Cypress Reports Second-Quarter 2009 Results
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Cypress Reports Second-Quarter 2009 Results

SAN JOSE, Calif. — (BUSINESS WIRE) — July 16, 2009 Cypress Semiconductor Corp. (NYSE: CY) today announced that revenue for the 2009 second quarter was $155.8 million, up 12% from $139.3 million for the prior quarter, and down 26% from $209.6 million for the year-ago period (excluding SunPower).

Cypress recorded a GAAP net loss of $45.3 million in the 2009 second quarter, or a diluted net loss per share of $0.32. This compares with last quarter’s diluted net loss per share of $0.66 and diluted earnings per share in the year-ago second quarter of $0.10.

Non-GAAP1 net loss for the 2009 second quarter—excluding stock-based compensation, acquisition-related charges, restructuring and other special charges and credits—totaled $3.8 million, or a diluted net loss per share of $0.03. That compares with non-GAAP1 diluted net loss per share of $0.22 for the prior quarter and diluted earnings per share of $0.12 for the year-ago second quarter.

Cypress President and CEO T.J. Rodgers said, “Cypress’s CCD and DCD divisions reported better-than-expected Q2 revenue, enabling us to exceed the upper end of our guidance and Street expectations. Second-quarter revenue grew 12% sequentially driven by our programmable products. CCD grew 20% sequentially based on strong customer demand for our PSoC® and USB products. Our proprietary products continued to generate significant new design wins, particularly in the handset market; TrueTouch—our new product for touchscreens—more than doubled in revenue quarter-on-quarter.

“Gross margins surpassed our guidance due to higher factory utilization and strong cost savings and benefited from a favorable product mix. We decreased our inventory by 10% sequentially and realized an additional 9% reduction in distributor inventory dollars.

“Our book-to-bill ended Q2 at 1.28 with all divisions above unity,” Rodgers said. “Ordering patterns have begun to stabilize, leading to increased backlog. Our Q2 backlog grew 51% quarter-on-quarter to $184 million.

“The macro environment seems to have stabilized but longer term visibility continues to remain limited and we remain cautiously optimistic on the pace of the economic recovery. We are projecting that we will have above-average seasonal revenue growth in Q3. We continued to aggressively manage our cost structure and generated positive free cash flow in Q2. Our balance sheet is solid with $280 million in cash and investments and limited debt of $28 million that will mature in Q3. Significant new product design wins, coupled with tight-fisted financial management, position us to drive revenue and leveraged earnings growth.”

BUSINESS REVIEW

+ Non-GAAP1 consolidated gross margin for the second quarter was 44.2%, up 9.5 percentage points from the previous quarter due mainly to increased factory utilization (still only 59%), better product mix and continued cost reductions.

+ Net inventory decreased by 10% sequentially, the fourth straight quarterly decrease as the company reduced inventory to meet current demand requirements. Distributor inventory decreased by 9% sequentially, the third straight quarterly decrease.

+ On a GAAP basis, second-quarter consolidated gross margin was 36.7%, up 12.3 percentage points from the previous quarter due mainly to increased factory utilization, better product mix, continued cost reductions and lower stock-based compensation charges.

+ Operating expenses on a non-GAAP1 basis were $74.7 million, down 19% from the year-ago quarter as a result of the ongoing cost-reduction program.

+ Cash and investments increased by $22 million; we generated positive operating and free cash flow—both ahead of plan.

Additional second-quarter data and comparisons relevant to Cypress’s business units are presented below:

 

BUSINESS UNIT SUMMARY FINANCIALS (UNAUDITED)

 
THREE MONTHS ENDED
June 28, 2009
       
  CCD2   DCD2   MID2   Other   Consolidated
REVENUE ($M) 62.3   25.5   66.2   1.8   155.8
Percentage of total revenues 40.0% 16.4% 42.5% 1.1% 100.0%
 
GROSS MARGIN (%)
On a GAAP basis 40.9% 57.3% 28.8% (115.0%) 36.7%
On a non-GAAP1 basis 48.0% 64.5% 36.8% (107.8%) 44.2%
 
THREE MONTHS ENDED
March 29, 2009
 
CCD2   DCD2   MID2   Other   Consolidated
REVENUE ($M) 52.0 20.4 66.0 0.9 139.3
Percentage of total revenues 37.3% 14.6% 47.4% 0.7% 100.0%
 
GROSS MARGIN (%)
On a GAAP basis 32.6% 42.3% 14.8% (155.7%) 24.4%
On a non-GAAP1 basis 42.9% 52.5% 25.0% (144.8%) 34.7%
 

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.

 

SECOND-QUARTER 2009 HIGHLIGHTS

+ Programmable and proprietary products accounted for 79.2% of Cypress’s revenue in the second quarter.

+ Cypress began selling development kits for its new PSoC 3 device to customers worldwide. PSoC 3 dramatically improves upon the performance of PSoC1. It features a 67 MHz 8051 microcontroller that is 10 times more powerful than PSoC1, with 10 times more programmable logic, and precision analog that is more than 20 times faster and more accurate. It also increases Cypress’s addressed market from $1.5 billion to $6.2 billion.

+ Cypress introduced two new PSoC products with enhanced analog and digital capabilities. The devices, featuring our CapSense® Plus functionality, can now drive up to 37 CapSense capacitive touch-sensing button and slider interfaces while also supporting motor control, intelligent sensing and LED control on a single chip.

+ Cypress announced several design wins for its CapSense touch-sensing solution, a low-cost, reliable, button-free interface for thousands of consumer electronics and white goods products. New CapSense designs include LG’s W53 and W54 LCD monitors, four new Acer Aspire notebook computer models, and Whirlpool and Indesit washing machines. CapSense is also being used in Wacom’s Bamboo™ tablet, a graphical input device that converts handwritten text and drawings into digital documents.

+ HP has selected CapSense technology to drive the touch-sensitive TouchSmart™ control panel on the new HP Photosmart™ C4600 All-in-One Series printer.

+ Cypress has licensed Immersion Corporation’s patented TouchSense® haptic (touch feedback) technology to deliver single-chip user interface controllers with tactile feedback. Cypress will integrate this technology with its TrueTouch touchscreen and CapSense capacitive touch solutions to improve the end-user interface experience in mobile phones, GPS systems, keyboards, white goods and other systems.

+ Samsung Electronics Company Ltd. selected Cypress’s TrueTouch solution to implement the touchscreen in its new I8910 (OMNIAHD) mobile phone. The phone also employs a Cypress MoBL® dual-port device to increase multimedia and computing performance and reduce system power consumption.

+ Sharp Communications Group has selected Cypress’s TrueTouch solution to power the waterproof touchscreen on its KDDI Sportio water beat mobile phone.

+ Cypress announced that its PSoC-enabled CyFi™ Low-Power wireless solution has been designed into the remote control of the EVOKE Flow and AVANTI Flow digital music systems made by PURE Digital, the U.K.’s leading radio manufacturer.

+ Cypress introduced the industry’s first 65-nm Quad Data Rate™ (QDR™) and Double Data Rate™ (DDR™) SRAMs. The 72-Mbit devices, developed with foundry partner UMC, feature the industry’s fastest clock speeds and operate at half the power of their 90-nm predecessors. Applications for the new devices include networking, medical imaging and military signal processing.

+ Cypress introduced the FleXO™ family of high-performance clock generators. These highly flexible devices can be instantly programmed in the factory or field to any frequency up to 650 MHz, accelerating time to market and improving manufacturing quality.

+ Cypress subsidiary Cypress Envirosystems won the Buildy Award for Smart Devices at the recent ConnectivityWeek building automation conference in Silicon Valley. The company’s award-winning Wireless Pneumatic Thermostat retrofits existing buildings to enable them to work with Smart Grid technology, and helps companies save energy by optimizing heating and cooling systems to meet their needs.

+ Cypress Envirosystems released a custom version of its wireless gauge reader to be sold under the Honeywell brand label using Honeywell worldwide sales channels. This product retrofits existing commercial and industrial facilities to improve energy efficiency, plant safety, and reliability.

+ Cypress subsidiary AgigA Tech introduced AGIGARAM™, the industry’s first battery-free, high-speed, high-density, nonvolatile dynamic random access memory (DRAM) system. In the event of a power outage, AGIGARAM provides fail-safe battery-free data backup capabilities for storage, networking, gaming, automotive, industrial and embedded systems.

+ Cypress announced that its online solutions library ( www.cypress.com/solutions) now has 150 design elements available for download free of charge. The library’s intellectual property targets a wide array of applications and functions.

+ The Nitte Meenakshi Institute of Technology in Bangalore, India, will collaborate with Cypress to build a PSoC laboratory and offer a two-semester PSoC course. Cypress will support this initiative with hands-on training, hardware kits and software tools. The program is part of the Cypress University Program, which provides equipment, support and training to students and schools around the world.

+ Cypress named Hitoshi Yoshizawa its Japan country manager. Dr. Yoshizawa joined Cypress in 2008. He was formerly president of Xilinx Japan KK. Meanwhile, Rajeev Mehtani, a former vice president at NXP Semiconductor, was named senior vice president of Cypress’s India operations.

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 PSoC Programmable System-on-Chip, USB controllers, general-purpose programmable clocks, and memories. Cypress also offers wired and wireless connectivity solutions ranging from its CyFi low-power RF solution, to West Bridge and EZ-USB FX2LP controllers that enhance connectivity and performance in multimedia handsets. Cypress serves numerous markets, including consumer, computation, data communications, automotive and industrial. Cypress trades on the NYSE 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 third quarter of 2009 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, our expectations regarding our Q309 and Q409 revenue; our expectations regarding seasonality in Q3; the strength and growth of our proprietary and programmable products, especially PSoC, PSoC3 and PSoC5, USB, CapSense and True Touch products; our TrueTouch, CapSense, PSoC and other high profile design win penetration, especially in the handset market; our gross margins, customer backlog orders and restocking inventory, visibility in the markets we serve, and our ability to outgrow the market in revenue once the economy recovers. Such statements reflect our current expectations, which are based on information and data available to our management as of the date of this release. This press release sets forth our preliminary and unaudited financial results for our first fiscal quarter. Our actual results may differ materially due a variety of uncertainties and risk factors, including but not limited to business conditions and growth trends in the semiconductor market, seasonality in the markets we serve, our limited visibility into the markets we serve, the impact of the current economy on our operating results, the stability of the ordering patterns of our customers, the accuracy of the point of sale reporting by our distributors, our ability to successfully complete the implementation of our new Oracle order management or ERP system, the demand and growth in the markets we serve, customer acceptance of our portfolio of products, our ability to achieve lower operating expenses and to maintain a solid balance sheet, strong earnings and cash flow, the actions of our competitors, our ability to develop and roll out new products, our factory utilization, whether our products perform as expected, whether the demand for our PSoC3 and PSoC5 products is fully realized, customer acceptance of Cypress and its subsidiaries’ products as evidenced by design wins, 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 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, PowerPSoC, CapSense, MoBL, and West Bridge are registered trademarks of Cypress Semiconductor Corporation. TrueTouch, CyFi, Programmable System-on-Chip, CapSense Plus, FleXO, QDR, and DDR are trademarks of Cypress Semiconductor Corporation. PhotoSmart and TouchSmart are trademarks of HP. TouchSense is a registered trademark of Immersion Corp. SunPower is a registered trademark of SunPower Corporation. All other trademarks or registered trademarks are the property of their respective owners.

   
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
     
June 28, December 28,
2009   2008
 
ASSETS
 
Cash, cash equivalents and short-term investments (a) $ 245,642 $ 237,792
Accounts receivable, net 84,415 91,943
Inventories, net (b) 90,586 121,889
Property, plant and equipment, net 282,072 296,789
Goodwill and other intangible assets 48,459 50,514
Other assets   133,557     136,832
Total assets $ 884,731   $ 935,759
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Accounts payable $ 50,385 $ 42,570
Deferred income 61,932 82,465
Convertible debt (c) 27,726 27,023
Income tax liabilities 28,178 26,800
Other accrued liabilities   94,880     111,447
Total liabilities 263,101 290,305
Stockholders' equity   621,630     645,454
Total liabilities and stockholders' equity $ 884,731   $ 935,759
 

(a) Cash, cash equivalents and short-term investments do not include $34 million and $35 million of auction rate securities, which are classified as long-term investments in "Other assets" as of June 28, 2009 and December 28, 2008.

 

(b) Net inventories included approximately $16 million and $20 million as of June 28, 2009 and December 28, 2008, 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 $7 million and $11 million of capitalized inventories related to SFAS No. 123(R) as of June 28, 2009 and December 28, 2008, respectively.

 

(c) As adjusted due to the implementation of FSP APB 14-1 "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).”

 

 
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ON A GAAP BASIS
(In thousands, except per-share data)
(Unaudited)
           
Three Months Ended
June 28,   March 29,   June 29,
2009 2009 2008
 
Revenues $ 155,784 $ 139,309 $ 209,580
Cost of revenues   98,672     105,294     107,852  
Gross margin (a) 57,112 34,015 101,728
Operating expenses (credits):
Research and development (a) 48,196 50,146 45,392
Selling, general and administrative (a) 53,068 60,715 61,111
Amortization of acquisition-related intangibles 1,089 1,319 1,658
Restructuring charges   834     6,046     1,958  
Total operating expenses, net   103,187     118,226     110,119  
Operating loss (46,075 ) (84,211 ) (8,391 )
Interest and other income (expense), net (b)   2,114     (1,499 )   (6,596 )
Loss from continuing operations before income taxes and minority interest (43,961 ) (85,710 ) (14,987 )
Income tax benefit (provision)   (1,324 )   (2,625 )   14,269  
Loss from continuing operations (45,285 ) (88,335 ) (718 )
Income from discontinued operations, net of taxes and minority interest   -     -     17,399  
Net income (loss) $ (45,285 ) $ (88,335 ) $ 16,681  
 
Basic net income (loss) per share:
Continuing operations $ (0.32 ) $ (0.66 ) $ (0.01 )
Discontinued operations   -     -     0.12  
Basic net income (loss) per share $ (0.32 ) $ (0.66 ) $ 0.11  
 
Diluted net income (loss) per share:
Continuing operations $ (0.32 ) $ (0.66 ) $ (0.01 )
Discontinued operations   -     -     0.11  
Diluted net income (loss) per share $ (0.32 ) $ (0.66 ) $ 0.10  
 
Shares used in per-share calculation:
Basic 140,793 134,757 150,675
Diluted   140,793       134,757       161,732  
 
(a) Includes the following credit (expense) related to Cypress's deferred compensation plan:          
Gross margin $ (252 ) $ 62 $ (15 )
Research and development $ (749 ) $ 95 $ (17 )
Selling, general and administrative $ (1,572 ) $ 492 $ (18 )
Interest and other income (expense), net $ 2,310     $ (674 )   $ 60  
 

(b) As adjusted due to the implementation of FSP APB 14-1 "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).”

 

         
CYPRESS SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (a)
(In thousands)
(Unaudited)
                 
Three Months Ended June 28, 2009
CCD (b) DCD (b) MID (b) Other Consolidated
GAAP gross margin $ 25,456 $ 14,614 $ 19,056 $ (2,014 ) $ 57,112
Stock-based compensation expense 4,475 1,832 4,755 126 11,188
Other acquisition-related expense   -   -   559   -     559
Non-GAAP gross margin $ 29,931   $ 16,446   $ 24,370   $ (1,888 )   $ 68,859
                 
Three Months Ended March 29, 2009
CCD (b) DCD (b) MID (b) Other Consolidated
GAAP gross margin $ 16,960 $ 8,626 $ 9,759 $ (1,330 ) $ 34,015
Stock-based compensation expense 5,332 2,091 6,767 87 14,277
Changes in value of deferred compensation plan   -   -   -   5     5
Non-GAAP gross margin $ 22,292   $ 10,717   $ 16,526   $ (1,238 )   $ 48,297
                 
Three Months Ended June 29, 2008
CCD (b) DCD (b) MID (b) Other Consolidated
GAAP gross margin $ 40,449 $ 22,161 $ 37,890 $ 1,228 $ 101,728
Stock-based compensation expense 1,802 750 1,935 76 4,563
Other acquisition-related expense 1 - - - 1
Changes in value of deferred compensation plan   -   -   -   21     21
Non-GAAP gross margin $ 42,252   $ 22,911   $ 39,825   $ 1,325     $ 106,313
 
 
(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.
 
 
CYPRESS SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (a)
(In thousands, except per-share data)
(Unaudited)
           
Three Months Ended
June 28,   March 29,   June 29,
2009 2009 2008
GAAP research and development expenses $ 48,196 $ 50,146 $ 45,392
Stock-based compensation expense (10,746 ) (12,612 ) (5,190 )
Other acquisition-related expense (23 ) (27 ) (46 )
Changes in value of deferred compensation plan   (104 )   (7 )   (25 )
Non-GAAP research and development expenses $ 37,323   $ 37,500   $ 40,131  
 
GAAP selling, general and administrative expenses $ 53,068 $ 60,715 $ 61,111
Stock-based compensation expense (15,745 ) (21,355 ) (9,421 )
Other acquisition-related expense 15 (33 ) (41 )
Changes in value of deferred compensation plan   (8 )   (37 )   (19 )
Non-GAAP selling, general and administrative expenses $ 37,330   $ 39,290   $ 51,630  
 
GAAP operating loss $ (46,075 ) $ (84,211 ) $ (8,391 )
Stock-based compensation expense 37,679

 

48,244 19,174
Acquisition-related expense:
Amortization of acquisition-related intangibles 834 1,319 1,658
Other acquisition-related expense 567 58 88
Changes in value of deferred compensation plan 112 49 65
Restructuring charges   1,089     6,046     1,958  
Non-GAAP operating income (loss) $ (5,794 ) $ (28,495 ) $ 14,552  
 
GAAP net income (loss) $ (45,285 ) $ (88,335 ) $ 16,681
Stock-based compensation expense 37,679 48,244 19,174
Acquisition-related expense:
Amortization of acquisition-related intangibles 834 1,319 1,658
Other acquisition-related expense 567 58 88
Changes in value of deferred compensation plan 112 49 65
Restructuring charges 1,089 6,046 1,958
Investment-related gains/losses 293 1,014 2,758
Impact of FSP APB 14-1 392 398 8,152
Tax effects 541 1,734 (14,057 )
Income from discontinued operations   -     -     (17,399 )
Non-GAAP net income (loss) $ (3,778 )   $ (29,473 )   $ 19,078  
         
GAAP net income (loss) per share - diluted $ (0.32 ) $ (0.66 ) $ 0.10
Stock-based compensation expense 0.27 0.36 0.12
Acquisition-related expense:
Amortization of acquisition-related intangibles 0.01 0.01 0.01
Other acquisition-related expense - - -
Changes in value of deferred compensation plan - - -
Restructuring charges 0.01 0.04 0.01
Investment-related gains/losses - 0.01 0.02
Impact of FSP APB 14-1 - - 0.05
Tax effects - 0.01 (0.09 )
Non-GAAP share count adjustment - 0.01 0.01
(Income) loss from discontinued operations   -     -     (0.11 )
Non-GAAP net income (loss) per share - diluted $ (0.03 )   $ (0.22 )   $ 0.12  
 

(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
June 28, March 29, June 29,
  2009 2009 2008
  GAAP Non-GAAP GAAP Non-GAAP GAAP Non-GAAP
 
Net income (loss) from continuing operations

$

(45,285

) $ (3,778 ) $ (88,335 ) $ (29,473 ) $ (718 ) $ 19,078
Income (loss) from continuing operations for diluted computation (45,285 ) (3,778 ) (88,335 ) (29,473 ) (718 ) 19,078

Income from discontinued operations

  -     -     -     -     17,399     -

Net income (loss) for diluted computation

$

(45,285

) $ (3,778 ) $ (88,335 ) $ (29,473 ) $ 16,681   $ 19,078
 
Weighted-average common shares outstanding 140,793 140,793 134,757 134,757 150,675 150,675
Effect of dilutive securities:
Convertible debt - - - - 3,191 3,191
Warrants - - - - 348 348
Stock options, unvested restricted stock and other   -     -     -     -     7,518     10,446
Weighted-average common shares outstanding for diluted computation   140,793     140,793     134,757     134,757     161,732     164,660
 
Net income (loss) per share - diluted:
Continuing operations

$

(0.32

) $ (0.03 ) $ (0.66 ) $ (0.22 ) $ (0.01 ) $ 0.12

Discontinued operations

  -     -     -     -     0.11     -
Net income (loss) per share - diluted

$

(0.32

) $ (0.03 ) $ (0.66 ) $ (0.22 ) $ 0.10   $ 0.12
                       

 

                       
June 28, March 29, June 29,
  2009 2009 2008
 
Average Stock Price for the three months ended $7.95 $5.21 $4.35
 
Common Stock Outstanding at quarter end (in thousands) 144,460 138,113 150,935

Excluding unvested restricted stock awards of approximately 3.0 million shares at June 28, 2009 and March 29, 2009. None at June 29, 2008.

                       

 

           
CYPRESS SEMICONDUCTOR CORPORATION
SUPPLEMENTAL FINANCIAL DATA FOR CONTINUING OPERATIONS
(In thousands)
(Unaudited)
               
Three Months Ended Six Months Ended
June 28, March 29, June 29, June 28, June 29,
2009 2009 2008 2009 2008

Selected Cash Flow Data (Preliminary):

Net cash provided by (used in) operating activities $ 5,531 $ (15,804 ) $ 38,985 $ (10,273 ) $ 49,159
Net cash provided by (used in) investing activities $ (23,590 ) $ 15,221 $ (24,186 ) $ (8,369 ) $ 37,487
Net cash provided by (used in) financing activities $ 20,510 $ 6,225 $ 9,115 $ 26,735 $ (266,178 )
 

Other Supplemental Data (Preliminary):

Capital expenditures $ 4,907 $ 6,548 $ 11,355 $ 11,455 $ 21,162
Depreciation $ 12,951     $ 13,580     $ 16,908   $ 26,531     $ 34,892  
 

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:

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 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.

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.

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 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 primarily include: (1) gain on sale of SunPower common stock, (2) impairment loss related to Cypress’s investment when it determines the decline in fair value is other-than-temporary in nature, and (3) 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.

During the first quarter of fiscal 2009 we adopted FSP APB 14-1, “Accounting for Convertible Debt Instruments that May Be Settled in Cash upon Conversion,” which specified that Cypress should separately account for the liability and equity components of the instruments. The adoption required the retrospective application of the FSP 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.

Cypress adjusts for the income tax effect that resulted from the non-GAAP adjustments as described above.

Cypress completed the spin-off of SunPower in the fourth quarter of fiscal 2008 and restated the financial statements to present SunPower as discontinued operations for all periods. Management no longer evaluates SunPower’s results and therefore believes that it is appropriate to exclude SunPower from Cypress’s non-GAAP financial measures, as it enhances the ability of investors to compare Cypress’s period-over period operating results on a stand-alone basis.



Contact:

Cypress Semiconductor Corp.
Brad W. Buss, 408-943-2754
EVP Finance & Administration and CFO
Joseph L. McCarthy, 408-943-2902
VP Corporate Communications