What changed in this filing

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Item 1. Financial Statements

2024-11-06 compared with 2024-08-06 · 190 added, 118 removed, 400 unchanged (44% of the section changed)

3 unchanged sentences

(In thousands)

June 30, 2024

September 30, 2024

December 31, 2023

21 unchanged sentences

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss)

Retained earnings

5 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except per share amounts)

14 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments, net of $ 0 tax in each of the three and six months ended June 30, 2024 and 2023

Unrealized gain (loss) on marketable securities, net of $ 0 tax in each of the three and six months ended June 30, 2024 and 2023

Amortization of defined benefit pension items, net of tax of ($ 7 ) and ($ 15 ) in the three and six months ended June 30, 2024, respectively, and ($ 4 ) and ($ 7 ) in the three and six months ended June 30, 2023, respectively

Total other comprehensive income (loss)

Other comprehensive income, net of tax:

Foreign currency translation adjustments, net of $ 0 tax in each of the three and nine months ended September 30, 2024 and 2023

Unrealized gain on marketable securities, net of $ 615 tax in each of the three and nine months ended September 30, 2024 and net of $ 0 tax in each of the three and nine months ended September 30, 2023

Amortization of defined benefit pension items, net of tax of ($ 8 ) and ($ 23 ) in the three and nine months ended September 30, 2024, respectively, and ($ 4 ) and ($ 11 ) in the three and nine months ended September 30, 2023, respectively

Total other comprehensive income

TOTAL COMPREHENSIVE INCOME

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

8 unchanged sentences

Ending balance

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss)

Beginning balance

Other comprehensive income (loss)

Other comprehensive income

Ending balance

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

6 unchanged sentences

Deferred income taxes

Increase (decrease) in accounts receivable allowance for credit losses

Decrease in accounts receivable allowance for credit losses

Change in operating assets and liabilities:

8 unchanged sentences

Proceeds from sales and maturities of marketable securities

Acquisition (Note 15)

Net cash used in investing activities

22 unchanged sentences

Significant Accounting Policies and Estimates

No material changes have been made to the Company’s significant accounting policies disclosed in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements , of the Company’s financial statements set forth in Item 8 of the Company’s Annual Report on Form 10-K, filed on February 12, 2024, for the year ended December 31, 2023.

Except for the additional policy presented below, no material changes have been made to the Company’s significant accounting policies disclosed in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements , of the Company’s financial statements set forth in Item 8 of the Company’s Annual Report on Form 10-K, filed on February 12, 2024, for the year ended December 31, 2023.

Business Combinations

The Company applies the provisions of ASC 805, Business Combinations (“ASC 805”), in accounting for acquisitions.

ASC 805 requires that the Company evaluates whether a transaction pertains to an acquisition of assets, or to an acquisition of a business.

A business is defined as an integrated set of assets and activities that is capable of being conducted and managed for the purpose of providing a return to investors.

Asset acquisitions are accounted for by allocating the cost of the acquisition to the individual assets and liabilities assumed on a relative fair value basis;

whereas the acquisition of a business requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed at the acquisition date fair values.

Goodwill is measured as the excess of consideration transferred over the net acquisition date fair values of the assets acquired and the liabilities assumed.

While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed as well as any contingent consideration, where applicable, the estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the business acquisition date, the Company may record certain adjustments to the assets acquired and liabilities assumed with the corresponding adjustment to goodwill.

Upon the conclusion of a business acquisition’s measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

All acquisition-related costs are accounted for as expenses in the period in which they are incurred.

Recent Accounting Pronouncements

7 unchanged sentences

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).

Improvements to Income Tax Disclosures (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(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.

3 unchanged sentences

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

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

COMPONENTS OF THE COMPANY’S CONDENSED CONSOLIDATED BALANCE SHEETS:

Accounts Receivable

September 30,

(In thousands)

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

4 unchanged sentences

Ending balance

September 30,

(In thousands)

2 unchanged sentences

Finished goods

Intangible Assets

June 30, 2024

December 31, 2023

(In thousands)

Developed technology

Technology licenses

Total intangible assets

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The estimated future amortization expense related to finite-lived intangible assets at June 30, 2024, is as follows:

(In thousands)

2024 (remaining six months)

Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss for the three and six months ended June 30, 2024 and 2023, were as follows:

Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2024 and 2023, were as follows:

Unrealized Gains

8 unchanged sentences

Three Months Ended

September 30,

(In thousands)

1 unchanged sentence

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive loss

Amounts reclassified from accumulated other comprehensive income (loss)

Net-current period other comprehensive income (loss)

Ending balance

(1) This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the three months ended June 30, 2024 and 2023.

(1) This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the three months ended September 30, 2024 and 2023.

Unrealized Gains

4 unchanged sentences

Pension Items

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

1 unchanged sentence

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive loss

Amounts reclassified from accumulated other comprehensive income (loss)

Net-current period other comprehensive income (loss)

Ending balance

(1) This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the six months ended June 30, 2024 and 2023.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(1) This component of accumulated other comprehensive income (loss) is included in the computation of net periodic pension cost for the nine months ended September 30, 2024 and 2023.

FAIR VALUE MEASUREMENTS:

5 unchanged sentences

The Company’s cash equivalents and short-term marketable securities are classified within Level 1 or Level 2 of the fair-value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

The fair-value hierarchy of the Company’s cash equivalents and marketable securities at June 30, 2024 and December 31, 2023, was as follows:

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The fair-value hierarchy of the Company’s cash equivalents and marketable securities at September 30, 2024 and December 31, 2023, was as follows:

Fair Value Measurement at

June 30, 2024

September 30, 2024

Quoted Prices in

8 unchanged sentences

Money market funds

government securities

Fair Value Measurement at

10 unchanged sentences

Money market funds

The Company did not transfer any investments between Level 1 and Level 2 of the fair-value hierarchy in the six months ended June 30, 2024 and the twelve months ended December 31, 2023.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company did not transfer any investments between Level 1 and Level 2 of the fair-value hierarchy in the nine months ended September 30, 2024 and the twelve months ended December 31, 2023.

MARKETABLE SECURITIES:

Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at June 30, 2024, were as follows:

Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at September 30, 2024, were as follows:

Gross Unrealized

2 unchanged sentences

Investments due in 3 months or less:

Corporate securities

Investments due in 4-12 months:

Commercial paper

Investments due in 4-12 months:

Corporate securities

2 unchanged sentences

Total marketable securities

Accrued interest receivable was $ 2.7 million at June 30, 2024 and was recorded within prepaid expenses and other current assets on the condensed consolidated balance sheet.

Accrued interest receivable was $ 2.6 million at September 30, 2024 and was recorded within prepaid expenses and other current assets on the condensed consolidated balance sheet.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding cash equivalents) at December 31, 2023, were as follows:

11 unchanged sentences

Accrued interest receivable was $ 2.3 million at December 31, 2023 and was recorded within prepaid expenses and other current assets on the condensed consolidated balance sheet.

The following table summarizes marketable securities classified as available-for-sale (excluding cash equivalents) in a continuous unrealized loss position for which an allowance for credit losses was not recorded at June 30, 2024:

Less Than 12 Months

3 unchanged sentences

Total marketable securities

In the three and six months ended June 30, 2024 and 2023, no unrealized losses on marketable securities were recognized in income.

In the three and nine months ended September 30, 2024 and 2023, no unrealized losses on marketable securities were recognized in income.

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

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

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

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

GOODWILL AND INTANGIBLE ASSETS:

Changes in the carrying amount of goodwill during the nine months ended September 30, 2024 are as follows:

(in thousands)

Balance at December 31, 2023

Goodwill acquired during the period

Ending balance at September 30, 2024

The $ 3.4 million of goodwill acquired during the nine months ended September 30, 2024 resulted from the purchase of the assets of Odyssey Semiconductor Technologies (“Odyssey”) see Note 15, Acquisition , for further details.

Intangible Assets

Intangible assets consist primarily of developed technology, in-process research and development, acquired licenses and domain name and are reported net of accumulated amortization.

In July 2024, the Company acquired the

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

in interest rates.

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

assets of Odyssey, a U.S.

company and developer of vertical gallium-nitride (“GaN”) transistor technology, resulting in the addition of in-process research and development of $ 4.9 million.

Amortization of the in-process research and development will commence once development is completed and products are available for sale;

the Company does not expect the amortization of its in-process research and development to begin in 2024.

September 30, 2024

December 31, 2023

(In thousands)

In-process research and development

Developed technology

Technology licenses

Total intangible assets

The estimated future amortization expense related to finite-lived intangible assets at September 30, 2024, is as follows:

(In thousands)

2024 (remaining three months)

Total excludes $ 4.9 million of in-process research and development which will be amortized upon completion of development over the estimated useful life of the technology.

STOCK-BASED COMPENSATION:

The following table summarizes the stock-based compensation expense recognized in accordance with ASC 718-10 for the three and six months ended June 30, 2024 and 2023:

The following table summarizes the stock-based compensation expense recognized in accordance with ASC 718-10 for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

4 unchanged sentences

Total stock-based compensation expense

Stock-based compensation expense in the three months ended June 30, 2024, was approximately $ 11.0 million, comprising approximately $ 6.3 million related to restricted stock unit (“RSU”) awards, $ 4.3 million related to performance-based (“PSU”) awards and long-term performance-based (“PRSU”) awards and $ 0.4 million related to the Company’s employee stock purchase plan.

Stock-based compensation expense in the six months ended June 30, 2024, was approximately $ 17.4 million, comprising approximately $ 12.4 million related to RSUs, $ 4.3 million related to PSUs and PRSUs and $ 0.7 million related to the Company’s employee stock purchase plan.

Stock-based compensation expense in the three months ended June 30, 2023, was approximately $ 6.8 million, comprising approximately $ 5.3 million related to RSUs, $ 1.0 million related to PSUs and PRSUs and $ 0.5 million related to the Company’s employee stock purchase plan.

Stock-based compensation expense in the six months ended June 30, 2023, was approximately $ 14.1 million, comprising approximately $ 11.2 million related to RSUs, $ 1.9 million related to PSUs and PRSUs and $ 1.0 million related to the Company’s employee stock purchase plan.

Stock-based compensation expense in the three months ended September 30, 2024, was approximately $ 8.3 million, comprising approximately $ 6.6 million related to restricted stock unit (“RSU”) awards, $ 1.3 million related to performance-based (“PSU”) awards and long-term performance-based (“PRSU”) awards and $ 0.4 million related to the Company’s employee stock purchase plan.

Stock-based compensation expense in the nine months ended September 30, 2024, was approximately $ 25.8 million, comprising approximately $ 19.0 million related to RSUs, $ 5.6 million related to PSUs and PRSUs and $ 1.2 million related to the Company’s employee stock purchase plan.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock-based compensation expense in the three months ended September 30, 2023, was approximately $ 6.9 million, comprising approximately $ 6.1 million related to RSUs, $ 0.3 million related to PSUs and PRSUs and $ 0.5 million related to the Company’s employee stock purchase plan.

Stock-based compensation expense in the nine months ended September 30, 2023, was approximately $ 21.0 million, comprising approximately $ 17.3 million related to RSUs, $ 2.3 million related to PSUs and PRSUs and $ 1.4 million related to the Company’s employee stock purchase plan.

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.

6 unchanged sentences

the shares were released to the Company’s employees and executives in the first quarter of 2024.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A summary of PSUs outstanding as of June 30, 2024 and activity during the six months ended, is presented below:

A summary of PSUs outstanding as of September 30, 2024 and activity during the nine months ended, is presented below:

Weighted-Average

7 unchanged sentences

Outstanding at January 1, 2024

Outstanding at June 30, 2024

Outstanding and expected to vest at June 30, 2024

Outstanding at September 30, 2024

Outstanding and expected to vest at September 30, 2024

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.

5 unchanged sentences

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

In February 2024, it was determined that no shares subject to the PRSUs granted in 2021 vested;

thus no shares were released to the Company’s executives in the first quarter of 2024.

A summary of PRSUs outstanding as of June 30, 2024 and activity during the six months ended, is presented below:

In February 2024, it was determined that no shares subject to the PRSUs granted in 2021 vested and no shares were released to the Company’s executives.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A summary of PRSUs outstanding as of September 30, 2024 and activity during the nine months ended, is presented below:

Weighted-Average

6 unchanged sentences

Outstanding at January 1, 2024

Outstanding at June 30, 2024

Outstanding and expected to vest at June 30, 2024

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A summary of RSUs outstanding as of June 30, 2024 and activity during the six months ended, is presented below:

Outstanding at September 30, 2024

Outstanding and expected to vest at September 30, 2024

A summary of RSUs outstanding as of September 30, 2024 and activity during the nine months ended, is presented below:

Weighted-Average

6 unchanged sentences

Outstanding at January 1, 2024

Outstanding at June 30, 2024

Outstanding and expected to vest at June 30, 2024

Outstanding at September 30, 2024

Outstanding and expected to vest at September 30, 2024

SIGNIFICANT CUSTOMERS AND GEOGRAPHIC NET REVENUES:

3 unchanged sentences

Customer Concentration

The Company’s top ten customers accounted for approximately 80 % and 78 % of net revenues for the three and six months ended June 30, 2024, respectively, and 82 % and 79 %, respectively, in the corresponding periods of 2023.

The Company’s top ten customers accounted for approximately 78 % of net revenues for both the three and nine months ended September 30, 2024, and 83 % and 81 % in the corresponding periods of 2023.

A significant portion of these revenues are attributable to sales of the Company’s products to distributors of electronic components.

1 unchanged sentence

Similarly, merchant power-supply manufacturers sell power supplies incorporating the Company’s products to a broad range of OEMs.

Sales to distributors were $ 73.5 million and $ 139.9 million in the three and six months ended June 30, 2024, respectively, and $ 78.8 million and $ 145.5 million, respectively, in the corresponding periods of 2023.

Sales to distributors were $ 80.5 million and

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

$ 220.4 million in the three and nine months ended September 30, 2024, respectively, and $ 93.2 million and $ 238.7 million in the corresponding periods of 2023.

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

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Honestar Technologies Co., Ltd.

Salcomp Group

Flextronics Group

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

3 unchanged sentences

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

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of June 30, 2024 and December 31, 2023, 84 % and 86 % of accounts receivable were concentrated with the Company’s top ten customers.

The following customers represented 10% or more of accounts receivable at June 30, 2024 and December 31, 2023:

Powertech Distribution Ltd.

As of September 30, 2024 and December 31, 2023, 84 % and 86 % of accounts receivable were concentrated with the Company’s top ten customers.

The following customers represented 10% or more of accounts receivable at September 30, 2024 and December 31, 2023:

September 30,

Salcomp Group

Flextronics Group

Honestar Technologies Co., Ltd.

Salcomp Group

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

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

1 unchanged sentence

Total net revenues

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

STOCKHOLDERS’ EQUITY:

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

4 unchanged sentences

As of December 31, 2023, the Company had $ 26.0 million remaining under its authorized stock-repurchase program.

In the three and six months ended June 30, 2024 , the Company purchased approximately 164,000 shares for $ 11.3 million and approximately 371,000 shares for $ 26.0 million, leaving no amount authorized for stock repurchases as of June 30, 2024.

The Company exhausted this authorization in the nine months ended September 30, 2024, purchasing approximately 371,000 shares of the Company’s common stock for $ 26.0 million.

In October 2024, the Company’s board of directors authorized the use of $ 50.0 million for the repurchase of the Company’s common stock, with repurchases to be executed according to pre-defined price/volume guidelines.

The program has no expiration date.

Authorization of future repurchase programs is at the discretion of the Company’s board of directors and will depend on the Company’s financial condition, results of operations, capital requirements, business conditions and other factors.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash Dividends

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 quarterly cash dividend with the declaration of five 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 .

For the three and six months ended June 30, 2024 and 2023, cash dividends declared and paid were as follows:

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

In October 2024, the Company’s board of directors raised the quarterly cash dividend again with the declaration of five cash dividends of $ 0.21 per share to be paid at the end of the fourth quarter of 2024 (in lieu of the previously declared dividend of $ 0.20 per share) and at the end of each quarter in 2025 .

For the three and nine months ended September 30, 2024 and 2023, cash dividends declared and paid were as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except per share amounts)

5 unchanged sentences

Dilutive common equivalent shares included in this calculation consist of dilutive shares issuable upon the assumed exercise of outstanding common stock options, the assumed vesting of outstanding restricted stock units, the assumed issuance of awards under the stock purchase plan and contingently issuable performance-based awards, as computed using the treasury stock method.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except per share amounts)

10 unchanged sentences

The Company has excluded the shares underlying the outstanding performance-based awards in the 2024 and 2023 calculations as the shares were not contingently issuable as of the end of the reporting periods.

In the three and six months ended June 30, 2024 and 2023, no outstanding stock awards were determined to be anti-dilutive and therefore excluded from the computation of diluted earnings per share.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In the three and nine months ended September 30, 2024 and 2023, no outstanding stock awards were determined to be anti-dilutive and therefore excluded from the computation of diluted earnings per share.

PROVISION FOR INCOME TAXES:

1 unchanged sentence

Accordingly, the interim effective tax rate may not be reflective of the annual estimated effective tax rate.

The Company’s effective tax rate for the three and six months ended June 30, 2024 was 5.8 % and 3.5 %, respectively, as compared to 3.7 % and 5.1 %, respectively, in the corresponding periods of 2023.

The Company’s effective tax rate for the three and nine months ended September 30, 2024 was 0.3 % and 1.5 %, respectively, as compared to 5.1 % in both corresponding periods of 2023.

The effective tax rate in these periods were lower than the statutory federal income-tax rate of 21 % due to the geographic distribution of the Company’s world-wide earnings in lower-tax jurisdictions and federal research tax credits.

Additionally, in the three months ended June 30, 2024, the Company’s effective tax rate was favorably impacted by the recognition of excess tax benefits related to share-based payments.

In the six months ended June 30, 2024, the Company’s effective tax rate was also favorably impacted by the recognition of excess tax benefits related to share-based payments and by discrete items associated with the release of unrecognized tax benefits.

In the three and six months ended June 30, 2023, the Company’s effective tax rate was favorably impacted by a discrete item associated with recognition of excess tax benefits related to share-based payments.

In the six months ended June 30, 2023, the Company’s effective tax rate was also favorably impacted by discrete items associated with the release of unrecognized tax benefits.

Additionally, i n the nine months ended September 30, 2024, the Company’s effective tax rate was also favorably impacted by the recognition of excess tax benefits related to share-based payments and by discrete items associated with the release of unrecognized tax benefits.

In the three and nine months ended September 30, 2023, the Company’s effective tax rate was favorably impacted by a discrete item associated with recognition of excess tax benefits related to share-based payments.

In the nine months ended September 30, 2023, the Company’s effective tax rate was also favorably impacted by discrete items associated with the release of unrecognized tax benefits.

These benefits were partially offset by U.S.

3 unchanged sentences

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

As of June 30, 2024, the Company maintained a valuation allowance on its California deferred tax assets, New Jersey deferred tax assets and a valuation allowance with respect to its deferred tax assets relating to tax credits in Canada.

As of September 30, 2024, the Company maintained a valuation allowance on its California deferred tax assets, New Jersey deferred tax assets and a valuation allowance with respect to its deferred tax assets relating to tax credits in Canada.

Determining the consolidated provision for income-tax expense, income-tax liabilities and deferred tax assets and liabilities involves judgment.

1 unchanged sentence

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

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Supplier Agreements

12 unchanged sentences

the Company thereafter intervened and sought a declaration of non-infringement with respect to use of the Company’s products.

The case was then stayed until February 26, 2024, when the Delaware Court then set a schedule for the remainder of the case, with further proceedings

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

in the coming months, and a trial scheduled in August 2025.

The case was then stayed until February 26, 2024, when the Delaware Court then set a schedule for the remainder of the case, with further proceedings in the coming months, and a trial scheduled in August 2025.

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.

7 unchanged sentences

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

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

INDEMNIFICATIONS:

5 unchanged sentences

In addition, the Company requires its employees to sign a proprietary information and inventions agreement, which assigns the rights to its employees’ development work to the Company.

To date, the Company has not had to reimburse any of its distributors or customers for any losses related to these indemnifications and no material claims were outstanding as of June 30, 2024.

To date, the Company has not had to reimburse any of its distributors or customers for any losses related to these indemnifications and no material claims were outstanding as of September 30, 2024.

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.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Odyssey Semiconductor Technologies

On March 12, 2024, the Company entered into an agreement with Odyssey Semiconductor Technologies ("Odyssey"), a U.S.

On March 12, 2024, the Company agreed to acquire the assets of Odyssey, a U.S.

company and a developer of vertical gallium-nitride (“GaN”) transistor technology.

The transaction closed on July 1, 2024;

at that time all key Odyssey employees joined Power Integrations’ technology organization.

P ursuant to the asset purchase agreement, Odyssey sold, transferred and assigned substantially all of its assets to the Company for $ 9.52 million in cash consideration.

It is expected that intangible assets and goodwill arising from the acquisition will be recorded on the Company’s consolidated balance sheets.

However, as the initial accounting for the acquisition had not yet been completed at the time of the issuance of these unaudited condensed consolidated financial statements, further details have not yet been disclosed.

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

The transaction closed on July 1, 2024, at which time all key Odyssey employees joined the Company.

P ursuant to the asset purchase agreement, Odyssey sold, transferred and assigned substantially all of its assets to the Company for $ 9.52 million in cash.

The purchase is intended to augment the Company’s development of high-power GaN switching technology.

The acquisition has been accounted for using the acquisition method of accounting in accordance with ASC 805 - Business Combinations.

Under the acquisition method of accounting, the total purchase consideration of the acquisition is allocated to the tangible assets and identifiable intangible assets acquired based on their relative fair values.

The excess of the purchase consideration over the net tangible and identifiable intangible assets is recorded as goodwill, the amount of which represents the expected benefits to the Company of future technology and the knowledgeable and experienced employees who joined the Company.

Goodwill is expected to be deductible over 15 years for tax purposes.

The following table summarizes the purchase price and estimated fair values of the assets acquired as of July 1, 2024, the completion of the Odyssey acquisition:

(In thousands)

Assets Acquired

Property and equipment, net

In-process research and development

Total purchase price

The fair value of in-process research and development was determined based on the cost approach using the Company’s estimate of the costs that would be incurred if a market participant were to create the acquired technology from scratch.

The Company considered the number of engineers required, salaries and related benefits, allocated overhead and the development time required to recreate the technology.

The Company will record the in-process research and development as an intangible asset with an indefinite life until completion or abandonment of the associated research and development efforts, and will begin amortizing the value over the estimated life of the technology upon completion of development.

Consistent with the treatment of other intangible assets with indefinite lives, the Company will test the in-process research and development for impairment on an annual basis or when impairment indicators are present.

POWER INTEGRATIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Pro forma results of operations for this acquisition have not been presented because they are not material to the Company’s consolidated financial statements.

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

What changed 10-Q

Item 1. Financial Statements