2011 ANNUAL REPORT “The good news is that we have already done—market willing—everything required in R&D and manufacturing to produce $1 billion in revenue and $1.00-plus in EPS in 2011.”T.J. Rodgers, 2010 Annual ReportPSoC® Joins SRAM and USB in the 1 Billion Unit Club: PSoC passed the 1-billion mark in units shipped during 2011, joining SRAMs and USB controllers as Cypress products that have shipped in very high volume and become industry standards. YEAR ENDING UNITS SHIPPED2,7502,5002,2502,0001,7501,5001,2501,00075050025001984198519861987198819891990199119921993199419951996199719981999200020012002200320042005200620072008200920102011MILLIONS OF UNITS1 BILLION UNITS =100 MILLION UNITS/YEAR FOR 1 DECADESRAMUSBPSoCCypress IPOCYPRESS SOLUTIONS DRIVE THE WORLD’S BEST END PRODUCTSCypress Semiconductor Corp. 2011 Annual Report and 2012 Proxy StatementTrueTouch® and CapSense® Touch SensingPSoC®USB 3.0ONS Finger NavigationSRAMsCypress Semiconductor Corporation 198 Champion Court, San Jose, CA 95134-1709(408) 943-2600 www.cypress.comAcer’s ICONIA™ TAB A100, the industry’s first 7-inch tablet based on the Android 3.2 Honeycomb platform, uses Cypress’s TrueTouch® large touchscreen solution to drive its vivid display.XIMEA’s MQ Series industrial cameras are the world’s smallest and fastest. Cypress’s EZ-USB® FX-3™ SuperSpeed USB controllers provide 5-Gbps performance, enough to generate 400 Megapixels per second.Oscium’s iMSO-104 mixed-signal oscilloscope uses PSoC 3 to turn this iPad into an electronic instrument.Bicom’s playGo USB sends media wirelessly from PCs to entertainment systems. PSoC® controls LEDs, an RF module, an infrared receiver and six CapSense buttons inside the playGo.Juniper Networks’ EX8208 Ethernet Switch uses Cypress’s QDR™ II+ SRAMs in delivering performance of 960 million packets per second.Samsung’s Intercept™ QWERTY mobile phone employs Cypress’s OvationONS™ sensor in the optical trackpad modules for easy and intuitive single-handed screen and menu navigation.The NTT docomo PRIME series F-01C mobile phone uses unique, patent-pending TrueTouch technology to enable the touchscreen to operate even when wet. The Clarion touch panel featured in the dashboard of the Suzuki MR Wagon is driven by Cypress’s CapSense® touch-sensing solution.The Sony Mobile Communications Xperia™ sola phone is the world’s first with “hover” technology that tracks a finger close to, but not touching, the screen. This feature is enabled by technology found only in TrueTouch.©2012 Cypress Semiconductor Corporation. All Rights Reserved. Trademarks are property of their respective owners.Printed in the U.S.A.The Aclara UMT-R residential power meter relies on Cypress NVSRAM™ devices to provide fail-safe memory. CYPRESS USB: THE WORLDWIDE MARKET LEADERTARGETING THE USB 3.0 SUPERSPEED MARKETWORLDWIDE USB-ENABLED DEVICESHIPMENTS & FORECAST: 2011-2015Cypress entered the Universal Serial Bus market in 1996 with the goal of "Making USB Universal." Since then, we have shipped over 1.2 billion USB controllers and become the worldwide market leader. Cypress offers the industry’s most complete USB portfolio – from the 1.5 megabits per second (Mbps) throughput of its Low-Speed USB 1.1 devices to the ultrafast 5-Gbps connection speed of its USB 3.0 SuperSpeed solutions. Over the next three years, the USB 3.0 standard is expected to contribute more than two billion units to the growing USB market, as shown in the graph at right. Cypress’s EZ-USB® FX3 controller, and its West Bridge® Benicia™ storage solution for mobile and tablet applica-tions, are uniquely positioned to tap into the significant expansion of the USB 3.0 standard—which delivers connectivity and the seamless transfer of music, video and images across a broad range of devices from PCs to cameras, printers, medical imaging equipment and storage devices.At the heart of Cypress’s FX3 solution is a 200 MHz, 32-bit ARM9 core and a flexible, 32-bit General Programmable Interface (GPIF II) that enables customers to add USB 3.0 connectivity to any system, simplifying designs and improving their time-to-market. In just three quarters, our FX3 product has garnered more than 350 active designs in applications such as data acquisition, gaming, biometric scanning, medical imaging, and machine vision. Cypress is part of the USB Implementers Forum – the governing USB standards body. FX3 is part of the USB-IF “Golden Tree” of device controllers, meaning that it will be used to create test conditions for USB hosts and hubs. This makes it an important growth catalyst in the fast-growing USB 3.0 ecosystem.6,0005,0004,0003,0002,0001,000020112012201320142015Millions of UnitsUSB 1.1USB 2.0USB 3.0Source: 2011 Intel Developer ForumCYPRESS FX3 DESIGN RAMP4003002001000Q111Q211Q311Q411Total Active DesignsFX1FX2FX3– USB 1.1 (12 Mbps)– 8-bit 8051 @ 48 MHz– Up to 16-bit GPIF™ @ 48 MHz– USB 2.0 (480 Mbps)– 8-bit 8051 @ 48 MHz– Up to 16-bit GPIF™ @ 48 MHz– USB 3.0 (5 Gbps)– 32-bit ARM9 @ 200 MHz– Up to 32-bit GPIF™ II @ 100 MHzDATA THROUGHPUT/FLEXIBILITYMore Applications Higher VolumePSoC® CREATOR™ SOFTWARE: ACCELERATING SYSTEM DESIGNCREATE AN ENTIRE SYSTEM IN SOFTWARE IN JUST 4 STEPSMFi CONNECTIVITY MADE EASY WITH PSoC SOFTWAREIn 2000, Cypress changed the microcontroller market forever, introducing its revolutionary new PSoC product—a dynamic solution integrating an MCU with programmable digital and analog functions, dramatically accelerating customer time to market. PSoC’s development environment, our PSoC Creator software, simplifies and accelerates the design process through the use of “components” – virtual chips with programmable digital and programmable analog capabilities, along with embedded firmware. As shown in the graphic below, PSoC Creator enables designers to drag and drop components into their system from an exten-sive library of predefined and pretested functions, creating an entire system in the Creator software environment in just four steps. The result is a highly differentiated central processor for feature-rich end products. Increasingly what this means is that Cypress is a software company as much as a hardware company. Over the past five years, the number of software engineers at Cypress has more than doubled to over 200. Our investment in software and software engineers enables us to produce unique, proprietary solutions with better margins than those of ordinary microcontrollers.PSoC IN Made for iPod | iPhone | iPad DESIGNSPSoC Creator has more than 100 pre-tested, ready-to-use components in its software library, including a “Made for iPod” (MFi) component that connects a wide range of real-world devices – such as oscilloscopes, medical instruments, karaoke players and even musical instruments – with any product running Apple’s proprietary iOS operating system. Apple has certified this MFi connectivity component and selected PSoC 3 as its platform to test new MFi solutions.1) Drag & drop components from the library2) Configure the components’ parameters3) Add your custom firmware4) Program the chip with your system designCOMPLEX MFi CONNECTIVITYSPECIFICATION…EMBEDDED IN DRAG & DROP PSoC CREATORMFi COMPONENT…TO DEVELOP & PROTOTYPE MFi ACCESSORY USING PSoC…AND CREATE INNOVATIVE NEW MFi PRODUCTS SUCH AS SONOMA WIRE WORKS’ GuitarJack™Medical ImagingSet Top BoxMonitorWireless Keyboard and MouseCameraPrinterProtocolAnalyzerVirtual chip:MFi componentVirtual PC boardAdd firmware toMFi systemPhysically program the configured system and firmware in a PSoCfrom PC to dongle to chip.ConfigureMFi componentMFi ConnectivityMFi_1 Rx Tx Interrupt DMA clock AUDIO_OUT AUDIO_IN FELLOW SHAREHOLDERS: *
INTRODUCTION
In the last sentence of Cypress’s 2010 Annual Report,
I wrote, “The good news is that we have already
done—market willing—everything required in R&D and
manufacturing to produce $1 billion in revenue and
$1.00-plus in EPS in 2011.” Although the chip market
did slow down considerably at year end, Cypress
performed well in 2011, with $0.995 billion in revenue—
or 12.6% year-on-year growth vs. 0.4% for the
semiconductor industry overall. Our Programmable
System-on-Chip (PSoC®) business drove our growth
with $410 million in 2011 revenue, almost double our
2010 PSoC revenue of $208 million.
Cypress’s 12.6% revenue growth—combined with a
rigorous cost-reduction effort that held operating
expense growth to just 5.0%—led to 24.1% profit
before tax (PBT) in 2011, our best in a decade. (Our
PBT record was 32.6%, set in the dot-com boom year
of 2000.) Our EPS—further bolstered by the repur-
chase of 36 million shares during the year—was $1.25,
up 33% from the $0.94 reported in 2010, and the
second best ever for Cypress (also vs. 2000).
In each of the past three years, Cypress has broken its
longstanding 2000 year-end share price record of
$9.15. Our year-end share price was $10.56 in 2009
and $18.58 in 2010. Unfortunately, after performing
well for the first eight months of 2011, our share price
finished the year at $16.89 in a softening market.
Nonetheless, our 2011 share price outperformed the
Philadelphia Semiconductor Index (SOX) by 2.4
percentage points, although it was a Pyrrhic victory:
Cypress share price declined by 9.1% in 2011 vs. a
decline of 11.5% for the SOX.
FINANCIALS
Our quarterly revenue and PBT for the last three years,
graphed in Figure 1, showed consistent improvement,
culminating in $1.0 billion in revenue and 24.1% PBT
in 2011.
REVENUE AND PROFIT BEFORE TAX
$ MILLIONS
265
255
242
223
232
227
233
REVENUE
194
202
179
300
250
200
150
139
156
100
50
0
-50
-2%
-21%
23%
26%
23% 21%
27%
25%
23%
PBT
16% 19%
11%
Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411
Figure 1. Cypress’s revenue dropped to only $139 million in Q1
of 2009 during a sharp recession, after which it grew consistently
over the next two years due to a ramp in PSoC sales. Beginning
in Q210, our PBT exceeded 20% for seven consecutive quarters,
and averaged 24.1% in 2011.
Cypress’s 10-year revenue trend is shown in Figure 2.
REVENUE
$ MILLIONS
1,200
1,000
938
800
775
832
855
822
808
766
995
884
668
600
400
200
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Figure 2. Cypress’s 2011 revenue of $995 million was the best
we have achieved in the past decade, due to strong revenue
growth in PSoC, which passed Static Random Access Memories
(SRAMs) as our biggest product line. Furthermore, 2011 was our
third-best revenue year, after the SRAM boom years of 1995 and
2000. Nonetheless, the $1 billion barrier still looms, and we are
committed to breaking through it.
The two primary reasons behind our inability to
penetrate the $1 billion revenue barrier are, first, our
divestiture over the last five years of eight unaligned
businesses with $165 million in revenue, and second,
the decline of the Static Random Access Memory
(SRAM) market from $6 billion in 2000 to about $1
billion today. The SRAM market consists of a base of
$1 billion and a variable component that grows dramat-
* This report is written so that time-constrained shareholders can read the introduction, the 16 figures and captions, and the conclusion—and get 80% of the
information.
1
ically whenever SRAMs are designed into a new, high-
volume product, such as personal computers (1996),
cell phones (2000) or datacom routers and switches
(2002). These peaks in the SRAM business decline
after a few years, as the discrete SRAMs we sell are
integrated into system chips; for example, into an Intel
microprocessor.
PSoC was invented as part of a strategy to flatten the
SRAM rollercoaster. At $410 million in revenue, it
became slightly larger than the SRAM business in
2011. (Cypress’s approximate revenue breakdown is
$400 million in SRAM, $400 million in PSoC, $100
million in USB and $100 million in other areas.)
Another strategy we have employed to break through
the $1 billion barrier is to create internal startup
companies, whose revenues we aggregate and report
as the “Emerging Technology Division” (ETD), as
shown in Figure 3.
EMERGING TECHNOLOGY DIVISION REVENUE
$ MILLIONS
47.1
31.4
17.8
8.1
50
45
40
35
30
25
20
15
10
5
0
2009
2010
2011
2012E
Figure 3. Cypress’s Emerging Technology Division (ETD)
revenue increased 76% in 2011 to $31.4 million. After PSoC, ETD
is our most significant source of non-SRAM revenue growth. In
2011, ETD consisted of six businesses: Cypress Envirosystems
(energy-saving wireless thermostats), AgigA Tech (very large non-
volatile memories for PC servers), Optical Navigation Systems
(optical “finger navigation” modules for cell phones), the China-
based Business Units (PSoC chips for electric bikes and PSoC-
based trackpads for laptop PCs) and DecaTech (advanced chip
interconnect leveraging SunPower technology). We expect ETD
revenue to grow about 50% to $47.1 million in 2012.
One of our startups, Cypress Microsystems, began
operations in Seattle in 2000, invented PSoC, and then
spun into Cypress in 2005. Although Cypress Micro-
transformative startup,
systems was our most
SunPower was the most financially successful. It was
launched to help Cypress break through the $1 billion
2
revenue barrier—and it succeeded. We reported $1.09
billion in revenue in 2006 and $1.60 billion in 2007, but
those years were restated to Cypress-only revenue
after we spun SunPower out to our shareholders in
2008. That $2.6 billion spinout, executed when
SunPower’s share price was about $57, was well-
timed in retrospect. SunPower’s share price is now
below $10, even though it is a profitable $2.2 billion
company. (The solar industry is currently suffering
through a product glut.)
During the past three years, we have intensified our
effort to drive down operating expenses, or opex, which
consists of the combined expenses of R&D, G&A and
S&M. In 2011, our opex of $334 million represented
33.5% of sales vs. our long-term corporate goal of
30%. This is the best we have done in a decade, as
shown in Figure 4.
OPERATING EXPENSES
$ MILLIONS
49.4%
39.8%
42.5%
44.4% 41.7%
46.1%
39.6%
33.5%
35.9%
44.5%
400
380
360
340
320
300
280
260
240
220
200
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Figure 4. Cypress’s opex is graphed in dollars and labeled with
opex as a percentage of sales. Despite our revenue growth,
Cypress’s opex has declined in absolute dollars over the last
decade at the rate of 1.5% per year, from $383 million in 2002 to
$334 million in 2011. As a percentage of sales, opex was 49.4%
in 2002, and dropped 15.9 percentage points to 33.5% in 2011.
Our long-term corporate financial goals are to produce 60% gross
margin, spend 30% on opex and produce 30% pretax profit—the
60/30/30 model. In 2011, we achieved 57.3% gross margin, 33.5%
opex and 24.1% pretax profit.
Fewer Sites. Cypress drives down opex by reducing
its number of sites, headcount and discretionary
expenses. By the end of 2011, we had reduced our site
count to 57 from 69 in 2009, when we began the
program.
Lower Headcount. Our headcount also dropped in
2011, by 4.3% to 3,406 from 3,560 in 2010. In last
year’s Annual Report, I stated that we added only 10
net people to the company during 2010, despite 13%
revenue growth. However, we
turned over 448
employees due to attrition, restructuring and reduc-
tions in force, while hiring 458 new employees—in
exactly the positions where we needed them. Likewise,
in 2011, our net total headcount was reduced by 156—
by turning over 701 employees and hiring back 545
employees, mostly into different and more essential
positions
largest
headcount
reduction occurred at our Cypress
Manufacturing Limited (CML) plant, where we shut
down our manual assembly and test operation in favor
of the much more efficient “Autoline” robotic assembly
and test lines described in last year’s Annual Report.
the ones vacated. The
than
turnover rate, Cypress
We were able to reduce our total headcount while
making over 500 targeted hires, by using the “Hiring
Auction,” a business process that we have refined over
the last three years. Its basic premise is simple: With a
10%
loses about seven
employees to attrition each week. We do not automat-
ically rehire into those positions. Instead, each week in
the executive staff meeting, we ask “What seven
positions are the most important for Cypress to fill?” To
help answer
that question, our HR department
combines the prioritized lists of key hires from our
executive vice presidents. In each staff meeting, we
may have a spirited debate, but within the allotted time
of 15 minutes, we decide which seven people are the
most important to hire. After 50 weeks, the Hiring
Auction delivers 350 new people—without adding any
net employees.
The Hiring Auction has produced a dramatic 54%
improvement in our revenue-per-employee metric in
just two years, as shown in Figure 5.
Of course, there are complications to the Hiring Auction
process. We deal with salary dollars, not actual
headcount. Contractors, part-time and
temporary
employees must be accounted for. When there is a
large reduction in force, such as the assembly and test
shutdown, I make the decision on how many of the
salary dollars will be dropped to the bottom line for
shareholders vs. being returned to the Hiring Auction.
(In the case of the assembly and test shutdown, we
added back only a few engineers at other sites.) Finally,
we also set aside 20% of our weekly Hiring Auction
budget exclusively for hiring new college graduates.
A majority of the time, we receive no request to rehire
into a vacated position. Instead, the organization losing
REVENUE PER EMPLOYEE
$ THOUSANDS
300
250
226
206
200
190
292
Hiring
Auction
249
195
195
189
189
187
150
100
50
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Figure 5. From 2002 through 2009, Cypress’s annual revenue
per employee was relatively constant, at about $200,000. In 2009,
in response to a sharp recession, we began to hire back only some
of the employees lost by weekly attrition. In addition, we hired key
new employees, not just replacements. We dubbed this new
business process the “Hiring Auction.” As a result, while our
revenue increased 49% from $668 million in 2009 to $995 million
in 2011, our headcount dropped from 3,550 to 3,406, resulting in
a 54% increase in revenue per employee in just two years.
an employee reorganizes or becomes more efficient to
offset the attrition. When an employee in a critical
position does leave, the new employee goes through
the Hiring Auction just like any other, but with high
priority.
Lower Costs. Finally, we continuously reduce all
corporate expenses with our “World Class Cost”
(WCC) program. The idea behind WCC is to get a large
number of people actively working in parallel to simul-
taneously reduce the cost of hundreds of line items. In
our detailed 2012 WCC plan, we have 172 employee
project “owners” working on 514 individual cost-
reduction projects. These projects are grouped
together into “trackers,” which aggregate cost savings
in a given area; for example, all projects that save
energy cost in our San Jose headquarters. Overall,
there are 95 trackers run by 54 managers. The trackers
are subsequently rolled up into six divisional WCC
plans, one for each of our four divisions, one for
manufacturing and one for opex. A finance person is
assigned to audit each tracker. A senior executive runs
the WCC program as his only responsibility.
For 2012, we have identified $25.2 million in WCC
savings. Eighty percent of the savings are included in
our Annual Operating Plan; that is, they must be
achieved to make the plan. The other 20% is reserved
to cover misses to the WCC plan. That $25.2 million in
3
savings sounds big, but it is only 3.3% of the approxi-
mately $750 million we spend annually. But even 3.3%
in total WCC savings generates about $0.14 in EPS.
The majority of our WCC efforts reduce manufacturing
costs and therefore improve gross margin. Cypress’s
gross margin for the last decade is shown in Figure 6.
GROSS MARGIN
60%
58.7%
57.3%
50%
48.7%
48.3%
48.3%
47.0%
48.5%
47.2%
43.0%
43.2%
40%
30%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Figure 6. As a mostly-SRAM company in the 2002-2009
timeframe, Cypress’s gross margin was typically 48% in good
years and 43% in recession years. After PSoC became econom-
ically significant in 2010, and our SRAM business took the benefit
of our “No More Moore” strategy, our gross margin jumped to the
57% to 59% level. In 2011, we fell short of our long-term corporate
goal of 60% gross margin by 2.7 percentage points. Our World
Class Cost (WCC) plan for 2012 has identified $22.4 million (about
2.3 percentage points) in manufacturing cost reductions.
Cypress’s EPS for the last decade and a regression
line are shown in Figure 7.
EARNINGS PER SHARE
$1.40
$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
$0.00
$1.25
$0.94
$0.65
EPS growth: 10% per year
$0.48
$0.37
$0.28
$0.20
$0.10
($0.20)
($0.40)
($0.30)
($0.07)
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Figure 7. Cypress’s annual EPS is graphed for the last decade,
along with a linear regression line. Cypress’s 2011 EPS of $1.25,
our second best ever, is 33% higher than that of 2010, another
good year in which we recorded $0.94 in EPS. We were also
profitable in the recession year of 2009, beating our performance
for the other recession years in the graph, 2002 and 2005. There
are huge fluctuations in our actual EPS vs. the regression line due
to the booms and busts of the semiconductor industry, but the
regression line has a long-term slope of 10% EPS growth per year.
4
PSoC
Our flagship PSoC product line delivered record
revenue of $410 million in 2011, as shown in Figure 8.
PSoC REVENUE
$ MILLIONS
410
TrueTouch
208
140
141
149
CapSense
95
47.6
0.215
2.02
5.52
12.2
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
450
400
350
300
250
200
150
100
50
0
Figure 8. PSoC lifetime revenue trend. The two big spurts in
PSoC revenue growth were driven by the broad replacement of
mechanical buttons with electronic buttons (our CapSense®
technology) and the adoption of touchscreens in cell phones and
(our TrueTouch®
other consumer electronics products
technology).
Our two most important sources of revenue growth
were CapSense (PSoC used to control touch buttons)
and TrueTouch (PSoC used to control cell phone
touchscreens). We used PSoC’s ability
to be
programmed simply and quickly to create a solution for
the buttons and click wheel on the original 2005 Apple
iPod nano, taking share in the capacitive sensing
market, where we hold the No. 1 position today with
about 30% market share. Similarly, when the Apple
iPhone was introduced in 2007 (with Apple proprietary
chips), it caused an explosion in demand for touch-
screen chips. We developed touchscreen firmware IP,
programmed a 2004-vintage PSoC to enter the touch
sensing market quickly and took approximately 25%
market share, making us No. 1 or No. 2 in that market
today.
We expect PSoC to grow more modestly in 2012. While
our 2011 growth was driven by cell phones, that
revenue will remain relatively constant in 2012, with our
growth coming from PSoC-based trackpads for laptop
PCs and from our PSoC 3 and PSoC 5 general-
purpose product families.
TrueTouch. Our TrueTouch revenue will hold the high-
water mark achieved in 2011 with a new chip that only
engineers could have named: Touch Screen Gener-
ation 4, or TSG4. In this case, a compelling marketing
name is unnecessary because TSG4 sells to the
world’s Top 10 cell phone manufacturers, some of the
most sophisticated electronics companies in the world,
who know exactly what TSG4 can do. I believe TSG4,
as described below, will be our most successful touch-
screen chip ever, based on the experience we gained
in shipping more than 150 million units of TSG3.
Our customers wanted more computing power.
Despite the slight cost increase, we replaced our own,
more cost-efficient 8-bit microcontroller with a powerful
ARM 32-bit microcontroller in TSG4. Many cell phone
users have tapped on or swiped across a touch-
screen—both called “single-finger gestures.” More
advanced cell phones feature two-finger gestures such
as pinch, zoom and rotate. Today, cell phone manufac-
turers want to track 10 fingers. I do not anticipate the
use of 10-finger semaphores in cell phones; however,
when users wrap their fingers around a cell phone, they
generate inadvertent touches on the edges of the
touchscreen, and those spurious signals must be
tracked and subtracted from the intended gestures. Or,
if a user is writing on a tablet with a stylus, the imprint
of the back of the writing hand must be tracked and
removed from the stylus signal. These are the mecha-
nisms that drive the requirement for 10-finger tracking
in the TSG4 chip.
Our customers wanted their products not only to “read”
more fingers, but to read them faster as well. We have
increased the touchscreen “frame rate” on TSG4 to
400 frames per second to capture fast finger gestures
or stylus movements more accurately. Alternatively, the
screen refresh rate of TSG4 can be dropped to a
perfectly acceptable 100 frames per second (television
runs at 30 frames per second) to reduce power by a
factor of four. This is really not necessary with TSG4,
because it draws only 2 milliwatts of power, so low that
a typical cell phone battery would power it for months,
meaning that chips other than TSG4 will dominate cell
phone battery life.
Our customers also wanted a better signal-to-noise
ratio (SNR), a key touchscreen metric. The SNR is
calculated by measuring the electric signal that comes
from a touchscreen while it is being touched by a single
(robotic) finger, and dividing that signal by the noise
signal that emanates from an untouched touchscreen.
As one might imagine, the signal from the touch of a
human finger is tiny, requiring high amplification. This
is somewhat analogous to tuning a radio between
channels and turning the volume all the way up—the
sound of static is the noise, and the art of touchscreen
technology is to clearly differentiate a signal that is
barely above the noise level.
This SNR problem has been tackled for years by
analog
integrated circuit companies, but PSoC
provides system-level solutions to the problem, much
more powerful than those available in a well-designed
low-noise amplifier. For example, the greatest sources
of noise in touch phones are the large signals that drive
the color display, which is only about one millimeter
away from the hypersensitive touchscreen sensor.
TSG4 eliminates this noise systematically. We reserve
a (ninth) sensing channel on the chip specifically to
“listen” to the periodic noise of the display driver. That
“knowledge” of driver noise is used by the 32-bit micro-
controller to control the timing of touch measurements
so that they occur between noise spikes from the
display.
Finally, the SNR improvement in TSG4 that caught our
competitors most by surprise was our high-voltage (10-
volt) touchscreen sensor driver, a non-trivial task on
advanced CMOS processes that are constrained to run
on low voltages. Our competitors use signals of
approximately 2.5 volts to drive the touchscreen
sensor. However, the SNR can be improved not just by
lowering the noise, but also by raising the signal
voltage. Our TSG4 chip runs on a common 1.8-volt
power supply but boosts that supply voltage on-chip to
10 volts to drive extra signal into the touchscreen
sensor. We knew we had a winner with this feature
when one of our competitors bragged about improving
then
their SNR ratio by another method—and
converted that improvement back to an “equivalent”
high-voltage drive level.
User Interface (UI) Market Leadership. Cypress uses
the flexibility of PSoC to participate in more UI markets
than any of our competitors: 1) TrueTouch competes
with Atmel and Synaptics, 2) CapSense competes with
multiple competitors, mostly not well-known and none
our size, 3) our ONS finger navigation competes with
Avago and 4) our new PC trackpad products compete
with Synaptics. A PC trackpad sensor is very similar to
a cell phone touchscreen sensor. Consequently,
multifinger gestures are working their way into laptop
PC trackpads and will dominate ultrabooks and
5
Windows 8 notebooks in the near future. We entered
this $450 million market last year and expect to have
significant revenue in 2012.
There are two primary benefits to participating in all four
segments of the UI market. First, we can reuse system
solutions, as in the case of PC trackpads and cell-
phone touchscreens; and second, we are uniquely
positioned to address the needs of customers who use
two or more of our UI solutions on one product; for
example, CapSense buttons with ONS
finger
navigation.
Overall, our UI revenue has grown from $93 million in
2009 to $350 million in 2011. We also have built a
comprehensive UI patent portfolio with 72 issued
patents and 238 pending patents.
PSoC 3 and PSoC 5. In 2009, I was invited to give the
keynote address at the Electronic Systems Conference
in Boston to introduce our new PSoC 3 and PSoC 5
products. We listened carefully to our 8,000 PSoC 1
customers and provided them with the improvements
they sought in PSoC 3 and PSoC 5. As a result,
compared to PSoC 1, PSoC 5 has 25 times the compu-
tational performance (due to its ARM processor), 10
times the number of programmable gates, 256 times
more accurate analog circuits that are 30 times faster,
and three times lower power consumption. PSoC 3 and
PSoC 5 produced their first significant revenue in 2011.
As of year end, our PSoC 3 and PSoC 5 customers
also had downloaded 21,005 copies of PSoC
Creator™, the platform design software for PSoC 3 and
PSoC 5, and purchased 12,679 hardware kits that
allow them to design real systems using PSoC 3 and
PSoC 5.
its proprietary
We are the first company certified by Apple to
implement
“MFi” communications
protocol (Made for iPod | iPhone | iPad) on PSoC 3 and
PSoC 5 devices. This protocol allows peripherals like
boom boxes, magnetic stripe readers for point-of-sale
devices, electronic musical instruments and electronic
measurement tools to be connected to an iPod, iPad or
iPhone. We’ve taken the complex MFi protocol and
embedded it into our platform design software, PSoC
Creator 2.0, as a “component”—a carefully engineered
virtual chip with embedded firmware whose icon can be
“dragged and dropped” into any schematic. In this
case, the component simplifies the MFi connection of
6
an unlimited number of products, such as the MFi
guitar interface example on the inside back cover.
BEST-EVER NEW PRODUCT PORTFOLIO
As the cover of this Annual Report clearly shows,
Cypress’s product portfolio forms a three-legged stool
with both our USB and SRAM product families having
shipped more units to date than PSoC, albeit with
significant head starts.
Universal Serial Bus (USB). In 1995, engineers from
our Seattle design group (many of the same team that
founded Cypress Microsystems and later invented
PSoC) flew to San Jose to encourage me to enter the
emerging USB market. I told them that a new PC
connection standard would immediately draw 30 or
more competitors and that they had to have a
compelling idea to get me to invest. They did. And I
approved their plan.
Instead of proposing to create families of hardwired
USB chips to perform all of the necessary USB
functions (mouse, keyboard, printer, disk drive, hub,
etc.), they proposed to make a small family of program-
mable USB chips powered by a small microcontroller
(the same 8-bit machine that was later used in the
PSoC 1 family). Programmability would enable these
chips to perform not only basic USB functions, such as
connecting a mouse, but also programmable value-
added functions, such as click wheels, buttons and
LEDs.
Our first chips followed the USB 1.1 standard (12
megabits per second or 12 Mbps) and drove our
revenue through 2002. In 2000, the current, ubiquitous,
480-Mbps USB 2.0 standard arrived. We acquired
Anchor Chips, a San Diego-based USB company,
which also employed our strategy of implementing the
USB function with a microcontroller. Our USB 2.0
products drove a second revenue spurt through 2007.
Our primary post-2007 invention was a family of USB
2.0-compatible products dubbed “West Bridge®,”
three-port controllers that connect a PC (or other
system) to both a USB 2.0 port and a memory card
reader. West Bridge chips allow the user to download
streams of data (a movie, for example) from the
Internet onto the memory card at maximum speed
without interrupting the function of the PC. The growth
from West Bridge drove us past the USB billion-unit
mark in 2008, as shown on the front cover.
We reorganized in 2011 to refocus on USB, specifically
the new USB 3.0 standard (5 gigabits per second, or 5
Gbps, 10 times faster than the 480-Mbps USB 2.0
standard). We transferred all of our non-USB business
units out of our Data Communications Division (DCD)
to focus solely on USB. The division was also moved
to Bangalore, India, becoming our first non-U.S.-based
division, putting it closer to its Asia-centric customers,
and making it more cost competitive. Badri Kothanda-
raman, DCD’s executive vice president, moved to
Bangalore after 10 years in San Jose, not only to run
DCD, but also to integrate our entire 546-person
Bangalore site more tightly into Cypress.
The broad deployment of high-definition video is
driving USB 3.0. A two-hour (25-gigabyte) HD movie
can be downloaded to a PC from the Internet using
USB 3.0 in about one minute vs. 14 minutes for USB
2.0. USB 3.0 is also making its way into machine vision,
medical imaging and gaming.
Our new USB 3.0 chip, called FX3, follows the FX1 and
FX2 architecture with a microcontroller core, this time
a powerful ARM9 processor, as shown on the inside
front cover. FX3 has been honored by being included
in the USB Implementers Forum “Golden Tree” of
trusted USB solutions. As such, it will be used to certify
the functionality and interoperability of USB products.
We have also introduced “Benicia™,” the West Bridge
chip for USB 3.0. FX3 and Benicia have strong market
traction, having already achieved first revenue and 350
active designs.
No. 1 in SRAMs. Our Memory Products Division
(MPD) is Cypress’s original product line. It has shipped
2.62 billion SRAM units since 1984.
Cypress’s first product was the CY7C122 1,024-bit
SRAM designed with 1.2-micron CMOS technology on
four-inch wafers manufactured by Cypress employees
in a Monolithic Memories Inc. (MMI) wafer fabrication
plant. Both the fab and Monolithic Memories no longer
exist. The CY7C122 mask set hangs framed in our
boardroom. Our first big CY7C122 customer, the
Digital Equipment Corporation, also no longer exists.
One more digression: When Cypress was funded in
1983, we were No. 59 in revenue on the list of the 59
existing American semiconductor companies. Only 18
of the 59 survive today as independent companies.
Schumpeter’s famous theory of “creative destruction”
is a driving force in Silicon Valley.
Our market share in SRAMs has grown consistently
over the last decade, as shown in Figure 9.
CYPRESS SRAM MARKET SHARE
38%
36%
29%
25%
26%
24%
20%
17%
15%
11%
50%
40%
30%
20%
10%
0%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: Market research, company reports, Cypress estimates
Figure 9. Cypress has gained SRAM market share consistently
over the last decade. By 2002, Cypress had achieved 11% market
share, competing against a who’s who of the semiconductor
industry. The industry has consolidated over the years. Many
American companies (including Intel and AMD) have dropped out
of the SRAM market, and several Japanese SRAM companies
have merged (Hitachi, Mitsubishi and NEC are now consolidated
as Renesas). As we reported in the 2009 Annual Report, Cypress
increased market share to 28.7% by year end, giving us the No. 2
ranking, just behind Samsung. We now have 38.3% market share
and the No. 1 ranking.
Another reason our SRAM business has gained market
share is the breadth of our product line—we currently
sell 2,498 different SRAM chips. One might ask why a
product that consists of a simple bit-storage plane
could possibly ever need that many product variations.
Size is the first answer. Our first SRAM stored 1,024
bits of data. Our largest SRAM today, the 144-megabit
Quad Data Rate™ (QDR®) synchronous SRAM,
contains 147,456 times more memory on one chip. The
second answer is shrinking power supplies. For
example, as Moore’s Law has progressed, we have
brought out five versions of our 4-megabit micropower
SRAM with power supplies of 5.0, 3.3, 3.0, 2.5 and 1.8
volts. Although all are nominally 4-megabit SRAMs, the
newer products use less power, while also being faster
and cheaper than their predecessors.
The third, and most interesting, answer to the why-so-
many question is that SRAMs must offer the unique
capabilities needed in various systems. For example,
our micropower SRAMs used in set-top cable and
7
satellite boxes must be able to store critical system
information without loss for three years, using only
microampere currents from a watch battery. On the
other end of the spectrum, our high-speed QDR
SRAMs used in switches and routers in the Internet
sometimes burn amperes of current and store data at
the rate of 80 billion bits per second (equivalent to
storing the contents of ten 400-page books per
second).
We also supply non-volatile SRAMs that are able to
store data permanently without a battery. And, finally,
we supply dual-port SRAMs that can communicate with
two different processing systems at the same time.
These SRAMs are often used in cell phones to connect
the applications (feature) processor to the baseband
(radio) processor. Cypress’s current 2,498-product
SRAM offering is outlined in Figure 10.
SRAM PRODUCT OFFERINGS
SRAM Family
Micropower
QDR Synchronous
Non-volatile
Dual-port
Fast Asynchronous
Synchronous
DDR Synchronous
Typical Applications
Set-top box, POS Terminals, Portable Devices
Networking, Telecom, Communications
Storage Servers, E-Meters, Medical
High Definition Imaging, Networking, Medical
IP-Phones, DSLAM Cards, Automotive
Video, Industrial, Military, Communications
Networking, Telecom, Communications
No. SRAMs
624
287
283
271
399
437
197
Grand Total
2,498
Figure 10. Cypress supplies 2,498 different SRAMs in seven
product families.
SHAREHOLDER VALUE
Cypress has delivered a compound annual share price
growth rate of 13.75% since its IPO in 1986, as shown
in our lifetime share price history in Figure 11.
Cypress’s 2011 share price performance relative to the
DJIA, NASDAQ and SOX (semiconductor) indices is
shown in Figure 12.
CYPRESS LIFETIME SHARE PRICE*
MAY 29, 1986 IPO ($0.71) TO DECEMBER 30, 2011 ($16.89)
CAGR 13.75%
$24
$22
$20
$18
$16
$14
$12
$10
$8
$6
$4
$2
IPO
$0.71
$0
May 86
2010 CLOSE $18.58
2011 CLOSE
$16.89
2009 CLOSE $10.56
DOT.COM BOOM
$9.18
PC BOOM
$4.35
SUNPOWER PEAK $6.26
“NEW” CYPRESS
$5.22
POST SPWR
Jul 88 Aug 90 Oct 92 Dec 94
Jan 97 Mar 99 Apr 01
Jun 03
Jul 05 Sep 07 Oct 09 Dec 11
DOT.COM BUST
$2.21
"GREAT" RECESSION $2.72
DOT.COM BUST 2 $0.61
* Adjusted for dividends and splits in 1995 and 2008.
Source: Yahoo Finance
Figure 11. Cypress Semiconductor became a public company on May 29, 1986 at a share price of $0.71, adjusted for splits and the
SunPower spinout. Our share price at the end of 2011 was $16.89, giving us a lifetime share-price CAGR of 13.75% per year. The events
that drove the peaks and valleys are given as annotations.
8
CYPRESS 2011 SHARE PRICE GAIN
CYPRESS SHARE PRICE GAIN (5 YR)
% GAIN VS. 2010
CYPRESS
30
20
10
0
-10
-20
DJIA
NASDAQ
CYPRESS
SOX
-30
Dec 10
Mar 11
Jun 11
Sep 11
Dec 11
Figure 12. Cypress’s share price declined 9.1% in 2011. All of the
major indices were also down, except for the Dow Jones Industrial
Average (DJIA). The SOX index was down 11.5%, due to softening
semiconductor fundamentals in the second half of the year.
Cypress’s relative share price performance for the
three-year and five-year time frames ending on
December 30, 2011 is shown in Figures 13 and 14,
respectively.
CYPRESS SHARE PRICE GAIN (3 YR)
% GAIN VS. 2008
CYPRESS
SOX
NASDAQ
DJIA
500
450
400
350
300
250
200
150
100
50
0
-50
Dec 08
Jun 09
Dec 09
Jun 10
Dec 10
Jun 11
Dec 11
Figure 13. Cypress’s share price appreciated 278% (a CAGR of
55.8%) over the three-year period from December 31, 2008 to
December 30, 2011, easily outperforming the relevant indices.
Cypress’s fully diluted share count crept up to 198
million shares at the end of 2010, driven primarily by
the dilutive impact of the September 2008 SunPower
spinout, as shown in Figure 15. In 2011, Cypress
repurchased 36 million shares to mitigate that dilution.
The two other sets of bars in Figure 15 show the driving
forces behind the share count. The light gray bars show
capital expenditures, which drive up share count by
% GAIN VS. 2006
CYPRESS
NASDAQ
DJIA
SOX
900
800
700
600
500
400
300
200
100
0
-100
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Figure 14. Cypress’s share price appreciated 530% (a CAGR of
44.5%) over the five-year period from December 31, 2006 to
December 30, 2011. During this period, the SOX semiconductor
index actually declined 22.0% (a CAGR of -4.8%).
CYPRESS FULLY DILUTED SHARE COUNT
VS. CAPITAL EXPENDITURES AND SUNPOWER SPINOUT OPTION COUNT
174
180
174
166
198
191
183
175
MILLIONS
167
150
132
200
180
160
140
120
100
80
60
40
20
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011 Q411
SHARE COUNT
CAPITAL EXPENDITURES
SUNPOWER SPINOUT OPTION COUNT
Figure 15. Cypress’s fully diluted share count reached 198 million
shares in 2010. During 2011, we bought back 36 million shares to
bring the fully diluted share count for 2011 to 191 million. Since
most of the shares were bought in the second half of the year, our
fully diluted share count for the fourth quarter was 176 million, a
good launching point for 2012.
using cash that could have been used for share repur-
chases. In 2007, we saw the effects of the first full year
of our “No More Moore” or fab-lite model that allowed
us to reduce our share count from 180 million in 2006
to 166 million in 2008. The anomalously high capital
expenditures in 2011 are due to the final build out of our
Minnesota wafer fabrication plant to its maximum
capacity to support PSoC growth.
The options created by the SunPower spinout are
shown as dark gray bars. When SunPower was spun
out in November 2008, Cypress issued 78.6 million
new options to its employees, to keep the intrinsic
9
to shareholders, but not
value of their options and RSUs whole to compensate
for the fact that Cypress spun out $2.6 billion in
to
SunPower stock
employees. By the end of 2011, we had driven the
number of unexercised SunPower options down to
15.5 million shares. The SunPower options should be
mostly behind us after 2012, allowing Cypress’s full
cash flow to be focused on share repurchases,
dividends and potential cash acquisitions to grow the
company without issuing more shares.
In 2011, Cypress bought back 36 million shares, as
shown in Figure 16, bringing the total to 77.9 million
shares repurchased since the SunPower spinout. We
still have $320 million authorized by our board for share
repurchases.
2011 SHARE BUYBACK TRANSACTIONS
TYPE
NO. SHARES
SHARE BUYBACKS (64)
24,285,814
COST/
SHARE
$17.46
COST
(MILLIONS)
RETURN
(MILLIONS)
$424.1
CALL OPTIONS
9,500,000
$19.01
$180.6
RSU PURCHASES
2,209,983
$20.81
$46.0
2011 TOTAL
35,995,797
$18.08
$650.7
N/A
$6.0
N/A
$6.0
Finally, Cypress paid its first dividend, $0.09 per share,
in each of the last three quarters of 2011. We recently
announced an increase in the 2012 dividend to $0.11
per quarter, equal to a yield of 2.6% at the 2011 year-
end share price of $16.89.
CONCLUSION
With 12.6% revenue growth to $995 million and a
decade-record $1.25 EPS, we are proud of our perfor-
mance in 2011.
We have increased our dividend to $0.44 per year,
making Cypress stock an attractive investment that can
provide a reasonable return, even during semicon-
ductor market dips—thus not forcing our investors to
consider continuous trading to keep up with semicon-
ductor market fluctuations. Furthermore, given the
current soft semiconductor market, we believe Cypress
has become an attractive equity-only investment,
especially since we are now ramping our best-ever
new product portfolio.
Figure 16. In 2011, Cypress bought back 36 million shares for
$651 million at an average share price of $18.08. We repurchased
the shares by: 1) 64 outright buybacks, 2) the issuance of pre-paid
call options that deliver either shares to the corporation (9.5 million
in 2011) or the proceeds from selling call options that are not
exercised ($6.0 million in 2011), and 3) buying RSUs sold by
employees. By year end 2011, the total number of shares repur-
chased since the SunPower spinout was 77.9 million.
T.J. Rodgers
President and CEO
This is the 26th Annual Report I've written for our public shareholders. I thank the Cypress employees who helped to create
the report, often after-hours and over the weekends. We tell our own story without the use of ad agencies or PR firms. TJR
All financial comments relate to our non-GAAP financial reporting unless otherwise noted.
The preceding letter contains several forward-looking statements made subject to the safe harbor provisions of the Private Litigation Reform
Act of 1995, regarding, among other things, our financial performance in the current economy, our expected revenue and growth of our
Emerging Technology Division (ETD) in 2012, our expected savings from our World Class Cost (WCC) program, our expectations regarding
revenue for our PSoC family of products as well as TrueTouch, our expectations regarding our latest touchscreen chip, TSG4; whether 10
finger semaphores will be used in cell phones and our expectations regarding revenue in the PC trackpad market. Readers are cautioned
that these forward-looking statements are not guarantees and may differ materially from actual future events or results due to a variety of
factors, including but not limited to: the possibility of a further decline in the general economy, the economic conditions and growth trends in
the semiconductor industry and the markets served by Cypress and its Emerging Technology Division (ETD), whether or not our ETD start-
ups operate profitably and gain market acceptance of their product offerings, whether the expected success of TSG4 is achieved, the future
development of finger gestures in cell phones, whether we are able to achieve our expected revenue in the PC trackpad market, market
acceptance of new product offerings, industry wide shifts in supply and demand, the cost efficient utilization of our manufacturing capacity,
our ability to continue to drive down our operating expenses, including especially our manufacturing costs and other risks identified in
Cypress's most recent reports on Form 10-K and 10-Q, including in this Annual Report. We use words such as “anticipates,” “believes,”
“expects,” “forecast,” “future,” “intends,” “look forward,” “plans,” “should,” and similar expressions to identify such forward-looking statements.
All forward-looking statements included in the preceding letter are based upon information available to, and the expectations of, Cypress
management as of the date of the letter, which may change. We assume no obligation to update any such forward-looking statement. Such
information speaks only as of the date of this release.
10
CONTENTS
To supplement its consolidated financial results presented in accordance with GAAP, Cypress uses non-GAAP
financial measures which are adjusted from the most directly comparable GAAP financial measures to exclude
certain items, as described in the following reconciliation tables. Management believes that these non-GAAP
financial measures reflect an additional and useful way of viewing aspects of Cypress’s operations that, when
viewed in conjunction with Cypress’s GAAP results, provide a more comprehensive understanding of the various
factors and trends affecting Cypress’s business and operations.
Cypress uses each of these non-GAAP financial measures for internal managerial purposes, when providing its
financial results and business outlook to the public, and to facilitate period-to-period comparisons. Management
believes that these non-GAAP measures provide meaningful supplemental information regarding Cypress’s
operational and financial performance of current and historical results. Management uses these non-GAAP
measures for strategic and business decision making, internal budgeting, forecasting and resource allocation
processes. In addition, these non-GAAP financial measures facilitate management’s internal comparisons to
Cypress’s historical operating results and comparisons to competitors’ operating results.
Cypress believes that providing these non-GAAP financial measures, in addition to the GAAP financial results,
are useful to investors because they allow investors to see Cypress’s results “through the eyes” of management
as these non-GAAP financial measures reflect Cypress’s internal measurement processes. Management believes
that these non-GAAP financial measures enable investors to better assess changes in each key element of
Cypress’s operating results across different reporting periods on a consistent basis. Thus, management believes
that each of these non-GAAP financial measures provides investors with another method for assessing Cypress’s
operating results in a manner that is focused on the performance of its ongoing operations.
Consolidated Statements of Operations (Annual) ......................................................................................... 12
Reconciliation of GAAP to Non-GAAP Financial Measures (Annual) .......................................................... 13
Consolidated Statements of Operations (Quarterly) ..................................................................................... 14
Reconciliation of GAAP to Non-GAAP Financial Measures (Quarterly) ...................................................... 15
GAAP and Non-GAAP Financial Measures as a Percentage of GAAP and
Non-GAAP Revenue (Quarterly) ...................................................................................................................... 15
Consolidated Balance Sheets.......................................................................................................................... 16
11
Consolidated Statements of Operations (Annual)
(In millions, except per-share data)
Revenues
Costs and expenses (credits):
Cost of revenues
Research and development
Selling, general and administrative
Amortization of acquisition-related intangible assets
Restructuring costs
Gain on divestiture
Total costs and expenses, net
Operating income (loss)
Interest and other income, net
Income (loss) before income taxes and noncontrolling interest
Income tax provision (benefit)
Income (loss), net of taxes
Adjust for loss attributable to noncontrolling interest, net of taxes
Net income (loss) attributable to Cypress
Net income (loss) per share attributable to Cypress:
Basic
Diluted
Cash dividend declared per share
Weighted-average shares outstanding:
Basic
Diluted
Year Ended
Jan. 1,
2012
Jan. 2,
2011
Jan. 3,
2010
$
995
$
878
$
668
448
190
228
3
6
(34)
841
154
2
156
(11)
167
1
168
$
388
177
219
3
3
-
790
88
6
94
19
75
1
76
$
397
181
220
4
15
-
817
(149)
4
(145)
6
(151)
1
(150)
$
$
$
$
1.02
0.90
0.27
0.47
$
$
0.40
$
-
(1.03)
$
$
(1.03)
$
-
164
187
161
191
146
146
12
Reconciliation of GAAP to Non-GAAP Financial Measures (Annual)
(In millions, except per-share data)
GAAP revenues
SRAM legal settlement
Non-GAAP revenues
GAAP gross margin
Stock-based compensation expense
Changes in value of deferred compensation plan (1)
SRAM legal settlement
License royalty
Non-GAAP gross margin
GAAP research and development expenses
Stock-based compensation expense
Changes in value of deferred compensation plan (1)
Gain on sale of long-term asset
Non-GAAP research and development expenses
GAAP selling, general and administrative expenses
Stock-based compensation expense
Impairment of assets and other
Building donation
Changes in value of deferred compensation plan (1)
SRAM legal settlement
Non-GAAP selling, general and administrative expenses
GAAP operating income (loss)
Stock-based compensation expense
Gains on divestiture
Restructuring costs
Impairment of assets and other
Building donation
Acquisition-related expenses
Changes in value of deferred compensation plan (1)
SRAM legal settlement
License royalty
Gain on sale of long-term asset
Non-GAAP operating income
GAAP net income (loss) attributable to Cypress
Stock-based compensation expense
Gains on divestiture
Restructuring costs
Building donation
Impairment of assets and other
Acquisition-related expenses
SRAM legal settlement
Investment-related losses (gains)
License royalty
Gain on sale of long-term asset
Tax effects
Non-GAAP net income attributable to Cypress
GAAP net income (loss) per share attributable to Cypress - diluted
Stock-based compensation expense
Gains on divestiture
Restructuring costs
Building donation
Impairment of assets and other
Acquisition-related expenses
SRAM legal settlement
Investment-related losses (gains)
License royalty
Gain on sale of long-term asset
Tax effects
Non-GAAP share count adjustment
Non-GAAP net income per share attributable to Cypress - diluted
Year Ended
Jan. 2,
2011
$ 878
6
$ 884
Jan. 1,
2012
$ 995
-
$ 995
Jan. 3,
2010
$ 668
-
$ 668
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
546
24
-
-
-
570
190
(24)
-
-
166
228
(53)
(4)
(4)
1
-
168
154
101
(34)
6
4
4
3
(1)
-
-
-
237
168
101
(34)
6
4
4
3
-
-
-
-
(14)
238
489
23
-
6
-
518
177
(22)
-
-
155
219
(47)
(5)
-
(2)
(1)
164
88
92
-
3
5
-
3
3
7
-
-
201
76
92
-
3
-
5
3
7
(3)
-
-
3
186
$
$
$
$
$
$
$
$
$
$
$
$
0.90
0.53
(0.18)
0.04
0.02
0.02
0.02
-
-
-
-
(0.08)
(0.02)
1.25
0.40
0.45
-
0.01
-
0.03
0.01
0.04
(0.02)
-
-
0.02
-
0.94
$
$
$
271
41
1
-
2
315
181
(37)
(1)
2
145
220
(64)
-
-
(3)
-
153
(149)
142
-
15
-
-
4
5
-
3
(2)
18
(150)
142
-
15
-
-
4
-
3
3
(2)
3
18
(1.03)
0.97
-
0.10
-
-
0.03
-
0.02
0.02
(0.02)
0.02
(0.01)
0.10
(1) Consistent with the current presentation, all prior periods have been recast to reflect changes in deferred compensation plan
13
Consolidated Statements of Operations (Quarterly)
(In millions, except per-share data)
Jan. 1,
2012
$
242
Oct. 2,
2011
$
265
Jul. 3,
2011
$
255
Apr. 3,
2011
$
233
Jan. 2,
2011
$
221
Oct. 3,
2010
$
232
Jul. 4,
2010
Apr. 4,
2010
$
223
$
202
Quarter Ended
112
47
55
1
1
-
216
26
3
29
(2)
31
1
32
116
46
55
1
1
-
219
46
(2)
44
4
40
-
40
116
49
59
1
4
-
229
26
-
26
(15)
41
-
41
104
48
59
1
-
(34)
178
55
2
57
2
55
-
55
97
48
59
1
-
-
205
16
2
18
9
9
$
-
$
9
97
46
55
-
3
-
201
31
5
36
2
34
-
34
98
43
54
1
-
-
196
27
(1)
26
6
20
-
20
96
40
51
1
-
-
188
14
1
15
2
13
-
13
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.21
$
0.24
$
0.24
$
0.32
$
0.05
$
0.22
$
0.12
$
0.08
$
0.18
$
0.22
$
0.21
$
0.28
$
0.05
$
0.18
$
0.10
$
0.07
$
0.09
$
0.09
$
0.09
$
-
$
-
$
-
$
-
$
-
154
172
164
183
169
192
171
200
166
198
159
187
161
190
159
191
GAAP revenues
Costs and expenses (credits):
Cost of revenues
Research and development
Selling, general and administrative
Amortization of acquisition-related intangible assets
Restructuring costs
Gain on divestiture
Total costs and expenses, net
Operating income
Interest and other income (expense), net
Income before income taxes and noncontrolling interest
Income tax provision (benefit)
Income, net of taxes
Loss attributable to noncontrolling interest, net of income taxes
Net income attributable to Cypress
Net income per share - basic
Net income per share - diluted
Cash dividend declared per share
Weighted-average shares outstanding:
Basic
Diluted
14
Reconciliation of GAAP to Non-GAAP Financial Measures (Quarterly)
(In millions)
Jan. 1,
2012
Oct. 2,
2011
Jul. 3,
2011
Apr. 3,
2011
Jan. 2,
2011
Oct. 3,
2010
Jul. 4,
2010
Apr. 4,
2010
Quarter Ended
$
$
$
$
$
$
$
$
GAAP revenues
SRAM legal settlement
Non-GAAP revenues
GAAP gross margin
Stock-based compensation expense
SRAM legal settlement
Changes in value of deferred compensation plan (1)
Non-GAAP gross margin
GAAP research and development expenses
Stock-based compensation expense
Changes in value of deferred compensation plan (1)
Non-GAAP research and development
GAAP selling, general and administrative
Stock-based compensation expense
Impairment of assets and other
Building donation
Changes in value of deferred compensation plan (1)
SRAM legal settlement
Non-GAAP selling, general and administrative
GAAP operating income
Stock-based compensation expense
Gain on divestiture
Restructuring costs
Impairment of assets and other
Building donation
Acquisition related expenses
Changes in value of deferred compensation plan (1)
SRAM legal settlement
Non-GAAP operating income
GAAP net income attributable to Cypress
Stock-based compensation expense
Gain on divestiture
Restructuring costs
Building donation
Impairment of assets and other
Acquisition related expenses
SRAM legal settlement
Investment-related gains/losses
Tax/other expense effects on non-GAAP adjustments
Non-GAAP net income attributable to Cypress
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
255
-
255
139
7
-
-
146
49
(7)
-
42
59
(16)
(2)
-
-
-
41
26
30
-
4
2
-
1
-
-
63
41
30
-
4
-
2
-
-
-
(14)
63
233
-
233
129
6
-
-
135
48
(5)
(1)
42
59
(9)
-
(4)
(1)
-
45
55
21
(34)
1
-
4
1
1
-
49
55
21
(34)
1
4
-
1
-
-
1
49
221
6
227
124
4
6
-
134
48
(6)
-
42
59
(11)
(5)
-
(1)
(1)
41
16
22
-
-
5
-
-
2
7
52
9
$
22
-
-
-
5
1
7
-
7
51
$
232
-
232
135
5
-
-
140
46
(5)
(1)
40
55
(12)
-
-
(1)
-
42
31
22
-
3
-
-
1
2
-
59
34
22
-
3
-
-
1
-
(4)
(3)
53
223
-
223
125
7
-
-
132
43
(6)
-
37
54
(13)
-
-
1
-
42
27
26
-
-
-
-
1
(2)
-
52
20
26
-
-
-
-
1
-
-
1
48
202
-
202
106
6
-
-
112
40
(4)
-
36
51
(11)
-
-
(1)
-
39
14
22
-
-
-
-
1
1
-
38
13
22
-
-
-
-
1
-
-
(2)
34
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
242
-
242
130
6
-
-
136
47
(6)
-
41
55
(13)
-
-
(1)
-
41
26
25
-
1
-
-
1
2
-
55
32
25
-
1
-
-
1
-
-
(2)
57
265
-
265
149
5
-
(1)
153
46
(6)
1
41
55
(14)
(2)
-
2
-
41
46
25
-
-
2
-
1
(4)
-
70
40
25
-
-
-
2
1
-
(1)
2
69
$
$
$
$
$
$
$
(1) Consistent with the current presentation, all prior periods have been recast to reflect changes in deferred compensation plan
as a Non-GAAP adjustment.
GAAP and Non-GAAP Financial Measures as a Percentage of GAAP and Non-GAAP
Revenue (Quarterly)
GAAP revenues
Non-GAAP revenues
GAAP gross margin
Non-GAAP gross margin
GAAP research and development expenses
Non-GAAP research and development
GAAP selling, general and administrative
Non-GAAP selling, general and administrative
GAAP operating income
Non-GAAP operating income
GAAP net income attributable to Cypress
Non-GAAP net income attributable to Cypress
Quarter Ended
Jan. 1,
2012
Oct. 2,
2011
Jul. 3,
2011
Apr. 3,
2011
Jan. 2,
2011
Oct. 3,
2010
Jul. 4,
2010
Apr. 4,
2010
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
54%
56%
19%
17%
23%
17%
11%
23%
13%
24%
56%
58%
17%
15%
21%
15%
17%
26%
15%
26%
55%
57%
19%
16%
23%
16%
10%
25%
16%
25%
55%
58%
21%
18%
25%
19%
24%
21%
24%
21%
56%
59%
22%
19%
27%
18%
7%
23%
4%
22%
58%
60%
20%
17%
24%
18%
13%
25%
15%
23%
56%
59%
19%
17%
24%
19%
12%
23%
9%
22%
52%
55%
20%
18%
25%
19%
7%
19%
6%
17%
15
Consolidated Balance Sheets
(In millions)
ASSETS
Cash, cash equivalents and short-term investments
Accounts receivable, net
Inventories
Property, plant and equipment, net
Goodwill and other intangible assets
Other assets [2]
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable
Deferred income
Income tax liabilities
Other liabilities
Total liabilities
Total Cypress stockholders' equity
Non-controlling interest
Total equity [1]
Total liabilities and stockholders' equity
As of
Jan. 1,
2012
Jan. 2,
2011
$
$
$
$
$
$
166
104
92
285
41
122
810
53
151
43
165
412
400
(2)
398
810
434
118
102
260
44
115
1,073
60
132
65
113
370
704
(1)
703
1,073
$
$
[1] Common stock: 650 and 650 shares authorized; 279 and 259 shares issued; 154 and 171 shares
outstanding as of January 1, 2012 and January 2, 2011, respectively.
[2] Includes auction rate securities of $21 and $24 classified as long term investments as of
January 1, 2012 and January 2, 2011, respectively.
16
CORPORATE INFORMATION
BOARD OF
DIRECTORS
EXECUTIVE
MANAGEMENT
W. Steve Albrecht(1)
Eric A. Benhamou(1,2)
Lloyd Carney(1,2)
James R. Long(2,3)
J. Daniel McCranie(3,4)
T. J. Rodgers
J.D. Sherman(1)
Wilbert van den Hoek(3,4)
Andersen Alumni Professor of Accounting, Marriott School of Management,
Brigham Young University
Chairman of our Board, Former CEO of Palm and 3Com
CEO and Board Member, Xsigo Systems
Former Executive Vice President of Nortel Networks Corporation
Chairman of the Board of ON Semiconductor
President and Chief Executive Officer of Cypress
President and COO, HubSpot
Former Executive Vice President and CTO, Novellus Systems, Inc.
T. J. Rodgers
Brad W. Buss
Sabbas Daniel
Alan Hawse
Paul Keswick
Badri Kothandaraman
Dana Nazarian
Cathal Phelan
Dinesh Ramanathan
Christopher Seams
Shahin Sharifzadeh
Thomas Surrette
Norman Taffe
Timothy L. Olson
Ron Sartore
Harry Sim
Founder, President, Chief Executive Officer and Director
Executive Vice President, Finance and Administration and Chief Financial Officer
Executive Vice President, Quality
Executive Vice President, Software Development
Executive Vice President, New Product Development, Engineering, IT
Executive Vice President, Data Communications Division and Executive Director of
Cypress Semiconductor Technology India Private Limited
Executive Vice President, Memory Products Division
Executive Vice President and CTO
Executive Vice President, Programmable Systems Division
Executive Vice President, Sales and Marketing
Executive Vice President, Worldwide Manufacturing and Operations
Executive Vice President, Human Resources
Executive Vice President, Consumer and Computation Division
President & CEO, Deca Technologies, Inc. (subsidiary)
CEO, AgigA Tech, Inc. (subsidiary)
CEO, Cypress Envirosystems (subsidiary)
ANNUAL MEETING
LEGAL MATTERS
Questions regarding legal matters should be directed to:
Victoria Tidwell
General Counsel and Vice President, Legal
LEGAL COUNSEL
INDEPENDENT
ACCOUNTANTS
CORPORATE
HEADQUARTERS
REGISTRAR AND
TRANSFER AGENT
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
(650) 493-9300
PricewaterhouseCoopers LLP
488 Almaden Blvd., Suite 1800
San Jose, California 95110
(408) 817-3700
Cypress Semiconductor Corporation
198 Champion Court
San Jose, California 95134-1709
Computershare Trust Company, NA
PO Box 43078
Providence, RI 02940-3078
(781) 575-2879
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating and Governance Committee
(4) Member of the Operations Committee
Telephone:
Facsimile:
Internet: http://www.cypress.com
(408) 943-2600
(408) 943-4730
The annual meeting of stockholders
for Cypress Semiconductor
Corporation will be held on Friday,
May 11, 2012, 10:00 a.m., local
time, at Cypress’s offices at
198 Champion Court, San Jose,
California 95134-1709.
COMMON STOCK
Cypress Semiconductor
Corporation’s common stock is
traded on the NASDAQ Global
Select Market under the symbol
“CY.”
FORM 10-K
A copy of Cypress's Annual Report
on Form 10-K, as filed with the
Securities and Exchange
Commission on February 24, 2012,
will be made available without
charge to all stockholders upon
written request to Cypress. Direct
requests may be made to the
Attention of the Chief Financial
Officer at 198 Champion Court, San
Jose, Calif. 95134-1709.
The letter to Stockholders and “Management Discussion and Analysis” contain a number of forward-looking statements about the prospects for Cypress and its subsidiaries as well as the
semiconductor industry more generally, which are based on our current information and expectations and could be affected by uncertainties and risk factors, including but not limited to
those described in our Annual Report on Form 10-K, filed February 24, 2012. Our actual results may differ materially. We use words such as, “anticipates”, believes”, “expects”, “future”,
“planning”, “intends” and similar expressions to identify forward-looking statements which include statements related to our prices, growth, supply, operations, shipments, our current and
future products, profit and revenue.
PSoC, CapSense, TrueTouch, West Bridge, QDR, EZ-USB and Cypress are registered trademarks of Cypress Semiconductor Corp. PSoC Creator, Benicia, FX1, FX2 and FX3 are
trademarks of Cypress Semiconductor Corp. SunPower is a registered trademark of SunPower Corp. AGIGARAM is a trademark of AgigA Tech. Inc. ARM is a registered trademark and
ARM9 is a trademark of ARM Limited. iPod, iPhone, iPad and Made for iPod are registered trademarks of Apple Inc. ICONIA is a trademark of Acer Inc. Samsung is a registered
trademarks and Samsung Intercept is a trademark of Samsung Electronics Co. Ltd. Corp. docomo is a registered trademark of NTT Docomo Inc. Japan. Xperia is a trademark of Sony
Mobile Communications Inc. Bicom and playGo are trademarks of Bicom, Inc. Oscium is a registered trademark of Dechnia, LLC. Juniper Networks is a registered trademark of Juniper
Networks, Inc. Windows is a registered trademark of Microsoft Corporation. All other trademarks are the properties of their respective owners.
17
THIS PAGE INTENTIONALLY LEFT BLANK
18
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
È
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
‘
For the fiscal year ended January 1, 2012
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
.
Commission file number: 1-10079
CYPRESS SEMICONDUCTOR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
94-2885898
(I.R.S. Employer
Identification No.)
198 Champion Court, San Jose, California 95134
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (408) 943-2600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, $.01 par value
The NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. ‘ Yes È No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. ‘ Yes È No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. È Yes ‘ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months ( or for such shorter period that the registrant was required to submit and post such files). È Yes ‘ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “larger accelerated filer,” “accelerated filer,” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer È
Accelerated filer ‘
Indicate by check mark whether
Act). ‘ Yes È No
the registrant
Non-accelerated filer ‘
is a shell company (as defined in Rule 12b-2 of
Smaller reporting company ‘
the
The market value of voting and non-voting common stock held by non-affiliates of the registrant, based upon the closing
sale price of the common stock on July 3, 2011 as reported on the NASDAQ Global Select Market, was approximately $3.4
billion. Shares of common stock held by each executive officer and director and by each person who owns 5% or more of the
outstanding common stock have been excluded from the foregoing calculation in that such persons may be deemed affiliates.
This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of February 15, 2012, 154,847,904 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the registrant’s Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A for the year ended January 1, 2012 are incorporated by reference in Items 10 - 14 of Part III of this Annual
Report on Form 10-K.
TABLE OF CONTENTS
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosure About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
Signatures and Power of Attorney
Exhibits and Financial Statement Schedule
PART IV
Page
4
19
28
28
29
29
30
35
36
53
54
98
98
99
100
100
101
102
102
103
107
2
FORWARD-LOOKING STATEMENTS
The discussion in this Annual Report on Form 10-K contains statements that are not historical in nature, but
are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties,
including, but not limited to, statements related to our manufacturing strategy, our future use of external wafer
foundries, our future investment in our Emerging Technology division, our expectation regarding dividends and
stock repurchases, the number and impact of future personnel terminations in the Philippines and the expenses
related thereto; our expectations, including the timing and savings, related to our restructuring activities which
includes the sale of our restructured assets, including the Round Rock Texas property, our expected purchases
from Grace Semiconductor, our expectations regarding future technology transfers and other
licensing
arrangements, our expectations regarding our active litigation matters and our intent to defend ourselves in those
matters; our foreign currency exposure and the impact exchange rates could have on our operating margins, the
adequacy of our cash and working capital positions, our expected return on our yield-enhancement program and
the risks related to such an investment, our intended use of our line of credit; the value and liquidity of our
investments, including auction rate securities and our other debt investments, our ability to recognize certain
unrecognized tax benefits within the next twelve months as well as the resolution of agreements with various
foreign tax authorities, our expectations regarding our outstanding warranty liability, the impact of interest rate
fluctuations on our investments, the volatility of our stock price, the impact of new accounting standards on our
financial statements and the impact of the credit crisis on consumers. We use words such as “plan,” “anticipate,”
“believe,” “expect,” “future,” “intend” and similar expressions to identify forward-looking statements. Such
forward-looking statements are made as of the date hereof and are based on our current expectations, beliefs and
intentions regarding future events or our financial performance and the information available to management as
of the date hereof. Except as required by law, we assume no responsibility to update any such forward-looking
statements. Our actual results could differ materially from those expected, discussed or projected in the forward-
looking statements contained in this Annual Report on Form 10-K for any number of reasons, including, but not
limited to, the state and future of the general economy and its impact on the markets and consumers we serve and
our investments; the current credit conditions; our ability to expand our customer base, our ability to transform
our business with a leading portfolio of programmable products; the number and nature of our competitors; the
changing environment and/or cycles of the semiconductor industry; foreign currency exchange rates; our ability
to efficiently manage our manufacturing facilities and achieve our cost goals emanating from our flexible
manufacturing strategy; our ability to achieve our goals related to our restructuring activities; our success in our
pending litigation matters, our ability to manage our investments and interest rate and exchange rate exposure;
our ability to achieve liquidity in our investments the failure or success of our Emerging Technology division
and/or the materialization of one or more of the risks set forth above or in Item 1A (Risk Factors) in this Annual
Report on Form 10-K.
3
ITEM 1. BUSINESS
General
PART I
Cypress Semiconductor Corporation (“Cypress”) delivers high-performance, mixed-signal, programmable
solutions that provide customers with rapid time-to-market and exceptional system value. Our offerings include
the flagship Programmable System-on-Chip (“PSoC®”) families and derivatives such as CapSense® touch
sensing and TrueTouch™ solutions for touchscreens. We are the world leader in universal serial bus (“USB”)
controllers, including the high-performance West Bridge® solution that enhances connectivity and performance
in multimedia handsets. In addition we are the industry leader in the high-performance SRAM memory market
and a market leader in programmable timing devices. We serve numerous markets including consumer, mobile
handsets, computation, data communications, automotive,
industrial and military. Cypress programmable
products can be found in a wide array of the world’s leading end products, including cell phones, tablets, PCs and
PC peripherals, audio and gaming devices, household appliances, and communications devices.
Cypress was incorporated in California in December 1982. The initial public offering took place in May
1986, at which time our common stock commenced trading on the NASDAQ National Market. In February 1987,
we were reincorporated in Delaware and in October 1988, we began listing our common stock on the New York
Stock Exchange under the symbol “CY.” On November 12, 2009, we voluntarily moved our stock listing back to
the NASDAQ Global Select Market, maintaining the “CY” ticker symbol.
Our corporate headquarters are located at 198 Champion Court, San Jose, California 95134, and our main
telephone number is (408) 943-2600. We maintain a website at www.cypress.com. The contents of our website
are not incorporated into, or otherwise to be regarded as part of, this Annual Report on Form 10-K.
Our fiscal 2011 ended on January 1, 2012, fiscal 2010 ended on January 2, 2011 and fiscal 2009 ended on
January 3, 2010. Our fiscal 2011 and 2010 each contained 52 weeks and fiscal 2009 contained 53 weeks.
Business Segments
As of the end of fiscal 2011, our organization included the following business segments:
Business Segments
Description
Consumer and Computation Division A product division focusing on PSoC®, touch-sensing and touchscreen
Data Communications Division
Memory Products Division
Emerging Technologies and Other
solutions, universal serial bus (“USB”) and timing solutions.
A product division focusing on West Bridge peripheral controllers for
handsets, dual port interconnects for networking applications and legacy
switches, cable drivers and equalizers for the professional video market.
A product division focusing on static random access memories
(“SRAM”) and nonvolatile memories.
Inc. all majority-owned subsidiaries of Cypress,
and Deca
Includes Cypress Envirosystems, AgigA Tech,
Technologies,
the
Optical Navigation Systems (“ONS”) business unit, China business unit,
foundry-related services, other development stage activities and certain
corporate expenses.
Inc.
Sale of Image Sensors Product Family
As part of Cypress’s continued efforts to focus on programmable products including our flagship PSoC®
programmable system-on-chip solution and our TrueTouch™ touch-sensing controllers, we divested our image
4
sensors product family by selling it to ON Semiconductor Corporation on February 27, 2011. Accordingly, the
name of our Memory and Image Sensor Division was changed to Memory Products Division (“MPD”) to reflect
the change in our business. For additional information on this transaction, see Note 2 of Notes to Consolidated
Financial Statements under Item 8.
For additional information on our segments, see Note 18 of Notes to Consolidated Financial Statements
under Item 8.
Business Strategies
Cypress is committed to managing its expenses and in maintaining a strong balance sheet. We have
successfully transitioned many of our business operations to lower-cost centers, including India, the Philippines
and China. In addition, we are utilizing foundry partners for more of our manufacturing needs.
In 2009, Cypress introduced two new architectures for its PSoC® platform, PSoC® 3 and PSoC® 5, that
extended Cypress’s reach into many new and fast-growing markets and increased its total addressable market by
10x from $1.5 billion to $15 billion. Combining the PSoC® family of devices with an intuitive integrated
software development environment called PSoC® Creator™, Cypress continues to be positioned to obtain new
business in the microcontroller, programmable analog and programmable logic markets.
In 2010, Cypress also continued to focus sales, marketing, and product development on its “touch” business,
which includes touchscreens and button-replacement technologies. As a result, we realized significant revenue
growth for our PSoC®-based TrueTouch™ touchscreen controllers and CapSense® capacitive-touch-sensing
products, primarily in the handset market. We also realized our first design win from our ONS business unit,
which provides unique touch sensors for mobile phones. As a result, Cypress’s handset revenue increased by
more than 30 percent, year over year.
In 2011, Cypress introduced three important products: the Gen4™ TrueTouch controllers, the EZ-USB®
FX3™ controllers for USB 3.0, and the West Bridge® Benicia controller that brings USB 3.0 capability to
mobile devices. All of these families have received positive initial customer acceptance and will add incremental
revenue in fiscal 2012.
In fiscal 2012, Cypress will continue to pursue the following key strategies:
‰ Drive profitability. Driving profitability and a high return on investment for our stockholders is our first
priority. Toward that end, Cypress has implemented a tight, corporate-wide focus on gross margin and
operating expenses. Over the past several years, Cypress has continued to move its operations to
low-cost centers in India, the Philippines and China and implemented a flexible manufacturing model
(see below). As a result of these efforts, Cypress achieved substantial cash flow leverage, with a cash
and short-term investment balance totaling approximately $166.3 million at the end of fiscal 2011. In Q3
2011, Cypress announced another $400 million plan to repurchase Cypress stock after completing a
$600 million plan announced in Q4 2010. In 2011, Cypress also offered its first ever quarterly cash
dividend, with the first payment made in Q3 2011, and subsequent payments made in Q4 2011 and Q1
2012.
‰ Drive programmability. We believe our proprietary programmable technology and programmable
product leadership, led by our flagship PSoC® family of devices, represents an important competitive
advantage for us. Driven by current and anticipated demand, we continue to define, design and develop
new programmable products and solutions that offer our customers increased flexibility and efficiency,
higher performance, and higher levels of integration with a focus on analog functionality.
5
‰
‰
Extend technology leadership and drive PSoC® proliferation. The most
important step of our
programmability initiative is to drive PSoC® adoption in large market segments. PSoC® devices can be
used in applications ranging from cell phones, MP3 players, tablets and Ereaders to appliances and cars,
etc. The product’s easy-to-use programming software and development kits can facilitate rapid adoption
across many different platforms.
Focus on large and growing markets. We will continue to pursue business opportunities in large and
growing markets, including handheld and human interface/consumer devices, portable medical devices,
industrial sensing and control, mobile accessories, automotive, and system management.
‰ Collaborate with customers to build system-level solutions. We work closely with customers from initial
product design through manufacturing and delivery. Our sales, customer and technical support, product
marketing and development efforts are organized to optimize our customers’ design efforts, helping
them achieve product differentiation and improve time-to-market. Our engineering expertise is focused
on developing whole product solutions, including silicon, software and reference designs.
‰
‰
‰
Leverage flexible manufacturing. Our manufacturing strategy combines capacity from leading foundries
with output from our internal manufacturing facilities. This initiative allows us to meet rapid swings in
customer demand while lessening the burden of high fixed costs, a capability that is particularly
important in high-volume consumer markets that we serve with our leading programmable product
portfolio.
Identify and exit legacy or non-strategic, underperforming businesses. A focused business will allow us
to better achieve our current objectives. Over the past four years, we have divested certain business units
that were inconsistent with our future business initiatives and long-term plans. Exiting these businesses
has allowed us to focus our resources and efforts on our core programmable and proprietary business
model. As part of our growth strategy, we will continue to review our business units to ensure alignment
with our short and long-term goals.
Pursue complementary strategic relationships. Complementary acquisitions can expand our markets and
strengthen our competitive position. As part of our growth strategy, we continue to selectively assess
opportunities
investments and joint
development projects with key partners and other businesses. We also have a unique venture based start
up model that is part of our Emerging Technologies division and we expect to continue to make
significant investments in current ventures as well as new ventures.
to develop strategic relationships,
including acquisitions,
As we continue to implement our strategies, there are many internal and external factors that could impact
our ability to meet any or all of our objectives. Some of these factors are discussed under Item 1A.
Product/Service Overview
Consumer and Computation Division (“CCD”):
The Consumer and Computation Division designs and develops solutions for many of the world’s leading
end-product manufacturers. Its programmable product offerings are the linchpin of our programmable solutions
strategy. This division’s products include PSoC® devices, CapSense and TrueTouch™ touch-sensing/
touchscreen products and the industry’s broadest selection of USB controllers and WirelessUSB™ products, and
general-purpose programmable clocks. PSoC® products are used in various consumer applications such as MP3
players, mass storage, household appliances, laptop computers and toys. The TrueTouch™ touchscreen products
are used in mobile phones, tablets, GPS, digital cameras and other mobile systems. USB is used primarily in PC
and peripheral applications and is finding increased adoption rates in consumer devices such as MP3 players,
mobile handsets and set-top boxes. Timing devices are used ubiquitously in a wide variety of systems to
synchronize the operations of various components.
6
The following table summarizes the markets and applications related to our products in this segment:
Products
Markets
Applications
PSoC® 1, PSoC® 3 and PSoC® 5 Consumer, handsets,
industrial, medical,
communications,
automotive
Digital still and video cameras, appliances,
handheld devices, notebook computers, LCD
monitors, medical devices, mice, keyboards,
industrial,
and
e-Bikes.
toys, mobile
accessories
Consumer, computation,
handsets, communication,
gaming, automotive
tablets, portable media
Mobile handsets,
players, cameras, autos, video games, GPS
systems, keyboards and other applications.
TrueTouch™
CapSense
USB controllers
Consumer, industrial,
computation, white goods,
communication, automotive
PC peripherals, consumer
electronics
Notebook computers and PCs, appliances,
handheld devices, automotive control pads/
media centers, digital cameras, toys, consumer
products and many other applications.
Printers, cameras, industrial equipment, mice,
keyboards, handheld devices, gamepads and
joysticks, VoIP phones, headsets, presenter
tools, dongles, point of sale devices and bar
code scanners.
Mice, keyboards, wireless headsets, consumer
electronics, gamepads, remote controllers, toys
and presenter tools.
boxes,
printers, HDTV,
copiers,
Set-top
industrial automation, printers, single-board
computers, IP phones, storage devices, servers
and routers.
Base stations, high-end telecom equipment
(switches, routers), servers and storage.
WirelessUSB
PC peripherals
Programmable clocks
Communications,
computation
RoboClock® buffers
Communications
PSoC® Programmable System-on-Chip products. Our PSoC® products are highly integrated, high-
performance mixed-signal devices with an on-board microcontroller, programmable digital and analog blocks,
SRAM and flash memory. They provide a low-cost, single-chip solution for a variety of consumer, industrial,
medical, and system management applications. A single PSoC® device can potentially integrate as many as 100
peripheral functions saving customers design time, board space, power consumption, and system costs. Because
of its programmability, PSoC® allows customers to make modifications at any point during the design cycle,
providing unmatched flexibility.
Cypress’s PSoC® 1 device delivers performance, programmability and flexibility with a cost-optimized
8-bit M8 CPU subsystem. PSoC® 3 uses an 8-bit, Intel® 8051-based microcontroller with 7.5 times more
computing power than PSoC® 1. The 32-bit, ARM®-Cortex™-based PSoC® 5 has 25 times more computing
power than PSoC® 1. The analog-to-digital converters on PSoC® 3 and PSoC® 5 are 256 times more accurate
and 10 to 30 times faster than PSoC® 1, and there are 10 times more programmable logic gates available. PSoC®
Creator™ is a unique design tool that allows engineers to use intuitive schematic-based capture and dozens of
certified, firmware-defined, pre-packaged peripherals. In 2011, Cypress introduced PSoC® Creator™ 2.0, which
offers compatibility with popular third-party compilers. It also announced multiple design wins with new
customers. Cypress shipped its 1 billionth PSoC® device in 2011, and its online community for developers of
PSoC® and other products (www.cypress.com/go/community) featuring technical forums, blogs and videos grew
to over 45,000 registered users.
7
TrueTouch™ Touchscreen Solutions. TrueTouch is a single-chip touchscreen solution that can interpret the
inputs of more than 10 fingers from all areas of the screen simultaneously. This enables designers to create new
usage models for products such as mobile handsets, tablets, digital camers, portable media players (“PMPs”),
GPS and other products. The TrueTouch family also includes devices that perform traditional touchscreen
functions including interpreting single touches, and gestures such as tap, double-tap, pan, pinch, scroll, and
rotate. In 2011, Cypress introduced the Gen4 family of TrueTouch controllers, which delivers the industry’s best
noise performance, fastest refresh rate, lowest power and highest accuracy along with a host of exclusive
features. We also announced new, low-cost single-layer sensor technologies that enable manufacturers to replace
resistive screens with capacitive screens. The company is shipping products from the TrueTouch family into
many of the world’s leading cell phone Original Equipment Manufacturers (“OEM”).
CapSense. Our PSoC®-based CapSense capacitive touch-sensing solutions replace mechanical switches and
controls with simple, touch-sensitive controls by detecting the presence or absence of a conductive object (such
as a finger) and measuring changes in capacitance. This technology lends itself equally well to buttons, sliders,
touchpads, touchscreens and proximity sensors, taking industrial design possibilities to a much higher level. The
CapSense family includes CapSense, CapSense Express™ and CapSense Plus™—each supporting different
ranges of general purpose inputs/outputs, buttons and slider devices. Cypress’s CapSense devices feature
SmartSense™ technology, an automatic tuning solution for its CapSense devices that dynamically detects and
adjusts a system’s capacitive-sensing parameters, eliminating the need for manual tuning. Cypress has replaced
more than 3.5 billion buttons with CapSense technology and is the worldwide capacitive sensing market share
leader in handsets. The company announced new CapSense Express products in 2011, along with a new set of
design guides that simplifies the engineering process for customers.
USB Controllers. Cypress is the market leader in USB with more than one billion devices shipped. USB
provides the primary connection between a PC and peripherals, including keyboards, mice, printers, joysticks,
scanners and modems. It is also used to connect various non-PC systems, such as handheld games, digital still
cameras and MP3 players. The USB standard facilitates a “plug-and-play” architecture that enables instant
recognition and interoperability when a USB-compatible peripheral is connected to a system. We offer a full
range of USB solutions, including low-speed (1.5 Mbps), full-speed (12 Mbps), high-speed (480 Mbps) and now
“Super Speed” (5 Gbps) USB products. We also offer a variety of USB hubs, transceivers, serial interface
engines and embedded-host products for a broad range of applications.
WirelessUSB™. Designed for short-range wireless connectivity, WirelessUSB enables personal computer
peripherals, gaming controllers,
toys, and other point-to-point or multipoint-to-point
applications to “cut the cord” with a low-cost, 2.4-GHz wireless solution. The WirelessUSB system acts as a
USB human interface device, so the connectivity is transparent to the designer at the operating system level.
WirelessUSB also operates as a simple, cost-effective wireless link in a host of other applications including
industrial, consumer, and medical markets. Cypress introduced WirelessUSB NL in 2011, which offers very low
power consumption for high-volume markets.
remote controls,
Programmable Clocks. Programmable timing solutions such as our InstaClock device combine high
performance with the flexibility and fast time to market of field-programmable devices at a cost that is
competitive against custom clocks at equivalent volumes. Working with our easy-to-use CyberClocks software,
designers can optimize device parameters such as drive strength, phased-lock loop bandwidth and crystal input
capacitive loading. Our programmable clocks are ideal for devices requiring multiple frequencies including
Ethernet, PCI, USB, HDTV, and audio applications. Additionally, the FleXO™ family of high-performance
clock generators can be instantly programmed in the factory or field to any frequency up to 650 MHz,
accelerating time to market and improving manufacturing quality.
RoboClock Clock Buffers. Our RoboClock family of clock buffers feature programmable output skew,
programmable multiply/divide factor, and user-selectable redundant reference clocks that provide fault tolerance.
Designers can control output skew and multiply and divide factors to help accommodate last-minute design
changes. RoboClock offers a high-performance timing solution for designers of communications, computation
and storage networking applications.
8
Data Communications Division (“DCD”):
The Data Communications Division focuses on West Bridge communication products, peripheral
interconnects, programmable logic devices and PowerPSoC® which includes our
controllers, dual-port
EZ-Color™ LED lighting solutions. Our communication products are primarily used in the networking and
telecommunications market. This division also makes a line of legacy switches, cable drivers and equalizers for
the professional video market. Our specialty memory products consist of first-in, first-out and dual port
memories. First-in, first-out (“FIFO”) memories are used for applications such as switches and routers, and dual
port memories are used in switching applications and handsets, including networking switches and routers,
cellular base stations, mass storage devices, mobile handsets, and telecommunication equipment.
The following table summarizes the markets and applications related to our products in this segment:
Products
Markets
Applications
Peripheral bridge
controllers
Consumer, mobile
handsets
Cellular phones, portable media players, personal digital assistants,
digital cameras and printers.
Dual-port
Memories
Networking,
telecommunication
Medical and instrumentation, storage, wireless infrastructure, military
communications, image processors and base stations.
First-in, first-out
(“FIFO”)
Memories
Physical layer
Devices
Programmable
logic devices
PowerPSoC®
Controllers
Video, data
communications,
telecommunications,
networking
Data
communications,
consumer
Video, data communications,
switching/routing.
telecommunications, and network
Converters, professional video cameras, production switchers and
video routers and servers, encoders and decoders.
Storage, military
Storage and military.
Industrial, lighting
LEDs, motors and other power applications.
West Bridge® Peripheral Bridge Controllers. Our West Bridge products enable direct connection between
peripherals, creating ultra-fast transfers while offloading the main processor from data-intensive operations. The
West Bridge family complements the main processor by adding support for next generation and latest standards
and allowing simultaneous transfers between peripherals and processing elements. West Bridge controllers are
three-ported devices designed specifically for handsets to provide a direct path from PC to handset mass storage,
freeing baseband/applications processor resources by limiting its involvement in these high-density transfers.
Additionally, West Bridge creates simultaneous usage models by adding dedicated paths between the three ports
to literally create multiple usage models such as using the handset as a modem, while downloading multimedia
files, and playing music. Cypress recently introduced the West Bridge Benicia product which is the first
controller to bring USB 3.0 speed (5 Gbps) to mobile handsets.
Dual-Port Memories. Dual ports, which can be accessed by two different processors or buses
simultaneously, target shared-memory and switching applications, including networking switches and routers,
cellular base stations, mass-storage devices and telecommunications equipment. We offer a portfolio of more
than 160 synchronous and asynchronous dual-port interconnects ranging in densities from 8 Kbits to 36 Mbits
with speeds of up to 250 MHz. Our dual ports are the compelling solutions for interprocessor communication in a
broad range of applications. For high-volume multiprocessor applications (wireless handsets, PDAs, consumer)
we offer the MoBL dual port, providing a low cost, quick time-to-market interconnect solution with the
industry’s lowest power-consumption.
9
FIFO Memories. FIFOs are used as a buffer between systems operating at different frequencies. Our high-
performance FIFO products provide the ideal solution to interconnect problems such as flow control, rate
matching, and bus matching. Our FIFO portfolio is comprised of more than 100 synchronous and asynchronous
memories in a variety of speeds, bus widths, densities and packages. Using industry-standard pinouts, these
products are easily integrated into new and existing designs. Unidirectional, bidirectional, tri-bus and double
sync configurations are available with built-in expansion logic and message-passing capabilities for various
markets including video, data communications, telecommunications and network switching/routing. In 2011,
Cypress introduced the industry’s highest density FIFOs at 72 Mbits.
Physical Layer Devices. Our portfolio includes HOTLink, HOTLinkDX and HOTLinkII. These transceiver
families cover data transmission rates of 50 Mbps up to 1.5 Gbps. These flexible devices are ideal for proprietary
serial backplane applications. They also comply with many industry standards such as 10 Gbps Ethernet, gigabit
Ethernet, Fibre Channel, Enterprise System Connection, Digital Video Broadcast, and high-definition television.
In addition, we supply a chipset for the transmission of digital video signals. This chipset is based on our
HOTLink family and is widely used in professional digital video equipment such as editing, routing, recording
and storage.
Programmable Logic Devices. System logic performs non-memory functions such as floating-point
mathematics or the organization and routing of signals throughout a computer system. We manufacture several
types of programmable logic devices that facilitate the replacement of multiple standard logic devices with a
single programmable device,
increasing flexibility and reducing time to market. Our wide range of
programmable logic devices includes products ranging from 32 to more than 3,000 macrocells.
PowerPSoC®. Cypress’s Power PSoC® family of embedded power controllers is the industry’s first fully
integrated single-chip solution for both controlling and driving high-power LEDs and other power applications
such as small motors. The PowerPSoC family integrates four constant-current regulators and four 32V
MOSFETs with our PSoC® programmable system-on-chip, which includes a microcontroller, programmable
analog and digital blocks and memory. This uniquely high level of integration provides customers with a single-
chip solution for high-quality LED-based lighting products and extends into other embedded applications such as
white goods and industrial control.
Powerline Communications Solutions.
In 2010, Cypress introduced a PSoC®-based programmable
Powerline Communication (“PLC”) solution that enables the reliable transmission of command and control data
over high-and low-voltage power lines. The hardware platform combines a modem, network protocol and
application code with PSoC®’s programmable analog and digital circuitry, providing an integrated solution that
speeds time-to-market. Key applications include smart metering, LED lighting, energy management and solar
markets. Cypress’s PLC solution was named a 2010 Editor’s Choice award recipient by Industrial Embedded
Systems Magazine.
Memory Products Division (‘MPD”):
Our Memory Products Division designs and manufactures SRAM products and nonvolatile SRAMs
(“nvSRAM”s) which are used to store and retrieve data in networking, wireless infrastructure and handsets,
computation, consumer, automotive, industrial and other electronic systems. Cypress is the world’s No.1 supplier of
SRAMs due to its broad portfolio of high-performance, synchronous SRAMs, consolidation within the supply base
and additional share gains with strategic global customers. Our memory products target a variety of markets
including networking, telecommunications, wireless communications and consumer applications. In 2011, we
reaffirmed our commitment to the SRAM market with investments in new product development for next generation
of high-performance synchronous SRAMs to extend the QDR architecture with new products in 2012. We have also
completed a major capacity expansion with one of our foundry partners that triples the capacity for our advanced
65-nm SRAM products with very low lead-times. In addition, we are also investing in a new wafer manufacturing
process technology and expanding our patented “autoline” packaging and test capability that dramatically cuts our
packaging time and cost.
10
The following table summarizes the markets and applications related to our products in this segment:
Products
Markets
Applications
Asynchronous SRAMs Consumer,
networking
Consumer electronics, switches and routers, automotive, peripheral and
industrial electronics.
Synchronous SRAMs
nvSRAMs
Base station,
networking
Servers,
industrial
Wireline
applications and industrial electronics.
networking, wireless
base
stations,
high
bandwidth
Redundant array of independent disk servers, point of sale terminals,
industrial automation, printers, single-board
set-top boxes, copiers,
computers and gaming.
Asynchronous SRAMs. We manufacture a wide selection of fast asynchronous and micropower SRAMs with
densities ranging from 16 Kbits to 64 Mbits. These memories are available in many combinations of bus widths,
packages and temperature ranges including automotive. They are ideal for use in point-of-sale terminals, gaming
machines, network switches and routers, IP phones, IC testers, DSLAM Cards and various automotive
applications. In 2010, Cypress introduced the market’s first 32-bit and 64-bit fast asynchronous SRAMs targeting
storage servers, switches, routers, test and military equipment.
Synchronous SRAMs. Our high-speed synchronous SRAMs include standard synchronous pipelined, No Bus
Latency (“NoBL”), Quad Data Rate, and Double Data Rate SRAMs, and are typically used in networking
applications. NoBL synchronous SRAMs are optimized for high-speed applications that require maximum bus
bandwidth up to 250 MHz, including those in the networking, instrumentation, video and simulation businesses.
Double Data Rate (“DDR”) SRAMs target network applications and servers that operate at data rates up to 550
MHz. Quad Data Rate™ (“QDR”®) products are targeted toward next-generation networking applications,
particularly switches and routers that operate at data rates beyond 550 MHz and offer twice the bus bandwidth of
DDR SRAMs. In 2011, Cypress introduced the industry’s first 65-nm QDR and DDR SRAMs. The 144-Mbit and
72-Mbit devices, developed with foundry partner UMC, feature the industry’s fastest clock speeds and operate at
half the power of their 90-nm predecessors. They are ideal for networking, medical imaging and military signal
processing.
nvSRAMs. nvSRAMs are products that operate similar to standard asynchronous SRAM and reliably store
data into an internal nonvolatile array during unanticipated power downs. The competitive advantage of an
nvSRAM is infinite endurance and much faster read/write speed than a serial flash or EEPROM. Additionally,
these high-speed nonvolatile SRAM devices can store data for more than 20 years without battery backup. These
memories are ideal for redundant array of independent disks (“RAID”) storage arrays, metering applications,
multifunction printers and other industrial applications, such as PLCs. Additionally, we have our 1-Mbit serial
nonvolatile SRAM family and our 4-Mbit and 8-Mbit parallel nvSRAMs with an integrated real-time clock,
providing failsafe battery-free data backup in mission-critical applications.
Emerging Technologies:
Cypress’s Emerging Technology Division consists of businesses outside our core semiconductor business. It
includes majority-owned subsidiaries Cypress Envirosystems, Inc., AgigA Tech, Inc. and Deca Technologies,
Inc. It also includes internal business units Optical Navigation Sensors (ONS), Trackpad Solutions, China
Business Unit, foundry services, other development stage activities and certain corporate expenses.
Cypress Envirosystems, Inc., a majority-owned and fully independent subsidiary of Cypress, develops and
markets technologies for commercial and industrial plants and buildings to reduce cost, improve productivity,
extend asset life, and improve safety and compliance. Its products include a wireless pneumatic thermostat that
enables remote temperature sensing and control, a wireless gauge reader that clips onto the face of existing
gauges to capture and transmit data, a wireless steam trap monitor that detects leaks and failures, and a wireless
transducer reader that provides energy-use characterization and baseline data for audits. It has formed a strategic
partnership with Honeywell to sell a custom version of its Wireless Gauge Reader under the Honeywell brand
label.
11
AgigA Tech, Inc. AgigA Tech, a majority-owned and fully independent subsidiary of Cypress, is an industry
pioneer in the development of high-speed, high-density, battery-free non-volatile memory solutions. Its flagship
product, AGIGARAM™, merges NAND Flash, DRAM and an ultracapacitor power source into a highly reliable
non-volatile memory subsystem, delivering unlimited read/write performance at RAM speeds, while also safely
backing up all data when power is interrupted. The patent pending approach couples innovations in power
management, high-speed data movement and systems knowledge, while leveraging high volume readily available
memory technologies to provide a unique non-volatile solution scalable to very high densities. In 2011, AgigA
Tech won a Red Herring Top 100 award.
Deca Technologies, Inc. (“Deca”). Deca is a majority-owned and fully independent subsidiary of Cypress
Semiconductor. Headquartered in Tempe, AZ., and with global capabilities, Deca has pioneered a breakthrough
approach to wafer level packaging and interconnect technology inspired by SunPower Corporation’s unique solar
wafer fabrication methodology. Deca’s initial product offering includes a series of wafer level chip scale
packaging (“WLCSP”) solutions serving several of the top 25 semiconductor producers. Deca’s approach enables
industry leading cycle times, flexibility and value for WLCSP which is one of the semiconductor industry’s
fastest growing electronic interconnect technologies.
Optical Navigation Sensors. (“ONS”) Our OvationONS™ laser-based optical navigation sensor replaces
mechanical trackball types of user interfaces in smartphones, tablet PCs, remote controls, e-book readers, wired
and wireless mice and industrial applications. The sensor delivers fast and precise tracking on more surfaces than
other sensors on the market, using our patented OptiCheck™ technology, which offers outstanding accuracy and
variable resolution ranging from 800 to 2,400 counts per inch. Based on Cypress’s PSoC® programmable
system-on-chip platform, the OvationONS™ II “mouse-on-a-chip” solution is the first product combining a
precision laser navigation sensor with an optical signal processor and microcontroller on a single chip.
Trackpad Solutions. Cypress has applied its capacitive sensing expertise to the trackpad market for laptop
computers. Trackpads offer cursor control and other functions, and Cypress’s solution has been adopted by
multiple PC manufacturers.
China Business Unit. Centered in Shanghai, Cypress’s China Business Unit designs and produces
semiconductor solutions for the China marketplace. Early product successes include PSoC®-based solutions for
electric bicycles, consumer electronics, and white goods. The China Business Unit is also licensing Cypress
technology to foundries throughout Asia.
Acquisitions and Divestitures
We are committed to the ongoing evaluation of strategic opportunities and, where appropriate, to the
acquisition of additional products, technologies or businesses that are complementary to, or broaden the markets
for, our products. At the same time, we continuously evaluate our businesses to ensure that they are well-aligned
with our programmable and proprietary products strategy. Businesses that do not align with our strategy are
considered for divestment.
As part of Cypress’s continued efforts to focus on programmable products including our flagship PSoC®
programmable system-on-chip solutions and our TrueTouch™ touch-sensing controllers, we divested our image
sensors product families and sold them to ON Semiconductor Corporation (“ON”) on February 27, 2011 in an all
cash transaction for a consideration of approximately $34 million. For additional information on this divestiture,
see Note 2 of Notes to Consolidated Financial Statements under Item 8.
Manufacturing
Our core manufacturing strategy—“flexible manufacturing”—combines capacity from foundries with
output from our internal manufacturing facilities. This initiative is intended to allow us to meet rapid swings in
customer demand while lessening the burden of high fixed costs, a capability that is particularly important in
high-volume consumer markets that we serve with our leading programmable product portfolio.
12
We currently manufacture approximately 42% of our semiconductor products at our wafer manufacturing
facility in Bloomington, Minnesota. External wafer foundries, mainly in Asia, manufactured the balance of our
products and we expect that our wafer foundry partners will continue to increase as a percentage of total output.
We conduct assembly and test operations at our highly automated assembly and test facility in the
Philippines. This facility accounts for approximately 35% to 45% of the total assembly output and 40% to 50%
of the total test output. Various subcontractors in Asia performed the balance of the assembly and test operations.
Our facility in the Philippines performs assembly and test operations manufacturing volume products and
packages where our ability to leverage manufacturing costs is high. This facility has ten fully integrated,
automated manufacturing lines enabling complete assembly and test operations. These autolines require fewer
people to run and have shorter manufacturing cycle times than conventional assembly/test operations, which
enable us to respond more rapidly to changes in demand.
We have a strategic foundry partnership with Grace Semiconductor Manufacturing Corporation (“Grace”),
located in Shanghai, China. Our agreement with them transferred certain proprietary process technologies to
Grace and provided additional production capacity to augment output from our manufacturing facilities. Since
2007, when we completed the transfer of our 0.35-micron SONOS, 0.13-micron SRAM and LOGIC processes
and 0.09-micron SRAM, we have been purchasing products from Grace that are manufactured using these
processes. In conjunction with our partnership with Grace, we made certain pre-payments to them in fiscal 2011
to secure a certain supply of wafers. The pre-payments are expected to be applied to purchases of wafers from
Grace over a period of two years commencing from February 23, 2011. As of January 1, 2012, the unapplied
pre-payment balance was approximately $8.1 million.
We also have a strategic foundry partnership with United Microelectronics Corporation (“UMC”), located in
Taiwan. We use UMC’s 65nm process to produce our leading edge SRAM products which we have been
shipping since 2008. Since 2008, we have continuously introduced higher density SRAM products up to 144Mb.
Additionally, we have utilized UMC’s 65nm baseline to create derivative processes and products. These
derivatives include an embedded flash process to support the next generation programmable system-on-chip and
nvSRAM products as well as a derivative utilized to manufacture our USB 3.0 controller.
Research and Development
Research and development efforts are focused on the development and design of new semiconductor
products, as well as the continued development of advanced software platforms primarily for our programmable
solutions. Our goal is to increase efficiency in order to maintain our competitive advantage. Our research and
development organization works closely with our manufacturing facilities, suppliers and customers to improve
our semiconductor designs and lower our manufacturing costs. During fiscal 2011, 2010 and 2009, research and
development expenses totaled $190.0 million, $176.8 million and $181.2 million, respectively.
We have both central and division-specific design groups that focus on new product creation and
improvement of design methodologies. These groups conduct ongoing efforts to reduce design cycle time and
increase first pass yield through structured re-use of intellectual property blocks from a controlled intellectual
property library, development of computer-aided design tools and improved design business processes. Design
and related software development work primarily occurs at design centers located in the United States, Europe,
India and China.
Customers, Sales and Marketing
We sell our semiconductor products through several channels: sales through global domestically-based
distributors; sales through international distributors and manufacturing representative firms; and sales by our
sales force to direct original equipment manufacturers and their manufacturers. Our marketing and sales efforts
are organized around five regions: North America, Europe, Japan, Greater China, and the rest of Asia. We also
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have a strategic-account group and a contract-manufacturing group which are responsible for specific customers
with worldwide operations. We augment our sales effort with field application engineers, specialists in our
products, technologies and services who work with customers to design our products into their systems. Field
application engineers also help us identify emerging markets and new products.
Outstanding accounts receivable from Arrow Electronics, Inc., Arkian and Avnet, Inc., three of our
distributors, accounted for 14.1%, 13.9% and 11.1% of our consolidated accounts receivable as of January 1,
2012, respectively. Outstanding accounts receivable from Avnet, Inc., accounted for 17% of our consolidated
accounts receivable as of January 2, 2011.
Revenue generated through Avnet, Inc. and Weikeng Industrial Co. Ltd., two of our distributors, accounted
for 12.8% and 11.2%, respectively, of our consolidated revenue for fiscal 2011. Samsung Electronics
(“Samsung”), an end customer, purchases our products from certain of our distributors, primarily from Arkian.
Shipments made by our distributors to Samsung in fiscal 2011 accounted for 10.0% of our consolidated revenue
for fiscal 2011.
Revenue generated through Avnet, Inc. and Arrow Electronics, Inc. accounted for 15% and 10%,
respectively, of our consolidated revenue for fiscal 2010. Revenue through Avnet, Inc accounted for 14% of our
consolidated revenue for fiscal 2009. We had no end customers accounting for 10% or greater of our
consolidated revenue for fiscal 2010 or 2009.
Backlog
Our sales typically rely upon standard purchase orders for delivery of products with relatively short delivery
lead times. Customer relationships are generally not subject to long-term contracts. However, we have entered
into long-term supply agreements with certain customers. These long-term supply agreements generally do not
contain minimum purchase commitments. Products to be delivered and the related delivery schedules under these
long-term contracts are frequently revised to reflect changes in customer needs. Accordingly, our backlog at any
particular date is not necessarily representative of actual sales for any succeeding period and we believe that our
backlog is not a meaningful indicator of future revenues.
Competition
The semiconductor industry is intensely competitive and continually evolving. This intense competition
results in a challenging operating environment for most companies in this industry. This environment is
characterized by the potential erosion of product sale prices over the life of each product, rapid technological
change, limited product life cycles, greater brand recognition and strong domestic and foreign competition in
many markets. Our ability to compete successfully depends on many factors, including:
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our success in developing new products and manufacturing technologies;
delivery, performance, quality and price of our products;
diversity of our products and timeliness of new product introductions;
cost effectiveness of our design, development, manufacturing and marketing efforts;
quality of our customer service, relationships and reputation;
overall success with which our customers market their products and solutions that incorporate our
products; and
number and nature of our competitors and general economic conditions.
We face competition from domestic and foreign semiconductor manufacturers, many of which have
advanced technological capabilities and have increased their participation in the markets in which we operate.
We compete with a large number of companies primarily in the telecommunications, networking, data
communications, computation and consumer markets. Companies who compete directly with our semiconductor
limited to, Altera, Analog Devices, Atmel, Freescale, Integrated Device
businesses include, but are not
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Technology, GSI Technology, Integrated Silicon Solution, Inc., Lattice Semiconductor, Linear Technology,
Maxim Integrated Products, Microchip Technology, Renesas, Samsung, Silicon Laboratories, Standard
Microsystems, Synaptics, Texas Instruments and Xilinx.
Environmental Regulations
We use, generate and discharge hazardous chemicals and waste in our research and development and
manufacturing activities. United States federal, state and local regulations, in addition to those of other foreign
countries in which we operate, impose various environmental rules and obligations, which are becoming
increasingly stringent over time, intended to protect the environment and in particular regulate the management
and disposal of hazardous substances. We also face increasing complexity in our product design as we adjust to
new and future requirements relating to the materials composition of our products, including the restrictions on
lead and other hazardous substances that apply to specified electronic products put on the market in the European
Union (Restriction on the Use of Hazardous Substances Directive 2002/95/EC, also known as the “RoHS
Directive”) and similar legislation in China and California. We are committed to the continual improvement of
our environmental systems and controls. However, we cannot provide assurance that we have been, or will at all
times be, in complete compliance with all environmental laws and regulations. Other laws impose liability on
owners and operators of real property for any contamination of the property even if they did not cause or know of
the contamination. While to date we have not experienced any material adverse impact on our business from
environmental regulations, we cannot provide assurance that environmental regulations will not
impose
expensive obligations on us in the future, or otherwise result in the incurrence of liability such as the following:
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a requirement to increase capital or other costs to comply with such regulations or to restrict discharges;
liabilities to our employees and/or third parties; and
business interruptions as a consequence of permit suspensions or revocations or as a consequence of the
granting of injunctions requested by governmental agencies or private parties.
Intellectual Property
We have an active program to obtain patent and other intellectual property protection for our proprietary
technologies, products and other inventions that are aligned with our strategic initiatives. We rely on a
combination of patents, copyrights, trade secrets, trademarks and proprietary information to maintain and
enhance our competitive position in the domestic and international markets we serve. As of the end of fiscal
2011, we had approximately 1,800 issued patents and approximately 1,000 additional patent applications on file
domestically and internationally. In addition, in fiscal 2012, we are preparing to file up to 120 new patent
applications in the United States and up to 75 foreign applications in countries such as China, Taiwan, Korea,
Europe and India. The average remaining life of our patent portfolio is approximately 10 years.
In addition to factors such as innovation, technological expertise and experienced personnel, we believe that
patents are increasingly important to remain competitive in our industry, defend our position in existing markets
and to facilitate the entry of our proprietary products, such as PSoC®, into new markets. As our technologies are
deployed in new applications and we face new competitors, we will likely subject ourselves to new potential
infringement claims and discover third party infringement of our intellectual property. Patent litigation, if and
when instituted against us, could result in substantial costs and a diversion of our management’s attention and
resources. However, we are committed to vigorously defending and protecting our investment in our intellectual
property. Therefore, the strength of our intellectual property program, including the breadth and depth of our
portfolio, will be critical to our success in the new markets we intend to pursue.
In connection with our divestiture of unaligned and non-strategic businesses, we performed an analysis of
our intellectual property portfolio to ensure we were deriving the full value of our assets. As a result, we continue
to evaluate certain unaligned patents as well as other monetization models for our patent portfolio.
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Financial Information about Segments and Geographic Areas
Financial information about segments and geographic area is incorporated herein by reference to Note 18 of
Notes to Consolidated Financial Statements under Item 8.
International revenues have historically accounted for a significant portion of our total revenues. Our
manufacturing and certain finance operations in the Philippines, as well as our sales and support offices and
design centers in other parts of the world, face risks frequently associated with foreign operations, including, but
not limited to:
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currency exchange fluctuations, including the weakening of the U.S. dollar;
the devaluation of local currencies;
political instability;
labor issues;
changes in local economic conditions;
import and export controls;
potential shortage of electric power supply; and
changes in tax laws, tariffs and freight rates.
To the extent any such risks materialize, our business, financial condition or results of operations could be
seriously harmed.
Employees
As of January 1, 2012, we had approximately 3,400 employees worldwide, slightly down from
approximately 3,500 employees as of January 2, 2011. Geographically, approximately 1,100 employees were
located in the Philippines, 900 employees were located in the United States and 1,400 employees were located in
other countries. Of the total employees, approximately 1,800 employees were associated with manufacturing, 800
employees were associated with research and development, and 800 employees were associated with selling,
general and administrative functions.
None of our employees are represented by a collective bargaining agreement, nor have we ever experienced
organized work stoppages.
Executive Officers of the Registrant
Certain information regarding each of our executive officers is set forth below:
Name
Age
Position
T. J. Rodgers
Brad W. Buss
Sabbas A. Daniel
Alan Hawse
Paul D. Keswick
Badri Kothandaraman
President, Chief Executive Officer and Director
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48 Executive Vice President, Finance and Administration and Chief Financial Officer
49 Executive Vice President, Quality
43 Executive Vice President, Software Development
54 Executive Vice President, New Product Development, Engineering, IT
40 Executive Vice President, Data Communications Division and Executive Director,
Cypress India Limited
Dana C. Nazarian
Cathal Phelan
Dinesh Ramanathan
Christopher A. Seams
Shahin Sharifzadeh
Thomas Surrette
Norman P. Taffe
45 Executive Vice President, Memory Products Division
48 Executive Vice President, Chief Technical Officer
42 Executive Vice President, Programmable Systems Division
49 Executive Vice President, Sales and Marketing
47 Executive Vice President, World Wide Manufacturing and Operations
49 Executive Vice President, Human Resources
45 Executive Vice President, Consumer and Computation Division
T.J. Rodgers is founder of Cypress and has been a Director and its President and Chief Executive Officer
since 1982. Mr. Rodgers sits on the board of directors of Cypress’s internal subsidiaries as well as Bloom
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Energy, a privately held fuel cell company. Mr. Rodgers is also a member of the Board of Trustees of Dartmouth
College.
Brad W. Buss joined Cypress in 2005 as Executive Vice President, Finance and Administration and Chief
Financial Officer. Prior to joining Cypress, Mr. Buss served as Vice President of Finance at Altera Corporation, a
provider of programmable logic solutions. Mr. Buss spent seven years as a finance executive with Wyle
Electronics, a provider of high tech services for aerospace, life sciences and information systems, culminating as
Chief Financial Officer and Secretary of the Atlas Services division. Mr. Buss was also a member of Cisco
Systems’ worldwide sales finance team. In addition, Mr. Buss served as Senior Vice President of Finance and
Chief Financial Officer and Secretary at Zaffire, a developer of optical services networking systems. Mr. Buss
currently serves as a board member of certain internal subsidiaries and CafePress.com, a private company, as
well as Tesla Motors, a publicly listed company.
Sabbas A. Daniel was appointed Executive Vice President of Quality in 2006. Prior to his current position,
Mr. Daniel has held various management positions responsible for Cypress’s reliability and field quality
organizations. Mr. Daniel joined Cypress in 1998. Prior to joining Cypress, he worked at Samsung in Korea as
director of Reliability in the System LSI, memory, LCD, and Alpha microprocessor operations.
Alan Hawse was named Executive Vice President of Software Development in October 2011. Mr. Hawse
started his career with Cypress in 1991 and held several new product development management and engineering
positions that involved electronic design automation, device modeling and new product information systems.
Prior to his current position, Mr. Hawse served as Cypress’s Vice President of Information Technology.
Paul D. Keswick has served as Executive Vice President of New Product Development, Engineering, IT
since 1996. Prior to his current position, Mr. Keswick has held various management positions, including Vice
President and General Manager for various business divisions. Mr. Keswick has been with Cypress since 1986.
Badri Kothandaraman started his career with Cypress in 1995 and was named Executive Vice President of
the Data Communications Division in November 2011. In addition to managing DCD, Mr. Kothandaraman also
serves as the Executive Director of Cypress Semiconductor Technology India Private Limited. Prior to assuming
his current positions, Mr. Kothandaraman held various management roles in memory design, including serving as
the Vice President of the Asynchronous, Specialty Memory, Clocks and Non-volatile products business units.
Dana C. Nazarian was named Executive Vice President of Memory Products Division in February 2009.
Mr. Nazarian started his career with Cypress in 1988. Prior to his current position, Mr. Nazarian held various
management positions, which included oversight of significant operations in our Round Rock, Texas facility and
Vice President of our Synchronous SRAM business unit.
Cathal Phelan re-joined Cypress in late 2008 as Executive Vice President and Chief Technical Officer,
having left Cypress in early 2006. In 2006, Mr. Phelan left to become Chief Executive Officer/President at
Ubicom Inc., a venture capital backed company delivering multi-threaded CPUs. Prior to 2006, Mr. Phelan held a
number of engineering and management roles at Cypress, predominantly in design and architecture and then as
Executive Vice President for the Data Communications Division. Mr. Phelan originally joined Cypress in 1991,
and has 37 granted U.S. patents.
Dinesh Ramanathan was named Executive Vice President of Programmable Systems Division in
November 2011. Prior to his current appointment, Dr. Ramanathan served as the Executive Vice President of
Data Communications Division from 2005 to 2011. Dr. Ramanathan also served as a Business Unit Director for
the specialty memory and communications business units. Prior to joining Cypress in 2004, Dr. Ramanathan held
senior marketing and engineering positions at Raza Microelectronics, a semiconductor company, Raza Foundries,
a semiconductor company and Forte Design Systems, an electronic design automation company.
Christopher A. Seams was named Executive Vice President of Sales and Marketing in 2005. Prior to his
current appointment, Mr. Seams was Executive Vice President of Manufacturing and Research and
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Development. Mr. Seams joined Cypress in 1990 and has held a variety of positions in technical and operational
management in manufacturing, development and foundry.
Shahin Sharifzadeh is Executive Vice President of Worldwide Manufacturing and Operations, responsible
for directing Cypress’s process technology R&D, wafer manufacturing, test, assembly and operations worldwide.
Prior to his current position, Mr. Sharifzadeh served as Cypress’s Vice President of R&D and Wafer
Manufacturing. Mr. Sharifzadeh joined Cypress in 1989.
Tom Surrette was named Executive Vice President of Human Resources in September 2008. After working
at Philips/Signetics in software, test and product engineering roles, Mr. Surrette joined Cypress in July 1990 and
has held a series of engineering, manufacturing and technical management, marketing and product development
roles. Mr. Surrette has served as the Business Unit Director for Micropower SRAM and Synchronous SRAM, the
Vice President for Non-Volatile Memory and the Sr. Vice President of Worldwide Operations.
Norman P. Taffe was named Executive Vice President of Consumer and Computation Division in 2005.
Prior to his current position, Mr. Taffe has held numerous positions, including Marketing Director of the
programmable logic and interface products divisions, Managing Director of our mergers and acquisitions and
venture funds, Managing Director of the wireless business unit and most recently, Vice President of the Personal
Communications Division. Mr. Taffe joined Cypress in 1989 and currently serves as a board member of the
Second Harvest Food Bank.
The executive officers of our majority-owned subsidiaries are as follows:
Name
Age
Position
Timothy L. Olson
Ronald Sartore
Harry Sim
President & Chief Executive Officer, Deca Technologies Inc.
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62 Chief Executive Officer, AgigA Tech Inc.
49 Chief Executive Officer, Cypress Envirosystems
Timothy L. Olson founded Deca Technologies, Inc. and has been a Director and its President and Chief
Executive Officer since 2009. Prior to establishing Deca Technologies, Mr. Olson was Senior Vice President of
Research & Development and the Emerging Technologies businesses with Amkor Technology, a semiconductor
company. Mr. Olson was also previously Executive Vice President of Products and Operations at Micro
Component Technology, a manufacturer of automatic testing and handling equipment Vice President of Fico
b.v., a developer of packaging solutions for the semiconductor industry and was an Operations and Development
Manager at Motorola Semiconductor Products Sector. Mr. Olson has held a technical advisory board position
with Cypress since 1998.
Ronald Sartore was appointed Chief Executive Officer of AgigA Tech, Inc. in 2007. AgigA Tech, Inc. was
originally a subsidiary of Simtek Corporation, a public company Cypress acquired in 2008. Mr. Sartore has over
30 years of experience in the computer and semiconductor fields. Prior to his current role, Mr. Sartore served as
an Executive Vice President and director of Simtek Corporation. Prior to tenure at Simtek, Mr. Sartore served as
a Vice President of several business units at Cypress, which he joined as a result of Cypress’s 1999 acquisition of
Anchor Chips, a company Mr. Sartore founded in 1995. Prior to Anchor Chips, Mr. Sartore held various
engineering and management roles at Cheetah International, a supplier of software systems, which he co-founded
in 1985.
Harry Sim was appointed Chief Executive Officer of Cypress Envirosystems in 2006. Prior to Cypress
Envirosystems, Mr. Sim was with Honeywell from 1991 to 2006, where he was most recently the Global Vice-
President of Marketing for Honeywell’s Industrial Process Control division. During his 15 years with Honeywell,
Mr. Sim held executive positions in general management, strategy, mergers and acquisitions. Prior to Honeywell,
Mr. Sim worked at GE, where he was a Payload Director at NASA’s Mission Control Center in Houston.
Available Information
We make available our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the
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Securities Exchange Act of 1934, as amended, free of charge on our website at www.cypress.com, as soon as
reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange
Commission (“SEC”). Additionally, copies of materials filed by us with the SEC may be accessed at the SEC’s
Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or at www.sec.gov. For information about
the SEC’s Public Reference Room, contact 1-800-SEC-0330.
ITEM 1A. RISK FACTORS
Current unfavorable economic and market conditions, domestically and internationally, may adversely affect
our business, financial condition, results of operations and cash flows.
We have significant customer sales both in the U.S. and internationally. We are also reliant upon U.S. and
international suppliers, manufacturing partners and distributors. We are therefore susceptible to adverse U.S. and
international economic and market conditions, including the challenging economic conditions that have prevailed
and continue to prevail in the U.S. and worldwide. The recent turmoil in the financial markets has resulted in
dramatically higher borrowing costs which have made it more difficult (in some cases, prohibitively so) for many
companies to obtain credit and fund their working capital obligations. If any of our manufacturing partners,
customers, distributors or suppliers experiences serious financial difficulties or ceases operations, our business
will be adversely affected. In addition, the adverse impact of the credit crisis on consumers, including higher
unemployment rates, is expected to adversely impact consumer spending, which will adversely impact demand
for consumer products such as certain end products in which our chips are embedded. For example, in the first
quarter of fiscal 2011, we experienced a revenue shortfall due to a sudden decline in consumer demand for tablet
products which incorporate our products. Our TrueTouch™ family of products, which is highly concentrated in
consumer markets, is also susceptible to declines in consumer demand that may arise from adverse economic
conditions. In addition, prices of certain commodities, including oil, metals, grains and other food products, are
volatile and are subject to fluctuations arising from changes in domestic and international supply and demand,
labor costs, competition, market speculation, government regulations and periodic delays in delivery. High or
volatile commodity prices increase the cost of doing business and adversely affect consumers’ discretionary
spending. As a result of the difficulty that businesses (including our customers) may have in obtaining credit, the
increasing and/or volatile costs of commodities and the decreased consumer spending that is the likely result of
the credit market crisis, unemployment and commodities’ price volatility, continued global economic and market
turmoil are likely to have an adverse impact on our business, financial condition, results of operations and cash
flows.
The trading price of our common stock has been and will likely continue to be volatile due to various factors,
some of which are beyond our control, and each of which could adversely affect our stockholders’ value.
The trading price of our common stock has been and will likely continue to be volatile due to various
factors, some of which are beyond our control, including, but not limited to:
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quarterly variations in our results of operations or those of our competitors;
announcements by us or our competitors of acquisitions, new products, significant contracts, design
wins, commercial relationships or capital commitments;
the perceptions of general market conditions in the semiconductor industry and global market
conditions;
our ability to develop and market new and enhanced products on a timely basis;
any major change in our board or management;
changes in governmental regulations or in the status of our regulatory compliance;
recommendations by securities analysts or changes in earnings estimates concerning us or our customers
or competitors;
announcements about our earnings or the earnings of our competitors that are not in line with analyst
expectations;
the volume of short sales, hedging and other derivative transactions on shares of our common stock;
economic conditions and growth expectations in the markets we serve;
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credit conditions; and
changes in our policy regarding dividends or our ability to declare a dividend.
Further,
the stock market
in general, and the market for technology companies in particular, have
experienced extreme price and volume fluctuations. These broad market and industry factors may seriously harm
the market price of our common stock, regardless of our actual operating performance. In the past, following
periods of volatility in the overall market and the market price of a company’s securities, securities class action
litigation has often been instituted against these companies. This litigation, if instituted against us, could result in
substantial costs and a diversion of our management’s attention and resources.
We face significant volatility in supply and demand conditions for our products, and this volatility, as well as
any failure by us to accurately forecast future supply and demand conditions, could materially and negatively
impact our business.
The semiconductor industry has historically been characterized by wide fluctuations in the demand for, and
supply of, semiconductors. Demand for our products depends in large part on the continued growth of various
electronics industries that use our products, including, but not limited to:
computers and computer-related peripherals;
‰ wireless telecommunications equipment;
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networking equipment and
consumer electronics including mobile handsets, tablets, notebook PC’s, automotive electronics and
industrial controls.
Any downturn or reduction in the growth of these industries could seriously harm our business, financial
condition and results of operations. In particular, our TrueTouch™ family of products is highly concentrated in
consumer markets which are susceptible to changes in the general economy.
We order materials and build our products based primarily on our internal forecasts, customer and
distributor forecasts and secondarily on existing orders, which may be cancelled under many circumstances.
Because our markets are volatile and subject to rapid technological and price changes, our forecasts may be
inaccurate, causing us to make too many or too few of certain products.
Also, our customers frequently place orders requesting product delivery almost immediately after the order
is made, which makes forecasting customer demand even more difficult, particularly when supply is abundant. If
we experience inadequate demand or a significant shift in the mix of product orders that makes our existing
capacity and capability inadequate, our fixed costs per semiconductor produced will increase, which will harm
our financial condition and results of operations. Alternatively, if we should experience a sudden increase in
demand, we will need to quickly ramp our inventory and/or manufacturing capacity to adequately respond to our
customers. If we or our manufacturing partners are unable to ramp our inventory or manufacturing capacity in a
timely manner or at all, we risk losing our customers’ business, which could have a negative impact on our
financial performance and reputation.
If we fail to compete successfully in our highly competitive industry and markets, our business, financial
condition and results of operations will be seriously harmed.
The semiconductor industry is intensely competitive. This intense competition results in a difficult operating
environment that is marked by erosion of average selling prices over the life of each product and rapid
technological change resulting in limited product life cycles. In order to offset selling price decreases, we attempt
to decrease the manufacturing costs of our products and to introduce new, higher priced products that incorporate
advanced features. If these efforts are not successful or do not occur in a timely manner, or if our newly
introduced products do not gain market acceptance, our business, financial condition and results of operations
could be seriously harmed.
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Our ability to compete successfully in the rapidly evolving semiconductor technology industry depends on
many factors, including:
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our success in developing and marketing new products, software platforms and manufacturing
technologies and bringing them to market on a timely basis; especially our new touchscreen products
which have been a major source of revenue growth over the last two years;
the quality and price of our products;
the diversity of our product lines;
the cost effectiveness of our design, development, manufacturing, support and marketing efforts,
especially as compared to our competitors;
our customer service and customer satisfaction;
our ability to successfully execute our flexible manufacturing initiative;
the pace at which customers incorporate our products into their systems, as is sometimes evidenced by
design wins;
the number, strength and nature of our competitors, the markets they target and the rate of their
technological advances;
the success of certain of our development activity which is a part of our Emerging Technologies
business segment;
general economic conditions; and
our access to and the availability of working capital.
Although we believe we currently compete effectively in the above areas to the extent they are within our
control, given the pace of change in the industry, our current abilities are not guarantees of future success. If we
are unable to compete successfully in this environment, our business, financial condition and results of
operations will be seriously harmed.
If we fail to develop, introduce and sell new products or fail to develop and implement new technologies, our
financial results could be adversely impacted.
Like many semiconductor companies, which operate in a highly competitive, quickly changing environment
marked by rapid obsolescence of existing products, our future success depends on our ability to develop and
introduce new products that customers choose to buy. Our new products, for example PSoC®3 and 5 and
TrueTouch™ are an important strategic focus for us and therefore, they tend to consume a significant amount of
resources. The new products the market requires tend to be increasingly complex, incorporating more functions
and operating at faster speeds than old products. Increasing complexity generally requires smaller features on a
chip. This makes manufacturing new generation of products substantially more difficult than prior generations.
Despite the significant amount of resources we commit to new products, there can be no guarantee that such
products will perform as expected or at all, be introduced on time to meet customer schedules or gain market
acceptance. If we fail to introduce new product designs in a timely manner or are unable to manufacture products
according to the requirements of these designs, or if our customers do not successfully introduce new systems or
products incorporating our products, or market demand for our new products does not materialize as anticipated,
our business, financial condition and results of operations could be materially harmed.
The complex nature of our manufacturing activities, our broad product portfolio, and our increasing reliance
on third party manufacturers makes us highly susceptible to manufacturing problems and these problems can
have a substantial negative impact on us if they occur.
Making semiconductors is a highly complex and precise process, requiring production in a tightly
controlled, clean environment. Even very small impurities in our manufacturing materials, defects in the masks
used to print circuits on a wafer or other problems in the wafer fabrication process can cause a substantial
percentage of wafers to be rejected or numerous chips on each wafer to be non-functional. We and, similarly, our
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third party foundry partners, may experience problems in achieving an acceptable success rate in the manufacture
of wafers and the likelihood of facing such difficulties is higher in connection with the transition to new
manufacturing methods. The interruption of wafer fabrication or the failure to achieve acceptable manufacturing
yields at any of our facilities, or the facilities of our third-party foundry partners, would seriously harm our
business, financial condition and results of operations. We may also experience manufacturing problems in our
assembly and test operations and in the introduction of new packaging materials.
We are increasingly dependent upon third-parties to manufacture, distribute, generate a significant portion of
our sales, fulfill our customer orders and transport our product. Problems in the performance or availability
of these companies could seriously harm our financial performance.
Although a majority of our products were fabricated in our manufacturing facilities located in Minnesota
and the Philippines, we rely to a significant extent on independent contractors to manufacture our products. We
expect to increase this reliance on third-party manufacturing in the future. For example, in December 2008, we
substantially completed the exit of our manufacturing facility in Texas and transferred certain production to our
more cost-competitive facility in Minnesota and outside foundries. In addition, if market demand for our
products exceeds our internal manufacturing capacity and available capacity from our foundry partners, we may
seek additional foundry manufacturing arrangements.
A shortage in foundry manufacturing capacity, which is more likely to occur at times of increasing demand,
could hinder our ability to meet demand for our products and therefore adversely affect our operating results. In
addition, greater demand for wafers produced by any such foundries without an offsetting increase in foundry
capacity raises the likelihood of potential wafer price increases. Our operations would be disrupted if any of our
foundry partners terminates its relationship with us or has financial issues and we are unable to arrange a
satisfactory alternative to fulfill customer orders on a timely basis and in a cost-effective manner. However, there
are only a few foundry vendors that have the capabilities to manufacture our most advanced products. If we
engage alternative sources of supply, we may encounter start-up difficulties and incur additional costs. Also,
shipments could be delayed significantly while these sources are qualified for volume production. The recent
earthquake and tsunami in Japan and the aftermath have created significant economic uncertainty in that country.
While we do not have significant operations in Japan, certain of our raw materials are sourced there. Based on a
review of our extended semiconductor supply chain, we do not foresee any significant impact in the near term on
our ability to supply product to our customers due to the earthquake in Japan, the floods in Thailand or any other
disasters that could occur in the world. We will continue to monitor these situations and any potential impact on
our business.
While a high percentage of our products are assembled, packaged and tested at our manufacturing facility
located in the Philippines, we rely on independent subcontractors to assemble, package and test the balance of
our products. We cannot be certain that these subcontractors will continue to assemble, package and test products
for us on acceptable economic and quality terms or at all and it might be difficult for us to find alternatives if
they do not do so.
Our channel partners include distributors and resellers. We continue to expand and change our relationships
with our distributors and see an increase in the proportion of our revenues generated from our distributor channel
in the future. Worldwide sales through our distributors accounted for approximately 72% of our net sales in fiscal
year 2011. We rely on many distributors to assist us in creating customer demand, providing technical support
and other value-added services to our customers, filling customer orders and stocking our products. We face
ongoing business risks due to our reliance on our channel partners to create and maintain customer relationships
where we have a limited or no direct relationship. Should our relationships with our channel partners or their
effectiveness decline, we face the risk of declining demand which could affect our results of operations. Our
contracts with our distributor may be terminated by either party upon notice. In addition, our distributors are
located all over the world and are of various sizes and financial conditions. Any disruptions to our distributors’
operations such as lower sales, lower earnings, debt downgrades, the inability to access capital markets and
higher interest rates could have an adverse impact on our business.
22
We also rely on independent carriers and freight haulers to move our products between manufacturing plants
and our customers’ facilities. Transport or delivery problems due to their error or because of unforeseen
interruptions in their business due to factors such as strikes, political instability, terrorism, natural disasters or
accidents could seriously harm our business, financial condition and results of operations and ultimately impact
our relationship with our customers.
We may be unable to protect our intellectual property rights adequately and may face significant expenses as a
result of ongoing or future litigation.
The protection of our intellectual property rights, as well as those of our subsidiaries, is essential to keeping
others from copying the innovations that are central to our existing and future products. It may be possible for an
unauthorized third party to reverse-engineer or decompile our software products. The process of seeking patent
protection can be long and expensive and we cannot be certain that any currently pending or future applications
will actually result in issued patents, or that, even if patents are issued, they will be of sufficient scope or strength
to provide meaningful protection or any commercial advantage to us. Furthermore, our flexible fab initiative
requires us to enter into technology transfer agreements with external partners, providing third party access to our
intellectual property and resulting in additional risk. In some cases, these technology transfer and/or license
agreements are with foreign companies and subject our intellectual property to foreign countries which may
afford less protection and/or result in increased costs to enforce such agreements. We anticipate that we will
continue to enter into these kinds of licensing arrangements in the future. Consequently, we may become
involved in litigation, in the United States or abroad, to enforce our patents or other intellectual property rights,
to protect our trade secrets and know-how, to determine the validity or scope of the proprietary rights of others or
to defend against claims of invalidity. We are also from time to time involved in litigation relating to alleged
infringement by us of others’ patents or other intellectual property rights. Moreover, a key element of our
strategy is to enter new markets with our products. If we are successful in entering these new markets, we will
likely be subject to additional risks of potential infringement claims against us as our technologies are deployed
in new applications and face new competitors. We may be unable to detect the unauthorized use of, or take
appropriate steps to enforce, our intellectual property rights, particularly in certain international markets, making
misappropriation of our intellectual property more likely. Patent litigation, if necessary or if and when instituted
against us, could result in substantial costs and a diversion of our management’s attention and resources.
Other companies or entities also have commenced, and may again commence, actions seeking to establish
the invalidity of our patents. In the event that one or more of our patents are challenged, a court may invalidate
the patent(s) or determine that the patent(s) is not enforceable, which could harm our competitive position. If our
key patents are invalidated, or if the scope of the claims in any of these patents is limited by court decision, we
could be prevented from licensing the invalidated or limited portion of such patents. Such adverse decisions
could negatively impact our revenues.
Intellectual property litigation is frequently expensive to both the winning party and the losing party and
could take up significant amounts of management’s time and attention. In addition, if we lose such a lawsuit, a
court could find that our intellectual property rights are invalid, enabling our competitors to use our technology,
or require us to pay substantial damages and/or royalties or prohibit us from using essential technologies. For
these and other reasons, this type of litigation could seriously harm our business, financial condition and results
of operations. Also, although in certain instances we may seek to obtain a license under a third party’s
intellectual property rights in order to bring an end to certain claims or actions asserted against us, we may not be
able to obtain such a license on reasonable terms or at all. We believe we have meritorious defenses and claims
in our current litigation and we intend to defend and pursue such claims vigorously. Unfortunately, such
litigation and other claims are subject to inherent uncertainties.
We also rely on trade secret protection for our technology, in part through confidentiality and other written
agreements with our employees, consultants and third parties. Through these and other written agreements, we
attempt to control access to and distribution of our intellectual property documentation and other proprietary
technology information. Despite our efforts to protect our proprietary rights, former employees, consultants or
23
third parties may, in an unauthorized manner, attempt to use, copy or otherwise obtain and market or distribute
our intellectual property rights or technology or otherwise develop a product with the same functionality as our
technology. Policing unauthorized use of our intellectual property rights is difficult, and nearly impossible on a
worldwide basis. Therefore, we cannot be certain that the steps we have taken or will take in the future will
prevent misappropriation of our technology or intellectual property rights, particularly in foreign countries where
we do business or where our technology is sold or used, where the laws may not protect proprietary rights as
fully as do the laws of the United States or where the enforcement of such laws is not common or effective.
If credit market conditions do not continue to improve or if they worsen, it could have a material adverse
impact on our investment portfolio.
The ongoing U.S. sub-prime mortgage defaults and the global financial, economic and credit issues have
had a significant impact across various sectors of the financial markets, causing global credit and liquidity issues.
If the global credit market does not continue to improve or if it deteriorates, our investment portfolio may be
impacted and we could determine that some of our investments are impaired. This could materially adversely
impact our results of operations and financial condition.
We face additional problems and uncertainties associated with international operations that could seriously
harm us.
International
revenues historically accounted for a significant portion of our
revenues. Our
manufacturing, assembly, test operations and certain finance operations located in the Philippines, as well as our
international sales offices and design centers, face risks frequently associated with foreign operations including
but not limited to:
total
‰
‰
‰
‰
‰
‰
‰
‰
‰
currency exchange fluctuations;
the devaluation of local currencies;
political instability;
labor issues;
the impact of natural disasters on local infrastructures;
changes in local economic conditions;
import and export controls;
potential shortage of electric power supply; and
changes in tax laws, tariffs and freight rates.
To the extent any such risks materialize, our business, financial condition or results of operations could be
seriously harmed.
We compete with others to attract and retain key personnel, and any loss of, or inability to attract, such
personnel would harm us.
To a greater degree than most non-technology companies, we depend on the efforts and abilities of certain
key members of management and other technical personnel. Our future success depends, in part, upon our ability
to retain such personnel and to attract and retain other highly qualified personnel, particularly product and
process engineers. We compete for these individuals with other companies, academic institutions, government
entities and other organizations. Competition for such personnel is intense and we may not be successful in hiring
or retaining new or existing qualified personnel. Equity awards are critical to our ability to hire and retain such
key personnel. In addition, we may also need to significantly increase our cash based compensation significantly.
Our financial results could be adversely impacted if our Emerging Technologies businesses fail to develop and
successfully bring to market new and proprietary products.
We have made a financial and personnel commitment to our Emerging Technologies businesses. Despite the
significant amount of resources we commit to our Emerging Technologies businesses, there can be no guarantee
24
that such Emerging Technologies businesses will perform as expected or at all, launch new products and
solutions as expected or gain market acceptance. If our Emerging Technologies businesses’ fail to introduce new
product and solutions or successfully develop new technologies, or if our customers do not successfully introduce
new systems or products incorporating the products or solutions offered by our Emerging Technologies
businesses or market demand for the products or solutions offered by our Emerging Technologies businesses do
not materialize as anticipated, our business, financial condition and results of operations could be materially
harmed.
Any guidance that we may provide about our business or expected future results may differ significantly from
actual results.
From time to time we have shared our views in press releases or SEC filings, on public conference calls and
in other contexts about current business conditions and our expectations as to potential future results. Correctly
identifying the key factors affecting business conditions and predicting future events is inherently an uncertain
process especially in these very uncertain economic times. Our analyses and forecasts have in the past and, given
the complexity and volatility of our business, will likely in the future, prove to be incorrect and could be
materially incorrect. We offer no assurance that such predictions or analyses will ultimately be accurate, and
investors should treat any such predictions or analyses with appropriate caution. Any analysis or forecast that we
make which ultimately proves to be inaccurate may adversely affect our stock price.
We are subject to many different environmental, health and safety laws, regulations and directives, and
compliance with them may be costly.
We are subject to many different international, federal, state and local governmental laws and regulations
related to, among other things, the storage, use, discharge and disposal of toxic, volatile or otherwise hazardous
chemicals used in our manufacturing process and the health and safety of our employees. Compliance with these
regulations can be costly. We cannot assure you that we have been, or will be at all times in complete compliance
with such laws and regulations. If we violate or fail to comply with these laws and regulations, we could be fined
or otherwise sanctioned by the regulators. Under certain environmental laws, we could be held responsible,
without regard to fault, for all of the costs relating to any contamination at our or our predecessors’ past or
present facilities and at third party waste disposal sites. We could also be held liable for any and all consequences
arising out of human exposure to such substances or other environmental damage.
Over the last several years,
there has been increased public awareness of the potentially negative
environmental impact of semiconductor manufacturing operations. This attention and other factors may lead to
changes in environmental regulations that could force us to purchase additional equipment or comply with other
potentially costly requirements. If we fail to control the use of, or to adequately restrict the discharge of,
hazardous substances under present or future regulations, we could face substantial liability or suspension of our
manufacturing operations, which could seriously harm our business, financial condition and results of operations.
We face increasing complexity in our product design as we adjust to new and future requirements relating to
the material composition of our products, including the restrictions on lead and other hazardous substances that
apply to specified electronic products put on the market in the European Union (Restriction on the Use of
Hazardous Substances Directive 2002/95/EC, also known as the “RoHS Directive”) and similar legislation in
China and California. Other countries, including at the federal and state levels in the United States, are also
considering laws and regulations similar to the RoHS Directive. Certain electronic products that we maintain in
inventory may be rendered obsolete if they are not in compliance with the RoHS Directive or similar laws and
regulations, which could negatively impact our ability to generate revenue from those products. Our customers
and other companies in the supply chain may require us to certify that our products are RoHS compliant.
Although we cannot predict the ultimate impact of any such new laws and regulations, they will likely result in
additional costs or decreased revenue, and could require that we redesign or change how we manufacture our
products.
25
Business disruptions could seriously harm our future revenue and financial condition and increase our costs
and expenses.
Our worldwide operations could be disrupted by earthquakes, telecommunications failures, power or water
shortages, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics or
pandemics and other natural or man-made disasters or catastrophic events, for which we are predominantly self-
insured. The occurrence of any of these business disruptions could result in significant losses, seriously harm our
revenue and financial condition, adversely affect our competitive position, increase our costs and expenses, and
require substantial expenditures and recovery time in order to fully resume operations. Our corporate
headquarters, and a portion of our research and development activities, are located in California, and other
critical business operations and some of our suppliers are located in California and Asia, near major earthquake
faults known for seismic activity. The manufacture of product components, the final assembly of our products
and other critical operations are concentrated in certain geographic locations, including the Philippines, China
and India. We also rely on major logistics hubs primarily in Asia to manufacture and distribute our products. Our
operations could be adversely affected if manufacturing, logistics or other operations in these locations are
disrupted for any reason, including natural disasters, information technology system failures, military actions or
economic, business, labor, environmental, public health, regulatory or political issues. The ultimate impact on us,
our significant suppliers and our general infrastructure of being located near major earthquake faults and being
consolidated in certain geographical areas is unknown. However in the event of a major earthquake or other
natural disaster or catastrophic event, our revenue, profitability and financial condition could suffer.
In late July 2011, Thailand experienced severe flooding that caused widespread damage to the local
manufacturing industry. We obtain certain components from suppliers with operations in Thailand that were and
continue to be severely impacted by the flooding. If we are unable to support our ongoing demand for these
components, our business, revenues, gross margins and results of operations may be adversely affected.
System security risks, data protection breaches, cyber-attacks and systems integration issues could disrupt our
internal operations, and any such disruption could reduce our expected revenue, increase our expenses,
damage our reputation and adversely affect our stock price.
Experienced computer programmers and hackers may be able to penetrate our network security and
misappropriate or compromise our confidential and proprietary information, create system disruptions or cause
shutdowns. Computer programmers and hackers also may be able to develop and deploy viruses, worms, and
other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of
our products. The costs to us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms,
malicious software programs and security vulnerabilities could be significant, and our efforts to address these
problems may not be successful and could result in interruptions and delays that may impede our sales,
manufacturing, distribution or other critical functions.
We manage and store various proprietary information and sensitive or confidential data relating to our
business on the cloud. Breaches of our security measures or the accidental loss, inadvertent disclosure or
unapproved dissemination of proprietary information or sensitive or confidential data about us, including the
potential loss or disclosure of such information or data as a result of fraud, trickery or other forms of deception,
could expose us to a risk of loss or misuse of this information, result in litigation and potential liability for us,
damage our brand and reputation or otherwise harm our business. In addition,
the cost and operational
consequences of implementing further data protection measures could be significant.
Portions of our IT infrastructure also may experience interruptions, delays or cessations of service or
produce errors in connection with systems integration or migration work that takes place from time to time. We
may not be successful in implementing new systems and transitioning data, which could cause business
disruptions and be more expensive, time consuming, disruptive and resource-intensive. Such disruptions could
adversely impact our ability to fulfill orders and interrupt other processes. Delayed sales, lower margins or lost
customers resulting from these disruptions have adversely affected us in the past, and in the future could
adversely affect, our financial results, stock price and reputation.
26
We maintain self-insurance for certain indemnities we have made to our officers and directors.
Our certificate of incorporation, by-laws and indemnification agreements require us to indemnify our
officers and directors for certain liabilities that may arise in the course of their service to us. We self-insure with
respect to these indemnifiable claims. If we were required to pay a significant amount on account of these
liabilities for which we self-insure, our business, financial condition and results of operations could be seriously
harmed.
We may utilize debt financing and such indebtedness could adversely affect our business, financial condition,
results of operations, earnings per share and our ability to meet our payment obligations.
We routinely incur indebtedness to finance our operations and at times we have had significant amounts of
outstanding indebtedness and substantial debt service requirements. Our ability to meet our payment and other
obligations under our indebtedness depends on our ability to generate significant cash flow. This, to some extent,
is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors
that are beyond our control. There is no assurance that our business will generate cash flow from operations, or
that future borrowings will be available to us under our existing or any amended credit facilities or otherwise, in
an amount sufficient to enable us to meet payment obligations under indebtedness we may under take from time
to time. If we are not able to generate sufficient cash flow to service our debt obligations, we may need to
refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional
capital. If we are unable to implement one or more of these alternatives, we may not be able to meet our payment
obligations under any indebtedness we owe. As of January 1, 2012, our outstanding debt included $15.2 million
capital leases, $14.1 million equipment loans and $16.4 million advances received for the sale of certain of our
auction rate securities. See Note 13 for more information on equipment loans, Note 17 for more information on
capital leases and Note 5 for more information on advances received for the sale of auction rate securities.
Changes in U.S. tax legislation regarding our foreign earnings could materially impact our business.
A majority of our revenue is generated from customers located outside the U.S. and a substantial portion of
our assets, including employees, are located outside the U.S. Foreign withholding taxes and U.S. income taxes
have not been provided on undistributed earnings for certain non-U.S. subsidiaries, because such earnings are
intended to be indefinitely reinvested in the operations of those subsidiaries. In the past, the administration has
considered initiatives which could substantially reduce our ability to defer U.S. taxes including: limitations on
deferral of U.S. taxation of foreign earnings, eliminate utilization or substantially reduce our ability to claim
foreign tax credits, and eliminate various tax deductions until foreign earnings are repatriated to the U.S. If any
of these proposals are constituted into law, they could have a negative impact on our financial position and
results of operations.
We are subject to examination by the U.S. Internal Revenue Service (the “IRS”), and from time to time we are
subject to income tax audits or similar proceedings in other jurisdictions in which we do business, and as a
result we may incur additional costs and expenses or owe additional taxes, interest and penalties which will
negatively impact our operating result.
We are subject to income taxes in the U.S. and certain foreign jurisdictions, and our determination of our tax
liability is subject to review by applicable domestic and foreign tax authorities. The results of these US and
certain foreign jurisdiction examinations may result in a decrease of our current estimate of unrecognized tax
benefits or increase of actual tax liabilities which could negatively impact our financial position, results of
operations and cash flows.
27
The accumulation of changes in our shares by “5-percent stockholders” could trigger an ownership change
for U.S. income tax purposes, in which case our ability to utilize our net operating losses would be limited and
therefore impact our future tax benefits.
Cypress is a publicly traded company whose stockholders can change on a daily basis. These changes are
beyond our control. The U.S. Internal Revenue Code (Section 382) restricts a company’s ability to benefit from
net operating losses if a “Section 382 Ownership Change” occurs. An ownership change for purposes of U.S. tax
law Section 382 may result from ownership changes that increase the aggregate ownership of “5-percent
stockholders,” by more than 50 percentage points over a testing period, generally three years (“Section 382
Ownership Change”). To our knowledge, we have not experienced a Section 382 Ownership Change. We cannot
give any assurance that we will not experience a Section 382 Ownership Change in future years.
Our ability to add or replace distributors is limited.
Our distributors are contracted by us to perform two primary, yet distinct, functions that are difficult to
replace:
‰
‰
distributors provide logistics support, such as order entry, credit, forecasting, inventory management,
and shipment of product, to end customers. The process of integrating systems to allow for electronic
data interchange is complex and can be time consuming.
distributors create demand for our products at the engineering level. This mandates the training of an
extended distributor sales force, as well as hiring and training specialized applications engineers skilled
in promoting and servicing products at the engineering level.
In addition, our distributors’ expertise in the determination and stocking of acceptable inventory levels may
not be easily transferable to a new distributor. Also, end customers may be hesitant to accept the addition or
replacement of a distributor.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our executive offices are located in San Jose, California. The following tables summarize our primary
properties as of the end of fiscal 2011:
Location
Square Footage
Primary Use
Owned:
United States:
San Jose, California
Bloomington, Minnesota
Round Rock, Texas
Lynnwood, Washington
Asia:
Cavite, Philippines
Leased:
Asia:
Bangalore, India
Shanghai, China
171,000
337,000
100,000
67,000
Administrative offices, research and development
Manufacturing, research and development
Property held for sale
Administrative offices, research and development
221,000
Manufacturing, research and development
170,000
29,000
Research and development
Research and development
The manufacturing facility located in Round Rock, Texas ceased operations in fiscal 2008. The net book
value of the remaining restructured assets that were classified as held for sale and included in “Other current
assets” in the Consolidated Balance Sheets was $6.9 million as of January 1, 2012 and January 2, 2011. We
28
expect to sell the facility within the next twelve months; however, there can be no assurance of this and our
ability to complete the sale of any restructured assets may be impacted by economic and credit conditions. We
continue to incur expenses related to ongoing maintenance and upkeep of the Texas facility until we complete the
sale of the property.
In the middle of fiscal 2011, one of our buildings consisting of 62,688 square feet located in San Jose,
California was vacated and we began to market it for sale or lease. In the fourth quarter of fiscal 2011, we
completed the sale of this building to a third party for approximately $5.1 million. Refer to Note 6 for more
information on this transaction.
In April 2011, we sold a building located in San Jose, California consisting of 75,732 square feet to a
charitable organization for $4.0 million in exchange for a promissory note. Refer to Note 17 for more
information on this transaction.
We have additional leases for sales offices and design centers located in the United States, Asia and Europe.
We believe that our current properties are suitable and adequate for our foreseeable needs. We may need to exit
facilities as we continue to evaluate our business model and cost structure.
ITEM 3.
LEGAL PROCEEDINGS
Information with respect to this item may be found in Note 17 of Notes to Consolidated Financial
Statements in Item 8, which is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
29
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information, Holders of Common Equity, Dividends and Performance Graph
Effective November 12, 2009, our common stock is listed on the NASDAQ Global Select Market under the
trading symbol “CY.” Prior to November 12, 2009, our common stock was listed on the New York Stock
Exchange. The following table sets forth the high and low per share prices for our common stock:
Fiscal 2011:
Fourth quarter
Third quarter
Second quarter
First quarter
Fiscal 2010:
Fourth quarter
Third quarter
Second quarter
First quarter
Fiscal 2009:
Fourth quarter
Third quarter
Second quarter
First quarter
Low
High
$
$
$
$
$
$
$
$
$
$
$
$
13.99
14.87
17.83
17.94
12.39
9.94
10.03
10.05
8.43
8.61
6.74
3.87
$
$
$
$
$
$
$
$
$
$
$
$
20.25
23.19
23.17
23.38
18.58
13.14
13.62
12.43
10.79
11.27
9.33
6.94
As of February 15, 2012, there were approximately 1,535 registered holders of record of our common stock.
Dividends
We initiated our first ever dividend program in the second quarter of fiscal 2011 and our Board declared
cash dividends of $0.09 per share payable in the third and fourth quarters of fiscal 2011. Total cash dividends
paid in fiscal 2011 were approximately $29.0 million. On December 8, 2011, our Board declared a cash dividend
of $0.09 per share payable to holders of record of our common stock at the close of business day on January 5,
2012. This cash dividend was paid on January 19, 2012 and totaled approximately $13.8 million. No cash
dividends were declared and paid in fiscal 2010 and 2009.
30
The following line graph compares the yearly percentage change in the cumulative total stockholder return
on our common stock against the cumulative total return of the Standard and Poor (“S&P”) 500 Index and the
S&P Semiconductors Index for the last five fiscal years:
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Cypress Semiconductor Corporation, the S&P 500 Index, and the S&P
Semiconductors Index
$800
$700
$600
$500
$400
$300
$200
$100
$0
December 31, 2006
December 30, 2007
December 28, 2008
January 3, 2010
January 2, 2011
January 1, 2012
Cypress Semiconductor Corporation
S&P 500
S&P Semiconductors
* $100 invested on 12/31/06 in stock or index, including reinvestment of dividends.
Indexes calculated on month-end basis.
Cypress**
S&P 500 Index
S&P Semiconductors Index
December 30,
2007
December 28,
2008
January 3,
2010
January 2,
2011
January 1,
2012
$
$
$
218
105
112
$
$
$
149
66
61
$
$
$
393
84
98
$
$
$
692
97
109
$
$
$
636
99
111
** All closing prices underlying this table have been adjusted for cash dividends, stock splits and stock
dividends including the SunPower spin.
Securities Authorized for Issuance under Equity Compensation Plans
Equity Compensation Plan Information:
The following table summarizes certain information with respect to our common stock that may be issued
under the existing equity compensation plans as of January 1, 2012:
Plan Category
Equity compensation plans approved by
shareholders
Equity compensation plans not approved by
shareholders
Total
Number of Securities
to be Issued Upon Exercise
of Outstanding Options
(a)
Weighted-Average
Exercise Price of
Outstanding Options
(b)
Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans (Excluding Securities
Reflected in Column (a))
(c)
(In thousands, except per-share amounts)
25,000 (1)
7,300
32,300
$
$
$
6.75 (3)
5.91
6.49 (3)
26,900 (2)
—
26,900
(1)
Includes 9.0 million shares of restricted stock units and restricted stock awards granted.
31
(2)
Includes 23.9 million shares available for future issuance under Cypress’s 1994 Amended Stock Option
Plan. In addition, the amount includes 3.0 million shares available for future issuance under Cypress’s
Employee Stock Purchase Plan.
(3) Excludes the impact of 9.0 million shares of restricted stock units and restricted stock which have no
exercise price.
See Note 7 of Notes to Consolidated Financial Statements under Item 8 for further discussion of Cypress’s
stock plans.
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Stock Buyback Programs:
$400 Million Program Authorized in Fiscal 2011
On September 20, 2011, our Board of Directors (the “Board”) authorized a new $400.0 million stock
buyback program. The program allows us to purchase our common stock or enter into equity derivative
transactions related to our common stock. The timing and actual amount expended with the new authorized funds
will depend on a variety of factors including the market price of our common stock, regulatory, legal, and
contractual requirements, and other market factors. The program does not obligate us to repurchase any particular
amount of common stock and may be modified or suspended at any time at the discretion of our Board.
The table below sets forth information with respect to repurchases of our common stock made during fiscal
2011 under this program:
Total Number
of Shares
Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced
Programs
Total Dollar
Value of Shares
That May Yet Be
Purchased Under the
Plans or Programs
(In thousands, except per-share amounts)
$
—
—
15.57
14.29
18.92
16.42
15.77
1,125
1,257
139
2,540
5,061
$
$
$
$
$
400,000
382,489
364,530
361,888
320,189
320,189
Authorized fund under this program
Repurchases in fiscal 2011:
August 29, 2011—October 2, 2011
October 3, 2011—October 30, 2011
October 31, 2011—November 27, 2011
November 28, 2011—January 1, 2012
Total repurchases in fiscal 2011
—
$
1,125
1,257
139
2,540
5,061
32
$600 Million Program Authorized in Fiscal 2010
The $600.0 million stock buyback program authorized by our Board in October 2010 was completed in the
third quarter of fiscal 2011. The following table sets forth information with respect to repurchases of our
common stock made during fiscal 2011 and 2010 under this program:
Total Number
of Shares
Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced
Programs
Total Dollar
Value of Shares
That May Yet Be
Purchased Under the
Plans or Programs
Authorized fund under this program
—
$
(In thousands, except per-share amounts)
$
—
—
Repurchases in fiscal 2010:
Stock repurchases:
October 4, 2010—October 31, 2010
November 1, 2010—November 28, 2010
November 29, 2010—January 2, 2011
Total repurchases in fiscal 2010
Repurchases in fiscal 2011:
Stock repurchases:
January 3, 2011—January 30, 2011
January 31, 2011—February 27, 2011
February 28, 2011—April 3, 2011
April 4, 2011—May 1, 2011
May 30, 2011—July 3, 2011
July 4, 2011—July 31, 2011
August 1, 2011—August 28, 2011
August 29, 2011—October 2, 2011
Total
Yield enhancement structured
agreements settled in stock
February 28, 2011—April 3, 2011
April 4, 2011—May 1, 2011
August 29, 2011—October 2, 2011
Total
Total repurchases in fiscal 2011
Total repurchases under this program
16
457
1,229
1,702
1,411
2,464
1,981
102
1,215
7
13,341
914
21,435
2,500
4,000
3,000
9,500
30,935
32,637
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
13.13
14.95
17.91
17.07
18.56
21.19
19.52
17.91
19.72
21.68
17.42
16.22
18.21
20.99
18.84
17.60
19.01
18.46
18.38
16
457
1,229
1,702
1,411
2,464
1,981
102
1,215
7
13,341
914
21,435
2,500
4,000
3,000
9,500
30,935
32,637
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
600,000
599,794
592,958
570,946
570,946
544,748
492,530
453,857
452,033
428,063
427,924
195,469
180,635
180,635
128,152
52,802
—
—
—
—
$600 Million Program Authorized in Fiscal 2008
In fiscal 2008, our Board approved up to a total of $600.0 million that may be used for stock purchases
under the stock repurchase program. During fiscal 2008, we used $375.6 million in cash to repurchase a total of
approximately 37.1 million shares at an average share price of $10.13. During fiscal 2009, we used $46.3 million
to repurchase approximately 5.8 million shares at an average share price of $8.00. On October 28, 2009, the
Audit Committee of the Board voted to rescind the remaining $178.1 million available under the program for
additional repurchases.
Yield Enhancement Program (“YEP”):
In fiscal 2009, the Audit Committee approved a yield enhancement strategy intended to improve the yield
on our available cash. As part of this program, the Audit Committee authorized us to enter into short-term yield
33
enhanced structured agreements, typically with maturities of 90 days or less, correlated to our stock price. Under
the agreements we have entered into to date, we pay a fixed sum of cash upon execution of an agreement in
exchange for the financial institution’s obligations to pay either a pre-determined amount of cash or shares of our
common stock depending on the closing market price of our common stock on the expiration date of the
agreement. Upon expiration of each agreement, if the closing market price of our common stock is above the
pre-determined price, we will have our cash investment returned plus a yield substantially above the yield
currently available for short-term cash investments. If the closing market price is at or below the pre-determined
price, we will receive the number of shares specified at the agreement’s inception. As the outcome of these
arrangements is based entirely on our stock price and does not require us to deliver either shares or cash, other
than the original investment, the entire transaction is recorded in equity. The shares received upon the maturing
of a yield enhancement structure are included in our “shares of common stock held in treasury” in the
Consolidated Balance Sheets under Item 8.
We have entered into various yield enhanced structured agreements based upon a comparison of the yields
available in the financial markets for similar maturities against the expected yield to be realized per the structured
agreement and the related risks associated with this type of arrangement. We believe the risk associated with
these types of agreements is no different than alternative investments available to us with equivalent counterparty
credit ratings. All counterparties to a yield enhancement program have a credit rating of at least Aa2 or A as rated
by major independent rating agencies. For all such agreements that matured to date, the yields of the structured
agreements were far superior to the yields available in the financial markets primarily due to the volatility of our
stock price and the pre-payment aspect of the agreements. The counterparty is willing to pay a premium over the
yields available in the financial markets due to the structure of the agreement.
The following table summarizes the activity of our settled yield enhanced structured agreements during
fiscal 2011, 2010 and 2009:
Periods
Fiscal 2011:
Settled through cash
proceeds (1)
Settled through issuance of
common stock (2)
Total for fiscal 2011
Fiscal 2010:
Settled through cash
proceeds
Settled through issuance of
common stock
Total for fiscal 2010
Fiscal 2009:
Settled through cash
proceeds
Total for fiscal 2009
Aggregate Price
Paid
Total Cash Proceeds
Received Upon
Maturity
Yield Realized
Total Number of
Shares
Received Upon
Maturity
Average Price Paid
per Share
(In thousands, except per-share amounts)
$
$
$
$
$
137,798
180,636
318,434
207,882
114,917
322,799
68,017
68,017
$
$
$
$
$
$
143,798
—
143,798
217,489
—
217,489
69,065
69,065
$
$
$
$
$
$
6,000
—
6,000
9,607
—
9,607
1,048
1,048
—
9,500
9,500
—
10,000
10,000
—
—
$
$
$
$
$
$
$
$
—
19.01
19.01
—
11.49
11.49
—
—
(1) This includes a YEP agreement entered into in fiscal 2010 for an aggregate price of approximately $43.9
million which remained unsettled as of the end of fiscal 2010. Such agreement was subsequently settled in
the first quarter of fiscal 2011 for approximately $47.0 million.
Included as part of the $600 million stock buyback program authorized in fiscal 2010.
(2)
34
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data is not necessarily indicative of results of future
operations, and should be read in conjunction with Management’s Discussion and Analysis of Financial
Condition and Results of Operations under Item 7, and the Consolidated Financial Statements and Notes to
Consolidated Financial Statements under Item 8:
Year Ended
January 1,
2012
January 2,
2011
January 3,
2010
December 28,
2008 (1)(2)(3)
December 30,
2007 (1)(2)(3)
(In thousands, except per-share amounts)
Consolidated Statement of Operations Data:
Revenues
Cost of revenues
Operating income (loss)
Gain on sale of SunPower common stock
Income (loss) from continuing operations
$ 995,204
$ 448,602
$ 153,719
$
$
$
$
— $
$
877,532 $ 667,786
388,359 $ 397,204
$
87,864 $ (149,255) $
— $
— $
765,716
426,284
(471,433)
192,048
attributable to Cypress
$ 167,839
$
75,742 $ (150,424) $
(319,262)
Income from discontinued operations attributable to
Cypress
Income from discontinued operations—
noncontrolling interest, net of taxes
Noncontrolling interest, net of income taxes
Net income (loss)
Adjust for net loss (income) attributable to
noncontrolling interest
Net income (loss) attributable to Cypress
Net income (loss) per share—basic:
Continuing operations attributable to Cypress
Discontinued operations attributable to Cypress
Net income (loss) per share—basic
Net income (loss) per share—diluted:
Continuing operations attributable to Cypress
Discontinued operations attributable to Cypress
Net income (loss) per share—diluted
Dividends per share:
Declared
Paid
Shares used in per-share calculation:
Basic
Diluted
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments
Working capital
Total assets
Debt (4)
Stockholders’ equity
Total assets of discontinued operations
Total liabilities of discontinued operations
$
$
$
— $
— $
— $
34,386
— $
(882) $
— $
(866) $
— $
(946) $
34,154
(311)
$ 166,957
$
882
$ 167,839
$
$
$
$
$
$
1.02
—
1.02
0.90
—
0.90
0.27
0.18
$
$
$
$
$
$
$
$
$
74,876 $ (151,370) $
(251,033)
866 $
946
$
(33,843)
75,742 $ (150,424) $
(284,876)
0.47 $
—
0.47 $
0.40 $
—
0.40 $
(1.03) $
—
(1.03) $
(1.03) $
—
(1.03) $
— $
— $
— $
— $
(2.12)
0.23
(1.89)
(2.12)
0.23
(1.89)
—
—
164,495
186,895
161,114
191,377
145,611
145,611
150,447
150,447
As of
January 1,
2012
January 2,
2011
January 3,
2010
December 28,
2008 (2)
(In thousands)
$ 166,330
$
79,190
$ 810,090
$
45,767
$ 397,842
$
$
434,261 $ 299,642
$
$
383,369 $ 279,643
$ 1,072,801 $ 912,508
$
— $
$
— $
— $
$
$
$
— $
$
— $
— $
702,893 $ 630,384
— $
— $
237,792
241,370
928,732
27,023
638,427
—
—
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
821,597
448,847
6,433
373,173
366,862
16,057
12,681
(19)
395,581
(12,662)
382,919
2.36
0.10
2.46
2.13
0.10
2.23
—
—
155,559
171,836
December 30,
2007 (1)(2)(3)
1,035,738
618,012
3,744,352
549,517
1,817,274
1,666,339
721,155
(1) Our historical consolidated financial statements for fiscal 2008 and 2007 had been recast to account for SunPower as discontinued
operations in those fiscal years. Accordingly, we reflected the results of operations of SunPower prior to the Spin-Off as discontinued
operations in the Consolidated Statements of Operations Data. The assets, liabilities and noncontrolling interest related to SunPower
were reclassified and reflected as discontinued operations in the Consolidated Balance Sheet Data. The Spin-Off of SunPower was
approved and completed in fiscal 2008.
35
(2) During the third quarter of fiscal year 2009, we identified historically immaterial errors related to the value of our raw material
inventory balances located in the Philippines. We assessed the materiality of these errors on prior period financial statements and
concluded that the errors were not material to any prior annual or interim periods but the cumulative error would be material in
the third quarter of fiscal 2009, if the entire correction was recorded in the third quarter. Accordingly, we revised certain prior
year amounts and balances to allow for the correct recording of these transactions. The loss from operations for fiscal 2008
increased by $1.6 million and the income from operations for fiscal 2007 decreased by approximately $3.0 million as a result of
the inventory error corrections in those periods. Inventory balances as of the end of fiscal 2008 and 2007 included adjustments
related to the previously mentioned inventory error corrections that decreased the balances by approximately $7.0 million and
$5.5 million, respectively. The balances of accumulated deficit as of the end of fiscal 2008 and 2007 were appropriately adjusted
for the same amounts of inventory correction adjustments in those fiscal years.
(3) Effective January 1, 2009, we adopted the new accounting guidance on convertible debt instruments that have a “net settlement
feature,” which means instruments that by their terms may be settled either wholly or partially in cash upon conversion. Under
the guidance, the liability and equity components of convertible debt instruments that may be settled wholly or partially in cash
upon conversion must be accounted for separately in a manner reflective of our nonconvertible debt borrowing rate. Since our
1.00% Notes and our 1.25% convertible subordinated notes (“1.25% Notes” were issued in 2003 and redeemed in February
2007), had an equity component that could be settled in cash or equity, both debt instruments qualified for this treatment.
The cumulative effect as of December 29, 2008 (the first day of fiscal 2009) of the change in accounting principle was a
decrease to convertible debt of approximately $1.0 million for the discount on the 1.00% Notes, a decrease to additional paid-in
capital of approximately $43.4 million, a decrease to accumulated deficit of approximately $44.5 million and an increase to debt
issuance cost of approximately $0.1 million. Our adoption of the new guidance resulted in higher interest and other income of
$144.4 million in fiscal 2008. Fiscal year 2007 included the impact of the retrospective application of the new accounting
guidance relating to debt which decreased total assets by $6.4 million and convertible notes by $50.5 million and increase
stockholders’ equity by $46.0 million.
(4) The debt in fiscal year 2011 included $15.2 million capital leases, $14.1 million equipment loans and $16.4 million advances
received for the sale of certain of our auction rate securities (all balances include both short-term and long-term portions). See
Note 13 for more information on equipment loans, Note 17 for more information on capital leases and Note 4 for more
information on advances received for the sale of auction rate securities.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Management’s Discussion and Analysis of Financial Condition and Results of Operations contain
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties, which are
discussed under Item 1A.
EXECUTIVE SUMMARY
General
Cypress Semiconductor Corporation (“Cypress”) delivers high-performance, mixed-signal, programmable
solutions that provide customers with rapid time-to-market and exceptional system value. Our offerings include
the flagship Programmable System-on-Chip (“PSoC®”) families and derivatives such as CapSense touch sensing
and TrueTouchTM solutions for touchscreens. We are the world leader in universal serial bus (“USB”) controllers,
including the high-performance West Bridge solution that enhances connectivity and performance in multimedia
handsets. We are also a leader in high-performance memories and programmable timing devices. We serve
numerous markets including consumer, mobile handsets, computation, data communications, automotive,
industrial and military.
36
As of the end of fiscal 2011, our organization included the following business segments:
Business Segments
Description
Consumer and Computation Division
Data Communications Division
Memory Products Division
Emerging Technologies and Other
A product division focusing on PSoC®,
touchscreen solutions, USB and timing solutions.
touch-sensing and
A product division focusing on West Bridge peripheral controllers for
handsets, dual port interconnects for networking applications and
legacy switches, cable drivers and equalizers for the professional
video market.
A product division focusing on static random access memories and
nonvolatile memories.
Inc. and Deca
Includes Cypress Envirosystems, AgigA Tech,
Technologies, Inc. all majority-owned subsidiaries of Cypress, the
Optical Navigation Systems (“ONS”) business unit, China business
unit, foundry-related services, other development stage activities and
certain corporate expenses.
Sale of Image Sensors Product Family
As part of Cypress’s continued efforts to focus on programmable products including our flagship PSoC®
programmable system-on-chip solution and our TrueTouchTM touch-sensing controllers, we divested our image
sensors product family by selling it
to ON Semiconductor Corporation (“ON”) on February 27, 2011.
Accordingly, the name of our Memory and Image Sensor Division was changed to Memory Products Division
(“MPD”) to reflect the change in our business. For additional information on the sale of Image Sensors Product
Family, refer to Note 2 of Notes to Consolidated Financial Statements under Item 8.
Manufacturing Strategy
Our core manufacturing strategy—“flexible manufacturing”—combines capacity from foundries with
output from our internal manufacturing facilities. This initiative is intended to allow us to meet rapid swings in
customer demand while lessening the burden of high fixed costs, a capability that is particularly important in
high-volume consumer markets that we serve with our leading programmable product portfolio.
Consistent with this strategy, our Board approved a plan in December 2007 to exit our manufacturing
facility in Texas and transfer production to our more cost-competitive facility in Minnesota and outside
foundries. We substantially completed our exit plan by the end of fiscal 2008. We continued to hold the property
for sale as of January 1, 2012.
RESULTS OF OPERATIONS
Revenues
Consumer and Computation Division
Memory Products Division
Data Communications Division
Emerging Technologies and Other
Total revenues
January 1,
2012
$
$
511,677
352,118
100,008
31,401
995,204
Year Ended
January 2,
2011
(In thousands)
343,226
$
405,844
110,647
17,815
877,532
$
January 3,
2010
$
$
274,861
288,246
96,568
8,111
667,786
37
We sold our image sensors product family in early 2011. The revenue pertaining to our image sensors
product family for fiscal 2011, 2010 and 2009 included in the Memory Products Division segment in the table
above amounted to $7.6 million, $31.4 million and $24.9 million, respectively. For additional information on the
sale of Image Sensors Product Family, refer to Note 2 of Notes to Consolidated Financial Statements under
Item 8.
Consumer and Computation Division:
Revenues from the Consumer and Computation Division increased by $168.5 million in fiscal 2011, or
approximately 49.1%, compared to fiscal 2010. The increase was primarily driven by the increase in sales in our
PSoC® family of products mainly due to much higher demand in our capacitive touchscreen applications in
mobile devices and in tablets. Our PSoC® product families, including our touchscreen family, continued to gain
new design wins, expanded our customer base and increased market penetration in a variety of end-market
applications including mobile handsets, tablet computers, cameras, global positioning system devices “GPS” and
other products.
Revenues from the Consumer and Computation Division increased by $68.4 million in fiscal 2010, or
approximately 24.9%, compared to fiscal 2009. The increase was primarily attributable to an increase of
approximately $52 million in sales of our PSoC® product families mainly due to higher demand, continued gains
in new design wins, expansion of our customer base and increased market penetration in our capacitive and
touchscreen applications in consumer devices. The increase was also attributable to the economic recovery
experienced in fiscal 2010 compared to the market downturn in fiscal 2009.
Memory Products Division:
Revenues from the Memory Products Division decreased by $53.7 million in fiscal 2011, or approximately
13.2%, compared to fiscal 2010. The revenue decrease was primarily due to the decrease in sales of our SRAM
products driven by decreased demand from wireless and wireline end customers and due to the sale of our image
sensor business unit during the first quarter of fiscal 2011 which accounted for a decrease of $23.8 million in
revenue in fiscal 2011 compared to fiscal 2010.
Revenues from the Memory Products Division increased by $117.6 million in fiscal 2010, or approximately
40.8%, compared to fiscal 2009. The revenue increase was primarily attributable to increases of approximately
$97.4 million in sales of our SRAM products driven by increased market share, higher demand from wireless and
wireline end customers and the economic recovery experienced in fiscal 2010 compared to the market downturn
in fiscal 2009. This increase was reduced by a one time revenue offset of $6.3 million for the settlement of our
SRAM anti-trust lawsuit.
Data Communications Division:
Revenues from the Data Communications Division decreased by $10.6 million in fiscal 2011, or
approximately 9.6%, compared to fiscal 2010. The decrease in revenue was primarily attributable to a decrease in
sales of our communications products.
Revenues from the Data Communications Division increased by $14.1 million in fiscal 2010, or
approximately 14.6%, compared to fiscal 2009. The increase was primarily attributable to an increase of
approximately $22.7 million in sales of our communications products due to higher market demand, increased
military shipments and the economic recovery experienced in fiscal 2010 compared to the market downturn in
fiscal 2009. This increase was partially offset by a decrease of $10.4 million in sales of our West Bridge
controllers and other products resulting from lowered demand and shipments to a major cell phone manufacturer.
38
Emerging Technologies and Other:
Revenues from Emerging Technologies and Other
increased by $13.6 million in fiscal 2011, or
approximately 76.3%, compared to fiscal 2010. The revenue increase was primarily attributable to an overall
increase in demand as certain of our Emerging Technologies divisions, mainly driven by our Optical Finger
Navigation products for mobile devices, were beginning initial production ramps.
Revenues from Emerging Technologies and Other
increased by $9.7 million in fiscal 2010, or
approximately 119.6%, compared to fiscal 2009. The revenue increase was primarily attributable to an overall
increase in demand as certain of our Emerging Technologies divisions are beginning initial production ramps.
Cost of Revenues/Gross Margin
Cost of revenues
Gross margin percentage
January 1,
2012
$
448,602
Year Ended
January 2,
2011
(In thousands)
388,359
$
January 3,
2010
$
397,204
54.9%
55.7%
40.5%
Gross margin percentage declined slightly to 54.9% in fiscal 2011 from 55.7% in fiscal 2010 primarily due
to product mix.
The increase in the gross margin in fiscal 2010 compared to fiscal 2009 was primarily due to favorable
product mix,
increased factory utilization and higher absorption of fixed costs, resulting from increased
production and a 24.0% increase in sales. In addition, stock-based compensation expense allocated to cost of
revenues decreased by $18.1 million mainly due to lower amortization of the remaining modification charge
recorded in connection with the Spin-Off in fiscal 2008.
Research and Development (“R&D”)
R&D expenses
As a percentage of revenues
January 1,
2012
$
189,970
Year Ended
January 2,
2011
(In thousands)
176,816
$
January 3,
2010
$
181,189
19.1%
20.1%
27.1%
R&D expenditures increased by $13.2 million in fiscal 2011, or approximately 7.4%, compared to fiscal
2010. The increase was primarily attributable to a $3.5 million increase in labor primarily driven by our new
emerging technology division, Deca Technologies, Inc., a $2.8 million increase in stock-based compensation
expense, $2.4 million increase in manufacturing supplies, approximately $3.0 million increase in R&D
professional engineering services and approximately $1.5 million net increase in other miscellaneous R&D
expenses.
R&D expenditures decreased by $4.4 million in fiscal 2010 compared to fiscal 2009. The decrease was
primarily attributable to a $15.1 million reduction in stock-based compensation expense mainly due to lower
amortization of the remaining modification charge recorded in connection with the Spin-Off which occurred in
fiscal 2008. This decrease was offset by an increase of $5.9 million in certain bonus programs which paid out at
higher levels as profitability increased in fiscal 2011 and a $4.0 million increase in labor costs due to a
combination of a mandatory three week shutdown and a temporary salary reduction in fiscal 2010.
39
Selling, General and Administrative (“SG&A”)
SG&A expenses
As a percentage of revenues
January 1,
2012
$
227,976
Year Ended
January 2,
2011
(In thousands)
218,490
$
January 3,
2010
$
219,602
22.9%
24.9%
32.9%
SG&A expenses increased by $9.5 million in fiscal 2011, or approximately 4.3%, compared to fiscal 2010.
The increase was primarily attributable to a $5.6 million increase in stock-based compensation expense, which
was driven mainly by a higher average stock price, a $2.0 million impairment charge we recognized in the third
quarter of fiscal 2011 related to a building which we sold in the fourth quarter of fiscal 2011, $1.4 million
increase in facilities expenses and a $0.5 million increase in labor costs.
SG&A expenses decreased by $1.1 million in fiscal 2010 compared to fiscal 2009. The decrease was
primarily attributable to a $16.3 million reduction in stock-based compensation expense mainly due to lower
amortization of the remaining modification charge recorded in connection with the Spin-Off which occurred in
fiscal 2008 This decrease was offset by an increase of $5.3 million in sales commissions due to higher revenues,
a $4.9 million charge taken to write down a building to fair value that was vacated in the fourth quarter of fiscal
2010, a $3.1 million increase in legal expense primarily related to the SRAM litigation and $2.9 million increase
for certain bonus programs which paid out at higher levels in 2010 due to increased profitability.
Restructuring
We recorded restructuring charges of $6.3 million, $3.0 million and $15.2 million during fiscal 2011, 2010
and 2009, respectively. The determination of when we accrue for severance costs, and which accounting standard
applies, depends on whether the termination benefits are provided under a one-time benefit arrangement or under
an on-going benefit arrangement. The $6.3 million restructuring costs recognized in fiscal 2011 consisted
primarily of personnel costs and was mainly due to the restructuring program announced in fiscal 2011. The $3.0
million restructuring cost recognized in fiscal 2010 was also primarily personnel costs and was due to the
restructuring program announced in fiscal 2010. The $15.2 million restructuring cost recognized in fiscal 2009
consisted primarily of personnel costs and was due to the restructuring programs announced in fiscal 2009 and
2008. Refer to Note 9 of Notes to Consolidated Financial Statements under Item 8 for more detailed discussions
on our restructuring programs for fiscal 2011, 2010 and 2009.
Assets Held for Sale:
Texas Facility
The Texas facility ceased operations in the fourth quarter of fiscal 2008. As management has committed to a
plan to sell the assets associated with the facility, we have classified the assets as held for sale and recorded the
assets at the lower of their carrying amount or estimated fair value less cost to sell. Fair value was determined by
an analysis of market prices for similar assets. Due to the downturn and uncertainty in the commercial real estate
market, we were unable to secure a buyer for the Texas facility. In fiscal 2010, we recorded a write-down of $1.5
million related to the assets. No write-down was recognized in fiscal 2011 and 2009. The net book value of the
remaining restructured assets that were classified as held for sale and included in “Other current assets” in the
Consolidated Balance Sheet was $6.9 million as of January 1, 2012 and January 2, 2011. Refer to Note 6 of
Notes to Consolidated Financial Statements under Item 8 for more information on our assets held for sale.
Gain on Divestitures
As part of Cypress’s continued efforts to focus on programmable products including our flagship PSoC®
programmable system-on-chip solutions and our TrueTouch™ touch-sensing controllers, we divested our image
40
sensors product families and sold them to ON for a total cash consideration of $34.0 million. In connection with
the divestiture, we recorded a gain of $34.3 million. We transferred approximately 80 employees to ON as part of
this divestiture. Refer to Note 2 of Notes to Consolidated Financial Statements under Item 8 for more information
on this transaction.
We did not have any divestitures during fiscal 2010 and 2009.
Interest and Other Income, Net
The following table summarizes the components of interest and other income, net:
Interest income
Changes in fair value of investments under the deferred compensation
plan (see Note 15)
Impairment of investments (see Note 4)
Foreign currency exchange gains (losses), net
Gain on sale of equity investments (see Note 4)
Others
January 1,
2012
$
1,466
Year Ended
January 2,
2011
(In thousands)
2,515
$
January 3,
2010
$
2,101
(862)
(800)
212
—
1,843
2,653
—
(2,452)
3,628
(42)
5,150
(2,549)
(22)
—
(941)
Total interest and other income, net
$
1,859
$
6,302
$
3,739
Employee Deferred Compensation Plan
We have a deferred compensation plan, which provides certain key employees, including our executive
management, with the ability to defer the receipt of compensation in order to accumulate funds for retirements on
a tax-free basis. We do not make contributions to the deferred compensation plan and we do not guarantee
returns on the investments. Participant deferrals and investment gains and losses remain as our liabilities and the
underlying assets are subject to claims of general creditors. In fiscal 2011, 2010 and 2009, we recognized
changes in fair value of the assets under the deferred compensation plan in “Interest and other income, net” of
approximately $(0.9) million, $2.7 million and $5.2 million, respectively. The increase or decrease in the fair
value of the investments relates to the increased or decreased performance of the portfolio on a year over year
basis. Refer to Note 15 of Notes to Consolidated Financial Statements under Item 8 for more information about
our deferred compensation plan.
Impairment of Investments
We review our investments periodically for impairment and recognize an impairment loss when the carrying
value of an investment exceeds its fair value and the decline in value is considered other-than-temporary. In
fiscal 2011 and 2009, we recognized impairment charges totaling approximately $0.8 million and $2.5 million,
respectively. The impairment recognized in fiscal 2011 was related to the decline in value of our investments in
non-marketable equity securities which was considered other-than-temporary and the impairment recognized in
fiscal 2009 was primarily related to our investments in auction rate securities ($1.4 million) and non-marketable
equity securities ($0.8 million). No impairment charges on our investments were recognized in fiscal 2010.
For more information about our investments, refer to Note 4 of Notes to Consolidated Financial Statements
under Item 8.
Gain on Sale of Investments in Marketable Equity Securities
During fiscal 2010, we sold our equity investment in one publicly traded company for $4.7 million and
recognized a gain of $3.6 million in “Interest and other income, net”. There were no investments in marketable
equity securities that were sold in fiscal 2011 and 2009.
41
Income Taxes
Our income tax benefit was $11.4 million in fiscal 2011, and our tax expense was $19.3 million and $5.9
million in fiscal 2010 and fiscal 2009, respectively. The tax benefit in fiscal 2011 was primarily attributable to a
release of previously accrued taxes of approximately $22.4 million, partially offset by income taxes associated
with our non-U.S. operations. The tax expense in fiscal 2010 and 2009 was primarily attributable to income taxes
associated with our non-U.S. operations.
Our effective tax rate varies from the U.S. statutory rate primarily due to earnings of foreign subsidiaries
taxed at different rates and a full valuation allowance on net operating losses incurred in the U.S. The calculation
of tax liabilities involves dealing with uncertainties in the application of complex global tax regulations. We
regularly assess our tax positions in light of legislative, bilateral tax treaty, regulatory and judicial developments
in the many countries in which we and our affiliates do business.
The IRS has completed its examination of fiscal years 2006-2008. The examination resulted in no material
adjustments to our tax liabilities. In addition, non-U.S.
tax authorities have completed their income tax
examinations of our subsidiary in India for fiscal years 2002-2006 and our subsidiary in the Philippines for 2007.
The proposed adjustments in India have been appealed, and we believe the ultimate outcome of these appeals
will not result in a material adjustment to our tax liability. The Philippines examination for 2007 resulted in no
material adjustments to our tax liabilities. Income tax examinations of our Philippine subsidiary for the 2008
-2010 fiscal years and our India subsidiary for the 2007-2008 fiscal years are in progress. We believe the ultimate
outcome of these examinations will not result in a material adjustment to our tax liability.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes our consolidated cash and investments and working capital:
Cash, cash equivalents and short-term investments
Working capital
Key Components of Cash Flows
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash used in financing activities
Fiscal 2011:
As of
January 1,
2012
January 2,
2011
(In thousands)
$
$
166,330
79,190
$
$
434,261
383,369
January 1,
2012
Year Ended
January 2,
2011
January 3,
2010
(In thousands)
$
262,746
$
283,808
(150,734) $
69,100
$
(92,387) $
(516,374) $
$
$
$
89,303
(43,126)
(7,368)
In fiscal 2011, cash and cash equivalents decreased by approximately $163.5 million primarily due to the
$516.4 million cash used in our financing activities, principally related to our stock buyback programs, partially
offset by the cash generated from our operating and investing activities of approximately $283.8 million and
$69.1 million, respectively.
42
Operating Activities
In fiscal 2011, net cash provided by operating activities was $283.8 million compared to $262.7 million in
fiscal 2010. Operating cash flows for fiscal 2011 were primarily driven by higher net income adjusted for certain
non-cash items including stock-based compensation of approximately $100.8 million, depreciation and
amortization of approximately $53.5 million, and partially offset by changes in our working capital. The
significant changes in our working capital as of January 1, 2012 compared to January 2, 2011 were as follows:
‰ Accounts receivable decreased by $14.2 million due to better collection efforts and the sale of our image
‰
sensors product family in early 2011.
The cash impact from the decrease in inventories was approximately $4.3 million which was primarily
driven by the increased shipments to our direct customers and distributors.
‰ Accounts payable decreased by $6.9 million due to timing of purchases and payments.
‰ Deferred margin on sales to distributors increased by $18.8 million due to higher distributor shipments.
‰
Income taxes payable decreased by $7.0 million primarily due to payments in fiscal 2011.
Investing Activities
In fiscal 2011, net cash provided by investing activities was $69.1 million compared to net cash used in
investing activities of $150.7 million in fiscal 2010. The cash we generated from our investing activities in fiscal
2011 was primarily due to $110.0 million net proceeds from the sales or maturities and purchases of available for
sale investments, $34.0 million proceeds from the sale of image sensor business unit and $6.3 million proceeds
from sales of certain property and equipment, partially offset by $80.6 million of property and equipment
expenditures.
Financing Activities
In fiscal 2011, net cash used in financing activities was $516.4 million compared to $92.4 million in fiscal
2010. The cash we used in our financing activities in fiscal 2011 was primarily due to $604.8 million cash used
to repurchase shares of our stock and cash used for our yield enhancement structured agreements settling in our
stock, $46.0 million related to statutory income tax withholdings paid on vested restricted stock awards in lieu of
issuing shares of stock and $29.0 million dividends paid in fiscal 2011, partially offset by the net proceeds of
$71.2 million from the issuance of common shares under our employee stock plans, $49.9 million net cash
generated from our yield enhancement structured agreements that were settled in cash and $42.3 million cash
generated from equipment loans and other financing arrangements.
Fiscal 2010:
In fiscal 2010, cash and cash equivalents increased by approximately $19.6 million primarily due to the cash
generated from our operating and investing of $262.7 million, partially offset by $150.7 million and $92.4
million cash used in our investing and financing activities, respectively.
Operating Activities
Net cash provided by operating activities increased by $173.4 million in fiscal 2010 compared to fiscal
2009. Operating cash flows in fiscal 2010 were primarily driven by net income of $74.9 million from operations
adjusted for certain non-cash items including depreciation and amortization, stock-based compensation expense,
restructuring charges and changes in operating assets and liabilities. The changes in our working capital as of
January 2, 2011 compared to January 3, 2010 were as follows:
‰ Accounts receivable increased by $30.8 million due to higher distributor shipments.
‰ Deferred margin on sales to distributors increased by $55.9 million due to higher distributor shipments.
‰
The cash impact due to the increase in inventories was approximately $10.0 million and the increase in
inventories was to support higher levels of sales in 2010 and a profile build out of certain products.
43
Investing Activities
Net cash used in investing activities increased by $107.6 million in fiscal 2010 compared to fiscal 2009.
During fiscal 2010, our investing activities primarily included the $50.8 million of property and equipment
expenditures offset by the purchase of investments of $103.1 million, net of proceeds from sales or maturities.
Financing Activities
Net cash used in financing activities `increased by $85.0 million in fiscal 2010 compared to fiscal 2009.
During fiscal 2010, our financing activities primarily included a net of $149.2 million used on the yield
enhancement structured agreements, $25.9 million used to repurchase our common shares and partially offset by
net proceeds of $82.8 million from the issuance of common shares under our employee stock plans.
Fiscal 2009:
Operating Activities
Operating cash flows in fiscal 2009 were primarily driven by a net loss of $151.4 million adjusted for
certain non-cash items including depreciation and amortization, stock-based compensation expense, loss on
property and equipment, impairment losses, restructuring charges and changes in operating assets and liabilities.
Investing Activities
Net cash used in our investing activities in fiscal 2009 was approximately $43.1 million, which was
primarily due to $25.8 million property and equipment expenditures and $22.3 million net purchases of
available-for-sale investments, partially offset by $5.7 million proceeds from sales of property and equipment.
Financing Activities
Net cash used in our financing activities in fiscal 2009 was approximately $7.4 million, which was primarily
due to the redemption of our convertible debt for $51.6 million, $46.3 million cash used to repurchase shares of
our stock and $15.5 million related to statutory income tax withholdings paid on vested restricted stock awards in
lieu of issuing shares of stock, partially offset by the $101.6 million proceeds from the issuance of common
shares under our employee stock plans, $3.3 million proceeds from the termination of a portion of the convertible
note hedge and warrants related to our 1.00% Notes and $1.0 million net cash generated from our yield
enhancement structured agreements that were settled in cash.
Liquidity
Stock Repurchase Programs:
On October 21, 2010, our Board authorized a $600.0 million stock buyback program, which we completed
in fiscal 2011. In fiscal 2010, we used approximately $29.0 million of this program to repurchase a total of
approximately 1.7 million shares at an average share price of $17.07. In fiscal 2011, we used the remaining
$571.0 million to repurchase approximately 30.9 million shares at an average share price of $18.46.
On September 20, 2011, our Board authorized a new $400.0 million stock buyback program. The program
allows us to purchase our common stock or enter into equity derivative transactions related to our common stock.
The timing and actual amount expended with the new authorized funds will depend on a variety of factors
including the market price of our common stock, regulatory, legal, and contractual requirements, alternatives
uses of cash, availability of on shore cash and other market factors. The program does not obligate us to
repurchase any particular amount of common stock and may be modified or suspended at any time at our
discretion. From September 2011 through the end of fiscal 2011, we used approximately $79.8 million from this
program to repurchase approximately 5.1 million shares at an average share price of $15.77. As of January 1,
2012, $320.2 million remained available for future stock repurchases.
44
Yield Enhancement Program (“YEP”):
As discussed in Item 5 above and in Note 13 of the Notes to Consolidated Financial Statements under
Item 8, we have entered into yield enhanced structured agreements since fiscal 2009. In fiscal 2011, we entered
into short-term yield enhanced structured agreements with maturities of 50 days or less for an aggregate price of
approximately $318.4 million. Upon settlement of these agreements, we received approximately $143.8 million
in cash and 9.5 million shares of common stock at an average share price of $19.01.
In fiscal 2010, we entered into short-term yield enhanced structured agreements with maturities of 45 days
or less for an aggregate price of approximately $322.8 million. Upon settlement of these agreements, we received
approximately $217.5 million in cash and 10.0 million shares of our common stock at an average share price of
$11.49. In fiscal 2010, there was a YEP agreement that we entered into for an aggregate price of approximately
$43.9 million which remained unsettled as of the end of fiscal 2010. Such agreement was subsequently settled in
the first quarter of fiscal 2011 for approximately $47.0 million.
In the fourth quarter of fiscal 2009, we entered into short-term yield enhanced structured agreements
totaling $68.0 million with maturities of 30 days or less. We settled these agreements in the fourth quarter of
fiscal 2009 and received $69.1 million in cash.
Refer to Item 5 and Note 13 of Notes to Consolidated Financial Statements under Item 8 for a detailed
discussion on this program and the related activities in fiscal 2011, 2010 and 2009.
Auction Rate Securities:
The fair value of our investments in auction rate securities (“ARS”) was approximately $19.0 million as of
January 1, 2012. In December 2011, we entered into a settlement and securities purchase agreement (the
“Securities Agreement”) with a certain financial institution. Pursuant to the terms of the Securities Agreement,
we agreed to sell to the financial institution certain of our ARS investments with an aggregate par value of
approximately $19.1 million and carrying value of approximately $17.3 million for an aggregate sale price of
approximately $16.4 million. Under the terms of the Securities Agreement, we have the option to repurchase
from the financial institution any of the ARS we sold to them until November 30, 2013 for the amount at which
the related ARS were sold plus agreed upon funding costs. Because of our ability to repurchase the ARS from the
date of sale through November 30, 2013, we maintain effective control of these ARS. As such, we did not
account for the transaction as a sale and recognized the $16.4 million sale consideration we received as
“Advances received for the sale of ARS” under “Other long-term liabilities” in the 2011 Consolidated Balance
Sheet. We will continue to account for these ARS as if we never sold them until they are called or the expiration
of our call option under the Securities Agreement. Refer to Note 4 of Notes to Consolidated Financial Statements
under Item 8 for a detailed discussion on this transaction.
Contractual Obligations
The following table summarizes our contractual obligations as of January 1, 2012:
Purchase obligations (1)
Operating lease commitments
Capital lease commitments
Total contractual obligations
Payments Due by Years
Total
2012
2013 and 2014
2015 and 2016
After 2016
$
$
82,668
25,502
16,429
80,090
6,975
2,554
(In thousands)
2,578
$
9,172
5,108
$
— $ —
5,986
8,767
3,369
—
$
124,599
$
89,619
$
16,858
$
14,753
$
3,369
(1) Purchase obligations primarily include non-cancelable purchase orders
services,
manufacturing equipment, building improvements and supplies in the ordinary course of business. Purchase
obligations are defined as enforceable agreements that are legally binding on us and that specify all
significant terms, including quantity, price and timing.
for materials,
45
As of January 1, 2012, our unrecognized tax benefits were $29.8 million, which were classified as long-term
liabilities. We believe it is possible that we may recognize approximately $2.5 to $3.5 million of our existing
unrecognized tax benefits within the next twelve months as a result of the lapse of statutes of limitations and the
resolution of agreements with domestic and various foreign tax authorities.
Capital Resources and Financial Condition
Our long-term strategy is to maintain a minimum amount of cash for operational purposes and to invest the
remaining amount of our cash in interest-bearing and highly liquid cash equivalents and debt securities and the
purchase of our stock through our stock buyback program and payments of regularly scheduled cash dividends.
As of January 1, 2012, in addition to $99.7 million in cash and cash equivalents, we had $66.6 million invested in
short-term investments for a total cash and short-term investment position of $166.3 million that is available for
use in current operations.
As of January 1, 2012, approximately 30% our cash and cash equivalents and available for sale investments
are offshore funds. While these amounts are primarily invested in U.S. dollars, a portion is held in foreign
currencies. All offshore balances are exposed to local political, banking, currency control and other risks. In
addition, these amounts, if repatriated may be subject to tax and other transfer restrictions.
We believe that liquidity provided by existing cash, cash equivalents and investments and our borrowing
arrangements will provide sufficient capital to meet our requirements for at least the next twelve months.
However, should prevailing economic conditions and/or financial, business and other factors beyond our control
adversely affect our estimates of our future cash requirements, we could be required to fund our cash
requirements by alternative financing. There can be no assurance that additional financing, if needed, would be
available on terms acceptable to us or at all. We may choose at any time to raise additional capital or debt to
strengthen our financial position, facilitate growth, enter into strategic initiatives including the acquisition of
other companies repurchases of shares of stock or payment of dividends and provide us with additional flexibility
to take advantage of other business opportunities that arise.
Non-GAAP Financial Measures
conditions
Regulation G,
for use of Non-Generally Accepted Accounting Principles
(“Non-
GAAP”) financial measures, and other SEC regulations define and prescribe the conditions for use of certain
Non-GAAP financial information. To supplement our consolidated financial results presented in accordance with
GAAP, we use Non-GAAP financial measures which are adjusted from the most directly comparable GAAP
financial measures to exclude certain items, as described below. Management believes that these Non-GAAP
financial measures reflect an additional and useful way of viewing aspects of our operations that, when viewed in
conjunction with our GAAP results, provide a more comprehensive understanding of the various factors and
trends affecting our business and operations. Non-GAAP financial measures used by us include gross margin,
research and development expenses, selling, general and administrative expenses, operating income or loss, net
income or loss and basic and diluted net income or loss per share.
Our Non-GAAP measures primarily exclude stock-based compensation, acquisition-related charges,
impairments to goodwill, gain or losses on divestiture,
investment-related gains and losses, discontinued
operations, restructuring costs and other special charges and credits. Management believes these Non-GAAP
financial measures provide meaningful supplemental information regarding our strategic and business decision
making, internal budgeting, forecasting and resource allocation processes. In addition, these non-GAAP financial
measures facilitate management’s internal comparisons to our historical operating results and comparisons to
competitors’ operating results.
We use each of these non-GAAP financial measures for internal managerial purposes, when providing our
financial results and business outlook to the public, to facilitate period-to-period comparisons and are used to
formulate our formula driven cash bonus plan and any milestone based stock awards. Management believes that
46
these non-GAAP measures provide meaningful supplemental information regarding our operational and financial
performance of current and historical results. Management uses these non-GAAP measures for strategic and
business decision making, internal budgeting, forecasting and resource allocation processes. In addition, these
non-GAAP financial measures facilitate management’s internal comparisons to our historical operating results
and comparisons to competitors’ operating results.
The table below shows our Non-GAAP financial measures:
January 1,
2012
Year Ended
January 2,
2011
January 3,
2010
Non-GAAP revenue
Non-GAAP gross margin
Non-GAAP research and development expenses
Non-GAAP selling, general and administrative expenses
Non-GAAP operating income
Non-GAAP net income attributable to Cypress
Non-GAAP diluted net income per share attributable to Cypress
$
$
$
(In thousands, except per shares amounts)
995,204
570,456
165,787
167,746
236,922
237,533
1.25
883,782
518,722
154,312
163,267
201,142
186,314
0.94
667,786
315,065
144,560
152,905
17,600
17,544
0.10
We believe that providing these Non-GAAP financial measures, in addition to the GAAP financial results,
are useful to investors because they allow investors to see our results “through the eyes” of management as these
Non-GAAP financial measures reflect our internal measurement processes. Management believes that these
Non-GAAP financial measures enable investors to better assess changes in each key element of our operating
results across different reporting periods on a consistent basis and provides investors with another method for
assessing our operating results in a manner that is focused on the performance of our ongoing operations.
47
CYPRESS SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES
(In thousands, except per-share data)
(Unaudited)
GAAP revenue
SRAM legal settlement
Non-GAAP revenue
GAAP gross margin
Stock-based compensation expense
Impairment of assets and others
Changes in value of deferred compensation plan (1)
SRAM legal settlement
Write down of final inventory build
License royalty
Non-GAAP gross margin
GAAP research and development expenses
Stock-based compensation expense
Changes in value of deferred compensation plan (1)
Other acquisition-related expense
Gain on sale of long-term asset
Non-GAAP research and development expenses
GAAP selling, general and administrative expenses
Stock-based compensation expense
Impairment of assets and others
Building donation
Changes in value of deferred compensation plan (1)
SRAM legal settlement
Acquisition-related expense
Non-GAAP selling, general and administrative expenses
GAAP operating income (loss)
Stock-based compensation expense
Gain on divestiture
Restructuring charges
Impairment of assets and others
Building donation
Acquisition-related expenses
Changes in value of deferred compensation plan (1)
SRAM legal settlement
License royalty
Gain on sale of long-term asset
$
$
$
$
$
$
$
$
$
January 1,
2012
Year Ended
January 2,
2011
January 3,
2010
$
$
$
$
$
$
$
$
$
995,204
—
995,204
546,602
23,730
235
(111)
—
—
—
570,456
189,970
(24,297)
114
—
—
165,787
227,976
(52,754)
(3,811)
(4,125)
460
—
—
167,746
153,719
100,781
(34,291)
6,336
4,045
4,125
2,892
(685)
—
—
—
$
$
$
$
$
$
$
877,532
6,250
883,782
489,173
22,716
213
370
6,250
—
—
518,722
176,816
(21,541)
(959)
(4)
—
154,312
218,490
(47,202)
(5,295)
—
(1,726)
(1,000)
—
667,786
—
667,786
270,582
40,798
—
516
—
555
2,614
315,065
181,189
(37,537)
(1,454)
(78)
2,440
144,560
219,602
(63,477)
—
—
(3,168)
—
(52)
163,267
$
152,905
87,864
91,459
—
2,975
5,511
—
3,028
3,055
7,250
—
—
$ (149,255)
141,812
—
15,242
685
—
3,804
5,138
—
2,614
(2,440)
Non-GAAP operating income
$
236,922
$
201,142
$
17,600
(1) Consistent with the current presentation, all prior periods have been recast to reflect changes in deferred
compensation plan as a Non-GAAP adjustment.
48
CYPRESS SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP
FINANCIAL MEASURES
(In thousands, except per-share data)
(Unaudited)
GAAP net income (loss) attributable to Cypress
Stock-based compensation expense
Gain on divestiture
Restructuring charges
Building donation
Impairment of assets and others
Acquisition-related expenses
Changes in value of deferred compensation plan (1)
SRAM legal settlement
Investment-related losses (gains)
License royalty
Gain on sale of long-term asset
Tax effects
January 1,
2012
Year Ended
January 2,
2011
$
$
167,839
100,781
(34,291)
6,336
4,125
4,047
2,892
177
—
—
—
—
(14,373)
75,742
91,459
—
2,975
—
5,506
3,028
402
7,250
(3,158)
—
—
3,110
Non-GAAP net income attributable to Cypress
$
237,533
$
186,314
GAAP net income (loss) per share attributable to Cypress—
diluted
Stock-based compensation expense
Gain on divestiture
Restructuring charges
Building donation
Impairment of assets and others
Acquisition-related expense
SRAM legal settlement
Investment-related losses (gains)
License royalty
Gain on sale of long-term asset
Tax effects
Non-GAAP share count adjustment
$
$
0.90
0.53
(0.18)
0.04
0.02
0.02
0.02
—
—
—
—
(0.08)
(0.02)
0.40
0.45
—
0.01
—
0.03
0.01
0.04
(0.02)
—
—
0.02
—
January 3,
2010
$
(150,424)
141,812
$
$
—
15,242
—
—
4,490
(12)
—
3,257
2,614
(2,440)
3,005
17,544
(1.03)
0.97
—
0.10
—
—
0.03
—
0.02
0.02
(0.02)
0.02
(0.01)
Non-GAAP net income per share attributable to Cypress—
diluted
$
1.25
$
0.94
$
0.10
(1) Consistent with the current presentation, all prior periods have been recast to reflect changes in deferred
compensation plan as a Non-GAAP adjustment.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements included in this Annual Report on Form 10-K and the data used to prepare
them. Our consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States and we are required to make estimates, judgments and assumptions in the
course of such preparation. Note 1 of Notes to Consolidated Financial Statements under Item 8 describes the
significant accounting policies and methods used in the preparation of the consolidated financial statements. On
an ongoing basis, we re-evaluate our judgments and estimates including those related to revenue recognition,
49
allowances for doubtful accounts receivable, inventory valuation, valuation of long-lived assets, goodwill and
financial instruments, stock-based compensation, litigation and settlement costs, and income taxes. We base our
estimates and judgments on historical experience, knowledge of current conditions and our beliefs of what could
occur in the future considering available information. Actual results may differ from these estimates under
different assumptions or conditions. Our critical accounting policies that are affected by significant estimates,
assumptions and judgments used in the preparation of our consolidated financial statements are as follows:
Revenue Recognition:
We generate revenues by selling products to distributors, various types of manufacturers including original
equipment manufacturers (“OEMs”) and electronic manufacturing service providers (“EMSs”). We recognize
revenue on sales to OEMs and EMSs provided that persuasive evidence of an arrangement exists, the price is
fixed or determinable, title has transferred, collection of resulting receivables is reasonably assured, there are no
customer acceptance requirements, and there are no remaining significant obligations.
Sales to certain distributors are made under agreements which provide the distributors with price protection,
other allowances and stock rotation under certain circumstances. Given the uncertainties associated with the
rights given to these distributors, revenues and costs related to distributor sales are deferred until products are
sold by the distributors to the end customers. Revenues are recognized from those distributors when the products
have been sold to the end customers. Reported information includes product resale price, quantity and end
customer shipment information as well as remaining inventory on hand. At the time of shipment to those
distributors, we record a trade receivable for the selling price since there is a legally enforceable right to receive
payment, relieve inventory for the value of goods shipped since legal title has passed to the distributors, and defer
the related margin as deferred margin on sales to distributors in the Consolidated Balance Sheets. The effects of
distributor price adjustments are recorded as a reduction to deferred revenue at the time the distributors sell the
products to the end customers.
We record as a reduction to revenues reserves for sales returns, price protection and allowances, based upon
historical experience rates and for any specific known customer amounts. We also provide certain distributors
and EMSs with volume-pricing discounts, such as rebates and incentives, which are recorded as a reduction to
revenues at the time of sale. Historically these volume discounts have not been significant.
Our revenue reporting is highly dependent on receiving pertinent, accurate and timely data from our
distributors. Distributors provide us periodic data regarding the product, price, quantity, and end customer when
products are resold as well as the quantities of our products they still have in stock. Because the data set is large
and complex and because there may be errors in the reported data, we must use estimates and apply judgments to
reconcile distributors’ reported inventories to their activities. Actual results could vary materially from those
estimates.
Allowances for Doubtful Accounts Receivable:
We maintain an allowance for doubtful accounts for losses that we estimate will arise from our customers’
inability to make required payments. We make estimates of the collectibility of our accounts receivable by
considering factors such as historical bad debt experience, specific customer creditworthiness, the age of the
accounts receivable balances and current economic trends that may affect a customer’s ability to pay. If the data
we use to calculate the allowance for doubtful accounts does not reflect the future ability to collect outstanding
receivables, additional provisions for doubtful accounts may be needed and our results of operations could be
materially affected.
Valuation of Inventories:
Management periodically reviews the adequacy of our inventory reserves. We record a write-down for our
inventories which have become obsolete or are in excess of anticipated demand or net realizable value. We
50
perform a detailed review of inventories each quarter that considers multiple factors including demand forecasts,
product life cycle status, product development plans and current sales levels. Inventory reserves are not relieved
until the related inventory has been sold or scrapped. Our inventories may be subject to rapid technological
obsolescence and are sold in a highly competitive industry. If there were a sudden and significant decrease in
demand for our products, or if there were a higher incidence of inventory obsolescence because of rapidly
changing technology and customer requirements, we could be required to record additional write-downs, and our
gross margin could be adversely affected.
Valuation of Long-Lived Assets:
Our business requires heavy investment in manufacturing facilities and equipment that are technologically
advanced but can quickly become significantly under-utilized or rendered obsolete by rapid changes in demand.
In addition, we have recorded intangible assets with finite lives related to our acquisitions.
We evaluate our long-lived assets, including property, plant and equipment and purchased intangible assets
with finite lives, for impairment whenever events or changes in circumstances indicate that the carrying value of
such assets may not be recoverable. Factors considered important that could result in an impairment review
include significant underperformance relative to expected historical or projected future operating results,
significant changes in the manner of use of the assets or the strategy for our business, significant negative
industry or economic trends, and a significant decline in our stock price for a sustained period of time.
Impairments are recognized based on the difference between the fair value of the asset and its carrying value, and
fair value is generally measured based on discounted cash flow analysis. If there is a significant adverse change
in our business in the future, we may be required to record impairment charges on our long-lived assets.
Valuation of Goodwill:
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable
intangible assets acquired in a business combination. Goodwill impairment exists when the implied fair value of
goodwill is less than its carrying value. The carrying amount of goodwill at January 1, 2012 was $31.8 million in
the Consumer and Computation Division (“CCD”) and was unchanged from the balance at January 2, 2011. CCD
is the only reportable business segment with goodwill.
We assess our goodwill for impairment on an annual basis and, if certain events or circumstances indicate that
an impairment loss may have been incurred, on an interim basis. In September 2011, the FASB issued ASU
2011-08 -Testing Goodwill for Impairment (ASC Topic 350) that was intended to reduce the complexity and costs
by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to
determine whether it should calculate the fair value of a reporting unit. The issuance of ASU 2011-08 provides an
entity the option to first assess qualitative factors to determine whether it is necessary to perform the current
two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-
likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test
is required. Otherwise, no further testing is required. We adopted ASU 2011-08 in fiscal 2011. The fair value of
CCD was substantially in excess of its carrying amount based on the quantitative assessment of goodwill that we
performed in fiscal 2010. There have been no triggering events or changes in circumstances since that quantitative
analysis to indicate that the fair value of CCD would be less than its carrying amount. We performed a qualitative
assessment of goodwill in fiscal 2011 and concluded that it was more likely than not that the fair value of CCD
exceeded its carrying amount. In assessing the qualitative factors, we considered the impact of these key factors:
(i) change in the industry and competitive environment; (ii) market capitalization; (iii) stock price; and (iv) overall
financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings
compared with actual and projected results of relevant prior periods. Based on the foregoing, the first and second
steps of the goodwill impairment test were unnecessary for fiscal 2011 and goodwill was not impaired as of
January 1, 2012. No goodwill impairment was recognized in fiscal 2011, 2010 and 2009 because the fair value of
CCD was more than its carrying value in those years.
51
Fair Value of Financial Instruments:
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Our financial assets and financial liabilities that
require recognition under the guidance generally include available-for-sale investments, employee deferred
compensation plan and foreign currency derivatives. The guidance establishes a hierarchy for inputs used in
measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs
by requiring that the observable inputs be used when available. Observable inputs are inputs that market
participants would use in pricing the asset or liability developed based on market data obtained from sources
independent of us. Unobservable inputs are inputs that reflect our assumptions about the assumptions market
participants would use in pricing the asset or liability developed based on the best information available in the
circumstances. As such, fair value is a market-based measure considered from the perspective of a market
participant who holds the asset or owes the liability rather than an entity-specific measure. The hierarchy is
broken down into three levels based on the reliability of inputs as follows:
‰
‰
‰
Level 1 includes instruments for which quoted prices in active markets for identical assets or liabilities
that we have the ability to access. Our financial assets utilizing Level 1 inputs include U.S. treasuries,
money market funds, marketable equity securities and our employee deferred compensation plan.
Level 2 includes instruments for which the valuations are based on quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be
corroborated by observable data for substantially the full term of the assets or liabilities. Level 2 assets
consist of certain marketable debt instruments for which values are determined using inputs that are
observable in the market or can be derived principally from or corroborated by observable market data.
Our Level 2 instruments include certain U.S. government securities, commercial paper and corporate
notes and bonds.
Level 3 Valuations based on inputs that are unobservable and significant to the overall fair value
measurement. Financial assets utilizing Level 3 inputs primarily include auction rate securities. We use
an income approach valuation model to estimate the exit price of the auction rate securities, which is
derived as the weighted-average present value of expected cash flows over various periods of illiquidity,
using a risk adjusted discount rate that is based on the credit risk and liquidity risk of the securities.
Availability of observable inputs can vary from instrument to instrument and to the extent that valuation is
based on inputs that are less observable or unobservable in the market, the determination of fair value requires
more judgment. Accordingly, the degree of judgment exercised by our management in determining fair value is
greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall
into different levels of the fair value hierarchy. In such cases, for disclosure purposes the level in the fair value
hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level
input that is significant to the fair value measurement in its entirety. In regards to our auction rate securities, the
income approach valuation model was based on both Level 2 (credit quality and interest rates) and Level 3
inputs. We determined that the Level 3 inputs were the most significant to the overall fair value measurement,
particularly the estimates of risk adjusted discount rates and ranges of expected periods of illiquidity.
Stock-Based Compensation:
Under the fair value recognition provisions of the guidance, we recognize stock-based compensation net of
an estimated forfeiture rate and only recognize compensation cost for those shares expected to vest over the
requisite service period of the awards. Determining the appropriate fair value model and calculating the fair value
of share-based payment awards require the input of highly subjective assumptions, including the expected life of
the share-based payment awards and stock price volatility. The assumptions used in calculating the fair value of
share-based payment awards represent management’s best estimates, but
these estimates involve inherent
uncertainties and the application of management judgment. As a result, if factors change and we use different
assumptions, our stock-based compensation expense could be materially different in the future. In addition, we
52
are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest.
If our actual forfeiture rate is materially different from our estimate, our future stock-based compensation
expense could be significantly different from what we have recorded.
Accounting for Income Taxes:
Our global operations involve manufacturing, research and development and selling activities. Profits from
non-U.S. activities are subject to local country taxes but are not subject to U.S. tax until repatriated to the U.S. It
is our intention to permanently reinvest these earnings outside the U.S. We record a valuation allowance to
reduce our deferred tax assets to the amount that is more likely than not to be realized. We consider historical
levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent
and feasible tax planning strategies in assessing the need for the valuation allowance. Should we determine that
we would be able to realize deferred tax assets in the future in excess of the net recorded amount, we would
record an adjustment to the deferred tax asset valuation allowance. This adjustment would increase income in the
period such determination is made.
The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax
issues in the U.S. and other tax
liabilities for anticipated tax audit
regulations. We recognize potential
jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If payment
of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits
being recognized in the period when we determine the liabilities are no longer necessary. If the estimate of tax
liabilities proves to be less than the ultimate tax assessment, a further charge to expense would result.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risks
Our investment portfolio consists of a variety of financial instruments that exposes us to interest rate risk,
including, but not limited to, money market funds, commercial paper and corporate securities. These investments
are generally classified as available-for-sale and, consequently, are recorded on our balance sheets at fair market
value with their related unrealized gain or loss reflected as a component of accumulated other comprehensive
income in stockholders’ equity. Due to the relatively short-term nature of our investment portfolio, we do not
believe that an immediate 10% increase in interest rates would have a material effect on the fair market value of
our portfolio. Since we believe we have the ability to liquidate this portfolio, we do not expect our operating
results or cash flows to be materially affected to any significant degree by a sudden change in market interest
rates on our investment portfolio.
Foreign Currency Exchange Risk
We operate and sell products in various global markets and purchase capital equipment using foreign
currencies but predominantly the U.S. dollar. As a result, we are exposed to risks associated with changes in
foreign currency exchange rates. Changes in exchange rates between foreign currencies and the U.S. dollar may
adversely affect our operating margins. For example, when foreign currencies appreciate against the U.S. dollar,
inventory and expenses denominated in foreign currencies become more expensive. An increase in the value of
the U.S. dollar relative to foreign currencies could make our products more expensive for international
customers, thus potentially leading to a reduction in demand, and therefore in our sales and profitability.
Furthermore, many of our competitors are foreign companies that could benefit from such a currency fluctuation,
making it more difficult for us to compete with those companies. We cannot predict the impact of future
exchange rate fluctuations on our business and results of operations.
We analyzed our foreign currency exposure, including our hedging strategies, to identify assets and
liabilities denominated in other currencies. For those assets and liabilities, we evaluated the effects of a 10% shift
in exchange rates between those currencies and the U.S. dollar. We have determined that there would be an
immaterial effect on our results of operations from such a shift.
53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Schedule II—Valuation and Qualifying Accounts
Page
55
56
57
59
61
97
106
54
CYPRESS SEMICONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Other long-term assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
Accrued compensation and employee benefits
Deferred margin on sales to distributors
Dividends payable
Income taxes payable
Other current liabilities
Total current liabilities
Deferred income taxes and other tax liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 17)
Equity:
Preferred stock, $.01 par value, 5,000 shares authorized; none issued and
outstanding
Common stock, $.01 par value, 650,000 and 650,000 shares authorized;
278,812 and 259,394 shares issued; 154,174 and 170,753 shares outstanding
at January 1, 2012 and January 2, 2011, respectively
Additional paid-in-capital
Accumulated other comprehensive loss
Accumulated deficit
Stockholders’ equity before treasury stock, total
Less: shares of common stock held in treasury, at cost; 124,638 and 88,641 shares at
January 1, 2012 and January 2, 2011, respectively
Total Cypress stockholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
January 1,
2012
January 2,
2011
(In thousands, except
per-share amounts)
$
$
$
99,717
66,613
103,524
92,304
43,492
405,650
284,979
31,836
8,626
78,999
810,090
52,868
41,679
150,568
13,786
4,629
62,930
326,460
38,610
47,178
412,248
$
263,183
171,078
117,726
101,763
41,908
695,658
260,122
31,836
12,499
72,686
$ 1,072,801
$
59,817
43,292
131,757
—
11,631
65,792
312,289
53,830
3,789
369,908
—
—
2,780
2,579,348
(1,940)
(326,163)
2,594
2,401,996
(3,203)
(494,002)
2,254,025
1,907,385
(1,853,758)
(1,202,949)
400,267
(2,425)
397,842
704,436
(1,543)
702,893
$
810,090
$ 1,072,801
The accompanying notes are an integral part of these consolidated financial statements.
55
CYPRESS SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
January 1,
2012
Year Ended
January 2,
2011
January 3,
2010
$
Revenues
Costs and expenses (credits):
Cost of revenues
Research and development
Selling, general and administrative
Amortization of acquisition-related intangible assets
Restructuring costs
Gain on divestiture
Total costs and expenses, net
Operating income (loss)
Interest and other income, net
Income (loss) before income taxes and noncontrolling interest
Income tax provision (benefit)
Income (loss), net of taxes
Adjust for loss attributable to noncontrolling interest, net of taxes
(In thousands, except per-share amounts)
995,204
877,532
$
$
667,786
448,602
189,970
227,976
2,892
6,336
(34,291)
841,485
153,719
1,859
155,578
(11,379)
166,957
882
388,359
176,816
218,490
3,028
2,975
—
789,668
87,864
6,302
94,166
19,290
74,876
866
397,204
181,189
219,602
3,804
15,242
—
817,041
(149,255)
3,739
(145,516)
5,854
(151,370)
946
Net income (loss) attributable to Cypress
$
167,839
$
75,742
$ (150,424)
Net income (loss) per share attributable to Cypress:
Basic
Diluted
Cash dividends declared per share
Shares used in net income (loss) per share calculation:
Basic
Diluted
$
$
$
1.02
0.90
0.27
$
$
$
$
0.47
0.40
$
— $
(1.03)
(1.03)
—
164,495
186,895
161,114
191,377
145,611
145,611
The accompanying notes are an integral part of these consolidated financial statements.
56
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T
CYPRESS SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile income (loss) to net cash provided by
operating activities:
Stock-based compensation expense
Depreciation and amortization
Gain on divestiture
Deferred income taxes and other tax liabilities
Restructuring costs
Contribution of asset
Loss (gain) on sale or retirement of property and
equipment, net
Impairment of assets
Impairment of investments
Gain on sale of equity investments
Interest and other non-cash expense related to convertible
debt
Other
Changes in operating assets and liabilities, net of effects of a
divestiture:
Accounts receivable
Inventories
Other current and long-term assets
Accounts payable and other liabilities
Deferred margin on sales to distributors
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from sales or maturities of available-for-sale
investments
Purchases of available-for-sale investments
Acquisition of property, plant and equipment
Proceeds from divestiture
Proceeds from sales of property and equipment
Cash paid for other investments
Net employee contributions to (distributions of) deferred
compensation plan
Proceeds from sales of equity investments
January 1,
2012
Year Ended
January 2,
2011
(In thousands)
January 3,
2010
$
166,957
$
74,876
$
(151,370)
100,781
53,503
(34,291)
(15,757)
6,336
4,000
3,891
1,982
800
—
—
257
91,459
52,528
—
15,033
5,366
—
(823)
4,926
—
(3,628)
—
165
14,202
4,280
(14,895)
(27,049)
18,811
(30,767)
(10,049)
(11,013)
18,797
55,876
283,808
262,746
218,555
(108,522)
(80,556)
34,025
6,324
(3,911)
32,523
(140,349)
(50,786)
—
3,057
(2,000)
3,185
—
2,141
4,680
141,812
55,799
—
2,056
15,242
—
2,146
—
2,549
—
1,090
(822)
4,983
18,276
18,810
(14,684)
(6,584)
89,303
24,490
(46,768)
(25,823)
—
5,716
(76)
(665)
—
Net cash provided by (used in) investing activities
69,100
(150,734)
(43,126)
59
CYPRESS SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Cash flows from financing activities:
Repurchase of common shares
Yield enhancement structured agreements settled in stock
Issuance of common shares under employee stock plans
Yield enhancement structured agreements settled in cash, net
Withholding of common shares for tax obligations on vested
restricted shares
Payments of dividends
Proceeds from equipment leases and loans, net of payments
Proceeds from other financing arrangements
Proceeds from termination of convertible note hedge and
warrants
Unsettled yield enhancement structured agreements
Redemption of convertible debt
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
January 1,
2012
Year Ended
January 2,
2011
(In thousands)
January 3,
2010
(424,140)
(180,636)
71,192
49,927
(46,033)
(29,048)
25,974
16,390
—
—
—
(516,374)
(163,466)
263,183
(25,912)
(114,917)
96,864
9,607
(14,104)
—
—
—
—
(43,925)
—
(92,387)
19,625
243,558
(46,321)
—
101,638
1,048
(15,493)
—
—
—
3,312
—
(51,552)
(7,368)
38,809
204,749
Cash and cash equivalents, end of year
$
99,717
$
263,183
$
243,558
Supplemental disclosures:
Dividends payable
Cash paid for income taxes
Additions to property, plant and equipment under capital lease
arrangement
$
$
$
13,786 $
$
3,841
— $
$
2,205
—
3,433
2,925 $
— $
—
The accompanying notes are an integral part of these consolidated financial statements.
60
CYPRESS SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of Business
Cypress Semiconductor Corporation (“Cypress” or the “Company”) designs, develops, manufactures and
markets high-performance, mixed-signal, programmable solutions
that provide customers with rapid
time-to-market and system value. Our offerings include the PSoC® programmable system-on-chip, universal
serial bus (“USB”) controllers, general-purpose programmable clocks and memories. We also offer wired and
wireless connectivity technologies that enhance connectivity and performance in multimedia handsets. We serve
numerous markets including consumer, computation, data communications, automotive, and industrial.
Our operations outside of the United States include our assembly and test plants and a regional headquarters
in the Philippines, and sales offices and design centers located in various parts of the world.
Financial Statement Preparation
The consolidated financial statements are prepared in accordance with accounting principles generally
accepted in the United States and include the accounts of Cypress and all of our subsidiaries. Inter-company
transactions and balances have been eliminated in consolidation.
Fiscal Years
Our fiscal year ends on the Sunday closest to December 31. Fiscal 2011 ended on January 1, 2012, Fiscal
2010 ended on January 2, 2011 and fiscal 2009 ended on January 3, 2010. Fiscal 2011 and 2010 each contained
52 weeks while fiscal 2009 contained 53 weeks.
Management Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Significant estimates and assumptions
used in these consolidated financial statements primarily include those related to revenue recognition, inventory
valuation, valuation of goodwill and intangible assets, valuation of investments, valuation of stock-based
payment awards, allowances for doubtful accounts, warranty reserves, restructuring costs, certain other accrued
liabilities and tax valuation allowances. Actual results could differ from those estimates. To the extent there are
material differences between the estimates and actual results our future results of operations will be impacted.
Fair Value of Financial Instruments
For certain of our financial instruments, including cash equivalents, accounts receivable, accounts payable
and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity
of these items. Generally, our certificates of deposit are carried at cost which approximates fair value based on
current interest rates. Investments in available-for-sale securities are carried at fair value. See Note 4 for a
detailed discussion of the fair value measurements on our available-for-sale investments.
Cash and Cash Equivalents
Highly liquid investments with original or remaining maturities of ninety days or less at the date of purchase
are considered cash equivalents.
61
Investments
All of our investments in debt securities and equity securities in publicly traded companies are classified as
available-for-sale securities. Available-for-sale debt securities with maturities greater than twelve months are
classified as short-term when they are intended for use in current operations. Investments in available-for-sale
securities are reported at fair value with unrealized gains and losses, net of tax, as a component of “Accumulated
other comprehensive income (loss)” in the Consolidated Balance Sheets. Generally, our certificates of deposit are
non-tradable and are carried at cost. We also have equity investments in privately held companies. These
investments are generally carried at cost as these investments do not generally permit us to exert significant
influence or control and are included in “Other assets” in the Consolidated Balance Sheets. None of our equity
investments are variable interest entity.
We monitor our investments for impairment periodically and record appropriate reductions in carrying
values when the declines are determined to be other-than-temporary. See Note 4 for a detailed discussion of the
impairment losses recorded on our investments.
Inventories
Inventories are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out
basis) or market. Market is based on estimated net realizable value. We write down our inventories which have
become obsolete or are in excess of anticipated demand or net realizable value based upon assumptions about
demand forecasts, product life cycle status, product development plans and current sales levels. Inventory
reserves are not relieved until the related inventory has been sold or scrapped.
Long-Lived Assets
Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed
for financial reporting purposes using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements and leasehold interests are amortized over the shorter of the estimated useful lives of
the assets or the remaining term of the lease. Estimated useful lives are as follows:
Equipment
Buildings and leasehold improvements
Furniture and fixtures
2 to 10 years
5 to 20 years
3 to 7 years
We evaluate our long-lived assets, including property, plant and equipment and intangible assets with finite
lives, for impairment whenever events or changes in circumstances indicate that the carrying value of such assets
may not be recoverable. Factors considered important that could result in an impairment review include
significant underperformance relative to expected historical or projected future operating results, significant
changes in the manner of use of assets, significant negative industry or economic trends, and a significant decline
in our stock price for a sustained period of time. Impairment is recognized based on the difference between the
estimated fair value of the asset and its carrying value. Estimated fair value is generally measured based on
quoted market prices, if available, appraisals or discounted cash flow analyses.
Change in Accounting Estimate
Due to our recent and future significant investments in our manufacturing equipment coupled with the current
developments in our over-all manufacturing process and technologies, we have reevaluated and reassessed the
reasonableness of the useful lives of our manufacturing equipment during the fourth quarter of fiscal 2011. As a
result of our comprehensive study and analysis, we have determined that the useful lives of our manufacturing
equipment were longer than historically estimated. The key reasons that prompted us to perform a reevaluation of
the useful lives of our manufacturing equipment were: (i) we determined that the average age of most of our
existing equipment is more than 10 years; (ii) the recent and future significant investments in certain of our
equipment where the risk of technological obsolescence has been determined to be low; and (iii) the expansion
62
of our manufacturing facility which has allowed us to be more competitive and cost effective by reducing
operating costs and integrating certain technologies into programmable technology which reduces the risk of
technological obsolescence. Accordingly, we revised the useful lives of the related equipment and production
assets from 7 years to 10 years beginning in the fourth quarter of fiscal 2011. The revised useful lives of the
equipment did not have any impact in the consolidated statement of operations for fiscal 2011 as the decrease in
depreciation expense for the fourth quarter of fiscal 2011 was capitalized in inventories. The quarterly
depreciation expense is expected to decrease by approximately $3.0 million to $4.0 million starting in fiscal 2012
and this amount will decrease overtime as the related manufacturing equipment becomes fully depreciated.
Goodwill and Intangible Assets
Goodwill and intangible assets with indefinite lives are not amortized but are tested for impairment on an
annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets
may not be recoverable. Purchased intangible assets with finite useful lives are amortized using the straight-line
method over their estimated useful lives and are reviewed for impairment as discussed above. Refer to Note 3 for
more information.
Revenue Recognition
We generate revenues by selling products to distributors, various types of manufacturers including original
equipment manufacturers (“OEMs”) and electronic manufacturing service providers (“EMSs”). We recognize
revenues on sales to OEMs and EMSs upon shipment provided that persuasive evidence of an arrangement
exists, the price is fixed or determinable, title has transferred, collection of resulting receivables is reasonably
assured, there are no customer acceptance requirements, and there are no significant remaining obligations.
Sales to certain distributors are made under agreements which provide the distributors with price protection,
stock rotation and other allowances under certain circumstances. Given the uncertainties associated with the
rights given to these distributors, revenues and costs related to distributor sales are deferred until products are
sold by the distributors to the end customers. Revenues are recognized upon receiving notification from the
distributors that products have been sold to the end customers. Reported information includes product resale
price, quantity and end customer shipment information as well as remaining inventory on hand. At the time of
shipment to distributors, we record a trade receivable for the selling price since there is a legally enforceable
right to receive payment, relieve inventory for the value of goods shipped since legal title has passed to the
distributors, and defer the related margin as deferred income on sales to distributors in the Consolidated Balance
Sheets. The effects of distributor price adjustments are recorded as a reduction to deferred income at the time the
distributors sell the products to the end customers.
We record as a reduction to revenues reserves for sales returns, price protection and allowances based upon
historical experience rates and for any specific known customer amounts. We also provide certain distributors
and EMSs with volume-pricing discounts, such as rebates and incentives, which are recorded as a reduction to
revenues at the time of sale. Historically these volume discounts have not been significant.
Shipping and Handling Costs
We record costs related to shipping and handling in cost of revenues.
Advertising Costs
Advertising costs consist of development and placement costs of our advertising campaigns and are charged
to expense when incurred. Advertising expense was approximately $5.0 million, $4.0 million and $4.5 million
for fiscal 2011, 2010 and 2009, respectively.
Foreign Currency Transactions
We use the United States dollar predominately as the functional currency for our foreign entities. Assets and
liabilities of these entities are remeasured into the United States dollar using exchange rates in effect at the end of
63
the period, except for non-monetary assets and liabilities, such as property, plant and equipment, which are
remeasured using historical exchange rates. Revenues and expenses are remeasured using average exchange rates
in effect for the period, except for items related to assets and liabilities, such as depreciation, that are remeasured
using historical exchange rates. The resulting gains and losses from foreign currency remeasurement are included
in “Interest and other income, net” in the Consolidated Statements of Operations.
Concentration of Credit Risk
Financial
instruments that potentially subject us to concentrations of credit risk are primarily cash
equivalents, debt investments and trade accounts receivable. Our investment policy requires cash investments to
be placed with high-credit quality institutions and limits the amount of credit risk from any one issuer. We
perform ongoing credit evaluations of our customers’ financial condition whenever deemed necessary and
generally do not require collateral. We maintain an allowance for doubtful accounts based upon the expected
collectability of all accounts receivable.
Outstanding accounts receivable from Arrow Electronics, Inc., Arkian and Avnet, Inc., three of our
distributors, accounted for 14.1%, 13.9% and 11.1% of our consolidated accounts receivable as of January 1,
2012, respectively. Outstanding accounts receivable from Avnet, Inc., accounted for 17% of our consolidated
accounts receivable as of January 2, 2011.
Revenue generated through Avnet, Inc. and Weikeng Industrial Co. Ltd., two of our distributors, accounted
for 12.8% and 11.2%, respectively, of our consolidated revenue for fiscal 2011. Samsung Electronics
(“Samsung”), an end customer, purchases our products from certain of our distributors, primarily from Arkian.
Shipments made by our distributors to Samsung in fiscal 2011 accounted for 10.0% of our consolidated revenue
for fiscal 2011.
Revenue generated through Avnet, Inc. and Arrow Electronics, Inc. accounted for 15% and 10%,
respectively, of our consolidated revenue for fiscal 2010. Revenue through Avnet, Inc accounted for 14% of our
consolidated revenue for fiscal 2009. We had no end customers accounting for 10% or greater of our
consolidated revenue for fiscal 2010 or 2009.
Income Taxes
The provision for income taxes is determined using the asset and liability approach of accounting for
income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when
the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents
income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred
taxes result from differences between the financial and tax basis of our assets and liabilities and are adjusted for
changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce
deferred tax assets when management cannot conclude that it is more likely than not that a tax benefit will be
realized.
The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax
regulations. We recognize potential liabilities for anticipated tax audit issues in the United States and other tax
jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If payment
of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits
being recognized in the period when we determine the liabilities are no longer necessary. If the estimate of tax
liabilities proves to be less than the ultimate assessment, a further charge to expense would result.
Recent Accounting Pronouncements
In December 2011, Financial Accounting Standards Board (“FASB”) issued an Accounting Standards
Update 2011-12 (“ASU 2011-12”) to the guidance related to the presentation of comprehensive income (“OCI”),
64
which indefinitely defers certain provisions of ASU 2011-05 issued earlier in June 2011. ASU 2011-05 revised
the manner in which entities present comprehensive income in their financial statements. Among the new
provisions in ASU 2011-05 was a requirement for entities to present reclassification adjustments out of
accumulated other comprehensive income (“AOCI”) by component in both the statement in which net income is
presented and the statement in which OCI is presented (for both interim and annual financial statements).
Accordingly, this requirement is indefinitely deferred by ASU 2011-12 and will be further deliberated by the
FASB at a future date. The new ASU affects both public and nonpublic entities that report items of OCI in any
period presented. During the deferral period, entities will still need to comply with the existing requirements in
U.S. GAAP for the presentation of reclassification adjustments. Specifically, ASC 220 gives entities the option of
(1) presenting reclassification adjustments out of AOCI on the face of the statement in which OCI is presented or
(2) disclosing reclassification adjustments in the footnotes to the financial statements. ASU 2011-12 and ASU
2011-05 share the same effective date. This guidance is effective for our interim and annual periods beginning
January 2, 2012. We do not believe the adoption of this guidance will have a material impact on our consolidated
financial statements, as it only requires a change in the format of presentation.
In September 2011, the FASB issued an ASU to the guidance on Intangibles—Goodwill and Other—
Testing Goodwill for Impairment, to simplify how entities test goodwill for impairment. This guidance allows
entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. If a greater than 50 percent likelihood exists that the fair value is
less than the carrying amount, then a two-step goodwill impairment test as described in the guidance must be
performed. We adopted this guidance in fiscal 2011 and our adoption did not have a significant impact on our
consolidated financial statements. See to Note 3 for more information.
In June 2011, the FASB issued new accounting guidance (ASU 2011-05) related to the presentation of
comprehensive income that increases comparability between U.S. GAAP and International Financial Reporting
Standards (“IFRS”). This guidance eliminates the current option to report other comprehensive income and its
components in the statement of changes in equity and instead requires presenting in one continuous statement or
two separate but consecutive statements. This guidance is effective for our interim and annual periods beginning
January 2, 2012. We do not believe the adoption of this guidance will have a material impact on our consolidated
financial statements, as it only requires a change in the format of presentation.
In May 2011, the FASB issued a new standard amending U.S. generally accepted accounting principles
(“GAAP”) fair value measurements and disclosures for the purpose of ensuring that fair value measurement and
disclosure requirements are the same across both U.S. GAAP and IFRS. The standard contains amendments
changing the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for
disclosing information about fair value measurements, clarifying the application of existing fair value
measurement requirements and changing a particular principle for measuring fair value or for disclosing
information about fair value measurements. This guidance is effective for our interim and annual periods
including
beginning January 2, 2012. Additionally,
qualitative disclosures selected to level 3 fair value measurements. Early adoption is not permitted. We do not
expect this new standard to significantly impact our consolidated financial statements.
the standard expands certain disclosure requirements,
NOTE 2. DIVESTITURE
As part of Cypress’s continued efforts to focus on programmable products including our flagship PSoC®
programmable system-on-chip solutions and our TrueTouch™ touch-sensing controllers, we divested our image
sensors product families and sold them to ON Semiconductor Corporation (“ON”) on February 27, 2011.
Product Families
Reportable
Segment
Buyer
Total
Consideration
The image sensors product families Memory Products Division
ON Semiconductor
$34.0 million
65
In connection with the divestiture, we recorded a gain of $34.3 million. We received $14.9 million in cash in
March of 2011 and received the remaining $19.1 million in April 2011. The following table summarizes the
components of the gain:
Cash proceeds
Assets sold:
Inventories
Prepaid and other assets
Property, plant and equipment
Liabilities disposed of:
Accounts payable
Other liabilities
Taxes payable
Customer advances
Transaction and other costs
Gain on divestiture
Image Sensors
(In thousands)
$
34,025
(3,617)
(2,003)
(1,178)
1,508
3,416
1,129
1,239
(228)
$
34,291
In connection with the divestiture of the image sensor product families, we transferred approximately 80
employees to ON. In addition, we had a transition service agreement (“TSA”) with ON where we acted as an
agent and provided certain services related to shipping, manufacturing, planning and general administrative
functions including the billing and collection of shipments to ON customers and payments to vendors for
manufacturing activities. As a result of the TSA, at times we had a net payable or receivable to or from ON as we
collected receivables and made payments to vendors on behalf of ON. During the third quarter of fiscal 2011, the
services that we provided under the TSA ended per the terms of the agreement. No receivable or payable under
the TSA was outstanding as of January 1, 2012.
We did not have any divestitures in fiscal 2010 and 2009.
NOTE 3. GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable
intangible assets acquired in a business combination. The carrying amount of goodwill at January 1, 2012 was
$31.8 million in the Consumer and Computation Division (“CCD”) and was unchanged from the balance at
January 2, 2011. CCD is the only reportable business segment with goodwill.
We assess our goodwill for impairment on an annual basis and, if certain events or circumstances indicate
that an impairment loss may have been incurred, on an interim basis. Goodwill impairment exists when the
implied fair value of goodwill is less than its carrying value.
In September 2011, the FASB issued ASU 2011-08 -Testing Goodwill for Impairment (ASC Topic 350) that
was intended to reduce the complexity and costs by allowing an entity the option to make a qualitative evaluation
about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting
unit. The issuance of ASU 2011-08 provides an entity the option to first assess qualitative factors to determine
whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a
result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than
its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. We
adopted ASU 2011-08 in fiscal 2011. The fair value of CCD was substantially in excess of its carrying amount
based on the latest quantitative assessment of goodwill that we performed in fiscal 2010. There have been no
66
triggering events or changes in circumstances since that quantitative analysis to indicate that the fair value of
CCD would be less than its carrying amount.
We performed a qualitative assessment of goodwill in fiscal 2011 and concluded that it was more likely than
not that the fair value of CCD exceeded its carrying amount. In assessing the qualitative factors, we considered
the impact of these key factors: (i) change in the industry and competitive environment; (ii) market
capitalization; (iii) stock price; and (iv) overall financial performance such as negative or declining cash flows or
a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior
periods. Based on the foregoing, the first and second steps of the goodwill impairment test were unnecessary for
fiscal 2011 and goodwill was not impaired as of January 1, 2012. No goodwill impairment was recognized in
fiscal 2010 or 2009.
Intangible Assets
The following tables present details of our total intangible assets:
As of January 1, 2012
As of January 2, 2011
Gross
Accumulated
Amortization
Net
Gross
(In thousands)
Accumulated
Amortization
Net
Acquisition-related intangible
assets
Non-acquisition related
intangible assets
$
95,134
$
(88,782) $
6,352
$
100,134
$
(91,490) $
8,644
10,648
(8,374)
2,274
10,548
(6,693)
3,855
Total intangible assets
$
105,782
$
(97,156)
$
8,626
$
110,682
$
(98,183)
$
12,499
As of January 1, 2012, the estimated future amortization expense of intangible assets was as follows:
(In thousands)
2012
2013
2014
Total future amortization expense
$3,913
3,836
877
$8,626
67
NOTE 4. FAIR VALUE MEASUREMENTS
Assets/Liabilities Measured at Fair Value on a Recurring Basis
The following table presents our fair value hierarchy for our financial assets and liabilities measured at fair
value on a recurring basis as of January 1, 2012 and January 2, 2011:
As of January 1, 2012
As of January 2, 2011
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
(In thousands)
Financial Assets
Reported as cash
equivalents:
Money market
funds
Corporate notes and
bonds
Total cash
equivalents
Reported as short-term
investments:
U.S. treasuries
Corporate notes and
bonds
Federal agency
Commercial paper
Certificates of
deposit
Total short-term
investments
Reported as long-term
investments:
Auction rate
securities
Marketable equity
securities
Total long-term
investments
Employee deferred
compensation plan
assets:
Cash equivalents
Mutual funds
Equity securities
Fixed income
Money market
funds
Total employee
deferred
compensation
plan assets
$
77,952 $
— $
— $
77,952 $ 105,058 $
— $
— $
105,058
—
1,340
77,952
1,340
10,072
—
—
—
—
—
33,028
15,524
7,189
800
10,072
56,541
—
3,013
3,013
1,960
18,046
5,448
3,799
3,723
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,340
—
79,292
105,058
10,072
50,054
—
—
—
33,028
15,524
7,189
800
—
—
—
—
52,503
25,958
2,400
—
66,613
50,054
80,861
—
—
—
—
—
—
—
—
—
105,058
50,054
52,503
25,958
2,400
—
130,915
19,004
19,004
—
3,013
19,004
22,017
—
804
804
—
—
—
—
—
1,960
18,046
5,448
3,799
1,771
20,579
4,677
3,045
3,723
386
—
—
—
—
—
—
—
—
23,708
23,708
—
804
23,708
24,512
—
—
—
—
—
1,771
20,579
4,677
3,045
386
32,976
—
—
32,976
30,458
—
—
30,458
Total financial assets
$
124,013 $
57,881 $
19,004 $
200,898 $ 186,374 $
80,861 $
23,708 $
290,943
Financial Liabilities
Employee deferred
compensation plan
liability
$
32,485 $
— $
— $
32,485 $
29,974 $
— $
— $
29,974
68
Valuation Techniques:
‰
‰
‰
Level 1 includes instruments for which quoted prices in active markets for identical assets or liabilities
that we have the ability to access. Our financial assets utilizing Level 1 inputs include U.S. treasuries,
money market funds, marketable equity securities and our employee deferred compensation plan.
Level 2 includes instruments for which the valuations are based on quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be
corroborated by observable data for substantially the full term of the assets or liabilities. Level 2 assets
consist of certain marketable debt instruments for which values are determined using inputs that are
observable in the market or can be derived principally from or corroborated by observable market data.
Our Level 2 instruments include certain U.S. government securities, commercial paper and corporate
notes and bonds.
Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value
measurement. Financial assets utilizing Level 3 inputs primarily include auction rate securities. We use
an income approach valuation model to estimate the exit price of the auction rate securities, which is
derived as the weighted-average present value of expected cash flows over various periods of illiquidity,
using a risk adjusted discount rate that is based on the credit risk and liquidity risk of the securities.
Auction Rate Securities
All of our auction rate securities (“ARS”) are classified as Level 3 financial instruments. Our investments in
ARS have contractual maturities generally between 20 and 30 years and are usually found in the form of
municipal bonds, preferred stock, and a pool of student loans or collateralized debt obligations with interest rates
resetting every seven to 49 days through an auction process. The ARS held by us are backed by student loans
originated under the Federal Family Education Loan Program (FFELP), which are guaranteed by the U.S.
Federal Department of Education. All the auction rate securities held by us were rated as either AAA, Aaa or A3
by the major independent rating agencies.
Sale of Auction Rate Securities
In December 2011, we entered into a settlement and securities purchase agreement (the “Securities
Agreement”) with a certain financial institution. Pursuant to the terms of the Securities Agreement, we agreed to
sell to the financial institution certain of our ARS investments with an aggregate par value of approximately
$19.1 million and carrying value of approximately $17.3 million for an aggregate sale price of approximately
$16.4 million. Under the terms of the Securities Agreement, we have the option to repurchase from the financial
institution any of the ARS we sold to them until November 30, 2013 for the amount at which the related ARS
were sold plus agreed upon funding costs. Because of our ability to repurchase the ARS from the date of sale
through November 30, 2013, we maintain effective control of these ARS. As such, we did not account for the
transaction as a sale and recognized the $16.4 million sale consideration we received as “Advances received for
the sale of ARS” under “Other long-term liabilities” in the 2011 Consolidated Balance Sheet. We will continue to
account for these ARS as if we never sold them until they are called or the expiration of our call option under the
Securities Agreement.
The fair value of our investments in ARS was approximately $19.0 million and $23.7 million as of
January 1, 2012 and January 2, 2011, respectively.
In fiscal 2011 and 2010, we performed an analysis to assess the fair value of the ARS using a valuation
model based on discounted cash flows. The assumptions used were the following:
Years to liquidity
Discount rates *
Continued receipt of contractual interest which
provides a premium spread for failed auctions
2011
7 years
2010
7 years
1.75% – 3.95% 1.57% – 5.32%
Yes
Yes
* Discount rates incorporate a spread for both credit and liquidity risk.
69
Based on these assumptions, we estimated that the ARS were valued at approximately 91% and 90% of their
stated par value as of January 1, 2012 and January 2, 2011, respectively, representing a decline in value of
approximately $1.9 million and $2.6 million, respectively, which was recorded as an unrealized loss in
accumulated other comprehensive loss in fiscal 2011 and 2010, respectively.
Level 3 Investments Measured Fair Value on a Recurring Basis
The following table presents a summary of changes in our Level 3 investments measured at fair value on a
recurring basis:
Balance as of January 3, 2010
Unrealized gain recorded in Accumulated other comprehensive loss
Amount settled at par
Balance as of January 2, 2011
Unrealized gain recorded in Accumulated other comprehensive loss
Realized loss recorded in interest and other income, net
Amount settled at par
Balance as of January 1, 2012
Auction Rate
Securities
(In thousands)
$ 32,740
1,118
(10,150)
23,708
696
(75)
(5,325)
$ 19,004
Level 3 Assets Measured at Fair Value on a Nonrecurring Basis
Certain of our assets, including intangible assets, goodwill and cost-method investments, are measured at
fair value on a nonrecurring basis if impairment is indicated.
Investments in Equity Securities
Our investments in equity securities included long-term investments in non-marketable equity securities
(investments in privately-held companies) of approximately $3.2 million and marketable equity securities
(investments in publicly traded companies) of approximately $3.0 million as of January 1, 2012 ($2.0 million
investments in non-marketable equity securities and $0.8 million investments in marketable equity securities as
of January 2, 2011). Our privately-held equity investments are accounted for under the cost method as we have
less than 20% ownership interest and we do not have the ability to exercise significant influence over the
operations of the privately-held companies. These investments are periodically reviewed for other-than-
temporary declines in fair value by considering available evidence, including general market conditions, financial
condition, pricing in recent rounds of financing, if any, earnings and cash flow forecasts, recent operational
performance and any other readily available market data. As a result of our recent evaluation, we determined that
our investment in a certain privately-held company with an original carrying value of $2.0 million was impaired.
As such, we recognized an impairment loss of approximately $0.8 million in “Interest and other income, net” in
fiscal 2011, and we classified the investment as Level 3 asset due to the absence of quoted market prices and
inherent lack of liquidity. We had no impairment charges against our privately-held equity investments in fiscal
2010.
During fiscal 2010, we sold our equity investment in one publicly traded company for $4.7 million and
recognized a gain of $3.6 million in “Interest and other income, net”. We did not sell any investments in
marketable equity securities in fiscal 2011 and 2009.
There were no significant transfers between Level 1, Level 2 and Level 3 fair value hierarchies during fiscal
2011 and 2010.
70
NOTE 5. INVESTMENTS
Available-For-Sale Securities and Other Investments
The following tables summarize our available-for-sale securities and other investments:
As of January 1, 2012
Gross
Gross
Unrealized Unrealized
Gains
Losses
Cost
Fair
Value
Cost
(In thousands)
As of January 2, 2011
Gross
Gross
Unrealized Unrealized
Gains
Losses
Fair
Value
$ 77,952 $ — $ — $ 77,952 $105,058 $ — $ — $105,058
1,341 —
79,293 —
(1)
(1)
1,340
—
—
—
—
79,292
105,058 —
— 105,058
33,010
15,526
10,004
7,189
33
4
68
1
801 —
(15)
(6)
—
(1)
(1)
33,028
15,524
10,072
7,189
800
135
5
2
52,390
25,983
50,053
2,400 —
40,163 —
(22)
(30)
(1)
—
—
52,503
25,958
50,054
2,400
40,163
Reported as cash equivalents:
Money market funds
Corporate notes and
bonds
Total cash equivalents
Reported as short-term
investments:
Corporate notes and
bonds
Federal agency
U.S. treasuries
Commercial paper
Certificates of deposit (1)
Total short-term investments
66,530
106
(23)
66,613
170,989
142
(53) 171,078
Reported as long-term
investments:
Auction rate securities
Marketable equity
securities
20,900 —
(1,896)
19,004
26,300 —
(2,592)
23,708
3,253 —
(240)
3,013
1,187 —
(383)
804
Total long-term investments
24,153 —
(2,136)
22,017
27,487 —
(2,975)
24,512
Total available-for-sale
securities and other
investments
$169,976 $ 106
$ (2,160) $167,922 $303,534 $ 142
$ (3,028) $300,648
(1) Our certificates of deposit as of January 1, 2012 were tradable and were carried at fair value and were
disclosed as Level 2 assets in our fair value measurement disclosures in Note 4. The certificates of deposit
as of January 1, 2011 were non-tradable and were carried at cost. As such, the certificates of deposit as of
January 1, 2011 were not disclosed in the fair value measurement disclosures in Note 4.
As of January 1, 2012, $1.9 million of the $2.2 million gross unrealized losses were related to ARS that had
been in a continuous loss position for 12 months or more. As of January 2, 2011, $2.6 million of the $3.0 million
gross unrealized losses were related to ARS that had been in a continuous loss position for 12 months or more.
For individual marketable equity securities with unrealized losses, we evaluated the near-term prospects in
relation to the severity and duration of the impairment. Based on that evaluation and our ability and intent to hold
these investments for a reasonable period of time, we did not consider these investments to be other-than-
temporarily impaired as of January 1, 2012 and January 2, 2011.
71
As of January 1, 2012, the contractual maturities of our available-for-sale investments and certificates of
deposit were as follows (the table below does not include our investments in marketable equity securities):
Maturing within one year
Maturing in one to three years
Maturing in more than three years
Total
Cost
Fair Value
(In thousands)
$
124,622
21,201
20,900
$
124,641
21,264
19,004
$
166,723
$
164,909
Realized gains from sales of available-for-sale in fiscal 2011, 2010 and 2009 were not material.
Proceeds from sales or maturities of available-for-sale investments were $218.6 million, $32.5 million and
$24.5 million for fiscal 2011, 2010 and 2009, respectively.
NOTE 6. ASSETS HELD FOR SALE
Texas Facility
In fiscal 2007, we had implemented a restructuring plan to exit our manufacturing facility located in Round
Rock, Texas. The Texas facility ceased operations in the fourth quarter of fiscal 2008. The net book value of the
remaining restructured assets that were classified as held for sale and included in “Other current assets” in the
Consolidated Balance Sheets was $6.9 million as of January 1, 2012 and January 2, 2011. In fiscal 2011, we
performed an evaluation of the current market value of the Texas facility to determine if it was impaired. Based
upon our analysis of other comparable property sales in the area, we determined that the fair market value of the
facility was more than the carrying value. Accordingly, no impairment was recognized in fiscal 2011.
Due to the uncertainty in the commercial real estate market, we have been unable to secure a buyer for the
Texas facility. We expect to sell the facility within the next twelve months; however, there can be no assurance
of this and our ability to complete the sale of any restructured assets may be impacted by economic and credit
conditions.
We continue to incur expenses related to ongoing maintenance and upkeep of the Texas facility until we
complete the sale of the property.
Building
In the second quarter of fiscal 2011, we vacated one of our buildings located in San Jose, California and in
the third quarter of fiscal 2011, we began to market the building for sale or lease. In the third quarter of 2011,
based upon our analysis of other comparable building sales in the area, we determined that the fair market value
of the building was less than the carrying value, accordingly, we recorded an impairment charge of
approximately $2.0 million to reduce the carrying value of the building to the estimated current market value of
approximately $5.2 million. In the fourth quarter of fiscal 2011, we completed the sale of the building to a third
party for approximately $5.1 million. The loss that we realized from the sale of the building was not material.
NOTE 7. EMPLOYEE STOCK PLANS AND STOCK-BASED COMPENSATION
Our equity incentive plans are broad-based, long-term programs intended to attract and retain talented
employees and align stockholder and employee interests.
72
We currently have the following employee stock plans:
1994 Amended Stock Option Plan (“1994 Amended Plan”):
In fiscal 1994, our board of directors adopted the 1994 Stock Plan (the “1994 Plan”). The 1994 Plan was
amended in fiscal 2004, 2008 and most recently in fiscal 2011 (the “1994 Amended Plan”). The 1994 Amended
Plan provides for (1) the discretionary granting of stock options, restricted stock units (“RSUs”), restricted stock
awards (“RSAs”) and stock appreciation rights (“SARs”) to qualified employees, consultants and outside
directors, which options may be either incentive stock options (for employees only) or non-statutory stock
options, as determined at the time of grant and (2) the grant of non-statutory stock options, SARs, RSAs or RSUs
to outside directors pursuant to an automatic, non-discretionary formula. Options or awards granted under the
1994 Amended Plan become exercisable over a vesting period of generally five years and generally expire over
terms not exceeding eight years from the date of grant, subject to earlier termination upon the cessation of
employment or service of the recipients. At the annual meeting in 2011, our stockholders approved an increase of
15 million shares to the number of shares that can be issued under the 1994 Amended Plan. The maximum
aggregated number of shares authorized for issuance under the 1994 Amended Plan is 145.2 million shares. As of
January 1, 2012, approximately 23.9 million shares of stock options or 12.7 million shares of RSUs and RSAs
were available for grant under the 1994 Amended Plan. The 1994 Amended Plan will expire in January 2014.
Employee Stock Purchase Plan (“ESPP”):
Our ESPP allows eligible employees to purchase shares of our common stock through payroll deductions.
The ESPP contains consecutive 18-month offering periods composed of three six-month exercise periods. The
shares can be purchased at the lower of 85% of the fair market value of the common stock at the date of
commencement of the offering period or at the last day of each six-month exercise period. Purchases are limited
to 10% of an employee’s eligible compensation, subject to a maximum annual employee contribution limit of
$21,250. As of January 1, 2012, approximately 3.0 million shares were available for future issuance under the
ESPP. The ESPP will expire in May 2013.
Outstanding Employee Equity Awards
In conjunction with the SunPower Spin-Off which we completed in fiscal 2008, the Board approved certain
adjustments to our 1999 Plan and 1994 Amended Plan (together, the “Plans”). Specifically, the Board approved
amendments to make proportionate adjustments to, among other things, outstanding employee equity awards,
including stock options, restricted stock units and restricted stock awards under the Plans to preserve the intrinsic
value of the awards before and after the Spin-Off. These changes included a proportionate adjustment in the
number of shares issuable pursuant to the outstanding awards and the per-share exercise price of the options.
The Board also approved certain adjustments with respect to our ESPP to offset the decrease in our common
stock price resulting from the Spin-Off. These changes included a proportionate adjustment in the offering date
price per share of our common stock and maximum number of shares participants may purchase under the ESPP.
The modification of the outstanding employee equity awards and the ESPP related to the Spin-Off resulted
in additional non-cash stock-based compensation. The amount was measured based upon the difference between
the fair value of the awards immediately before and after the modification. Of the total additional non-cash stock-
based compensation, $5.5 million, $17.1 million and $59.4 million, net of estimated forfeitures, was recognized
in fiscal 2011, 2010 and 2009, respectively. The remaining $1.9 million will be recognized over the remaining
vesting periods on an accelerated basis, net of estimated forfeitures.
73
Stock-Based Compensation
The following table summarizes the stock-based compensation expense by line item in the Consolidated
Statement of Operations:
Cost of revenues
Research and development
Selling, general and administrative
Total stock-based compensation expense
January 1,
2012
$
23,730
24,297
52,754
Year Ended
January 2,
2011
(In thousands)
22,714
$
21,541
47,204
January 3,
2010
$
40,798
37,537
63,477
$
100,781
$
91,459
$
141,812
As stock-based compensation expense recognized in the Consolidated Statements of Operations is based on
awards ultimately expected to vest, it has been adjusted for estimated forfeitures. The accounting guidance
requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.
Consolidated cash proceeds from the issuance of shares under the employee stock plans were $71.2 million,
$96.9 million and $101.6 million for fiscal 2011, 2010 and 2009, respectively. No income tax benefit was
realized from stock option exercises for fiscal 2011, 2010 and 2009. As of January 1, 2012 and January 2, 2011,
stock-based compensation capitalized in inventories totaled $4.6 million and $6.2 million, respectively.
The following table summarizes the stock-based compensation expense by type of awards:
Stock options
Restricted stock units and restricted stock awards
ESPP
January 1,
2012
$
14,850
81,273
4,658
Year Ended
January 2,
2011
(In thousands)
19,946
$
65,046
6,467
January 3,
2010
$
56,386
74,842
10,584
Total stock-based compensation expense
$
100,781
$
91,459
$
141,812
The following table summarizes the unrecognized stock-based compensation balance, net of estimated
forfeitures, by type of awards as of January 1, 2012:
(In thousands)
Stock options
Restricted stock units and restricted stock awards
ESPP
Weighted-Average
Amortization
Period
(In years)
2.01
1.97
0.65
$
13,973
53,652
8,589
Total unrecognized stock-based compensation balance, net of
estimated forfeitures
$
76,214
1.83
74
Valuation Assumptions
We estimate the fair value of our stock-based equity awards using the Black-Scholes valuation model.
Assumptions used in the Black-Scholes valuation model were as follows:
Stock Option Plans:
Expected life
Volatility
Risk-free interest rate
Dividend yield
ESPP:
Expected life
Volatility
Risk-free interest rate
Dividend yield
January 1,
2012
Year Ended
January 2,
2011
January 3,
2010
2.3-7.3 years
2.3-7.0 years
2.4-7.4 years
38.1%-51.3% 42.2%-54.5%
0.5%-3.1%
0.0%
0.2%-2.9%
1.7%-2.2%
50.1%-60.8%
0.7%-3.2%
0.0%
0.5-1.5 years
0.5-1.5 years
0.5-1.5 years
49.8%-53.3% 44.6%-54.2%
0.1%-0.8%
0.04%-0.16%
0.0%
1.7%-2.2%
52.6%-85.8%
0.2%-0.7%
0.0%
Expected life: Expected life is based on historical exercise patterns, giving consideration to the contractual
terms of the awards and vesting schedules. In addition, employees who display similar historical exercise
behavior are grouped separately into two classes (executive officers and other employees) in determining the
expected life.
Volatility: We determined that implied volatility of publicly traded call options and quotes from option
traders is more reflective of market conditions and, therefore, can reasonably be a better indicator of expected
volatility than historical volatility. Therefore, our volatility is based on a blend of historical volatility of our
common stock and implied volatility.
Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the
time of grant.
Dividend yield: The expected dividend is based on our history and expected dividend payouts. Since we did
not pay dividends in fiscal 2010 and 2009, the expected dividend yield was zero in those years.
Employee Equity Award Activities
Stock Options:
The following table summarizes our stock option activities:
January 1, 2012
Year Ended
January 2, 2011
January 3, 2010
Weighted-
Average
Exercise Price
per Share
Weighted-
Average
Exercise Price
per Share
Weighted-
Average
Exercise Price
per Share
Shares
Shares
Shares
Options outstanding, beginning of year
Granted
Exercised
Forfeited or expired
Options outstanding, end of year
Options exercisable, end of year
36,070
$
$
1,080
(12,245) $
(1,542) $
23,363
15,560
$
$
(In thousands, except per-share amounts)
52,411
$
$
3,036
(17,990) $
(1,387) $
4.70
14.27
4.57
6.36
70,273
$
$
6,444
(19,433) $
(4,873) $
5.51
19.60
4.51
8.56
6.49
4.78
36,070
22,924
$
$
5.51
4.18
52,411
33,895
$
$
75
4.43
6.68
4.21
5.35
4.70
4.18
The weighted-average grant-date fair value was $6.34 per share for options granted in fiscal 2011, $5.13 per
share in options granted during fiscal 2010 and $2.97 per share for options granted in fiscal 2009.
The aggregate intrinsic value of the options outstanding and options exercisable as of January 1, 2012 was
approximately $246.8 million and $188.8 million, respectively. The aggregate intrinsic value represents the total
pre-tax intrinsic value which would have been received by the option holders had all option holders exercised
their options as of January 1, 2012 and do not include substantial tax payments.
The aggregate pre-tax intrinsic value of option exercises, which represents the difference between the
exercise price and the value of Cypress common stock at the time of exercise, was $200.1 million in fiscal 2011,
$157.8 million in fiscal 2010 and $88.8 million in fiscal 2009.
The aggregate grant date fair value of the options which vested in fiscal 2011, 2010 and 2009 was
$18.1 million, $16.3 million, and $25.2 million, respectively.
The following table summarizes information about options outstanding and exercisable as of January 1,
2012:
Range of Exercise Price
$1.06-$3.53
$3.53-$3.53
$3.54-$4.30
$4.35-$5.18
$5.19-$6.16
$6.17-$6.17
$6.21-$8.85
$8.89-$17.77
$18.31-$22.88
$23.23-$23.23
Options Outstanding
Options Exercisable
Weighted-
Average
Remaining
Contractual
Life
Weighted-
Average
Exercise
Price per
Share
Shares
(In thousands)
3,924
2,730
2,367
3,595
1,963
2,590
2,352
2,817
1,002
23
(In years)
3.76
3.15
4.27
2.63
6.03
6.76
6.11
6.41
7.68
7.52
23,363
4.82
$ 3.04
$ 3.53
$ 3.95
$ 4.98
$ 5.86
$ 6.17
$ 6.87
$ 13.83
$ 19.59
$ 23.23
$ 6.49
Weighted-
Average
Exercise
Price per
Share
$ 3.06
$ 3.53
$ 3.95
$ 4.98
$ 5.51
$ 6.17
$ 6.83
$ 13.10
$ 20.73
$ —
$ 4.78
Shares
(In thousands)
3,627
2,683
2,282
3,428
591
1,003
1,197
710
39
—
15,560
The total number of exercisable in-the-money options was approximately 15.3 million shares as of
January 1, 2012.
As of January 1, 2012, stock options vested and expected to vest totaled approximately 22.3 million shares,
with a weighted-average remaining contractual life of 4.73 years and a weighted-average exercise price of $6.31
per share. The aggregate intrinsic value was approximately $239.0 million.
76
Restricted Stock Units and Restricted Stock Awards:
The following table summarizes our restricted stock unit and restricted stock award activities:
Year Ended
January 1, 2012
January 2, 2011
January 3, 2010
Weighted-
Average
Grant Date
Fair Value
per Share
Shares
Weighted-
Average
Grant Date
Fair Value
per Share
Shares
Weighted-
Average
Grant Date
Fair Value
per Share
Shares
Non-vested, beginning of year
Granted
Released
Forfeited
Non-vested, end of year
14,970
2,228
(6,383) $
(1,810) $
(In thousands, except per-share amounts)
$
$
5.51
4.90
17,733
2,228
$ 18.97
$ 14.78
(3,866) $ 12.75
6.60
7.14
(1,125) $
8.52
$ 5.78
28,745
1,970
$ 7.86
(7,510) $ 5.07
(5,472) $ 3.73
9,005
$ 10.43
14,970
$
4.90
17,733
$ 5.51
The balance as of January 1, 2012 included approximately 4.4 million performance-based restricted stock
units and restricted stock awards granted under the 1994 Amended Plan. These performance-based awards
(“PARS”) were issued to certain senior-level employees in fiscal 2007, 2008 and 2011 and can be earned ratably
over a remaining period of one to two years, subject to the achievement of certain performance milestones set by
the Compensation Committee of the Board. These performance milestones can include:
‰
‰
‰
stock appreciation target against the Philadelphia Semiconductor Sector Index (“SOXX”);
certain levels of non-GAAP free cash flows, non-GAAP operating income, non-GAAP operating
expense, non-GAAP gross margin percentage, non-GAAP profit-before-taxes percentage; and
annual revenue growth.
If the milestones are not achieved, the shares are forfeited and cannot be earned in future periods.
We estimated the fair value of the shares with the market-condition milestone using a Monte Carlo valuation
model with the following weighted-average assumptions:
Year Ended
2011
2010
2009
Volatility of common stock
Volatility of the SOXX
Correlation coefficient
Risk-free interest rate
35.7% 39.8% 43.5%-69.6%
25.2% 30.3% 40.4%-57.4%
0.77
0.77
0.71-0.69
0.2%-0.3%
0.2% 0.3%
The fair value of the shares with the performance-related milestones was equivalent to the grant-date fair
value of our common stock. In addition, we granted other performance-based and service-based restricted stock
units whose fair value is typically equivalent to the grant-date fair value of our common stock.
ESPP:
During fiscal 2011, 2010 and 2009, we issued 1.8 million, 2.6 million and 5.2 million shares under our
ESPP with weighted-average price of $9.11, $5.59 and $12.79 per share, respectively. The 5.2 million shares
issued under our ESPP in fiscal 2009 included 1.8 million shares relating to the December 31, 2008 purchase
date which shares were delivered in 2009.
77
NOTE 8. BALANCE SHEET COMPONENTS
Accounts Receivable, Net
Accounts receivable, gross
Allowances for doubtful accounts receivable and sales returns
Accounts receivable, net
Inventories
Raw materials
Work-in-process
Finished goods
Total inventories
Other Current Assets
Prepaid expenses
Assets held for sale (see Note 6)
Prepaid to Grace–current portion
Other current assets
Total other current assets
Property, Plant and Equipment, Net
Land
Equipment
Buildings, building and leasehold improvements
Furniture and fixtures
Total property, plant and equipment, gross
Less: accumulated depreciation and amortization
As of
January 1,
2012
January 2,
2011
(In thousands)
$
$
107,433
(3,909)
103,524
$
$
121,876
(4,150)
117,726
As of
January 1,
2012
January 2,
2011
(In thousands)
$
$
4,474
63,552
24,278
7,350
72,072
22,341
$
92,304
$
101,763
As of
January 1,
2012
January 2,
2011
(In thousands)
$
24,664
6,913
2,164
9,751
$
24,004
6,913
—
10,991
$
43,492
$
41,908
As of
January 1,
2012
January 2,
2011
(In thousands)
$
17,655
1,013,517
201,793
9,334
1,242,299
(957,320)
$
26,610
965,236
204,376
10,662
1,206,884
(946,762)
Total property, plant and equipment, net
$
284,979
$
260,122
78
Other Long-term Assets
Employee deferred compensation plan (see Note 15)
Investments:
Debt securities (see Note 4)
Equity securities (see Note 4)
Prepaid to Grace–long-term portion
Other assets
Total other assets
As of
January 1,
2012
January 2,
2011
(In thousands)
$
32,976
$
30,458
19,004
6,213
5,957
14,849
23,708
2,804
2,460
13,256
$
78,999
$
72,686
Pre-payment to Grace
In fiscal 2010 and 2011, we made certain pre-payments to Grace Semiconductor Manufacturing
Corporations (“Grace”), a strategic foundry partner, to secure a certain supply of wafers. The pre-payments made
in fiscal 2011 are expected to be applied to purchases of wafers from Grace over a period of two years
commencing from February 23, 2011. At January 2, 2012, the unapplied pre-payment balance was $8.1 million,
of which approximately $2.2 million and approximately $5.9 million was recorded as part of “Other current
assets” and “Other long-term assets” in the 2011 Consolidated Balance Sheet, respectively.
Other Current Liabilities
Employee deferred compensation plan (see Note 15)
Restructuring accrual (see Note 9)
Capital lease–current portion
Equipment loan–current portion (see Note 13)
Other current liabilities
Total other current liabilities
Deferred Income Taxes and Other Tax Liabilities
As of
January 1,
2012
January 2,
2011
(In thousands)
$
32,485
4,061
2,257
2,725
21,402
$
29,974
3,559
—
—
32,259
$
62,930
$
65,792
As of
January 1,
2012
January 2,
2011
(In thousands)
165
38,445
$
(1,135)
54,965
38,610
$
53,830
Deferred income taxes
Non-current tax liabilities
Total deferred income taxes and other tax liabilities
$
$
79
Other Long-Term Liabilities
Capital lease–long term portion
Equipment loan–long term portion (see Note 13)
Advances received from the sale of ARS (see Note 4)
Other long term liabilities
As of
January 1,
2012
January 2,
2011
(In thousands)
$
12,982
11,413
16,390
6,393
$ —
—
—
3,789
$
47,178
$
3,789
NOTE 9. RESTRUCTURING
We recorded restructuring charges of $6.3 million, $3.0 million and $15.2 million during fiscal 2011, 2010
and 2009, respectively. The determination of when we accrue for severance and benefits costs depends on
whether the termination benefits are provided under a one-time benefit arrangement or under an on-going benefit
arrangement. As of January 1, 2012 and January 2, 2011, outstanding restructuring liability amounted to
approximately $4.1 million and $3.6 million, respectively.
The following table summarizes the restructuring charges recorded in the Consolidated Statements of
Operations:
Fiscal 2011 Restructuring Plan
Fiscal 2010 Restructuring Plan
Fiscal 2008/9 Restructuring Plan
Fiscal 2007 Restructuring Plan
Total restructuring charges
Fiscal 2011 Restructuring Plan
January 1,
2012
$
5,043
1,524
(424)
193
Year Ended
January 2,
2011
(In thousands)
—
$
2,243
995
(263)
January 3,
2010
$
—
—
15,028
214
$
6,336
$
2,975
$
15,242
In fiscal 2011, we initiated a restructuring plan which allows us to continue to allocate and align our
resources to the business units that we expect will drive future development and revenue growth (“Fiscal 2011
Restructuring Plan”). Restructuring activities related to personnel costs, which are primarily in the U.S., are
summarized as follows:
(In thousands)
Initial provision
Cash payments
Non-cash charges
Balance as of January 1, 2012
$ 5,043
(2,925)
(163)
$ 1,955
Restructuring liability under the Fiscal 2011 Restructuring Plan related primarily to personnel costs which
are expected to be paid out within the next twelve months.
Fiscal 2010 Restructuring Plan
During the third quarter of fiscal 2010, we implemented a restructuring plan to exit certain of our back-end
manufacturing operations located in the Philippines (“Fiscal 2010 Restructuring Plan”). These actions were
80
intended to reduce the cost of our back-end manufacturing by selling our labor intensive assembly operations to a
lower cost third-party subcontractor in China and by the continued shifting of these operations to our fully
automated back-end processes.
To date, we recorded total restructuring charges of $3.7 million under the Fiscal 2010 Restructuring Plan,
which was all related to personnel costs. As of January 1, 2012, the outstanding restructuring liability under the
Fiscal 2010 Restructuring Plan was $1.9 million and was primarily related to severance and benefits of our
employees. We expect to substantially complete the activities and fully pay out the remaining restructuring
liability under this program within the next twelve months.
The restructuring activities related to personnel costs are summarized as follows:
(In thousands)
Initial provision
Cash payments
Balance as of January 2, 2011
Provision
Cash payments
Balance as of January 1, 2012
Fiscal 2008/9 Restructuring Plan
$ 2,243
(37)
2,206
1,524
(1,845)
$ 1,885
In fiscal 2008, we initiated a restructuring plan as part of a companywide cost saving initiative, which
continued into 2010, that was aimed to reduce operating costs in response to the economic downturn (“Fiscal
2008/9 Restructuring Plan”). In the third quarter of fiscal 2011, we completed the remaining actions we had for
this plan and the remaining balance of approximately $1.1 million as of the January 2, 2011 was fully settled
during the third quarter of fiscal 2011. From initial provision through the third quarter of fiscal 2011, we
recorded a total of $27.4 million under the Fiscal 2008/9 Restructuring Plan, of which $23.8 million was related
to personnel costs and $3.6 million was related to other exit costs.
NOTE 10. FOREIGN CURRENCY DERIVATIVES
We operate and sell products in various global markets and purchase capital equipment using the U.S. dollar
and foreign currencies. As a result, we are exposed to risks associated with changes in foreign currency exchange
rates. We may use various hedge instruments from time to time to manage the exposures associated with
purchases of foreign sourced equipment, net asset or liability positions of our subsidiaries and forecasted
revenues and expenses. We do not enter into foreign currency derivative financial instruments for speculative or
trading purposes. The counterparties to these hedging transactions are creditworthy multinational banks and the
risk of counterparty nonperformance associated with these contracts is not considered to be material as of
January 1, 2012. We estimate the fair value of our forward contracts based on spot and forward rates from
published sources.
We record hedges of certain foreign currency denominated monetary assets and liabilities at fair value at the
end of each reporting period with the related gains or losses recorded in “Interest and other income, net” in the
Consolidated Statements of Operations. The gains or losses on these contracts are substantially offset by
transaction gains or losses on the underlying balances being hedged. There were no outstanding forward contract
hedges as of January 1, 2012 and the aggregate notional value of outstanding forward contracts to hedge the risks
associated with foreign currency denominated assets and liabilities as of January 2, 2011 was immaterial.
81
NOTE 11. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss were as follows:
Accumulated net unrealized losses on available-for-sale
investments
Other
Total accumulated other comprehensive loss
NOTE 12. INTEREST AND OTHER INCOME, NET
As of
January 1,
2012
January 2,
2011
(In thousands)
$(1,551)
(389)
$(1,940)
$(2,698)
(505)
$(3,203)
The following table summarizes the components of interest and other income, net, recorded in the
Consolidated Statements of Operations:
Interest income
Changes in fair value of investments under the deferred
compensation plan (see Note 15)
Impairment of investments (see Note 4)
Foreign currency exchange gains (losses), net
Gain on sale of equity investments (see Note 4)
Other
January 1,
2012
$
1,466
Year Ended
January 2,
2011
(In thousands)
2,515
$
January 3,
2010
$
2,101
(862)
(800)
212
—
1,843
2,653
—
(2,452)
3,628
(42)
5,150
(2,549)
(22)
—
(941)
Total interest and other income, net
$
1,859
$
6,302
$
3,739
NOTE 13. DEBT AND EQUITY TRANSACTIONS
Equipment Loans
In December 2011, we obtained equipment loans from a certain financial institution for an aggregate
amount of approximately $14.1 million. These loans are collateralized by certain of our manufacturing
equipment and bear interest of 3.15% to 3.18% per annum and are payable in 60 equal installments with the first
installments due in January 2012. The related master loan agreement includes a variety of standard covenants
including restrictions on merger with another company without consent (which shall not be unreasonably
withheld), liquidation or dissolution, and distribution, lease or transfer of our ownership interest in these
properties or assets. Of the $14.1 million outstanding balance as of January 1, 2012, approximately $2.7 million
was recorded as part of “Other current liabilities” and $11.4 million was recorded as part of “Other long-term
liabilities” in the 2011 Consolidated Balance Sheet. At January 1, 2012, the fair value of the equipment loans
approximated the carrying value. The fair value was estimated using discounted cash flow analysis using relevant
factors that might affect the fair value, such as present value factors and risk-free interest rates based on the U.S.
Treasury yield curve.
82
The schedule of principal payments under our equipment loans is as follows:
Fiscal Year
2012
2013
2014
2015
2016
Total
Line of Credit
(In thousands)
$ 2,652
2,737
2,825
2,915
3,009
$14,138
In March 2011, we amended our revolving line of credit with Silicon Valley Bank to extend the maturity of
the credit facility to February 28, 2012 and to reduce, at our request, the commitment amount from $25.0 million
to $15.0 million. Loans made under the line of credit bear interest based upon the Wall Street Journal Prime Rate
or LIBOR plus 2.5%. The line of credit agreement includes a variety of standard covenants including restrictions
on the incurrence of indebtedness, incurrence of loans, the payment of dividends or distribution on our capital
stock, and transfers of assets and financial covenants with respect to an adjusted quick ratio and tangible net
worth. As of January 2, 2012, we were in compliance with all of the financial covenants under the line of credit.
Our obligations under the line of credit are guaranteed and collateralized by the common stock of certain of our
business entities. We intend to use the line of credit on an as-needed basis to fund working capital and capital
expenditures. To date, there have been no borrowings under the line of credit.
Stock Buyback Programs:
$400 Million Program Authorized in Fiscal 2011
On September 20, 2011, our Board authorized a new $400.0 million stock buyback program. The program
allows us to purchase our common stock or enter into equity derivative transactions related to our common stock.
The timing and actual amount expended with the new authorized funds will depend on a variety of factors
including the market price of our common stock, regulatory, legal, and contractual requirements, and other
market factors. The program does not obligate us to repurchase any particular amount of common stock and may
be modified or suspended at any time at the discretion of our board of directors. As of January 1, 2012, we used
$79.8 million to repurchase 5.1 million shares at an average share price of $15.77. As of January 1, 2012, $320.2
million remained available for future repurchases under the program.
$600 Million Program Authorized in Fiscal 2010
The $600.0 million stock buyback program approved and authorized by our Board in October 2010 was
completed in the third quarter of fiscal 2011. We repurchased a total of 32.6 million shares at an average share
price of $18.38 under this program (30.9 million shares at an average share price of $18.46 were repurchased in
fiscal 2011 and 1.7 million shares at an average share price of $17.07 were purchased in fiscal 2010). Of the
30.9 million shares repurchased in fiscal 2011, 9.5 million shares were repurchased through our yield
enhancement program.
$600 Million Program Authorized in Fiscal 2008
In fiscal 2008, our Board approved up to a total of $600.0 million that may be used for stock purchases
under the stock repurchase program. During fiscal 2008, we used $375.6 million in cash to repurchase a total of
approximately 37.1 million shares at an average share price of $10.13. During fiscal 2009, we used $46.3 million
to repurchase approximately 5.8 million shares at an average share price of $8.00. In light of certain tax
constraints placed on us in connection with the Spin-off, we had no intentions of repurchasing additional stock
under this program. Accordingly, on October 28, 2009, the Audit Committee of the Board voted to rescind the
remaining $178.1 million available under the program for additional repurchases.
83
Yield Enhancement Program:
In fiscal 2009, the Audit Committee approved a yield enhancement strategy intended to improve the yield
on our available cash. As part of this program, the Audit Committee authorized us to enter into short-term yield
enhanced structured agreements, typically with maturities of 90 days or less, correlated to our stock price. Under
the agreements we entered into to date, we pay a fixed sum of cash upon execution of an agreement in exchange
for the financial institution’s obligations to pay either a pre-determined amount of cash or shares of our common
stock depending on the closing market price of our common stock on the expiration date of the agreement. Upon
expiration of each agreement, if the closing market price of our common stock is above the pre-determined price,
we will have our cash investment returned plus a yield substantially above the yield currently available for short-
term cash investments. If the closing market price is at or below the pre-determined price, we will receive the
number of shares specified at the agreement’s inception. As the outcome of these arrangements is based entirely
on our stock price and does not require us to deliver either shares or cash, other than the original investment, the
entire transaction is recorded in equity.
We enter into a yield enhanced structured agreement based upon a comparison of the yields available in the
financial markets for similar maturities against the expected yield to be realized per the structured agreement and
the related risks associated with this type of arrangement. We believe the risk associated with these types of
agreements is no different than alternative investments available to us with equivalent counterparty credit ratings.
All counterparties to a yield enhancement program have a credit rating of at least Aa2 or A as rated by major
independent rating agencies. For all such agreements that matured to date, the yields of the structured agreements
were far superior to the yields available in the financial markets primarily due to the volatility of our stock price
and the pre-payment aspect of the agreements. The counterparty is willing to pay a premium over the yields
available in the financial markets due to the structure of the agreement.
The following table summarizes the activity of our settled yield enhanced structured agreements during
fiscal 2011, 2010 and 2009:
Aggregate
Price Paid
Total Cash Proceeds
Received Upon
Maturity
Yield
Realized
Total Number of
Shares
Received Upon
Maturity
Average Price Paid
per Share
(In thousands, except per-share amounts)
$
137,798 $
143,798
$
6,000
—
Periods
Fiscal 2011:
Settled through cash proceeds (1)
Settled through issuance of common
stock (2)
180,636
—
Total for fiscal 2011
$
318,434 $
143,798
Fiscal 2010:
Settled through cash proceeds
Settled through issuance of common
stock
Total for fiscal 2010
Fiscal 2009:
Settled through cash proceeds
Total for fiscal 2009
207,882 $
217,489
114,917
—
322,799 $
217,489
68,017 $
68,017 $
69,065
69,065
$
$
$
—
6,000
9,500
9,500
9,607
—
—
10,000
9,607
10,000
1,048
1,048
—
—
$
$
$
$
$
$
$
$
$
$
$
$
$
—
19.01
19.01
—
11.49
11.49
—
—
(1) This includes a YEP agreement entered into in fiscal 2010 for an aggregate price of approximately $43.9
million which remained unsettled as of the end of fiscal 2010. Such agreement was subsequently settled in
the first quarter of fiscal 2011 for approximately $47.0 million.
84
(2)
Included as part of the $600 million stock buyback program authorized in fiscal 2010.
Dividends
We initiated our first ever dividend program in the second quarter of fiscal 2011 and our Board declared
cash dividends of $0.09 per share payable in the third and fourth quarters of fiscal 2011. Total cash dividends
paid in fiscal 2011 were approximately $29.0 million. On December 8, 2011, our Board declared a cash dividend
of $0.09 per share payable to holders of record of our common stock at the close of business day on January 5,
2012. This cash dividend was paid on January 19, 2012 and totaled approximately $13.8 million. No cash
dividends were declared and paid in fiscal 2010 and 2009.
NOTE 14. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted-average common shares outstanding.
Diluted net income per share is computed using the weighted-average common shares outstanding and any
dilutive potential common shares. Diluted net loss per common share is computed using the weighted-average
common shares outstanding and excludes all dilutive potential common shares when we are in a net loss position
their inclusion would be anti-dilutive. Our dilutive securities primarily include stock options, restricted stock
units, restricted stock awards, convertible debt and warrants.
The following table sets forth the computation of basic and diluted net income (loss) per share:
Net Income (Loss) per Share—Basic:
Net income (loss) attributable to Cypress for basic computation
Weighted-average common shares for basic computation
Net income (loss) per share—basic
Net Income (Loss) per Share—Diluted:
Net income (loss) attributable to Cypress for diluted computation
Weighted-average common shares for basic computation
Effect of dilutive securities:
Stock options, restricted stock units, restricted stock awards
and other
Weighted-average common shares for diluted computation
January 1,
2012
Year Ended
January 2,
2011
January 3,
2010
(In thousands, except per-share amounts)
$
$
$
$
$
$
167,839
164,495
1.02
167,839
164,495
75,742
$ (150,424)
161,114
145,611
0.47
$
(1.03)
75,742
$ (150,424)
161,114
145,611
22,400
186,895
30,263
191,377
—
145,611
Net income (loss) per share—diluted
$
0.90
$
0.40
$
(1.03)
Anti-Dilutive Securities:
The following securities were excluded from the computation of diluted net income (loss) per share as their
impact was anti-dilutive:
Stock options, restricted stock units and restricted stock awards
1.00% Notes
Warrants
85
January 1,
2012
1,814
—
—
Year Ended
January 2,
2011
(In thousands)
1,421
—
—
January 3,
2010
83,689
841
948
Convertible Debt and Warrants:
The 1.00% Notes were convertible debt which required us to settle the principal value of the debt in cash
and any conversion premiums in either cash or stock, at our election. In connection with the issuance of the
1.00% Notes, we entered into a convertible note hedge transaction. In addition, we entered into a warrant
transaction in which we sold to the option counterparties warrants to acquire the same number of shares of our
common stock underlying the 1.00% Notes. We applied the treasury stock method in determining the dilutive
impact of both the 1.00% Notes and the warrants. In accordance with the relevant guidance, the convertible note
hedge was excluded from the diluted earnings per share computation as it was anti-dilutive.
NOTE 15. EMPLOYEE BENEFIT PLANS
Key Employee Bonus Plan (“KEBP”)
We have a key employee bonus plan, which provides for incentive payments to certain key employees
including all executive officers except the Chief Executive Officer. Payments under the plan are determined
based upon certain performance measures, including actual PBT% or our actual earnings per share, depending on
the year, compared to a target as well as achievement of strategic, operational and financial goals established for
each key employee. We recorded total charges of $9.5 million under the plan in fiscal 2011, $12.8 million in
fiscal 2010 and $7.3 million in fiscal 2009.
Performance Profit Sharing Plan (“PPSP”)
We have a performance profit sharing plan, which provides incentive payments to all our employees.
Payments under the plan are determined based upon our earnings per share and the employees’ percentage of
success in achieving certain performance goals. We recorded total charges of $3.7 million under the plan in fiscal
2011, $5.0 million in fiscal 2010 and $4.9 million in fiscal 2009.
Performance Bonus Plan
We have a performance bonus plan which provides for incentive payments to executive officers and key
employees who are recommended by our senior management and approved solely at the discretion of the
Committee of the Board. Payments under the plan are determined based upon the attainment and certification of
certain objective performance criteria established by the Committee. The sole participant in the performance
bonus plan for fiscal 2011, 2010 and 2009 was our Chief Executive Officer. Under the plan, we recorded total
charges of $0.8 million, $1.1 million and $0.6 million in fiscal 2011, 2010 and 2009, respectively.
Deferred Compensation Plan
We have a deferred compensation plan, which provides certain key employees, including our executive
management, with the ability to defer the receipt of compensation in order to accumulate funds for retirement on
a tax-free basis. We did not make contributions to the deferred compensation plan or guarantee returns on the
investments. Participant deferrals and investment gains and losses remain our assets and are subject to claims of
general creditors.
Under the deferred compensation plan the assets are recorded at fair value in each reporting period with the
offset being recorded in “Other income (expense), net.” The liabilities are recorded at fair value in each reporting
period with the offset being recorded as an operating expense or income. As of January 1, 2012 and January 2,
2011, the fair value of the assets was $33.0 million and $30.5 million, respectively, and the fair value of the
liabilities was $32.5 million and $30.0 million, respectively.
86
All expense and income recorded under the deferred compensation plan were included in the following line
items in the Consolidated Statements of Operations:
Changes in fair value of assets recorded in:
Interest and other income, net
Changes in fair value of liabilities recorded in:
Cost of revenues
Research and development expenses
Selling, general and administrative expenses
Total income (expense), net
401(k) Plan
January 1,
2012
Year Ended
January 2,
2011
(In thousands)
January 3,
2010
$ (862)
$ 2,653
$ 5,150
111
114
460
$ (177)
(370)
(959)
(1,726)
$ (402)
(516)
(1,454)
(3,168)
12
$
We sponsor a 401(k) plan which provides participating employees with an opportunity to accumulate funds
for retirement. We do not make contributions to the 401(k) plan.
Pension Plans
We sponsor defined benefit pension plans covering employees in certain of our international locations. We
do not have pension plans for our United States-based employees. Pension plan benefits are based primarily on
participants’ compensation and years of service credited as specified under the terms of each country’s plan. The
funding policy is consistent with the local requirements of each country.
As of January 1, 2012 and January 2, 2011, projected benefit obligations totaled $5.6 million and
$8.7 million, respectively, and the fair value of plan assets was $2.8 million and $4.2 million, respectively.
NOTE 16. INCOME TAXES
The geographic distribution of income (loss) before income taxes and the components of income tax benefit
(provision) are summarized below:
January 1,
2012
$ (3,546)
159,124
155,578
Year Ended
January 2,
2011
(In thousands)
$ (86,630)
180,796
94,166
January 3,
2010
$ (183,804)
38,288
(145,516)
15,641
336
(4,111)
11,866
(6,621)
30
(5,245)
(11,836)
(487)
(487)
$ 11,379
(7,454)
(7,454)
$ (19,290)
$
(1,986)
(250)
(3,618)
(5,854)
—
—
(5,854)
United States income (loss)
Foreign income
Income (loss) before income taxes
Income tax benefit (provision):
Current tax benefit (expense):
Federal
State
Foreign
Total current tax benefit (expense)
Deferred tax expense:
Foreign
Total deferred tax expense
Income tax benefit (provision)
87
Income tax benefit (provision) differs from the amounts obtained by applying the statutory United States
federal income tax rate to income (loss) before taxes as shown below:
Benefit (provision) at U.S. statutory rate of 35%
Foreign income at other than U.S. rates
Future benefits not recognized
Recognition of prior-year benefits
Reversal of previously accrued taxes
Effect of stock-based compensation
Refundable tax credits
State income taxes, net of federal benefit
Non-deductible executive compensation
SunPower tax sharing agreement
Other, net
January 1,
2012
$ (54,452)
43,647
(34,124)
29,186
22,395
3,907
1,049
336
—
—
(565)
Year Ended
January 2,
2011
(In thousands)
$ (32,958)
43,408
(30,167)
—
1,050
—
437
30
—
—
(1,090)
January 3,
2010
$ 50,930
5,967
(61,474)
—
506
—
676
(250)
(1,181)
(1,154)
126
Income tax benefit (provision)
$
11,379
$ (19,290)
$
(5,854)
The components of deferred tax assets and liabilities were as follows:
Deferred tax assets:
Credits and net operating loss carryovers
Reserves and accruals
Excess of book over tax depreciation
Deferred income
Total deferred tax assets
Less valuation allowance
Deferred tax assets, net
Deferred tax liabilities:
Intangible assets arising from acquisitions
Total deferred tax liabilities
Net deferred tax assets
As of
January 1,
2012
January 2,
2011
(In thousands)
$
234,968
55,600
32,073
6,880
$
207,503
73,494
25,192
18,413
329,521
(327,503)
324,602
(320,844)
2,018
3,758
(2,018)
(2,018)
(3,071)
(3,071)
$
— $
687
As of January 1, 2012, of the total deferred tax assets of $329.5 million, a valuation allowance of $327.5
million has been recorded for the portion which is not more likely than not to be realized. This is based on a
jurisdictional assessment. As of January 2, 2011, of the total deferred tax assets of $324.6 million, a valuation
allowance of $320.8 million was recorded for the portion which was not more likely than not to be realized based
on a jurisdictional assessment.
At January 1, 2012, we had U.S. federal net operating loss carryovers of approximately $734.7 million,
which, if not utilized, will expire from 2013 through 2032. Of the $734.7 million, $21.1 million relates to
acquisitions and are subject to Section 382 limitation. When recognized, the tax benefit related to $593.0 million
will be accounted for as a credit to additional paid-in capital rather than a reduction of the income tax provision.
We had state net operating loss carryovers of approximately $223.4 million which, if not utilized, will expire
from 2012 through 2022. A portion of these net operating loss carryovers relate to recent acquisitions and are
88
subject to certain limitations. We had U.S. federal tax credit carryforwards of approximately $117.8 million,
which, if not utilized, will expire from 2019 through 2032, and state tax credit carryforwards of approximately
$83.3 million, which currently do not have any expiration date. In addition, utilization of the net operating losses
and tax credit carryovers may be limited if certain ownership changes occur subsequent to January 1, 2012.
We received tax deductions from the gains realized by employees on the exercise of certain non-qualified
stock options for which the benefit is recognized as a component of stockholders’ equity. Historically, we have
evaluated the deferred tax assets relating to these stock option deductions along with its other deferred tax assets
and concluded that a valuation allowance is not required for that portion of the total deferred tax assets that are
considered more likely than not to be realized in future periods. To the extent that the deferred tax assets with a
valuation allowance become realizable in future periods, we will have the ability, subject to carryforward
limitations, to benefit from these amounts. When realized, the tax benefits of tax deductions related to stock
options are accounted for as an increase to additional paid-in capital rather than a reduction of the income tax
provision.
United States income taxes and foreign withholding taxes have not been provided on a cumulative total of
$207.5 million and $335.8 million of undistributed earnings for certain non-United States subsidiaries as of
January 1, 2012 and January 2, 2011, respectively, because such earnings are intended to be indefinitely
reinvested in the operations and potential acquisitions of our international operations. Upon distribution of those
earnings in the form of dividends or otherwise, we would be subject to U.S. income taxes (subject to an
adjustment for foreign tax credits). It is not practicable to determine the income tax liability that might be
incurred if these earnings were to be distributed.
Our global operations involve manufacturing, research and development, and selling activities. Our
operations outside the U.S. are in certain countries that impose a statutory tax rate both higher and lower than the
U.S. We are subject to tax holidays in the Philippines where we manufacture and design certain of our products.
These tax holidays are scheduled to expire at varying times within the next one and four years. Our tax benefit of
these tax holidays for the year ended January 1, 2012 was $0.5 million which had an insignificant impact on
earnings per share. Overall, we expect our foreign earnings to be taxed at rates lower than the statutory tax rate in
the U.S.
Unrecognized Tax Benefits
The following table is a reconciliation of unrecognized tax benefits:
(In thousands)
Unrecognized tax benefits, as of December 28, 2008
Increase based on tax positions related to current year
Decrease related to settlements with taxing authorities
Unrecognized tax benefits, as of January 3, 2010
Increase based on tax positions related to current year
Increase based on tax positions related to prior years
Decrease related to lapsing of statutes of limitations
Unrecognized tax benefits, as of January 2, 2011
Decrease related to settlements with taxing authorities
Increase based on tax positions related to current year
Decrease based on tax positions related to prior years
Decrease related to lapsing of statutes of limitations
Unrecognized tax benefits, as of January 1, 2012
89
22,045
17,775
(506)
39,314
5,311
3,059
(861)
46,823
(14,830)
6,794
(1,238)
(7,732)
$
$
29,817
As of January 1, 2012, January 2, 2011 and January 3, 2010, the amounts of unrecognized tax benefits that, if
recognized, would affect our effective tax rate totaled $27.5 million, $43.6 million and $37.2 million, respectively.
Management believes events that could occur in the next 12 months and cause a material 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 statue of limitations on our tax returns.
The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of
complex global tax regulations. Management regularly assesses our tax positions in light of legislative, bilateral
tax treaty, regulatory and judicial developments in the countries in which we do business. We believe it is
possible that we may recognize approximately $2.5 million to $3.5 million of our existing unrecognized tax
benefits within the next twelve months as a result of the lapse of statutes of limitations and the resolution of
agreements with domestic and various foreign tax authorities.
Classification of Interest and Penalties
Our policy is to classify interest expense and penalties, if any, as components of income tax provision in the
Consolidated Statements of Operations. As of January 1, 2012, January 2, 2011 and January 3, 2010, the amount
of accrued interest and penalties totaled $9.8 million, $10.1 million and $6.4 million, respectively. We recorded
interest and penalties, net of approximately $(0.3) million, 3.7 million and $2.1 million during fiscal 2011, 2010
and 2009, respectively.
Tax Examinations
The following table summarizes our major tax jurisdictions and the tax years that remain subject to
examination by such jurisdictions as of January 1, 2012:
Tax Jurisdictions
United States
Philippines
India
California
Tax Years
2009 and onward
2008 and onward
2007 and onward
2007 and onward
The IRS has completed its examination of fiscal years 2006-2008. The examination resulted in no material
adjustments to our tax liabilities. In addition, non-U.S.
tax authorities have completed their income tax
examinations of our subsidiary in India for fiscal years 2002-2006 and our subsidiary in the Philippines for 2007.
The proposed adjustments in India have been appealed, and we believe the ultimate outcome of these appeals
will not result in a material adjustment to our tax liability. The Philippines examination for 2007 resulted in no
material adjustments to our tax liabilities. Income tax examinations of our Philippine subsidiary for the 2008
-2010 fiscal years and our India subsidiary for the 2007-2008 fiscal years are in progress. We believe the ultimate
outcome of these examinations will not result in a material adjustment to our tax liability.
NOTE 17. COMMITMENTS AND CONTINGENCIES
Product Warranties
We generally warrant our 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. We estimate our warranty costs based on 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 properly reflects the remaining obligations based on the anticipated returns over the balance of the
obligation period.
90
The following table presents our warranty reserve activities:
January 1,
2012
$
$
3,347
2,000
(2,262)
3,085
Year Ended
January 2,
2011
(In thousands)
3,151
$
5,541
(5,345)
$
3,347
January 3,
2010
$
$
3,341
8,825
(9,015)
3,151
Beginning balance
Provisions
Settlements made
Ending balance
Capital Lease
On July 19, 2011, we entered into a capital lease agreement which allows us to borrow up to $35.0 million
to finance the acquisition of certain manufacturing equipment. We have the option of purchasing the tools from
the lessor at specified intervals during the lease term. The master lease contains standard covenants requiring us
to insure and maintain the equipment in accordance with the manufacturers’ recommendations and comply with
other customary terms to protect the leased assets. In addition, the master lease agreement contains provisions in
the event of default. Assets purchased under the capital lease are included in “Property, plant and equipment, net”
as manufacturing equipment and the amortization is included in depreciation. As of January 1, 2012, the gross
value and net book value of manufacturing equipment purchased under capital lease was approximately $17.5
million and $16.7 million, respectively. As of January 1, 2012, the total minimum lease payments under our
capital leases amounted to approximately $16.4 million.
Future minimum payments, by year and in the aggregate, under the capitalized lease consist of the
following:
Fiscal Year
(In thousands)
2012
2013
2014
2015
2016
2017 and Thereafter
Total minimum lease payments
Less: amount representing interest
$
2,554
2,554
2,554
2,554
2,554
3,659
16,429
1,153
Present value of net minimum lease payments
$
15,276
Charitable Donation of Building
On April 1, 2011, we sold a building to a charitable organization for $4.0 million in exchange for a
promissory note. The promissory note will be paid over the next four years in $1.0 million annual payments and
is reflected in our fiscal 2011 Consolidated Balance Sheet as “Other current assets” and “Other long-term assets”.
In addition, we made a $4.0 million unconditional pledge to the same charitable organization to be paid in four
$1.0 million installments over the next four years. This amount is reflected in “Other current liabilities” and
“Other non-current liabilities” in our fiscal 2011 Consolidated Balance Sheet.
Operating Lease Commitments
We lease certain facilities and equipment under non-cancelable operating lease agreements that expire at
various dates through fiscal 2018. Some leases include renewal options, which would permit extensions of the
expiration dates at rates approximating fair market rental values.
91
As of January 1, 2012, future minimum lease payments under non-cancelable operating leases were as
follows:
Fiscal Year
2012
2013
2014
2015
2016
2017 and Thereafter
Total
(In thousands)
$ 6,975
4,875
4,297
3,590
2,396
3,369
$25,502
Rental expenses totaled approximately $7.0 million, $7.2 million and $6.6 million in fiscal 2011, 2010 and
2009, respectively.
Litigation and Asserted Claims
On January 21, 2011, Avago Technologies Inc. filed a patent infringement case against us in the U.S.
District Court in Delaware. The three patents at issue cover Avago’s touch technology, including finger
navigation. Avago has made no specific demand for relief in this matter. Accordingly, the possible range of
losses is unknown at this time. On July 20, 2011, our request for inter partes re-examination of Avago’s U.S.
Patent No. 7,189,985 by the U.S. Patent and Trademark Office was accepted. On December 12, 2011, Avago
dismissed with prejudice all of its claims against us; we made no payments and made no admission of
infringement reconfirming our position that the lawsuit was without merit.
On March 30, 2011, we filed a five patent infringement case against GSI Technology in the U.S. District
Court in Minnesota. The five patents at issue cover GSI’s static random access memory (SRAM) technology,
including GSI’s Sigma DDR and SigmaQuad II and III families of memory products. We are seeking damages as
well as injunctive relief from the court. On July 23, 2011, the International Trade Commission (ITC) instituted a
formal action to enjoin the importation of GSI products that infringe four of our U.S. patents. We have completed
discovery in that action and are now preparing for the hearing which is currently scheduled for March 12, 2012.
Through discovery, we learned that certain other products of GSI also infringe our asserted patents. As a result,
on November 21, 2011, we expanded the scope of the ITC action to include GSI’s standard synchronous and
ZBT SRAMs as well as a proprietary product made for GSI’s largest customer. In July 2011, GSI filed requests
for re-examination of our U.S. Patent Nos. 7,142,477 and 6,534,805 with the U.S. Patent and Trademark Office
(PTO) as well as a civil complaint with the Federal District Court in Northern California. The civil complaint
accuses the QDR Consortium, of which we are a member, of certain anti-competitive activity. We filed a motion
to dismiss that case which is pending, and the case is otherwise stayed. Aside from injunctive relief, GSI has
made no specific monetary demand in the anti-trust matter. Accordingly, the possible range of monetary loss in
the matter, if any, is demanded in the future, is unknown at this time. We believe strongly in the merits of our
ITC case and we also believe we have meritorious defenses to the allegations set forth in the GSI civil complaint
and we will vigorously defend ourselves in that matter.
On July 26, 2011, Commonwealth Research Group, LLC (“CRG”) filed a single patent infringement case
naming Cypress and 12 other defendants in the U.S. District Court in Delaware. As a non-practicing entity, CRG
does not sell or produce any products or services to the public. The complaint accuses our PSoC5 of infringing
CRG’s patent for a “system for conserving energy among electrical components.” CRG is seeking injunctive as
well as unspecified monetary damages. However, given that our PSoC5 is not yet commercially available, there
are no commercial sales on which to award damages. We have investigated the claims asserted in the complaint
and believe we have meritorious defenses and will vigorously defend ourselves in this matter. CRG has made no
specific demand for relief in this matter. As such, the possible range of losses is unknown at this time.
We are currently a party to various other legal proceedings, claims, disputes and litigation arising in the
ordinary course of business. Based on our own investigations, we believe the ultimate outcome of our current
legal proceedings, individually and in the aggregate, will not have a material adverse effect on our financial
position, results of operation or cash flows. However, because of the nature and inherent uncertainties of the
litigation, should the outcome of these actions be unfavorable, our business, financial condition, results of
operations or cash flows could be materially and adversely affected.
92
Indemnification Obligations
We are a party to a variety of agreements pursuant to which we may be obligated to indemnify another party
to such agreements with respect to certain matters. Typically, these obligations arise in the context of contracts
we have entered into, under which we customarily agree 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 our products, title to assets sold, certain intellectual property claims, defective products, specified
environmental matters and certain income taxes. In these circumstances, payment by us is customarily
conditioned on the other party making a claim pursuant to the procedures specified in the particular contract,
which procedures typically allow us to challenge the other party’s claims and vigorously defend ourselves and
the third party against such claims. Further, our obligations under these agreements may be limited in terms of
time, amount or the scope of our responsibility and in some instances, we 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 our obligations and the unique facts and circumstances involved in each particular
agreement. Historically, payments we have made under these agreements have not had a material effect on our
business, financial condition or results of operations. We believe that if we were to incur a loss in any of these
matters, such loss would not have a material effect on our business, financial condition, cash flows or results of
operations, although there can be no assurance of this.
NOTE 18. SEGMENT, GEOGRAPHICAL AND CUSTOMER INFORMATION
Segment Information
We design, develop, manufacture and market a broad range of programmable system solutions for various
markets including consumer, computation, data communications, automotive and industrial. We evaluate our
reportable business segments in accordance with the accounting guidance. We operate in the following four
reportable business segments:
Reportable Segments
Description
Consumer and Computation Division
Data Communications Division
Memory Products Division
Emerging Technologies and Other
A product division focusing on PSoC®,
touchscreen solutions, USB and timing solutions.
touch-sensing and
A product division focusing on West Bridge peripheral controllers
for handsets, dual port interconnects for networking applications
the
and legacy switches, cable drivers and equalizers for
professional video market.
A product division focusing on static random access memories
and nonvolatile memories.
Includes Cypress Envirosystems, AgigA Tech, Inc. and Deca
Technologies, Inc. all majority-owned subsidiaries of Cypress, the
Optical Navigation Systems
(“ONS”) business unit, China
business unit, foundry-related services, other development stage
activities and certain corporate expenses.
93
The following tables set forth certain information relating to the reportable business segments:
Revenues:
January 1,
2012
$
511,677
352,118
100,008
31,401
Year Ended
January 2,
2011
(In thousands)
343,226
$
405,844
110,647
17,815
January 3,
2010
$
274,861
288,246
96,568
8,111
$
995,204
$
877,532
$
667,786
January 1,
2012
$
111,324
123,373
34,880
(29,989)
Year Ended
January 2,
2011
(In thousands)
43,195
$
139,036
38,687
(25,907)
$
January 3,
2010
(674)
31,872
13,314
(24,863)
(141,812)
—
(15,242)
—
(3,804)
—
(2,549)
(1,090)
(668)
Consumer and Computation Division
Memory Products Division
Data Communications Division
Emerging Technologies and Other
Total revenues
Income (Loss) from Operations before Income Taxes:
Consumer and Computation Division
Memory Products Division
Data Communications Division
Emerging Technologies and Other
Unallocated items:
Stock-based compensation expense
Gain on divestitures
Restructuring charges
Charitable donation of building
Amortization of intangibles and other acquisition-related costs
Impairment of assets
Impairment of investments
Interest and non-cash expense for convertible debt
Other
(100,781)
34,291
(6,336)
(4,125)
(2,892)
(1,982)
(800)
—
(1,385)
(91,459)
—
(2,975)
—
(3,028)
(4,927)
—
—
1,544
Income (loss) from operations before income taxes
$
155,578
$
94,166
$
(145,516)
Depreciation:
Consumer and Computation Division
Memory Products Division
Data Communications Division
Emerging Technologies and Other
Total depreciation
January 1,
2012
$
24,660
17,144
5,178
1,651
Year Ended
January 2,
2011
(In thousands)
18,428
$
22,228
6,140
1,063
January 3,
2010
$
20,912
21,875
7,309
599
$
48,633
$
47,859
$
50,695
94
Geographical Information
The following table presents our total revenues by geographical locations:
United States
Europe
Asia:
China
South Korea
Rest of the world
Total revenues
January 1,
2012
$
122,956
118,695
Year Ended
January 2,
2011
(In thousands)
142,239
$
134,117
January 3,
2010
$
113,009
79,864
348,356
136,777
268,420
275,157
36,549
289,470
229,031
20,998
224,884
$
995,204
$
877,532
$
667,786
Property, plant and equipment, net, by geographic locations were as follows:
United States
Philippines
Other
Total property, plant and equipment, net
As of
January 1,
2012
January 2,
2011
(In thousands)
$
187,438
75,323
22,218
$
185,149
62,830
12,143
$
284,979
$
260,122
We track our assets by physical location. Although management reviews asset information on a corporate
level and allocates depreciation expense by segment, our chief operating decision maker does not review asset
information on a segment basis.
Customer Information
Outstanding accounts receivable from Arrow Electronics, Inc., Arkian and Avnet, Inc., three of our
distributors, accounted for 14.1%, 13.9% and 11.1% of our consolidated accounts receivable as of January 1,
2012, respectively. Outstanding accounts receivable from Avnet, Inc., accounted for 17% of our consolidated
accounts receivable as of January 2, 2011.
Revenue generated through Avnet, Inc. and Weikeng Industrial Co. Ltd., two of our distributors, accounted
for 12.8% and 11.2%, respectively, of our consolidated revenue for fiscal 2011. Samsung Electronics
(“Samsung”), an end customer, purchases our products from certain of our distributors, primarily from Arkian.
Shipments made by our distributors to Samsung in fiscal 2011 accounted for 10.0% of our consolidated revenue
for fiscal 2011.
Revenue generated through Avnet, Inc. and Arrow Electronics, Inc. accounted for 15% and 10%,
respectively, of our consolidated revenue for fiscal 2010. Revenue through Avnet, Inc accounted for 14% of our
consolidated revenue for fiscal 2009. We had no end customers accounting for 10% or greater of our
consolidated revenue for fiscal 2010 or 2009.
95
NOTE 19. SUBSEQUENT EVENTS
In February 2012, we entered into Stock Purchase Agreement (the “Agreement”) with a company that works
in the area of battery storage. Pursuant to the terms of the Agreement, we purchased approximately $6.0 million
of preferred stock from the company and have committed to purchase additional preferred stock in a series of
subsequent closings subject to certain performance milestones that must be fulfilled within a defined and agreed
upon timeline. Our future commitments to purchase additional preferred stock are approximately 0.6 million in
fiscal 2012, $60.8 million in fiscal 2013 and $17.8 million in fiscal 2014 subject to certain milestones and the
timing of additional capital requests which could vary substantially. While initially we will own less than 10% of
the company, if our future commitments are fully funded, we could become a majority shareholder of the
company. We expect to record this investment as a non-marketable equity investment for fiscal 2012.
96
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Cypress Semiconductor Corporation:
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1)
present fairly, in all material respects, the financial position of Cypress Semiconductor Corporation and its
subsidiaries (the “Company”) at January 1, 2012 and January 2, 2011 and the results of their operations and their
cash flows for each of the three years in the period ended January 1, 2012 in conformity with accounting
principles generally accepted in the United States of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of
January 1, 2012, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is
responsible for these financial statements and financial statement schedule, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting
appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial
statement schedule, and on the Company’s internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 24, 2012
97
UNAUDITED QUARTERLY FINANCIAL DATA
Fiscal 2011
Three Months Ended
January 1,
2012
October 2,
2011
July 3,
2011
April 3,
2011
Revenues
Gross margin
Net income
Adjust for net loss attributable to noncontrolling interest
Net income attributable to Cypress
Net income per share–basic
Net income per share–diluted
Fiscal 2010
Revenues
Gross margin
Net income
Adjust for net loss attributable to noncontrolling interest
$ 242,373
$ 129,852
$ 31,382
279
(In thousands, except per-share amounts)
$
$
$
$
$
$
$ 264,743
$ 148,954
$ 39,743
238
254,978
139,020
40,642
181
$ 31,661
$ 39,981
$
$
0.21
0.18
$
$
0.24
0.22
$
$
$
40,823
0.24
0.21
$
$
$
233,110
128,776
55,190
184
55,374
0.32
0.28
Three Months Ended
January 2,
2011
October 3,
2010
July 4,
2010
April 4,
2010
$ 220,314
$ 123,058
8,678
$
375
(In thousands, except per-share amounts)
$
$
$
$
$
$
$ 231,923
$ 134,682
$ 34,228
145
223,024
124,946
19,459
183
Net income attributable to Cypress
Net income per share–basic
Net income per share–diluted
$
$
$
9,053
$ 34,373
0.05
0.05
$
$
0.22
0.18
$
$
$
19,642
0.12
0.10
$
$
$
202,271
106,487
12,511
163
12,674
0.08
0.07
Basic and diluted earnings per share are computed independently for each of the quarters presented.
Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted
earnings per share.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that
information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in Securities and Exchange Commission
rules and forms, and that such information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that
98
disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in
designing disclosure controls and procedures, our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any
disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions.
Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K and
subject to the foregoing, our Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) of the Exchange Act. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements and can only provide reasonable assurance with
respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting as of January 2, 2012. In
making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) in Internal Control—Integrated Framework. Based on our assessment using
those criteria, our management (including our Chief Executive Officer and Chief Financial Officer) concluded
that our internal control over financial reporting was effective as of January 2, 2012.
Our independent registered public accounting firm, PricewaterhouseCoopers LLP, has issued a report on our
internal control over financial reporting. The report on the audit of internal control over financial reporting
appears on page 107 of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fourth
quarter of fiscal 2011 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
99
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K. We will file a
definitive proxy statement pursuant to Regulation 14A (the “Proxy Statement”) not later than 120 days after the
end of the fiscal year covered by this Annual Report on Form 10-K, and certain information included therein is
incorporated herein by reference.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item will be included under the caption “Directors, Executive Officers and
Corporate Governance” in our Proxy Statement for the 2012 Annual Meeting of Stockholders to be filed with the
SEC within 120 days of the fiscal year ended January 1, 2012 (2012 Proxy Statement) and is incorporated herein
by reference. The information required by this item regarding delinquent filers pursuant to Item 405 of
Regulation S-K will be included under the caption “Section 16(a) Beneficial Ownership Reporting Compliance”
in the 2012 Proxy Statement and is incorporated herein by reference.
We have adopted a code of ethics that applies to all of our directors, officers and employees. We have made
the code of ethics available, free of charge, on our website at www.cypress.com.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item concerning executive compensation is incorporated by reference from
the information set forth in the section titled “Executive Compensation” in our 2012 Proxy Statement and is
incorporated herein by reference.
The information required by this item concerning compensation of directors is incorporated by reference
from the information set forth in the section titled “Board Structure and Compensation” in our 2012 Proxy
Statement and is incorporated herein by reference.
The information required by this item concerning our compensation committee is incorporated by reference
from the information set forth in the sections titled “Compensation Committee Interlocks and Insider
Participation” and “Report of the Compensation Committee of the Board of Directors” in our in our 2012 Proxy
Statement and is incorporated herein by reference.
Quarterly Executive Incentive Payments
On February 23, 2012, Cypress’s Compensation Committee of the Board of Directors (the “Compensation
Committee”) approved the incentive payments to our executive officers for the fourth quarter and annual portion
of fiscal 2011 performance incentive plans. These payments were earned in accordance with the terms of our Key
Employee Bonus Plan (the “KEBP”) and the Performance Bonus Plan (the “PBP”).
The payments were determined based upon the financial performance of Cypress and each executive’s
performance. The performance measures under the KEBP include our non-GAAP profit-before-taxes percentage
as well as individual strategic, operational and financial goals established for each executive. The following table
sets forth the cash payments to our Named Executive Officers (as determined in our Proxy Statement filed with
the Securities and Exchange Commission on April 1, 2011) under the quarterly and annual KEBP and the PBP in
the fourth quarter of fiscal 2011:
Named Executive Officers
T.J. Rodgers, President and Chief Executive
Officer
Brad W. Buss, Executive Vice President,
Finance & Administration and Chief
Financial Officer
Paul Keswick, Executive Vice President, New
Product Development
Christopher Seams, Executive Vice President,
Sales, Marketing and Operations
Norman Taffe, Executive Vice President,
Consumer and Computation Division
KEBP
PBP
Quarterly
Annual
Total
Quarterly
Annual
Total
$ — $ — $ — $69,053
$165,306
$234,359
$21,224
$46,419
$67,643
$22,637
$18,203
$40,840
$21,453
$49,455
$70,908
$18,436
$36,270
$54,706
—
—
—
—
—
—
—
—
—
—
—
—
100
Additionally, the Compensation Committee authorized quarterly and annual incentive payments under the
KEBP, totaling $397,594, to eight other senior executive officers who are not Named Executives.
Release of 2011 PARS
In 2007, the Compensation Committee (the “Committee”) of the Company’s Board of Directors granted,
under the Company’s 1994 Amended Stock Plan, performance-based restricted stock units (“PARS”) to certain
employees of the Company, including our Named Executive Officers. Our executive officers, including our
NEO’s, have not received any other standard awards since the PARS grant in 2007, when we granted a five-year
tranche of PARS that could be earned from 2007 through 2011, subject to achieving performance metrics. The
PARS grant might result in total compensation packages that are higher than targeted market positions if all
performance-related milestones were achieved. All earned shares are released following certification by the
Committee that the applicable performance milestone has been achieved, net of all federal and state withholding
tax requirements. Following final certification by the Committee, if the performance milestone is not achieved in
full, the portion of the target shares for that particular performance milestone in the given period is forfeited and
returned to the 1994 Amended Stock Plan.
On February 23, 2012, the Committee approved the performance milestone achievements for fiscal 2011. In
connection with the Committee’s determination of the achievement of fiscal 2011 PARS performance
milestones, the following shares, prior to tax payments, were released to our Named Executive Officers:
Named Executive Officer
Target
Earned Based on
Original Plan
Additional Shares
Earned (1)
Total Shares
Released
T.J. Rodgers, President and Chief Executive
Officer
659,235
419,290
Brad W. Buss, Executive Vice President, Finance
and Administration and Chief Financial Officer 412,021
262,055
Paul Keswick, Executive Vice President, New
Product Development
329,618
209,645
Christopher Seams, Executive Vice President,
Sales and Marketing
329,618
209,645
Norman P. Taffe, Executive Vice President,
Consumer and Computation Division
283,265
180,163
72,658
45,411
36,329
36,329
31,220
491,948
307,466
245,974
245,974
211,383
(1) These shares represent the acceleration of vesting of outstanding awards that otherwise would have been
forfeited and for accounting purposes are treated as new awards. The Committee approved the vesting
acceleration as a result of the Company’s overachievement on its PSoC revenue milestone which well
exceeded the target and achieved record revenues in fiscal 2011. As these shares were approved and the
vesting acceleration was determined in fiscal 2012, the related compensation cost of these awards as
determined pursuant to ASC 718 will be included in our Consolidated Statement of Operations for fiscal
2012.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this item regarding security ownership of certain beneficial owners, directors
and executive officers is incorporated by reference from the information set forth in the section titled “Security
Ownership of Certain Beneficial Owners and Management” in our 2012 Proxy Statement.
The information required by this item regarding our equity compensation plans is incorporated by reference
from Item 5 of this Annual Report on Form 10-K.
101
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information required by this item regarding transactions with certain persons is incorporated by
reference from the information set forth in the section titled “Certain Relationships and Related Transactions” in
our 2012 Proxy Statement.
The information required by this item regarding director independence is incorporated by reference from the
information set forth in the section titled “Board Structure and Compensation” in our Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item regarding fees and services is incorporated by reference from the
information set forth in the section titled “Proposal Two—Ratification of the Selection of Independent Registered
Public Accounting Firm” in our Proxy Statement.
The information required by this item regarding the audit committee’s pre-approval policies and procedures
is incorporated by reference from the information set forth in the section titled “Report of the Audit Committee
of the Board of Directors” in our Proxy Statement.
102
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
1. Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedule:
Schedule II—Valuation and Qualifying Accounts
Page
55
56
57
59
61
Page
106
All other schedules are omitted as the required information is inapplicable or the information is presented in
the Consolidated Financial Statements or Notes to Consolidated Financial Statements under Item 8.
3. Exhibits:
Exhibit
Number
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
Exhibit Description
Agreement and Plan of Reorganization dated as of January 16, 2001 by and among Cypress
Semiconductor Corporation, Clock Acquisition Corporation, International Microcircuits, Inc. and
with respect to Article VII, U.S. Bank Trust, N.A., as Escrow Agent, and Kurt R. Jaggers, as
Securityholder Agent.
Incorporated by References
Filing Date/
Period
End Date
Filed
Herewith
Form
10-Q
4/1/2001
Agreement and Plan of Reorganization dated as of January 26, 2001 by and among Cypress
Semiconductor Corporation, Hilo Acquisition Corporation, HiB and Semiconductors, Inc., certain
shareholder parties thereto, and U.S. Bank Trust, National Association, as Escrow Agent.
10-Q
4/1/2001
Stock Purchase Agreement dated as of May 29, 2001 by and among Cypress Semiconductor
Corporation, ScanLogic Holding Company, ScanLogic Corporation, certain shareholder parties
thereto, and with respect to Article VII, U.S. Bank Trust, N.A., as Escrow Agent, and Israel
Zilberman, as Securityholder Agent.
Agreement and Plan of Reorganization dated as of June 2, 2001 by and among Cypress
Semiconductor Corporation, Lion Acquisition Corporation, Lara Networks, Inc., U.S. Bank Trust
National Association, as Escrow Agent (with respect to Article VII only), and Kenneth P. Lawler,
as Securityholder Agent (with respect to Articles I and VII only).
10-Q
7/1/2001
10-Q 9/30/2001
First Amendment to Agreement and Plan of Reorganization dated as of July 3, 2001 by and among
Cypress Semiconductor Corporation, Lion Acquisition Corporation, Lara Networks, Inc., U.S.
Bank Trust, N.A., as Escrow Agent, and Kenneth P. Lawler, as Securityholder Agent.
10-Q 9/30/2001
Agreement and Plan of Reorganization dated as of August 19, 2001 by and among Cypress
Semiconductor Corporation, In-System Design, Inc., and with respect to Article VII, U.S. Bank
Trust, N.A., as Escrow Agent, and Lynn Watson, as Securityholder Agent.
10-Q 9/30/2001
First Amendment to Agreement and Plan of Reorganization dated as of September 10, 2001 by and
among Cypress Semiconductor Corporation,
In-System
Design, Inc., U.S. Bank Trust, N.A., as Escrow Agent, and Lynn Watson, as Securityholder Agent.
Idaho Acquisition Corporation,
10-Q 9/30/2001
Agreement and Plan of Reorganization dated as of November 17, 2001 by and among Cypress
Semiconductor Corporation, Steelers Acquisition Corporation, Silicon Packets, Inc., and with
respect to Article VII only, U.S. Bank Trust, N.A., as Escrow Agent, and Robert C. Marshall, as
Securityholder Agent.
10-K 12/30/2001
103
Exhibit
Number
2.9
Exhibit Description
Stock Purchase Agreement dated as of June 21, 2004 by and among Cypress Semiconductor
Corporation, in the name and on behalf of Cypress Semiconductor (Belgium) BVBA in Formation,
FillFactory NV, certain stockholders of FillFactory NV and with respect to Article VIII and Article
X only, U.S. Bank, National Association, as Escrow Agent, and Luc De Mey and IT-Partners NV,
as Stockholder Agents.
Incorporated by References
Filing Date/
Period
End Date
Filed
Herewith
Form
8-K
8/13/2004
2.10
2.11
2.12
2.13
2.14
2.15
2.16
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
4.5
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
Agreement and Plan of Reorganization dated as of June 30, 2004 by and among Cypress
Semiconductor Corporation, SP Acquisition Corporation and SunPower Corporation.
10-K
1/2/2005
Agreement and Plan of Merger dated as of February 11, 2005 by and among Cypress
Semiconductor Corporation, SMaL Camera Technologies, Inc., Summer Acquisition Corporation,
and with respect to Articles VII and IX only, U.S. Bank, National Association, as Escrow Agent,
and Allan Thygesen, as Securityholder Agent.
8-K
2/15/2005
Agreement and Plan of Merger dated November 7, 2005 by and between Cypress Semiconductor
Corporation, CMS Acquisition Corporation and Cypress Microsystems, Inc.
8-K
12/8/2005
Agreement for the Purchase and Sale of Assets and Amendment No. 1 dated as of February 15,
2006 by and between Cypress Semiconductor Corporation and NetLogic Microsystems, Inc.
8-K
2/21/2006
Asset Purchase Agreement, dated February 27, 2007, by and between Sensata Technologies, Inc.
and Cypress Semiconductor Corporation.
8-K
3/20/2007
Agreement for the Purchase and Sale of Assets, dated August 29, 2007, by and between NetLogic
Microsystems, Inc. and Cypress Semiconductor Corporation.
8-K
9/5/2007
Agreement and Plan of Merger, dated as of August 1, 2008, by and among Cypress Semiconductor
Corporation, Copper Acquisition Corporation and Simtek Corporation.
8-K
8/1/2008
Second Restated Certificate of Incorporation of Cypress Semiconductor Corporation.
Amended and Restated Bylaws of Cypress Semiconductor Corporation.
to Amended and Restated Bylaws of Cypress Semiconductor
10-K 12/31/2000
8-K
8-K
3/31/2006
5/29/2009
Certificate of Amendment
Corporation
Certificate of Amendment
Corporation
to Amended and Restated Bylaws of Cypress Semiconductor
8-K
5/18/2010
Subordinated Indenture dated as of January 15, 2000 between Cypress Semiconductor Corporation
and State Street Bank and Trust Company of California, N.A., as Trustee.
8-K
3/17/2000
Supplemental Trust Indenture dated as of June 15, 2000 between Cypress Semiconductor
Corporation and State Street Bank and Trust Company of California, N.A., as Trustee.
8-K
7/11/2000
Indenture dated as of June 3, 2003 between Cypress Semiconductor Corporation and U.S. Bank
National Association, as Trustee.
S-3
6/30/2003
Indenture dated as of March 13, 2007 between Cypress Semiconductor Corporation and U.S. Bank
National Association, as Trustee.
S-3
5/17/2007
Registration Rights Agreement—1.00% Convertible Senior Notes due September 15, 2009.
10-Q
7/1/2007
Form of Indemnification Agreement.
Cypress Semiconductor Corporation Non-Qualified Deferred Compensation Plan I.
Cypress Semiconductor Corporation Non-Qualified Deferred Compensation Plan II.
Lease Agreement dated as of June 27, 2003 between Wachovia Development Corporation and
Cypress Semiconductor Corporation.
S-1
S-8
S-8
3/4/1987
9/6/2002
9/6/2002
10-Q 6/29/2003
Participation Agreement dated as of June 27, 2003 by and among Cypress Semiconductor
Corporation, Wachovia Development Corporation and Wachovia Bank, National Association.
10-Q 6/29/2003
Call Spread Option Confirmation dated May 29, 2003 among Cypress Semiconductor Corporation,
Credit Suisse First Boston International, and Credit Suisse First Boston.
10-Q 6/29/2003
Amended and Restated Call Spread Option Confirmation dated as of May 11, 2004 among Cypress
Semiconductor Corporation, Credit Suisse First Boston International, and Credit Suisse First
Boston.
10-Q 6/27/2004
SMaL Camera Technologies, Inc. 2000 Stock Option and Incentive Plan.
First Amendment to Certain Operative Agreements dated March 28, 2005 between Wachovia
Development Corporation and Cypress Semiconductor Corporation.
Cypress Semiconductor Corporation 2006 Key Employee Bonus Plan (KEBP) Summary.
Cypress Semiconductor Corporation Performance Profit Sharing Plan (PPSP) Summary.
Memorandum of Agreement between GNPower Ltd. Co. and Cypress Manufacturing Ltd.
S-8
3/8/2005
10-Q
4/3/2005
10-K
10-K
1/1/2006
1/1/2006
10-Q 10/1/2006
Letter of Agreement between Cypress Semiconductor Corporation and SunPower Corporation.
8-K 11/16/2006
104
Exhibit
Number
Exhibit Description
Incorporated by References
Filing Date/
Period
End Date
Filed
Herewith
Form
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
21.1
23.1
24.1
31.1
31.2
32.1
32.2
Letter of Agreement between Cypress Semiconductor Corporation and PowerLight Corporation.
8-K 11/16/2006
Amended Letter of Agreement between Cypress Semiconductor Corporation and PowerLight
Corporation.
8-K
1/5/2007
Guaranty dated December 12, 2006 by and between Grace Semiconductor USA, Inc., CIT
Technologies Corporation and Cypress Semiconductor Corporation.
10-K 12/31/2006
Guaranty dated February 1, 2007 by and between Grace Semiconductor USA, Inc., CIT
Technologies Corporation and Cypress Semiconductor Corporation.
10-K 12/31/2006
Guaranty dated March 19, 2007 by and between Grace Semiconductor USA,
Technologies Corporation and Cypress Semiconductor Corporation.
Inc., CIT
10-Q
4/1/2007
Guaranty dated May 15, 2007 by and between Grace Semiconductor USA, Inc., CIT Technologies
Corporation and Cypress Semiconductor Corporation.
10-Q
7/1/2007
Guaranty dated June 15, 2007 by and between Grace Semiconductor USA, Inc., CIT Technologies
Corporation and Cypress Semiconductor Corporation.
10-Q
7/1/2007
Guaranty dated December 15, 2007 by and between Grace Semiconductor USA, Inc., CIT
Technologies Corporation and Cypress Semiconductor Corporation.
10-K 12/30/2007
Guaranty, dated March 24, 2008, by and between Grace Semiconductor USA, Inc., CIT
Technologies Corporation and Cypress Semiconductor Corporation.
10-Q 3/30/2008
Form of Transaction Support Agreement by and among Cypress Semiconductor Corporation,
Copper Acquisition Corporation and the individuals listed on the signatures pages thereto, dated as
of August 1, 2008.
8-K
8/1/2008
Amendment No. 1 to Tax Sharing Agreement, dated as of August 12, 2008, by and between
Cypress Semiconductor Corporation and SunPower Corporation.
8-K
8/11/2008
1999 Non-Statutory Stock Option Plan, as amended and restated.
Employee Qualified Stock Purchase Plan, as amended and restated.
International Microcircuits Inc. 2000 Nonstatutory Stock Option Plan.
Amended and Restated Loan and Security Agreement with Silicon Valley Bank dated March 2,
2009
S-8
S-8
S-8
10/24/2008
10/24/2008
10/24/2008
10-Q 3/29/2009
Amendment No. 1 to Amended and Restated Loan and Security Agreement with Silicon Valley
Bank dated March 1, 2010.
10-K
3/3/2010
1994 Stock Plan, as amended and Restated
Subsidiaries of Cypress Semiconductor Corporation.
Consent of Independent Registered Public Accounting Firm.
8-K
6/2/2011
10-K 2/24/2012
10-K 2/24/2012
Power of Attorney (reference is made to the signature page of this Annual Report on Form 10-K).
10-K 2/24/2012
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
10-K 2/24/2012
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
10-K 2/24/2012
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
10-K 2/24/2012
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
10-K 2/24/2012
X
X
X
X
X
X
X
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
XBRL Instance Document.
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Extension Calculation Linkbase Document.
XBRL Taxonomy Extension Definition Linkbase Document.
XBRL Taxonomy Extension Label Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.
* XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus
for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act
of 1934, and otherwise is not subject to liability under these sections.
105
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Allowance for doubtful accounts receivable:
Year ended January 1, 2012
Year ended January 2, 2011
Year ended January 3, 2010
Allowance for sales returns:
Year ended January 1, 2012
Year ended January 2, 2011
Year ended January 3, 2010
Balance at
Beginning of
Period
Charges (Releases)
to Expenses/Revenues
Deductions
(In thousands)
Balance at
End of
Period
$
803
$ 1,358
777
$
$ 3,347
$ 3,151
$ 3,341
$
$
$
$
$
$
24
60
1,120
2,000
5,541
8,825
$
$
$
824
(3) $
803
(615) $
(539) $ 1,358
$ (2,262) $ 3,085
$ (5,345) $ 3,347
$ (9,015) $ 3,151
106
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
SIGNATURES
Dated: February 24, 2012
CYPRESS SEMICONDUCTOR CORPORATION
By:
/S/ BRAD W. BUSS
Brad W. Buss
Executive Vice President, Finance and Administration and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS,
that each person whose signature appears below
constitutes and appoints T.J. Rodgers and Brad W. Buss, jointly and severally, his attorneys-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any amendments to this report, and to file the
same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange
that each of said attorneys-in-fact, or his substitute or
Commission, hereby ratifying and confirming all
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/S/ T. J. RODGERS
T. J. Rodgers
/S/ BRAD W. BUSS
Brad W. Buss
President, Chief Executive Officer
and Director (Principal Executive
Officer)
Executive Vice President, Finance
and Administration and Chief
Financial Officer (Principal
Financial and Accounting Officer)
February 24, 2012
February 24, 2012
/S/ W. STEVE ALBRECHT
Director
February 24, 2012
W. Steve Albrecht
/S/ ERIC A. BENHAMOU
Director
February 24, 2012
Eric A. Benhamou
/S/ LLOYD A. CARNEY
Director
February 24, 2012
Lloyd A. Carney
/S/
JAMES R. LONG
James R. Long
/S/
J. DANIEL MCCRANIE
J. Daniel McCranie
/S/
J.D. SHERMAN
J.D. Sherman
Director
Director
Director
February 24, 2012
February 24, 2012
February 24, 2012
/S/ WILBERT G.M. VAN DEN HOEK
Director
February 24, 2012
Wilbert G.M. Van Den Hoek
107
SUBSIDIARIES OF CYPRESS SEMICONDUCTOR CORPORATION
Exhibit 21.1
Name
AgigA Tech, Inc.
AgigA Tech (Mauritius) LLC
AgigA Tech Chengdu L.L.C.
AgigA Tech Chengdu Rep Office
Cypress Semiconductor Corporation
Cyland Corporation
Cypress Manufacturing, Ltd.
Cypress Manufacturing Limited-Philippine Branch
Cypress Semiconductor (Luxembourg) Sarl
Cypress Semiconductor Malaysia Regional Office
Cypress Semiconductor (Mauritius) L.L.C.
Cypress Semiconductor (Minnesota) Inc.
Cypress Semiconductor (Scandinavia) AB
Cypress Semiconductor (Switzerland) Sarl
Cypress Semiconductor (Texas) Inc.
Cypress Semiconductor Beijing Rep Office (Branch)
Cypress Semiconductor (UK) Limited
Cypress Semiconductor Canada
Cypress Semiconductor GmbH
Cypress Semiconductor International (Hong Kong) Limited
Cypress Semiconductor International Sales B.V.
Cypress Semiconductor Intl Inc.
Cypress Semiconductor Ireland
Cypress Semiconductor Italia S.R.L.
Cypress Semiconductor K.K. Japan
Cypress Semiconductor Korea Ltd.
Cypress Semiconductor Phil. Headquarters Ltd.
Cypress Semiconductor Regional Operation Headquarters
Cypress Semiconductor Procurement LLC
Cypress Semiconductor Round Rock, Inc.
Cypress Semiconductor SARL
Cypress Semiconductor Shenzhen Rep. Office
Cypress Semiconductor Singapore Pte. Ltd
Cypress Semiconductor Taiwan
Cypress Semiconductor Technology India Private Ltd.
Cypress Semiconductor Technology (Shanghai) Co., Ltd.
Cypress Semiconductor Technology Ltd.
Cypress Semiconductor World Trade Corp.
Cypress Envirosystems Inc.
Cypress Venture Fund I, L.L.C.
Deca Technologies Inc.
Deca Technologies, Inc. Cayman
Deca Technologies Philippines Headquarters Limited
Deca Technologies Inc. (Philippines Branch)
Deca Technologies Regional Operation Headquarters
In-System Design, Inc.
Simtek Gmbh
Jurisdiction of Incorporation
United States of America
Mauritius
China
China
United States Of America
Philippines
Cayman Islands
Philippine
Luxembourg
Malaysia
Mauritius
United States of America
Sweden
Switzerland
United States of America
China
United Kingdom
Canada
Germany
Hong Kong
Netherlands
United States of America
Ireland
Italy
Japan
South Korea
Philippine
Philippine
United States of America
United States of America
France
China
Singapore
Taiwan
India
China
Cayman Islands
Ireland
United States of America
United States of America
United States of America
Cayman Islands
Cayman Islands
Grand Cayman
Philippines
United States Of America
Germany
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-
111381, 333-106667 and 333-95711) and in the Registration Statements on Form S-8 (Nos. 333-165750, 333-
154748, 333-150484, 333-131494, 333-123192, 333-119049, 333-108175, 333-104672, 333-101479, 333-99221,
333-91812, 333-91764, 333-81398, 333-71530, 333-71528, 333-66076, 333-66074, 333-65512, 333-59428, 333-
58896, 333-57542, 333-48716, 333-48714, 333-48712, 333-44264, 333-32898, 333-93839, 333-93719, 333-
79997, 333-76667, 333-76665, 333-68703, 333-52035, 333-24831, 333-00535 and 033-59153) of Cypress
Semiconductor Corporation of our report dated February 24, 2012 relating to the financial statements, financial
statement schedule and the effectiveness of internal control over financial reporting, which appears in this
Form 10-K.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 24, 2012
CERTIFICATION
PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002
I, T.J. Rodgers, certify that:
Exhibit 31.1
1.
I have reviewed this Annual Report on Form 10-K of Cypress Semiconductor Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Dated: February 24, 2012
By:
/S/ T.J. RODGERS
T.J. Rodgers
President and Chief Executive Officer
CERTIFICATION
PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002
I, Brad W. Buss, certify that:
Exhibit 31.2
1.
I have reviewed this Annual Report on Form 10-K of Cypress Semiconductor Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Dated: February 24, 2012
By:
/S/ BRAD W. BUSS
Brad W. Buss
Executive Vice President, Finance and Administration and
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I, T.J. Rodgers, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of Cypress Semiconductor Corporation for
the year ended January 1, 2012 fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and the information contained in such Annual Report on Form 10-K fairly presents, in all
material respects, the financial condition and results of operations of Cypress Semiconductor Corporation.
Dated: February 24, 2012
By:
/S/ T.J. RODGERS
T.J. Rodgers
President and Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
I, Brad W. Buss, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of Cypress Semiconductor Corporation for
the year ended January 1, 2012 fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and the information contained in such Annual Report on Form 10-K fairly presents, in all
material respects, the financial condition and results of operations of Cypress Semiconductor Corporation.
Dated: February 24, 2012
By:
/S/ BRAD W. BUSS
Brad W. Buss
Executive Vice President, Finance and
Administration and Chief Financial Officer
THIS PAGE INTENTIONALLY LEFT BLANK
Dear Fellow Stockholder:
March 30, 2012
P
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a
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You are cordially invited to attend Cypress Semiconductor Corporation’s 2012 Annual Meeting of
Stockholders. We will hold the meeting on Friday, May 11, 2012, at 10:00 a.m. Pacific Time, at our principal
executive offices located at 198 Champion Court, San Jose, California 95134. We look forward to your
attendance in person or by proxy at the meeting.
Please refer to the Proxy Statement for detailed information on each of the proposals and the Annual
Meeting. Your vote is important, and we strongly urge you to cast your vote whether or not you plan to attend the
Annual Meeting.
If you are a stockholder of record (“registered holder”), meaning that you hold shares directly with
Computershare Investor Services, LLC, the inspector of elections will have your name on a list, and you will be
able to gain entry to the Annual Meeting with a form of government-issued photo identification, such as a
driver’s license, state-issued ID card, or passport. Stockholders holding stock in brokerage accounts (“street
name” or “beneficial holder”) wishing to attend the Annual Meeting in person will also need to bring a letter
from their broker reflecting their stock ownership as of the record date, which is March 14, 2012.
Thank you for your ongoing support and continued interest in Cypress Semiconductor Corporation.
Very truly yours,
T.J. Rodgers
President and Chief Executive Officer
2012 ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
TABLE OF CONTENTS
NOTICE OF THE 2012 ANNUAL MEETING OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 PROXY SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING . . . . . . . . . . . . . . .
PROPOSAL ONE - ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL TWO - RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL THREE - ANNUAL ADVISORY VOTE TO APPROVE EXECUTIVE
COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BOARD STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INDEPENDENT DIRECTOR CONTACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BOARD LEADERSHIP STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
STOCK OWNERSHIP GUIDELINES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BOARD’S ROLE IN RISK MANAGEMENT OVERSIGHT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RISK CONSIDERATIONS IN OUR COMPENSATION PROGRAMS . . . . . . . . . . . . . . . . . . . . .
BOARD COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPENSATION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . .
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . .
COMPENSATION DISCUSSION AND ANALYSIS (“CD&A”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS . . . . . . . . . . .
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SUMMARY COMPENSATION TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GRANTS OF PLAN-BASED AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OUTSTANDING EQUITY AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OPTION EXERCISES AND STOCK VESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NON-QUALIFIED DEFERRED COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION . . . . . . . . .
POLICIES AND PROCEDURES WITH RESPECT TO RELATED PERSON TRANSACTIONS . . .
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE . . . . . . . . . . . . . . .
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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CYPRESS SEMICONDUCTOR CORPORATION
NOTICE OF THE 2012 ANNUAL MEETING OF STOCKHOLDERS
TO ALL CYPRESS STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Cypress Semiconductor
Corporation, a Delaware corporation, will be held on:
Date:
Friday, May 11, 2012
Time:
10:00 a.m. Pacific Time
Place: Cypress’s principal executive offices located at 198 Champion Court, San Jose, California 95134
Items of Business:
1.
2.
The election of eight (8) directors to serve on our Board of Directors for a one-year term, and
until their successors are elected;
The ratification of the appointment of PricewaterhouseCoopers LLP as our independent
registered public accounting firm for fiscal year 2012;
3. Annual advisory vote to approve the compensation of our named executive officers; and
4.
The transaction of such other business as may properly come before the Annual Meeting, or
any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy Statement accompanying this
notice. This Notice of Annual Meeting, 2011 Annual Report and our 2012 Proxy Statement and form of proxy
are being made available to stockholders on or about March 30, 2012.
All stockholders are cordially invited to attend the Annual Meeting in person. Only stockholders of record
at the close of business on March 14, 2012 (the “Record Date”), are entitled to receive notice of, and may vote at,
the Annual Meeting, or any adjournment or postponement thereof. Any stockholder attending the Annual
Meeting and entitled to vote may do so in person even if such stockholder returned a proxy or voted by telephone
or over the Internet. We have provided voting instructions in the attached Proxy Statement on how you can vote
your shares before or at the Annual Meeting.
FOR THE BOARD OF DIRECTORS
San Jose, California, March 30, 2012
Brad W. Buss
Corporate Secretary
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2012 Proxy Summary
This summary highlights information contained elsewhere in the proxy statement. This summary does not contain
all of the information that you should consider, and you should read the entire proxy statement carefully before
voting.
Annual Meeting of Stockholders
Time and Date
Place
Record Date
Voting
10:00 a.m., May 11, 2012
Cypress Corporate Headquarters
198 Champion Court
San Jose, CA 95134
March 14, 2012
Stockholders as of the Record Date are entitled to vote. Each
share of common stock is entitled to one vote.
Meeting Agenda
Š Election of eight (8) directors
Š Ratification of PricewaterhouseCoopers LLC (“PWC”) as our auditors for 2012
Š Annual advisory vote on executive compensation
Š Transact other business that may properly come before the meeting
Voting Matters & Recommended Voting
Agenda Matter
Election of Directors
Ratification of PWC as auditors for 2012
Advisory Vote on Executive Compensation
Board Vote Recommendation
FOR EACH DIRECTOR NOMINEE
FOR
FOR
Election of Eight (8) Directors
The Board of Directors (“Board”) recommends you vote FOR each director nominee as described below:
Independent Other Public
Name
Committee Memberships
Age Director
Occupation
Company Boards
SunPower, Red Hat,
Inc.
Silicon Valley Bank,
Real Networks
Technicolor
ON Semiconductor,
Freescale
Semiconductor
T.J. Rodgers
W. Steve Albrecht
Eric. A. Benhamou
Lloyd Carney
Since
1982
2003
1993
2005
64
65
56
50
James R. Long
69
2000
J. Daniel McCranie
68
2005
J.D. Sherman
Wilbert van den Hoek
46
55
2010
2011
AC COMP NGC OPS
Chair
X
X
Chair,
F
X
X
X
CEO, Cypress
Andersen Alumni
Professor of
Accounting, BYU
Former CEO of Palm
and 3Com
CEO & Board
Member, Xsigo
Systems
Former Executive VP,
Nortel Networks
Corporation
Chairman, ON
Semiconductor
President and COO,
HubSpot
Former Executive
Vice President &
CTO, Novellus
Systems, Inc.
Chair
X
X
X
X
X
X
X
X
X
X
X
AC
Comp
NGC
Audit Committee
Compensation Committee
OPS
F
Operations Committee
Financial Expert
Nominating & Corporate Governance Committee
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Board Attendance
Each director nominee, all of whom are current directors, attended at least 75% of the Board meetings and
committee meetings on which he sits.
Ratification of PricewaterhouseCoopers LLC (“PWC”) as our auditors for 2012
We are asking our stockholders to ratify the selection of PWC as our independent registered public accounting
firm for fiscal 2012. Set forth below is a summary of PWC’s fees for services provided in fiscal 2011 and 2010.
Services
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total
2011
$1,750,900
$43,000
$1,177,100
—
$2,971,000
2010
$1,913,000
$6,500
$1,264,000
—
$3,183,500
Annual Advisory Vote to Approve Executive Compensation
We are asking our stockholders to approve on an advisory basis our named executive officer (“NEO”)
compensation. The Board recommends a FOR vote because it believes that our compensation policies and
practices are effective in achieving our goals of aligning our executive compensation structure with our
stockholders’ interests and current market practices. Our executive compensation programs have played a
material role in our ability to drive strong long-term financial results and attract and retain a highly experienced,
successful team to manage our Company. Under these programs, our named executive officers are rewarded for
the achievement of specific annual, long-term and strategic goals, corporate goals, and the realization of
increased stockholder value.
Executive Compensation Elements
Form
Type
Cash
Š Base Salary
Š Performance-Based Incentive Cash
Compensation
Terms
Š Adjustments to base salary are considered
annually
Š Incentive cash awards are 100% performance-
based and based upon achievement of a
financial target, individual performance and
executive performance
Equity
Š Performance-Based Restricted Stock
Š Restricted stock units awarded upon
Units (“PARS”)
achievement of certain performance targets
measured annually
Other Key Compensation Features
Š No severance or change in control agreements
Š No defined benefit pension plans
Š No match or contribution to the Non-Qualified
Deferred Compensation plan
Š Stock ownership requirements
Š Clawback policy
Š No Company-match to employee
contributions to our 401(k) plan
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2011 Compensation Decisions
Fiscal 2011 was a very successful year for us even with the significant macroeconomic turmoil that occurred for
most of the year. The Company’s execution on its new product strategy, led by our touchscreen controllers and
our tight expense controls, allowed us to have a successful 2011 and achieve financial results much better than
our peer group. Some of the major financial highlights are as follows:
Š Our revenue increased 13% in fiscal 2011, far outpacing the relatively flat growth rate for the
semiconductor industry
Š GAAP earnings per share increased 125% from fiscal 2010
Š Non-GAAP earnings per share increased 33% from fiscal 2010
Š Cash flow from operations totaled $284 million or 29% of revenue, which is the highest since 2000
Š We achieved a record return on assets of 29%
Š We returned $680 million in cash to our stockholders through our stock repurchase and dividend
programs
Š We declared our first quarterly dividend of $0.09 per share, yielding approximately 2.2% returns to our
stockholders
Š We achieved significant major new product launches in SRAM, USB, PSOC and True Touch
Š Our customer Net Promotor Score (“NPS”) increased from 42% in fiscal 2010 to 70% for fiscal 2011
Š Our net burn rate was 0% for fiscal 2011 and our three year average net burn rate is 0.12%
Š We continue to outperform our major semiconductor benchmark, the Philadelphia Semiconductor
Sector Index (“SOXX”), on a 1, 3 and 5 year basis
During fiscal 2011 the Company made no major changes to its pay-for-performance compensation philosophy or
to the main financial targets of its compensation elements. While the total compensation for our NEOs in the
Summary Compensation table increased from the prior year it is primarily due to the value of the performance-
based restricted stock award as calculated under the SEC rules and does not reflect compensation actually paid to
our executive officers.
Base Salary – our Chief Executive Officer (“CEO”) did not receive an increase in his base salary in fiscal 2011
and has not had a salary increase since 2006. Our other NEO’s received modest salary increases in fiscal 2011
ranging between 2.8% and 4.2%, consistent with the rest of our employees and the competitive market.
Performance-Based Incentive Cash Compensation – there were no changes to the percentage of base salary
targets for any of our NEOs during fiscal 2011. The financial target (percentage of non-GAAP profit before
taxes) under the cash incentives plans was increased from the prior year by 25% and this target increase, as well
as not meeting various individual performance goals, resulted in lower incentive cash compensation to our NEOs
in fiscal 2011 versus fiscal 2010.
Performance-Based Restricted Stock (PARS) – there was no change to the number of targeted shares that could
be earned in fiscal 2011 versus fiscal 2010 for any NEO. The increases in value shown in the “Stock Award”
column in the Summary Compensation Table are solely due to an increase in the underlying stock price that
forms the main variable for the non-cash stock based compensation charge that the Company is required to take
and does not reflect actual compensation received by any of the NEOs. The underlying stock price change from
fiscal 2010 to fiscal 2011, depending on the performance based milestone, increased from $9.00 to $11.07 an
increase of 23% for milestone #1 which accounted for 30% of the targeted shares, and $11.83 to $20.09 an
increase of 70% for milestones #2-4 which accounted for 70% of the targeted shares and the majority of the
increase in the stock based compensation charge. The actual number of shares earned by the NEOs in fiscal 2011
actually decreased 25% from fiscal 2010 and was the lowest number of shares earned over the last five years
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under this grant. The actual dollar value earned by the NEOs in fiscal 2011 was 23% lower than the dollar
amount shown in the Summary Compensation Table due to milestone #1 not being achieved and all other
milestones achieving below target.
For fiscal 2012 we don’t expect any of the NEOs to receive a change to their base salary and do not expect the
cash incentive target as a percentage of salary to change at all. In addition we significantly decreased the number
of shares that may be earned under the PARs program by decreasing the targeted award under the Core Grant by
approximately 50%.
2011 Compensation Summary
Set forth below is the fiscal 2011 compensation for each named executive officer. The calculation of total
compensation (reflected in the column entitled “Total”) includes several items that are driven by SEC rules
which are not necessarily reflective of compensation actually received by the named executive officer in 2011.
For more information on Total Compensation as calculated under the SEC rules, see the narrative and notes
accompanying the 2011 Summary Compensation Table.
Name and Principal Position
T.J. Rodgers
President, CEO and Director
Brad W. Buss
Executive Vice President,
Finance & Administration, CFO
Paul D. Keswick
Executive Vice President,
New Product Development
Christopher A. Seams,
Executive Vice President,
Sales and Marketing
Norman P. Taffe
Executive Vice President
Consumer and Computation
Division
Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
All Other
Compensation
($)
Total
($)
669,227
—
11,460,141
—
757,087
343,630
—
7,162,590
—
208,561
325,629
—
5,730,062
—
158,711
407,356
—
5,730,062
—
225,293
299,349
—
4,924,279
—
148,412
—
—
—
—
—
12,886,455
7,714,781
6,214,402
6,362,711
5,372,040
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CYPRESS SEMICONDUCTOR CORPORATION
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING
Q: Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials
instead of a full set of proxy materials?
A:
In accordance with the rules of the Securities and Exchange Commission (the “SEC”), instead of mailing a
printed copy of our proxy materials to stockholders, we are furnishing our proxy materials primarily over
the Internet. Under the SEC rules, instead of a paper copy of our proxy materials, we mailed a Notice of
Availability of Proxy Materials (the “Notice”) to most of our stockholders to instruct you on how to access
and review our proxy materials on the Internet. The Notice instructs you on how to submit your vote on the
Internet and also contains instructions on how a stockholder may request a paper copy of our proxy
materials, including this proxy statement (“Proxy Statement”), our 2011 Annual Report and a proxy card or
voting instruction card.
Q: Why am I receiving these materials?
A: The Board of Directors (the “Board”) of Cypress Semiconductor Corporation (sometimes referred to as
“we”, “us”, “our”, “the Company” or “Cypress”) is providing these proxy materials to solicit your vote at
the 2012 Annual Meeting of Stockholders (“Annual Meeting”) and at any adjournment or postponement
thereof. The Annual Meeting will be held on Friday, May 11, 2012, at 10:00 a.m. Pacific Daylight Time at
our principal offices located at 198 Champion Court, San Jose, California 95134. The telephone number at
this address is (408) 943-2600.
Q: Who may attend the Annual Meeting?
A: All stockholders and holders of proxies for those stockholders and other persons invited by Cypress may
attend. If your shares are registered in the name of a brokerage firm or a bank, you must bring to the Annual
Meeting a letter from your broker indicating you hold the shares in the name of the broker or banker, or a
copy of your proxy card if you are the direct or indirect owner of your shares as of March 14, 2012 (the
“Record Date”).
Q: Who is entitled to vote?
A: Only stockholders of Cypress as of the close of business on the Record Date are entitled to vote at the
Annual Meeting. As of the Record Date, there were 154,082,936 shares outstanding of Cypress’s common
stock, par value $0.01 per share.
The date of this Proxy Statement is March 30, 2012. It was filed with the SEC and made available on the
Internet on or about March 30, 2012.
Q: What may I vote on?
A: You may vote on all the items listed below:
1.
2.
The election of eight (8) directors to serve on our Board of Directors for one-year terms, and until
their successors are elected;
The ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered
public accounting firm for the fiscal year 2012;
3. Annual advisory vote to approve the compensation of our Named Executive Officers; and
4.
The transaction of such other business as may properly come before the Annual Meeting, or any
adjournment or postponement thereof.
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Q: What is the difference between a registered stockholder and a beneficial stockholder?
A: Registered Stockholder or Stockholder of Record: Shares Registered in Your Name
If on March 14, 2012 your shares were registered directly in your name with the Company’s transfer agent,
Computershare Investor Services, LLC, then you are a registered stockholder or a stockholder of record. As
a stockholder of record, you may vote in person at the Annual Meeting or vote by proxy. Shares held in a
brokerage or bank account are not generally registered directly in your name.
Beneficial Stockholder: Shares Registered in the Name of a Broker or Bank
If on March 14, 2012, your shares were held in an account at a brokerage firm, bank, dealer, or other similar
organization, then you are the beneficial stockholder of shares held in “street name” and these proxy
materials are being forwarded to you by that organization. The organization holding your account is
considered the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial
stockholder, you have the right to direct your broker or other agent on how to vote the shares in your
account. You are also invited to attend the Annual Meeting. However, since you are not the stockholder of
record, you may not vote your shares in person at the Annual Meeting unless you request and obtain a valid
proxy from your broker or other agent.
Q: How do I vote and what are the voting deadlines?
A: Whether you hold your shares directly as the stockholder of record or beneficially in “street name”, you may
vote your shares by proxy without attending the Annual Meeting by proxy. Depending on how you hold
your shares, you may vote your shares in one of the following ways:
Stockholders of Record: If you are a stockholder of record, there are several ways for you to vote your
shares.
Š By Mail. If you received printed proxy materials, you may submit your vote by completing, signing
and dating each proxy card received and returning it in the prepaid envelope. Sign your name exactly
as it appears on the proxy card. Proxy cards submitted by mail must be received no later than May 10,
2012, to be voted at the Annual Meeting.
Š By telephone or over the Internet. You may vote your shares by telephone or via the Internet by
following the instructions provided in the Notice. If you vote by telephone or via the Internet, you do
not need to return a proxy card by mail. Internet and telephone voting are available 24 hours a day.
Votes submitted by telephone or through the Internet must be received by 11:59 p.m. Eastern Time on
May 10, 2012.
Š In person at the Annual Meeting. You may vote your shares in person at the Annual Meeting. Even if
you plan to attend the Annual Meeting in person, we recommend that you also submit your proxy card
or voting instructions or vote by telephone or via the Internet by the applicable deadline so that your
vote will be counted if you later decide not to attend the meeting.
Beneficial Stockholders: If you are a beneficial owner of your shares, you should have received a Notice of
Internet Availability of Proxy Materials or voting instructions from the broker or other nominee holding
your shares. You should follow the instructions in the Notice or voting instructions provided by your broker
or nominee in order to instruct your broker or other nominee on how to vote your shares. The availability of
telephone and Internet voting will depend on the voting process of the broker or nominee. Shares held
beneficially may be voted in person at the Annual Meeting only if you obtain a legal proxy from the broker
or nominee giving you the right to vote the shares.
Q: What shares may be voted and how may I cast my vote for each proposal?
A: You may vote all shares you own as of the close of business on the Record Date. You may cast one vote per
share of common stock for each proposal except that a stockholder voting for the election of directors has
the right to cumulate such stockholder’s votes. This means you may give one candidate a number of votes
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equal to the number of directors to be elected multiplied by the number of shares you are entitled to vote, or
you may distribute your shares among as many candidates as you may select, provided that your votes
cannot be cast for more than eight (8) candidates. For example, if you own 100 shares of stock, and there are
eight (8) directors to be elected at the Annual Meeting, you may allocate 800 shares (8 times 100) as “FOR”
votes among as few as one (1) or as many as eight (8) directors to be elected at the Annual Meeting. If you
choose to cumulate your votes, you will need to submit a proxy card or a ballot and make an explicit
statement of your intent to cumulate your votes, either by so indicating in writing on the proxy card or by
indicating in writing on your ballot when voting at the Annual Meeting. If you hold shares beneficially in
street name and wish to cumulate your votes, you should contact your broker or nominee.
Q: What is the effect of a broker non-vote?
A: Brokers or other nominees who hold shares of our common stock for a beneficial owner have the discretion to
vote on routine proposals when they have not received voting instructions from the beneficial owner at least
ten days prior to the Annual Meeting. A broker non-vote occurs when a broker or other nominee does not
receive voting instructions from the beneficial owner and does not have the discretion to direct the voting of
the shares on a particular proposal. Broker non-votes will be counted for purposes of calculating whether a
quorum is present at the Annual Meeting, but will not be counted for purposes of determining the number of
votes present in person or represented by proxy and entitled to vote with respect to a particular proposal. Thus,
a broker non-vote will not impact our ability to obtain a quorum and will not otherwise affect the outcome of
the vote on a proposal that requires a plurality of votes cast (Proposal 1) or the approval of a majority of the
votes present in person or represented by proxy and entitled to vote (Proposal 2) or the advisory votes cast
(Proposal 3).
Q: How many votes are needed to approve each proposal?
A: For the election of directors, the eight director nominees receiving the highest number of “FOR” votes will
be elected.
With respect to Proposal 1, you may vote “FOR” all nominees, “WITHHOLD” your vote as to all nominees,
or “FOR” all nominees except those specific nominees from whom you “WITHHOLD” your vote. The eight
nominees receiving the most “FOR” votes will be elected. A properly executed proxy marked
“WITHHOLD” with respect to the election of one or more directors will not be voted with respect to the
director or directors indicated. Proxies may not be voted for more than eight directors.
With respect to Proposals 2 and 3, we must receive a “FOR” vote from the majority of shares present and
entitled to vote either in person or by proxy in order for such proposal to be approved. For Proposals 2 and 3
if you “ABSTAIN” from voting, it will have the same effect as an “AGAINST” vote. If you hold your
shares in “street name”, it is critical that you cast your vote if you want it to count in the election of
directors. For Proposal 1, recent changes in regulation have been made to take away the ability of your bank
or broker to vote your uninstructed shares in the election of directors on a discretionary basis. Thus, if you
hold your shares in street name and you do not instruct your bank or broker how to vote in the election of
directors, no votes will be cast on your behalf. Your bank or broker will, however, continue to have
discretion to vote any uninstructed shares on Proposal 2 the ratification of the appointment of the
Company’s independent registered public accounting firm. Proposal 3 is only advisory, but your bank or
broker does not have the discretion to vote your uninstructed shares.
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PROPOSAL
VOTE REQUIRED
BROKER DISCRETIONARY
VOTE ALLOWED
Proposal 1– Election of eight
(8) directors
Proposal 2 – The ratification of
PricewaterhouseCoopers LLP as
our independent registered public
accounting firm
Plurality of votes cast
Majority of shares entitled to
vote and present in person or
represented by proxy
Proposal 3 – Annual advisory
vote to approve compensation of
our Named Executive Officers
Majority of shares entitled to
vote and present in person or
represented by proxy
No
Yes
No
Q: What is the advisory vote to approve the compensation of our Named Executive Officers?
A: At our 2011 Annual Meeting, a majority of our stockholders approved an annual advisory vote (also known
as “say-on-pay”) to be held at each annual meeting of stockholders. Therefore, we have included Proposal 3
in this proxy statement
to allow our stockholders to provide us a non-binding vote approving the
compensation of our Named Executive Officers as disclosed in this proxy statement. Your vote on this item
will provide our Company insight into our stockholder’s view on our compensation practices pertaining to
our Named Executive Officers.
Q: What is the quorum requirement?
A: A quorum of stockholders is necessary to hold a valid annual meeting. A quorum will be present if at least a
majority of the outstanding shares are represented by proxy or by stockholders present and entitled to vote at
the Annual Meeting. Your shares will be counted towards the quorum only if you submit a valid proxy (or
one is submitted on your behalf by your broker or bank) or if you vote in person at the annual meeting.
Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum,
the chairman of the annual meeting or holders of a majority of the votes present at the annual meeting may
adjourn the Annual meeting to another time or date.
Q: How can I change my vote or revoke my proxy?
A:
If you are a stockholder of record, you have the right to revoke your proxy and change your vote at any time
before the Annual Meeting by (i) returning a later-dated proxy card, or (ii) voting again by Internet or
telephone as more fully described on your Notice or proxy card. You may also revoke your proxy and
change your vote by voting in person at the Annual Meeting. Attendance at the Annual Meeting will not
cause your previously granted proxy to be revoked unless you specifically so request or vote again at the
Annual Meeting.
If your shares are held by a broker or other nominee, you may change your vote by submitting new voting
instructions to your broker, trustee or nominee, or, if you have obtained a legal proxy from your broker or
nominee giving you the right to vote your shares, by attending the Annual Meeting and voting in person.
Q: What does it mean if I get more than one Notice, proxy or voting instructions card?
A:
It means you hold shares in more than one registered account. You must vote all of your proxy cards in one
of the manners described above (under “How do I vote and what are the voting deadlines?”) to ensure that
all your shares are voted.
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Q: Who will count the votes?
A: Representatives of Investor Communication Solutions, a division of Broadridge Financial Solutions, Inc.,
our mailing agent and tabulation service, will count the votes and Brad W. Buss, Corporate Secretary, will
act as the inspector of elections. Cypress believes that the procedures to be used by the inspector of elections
to count the votes are consistent with Delaware law concerning the voting of shares, determination of a
quorum and the vote required to take stockholder action.
Q: How much did this proxy solicitation cost and who will pay for the cost?
A: The cost of soliciting your vote in connection with this proxy statement has been, or will be, borne by
Cypress. We have also requested that banks, brokers and other custodians, nominees and fiduciaries send
these proxy statement materials to the beneficial owners of our common stock they represent and secure
their instructions as to the voting of such shares. We may reimburse such banks, brokers and other
custodians, nominees and fiduciaries representing beneficial owners of our common stock for their expenses
in forwarding solicitation material to such beneficial owners. Certain of our directors, officers or employees
may also solicit proxies in person, by telephone, or by electronic communications, but they will not receive
any additional compensation for doing so.
Q: How can I receive the proxy statement and Annual Report by electronic delivery?
A: You may sign up for Cypress’s e-delivery program at www.cypress.com/edeliveryconsent. When you sign
up for our electronic delivery program, you will be notified by e-mail whenever our annual report or proxy
statement is available for viewing on the Internet. Your enrollment in the e-delivery program will remain in
effect as long as your account remains active or you cancel your enrollment.
Q: How can a stockholder request a copy of Cypress’s Annual Report on Form 10-K filed with the SEC
for fiscal year 2011?
A: A stockholder may send a written request for a copy of our Annual Report on Form 10-K to Brad W. Buss,
Corporate Secretary, Cypress Semiconductor Corporation, 198 Champion Court, San Jose, California
95134. Upon receipt of such request by a stockholder, we will provide a copy of our Annual Report on Form
10-K without charge, including the financial statements and the financial statement schedules, required to be
filed with the SEC pursuant to Rule 13a-1 of the Securities Exchange Act of 1934 for our fiscal year 2011.
Our Annual Report on Form 10-K for the fiscal year ended January 1, 2012, was filed with the SEC on
February 24, 2012 and is also available at our web site at: http://www.cypress.com/go/annualreport.
Q: How and when may I submit proposals for consideration at next year’s Annual Meeting of
stockholders or to nominate individuals to serve as directors for Cypress?
A: You may submit your proposals,
including director nominations, for consideration at future Annual
Meetings of stockholders by following the directions set forth below:
For stockholder proposals to be considered for inclusion in our 2013 proxy statement, the written proposal
must be received by our Corporate Secretary at our corporate offices at 198 Champion Court, San Jose,
California 95134, no later than November 30, 2012 in accordance with the requirements of Rule 14a-8. In
addition, the Company’s bylaws establish an advance notice procedure for stockholders who wish to present
certain matters or nominate director candidates before or at an annual meeting of stockholders. Any
stockholder who wants to make a proposal or director nomination that is to be included in our proxy
statement for the 2013 Annual Meeting of Stockholders must deliver written notice to be received by our
Corporate Secretary at our corporate offices at 198 Champion Court, San Jose, California 95134, no earlier
than January 14, 2013 and no later than February 13, 2013. Any such proposal must contain the specific
information required by the Company’s bylaws. In the event the date of next year’s annual meeting is
moved more than 30 days before or after the anniversary date of this year’s Annual Meeting, the deadline
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for inclusion of stockholder proposals in our proxy statement would instead be a reasonable time before
Cypress begins to print and mail its proxy materials, and the deadline for submitting stockholder proposals
not to be included in our proxy statement would be no later than the close of business on the later of the 60th
day prior to such annual meeting or the 10th day following the day on which public announcement of the
date of such meeting is first made. All stockholder proposals will also need to comply with SEC regulations,
including Rule 14a-8 of the 1934 Securities Exchange Act regarding the inclusion of stockholder proposals
in any Company-sponsored proxy material.
A submission by a stockholder must contain the specific information required in the Company’s bylaws. If
you would like a copy of Cypress’s current bylaws, please write to Brad W. Buss, Corporate Secretary, 198
Champion Court, San Jose, California 95134.
Q: Where can I find the voting results of the Annual Meeting?
A: Cypress will announce preliminary voting results at the 2012 Annual Meeting and file a Current Report on
Form 8-K announcing the final voting results after the Annual Meeting.
Q: How many copies of the proxy materials will you deliver to stockholders sharing the same address?
A: To reduce the expenses of delivering duplicate proxy materials, we are taking advantage of the SEC’s
“householding” rules that permit us to deliver only one set of proxy materials to stockholders who share an
address, unless otherwise requested by the stockholders. If you have not enrolled in our electronic delivery
program, share an address with another stockholder and have received only one set of proxy materials and
desire or require to receive additional copies of the proxy materials, you may request a separate copy of
these materials, including the Annual Report, at no cost to you by writing to Brad W. Buss, Corporate
Secretary, Cypress Semiconductor Corporation, 198 Champion Court, San Jose, California 95134. The
telephone number is (408) 934-2600. For future annual meetings, you may request separate voting materials,
or request that we send only one set of proxy materials to you if you are receiving multiple copies, by
writing to Investor Relations at the address given above.
IMPORTANT INFORMATION REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE 2012 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 11, 2012.
Copies of this Proxy Statement and our 2011 Annual Report to stockholders are also available online at
http://www.cypress.com/go/annualreport. You are encouraged to access and review all of the important
information contained in the proxy materials before voting.
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PROPOSAL ONE
ELECTION OF DIRECTORS
A board of eight (8) directors is to be elected at the 2012 Annual Meeting. Proxies can only be voted for
the number of nominees named in this Proxy Statement. All directors are elected annually and serve a one-year
term until the next annual meeting where they or their successors are elected. If you submit a signed proxy card
that does not specify how you wish to vote, your shares will be voted for the eight (8) director nominees named
below, each of whom is presently serving as our directors. If any nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any nominee designated by the present
Board to fill the vacancy. We do not expect any nominee will be unable or will decline to serve as a director.
There are no arrangements or understandings between any nominee and any other person pursuant to which he
was selected as a director or a nominee. As of the time of filing of this Proxy Statement, there were no director
candidates recommended by stockholders or stockholder groups beneficially owning 5% of voting common stock
for at least one (1) year.
Nominees for Election to Our Board of Directors
(as of March 15, 2012)
Name of Nominee
Age
Principal Occupation
T.J. Rodgers
W. Steve Albrecht
Eric A. Benhamou
Lloyd Carney
James R. Long
J. Daniel McCranie
J. D. Sherman
Wilbert van den Hoek
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65
56
50
69
68
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President and Chief Executive Officer of Cypress
Andersen Alumni Professor of Accounting, Marriott School of
Management, Brigham Young University
Chairman of our Board, and former Chief Executive Officer of
Palm, Inc. and 3Com Corporation
Chief Executive Officer and Board member, Xsigo Systems
Consultant, Former Executive Vice President of Nortel Networks
Corporation
Chairman of the Board of ON Semiconductor
President and COO, HubSpot
Consultant, Former Executive Vice President and Chief
Technology Officer of Novellus Systems, Inc.
Director
Since
1982
2003
1993
2005
2000
2005
2010
2011
Except as set forth below, each of the nominees has been engaged in his principal occupation described
above during the past five (5) years. There are no family relationships among our directors and executive
officers.
T.J. Rodgers is founder, president, chief executive officer, and a director of Cypress Semiconductor
Corporation. He sits on the board of directors of Cypress’s internal subsidiaries as well as Bloom Energy, a
privately held fuel cell company, and until recently, he was on the board of directors of SunPower Corporation, a
public company. He is also a Trustee of Dartmouth College, his alma mater. Mr. Rodgers was a Sloan scholar at
Dartmouth, where he graduated with a double major in physics and chemistry. He attended Stanford University
on a Hertz fellowship, earning a master’s degree and a Ph.D. in electrical engineering. He managed the MOS
memory design group at AMI from 1975 to 1980 before moving to Advanced Micro Devices (“AMD”), where he
ran AMD’s static RAM product group until 1982, when he founded Cypress. As Cypress’s founder, Mr. Rodgers
has the benefit of the Company’s complete history. This advantage, taken together with his expert technical and
analytical skills, long-term executive experience, and over four decades of experience in the semiconductor
industry, make him uniquely qualified to be on our Board.
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W. Steve Albrecht
the Marriott School of
is the Andersen Alumni Professor of Accounting at
Management at Brigham Young University (“BYU”). He served as the associate dean of the school until July
2008. Mr. Albrecht, a certified public accountant, certified internal auditor, and certified fraud examiner, joined
BYU in 1977 after teaching at Stanford University and the University of Illinois. Prior to becoming a professor,
he worked as an accountant for Deloitte & Touche. Mr. Albrecht is the past president of the American
Accounting Association and the Association of Certified Fraud Examiners. Since 2005, he has served on the
board of directors of SunPower Corporation. Until his resignation in 2009, Mr. Albrecht served on the board of
directors of Red Hat from 2003, and SkyWest Airlines from 2003. In 2011, he was re-appointed to the board of
directors of Red Hat. He is a former trustee of the Financial Accounting Foundation that provides oversight to the
Financial Accounting Standards Board (“FASB”) and the Governmental Accounting Standards Board.
Mr. Albrecht holds a Bachelor of Science degree from Brigham Young University, a Masters degree in Business
Administration and a Doctorate degree in Accounting from the University of Wisconsin. Mr. Albrecht’s
extensive experience with public and financial accounting matters, especially with respect to multi-national
companies, makes him well qualified to be on our Board.
Eric A. Benhamou is the chairman of our Board of Directors and former chairman of the board of 3Com
Corporation. He served as chief executive officer of Palm, Inc. from October 2001 until October 2003 and
chairman until October 2007, and was chief executive officer of 3Com from 1990 until the end of 2000.
Mr. Benhamou co-founded Bridge Communications, an early networking pioneer, and was vice president of
engineering until its merger with 3Com in 1987. He is also a member of the board of directors of RealNetworks,
Inc. and Silicon Valley Bank. He serves on Stanford University School of Engineering board and is vice
chairman of the board of governors of Ben Gurion University of the Negev. He is the chief executive officer of
Benhamou Global Ventures, an investment firm he established in 2004. Mr. Benhamou holds a Master of Science
degree from Stanford University’s School of Engineering and a Diplôme d’Ingénieur and a doctorate from Ecole
In addition to his engineering expertise, we believe
Nationale Supérieure d’Arts et Métiers, Paris.
Mr. Benhamou’s extensive experience managing public companies in the technology sector as well as his
expertise in venture and other financial transactions make him well qualified to be on our Board.
Lloyd Carney is the chief executive officer and member of the board of directors of Xsigo Systems, a
venture funded IO Virtualization Platform. He is also a member of the board of directors of Technicolor and
serves as the chairman of that board’s Technology Committee. Prior to joining Xsigo in 2008, he was the general
manager of IBM’s NetCool Division from 2006 to 2007. Prior to his employment at IBM, he was the chairman
and chief executive officer of Micromuse from 2003-2005 before it was acquired by IBM in 2006. Prior to
Micromuse, Mr. Carney was the chief operations officer and executive vice president at Juniper Networks where
he oversaw the engineering, product management and manufacturing divisions from 2002 until July, 2003. Prior
to joining Juniper Networks, Mr. Carney was the president of the Core IP Division, the Wireless Internet
Division and the Enterprise Data Division at Nortel Networks from 1997 until 2001. Mr. Carney brings to our
Board broad-based experience in the semiconductor and non-semiconductor industries. Mr. Carney holds a
Bachelor of Science degree in Electrical Engineering Technology from Wentworth Institute and a Master of
Science degree in Applied Business Management from Lesley College, Cambridge, Massachusetts. We believe
Mr. Carney is well qualified to be on our Board because he possesses significant executive, entrepreneurial and
operational expertise.
James R. Long has been an independent business consultant since 1999. He retired in 1999 as executive
vice president of Nortel Networks Corporation and president of Nortel Enterprise Solutions. Between 1991 and
1999, Mr. Long was the president of various business units at Nortel Networks, including Asia Pacific, Nortel
World Trade, and the Enterprise Solutions group. Prior to joining Nortel, Mr. Long held a variety of senior
executive positions with IBM Corporation and Rolm Company, an IBM and Siemens joint venture. He
previously served on the board of directors of 3Com Corporation, NCR Corporation, and still serves on the board
of directors of the Polynesian Cultural Center. He is also a member of the National Advisory Council of the
Marriott School of Management at Brigham Young University. Mr. Long holds a Bachelor of Science degree
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from San Jose State University. In addition to his corporate strategy skills, we believe Mr. Long’s extensive
executive experience, especially with public companies, makes him well qualified to be on our Board.
J. Daniel McCranie serves as the chairman of the board of directors of ON Semiconductor, a position he has
held since 2002 and is also a member of the board of directors of Freescale Semiconductor. Previously he served
as chairman of the board of directors of Virage Logic and chairman of the board of directors of Actel
Corporation. In the recent past, Mr. McCranie has served as chairman of the board of Xicor Corporation, member
of the board of directors for California Microdevices, and member of the board of directors for ASAT
Corporation. Mr. McCranie served as Cypress’s executive vice president of sales and marketing from 1993-2001.
Prior to his initial tenure with Cypress, Mr. McCranie was the chairman of the board, president and chief
executive officer of SEEQ Technology. Mr. McCranie holds a Bachelor of Science degree in electrical
engineering from Virginia Polytechnic Institute and State University (Virginia Tech). We believe Mr. McCranie
is well qualified to be on our Board due to his extensive sales and marketing experience, in-depth knowledge of
the semiconductor industry and his leadership skills as evidenced by his executive positions.
J. D. Sherman is the president and chief operating officer of HubSpot, a marketing software company.
Prior to joining HubSpot, Mr. Sherman was the chief financial officer at Akamai Technologies, a leading web
networking infrastructure company, from November 2005 to February 2012. Prior to Akamai, he served as the
chief financial executive of IBM’s Systems and Technology Group from January until October 2005. During his
15-year career at IBM, he held a number of senior executive positions in finance, including vice president of
finance and planning for the company’s zSeries Server Division. Mr. Sherman also served as chief financial
officer for CommQuest, a wholly owned IBM subsidiary in the wireless semiconductor design industry from
1998 until 2000. Mr. Sherman previously served on the board of directors of 3Com and AMI Semiconductor.
Mr. Sherman holds a master’s degree in business administration from the University of Chicago and a bachelor’s
degree in Economics from Emory University. We believe Mr. Sherman is well qualified to sit on our Board
because of his extensive executive management, strong financial and business acumen and leadership in a large
public technology company.
Wilbert van den Hoek retired from Novellus Systems, Inc. in 2008, where he was executive vice president
and chief technology officer. He also served as president and chief executive officer of Novellus Development
Company, LLC, a wholly owned subsidiary of Novellus Systems, Inc. from 2005 until 2008. He joined Novellus
Systems, Inc. in 1990 and served in various senior executive positions until his retirement in 2008. From 1980 to
1990, he held various positions at Philips Research Laboratories. He is also a member of the board of directors of
SDC Materials, a privately held company where he has served since January 2011. He is chairman of the board
of directors of Replisaurus Technologies, Inc., a privately held company where he has been a member of the
board of directors since 2009. From 2004 until 2006 when the company went public, he served on the board of
directors of Neah Power Systems, Inc. For the past seven years he has served on Cypress’s Technical Advisory
Board. Since 2005, he has served on the technical advisory boards of various organizations, including Cavendish
Kinetics, Inc., Innopad, Inc., Innovent Technologies, LLC and Process Relations. Mr. van den Hoek received a
Doctorandus degree in Chemistry from the Rijks Universiteit Utrecht, The Netherlands in December 1979. We
believe that Mr. van den Hoek is well-qualified to sit on our Board because of his extensive experience as a
to many
senior executive in the semiconductor manufacturing equipment
semiconductor and other high technology companies, his understanding of semiconductor industry business
models, segments, and competition, and his experience as a director at other technology companies.
industry and as a consultant
In addition to the biographical
information above regarding each nominee’s specific experience,
attributes, positions and qualifications, we believe that each of our director nominees has performed his duties
with critical attributes such as honesty, integrity and an adherence to high ethical standards. Each of them has
demonstrated strong business acumen and an ability to exercise sound judgment, as well as a commitment to the
Company and its core values. Finally, we value their significant leadership and experience on other public
company boards and board committees.
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Required Vote
The eight (8) nominees receiving the highest number of affirmative votes of the shares present or
represented and entitled to vote shall be elected as directors to serve until our next annual meeting, where they or
their successors will be elected. Votes withheld from this proposal are counted for purposes of determining the
presence or absence of a quorum for the transaction of business, but have no further legal effect under Delaware
law.
Í
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE
ELECTION TO THE BOARD OF EACH OF THE NOMINEES PROPOSED ABOVE.
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PROPOSAL TWO
RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors, upon recommendation of the Audit Committee, has reappointed the firm of
PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending
December 30, 2012, subject to ratification by our stockholders.
PricewaterhouseCoopers LLP has served as our independent registered public accounting firm since
1982. A representative of PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting and will
have an opportunity to make a statement if he or she desires to do so, and will be available to respond to
appropriate questions.
Stockholder ratification of the selection of PricewaterhouseCoopers LLP as our independent registered
public accounting firm is not required by our bylaws or other applicable legal requirements. However, the Board
is submitting the selection of PricewaterhouseCoopers LLP to the stockholders for ratification as a matter of
good corporate practice.
If the stockholders fail to ratify the selection of our independent registered public accounting firm, the
Audit Committee and the Board will reconsider whether or not to retain that firm. Even if the selection is ratified,
the Board, at its discretion, may direct the appointment of a different independent registered public accounting
firm at any time during the year if it determines that such a change would be in the best interest of Cypress and
its stockholders.
All fees billed to Cypress by PricewaterhouseCoopers LLP for fiscal years 2011 and 2010 were
pre-approved by the Audit Committee and were as follows:
Services
2011
2010
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
$1,750,900
$1,913,000
$43,000
$6,500
$1,177,100
$1,264,000
—
—
Total
$2,971,000
$3,183,500
Audit Fees: Includes fees associated with the annual audit of financial statements and internal control
over financial reporting in compliance with regulatory requirements under the Sarbanes-Oxley Act, review of our
quarterly reports on Form 10-Q, annual report on Form 10-K and periodic reports on Form 8-K, consents issued
in connection with our Form S-8 filings, assistance and review with other documents we filed with the SEC, and
statutory audits required internationally.
Audit-Related Fees: Audit-related services principally include employee benefit plan audits, internal
control consulting, and accounting consultations not associated with the regular audit.
Tax Fees: Includes fees for tax compliance (tax return preparation assistance and expatriate tax
services), general tax planning, tax-related services on acquisition and international tax consulting.
Audit Committee Pre-Approval Policy
The Audit Committee has adopted a policy that requires advance approval of all audit services, audit-
related services, tax, and other services performed by the Company’s independent registered public accounting
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firm. With the exception of certain de-minimis amounts, unless the specific service has been previously
pre-approved with respect to that fiscal year, the Audit Committee must approve the permitted service before the
independent registered public accounting firm is engaged to perform such services for Cypress.
Required Vote
The affirmative vote of the holders of a majority of the shares represented and entitled to vote at the
meeting will be required to ratify the selection of PricewaterhouseCoopers LLP as our independent registered
public accounting firm for the fiscal year ending December 30, 2012.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
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ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE
OFFICERS
PROPOSAL THREE
The Dodd-Frank Act enables our stockholders to vote to approve, on an advisory (non-binding) basis,
the compensation of our Named Executive Officers as disclosed in this Proxy Statement in accordance with the
SEC rules. We are providing this proposal for the vote of our stockholders pursuant to section 14A of the
Securities Exchange Act of 1934, as amended.
Our executive compensation programs are designed to attract, motivate, and retain our Named
Executive Officers, who are critical to our success. Our executive compensation programs have played a material
role in our ability to drive strong financial results and attract and retain a highly experienced, successful team to
manage our company. Under these programs, our Named Executive Officers are rewarded for achieving specific
annual, long-term and strategic goals, corporate goals, and realizing increased stockholder value. Please read the
“Compensation Discussion and Analysis” for additional details about our executive compensation programs,
including information about the fiscal year 2011 compensation of our Named Executive Officers.
The Compensation Committee continually reviews the compensation programs for our Named
Executive Officers to ensure they achieve the desired goal of aligning our executive compensation structure with
our stockholders’ interests and current market practices. Our executive team has successfully managed our
company through the recent economic downturn. For the fiscal year ended January 1, 2012:
‰ Our revenue increased 13% in fiscal 2011, far outpacing the flat growth rate for the semiconductor
industry
‰ GAAP earnings per share increased 125% from fiscal 2010
‰ Non-GAAP earnings per share increased 33% from fiscal 2010
‰ Cash flow from operations totaled $284 million or 29% of revenue, which is the highest since 2000
‰ We achieved a record return on assets of 29%
‰ We returned $680 million in cash to our stockholders through our stock repurchase and dividend
programs
‰ We initiated our first quarterly dividend of $0.09 per share, yielding approximately 2.2% to our
stockholders
‰ We achieved significant major new product launches in SRAM, USB, PSOC and True Touch
‰ Our customer Net Promotor Score (“NPS”) increased from 42% in fiscal 2010 to 70% for fiscal
2011
‰ Our net burn rate was 0% for fiscal 2011 and our three year average net burn rate is 0.12%
‰ We continue to outperform our major semiconductor benchmark, the Philadelphia Semiconductor
Sector Index (“SOXX”), on a 1, 3 and 5 year basis
Our executive compensation program strikes the appropriate balance between utilizing responsible,
measured pay practices and effectively incentivizing our executives to achieve long-term value creation for our
stockholders. This balance is evidenced by the following:
‰ Our compensation programs are substantially tied to our key business objectives and the success of
our stockholders;
‰ If the value we deliver to our stockholders declines, so does the compensation of our Named
Executive Officers;
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‰ We closely monitor the compensation programs and pay levels of executives from companies of
similar size and complexity, so that we may ensure that our compensation programs are within the
range of our peer group companies and market practices;
‰ We provide a significant part of executive compensation in performance-based incentives, including
primarily performance-based restricted stock units and variable cash bonus;
‰ Payouts of performance-based restricted stock units are based on the achievement of a minimum
financial performance metric and are capped at 100% of the total targeted share awards. If the
minimum financial metric is not achieved, the shares are forfeited and are not earnable in the future;
‰ We have no employment, severance or golden parachute agreements with any of our Named
Executive Officers and therefore, no excise tax gross-ups.
We are asking our stockholders to indicate their support for our Named Executive Officer compensation
as described in this Proxy Statement. This proposal, commonly known as a “say-on-pay” proposal, gives our
stockholders the opportunity to express their views on our Named Executive Officers’ compensation. This vote is
not intended to address any specific item of compensation, but rather the overall compensation of our Named
Executive Officers and the philosophy, policies and practices described in this Proxy Statement. Accordingly, we
ask our stockholders to vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the
Named Executive Officers, as disclosed in the Company’s Proxy Statement for the 2012 Annual
Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange
Commission, including the Compensation Discussion and Analysis, the 2011 Summary Compensation
Table and the other related tables and disclosure pursuant to Item 402 of Regulation S-K of the
Securities and Exchange Commission.”
The say-on-pay vote is advisory, and therefore not binding on the Company, our Compensation
Committee or our Board. Our Board and our Compensation Committee value the opinions of our stockholders
and to the extent there is any significant vote against the Named Executive Officer compensation as disclosed in
this Proxy Statement, we will consider our stockholders’ concerns and our Compensation Committee will
evaluate whether any actions are necessary to address those concerns.
Í
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE
APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED
IN THIS PROXY STATEMENT PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF
THE SECURITIES AND EXCHANGE COMMISSION.
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CORPORATE GOVERNANCE
We continue to review our corporate governance policies and practices to ensure that they comply with
the requirements or suggestions of various authorities in corporate governance and the best practices of other
public companies. Our business, property and affairs are managed under the direction of our Board. Members of
our Board are kept informed of our business through discussions with our chief executive officer and president,
our chief financial officer, our executive officers, our general counsel, and other officers and employees, and by
reviewing materials provided to them and participating in meetings of the Board and its committees.
Corporate Governance Changes in Fiscal Year 2011 and for Fiscal Year 2012
Because our Board is committed to strong and effective corporate governance, it regularly monitors our
corporate governance policies and practices to ensure we meet or exceed the requirements of applicable laws,
regulations and rules, and the NASDAQ listing standards.
During fiscal year 2011 and for fiscal year 2012, our Board continued to enhance our corporate
governance policies and practices by:
‰ adopting executive stock ownership guidelines; and
‰ adopting a clawback policy under which NEOs may be required to return incentive compensation
payments to Cypress if (i) he or she engaged in intentional misconduct pertaining to any financial
reporting policy, (ii) there is a material negative revision of a financial or operating measure on the
basis of which incentive compensation was awarded or paid to the employee, or (iii) he or she
engaged in any fraud, theft, misappropriation, embezzlement or dishonesty.
The changes made to our corporate governance policies and practices build upon our solid corporate
governance structure, which is exemplified by:
‰ a strong independent chairman of the Board whose duties and responsibilities are set forth in our
Bylaws;
‰ a Board that is up for election annually and has been for over 25 years;
‰ the charters of the Board’s committees, which clearly establish the roles and responsibilities of each
of the committees;
‰ Board committees that are comprised of and chaired solely by independent directors;
‰ our non-employee and independent directors meeting regularly in executive session;
‰ a strong risk management program with specific responsibilities assigned to management, the
Board, and the Board’s committees;
‰ a director orientation and continuing education program;
‰ our clear Code of Business Conduct and Ethics;
‰ our Corporate Governance Guidelines;
‰ our limitation on the use of perquisites for directors and executive officers; and
‰ the Compensation Committee’s engagement of an independent compensation consultant.
Additional information regarding the above aspects of our corporate governance and the changes made
or proposed by our Board for fiscal years 2011 and 2012 is provided in this Proxy Statement in the sections
entitled “Board Structure” and “Compensation Discussion and Analysis.”
Our Corporate Governance Guidelines cover, among other topics:
‰ director independence;
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‰ Board structure and composition;
‰ Board member nomination and eligibility requirements;
‰ Board leadership and executive sessions;
‰ limitations on other Board and committee service;
‰ committees of the Board;
‰ director responsibilities;
‰ Board and committee resources, including access to officers and employees;
‰ director compensation;
‰ director orientation and ongoing education;
‰ succession planning; and
‰ Board and committee self evaluations.
The Corporate Governance Guidelines and the Code of Business Conduct and Ethics are posted on our
web site at http://investors.cypress.com/governance.cfm.
BOARD STRUCTURE
Determination of Independence
The Board has adopted the definition of “independence” as described under the Sarbanes-Oxley Act of
2002 (“Sarbanes-Oxley”) Section 301, Rule 10A-3 under the Securities Exchange Act of 1934 (also referred to as
the ”Exchange Act”) and NASDAQ Rule 5605. In order to make a determination of independence of a director as
required by our Corporate Governance Guidelines and the rules of the SEC, the Board determines whether a
director or a director nominee has a material relationship with Cypress (either directly or indirectly as a partner,
stockholder or officer of an organization that has a relationship with Cypress). Each director or director nominee
completed a questionnaire, with questions tailored to the rules of NASDAQ, as well as the SEC requirements for
independence. On the basis of the questionnaires completed and returned by each director, the Board determined
that each of Messrs. Albrecht, Benhamou, Carney, Long, McCranie, Sherman, and van den Hoek is independent
as determined under our Corporate Governance Guidelines, the rules of the NASDAQ and the SEC. The Board
determined that Mr. T.J. Rodgers, our president and chief executive officer, has a material relationship with
Cypress by virtue of his employment and position at Cypress and, therefore, is not independent. Apart from
Mr. Rodgers, no other director has a relationship with Cypress other than through his membership on the Board
and its committees.
Executive Sessions
Executive sessions of independent directors are held before each regularly scheduled meeting of our
Board and at other times as necessary and are chaired by the chairman of the Board. The Board’s policy is to
hold executive sessions without the presence of management, including the chief executive officer, who is the
only non-independent director. Except for the Operations Committee, the committees of the Board also generally
meet in executive session at the end of each committee meeting. Members of the Operations Committee provide
feedback to management following their attendance at the Company’s quarterly operations reviews.
Meeting Attendance
In fiscal year 2011, our Board held four (4) regularly scheduled meetings. Every director attended at
least 75% of the number of Board meetings, and at least 75% of the meetings of the committees of the Board on
which the director served. Our “non-management” (who are all independent) directors met four (4) times in
executive sessions during regularly scheduled Board meetings in the 2011 fiscal year. Mr. Benhamou presided
over all executive sessions of our directors. Directors are expected, but not required to attend the annual meetings
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of stockholders. Except for Mr. Albrecht, all of our directors attended the 2011 Annual Meeting of Stockholders
and are expected to attend the 2012 Annual Meeting.
Board Size and Membership
The Nominating and Corporate Governance Committee periodically assesses the appropriate size of the
Board and whether any vacancies are expected due to retirement or otherwise. The Nominating and Corporate
Governance Committee uses a variety of methods for identifying and evaluating nominees for directorships,
including requests to Board members and others for recommendations. Through the process of identification and
evaluation, the Nominating and Corporate Governance Committee seeks to achieve a balance of experience,
knowledge, integrity and capability on the Board.
Stockholders may recommend, with timely notice, individuals for the Nominating and Corporate
Governance Committee to consider as potential director candidates by submitting their names and background to
the Nominating and Corporate Governance Committee, c/o Corporate Secretary, Cypress Semiconductor
Corporation, 198 Champion Court, San Jose, California 95134. The Nominating and Corporate Governance
Committee will consider a recommendation only if appropriate biographical
information and background
materials are provided on a timely basis (see “How and when may I submit proposals for consideration at next
year’s annual meeting of stockholders or to nominate individuals to serve as directors for Cypress?” in the
Question and Answer section).
The qualifications of recommended director candidates will be reviewed by the Nominating and
Corporate Governance Committee in accordance with the criteria set forth in our Corporate Governance
Guidelines and SEC rules, whether or not a potential candidate was recommended by a security holder, the
Board, management or other parties. These criteria include the candidate’s skills, attributes, integrity, experience,
commitment, diligence, conflicts of interest and the ability to act in the interest of all stockholders. The
Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no
particular criterion is necessarily applicable to all prospective nominees. Cypress believes that the skill set,
backgrounds and qualifications of our directors, considered as a group, should provide a significant composite
mix of experience, knowledge and abilities that will allow our Board to fulfill its responsibilities.
The process followed by the Nominating and Corporate Governance Committee to identify and evaluate
nominees includes meeting from time to time to evaluate biographical information and background material
relating to potential candidates and if appropriate, conducting interviews of selected candidates by members of
the Nominating and Corporate Governance Committee and the Board.
Assuming that appropriate biographical and background material are provided for candidates
recommended by stockholders, the Nominating and Corporate Governance Committee will evaluate nominees by
following substantially the same process, and applying substantially the same criteria, as for candidates submitted
by Board members.
The Board makes the final determination whether or not a stockholder-recommended candidate will be
included as a director nominee for election in accordance with the criteria set forth in our Corporate Governance
Guidelines. If the Board decides to nominate a stockholder-recommended candidate and recommends his or her
election as a director by the stockholders, the name of the nominee will be included in Cypress’s proxy statement
and proxy card for the stockholders meeting at which his or her election is recommended.
Nomination Criteria and Board Diversity
In considering whether to recommend any candidate for inclusion in the Board’s slate of recommended
director nominees, we believe that the skill set, backgrounds and qualifications of our directors, considered as a
group, should provide a significant composite mix of diversity in experience, knowledge and abilities that will
allow our Board to fulfill its responsibilities. Therefore, in recommending candidates for Board nomination, the
Nominating and Corporate Governance Committee makes an assessment of each candidate, including candidates
recommended by a stockholder, in light of the nomination criteria set forth in the Company’s Corporate
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includes the evaluation of skills,
the individual’s character and
Governance Guidelines. This assessment
integrity, general business and semiconductor industry experience, direct experience in the management of a
corporation that is a customer that buys from the semiconductor industry, leadership profile, strategic planning
abilities and experience, aptitude in accounting or finance, expertise in domestic and international markets,
industry knowledge, understanding of relevant technologies, communications and interpersonal skills, and ability
and willingness to devote time as needed for Board services. The assessment is made in the context of the
perceived needs of the Board from time to time.
Communications from Stockholders and Other Interested Parties
The Board will give appropriate attention to written communication on valid business issues that are
submitted by stockholders and other interested parties, and will respond if and as appropriate. Absent unusual
circumstances or as contemplated by committee charters, the chairman of our Board, with the assistance of the
corporate secretary and internal legal counsel, (1) is primarily responsible for monitoring communications from
stockholders and other interested parties, and (2) provide copies or summaries of such communications to the
other directors as the chairman considers appropriate. Communications will be forwarded to all directors if they
relate to substantive matters and include suggestions or comments that the chairman of our Board considers to be
important for the directors to know.
Stockholders and other interested parties who wish to send communications on any relevant business
topic to the Board may do so by addressing such communication to the Chairman of the Board of Directors, c/o
Corporate Secretary, Cypress Semiconductor Corporation, 198 Champion Court, San Jose, California, 95134 or
sending an e-mail to CYBOD@cypress.com.
INDEPENDENT DIRECTOR CONTACT
Interested parties are able to make their concerns known to the non-management independent directors
by electronic mail to CYBOD@cypress.com, or in writing addressed to the Chairman of the Board of Directors,
c/o Corporate Secretary, Cypress Semiconductor Corporation, 198 Champion Court, San Jose, California 95134.
BOARD LEADERSHIP STRUCTURE
Eric A. Benhamou serves as chairman of our Board of Directors. Our Board’s general policy, as stated
in our Corporate Governance Guidelines, is that separate persons should hold positions of chairman of the Board
and chief executive officer to enhance the Board’s oversight of management. Our leadership structure enhances
accountability of our chief executive officer to the Board, balances power on our Board and encourages balanced
decision making. We also separate the roles in recognition of the differences in roles. While the chief executive
officer is responsible for the day-to-day leadership of the Company and the setting of strategic direction, the
chairman of the Board provides guidance to the Board, sets the agenda for Board meetings and presides over the
meetings of the full Board and the meetings of the Board’s non-management directors. The Board chairman also
provides performance feedback on behalf of the Board to our chief executive officer.
STOCK OWNERSHIP GUIDELINES
Directors
The Board has adopted stock ownership guidelines to more closely align the interests of our directors
and named executive officers with those of our stockholders. The guidelines provide that each non-employee
director should own at least 20,000 shares of common stock of the Company. Incumbent directors are expected to
meet the ownership requirement by the end of 2016 and new directors are required to meet the requirement
within three years of their appointment to the Board. Except for Mr. van den Hoek, all of our directors meet the
stock ownership guidelines, including Mr. Rodgers, our CEO, who is an employee director. Mr. van den Hoek
became a director in 2011 and is expected to meet the requirements by 2014.
23
Executive Officers
Our CEO is required to own Company stock having a value of at least five times his annual base salary.
Our Named Executive Officers, other than the CEO, are required to own Company stock at least three times their
annual base salary. Individuals have five (5) years to meet the stock ownership requirement. If the stock
ownership guidelines are not met after five years, then the executive must hold all future shares that vest (net of
taxes) until the stock ownership requirements have been are met. All of our Named Executive Officers meet the
stock ownership guidelines for fiscal 2011.
BOARD’S ROLE IN RISK MANAGEMENT OVERSIGHT
The Board implements its risk oversight responsibilities primarily through its various committees,
which receive management briefings on the potentially significant risks that the Company faces and how the
Company seeks to control risk where appropriate. The Board’s four committees (Audit, Compensation,
Nominating and Corporate Governance and Operations) oversee those risks that are most appropriate to their
charters. For example, the Audit Committee oversees risks related to internal controls, financial reporting, fraud,
insurance, treasury, ethics and compliance, and litigation. The Audit Committee also oversees the activities of the
Internal Audit Department that independently assesses, audits and monitors risk throughout the Company. The
Compensation Committee oversees risks related to employees, compensation and use of stockholder’s equity, for
example. The Nominating and Governance Committee oversees risks related to corporate governance, executive
management and other related areas. The Operations Committee, through attending quarterly operations review
meetings, oversees risks related to operations, supply chain and customers. The full Board reviews the risk-
assessment activities of all committees. In more limited cases, such as with risks of significant new business
concepts and substantial entry into new markets, risk oversight
is addressed as part of the full Board’s
engagement with our chief executive officer and management. Board members also often discuss risk as a part of
their review of the ongoing business, financial, and other activities of the Company. The Board also has overall
responsibility for executive officer succession planning and reviews succession plans each year.
The Board’s role in the Company’s risk oversight process includes receiving regular reports from
members of senior management on areas of material risk to the Company, including operational, financial, legal
and regulatory, human resources, employment, and strategic risks. The full Board (or the appropriate committee
in the case of risks that are under the purview of a particular committee) receives these reports from the
appropriate risk owner within the organization to enable it to understand our risk identification, risk management
and risk mitigation strategies. When a committee receives the report, the chairman of the relevant committee
reports on the discussion to the full Board during the committee reports portion of the next Board meeting if
deemed significant. This enables the Board and its committees to coordinate the risk oversight role, particularly
with respect to risk interrelationships.
RISK CONSIDERATIONS IN OUR COMPENSATION PROGRAMS
The Compensation Committee regularly considers the risks associated with our compensation policies
and practices for employees, including those related to executive compensation programs. As part of the risk
assessment, the Compensation Committee reviewed our compensation programs for certain design features that
have been identified by experts as having the potential to encourage excessive risk-taking, such as compensation
mix overly weighted toward annual
incentives and unreasonable goals or thresholds. The Compensation
Committee determined that, for all employees, our compensation programs encourage our employees to take
appropriate risks and encourage behaviors that enhance sustainable value creation in furtherance of the
Company’s business, but do not encourage excessive risk and accordingly are not reasonably likely to have a
material adverse effect on the Company. The Compensation Committee believes that because we closely link our
variable compensation with attaining performance objectives, we are encouraging our employees to make
decisions that should result in positive short-term and long-term returns for our business and our stockholders
without providing an incentive to take unnecessary risks. The Compensation Committee, with the assistance of
Buck Consultants, LLC, an independent compensation consultant, intends to continue, on an on-going basis, a
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process of thoroughly reviewing our compensation policies and programs to ensure that our compensation
programs and risk mitigation strategies continue to discourage imprudent risk-taking activities.
BOARD COMMITTEES
The Board has an Audit Committee, a Compensation Committee, a Nominating and Corporate
Governance Committee, and an Operations Committee. The membership and functions of each committee in
2011 are described in the table below:
Director
T.J. Rodgers
W. Steve Albrecht
Eric A. Benhamou
Lloyd Carney
James R. Long
J. Daniel McCranie
J. D. Sherman
Evert van de Ven (1)
Wilbert van den Hoek (2)
Audit
Committee
Compensation
Committee
Nominating
and Corporate
Governance
Committee
Operations
Committee
-
Chairman
Member
Member
Member
-
-
-
Chairman
Member
Member
Chairman
Member
Member
Member
Member
Chairman
Member
(1) Mr. van de Ven retired from the Board in May 2011.
(2) Mr. van den Hoek was elected to the Board in May 2011 and was appointed to the Nominating and
Corporate Governance Committee and the Operations Committee in May 2011.
The Audit Committee
The Audit Committee operates under a written charter adopted by our Board, and was established in
accordance with Exchange Act Section 3(a)(58)(A). The charter of the Audit Committee is available on our web
site at http://investors.cypress.com/governance.cfm.
The Board has determined that all
the members of the Audit Committee are independent as
independence is defined under the rules the NASDAQ Marketplace Rule 5605. The Board determined that each
member of the Audit Committee is financially literate and has accounting and/or related financial management
expertise required under NASDAQ rules.
The Audit Committee consists of Messrs. Albrecht, Benhamou, Carney and Sherman, and met
eight (8) times in fiscal year 2011 and each time met in executive session independently with management, our
internal audit team and PricewaterhouseCoopers, our certified public accounting firm.
Our Board designated Mr. Albrecht as the “audit committee financial expert” in accordance with the
requirements of the SEC and NASDAQ rules.
The responsibilities of our Audit Committee and its activities during fiscal year 2011 are described in its
charter and the Report of the Audit Committee contained in this Proxy Statement.
In discharging its duties, the Audit Committee:
Š
reviews and approves the scope of the annual audit and the independent public accounting firm’s
fees;
25
Š
assists the Board in the oversight of the Company’s compliance with legal and regulatory
requirements;
Š meets independently with our independent registered public accounting firm, internal auditors, and
our senior management;
Š
Š
Š
Š
Š
Š
oversees and reviews the general scope of our accounting, financial reporting, annual audit and
matters relating to internal control systems, as well as the results of the annual audit and review of
interim financial statements, auditor performance, qualifications and independence issues, and the
adequacy of the Audit Committee charter;
prepares an Audit Committee report as required by the SEC to be included in the Company’s annual
proxy statement;
pre-approves all fees proposed by or paid to our independent registered public accounting firm;
reviews and provides input to the risk assessment processes in the Company, which will form the
basis of the annual audit plan;
oversees the implementation of the whistleblower policy; and
reviews SEC filings, earnings releases and other forms of significant investor communications.
The Compensation Committee
The Compensation Committee consists of Messrs. Benhamou, Carney, and Long. The Board has
determined that the members of the Compensation Committee are independent as defined under NASDAQ rules.
The Compensation Committee assists the Board with discharging its duties with respect to the formulation,
implementation, review and modification of the compensation of our directors, officers and senior executives,
and the preparation of the annual report on executive compensation for inclusion in our proxy statement.
The Compensation Committee, through delegation by the Board, has overall responsibility for the
following:
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
Š
establishing the specific performance objectives for our chief executive officer and subsequently
evaluating his compensation based on achievement of those objectives;
approval of performance objectives for our executive officers;
formulating, implementing, reviewing, and modifying the compensation of the Company’s directors
and executive officers;
recommending to the Board for approval the Company’s compensation plans, policies and programs;
reviewing and approving the Company’s Compensation Discussion and Analysis (“CD&A”) for
inclusion in the proxy statement;
reviewing, revising in its discretion, and approving the annual merit and stock budgets for focal
salary increases and equity grant awards for all eligible employees;
reviewing the annual benefit changes made by the Company with respect to its employees;
providing feedback to the chief executive officer on his performance;
overseeing the stock plans of the Company’s subsidiary companies;
overseeing and monitoring executive succession planning for the Company; and
periodic risk analysis of
implementing the clawback policy.
the Company’s compensation policies and programs,
including
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In discharging its duties, the Compensation Committee retains the services of compensation consultants
in order to have independent, expert perspectives on matters related to executive compensation, Company and
executive performance, equity plans and other issues. The Compensation Committee has the sole authority to
determine the scope of services for these consultants and may terminate the consultants’ services at any time. The
fees of these consultants are paid by the Company. In 2011, the Compensation Committee retained the services
of Buck Consultants, LLC for various compensation-related services,
including comparing our director
compensation with the compensation of directors of our peer group companies.
No officer of the Company was present during discussions or deliberations regarding that officer’s own
compensation. Additionally,
the Compensation Committee sometimes meets in executive session with its
independent consultant to discuss various matters and formulate certain final decisions, including those regarding
the performance and compensation of the chief executive officer.
The Compensation Committee held eight (8) meetings during our 2011 fiscal year. The Report of the
Compensation Committee is contained in this Proxy Statement. The charter for our Compensation Committee is
posted on our web site at http://investors.cypress.com/governance.cfm.
The Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee consists of Messrs. Long, McCranie, and
van den Hoek. The Board determined that the members of the Committee are independent as defined under the
rules of NASDAQ. The purpose of the Nominating and Corporate Governance Committee is to:
Š
Š
Š
Š
Š
identify and evaluate individuals qualified to become Board members;
recommend to the Board the persons to be nominated by the Board for election as directors at the
including any nomination of qualified individuals properly
annual meeting of stockholders,
submitted by stockholders of the Company;
develop, maintain and recommend to the Board a set of corporate governance principles;
oversee the annual self-evaluation process of the Board and other Board committees;
ensure that stockholder proposals, when approved, are implemented as approved;
Š make recommendations to the Board on Board and Board committee membership; and
Š
oversee the directors continuing education program.
The Nominating and Corporate Governance Committee is authorized to retain advisers and consultants
and to compensate them for their services. The Nominating and Corporate Governance Committee did not retain
any such advisers or consultants during fiscal year 2011.
The Nominating and Corporate Governance Committee held three (3) meetings during fiscal year 2011.
The charter for our Nominating and Corporate Governance Committee is posted on our web site at
http://investors.cypress.com/governance.cfm.
The Operations Committee
The Operations Committee consists of Messrs. McCranie and van den Hoek. The purpose of the
Operations Committee is to:
Š
Š
review strategic proposals and provide advice and counsel to Cypress regarding daily business
operations; and
present to the management of the Company and the Board an independent assessment of Cypress’s
business operations and practices.
27
To discharge their responsibilities, members of the Operations Committee attend various quarterly
operations reviews and provide advice and counsel to the Company’s management. The charter of the Operations
Committee is posted on our web site at http://investors.cypress.com/governance.cfm.
Printed copies of the Corporate Governance Guidelines document, the Code of Business Conduct and
Ethics, and the charters of the Audit Committee, the Compensation Committee, the Nominating and Corporate
Governance Committee, and the Operations Committee are also available to any stockholder upon written
request to:
Brad W. Buss
Corporate Secretary
Cypress Semiconductor Corporation
198 Champion Court
San Jose, California 95134
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COMPENSATION OF DIRECTORS
Non-Employee Director Cash Compensation
Our non-employee directors are paid an annual cash retainer for serving on the Board, plus additional
cash retainers based on their committee service. The table below shows the cash compensation for our
non-employee Board members in fiscal 2011.
Position
2011 Annual Fees1
Non-employee director retainer
Board chairman
Audit Committee chairman
Audit Committee member
Compensation Committee chairman
Compensation Committee member
Nominating and Corporate Governance
Committee chairman
$50,000
$30,000
$20,000
$15,000
$15,000
$10,000
$5,000
Nominating and Corporate Governance
Committee member
$5,000
Operations Committee
$2,500 per attendance at the Company’s
quarterly operations meetings
In addition to the retainer and meeting fees described above, non-employee directors are also reimbursed
for travel and other reasonable out-of-pocket expenses related to attendance at Board and committee meetings,
business events on behalf of Cypress, and seminars and programs on subjects related to their responsibilities.
Non-Employee Director Equity Compensation
Upon their initial appointment to the Board, each non-management director is granted restricted stock
units equivalent to $525,000 divided by the trading price of one share of common stock on the date of the
acceptance of the director’s appointment, rounded to the nearest whole share (“Initial Grant”). The Initial Grant
vests annually over a period of three (3) years from the date of grant.
Each outside director who was an outside director on the date of the prior year’s annual stockholder
meeting is automatically granted a fully vested restricted stock units under the 1994 Stock Plan, that is equivalent
to $175,000 divided by the trading price of one share of common stock on the date of the Company’s regularly
scheduled annual stockholders meeting, rounded down to the nearest whole share (“Annual Grant”). Each outside
director who was not an outside director on the date of the prior year’s meeting annual stockholder meeting is
automatically granted an Annual Grant that is pro-rated based on the number of months from the date of the
Initial Grant to the date of his or her re-election.
Non-Employee Director Stock Ownership Requirement
to which
The Board has established Non-Employee Director Ownership Requirement pursuant
non-employee directors are required to own 20,000 shares of common stock of the Company. Incumbent
directors are expected to meet the ownership requirement by the end of 2016 and new directors are required to
meet the requirement within three years of their appointment. All directors except for Mr. van den Hoek, who
joined the Board in 2011, meet the stock ownership guidelines. For more information about the Company’s stock
ownership guidelines, please refer to “Corporate Governance - Stock Ownership Guidelines.”
1 Except for the Operations Committee fees which are paid per meeting.
29
DIRECTOR COMPENSATION
Fiscal Year Ended January 1, 2012
Fees
Earned or
Paid in
Cash
($)
Stock Awards
($)1
Option
Awards
($)2
Non-Equity
Incentive Plan
Compensation
($)
Name
Year
W. Steve Albrecht3
2011
85,000
174,982
Eric A. Benhamou4
2011 120,000
174,982
Lloyd Carney5
James R. Long6
2011
2011
75,000
70,000
174,982
174,982
J. Daniel McCranie7
2011 110,000
174,982
J. D. Sherman8
Evert van de Ven9
Wilbert van den
Hoek11
2011
2011
2011
65,000
46,250
83,750
174,982
-
547,86912
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
-
-
-
-
-
-
-
-
All Other
Compensation
($)
0
0
0
0
0
0
5,00010
Total
($)
259,982
294,982
249,982
244,982
284,982
239,982
51,250
13,75013
645,369
1. Amounts shown do not reflect compensation actually received by the directors. Instead, the value
reported in the “Stock Awards” column represents the aggregate grant date fair value of awards
granted in fiscal 2011, as determined pursuant to FASB Accounting Standards Codification 718
(also referred to as “ASC 718”). Except for Mr. van den Hoek, amount shown for each director
reflects the grant date fair value of a grant for 8,001 shares made on May 13, 2011. The directors had
the following number of unvested restricted stock units at
the end of fiscal 2011: each of
Messrs. Albrecht, Benhamou, Carney, Long and McCranie, 24,723 shares; Mr. Sherman, 29,864
shares; Mr. van de Ven, 0 shares; and Mr. van den Hoek, 25,005 shares.
2. No stock option awards were granted to our directors in fiscal year 2011. The following aggregate
number of option awards were outstanding at the end of fiscal 2011: Mr. Albrecht, 92,018 shares;
Mr. Benhamou, 164,808 shares; Mr. Carney, 37,808 shares; Mr. Long, 157,606 shares;
Mr. van de Ven, 10,888 shares; and each of Messrs. McCranie, Sherman and van den Hoek, 0 shares.
3. Amount includes $50,000 Board retainer fee, $20,000 Audit Committee chairman fee, and $15,000
Audit committee member fee.
4. Amount includes $50,000 Board retainer fee, $30,000 for Board chairmanship, $15,000 Audit
and $10,000
fee, $15,000 Compensation Committee
chairman fee,
Committee member
Compensation Committee member fee.
5. Amount includes $50,000 Board retainer fee, $15,000 Audit Committee member fee, and $10,000
Compensation Committee member fee.
6. Amount includes $50,000 Board retainer fee, $10,000 Compensation Committee member fee,
$5,000 Nominating and Corporate Governance Committee chairman fee, and $5,000 Nominating
and Corporate Governance member fee.
7. Amount includes $50,000 Board retainer fee, $5,000 Nominating and Corporate Committee member
fee, and $55,000 for attendance at our operations review meetings as member of the Operations
Committee.
8. Amount includes $50,000 Board retainer fee, and $15,000 Audit Committee member fee.
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9. Amount includes $13,750 Board retainer fee and $37,500 for attendance at our operations review
meetings as member of the Operations Committee. Mr. van de Ven retired from the Board in May
2011.
10. Represents fees earned as a member of the Company’s Technology Advisory Board following his
retirement from the Board.
11. Amount includes $37,500 Board retainer fee, $3,750 Nominating and Corporate Committee member
fee, and $42,500 for attendance at our operations review meetings as member of the Operations
Committee. Mr. van den Hoek joined the Board in May 2011.
12. Reflects the grant date fair value for both a grant for 1,000 shares made on February 8, 2011 for
membership on the Company’s Technology Advisory Board and a grant for 24,005 shares made on
May 13, 2011, upon Mr. van den Hoek’s initial appointment to the Board.
13. Represents fees earned for attendance at
the operations review meetings of the Operations
Committee prior to becoming a member of the Company’s Board of Directors.
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REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of Cypress’s Board of Directors serves as the representative of the Board of
Directors with respect to its oversight of:
Š Cypress’s accounting and financial
reporting processes and the audit of Cypress’s financial
statements;
Š the integrity of Cypress’s financial statements;
Š Cypress’s internal controls and the audit of management’s assessment of the effectiveness of internal
control over financial reporting;
Š Cypress’s compliance with legal and regulatory requirements;
Š the independent registered public accounting firm’s appointment, qualifications and independence;
and
Š the performance of Cypress’s internal audit function.
The Audit Committee also reviews the performance of Cypress’s independent registered public
accounting firm, PricewaterhouseCoopers LLP, in the annual audit of financial statements and internal control
over financial reporting and in assignments unrelated to the audit, and reviews the independent registered public
accounting firm’s fees.
The Audit Committee provides the Board such information and materials as it may deem necessary to
make the Board aware of financial matters requiring the attention of the Board. The Audit Committee reviews the
Company’s financial disclosures and meets privately, outside the presence of our management, with our
independent registered public accounting firm and our internal auditors to discuss our internal accounting control
policies and procedures. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited
financial statements in our Annual Report on Form 10-K for our fiscal year ended January 1, 2012, with
management including a discussion of the quality and substance of the accounting principles, the reasonableness
of significant judgments, and the clarity of disclosures in the financial statements. In addition, the Audit
Committee reviewed the results of management’s assessment of the effectiveness of Cypress’s internal control
over financial reporting as of January 1, 2012. The Audit Committee reports on these meetings to our Board.
The charter of the Audit Committee is available at our web site at:
http://investors.cypress.com/documentdisplay.cfm?DocumentID=6355
Cypress’s management has primary responsibility for preparing Cypress’s financial statements and for its
financial reporting process. In addition, management is responsible for establishing and maintaining adequate
internal control over financial reporting. Cypress’s independent registered public accounting firm is responsible
for expressing an opinion on the conformity of Cypress’s financial statements to generally accepted accounting
principles and on the effectiveness of Cypress’s internal control over financial reporting.
The Audit Committee hereby reports as follows:
(1)
The Audit Committee has reviewed and discussed the audited financial statements for fiscal year
2011 with Cypress’s management.
(2)
The Audit Committee has discussed with PricewaterhouseCoopers LLP, the independent registered
public accounting firm for Cypress, the matters required to be discussed by the Statement on Audit Standards
No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public
Company Accounting Oversight Board in Rule 3200T.
32
(3)
The Audit Committee
from
PricewaterhouseCoopers LLP for Cypress as required by applicable requirements of the Public Company
Accounting Oversight Board regarding PricewaterhouseCoopers LLP’s communications with the Audit
Committee concerning independence, and has discussed with PricewaterhouseCoopers LLP its independence.
the written
disclosures
received
letter
and
has
the
Based on the review and discussion referred to in items (1) through (3) above, the Audit Committee
recommended to Cypress’s Board of Directors and the Board approved, that the Company’s audited financial
statements be included in Cypress’s Annual Report on Form 10-K for the fiscal year ended January 1, 2012 for
filing with the SEC. The Audit Committee also recommended the reappointment of PricewaterhouseCoopers
LLP as Cypress’s independent registered public accounting firm for fiscal year 2012.
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Each member of the Audit Committee is independent as defined under the NASDAQ listing standards.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
W. Steve Albrecht, Chairman
Eric A. Benhamou
Lloyd Carney
J. D. Sherman
33
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial ownership of our common stock as
of February 15, 2012 (except as described below) by:
Š each of our directors;
Š our chief executive officer, our chief financial officer and each of the three other most highly
compensated individuals who served as our executive officers at fiscal year-end (the “Named
Executive Officers”);
Š all individuals who served as directors or executive officers at fiscal year-end as a group; and
Š each person (including any “group” as that term is used in Section 13(d)(3) of the Exchange Act of
1934, as amended) who is known by us to own beneficially more than 5% of our common stock.
Directors, Officers and 5% Stockholders
Shares Beneficially Owned
Directors
T.J. Rodgers2
W. Steve Albrecht3
Eric A. Benhamou4
Lloyd Carney5
James R. Long6
J. Daniel McCranie
J. D. Sherman
Wilbert van den Hoek
Named Executive Officers
Brad W. Buss7
Paul Keswick8
Christopher Seams9
Norman Taffe10
Percent1
12,421,485
7.76%
167,911
280,381
118,701
265,479
52,631
22,932
2,000
1,377,042
1,142,611
1,595,441
455,055
*
*
*
*
*
*
*
*
*
*
1.02%
*
All directors and executive officers at fiscal year-end as a group11
18,942,281
11.54%
5% Stockholders
FMR LLC12
82 Devonshire Street
Boston, Massachusetts 02109
The Bank of New York Mellon Corporation13
One Wall Street, 31st Floor,
New York, New York 10286
The Vanguard Group, Inc.14
100 Vanguard Blvd.
Malvern, PA 19355
BlackRock, Inc.15
40 East 52nd Street
New York, New York 10022
* Less than 1%. See footnotes on the next page.
34
23,785,232
15.36%
9,978,330
6.44%
8,577,560
5.54%
7,923,382
5.12%
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1.
2.
For each person and group included in this table, percentage ownership is calculated by dividing the
number of shares beneficially owned by such person or group by the sum of 154,847,904 shares of
common stock outstanding as of February 15, 2012, plus the number of shares of common stock that
such person or group had the right to acquire within 60 days after February 15, 2012.
Includes 7,233,796 shares of common stock held by Mr. Rodgers and options to purchase 4,643,581
shares of common stock, which are exercisable within 60 days of February 15, 2012. Also includes
52,160 shares of common stock held indirectly as well as 491,948 restricted stock awards that are
scheduled to vest within 60 days of February 15, 2012.
3. Represents 75,893 shares of common stock held directly by Mr. Albrecht and options to purchase
92,018 shares of common stock, which are exercisable within 60 days of February 15, 2012.
4. Represents 115,573 shares of common stock held directly by Mr. Benhamou and options to purchase
164,808 shares of common stock, which are exercisable within 60 days of February 15, 2012.
5. Represents 80,893 shares of common stock held directly by Mr. Carney, and options to purchase
37,808 shares of common stock, which are exercisable within 60 days of February 15, 2012.
6. Represents 107,873 shares of common stock held directly by Mr. Long and options to purchase
157,606 shares of common stock, which are exercisable within 60 days of February 15, 2012.
7. Represents 638,014 shares of common stock held directly by Mr. Buss, options to purchase 431,562
shares of common stock, which are exercisable within 60 days of February 15, 2012, and 307,466
restricted stock units that are scheduled to vest within 60 days of February 15, 2012.
8. Represents 470,195 shares of common stock directly held by Mr. Keswick, options to purchase
426,442 shares of common stock, which are exercisable within 60 days of February 15, 2012, and
245,974 restricted stock units that are scheduled to vest within 60 days of February 15, 2012.
9. Represents 559,623 shares of common stock held directly by Mr. Seams, options to purchase 789,844
shares of common stock, which are exercisable within 60 days of February 15, 2012, and 245,974
restricted stock units that are scheduled to vest within 60 days of February 15, 2012.
10. Represents 187,104 shares of common stock held directly by Mr. Taffe, options to purchase 56,568
shares of common stock, which are exercisable within 60 days of February 15, 2012, and 211,383
restricted stock units that are scheduled to vest within 60 days of February 15, 2012.
11.
Includes 9,616,817 shares of common stock held directly or indirectly by our directors, executive
officers, and their family members. Also includes options to purchase 7,417,200 shares of common
stock exercisable as of February 15, 2012, and 1,908,264 restricted stock and restricted stock units
which are scheduled to vest within 60 days of February 15, 2012.
12. The ownership information set forth in the table is based on information contained in a statement on
Schedule 13G/A filed on February 14, 2012, with the SEC by FMR LLC. FMR LLC has sole voting
power with respect to 346,596 shares and sole dispositive power with respect to 23,785,232 shares or
common stock.
13. The ownership information set forth in the table is based on information contained in a statement on
Schedule 13G filed on January 30, 2012, with the SEC by The Bank of New York Mellon Corporation.
The Bank of New York Mellon Corporation has sole voting power with respect to 8,700,846 shares,
shared voting power with respect to 3,050 shares, sole dispositive power with respect to 9,874,840
shares and shared dispositive power with respect to 20,920 shares.
14. The ownership information set forth in the table is based on information contained in a statement on
Schedule 13G filed on February 8, 2012, with the SEC by The Vanguard Group, Inc. The Vanguard
Group, Inc. has sole voting power with respect to 109,791 shares, sole dispositive power with respect
to 8,467,769 shares and shared dispositive power with respect to 109,791 shares.
15. The ownership information set forth in the table is based on information contained in a statement on
Schedule 13G/A filed on February 13, 2012, with the SEC by BlackRock, Inc. has sole voting and sole
dispositive power with respect to 7,923,382 shares.
35
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis (“CD&A”)
Introduction
This section describes the compensation decisions and programs for our chief executive officer, our chief
financial officer and our three most highly compensated executive officers employed at the end of fiscal year
2011. These executives are referred to in this section as our Named Executive Officers or NEOs. Our NEOs for
fiscal year 2011 were:
Š T.J. Rodgers - President and Chief Executive Officer
Š Brad W. Buss - Chief Financial Officer and Executive Vice President of Finance and Administration
Š Paul Keswick - Executive Vice President New Product Development
Š Christopher Seams - Executive Vice President Sales and Marketing; and
Š Norman Taffe - Executive Vice President Consumer and Computation Division
In this CD&A section, the terms “we,” “our,” and “us” refer to management, the Company and sometimes as
applicable, the Compensation Committee (“Committee”) of the Company’s Board of Directors (the “Board”).
Overview
Financial Performance
Fiscal 2011 was a very successful year for us even with the significant macroeconomic turmoil that occurred for
most of the year. The Company’s execution on its new product strategy, led by our touchscreen controllers and
our tight expense controls, allowed us to have a successful 2011 and achieve financial results much better than
our peer group. Some of the major financial highlights are as follows:
Š Our revenue increased 13% in fiscal 2011, far outpacing the relatively flat growth rate for the
semiconductor industry
Š GAAP earnings per share increased 125% from fiscal 2010
Š Non-GAAP earnings per share increased 33% from fiscal 2010
Š Cash flow from operations totaled $284 million or 29% of revenue, which is the highest since 2000
Š We achieved a record return on assets of 29%
Š We returned $680 million in cash to our stockholders through our stock repurchase and dividend
programs
Š We initiated our first quarterly dividend of $0.09 per share, yielding approximately 2.2% to our
stockholders
Š We achieved significant major new product launches in SRAM, USB, PSOC and True Touch
Š Our customer Net Promotor Score (“NPS”) increased from 42% in fiscal 2010 to 70% for fiscal 2011
Š Our net burn rate was 0% for fiscal 2011 and our three year average net burn rate is 0.12%
This is also the seventh (7th) year in a row that our stock performance has outperformed the SOXX, our major
semiconductor benchmark index. Since our $2.6 billion spin-off of SunPower Corporation to our stockholders in
2008 and through our 2011 fiscal year end, our common stock has appreciated by 224%. Our stock price for
fiscal 2011 was very volatile and our stock price ranged from a high of $23.26 to a low of $13.92 and closed at
$16.89 at the end of fiscal 2011. We believe that the macroeconomic issues and equity risk concerns tended to
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drive stock prices rather than company specific fundamentals. Although our stock performance for fiscal 2011
was negative, we did outperform our major benchmark, the SOXX Index, by 2.41 percentage points, or 20.9%.
On a three and five year basis we exceeded the SOXX by 206% and 552%, respectively, as shown below.
2011 Stock Appreciation (Stock prices 12/30/2011 vs. 12/31/2010)
CY
SOXX
NASDAQ
S&P 500
DOW
10%
5%
0%
-5%
-10%
-15%
-20%
Three-Year Stock Appreciation (Stock Prices 12/30/2011 vs. 12/31/2008)
300%
250%
200%
150%
100%
50%
0%
CY
SOXX
NASDAQ
S&P 500
DOW
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Five-Year Stock Appreciation (Stock Prices 12/30/2011 vs. 12/29/2006)
600%
500%
400%
300%
200%
100%
0%
-100%
CY
SOXX
NASDAQ
S&P 500
DOW
2011 Compensation Summary
During fiscal 2011 the Company made no major changes to its pay-for-performance compensation philosophy or
to the main financial targets of its compensation elements. While the total compensation for our NEOs in the
Summary Compensation Table is an increase from the prior year it is primarily due to the value of the
performance-based restricted stock award as calculated under the SEC rules and does not reflect compensation
actually paid to our executive officers.
Base Salary – our CEO did not receive an increase in his base salary in fiscal 2011 and has not had a salary
increase since 2006. Our other NEO’s received modest salary increases in fiscal 2011 ranging between 2.8% and
4.2%, consistent with the rest of our employees and the competitive market.
Performance-Based Incentive Cash Compensation – there were no changes to the percentage of base salary
targets for any of our NEOs during fiscal 2011. The financial target (percentage of non-GAAP profit before
taxes) under the cash incentives plans was increased from the prior year by 20% and this target increase, as well
as not meeting various individual performance goals, resulted in lower incentive cash compensation to our NEOs
in fiscal 2011 versus fiscal 2010.
Performance-Based Restricted Stock (“PARS”) – there was no change to the number of targeted shares that could
be earned in fiscal 2011 versus fiscal 2010 for any NEO. The increases in value shown in the “Stock Award”
column in the Summary Compensation Table are solely due to an increase in the underlying stock price that
forms the main variable for the non-cash stock based compensation charge that the Company is required to take
and does not reflect actual compensation received by any of the NEOs. The underlying stock price change from
fiscal 2010 to fiscal 2011, depending on the performance based milestone, increased from $9.00 to $11.07 an
increase of 23% for milestone #1 which accounted for 30% of the targeted shares, and $11.83 to $20.09 an
increase of 70% for milestone #2-4 which accounted for 70% of the targeted shares and the majority of the
increase in the stock based compensation charge. The actual number of shares earned by the NEO’s in fiscal
2011 actually decreased 25% from fiscal 2010 and was also the lowest number of shares earned over the last five
years under this grant. The actual dollar value earned by the NEO’s was 23% lower than the dollar amount
shown below in the Summary Compensation Table due to milestone #1 not being achieved and all other
milestones achieving below target.
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CEO Compensation
Consistent with the Company’s philosophy on pay-for-performance, in fiscal 2011, over 90% of Mr. Rodger’s
total direct compensation was in the form of variable compensation, comprised of performance-based quarterly
and annual incentive cash bonuses and performance-based restricted stock units. In 2011, Mr. Rodgers received
an average achievement of 72% under his incentive cash bonus plan and 74.6% achievement under the
performance-based restricted stock unit program, levels lower than in fiscal 2010. Mr. Rodgers did not receive
any new additional equity awards in fiscal 2011 and has not received any new equity awards since 2008. In
increases in base salary in fiscal 2011,
addition, while other named executive officers received modest
Mr. Rodgers did not receive an increase in his base salary in 2011. Mr. Rodgers also currently owns 7.2 million
shares of the Company’s common stock, over 4% of the Company’s outstanding stock.
Compensation Practices
The following highlights the Company’s philosophy on executive compensation:
Pay-for-Performance. Over 90% of our NEOs’ target total direct compensation is in the form of variable
incentive cash bonuses and performance-based
compensation, comprised of quarterly and annual
restricted stock units. None of our NEO’s have received any time or service based stock awards for over
five years. This aligns executive compensation with stockholder interests by tying a significant majority
of total direct compensation to achieving performance goals. Both our variable cash and equity incentive
awards are 100% performance-based and are structured around very stringent and aggressive goals and by
design are very rewarding when the goals are achieved and if not, no payout is earned. As shown in the
following chart, the performance-based incentives constitute by far the largest portion of potential
compensation for the Named Executive Officers:
NEO Pay Mix
Salary
Performance-based Equity Awards
Incentive Cash Compensation
All Other Compensation
4%
0%
5%
91%
The percentages above were calculated using base salary, incentive cash compensation, grant date fair
value of equity awards (not cash actually received), and all other compensation as reported in the
Summary Compensation Table.
Other Compensation Limited. We limit all other compensation to our Named Executive Officers. For
example,
the Company does not provide a defined benefit pension plan, a match to employee
contributions to our 401(k) plan or any disclosable perquisites.
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No Employment and Severance Agreements. Our Named Executive Officers do not have employment,
severance or change-of-control agreements. They serve at the will of the Board, which enables us to set
the terms of any termination of employment.
Prohibition on Derivative Trading. We prohibit derivative transactions in our Company stock by
executive officers and directors, including engaging in any short sales or put options.
Other highlights of our compensation practices for fiscal 2011 include:
Clawback Policy. In November 2011, we adopted a clawback policy under which our Named Executive
Officers may be required, subject to the Committee’s discretion, to return incentive compensation
payments to us if (i) he or she engaged in intentional misconduct pertaining to any financial reporting
policy, (ii) there is a material negative revision of a financial or operating measure on the basis of which
incentive compensation was awarded or paid to the employee, or (iii) he or she engaged in any fraud,
theft, misappropriation, embezzlement or dishonesty.
Executive Stock Ownership Guidelines. We recently adopted executive stock ownership guidelines.
Under these guidelines, our CEO is required to own Company stock having a value of at least five times
his annual base salary. Our NEOs, other than the CEO, are required to own Company stock having a
value at least three times their annual base salary. Individuals have five (5) years to meet the stock
ownership requirement. If the stock ownership guidelines are not met after five years, then the executive
must hold all future shares that vest (net of taxes) until the stock ownership requirements have been are
met. All of our Named Executive Officers are currently in compliance with the stock ownership
requirement and our CEO currently owns 7.2 million shares and has the majority of his personal wealth
invested in Cypress common stock.
Low Net Burn Rate. During 2011 we managed our net burn rate (the number of equity awards granted,
reduced by forfeitures and cancellations, as a percentage of weighted average basic shares outstanding at
fiscal year end) to approximately 0%. During this period, we also significantly reduced our outstanding
shares by 35.6 million shares through our aggressive stock buyback program and our desire to return
excess cash to stockholders. We believe it is important for investors to look at net burn rate after taking
into consideration the impact of the stock buybacks. On a three year look back basis, our net burn rate
continues to be well managed and averaged 0.12%,the lowest three year average in the Company’s
history.
Details about these actions and the reasons behind these various compensation practices are described further
below under “Elements of Compensation,” “Fiscal 2011 Compensation Actions” and “Other Compensation
Practices.”
Compensation Philosophy and Objectives
The Committee’s philosophy is to target total Named Executive Officer compensation at approximately
the 50th percentile among our named peer group companies. A large component of that total compensation is
comprised of 100% at-risk incentive cash compensation and equity compensation such that in years when our
executives have high performance, they may be paid above the target and in years when they have low
performance, they will be paid below the target. The Committee’s general policy is to pay approximately median
(or 50th percentile) base salary, but to place more emphasis on performance-based compensation (cash and
equity) and how it is earned, such that a large percentage of our Named Executive Officer compensation is at
risk. Therefore, because of the larger percentage of pay at risk and aggressiveness of our goals, our executive
officers can be paid above our targeted median percentile when compared with our peer companies, but only
based on superior performance relative to these peer group companies.
Our executive officers earn their variable, performance-based compensation under our incentive cash
compensation and equity programs. The performance targets under these programs are aggressive and
pre-determined both at the corporate level, through corporate goals and at a personal level through individual
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goals set for the applicable period. The payout may be robust or meager depending on the level of goal
achievement. If the goals are achieved at a high level, the total compensation for our Named Executive Officers
could approximate the 75th percentile or more of the total compensation for similar positions in our peer group
companies. Conversely, if the performance targets are not achieved under the performance-based cash or equity
compensation programs, the total compensation for our Named Executive Officers is significantly diminished
and falls well below the 50th percentile.
The compensation programs for our executives are designed to achieve the following objectives:
Attract and Retain Top Talent — to compete effectively for the highest quality of people who will
determine our long-term success. We have structured our executive compensation program to be competitive
with compensation paid by companies in the same market for executive talent which may include public and
private companies.
Pay-for-Performance — to align executive compensation with Company, business unit and individual
performance on both a short-term and long-term basis. Approximately 90% of our NEOs’ target total direct
compensation is in the form of variable compensation, comprised of quarterly and annual incentive cash bonuses
and performance-based restricted stock units, which aligns executive compensation with shareholder interests by
tying a significant majority of total direct compensation to achieving performance goals. Both our variable cash
and equity incentive awards are structured around very stringent, aggressive and measureable goals and by
design are very rewarding when the goals are achieved and if not, no payout is earned. In considering our pay
structure for the CEO, CFO and other NEOs relative to our pay-for-performance policy, we also compared
changes in compensation relative to one and three year total stockholder return (“TSR”), both at Cypress and our
peer group companies. The data showed that Cypress stock price clearly outperformed the stock price at our peer
group companies and in fact over a three year period, TSR for Cypress exceeded the TSR at all peer group
companies. This reinforced our continued commitment to our pay-for-performance philosophy and our current
pay structure.
We generally administer an annual focal review process to determine employee (including our executive
officers) compensation. By using a ranking system in the annual focal review, we reinforce the direct and
meaningful link between individual performance and rewards. Therefore, the higher an executive officer is
ranked, the more likely they will receive a greater percentage increase in both equity and cash compensation.
Finally, the Committee considers the results of the annual advisory ‘say-on-pay’ vote. At our 2011
Annual Meeting, over 75% of our stockholders approved the executive compensation program described in our
2011 proxy statement and our compensation programs did not change for fiscal 2011. After considering this
strong stockholder
effective
the Committee has decided to continue
support,
pay-for-performance program.
to implement
this
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2011 Peer Group Companies
The Committee compares our executive compensation program,
total cash
compensation and equity awards, with compensation paid by a peer group consisting of a broad range of high
technology companies with which Cypress typically competes for executive talent. The Committee reviews the
composition of the peer group on an annual basis. Our peer group companies for 2011 are listed in the table
below:
including base salary,
Peer Group Companies in 2011
Altera Corporation
Analog Devices, Inc.
Atmel Corporation
Avago Technologies
Marvell Technology Group Limited
Microchip Technology Inc.
National Semiconductor Corporation
NVIDIA Corporation
Broadcom Corporation
ON Semiconductor Corporation
Integrated Device Technology Inc.
PMC-Sierra, Inc.
Linear Technology Corporation
SanDisk Corporation
LSI Corporation
Xilinx, Inc.
Data gathered on the peer group by the independent compensation consultant includes base salary, bonus,
targeted cash compensation, equity awards and total direct compensation. Deferred compensation plans and other
benefits generally are not considered.
In assembling the fiscal 2011 peer group, the Committee considered companies that met the following
criteria: (1) companies that compete with Cypress for key leadership talent; (2) companies with global
operations; and (3) companies based in the U.S. with significant levels of resources dedicated to research and
development. Notably, Cypress is smaller in terms of revenue, total assets and market capitalization than some of
is taken into account by the Committee when comparing total direct
its peer group companies, so that
compensation between the peer group companies and Cypress. In reviewing the peer group for appropriateness,
for 2011 as compared to 2010, Avago Technologies was added to our peer group companies because it fit the
scope criteria used to select our peer group companies. The Committee generally intends to continue using this
peer group for fiscal 2012 except for National Semiconductor Corporation, which has merged with Texas
Instruments. We will make changes to the peer group as needed to reflect mergers, split-ups, spin-offs, or other
significant corporate transactions involving the peer group companies.
Elements of Compensation
The components of our executive compensation program are: (i) base salary; (ii) variable and at-risk
incentive cash compensation; (iii) performance-based equity awards; and (iv) limited benefit programs such as
our deferred compensation plans. We also offer standard health benefits and an employee stock purchase
program to all our employees.
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Below is a description of each of our elements of compensation, their objectives and their key features.
Compensation
Element
Base Salary
Performance-Based
Incentive Cash
Compensation
(KEBP, PBP & DBP)
Objectives
Key Features
To provide a fixed level of cash
compensation to reward
demonstrated experience,
skills and competencies relative
to the market value of the job.
Rewards annual corporate and
individual performance and
achieving strategic goals.
Aligns NEOs’ interests with
those of our stockholders by
promoting strong annual results
through increased profit margin,
operating efficiency and
achieving personal goals.
Retains NEOs by providing
market-competitive
compensation.
Targeted at the 50th percentile of our peer group
companies, but varies based on skills,
experience and other factors.
Adjustments are considered annually based on
individual performance, level of pay relative to
the market, and internal pay equity.
Quarterly and annual cash incentive payments
are based upon the achievement of financial
targets (percentage of non-GAAP profit before
taxes) and individual performance goals. These
cash incentive payments are also subject to the
CEO achieving a certain level of performance.
Therefore, any cash payout under this program
is 100% performance-based.
Annual cash incentive awards can vary from 0%
to 200% of the target amount.
Performance-Based
Restricted Stock
(PARS)
Aligns NEOs’ interests with
long-term stockholder interests
by linking part of each NEOs
compensation to long-term
corporate performance.
Targeted at a level that will provide total direct
compensation (base + annual incentive + equity
awards) approximating above the 75th percentile
of our peer group’s total direct compensation
but only if performance targets are achieved.
Non-Qualified
Deferred
Compensation
Provides opportunities for wealth
creation and ownership, which
promotes retention and enables
us to attract and motivate our
NEOs.
Retention of NEOs through
multi-year vesting of equity
grants and annual performance
periods.
To provide retirement savings in
a tax-efficient manner.
PARS for our NEOs were awarded in 2007 and
were earned over five years upon the
achievement of certain annual performance
targets. None of our NEOs received any
additional standard awards for four years
following the 2007 award. In February 2012, the
Committee approved new equity awards under
the 2012 PARS program as described in “Fiscal
2012 Executive Compensation Actions” below
that will decrease substantially the number of
shares available to be earned on an annual basis.
NEOs can elect to defer up to 100% of their
annual incentive cash payments or defer a
portion of their base salaries.
Balances in the deferred compensation plan are
unfunded obligations and at risk. Investment
returns on balances are linked to the returns of
mutual funds and do not generate any above
market returns. The Company does not
guarantee any return or provide any matching
contributions.
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Base Salary. Base salaries for our Named Executive Officers depend on the scope of their responsibilities, their
leadership skills and values, their performance and length of service. Decisions regarding salary increases are
affected by the NEOs current salary and the amounts paid to their peers within and outside the Company.
Performance-Based Incentive Cash Compensation. We maintain three (3) performance-based incentive cash
bonus plans. The Key Employee Bonus Plan (“KEBP”), in which all of our NEOs participate in except our CEO;
the Performance Bonus Plan (“PBP”), in which our CEO is the only participant; and the Design Bonus Plan
(“DBP”) in which Mr. Keswick, our Executive Vice President of New Product Development, is the only NEO
participant as it is a bonus plan available only to our design and certain product development engineers.
Below is a summary of each of these incentive cash compensation plans. For actual fiscal 2011 payments under
each of these plans, please refer to “Fiscal 2011 Executive Compensation Actions.”
Key Employee Bonus Plan
Eligible senior and otherwise high-performing employees, including our Named Executive Officers, except
our chief executive officer, participate in KEBP. KEBP can pay out quarterly and annually and is a key part
of our variable compensation structure. The objective of KEBP is to provide variable cash incentives to
eligible participants. Each KEBP participant is placed at an incentive level, which determines the percentage
of that individual’s base salary he or she is eligible to earn over the course of the year. Payout under the
KEBP is subject to achieving corporate performance objectives, individual performance objectives and CEO
or executive officer performance. Therefore, payout can be drastically reduced or eliminated altogether
depending on the performance of all
three elements. A target payout would require achieving very
aggressive goals that are generally not fully achieved.
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1. Corporate Performance
Payout under the KEBP is subject to the Company attaining a certain financial performance milestone
established by the Committee (the “Financial Milestone”). In 2011, the Committee established the Financial
Milestone based on a percentage of the Company’s non-generally accepted accounting principles profit
before taxes percentage (“non-GAAP PBT%”)
things, stock-based
compensation, acquisition-related expenses,
impairments to goodwill, gains or losses on divestitures,
investment-related gains and losses, restructuring costs, minority interests and related tax effects and other
one-time costs or benefits). The Financial Milestone for fiscal 2011 was increased 25% from the prior fiscal
year. There is no payout if the non-GAAP PBT% is 15% or less. Once non-GAAP PBT% reaches 15%, the
plan scales linearly to 100% of the bonus target upon achievement of 25% non-GAAP PBT%. The plan
continues to scale linearly up to a cap of 200% once non-GAAP PBT% reaches 35% - a level that has never
been obtained in the Company’s history. Below is a chart illustrating the floor, target and maximum payout
thresholds:
(which excludes, among other
200%
150%
100%
50%
%
R
O
T
C
A
F
T
B
P
0%
0%
0%
PBT FACTOR
35%
25%
15%
5%
10%
15%
20%
25%
30%
35%
40%
PBT %
2. Individual Performance
The second element to the KEBP is the achievement of individual performance objectives. These individual
performance objectives, also known as “CSFs,” are measurable quarterly and annual performance goals that
are identified by our executive officers or CEO and reviewed, modified as appropriate, and approved by our
CEO in advance of each review period. NEO’s typically designate between ten (10) and fifteen (15) CSFs
per quarter and for the year.
CSFs for each period are scored on a scale of 0 to 100%, with each CSF representing a specific point value
based on its importance to the Company and/or its level of difficulty. Specific scoring parameters that are
used to determine whether the CSF has been achieved are also identified in advance in writing. At the end of
each fiscal quarter, or fiscal year, as applicable, our executive officers “score” their CSFs based on the
scoring parameters previously established. This score is reviewed, adjusted if necessary, and approved by
our CEO. The specific CSFs designated for each executive officer often vary from quarter to quarter, and
may include Company metrics, divisional metrics and individual performance metrics. Historically, our
NEOs do not achieve 100% of their CSFs. In fiscal 2011, our NEOs scored between 33% and 108% on their
CSFs and in fiscal 2010, they scored between 87% and 93% on their CSFs.
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3. Executive Officer Performance
The third element to the KEBP is executive officer performance (the “EO Factor”). The EO Factor,
regardless of the individual’s CSF achievement, can only reduce each NEOs KEBP payment. The EO Factor
is determined by using the lower of the CEO CSF score or the NEO CSF score to determine an EO Factor.
The EO Factor is determined as follows:
If the LOWER of the CEO CSF score and
NEO CSF score is:
Then the EO Factor is:
80.0 or higher
65.0 or higher, and less than 80.0
Less than 65.0
100%
50%
0%
The EO Factor has typically reduced KEBP payouts to NEOs at least once per year over the last few years,
including most recently in the fourth quarter of fiscal 2011. The EO Factor further demonstrates the link
between pay and performance under the Company’s incentive cash compensation plans.
Payout under KEBP
To be eligible for a KEBP payment, the KEBP participant must still be employed by the Company on the
payment date. There are 5 payouts under the KEBP. Quarterly payouts under the KEBP are made in the
quarter following the measuring period, and the payout for the annual target is made within the first quarter
following the applicable year.
Payouts under KEBP may be higher or lower based on the Company’s results and an individual’s CSF
score, such that each NEO is motivated and challenged to achieve both short and long-term goals for the
Company. The principles of a payout under KEBP are embedded in the following formula established by the
Committee, which reflects how each incentive cash bonus payment is determined:
Annual Base Pay
×
Incentive Target
Level%
5
×
Financial
Performance
Metric %
Achievement
CSF
Score
×
×
EO Factor
Performance Bonus Plan
Our CEO was the only participant under the PBP in fiscal year 2011, and is currently the only participant. A
PBP participant is not eligible to participate in the KEBP. The PBP was designed to maintain the corporate
tax deduction under Internal Revenue Code Section 162(m) for certain variable cash compensation paid to
an executive officer to the extent such compensation exceeds $1 million in any one year.
Under the PBP, participants are eligible to receive cash payments based upon the attainment and
certification of certain objective performance criteria established by the Committee. The performance
measures for any performance period are one or more objective performance criteria, applied to either the
Company as a whole or, except with respect to stockholder return metrics, to a region, business unit, product
line, affiliate or business segment, and measured either on an absolute basis or relative to a pre-established
target, to a previous period’s results or to a designated comparison group, in each case as specified by the
Committee. Financial metrics may be determined in accordance with U.S. generally accepted accounting
principles (“GAAP”), in accordance with International Accounting Standards Board (“IASB”) principles or
may exclude any items otherwise includable under GAAP or IASB principles.
The PBP operates exactly like the KEBP. It contains a corporate performance metric and individual
performance metrics. Similar to KEBP, in 2011, the Committee established non-GAAP PBT% as the PBP
quarterly and annual corporate performance metric and it is calculated using the same formula described
above. In addition, our CEO has individual performance objectives, or CSF’s, on a quarterly and annual
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basis. Our CEO’s CSFs are submitted to, reviewed, modified as appropriate, and approved by the Board.
Following each quarter, the CEO’s score is then reviewed, adjusted if necessary, and approved by the
Committee. Like the KEBP, even where the Company’s goal has been achieved, the actual payout is subject
to reduction based on the CEO’s CSF score for the period. If the CEO’s CSF score for the period is more
than 65.0% but less than 80.0%, then the CEO’s PBP payment is reduced by 50% for that period. If the
CEO’s CSF score for the period is less than 65.0%, then the CEO’s PBP payment is reduced to zero for that
period.
The PBP, like KEBP, has quarterly and annual components. Our Committee retains the discretion to reduce
or eliminate any PBP award that would otherwise be payable.
Design Bonus Plan:
The Design Bonus Plan was instituted in 2010 to incentivize design and engineering efforts at the Company.
The DBP is available to all employees who are design engineers and certain product development engineers.
Mr. Keswick was the only NEO who participated in the DBP in fiscal year 2011. Participants in the DBP are
eligible to receive an incentive multiplier (“IM”) of 2X their cash incentive compensation for on-time
performance and up to 5X for delivering First 100 Engineering Samples (“ES100”), a significant product
development milestone, ahead of schedule. To participate in the DBP, eligible NEO’s must put at-risk 10%
of their quarterly base salary and 50% of what would be earned under the quarterly KEBP. Actual payout
under the DBP is measured by evaluating progress of the project made relative to the original schedule from
the first day of the quarter to the last day of the quarter. The IM is calculated based on the percentage
achievement ahead or behind on the project during that quarter. If the IM does not reach a certain level of
achievement, then a component of the quarterly bonus payment will be further subject to a vesting period.
The funds will vest upon reaching certain achievement levels and are subject to scaling factors based on the
difference between the original commitment and actual performance.
Payouts under the DBP are calculated as follows:
Pay Out (current period) = (50% of KEBP earned + 10% of quarterly base salary) * Incentive Multiplier (up to 1.5 on
each project)
Bonus payments for an IM greater than 1.5 are payable once the ES100 milestone is achieved, and are
subject to an ES100 scaling factor, which can range from 0% to 150%. The formula for these additional
payments are as follows:
Pay Out (future vesting, paid at ES100) =
(50% of KEBP + 10% of quarterly base salary) * Incentive Multiplier (above 1.5 on each project) * ES100 Scaling
Factor
Performance-Based Restricted Stock Units (“PARS”). Our equity program is intended to provide a long-term
incentive to help (1) achieve our business objectives, (2) attract, motivate and retain key talent, and (3) align our
executives’ interests with stockholders’ interests. Our 1994 Stock Plan (the “Plan”) permits us to grant service-
based awards and long-term performance-based awards, including our PARS program that we adopted in 2007 to
retain and incentivize key employees.
In 2007, under the PARS program, we awarded performance-based vesting restricted stock units
(“RSUs”) to key employees, including our NEOs and our other executive officers. Our executive officers,
including our NEOs, have not received any other standard awards since the PARS grant in 2007, when we
granted a five-year tranche of PARS that could be earned from 2007 through 2011, subject to achieving annual
performance metrics. The Committee releases all earned shares following certification that the applicable
performance milestone has been achieved, net of all federal and state withholding tax requirements. Following
final certification by the Committee, if the performance milestone is not achieved in full, the portion of the target
shares for that particular performance milestone in the given period is forfeited and returned to the Plan.
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Neither Mr. Rodgers nor any of our Named Executive Officers received a new grant in 2011. For
tranche of the 2007 PARS award, please refer to “Fiscal 2011
in fiscal 2011 of the last
achievement
Performance-Based Restricted Stock.”
Non-Qualified Deferred Compensation. The Company also maintains an unfunded, nonqualified deferred
compensation plan which allows eligible participants, including executive officers, to voluntarily defer receipt of
a portion or all of their salary or cash bonus payment, as the case may be, until the date or dates elected by the
participants, thereby allowing the participating employees to defer taxation on such amounts. Refer to the table
entitled “Deferred Compensation Plan” for employee contributions and performance under this benefit plan in
fiscal 2011.
Fiscal 2011 Executive Compensation Actions
2011 Base Salary
We target executive officers’ base salaries at approximately the 50th percentile of base salaries for similar
positions in our peer group companies. In May 2011, as part of its annual review of executive compensation, the
Committee reviewed the base salaries of our NEOs focusing on the competitiveness of salaries and bringing base
salaries closer to the 50th percentile. Based on that review, our Named Executive Officers other than our CEO,
received salary increases ranging between 2.8% and 4.2% bringing their base salary to the approximate median
level among our peer group companies. These increases in base salary were consistent with increases seen in our
competitive markets. Below is a summary of the salary changes of our NEOs in fiscal 2011:
Name
T.J. Rodgers
Brad W. Buss
Paul Keswick
Christopher Seams
Norman Taffe
Previous Annual
Base Salary
2011 Salary % Increase
$600,000
$337,404
$320,110
$378,804
$293,213
$600,000
$347,527
$329,073
$394,714
$303,182
0
3.0
2.8
4.2
3.4
2011 Incentive Cash Compensation
Key Employee Bonus Plan (KEBP)
In 2011, the incentive cash compensation target percentage for our executive officers remained the same as in
previous years and was targeted to provide an above-median opportunity of 80% of base salary for all of the
Named Executive Officer under our KEBP program. No executive officer achieved the targeted total cash
compensation for each performance period either in 2010 or 2011.
The quarterly and annual plan non-GAAP PBT% targets, our actual non-GAAP PBT% achievement, and the
percentage of achievement against plan for our 2011 fiscal year are set forth in the following table (percentage
achievement is calculated on a linear scale where 15% is zero and 25% is at 100%):
2011 Fiscal Year Period
Plan Non-GAAP
PBT% Target
Non-GAAP
PBT% Achieved
Percentage
Achievement
Against Target
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Annual
25.0%
25.0%
25.0%
25.0%
25.0%
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21.2%
24.7%
26.7%
23.2%
24.1%
61.9%
97.4%
117.4%
82.3%
90.7%
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In determining the amount of cash incentive pay payable under the KEBP, the Committee uses the final CSF
scores for the given review period as a component in the formulas that determine the bonus to be paid under each
plan. In order to apply its discretion to reduce the maximum payout under the KEBP, the Committee considers
the participant’s CSF score for the applicable period. Below is a summary of the Named Executive Officers’
2011 quarterly and annual CSF performance goals:
implementing a dividend program,
Brad W. Buss. In 2011, our chief financial officer, Mr. Brad W. Buss’ annual and quarterly CSFs included,
deploying new financial systems and processes, obtaining stockholder approval for additional shares under
implementing initiatives with distributors,
our 1994 Stock Plan,
executing strategies for improved shareholder returns, revenue and profit improvement, and implementing
our world class profit initiative. Mr. Buss also had quarterly goals related to achieving certain cost savings,
hiring key employees and other workforce development initiatives, executing patent monetization strategies,
executing certain legal and business development strategies, improving certain business processes, and
implementing programs to make it easier for customers to do business with Cypress.
Paul Keswick. In 2011, our executive vice president of New Product Development, Mr. Paul Keswick’s
annual and quarterly CSFs included developing and executing various plans for 2011 product launches, new
product development, improving several of Cypress’s business processes, and improving product design
processes and cycle time. Mr. Keswick also had quarterly goals related to product research and
development, the creation of system designs methods and tools, employee development and formulating and
implementing several engineering and manufacturing initiatives.
Christopher Seams. In 2011, our executive vice president of Sales and Marketing, Mr. Christopher Seams’
annual and quarterly CSFs included implementing a new enterprise CRM software system, employee
development and other organizational goals, initiating strategies for revenue growth, increasing profit,
market penetration and new design wins, and implementing programs to make it easier for customer to do
business with Cypress. Mr. Seams also had quarterly goals related to product launches, achieving certain
revenue performance targets, developing and implementing programs to improve our customer base for
specific product lines, implementing our cost saving initiatives, and other strategic initiatives for product
marketing and distribution.
Norman Taffe. In 2011, our executive vice president of the Consumer and Computation Division,
Mr. Norman Taffe’s 2011 annual and quarterly CSFs included implementing various cost-reduction
strategies, increasing market share, exploring next generation products, and achieving specific product
quality goals. Mr. Taffe also had quarterly goals related to various product launches, achieving specific
improving business
cycle time and customer service standards, achieving certain financial metrics,
processes within his organization and employee development.
Below is a historical table that shows two-year performance achievement by our Named Executive Officers
under KEBP (achievement as a percentage of target):
2010
2011
KEBP
Q1
Q2
Q3
Q4
ANNUAL AVERAGE Q1
Q2
Q3
Q4
ANNUAL AVERAGE
Brad W. Buss
Paul Keswick
89% 129% 143% 126%
84% 108% 76% 112%
Christopher Seams
81% 117% 143% 123%
Norman Taffe
84% 120% 142% 115%
58%
58%
60%
48%
109%
88%
105%
102%
59% 89% 108% 38%
58% 79% 44% 35%
57% 82% 108% 34%
58% 38% 99% 38%
84%
35%
78%
75%
76%
47%
72%
62%
Performance Bonus Plan (“PBP”)
In 2011, the incentive cash compensation target percentage for our CEO remained the same as in previous
years and was targeted to provide an above-median opportunity of 175% of base salary under the PBP.
The Non-GAAP PBT% under the PBP was the same payout as described above under the 2011 KEBP.
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In 2011, our chief executive officer, Mr. T.J. Rodgers’ annual and quarterly CSF performance goals
included, enhancing the distributor program, strategies for reducing operating expense, increasing revenue,
improving gross margin and achieving other financial metrics, achieving certain design win metrics,
implementing our manufacturing initiatives, executing certain legal initiatives, implementing the stock
buyback program, company-wide workforce initiatives, new product development and launches, and
implementing programs to make it easier
including
responsiveness to customers.
for customers to do business with Cypress,
Below is a historical table that shows a two-year performance percentage achievement by our CEO under
PBP (achievement as a percentage of target):
PBP
Q1
Q2
Q3
Q4
ANNUAL
AVERAGE
Q1
Q2
Q3
Q4
ANNUAL
AVERAGE
T.J. Rodgers
84% 131% 143% 113%
49%
104%
61% 87% 101% 33%
79%
72%
2010
2011
Design Bonus Plan (DBP)
In 2011, Mr. Paul Keswick, our Executive Vice President of New Product Development, is the only NEO
who participated in the DBP. Mr. Keswick’s IM is calculated for each period based on a weighted average
of the performance of active new product projects compared to their original schedules.
Below is a historical table that shows Mr. Keswick’s IM achievement under DBP over the last six quarters.
Mr. Keswick did not begin participating in the DBP until the third quarter of fiscal 2010:
DBP Incentive Multiplier
Q1 Q2 Q3
Q4
AVERAGE Q1
Q2
Q3
Q4
AVERAGE
Paul Keswick Paid in Current Period
N/A N/A 0.76
1.25
Vested for Possible Future
Payout
Total
N/A N/A 0.65
N/A N/A 1.41
0.91
2.16
1.01
0.78
1.79
1.13
1.16
0.91
0.76
1.63
2.76
1.39
2.55
0.50
1.41
0.88
1.64
0.99
1.10
2.09
2010
2011
2011 PARS
In early 2011, the Committee set the performance goals under which participants were eligible to earn their
PARS. The four milestones for 2011 PARS were as follows:
Milestone #1
30% of total targeted PARS awards could be earned if Cypress’s stock appreciation was 5.0 percentage
points or greater than the SOXX calculated from December 31, 2010 versus December 31, 2011 ending
stock price. The payout for this milestone adjusted on a linear scale down to 0% if Cypress’s stock
performance was less than SOXX by greater than 5.0 percentage points. If Cypress’s stock price
performance was greater than SOXX at the end of the measurement period, but Cypress stock return was
negative for the measurement period then the payout for this milestone was set at 50% as long as Cypress
appreciation is at least 5.0 percentage points better than SOXX. For fiscal year 2011 this milestone did not
pay out. While Cypress’s stock price performance of -9.10% was greater than the SOXX at -11.51%, it was
not at least 5.0 percentage points better than SOXX, so therefore no payout was earned under this milestone.
Milestone #2
30% of total targeted PARS awards could be earned if Cypress achieved a 25.0% or greater non-GAAP
annual profit before taxes % for the fiscal year 2011. The payout adjusted on a linear scale down to 0% if
the non-GAAP annual PBT% for fiscal year 2011 was 15.0% or less. For fiscal year 2011 this milestone
paid out at 90.7% of the target as the non-GAAP PBT% achieved was 24.1%.
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Milestone #3
20% of total targeted PARS awards could be earned if total revenue for 2011 was greater than $1.020
billion. The payout for this milestone adjusted on a linear scale down to 0% payout if revenue was equal to
or less than $883 million. For fiscal year 2011 this milestone paid out at 81.9% of the target as the 2011
revenue achieved was $995.2 million due to the industry downturn, which negatively impacted revenue in
the fourth quarter of fiscal 2011.
Milestone #4
20% of total targeted PARS awards could be earned if the revenue from the PSoC family of products
defined as -PSoC1/3/5, True Touch, PPSoC, ONS, Trackpad - for fiscal 2011 was equal to $375 million.
This milestone adjusted on a linear scale down to a 0% payout if revenue from the PSoC family of products
was equal to or less than $312 million. The Committee used its discretion to award an overachievement in
this milestone by accelerating the vesting of the total target PARS awards that otherwise would have been
forfeited under Milestone #1, to reward the performance reflected by the PSoC revenue totaling $409.7
million and achieving 155.1% of the target for fiscal 2011.
The following table sets forth the maximum targeted shares that could be earned in 2011 by our Named
Executive Officers under PARS and the actual payouts, as approved by the Compensation Committee for our
Named Executive Officers. The total overall achievement under the PARS program in fiscal 2011 was 74.6% of
target, the lowest percentage achieved under the PARS program for the last five years. Due to not achieving
100% of the targeted shares, 511,012 shares previously granted to our NEOs were forfeited and returned to the
Company’s equity pool in February 2012.
Named
Executive
Officer
2011
Maximum
Target Shares
Total Number
of Shares
Earned in 2011
Mr. Rodgers
Mr. Buss
Mr. Keswick
Mr. Seams
Mr. Taffe
659,235
412,021
329,618
329,618
283,265
419,290
262,055
209,645
209,645
180,163
Additional
Shares Earned (1)
72,658
45,411
36,329
36,329
31,220
Total Shares
Released
Percentage
Achieved (%)
491,948
307,466
245,974
245,974
211,383
74.6
74.6
74.6
74.6
74.6
(1) These shares represent the acceleration of outstanding awards that otherwise would have been forfeited and
for accounting purposes are treated as new awards. The Committee approved the vesting acceleration as a result
of the Company’s overachievement on its PSoC revenue milestone which well exceeded the target and achieved
record revenues in fiscal 2011. As these shares were approved and the vesting acceleration was determined in
fiscal 2012, the related compensation cost of these awards as determined pursuant to ASC 718 will be included in
our Consolidated Statement of Operations for fiscal 2012.
Other Compensation Practices
The Role of the Compensation Committee
The Committee:
Š
Š
Š
establishes the performance objectives for our chief executive officer and other Named Executive
Officers and evaluates and adjusts their compensation based on achievement of those objectives;
formulates, approves, reviews and modifies the compensation of the Company’s directors and
executive officers;
oversees the administration of the Company’s compensation plans;
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Š
Š
Š
Š
Š
recommends to the Board for approval
programs;
the Company’s compensation plans, policies and
reviews, revises in its discretion, and approves the annual merit and stock budgets for focal salary
increases and equity grant awards for all eligible employees;
reviews and revises in its discretion the annual benefit changes made by the Company with respect
to its employees;
oversees equity plans of the Company’s subsidiaries; and
oversees annual risk analysis of our compensation policies and programs, including the clawback
policy.
The Role of Compensation Consultants
Buck Consultants, LLC, an independent compensation consulting firm is engaged as a consultant by the
Committee, reports directly to the Committee, and assists the Committee in determining the appropriate
executive compensation for our Named Executive Officers. This is done, in part, by comparing the current
salary, bonus, and equity awards of our Named Executive Officers to comparable positions at peer group
companies. Buck Consultants is independent from the Company, has not provided any services to the
Company other than to the Committee, and receives compensation from the Company only for services
provided to the Committee. The Committee typically asks Buck Consultants to attend the Committee’s
regular meetings and many of the Committee’s special meetings, including executive sessions of the
Committee at which management is not present.
The Role of Executive Officers in Determining Executive Compensation
Other than our chief executive officer, who participates in setting the compensation of the other executive
officers through his recommendations to the Committee, our executive officers do not directly participate in
determining their compensation. Our chief executive officer does not participate directly in setting his own
including our chief executive officer, do participate
compensation. However, our executive officers,
indirectly by initially proposing their quarterly and annual goals (subject to review, revision and approval),
the achievement of which impacts their variable cash compensation under our cash incentive plans.
Mr. Rodgers’ salary, bonus and equity grants are determined by the Committee after considering the peer
group analysis undertaken by our consultant, Mr. Rodgers’ job performance, the responsibilities of his
position, and Company performance.
Prohibition on Derivative Trading
We prohibit derivative transactions in our Company stock by officers and directors directly or indirectly.
Specifically, a director or an officer may not, at any time:
Š directly or indirectly sell any equity security, including derivatives, of the Company if he or she
(1) does not own the security sold, or (2) if he or she owns the security, does not deliver it against such
sale (a “short sale against the box”) within twenty days thereafter, or does not within five days after
such sale deposit it in the mails or other usual channels of transportation.
Š engage in short sales, which means any transaction whereby one derives a benefit from a decline in the
Company’s stock price. This includes buying put options on the Company’s stock.
Clawback Policy
In 2011, we adopted a clawback policy under which our Named Executive Officers may be required to
return incentive compensation payments to us if (i) he or she engaged in intentional misconduct pertaining
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to any financial reporting policy, (ii) there is a material negative revision of a financial or operating measure
on the basis of which incentive compensation was awarded or paid to the employee, or (iii) he or she
engaged in any fraud, theft, misappropriation, embezzlement or dishonesty. In all circumstances, the
Committee will have the ability to exercise discretion with respect to all reimbursements under the
Clawback Policy. We intend to fully comply with the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (the “Dodd-Frank Act”) regarding clawback policies once the SEC provides final
rules and regulations.
Perquisites and Other Benefits
Cypress does not provide any perquisites to its Named Executive Officers.
Company’s policy on IRS 162(m)
Our management and the Committee have considered the implications of Section 162(m) of the Internal
Revenue Code of 1986. This section precludes a public corporation from taking a tax deduction for
individual compensation in excess of $1 million for its chief executive officer or certain other executive
officers. This section also provides for certain exceptions to this limitation, including compensation that is
performance-based within the meaning of Section 162(m). Our Performance Bonus Plan enables us to
qualify more compensation as deductible performance-based compensation. Many of our executive
compensation plans are designed to qualify payments thereunder as deductible performance-based
compensation. In order, however, to preserve flexibility in designing our compensation programs, not all
amounts we pay may qualify for deductibility.
Severance/Change in Control Compensation
None of our Named Executive Officers have contractual severance or change-in-control benefits.
Fiscal 2012 Executive Compensation Actions
Incentive Cash Compensation.
The Board and the Committee have approved the financial performance metrics required for 2012 KEBP and
PBP payouts to Named Executive Officers, as well as the individual performance goals for each of our Named
Executive Officers. Similar to fiscal 2011, for fiscal 2012, the Committee has established a non-GAAP PBT%
target as the corporate performance financial metric for both the KEBP and PBP. We cannot predict with any
degree of certainty how difficult it will be to achieve the 2012 financial targets under KEBP or PBP. Even where
the Company’s financial targets are achieved, it is also unpredictable how the CSF score of each executive
officer will impact his actual payout, or how our chief executive officer’s score will impact the actual payout.
Performance-based Restricted Stock.
In March 2012, the Committee approved the 2012 PARS Program. This is the first equity grant for our NEO’s,
including our chief executive officer, since the PARS program in 2007. Unlike the 2007 PARS program, under
the 2012 PARS program, equity grants will be made on an annual basis, rather than a multi-year basis, so that
they can be adjusted annually to reflect market conditions. Equity grants made under the 2012 PARS program are
subject to achieving financial, operational, strategic or market share performance milestones established by the
Committee and might result in total compensation packages that are higher than targeted market positions if all
performance-related milestones were achieved. There are 3 levels of grants under the 2012 PARS program: the
Core Grant, Tier 1 Grant and Tier 2 Grant. The number of shares granted to each executive under the Core Grant
is expected to be reduced by approximately 50% from the previous 2011 targeted PARS level. If the Company
meets 100% of its performance milestones under the Core Grant and Tier 1 Grant, the maximum number of
shares granted to each executive is approximately 75% of the previous 2011 targeted PARS level and if the
53
Company meets 100% of its performance milestones under the Core Grant plus the Tier 1 and Tier 2 Grants, then
the maximum number of shares granted to each executive is approximately 87.5% of the previous 2011 targeted
PARS level. There is no overachievement possible under any of the Core Grant, Tier 1 or Tier 2 Grants. Upon
certification and confirmation by the Committee, the earned shares for the Core Grant and Tier 1 Grant shares
will be delivered within a reasonable time following certification and will be 100% vested at grant. Tier 2 shares
will have a twelve month cliff vest following certification of the milestone attainment.
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REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The information in this report shall not be deemed to be “soliciting material” or “filed” with the
Securities and Exchange Commission or subject to the liabilities of Section 18 of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), except to the extent that Cypress specifically incorporates it by
reference into a document filed under the Securities Act of 1933, as amended or the Exchange Act.
We have reviewed and discussed the foregoing Compensation Discussion and Analysis (which is
incorporated by reference in this report) with management. Based on our review and discussion with
management, we have recommended to the Board of Directors that the Compensation Discussion and Analysis
be included in this Proxy Statement and in Cypress’s Annual Report on Form 10-K for the year ended January 1,
2012.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Eric A. Benhamou, Chairman
Lloyd Carney
James R. Long
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows compensation information for fiscal 2009, 2010 and 2011 for the Named Executive
Officers.
Name and Principal Position
Year
Salary1
($)
Bonus
($)
Stock
Awards2
($)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation3
($)
All Other
Compensation
($)
Total Compensation
($)
T.J. Rodgers
President, Chief Executive
Officer and Director
Brad W. Buss
Executive Vice President,
Finance & Administration,
Chief Financial Officer
Paul D. Keswick
Executive Vice President,
New Product Development
Christopher A. Seams,
Executive Vice President,
Sales and Marketing
Norman P. Taffe
Executive Vice President,
Consumer and Computation
Division
2011 669,227 — 11,460,141
2010 598,766 — 7,239,062
2009 594,221 — 6,104,336
2011 343,630 — 7,162,590
2010 333,631 — 4,524,414
2009 302,726 — 3,792,160
2011 325,629 — 5,730,062
2010 319,527 — 3,619,531
2009 297,887 — 3,409,668
2011 407,356 — 5,730,062
2010 373,461 — 3,619,531
2009 340,393 — 3,409,668
2011 299,349 — 4,924,279
2010 289,427 — 3,110,534
2009 265,552 — 2,930,168
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
757,087
—
12,886,455
1,092,807
262,4494
9,193,084
536,952
208,561
291,212
147,649
158,711
276,770
70,542
225,293
322,392
173,446
148, 412
255,514
102,338
—
—
—
—
—
—
—
—
—
—
—
—
—
7,235,509
7,714,781
5,149,257
4,242,535
6,214,402
4,215,828
3,778,097
6,362,711
4,315,384
3,923,507
5,372,040
3,655,475
3,298,058
1. Represents actual salary earned in fiscal years 2011, 2010 and 2009. Salary includes base pay and payment in
respect of accrued vacation and holidays. The 2009 salary reflects a Company-wide temporary pay reduction
implemented commencing in the second quarter of 2009. At the beginning of the fourth quarter of fiscal year
2009, annual base salaries were reinstated for all employees except for our executive officers, whose salaries were
reinstated at the beginning of fiscal 2010. The 2010 salary includes $23,661 paid to Mr. Rodgers, $9,644 paid to
Mr. Buss, $12,724 paid to Mr. Keswick, $14,545 paid to Mr. Seams, and $11,339 paid to Mr. Taffe in connection
with our Company’s mandatory shut down. As part of our cost cutting measures, in November and December
2009, and January 2010, our offices were closed for some days and employees were required either to go without
pay for the period, or take unused time-off. The 2011 salary reflects paid-time-off cash out by Mr. Rodgers of
$69,230.
2. Amounts shown do not reflect compensation actually received by the Named Executive Officer. Instead, the
amounts reported above in the “Stock Awards” column represents the aggregate grant date fair value of stock
awards and option awards granted in the respective fiscal years assuming the highest level of performance (100%
achievement), as determined pursuant to ASC 718. The assumptions used to calculate the value of stock awards
are set forth in Note 7 of the Notes to Consolidated Financial Statements included in our Annual Report on Form
10-K for fiscal 2011 filed with the SEC on February 24, 2012. In fiscal 2011, the following shares of restricted
stock units were earned by the Named Executive Officers: Mr. Rodgers, 491,948 shares; Mr. Buss, 307,466
shares; each of Messrs. Keswick and Seams, 245,974 shares; and Mr. Taffe, 211,383 shares. The fair value
amounts disclosed for 2009 also include the adjustments made in 2009 by our Committee in connection with 2008
PARS. The Committee in its review of the performance achievements under 2008 PARS exercised its discretion
under
56
our 1994 Stock Plan and adjusted the calculation methodology for certain performance milestones under
2008 PARS. In connection with said adjustment, the Company incurred a charge of $4,995,900 with respect
to additional shares that our Named Executive Officers earned under 2008 PARS. Of the $4,995,900 charge,
$1,308,400 was with respect to additional shares earned by Mr. Rodgers, $794,700 for Mr. Buss, $1,011,700
for each of Messrs. Keswick and Seams, and $869,400 for Mr. Taffe.
3.
Includes bonus amounts earned under our KEBP, PBP and DBP for services rendered in the respective fiscal
years.
4. Reflects government fees and related expenses paid in connection with a Hart-Scott-Rodino (HSR) filing
that was required on behalf of Mr. Rodgers due to his substantial ownership of Cypress common stock.
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The next table show all plan-based awards granted to the Named Executive Officers during fiscal year 2011.
GRANTS OF PLAN-BASED AWARDS
Fiscal Year Ended January 1, 2012
Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards1
Target
($)
210,000
210,000
210,000
210,000
210,000
Maximum
($)
420,000
420,000
420,000
420,000
420,000
Threshold
($)
—
—
—
—
—
Estimated Future Payouts
Under Equity Incentive
Plan Awards2
Target
(#)
—
—
—
—
—
Maximum
(#)
—
—
—
—
—
Threshold
(#)
—
—
—
—
—
All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)
—
—
—
—
—
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
—
—
—
—
—
Exercise
or Base
Price of
Option
Awards
($/SH)
—
—
—
—
—
Grant
Date
Fair
Value of
Stock
and
Option
Awards
($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
53,505
55,604
55,604
55,604
55,604
59,221
60,879
60,879
60,879
52,652
60,609
63,154
63,154
63,154
63,154
46,914
48,509
48,509
48,509
48,509
107,009
111,208
111,208
111,208
111,208
347,319
357,044
357,044
357,044
105,303
121,217
126,308
126,308
126,308
126,308
93,828
97,018
97,018
97,018
97,018
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Name and
Principal Position
T.J. Rodgers
President, Chief
Executive Officer
and Director
Brad W. Buss
Executive Vice
President,
Finance and
Administration,
Chief Financial
Officer
Paul D. Keswick
Executive Vice
President,
New Product
Development
Christopher A.
Seams
Executive Vice
President,
Sales and
Marketing
Mr. Norman P.
Taffe
Executive Vice
President,
Consumer and
Computation
Division
Grant
Date
Q1
Q2
Q3
Q4
Annual
Q1
Q2
Q3
Q4
Annual
Q1
Q2
Q3
Q4
Annual
Q1
Q2
Q3
Q4
Annual
Q1
Q2
Q3
Q4
Annual
1. Represents awards granted under KEBP, PBP and DBP, which were earned based on performance in 2011.
These columns show the awards that were possible at
target and maximum levels of
performance. The column titled “Non-Equity Incentive Plan Compensation” in the Summary Compensation
Table shows the actual awards earned in 2011 by our named executive officers under these incentive cash
plans.
the threshold,
2. None of our named executive officers received any new additional equity grants in 2011.
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OUTSTANDING EQUITY AWARDS
Fiscal Year Ended January 1, 2012
Option Awards1
Stock Awards1
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
1,442,077
1,442,077
3,028
5,306
1,751,093
—
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
—
—
—
—
—
—
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised/
Unearned
Options
(#)
—
—
—
—
—
—
Market
Value of
Shares or
Units of
Stock that
Have Not
Vested
($)
—
—
—
—
—
—
Number
of Shares
of Units of
Stock
Unvested
(#)
—
—
—
—
—
—
Option
Exercise
Price
($)
5.18
3.53
8.83
3.53
3.53
—
Option
Expiration
Date
01/02/14
02/25/15
02/25/15
02/25/15
06/30/16
—
90,699
209,016
131,847
—
18,541
247,213
37,082
123,606
—
19,365
370,819
288,415
112,245
—
41,202
15,366
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3.70
3.70
3.99
—
1.79
4.76
3.53
3.99
—
4.16
5.18
3.53
3.99
—
4.76
3.99
—
08/15/15
08/15/15
10/27/16
—
03/27/13
10/23/13
02/25/15
10/27/16
—
08/22/13
01/02/14
02/25/15
10/27/16
—
10/23/13
10/27/16
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights that
Have Not
Vested2
(#)
—
—
—
—
—
659,2354
Equity Incentive
Plan Awards:
Market or
Payout Value of
Unearned
Shares, Units or
Other Rights that
Have Not
Vested3
($)
—
—
—
—
—
11,134,479
—
—
—
—
—
—
412,0214
6,959,035
—
—
—
—
329,6184
—
—
—
—
329,6184
—
—
—
—
—
—
5,567,248
—
—
—
—
5,567,248
—
—
283,2656
4,784,346
Name and
Principal Position
T.J. Rodgers
President and
Chief Executive
Officer
Brad W. Buss
Executive Vice
President,
Finance and
Administration,
Chief Financial
Officer
Paul D. Keswick
Executive Vice
President, New
Product
Development
Christopher A.
Seams
Executive Vice
President, Sales
and Marketing
Norman P. Taffe
Executive Vice
President,
Consumer and
Computation
Division
1.
2.
The grants reported above in the “Option Awards” and “Stock Awards” columns were awarded under our 1994
Stock Plan. The numbers reflect adjustments made, pursuant to which existing awards were multiplied by the
Spin-Off Ratio of 4.12022 to reflect the change in market value of the Company’s common stock following the
distribution to the Company’s stockholders of SunPower Corporation class B common stock in connection with the
Spin-Off.
In 2007, all of our Named Executive Officers received PARS that can be earned ratably over five years if certain
performance milestones were met. Performance milestones are set annually by the Committee and the Committee
determines if the performance milestones have been achieved annually. The number in the column represents
maximum number of shares achievable in fiscal 2011.
59
3.
The market value of stock awards was determined by multiplying the number of shares by the closing
price of Cypress common stock of $16.89 on December 30, 2011, the last trading day of fiscal 2011, as
reported on the Nasdaq Global Select Market.
4. On February 23, 2012, the Compensation Committee determined that 74.62% of the performance-
based restricted stock grant was earned based upon the achievement of the corporate performance
goals. Actual award amounts earned were Mr. Rodgers, 491,948 shares; Mr. Buss, 307,466 shares;
each of Messrs. Keswick and Seams, 245,974 shares; and Mr. Taffe, 211,383 shares.
OPTION EXERCISES AND STOCK VESTING
Fiscal Year Ended January 1, 2012
Name of Executive
Officer
T.J. Rodgers
Brad W. Buss
Paul D. Keswick
Christopher A. Seams
Norman P. Taffe
Option Awards
Stock Awards
Number of Shares
Acquired on
Exercise
(#)
Value Realized
Upon Exercise1
($)
Number of
Shares Acquired
Upon Vesting
(#)2
Value Realized
Upon Vesting
($)
2,801,749
364,137
—
365,458
523,626
51,863,118
6,638,551
—
4,857,812
8,944,452
654,983
418,154
335,732
334,908
289,129
13,931,488
8,838,759
7,089,101
7,076,766
6,101,320
1. Amount shown reflects the difference between the option exercise price and the sale price of the underlying
shares multiplied by the number of shares covered by the option.
2. Amount shown reflects total number of shares that vested in 2011. The actual amount released to the Named
Executive Officers was net of shares withheld to pay the taxes due upon vesting. The actual shares received
by Named Executive Officers were substantially less due to required federal and state withholding taxes.
NON-QUALIFIED DEFERRED COMPENSATION
Fiscal Year Ended January 1, 20121
Name of Executive
Officer
T.J. Rodgers
Brad W. Buss
Paul D. Keswick
Christopher A. Seams
Norman P. Taffe
Executive
Contribution
in the Last
Fiscal Year
($)
1,333,311
83,676
—
87,460
31,948
Registrant
Contribution
in the Last
Fiscal Year
($)
—
—
—
—
—
Aggregate
Earnings
in the Last
Fiscal Year
($)
(211,151)
(856)
—
(3,517)
(15,635)
Aggregate
Withdrawals/
Distributions
($)
Aggregate
Balance at Last
Fiscal Year End
($)
—
—
—
—
—
7,269,539
375,038
—
544,866
327,538
1.
There are no guaranteed payments under our deferred compensation plans.
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OTHER DISCLOSURES
Compensation Committee Interlocks and Insider Participation
During fiscal year 2011, the following directors were members of our Compensation Committee:
Mr. Eric A. Benhamou, Mr. Lloyd Carney, and Mr. James R. Long. None of the Compensation Committee
members is or has at any time been an officer or employee of Cypress.
None of Cypress’s Named Executive Officers serves, or in the past fiscal year served, as a member of the
board of directors or compensation committee of any entity that has one or more of its executive officers serving
on Cypress’s Board or Compensation Committee.
Policies and Procedures with Respect to Related Person Transactions
We have adopted a policy that provides that our executive officers, directors, and principal stockholders,
including their immediate family members and affiliates, are not permitted to enter into a related party
transaction with us without the prior consent of our Audit Committee, or other independent members of our
Board in the case it is inappropriate for our Audit Committee to review such transaction due to a conflict of
interest. Any request for us to enter into a transaction with an executive officer, director, principal stockholder, or
any of such persons’ immediate family members or affiliates, in which the amount involved exceeds $120,000
must be reviewed and approved by our Audit Committee. All of our directors, executive officers and employees
are required to report to our Audit Committee any such related party transaction. Our Audit Committee considers
the relevant facts and circumstances available and deemed relevant to the Audit Committee, including, but not
limited to the risks, costs and benefits to us, the terms of the transaction, the availability of other sources for
comparable services or products, and, if applicable, the impact on a director’s independence.
Certain Relationships and Related Transactions
In the first quarter of fiscal 2011, the Company divested its Image Sensor Business to On Semiconductor
Corporation (“ON”) for $34.0 million (the “ON Transaction”). Mr. J. Daniel McCranie, who serves on our
Board, is also the chairman of the board of directors of On Semiconductor and Mr. McCranie abstained from
voting on the approval of the divestiture by Cypress. In connection with this divestiture, we entered into a
transition service agreement (“TSA”) with ON where we act as an agent for them and provide certain services
related to shipping, manufacturing, planning and general administrative functions including the billing and
collection of shipments to ON customers and payments to vendors for manufacturing activities. As a result of the
TSA, at times we had a net payable or receivable to or from ON as we collected receivables and made payments
to vendors on behalf of ON. During the third quarter of fiscal 2011, the services that we provided under the TSA
ended per the terms of the agreement. No receivable or payable under the TSA was outstanding as of January 1,
2012.
In March 2009, the Company entered into an agreement with Bloom Energy Corporation (“Bloom”) to
purchase certain energy generation products and related services for a total purchase price of $7,623,670.
Mr. Rodgers, the Company’s CEO, is on the board of directors of Bloom. Beginning in May 2009, Messrs.
Rodgers, Buss, Keswick and certain other officers of the Company, and Mr. Carney, a member of the Company’s
board of directors, made minor passive investments in Bloom in a standard round at the same price and terms as
all other investors. On September 2, 2010, the Company and Bloom amended the agreement to reduce the
number of products and services sold under the agreement and reduce the purchase price to $3,043,696 (the
“Bloom Transaction”). Under the terms of the amended agreement, the Company actually paid Bloom a total of
$3,151,145 as follows: $61,496, $1,553,366 and $1,536,284 in 2011, 2010 and 2009, respectively. As a result of
the energy savings features of the Bloom products,
the Company received government rebates totaling
$2,400,000 in the aggregate, so that the net cost to the Company for the purchase of the Bloom products and
services was $751,145.
61
Apart from service on our Board, and the ON Transaction and the Bloom Transaction, there are no
additional relationships between our directors and our Company, nor are there any related party transactions
between our directors and our Company. For purposes of this section, “related person” and “transaction” have the
meanings contained in Item 404 of Regulation S-K.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and
directors, and persons who own more than 10% of a registered class of our equity securities, to file an initial
report of ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC. Such officers, directors
and 10% stockholders are also required by the SEC rules to furnish us with copies of all of the forms they filed to
comply with Section 16(a) requirements.
We believe that, during fiscal 2011 and in years prior to 2011, our directors, executive officers, and 10%
stockholders complied with all Section 16(a) filing requirements, with the exceptions noted below.
Š
Š
Š
Š
A late Form 4 report was filed for Dinesh Ramanathan, our Executive Vice President of
Programmable Systems Division, on November 16, 2011 to report the sale of 13,145 shares of
common stock on December 2, 2010.
A late Form 5 report was filed for Norman Taffe, our Executive Vice President of Consumer and
Computation Division, on November 16, 2011 to report the donation of 2,000 shares of common
stock to a charitable organization on December 24, 2009.
Late Form 5 reports were filed for W. Steve Albrecht, our Chairman of our Audit Committee, on
November 16, 2011 to report the donation of 3,300 shares and 5,000 shares of common stock to a
charitable organization on June 1, 2009 and November 14, 2007, respectively.
A late Form 4 report was filed for W. Steve Albrecht, our Chairman of our Audit Committee, on
November 16, 2011 to report the sale of 2,000 shares of common stock on September 12, 2008.
In making these statements, we have relied upon examination of the copies of Forms 3, 4, and 5, and
amendments to these forms, provided to us and the written representations of our directors, executive officers,
and 10% stockholders.
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OTHER MATTERS
We know of no other matters to be submitted at the Annual Meeting. If any other matters properly come
before the Annual Meeting, it is the intention of the persons named in the enclosed proxy to vote the shares they
represent as the Board of Directors may recommend.
It is important that your stock be represented at the Annual Meeting, regardless of the number of shares
you hold. You are, therefore, urged to execute and return the accompanying proxy in the envelope provided or to
vote by telephone or over the Internet at your earliest convenience.
FOR THE BOARD OF DIRECTORS
Dated: March 30, 2012
Brad W. Buss
Corporate Secretary
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CYPRESS USB: THE WORLDWIDE MARKET LEADERTARGETING THE USB 3.0 SUPERSPEED MARKETWORLDWIDE USB-ENABLED DEVICESHIPMENTS & FORECAST: 2011-2015Cypress entered the Universal Serial Bus market in 1996 with the goal of "Making USB Universal." Since then, we have shipped over 1.2 billion USB controllers and become the worldwide market leader. Cypress offers the industry’s most complete USB portfolio – from the 1.5 megabits per second (Mbps) throughput of its Low-Speed USB 1.1 devices to the ultrafast 5-Gbps connection speed of its USB 3.0 SuperSpeed solutions. Over the next three years, the USB 3.0 standard is expected to contribute more than two billion units to the growing USB market, as shown in the graph at right. Cypress’s EZ-USB® FX3 controller, and its West Bridge® Benicia™ storage solution for mobile and tablet applica-tions, are uniquely positioned to tap into the significant expansion of the USB 3.0 standard—which delivers connectivity and the seamless transfer of music, video and images across a broad range of devices from PCs to cameras, printers, medical imaging equipment and storage devices.At the heart of Cypress’s FX3 solution is a 200 MHz, 32-bit ARM9 core and a flexible, 32-bit General Programmable Interface (GPIF II) that enables customers to add USB 3.0 connectivity to any system, simplifying designs and improving their time-to-market. In just three quarters, our FX3 product has garnered more than 350 active designs in applications such as data acquisition, gaming, biometric scanning, medical imaging, and machine vision. Cypress is part of the USB Implementers Forum – the governing USB standards body. FX3 is part of the USB-IF “Golden Tree” of device controllers, meaning that it will be used to create test conditions for USB hosts and hubs. This makes it an important growth catalyst in the fast-growing USB 3.0 ecosystem.6,0005,0004,0003,0002,0001,000020112012201320142015Millions of UnitsUSB 1.1USB 2.0USB 3.0Source: 2011 Intel Developer ForumCYPRESS FX3 DESIGN RAMP4003002001000Q111Q211Q311Q411Total Active DesignsFX1FX2FX3– USB 1.1 (12 Mbps)– 8-bit 8051 @ 48 MHz– Up to 16-bit GPIF™ @ 48 MHz– USB 2.0 (480 Mbps)– 8-bit 8051 @ 48 MHz– Up to 16-bit GPIF™ @ 48 MHz– USB 3.0 (5 Gbps)– 32-bit ARM9 @ 200 MHz– Up to 32-bit GPIF™ II @ 100 MHzDATA THROUGHPUT/FLEXIBILITYMore Applications Higher VolumePSoC® CREATOR™ SOFTWARE: ACCELERATING SYSTEM DESIGNCREATE AN ENTIRE SYSTEM IN SOFTWARE IN JUST 4 STEPSMFi CONNECTIVITY MADE EASY WITH PSoC SOFTWAREIn 2000, Cypress changed the microcontroller market forever, introducing its revolutionary new PSoC product—a dynamic solution integrating an MCU with programmable digital and analog functions, dramatically accelerating customer time to market. PSoC’s development environment, our PSoC Creator software, simplifies and accelerates the design process through the use of “components” – virtual chips with programmable digital and programmable analog capabilities, along with embedded firmware. As shown in the graphic below, PSoC Creator enables designers to drag and drop components into their system from an exten-sive library of predefined and pretested functions, creating an entire system in the Creator software environment in just four steps. The result is a highly differentiated central processor for feature-rich end products. Increasingly what this means is that Cypress is a software company as much as a hardware company. Over the past five years, the number of software engineers at Cypress has more than doubled to over 200. Our investment in software and software engineers enables us to produce unique, proprietary solutions with better margins than those of ordinary microcontrollers.PSoC IN Made for iPod | iPhone | iPad DESIGNSPSoC Creator has more than 100 pre-tested, ready-to-use components in its software library, including a “Made for iPod” (MFi) component that connects a wide range of real-world devices – such as oscilloscopes, medical instruments, karaoke players and even musical instruments – with any product running Apple’s proprietary iOS operating system. Apple has certified this MFi connectivity component and selected PSoC 3 as its platform to test new MFi solutions.1) Drag & drop components from the library2) Configure the components’ parameters3) Add your custom firmware4) Program the chip with your system designCOMPLEX MFi CONNECTIVITYSPECIFICATION…EMBEDDED IN DRAG & DROP PSoC CREATORMFi COMPONENT…TO DEVELOP & PROTOTYPE MFi ACCESSORY USING PSoC…AND CREATE INNOVATIVE NEW MFi PRODUCTS SUCH AS SONOMA WIRE WORKS’ GuitarJack™Medical ImagingSet Top BoxMonitorWireless Keyboard and MouseCameraPrinterProtocolAnalyzerVirtual chip:MFi componentVirtual PC boardAdd firmware toMFi systemPhysically program the configured system and firmware in a PSoCfrom PC to dongle to chip.ConfigureMFi componentMFi ConnectivityMFi_1 Rx Tx Interrupt DMA clock AUDIO_OUT AUDIO_IN 2011 ANNUAL REPORT “The good news is that we have already done—market willing—everything required in R&D and manufacturing to produce $1 billion in revenue and $1.00-plus in EPS in 2011.”T.J. Rodgers, 2010 Annual ReportPSoC® Joins SRAM and USB in the 1 Billion Unit Club: PSoC passed the 1-billion mark in units shipped during 2011, joining SRAMs and USB controllers as Cypress products that have shipped in very high volume and become industry standards. YEAR ENDING UNITS SHIPPED2,7502,5002,2502,0001,7501,5001,2501,00075050025001984198519861987198819891990199119921993199419951996199719981999200020012002200320042005200620072008200920102011MILLIONS OF UNITS1 BILLION UNITS =100 MILLION UNITS/YEAR FOR 1 DECADESRAMUSBPSoCCypress IPOCYPRESS SOLUTIONS DRIVE THE WORLD’S BEST END PRODUCTSCypress Semiconductor Corp. 2011 Annual Report and 2012 Proxy StatementTrueTouch® and CapSense® Touch SensingPSoC®USB 3.0ONS Finger NavigationSRAMsCypress Semiconductor Corporation 198 Champion Court, San Jose, CA 95134-1709(408) 943-2600 www.cypress.comAcer’s ICONIA™ TAB A100, the industry’s first 7-inch tablet based on the Android 3.2 Honeycomb platform, uses Cypress’s TrueTouch® large touchscreen solution to drive its vivid display.XIMEA’s MQ Series industrial cameras are the world’s smallest and fastest. Cypress’s EZ-USB® FX-3™ SuperSpeed USB controllers provide 5-Gbps performance, enough to generate 400 Megapixels per second.Oscium’s iMSO-104 mixed-signal oscilloscope uses PSoC 3 to turn this iPad into an electronic instrument.Bicom’s playGo USB sends media wirelessly from PCs to entertainment systems. PSoC® controls LEDs, an RF module, an infrared receiver and six CapSense buttons inside the playGo.Juniper Networks’ EX8208 Ethernet Switch uses Cypress’s QDR™ II+ SRAMs in delivering performance of 960 million packets per second.Samsung’s Intercept™ QWERTY mobile phone employs Cypress’s OvationONS™ sensor in the optical trackpad modules for easy and intuitive single-handed screen and menu navigation.The NTT docomo PRIME series F-01C mobile phone uses unique, patent-pending TrueTouch technology to enable the touchscreen to operate even when wet. The Clarion touch panel featured in the dashboard of the Suzuki MR Wagon is driven by Cypress’s CapSense® touch-sensing solution.The Sony Mobile Communications Xperia™ sola phone is the world’s first with “hover” technology that tracks a finger close to, but not touching, the screen. This feature is enabled by technology found only in TrueTouch.©2012 Cypress Semiconductor Corporation. All Rights Reserved. Trademarks are property of their respective owners.Printed in the U.S.A.The Aclara UMT-R residential power meter relies on Cypress NVSRAM™ devices to provide fail-safe memory.