UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2008
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10079
CYPRESS SEMICONDUCTOR CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware |
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94-2885898 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
198 Champion Court, San Jose, California 95134
(Address of principal executive offices and zip code)
(408) 943-2600
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer x |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The total number of outstanding shares of the registrant’s common stock as of April 30, 2008 was 150,563,294.
INDEX
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Page |
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3 |
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4 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
29 |
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41 |
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42 |
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43 |
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43 |
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47 |
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47 |
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47 |
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47 |
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47 |
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2
The discussion in this Quarterly Report on Form 10-Q 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 exit plan for the Texas manufacturing facility; our intention and ability to defend ourselves in our pending litigation and investigations; the calculation of our unrecognized tax benefits; our ability to transform our business with a leading portfolio of programmable products; our ability to bring to market new products; Cypress’s intent to fully realize its investment in SunPower; the contribution of SunPower’s business to our total revenues; the rate of customer acceptance of our products and our resulting market share; dilution of Cypress’s ownership in SunPower; the expected impact of the revenue model conversion of certain distributors in Asia on our revenues and gross margin; the general economy and its impact on the markets we serve; the changing environment and/or cycles of the semiconductor and solar power industries; the successful integration and achievement of the objectives of acquired businesses; competitive pricing; our ability to efficiently manage our manufacturing facilities and achieve our cost goals emanating from manufacturing efficiencies; the expected volume of SunPower’s supply agreements for raw materials, such as polysilicon, used in the manufacturing of SunPower’s products; the financial and operational performance of our subsidiaries; the adequacy of cash and working capital; risks related to investing in development stage companies; our ability to manage our interest rate and exchange rate exposure; our anticipation regarding research and development and selling, general and administrative expenses in future periods; our intention to hold our auction rate securities for a sufficient time to allow the value to recover; and our expectations regarding our outstanding warranty liability. We use words such as “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 Quarterly Report on Form 10-Q for any number of reasons, including, but not limited to, our ability to locate a buyer for our Texas manufacturing facility; our ability to successfully convert our revenue model with certain distributors in Asia; our success in our pending litigation and investigation matters; and the materialization of one or more of the risks set forth above or in Item 1A in this Quarterly Report on Form 10-Q.
3
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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March 30, |
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December 30, |
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(In thousands, |
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||||
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
737,519 |
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$ |
1,093,657 |
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Short-term investments |
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219,444 |
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332,748 |
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Accounts receivable, net |
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250,498 |
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236,275 |
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Inventories, net |
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312,296 |
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247,587 |
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Other current assets |
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239,418 |
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157,272 |
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Total current assets |
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1,759,175 |
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2,067,539 |
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Property, plant and equipment, net |
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748,098 |
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714,372 |
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Goodwill |
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545,680 |
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534,473 |
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Intangible assets, net |
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55,442 |
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58,858 |
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Other assets |
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379,000 |
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350,707 |
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Total assets |
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$ |
3,487,395 |
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$ |
3,725,949 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
198,099 |
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$ |
171,126 |
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Accrued compensation and employee benefits |
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51,698 |
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46,192 |
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Deferred income |
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43,034 |
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38,452 |
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Income taxes payable |
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18,375 |
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16,242 |
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Convertible debt |
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— |
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1,025,000 |
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Other current liabilities |
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162,086 |
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197,535 |
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Total current liabilities |
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473,292 |
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1,494,547 |
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Deferred income taxes and other tax liabilities |
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59,048 |
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57,915 |
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Convertible debt |
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1,025,000 |
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— |
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Other long-term liabilities |
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73,920 |
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74,655 |
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Total liabilities |
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1,631,260 |
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1,627,117 |
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Commitments and contingencies (Note 9) |
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Minority interest |
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394,909 |
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378,400 |
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Stockholders’ equity: |
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Preferred stock, $.01 par value, 5,000 shares authorized; none issued and outstanding |
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— |
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— |
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Common stock, $.01 par value, 650,000 and 650,000 shares authorized; 193,754 and 192,332 shares issued; 150,234 and 161,648 shares outstanding at March 30, 2008 and December 30, 2007, respectively |
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1,938 |
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1,923 |
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Additional paid-in-capital |
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2,381,086 |
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2,344,866 |
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Accumulated other comprehensive income |
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12,267 |
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11,632 |
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Accumulated deficit |
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(48,190 |
) |
(31,881 |
) |
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2,347,101 |
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2,326,540 |
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Less: shares of common stock held in treasury, at cost; 43,520 and 30,684 shares at March 30, 2008 and December 30, 2007, respectively |
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(885,875 |
) |
(606,108 |
) |
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Total stockholders’ equity |
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1,461,226 |
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1,720,432 |
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Total liabilities and stockholders’ equity |
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$ |
3,487,395 |
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$ |
3,725,949 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended |
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March 30, |
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April 1, |
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(In thousands, |
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Revenues |
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$ |
442,083 |
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$ |
342,852 |
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Costs and expenses (credits): |
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Cost of revenues |
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305,402 |
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210,547 |
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Research and development |
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48,792 |
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52,370 |
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Selling, general and administrative |
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89,879 |
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68,705 |
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Amortization of intangible assets |
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5,976 |
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9,220 |
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In-process research and development charge |
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— |
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9,575 |
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Impairment related to synthetic lease |
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— |
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7,006 |
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Gains on divestitures |
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— |
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(10,782 |
) |
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Restructuring charges |
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2,412 |
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— |
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Total costs and expenses, net |
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452,461 |
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346,641 |
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Operating loss |
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(10,378 |
) |
(3,789 |
) |
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Interest income |
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13,454 |
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7,620 |
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Interest expense |
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(2,969 |
) |
(2,363 |
) |
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Other expense, net |
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(3,573 |
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(4,116 |
) |
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Loss before income tax and minority interest |
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(3,466 |
) |
(2,648 |
) |
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Income tax benefit (provision) |
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(7,283 |
) |
993 |
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Minority interest, net of tax |
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(5,560 |
) |
(366 |
) |
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Net loss |
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$ |
(16,309 |
) |
$ |
(2,021 |
) |
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Net loss per share: |
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Basic |
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$ |
(0.11 |
) |
$ |
(0.01 |
) |
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Diluted |
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$ |
(0.11 |
) |
$ |
(0.01 |
) |
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Shares used in net loss per share calculation: |
|
|
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|
|
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Basic |
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154,960 |
|
155,699 |
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||
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Diluted |
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154,960 |
|
155,699 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended |
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March 30, |
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April 1, |
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(In thousands) |
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||||
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Cash flow from operating activities: |
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Net loss |
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$ |
(16,309 |
) |
$ |
(2,021 |
) |
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Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
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Depreciation and amortization |
|
34,381 |
|
37,476 |
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Stock-based compensation |
|
30,697 |
|
22,105 |
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||
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Excess tax benefits from stock-based compensation |
|
(4,361 |
) |
— |
|
||
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In-process research and development charge |
|
— |
|
9,575 |
|
||
|
Impairment of property and equipment |
|
7,223 |
|
— |
|
||
|
Impairment related to synthetic lease |
|
— |
|
7,006 |
|
||
|
Impairment of investments |
|
213 |
|
601 |
|
||
|
Write-off of unamortized debt issuance costs |
|
2,529 |
|
4,651 |
|
||
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Gain on divestitures |
|
— |
|
(10,782 |
) |
||
|
Gain on investments in equity securities |
|
— |
|
(929 |
) |
||
|
Interest on stock purchase assistance plan (“SPAP”) loans |
|
(12 |
) |
(435 |
) |
||
|
Reduction in allowance for uncollectible SPAP loans |
|
(88 |
) |
— |
|
||
|
Restructuring charges |
|
2,412 |
|
— |
|
||
|
Loss on sale/retirement of property and equipment, net |
|
827 |
|
50 |
|
||
|
Deferred income taxes |
|
69 |
|
(5,349 |
) |
||
|
Minority interest |
|
5,560 |
|
366 |
|
||
|
Changes in operating assets and liabilities, net of effects of acquisition and divestitures: |
|
|
|
|
|
||
|
Accounts receivable |
|
(10,552 |
) |
17,655 |
|
||
|
Inventories |
|
(56,928 |
) |
(31,923 |
) |
||
|
Other assets |
|
(38,259 |
) |
(21,217 |
) |
||
|
Accounts payable and other liabilities |
|
(20,520 |
) |
(34,326 |
) |
||
|
Deferred income |
|
4,582 |
|
(10,118 |
) |
||
|
Net cash used in operating activities |
|
(58,536 |
) |
(17,615 |
) |
||
|
Cash flow from investing activities: |
|
|
|
|
|
||
|
Purchases of available-for-sale investments |
|
(86,644 |
) |
(41,823 |
) |
||
|
Proceeds from sales or maturities of available-for-sale investments |
|
190,764 |
|
95,915 |
|
||
|
Reduction in employee deferred compensation plan |
|
(410 |
) |
(711 |
) |
||
|
Cash paid for other investments |
|
(5,625 |
) |
— |
|
||
|
Proceeds from divestitures |
|
— |
|
63,950 |
|
||
|
Acquisitions of property, plant and equipment |
|
(60,597 |
) |
(67,349 |
) |
||
|
Cash used for acquisition, net of cash acquired |
|
(13,484 |
) |
(98,645 |
) |
||
|
Increase in restricted cash |
|
(55,550 |
) |
(417 |
) |
||
|
Proceeds from settlement of SPAP loan principal |
|
211 |
|
3,101 |
|
||
|
Proceeds from sales of property and equipment |
|
44 |
|
38 |
|
||
|
Net cash used in investing activities |
|
(31,291 |
) |
(45,941 |
) |
||
|
Cash flow from financing activities: |
|
|
|
|
|
||
|
Repayment of borrowings |
|
— |
|
(3,563 |
) |
||
|
Redemption of convertible debt |
|
— |
|
(179,735 |
) |
||
|
Proceeds from issuance of convertible debt |
|
— |
|
800,000 |
|
||
|
Debt issuance costs |
|
— |
|
(18,041 |
) |
||
|
Purchase of convertible note hedge, net of proceeds from issuance of warrants |
|
— |
|
(16,967 |
) |
||
|
Repurchases of common shares |
|
(277,073 |
) |
(571,033 |
) |
||
|
Withholdings of common shares for tax obligations on vested restricted stock |
|
(7,655 |
) |
— |
|
||
|
Proceeds from issuance of common shares under employee stock plans |
|
7,239 |
|
18,247 |
|
||
|
Excess tax benefits from stock-based compensation |
|
4,361 |
|
— |
|
||
|
Net cash provided by (used in) financing activities |
|
(273,128 |
) |
28,908 |
|
||
|
Effect of exchange rate changes on cash and cash equivalents |
|
6,817 |
|
— |
|
||
|
Net decrease in cash and cash equivalents |
|
(356,138 |
) |
(34,648 |
) |
||
|
Cash and cash equivalents, beginning period |
|
1,093,657 |
|
413,536 |
|
||
|
Cash and cash equivalents, end of period |
|
$ |
737,519 |
|
$ |
378,888 |
|
|
Supplemental disclosure of non-cash information: |
|
|
|
|
|
||
|
Additions to property, plant and equipment |
|
$ |
4,446 |
|
$ |
4,707 |
|
|
Purchase of properties under the synthetic lease, using restricted cash collateral |
|
$ |
— |
|
$ |
50,087 |
|
|
Issuance of common shares from redemption of convertible debt |
|
$ |
— |
|
$ |
419,261 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
CYPRESS SEMICONDUCTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Years
Cypress Semiconductor Corporation (“Cypress” or the “Company”) reports on a fiscal-year basis and ends its quarters on the Sunday closest to the end of the applicable calendar quarter. In a 53-week fiscal year, the additional week falls into the fourth quarter of that fiscal year. Both fiscal 2008 and 2007 consist of 52 weeks. The first quarter of fiscal 2008 ended on March 30, 2008 and the first quarter of fiscal 2007 ended on April 1, 2007.
Basis of Presentation
In the opinion of the management of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to state fairly the financial information included therein. The Company believes that the disclosures are adequate to make the information not misleading. However, this financial data should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2007.
The preparation of 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 financial statements and accompanying notes. Actual results could differ from those estimates.
The Company’s consolidated financial statements include the amounts of Cypress and all of its subsidiaries, including SunPower Corporation (“SunPower”). Inter-company transactions and balances have been eliminated in consolidation.
The consolidated results of operations for the three months ended March 30, 2008 are not necessarily indicative of the results to be expected for the full fiscal year.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards (“SFAS”) No. 157:
Effective December 31, 2007, the Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). In February 2008, the Financial Accounting Standards Board (“FASB”) issued Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which provides a one-year deferral of the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of SFAS No. 157 with respect to its financial assets and liabilities only. SFAS No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under SFAS No. 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS No. 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
· Level 1 - Quoted prices in active markets for identical assets or liabilities;
· Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as 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 market data for substantially the full term of the assets or liabilities; and
· Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
7
The following table presents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of March 30, 2008:
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
|
|
|
(In thousands) |
|
||||||||||
|
Assets |
|
|
|
|
|
|
|
|
|
||||
|
Investments: |
|
|
|
|
|
|
|
|
|
||||
|
Commercial paper |
|
$ |
— |
|
$ |
71,423 |
|
$ |
953 |
|
$ |
72,376 |
|
|
Federal agency notes |
|
53,372 |
|
— |
|
— |
|
53,372 |
|
||||
|
Money market funds |
|
575,852 |
|
— |
|
— |
|
575,852 |
|
||||
|
Treasury bills |
|
67,900 |
|
— |
|
— |
|
67,900 |
|
||||
|
Corporate notes/bonds |
|
— |
|
95,238 |
|
— |
|
95,238 |
|
||||
|
Auction rate securities |
|
— |
|
— |
|
74,962 |
|
74,962 |
|
||||
|
Marketable equity securities |
|
9,101 |
|
— |
|
— |
|
9,101 |
|
||||
|
Employee deferred compensation plan |
|
27,153 |
|
— |
|
— |
|
27,153 |
|
||||
|
Derivative instruments: |
|
|
|
|
|
|
|
|
|
||||
|
Warrants |
|
— |
|
943 |
|
— |
|
943 |
|
||||
|
Foreign currency forward contracts |
|
— |
|
66 |
|
— |
|
66 |
|
||||
|
Total |
|
$ |
733,378 |
|
$ |
167,670 |
|
$ |
75,915 |
|
$ |
976,963 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Liabilities |
|
|
|
|
|
|
|
|
|
||||
|
Employee deferred compensation plan |
|
$ |
27,504 |
|
$ |
— |
|
$ |
— |
|
$ |
27,504 |
|
|
Derivative instruments: |
|
|
|
|
|
|
|
|
|
||||
|
Foreign currency forward contracts |
|
— |
|
13,956 |
|
— |
|
13,956 |
|
||||
|
Total |
|
$ |
27,504 |
|
$ |
13,956 |
|
$ |
— |
|
$ |
41,460 |
|
The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets as of March 30, 2008:
|
|
|
Commercial |
|
Auction Rate |
|
Total |
|
|||
|
|
|
(In thousands) |
|
|||||||
|
Balance as of December 30, 2007 |
|
$ |
1,065 |
|
$ |
— |
|
$ |
1,065 |
|
|
Transfer from Level 2 |
|
— |
|
67,800 |
|
67,800 |
|
|||
|
Purchases |
|
— |
|
10,000 |
|
10,000 |
|
|||
|
Impairment loss recorded in “Other expense, net” |
|
(112 |
) |
— |
|
(112 |
) |
|||
|
Unrealized loss recorded in “Accumulated other comprehensive income” |
|
— |
|
(2,838 |
) |
(2,838 |
) |
|||
|
Balance as of March 30, 2008 |
|
$ |
953 |
|
$ |
74,962 |
|
$ |
75,915 |
|
As of March 30, 2008, the Company has identified one investment in commercial paper issued through a structured investment vehicle that was impaired as the issuer was unable to raise sufficient funding to cover the maturing obligations. The amount of the write-down was determined by comparing the carrying value to the valuation of the underlying assets of the fund.
See Note 7 for a detailed discussion of the Company’s auction rate securities.
Other Pronouncements:
Effective December 31, 2007, the Company adopted SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for specified financial assets and liabilities on a contract-by-contract basis. The Company did not elect to adopt the fair value option under this pronouncement.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of SFAS No. 133” (“SFAS No. 161”), which expands the disclosure requirements for derivative instruments and hedging activities. SFAS No. 161 specifically requires entities to provide enhanced disclosures addressing: (1) how and why an entity uses derivative instruments, (2) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the potential impact of this pronouncement on its consolidated financial position, results of operations and disclosures.
8
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) significantly changes the accounting for business combinations in a number of areas including the treatment of contingent consideration, acquired contingencies, transaction costs, in-process research and development and restructuring costs. In addition, under SFAS No. 141(R), changes in an acquired entity’s deferred tax assets and uncertain tax positions after the measurement period will impact income tax expense. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning after December 15, 2008. Earlier adoption is prohibited. The Company will adopt this pronouncement in the first quarter of fiscal 2009 and is currently evaluating the potential impact of this pronouncement on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—An Amendment of ARB No. 51” (“SFAS No. 160”), which establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary, changes in a parent’s ownership interest in a subsidiary and the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. Earlier adoption is prohibited. The Company will adopt this pronouncement in the first quarter of fiscal 2009 and is currently evaluating the potential impact of this pronouncement on its consolidated results of operations and financial condition.
NOTE 2. SUNPOWER
As of March 30, 2008 and December 30, 2007, Cypress held approximately 44.5 million shares of SunPower class B common stock. The following table summarizes Cypress’s ownership in SunPower:
|
|
|
As of |
|
||
|
|
|
March 30, |
|
December 30, |
|
|
As a percentage of SunPower’s outstanding capital stock |
|
56 |
% |
56 |
% |
|
As a percentage of SunPower’s outstanding capital stock on a fully diluted basis |
|
52 |
% |
51 |
% |
|
As a percentage of the total voting power of SunPower’s outstanding capital stock |
|
90 |
% |
90 |
% |
The fair value of Cypress’s ownership interest in SunPower was approximately $3.3 billion and $5.8 billion based on the closing prices of SunPower’s common stock of $73.63 and $131.05 per share as of March 30, 2008 and December 30, 2007, respectively. As the Company’s financial statements are presented on a consolidated basis, the fair value of Cypress’s ownership interest in SunPower is not recorded as an asset in the Condensed Consolidated Balance Sheets.
As of March 30, 2008, there were no outstanding lock-up agreements between Cypress, SunPower and any third parties under which Cypress agrees not to sell any of its SunPower class B common stock.
NOTE 3. BUSINESS COMBINATIONS
PowerLight / SP Systems
During the first quarter of fiscal 2007, SunPower completed the acquisition of PowerLight (which was subsequently renamed to SunPower Corporation, Systems (“SP Systems”)). Of the total consideration issued for the acquisition, approximately $23.7 million in cash and 0.7 million shares of SunPower class A common stock, with a total aggregate value of $118.1 million as of December 30, 2007, were held in escrow as security for the indemnification obligations of certain former PowerLight shareholders.
In January 2008, following the first anniversary of the acquisition date, SunPower authorized the release of approximately one-half of the original escrow amount, leaving approximately $12.8 million in cash and approximately 0.4 million shares of its class A common stock, with a total aggregate value of $39.8 million as of March 30, 2008. SunPower’s rights to recover damages under several provisions of the acquisition agreement also expired on the first anniversary of the acquisition date. As a result, SunPower is now entitled to recover only limited types of losses, and its recovery will be limited to the amount available in the escrow fund at the time of a claim. The remaining amount in the escrow fund will be progressively reduced to zero on each anniversary of the acquisition date over a period of five years.
Solar Solutions
In January 2008, SunPower acquired Solar Solutions, a solar systems integration and product distribution company based in Italy, for approximately $13.5 million. The acquisition was not material to the Company’s consolidated financial condition and results of operations.
9
NOTE 4. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table presents the changes in the carrying amount of goodwill under the Company’s reportable business segments:
|
|
|
Consumer and |
|
Data |
|
Memory and |
|
SunPower |
|
Total |
|
|||||
|
|
|
(In thousands) |
|
|||||||||||||
|
Balance at December 30, 2007 |
|
$ |
129,740 |
|
$ |
138,436 |
|
$ |
81,613 |
|
$ |
184,684 |
|
$ |
534,473 |
|
|
Additions |
|
— |
|
— |
|
— |
|
11,207 |
|
11,207 |
|
|||||
|
Balance at March 30, 2008 |
|
$ |
129,740 |
|
$ |
138,436 |
|
$ |
81,613 |
|
$ |
195,891 |
|
$ |
545,680 |
|
During the first quarter of fiscal 2008, SunPower recorded additional goodwill of $11.2 million, which was primarily related to the acquisition of Solar Solutions.
Intangible Assets
The following tables present details of the Company’s intangible assets:
|
As of March 30, 2008 |
|
Gross |
|
Accumulated |
|
Net |
|
|||
|
|
|
(In thousands) |
|
|||||||
|
Purchased technology |
|
$ |
241,947 |
|
$ |
(212,273 |
) |
$ |
29,674 |
|
|
Patents, tradenames, customer relationships and backlog |
|
61,747 |
|
(37,871 |
) |
23,876 |
|
|||
|
Other |
|
6,066 |
|
(5,330 |
) |
736 |
|
|||
|
Total acquisition-related intangible assets |
|
309,760 |
|
(255,474 |
) |
54,286 |
|
|||
|
Other intangible assets |
|
4,011 |
|
(2,855 |
) |
1,156 |
|
|||
|
Total intangible assets |
|
$ |
313,771 |
|
$ |
(258,329 |
) |
$ |
55,442 |
|
|
As of December 30, 2007 |
|
Gross |
|
Accumulated |
|
Net |
|
|||
|
|
|
(In thousands) |
|
|||||||
|
Purchased technology |
|
$ |
241,947 |
|
$ |
(209,107 |
) |
$ |
32,840 |
|
|
Patents, tradenames, customer relationships and backlog |
|
58,851 |
|
(35,128 |
) |
23,723 |
|
|||
|
Other |
|
6,066 |
|
(5,263 |
) |
803 |
|
|||
|
Total acquisition-related intangible assets |
|
306,864 |
|
(249,498 |
) |
57,366 |
|
|||
|
Other intangible assets |
|
4,011 |
|
(2,519 |
) |
1,492 |
|
|||
|
Total intangible assets |
|
$ |
310,875 |
|
$ |
(252,017 |
) |
$ |
58,858 |
|
During the first quarter of fiscal 2008, SunPower recorded additional intangible assets of $2.9 million, which was related to the acquisition of Solar Solutions.
As of March 30, 2008, the estimated future amortization expense was as follows:
|
|
|
Cypress |
|
SunPower |
|
Consolidated |
|
|||
|
|
|
(In thousands) |
|
|||||||
|
2008 (remaining nine months) |
|
$ |
3,532 |
|
$ |
12,039 |
|
$ |
15,571 |
|
|
2009 |
|
859 |
|
15,420 |
|
16,279 |
|
|||
|
2010 |
|
350 |
|
13,907 |
|
14,257 |
|
|||
|
2011 |
|
315 |
|
4,137 |
|
4,452 |
|
|||
|
2012 and thereafter |
|
861 |
|
4,022 |
|
4,883 |
|
|||
|
Total amortization expense |
|
$ |
5,917 |
|
$ |
49,525 |
|
$ |
55,442 |
|
10
NOTE 5. RESTRUCTURING
Fiscal 2007 Restructuring Plan
During the fourth quarter of fiscal 2007, the Company’s Board of Directors approved a restructuring plan to exit Cypress’s manufacturing facility located in Round Rock, Texas (“Fiscal 2007 Restructuring Plan”). Under the Fiscal 2007 Restructuring Plan, the Company plans to transition production from the Texas facility to its more cost-effective facility in Bloomington, Minnesota as well as outside third-party foundries. The Company currently plans to continue operations at the Texas facility through the third quarter of fiscal 2008 and expects to complete the exit plan by the end of fiscal 2008. The exact timing of the exit plan could vary considerably if the Company locates a potential buyer. The exit plan will include the termination of employees and the disposal of assets, primarily consisting of the building and manufacturing equipment, located in the Texas facility. The Fiscal 2007 Restructuring Plan does not involve the discontinuation of any material product lines or other functions.
To date, the Company recorded total restructuring charges of $3.0 million related to the Fiscal 2007 Restructuring Plan, of which $2.8 million was related to personnel costs and $0.2 million was related to other exit costs. Restructuring reserve activities related to personnel costs are as follows:
|
(In thousands) |
|
Personnel |
|
|
|
Initial provision |
|
$ |
355 |
|
|
Cash payments |
|
— |
|
|
|
Balance at December 30, 2007 |
|
355 |
|
|
|
Additional provision |
|
2,412 |
|
|
|
Cash payments |
|
— |
|
|
|
Balance at March 30, 2008 |
|
$ |
2,767 |
|
In connection with the Fiscal 2007 Restructuring Plan, the Company expects to eliminate approximately 240 positions in the Texas facility in fiscal 2008. These employees are primarily in the manufacturing functions. As these employees continue to provide services during fiscal 2008, the Company recognizes the severance and benefit costs associated with these employees ratably over the service period in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” During the first quarter of fiscal 2008, the Company accrued an additional provision of $2.4 million for severance and benefit costs. No employees have been terminated as of March 30, 2008.
NOTE 6. BALANCE SHEET COMPONENTS
Accounts Receivable, Net
|
|
|
As of |
|
||||
|
|
|
March 30, |
|
December 30, |
|
||
|
|
|
(In thousands) |
|
||||
|
Accounts receivable, gross |
|
$ |
255,689 |
|
$ |
242,259 |
|
|
Allowance for doubtful accounts receivable and sales returns |
|
(5,191 |
) |
(5,984 |
) |
||
|
Total accounts receivable, net |
|
$ |
250,498 |
|
$ |
236,275 |
|
Inventories, Net
|
|
|
As of |
|
||||
|
|
|
March 30, |
|
December 30, |
|
||
|
|
|
(In thousands) |
|
||||
|
Raw materials |
|
$ |
110,928 |
|
$ |
104,284 |
|
|
Work-in-process |
|
93,930 |
|
72,964 |
|
||
|
Finished goods |
|
107,438 |
|
70,339 |
|
||
|
Total inventories, net |
|
$ |
312,296 |
|
$ |
247,587 |
|
11
Other Current Assets
|
|
|
As of |
|
||||
|
|
|
March 30, |
|
December 30, |
|
||
|
|
|
(In thousands) |
|
||||
|
Deferred tax assets |
|
$ |
8,681 |
|
$ |
8,681 |
|
|
Restricted cash related to letters of credit |
|
30,727 |
|
— |
|
||
|
Prepayment to polysilicon suppliers |
|
59,612 |
|
52,277 |
|
||
|
Other prepaid expenses |
|
24,076 |
|
22,758 |
|
||
|
Costs and estimated earnings in excess of billings |
|
61,675 |
|
39,136 |
|
||
|
Deferred project costs |
|
7,101 |
|
8,316 |
|
||
|
VAT receivable |
|
29,401 |
|
7,824 |
|
||
|
Other current assets |
|
18,145 |
|
18,280 |
|
||
|
Total other current assets |
|
$ |
239,418 |
|
$ |
157,272 |
|
Other Assets
|
|
|
As of |
|
||||
|
|
|
March 30, |
|
December 30, |
|
||
|
|
|
(In thousands) |
|
||||
|
Restricted cash related to: |
|
|
|
|
|
||
|
Customer advances |
|
$ |
20,000 |
|
$ |
20,000 |
|
|
Letters of credit |
|
72,710 |
|
47,887 |
|
||
|
Employee deferred compensation plan |
|
27,153 |
|
29,449 |
|
||
|
Prepayments to polysilicon suppliers |
|
105,066 |
|
108,943 |
|
||
|
Investments: |
|
|
|
|
|
||
|
Debt securities |
|
75,915 |
|
68,865 |
|
||
|
Equity securities |
|
15,847 |
|
14,969 |
|
||
|
Joint ventures |
|
11,473 |
|
5,304 |
|
||
|
Debt issuance costs, net |
|
— |
|
2,529 |
|
||
|
VAT receivable |
|
17,968 |
|
24,269 |
|
||
|
Other assets |
|
32,868 |
|
28,492 |
|
||
|
Total other assets |
|
$ |
379,000 |
|
$ |
350,707 |
|
Other Current Liabilities
|
|
|
As of |
|
||||
|
|
|
March 30, |
|
December 30, |
|
||
|
|
|
(In thousands) |
|
||||
|
Employee deferred compensation plan |
|
$ |
27,504 |
|
$ |
30,754 |
|
|
Customer advances |
|
11,490 |
|
9,250 |
|
||
|
Billings in excess of costs and estimated earnings |
|
28,251 |
|
69,900 |
|
||
|
Warranty reserve |
|
12,194 |
|
10,502 |
|
||
|
Accrued sales representative commissions |
|
3,978 |
|
5,124 |
|
||
|
Accrued royalties |
|
4,966 |
|
4,476 |
|
||
|
VAT payable |
|
17,702 |
|
18,189 |
|
||
|
Other current liabilities |
|
56,001 |
|
49,340 |
|
||
|
Total other current liabilities |
|
$ |
162,086 |
|
$ |
197,535 |
|
Deferred Income Taxes and Other Tax Liabilities
|
|
|
As of |
|
||||
|
|
|
March 30, |
|
December 30, |
|
||
|
|
|
(In thousands) |
|
||||
|
Deferred income taxes |
|
$ |
7,455 |
|
$ |
6,932 |
|
|
Non-current tax liabilities |
|
51,593 |
|
50,983 |
|
||
|
Total deferred income taxes and other tax liabilities |
|
$ |
59,048 |
|
$ |
57,915 |
|
12
Other Long-Term Liabilities
|
|
|
As of |
|
||||
|
|
|
March 30, |
|
December 30, |
|
||
|
|
|
(In thousands) |
|
||||
|
Customer advances |
|
$ |
58,320 |
|
$ |
60,153 |
|
|
Warranty reserve |
|
7,323 |
|
6,693 |
|
||
|
Other long-term liabilities |
|
8,277 |
|
7,809 |
|
||
|
Total other long-term liabilities |
|
$ |
73,920 |
|
$ |
74,655 |
|
NOTE 7. INVESTMENTS
Available-For-Sale Securities
The following tables summarize the Company’s available-for-sale investments:
|
As of March 30, 2008 |
|
Cost |
|
Gross |
|
Gross |
|
Fair |
|
||||
|
|
|
(In thousands) |
|
||||||||||
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
||||
|
Commercial paper |
|
$ |
18,083 |
|
$ |
1 |
|
$ |
— |
|
$ |
18,084 |
|
|
Federal agency notes |
|
7,996 |
|
2 |
|
— |
|
7,998 |
|
||||
|
Money market funds |
|
575,852 |
|
— |
|
— |
|
575,852 |
|
||||
|
Treasury bills |
|
47,979 |
|
— |
|
(21 |
) |
47,958 |
|
||||
|
Total cash equivalents |
|
649,910 |
|
3 |
|
(21 |
) |
649,892 |
|
||||
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
||||
|
Commercial paper |
|
53,292 |
|
47 |
|
— |
|
53,339 |
|
||||
|
Federal agency notes |
|
44,870 |
|
504 |
|
— |
|
45,374 |
|
||||
|
Corporate notes/bonds |
|
94,884 |
|
483 |
|
(129 |
) |
95,238 |
|
||||
|
Treasury bills |
|
19,956 |
|
2 |
|
(16 |
) |
19,942 |
|
||||
|
Marketable equity securities |
|
1,053 |
|
4,498 |
|
— |
|
5,551 |
|
||||
|
Total short-term investments |
|
214,055 |
|
5,534 |
|
(145 |
) |
219,444 |
|
||||
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
||||
|
Auction rate securities |
|
77,796 |
|
4 |
|
(2,838 |
) |
74,962 |
|
||||
|
Commercial paper |
|
953 |
|
— |
|
— |
|
953 |
|
||||
|
Marketable equity securities |
|
3,041 |
|
509 |
|
— |
|
3,550 |
|
||||
|
Total long-term investments |
|
81,790 |
|
513 |
|
(2,838 |
) |
79,465 |
|
||||
|
Total available-for-sale securities |
|
$ |
945,755 |
|
$ |
6,050 |
|
$ |
(3,004 |
) |
$ |
948,801 |
|
|
As of December 30, 2007 |
|
Cost |
|
Gross |
|
Gross |
|
Fair |
|
||||
|
|
|
(In thousands) |
|
||||||||||
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
||||
|
Commercial paper |
|
$ |
75,766 |
|
$ |
1 |
|
$ |
(1 |
) |
$ |
75,766 |
|
|
Money market funds |
|
868,319 |
|
— |
|
— |
|
868,319 |
|
||||
|
Total cash equivalents |
|
944,085 |
|
1 |
|
(1 |
) |
944,085 |
|
||||
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
||||
|
Commercial paper |
|
124,133 |
|
17 |
|
(1 |
) |
124,149 |
|
||||
|
Federal agency notes |
|
48,874 |
|
233 |
|
— |
|
49,107 |
|
||||
|
Corporate notes/bonds |
|
114,824 |
|
234 |
|
(120 |
) |
114,938 |
|
||||
|
Auction rate securities |
|
27,520 |
|
— |
|
— |
|
27,520 |
|
||||
|
Asset-backed securities |
|
10,527 |
|
113 |
|
— |
|
10,640 |
|
||||
|
Marketable equity securities |
|
1,053 |
|
5,341 |
|
— |
|
6,394 |
|
||||
|
Total short-term investments |
|
326,931 |
|
5,938 |
|
(121 |
) |
332,748 |
|
||||
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
||||
|
Auction rate securities |
|
67,797 |
|
3 |
|
— |
|
67,800 |
|
||||
|
Commercial paper |
|
1,065 |
|
— |
|
— |
|
1,065 |
|
||||
|
Marketable equity securities |
|
3,142 |
|
100 |
|
(411 |
) |
2,831 |
|
||||
|
Total long-term investments |
|
72,004 |
|
103 |
|
(411 |
) |
71,696 |
|
||||
|
Total available-for-sale securities |
|
$ |
1,343,020 |
|
$ |
6,042 |
|
$ |
(533 |
) |
$ |
1,348,529 |
|
Auction rate securities are investments with contractual maturities generally between 20 and 30 years. They are usually found in the form of municipal bonds, preferred stock, a pool of student loans or collateralized debt obligations with interest rates resetting every seven to 49 days through an auction process. At the end of each reset period, investors can sell or continue to hold the securities at par. The auction rate securities held by the Company are primarily backed by student loans and are over-collateralized, insured and guaranteed by the United States Federal Department of Education. In addition, all auction rate securities held by the Company are rated by the major independent rating agencies as either AAA or Aaa.
13
As of March 30, 2008, all of the Company’s auction rate securities have experienced failed auctions due to sell orders exceeding buy orders. These failures are not believed to be a credit issue with the underlying investments, but rather caused by a lack of liquidity. Under the contractual terms, the issuer is obligated to pay penalty rates should an auction fail. In the event the Company needs to access these funds associated with failed auctions, they are not expected to be accessible until one of the following occurs: a successful auction occurs, the issuer redeems the issue, a buyer is found outside of the auction process or the underlying securities have matured. Given these circumstances and the lack of liquidity, the Company has classified all of its auction rate securities as long-term investments as of March 30, 2008.
During the first quarter of fiscal 2008, the Company performed an analysis to assess the fair value of the auction rate securities. In the absence of a liquid market to value these securities, the Company prepared a valuation model based on a discounted cash flow with the following key assumptions:
· 5 years to liquidity;
· continued receipt of contractual interest which provides a premium spread for failed auctions; and
· discount rates ranging from 3.0% to 7.9%, which incorporate a spread for both credit and liquidity risk.
Based on these assumptions, the Company estimated that the auction rate securities would be valued at approximately 96% of their stated par value, representing a decline in value of approximately $2.8 million. As the Company determined that the lack of liquidity in the market for auction rate securities is temporary in nature and that it has the ability and intent to hold these securities for sufficient time to allow the value to recover, the decline in value was considered temporary. Therefore, the Company recorded the amount in “Accumulated other comprehensive income” in the Condensed Consolidated Balance Sheet as of March 30, 2008.
As of March 30, 2008, contractual maturities of the Company’s available-for-sale, non-equity investments were as follows:
|
|
|
Cost |
|
Fair Value |
|
||
|
|
|
(In thousands) |
|
||||
|
Maturing within one year |
|
$ |
836,164 |
|
$ |
836,580 |
|
|
Maturing in one to three years |
|
26,748 |
|
27,205 |
|
||
|
Maturing in more than three years |
|
78,749 |
|
75,915 |
|
||
|
Total |
|
$ |
941,661 |
|
$ |
939,700 |
|
Realized gains and losses from sales of non-equity investments were immaterial for the three months ended March 30, 2008 and April 1, 2007.
Proceeds from sales and maturities of available-for-sale investments were $190.8 million and $95.9 million for the three months ended March 30, 2008 and April 1, 2007, respectively.
Investments in Equity Securities
The following table summarizes the Company’s investments in equity securities recorded in the Condensed Consolidated Balance Sheets:
|
|
|
As of |
|
||||
|
|
|
March 30, |
|
December 30, |
|
||
|
|
|
(In thousands) |
|
||||
|
Short-term investments: |
|
|
|
|
|
||
|
Available-for-sale equity securities |
|
$ |
5,551 |
|
$ |
6,394 |
|
|
Long-term investments: |
|
|
|
|
|
||
|
Available-for-sale equity securities |
|
3,550 |
|
2,831 |
|
||
|
Non-marketable equity securities |
|
12,297 |
|
12,138 |
|
||
|
Total long-term investments |
|
15,847 |
|
14,969 |
|
||
|
Total equity investments |
|
$ |
21,398 |
|
$ |
21,363 |
|
14
Sale of Equity Investments:
During the first quarter of fiscal 2007, the Company sold its equity investments in two public companies for $4.5 million and recognized total gains of $0.9 million. The Company did not sell any equity investments during the first quarter of fiscal 2008.
Impairment of Investments
The Company reviews its investments periodically for impairment and recognizes an impairment charge when the carrying value of an investment exceeds its fair value and the decline in value is considered other-than-temporary. The Company recorded impairment charges of $0.2 million and $0.6 million for the three months ended March 30, 2008 and April 1, 2007, respectively, as the decline in value of certain investments was determined to be other-than-temporary.
Investments in Joint Ventures
As of March 30, 2008 and December 30, 2007, SunPower’s investments in certain joint ventures totaled $11.5 million and $5.3 million, respectively. These joint ventures are accounted for under the equity method of accounting (see Note 16).
Employee Deferred Compensation Plan
The Company has a deferred compensation plan, which provides certain key employees, including the Company’s executive management, with the ability to defer the receipt of compensation in order to accumulate funds for retirement on a tax-free basis. The Company does not make contributions to the deferred compensation plan or guarantee returns on the investments. Participant deferrals and investment gains and losses remain the Company’s assets and are subject to claims of general creditors.
The Company accounts for the deferred compensation plan in accordance with Emerging Issues Task Force (“EITF”) Issue No. 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested.” In accordance with EITF Issue No. 97-14, the assets are recorded at fair value in each reporting period with the offset being recorded in “Other 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 March 30, 2008 and December 30, 2007, the fair value of the assets was $27.2 million and $29.4 million, respectively, and the fair value of the liabilities was $27.5 million and $30.8 million, respectively.
All expense and income recorded under the deferred compensation plan were included in the following line items in the Condensed Consolidated Statements of Operations:
|
|
|
Three Months Ended |
|
||||
|
|
|
March 30, |
|
April 1, |
|
||
|
|
|
(In thousands) |
|
||||
|
Changes in fair value of assets recorded in: |
|
|
|
|
|
||
|
Other expense, net |
|
$ |
(2,536 |
) |
$ |
(154 |
) |
|
Changes in fair value of liabilities recorded in: |
|
|
|
|
|
||
|
Cost of revenues |
|
943 |
|
(129 |
) |
||
|
Research and development expenses |
|
1,085 |
|
(149 |
) |
||
|
Selling, general and administrative expenses |
|
829 |
|
(113 |
) |
||
|
Total income (expense) |
|
$ |
321 |
|
$ |
(545 |
) |
NOTE 8. STOCK-BASED COMPENSATION
The following tables summarize the stock-based compensation expense by line item in the Condensed Consolidated Statements of Operations:
|
|
|
Three Months Ended |
|
||||||||||||||||
|
|
|
March 30, 2008 |
|
April 1, 2007 |
|
||||||||||||||
|
|
|
Cypress |
|
SunPower |
|
Consolidated |
|
Cypress |
|
SunPower |
|
Consolidated |
|
||||||
|
|
|
(In thousands) |
|
||||||||||||||||
|
Cost of revenues |
|
$ |
3,617 |
|
$ |
3,714 |
|
$ |
7,331 |
|
$ |
2,871 |
|
$ |
2,250 |
|
$ |
5,121 |
|
|
Research and development |
|
4,911 |
|
811 |
|
5,722 |
|
3,658 |
|
501 |
|
4,159 |
|
||||||
|
Selling, general and administrative |
|
7,661 |
|
9,983 |
|
17,644 |
|
4,973 |
|
7,852 |
|
12,825 |
|
||||||
|
Total stock-based compensation expense |
|
$ |
16,189 |
|
$ |
14,508 |
|
$ |
30,697 |
|
$ |
11,502 |
|
$ |
10,603 |
|
$ |
22,105 |
|
15
Consolidated cash proceeds from the issuance of shares under the employee stock plans were approximately $7.2 million for the three months ended March 30, 2008 and $18.2 million for the three months ended April 1, 2007. The Company recognized an income tax benefit from stock option exercises of $4.4 million during the three months ended March 30, 2008. No income tax benefit was realized from stock option exercises during the three months ended April 1, 2007.
As of March 30, 2008 and December 30, 2007, stock-based compensation capitalized in inventories totaled $6.4 million ($5.4 million for Cypress and $1.0 million for SunPower) and $5.0 million ($4.6 million for Cypress and $0.4 million for SunPower), respectively.
The following tables summarize the stock-based compensation expense by type of awards:
|
|
|
Three Months Ended |
|
||||||||||||||||
|
|
|
March 30, 2008 |
|
April 1, 2007 |
|
||||||||||||||
|
|
|
Cypress |
|
SunPower |
|
Consolidated |
|
Cypress |
|
SunPower |
|
Consolidated |
|
||||||
|
|
|
(In thousands) |
|
||||||||||||||||
|
Stock options |
|
$ |
6,492 |
|
$ |
1,187 |
|
$ |
7,679 |
|
$ |
8,668 |
|
$ |
4,689 |
|
$ |
13,357 |
|
|
Restricted stock and restricted stock units |
|
8,247 |
|
7,315 |
|
15,562 |
|
1,558 |
|
1,192 |
|
2,468 |
|
||||||
|
Shares released from re-vesting restrictions |
|
— |
|
6,006 |
|
6,006 |
|
— |
|
4,722 |
|
4,722 |
|
||||||
|
Employee stock purchase plan (“ESPP”) |
|
1,450 |
|
— |
|
1,450 |
|
1,276 |
|
— |
|
1,558 |
|
||||||
|
Total stock-based compensation expense |
|
$ |
16,189 |
|
$ |
14,508 |
|
$ |
30,697 |
|
$ |
11,502 |
|
$ |
10,603 |
|
$ |
22,105 |
|
In connection with the acquisition of PowerLight in fiscal 2007, 1.1 million shares of SunPower’s class A common stock issued to employees of PowerLight and 0.5 million of shares issuable upon exercise of assumed PowerLight stock options, which were valued at $60.4 million at the date of acquisition, are subject to certain transfer restrictions and a repurchase option by SunPower. As the re-vesting restrictions of these shares lapse over a two-year period, stock-based compensation related to the shares is being amortized over a two-year period.
Valuation Assumptions
The Company estimates the fair value of its stock-based awards using the Black-Scholes valuation model with the following assumptions:
Cypress:
|
|
|
Three Months Ended |
|
||
|
|
|
March 30, |
|
April 1, |
|
|
Stock Option Plans: |
|
|
|
|
|
|
Expected life |
|
2.1-8.4 years |
|
2.1-8.4 years |
|
|
Volatility |
|
48.9%-54.6 |
% |
33.0%-42.7 |
% |
|
Risk-free interest rate |
|
1.40%-3.48 |
% |
4.5%-4.9 |
% |
|
Dividend yield |
|
0.0 |
% |
0.0 |
% |
SunPower:
|
|
|
Three Months Ended |
|
|
|
|
April 1, |
|
|
Stock Option Plans: |
|
|
|
|
Expected life |
|
6.5 years |
|
|
Volatility |
|
51.0 |
% |
|
Risk-free interest rate |
|
4.68 |
% |
|
Dividend yield |
|
0.0 |
% |
No options were granted during the three months ended March 30, 2008.
16
Equity Incentive Program Related to Cypress’s Common Stock
As of March 30, 2008, approximately 4.6 million shares of stock options or 2.5 million shares of restricted stock units were available for grant under the Amended 1994 Stock Plan. As of March 30, 2008, approximately 2.3 million shares of stock options were available for grant under the 1999 Stock Option Plan.
Stock Options:
The following table summarizes Cypress’s stock option activities:
|
|
|
Shares |
|
Weighted-Average |
|
|
|
|
|
(In thousands, |
|
|||
|
Outstanding as of December 30, 2007 |
|
19,662 |
|
$ |
16.80 |
|
|
Granted |
|
243 |
|
$ |
22.41 |
|
|
Exercised |
|
(465 |
) |
$ |
13.01 |
|
|
Forfeited or expired |
|
(312 |
) |
$ |
19.03 |
|
|
Outstanding as of March 30, 2008 |
|
19,128 |
|
$ |
16.92 |
|
|
Exercisable as of March 30, 2008 |
|
11,070 |
|
$ |
15.79 |
|
Restricted Stock Units:
The following table summarizes Cypress’s restricted stock unit activities:
|
|
|
Shares |
|
Weighted-Average |
|
||
|
|
|
(In thousands, |
|
||||
|
Balance as of December 30, 2007 |
|
6,752 |
|
$ |
22.38 |
|
|
|
Granted |
|
183 |
|
$ |
22.47 |
|
|
|
Vested |
|
(957 |
) |
$ |
21.40 |
|
|
|
Forfeited |
|
(55 |
) |
$ |
25.15 |
|
|
|
Balance as of March 30, 2008 |
|
5,923 |
|
$ |
22.51 |
|
|
The restricted stock unit balance as of March 30, 2008 included approximately 3.7 million performance-based restricted stock units granted under the Amended 1994 Stock Plan. The awards were issued to certain senior-level employees of Cypress. During the first quarter of fiscal 2008, the Compensation Committee of the Board of Directors established the milestones for approximately 0.9 million shares of the 3.7 million performance-based restricted stock units. These performance-based milestones include the achievement of certain performance results of Cypress’s common stock appreciation target against the Philadelphia Semiconductor Sector Index (“SOXX”), semiconductor gross margin and operating income milestones and semiconductor operating income performance goals versus a pre-determined peer group. These awards will be earned upon the Compensation Committee’s certification that the specified market and/or performance milestones have been achieved. If the milestones are not achieved, the shares are forfeited and cannot be earned in future periods.
The fair value of these 0.9 million shares with market conditions was determined using a Monte Carlo valuation methodology with the following weighted-average assumptions: volatility of Cypress’s common stock of 49.4%; volatility of the SOXX of 25.0%; correlation coefficient of 0.41; and risk-free interest rate of 2.2%. The fair value of the performance-related component of the performance shares was equivalent to the grant-date fair value of Cypress’s common stock.
ESPP:
No shares were issued under the ESPP for the three months ended March 30, 2008. As of March 30, 2008, approximately 2.3 million shares were available for future issuance under the ESPP.
Equity Incentive Program Related to SunPower’s Common Stock
As of March 30, 2008, approximately 0.1 million shares were available for grant under SunPower’s Amended and Restated 2005 Incentive Stock Plan.
17
Stock Options:
The following table summarizes SunPower’s stock option activities:
|
|
|
Shares |
|
Weighted-Average |
|
|
|
|
|
(In thousands, |
|
|||
|
Outstanding as of December 30, 2007 |
|
3,701 |
|
$ |
5.44 |
|
|
Granted |
|
— |
|
$ |
— |
|
|
Exercised |
|
(449 |
) |
$ |
2.53 |
|
|
Forfeited or expired |
|
(27 |
) |
$ |
5.48 |
|
|
Outstanding as of March 30, 2008 |
|
3,225 |
|
$ |
5.85 |
|
|
Exercisable as of March 30, 2008 |
|
1,283 |
|
$ |
3.97 |
|
Restricted Stock:
The following table summarizes SunPower’s restricted stock unit activities:
|
|
|
Shares |
|
Weighted-Average |
|
|
|
|
|
(In thousands, |
|
|||
|
Balance as of December 30, 2007 |
|
1,174 |
|
$ |
68.74 |
|
|
Granted |
|
235 |
|
$ |
77.31 |
|
|
Vested |
|
(120 |
) |
$ |
52.61 |
|
|
Forfeited |
|
(11 |
) |
$ |
75.98 |
|
|
Balance as of March 30, 2008 |
|
1,278 |
|
$ |
76.97 |
|
NOTE 9. COMMITMENTS AND CONTINGENCIES
Lease Guarantees
During fiscal 2005, the Company entered into a strategic foundry partnership with Grace Semiconductor Manufacturing Corporation (“Grace”), pursuant to which the Company has transferred certain of its proprietary process technologies to Grace’s Shanghai, China facility. In accordance with a foundry agreement executed in fiscal 2006, the Company purchases wafers from Grace that are produced using these process technologies.
Pursuant to a master lease agreement, Grace has leased certain semiconductor manufacturing equipment from a financing company. In conjunction with the master lease agreement, the Company has entered into a series of guarantees with the financing company for the benefit of Grace. Under the guarantees, the Company has agreed to unconditional guarantees to the financing company of the rental payments payable by Grace for the leased equipment under the master lease agreement. If Grace fails to pay any of the quarterly rental payments, the Company will be obligated to pay such outstanding amounts within 10 days of a written demand from the financing company. If the Company fails to pay such amount, interest will accrue at a rate of 9% per annum on any unpaid amounts. To date, the Company has not been required to make any payments under these guarantees.
Pursuant to the guarantees, the Company obtained irrevocable letters of credit to secure the rental payments under the guarantees in the event a demand is made by the financing company on the Company. The amount available under the letters of credit will decline according to schedules mutually agreed upon by the Company and the financing company. If the Company defaults, the financing company will be entitled to draw on the letters of credit.
In connection with the guarantees, the Company was granted options to purchase ordinary shares of Grace. As of March 30, 2008, the Company determined that the fair value of the guarantees and the options was not material to its consolidated financial statements.
18
The following table summarizes the terms and status of the guarantees between the Company, Grace and the financing company:
|
|
|
|
|
|
|
Total Rental Payments Due |
|
Total Irrevocable |
|
|
|
||||||||
|
Fiscal Year |
|
Number of |
|
Lease Term |
|
At Inception |
|
As of |
|
At Inception |
|
As of |
|
Grace |
|
||||
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
||||
|
2006 |
|
One |
|
36 months |
|
$ |
8,255 |
|
$ |
4,815 |
|
$ |
6,392 |
|
$ |
4,527 |
|
2,272 |
|
|
2007 |
|
Five |
|
36 months |
|
42,278 |
|
32,397 |
|
32,726 |
|
28,630 |
|
17,097 |
|
||||
|
2008, first quarter |
|
One |
|
36 months |
|
10,372 |
|
10,372 |
|
7,918 |
|
7,918 |
|
6,009 |
|
||||
|
|
|
|
|
|
|
$ |
60,905 |
|
$ |
47,584 |
|
$ |
47,036 |
|
$ |
41,075 |
|
25,378 |
|
Product Warranties
Cypress generally warrants its products against defects in materials and workmanship for a period of one year and that product warranty is generally limited to a refund of the original purchase price of the product or a replacement part. Cypress estimates its warranty costs based on historical warranty claim experience and the product warranty claims are settled through the returns of defective products and the reshipment of replaced products. Warranty returns are included in the 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.
SunPower warrants or guarantees the performance of its solar panels at certain levels of power output for extended periods, often as long as 25 years. It warrants the solar cells for at least ten years. In addition, SunPower generally provides warranty on systems installed for a period of five years. SunPower also passes through to customers long-term warranties from the original equipment manufacturers of certain system components. SunPower’s potential liability is generally in the form of product replacement or repair. Warranty reserves are based on SunPower’s best estimate of such liabilities and are recognized as a cost of revenue. SunPower monitors product returns for warranty failures and maintains a reserve for the related warranty expenses based on historical experience of similar products as well as various other assumptions that are considered reasonable under the circumstances.
The following table presents the Company’s warranty activities, including amounts recorded in the allowance for sales returns:
|
|
|
Three Months Ended |
|
||||
|
|
|
March 30, |
|
April 1, |
|
||
|
|
|
(In thousands) |
|
||||
|
Beginning balance |
|
$ |
20,268 |
|
$ |
6,024 |
|
|
Warranty reserves assumed in connection with the acquisition of PowerLight. |
|
— |
|
6,542 |
|
||
|
Settlements |
|
(3,666 |
) |
(1,187 |
) |
||
|
Provision. |
|
5,528 |
|
4,759 |
|
||
|
Ending balance |
|
$ |
22,130 |
|
$ |
16,138 |
|
SunPower’s warranty reserve balance represented approximately 88% and 84% of the total warranty reserve balance as of March 30, 2008 and April 1, 2007, respectively.
Purchase Commitments
SunPower has agreements with various suppliers for the procurement of polysilicon, ingots, wafers, solar cells and solar panels. These agreements specify future quantities and pricing of products to be supplied by the vendors and manufacturers for periods up to 12 years and there are certain consequences, such as forfeiture of advanced deposits and liquidation damages relating to previous purchases, in the event that SunPower terminates the arrangements. As of March 30, 2008 and December 30, 2007, total purchase obligations related to such supply agreements were approximately $3.6 billion and $2.1 billion, respectively.
Under certain of these agreements, SunPower is required to make prepayments to the suppliers and manufacturers over the terms of the arrangements. As of March 30, 2008 and December 30, 2007, the balances of prepayments made by SunPower were $164.7 million and $161.2 million, respectively. As of March 30, 2008 and December 30, 2007, SunPower’s future prepayment obligations related to these agreements totaled approximately $213.5 million and $118.4 million, respectively.
19
Litigation and Asserted Claims
In August 2006, Quantum Research Group added Cypress as a defendant in a lawsuit in the United States District Court, District of Baltimore, Maryland. The amended complaint served on Cypress alleges patent infringement, defamation, false light and unfair competition related to Cypress’s Programmable System-on-Chip™ (“PSoC®”) microcontroller products as specifically programmed for a single customer. In June 2007, the parties received the claim construction order, and discovery and depositions have been completed since that time. Motions for summary judgment, which if granted could end the case in Cypress’s favor, are currently pending. In March 2008, Atmel Corporation acquired Quantum Research Group and assumed control of this case. Cypress is being indemnified by a third party for this litigation. Cypress has reviewed and investigated the allegations and believes it has meritorious defenses to these allegations and will vigorously defend itself in this matter.
In October 2006, Cypress received a grand jury subpoena issued from the United States District Court for the Northern District of California seeking information regarding an investigation by the Antitrust Division of the Department of Justice (“DOJ”) into possible antitrust violations in the static random access memory (“SRAM”) industry. In December 2007, the Korean Federal Trade Commission (“KFTC”) opened a criminal investigation into this same market. Cypress has made, and will continue to make available employees, documents and other relevant information to the DOJ’s Antitrust Division to support the investigation. Cypress expects to provide the same assistance to the KFTC. Cypress has reviewed and investigated the allegations and believes it has meritorious defenses to these allegations and will vigorously defend itself in these matters.
In connection with the DOJ investigation discussed above, in October 2006, Cypress, along with a majority of the other SRAM manufacturers, was sued in over 82 purported consumer class action suits in various United States Federal District Courts. The cases variously allege claims under the Sherman Antitrust Act, state antitrust laws and unfair competition laws. The lawsuits seek restitution, injunction and damages in an unspecified amount. The cases are now consolidated in the United States District Court for the Northern District of California. The cases have been largely stayed with the exception of document production which Cypress continues to deliver to plaintiffs. In addition to the federal class action lawsuits, Cypress, along with a number of the SRAM manufacturers, was also sued in purported consumer anti-trust class action suits in three separate provinces in Canada. The Florida Attorney General’s office has also filed a civil investigative demand on behalf of all Florida SRAM consumers. Cypress is engaged in document production in these matters that is consistent with the production being made to the civil plaintiffs and the DOJ. Cypress believes it has meritorious defenses to these allegations and will vigorously defend itself in these matters.
Cypress, along with several other co-defendants, is currently party to trade secret misappropriation litigation filed by Silvaco Data Systems in Santa Clara Superior Court in May 2004. The cell characterization software at issue in this case was previously purchased by Cypress and the co-defendants from Circuit Semantics, a business no longer in operation. Prior to filing this suit against Cypress, Silvaco sued and later settled with Circuit Semantics for misappropriation of certain of Silvaco’s trade secrets. Silvaco’s complaint against Cypress alleges that Cypress misappropriated Silvaco’s trade secrets by using Circuit Semantics’ software previously purchased by Cypress. The Cypress trial, which began in September 2007, is currently stayed pending an appeal of a preliminary ruling related to a statute of limitations issue. Oral arguments for the appeal are currently scheduled for May 2008. While Cypress has been engaged in the appeal process, three of the four remaining defendants have prevailed on motions for summary judgment that would result in a dismissal of the case on facts and arguments similar to Cypress’s case. Silvaco has appealed these rulings. Cypress believes it has meritorious defenses to the allegations and will vigorously defend itself in this matter.
The Company is currently a party to various other legal proceedings, claims, disputes and litigation arising in the ordinary course of business. Based on the Company’s own investigations, the Company does not believe the ultimate outcome of its current legal proceedings, individually and in the aggregate, will have a material adverse effect on its financial position, results of operation or cash flows. However, because of the nature and inherent uncertainties of such litigation and investigations, should the outcome of these actions be unfavorable, the Company’s business, financial condition, results of operations or cash flows could be materially and adversely affected.
20
NOTE 10. DEBT AND EQUITY TRANSACTIONS
Convertible Debt
The following table summarizes the Company’s outstanding convertible debt:
|
|
|
|
|
As of |
|
||||||||||
|
|
|
|
|
March 30, 2008 |
|
December 30, 2007 |
|
||||||||
|
|
|
Maturity |
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
||||
|
|
|
|
|
(In thousands) |
|
||||||||||
|
Cypress 1.00% Convertible Senior Notes (“Cypress 1.00% Notes”) |
|
September 2009 |
|
$ |
600,000 |
|
$ |
705,750 |
|
$ |
600,000 |
|
$ |
978,162 |
|
|
SunPower 1.25% Senior Convertible Debentures (“SunPower 1.25% Notes”) |
|
February 2027 |
|
200,000 |
|
304,404 |
|
200,000 |
|
465,576 |
|
||||
|
SunPower 0.75% Senior Convertible Debentures (“SunPower 0.75% Notes”) |
|
August 2027 |
|
225,000 |
|
258,800 |
|
225,000 |
|
366,316 |
|
||||
|
Total |
|
|
|
$ |
1,025,000 |
|
$ |
1,268,954 |
|
$ |
1,025,000 |
|
$ |
1,810,054 |
|
The fair value of the convertible debt was determined based on quoted market prices as reported by Bloomberg:
|
|
|
As of |
|
||||
|
|
|
March 30, |
|
December 30, |
|
||
|
|
|
(Per $ 1,000 principal amount) |
|
||||
|
Cypress 1.00% Notes |
|
$ |
1,176 |
|
$ |
1,630 |
|
|
SunPower 1.25% Notes |
|
$ |
1,522 |
|
$ |
2,328 |
|
|
SunPower 0.75% Notes |
|
$ |
1,150 |
|
$ |
1,628 |
|
Cypress 1.00% Notes:
Under the terms of the Indenture, holders may convert their Cypress 1.00% Notes if the closing price of Cypress’s common stock exceeds $31.07 for 20 trading days within the last 30 trading days of the preceding calendar quarter. This common stock price conversion test is performed each quarter.
For the fourth quarter of fiscal 2007, Cypress determined that the common stock price conversion test was triggered, as the closing price of Cypress’s common stock exceeded $31.07 for 20 trading days within the last 30 trading days of the quarter. Accordingly, holders could exercise their right to convert the Cypress 1.00% Notes during the first quarter of fiscal 2008. Since the holders were able to exercise their right to convert the Cypress 1.00% Notes, Cypress classified the outstanding principal amount of $600.0 million as short-term debt in the Condensed Consolidated Balance Sheet as of December 30, 2007. In addition, Cypress accelerated the amortization of the remaining debt issuance costs of $8.5 million, of which $7.0 million was recorded in the fourth quarter of fiscal 2007 and $1.5 million was recorded in the first quarter of fiscal 2008.
For the first quarter of fiscal 2008, Cypress determined that the common stock price conversion test was not triggered, as the closing price of Cypress’s common stock did not exceed $31.07 for 20 trading days within the last 30 trading days of the quarter. Accordingly, holders may not exercise their right to convert the Cypress 1.00% Notes during the second quarter of fiscal 2008. As a result, Cypress re-classified the outstanding principal amount of $600.0 million from short-term debt to long-term debt in the Condensed Consolidated Balance Sheet as of March 30, 2008.
Under the terms of the Indenture, holders may convert the Cypress 1.00% Notes on or after June 15, 2009. As such, the Cypress 1.00% Notes will be re-classified as short-term debt in the second quarter of fiscal 2008.
SunPower 1.25% Notes:
Under the terms of the Indenture, holders may convert the SunPower 1.25% Notes if the closing price of SunPower’s common stock exceeds $70.94 for 20 trading days within the last 30 trading days of the preceding calendar quarter. This common stock price conversion test is performed each quarter.
For the fourth quarter of fiscal 2007, SunPower determined that the common stock price conversion test was triggered, as the closing price of SunPower’s common stock exceeded $70.94 for 20 trading days within the last 30 trading days of the quarter. Accordingly, holders could exercise their right to convert the SunPower 1.25% Notes during the first quarter of fiscal 2008. Since the holders were able to exercise their right to convert the SunPower 1.25% Notes, SunPower classified the outstanding principal amount of $200.0 million as short-term debt in the Condensed Consolidated Balance Sheet as of December 30, 2007. In addition, SunPower accelerated the amortization of the remaining debt issuance costs of $4.9 million, of which $4.4 million was recorded in the fourth quarter of fiscal 2007 and $0.5 million was recorded in the first quarter of fiscal 2008.
For the first quarter of fiscal 2008, SunPower determined that the common stock price conversion test was not triggered, as the closing price of SunPower’s common stock did not exceed $70.94 for 20 trading days within the last 30 trading days of the quarter. Accordingly, holders may not exercise their right to convert the SunPower 1.25% Notes
21
during the second quarter of fiscal 2008. As a result, SunPower re-classified the outstanding principal amount of $200.0 million from short-term debt to long-term debt in the Condensed Consolidated Balance Sheet as of March 30, 2008.
If the common stock price conversion test is triggered again in a subsequent quarter, the SunPower 1.25% Notes will be re-classified as short-term debt.
SunPower 0.75% Notes:
Under the terms of the Indenture, holders may convert the SunPower 0.75% Notes if the closing price of SunPower’s common stock exceeds $102.80 for 20 trading days within the last 30 trading days of the preceding calendar quarter. This common stock price conversion test is performed each quarter.
For the fourth quarter of fiscal 2007, SunPower determined that the common stock price conversion test was triggered, as the closing price of SunPower’s common stock exceeded $102.80 for 20 trading days within the last 30 trading days of the quarter. Accordingly, holders could exercise their right to convert the SunPower 0.75% Notes during the first quarter of fiscal 2008. Since the holders were able to exercise their right to convert the SunPower 0.75% Notes, SunPower classified the outstanding principal amount of $225.0 million as short-term debt in the Condensed Consolidated Balance Sheet as of December 30, 2007. In addition, SunPower accelerated the amortization of the remaining debt issuance costs of $4.3 million, of which $3.8 million was recorded in the fourth quarter of fiscal 2007 and $0.5 million was recorded in the first quarter of fiscal 2008.
For the first quarter of fiscal 2008, SunPower determined that the common stock price conversion test was not triggered, as the closing price of SunPower’s common stock did not exceed $102.80 for 20 trading days within the last 30 trading days of the quarter. Accordingly, holders may not exercise their right to convert the SunPower 0.75% Notes during the second quarter of fiscal 2008. As a result, SunPower re-classified the outstanding principal amount of $225.0 million from short-term debt to long-term debt in the Condensed Consolidated Balance Sheet as of March 30, 2008.
If the common stock price conversion test is triggered again in a subsequent quarter, the SunPower 0.75% Notes will be re-classified as short-term debt.
Line of Credit
In July 2007, SunPower entered into a credit agreement with Wells Fargo & Company (“Wells Fargo”). As of March 30, 2008, the credit agreement provides for a $50.0 million unsecured revolving credit line, with a $50.0 million unsecured letter of credit subfeature, and a separate $50.0 million secured letter of credit facility. SunPower may borrow up to $50.0 million and request that Wells Fargo issue up to $50.0 million in letters of credit under the unsecured letter of credit subfeature through July 31, 2008. Letters of credit issued under the subfeature reduce SunPower’s borrowing capacity under the revolving credit line. SunPower may request that Wells Fargo issue up to $50.0 million in letters of credit under the secured letter of credit facility through July 31, 2012. SunPower will pay interest on outstanding borrowings and a fee for outstanding letters of credit. SunPower has the ability at any time to prepay outstanding loans. All borrowings must be repaid by July 31, 2008, and all letters of credit issued under the unsecured letter of credit subfeature will expire on or before July 31, 2008 unless SunPower provides by such date collateral in the form of cash or cash equivalents in the aggregate amount available to be drawn under letters of credit outstanding at such time. All letters of credit issued under the secured letter of credit facility will expire no later than July 31, 2012. SunPower concurrently entered into a security agreement with Wells Fargo, granting a security interest in a deposit account to secure its obligations in connection with any letters of credit that might be issued under the credit agreement. In connection with the credit agreement, two wholly-owned subsidiaries of SunPower entered into an associated continuing guaranty with Wells Fargo. The terms of the credit agreement include certain conditions to borrowings, representations and covenants, and events of default customary for financing transactions of this type.
For the year ended December 30, 2007, SunPower was not compliant with two debt covenants. In January 2008, SunPower entered into an agreement with Wells Fargo to amend the existing credit agreement. Under the amended credit agreement, Wells Fargo waived compliance requirements with certain restrictive covenants, including the prohibition against SunPower providing corporate guaranties supporting contracts between its subsidiaries and third parties. In exchange for waiving compliance with such restrictive covenants, SunPower agreed to maintain a balance of funds in a restricted cash deposit account with Wells Fargo, in an amount no less than the aggregate outstanding indebtedness owed by SunPower to Wells Fargo under both the line of credit, including its letter of credit subfeature, and the letter of credit line, as collateral securing such outstanding indebtedness. Had Wells Fargo not waived this violation, SunPower would have been in default of its debt covenants and may have been required to immediately repay the aggregate outstanding indebtedness to Wells Fargo under both the line of credit, including its letter of credit subfeature, and the letter of credit line.
22
As of March 30, 2008 and December 30, 2007, eight letters of credit totaling $46.3 million and four letters of credit totaling $32.0 million, respectively, were issued by Wells Fargo under the unsecured letter of credit subfeature.
As of March 30, 2008 and December 30, 2007, 17 letters of credit totaling $52.3 million and eight letters of credit totaling $47.9 million, respectively, were issued by Wells Fargo under the secured letter of credit facility. As the outstanding letters of credit as of March 30, 2008 exceeded the amount SunPower may request Wells Fargo to issue under the credit agreement, Wells Fargo issued an additional secured letter of credit outside of the line totaling $4.8 million as temporary accommodation while SunPower negotiated amended terms of the credit agreement with Wells Fargo.
As of March 30, 2008 and December 30, 2007, cash available to be borrowed under the unsecured revolving credit line was $3.7 million and $18.0 million, respectively, and includes letter of credit capacities available to be issued by Wells Fargo under the unsecured letter of credit subfeature of $3.7 million and $8.0 million, respectively. As of March 30, 2008 and December 30, 2007, letters of credit available under the secured letter of credit facility totaled zero and $2.1 million, respectively.
In April 2008, SunPower entered into an amendment to the credit agreement with Wells Fargo that increased the amount available under the secured letter of credit facility from $50.0 million to $150.0 million, extended the expiration date of the unsecured revolving credit line from July 31, 2008 to April 4, 2009, and modified certain restrictive covenants and events of default under the credit agreement. In addition, SunPower granted to Wells Fargo a security interest in a securities account to secure its obligations in connection with any letters of credit that might be issued under the secured letter of credit line and an indirect wholly-owned subsidiary of SunPower entered into an associated continuing guaranty with Wells Fargo. As a result of the increased availability in the secured letter of credit facility, the $4.8 million secured letter of credit that was previously issued outside the line as temporary accommodation was reclassified as a letter of credit under the secured letter of credit facility.
Until April 4, 2009, SunPower may borrow up to $50.0 million under the credit agreement’s unsecured line of credit and request that Wells Fargo issue up to $50.0 million in letters of credit under the unsecured letter of credit subfeature, provided that any letters of credit issued and outstanding under the unsecured letter of credit subfeature will reduce SunPower’s borrowing capacity. Until July 31, 2012, SunPower may request that Wells Fargo issue up to $150.0 million in letters of credit under the credit agreement’s secured letter of credit line. SunPower will pay interest on outstanding borrowings and a fee for issued and outstanding letters of credit. SunPower has the ability at any time to prepay outstanding loans. All borrowings must be repaid by April 4, 2009, and all letters of credit issued under the unsecured letter of credit subfeature expire on or before April 4, 2009 unless SunPower provides by such date collateral in the form of cash or cash equivalents in the aggregate amount available to be drawn under letters of credit outstanding at such time. All letters of credit issued under the secured letter of credit line expire no later than July 31, 2012.
Stock Repurchase Program
During the first quarter of fiscal 2008, Cypress’s Board of Directors approved an additional $300.0 million under the stock repurchase program, bringing the total amount that may be used for stock purchases to $600.0 million. During the first quarter of fiscal 2008, Cypress used $277.1 million in cash to repurchase a total of 12.6 million shares at an average price of $21.95. As of March 30, 2008, the remaining balance available for future stock repurchases was $322.9 million under the stock repurchase program.
NOTE 11. ACCUMULATED OTHER COMPREHENSIVE INCOME AND COMPREHENSIVE LOSS
The components of accumulated other comprehensive income, net of tax, were as follows:
|
|
|
As of |
|
||||
|
|
|
March 30, |
|
December 30, |
|
||
|
|
|
(In thousands) |
|
||||
|
Accumulated net unrealized gains on available-for-sale investments |
|
$ |
3,710 |
|
$ |
5,509 |
|
|
Accumulated net unrealized losses on derivatives |
|
(2,768 |
) |
(3,623 |
) |
||
|
Foreign currency translation adjustments |
|
11,325 |
|
9,746 |
|
||
|
Total accumulated other comprehensive income |
|
$ |
12,267 |
|
$ |
11,632 |
|
23
The components of comprehensive loss, net of tax, were as follows:
|
|
|
Three Months Ended |
|
||||
|
|
|
March 30, |
|
April 1, |
| ||