What changed in this filing

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Item 1. Financial Statements

2021-10-28 compared with 2021-07-29 · 137 added, 110 removed, 407 unchanged (38% of the section changed)

3 unchanged sentences

(In thousands)

June 30, 2021

September 30, 2021

December 31, 2020

29 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except per share amounts)

11 unchanged sentences

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.

POWER INTEGRATIONS, INC.

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments, net of $ 0 tax in each of the three and six months ended June 30, 2021 and 2020

Unrealized gain (loss) on marketable securities, net of $ 0 tax in each of the three and six months ended June 30, 2021 and 2020

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

Foreign currency translation adjustments, net of $ 0 tax in each of the three and nine months ended September 30, 2021 and 2020

Unrealized gain (loss) on marketable securities, net of $ 0 tax in each of the three and nine months ended September 30, 2021 and 2020

Amortization of defined benefit pension items, net of tax of $ 6 and $ 147 in the three and nine months ended September 30, 2021, respectively, and $ 37 and $ 92 in the three and nine months ended September 30, 2020, respectively

Total other comprehensive income (loss)

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

21 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

6 unchanged sentences

Deferred income taxes

Increase (decrease) in accounts receivable allowance for credit losses

Increase in accounts receivable allowance for credit losses

Change in operating assets and liabilities:

9 unchanged sentences

Proceeds from sales and maturities of marketable securities

Net cash provided by (used in) investing activities

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

19 unchanged sentences

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.

SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS:

5 unchanged sentences

Accounts Receivable

September 30,

(In thousands)

3 unchanged sentences

Allowance for credit losses

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.

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

4 unchanged sentences

Ending balance

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30,

(In thousands)

3 unchanged sentences

Intangible Assets

June 30, 2021

September 30, 2021

December 31, 2020

4 unchanged sentences

Total intangible assets

The estimated future amortization expense related to finite-lived intangible assets at June 30, 2021, is as follows:

The estimated future amortization expense related to finite-lived intangible assets at September 30, 2021, is as follows:

(In thousands)

2021 (remaining six months)

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2021 (remaining three months)

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:

Changes in accumulated other comprehensive loss for the three and nine months ended September 30, 2021 and 2020, were as follows:

Unrealized Gains

8 unchanged sentences

Three Months Ended

September 30,

(In thousands)

4 unchanged sentences

Ending balance

(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 three months ended September 30, 2021 and 2020.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unrealized Gains

and Losses on

Defined Benefit Pension

Defined Benefit

Foreign Currency

Marketable Securities

Six Months Ended

Pension Items

Nine Months Ended

September 30,

(In thousands)

4 unchanged sentences

Ending balance

(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.

(1) This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the nine months ended September 30, 2021 and 2020.

FAIR VALUE MEASUREMENTS:

5 unchanged sentences

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.

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:

The fair-value hierarchy of the Company’s cash equivalents and marketable securities at September 30, 2021, and December 31, 2020, was as follows:

Fair Value Measurement at

June 30, 2021

September 30, 2021

Quoted Prices in

8 unchanged sentences

Money market funds

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Value Measurement at

7 unchanged sentences

Total Fair Value

Corporate securities

Commercial paper

Corporate securities

Money market funds

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.

The Company did not transfer any investments between Level 1 and Level 2 of the fair-value hierarchy in the nine months ended September 30, 2021, and the twelve months ended December 31, 2020.

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 cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at September 30, 2021, were as follows:

Gross Unrealized

10 unchanged sentences

Total marketable securities

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.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accrued interest receivable was $ 1.0 million at September 30, 2021 and was recorded within prepaid expenses and other current assets on the condensed consolidated balance sheet.

Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at December 31, 2020, were as follows:

9 unchanged sentences

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:

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Less Than 12 Months

3 unchanged sentences

Total marketable securities

In the three and six months ended June 30, 2021 and 2020, no unrealized losses on marketable securities were recognized in income.

In the three and nine months ended September 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.

2 unchanged sentences

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:

The following table summarizes the stock-based compensation expense recognized in accordance with ASC 718-10 for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

4 unchanged sentences

Total stock-based compensation expense

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.

Stock-based compensation expense in the three months ended September 30, 2021, was approximately $ 9.6 million, comprising approximately $ 5.0 million related to restricted stock unit (RSU) awards, $ 4.2 million related to performance-based (PSU) awards and long-term performance-based (PRSU) awards and $ 0.4 million related to the Company’s employee stock purchase plan.

Stock-based compensation expense in the nine months ended September 30, 2021, was approximately $ 27.3 million, comprising approximately $ 15.0 million related to RSUs, $ 10.9 million related to PSUs and PRSUs and $ 1.4 million related to the Company’s employee stock purchase plan.

Stock-based compensation expense in the three months ended September 30, 2020, was approximately $ 9.4 million, comprising approximately $ 4.7 million related to RSUs, $ 4.2 million related to PSUs and PRSUs and $ 0.5 million related to the Company’s employee stock purchase plan.

Stock-based compensation expense in the nine months ended September 30, 2020, was approximately $ 22.0 million, comprising approximately $ 14.1 million related to RSUs, $ 6.6 million related to PSUs and PRSUs and $ 1.3 million related to the Company’s employee stock purchase plan.

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:

A summary of stock options outstanding as of September 30, 2021, and activity during the nine months ended, is presented below:

Contractual Term

Intrinsic Value

3 unchanged sentences

Forfeited or expired

Outstanding at June 30, 2021

Vested and exercisable at June 30, 2021

Outstanding at September 30, 2021

Vested and exercisable at September 30, 2021

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.

1 unchanged sentence

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.

2 unchanged sentences

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:

A summary of PSUs outstanding as of September 30, 2021, and activity during the nine months ended, is presented below:

Grant Date Fair

5 unchanged sentences

Outstanding at January 1, 2021

Outstanding at June 30, 2021

Outstanding and expected to vest at June 30, 2021

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Outstanding at September 30, 2021

Outstanding and expected to vest at September 30, 2021

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.

1 unchanged sentence

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.

The performance goals

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

2 unchanged sentences

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:

A summary of PRSUs outstanding as of September 30, 2021, and activity during the nine months ended, is presented below:

Weighted-Average

6 unchanged sentences

Outstanding at January 1, 2021

Outstanding at June 30, 2021

Outstanding and expected to vest at June 30, 2021

A summary of RSUs outstanding as of June 30, 2021, and activity during the six months then ended, is presented below:

Outstanding at September 30, 2021

Outstanding and expected to vest at September 30, 2021

A summary of RSUs outstanding as of September 30, 2021, and activity during the nine months ended, is presented below:

Weighted-Average

6 unchanged sentences

Outstanding at January 1, 2021

Outstanding at June 30, 2021

Outstanding and expected to vest at June 30, 2021

Outstanding at September 30, 2021

Outstanding and expected to vest at September 30, 2021

SIGNIFICANT CUSTOMERS AND GEOGRAPHIC NET REVENUES:

2 unchanged sentences

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.

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.

The Company’s top ten customers accounted for approximately 76 % and 79 % of net revenues for the three and nine months ended September 30, 2021, respectively, and approximately 65 % and 56 %, respectively 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.

These distributors sell the Company’s products to a broad, diverse range of end users, including

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

original equipment manufacturers, or OEMs, and merchant power supply manufacturers.

Sales to distributors were $ 127.3 million and $ 397.9 million in the three and nine months ended September 30, 2021, respectively, and $ 85.3 million and $ 256.1 million, respectively, for the corresponding periods of 2020.

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

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Honestar Technologies Co., Ltd.

4 unchanged sentences

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.

As of September 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:

September 30,

Powertech Distribution Ltd.

1 unchanged sentence

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

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:

Geographic net revenues, based on “bill to” customer locations, for the three and nine months ended September 30, 2021 and 2020, were as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

5 unchanged sentences

Common Stock Shares Outstanding

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

2 unchanged sentences

Ending balance

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.

As of December 31, 2020, the Company had $ 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.

In the nine months ended September 30, 2021 the Company purchased approximately 455,000 shares for $ 36.2 million .

As of September 30, 2021, the Company had $ 55.1 million remaining under its current repurchase program, which has no expiration date.

In October 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.

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.

3 unchanged sentences

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.

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:

In October 2021, the Company’s board of directors raised the quarterly cash dividend again with the declaration of five cash dividends of $ 0.15 per share (in lieu of the $ 0.13 per share announced in January 2021) to be paid to stockholders of record at the end of the fourth quarter in 2021 and at the end of each quarter in 2022 .

For the three and nine months ended September 30, 2021 and 2020, cash dividends declared and paid were as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except per share amounts)

5 unchanged sentences

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.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A summary of the earnings per share calculation is as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except per share amounts)

10 unchanged sentences

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.

In the three and nine months ended September 30, 2021 and 2020, no stock awards were determined to be anti-dilutive and therefore excluded from the computation of diluted earnings per share.

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

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.

The Company’s effective tax rates for the three and nine months ended September 30, 2021, were 8.2 % and 6.1 %, respectively, and 5.1 % and 6.4 %, respectively, in the corresponding periods of 2020.

In the three and nine months ended September 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 nine months ended September 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.

3 unchanged sentences

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.

As of September 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.

1 unchanged sentence

The estimates used could differ from actual results, which may have a significant impact on operating results in future periods.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Supplier Agreements

16 unchanged sentences

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

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

challenge to the order staying execution pending appeal.

Briefing and oral argument on the Company’s appeal are completed, with a ruling expected in the coming months.

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 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.

2 unchanged sentences

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 May 10, 2021, Opticurrent, LLC filed another follow-on lawsuit in the United States District Court for the Eastern District of Texas accusing one of the Company’s customers of infringement based on the use of the Company’s products and seeking damages for the alleged infringement of the same claim of the same patent asserted in the parties’ prior litigation, as described above.

The case is at the pleadings stage, and no schedule has been set for discovery, dispositive motions, or trial.

The Company believes it has strong defenses, independent of the issue on appeal in the parties’ first case, and intends to vigorously defend against Opticurrent’s claims against the Company’s technology, 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.

That motion was granted,

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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.

9 unchanged sentences

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.

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 September 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements