What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-07 compared with 2021-02-05 · 81 added, 111 removed, 769 unchanged (20% of the section changed)

7 unchanged sentences

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 7, 2022 expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 12 to the financial statements, effective January 1, 2019, the Company adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), using the optional transition method.

Basis for Opinion

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CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(In thousands)

CURRENT ASSETS:

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LONG-TERM INCOME TAXES PAYABLE

DEFERRED TAX LIABILITIES

OTHER LIABILITIES

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INCOME BEFORE INCOME TAXES

PROVISION (BENEFIT) FOR INCOME TAXES

PROVISION FOR INCOME TAXES

EARNINGS PER SHARE:

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Foreign currency translation adjustments, net of $ 0 tax in 2021, 2020 and 2019

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

Unrealized gain (loss) on marketable securities, net of $ 0 tax in 2021, 2020 and 2019

Unrealized actuarial gain (loss) on pension benefits, net of tax of ($ 334 ), ($ 308 ) and $ 497 in 2021, 2020 and 2019, respectively

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Payment of dividends to stockholders

Unrealized actuarial gain on pension benefits

Unrealized actuarial loss on pension benefits

Unrealized gain on marketable securities

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Payment of dividends to stockholders

Unrealized actuarial loss on pension benefits

Unrealized actuarial gain on pension benefits

Unrealized gain on marketable securities

8 unchanged sentences

Unrealized actuarial gain on pension benefits

Unrealized gain on marketable securities

Unrealized loss on marketable securities

Foreign currency translation adjustment

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Stock-based compensation expense

Amortization of premium (accretion of discount) on marketable securities

Amortization of premium on marketable securities

Deferred income taxes

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

Increase (decrease) in accounts receivable allowance for credit losses

Change in operating assets and liabilities:

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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:

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Payments of dividends to stockholders

Proceeds from draw on line of credit

Payments on line of credit

Net cash used in financing activities

NET INCREASE IN CASH AND CASH EQUIVALENTS

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

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Unpaid property and equipment

Unpaid technology licenses

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

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

Cash paid (received) for income taxes, net

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

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Actual results could differ from those estimates.

On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition and allowances for receivables and inventories.

On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, allowances for receivables, inventories, litigation and income taxes.

These estimates are based on historical facts and various other factors, which the Company believes to be reasonable at the time the estimates are made.

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

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

As of December 31, 2021 and 2020, the Company’s marketable securities consisted primarily of commercial paper, corporate bonds, government securities and/or other high-quality commercial securities.

Employee Benefits Plan

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Revenues and expenses are translated at the average exchange rate prevailing during the period.

Cumulative gains and losses from the translation of the foreign subsidiaries’ financial statements have been included in stockholders’ equity.

Cumulative gains and losses from the translation of the foreign subsidiaries’ financial statements have been included accumulated other comprehensive loss in stockholders’ equity.

The Company generally warrants that its products will substantially conform to the published specifications for 12 months from the date of shipment.

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The Company sells products to its distributors under contracts, collectively referred to as Distributor Sales Agreements (DSA).

Each DSA contains the relevant terms of the contractual arrangement with the distributor, and generally includes certain provisions for indemnifying the distributor against losses, expenses, and liabilities from damages that may be awarded against the distributor in the event the Company’s products are found to infringe upon a patent, copyright, trademark, or other proprietary right of a third party (Customer Indemnification).

The DSA generally limits the

scope of and remedies for the Customer Indemnification obligations in a variety of industry-standard respects, including, but not limited to, limitations based on time and geography, and a right to replace an infringing product.

The DSA generally limits the scope of and remedies for the Customer Indemnification obligations in a variety of industry-standard respects, including, but not limited to, limitations based on time and geography, and a right to replace an infringing product.

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

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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.

Adoption of New Accounting Standards

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

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

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

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

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

Recent Accounting Pronouncements

The Company has considered all recent accounting pronouncements issued, but not yet effective, and does not expect any to have a material effect on the Company’s condensed consolidated financial statements.

COMPONENTS OF THE COMPANY’S CONSOLIDATED BALANCE SHEETS:

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Accounts receivable trade

Accrued ship and debit

Allowance for ship and debit

Allowance for stock rotation and rebate

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

Allowance for Credit Losses

(In thousands)

December 31, 2020

Beginning balance

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Accumulated depreciation

Property and equipment, net

Depreciation expense for property and equipment for fiscal years ended December 31, 2021, 2020 and 2019, was approximately $ 31.5 million, $ 23.7 million and $ 19.2 million, respectively, and was determined using the straight-line method over the following useful lives:

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In 2021, 2020 and 2019, approximately 14 %, 14 % and 14 %, respectively, of total property and equipment (excluding accumulated depreciation) was held in Thailand by one of the Company’s subcontractors.

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

Also in 2021 and 2020, approximately 15 % and 14 % of total property and equipment (excluding accumulated depreciation) was held by one of the Company’s subcontractors in Malaysia.

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

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Amounts reclassified from accumulated other comprehensive loss

Other comprehensive income

Other comprehensive loss

Balance at December 31, 2019

1 unchanged sentence

Amounts reclassified from accumulated other comprehensive loss

Other comprehensive loss

Other comprehensive income

Balance at December 31, 2020

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Amounts reclassified from accumulated other comprehensive loss

Other comprehensive income

Other comprehensive loss

Balance at December 31, 2021

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Total Fair Value

Corporate securities

Commercial paper

Corporate securities

Money market funds

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Total Fair Value

Corporate securities

Commercial paper

Corporate securities

Money market funds

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Corporate securities

Investments due in 12 months or greater:

Corporate securities

Total marketable securities

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

Accrued interest receivable was $ 1.5 million at December 31, 2021 and was recorded within prepaid expenses and other current assets on the condensed consolidated balance sheet.

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Investments due in 3 months or less:

Commercial paper

Corporate securities

1 unchanged sentence

Corporate securities

Investments due in 12 months or greater:

Corporate securities

Total marketable securities

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

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

As of December 31, 2020, the Company had no marketable securities classified as available-for-sale (excluding cash equivalents) in a continuous unrealized loss position for which an allowance for credit losses was not recorded.

As of December 31, 2021, the Company had no marketable securities classified as available-for-sale (excluding cash equivalents) in a continuous unrealized loss position for which an allowance for credit losses was recorded.

The following table summarizes marketable securities classified as available-for-sale (excluding cash equivalents) in a continuous unrealized loss position for which an allowance for credit losses was not recorded at December 31, 2021:

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(In thousands)

December 31, 2019

Corporate securities

Total marketable securities

The weighted average interest rate of investments at December 31, 2021 and 2020, was approximately 0.45 % and 0.89 %, respectively.

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

In the year ended December 31, 2021 and 2020, no unrealized losses on marketable securities were recognized in income.

GOODWILL AND INTANGIBLE ASSETS:

The carrying amount of goodwill as of December 31, 2020 and 2019 was $ 91.8 million with no changes to goodwill in any of the respective fiscal years.

The carrying amount of goodwill as of December 31, 2021 and 2020 was $ 91.8 million;

there were no changes to goodwill in either of the respective fiscal years.

Intangible assets consist primarily of developed technology, acquired licenses, customer relationships, trade name, domain name, in-process R&D and patent rights, and are reported net of accumulated amortization.

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The 2007 Equity Incentive Plan (2007 Plan) was adopted by the board of directors on September 10, 2007, and approved by the stockholders on November 7, 2007, as an amendment and restatement of the 1997 Stock Option Plan (1997 Plan).

The 2007 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit (RSU) awards, stock appreciation rights, performance-based (PSU) awards, long-term performance based (PRSU) awards and other stock awards to employees, directors and consultants.

The 2007 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock

awards, restricted stock unit (RSU) awards, stock appreciation rights, performance-based (PSU) awards, long-term performance based (PRSU) awards and other stock awards to employees, directors and consultants.

Pursuant to the 2007 Plan, the exercise price for incentive stock options and non-statutory stock options is generally at least 100 % of the fair market value of the underlying shares on the date of grant.

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

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

As of December 31, 2021, 2.6 million awards have been issued, net of forfeitures or cancellations, and approximately 4.4 million shares of common stock remain available for future grant under the 2016 Plan.

1997 Employee Stock Purchase Plan

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A summary of stock options outstanding as of December 31, 2021, and activity during three years then ended, is presented below:

Contractual Term

Intrinsic Value

18 unchanged sentences

$ 21.44 - $ 21.44

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.

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Outstanding and expected to vest at December 31, 2021

In January 2021, it was determined that approximately 150,000 shares subject to the PSUs granted in 2020 vested in aggregate;

the shares were released to the Company’s employees and executives in the first quarter of 2021.

The grant-date fair value of PSU awards released, which were fully vested, in the years ended December 31, 2021, 2020 and 2019 was approximately $ 6.9 million, $ 4.2 million and $ 1.6 million, respectively.

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Outstanding and expected to vest at December 31, 2021

In January 2020 it was determined that no shares subject to the PRSUs granted in 2017 vested in aggregate;

thus no shares were released to the Company’s executives in 2020.

In January 2021 it was determined that approximately 6,000 shares subject to the PRSUs granted in 2018 vested in aggregate;

the shares were released to the Company’s executives in the first quarter of 2021.

The grant-date fair value of PRSU awards released, which were fully vested, in the years ended December 31, 2021 and 2019 was approximately $ 0.2 million and $ 3.0 million , respectively.

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Honestar Technologies Co., Ltd.

________________________

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

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The Company does not have any off-balance-sheet credit exposure related to its customers.

As of December 31, 2020 and December 31, 2019, 90 % and 63 % of accounts receivable were concentrated with the Company’s top ten customers, respectively.

As of December 31, 2021 and 2020, 86 % and 90 % of accounts receivable were concentrated with the Company’s top ten customers, respectively.

The following customers represented 10% or more of accounts receivable:

Powertech Distribution Ltd.

________________________

*Total customer accounts receivable was less than 10% of net accounts receivables.

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Common Stock Repurchases

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

Over the years the Company’s board of directors has authorized the use of funds to repurchase shares of the Company’s common stock.

In October 2018, the Company’s board of director’s authorized the use of $ 80.0 million for the repurchase of the Company’s common stock, and in each of April 2021 and 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.

In 2021, 2020 and 2019 the Company purchased approximately 878,000 , 63,000 and 242,000 shares, respectively, for approximately $ 73.9 million, $ 2.6 million and $ 7.3 million, respectively.

As of December 31, 2020, the Company had $ 41.3 million available for future stock repurchases, which has no expiration date.

As of December 31, 2021, the Company had $ 67.3 million available for future stock repurchases, all of which was utilized in January 2022.

In January 2022, the Company’s board of directors authorized the use of an additional $ 100.0 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 stock 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 and business conditions as well as other factors.

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The Company paid a total of approximately $ 32.6 million, $ 25.1 million and $ 20.5 million in cash dividends during 2021, 2020 and 2019, respectively.

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

In January 2019, the Company’s board of directors declared four quarterly cash dividends of $ 0.085 per share to be paid to stockholders of record at the end of each quarter in 2019.

In October 2019, the Company’s board of directors raised the cash dividends per share with the declaration of five cash dividends, consisting of (a) a dividend of $ 0.01 per

share to be paid to stockholders of record at the end of the fourth quarter in 2019, that was in addition to the dividend of $ 0.085 per share to be paid to stockholders of record at the end of the fourth quarter in 2019 previously declared by the board in January 2019, and (b) a dividend of $ 0.095 per share to be paid to stockholders of record at the end of each quarter in 2020.

In October 2019, the Company’s board of directors raised the cash dividends per share with the declaration of five cash dividends, consisting of (a) a dividend of $ 0.01 per share to be paid to stockholders of record at the end of the fourth quarter in 2019, that was in addition to the dividend of $ 0.085 per share to be paid to stockholders of record at the end of the fourth quarter in 2019 previously declared by the board in January 2019, and (b) a dividend of $ 0.095 per share to be paid to stockholders of record at the end of each quarter in 2020.

In April 2020, the Company’s board of directors raised the cash dividends with the declaration of three cash dividends of $ 0.105 per share (in lieu of the $ 0.095 per share previously announced in October 2019) to be paid to stockholders of record at the end of each of the second, third and fourth quarter in 2020.

In July 2020, the Company’s board of directors raised the cash dividends further with the declaration of two cash dividends of $ 0.11 per share (in lieu of the $ 0.105 per share announced in April 2020) to be paid to stockholders of record at the end of each of the third and fourth quarter in 2020.

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

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

In October 2021, the Company’s board of directors raised the quarterly cash dividend with the declaration of five cash dividends of $ 0.15 per share (the first 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 .

In January 2022, the Company’s board of directors raised the quarterly cash dividend by an additional $ 0.03 per share with the declaration of four cash dividends of $ 0.18 per share (in lieu of the $ 0.15 per share announced in October 2021) to be paid to stockholders of record at the end of each quarter in 2022.

EARNINGS PER SHARE:

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

PROVISION (BENEFIT) FOR INCOME TAXES:

PROVISION FOR INCOME TAXES:

The Company accounts for income taxes under the provisions of ASC 740, Income Taxes .

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

and foreign components of income before income taxes were:

and foreign components of income (loss) before income taxes were:

Year Ended December 31,

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Total income before income taxes

The components of the provision (benefit) for income taxes are as follows:

The components of the provision for income taxes are as follows:

Year Ended December 31,

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Deferred provision (benefit):

The provision (benefit) for income taxes differs from the amount that would result by applying the applicable federal income tax rate to income before income taxes, as follows:

The provision for income taxes differs from the amount that would result by applying the applicable federal income tax rate to income before income taxes, as follows:

Year Ended December 31,

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GILTI inclusion

Tax Act - transition tax

Deferred tax asset and liability adjustment

Valuation allowance

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The Company has not been granted any incentivized tax rates and does not operate under any tax holidays in any jurisdiction.

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

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

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Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income.

In the event that the Company determines, based on available evidence and management judgment, that all or part of the net deferred tax assets will not be realized in the future, the Company would record a valuation allowance in the period the determination is made.

that the Company determines, based on available evidence and management judgment, that all or part of the net deferred tax assets will not be realized in the future, the Company would record a valuation allowance in the period the determination is made.

In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws.

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The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

The Company had accrued interest and penalties of $ 0.1 million as of both December 31, 2020 and 2019, which have been recorded in long-term income taxes payable in the accompanying consolidated balance sheets.

The Company had accrued interest and penalties of $ 0.8 million and $ 0.1 million as of December 31, 2021 and 2020, respectively, which have been recorded in long-term income taxes payable in the accompanying consolidated balance sheets.

As of December 31, 2021, the Company has concluded all U.S.

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However, due to tax attributes, the IRS may calculate tax adjustments for subsequent years for positions taken prior to 2012.

There are currently no pending income tax audits.

On July 27, 2015, in Altera Corp.

Commissioner, the U.S.

Tax Court issued an opinion related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement.

A final decision was issued by the Tax Court in December 2015.

In February 2016, the Commissioner appealed the Tax Court decision.

On July 24, 2018, the U.S.

Ninth Circuit Court of Appeals reversed the U.S.

Tax Court’s decision Altera Corp.

Commissioner;

the reversal was subsequently withdrawn.

On June 7, 2019, the Ninth Circuit Court of Appeals overturned the U.S.

Tax Court decision;

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

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

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

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

As of December 31, 2021, the Company’s 2018 and 2019 tax years are under audit by the California Franchise Tax Board.

LEASES AND COMMITMENTS:

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

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

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

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

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

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

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The Company challenged those findings in post-trial proceedings, and the Court granted one of the Company’s post-trial motions, reducing the damages award to $ 1.2 million.

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

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 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.

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

Limited discovery has taken place, but proceedings are currently stayed pending resolution of the Company’s motion to set aside the judgment in the parties’ prior litigation, and no schedule has yet been set for expert discovery, dispositive motions, or trial.

The Company believes it has strong defenses, and intends to vigorously defend itself against Opticurrent’s claims, with appeals to follow if necessary.

Limited discovery has taken place, but proceedings are currently stayed for all but written discovery;

no schedule has yet been set for expert discovery, dispositive motions, or trial.

The Company believes it has strong defenses, independent of the issue on appeal in the first case, and intends to vigorously defend itself against Opticurrent’s claims, with appeals to follow if necessary.

On 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, but 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.

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That motion was granted, so CogniPower’s claims for infringement initially went forward separately in their lawsuit against the Company’s customers in the District of Delaware, but the Company filed a motion to intervene in that lawsuit and received a ruling allowing the Company to intervene in CogniPower’s customer lawsuit on February 1, 2021.

Fact discovery and claim construction proceedings are now under way, but the Company believes it has strong claims and defenses, and intends to vigorously defend itself against CogniPower’s claims against the Company’s technology, with appeals to follow if necessary.

The Company is unable to predict the outcome of legal proceedings with certainty, and there can be no assurance that Power Integrations will prevail in the above-mentioned unsettled litigations.

These litigations, whether or not determined in Power Integrations’ favor or settled, will be costly and will divert the efforts and attention of the Company’s management and technical personnel from normal business operations, potentially causing a material adverse effect on the business, financial condition and operating results.

Currently, the Company is not able to estimate a loss or a range of loss for the ongoing litigation disclosed above, however adverse determinations in litigation could result in monetary losses, the loss of proprietary rights, subject the Company to significant liabilities, require Power Integrations to seek licenses from third parties or prevent the Company from licensing the technology, any of which could have a material adverse effect on the Company’s business, financial condition and operating results.

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 proceedings against every independent claim CogniPower asserted in the litigation, the parties have agreed to stay the associated District Court litigation pending resolution of the IPRs.

The Company is unable to predict the outcome of legal proceedings with certainty, and there can be no assurance that the Company will prevail in the above-mentioned unsettled litigations.

These litigations, whether or not determined

in the Company’s favor or settled, will be costly and will divert the efforts and attention of the Company’s management and technical personnel from normal business operations, potentially causing a material adverse effect on the business, financial condition and operating results.

Currently, the Company is not able to estimate a loss or a range of loss for the ongoing litigation disclosed above, however adverse determinations in litigation could result in monetary losses, the loss of proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third parties or prevent the Company from licensing the technology, any of which could have a material adverse effect on the Company’s business, financial condition and operating results.

RETIREMENT PLANS:

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As of December 31, 2020, the projected benefit obligation was $ 16.6 million, the plan assets were $ 9.7 million, and the net pension liability was $ 6.9 million.

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

2020 and 2019, under the other liabilities caption.

The Company has recorded the unfunded amount as a liability in its consolidated balance sheet at December 31, 2021 and 2020, under the other liabilities caption.

The Company expects to make contributions to the Pension Plan of approximately $ 0.4 million during 2022.

4 unchanged sentences

BANK LINE OF CREDIT:

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

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

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

The Credit Agreement was amended on June 7, 2021, to provide an alternate borrowing rate as a replacement for LIBOR and extend the termination date from April 30, 2022, to June 7, 2026, with all other terms remaining the same.

The Company’s ability to borrow under the revolving line of credit is conditioned upon the Company’s compliance with specified covenants, including reporting and financial covenants, primarily a minimum cash requirement and a debt to earnings ratio.

The Credit Agreement terminates on April 30, 2022;

The Credit Agreement terminates on June 7, 2026;

all advances under the revolving line of credit will become due on such date, or earlier in the event of a default.

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

SELECTED QUARTERLY INFORMATION (Unaudited):

The following tables set forth certain data from the Company’s consolidated statements of income for each of the quarters in the years ended December 31, 2020 and 2019.

The unaudited quarterly consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements contained herein and include all adjustments that the Company considers necessary for a fair presentation of such information when read in conjunction with the Company’s annual audited consolidated financial statements and notes thereto appearing elsewhere in this report.

The operating results for any quarter are not necessarily indicative of the results for any subsequent period or for the entire fiscal year.

Three Months Ended

(In thousands, except per share data)

Earnings per share (2)

Shares used in per share calculation (2)

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

(2) In July 2020, the Company’s board of directors approved a two -for-one stock split in the form of a stock dividend, payable on August 18, 2020, to stockholders of record as of the close of business on August 14, 2020.

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

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

The Company was compliant with all covenants and had no advances outstanding under the Credit Agreement as of December 31, 2021.

Valuation and Qualifying Accounts

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What changed 10-K

Item 8. Financial Statements and Supplementary Data