Cypress Reports First-Quarter 2010 Results
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http://www.businesswire.com/news/home/20100422005733/en
* Q1 results exceeded guidance and outperformed typical first-quarter results
* Non-GAAP gross margin of 55.6% at highest level since 2000
* Highest non-GAAP profit since 2004 with 18.6% PBT
* Handset revenues increased 90% year-on-year; significant growth expected in
2010
* Book-to-bill ratio and backlog are at multiple-year highs
* Q2 revenue and earnings expected to be higher than current Street consensus
SAN JOSE, Calif.--(Business Wire)--
Cypress Semiconductor Corp. (Nasdaq:CY) today announced that revenue for the
2010 first quarter was $202.3 million, up 4.3% from $194.0 million for the prior
quarter, and up 45.2% from $139.3 million for the year-ago period.
Cypress recorded GAAP net income of $12.7 million in the 2010 first quarter, or
diluted earnings per share of $0.07. This compares with last quarter`s diluted
earnings per share of $0.02 and a diluted net loss per share in the year-ago
first quarter of $0.66.
Non-GAAP1 net income for the 2010 first quarter-excluding stock-based
compensation, acquisition-related charges, restructuring and other special
charges and credits-totaled $34.1 million, or diluted earnings per share of
$0.17. That compares with non-GAAP1 diluted earnings per share of $0.16 for the
prior quarter and a diluted net loss per share of $0.22 for the year-ago first
quarter.
Cypress President and CEO T.J. Rodgers said, "We are pleased to report a
sequential revenue increase of 4.3% in a quarter that normally sees a seasonal
decrease of 4% to 8%. Our MID division realized strong, sequential growth as our
high-performance SRAMs benefited from strength in communications and industrial
markets and additional share gains with strategic global customers. We also
enjoyed a 90% year-over-year increase in handset revenues led by our TrueTouch
touchscreen controllers and West Bridge® peripheral controllers, and our
PSoC®-powered OvationONS optical navigation sensors, which will ramp to volume
production in Q2. These products offer software-based configurability and quick
time to market-unique benefits that are highly desired by our OEM customers.
"The significant increase in our handset revenue represents a major
accomplishment for Cypress. Just two years ago we had limited revenue in this
market. Today we are engaged with every major handset OEM. We expect to see our
handset revenue continue to increase sharply over the next few years.
"Customers are continuing to provide increased booking visibility into Q2 and
Q3, and we will have many new products and design wins ramping throughout the
year," Rodgers continued. "Our backlog has reached a multi-year high, and our
book-to-bill ended Q1 at 1.34-a substantial, sequential increase that is
significantly above our typical expectations. We expect sales and profits to
continue to increase throughout 2010 as the economy recovers and we introduce
additional proprietary and programmable products into the market."
BUSINESS REVIEW
+ Non-GAAP1 consolidated gross margin for the first quarter was 55.6%, up 1.7
percentage points from the previous quarter. The increase was due mainly to
increased manufacturing efficiencies and a favorable product mix. Excluding
Emerging Technologies3, our Core Semiconductor4 non-GAAP gross margin was 56.4%,
up 1.2 percentage points sequentially.
+ On a GAAP basis, first-quarter consolidated gross margin was 52.6%, up 3.7
percentage points from the previous quarter. Our Core Semiconductor4 gross
margin on a GAAP basis was 53.4%.
+ First-quarter net inventory decreased 8% quarter-on-quarter and 10%
year-on-year. Net inventory has declined 33.1% from the pre-recessionary peak in
the third quarter of 2008.
+ Cash and investments totaled $329.5 million, or $2.04 per outstanding share.
Additional first-quarter data and comparisons relevant to Cypress`s business
units are presented below:
BUSINESS UNIT SUMMARY FINANCIALS (UNAUDITED)
THREE MONTHS ENDED
April 4, 2010
CCD2 DCD2 MID2 Core Emerging Consolidated
Semi4 Tech.3
REVENUE ($M) 74.2 27.0 98.5 199.7 2.6 202.3
Percentage of total revenues 36.7% 13.3% 48.7% 98.7% 1.3% 100.0%
GROSS MARGIN (%)
On a GAAP basis 54.7% 69.3% 48.1% 53.4% <6.7%> 52.6%
On a non-GAAP1 basis 57.7% 72.2% 51.1% 56.4% <3.8%> 55.6%
THREE MONTHS ENDED
January 3, 2010
CCD2 DCD2 MID2 Core Emerging Consolidated
Semi4 Tech.3
REVENUE ($M) 81.7 25.6 84.3 191.6 2.4 194.0
Percentage of total revenues 42.1% 13.2% 43.5% 98.8% 1.2% 100%
GROSS MARGIN (%)
On a GAAP basis 54.2% 61.7% 46.1% 51.6% <166.4%> 48.9%
On a non-GAAP1 basis 57.8% 65.3% 49.7% 55.2% <52.9%> 53.9%
1. Refer to "Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures" and "Notes to Non-GAAP Financial Measures" following this press release for a detailed discussion of management`s use of non-GAAP financial measures, as well as reconciliations of all non-GAAP financial measures presented in this press release to the most directly comparable GAAP financial measures.
2. CCD - Consumer and Computation Division; DCD-Data Communications Division; MID-Memory and Imaging Division.
3. "Emerging Technologies" - Business outside our core semiconductor businesses outlined in footnote 4. Includes wholly owned subsidiaries Cypress Envirosystems, AgigA Tech, the ONS (Optical Navigation Systems) Business Unit, the China Business Unit and our foundry-support business.
4. "Core Semiconductor" - Includes CCD, DCD and MID divisions and excludes "Emerging Technologies."
FIRST-QUARTER 2010 HIGHLIGHTS
+ Programmable and proprietary products accounted for 81% of Cypress`s revenue
in the first quarter.
+ Cypress announced that its TrueTouch touchscreen controller is driving
multi-touch gesture inputs and the camera focus feature on NEC`s new DoCoMo®
PRIME series N-02B mobile phone. Fujitsu also selected TrueTouch to implement
the water-resistant touchscreen on the new DoCoMo PRIME series F-01B mobile
phone. Powered by PSoC, TrueTouch is a fully integrated touchscreen solution
that allows dozens of standard and custom gestures to be programmed in software.
+ Cypress announced that its TrueTouch solution will be supported by the
soon-to-be-released Windows® Phone 7 Series mobile handset platform. This market
expander for Cypress allows handset manufacturers using the new Windows platform
to implement capacitive touchscreen interfaces without the need to develop
external drivers or custom software.
+ Cypress introduced high-precision stylus support for touchscreen mobile
handsets using TrueTouch. The new solution reads input from a stylus with a 1-mm
tip-three- to four-times finer than competing products-enabling the entry and
recognition of complex Asian characters and the ability to point to the
ever-smaller icons on today`s mobile phones.
+ Cypress also announced hover detection for TrueTouch. This new feature enables
smart handsets to anticipate the touch of a finger and enlarge on-screen content
such as detailed maps and tiny web links, making them easier to find and select.
+ Cypress has teamed up with ARM Limited`s Keil tools division to integrate free
Keil compilers into Cypress`s PSoC Creator design software, and to provide
compiler support for PSoC 3 and PSoC 5 in Keil`s uVision® 4 design environment.
PSoC Creator is the advanced, schematic-based software development platform for
Cypress`s new PSoC 3 and PSoC 5 architectures.
+ Cypress`s PSoC 3 and PSoC 5 programmable system-on-chip architectures, along
with its PSoC Creator design tool have been named finalists in EDN magazine`s
annual "Innovation Awards" competition. The products were nominated by the
magazine`s editors. Winners will be based on reader voting.
+ Cypress introduced a PSoC-based, programmable Powerline Communication (PLC)
solution that enables the reliable transmission of command and control data over
high- and low-voltage power lines. The hardware platform combines a modem,
network protocol and application code with PSoC`s programmable analog and
digital circuitry, providing an integrated solution that speeds time to market.
Key applications include smart metering, LED lighting, energy management and
solar markets.
+ Cypress introduced the CY8CLEDACxx family of AC-DC dimmable and non-dimmable
digital power drivers for LED retrofit bulbs up to 25 watts.
+ Cypress`s PowerPSoC® embedded power controller has been designed into
solid-state lighting leader MSi`s iPAR-38 LED replacement bulb. PowerPSoC
enables the bulb to deliver several unique features, including adjustable power
levels, communications capability, and the ability to be dimmed.
+ Cypress`s PSoC 3 FirstTouch Starter Kit has been selected for use in the 2010
robotics competition sponsored by FIRST (For Inspiration and Recognition of
Science and Technology), a nonprofit organization which promotes science and
technology. Students will build robots using PSoC to drive touch-interface,
LCD-display, motor-control, battery-management and audio-processing functions.
+ Cypress announced it will build a PSoC lab at India`s National Institute of
Technology and at the DOEA Center, both located in Calicut. The company will
provide hardware, software and training to both institutions.
+ TPACK, which makes core data transport and network-switching ICs, has
partnered with Cypress to develop a reference design for Ethernet switches and
traffic managers that combines TPACK`s 40-Gbps Carrier Packet Engine with
Cypress`s high-speed, 72-Mbit Quad Data Rate II (QDR II) SRAMs. The solution
targets telecom and networking equipment suppliers.
+ Cypress Envirosystems` Wireless Gauge Reader has won a 2010 Golden Gas Award
from the trade publication Gases & Instrumentation International, for technical
innovation, and its ability to solve an important challenge in the gas industry.
The Cypress Envirosystems` product reduces waste and disposal of gas, improves
production uptime, and saves labor.
ABOUT CYPRESS
Cypress delivers high-performance, mixed-signal, programmable solutions that
provide customers with rapid time-to-market and exceptional system value.
Cypress offerings include the flagship PSoC® programmable system-on-chip
families and derivatives such as PowerPSoC® solutions for high-voltage and LED
lighting applications, CapSense® touch sensing and TrueTouch solutions for
touchscreens. Cypress is the world leader in USB controllers, including the
high-performance West Bridge® solution that enhances connectivity and
performance in multimedia handsets. Cypress is also a leader in high-performance
memories and programmable timing devices. Cypress serves numerous markets
including consumer, mobile handsets, computation, data communications,
automotive, industrial and military. Cypress trades on the Nasdaq Global Select
Market under the ticker symbol CY. Visit Cypress online at www.cypress.com.
FORWARD-LOOKING STATEMENTS
Statements herein that are not historical facts and that refer to Cypress or its
subsidiaries` plans and expectations for the remainder of fiscal year 2010 and
the future are forward-looking statements made pursuant to the Private
Securities Litigation Reform Act of 1995. We may use words such as "believe,"
"expect," "future," "plan," "intend" and similar expressions to identify such
forward-looking statements that include, but are not limited to, statements
related to the semiconductor market, the future economic environment, our
expected growth in our handset revenue, the strength and growth of our
proprietary and programmable products, led TrueTouch, West Bridge and our
PSoC-powered OvationONS optical navigation sensors, our plans to ramp to volume
production on such products in Q210, our expected product introductions and the
revenue that may result from them, our expectations regarding our Q210 revenue
and earnings, our expectations regarding our SRAM market share, positive signs
gleaned from the ordering patterns of our customers, the demand and growth in
the markets we serve, the booking patterns and visibility provided by our
customers, our plans to build a PSoC lab in India, our expectations regarding
product and design wins, our expectations for sales and profit throughout 2010,
and our expected revenue from our Emerging Technology Division. Such statements
reflect our current expectations, which are based on information and data
available to our management as of the date of this release. Our actual results
may differ materially due a variety of uncertainties and risk factors, including
but not limited to the state of and future of the global economy, business
conditions and growth trends in the semiconductor market, our ability to timely
develop and roll out new products, our ability to enter into new markets with
our portfolio of products, whether our products perform as expected, whether the
demand for our proprietary and programmable products, including especially our
TrueTouch, West Bridge, PSoC, and OvationONS products, is fully realized,
whether our product and design wins result in increased sales, customer
acceptance of Cypress and its subsidiaries` products, seasonality in the markets
we serve, our ability to achieve lower operating expenses and maintain a solid
balance sheet, the actions of our competitors, the behavior of our supply chain,
our ability to manage our business to have strong earnings and cash flow
leverage, factory utilization, whether the expected growth in the markets we
serve materializes, our ability to maintain and improve our gross margins and
realize our bookings, the financial performance of our subsidiaries and Emerging
Technology Division, our ability to outgrow the market in revenue once the
economy recovers and other risks described in our filings with the Securities
and Exchange Commission. We assume no responsibility to update any such
forward-looking statements.
Cypress, the Cypress logo, PSoC, CapSense, PowerPSoC and West Bridge are
registered trademarks of Cypress Semiconductor Corp. Programmable
System-on-Chip, PSoC Creator,TrueTouch, OvationONS, FirstTouch, Quad Data Rate
and QDR are trademarks of Cypress Semiconductor Corp. ARM and uVision are
registered trademarks and Cortex is a trademark of ARM Ltd. DoCoMo is a
registered trademark and PRIME series is a trademark of DoCoMo Inc, Japan.
Windows is a registered trademark of Microsoft Corp. All other trademarks or
registered trademarks are the property of their respective owners.
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
April 4, January 3,
2010 2010
ASSETS
Cash, cash equivalents and short-term investments (a) $ 296,827 $ 299,642
Accounts receivable, net 109,614 86,959
Inventories, net (b) 84,342 91,198
Property, plant and equipment, net 273,691 272,620
Goodwill and other intangible assets, net 47,442 46,968
Other assets 117,123 115,121
Total assets $ 929,039 $ 912,508
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 54,128 $ 61,712
Deferred income 86,053 75,881
Income tax liabilities 47,977 46,362
Other accrued liabilities 98,117 98,169
Total liabilities 286,275 282,124
Total Cypress stockholders' equity 644,130 631,587
Noncontrolling interest (1,366 ) (1,203 )
Stockholders' equity 642,764 630,384
Total liabilities and stockholders' equity $ 929,039 $ 912,508
(a) Cash, cash equivalents and short-term investments do not include $33 million of auction rate securities and commercial paper, which are classified as long-term investments in "Other assets" as of April 4, 2010 and January 3, 2010.
(b) Net inventories included approximately $10 million and $12 million as of April 4, 2010 and January 3, 2010, respectively related to the last-time-build program for Cypress's Texas manufacturing facility, which ceased operations at the end of fiscal 2008. In addition, inventories include $5 million and $6 million of capitalized inventories related to stock compensation expense, as of April 4, 2010 and January 3, 2010, respectively.
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ON A GAAP BASIS
(In thousands, except per-share data)
(Unaudited)
Three Months Ended
April 4, January 3, March 29,
2010 2010 2009
Revenues $ 202,271 $ 193,974 $ 139,309
Cost of revenues 95,784 99,054 105,294
Gross margin (a) 106,487 94,920 34,015
Operating expenses:
Research and development (a) 40,049 39,685 50,146
Selling, general and administrative (a) 51,281 50,701 60,715
Amortization of acquisition-related intangibles 776 817 1,319
Restructuring charges 327 774 6,046
Total operating expenses, net 92,433 91,977 118,226
Operating income (loss) 14,054 2,943 (84,211 )
Interest and other income (expense), net (a) 730 1,578 (1,499 )
Income (loss) before income taxes 14,784 4,521 (85,710 )
Income tax provision (2,110 ) (1,669 ) (2,625 )
Income (loss), net of taxes 12,674 2,852 (88,335 )
Noncontrolling interest, net of taxes (163 ) (383 ) (207 )
Net income (loss) 12,511 2,469 (88,542 )
Less net (income) loss attributable to noncontrolling interest 163 383 207
Net income (loss) attributable to Cypress $ 12,674 $ 2,852 $ (88,335 )
Net income (loss) per share attributable to Cypress:
Basic $ 0.08 $ 0.02 $ (0.66 )
Diluted $ 0.07 $ 0.02 $ (0.66 )
Shares used in net income (loss) per-share calculation:
Basic 158,931 154,798 134,757
Diluted 190,892 184,297 134,757
(a) Includes the following credit (expense) related to Cypress's deferred compensation plan:
Gross margin $ (141 ) $ (57 ) $ 62
Research and development $ (290 ) $ (63 ) $ 95
Selling, general and administrative $ (596 ) $ (417 ) $ 492
Interest and other income (expense), net $ 835 $ 1,000 $ (674 )
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (a)
(In thousands)
(Unaudited)
Three Months Ended April 4, 2010
CCD (b) DCD (b) MID (b) Core Semi (c) Emerging Consolidated
Technologies (d)
GAAP gross margin $ 40,568 $ 18,673 $ 47,421 $ 106,662 $ (175 ) $ 106,487
Stock-based compensation expense 2,189 796 2,909 5,894 76 5,970
Non-GAAP gross margin $ 42,757 $ 19,469 $ 50,330 $ 112,556 $ (99 ) $ 112,457
Three Months Ended January 3, 2010
CCD (b) DCD (b) MID (b) Core Semi (c) Emerging Consolidated
Technologies (d)
GAAP gross margin $ 44,286 $ 15,768 $ 38,824 $ 98,878 $ (3,958 ) $ 94,920
Stock-based compensation expense 2,967 927 3,058 6,952 86 7,038
License royalty - - - - 2,615 2,615
Non-GAAP gross margin $ 47,253 $ 16,695 $ 41,882 $ 105,830 $ (1,257 ) $ 104,573
Three Months Ended March 29, 2009
CCD (b) DCD (b) MID (b) Core Semi (c) Emerging Consolidated
Technologies (d)
GAAP gross margin $ 16,960 $ 8,626 $ 9,759 $ 35,345 $ (1,330 ) $ 34,015
Stock-based compensation expense 5,332 2,091 6,767 14,190 87 14,277
Changes in value of deferred compensation plan - - - - 5 5
Non-GAAP gross margin $ 22,292 $ 10,717 $ 16,526 $ 49,535 $ (1,238 ) $ 48,297
(a) Please refer to the accompanying "Notes to Non-GAAP Financial Measures" for a detailed discussion of management's use of non-GAAP financial measures.
(b) CCD - Consumer and Computation Division; DCD - Data Communications Division; MID - Memory and Imaging Division.
(c) "Core Semi" - Includes CCD, DCD and MID divisions and excludes "Emerging Technologies."
(d) "Emerging Technologies" - Activities outside our core semiconductor businesses outlined in footnote (c). Includes wholly owned subsidiaries Cypress Envirosystems, AgigA Tech and other.
CYPRESS SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (a)
(In thousands, except per-share data)
(Unaudited)
Three Months Ended
April 4, January 3, March 29,
2010 2010 2009
GAAP research and development expenses $ 40,049 $ 39,685 $ 50,146
Stock-based compensation expense (4,357 ) (6,498 ) (12,612 )
Other acquisition-related expense (2 ) (8 ) (27 )
Gain on sale of long-term asset - 2,437 -
Changes in value of deferred compensation plan (36 ) 27 (7 )
Non-GAAP research and development expenses $ 35,654 $ 35,643 $ 37,500
GAAP selling, general and administrative expenses $ 51,281 $ 50,701 $ 60,715
Stock-based compensation expense (11,247 ) (11,677 ) (21,355 )
Other acquisition-related expense (6 ) (6 ) (33 )
Changes in value of deferred compensation plan (7 ) 2 (37 )
Non-GAAP selling, general and administrative expenses $ 40,021 $ 39,020 $ 39,290
GAAP operating income (loss) $ 14,054 $ 2,943 $ (84,211 )
Stock-based compensation expense 21,574 25,213 48,244
License royalty - 2,615 -
Other acquisition-related expense 784 833 1,379
Gain on sale of long-term asset - (2,437 ) -
Changes in value of deferred compensation plan 43 (29 ) 48
Restructuring charges 327 774 6,046
Non-GAAP operating income (loss) $ 36,782 $ 29,912 $ (28,494 )
GAAP net income (loss) attributable to Cypress $ 12,674 $ 2,852 $ (88,335 )
Stock-based compensation expense 21,574 25,213 48,244
License royalty - 2,615 -
Other acquisition-related expense 784 833 1,379
Gain on sale of long-term asset - (2,437 ) -
Changes in value of deferred compensation plan 43 (29 ) 48
Restructuring charges 327 774 6,046
Investment-related gains/losses 336 486 1,014
Adjustment for convertible debt - - 398
Tax effects (1,631 ) 1,438 1,735
Non-GAAP net income (loss) attributable to Cypress $ 34,107 $ 31,745 $ (29,471 )
GAAP net income (loss) per share attributable to Cypress - basic $ 0.08 $ 0.02 $ (0.66 )
Stock-based compensation expense 0.14 0.16 0.36
License royalty - 0.02 -
Amortization of acquisition-related intangibles - 0.01 0.01
Gain on sale of long-term asset - (0.02 ) -
Restructuring charges - 0.01 0.04
Investment-related gains/losses - - 0.01
Tax effects (0.01 ) 0.01 0.01
Non-GAAP share count adjustment - - 0.01
Non-GAAP net income (loss) per share attributable to Cypress - basic $ 0.21 $ 0.21 $ (0.22 )
GAAP net income (loss) per share attributable to Cypress - diluted $ 0.07 $ 0.02 $ (0.66 )
Stock-based compensation expense 0.11 0.14 0.36
License royalty - 0.01 -
Amortization of acquisition-related intangibles - - 0.01
Gain on sale of long-term asset - (0.01 ) -
Restructuring charges - - 0.04
Investment-related gains/losses - - 0.01
Tax effects (0.01 ) 0.01 0.01
Non-GAAP share count adjustment - (0.01 ) 0.01
Non-GAAP net income (loss) per share attributable to Cypress - diluted $ 0.17 $ 0.16 $ (0.22 )
(a) Please refer to the accompanying "Notes to Non-GAAP Financial Measures" for a detailed discussion of management's use of non-GAAP financial measures.
CYPRESS SEMICONDUCTOR CORPORATION
CONSOLIDATED DILUTED EPS CALCULATION
(In thousands, except per-share data)
(Unaudited)
Three Months Ended
April 4, January 3, March 29,
2010 2010 2009
GAAP Non-GAAP GAAP Non-GAAP GAAP Non-GAAP
Net income (loss) attributable to Cypress $ 12,674 $ 34,107 $ 2,852 $ 31,745 $ (88,335 ) $ (29,471 )
Weighted-average common shares outstanding (basic) 158,931 158,931 154,798 154,798 134,757 134,757
Effect of dilutive securities:
Stock options, unvested restricted stock and other 31,961 39,966 29,499 38,854 - -
Weighted-average common shares outstanding for diluted computation 190,892 198,897 184,297 193,652 134,757 134,757
Net income (loss) per share attributable to Cypress - basic $ 0.08 $ 0.21 $ 0.02 $ 0.21 $ (0.66 ) $ (0.22 )
Net income (loss) per share attributable to Cypress - diluted $ 0.07 $ 0.17 $ 0.02 $ 0.16 $ (0.66 ) $ (0.22 )
April 4, January 3, March 29,
2010 2010 2009
Average stock price for the period ended $11.52 $9.80 $5.21
Common stock outstanding at period end (in thousands) 161,764 159,382 138,113
Includes unvested restricted stock awards of approximately 1.9 million as of April 4, 2010, 2.4 million shares at January 3, 2010 and 3.0 million shares at March 29, 2009.
CYPRESS SEMICONDUCTOR CORPORATION
SUPPLEMENTAL FINANCIAL DATA
(In thousands)
(Unaudited)
Three Months Ended
April 4, January 3, March 29,
2010 2010 2009
Selected Cash Flow Data (Preliminary):
Net cash provided by (used in) operating activities $ 38,123 $ 75,275 $ (15,804 )
Net cash provided by (used in) investing activities $ (43,757 ) $ (5,424 ) $ 15,221
Net cash provided by (used in) financing activities $ (20,883 ) $ (17,407 ) $ 6,225
Other Supplemental Data (Preliminary):
Capital expenditures $ 17,872 $ 7,545 $ 6,548
Depreciation $ 11,461 $ 12,370 $ 13,580
Notes to Non-GAAP Financial Measures
To supplement its consolidated financial results presented in accordance with
GAAP, Cypress uses non-GAAP financial measures which are adjusted from the most
directly comparable GAAP financial measures to exclude certain items, as
described in details below. Management believes that these non-GAAP financial
measures reflect an additional and useful way of viewing aspects of Cypress`s
operations that, when viewed in conjunction with Cypress`s GAAP results, provide
a more comprehensive understanding of the various factors and trends affecting
Cypress`s business and operations. Non-GAAP financial measures used by Cypress
include:
• Gross margin;
• Research and development expenses;
• Selling, general and administrative expenses;
• Operating income (loss);
• Net income (loss); and
• Diluted net income (loss) per share.
Cypress uses each of these non-GAAP financial measures for internal managerial
purposes, when providing its financial results and business outlook to the
public, and to facilitate period-to-period comparisons. Management believes that
these non-GAAP measures provide meaningful supplemental information regarding
Cypress`s operational and financial performance of current and historical
results. Management uses these non-GAAP measures for strategic and business
decision making, internal budgeting, forecasting and resource allocation
processes. In addition, these non-GAAP financial measures facilitate
management`s internal comparisons to Cypress`s historical operating results and
comparisons to competitors` operating results.
Cypress believes that providing these non-GAAP financial measures, in addition
to the GAAP financial results, are useful to investors because they allow
investors to see Cypress`s results "through the eyes" of management as these
non-GAAP financial measures reflect Cypress`s internal measurement processes.
Management believes that these non-GAAP financial measures enable investors to
better assess changes in each key element of Cypress`s operating results across
different reporting periods on a consistent basis. Thus, management believes
that each of these non-GAAP financial measures provides investors with another
method for assessing Cypress`s operating results in a manner that is focused on
the performance of its ongoing operations.
There are limitations in using non-GAAP financial measures because they are not
prepared in accordance with GAAP and may be different from non-GAAP financial
measures used by other companies. In addition, non-GAAP financial measures may
be limited in value because they exclude certain items that may have a material
impact upon Cypress`s reported financial results. Management compensates for
these limitations by providing investors with reconciliations of the non-GAAP
financial measures to the most directly comparable GAAP financial measures. 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. Investors should review the
reconciliations of the non-GAAP financial measures to their most directly
comparable GAAP financial measures as provided in the accompanying press
release.
As presented in the "Reconciliation of GAAP Financial Measures to Non-GAAP
Financial Measures" tables in the accompanying press release, each of the
non-GAAP financial measures excludes one or more of the following items:
• Stock-based compensation expense.
Stock-based compensation expense relates primarily to the equity awards such as
stock options and restricted stock. Stock-based compensation is a non-cash
expense that varies in amount from period to period and is dependent on market
forces that are often beyond Cypress`s control. As a result, management excludes
this item from Cypress`s internal operating forecasts and models. Management
believes that non-GAAP measures adjusted for stock-based compensation provide
investors with a basis to measure Cypress`s core performance against the
performance of other companies without the variability created by stock-based
compensation as a result of the variety of equity awards used by companies and
the varying methodologies and subjective assumptions used in determining such
non-cash expense.
• Changes in value of Cypress`s key employee deferred compensation plan.
Cypress sponsors a voluntary deferred compensation plan which provides certain
key employees with the option to defer the receipt of compensation in order to
accumulate funds for retirement. The amounts are held in a trust and Cypress
does not make contributions to the deferred compensation plan or guarantee
returns on the investment. Changes in the value of the investment in Cypress`s
common stock under the plan are excluded from the non-GAAP measures. Management
believes that such non-cash item is not related to the ongoing core business and
operating performance of Cypress, as the investment contributions are made by
the employees themselves.
• Restructuring charges.
Restructuring charges primarily relate to activities engaged by management to
make changes related to its infrastructure in an effort to reduce costs.
Restructuring charges are excluded from non-GAAP financial measures because they
are not considered core operating activities and such costs have not
historically occurred in each year. Although Cypress has engaged in various
restructuring activities in the past, each has been a discrete event based on a
unique set of business objectives. As such, management believes that it is
appropriate to exclude restructuring charges from Cypress`s non-GAAP financial
measures, as it enhances the ability of investors to compare Cypress`s
period-over-period operating results from continuing operations.
• Investment-related gains/losses.
Investment-related gains/losses primarily include: (1) impairment loss related
to Cypress`s investment when it determines the decline in fair value is
other-than-temporary in nature and (2) gains/losses related to the sales of its
debt and equity investments. These items are excluded from non-GAAP financial
measures because they are not related to the core operating activities and
operating performance of Cypress, and in most cases, such transactions have not
historically occurred in every quarter. As such, management believes that it is
appropriate to exclude investment-related gains/losses from Cypress`s non-GAAP
financial measures, as it enhances the ability of investors to compare Cypress`s
period-over-period operating results.
• License royalty.
License royalty represents the historical impact of a license agreement signed
in the fourth quarter of 2009. These historical costs are excluded from
Cypress`s non-GAAP financial measures primarily because it is not reflective of
the ongoing operating performance of Cypress`s business and can distort the
period-over-period comparison.
• Gains on sales of long-term assets.
Cypress recognizes gains resulting from the sale of certain long-term assets
that no longer align with Cypress`s long-term operating plan. Cypress excludes
these items from its non-GAAP financial measures primarily because it is not
reflective of the ongoing operating performance of Cypress`s business and can
distort the period-over-period comparison.
• Adoption of new accounting guidance on convertible debt.
During the first quarter of fiscal 2009 we adopted new accounting guidance on
convertible debt which specified that Cypress should separately account for the
liability and equity components of the instruments. The adoption required the
retrospective application of the guidance and we recorded additional non-cash
interest expense. These costs are excluded from the non-GAAP financial measures
because such non-cash expenses have not historically occurred in every quarter,
which would affect the ability of investors to compare Cypress`s
period-over-period operating results. In addition, management does not believe
that this item is indicative of the ongoing operating performance of Cypress`s
business.
• Acquisition-related expense.
Acquisition-related expense primarily includes: (1) impairment of goodwill, (2)
amortization of intangibles, which include acquired intangibles such as
purchased technology, patents and trademarks, (3) a settlement loss resulted
from the cancellation of a licensing agreement with Simtek following the
acquisition, and (4) earn-out compensation expense, which include compensation
resulting from the achievement of milestones established in accordance with the
terms of the acquisitions. In most cases, these acquisition-related charges are
not factored into management`s evaluation of potential acquisitions or Cypress`s
performance after completion of acquisitions, because they are not related to
Cypress`s core operating performance. Adjustments of these items provide
investors with a basis to compare Cypress against the performance of other
companies without the variability caused by purchase accounting.
• Release of allowance for uncollectible employee loans.
The allowance for uncollectible employee loans is related to outstanding
employee loans under Cypress`s stock purchase assistance plan. Management
releases a portion of the allowance based on a review of the status of the
outstanding loans. Management excludes this non-cash benefit from the non-GAAP
measures because it does not relate to Cypress`s core business or impact its
operating performance. Adjustment of this item allows investors to better
compare Cypress`s period-over-period operating results.
• Related tax effect.
Cypress adjusts for the income tax effect that resulted from the non-GAAP
adjustments as described above.
Cypress Semiconductor Corp.
Brad W. Buss, 408-943-2754
EVP Finance & Administration and CFO
Joseph L. McCarthy, 408-943-2902
Director Corporate Communications
Copyright Business Wire 2010
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