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.   BUSINESS REVIEW  + 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)                                                      (Unaudited)                                                                                                                                                                                                                    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%                  ---------  ---------  ---------  -----------  ------------                                                                               Geographic                                                                   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%                  ---------  ---------  ---------  -----------  ------------                                                                               Channel                                                                      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.     FIRST-QUARTER 2014 HIGHLIGHTS  + 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 densities.  + 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.  FOLLOW CYPRESS ONLINE      --  Join the Cypress Developer Community. --  Follow @CypressSemi on Twitter. --  Visit us on LinkedIn. --  View Cypress videos on our Video Library or YouTube.     ABOUT CYPRESS  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 www.cypress.com.  FORWARD-LOOKING STATEMENTS  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)                                                                (Unaudited)                                                                                                                                                               March 30,      December 29,                                                     2014            2013                                                   ---------------  -------------                                                                               ASSETS                                                                                                                                                      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                                     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                                              ON A GAAP BASIS                                                   (In thousands, except per-share data)                                                     (Unaudited)                                                                                                                                                         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                                                               acquisition-related                                                          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                                  RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP                                        FINANCIAL MEASURES (a)                                               (In thousands, except per-share data)                                                     (Unaudited)                                                                                                                                                                   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)   Investment-related                                                            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              -    Investment-related                                                            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)                                                                (Unaudited)                                                                                                                                                         Three Months Ended                                           -------------------------------------------------                               March 30,       December 29,      March 31,                                     2014             2013             2013                                 ---------------  ---------------  ---------------  Selected Cash Flow Data                                                       (Preliminary):                                                              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                                                       (Preliminary):                                                              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     period.                                                                                                                                                                                                                                                                                                                                  CYPRESS SEMICONDUCTOR CORPORATION                                          CONSOLIDATED DILUTED EPS CALCULATION                                         (In thousands, except per-share data)                                                     (Unaudited)                                                                                                                                                  Three Months Ended                                     --------------------------------------------------------------                     March 30,          December 29,           March 31,                            2014                 2013                 2013                       -------------------- -------------------- --------------------                  GAAP     Non-GAAP    GAAP     Non-GAAP    GAAP     Non-GAAP               ---------  --------- ---------  --------- ---------  ---------                                                                              Net income                                                                    (loss)                                                                       attributable                                                                 to Cypress   $  (7,934) $  11,974 $ (13,577) $  14,992 $ (28,195) $   4,579               ---------  --------- ---------  --------- ---------  ---------                                                                              Weighted-                                                                     average                                                                      common shares                                                                outstanding                                                                  (basic)        154,572    154,572   151,580    151,580   145,689    145,689 Effect of                                                                     dilutive                                                                     securities:                                                                 Stock options,                                                                unvested                                                                     restricted                                                                   stock and                                                                    other                -     11,366         -     14,698         -     12,569               ---------  --------- ---------  --------- ---------  --------- Weighted-                                                                     average                                                                      common shares                                                                outstanding                                                                  for diluted                                                                  computation    154,572    165,938   151,580    166,278   145,689    158,258               ---------  --------- ---------  --------- ---------  ---------                                                                              Net income                                                                    (loss) per                                                                   share                                                                        attributable                                                                 to Cypress -                                                                 basic        $   (0.05) $    0.08 $   (0.09) $    0.10 $   (0.19) $    0.03 Net income                                                                    (loss) per                                                                   share                                                                        attributable                                                                 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 operations.   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     plan.          --  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.     Contacts: Brad W. Buss EVP Finance & Administration and CFO (408) 943-2754  Joseph L. McCarthy Director, Corporate Communications (408) 943-2902