What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-07 compared with 2024-02-12 · 162 added, 91 removed, 772 unchanged (25% of the section changed)

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

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.

and subsidiaries (the "Company") as of December 31, 2024 and 2023, 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, 2024, and the related notes (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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 7, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

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.

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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.

We identified the determination of excess and obsolete inventories within work-in-process and finished goods inventories 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.

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

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.

Our audit procedures related to management’s assumptions used in determining the excess and obsolete provision for work-in-process and finished goods inventories 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 inventories.

* We selected a sample of products from work-in-process and finished goods inventories as of December 31, 2023, and evaluated management's ability to accurately estimate forecasted demand by comparing the respective products usage for the year ended December 31, 2024, to estimates made in the prior year.

* We selected a sample of products from work-in-process and finished goods inventories and evaluated the reasonableness of management's provision for work-in-process and finished goods inventories 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.

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Foreign currency translation adjustments, net of $ 0 tax in 2024, 2023 and 2022

Unrealized gain (loss) on marketable securities, net of $ 0 tax in 2023, 2022 and 2021

Unrealized actuarial gain on pension benefits, net of tax of ($ 130 ), ($ 271 ) and ($ 334 ) in 2023, 2022 and 2021, respectively

Unrealized gain (loss) on marketable securities, net of ($ 195 ), $ 0 and $ 0 tax in 2024, 2023 and 2022, respectively

Unrealized actuarial gain (loss) on pension benefits, net of tax of $ 266 , ($ 130 ) and ($ 271 ) in 2024, 2023 and 2022, respectively

Total other comprehensive income (loss)

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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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Payment of dividends to stockholders

Unrealized actuarial gain on pension benefits

Unrealized actuarial loss on pension benefits

Unrealized gain on marketable securities

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Proceeds from sales and maturities of marketable securities

Acquisition (Note 15)

Net cash provided by (used in) investing activities

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Segment Reporting

The Company is organized and operates as one reportable segment, the design, development, manufacture and marketing of integrated circuits and related components for use primarily in the high-voltage power conversion markets.

The Company’s chief operating decision maker, the Chief Executive Officer, reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance.

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tax rules require U.S.

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

tax on foreign earnings, known as global intangible low taxed income (“GILTI”).

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

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

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.

Goodwill and Intangible Assets

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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 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 Company recognized a loss of $ 0.3 million in 2024, a loss of $ 0.4 million in 2023 and an immaterial foreign exchange loss in 2022.

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, copyright, trademark, or other proprietary right of a third party (Customer Indemnification).

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.

Recently Issued Accounting Pronouncements

Adoption of New Accounting Standards

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.

The amendment requires 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.

The Company adopted the new standard in fiscal year 2024 for annual and retrospective reporting periods with all interim disclosures to begin in the first quarter of fiscal year 2025.

Refer to Note 13.

Segment Reporting .

Recently Issued Accounting Pronouncements

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

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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.

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

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures ( Subtopic 220-40) which requires additional disclosure of certain costs and expenses, including inventory purchases, employee compensation, selling expense and depreciation expense within the notes to financial statements.

The guidance is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027.

The Company is currently evaluating the impact that the updated standard will have on its financial statement disclosures.

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.

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

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Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss for the three years ended December 31, 2023:

Changes in accumulated other comprehensive loss, net of taxes, for the three years ended December 31, 2024:

Unrealized Gains

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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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Amounts reclassified from accumulated other comprehensive loss

Other comprehensive income

Other comprehensive loss

Balance at December 31, 2024

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The types of instruments valued based on other observable inputs (Level 2 of the fair-value hierarchy) include investment-grade corporate bonds and commercial paper.

Such types of investments are valued by using a multi-dimensional relational model, the inputs are primarily benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications.

publications.

The Company does not hold any instruments that would be classified within Level 3 of the fair-value hierarchy.

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Money market funds

government securities

Fair Value Measurement at

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Investments due in 4-12 months:

Commercial paper

Corporate securities

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Investments due in 4-12 months:

Commercial paper

Corporate securities

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As of December 31, 2024 and 2023 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, 2023:

The following tables summarize 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, 2024 and December 31, 2023:

Less Than 12 Months

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Total marketable securities

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 weighted average interest rate of investments at December 31, 2024 and 2023, was approximately 5.08 % and 4.87 %, respectively.

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GOODWILL AND INTANGIBLE ASSETS:

The carrying amount of goodwill as of December 31, 2023 and 2022 was $ 91.8 million;

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

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

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

primary domain name;

Goodwill increased during the year ended December 31, 2024, due to the Company’s acquisition of Odyssey Semiconductor Technologies (“Odyssey”) (refer to Note 15, Acquisition , for details on the Company’s Odyssey acquisition).

Changes in the carrying amount of goodwill as of the December 31, 2024 and 2023 are as follows:

(in thousands)

Balance at January 1, 2023

Goodwill acquired during the period

Balance at December 31, 2023

Goodwill acquired during the period

Ending balance at December 31, 2024

The $ 3.4 million of goodwill acquired in 2024, resulted from the purchase of Odyssey (see Note 15, Acquisition , for further details).

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 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.

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 $ 4.9 million of in-process research and development which will commence amortization once development is completed and products are available for sale as well as $ 1.3 million paid to acquire an internet domain name.

The Company does not expect the amortization of its in-process research and development to begin in 2025.

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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(In thousands)

In-process research and development

Developed technology

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(In thousands)

* 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 PLANS AND SHARE BASED COMPENSATION:

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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, 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.

As of December 31, 2024, 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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Stock-based compensation expense in the year ended December 31, 2024, was approximately $ 35.1 million, comprising approximately $ 25.7 million related to restricted stock units, $ 7.7 million related to performance-based awards and long-term performance-based awards and $ 1.7 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.

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.

The fair value of employees’ stock purchase rights under the Purchase Plan was estimated using the Black-Scholes model with the following weighted-average assumptions used during the three years ended December 31, 2024, 2023 and 2022:

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No options were granted or remain outstanding as of December 31, 2024.

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.

There were no options exercised during the years ended December 31, 2024 and December 31, 2023, while total intrinsic value of options exercised during the year ended December 31, 2022 was $ 0.8 million.

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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The performance goals for PRSUs granted in fiscal 2022, 2023 and 2024 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.

In addition, the PRSUs granted in 2023 (“2023 PRSUs”) and 2024 (“2024 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 and 2024 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.

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Outstanding and expected to vest at December 31, 2024

In February 2023 it was determined that approximately 23,000 shares subject to the PRSUs granted in 2020 vested in aggregate;

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, 2023, 2022 and 2021 was approximately $ 1.1 million, $ 4.6 million and $ 0.2 million , respectively.

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.

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

Flextronics Group

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

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

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The Company markets its products globally through its sales personnel and a worldwide network of independent sales representatives and distributors.

Geographic net revenues based on “bill to” customer locations were as follows:

Geographic net revenues based on “bill to” customer locations by region and country with 5% or more of the Company’s revenue during any of the periods presented were as follows:

Year Ended December 31,

(In thousands)

United States of America

Hong Kong/China

Western Europe (excluding Germany)

Total net revenues

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

In October 2018, the Company’s board of director’s authorized the use of $ 80.0 million for the repurchase of the Company’s common stock, and in each of April 2021 and October 2021 , the Company’s board of directors authorized the use of an additional $ 50.0 million for the repurchase of the Company’s common stock.

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, the Company’s board of directors authorized the use of $ 325.0 million for the repurchase of the Company’s common stock.

This amount was in addition to $ 67.3 million remaining and available at the beginning of 2022 for repurchases to be executed according to pre-defined price/volume guidelines.

As of December 31, 2023, the Company had $ 26.0 million available for future stock repurchases which was used for repurchases during 2024.

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

In 2024, 2023 and 2022, the Company purchased approximately 0.4 million shares, 0.8 million shares and 3.8 million shares, respectively, for approximately $ 27.9 million, $ 55.3 million and $ 311.1 million, respectively.

As of December 31, 2024, the Company had $ 48.1 million available for future stock repurchases.

Authorization of future stock 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 and business conditions as well as other factors.

There is no expiration date on the plan or amount currently authorized.

Common Stock Dividend

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The Company paid approximately $ 46.0 million, $ 44.0 million and $ 41.5 million in cash dividends during 2024, 2023 and 2022, 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.

In October 2021, the Company’s board of directors raised the quarterly cash dividend with the declaration of five cash dividends of $ 0.15 per share (the first in lieu of the $ 0.13 per share announced in January 2021) to be paid to stockholders of record at the end of the fourth quarter in 2021 and at the end of each quarter in 2022 .

In October 2021, the Company’s board of directors declared dividends of $ 0.15 per share to be paid to be paid to stockholders of record at the end of each quarter in 2022.

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

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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 .

In October 2024, the Company’s board of directors raised the cash dividend with the declaration of five cash dividends of $ 0.21 per share to be paid to stockholders of record at the end of the fourth quarter in 2024 (in lieu of the $ 0.20 per share announced in October 2023) and at the end of each quarter in 2025 .

EARNINGS PER SHARE:

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The Company has included in the 2024, 2023 and 2022 calculations those shares that were contingently issuable upon the satisfaction of the performance conditions as of the end of the respective periods.

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.

In the years ended December 31, 2024, 2023 and 2022, no outstanding stock awards were determined to be anti-dilutive and excluded from the computation of diluted earnings per share.

PROVISION (BENEFIT) FOR INCOME TAXES:

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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.

The rate was further reduced by the release of federal uncertain tax positions caused by an expiration in the statute of limitations on these positions.

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

tax, known as global intangible low-taxed income.

tax, known as global intangible low-taxed income (“GILTI”).

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

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Deferred tax assets:

Capitalized R&D costs

R&D costs capitalized for tax purposes

Other reserves and accruals

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Deferred tax liabilities:

Fixed assets, Intangible and Goodwill

Net deferred tax assets

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

As of December 31, 2023, the Company continues to maintain a valuation allowance primarily as a result of its California, New Jersey and Canada deferred tax assets as the Company believes that it is not more likely than not that the deferred tax assets will be fully realized.

As of December 31, 2024, the Company continues to maintain a valuation allowance primarily as a result of its California, New Jersey and Canada deferred tax assets as the Company believes that it is not more likely than not that the deferred tax assets will be realized.

As of December 31, 2024, the Company had utilized all of its federal research and development tax credit carryforwards.

As of December 31, 2023, the Company had California research and development tax credit carryforwards of approximately $ 40.7 million (there is no expiration of research and development tax credit carryforwards for the state of California) and California net operating losses of $ 44.2 million which will begin to expire in 2032 .

As of December 31, 2023, the Company had Canadian scientific research and experimental development tax credit carryforwards of approximately $ 3.8 million and New Jersey research and experimental development tax credit carryforwards of approximately $ 0.8 million, which will start to expire in 2030 and 2029 , respectively.

The Tax Act signed into law on December 22, 2017, generally allows companies to repatriate accumulated foreign earnings without incurring additional U.S.

federal taxes beginning after December 31, 2017.

Local foreign and U.S.

As of December 31, 2024, the Company had California research and development tax credit carryforwards of approximately $ 42.0 million (there is no expiration of research and development tax credit carry-forwards for the state of California) and California net operating losses of $ 44.2 million which will begin to expire in 2032 .

December 31, 2024, the Company had Canadian scientific research and experimental development tax credit carry-forwards of approximately $ 3.8 million and New Jersey research and experimental development tax credit carry-forwards of approximately $ 1.0 million, which will start to expire in 2030 and 2026 , respectively.

tax laws generally allow companies to repatriate accumulated foreign earnings without incurring additional U.S.

federal taxes although local foreign and U.S.

states taxes may still be incurred upon repatriation.

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

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

The Company had accrued interest and penalties of $ 0.3 million and $ 1.2 million as of December 31, 2023 and 2022, respectively, which have been recorded in long-term income taxes payable in the accompanying consolidated balance sheets.

As of December 31, 2023, the Company has concluded all U.S.

federal income tax matters for the years through 2019.

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.

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

The Company had accrued interest and penalties of $ 0.3 million in both December 31, 2024 and 2023, which have been recorded in long-term income taxes payable in the accompanying consolidated balance sheets.

As of December 31, 2024, the Company’s tax returns continue to remain subject to examination by U.S.

federal authorities for the years after 2021.

The California Franchise Tax Board is conducting an audit for the tax years 2018 and 2019, it is still currently ongoing.

LEASES AND COMMITMENTS:

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

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;

Total lease expense was $ 3.9 million, $ 3.6 million and $ 3.3 million for the years ended December 31, 2024, 2023 and 2022;

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

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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 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 .

Remaining lease terms range from one to nine years , some of which include options to extend for up to six years , and some of which include options to terminate within one year .

Leases with an initial term of twelve months or less are not recorded on the balance sheet.

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At December 31, 2024, the Company had no non-cancelable purchase obligations that were due beyond one year.

SEGMENT REPORTING:

The Company is organized and operates as one operating and reportable segment;

the design, development, manufacture and marketing of integrated circuits and related components for use primarily in high-voltage power conversion.

This determination is based on the management approach which designates internal information regularly available to the Chief Operating Decision Maker (“CODM”) for making decisions and assessing performance as the source of determination of the Company’s reportable segments.

The Company’s CODM, the Chief Executive Officer, reviews financial information presented on a consolidated basis for the purpose of making operating decisions and assessing financial performance.

The CODM uses net income as the measure of profit or loss to allocate resources and assess performance.

The CODM regularly reviews net income as reported on the Company’s consolidated statements of income.

Financial forecasts and budget to actual results used by the CODM to assess performance and allocate resources, as well as those used for

strategic decisions related to headcount and capital expenditures are also reviewed on a consolidated basis.

The CODM considers the impact of the significant segment expenses in the table below on net income when deciding whether to reinvest profits, propose dividends or share repurchase, or pursue strategic mergers and acquisitions.

The measure of segment assets is reported on the balance sheet as total assets.

The CODM does not review segment assets at a level other than that presented in the Company’s consolidated balance sheets.

The table below presents the Company’s consolidated operating results including significant segment expenses:

Year Ended December 31,

(In thousands)

Stock-based compensation (1)

Amortization of acquisition-related intangible assets (2)

Cost of revenues (excluding 1 & 2)

Research and development (excluding 1)

Sales and marketing (excluding 1 & 2)

General and administrative (excluding 1)

Other operating expenses, net

INCOME FROM OPERATIONS

PROVISION (BENEFIT) FOR INCOME TAXES

The table below presents other segment information:

Year Ended December 31,

(In thousands)

Amortization of intangibles

Interest income

LEGAL PROCEEDINGS AND CONTINGENCIES:

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

In response, CogniPower filed a motion to dismiss the Company’s declaratory judgment claims on the basis that CogniPower had not threatened the Company directly with suit.

That motion was granted, 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 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.

On December 18, 2019, CogniPower LLC (“CogniPower”) filed a complaint against a customer of the Company in the United States District Court for the District of Delaware for infringement of two patents;

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 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.

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

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.

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 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.

On March 12, 2024, the Delaware Court dismissed the Delaware case in view of a series of covenants not to sue that Waverly et al.

filed with the Court.

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

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

These litigations, whether or not determined in the Company’s favor or settled, will be costly and will divert the efforts and attention of the Company’s management

and technical personnel from normal business operations, potentially causing a material adverse effect on the business, financial condition and operating results.

Currently, the Company is not able to estimate a loss or a range of loss for the ongoing 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.

Odyssey Semiconductor Technologies

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 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

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.

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

RETIREMENT PLANS:

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The net periodic benefit cost of the Pension Plan was not material to the Company’s financial statements during the years ended December 31, 2024, 2023 and 2022.

At December 31, 2023, the projected benefit obligation was $ 11.4 million, the plan assets were $ 7.9 million and the net pension liability was $ 3.5 million.

As of December 31, 2024, the projected benefit obligation was $ 18.3 million, the plan assets were $ 11.4 million and the net pension liability was $ 6.9 million.

As of December 31, 2023, the projected benefit obligation was $ 11.4 million, the plan assets were $ 7.9 million, and the net pension liability was $ 3.5 million.

The Company has recorded the unfunded amount as a liability in its consolidated balance sheet at December 31, 2024 and 2023, under the other liabilities caption.

The Company expects to make contributions to the Pension Plan of approximately $ 0.5 million during 2025.

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.

The accumulated unrealized actuarial balance on pension

benefits, net of tax, at December 31, 2024, 2023 and 2022 was $ 1.5 million loss, $ 1.6 million gain and $ 0.9 million gain, respectively.

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

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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