |
Stock-based compensation expense in the three months ended June 30, 2021, was approximately $9.2 million, comprising approximately $4.7 million related to restricted stock unit (RSU) awards, $4.0 million related to performance-based (PSU) awards and long-term performance-based (PRSU) awards and $0.5 million related to the Company’s employee stock purchase plan. Stock-based compensation expense in the six months ended June 30, 2021, was approximately $17.7 million, comprising approximately $10.0 million related to RSUs, $6.7 million related to PSUs and PRSUs and $1.0 million related to the Company’s employee stock purchase plan.
13
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock-based compensation expense in the three months ended June 30, 2020, was approximately $6.0 million, comprising approximately $4.5 million related to RSUs, $1.1 million related to PSUs and PRSUs and $0.4 million related to the Company’s employee stock purchase plan. Stock-based compensation expense in the six months ended June 30, 2020, was approximately $12.7 million, comprising approximately $9.5 million related to RSUs, $2.4 million related to PSUs and PRSUs and $0.8 million related to the Company’s employee stock purchase plan.
Stock Options
A summary of stock options outstanding as of June 30, 2021, and activity during the six months then ended, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Weighted- |
|
Remaining |
|
|
|
|
|
|
|
|
|
Average |
|
Contractual |
|
Aggregate |
||
|
|
|
Shares |
|
Exercise |
|
Term |
|
Intrinsic Value |
||
|
|
|
(In thousands) |
|
Price |
|
(In years) |
|
(In thousands) |
||
|
Outstanding at January 1, 2021 |
|
92 |
|
$ |
20.63 |
|
|
|
|
|
|
Granted |
|
— |
|
|
— |
|
|
|
|
|
|
Exercised |
|
(33) |
|
$ |
19.15 |
|
|
|
|
|
|
Forfeited or expired |
|
— |
|
|
— |
|
|
|
|
|
|
Outstanding at June 30, 2021 |
|
59 |
|
$ |
21.44 |
|
0.85 |
|
$ |
3,602 |
|
Vested and exercisable at June 30, 2021 |
|
59 |
|
|
|
|
0.85 |
|
$ |
3,602 |
PSU Awards
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 performance metrics of this program are annual targets consisting of a combination of net revenue, non-GAAP operating income and strategic goals.
As the net revenue, non-GAAP operating income and strategic goals are considered performance conditions, expense associated with these awards, net of estimated forfeitures, is recognized over the service period based on an assessment of the achievement of the performance targets. The fair value of these PSUs is determined using the fair value of the Company’s common stock on the date of the grant, reduced by the discounted present value of dividends expected to be declared before the awards vest. If the performance conditions are not achieved, no compensation cost is recognized and any previously recognized compensation is reversed.
In January 2021, it was determined that approximately 150,000 shares subject to the PSUs granted in 2020 vested in aggregate; the shares were released to the Company’s employees and executives in the first quarter of 2021.
A summary of PSUs outstanding as of June 30, 2021, and activity during the six months ended, is presented below:
14
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
PRSU Awards
The Company’s PRSU program provides for the issuance of PRSUs which will vest based on the Company’s performance measured against the PRSU program’s established performance targets. PRSUs are granted in an amount equal to twice the target number of shares to be issued if the maximum performance metrics are met. 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 were based on the Company’s annual revenue growth, while the PRSUs granted in 2020 and 2021 were based on the Company’s compound annual growth rate (“CAGR”) of revenue as measured against the revenue CAGR of the analog semiconductor industry, in each case 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.
In January 2021 it was determined that approximately 6,000 shares subject to the PRSUs granted in 2018 vested in aggregate; the shares were released to the Company’s executives in the first quarter of 2021.
A summary of PRSUs outstanding as of June 30, 2021, and activity during the six months ended, is presented below:
RSU Awards
A summary of RSUs outstanding as of June 30, 2021, and activity during the six months then ended, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
Aggregate |
|
|
|
|
|
|
Weighted-Average |
|
Remaining |
|
Intrinsic |
||
|
|
|
Shares |
|
Grant Date Fair |
|
Contractual Term |
|
Value |
||
|
|
|
(In thousands) |
|
Value Per Share |
|
(In years) |
|
(In thousands) |
||
|
Outstanding at January 1, 2021 |
|
1,518 |
|
$ |
35.51 |
|
|
|
|
|
|
Granted |
|
227 |
|
$ |
82.94 |
|
|
|
|
|
|
Vested |
|
(524) |
|
$ |
34.53 |
|
|
|
|
|
|
Forfeited |
|
(71) |
|
$ |
36.41 |
|
|
|
|
|
|
Outstanding at June 30, 2021 |
|
1,150 |
|
$ |
45.29 |
|
1.70 |
|
$ |
94,342 |
|
Outstanding and expected to vest at June 30, 2021 |
|
1,064 |
|
|
|
|
1.65 |
|
$ |
87,279 |
7. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC NET REVENUES:
Segment Reporting
The Company is organized and operates as one reportable segment, the design, development, manufacture and marketing of integrated circuits and related components for use primarily in the high-voltage power-conversion market. The Company’s chief operating decision maker, the Chief Executive Officer, reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance.
15
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Customer Concentration
The Company’s top ten customers accounted for approximately 80% of net revenues in both the three and six months ended June 30, 2021, and approximately 59% and 56%, respectively, of net revenues in the corresponding periods of 2020. A significant portion of these revenues are attributable to sales of the Company’s products to distributors of electronic components. These distributors sell the Company’s products to a broad, diverse range of end users, including original equipment manufacturers, or OEMs, and merchant power supply manufacturers. Sales to distributors were $136.4 million and $270.7 million in the three and six months ended June 30, 2021, respectively, and $87.3 million and $170.8 million, respectively, for the corresponding periods of 2020. Direct sales to OEMs and power-supply manufacturers accounted for the remainder.
The following customers represented 10% or more of the Company’s net revenues for the respective periods:
|
* |
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.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash investments and trade receivables. The Company does not have any off-balance-sheet credit exposure related to its customers. As of June 30, 2021, and December 31, 2020, 84% and 90%, respectively, of accounts receivable were concentrated with the Company’s top ten customers.
The following customers represented 10% or more of accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
Customer |
|
2021 |
|
2020 |
||
|
Avnet |
|
46 |
% |
|
50 |
% |
|
Powertech Distribution Ltd. |
|
* |
|
|
10 |
% |
* Total customer accounts receivable was less than 10% of accounts receivable.
No other customers accounted for 10% or more of the Company’s accounts receivable in the periods presented.
16
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Geographic Net Revenues
The Company markets its products globally through its sales personnel and a worldwide network of independent sales representatives and distributors. Geographic net revenues, based on “bill to” customer locations, for the three and six months ended June 30, 2021 and 2020, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
|
June 30, |
|
June 30, |
||||||||
|
(In thousands) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||
|
United States of America |
|
$ |
3,819 |
|
$ |
2,935 |
|
$ |
7,919 |
|
$ |
5,648 |
|
Hong Kong/China |
|
|
122,123 |
|
|
65,680 |
|
|
240,853 |
|
|
126,093 |
|
Taiwan |
|
|
6,361 |
|
|
7,199 |
|
|
12,803 |
|
|
13,678 |
|
Korea |
|
|
13,705 |
|
|
7,284 |
|
|
26,194 |
|
|
17,641 |
|
Western Europe (excluding Germany) |
|
|
8,720 |
|
|
7,995 |
|
|
15,850 |
|
|
18,030 |
|
Japan |
|
|
5,152 |
|
|
4,398 |
|
|
9,799 |
|
|
8,303 |
|
Germany |
|
|
7,656 |
|
|
5,847 |
|
|
14,662 |
|
|
11,414 |
|
Other |
|
|
12,574 |
|
|
5,494 |
|
|
25,767 |
|
|
15,689 |
|
Total net revenues |
|
$ |
180,110 |
|
$ |
106,832 |
|
$ |
353,847 |
|
$ |
216,496 |
8. STOCKHOLDERS’ EQUITY:
Common Stock Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
|
June 30, |
|
June 30, |
||||||||
|
(In thousands) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||
|
Beginning balance |
|
|
60,363 |
|
|
59,382 |
|
|
59,910 |
|
|
58,862 |
|
Common stock issued under employee stock plans |
|
|
316 |
|
|
386 |
|
|
769 |
|
|
954 |
|
Repurchased |
|
|
(335) |
|
|
(16) |
|
|
(335) |
|
|
(64) |
|
Ending balance |
|
|
60,344 |
|
|
59,752 |
|
|
60,344 |
|
|
59,752 |
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-Q reflects the effect of the stock split.
Common Stock Repurchases
As of December 31, 2020, the Company had approximately $41.3 million remaining under its stock-repurchase program. In April 2021, the Company’s board of directors authorized the use of an additional $50.0 million for the repurchase of the Company’s common stock, with repurchases to be executed according to pre-defined price/volume guidelines. In the six months ended June 30, 2021 the Company purchased approximately 335,000 shares for approximately $26.4 million. As of June 30, 2021, the Company had approximately $64.9 million remaining under its current repurchase program, which has no expiration date. Authorization of future repurchase programs is at the discretion of the board of directors and will depend on the Company’s financial condition, results of operations, capital requirements, business conditions and other factors.
Cash Dividends
In October 2019, the Company’s board of directors declared four quarterly cash dividends 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.
17
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In January 2021, the Company’s 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.
For the three and six months ended June 30, 2021 and 2020, cash dividends declared and paid were as follows:
9. EARNINGS PER SHARE:
Basic earnings per share are calculated by dividing net income by the weighted-average shares of common stock outstanding during the period. Diluted earnings per share are calculated by dividing net income by the weighted-average shares of common stock and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares included in this calculation consist of dilutive shares issuable upon the assumed exercise of outstanding common stock options, the assumed vesting of outstanding restricted stock units, the assumed issuance of awards under the stock purchase plan and contingently issuable performance-based awards, as computed using the treasury stock method.
A summary of the earnings per share calculation is as follows:
| (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. The Company has excluded the shares underlying the outstanding performance-based awards in the 2021 and 2020 calculations as the shares were not contingently issuable as of the end of the reporting periods. |
In the three months ended June 30, 2021, approximately 134,000 stock awards were determined to be anti-dilutive and therefore excluded from the computation of diluted earnings per share, no outstanding stock awards were determined to be anti-dilutive in the comparable period of 2020. In the six months ended June 30, 2021 and 2020, no outstanding stock awards were determined to be anti-dilutive and therefore excluded from the computation of diluted earnings per share.
In July 2020, the Company’s board of directors approved a two-for-one stock split in the form of a stock dividend to stockholders of record as of the close of business on August 14, 2020. Refer to Note 8, Stockholders’ Equity, for additional information. The share and per share information for all periods presented in this Form 10-Q reflects the effect of the stock split.
10. PROVISION FOR INCOME TAXES:
Income-tax expense includes a provision for federal, state and foreign taxes based on the annual estimated effective tax rate applicable to the Company and its subsidiaries, adjusted for certain discrete items which are fully
18
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
recognized in the period they occur. Accordingly, the interim effective tax rate may not be reflective of the annual estimated effective tax rate.
The Company’s effective tax rates for the three and six months ended June 30, 2021, were 7.2% and 4.9%, respectively, and 8.4% and 7.0%, respectively, in the corresponding periods of 2020. In the three and six months ended June 30, 2021 and 2020, the effective tax rate was lower than the statutory federal income-tax rate of 21% due to the geographic distribution of the Company’s world-wide earnings in lower-tax jurisdictions, federal research tax credits and the recognition of excess tax benefits related to share-based payments. Additionally, in the six months ended June 30, 2021, the Company’s effective tax rate was favorably impacted by a discrete item associated with the release of an unrecognized tax benefit. These benefits were partially offset by foreign income subject to U.S. tax, known as global intangible low-taxed income. The Company’s primary jurisdiction where foreign earnings are derived is the Cayman Islands, which is a non-taxing jurisdiction. Income earned in other foreign jurisdictions was not material. The Company has not been granted any incentivized tax rates and does not operate under any tax holidays in any jurisdiction.
As of June 30, 2021, the Company maintained a valuation allowance on its California deferred tax assets, New Jersey deferred tax assets, and capital losses for federal purposes, and a valuation allowance with respect to its deferred tax assets relating to tax credits in Canada.
Determining the consolidated provision for income-tax expense, income-tax liabilities and deferred tax assets and liabilities involves judgment. The Company calculates and provides for income taxes in each of the tax jurisdictions in which it operates, which involves estimating current tax exposures as well as making judgments regarding the recoverability of deferred tax assets in each jurisdiction. The estimates used could differ from actual results, which may have a significant impact on operating results in future periods.
11. COMMITMENTS:
Supplier Agreements
Under the terms of the Company’s wafer-supply agreements with Seiko Epson Corporation ("Epson"), and ROHM Lapis Semiconductor Co., Ltd. ("Lapis") the wafers purchased from these suppliers are priced in U.S. dollars, with mutual sharing of the impact of fluctuations in the exchange rate between the Japanese yen and the U.S. dollar on future purchases. Each year, the Company’s management and these two suppliers review and negotiate future pricing; the negotiated pricing is denominated in U.S. dollars but is subject to contractual exchange rate provisions. The fluctuation in the exchange rate is shared equally between the Company and each of these suppliers on future purchases.
12. LEGAL PROCEEDINGS AND CONTINGENCIES:
From time to time in the ordinary course of business, the Company becomes involved in lawsuits, or customers and distributors may make claims against the Company. 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 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. Following a trial in February 2019, a jury issued a finding of direct infringement by the Company but found that the Company did not induce infringement, and awarded Opticurrent damages of $6.7 million. 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 Court of Appeals affirmed the original findings and the reduced damages award, but the Company believes Opticurrent made key disclaimers during reexamination proceedings after the original trial, giving rise to a motion to set aside the original judgment in view of a disclaimer, an issue that is currently on appeal to the Federal Circuit. Briefing on the Company’s appeal is completed, with oral argument expected to take place in the coming months and a ruling thereafter. The District Court has issued an order staying execution on the original judgment pending the Company’s appeal, and the Federal Circuit rejected Opticurrent’s
19
POWER INTEGRATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
challenge to the order staying execution pending appeal. As such, the Company continues to believe it has strong defenses, and intends to continue to vigorously defend itself against Opticurrent’s claims.
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 for all but written discovery, and no schedule has yet been set for expert discovery, dispositive motions, or trial. The Company believes it has strong defenses, independent of the issue on appeal in the first case, 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 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 is 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. Moreover, given the United States Patent and Trademark Office’s institution of inter partes review (IPR) proceedings against every independent claim CogniPower asserted in the litigation, the parties have agreed to stay the associated District Court litigation pending resolution of the IPRs.
The Company is unable to predict the outcome of legal proceedings with certainty, and there can be no assurance that the Company will prevail in the above-mentioned unsettled litigations. These litigations, whether or not determined in the Company’s favor or settled, will be costly and will divert the efforts and attention of the Company’s management and technical personnel from normal business operations, potentially causing a material adverse effect on the business, financial condition and operating results. Currently, the Company is not able to estimate a loss or a range of loss for the ongoing litigation disclosed above, however adverse determinations in litigation could result in monetary losses, the loss of proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third parties or prevent the Company from licensing the technology, any of which could have a material adverse effect on the Company’s business, financial condition and operating results.
13. INDEMNIFICATIONS:
The Company sells products to its distributors under contracts, collectively referred to as Distributor Sales Agreements (“DSA”). 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 Company also, from time to time, has granted a specific indemnification right to individual customers.
The Company believes its internal development processes and other policies and practices limit its exposure related to such indemnifications. In addition, the Company requires its employees to sign a proprietary information and inventions agreement, which assigns the rights to its employees’ development work to the Company. To date, the Company has not had to reimburse any of its distributors or customers for any losses related to these indemnifications and no material claims were outstanding as of June 30, 2021. For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases, the Company cannot determine the maximum amount of potential future payments, if any, related to such indemnifications.
20
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and our results of operations should be read in conjunction with the condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q, and with the consolidated financial statements and management’s discussion and analysis of our financial condition and results of operations in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 5, 2021. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, and in Part II, Item 1A - “Risk Factors” and elsewhere in this report. See also “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report.
Overview
We design, develop and market analog and mixed-signal integrated circuits (ICs) and other electronic components and circuitry used in high-voltage power conversion. Our products are used in power converters that convert electricity from a high-voltage source to the type of power required for a specified downstream use. In most cases, this conversion entails, among other functions, converting alternating current (AC) to direct current (DC) or vice versa, reducing or increasing the voltage, and regulating the output voltage and/or current according to the customer’s specifications.
A large percentage of our products are ICs used in AC-DC power supplies, which convert the high-voltage AC from a wall outlet to the low-voltage DC required by most electronic devices. 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, 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 gigawatts) such as industrial motors, solar- and wind-power systems, electric vehicles (EVs) and high-voltage DC transmission systems.
Our products bring a number of important benefits to the power-conversion market compared with less advanced alternatives, including reduced component count and design complexity, smaller size, higher reliability and reduced time-to-market. Our products also reduce the energy consumption of power converters during normal use and in “standby” operation, when the end product is not in use. In addition to the environmental benefits of reduced energy usage, our energy-saving technologies provide a number of benefits to our customers; these include helping them meet the increasingly stringent efficiency standards now in effect for many electronic products, and enabling the elimination of bulky heatsinks used to dissipate heat produced by wasted electricity.
While the size of our addressable market fluctuates with changes in macroeconomic and industry conditions, the market has generally exhibited a modest growth rate over time as growth in the unit volume of power converters has been offset to a large degree by reductions in the average selling price of components in this market. Therefore, the growth of our business depends largely on increasing our penetration of the markets that we serve and on further expanding our addressable market. Our growth strategy includes the following elements:
| ● | Increase our penetration of the markets we serve. We currently address AC-DC applications with power outputs up to approximately 500 watts, gate-driver applications ranging from a few kilowatts up to gigawatts, and motor-drive applications up to approximately 400 watts. Through our research and development efforts, we seek to introduce more advanced products for these markets offering higher levels of integration and performance compared to earlier products. We also continue to expand our sales and application-engineering staff and our network of distributors, as well as our offerings of technical documentation and design-support tools and services to help customers use our products. These tools |
21
| and services include our PI Expert™ design software, which we offer free of charge, and our transformer-sample service. |
Our market-penetration strategy also includes capitalizing on the importance of energy efficiency and renewable energy in the power conversion market. For example, our EcoSmart™ technology drastically reduces the amount of energy consumed by electronic products when they are not in use, helping our customers comply with regulations that seek to curb this so-called “standby” energy consumption. Also, our gate-driver products are critical components in energy-efficient DC motor drives, high-voltage DC transmission systems, solar and wind energy systems and electric transportation applications.
| ● | Increase the size of our addressable market. Prior to 2010 our addressable market consisted of AC-DC applications with up to about 50 watts of output, a served available market (SAM) opportunity of approximately $1.5 billion. Since that time we have expanded our SAM to more than $4 billion through a variety of means. These include the introduction of products that enable us to address higher-power AC-DC applications (such as our Hiper™ product families), the introduction of LED-driver products, and our entry into the gate-driver market through the acquisition of CT-Concept Technologie AG in 2012. In 2016 we introduced the SCALE-iDriverTM family of ICs, broadening the range of gate-driver applications we can address, and in 2018 we introduced our BridgeSwitch™ motor-driver ICs, addressing BLDC motors, as described above. We have recently introduced a series of automotive-qualified versions of our products, including SCALE-iDriver, InnoSwitchTM and LinkSwitch™ ICs, targeting the EV market; we expect to introduce additional products targeting EVs in the future, and expect automotive applications to become a significant portion of our SAM over time. |
Also contributing to our SAM expansion has been the emergence of new applications within the power ranges that our products can address. For example, applications such as “smart” utility meters, battery-powered lawn equipment and bicycles, and USB power receptacles (often installed alongside traditional AC wall outlets) can incorporate our products. The increased use of electronic intelligence and connectivity in consumer appliances has also enhanced our SAM. Finally, we have enhanced our SAM through the development of new technologies that increase the value (and therefore the average selling prices) of our products. For example, our InnoSwitch™ ICs integrate circuitry from the secondary, or low-voltage, side of AC-DC power supplies, whereas earlier product families integrated circuitry only on the primary, or high-voltage side. In 2019, we began incorporating proprietary gallium-nitride (GaN) transistors in some products, enabling a higher level of energy efficiency than ICs with traditional silicon transistors.
We intend to continue expanding our SAM in the years ahead through all of the means described above.
Our quarterly operating results are difficult to predict and subject to significant fluctuations. We plan our production and inventory levels based on internal forecasts of projected customer demand, which are highly unpredictable and can fluctuate substantially. Customers typically may cancel or reschedule orders on short notice without significant penalty and, conversely, often place orders with very short lead times to delivery. Also, external factors such as global economic conditions and supply-chain dynamics can cause our operating results to be volatile. In particular, the severe economic disruption caused by the global novel coronavirus pandemic (COVID-19) may affect the supply of and demand for our products and make our results more difficult to forecast. Furthermore, 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. Variations in product mix, end-market mix and customer mix can also cause our gross margin to fluctuate. Because we purchase a large percentage of our silicon wafers from foundries located in Japan, our gross margin is influenced by fluctuations in the exchange rate between the U.S. dollar and the Japanese yen. Changes in the prices of raw materials used in our products, such as copper and gold, can also affect our gross margin. Although our wafer fabrication and assembly operations are outsourced, as are most of our test operations, a portion of our production costs are fixed in nature. As a result, our unit costs and gross margin are impacted by the volume of units we produce.
Recent Results
Our net revenues were $180.1 million and $106.8 million for the three months ended June 30, 2021 and 2020, respectively, and $353.8 million and $216.5 million for the six months ended June 30, 2021 and 2020, respectively. The increase in revenues reflects the strong demand conditions currently prevalent across the semiconductor industry, as well as market-share gains for our products in a broad range of applications. All of our end-market categories exhibited strong
22
growth, led by the communications and computer markets, reflecting increased adoption of higher-power chargers for mobile phones and tablets, and our increased market share in these applications. Revenues from the consumer market grew as a result of strong demand for consumer appliances, as well as increased market share in appliance applications. Revenues from the industrial category increased driven by growth in a broad range of applications including home-and-building automation, battery operated tools and broad-based industrial applications.
Our top ten customers, including distributors that resell to original equipment manufacturers, or OEMs, and merchant power supply manufacturers, accounted for 80% of net revenues in both the three and six months ended June 30, 2021, and 59% and 56% of net revenues in the corresponding periods of 2020. In the three months ended June 30, 2021, two customers, distributors of our products, accounted for 29% and 19% of our net revenues. In the six months ended June 30, 2021, the same customers accounted for 30% and 19% of our net revenues. In the three and six months ended June 30, 2020, one customer, a distributor of our products, accounted for 13% and 12% of our net revenues, respectively. International sales accounted for 98% of our net revenues in each of the three and six months ended June 30, 2021, and 97% of our net revenues in each of the corresponding periods of 2020.
Our gross margin was 50.7% and 50.1% in the three months ended June 30, 2021 and 2020, respectively, and 49.7% and 50.8% in the six months ended June 30, 2021 and 2020, respectively. The increase in gross margin in the three months ended June 30, 2021, as compared to the corresponding period of 2020, was due primarily to manufacturing efficiencies. Our gross margin decreased in the six-month period of 2021, as compared to the corresponding period of 2020, as improved manufacturing efficiencies only partially offset an unfavorable change in end-market mix as a greater amount of revenues came from lower-margin end markets.
Total operating expenses were $46.3 million and $40.6 million for the three months ended June 30, 2021 and 2020, respectively, and $90.6 million and $82.0 million for the six months ended June 30, 2021 and 2020, respectively. The increases in operating expenses for the three and six months ended June 30, 2021 as compared to the corresponding periods of 2020 were due primarily to higher salary and related expenses driven by increased headcount and annual merit increases, higher stock-based compensation expense related to performance-based awards, as well as increased materials engineering and equipment-related expenses in support of our product development efforts.
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. With restrictions lifting and high employee-vaccination rates, we have begun a phased reopening of our San Jose headquarters; with most employees expected to return in the coming months. Some of our employees in other locations around the world have also 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, in early 2020, the pandemic caused some disruptions in our supply chain. While our supply of wafers from our foundry partners was not interrupted, government-mandated closures in China, Malaysia, Sri Lanka and the Philippines caused temporary shutdowns at our assembly and test sub-contractors in those countries; all of the affected sub-contractors had resumed operations by the end of 2020. While these disruptions resulted in delayed shipments to some customers early in 2020, 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. Although there are signs of improvement in many areas around the world, the potential for new lockdowns and other mitigation efforts to deal with an increase in infection rates in certain areas remains a key risk for our supply chain and the results of our business.
Despite the economic downturn stemming from the pandemic, demand for goods incorporating our products is strong. While the future trajectory of demand is uncertain, we believe our business is fundamentally sound with strong, long-term growth prospects. We have increased 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 or our business outlook changes, our board of directors may
23
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 our Annual Report on Form 10-K for the year ended December 31, 2020.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those listed below. We base our estimates on historical facts and various other assumptions that we believe to be reasonable at the time the estimates are made. Actual results could differ from those estimates.
Our critical accounting policies are as follows:
| ● | revenue recognition; and |
| ● | income taxes. |
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. There have been no material changes to our critical accounting policies and estimates disclosed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” and Note 2, Significant Accounting Policies and Recent Accounting Pronouncements, in each case in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 5, 2021.
Results of Operations
The following table sets forth certain operating data as a percentage of net revenues for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
|
June 30, |
|
June 30, |
||||||||
|
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||
|
Net revenues |
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
Cost of revenues |
|
49.3 |
|
|
49.9 |
|
|
50.3 |
|
|
49.2 |
|
|
Gross profit |
|
50.7 |
|
|
50.1 |
|
|
49.7 |
|
|
50.8 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
12.1 |
|
|
18.5 |
|
|
11.8 |
|
|
18.0 |
|
|
Sales and marketing |
|
8.5 |
|
|
12.2 |
|
|
8.3 |
|
|
12.2 |
|
|
General and administrative |
|
5.1 |
|
|
7.3 |
|
|
5.5 |
|
|
7.7 |
|
|
Total operating expenses |
|
25.7 |
|
|
38.0 |
|
|
25.6 |
|
|
37.9 |
|
|
Income from operations |
|
25.0 |
|
|
12.1 |
|
|
24.1 |
|
|
12.9 |
|
|
Other income |
|
0.1 |
|
|
1.4 |
|
|
0.2 |
|
|
1.5 |
|
|
Income before income taxes |
|
25.1 |
|
|
13.5 |
|
|
24.3 |
|
|
14.4 |
|
|
Provision for income taxes |
|
1.8 |
|
|
1.1 |
|
|
1.2 |
|
|
1.0 |
|
|
Net income |
|
23.3 |
% |
|
12.4 |
% |
|
23.1 |
% |
|
13.4 |
% |
Comparison of the Three and Six Months Ended June 30, 2021 and 2020
Net revenues. Net revenues consist of revenues from product sales, which are calculated net of returns and allowances. Net revenues for the three and six months ended June 30, 2021 were $180.1 million and $353.8 million, respectively, and $106.8 million and $216.5 million, respectively, for the corresponding periods of 2020. All of our end-market categories exhibited strong growth, led by the communications and computer markets, reflecting increased adoption of higher-power chargers for mobile phones and tablets, and our increased market share in these applications. Revenues from the consumer market grew as a result of strong demand for consumer appliances, as well as increased market share in appliance applications. Revenues from the industrial category increased driven by growth in a broad range of applications including home-and-building automation, battery-operated tools and broad-based industrial applications.
24
Our revenue mix by end market for the three and six months ended June 30, 2021 and 2020 was as follows:
International sales, consisting of sales outside of the United States of America based on “bill to” customer locations, were $176.3 million and $345.9 million in the three and six months ended June 30, 2021, respectively, and $103.9 million and $210.8 million, respectively, in corresponding periods of 2020. Although power converters using our products are distributed to end markets worldwide, most are manufactured in Asia. As a result, sales to this region represented 85% of our net revenues in both the three and six months ended June 30, 2021, and 81% and 78%, respectively, in the corresponding periods of 2020. We expect international sales, and sales to the Asia region in particular, to continue to account for a large portion of our net revenues in the future.
Sales to distributors accounted for 76% and 77% in the three and six months ended June 30, 2021, respectively, and 82% and 79%, respectively, in the corresponding periods of 2020. Direct sales to OEMs and power-supply manufacturers accounted for the remainder.
The following customers represented 10% or more of our net revenues for the respective periods:
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Total customer revenue was less than 10% of net revenues. |
No other customers accounted for 10% or more of our net revenues in these periods.
Gross profit. Gross profit is net revenues less cost of revenues. Our cost of revenues consists primarily of costs associated with 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 facilities, amortization of acquired intangible assets, and overhead associated with the management of our supply chain. Gross margin is gross profit divided by net revenues. The table below compares gross profit and gross margin for the three and six months ended June 30, 2021 and 2020:
The increase in gross margin in the three months ended June 30, 2021, as compared to the corresponding period of 2020, was due primarily to manufacturing efficiencies. Our gross margin decreased in the six-month period of 2021, as compared to the corresponding period of 2020, as improved manufacturing efficiencies only partially offset an unfavorable change end-market mix as a greater amount of revenues came from lower-margin end markets.
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 technologies and new products. We also record R&D expenses for prototype wafers related to new products until such products are released to production.
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The table below compares R&D expenses for the three and six months ended June 30, 2021 and 2020:
R&D expenses for the three and six months ended June 30, 2021 increased, as compared to the corresponding periods of 2020, primarily due to higher salary and related expenses driven by increased headcount and annual merit increases, higher stock-based compensation expense related to performance-based awards, and an increase in materials engineering and equipment-related expenses in support of our product development efforts.
Sales and marketing expenses. Sales and marketing (“S&M”) expenses consist primarily of employee-related expenses, including stock-based compensation, commissions to sales representatives, amortization of intangible assets and facilities expenses, including expenses associated with our regional sales and support offices. The table below compares S&M expenses for the three and six months ended June 30, 2021 and 2020:
S&M expenses increased in the three and six months ended June 30, 2021, as compared to the corresponding periods of 2020, due primarily to increased commission expense driven by increased sales, higher salary and related expenses stemming from annual merit increases, and higher stock-based compensation expense primarily related to performance-based awards.
General and administrative expenses. General and administrative (“G&A”) expenses consist primarily of employee-related expenses, including stock-based compensation expenses, for administration, finance, human resources and general management, as well as consulting, professional services, legal and audit expenses. The table below compares G&A expenses for the three and six months ended June 30, 2021 and 2020:
G&A expenses increased for the three and six months ended June 30, 2021 due primarily to higher stock-based compensation expense related to performance-based awards.
Other income. Other income consists primarily of interest income earned on cash and cash equivalents, marketable securities and other investments, and the impact of foreign exchange gains or losses. The table below compares other income for the three and six months ended June 30, 2021 and 2020:
Other income decreased primarily due to lower interest income, as lower yields on our cash and investments more than offset the impact of higher cash and investment balances.
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Provision for income taxes. Provision for income taxes represents federal, state and foreign taxes. The table below compares income-tax expense for the three and six months ended June 30, 2021 and 2020:
Income-tax expense includes a provision for federal, state and foreign taxes based on the annual estimated effective tax rate applicable to us and our subsidiaries, adjusted for certain discrete items which are fully recognized in the period in which they occur. Accordingly, the interim effective tax rate may not be reflective of the annual estimated effective tax rate.
Our effective tax rates for the three and six months ended June 30, 2021 were 7.2% and 4.9%, respectively, and 8.4% and 7.0%, respectively for the corresponding periods of 2020. The effective tax rate in these periods was lower than the statutory federal income-tax rate of 21% due to the geographic distribution of our world-wide earnings in lower-tax jurisdictions, the impact of federal research tax credits and the recognition of excess tax benefits related to share-based payments. Additionally, in the six months ended June 30, 2021, our effective tax rate was favorably impacted by a discrete item associated with the release of an unrecognized tax benefit. These benefits were partially offset by U.S. tax on foreign income, known as global intangible low-taxed income. The primary jurisdiction from which our foreign earnings are derived is the Cayman Islands, which is a non-taxing jurisdiction. Income earned in other foreign jurisdictions was not material. We have not been granted any incentivized tax rates and do not operate under any tax holidays in any jurisdiction.
Liquidity and Capital Resources
As of June 30, 2021, we had $515.3 million in cash, cash equivalents and short-term marketable securities, an increase of approximately $66.1 million from $449.2 million as of December 31, 2020. As of June 30, 2021, we had working capital, defined as current assets less current liabilities, of $599.3 million, an increase of approximately $60.6 million from $538.7 million as of December 31, 2020.
We have a Credit Agreement with Wells Fargo Bank, National Association (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. The Credit Agreement was amended on June 7, 2021, to provide an alternate borrowing rate as a replacement for LIBOR and extend the termination date from April 30, 2022, to June 7, 2026, with all other terms remaining the same. 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. The Credit Agreement terminates on June 7, 2026; all advances under the revolving line of credit will become due on such date, or earlier in the event of a default. No advances were outstanding under the agreement as of June 30, 2021.
Cash From Operating Activities
Operating activities generated cash of $125.0 million in the six months ended June 30, 2021. Net income for this period was $81.7 million; we also incurred non-cash stock-based compensation expense, depreciation, amortization, and deferred income taxes of $17.7 million, $15.3 million, $1.9 million, and $1.2 million, respectively. Sources of cash also included a $13.2 million decrease in inventory reflecting strong demand for the period and a $8.1 million increase in accounts payable (excluding payables related to property and equipment) due to the timing of payments. These sources of cash were partially offset by a $5.5 million increase in accounts receivable due to increased customer shipments, a $4.5 million increase in prepaid expenses and other assets, primarily due to prepaid income taxes, and a $4.4 million decrease in taxes payable and accrued liabilities.
Operating activities generated cash of $63.0 million in the six months ended June 30, 2020. Net income for this period was $29.1 million; we also incurred non-cash stock-based compensation expense, depreciation, amortization and deferred income taxes of $12.7 million, $11.1 million, $2.2 million and $1.3 million, respectively. Sources of cash also included an $11.6 million decrease in accounts payable (excluding payables related to property and equipment) due primarily to the timing of payments and a $4.1 million decrease in prepaid expenses and other assets, primarily driven by
27
taxes refunded. These sources of cash were partially offset by a $13.6 million increase in inventories in order to support future demand and a $1.7 million decrease in taxes payable and accrued liabilities.
Cash From Investing Activities
Our investing activities in the six months ended June 30, 2021, resulted in a $47.9 million net use of cash, primarily consisting of $28.7 million for the purchase of marketable securities, net of sales and maturities, and $19.3 million for purchases of property and equipment, primarily production-related machinery and equipment as well as construction of a new office building in Switzerland.
Our investing activities in the six months ended June 30, 2020, provided a net $17.8 million of cash, primarily consisting of $39.1 million from sales and maturities of marketable securities, net of purchases, partially offset by $21.6 million for purchases of property and equipment, primarily production-related machinery and equipment as well as construction of our office in Switzerland.
Cash From Financing Activities
Our financing activities in the six months ended June 30, 2021, resulted in a $38.4 million net use of cash, consisting of $26.4 million for the repurchase of our common stock and $15.7 million for the payment of dividends to stockholders, partially offset by $3.7 million from the issuance of common stock, including the exercise of employee stock options and the issuance of shares through our employee stock purchase plan.
Our financing activities in the six months ended June 30, 2020, resulted in an $8.3 million net use of cash, consisting of $11.9 million for the payment of dividends to stockholders and $2.6 million for the repurchase of our common stock. These uses of cash were offset in part by $6.3 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.
Credit Agreement
On July 27, 2016, we entered into the Credit Agreement with Wells Fargo Bank, National Association 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. On June 7, 2021, we signed the second amendment to the Credit Agreement to provide an alternate borrowing rate as a replacement for LIBOR and extend the termination date from April 30, 2022, to June 7, 2026, with all other terms remaining the same. 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. The Credit Agreement terminates on June 7, 2026; all advances under the revolving line of credit will become due on such date, or earlier in the event of a default. No advances were outstanding under the agreement as of June 30, 2021.
Dividends
In October 2019, our board of directors declared four quarterly cash dividends of $0.095 per share to be paid to stockholders of record at the end of each quarter in 2020. In April 2020, our board of directors raised the cash dividend 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. Dividends payouts of $7.8 million and $7.9 million occurred on March 31, 2021 and June 30, 2021, respectively. The declaration of any future cash dividend is at the discretion of the board of directors and will depend on our financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination that cash dividends are in the best interests of our stockholders.
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Stock Repurchases
As of December 31, 2020, we had approximately $41.3 million remaining under our stock-repurchasing program. In April 2021, our board of directors authorized the use of an additional $50.0 million for the repurchase of our common stock, with repurchases to be executed according to pre-defined price/volume guidelines. In the six months ended June 30, 2021, we repurchased approximately 335,000 shares of our common stock for $26.4 million. As of June 30, 2021, we had approximately $64.9 million remaining under our stock-repurchase program, which has no expiration date. Authorization of future repurchase programs is at the discretion of the board of directors and will depend on our financial condition, results of operations, capital requirements, business conditions and other factors.
Contractual Commitments
As of June 30, 2021 we had a contractual obligation related to income tax, which consisted primarily of unrecognized tax benefits of approximately $20.4 million. A portion of the tax obligation is classified as long-term income taxes payable and a portion is recorded in deferred tax assets in our condensed consolidated balance sheet.
As of June 30, 2021, there were no material changes in our contractual commitments from those reported in our Annual Report on Form 10-K for the year ended December 31, 2020.
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. Current U.S. tax laws generally allow companies to repatriate accumulated foreign earnings without incurring additional U.S. federal taxes. Accordingly, as of June 30, 2021, our worldwide cash and marketable securities are available to fund capital allocation needs, including capital and internal investments, acquisitions, stock repurchases and/or dividends without incurring additional U.S. federal income taxes.
If our operating results deteriorate in future periods, either as a result of a decrease in customer demand or pricing pressures from our customers or our competitors, or for other reasons, our ability to generate positive cash flow from operations may be jeopardized. In that case, we may be forced to use our cash, cash equivalents and short-term investments, use our current financing or seek additional financing from third parties to fund our operations. We believe that cash generated from operations, together with existing sources of liquidity, will satisfy our projected working capital and other cash requirements for at least the next 12 months.
Off-Balance-Sheet Arrangements
As of June 30, 2021, we did not have any off-balance-sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Recent Accounting Pronouncements
Information with respect to this item may be found in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements, in our Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has not been a material change in our exposure to foreign currency exchange and interest rate risks from that described in our Annual Report on Form 10-K for the year ended December 31, 2020.
Interest Rate Risk. Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We consider cash invested in highly liquid financial instruments with a remaining maturity of three months or less at the date of purchase to be cash equivalents. Investments in highly liquid financial instruments with maturities greater than three months at the date of purchase are classified as short-term investments. We generally hold securities until maturity; however, they may be sold under certain circumstances, including, but not limited to, when necessary for the funding of acquisitions and other strategic investments, and therefore we classify our investment portfolio as available-
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for-sale. We invest in high-credit quality issuers and, by policy, limit the amount of credit exposure to any one issuer. As stated in our policy, we seek to ensure the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in safe and high-credit quality securities and by constantly positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer, guarantor or depository. Our portfolio includes only marketable securities with active secondary or resale markets to facilitate portfolio liquidity. At June 30, 2021, and December 31, 2020, we held primarily cash equivalents and short-term investments with fixed interest rates.
Our investment securities are subject to market interest rate risk and will vary in value as market interest rates fluctuate. We monitor our investments per our above-mentioned investment policy; therefore, if market interest rates were to increase or decrease by 10% from interest rates as of June 30, 2021, or December 31, 2020, the increase or decrease in the fair market value of our portfolio on these dates would not have been material. We monitor our investments for impairment on a periodic basis. Refer to Note 5, Marketable Securities, in our Notes to Unaudited Condensed Consolidated Financial Statements, for a tabular presentation of our available-for-sale investments and the expected maturity dates.
Foreign Currency Exchange Risk. As of June 30, 2021, our primary transactional currency was U.S. dollars; in addition, we hold cash in Swiss francs and euro. We maintain cash denominated in Swiss francs and euro to fund the operations of our Swiss subsidiary. The foreign exchange rate fluctuation between the U.S. dollar versus the Swiss franc and euro is recorded in other income in our condensed consolidated statements of income.
We have sales offices in various other foreign countries in which our expenses are denominated in the local currency, primarily Asia and Western Europe. Cash balances held in foreign countries are subject to local banking laws and may bear higher or lower risk than cash deposited in the United States. From time to time we may enter into foreign currency hedging contracts to hedge certain foreign currency transactions. As of June 30, 2021, and December 31, 2020, we did not have an open foreign currency hedge program utilizing foreign currency forward exchange contracts.
Two of our major suppliers, Epson and Lapis, have wafer supply agreements based in U.S. dollars; however, our agreements with Epson and Lapis also allow for mutual sharing of the impact of the exchange rate fluctuation between Japanese yen and the U.S. dollar on future purchases. Each year, our management and these two suppliers review and negotiate future pricing; the negotiated pricing is denominated in U.S. dollars but is subject to contractual exchange rate provisions. The fluctuation in the exchange rate is shared equally between us and each of these suppliers on future purchases. Nevertheless, as a result of these supplier agreements, our gross margin is influenced by fluctuations in the exchange rate between the U.S. dollar and the Japanese yen. All else being equal, a 10% change in the value of the U.S. dollar compared to the Japanese yen would result in a corresponding change in our gross margin of approximately 1.0%; this sensitivity may increase or decrease depending on the percentage of our wafer supply that we purchase from some of our Japanese suppliers and could subject our gross profit and operating results to the potential for material fluctuations.
ITEM 4. CONTROLS AND PROCEDURES
Limitation on Effectiveness of Controls
Any control system, no matter how well designed and operated, can provide only reasonable assurance as to the tested objectives. The design of any control system is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. The inherent limitations in any control system include the realities that judgments related to decision-making can be faulty, and that reduced effectiveness in controls can occur because of simple errors or mistakes. Due to the inherent limitations in a cost-effective control system, misstatements due to error may occur and may not be detected.
Evaluation of Disclosure Controls and Procedures
Management is required to evaluate our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Disclosure controls and procedures are controls and other procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate
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to allow timely decisions regarding required disclosure. Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2021, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information with respect to this item may be found in Note 12, Legal Proceedings and Contingencies, in our Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.
ITEM 1A. RISK FACTORS
As of the date of this filing, the risk factors have not changed substantively from those disclosed in Part I Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2020, which risk factors are incorporated by reference in this report.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As of December 31, 2020, we had approximately $41.3 million available for future repurchases to be executed according to predefined price/volume guidelines. In April 2021, our board of directors authorized the use of an additional $50.0 million for the repurchase of our common stock, which was announced on April 29, 2021.
In the six months ended June 30, 2021, we repurchased approximately 335,000 of our shares for approximately $26.4 million. As of June 30, 2021, we had approximately $64.9 million remaining in our repurchase program, which has no expiration date.
Issuer Purchases of Equity Securities
The following table summarizes repurchases of our common stock during the second quarter of fiscal 2021:
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All of the shares repurchased were pursuant to our publicly announced repurchase program.
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ITEM 6. EXHIBITS
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Incorporation by Reference |
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EXHIBIT
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Exhibit Description |
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Exhibit/Other Reference |
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3.1 |
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10-K |
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000-23441 |
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3.1 |
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2/29/2012 |
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3.2 |
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8-K |
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000-23441 |
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3.1 |
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4/26/2013 |
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4.2 |
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Reference is made to Exhibits 3.1 to 3.2 |
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10.1 |
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10.2 |
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10.3 |
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10.4 |
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 |
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2** |
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Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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Incorporation by Reference |
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Exhibit Description |
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101.INS |
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XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
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All references in the table above to previously filed documents or descriptions are incorporating those documents and descriptions by reference thereto.
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Portions of this exhibit (indicated by asterisks) have been omitted as being immaterial and is the type of information that Power Integrations, Inc. treats as private or confidential. |
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The certifications attached as Exhibits 32.1 and 32.2 accompanying this Form 10-Q, are not deemed filed with the SEC, and are not to be incorporated by reference into any filing of Power Integrations, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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POWER INTEGRATIONS, INC. |
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Dated: |
July 29, 2021 |
By: |
/s/ SANDEEP NAYYAR |
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Sandeep Nayyar |
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Chief Financial Officer |
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(Duly Authorized Officer, Principal Financial Officer and Principal Accounting Officer) |
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Exhibit 10.1
Power Integrations, Inc.
Amended and Restated 1997 Employee Stock Purchase Plan
(As Approved by the Board on March 17, 2016)
(As Approved by the Stockholders on May 13, 2016)
(As Adjusted for the 1-for-1 Stock Dividend on August 19, 2020)
(As Approved by the Board of Directors on March 11, 2021)
(As Approved by the Stockholders on May 21, 2021)
| 1. | Establishment, Purpose and Term of Plan. |
| 2. | Definitions and Construction. |
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| 3. | Administration. |
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| 4. | Shares Subject to Plan. |
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| 5. | Eligibility. |
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| 6. | Offerings. |
| 7. | Participation in the Plan. |
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| 8. | Right to Purchase Shares. |
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| 9. | Purchase Price. |
The Purchase Price at which each share of Stock may be acquired in an Offering Period upon the exercise of all or any portion of a Purchase Right shall be established by the Board; provided, however, that the Purchase Price shall not be less than eighty-five percent (85%) of the lesser of (a) the Fair Market Value of a share of Stock on the Offering Date of the Offering Period or (b) the Fair Market Value of a share of Stock on the Purchase Date. Unless otherwise provided by the Board prior to the commencement of an Offering Period, the Purchase Price for that Offering Period shall be eighty-five percent (85%) of the lesser of (a) the Fair Market Value of a share of Stock on the Offering Date of the Offering Period, or (b) the Fair Market Value of a share of Stock on the Purchase Date.
| 10. | Accumulation of Purchase Price through Payroll Deduction. |
Shares of Stock acquired pursuant to the exercise of all or any portion of a Purchase Right may be paid for only by means of payroll deductions from the Participant’s Compensation accumulated during the Offering Period for which such Purchase Right was granted, subject to the following:
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| 11. | Purchase of Shares. |
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| 12. | Withdrawal from Offering or Plan. |
| 13. | Termination of Employment or Eligibility. |
Upon a Participant’s ceasing, prior to a Purchase Date, to be an Employee of the Participating Company Group for any reason, including retirement, disability or death, or the failure of a Participant to remain an Eligible Employee, the Participant’s participation in the Plan shall terminate immediately. In such event, the payroll deductions credited to the Participant’s Plan account since the last Purchase Date shall, as soon as practicable, be returned to the Participant or, in the case of the Participant’s death, to the Participant’s legal representative, and all of the Participant’s rights under the Plan shall terminate. Except as otherwise required by the law of a local jurisdiction, interest shall not be paid on sums returned pursuant to this Section 13. A Participant whose participation has been so terminated may again become eligible to participate in the Plan by again satisfying the requirements of Sections 5 and 7.1.
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| 14. | Change in Control. |
| 15. | Nontransferability of Purchase Rights. |
A Purchase Right may not be transferred in any manner otherwise than by will or the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant.
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| 16. | Compliance with Securities Law. |
The issuance of shares under the Plan shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities. A Purchase Right may not be exercised if the issuance of shares upon such exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any securities exchange or market system upon which the Stock may then be listed. In addition, no Purchase Right may be exercised unless (a) a registration statement under the Securities Act of 1933, as amended, shall at the time of exercise of the Purchase Right be in effect with respect to the shares issuable upon exercise of the Purchase Right, or (b) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Purchase Right may be issued in accordance with the terms of an applicable exemption from the registration requirements of said Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares under the Plan shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of a Purchase Right, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation, and to make any representation or warranty with respect thereto as may be requested by the Company.
| 17. | Rights as a Stockholder and Employee. |
A Participant shall have no rights as a stockholder by virtue of the Participant’s participation in the Plan until the date of the issuance of a certificate for the shares purchased pursuant to the exercise of the Participant’s Purchase Right (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 4.2. Nothing herein shall confer upon a Participant any right to continue in the employ of the Participating Company Group or interfere in any way with any right of the Participating Company Group to terminate the Participant’s employment at any time.
| 18. | Legends. |
The Company may at any time place legends or other identifying symbols referencing any applicable federal, state or foreign securities law restrictions or any provision convenient in the administration of the Plan on some or all of the certificates representing shares of Stock issued under the Plan. The Participant shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to a Purchase Right in the possession of the Participant in order to carry out the provisions of this Section. Unless otherwise specified by the Company, legends placed on such certificates may include but shall not be limited to the following:
“THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO THE REGISTERED HOLDER UPON THE
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PURCHASE OF SHARES UNDER AN EMPLOYEE STOCK PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE REGISTERED HOLDER HEREOF. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE PLAN IN THE REGISTERED HOLDER’S NAME (AND NOT IN THE NAME OF ANY NOMINEE).”
| 19. | Notification of Sale of Shares. |
The Company may require the Participant to give the Company prompt notice of any disposition of shares acquired by exercise of a Purchase Right within two years from the date of granting such Purchase Right or one year from the date of exercise of such Purchase Right. The Company may require that until such time as a Participant disposes of shares acquired upon exercise of a Purchase Right, the Participant shall hold all such shares in the Participant’s name (or, if elected by the Participant, in the name of the Participant and his or her spouse but not in the name of any nominee) until the lapse of the time periods with respect to such Purchase Right referred to in the preceding sentence. The Company may direct that the certificates evidencing shares acquired by exercise of a Purchase Right refer to such requirement to give prompt notice of disposition.
| 20. | Notices. |
All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
| 21. | Indemnification. |
In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Participating Company Group, members of the Board and any officers or employees of the Participating Company Group to whom authority to act for the Board or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such
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person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.
| 22. | Amendment or Termination of the Plan. |
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APPENDIX A
Participating Companies in U.S. Program
Power Integrations, Inc.
Participating Companies in Global Program
Power Integrations, K.K.
Power Integrations Ltd.
Power Integrations Malaysia SDN. BHD.
Power Integrations Singapore Pte. Ltd.
Power Integrations Netherlands B.V. (excluding the Beijing Representative Office, Shanghai Representative Office, Shenzhen Representative Office, Chengdu Representative Office, Foshan Representative Office, Quingdao Representative Office and Xiamen Representative Office)
Power Integrations GmbH
Power Integrations Italy S.r.l.
Power Integrations India Private Ltd.
Power Integrations Canada ULC
Power Integrations (Europe) Ltd.
Power Integrations Switzerland GmbH
Power Integrations U.K. Ltd.
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POWER INTEGRATIONS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
NAME (Please print):____________________________________________________________________
(Last)(First)(Middle)
|
◻ |
Application for the Offering Period beginning ____________________, 20___. |
|
◻ |
Change in Payroll Deduction rate effective with the pay period ending ___________________, 20___. |
I hereby elect to participate in the 1997 Employee Stock Purchase Plan (the “Plan”) of Power Integrations, Inc. (the “Company”) and subscribe to purchase shares of the Company's Stock in accordance with this Subscription Agreement and the Plan.
I hereby authorize payroll deductions in the amount of ________ percent (in whole percentages not less than 1% (unless an election to stop deductions is being made) or more than 15%) of my “Compensation” on each payday throughout the “Offering Period” in accordance with the Plan. I understand that these payroll deductions will be accumulated for the purchase of shares of Stock at the applicable purchase price determined in accordance with the Plan. I understand that, except as otherwise provided by the Plan, I will automatically purchase shares on each Purchase Date under the Plan unless I withdraw from the Plan by giving written notice on a form provided by the Company or unless my employment terminates.
I understand that I will automatically participate in each subsequent Offering that commences immediately after the last day of an Offering in which I am participating until I withdraw from the Plan by giving written notice on a form provided by the Company or my employment terminates.
Shares I purchase under the Plan should be issued in the name(s) set forth below. (Shares may be issued in the participant's name alone or together with the participant's spouse as community property or in joint tenancy.)
NAME(S):_______________________________________________________________________
ADDRESS:_______________________________________________________________________
MY SOCIAL SECURITY NUMBER: ______________________________________________________
I agree to make adequate provision for the federal, state, local and foreign tax withholding obligations, if any, which may arise upon my purchase of shares under the Plan and/or my disposition of such shares. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet such withholding obligations.
I agree that, unless otherwise permitted by the Company, until I dispose of the shares I purchased under the Plan, I will hold such shares in the name(s) entered above (and not in the name of any nominee) for at least two years from the first day of the Offering Period in which, and at least one year from the Purchase Date on which, I acquired such shares.
I agree that I will notify the Chief Financial Officer of the Company in writing within 30 days after any sale, gift, transfer or other disposition of any kind prior to the end of the periods referred to in the preceding paragraph (a “Disqualifying Disposition”) of any shares I purchased under the Plan. I further agree that if I do not respond within 30 days of the date of a Disqualifying Disposition Survey delivered to me by certified mail, the Company may treat my nonresponse as my notice to the Company of a Disqualifying Disposition and may compute and report to the Internal Revenue Service the ordinary income I must recognize upon such Disqualifying Disposition.
I am familiar with the provisions of the Plan and agree to participate in the Plan subject to all of its provisions. I understand that the Board of Directors of the Company reserves the right to terminate the Plan or to amend the Plan and my right to purchase stock under the Plan to the extent provided by the Plan. I understand that the effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Plan.
Date: _______________________Signature:________________________________________________
232391936 v3
POWER INTEGRATIONS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
NAME (Please print):
(Last)(First)(Middle)
I hereby elect to withdraw from the Offering under Power Integrations, Inc. 1997 Employee Stock Purchase Plan (the “Plan”) which began on ____________________________, 20____ and in which I am currently participating (the “Current Offering”).
Elect either A or B below:
[_]A.I elect to terminate immediately my participation in the Current Offering and in the Plan.
I request that the Company cease all further payroll deductions from my Compensation under the Plan (provided that I have given sufficient notice prior to the next payday). I request that all payroll deductions credited to my account under the Plan (if any) not previously used to purchase shares under the Plan shall not be used to purchase shares on the next Purchase Date of the Current Offering.
Instead, I request that all such amounts be paid to me as soon as practicable. I understand that this election immediately terminates my interest in the Current Offering and in the Plan.
[_]B.I elect to terminate my participation in the Current Offering and in the Plan following my purchase of shares on next Purchase Date of the Current Offering.
I request that the Company cease all further payroll deductions from my Compensation under the Plan (provided that I have given sufficient notice prior to the next payday). I request that all payroll deductions credited to my account under the Plan (if any) not previously used to purchase shares under the Plan shall be used to purchase shares on the next Purchase Date of the Current Offering to the extent permitted by the Plan. I understand that this election will terminate my interest in the Current Offering and in the Plan immediately following such purchase. I request that any cash balance remaining in my account under the Plan after my purchase of shares be paid to me as soon as practicable.
I understand that by making this election I am terminating my interest in the Plan and that no further payroll deductions will be made (provided that I have given sufficient notice prior to the next payday) unless I elect in accordance with the Plan to become a participant in another Offering under the Plan by filing a new Subscription Agreement with the Company.
Date: Signature:
232391936 v3
Power Integrations, Inc.
2016 Incentive Award Plan
(As Approved by the Board of Directors on March 13, 2019)
(As Approved by the Stockholders on May 22, 2019)
(As Adjusted for the 1-for-1 Stock Dividend on August 19, 2020)
(As Approved by the Board of Directors on March 11, 2021)
(As Approved by the Stockholders on May 21, 2021)
1.
2.
3.
Awards may be granted to Employees, Directors and Consultants; provided, however, that Awards may not be granted to Employees, Directors and Consultants who are providing Continuous Service only to any “parent” of the Company, as such term is defined in Rule 405, unless (i) the stock underlying such Awards is treated as “service recipient stock” under Section 409A of the Code (for example, because the Awards are granted pursuant to a corporate transaction such as a spin off transaction) or (ii) the Company, in consultation with its legal counsel, has determined that such Awards are otherwise exempt from (or, alternatively, comply with) the distribution requirements of Section 409A of the Code.
4.
5.
6.
7.
8.
9.
The Board need not take the same action or actions with respect to all Awards or portions thereof or with respect to all Participants. The Board may take different actions with respect to the vested and unvested portions of an Award.
This Plan will become effective on the Effective Date.
The laws of the State of Delaware will govern all questions concerning the construction, validity and interpretation of this Plan, without regard to that state’s conflict of laws rules.
10.
11.
Notwithstanding the foregoing definition or any other provision of this Plan, the term Change in Control will not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company.
12.
13.
14.
15.
16.
17.
Exhibit 10.3
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated June 7, 2021, is entered into by and between POWER INTEGRATIONS, INC., a Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated July 27, 2016, as amended from time to time ("Credit Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows:
1.Section 1.1. (a) is hereby amended by deleting "April 30, 2022" as the last day on which Bank will make advances under the Line of Credit, and by substituting for said date "June 7, 2026."
2.Section 1.2. (d) is hereby deleted in its entirety, and the following substituted therefor:
“(d) Letter of Credit Fees. Borrower shall pay to Bank (i) fees upon the issuance, extension or increase of each Letter of Credit equal to one and one-quarter percent (1.25%) per annum (computed on the basis of a 360-day year, actual days elapsed) of the face amount or increased amount thereof, as applicable and (ii) fees upon the payment or negotiation of each drawing under any Letter of Credit and fees upon the occurrence of any other activity with respect to any Letter of Credit (including without limitation, the transfer, amendment or cancellation of any Letter of Credit) determined in accordance with Bank's standard fees and charges then in effect for such activity, with such fees and commissions payable at the time of such drawing or activity or, if applicable, by such later date as may be specified in a billing for such amount sent by Bank to Borrower.”
3.Section 3.2 (b) is hereby deleted in its entirety, and the following substituted therefor:
"(b)Documentation. Bank shall have received all additional documents which may be required in connection with such extension of credit including without limitation, the following:
(i)For the issuance of a commercial letter of credit under any credit subject to this Agreement, Bank's standard Application for Commercial Letter of Credit.
(ii)For the issuance of a standby letter of credit under any credit subject to this Agreement, Bank's standard Application for Standby Letter of Credit.”
4.Section 4.2. is hereby deleted in its entirety, and the following substituted therefor:
"SECTION 4.2.ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any
1
representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower. If at any time any change in generally accepted accounting principles would affect the computation of any covenant (including the computation of any financial covenant) and/or pricing grid set forth in this Agreement or any other Loan Document, Borrower and Bank shall negotiate in good faith to amend such covenant and/or pricing grid to preserve the original intent in light of such change; provided, that, until so amended, (i) such covenant and/or pricing grid shall continue to be computed in accordance with the application of generally accepted accounting principles prior to such change and (ii) Borrower shall provide to Bank a written reconciliation in form and substance reasonably satisfactory to Bank, between calculations of such covenant and/or pricing grid made before and after giving effect to such change in generally accepted accounting principles."
5.Banks address in Section 7.2 is hereby deleted in its entirety, and the following substituted therefor:
"BANK:WELLS FARGO BANK, NATIONAL ASSOCIATION
MAC A0112-145
550 California Street, 14th Floor
San Francisco, CA 94104”
6.The effective date of this Amendment shall be the date that all of the following conditions set forth in this Section have been satisfied, as determined by Bank and evidenced by Bank’s system of record. Notwithstanding the occurrence of the effective date of this Amendment, Bank shall not be obligated to extend credit under this Amendment or any other Loan Document related to this amendment until all conditions to each extension of credit set forth in the Credit Agreement have been fulfilled to Bank's satisfaction.
(a)Approval of Bank Counsel. All legal matters incidental to the effectiveness of this Amendment shall be satisfactory to Bank's counsel.
(b)Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed by all parties:
| (i) | This Amendment and each promissory note or other instrument or document required hereby. |
| (ii) | Corporate Resolutions and Certificate of Incumbency Borrower. |
| (iii) | Such other documents as Bank may require under any other Section of this Amendment. |
(c)Regulatory and Compliance Requirements. All regulatory and compliance requirements, standards and processes shall be completed to the satisfaction of Bank.
7.Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document.
8.Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default.
2
9.Borrower hereby covenants that Borrower shall provide to Bank from time to time such other information as Bank may request for the purpose of enabling Bank to fulfill its regulatory and compliance requirements, standards and processes. Borrower hereby represents and warrants to Bank that all information provided from time to time by Borrower or any Third Party Obligor to Bank for the purpose of enabling Bank to fulfill its regulatory and compliance requirements, standards and processes was complete and correct at the time such information was provided and, except as specifically identified to Bank in a subsequent writing, remains complete and correct today, and shall be complete and correct at each time Borrower is required to reaffirm the representations and warranties set forth in the Credit Agreement.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Amendment to be effective as of the effective date set forth above.
WELLS FARGO BANK,
POWER INTEGRATIONS, INC. NATIONAL ASSOCIATION
By: /s/ Balu Balakrishnan By: /s/ Elizabeth Gaynor
BALU BALAKRISHNAN,ELIZABETH GAYNOR,
CHIEF EXECUTIVE OFFICERDIRECTOR
AND PRESIDENT
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FIRST MODIFICATION TO PROMISSORY NOTE
This modification to PROMISSORY NOTE (this “Modification”) dated June 7, 2021, is entered into by and between POWER INTEGRATIONS, INC. (“Borrower”), and Wells Fargo Bank, National Association (“Bank”).
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Revolving Line of Credit Note in the stated amount of $75,000,000.00, executed by Borrower and payable to the order of Bank, dated April 30, 2018, as modified from time to time (the "Note"), which Note is subject to the terms and conditions of a credit agreement between Borrower and Bank dated July 27, 2016, as amended from time to time (the "Agreement”).
WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Note, and have agreed to modify the Note to reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Note shall be modified as follows:
1. The following is hereby added to the Note:
BENCHMARK REPLACEMENT PROVISIONS:
Notwithstanding anything to the contrary contained in this Note or in any related loan document (for the purposes of these Benchmark Replacement Provisions, a Swap Agreement is not a loan document):
(a)Benchmark Replacement. If a Benchmark Transition Event or an Early Opt-in Election, as applicable, occurs, the applicable Benchmark Replacement will replace the then-current Benchmark for all purposes under this Note or under any related loan document. Any Benchmark Replacement will become effective on the applicable Benchmark Replacement Date without any further action or consent of Borrower.
(b)Benchmark Replacement Conforming Changes. Bank, in consultation with Borrower, will have the right to make Benchmark Replacement Conforming Changes from time to time and any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action or consent of Borrower.
(c)Notices; Standards for Decisions and Determinations. Bank will promptly notify Borrower of (i) any occurrence of a Benchmark Transition Event or an Early Opt-in Election, as applicable, (ii) the implementation of any Benchmark Replacement, and (iii) the effectiveness of any Benchmark Replacement Conforming Changes. Any determination, decision or election that may be made by Bank pursuant to these Benchmark Replacement Provisions, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will
4
be conclusive and binding absent manifest error and will be made in its sole discretion and without Borrower consent.
(d)Certain Defined Terms. As used in this Note, each of the following capitalized terms has the meaning given to such term below:
(i)“Benchmark” means, initially, LIBOR (including Daily One Month LIBOR, if applicable); provided, however, that if a Benchmark Transition Event or an Early Opt-in Election, as applicable, has occurred with respect to LIBOR or the then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has become effective pursuant to the provisions of this Note.
(ii)“Benchmark Administrator” means, initially, ICE Benchmark Administration Limited, a United Kingdom company, or any successor administrator of the then-current Benchmark or any insolvency or resolution official with authority over such administrator.
(iii)“Benchmark Replacement” means the first alternative set forth in the order below that can be determined by Bank as of the applicable Benchmark Replacement Date:
(1)the sum of: (A) Term SOFR or, if Bank determines that Term SOFR for the Corresponding Tenor cannot be determined, Term SOFR for the longest tenor that can be determined by Bank that is shorter than the Corresponding Tenor, and (B) the spread adjustment, or method for calculating or determining such spread adjustment (which may be a positive or negative value or zero) that has been selected or recommended by the Relevant Governmental Body for Term SOFR; provided, however, that this clause (1) shall not apply (i) to any borrowings under this Note if a Swap Agreement is in effect with respect to all or any portion of this Note as of the Benchmark Transition Event or Early Opt-in Election, and (ii) to any borrowings under this Note that bear interest at Daily One Month LIBOR;
(2)the sum of: (A) Daily Simple SOFR, and (B) the spread adjustment, or method for calculating or determining such spread adjustment (which may be a positive or negative value or zero) that has been selected or recommended by the Relevant Governmental Body for Daily Simple SOFR;provided, however, that this clause (2) shall not apply to any borrowings under this Note if a Swap Agreement is in effect with respect to all or any portion of this Note as of the Benchmark Transition Event or Early Opt-in Election;
(3) the sum of: (A) the alternate rate of interest that has been selected by Bank as the replacement for the then-current Benchmark for the Corresponding Tenor (which, without limitation, may be compounded SOFR in arrears, term SOFR, Bank’s Prime Rate, or another benchmark selected by Bank); and (B) the applicable spread adjustment or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by Bank.
With respect to Bank’s decisions under this paragraph (3):
(i) if a Swap Agreement relating to a portion of this Note is in effect as of the Benchmark Transition Event or Early Opt-in Election, then Bank may without limitation, select (i) the benchmark referenced in the Swap Agreement, which may be the sum of a fallback rate and spread adjustment, for the entire balance of this Note, or (ii) the benchmark referenced in the Swap Agreement, which may be the sum of a fallback rate and spread adjustment, for the hedged portion of this Note, and the applicable Benchmark Replacement for the remaining non-
5
hedged portion of this Note; and
(ii) in the case of a replacement rate for Daily One Month LIBOR, Bank may, without limitation, select SOFR notwithstanding the availability or feasibility of determining a daily one month SOFR; and
(iii) Bank’s selection of any applicable Benchmark Replacement shall give due consideration to (i) any selection or recommendation by the Relevant Governmental Body at such time for a replacement rate, the mechanism for determining such a rate, the methodology or conventions applicable to such rate, or the spread adjustment, or method for calculating or determining such spread adjustment, for such rate, or (ii) any evolving or then-prevailing market convention for determining a rate of interest as a replacement to the then-current Benchmark, the methodology or conventions applicable to such rate, or the spread adjustment, or method for calculating or determining such spread adjustment, for such alternate rate for U.S. dollar-denominated syndicated or bilateral credit facilities at such time.
Provided, however, during any period of time that the Benchmark Replacement would be less than zero percent (0.0%), the Benchmark Replacement shall be deemed to be zero percent (0.0%) for the purposes of this Note and the related loan documents, subject to any applicable floor rate provision.
(iv)“Benchmark Replacement Conforming Changes” means any technical, administrative or operational changes (including, without limitation, changes to the definition of “Interest Period,” timing and frequency of determining rates and making payments of interest, prepayment provisions and other administrative matters) that Bank decides may be appropriate to reflect the adoption and implementation of such Benchmark Replacement and to permit the administration thereof by Bank.
(v)“Benchmark Replacement Date” means the date specified by Bank in a notice to Borrower following a Benchmark Transition Event or Early Opt-in Election.
(vi)“Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the then-current Benchmark: a public statement or publication of information by or on behalf of the Benchmark Administrator or a regulatory supervisor for the Benchmark Administrator announcing that (A) the Benchmark Administrator has ceased or will cease to provide the Benchmark permanently or indefinitely or (B) the Benchmark is no longer representative of underlying markets.
(vii)“Corresponding Tenor” means a tenor having approximately the same length as the Interest Period, provided, however, that the Corresponding Tenor for Daily One Month LIBOR shall be one day.
(viii)“Daily Simple SOFR” means, for any day, SOFR, with the conventions for this rate (which will include a lookback) being established by Bank in accordance with the conventions for this rate selected or recommended by the Relevant Governmental Body for determining “Daily Simple SOFR” for bilateral business loans; provided, that if Bank decides that any such convention is not administratively feasible for Bank, then Bank may establish another convention in its reasonable discretion.
(ix)“Early Opt-in Election” means the election by Bank to declare that the Benchmark will be replaced prior to the occurrence of a Benchmark Transition Event and the provision by Bank of written notice of such election to Borrower indicating that at least five (5) currently outstanding U.S. dollar-
6
denominated syndicated credit facilities at such time contain (as a result of amendment or as originally executed) Term SOFR plus a spread adjustment that has been selected or recommended by the Relevant Governmental Body.
(x)“Interest Period” means, initially, the applicable LIBOR Period, and if a Benchmark Replacement is applicable, the tenor of the Benchmark Replacement.
(xi)“Relevant Governmental Body” means the Federal Reserve Board and/or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Federal Reserve Board and/or the Federal Reserve Bank of New York or any successor thereto.
(xii)“SOFR” with respect to any day means the secured overnight financing rate published for such day by the Federal Reserve Bank of New York, as the administrator thereof, (or a successor administrator) on its website.
(xiii)“Swap Agreement” means a swap agreement by and between Borrower and Bank or its affiliates.
(xiv)“Term SOFR” means the forward-looking term rate for the Corresponding Tenor based on SOFR that has been selected or recommended by the Relevant Governmental Body.
(d) London Interbank Offered Rate Benchmark Transition Event. On March 5, 2021, the ICE Benchmark Administration (the "IBA"), the administrator of the London interbank offered rate, and the Financial Conduct Authority (the "FCA"), the regulatory supervisor of the IBA, announced in public statements (the "Announcements") that the final publication or representativeness date for (i) 1-week and 2-month London interbank offered rate tenor settings will be December 31, 2021 and (ii) overnight, 1-month, 3-month, 6-month and 12-month London interbank offered rate tenor settings will be June 30, 2023. No successor administrator for the IBA was identified in such Announcements. The parties hereto agree and acknowledge that the Announcements resulted in the occurrence of a Benchmark Transition Event with respect to the London interbank offered rate pursuant to the terms of this Agreement and that any obligation of Bank to notify any parties of such Benchmark Transition Event pursuant to clause (c) of this Section titled "Benchmark Replacement Provisions" shall be deemed satisfied.
2.The effective date of this Modification shall be the date that all of the following conditions set forth in the this Section have been satisfied, as determined by Bank and evidenced by Bank’s system of record. Notwithstanding the occurrence of the effective date of this Modification, Bank shall not be obligated to extend credit under this Modification or any other Loan Document until all conditions to each extension of credit set forth in the Agreement have been fulfilled to Bank's satisfaction.
| (a) | Approval of Bank Counsel. All legal matters incidental to the effectiveness of this Modification shall be satisfactory to Bank's counsel. |
| (b) | Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed by all parties: |
| (i) | This Modification and each other instrument or document required hereby. |
| (ii) | Such other documents as Bank may require under any other Section of this Modification. |
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3.Except as expressly set forth herein, all terms and conditions of the Note remain in full force and effect, without waiver or modification. All terms defined in the Note or the Agreement shall have the same meaning when used in this Modification. This Modification and the Note shall be read together, as one document.
4.Borrower certifies that as of the date of this Modification there exists no Event of Default under the Note, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Modification to be effective as of the effective date set forth herein.
WELLS FARGO BANK,
POWER INTEGRATIONS, INC. NATIONAL ASSOCIATION
By: /s/ Balu Balakrishnan By: /s/ Elizabeth Gaynor
BALU BALAKRISHNAN,ELIZABETH GAYNOR,
CHIEF EXECUTIVE OFFICERDIRECTOR
AND PRESIDENT
8
Exhibit 10.4
[ ] = Certain confidential information contained in this document, marked by brackets, is omitted because it is both (i) not material and (ii) is the type of information that Power Integrations, Inc. treats as private or confidential.
AMENDMENT NUMBER THREE TO WAFER SUPPLY AGREEMENT
This Amendment Number Three (the “Amendment”) is effective as of April 21, 2021 and amends the Wafer Supply Agreement that is effective as of October 1, 2010, as amended by Amendment Number One that is effective as of January 1, 2014, as amended by Amendment Number Two that is effective as of December 1, 2018 (“the AGREEMENT”), and is entered into by and between:
| (1) | Power Integrations, Ltd. d.b.a. Power Integrations International, Ltd., a Cayman Islands corporation having its principal place of business at 4th Floor, Century Yard, Cricket Square, Elgin Avenue, P.O. Box 32322, Grand Cayman KYl-1209 (“POWER INTEGRATIONS”); and |
| (2) | X-FAB Semiconductor Foundries GmbH (formerly known as, and successor in interest of X-FAB Semiconductor Foundries AG) having its principal place of business at Haarbergstrasse 67, 99097 Erfurt, Germany (“COMPANY”). |
RECITALS
WHEREAS, the parties to this Amendment hereby agree to amend the AGREEMENT;
and
WHEREAS, in accordance with Section 18.10 of the AGREEMENT, the AGREEMENT may be amended only by an instrument in writing duly executed by an authorized representative of COMPANY and POWER INTEGRATIONS.
NOW THEREFORE, the parties agree as follows:
AMENDMENT
| I. | Section 10.4 is amended by the following: |
The actual amount of the [*] Equipment Cost paid by PI and received by X-FAB Texas is [*].
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10.6 |
The [*] Equipment Cost that is to be repaid to POWER INTEGRATIONS by COMPANY as a [*] Discount according to Section 10.4 is [*]. |
III.Section 19.1 is deleted in its entirety and replaced with:
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19.1 |
Subject to the prior written approval of PI, X-FAB Texas will purchase or has purchased: (1) the following manufacturing equipment, which is, (a) a [*] Tool specific to the [*] process [], (b) a [*] Tool, (c) [*] Test Equipment, (d) a [*] Tool, (e) a [*] Tool, (f) two (2) [*] tools, and (g) the [*] Tool, (a) through (g) collectively the “[*] Equipment”; (2) the installation of the [*] Equipment; and (3) the fitting for the [*] Equipment. X-FAB Texas will be responsible for the cost of items 2 and 3. Subject to PI’s prior written approval of the specific [*] Equipment manufacturers, model numbers, and purchase price (the “[*] Equipment Cost”), PI will reimburse X-FAB Texas for the [*] Equipment Cost in accordance with Sections 10.4 and 10.5. |
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed in their respective corporate names by their duly authorized representatives on the date written below.
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X-FAB Semiconductor Foundries GmbH |
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Power Integrations, Ltd. d.b.a. Power Integrations International, Ltd. |
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Name: |
Lloyd L. Whetzel |
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Name: |
Sunil Gupta |
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Signature: |
/s/ Lloyd L. Whetzel |
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Signature: |
/s/ Sunil Gupta |
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Title: |
CEO/President: X-FAB Texas, Inc. |
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Title: |
President and Director |
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Date: |
May 13, 2021 |
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Date: |
May 11, 2021 |
Exhibit 10.5
POWER INTEGRATIONS, INC.
EXECUTIVE OFFICER BENEFITS AGREEMENT
This Executive Officer Benefits Agreement (the “Agreement”) is made and entered into as of June 14, 2021 (the “Effective Date”), by and between Power Integrations, Inc., a Delaware corporation, (the “Company”) and Yang Chiah Yee (“Executive”).
Recitals
A.Executive is an Executive Officer of the Company and possesses valuable knowledge of the Company, its business and operations, and the markets in which the Company competes.
B.The Company draws upon the knowledge, experience and advice of Executive in order to manage its business for the benefit of the Company’s stockholders.
C.The Board of Directors desires to supplement Executive’s employment arrangements so as to provide additional compensation and benefits to the Executive to encourage Executive to continue to devote his attention and dedication to the Company and to create additional incentives to continue his employment with the Company.
Agreement
Therefore, in consideration of the mutual agreements, covenants and considerations contained herein, the undersigned hereby agree and acknowledge as follows:
* * * * *
1.
In Witness Whereof, the undersigned have executed this Executive Officer Benefits Agreement, intending to be legally bound as of the Effective Date.
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COMPANY: |
Power Integrations, Inc. By: /s/ BALU BALAKRISHNAN Name: Balu Balakrishnan Title: President and CEO |
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EXECUTIVE: |
/s/ YANG CHIAH YEE Yang Chiah Yee Address for Notice: Executive’s home address as reflected in the records of the Company |
2.
Exhibit A
TERMS OF EXECUTIVE OFFICER BENEFITS AGREEMENT
1.
2.
3.
4.
(A)COBRA Continuation Coverage. Upon the termination of Executive’s active employment with the Company, Executive shall be entitled to elect continued medical and dental insurance coverage in accordance with the applicable provisions of COBRA and the Company shall pay such COBRA premiums.
(B)Coverage After COBRA & Prior to Medicare Eligibility. In the event the Executive is not eligible for Medicare coverage at the end of his maximum applicable COBRA coverage period, then, the Executive shall identify and locate either or both an individual conversion policy through the insurer providing insurance coverage in connection with the Company sponsored medical and dental plans available to active employees (the “Conversion Policy”), and/or a supplemental individual policy or an individual policy on the open market (the “Individual Policy”) to be effective upon the termination of his COBRA continuation coverage so that, when the coverages for Executive provided by the Conversion Policy and/or the Individual Policy are combined, such coverages provide substantially similar medical and dental benefits in the aggregate as those provided under the medical and dental plans sponsored by the Company at such time, or at any time after the termination of Executive’s employment, for active employees (the “Comparable Coverage”). The Company shall be responsible for the payment of any Conversion Policy premiums and/or Individual Policy premiums for the Comparable Coverage which payment shall not exceed the cost of premiums for medical and dental coverage for then active employees. If Executive is at such time eligible to participate under the Company Plans, Executive will be entitled to so participate.
(C)Coverage After COBRA & Upon Medicare Eligibility. In the event the Executive is eligible for Medicare coverage at the end of his maximum applicable COBRA coverage period, the Executive may identify and locate a Medicare supplemental policy, which may include, to the extent permitted, the medical and dental plans sponsored by the Company at such time for active employees (the “Company Plans”), that, when combined with the coverage provided by Medicare, provides Comparable Coverage. If Executive is at such time
5.
eligible to participate under the Company Plans, Executive will be entitled to so participate; provided that Executive shall be solely responsible for the payment of any Medicare premiums and/or Medical supplemental policy premiums for the Comparable Coverage (including, if applicable, any premiums under the Company Plans).
(D)Taxes, Coverage. The Executive shall be responsible for any taxes that may be attributable to or result from the payments made by the Company in accordance with this Section 5(b)(iii) or receipt of medical and dental benefits attributable to or result from such payments. Notwithstanding Section 5(b)(iii)(A) or (B), in the event Executive becomes eligible to be covered under another employer’s group health plan (other than a plan which imposes a preexisting condition exclusion to the extent permissible by law, unless the preexisting condition exclusion does not apply) during the period provided for herein, the Company shall cease payment of any premiums. The Company will use commercially reasonable efforts to provide that Executive will continue to be eligible for coverage as provided under this Section 5(b)(iii) under the Company Plans, unless the Board of Directors or Compensation Committee determines that such coverage would create an undue burden on the Company.
6.
7.
8.
if to the Company:
Power Integrations, Inc.
5245 Hellyer Avenue
San Jose, California 95138
Attn: Chief Executive Officer or Chief Financial Officer
and if to the Executive, at the address specified in this Agreement. Notice may also be given at such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
9.
10.
11.
(A)A director of the Company as of January 1, 2013; or
12.
(B)A director who is elected or nominated for election to the Board of Directors of the Company with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company).
13.
14.
“Termination of Employment” shall not include any termination of the employment of the Executive (a) by the Company for Cause; (b) as a result of Permanent Disability of the Executive; (c) as a result of the death of the Executive; (d) as a result of the voluntary termination of employment by the Executive for reasons other than Good Reason; or (e) a Termination Upon Change of Control.
“Termination Upon Change of Control” shall not include any termination of the employment of the Executive (a) by the Company for Cause; (b) as a result of the Permanent Disability of the Executive; (c) as a result of the death of the Executive; or (d) as a result of the voluntary termination of employment by the Executive for reasons other than Good Reason.
* * * * *
15.
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Balu Balakrishnan certify that:
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Dated: |
July 29, 2021 |
By: |
/s/ BALU BALAKRISHNAN |
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Balu Balakrishnan
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Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Sandeep Nayyar, certify that:
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Dated: |
July 29, 2021 |
By: |
/s/ SANDEEP NAYYAR |
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Sandeep Nayyar
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Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Power Integrations, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Balu Balakrishnan, Chief Executive Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), certify to the best of my knowledge that:
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Dated: |
July 29, 2021 |
By: |
/s/ BALU BALAKRISHNAN |
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Balu Balakrishnan
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A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Power Integrations, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sandeep Nayyar, Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), certify to the best of my knowledge that:
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Dated: |
July 29, 2021 |
By: |
/s/ SANDEEP NAYYAR |
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Sandeep Nayyar
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A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.