Document


]]



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): January 31, 2019


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 January 31, 2019, Cypress Semiconductor Corporation (the “Company”) issued a press release regarding the Company’s financial results for its fourth fiscal quarter and year ended December 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:
January 31, 2019
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 Fourth Quarter and Year End 2018 Results

SAN JOSE, Calif., January 31, 2019 — Cypress Semiconductor Corporation (NASDAQ: CY), a leader in embedded solutions, today announced its fourth quarter and fiscal year 2018 results with the following highlights:
Record fiscal year revenue of $2.48 billion representing 6.7% year-over-year growth
Automotive fiscal year revenue grew 13% year-over-year
Fourth quarter revenue was $604.5 million and GAAP and non-GAAP gross margins were 37.3% and 47.8%, respectively
Fourth quarter GAAP and non-GAAP diluted EPS were 72 cents and 35 cents, respectively
Fiscal year 2018 cash from operations of $471.7 million increased 16.9% year-over-year

"Our disciplined execution in 2018 resulted in record fiscal year revenue, the achievement of our 2018 gross margin improvement plans that we committed to at our 2017 Analyst Day event, and EPS that grew significantly faster than revenue demonstrating the powerful leverage in our business model," said Hassane El-Khoury, Cypress’ president and chief executive officer. "While the current demand environment remains somewhat uncertain, we are focused on what we can control and we will continue disciplined investments that will drive many of today’s megatrends in the automotive, industrial and IoT markets."

Revenue and earnings for the fourth quarter and fiscal year 2018 are shown below with comparable periods:
(In thousands, except per-share data)




 
 
GAAP¹
 
 
 
NON-GAAP2
 
 
 
 
Q4 2018
 
Q3 2018
 
Q4 2017
 
Q4 2018
 
Q3 2018
 
Q4 2017
Revenue
 
$
604,474

 
$
673,035

 
$
597,547

 
$
604,474

 
$
673,035

 
$
597,547

Gross margin
 
37.3
%
 
38.6
%
 
37.2
%
 
47.8
%
 
47.0
%
 
45.4
%
Operating margin
 
0.5
%
 
11.2
%
 
7.0
%
 
24.5
%
 
24.7
%
 
20.2
%
Net income (loss)
 
$
267,114

 
$
50,695

 
$
(34,014
)
 
$
130,990

 
$
152,725

 
$
104,684

Diluted EPS (loss)
 
$
0.72

 
$
0.14

 
$
(0.10
)
 
$
0.35

 
$
0.40

 
$
0.28



 
 
GAAP¹
 
NON-GAAP2
 
 
FY 2018
 
FY 2017
 
FY 2018
 
FY 2017
Revenue
 
$
2,483,840

 
$
2,327,771

 
$
2,483,840

 
$
2,327,771

Gross margin
 
37.5
%
 
33.6
%
 
46.8
%
 
42.2
%
Operating margin
 
6.6
%
 
3.4
%
 
22.8
%
 
16.8
%
Net income (loss)
 
$
354,592

 
$
(80,915
)
 
$
508,975

 
$
324,257

Diluted EPS (loss)
 
$
0.95

 
$
(0.24
)
 
$
1.36

 
$
0.89



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


BUSINESS REVIEW
During the fourth quarter, Cypress expanded its connect and compute portfolio for consumer Internet of Things (IoT) and automotive applications and strengthened its software offerings. Highlights included:

+ Cypress addressed the growing need for IoT edge processing with the addition of a new microcontroller (MCU) product to its ultra-low-power and secure PSoC® 6 family. The new PSoC 6 MCU includes expanded embedded memory to support compute-intensive algorithms, connectivity stacks and data logging.
 
+ Cypress expanded its industry-leading wireless connectivity portfolio for automotive infotainment with a trio of new products, including its first Wi-Fi 6 (802.11ax) and Bluetooth® combo solution. Wi-Fi 6 enables gigabit-level throughput and improves reliability for content streaming to multiple devices at once. The Wi-Fi 6 combo solution allows multiple users to connect and seamlessly stream unique content to as many as 10 mobile devices simultaneously via Cypress’ Real Simultaneous Dual Band (RSDB) architecture. Cypress also



introduced two Wi-Fi 5 (802.11ac) and Bluetooth combo solutions, empowering car makers and automotive system suppliers with a scalable platform solution to address a wide range of vehicles with a uniform software architecture that minimizes development and system integration costs.

+ Cypress strengthened its IoT portfolio with the launch of our Cirrent software and cloud services platform for consumer Wi-Fi® products, which allows IoT products to easily connect to a customer’s home network and stay connected, providing an outstanding user experience and significant return on investment to OEMs by reducing support costs and product returns. Cirrent’s ZipKey® Wi-Fi Onboarding and IoT Network Intelligence software lets users set up products without typing in passwords and ensures products stay connected even when network names and passwords are changed.

+ Cypress introduced an automotive-qualified USB-C controller with USB Power Delivery (PD) that enables fast charging of portable electronics in vehicles. The Automotive EZ-PD™ CCG3PA controller delivers a plug-and-play user experience to automotive charging ports by providing support for current and legacy charging standards. As the standards continue to evolve, compliance and interoperability pose an ongoing challenge, but the programmable controller overcomes these issues with its firmware upgradeability. Additionally, the controller offers a high level of integration that minimizes bill-of-material cost and simplifies designs, replacing multiple discrete components.

+ Cypress introduced the Excelon™ LP Ferroelectric Random Access Memory (F-RAM™), the industry’s most energy-efficient nonvolatile RAM, which delivers instant-write capabilities with virtually unlimited endurance. This solution is ideal for the latest-generation of portable medical and wearable devices and other IoT applications that demand nonvolatile memories to continuously log an increasing amount of user and sensor data while using as little power as possible. The Excelon LP F-RAM enables these applications to perform mission-critical data logging requirements while maximizing battery life.




+ Cypress paid a cash dividend of $39.7 million, or $0.11 per share, to holders of record of the Company’s common stock as of the close of business on December 27, 2018. The dividend was equivalent to a 3.5% annualized yield as of December 28, 2018. This dividend was paid on January 17, 2019.





REVENUE SUMMARY
(In thousands, except percentages)
(Unaudited)
 
 
Three Months Ended
 
 
 
December 30, 2018
 
September 30, 2018
 
December 31, 2017
 
Sequential Change
 
Year-over-year Change
Business Unit1
 
 
 
 
 
 
 
 
 
MCD
$
355,793

 
$
413,413

 
$
357,247

 
(13.9
)%
 
(0.4
)%
MPD
$
248,681

 
$
259,622

 
$
240,300

 
(4.2
)%
 
3.5
 %
Total
$
604,474

 
$
673,035

 
$
597,547

 
(10.2
)%
 
1.2
 %

 
Three Months Ended
 
December 30, 2018
 
September 30, 2018
 
December 31, 2017
End Market
 
 
 
 
 
Industrial
20.0
%
 
19.6
%
 
17.5
%
Automotive
35.5
%
 
31.0
%
 
30.2
%
Consumer
25.2
%
 
32.0
%
 
32.1
%
Enterprise
19.4
%
 
17.4
%
 
20.1
%
Total
100
%
 
100
%
 
100
%

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


FIRST QUARTER 2019 FINANCIAL OUTLOOK

For the first quarter of 2019, Cypress estimates financial results as follows:

 
GAAP¹
Non-GAAP
Revenue
$520 million to $550 million
Gross Margin
36.0% - 37.0%
46.0% - 46.5%
Diluted EPS
$0.00 to $0.04
$0.22 to $0.26

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 expected to occur in the second quarter of 2019.

A reconciliation of GAAP forward-looking estimates to non-GAAP forward-looking estimates may be found in the 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 January 31, 2019 at 1:30 p.m. Pacific Standard Time to discuss its fourth quarter and fiscal year 2018 results and outlook for the first quarter of 2019.

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 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, wireless and USB-based connectivity solutions, analog ICs, 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 Results 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: Other 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. Other 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,
Loss on extinguishment of debt,
Amortization of debt issuance costs, discounts and 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 (i.e. release of valuation allowance), 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 transactions related to the 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 first 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 distributors, 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 Excelon, F-RAM and EZ-PD are trademarks of Cypress Semiconductor Corporation. ZipKey is a registered trademark of Cirrent, Inc. All other trademarks are property of their owners.










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

 
December 31, 2017

ASSETS
 
 
 
 
Cash, cash equivalents and short-term investments
 
$
285,720

 
$
151,596

Accounts receivable, net
 
324,274

 
295,991

Inventories
 
292,093

 
272,127

Assets held for sale
 
13,510

 

Property, plant and equipment, net
 
282,986

 
289,554

Goodwill and other intangible assets, net
 
1,864,340

 
2,154,592

Other assets
 
630,292

 
373,190

Total assets
 
$
3,693,215

 
$
3,537,050

LIABILITIES AND EQUITY
 
 
 
 
Accounts payable
 
$
210,715

 
$
213,101

Income tax liabilities
 
53,469

 
52,006

Revenue reserves, deferred margin and other liabilities
 
437,757

 
497,838

Revolving credit facility and long-term debt
 
874,235

 
956,513

Total liabilities
 
1,576,176

 
1,719,458

Total Cypress stockholders' equity
 
2,115,734

 
1,816,536

Non-controlling interest
 
1,305

 
1,056

Total equity
 
2,117,039

 
1,817,592

Total liabilities and equity
 
$
3,693,215

 
$
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
 
Twelve Months Ended
 
 
December 30, 2018
 
September 30, 2018
 
December 31, 2017
 
December 30, 2018
 
December 31, 2017
Revenues
 
$
604,474

 
$
673,035

 
$
597,547

 
$
2,483,840

 
$
2,327,771

Cost of revenues¹
 
379,264

 
413,320

 
375,162

 
1,552,385

 
1,545,837

Gross profit
 
225,210

 
259,715

 
222,385

 
931,455

 
781,934

Research and development¹
 
82,379

 
91,691

 
94,566

 
363,996

 
362,931

Selling, general and administrative¹
 
140,091

 
92,943

 
86,125

 
403,031

 
340,910

     Total operating expenses
 
222,470

 
184,634

 
180,691

 
767,027

 
703,841

Operating income (loss)
 
2,740

 
75,081

 
41,694

 
164,428

 
78,093

Interest and other expense, net
 
(20,489
)
 
(15,059
)
 
(21,563
)
 
(67,845
)
 
(75,947
)
(Loss) income before income taxes and non-controlling interest
 
(17,749
)
 
60,022

 
20,131

 
96,583

 
2,146

Income tax benefit (provision)
 
331,447

 
(5,618
)
 
2,773

 
315,618

 
(11,157
)
Share in net loss and impairment of equity method investees
 
(46,497
)
 
(3,657
)
 
(56,930
)
 
(57,370
)
 
(71,772
)
Net income (loss)
 
267,201

 
50,747

 
(34,026
)
 
354,831

 
(80,783
)
Net (gain) loss attributable to non-controlling interests
 
(87
)
 
(52
)
 
12

 
(239
)
 
(132
)
Net income (loss) attributable to Cypress
 
$
267,114

 
$
50,695

 
$
(34,014
)
 
$
354,592

 
$
(80,915
)
Net income (loss) per share attributable to Cypress:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.74

 
$
0.14

 
$
(0.10
)
 
$
0.99

 
$
(0.24
)
Diluted
 
$
0.72

 
$
0.14

 
$
(0.10
)
 
$
0.95

 
$
(0.24
)
Cash dividend declared per share
 
$
0.11

 
$
0.11

 
$
0.11

 
$
0.44

 
$
0.44

Shares used in net income (loss) per share calculation:
 
 
 
 
 
 
 
 
 
 
Basic
 
361,616

 
361,631

 
343,011

 
359,324

 
333,451

Diluted
 
369,638

 
374,266

 
343,011

 
372,178

 
333,451


1.
In 2018, certain expenses were 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 Q4 2018
 
 
Cost of revenues
 
Research and development
 
Selling, general and administrative
 
Interest and other expense, net
GAAP [i]
 
$
379,264

 
$
82,379

 
$
140,091

 
$
(66,986
)
[1] Stock based compensation
 
3,842

 
6,395

 
9,166

 

[2] Changes in value of deferred compensation plan
 
(468
)
 
(2,377
)
 
(2,726
)
 
5,401

[3] Loss on assets held for sale¹
 
10,869

 

 
65,722

 

[4] Share in net loss and impairment of equity method investees²
 

 

 

 
46,496

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

 

 

 
3,338

[6] Amortization of debt issuance costs
 

 

 

 
908

[7] Amortization of intangible assets
 
49,583

 

 
4,310

 

[8] Litigation settlement and other
 

 
(309
)
 
(159
)
 
159

[9] Restructuring charges
 
135

 
944

 
437

 

Non - GAAP [ii]
 
$
315,303

 
$
77,726

 
$
63,341

 
$
(10,684
)
Impact of reconciling items [ii - i]
 
$
(63,961
)
 
$
(4,653
)
 
$
(76,750
)
 
$
56,302


1.
Relates to our entry into a definitive agreement to divest the NAND business
2.
Includes $41.5 million impairment charge recorded for the investment in Deca Technologies Inc.

Table B: 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] Share 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] Restructuring charges
 
(340
)
 
516

 
9,815

 

[7] Litigation settlement and other
 

 

 
(486
)
 
(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 C: GAAP to Non-GAAP reconciling items: Three Months Ended Q4 2017
 
 
Cost of revenues
 
Research and development
 
Selling, general and administrative
 
Interest and other expense, net
GAAP [i]
 
$
375,162

 
$
94,566

 
$
86,125

 
$
(78,493
)
[1] Stock based compensation
 
3,000

 
8,050

 
12,014

 

[2] Changes in value of deferred compensation plan
 
92

 
389

 
617

 
(1,210
)
[3] Merger, integration, related costs and adjustments related to assets held for sale
 
1,334

 

 
(135
)
 
11

[4] Share in net loss and impairment of equity method investees1
 

 

 

 
56,930

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

 

 

 
3,378

[6] Loss on extinguishment of Spansion convertible notes
 

 

 

 
4,250

[7] Amortization of debt issuance costs
 

 

 

 
1,011

[8] Amortization of intangible assets
 
44,199

 

 
5,025

 

[9] Settlement charges and other
 

 

 
(1,000
)
 
151

[10] Restructuring charges
 
317

 
3,205

 
2,097

 

Non - GAAP [ii]
 
$
326,220

 
$
82,922

 
$
67,507

 
$
(13,972
)
Impact of reconciling items [ii - i]
 
$
(48,942
)
 
$
(11,644
)
 
$
(18,618
)
 
$
64,521


1. Includes $51.2 million impairment charge recorded for the investment in Enovix Corporation







Table D: GAAP to Non-GAAP reconciling items: Twelve Months Ended Q4 2018
 
 
Cost of revenues
 
Research and development
 
Selling, general and administrative
 
Interest and other expense, net
GAAP [i]
 
$
1,552,385

 
$
363,996

 
$
403,031

 
$
(125,215
)
[1] Stock based compensation, including costs related to modification of equity awards
 
16,531

 
35,115

 
44,319

 

[2] Changes in value of deferred compensation plan
 
(169
)
 
(971
)
 
(1,036
)
 
2,904

[3] Share in net loss and impairment of equity method investees¹
 

 

 

 
57,369

[4] Amortization of intangible assets
 
200,024

 

 
18,125

 

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

 

 

 
17,966

[6] Amortization of debt issuance cost
 

 

 

 
1,981

[7] Settlement charges and other
 

 
(309
)
 
(645
)
 
(1,111
)
[8] Restructuring charges
 
3,271

 
1,785

 
11,785

 

[9] Loss on extinguishment of Spansion convertible notes
 

 

 

 
3,258

[10] Loss on assets held for sale²
 
10,869

 

 
65,722

 

[11] Gain on sale on cost method investment
 

 

 
(1,521
)
 

Non - GAAP [ii]
 
$
1,321,859

 
$
328,376

 
$
266,282

 
$
(42,848
)
Impact of reconciling items [ii - i]
 
$
(230,526
)
 
$
(35,620
)
 
$
(136,749
)
 
$
82,367


1.
Includes $41.5 million impairment charge recorded for the investment in Deca Technologies Inc.
2.
Relates to our entry into a definitive agreement to divest the NAND business






Table E: GAAP to Non-GAAP reconciling items: Twelve Months Ended Q4 2017
 
 
Cost of revenues
 
Research and development
 
Selling, general and administrative
 
Interest and other expense, net
GAAP [i]
 
$
1,545,837

 
$
362,931

 
$
340,910

 
$
(147,720
)
[1] Stock based compensation, including costs related to modification of equity awards
 
15,605

 
36,804

 
39,172

 

[2] Changes in value of deferred compensation plan
 
602

 
2,826

 
3,936

 
(6,087
)
[3] Merger, integration, related costs and adjustments related to assets held for sale
 
5,357

 
(96
)
 
(1,057
)
 
10

[4] Inventory Step-up related to acquisition accounting
 
3,736

 

 

 

[5] Share in net loss and impairment of equity method investees¹
 

 

 

 
71,772

[6] Amortization of intangible assets
 
174,981

 

 
20,274

 

[7] Imputed interest on convertible debt and others
 

 

 

 
20,538

[8] Settlement charges and other
 

 

 
2,500

 
844

[9] Restructuring charges
 
548

 
5,915

 
2,625

 

[10] Loss on extinguishment of Spansion convertible notes
 

 

 

 
4,250

Non - GAAP [ii]
 
$
1,345,008

 
$
317,482

 
$
273,460

 
$
(56,393
)
Impact of reconciling items [ii - i]
 
$
(200,829
)
 
$
(45,449
)
 
$
(67,450
)
 
$
91,327


1. Includes $51.2 million impairment charge recorded for the investment in Enovix Corporation.


Table F: Non-GAAP gross profit
 
Three Months Ended
 
Twelve Months Ended
 
 
Q4'18
 
Q3'18
 
Q4'17
 
Q4'18
 
Q4'17
 
 
 
 
 
 
 
 
 
 
 
GAAP gross profit
 
$
225,210

 
$
259,715

 
$
222,385

 
$
931,455

 
$
781,934

Impact of reconciling items on cost of revenues (Table A, B, C, D and E)
 
63,961

 
56,481

 
48,942

 
230,526

 
200,829

Non-GAAP gross profit
 
$
289,171

 
$
316,196

 
$
271,327

 
$
1,161,981

 
$
982,763

GAAP gross margin (GAAP gross profit/revenue)
 
37.3
%
 
38.6
%
 
37.2
%
 
37.5
%
 
33.6
%
Non-GAAP gross margin (Non-GAAP gross profit/revenue)
 
47.8
%
 
47.0
%
 
45.4
%
 
46.8
%
 
42.2
%






Table G: Non-GAAP operating income
 
Three Months Ended
 
Twelve Months Ended
 
 
Q4'18
 
Q3'18
 
Q4'17
 
Q4'18
 
Q4'17
GAAP operating income [i]
 
$
2,740

 
$
75,081

 
$
41,694

 
$
164,428

 
$
78,093

Impact of reconciling items on cost of revenues (see Table A, B, C, D, E)
 
63,961

 
56,481

 
48,942

 
230,526

 
200,829

Impact of reconciling items on R&D (see Tables A, B, C, D, E)
 
4,653

 
9,389

 
11,644

 
35,620

 
45,449

Impact of reconciling items on SG&A (see Tables A, B, C, D, E)
 
76,750

 
25,276

 
18,618

 
136,749

 
67,450

Non-GAAP operating income [ii]
 
$
148,104

 
$
166,227

 
$
120,898

 
$
567,323

 
$
391,821

Impact of reconciling items on operating income [ii - i]
 
$
145,364

 
$
91,146

 
$
79,204

 
$
402,895

 
$
313,728

GAAP operating margin (GAAP operating income / revenue)
 
0.5
%
 
11.2
%
 
7.0
%
 
6.6
%
 
3.4
%
Non-GAAP operating margin (Non-GAAP operating income / revenue)
 
24.5
%
 
24.7
%
 
20.2
%
 
22.8
%
 
16.8
%

Table H: Non-GAAP pre-tax profit
 
Three Months Ended
 
Twelve Months Ended
 
 
Q4'18
 
Q3'18
 
Q4'17
 
Q4'18
 
Q4'17
GAAP (loss) income before income taxes and non-controlling interest ("Pre-tax income")
 
$
(17,749
)
 
$
60,022

 
$
20,131

 
$
96,583

 
$
2,146

Share in net loss and impairment of equity method investees
 
(46,497
)
 
(3,657
)
 
(56,930
)
 
(57,370
)
 
(71,772
)
Impact of reconciling items on operating income (see Table G)
 
145,364

 
91,146

 
79,204

 
402,895

 
313,728

Impact of reconciling items on interest and other expense, net (see Table A, B, C, D, E)
 
56,302

 
8,045

 
64,521

 
82,367

 
91,327

Non-GAAP pre-tax profit
 
$
137,420

 
$
155,556

 
$
106,926

 
$
524,475

 
$
335,429

GAAP pre-tax profit margin (GAAP pre-tax income/revenue)
 
(2.9
)%
 
8.9
%
 
3.4
%
 
3.9
%
 
0.1
%
Non-GAAP pre-tax profit margin (Non-GAAP pre-tax profit/revenue)
 
22.7
 %
 
23.1
%
 
17.9
%
 
21.1
%
 
14.4
%






Table I: Non-GAAP income tax expense
 
Three Months Ended
 
Twelve Months Ended
 
 
Q4'18
 
Q3'18
 
Q4'17
 
Q4'18
 
Q4'17
GAAP income tax (benefit) provision [i]
 
$
(331,447
)
 
$
5,618

 
$
(2,773
)
 
$
(315,618
)
 
$
11,157

[1] Stock-based compensation
 
4,075

 
5,081

 
8,073

 
20,152

 
32,054

[2] Changes in value of deferred compensation plan
 
(36
)
 
97

 
(39
)
 
153

 
447

[3] Merger, integration, related costs and adjustments related to assets held for sale
 
57

 

 
424

 
57

 
1,475

[4] Inventory step-up related to acquisition accounting
 

 

 

 

 
1,308

[5] Share in net loss and impairment of equity method investees
 
9,764

 
768

 
19,926

 
12,047

 
25,120

[6] Imputed interest on convertible debt, equity component amortization on convertible debt and others
 
892

 
1,424

 
1,536

 
3,964

 
5,218

[7] Amortization of debt issuance costs
 

 

 

 
225

 
1,971

[8] Amortization of acquisition-related intangible assets and other
 
11,202

 
11,734

 
17,228

 
45,696

 
68,339

[9] Restructuring charges
 
318

 
2,098

 
1,967

 
3,537

 
3,181

[10] Settlement charges
 
(6
)
 

 
(350
)
 
(6
)
 
875

[11] Loss on extinguishment of Spansion convertible notes
 
16,084

 

 
1,488

 
16,768

 
1,488

[12] Gain on sale of cost method investment
 

 

 

 
(319
)
 

[13] Uncertain tax positions
 
(3,945
)
 
(2,159
)
 
(3,769
)
 
(8,815
)
 
(6,228
)
[14] Valuation allowance release, utilization of NOLs including excess tax benefits, and others**
 
299,385

 
(21,882
)
 
(41,457
)
 
237,420

 
(135,365
)
Non-GAAP income tax expense [ii]*
 
$
6,343

 
$
2,779

 
$
2,254

 
$
15,261

 
$
11,040

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

 
$
(337,790
)
 
$
2,839

 
$
(5,027
)
 
$
(330,879
)
 
$
117



*Tax impact of Non-GAAP adjustments is calculated by using the federal statutory rate of 21% and 35% for 2018 and 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
 
Twelve Months Ended
 
 
Q4'18
 
Q3'18
 
Q4'17
 
Q4'18
 
Q4'17
GAAP net income (loss) attributable to Cypress
 
$
267,114

 
$
50,695

 
$
(34,014
)
 
$
354,592

 
$
(80,915
)
Impact of reconciling items on operating income (see Table G)
 
145,364

 
91,146

 
79,204

 
402,895

 
313,728

Impact of reconciling items on interest and other expense, net (see Table A, B, C, D, E)
 
56,302

 
8,045

 
64,521

 
82,367

 
91,327

Impact of reconciling items on income tax provision (see Table I)
 
(337,790
)
 
2,839

 
(5,027
)
 
(330,879
)
 
117

Non-GAAP net income
 
$
130,990

 
$
152,725

 
$
104,684

 
$
508,975

 
$
324,257

Table K: Weighted-average shares, diluted
 
Three Months Ended
 
 
Q4'18
 
Q3'18
 
Q4'17
 
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
Weighted-average common shares outstanding, basic
 
361,616

 
361,616

 
361,631

 
361,631

 
343,011

 
343,011

Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
 
Stock options, unvested restricted stock and other
 
6,482

 
11,709

 
7,096

 
12,468

 

 
14,003

Convertible notes
 
1,540

 
1,540

 
5,539

 
3,234

 

 
12,110

Weighted-average common shares outstanding, diluted
 
369,638

 
374,865

 
374,266

 
377,333

 
343,011

 
369,124









Table L: Weighted-average shares, diluted
 
Twelve Months Ended
 
 
Q4'18
 
Q4'17
 
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
Weighted-average common shares outstanding, basic
 
359,324

 
359,324

 
333,451

 
333,451

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options, unvested restricted stock and other
 
7,754

 
13,319

 

 
14,838

Convertible notes
 
5,100

 
2,705

 

 
16,851

Weighted-average common shares outstanding, diluted
 
372,178

 
375,348

 
333,451

 
365,140




Table M: Earnings (loss) per share
 
Three Months Ended
 
 
Q4'18
 
Q3'18
 
Q4'17
 
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
Net income (loss) (see Table J) [i]
 
$
267,114

 
$
130,990

 
$
50,695

 
$
152,725

 
$
(34,014
)
 
$
104,684

Weighted-average common shares outstanding, diluted (see Table K) [ii]
 
369,638

 
374,865

 
374,266

 
377,333

 
343,011

 
369,124

Earnings per share - diluted [i/ii]
 
$
0.72

 
$
0.35

 
$
0.14

 
$
0.40

 
$
(0.10
)
 
$
0.28




Table N: Earnings (loss) per share
 
Twelve Months Ended
 
 
Q4'18
 
Q4'17
 
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
Net income (loss) (see Table J) [i]
 
$
354,592

 
$
508,975

 
$
(80,915
)
 
$
324,257

Weighted-average common shares outstanding, diluted (see Table L) [ii]
 
372,178

 
375,348

 
333,451

 
365,140

Earnings (loss) per share - diluted [i/ii]
 
$
0.95

 
$
1.36

 
$
(0.24
)
 
$
0.89



Table O: Adjusted EBITDA
 
Three Months Ended
 
Twelve Months Ended
 
 
Q4'18
 
Q3'18
 
Q4'17
 
Q4'18
 
Q4'17
GAAP net income (loss) attributable to Cypress
 
$
267,114

 
$
50,695

 
$
(34,014
)
 
$
354,592

 
$
(80,915
)
Interest and other expense, net
 
(20,489
)
 
(15,059
)
 
(21,563
)
 
(67,845
)
 
(75,947
)
Income tax provision
 
331,447

 
(5,618
)
 
2,773

 
315,618

 
(11,157
)
Share in net loss of and impairment of equity method investees
 
(46,497
)
 
(3,657
)
 
(56,930
)
 
(57,370
)
 
(71,772
)
Net gain (loss) attributable to non-controlling interests
 
(87
)
 
(52
)
 
12

 
(239
)
 
(132
)
GAAP operating income
 
$
2,740

 
$
75,081

 
$
41,694

 
$
164,428

 
$
78,093

Impact of reconciling items on operating income (see Table G)
 
145,364

 
91,146

 
79,204

 
402,895

 
313,728

Non-GAAP operating income
 
$
148,104

 
$
166,227

 
$
120,898

 
$
567,323

 
$
391,821

Depreciation
 
16,527

 
16,393

 
18,701

 
66,299

 
67,578

Adjusted EBITDA
 
$
164,631

 
$
182,620

 
$
139,599

 
$
633,622

 
$
459,399








Table P: Free cash flow
 
Three Months Ended
 
Twelve Months Ended
 
 
Q4'18
 
Q3'18
 
Q4'17
 
Q4'18
 
Q4'17
GAAP net cash provided by operating activities
 
$
142,215

 
$
187,073

 
$
201,541

 
$
471,700

 
$
403,487

Acquisition of property, plant and equipment, net
 
(5,069
)
 
(15,448
)
 
(7,790
)
 
(63,130
)
 
(51,944
)
Free cash flow
 
$
137,146

 
$
171,625

 
$
193,751

 
$
408,570

 
$
351,543







CYPRESS SEMICONDUCTOR CORPORATION
SUPPLEMENTAL FINANCIAL DATA
(In thousands except financial ratios and per share amounts)
(Unaudited)

 
 
Three Months Ended
 
Twelve Months Ended
 
 
December 30, 2018
 
September 30, 2018
 
December 31, 2017
 
December 30, 2018
 
December 31, 2017
Selected Cash Flow Data (Preliminary):
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
$
142,215

 
$
187,073

 
$
201,541

 
$
471,700

 
$
403,487

Net cash (used in) provided by investing activities
 
$
(5,988
)
 
$
(22,316
)
 
$
(6,036
)
 
$
(49,690
)
 
$
(14,429
)
Net cash (used in) provided by financing activities
 
$
(55,252
)
 
$
(72,730
)
 
$
(175,472
)
 
$
(287,886
)
 
$
(357,634
)
Other Supplemental Data (Preliminary):
 
 
 
 
 
 
 
 
 
 
Capital expenditures, net
 
$
5,069

 
$
15,448

 
$
7,790

 
$
63,130

 
$
51,944

Depreciation
 
$
16,527

 
$
16,393

 
$
18,701

 
$
66,299

 
$
67,578

Payment of dividend
 
$
39,772

 
$
39,447

 
$
36,670

 
$
157,364

 
$
144,749

Dividend paid per share
 
$
0.11

 
$
0.11

 
$
0.11

 
$
0.44

 
$
0.44

Total debt (principal amount)
 
$
935,838

 
$
936,518

 
$
1,061,414

 
$
935,838

 
$
1,061,414

Net leverage ratio¹
 
1.03

 
1.20

 
1.98

 
1.03

 
1.98

Cash Income Tax
 
$
6,343

 
$
2,779

 
$
2,254

 
$
15,261

 
$
11,040


1.
Total debt (principal amount) less cash / Last 12 months Adjusted EBITDA








CYPRESS SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP FORWARDING LOOKING ESTIMATES TO NON-GAAP FORWARD LOOKING ESTIMATES



 
 
Q1'19 GAAP estimate ¹(A)
 
Adjustments (B)
 
Q1'19 Non-GAAP estimate (C)=(A)+(B)
 
 
 
 
Amortization of intangibles
 
Stock-based compensation expense
 
Other items
 
 
Gross Margin
 
36.0% - 37.0%
 
8.5% - 9.0%

 
0.7%

 
0.3%

 
46.0% - 46.5%
Diluted earnings per share
 
$0.00 to $0.04
 
$
0.14

 
$
0.05

 
$
0.03

 
$0.22 to $0.26

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 expected to occur in the second quarter of 2019.








 

.
 
 
.