<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________________________
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 2000
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 0-23441
____________________
POWER INTEGRATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3065014
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
477 N. Mathilda Avenue, Sunnyvale, California 94086
(Address of principal executive offices) (Zip code)
(408) 523-9200
(Registrant's telephone number, including area code)
_____________________________
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 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 [X] NO [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 2000
--------------------------------- ------------------------------------
Common Stock, $.001 par value 27,414,432 shares
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POWER INTEGRATIONS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes To Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
</TABLE>
TOPSwitch, TinySwitch and EcoSmart are trademarks of Power Integrations, Inc.
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POWER INTEGRATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30 December 31,
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 40,176 $27,883
Short-term investments........................................................... 20,559 33,789
Accounts receivable.............................................................. 11,196 9,682
Inventories...................................................................... 21,583 11,406
Prepaid expenses and other current assets........................................ 5,706 5,339
-------- -------
Total current assets............................................................. 99,220 88,099
-------- -------
PROPERTY AND EQUIPMENT, net......................................................... 18,319 10,472
-------- -------
$117,539 $98,571
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capitalized lease obligations................................. $ 796 $ 1,228
Accounts payable................................................................. 4,590 6,524
Accrued payroll and related expenses............................................. 2,894 3,994
Taxes payable and other accrued liabilities...................................... 3,047 1,818
Deferred income on sales to distributors......................................... 2,566 3,366
-------- -------
Total current liabilities........................................................ 13,893 16,930
-------- -------
CAPITALIZED LEASE OBLIGATIONS, net of current portion............................... 872 1,393
-------- -------
STOCKHOLDERS' EQUITY:
Common stock..................................................................... 27 26
Additional paid-in capital....................................................... 72,656 65,553
Stockholder notes receivable..................................................... (76) (201)
Deferred compensation............................................................ (76) (181)
Cumulative translation adjustment................................................ (121) (129)
Retained earnings................................................................ 30,364 15,180
-------- -------
Total stockholders' equity....................................................... 102,774 80,248
-------- -------
$117,539 $98,571
======== =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
3
<PAGE>
POWER INTEGRATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2000 1999 2000 1999
------ ------- ------ -------
<S> <C> <C> <C> <C>
NET REVENUES:
Product sales........................................... $27,377 $29,829 $83,601 $72,930
License fees and royalties.............................. 483 311 1,281 1,010
------- ------- ------- -------
Total net revenues................................... 27,860 30,140 84,882 73,940
COST OF REVENUES.......................................... 13,280 12,667 40,589 32,616
------- ------- ------- -------
GROSS PROFIT.............................................. 14,580 17,473 44,293 41,324
------- ------- ------- -------
OPERATING EXPENSES:
Research and development................................ 3,084 2,813 9,570 7,684
Sales and marketing..................................... 3,139 2,893 9,985 8,097
General and administrative.............................. 1,743 4,324 5,165 7,120
------- ------- ------- -------
Total operating expenses............................. 7,966 10,030 24,720 22,901
------- ------- ------- -------
INCOME FROM OPERATIONS.................................... 6,614 7,443 19,573 18,423
OTHER INCOME, net......................................... 701 510 2,152 1,527
------- ------- ------- -------
INCOME BEFORE PROVISION FOR
INCOME TAXES............................................. 7,315 7,953 21,725 19,950
PROVISION FOR INCOME TAXES................................ 2,219 1,185 6,541 2,988
------- ------- ------- -------
NET INCOME................................................ $ 5,096 $ 6,768 $15,184 $16,962
======= ======= ======= =======
EARNINGS PER SHARE:
Basic................................................... $ 0.19 $ 0.26 $ 0.56 $ 0.66
======= ======= ======= =======
Diluted................................................. $ 0.18 $ 0.24 $ 0.53 $ 0.61
======= ======= ======= =======
SHARES USED IN PER SHARE CALCULATION:
Basic................................................... 27,325 26,275 27,127 25,796
======= ======= ======= =======
Diluted................................................. 28,495 28,589 28,908 27,908
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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POWER INTEGRATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................................... $ 15,184 $ 16,962
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................................. 2,977 2,368
Deferred compensation expense................................................. 105 105
Deferred income taxes......................................................... -- (3,600)
Provision for accounts receivable and other allowances........................ 159 3
Change in operating assets and liabilities:
Accounts receivable........................................................ (1,674) (4,837)
Inventories................................................................ (10,177) 1,824
Prepaid expenses and other current assets.................................. (366) (416)
Accounts payable........................................................... (1,932) 1,104
Accrued liabilities........................................................ 2,545 5,825
Deferred income on sales to distributors................................... (800) 300
-------- --------
Net cash provided by operating activities............................... 6,021 19,638
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........................................... (10,824) (4,058)
Purchases of short-term investments........................................... (22,940) (47,072)
Proceeds from sales and maturities of short-term investments.................. 36,169 32,468
-------- --------
Net cash provided by (used in) investing activities..................... 2,405 (18,662)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock.................................... 4,695 2,370
Proceeds from stockholder note repayment...................................... 125 10
Principal payments under capitalized lease obligations........................ (953) (1,561)
-------- --------
Net cash provided by financing activities............................... 3,867 819
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS....................................... 12,293 1,795
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................ 27,883 24,176
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $ 40,176 $ 25,971
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Capitalized lease obligations incurred for property and equipment............. $ -- $ 772
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................................................ $ 128 $ 246
======== ========
Cash paid for income taxes.................................................... $ 3,051 $ 3,212
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
POWER INTEGRATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements include the accounts of
Power Integrations, Inc. (the Company), a Delaware corporation, and its wholly-
owned subsidiaries. Significant inter-company accounts and transactions have
been eliminated.
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) which the Company
considers necessary for the fair presentation of the results of operations for
the interim periods covered and of the financial condition of the Company at the
date of the interim balance sheet. 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 Power
Integrations, Inc. consolidated financial statements for the year ended December
31, 1999 included in its Form 10-K.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents and Short-Term Investments
The Company considers cash invested in highly liquid financial instruments
with an original maturity of three months or less to be cash equivalents. Cash
investments in highly liquid financial instruments with original maturities
greater than three months but not longer than fifteen months are classified as
short-term investments. As of September 30, 2000, the Company's short-term
investments consisted of U.S. government backed securities, corporate commercial
paper and other high quality commercial and municipal securities, which were
classified as held to maturity and were valued using the amortized cost method
which approximates market.
Revenue Recognition
Product revenues consist of sales to original equipment manufacturers, or
OEMs, merchant power supply manufacturers and distributors. Revenues from
product sales to OEMs and merchant power supply manufacturers are recognized
upon shipment. Sales to distributors are made under terms allowing certain
rights of return and protection against subsequent price declines on the
Company's products held by the distributors. As a result of the Company's
distributor agreements, the Company defers recognition of revenue and the
proportionate costs of revenues derived from sales to distributors until the
distributors resell the Company's products to their customers. The margin
deferred as a result of this policy is reflected as "deferred income on sales to
distributors" in the accompanying condensed consolidated balance sheets.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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. Actual results could differ from those estimates.
Segment Reporting
During 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No.131 requires a new basis of determining reportable
business segments, i.e., the management approach. This approach requires that
business segment information used by management to assess performance and manage
company resources be the source for information disclosure. On this basis, the
Company is organized and operates as one business segment, that being the
design, development, manufacture and marketing of proprietary, high-voltage,
analog circuits for use in the AC to DC power conversion market.
6
<PAGE>
POWER INTEGRATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
hedging activities, and exposure definition. SFAS No. 133 requires companies to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Because the Company does not currently hold any derivative instruments and does
not currently engage in hedging activities, management believes that the
application of SFAS No. 133 will not have a material impact on its consolidated
results of operations and financial position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company
will adopt SAB 101 as required in the fourth quarter of 2000 and does not expect
such adoption to have a material impact on its consolidated results of
operations and financial position.
3. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories consist of the following (in thousands):
<TABLE>
<S> <C> <C>
September 30, December 31,
2000 1999
------------------------------
Raw materials.............................................................. $ 2,269 $ 4,039
Work-in-process............................................................ 10,680 4,059
Finished goods............................................................. 8,634 3,308
------- -------
$21,583 $11,406
======= =======
</TABLE>
4. SIGNIFICANT CUSTOMERS AND EXPORT SALES:
Customer Concentration
The Company's end user base is highly concentrated and a relatively small
number of OEMs and distributors accounted for a significant portion of the
Company's net revenues. Ten customers accounted for approximately 67.7% and
69.4% of total net revenues for the three months ended September 30, 2000 and
1999, respectively, and approximately 68.9% and 68.1% of total net revenues for
the nine months ended September 30, 2000 and 1999, respectively.
The following customers accounted for more than 10% of total net revenues:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ----------------------
Customer 2000 1999 2000 1999
-------------------------------------------------------
<S> <C> <C> <C> <C>
A............................................... 21.3% 14.1% 21.1% 15.9%
B............................................... * 11.3% * 11.1%
</TABLE>
-------------------
* less than 10% or no sales
7
<PAGE>
POWER INTEGRATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Export Sales
The Company markets its products in North America and in foreign countries
through its sales personnel and a worldwide network of independent sales
representatives and distributors. As a percentage of total net revenues, export
sales, which consist of domestic sales to customers in foreign countries, are
comprised of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
------- ------- -------- -------
<S> <C> <C> <C> <C>
Hong Kong/China................................. 24.3% 18.0% 22.6% 19.3%
Taiwan.......................................... 21.3% 20.4% 21.7% 18.7%
Western Europe.................................. 18.0% 16.0% 18.5% 16.0%
Korea........................................... 7.9% 13.6% 10.6% 13.6%
Thailand........................................ 1.9% 1.0% 2.7% 0.9%
Japan........................................... 3.0% 1.8% 2.5% 2.5%
Other........................................... 4.3% 7.3% 3.7% 7.2%
---- ---- ---- ----
Total foreign.................. 80.7% 78.1% 82.3% 78.2%
==== ==== ==== ====
</TABLE>
Product Sales
Sales of our TOPSwitch products accounted for 97.5% and 97.7% of net
revenues from product sales for the three months ended September 30, 2000 and
1999, respectively, and 97.7% and 96.7% of net revenues from product sales for
the nine months ended September 30, 2000 and 1999, respectively. TOPSwitch
products include TOPSwitch, TOPSwitch II, TOPSwitch FX and TinySwitch.
8
<PAGE>
POWER INTEGRATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. EARNINGS PER SHARE:
Earnings per share are calculated in accordance with SFAS No. 128 "Earnings
per Share." SFAS No. 128 requires companies to compute earnings per share under
two different methods (basic and diluted). 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 outstanding common stock
and common stock equivalents during the period. Common stock equivalents
included in the diluted calculation consist of dilutive shares issuable upon the
exercise of outstanding common stock options and shares issuable under the
employee stock purchase plan using the treasury stock method.
The following table sets forth the calculation of basic and diluted
earnings per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- --------- -------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income................................................... $ 5,096 $ 6,768 $15,184 $16,962
------- ------- ------- -------
Weighted average common shares............................... 27,325 26,275 27,127 25,796
------- ------- ------- -------
Basic earnings per share.................................. $ 0.19 $ 0.26 $ 0.56 $ 0.66
======= ======= ======= =======
Diluted earnings per share:
Net income................................................... $ 5,096 $ 6,768 $15,184 $16,962
------- ------- ------- -------
Weighted average common shares............................... 27,325 26,275 27,127 25,796
Weighted average common share equivalents:
Options................................................... 1,168 2,268 1,750 2,049
Employee stock purchase plan.............................. 2 46 31 63
------- ------- ------- -------
Diluted weighted average common shares....................... 28,495 28,589 28,908 27,908
------- ------- ------- -------
Diluted earnings per share............................. $ 0.18 $ 0.24 $ 0.53 $ 0.61
======= ======= ======= =======
</TABLE>
6. PROVISION FOR INCOME TAXES:
Income tax expense for the nine-month periods ended September 30, 2000 and
1999 includes a provision for Federal, state and foreign taxes based on the
annual estimated effective tax rate applicable to the Company and its
subsidiaries for the year. The difference between the statutory rate and the
Company's effective tax rate for the nine months ended September 30, 2000 is
primarily due to the beneficial impact of international sales, research and
development credits and Federal tax exempt investments.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes a number of forward-looking statements which
reflect our current views with respect to future events and financial
performance. In this report, the words "anticipates," "believes," "expects,"
"future," "intends," and similar expressions identify forward-looking
statements. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed in the "Factors That May Affect Future
Results of Operations" and elsewhere in this report, that could cause actual
results to differ materially from historical or anticipated results. We caution
you not to place undue reliance on these forward-looking statements, which speak
only as of the date of this report.
The following management's discussion and analysis of financial condition
and results of operations should be read in conjunction with management's
discussion and analysis of financial condition and results of operations
included in our Form 10-K for the year ended December 31, 1999.
Overview
We design, develop, manufacture and market proprietary, high-voltage,
analog integrated circuits, or ICs, for use primarily in AC to DC power
conversion markets. We have targeted high-volume power supply markets, including
the cellular telephone, personal computer, cable and direct broadcast satellite
and various consumer and industrial electronics markets. Our initial focus is on
those markets that are sensitive to size, portability, energy efficiency and
time-to-market. We believe our patented TOPSwitch ICs, introduced in 1994, are
the first highly integrated power conversion ICs to achieve widespread market
acceptance. We introduced an enhanced family of ICs, TOPSwitch-II, in April
1997. In September 1998, we announced the TinySwitch family of integrated
circuits for power supplies used in a broad range of electronic products.
TinySwitch ICs - designed to reduce energy leakage by incorporating our new
EcoSmart technology - enable a new class of light, compact, energy-efficient
power supplies. In March 2000, we introduced the TOPSwitch-FX family of
products, which also incorporates our EcoSmart technology to help engineers meet
the growing need for environmentally friendly power solutions. We believe this
new family of ICs gives power supply design engineers the ability to cost-
effectively integrate additional functionality into the power supplies they
design.
10
<PAGE>
Results of Operations
The following table sets forth certain operating data as a percentage of
total net revenues for the periods indicated.
<TABLE>
<CAPTION>
Percentage of Percentage of
Total Net Revenues for Total Net Revenues for
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
2000 1999 2000 1999
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net revenues:
Product sales........................................ 98.3% 99.0% 98.5% 98.6%
Royalties............................................ 1.7 1.0 1.5 1.4
----- ----- ----- -----
Total net revenues................................ 100.0 100.0 100.0 100.0
Cost of revenues....................................... 47.7 42.0 47.8 44.1
----- ----- ----- -----
Gross profit........................................... 52.3 58.0 52.2 55.9
----- ----- ----- -----
Operating expenses:
Research and development............................. 11.1 9.4 11.3 10.4
Sales and marketing.................................. 11.3 9.6 11.7 11.0
General and administrative........................... 6.2 14.3 6.1 9.6
----- ----- ----- -----
Total operating expenses.......................... 28.6 33.3 29.1 31.0
----- ----- ----- -----
Income from operations................................. 23.7 24.7 23.1 24.9
Other income, net...................................... 2.6 1.7 2.5 2.0
----- ----- ----- -----
Income before provision for income taxes............... 26.3 26.4 25.6 26.9
----- ----- ----- -----
Provision for income taxes............................. 8.0 3.9 7.7 4.0
----- ----- ----- -----
Net income............................................. 18.3% 22.5% 17.9% 22.9%
===== ===== ===== =====
</TABLE>
Comparison of the Three and Nine Months Ended September 30, 2000 and 1999
Net revenues. Net revenues consist of revenues from product sales, which
are calculated net of returns and allowances, plus license fees and royalties
paid by licensees of our technology. Net revenues for the quarter ended
September 30, 2000 were $27.9 million compared to $30.1 million for the third
quarter of 1999, a decrease of $2.3 million, or 7.6%. Net revenues for the nine
months ended September 30, 2000 were $84.9 million compared to $73.9 million for
the comparable period of 1999, an increase of $10.9 million, or 14.8%
Net revenues from product sales represented $27.4 million and $29.8 million
in the third quarter of 2000 and 1999, respectively. Net revenues from product
sales represented $83.6 million and $72.9 million in the nine months ended
September 30, 2000 and 1999, respectively. The decrease in net revenues from
product sales for the three months ended September 30, 2000 was attributable
primarily to less than expected demand in power supplies for cellular phones,
one of our major markets, which was down approximately 48% from the same quarter
in the prior year. Our other major market, PC stand-by, increased by
approximately 14% and the "other markets" category, including the set top
decoder box market, increased approximately 20% compared to the quarter ended
September 30, 1999. Sales in our two major markets were down approximately 9%
and 1%, respectively, while sales in the "other markets" category increased
approximately 43% for the nine months ended September 30, 2000 compared to the
same period of the prior year. In total, sales of our TOPSwitch and TinySwitch
products accounted for 97.5% and 97.8% of net revenues from product sales for
the three months ended September 30, 2000 and 1999, respectively, and 97.7% and
96.7% for the nine months ended September 30, 2000 and 1999, respectively.
International sales were $22.5 million in the third quarter of 2000
compared to $23.5 million for the same period in 1999, a decrease of $1 million,
or 4.3%, which represented 80.7% of net revenues compared to 78.1% in the
comparable period of 1999. International sales were $69.8 million for the nine
months ended September 30, 2000 compared to $57.8 million for the same period in
1999, an increase of $12 million, or 20.8%, and represented 82.3%
11
<PAGE>
of net revenues compared to 78.2% in the comparable period of 1999. Although the
power supplies using our products are designed and distributed worldwide, most
of these power supplies are manufactured in Asia. As a result, sales to this
region were 61.7% and 61.9% of our product sales for the three months ended
September 30, 2000 and 1999, respectively, and 63.2% and 61.8% of our product
sales for the nine months ended September 30, 2000 and 1999, respectively. We
expect international sales to continue to account for a large portion of our net
revenues.
Direct sales for the third quarter of 2000 were divided 50.1% to
distributors and 49.9% to original equipment manufacturers, or OEMs, and power
supply merchants, compared to 39% to distributors and 61% to OEMs and power
supply merchants for the same quarter in 1999. For the nine months ended
September 30, 2000, direct sales were divided 49.5% to distributors and 50.5% to
OEMs and power supply merchants, compared to 41.5% to distributors and 58.5% to
OEMs and power supply merchants for the same period in 1999. For the quarter
ended September 30, 2000, sales to one customer accounted for 21.3% of net
revenues, and for the quarter ended September 30, 1999, that same customer
accounted for 14.1% of net revenues, with a second customer, accounting for
11.3% of net revenues. For the nine months ended September 30, 2000, sales to
one customer accounted for 21.1% of net revenues, and for the nine months ended
September 30, 1999, that same customer accounted for 15.9% of net revenues, with
a second customer accounting for 11.1% of net revenues.
The exact dollar amounts and percentages of sales to end customers are
difficult to ascertain because most of those sales occur through distributors or
indirectly through sales to merchant power supply manufacturers, which in turn
sell power supplies to OEMs. However, we estimate that direct and indirect sales
to Motorola, who is our largest end user, accounted for approximately 7.8% and
23.4% of net revenues for the quarters ended September 30, 2000 and 1999,
respectively, and approximately 11.3% and 21.5% of net revenues for the nine
months ended September 30, 2000 and 1999, respectively. Direct sales to Motorola
were approximately 4% and 6.7% of net revenues for the quarters ended September
30, 2000 and 1999, respectively, and approximately 5.8% and 9.6% of net revenues
for the nine months ended September 30, 2000 and 1999, respectively.
Cost of revenues; Gross profit. Gross profit is equal to net revenues less
cost of revenues. Our cost of revenues consists primarily of costs associated
with the purchase of wafers, the assembly and packaging of our products, and
internal labor and overhead associated with the testing of both wafers and
packaged components. Gross profit for the third quarter of 2000 was $14.6
million, or 52.3% of net revenues, compared to $17.5 million, or 58% of net
revenues for the same period in 1999. Gross profit for the nine months ended
September 30, 2000 was $44.3 million, or 52.2% of net revenues, compared to
$41.3 million, or 55.9% of net revenues for the same period in 1999. Gross
profit in 1999 benefited from a one-time credit from one of our suppliers in the
amount of $1.2 million recorded in the third quarter. This credit resulted in
gross profit improvement of 4.0% for the quarter and 1.6% for the nine months
ended September 30, 1999. The additional decrease in gross profit percentage for
the three months and nine months ended September 30, 2000 was primarily due to
the adverse impact of increased customer pricing pressure, partially offset by
reduced material pricing.
Research and development expenses. Research and development expenses
consist primarily of employee-related expenses, expensed material and facility
costs associated with the development of new processes and new products. We also
expense prototype wafers and mask sets related to new products as research and
development costs until new products are released to production. Research and
development expenses for the third quarter of 2000 were $3.1 million compared to
$2.8 million for the same period in 1999, an increase of $271,000, or 9.6%,
which represented 11.1% and 9.4% of our net revenues in each period,
respectively. Research and development expenses for the first nine months of
2000 were $9.6 million compared to $7.7 million for the same period in 1999, an
increase of $1.9 million, or 24.5%, which represented 11.3% and 10.4% of net
revenues in each period, respectively. The increase for the three months and
nine months ended September 30, 2000 was primarily due to increased salaries and
other costs related to the hiring of additional engineering personnel, outside
consulting fees and expensed prototype materials caused by the transition of
foundry manufacturing processes, and bringing newly developed products into
manufacturing. We expect research and development expenses to continue to
increase in absolute dollars but to fluctuate as a percentage of our net
revenues.
Sales and marketing expenses. Sales and marketing expenses consist
primarily of employee-related expenses, commissions to sales representatives and
facilities expenses, including expenses associated with our regional sales and
support offices. Sales and marketing expenses for the second quarter of 2000
were $3.1 million compared to $2.9 million for the same period in 1999, an
increase of $246,000, or 8.5%, which represented 11.3% and 9.6% of our net
revenues in each period, respectively. Sales and marketing expenses for the
first nine months of 2000 were
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$10 million compared to $8.1 million for the same period in 1999, an increase of
$1.9 million, or 23.3%, which represented 11.7% and 11% of our net revenues in
each period, respectively. The increase for the three months and nine months
ended September 30, 2000 primarily resulted from the addition of personnel to
support increased sales and increase the availability of field application
engineers. We expect sales and marketing expenses to continue to increase in
absolute dollars but to fluctuate as a percentage of our net revenues.
General and administrative expenses. General and administrative expenses
consist primarily of employee-related expenses for administration, finance,
human resources and general management, as well as consulting, outside services,
legal and auditing expenses. For the quarters ended September 30, 2000 and 1999,
general and administrative expenses were $1.7 million and $4.3 million,
respectively, which represented 6.2% and 14.3% of our net revenues in each
period. For the nine months ended September 30, 2000 and 1999, general and
administrative expenses were $5.2 million and $7.1 million, respectively, which
represented 6.1% and 9.6% of our net revenues in each period. The decrease in
spending was primarily attributable to a reduction in professional and legal
expenses, which were expended for patent infringement litigation during 1999. We
expect general and administrative expenses to continue to increase in absolute
dollars, but to fluctuate as a percentage of our net revenues.
Other income, net. Other income, net, for the third quarter of 2000
increased by $191,000 over the same period in 1999, and for the nine months
ended September 30, 2000, increased by $625,000 over the same period in 1999.
The increase for the three and nine month periods ended September 30, 2000 was
due primarily to additional interest income from an increase in cash equivalents
and short-term investments in 2000.
Provision for income taxes. Provision for income taxes represents Federal,
state and foreign taxes. The provision for income taxes was $2.2 million for the
third quarter of 2000 compared to $1.2 million for the same period in 1999. The
provision for income taxes was $6.5 million for the first nine months of 2000
compared to $3 million for the same period in 1999. Our estimated effective tax
rate for 2000 is 30% compared to 15% used in the same periods for 1999. The
difference between the statutory rate and our effective tax rate for 2000 is
primarily due to the beneficial impact of international sales, research and
development credits and Federal tax exempt investments.
Liquidity and Capital Resources
At September 30, 2000, we had approximately $60.7 million in cash, cash
equivalents and short-term investments. In addition, under a revolving line of
credit agreement with Union Bank of California, we can borrow up to $10 million.
A portion of the credit line is used to cover advances for commercial letters of
credit and standby letters of credit, which we provide to Matsushita and OKI
prior to the shipment of wafers by the foundries to us. The balance of this
credit line is unused and available. The line of credit agreement contains
financial covenants and requires that we maintain profitability on a quarterly
basis and not pay or declare dividends without the bank's prior consent. In
previous years we have financed a significant portion of our machinery and
equipment through capital equipment leases. There was no additional equipment
financing during the nine months ended September 30, 2000.
As of September 30, 2000, we had working capital, defined as current assets
less current liabilities, of approximately $85.3 million, which was an increase
of approximately $14.2 million over December 31, 1999. Our operating activities
generated cash of $6 million and $19.6 million in the nine months ended
September 30, 2000 and 1999, respectively. Cash generated in the first nine
months of 2000 was principally the result of net income in the amount of $15.2
million, depreciation and amortization, and an increase in accrued liabilities,
partially offset by an increase in inventory and decrease in accounts payable.
Cash generated in the first nine months of 1999 was principally the result of
net income of $17 million, a decrease in inventory and increases in accounts
payable and accrued liabilities, offset by increases in accounts receivable and
deferred taxes.
Our investing activities were a net transfer from short-term investments to
cash and cash equivalents of $13.2 million in the nine months ended September
30, 2000 and a net transfer from cash and cash equivalents to short-term
investments of $14.6 million in the nine months ended September 30, 1999.
Purchases of property and equipment were $10.8 million and $4.1 million in the
nine months ended September 30, 2000 and 1999, respectively. The increase in
property and equipment purchases was due primarily to capital expenditures for
tenant improvements on a new facility.
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.
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New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
hedging activities, and exposure definition. SFAS No. 133 requires companies to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Because we do not currently hold any derivative instruments and do not currently
engage in hedging activities, we believe that the application of SFAS No. 133
will not have a material impact on our consolidated results of operations and
financial position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. We will adopt
SAB 101 as required in the fourth quarter of 2000 and do not expect such
adoption to have a material impact on our consolidated results of operations and
financial position.
Factors That May Affect Future Results of Operations
In addition to the other information in this report, the following factors
should be considered carefully in evaluating our business before purchasing
shares of our stock.
Our quarterly operating results are volatile and difficult to predict. If
we fail to meet the expectations of public market analysts or investors, the
market price of our common stock may decrease significantly. Our net revenues
and operating results have varied significantly in the past, are difficult to
forecast, are subject to numerous factors both within and outside of our
control, and may fluctuate significantly in the future. As a result, our
quarterly operating results will likely fall below the expectations of public
market analysts or investors. If that occurs, the price of our stock may
decline.
Some of the factors that could affect our operating results include the
following:
. the volume and timing of orders received from customers;
. the volume and timing of orders placed by us with our foundries;
. changes in product mix including the impact of new product
introduction on existing products;
. our ability to develop and bring to market new products and
technologies on a timely basis;
. the timing of investments in research and development and sales and
marketing;
. cyclical semiconductor industry conditions; and
. fluctuations in exchange rates, particularly the exchange rates
between the U.S. dollar and the Japanese yen.
Our quarterly results may be subject to seasonality. Historically, our
revenues have been strongest in our third and fourth quarters, due to what we
believe are seasonal factors attributed to the high volume consumer markets for
the end products into which our ICs are sold. Our revenues have then followed a
pattern of being sequentially linear or somewhat down in the first and second
quarters of the next year.
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 business may suffer. Our business is characterized by
short-term customer orders and shipment schedules. The ordering patterns of some
of our existing large customers have been unpredictable in the past and we
expect that customer-ordering patterns will continue to be unpredictable in the
future. Not only does the volume of units ordered by particular customers vary
substantially from period to period, but also purchase orders received from
particular customers often vary substantially from early oral estimates provided
by those customers for planning purposes. In addition, customer orders can be
canceled or rescheduled
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<PAGE>
without penalty to them. In the past we have experienced customer cancellations
of substantial orders for reasons beyond our control, and significant
cancellations could occur again at any time.
We depend on Motorola for a significant portion of our net revenues and if
we lose Motorola as a customer, our operating results will suffer. For the nine
months ended September 30, 2000, direct sales to Motorola accounted for
approximately 6% of our net revenues. Indirect sales, through power supply
merchants, which incorporate our ICs into the products they produce for
Motorola, accounted for another approximately 5% of our net revenues. For the
nine months ended September 30, 1999, direct sales and indirect sales to
Motorola accounted for approximately 9% and 12% of our net revenues,
respectively. We expect that our operating results will depend, in part, on our
direct and indirect sales to Motorola for the foreseeable future. In addition,
if Motorola continues to shift from higher end to lower end cellular phones that
incorporate older technology chargers which do not use our ICs, our direct and
indirect sales to Motorola may decline, which may hurt our operating results.
Intense competition in the high-voltage power supply industry may lead to a
decrease in the average selling price and reduced sales volume of our products,
which may harm our business. The high-voltage power supply industry is
intensely competitive and characterized by significant price erosion. Our
products face competition from alternative technologies, including traditional
linear transformers and discrete switcher power supplies. If the price of
competing products decreases significantly, the cost effectiveness of our
products will be adversely affected. If power requirements for applications in
which our products are currently utilized, including battery chargers for
cellular telephones, drop below current power levels, these older alternative
technologies can be used more cost effectively than our TOPSwitch-based
switchers.
We cannot assure you that our products will continue to compete favorably
or that we will be successful in the face of increasing competition from new
products and enhancements introduced by existing competitors or new companies
entering this market. We believe our failure to compete successfully in the
high-voltage power supply business, including our ability to introduce new
products with higher average selling prices, would materially harm our operating
results.
If demand for our products declines in the cellular phone battery charger
and desktop personal computer stand-by markets, our net revenues will decrease.
Applications of our products in the cellular phone battery chargers and desktop
personal computer, or PC, stand-by markets have and should continue to account
for a significant portion of our net revenues. For the three-month periods ended
September 30, 2000 and 1999, net revenues from the cellular phone battery
charger market were approximately $6.1 million and $11.8 million, respectively,
a decrease of $5.7 million or approximately 48%. For the comparable nine-month
periods, net revenues from this market were approximately $24.9 million in 2000
and $27.4 in 1999, a decrease of $2.5 million or approximately 9%. Net revenues
from the desktop personal computer stand-by markets increased approximately
$700,000 or 14% during the three months ended September 30, 2000 compared to the
same period in 1999, and were unchanged at approximately $14.5 million for the
nine month periods ended September 30, 2000 and 1999. We expect that our net
revenues and operating results will continue to be substantially dependent upon
these markets for the foreseeable future. The cellular phone and desktop PC
markets can be highly cyclical and have been subject to significant economic
downturns at various times. Any significant downturn in these markets could
cause our net revenues to decline and the price of our stock to fall. In
addition, technological advances in these markets may reduce demand for our
products.
Because the sales cycle for our products can be lengthy, we may incur
substantial expenses before we generate significant revenues, if any. Our
products are generally incorporated into a customer's products at the design
stage. However, customer decisions to use our products, commonly referred to as
design wins, which can often require us to expend significant research and
development and sales and marketing resources without any assurance of success,
often precede volume sales, if any, by a year or more. The value of any design
win will largely depend upon the commercial success of the customer's product.
We cannot assure you that we will continue to achieve design wins or that any
design win will result in future revenues. If a customer decides at the design
stage not to incorporate our products into its product, we may not have another
opportunity for a design win with respect to that product for many months or
years.
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<PAGE>
Our products must meet exacting specifications, and undetected defects and
failures may occur which could cause customers to return or stop buying our
products. Our customers generally establish demanding specifications for
quality, performance and reliability that our products must meet. ICs as complex
as those we sell often encounter development delays and may contain undetected
defects or failures when first introduced or after commencement of commercial
shipments. We have from time to time in the past experienced product quality,
performance or reliability problems. If defects and failures occur in our
products, we could experience lost revenue, increased costs, including warranty
expense and costs associated with customer support, delays in or cancellations
or rescheduling of orders or shipments and product returns or discounts, any of
which would harm our operating results.
We depend on third-party suppliers to provide us with wafers for our
products and if they fail to provide us sufficient wafers, our business will
suffer. We have supply arrangements for the production of wafers with Matsushita
and OKI. Although certain aspects of our relationships with Matsushita and OKI
are contractual, many important aspects of these relationships depend on their
continued cooperation and, in many instances, their course of conduct deviates
from the literal provisions of the contracts. We cannot assure you that we will
continue to work successfully with Matsushita or OKI in the future, that they
will continue to provide us with sufficient capacity at their foundries to meet
our needs, or that either of them will not seek an early termination of its
wafer supply agreement with us. We estimate that it would take 9 to 12 months
from the time we identified an alternate manufacturing source before that source
could produce wafers with acceptable manufacturing yields in sufficient
quantities to meet our needs.
Although we provide Matsushita and OKI with rolling forecasts of our
production requirements, their ability to produce wafers for us is limited by
the available capacities of the foundries in which these wafers are
manufactured. An increased need for capacity to meet internal demands or demands
of other customers could cause Matsushita and OKI to reduce capacity available
to us. Matsushita and OKI may also require us to pay amounts in excess of
contracted or anticipated amounts for wafer deliveries or require us to make
other concessions in order to acquire the wafer supply necessary to meet our
customers' requirements. Any of these concessions could harm our business.
If our third-party suppliers and independent subcontractors do not produce
our wafers and assemble our finished products at acceptable yields, our net
revenues may decline. We depend on Matsushita and OKI to produce wafers, and
independent subcontractors to assemble finished products, at acceptable yields
and to deliver them to us in a timely manner. The failure of Matsushita or OKI
to supply us wafers at acceptable yields could prevent us from selling our
products to our customers and would likely cause a decline in our net revenues.
In addition, our IC assembly process requires our manufacturers to use a high-
voltage molding compound available from only one vendor, which is difficult to
process. This compound and its required processes, together with the other non-
standard materials and processes needed to assemble our products, require a more
exacting level of process control than normally required for standard packages.
Unavailability of the sole source compound or problems with the assembly process
can materially adversely affect yields and cost to manufacture. We cannot assure
you that acceptable yields will be maintainable in the future.
Matsushita has licenses to our technology, which it may use to our
detriment. Our ability to take advantage of the potentially large Japanese
market for our products is largely dependent on Matsushita and its ability to
promote and deliver our products. Pursuant to our agreement with Matsushita,
Matsushita has the right to manufacture and sell products using our technology
to Japanese companies worldwide and to subsidiaries of Japanese companies
located in Asia. Although we receive royalties on Matsushita's sales, these
royalties are substantially lower than the gross profit we would receive on
direct sales. We cannot assure you that Matsushita will not use the technology
rights we have granted it to develop or market competing products following any
termination of its relationship with us or after termination of Matsushita's
royalty obligation to us.
Our international sales activities subject us to substantial risks. Sales
to customers outside of the United States account for a large portion of our net
revenues. These sales involve a number of risks to us, including:
. potential insolvency of international distributors and
representatives;
. reduced protection for intellectual property rights in some
countries;
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<PAGE>
. the impact of recessionary environments in economies outside the
United States;
. tariffs and other trade barriers and restrictions; and
. the burdens of complying with a variety of foreign laws.
Our failure to adequately address these risks could reduce our
international sales, which would materially adversely affect our operating
results. Furthermore, because substantially all of our foreign sales are
denominated in U.S. dollars, increases in the value of the dollar increase the
price in local currencies of our products in foreign markets and make our
products relatively more expensive and less price competitive than competitors'
products that are priced in local currencies.
If our efforts to enhance existing products and introduce new products are
not successful, we may not be able to generate demand for our products. Our
success depends in significant part upon our ability to develop new ICs for
high-voltage power conversion for existing and new markets, to introduce these
products in a timely manner and to have these products selected for design into
products of leading manufacturers. We have accelerated some of our new product
introduction schedules and these schedules are subject to the risks and
uncertainties that typically accompany accelerated development and delivery of
complex technologies to the market place, including product development delays
and defects. If we fail to develop and sell new products in a timely manner, our
net revenues could decline.
We cannot be sure that we will be able to adjust to changing market demands
as quickly and cost-effectively as necessary to compete successfully.
Furthermore, we cannot assure you that we will be able to introduce new products
in a timely and cost-effective manner or in sufficient quantities to meet
customer demand or that these products will achieve market acceptance. Our, or
our customers' failure to develop and introduce new products successfully and in
a timely manner would harm our business and may cause the price of our common
stock to fall. In addition, customers may defer or return orders for existing
products in response to the introduction of new products. Although we maintain
reserves against returns, we cannot assure you that these reserves will be
adequate.
If our products do not penetrate additional markets, our business will not
grow as we predict. We believe that our future success depends in part upon our
ability to penetrate additional markets for our products. We cannot assure you
that we will be able to overcome the marketing or technological challenges
necessary to do so. To the extent that a competitor penetrates additional
markets before we do, or takes market share from us in our existing markets, our
net revenues and financial condition could be materially adversely affected.
If we are unable to adequately protect or enforce our intellectual property
rights, we could lose market share, incur costly litigation expenses or lose
valuable assets. Our success depends upon our ability to protect our
intellectual property, including patents, trade secrets, and know-how, and to
continue our technological innovation. We cannot assure you that the steps we
have taken to protect our intellectual property will be adequate to prevent
misappropriation or that others will not develop competitive technologies or
products. From time to time we have received, and we may receive in the future,
communications alleging possible infringement of patents or other intellectual
property rights of others. Litigation, which could result in substantial cost to
us, may be necessary to enforce our patents or other intellectual property
rights or to defend us against claimed infringement of the rights of others. The
failure to obtain necessary licenses or other rights or litigation arising out
of infringement claims could cause us to lose market share and harm our
business.
Moreover, the laws of some foreign countries in which our technology is or
may in the future be licensed may not protect our intellectual property rights
to the same extent as the laws of the United States, thus increasing the
possibility of infringement of our intellectual property.
We must attract and retain qualified personnel to be successful and
competition for qualified personnel is intense in our market. Our success
depends to a significant extent upon the continued service of our executive
officers and other key management and technical personnel. The competition for
these employees is intense, particularly in Silicon Valley. The planned move to
our new headquarters in South San Jose has caused some loss of
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personnel, and could cause additional loss of personnel because of an
unfavorable change in the commute for some of our employees. The loss of the
services of one or more of our engineers, executive officers or other key
personnel or our inability to recruit replacements for these individuals or to
otherwise attract, retain and motivate qualified personnel could harm our
business. We have neither long-term employment contracts with, nor key person
life insurance policies on, any of our employees.
Our recent growth has strained our resources and if we fail to successfully
manage this growth, we may lose customers. We have experienced a period of
rapid growth and expansion, which has placed, and continues to place, a
significant strain on our resources. Relationships with our customers generally
require significant engineering support. A significant increase in the number of
customers using our technology will increase the strain on our resources,
particularly our engineers. These strains may result in delays or difficulties
in our research and development process, which could impede our ability to
develop future generations of our products and to remain competitive. In
addition, any future periods of rapid growth or expansion could be expected to
place a significant strain on our limited managerial, financial and engineering
resources.
We have adopted anti-takeover measures, which may make it more difficult
for a third party to acquire us. We have adopted a preferred stock purchase
rights plan that is intended to guard against hostile takeover tactics. The
adoption of this plan was not in response to any proposal to acquire us, and the
board is not aware of any such effort. Our board of directors has the authority
to issue up to 3,000,000 shares of preferred stock and to determine the price,
rights, preferences and privileges of those shares without any further vote or
action by the stockholders. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of shares of
preferred stock, while potentially providing flexibility in connection with
possible acquisitions and for other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of our
outstanding voting stock. We have no present intention to issue shares of
preferred stock.
The future trading price of our common stock could be subject to wide
fluctuations in response to a variety of factors. The price of our common stock
has been, and is likely to be, volatile. Factors including future announcements
concerning us or our competitors, quarterly variations in operating results,
announcements of technological innovations, the introduction of new products or
changes in our product pricing policies or those of our competitors, proprietary
rights or other litigation, changes in earnings estimates by analysts and other
factors could cause the market price of our common stock to fluctuate
substantially. In addition, stock prices for many technology companies fluctuate
widely for reasons, which may be unrelated to operating results. These
fluctuations, as well as general economic, market and political conditions, may
harm the market price of our common stock.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS.
There has not been a material change in our exposure to interest rate and
foreign currency risks since the date of our 1999 Form 10-K.
Interest Rate Risk. Our exposure to market risk for changes in interest
rates relate primarily to our investment portfolio. We do not use derivative
financial instruments in our investment portfolio. 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 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. The portfolio includes only marketable securities with
active secondary or resale markets to ensure portfolio liquidity.
The table below presents principal amounts and related weighted average
interest rates for our investment portfolio at September 30, 2000. All
investments mature, by policy, in 15 months or less.
(in thousands, except average interest rates)
<TABLE>
<CAPTION>
Average
Carrying Interest
Amount Rate
------------ ----------
<S> <C> <C>
Cash Equivalents:
Tax-exempt securities............................................................. $27,309 4.43%
------- ----
Total cash equivalents....................................................... 27,309 4.43%
------- ----
Short-term Investments:
Tax-exempt securities............................................................. 19,540 4.32%
------- ----
Total short-term investments................................................. 19,540 4.32%
------- ----
Total investment securities.................................................. $46,849 4.38%
======= ====
</TABLE>
Foreign Currency Exchange Risk. We transact business in various foreign
countries. Our primary foreign currency cash flows are in Asia and Western
Europe. Currently, we do not employ a foreign currency hedge program utilizing
foreign currency forward exchange contracts as the foreign currency transactions
and risks to date have not been significant.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits.
The following exhibits are attached hereto and filed herewith:
10.27 Wafer Supply Agreement between us and Matsushita, dated
as of June 29, 2000.***
10.28 Technology License Agreement between us and Matsushita,
dated as of June 29, 2000.***
10.29 First Amendment to Loan Agreement dated October 16, 1998
between us and Union Bank of California, N.A., dated August
1, 2000.
27.1 Financial Data Schedule.
***PORTIONS OF THIS EXHIBIT HAVE BEEN DELETED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT. THE CONFIDENTIAL PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
b. Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
POWER INTEGRATIONS, INC.
/s/ Robert J. LELIEUR
Dated: November 10, 2000 By: ______________________________
Robert J. Lelieur
Acting Chief Financial Officer
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