Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MONOLITHIC POWER SYSTEMS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Contents

	Page
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42)	41
Consolidated Balance Sheets	44
Consolidated Statements of Operations	45
Consolidated Statements of Comprehensive Income	46
Consolidated Statements of Stockholders’ Equity	47
Consolidated Statements of Cash Flows	48
Notes to Consolidated Financial Statements	49

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Monolithic Power Systems, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Monolithic Power Systems, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have 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 issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 25, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

		Inventory Valuation

Description of the Matter		The Company’s inventories totaled $259.4 million as of December 31, 2021, representing 16.4% of total assets. As explained in Note 1 to the consolidated financial statements, the Company values inventories at the lower of standard cost (which approximates actual cost determined on a first-in first-out basis) and estimated net realizable value in each reporting period. Excess and obsolete inventory is written down to its estimated net realizable value if less than cost.

		Auditing management’s estimates for excess and obsolete inventory involved subjective auditor judgment because management’s assessment of whether a write down is required and the measurement of any excess of cost over net realizable value is judgmental and considers a number of qualitative factors that are affected by market and economic conditions outside the Company’s control. In particular, the excess and obsolete inventory calculations are sensitive to significant assumptions, including demand for the Company’s products, which considers adjustments to sales forecasts for specific product considerations, including but not limited to new product launches and expected industry sales growth.

How We Addressed the Matter in Our Audit		We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company's excess and obsolete inventory write-down process. This included controls over management’s assessment of inventory valuation, including the determination of forecasted usage of inventories.

		Our substantive audit procedures included, among others, evaluating the significant assumptions stated above and testing the completeness and accuracy of the underlying data used in management’s excess and obsolete inventory valuation assessment. We evaluated inventory levels compared to forecasted product demand, historical sales and specific product considerations. We also assessed the historical accuracy of management’s estimates and performed sensitivity analyses over the significant assumptions to evaluate the changes in the excess and obsolete inventory estimates that would result from changes in the underlying assumptions.

/s/ Ernst & Young LLP

We have served as the Company's auditor since 2019.

San Jose, California

February 25, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Monolithic Power Systems, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Monolithic Power Systems, Inc.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Monolithic Power Systems, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 25, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

San Jose, California

February 25, 2022

MONOLITHIC POWER SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

	December 31,
	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	189,265	$	334,944
Short-term investments		535,817		260,169
Accounts receivable, net		104,813		66,843
Inventories		259,417		157,062
Other current assets		35,540		22,980
Total current assets		1,124,852		841,998
Property and equipment, net		362,962		281,528
Goodwill		6,571		6,571
Deferred tax assets, net		21,917		18,556
Other long-term assets		69,523		59,838
Total assets	$	1,585,825	$	1,208,491

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	83,027	$	38,169
Accrued compensation and related benefits		62,635		45,840
Other accrued liabilities		81,282		62,960
Total current liabilities		226,944		146,969
Income tax liabilities		47,669		37,062
Other long-term liabilities		67,227		57,873
Total liabilities		341,840		241,904
Commitments and contingencies
Stockholders’ equity:
Common stock and additional paid-in capital: $0.001 par value; shares authorized: 150,000; shares issued and outstanding: 46,256 and 45,267, respectively		803,226		657,701
Retained earnings		424,879		298,746
Accumulated other comprehensive income		15,880		10,140
Total stockholders’ equity		1,243,985		966,587
Total liabilities and stockholders’ equity	$	1,585,825	$	1,208,491

See accompanying notes to consolidated financial statements.

MONOLITHIC POWER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	Year Ended December 31,
	2021		2020		2019
Revenue	$	1,207,798	$	844,452	$	627,921
Cost of revenue		522,339		378,498		281,596
Gross profit		685,459		465,954		346,325
Operating expenses:
Research and development		190,627		137,598		107,757
Selling, general and administrative		226,190		161,670		133,542
Litigation expense, net		6,225		7,804		2,464
Total operating expenses		423,042		307,072		243,763
Operating income		262,417		158,882		102,562
Other income, net		9,802		10,460		10,558
Income before income taxes		272,219		169,342		113,120
Income tax expense		30,196		4,967		4,281
Net income	$	242,023	$	164,375	$	108,839

Net income per share:
Basic	$	5.28	$	3.67	$	2.52
Diluted	$	5.05	$	3.50	$	2.38
Weighted-average shares outstanding:
Basic		45,851		44,840		43,165
Diluted		47,889		47,014		45,763

See accompanying notes to consolidated financial statements.

MONOLITHIC POWER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

	Year Ended December 31,
	2021			2020		2019
Net income	$	242,023		$	164,375	$	108,839
Other comprehensive income, net of tax:
Foreign currency translation adjustments		8,404			14,150		(1,706	)
Change in unrealized gain (loss) on available-for-sale securities, net of tax of $613, $(325) and $(203), respectively		(2,664	)		1,466		1,773
Other comprehensive income, net of tax		5,740			15,616		67
Comprehensive income	$	247,763		$	179,991	$	108,906

See accompanying notes to consolidated financial statements.

MONOLITHIC POWER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)

								Accumulated
	Common Stock and							*Other*			*Total*
	Additional Paid-in Capital				*Retained*			*Comprehensive*			*Stockholders*’
	*Shares*		*Amount*		*Earnings*			*Income (Loss)*			*Equity*
Balance as of January 1, 2019		42,505	$	450,908	$	194,728		$	(5,543	)	$	640,093
Net income		-		-		108,839			-			108,839
Other comprehensive income		-		-		-			67			67
Dividends and dividend equivalents declared ($1.60 per share)		-		-		(74,117	)		-			(74,117	)
Common stock issued under the employee equity incentive plan		1,083		16,650		-			-			16,650
Common stock issued under the employee stock purchase plan		28		3,277		-			-			3,277
Stock-based compensation expense		-		78,682		-			-			78,682
Balance as of December 31, 2019		43,616		549,517		229,450			(5,476	)		773,491
Net income		-		-		164,375			-			164,375
Other comprehensive income		-		-		-			15,616			15,616
Dividends and dividend equivalents declared ($2.00 per share)		-		-		(95,079	)		-			(95,079	)
Common stock issued under the employee equity incentive plan		1,623		18,767		-			-			18,767
Common stock issued under the employee stock purchase plan		28		3,819		-			-			3,819
Stock-based compensation expense		-		85,598		-			-			85,598
Balance as of December 31, 2020		45,267		657,701		298,746			10,140			966,587
Net income		-		-		242,023			-			242,023
Other comprehensive income		-		-		-			5,740			5,740
Dividends and dividend equivalents declared ($2.40 per share)		-		-		(115,890	)		-			(115,890	)
Common stock issued under the employee equity incentive plan		972		17,322		-			-			17,322
Common stock issued under the employee stock purchase plan		17		4,670		-			-			4,670
Stock-based compensation expense		-		123,533		-			-			123,533
Balance as of December 31, 2021		46,256	$	803,226	$	424,879		$	15,880		$	1,243,985

See accompanying notes to consolidated financial statements.

MONOLITHIC POWER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2021			2020			2019
Cash flows from operating activities:
Net income	$	242,023		$	164,375		$	108,839
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		28,699			19,186			14,867
Amortization of premium on available-for-sale securities		4,674			2,979			729
Gain on deferred compensation plan investments		(4,563	)		(4,592	)		(3,806	)
Deferred taxes, net		(2,772	)		(1,627	)		(577	)
Stock-based compensation expense		123,479			85,551			78,699
Other		110			(1,072	)		(259	)
Changes in operating assets and liabilities:
Accounts receivable		(37,976	)		(14,123	)		2,512
Inventories		(102,323	)		(29,503	)		8,865
Other assets		(15,311	)		(3,003	)		(10,204	)
Accounts payable		32,926			10,410			3,048
Accrued compensation and related benefits		16,536			18,524			7,496
Income tax liabilities		11,771			747			(1,355	)
Other accrued liabilities		22,737			19,951			7,449
Net cash provided by operating activities		320,010			267,803			216,303
Cash flows from investing activities:
Purchases of property and equipment		(94,445	)		(55,639	)		(95,806	)
Sales of property and equipment		25			29			9,268
Purchases of short-term investments		(394,886	)		(334,947	)		(212,562	)
Maturities and sales of short-term investments		113,255			357,092			135,801
Purchases of long-term investments		-			(3,316	)		-
Sales of long-term investments		500			300			250
Contributions to deferred compensation plan, net		(2,542	)		(2,696	)		(3,082	)
Purchases of intangible assets		(793	)		-			(981	)
Net cash used in investing activities		(378,886	)		(39,177	)		(167,112	)
Cash flows from financing activities:
Property and equipment purchased on extended payment terms		(2,834	)		(5,357	)		(683	)
Proceeds from common stock issued under the employee equity incentive plan		17,322			18,767			16,650
Proceeds from common stock issued under the employee stock purchase plan		4,670			3,819			3,277
Dividends and dividend equivalents paid		(109,364	)		(88,786	)		(67,294	)
Net cash used in financing activities		(90,206	)		(71,557	)		(48,050	)
Effect of change in exchange rates		3,400			4,926			(883	)
Net increase (decrease) in cash, cash equivalents and restricted cash		(145,682	)		161,995			258
Cash, cash equivalents and restricted cash, beginning of period		335,071			173,076			172,818
Cash, cash equivalents and restricted cash, end of period	$	189,389		$	335,071		$	173,076
Supplemental disclosures for cash flow information:
Cash paid for taxes	$	21,148		$	1,405		$	10,700
Non-cash investing and financing activities:
Liability accrued for property and equipment purchases	$	17,877		$	7,839		$	7,803
Liability accrued for dividends and dividend equivalents	$	33,059		$	27,507		$	21,955

See accompanying notes to consolidated financial statements.

MONOLITHIC POWER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Monolithic Power Systems, Inc. (the “Company”) was incorporated in the State of California on August 22, 1997. On November 17, 2004, the Company was reincorporated in the State of Delaware. MPS designs, develops and markets high-performance, semiconductor-based power electronics solutions. MPS’s mission is to provide innovative power solutions in the computing and storage, automotive, industrial, communications and consumer markets.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions used in these consolidated financial statements primarily include those related to revenue recognition, inventory valuation, valuation of share-based awards, contingencies and income tax valuation allowances. Actual results could differ from these estimates and assumptions, and any such differences may be material to the Company’s consolidated financial statements.

The COVID-19 pandemic did not materially and adversely impact the Company's overall operating results or business operations for the years ended December 31, 2021 and 2020_._ As of the date of issuance of these consolidated financial statements, the Company is not aware of any specific event or circumstance related to the pandemic that would require management to update the significant estimates and assumptions used in the preparation of the consolidated financial statements_._ As new events continue to evolve and additional information becomes available, any changes to these estimates and assumptions will be recognized in the consolidated financial statements as soon as they become known.

Certain Significant Risks and Uncertainties

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term and long-term investments and accounts receivable. The Company’s cash equivalents include short-term, highly liquid investments purchased with remaining maturities at the date of purchase of three months or less. The Company’s short-term investments may consist of corporate debt securities, certificates of deposit, commercial paper and government agency bonds and treasuries, and the long-term investments consist of government-backed student loan auction-rate securities and non-marketable equity investments.

The Company does not require its customers to provide collateral to support accounts receivable. The Company assesses the collectability by reviewing accounts receivable on a customer-by-customer basis. To manage credit risk, management performs ongoing credit evaluations of the customers’ financial condition, monitors payment performance, and assesses current economic conditions, as well as reasonable and supportable forecasts of future economic conditions, that may affect collectability of the outstanding receivables. For certain high-risk customers, the Company requires standby letters of credit or advance payment prior to shipments of goods.

The Company participates in the dynamic high technology industry and believes that changes in any of the following areas could have a material adverse effect on its future financial position, results of operations or cash flows: advances and trends in new technologies and industry standards; competitive pressures in the form of new products or price reductions on current products; changes in product mix; changes in the overall demand for products offered by the Company; changes in third-party manufacturers or the terms of such arrangements; changes in key suppliers; changes in certain strategic relationships or customer relationships; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; fluctuations in foreign currency exchange rates; risk associated with changes in government policies and regulations on trade restrictions and corporate taxes; availability of necessary components or sub-assemblies; availability of foundry capacity; ability to integrate acquired companies; and the Company’s ability to attract and retain employees necessary to support its growth.

Foreign Currency

In general, the functional currency of the Company’s international subsidiaries is the local currency. The primary subsidiaries are located in China, Taiwan and Europe, which utilize the Renminbi, the New Taiwan Dollar and the Euro as their currencies, respectively. Accordingly, assets and liabilities of the foreign subsidiaries are translated using exchange rates in effect at the end of the period. Revenue and costs are translated using average exchange rates for the period. The resulting translation adjustments are recorded in accumulated other comprehensive income on the Consolidated Balance Sheets.

In addition, the Company incurs foreign currency exchange gains or losses related to certain transactions, including intercompany transactions between the U.S. and its foreign subsidiaries, that are denominated in a currency other than the functional currency. In connection with the remeasurement and settlement of the balances, the Company recorded foreign currency exchange losses of $0.7 million, $1.4 million and $0.3 million for the years ended December 31, 2021, 2020 and 2019, respectively, which were reported in other income, net, on the Consolidated Statements of Operations.

For intercompany transactions that are of a long-term investment nature, the Company records the foreign currency exchange gains and losses in accumulated other comprehensive income on the Consolidated Balance Sheets.

Cash Equivalents and Debt Investments

The Company classifies all highly liquid investments with stated maturities of three months or less from date of purchase as cash equivalents. The Company may classify investments with maturities beyond one year as short-term based on the nature of the investments and their availability for use in current operations.

Cash equivalents are stated at cost, which approximates fair market value. The Company’s short-term and long-term debt investments are classified as available-for-sale securities and are stated at their fair market value, with unrealized gains and losses recorded in accumulated other comprehensive income on the Consolidated Balance Sheets. Premiums and discounts on debt investments are generally amortized or accreted over the life of the related available-for-sale securities. Interest income is recognized when earned. The cost of investments sold is determined on a specific identification method.

Available-for-sale investments are subject to impairment reviews when the fair value is below the amortized cost basis. If the Company determines that the decline in fair value below the amortized cost basis is due to credit-related factors, the impairment is recognized as an allowance on the Consolidated Balance Sheets with a corresponding adjustment to earnings. An impairment that is not credit-related is recognized in accumulated other comprehensive income on the Consolidated Balance Sheets. If the Company intends to sell the impaired investments, or more likely than not will be required to sell such investments before recovering the amortized cost basis, the entire impairment amount is recognized in earnings with a corresponding adjustment to the amortized cost basis.

Equity Investments

Equity investments in privately held companies without readily determinable fair values are accounted for under the measurement alternative method, provided that the Company does not have the ability to exercise significant influence or control over the investees. Under this method, the Company measures the investments at cost, less any impairment, and adjusts the carrying value of the investments to fair value resulting from observable transactions for identical or similar investments of the same issuer. The Company records the investments in other long-term assets on the Consolidated Balance Sheets, and gains and losses on the investments are recognized in other income, net, on the Consolidated Statements of Operations.

The Company monitors its non-marketable equity investments for impairment indicators, such as negative changes in industry and market conditions, financial performance, business prospects, and other relevant events and factors. If indicators exist for a security and the fair value is below the carrying amount, the Company writes down the security to fair value.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value, the Company considers the principal or most advantageous market in which the Company would transact, as well as assumptions that market participants would use when pricing the assets or liabilities. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

	●	Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

	●	Level 2 - Inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be derived from observable market data.

	●	Level 3 - Significant unobservable inputs to the valuation methodology and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

Inventories

Inventories are stated at the lower of standard cost (which approximates actual cost determined on a first-in first-out basis) and estimated net realizable value. The Company writes down excess and obsolete inventories based on their age and forecasted demand, which includes estimates taking into consideration the Company’s revenue forecast, outlook on market and economic conditions, technology changes, new product introductions and changes in strategic direction. Actual demand may differ from forecasted demand, and such differences may have a material effect on recorded inventory values. When the Company records a write-down on inventory, it establishes a new, lower cost basis for that inventory, and subsequent changes in facts and circumstances will not result in the restoration or increase in that newly established cost basis.

Property and Equipment

Property and equipment are stated at cost. Depreciation commences when an asset is placed in service and available for its intended use. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Buildings and building improvements have estimated useful lives of 20 to 40 years. Leasehold improvements are amortized over the shorter of the estimated useful lives or the lease period. Production equipment and software have estimated useful lives of three to eight years. Transportation equipment has estimated useful lives of 5 to 20 years. Furniture and fixtures have estimated useful lives of three to five years. Land is not depreciated.

Impairment of Long-Lived Assets

The Company evaluates its long-lived assets other than goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Such impairment loss would be measured as the difference between the carrying amount of the asset and its fair value based on the present value of estimated future cash flows. The Company did not record material impairments in any of the periods presented.

Goodwill

Goodwill represents the excess of the fair value of purchase consideration over the fair value of net tangible and identified intangible assets as of the date of acquisition. Goodwill is not amortized.

The Company tests goodwill for impairment at least annually in the fourth quarter of each year, or whenever events or changes in circumstances indicate that goodwill may be impaired. The Company has elected to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the Company determines that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, then a quantitative goodwill impairment test is performed to measure the impairment loss. No impairment of goodwill has been identified in any of the periods presented.

Deferred Compensation Plan

The Company has a non-qualified, unfunded deferred compensation plan, which provides certain key employees, including executive officers, with the ability to defer the receipt of compensation in order to accumulate funds for retirement on a tax deferred basis. The Company does not make contributions to the plan or guarantee returns on the investments. The Company is responsible for the plan’s administrative expenses. Participants’ deferrals and investment gains and losses remain as the Company’s liabilities and the underlying assets are subject to claims of general creditors.

The liabilities for compensation deferred under the plan are recorded at fair value in each reporting period. Changes in the fair value of the liabilities are included in operating expense on the Consolidated Statements of Operations. The Company manages the risk of changes in the fair value of the liabilities by electing to match the liabilities with investments in corporate-owned life insurance policies, mutual funds and money market funds that offset a substantial portion of the exposure. The investments are recorded at the cash surrender value of the corporate-owned life insurance policies, and at the fair value of the mutual funds and money market funds, which are classified as trading securities. Changes in the cash surrender value of the corporate-owned life insurance policies and the fair value of mutual fund and money market fund investments are included in other income, net, on the Consolidated Statements of Operations. The following table summarizes the deferred compensation plan balances on the Consolidated Balance Sheets (in thousands):

	December 31,
	2021		2020
Deferred compensation plan asset components:
Cash surrender value of corporate-owned life insurance policies	$	21,386	$	19,222
Fair value of mutual funds and money market funds		31,786		26,924
Total	$	53,172	$	46,146

Deferred compensation plan assets reported in:
Other long-term assets	$	53,172	$	46,146

Deferred compensation plan liabilities reported in:
Accrued compensation and related benefits (short-term)	$	282	$	155
Other long-term liabilities		55,489		48,280
Total	$	55,771	$	48,435

Revenue Recognition

The Company recognizes revenue when it transfers control of promised goods or services to its customers in an amount that reflects the consideration to which it expects to be entitled to in exchange for those goods or services. See Note 2 for further discussion.

Research and Development

Costs incurred in research and development are expensed as incurred.

Warranty Reserve

The Company generally provides one to two-year warranties against defects in materials and workmanship and will repair the products, provide replacements at no charge to customers or issue a refund. As they are considered assurance-type warranties, the Company does not account for them as separate performance obligations. Warranty reserve requirements are generally based on a specific assessment of the products sold with warranties when a customer asserts a claim for warranty or a product defect.

Leases

The Company determines if an arrangement is a lease at inception. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term. ROU assets also include any initial direct costs incurred and prepaid lease payments, less lease incentives received. Because the implicit rate in each lease is not readily determinable, the Company uses its estimated incremental borrowing rate to determine the present value of the remaining lease payment. The Company recognizes operating lease costs on a straight-line basis over the lease term.

The Company does not record short-term leases with a term of 12 months or less at the commencement date on the Consolidated Balance Sheets. For lease arrangements that contain lease and non-lease components, the Company accounts for them as single lease components.

For lease arrangements where the Company is the lessor, the Company recognizes lease income from operating leases on a straight-line basis over the lease term.

Stock-Based Compensation

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The fair value of RSUs with only service conditions is determined based on the grant date stock price. The fair value of all other awards is determined based on the following valuation methods:

Type of Awards		Valuation Method
RSUs with performance conditions		Black-Scholes model
RSUs with market conditions		Monte Carlo simulation model
RSUs with both performance and market conditions		Monte Carlo simulation model
Shares issued under the employee stock purchase plan (“ESPP”)		Black-Scholes model

Compensation expense related to awards with service conditions is recorded on a straight-line basis over the requisite service period. Compensation expense related to awards subject to performance or market conditions is recognized over the requisite service period for each separately vesting tranche. For awards with only market conditions, compensation expense is not reversed if the market conditions are not satisfied. For awards with only performance conditions, as well as awards containing both market and performance conditions, the Company recognizes compensation expense when it becomes probable that the performance goals will be achieved. Management performs the probability assessment on a quarterly basis by reviewing external factors, such as macroeconomic conditions and the analog industry revenue forecasts, and internal factors, such as the Company’s business and operational objectives and revenue forecasts. Changes in the probability assessment of achievement of the performance conditions are accounted for in the period of change by recording a cumulative catch-up adjustment as if the new estimate had been applied since the service inception date. Any previously recognized compensation expense is reversed if the performance conditions are not expected to be satisfied as a result of management’s assessment.

The Company accounts for forfeitures of equity awards when they occur.

Accounting for Income Taxes

The Company recognizes federal, state and foreign current tax liabilities or assets based on its estimate of taxes payable or refundable in the current fiscal year by tax jurisdiction. The Company also recognizes federal, state and foreign deferred tax assets or liabilities for its estimate of future tax effects attributable to temporary differences and carryforwards. The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized.

The Company’s calculation of current and deferred tax assets and liabilities is based on certain estimates and judgments and involves dealing with uncertainties in the application of complex tax laws. The Company’s estimates of current and deferred tax assets and liabilities may change based, in part, on added certainty, finality or uncertainty to an anticipated outcome, changes in accounting or tax laws in the U.S. or foreign jurisdictions where the Company operates, or changes in other facts or circumstances. In addition, the Company recognizes liabilities for potential U.S. and foreign income tax for uncertain income tax positions taken on its tax returns if it has less than a 50% likelihood of being sustained. If the Company determines that payment of these amounts is unnecessary or if the recorded tax liability is less than its current assessment, the Company may be required to recognize an income tax benefit or additional income tax expense in its financial statements in the period such determination is made. The Company has calculated its uncertain tax positions which were attributable to certain estimates and judgments.

Litigation and Contingencies

The Company is a party to actions and proceedings in the ordinary course of business, including potential litigation regarding its stockholders and its intellectual property, challenges to the enforceability or validity of its intellectual property, claims that the Company’s products infringe on the intellectual property rights of others, and employment matters. The pending proceedings involve complex questions of fact and law and will require the expenditure of significant funds and the diversion of other resources to prosecute and defend. In addition, from time to time, the Company becomes aware that it is subject to other contingent liabilities. When this occurs, the Company will evaluate the appropriate accounting for the potential contingent liabilities to determine whether a contingent liability should be recorded. In making this determination, management may, depending on the nature of the matter, consult with internal and external legal counsel and technical experts. Based on the facts and circumstances in each matter, the Company uses its judgment to determine whether it is probable that a contingent loss has occurred and whether the amount of such loss can be estimated. If the Company determines a loss is probable and estimable, the Company records a contingent loss. In determining the amount of a contingent loss, the Company takes into account advice received from experts for each specific matter regarding the status of legal proceedings, settlement negotiations, prior case history and other factors. Should the judgments and estimates made by management need to be adjusted as additional information becomes available, the Company may need to record additional contingent losses. Alternatively, if the judgments and estimates made by management are adjusted, for example, if a particular contingent loss does not occur, the contingent loss recorded would be reversed.

Litigation expense, net, recorded on the Consolidated Statements of Operations includes primarily patent infringement litigation and other business matters. The Company records litigation costs in the period in which they are incurred. Proceeds resulting from settlement of litigation or favorable judgments are recorded as a reduction against litigation expense, net.

Net Income per Share

Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution that would occur if outstanding securities or other contracts to issue common stock were exercised or converted into common shares, and calculated using the treasury stock method. Contingently issuable shares, including equity awards with performance conditions or market conditions, are considered outstanding common shares and included in the basic net income per share as of the date that all necessary conditions to earn the awards have been satisfied. Prior to the end of the contingency period, the number of contingently issuable shares included in the diluted net income per share is based on the number of shares, if any, that would be issuable under the terms of the arrangement at the end of the reporting period.

The Company’s RSUs contain forfeitable rights to receive cash dividend equivalents, which are accumulated and paid to the employees when the underlying RSUs vest. Dividend equivalents accumulated on the underlying RSUs are forfeited if the employees do not fulfill the requisite service requirement and, as a result, the awards do not vest. Accordingly, these awards are not treated as participating securities in the net income per share calculation.

Comprehensive Income

Comprehensive income represents the change in the Company’s net assets during the period from non-owner sources. Accumulated other comprehensive income presented on the Consolidated Balance Sheets primarily consists of unrealized gains or losses related to available-for-sale investments and foreign currency translation adjustments.

Recently Adopted Accounting Pronouncements

In December 2021, the SEC issued Staff Accounting Bulletin (“SAB”) No. 120, which provides guidance on the measurement and disclosure of share-based payment arrangements that are entered into when an entity is in possession of material non-public information, to which the market is likely to react positively when such information is announced. The SAB became effective immediately and is applied prospectively. The Company adopted the guidance in the fourth quarter of 2021 and the adoption did not have an impact on its consolidated financial statements.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes. The standard became effective for annual reporting periods beginning after December 15, 2020. The standard is generally applied prospectively, with certain exceptions. The Company adopted the standard in the first quarter of 2021 and the adoption did not have a material impact on its consolidated financial statements.

2. REVENUE RECOGNITION

Revenue from Product Sales

The Company generates revenue primarily from product sales, which include assembled and tested ICs, as well as dies in wafer form. These product sales accounted for 97%, 97% and 99% of the Company’s total revenue for the years ended December 31, 2021, 2020 and 2019_,_ respectively. The remaining revenue primarily includes royalty revenue from licensing arrangements and revenue from wafer testing services performed for third parties, which have not been significant for the periods presented. See Note 16 for the disaggregation of the Company’s revenue by geographic regions and by product families.

The Company sells its products primarily through third-party distributors, value-added resellers, OEMs, ODMs and EMS providers. For the years ended December 31, 2021, 2020 and 2019_,_ 88%, 81% and 83%, respectively, of the Company’s product sales were made through distribution arrangements. These distribution arrangements contain enforceable rights and obligations specific to those distributors and not the end customers. Purchase orders, which are generally governed by sales agreements or the Company's standard terms of sale, set the final terms for unit price, quantity, shipping and payment agreed by both parties. The Company considers purchase orders to be the contracts with customers. The unit price as stated on the purchase orders is considered the observable, stand-alone selling price for the arrangements.

The Company recognizes revenue when it satisfies a performance obligation by transferring control of the promised goods or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company excludes taxes assessed by government authorities, such as sales taxes, from revenue.

Product sales consist of a single performance obligation that the Company satisfies at a point in time. The Company recognizes product revenue from distributors and direct end customers when the following events have occurred: (a) the Company has transferred physical possession of the products, (b) the Company has a present right to payment, (c) the customer has legal title to the products, and (d) the customer bears significant risks and rewards of ownership of the products. In accordance with the shipping terms specified in the contracts, these criteria are generally met when the products are shipped from the Company’s facilities (such as the “Ex Works” shipping term) or delivered to the customers’ locations (such as the “Delivered Duty Paid” shipping term).

Under certain consignment agreements, revenue is not recognized when the products are shipped and delivered to be held at customers’ designated locations because the Company continues to control the products and retain ownership, and the customers do not have an unconditional obligation to pay. The Company recognizes revenue when the customers consume the products from the consigned inventory locations or, in some cases, after a 60-day period from the delivery date has passed, at which time control transfers to the customers and the Company invoices them for payment.

Variable Consideration

The Company accounts for price adjustment and stock rotation rights as variable consideration that reduces the transaction price and recognizes that reduction in the same period the associated revenue is recognized. Four U.S.-based distributors have price adjustment rights when they sell the Company’s products to their end customers at a price that is lower than the distribution price invoiced by the Company. When the Company receives claims from the distributors that products have been sold to the end customers at the lower price, the Company issues the distributors credit memos for the price adjustments. The Company estimates the price adjustments using the expected value method based on an analysis of historical claims, at both the distributor and product level, as well as an assessment of any known trends of product sales mix. Other U.S. distributors and non-U.S. distributors do not have price adjustment rights. The Company records a credit against accounts receivable for the estimated price adjustments, with a corresponding reduction to revenue.

Certain distributors have limited stock rotation rights that permit the return of a small percentage of the previous six months’ purchases in accordance with the contract terms. The Company estimates the stock rotation returns using the expected value method based on an analysis of historical returns, and the current level of inventory in the distribution channel. The Company records a liability for the stock rotation reserve, with a corresponding reduction to revenue. In addition, the Company recognizes an asset for product returns which represents the right to recover products from the customers related to stock rotations, with a corresponding reduction to cost of revenue.

Contract Balances

Accounts Receivable:

The Company records a receivable when it has an unconditional right to receive consideration after the performance obligations are satisfied. As of December 31, 2021 and 2020_,_ accounts receivable totaled $104.8 million and $66.8 million, respectively. The Company's accounts receivable are short-term, with standard payment terms generally ranging from 30 to 90 days. The Company did not recognize any write-offs of accounts receivable or record any allowance for credit losses for the periods presented.

Contract Liabilities:

For certain customers located in Asia, the Company requires cash payments two weeks before the products are scheduled to be shipped to the customers. The Company records these payments received in advance of performance as customer prepayments within current accrued liabilities. As of December 31, 2021 and 2020_,_ customer prepayments totaled $4.3 million and $7.2 million, respectively. The decrease in the customer prepayment balance for the year ended December 31, 2021 resulted from a decrease in unfulfilled customer orders for which the Company has received payments. For the year ended December 31, 2021_,_ the Company recognized $7.2 million of revenue that was included in the customer prepayment balance as of December 31, 2020_._

Practical Expedients

The Company has elected the practical expedient to expense sales commissions as incurred because the amortization period would have been one year or less.

The Company’s standard payment terms generally require customers to pay 30 to 90 days after the Company satisfies the performance obligations. For those customers who are required to pay in advance, the Company satisfies the performance obligations generally within a quarter. The Company has elected not to determine whether contracts with customers contain significant financing components.

The Company’s unsatisfied performance obligations primarily include products held in consignment arrangements and customer purchase orders for products that the Company has not yet shipped. Because the Company expects to fulfill these performance obligations within one year, the Company has elected not to disclose the amount of these remaining performance obligations.

3. CASH, CASH EQUIVALENTS, INVESTMENTS AND RESTRICTED CASH

The following is a summary of the Company’s cash, cash equivalents and debt investments (in thousands):

	December 31,
	2021		2020
Cash	$	174,937	$	300,609
Money market funds		14,328		34,335
Certificates of deposit		141,478		-
Corporate debt securities		386,883		249,671
Commercial paper		-		2,999
U.S. treasuries and government agency bonds		7,456		7,499
Auction-rate securities backed by student-loan notes		2,401		2,861
Total	$	727,483	$	597,974

	December 31,
	2021		2020
Reported as:
Cash and cash equivalents	$	189,265	$	334,944
Short-term investments		535,817		260,169
Investment within other long-term assets		2,401		2,861
Total	$	727,483	$	597,974

The following table summarizes the contractual maturities of the short-term and long-term available-for-sale investments as of _December 31, 2021 (_in thousands):

	Amortized Cost		Fair Value
Due in less than 1 year	$	123,204	$	123,381
Due in 1 - 5 years		413,850		412,436
Due in greater than 5 years		2,520		2,401
Total	$	539,574	$	538,218

For the year ended December 31, 2020, the Company recognized gross realized gains of $1.1 million on the sale of investments. Gross realized gains and losses were not material for the other periods presented.

The following tables summarize the unrealized gain and loss positions related to the available-for sale investments (in thousands):

	December 31, 2021
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Money market funds	$	14,328	$	-	$	-		$	14,328
Certificates of deposit		141,478		-		-			141,478
Corporate debt securities		388,081		570		(1,768	)		386,883
U.S. treasuries and government agency bonds		7,495		-		(39	)		7,456
Auction-rate securities backed by student-loan notes		2,520		-		(119	)		2,401
Total	$	553,902	$	570	$	(1,926	)	$	552,546

	December 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Money market funds	$	34,335	$	-	$	-		$	34,335
Corporate debt securities		247,591		2,177		(97	)		249,671
Commercial paper		2,999		-		-			2,999
U.S. treasuries and government agency bonds		7,499		2		(2	)		7,499
Auction-rate securities backed by student-loan notes		3,020		-		(159	)		2,861
Total	$	295,444	$	2,179	$	(258	)	$	297,365

The following tables present information about the available-for-sale investments that had been in a continuous unrealized loss position for less than 12 months and for greater than 12 months (in thousands):

	December 31, 2021
	Less than 12 Months					Greater than 12 Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate debt securities	$	285,954	$	(1,765	)	$	4,760	$	(3	)	$	290,714	$	(1,768	)
U.S. treasuries and government agency bonds		7,456		(39	)		-		-			7,456		(39	)
Auction-rate securities backed by student-loan notes		-		-			2,401		(119	)		2,401		(119	)
Total	$	293,410	$	(1,804	)	$	7,161	$	(122	)	$	300,571	$	(1,926	)

	December 31, 2020
	Less than 12 Months					Greater than 12 Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate debt securities	$	59,144	$	(97	)	$	-	$	-		$	59,144	$	(97	)
U.S. treasuries and government agency bonds		5,998		(2	)		-		-			5,998		(2	)
Auction-rate securities backed by student-loan notes		-		-			2,861		(159	)		2,861		(159	)
Total	$	65,142	$	(99	)	$	2,861	$	(159	)	$	68,003	$	(258	)

An impairment exists when the fair value of an investment is less than its amortized cost basis. As of December 31, 2021 and 2020, the Company did not consider the impairment of its investments to be a result of credit losses. The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. When evaluating a debt security for impairment, management reviews factors such as the Company’s intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its amortized cost basis, the extent to which the fair value of the security is less than its cost, the financial condition of the issuer and the credit quality of the investment.

The Company’s auction-rate securities are backed by pools of student loans supported by guarantees by the U.S. Department of Education. The underlying maturities of these securities are up to 24 years. The Company has received all scheduled interest payments on a timely basis pursuant to the terms and conditions of the securities. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities, before recovery of its amortized cost basis. To date, the Company has redeemed $40.8 million, or 94% of the original portfolio in these auction-rate securities, at par without any realized losses.

Non-Marketable Equity Investment

In November 2020, the Company made an equity investment in a privately held Swiss company (the “Investee”) that is accounted for under the measurement alternative. One member of the Company’s Board of Directors is an executive officer of a company that has a commercial relationship with the Investee. In addition, the Company’s Chief Executive Officer has a personal investment in the Investee. As of December 31, 2021 and 2020, the Company’s investment in the Investee, which is denominated in CHF, had a carrying value of $3.3 million and $3.4 million, respectively. The Company did not record any impairment or adjustments resulting from observable price changes for the years ended December 31, 2021 and 2020.

Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Consolidated Balance Sheets to the amounts reported on the Consolidated Statements of Cash Flows (in thousands):

	December 31,
	2021		2020
Cash and cash equivalents	$	189,265	$	334,944
Restricted cash included in other long-term assets		124		127
Total cash, cash equivalents and restricted cash reported on the Consolidated Statements of Cash Flows	$	189,389	$	335,071

As of December 31, 2021 and 2020, restricted cash included a security deposit that is set aside in a bank account and cannot be withdrawn by the Company under the terms of a lease agreement. The restriction will end upon the expiration of the lease.

4. FAIR VALUE MEASUREMENTS

The following table details the fair value of the financial assets measured on a recurring basis (in thousands):

	December 31, 2021
	Total		Level 1		Level 2		Level 3
Money market funds	$	14,328	$	14,328	$	-	$	-
Certificates of deposit		141,478		-		141,478		-
Corporate debt securities		386,883		-		386,883		-
U.S. treasuries and government agency bonds		7,456		-		7,456		-
Auction-rate securities backed by student-loan notes		2,401		-		-		2,401
Mutual funds and money market funds under deferred compensation plan		31,786		31,786		-		-
Total	$	584,332	$	46,114	$	535,817	$	2,401

	December 31, 2020
	Total		Level 1		Level 2		Level 3
Money market funds	$	34,335	$	34,335	$	-	$	-
Corporate debt securities		249,671		-		249,671		-
Commercial paper		2,999		-		2,999		-
U.S. treasuries and government agency bonds		7,499		-		7,499		-
Auction-rate securities backed by student-loan notes		2,861		-		-		2,861
Mutual funds and money market funds under deferred compensation plan		26,924		26,924		-		-
Total	$	324,289	$	61,259	$	260,169	$	2,861

●	Level 1 —includes instruments with quoted prices in active markets for identical assets.

●

Level 2 —includes instruments for which the valuations are based upon quoted market prices in active markets involving similar assets or inputs other than quoted prices that are observable for the assets. The market inputs used to value these instruments generally consist of market yields, recently executed transactions, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Pricing sources may include industry standard data providers, security master files from large financial institutions, and other third-party sources used to determine a daily market value.

●	Level 3 —includes instruments for which the valuations are based on inputs that are unobservable and significant to the overall fair value measurement.

Redemptions and changes in the fair value of the auction-rate securities classified as Level 3 assets were not material for the periods presented.

5. BALANCE SHEET COMPONENTS

Inventories

Inventories consist of the following (in thousands):

	December 31,
	2021		2020
Raw materials	$	29,478	$	25,503
Work in process		130,029		77,100
Finished goods		99,910		54,459
Total	$	259,417	$	157,062

Other Current Assets

Other current assets consist of the following (in thousands):

	December 31,
	2021		2020
RSU tax withholding proceeds receivable	$	16,224	$	12,504
Prepaid expense		9,526		5,032
Accrued interest receivable		5,440		1,914
Other		4,350		3,530
Total	$	35,540	$	22,980

Property and Equipment, Net

Property and equipment, net, consist of the following (in thousands):

	December 31,
	2021			2020
Land	$	38,872		$	35,432
Production equipment and software		233,398			163,317
Buildings and improvements		202,901			142,869
Transportation equipment		28,608			18,396
Leasehold improvements		8,990			8,705
Furniture and fixtures		10,738			6,383
Construction in progress		11,333			49,575
Property and equipment, gross		534,840			424,677
Less: accumulated depreciation and amortization		(171,878	)		(143,149	)
Total	$	362,962		$	281,528

Depreciation and amortization expense on property and equipment was $28.4 million, $18.9 million and $14.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Other Long-Term Assets

Other long-term assets consist of the following (in thousands):

	December 31,
	2021		2020
Deferred compensation plan assets	$	53,172	$	46,146
Prepaid expense		2,311		2,340
Other		14,040		11,352
Total	$	69,523	$	59,838

Other Accrued Liabilities

Other accrued liabilities consist of the following (in thousands):

	December 31,
	2021		2020
Dividends and dividend equivalents	$	32,364	$	26,435
Warranty		20,989		6,895
Stock rotation and sales returns		5,748		6,005
Customer prepayments		4,300		7,238
Other		17,881		16,387
Total	$	81,282	$	62,960

Other Long-Term Liabilities

Other long-term liabilities consist of the following (in thousands):

	December 31,
	2021		2020
Deferred compensation plan liabilities	$	55,489	$	48,280
Dividend equivalents		8,470		7,871
Other		3,268		1,722
Total	$	67,227	$	57,873

6. REAL ESTATE TRANSACTION

In March 2019, the Company completed the purchase of an office building and land located in Kirkland, Washington for $52.9 million in cash. The property also had in-place leases for a portion of the building which were assumed by the Company. The Company accounted for the purchase as an asset acquisition and capitalized $0.4 million of transaction costs.

The purchase price allocation was as follows (in thousands):

Building	$	30,078
Land		22,254
In-place leases		981
Total	$	53,313

The fair value of the building was determined based on the income approach, which considered the discounted cash flows and direct capitalization analysis, and the sales comparison approach. The fair value of land was determined based on the sales comparison approach. The fair value of the in-place leases was determined primarily based on the analysis of the economic benefits of certain cost savings attributable to the leases.

The building is depreciated over a useful life of 40 years and the in-place leases are amortized over the average remaining lease terms of 3.5 years.

7. LEASES

Lessee

The Company has operating leases primarily for administrative and sales and marketing offices, manufacturing operations and research and development facilities, employee housing units and certain equipment. These leases have remaining lease terms from less than a year to four years. Some of these leases include options to renew the lease term for up to two years or on a month-to-month basis. The Company does not have finance lease arrangements.

The following table summarizes the balances of operating lease ROU assets and liabilities (in thousands):

		December 31,
	Financial Statement Line Item	2021		2020
Operating lease ROU assets	Other long-term assets	$	6,297	$	3,719

Operating lease liabilities	Other accrued liabilities	$	2,539	$	1,406
	Other long-term liabilities	$	3,268	$	1,693

The following tables summarize certain information related to the leases (in thousands, except percentages):

	Year Ended December 31,
	2021		2020		2019
Lease costs:
Operating lease costs	$	2,454	$	1,488	$	1,509
Other		740		300		465
Total lease costs	$	3,194	$	1,788	$	1,974

	Year Ended December 31,
	2021		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,315	$	1,526	$	1,364
ROU assets obtained in exchange for new operating lease liabilities (1)	$	5,195	$	2,181	$	3,667

	December 31,
	2021			2020
Weighted-average remaining lease term (in years)		2.8			2.7
Weighted-average discount rate		2.0	%		2.7	%

(1)	For the year ended December 31, 2019_,_ the amount includes $2.3 million for operating leases existing on January 1, 2019, the adoption date of ASU No. 2016-02, Leases (Topic 842).

As of December 31, 2021, the maturities of the lease liabilities were as follows (in thousands):

2022	$	2,630
2023		1,724
2024		956
2025		656
2026		8
Total remaining lease payments		5,974
Less: imputed interest		(167	)
Total lease liabilities	$	5,807

As of December 31, 2021, the Company had no operating leases that have not yet commenced.

Lessor

The Company owns certain office buildings and leases a portion of these properties to third parties under arrangements that are classified as operating leases. These leases have remaining lease terms ranging from less than one year to four years. Some of these leases include options to renew the lease term for up to five years.

Income related to lease payments was $2.2 million, $1.9 million and $1.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021_,_ future income related to lease payments was as follows (in thousands):

2022	$	2,255
2023		1,582
2024		617
2025		109
2026		21
Total	$	4,584

8. STOCK-BASED COMPENSATION

2014 Equity Incentive Plan

In April 2013_,_ the Board of Directors adopted the 2014 Equity Incentive Plan (the “2014 Plan”), which the Company's stockholders approved in June 2013_._ In October 2014_,_ the Board of Directors approved certain amendments to the 2014 Plan. The amended 2014 Plan became effective on November 13, 2014 and provided for the issuance of up to 5.5 million shares. In April 2020_,_ the Board of Directors further amended and restated the amended 2014 Plan (the “Amended and Restated 2014 Plan”), which the Company's stockholders approved in June 2020_._ The Amended and Restated 2014 Plan became effective on June 11, 2020 and provides for the issuance of up to 10.5 million shares. The Amended and Restated 2014 Plan will expire on June 11, 2030_._ As of December 31, 2021_,_ 5.6 million shares remained available for future issuance under the Amended and Restated 2014 Plan.

Stock-Based Compensation Expense

The Company recognized stock-based compensation expense as follows (in thousands):

	Year Ended December 31,
	2021		2020		2019
Cost of revenue	$	3,543	$	2,592	$	2,409
Research and development		26,030		20,033		19,584
Selling, general and administrative		93,906		62,926		56,706
Total stock-based compensation expense	$	123,479	$	85,551	$	78,699
Tax benefit related to stock-based compensation (1)	$	1,760	$	1,855	$	2,754

(1) Amount reflects the tax benefit related to stock-based compensation recorded for equity awards that are expected to generate tax deductions when they vest in future periods. Equity awards granted to the Company’s executive officers are subject to the tax deduction limitations set by Section 162(m) of the Internal Revenue Code (“IRC”).

RSUs

The Company’s RSUs include time-based RSUs, RSUs with performance conditions (“PSUs”), RSUs with market conditions (“MSUs”), and RSUs with both market and performance conditions (“MPSUs”). Vesting of awards with performance conditions or market conditions is subject to the achievement of pre-determined performance goals and the approval of such achievement by the Compensation Committee of the Board of Directors (the “Compensation Committee”). All awards also include service conditions which require continued employment with the Company.

A summary of RSU activity is presented in the table below (in thousands, except per-share amounts):

	Time-Based RSUs					PSUs and MPSUs					MSUs					Total
	Number of Shares			Weighted-Average Grant Date Fair Value Per Share		Number of Shares			Weighted-Average Grant Date Fair Value Per Share		Number of Shares			Weighted-Average Grant Date Fair Value Per Share		Number of Shares			Weighted-Average Grant Date Fair Value Per Share
Outstanding at January 1, 2019		240		$	95.38		2,174		$	61.61		2,219		$	35.69		4,633		$	50.94
Granted		52		$	141.32		512	(1)	$	99.88		-		$	-		564		$	103.68
Vested		(103	)	$	81.53		(656	)	$	53.72		(324	)	$	23.57		(1,083	)	$	47.34
Forfeited		(9	)	$	117.31		(43	)	$	42.72		(9	)	$	68.48		(61	)	$	57.01
Outstanding at December 31, 2019		180		$	115.45		1,987		$	74.50		1,886		$	37.63		4,053		$	59.16
Granted		76		$	189.28		627	(1)	$	173.40		-		$	-		703		$	175.12
Vested		(86	)	$	110.67		(1,213	)	$	59.03		(324	)	$	23.57		(1,623	)	$	54.70
Forfeited		(9	)	$	138.34		(11	)	$	84.48		(8	)	$	68.48		(28	)	$	96.35
Outstanding at December 31, 2020		161		$	151.62		1,390		$	132.60		1,554		$	40.40		3,105		$	87.42
Granted		46		$	384.33		365	(1)	$	354.12		-		$	-		411		$	357.49
Vested		(71	)	$	144.46		(577	)	$	91.50		(324	)	$	23.57		(972	)	$	72.69
Forfeited		(11	)	$	207.04		(12	)	$	103.84		(12	)	$	68.48		(35	)	$	124.50
Outstanding at December 31, 2021		125		$	235.82		1,166		$	222.78		1,218		$	44.59		2,509		$	136.87

(1)	Amount reflects the number of awards that may ultimately be earned based on management’s probability assessment of the achievement of performance conditions at each reporting period.

The intrinsic value related to vested RSUs was $381.2 million, $326.2 million and $138.3 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, the total intrinsic value of all outstanding RSUs was $1.2 billion, based on the closing stock price of $493.33. As of December 31, 2021, unamortized compensation expense related to all outstanding RSUs was $156.4 million with a weighted-average remaining recognition period of approximately two years.

Cash proceeds from vested PSUs with a purchase price totaled $17.3 million, $18.8 million and $16.6 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Time-Based RSUs

For the years ended December 31, 2021, 2020 and 2019, the Compensation Committee granted 46,000, 76,000 and 52,000 RSUs, respectively, with service conditions to non-executive employees and non-employee directors. The RSUs generally vest over four years for employees and one year for directors, subject to continued service with the Company.

PSUs and MPSUs

2021 PSUs:

In February 2021, the Compensation Committee granted 80,000 PSUs to the executive officers, which represent a target number of shares that can be earned subject to the achievement of two sets of performance goals (“2021 Executive PSUs”). For the first goal, the executive officers can earn up to 300% of the target number of the 2021 Executive PSUs based on the achievement of the Company’s average two-year (2021 and 2022) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association. 50% of the 2021 Executive PSUs will vest in the first quarter of 2023 if the pre-determined revenue goal is met during the performance period. The remaining 2021 Executive PSUs will vest over the following two years on a quarterly basis. For the second goal, the executive officers can earn an additional 100% of the target number of the 2021 Executive PSUs subject to the achievement of certain environmental objectives under the Company’s ESG initiatives with a performance period through December 31, 2023. The 2021 Executive PSUs related to the ESG goal will fully vest upon achievement of the goal, but no earlier than December 31, 2022. All vested shares related to the ESG goal will be subject to a post-vesting sales restriction period of one year. Assuming the achievement of the highest level of the performance goals, the total stock-based compensation cost for the 2021 Executive PSUs is $114.4 million.

In February 2021, the Compensation Committee granted 14,000 PSUs to certain non-executive employees, which represent a target number of shares that can be earned subject to the achievement of the Company’s 2022 revenue goals for certain regions or product line divisions, or based on the achievement of the Company’s average two-year (2021 and 2022) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2021 Non-Executive PSUs”). The maximum number of shares that an employee can earn is either 200% or 300% of the target number of the 2021 Non-Executive PSUs, depending on the job classification of the employee. 50% of the 2021 Non-Executive PSUs will vest in the first quarter of 2023 if the pre-determined performance goals are met during the performance period. The remaining 2021 Non-Executive PSUs will vest over the following two years on an annual or quarterly basis. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2021 Non-Executive PSUs is $12.1 million.

The 2021 Executive PSUs and the 2021 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share upon vesting of the shares. The $30 purchase price requirement is deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time between the grant date and December 31, 2022 is $30 higher than the grant date stock price of $374.57. This market condition was achieved in the third quarter of 2021. The Company determined the grant date fair value of the 2021 Executive PSUs and the 2021 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $374.57, simulation term of 4.0 years, expected volatility of 41.4%, risk-free interest rate of 0.3%, and expected dividend yield of 0.6%. In addition, the grant date fair value for the 2021 Executive PSUs subject to the ESG goal included an illiquidity discount of 9.8% to account for the post-vesting sales restrictions.

2020 PSUs:

In February 2020_,_ the Compensation Committee granted 100,000 PSUs to the executive officers, which represented a target number of shares that could be earned based on the Company’s average two-year (2020 and 2021) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2020 Executive PSUs”). The maximum number of shares that an executive officer could earn was 300% of the target number of the 2020 Executive PSUs. Based on the actual revenue achievement at the end of the performance period, a total of 300,000 shares were awarded to the executive officers. 50% of the 2020 Executive PSUs will vest in the first quarter of 2022. The remaining 2020 Executive PSUs will vest over the following two years on a quarterly basis. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2020 Executive PSUs is $51.1 million.

In February 2020_,_ the Compensation Committee granted 30,000 PSUs to certain non-executive employees, which represented a target number of shares that could be earned based on the Company’s 2021 revenue goals for certain regions or product line divisions, or based on the Company’s average two-year (2020 and 2021) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2020 Non-Executive PSUs”). The maximum number of shares that an employee could earn was either 200% or 300% of the target number of the 2020 Non-Executive PSUs, depending on the job classification of the employee. Based on the actual revenue achievement at the end of the performance period, a total of 71,000 shares were awarded to the non-executive employees. 50% of the 2020 Non-Executive PSUs will vest in the first quarter of 2022. The remaining 2020 Non-Executive PSUs will vest over the following two years on an annual or quarterly basis. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2020 Non-Executive PSUs is $12.1 million.

The 2020 Executive PSUs and the 2020 Non-Executive PSUs contained a purchase price feature, which required the employees to pay the Company $30 per share upon vesting of the shares. The $30 purchase price requirement was deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time during the performance period was $30 higher than the grant date stock price of $182.62. This market condition was achieved in the second quarter of 2020. The Company determined the grant date fair value of the 2020 Executive PSUs and the 2020 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $182.62, simulation term of 2.0 years, expected volatility of 33.6%, risk-free interest rate of 1.4%, and expected dividend yield of 1.1%.

2020 MPSUs:

In July 2020_,_ the Compensation Committee granted 43,000 MPSUs to the executive officers and 2,000 MPSUs to certain key employees, which represented a target number of shares that could be earned based on the achievement of both market and performance conditions (“2020 MPSUs”). The maximum number of shares that an employee could earn was 500% of the target number of the 2020 MPSUs. The market conditions consisted of five stock price targets ranging from $260 to $300 with a performance period through July 20, 2023_,_ and the performance condition consisted of one business operating goal related to a revenue target for certain customers with a performance period through December 31, 2021_._ As of December 31, 2020, the Company has achieved all five price targets and the operating goal, and a total of 221,000 shares were awarded to the employees. 75% of the 2020 MPSUs will vest on July 20, 2023 and 25% of the 2020 MPSUs will vest on July 20, 2024_._ All vested shares will be subject to a post-vesting sales restriction period of one year. Based on the actual achievement of the market and performance goals, the total stock-based compensation cost for the 2020 MPSUs is $42.1 million.

The Company determined the grant date fair value of the 2020 MPSUs using a Monte Carlo simulation model with the following assumptions: stock price of $248.71, simulation term of 4.0 years, expected volatility of 38.8%, risk-free interest rate of 0.2%, and expected dividend yield of 0.8%. In addition, the grant date fair value included an illiquidity discount of 8.9% to account for the post-vesting sales restrictions.

2019 PSUs:

In February 2019, the Compensation Committee granted 151,000 PSUs to the executive officers, which represented a target number of shares that could be earned based on the Company’s average two-year (2019 and 2020) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2019 Executive PSUs”). The maximum number of shares that an executive officer could earn was 300% of the target number of the 2019 Executive PSUs. Based on the actual revenue achievement at the end of the performance period, a total of 454,000 shares were awarded to the executive officers. 50% of the 2019 Executive PSUs vested in the first quarter of 2021. The remaining 2019 Executive PSUs vest over the following two years on a quarterly basis. Based on the actual achievement of performance goals, the total stock-based compensation cost for the 2019 Executive PSUs is $46.6 million.

The 2019 Executive PSUs contained a purchase price feature, which required the employees to pay the Company $30 per share upon vesting of the shares. Shares that did not vest would not be subject to the purchase price payment. The Company determined the grant date fair value of the 2019 Executive PSUs using the Black-Scholes model with the following assumptions: stock price of $130.67, expected term of 2.6 years, expected volatility of 29.0% and risk-free interest rate of 2.5%.

In October 2018, the Compensation Committee granted 53,000 PSUs to certain non-executive employees, which represented a target number of shares that could be earned based on the Company’s 2020 revenue goals for certain regions or product line divisions, or based on the Company’s average two-year (2019 and 2020) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2019 Non-Executive PSUs”). The maximum number of shares that an employee could earn was either 200% or 300% of the target number of the 2019 Non-Executive PSUs, depending on the job classification of the employee. Based on the actual revenue achievement at the end of the performance period, a total of 100,000 shares were awarded to the employees. 50% of the 2019 Non-Executive PSUs vested in the first quarter of 2021. The remaining 2019 Non-Executive PSUs vest over the following two years on an annual or quarterly basis. Based on the actual achievement of performance goals, the total stock-based compensation cost for the 2019 Non-Executive PSUs is $8.1 million.

The 2019 Non-Executive PSUs contained a purchase price feature, which required the employees to pay the Company $30 per share upon vesting of the shares. Shares that did not vest would not be subject to the purchase price payment. The Company determined the grant date fair value of the 2019 Non-Executive PSUs using the Black-Scholes model with the following assumptions: stock price of $108.43, expected term of 2.9 years, expected volatility of 28.7% and risk-free interest rate of 2.9%.

2018 PSUs:

In February 2018, the Compensation Committee granted 188,000 PSUs to the executive officers, which represented a target number of shares that could be earned based on the Company’s average two-year (2018 and 2019) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2018 Executive PSUs”). The maximum number of shares that an executive officer could earn was 300% of the target number of the 2018 Executive PSUs. Based on the actual revenue achievement at the end of the performance period, a total of 558,000 shares were awarded to the executive officers. 50% of the 2018 Executive PSUs vested in the first quarter of 2020. The remaining 2018 Executive PSUs vest over the following two years on a quarterly basis. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2018 Executive PSUs is $45.6 million.

In February 2018, the Compensation Committee granted 44,000 PSUs to certain non-executive employees, which represented a target number of shares that could be earned based on the Company’s 2019 revenue goals for certain regions or product line divisions, or based on the Company’s average two-year (2018 and 2019) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2018 Non-Executive PSUs”). The maximum number of shares that an employee could earn was either 200% or 300% of the target number of the 2018 Non-Executive PSUs, depending on the job classification of the employee. Based on the actual achievement at the end of the performance period, a total of 75,000 shares were awarded to the employees. 50% of the 2018 Non-Executive PSUs vested in the first quarter of 2020. The remaining 2018 Non-Executive PSUs vest over the following two years on an annual or quarterly basis. Based on the actual achievement of performance goals, the total stock-based compensation cost for the 2018 Non-Executive PSUs is $6.0 million.

The 2018 Executive PSUs and the 2018 Non-Executive PSUs contained a purchase price feature, which required the employees to pay the Company $30 per share upon vesting of the shares. Shares that did not vest would not be subject to the purchase price payment. The Company determined the grant date fair value of the 2018 Executive PSUs and the 2018 Non-Executive PSUs using the Black-Scholes model with the following assumptions: stock price of $110.00, expected term of 2.6 years, expected volatility of 27.5% and risk-free interest rate of 2.3%.

2015 MPSUs:

In December 2015, the Compensation Committee granted 86,000 MPSUs to the executive officers and 41,000 MPSUs to certain non-executive employees, which represented a target number of shares that could be earned upon achievement of both market conditions and performance conditions (“2015 MPSUs”). The maximum number of shares that an employee could earn was 500% of the target number of the 2015 MPSUs. The 2015 MPSUs consisted of four separate tranches with various performance periods all ended on December 31, 2019. The first tranche contained market conditions only, which required the achievement of five stock price targets ranging from $71.36 to $95.57 with a performance period from January 1, 2016 to December 31, 2019.

The second, third and fourth tranches contained both market and performance conditions. The five stock price targets for the second tranche ranged from $89.56 to $106.81 with a performance period from January 1, 2017 to December 31, 2019. The five stock price targets for the third tranche ranged from $120.80 to $135.48 with a performance period from January 1, 2018 to December 31, 2019. The five stock price targets for the fourth tranche ranged from $126.08 to $136.79 with a performance period from January 1, 2019 to December 31, 2019.

In addition, each of the second, third and fourth tranches required the achievement of one of following six operating and business metrics:

	1.	Successful implementation of full digital solutions for certain power products.
	2.	Successful implementation, and adoption by a key customer, of an integrated, software-based motor driver with sensor and field-oriented control.

	3.	Successful implementation of certain advanced power analog processes.
	4.	Successful design wins and achievement of a specific level of revenue with a global networking customer.
	5.	Achievement of a specific level of revenue with a global electronics manufacturer.
	6.	Achievement of a specific level of market share with certain core power products.

The following table summarizes the achievement of the market and performance conditions:

Tranche	Market Conditions	Performance Conditions
One	All stock price targets were achieved as of September 30, 2017.	Not required.
Two	All stock price targets were achieved as of December 31, 2017.	Operating metric #1 was achieved as of December 31, 2018.
Three	All stock price targets were achieved as of September 30, 2018.	Operating metric #2 was achieved as of December 31, 2018.
Four	All stock price targets were achieved as of March 31, 2019.	Operating metric #3 was achieved as of September 30, 2019.

A total of 600,000 shares were awarded to the employees. The 2015 MPSUs vested on January 1, 2020, with post-vesting sales restrictions on the vested shares for up to an additional two years.

The Company determined the grant date fair value of the 2015 MPSUs using a Monte Carlo simulation model with the following weighted-average assumptions: stock price of $61.35, expected volatility of 33.2%, risk-free interest rate of 1.3%, and an illiquidity discount of 7.8% to account for the post-vesting sales restrictions. Based on the actual achievement of the market and performance goals, the total stock-based compensation cost for the 2015 MPSUs is $24.6 million ($8.3 million for the first tranche, $4.5 million for the second tranche, $5.2 million for the third tranche, and $6.6 million for the fourth tranche).

MSUs

2018 MSUs:

In October 2018, the Compensation Committee granted 60,000 MSUs to the executive officers and 60,000 MSUs to certain non-executive employees, which represented a target number of shares that could be earned upon achievement of stock price targets (“2018 MSUs”). The maximum number of shares that an employee could earn was 500% of the target number of the 2018 MSUs if the Company achieved five stock price targets ranging from $140 to $172 during a performance period from October 26, 2018 to December 31, 2023. As of December 31, 2019, all stock price targets have been achieved and the employees were awarded a total of 600,000 shares. The 2018 MSUs will vest on January 1, 2024, with post-vesting sales restrictions on the vested shares for up to an additional two years. The total stock-based compensation cost for the 2018 MSUs is $39.1 million.

The Company determined the grant date fair value of the 2018 MSUs using a Monte Carlo simulation model with the following assumptions: stock price of $108.43, expected volatility of 31.6%, a risk-free interest rate of 3.0%, and an illiquidity discount of 8.7% to account for the post-vesting sales restrictions.

2013 MSUs:

In December 2013, the Compensation Committee granted 276,000 MSUs to the executive officers and 84,000 MSUs to certain non-executive employees, which represented a target number of shares that could be earned upon achievement of stock price targets (“2013 MSUs”). The maximum number of shares that an employee could earn was 500% of the target number of the 2013 MSUs if the Company achieved five price targets ranging from $40 to $56 during a performance period from January 1, 2014 to December 31, 2018. As of December 31, 2015, all stock price targets have been achieved and the employees were awarded a total of 1.8 million shares. The 2013 MSUs vest quarterly from January 1, 2019 to December 31, 2023. The total stock-based compensation cost for the 2013 MSUs is $38.2 million.

The Company determined the grant date fair value of the 2013 MSUs using a Monte Carlo simulation model with the following assumptions: stock price of $31.73, expected volatility of 38.7% and a risk-free interest rate of 1.6%. There was no illiquidity discount because the awards do not contain any post-vesting sales restrictions.

ESPP

Under the ESPP, eligible employees may purchase common stock through payroll deductions. Participants may not purchase more than 2,000 shares in a six-month offering period, or purchase shares having a value greater than $25,000 in any calendar year as measured at the beginning of the offering period in accordance with the IRC and applicable treasury regulations. The ESPP provides for an annual increase by an amount equal to the least of one million shares, 2% of the outstanding shares of common stock on the first day of the year, or a number of shares as determined by the Board of Directors. As of December 31, 2021, 4.5 million shares were available for future issuance. The ESPP will expire in November 2024.

For the years ended December 31, 2021, 2020 and 2019, 17,000, 28,000 and 28,000 shares, respectively, were issued. The intrinsic value of the shares issued was $2.4 million, $2.5 million and $0.7 million for the years ended December 31, 2021, 2020 and 2019, respectively. The unamortized expense was $0.2 million as of December 31, 2021, which will be recognized through the first quarter of 2022. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions:

	Year Ended December 31,
	2021			2020			2019
Expected term (in years)		0.5			0.5			0.5
Expected volatility		43.2	%		48.9	%		37.0	%
Risk-free interest rate		0.1	%		0.8	%		2.2	%
Dividend yield		0.6	%		0.9	%		1.1	%

Cash proceeds from the shares issued under the ESPP were $4.7 million, $3.8 million and $3.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.

9. DIVIDENDS AND DIVIDEND EQUIVALENTS

Cash Dividend Program

The Company has a dividend program approved by the Board of Directors, pursuant to which the Company intends to pay quarterly cash dividends on its common stock. Based on the Company’s historical practice, stockholders of record as of the last business day of the quarter are entitled to receive the quarterly cash dividends when and if declared by the Board of Directors, which are payable to the stockholders in the following month. The Board of Directors declared the following cash dividends (in thousands, except per-share amounts):

	Year Ended December 31,
	2021		2020		2019
Dividend declared per share	$	2.40	$	2.00	$	1.60
Total amount	$	110,206	$	89,832	$	69,196

As of December 31, 2021 and 2020, accrued dividends totaled $27.7 million and $22.6 million, respectively.

The declaration of any future cash dividends is at the discretion of the Board of Directors and will depend on, among other things, the Company’s financial condition, results of operations, capital requirements, business conditions, and other factors that the Board of Directors may deem relevant, as well as a determination that cash dividends are in the best interests of the stockholders.

The Company anticipates that cash used for future dividend payments will come from its domestic cash, cash generated from ongoing U.S. operations, and cash repatriated from its Bermuda subsidiary. The Company also anticipates that earnings from other foreign subsidiaries will continue to be indefinitely reinvested.

Cash Dividend Equivalent Rights

The Company's RSUs contain rights to receive cash dividend equivalents, which entitle employees who hold RSUs to the same dividend value per share as holders of common stock. The dividend equivalents are accumulated and paid to the employees when the underlying RSUs vest. Dividend equivalents accumulated on the underlying RSUs are forfeited if the employees do not fulfill the requisite service requirement and, as a result, the awards do not vest. As of December 31, 2021 and 2020_,_ accrued dividend equivalents totaled $13.1 million and $11.7 million, respectively.

10. OTHER INCOME, NET

The components of other income, net, are as follows (in thousands):

	Year Ended December 31,
	2021			2020			2019
Interest income	$	11,637		$	9,327		$	7,305
Amortization of premium on available-for-sale securities		(4,674	)		(2,979	)		(729	)
Gain on deferred compensation plan investments		4,563			4,592			3,806
Foreign currency exchange loss		(727	)		(1,364	)		(310	)
Other		(997	)		884			486
Total	$	9,802		$	10,460		$	10,558

11. NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):

	Year Ended December 31,
	2021		2020		2019
Numerator:
Net income	$	242,023	$	164,375	$	108,839

Denominator:
Weighted-average outstanding shares - basic		45,851		44,840		43,165
Effect of dilutive securities		2,038		2,174		2,598
Weighted-average outstanding shares - diluted		47,889		47,014		45,763

Net income per share:
Basic	$	5.28	$	3.67	$	2.52
Diluted	$	5.05	$	3.50	$	2.38

Anti-dilutive common stock equivalents were not material for the periods presented.

12. INCOME TAXES

The components of income before income taxes are as follows (in thousands):

	Year Ended December 31,
	2021			2020		2019
United States	$	(15,542	)	$	39,286	$	(4,134	)
Foreign		287,761			130,056		117,254
Income before income taxes	$	272,219		$	169,342	$	113,120

The components of the income tax expense are as follows (in thousands):

	Year Ended December 31,
	2021			2020			2019
Current:
Federal	$	24,955		$	2,842		$	1,682
State		35			(1	)		8
Foreign		3,801			3,814			3,105
Deferred:
Federal		4,929			(1,221	)		(213	)
Foreign		(3,524	)		(467	)		(301	)
Income tax expense	$	30,196		$	4,967		$	4,281

The effective tax rate differs from the applicable U.S. statutory federal income tax rate as follows:

	Year Ended December 31,
	2021			2020			2019
U.S. statutory federal tax rate		21.0	%		21.0	%		21.0	%
Foreign income at lower rates		(23.2	)		(15.2	)		(20.7	)
GILTI		11.4			11.1			11.0
Changes in valuation allowance		0.5			1.6			2.1
Stock-based compensation		1.6			(11.2	)		(1.5	)
Tax credits, net of reserves		(1.1	)		(3.8	)		(6.2	)
State income taxes		(0.5	)		(1.6	)		(0.7	)
Other adjustments		1.4			1.0			(1.2	)
Effective tax rate		11.1	%		2.9	%		3.8	%

The components of net deferred tax assets consist of the following (in thousands):

	December 31,
	2021			2020
Deferred tax assets:
Tax credits	$	26,302		$	23,501
Stock-based compensation		2,027			2,392
Deferred compensation		8,526			7,895
Net operating losses		5,818			1,150
Other expenses not currently deductible		5,151			4,617
Deferred tax assets, gross		47,824			39,555
Valuation allowance		(19,520	)		(18,190	)
Deferred tax assets, net of valuation allowance		28,304			21,365
Deferred tax liabilities:
Depreciation and amortization		(5,067	)		(1,600	)
Undistributed foreign earnings		(375	)		(77	)
Other expenses currently deductible		(945	)		(1,132	)
Deferred tax liabilities		(6,387	)		(2,809	)
Net deferred tax assets	$	21,917		$	18,556

GILTI:

The Company accounts for GILTI as a period cost.

Valuation Allowance:

The Company periodically evaluates its deferred tax assets, including a determination of whether a valuation allowance is necessary, based upon its ability to utilize the assets using a more likely than not analysis. The realizability of the Company’s net deferred tax assets is dependent on its ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. As of December 31, 2021 and 2020, the Company has evaluated the realization of its deferred tax assets and recorded a valuation allowance for assets that do not meet the more-likely-than-not recognition threshold.

Undistributed Earnings of Subsidiaries:

The Company has analyzed its global working capital and cash requirements, and has determined that it plans to repatriate cash from its Bermuda subsidiary on an ongoing basis to fund its future U.S.-based expenditures and dividends. For the years ended December 31, 2021, 2020 and 2019, the Company repatriated $70.0 million, $30.0 million and $75.0 million from its Bermuda subsidiary, respectively.

For all other foreign subsidiaries, the Company expects to indefinitely reinvest undistributed earnings to fund their operations and research and development. As of December 31, 2021 and 2020, the undistributed earnings were approximately $46.2 million and $27.7 million, respectively. An actual repatriation of the undistributed earnings could be subject to additional foreign withholding taxes and U.S. state taxes. The Company expects to be able to take a dividend received deduction to offset any U.S. federal income tax liability on the undistributed earnings. Determination of the unrecognized state and withholding deferred tax liability is not practicable at this time due to the complexities associated with the hypothetical calculation.

Other Income Tax Provision Matters

As of December 31, 2021, the Company did not have federal net operating loss carryforwards. As of December 31, 2021, the state net operating loss carryforwards for income tax purposes were $20.0 million, which will expire beginning in 2024. As of December 31, 2021, the Company has foreign net operating loss carryforwards for income tax purposes of $34.1 million, which will expire beginning in 2029.

As of December 31, 2021, the Company had $1.5 million in R&D tax credit carryforwards for federal income tax purposes, which will begin to expire in 2040, and $33.4 million for state income tax purposes, which can be carried forward indefinitely.

In the event of a change in ownership, as defined under federal and state tax laws, the Company's net operating loss and tax credit carryforwards could be subject to annual limitations. The annual limitations could result in the expiration of the net operating loss and tax credit carryforwards prior to utilization.

As of December 31, 2021, the Company had $41.5 million of unrecognized tax benefits, $31.5 million of which would affect its effective tax rate if recognized after considering the valuation allowance. As of December 31, 2020, the Company had $33.5 million of unrecognized tax benefits, $24.3 million of which would affect its effective tax rate if recognized after considering the valuation allowance.

A reconciliation of the gross unrecognized tax benefits is as follows (in thousands):

Balance as of January 1, 2019	$	20,491
Increase for tax position of prior year		1,589
Increase for tax position of current year		4,663
Decrease due to settlement with tax authorities		(560	)
Decrease due to lapse of statute of limitation		(776	)
Balance as of December 31, 2019		25,407
Increase for tax position of current year		9,782
Decrease for tax position of prior year		(907	)
Decrease due to settlement with tax authorities		(560	)
Decrease due to lapse of statute of limitation		(223	)
Balance as of December 31, 2020		33,499
Increase for tax position of current year		9,191
Decrease for tax position of prior year		(657	)
Decrease due to settlement with tax authorities		(54	)
Decrease due to lapse of statute of limitation		(458	)
Balance as of December 31, 2021	$	41,521

The Company recognizes interest and penalties, if any, related to uncertain tax positions in its income tax provision. As of December 31, 2021 and 2020, the Company has $3.3 million and $2.4 million, respectively, of accrued interest related to uncertain tax positions, which were recorded in long-term income tax liabilities on the Consolidated Balance Sheets.

Uncertain tax positions relate to the allocation of income and deductions among the Company’s global entities and to the determination of the research and development tax credit. It is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, it is not possible to determine either the magnitude or the range of increases or decreases at this time.

The Company currently has reduced tax rates in its subsidiaries in Chengdu and Hangzhou, China through 2030 and 2023, respectively, for performing research and development activities.

Income Tax Examination

The Company is subject to examination of its income tax returns by the IRS and other tax authorities. In general, the tax years for 2007 and forward are open for examination for U.S. federal and state income tax purposes.

13. COMMITMENTS AND CONTINGENCIES

Warranty and Indemnification Provisions

The changes in warranty reserves are as follows (in thousands):

	Year Ended December 31,
	2021			2020			2019
Balance at beginning of period	$	6,895		$	1,139		$	4,564
Warranty provision for product sales		16,507			7,584			891
Settlements made		(1,770	)		(843	)		(2,768	)
Unused warranty provision		(643	)		(985	)		(1,548	)
Balance at end of period	$	20,989		$	6,895		$	1,139

For the year ended December 31, 2021, the warranty provision for product sales included net adjustments to pre-existing claims of $5.2 million. For the years ended December 31, 2020 and 2019, net adjustments to pre-existing claims were not material.

The Company provides indemnification agreements to certain direct or indirect customers. The Company agrees to reimburse these parties for any damages, costs and expenses incurred by them as a result of legal actions taken against them by third parties for infringing upon their intellectual property rights as a result of using the Company’s products and technologies. These indemnification provisions are varied in their scope and are subject to certain terms, conditions, limitations and exclusions. In addition, the Company has entered into indemnification agreements with its directors and officers.

It is not possible to predict the maximum potential amount of future payments under these agreements due to the limited history of indemnification claims and the unique facts and circumstances involved in each particular agreement. There were no indemnification liabilities incurred for the periods presented. However, there can be no assurances that the Company will not incur any financial liabilities in the future as a result of these obligations.

Purchase Commitments

The Company has outstanding purchase obligations with its suppliers and other parties that require the purchases of goods or services, which primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, construction of manufacturing and R&D facilities, purchases of production and other equipment, and license arrangements. As of December 31, 2021_,_ the Company’s outstanding purchase obligations totaled approximately $198.6 million.

Litigation

The Company is a party to actions and proceedings in the ordinary course of business, including potential litigation initiated by its stockholders, challenges to the enforceability or validity of its intellectual property, claims that the Company’s products infringe on the intellectual property rights of others, and employment matters. These proceedings often involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to prosecute and defend. The Company defends itself vigorously against any such claims. As of December 31, 2021_,_ there were no material pending legal proceedings to which the Company was a party.

14. EMPLOYEE 401(k) PLAN

The Company sponsors a 401(k) retirement savings plan for all employees in the U.S. who meet certain eligibility requirements. Participants may contribute up to the amount allowable as a deduction for federal income tax purposes. The Company is not required to contribute and did not contribute to the plan for the years ended December 31, 2021, 2020 and 2019.

15. SIGNIFICANT CUSTOMERS

The Company sells its products primarily through third-party distributors and value-added resellers, and directly to OEMs, ODMs and EMS providers. The following table summarizes those customers with sales equal to 10% or more of the Company's total revenue:

	Year Ended December 31,
Customer	2021			2020			2019
Distributor A		26	%		24	%		23	%
Distributor B		15	%		11	%		*
Distributor C		10	%		*			*

Represents less than 10%.

The Company’s agreements with these third-party customers were made in the ordinary course of business and may be terminated with or without cause by these customers with advance notice. Although the Company may experience a short-term disruption in the distribution of its products and a short-term decline in revenue if its agreement with any of the distributors was terminated, the Company believes that such termination would not have a material adverse effect on its financial statements because it would be able to engage alternative distributors, resellers and other distribution channels to deliver its products to end customers within a short period following the termination of the agreement with the distributor.

The following table summarizes those customers with accounts receivable equal to 10% or more of the Company’s total accounts receivable:

	December 31,
	2021			2020
Distributor A		26	%		24	%
Distributor B		17	%		21	%
Value-added reseller A		12	%		13	%
Direct customer A		*			10	%

Represents less than 10%.

16. SEGMENT AND GEOGRAPHIC INFORMATION

The Company operates in one reportable segment that includes the design, development, marketing and sale of high-performance, semiconductor-based power electronics solutions for the computing and storage, automotive, industrial, communications and consumer markets. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company derives a majority of its revenue from sales to customers located outside North America, with geographic revenue based on the customers’ ship-to locations.

The following is a summary of revenue by geographic regions (in thousands):

	Year Ended December 31,
Country or Region	2021		2020		2019
China	$	700,985	$	516,519	$	382,740
Taiwan		169,130		109,256		73,801
Europe		85,201		56,329		49,467
South Korea		93,027		64,093		43,900
Southeast Asia		54,611		42,403		32,031
Japan		68,720		35,461		27,812
United States		35,770		20,098		17,836
Other		354		293		334
Total	$	1,207,798	$	844,452	$	627,921

The following is a summary of revenue by major product families (in thousands):

	Year Ended December 31,
Product Family	2021		2020		2019
DC to DC	$	1,147,329	$	800,478	$	589,651
Lighting Control		60,469		43,974		38,270
Total	$	1,207,798	$	844,452	$	627,921

The following is a summary of long-lived assets by geographic regions (in thousands):

	December 31,
Country	2021		2020		2019
China	$	211,973	$	151,752	$	113,888
United States		113,805		101,768		94,671
Taiwan		19,607		18,797		17,652
Other		17,577		9,211		2,104
Total	$	362,962	$	281,528	$	228,315

17. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table summarizes the changes in accumulated other comprehensive income (in thousands):

	Unrealized Gains (Losses) on Available-for-Sale Securities			Foreign Currency Translation Adjustments			Total
Balance as of January 1, 2020	$	135		$	(5,611	)		(5,476	)
Other comprehensive income before reclassifications		2,878			14,150			17,028
Amounts reclassified from accumulated other comprehensive income		(1,087	)		-			(1,087	)
Tax effect		(325	)		-			(325	)
Net current period other comprehensive income		1,466			14,150			15,616
Balance as of December 31, 2020		1,601			8,539			10,140
Other comprehensive income (loss) before reclassifications		(3,244	)		8,404			5,160
Amounts reclassified from accumulated other comprehensive income		(33	)		-			(33	)
Tax effect		613			-			613
Net current period other comprehensive income (loss)		(2,664	)		8,404			5,740
Balance as of December 31, 2021	$	(1,063	)	$	16,943		$	15,880

The amounts reclassified from accumulated other comprehensive income were recorded in other income, net, on the Consolidated Statements of Operations.

18. SUBSEQUENT EVENT

Cash Dividend Increase

In February 2022, the Company's Board of Directors approved an increase in quarterly cash dividends from $0.60 per share to $0.75 per share.

Previous: Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK · Next: Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE