What changed in this filing

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Item 1. Financial Statements

2022-04-28 compared with 2021-10-28 · 90 added, 155 removed, 389 unchanged (39% of the section changed)

3 unchanged sentences

(In thousands)

September 30, 2021

March 31, 2022

December 31, 2021

29 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(In thousands, except per share amounts)

14 unchanged sentences

Three 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 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)

Foreign currency translation adjustments, net of $ 0 tax in each of the three months ended March 31, 2022 and 2021

Unrealized loss on marketable securities, net of $ 0 tax in each of the three months ended March 31, 2022 and 2021

Amortization of defined benefit pension items, net of tax of $ 3 and $ 135 in the three months ended March 31, 2022 and 2021, respectively

Total other comprehensive loss

TOTAL COMPREHENSIVE INCOME

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

11 unchanged sentences

Beginning balance

Other comprehensive income (loss)

Other comprehensive loss

Ending balance

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

6 unchanged sentences

Deferred income taxes

Increase in accounts receivable allowance for credit losses

Increase (decrease) 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 used in investing activities

Net cash provided by investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

9 unchanged sentences

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid (received) for income taxes, net

Cash paid for income taxes, net

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

14 unchanged sentences

Accounts Receivable

September 30,

(In thousands)

4 unchanged sentences

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

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

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

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

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

6 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30,

(In thousands)

3 unchanged sentences

Intangible Assets

September 30, 2021

March 31, 2022

December 31, 2021

4 unchanged sentences

Total intangible assets

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

The estimated future amortization expense related to finite-lived intangible assets at March 31, 2022, is as follows:

(In thousands)

2021 (remaining three months)

2022 (remaining nine months)

Accumulated Other Comprehensive Loss

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

Changes in accumulated other comprehensive loss for the three months ended March 31, 2022 and 2021, 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 September 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 March 31, 2022 and 2021.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unrealized Gains

and Losses on

Defined Benefit

Foreign Currency

Marketable Securities

Pension Items

Nine Months Ended

September 30,

(In thousands)

Beginning balance

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive loss

Net-current period other comprehensive income (loss)

Ending balance

(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.

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

The fair-value hierarchy of the Company’s cash equivalents and marketable securities at March 31, 2022, and December 31, 2021, was as follows:

Fair Value Measurement at

September 30, 2021

March 31, 2022

Quoted Prices in

8 unchanged sentences

Money market funds

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Value Measurement at

10 unchanged sentences

Money market funds

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.

The Company did not transfer any investments between Level 1 and Level 2 of the fair-value hierarchy in the three months ended March 31, 2022, and the twelve months ended December 31, 2021.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARKETABLE SECURITIES:

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:

Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at March 31, 2022, were as follows:

Gross Unrealized

5 unchanged sentences

Investments due in 4-12 months:

Commercial paper

Corporate securities

2 unchanged sentences

Total marketable securities

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.

Accrued interest receivable was $ 1.5 million at March 31, 2022 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, 2021, were as follows:

7 unchanged sentences

Corporate securities

Investments due in 12 months or greater:

Corporate securities

Total marketable securities

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.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 September 30, 2021:

Less Than 12 Months

3 unchanged sentences

Total marketable securities

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

In the three months ended March 31, 2022 and 2021, no unrealized losses on marketable securities were recognized in income.

The Company does not intend to sell and it is unlikely that it will be required to sell the securities prior to their anticipated recovery.

The issuers are high quality (investment grade) and the decline in fair value is largely due to changes in interest rates and other market conditions.

The issuers are high quality (investment grade) and the decline in fair value is largely due to changes

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

in interest rates.

Additionally, the issuers continue to make timely interest payments on the marketable securities with the fair value expected to recover as they reach maturity.

STOCK-BASED COMPENSATION:

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:

The following table summarizes the stock-based compensation expense recognized in accordance with ASC 718-10 for the three months ended March 31, 2022 and 2021:

Three 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 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 March 31, 2022, was approximately $ 9.0 million, comprising approximately $ 5.6 million related to restricted stock unit (RSU) awards, $ 3.0 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 three months ended March 31, 2021, was approximately $ 8.5 million, comprising approximately $ 5.3 million related to RSUs, $ 2.7 million related to PSUs and PRSUs and $ 0.5 million related to the Company’s employee stock purchase plan.

Stock Options

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

A summary of stock options outstanding as of March 31, 2022, and activity during the three months ended, is presented below:

Contractual Term

4 unchanged sentences

Forfeited or expired

Outstanding at September 30, 2021

Vested and exercisable at September 30, 2021

Outstanding at March 31, 2022

Vested and exercisable at March 31, 2022

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.

4 unchanged sentences

If the performance conditions are not achieved, no compensation cost is recognized and any previously recognized compensation is reversed.

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

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In February 2022, it was determined that approximately 104,000 shares subject to the PSUs granted in 2021 vested in aggregate;

the shares were released to the Company’s employees and executives in the first quarter of 2022.

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

A summary of PSUs outstanding as of March 31, 2022, and activity during the three months ended, is presented below:

Grant Date Fair

5 unchanged sentences

Outstanding at January 1, 2022

Outstanding at September 30, 2021

Outstanding and expected to vest at September 30, 2021

Outstanding at March 31, 2022

Outstanding and expected to vest at March 31, 2022

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

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.

The performance goals for PRSUs granted in fiscal 2020, 2021 and 2022 were based on the Company’s compound annual growth rate (“CAGR”) of revenue as measured against the revenue CAGR of the analog semiconductor industry, in each case over the respective three-year performance period.

Expense associated with these awards, net of estimated forfeitures, is recorded throughout the year based on an assessment of the expected achievement of the performance targets.

If the performance conditions are not achieved, no compensation cost is recognized and any previously recognized compensation is reversed.

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

In February 2022 it was determined that approximately 135,000 shares subject to the PRSUs granted in 2019 vested in aggregate;

the shares were released to the Company’s executives in the first quarter of 2022.

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

A summary of PRSUs outstanding as of March 31, 2022, and activity during the three months ended, is presented below:

Weighted-Average

6 unchanged sentences

Outstanding at January 1, 2022

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:

Outstanding at March 31, 2022

Outstanding and expected to vest at March 31, 2022

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A summary of RSUs outstanding as of March 31, 2022, and activity during the three months ended, is presented below:

Weighted-Average

6 unchanged sentences

Outstanding at January 1, 2022

Outstanding at September 30, 2021

Outstanding and expected to vest at September 30, 2021

Outstanding at March 31, 2022

Outstanding and expected to vest at March 31, 2022

SIGNIFICANT CUSTOMERS AND GEOGRAPHIC NET REVENUES:

3 unchanged sentences

Customer Concentration

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.

The Company’s top ten customers accounted for approximately 77 % and 79 % of net revenues for the three months ended March 31, 2022 and 2021, respectively.

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

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.

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 $ 135.7 million and $ 134.2 million in the three months ended March 31, 2022, and 2021, respectively.

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

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

Honestar Technologies Co., Ltd.

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

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

2 unchanged sentences

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

As of March 31, 2022, and December 31, 2021, 87 % and 86 %, 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 nine months ended September 30, 2021 and 2020, were as follows:

Geographic net revenues, based on “bill to” customer locations, for the three months ended March 31, 2022 and 2021, were as follows:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

5 unchanged sentences

Common Stock Shares Outstanding

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

4 unchanged sentences

As of December 31, 2021, the Company had $ 67.3 million remaining under its stock-repurchase program.

In January and February 2022, the Company’s board of directors authorized the use of an additional $ 100 million and $ 50 million, respectively, for the repurchase of the Company’s common stock, with repurchases to be executed according to pre-defined price/volume guidelines.

In the three months ended March 31, 2022 the Company purchased 1,584,340 shares for $ 134.7 million, leaving $ 82.7 million remaining on the repurchase authorization as of March 31, 2022.

The program has no expiration date.

In April 2022, the Company’s board of directors authorized the use of an additional $ 75 million for the repurchase of the Company’s common stock, with repurchases to be executed according to pre-defined price/volume guidelines.

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.

Cash Dividends

In October 2019, the Company’s board of directors declared four quarterly cash dividends of $ 0.095 per share to be paid to stockholders of record at the end of each quarter in 2020.

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

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

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.

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:

In January 2021, the Company’s board of directors declared 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 (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.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the three months ended March 31, 2022 and 2021, cash dividends declared and paid were as follows:

Three 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

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 2022 and 2021 calculations as the shares were not contingently issuable as of the end of the reporting periods.

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.

In the three months ended March 31, 2022 and 2021, no stock awards were determined to be anti-dilutive and therefore excluded from the computation of diluted earnings per share.

PROVISION FOR INCOME TAXES:

1 unchanged sentence

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 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.

The Company’s effective tax rates for the three months ended March 31, 2022 and 2021, were 10.4 % and 2.4 %, respectively.

In the three months ended March 31, 2022 and 2021, 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 and federal research tax credits.

Additionally, in the three months ended March 31, 2021, the Company’s effective tax rate was favorably impacted by a discrete item associated with the release of an unrecognized tax benefit and the recognition of excess tax benefits related to share-based payments.

These benefits were partially offset by foreign income subject to U.S.

tax, known as global intangible low-taxed income.

The Company’s primary jurisdiction where foreign earnings are derived is the Cayman Islands, which is a non-taxing jurisdiction.

The Company’s primary jurisdiction where foreign earnings are

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

derived is the Cayman Islands, which is a non-taxing jurisdiction.

Income earned in other foreign jurisdictions was not material.

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

As of 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.

As of March 31, 2022, 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.

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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 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.

In the meanwhile, the District Court 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.

On February 23, 2022, a split panel at the Federal Circuit issued a ruling denying the Company’s appeal challenging the judgment.

The Company has until July 25, 2022 to appeal that decision.

The Company continues to believe it has strong defenses, and intends to continue to vigorously defend itself against Opticurrent’s claims.

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

Limited discovery has taken place, but proceedings are currently stayed for all but written discovery, and no schedule has yet been set for expert discovery, dispositive motions, or trial.

Limited discovery has taken place, and the parties and the Court are working on a schedule for expert discovery, dispositive

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

motions, and 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, 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.

The case is at the claim construction 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.

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,

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.

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, and the parties thereafter agreed to dismiss the Company’s separate lawsuit against CogniPower.

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.

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.

8 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 September 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 March 31, 2022.

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