Power Integrations (POWI) 8-K Power Integrations Reports Fourth-Quarter and Full-Year 2011 Financial Results

Exhibit 99.1

Power Integrations Reports Fourth-Quarter and Full-Year 2011 Financial Results

Company reports record annual operating cash flow of $69.2 million

SAN JOSE, Calif.--(BUSINESS WIRE)--February 2, 2012--Power Integrations (Nasdaq:POWI), the leader in high-voltage integrated circuits for energy-efficient power conversion, today announced financial results for the quarter ended December 31, 2011. Net revenues for the fourth quarter were $66.7 million, down 11 percent from the prior quarter and down nine percent compared with the fourth quarter of 2010. Net income was $6.3 million or $0.22 per diluted share, compared with $0.25 per diluted share in the prior quarter and $0.30 per diluted share in the fourth quarter of 2010. Gross margin for the fourth quarter was 47.3 percent; operating margin was 11.7 percent.

In addition to its GAAP results, the company provided certain non-GAAP financial measures that exclude stock-based compensation expenses, amortization of acquisition-related intangible assets and the fair-value write-up of acquired inventory, and the tax effects of these items. Non-GAAP net income for the quarter was $8.5 million or $0.29 per diluted share, compared with $0.32 per diluted share in the prior quarter and $0.39 per diluted share in the fourth quarter of 2010. Non-GAAP gross margin for the fourth quarter was 47.8 percent; non-GAAP operating margin was 15.6 percent.

For the full year, net revenues were $298.7 million, a slight decrease compared with $299.8 million in the prior year. Net income for 2011 was $34.3 million or $1.14 per diluted share, compared with $49.5 million or $1.67 per diluted share in the prior year. Non-GAAP net income was $43.2 million or $1.44 per diluted share, compared with $59.4 million or $2.01 per diluted share in the prior year.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “As expected, our fourth-quarter revenues were down from the prior quarter reflecting the industry-wide slowdown in demand. However, we have seen an uptick in orders of late, and while it is difficult to predict the trajectory of the recovery, it appears that business conditions have stabilized and perhaps begun to improve. Moreover, our gross margin increased in the fourth quarter as we began to realize the benefits of our ongoing cost-reduction initiatives. We anticipate further margin expansion in 2012 as these efforts continue.”

“In spite of challenging macroeconomic conditions we reported record operating cash flow of $69.2 million for 2011. Looking ahead, the global trend toward more energy-efficient electronics and lighting technologies continues to gather steam, and we are a leading enabler in both of these areas. We also made excellent progress last year winning designs, ramping new products and growing our customer base, and we believe we are well positioned for growth as cyclical headwinds abate.”

Additional Highlights

• Cash flow from operations was $9.2 million for the fourth quarter and $69.2 million for the year.
• Power Integrations repurchased 0.4 million shares of its common stock during the fourth quarter for $14.2 million. During the year the company repurchased 1.5 million shares for $50 million.
• The company paid a dividend of $0.05 per share on December 30, 2011. The next dividend of $0.05 per share will be paid on March 30, 2012 to stockholders of record as of February 29, 2012.
• Power Integrations was issued 15 U.S. patents and 25 non-U.S. patents during the quarter and had a total of 454 U.S. patents and 317 non-U.S. patents as of December 31, 2011.

Financial Outlook

The company issued the following forecast for the first quarter of 2012:

• Revenues are expected to be between $64 million and $70 million;
• Gross margins are expected to be flat to 50 basis points higher compared with the fourth quarter;
• Operating expenses:
  • GAAP: between $25 million and $26 million;
  • Non-GAAP: between $22 million and $23 million (which excludes from GAAP operating expenses approximately $3 million of stock-based compensation expenses and less than $0.1 million of amortization expense related to acquisition-related intangible assets).

Conference Call Today at 1:45 p.m. Pacific Time

Power Integrations management will hold a conference call today at 1:45 p.m. Pacific time. Members of the investment community can join the call by dialing 1-877-303-9795 from within the United States or 1-631-291-4581 from outside the U.S. The call will be available via a live and archived webcast on the investor section of the company's website, http://investors.powerint.com.

About Power Integrations

Power Integrations, Inc., is a Silicon Valley-based supplier of high-voltage integrated circuits and other high-voltage components used in energy-efficient power conversion. The company’s innovative technologies enable compact, reliable AC-DC power supplies for a vast range of electronic products including mobile devices, TVs, PCs, appliances, smart utility meters and LED lights. Since its introduction in 1998, Power Integrations’ EcoSmart^® energy-efficiency technology has prevented billions of dollars’ worth of energy waste and millions of tons of carbon emissions. Reflecting the environmental benefits of the company’s products, Power Integrations’ stock is included in the NASDAQ^® Clean Edge^® Green Energy Index, The Cleantech Index^®, and the Ardour Global Index^SM. For more information, including design-support tools and resources, please visit www.powerint.com; visit Power Integrations’ Green Room for a comprehensive guide to energy-efficiency standards around the world.

Note Regarding Use of Non-GAAP Financial Measures

In addition to the company's consolidated financial statements, which are presented according to GAAP, the company provides certain non-GAAP financial information that excludes stock-based compensation expenses recorded under Accounting Standard Codification 718-10, certain acquisition-related expenses such as the amortization of acquisition-related intangible assets and the fair-value write-up of acquired inventory, and the tax effects of these items. The company uses these non-GAAP measures in its own financial and operational decision-making processes and, with respect to one measure, in setting performance targets for employee-compensation purposes. Further, the company believes that these non-GAAP measures offer an important analytical tool to help investors understand the company’s core operating results and trends, and to facilitate comparability with the operating results of other companies that provide similar non-GAAP measures. These non-GAAP measures have certain limitations as analytical tools and are not meant to be considered in isolation or as a substitute for GAAP financial information. For example, stock-based compensation is an important component of the company’s compensation mix, and will continue to result in significant expenses in the company’s GAAP results for the foreseeable future, but is not reflected in the non-GAAP measures. Also, other companies, including companies in Power Integrations’ industry, may calculate non-GAAP financial measures differently, limiting their usefulness as comparative measures.

Note Regarding Forward-Looking Statements

The statements in this press release relating to the company’s projected first-quarter 2012 financial performance under the heading “Financial Outlook,” and Mr. Balakrishnan’s statements that it appears that business conditions have stabilized and perhaps begun to improve and that the company anticipates further margin expansion in 2012 are forward-looking statements reflecting management's current expectations and beliefs. These forward-looking statements are based on current information that is, by its nature, subject to rapid and even abrupt changes. Due to risks and uncertainties associated with the company's business, actual results could differ materially from those projected or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to: changes in global macroeconomic conditions may impact the level of demand for the company’s products; potential changes and shifts in customer demand away from end products that utilize the company's integrated circuits to end products that do not incorporate the company's products; the effects of competition may cause the company to decrease its selling prices for its products; the outcome and cost of patent litigation may affect sales of the company’s products or could result in higher expenses and charges than currently expected; unforeseen costs and expenses may occur; unfavorable fluctuations in component costs resulting from changes in commodity prices and/or the exchange rate between the U.S. dollar and the Japanese yen; and the challenges inherent in integrating acquired businesses. In addition, new product introductions and design wins are subject to the risks and uncertainties that typically accompany development and delivery of complex technologies to the marketplace, including product development delays and defects and market acceptance of the new products. These and other risk factors that may cause actual results to differ are more fully explained under the caption “Risk Factors” in the company's most recent Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (SEC) on November 7, 2011. The company is under no obligation (and expressly disclaims any obligation) to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by the rules and regulations of the SEC.

Power Integrations, EcoSmart, and the Power Integrations logo are trademarks or registered trademarks of Power Integrations, Inc. All other trademarks are property of their respective owners.

POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
	Three Months Ended									Twelve Months Ended
	December 31, 2011			September 30, 2011			December 31, 2010			December 31, 2011			December 31, 2010
NET REVENUES	$	66,730		$	75,063		$	72,986		$	298,739		$	299,803
COST OF REVENUES		35,176			40,020			36,860			158,093			147,262
GROSS PROFIT		31,554			35,043			36,126			140,646			152,541
OPERATING EXPENSES:
Research and development		9,732			10,345			9,753			40,295			35,886
Sales and marketing		8,282			7,990			9,063			32,624			31,167
General and administrative		5,747			6,145			6,339			24,508			25,562
Total operating expenses		23,761			24,480			25,155			97,427			92,615
INCOME FROM OPERATIONS		7,793			10,563			10,971			43,219			59,926
OTHER INCOME, net		421			552			500			1,876			1,879
INCOME BEFORE PROVISION FOR INCOME TAXES		8,214			11,115			11,471			45,095			61,805
PROVISION FOR INCOME TAXES		1,888			3,603			2,541			10,804			12,341
NET INCOME	$	6,326		$	7,512		$	8,930		$	34,291		$	49,464
EARNINGS PER SHARE:
Basic	$	0.23		$	0.26		$	0.32		$	1.20		$	1.78
Diluted	$	0.22		$	0.25		$	0.30		$	1.14		$	1.67
SHARES USED IN PER-SHARE CALCULATION:
Basic		28,077			28,799			28,134			28,609			27,837
Diluted		29,171			29,879			29,844			29,964			29,556
SUPPLEMENTAL INFORMATION:
Stock-based compensation expenses included in:
Cost of revenues	$	81		$	128		$	205		$	665		$	686
Research and development		920			564			1,325			3,274			4,107
Sales and marketing		655			449			817			2,314			2,594
General and administrative		696			527			895			2,716			3,334
Total stock-based compensation expense	$	2,352		$	1,668		$	3,242		$	8,969		$	10,721
Cost of revenues includes:
Amortization of write-up of acquired inventory	$	152		$	150		$	-		$	512		$	-
Amortization of acquisition-related intangible assets	$	85		$	85		$	41		$	341		$	164
Operating expenses include:
Amortization of acquisition-related intangible assets	$	28		$	28		$	-		$	114		$	-
Patent-litigation expenses	$	1,446		$	1,751		$	1,321		$	5,665		$	5,725
REVENUE MIX BY PRODUCT FAMILY
TOPSwitch		21	%		21	%		23	%		23	%		24	%
TinySwitch		34	%		33	%		36	%		33	%		38	%
LinkSwitch		42	%		43	%		40	%		42	%		37	%
Other		3	%		3	%		1	%		2	%		1	%
REVENUE MIX BY END MARKET
Communications		28	%		26	%		33	%		28	%		31	%
Computer		13	%		12	%		11	%		12	%		12	%
Consumer		39	%		39	%		37	%		38	%		38	%
Industrial		20	%		23	%		19	%		22	%		19	%

POWER INTEGRATIONS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS
(in thousands, except per-share amounts)
		Three Months Ended									Twelve Months Ended
		Dec. 31, 2011			Sept. 30, 2011			Dec. 31, 2010			Dec. 31, 2011			Dec. 31, 2010
RECONCILIATION OF GROSS PROFIT
GAAP gross profit		$	31,554		$	35,043		$	36,126		$	140,646		$	152,541
	GAAP gross profit margin		47.3	%		46.7	%		49.5	%		47.1	%		50.9	%
Stock-based compensation included in cost of revenues			81			128			205			665			686
Amortization of write-up of acquired inventory			152			150			-			512			-
Amortization of acquisition-related intangible assets			85			85			41			341			164
Non-GAAP gross profit		$	31,872		$	35,406		$	36,372		$	142,164		$	153,391
	Non-GAAP gross profit margin		47.8	%		47.2	%		49.8	%		47.6	%		51.2	%
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses		$	23,761		$	24,480		$	25,155		$	97,427		$	92,615
Less:	Stock-based compensation expense included in operating expenses
	Research and development		920			564			1,325			3,274			4,107
	Sales and marketing		655			449			817			2,314			2,594
	General and administrative		696			527			895			2,716			3,334
	Total		2,271			1,540			3,037			8,304			10,035
	Amortization of acquisition-related intangible assets		28			28			-			114			-
Non-GAAP operating expenses		$	21,462		$	22,912		$	22,118		$	89,009		$	82,580
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations		$	7,793		$	10,563		$	10,971		$	43,219		$	59,926
	GAAP operating margin		11.7	%		14.1	%		15.0	%		14.5	%		20.0	%
Less:	Total stock-based compensation		2,352			1,668			3,242			8,969			10,721
	Amortization of write-up of acquired inventory		152			150			-			512			-
	Amortization of acquisition-related intangible assets		113			113			41			455			164
Non-GAAP income from operations		$	10,410		$	12,494		$	14,254		$	53,155		$	70,811
	Non-GAAP operating margin		15.6	%		16.6	%		19.5	%		17.8	%		23.6	%
RECONCILIATION OF PROVISION FOR INCOME TAXES
GAAP provision for income taxes		$	1,888		$	3,603		$	2,541		$	10,804		$	12,341
	GAAP effective tax rate		23.0	%		32.4	%		22.2	%		24.0	%		20.0	%
Tax effect of items excluded from non-GAAP results			(478	)		85			(523	)		(1,022	)		(979	)
Non-GAAP provision for income taxes		$	2,366		$	3,518		$	3,064		$	11,826		$	13,320
	Non-GAAP effective tax rate		21.8	%		27.0	%		20.8	%		21.5	%		18.3	%
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income		$	6,326		$	7,512		$	8,930		$	34,291		$	49,464
Adjustments to GAAP net income
	Stock-based compensation		2,352			1,668			3,242			8,969			10,721
	Amortization of write-up of acquired inventory		152			150			-			512			-
	Amortization of acquisition-related intangible assets		113			113			41			455			164
	Tax effect of items excluded from non-GAAP results		(478	)		85			(523	)		(1,022	)		(979	)
Non-GAAP net income		$	8,465		$	9,528		$	11,690		$	43,205		$	59,370
Average shares outstanding for calculation
	of non-GAAP income per share (diluted)		29,171			29,879			29,844			29,964			29,556
Non-GAAP income per share (diluted)		$	0.29		$	0.32		$	0.39		$	1.44		$	2.01
GAAP income per share (diluted)		$	0.22		$	0.25		$	0.30		$	1.14		$	1.67

POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
	December 31, 2011		September 30, 2011		December 31, 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	139,836	$	148,578	$	155,667
Short-term investments		40,899		48,932		27,355
Accounts receivable		9,396		10,330		5,713
Inventories		52,010		51,763		62,077
Deferred tax assets		892		1,440		1,435
Prepaid expenses and other current assets		7,068		6,864		9,263
Total current assets		250,101		267,907		261,510
INVESTMENTS		32,041		25,022		31,760
PROPERTY AND EQUIPMENT, net		88,241		85,271		84,470
GOODWILL AND INTANGIBLE ASSETS		23,638		23,852		24,621
DEFERRED TAX ASSETS		12,387		12,637		13,421
OTHER ASSETS		26,511		25,799		17,288
Total assets	$	432,919	$	440,488	$	433,070
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	16,532	$	17,318	$	20,291
Accrued payroll and related expenses		5,911		6,290		7,395
Income taxes payable		-		1,759		-
Deferred income on sales to distributors		7,883		10,316		12,221
Other accrued liabilities		2,305		2,613		9,548
Total current liabilities		32,631		38,296		49,455
LONG-TERM LIABILITIES
Income taxes payable		34,368		33,805		29,580
Total liabilities		66,999		72,101		79,035
STOCKHOLDERS' EQUITY:
Common stock		28		28		28
Additional paid-in capital		158,646		166,007		175,295
Accumulated translation adjustment		50		80		85
Retained earnings		207,196		202,272		178,627
Total stockholders' equity		365,920		368,387		354,035
Total liabilities and stockholders' equity	$	432,919	$	440,488	$	433,070

POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
	Three Months Ended			Twelve Months Ended
	Dec. 31, 2011	Sept. 30, 2011	Dec. 31, 2010	Dec. 31, 2011	Dec. 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 6,326	$ 7,512	$ 8,930	$ 34,291	49,464
Adjustments to reconcile net income to cash provided by operating activities
Depreciation	4,035	3,865	3,387	15,372	12,341
Amortization of intangible assets	214	243	170	943	674
(Gain) loss on sale of property and equipment	-	-	14	(41)	(330)
Stock-based compensation expense	2,352	1,668	3,242	8,969	10,721
Amortization of premium on held-to-maturity investments	372	396	428	1,627	1,765
Deferred income taxes	798	(47)	875	1,577	1,124
Increase (decrease) in accounts receivable allowances	13	(110)	(2)	(61)	(27)
Excess tax benefit from stock options exercised	(67)	(32)	(370)	(796)	(1,309)
Tax benefit associated with employee stock plans	375	288	940	2,201	2,891
Change in operating assets and liabilities:
Accounts receivable	921	(2,150)	2,382	(3,621)	16,236
Inventories	(147)	2,269	(10,792)	10,037	(33,588)
Prepaid expenses and other assets	(1,204)	(225)	(13,125)	1,619	(8,515)
Accounts payable	(474)	3,170	(576)	(1,564)	(483)
Taxes payable and other accrued liabilities	(1,914)	3,423	1,522	2,977	5,828
Deferred income on sales to distributors	(2,434)	(883)	(2,628)	(4,338)	3,180
Net cash provided by (used in) operating activities	9,166	19,387	(5,603)	69,192	59,972
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(6,994)	(3,710)	(8,733)	(23,223)	(30,567)
Proceeds from sale of property and equipment	-	-	-	2,249	1,415
Other assets	(6)	(463)	(1,831)	(1,277)	(1,831)
Acquisition	-	-	-	(6,914)	(8,598)
Increase in financing lease receivables	(138)	(157)	-	(8,116)	-
Collections of financing lease receivables	111	109	-	425	-
Notes to third parties	-	-	-	(3,000)	(6,750)
Collection of note to third parties	-	3,000	-	3,000	-
Purchases of held-to-maturity investments	(10,907)	(19,761)	-	(42,176)	(27,224)
Proceeds from held-to-maturity investments	11,550	8,545	519	26,725	27,010
Net cash used in investing activities	(6,384)	(12,437)	(10,045)	(52,307)	(46,545)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock	3,992	3,972	8,276	22,210	26,263
Repurchase of common stock	(14,181)	(31,435)	-	(50,000)	(13,960)
Retirement of performance shares for income tax withholding	-	-	-	-	(769)
Payments of dividends to stockholders	(1,402)	(1,435)	(1,414)	(5,722)	(5,577)
Excess tax benefit from stock options exercised	67	32	370	796	1,309
Net cash provided by (used in) financing activities	(11,524)	(28,866)	7,232	(32,716)	7,266
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(8,742)	(21,916)	(8,416)	(15,831)	20,693
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	148,578	170,494	164,083	155,667	134,974
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$ 139,836	$ 148,578	$ 155,667	$ 139,836	$ 155,667

CONTACT:
Power Integrations, Inc.
Joe Shiffler, 408-414-8528
jshiffler@powerint.com