Company Quick10K Filing
Quick10K
Cypress Semiconductor
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$16.57 365 $6,050
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-30 Annual: 2018-12-30
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-07-01 Quarter: 2018-07-01
10-Q 2018-04-01 Quarter: 2018-04-01
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-10-01 Quarter: 2017-10-01
10-Q 2017-07-02 Quarter: 2017-07-02
10-Q 2017-04-02 Quarter: 2017-04-02
10-K 2017-01-01 Annual: 2017-01-01
10-Q 2016-10-02 Quarter: 2016-10-02
10-Q 2016-07-03 Quarter: 2016-07-03
10-Q 2016-04-03 Quarter: 2016-04-03
10-K 2016-01-03 Annual: 2016-01-03
10-Q 2015-09-27 Quarter: 2015-09-27
10-Q 2015-06-28 Quarter: 2015-06-28
10-Q 2015-03-29 Quarter: 2015-03-29
10-K 2014-12-28 Annual: 2014-12-28
10-Q 2014-09-28 Quarter: 2014-09-28
10-Q 2014-06-29 Quarter: 2014-06-29
10-Q 2014-03-30 Quarter: 2014-03-30
10-K 2013-12-29 Annual: 2013-12-29
8-K 2019-07-31 Other Events
8-K 2019-07-31 Enter Agreement, Exhibits
8-K 2019-07-25 Earnings, Exhibits
8-K 2019-07-17 Other Events
8-K 2019-07-11 Other Events
8-K 2019-06-25 Other Events, Exhibits
8-K 2019-06-13 Other Events, Exhibits
8-K 2019-06-03 Other Events, Exhibits
8-K 2019-06-03 Other Events, Exhibits
8-K 2019-06-03 Enter Agreement, Other Events, Exhibits
8-K 2019-05-03 Shareholder Vote
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-01-31 Earnings, Exhibits
8-K 2018-12-03 Officers, Exhibits
8-K 2018-11-08 Officers, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-10-23 Enter Agreement, Regulation FD, Exhibits
8-K 2018-09-13 Enter Agreement, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-05-11 Shareholder Vote
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-03-12 Enter Agreement, Exhibits
8-K 2018-02-01 Earnings, Exhibits
SWAV ShockWave Medical 1,310
DEA Easterly Government Properties 1,220
ETH Ethan Allen Interiors 603
VSEC VSE 298
AKTS Akoustis Technologies 240
RVSB Riverview Bancorp 179
AAMC Altisource Asset Management 38
CREX Creative Realities 24
TRIL Trillium Therapeutics 15
SNPW Sun Pacific Holding 0
CY 2019-06-30
Part I-Financial Information
Item 1. Financial Statements
Note 1. Basis of Presentation and Summary of Significant Accounting Policies
Note 2. Merger Agreement
Note 3. Revenue
Note 4. Balance Sheet Components
Note 5. Intangible Assets
Note 6. Assets Held for Sale
Note 7. Equity Method Investments
Note 8. Fair Value Measurements
Note 9. Restructuring
Note 10. Employee Stock Plans and Stock-Based Compensation
Note 11. Debt
Note 12. Leases
Note 13. Commitments and Contingencies
Note 14. Foreign Currency and Interest Rate Derivatives
Note 15. Net (Loss) Income per Share
Note 16. Income Taxes
Note 17. Segment, Geographical and Customer Information
Note 18. Accumulated Other Comprehensive Income (Loss)
Note 19. Related Party Transactions
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii-Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.2.8 cyq22019exe1028.htm
EX-31.1 cyq22019exe311.htm
EX-31.2 cyq22019exe312.htm
EX-32.1 cyq22019exe321.htm
EX-32.2 cyq22019exe322.htm

Cypress Semiconductor Earnings 2019-06-30

CY 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10079 
 
Cypress Semiconductor Corporation
(Exact name of registrant as specified in its charter) 
 
 
Delaware
 
94-2885898
 
 
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
198 Champion Court, San Jose, California 95134
(Address of principal executive offices and zip code)
(408) 943-2600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Trading symbol:
Name of each exchange on which registered:
Common Stock, $0.01 par value
CY
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
 
Accelerated filer
 
 
 
 
 
 
 
 
Non-accelerated filer
 
 
Smaller reporting company
 
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 





If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes       No  
The total number of outstanding shares of the registrant’s common stock as of July 26, 2019 was 369,315,386.





INDEX 
 
 
Page
 
 
 
Item 1.
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 


3




PART I—FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "Quarterly Report") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not historical facts and include statements relating to, among other things, the future results, operations, strategies, and prospects of Cypress Semiconductor Corporation and its consolidated subsidiaries ("Cypress," the "Company," "we," or "us"), and can in some cases be identified by our use of words such as "may," "will," "should," "plan," "anticipate," "believe," "expect," "future," "intend," "estimate," "predict," "potential," "continue," and similar expressions. This Quarterly Report includes, among others, forward-looking statements regarding: our expectations regarding dividends, debt repayments, and stock repurchases; our expectations regarding restructuring plan costs and effects; our expectations regarding active litigation matters; the sufficiency of our cash, cash equivalents, and borrowing arrangements to meet our requirements for the next 12 months; possible recognition of certain unrecognized tax benefits within the next 12 months; and the potential impact of our indemnification obligations. Our forward-looking statements are based on the expectations, beliefs and intentions of, and the information available to, our executive management on the filing date of this Quarterly Report. Readers are cautioned not to place undue reliance on forward-looking statements. Except as required by law, we assume no responsibility to update our forward-looking statements.
The forward-looking statements in this Quarterly Report involve risks and uncertainties. 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 obtain stockholder approval for the Merger or the failure to satisfy other 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 disruptions in the international trade and investment environment, including deteriorating relationships between the U.S. government and foreign governments; the current and future state of the general economy and its impact on the markets and consumers we serve (including credit conditions); our ability to execute on our Cypress 3.0 strategy and our margin improvement plan; potential volatility in our stock price; risks related to paying down our indebtedness and meeting the covenants set forth in our debt agreements; our efforts to retain and expand our customer base (which may be adversely affected if we were to raise prices) in the intensely competitive and rapidly evolving semiconductor industry; risks related to significant supply and demand volatility in semiconductor markets (including the challenges of forecasting demand, scheduling production, and making timely delivery on customer orders); risks related to our strategy of developing and maintaining a leading portfolio of programmable microcontroller, connectivity and memory products; risks related to our flexible manufacturing strategy (and the challenge of efficiently managing a smaller number of manufacturing facilities while increasing our reliance on third-party manufacturers); our reliance on distributors and resellers; 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; risks related to the integrity of our information systems, including the possibility of cyber-attacks, business-activity disruption, and loss or corruption of sensitive data; changes in tax law and policy; risks related to our pending tax examinations; risks related to our tax incentive/holiday arrangements in Malaysia, the Philippines, and Thailand; potential lack of liquidity for certain strategic investments (including the challenge of disposing of businesses, product lines, or assets on favorable terms in a timely manner); risks related to our joint venture for NAND flash memory products; risks related to our restructuring activities; the failure or success of the privately-held companies in which we are invested; the challenges of effectively integrating companies and assets that we acquire; the possibility of impairment charges; the challenges of attracting and retaining key personnel; risks related to our reliance on stock-based compensation; possible changes to our dividend policy; risks related to our share repurchase authorization; the uncertain nature of business outlook guidance; risks related to industry consolidation and the challenge of competing effectively against a smaller number of stronger companies; the challenges of adequately protecting our intellectual property rights and risks of intellectual property litigation; the possibilities that activist stockholders could negatively affect our business and that our deferred tax assets could be negatively impacted by changes in our stockholder base; risks associated with international operations; the challenges and costs of complying with environmental, data privacy, health/safety, and other laws; risks related to "conflict minerals" reporting; the possibility of business disruptions due to natural disasters; risks arising from indemnification commitments to our

4




officers and directors; our ability to manage our financial investments and interest rate and exchange rate exposure; and the uncertainty and expense of pending litigation matters. These and other factors are described in more detail in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the fiscal year ended December 30, 2018 (our "Annual Report"), which item is incorporated herein by reference; Part I, Item 3 (Quantitative and Qualitative Disclosures about Market Risk) in this Quarterly Report; and/or Part II, Item 1A (Risk Factors) in this Quarterly Report.

5




ITEM 1. FINANCIAL STATEMENTS

CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
June 30, 2019
 
December 30, 2018
 ASSETS
(In thousands, except
per-share amounts)
Current assets:
 

 
 
Cash and cash equivalents
$
372,180

 
$
285,720

Accounts receivable, net
267,763

 
324,274

Inventories
335,251

 
292,093

Assets held for sale

 
13,510

Other current assets
86,786

 
101,163

Total current assets
1,061,980

 
1,016,760

Property, plant and equipment, net
268,723

 
282,986

Operating lease right-of-use assets
47,612

 

Equity method investments
31,550

 
65,145

Intangible assets, net
386,814

 
490,590

Goodwill
1,373,750

 
1,373,750

Deferred tax assets
360,763

 
339,679

Other long-term assets
117,284

 
124,305

Total assets
$
3,648,476

 
$
3,693,215

LIABILITIES AND EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
182,826

 
$
210,715

Accrued compensation and employee benefits
48,843

 
61,994

Price adjustment and other revenue reserves
141,516

 
163,088

Dividend payable
40,289

 
39,748

Current portion of long-term debt
8,134

 
6,943

Other current liabilities
134,226

 
138,064

Total current liabilities
555,834

 
620,552

Deferred income taxes and other tax liabilities
50,385

 
53,469

Revolving credit facility and long-term portion of debt
854,304

 
874,235

Other long-term liabilities
78,947

 
27,920

Total liabilities
$
1,539,470

 
$
1,576,176

Commitments and contingencies (Note 13)

 

Equity:
 

 
 

Preferred stock, $0.01 par value, 5,000 shares authorized; none issued and outstanding

 

Common stock, $0.01 par value, 650,000 and 650,000 shares authorized; 543,812 and 537,327 shares issued; 367,538 and 361,452 shares outstanding at June 30, 2019 and December 30, 2018, respectively
5,438

 
5,373

Additional paid-in-capital
5,641,422

 
5,636,099

Accumulated other comprehensive income (loss)
(12,671
)
 
1,829

Accumulated deficit
(1,149,883
)
 
(1,157,115
)
Stockholders’ equity before treasury stock
4,484,306

 
4,486,186

Less: Shares of common stock held in treasury, at cost; 176,274 and 175,875 shares at June 30, 2019 and December 30, 2018, respectively
(2,376,600
)
 
(2,370,452
)
Total Cypress stockholders’ equity
2,107,706

 
2,115,734

Non-controlling interest
1,300

 
1,305

Total equity
2,109,006

 
2,117,039

Total liabilities and equity
$
3,648,476

 
$
3,693,215


The accompanying notes are an integral part of these condensed consolidated financial statements.
6





CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
June 30, 2019
 
July 1, 2018
 
June 30, 2019
 
July 1, 2018
 
(In thousands, except per-share amounts)
Revenues
$
532,221

 
$
624,090

 
$
1,071,225

 
$
1,206,331

Cost of revenues
333,463

 
389,952

 
670,058

 
759,801

Gross profit
198,758

 
234,138

 
401,167

 
446,530

Research and development
93,639

 
96,693

 
182,245

 
189,926

Selling, general and administrative
91,633

 
86,599

 
173,620

 
169,996

Total operating expenses
185,272

 
183,292

 
355,865

 
359,922

Operating income
13,486

 
50,846

 
45,302

 
86,608

Interest expense
(12,311
)
 
(15,577
)
 
(25,889
)
 
(34,436
)
Other income, net
308

 
1,434

 
4,643

 
2,139

Income before income taxes, share in net loss and impairment of equity method investee and non-controlling interest
1,483

 
36,703

 
24,056

 
54,311

Income tax benefit (provision)
18,189

 
(5,154
)
 
18,919

 
(10,211
)
Share in net loss and impairment of equity method investees
(32,405
)
 
(3,755
)
 
(35,995
)
 
(7,216
)
Net (loss) income
(12,733
)
 
27,794

 
6,980

 
36,884

Net loss (income) attributable to non-controlling interest
4

 
(88
)
 
5

 
(100
)
Net (loss) income attributable to Cypress
$
(12,729
)
 
$
27,706

 
$
6,985

 
$
36,784

Net (loss) income per share attributable to Cypress:
 
 
 
 
 
 
 
Basic
$
(0.03
)
 
$
0.08

 
$
0.02

 
$
0.10

Diluted
$
(0.03
)
 
$
0.07

 
$
0.02

 
$
0.10

Shares used in net (loss) income per share calculation:
 
 
 
 
 
 
 
Basic
365,600

 
358,577

 
364,842

 
356,123

Diluted
365,600

 
371,967

 
377,195

 
370,402

 


The accompanying notes are an integral part of these condensed consolidated financial statements.
7





CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 

Three Months Ended
 
Six Months Ended
 
June 30, 2019
 
July 1, 2018
 
June 30, 2019
 
July 1, 2018
 
(In Thousands)
Net (loss) income
$
(12,733
)
 
$
27,794

 
$
6,980

 
$
36,884

Other comprehensive (loss) income:
 

 
 

 
 

 
 

Net unrecognized gain (loss) on defined benefit plan
(928
)
 

 
(941
)
 

Net unrealized gain (loss) on cash flow hedges:
 

 
 

 
 

 
 

Net unrealized (loss) gain arising during the period
(6,963
)
 
772

 
(12,901
)
 
5,236

Net (gain) loss reclassified into earnings for revenue hedges (effective portion)
(395
)
 
621

 
(568
)
 
1,228

Net loss (gain) reclassified into earnings for expense hedges (effective portion)
554

 
(1,148
)
 
639

 
(2,285
)
Net (gain) loss reclassified into earnings for interest rate hedges (effective portion)
(315
)
 

 
(729
)
 

Total net unrealized (loss) gain on cash flow hedges
(7,119
)
 
245

 
(13,559
)
 
4,179

Total other comprehensive (loss) income
(8,047
)
 
245

 
(14,500
)
 
4,179

Comprehensive (loss) income
(20,780
)
 
28,039

 
(7,520
)
 
41,063

Comprehensive loss (income) attributable to non-controlling interest
4

 
(112
)
 
5

 
(100
)
Comprehensive (loss) income attributable to Cypress
$
(20,776
)
 
$
27,927

 
$
(7,515
)
 
$
40,963

 


The accompanying notes are an integral part of these condensed consolidated financial statements.
8




CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited) 
 
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income (Loss)
Accumulated Deficit
Treasury Stock
Non-controlling Interest
Total Equity
 
Shares
 
Amount
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
Balances at March 31, 2019
541,180

  
$
5,412

$
5,630,673

$
(4,624
)
$
(1,137,154
)
176,229

 
$
(2,375,838
)
$
1,304

$
2,119,773

Net (loss) income attributable to Cypress

 



(12,729
)

 


(12,729
)
Unrealized loss on defined benefit pension plan

 


(928
)


 


(928
)
Net unrealized gain on cash flow hedges and interest rate swaps

 


(7,119
)


 


(7,119
)
Issuance of common shares under employee stock plans, net
2,632

 
26

17,534




 


17,560

Dividend ($0.11 per share)

 

(40,289
)



 


(40,289
)
Net settlement in stock

 




45

 
(762
)

(762
)
Stock-based compensation

 

33,504




 


33,504

Non-controlling interest

 





 

(4
)
(4
)
Balances at June 30, 2019
543,812

  
$
5,438

$
5,641,422

$
(12,671
)
$
(1,149,883
)
176,274

 
$
(2,376,600
)
$
1,300

$
2,109,006

 
 
 
 
 
 
 
 
 
 
 
 
Balances at April 1, 2018
531,765

  
$
4,969

$
5,657,767

$
2,572

$
(1,502,628
)
173,503

 
$
(2,334,944
)
$
1,068

$
1,828,804

Net income attributable to Cypress

 



27,706


 


27,706

Net unrealized gain on cash flow hedges and interest rate swaps

 


245

(2
)

 


243

Issuance of common shares under employee stock plans, net
2,272

 
128

15,974



5

 


16,102

Dividend ($0.11 per share)

 

(39,449
)



 


(39,449
)
Repurchase of common shares

 




610

 
(9,996
)

(9,996
)
Stock-based compensation

 

35,468




 


35,468

Non-controlling interest

 
6





 

88

94

Balances at July 1, 2018
534,037

  
$
5,103

$
5,669,760

$
2,817

$
(1,474,924
)
174,118

 
$
(2,344,940
)
$
1,156

$
1,858,972





9




 
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income (Loss)
Accumulated Deficit
Treasury Stock
Non-controlling Interest
Total Equity
 
Shares
 
Amount
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 30, 2018
537,327

  
$
5,373

$
5,636,099

$
1,829

$
(1,157,115
)
175,875

 
$
(2,370,452
)
$
1,305

$
2,117,039

Net income attributable to Cypress

 



6,985


 


6,985

Unrealized loss on defined benefit pension plan

 


(941
)


 


(941
)
Net unrealized gain on cash flow hedges and interest rate swaps

 


(13,559
)
247


 


(13,312
)
Issuance of common shares under employee stock plans, net
6,485

 
65

31,774




 


31,839

Dividend ($0.11 per share)

 

(80,423
)



 


(80,423
)
Net settlement in stock

 




399

 
(6,148
)

(6,148
)
Stock-based compensation

 

53,972




 


53,972

Non-controlling interest

 





 

(5
)
(5
)
Balances at June 30, 2019
543,812

  
$
5,438

$
5,641,422

$
(12,671
)
$
(1,149,883
)
176,274

 
$
(2,376,600
)
$
1,300

$
2,109,006

 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 31, 2017
525,719

  
$
4,936

$
5,659,612

$
(1,362
)
$
(1,511,706
)
173,499

 
$
(2,334,944
)
$
1,056

$
1,817,592

Net income attributable to Cypress

 



36,784


 


36,784

Net unrealized gain on cash flow hedges and interest rate swaps

 


4,179

(2
)

 


4,177

Issuance of common shares under employee stock plans, net
6,916

 
147

36,497



9

 


36,644

Extinguishment of 2% Exchangeable Senior Notes due 2020

 

(25,696
)



 


(25,696
)
Issuance of common shares upon conversion of 2% Exchangeable Senior Notes due 2020
1,402

 
14

25,152




 


25,166

Dividend ($0.11 per share)

 

(78,850
)



 


(78,850
)
Repurchase of common shares

 




610

 
(9,996
)

(9,996
)
Stock-based compensation

 

53,045




 


53,045

Non-controlling interest

 
6





 

100

106

Balances at July 1, 2018
534,037

  
$
5,103

$
5,669,760

$
2,817

$
(1,474,924
)
174,118

 
$
(2,344,940
)
$
1,156

$
1,858,972




10







CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) 
 
Six Months Ended
 
June 30, 2019
 
July 1, 2018
 
(In thousands)
Cash flows from operating activities:
 

 
 

Net income
$
6,980

 
$
36,884

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Stock-based compensation expense
50,875

 
52,366

Depreciation and amortization
142,682

 
141,361

Loss on assets held for sale
3,541

 

Loss / (Gain) on disposal or impairment of property and equipment
(365
)
 
7,179

Share in net loss and impairment of equity method investee
35,995

 
7,216

Accretion of interest expense on Senior Exchangeable Notes and amortization of debt and financing costs on other debt
9,436

 
13,272

Restructuring and other adjustments
3,961

 
3,643

Changes in operating assets and liabilities:
 

 
 

Accounts receivable
56,510

 
(104,087
)
Operating lease right-of-use assets
(53,816
)
 

Inventories
(38,388
)
 
(13,956
)
Other current and long-term assets
772

 
(17,681
)
Price adjustment and other revenue reserves
(21,571
)
 
23,556

Accounts payable and other liabilities
(16,441
)
 
(7,341
)
Net cash provided by operating activities
180,171

 
142,412

Cash flows from investing activities:
 

 
 

Cash received on sale of inventories to joint venture
2,905

 

Distributions, net of contributions from deferred compensation plan
6,262

 
4,583

Acquisition of property, plant and equipment, net
(18,024
)
 
(42,860
)
Cash paid for equity method investments
(2,400
)
 

Cash received on sale of cost method investment

 
18,538

Other investing
60

 
(1,647
)
Net cash used in investing activities
(11,197
)
 
(21,386
)
Cash flows from financing activities:
 

 
 

Borrowings under senior secured revolving credit facility

 
94,000

Repayment of revolving credit facility

 
(184,000
)
Repayment of term loans
(27,525
)
 
(8,088
)
Repurchase of common stock

 
(9,999
)
Tax withholdings related to net share settlements of restricted stock units
(6,148
)
 

Finance lease payment for principal portion
(831
)
 

Payment of cash dividends
(79,882
)
 
(78,145
)
Proceeds from employee stock-based awards
31,872

 
36,653

Payment for extinguishment of 2% Exchangeable Senior Notes due 2020

 
(10,000
)
Financing costs related to debt

 
(325
)
Net cash used in financing activities
(82,514
)
 
(159,904
)
Net increase (decrease) in cash and cash equivalents
86,460

 
(38,878
)
Cash and cash equivalents, beginning of period
285,720

 
151,596

Cash and cash equivalents, end of period
$
372,180

 
$
112,718

 
 
 
 
Supplemental Cash Flows Disclosures:
 

 
 

Unpaid purchases of property, plant and equipment
$
4,281

 
$
8,556


The accompanying notes are an integral part of these condensed consolidated financial statements.
11




CYPRESS SEMICONDUCTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Years
Cypress Semiconductor Corporation (together with its consolidated subsidiaries, "Cypress" or the "Company") reports on a fiscal-year basis. The Company ends its quarters on the Sunday closest to the end of the applicable calendar quarter, except in a 53-week fiscal year, in which case the additional week falls into the fourth quarter of that fiscal year. Fiscal years 2019 and 2018 each contain(ed) 52 weeks. The second quarter of fiscal 2019 ended on June 30, 2019 and the second quarter of fiscal 2018 ended on July 1, 2018.

Basis of Presentation

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and include the accounts of Cypress Semiconductor Corporation and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments of a normal, recurring nature, which are necessary to state fairly the financial information included therein. These financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in Cypress' Annual Report on Form 10-K for the fiscal year ended December 30, 2018. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.
Results reported in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full fiscal year.
Pending Acquisition by Infineon
On June 3, 2019, the Company entered into a definitive Agreement and Plan of Merger (the "Merger Agreement") with Infineon Technologies AG, a stock corporation (Aktiengesellschaft) organized under the laws of the Federal Republic of Germany ("Infineon") and IFX Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Infineon ("Merger Sub"). Subject to approval by Cypress's stockholders and the relevant regulatory bodies as well as other customary closing conditions, the Merger Agreement provides for Merger Sub to merge with and into the Company, with the Company continuing as the surviving corporation in the Merger and as a wholly owned subsidiary of Infineon.

Refer to Note 2 (Merger Agreement) for further details.

Summary of Significant Accounting Policies

Leases

The Company applies the guidance in Accounting Standards Codification ("ASC") Topic 842 to individual leases of assets. When the Company receives substantially all of the economic benefits from and directs the use of specified property, plant and equipment, transactions give rise to leases.

The Company’s classes of assets include real estate leases and equipment leases.

Operating leases are included in operating lease right-of-use ("ROU") assets, other current liabilities, and operating lease liabilities in the Company's consolidated balance sheets. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Finance leases are included in property and equipment, current portion of long-term debt, revolving credit facility and long-term portion of debt in the Company's consolidated balance sheets.
The Company has elected the practical expedient within ASC Topic 842 to not separate lease and non-lease components within lease transactions for all classes of assets. Additionally, the Company has elected the short-term lease exception for all classes of

12




assets, does not apply the recognition requirements for leases of 12 months or less, and recognizes lease payments for short-term leases as expense either straight-line over the lease term or as incurred depending on whether the lease payments are fixed or variable. These elections are applied consistently for all leases.
The Company subleases certain portions of buildings and land subject to operating leases. The terms and conditions of the subleases are commensurate with the terms and conditions within the original operating leases. The terms of the subleases range from one to eight years, payments are fixed within the contracts, and there are no residual value guarantees or other restrictions or covenants in the leases.
When discount rates implicit in leases cannot be readily determined, the Company uses the applicable incremental borrowing rate at lease commencement to perform lease classification tests on lease components and to measure lease liabilities and ROU assets. The incremental borrowing rate used by the Company was based on baseline rates and adjusted by the credit spreads commensurate with the Company’s secured borrowing rate, over a similar term. At each reporting period when there is a new lease initiated, the rates established for that quarter will be used.
Other significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 30, 2018.

Recent Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued Accounting Standard Update ("ASU") No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." The standard modifies the disclosure requirements on fair value measurements in Topic 820 by removing the requirement to disclose the reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. The standard expands the disclosure requirements for Level 3 fair value measurement, primarily focused on changes in unrealized gains and losses included in other comprehensive income. The amendment is effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." The standard is designed to improve the effectiveness of disclosures by removing and adding disclosures related to defined benefit plans. The update is effective for fiscal years ending after December 15, 2020 with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, "Leases (ASC Topic 842)." The standard introduces new requirements to increase transparency and comparability among organizations for leasing transactions for both lessees and lessors. ASU No. 2016-02 requires a lessee to record a right-of-use ("ROU") asset and a lease liability for all leases with terms longer than 12 months. These leases will be either finance or operating, with classification affecting the pattern of expense recognition.
In July 2018, the FASB issued ASU 2018-11, which provided an alternative modified retrospective transition method. Under this method, the cumulative-effect adjustment to the opening balance of retained earnings is recognized on the date of adoption (December 31, 2018). The Company adopted ASC Topic 842, as of December 31, 2018 and applied the alternative modified retrospective transition method requiring application of the new guidance to all leases existing at, or entered into on or after, the date of adoption, i.e. December 31, 2018.
As part of applying the transition method, the Company has elected to apply the package of transition practical expedients within the new guidance. As required by the new standard, these expedients have been elected as a package and are consistently applied across the Company’s lease portfolio. Given this election, the Company need not reassess:
whether any expired or existing contracts are or contain leases
the lease classification for any expired or existing leases
treatment of initial direct costs relating to any existing leases

As a result of adoption of this standard, and election of the transition practical expedients, the Company recognized ROU assets and lease liabilities for those leases classified as operating leases under ASC Topic 840 that continued to be classified as operating

13




leases under ASC Topic 842 at the date of initial application. Leases classified as capital leases under ASC 840 are classified as ‘finance leases’ under this new standard.
In applying the alternative modified retrospective transition method, the Company measured lease liabilities at the present value of the sum of remaining minimum rental payments (as defined under ASC Topic 840). The present value of lease liabilities has been measured using the Company’s incremental borrowing rates as of December 31, 2018 (the date of initial application). Additionally, ROU assets for these operating leases have been measured as the initial measurement of applicable lease liabilities adjusted for any unamortized initial direct costs, prepaid/accrued rent, unamortized lease incentives, and any ASC Topic 420 liabilities.
The adoption of this new standard at December 31, 2018, and the application of the modified retrospective transition approach resulted in the following changes:
(1) assets increased by $56.4 million, primarily representing the recognition of ROU assets for operating leases and finance leases partially offset by derecognition of assets for capital leases previously designated under ASC Topic 840; and
(2) liabilities increased by $59.2 million, primarily representing the recognition of lease liabilities for operating leases and finance leases partially offset by derecognition of liabilities for capital leases previously designated under ASC Topic 840.

Other Recently Adopted Pronouncements:

In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." The amendments in ASU 2017-12 are intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The Company adopted this guidance in the first quarter of fiscal 2019. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements and related disclosures.

In February 2018, the FASB issued ASU No. 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." The amendments in ASU 2018-02 are intended to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The Company adopted this guidance in the first quarter of fiscal 2019. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements and related disclosures.

In June 2018, the FASB issued ASU No. 2018-07, "Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting." The standard expands the scope of ASC 718 to include all share-based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. Under the amended guidance, equity-classified share-based payment awards issued to nonemployees will be measured at grant date fair value. Upon transition, the entity is required to remeasure these nonemployee awards at fair value as of the adoption date. The Company adopted this guidance in the first quarter of fiscal 2019. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements and related disclosures.


NOTE 2. MERGER AGREEMENT

On June 3, 2019, Infineon, Merger Sub and the Company entered into the Merger Agreement, which provides for Merger Sub, upon the closing of the transaction, to 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.

Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each share of common stock of Cypress ("Cypress Common Stock") that is issued and outstanding immediately prior to the Effective Time (other than shares of Cypress Common Stock (a) owned by Infineon, Merger Sub or any other direct or indirect wholly owned subsidiary of Infineon, (b) owned by Cypress, including any shares held in treasury by Cypress, (c) owned by any direct or indirect wholly owned subsidiary of Cypress and (d) owned by stockholders who have perfected and not withdrawn a demand for appraisal rights pursuant to Section 262 of the General Corporation Law of the State of Delaware) will be converted into the right to receive $23.85 in cash, without interest.

Completion of the Merger is subject to the satisfaction of several conditions, including, among others: (i) the adoption of the Merger Agreement by the holders of a majority of the outstanding shares of Cypress Common Stock; (ii) the absence of any

14




law prohibiting or order preventing the consummation of the Merger, (iii) the receipt of clearance from the Committee on Foreign Investment in the United States, the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the receipt of any applicable clearance or affirmative approval by the Anti-Monopoly Bureau of the State Administration for Market Regulation in the People’s Republic of China, approval from the European Commission under the European Merger Regulation, and the expiration of any applicable waiting periods or any applicable authorizations or affirmative approvals of certain other non-U.S. governmental authorities under antitrust laws; (iv) the absence of a material adverse effect with respect to Cypress; and (v) compliance in all material respects on the part of each of Cypress and Infineon with such party’s covenants under the Merger Agreement.

The Merger Agreement contains certain termination rights for each of Infineon and the Company. The Company will be required to pay Infineon a termination fee of $330 million in order to accept a superior proposal or if the Company’s Board of Directors makes a change of its recommendation that stockholders vote in favor of the Merger. Infineon will be required to pay to the Company a termination fee equal to $425 million under certain specified circumstances upon termination of the Merger Agreement.

During the second quarter of fiscal 2019, the Company incurred approximately $8.4 million in bankers fees, legal fees and employee-related costs in connection with the proposed merger with Infineon. These costs have been included as part of selling, general and administrative expenses on the Condensed Consolidated Statement of Operations.


NOTE 3. REVENUE

The following tables present the Company's revenue disaggregated by segment, end use, revenue type and geographical locations. Revenue for the three months and six months ended June 30, 2019 reflects divestment of the Company's NAND business to SkyHigh Memory Limited ("SkyHigh"), a newly formed joint venture, which was completed on April 1, 2019.

 
Three Months Ended
 
Six Months Ended
 
June 30, 2019
 
July 1, 2018
 
June 30, 2019
 
July 1, 2018
 
(In thousands)
Microcontroller and Connectivity Division ("MCD")
$
354,225

 
$
368,526

 
$
664,615

 
$
705,236

Memory Products Division ("MPD")
177,996

 
255,564

 
406,610

 
501,095

Total revenues
$
532,221

 
$
624,090

 
$
1,071,225

 
$
1,206,331


 
Three Months Ended
 
Six Months Ended
 
June 30, 2019
 
July 1, 2018
 
June 30, 2019
 
July 1, 2018
 
(In thousands)
IoT
$
199,796

 
$
212,627

 
$
353,520

 
$
398,245

Automotive
202,297

 
192,594

 
400,111

 
392,594

Legacy
130,128

 
218,869

 
317,594

 
415,492

Total revenues
$
532,221

 
$
624,090

 
$
1,071,225

 
$
1,206,331


Three Months Ended
 
Six Months Ended

June 30, 2019
 
July 1, 2018
 
June 30, 2019
 
July 1, 2018

(In thousands)
Product revenue
$
518,465

 
$
609,089

 
$
1,047,023

 
$
1,180,519<