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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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): July 26, 2018


CYPRESS SEMICONDUCTOR CORPORATION
(Exact name of registrant as specified in its charter)



Delaware
 
1–10079
 
94-2885898
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
198 Champion Court
San Jose, California 95134
(Address of principal executive offices and zip code)
(408) 943-2600
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)


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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933(§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.






Item 2.02     Results of Operations and Financial Condition.
 
On July 26, 2018, Cypress Semiconductor Corporation (the “Company”) issued a press release regarding the Company’s financial results for its second fiscal quarter, which ended July 1, 2018. A copy of the Company’s press release is furnished as Exhibit 99.1 to this report.

The information in this Item 2.02, including Exhibit 99.1, is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liability of that Section, nor shall such information be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 
Item 9.01.
        Financial Statements and Exhibits.
 
 
 
(d)
Exhibits.
 
Exhibit No.
 
Description
 
 
99.1
 

 
 

 
 





- 2 -



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.
 
Date:
July 26, 2018
CYPRESS SEMICONDUCTOR CORPORATION
 
 
 
 
 
 
 
By:
 
/s/ Thad Trent
 
 
 
 
Thad Trent
 
 
 
 
Executive Vice President, Finance and Administration
 
 
 
 
and Chief Financial Officer































- 3 -




EXHIBIT INDEX


 
Exhibit
No.
  
Description
 
 
 
 
99.1
  



 


- 4 -
Exhibit
EXHIBIT 99.1
Contacts:
Thad Trent
EVP Finance & Administration and CFO
(408) 943-2925

Ann Minooka
Vice President, Corporate Communications
(408) 456-1962
For Immediate Release
Cypress Reports Second Quarter 2018 Results

SAN JOSE, Calif., July 26, 2018—Cypress Semiconductor Corporation (NASDAQ: CY), a leader in embedded solutions, today announced its second quarter 2018 results with the following highlights:
Record revenue of $624.1 million, a 7.2% increase sequentially
GAAP and non-GAAP gross margins were 37.5% and 46.3%, respectively, and represent a 500 bps and 540 bps increase year over year
GAAP and non-GAAP diluted EPS were 7 and 33 cents respectively
MCD revenue increased 9.4% sequentially driven by strength in microcontrollers and wireless connectivity

“The team is executing well and has delivered record revenue this quarter as Cypress continues to gain share in our high-growth markets of Automotive, Industrial and Consumer,” said Hassane El-Khoury, Cypress’ president and chief executive officer. “Our platform of Connect, Compute and Store solutions gives developers everything they need to create winning IoT products quickly and easily.”

Revenue and earnings for the quarter are shown below with comparable periods:
(In thousands, except per-share data)
 
 
GAAP1
 
NON-GAAP2
 
 
Q2 2018
 
Q1 2018
 
Q2 2017
 
Q2 2018
 
Q1 2018
 
Q2 2017
Revenue
 
$
624,090

 
$
582,241

 
$
593,776

 
$
624,090

 
$
582,241

 
$
593,776

Gross margin
 
37.5
%
 
36.5
%
 
32.5
%
 
46.3
%
 
45.9
%
 
40.9
%
Operating margin
 
8.1
%
 
6.1
%
 
1.5
%
 
22.3
%
 
19.5
%
 
15.4
%
Net income (loss)
 
$
27,706

 
$
9,078

 
$
(16,920
)
 
$
124,964

 
$
100,296

 
$
74,704

Diluted EPS (loss)
 
$
0.07

 
$
0.02

 
$
(0.05
)
 
$
0.33

 
$
0.27

 
$
0.21


Revenue and earnings are shown below:



(In thousands, except per-share data)
 
 
GAAP1
 
NON-GAAP2
 
 
Six Months
 
Six Months
 
 
Q2 2018
 
Q2 2017
 
Q2 2018
 
Q2 2017
Revenue
 
$
1,206,331

 
$
1,125,650

 
$
1,206,331

 
$
1,125,650

Gross margin
 
37.0
%
 
31.1
 %
 
46.1
%
 
40.1
%
Operating margin
 
7.2
%
 
(0.4
)%
 
21.0
%
 
13.9
%
Net income (loss)
 
$
36,784

 
$
(59,919
)
 
$
225,260

 
$
120,591

Diluted EPS (loss)
 
$
0.10

 
$
(0.18
)
 
$
0.60

 
$
0.33


1.    In 2018, certain expenses have been reclassified as part of cost of revenue. Historical results have been conformed with the 2018 presentation.
2. See the “Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures” tables (“Non-GAAP Reconciliation Tables”) included below.

BUSINESS REVIEW

+ Cypress announced key developments in its wireless connectivity solutions for the automotive and industrial markets during the quarter. Pioneer selected Cypress’ automotive-grade Wi-Fi® and Bluetooth® combo solution for its flagship in-dash infotainment receiver. The solution uses Cypress’ Real Simultaneous Dual Band (RSDB) technology to enable passengers to display and use their smartphone’s apps via Apple CarPlay™ or Android Auto™. Additionally, Cypress collaborated with Semtech on a two-chip LoRaWAN™-based module for smart city applications that uses Cypress’ PSoC® 6 microcontroller (MCU) with integrated Bluetooth Low Energy (BLE) and hardware-based security to deliver highly protected device-to-cloud connectivity.


+ Cypress continued to expand its high-performance, differentiated fail-safe storage offerings with the new Semper™ NOR Flash family - the world’s most advanced Flash solution for mission-critical automotive and industrial applications. The family has already won multiple major automotive platforms for next-generation instrument clusters and Advanced Driver Assistance Systems (ADAS).

+ Cypress also announced multiple key developments for its industry-leading USB-C solutions. The company’s EZ-PD™ USB-C controllers with Power Delivery (PD) have been selected for key reference designs for PCs and peripherals, with one qualified by Intel for use in Thunderbolt™ 3 host and peripheral



designs, and one qualified by AMD for use with its “Raven Ridge” processors for notebook and desktop PCs. Cypress also continued to expand its portfolio with the industry’s first 7-port USB-C hub controller for notebook and tablet docking stations and monitor docks.

+ On July 19, 2018, Cypress paid a cash dividend of $39.4 million, or $0.11 per share, to holders of record of the Company’s common stock as of the close of business on June 28, 2018. The dividend was equivalent to a 2.8% annualized yield as of June 29, 2018.





REVENUE SUMMARY
(In thousands, except percentages)
(Unaudited)
 
 
Three Months Ended
 
July 1, 2018
 
April 1, 2018
 
July 2, 2017
 
Sequential Change
 
Year-over-year Change
Business Unit
 
 
 
 
 
 
 
 
 
MCD
$
368,526

 
$
336,710

 
$
360,533

 
9.4
%
 
2.2
%
MPD
$
255,564

 
$
245,531

 
$
233,243

 
4.1
%
 
9.6
%
Total
$
624,090

 
$
582,241

 
$
593,776

 
7.2
%
 
5.1
%

 
Three Months Ended
 
July 1, 2018

 
April 1, 2018

 
July 2, 2017

End Market
 
 
 
 
 
Industrial
19.0
%
 
17.9
%
 
19.2
%
Automotive
30.8
%
 
34.3
%
 
30.8
%
Consumer
31.3
%
 
31.3
%
 
34.1
%
Enterprise
18.9
%
 
16.5
%
 
15.9
%
Total
100
%
 
100
%
 
100
%


1.
The Microcontroller and Connectivity Division ("MCD") includes microcontroller, wireless connectivity and USB products and the Memory Products Division ("MPD") includes RAM, Flash and AgigA Tech products.

THIRD QUARTER 2018 FINANCIAL OUTLOOK

For the third quarter of 2018, Cypress estimates financial results as follows:

 
GAAP
Non-GAAP
Revenue
$655 million to $685 million
Gross Margin
38.0% - 39.0%
46.5% - 47.5%
Diluted EPS
$0.11 to $0.15
$0.36 to $0.40

A reconciliation of GAAP forward-looking estimates to non-GAAP forward-looking estimates may be found in the Non-GAAP Reconciliation Tables at the end of this earnings report.

The timing and amount of certain material items, including restructuring charges, asset impairments, changes in value of deferred compensation assets and liabilities, impact of stock-based compensation from modification of equity awards, and the tax impact of non-GAAP adjustments, which are needed to estimate GAAP financial measures, are either inherently unpredictable or outside the control of the Company, and may have a significant impact on the Company’s financial results.






CONFERENCE CALL AND WEBCAST INFORMATION

Cypress will host its quarterly conference call on July 26, 2018 at 1:30 p.m. Pacific Daylight Time to discuss its second quarter 2018 results and outlook for the third quarter of 2018.

All interested parties may dial 517-308-9119 and provide the passcode “Cypress” to listen to the call. The event will be broadcast over the Internet and may be accessed through Cypress’ website at www.cypress.com/investors. The archived presentation will be available for at least two weeks immediately following the event.



FOLLOW CYPRESS ONLINE

Join the Cypress Developer Community 3.0, read our blog, follow us on Twitter, Facebook and LinkedIn, and watch Cypress videos on our Video Library or YouTube.

ABOUT CYPRESS

Cypress is a leader in advanced embedded solutions for the world’s most innovative automotive, industrial, smart home appliances, consumer electronics and medical products. Cypress’ microcontrollers, analog ICs, wireless and USB-based connectivity solutions and reliable, high-performance memories help engineers design differentiated products and get them to market first. Cypress is committed to providing customers with the best support and development resources on the planet enabling them to disrupt markets by creating new product categories. To learn more, go to www.cypress.com.


NON-GAAP FINANCIAL MEASURES
To supplement its condensed consolidated unaudited financial results presented in accordance with GAAP, Cypress uses the non-GAAP financial measures listed below, which are adjusted from the most directly comparable GAAP financial measures to exclude certain items, as described in more detail below.
Non-GAAP gross profit;
Non-GAAP gross margin;
Non-GAAP cost of revenues;
Non-GAAP interest and other expense, net;





Non-GAAP research and development expenses;
Non-GAAP selling, general and administrative expenses;
Adjusted EBITDA;
Non-GAAP income tax provision (benefit);
Non-GAAP pre-tax profit;
Non-GAAP pre-tax profit margin;
Non-GAAP operating income (loss);
Non-GAAP operating margin;
Non-GAAP net income (loss); and
Non-GAAP diluted earnings (loss) per share.

Management believes that these non-GAAP financial measures reflect an additional and useful way of viewing aspects of the Company's operations which, when viewed in conjunction with Cypress' GAAP results, provide a more comprehensive understanding of the various factors and trends affecting the Company's business and operations.

The Company presents non-GAAP financial measures because management uses these measures to analyze and assess the Company's financial results and to manage the business.

There are limitations in using non-GAAP financial measures including those discussed below. Moreover, the Company’s non-GAAP measures may be calculated differently than the non-GAAP financial measures used by other companies. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP financial measures. The non-GAAP financial measures supplement and should be viewed in conjunction with GAAP financial measures.






As presented in the Non-GAAP Reconciliation Tables in this press release, each of the non-GAAP financial measures excludes one or more of the following items:

Acquisition-related charges: Acquisition-related charges are not factored into management's evaluation of Cypress' long-term performance after the completion of acquisitions. However, a limitation of non-GAAP measures that exclude acquisition-related charges is that these charges may represent payments that reduce the cash available to the Company for other purposes. Acquisition-related expenses primarily include:
Amortization of purchased intangibles, including purchased technology, patents, customer relationships, trademarks, backlog and non-compete agreements;
Amortization of step-up in value of inventory recorded as part of purchase price accounting; and
One-time charges associated with the completion of an acquisition including items such as contract termination costs, severance and other acquisition-related restructuring costs; costs incurred in connection with integration activities; and legal and accounting costs.

Stock-based compensation expense: Stock-based compensation expense relates primarily to employee stock options, restricted stock units, performance stock units and the employee stock purchase plan. Stock-based compensation expense is a non-cash expense that is affected by changes in market factors including the price of Cypress’ common shares, which are not within the control of management. In addition, the valuation of stock-based compensation is subjective, and the expense recognized by Cypress may be significantly different than the expense recognized by other companies for similar equity awards, which makes it difficult to assess Cypress’ results compared to its competitors. Accordingly, management excludes this item from its internal operating forecasts and models. However, a limitation of non-GAAP measures that exclude stock-based compensation expense is that they do not reflect the full costs of compensating employees.

Other adjustments: Additional items are excluded from non-GAAP financial measures because management does not consider them to be related to the core operating activities and ongoing operating performance of Cypress. Excluding these items, which can vary significantly from quarter to quarter, allows management to better compare Cypress’ period-over-period performance. However, limitations of non-GAAP measures that exclude these items include that these adjustments are often subjective and such non-GAAP measures may





not be comparable to similarly titled non-GAAP financial measures used by other companies. These adjustments primarily include:
Revenue from an intellectual property license;
Changes in value of deferred compensation plan assets and liabilities;
Investment-related gains or losses, including equity method investments;
Restructuring and related costs;
Debt issuance costs, including imputed interest related to the equity component of convertible debt;
Asset impairments;
Tax effects of non-GAAP adjustments;
Certain other expenses and benefits; and
Diluted weighted average shares non-GAAP adjustment - for purposes of calculating non-GAAP diluted earnings per share, the GAAP diluted weighted average shares outstanding is adjusted to exclude the benefits related to stock-based compensation expense, and include the impact of the capped call options related to the outstanding convertible notes.

Adjusted EBITDA: Adjusted EBITDA is calculated by adjusting net income (loss) attributable to Cypress to exclude (without duplication): interest expense, income tax provision, depreciation, amortization, equity in net loss of equity method investees, and the non-GAAP adjustments described above (acquisition related charges, stock-based compensation expense, and other adjustments). Commencing in the second quarter of 2018, Cypress reconciles adjusted EBITDA to GAAP net income rather than operating income; prior period reconciliation tables have been revised to conform to the current presentation. Adjusted EBITDA may be useful to management, investors and other users of our financial information because the exclusion of certain gains, losses, and expenses facilitates comparisons of Cypress' operating performance on a period to period basis. Adjusted EBITDA should not be considered as a measure of discretionary cash available to invest in the growth of the business. In addition, adjusted EBITDA should not be considered as a substitute for, or superior to net income attributable to Cypress, operating income, or diluted earnings per share, or other financial measures prepared in accordance with GAAP.


FORWARD-LOOKING STATEMENTS






Statements in this press release that are not historical facts and that refer to Cypress or its subsidiaries’ plans and expectations for the future are forward-looking statements as such term is used in the Private Securities Litigation Reform Act of 1995. We may use words such as “may,” "will," “should,” “plan,” “anticipate,” “believe,” “expect,” “future,” “intend,” “estimate,” “predict,” “potential,” “continue” or similar expressions identify forward-looking statements. This press release includes, among others, forward-looking statements regarding our third quarter financial outlook (as well as the related GAAP to non-GAAP reconciling items). Our forward-looking statements are based on the expectations, beliefs, and intentions of, and the information available to, our executive management on the date of this press release. Forward-looking statements involve risks and uncertainties, and readers are cautioned not to place undue reliance on forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: potential tariffs and other disruptions in the international trade and investment environment; global economic and market conditions; our ability to execute on our Cypress 3.0 strategy and our margin improvement plan; risks related to paying down our indebtedness and meeting the covenants in our debt agreements; our efforts to retain and expand our customer base; business conditions and growth trends in the semiconductor market; competition; volatility in supply and demand for our products, including but not limited to the impact of seasonality on supply and demand; our ability to develop, introduce and sell new products and technologies; potential problems relating to our manufacturing activities; reliance on distributers, resellers, third-party manufacturers, and others; risks related to our “take or pay” agreements with certain vendors; the risk of defects, errors, or security vulnerabilities in our products; the impact of acquisitions; our ability to attract and retain key personnel; the unpredictability and expense of legal proceedings; and other risks and uncertainties described in the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and “Quantitative and Qualitative Disclosures about Market Risk” sections in our most recent Annual Report on Form 10-K and in our subsequent quarterly filings with the Securities and Exchange Commission which are available on our investor relations website at http://investors.cypress.com/financial-information/sec-filings. We assume no responsibility to update our forward-looking statements.






Cypress, the Cypress logo and PSoC are registered trademarks and Semper and EZ-PD are trademarks of Cypress Semiconductor Corporation. All other trademarks are property of their owners.








CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 
 
July 1, 2018
 
December 31, 2017

 
 
 
 
 
ASSETS
 
 
 
 
Cash, cash equivalents and short-term investments
 
$
112,718

 
$
151,596

Accounts receivable, net
 
404,524

 
295,991

Inventories
 
286,761

 
272,127

Property, plant and equipment, net
 
291,026

 
289,554

Goodwill and other intangible assets, net
 
2,046,609

 
2,154,592

Other assets
 
362,859

 
373,190

Total assets
 
$
3,504,497

 
$
3,537,050

LIABILITIES AND EQUITY
 
 
 
 
Accounts payable
 
$
225,619

 
$
213,101

Income tax liabilities
 
55,729

 
52,006

Revenue reserves, deferred margin and other liabilities
 
480,436

 
497,838

Revolving credit facility and long-term debt
 
883,741

 
956,513

Total liabilities
 
1,645,525

 
1,719,458

Total Cypress stockholders' equity
 
1,857,816

 
1,816,536

Non-controlling interest
 
1,156

 
1,056

Total equity
 
1,858,972

 
1,817,592

Total liabilities and equity
 
$
3,504,497

 
$
3,537,050








CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ON A GAAP BASIS
(In thousands, except per-share data)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
July 1, 2018
 
April 1, 2018
 
July 2, 2017
 
July 1, 2018
 
July 2, 2017
Revenues
$
624,090

 
$
582,241

 
$
593,776

 
$
1,206,331

 
$
1,125,650

Cost of revenue1
389,952

 
369,849

 
401,031

 
759,801

 
775,797

Gross profit
234,138

 
212,392

 
192,745

 
446,530

 
349,853

Research and development1
96,693

 
93,233

 
88,595

 
189,926

 
177,943

Selling, general and administrative1
86,599

 
83,397

 
95,258

 
169,996

 
176,591

Total operating expenses
183,292

 
176,630

 
183,853

 
359,922

 
354,534

Operating income (loss)
50,846

 
35,762

 
8,892

 
86,608

 
(4,681
)
Interest and other expense, net
(14,143
)
 
(18,154
)
 
(16,407
)
 
(32,297
)
 
(35,766
)
Income (loss) before income taxes and non-controlling interest
36,703

 
17,608

 
(7,515
)
 
54,311

 
(40,447
)
Income tax provision
(5,154
)
 
(5,057
)
 
(4,504
)
 
(10,211
)
 
(9,431
)
Equity in net loss of equity method investees
(3,755
)
 
(3,461
)
 
(4,835
)
 
(7,216
)
 
(9,911
)
Net income (loss)
27,794

 
9,090

 
(16,854
)
 
36,884

 
(59,789
)
Net gain attributable to non-controlling interests
(88
)
 
(12
)
 
(66
)
 
(100
)
 
(130
)
Net income (loss) attributable to Cypress
$
27,706

 
$
9,078

 
$
(16,920
)
 
$
36,784

 
$
(59,919
)
Net income (loss) per share attributable to Cypress:
 
 
 
 
 
 
 
 
 
Basic
$
0.08

 
$
0.03

 
$
(0.05
)
 
$
0.10

 
$
(0.18
)
Diluted
$
0.07

 
$
0.02

 
$
(0.05
)
 
$
0.10

 
$
(0.18
)
Cash dividend declared per share
$
0.11

 
$
0.11

 
$
0.11

 
$
0.22

 
$
0.22

Shares used in net income (loss) per share calculation:
 
 
 
 
 
 
 
 
 
Basic
358,577

 
355,461

 
329,860

 
356,123

 
328,320

Diluted
371,967

 
370,592

 
329,860

 
370,402

 
328,320


1. In 2018, certain expenses have been reclassified as part of cost of revenue and operating expenses. Historical results have been conformed with the 2018 presentation.





CYPRESS SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES
(In thousands, except per-share data)
(Unaudited)


 

Table A: GAAP to non-GAAP reconciling items: Three Months Ended Q2 2018
 
 
 
 
 
 
Cost of revenues
 
Research and development
 
Selling, general and administrative
 
Interest and other expense, net
 
Income tax (provision) benefit
GAAP [i]
 
$
389,952

 
$
96,693

 
$
86,599

 
$
(17,898
)
 
$
(5,154
)
[1] Stock-based compensation
 
3,986

 
13,800

 
16,121

 

 

[2] Changes in value of deferred compensation plan
 
102

 
467

 
572

 
(1,123
)
 

[3] Equity in net loss of equity method investees
 

 

 

 
3,755

 

[4] Imputed interest on convertible debt, equity component amortization on convertible debt and others
 

 

 

 
4,415

 

[5] Amortization of acquisition-related intangible assets and other
 
49,438

 

 
4,355

 

 

[6] Gain on sale of cost method investment
 

 

 
(1,521
)
 

 

[7] Restructuring charges
 
1,589

 
33

 
(383
)
 

 

[8] Tax impact of non-GAAP adjustments
 

 

 

 
(377
)
 
2,029

Non - GAAP [ii]
 
$
334,837

 
$
82,393

 
$
67,455

 
$
(11,228
)
 
$
(3,125
)
Impact of reconciling items [ii - i]
 
$
(55,115
)
 
$
(14,300
)
 
$
(19,144
)
 
$
6,670

 
$
2,029







Table B: GAAP to non-GAAP reconciling items: Three Months Ended Q1 2018
 
 
 
 
 
 
Cost of revenues
 
Research and development
 
Selling, general and administrative
 
Interest and other expense, net
 
Income tax (provision) benefit
GAAP [i]
 
$
369,849

 
$
93,233

 
$
83,397

 
$
(21,615
)
 
$
(5,057
)
[1] Stock-based compensation
 
3,584

 
6,713

 
8,161

 

 

[2] Changes in value of deferred compensation plan
 
61

 
272

 
350

 
(266
)
 

[3] Equity in net loss and impairment of equity method investees
 

 

 

 
3,461

 

[4] Imputed interest on convertible debt, equity component amortization on convertible debt and others
 

 

 

 
3,431

 

[5] Loss on extinguishment of Spansion convertible notes
 

 

 
 
 
3,258

 

[6] Amortization of debt issuance costs
 

 

 

 
1,073

 

[7] Amortization of acquisition-related intangible assets
 
49,438

 

 
5,150

 

 

[8] Restructuring charges
 
1,887

 
292

 
1,917

 

 

[9] Tax impact of non-GAAP adjustments
 

 

 

 
393

 
2,043

Non - GAAP [ii]
 
$
314,879

 
$
85,956

 
$
67,819

 
$
(10,265
)
 
$
(3,014
)
Impact of reconciling items [ii - i]
 
$
(54,970
)
 
$
(7,277
)
 
$
(15,578
)
 
$
11,350

 
$
2,043







Table C: GAAP to Non-GAAP reconciling items: Three Months Ended Q2 2017
 
 
 
 
 
 
Cost of revenues
 
Research and development
 
Selling, general and administrative
 
Interest and other expense, net
 
Income tax (provision) benefit
GAAP [i]
 
$
401,031

 
$
88,595

 
$
95,258

 
$
(21,242
)
 
$
(4,504
)
[1] Stock based compensation
 
4,000

 
9,776

 
10,574

 

 

[2] Changes in value of deferred compensation plan
 
137

 
563

 
896

 
(1,584
)
 

[3] Merger, integration, related costs and adjustments related to assets held for sale
 
1,336

 
(96
)
 
1,193

 

 

[4] Inventory step-up related to acquisition accounting
 
167

 

 

 

 

[5] Equity in net loss and impairment of equity method investees
 

 

 

 
4,835

 

[6] Imputed interest on convertible debt, equity component amortization on convertible debt and others
 

 

 

 
3,507

 

[7] Amortization of debt issuance costs
 

 

 

 
920

 

[8] Amortization of acquisition-related intangible assets
 
44,270

 

 
5,084

 

 

[9] Restructuring charges
 

 
358

 
540

 

 

[10] Settlement charges
 

 

 
3,500

 

 

[11] Tax impact of non-GAAP adjustments
 

 

 

 
227

 
1,421

Non - GAAP [ii]
 
$
351,121

 
$
77,994

 
$
73,471

 
$
(13,337
)
 
$
(3,083
)
Impact of reconciling items [ii - i]
 
$
(49,910
)
 
$
(10,601
)
 
$
(21,787
)
 
$
7,905

 
$
1,421









Table D: GAAP to non-GAAP reconciling items: Six Months Ended Q2 2018
 
 
 
 
Cost of revenues
 
Research and development
 
SG&A and Restructuring costs
 
Interest and other expense, net
 
Income tax (provision) benefit
GAAP [i]
 
$
759,801

 
$
189,926

 
$
169,996

 
$
(39,513
)
 
$
(10,211
)
[1] Stock-based compensation
 
7,569

 
20,514

 
24,283

 

 

[2] Changes in value of deferred compensation plan
 
163

 
739

 
922

 
(1,389
)
 

[3] Equity in net loss and impairment of equity method investees
 

 

 

 
7,216

 

[4] Imputed interest on convertible debt, equity component amortization on convertible debt and others
 

 

 

 
7,846

 

[5] Loss on extinguishment of Spansion convertible notes and debt issuance cost write off due to refinancing
 

 

 

 
3,258

 

[6] Amortization of debt issuance costs
 

 

 

 
1,073

 

[7] Amortization of acquisition-related intangible assets and other
 
98,876

 

 
9,505

 

 

[8] Gain on sale of cost method investment
 

 

 
(1,521
)
 

 

[9] Restructuring charges
 
3,476

 
325

 
1,533

 

 

[10] Tax impact of non-GAAP adjustments
 

 

 

 
16

 
4,072

Non - GAAP [ii]
 
$
649,717

 
$
168,348

 
$
135,274

 
$
(21,493
)
 
$
(6,139
)
Impact of reconciling items [ii - i]
 
$
(110,084
)
 
$
(21,578
)
 
$
(34,722
)
 
$
18,020

 
$
4,072







Table E: GAAP to non-GAAP reconciling items: Six Months Ended Q2 2017
 
 
 
 
 
 
Cost of revenues
 
Research and development
 
Selling, general and administrative
 
Interest and other expense, net
 
Income tax (provision) benefit
GAAP [i]
 
$
775,797

 
$
177,943

 
$
176,591

 
$
(45,677
)
 
$
(9,431
)
[1] Stock-based compensation
 
7,885

 
20,062

 
19,557

 

 

[2] Changes in value of deferred compensation plan
 
304

 
1,160

 
1,904

 
(3,142
)
 

[3] Merger, integration, related costs and adjustments related to assets held for sale
 
2,686

 
(96
)
 
(286
)
 

 

[4] Inventory step-up related to acquisition accounting
 
3,031

 

 

 

 

[5] Equity in net loss and impairment of equity method investees
 

 

 

 
9,911

 

[6] Imputed interest on convertible debt, equity component amortization on convertible debt and others
 

 

 

 
6,996

 

[7] Amortization of debt issuance costs
 

 

 

 
1,778

 

[8] Amortization of acquisition-related intangible assets
 
87,437

 

 
10,167

 

 

[9] Restructuring charges
 
231

 
2,710

 
528

 

 

[10] Settlement charges
 

 

 
3,500

 

 

[11] Tax impact of non-GAAP adjustments
 

 

 

 
642

 
3,546

Non - GAAP [ii]
 
$
674,223

 
$
154,107

 
$
141,221

 
$
(29,492
)
 
$
(5,885
)
Impact of reconciling items [ii - i]
 
$
(101,574
)
 
$
(23,836
)
 
$
(35,370
)
 
$
16,185

 
$
3,546




Table F: Non-GAAP gross profit
 
Three Months Ended
 
Six Months Ended
 
 
Q2'18
 
Q1'18
 
Q2'17
 
Q2'18
 
Q2'17
GAAP gross profit
 
$
234,138

 
$
212,392

 
$
192,745

 
$
446,530

 
$
349,853

Impact of reconciling items on cost of revenues (Table A, B, C, D and E)
 
(55,115
)
 
(54,970
)
 
(49,910
)
 
(110,084
)
 
(101,574
)
Non-GAAP gross profit
 
$
289,253

 
$
267,362

 
$
242,655

 
$
556,614

 
$
451,427

GAAP gross margin (GAAP gross profit/revenue)
 
37.5
%
 
36.5
%
 
32.5
%
 
37.0
%
 
31.1
%
Non-GAAP gross margin (Non-GAAP gross profit/revenue)
 
46.3
%
 
45.9
%
 
40.9
%
 
46.1
%
 
40.1
%







Table G: Non-GAAP operating income
 
Three Months Ended
 
Six Months Ended
 
 
Q2'18
 
Q1'18
 
Q2'17
 
Q2'18
 
Q2'17
GAAP operating income (loss) [i]
 
$
50,846

 
$
35,762

 
$
8,892

 
$
86,608

 
$
(4,681
)
Impact of reconciling items on cost of revenues (see Table A, B, C, D, E)
 
55,115

 
54,970

 
49,910

 
110,084

 
101,574

Impact of reconciling items on R&D (see Table A, B, C, D, E)
 
14,300

 
7,277

 
10,601

 
21,578

 
23,836

Impact of reconciling items on SG&A (see Table A, B, C, D, E)
 
19,144

 
15,578

 
21,787

 
34,722

 
35,370

Non-GAAP operating income [ii]
 
$
139,405

 
$
113,587

 
$
91,190

 
$
252,992

 
$
156,099

Impact of reconciling items on operating income [ii - i]
 
$
88,559

 
$
77,825

 
$
82,298

 
$
166,384

 
$
160,780

GAAP operating margin (GAAP operating income / revenue)
 
8.1
%
 
6.1
%
 
1.5
%
 
7.2
%
 
(0.4
)%
Non-GAAP operating margin (Non-GAAP operating income / revenue)
 
22.3
%
 
19.5
%
 
15.4
%
 
21.0
%
 
13.9
 %

Table H: Non-GAAP pre-tax profit
 
Three Months Ended
 
Six Months Ended
 
 
Q2'18
 
Q1'18
 
Q2'17
 
Q2'18
 
Q2'17
GAAP income (loss) before income taxes and non-controlling interest ("Pre-tax income")
 
$
36,703

 
$
17,608

 
$
(7,515
)
 
$
54,311

 
$
(40,447
)
Equity in net loss and impairment of equity method investees
 
(3,755
)
 
(3,461
)
 
(4,835
)
 
(7,216
)
 
(9,911
)
Impact of reconciling items on operating income (see Table G)
 
88,559

 
77,825

 
82,298

 
166,384

 
160,780

Impact of reconciling items on interest and other expense, net (see Table A, B, C, D, E)
 
6,670

 
11,350

 
7,905

 
18,020

 
16,185

Non-GAAP pre-tax profit
 
$
128,177

 
$
103,322

 
$
77,853

 
$
231,499

 
$
126,607

GAAP pre-tax profit margin (GAAP pre-tax income/revenue)
 
5.9
%
 
3.0
%
 
(1.3
)%
 
4.5
%
 
(3.6
)%
Non-GAAP pre-tax profit margin (Non-GAAP pre-tax profit/revenue)
 
20.5
%
 
17.7
%
 
13.1
 %
 
19.2
%
 
11.2
 %


Table I: Non-GAAP net income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
Q2'18
 
Q1'18
 
Q2'17
 
Q2'18
 
Q2'17
GAAP net income (loss) attributable to Cypress
 
$
27,706

 
$
9,078

 
$
(16,920
)
 
$
36,784

 
$
(59,919
)
Impact of reconciling items on operating income (see Table G)
 
88,559

 
77,825

 
82,298

 
166,384

 
160,780

Impact of reconciling items on interest and other expense, net (see Table A, B, C, D, E)
 
6,670

 
11,350

 
7,905

 
18,020

 
16,185

Impact of reconciling items on income tax (provision) benefit (see Table A, B, C, D, E)
 
2,029

 
2,043

 
1,421

 
4,072

 
3,546

Non-GAAP net income
 
$
124,964

 
$
100,296

 
$
74,704

 
$
225,260

 
$
120,592








Table J: Weighted-average shares, diluted
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
Q2'18
 
Q1'18
 
Q2'17
 
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
Weighted-average common shares outstanding, basic
 
358,577

 
358,577

 
355,461

 
355,461

 
329,860

 
329,860

Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
 
Stock options, unvested restricted stock and other
 
7,837

 
14,391

 
7,897

 
12,515

 

 
15,822

Convertible notes
 
5,553

 
3,070

 
7,234

 
4,750

 

 
18,208

Weighted-average common shares outstanding, diluted
 
371,967

 
376,038

 
370,592

 
372,726

 
329,860

 
363,890


Table K: Weighted-average shares, diluted
 
 
 
 
 
 
Six Months Ended
 
 
Q2'18
 
Q2'17
 
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
Weighted-average common shares outstanding, basic
 
356,123

 
356,123

 
328,320

 
328,320

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options, unvested restricted stock and other
 
7,879

 
13,071

 

 
15,466

Convertible notes
 
6,400

 
3,916

 

 
17,791

Weighted-average common shares outstanding, diluted
 
370,402

 
373,110

 
328,320

 
361,577




Table L: Net income (loss) per share
 
 
 
 
 
 
 
 
Three Months Ended
 
 
Q2'18
 
Q1'18
 
Q2'17
 
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
Net income (loss) (see Table I) [i]
 
$
27,706

 
$
124,964

 
$
9,078

 
$
100,296

 
$
(16,920
)
 
$
74,704

Weighted-average common shares outstanding, diluted (see Table J) [ii]
 
371,967

 
376,038

 
370,592

 
372,726

 
329,860

 
363,890

Earnings per share - diluted [i/ii]
 
$
0.07

 
$
0.33

 
$
0.02

 
$
0.27

 
$
(0.05
)
 
$
0.21






Table M: Net income (loss) per share
 
 
 
 
 
 
 
Six Months Ended
 
 
Q2'18
 
Q2'17
 
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
Net income (loss) (see Table I) [i]
 
$
36,784

 
$
225,260

 
$
(59,919
)
 
$
120,592

Weighted-average common shares outstanding (see Table K) [ii]
 
370,402

 
373,110

 
328,320

 
361,577

Earnings per share - diluted [i/ii]
 
$
0.10

 
$
0.60

 
$
(0.18
)
 
$
0.33


Table N: Adjusted EBITDA
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
Q2'18
 
Q1'18
 
Q2'17
 
Q2'18
 
Q2'17
GAAP net income (loss) attributable to Cypress
 
$
27,706

 
$
9,078

 
$
(16,920
)
 
$
36,784

 
$
(59,919
)
Interest and other expense, net
 
(14,143
)
 
(18,154
)
 
(16,407
)
 
(32,297
)
 
(35,766
)
Income tax provision
 
(5,154
)
 
(5,057
)
 
(4,504
)
 
(10,211
)
 
(9,431
)
Equity in net loss of and impairment of equity method investees
 
(3,755
)
 
(3,461
)
 
(4,835
)
 
(7,216
)
 
(9,911
)
Net gain (loss) attributable to non-controlling interests
 
(88
)
 
(12
)
 
(66
)
 
(100
)
 
(130
)
GAAP operating income
 
$
50,846

 
$
35,762

 
$
8,892

 
$
86,608

 
$
(4,681
)
Impact of reconciling items on operating income (see Table G)
 
88,559

 
77,825

 
82,298

 
166,384

 
160,780

Non-GAAP operating income
 
$
139,405

 
$
113,587

 
$
91,190

 
$
252,992

 
$
156,099

Depreciation
 
16,239

 
17,140

 
16,045

 
33,379

 
32,202

Adjusted EBITDA
 
$
155,644

 
$
130,727

 
$
107,235

 
$
286,371

 
$
188,301







CYPRESS SEMICONDUCTOR CORPORATION
SUPPLEMENTAL FINANCIAL DATA
(In thousands)
(Unaudited)


 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
July 1, 2018
 
April 1, 2018
 
July 2, 2017
 
July 1, 2018
 
July 2, 2017
Selected Cash Flow Data (Preliminary):
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
$
110,734

 
$
31,678

 
$
32,447

 
$
142,412

 
$
58,168

Net cash (used in) provided by investing activities
 
$
(7,213
)
 
$
(14,173
)
 
$
(14,992
)
 
$
(21,386
)
 
$
6,658

Net cash used in financing activities
 
$
(97,556
)
 
$
(62,348
)
 
$
(30,184
)
 
$
(159,904
)
 
$
(76,227
)
Other Supplemental Data (Preliminary):
 
 
 
 
 

 

Capital expenditures
 
$
25,593

 
$
17,267

 
$
15,577

 
$
42,860

 
$
29,349

Depreciation
 
$
16,239

 
$
17,140

 
$
16,045

 
$
33,379

 
$
32,202

Payment of dividend
 
$
39,404

 
$
38,741

 
$
36,217

 
$
78,145

 
$
71,754

Dividend paid per share
 
$
0.11

 
$
0.11

 
$
0.11

 
$
0.22

 
$
0.22

Total debt (principal amount)
 
$
955,553

 
$
1,017,588

 
$
1,280,390

 
$
955,553

 
$
1,280,390

Leverage ratio
 
1.71

 
2.00

 
3.42

 
1.71

 
3.42










CYPRESS SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP FORWARDING-LOOKING ESTIMATES TO NON-GAAP FORWARD-
LOOKING ESTIMATES
 
 
 
 
 
 
 
 
 
Forward-looking GAAP estimate (A)
 
Adjustments (B)
 
Forward-looking Non-GAAP estimate (C)=(A)+(B)
 
 
 
 
Amortization of intangibles
 
Stock-based compensation expense
 
Other items
 
 
Gross margin
 
38.0% - 39.0%
 
7.4
%
 
0.7
%
 
0.4
%
 
46.5% - 47.5%
Diluted earnings per share
 
$0.11 to $0.15
 
$
0.14

 
$
0.07

 
$
0.04

 
$0.36 to $0.40











 

.
 
 
.