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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
/X/ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended January 3, 1994
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
COMMISSION FILE NUMBER: 1-10079
CYPRESS SEMICONDUCTOR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2885898
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3901 NORTH FIRST STREET, SAN JOSE, CALIFORNIA 95134-1599
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (408) 943-2600
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
form 10-K. [ ]
At February 25, 1994, registrant had outstanding 37,065,099 shares of
Common Stock. The market value of voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on February
25, 1994 on the New York Stock Exchange, was approximately $539,031,066. Shares
of Common Stock held by each officer and director and by each person who owns 5%
or more of the outstanding Common Stock have been excluded in that such persons
may be deemed affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 1994 Annual Meeting of
Stockholders are incorporated by reference in Items 10, 11, 12 and 13 of Part
III of this 10-K Report.
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PART I
ITEM I. BUSINESS
GENERAL
Cypress Semiconductor Corporation ("Cypress" or the "Company") designs,
develops, manufactures and markets a broad line of high performance digital
integrated circuits for a range of markets, including high performance
computers, telecommunications, instrumentation and military systems. The Company
currently offers approximately 350 products, most of which are designed to equal
or exceed the speed performance of other equivalent commercially available
products, from its static memory, programmable products, computation products
and data communications divisions. Cypress's products are marketed worldwide
through a network of 23 North American sales offices, six North American
distributors, 15 U.S. sales representative firms, nine European sales offices,
an office in Japan and 35 international sales representative firms. The Company
sells its products to a wide range of customers, including AT&T, Alcatel, Cisco
Systems, Digital Equipment, Hewlett-Packard, IBM, Rockwell International and
Silicon Graphics. In 1993, international sales contributed 27% of the Company's
total sales.
The Company's initial strategy was to provide innovative high performance
CMOS (complementary metal-oxide silicon) integrated circuits to niche markets,
which were believed to be too small to warrant the considerable investment which
would be required for the major established international semiconductor
manufacturers to target those markets. The Company modified its strategy during
1992 to focus on selected high volume products, particularly in the static RAM
and PLD markets, to bring those products to market quickly and at reduced cost
and to achieve significant market acceptance of those targeted products. Because
of the highly competitive nature of the semiconductor industry, its cyclicality
and anticipated pressure on average selling prices over the life of any
particular product, the Company's ability to successfully implement this
strategy and achieve its revenue, earnings and gross margin goals will depend
upon a number of factors, including its ability to maintain its position in the
high performance markets, to increase its presence in the more competitive high
volume markets, to continue to successfully design and develop new products
utilizing advanced semiconductor design and process technologies in a timely
fashion, to improve manufacturing yields and reduce manufacturing costs and to
effectively market and sell its products in light of significant domestic and
international competition.
The Company was incorporated in California in December 1982. The Company's
initial public offering of Common Stock occurred in May 1986 at which time the
Company's Common Stock commenced trading on the Nasdaq National Market. In
February 1987, the Company reincorporated in Delaware. The Company listed its
Common Stock on the New York Stock Exchange on October 17, 1988.
PRODUCTS
In order to achieve its new strategy, Cypress has created a more efficient
overall organization designed to lower costs and accelerate its response to
market opportunities. The Company has reduced the number of business units from
eight to four -- two focused on core technologies (Static Memory Division and
Programmable Products Division) and two on end-market segments (Data
Communications Division and Computation Products Division). Because the
semiconductor industry is characterized by rapid technological change, resulting
in products with higher speed, densities and performance capabilities and
continuing evolution of process technologies, the Company's success will
continue to depend upon timely development, introduction and market acceptance
of new products in these areas.
STATIC MEMORY DIVISION (SMD)
Static RAMs (Static Random Access Memories). High speed static RAMs are
used for storage and retrieval of data in computers and other electronic
systems. Because a computer is required to read from or write into its memory
several times to complete an operation, high performance system designers are
very sensitive to memory access time, which can be a major bottleneck in overall
system performance. Fast static RAMs are used for functions such as "cache
memory" to store the data being processed by the computer's
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central processing unit (CPU). The static RAM market is characterized by the
requirements for many different "densities" (number of bits per memory circuit)
and "organizations" (number of bits available to the user in a single access of
the RAM). This organizational differentiation of the static RAM market -- when
combined with the different RAM features incorporated by various manufacturers,
the need for both military and commercial products, the need for different
package types and the usual grading of product by speed and power -- produces a
complex market structure. The Company's continued progress in lowering its
manufacturing costs has allowed the Static Memory Division to compete
effectively in the high volume personal computer and workstation markets.
Multichip Modules. The Company's high density memory and logic modules are
assembled from high performance devices in a single surface mount package in
order to create custom or standard enhanced single circuit equivalents such as
multi-megabit static RAMs and complete cache memories used within many high
performance personal computers. These modules can provide the solution to many
of the advanced circuit "building blocks" required by modern systems designers.
The multichip modules allow the Company increased visibility on customer trends
and future needs for single chip memory products and an additional means to
satisfy the present needs of customer systems already incorporating Cypress
products.
PROGRAMMABLE PRODUCTS DIVISION (PPD)
EPROMs (Erasable Programmable Read-Only Memories). EPROMs are used in
computers and telecommunications systems to store fixed data which is not
altered during machine operation. Customers buy blank EPROMs and program the
data which is required for a specific application. EPROMs are generally used in
systems such as high performance computers, telecommunication equipment,
military equipment and computer peripherals. In September 1984, Cypress
introduced its first high speed CMOS EPROMs and became one of the first
companies to combine the fast operating speeds of PROMs with the low power
consumption of the CMOS technology. The Company believes that it is one of the
broad-line performance and volume leaders in the fast CMOS EPROM market.
PLDs (Programmable Logic Devices). The "logic" in an electrical system
performs the non-memory functions, such as "floating-point mathematics," or the
organization and routing of signals throughout a computer system. This
constitutes a significant portion of the circuitry in most systems. The Company
manufactures several logic circuits which are programmable by the user. The
Company's PLD products allow the user to replace many standard logic devices
with a single device, thus reducing package count and cost, improving
performance and allowing miniaturization. Cypress's CMOS PLDs are as fast as the
fastest bipolar PLDs but require 50% less power for the same function at the
equivalent speed. The Company's CMOS PLD products are differentiated based on
organization and complexity, including the number of inputs and whether the
outputs are dedicated or programmable. The Company's PLD portfolio includes
BiCMOS 22V10 at five nanoseconds (ns), the first Flash 22V10 and WARPTM software
development tools based on VHDL (very high speed integrated circuit hardware
description language) which supports the Company's high density PLDs and new
FPGA (field programmable gate array) products.
FCT (Fast CMOS Technology) Logic Devices. The Company's 1993 acquisition
of certain inventory and technology from Performance Semiconductor Corporation's
FCT product line gives the Company access to widely used logic devices for
implementing bus interface and standard logic functions in high speed systems.
The Company now offers over 50 standard and bus interface functions.
DATA COMMUNICATIONS DIVISION (DATACOM)
The Company's Datacom products serve the high speed data communications
market with a range of products from the physical connection layer to system
level solutions. HOTLinkTM, a high speed, point-to-point serial communications
chip, is the Company's first product addressing this market. HOTLink, along with
future products, will address the asynchronous transfer mode (ATM) and fibre
channel communications market segments. The product line also encompasses
related products including: RoboClock, a programmable skew clock buffer which
controls signals for a broad range of systems; a broad range of FIFO (first
in/first out) memories, used for communicating data between systems operating at
different frequencies; bit-slice
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microprocessor components, which are used in high performance computers and
controllers; dual port RAMs, which are used in computers and communication
equipment and bus interface products to support the bus interface market,
including a family of VME Controller Devices which provide a complete solution
for insuring proper interfacing between a local BUS and a VME backplane.
COMPUTATION PRODUCTS DIVISION (CPD)
Timing Technology Devices. The Company serves this market through its
newly acquired subsidiary, IC Designs, Inc. (ICD), in Kirkland, Washington.
Timing technology devices are widely used in personal computers. Consequently,
ICD serves high volume major personal computer manufacturers. ICD's clock
oscillators control the intricate timing of all aspects of a computer system,
including signals for the computer's CPU, keyboard, disk drives, system bus,
serial ports and real-time clock. ICD's clock synthesizer integrates essentially
all clock requirements of a personal computer, thus reducing size, power
consumption and cost. ICD's newly announced programmable metal can oscillator,
QuiXTALTM, will be able to replace individual oscillators and control timing
signals in virtually every type of electronic equipment expanding beyond the
personal computer market.
DRAM Accelerator. The Company also produces a DRAM (dynamic random access
memory) accelerator, a high performance DRAM controller designed for high end
computer applications to manage the interface between cache and large DRAM
arrays.
RESEARCH AND DEVELOPMENT
The Company places great emphasis on research and development. This
involves a significant management time commitment to the improvement of research
and development efficiency. The Company's current product strategy requires
rapid development of new products using emerging process technologies while
minimizing research and development costs. The Company performs research and
development at two levels. Research and development relating to process
technology is managed at the corporate level, while research and development
relating to new product design is managed at the operating level by each of the
divisions, in cooperation with the new product production teams.
The Company's research and development expenditures in 1993 were $49.8
million (16% of revenues), compared with $65.0 million (24% of revenues) in 1992
and $71.8 million (25% of revenues) in 1991. The decrease in research and
development spending in 1993 resulted from the sale of its subsidiary, Ross
Technology, Inc., as well as the Company's strategy to focus on its "Top 10"
projects and to limit costs. The Company has converted the focus of its San Jose
wafer fabrication plant to research and development. Primary process efforts are
directed towards developing or enhancing three generations of Cypress's core
CMOS SRAM technologies, including the Company's established 0.8-and 0.65-micron
geometries and emerging 0.5-micron geometry.
MANUFACTURING
The Company manufactures its products at three sub-micron wafer fabrication
facilities using its proprietary 0.65, 0.8 and 1.2-micron CMOS, 0.8 and
0.5-micron BiCMOS and 0.65-micron Flash technologies. To further its competitive
position, the Company has implemented programs to reduce manufacturing cycle
times, improve yields and lower costs. Cypress San Jose (Fab 1), the Company's
first fabrication facility, recently upgraded to 6-inch wafers, and is the heart
of Cypress's research and development operations. Cypress Texas (Fab 2) is the
Company's largest wafer fabrication facility. Cypress Minnesota (Fab 3), which
commenced operations in 1991, is the Company's newest wafer fabrication
facility. During 1993, the Company completed the transfer of its assembly and a
majority of its production test manufacturing operations to Thailand. By the end
of 1993, 86% of the Company's assembly and 87% of the test manufacturing was
done by two offshore subcontractors in Thailand and Indonesia. The Company
intends to add manufacturing capacity and related capital equipment.
The process technology for the fabrication of the Company's CMOS
semiconductor products is highly complex and sensitive to dust and other
contaminants, requiring production in a highly controlled, clean
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environment. Although the fabrication process is highly controlled, the
equipment may not perform flawlessly. Minute impurities, difficulties in the
production process or defects in the masks can cause a substantial percentage of
the wafers to be rejected or individual die on each wafer to be nonfunctional,
which results in the so called "yield" problem which is indigenous to the
semiconductor industry. The Company's philosophy is to prevent wafer fab yield
loss and/or quality problems through analytical manufacturing controls. The
Company tests its products at various stages in the fabrication process,
performs high temperature burn-in qualification as well as continuous
reliability monitoring on all products, and conducts numerous quality control
inspections throughout the entire production flow using its quality-control
analytical equipment. The Company has, on occasion, experienced delayed product
shipments due to lower than acceptable production yields. Accordingly, to the
extent the Company does not achieve acceptable product yields, its operating
results will be adversely affected.
The raw materials and equipment used in the production of the Company's
integrated circuits are available from several suppliers and the Company is not
dependent upon any single source of supply. Shortages could occur in various
essential materials due to interruption of supply or due to increased demand in
the industry. On July 4, 1993 an explosion destroyed the Sumitomo Chemicals
plant in Niihama, Japan. Through this plant, Sumitomo Chemicals supplied a
significant portion of the world's supply of ECN (epoxy cresolnovolac) which is
necessary to produce the compound that is used in packaging the Company's
devices. The Company was able to reposition its manufacturing to subcontractors
who had an adequate supply of ECN without adversely affecting the Company's
ability to meet customer orders. Other shortages have occurred in the Company's
history and lead times have been extended in the industry on occasion without
adversely affecting the Company.
Federal, state and local regulations impose various environmental controls
on the discharge of chemicals and gases used in the manufacturing process.
Increasing public attention has been focused on the environmental impact of
semiconductor operations. The Company believes that its activities conform to
present environmental regulations in all material respects. However, the Company
has from time to time received notice of non-compliance with certain operations
and filing obligations under applicable federal regulations and local
ordinances. While the Company has not experienced any materially adverse effects
on its operations from governmental regulations, there can be no assurance that
such regulations will not in the future impose the need for additional capital
equipment, penalties or other requirements or result in liability for personal
injury or property damage. Further, any failure by semiconductor companies,
including the Company, to adequately control the use of or restrict the
discharge of hazardous substances could also subject them to significant future
liabilities.
MARKETING AND SALES
The Company uses four channels to sell its products: direct OEM (original
equipment manufacturer) sales by the Cypress sales force, direct OEM sales by
manufacturing representative firms, sales through domestic distributors and
sales through international trading companies and representative firms. The
Company's marketing and sales effort is organized around four regions: North
America, Europe, Japan and Asia/Pacific. The Company also has a strategic
accounts group which is responsible for specific customers with worldwide
operations. The Company augments its sales effort with FAEs (field application
engineers) who are specialists in the Company's product portfolio and work with
customers to "design in" Cypress products for their systems. FAEs also help the
Company identify emerging markets and new products.
International revenues were 27% in 1993 compared to 27% in 1992 and 25% in
1991. One distributor accounted for 11% of revenues in 1993 and 10% of revenues
in 1992. In line with industry practices, the Company does not recognize as
revenue sales to distributors until the products have been shipped to end user
customers. The Company warrants its products against defects in materials and
workmanship for a period of one year and the product warranty is generally
limited to a refund of the original purchase price of the product.
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BACKLOG
Cypress's sales are typically made pursuant to standard purchase orders for
delivery of catalog products. Generally, the Company's customer relationships
are not subject to long-term contracts. Quantities of the Company's products to
be delivered and delivery schedules, under purchase orders outstanding from time
to time, are frequently revised to reflect changes in customer needs. For these
reasons, the Company's backlog as of any particular date is not representative
of actual sales for any succeeding period and the Company believes that backlog
is not a good indicator of future revenue.
COMPETITION
The semiconductor industry is intensely competitive and has been
characterized by price erosion, rapid technological change and heightened
foreign competition in many markets. The industry consists of major domestic and
international semiconductor companies, many of which have substantially greater
financial, technical, marketing, distribution and other resources than the
Company, as well as emerging companies attempting to obtain a share of the
existing market. The Company faces competition from other domestic and foreign
high performance integrated circuit manufacturers, many of which have advanced
technological capabilities and have increased their participation in the CMOS
and BiCMOS market sector. The ability of the Company to compete successfully in
the rapidly evolving high performance end of the integrated circuit technology
spectrum depends on elements both within and outside of its control, including
success in developing new products and process technologies, product quality and
price, diversity of product line, cost effectiveness, the pace at which
customers incorporate the Company's products into their systems, the number and
nature of its competitors and general economic conditions. The Company believes
it competes favorably with respect to developing new products and process
technologies, product quality and price, diversity of product line and cost
effectiveness. Price competition in the future could further erode average
selling prices and adversely affect revenues and operating results.
In the low to medium density static RAM area (16K-bit or less in density),
the Company competes against equivalent products of a few manufacturers such as
Integrated Device Technology (IDT). There is more significant price competition
in the higher-volume 64K-bit and 256K-bit static RAM area in which the Company's
competitors include IDT, Motorola, Micron Technology, Hitachi and other Japanese
and Korean manufacturers, as well as several smaller niche oriented
semiconductor start ups.
There are few CMOS competitors in the relatively small high speed PROM
market. However, with the Company's entry into the EPROM market, the Company
will increasingly compete in CMOS EPROMs with Advanced Micro Devices (AMD), SGS
Thompson, Intel and Fujitsu, as well as newer companies such as Atmel and
Waferscale Integration. The Company competes extensively against bipolar PROM
circuit manufacturers such as Philips Corporation, AMD and National
Semiconductor Corporation.
The Company's PLD competition consists of bipolar products from companies
such as AMD, Texas Instruments and National Semiconductor Corporation, and from
CMOS PLDs from larger competitors, including Samsung and AMD, and from a few
newer companies such as Actel, Altera, Lattice Semiconductor and Xilinx.
Additionally, the sale of PLDs is, in part, dependent on the availability of
user design software. Both Altera and Xilinx have such software packages.
The Company's data communications and logic products compete against
bipolar products of similar functionality from established companies such as
AMD, as well as newer versions of these products in CMOS from companies such as
IDT, Samsung and Sharp.
The Company competes against companies such as ICS/Avasem and Chrontel with
respect to timing technology products; IDT, Quality Semiconductor and Pericom
with respect to FCT products; and IDT, among others, with respect to module
products.
PATENTS AND LICENSES
The Company currently has 32 patents and has 25 additional patent
applications on file with the United States Patent Office and is preparing to
file several more patent applications. In addition to factors such as
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innovation, technological expertise and experienced personnel, the Company
believes that patents are becoming increasingly important to compete in the
industry and has an active program to acquire additional patent protection.
There can be no assurance that any patent owned by the Company will not be
invalidated, circumvented or challenged, that the rights granted thereunder will
provide competitive advantages to the Company or that any of the Company's
pending or future patent applications, whether or not being currently challenged
by applicable governmental patent examiners, will be issued with the scope of
the claims sought by the Company, if at all. Furthermore, there can be no
assurance that others will not develop technologies that are similar or superior
to the Company's technology, duplicate the Company's technology or design around
the patents owned by the Company.
In addition, the Company is currently and may in the future be involved in
litigation with respect to alleged infringement by the Company of another
party's patents, or may in the future be involved in litigation to enforce its
patents or other intellectual property rights, to protect its trade secrets, to
determine the validity or scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Such litigation has in the
past and could in the future result in substantial costs and diversion of
resources and payment of substantial damages and/or royalties or prohibitions
against utilization of essential technologies, and could have a material adverse
effect on the Company's business, financial condition or results of operations.
From time to time the Company has received, and may receive in the future,
notice of claims of infringement of other parties' proprietary rights. Although
the Company does not believe that its products or processes infringe the
proprietary rights of any third parties, there can be no assurance that
infringement or invalidity claims (or claims for indemnification resulting from
infringement claims) will not be asserted against the Company or that any such
assertions will not materially adversely affect the Company's business,
financial condition or results of operations. Irrespective of the validity or
the successful assertion of such claims, the Company could incur significant
costs with respect to the defense thereof which could have a material adverse
effect on the Company's business, financial condition or results of operations.
Moreover, if any claims or actions are asserted against the Company, although
the Company might seek to obtain a license under a third party's intellectual
property rights, there can be no assurance that, under such circumstances, a
license would be available under reasonable terms or at all.
The Company has entered into technology license agreements with third
parties which give those parties the right to use patents and other technology
developed by the Company and which give the Company the right to use patents and
other technology developed by such other parties, some of which involve payment
of royalties and some of which involve access to technology used in the
Company's operations. The Company anticipates that it will continue to enter
into such licensing arrangements in the future. There can be no assurance that
such licenses will continue to be available to the Company on commercially
reasonable terms in the future. The loss of or inability to obtain licenses to
key technology in the future could have a material adverse effect on the
Company's business, operating results or financial condition.
EMPLOYEES
As of January 3, 1994, the Company and its subsidiaries had 1,262
employees, as compared to 1,529 in 1992. During 1993, Cypress completed its
reductions in work force in connection with the Company's transfer of assembly
and test manufacturing to Thailand and the Company's re-focus of its wafer
fabrication plant in San Jose. The Company's ability to attract and retain
qualified personnel is essential to its continued success. None of the Company's
employees is represented by a collective bargaining agreement, nor has the
Company ever experienced any work stoppage. The Company believes that its
employee relations are good.
ITEM 2. PROPERTIES
The Company's executive offices, engineering and research and development
facilities are located in an approximately 60,000 square foot leased building at
195 Champion Court, San Jose, California. The current annual rental expense is
approximately $846,000 under a lease which will expire in 2001.
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Immediately adjacent to the Company's executive offices is located the
Company's wafer fabrication facility (Fab 1) which also includes certain on-line
research and development manufacturing operations. This facility is located in
an approximately 61,000 square foot leased building at 3901 North First Street,
San Jose, California. The current annual rental expense is approximately
$833,000 under a lease which expires in 2001.
Immediately adjacent to the Company's San Jose wafer fabrication facility
was located the Company's test operations and support facility. This facility
was located in an approximately 62,700 square foot leased building at 3939 North
First Street, San Jose, California. The current annual rental expense is
approximately $657,000 under a lease which expires in 1994. The Company has
vacated the building and does not plan to renew the lease.
Immediately adjacent to the Company's old test operations facility is
located research and development and other Company staff functions. This office
space is composed of approximately 75,000 square feet in a building located at
4001 North First Street, San Jose, California. The annual rental expense is
$702,000 under a lease which expires in 1996.
In December 1988, the Company purchased the two undeveloped industrial lots
on either side of its headquarters building. These similarly sized lots,
comprising a total of approximately 8.5 acres, will be retained for future
expansion of the San Jose building complex.
The Company owns an approximately 65,000 square foot wafer fabrication
facility (Fab 2) in Round Rock, Texas, and an approximately 170,000 square foot
wafer fabrication facility (Fab 3) on 17 acres of land in Bloomington,
Minnesota.
In October 1990, the Company's subsidiary, Multichip Technology
Incorporated, entered into a lease for an approximately 27,000 square foot
manufacturing facility in San Jose, California. The current annual rent expense
for this facility is approximately $364,000 under a lease which expires in
October 1994. In December 1992, Multichip vacated this space and relocated to
the Company's San Jose wafer fabrication facility. The Company does not plan to
renew the lease.
The Company leases additional space for domestic sales and design centers
in Huntsville, Alabama; Calabasas, Irvine and San Diego, California; Denver and
Colorado Springs, Colorado; Orlando and Tampa, Florida; Roswell, Georgia;
Palatine, Illinois; Columbia, Maryland; Minnetonka, Minnesota; Starkville,
Mississippi; Nashua, New Hampshire; Laurence Harbor, New Jersey; Poughkeepsie,
New York; Raleigh, North Carolina; Portland, Oregon; Trevose, Pennsylvania;
Austin, Houston and Richardson, Texas; and Falls Church, Virginia. The Company
leases international sales and design centers in La Hupe, Belgium; Les Lilis
Cedex, France; Orbassano and Rome, Italy; Tokyo, Japan; Taby, Sweden; Cheshire,
Hampshire and Hertfordshire, United Kingdom; and Henstedt-Ulzburg and Zorneding,
Germany.
ITEM 3. LEGAL PROCEEDINGS
Texas Instruments (TI) has charged Cypress and four other semiconductor
companies with infringement of two patents, primarily covering the plastic
encapsulation process used to package semiconductor devices. This action was
filed before the International Trade Commission (ITC) in Washington, D.C., and
in the U.S. District Court in Dallas, Texas. The ITC has ruled that the plastic
packaging process known as "bottom gating" does infringe, but that "top gating"
used now by Cypress, does not infringe TI's patent. Cypress contends that the
patents are invalid. In March of 1993, the U.S. District Court of Appeals for
the Federal Circuit affirmed the ITC's ruling. No trial date has been set in the
U.S. District Court regarding this matter.
In January and February 1992, the Company and certain of its officers were
named defendants in three purported class-action suits filed in the U.S.
District Court for the Northern District of California. The suits filed are for
alleged violations of the Securities Exchange Act of 1934 and certain provisions
of state law regarding disclosure of short-term business prospects. In 1992, the
three securities class-action complaints were consolidated by the U.S. District
Court for the Northern District of California. The trial date has been scheduled
for June 5, 1995.
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Cypress will vigorously defend itself in these matters and, subject to the
inherent uncertainties of litigation and based upon discovery completed to date,
management believes that the possibility of a material adverse impact on the
Company's financial position as a result of these matters is remote. However,
should the outcome of any of the actions be unfavorable, Cypress may be required
to pay damages and other expenses, which could have a material adverse effect on
the Company's financial position. In addition, the Company could be required to
alter certain of its production processes or products as a result of these
matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information regarding each of the Company's current executive
officers is set forth below:
EXECUTIVE
OFFICER
NAME AGE POSITION SINCE
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T. J. Rodgers................. 46 President and Chief Executive Officer 1982
Antonio R. Alvarez............ 37 Vice President, Research and Development 1993
Emmanuel Hernandez............ 38 Vice President, Finance & Administration, Chief 1993
Financial Officer
J. Daniel McCranie............ 49 Vice President, Marketing and Sales 1993
Except as set forth below, each of the Company's executive officers has
been engaged in his principal occupation described above during the past five
years. There is no family relationship between any director or executive officer
of the Company.
Antonio R. Alvarez joined the Company in May 1987 as a Senior Technical
Engineer. Mr. Alvarez was transferred to the Company's subsidiary, Aspen
Semiconductor Corporation, in April 1988 as the Manager of BiCMOS Technology. In
October 1989, Mr. Alvarez returned to the Company as Vice President, Research
and Development. In February 1993, Mr. Alvarez also became responsible for Fab 1
when it was merged with the research and development department. Prior to
joining the Company in 1987, Mr. Alvarez worked in various engineering and
management positions at Motorola Corporation from September 1979 through July
1987. His last position at Motorola was as a senior member of the technical
staff. Mr. Alvarez became an executive officer of the Company in March 1993.
Emmanuel Hernandez joined the Company in June 1993 as Corporate Controller.
In January 1994, Mr. Hernandez was promoted to Vice President, Finance and
Administration, and Chief Financial Officer. Prior to joining the Company, Mr.
Hernandez held financial positions with National Semiconductor.
J. Daniel McCranie joined the Company in October 1993 as Vice President of
Marketing and Sales. Prior to joining the Company, Mr. McCranie was President
and CEO of SEEQ Technology. Mr. McCranie also held the position of Vice
President of Sales and Marketing for SEEQ prior to becoming President and CEO.
Previously, he held marketing and sales positions at Harris Semiconductor, AMD,
American Microsystems and Signetics.
8
10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is listed on the New York Stock Exchange under
the trading symbol "CY." The following table sets forth, for the periods
indicated, the low, high and closing sales prices for the Common Stock. The
Company has not paid cash dividends and has no present plans to do so. At
January 3, 1994 there were approximately 2,681 holders of record of the
Company's Common Stock.
PRICE RANGE OF
COMMON STOCK($)
--------------------------
LOW HIGH CLOSE
------ ------ ------
Fiscal year ended January 3, 1994:
First Quarter.................................. 8.63 12.38 10.25
Second Quarter................................. 9.38 14.50 14.38
Third Quarter.................................. 12.13 16.75 13.00
Fourth Quarter................................. 11.25 15.13 13.50
Fiscal year ended December 28, 1992:
First Quarter.................................. 13.63 18.13 13.75
Second Quarter................................. 8.38 14.13 8.50
Third Quarter.................................. 7.75 10.25 8.88
Fourth Quarter................................. 8.25 12.00 9.00
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED(1)
-------------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operating results:
Total revenues.................... $304,512 $272,242 $286,829 $ 225,232 $ 199,339
Acquisition-related non-recurring
charges........................ 18,271 -- -- -- --
Restructuring and other
non-recurring costs............ (408) 39,700 -- -- --
Income (loss) from operations..... 10,686 (35,636) 44,759 42,295 40,511
Income (loss) before tax.......... 12,567 (32,928) 51,771 50,349 46,625
Net income (loss)................. 8,043 (21,010) 34,171 33,230 30,714
Net income (loss) per share....... $ 0.21 $ (0.56) $ 0.85 $ 0.87 $ 0.80
Weighted average common and common
equivalent shares
outstanding.................... 38,109 37,257 40,334 38,251 38,262
Balance sheet data:
Cash and short-term investments... $ 80,590 $ 82,046 $103,703 $ 91,650 $ 96,641
Working capital................... 124,651 133,966 150,735 139,192 128,466
Total assets...................... 340,648 320,504 374,603 309,395 285,758
Long term debt and capital lease
obligations (excluding current
portion)....................... -- 1,597 3,310 5,400 9,300
Stockholders' equity.............. 271,685 262,061 298,612 242,208 219,422
- ---------------
(1) The Company operates on a 52-or 53-week fiscal year, ending on the Monday
closest to December 31.
9
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
In 1993, the Company reported record revenues of $304.5 million and
returned to profitability recording net income of $8.0 million or $0.21 per
share compared to a net loss of $21.0 million or $(0.56) per share in 1992. The
increases in revenue and net income are the results of the Company's completion
of the restructuring initiated in 1992 and its cost-reduction strategy.
The transfer of assembly and test manufacturing to Thailand was completed.
Domestic work force reductions continued in 1993, resulting in a year-end
headcount of 1,262, as compared to 1,529 at the end of 1992. The Company changed
the focus of its San Jose wafer fabrication plant to research and development
and increased the output of its other production wafer fabrication plants in
Minnesota and Texas. These actions have produced faster cycle times, increased
yields and lower costs, allowing the Company to compete effectively in
higher-volume markets as well as reducing inventory days from 89 in 1992 to 56
days in 1993. The transfer to Thailand has allowed the Company to consolidate
the buildings it occupies in San Jose, California, from five to three.
The Company restructured its subsidiaries in the second quarter of 1993.
The Company sold its subsidiary, Ross Technology, Inc., which had recorded
recurring operating losses, to Fujitsu Limited for $21.8 million. In addition,
the Company acquired the minority interest of the employees of its subsidiaries
Aspen Semiconductor Corporation and Multichip Technology Incorporated. The Aspen
subsidiary was divided into its two product areas and realigned under the
Company's Static Memory and Programmable Products divisions. The Multichip
subsidiary was realigned under the Static Memory division. The subsidiary
restructuring resulted in a net one-time pre-tax credit of $0.4 million.
In the fourth quarter of 1993, the Company acquired 100% of the outstanding
stock of IC Designs, Inc., a timing technology company, for $20.3 million. The
acquisition provides the Company inroads into the broad personal computer
market. The Company also purchased certain inventory and technology of
Performance Semiconductor Corporation's FCT high-speed logic product line for
$5.3 million. The FCT acquisition complements the Company's current products and
allows the Company to provide systems solutions to its customers. As a result of
these purchases, the Company took a one-time pre-tax charge of $18.3 million
(see Note 3 of the Notes to Consolidated Financial Statements).
The Company's balance sheet remains strong. Cash and short-term investment
balances at the end of 1993 totaled $80.6 million, inclusive of the IC Designs
and the FCT product line acquisitions, the Ross sale and a $19.7 million payment
for the repurchase of 1.9 million shares of the Company's common stock.
RESULTS OF OPERATIONS
In 1993, revenues increased to a record $304.5 million, compared to $272.2
million in 1992 and $286.8 million in 1991. The most significant revenue growth
was experienced in the Static Memory and Data Communications divisions.
Increases in these divisions more than offset the decrease in average selling
price of 21% from 1992 to 1993 and the loss of revenue due to the sale of Ross
Technology, Inc. Lower manufacturing costs allowed the Company to be more price
competitive and to compete effectively in high-volume markets, also contributing
to higher revenues.
Foreign sales as a percentage of total revenue remained constant at 27% in
1993 and 1992, compared to 25% in 1991.
Cost of revenues as a percent of revenues for 1993 increased to 59%
compared to 58% and 45% in 1992 and 1991, respectively. However, the cost of
revenues as a percent of revenues improved towards the end of 1993, decreasing
from 61% in the fourth quarter of 1992 to 57% in the fourth quarter of 1993.
Steady improvement in the gross margin percentage was realized from the
Company's restructuring and cost reduction strategy.
10
12
Research and development expenses decreased significantly in 1993 dropping
to 16% of revenues compared to 24% of revenues in 1992 and 25% of revenues in
1991. The decrease in R&D can be attributed to the sale of Ross Technology, Inc.
and the Company's strategy to focus on its Top 10 projects and hold R&D to a
slower growth rate than revenue. The Company's program to accelerate new product
design has resulted in a 41% improvement in cycle time from the fourth quarter
of 1992 to the fourth quarter of 1993.
Marketing, general and administrative expenses decreased to 15% of revenues
in 1993 compared to 17% in 1992 and 15% in 1991. By controlling costs and
growing sales, the Company achieved its corporate target of 15% of revenues.
Income from operations was $10.7 million in 1993 compared to an operating
loss of $35.6 million in 1992 and operating income of $44.8 million in 1991.
Included in operating income for 1993 are non-recurring charges of $18.3 million
related to the Company's fourth quarter acquisitions. Operating income without
the acquisition-related non-recurring charges and the one-time pre-tax credit
from restructuring would have been $28.5 million. Included in the 1992 operating
income is a charge for restructuring and other non-recurring costs. Operating
income without the $39.7 million restructuring and other non-recurring costs
charge would have been $4.1 million in 1992.
Net interest income in 1993 decreased to $1.9 million compared to $2.7
million in 1992 and $4.7 million in 1991. Net interest income has decreased from
the prior year due primarily to lower rates of return earned on short-term
investments, and a reduction in the average balance of investments held.
The Company recorded income tax expense of $4.5 million in 1993 compared to
an income tax benefit of $11.9 million in 1992 as a result of the pre-tax loss
of $32.9 million. In 1991, the Company recorded an income tax provision of $17.6
million. The effective tax rate for 1993 was 36.0% compared to 36.2% in 1992 and
34.0% in 1991. In 1992, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires use of the
liability method for computing deferred income taxes. In 1991, the Company used
the deferred method under ABP 11. The impact of adopting FAS 109 was not
significant.
1993 net income of $8.0 million was an increase from the 1992 net loss of
$21.0 million, and a decrease from the 1991 net income of $34.2 million. 1993
net income without the acquisition-related non-recurring charges and the
one-time pre-tax credit from restructuring would have been $19.5 million. Net
income in 1992 without the restructuring and other non-recurring costs charge
would have been $4.3 million.
FACTORS AFFECTING FUTURE RESULTS
A number of uncertainties exist that could have an impact on the Company's
future, including general economic conditions, the rate of growth of the
networking, computer and telecommunications market, and the acceleration of new
product introductions. The Company's products continue to experience increased
competition and as a result, are subject to decreases in average selling prices.
Typically, the Company requires new orders in a quarter to meet that quarter's
revenue plan. In addition, the semiconductor industry is generally characterized
by a highly competitive, rapidly changing environment, where results are often
significantly impacted by the introduction of new products, new manufacturing
technologies, and rapid changes in the demand for products which can lead to
unpredictability in monthly revenue. Due to the effect of these forces on the
Company's future operations, past performance should be only one indicator of
future performance and investors should not use historical trends to anticipate
results in future periods.
Current pending litigation and claims are set forth in Note 7 of the Notes
to Consolidated Financial Statements. Cypress will vigorously defend itself in
these matters and, subject to the inherent uncertainties of litigation and based
upon discovery completed to date, management believes that the possibility of a
material adverse impact on the Company's financial position as a result of these
matters is remote. However, should the outcome of any of the actions be
unfavorable, Cypress may be required to pay damages and other expenses, which
could have a material adverse effect on the Company's financial position. In
addition, the Company could be required to alter certain of its production
processes or products as a result of these matters.
11
13
FINANCIAL CONDITION
The Company's financial condition remained strong throughout 1993. Cash,
cash equivalents and short-term investments at the end of fiscal year 1993 were
$80.6 million, a decrease of $1.4 million after the acquisitions of IC Designs
and the FCT product line, the repurchase of the Company's common stock, and the
sale of Ross Technology, Inc. Cash generated from operating activities was $68.9
million in 1993, an increase of $35.2 million from the prior year. Cash
generated from operations was $33.7 million in 1992 and $66.4 million in 1991.
Improved operating results, coupled with asset management, contributed to the
improvement in 1993.
Cash used for investing activities increased to $41.9 million in 1993
compared to $28.0 million in 1992, but decreased in comparison to the $78.2
million invested in 1991. Net capital expenditures for 1993 have risen to $55.5
million compared to $31.9 million in 1992, but have fallen in comparison to 1991
which had expenditures of $64.8 million. The 1993 increase results from the
Company's expansion of wafer fabrication capacity in its Minnesota and Texas
subsidiaries and conversion of its San Jose R&D wafer fabrication plant from
five-inch to six-inch wafers. In addition, in 1993, the Company acquired IC
Designs and the FCT product line for net cash outlays of $16.6 million and $5.3
million, respectively. The Company plans to continue capital expenditures in
1994 for increased fabrication capacity for production and research and
development. It is also exploring alternatives for an additional back-end
manufacturing facility. Additionally, the Company continues to review
opportunities for acquiring complementary businesses and technologies.
Net cash used by financing activities was $1.8 million in 1993 compared to
$18.4 million in 1992, and a $10.5 million inflow in 1991. The cost of treasury
stock repurchased in 1993 decreased to $19.7 million from $26.4 million in 1992.
A majority of the treasury stock repurchased in 1993 was made during the first
half of the year when the stock price ranged from $9.00 to $10.50 per share. The
cash used to repurchase treasury stock was offset by proceeds from the issuance
of capital stock. In 1993, $20.5 million of cash was generated from the issuance
of capital stock through the exercise of employee stock options, compared to
$11.0 million in 1992 and $22.2 million in 1991.
The Company anticipates that existing sources of liquidity and cash flow
from operations will be sufficient to satisfy its cash needs for the foreseeable
future. The Company may, from time to time, as market conditions warrant,
purchase shares of its own common stock on the open market, invest in
complementary technologies, products, or businesses, or raise additional capital
through public and private markets.
12
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CYPRESS SEMICONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JANUARY 3, DECEMBER 28,
1994 1992
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 37,657 $ 12,371
Short-term investments............................................. 42,933 69,675
---------- ------------
Total cash, cash equivalents, and short-term investments........... 80,590 82,046
Accounts receivable, net of allowances for doubtful accounts and
customer returns of $1,347 in 1993 and $833 in 1992............. 46,247 37,927
Other receivables.................................................. 7,957 2,334
Inventories........................................................ 29,285 40,479
Other current assets............................................... 21,759 21,155
---------- ------------
Total current assets....................................... 185,838 183,941
---------- ------------
Property, plant and equipment, net................................... 133,920 120,996
Other assets......................................................... 20,890 15,567
---------- ------------
$ 340,648 $320,504
---------- ------------
---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 26,024 $ 16,429
Accrued compensation and employee benefits......................... 7,071 4,579
Other accrued liabilities.......................................... 12,570 21,943
Current obligations under capital leases and short-term debt....... -- 1,641
Deferred income on sales to distributors........................... 8,851 5,383
Income taxes payable............................................... 6,671 --
---------- ------------
Total current liabilities.................................. 61,187 49,975
Capital lease obligations............................................ -- 1,597
Deferred income taxes................................................ 4,432 2,560
---------- ------------
Total liabilities.......................................... 65,619 54,132
---------- ------------
Minority interest in subsidiaries.................................... 3,344 4,311
---------- ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; none
issued and outstanding.......................................... -- --
Common stock, $.01 par value, 75,000,000 shares authorized;
40,973,000 and 38,940,000 issued; 36,200,000 and 36,067,000
outstanding..................................................... 410 389
Additional paid-in capital......................................... 207,846 186,561
Retained earnings.................................................. 109,513 101,470
---------- ------------
317,769 288,420
Less shares of common stock held in treasury, at cost; 4,773,000
shares at January 3, 1994 and 2,873,000 shares at December 28,
1992............................................................ (46,084) (26,359)
---------- ------------
Total stockholders' equity................................. 271,685 262,061
---------- ------------
$ 340,648 $320,504
---------- ------------
---------- ------------
See accompanying notes to consolidated financial statements.
13
15
CYPRESS SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
YEARS ENDED
--------------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 30,
1994 1992 1991
---------- ------------ ------------
Revenues............................................. $ 304,512 $ 272,242 $ 286,829
---------- ------------ ------------
Costs and expenses:
Cost of revenues................................... 179,821 158,159 128,149
Research and development........................... 49,798 64,951 71,750
Marketing, general and administrative.............. 46,344 45,068 42,171
Acquisition-related non-recurring charges.......... 18,271 -- --
Restructuring and other non-recurring costs........ (408) 39,700 --
---------- ------------ ------------
Total operating costs and expenses......... 293,826 307,878 242,070
---------- ------------ ------------
Operating income (loss).............................. 10,686 (35,636) 44,759
Interest expense..................................... (289) (440) (1,000)
Interest income and other............................ 2,170 3,148 5,723
Gain on subsidiary sale of stock..................... -- -- 2,289
---------- ------------ ------------
Income (loss) before income taxes.................... 12,567 (32,928) 51,771
(Provision) benefit for income taxes................. (4,524) 11,918 (17,600)
---------- ------------ ------------
Net income (loss).................................... $ 8,043 $ (21,010) $ 34,171
---------- ------------ ------------
Net income (loss) per share.......................... $ 0.21 $ (0.56) $ 0.85
---------- ------------ ------------
---------- ------------ ------------
Weighted average common and common equivalent shares
outstanding........................................ 38,109,000 37,257,000 40,334,000
---------- ------------ ------------
---------- ------------ ------------
See accompanying notes to consolidated financial statements.
14
16
CYPRESS SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(SHARES AND DOLLARS IN THOUSANDS)
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------ ------ ---------- -------- -------- -------------
Balances at December 31, 1990...... 35,780 $358 $153,541 $ 88,309 -- $ 242,208
------ ------ ---------- -------- -------- -------------
Issuance of common stock under
employee stock plans............. 2,060 20 16,272 16,292
Tax benefit resulting from stock
option transactions.............. 5,941 5,941
Net income for the year............ 34,171 34,171
------ ------ ---------- -------- -------- -------------
Balances at December 30, 1991...... 37,840 $378 $175,754 $122,480 -- $ 298,612
------ ------ ---------- -------- -------- -------------
Issuance of common stock under
employee stock plans............. 1,100 11 9,059 9,070
Tax benefit resulting from stock
option transactions.............. 1,748 1,748
Repurchase of common stock under
share repurchase program......... (2,873) $(26,359) (26,359)
Net loss for the year.............. (21,010) (21,010)
------ ------ ---------- -------- -------- -------------
Balances at December 28, 1992...... 36,067 $389 $186,561 $101,470 $(26,359) $ 262,061
------ ------ ---------- -------- -------- -------------
Issuance of common stock under
employee stock plans............. 2,033 21 16,193 16,214
Tax benefit resulting from stock
option transactions.............. 4,234 4,234
Warrants issued for services....... 858 858
Repurchase of common stock under
share repurchase program......... (1,900) (19,725) (19,725)
Net income for the year............ 8,043 8,043
------ ------ ---------- -------- -------- -------------
Balances at January 3, 1994........ 36,200 $410 $207,846 $109,513 $(46,084) $ 271,685
------ ------ ---------- -------- -------- -------------
------ ------ ---------- -------- -------- -------------
See accompanying notes to consolidated financial statements.
15
17
CYPRESS SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED
--------------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 30,
1994 1992 1991
---------- ------------ ------------
Cash flow from operating activities:
Net income (loss)..................................... $ 8,043 $(21,010) $ 34,171
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization...................... 41,245 47,634 41,538
Provision for restructuring and other non-recurring
costs............................................ (408) 34,723 --
Acquisition-related non-recurring charges.......... 18,271 -- --
Issuance of warrants for services.................. 858 -- --
Deferred income taxes.............................. (6,209) (11,570) 484
Gain on subsidiary sale of stock................... -- -- (2,289)
Changes in operating assets and liabilities:
Receivables...................................... (7,093) 12,156 3,637
Inventories...................................... 11,800 451 (10,883)
Other assets..................................... (2,278) 1,020 (3,412)
Accounts payable and accrued liabilities......... (1,990) (12,805) 9,806
Deferred income.................................. 3,488 (5,234) (6,434)
Income taxes payable and deferred income taxes... 3,203 (11,680) (208)
---------- ------------ ------------
Cash generated by operations............................ 68,930 33,685 66,410
---------- ------------ ------------
Cash flow from investing activities:
Decrease (increase) in short-term investments......... 26,742 8,957 (13,353)
Acquisition of property, plant, and equipment......... (55,485) (31,899) (64,819)
Net cash generated by subsidiary restructuring........ 9,731 -- --
Acquisition of IC Designs, Inc., net of cash
acquired........................................... (16,629) -- --
Acquisition of FCT product line....................... (5,270) -- --
Other................................................. (967) (5,090) --
---------- ------------ ------------
Net cash flow used for investing activities............. (41,878) (28,032) (78,172)
---------- ------------ ------------
Cash flow from financing activities:
Principal payments on capital lease obligations and
short-term debt.................................... (2,490) (4,206) (16,723)
Repurchase of common stock............................ (19,725) (26,359) --
Issuance of capital stock............................. 20,449 10,962 22,233
Proceeds from subsidiary sale of stock................ -- 1,250 4,952
---------- ------------ ------------
Net cash flow provided (used) by financing activities... (1,766) (18,353) 10,462
---------- ------------ ------------
Net increase (decrease) in cash and cash equivalents.... 25,286 (12,700) (1,300)
Cash and cash equivalents, beginning of year............ 12,371 25,071 26,371
---------- ------------ ------------
Cash and cash equivalents, end of year.................. $ 37,657 $ 12,371 $ 25,071
---------- ------------ ------------
---------- ------------ ------------
Supplemental disclosures of non-cash activity:
In conjunction with the sale of Ross to Fujitsu, there remains a receivable balance of
$5,176 to be collected during 1994.
Supplemental disclosures:
Cash paid during the year for:
Interest........................................... $ 289 $ 440 $ 763
Income taxes....................................... $ 1,635 $ 5,892 $ 10,851
Net cash outflows for property, plant, and
equipment.......................................... $ 55,485 $ 31,899 $ 64,819
Add: Acquisition of Minnesota facility for debt....... -- -- 14,700
---------- ------------ ------------
Property, plant and equipment additions............... $ 55,485 $ 31,899 $ 79,519
---------- ------------ ------------
---------- ------------ ------------
See accompanying notes to consolidated financial statements.
16
18
CYPRESS SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Cypress Semiconductor Corporation (the "Company" or "Cypress") was
incorporated in California in December 1982, commenced business activities in
January 1983, and reincorporated in Delaware in February 1987. The Company
designs, develops and manufactures a broad range of high-performance integrated
circuits. The Company sells to the high-performance computer, military, personal
computer, telecommunications and instrumentation application markets.
The Company's operations outside the U.S. include eleven foreign sales
offices. The assets, liabilities, and results of operations of these entities
were not significant for any of the years presented. The Company conducts
European operations and imports its products through a subsidiary located in the
Netherlands, Cypress Semiconductor International, Incorporated (CSII). Export
revenues, principally to customers in Europe, Japan, and Canada, were 27%, 27%,
and 25% of total revenues in 1993, 1992, and 1991, respectively. As of January
3, 1994, all of the Company's subsidiaries are wholly owned, except for Cypress
Semiconductor (Texas), Inc. (CTI), the Company's wafer fabrication facility in
Texas, which is approximately 17% owned by Altera Corporation (Altera). In 1991,
Altera exercised its remaining options to acquire additional common shares from
CTI, resulting in a gain for Cypress of $2.3 million. Altera receives wafer fab
capacity commensurate with its ownership percentage.
In 1992 and 1991, sales to one customer accounted for 12% and 15% of total
revenues, respectively. Additionally, sales to one distributor accounted for 11%
and 10% of total revenues in 1993 and 1992, respectively.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
Fiscal years 1993, 1992, and 1991 ended January 3, 1994, December 28, 1992,
and December 30, 1991, respectively. The Company operates on a 52-or 53-week
fiscal year, ending on the Monday closest to December 31. Fiscal year 1993
comprised 53 weeks and fiscal years 1992 and 1991 each comprised 52 weeks.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
REVENUE RECOGNITION
Revenue from product sales direct to customers is recognized upon shipment.
Certain of the Company's sales are made to distributors under agreements
allowing certain rights of return and price protection on merchandise unsold by
the distributors. Accordingly, the Company defers recognition of sales and
profit on such sales until the merchandise is sold by the distributors.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid debt instruments with a maturity at
time of purchase of three months or less to be cash equivalents. Cash
equivalents and short-term investments are principally composed of time
deposits, certificates of deposit, collateralized mortgage obligations, U.S.
Government agencies' obligations, loan participations, municipal obligations,
and short-term commercial paper, and all are carried at cost plus accrued
interest, which approximates market value.
17
19
NOTE 1: THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
INVENTORIES
Inventories are valued at standard costs that approximate actual costs, but
not in excess of market. Cost is determined on a first-in, first-out basis.
Market is based on estimated net realizable value. The components of inventories
are as follows:
JANUARY 3, DECEMBER 28,
1994 1992
-------------- ----------------
(DOLLARS IN THOUSANDS)
Raw materials................................ $ 8,820 $ 6,387
Work-in-process.............................. 13,103 25,864
Finished goods............................... 7,362 8,228
-------------- ----------------
Total.............................. $ 29,285 $ 40,479
-------------- ----------------
-------------- ----------------
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation and
amortization are computed for financial reporting purposes using the
straight-line method over the estimated useful lives of the assets, or lease
term if less than useful life. Accelerated methods of computing depreciation are
used for tax purposes. The components of property, plant, and equipment are as
follows:
JANUARY 3, 1994 DECEMBER 28, 1992
--------------- -----------------
(DOLLARS IN THOUSANDS)
Land........................................... $ 7,558 $ 7,558
Machinery and equipment........................ 265,847 220,281
Buildings and leasehold improvements........... 32,067 33,794
Furniture and fixtures......................... 3,984 15,502
--------------- -----------------
309,456 277,135
Accumulated depreciation and amortization...... (175,536) (156,139)
--------------- -----------------
Total................................ $ 133,920 $ 120,996
--------------- -----------------
--------------- -----------------
INCOME TAXES
Effective the beginning of 1992, the Company adopted Statement of Financial
Accounting Standards No. 109 (FAS109), "Accounting for Income Taxes." The
adoption of FAS109 changed the Company's method of accounting for income taxes
from the deferred method (APB11) to an asset and liability approach. Previously,
the Company deferred the past tax effects of timing differences between
financial reporting and taxable income. The asset and liability approach
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the financial statement
carrying amounts and the tax bases of assets and liabilities. The impact of
adopting FAS109 was not significant.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number
of shares of outstanding common stock and common equivalent shares, when
dilutive. Common equivalent shares include shares issuable under the Company's
stock option plans and outstanding warrants as determined by the treasury stock
method. The effect of minority interests in common equivalent shares of
subsidiaries has not been significant.
TRANSLATION OF FOREIGN CURRENCIES
The Company translates accounts denominated in foreign currencies in
accordance with Statement of Financial Accounting Standards No. 52, using the
United States dollar as the functional currency. Foreign currency transaction
gains and losses have not been material in any year.
18
20
NOTE 2: RESTRUCTURING AND OTHER NON-RECURRING COSTS
In June of 1993, Cypress continued its restructuring activities by selling
its SPARC(TM) microprocessor subsidiary, Ross Technology, Inc. to Fujitsu
Limited for $21.8 million. The Company received an aggregate of $16.6 million in
1993, and the remaining proceeds will be received in 1994. In addition to the
divestiture of Ross, the Company restructured the equity of two of its
subsidiaries, Aspen Semiconductor Corporation and Multichip Technology
Incorporated, by acquiring employee minority interests consisting of stock
options and stock received from exercised stock options. Aspen Semiconductor was
absorbed into two of Cypress' divisions, Static Memory and Programmable
Products. Multichip Technology is now integrated as a part of the Static Memory
division. These restructuring activities and the divestiture of Ross resulted in
a net one-time pre-tax credit of $408,000.
In 1992, the Company committed to several restructuring actions. In the
second quarter, the Company committed to transferring a significant portion of
its assembly, test, mark, and shipping (back-end production) offshore to
Bangkok, together with a reduction in headcount. In the fourth quarter, the
Company committed to (1) transfer of the remaining portion of back-end
production to Bangkok; (2) consolidation of all wafer production in the
Company's six-inch wafer manufacturing plants in Texas and Minnesota with a
related shutdown of all wafer production in the five-inch wafer manufacturing
plant in San Jose; (3) consolidation of other facilities; and (4) a further
reduction of headcount. These actions resulted in pre-tax charges of $2.5
million and $23.7 million in the second and fourth quarters, respectively.
Restructuring reserves at December 28, 1992, aggregated $8.3 million and were
included in Other Accrued Liabilities. This restructuring was completed in 1993
with no significant adjustments to amounts provided in 1992.
During the fourth quarter of 1992, the Company provided a pre-tax charge of
$13.5 million for several legal matters and claims, some of which were resolved
in 1993 at amounts approximating charges provided in 1992. Remaining legal
reserves at the end of 1993 were $5.1 million and are included in Other Accrued
Liabilities.
NOTE 3: ACQUISITIONS AND RELATED CHARGES
In the fourth quarter of 1993, the Company acquired 100% of IC Designs,
Inc. (ICD), a manufacturer of timing technology products for the personal
computer market, for $16.3 million plus $4 million for certain covenants not to
compete. The aggregate purchase price of $20.3 million was allocated to assets
purchased and liabilities assumed based on independent appraisal as follows:
Current assets................................................... $ 6,600,000
Covenants not to compete......................................... 4,000,000
R&D in process................................................... 11,000,000
Completed technology............................................. 4,000,000
Goodwill......................................................... 2,000,000
Other assets..................................................... 400,000
Current liabilities.............................................. (1,800,000)
Deferred taxes................................................... (5,900,000)
-----------
Total.......................................................... $20,300,000
-----------
-----------
The following summarizes the unaudited pro forma results of operations of
the Company for 1993 and 1992 assuming the acquisition of IC Designs had
occurred at the beginning of 1992 (Dollars in thousands, except per share
amounts):
YEARS ENDED
-------------------------------------
JANUARY 3, 1994 DECEMBER 28, 1992
--------------- -----------------
(UNAUDITED)
Revenues.............................................. $ 317,280 $ 283,026
Net income (loss)..................................... 9,076 (21,148)
Net income (loss) per share........................... 0.24 (0.57)
19
21
NOTE 3: ACQUISITIONS AND RELATED CHARGES -- CONTINUED
In December 1993, the Company acquired the inventory and technology of the
high-speed logic product line of Performance Semiconductor for an aggregate cost
of $5.3 million. This cost has been allocated based on independent appraisal as
follows:
Inventory........................................................ $ 2,100,000
R&D in process................................................... 3,100,000
Completed technology............................................. 1,100,000
Liabilities...................................................... (1,000,000)
-----------
Total.......................................................... $ 5,300,000
-----------
-----------
The pro forma effect of this product line is not significant. These
acquisitions have been accounted for on the purchase method and the intangible
assets acquired, including covenants not to compete, completed technology and
goodwill, are being amortized over three to five years.
Acquired R&D in process aggregating $14.1 million was charged to expense in
the fourth quarter of 1993. In addition, the Company recorded a non-recurring
charge of $4.2 million for certain restructuring activities of Cypress,
necessitated by the increased volume requirements associated with these
acquisitions. This includes costs of moving a significant portion of back-end
manufacturing operations to an additional Cypress facility, including $2.7
million for the write-down of equipment that will be disposed of and $1.5
million for costs of moving certain equipment.
NOTE 4: COMMON STOCK
Shares of the Company's common stock available for future issuance upon
exercise of outstanding options and warrants and options to be granted in the
future under stock purchase and option plans were as follows at January 3, 1994:
1985 Stock Option Plan........................................... 9,808,546
Directors' Stock Option Plan..................................... 220,000
Employee Qualified Stock Purchase Plan........................... 925,997
Contingent Warrants.............................................. 500,000
-----------
Total.......................................................... 11,454,543
-----------
-----------
1985 STOCK OPTION PLAN
In 1985, the Company adopted an Incentive Stock Option Plan (the Plan). The
Plan is administered and terms of option grants are established by the Board of
Directors or a committee of the board. Under terms of the Plan, options may be
granted to the Company's qualified employees and consultants to purchase shares
of common stock. Options generally become exercisable ratably over a vesting
period as determined by the Board of Directors and expire over terms not
exceeding ten years from the date of grant. The option price for all shares
granted under the Plan is equal to the fair market value of the common stock at
the date of grant.
20
22
NOTE 4: COMMON STOCK -- CONTINUED
Table 1 summarizes information relating to shares under option and shares
available for grant under the Plan.
TABLE 1. SHARES UNDER OPTION AND AVAILABLE FOR GRANT
OUTSTANDING OPTIONS
SHARES -------------------------------
AVAILABLE NUMBER OF
FOR GRANT SHARES PRICE RANGE
---------- ---------- ----------------
Balance, December 31, 1990........................ 2,645,738 6,759,272 $ 2.00 - $10.75
Options authorized.............................. 4,000,000 -- --
Options granted................................. (3,734,849) 3,734,849 $14.75 - $20.38
Options exercised............................... -- (1,610,156) $ 2.00 - $18.50
Options cancelled............................... 472,417 (472,417) $ 4.00 - $19.88
---------- ---------- ----------------
Balance, December 30, 1991........................ 3,383,306 8,411,548 $ 2.00 - $20.38
Options granted................................. (5,792,115) 5,792,115 $ 8.88 - $16.00
Options exercised............................... -- (405,557) $ 2.00 - $15.13
Options cancelled............................... 4,726,428 (4,726,428) $ 4.00 - $20.38
---------- ---------- ----------------
Balance, December 28, 1992........................ 2,317,619 9,071,678 $ 2.00 - $18.50
Options granted................................. (3,236,270) 3,236,270 $10.00 - $14.38
Options exercised............................... -- (1,580,751) $ 2.00 - $11.00
Options cancelled............................... 1,374,442 (1,374,442) $ 2.00 - $14.38
---------- ---------- ----------------
Balance, January 3, 1994.......................... 455,791 9,352,755 $ 2.00 - $18.50
---------- ---------- ----------------
---------- ---------- ----------------
Options exercisable on January 3, 1994............ 4,837,131 $ 2.00 - $18.50
---------- ----------------
---------- ----------------
In April 1992, substantially all outstanding options (3,333,685 shares)
with exercise prices in excess of $9.50 were cancelled and replaced with new
options for a like number of shares having an exercise price of $9.50 per share,
the fair market value on the grant date.
DIRECTORS' STOCK OPTION PLAN AND WARRANTS
In October 1988, the Company's Board of Directors adopted the 1988
Directors' Stock Option Plan (the Plan) and 230,000 shares of common stock were
reserved for issuance under the Plan.
In October 1988, options to purchase 40,000 shares of common stock were
granted to each of the Company's then three non-employee directors, for a total
of 120,000 shares, at an exercise price of $9.13, which was the fair market
value of the Company's common stock on the date of grant. Such options vest at
the rate of 25% per year beginning May 29, 1991, and will be followed by
additional automatic grants, providing ongoing vesting at the rate of 10,000
shares per director per year. The initial options become exercisable
cumulatively in 10,000 share increments on May 29 in 1991, 1992, 1993, and 1994.
Subsequent options will become exercisable four years after date of grant.
Options expire three months after termination of status as a director and within
six months after death or permanent disability. In 1993, two new non-employees
were appointed to the board of directors and were subsequently granted stock
options. As of January 3, 1994, no shares remained available for future grant
under the Plan.
In October 1987, the Company granted warrants to purchase 40,000 shares of
common stock at $6.25 per share (the fair market value of the shares on the date
of grant) to each of the Company's then three non-employee Directors, for a
total of 120,000 shares, vesting at the rate of 25% per year over a four-year
period, beginning in May 1986, subject to continued service on the Board of
Directors. The warrants were fully exercised during 1991 prior to their May 1991
expiration.
21
23
NOTE 4: COMMON STOCK -- CONTINUED
EMPLOYEE QUALIFIED STOCK PURCHASE PLAN
In 1986, the Company approved an Employee Qualified Stock Purchase Plan
(the Plan), which allows eligible employees of the Company and its subsidiaries
to purchase shares of common stock through payroll deductions. The Plan consists
of consecutive 24-month offering periods composed of four 6-month exercise
periods. The shares can be purchased at the lower of 85% of the fair market
value of the common stock at the date of commencement of this two-year offering
period or at the last day of each 6-month exercise period. Purchases are limited
to 10% of an employee's eligible compensation, subject to a maximum annual
employee contribution limited to a $25,000 market value (calculated as
employee's enrollment price multiplied by purchased shares). Of the 2,800,000
shares authorized under the Plan, 1,874,003 shares were issued through 1993
including, 452,507, 693,936, and 304,426 shares in 1993, 1992, and 1991,
respectively.
CONTINGENT WARRANTS
During 1992, the Company provided a consultant contingent warrants to
purchase up to 500,000 shares of the Company's stock for $8.75 per share. The
warrants become exercisable in increasing amounts based upon the Company
achieving specified improved performance criteria. At the time when it becomes
probable that the contingent warrants will become exercisable, they are valued
and charged to expense based on the difference between the then fair market
value of the Company's common stock and the exercise price. In 1993, 229,153
shares were earned by the consultant and became exercisable, resulting in an
$858,000 charge against earnings. There were no shares earned and no charges
against earnings in 1992 related to these contingent warrants.
NOTE 5: OTHER EMPLOYEE BENEFIT PLANS
QUALIFIED INVESTMENT PLAN
In 1986, the Company adopted a Section 401(k) Plan (the Plan), which
provides participating employees with an opportunity to accumulate funds for
retirement and hardship. Under the terms of the Plan, eligible participants may
contribute up to 10% of their eligible earnings to the Plan Trust.
PROFIT SHARING PLAN
Under the 1986 Profit Sharing Plan (the Plan), which commenced in the
fiscal quarter ended September 1986, a portion of the Company's quarterly
operating profit (as defined) can be allocated to the Company's "Employee
Benefit Fund." The nominal contribution is 6% of defined operating profit,
divided by the number of qualified employees, which gives each qualified
employee an equal share. In October 1990, the Company amended the Plan to allow
for the grant of stock options under the 1985 Stock Option Plan in lieu of a
cash profit sharing payment, at the option of the employee. In 1993 and 1991,
$1,599,000 and $3,509,000, respectively, were charged against operations in
connection with this Plan, representing 13.0% and 7.3% of operating profit
(before profit sharing expense), respectively. There was no profit sharing
expense for fiscal 1992. The Company has no management or executive bonus plans.
NOTE 6: INCOME TAXES
The components of the provision for income taxes are summarized in Table 2.
Income (loss) before taxes is principally attributed to domestic operations.
The tax provision differs from the amounts obtained by applying the
statutory U.S. federal income tax rate to income before taxes as shown in Table
3.
22
24
NOTE 6: INCOME TAXES -- CONTINUED
The components of the net deferred tax asset as January 3, 1994 and
December 28, 1992 under FAS 109 were as follows:
JANUARY 3, DECEMBER 28,
1994 1992
---------- ------------
(DOLLARS IN THOUSANDS)
Deferred tax assets:
Deferred income on sales to distributors............ $ 3,680 $ 2,177
Inventory reserves and basis differences............ 4,788 3,054
Reserve for restructuring........................... 2,351 4,967
Asset valuation and other reserves.................. 3,498 9,265
Other, net.......................................... 3,982 2,386
---------- ------------
Total deferred tax asset.................. $ 18,299 $ 21,849
---------- ------------
Deferred tax liabilities:
Excess of tax over book depreciation................ $ (3,716) $ (7,774)
State taxes net of federal benefit.................. (527) (862)
Other, net.......................................... (1,399) (866)
---------- ------------
Total deferred tax liability.............. $ (5,642) $ (9,502)
---------- ------------
Total deferred tax asset............................ $ 12,657 $ 12,347
---------- ------------
---------- ------------
The net deferred tax asset at January 3, 1994 is substantially realizable
through carry-back to prior years' taxable income. Other Current Assets include
current deferred tax assets of $17,088,000 at January 3, 1994 and $14,908,000 at
December 28, 1992, respectively.
TABLE 2. COMPONENTS OF THE PROVISION FOR INCOME TAXES
YEARS ENDED
--------------------------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 30,
1994 1992 1991
-------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
Current tax expense (benefit):
U.S. Federal.............................. $ 9,507 $ (923) $ 14,520
State and local........................... 1,055 398 2,420
Foreign................................... 171 177 176
-------------- ---------------- ----------------
Total current............................... 10,733 (348) 17,116
-------------- ---------------- ----------------
Deferred tax expense (benefit):
U.S. Federal.............................. (5,918) (9,019) 440
State and local........................... (291) (2,551) 44
-------------- ---------------- ----------------
Total deferred.............................. (6,209) (11,570) 484
-------------- ---------------- ----------------
Total............................. $ 4,524 $(11,918) $ 17,600
-------------- ---------------- ----------------
-------------- ---------------- ----------------
TABLE 3. TAX PROVISION DIFFERENCES
YEARS ENDED
--------------------------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 30,
1994 1992 1991
-------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
Statutory rate.............................. 35% 34% 34%
Tax at U.S. statutory rate.................. $ 4,398 $(11,195) $ 17,602
State income taxes, net of federal benefit.. 497 (1,421) 1,826
Tax credits................................. (679) (379) (320)
Net FSC benefit............................. (974) -- (1,115)
Other, net.................................. 1,282 1,077 (393)
-------------- ---------------- ----------------
Total............................. $ 4,524 $(11,918) $ 17,600
-------------- ---------------- ----------------
-------------- ---------------- ----------------
23
25
NOTE 7: COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENTS
The Company leases most of its manufacturing and office facilities under
noncancelable operating lease agreements that expire at various dates through
2001. These leases require the Company to pay taxes, insurance, and maintenance
expenses, and provide for renewal options at the then fair market rental value
of the property. The aggregate annual rental commitments under noncancelable
operating leases as of January 3, 1994, are:
(DOLLARS
IN
FISCAL YEAR THOUSANDS)
------------------------------------------- -------
1994....................................... $ 3,144
1995....................................... 2,633
1996....................................... 2,561
1997....................................... 1,763
1998....................................... 1,730
1999 and thereafter........................ 3,151
-------
Total............................ $14,982
-------
-------
Rental expense was approximately $4,036,000 in 1993, $4,782,000 in 1992,
and $4,587,000 in 1991.
LITIGATION AND ASSERTED CLAIMS
In the normal course of business, the Company receives and makes inquiries
with regard to possible patent infringement. Where deemed advisable, the Company
may seek or extend licenses or negotiate settlements.
Texas Instruments (TI) has charged Cypress and four other semiconductor
companies with infringement of two patents, primarily covering the plastic
encapsulation process used to package semiconductor devices. This action was
filed before the International Trade Commission (ITC) in Washington, D.C., and
in the U.S. District Court in Dallas, Texas. The ITC has ruled that the plastic
packaging process known as "bottom gating" does infringe, but that "top gating,"
used now by Cypress, does not infringe TI's patent. Cypress contends that the
patents are invalid. In March of 1993, the U.S. District Court of Appeals for
the Federal Circuit affirmed the ITC's ruling. No trial date has been set in the
U.S. District Court regarding this matter.
In January and February 1992, the Company and certain of its officers were
named defendants in three purported class-action suits filed in the United
States District Court for the Northern District of California. The suits filed
are for alleged violations of the Securities Exchange Act of 1934 and certain
provisions of state law regarding disclosure of short-term business prospects.
In 1992, the three securities class-action complaints were consolidated by the
U.S. District Court for the Northern District of California. The trial date has
been scheduled for June 5, 1995.
Cypress will vigorously defend itself in these matters. While the outcome
of such litigation and claims cannot be accurately predicted, management
believes that recorded reserves are adequate and these actions should not have a
material adverse impact on its financial position. However, should the outcome
of any of the actions be unfavorable, Cypress may be required to pay damages and
other expenses, which could have a material adverse effect on the Company's
financial position, although management believes the possibility of such effect
is remote.
NOTE 8: RELATED PARTY
During 1990, the Company made a cost-basis investment of $1 million in
Vitesse Semiconductor Series E Preferred Stock (which has been converted to
common stock since Vitesse's public offering) and guaranteed an equipment lease
line of credit for Vitesse, of $3.5 million, maturing on August 31, 1997. The
outstanding principal balance related to the lease line at January 3, 1994, is
$1.6 million. In exchange for
24
26
NOTE 8: RELATED PARTY -- CONTINUED
guaranteeing the leases, the Company received a warrant, exercisable at $9.00
per share, for up to 35,000 shares of Vitesse common stock. The warrant for
35,000 shares was exercised in December 1991 and the shares subsequently sold in
1992. As of January 3, 1994, the Company's cost-basis investment is $1,000,000.
The Company's chairman, its president and a director, effective October 1993,
are members of the Vitesse Board of Directors.
During 1992, the Company made a cost-basis investment of $2 million in
QuickLogic Series D preferred stock. An additional $195,000 was invested in
1993. Under certain circumstances, the Company may be required to make
additional investments in QuickLogic. The Company's chairman is a member of the
Board of Directors of QuickLogic.
During 1993 and 1992, the Company paid approximately $291,000 and $242,000,
respectively, to a member of the Board of Directors for consulting services. The
Company also guaranteed a loan from a bank to the Company's president and chief
executive officer which aggregated $810,000 at January 3, 1994.
25
27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Cypress Semiconductor Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Cypress
Semiconductor Corporation and its subsidiaries at January 3, 1994 and December
28, 1992, and the results of their operations and their cash flows for each of
the three years in the period ended January 3, 1994, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE
San Jose, California
January 25, 1994
26
28
QUARTERLY FINANCIAL DATA
THREE MONTHS ENDED
-------------------------------------------------------
JANUARY 3, SEPTEMBER 27, JUNE 28, MARCH 29,
1994 1993 1993 1993
---------- ------------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues...................... $ 83,012 $77,037 $ 74,753 $69,710
Gross margin.................. 35,352 31,686 29,526 28,127
Net income (loss)............. (4,088) 6,077 3,605 2,449
Net income (loss) per share... $ (0.11) $ 0.16 $ 0.10 $ 0.07
---------- ------------- -------- ---------
---------- ------------- -------- ---------
DECEMBER 28, SEPTEMBER 28, JUNE 29, MARCH 30,
1992 1992 1992 1992
------------ ------------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues.................... $ 67,386 $65,254 $ 65,793 $73,809
Gross margin................ 25,993 26,787 26,420 34,883
Net income (loss)........... (23,735) 472 (1,663) 3,916
Net income (loss) per
share..................... $ (0.66) $ 0.01 $ (0.04) $ 0.10
------------ ------------- -------- ---------
------------ ------------- -------- ---------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
27
29
PART III
Certain information required by Part III is omitted from this Report in
that the registrant has filed a definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Report, and certain information included therein
is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference to the Company's Proxy Statement.
The information concerning the Company's executive officers required by
this Item is included in Part I hereof under the title "Executive Officers of
the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
28
30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS PAGE
------------------------------------------------------------------- --------------
Consolidated Balance Sheets at January 3, 1994 and December 28,
1992............................................................... 13
Consolidated Statements of Operations for the three years ended
January 3, 1994.................................................... 14
Consolidated Statements of Stockholders' Equity for the three years
ended January 3, 1994.............................................. 15
Consolidated Statements of Cash Flows for the three years ended
January 3, 1994.................................................... 16
Notes to Consolidated Financial Statements......................... 17
Report of Independent Accountants.................................. 26
(2) FINANCIAL STATEMENT SCHEDULES: REFERENCE PAGE
------------------------------------------------------------------- --------------
Report of Independent Accountants on Financial Statement Schedules
for the
three years ended January 3, 1994.................................. F-1
I. Marketable securities.............................................. F-2
II. Amounts receivable from related parties and underwriters, promoters
and
employees other than related parties............................... F-3
V. Property and equipment............................................. F-4
VI. Accumulated depreciation and amortization of property and
equipment.......................................................... F-5
VIII. Valuation and qualifying accounts and reserves..................... F-6
X. Supplementary income statement information......................... F-7
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(3) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ---- ---------------------------------------------------------------------------
3.1(1) Restated Certificate of Incorporation, as amended.
3.2(3) Certificate of amendment of Restated Certificate of Incorporation, as
amended.
3.3(1) Bylaws, as amended.
10.1(3)(4) 1985 Incentive Stock Option Plan, and forms of Incentive Stock Option
Agreement and Nonstatutory Option Agreement, as amended.
10.2(1)(4) Form of Indemnification Agreement.
10.3(2)(4) 1988 Directors' Stock Option Plan and form of Agreement, as amended.
10.4(4) Bialek consulting agreement, dated October 28, 1993.
10.5(4) 1994 Stock Option Plan.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney (see page 31).
- ---------------
(1) Previously filed as exhibits to Registration Statement on Form S-1 (No.
33-12153) which became effective on March 4, 1987 and incorporated herein by
reference.
29
31
(2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990.
(3) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1992.
(4) Management compensatory plan, contract or arrangement.
(B) REPORTS ON FORM 8-K
A report on Form 8-K dated November 2, 1993 was filed by the Company for
the fourth quarter ended January 3, 1994, reporting the acquisition of IC
Designs, Inc. and including audited financial statements for the year ended
December 31, 1992 and unaudited financial information for the nine months ended
September 30, 1993 and 1992 of IC Designs, Inc.; and unaudited pro forma
financial statements for the year ended December 28, 1992 and as of and for the
nine months ended September 27, 1993.
30
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant, Cypress Semiconductor Corporation, a
corporation organized and existing under the laws of the State of Delaware, has
duly caused this Annual Report to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of San Jose, State of California, on the
14th day of March 1994.
CYPRESS SEMICONDUCTOR CORPORATION
By: /s/ EMMANUEL HERNANDEZ
Emmanuel Hernandez, Chief
Financial Officer,
Vice President, Finance and
Administration
POWER OF ATTORNEY
Each of the officers and directors of Cypress Semiconductor Corporation
whose signature appears below hereby constitutes and appoints T.J. Rodgers and
Emmanuel Hernandez and each of them, their true and lawful attorneys-in-fact and
agents, with full power of substitution, each with power to act alone, to sign
and execute on behalf of the undersigned any amendment or amendments to this
Report on Form 10-K, and to perform any acts necessary to be done in order to
file such amendment, and each of the undersigned does hereby ratify and confirm
all that said attorneys-in-fact and agents, or their or his substitutes, shall
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated:
SIGNATURE TITLE DATE
- -------------------------------------- ----------------------------------- ---------------
/s/ T. J. RODGERS President, Chief Executive Officer March 14, 1994
T.J. Rodgers and Director (Principal Executive
Officer)
/s/ EMMANUEL HERNANDEZ Chief Financial Officer, Vice March 14, 1994
Emmanuel Hernandez President, Finance and
Administration (Principal Financial
and Accounting Officer)
/s/ PIERRE R. LAMOND Chairman of the Board of Directors March 14, 1994
Pierre R. Lamond
/s/ L. JOHN DOERR Director March 14, 1994
L. John Doerr
/s/ FRED B. BIALEK Director March 14, 1994
Fred B. Bialek
/s/ ERIC BENHAMOU Director March 14, 1994
Eric Benhamou
/s/ JOHN C. LEWIS Director March 14, 1994
John C. Lewis
31
33
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Cypress Semiconductor Corporation
Our audits of the consolidated financial statements referred to in our report
dated January 25, 1994 appearing on page 26 of this Annual Report on Form 10-K
also included an audit of the Financial Statement Schedules listed in Item 14(a)
of this Form 10-K. In our opinion, these Financial Statement Schedules present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE
San Jose, California
January 25, 1994
F-1
34
SCHEDULE I
CYPRESS SEMICONDUCTOR CORPORATION
MARKETABLE SECURITIES
AMOUNT AT WHICH
EACH SECURITY ISSUE
NAME OF ISSUER AND CARRIED IN THE
TITLE OF EACH ISSUE BALANCE SHEET(1)(2)
- ---------------------------------------------------------------------------- -------------------
January 3, 1994:
Municipal Obligations.................................................. $22,302,000
Adjustable Rate Government Guaranteed Securities....................... 3,610,000
Mortgage Backed Securities............................................. 13,872,000
Asset Backed Securities................................................ 113,000
Commercial Paper....................................................... 3,036,000
-------------------
$42,933,000
-------------------
-------------------
- ---------------
(1) The cost, carrying amount and market value of each issue at the balance
sheet date are the same amounts as listed.
(2) No individual security issue exceeds 2% of total assets.
F-2
35
SCHEDULE II
CYPRESS SEMICONDUCTOR CORPORATION
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
DEDUCTIONS BALANCE AT END OF
------------------------ PERIOD
BEGINNING AMOUNTS AMOUNTS -----------------------
NAME OF DEBTOR BALANCE ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT
- ------------------------------------- --------- --------- --------- ----------- -------- -----------
1991
Roger Ross(1)........................ -- $ 300,000 -- -- $300,000 --
Wayne Matterson(2)................... -- $ 239,000 -- -- $239,000 --
Joe Nichols(3)....................... -- $ 104,000 -- -- $104,000 --
1992
Roger Ross(1)........................ $300,000 -- -- -- $300,000 --
Wayne Matterson(2)................... $239,000 -- $ 239,000 -- -- --
Joe Nichols(3)....................... $104,000 $ 179,000 -- -- $283,000 --
Thomas North(4)...................... -- $ 121,862 -- -- $121,862 --
Fred Jenne(5)........................ -- $ 155,000 -- -- $155,000 --
1993
Roger Ross(1)........................ $300,000 -- $ 300,000 -- -- --
Joe Nichols(3)....................... $283,000 -- $ 283,000 -- -- --
Thomas North(4)...................... $121,862 -- $ 121,862 -- -- --
Fred Jenne(5)........................ $155,000 -- -- -- $155,000 --
J. Daniel McCranie(6)................ -- $ 210,000 -- -- -- $ 210,000
- ---------------
(1) Receivable from Chairman of Ross Technology, Inc. (a subsidiary of the
Company), due December 31, 1992 and subsequently extended to May 1993,
bearing interest at the rate of 6.15% per annum payable at maturity, and
secured by his Cypress Semiconductor stock options.
(2) Receivable from former Chief Operating Officer of Ross Technology, Inc., due
March 31, 1992, non-interest bearing and unsecured.
(3) Receivable from former Marketing Manager of Ross Technology, Inc., due June
30, 1993, bearing interest at the rate of 6% per annum payable at maturity,
secured by his personal residence.
(4) Receivable from President of Aspen Semiconductor Corporation (a subsidiary
of the Company) due on August 30, 1993, bearing interest at the rate of 5%
per annum payable at maturity, secured by stock in Aspen Semiconductor.
(5) Receivable from Director of Technology of Aspen Semiconductor Corporation,
due April 15, 1994, bearing interest at the rate of 8% per annum payable at
maturity, secured by his personal property.
(6) Receivable from Vice President of Marketing and Sales, due October 7, 1996,
unsecured and bearing interest at 4% per annum. Principal and interest due
at maturity unless Mr. McCranie is still employed by the Company, in which
case such indebtedness will be forgiven.
F-3
36
SCHEDULE V
CYPRESS SEMICONDUCTOR CORPORATION
PROPERTY AND EQUIPMENT
BEGINNING ENDING
CLASSIFICATION BALANCE ADDITIONS RETIREMENTS* TRANSFERS** BALANCE
- ----------------------------------- ------------ ----------- ------------- ------------ ------------
1991
Bldg & Leasehold Improvements...... $ 19,560,000 $12,654,000 $ (42,000) $ -- $ 32,172,000
Machinery and Equipment............ 157,089,000 59,903,000 (6,552,000) -- 210,440,000
Furniture and Fixtures............. 9,261,000 4,349,000 (274,000) -- 13,336,000
Land............................... 4,250,000 2,613,000 -- -- 6,863,000
------------ ----------- ------------- ------------ ------------
Total.......................... $190,160,000 $79,519,000 $ (6,868,000) $ -- $262,811,000
------------ ----------- ------------- ------------ ------------
------------ ----------- ------------- ------------ ------------
1992
Bldg & Leasehold Improvements...... $ 32,172,000 $ 6,141,000 $ (4,519,000) $ -- $ 33,794,000
Machinery and Equipment............ 210,440,000 23,488,000 (13,648,000) -- 220,280,000
Furniture and Fixtures............. 13,336,000 2,557,000 (390,000) -- 15,503,000
Land............................... 6,863,000 695,000 -- -- 7,558,000
------------ ----------- ------------- ------------ ------------
Total.......................... $262,811,000 $32,881,000 $ (18,557,000) $ -- $277,135,000
------------ ----------- ------------- ------------ ------------
------------ ----------- ------------- ------------ ------------
1993
Bldg & Leasehold Improvements...... $ 33,794,000 $ 2,079,000 $ (4,709,000) $ 903,000 $ 32,067,000
Machinery and Equipment............ 220,280,000 58,021,000 (21,616,000) 9,162,000 265,847,000
Furniture and Fixtures............. 15,503,000 -- (1,454,000) (10,065,000) 3,984,000
Land............................... 7,558,000 -- -- -- 7,558,000
------------ ----------- ------------- ------------ ------------
Total.......................... $277,135,000 $60,100,000 $ (27,779,000) $ -- $309,456,000
------------ ----------- ------------- ------------ ------------
------------ ----------- ------------- ------------ ------------
- ---------------
* Includes fixed assets written off in 1992 in conjunction with the Company's
restructuring.
** Represents reclassification resulting from implementation of new asset
tracking system.
F-4
37
SCHEDULE VI
CYPRESS SEMICONDUCTOR CORPORATION
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY AND EQUIPMENT
BEGINNING ENDING
CLASSIFICATION BALANCE ADDITIONS RETIREMENTS TRANSFERS BALANCE
- --------------------------------- ------------- ------------ ------------- ----------- -------------
1991
Bldg & Leasehold Improvements.... $ (8,072,000) $ (2,798,000) $ 42,000 $ -- $ (10,828,000)
Machinery and Equipment.......... (73,763,000) (31,131,000) 6,558,000 -- (98,336,000)
Furniture and Fixtures........... (4,969,000) (3,643,000) 268,000 -- (8,344,000)
------------- ------------ ------------- ----------- -------------
Total................... $ (86,804,000) $(37,572,000) $ 6,868,000 $ -- $(117,508,000)
------------- ------------ ------------- ----------- -------------
------------- ------------ ------------- ----------- -------------
1992
Bldg & Leasehold Improvements.... $ (10,828,000) $ (4,304,000) $ 0 $ -- $ (15,132,000)
Machinery and Equipment.......... (98,336,000) (36,503,000) 3,796,000 -- (131,043,000)
Furniture and Fixtures........... (8,344,000) (1,999,000) 379,000 -- (9,964,000)
------------- ------------ ------------- ----------- -------------
Total................... $(117,508,000) $(42,806,000) $ 4,175,000 $ -- $(156,139,000)
------------- ------------ ------------- ----------- -------------
------------- ------------ ------------- ----------- -------------
1993
Bldg & Leasehold Improvements.... $ (15,132,000) $ (2,484,000) $ 5,594,000 $ (850,000) $ (12,872,000)
Machinery and Equipment.......... (131,043,000) (34,394,000) 12,403,000 (6,431,000) (159,465,000)
Furniture and Fixtures........... (9,964,000) (645,000) 129,000 7,281,000 (3,199,000)
------------- ------------ ------------- ----------- -------------
Total................... $(156,139,000) $(37,523,000) $18,126,000 $ -- $(175,536,000)
------------- ------------ ------------- ----------- -------------
------------- ------------ ------------- ----------- -------------
F-5
38
SCHEDULE VIII
CYPRESS SEMICONDUCTOR CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
BEGINNING CHARGED TO COSTS CHARGED TO ENDING
DESCRIPTION BALANCE AND EXPENSES OTHER ACCOUNTS DEDUCTIONS BALANCE
- --------------------------------- --------- ---------------- -------------- ---------- ----------
1991
Allowance for sales returns and
doubtful accounts.............. $ 540,000 $ -- $168,000 $ (65,000) $ 643,000
1992
Allowance for sales returns and
doubtful accounts.............. $ 643,000 $333,000 $200,000 $ (343,000) $ 833,000
1993
Allowance for sales returns and
doubtful accounts.............. $ 833,000 $738,000 $125,000 $ (349,000) $1,347,000
F-6
39
SCHEDULE X
CYPRESS SEMICONDUCTOR CORPORATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
CHARGED TO COSTS AND EXPENSES
-------------------------------------------
ITEM 1993 1992 1991
- ---------------------------------------------------- ----------- ----------- -----------
Maintenance and repairs............................. $11,809,000 $12,572,000 $12,045,000
Advertising......................................... 1,518,000 1,744,000 3,269,000
Amortization of intangible assets................... 3,722,000 4,828,000 3,963,000
F-7