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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q/A
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 29, 1998 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 report
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.
June 29, 1998 (all one class): 90,745,000
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CYPRESS SEMICONDUCTOR CORPORATION
FORM 10-Q/A
Quarter Ended June 29, 1998
Index
Part I - Financial Information
- --------------------------------
Item 1. Condensed Consolidated Financial Statements Pages 3 - 14
Item 2. Management's Discussion and Analysis Pages 15 - 24
Part II - Other Information
- --------------------------------
Item 1. Legal Proceedings Page 25
Item 4. Submission of Matters to a Vote of Security Holders Page 25
Item 6. Exhibits and Reports on Form 8-K Page 26
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<TABLE>
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per-share data)
(Unaudited)
<CAPTION>
(Restated)
Jun. 29, Dec. 29,
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 112,832 $ 151,725
Short-term investments 72,832 49,836
---------- ----------
Total cash, cash equivalents and
short-term investments 185,664 201,561
Accounts receivable, net of allowances of
$1,013 at June 29, 1998 and $3,524 at
December 29, 1997 53,123 67,854
Inventories 67,373 76,925
Other current assets 41,861 51,740
---------- ----------
Total current assets 348,021 398,080
Property, plant and equipment (net) 368,547 442,661
Assets held for sale 6,310 --
Other assets, including restricted investments of
$60,018 and $60,112 and long-term marketable
securities of $67,142 and $42,146, at
June 29, 1998 and December 29, 1997, respectively. 134,153 115,529
---------- ----------
Total assets $ 857,031 $ 956,270
========== ==========
See accompanying notes to condensed consolidated financial statements.
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CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands, except share and per-share data)
(Unaudited)
<CAPTION>
(Restated)
Jun. 29, Dec. 29,
1998 1997
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 47,760 $ 60,857
Accrued liabilities 35,730 21,472
Deferred income on sales to distributors 11,198 9,636
Income taxes payable -- 1,088
---------- ----------
Total current liabilities 94,688 93,053
Convertible subordinated notes 175,000 175,000
Deferred income taxes 36,070 36,070
Other long-term liabilities, including minority
interest 7,784 8,671
---------- ----------
Total liabilities 313,542 312,794
---------- ----------
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized; none issued and
outstanding -- --
Common stock, $.01 par value, 250,000,000
shares authorized; 98,147,000 issued;
90,745,000 and 90,684,000 outstanding 907 1,015
Additional paid-in capital 441,312 430,682
Retained earnings 229,846 333,910
---------- ----------
672,065 765,607
Less shares of common stock held in
treasury, at cost: 7,402,000 at June 29, 1998
and 7,463,000 at December 29, 1997 (128,576) (122,131)
---------- ----------
Total stockholders' equity 543,489 643,476
---------- ----------
Total liabilities and stockholders'
equity $ 857,031 $ 956,270
========== ==========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share data)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
(Restated) (Restated)
Jun. 29, Jun. 30, Jun. 29, Jun. 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 119,675 $ 138,142 $ 236,628 $ 264,141
---------- ---------- ---------- ----------
Costs and expenses:
Cost of revenues 83,393 86,687 197,775 169,036
Research and development 26,263 24,426 50,751 45,449
Selling, general and
administrative 19,880 19,135 42,076 36,699
Restructuring costs 1,900 -- 58,999 --
---------- ---------- ---------- ----------
Total operating costs
and expenses 131,436 130,248 349,601 251,184
---------- ---------- ---------- ----------
Operating income (loss) (11,761) 7,894 (112,973) 12,957
Interest expense (2,677) (779) (5,519) (3,095)
Interest and other income 3,275 2,238 3,377 7,064
---------- ---------- ---------- ----------
Income (loss) before income taxes (11,163) 9,353 (115,115) 16,926
(Provision) benefit for income taxes 1,072 (3,213) 11,051 (5,826)
---------- ---------- ---------- ----------
Net income (loss) $ (10,091) $ 6,140 $ (104,064) $ 11,100
========== ========== ========== ==========
Net income (loss) per share:
Basic $ (0.11) $ 0.07 $ (1.14) $ 0.13
Diluted $ (0.11) $ 0.07 $ (1.14) $ 0.13
Weighted average common and
common equivalent shares
outstanding:
Basic 91,036 88,768 91,052 85,303
Diluted 91,036 94,096 91,052 94,383
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended
----------------------
(Restated)
Jun. 29, Jun. 30,
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (104,064) $ 11,100
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 58,305 54,501
Restructuring charges 58,999 --
Other non-recurring costs 8,827 --
Non-cash interest and amortization of debt
issuance costs 502 953
Changes in operating assets and liabilities:
Receivables 13,962 (1,977)
Inventories 9,552 (14,402)
Other assets (15,215) 7,470
Accounts payable and accrued liabilities (11,489) (3,849)
Deferred income 1,562 573
Income taxes payable (1,088) 17,523
---------- ----------
Net cash generated by operations 19,853 71,892
---------- ----------
Cash flows from investing activities:
Increase in short-term investments (net) (22,996) (26,841)
Sale of capital equipment to Fleet Capital Leasing -- 25,222
Acquisition of property, plant and equipment (38,939) (65,471)
---------- ----------
Net cash used for investing activities (61,935) (67,090)
---------- ----------
Cash flows from financing activities:
Repurchase of common stock (6,444) --
Redemption of Convertible debt -- (14,331)
Issuance of common stock 10,521 10,491
Increase (decrease) in other long-term liabilities,
including minority interest (888) 1,544
---------- ----------
Net cash generated (used) by financing activities 3,189 (2,296)
---------- ----------
Net increase (decrease) in cash and cash equivalents (38,893) 2,506
Cash and cash equivalents, beginning of year 151,725 20,119
---------- ----------
Cash and cash equivalents, end of quarter $ 112,832 $ 22,625
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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CYPRESS SEMICONDUCTOR CORPORATION
Notes to Condensed Consolidated Financial Statements (Restated)
(Unaudited)
1. Interim Statements
In the opinion of management of Cypress Semiconductor Corporation ("Cypress"),
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 Cypress
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 consolidated financial statements and notes thereto for the
year ended December 29, 1997 included in Cypress's 1997 Annual Report on
Form 10-K and the Form 10-Q/A filed for the three-month period ended
March 30, 1998.
For interim financial reporting purposes, Cypress reports on a 13-week
quarter. The results of operations for the three and six-month periods ended
June 29, 1998 are not necessarily indicative of the results to be expected for
the full year.
2. Restatement
In response to a review by the staff of the Securities and Exchange Commission,
Cypress is revising previously reported financial statements. Specifically,
and as discussed in detail in Note 5, the consolidated financial statements
for the quarter and six month periods ended June 29, 1998 have been restated to
adjust the charges related to the restructuring activity which occurred during
the first quarter of 1998. As a result of the restatement, net loss and
net loss per share for the three and six month periods ended June 29, 1998 are
as follows:
Three Months Ended Six Months Ended
Previous Restated Previous Restated
---------- ---------- ---------- ----------
Net loss $ (6,746) $ (10,091) $ (107,935) $ (104,064)
========== ========== ========== ==========
Basic EPS $ (0.07) $ (0.11) $ (1.19) $ (1.14)
========== ========== ========== ==========
Diluted EPS $ (0.07) $ (0.11) $ (1.19) $ (1.14)
========== ========== ========== ==========
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3. Inventories
Jun. 29, Dec. 29,
1998 1997
---------- ----------
Raw materials $ 9,908 $ 17,900
Work in process 32,325 35,281
Finished goods 25,140 23,744
---------- ----------
$ 67,373 $ 76,925
========== ==========
4. Earnings Per Share
Cypress adopted Statement of Accounting Standard No. 128 ("FAS 128"),
Earnings Per Share ("EPS") in 1997. FAS 128 requires presentation of both
basic and diluted EPS on the income statement. Basic EPS is computed by
dividing net income available to stockholders (numerator) by the weighted
average number of common shares outstanding (denominator) during the period.
Diluted EPS is computed using the weighted average number of common and
potential common stock equivalent shares outstanding during the period. In
computing diluted EPS, the average stock price for the period is used in
determining the number of shares assumed to be purchased from the exercise of
stock options. Potential common stock equivalent shares are included in the
computation of diluted EPS, except when anti-dilutive. FAS 128 requires the
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computation as follows:
<TABLE>
<CAPTION>
(In thousands, except per-share amounts)
Three Months Ended
(Restated)
June 29, 1998 June 30, 1997
------------------------------------------------------------
Per Per
Income Share Income Share
(Loss) Shares Amount (Loss) Shares Amount
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income (loss) $ (10,091) 91,036 $ (0.11) $ 6,140 88,768 $ 0.07
========= =========
Effects of Dilutive
Securities:
Stock options -- -- -- 5,328
Convertible debentures -- -- -- --
--------- --------- --------- ---------
Diluted EPS:
Net income (loss) $ (10,091) 91,036 $ (0.11) $ 6,140 94,096 $ 0.07
========= ========= ========= ========= ========= =========
</TABLE>
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<TABLE>
Six Months Ended
(Restated)
June 29, 1998 June 30, 1997
------------------------------------------------------------
Per Per
Income Share Income Share
(Loss) Shares Amount (Loss) Shares Amount
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income (loss) $(104,064) 91,052 $ (1.14) $ 11,100 85,303 $ 0.13
========= =========
Effects of Dilutive
Securities:
Stock options -- -- -- 5,328
Convertible debentures -- -- 966 3,752
--------- --------- --------- ---------
Diluted EPS:
Net income (loss) $(104,064) 91,052 $ (1.14) $ 12,066 94,383 $ 0.13
========= ========= ========= ========= ========= =========
</TABLE>
Options to purchase 22,609,000 shares of common stock were outstanding at June
29, 1998, but were not included in the computation of diluted EPS as the effect
of these shares was anti-dilutive. Convertible debentures outstanding at June
29, 1998 convertible to 7,408,000 shares of common stock were also excluded
from diluted EPS as their effect was anti-dilutive.
5. Restructuring and Other Non-Recurring Costs
In March 1998, Cypress recorded restructuring charges for $65.1 million. This
primarily related to the write-down of the carrying value of fixed assets to
their recoverable amount, thus requiring a charge of $52.5 million and
establishment of reserves amounting to $12.6 million relating to the write-down
of inventory; operating costs attributable to the closure and consolidation of
manufacturing facilities; consolidation of test facilities; severance of
manufacturing and other personnel and other costs.
Subsequently, Cypress revised the charge previously recorded in March 1998 in
order to better reflect when the charges were required. The revisions included
reductions in the charges for the write-down of assets of $6.1 million and the
reduction in the reserves required for severance and inventory write-downs
amounting to $1.9 million. Certain of these charges were recorded in the
current quarter.
The restructuring entailed:
(1) The shutdown of Fab 3, located in Bloomington, Minnesota and
consolidation of parts of Fab 3 operations with other operations of
Cypress.
(2) The discontinuance of the 0.6 micron 256k SRAM production in Fab 2
located in Texas.
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(3) The conversion of an existing research and development fab located in
San Jose ("Fab 1") to eight-inch capability in order to be
compatible with the state of the art eight-inch Minnesota
manufacturing facility.
(4) The transfer of Cypress's test operations from its subcontractor,
Alphatec, in Thailand to Cypress's production facility in the
Philippines.
(5) The restructuring activities described above include the termination
of approximately 850 personnel, primarily from manufacturing, both at
Cypress and at Alphatec.
Separate from the restructuring charge, Cypress recorded an additional $27.3
million, which were recorded as operating expenses in the first quarter of
1998. These charges resulted from changes in market conditions and were
considered as part of ongoing operations. They included inventory reserves
($15.8 million), the write-off of pre-operating costs ($3.8 million), the
write-off of an equity investment ($3.1 million), costs incurred to reimburse
a customer for certain product expenses incurred ($2.5 million) and the
write-off of obsolete equipment in Fab 4 ($2.1 million). The write-down of
inventory was made to establish incremental reserves for excess inventory and
was recorded as cost of revenues.
The write-off of pre-operating costs included $2.9 million related to Cypress's
wafer fabrication operation in Bloomington, Minnesota and $0.9 million related
to its assembly and test operation in the Philippines. As a result of
restructuring activities described above, Cypress wrote off its previously
capitalized pre-operating costs as an impaired asset due to uncertainties
surrounding their future economic benefits. The pre-operating costs totalling
$3.8 million, net of accumulated amortization were included in other assets at
December 29, 1997. Such costs were being amortized over five years at a rate
based on estimated units to be manufactured during that period. There are no
capitalized pre-operating costs subsequent to the first quarter of 1998.
The $3.1 million write-off of the equity investment was recorded against net
interest and other income to reflect the decline in the value of a certain
investment. Selling, general and administrative costs included the write-off
of $2.5 million in costs incurred to reimburse a customer for certain product
expenses incurred. During Cypress's periodic review of equipment, some
equipment was identified as obsolete and $2.1 million was charged to cost of
sales to write-off the obsolete equipment.
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The following table sets forth Cypress's restructuring expense and charges
taken against the reserve for the quarter and six-month periods ended
June 29, 1998 and the remaining restructuring reserve balance at June 29, 1998:
<TABLE>
<CAPTION>
(In thousands)
Second Quarter 1998 Activity
Balance Q298 Restructuring Activities Balance
Mar. 30, Jun.29,
1998 Additions Utilized 1998
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Write-down of inventory $ -- $ 500 $ -- $ 500
Severance and other employee
related charges 4,779 1,400 (2,058) 4,121
Other fixed asset related
charges 3,030 -- -- 3,030
Provision for phase-down and
consolidation of manufacturing
facilities 976 -- (451) 525
------------- ------------- ------------- ------------
Total $ 8,785 $ 1,900 $ (2,509) $ 8,176
============= ============= ============= ============
1998 Restructuring Activity
1998 Balance
Restructuring Jun.29,
Expense Utilized 1998
------------- ------------- -------------
<S> <C> <C> <C>
Write-down of inventory $ 2,464 $ (1,964) $ 500
Severance and other employee
related charges 6,179 (2,058) 4,121
Other fixed asset related
charges 3,030 -- 3,030
Provision for phase-down and
consolidation of manufacturing
facilities 976 (451) 525
------------- ------------- -------------
Total $ 12,649 $ (4,473) $ 8,176
============= ============= =============
</TABLE>
For the quarter and six-month periods ended June 29, 1998, Cypress charged
$2.5 million and $4.5 million, respectively, against the restructuring
reserve. These charges were primarily related to the write-off of inventory
located at Cypress's third party subcontractor in Thailand and expenses
incurred for severance and other employee related costs.
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Beginning in the second quarter of 1998, production was phased down in Fab 3
and in accordance with the restructuring plan, production ceased in July 1998.
Also in conjunction with the closure of FAB 3 in Minnesota, Cypress established
a reserve for $1.4 million to cover severance costs associated with the
reduction of work force at that location. This was based on the anticipated
level of payouts that would be made to the personnel that were included in the
work force reduction. As part of a review of inventory, it was noted that
Cypress required an additional reserve of $0.5 million to cover inventory that
was to be written off. This related to a change in estimate regarding
inventory that had been previously reserved.
Cypress has discontinued producing its 0.6 micron 256K SRAM devices in Fab 2
with the last wafer starts occurring during the last week of May 1998.
Severance costs associated with the restructuring were paid during the second
quarter of 1998.
Cypress is also in the midst of moving its third party subcontractor
backend manufacturing operation located in Thailand to the Philippines and is
expected to complete the move by December 1998.
None of the assets currently held-for-sale have been disposed of as of
August 13, 1998. Cypress continues to actively pursue potential buyers,
however no assurance can be given that such actions will be successful or that
the estimated proceeds from such sales will be realized.
The restructuring plan included the disposal of six-inch manufacturing
equipment by January 1999 which was not upgradable to eight-inch capability in
Cypress's research and development wafer fabrication facility in San Jose
("Fab 1"). The remaining net book value of $6.1 million of such assets at the
end of the first quarter, is being written off over the estimated useful life
through January 1999. Incremental depreciation charges of $1.8 million, to
reflect the revised useful lives of this equipment, have been included in
research and development costs for the third quarter and are expected to
continue through January 1999.
6. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes a new model for
accounting for derivatives and hedging activities and supercedes and amends a
number of existing accounting standards. SFAS 133 requires that all
derivatives be recognized in the balance sheet at their fair market value, and
the corresponding derivative gains and losses be either reported in the
statement of operations or as a deferred item depending on the type of hedging
relationship that exists with respect to such derivative. Adopting the
provisions of SFAS 133 are not expected to have a material effect on Cypress's
consolidated financial statements, which will be effective in fiscal year 2000.
7. Impact of Litigation
The semiconductor industry has experienced a substantial amount of litigation
regarding patent and other intellectual property rights. From time to time,
Cypress has received, and may receive in the future, communications
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<PAGE>13
alleging that its products or its processes may infringe on product or process
technology rights held by others. Cypress is currently and may in the
future be involved in litigation with respect to alleged infringement by
Cypress of another party's patents, or may in the future be involved in
litigation to enforce its patents or other intellectual property rights, to
protect its trade secrets and know-how, to determine the validity or scope of
the proprietary rights of others, or to defend against claims of infringement
or invalidity. Such litigation has in the past and could in the future result
in substantial costs and diversion of management resources and payment of
substantial damages and/or royalties or prohibitions against utilization of
essential technologies, and could have a material adverse effect on Cypress's
business, financial condition and results of operations.
In May 1998, EMI Group of North America, Inc. ("EMI") filed suit against
Cypress in the Federal Court in Delaware, claiming that Cypress has infringed
on two patents owned by EMI. Cypress has reviewed the charges, and it believes
that the charges are without merit, that it does not infringe the patents in
question, and that the patents are invalid and/or unenforceable. In July 1998,
EMI amended their complaint against Cypress, alleging that Cypress infringes
two further patents owned by EMI. Cypress is in the process of reviewing the
charges to determine whether they have any merit. Cypress will vigorously
defend itself in these matters. However, because of the nature and inherent
uncertainties of litigation, should the outcome of this action be unfavorable,
Cypress may be required to pay damages and other expenses, which could have a
material adverse effect on Cypress's financial position and results of
operations.
In January 1998, Cypress was contacted by the attorneys representing the
estate of Mr. Jerome Lemelson charging that Cypress infringed on certain
patents registered by Mr. Lemelson. The attorneys for the estate have not
filed suit, but have urged Cypress to enter into a licensing agreement with
the estate in order to avoid litigation. Cypress is in the process of
reviewing the charges to determine the validity of the charge. Should the
estate file suit, Cypress will vigorously defend itself in this matter,
however, because of the nature and inherent uncertainties of litigation, should
the outcome of this action be unfavorable, Cypress may be required to pay
damages and other expenses, which could have a material adverse effect on
Cypress's financial position and results of operations.
In June 1997, Cypress commenced a declaratory judgment action in the United
States District Court for the District of Nevada against the Li Second Family
Trust ("the Trust"), asking for declaratory relief to the effect that a U.S.
patent relating to a part of the process for manufacturing semiconductors is
unenforceable, invalid and not infringed by Cypress. The Trust has
counter-claimed for patent infringement on the same patent, alleging such
patent covers oxide-isolated integrated circuits. In January 1998, in a
related case, the United States District Court for the Eastern District of
Virginia preliminarily ruled that the patent is unenforceable due to
unequitable conduct by Dr. Li and his attorneys in obtaining the patent. Dr.
Li has the right to file an appeal, although no such appeal had been filed as
of August 13, 1998. Cypress believes it has meritorious defenses to the
counter-claim and intends to defend itself vigorously. However, should the
outcome of this action be unfavorable, Cypress's business, financial
condition and results of operations could be materially and adversely affected.
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<PAGE>14
On October 2, 1997, Cypress filed an action against Kevin Yourman, Joseph
Weiss, and their associated law offices in the Superior Court of California in
Santa Clara County for malicious civil prosecution in the underlying securities
fraud actions initiated by Messrs. Yourman and Weiss in 1992. The underlying
securities fraud actions were dismissed because no officer of Cypress made
any actionable false or misleading statements or omissions. An appeal affirmed
the lower court's finding that Messrs. Yourman and Weiss failed to put forth
evidence showing a genuine issue of fact with regard to any statements by
Cypress's officers. A motion by Messrs. Yourman and Weiss to dismiss Cypress's
malicious prosecution action was denied, and appeals of this denial
to the Supreme Court of California were also denied. As a result, this action
will go forward into discovery. Although the expenses and risks of litigation
are unpredictable, Cypress believes it will prevail. Cypress believes
that this action, regardless of its outcome, will have little, if any, effect
on Cypress's financial condition or results of operations.
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<PAGE>15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This 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. Actual results could differ
materially from those projected in the forward-looking statements as a result
of the factors set forth in "Factors Affecting Future Results" and elsewhere in
this Report.
RESULTS OF OPERATIONS:
- --------------------------
Revenues for the quarter and six month period ended June 29, 1998 decreased
13.4% and 10.4%, respectively, compared to the comparable periods a year ago,
dropping to $119.7 million and $236.6 million in 1998 compared to $138.1
million and $264.1 million in 1997. The decline in revenues is attributable to
reduced sales in the Memory Products Division ("MPD"), the Programmable
Products Division ("PPD") and the Data Communications Division ("DCD"). MPD's
revenues decreased 10.6%, comparing the second quarter of 1998 to the
comparable quarter in 1997, primarily as a result of lower revenues recorded
for the sale of Static Random Access Memory ("SRAM") products. SRAM revenues
decreased 8.8% comparing the second quarter of 1998 to the comparable period in
1997 due to a 14.0% decrease in average selling prices ("ASPs"). Even though
SRAM unit sales volume in the second quarter of 1998 was 7.1% higher than in
the second quarter of 1997, it was not enough to offset the decline in ASPs.
ASPs for SRAM products continue to decline in 1998, but at a reduced rate
compared to 1997.
Revenues generated from Cypress's PPD product line decreased significantly,
dropping 33.2% comparing the second quarter of 1998 to the comparable quarter
in 1997. Similar to the first quarter of 1998, PPD's revenues in the second
quarter of 1998 were lower due to Cypress's decision to exit the commodity
Erasable Programmable Read-only Memory ("EPROM") business in December 1997 and
the sale of its Field Programmable Gate Array ("FPGA") line of products to
Quicklogic Corporation in 1997. Revenues generated from the Programmable
Read-only Memory ("PROM") and EPROM line of products were $2.7 million lower in
the second quarter of 1998 compared to the comparable period in 1997. In the
second quarter of 1997, Cypress recorded $4.0 million of revenue, primarily
due to $3.5 million in non-recurring engineering revenue related to the sale of
its FPGA product line to Quicklogic. The remaining decrease in PPD revenues
was primarily related to the division's Small Programmable Logic Device
("SPLD") line of products which recorded 22.1% less revenue in the second
quarter of 1998 compared to the second quarter in 1997. Lower revenues were
due to both a reduction in ASPs and unit sales volume.
Revenues generated from the DCD product line during the second quarter of 1998
decreased 8.9% compared to the same quarter a year ago. The decrease in
revenues was primarily due to lower sales volume from the sale of Specialty
Memory products, which include the Dual-Port and First-in, First-out ("FIFO")
family of products. Revenues generated from the sale of Specialty Memory
products decreased 13.2% comparing the second quarter of 1998 to the same
quarter last year due to a 20.4% decrease in unit sales volume.
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<PAGE>16
Similar to the first quarter of 1998, Cypress's Computer Products Division
("CPD") was the only division to record an increase in revenues growing 28.7%
comparing the second quarter of 1998 to the same quarter in 1997. CPD's
revenue growth can be attributed to its Clock line of products which increased
revenues 47.0% as a result of a 30.4% increase in unit sales volume and a 15.5%
increase in ASPs comparing the second quarter of 1998 to the comparable quarter
a year ago.
As noted above, Cypress continued to experience reductions in ASPs throughout
several of its product lines. The decrease in ASPs continued to be caused by
industry over-supply and ongoing inventory corrections by end user customers,
particularly evident in the telecommunication and data communication markets
that Cypress principally serves. Even though ASPs in several markets have
continued to decline in 1998, the rate of decline has in generally been less
than the rate of decline experienced throughout 1997. ASPs for the remainder
of 1998 are expected to continue to decline, but at a reduced rate from that
experienced in 1997.
In March 1998, Cypress recorded a one-time, pre-tax restructuring and other
non-recurring charge of $84.4 million. The $57.1 million restructuring charge
entailed:
(1) The shutdown of Fab 3, located in Bloomington, Minnesota and
consolidation of parts of Fab 3 operations with other operations of
Cypress.
(2) The discontinuance of the 0.6 micron 256k SRAM production in Fab 2
located in Texas.
(3) The conversion of an existing research and development fab located in
San Jose ("Fab 1") to eight-inch capability in order to be
compatible with the state of the art eight-inch Minnesota
manufacturing facility.
(4) The transfer of Cypress's test operations from its subcontractor,
Alphatec, in Thailand to Cypress's production facility in the
Philippines.
(5) The restructuring activities described above include the termination
of approximately 850 personnel, primarily from manufacturing, both at
Cypress and at Alphatec.
Separate from the restructuring charge, Cypress recorded an additional $27.3
million, which were recorded as operating expenses in the first quarter of
1998. These charges resulted from changes in market conditions and were
considered as part of ongoing operations. They included inventory reserves
($15.8 million), the write-off of pre-operating costs ($3.8 million), the
write-off of an equity investment ($3.1 million), costs incurred to reimburse
a customer for certain product expenses incurred ($2.5 million) and the
write-off of obsolete equipment in Fab 4 ($2.1 million). The write-down of
inventory was made to establish incremental reserves for excess inventory and
was recorded as cost of revenues.
The write-off of pre-operating costs included $2.9 million related to Cypress's
wafer fabrication operation in Bloomington, Minnesota and $0.9 million related
16
<PAGE>17
to its assembly and test operation in the Philippines. As a result of
restructuring activities described above, Cypress wrote off its previously
capitalized pre-operating costs as an impaired asset due to uncertainties
surrounding their future economic benefits. The pre-operating costs totalling
$3.8 million, net of accumulated amortization were included in other assets at
December 29, 1997. Such costs were being amortized over five years at a rate
based on estimated units to be manufactured during that period. There are no
capitalized pre-operating costs subsequent to the first quarter of 1998.
The $3.1 million write-off of the equity investment was recorded against net
interest and other income to reflect the decline in the value of a certain
investment. Selling, general and administrative costs included the write-off
of $2.5 million in costs incurred to reimburse a customer for certain product
expenses incurred. During Cypress's periodic review of equipment, some
equipment was identified as obsolete and $2.1 million was charged to cost of
sales to write-off the obsolete equipment.
During the second quarter of 1998, in conjunction with the closure of FAB 3 in
Minnesota, Cypress established a reserve for $1.4 million to cover severance
costs associated with the reduction of work force at that location. This was
based on the anticipated level of payouts that would be made to personnel that
were included in the work force reduction. As part of a review of inventory,
it was noted that Cypress required an additional reserve of $0.5 million to
cover inventory that was to be written off. This related to a change in
estimate regarding inventory that had been previously reserved.
None of the assets currently held-for-sale, whose carrying value has been
written down to its estimated salvage value, have been disposed of to date.
Cypress continues to actively pursue potential buyers, however no assurances
can be given that such actions will be successful or that the estimated
proceeds from such sales will be realized.
Cypress's cost of revenues as a percentage of revenues for the quarter and
six month period ended June 29, 1998 increased to 69.7% and 83.6%,
respectively, compared to 62.8% and 64.0%, respectively, in the comparable
periods in 1997. In the first quarter of 1998, Cypress recorded non-
recurring, pre-tax charges of $21.7 million under cost of sales, primarily
related to the write-off of pre-operating costs at Cypress's domestic wafer
fabrication plant in Minnesota and its assembly and test facility located in
the Philippines, the write-down of certain inventory, and the write-down of
certain equipment located in Minnesota. Without these non-recurring costs,
the cost of revenues as a percentage of revenues for the six month period in
1998 would have been 74.4%. Revenues continue to fall due to declining ASPs,
despite an increase in units sold. This has contributed to the increase in
cost of revenues as a percentage of revenues. Should ASPs in the future
continue to erode at a rate greater than anticipated, gross margins could be
materially adversely affected. Cypress continues to introduce new products
and new methods of reducing manufacturing costs in order to mitigate the
effects of declining ASPs. The restructuring activities are expected to
ultimately increase Cypress's efficiencies and lower manufacturing costs.
At June 29, 1998, Cypress had consigned approximately $11.4 million, net
book value, of capital assets to Alphatec and Alphatec's production represented
approximately 15.3% of Cypress's backend manufacturing capacity (down from
approximately 17.0% in the fourth quarter of 1997). As stated above, Cypress
17
<PAGE>18
plans to consolidate its test manufacturing operations located at Alphatec into
its Philippines plant by the end of 1998, which will eliminate the majority of
the backend manufacturing activity performed by Alphatec. In 1997, Alphatec
experienced financial difficulties; however, the assembly and test operations
with which Cypress currently does business continue to operate under normal
operating conditions. Cypress is in the process of moving its production out
of Alphatec and into its backend manufacturing facility in the Philippines.
Should Alphatec cease operations or be forced to reduce its manufacturing
capacity before Cypress is able to move its test operations to the Philippines,
Cypress's ability to manufacture a material portion of its products in the
future and ability to recover its assets could be impaired. Cypress management
believes that Alphatec's financial difficulties have not negatively impacted
Alphatec's ability to manufacture Cypress's products to date.
Research and development ("R&D") expenses as a percent of revenues increased
to 21.9% and 21.4%, respectively, for the quarter and six month period ended
June 29, 1998, compared to 17.7% and 17.2%, respectively, for the comparable
periods in 1997. Actual R&D spending increased $1.8 million primarily from the
incremental depreciation expense incurred to reflect the revised useful lives
of certain assets impacted by the upgrade of Fab 1 to an eight-inch facility.
Cypress continued to spend on R&D in an effort to accelerate the development of
new products and the development of its 0.35 and 0.25 micron process
technologies. Even with Cypress's commitment to increase design capabilities
in its design centers and the transformation of the San Jose wafer
manufacturing facility into an eight-inch research and development wafer
facility, R&D spending is projected to remain relatively constant in the future
as Cypress explores new markets and improves its design and process
technologies in an effort to increase revenues and reduce costs. Actual
spending in R&D may increase in the future in proportion to revenue growth.
Selling, general and administrative ("SG&A") expenses as a percent of revenues
for the quarter and six month period ended June 29, 1998 increased to 16.6% and
17.8%, respectively, compared to 13.9% in both comparable periods a year ago.
Actual SG&A spending in the second quarter of 1998 was slightly higher compared
to the second quarter in 1997; however, SG&A spending for the six month period
in 1998 grew 14.7% in comparison to the first six months in 1997. The increase
in SG&A spending was primarily due to $2.5 million of non-recurring, pre-tax
charges recorded in the first quarter of 1998 related to costs incurred to
reimburse a customer for certain product expenses incurred and higher marketing
costs due to a new sales force training program and higher expenditures in
marketing communications. With the exception of variable spending, such as
incentive bonuses and commissions, Cypress plans to keep SG&A spending
relatively constant.
The operating loss for the quarter and six month period ended June 29, 1998 was
$11.8 million, or 9.8% of revenues, and $113.0 million, or 47.7% of revenues,
respectively, compared to operating income of $7.9 million, or 5.7% of revenues
and $13.0 million, or 4.9% of revenues, respectively, in the comparable periods
in 1997. Without the $83.2 million of restructuring and other non-recurring
charges recorded as operating charges, the operating loss in the first six
months of 1998 would have been $29.8 million. Cypress continued to experience
the effects of falling ASPs as revenues have declined even though the number of
units sold increased.
18
<PAGE>19
For the quarter ended June 29, 1998, Cypress recorded net interest and
other income of $0.6 million compared to net interest and other income of $1.5
million in the comparable period in 1997. For the six month period ended June
29, 1998, Cypress recorded net interest and other expenses of $2.1 million
compared to net interest and other income of $4.0 million in the comparable
period a year ago. In the first quarter of 1998, Cypress recorded a non-
recurring, pre-tax charge of $3.1 million related to the write-down of a
certain investment. Without this write-down, net interest and other income for
the six-month period would have been $1.0 million. In the first quarter of
1997, Cypress recorded a $3.8 million gain from the sale of its remaining
investment in Vitesse Corporation. The gain was partially offset by one-time
costs associated with the conversion of the 1994 convertible subordinated notes
and costs associated with the increased borrowing from Cypress's line of credit.
Tax benefits booked during the first quarter of 1998 have been restated to
reflect the revised loss for the quarter at a rate of 9.6%, consistent with the
original filing. The benefit recognized is less than an expected statutory
rate on Cypress's loss due to limitations on Cypress's ability to carry such
loss back to prior periods.
FACTORS AFFECTING FUTURE RESULTS:
- -----------------------------------
Except for the historical information contained herein, the discussion in this
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, including, but not limited to,
statements as to the future operating results and business plans of Cypress,
that involve risks and uncertainties. Cypress's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, general economic
conditions, the cyclical nature of both the semiconductor industry and
the markets addressed by Cypress's products, such as networking, computer,
and telecommunications markets, the effects of competition, characterized by
price erosion, rapid technological change and heightened foreign competition in
many markets, slower than expected growth in demand for semiconductor products,
the availability and extent of utilization of manufacturing capacity,
dependence on independent subcontract vendors, dependence on limited sources of
supplies, fluctuation in manufacturing yields, the successful development and
timing and market acceptance of new product introductions, product
obsolescence, costs associated with future litigation, costs associated with
protecting Cypress's intellectual property, the successful ramp up of Cypress's
Philippines back-end manufacturing plant, and the ability to develop
and implement new technologies including the continued transition to full
commercial production of Cypress's new 0.35 and 0.25 micron processes,
dependence on key personnel, risk of international operations and the effects
of environmental regulations.
Cypress's quarterly and annual results of operations are affected by a
variety of factors that could materially and adversely affect revenues, gross
profit and income from operations. These factors include, among others, demand
for Cypress's products; changes in product mix; competitive pricing
pressure (particularly in the static RAM market); fluctuations in manufacturing
yields; cost and availability of raw materials; unanticipated delays or
19
<PAGE>20
problems in the introduction or performance of Cypress's new products;
Cypress's ability to introduce new products that meet customer requirements;
market acceptance of Cypress's products; product introduction by
competitors; availability and extent of utilization of manufacturing capacity;
product obsolescence; the successful ramp up of Cypress's Philippines
backend manufacturing plant; the inability to execute successfully Cypress's
restructuring plan; the ability to develop and implement new
technologies, including the transition of Cypress's new 0.35 and 0.25
micron process and continued migration to smaller geometries; the conversion
and upgrade of existing equipment base to these technologies including transfer
of equipment and capability among sites; the conversion and upgrade of the
existing equipment set from 6-inch to 8-inch capability; the level of
expenditures for research and development and sales, general and administrative
functions of Cypress; costs associated with future litigation; and costs
associated with protecting Cypress's intellectual property. Any one or
more of these factors could result in Cypress failing to achieve its
expectations as to future revenues, gross profit and income from operations.
Additionally, risks inherent in the cyclical nature of the semiconductor
industry may cause Cypress's quarterly and annual results of operations to
vary significantly. Moreover, as is common in the semiconductor industry,
Cypress frequently ships more products in the third month of each quarter than
in either of the first two months of the quarter, and shipments in the third
month are higher at the end of that month. The concentration of sales in the
last month of the quarter contributes to the difficulty in predicting Cypress's
quarterly revenues and results of operations.
Since Cypress recognizes revenues from sales to domestic distributors only
upon the distributors' sale to end customers, Cypress is highly dependent
on the accuracy of distributors' estimates on their resale, which could be
materially different from the actual amounts finally reported. These factors
also contribute to the difficulty in predicting Cypress's quarterly revenue
and results of operations, particularly in the last month of the quarter.
Additionally, Cypress's headquarters and some manufacturing facilities are
located near major earthquake faults. In the event of a major earthquake,
Cypress could suffer damages that could materially and adversely affect
Cypress's business, financial conditions and results of operations.
YEAR 2000 READINESS DISCLOSURE:
- --------------------------------
In the next two years, most companies will face a potentially serious
information systems problem because many software application and operational
programs written in the past may not properly recognize calendar dates
beginning in the year 2000. This problem could force computers to either shut
down or provide incorrect data or information. Cypress began the process
of identifying the changes required to its computer programs and hardware, in
consultation with software and hardware providers in late 1996. Efforts are
being made to modify or replace any non-compliant software, systems and
equipment during 1999. In 1997, Cypress began the process of replacing certain
software by implementing a new accounting software system that is Year 2000
compliant.
20
<PAGE>21
Cypress has taken company-wide actions to assess the nature and extent of work
required to prepare its products, systems, equipment and infrastructure for
January 1, 2000. Further, Cypress is aware of the risk to third parties and
the potential adverse impact on Cypress resulting from the failure by these
parties to adequately address the year 2000 problem. In response to this,
Cypress is inquiring of strategic suppliers and large customers to determine
the extent to which Cypress is vulnerable to these third parties' failure to
remediate their own year 2000 issues.
Cypress's Year 2000 contingency planning efforts are guided by three elements
and specifically expressed in its Year 2000 Mission: (1)Cypress serves its
customers continuously, (2)Cypress maintains continuous employment, and
(3)Cypress increases shareholder value relative to its competitors. The
executive staff of Cypress is directly responsible for developing and
improving Cypress's Year 2000 contingency planning efforts, and the team is
led by the Chief Executive Officer. The operating assumption that external
infrastructure may be down for up to 2-4 weeks has been used in order to
create a suitable framework for contingency planning efforts, and as a result,
Cypress expects to have plans in place to address any unforeseen Year 2000
failures. Our contingency planning efforts will continue through June 1999,
at which time these activities will be documented and implemented accordingly.
A number of business responses are being actively considered and all should be
viewed as likely for some segment of our customer/supplier base:
- - developing second/alternate source suppliers for critical raw materials and
subcontract operations,
- - work-in-process inventory "build ahead" in Cypress's wafer fab locations,
- - finished goods inventory "build ahead" in Cypress's/subcontractor assembly
locations,
- - increase consignment inventory programs for strategic customers (up to 3
months on customer premises),
- - higher year-end 1999 stocking levels for primary Cypress distributors,
- - partial/full company shutdown for up to 14 days,
- - facility "safe state" plans. including plans to preserve equipment and
controlled environment of manufacturing facilities (i.e., temperature and
humidity controls) for a period of 2 weeks using self-generated power in
the event of infrastructure shutdown, and
- - early payment/collection as well as delayed payment/collection for Cypress
suppliers, customers and employees.
Cypress has expended and will continue to expend appropriate resources to
address these issues on a timely basis. However, no estimate of the expected
total cost of this effort can be made at this time, nor can any assurance by
given that the year 2000 problem will not have a materially adverse impact on
Cypress's earnings. Costs incurred as of August 13, 1998 have been
insignificant.
21
<PAGE>22
MARKET RISK DISCLOSURE:
- ---------------------------
Cypress has an investment portfolio of securities that are classified as
"available-for-sale". These securities are subject to interest rate risk and
will fall in value if market interest rates increase. Cypress attempts to
limit this exposure by investing primarily in short-term securities. Cypress
has foreign subsidiaries that operate and sell Cypress's products in various
global markets. As a result, Cypress's cash flow and earnings are exposed to
fluctuations in interest rates and foreign currency exchange rates even though
Cypress uses the U.S. dollar as its functional currency for all foreign
subsidiaries. Cypress attempts to limit these exposures through the use of
various hedge instruments, primarily forward contracts and currency option
contracts (with maturities of less than three months) to manage its exposure
associated with firm intercompany and third party transactions and net asset
and liability positions denominated in non-functional currencies.
For further discussion of risk factors, refer to Cypress's filing on Form
10-K with the Securities and Exchange Commission.
LIQUIDITY AND CAPITAL RESOURCES:
- ---------------------------------
Cypress's cash, cash equivalents and short-term investments totaled $185.7
million at June 29, 1998, a decrease of $15.9 million compared to the end of
1997.
During the first six months of 1998, Cypress purchased $38.9 million in
capital equipment compared to $65.5 million in the comparable period in 1997.
Cypress continued to purchase equipment for its domestic wafer fabrication
plants, its test and assembly facility in the Philippines, its backend
manufacturing subcontractors, and its technology group in San Jose. Equipment
purchased for Cypress's wafer fabs is expected to improve wafer
manufacturing capacity and capabilities as Cypress implements new
technologies, including its 0.35 and 0.25 micron processes. A majority of the
new equipment purchased will be for Fab IV located in Minnesota as Cypress
converts its equipment from six-inch to eight-inch. Equipment purchased for
the Philippines and its subcontractors will be used to increase manufacturing
capacity and tool certain packaging capabilities. Capital equipment purchases
for the technology group are expected to enhance and accelerate Cypress's
research and development capabilities. In 1998, the San Jose R&D fab will be
purchasing new equipment as it converts from a six-inch facility to an eight-
inch facility. Capital purchases for the remainder of 1998 are expected to be
approximately $45.0 million as Cypress continues to buy equipment to expand
manufacturing capabilities and capacity and to enhance its research and
development capabilities.
In October 1997, the Board of Directors authorized the repurchase of up to 2.0
million shares of Cypress's common stock. In December 1997, the Board of
Directors authorized the repurchase of an additional 2.0 million shares. As of
August 13, 1998, 1.4 million shares have been repurchased under this program
for $12.5 million. The shares purchased are expected to be issued in
conjunction with Cypress's 1994 Stock Option Plan and Employee Stock
22
<PAGE>23
Purchase Program. In conjunction with the authorized stock repurchase program,
Cypress sold put warrants through private placements for which Cypress
received a net amount of $4.6 million during the first six months of 1998.
Cypress has a maximum potential obligation to purchase 5.6 million shares of
its common stock at an aggregate price of $53.8 million as of August 13, 1998.
The puts have various expiration periods from August 1998 through May 1999.
Cypress has the right to settle the put warrants with cash or settle the
difference between the exercise price and the fair market value at the exercise
date with stock or cash. It is Cypress's intent to settle these put warrants
with stock and therefore no amount was classified out of stockholders' equity
in the accompanying balance sheet.
In September 1997, Cypress completed a $175.0 million private placement
of 5-year convertible subordinated notes. The notes are due in the year 2002,
with a coupon rate of 6.00% and an initial conversion premium of 48.2%. The
notes are convertible into approximately 7,408,000 shares of common stock and
are callable by Cypress three years after the date of issuance. Net
proceeds were $170.2 million, after issuance costs of $4.8 million. A portion
of the proceeds from the notes were used to repay the $49.0 million balance
outstanding under the revolving credit facility, acquire equipment, purchase a
building in Woodinville, Washington and for stock repurchases in 1997. The
remaining proceeds have been invested in interest-bearing investment grade
securities and have been used for general corporate purposes, including capital
expenditures to add manufacturing capacity and capability, development and
commercialization of products, working capital and potential strategic
acquisitions or investments.
In February 1997, Cypress called for redemption of all of the 3.15%
Convertible Subordinated Notes which was effective March 26, 1997. At the time
of conversion, approximately 85% of the holders elected to convert their notes
into Cypress's common stock, increasing the amount of common stock
outstanding by 6,789,013 shares. As a result of holders electing the cash
settlement, Cypress paid out $14.3 million.
In July 1996, Cypress established a three-year $100 million unsecured
revolving credit facility with Bank of America National Trust and Savings
Association as agent on behalf of certain banks. The applicable interest rate
for usage under this agreement was a graduated scale of LIBOR, plus a spread.
The agreement contained certain financial and other covenants including
limitation on indebtedness, liens, disposition of assets, consolidations and
mergers, investments and contingent obligations, and maintenance of a specified
leverage ratio, consolidated tangible net worth, quick ratio and adjusted
EBIT/fixed charge coverage ratio. Cypress cancelled the line of credit
during the second quarter of 1998.
Cypress believes that existing cash, cash from operations and borrowings
under its revolving line of credit agreement, will be sufficient to meet
present and anticipated working capital requirements and other cash needs for
at least the next twelve months. There are no significant purchase
commitments beyond one year. In the event that ASPs continue to decline at
23
<PAGE>24
rates above normal industry levels and increased demand continues to be
insufficient to offset the effects of such declines, Cypress may be
required to raise additional capital through a debt or equity financing.
Although additional financing may be required, there can be no assurance that
it would be available to Cypress or available at terms Cypress deems
satisfactory.
24
<PAGE>25
PART II - OTHER INFORMATION
ITEM 1. The information required by this item is included in Part I in Note 7
of Notes to the Condensed Consolidated Financial Statements.
ITEM 4. Submission of Matters to a Vote of Security Holders
On May 15, 1998, at Cypress's Annual Meeting of Shareholders, the
nominated slate of directors was elected, the appointment of Price
Waterhouse as Cypress's independent accountants was ratified, the
amendment to the Employee Qualified Stock Purchase Plan was approved,
Cypress's proposal regarding composition of the Board of Directors
was approved and Shareholder proposal regarding the composition of the
Board of Directors was not approved. The results of the votes were as
follows:
(1) Election of Directors:
Total Votes
Total Votes For Withheld From
Each Director Each Director
--------------- -------------
T.J. Rodgers 81,084,823 1,891,415
Pierre R. Lamond 81,178,788 1,797,450
Fred B. Bialek 80,858,683 2,117,555
Eric A. Benhamou 81,152,358 1,823,800
John C. Lewis 81,182,455 1,793,783
(2) Ratify the appointment of Price Waterhouse LLP as the Independent
Accountants of Cypress for fiscal year 1998:
For 81,986,294 Against 655,134 Abstain 334,810
(3) To approve amendments to the Employee Qualified Stock Purchase
Plan and the reservation of 2,500,000 shares for issuance
thereunder.
For 28,177,172 Against 14,339,575
Abstain 865,074 Broker Non-Vote 39,594,417
(4) To approve Cypress's proposal regarding composition of the
Board of Directors:
For 66,159,889 Against 15,786,664 Abstain 1,029,685
(5) To approve the Shareholder's proposal regarding composition of the
Board of Directors:
For 14,035,150 Against 25,925,711
Abstain 3,970,144 Broker Non-Vote 39,045,233
25
<PAGE>26
ITEM 6:
(a) Exhibit - 27 "Financial Data Schedule"
(b) Reports on Form 8-K - None
26
<PAGE>27
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: March 24, 1999 /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
27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER AND ENDED SIX
MONTH PERIOD ENDED JUNE 29, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-28-1998 DEC-28-1998
<PERIOD-START> MAR-31-1998 DEC-30-1997
<PERIOD-END> JUN-29-1998 JUN-29-1998
<CASH> 112,832 112,832
<SECURITIES> 72,832 72,832
<RECEIVABLES> 53,123 53,123
<ALLOWANCES> 1,013 1,013
<INVENTORY> 67,373 67,373
<CURRENT-ASSETS> 348,021 348,021
<PP&E> 368,547 368,547
<DEPRECIATION> 417,101 417,101
<TOTAL-ASSETS> 857,031 857,031
<CURRENT-LIABILITIES> 94,688 94,688
<BONDS> 175,000 175,000
<COMMON> 907 907
0 0
0 0
<OTHER-SE> 542,582 542,582
<TOTAL-LIABILITY-AND-EQUITY> 857,031 857,031
<SALES> 119,675 236,628
<TOTAL-REVENUES> 119,675 236,628
<CGS> 83,393 197,775
<TOTAL-COSTS> 83,393 197,775
<OTHER-EXPENSES> 26,263 50,751
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,677 5,519
<INCOME-PRETAX> (11,163) (115,115)
<INCOME-TAX> (1,072) (11,051)
<INCOME-CONTINUING> (10,091) (104,064)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (10,091) (104,064)
<EPS-PRIMARY> (0.11) (1.14)
<EPS-DILUTED> (0.11) (1.14)
</TABLE>
