Securities and Exchange Commission August 16, 1994
450 Fifth St., N.W.
Washington, D.C. 20549
RE: Form 10-Q
Cypress Semiconductor Corporation
Commission File No.1-10079
CIK NUMBER 0000791915
Ladies and Gentlemen:
In accordance with Regulation S-T, we have submitted herewith in electronic
format, via EDGAR, one copy of the Company's Quarterly Report on Form 10-Q,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended.
Pursuant to Rule 901(d) of Regulation S-T, by copy of this correspondence,
the Company has submitted to the Commission one conforming paper format copy of
this electronic filing.
Please direct all questions concerning the enclosed materials to the
undersigned.
Sincerely,
CYPRESS SEMICONDUCTOR CORPORATION
/s/ STUART INOUYE
- ---------------------------------
Stuart Inouye
Corporate Accounting Manager
Enclosures
cc: Conforming Paper Copy
Filer Support
U.S. Securities and Exchange Commission
Operations Center; Stop 0-7
6432 General Green Way
Alexandria, VA 22312
<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended July 4, 1994 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
------------- to -----------.
Commission file number 1-10079
-------
CYPRESS SEMICONDUCTOR CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2885898
- ------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. employer
of incorporation or identification No.)
organization)
3901 North First Street, San Jose, California 95134-1599
- -------------------------------------------------------------------------------
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 943-2600
---------------
NOT APPLICABLE
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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 at least the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
July 4, 1994 (all one class): 37,726,000
------------------------------------------
1
<PAGE>2
CYPRESS SEMICONDUCTOR CORPORATION
FORM 10-Q
Quarter Ended July 4, 1994
Index
Part I - Financial Information
- --------------------------------
Item 1. Condensed Consolidated Financial Statements Pages 3 - 9
Item 2. Management's Discussion and Analysis Pages 10 - 12
Part II - Other Information
- --------------------------------
Item 1. Legal Proceedings Page 13
Item 6. Exhibits and Reports on Form 8-K Page 13
2
<PAGE>3
<TABLE>
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<CAPTION>
July 4, January 3,
1994 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,299 $ 37,657
Short-term investments 181,612 42,933
---------- ----------
Total cash, cash equivalents and
short-term investments 203,911 80,590
Accounts receivable, net of allowances of
$1,845 at July 4, 1994 and $1,347 at
January 3, 1994 58,350 46,247
Other receivables 4,472 7,957
Inventories 31,212 29,285
Other current assets 21,688 21,759
---------- ----------
Total current assets 319,633 185,838
Property, plant and equipment (net) 147,544 133,920
Other assets 20,972 20,890
---------- ----------
Total assets $ 488,149 $ 340,648
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 38,350 $ 26,024
Accrued liabilities 23,795 19,641
Deferred income on sales to distributors 8,627 8,851
Income taxes payable 9,962 6,671
---------- ----------
Total current liabilities 80,734 61,187
Convertible subordinated notes 92,703 --
Deferred income taxes 4,839 4,432
---------- ----------
Total liabilities 178,276 65,619
---------- ----------
Minority interest in subsidiaries 3,344 3,344
---------- ----------
3
<PAGE>4
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands)
(Unaudited)
July 4, January 3,
1994 1994
---------- ----------
<S> <C> <C>
Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized; none issued and
outstanding -- --
Common stock, $.01 par value, 75,000,000
shares authorized; 42,499,000 and
40,973,000 issued; 37,726,000 and
36,200,000 outstanding 425 410
Additional paid-in capital 221,579 207,846
Retained earnings 130,609 109,513
---------- ----------
352,613 317,769
Less shares of common stock held in
treasury, at cost: 4,773,000 at
July 4, 1994 and January 3, 1994 (46,084) (46,084)
---------- ----------
Total stockholders' equity 306,529 271,685
---------- ----------
Total liabilities and stockholders'
equity $ 488,149 $ 340,648
========== ==========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>5
<TABLE>
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
July 4, June 28, July 4, June 28,
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 100,217 $ 74,753 $ 191,174 $ 144,463
---------- ---------- ---------- ----------
Costs and expenses:
Cost of revenues 55,676 45,227 106,892 86,810
Research and development 13,601 13,433 26,194 27,412
Marketing, general and
administrative 12,871 11,661 25,904 22,335
Restructuring and other
other non-recurring costs -- (408) -- (408)
---------- ---------- ---------- ----------
Total operating costs
and expenses 82,148 69,913 158,990 136,149
---------- ---------- ---------- ----------
Operating income 18,069 4,840 32,184 8,314
Interest expense (1,301) (52) (1,328) (221)
Interest and other income 1,599 748 2,630 1,367
---------- ---------- ---------- ----------
Income before income taxes 18,367 5,536 33,486 9,460
Provision for income taxes (6,796) (1,931) (12,390) (3,406)
---------- ---------- ---------- ----------
Net income $ 11,571 $ 3,605 $ 21,096 6,054
========== ========== ========== ==========
Net income per share $ 0.29 $ 0.10 $ 0.52 $ 0.16
========== ========== ========== ==========
Weighted average common and
common equivalent shares
outstanding 40,515 37,502 40,408 37,528
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE>6
<TABLE>
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Six Months Ended
----------------------
July 4, June 28,
1994 1993
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,096 $ 6,054
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 22,438 21,544
Provision for restructuring and other
non-recurring costs -- (408)
Non-cash interest and amortization of debt
issuance costs 497 --
Changes in operating assets and liabilities:
Receivables (8,618) (8,502)
Inventories (1,927) 10,924
Other assets 1,116 (2,690)
Accounts payable and accrued liabilities 16,480 (6,794)
Deferred income (224) 1,426
Income taxes payable and deferred income taxes 3,698 4,254
---------- ----------
Net cash generated by operations 54,556 25,808
---------- ----------
Cash flows from investing activities:
(Increase) decrease in short-term investments (138,679) 7,881
Acquisition of property, plant and equipment (41,375) (19,612)
Sale of plant and equipment 7,918 --
Acquisition of CONTAQ Microsystems, Inc. (969) --
Buyout of minority interest in subsidiaries -- (3,523)
Sale of Ross Technology, Inc. -- 1,969
---------- ----------
Net cash used for investing activities (173,105) (13,285)
---------- ----------
Cash flows from financing activities:
Repurchase of common stock -- (16,898)
Issuance of common stock 13,748 7,153
Principal payments on capital lease obligations -- (2,155)
Issuance of convertible subordinated notes 92,293 --
Deferred debt issuance costs (2,850) --
Other -- (34)
---------- ----------
Net cash provided (used) by financing activities 103,191 (11,934)
---------- ----------
6
<PAGE>7
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
<CAPTION>
Six Months Ended
----------------------
July 4, June 28,
1994 1993
---------- ----------
<S> <C> <C>
Net increase (decrease) in cash and cash equivalents (15,358) 589
Cash and cash equivalents, beginning of year 37,657 12,371
---------- ----------
Cash and cash equivalents, end of quarter $ 22,299 $ 12,960
========== ==========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
7
<PAGE>8
CYPRESS SEMICONDUCTOR CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Interim Statements
In the opinion of management, the accompanying, unaudited condensed
consolidated financial statements contain all adjustments (consisting solely of
normal recurring adjustments) necessary to present fairly the financial
information included therein. While the Company believes that the disclosures
are adequate to make the information not misleading, it is suggested that this
financial data be read in conjunction with the audited financial statements and
notes thereto for the year ended January 3, 1994 included in the Company's 1993
Annual Report on Form 10-K.
For interim financial reporting purposes, the Company reports on a 13-week
quarter. The results of operations for the three month period ended July 4,
1994 are not necessarily indicative of the results to be expected for the full
year.
2. Balance Sheet Components
July 4, January 3,
1994 1994
---------- ----------
Inventories:
Raw materials $ 8,630 $ 8,820
Work in process 14,357 13,103
Finished goods 8,225 7,362
---------- ----------
$ 31,212 $ 29,285
========== ==========
3. Net Income Per Share
Net income per share is computed using the weighted average number of shares of
outstanding common stock and common equivalent shares, when dilutive. Common
equivalent shares include shares issuable under the Company's stock option
plans as determined by the treasury stock method. Fully diluted earnings per
share is not significantly different than primary earnings per share.
4. Impact of Litigation
In the normal course of business, the Company receives and makes inquiries with
regard to possible patent infringement. Where deemed advisable, the Company
may seek or extend licenses or negotiate settlements.
8
<PAGE>9
Texas instruments (TI) has charged the Company and four other semiconductor
companies with infringement of two patents, primarily covering the plastic
encapsulation process used to package semiconductor devices. This action was
filed before the International Trade Commission (ITC) in Washington, D.C., and
in the U.S. District Court in Dallas, Texas. The ITC has ruled that the
plastic packaging process known as "bottom gating" does infringe, but that
"top gating," used now by the Company does not infringe TI's patent. The
Company contends that the patents are invalid. In March of 1993, the U.S.
District Court of Appeals for the Federal Circuit affirmed the ITC's ruling.
A trial date has been scheduled for April 1995 in the U.S. District Court
regarding this matter.
In January and February 1992, the Company and certain of its officers were
named defendants in three purported class-action suits filed in the U.S.
District Court for the Northern District of California. The suits filed are
for alleged violations of the Securities Exchange Act of 1934 and certain
provisions of state law regarding disclosure of short-term business prospects.
In 1992, the three securities class-action complaints were consolidated by the
U.S. District Court of Northern California. The trial date has been scheduled
for June 5, 1995.
The Company will vigorously defend itself in these matters and, subject to the
inherent uncertainties of litigation and based upon discovery completed to
date, management believes that the possibility of a material adverse impact on
the Company's financial position as a result of these matters is remote.
However, should the outcome of any of the actions be unfavorable, the Company
may be required to pay damages and other expenses, which could have a material
adverse effect on the Company's financial position. In addition, the Company
could be required to alter certain of its production processes or products as a
result of these matters.
5. Convertible Subordinated Notes
On March 31, 1994, the Company completed a $110 million private placement of
7-year discounted convertible subordinated debentures. The debentures are due
in the year 2001, with a coupon rate of 3.15 percent and a yield-to-maturity of
6.04 percent. The debentures are convertible into approximately 3,969,600
shares of common stock and are callable by the Company, three years from the
date of issuance. Net proceeds were $89.4 million, after issuance costs of
$2.9 million. Issuance costs will be amortized, using the interest rate
method, over the life of the debentures.
9
<PAGE>10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
- --------------------------
Revenues for the quarter and six month periods ended July 4, 1994 increased
34.1% and 32.3%, respectively, over the comparable periods a year ago,
increasing to $100.2 million and $191.2 million, respectively, compared to
$74.8 million and $144.5 million in 1993. Strong growth in the Company's core
product lines propelled revenues beyond $100 million for the quarter, and led
to record earnings of $0.29 per share. The Company significantly increased
revenues for its high-speed static RAM products and Data Communications
products. Also contributing to increased revenues in 1994 was the addition of
the newly-formed Computation Products Division, mainly consisting of IC
Designs, Inc., which was acquired in October of 1993.
The Company's cost of revenues as a percentage of revenues for the quarter and
six month periods ended July 4, 1994 decreased to 55.6% and 55.9%,
respectively, in comparison with 60.5% and 60.1%, respectively, in the
comparable periods in 1993. Cost savings from offshore operations continue to
lower assembly and test manufacturing costs. Increased yields in the domestic
production wafer fabrication facilities have also reduced costs.
Research and development expenses were 13.6% and 13.7%, of revenues for the
quarter and six month periods ended July 4, 1994, versus 18.0% and 19.0% in the
comparable periods in 1993. The decrease in R&D is attributed primarily to the
elimination of significant R&D spending on the Company's subsidiary, Ross
Technology, Inc.(Ross) and the Company's strategy to focus on its "Top Ten"
projects and hold R&D spending to a slower growth rate than revenue. Ross was
subsequently sold at the end of the second quarter of 1993 to Fujitsu Limited.
Marketing, general and administrative expenses have decreased to 12.8% and
13.5% of revenues for the quarter and six month periods ended July 4, 1994,
versus 15.6% and 15.5% in the comparable period in 1993. Revenue growth and
cost control were the main factors attributing to decreased cost as a
percentage of revenues.
Operating income for the quarter and six month periods ended July 4, 1994 was
$18.1 million, or 18.0% of revenues, and $32.2 million, or 16.8% of revenues,
respectively. This is an increase from the comparable periods in 1993 which
had $4.8 million, or 6.5% of revenues, and $8.3 million, or 5.8% of revenues,
respectively. The increase in operating income is attributed to revenue growth
and improved margins resulting from the Company's cost reduction strategy.
10
<PAGE>11
FACTORS AFFECTING FUTURE RESULTS:
- -----------------------------------
A number of uncertainties exist that could have an impact on the Company's
future, including general economic conditions, the rate of growth of the
networking, computer and telecommunications market, and the acceleration of new
product introductions. The Company's products continue to experience increased
competition and as a result, are subject to decreases in average selling
prices.
Typically, the Company requires new orders in a quarter to meet that quarter's
revenue plan. In addition, the semiconductor industry is generally
characterized by a highly competitive, rapidly changing environment, where
results are often significantly impacted by the introduction of new products,
new manufacturing technologies, and rapid changes in the demand for products
which can lead to unpredictability in monthly revenues. Due to the effect of
these forces on the Company's future operations, past performance should be
only one indicator of future performance and investors should not use
historical trends to anticipate results in future periods.
Current pending litigation and claims are set forth in Note 4 of the Notes to
Condensed Consolidated Financial Statements. The Company will vigorously
defend itself in these matters and, subject to the inherent uncertainties of
litigation and based upon discovery completed to date, management believes that
the possibility of a material adverse impact on the Company's financial
position as a result of these matters is remote. However, should the outcome
of any of the actions be unfavorable, the Company may be required to pay
damages and other expenses, which could have a material adverse effect on the
Company's financial position. In addition, the Company could be required to
alter certain of its production processes or products as a result of these
matters.
LIQUIDITY AND CAPITAL RESOURCES:
- ---------------------------------
The Company's financial condition remained strong throughout the first half of
1994. Cash, cash equivalents and short-term investments equalled $203.9
million at July 4, 1994, an increase of $123.3 million from the end of 1993.
The primary reason for the increase in cash was the $89.4 million net proceeds
received from the private placement of convertible subordinated notes. The
Company also received $7.9 million for the sale of fab equipment in a sale-
leaseback transaction in May 1994. The Company plans to continue using the
equipment by leasing the equipment back from the lender under an operating
lease. A gain of $3.2 million was realized from this transaction which was
deferred and will be amortized over the life of the lease. All proceeds will
be used for general corporate purposes, including expansion of the Company's
manufacturing capacity by adding a state-of-the-art wafer fabrication facility
at the same site as the current Cypress Minnesota plant in Bloomington,
Minnesota (Fab IV). Purchases of capital assets for the remainder of 1994 are
expected to be approximately $100 million.
The Company purchased $41.4 million in capital equipment during the first half
of 1994. A majority of the assets purchased will be used to increase capacity
in the Company's two domestic production wafer fabrication facilities.
11
<PAGE>12
The Company also acquired CONTAQ Microsystems Inc. during the second quarter of
1994 for a net cash outlay of $1.0 million. CONTAQ supplies chipsets to makers
of personal computers.
The Company may continue its stock repurchase plan whereby shares may be
repurchased from time to time. As of July 4, 1994, 4,773,000 shares have been
repurchased under the current plan and there are a total of 600,000 authorized
shares remaining to be purchased. The Company will utilize a portion of the
repurchased shares for issuance in connection with the Company's stock
programs.
While the Company plans to fund working capital requirements through existing
capital resources and internally generated cash flow, the Company may, based
upon favorable market conditions, choose to raise additional capital through
the issuance of equity or debt securities of the Company or its subsidiaries.
The Company may also from time to time consider using available funds to
acquire complementary technologies and businesses.
12
<PAGE>13
PART II - OTHER INFORMATION
ITEM 1. The information required by this item is included in Part I in Note 4
of Notes to Condensed Consolidated Financial Statements.
ITEM 6:
(a) Exhibits - None
(b) Reports on Form 8-K - None
13
<PAGE>14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYPRESS SEMICONDUCTOR CORPORATION
Date: August 16, 1994 /s/ T.J. Rodgers
----------------------- ---------------------------------
T.J. Rodgers
President and Chief Executive
Officer
/s/ Emmanuel Hernandez
---------------------------------
Emmanuel Hernandez
Vice President, Finance and
Administration and Chief Financial
Officer
14
