8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

______________

FORM 8-K

CURRENT REPORT

Pursuant To Section 13 OR 15(d) of The Securities Exchange Act Of 1934

Date of Report (Date of earliest event reported): February1, 2017

______________

Power Integrations, Inc.

(Exact name of Registrant as specified in its charter)

______________

Delaware	000-23441	94-3065014
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

5245 Hellyer Avenue

San Jose, California 95138-1002

(Address of principal executive offices)

Registrant's telephone number, including area code (408) 414-9200

______________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On February 1, 2017, Power Integrations, Inc. issued a press release, a copy of which is attached hereto as Exhibit 99.1 and is incorporated herein by reference. In addition, on February 1, 2017, Power Integrations, Inc. made available its Recast financial statements under Accounting Standards Codification 606 - Revenue from Contracts with Customers, a copy of which is attached hereto as Exhibit 99.2 and is incorporated herein by reference.

Item 9.01. Financial Statements and Exhibits.

Exhibit No.	Description
99.1	Press release dated February 1, 2017
99.2	Recast financial statements under Accounting Standards Codification 606 - Revenue from Contracts with Customers

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Power Integrations, Inc.
February 1, 2017	/s/ Sandeep Nayyar
(Date)	Sandeep Nayyar
	Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press release dated February 1, 2017
99.2	Recast financial statements under Accounting Standards Codification 606 - Revenue from Contracts with Customers

EX-99.1

Exhibit 99.1

NEWS RELEASE

Power Integrations Reports Fourth-Quarter Financial Results

Quarterly revenues grew 16 percent year-over-year to $101.1 million; GAAP earnings were $0.46 per diluted share; non-GAAP earnings were $0.67 per diluted share

Full-year revenues were $387.4 million, up 13 percent from the prior year; company generated $97.9 million in cash flow from operations in 2016

SAN JOSE, CALIF. - February 1, 2017 - Power Integrations (Nasdaq: POWI) today announced financial results for the quarter and year ended December 31, 2016. Net revenues for the fourth quarter were $101.1 million, a decrease of three percent from the prior quarter, and an increase of 16 percent from the fourth quarter of 2015. Net income was $13.6 million or $0.46 per diluted share, compared to $0.48 per diluted share in the prior quarter and $0.44 per diluted share in the fourth quarter of 2015. Cash flow from operations for the quarter was $27.7 million.

In addition to its GAAP results, the company provided certain non-GAAP financial measures that exclude stock-based compensation expenses, amortization of intangible assets, other acquisition-related expenses, and the tax effects of these items. Non-GAAP net income for the fourth quarter was $20.2 million or $0.67 per diluted share, compared with $0.72 per diluted share in the prior quarter and $0.58 per diluted share in the fourth quarter of 2015.

For the full year, net revenues were $387.4 million, an increase of 13 percent compared to the prior year. GAAP net income for the year was $1.62 per diluted share, compared with $1.32 per diluted share in the prior year. Non-GAAP net income was $2.49 per diluted share, compared with $2.03 per diluted share in the prior year. Cash flow from operations totaled $97.9 million for the full year.

Commented Balu Balakrishnan, president and CEO of Power Integrations: “We ended 2016 with another strong quarter, and we’re entering 2017 with momentum fueled by innovative products, an expanding addressable market, and dynamic secular trends such as faster charging for mobile devices, smarter homes and appliances, and the continued global push for greater energy efficiency and cleaner energy.”

Additional Highlights

• The company had $250.5 million in cash and short-term marketable securities at quarter-end, an increase of $23.9 million during the quarter.

• Power Integrations paid a dividend of $0.13 per share on December 30, 2016. A dividend of $0.14 per share is scheduled to be paid on March 31, 2017, to stockholders of record as of February 28, 2017.

• Power Integrations was issued 13 U.S. patents during the fourth quarter.

Adoption of New Accounting Standard for 2017

Effective January 1, 2017, Power Integrations adopted the Financial Accounting Standards Board’s new standard for revenue recognition (ASC 606), under which the company is required to recognize revenues on sales to distributors upon shipment (the “sell-in” method) beginning with the first quarter of 2017. Prior to adopting ASC 606, the company utilized the “sell-through”

method for a high percentage of its distribution sales; under this method revenue was deferred until distributors reported that they had sold the company’s products to end customers.

In adopting the new standard, Power Integrations elected to use the full retrospective method; accordingly, the company has recast its results for 2015 and 2016 as if the new standard had been in effect during those years. The table below displays the company’s revenues, cost of revenues and GAAP earnings per share for 2015 and 2016 as originally reported and as recast under the new standard. Full recast income statements, balance sheets and cash-flow statements, including reconciliations of non-GAAP measures, are available on the company’s investor website. (See document entitled “Recast Financials.”)

	FY 2015				FY 2016
(in millions, except per-share data)	Originally Reported		New Standard		Originally Reported		New Standard
Net Revenues		$344.0		$344.6		$387.4		$389.7
Cost of Revenues (GAAP)		$170.6		$171.3		$196.2		$197.5
Net income/diluted share (GAAP)		$1.32		$1.32		$1.62		$1.65

For the fourth quarter of 2016, revenues would have been $102.4 million under the new standard as compared to the $101.1 million originally reported; GAAP net income would have been $0.48 per diluted share as compared to the $0.46 per diluted share originally reported.

Sandeep Nayyar, Power Integrations’ chief financial officer, commented: “We do not expect the adoption of the new accounting standard to have a material impact on our full-year results, though changing to the sell-in method may affect the quarter-to-quarter seasonality of revenues within a given year. For example, our revenue outlook for the first quarter of 2017 reflects the fact that shipments to distributors normally exceed sell-through in the first quarter, resulting in higher first-quarter revenues than we would have expected under the prior accounting rules. If the sell-through method were still in effect, our revenue forecast for the first quarter would be lower by approximately $3 million.”

Financial Outlook

The company issued the following forecast for the first quarter of 2017:

• Revenues (as calculated under the new revenue-recognition standard) are expected to be flat plus or minus three percent compared to the recast fourth-quarter revenues of $102.4 million.

• GAAP gross margin is expected to be between 47.9 percent and 48.4 percent; non-GAAP gross margin is expected to be between 49 percent and 49.5 percent. (The difference between the expected GAAP and non-GAAP gross margins is composed of approximately 0.9 percentage points from amortization of acquisition-related intangible assets and 0.2 percentage points from stock-based compensation.)

• GAAP operating expenses are expected to be between $35.6 million and $36.6 million; non-GAAP operating expenses are expected to be between $31 million and $32 million. (Non-GAAP expenses exclude approximately $4.0 million of stock-based compensation expenses and $0.6 million of amortization of acquisition-related intangible assets.)

Conference Call Tomorrow at 8:00 a.m. Pacific Time

Power Integrations management will hold a conference call tomorrow, February 2, at 8:00 a.m. PT. Members of the investment community can join the call by dialing 1-647-788-4901. The call will also be available on the investor section of the company's website, http://investors.power.com.

About Power Integrations

Power Integrations, Inc. is a leading innovator in semiconductor technologies for high-voltage power-conversion. The company’s products are key building blocks in the clean-power ecosystem, enabling the generation of renewable energy as well as the efficient transmission and consumption of power in applications ranging from milliwatts to megawatts. For more information please visit www.power.com.

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 ASC 718-10, amortization of acquisition-related intangible assets and the write-up of acquired inventory, acquisition expenses, severance and transition expenses, amortization of in-place lease intangible assets, and the tax effects of these items. The company uses these measures in its own financial and operational decision-making 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 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 measures differently, limiting their usefulness as comparative measures.

Note Regarding Forward-Looking Statements

The statements in this press release regarding the company’s forecast for its first-quarter financial performance 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 change. Due to risks and uncertainties associated with the company's business, actual results could differ materially from those projected or implied by these statements. These risks and uncertainties include, but are not limited to: changes in global macroeconomic conditions, which 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, which may cause the company to decrease its selling prices for its products; the outcome and cost of patent litigation, which may affect sales of the company’s products or could result in higher expenses and charges than currently expected; unforeseen costs and expenses; and unfavorable fluctuations in component costs or operating expenses resulting from changes in commodity prices and/or exchange rates. 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 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (SEC) on February 11, 2016. 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 and the Power Integrations logo are trademarks or registered trademarks of Power Integrations, Inc.

Contact:

Joe Shiffler

Power Integrations, Inc.

(408) 414-8528

joe@power.com

POWER INTEGRATIONS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per-share amounts)

	Three Months Ended									Twelve Months Ended
	December 31, 2016			September 30, 2016			December 31, 2015			December 31, 2016			December 31, 2015
NET REVENUES	$	101,108		$	103,790		$	87,289		$	387,393		$	343,989
COST OF REVENUES	51,724			52,597			44,373			196,232			170,602
GROSS PROFIT	49,384			51,193			42,916			191,161			173,387
OPERATING EXPENSES:
Research and development	15,766			15,906			13,856			62,310			57,000
Sales and marketing	11,941			11,447			10,449			45,535			43,786
General and administrative	8,257			8,789			6,896			33,029			29,720
Amortization of acquisition-related intangible assets	584			582			666			2,443			2,775
Acquisition expenses, severance and transition costs	—			—			—			—			1,113
Total operating expenses	36,548			36,724			31,867			143,317			134,394
INCOME FROM OPERATIONS	12,836			14,469			11,049			47,844			38,993
Other income, net	299			282			206			1,078			425
INCOME BEFORE INCOME TAXES	13,135			14,751			11,255			48,922			39,418
PROVISION FOR INCOME TAXES	(482		)	586			(1,446		)	1,032			271
NET INCOME	$	13,617		$	14,165		$	12,701		$	47,890		$	39,147
EARNINGS PER SHARE:
Basic	$	0.47		$	0.49		$	0.45		$	1.66		$	1.35
Diluted	$	0.46		$	0.48		$	0.44		$	1.62		$	1.32
SHARES USED IN PER-SHARE CALCULATION:
Basic	29,196			28,972			28,483			28,925			29,001
Diluted	29,914			29,625			29,126			29,619			29,696
SUPPLEMENTAL INFORMATION:
Stock-based compensation expenses included in:
Cost of revenues	$	417		$	348		$	208		$	1,148		$	933
Research and development	1,966			1,934			1,281			7,309			5,255
Sales and marketing	1,260			1,303			877			4,489			3,644
General and administrative	2,025			2,204			899			7,939			4,935
Total stock-based compensation expense	$	5,668		$	5,789		$	3,265		$	20,885		$	14,767
Cost of revenues includes:
Amortization of write-up of acquired inventory	—			—			—			—			309
Amortization of acquisition-related intangible assets	$	939		$	939		$	961		$	3,785		$	3,844
General & administrative expenses include:
Patent-litigation expenses	$	2,150		$	1,894		$	1,517		$	6,861		$	5,975
Other income, net includes:
Amortization of in-place lease intangible assets	$	90		$	90		$	90		$	360		$	120
REVENUE MIX BY END MARKET
Communications	30		%	28		%	26		%	27		%	24		%
Computer	6		%	5		%	7		%	6		%	7		%
Consumer	35		%	37		%	34		%	36		%	36		%
Industrial	29		%	30		%	33		%	31		%	33		%

POWER INTEGRATIONS, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS

(in thousands, except per-share amounts)

		Three Months Ended									Twelve Months Ended
		December 31, 2016			September 30, 2016			December 31, 2015			December 31, 2016			December 31, 2015
RECONCILIATION OF GROSS PROFIT
GAAP gross profit		$	49,384		$	51,193		$	42,916		$	191,161		$	173,387
	GAAP gross margin	48.8		%	49.3		%	49.2		%	49.3		%	50.4		%
Stock-based compensation included in cost of revenues		417			348			208			1,148			933
Amortization of write-up of acquired inventory		—			—			—			—			309
Amortization of acquisition-related intangible assets		939			939			961			3,785			3,844
Non-GAAP gross profit		$	50,740		$	52,480		$	44,085		$	196,094		$	178,473
	Non-GAAP gross margin	50.2		%	50.6		%	50.5		%	50.6		%	51.9		%
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses		$	36,548		$	36,724		$	31,867		$	143,317		$	134,394
Less:	Stock-based compensation expense included in operating expenses
	Research and development	1,966			1,934			1,281			7,309			5,255
	Sales and marketing	1,260			1,303			877			4,489			3,644
	General and administrative	2,025			2,204			899			7,939			4,935
	Total	5,251			5,441			3,057			19,737			13,834
	Amortization of acquisition-related intangible assets	584			582			666			2,443			2,775
	Acquisition expenses, severance and transition costs	—			—			—			—			1,113
Non-GAAP operating expenses		$	30,713		$	30,701		$	28,144		$	121,137		$	116,672
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations		$	12,836		$	14,469		$	11,049		$	47,844		$	38,993
	GAAP operating margin	12.7		%	13.9		%	12.7		%	12.4		%	11.3		%
Add:	Total stock-based compensation	5,668			5,789			3,265			20,885			14,767
	Amortization of write-up of acquired inventory	—			—			—			—			309
	Amortization of acquisition-related intangible assets	1,523			1,521			1,627			6,228			6,619
	Acquisition expenses, severance and transition costs	—			—			—			—			1,113
Non-GAAP income from operations		$	20,027		$	21,779		$	15,941		$	74,957		$	61,801
	Non-GAAP operating margin	19.8		%	21.0		%	18.3		%	19.3		%	18.0		%
RECONCILIATION OF PROVISION FOR INCOME TAXES
GAAP provision for income taxes		$	(482	)	$	586		$	(1,446	)	$	1,032		$	271
	GAAP effective tax rate	-3.7		%	4.0		%	-12.8		%	2.1		%	0.7		%
Tax effect of adjustments to GAAP results		(724		)	(328		)	(796		)	(1,578		)	(1,824		)
Non-GAAP provision for income taxes		$	242		$	914		$	(650	)	$	2,610		$	2,095
	Non-GAAP effective tax rate	1.2		%	4.1		%	-4.0		%	3.4		%	3.4		%
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income		$	13,617		$	14,165		$	12,701		$	47,890		$	39,147

Adjustments to GAAP net income
	Stock-based compensation	5,668			5,789			3,265			20,885			14,767
	Amortization of write-up of acquired inventory	—			—			—			—			309
	Amortization of acquisition-related intangible assets	1,523			1,521			1,627			6,228			6,619
	Acquisition expenses, severance and transition costs	—			—			—			—			1,113
	Amortization of in-place lease intangible assets	90			90			90			360			120
	Tax effect of items excluded from non-GAAP results	(724		)	(328		)	(796		)	(1,578		)	(1,824		)
Non-GAAP net income		$	20,174		$	21,237		$	16,887		$	73,785		$	60,251
Average shares outstanding for calculation
	of non-GAAP income per share (diluted)	29,914			29,625			29,126			29,619			29,696
Non-GAAP net income per share (diluted)		$	0.67		$	0.72		$	0.58		$	2.49		$	2.03
GAAP income per share		$	0.46		$	0.48		$	0.44		$	1.62		$	1.32

POWER INTEGRATIONS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

	December 31, 2016			September 30, 2016			December 31, 2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	62,134		$	95,890		$	90,092
Short-term marketable securities	188,323			130,673			83,769
Accounts receivable	6,961			14,679			7,818
Inventories	52,564			49,941			51,934
Prepaid expenses and other current assets	8,520			7,372			6,790
Total current assets	318,502			298,555			240,403
PROPERTY AND EQUIPMENT, net	95,296			94,433			99,381
INTANGIBLE ASSETS, net	31,502			33,114			38,165
GOODWILL	91,849			91,849			91,849
DEFERRED TAX ASSETS	12,032			11,064			11,843
OTHER ASSETS	6,157			6,273			5,896
Total assets	$	555,338		$	535,288		$	487,537
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	29,727		$	30,117		$	21,660
Accrued payroll and related expenses	10,756			9,011			9,327
Taxes payable	729			251			3,620
Deferred income on sales to distributors	16,207			16,334			15,101
Other accrued liabilities	2,434			3,427			2,285
Total current liabilities	59,853			59,140			51,993
LONG-TERM LIABILITIES:
Income taxes payable	2,639			2,666			2,511
Deferred tax liabilities	820			1,002			1,291
Other liabilities	3,921			3,422			3,123
Total liabilities	67,233			66,230			58,918
STOCKHOLDERS' EQUITY:
Common stock	28			28			28
Additional paid-in capital	172,875			162,820			145,366
Accumulated other comprehensive loss	(2,710		)	(1,885		)	(1,851		)
Retained earnings	317,912			308,095			285,076
Total stockholders' equity	488,105			469,058			428,619
Total liabilities and stockholders' equity	$	555,338		$	535,288		$	487,537

POWER INTEGRATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Three Months Ended									Twelve Months Ended
	December 31, 2016			September 30, 2016			December 31, 2015			December 31, 2016			December 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	13,617		$	14,165		$	12,701		$	47,890		$	39,147
Adjustments to reconcile net income to cash provided by operating activities
Depreciation	4,142			4,149			4,229			16,812			16,464
Amortization of intangible assets	1,612			1,612			1,792			6,663			7,039
Loss on disposal of property and equipment	116			68			91			332			361
Stock-based compensation expense	5,668			5,789			3,265			20,885			14,767
Amortization of premium on marketable securities	71			55			254			555			1,063
Deferred income taxes	(1,150		)	276			(5,568		)	(660		)	(5,416		)
Increase (decrease) in accounts receivable allowances	(96		)	110			(1		)	207			127
Tax shortfall associated with employee stock plans	—			—			—			—			(189		)
Change in operating assets and liabilities:
Accounts receivable	7,814			(779		)	3,243			650			4,131
Inventories	(2,623		)	(3,192		)	3,505			(630		)	13,500
Prepaid expenses and other assets	(1,096		)	(764		)	(887		)	(2,499		)	3,391
Accounts payable	(1,323		)	5,998			35			7,714			(2,000		)
Taxes payable and other accrued liabilities	1,117			(675		)	3,503			(1,124		)	(76		)
Deferred income on sales to distributors	(127		)	(554		)	(1,363		)	1,106			(122		)
Net cash provided by operating activities	27,742			26,258			24,799			97,901			92,187
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(4,124		)	(3,184		)	(3,740		)	(12,198		)	(11,359		)
Payment for purchase of building	—			—			—			—			(10,389		)
Payment for acquisition, net of cash acquired	—			—			—			—			(15,549		)
Purchases of marketable securities	(66,256		)	(56,187		)	(14,815		)	(188,654		)	(29,748		)
Proceeds from sales and maturities of marketable securities	8,295			22,207			21,850			83,423			59,309
Net cash provided by (used in) investing activities	(62,085		)	(37,164		)	3,295			(117,429		)	(7,736		)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock	4,387			5,224			5,678			13,059			12,580
Repurchase of common stock	—			—			—			(6,435		)	(53,731		)
Payments of dividends to stockholders	(3,800		)	(3,771		)	(3,415		)	(15,054		)	(13,916		)
Net cash provided by (used in) financing activities	587			1,453			2,263			(8,430		)	(55,067		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(33,756		)	(9,453		)	30,357			(27,958		)	29,384
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	95,890			105,343			59,735			90,092			60,708
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	62,134		$	95,890		$	90,092		$	62,134		$	90,092

EX-99.2

Exhibit 99.2

POWER INTEGRATIONS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Year Ended December 31, 2016
	First Quarter						Second Quarter						Third Quarter						Fourth Quarter
(In thousands, except per share amounts)	As Reported			Under New Standards			As Reported			Under New Standards			As Reported			Under New Standards			As Reported			Under New Standards
NET REVENUES	$	85,326		$	88,036		$	97,169		$	97,571		$	103,790		$	101,625		$	101,108		$	102,436
COST OF REVENUES	42,379			43,548			49,532			49,786			52,597			51,783			51,724			52,360
GROSS PROFIT	42,947			44,488			47,637			47,785			51,193			49,842			49,384			50,076
OPERATING EXPENSES:
Research and development	14,779			14,779			15,859			15,859			15,906			15,906			15,766			15,766
Sales and marketing	10,740			10,740			11,407			11,407			11,447			11,447			11,941			11,941
General and administrative	7,850			7,850			8,133			8,133			8,789			8,789			8,257			8,257
Amortization of acquisition-related intangible assets	666			666			611			611			582			582			584			584
Total operating expenses	34,035			34,035			36,010			36,010			36,724			36,724			36,548			36,548
INCOME FROM OPERATIONS	8,912			10,453			11,627			11,775			14,469			13,118			12,836			13,528
OTHER INCOME	261			261			236			236			282			282			299			299
INCOME BEFORE INCOME TAXES	9,173			10,714			11,863			12,011			14,751			13,400			13,135			13,827
PROVISION FOR (BENEFIT FROM) INCOME TAXES	330			335			598			604			586			591			(482		)	(476		)
NET INCOME	$	8,843		$	10,379		$	11,265		$	11,407		$	14,165		$	12,809		$	13,617		$	14,303
EARNINGS PER SHARE:
Basic	$	0.31		$	0.36		$	0.39		$	0.40		$	0.49		$	0.44		$	0.47		$	0.49
Diluted	$	0.30		$	0.35		$	0.38		$	0.39		$	0.48		$	0.43		$	0.46		$	0.48
SHARES USED IN PER SHARE CALCULATION:
Basic	28,679			28,679			28,850			28,850			28,972			28,972			29,196			29,196
Diluted	29,244			29,244			29,422			29,422			29,625			29,625			29,914			29,914
SUPPLEMENTAL INFORMATION:
REVENUE MIX BY END MARKET
Communications	23		%	23		%	27		%	26		%	28		%	28		%	30		%	29		%
Computer	6		%	6		%	6		%	6		%	5		%	5		%	6		%	6		%
Consumer	39		%	38		%	35		%	36		%	37		%	36		%	35		%	37		%
Industrial	32		%	33		%	32		%	32		%	30		%	31		%	29		%	28		%
Stock-based compensation expenses included in:
Cost of revenues	$	90		$	90		$	293		$	293		$	348		$	348		$	417		$	417
Research and development	1,469			1,469			1,940			1,940			1,934			1,934			1,966			1,966
Sales and marketing	1,027			1,027			899			899			1,303			1,303			1,260			1,260
General and administrative	1,830			1,830			1,880			1,880			2,204			2,204			2,025			2,025
Total stock-based compensation expense	$	4,416		$	4,416		$	5,012		$	5,012		$	5,789		$	5,789		$	5,668		$	5,668
Cost of revenues includes:
Amortization of acquisition-related intangible assets	$	961		$	961		$	946		$	946		$	939		$	939		$	939		$	939
Operating expenses includes:
Patent-litigation expenses	$	1,159		$	1,159		$	1,658		$	1,658		$	1,894		$	1,894		$	2,150		$	2,150
Other income includes:
Amortization of in-place lease intangible assets	$	90		$	90		$	90		$	90		$	90		$	90		$	90		$	90

POWER INTEGRATIONS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Year Ended December 31, 2015
	First Quarter						Second Quarter						Third Quarter						Fourth Quarter
(In thousands, except per share amounts)	As Reported			Under New Standards			As Reported			Under New Standards			As Reported			Under New Standards			As Reported			Under New Standards
NET REVENUES	$	82,557		$	86,600		$	85,265		$	84,366		$	88,878		$	88,058		$	87,289		$	85,585
COST OF REVENUES	40,265			42,815			41,247			40,582			44,717			44,391			44,373			43,521
GROSS PROFIT	42,292			43,785			44,018			43,784			44,161			43,667			42,916			42,064
OPERATING EXPENSES:
Research and development	14,573			14,573			14,683			14,683			13,888			13,888			13,856			13,856
Sales and marketing	11,307			11,307			11,567			11,567			10,463			10,463			10,449			10,449
General and administrative	7,983			7,983			7,480			7,480			7,361			7,361			6,896			6,896
Amortization of acquisition-related intangible assets	750			750			693			693			666			666			666			666
Other operating expense*	722			722			391			391			—			—			—			—
Total operating expenses	35,335			35,335			34,814			34,814			32,378			32,378			31,867			31,867
INCOME FROM OPERATIONS	6,957			8,450			9,204			8,970			11,783			11,289			11,049			10,197
OTHER INCOME (EXPENSE)	(223		)	(223		)	14			14			428			428			206			206
INCOME BEFORE INCOME TAXES	6,734			8,227			9,218			8,984			12,211			11,717			11,255			10,403
PROVISION FOR (BENEFIT FROM) INCOME TAXES	391			368			628			605			698			675			(1,446		)	(1,469		)
NET INCOME	$	6,343		$	7,859		$	8,590		$	8,379		$	11,513		$	11,042		$	12,701		$	11,872
EARNINGS PER SHARE:
Basic	$	0.22		$	0.27		$	0.29		$	0.29		$	0.40		$	0.38		$	0.45		$	0.42
Diluted	$	0.21		$	0.26		$	0.29		$	0.28		$	0.39		$	0.38		$	0.44		$	0.41
SHARES USED IN PER SHARE CALCULATION:
Basic	29,309			29,309			29,368			29,368			28,855			28,855			28,483			28,483
Diluted	30,058			30,058			30,034			30,034			29,298			29,298			29,126			29,126
SUPPLEMENTAL INFORMATION:
REVENUE MIX BY END MARKET
Communications	21		%	20		%	21		%	20		%	26		%	26		%	26		%	26		%
Computer	8		%	8		%	7		%	6		%	7		%	7		%	7		%	7		%
Consumer	38		%	39		%	36		%	37		%	36		%	35		%	34		%	34		%
Industrial	33		%	33		%	36		%	37		%	31		%	32		%	33		%	33		%
Stock-based compensation expenses included in:
Cost of revenues	$	249		$	249		$	257		$	257		$	219		$	219		$	208		$	208
Research and development	1,391			1,391			1,306			1,306			1,277			1,277			1,281			1,281
Sales and marketing	1,012			1,012			878			878			877			877			877			877
General and administrative	1,739			1,739			1,309			1,309			988			988			899			899
Total stock-based compensation expense	$	4,391		$	4,391		$	3,750		$	3,750		$	3,361		$	3,361		$	3,265		$	3,265
Cost of revenues includes:
Amortization of write-up of acquired inventory	$	309		$	309		$	—		$	—		$	—		$	—		$	—		$	—
Amortization of acquisition-related intangible assets	$	961		$	961		$	961		$	961		$	961		$	961		$	961		$	961
Operating expenses includes:
Patent-litigation expenses	$	1,457		$	1,457		$	1,501		$	1,501		$	1,500		$	1,500		$	1,517		$	1,517
Other income (expense) includes:
Amortization of in-place lease intangible assets	$	—		$	—		$	—		$	—		$	30		$	30		$	90		$	90

* Other operating expense consists of acquisition expenses and related transition costs

POWER INTEGRATIONS, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS

(Unaudited)

	Year Ended December 31, 2016
	First Quarter						Second Quarter						Third Quarter						Fourth Quarter
(In thousands, except per share amounts)	As Reported			Under New Standards			As Reported			Under New Standards			As Reported			Under New Standards			As Reported			Under New Standards
RECONCILIATION OF GROSS PROFIT MARGIN
GAAP gross profit	$	42,947		$	44,488		$	47,637		$	47,785		$	51,193		$	49,842		$	49,384		$	50,076
GAAP gross profit margin	50.3		%	50.5		%	49.0		%	49.0		%	49.3		%	49.0		%	48.8		%	48.9		%
Stock-based compensation expense included in cost of revenues	90			90			293			293			348			348			417			417
Amortization of acquisition-related intangible assets	961			961			946			946			939			939			939			939
Non-GAAP gross profit	$	43,998		$	45,539		$	48,876		$	49,024		$	52,480		$	51,129		$	50,740		$	51,432
Non-GAAP gross profit margin	51.6		%	51.7		%	50.3		%	50.2		%	50.6		%	50.3		%	50.2		%	50.2		%
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations	$	8,912		$	10,453		$	11,627		$	11,775		$	14,469		$	13,118		$	12,836		$	13,528
GAAP operating margin	10.4		%	11.9		%	12.0		%	12.1		%	13.9		%	12.9		%	12.7		%	13.2		%
Less: Stock-based compensation expenses included in:
Cost of revenues	90			90			293			293			348			348			417			417
Research and development	1,469			1,469			1,940			1,940			1,934			1,934			1,966			1,966
Sales and marketing	1,027			1,027			899			899			1,303			1,303			1,260			1,260
General and administrative	1,830			1,830			1,880			1,880			2,204			2,204			2,025			2,025
Total	4,416			4,416			5,012			5,012			5,789			5,789			5,668			5,668
Amortization of acquisition-related intangible assets	1,627			1,627			1,557			1,557			1,521			1,521			1,523			1,523
Non-GAAP income from operations	$	14,955		$	16,496		$	18,196		$	18,344		$	21,779		$	20,428		$	20,027		$	20,719
Non-GAAP operating margin	17.5		%	18.7		%	18.7		%	18.8		%	21.0		%	20.1		%	19.8		%	20.2		%
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income	$	8,843		$	10,379		$	11,265		$	11,407		$	14,165		$	12,809		$	13,617		$	14,303
Adjustments to GAAP net income
Total stock-based compensation	4,416			4,416			5,012			5,012			5,789			5,789			5,668			5,668
Amortization of acquisition-related intangible assets	1,627			1,627			1,557			1,557			1,521			1,521			1,523			1,523
Amortization of in-place lease intangible assets	90			90			90			90			90			90			90			90
Tax effect of items excluded from non-GAAP results	(301		)	(301		)	(225		)	(225		)	(328		)	(328		)	(724		)	(724		)
Non-GAAP net income	$	14,675		$	16,211		$	17,699		$	17,841		$	21,237		$	19,881		$	20,174		$	20,860
Average shares outstanding for calculation of non-GAAP income per share (diluted)	29,244			29,244			29,422			29,422			29,625			29,625			29,914			29,914
Non-GAAP income per share (diluted)	$	0.50		$	0.55		$	0.60		$	0.61		$	0.72		$	0.67		$	0.67		$	0.70

POWER INTEGRATIONS, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS

(Unaudited)

	Year Ended December 31, 2015
	First Quarter						Second Quarter						Third Quarter						Fourth Quarter
(In thousands, except per share amounts)	As Reported			Under New Standards			As Reported			Under New Standards			As Reported			Under New Standards			As Reported			Under New Standards
RECONCILIATION OF GROSS PROFIT MARGIN
GAAP gross profit	$	42,292		$	43,785		$	44,018		$	43,784		$	44,161		$	43,667		$	42,916		$	42,064
GAAP gross profit margin	51.2		%	50.6		%	51.6		%	51.9		%	49.7		%	49.6		%	49.2		%	49.1		%
Stock-based compensation expense included in cost of revenues	249			249			257			257			219			219			208			208
Amortization of write-up of acquired inventory	309			309			—			—			—			—			—			—
Amortization of acquisition-related intangible assets	961			961			961			961			961			961			961			961
Non-GAAP gross profit	$	43,811		$	45,304		$	45,236		$	45,002		$	45,341		$	44,847		$	44,085		$	43,233
Non-GAAP gross profit margin	53.1		%	52.3		%	53.1		%	53.3		%	51.0		%	50.9		%	50.5		%	50.5		%
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations	$	6,957		$	8,450		$	9,204		$	8,970		$	11,783		$	11,289		$	11,049		$	10,197
GAAP operating margin	8.4		%	9.8		%	10.8		%	10.6		%	13.3		%	12.8		%	12.7		%	11.9		%
Less: Stock-based compensation expenses included in:
Cost of revenues	249			249			257			257			219			219			208			208
Research and development	1,391			1,391			1,306			1,306			1,277			1,277			1,281			1,281
Sales and marketing	1,012			1,012			878			878			877			877			877			877
General and administrative	1,739			1,739			1,309			1,309			988			988			899			899
Total	4,391			4,391			3,750			3,750			3,361			3,361			3,265			3,265
Amortization of write-up of acquired inventory	309			309			—			—			—			—			—			—
Amortization of acquisition-related intangible assets	1,711			1,711			1,654			1,654			1,627			1,627			1,627			1,627
Other operating expense*	722			722			391			391			—			—			—			—
Non-GAAP income from operations	$	14,090		$	15,583		$	14,999		$	14,765		$	16,771		$	16,277		$	15,941		$	15,089
Non-GAAP operating margin	17.1		%	18.0		%	17.6		%	17.5		%	18.9		%	18.5		%	18.3		%	17.6		%
RECONCILIATION OF NET INCOME PER SHARE (DILUTED)
GAAP net income	$	6,343		$	7,859		$	8,590		$	8,379		$	11,513		$	11,042		$	12,701		$	11,872
Adjustments to GAAP net income
Total stock-based compensation	4,391			4,391			3,750			3,750			3,361			3,361			3,265			3,265
Amortization of write-up of acquired inventory	309			309			—			—			—			—			—			—
Amortization of acquisition-related intangible assets	1,711			1,711			1,654			1,654			1,627			1,627			1,627			1,627
Amortization of in-place lease intangible assets	—			—			—			—			30			30			90			90
Other operating expense*	722			722			391			391			—			—			—			—
Tax effect of items excluded from non-GAAP results	(521		)	(521		)	(197		)	(197		)	(310		)	(310		)	(796		)	(796		)
Non-GAAP net income	$	12,955		$	14,471		$	14,188		$	13,977		$	16,221		$	15,750		$	16,887		$	16,058
Average shares outstanding for calculation of non-GAAP income per share (diluted)	30,058			30,058			30,034			30,034			29,298			29,298			29,126			29,126
Non-GAAP income per share (diluted)	$	0.43		$	0.48		$	0.47		$	0.47		$	0.55		$	0.54		$	0.58		$	0.55

* Other operating expense consist of acquisition expenses and related transition costs

POWER INTEGRATIONS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31, 2016						June 30, 2016						September 30, 2016						December 31, 2016
(In thousands)	As Reported			Under New Standards			As Reported			Under New Standards			As Reported			Under New Standards			As Reported			Under New Standards
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	94,735		$	94,735		$	105,343		$	105,343		$	95,890		$	95,890		$	62,134		$	62,134
Short-term marketable securities	90,419			90,419			96,891			96,891			130,673			130,673			188,323			188,323
Accounts receivable, net	11,294			9,981			14,010			13,544			14,679			12,779			6,961			6,528
Inventories	45,665			45,665			46,749			46,749			49,941			49,941			52,564			52,564
Prepaid expenses and other current assets	7,295			7,987			6,478			6,684			7,372			8,216			8,520			8,715
Total current assets	249,408			248,787			269,471			269,211			298,555			297,499			318,502			318,264
PROPERTY AND EQUIPMENT, net	97,723			97,723			95,746			95,746			94,433			94,433			95,296			95,296
INTANGIBLE ASSETS, net	36,373			36,373			34,726			34,726			33,114			33,114			31,502			31,502
GOODWILL	91,849			91,849			91,849			91,849			91,849			91,849			91,849			91,849
DEFERRED TAX ASSETS	11,779			11,105			11,342			10,663			11,064			10,379			12,032			11,342
OTHER ASSETS	5,664			5,664			6,372			6,372			6,273			6,273			6,157			6,157
Total assets	$	492,796		$	491,501		$	509,506		$	508,567		$	535,288		$	533,547		$	555,338		$	554,410
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	19,862		$	19,862		$	24,367		$	24,367		$	30,117		$	30,117		$	29,727		$	29,727
Accrued payroll and related expenses	7,986			7,986			10,463			10,463			9,011			9,011			10,756			10,756
Taxes payable	3,326			3,326			247			247			251			251			729			729
Deferred income on sales to distributors	17,102			—			16,888			—			16,334			—			16,207			—
Other accrued liabilities	2,217			2,517			2,548			2,848			3,427			3,727			2,434			2,734
Total current liabilities	50,493			33,691			54,513			37,925			59,140			43,106			59,853			43,946
LONG-TERM LIABILITIES:
Income taxes payable	2,695			2,695			2,666			2,666			2,666			2,666			2,639			2,639
Deferred tax liabilities	1,141			1,141			1,004			1,004			1,002			1,002			820			820
Other liabilities	3,246			3,246			3,315			3,315			3,422			3,422			3,921			3,921
Total long term liabilities	7,082			7,082			6,985			6,985			7,090			7,090			7,380			7,380
STOCKHOLDERS’ EQUITY:
Common stock	28			28			28			28			28			28			28			28
Additional paid-in capital	146,655			146,655			151,806			151,806			162,820			162,820			172,875			172,875
Accumulated other comprehensive loss	(1,652		)	(1,652		)	(1,527		)	(1,527		)	(1,885		)	(1,885		)	(2,710		)	(2,710		)
Retained earnings	290,190			305,697			297,701			313,350			308,095			322,388			317,912			332,891
Total stockholders’ equity	435,221			450,728			448,008			463,657			469,058			483,351			488,105			503,084
Total liabilities and stockholders’ equity	$	492,796		$	491,501		$	509,506		$	508,567		$	535,288		$	533,547		$	555,338		$	554,410

POWER INTEGRATIONS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31, 2015						June 30, 2015						September 30, 2015						December 31, 2015
(In thousands)	As Reported			Under New Standards			As Reported			Under New Standards			As Reported			Under New Standards			As Reported			Under New Standards
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	85,637		$	85,637		$	75,941		$	75,941		$	59,735		$	59,735		$	90,092		$	90,092
Short-term marketable securities	87,560			87,560			94,944			94,944			91,222			91,222			83,769			83,769
Accounts receivable, net	12,631			11,394			13,212			12,861			11,061			9,729			7,818			7,485
Inventories	65,009			65,009			64,231			64,231			55,439			55,439			51,934			51,934
Prepaid expenses and other current assets	11,458			11,957			9,444			9,609			5,780			6,439			6,790			6,962
Total current assets	262,295			261,557			257,772			257,586			223,237			222,564			240,403			240,242
PROPERTY AND EQUIPMENT, net	94,179			94,179			92,913			92,913			102,223			102,223			99,381			99,381
INTANGIBLE ASSETS, net	42,758			42,758			41,028			41,028			39,957			39,957			38,165			38,165
GOODWILL	91,849			91,849			91,849			91,849			91,849			91,849			91,849			91,849
DEFERRED TAX ASSETS	11,304			10,566			11,063			10,349			10,722			10,031			11,843			11,174
OTHER ASSETS	4,789			4,789			4,894			4,894			5,502			5,502			5,896			5,896
Total assets	$	507,174		$	505,698		$	499,519		$	498,619		$	473,490		$	472,126		$	487,537		$	486,707
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	23,907		$	23,907		$	30,792		$	30,792		$	23,370		$	23,370		$	21,660		$	21,660
Accrued payroll and related expenses	8,815			8,815			9,539			9,539			8,203			8,203			9,327			9,327
Taxes payable	2,930			2,930			2,237			2,237			2,022			2,022			3,620			3,620
Deferred income on sales to distributors	17,254			—			16,457			—			16,464			—			15,101			—
Other accrued liabilities	3,834			4,129			3,381			3,667			3,182			3,482			2,285			2,585
Total current liabilities	56,740			39,781			62,406			46,235			53,241			37,077			51,993			37,192
LONG-TERM LIABILITIES:
Income taxes payable	746			746			746			746			746			746			2,511			2,511
Deferred tax liabilities	6,246			6,246			6,013			6,013			5,737			5,737			1,291			1,291
Other liabilities	2,960			2,960			2,673			2,673			2,569			2,569			3,123			3,123
Total long term liabilities	9,952			9,952			9,432			9,432			9,052			9,052			6,925			6,925
STOCKHOLDERS’ EQUITY:
Common stock	29			29			29			29			28			28			28			28
Additional paid-in capital	178,816			178,816			161,089			161,089			136,422			136,422			145,366			145,366
Accumulated other comprehensive loss	(1,031		)	(1,031		)	(1,167		)	(1,167		)	(1,043		)	(1,043		)	(1,851		)	(1,851		)
Retained earnings	262,668			278,151			267,730			283,001			275,790			290,590			285,076			299,047
Total stockholders’ equity	440,482			455,965			427,681			442,952			411,197			425,997			428,619			442,590
Total liabilities and stockholders’ equity	$	507,174		$	505,698		$	499,519		$	498,619		$	473,490		$	472,126		$	487,537		$	486,707

POWER INTEGRATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Year Ended December 31, 2016
	First Quarter						Second Quarter						Third Quarter						Fourth Quarter
(In thousands)	As Reported			Under New Standards			As Reported			Under New Standards			As Reported			Under New Standards			As Reported			Under New Standards
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	8,843		$	10,379		$	11,265		$	11,407		$	14,165		$	12,809		$	13,617		$	14,303
Adjustments to reconcile net income to cash provided by operating activities
Depreciation	4,315			4,315			4,206			4,206			4,149			4,149			4,142			4,142
Amortization of intangible assets	1,792			1,792			1,647			1,647			1,612			1,612			1,612			1,612
Loss on disposal of property and equipment	78			78			70			70			68			68			116			116
Stock-based compensation expense	4,416			4,416			5,012			5,012			5,789			5,789			5,668			5,668
Amortization of premium on marketable securities	260			260			169			169			55			55			71			71
Deferred income taxes	(86		)	(81		)	300			306			276			281			(1,150		)	(1,144		)
Increase in accounts receivable allowances	89			89			104			104			110			110			(96		)	(96		)
Change in operating assets and liabilities:
Accounts receivable	(3,565		)	(2,585		)	(2,820		)	(3,667		)	(779		)	656			7,814			6,347
Inventories	6,269			6,269			(1,084		)	(1,084		)	(3,192		)	(3,192		)	(2,623		)	(2,623		)
Prepaid expenses and other assets	(868		)	(1,388		)	229			714			(764		)	(1,402		)	(1,096		)	(448		)
Accounts payable	(1,840		)	(1,840		)	4,879			4,879			5,998			5,998			(1,323		)	(1,323		)
Taxes payable and other accrued liabilities	(1,413		)	(1,413		)	(153		)	(153		)	(675		)	(675		)	1,117			1,117
Deferred income on sales to distributors	2,001			—			(214		)	—			(554		)	—			(127		)	—
Net cash provided by operating activities	20,291			20,291			23,610			23,610			26,258			26,258			27,742			27,742
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(2,095		)	(2,095		)	(2,795		)	(2,795		)	(3,184		)	(3,184		)	(4,124		)	(4,124		)
Purchases of marketable securities	(45,227		)	(45,227		)	(20,984		)	(20,984		)	(56,187		)	(56,187		)	(66,256		)	(66,256		)
Proceeds from sales and maturities of marketable securities	38,531			38,531			14,390			14,390			22,207			22,207			8,295			8,295
Net cash used in investing activities	(8,791		)	(8,791		)	(9,389		)	(9,389		)	(37,164		)	(37,164		)	(62,085		)	(62,085		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock	2,957			2,957			491			491			5,224			5,224			4,387			4,387
Repurchase of common stock	(6,085		)	(6,085		)	(350		)	(350		)	—			—			—			—
Payments of dividends to stockholders	(3,729		)	(3,729		)	(3,754		)	(3,754		)	(3,771		)	(3,771		)	(3,800		)	(3,800		)
Net cash provided by (used in) financing activities	(6,857		)	(6,857		)	(3,613		)	(3,613		)	1,453			1,453			587			587
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	4,643			4,643			10,608			10,608			(9,453		)	(9,453		)	(33,756		)	(33,756		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	90,092			90,092			94,735			94,735			105,343			105,343			95,890			95,890
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	94,735		$	94,735		$	105,343		$	105,343		$	95,890		$	95,890		$	62,134		$	62,134

POWER INTEGRATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Year Ended December 31, 2015
	First Quarter						Second Quarter						Third Quarter						Fourth Quarter
(In thousands)	As Reported			Under New Standards			As Reported			Under New Standards			As Reported			Under New Standards			As Reported			Under New Standards
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,343		$	7,859		$	8,590		$	8,379		$	11,513		$	11,042		$	12,701		$	11,872
Adjustments to reconcile net income to cash provided by operating activities
Depreciation	4,032			4,032			4,035			4,035			4,168			4,168			4,229			4,229
Amortization of intangible assets	1,786			1,786			1,729			1,729			1,732			1,732			1,792			1,792
Loss on disposal of property and equipment	—			—			—			—			270			270			91			91
Stock-based compensation expense	4,391			4,391			3,750			3,750			3,361			3,361			3,265			3,265
Amortization of premium on marketable securities	286			286			265			265			258			258			254			254
Deferred income taxes	77			54			9			(14		)	66			43			(5,568		)	(5,591		)
Increase (decrease) in accounts receivable allowances	(5		)	(5		)	(80		)	(80		)	213			213			(1		)	(1		)
Tax shortfall associated with employee stock plans	(189		)	(189		)	—			—			—			—			—			—
Change in operating assets and liabilities:
Accounts receivable	(550		)	367			(500		)	(1,387		)	1,938			2,919			3,243			2,245
Inventories	424			424			779			779			8,792			8,792			3,505			3,505
Prepaid expenses and other assets	(227		)	(602		)	2,077			2,411			2,428			1,933			(887		)	(400		)
Accounts payable	349			349			5,954			5,954			(8,338		)	(8,338		)	35			35
Taxes payable and other accrued liabilities	(1,076		)	(1,080		)	(751		)	(760		)	(1,752		)	(1,738		)	3,503			3,503
Deferred income on sales to distributors	2,031			—			(796		)	—			6			—			(1,363		)	—
Net cash provided by operating activities	17,672			17,672			25,061			25,061			24,655			24,655			24,799			24,799
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(3,322		)	(3,322		)	(1,822		)	(1,822		)	(2,475		)	(2,475		)	(3,740		)	(3,740		)
Payment for purchase of building	—			—			—			—			(10,389		)	(10,389		)	—			—
Payment for acquisition, net of cash acquired	(15,365		)	(15,365		)	(184		)	(184		)	—			—			—			—
Purchases of marketable securities	—			—			(9,993		)	(9,993		)	(4,940		)	(4,940		)	(14,815		)	(14,815		)
Proceeds from sales and maturities of marketable securities	26,785			26,785			2,250			2,250			8,424			8,424			21,850			21,850
Net cash provided by (used in) investing activities	8,098			8,098			(9,749		)	(9,749		)	(9,380		)	(9,380		)	3,295			3,295
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock	3,519			3,519			856			856			2,527			2,527			5,678			5,678
Repurchase of common stock	(841		)	(841		)	(22,335		)	(22,335		)	(30,555		)	(30,555		)	—			—
Payments of dividends to stockholders	(3,519		)	(3,519		)	(3,529		)	(3,529		)	(3,453		)	(3,453		)	(3,415		)	(3,415		)
Net cash provided by (used in) financing activities	(841		)	(841		)	(25,008		)	(25,008		)	(31,481		)	(31,481		)	2,263			2,263
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	24,929			24,929			(9,696		)	(9,696		)	(16,206		)	(16,206		)	30,357			30,357
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	60,708			60,708			85,637			85,637			75,941			75,941			59,735			59,735
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	85,637		$	85,637		$	75,941		$	75,941		$	59,735		$	59,735		$	90,092		$	90,092