® 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, amortization of acquisition-related intangible assets, a 2013 gain related to asset sales, the tax effects of these items, and a tax benefit recognized in the second quarter of 2014. 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 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 fourth-quarter financial performance and its optimism about its expanding addressable market, pipeline of innovative products, and the growing demand for energy-efficiency and renewable energy, 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 forward-looking 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 resulting from changes in commodity prices and/or the exchange rate between the U.S. dollar and the Japanese yen. 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 July 31, 2014. 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 INCOME
(in thousands, except per-share amounts)
			Three Months Ended															Nine Months Ended
			September 30, 2014					June 30, 2014					September 30, 2013					September 30, 2014				September 30, 2013
NET REVENUES			$	90,144				$	88,985				$	91,715				$	262,202			$	256,677
COST OF REVENUES				41,092					40,249					42,941					118,437				121,832
GROSS PROFIT				49,052					48,736					48,774					143,765				134,845
OPERATING EXPENSES:
Research and development				13,458					14,366					12,984					41,314				38,745
Sales and marketing				10,935					11,434					10,091					33,344				29,992
General and administrative				7,155					7,813					7,984					22,614				23,784
Amortization of acquisition-related intangible assets				629					798					1,121					2,562				3,365
Total operating expenses				32,177					34,411					32,180					99,834				95,886
INCOME FROM OPERATIONS				16,875					14,325					16,594					43,931				38,959
Gain on sale of assets held for sale				-					-					-					-				497
Other income, net				381					198					82					836				367
INCOME BEFORE PROVISION (BENEFIT) FOR INCOME TAXES				17,256					14,523					16,676					44,767				39,823
PROVISION (BENEFIT) FOR INCOME TAXES				1,145					(2,193	)				22					(423	)			(1,406	)
NET INCOME			$	16,111				$	16,716				$	16,654				$	45,190			$	41,229
EARNINGS PER SHARE:
Basic			$	0.54				$	0.55				$	0.56				$	1.50			$	1.41
Diluted			$	0.52				$	0.54				$	0.54				$	1.46			$	1.36
SHARES USED IN PER-SHARE CALCULATION:
Basic				30,013					30,310					29,762					30,186				29,235
Diluted				30,757					31,110					30,652					31,053				30,237
SUPPLEMENTAL INFORMATION:
Stock-based compensation expenses included in:
Cost of revenues			$	131				$	298				$	296				$	648			$	824
Research and development				971					1,339					1,485					3,522				4,231
Sales and marketing				779					864					964					2,578				2,588
General and administrative				699					1,674					1,446					3,922				4,512
Total stock-based compensation expense			$	2,580				$	4,175				$	4,191				$	10,670			$	12,155
Cost of revenues includes:
Amortization of acquisition-related intangible assets			$	645				$	645				$	645				$	1,935			$	1,935
General & administrative expenses include:
Patent-litigation expenses			$	1,529				$	1,127				$	1,667				$	3,842			$	3,873
REVENUE MIX BY END MARKET
Communications				18	%				15	%				21	%				17	%			21	%
Computer				11	%				12	%				10	%				11	%			10	%
Consumer				36	%				38	%				34	%				37	%			35	%
Industrial				35	%				35	%				35	%				35	%			34	%

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