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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): October 25, 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 October 25, 2018, Cypress Semiconductor Corporation (the “Company”) issued a press release regarding the Company’s financial results for its third fiscal quarter, which ended September 30, 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:
October 25, 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 Third Quarter 2018 Results

SAN JOSE, Calif., October 25, 2018—Cypress Semiconductor Corporation (NASDAQ: CY), a leader in embedded solutions, today announced its third quarter 2018 results with the following highlights:
Record revenue of $673.0 million, a 7.8% increase sequentially and 11.3% year-over-year
GAAP and non-GAAP gross margins were 38.6% and 47.0%, respectively, and represent a 390 bps and 400 bps increase year-over-year
GAAP diluted EPS increased 10 cents to $0.14 and Non-GAAP diluted EPS increased 13 cents to $0.40 year-over-year
Automotive revenue increased 8.3% sequentially and 12.8% year-over-year

“Cypress delivered another record quarter for revenue while continuing to expand gross margins, operating margins and cash flow due to our uncompromising focus on execution,” said Hassane El-Khoury, Cypress’ president and chief executive officer. “Our strategy and investments to advance our portfolio of highly-differentiated connect, compute and store solutions are paying off. We are seeing a strong design pipeline leading into the fourth quarter with design activity increasing 23% year-over-year. Our continued commitment to sharpen our focus, with moves such as today’s announcement of entering into a joint venture for our NAND Flash business, are positioning us well in our target high-growth markets of Automotive, Industrial and IoT.”

Revenue and earnings for the quarter are shown below with comparable periods:
(In thousands, except per-share data)



 
 
GAAP1
 
NON-GAAP2
 
 
Q3 2018
 
Q2 2018
 
Q3 2017
 
Q3 2018
 
Q2 2018
 
Q3 2017
Revenue
 
$
673,035

 
$
624,090

 
$
604,574

 
$
673,035

 
$
624,090

 
$
604,574

Gross margin
 
38.6
%
 
37.5
%
 
34.7
%
 
47.0
%
 
46.3
%
 
43.0
%
Operating margin
 
11.2
%
 
8.1
%
 
6.8
%
 
24.7
%
 
22.3
%
 
19.0
%
Net income (loss)
 
$
50,695

 
$
27,706

 
$
13,016

 
$
152,725

 
$
124,964

 
$
98,980

Diluted EPS (loss)
 
$
0.14

 
$
0.07

 
$
0.04

 
$
0.40

 
$
0.33

 
$
0.27


Revenue and earnings for the year-to-date are shown below with comparable periods:
(In thousands, except per-share data)
 
 
GAAP1
 
NON-GAAP2
 
 
Nine Months
 
Nine Months
 
 
Q3 2018
 
Q3 2017
 
Q3 2018
 
Q3 2017
Revenue
 
$
1,879,366

 
$
1,730,224

 
$
1,879,366

 
$
1,730,224

Gross margin
 
37.6
%
 
32.3
%
 
46.4
%
 
41.1
%
Operating margin
 
8.6
%
 
2.1
%
 
22.3
%
 
15.7
%
Net income (loss)
 
$
87,478

 
$
(46,902
)
 
$
377,984

 
$
219,573

Diluted EPS (loss)
 
$
0.23

 
$
(0.14
)
 
$
1.01

 
$
0.61


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
During the third quarter, Cypress expanded its connect, compute and store portfolio for the Internet of Things and strengthened its positioning with key developments in its partner ecosystem, and the Company’s focus on delivering automotive-grade quality and reliability resulted in a key customer win. Highlights included:

+ Cypress expanded its collaboration with Arm® to enable secure, easy-to-use management of IoT edge nodes based on Cypress’ leading compute and connectivity hardware. The solution integrates the Arm Pelion™ IoT Platform with Cypress’ ultra-low power, dual-core PSoC® 6 microcontrollers (MCUs) and CYW4343W Wi-Fi® and Bluetooth® combo radios for robust wireless connectivity. PSoC 6 provides hardware-based security that adheres to the highest level of device protection defined by the Arm Platform Security Architecture (PSA). Cypress and Arm demonstrated hardware-secured onboarding and communication through the integration of the PSoC 6 MCU and Pelion IoT Platform in the Arm booth at the Arm TechCon event this month.

+ Cypress expanded the cloud connectivity offerings for its IoT solutions with AliOS Things, Alibaba’s embedded IoT operating system. Developers can now streamline connections to Alibaba Cloud, the cloud computing arm of Alibaba Group, and design differentiated products with the flexible computing and security



features of Cypress’ programmable PSoC microcontrollers and the robust wireless connectivity of its industry-leading Wi-Fi and Bluetooth portfolio for the IoT. Cypress also collaborated with the Alibaba Group to strengthen its sales presence in China by opening up an online store in Alibaba Group’s TMALL market.

+ Cypress introduced a Bluetooth audio offering that brings leading-edge performance to wireless earbuds and hearables. Based on the new Wireless Audio Stereo Synchronization (WASS™) application and the CYW20721 Bluetooth and Bluetooth Low Energy (BLE) Audio MCU, the solution provides robust connections for differentiated performance in wireless earbuds. The MCU delivers up to twice the range of competing chips and combines with the WASS application to enable superior cross-body performance, giving users uninterrupted audio on their earbuds with their smart device in their back pocket or on their wrist. The MCU also operates at nearly 50% lower power consumption than competing chips, enabling twice the playback time or the use of smaller batteries in sleeker form-factors.

+ Automotive supplier Yazaki North America implemented Cypress’ instrument cluster solution to drive the advanced graphics in its instrument cluster for a leading American car manufacturer. Yazaki selected Cypress based on its unique offering of five chips that combine to drive dual displays and provide instant-on memory performance with automotive-grade safety compliance. The Cypress solution is based on a Traveo™ MCU, along with two high-bandwidth HyperBus™ memories in a multi-chip package (MCP), an analog power management IC (PMIC) for safe electrical operation, and a PSoC MCU for system management support.

+ Cypress’ manufacturing and support operations attained the latest IATF16949:2016 and ISO9001:2015 certifications for automotive quality. Developed by the International Automotive Task Force in conjunction with the international standards community, IATF 16949 is the industry's highest standard for quality management systems in the automotive sector. The certifications help ensure the reliable performance of components, which is critical for enabling fail-safe operation of automotive systems.

+ On October 18, 2018, Cypress paid a cash dividend of $39.8 million, or $0.11 per share, to holders of record of the Company’s common stock as of the close of business on September 27, 2018. The dividend was equivalent to a 3.0% annualized yield as of September 28, 2018.





REVENUE SUMMARY
(In thousands, except percentages)
(Unaudited)
 
 
Three Months Ended
 
September 30, 2018
 
July 1, 2018
 
October 1, 2017
 
Sequential Change
 
Year-over-year Change
Business Unit¹
 
 
 
 
 
 
 
 
 
MCD
$
413,413

 
$
368,526

 
$
373,584

 
12.2
%
 
10.7
%
MPD
$
259,622

 
$
255,564

 
$
230,990

 
1.6
%
 
12.4
%
Total
$
673,035

 
$
624,090

 
$
604,574

 
7.8
%
 
11.3
%

 
Three Months Ended
 
September 30, 2018

 
July 1, 2018

 
October 1, 2017

End Market
 
 
 
 
 
Industrial
19.6
%
 
19.0
%
 
17.7
%
Automotive
31.0
%
 
30.8
%
 
30.6
%
Consumer
32.0
%
 
31.3
%
 
34.8
%
Enterprise
17.4
%
 
18.9
%
 
16.9
%
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.

FOURTH QUARTER 2018 FINANCIAL OUTLOOK

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

 
GAAP¹
Non-GAAP
Revenue
$585 million to $615 million
Gross Margin
38.0% - 39.0%
47.0% - 48.0%
Diluted EPS
$0.07 to $0.11
$0.31 to $0.35
1. GAAP outlook does not include any impact from the planned disposition of our NAND business to the joint venture with SK hynix system ic Inc., which is not expected to be completed until the first quarter of 2019.

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 forward-looking





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 October 25, 2018 at 1:30 p.m. Pacific Daylight Time to discuss its third quarter 2018 results and outlook for the fourth 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);
Non-GAAP diluted earnings (loss) per share; and
Free cash flow.

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 (other than free cash flow) 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;
Income tax adjustment related to the use of the net operating loss, non-cash impact of not asserting indefinite reinvestment on earnings of our foreign subsidiaries, deferred tax expense not affecting taxes payable, and non-cash expense (benefit) related to uncertain tax positions;
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 include the impact of non-GAAP adjustments on the number of diluted shares underlying stock-based compensation awards and 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.

Free Cash Flow: Free cash flow is calculated as net cash provided by (used in) operating activities, less acquisition of property, plant and equipment, net (i.e., acquisition of property, plant and equipment less proceeds received from disposition of property, plant and equipment). We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by business operations, after deducting our net payments for acquisitions and dispositions of property and equipment, which cash can then be used for strategic opportunities or other business purposes including, among others, investing in the Company's business, repurchasing stock, making strategic acquisitions, repayment of debt, and strengthening the balance sheet. A limitation of free cash flow is that it does not represent the total increase or decrease in the cash balance for the period. Management compensates for this limitation by also relying on the net increase in cash and cash equivalents and restricted cash as presented in the Company’s condensed consolidated statements of cash flows prepared in accordance with GAAP which incorporates all cash movements during the period.



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 fourth 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 WASS, Traveo and HyperBus are trademarks of Cypress Semiconductor Corporation. All other trademarks are property of their owners.









CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 
 
September 30, 2018
 
December 31, 2017

 
 
 
 
 
ASSETS
 
 
 
 
Cash, cash equivalents and short-term investments
 
$
204,771

 
$
151,596

Accounts receivable, net
 
404,561

 
295,991

Inventories
 
289,436

 
272,127

Property, plant and equipment, net
 
292,854

 
289,554

Goodwill and other intangible assets, net
 
1,994,200

 
2,154,592

Other assets
 
372,102

 
373,190

Total assets
 
$
3,557,924

 
$
3,537,050

LIABILITIES AND EQUITY
 
 
 
 
Accounts payable
 
$
228,159

 
$
213,101

Income tax liabilities
 
57,283

 
52,006

Revenue reserves, deferred margin and other liabilities
 
515,420

 
497,838

Revolving credit facility and long-term debt
 
870,574

 
956,513

Total liabilities
 
1,671,436

 
1,719,458

Total Cypress stockholders' equity
 
1,885,280

 
1,816,536

Non-controlling interest
 
1,208

 
1,056

Total equity
 
1,886,488

 
1,817,592

Total liabilities and equity
 
$
3,557,924

 
$
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
 
Nine Months Ended
 
September 30, 2018
 
July 1, 2018
 
October 1, 2017
 
September 30, 2018
 
October 1, 2017
Revenues
$
673,035

 
$
624,090

 
$
604,574

 
$
1,879,366

 
$
1,730,224

Cost of revenue1
413,320

 
389,952

 
394,878

 
1,173,121

 
1,170,675

Gross profit
259,715

 
234,138

 
209,696

 
706,245

 
559,549

Research and development1
91,691

 
96,693

 
90,422

 
281,617

 
268,365

Selling, general and administrative1
92,943

 
86,599

 
78,194

 
262,940

 
254,785

Total operating expenses
184,634

 
183,292

 
168,616

 
544,557

 
523,150

Operating income
75,081

 
50,846

 
41,080

 
161,688

 
36,399

Interest and other expense, net
(15,059
)
 
(14,143
)
 
(18,619
)
 
(47,356
)
 
(54,385
)
Income (loss) before income taxes and non-controlling interest
60,022

 
36,703

 
22,461

 
114,332

 
(17,986
)
Income tax provision
(5,618
)
 
(5,154
)
 
(4,500
)
 
(15,829
)
 
(13,930
)
Equity in net loss of equity method investees
(3,657
)
 
(3,755
)
 
(4,931
)
 
(10,873
)
 
(14,842
)
Net income (loss)
50,747

 
27,794

 
13,030

 
87,630

 
(46,758
)
Net gain attributable to non-controlling interests
(52
)
 
(88
)
 
(14
)
 
(152
)
 
(144
)
Net income (loss) attributable to Cypress
$
50,695

 
$
27,706

 
$
13,016

 
$
87,478

 
$
(46,902
)
Net income (loss) per share attributable to Cypress:
 
 
 
 
 
 
 
 
 
Basic
$
0.14

 
$
0.08

 
$
0.04

 
$
0.24

 
$
(0.14
)
Diluted
$
0.14

 
$
0.07

 
$
0.04

 
$
0.23

 
$
(0.14
)
Cash dividend declared per share
$
0.11

 
$
0.11

 
$
0.11

 
$
0.33

 
$
0.33

Shares used in net income (loss) per share calculation:
 
 
 
 
 
 
 
 
 
Basic
361,631

 
358,577

 
332,873

 
358,560

 
329,787

Diluted
374,266

 
371,967

 
360,311

 
373,064

 
329,787


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 Q3 2018

 
 
 
 
Cost of revenues
 
Research and development
 
Selling, general and administrative
 
Interest and other expense, net
GAAP [i]
 
$
413,320

 
$
91,691

 
$
92,943

 
$
(18,716
)
[1] Stock-based compensation
 
5,120

 
8,206

 
10,869

 

[2] Changes in value of deferred compensation plan
 
136

 
667

 
768

 
(1,108
)
[3] Equity in net loss of equity method investees
 

 

 

 
3,657

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

 

 

 
6,782

[5] Amortization of acquisition-related intangible assets and other
 
51,565

 

 
4,310

 

[6] Acquisition costs
 

 

 
119

 

[7] Restructuring charges
 
(340
)
 
516

 
9,815

 

[8] Litigation settlement and other
 

 

 
(605
)
 
(1,286
)
Non - GAAP [ii]
 
$
356,839

 
$
82,302

 
$
67,667

 
$
(10,671
)
Impact of reconciling items [ii - i]
 
$
(56,481
)
 
$
(9,389
)
 
$
(25,276
)
 
$
8,045







Table B: 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
GAAP [i]
 
$
389,952

 
$
96,693

 
$
86,599

 
$
(17,898
)
[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 and other
 
1,589

 
33

 
(383
)
 
(377
)
Non - GAAP [ii]
 
$
334,837

 
$
82,393

 
$
67,455

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







Table C: GAAP to Non-GAAP reconciling items: Three Months Ended Q3 2017
 
 
 
 
Cost of revenues
 
Research and development
 
Selling, general and administrative
 
Interest and other expense, net
GAAP [i]
 
$
394,878

 
$
90,422

 
$
78,194

 
$
(23,550
)
[1] Stock-based compensation
 
4,720

 
8,692

 
7,600

 

[2] Changes in value of deferred compensation plan
 
208

 
1,278

 
1,415

 
(1,734
)
[3] Merger, integration, related costs and adjustments related to assets held for sale
 
1,336

 

 
(636
)
 

[4] Inventory step-up related to acquisition accounting
 
704

 

 

 

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

 

 

 
4,931

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

 

 

 
3,521

[7] Write-off of unamortized debt issuance costs related to Term Loan A
 

 

 

 
2,996

[8] Amortization of debt issuance costs
 

 

 

 
856

[9] Amortization of acquisition-related intangible assets and other
 
43,345

 

 
5,083

 
51

Non - GAAP [ii]
 
$
344,565

 
$
80,452

 
$
64,732

 
$
(12,929
)
Impact of reconciling items [ii - i]
 
$
(50,313
)
 
$
(9,970
)
 
$
(13,462
)
 
$
10,621









Table D: GAAP to non-GAAP reconciling items: Nine Months Ended Q3 2018

 
 
Cost of revenues
 
Research and development
 
SG&A and Restructuring costs
 
Interest and other expense, net
GAAP [i]
 
$
1,173,121

 
$
281,617

 
$
262,940

 
$
(58,229
)
[1] Stock-based compensation
 
12,689

 
28,720

 
35,152

 

[2] Changes in value of deferred compensation plan
 
299

 
1,406

 
1,690

 
(2,497
)
[3] Equity in net loss and impairment of equity method investees
 

 

 

 
10,873

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

 

 

 
14,628

[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
 
150,441

 

 
13,815

 

[8] Gain on sale of cost method investment
 

 

 
(1,521
)
 

[9] Acquisition costs
 

 

 
119

 

[10] Restructuring charges
 
3,136

 
841

 
11,347

 

[11] Litigation settlement and other
 

 

 
(605
)
 
(1,270
)
Non - GAAP [ii]
 
$
1,006,556

 
$
250,650

 
$
202,943

 
$
(32,164
)
Impact of reconciling items [ii - i]
 
$
(166,565
)
 
$
(30,967
)
 
$
(59,997
)
 
$
26,065







Table E: GAAP to non-GAAP reconciling items: Nine Months Ended Q3 2017
 
 
 
 
Cost of revenues
 
Research and development
 
Selling, general and administrative

 
Interest and other expense, net
GAAP [i]
 
$
1,170,675

 
$
268,365

 
$
254,785

 
$
(69,227
)
[1] Stock-based compensation
 
12,605

 
28,754

 
27,157

 

[2] Changes in value of deferred compensation plan
 
512

 
2,438

 
3,319

 
(4,876
)
[3] Merger, integration, related costs and adjustments related to assets held for sale
 
4,022

 
(96
)
 
(922
)
 

[4] Inventory step-up related to acquisition accounting
 
3,735

 

 

 

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

 

 

 
14,842

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

 

 

 
10,517

[7] Write-off of unamortized debt issuance costs related to Term Loan A
 

 

 

 
2,996

[8] Amortization of debt issuance costs
 

 

 

 
2,634

[9] Amortization of acquisition-related intangible assets
 
130,782

 

 
15,250

 

[10] Restructuring charges
 
231

 
2,710

 
528

 

[11] Settlement charges and other
 

 

 
3,500

 
693

Non - GAAP [ii]
 
$
1,018,788

 
$
234,559

 
$
205,953

 
$
(42,421
)
Impact of reconciling items [ii - i]
 
$
(151,887
)
 
$
(33,806
)
 
$
(48,832
)
 
$
26,806




Table F: Non-GAAP gross profit
 
Three Months Ended
 
Nine Months Ended
 
 
Q3'18
 
Q2'18
 
Q3'17
 
Q3'18
 
Q3'17
GAAP gross profit
 
$
259,715

 
$
234,138

 
$
209,696

 
$
706,245

 
$
559,549

Impact of reconciling items on cost of revenues (Table A, B, C, D and E)
 
56,481

 
55,115

 
50,313

 
166,565

 
151,887

Non-GAAP gross profit
 
$
316,196

 
$
289,253

 
$
260,009

 
$
872,810

 
$
711,436

GAAP gross margin (GAAP gross profit/revenue)
 
38.6
%
 
37.5
%
 
34.7
%
 
37.6
%
 
32.3
%
Non-GAAP gross margin (Non-GAAP gross profit/revenue)
 
47.0
%
 
46.3
%
 
43.0
%
 
46.4
%
 
41.1
%







Table G: Non-GAAP operating income
 
Three Months Ended
 
Nine Months Ended
 
 
Q3'18
 
Q2'18
 
Q3'17
 
Q3'18
 
Q3'17
GAAP operating income [i]
 
$
75,081

 
$
50,846

 
$
41,080

 
$
161,688

 
$
36,399

Impact of reconciling items on cost of revenues (see Table A, B, C, D, E)
 
56,481

 
55,115

 
50,313

 
166,565

 
151,887

Impact of reconciling items on R&D (see Table A, B, C, D, E)
 
9,389

 
14,300

 
9,970

 
30,967

 
33,806

Impact of reconciling items on SG&A (see Table A, B, C, D, E)
 
25,276

 
19,144

 
13,462

 
59,997

 
48,832

Non-GAAP operating income [ii]
 
$
166,227

 
$
139,405

 
$
114,825

 
$
419,217

 
$
270,924

Impact of reconciling items on operating income [ii - i]
 
$
91,146

 
$
88,559

 
$
73,745

 
$
257,529

 
$
234,525

GAAP operating margin (GAAP operating income / revenue)
 
11.2
%
 
8.1
%
 
6.8
%
 
8.6
%
 
2.1
%
Non-GAAP operating margin (Non-GAAP operating income / revenue)
 
24.7
%
 
22.3
%
 
19.0
%
 
22.3
%
 
15.7
%

Table H: Non-GAAP pre-tax profit
 
Three Months Ended
 
Nine Months Ended
 
 
Q3'18
 
Q2'18
 
Q3'17
 
Q3'18
 
Q3'17
GAAP income (loss) before income taxes and non-controlling interest ("Pre-tax income")
 
$
60,022

 
$
36,703

 
$
22,461

 
$
114,332

 
$
(17,986
)
Equity in net loss and impairment of equity method investees
 
(3,657
)
 
(3,755
)
 
(4,931
)
 
(10,873
)
 
(14,842
)
Impact of reconciling items on operating income (see Table G)
 
91,146

 
88,559

 
73,745

 
257,529

 
234,525

Impact of reconciling items on interest and other expense, net (see Table A, B, C, D, E)
 
8,045

 
6,670

 
10,621

 
26,065

 
26,806

Non-GAAP pre-tax profit
 
$
155,556

 
$
128,177

 
$
101,896

 
$
387,053

 
$
228,503

GAAP pre-tax profit margin (GAAP pre-tax income/revenue)
 
8.9
%
 
5.9
%
 
3.7
%
 
6.1
%
 
(1.0
)%
Non-GAAP pre-tax profit margin (Non-GAAP pre-tax profit/revenue)
 
23.1
%
 
20.5
%
 
16.9
%
 
20.6
%
 
13.2
 %







Table I: Non-GAAP income tax expense
 
Three Months Ended
 
Nine Months Ended
 
 
Q3'18
 
Q2'18
 
Q3'17
 
Q3'18
 
Q3'17
GAAP income tax provision [i]
 
5,618

 
5,154

 
4,500

 
15,829

 
13,930

[1] Stock-based compensation
 
5,081

 
7,120

 
7,354

 
16,078

 
23,981

[2] Changes in value of deferred compensation plan
 
97

 
4

 
408

 
189

 
488

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

 

 
245

 

 
1,051

[4] Inventory step-up related to acquisition accounting
 

 

 
246

 

 
1,314

[5] Equity in net loss and impairment of equity method investees
 
768

 
789

 
1,726

 
2,283

 
5,195

[6] Imputed interest on convertible debt, equity component amortization on convertible debt and others
 
1,424

 
927

 
1,232

 
3,072

 
3,681

[7] Amortization of debt issuance costs
 

 

 
300

 
225

 
922

[8] Amortization of acquisition-related intangible assets and other
 
11,734

 
11,297

 
16,950

 
34,494

 
51,111

[9] Restructuring charges
 
2,098

 
260

 

 
3,218

 
1,214

[10] Settlement charges
 

 

 

 

 
1,225

[11] Loss on extinguishment of Spansion convertible notes
 

 

 
1,049

 
684

 
1,049

[12] Gain on sale of cost method investment
 

 
(319
)
 

 
(319
)
 

[13] Uncertain tax positions
 
(2,159
)
 
(1,348
)
 
(663
)
 
(4,870
)
 
(2,458
)
[14] Utilization of NOL including excess tax benefits, and others**
 
(21,882
)
 
(20,759
)
 
(30,445
)
 
(61,966
)
 
(93,917
)
Non-GAAP income tax expense [ii]*
 
$
2,779

 
$
3,125

 
$
2,902

 
$
8,917

 
$
8,786

Impact of reconciling items on income tax provision [i - ii]
 
2,839

 
2,029

 
1,598

 
6,912

 
5,144


*Tax impact of Non-GAAP adjustments is calculated by using the federal statutory rate of 21%, 21%, and 35% for the periods ended July 1, 2018, September 30, 2018, and October 1, 2017 respectively.

** Other items include but are not limited to deferred tax expense not affecting income tax payable.





Table J: Non-GAAP net income
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
Q3'18
 
Q2'18
 
Q3'17
 
Q3'18
 
Q3'17
GAAP net income (loss) attributable to Cypress
 
$
50,695

 
$
27,706

 
$
13,016

 
$
87,478

 
$
(46,902
)
Impact of reconciling items on operating income (see Table G)
 
91,146

 
88,559

 
73,745

 
257,529

 
234,525

Impact of reconciling items on interest and other expense, net (see Table A, B, C, D, E)
 
8,045

 
6,670

 
10,621

 
26,065

 
26,806

Impact of reconciling items on income tax provision (see Table I)
 
2,839

 
2,029

 
1,598

 
6,912

 
5,144

Non-GAAP net income
 
$
152,725

 
$
124,964

 
$
98,980

 
$
377,984

 
$
219,573



Table K: Weighted-average shares, diluted
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
Q3'18
 
Q2'18
 
Q3'17
 
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
Weighted-average common shares outstanding, basic
 
361,631

 
361,631

 
358,577

 
358,577

 
332,873

 
332,873

Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
 
Stock options, unvested restricted stock and other
 
7,096

 
12,468

 
7,837

 
14,391

 
7,884

 
12,948

Convertible notes
 
5,539

 
3,234

 
5,553

 
3,070

 
19,554

 
18,790

Weighted-average common shares outstanding, diluted
 
374,266

 
377,333

 
371,967

 
376,038

 
360,311

 
364,611


Table L: Weighted-average shares, diluted
 
 
 
 
 
 
Nine Months Ended
 
 
Q3'18
 
Q3'17
 
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
Weighted-average common shares outstanding, basic
 
358,560

 
358,560

 
329,787

 
329,787

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options, unvested restricted stock and other
 
8,378

 
13,557

 

 
13,060

Convertible notes
 
6,126

 
3,852

 

 
18,370

Weighted-average common shares outstanding, diluted
 
373,064

 
375,969

 
329,787

 
361,217









Table M: Earnings per share
 
 
 
 
 
 
 
 
Three Months Ended
 
 
Q3'18
 
Q2'18
 
Q3'17
 
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
Net income (see Table J) [i]
 
$
50,695

 
$
152,725

 
$
27,706

 
$
124,964

 
$
13,016

 
$
98,980

Weighted-average common shares outstanding, diluted (see Table K) [ii]
 
374,266

 
377,333

 
371,967

 
376,038

 
360,311

 
364,611

Earnings per share - diluted [i/ii]
 
$
0.14

 
$
0.40

 
$
0.07

 
$
0.33

 
$
0.04

 
$
0.27

Table N: Earnings (loss) per share
 
 
 
 
 
 
 
Nine Months Ended
 
 
Q3'18
 
Q3'17
 
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
Net income (loss) (see Table J) [i]
 
$
87,478

 
$
377,984

 
$
(46,902
)
 
$
219,573

Weighted-average common shares outstanding, diluted (see Table L) [ii]
 
373,064

 
375,969

 
329,787

 
361,217

Earnings (loss) per share - diluted [i/ii]
 
$
0.23

 
$
1.01

 
$
(0.14
)
 
$
0.61


Table O: Adjusted EBITDA
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
Q3'18
 
Q2'18
 
Q3'17
 
Q3'18
 
Q3'17
GAAP net income (loss) attributable to Cypress
 
$
50,695

 
$
27,706

 
$
13,016

 
$
87,478

 
$
(46,902
)
Interest and other expense, net
 
(15,059
)
 
(14,143
)
 
(18,619
)
 
(47,356
)
 
(54,385
)
Income tax provision
 
(5,618
)
 
(5,154
)
 
(4,500
)
 
(15,829
)
 
(13,930
)
Equity in net loss of and impairment of equity method investees
 
(3,657
)
 
(3,755
)
 
(4,931
)
 
(10,873
)
 
(14,842
)
Net gain (loss) attributable to non-controlling interests
 
(52
)
 
(88
)
 
(14
)
 
(152
)
 
(144
)
GAAP operating income
 
$
75,081

 
$
50,846

 
$
41,080

 
$
161,688

 
$
36,399

Impact of reconciling items on operating income (see Table G)
 
91,146

 
88,559

 
73,745

 
257,529

 
234,525

Non-GAAP operating income
 
$
166,227

 
$
139,405

 
$
114,825

 
$
419,217

 
$
270,924

Depreciation
 
16,393

 
16,239

 
16,674

 
49,772

 
48,876

Adjusted EBITDA
 
$
182,620

 
$
155,644

 
$
131,499

 
$
468,989

 
$
319,800



Table P: Free cash flow
 
Three Months Ended
 
Nine Months Ended
 
 
Q3'18
 
Q2'18
 
Q3'17
 
Q3'18
 
Q3'17
GAAP net cash provided by operating activities
 
$
187,073

 
$
110,734

 
$
143,778

 
$
329,485

 
$
201,946

Acquisition of property, plant and equipment, net
 
(15,448
)
 
(25,590
)
 
(15,975
)
 
(58,061
)
 
(44,154
)
Free cash flow
 
$
171,625

 
$
85,144

 
$
127,803

 
$
271,424

 
$
157,792






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


 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30, 2018
 
July 1, 2018
 
October 1, 2017
 
September 30, 2018
 
October 1, 2017
Selected Cash Flow Data (Preliminary):
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
$
187,073

 
$
110,734

 
$
143,778

 
$
329,485

 
$
201,946

Net cash (used in) provided by investing activities
 
$
(22,316
)
 
$
(7,213
)
 
$
(15,051
)
 
$
(43,700
)
 
$
(8,393
)
Net cash used in financing activities
 
$
(72,730
)
 
$
(97,556
)
 
$
(105,935
)
 
$
(232,634
)
 
$
(182,162
)
Other Supplemental Data (Preliminary):
 
 
 
 
 

 

Capital expenditures, net
 
$
15,448

 
$
25,590

 
$
15,975

 
$
58,061

 
$
44,154

Depreciation
 
$
16,393

 
$
16,239

 
$
16,674

 
$
49,772

 
$
48,876

Payment of dividend
 
$
39,447

 
$
39,404

 
$
36,325

 
$
117,592

 
$
108,079

Dividend paid per share
 
$
0.11

 
$
0.11

 
$
0.11

 
$
0.33

 
$
0.33

Total debt (principal amount)
 
$
936,518

 
$
955,553

 
$
1,205,790

 
$
936,518

 
$
1,205,790

Leverage ratio
 
1.54

 
1.71

 
2.91

 
1.54

 
2.91

Cash Income Tax
 
2,779

 
3,125

 
2,902

 
8,917

 
8,786










CYPRESS SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP FORWARDING-LOOKING ESTIMATES TO NON-GAAP FORWARD-
LOOKING ESTIMATES
 
 
 
 
 
 
 
 
 
Forward-looking GAAP estimate (A)¹
 
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%
 
8.4
%
 
0.4
%
 
0.2
%
 
47.0% - 48.0%
Diluted earnings per share
 
$0.07 to $0.11
 
$
0.15

 
$
0.06

 
$
0.03

 
$0.31 to $0.35

1. GAAP outlook does not include any impact from the planned disposition of our NAND business to the joint venture with SK hynix system ic Inc., which is not expected to be completed until the first quarter of 2019.








 

.
 
 
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