EX-99.1 2 exhibit991q319.htm EXHIBIT 99.1 Exhibit
EXHIBIT 99.1
q32019image.jpg
Contacts:
Thad Trent
EVP Finance & Administration and CFO
(408) 943-2925

Ann Minooka
Vice President, Corporate Communications
(408) 456-1962
For Immediate Release
Cypress Reports Third Quarter 2019 Results and Provides Update on Regulatory Approvals

SAN JOSE, Calif., October 24, 2019—Cypress Semiconductor Corporation (NASDAQ: CY), today announced its third quarter 2019 results with the following highlights:
•
$574.5 million in revenue, up 7.9% sequentially, and down 8.8% year-over-year after adjusting for the divestiture of our NAND business, which was completed on April 1, 2019
•
GAAP and Non-GAAP gross margins were 37.7% and 46.9%, respectively
•
GAAP and Non-GAAP operating margins were 7.9% and 21.8%, respectively
•
GAAP and Non-GAAP diluted EPS were $0.03 and $0.30, respectively

"Cypress had a solid third quarter with strong demand in our MCD division, where revenue was up 16% sequentially driven by IoT growth, particularly in our wireless, USB-C, and PSoC product families," said Hassane El-Khoury, Cypress’ president and chief executive officer. "Our Cypress 3.0 strategy remains on track as we deliver consistently strong operating margins, even in a soft market environment."

On October 16, 2019, the European Commission cleared the proposed acquisition of Cypress by Infineon Technologies AG ("Infineon") without any conditions. The proposed transaction previously received antitrust clearances in the Philippines and South Korea. As announced on June 3, 2019, Infineon and Cypress have entered into an agreement and plan of merger providing for Infineon to acquire Cypress for $23.85 per share in cash, corresponding to an enterprise value of approximately $10 billion. The combination of our highly-complementary product portfolios opens up great potential in the high-growth areas of automotive and IoT. Due


to the pending transaction, Cypress will not hold an earnings conference call and has suspended the practice of providing forward-looking guidance.


Revenue and earnings for the quarter are shown below with comparable periods:
(In thousands, except percentages and per-share data)
 
 
GAAP
 
Non-GAAP1
 
 
Q3 2019
 
Q2 2019
 
Q3 2018
 
Q3 2019
 
Q2 2019
 
Q3 2018
Revenue
 
$
574,521

 
$
532,221

 
$
673,035

 
$
574,521

 
$
532,221

 
$
673,035

Gross margin
 
37.7
%
 
37.3
%
 
38.6
%
 
46.9
%
 
47.0
%
 
47.0
%
Operating margin
 
7.9
%
 
2.5
%
 
11.2
%
 
21.8
%
 
20.4
%
 
24.7
%
Net income (loss)
 
$
12,683

 
$
(12,729
)
 
$
50,695

 
$
115,794

 
$
97,241

 
$
152,725

Diluted EPS
 
$
0.03

 
$
(0.03
)
 
$
0.14

 
$
0.30

 
$
0.25

 
$
0.40


Year-to-date revenue and earnings are shown below with comparable periods:
(In thousands, except percentages and per-share data)

 
 
GAAP
 
Non-GAAP1
 
 
Nine Months Ended
 
Nine Months Ended
 
 
Q3 2019
 
Q3 2018
 
Q3 2019
 
Q3 2018
Revenue
 
$
1,645,746

 
$
1,879,366

 
$
1,645,746

 
$
1,879,366

Gross margin
 
37.5
%
 
37.6
%
 
47.1
%
 
46.4
%
Operating margin
 
5.5
%
 
8.6
%
 
21.1
%
 
22.3
%
Net income
 
$
19,668

 
$
87,478

 
$
315,138

 
$
377,984

Diluted EPS
 
$
0.05

 
$
0.23

 
$
0.82

 
$
1.01


1. See the "Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures" tables ("Non-GAAP Reconciliation Tables") included below.






REVENUE SUMMARY
(In thousands, except percentages)
(Unaudited)
 
 
Three Months Ended
Business Unit¹
September 29, 2019
 
June 30, 2019
 
September 30, 2018
 
Sequential Change
 
Year-over-year Change
MCD
$
410,748

 
$
354,225

 
$
413,413

 
16.0
 %
 
(0.6
)%
MPD2
163,773

 
177,996

 
259,622

 
(8.0
)%
 
(36.9
)%
Total
$
574,521

 
$
532,221

 
$
673,035

 
7.9
 %
 
(14.6
)%


 
Three Months Ended
End Use
September 29, 2019

 
June 30, 2019

 
September 30, 2018

IoT
42.6
%
 
37.5
%
 
37.4
%
Automotive
36.5
%
 
38.0
%
 
31.0
%
Legacy
20.9
%
 
24.5
%
 
31.6
%
Total
100
%
 
100
%
 
100
%


1.
The Microcontroller and Connectivity Division ("MCD") includes microcontroller, wireless connectivity and USB products and the Memory Products Division ("MPD") includes RAM, Flash and AgigA Tech products.
2.
MPD revenue for the three months ended September 29, 2019 and June 30, 2019 reflect divestment of our NAND business to a newly formed joint venture, which was completed on April 1, 2019.




FOLLOW CYPRESS ONLINE

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

ABOUT CYPRESS

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






NON-GAAP FINANCIAL MEASURES
To supplement its condensed consolidated unaudited financial results presented in accordance with GAAP, Cypress uses the non-GAAP financial measures listed below, which are adjusted from the most directly comparable GAAP financial measures to exclude certain items, as described in more detail below.
•
Non-GAAP gross profit;
•
Non-GAAP gross margin;
•
Non-GAAP cost of revenues;
•
Non-GAAP interest and other expense, net;
•
Non-GAAP research and development expenses;
•
Non-GAAP selling, general and administrative expenses;
•
Adjusted EBITDA;
•
Non-GAAP income tax provision (benefit);
•
Non-GAAP pre-tax profit;
•
Non-GAAP pre-tax profit margin;
•
Non-GAAP operating income;
•
Non-GAAP operating margin;
•
Non-GAAP net income;
•
Non-GAAP diluted earnings per share; and
•
Free cash flow.

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

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





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

As presented in the Non-GAAP Reconciliation Tables in this press release, each of the non-GAAP financial measures (other than free cash flow) excludes one or more of the following items:

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

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




operating forecasts and models. However, a limitation of non-GAAP measures that exclude stock-based compensation expense is that they do not reflect the full costs of compensating employees.

Other adjustments: 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:
•
Costs incurred in connection with the proposed merger,
•
Impairments of equity-method investments,
•
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). 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 to identify forward-looking statements. 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: the occurrence of any event, change or other circumstances that could give rise to the termination of the Agreement and Plan of Merger (the "Merger Agreement") dated June 3, 2019, by and among Infineon Technologies AG, a stock corporation (Aktiengesellschaft) organized under the laws of the Federal Republic of Germany ("Infineon"), IFX Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Infineon ("Merger Sub") and the Company, pursuant to which Merger Sub will merge with and into the Company (the "Merger"), with the Company continuing as the surviving corporation in the Merger and as a wholly owned subsidiary of Infineon; the inability to complete the Merger due to the failure to satisfy conditions to completion of the Merger, including that a governmental entity may prohibit, delay or refuse to grant approval for the Merger; risks related to disruption of management’s attention from our ongoing business operations due to the Merger; the effect of the announcement of the Merger on our relationships with our customers, operating results and business generally; the risk that certain approvals or consents will not be received in a timely manner or that the Merger will not be completed in a timely manner; the impact of the Merger on our ability to retain key employees; the outcome of any legal proceedings related to the Merger; 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 changing relationships with distributors; 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; risks related to our joint venture for NAND flash memory products; the possibility of impairment charges; 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 filing and in our subsequent quarterly filings with the U.S. Securities and Exchange Commission (the "SEC") 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 of Cypress Semiconductor Corporation. All other trademarks are property of their owners.





CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 
 
September 29, 2019
 
December 30, 2018

 
 
 
 
 
ASSETS
 
 
 
 
Cash and cash equivalents
 
$
343,027

 
$
285,720

Accounts receivable, net
 
389,896

 
324,274

Inventories
 
327,392

 
292,093

Assets held for sale
 
—

 
13,510

Property, plant and equipment, net
 
262,955

 
282,986

Goodwill and other intangible assets, net
 
1,708,676

 
1,864,340

Other assets
 
628,045

 
630,292

Total assets
 
$
3,659,991

 
$
3,693,215

LIABILITIES AND EQUITY
 
 
 
 
Accounts payable
 
$
181,704

 
$
210,715

Income tax liabilities
 
55,228

 
53,469

Revenue reserves, deferred margin and other liabilities
 
503,801

 
430,814

Current portion of long-term debt
 
63,518

 
6,943

Revolving credit facility and long-term debt
 
756,853

 
874,235

Total liabilities
 
1,561,104

 
1,576,176

Total Cypress stockholders' equity
 
2,098,887

 
2,115,734

Non-controlling interest
 
—

 
1,305

Total equity
 
2,098,887

 
2,117,039

Total liabilities and equity
 
$
3,659,991

 
$
3,693,215







CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ON A GAAP BASIS
(In thousands, except per-share data)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
September 29, 2019
 
June 30, 2019
 
September 30, 2018
 
September 29, 2019
 
September 30, 2018
Revenues
$
574,521

 
$
532,221

 
$
673,035

 
$
1,645,746

 
$
1,879,366

Cost of revenue
358,080

 
333,463

 
413,320

 
1,028,138

 
1,173,121

Gross profit
216,441

 
198,758

 
259,715

 
617,608

 
706,245

Research and development
89,253

 
93,639

 
91,691

 
271,498

 
281,617

Selling, general and administrative
81,963

 
91,633

 
92,943

 
255,583

 
262,940

Total operating expenses
171,216

 
185,272

 
184,634

 
527,081

 
544,557

Operating income
45,225

 
13,486

 
75,081

 
90,527

 
161,688

Interest and other expense, net
(14,922
)
 
(12,003
)
 
(15,059
)
 
(36,168
)
 
(47,356
)
Income before income taxes, share in gain/loss, net and impairment of equity method investees and non-controlling interest
30,303

 
1,483

 
60,022

 
54,359

 
114,332

Income tax (provision) benefit
(16,247
)
 
18,189

 
(5,618
)
 
2,672

 
(15,829
)
Share in gain/loss, net and impairment of equity method investees
(1,383
)
 
(32,405
)
 
(3,657
)
 
(37,378
)
 
(10,873
)
Net income (loss)
12,673

 
(12,733
)
 
50,747

 
19,653

 
87,630

Net loss (income) attributable to non-controlling interest
10

 
4

 
(52
)
 
15

 
(152
)
Net income (loss) attributable to Cypress
$
12,683

 
$
(12,729
)
 
$
50,695

 
$
19,668

 
$
87,478

Net income (loss) per share attributable to Cypress:
 
 
 
 
 
 
 
 
 
Basic
$
0.03

 
$
(0.03
)
 
$
0.14

 
$
0.05

 
$
0.24

Diluted
$
0.03

 
$
(0.03
)
 
$
0.14

 
$
0.05

 
$
0.23

Cash dividend declared per share
$
0.11

 
$
0.11

 
$
0.11

 
$
0.33

 
$
0.33

Shares used in net income (loss) per share calculation:
 
 
 
 
 
 
 
 
 
Basic
369,241

 
365,600

 
361,631

 
366,444

 
358,560

Diluted
388,243

 
365,600

 
374,266

 
381,633

 
373,064






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


 

Table A: GAAP to non-GAAP reconciling items: Three Months Ended Q3 2019

 
 
 
 
Cost of revenues
 
Research and development
 
Selling, general and administrative
 
Interest and other expense, net
GAAP [i]
 
$
358,080

 
$
89,253

 
$
81,963

 
$
(16,305
)
[1] Stock-based compensation
 
5,907

 
7,708

 
11,276

 
—

[2] Changes in value of deferred compensation plan
 
(6
)
 
(38
)
 
(37
)
 
237

[3] Gain on sale of NAND business to joint venture
 
—

 
—

 
—

 
(1,887
)
[4] Share in gain/loss, net of equity method investees
 
—

 
—

 
—

 
1,383

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

 
—

 
—

 
3,101

[6] Amortization of debt issuance costs
 
—

 
—

 
—

 
626

[7] Loss on extinguishment of debt
 
—

 
—

 
—

 
6,402

[8] Amortization of acquisition-related intangible assets and other
 
47,084

 
—

 
4,310

 
—

[9] Restructuring charges
 
(68
)
 
291

 
169

 
—

[10] Merger-related expenses
 
—

 
—

 
3,043

 
—

[11] Other income and expenses
 
—

 
280

 
381

 
(631
)
Non - GAAP [ii]
 
$
305,163

 
$
81,012

 
$
62,821

 
$
(7,074
)
Impact of reconciling items [ii - i]
 
$
(52,917
)
 
$
(8,241
)
 
$
(19,142
)
 
$
9,231







Table B: GAAP to non-GAAP reconciling items: Three Months Ended Q2 2019
 
 
 
 
Cost of revenues
 
Research and development
 
Selling, general and administrative
 
Interest and other expense, net
GAAP [i]
 
$
333,463

 
$
93,639

 
$
91,633

 
$
(44,408
)
[1] Stock-based compensation
 
2,817

 
12,304

 
15,359

 
—

[2] Changes in value of deferred compensation plan
 
130

 
632

 
627

 
(1,145
)
[3] Share in gain/loss, net and impairment of equity method investees1
 
—

 
—

 
—

 
32,405

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

 
—

 
—

 
3,276

[5] Amortization of debt issuance costs
 
—

 
—

 
—

 
929

[6] Amortization of acquisition-related intangible assets and other
 
47,293

 
—

 
4,304

 
—

[7] Restructuring charges
 
1,018

 
1,362

 
641

 
—

[8] Merger-related expenses
 
—

 
—

 
8,409

 
—

[9] Other income and expenses
 
—

 
—

 
32

 
(103
)
Non - GAAP [ii]
 
$
282,205

 
$
79,341

 
$
62,261

 
$
(9,046
)
Impact of reconciling items [ii - i]
 
$
(51,258
)
 
$
(14,298
)
 
$
(29,372
)
 
$
35,362

1. Includes a $29.5 million impairment charge recorded for the investment in Deca Technologies, Inc.


Table C: 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 gain/ loss, net of equity method investee
 
—

 
—

 
—

 
3,657

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

 
—

 
—

 
6,782

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

 
—

 
4,310

 
—

[6] Acquisition costs
 
—

 
—

 
119

 
—

[7] Restructuring charges
 
(340
)
 
516

 
9,815

 
—

[8] Litigation settlement and other
 
—

 
—

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

 
$
82,302

 
$
67,667

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







Table D: GAAP to non-GAAP reconciling items: Nine Months Ended Q3 2019
 
 
 
 
Cost of revenues
 
Research and development
 
Selling, general and administrative
 
Interest and other expense, net
GAAP [i]
 
$
1,028,138

 
$
271,498

 
$
255,583

 
$
(73,546
)
[1] Stock-based compensation
 
11,408

 
26,692

 
37,666

 
—

[2] Changes in value of deferred compensation plan
 
594

 
2,798

 
2,849

 
(5,242
)
[3] Loss (gain) from sale of NAND business to joint venture
 
2,017

 
—

 
1,515

 
(1,887
)
[4] Share in gain/loss, net and impairment of equity method investees1
 
—

 
—

 
—

 
37,378

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

 
—

 
—

 
9,745

[6] Amortization of debt issuance costs
 
—

 
—

 
—

 
2,484

[7] Loss on extinguishment of debt
 
—

 
—

 
—

 
6,402

[8] Amortization of acquisition-related intangible assets and other
 
142,594

 
—

 
12,924

 
—

[9] Restructuring charges and other
 
901

 
1,653

 
908

 
—

[10] Merger-related expenses
 
—

 
—

 
11,452

 
—

[11] Other income and expenses
 
—

 
338

 
861

 
(432
)
Non - GAAP [ii]
 
$
870,624

 
$
240,017

 
$
187,408

 
$
(25,098
)
Impact of reconciling items [ii - i]
 
$
(157,514
)
 
$
(31,481
)
 
$
(68,175
)
 
$
48,448

1. Includes a $29.5 million impairment charge recorded for the investment in Deca Technologies, Inc.

Table E: GAAP to non-GAAP reconciling items: Nine Months Ended Q3 2018
 
 
 
 
Cost of revenues
 
Research and development
 
Selling, general and administrative
 
Interest and other expense, net
GAAP [i]
 
$
1,173,121

 
$
281,617

 
$
262,940

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

 
28,720

 
35,152

 
—

[2] Changes in value of deferred compensation plan
 
299

 
1,406

 
1,690

 
(2,497
)
[3] Equity in gain/loss, net of equity method investee
 
—

 
—

 
—

 
10,873

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

 
—

 
—

 
14,628

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

 
—

 
—

 
3,258

[6] Amortization of debt issuance costs
 
—

 
—

 
—

 
1,073

[7] Amortization of acquisition-related intangible assets and others
 
150,441

 
—

 
13,815

 
—

[8] Gain on sale of cost method investment
 
—

 
—

 
(1,521
)
 
—

[9] Acquisition costs
 
—

 
—

 
119

 
—

[10] Restructuring charges and other
 
3,136

 
841

 
11,347

 
—

[11] Litigation settlement and other
 
—

 
—

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

 
$
250,650

 
$
202,943

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






Table F: Non-GAAP gross profit
 
Three Months Ended
 
Nine Months Ended
 
 
Q3'19
 
Q2'19
 
Q3'18
 
Q3'19
 
Q3'18
GAAP gross profit
 
$
216,441

 
$
198,758

 
$
259,715

 
$
617,608

 
$
706,245

Impact of reconciling items on cost of revenues (see Table A, B, C, D and E)
 
52,917

 
51,258

 
56,481

 
157,514

 
166,565

Non-GAAP gross profit
 
$
269,358

 
$
250,016

 
$
316,196

 
$
775,122

 
$
872,810

GAAP gross margin (GAAP gross profit/revenue)
 
37.7
%
 
37.3
%
 
38.6
%
 
37.5
%
 
37.6
%
Non-GAAP gross margin (Non-GAAP gross profit/revenue)
 
46.9
%
 
47.0
%
 
47.0
%
 
47.1
%
 
46.4
%

Table G: Non-GAAP operating income
 
Three Months Ended
 
Nine Months Ended
 
 
Q3'19
 
Q2'19
 
Q3'18
 
Q3'19
 
Q3'18
GAAP operating income [i]
 
$
45,225

 
$
13,486

 
$
75,081

 
$
90,527

 
$
161,688

Impact of reconciling items on cost of revenues (see Table A, B, C, D and E)
 
52,917

 
51,258

 
56,481

 
157,514

 
166,565

Impact of reconciling items on R&D (see Table A, B, C, D and E)
 
8,241

 
14,298

 
9,389

 
31,481

 
30,967

Impact of reconciling items on SG&A (see Table A, B, C, D and E)
 
19,142

 
29,372

 
25,276

 
68,175

 
59,997

Non-GAAP operating income [ii]
 
$
125,525

 
$
108,414

 
$
166,227

 
$
347,697

 
$
419,217

Impact of reconciling items on operating income [ii - i]
 
$
80,300

 
$
94,928

 
$
91,146

 
$
257,170

 
$
257,529

GAAP operating margin (GAAP operating income / revenue)
 
7.9
%
 
2.5
%
 
11.2
%
 
5.5
%
 
8.6
%
Non-GAAP operating margin (Non-GAAP operating income / revenue)
 
21.8
%
 
20.4
%
 
24.7
%
 
21.1
%
 
22.3
%

Table H: Non-GAAP pre-tax profit
 
Three Months Ended
 
Nine Months Ended
 
 
Q3'19
 
Q2'19
 
Q3'18
 
Q3'19
 
Q3'18
GAAP income before income taxes and non-controlling interest ("Pre-tax income")
 
$
30,303

 
$
1,483

 
$
60,022

 
$
54,359

 
$
114,332

Share in gain/loss, net and impairment of equity method investees1
 
(1,383
)
 
(32,405
)
 
(3,657
)
 
(37,378
)
 
(10,873
)
Impact of reconciling items on operating income (see Table G)
 
80,300

 
94,928

 
91,146

 
257,170

 
257,529

Impact of reconciling items on interest and other expense, net (see Table A, B, C, D and E)
 
9,231

 
35,362

 
8,045

 
48,448

 
26,065

Non-GAAP pre-tax profit
 
$
118,451

 
$
99,368

 
$
155,556

 
$
322,599

 
$
387,053

GAAP pre-tax profit margin (GAAP pre-tax income/revenue)
 
5.3
%
 
0.3
%
 
8.9
%
 
3.3
%
 
6.1
%
Non-GAAP pre-tax profit margin (Non-GAAP pre-tax profit/revenue)
 
20.6
%
 
18.7
%
 
23.1
%
 
19.6
%
 
20.6
%
1. The three months ended Q2'19 and the nine months ended Q3'19 include a $29.5 million impairment charge recorded for the investment in Deca Technologies, Inc.





Table I: Non-GAAP income tax expense
 
Three Months Ended
 
Nine Months Ended
 
 
Q3'19
 
Q2'19
 
Q3'18
 
Q3'19
 
Q3'18
GAAP income tax provision [i]
 
$
16,247

 
$
(18,189
)
 
$
5,618

 
$
(2,672
)
 
$
15,829

[1] Tax impact of non-GAAP adjustments* relating to:
 
 
 
 
 
 
 
 
 
 
[a] Stock-based compensation
 
5,227

 
6,401

 
5,081

 
15,911

 
16,078

[b] Changes in value of deferred compensation plan
 
32

 
51

 
97

 
209

 
189

[c] Share in gain/loss, net and impairment of equity method investees
 
290

 
6,805

 
768

 
7,849

 
2,283

[d] Imputed interest on convertible debt, equity component amortization on convertible debt and others
 
651

 
688

 
1,424

 
2,046

 
3,072

[e] Amortization of debt issuance costs
 
131

 
195

 
—

 
521

 
225

[f] Amortization of acquisition-related intangible assets and other
 
10,793

 
10,835

 
11,734

 
32,659

 
34,494

[g] Restructuring charges and other
 
82

 
620

 
2,098

 
723

 
3,218

[h] Other (income) and expenses
 
6

 
—

 
—

 
165

 
—

[i] Loss on extinguishment of debt
 
1,344

 
—

 
—

 
1,344

 
684

[j] (Gain) loss on sale of NAND business to joint venture
 
(396
)
 
—

 
—

 
346

 
—

[k] Gain on sale of cost method investment
 
—

 
—

 
—

 
—

 
(319
)
[2] Merger-related expenses
 
639

 
1,766

 
—

 
2,405

 
—

[3] Uncertain tax positions
 
(6,675
)
 
2,621

 
(2,159
)
 
(3,757
)
 
(4,870
)
[4] Valuation allowance release, utilization of NOL including excess tax benefits, and other items**
 
(25,704
)
 
(9,662
)
 
(21,882
)
 
(50,273
)
 
(61,966
)
Non-GAAP income tax expense [ii]*
 
$
2,667

 
$
2,131

 
$
2,779

 
$
7,476

 
$
8,917

Impact of reconciling items on income tax provision [i - ii]
 
13,580

 
(20,320
)
 
2,839

 
(10,148
)
 
6,912


*Tax impact of Non-GAAP adjustments is calculated by using the federal statutory rate of 21%.

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





Table J: Non-GAAP net income
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
Q3'19
 
Q2'19
 
Q3'18
 
Q3'19
 
Q3'18
GAAP net income (loss) attributable to Cypress
 
$
12,683

 
$
(12,729
)
 
$
50,695

 
$
19,668

 
$
87,478

Impact of reconciling items on operating income (see Table G)
 
80,300

 
94,928

 
91,146

 
257,170

 
257,529

Impact of reconciling items on interest and other expense, net (see Table A, B, C, D and E)
 
9,231

 
35,362

 
8,045

 
48,448

 
26,065

Impact of reconciling items on income tax provision (see Table I)
 
13,580

 
(20,320
)
 
2,839

 
(10,148
)
 
6,912

Non-GAAP net income
 
$
115,794

 
$
97,241

 
$
152,725

 
$
315,138

 
$
377,984



Table K: Weighted-average shares, diluted
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
Q3'19
 
Q2'19
 
Q3'18
 
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
Weighted-average common shares outstanding, basic
 
369,241

 
369,241

 
365,600

 
365,600

 
361,631

 
361,631

Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
 
Stock options, unvested restricted stock units and other
 
7,862

 
11,704

 
—

 
13,937

 
7,096

 
12,468

Convertible notes
 
11,140

 
9,480

 
—

 
5,187

 
5,539

 
3,234

Weighted-average common shares outstanding, diluted
 
388,243

 
390,425

 
365,600

 
384,724

 
374,266

 
377,333



Table L: Weighted-average shares, diluted
 
 
 
 
 
 
Nine Months Ended
 
 
Q3'19
 
Q3'18
 
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
Weighted-average common shares outstanding, basic
 
366,444

 
366,444

 
358,560

 
358,560

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options, unvested restricted stock and other
 
7,567

 
12,325

 
8,378

 
13,557

Convertible notes
 
7,622

 
5,573

 
6,126

 
3,852

Weighted-average common shares outstanding, diluted
 
381,633

 
384,342

 
373,064

 
375,969









Table M: Earnings per share
 
 
 
 
 
 
 
 
Three Months Ended
 
 
Q3'19
 
Q2'19
 
Q3'18
 
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
Net income (loss) (see Table J) [i]
 
$
12,683

 
$
115,794

 
$
(12,729
)
 
$
97,241

 
$
50,695

 
$
152,725

Weighted-average common shares outstanding, diluted (see Table K) [ii]
 
388,243

 
390,425

 
365,600

 
384,724

 
374,266

 
377,333

Earnings (loss) per share - diluted [i/ii]
 
$
0.03

 
$
0.30

 
$
(0.03
)
 
$
0.25

 
$
0.14

 
$
0.40


Table N: Earnings per share
 
 
 
 
 
 
Nine Months Ended
 
 
Q3'19
 
Q3'18
 
 
GAAP
 
Non-GAAP
 
GAAP
 
Non-GAAP
Net income (see Table J) [i]
 
$
19,668

 
$
315,138

 
$
87,478

 
$
377,984

Weighted-average common shares outstanding, diluted (see Table L) [ii]
 
381,633

 
384,342

 
373,064

 
375,969

Earnings per share - diluted [i/ii]
 
$
0.05

 
$
0.82

 
$
0.23

 
$
1.01


Table O: Adjusted EBITDA
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
Q3'19
 
Q2'19
 
Q3'18
 
Q3'19
 
Q3'18
GAAP net income (loss) attributable to Cypress
 
$
12,683

 
$
(12,729
)
 
$
50,695

 
$
19,668

 
$
87,478

Interest and other expense, net
 
(14,922
)
 
(12,003
)
 
(15,059
)
 
(36,168
)
 
(47,356
)
Income tax (provision) benefit
 
(16,247
)
 
18,189

 
(5,618
)
 
2,672

 
(15,829
)
Share in gain/loss, net and impairment of equity method investees1
 
(1,383
)
 
(32,405
)
 
(3,657
)
 
(37,378
)
 
(10,873
)
Net loss (income) attributable to non-controlling interest
 
10

 
4

 
(52
)
 
15

 
(152
)
GAAP operating income
 
$
45,225

 
$
13,486

 
$
75,081

 
$
90,527

 
$
161,688

Impact of reconciling items on operating income (see Table G)
 
80,300

 
94,928

 
91,146

 
257,170

 
257,529

Non-GAAP operating income
 
$
125,525

 
$
108,414

 
$
166,227

 
$
347,697

 
$
419,217

Depreciation
 
19,060

 
19,394

 
16,393

 
57,966

 
49,772

Adjusted EBITDA
 
$
144,585

 
$
127,808

 
$
182,620

 
$
405,663

 
$
468,989

1. The three months ended Q2'19 and the nine months ended Q3'19 include a $29.5 million impairment charge recorded for the investment in Deca Technologies, Inc.






Table P: Free cash flow
 
Three Months Ended
 
Nine Months Ended
 
 
Q3'19
 
Q2'19
 
Q3'18
 
Q3'19
 
Q3'18
GAAP net cash provided by operating activities
 
$
64,497

 
$
118,923

 
$
187,073

 
$
244,668

 
$
329,485

Acquisition of property, plant and equipment, net
 
(10,599
)
 
(7,490
)
 
(15,448
)
 
(28,623
)
 
(58,061
)
Free cash flow
 
$
53,898

 
$
111,433

 
$
171,625

 
$
216,045

 
$
271,424





CYPRESS SEMICONDUCTOR CORPORATION
SUPPLEMENTAL FINANCIAL DATA
(In thousands, except per-share and ratio data)
(Unaudited)

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 29, 2019
 
June 30, 2019
 
September 30, 2018
 
September 29, 2019
 
September 30, 2018
Selected Cash Flow Data (Preliminary):
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
$
64,497

 
$
118,923

 
$
187,073

 
$
244,668

 
$
329,485

Net cash used in investing activities
 
$
(2,056
)
 
$
(6,821
)
 
$
(22,316
)
 
$
(13,253
)
 
$
(43,700
)
Net cash used in financing activities
 
$
(91,594
)
 
$
(25,041
)
 
$
(72,730
)
 
$
(174,108
)
 
$
(232,634
)
Other Supplemental Data (Preliminary):
 
 
 
 
 
 
 
 
Capital expenditures, net
 
$
10,599

 
$
7,490

 
$
15,448

 
$
28,623

 
$
58,061

Depreciation
 
$
19,060

 
$
19,394

 
$
16,393

 
$
57,966

 
$
49,772

Payment of dividend
 
$
40,289

 
$
40,134

 
$
39,447

 
$
120,171

 
$
117,592

Dividend paid per share
 
$
0.11

 
$
0.11

 
$
0.11

 
$
0.33

 
$
0.33

Total debt (principal amount)
 
$
856,102

 
$
908,339

 
$
936,518

 
$
856,102

 
$
936,518

Leverage ratio¹
 
0.90

 
0.88

 
1.20

 
0.90

 
1.20

Cash Income Tax
 
$
2,667

 
$
2,131

 
$
2,779

 
$
7,476

 
$
8,917


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







 
.