Securities and Exchange Commission November 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 October 3, 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.
October 3, 1994 (all one class): 38,506,000
--------------------------------------------
1
<PAGE>2
CYPRESS SEMICONDUCTOR CORPORATION
FORM 10-Q
Quarter Ended October 3, 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 Pages 13 - 15
2
<PAGE>3
<TABLE>
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Oct. 3, Jan. 3,
1994 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,325 $ 37,657
Short-term investments 192,060 42,933
---------- ----------
Total cash, cash equivalents and
short-term investments 197,385 80,590
Accounts receivable, net of allowances of
$1,539 at October 3, 1994 and $1,347 at
January 3, 1994 61,698 46,247
Other receivables 4,016 7,957
Inventories 31,180 29,285
Other current assets 21,699 21,759
---------- ----------
Total current assets 315,978 185,838
Property, plant and equipment (net) 180,500 133,920
Other assets 19,541 20,890
---------- ----------
Total assets $ 516,019 $ 340,648
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 47,958 $ 26,024
Accrued liabilities 22,376 19,641
Deferred income on sales to distributors 8,945 8,851
Income taxes payable 7,853 6,671
---------- ----------
Total current liabilities 87,132 61,187
Convertible subordinated notes 93,114 --
Deferred income taxes 4,839 4,432
Other 525 --
---------- ----------
Total liabilities 185,610 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)
Oct. 3, Jan. 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; 43,279,000 and
40,973,000 issued; 38,506,000 and
36,200,000 outstanding 432 410
Additional paid-in capital 228,496 207,846
Retained earnings 144,221 109,513
---------- ----------
373,149 317,769
Less shares of common stock held in
treasury, at cost: 4,773,000 at
October 3, 1994 and January 3, 1994 (46,084) (46,084)
---------- ----------
Total stockholders' equity 327,065 271,685
---------- ----------
Total liabilities and stockholders'
equity $ 516,019 $ 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 Nine Months Ended
---------------------- ----------------------
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 104,013 $ 77,037 $ 295,187 $ 221,500
---------- ---------- ---------- ----------
Costs and expenses:
Cost of revenues 56,763 45,351 163,655 132,161
Research and development 13,402 11,174 39,596 38,586
Marketing, general and
administrative 13,246 11,752 39,150 34,087
Restructuring and other non-
recurring costs (credits) -- -- -- (408)
---------- ---------- ---------- ----------
Total operating costs
and expenses 83,411 68,277 242,401 204,426
---------- ---------- ---------- ----------
Operating income 20,602 8,760 52,786 17,074
Interest expense (1,295) (34) (2,623) (255)
Interest and other income 2,299 769 4,928 2,136
---------- ---------- ---------- ----------
Income before income taxes 21,606 9,495 55,091 18,955
Provision for income taxes (7,994) (3,418) (20,384) (6,824)
---------- ---------- ---------- ----------
Net income $ 13,612 $ 6,077 $ 34,707 12,131
========== ========== ========== ==========
Net income per share:
Primary $ 0.33 $ 0.16 $ 0.85 $ 0.32
Fully Diluted $ 0.32 $ -- $ 0.84 $ --
Weighted average common and
common equivalent shares
outstanding:
Primary 41,390 39,075 40,734 38,057
Fully Diluted 45,360 -- 43,440 --
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>
Nine Months Ended
----------------------
Oct 3, Sept 27,
1994 1993
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 34,707 $ 12,131
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 33,364 30,781
Provision for restructuring and other
non-recurring costs -- (408)
Non-cash interest and amortization of debt
issuance costs 996 --
Changes in operating assets and liabilities:
Receivables (11,510) (10,324)
Inventories (1,895) 11,590
Other assets 1,243 (5,291)
Accounts payable and accrued liabilities 24,670 425
Deferred income 94 3,491
Income taxes payable and deferred income taxes 1,589 7,294
---------- ----------
Net cash generated by operations 83,258 49,689
---------- ----------
Cash flows from investing activities:
Increase in short-term investments (149,127) (17,855)
Acquisition of property, plant and equipment (84,052) (38,228)
Sale of plant and equipment 7,918 --
Acquisition of CONTAQ Microsystems, Inc. (969) --
Buyout of minority interest in subsidiaries -- (7,356)
Sale of Ross Technology, Inc. -- 15,463
---------- ----------
Net cash used for investing activities (226,230) (47,976)
---------- ----------
Cash flows from financing activities:
Repurchase of common stock -- (16,898)
Issuance of common stock 20,672 14,811
Principal payments on capital lease obligations -- (2,420)
Issuance of convertible subordinated notes 92,293 --
Deferred debt issuance costs (2,850) --
Change in minority interest -- (1,034)
Other 525 --
---------- ----------
Net cash provided (used) by financing activities 110,640 (5,541)
---------- ----------
6
<PAGE>7
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
----------------------
Oct. 3, Sept. 27,
1994 1993
---------- ----------
<S> <C> <C>
Net decrease in cash and cash equivalents (32,332) (3,828)
Cash and cash equivalents, beginning of year 37,657 12,371
---------- ----------
Cash and cash equivalents, end of quarter $ 5,325 $ 8,543
========== ==========
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 and nine month periods ended
October 3, 1994 are not necessarily indicative of the results to be expected
for the full year.
2. Balance Sheet Components
October 3, January 3,
1994 1994
---------- ----------
Inventories:
Raw materials $ 9,207 $ 8,820
Work in process 14,194 13,103
Finished goods 7,779 7,362
---------- ----------
$ 31,180 $ 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 assumes full conversion of the convertible subordinated note into common
shares and the elimination of the related interest requirements (net of income
taxes).
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 three 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
"top gating", used now by the Company does not infringe TI's patent. The
Company contends that the patents are invalid in there entirety. 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.
9
<PAGE>10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
- - --------------------------
Revenues for the quarter and nine month periods ended October 3, 1994 increased
35.0% and 33.3%, respectively, over the comparable periods a year ago,
increasing to $104.0 million and $295.2 million, respectively, compared to
$77.0 million and $221.5 million in 1993. Continued growth in its core product
lines allowed the Company to achieve record revenues and record earnings per
share this quarter. A significant factor in the Company's revenue increase is
the growth in the high-speed Static Memory Division. Although average selling
prices in this division have remained stable, increased volume has allowed
revenues to grow by 82.3% from 1993. The Data Communications Division's growth
in revenues has been driven primarily by new product sales, led by its
Specialty Memory line of products (Dual Ports and FIFO's). Market acceptance
of other new products, such as Roboclok and HOTlink, has also contributed to
revenue growth. Sales of these products have increased the average selling
price of Data Communication products by 10% over last year. Also contributing
to increased revenues in 1994 was the addition of the newly-formed Computation
Products Division, primarily consisting of products manufactured by IC Designs,
Inc., acquired in October of 1993.
The Company's cost of revenues as a percentage of revenues for the quarter and
nine month periods ended October 3, 1994 decreased to 54.6% and 55.4%,
respectively, in comparison with 58.9% and 59.7%, respectively, in the
comparable periods for 1993. The Company continues to experience lower wafer
costs from its domestic fabrication plants due to improved yields. A change in
product mix also contributed to the increase in gross margins, especially in
the Data Communications Division, where sales shifted towards new products with
higher average selling prices and higher margins.
Research and development(R & D) expenses were 12.9% and 13.4%, of revenues for
the quarter and nine month periods ended October 3, 1994, versus 14.5% and
17.4% in the comparable periods for 1993. Although actual R & D spending has
increased from prior year, the rate of growth has been significantly less than
the rate of growth in revenues. Cypress expects to continue increasing actual
R & D spending in the future to assist with the development of new products and
enhance its design and process technologies.
Marketing, general and administrative expenses have decreased to 12.7% and
13.3% of revenues for the quarter and nine month periods ended October 3, 1994,
versus 15.3% and 15.4% in the comparable periods for 1993. Although actual
marketing, general and administrative expenses have increased over 1993, the
rate of growth has been significantly less than the rate of growth in revenues.
10
<PAGE>11
Operating income for the quarter and nine month periods ended October 3, 1994
was $20.6 million, or 19.8% of revenues, and $52.8 million, or 17.9% of
revenues, respectively. This is an increase from the comparable periods in
1993 of $8.8 million, or 11.4% of revenues, and $17.1 million, or 7.7% of
revenues, respectively. The increase in operating income, in actual dollars
and as a percentage of revenues, is attributed to revenue growth and enhanced
margins resulting from improving fab yields and cost controls.
Net interest and other income for the quarter and nine month periods ended
October 3, 1994 was $1.0 million and $2.3 million, respectively, compared to
$0.7 million and $1.9 million in the comparable periods for 1993. Cash
investments have increased due to proceeds received from the convertible
subordinated note in March of this year. The rise in the average balance of
investments coupled with an increase in rates of return earned on short-term
investments are primarily responsible for the growth in interest income this
year. This increase was partially offset by an increase in interest expense
related to the issuance of the convertible debt. The Company also realized
increased gains from foreign exchange transactions.
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
and new manufacturing technologies. Also, rapid changes in the demand for
products 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
the 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.
11
<PAGE>12
LIQUIDITY AND CAPITAL RESOURCES:
- - ---------------------------------
The Company's financial condition remained strong throughout the first nine
months of 1994. Cash, cash equivalents and short-term investments totaled
$197.4 million at October 3, 1994, an increase of $116.8 million compared to
1993. The primary reason for this 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 from the sale of fab equipment in a May
1994 sale-leaseback transaction. All proceeds will be used for general
corporate purposes, including expansion of the Company's manufacturing capacity
by adding another state-of-the-art wafer fabrication facility (Fab IV) at the
same site as the current Cypress Minnesota plant in Bloomington, Minnesota (Fab
III). Total corporate purchases of capital assets for the remainder of 1994
are expected to be approximately $54 million.
The Company purchased $84.1 million in capital equipment during the first nine
months of 1994. A majority of the assets purchased were used to increase
capacity in the Company's production wafer fabrication facilities. The Company
also began purchasing capital equipment for Fab IV.
The Company acquired CONTAQ Microsystems Inc. during the second quarter of 1994
for a net cash outlay of $1.0 million. CONTAQ supplies chipsets to personal
computer manufacturers. The impact of this acquisition was not material to the
Company's financial position.
During the third quarter of 1994, the Company made its first interest payment
related to the convertible debentures. An interest payment of $1.6 million was
made in September.
In September 1994, the Company entered into a lease financing arrangement with
respect to its manufacturing and office facilities in San Jose, California,
which included a deposit by the Company of approximately $13 million related to
its obligation to arrange the sale of the facilities at the end of a five-year
period. The Company may enter into similar financing arrangements for its
facilities in the future.
The Company may continue its stock repurchase plan in the future. As of
October 3, 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. 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 the Condensed Consolidated Financial Statements.
ITEM 6:
(a) Exhibits - 11.1 "Computation of Net Income Per Share and Dilutive
Common Share Equivalents"
(b) Reports on Form 8-K - None
13
<PAGE>14
<TABLE>
CYPRESS SEMICONDUCTOR CORPORATION
EXHIBIT 11.1
COMPUTATION OF NET INCOME PER COMMON SHARE AND DILUTIVE
COMMON SHARE EQUIVALENTS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- ----------------------
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY:
- - ----------------------------
Weighted average number of
common shares outstanding 38,171 35,977 37,486 35,748
Common share equivalents:
Dilutive effect of
outstanding stock options 3,219 3,098 3,248 2,309
---------- ---------- ---------- ----------
Weighted average number of
common shares and dilutive
common share equivalents
outstanding 41,390 39,075 40,734 38,057
========== ========== ========== ==========
Net income used in per share
computation 13,612 6,077 34,707 12,131
========== ========== ========== ==========
Net income per common and
common equivalent share $ 0.33 $ 0.16 $ 0.85 $ 0.32
========== ========== ========== ==========
FULLY DILUTED:
- - ----------------------------
Weighted average number of
common shares outstanding 38,171 -- 37,486 --
Common share equivalents:
Dilutive effect of
outstanding stock options 3,219 -- 3,248 --
Shares issuable upon
conversion of convertible
subordinated notes 3,970 -- 2,706 --
---------- ---------- ---------- ----------
Weighted average number of
common shares and dilutive
common share equivalents
outstanding 45,360 -- 43,440 --
========== ========== ========== ==========
14
<PAGE>15
CYPRESS SEMICONDUCTOR CORPORATION
EXHIBIT 11.1
COMPUTATION OF NET INCOME PER COMMON SHARE AND DILUTIVE
COMMON SHARE EQUIVALENTS (Continued)
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
---------------------- ----------------------
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income used in per share
computation 14,415 -- 36,314 --
========== ========== ========== ==========
Net income per common and
common equivalent share $ 0.32 $ -- $ 0.84 $ --
========== ========== ========== ==========
</TABLE>
15
<PAGE>16
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: November 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
16
