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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 April 3, 1995 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
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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.
April 3, 1995 (all one class): 40,155,000
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CYPRESS SEMICONDUCTOR CORPORATION
FORM 10-Q
Quarter Ended April 3, 1995
Index
Part I - Financial Information
- --------------------------------
Item 1. Condensed Consolidated Financial Statements Pages 3 - 8
Item 2. Management's Discussion and Analysis Pages 9 - 11
Part II - Other Information
- --------------------------------
Item 1. Legal Proceedings Page 12
Item 6. Exhibits and Reports on Form 8-K Pages 13 - 14
2
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<TABLE>
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Apr. 3, Jan. 2,
1995 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,954 $ 33,308
Short-term investments 180,246 159,967
---------- ----------
Total cash, cash equivalents and
short-term investments 196,200 193,275
Accounts receivable, net of allowances of
$1,496 at April 3, 1995 and $1,393 at
January 2, 1995 71,608 67,763
Inventories 26,158 28,372
Other current assets 28,652 27,704
---------- ----------
Total current assets 322,618 317,114
Property, plant and equipment (net) 218,230 201,590
Other assets 48,412 36,995
---------- ----------
Total assets $ 589,260 $ 555,699
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 53,328 $ 55,777
Accrued liabilities 37,479 22,258
Deferred income on sales to distributors 10,273 9,688
Income taxes payable 2,815 3,439
---------- ----------
Total current liabilities 103,895 91,162
Convertible subordinated notes 94,193 93,653
Deferred income taxes 11,209 11,209
Other long-term liabilities 6,517 6,676
---------- ----------
Total liabilities 215,814 202,700
---------- ----------
3
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CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands)
(Unaudited)
Apr. 3, Jan. 2,
1995 1995
---------- ----------
<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; 44,928,000 and
43,683,000 issued; 40,155,000 and
38,910,000 outstanding 449 437
Additional paid-in capital 249,990 238,661
Retained earnings 169,091 159,985
---------- ----------
419,530 399,083
Less shares of common stock held in
treasury, at cost: 4,773,000 at
April 3, 1995 and January 2, 1995 (46,084) (46,084)
---------- ----------
Total stockholders' equity 373,446 352,999
---------- ----------
Total liabilities and stockholders'
equity $ 589,260 $ 555,699
========== ==========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
----------------------
Apr. 3, Apr. 4,
1995 1994
---------- ----------
<S> <C> <C>
Revenues $ 123,365 $ 90,957
---------- ----------
Costs and expenses:
Cost of revenues 60,834 51,216
Research and development 15,671 12,593
Marketing, general and administrative 15,291 13,033
Other non-recurring costs (Note 4) 17,800 --
---------- ----------
Total operating costs and expenses 109,596 76,842
---------- ----------
Operating income 13,769 14,115
Interest expense (1,733) (27)
Interest and other income 2,303 1,031
---------- ----------
Income before income taxes 14,339 15,119
Provision for income taxes (5,234) (5,594)
---------- ----------
Net income $ 9,105 $ 9,525
========== ==========
Net income per share:
Primary $ 0.21 $ 0.24
Fully diluted $ 0.21 $ --
Weighted average common and
common equivalent shares
outstanding:
Primary 43,612 40,301
Fully diluted 47,803 --
See accompanying notes to condensed consolidated financial statements.
</TABLE>
5
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<TABLE>
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Three Months Ended
----------------------
Apr. 3, Apr. 4,
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,105 $ 9,525
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 13,291 11,074
Provision for other non-recurring costs 17,800 --
Non-cash interest and amortization of debt
issuance costs 643 --
Changes in operating assets and liabilities:
Receivables (2,170) (4,996)
Inventories 2,214 (453)
Other assets (5,585) 1,237
Accounts payable and accrued liabilities (5,186) 3,004
Deferred income 585 275
Income taxes payable and deferred income taxes (624) 3,685
---------- ----------
Net cash generated by operations 30,073 23,351
---------- ----------
Cash flows from investing activities:
Increase in short-term investments (20,279) (36,006)
Acquisition of property, plant and equipment (28,689) (16,151)
---------- ----------
Net cash used for investing activities (48,968) (52,157)
---------- ----------
Cash flows from financing activities:
Issuance of common stock 11,341 9,845
Restricted investments related to building lease
agreement (9,800) --
Issuance of convertible subordinated notes (net) -- 89,443
---------- ----------
Net cash provided by financing activities 1,541 99,288
---------- ----------
Net increase (decrease) in cash and cash equivalents (17,354) 70,482
Cash and cash equivalents, beginning of year 33,308 37,657
---------- ----------
Cash and cash equivalents, end of quarter $ 15,954 $ 108,139
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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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 2, 1995 included in the Company's 1994
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 April 3,
1995 are not necessarily indicative of the results to be expected for the full
year.
2. Balance Sheet Components
April 3, January 2,
1995 1995
---------- ----------
Inventories:
Raw materials $ 7,844 $ 8,519
Work in process 13,300 12,325
Finished goods 5,014 7,528
---------- ----------
$ 26,158 $ 28,372
========== ==========
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 notes 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.
7
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In May 1995, the U.S. District Court in Dallas, Texas, delivered a verdict of
$17.8 million against the Company in a patent infringement lawsuit filed by
Texas Instruments. This judgement is not final. The damages may be increased
by three times the original amount, plus fees, or reduced by the judge at his
discretion, based on post-trial motions and appeals. The Company will exercise
all avenues available to it through post-trial motions, and if need be, through
the appeal process. Due to the fact that the patents in the litigation are both
expired, there is no effect upon manufacturing or sale of the Company's present
or future products. Cypress recorded a one-time pre-tax charge of $17.8 million
in the first quarter ended April 3, 1995 to reflect the judgement.
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 July 10, 1995. The Company will vigorously defend itself in this lawsuit
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 this
lawsuit is remote. However, should the outcome of this action 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.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
- --------------------------
Revenues for the quarter ended April 3, 1995 increased 35.6% over the comparable
period a year ago, increasing to $123.4 million compared to $91.0 million in
1994, due primarily to continued growth in its core product lines. Increased
sales in the high-speed Static Memory Division resulted from growth in the
Personal Computer (PC) and Cellular Base Station markets. Although average
selling prices in Static Rams have decreased from the first quarter of 1994, a
76% increase in volume more than offset the difference. The Data Communications
Division's (Datacom) growth in revenues has been driven primarily by an increase
in sales from its Specialty Memory line of products (Dual Ports and FIFO's).
Sales of these products allowed the Datacom Division to increase volume by 37%
and increase its average selling price by 11% in comparison to the comparable
quarter in 1994. Revenues increased 29.7% in the Programmable Products Division
(PPD) in the first quarter of 1995 compared to the first quarter of 1994, due to
a 18.7% increase in volume, primarily in the PROM line of products.
The Company's cost of revenues as a percentage of revenues for the quarter
ended April 3, 1995 decreased to 49.3% in comparison with 56.3% in the
comparable period for 1994. The Company took advantage of its increase in
volume which allowed fixed costs per unit to decrease significantly. Reduced
manufacturing costs as a percent of revenues from its domestic fabrication
plants and decreased backend expenditures, primarily from lower subcontractor
costs, also contributed to improved margins. A change in product mix also
contributed to the increase in gross margin, especially in the Data
Communications Division, where sales shifted towards products with higher
average selling prices and higher margins.
Research and development(R & D) expenses were 12.7% of revenues for the quarter
ended April 3, 1995, versus 13.9% in the comparable period for 1994. Although
R & D spending increased from the prior year, the rate of growth has been less
than the rate of growth in revenues. Cypress expects to continue increasing R &
D spending in absolute dollars 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 12.4% of
revenues for the quarter ended April 3, 1995, versus 14.3% in the comparable
period for 1994. Although marketing, general and administrative expenses have
increased in absolute dollars from 1994, the rate of growth has been less than
the rate of growth in revenues. The increase in cost relates primarily to the
growth in sales and marketing expenditures. In order to maintain its current
growth rate in revenues, the Company has increased headcount and associated
spending in sales and marketing. The Company expects to continue increasing
absolute spending in sales and marketing in order to maintain its current rate
of growth.
9
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Operating income for the quarter ended April 3, 1995 was $13.8 million, or 11.2%
of revenues. This is comparable to 1994 which recorded operating income of
$14.1 million, or 15.5% of revenues. During the first quarter of 1995, the
Company recorded a one-time charge of $17.8 million ($11.3 million net of taxes)
related to the verdict issued against the Company in the patent infringement
lawsuit filed by Texas Instruments. Without the one-time charge, operating
income would have been $31.6 million, or 25.6% of revenues.
Net interest and other income for the quarter ended April 3, 1995 was $2.3
million, compared to $1.0 million in the comparable period for 1994. Cash
investments increased significantly as a result of the convertible subordinated
note issuance at the end of March 1994. 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 substantially offset by an increase in interest expense
related to the issuance of the convertible debt. The Company also realized gains
from foreign exchange transactions, primarily from the increased value of the
yen.
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 quarterly 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. With regard to the verdict
delivered in the patent infringement lawsuit filed by Texas Instruments, the
Company will exercise all avenues available to it through post-trial motions,
and if need be, through the appeal process. With regard to the shareholder's
class-action lawsuit, the Company will vigorously defend itself in this matter
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 this
lawsuit is remote. However, should the outcome of any of these 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.
10
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LIQUIDITY AND CAPITAL RESOURCES:
- ---------------------------------
The Company's financial condition remained strong throughout the first quarter
of 1995. Cash, cash equivalents and short-term investments totaled $196.2
million at April 3, 1995, an increase of $2.9 million compared to the end of
1994. The increase in cash, cash equivalents and short-term investments is
primarily due from cash generated from operations. The Company also recorded
$11.3 million in cash receipts from the exercise of employee stock options.
In 1994, the Company entered into two operating lease agreements with respect to
its office and manufacturing facilities in San Jose and Minnesota. These
agreements require that the Company maintain a specific level of restricted cash
or investments to serve as collateral for these leases. In the first quarter of
1995, the Company added $9.8 million to the restricted investments, bringing the
total to $28.3 million.
The Company purchased $28.7 million in capital equipment during the first
quarter of 1995. A majority of the assets purchased were used to increase
capacity in the Company's production wafer fabrication facilities.
In May 1995, the U.S. District Court in Dallas, Texas delivered a verdict of
$17.8 million against the Company in a patent infringement lawsuit filed by
Texas Instruments. No payment will be made until judgement is final.
The Company may continue its stock repurchase plan in the future. As of April
2, 1995, 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.
11
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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) Exhibit - 11.1 "Computation of Net Income Per Share and Dilutive
Common Share Equivalents"
(b) Exhibit - 27 "Financial Data Schedule"
(b) Reports on Form 8-K - None
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<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
----------------------
Apr. 3, Apr. 4,
1995 1994
---------- ----------
<S> <C> <C>
PRIMARY:
- ----------------------------
Weighted average number of common shares
outstanding 39,434 36,839
Common share equivalents:
Dilutive effect of outstanding stock options 4,178 3,462
---------- ----------
Weighted average number of common shares and
dilutive common share equivalents outstanding 43,612 40,301
========== ==========
Net income used in per share computation $ 9,105 $ 9,525
========== ==========
Net income per common and common equivalent
share $ 0.21 $ 0.24
========== ==========
FULLY DILUTED:
- ----------------------------
Weighted average number of common shares
outstanding 39,434 --
Common share equivalents:
Dilutive effect of outstanding stock
options 4,399 --
Shares issuable upon conversion of
convertible subordinated notes 3,970 --
---------- ----------
Weighted average number of common shares and
dilutive common share equivalents outstanding 47,803 --
========== ==========
Net income used in per share
computation $ 9,999 $ --
========== ==========
Net income per common and
common equivalent share $ 0.21 $ --
========== ==========
</TABLE>
13
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CYPRESS SEMICONDUCTOR CORPORATION
EXHIBIT 27
FINANCIAL DATA SCHEDULE
(In thousands, except per share data)
(Unaudited)
<TABLE>
[MULTIPLIER] 1,000
<S> <C>
[PERIOD-TYPE] QTR-1
[FISCAL-YEAR-END] JAN-01-1996
[PERIOD-END] APR-03-1995
[CASH] 15,954
[SECURITIES] 180,246
[RECEIVABLES] 73,104
[ALLOWANCES] 1,496
[INVENTORY] 26,158
[CURRENT-ASSETS] 322,618
[PP&E] 406,988
[DEPRECIATION] 188,758
[TOTAL-ASSETS] 589,260
[CURRENT-LIABILITIES] 103,895
[BONDS] 94,193
<<COMMON> 449
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 372,997
[TOTAL-LIABILITY-AND-EQUITY] 589,260
[SALES] 123,365
[TOTAL-REVENUES] 123,365
[CGS] 60,834
[TOTAL-COSTS] 60,834
[OTHER-EXPENSES] 15,671
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 1,733
[INCOME-PRETAX] 14,339
[INCOME-TAX] 5,234
[INCOME-CONTINUING] 9,105
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 9,105
[EPS-PRIMARY] 0.21
[EPS-DILUTED] 0.21
</TABLE>
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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: May 18, 1995 /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
15
