Cypress Reports Third Quarter 2017 Results

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CYPRESS SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)

	October 1, 2017		January 1, 2017

ASSETS
Cash, cash equivalents and short-term investments	$	131,563	$	121,144
Accounts receivable, net	356,453		333,037
Inventories	286,981		287,776
Property, plant and equipment, net	286,881		297,266
Goodwill and other intangible assets, net	2,196,390		2,344,033
Other assets	442,274		488,615
Total assets	$	3,700,542	$	3,871,871
LIABILITIES AND EQUITY
Accounts payable	$	210,148	$	241,424
Income tax liabilities	57,403		49,552
Revenue reserves, deferred margin and other liabilities	480,802		493,164
Revolving credit facility and long-term debt	1,103,875		1,194,979
Total liabilities	1,852,228		1,979,119
Total Cypress stockholders' equity	1,847,246		1,891,828
Non-controlling interest	1,068		924
Total equity	1,848,314		1,892,752
Total liabilities and equity	$	3,700,542	$	3,871,871


CYPRESS SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ON A GAAP BASIS (In thousands, except per-share data) (Unaudited)

	Three Months Ended
	October 1, 2017			July 2, 2017
Revenues	$	604,574		$	593,776
Costs and expenses:
Cost of revenues	351,969			357,594
Research and development	91,334			89,736
Selling, general and administrative	73,746			82,141
Amortization of intangible assets	48,428			49,354
Costs and settlement charges related to shareholder matter	—			12,043
Total costs and expenses	565,477			590,868
Operating income	39,097			2,908
Interest and other expense, net	(18,619		)	(16,407		)
Income (loss) before income taxes and non-controlling interest	20,478			(13,499		)
Income tax provision	(4,500		)	(4,504		)
Equity in net loss of equity method investees	(4,931		)	(4,835		)
Net income (loss)	11,047			(22,838		)
Net gain attributable to non-controlling interests	(14		)	(66		)
Net income (loss) attributable to Cypress	$	11,033		$	(22,904	)
Net income (loss) per share attributable to Cypress:
Basic	$	0.03		$	(0.07	)
Diluted	$	0.03		$	(0.07	)
Cash dividend declared per share	$	0.11		$	0.11
Shares used in net income (loss) per share calculation:
Basic	332,873			329,860
Diluted	360,311			329,860


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

Table A: GAAP to Non-GAAP reconciling items: Three Months Ended Q3 2017
	Cost of revenues			Research and development			SG&A and Restructuring costs			Amortization of Intangible assets			Interest and other expense, net			Income tax (provision) benefit
GAAP [i]	$	351,969		$	91,334		$	73,746		$	48,428		$	(23,550	)	$	(4,500	)
[1] Stock based compensation	5,156			9,604			8,235			—			—			—
[2] Changes in value of deferred compensation plan	208			1,278			1,415			—			(1,734		)	—
[3] Merger, integration, related costs and adjustments related to assets held for sale	1,336			—			(636		)	—			—			—
[4] Inventory step-up related to acquisition accounting	704			—			—			—			—			—
[5] Losses from equity method investments	—			—			—			—			4,931			—
[6] Imputed interest on convertible debt, equity component amortization on convertible debt and others	—			—			—			—			3,521			—
[7] Write-off of unamortized debt issuance costs related to Term Loan A	—			—			—			—			2,996			—
[8] Amortization of debt issuance costs	—			—			—			—			856			—
[9] Amortization of intangible assets	—			—			—			48,428			—			—
[10] Tax impact	—			—			—			—			51			1,598
Non - GAAP [ii]	$	344,565		$	80,452		$	64,732		$	—		$	(12,929	)	$	(2,902	)
Impact of reconciling items [ii - i]	$	(7,404	)	$	(10,882	)	$	(9,014	)	$	(48,428	)	$	10,621		$	1,598


Table B: GAAP to Non-GAAP reconciling items: Three Months Ended Q2 2017
	Cost of revenues			Research and development			SG&A and Restructuring costs			Costs and settlement charges related to shareholder matter			Amortization of Intangible assets			Interest and other expense, net			Income tax (provision) benefit
GAAP [i]	$	357,594		$	89,736		$	82,141		$	12,043		$	49,354		$	(21,242	)	$	(4,504	)
[1] Stock based compensation	4,833			11,274			14,226			—			—			—			—
[2] Changes in value of deferred compensation plan	137			563			896			—			—			(1,584		)	—
[3] Merger, integration, related costs and adjustments related to assets held for sale	1,336			(96		)	1,193			—			—			—			—
[4] Inventory step-up related to acquisition accounting	167			—			—			—			—			—			—
[5] Losses from equity method investments	—			—			—			—			—			4,835			—
[6] Settlement charges	—			—						3,500			—			—			—
[7] Imputed interest on convertible debt, equity component amortization on convertible debt and others	—			—			—			—			—			3,507			—
[8] Amortization of debt issuance costs	—			—			—			—			—			920			—
[9] Amortization of intangible assets	—			—			—			—			49,354			—			—
[10] Restructuring costs	—			—			898			—			—			—			—
[11] Tax impact	—			—			—			—			—			227			1,421
Non - GAAP [ii]	$	351,121		$	77,995		$	64,928		$	8,543		$	—		$	(13,337	)	$	(3,083	)
Impact of reconciling items [ii - i]	$	(6,473	)	$	(11,741	)	$	(17,213	)	$	(3,500	)	$	(49,354	)	$	7,905		$	1,421


Table C: Margin %
	Q3'17						Q2'17
	GAAP			Non-GAAP			GAAP			Non-GAAP
Revenue [i]	$	604,574		$	604,574		$	593,776		$	593,776
Cost of revenues (See Table A, B) [ii]	351,969			344,565			357,594			351,121
Margin [iii] [ii - i]	$	252,605		$	260,009		$	236,182		$	242,655
Margin % [iii / i]	41.8		%	43.0		%	39.8		%	40.9		%


Table D: Operating income
	Q3'17		Q2'17
GAAP operating income [i]	$	39,097	$	2,908
Impact of reconciling items on Cost of revenues (see Table A, B)	7,404		6,473
Impact of reconciling items on R&D (see Table A, B)	10,882		11,741
Impact of reconciling items on SG&A (see Table A, B)	9,014		17,213
Settlement charges (Table B)	—		3,500
Impact of Amortization of Intangible Assets (see Table A, B)	48,428		49,354
Non-GAAP operating income [ii]	$	114,825	$	91,189
Impact of reconciling items [ii - i]	$	75,728	$	88,281


Table E: Pre-tax profit
	Q3'17		Q2'17
GAAP Pre-tax income (loss)	$	15,547	$	(18,334	)
Impact of reconciling items on Operating income (see Table D)	75,728		88,281
Interest and other expense, net (see Table A, B)	10,621		7,905
Non-GAAP Pre-tax income	$	101,896	$	77,852


Table F: Net income (loss)
	Q3'17		Q2'17
GAAP Net income (loss)	$	11,033	$	(22,904	)
Impact of reconciling items on Operating income (see Table D)	75,728		88,281
Interest and other expense, net (see Table A, B)	10,621		7,905
Income tax benefit (see Table A, B)	1,598		1,421
Non-GAAP Net income	$	98,980	$	74,703


Table G: Pretax profit margin %
	Q3'17						Q2'17
	GAAP			Non-GAAP			GAAP			Non-GAAP
Revenue [i]	$	604,574		$	604,574		$	593,776		$	593,776
Pre-tax profit (loss) (see Table E) [ii]	$	15,547		$	101,896		$	(18,334	)	$	77,852
Pre-tax profit margin % [ii / i]	2.6		%	16.9		%	(3.1		)%	13.1		%


Table H: Weighted-average shares, diluted
	Q3'17		Q2'17
	GAAP	Non-GAAP	GAAP	Non-GAAP
Weighted-average common shares outstanding, basic	332,873	332,873	329,860	329,860
Effect of dilutive securities:
Stock options, unvested restricted stock and other	7,884	12,948	—	15,822
Impact of convertible bond	19,554	18,790	—	18,208
Weighted-average common shares outstanding, diluted	360,311	364,611	329,860	363,890

Table I: Net income (loss) Per Share
	Q3'17				Q2'17
	GAAP		Non-GAAP		GAAP			Non-GAAP
Net income (loss) (see Table F) [i]	$	11,033	$	98,980	$	(22,904	)	$	74,703
Weighted-average common shares outstanding (see Table H) [ii]	360,311		364,611		329,860			363,890
Non-GAAP earnings per share - Diluted [i/ii]	$	0.03	$	0.27	$	(0.07	)	$	0.21


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

	Three Months Ended
	October 1, 2017			July 2, 2017
Selected Cash Flow Data (Preliminary):
Net cash provided by operating activities	$	143,778		$	32,447
Net cash (used in) provided by investing activities	$	(15,051	)	$	(14,992	)
Net cash used in financing activities	$	(105,935	)	$	(30,184	)
Other Supplemental Data (Preliminary):
Capital expenditures	$	(17,144	)	$	15,577
Depreciation	$	16,674		$	16,045
Payment of dividend	$	36,325		$	36,217
Dividend paid per share	$	0.11		$	0.11


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

	Forward looking GAAP estimate (A)	Adjustments (B)												Forward looking Non-GAAP estimate (C)=(A)+(B)
		Amortization of intangibles			Share-based compensation expense			Restructuring			Other items
Margin %	42.0% - 43.0%	—		%	1.0		%	—		%	0.2		%	43.0% - 44.0%
Diluted earnings per share	$(0.01) to $0.03	$	0.13		$	0.07		$	—		$	0.04		$0.23 to $0.27

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