POWER INTEGRATIONS INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - February 2, 2012

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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 IndexSM. 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

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