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Cypress Reports Third-Quarter 2012 Results

+ Cypress announced that its Board of Directors approved a quarterly cash dividend of $0.11 per share, payable to holders of record of the company’s common stock at the close of business on September 27, 2012. The dividend will be paid today, October 18, 2012. The dividend represented a 4.1% yield and provided tax treatment that is deferred until the shares are sold.

+ Cypress named Hassane El-Khoury executive vice president of its Programmable Systems Division, which includes Cypress’s flagship PSoC products. El-Khoury had run Cypress’s automotive business since 2007, spearheading the company’s expansion into the Human-Machine Interface and Body Electronics segments of the automotive marketplace. He replaced Dinesh Ramanathan, who left Cypress to become the chief executive officer of a Silicon Valley startup.

ABOUT CYPRESS

Cypress delivers high-performance, mixed-signal, programmable solutions that provide customers with rapid time-to-market and exceptional system value. Cypress offerings include the flagship PSoC 1, PSoC 3, and PSoC 5 programmable system-on-chip families and derivatives, CapSense touch sensing and TrueTouch solutions for touchscreens. Cypress is the world leader in USB controllers, including the high-performance West Bridge® solution that enhances connectivity and performance in multimedia handsets, PCs and tablets. Cypress is also the world leader in SRAM memories. Cypress serves numerous markets, including consumer, mobile handsets, computation, data communications, automotive, industrial, and military. Cypress trades on the NASDAQ Global Select Market under the ticker symbol CY. Visit Cypress online at www.cypress.com.

FORWARD-LOOKING STATEMENTS

Statements herein that are not historical facts and that refer to Cypress or its subsidiaries’ plans and expectations for Q4 of fiscal year 2012 and beyond are forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. We may use words such as “believe,” “expect,” “future,” “plan,” “intend” and similar expressions to identify such forward-looking statements that include, but are not limited to, statements related to the semiconductor market, the strength and growth of our proprietary and programmable products, our expectations regarding our book-to-bill levels in the future, our Q412 revenue, margins, profit and cash flow; the results of our return on capital strategies, including our dividend and stock repurchase programs; our expectations regarding the demand for our products and how our products are expected to perform as well as our future design win activity and market share gains. Such statements reflect our current expectations, which are based on information and data available to our management as of the date of this release. Our actual results may differ materially due a variety of uncertainties and risk factors, including but not limited to our ability to close and successfully integrate Ramtron into our operations, the state of and future of the global economy, business conditions and growth trends in the semiconductor market, whether our products perform as expected, whether the demand for our proprietary and programmable products is fully realized, whether our product and design wins result in increased sales, our ability to manage our business to have strong earnings, restrained operating expenses and cash flow leverage, factory utilization, the strength or softness of the markets we serve, our ability to maintain and improve our gross margins and realize our bookings, the financial performance of our subsidiaries and Emerging Technology Division, 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, TrueTouch, PSoC, EZ-USB, CapSense, and West Bridge are registered trademarks, and PSoC Creator, FX3, PRoC, and WirelessUSB are trademarks of Cypress Semiconductor Corp. All other trademarks or registered trademarks are the property of their respective owners.
 
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
           
September 30, January 1,
2012 2012
 
ASSETS
 
Cash, cash equivalents and short-term investments $ 219,445 $ 166,330
Accounts receivable, net 125,202 103,524
Inventories (a) 89,310 92,304
Property, plant and equipment, net 270,243 284,979
Goodwill and other intangible assets, net 36,975 40,462
Other assets   137,849     122,491  
Total assets $ 879,024   $ 810,090  
 
LIABILITIES AND EQUITY
 
Accounts payable $ 54,907 $ 52,868
Deferred margin on sales to distributors 169,551 150,568
Income tax liabilities 44,510 43,239
Other liabilities 176,071 165,573
Long-term revolving credit facility   198,000     -  
Total liabilities   643,039     412,248  
Total Cypress stockholders' equity 242,283 400,267
Noncontrolling interest   (6,298 )   (2,425 )
Total equity   235,985     397,842  
Total liabilities and equity $ 879,024   $ 810,090  
 

(a)
 

Inventories include $3.5 million and $4.6 million of capitalized inventories related to stock-based compensation expense, as of September 30, 2012 and January 1, 2012, respectively.
 
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ON A GAAP BASIS
(In thousands, except per-share data)
(Unaudited)
         
Three Months Ended
September 30,     July 1,     October 2,
2012 2012 2011

 

Revenues
$ 203,015 $ 201,300 $

264,743
Cost of revenues   92,959     94,531     115,789  
Gross margin 110,056 106,769 148,954
Operating expenses:
Research and development 46,908 47,946 46,266
Selling, general and administrative 47,328 51,955 55,453
Amortization of acquisition-related intangibles 707 731 731
Restructuring charges   66     989     871  
Total operating expenses, net   95,009     101,621     103,321  
Operating income 15,047 5,148 45,633
Interest and other income (expense), net   (1,330 )   1     (1,833 )
Income before income taxes 13,717

 
5,149 43,800
Income tax provision (benefit)   (241 )   517     4,057  
Income, net of taxes 13,958 4,632 39,743
Adjust for net loss attributable to noncontrolling interest   374     345     238  
Net income attributable to Cypress $ 14,332   $ 4,977   $ 39,981  
 
Net income per share attributable to Cypress:
Basic $

0.10

 
$

0.03

 
$

0.24

 
Diluted $

0.09

 
$

0.03

 
$

0.22

 
Cash dividend declared per share $

0.11

 
$

0.11

 
$

0.09

 
Shares used in net income per share calculation:
Basic 147,673 151,765 163,867
Diluted   160,300         164,605         183,282  
 
CYPRESS SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (a)
(In thousands)
(Unaudited)
                                     
Three Months Ended September 30, 2012
                Emerging    
PSD (b) MPD (b) DCD (b) Core Semi (c) Technologies (d) Consolidated
GAAP gross margin $ 47,406 $ 53,915 $ 8,863 $ 110,184 $ (128 ) $ 110,056
Stock-based compensation expense 2,087 1,968 419 4,474 52 4,526
Changes in value of deferred compensation plan 101 94 20 215 2 217
Impairment of assets and other   521     491     105     1,117     12     1,129  
Non-GAAP gross margin $ 50,115   $ 56,468   $ 9,407   $ 115,990   $ (62 ) $ 115,928  
                                 
Three Months Ended July 1, 2012
Emerging
PSD (b) MPD (b) DCD (b) Core Semi (c) Technologies (d) Consolidated
GAAP gross margin $ 48,315 $ 50,049 $ 10,209 $ 108,573 $ (1,804 ) $ 106,769
Stock-based compensation expense 3,705 3,197 787 7,689 70 7,759
Changes in value of deferred compensation plan (19 ) (16 ) (4 ) (39 ) (1 ) (40 )
Impairment of assets and other   -     -     -     -     314     314  
Non-GAAP gross margin $ 52,001   $ 53,230   $ 10,992   $ 116,223   $ (1,421 ) $ 114,802  
                                 
Three Months Ended October 2, 2011 (e)
Emerging
PSD (b) MPD (b) DCD (b) Core Semi (c) Technologies (d) Consolidated
GAAP gross margin $ 73,605 $ 59,712 $ 15,727 $ 149,044 $ (90 ) $ 148,954
Stock-based compensation expense 2,487 1,936 546 4,969 33 5,002
Changes in value of deferred compensation plan   (278 )   (217 )   (61 )   (556 )   (4 )   (560 )
Non-GAAP gross margin $ 75,814   $ 61,431   $ 16,212   $ 153,457   $ (61 ) $ 153,396  
 

(a)
 

Refer to the accompanying "Notes to Non-GAAP Financial Measures" for a detailed discussion of management's use of non-GAAP financial measures.

(b)

PSD - Programmable Systems Division; DCD - Data Communications Division; MPD - Memory Products Division.

(c)

“Core Semi” – Includes PSD, DCD and MPD and excludes “Emerging Technologies.”

(d)

“Emerging Technologies” – Activities outside our core semiconductor businesses outlined in footnote (c). Includes majority-owned subsidiaries Cypress Envirosystems Inc., AgigA Tech Inc. and Deca Technologies Inc.

 
CYPRESS SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (a)
(In thousands, except per-share data)
(Unaudited)
     
Three Months Ended
September 30,     July 1,     October 2,
2012 2012 2011
 
GAAP research and development expenses $ 46,908 $ 47,946 $ 46,266
Stock-based compensation expense (5,062 ) (5,480 ) (5,894 )
Changes in value of deferred compensation plan   (389 )   89     1,204  
Non-GAAP research and development expenses $ 41,457   $ 42,555   $ 41,576  
 
GAAP selling, general and administrative expenses $ 47,328 $ 51,955 $ 55,453
Stock-based compensation expense (6,513 ) (8,991 ) (13,939 )
Acquisition-related expenses (547 ) (2,003 ) -
Changes in value of deferred compensation plan (945 ) 183 2,464
Impairment of assets and other   -     -     (1,982 )
Non-GAAP selling, general and administrative expenses $ 39,323   $ 41,144   $ 41,996  
.
GAAP operating income $ 15,047 $ 5,148 $ 45,633
Stock-based compensation expense 16,101 22,230 24,835
Acquisition-related expense 1,254 2,734 731
Changes in value of deferred compensation plan 1,551 (312 ) (4,228 )
Restructuring charges 66 989 871
Impairment of assets and other   1,129     315     1,982  
Non-GAAP operating income $ 35,148   $ 31,104   $ 69,824  
 
GAAP net income attributable to Cypress $ 14,332 $ 4,977 $ 39,981
Stock-based compensation expense 16,101 22,230 24,835
Acquisition-related expense 1,254 2,734 731
Changes in value of deferred compensation plan 48 530 119
Restructuring charges 66 989 871
Impairment of assets and other 1,129 315 1,982
Investment-related losses (gains) 1,638 (1,049 ) (1,538 )
Tax effects   (2,246 )   (428 )   2,256  
Non-GAAP net income attributable to Cypress $ 32,322       $ 30,298       $ 69,237  
             
GAAP net income per share attributable to Cypress - diluted $ 0.09 $ 0.03 $ 0.22
Stock-based compensation expense 0.10 0.14 0.13
Acquisition-related expense 0.01 0.02 -

Changes in value of deferred compensation plan
- - -
Restructuring charges - 0.01 0.01
Impairment of assets and other 0.01 - 0.01
Investment-related gains/loss 0.01 (0.01 ) (0.01 )
Tax effects (0.02 ) - 0.01
Non-GAAP share count adjustment   -     (0.01 )   -  
Non-GAAP net income per share attributable to Cypress - diluted $ 0.20       $ 0.18       $ 0.37  
 

(a)
 

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
SUPPLEMENTAL FINANCIAL DATA
(In thousands except per-share amounts)
(Unaudited)
           
Three Months Ended Nine Months Ended
September 30,     July 1,     October 2,

September 30,
    October 2,
2012 2012 2011 2012 2011

Selected Cash Flow Data (Preliminary):
Net cash provided by operating activities $ 58,065 $ 43,303 $ 106,114 $ 117,695 $ 218,327
Net cash provided by (used in) investing activities $ 30,510 $ (49,477 ) $ (9,966 ) $ (17,474 ) $ 67,369
Net cash provided by (used in) financing activities $ (44,508 ) $ 63,152 $ (312,041 ) $ (37,609 ) $ (484,619 )
 

Other Supplemental Data (Preliminary):
Capital expenditures $ 5,488 $ 9,741 $ 18,207 $ 25,204 $ 71,798
Depreciation $ 11,790 $ 11,668 $ 12,894 $ 34,140 $ 38,760
Payment of dividend $ 16,660 $ 16,716 $ 15,262 $ 47,170 $ 15,262
Dividend paid per share $ 0.11 $ 0.11 $ 0.09 $ 0.33 $ 0.09
Dividend yield per share (a) (b)   4.1 %       3.4 %       2.5 %   4.1 %       2.5 %
 
 

(a)

Dividend yield per share is calculated based on the annualized dividend paid per share divided by the common stock share price at the end of the period.

(b)

Actual dividend paid for fiscal year 2011 consists of $0.09 paid per share in the third and forth quarter of 2011.
 
CYPRESS SEMICONDUCTOR CORPORATION
CONSOLIDATED DILUTED EPS CALCULATION
(In thousands, except per-share data)
(Unaudited)
                                       

 

Three Months Ended
September 30,     July 1,     October 2,
2012 2012 2011
GAAP     Non-GAAP GAAP     Non-GAAP GAAP     Non-GAAP
 
Net income attributable to Cypress $ 14,332 $ 32,322 $ 4,977 $ 30,298 $ 39,981 $ 69,237
 
Weighted-average common shares outstanding (basic) 147,673 147,673 151,765 151,765 163,867 163,867
Effect of dilutive securities:
Stock options, unvested restricted stock and other   12,627   13,902   12,840   16,075   19,415   22,131
Weighted-average common shares outstanding for diluted computation   160,300   161,575   164,605   167,840   183,282   185,998
 
Net income per share attributable to Cypress - basic $ 0.10 $ 0.22 $ 0.03 $ 0.20 $ 0.24 $ 0.42
Net income per share attributable to Cypress - diluted $ 0.09 $ 0.20 $ 0.03 $ 0.18 $ 0.22 $ 0.37
                                   
 
                                   
September 30, July 1, October 2,
2012 2012 2011
 
Average stock price for the period ended $11.72 $13.69 $18.31
 
Common stock outstanding at period end (in thousands) 145,649 151,494 155,268
Outstanding as of October 2, 2011 included unvested restricted stock awards of approximately 1.0 million shares. Unvested restricted stock awards as of September 30, 2012 and July 1, 2012 were not material.  
 

Notes to Non-GAAP Financial Measures

To supplement its consolidated financial results presented in accordance with GAAP, Cypress uses non-GAAP financial measures which are adjusted from the most directly comparable GAAP financial measures to exclude certain items, as described in details below. Management believes that these non-GAAP financial measures reflect an additional and useful way of viewing aspects of Cypress’s operations that, when viewed in conjunction with Cypress’s GAAP results, provide a more comprehensive understanding of the various factors and trends affecting Cypress’s business and operations. Non-GAAP financial measures used by Cypress include:
  • Gross margin;
  • Research and development expenses;
  • Selling, general and administrative expenses;
  • Operating income (loss);
  • Net income (loss); and
  • Diluted net income (loss) per share.

Cypress uses each of these non-GAAP financial measures for internal managerial purposes, when providing its financial results and business outlook to the public, and to facilitate period-to-period comparisons. Management believes that these non-GAAP measures provide meaningful supplemental information regarding Cypress’s operational and financial performance of current and historical results. Management uses these non-GAAP measures for strategic and business decision making, internal budgeting, forecasting and resource allocation processes. In addition, these non-GAAP financial measures facilitate management’s internal comparisons to Cypress’s historical operating results and comparisons to competitors’ operating results.

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