What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-12 compared with 2023-02-07 · 116 added, 71 removed, 747 unchanged (20% of the section changed)

4 unchanged sentences

We have audited the accompanying consolidated balance sheets of Power Integrations, Inc.

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and schedules listed in the Index at Item 8 (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with the accounting principles generally accepted in the United States of America.

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Critical Audit Matters

Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

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 critical audit matters does not alter in any way our opinion on the 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 accounts or disclosures to which it relates.

Inventories – Provision for Excess and Obsolete Inventory – Refer to Notes 2 and 3 to the financial statements

Critical Audit Matter Description

The Company's inventories are recorded at standard cost, which approximates actual cost on a first-in, first-out basis, not in excess of net realizable value.

The Company routinely evaluates quantities and values of inventories and records a provision for excess and obsolete inventories to reduce its recorded inventory balance to its estimated net realizable value.

Management’s assumptions regarding the inventory quantities considered to be excess and obsolete are determined by analyzing historical usage, demand forecasts, current economic trends, and historical write-offs.

We identified the determination of excess and obsolete inventory within work-in-process and finished goods inventory as a critical audit matter due to the significant assumptions made by management when determining the excess and obsolete inventory quantities and the resulting provision.

This required a high degree of auditor judgement and an increased extent

of effort when performing audit procedures to evaluate the reasonableness of management’s excess and obsolete provision for work-in-process and finished goods inventory.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s assumptions used in determining the excess and obsolete provision for work-in-process and finished goods inventory included the following, among others:

● We tested the effectiveness of the control over the determination of the provision for excess and obsolete inventories, including work-in-process and finished goods inventory.

● We selected a sample of products from work-in-process and finished goods inventory as of December 31, 2022, and evaluated management's ability to accurately estimate forecasted demand by comparing the respective products usage for the year ended December 31, 2023, to estimates made in the prior year.

● We selected a sample of products from work-in-process and finished goods inventory and evaluated the reasonableness of management's provision for work-in-process and finished goods inventory by considering recent usage, historical usage, contracts and communications with customers, expected product lifecycles, macroeconomic conditions, and inquiries with sales personnel.

● We considered the existence of contradictory evidence based on reading of internal communications to management and the board of directors, Company press releases, and analyst reports, as well as our observations and inquiries as to changes within the business.

/s/ DELOITTE & TOUCHE LLP

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INCOME BEFORE INCOME TAXES

PROVISION FOR INCOME TAXES

PROVISION (BENEFIT) FOR INCOME TAXES

EARNINGS PER SHARE:

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Unrealized actuarial gain on pension benefits

Unrealized gain on marketable securities

Unrealized loss on marketable securities

Foreign currency translation adjustment

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Unrealized actuarial gain on pension benefits

Unrealized loss on marketable securities

Unrealized gain on marketable securities

Foreign currency translation adjustment

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Stock-based compensation expense

Amortization of premium on marketable securities

Amortization of premium (accretion of discount) on marketable securities

Deferred income taxes

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Net cash used in financing activities

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

NET DECREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid (received) for income taxes, net

Cash paid for income taxes, net

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

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The Company’s products are used in power converters that convert electricity from a high-voltage source to the type of power required for a specified downstream use.

In most cases, this conversion entails, among other functions, converting alternating current (“AC”) to direct current (“DC”) or vice versa, reducing or increasing the voltage, and regulating the output voltage and/or current according to the customer’s specifications.

A large percentage of the Company’s products are ICs used in AC-DC power supplies, which convert the high-voltage AC from a wall outlet to the low-voltage DC required by most electronic devices.

Power supplies incorporating the Company’s products are used with all manner of electronic products including mobile phones, computing and networking equipment, appliances, electronic utility meters, battery-powered tools, industrial controls, and “home-automation,” or “internet of things” applications such as networked thermostats, power strips and other building-automation and security devices.

The Company also supplies high-voltage LED drivers, which are AC-DC ICs specifically designed for lighting applications that utilize light-emitting diodes.

In 2018, the Company introduced a new category of power-conversion ICs:

a family of motor-driver ICs addressing brushless DC (BLDC) motors used in refrigerators, HVAC systems, ceiling fans and other consumer-appliance and light commercial applications.

The Company also supplies high-voltage LED drivers, which are AC-DC ICs specifically designed for lighting applications that utilize light-emitting diodes, and motor-drivers ICs for brushless DC (“BLDC”) motors used in consumer appliances, HVAC systems, ceiling fans and a variety of industrial applications.

The Company also offers high-voltage gate drivers—either standalone ICs or circuit boards containing ICs, electrical isolation components and other circuitry—used to operate high-voltage switches such as insulated-gate bipolar transistors (“IGBTs”) and silicon-carbide (“SiC”) MOSFETs.

These combinations of switches and drivers are used for power conversion in high-power applications (i.e., power levels ranging from a few kilowatts up to gigawatts) such as industrial motors, solar- and wind-power systems, electric vehicles and high-voltage DC transmission systems.

These combinations of switches and drivers are used for power conversion in high-power applications (i.e., power levels ranging from approximately 100 kilowatts up to gigawatts) such as industrial motors, solar- and wind-power systems, electric vehicles and high-voltage DC transmission systems.

SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS:

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In order to achieve that core principle, the Company applies the following five-step approach:

the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

(1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price,

(4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

Product revenues consist of sales to original equipment manufacturers, or OEMs, merchant power supply manufacturers and distributors.

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Such price adjustments are estimated using the expected value method based on an analysis of actual ship-and-debit claims, at the distributor and product level, over a period of time considered adequate to account for current pricing and business trends.

Historically, actual price adjustments for ship and debit claims relative to those estimated and included when determining the transaction price have not materially differed.

Historically, actual price adjustments for ship-and-debit claims have not materially differed from those estimated and included when determining the transaction price.

Stock rotation rights grant the distributor the ability to return certain specified amounts of inventory.

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As such, the Company does not record a specific warranty reserve or consider activities related to such warranty, if any, to be a separate performance obligation.

Inventories (which consist of costs associated with the purchases of wafers from domestic and offshore foundries and of packaged components from offshore assembly manufacturers, as well as internal labor and overhead associated with the testing of both wafers and packaged components) are stated at the lower of cost (first-in, first-out) or market.

Provisions, when required, are made to reduce inventories to their estimated net realizable values.

Inventory is recorded at standard cost, which approximates actual cost computed on a first-in, first-out basis, not in excess of net realizable value.

In order to determine the provision management considers historical usage, forecasted demand, current economic trends and historical write-offs.

Income-tax expense is an estimate of current income taxes payable or refundable in the current fiscal year based on reported income before income taxes.

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

The Company recognizes valuation allowances to reduce any deferred tax assets to the amount that it estimates will more likely than not be realized based on available evidence and management’s judgment.

The Company limits the deferred tax assets recognized related to certain officers’ compensation to amounts that it estimates will be deductible in future periods based upon Internal Revenue Code Section 162(m).

The Company also recognizes valuation allowances to reduce any deferred tax assets to the amount that it estimates will more likely than not be realized based on available evidence and management’s judgment.

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

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Resolution of these uncertainties in a manner inconsistent with the Company’s expectations could have a material impact on the Company’s results of operations and financial position.

The Company recognizes interest and penalties related to income tax matters as income tax expense.

tax rules require U.S.

tax on foreign earnings, known as global intangible low taxed income.

GAAP, we are allowed to make an accounting policy choice of either (1) treating taxes due on future U.S.

inclusions as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”).

We selected the deferred method of accounting and recorded the associated basis differences anticipated to influence prospective income inclusion calculations.

Goodwill and Intangible Assets

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As a result, the Company classifies its investment portfolio as available-for-sale.

The Company classifies all investments with a

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

The Company classifies all investments with a maturity date greater than three months at the date of purchase as short-term marketable securities in its consolidated balance sheet.

As of December 31, 2023 and 2022, the Company’s marketable securities consisted primarily of commercial paper, corporate bonds, government securities and/or other high-quality commercial securities.

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Gains and losses arising from the remeasurement of non-functional currency balances are recorded in other income in the accompanying consolidated statements of income.

The Company recognized an immaterial foreign exchange loss in 2022 while recognizing losses of $ 0.6 million and $ 0.5 million in 2021 and 2020, respectively.

The Company recognized a loss of $ 0.4 million in 2023, an immaterial foreign exchange loss in 2022 and a loss of $ 0.6 million in 2021.

The functional currencies of the Company’s other subsidiaries are the local currencies.

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

Each DSA contains the relevant terms of the contractual arrangement with the distributor, and generally includes certain provisions for indemnifying the distributor against losses, expenses, and liabilities from damages that may be awarded against the distributor in the event the Company’s products are found to infringe upon a patent,

Each DSA contains the relevant terms of the contractual arrangement with the distributor, and

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

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

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For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases, the Company cannot determine the maximum amount of potential future payments, if any, related to such indemnifications.

Recent Accounting Pronouncements

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

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements and expand public entities’ segment disclosures in the annual and interim financial statements.

The amendment will require disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and within each reported measure of segment profit or loss, an amount and description of its composition for other segment items and interim disclosures of a reportable segment’s profit or loss and assets.

All disclosure requirements of ASU 2023-07 are required for entities with a single reportable segment.

The Company is required to adopt the amendments in fiscal year 2024 for annual and retrospective reporting periods and in the first quarter of fiscal year 2025 for all interim and retrospective reporting periods;

with early adoption permitted.

The Company is currently evaluating the effect of adopting these amendments on its consolidated financial statements.

The Company does not expect the amendment to have a material impact on its consolidated financial statements upon adoption.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign).

ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes.

The guidance is effective for annual periods beginning after December 15, 2024.

Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance.

ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted.

The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements.

COMPONENTS OF THE COMPANY’S CONSOLIDATED BALANCE SHEETS:

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

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

customer creditworthiness, and current economic trends.

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

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In 2023, 2022 and 2021, approximately 11 %, 12 % and 14 %, respectively, of total property and equipment (excluding accumulated depreciation) was held in Thailand by one of the Company’s subcontractors.

Also in both 2022 and 2021, approximately 15 % and in 2020, 14 % of total property and equipment (excluding accumulated depreciation) was held by one of the Company’s subcontractors in Malaysia.

In 2023, 2022 and 2021, approximately 15 % of total property and equipment (excluding accumulated depreciation was held by one of the Company’s subcontractors in Malaysia.

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

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Amounts reclassified from accumulated other comprehensive loss

Other comprehensive income

Other comprehensive loss

Balance at December 31, 2021

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Amounts reclassified from accumulated other comprehensive loss

Other comprehensive loss

Other comprehensive income

Balance at December 31, 2023

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Investments due in 4-12 months:

Commercial paper

Corporate securities

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Investments due in 3 months or less:

Commercial paper

Corporate securities

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As of December 31, 2023 and 2022 the Company had no marketable securities classified as available-for-sale (excluding cash equivalents) in a continuous unrealized loss position for which an allowance for credit losses was recorded.

The following table summarizes marketable securities classified as available-for-sale (excluding cash equivalents) in a continuous unrealized loss position for which an allowance for credit losses was not recorded at December 31, 2022 and December 31, 2021:

Less Than 12 Months

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

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

The Company amortizes the cost of all intangible assets over the shorter of the estimated useful life or the term of the developed technology, customer relationships, technology licenses and in-place leases, which range from two to twelve years , with the exception of $ 1.3 million paid to acquire an internet domain name.

The Company acquired the rights to the internet domain name www.power.com , which is now the Company’s primary domain name;

Intangible assets consist primarily of developed technology, acquired licenses, and domain name and are reported net of accumulated amortization.

The Company amortizes the cost of all intangible assets over the estimated useful life of the developed technology and technology licenses, which range from two to twelve years , with the exception of $ 1.3 million paid to acquire an internet domain name.

The Company acquired the rights to the internet domain name www.power.com , the Company’s

primary domain name;

the cost to acquire the domain name has been recorded as an intangible asset and will not be amortized as it has an indefinite useful life.

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Developed technology

Customer relationships

Technology licenses

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An aggregate of 7.5 million shares of common stock were reserved for issuance to employees under the Purchase Plan.

As of December 31, 2022, of the shares reserved for issuance, 6.8 million shares had been purchased and 0.7 million shares were reserved for future issuance under the Purchase Plan.

As of December 31, 2023, of the shares

reserved for issuance, 6.9 million shares had been purchased and 0.6 million shares were reserved for future issuance under the Purchase Plan.

Shares Reserved

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Total unrecognized compensation expense

Stock-based compensation expense in the year ended December 31, 2022, was approximately $ 22.4 million, comprising approximately $ 23.2 million related to restricted stock units, $ 1.9 million related to the Company’s Purchase Plan and a $ 2.7 million credit to expense related to performance-based awards and long-term performance-based awards.

Stock-based compensation expense in the year ended December 31, 2021, was approximately $ 37.6 million, comprising approximately $ 19.9 million related to restricted stock units, $ 15.7 million related to performance-based awards and $ 2.0 million related to the Company’s Purchase Plan.

Stock-based compensation expense in the year ended December 31, 2023, was approximately $ 28.5 million, comprising approximately $ 23.4 million related to restricted stock units, $ 3.2 million related to performance-based awards and long-term performance-based awards and $ 1.9 million related to the Company’s Purchase Plan.

Stock-based compensation expense in the year ended December 31, 2022, was approximately $ 22.4 million, comprising approximately $ 23.2 million related to restricted stock units, $ 1.9 million related to the Company’s Purchase Plan and a $ 2.7 million credit related to performance-based awards and long-term performance-based awards.

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No options were granted or remain outstanding as of December 31, 2023.

The total intrinsic value of options exercised during the years ended December 31, 2022, 2021 and 2020, was $ 0.8 million, $ 4.9 million and $ 9.1 million, respectively.

There were no options exercised during the year ended December 31, 2023 while total intrinsic value of options exercised during the years ended December 31, 2022 and December 31, 2021 were $ 0.8 million and $ 4.9 million, respectively.

Under the performance-based awards program, the Company grants awards in the performance year in an amount equal to twice the target number of shares to be issued if the maximum performance metrics are met.

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PRSU Awards (Long-term Performance Based)

The Company’s PRSU program provides for the issuance of PRSUs which will vest based on the Company’s performance measured against the PRSU Plan’s established revenue targets.

The PRSUs were granted in an amount equal to twice the target number of shares to be issued if the maximum performance metrics are met.

The fair value of these PRSUs is determined using the fair value of the Company’s common stock on the date of the grant, reduced by the discounted present value of dividends expected to be declared before the awards vest .

The Company’s PRSU program provides for the issuance of PRSUs which will vest based on the Company’s performance measured against the PRSU program’s established performance targets.

PRSUs are granted in an amount equal to twice the target number of shares to be issued if the maximum performance metrics are met.

The actual number of shares the recipient receives is determined at the end of a three-year performance period based on results achieved versus the Company’s performance goals, and may range from zero to 200 % of the target number.

Recipients of a PRSU award generally must remain employed by the Company on a continuous basis through the end of the applicable three-year performance period in order to receive shares subject to that award.

The performance goals for PRSUs granted in fiscal 2022, 2021 and 2020 were based on the Company’s annual revenue growth over the respective three-year performance period.

The performance goals for PRSUs granted in fiscal 2021, 2022 and 2023 were based on the Company’s compound annual growth rate (“CAGR”) of revenue as measured against the revenue CAGR of the analog semiconductor industry (“Relative Measure”), in each case over the respective three-year performance period.

In addition, the PRSUs granted in 2023 (“2023 PRSUs”) also include a performance goal related to the Company’s revenue growth over the respective three-year performance period as compared to defined targets (“Absolute Measure”) with the actual vesting of the 2023 PRSUs calculated based on higher achievement under the Relative Measure or the Absolute Measure.

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

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

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

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

A summary of PRSU awards outstanding as of December 31, 2023, and activity during the three years then ended, is presented below:

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the shares were released to the Company’s executives in the first quarter of 2023.

The grant-date fair value of PRSU awards released, which were fully vested, in the years ended December 31, 2022 and 2021 was approximately $ 4.6 million and $ 0.2 million , respectively.

The grant-date fair value of PRSU awards released, which were fully vested, in the years ended December 31, 2023, 2022 and 2021 was approximately $ 1.1 million, $ 4.6 million and $ 0.2 million , respectively.

RSUs granted to employees typically vest ratably over a four-year period and are converted into shares of the Company’s common stock upon vesting on a one-for-one basis subject to the employee’s continued service to the Company over that period.

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Honestar Technologies Co., Ltd.

Salcomp Group

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

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

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

As of years ended December 31, 2022 and 2021, 87 % and 86 % of accounts receivable were concentrated with the Company’s top ten customers, respectively.

As of December 31, 2023 and 2022, 86 % and 87 % of accounts receivable were concentrated with the Company’s top ten customers, respectively.

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

Honestar Technologies Co., Ltd.

Salcomp Group

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In January, February, April and October 2022, the Company’s board of directors authorized the use of an additional $ 100.0 million, $ 50.0 million, $ 75.0 million and $ 100.0 million, respectively, for the repurchase of the Company’s common stock, with repurchases to be executed according to pre-defined price/volume guidelines.

In 2022, 2021 and 2020, the Company purchased approximately 3.8 million shares, 0.9 million shares and 63 thousand shares, respectively, for approximately $ 311.1 million, $ 73.9 million and $ 2.6 million, respectively.

In 2023, 2022 and 2021 the Company purchased approximately 0.8 million shares, 3.8 million shares and 0.9 million shares, respectively, for approximately $ 55.3 million, $ 311.1 million and $ 73.9 million, respectively.

As of December 31, 2023, the Company had $ 26.0 million available for future stock repurchases.

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Fourth Quarter

The Company paid a total of approximately $ 41.5 million, $ 32.6 million and $ 25.1 million in cash dividends during 2022, 2021 and 2020, respectively.

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

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

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

The Company paid approximately $ 44.0 million, $ 41.5 million and $ 32.6 million in cash dividends during 2023, 2022 and 2021, respectively.

In January 2021, the Company’s board of directors declared dividends of $ 0.13 per share to be paid to stockholders of record at the end of each quarter in 2021.

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In February 2023, the Company’s board of directors declared dividends of $ 0.19 per share to be paid to stockholders of record at the end of each quarter in 2023.

In October 2023, the Company’s board of directors raised the cash dividend with the declaration of four cash dividends of $ 0.20 per share to be paid to stockholders of record at the end of the fourth quarter in 2023 (in lieu of the $ 0.19 per share announced in February 2023) and at the end of each quarter in 2024 .

EARNINGS PER SHARE:

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In the years ended December 31, 2023, 2022 and 2021, no outstanding stock awards were determined to be anti-dilutive and therefore were excluded from the computation of diluted earnings per share.

PROVISION FOR INCOME TAXES:

PROVISION (BENEFIT) FOR INCOME TAXES:

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

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

and foreign components of income before income taxes were:

Year Ended December 31,

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Total income before income taxes

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

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

Year Ended December 31,

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Deferred provision (benefit):

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

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

Year Ended December 31,

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GILTI inclusion

Uncertain tax positions

Valuation allowance

The Company’s effective tax rate is impacted by the geographic distribution of the Company’s world-wide earnings in lower-tax jurisdictions, federal research tax credits and the recognition of excess tax benefits related to share-based payments.

In 2023, the rate was further favorably impacted by release of $ 7.6 million of reserves related to federal uncertain tax positions as the statute of limitations for review of these positions expired.

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

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Gross decrease for tax positions of prior years

Statute of limitation release for tax positions of prior years

Unrecognized tax benefits balance at December 31, 2021

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Gross decrease for tax positions of prior years

Statute of limitation release for tax positions of prior years

Unrecognized tax benefits balance at December 31, 2022

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Gross decrease for tax positions of prior years

Statute of limitation release for tax positions of prior years

Unrecognized tax benefits balance at December 31, 2023

The Company’s total unrecognized tax benefits as of December 31, 2023, 2022 and 2021, were $ 16.4 million, $ 23.4 million and $ 21.4 million, respectively.

An income tax benefit of $ 11.7 million, net of valuation allowance adjustments, would be recorded if these unrecognized tax benefits are recognized.

An income tax benefit of $ 4.5 million, net of valuation allowance adjustments, would be recorded if fiscal year 2023 unrecognized tax benefits are recognized.

The Company cannot reasonably estimate the amount of the unrecognized tax benefit that could be adjusted in the next twelve months.

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federal income tax matters for the years through 2019.

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

However, due to tax attributes, the IRS may calculate tax adjustments for the 2017 transition tax calculation for positions taken prior to 2017 since it has an extended statute of limitations period totaling six years.

The California Franchise Tax Board has started an audit for the Company’s tax years 2018 and 2019, it is currently ongoing.

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

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

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

Some lease agreements contain lease and non-lease components, which are accounted for as a single lease component.

Total lease expense was $ 3.3 million, $ 3.3 million and $ 2.7 million in the years ended December 31, 2022, 2021 and 2020, respectively, while short-term and variable lease expenses were not material during these periods.

Total lease expense was $ 3.6 million for the year ended December 31, 2023, and $ 3.3 million in both the years ended December 31, 2022 and 2021;

short-term and variable lease expenses were not material during these periods.

Balance sheet information related to leases was as follows:

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Initial lease terms are determined at commencement and may include options to extend or terminate the lease when it is reasonably certain the Company will exercise the option.

Remaining lease terms range from one to seven years ,

Remaining lease terms range from one to six years ,

some of which include options to extend for up to five years , and some of which include options to terminate within one year .

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In accordance with ASC 450 10, Contingencies, the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

On May 16, 2022, the Company entered into a binding settlement agreement (the “Settlement Agreement”) with Opticurrent, LLC, pursuant to which the parties agreed to end all outstanding legal disputes.

Neither party granted any licenses to the other.

Pursuant to the Settlement Agreement, the Company and Opticurrent have dismissed, withdrawn, and/or terminated all legal proceedings between the parties and the Company agreed to and subsequently paid Opticurrent $ 2.9 million.

On January 6, 2020, the Company filed a complaint against CogniPower LLC in the United States District Court for the District of Delaware for infringement of two of the Company’s patents and seeking a declaration of non-infringement with respect to patents that CogniPower had charged the Company’s customers with infringing, based on customer use of the Company’s products.

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

The remaining case is currently stayed, but the

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

The remaining case is currently stayed, but the Company recently filed a motion to amend its claims against CogniPower to include three additional patents that are in the same family as the two CogniPower patents that are already in the lawsuit, after CogniPower accused the Company’s customers of infringing those three related patents in a lawsuit in the Eastern District of Texas.

A ruling on the Company’s motion is expected in the coming months, and the Company believes it has strong claims and defenses with respect to all of CogniPower’s asserted patents and intends to vigorously defend itself against CogniPower’s claims against the Company’s technology, with appeals to follow if necessary.

On October 31, 2022, Waverly Licensing LLC filed a complaint against the Company in the United States District Court for the Western District of Texas.

In its complaint, Waverly alleges that the Company is infringing one patent pertaining to charging a battery-operated device.

Because the Company believes that Waverly’s complaint was improperly filed in the wrong court, the Company has filed a motion to dismiss, and on November 30, 2022, the Company filed a complaint against Waverly Licensing LLC and related entities IP Edge LLC, Mavexar LLC, and Array IP LLC in the United States District Court for the District of Delaware seeking a declaration of non-infringement with respect to a patent that Waverly has charged the Company with infringing.

The Company expects a resolution of its motion to dismiss Waverly’s Texas complaint in the coming months.

These lawsuits are in their earliest stages, but the Company believes it has strong claims and defenses, and intends to vigorously defend itself against Waverly’s claims against the Company’s technology, with appeals to follow if necessary.

In its complaint, Waverly alleged that the Company was infringing one patent pertaining to charging a battery-operated device.

The Company believes it has strong claims and defenses, and intends to

vigorously defend itself against Waverly’s claims, with appeals to follow if necessary.

Because the Company believed that Waverly’s Texas complaint was improperly filed in the wrong court, the Company filed a motion to dismiss, and on November 30, 2022, the Company filed a complaint against Waverly Licensing LLC and related entities IP Edge LLC, Mavexar LLC, and Array IP LLC in the United States District Court for the District of Delaware seeking a declaration of non-infringement with respect to a patent that Waverly charged the Company with infringing.

The Texas court thereafter dismissed Waverly’s Texas complaint.

The Company’s Delaware lawsuit is in its earliest stages, but on April 6, 2023, the Delaware defendants filed a motion to dismiss based on a series of covenants not to sue that the Delaware defendants filed with the Court, with further proceedings on the Delaware defendants’ motion expected in the coming months.

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

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The Company expects to make contributions to the Pension Plan of approximately $ 0.4 million during 2024.

The accumulated unrealized actuarial activity on pension benefits, net of tax, at December 31, 2022, 2021 and 2020 was $ 0.9 million gain, $ 0.7 million loss and $ 1.6 million loss, respectively.

The accumulated unrealized actuarial activity on pension benefits, net of tax, at December 31, 2023, 2022 and 2021 was $ 1.6 million gain, $ 0.9 million gain and $ 0.7 million loss, respectively.

These amounts were reflected in Note 3 under the caption accumulated other comprehensive loss.

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BANK LINE OF CREDIT:

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

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

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

The Credit Agreement was amended with an effective date of June 28, 2023 to include the Secured Overnight Financing Rates (“SOFR”) as interest rate benchmark rates, with all other terms remaining the same.

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

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data