Update: Cypress Reports First-Quarter 2014 Results

Update: Cypress Reports First-Quarter 2014 Results 
SAN JOSE, CA -- (Marketwired) -- 04/17/14 --  Cypress Semiconductor
Corp. (NASDAQ: CY) today announced its first-quarter 2014 results,
which included the remarks below from its president and CEO, T.J.
Rodgers. Highlights for the quarter included: 

--  First-quarter revenue and earnings are at the high end of guidance
--  Non-GAAP operating income increased 116% year-on-year
--  Inventory decreased 11% sequentially
--  Free cash flow increased 60% sequentially
--  Book-to-bill was 1.08

Fellow shareholders:  
Our revenue and earnings for the quarter are given below, compared
with those of the prior quarter and prior year:  
(In thousands, except per-share data) 

                           NON-GAAP                        GAAP             
                 ----------------------------  ---------------------------- 
                  Q1 2014   Q4 2013   Q1 2013   Q1 2014   Q4 2013   Q1 2013 
                 --------  --------  --------  --------  --------  -------- 
Revenue          $170,283  $167,776  $172,728  $170,283  $167,776  $172,728 
Gross margin         50.3%     51.0%     50.7%     45.6%     45.6%     45.8%
Pretax margin         7.3%      9.4%      2.5%     -7.5%     -7.0%    -16.6%
Net income                                                                  
 (loss)          $ 11,974  $ 14,992  $  4,579  $ (7,934) $(13,577) $(28,195)
Diluted EPS                                                                 
 (loss per                                                                  
 share)          $   0.07  $   0.09  $   0.03  $  (0.05) $  (0.09) $  (0.19)

Cypress's first-quarter revenue increased 1.5% sequentially, outpacing
normal seasonality and exceeding the upper range of our initial
guidance with broad revenue increases. Our continued focus on
operating expense management showed up in a comparison of the first
quarter of 2013 ($173 million in revenue, $0.03 EPS) to the first
quarter of 2014 ($170 million in revenue, $0.07 EPS). 
We exited the first quarter with a book-to-bill ratio of 1.08 and
expect solid sequential revenue growth in the second quarter. Our Q2
earnings will grow much faster than revenue, reflecting the inherent
leverage created by our efficiency improvements.  
The design win pipeline for our TrueTouch(R) touchscreen products was
evident at both the Consumer Electronics Show in Las Vegas and the
Mobile World Congress show in Barcelona, Spain last quarter; we saw
multiple new products with Cypress touchscreen solutions, such as the
YotaPhone 2 and the ZTE nubia Z5S, cited in this release, and the
Huawei MediaPad X1. The Yota Devices and Huawei products use our
latest Gen5 touchscreen product, the TMA568, which has begun to
generate revenue just six months after we brought it to market.  
+ Our non-GAAP consolidated gross margin for the first quarter was
50.3%, down 0.7 percentage points from the previous quarter,
primarily due to product mix. Excluding our Emerging Technologies
Division (ETD), our core semiconductor gross margin was 51.8%. ETD
revenue is growing rapidly (see Net Sales Summary table) and will
contribute significantly to revenue growth in 2014. 
+ Net inventory at the end of the first quarter was $89.2 million,
down 11% from the fourth quarter. 

                             NET SALES SUMMARY                              
                     (In thousands, except percentages)                     
                        THREE MONTHS ENDED                                  
                  Mar. 30,   Dec. 29,   Mar. 31,   Sequential   Year-over-  
Business Unit       2014       2013       2013       Change     Year Change 
                 ---------  ---------  ---------  -----------  ------------ 
PSD(1)           $  69,347  $  67,746  $  65,505            2%            6%
MPD(1)           $  81,323  $  79,890     82,229            2%           -1%
DCD(1)           $  15,590  $  16,482     22,747           -5%          -31%
ETD(1, 2)        $   4,023  $   3,658      2,247           10%           79%
                 ---------  ---------  ---------  -----------  ------------ 
Total            $ 170,283  $ 167,776  $ 172,728            1%           -1%
                 ---------  ---------  ---------  -----------  ------------ 
China and ROW           62%        64%        64%          -3%           -3%
Americas                15%        14%        17%           7%          -12%
Europe                  14%        12%        11%          17%           27%
Japan                    9%        10%         8%         -10%           13%
                 ---------  ---------  ---------  -----------  ------------ 
Total                  100%       100%       100%           0%            0%
                 ---------  ---------  ---------  -----------  ------------ 
Distribution            68%        69%        74%          -1%           -8%
Direct                  32%        31%        26%           3%           23%
                 ---------  ---------  ---------  -----------  ------------ 
Total                  100%       100%       100%           0%            0%
                 ---------  ---------  ---------  -----------  ------------ 
1.  PSD, Programmable Systems Division; DCD, Data Communications Division;  
    MPD, Memory Products Division: ETD, Emerging Technologies Division.     
2.  "Emerging Technologies" includes businesses outside our core            
    semiconductor businesses outlined in Footnote 1. Includes subsidiaries  
    AgigA Tech Inc., Deca Technologies Inc., and our foundry business unit. 

+ Cypress broadly introduced a new family of CapSense(R) controllers
that enables engineers of all levels to quickly implement sleek and
robust capacitive buttons, sliders and proximity sensors without the
need for coding or firmware development. The new CY8CMBR3x
controllers provide industry-leading features, such as liquid
tolerance, a high signal-to-noise ratio and proximity sensing, making
them ideal replacements for mechanical buttons in industrial,
medical, consumer and wearable electronics applications at a cost of
$0.03 per button. 
+ Cypress introduced a TrueTouch Gen4X capacitive touchscreen
controller family that supports touchscreens with advanced features
and larger screen sizes up to 8.3 inches. The Gen4X TMA448 controller
delivers best-in-class gloved-finger tracking and noise immunity,
enabling high-performance touchscreens for superphones, smartphones,
tablets and e-readers in cost-sensitive markets such as China.  
+ In a teardown of the Qualcomm Toq smartwatch, the electronics
industry analysis firm TechInsights reported that a Cypress TrueTouch
TMA140 controller drives the device's fast and accurate touchscreen
navigation. This wearables design win follows Cypress's win in the
Sony Smartwatch 2. Cypress touch controllers now can operate on just
milliwatts of power, a necessity in the world of wearables. 
+ ZTE selected Cypress's TrueTouch Gen4 touchscreen controller for
its new, top-of-the-line nubia Z5S and nubia Z5S Mini smartphones.
Gen4 enables the family's "easy-wake" functionality, which allows
users to activate the phones from sleep mode with a convenient,
customized gesture, such as tracing the letter "X." 
+ Yota Devices selected Cypress's TrueTouch Gen5 touchscreen
controllers to drive both of the displays in its next-generation
YotaPhone. This premium Android phone uses the TMA568 controller for
advanced multi-touch functionality in the standard display on the
front of the phone and the TMA545 chip to control the "always-on"
electronic paper display on the back of the phone.  
+ Cypress continues to work with multiple touch-sensor suppliers to
enable more accurate and responsive user interfaces for smartphones,
tablets, wearables and other touchscreen applications. In Q1, Cypress
announced that its TrueTouch touchscreen controllers can now drive
the silver nanowire sensors from Carestream Advanced Materials and
the SANTE(R) silver nanoparticle touch sensors from Cima NanoTech.  
+ Cypress announced that it is offering its powerful, 32-bit ARM(R)
Cortex(TM)-M0-based PSoC(R) 4 programmable system-on-chip for just $1
and a new PSoC 4 prototyping board for only $4. The silicon and kit
enable design engineers to upgrade their 8- and 16-bit designs to 32
bits for less than the cost of a pack of AA batteries.  
+ Cypress introduced a USB 3.0 hub controller for the 5-Gbps
SuperSpeed USB 3.0 standard. The EZ-USB(R) HX3 controller, which has
been certified by the USB Implementers Forum (USB-IF), has been
tested with hundreds of USB legacy devices to guarantee robust
interoperability. HX3 has a unique feature called Shared Link(TM),
which spits four of the hub's USB 3.0 ports into four SuperSpeed
ports and four standard USB 2.0 ports, enabling eight ports in total.
It also provides charging support for all important standards and
full configurability, addressing applications such as docking
stations, monitors, Ultrabook(TM) computers, digital TVs, set-top
boxes, printers and servers. 
+ Cypress announced production availability of the industry's first
fourth-generation Quad Data Rate SRAM. Cypress's QDR(R)-IV SRAM, the
market's highest-performance standard networking memory solution,
offers a Random Transaction Rate (RTR) up to 2,132 million
transactions per second (MT/s), which meets the demanding bandwidth
requirements of 100-Gb to 400-Gb line cards in next-generation
switches and routers. Cypress offers QDR-IV SRAMs in 72Mb and 144Mb
+ Cypress subsidiary Deca Technologies, a provider of electronic
interconnect solutions for the semiconductor industry, shipped its
100-millionth component. The company attributes its rapid growth to
strong and sustained demand for wafer-level chip scale packages
(WLCSP) -- which are three to six times smaller than conventional
chip packages. Deca manufactures WLCSPs using its unique, integrated
Autoline production platform, which automates chip packaging to
achieve faster time-to-market at a lower cost. 
+ An employee relations services and software company, Achievers,
named Cypress to its annual list of the 50 Most Engaged
Workplaces(TM) in the U.S. The award recognizes companies that
display leadership and innovation in engaging their employees. 
+ Cypress announced that its Board of Directors approved a quarterly
cash dividend of $0.11 per share, payable to holders of record of the
company's common stock as of the close of business on March 27, 2014.
This dividend was paid on April 17, 2014. 

--  Join the Cypress Developer Community.
--  Follow @CypressSemi on Twitter.
--  Visit us on LinkedIn.
--  View Cypress videos on our Video Library or YouTube.

Cypress delivers high-performance, mixed-signal, programmable
solutions that provide customers with rapid time-to-market and
exceptional system value. Cypress offerings include the flagship PSoC
1, PSoC 3, PSoC 4 and PSoC 5LP programmable system-on-chip families.
Cypress is the world leader in capacitive user interface solutions
including CapSense touch sensing, TrueTouch touchscreens, and
trackpad solutions for notebook PCs and peripherals. Cypress is a
world leader in USB controllers, which enhance connectivity and
performance in a wide range of consumer and industrial products.
Cypress is also the world leader in SRAM and nonvolatile RAM
memories. Cypress serves numerous major markets, including consumer,
mobile handsets, computation, data communications, automotive,
industrial and military. Cypress trades on the NASDAQ Global Select
Market under the ticker symbol CY. Visit Cypress online at
Statements herein that are not historical facts and that refer to
Cypress or its subsidiaries' plans and expectations for Q2 2014 and
the remainder of fiscal year 2014 and beyond are forward-looking
statements made pursuant to the Private Securities Litigation Reform
Act of 1995. We may use words such as "believe," "expect," "future,"
"plan," "intend" and similar expressions to identify such
forward-looking statements that include, but are not limited to,
statements related to the semiconductor market; the strength and
growth of our proprietary and programmable products; our expectations
regarding our revenue growth and earnings leverage; our expectation
that our ETD division will significantly contribute to our 2014
revenue growth; our expectations regarding the demand for our
products and how our products are expected to perform, as well as
American Semiconductor's transfer of a specialized wafer process to
our manufacturing facility. Such statements reflect our current
expectations, which are based on information and data available to
our management as of the date of this release. Our actual results may
differ materially due to a variety of uncertainties and risk factors,
including, but not limited to, the state of and future of the global
economy, business conditions and growth trends in the semiconductor
market, whether our products perform as expected, whether the demand
for our proprietary and programmable products is fully realized, our
ability to manage our business to have strong earnings and
significant revenue growth, reduce operating expenses, our ability to
effectively implement third party wafer processes, the strength or
softness of the markets we serve, our ability to maintain and improve
our gross margins and realize our bookings, the seasonality of the
markets we serve, the financial performance of our subsidiaries and
Emerging Technology Division, and other risks described in our
filings with the Securities and Exchange Commission. We assume no
responsibility to update any such forward-looking statements. 
Cypress, the Cypress logo, PSoC, TrueTouch, EZ-USB and CapSense are
registered trademarks and Shared Link is a trademark of Cypress
Semiconductor Corp. All other trademarks or registered trademarks are
the property of their respective owners. 

                     CYPRESS SEMICONDUCTOR CORPORATION                      
                   CONDENSED CONSOLIDATED BALANCE SHEETS                    
                               (In thousands)                               
                                                March 30,      December 29, 
                                                   2014            2013     
                                             ---------------  ------------- 
  Cash, cash equivalents and short-term                                     
   investments                               $       111,525  $     104,462 
  Accounts receivable, net                           118,215         81,084 
  Inventories, net (a)                                89,193        100,612 
  Property, plant and equipment, net                 253,234        258,585 
  Goodwill and other intangible assets, net          104,678        106,524 
  Other assets                                       103,498        114,569 
                                             ---------------  ------------- 
    Total assets                             $       780,343  $     765,836 
                                             ===============  ============= 
LIABILITIES AND EQUITY                                                      
  Accounts payable                           $        49,940  $      47,893 
  Deferred margin on sales to distributors           141,669        122,578 
  Income tax liabilities                              24,051         29,865 
  Other liabilities                                  161,901        159,865 
  Long-term revolving credit facility                227,000        227,000 
                                             ---------------  ------------- 
    Total liabilities                                604,561        587,201 
                                             ---------------  ------------- 
  Total Cypress stockholders' equity                 180,591        183,109 
  Noncontrolling interest                             (4,809)        (4,474)
                                             ---------------  ------------- 
    Total equity                                     175,782        178,635 
                                             ---------------  ------------- 
      Total liabilities and equity           $       780,343  $     765,836 
                                             ===============  ============= 
(a) Net inventories include $6.1 million and $5.3 million of capitalized    
 inventories related to stock compensation expense, as of March 30, 2014 and
 December 29, 2013, respectively.                                           
                     CYPRESS SEMICONDUCTOR CORPORATION                      
                              ON A GAAP BASIS                               
                   (In thousands, except per-share data)                    
                                          Three Months Ended                
                             March 30,       December 29,      March 31,    
                                2014             2013             2013      
                          ---------------  ---------------  --------------- 
Revenues                  $       170,283  $       167,776  $       172,728 
Cost of revenues                   92,561           91,328           93,682 
                          ---------------  ---------------  --------------- 
Gross margin                       77,722           76,448           79,046 
Operating expenses:                                                         
Research and development           45,330           42,343           49,330 
Selling, general and                                                        
 administrative                    42,609           43,623           45,442 
Amortization of                                                             
 intangibles                        1,833            1,850            2,009 
Restructuring charges              (1,014)            (469)          11,440 
                          ---------------  ---------------  --------------- 
Total operating expenses,                                                   
 net                               88,758           87,347          108,221 
                          ---------------  ---------------  --------------- 
Operating loss                    (11,036)         (10,899)         (29,175)
Interest and other income                                                   
 (loss), net                       (1,750)            (805)             483 
Loss before income taxes          (12,786)         (11,704)         (28,692)
Income tax provision                                                        
 (benefit)                         (4,517)           2,210              146 
                          ---------------  ---------------  --------------- 
Loss, net of taxes                 (8,269)         (13,914)         (28,838)
Adjust for net loss                                                         
 attributable to                                                            
 noncontrolling interest              335              337              643 
                          ---------------  ---------------  --------------- 
Net loss attributable to                                                    
 Cypress                  $        (7,934) $       (13,577) $       (28,195)
                          ===============  ===============  =============== 
Net loss per share                                                          
 attributable to Cypress:                                                   
Basic                     $         (0.05) $         (0.09) $         (0.19)
Diluted                   $         (0.05) $         (0.09) $         (0.19)
Shares used in net loss                                                     
 per share calculation:                                                     
Basic                             154,572          151,580          145,689 
Diluted                           154,572          151,580          145,689 
                          ---------------  ---------------  --------------- 

              CYPRESS SEMICONDUCTOR CORPORATION                             
                    FINANCIAL MEASURES (a)                                  
            (In thousands, except per-share data)                           
                                             Three Months Ended             
                                  March 30,     December 29,    March 31,   
                                     2014           2013           2013     
                                -------------  -------------  ------------- 
GAAP gross margin               $      77,722  $      76,448  $      79,046 
  Stock-based compensation                                                  
   expense                              2,251          3,088          3,618 
  Acquisition-related expense           2,967          5,562            422 
  Changes in value of deferred                                              
   compensation plan                      218            136            122 
  Impairment of assets and                                                  
   other                                2,564            269          4,307 
                                -------------  -------------  ------------- 
Non-GAAP gross margin           $      85,722  $      85,503  $      87,515 
                                =============  =============  ============= 
GAAP research and development                                               
 expenses                       $      45,330  $      42,343  $      49,330 
  Stock-based compensation                                                  
   expense                             (7,183)        (7,356)        (4,967)
  Acquisition-related expense               -              -           (815)
  Changes in value of deferred                                              
   compensation plan                     (424)          (282)          (207)
  Impairment of assets and                                                  
   other                                    -          1,368         (1,394)
                                -------------  -------------  ------------- 
Non-GAAP research and                                                       
 development expenses           $      37,723  $      36,073  $      41,947 
                                =============  =============  ============= 
GAAP selling, general and                                                   
 administrative expenses        $      42,609  $      43,623  $      45,442 
  Stock-based compensation                                                  
   expense                             (7,388)       (10,432)        (3,852)
  Acquisition-related expense            (473)          (148)          (556)
  Changes in value of deferred                                              
   compensation plan                     (964)          (607)        (1,861)
  Impairment of assets and                                                  
   other                                    -           (244)          (177)
                                -------------  -------------  ------------- 
Non-GAAP selling, general and                                               
 administrative expenses        $      33,784  $      32,192  $      38,996 
                                =============  =============  ============= 
GAAP operating loss             $     (11,036) $     (10,899) $     (29,175)
  Stock-based compensation                                                  
   expense                             16,822         20,877         12,437 
  Acquisition-related expense           5,274          7,558          2,894 
  Changes in value of deferred                                              
   compensation plan                    1,606          1,026          3,098 
  Impairment of assets and                                                  
   other                                2,564           (854)         5,878 
  Restructuring charges                (1,014)          (470)        11,440 
                                -------------  -------------  ------------- 
Non-GAAP operating income       $      14,216  $      17,238  $       6,572 
                                =============  =============  ============= 
GAAP net loss attributable to                                               
 Cypress                        $      (7,934) $     (13,577) $     (28,195)
  Stock-based compensation                                                  
   expense                             16,822         20,877         12,437 
  Acquisition-related expense           5,274          7,558          2,894 
  Changes in value of deferred                                              
   compensation plan                      747           (535)           674 
  Impairment of assets and                                                  
   other                                2,564           (854)         5,525 
  Restructuring charges                (1,014)          (470)        11,440 
  Tax and tax-related items            (5,367)         1,065           (196)
   gains/losses                           883            930              - 
                                -------------  -------------  ------------- 
Non-GAAP net income                                                         
 attributable to Cypress        $      11,975  $      14,994  $       4,579 
                                =============  =============  ============= 
GAAP net loss per share                                                     
 attributable to Cypress -                                                  
 diluted                        $       (0.05) $       (0.09) $       (0.19)
  Stock-based compensation                                                  
   expense                               0.10           0.13           0.08 
  Acquisition-related expense            0.03           0.05           0.02 
  Changes in value of deferred                                              
   compensation plan                        -              -           0.01 
  Impairment of assets and                                                  
   other                                 0.02          (0.01)          0.04 
  Restructuring charges                 (0.01)             -           0.07 
  Tax and tax-related items             (0.03)          0.01              - 
   gains/losses                          0.01           0.01              - 
  Non-GAAP share count                                                      
   adjustment                               -          (0.01)             - 
                                -------------  -------------  ------------- 
Non-GAAP net income per share                                               
 attributable to Cypress -                                                  
 diluted                        $        0.07  $        0.09  $        0.03 
                                -------------  -------------  ------------- 
(a) Refer to the accompanying "Notes to Non-GAAP Financial Measures" for a  
 detailed discussion of management's use of non-GAAP financial measures.    
                     CYPRESS SEMICONDUCTOR CORPORATION                      
                        SUPPLEMENTAL FINANCIAL DATA                         
                               (In thousands)                               
                                          Three Months Ended                
                             March 30,       December 29,      March 31,    
                                2014             2013             2013      
                          ---------------  ---------------  --------------- 
Selected Cash Flow Data                                                     
Net cash provided by                                                        
 operating activities     $        25,198  $        21,029  $         8,265 
Net cash provided (used)                                       
 by investing activities  $         2,063  $           309  $          (895)
Net cash used in                                                            
 financing activities     $        (9,619) $        (2,276) $       (13,354)
Other Supplemental Data                                                     
Capital expenditures      $         5,559  $         8,750  $         9,298 
Depreciation              $         9,485  $         9,436  $        10,355 
Payment of dividend       $        16,850  $        16,578  $        15,845 
Dividend paid per share   $          0.11  $          0.11  $          0.11 
Dividend yield per share                                                    
 (a)                                  4.4%             4.3%             4.0%
                          ---------------  ---------------  --------------- 
(a) Dividend yield per share is calculated based on annualized dividend     
 paid per share divided by the common stock share price at the end of the   
                      CYPRESS SEMICONDUCTOR CORPORATION                     
                    CONSOLIDATED DILUTED EPS CALCULATION                    
                    (In thousands, except per-share data)                   
                                    Three Months Ended                      
                    March 30,          December 29,           March 31,     
                      2014                 2013                 2013        
              -------------------- -------------------- --------------------
                 GAAP     Non-GAAP    GAAP     Non-GAAP    GAAP     Non-GAAP
              ---------  --------- ---------  --------- ---------  ---------
Net income                                                                  
 to Cypress   $  (7,934) $  11,974 $ (13,577) $  14,992 $ (28,195) $   4,579
              ---------  --------- ---------  --------- ---------  ---------
 common shares                                                              
 (basic)        154,572    154,572   151,580    151,580   145,689    145,689
Effect of                                                                   
Stock options,                                                              
 stock and                                                                  
 other                -     11,366         -     14,698         -     12,569
              ---------  --------- ---------  --------- ---------  ---------
 common shares                                                              
 for diluted                                                                
 computation    154,572    165,938   151,580    166,278   145,689    158,258
              ---------  --------- ---------  --------- ---------  ---------
Net income                                                                  
 (loss) per                                                                 
 to Cypress -                                                               
 basic        $   (0.05) $    0.08 $   (0.09) $    0.10 $   (0.19) $    0.03
Net income                                                                  
 (loss) per                                                                 
 to Cypress -                                                               
 diluted      $   (0.05) $    0.07 $   (0.09) $    0.09 $   (0.19) $    0.03
                      March 30,          December 29,         March 31,     
                         2014                2013                2013       
                 ------------------- ------------------- -------------------
Average stock                                                               
 price for the                                                              
 period ended    $             10.13 $              9.45 $             10.50
Common stock                                                                
 outstanding at                                                             
 period end (in                                                             
 thousands)                  156,971             153,214             146,866

Notes to Non-GAAP Financial Measures  
To supplement its consolidated financial results presented in
accordance with GAAP, Cypress uses non-GAAP financial measures which
are adjusted from the most directly comparable GAAP financial
measures to exclude certain items, as described in details below.
Management believes that these non-GAAP financial measures reflect an
additional and useful way of viewing aspects of Cypress's operations
that, when viewed in conjunction with Cypress's GAAP results, provide
a more comprehensive understanding of the various factors and trends
affecting Cypress's business and operations. Non-GAAP financial
measures used by Cypress include:  

--  Gross margin;
--  Research and development expenses;
--  Selling, general and administrative expenses;
--  Operating income (loss);
--  Net income (loss); and
--  Diluted net income (loss) per share.

Cypress uses each of these non-GAAP financial measures for internal
managerial purposes, when providing its financial results and
business outlook to the public, and to facilitate period-to-period
comparisons. Management believes that these non-GAAP measures provide
meaningful supplemental information regarding Cypress's operational
and financial performance of current and historical results.
Management uses these non-GAAP measures for strategic and business
decision making, internal budgeting, forecasting and resource
allocation processes. In addition, these non-GAAP financial measures
facilitate management's internal comparisons to Cypress's historical
operating results and comparisons to competitors' operating results.  
Cypress believes that providing these non-GAAP financial measures, in
addition to the GAAP financial results, are useful to investors
because they allow investors to see Cypress's results "through the
eyes" of management as these non-GAAP financial measures reflect
Cypress's internal measurement processes. Management believes that
these non-GAAP financial measures enable investors to better assess
changes in each key element of Cypress's operating results across
different reporting periods on a consistent basis. Thus, management
believes that each of these non-GAAP financial measures provides
investors with another method for assessing Cypress's operating
results in a manner that is focused on the performance of its ongoing
There are limitations in using non-GAAP financial measures because
they are not prepared in accordance with GAAP and may be different
from non-GAAP financial measures used by other companies. In
addition, non-GAAP financial measures may be limited in value because
they exclude certain items that may have a material impact upon
Cypress's reported financial results. Management compensates for
these limitations by providing investors with reconciliations of the
non-GAAP financial measures to the most directly comparable GAAP
financial measures. The presentation of non-GAAP financial
information is not meant to be considered in isolation or as a
substitute for the most directly comparable GAAP financial measures.
The non-GAAP financial measures supplement, and should be viewed in
conjunction with, GAAP financial measures. Investors should review
the reconciliations of the non-GAAP financial measures to their most
directly comparable GAAP financial measures as provided in the
accompanying press release.  
As presented in the "Reconciliation of GAAP Financial Measures to
Non-GAAP Financial Measures" tables in the accompanying press
release, each of the non-GAAP financial measures excludes one or more
of the following items:  

--  Stock-based compensation expense.
    --  Stock-based compensation expense relates primarily to the equity
        awards such as stock options and restricted stock. Stock-based
        compensation is a non-cash expense that varies in amount from
        period to period and is dependent on market forces that are often
        beyond Cypress's control. As a result, management excludes this
        item from Cypress's internal operating forecasts and models.
        Management believes that non-GAAP measures adjusted for
        stock-based compensation provide investors with a basis to measure
        Cypress's core performance against the performance of other
        companies without the variability created by stock-based
        compensation as a result of the variety of equity awards used by
        companies and the varying methodologies and subjective assumptions
        used in determining such non-cash expense.
--  Changes in value of Cypress's key employee deferred compensation
    --  Cypress sponsors a voluntary deferred compensation plan which
        provides certain key employees with the option to defer the
        receipt of compensation in order to accumulate funds for
        retirement. The amounts are held in a trust and Cypress does not
        make contributions to the deferred compensation plan or guarantee
        returns on the investment. Changes in the value of the investments
        under the plan are excluded from the non-GAAP measures. Management
        believes that such non-cash item is not related to the ongoing
        core business and operating performance of Cypress, as the
        investment contributions are made by the employees themselves.
--  Restructuring charges.
    --  Restructuring charges primarily relate to activities engaged by
        management to make changes related to its infrastructure in an
        effort to reduce costs. Restructuring charges and any related
        gains or losses on sale of restructured assets are excluded from
        non-GAAP financial measures because they are not considered core
        operating activities and such costs have not historically occurred
        in each year. Although Cypress has engaged in various
        restructuring activities in the past, each has been a discrete
        event based on a unique set of business objectives. As such,
        management believes that it is appropriate to exclude
        restructuring charges from Cypress's non-GAAP financial measures
        as it enhances the ability of investors to compare Cypress's
        period-over-period operating results from continuing operations.
--  Acquisition-related expense.
    --  Acquisition-related expense primarily includes: (1) amortization
        of intangibles, which include acquired intangibles such as
        purchased technology, patents and trademarks, (2) costs such as
        advisory, legal, accounting and other professional or consulting
        fees related to acquisitions, (3) severance expense incurred in
        connection with acquisition-related headcount reduction efforts,
        and (4) earn-out compensation expense, which include compensation
        resulting from the achievement of milestones established in
        accordance with the terms of the acquisitions. In most cases,
        these acquisition-related charges are not factored into
        management's evaluation of potential acquisitions or Cypress's
        performance after completion of acquisitions, because they are not
        related to Cypress's core operating performance. Adjustments of
        these items provide investors with a basis to compare Cypress
        against the performance of other companies without the variability
        caused by purchase accounting.
--  Impairment of assets and other.
    --  Impairment of assets and other expenses relate primarily to the
        write down of the book value of certain assets to their estimated
        fair value as management determined these assets will be donated,
        sold or will have no future benefit. Cypress excluded this item
        because the non-cash expense is not reflective of its ongoing
        operating results in the period incurred. Excluding this data
        provides investors with a basis to compare Cypress's
        period-over-period performance without such non-cash expense.
--  Taxes, tax effects and foreign currency gain/loss.
    --  Cypress adjusts for the income tax effect that resulted from the
        non-GAAP adjustments as described above. Additionally, Cypress
        also excludes the impact of items that are related to historical
        activities in nature and not reflective of the ongoing operating
        results of Cypress, which can include completion of examinations
        by our U.S. or foreign taxing authorities, lapse of statutes of
        limitations and the resolution of agreements with domestic and
        various foreign tax authorities. This also includes foreign
        currency gain or loss effects on the activities mentioned above.
--  Investment-related gains/losses.
    --  Investment-related gains/losses primarily include: (1) impairment
        loss related to Cypress's investment when it determines the
        decline in fair value is other-than-temporary in nature, and (2)
        gains/losses related to the sales of its debt and equity
        investments. These items are excluded from non-GAAP financial
        measures because they are not related to the core operating
        activities and operating performance of Cypress, and in most
        cases, such transactions have not historically occurred in every
        quarter. As such, management believes that it is appropriate to
        exclude investment-related gains/losses from Cypress's non-GAAP
        financial measures, as it enhances the ability of investors to
        compare Cypress's period-over-period operating results.

Brad W. Buss
EVP Finance & Administration and CFO
(408) 943-2754 
Joseph L. McCarthy
Director, Corporate Communications
(408) 943-2902 
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