NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Years
Cypress Semiconductor Corporation (together with its consolidated subsidiaries, "Cypress" or the "Company") reports on a fiscal-year basis. The Company ends its quarters on the Sunday closest to the end of the applicable calendar quarter, except in a 53-week fiscal year, in which case the additional week falls into the fourth quarter of that fiscal year. Fiscal years 2019 and 2018 each contain(ed) 52 weeks. The third quarter of fiscal 2019 ended on September 29, 2019 and the third quarter of fiscal 2018 ended on September 30, 2018.
Basis of Presentation
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and include the accounts of Cypress Semiconductor Corporation and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments of a normal, recurring nature, which are necessary to state fairly the financial information included therein. These financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in Cypress' Annual Report on Form 10-K for the fiscal year ended December 30, 2018. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.
On September 29, 2019, the Company acquired the minority shareholders' noncontrolling interest in AgigA Tech, Inc. ("AgigA") for total cash consideration of $3.9 million, making AgigA a wholly-owned subsidiary of the Company. Substantially all of such consideration was paid in October 2019. Prior to this acquisition, Cypress held 94.4% of the outstanding equity of AgigA. The difference between the carrying value of the noncontrolling interest at the date of the acquisition and the total consideration was recorded as a decrease in "Additional paid-in capital" in the Condensed Consolidated Balance Sheets. The Company will, consistent with the presentation in prior periods, continue to report AgigA's financial results under its Memory Products Division.
Results reported in the Condensed Consolidated Statements of Operations for the three and nine months ended September 29, 2019 are not necessarily indicative of the results to be expected for the full fiscal year.
Pending Acquisition by Infineon
On June 3, 2019, the Company entered into a definitive Agreement and Plan of Merger (the "Merger Agreement") with Infineon Technologies AG, a stock corporation (Aktiengesellschaft) organized under the laws of the Federal Republic of Germany ("Infineon") and IFX Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Infineon ("Merger Sub"). Subject to approval by Cypress's stockholders and the relevant regulatory bodies as well as other customary closing conditions, the Merger Agreement provides for Merger Sub to merge with and into the Company, with the Company continuing as the surviving corporation in the Merger and as a wholly owned subsidiary of Infineon.
Refer to Note 2 Merger Agreement for further details.
Summary of Significant Accounting Policies
Leases
The Company applies the guidance in Accounting Standards Codification ("ASC") Topic 842 to individual leases of assets. When the Company receives substantially all of the economic benefits from and directs the use of specified property, plant and equipment, transactions give rise to leases.
The Company’s classes of assets include real estate leases and equipment leases.
Operating leases are included in operating lease right-of-use ("ROU") assets, other current liabilities, and operating lease liabilities in the Company's consolidated balance sheets. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Finance leases are included in property and equipment, current portion of long-term debt, revolving credit facility and long-term portion of debt in the Company's consolidated balance sheets.
The Company has elected the practical expedient within ASC Topic 842 to not separate lease and non-lease components within lease transactions for all classes of assets. Additionally, the Company has elected the short-term lease exception for all classes of assets, does not apply the recognition requirements for leases of 12 months or less, and recognizes lease payments for short-term leases as expense either straight-line over the lease term or as incurred depending on whether the lease payments are fixed or variable. These elections are applied consistently for all leases.
The Company subleases certain portions of buildings and land subject to operating leases. The terms and conditions of the subleases are commensurate with the terms and conditions within the original operating leases. The terms of the subleases range from one to eight years, payments are fixed within the contracts, and there are no residual value guarantees or other restrictions or covenants in the leases.
When discount rates implicit in leases cannot be readily determined, the Company uses the applicable incremental borrowing rate at lease commencement to perform lease classification tests on lease components and to measure lease liabilities and ROU assets. The incremental borrowing rate used by the Company was based on baseline rates and adjusted by the credit spreads commensurate with the Company’s secured borrowing rate, over a similar term. At each reporting period when there is a new lease initiated, the rates established for that quarter will be used.
Other significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 30, 2018.
Recent Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued Accounting Standard Update ("ASU") No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." The standard modifies the disclosure requirements on fair value measurements in Topic 820 by removing the requirement to disclose the reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. The standard expands the disclosure requirements for Level 3 fair value measurement, primarily focused on changes in unrealized gains and losses included in other comprehensive income. The amendment is effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." The standard is designed to improve the effectiveness of disclosures by removing and adding disclosures related to defined benefit plans. The update is effective for fiscal years ending after December 15, 2020 with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, "Leases (ASC Topic 842)." The standard introduces new requirements to increase transparency and comparability among organizations for leasing transactions for both lessees and lessors. ASU No. 2016-02 requires a lessee to record a right-of-use ("ROU") asset and a lease liability for all leases with terms longer than 12 months. These leases will be either finance or operating, with classification affecting the pattern of expense recognition.
In July 2018, the FASB issued ASU 2018-11, which provided an alternative modified retrospective transition method. Under this method, the cumulative-effect adjustment to the opening balance of retained earnings is recognized on the date of adoption (December 31, 2018). The Company adopted ASC Topic 842, as of December 31, 2018 and applied the alternative modified retrospective transition method requiring application of the new guidance to all leases existing at, or entered into on or after, the date of adoption, i.e. December 31, 2018.
As part of applying the transition method, the Company has elected to apply the package of transition practical expedients within the new guidance. As required by the new standard, these expedients have been elected as a package and are consistently applied across the Company’s lease portfolio. Given this election, the Company need not reassess:
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|
•
|
whether any expired or existing contracts are or contain leases
|
|
|
|
|
•
|
the lease classification for any expired or existing leases
|
|
|
|
|
•
|
treatment of initial direct costs relating to any existing leases
|
As a result of adoption of this standard, and election of the transition practical expedients, the Company recognized ROU assets and lease liabilities for those leases classified as operating leases under ASC Topic 840 that continued to be classified as operating leases under ASC Topic 842 at the date of initial application. Leases classified as capital leases under ASC 840 are classified as ‘finance leases’ under this new standard.
In applying the alternative modified retrospective transition method, the Company measured lease liabilities at the present value of the sum of remaining minimum rental payments (as defined under ASC Topic 840). The present value of lease liabilities has been measured using the Company’s incremental borrowing rates as of December 31, 2018 (the date of initial application). Additionally, ROU assets for these operating leases have been measured as the initial measurement of applicable lease liabilities adjusted for any unamortized initial direct costs, prepaid/accrued rent, unamortized lease incentives, and any ASC Topic 420 liabilities.
The adoption of this new standard at December 31, 2018, and the application of the modified retrospective transition approach resulted in the following changes:
(1) assets increased by $56.4 million, primarily representing the recognition of ROU assets for operating leases and finance leases partially offset by derecognition of assets for capital leases previously designated under ASC Topic 840; and
(2) liabilities increased by $59.2 million, primarily representing the recognition of lease liabilities for operating leases and finance leases partially offset by derecognition of liabilities for capital leases previously designated under ASC Topic 840.
Other Recently Adopted Pronouncements:
In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." The amendments in ASU 2017-12 are intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The Company adopted this guidance in the first quarter of fiscal 2019. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements and related disclosures.
In February 2018, the FASB issued ASU No. 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." The amendments in ASU 2018-02 are intended to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The Company adopted this guidance in the first quarter of fiscal 2019. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements and related disclosures.
In June 2018, the FASB issued ASU No. 2018-07, "Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting." The standard expands the scope of ASC 718 to include all share-based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. Under the amended guidance, equity-classified share-based payment awards issued to nonemployees will be measured at grant date fair value. Upon transition, the entity is required to remeasure these nonemployee awards at fair value as of the adoption date. The Company adopted this guidance in the first quarter of fiscal 2019. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements and related disclosures.
NOTE 2. MERGER AGREEMENT
On June 3, 2019, Infineon, Merger Sub and the Company entered into the Merger Agreement, which provides for Merger Sub, upon the closing of the transaction, to merge with and into the Company (the "Merger"), with the Company continuing as the surviving corporation in the Merger and as a wholly owned subsidiary of Infineon.
Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each share of common stock of Cypress ("Cypress Common Stock") that is issued and outstanding immediately prior to the Effective Time (other than shares of Cypress Common Stock (a) owned by Infineon, Merger Sub or any other direct or indirect wholly owned subsidiary of Infineon, (b) owned by Cypress, including any shares held in treasury by Cypress,
(c) owned by any direct or indirect wholly owned subsidiary of Cypress and (d) owned by stockholders who have perfected and not withdrawn a demand for appraisal rights pursuant to Section 262 of the General Corporation Law of the State of Delaware) will be converted into the right to receive $23.85 in cash, without interest.
Completion of the Merger is subject to the satisfaction of several conditions, including, among others: (i) the adoption of the Merger Agreement by the holders of a majority of the outstanding shares of Cypress Common Stock; (ii) the absence of any law prohibiting or order preventing the consummation of the Merger, (iii) the receipt of clearance from the Committee on Foreign Investment in the United States, the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Waiting Period"), the receipt of any applicable clearance or affirmative approval by the Anti-Monopoly Bureau of the State Administration for Market Regulation in the People’s Republic of China, approval from the European Commission under the European Merger Regulation, and the expiration of any applicable waiting periods or any applicable authorizations or affirmative approvals of certain other non-U.S. governmental authorities under antitrust laws; (iv) the absence of a material adverse effect with respect to Cypress; and (v) compliance in all material respects on the part of each of Cypress and Infineon with such party’s covenants under the Merger Agreement.
As of October 30, 2019, stockholder approval for the Merger has been obtained, the applicable HSR Waiting Period has been terminated, and the Merger has received clearance from the European Commission and from antitrust regulators in the Philippines and South Korea. There can be no assurance, however, that the other conditions to the completion of the Merger will be satisfied in a timely manner or at all.
The Merger Agreement contains certain termination rights for each of Infineon and the Company. The Company would have been required to pay Infineon a termination fee of $330 million in order to accept a superior proposal or if the Company’s Board of Directors had made a change of its recommendation that stockholders vote in favor of the Merger. Infineon will be required to pay to the Company a termination fee equal to $425 million under certain specified circumstances upon termination of the Merger Agreement.
The Company incurred approximately $3.0 million and $11.4 million in bankers fees, legal fees, employee-related costs and travel expenses in connection with the proposed Merger during the three and nine months ended September 29, 2019, respectively. These costs have been included as part of selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.
As of September 29, 2019, the Company has not accrued for certain bankers fees, employee retention cash bonuses and expense relating to the acceleration of stock-based compensation awards as these expenditures are contingent on the completion of the Merger. Bankers fees of approximately $63.0 million are contingently payable upon the completion of the proposed Merger with Infineon. If the proposed Merger does not close, under circumstances in which the Company receives a reverse break-up fee, bankers fees of approximately $22.2 million are contingently payable by Cypress. Additionally, employee retention cash bonus commitments in the aggregate amount of $9.7 million were made to certain employees during the third quarter of fiscal 2019, 50% of which will be payable upon the closing of the Merger, and the remaining 50% of which will potentially be payable six months after the closing of the Merger.
NOTE 3. REVENUE
The following tables present the Company's revenue disaggregated by segment, end use, revenue type and geographical locations. Revenue for the three and nine months ended September 29, 2019 reflects divestment of the Company's NAND business to SkyHigh Memory Limited ("SkyHigh"), a newly formed joint venture, which was completed on April 1, 2019.
The following table summarizes the Company's revenue by segment:
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|
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|
|
|
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|
|
|
|
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Three Months Ended
|
|
Nine Months Ended
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
|
(In thousands)
|
|
Microcontroller and Connectivity Division ("MCD")
|
$
|
410,748
|
|
|
$
|
413,413
|
|
|
$
|
1,075,363
|
|
|
$
|
1,118,649
|
|
|
Memory Products Division ("MPD")
|
163,773
|
|
|
259,622
|
|
|
570,383
|
|
|
760,717
|
|
|
Total revenues
|
$
|
574,521
|
|
|
$
|
673,035
|
|
|
$
|
1,645,746
|
|
|
$
|
1,879,366
|
|
The following table summarizes the Company's revenue by end use:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
|
(In thousands)
|
|
IoT
|
$
|
245,033
|
|
|
$
|
251,976
|
|
|
$
|
598,553
|
|
|
$
|
650,221
|
|
|
Automotive
|
209,413
|
|
|
208,566
|
|
|
609,524
|
|
|
601,160
|
|
|
Legacy
|
120,075
|
|
|
212,493
|
|
|
437,669
|
|
|
627,985
|
|
|
Total revenues
|
$
|
574,521
|
|
|
$
|
673,035
|
|
|
$
|
1,645,746
|
|
|
$
|
1,879,366
|
|
The following tables summarize the Company's revenue by revenue type:
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|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
|
(In thousands)
|
|
Product revenue
|
$
|
555,911
|
|
|
$
|
663,776
|
|
|
$
|
1,602,934
|
|
|
$
|
1,844,295
|
|
|
Non-product revenue (1)
|
18,610
|
|
|
9,259
|
|
|
42,812
|
|
|
35,071
|
|
|
Total revenues
|
$
|
574,521
|
|
|
$
|
673,035
|
|
|
$
|
1,645,746
|
|
|
$
|
1,879,366
|
|
(1) Non-product revenue primarily includes royalties, non-recurring engineering services revenue, and revenue from intellectual property arrangements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
|
(In thousands)
|
|
Products/Services transferred at a point in time
|
$
|
568,869
|
|
|
$
|
670,577
|
|
|
$
|
1,631,997
|
|
|
$
|
1,868,635
|
|
|
Products/Services transferred over time
|
5,652
|
|
|
2,458
|
|
|
13,749
|
|
|
10,731
|
|
|
Total revenues
|
$
|
574,521
|
|
|
$
|
673,035
|
|
|
$
|
1,645,746
|
|
|
$
|
1,879,366
|
|
The following table summarizes the Company's revenue by geographical locations:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
|
(In thousands)
|
|
United States
|
$
|
52,678
|
|
|
$
|
62,825
|
|
|
$
|
170,749
|
|
|
$
|
190,282
|
|
|
China, Taiwan, and Hong Kong
|
215,568
|
|
|
265,758
|
|
|
614,920
|
|
|
732,687
|
|
|
Japan
|
158,128
|
|
|
164,046
|
|
|
408,721
|
|
|
448,654
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|
|
Europe
|
67,803
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|
|
85,370
|
|
|
230,284
|
|
|
257,807
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|
|
Rest of the World
|
80,344
|
|
|
95,036
|
|
|
221,072
|
|
|
249,936
|
|
|
Total revenues
|
$
|
574,521
|
|
|
$
|
673,035
|
|
|
$
|
1,645,746
|
|
|
$
|
1,879,366
|
|
NOTE 4. BALANCE SHEET COMPONENTS
Accounts Receivable, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 29, 2019
|
|
December 30, 2018
|
|
|
(In thousands)
|
|
Accounts receivable, gross
|
$
|
390,798
|
|
|
$
|
325,178
|
|
|
Allowance for doubtful accounts receivable
|
(902
|
)
|
|
(904
|
)
|
|
Total accounts receivable, net
|
$
|
389,896
|
|
|
$
|
324,274
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 29, 2019
|
|
December 30, 2018
|
|
|
(In thousands)
|
|
Raw materials
|
$
|
16,988
|
|
|
$
|
10,004
|
|
|
Work-in-process
|
250,203
|
|
|
215,820
|
|
|
Finished goods
|
60,201
|
|
|
66,269
|
|
|
Total inventories
|
$
|
327,392
|
|
|
$
|
292,093
|
|
Other Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 29, 2019
|
|
December 30, 2018
|
|
|
(In thousands)
|
|
Prepaid tooling
|
$
|
25,555
|
|
|
$
|
25,891
|
|
|
Advances to suppliers
|
3,738
|
|
|
12,058
|
|
|
Prepaid royalty and licenses
|
10,739
|
|
|
14,863
|
|
|
Derivative assets
|
956
|
|
|
3,492
|
|
|
Value added tax receivable
|
7,384
|
|
|
7,652
|
|
|
Prepaid expenses
|
21,037
|
|
|
17,814
|
|
|
Withholding tax receivable and tax advance
|
3,090
|
|
|
4,236
|
|
|
Other current assets
|
13,257
|
|
|
15,157
|
|
|
Total other current assets
|
$
|
85,756
|
|
|
$
|
101,163
|
|
Other Long-term Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 29, 2019
|
|
December 30, 2018
|
|
|
(In thousands)
|
|
Employee deferred compensation plan assets
|
$
|
44,669
|
|
|
$
|
44,397
|
|
|
Long-term licenses
|
5,240
|
|
|
4,495
|
|
|
Advances to suppliers
|
12,061
|
|
|
11,471
|
|
|
Deposits
|
9,528
|
|
|
9,441
|
|
|
Pension plan assets
|
1,960
|
|
|
1,765
|
|
|
Derivative assets
|
—
|
|
|
1,419
|
|
|
Prepaid tooling and other non-current assets
|
43,594
|
|
|
51,317
|
|
|
Total other long-term assets
|
$
|
117,052
|
|
|
$
|
124,305
|
|
Other Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 29, 2019
|
|
December 30, 2018
|
|
|
(In thousands)
|
|
Employee deferred compensation plan liability
|
$
|
44,654
|
|
|
$
|
44,834
|
|
|
Restructuring accrual (See Note 9)
|
509
|
|
|
14,536
|
|
|
Derivative liability
|
2,756
|
|
|
1,621
|
|
|
Accrued expenses
|
50,627
|
|
|
46,592
|
|
|
Accrued interest
|
4,451
|
|
|
9,440
|
|
|
Customer advances
|
47
|
|
|
5,296
|
|
|
Operating lease liability
|
12,717
|
|
|
—
|
|
|
Other current liabilities
|
16,030
|
|
|
15,745
|
|
|
Total other current liabilities
|
$
|
131,791
|
|
|
$
|
138,064
|
|
Other Long-term Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 29, 2019
|
|
December 30, 2018
|
|
|
(In thousands)
|
|
Pension and other employee-related liabilities
|
$
|
16,303
|
|
|
$
|
14,083
|
|
|
Asset retirement obligation
|
6,036
|
|
|
5,916
|
|
|
Derivative liability
|
17,483
|
|
|
4,051
|
|
|
Operating lease liability
|
33,653
|
|
|
—
|
|
|
Other long-term liabilities
|
5,035
|
|
|
3,870
|
|
|
Total other long-term liabilities
|
$
|
78,510
|
|
|
$
|
27,920
|
|
NOTE 5. INTANGIBLE ASSETS
The following table presents details of the Company's developed technology and other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 29, 2019
|
|
As of December 30, 2018
|
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
|
(In thousands)
|
|
Acquisition-related intangible assets
|
$
|
1,188,521
|
|
|
$
|
(856,454
|
)
|
|
$
|
332,067
|
|
|
$
|
1,188,521
|
|
|
$
|
(702,883
|
)
|
|
$
|
485,638
|
|
|
Non-acquisition related intangible assets
|
19,884
|
|
|
(17,025
|
)
|
|
2,859
|
|
|
19,884
|
|
|
(14,932
|
)
|
|
4,952
|
|
|
Total intangible assets
|
$
|
1,208,405
|
|
|
$
|
(873,479
|
)
|
|
$
|
334,926
|
|
|
$
|
1,208,405
|
|
|
$
|
(717,815
|
)
|
|
$
|
490,590
|
|
The following table summarizes the amortization expense by line item recorded in the Condensed Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
|
(In thousands)
|
|
Cost of revenues
|
$
|
46,880
|
|
|
$
|
50,229
|
|
|
$
|
140,641
|
|
|
$
|
146,433
|
|
|
Research and development
|
698
|
|
|
870
|
|
|
2,093
|
|
|
3,391
|
|
|
Selling, general and administrative
|
4,310
|
|
|
4,310
|
|
|
12,930
|
|
|
13,568
|
|
|
Total amortization expense
|
$
|
51,888
|
|
|
$
|
55,409
|
|
|
$
|
155,664
|
|
|
$
|
163,392
|
|
The estimated future amortization expense related to developed technology and other intangible assets as of September 29, 2019 is as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2019 (remaining three months)
|
$
|
51,743
|
|
|
2020
|
153,689
|
|
|
2021
|
58,489
|
|
|
2022
|
33,000
|
|
|
2023
|
28,335
|
|
|
2024 and thereafter
|
9,670
|
|
|
Total future amortization expense
|
$
|
334,926
|
|
NOTE 6. ASSETS HELD FOR SALE
Sale of NAND business
On April 1, 2019, the Company closed the transfer of its NAND business to a newly-formed joint venture between the Company and SK hynix system ic Inc. ("SKHS"). The joint venture entity is called SkyHigh Memory Limited ("SkyHigh") and its headquarters are in Hong Kong, China. SkyHigh is 60-percent-owned by SKHS and 40-percent-owned by Cypress. The Company paid $2.4 million in cash as its capital contribution in SkyHigh upon close of the transaction. Additionally, Cypress is providing certain transition and back-end manufacturing services to SkyHigh.
In the fourth quarter of fiscal 2018, the Company allocated $65.7 million of goodwill previously recorded in the MPD segment to the NAND business being divested. The allocation was based on the relative estimated enterprise value of the NAND business and that of the MPD business. The intangible assets attributable to the NAND business acquired as part of a previous acquisition were $10.9 million. Based on an analysis carried out in the fourth quarter of fiscal 2018, the Company recorded an impairment charge of $76.6 million which related to the goodwill and intangible assets allocated to the NAND business.
Inventories related to the NAND business were classified as held-for-sale assets at December 30, 2018 in the amount of $13.5 million. The inventories remaining as of April 1, 2019 were purchased by SkyHigh upon the closing of the transaction for $10.2
million (our cost for these inventories), plus future contingent consideration based on any profits SkyHigh earns on these inventories.
During the three and nine months ended September 29, 2019, the Company recognized a net gain of $1.9 million and an incremental loss of $1.7 million, respectively, mainly attributed to contingent consideration related to inventories, offset by adjustments in the carrying value of certain assets and reserves recorded for estimated costs of transition services.
NOTE 7. EQUITY METHOD INVESTMENTS
Privately-held equity investments in entities the Company does not control are accounted for under the equity method of accounting if the Company has an ownership interest of 20% or greater or if it has the ability to exercise significant influence over the operations of such companies.
Deca Technologies Inc. ("Deca")
Deca continues to be in the process of developing and testing a fan-out wafer level packaging technology. Deca’s estimated enterprise value is sensitive to its ability to achieve key product development and testing milestones. During the fourth quarter of fiscal 2018, the Company determined that its investment in Deca was other-than-temporarily impaired and recognized a charge of $41.5 million in order to write down the carrying amount of the investment in Deca to the estimated fair value as of the end of fiscal 2018.
Deca’s current and future revenues are dependent on a small number of significant customers. During the second quarter of fiscal 2019, certain of these key customers notified Deca management of their intention to significantly reduce their previously estimated orders from Deca for 2019. During the first half of fiscal 2019, Deca began evaluating its strategic alternatives, including having discussions with certain third-party investors. The preliminary conversations between Deca and potential investors during the second quarter of fiscal 2019 had indicated that the enterprise value of Deca was lower than Cypress’s previous estimates. As a result of the significant reduction in orders from customers, as well as the other objective indicators of enterprise value, during the second quarter of fiscal 2019 the Company determined that its investment in Deca was other-than-temporarily impaired and recorded a charge of $29.5 million in order to write down the carrying amount of the investment in Deca to its estimated fair value as of the end of the second quarter of fiscal 2019. This write down was recorded in "Share in gain/ loss, net and impairment of equity method investees" in the Condensed Consolidated Statements of Operations.
On October 1, 2019 Deca reached a definitive agreement with nepes Corporation (“nepes”) to sell Deca’s Philippines manufacturing facility to nepes, subject to completion of regulatory approvals and other customary closing conditions. As part of the agreement, nepes has licensed certain Deca technologies, and nepes will purchase a limited number of Deca’s shares from certain existing shareholders which may include Cypress. The agreement provides for milestone-based payments from nepes to Deca both for the Philippines manufacturing facility purchase and the technology license, which milestones are currently expected to be achieved in 2020. Upon closing the agreement with nepes, Deca's remaining assets will primarily consist of intellectual property.
Given the factors described above, there continues to be a substantial risk that the carrying value of the Company's investment in Deca may be further impaired in the future. Conditions that may have a material adverse effect on Deca’s business, results of operations and financial condition or on its enterprise value include:
|
|
|
|
•
|
any inability of Deca to close its agreement with nepes;
|
|
|
|
|
•
|
any inability of Deca to raise sufficient funding, if needed, for continuing its operations;
|
|
|
|
|
•
|
any loss of, material delay in placing orders by, or significant decrease in demand from any of Deca's key customers—similar to those previously experienced by Deca in the second quarter of fiscal 2019; and
|
|
|
|
|
•
|
any delays or failure to complete product or intellectual property development milestones—similar to those previously experienced by Deca in fiscal 2018.
|
The Company may be required to record further impairments resulting in partial or full write down of the carrying value of its investment in Deca if any of the conditions described above were to materialize.
The Company’s carrying value in Deca was $25.6 million and $65.1 million as of September 29, 2019 and December 30, 2018, respectively. The Company held 52.5% of Deca's outstanding voting shares as of September 29, 2019 and December 30, 2018.
SkyHigh
The Company’s carrying value in SkyHigh was $4.6 million as of September 29, 2019.
The below table presents the changes in the aggregate carrying value of the equity method investments in Deca and SkyHigh (in thousands):
|
|
|
|
|
|
|
|
Carrying value as of December 30, 2018
|
$
|
65,145
|
|
|
Additional investment
|
2,400
|
|
|
Share in gain/ loss, net of equity method investees
|
(7,873
|
)
|
|
Impairment of investment
|
(29,505
|
)
|
|
Carrying value as of September 29, 2019
|
$
|
30,167
|
|
The following table presents summarized aggregate financial information derived from the respective consolidated financial statements of Deca and SkyHigh for the three and nine months ended September 29, 2019, and of Deca for the three and nine months ended September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
|
|
(In thousands)
|
|
Operating data:
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
25,455
|
|
|
$
|
5,421
|
|
|
$
|
47,650
|
|
|
$
|
14,023
|
|
|
Gross profit (loss)
|
|
3,458
|
|
|
(2,297
|
)
|
|
3,773
|
|
|
(7,674
|
)
|
|
Loss from operations
|
|
(2,052
|
)
|
|
(6,628
|
)
|
|
(13,157
|
)
|
|
(20,468
|
)
|
|
Net loss
|
|
(2,852
|
)
|
|
(6,971
|
)
|
|
(14,868
|
)
|
|
(20,726
|
)
|
|
Net loss attributable to Cypress
|
|
$
|
(1,383
|
)
|
|
$
|
(3,657
|
)
|
|
$
|
(7,873
|
)
|
|
$
|
(10,873
|
)
|
The following table represents the assets and liabilities held by Deca and SkyHigh as of September 29, 2019, and by Deca as of December 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2019
|
|
December 30, 2018
|
|
|
|
(In thousands)
|
|
Balance Sheet Data:
|
|
|
|
|
|
Current assets
|
|
$
|
40,877
|
|
|
$
|
25,865
|
|
|
Long-term assets
|
|
46,802
|
|
|
51,176
|
|
|
Current liabilities
|
|
27,934
|
|
|
9,635
|
|
|
Long-term liabilities
|
|
$
|
495
|
|
|
$
|
877
|
|
NOTE 8. FAIR VALUE MEASUREMENTS
Assets/Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the fair value hierarchy for the Company's financial assets and liabilities measured at fair value on a recurring basis as of September 29, 2019 and December 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2019
|
|
December 30, 2018
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
|
(In thousands)
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
229,528
|
|
|
$
|
—
|
|
|
$
|
229,528
|
|
|
$
|
171,777
|
|
|
$
|
—
|
|
|
$
|
171,777
|
|
|
Other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
—
|
|
|
243
|
|
|
243
|
|
|
—
|
|
|
870
|
|
|
870
|
|
|
Total cash equivalents other current assets
|
229,528
|
|
|
243
|
|
|
229,771
|
|
|
171,777
|
|
|
870
|
|
|
172,647
|
|
|
Employee deferred compensation plan assets
|
16,878
|
|
|
27,791
|
|
|
44,669
|
|
|
18,648
|
|
|
25,749
|
|
|
44,397
|
|
|
Interest rate swap
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,548
|
|
|
2,548
|
|
|
Foreign exchange forward contracts
|
—
|
|
|
956
|
|
|
956
|
|
|
—
|
|
|
2,362
|
|
|
2,362
|
|
|
Total financial assets
|
$
|
246,406
|
|
|
$
|
28,990
|
|
|
$
|
275,396
|
|
|
$
|
190,425
|
|
|
$
|
31,529
|
|
|
$
|
221,954
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
$
|
—
|
|
|
$
|
1,529
|
|
|
$
|
1,529
|
|
|
$
|
—
|
|
|
$
|
1,621
|
|
|
$
|
1,621
|
|
|
Interest rate swap
|
—
|
|
|
18,710
|
|
|
18,710
|
|
|
—
|
|
|
4,051
|
|
|
4,051
|
|
|
Total financial liabilities
|
$
|
—
|
|
|
$
|
20,239
|
|
|
$
|
20,239
|
|
|
$
|
—
|
|
|
$
|
5,672
|
|
|
$
|
5,672
|
|
The Company did not have any material assets or liabilities measured at fair value on a recurring basis using Level 3 inputs as of September 29, 2019 and December 30, 2018.
Valuation Techniques:
There have been no changes to the valuation techniques used to measure the fair value of the Company's assets and liabilities. For a description of the valuation techniques, refer to Note 8 Fair Value Measurements of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 30, 2018.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain of the Company’s assets, including intangible assets, goodwill and assets held for sale, are measured at fair value on a nonrecurring basis using Level 3 inputs if impairment is indicated.
Fair Value of Long-Term Debt
As of September 29, 2019, the carrying value of the Company's senior secured credit facility was $397.0 million (See Note 11). The carrying value of the Company's senior secured credit facility approximates its fair value since it bears an interest rate that is comparable to rates on similar credit facilities and is determined using Level 2 inputs.
The Company's 2% Exchangeable Senior Notes due 2020 assumed as part of the Company's merger with Spansion Inc. ("Spansion") are traded in the secondary market for debt instruments and are categorized as Level 2. The principal and the estimated fair value of the principal of these notes as of September 29, 2019 were $12.0 million and $57.4 million, respectively. The principal and the estimated fair value of the principal of these notes as of December 30, 2018 were $12.0 million and $30.9 million, respectively. See Note 11 for further details.
The Company’s 4.5% Convertible Senior Notes due 2022 are traded in the secondary market for debt instruments and the fair value is determined using Level 2 inputs. The principal and the estimated fair value of the principal of these notes as of September 29, 2019 were $287.5 million and $498.8 million, respectively. The principal and the estimated fair value of the principal of these notes as of December 30, 2018 were $287.5 million and $336.6 million, respectively. See Note 11 for further details.
The Company's 2% Convertible Senior Notes due 2023 are traded in the secondary market and the fair value is determined using Level 2 inputs. The principal and the estimated fair value of the principal of these notes as of September 29, 2019 were $150.0 million and $178.5 million, respectively. The principal and the estimated fair value of the principal of these notes as of December 30, 2018 were $150.0 million and $140.6 million, respectively. See Note 11 for further details.
NOTE 9. RESTRUCTURING
Since 2016, the Company has launched certain long-term strategic corporate transformation initiatives which required restructuring activities to streamline internal processes and redeploy personnel and resources as discussed below:
2019 Restructuring Plan
In the second quarter of fiscal 2019, the Company began implementation of a reduction in workforce (the "2019 Plan") which resulted in the elimination of approximately 90 positions across various functions. The 2019 Plan is not expected to result in reduction of overall costs as the savings from the positions eliminated will be redeployed. The restructuring cost of $0.4 million and $3.5 million were recorded during the three and nine months ended September 29, 2019, respectively, consisted of personnel costs. The Company anticipates that the restructuring activities under this plan will be completed and fully settled in the first quarter of fiscal 2020.
2018 Restructuring Plan
In fiscal 2018, the Company began implementation of a reduction in workforce (the "2018 Plan") which resulted in the elimination of approximately 130 positions across various functions. The restructuring activities under this plan were completed and the related accruals were fully settled in the third quarter of fiscal 2019.
2017 Restructuring Plan
In December 2017, the Company began implementation of a reduction in workforce (the "2017 Plan") which resulted in the elimination of approximately 80 positions worldwide across various functions. The restructuring activities under this plan were completed and the related accrual was fully settled in the first quarter of fiscal 2019.
Spansion Integration-Related Restructuring Plan ("Spansion Integration Plan")
In March 2015, the Company began implementation of cost reduction and restructuring activities in connection with its merger with Spansion. The restructuring activities under this plan were completed and the related accrual was fully settled in the first quarter of fiscal 2019.
Summary of Restructuring Costs
The following table summarizes the restructuring charges recorded in the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
|
(In thousands)
|
|
Personnel
|
$
|
392
|
|
|
$
|
234
|
|
|
$
|
3,509
|
|
|
$
|
5,569
|
|
|
Lease termination costs
|
—
|
|
|
9,757
|
|
|
—
|
|
|
9,757
|
|
|
Total restructuring costs
|
$
|
392
|
|
|
$
|
9,991
|
|
|
$
|
3,509
|
|
|
$
|
15,326
|
|
The following table summarizes the restructuring costs by line item recorded in the Condensed Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
|
(In thousands)
|
|
Cost of goods sold
|
$
|
(68
|
)
|
|
$
|
(340
|
)
|
|
$
|
950
|
|
|
$
|
3,136
|
|
|
Research and development
|
291
|
|
|
516
|
|
|
1,653
|
|
|
842
|
|
|
Selling, general and administrative
|
169
|
|
|
9,815
|
|
|
906
|
|
|
11,348
|
|
|
Total restructuring costs
|
$
|
392
|
|
|
$
|
9,991
|
|
|
$
|
3,509
|
|
|
$
|
15,326
|
|
Roll-Forward of the Restructuring Reserves
Restructuring activity under the Company's restructuring plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
2019 Plan
|
|
2018 Plan
|
|
2017 Plan
|
|
Spansion Integration Plan
|
|
Total
|
|
Accrued restructuring balance as of December 30, 2018
|
$
|
—
|
|
|
$
|
248
|
|
|
$
|
30
|
|
|
$
|
14,258
|
|
|
$
|
14,536
|
|
|
Provision
|
3,517
|
|
|
(97
|
)
|
|
—
|
|
|
89
|
|
|
3,509
|
|
|
Cash payments and other adjustments
|
(3,008
|
)
|
|
(151
|
)
|
|
(30
|
)
|
|
(14,347
|
)
|
|
(17,536
|
)
|
|
Accrued restructuring balance as of September 29, 2019
|
$
|
509
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
509
|
|
|
Current portion of the restructuring accrual
|
$
|
509
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
509
|
|
NOTE 10. EMPLOYEE STOCK PLANS AND STOCK-BASED COMPENSATION
The following table summarizes the stock-based compensation expense by line item recorded in the Condensed Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
|
(In thousands)
|
|
Cost of revenues
|
$
|
5,907
|
|
|
$
|
5,120
|
|
|
$
|
11,408
|
|
|
$
|
12,689
|
|
|
Research and development
|
7,708
|
|
|
8,206
|
|
|
26,692
|
|
|
28,720
|
|
|
Selling, general and administrative
|
11,276
|
|
|
10,869
|
|
|
37,666
|
|
|
35,152
|
|
|
Total stock-based compensation expense
|
$
|
24,891
|
|
|
$
|
24,195
|
|
|
$
|
75,766
|
|
|
$
|
76,561
|
|
As of September 29, 2019 and December 30, 2018, stock-based compensation capitalized in inventory was $3.6 million and $2.5 million, respectively.
The following table summarizes the stock-based compensation expense by type of awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
|
(In thousands)
|
|
Restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs")
|
$
|
24,891
|
|
|
$
|
23,345
|
|
|
$
|
72,372
|
|
|
$
|
72,366
|
|
|
Employee Stock Purchase Plan (“ESPP”) and stock options
|
—
|
|
|
850
|
|
|
3,394
|
|
|
4,195
|
|
|
Total stock-based compensation expense
|
$
|
24,891
|
|
|
$
|
24,195
|
|
|
$
|
75,766
|
|
|
$
|
76,561
|
|
The following table summarizes the unrecognized stock-based compensation balance, by type of award as of September 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
Average
Amortization
Period
|
|
|
(In thousands)
|
|
(In years)
|
|
RSUs and PSUs
|
$
|
79,549
|
|
|
1.38
|
|
Total unrecognized stock-based compensation expense
|
$
|
79,549
|
|
|
1.38
|
Equity Incentive Programs
As of September 29, 2019, approximately 29.4 million stock options, or 15.8 million RSUs and PSUs, were available for grant as stock-based awards under the 2013 Stock Plan, the 2010 Equity Incentive Award Plan and the 2012 Incentive Award Plan.
Pursuant to the Merger Agreement, if the proposed Merger with Infineon is completed, each RSU, PSU, and employee or director stock option outstanding at the closing will be cancelled and converted into a right to receive an amount of cash specified in the Merger Agreement (without interest and subject to any applicable tax withholding). Such cash amounts will be payable promptly after the closing in respect of 100% of stock options (whether vested or unvested), 100% of director RSUs, and 50% of most other RSUs outstanding at the closing. Cash amounts for the remaining RSUs and all PSUs outstanding at the closing will generally be payable, subject to continued employment with the surviving corporation, according to the Cypress award’s original vesting schedule (subject to acceleration in certain circumstances). These provisions from the Merger Agreement did not have any impact on the Company's condensed consolidated financial statements for the three and nine months ended September 29, 2019.
In addition, the Merger Agreement provides that no new offering periods under the ESPP will commence during the period between the date of the Merger Agreement and the Effective Time and the ESPP will terminate as of immediately prior to the Effective Time. Accordingly, the Company suspended the ESPP for all participants following the June 28, 2019, share purchase.
Stock Options
The following table summarizes the Company's stock option activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Exercise
Price Per
Share
|
|
Weighted Average Remaining Contractual term
|
|
Aggregate Intrinsic Value
|
|
|
(In thousands, except
per-share amounts)
|
|
(In years)
|
|
($ in millions)
|
|
Options outstanding as of December 30, 2018
|
2,639
|
|
|
$
|
11.75
|
|
|
|
|
|
|
|
Exercised
|
(379
|
)
|
|
$
|
8.14
|
|
|
|
|
|
|
|
Forfeited or expired
|
(66
|
)
|
|
$
|
21.59
|
|
|
|
|
|
|
|
Options outstanding as of March 31, 2019
|
2,194
|
|
|
$
|
12.07
|
|
|
1.94
|
|
$
|
7.3
|
|
|
Exercised
|
(459
|
)
|
|
$
|
12.47
|
|
|
|
|
|
|
Forfeited or expired
|
(18
|
)
|
|
$
|
20.18
|
|
|
|
|
|
|
Options outstanding as of June 30, 2019
|
1,717
|
|
|
$
|
11.88
|
|
|
1.74
|
|
$
|
17.8
|
|
|
Exercised
|
(242
|
)
|
|
$
|
13.77
|
|
|
|
|
|
|
Forfeited or expired
|
(7
|
)
|
|
$
|
23.21
|
|
|
|
|
|
|
Options outstanding as of September 29, 2019
|
1,468
|
|
|
$
|
11.51
|
|
|
1.56
|
|
$
|
17.2
|
|
|
Options exercisable as of September 29, 2019
|
1,468
|
|
|
$
|
11.51
|
|
|
1.56
|
|
$
|
17.2
|
|
No options were granted during the three or nine months ended September 29, 2019 and September 30, 2018.
RSUs and PSUs
The following table summarizes the Company's RSU and PSU activities:
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Grant
Date Fair
Value Per
Share
|
|
|
(In thousands, except
per-share amounts)
|
|
Balance as of December 30, 2018
|
10,175
|
|
|
$
|
14.42
|
|
|
Granted
|
6,026
|
|
|
$
|
15.08
|
|
|
Released
|
(2,437
|
)
|
|
$
|
14.38
|
|
|
Forfeited
|
(172
|
)
|
|
$
|
12.80
|
|
|
Balance as of March 31, 2019
|
13,592
|
|
|
$
|
14.64
|
|
|
Granted
|
323
|
|
|
$
|
16.65
|
|
|
Released
|
(1,330
|
)
|
|
$
|
14.11
|
|
|
Forfeited
|
(225
|
)
|
|
$
|
13.50
|
|
|
Balance as of June 30, 2019
|
12,360
|
|
|
$
|
14.26
|
|
|
Granted
|
322
|
|
|
$
|
21.89
|
|
|
Released
|
(2,233
|
)
|
|
$
|
11.91
|
|
|
Forfeited
|
(221
|
)
|
|
$
|
15.88
|
|
|
Balance as of September 29, 2019
|
10,228
|
|
|
$
|
14.97
|
|
2019 Long-Term Incentive Program
During the first quarter of 2019, the Compensation Committee of the Company's Board of Directors approved the issuance of service-based and performance-based restricted stock units under the Company's Long-Term Incentive Program ("LTIP") to certain
employees. The performance goals for the performance-based 2019 LTIP grants relate to non-GAAP operating margin and customer experience plan milestones for fiscal 2019 and include a multiplier based on the Company's total stockholder return relative to an index.
Dividend
On August 2, 2019, the Company's Board of Directors approved a cash dividend of $0.11 per share payable to holders of record of its common stock at the close of the business day on September 26, 2019. This cash dividend was paid on October 17, 2019 and totaled $40.7 million, which was accrued for and shown as "Dividends payable" on the Condensed Consolidated Balance Sheets as of September 29, 2019.
NOTE 11. DEBT
Total debt, including finance lease obligations, is comprised of the following as of September 29, 2019 and December 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2019
|
|
December 30, 2018
|
|
|
|
(In thousands)
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
|
Senior Secured Credit Facility:
|
|
|
|
|
|
Revolving Credit Facility
|
|
$
|
50,000
|
|
|
$
|
—
|
|
|
Term Loan B
|
|
—
|
|
|
5,051
|
|
|
2% Exchangeable Senior Notes due 2020
|
|
11,685
|
|
|
—
|
|
|
Finance lease obligations
|
|
1,833
|
|
|
1,892
|
|
|
Current portion of long-term debt
|
|
63,518
|
|
|
6,943
|
|
|
Revolving credit facility and long-term portion of debt
|
|
|
|
|
|
|
|
Senior Secured Credit Facility:
|
|
|
|
|
|
Revolving Credit Facility
|
|
347,000
|
|
|
—
|
|
|
Term Loan B
|
|
—
|
|
|
462,868
|
|
|
2% Exchangeable Senior Notes due 2020
|
|
—
|
|
|
11,438
|
|
|
4.5% Convertible Senior Notes due 2022
|
|
264,286
|
|
|
256,726
|
|
|
2% Convertible Senior Notes due 2023
|
|
137,788
|
|
|
135,057
|
|
|
Finance lease obligations
|
|
7,779
|
|
|
8,146
|
|
|
Credit facility, finance lease obligations, and long-term debt
|
|
756,853
|
|
|
874,235
|
|
|
Total debt
|
|
$
|
820,371
|
|
|
$
|
881,178
|
|
As of September 29, 2019, the Company was in compliance with all of the financial covenants under all of its debt facilities.
Senior Secured Credit Facility: Revolving Credit Facility and Term Loan B
On March 18, 2019, the Company repaid $25.0 million of the outstanding Term Loan B principal. The Company also paid the scheduled quarterly principal payments of $1.3 million per quarter during each of the first, second and third quarters of fiscal 2019.
On July 31, 2019, the Company amended its existing revolving credit facility (the "Revolving Credit Facility") thereby increasing the available amount from $540 million to $700 million and extending its maturity from March 12, 2020 to January 31, 2021. The Company may, at its sole discretion, extend the maturity for another six months to July 31, 2021. The financial covenants were amended to increase the maximum total leverage ratio from 3.75 to 4.0. Subject to the terms and conditions set forth in the amended Revolving Credit Facility, at the Effective Time, the Merger will trigger the change of control provision of the Revolving Credit Facility causing the debt to become payable immediately. The Company borrowed $447 million under the amended Revolving Credit Facility and repaid the entire outstanding Term Loan B principal balance of approximately $448 million as of July 31, 2019, resulting in an extinguishment of Term Loan B, which was scheduled to mature on July 5, 2021. As a result, the Company recorded a debt extinguishment loss of $6.4 million in connection with the write-off of unamortized debt discount and issuance costs, which was recorded in "Interest expense" in the Condensed Consolidated Statements of Operations. On August 30, 2019, the Company repaid $50.0 million of the outstanding amended Revolving Credit Facility.
Interest expense related to the contractual interest expense, the amortization of the debt issuance costs and the amortization of debt discounts was $5.0 million and $18.5 million during the three and nine months ended September 29, 2019. Interest expense related to the contractual interest expense, the amortization of the debt issuance costs and the amortization of debt discounts was $8.7 million and $27.6 million during the three and nine months ended September 30, 2018, respectively.
As of September 29, 2019 and December 30, 2018, the aggregate principal amount of borrowings outstanding under the Credit Facility, all of which related to the Revolving Credit Facility and Term Loan B, respectively, were $397.0 million and $476.3 million, respectively. On September 30, 2019, the Company repaid $50.0 million of the outstanding Revolving Credit Facility and reported such amount as a component of current liabilities as of the end of the fiscal quarter ended September 29, 2019.
2% Exchangeable Senior Notes due 2020
Pursuant to the merger with Spansion, Cypress assumed Spansion's 2% Exchangeable Senior Notes due 2020 (the "Spansion Notes"). The Spansion Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company. The Spansion Notes will mature on September 1, 2020, unless earlier repurchased or converted, and bear interest of 2% per year payable semi-annually in arrears on March 1 and September 1. The Spansion Notes may be due and payable immediately upon certain events of default. The net carrying amount related to the Spansion Notes was reported as a component of current liabilities as of the end of the fiscal quarter ended September 29, 2019.
As of September 29, 2019, the Spansion Notes are exchangeable for 207.3663 shares of common stock per $1,000 principal amount of Spansion Notes (equivalent to an exchange price of approximately $4.82 per share) subject to adjustment upon the occurrence of certain events, including dividends, anti-dilutive issuances and, in certain circumstances, a make-whole adjustment upon a fundamental change. Pursuant to the terms of the indenture governing the Spansion Notes (as amended, the "Spansion Notes Indenture"), a "fundamental change" includes a change in control, a liquidation, consolidation, or merger of the Company or a delisting of the Company’s common stock. Pursuant to the terms of the Spansion Notes Indenture, a fundamental change will not be deemed to have occurred in the case of a person or group becoming the beneficial owner, directly or indirectly, of more than 50% of the Company’s common stock or in the case of a liquidation, consolidation or merger of the Company if, in either case, 90% of the consideration paid in such transaction consists of shares of common equity traded on The New York Stock Exchange or Nasdaq. (See "—Effect of Proposed Merger on the Notes," below)
Prior to June 1, 2020, the Spansion Notes are exchangeable only under certain specified circumstances as described in the Spansion Notes Indenture. One such circumstance is that the Spansion Notes will be exchangeable during any fiscal quarter (and only during such fiscal quarter), if the closing sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than 130% of the exchange price on each applicable trading day. Such condition was met as of the last trading day of each of the Company's fiscal quarters ended June 30, 2019 and September 29, 2019 and, accordingly, the Spansion Notes were and will be exchangeable at the option of their holders during the third and fourth quarters of fiscal 2019. During the three months ended September 29, 2019, the Company received exchange notices representing an immaterial principal amount of Spansion Notes from holders. The Company may pay or deliver, cash, shares or any combination of cash and shares, at its election to settle the exchanges.
The Spansion Notes consisted of the following as of September 29, 2019 and December 30, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2019
|
|
December 30, 2018
|
|
Equity component
|
$
|
22,971
|
|
|
$
|
22,971
|
|
|
Liability component:
|
|
|
|
|
|
Principal
|
11,990
|
|
|
11,990
|
|
|
Less debt discount and debt issuance costs, net
|
(305
|
)
|
|
(552
|
)
|
|
Net carrying amount
|
$
|
11,685
|
|
|
$
|
11,438
|
|
The following table summarizes the components of the total interest expenses on the Spansion Notes recognized during the three and nine months ended September 29, 2019 and September 30, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
Contractual interest expense at 2% per annum
|
|
$
|
61
|
|
|
$
|
61
|
|
|
$
|
182
|
|
|
$
|
182
|
|
|
Accretion of debt discount
|
|
82
|
|
|
76
|
|
|
247
|
|
|
240
|
|
|
Total
|
|
$
|
143
|
|
|
$
|
137
|
|
|
$
|
429
|
|
|
$
|
422
|
|
4.5% Convertible Senior Notes due 2022
On June 23, 2016, the Company issued, at face value, $287.5 million of 4.5% Convertible Senior Notes due 2022 (the "2022 Notes") in a private placement to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended.
The 2022 Notes are convertible at an initial conversion rate of 74.1372 shares of common stock per $1,000 principal amount of 2022 Notes (equivalent to an initial conversion price of approximately $13.49 per share) subject to adjustment upon the occurrence of certain events, including anti-dilutive issuances and, in certain circumstances, a make-whole adjustment upon a fundamental change. Pursuant to the terms of the indenture governing the 2022 Notes (the "2022 Notes Indenture"), a fundamental change includes a change in control, liquidation, consolidation, or merger of the Company or a delisting of the Company's stock, (see "—Effect of Proposed Merger on the Notes," below).
Prior to October 15, 2021, the 2022 Notes are convertible only under certain specified circumstances as described in the 2022 Notes Indenture. One such circumstance is that the 2022 Notes will be convertible during any fiscal quarter (and only during such fiscal quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day. Such condition was met as of the last trading day of each of the Company's fiscal quarters ended June 30, 2019 and September 29, 2019 and, accordingly, the 2022 Notes were and will be convertible at the option of their holders during the third and fourth quarters of fiscal 2019. During the three months ended September 29, 2019, the Company received conversion notices representing an immaterial principal amount of 2022 Notes from holders. Because the Company may elect to settle the 2022 Notes in cash, shares, or a combination of both, the Company continued to classify the 2022 Notes as long-term debt on the Condensed Consolidated Balance Sheets as of September 29, 2019.
The 2022 Notes consisted of the following as of September 29, 2019 and December 30, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2019
|
|
December 30, 2018
|
|
Equity component
|
$
|
47,686
|
|
|
$
|
47,686
|
|
|
Liability component:
|
|
|
|
|
|
Principal
|
287,500
|
|
|
287,500
|
|
|
Less debt discount and debt issuance costs, net
|
(23,214
|
)
|
|
(30,774
|
)
|
|
Net carrying amount
|
$
|
264,286
|
|
|
$
|
256,726
|
|
The following table includes total interest expense related to the 2022 Notes recognized during the three and nine months ended September 29, 2019 and September 30, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
Contractual interest expense
|
|
$
|
3,198
|
|
|
$
|
3,198
|
|
|
$
|
9,667
|
|
|
$
|
9,667
|
|
|
Amortization of debt issuance costs
|
|
317
|
|
|
317
|
|
|
958
|
|
|
958
|
|
|
Accretion of debt discount
|
|
2,184
|
|
|
2,184
|
|
|
6,602
|
|
|
6,602
|
|
|
Total
|
|
$
|
5,699
|
|
|
$
|
5,699
|
|
|
$
|
17,227
|
|
|
$
|
17,227
|
|
Capped Calls
In connection with the issuance of the 2022 Notes, the Company entered into capped call transactions with certain bank counterparties to reduce the risk of potential dilution of the Company’s common stock upon the conversion of the 2022 Notes. The capped call transactions have an initial strike price of approximately $13.49 and an initial cap price of approximately $15.27, in each case, subject to adjustment. The capped calls expire in January 2022.
2% Convertible Senior Notes due 2023
On November 6, 2017, the Company, issued at face value, $150.0 million of 2% Convertible Senior Notes due 2023 (the "2023 Notes") in a private placement to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended.
The 2023 Notes are convertible at an initial conversion rate of 46.7099 shares of common stock per $1,000 principal amount of 2023 Notes (equivalent to an initial conversion price of approximately $21.41 per share) subject to adjustment upon the occurrence of certain events, including anti-dilutive issuances and, in certain circumstances, a make-whole adjustment upon a fundamental change. A fundamental change includes a change in control, delisting of the Company’s stock, and liquidation, consolidation, or merger of the Company (see "—Effect of Proposed Merger on the Notes," below). Prior to November 1, 2022, the 2023 Notes are convertible only under certain specified circumstances as described in the indenture under which the 2023 Notes were issued.
The 2023 Notes consisted of the following as of September 29, 2019 and December 30, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2019
|
|
December 30, 2018
|
|
Equity component
|
|
$
|
15,028
|
|
|
$
|
15,028
|
|
|
Liability component:
|
|
|
|
|
|
Principal
|
|
150,000
|
|
|
150,000
|
|
|
Less debt discount and debt issuance costs, net
|
|
(12,212
|
)
|
|
(14,943
|
)
|
|
Net carrying amount
|
|
$
|
137,788
|
|
|
$
|
135,057
|
|
The following table includes total interest expense related to the 2023 Notes recognized during the three and nine months ended September 29, 2019 and September 30, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
Contractual interest expense
|
|
$
|
748
|
|
|
$
|
748
|
|
|
$
|
2,244
|
|
|
$
|
2,244
|
|
|
Amortization of debt issuance costs
|
|
176
|
|
|
175
|
|
|
526
|
|
|
525
|
|
|
Accretion of debt discount
|
|
734
|
|
|
735
|
|
|
2,205
|
|
|
2,205
|
|
|
Total
|
|
$
|
1,658
|
|
|
$
|
1,658
|
|
|
$
|
4,975
|
|
|
$
|
4,974
|
|
For more information on the Spansion Notes, the 2022 Notes, and the 2023 Notes, see Note 15 Debt of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 30, 2018.
Effect of Proposed Merger on the Notes
The proposed Merger will constitute a “fundamental change” (as defined in each of the indentures governing the Spansion Notes, 2022 Notes and 2023 Notes). As a result, holders of the Spansion Notes, 2022 Notes and 2023 Notes will be entitled to either (a) convert or exchange such holder's notes based on the applicable conversion or exchange rate for such notes in effect on the applicable exchange date or conversion date (as increased by additional make-whole shares to the extent such notes are converted after the Effective Time and prior to the Fundamental Change Repurchase Date (as defined in the applicable indenture)) or (b) require the surviving corporation to repurchase that holder's notes (or any portion of principal amount thereof that is equal to $1,000 or an integral multiple of $1,000 in excess thereof) of the applicable series for cash on a date specified by the surviving corporation in accordance with the applicable indenture at a purchase price of 100% of the principal amount thereof plus accrued and unpaid interest to, but excluding, the Fundamental Change Repurchase Date (as defined in the
applicable indenture). Alternatively, holders of Cypress's outstanding exchangeable or convertible notes can continue to hold such notes, which, following the Effective Time, will be convertible or exchangeable only into an amount of cash equal to
$23.85 per share multiplied by the applicable exchange or conversion rate as described above.
Future Debt Payments
The future scheduled principal payments for the Company's outstanding debt as of September 29, 2019 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Total
|
|
2019 (remaining three months)
|
|
$
|
50,010
|
|
|
2020 (1)
|
|
11,984
|
|
|
2021
|
|
347,000
|
|
|
2022 (1)
|
|
287,496
|
|
|
2023
|
|
150,000
|
|
|
Total (excluding finance leases)
|
|
$
|
846,490
|
|
|
Finance lease liabilities
|
|
9,612
|
|
|
Total debt
|
|
$
|
856,102
|
|
(1) The future principal payments of the Spansion Notes and the 2022 Notes are presented in the above table based on scheduled due dates. Such notes have become exchangeable or convertible (as applicable) at the option of their holders during the third and fourth quarters of fiscal 2019.
NOTE 12. LEASES
The Company has operating and finance leases for corporate offices, research and development facilities, and certain equipment. The Company's leases have remaining lease terms of 1 year to 8 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within the lease terms.
Supplemental balance sheet information related to leases was as follows (in thousands):
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 29, 2019
|
|
Finance Leases
|
|
|
Property and equipment, at cost
|
$
|
9,583
|
|
|
Accumulated depreciation
|
(1,487
|
)
|
|
Property and equipment, net
|
$
|
8,096
|
|
|
|
|
|
Finance leases included in current portion of long-term debt
|
$
|
1,833
|
|
|
Finance leases included in revolving credit facility and long-term portion of debt
|
7,779
|
|
|
Total finance lease liabilities
|
$
|
9,612
|
|
|
|
|
|
Operating Leases
|
|
|
Operating lease right-of-use assets
|
$
|
44,212
|
|
|
Operating leases included in other current liabilities
|
12,717
|
|
|
Operating leases included in other long-term liabilities
|
33,653
|
|
|
Total operating lease liabilities
|
$
|
46,370
|
|
The component of lease costs was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 29, 2019
|
|
Lease cost
|
|
|
|
|
Finance lease cost
|
|
|
|
|
Amortization of right-of-use assets
|
$
|
437
|
|
|
$
|
1,263
|
|
|
Interest on lease liabilities
|
99
|
|
|
299
|
|
|
Operating lease cost
|
4,126
|
|
|
11,426
|
|
|
Short term lease cost
|
55
|
|
|
543
|
|
|
Variable lease cost
|
505
|
|
|
1,454
|
|
|
Total lease cost
|
$
|
5,222
|
|
|
$
|
14,985
|
|
Other information related to leases were as follows:
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 29, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
(In thousands)
|
|
Operating cash flows from finance leases
|
$
|
299
|
|
|
Operating cash flows from operating leases
|
$
|
7,378
|
|
|
Financing cash flows from finance leases
|
$
|
1,271
|
|
|
|
|
|
Weighted-average remaining lease term (in years):
|
September 29, 2019
|
|
Finance leases
|
5.17
|
|
|
Operating leases
|
5.41
|
|
|
Weighted-average discount rate:
|
|
|
Finance leases
|
3.98
|
%
|
|
Operating leases
|
6.89
|
%
|
As of September 29, 2019, the maturities of the Company's lease liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities
|
Finance lease liabilities
|
|
Fiscal Year
|
(In thousands)
|
|
2019 (remaining three months)
|
$
|
3,980
|
|
$
|
537
|
|
|
2020
|
16,068
|
|
2,196
|
|
|
2021
|
8,384
|
|
2,189
|
|
|
2022
|
6,177
|
|
2,191
|
|
|
2023
|
4,742
|
|
2,049
|
|
|
Thereafter
|
18,806
|
|
1,456
|
|
|
Total undiscounted future cash flows
|
$
|
58,157
|
|
$
|
10,618
|
|
|
Less: Imputed interest
|
$
|
11,787
|
|
$
|
1,006
|
|
|
Present value of undiscounted future cash flows
|
$
|
46,370
|
|
$
|
9,612
|
|
|
|
|
|
|
Presentation on statement of financial position
|
|
|
|
Current
|
$
|
12,717
|
|
$
|
1,833
|
|
|
Non-current
|
$
|
33,653
|
|
$
|
7,779
|
|
As of December 30, 2018, future minimum lease payments under non-cancelable operating leases were as follows:
|
|
|
|
|
|
|
|
Fiscal Year
|
(In thousands)
|
|
2019
|
$
|
29,315
|
|
|
2020
|
12,860
|
|
|
2021
|
8,176
|
|
|
2022
|
6,241
|
|
|
2023
|
2,476
|
|
|
Thereafter
|
3,808
|
|
|
Total
|
$
|
62,876
|
|
NOTE 13. COMMITMENTS AND CONTINGENCIES
Product Warranties
The Company generally warrants its products against defects in materials and workmanship for a period of one year, and that product warranty is generally limited to a refund of the original purchase price of the product or a replacement part. The Company estimates its warranty costs based upon its historical warranty claim experience. Warranty returns are recorded as an allowance for sales returns. The allowance for sales returns is reviewed quarterly to verify that it reflects the remaining obligations based on the anticipated returns over the balance of the obligation period.
The following table presents the Company's warranty reserve activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
|
(In thousands)
|
|
Beginning balance
|
$
|
3,555
|
|
|
$
|
4,445
|
|
|
$
|
3,982
|
|
|
$
|
4,445
|
|
|
Settlements made
|
(2,252
|
)
|
|
(1,456
|
)
|
|
(4,637
|
)
|
|
(4,434
|
)
|
|
Provisions
|
2,252
|
|
|
1,456
|
|
|
4,210
|
|
|
4,434
|
|
|
Ending balance
|
$
|
3,555
|
|
|
$
|
4,445
|
|
|
$
|
3,555
|
|
|
$
|
4,445
|
|
Contractual Obligations
The Company has entered into agreements with certain vendors that include "take or pay" terms. Take or pay terms obligate the Company to purchase a minimum required amount of materials or services or make specified payments in lieu of such purchase. The Company may not be able to consume minimum commitments under these take or pay terms, requiring payments to vendors, which may have a material adverse impact on the Company’s earnings.
Litigation and Asserted Claims
The Company is currently involved in various legal proceedings, claims, and disputes arising in the ordinary course of business, including intellectual property claims and other matters.
Following the public announcement of the Merger Agreement, purported stockholders of the Company filed nine lawsuits against the Company and the members of our Board of Directors: Wang v. Cypress Semiconductor Corp. et al., 19-cv-03855 (N.D. Cal., filed July 3, 2019; dismissed September 9, 2019); Wheby v. Cypress Semiconductor Corp. et al., 19-cv-01267 (D. Del., filed July 8, 2019); Baxter v. Cypress Semiconductor Corp. et al., 19-cv-03944 (N.D. Cal., filed July 9, 2019; dismissed October 4, 2019); Salpeter-Levy v. Cypress Semiconductor Corp. et al., 19-cv-06369 (S.D.N.Y., filed July 10, 2019; dismissed September 13, 2019); Jeweltex Mfg. Inc. Ret. Plan v. Cypress Semiconductor Corp. et al., 19-cv-03978 (N.D. Cal., filed July 11, 2019; dismissed October 8, 2019); Hatt v. Cypress Semiconductor Corp. et al., 19-cv-15400 (D.N.J., filed July 15, 2019; dismissed October 16, 2019); Starosciak v. Cypress Semiconductor Corporation et al., 19-cv-01315 (D. Del., filed on July 16, 2019); Fredericks v. Cypress Semiconductor Corporation et al., 19-cv-04139 (N.D. Cal., filed on July 18, 2019; dismissed September 18, 2019); and Nozawa v. Cypress Semiconductor Corporation et al., 19-cv-06821 (S.D.N.Y., filed on July 23, 2019; dismissed October 3, 2019). Wheby is a purported class action. Eight of the complaints contend, among other things, that the Company’s preliminary proxy statement on Schedule 14A, filed July 2, 2019, misstated or failed to disclose certain allegedly material information in violation of federal securities laws (and one complaint, Fredericks, alleged similar theories based on the
Company’s definitive proxy statement on Schedule 14A, filed July 16, 2019). Each complaint seeks equitable relief, including an injunction of the Merger, among other remedies. As noted above, in September and October of 2019, six of the nine complaints were voluntarily dismissed by their respective plaintiffs with prejudice (which means they cannot be refiled), except that Hatt was dismissed without prejudice and each plaintiff reserved the right to file a motion for fees. Although we cannot predict the ultimate outcome of these cases with certainty, the Company believes that these lawsuits are without merit and intends to defend against them vigorously.
On September 23, 2019, a patent infringement lawsuit was filed by Bandspeed LLC (Case No. 19-cv-00936, W.D. Tex.) against the Company, alleging infringement of eight patents and seeking an unspecified amount of damages and an award of attorneys’ fees and costs.
On October 4, 2019, a patent infringement lawsuit was filed by Sentient Sensors, LLC (Case No. 19-cv-01868, D. Del.) against the Company, alleging infringement of a single patent and seeking an unspecified amount of damages, declaratory relief, injunctive relief, and an award of attorneys’ fees and costs.
For many legal matters, particularly those in early stages, the Company cannot reasonably estimate the possible loss (or range of loss), if any. The Company records an accrual for legal matters at the time or times it determines that a loss is both probable and reasonably estimable. Amounts accrued as of September 29, 2019 were not material. Regarding matters for which no accrual has been made (including the potential for losses in excess of amounts accrued), the Company currently believes, based on its own investigations, that any losses (or ranges of losses) that are reasonably possible and estimable will not, in the aggregate, have a material adverse effect on its financial position, results of operations, or cash flows. However, the ultimate outcome of legal proceedings involves judgments, estimates, and inherent uncertainties and cannot be predicted with certainty. Should the ultimate outcome of any legal matter be unfavorable, the Company's business, financial condition, results of operations, or cash flows could be materially and adversely affected. The Company may also incur substantial legal fees, which are expensed as incurred, in defending against legal claims.
Indemnification Obligations
The Company is a party to a variety of agreements pursuant to which it may be obligated to indemnify other parties to such agreements with respect to certain matters. Typically, these obligations arise in the context of contracts that the Company has entered into, under which the Company customarily agrees to hold the other party harmless against losses arising from a breach of representations and covenants or terms and conditions related to such matters as the sale and/or delivery of its products, title to assets sold, certain intellectual property claims, defective products, specified environmental matters and certain income taxes. With respect to the sale of a manufacturing facility or subsidiary business, such indemnification may also cover tax matters and the Company's management of the facility or business prior to the sale. In the foregoing circumstances, payment by the Company is customarily conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the other party’s claims and vigorously defend itself and the other party against related third-party claims. Further, the Company's obligations under these agreements may be limited in terms of time, amount or the scope of its responsibility and in some instances, the Company may have recourse against third parties for certain payments made under these agreements.
It is not possible to predict the maximum potential amount of future payments under these agreements due to the conditional nature of the Company's obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments the Company has made under these agreements have not had a material effect on the Company’s business, financial condition or results of operations. As of September 29, 2019, management believes that if the Company were to incur a loss (in excess of amounts already recognized) in any of these matters, such loss would not have a material effect on its business, financial condition, cash flows or results of operations, though there can be no assurance in this regard.
NOTE 14. FOREIGN CURRENCY AND INTEREST RATE DERIVATIVES
The Company enters into multiple foreign exchange forward contracts to hedge certain foreign currency risk resulting from fluctuations in Japanese yen (¥) and Euro (€) exchange rates. In addition, the Company entered into fixed-for-floating interest rate forward swap agreements and has designated these swaps as hedging instruments. The Company does not enter into derivative securities for speculative purposes. The Company’s hedging policy is designed to mitigate the impact of foreign currency exchange rate fluctuations on its operating results. Some foreign currency forward contracts are considered to be economic hedges that were not designated as hedging instruments while others were designated as cash flow hedges. Whether designated or undesignated as cash flow hedges or not, these forward contracts protect the Company against the variability of forecasted foreign currency cash flows resulting from revenues, expenses and net asset or liability positions designated in
currencies other than the U.S. dollar. The maximum original duration of any contract allowable under the Company’s hedging policy is thirteen months for foreign currency hedging contracts.
Cash Flow Hedges
The Company enters into cash flow hedges to protect non-functional currency inventory purchases and certain other operational expenses, in addition to its ongoing program of cash flow hedges to protect its non-functional currency revenues against variability in cash flows due to foreign currency fluctuations. The Company’s foreign currency forward contracts that were designated as cash flow hedges generally have maturities between three and thirteen months. All hedging relationships are formally documented, and the hedges are designed to offset changes to future cash flows on hedged transactions at the inception of the hedge. The Company recognizes derivative instruments from hedging activities as either assets or liabilities on the balance sheet and measures them at fair value on a monthly basis. The Company records changes in the intrinsic value of its cash flow hedges in accumulated other comprehensive income on the Condensed Consolidated Balance Sheets, until the forecasted transaction occurs. Prior to the second quarter of 2018, interest charges or "forward points" on the forward contracts were excluded from the assessment of hedge effectiveness and were recorded in interest and other income, net in the Condensed Consolidated Statements of Operations. Commencing in the second quarter of 2018, interest charges or "forward points" on newly entered forward contracts are included in the assessment of hedge effectiveness, and are recorded in the underlying hedged items in the Condensed Consolidated Statements of Operations. When the forecasted transaction occurs, the Company reclassifies the related gain or loss on the cash flow hedge to revenue or costs, depending on the risk hedged. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, the Company will reclassify the gain or loss on the related cash flow hedge from accumulated other comprehensive income to interest and other income, net in its Condensed Consolidated Statements of Operations at that time. For the nine months ended September 29, 2019 and September 30, 2018, the Company had a net loss of $0.5 million and a net loss of $1.7 million, which was related to foreign currency forward contracts, recorded in other comprehensive income (loss), respectively. As of September 29, 2019 and December 30, 2018, the accumulated other comprehensive income (loss) related to foreign currency forward contracts was a loss of $38,500 and a gain of $0.4 million, respectively.
The Company evaluates hedge effectiveness at the inception of the hedge prospectively as well as retrospectively and records any ineffective portion of the hedge in other income, net in its Condensed Consolidated Statements of Operations.
Designated Hedges
Total notional amounts of net outstanding contracts were as summarized below:
|
|
|
|
|
|
|
|
Buy / Sell
|
|
September 29, 2019
|
December 30, 2018
|
|
|
|
(In millions)
|
|
U.S. dollar / Japanese Yen
|
|
$37.0 / ¥3,900
|
$44.5 / ¥4,850
|
|
Japanese Yen / U.S. dollar
|
|
¥5,400 / $51.0
|
¥10,827 / $98.8
|
Non-designated hedges
Total notional amounts of net outstanding contracts were as summarized below:
|
|
|
|
|
|
|
|
Buy / Sell
|
|
September 29, 2019
|
December 30, 2018
|
|
|
|
(In millions)
|
|
EUR / U.S. dollar
|
|
€1.5 / $1.7
|
|
|
U.S. dollar / EUR
|
|
$0.8 / €0.7
|
$9.1 / €8.0
|
|
U.S. dollar / Japanese Yen
|
|
$37.4 / ¥4,030
|
$13.2 / ¥1,430
|
|
Japanese Yen / U.S. dollar
|
|
¥7,877 / $73.6
|
¥4,210 / $38.0
|
In December 2017, the Company entered into fixed-for-floating interest rate forward swap agreements starting April 2018 with two counterparties to swap future variable interest payments on certain debt for fixed interest payments; these agreements will expire in July 2021. The objective of the swaps was to effectively fix the interest rate at current levels without having to refinance the outstanding term loan, thereby avoiding the incurrence of transaction costs. The aggregate notional amount of these interest rate swaps is $300 million. The interest rate on the variable debt was fixed in December 2017 and became effective in April 2018.
On January 3, 2018, the Company evaluated the hedge effectiveness of the interest rate swaps and designated these swaps as hedging instruments. Upon designation as cash flow hedge instruments, future changes in fair value of these swaps are recognized in accumulated other comprehensive income (loss).
In October 2018, the Company entered into fixed-for-floating interest rate forward swap agreements starting in July 2021 with two counterparties to swap future variable interest payments on existing debt for fixed interest payments; these agreements will expire in December 2024. The objective of the swaps was to effectively fix the future interest rate at the level currently available to avoid the uncertainty in financing cost for a portion of debt due to future interest rate fluctuations. The aggregate notional amount of these interest rate swaps is $300 million. The Company has evaluated the hedge effectiveness of the interest rate swaps and has designated these swaps as cash flow hedges of the debt with future changes in fair value of these swaps to be recognized in accumulated other comprehensive income (loss).
For the nine months ended September 29, 2019 and September 30, 2018, the Company had a net loss of $17.5 million and a net gain of $5.9 million, which was related to interest rate swap, recorded in other comprehensive income (loss), respectively. As of September 29, 2019 and December 30, 2018, the accumulated other comprehensive income (loss) related to these interest rate swaps was a loss of $18.8 million and a loss of $1.3 million, respectively.
The effect of derivative instruments on the Condensed Consolidated Statements of Operations for the three and nine months ended September 29, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 29, 2019
|
|
|
|
(In thousands)
|
|
|
|
Revenue
|
|
Cost of Goods Sold
|
|
Operating Expenses
|
|
Interest Expense
|
|
Revenue
|
|
Cost of Goods Sold
|
|
Operating Expenses
|
|
Interest Expense
|
|
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value and cash flow hedges are recorded
|
|
$
|
574,521
|
|
|
$
|
358,080
|
|
|
$
|
171,216
|
|
|
$
|
17,889
|
|
|
$
|
1,645,746
|
|
|
$
|
1,028,138
|
|
|
$
|
527,081
|
|
|
$
|
43,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain or (loss) on cash flow hedge relationships in Subtopic ASC 815-20:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from AOCI into income
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
106
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
835
|
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from AOCI into income
|
|
$
|
(86
|
)
|
|
$
|
381
|
|
|
$
|
57
|
|
|
$
|
—
|
|
|
$
|
482
|
|
|
$
|
(210
|
)
|
|
$
|
9
|
|
|
$
|
—
|
|
The gross fair values of derivative instruments on the Condensed Consolidated Balance Sheets as of September 29, 2019 and December 30, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2019
|
|
December 30, 2018
|
|
Balance Sheet location
|
|
Derivatives designated as hedging instruments
|
|
Derivatives not designated as hedging instruments
|
|
Derivatives designated as hedging instruments
|
|
Derivatives not designated as hedging instruments
|
|
|
|
(In thousands)
|
|
Other Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Asset
|
|
$
|
720
|
|
|
$
|
236
|
|
|
$
|
2,767
|
|
|
$
|
725
|
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
|
Derivative Asset
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,419
|
|
|
$
|
—
|
|
|
Other Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liability
|
|
$
|
1,985
|
|
|
$
|
771
|
|
|
$
|
1,210
|
|
|
$
|
411
|
|
|
Non-Current Liabilities
|
|
|
|
|
|
|
|
|
|
Derivative Liability
|
|
$
|
17,483
|
|
|
$
|
—
|
|
|
$
|
4,051
|
|
|
$
|
—
|
|
NOTE 15. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
|
(In thousands, except per-share amounts)
|
|
Net income attributable to Cypress
|
$
|
12,683
|
|
|
$
|
50,695
|
|
|
$
|
19,668
|
|
|
$
|
87,478
|
|
|
Weighted-average common shares
|
369,241
|
|
|
361,631
|
|
|
366,444
|
|
|
358,560
|
|
|
Weighted-average diluted shares
|
388,243
|
|
|
374,266
|
|
|
381,633
|
|
|
373,064
|
|
|
Net income per share—basic
|
$
|
0.03
|
|
|
$
|
0.14
|
|
|
$
|
0.05
|
|
|
$
|
0.24
|
|
|
Net income per share—diluted
|
$
|
0.03
|
|
|
$
|
0.14
|
|
|
$
|
0.05
|
|
|
$
|
0.23
|
|
For the three months ended September 29, 2019 and September 30, 2018, approximately 14,000 and 2.8 million weighted average potentially dilutive shares underlying outstanding stock-based awards and convertible debt, respectively, were excluded in the computation of diluted net income per share because their effect would have been anti-dilutive. For the nine months ended September 29, 2019 and September 30, 2018, approximately 1.4 million and 2.7 million weighted average potentially dilutive shares underlying outstanding stock-based awards and convertible debt, respectively, were excluded in the computation of diluted net income per share because their effect would have been anti-dilutive.
NOTE 16. INCOME TAXES
The Company's income tax expense was $16.2 million and $5.6 million for the three months ended September 29, 2019 and September 30, 2018, respectively. The Company's income tax benefit / (expense) was $2.7 million and $(15.8) million for the nine months ended September 29, 2019 and September 30, 2018, respectively. The provision for the three months ended September 29, 2019 was primarily due to pre-tax income changes as well as various discrete items. The income tax expense for the three months ended September 30, 2018 was primarily attributable to non-U.S. taxes associated with the Company's non-U.S. operations.
A valuation allowance is established or maintained when, based on currently available information and other factors, it is more likely than not that all or a portion of the deferred tax assets will not be realized. The Company regularly assesses its valuation allowance against deferred tax assets on a jurisdiction by jurisdiction basis. The Company considers all available positive and negative evidence, including future reversals of temporary differences, projected future taxable income, tax planning strategies and recent financial results. During the fourth quarter of 2018, the Company emerged from a cumulative loss position over the previous three years. The cumulative three-year pre-tax income is considered positive evidence which is objective and verifiable and thus received significant weighting. The continued pattern of income before tax, recent global restructuring executed in fiscal 2018 and projected future operating income in the U.S. was additional positive evidence. As a result, the Company released $343.3 million of the valuation allowance attributable to certain U.S. deferred tax assets during 2018. Based
on management’s assessment of the realizability of deferred tax assets, there was no change to the previously recorded valuation allowances during the three and nine months ended September 29, 2019.
Unrecognized Tax Benefits
Gross unrecognized tax benefits were $131.9 million and $121.9 million as of September 29, 2019 and December 30, 2018, respectively. As of September 29, 2019, and December 30, 2018, the amount of unrecognized tax benefits that, if recognized, would affect the Company's effective tax rate totaled $75.6 million and $65.8 million, respectively.
Management believes events that could occur in the next 12 months which could cause a change in unrecognized tax benefits include, but are not limited to, the following:
•completion of examinations by the U.S. or foreign taxing authorities; and
•expiration of statutes of limitations on the Company's tax returns.
The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations. Management regularly assesses the Company’s tax positions in light of legislative, bilateral tax treaty, regulatory and judicial developments in the countries in which the Company does business. Given the uncertainty in the development of ongoing tax examinations and tax correspondence with taxing authorities, it is possible that the Company’s balance of gross unrecognized tax benefits could materially change in the next 12 months. As a result, the Company is unable to estimate the full range of possible adjustments to this balance.
Classification of Interest and Penalties
The Company classifies interest and penalties as components of the income tax provision in the Condensed Consolidated Statements of Operations. As of September 29, 2019 and December 30, 2018, the amounts of accrued interest and penalties totaled $13.8 million and $13.0 million, respectively.
NOTE 17. SEGMENT, GEOGRAPHICAL AND CUSTOMER INFORMATION
Segment Information
The Company designs, develops, manufactures and markets a broad range of solutions for embedded systems from the IoT, automotive, industrial, consumer electronics, and medical areas.
Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision-maker ("CODM"), or decision-making group, in making decisions on how to allocate resources and assess performance. The CODM is considered to be the Chief Executive Officer.
The Company's segments are MCD (Microcontroller and Connectivity Division) and MPD (Memory Products Division).
Income Before Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
|
(In thousands)
|
|
MCD
|
$
|
61,948
|
|
|
$
|
58,896
|
|
|
$
|
110,302
|
|
|
$
|
108,467
|
|
|
MPD
|
56,513
|
|
|
96,650
|
|
|
212,313
|
|
|
278,579
|
|
|
Unallocated items:
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
(24,891
|
)
|
|
(24,195
|
)
|
|
(75,766
|
)
|
|
(76,561
|
)
|
|
Restructuring charges
|
(392
|
)
|
|
(9,991
|
)
|
|
(3,509
|
)
|
|
(15,326
|
)
|
|
Amortization of intangible assets and other
|
(51,394
|
)
|
|
(55,875
|
)
|
|
(155,518
|
)
|
|
(164,256
|
)
|
|
Merger-related expenses
|
(3,043
|
)
|
|
—
|
|
|
(11,452
|
)
|
|
—
|
|
|
Changes related to debt extinguishment
|
(6,402
|
)
|
|
—
|
|
|
(6,402
|
)
|
|
630
|
|
|
Other adjustments
|
(2,036
|
)
|
|
(5,463
|
)
|
|
(15,609
|
)
|
|
(17,201
|
)
|
|
Income from operations before income taxes
|
$
|
30,303
|
|
|
$
|
60,022
|
|
|
$
|
54,359
|
|
|
$
|
114,332
|
|
The Company does not allocate stock-based compensation, changes in value of deferred compensation plan, restructuring charges, merger-related expenses, amortization of intangible assets and certain other expenses to its segments.
Geographical Information
Property, plant and equipment, net, excluding finance leases, by geographic locations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 29, 2019
|
|
December 30, 2018
|
|
|
(In thousands)
|
|
United States
|
$
|
149,830
|
|
|
$
|
173,973
|
|
|
Philippines
|
31,828
|
|
|
33,413
|
|
|
Thailand
|
31,439
|
|
|
34,581
|
|
|
Japan
|
10,554
|
|
|
11,251
|
|
|
Other
|
31,208
|
|
|
29,768
|
|
|
Total property, plant and equipment (excluding finance leases), net
|
$
|
254,859
|
|
|
$
|
282,986
|
|
The Company tracks its assets by physical location. Although management reviews asset information on a corporate level and allocates depreciation expense by segment, the Company’s CODM does not review asset information on a segment basis.
Customer Information
Outstanding accounts receivable from two of the Company's distributors accounted for 15.7% and 13.4% of its consolidated accounts receivable as of September 29, 2019. Outstanding accounts receivable from one of the Company's distributors accounted for 25.0% of its consolidated accounts receivable as of December 30, 2018.
Revenue from sales to two of the Company's distributors accounted for 18.0% and 10.2% of its consolidated revenues for the three months ended September 29, 2019. Revenue from sales to two of the Company's distributors accounted for 16.6% and 14.0% of its consolidated revenues for the nine months ended September 29, 2019. No other distributors or end-customers accounted for 10% or more of the Company's consolidated revenues for the three months or nine months ended September 29, 2019.
Revenue from sales to two of the Company’s distributors accounted for 17.7% and 15.1% of its consolidated revenues for the three months ended September 30, 2018. Revenue from sales to two of the Company’s distributors accounted for 18.6% and 13.8% of its consolidated revenues for the nine months ended September 30, 2018. No other distributors or end-customers accounted for 10% or more of the Company's consolidated revenues for the three months or nine months ended September 30, 2018.
NOTE 18. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The changes in accumulated other comprehensive loss, net of tax, by components are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated net unrealized income (loss) on cash flow hedges and other
|
|
Accumulated unrecognized gain (loss) on the Defined Benefit Plan
|
|
Accumulated other comprehensive income (loss)
|
|
Balance as of December 30, 2018
|
$
|
(763
|
)
|
|
$
|
2,592
|
|
|
$
|
1,829
|
|
|
Other comprehensive income (loss) before reclassification
|
(5,938
|
)
|
|
—
|
|
|
(5,938
|
)
|
|
Amounts reclassified to operating income
|
(502
|
)
|
|
—
|
|
|
(502
|
)
|
|
Net unrealized gain (loss) on the defined benefit plan
|
—
|
|
|
(13
|
)
|
|
(13
|
)
|
|
Balance as of March 31, 2019
|
$
|
(7,203
|
)
|
|
$
|
2,579
|
|
|
$
|
(4,624
|
)
|
|
Other comprehensive income (loss) before reclassification
|
$
|
(6,963
|
)
|
|
$
|
—
|
|
|
$
|
(6,963
|
)
|
|
Amounts reclassified to operating income
|
(156
|
)
|
|
—
|
|
|
(156
|
)
|
|
Net unrealized gain (loss) on the defined benefit plan
|
—
|
|
|
(928
|
)
|
|
(928
|
)
|
|
Balance as of June 30, 2019
|
$
|
(14,322
|
)
|
|
$
|
1,651
|
|
|
$
|
(12,671
|
)
|
|
Other comprehensive income (loss) before reclassification
|
$
|
(3,816
|
)
|
|
$
|
—
|
|
|
$
|
(3,816
|
)
|
|
Amounts reclassified to operating income
|
(458
|
)
|
|
—
|
|
|
(458
|
)
|
|
Net unrealized gain (loss) on the defined benefit plan
|
—
|
|
|
10
|
|
|
10
|
|
|
Balance as of September 29, 2019
|
$
|
(18,596
|
)
|
|
$
|
1,661
|
|
|
$
|
(16,935
|
)
|
NOTE 19. RELATED-PARTY TRANSACTIONS
In the ordinary course of business, the Company purchases from, or sells to (a) entities for which one of the Company's directors or executive officers serves as a director or (b) entities that are otherwise affiliated with one of the Company's directors or executive officers (collectively, "related parties").
For the indicated periods, the following table presents information on the Company's transactions with such entities occurring at a time when the other entity was a related party of the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 29, 2019
|
|
September 30, 2018
|
|
September 29, 2019
|
|
September 30, 2018
|
|
|
|
(In thousands)
|
|
Total revenues
|
|
$
|
3,092
|
|
|
$
|
22
|
|
|
$
|
6,738
|
|
|
$
|
211
|
|
|
Total purchases
|
|
$
|
1,862
|
|
|
$
|
5,776
|
|
|
$
|
6,626
|
|
|
$
|
11,146
|
|
As of September 29, 2019, and September 30, 2018, amounts due from these parties totaled $4.8 million and $65,000, respectively, and amounts due to these parties totaled $1.0 million and $2.0 million, respectively.