Cypress Reports Fourth Quarter and Year End 2019 Results

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CYPRESS SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)

	December 29, 2019		December 30, 2018
ASSETS
Cash and cash equivalents	$	415,462	$	285,720
Accounts receivable, net	301,755		324,274
Inventories	297,904		292,093
Assets held for sale	—		13,510
Property, plant and equipment, net	258,748		282,986
Goodwill and other intangible assets, net	1,656,933		1,864,340
Other assets	625,312		630,292
Total assets	$	3,556,114	$	3,693,215
LIABILITIES AND EQUITY
Accounts payable	$	151,393	$	210,715
Income tax liabilities	54,941		53,469
Revenue reserves, deferred margin and other liabilities	523,102		430,814
Current portion of long-term debt	13,615		6,943
Revolving credit facility and long-term debt	712,808		874,235
Total liabilities	1,455,859		1,576,176
Total Cypress stockholders' equity	2,100,255		2,115,734
Non-controlling interest	—		1,305
Total equity	2,100,255		2,117,039
Total liabilities and equity	$	3,556,114	$	3,693,215

CYPRESS SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ON A GAAP BASIS (In thousands, except per-share data) (Unaudited)

	Three Months Ended									Twelve Months Ended
	December 29, 2019			September 29, 2019			December 30, 2018			December 29, 2019			December 30, 2018
Revenues	$	559,568		$	574,521		$	604,474		$	2,205,314		$	2,483,840
Cost of revenues	347,150			358,080			379,264			1,375,289			1,552,385
Gross profit	212,418			216,441			225,210			830,025			931,455
Research and development	91,219			89,253			82,379			362,716			363,996
Selling, general and administrative	88,463			81,963			140,091			344,046			403,031
Total operating expenses	179,682			171,216			222,470			706,762			767,027
Operating income	32,736			45,225			2,740			123,263			164,428
Interest and other expense, net	(8,409		)	(14,922		)	(20,489		)	(44,577		)	(67,845		)
Income (loss) before income taxes and non-controlling interest	24,327			30,303			(17,749		)	78,686			96,583
Income tax benefit (provision)	(5,044		)	(16,247		)	331,447			(2,372		)	315,618
Share in gain/loss, net and impairment of equity method investees	1,477			(1,383		)	(46,497		)	(35,901		)	(57,370		)
Net income	20,760			12,673			267,201			40,413			354,831
Net loss (income) attributable to non-controlling interest	—			10			(87		)	15			(239		)
Net income attributable to Cypress	$	20,760		$	12,683		$	267,114		$	40,428		$	354,592
Net income per share attributable to Cypress:
Basic	$	0.06		$	0.03		$	0.74		$	0.11		$	0.99
Diluted	$	0.05		$	0.03		$	0.72		$	0.11		$	0.95
Cash dividend declared per share	$	0.11		$	0.11		$	0.11		$	0.44		$	0.44
Shares used in net income per share calculation:
Basic	370,846			369,241			361,616			367,308			359,324
Diluted	390,952			388,243			369,638			384,670			372,178

CYPRESS SEMICONDUCTOR CORPORATION RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (In thousands, except percentages and per-share data) (Unaudited)

Table A: GAAP to Non-GAAP reconciling items: Three Months Ended Q4 2019

	Cost of revenues			Research and development			Selling, general and administrative			Interest and other expense, net
GAAP [i]	$	347,150		$	91,219		$	88,463		$	(6,932	)
[1] Stock-based compensation, including costs related to modification of equity awards	4,035			7,010			19,171			—
[2] Changes in value of deferred compensation plan	213			1,318			1,271			(2,747		)
[3] Gain on sale of NAND business to joint venture	(120		)	—			—			—
[4] Share in gain/loss, net of equity method investees	—			—			—			(1,477		)
[5] Imputed interest on convertible debt, equity component amortization on convertible debt and others	—			—			—			3,025
[6] Amortization of debt issuance costs	—			—			—			496
[8] Amortization of acquisition-related intangible assets and other	47,085			—			4,309			—
[9] Restructuring charges and other	(22		)	(493		)	10			—
[10] Merger-related expenses	—			—			1,302			—
Non - GAAP [ii]	$	295,959		$	83,384		$	62,400		$	(7,635	)
Impact of reconciling items [ii - i]	$	(51,191	)	$	(7,835	)	$	(26,063	)	$	(703	)

Table B: GAAP to Non-GAAP reconciling items: Three Months Ended Q3 2019
	Cost of revenues			Research and development			Selling, general and administrative			Interest and other expense, net
GAAP [i]	$	358,080		$	89,253		$	81,963		$	(16,305	)
[1] Stock-based compensation	5,907			7,708			11,276			—
[2] Changes in value of deferred compensation plan	(6		)	(38		)	(37		)	237
[3] Gain on sale of NAND business to joint venture	—			—			—			(1,887		)
[4] Share in gain/loss, net of equity method investees	—			—			—			1,383
[5] Imputed interest on convertible debt, equity component amortization on convertible debt and others	—			—			—			3,101
[6] Amortization of debt issuance costs	—			—			—			626
[7] Loss on extinguishment of debt	—			—			—			6,402
[8] Amortization of acquisition-related intangible assets and other	47,084			—			4,310			—
[9] Restructuring charges	(68		)	291			169			—
[10] Merger-related expenses	—			—			3,043			—
[11] Other income and expenses	—			280			381			(631		)
Non - GAAP [ii]	$	305,163		$	81,012		$	62,821		$	(7,074	)
Impact of reconciling items [ii - i]	$	(52,917	)	$	(8,241	)	$	(19,142	)	$	9,231

Table C: GAAP to Non-GAAP reconciling items: Three Months Ended Q4 2018

	Cost of revenues			Research and development			Selling, general and administrative			Interest and other expense, net
GAAP [i]	$	379,264		$	82,379		$	140,091		$	(66,986	)
[1] Stock based compensation	3,842			6,395			9,166			—
[2] Changes in value of deferred compensation plan	(468		)	(2,377		)	(2,726		)	5,401
[3] Loss on assets held for sale¹	10,869			—			65,722			—
[4] Share in net loss and impairment of equity method investees²	—			—			—			46,496
[5] Imputed interest on convertible debt, equity component amortization on convertible debt and others	—			—			—			3,338
[6] Amortization of debt issuance costs	—			—			—			908
[7] Amortization of intangible assets	49,583			—			4,310			—
[8] Litigation settlement and other	—			(309		)	(159		)	159
[9] Restructuring charges	135			944			437			—
Non - GAAP [ii]	$	315,303		$	77,726		$	63,341		$	(10,684	)
Impact of reconciling items [ii - i]	$	(63,961	)	$	(4,653	)	$	(76,750	)	$	56,302

1.	Relates to our entry into a definitive agreement to divest the NAND business
2.	Includes $41.5 million impairment charge recorded for the investment in Deca Technologies, Inc.

Table D: GAAP to Non-GAAP reconciling items: Twelve Months Ended Q4 2019

	Cost of revenues			Research and development			Selling, general and administrative			Interest and other expense, net
GAAP [i]	$	1,375,289		$	362,716		$	344,046		$	(80,478	)
[1] Stock based compensation, including costs related to modification of equity awards	15,443			33,702			56,837			—
[2] Changes in value of deferred compensation plan	807			4,116			4,120			(7,989		)
[3] Loss (gain) from sale of NAND business to joint venture	1,897			—			1,515			(1,887		)
[4] Share in gain/loss, net and impairment of equity method investees ¹	—			—			—			35,901
[5] Imputed interest on convertible debt, equity component amortization on convertible debt and others	—			—			—			12,770
[6] Amortization of debt issuance costs	—			—			—			2,980
[7] Loss on extinguishment of debt	—			—			—			6,402
[8] Amortization of acquisition-related intangible assets and other	189,679			—			17,233			—
[9] Restructuring charges and other	880			1,160			918			—
[10] Merger-related expenses	—			—			12,754			—
[11] Other income and expenses	—			337			861			(433		)
Non - GAAP [ii]	$	1,166,583		$	323,401		$	249,808		$	(32,734	)
Impact of reconciling items [ii - i]	$	(208,706	)	$	(39,315	)	$	(94,238	)	$	47,744

1. Includes a $29.5 million impairment charge recorded for the investment in Deca Technologies, Inc.

Table E: GAAP to Non-GAAP reconciling items: Twelve Months Ended Q4 2018

	Cost of revenues			Research and development			Selling, general and administrative			Interest and other expense, net
GAAP [i]	$	1,552,385		$	363,996		$	403,031		$	(125,215	)
[1] Stock based compensation, including costs related to modification of equity awards	16,531			35,115			44,319			—
[2] Changes in value of deferred compensation plan	(169		)	(971		)	(1,036		)	2,904
[3] Share in gain/loss, net and impairment of equity method investees¹	—			—			—			57,369
[4] Amortization of intangible assets	200,024			—			18,125			—
[5] Imputed interest on convertible debt, equity component amortization on convertible debt and others	—			—			—			17,966
[6] Amortization of debt issuance cost	—			—			—			1,981
[7] Settlement and other charges	—			(309		)	(645		)	(1,111		)
[8] Restructuring charges	3,271			1,785			11,785			—
[9] Loss on extinguishment of Spansion convertible notes	—			—			—			3,258
[10] Loss on assets held for sale²	10,869			—			65,722			—
[11] Gain on sale on cost method investment	—			—			(1,521		)	—
Non - GAAP [ii]	$	1,321,859		$	328,376		$	266,282		$	(42,848	)
Impact of reconciling items [ii - i]	$	(230,526	)	$	(35,620	)	$	(136,749	)	$	82,367

1. Includes $41.5 million impairment charge recorded for the investment in Deca Technologies Inc.
2. Relates to our entry into a definitive agreement to divest the NAND business

Table F: Non-GAAP gross profit	Three Months Ended									Twelve Months Ended
	Q4'19			Q3'19			Q4'18			Q4'19			Q4'18
GAAP gross profit	$	212,418		$	216,441		$	225,210		$	830,025		$	931,455
Impact of reconciling items on cost of revenues (Table A, B, C, D and E)	51,191			52,917			63,961			208,706			230,526
Non-GAAP gross profit	$	263,609		$	269,358		$	289,171		$	1,038,731		$	1,161,981
GAAP gross margin (GAAP gross profit/revenue)	38.0		%	37.7		%	37.3		%	37.6		%	37.5		%
Non-GAAP gross margin (Non-GAAP gross profit/revenue)	47.1		%	46.9		%	47.8		%	47.1		%	46.8		%

Table G: Non-GAAP operating income	Three Months Ended									Twelve Months Ended
	Q4'19			Q3'19			Q4'18			Q4'19			Q4'18
GAAP operating income [i]	$	32,736		$	45,225		$	2,740		$	123,263		$	164,428
Impact of reconciling items on cost of revenues (see Table A, B, C, D and E)	51,191			52,917			63,961			208,706			230,526
Impact of reconciling items on R&D (see Tables A, B, C, D and E)	7,835			8,241			4,653			39,315			35,620
Impact of reconciling items on SG&A (see Tables A, B, C, D and E)	26,063			19,142			76,750			94,238			136,749
Non-GAAP operating income [ii]	$	117,825		$	125,525		$	148,104		$	465,522		$	567,323
Impact of reconciling items on operating income [ii - i]	$	85,089		$	80,300		$	145,364		$	342,259		$	402,895
GAAP operating margin (GAAP operating income / revenue)	5.9		%	7.9		%	0.5		%	5.6		%	6.6		%
Non-GAAP operating margin (Non-GAAP operating income / revenue)	21.1		%	21.8		%	24.5		%	21.1		%	22.8		%

Table H: Non-GAAP pre-tax profit	Three Months Ended									Twelve Months Ended
	Q4'19			Q3'19			Q4'18			Q4'19			Q4'18
GAAP (loss) income before income taxes and non-controlling interest ("Pre-tax income")	$	24,327		$	30,303		$	(17,749	)	$	78,686		$	96,583
Share in gain/loss, net and impairment of equity method investees ¹	1,477			(1,383		)	(46,497		)	(35,901		)	(57,370		)
Impact of reconciling items on operating income (see Table G)	85,089			80,300			145,364			342,259			402,895
Impact of reconciling items on interest and other expense, net (see Table A, B, C, D and E)	(703		)	9,231			56,302			47,744			82,367
Non-GAAP pre-tax profit	$	110,190		$	118,451		$	137,420		$	432,788		$	524,475
GAAP pre-tax profit margin (GAAP pre-tax income/revenue)	4.3		%	5.3		%	(2.9		)%	3.6		%	3.9		%
Non-GAAP pre-tax profit margin (Non-GAAP pre-tax profit/revenue)	19.7		%	20.6		%	22.7		%	19.6		%	21.1		%

1.	The three months ended Q4'18 includes $41.5 million, and the twelve months ended Q4'19 and Q4'18 include $29.5 million and $41.5 million, respectively, of impairment charge recorded for the investment in Deca Technologies Inc.

Table I: Non-GAAP income tax expense	Three Months Ended									Twelve Months Ended
	Q4'19			Q3'19			Q4'18			Q4'19			Q4'18
GAAP income tax (benefit) provision [i]	$	5,044		$	16,247		$	(331,447	)	$	2,372		$	(315,618	)
[1] Tax impact of non-GAAP adjustments* relating to:
[a] Stock-based compensation		6,345			5,227			4,075			22,256			20,152
[b] Changes in value of deferred compensation plan		12			32			(36	)		221			153
[c] Share in gain/loss, net and impairment of equity method investees		(310	)		290			9,764			7,539			12,047
[d] Imputed interest on convertible debt, equity component amortization on convertible debt and others		636			651			892			2,682			3,964
[e] Amortization of debt issuance costs		104			131		—				625			225
[f] Amortization of acquisition-related intangible assets and other		10,793			10,793			11,202			43,452			45,696
[g] Restructuring and other charges		(105	)		82			318			618			3,537
[h] Other (income) and expenses	—				6		—				165		—
[i] Loss on extinguishment of debt	—				1,344			16,084			1,344			16,768
[j] (Gain) loss on sale of NAND business to joint venture		(25	)		(396	)	—				321		—
[k] Merger, integration, related costs and adjustments related to assets held for sale	—			—				57		—				57
[l] Settlement charges	—			—				(6	)	—				(6	)
[m] Gain on sale of cost method investment	—			—			—			—				(319	)
[n] Merger-related expenses		273			639		—				2,678		—
[2] Uncertain tax positions		1,027			(6,675	)		(3,945	)		(2,730	)		(8,815	)
[3] Valuation allowance release, utilization of NOLs including excess tax benefits, and others**		(21,998	)		(25,704	)		299,385			(72,271	)		237,420
Non-GAAP income tax expense [ii]*	$	1,796		$	2,667		$	6,343		$	9,272		$	15,261
Impact of reconciling items on income tax provision [i - ii]	$	3,248		$	13,580		$	(337,790	)	$	(6,900	)	$	(330,879	)

*Tax impact of Non-GAAP adjustments is calculated by using the federal statutory rate of 21%.
** Other items include but are not limited to deferred tax expense not affecting income tax payable.

Table J: Non-GAAP net income	Three Months Ended								Twelve Months Ended
	Q4'19			Q3'19		Q4'18			Q4'19			Q4'18
GAAP net income attributable to Cypress	$	20,760		$	12,683	$	267,114		$	40,428		$	354,592
Impact of reconciling items on operating income (see Table G)		85,089			80,300		145,364			342,259			402,895
Impact of reconciling items on interest and other expense, net (see Table A, B, C, D, and E)		(703	)		9,231		56,302			47,744			82,367
Impact of reconciling items on income tax provision (see Table I)		3,248			13,580		(337,790	)		(6,900	)		(330,879	)
Non-GAAP net income	$	108,394		$	115,794	$	130,990		$	423,531		$	508,975

Table K: Weighted-average shares, diluted

Three Months Ended

Q4'19

Q3'19

Q4'18

GAAP

Non-GAAP

GAAP

Non-GAAP

GAAP

Non-GAAP

Weighted-average common shares outstanding, basic

370,846

369,241

361,616

Effect of dilutive securities:

Stock options, unvested restricted stock and other

8,503

11,361

7,862

11,704

6,482

11,709

Convertible notes

11,603

9,982

11,140

9,480

1,540

Weighted-average common shares outstanding, diluted

390,952

392,189

388,243

390,425

369,638

374,865

Table L: Weighted-average shares, diluted

Twelve Months Ended

Q4'19

Q4'18

GAAP

Non-GAAP

GAAP

Non-GAAP

Weighted-average common shares outstanding, basic

367,308

359,324

Effect of dilutive securities:

Stock options, unvested restricted stock and other

8,724

12,995

7,754

13,319

Convertible notes

8,638

6,716

5,100

2,705

Weighted-average common shares outstanding, diluted

384,670

387,019

372,178

375,348

Table M: Earnings per share	Three Months Ended
	Q4'19				Q3'19				Q4'18
	GAAP		Non-GAAP		GAAP		Non-GAAP		GAAP		Non-GAAP
Net income (see Table J) [i]	$	20,760	$	108,394	$	12,683	$	115,794	$	267,114	$	130,990
Weighted-average common shares outstanding, diluted (see Table K) [ii]		390,952		392,189		388,243		390,425		369,638		374,865
Earnings per share - diluted [i/ii]	$	0.05	$	0.28	$	0.03	$	0.30	$	0.72	$	0.35

Table N: Earnings per share	Twelve Months Ended
	Q4'19				Q4'18
	GAAP		Non-GAAP		GAAP		Non-GAAP
Net income (see Table J) [i]	$	40,428	$	423,531	$	354,592	$	508,975
Weighted-average common shares outstanding, diluted (see Table L) [ii]		384,670		387,019		372,178		375,348
Earnings per share - diluted [i/ii]	$	0.11	$	1.09	$	0.95	$	1.36

Table O: Adjusted EBITDA	Three Months Ended									Twelve Months Ended
	Q4'19			Q3'19			Q4'18			Q4'19			Q4'18
GAAP net income attributable to Cypress	$	20,760		$	12,683		$	267,114		$	40,428		$	354,592
Interest and other expense, net		(8,409	)		(14,922	)		(20,489	)		(44,577	)		(67,845	)
Income tax benefit (provision)		(5,044	)		(16,247	)		331,447			(2,372	)		315,618
Share in gain/loss, net and impairment of equity method investees ¹		1,477			(1,383	)		(46,497	)		(35,901	)		(57,370	)
Net gain (loss) attributable to non-controlling interests	—				10			(87	)		15			(239	)
GAAP operating income	$	32,736		$	45,225		$	2,740		$	123,263		$	164,428
Impact of reconciling items on operating income (see Table G)		85,089			80,300			145,364			342,259			402,895
Non-GAAP operating income	$	117,825		$	125,525		$	148,104		$	465,522		$	567,323
Depreciation		19,282			19,060			16,527			77,248			66,299
Adjusted EBITDA	$	137,107		$	144,585		$	164,631		$	542,770		$	633,622

1.	The three months ended Q4'18 includes $41.5 million, and the twelve months ended Q4'19 and Q4'18 include $29.5 million and $41.5 million, respectively, of impairment charge recorded for the investment in Deca Technologies Inc.

Table P: Free cash flow	Three Months Ended									Twelve Months Ended
	Q4'19			Q3'19			Q4'18			Q4'19			Q4'18
GAAP net cash provided by operating activities	$	234,246		$	64,497		$	142,215		$	478,915		$	471,700
Acquisition of property, plant and equipment, net		(12,063	)		(10,599	)		(5,069	)		(40,686	)		(63,130	)
Free cash flow	$	222,183		$	53,898		$	137,146		$	438,229		$	408,570

CYPRESS SEMICONDUCTOR CORPORATION SUPPLEMENTAL FINANCIAL DATA (In thousands except financial ratios and per-share amounts) (Unaudited)

	Three Months Ended									Twelve Months Ended
	December 29, 2019			September 29, 2019			December 30, 2018			December 29, 2019			December 30, 2018
Selected Cash Flow Data (Preliminary):
Net cash provided by operating activities	$	234,246		$	64,497		$	142,215		$	478,915		$	471,700
Net cash used in investing activities	$	(14,058	)	$	(2,056	)	$	(5,988	)	$	(27,311	)	$	(49,690	)
Net cash used in financing activities	$	(147,754	)	$	(91,594	)	$	(55,252	)	$	(321,862	)	$	(287,886	)
Other Supplemental Data (Preliminary):
Capital expenditures, net	$	12,063		$	10,599		$	5,069		$	40,686		$	63,130
Depreciation	$	19,282		$	19,060		$	16,527		$	77,248		$	66,299
Payment of dividend	$	40,679		$	40,289		$	39,772		$	160,850		$	157,364
Dividend paid per share	$	0.11		$	0.11		$	0.11		$	0.44		$	0.44
Total debt (principal amount)	$	758,632		$	856,102		$	935,838		$	758,632		$	935,838
Net leverage ratio¹	0.63			0.90			1.03			0.63			1.03
Cash Income Tax	$	1,796		$	2,667		$	6,343		$	9,272		$	15,261
1. Total debt (principal amount) less cash / Last 12 months Adjusted EBITDA

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