The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes as of
December 29, 2013and December 30, 2012and for the fiscal years ended December 29, 2013, December 30, 2012and December 25, 2011, which are elsewhere in this Annual Report on Form 10-K. Executive Summary We are a leading designer, manufacturer and developer of embedded systems semiconductors, which include flash memory, microcontroller, mixed-signal, and analog products, and embedded system-on-chip solutions. Our leading-edge intellectual property and products are driving the development of high quality, reliable and economical devices that are high performance, intelligent, efficient and secure. The embedded markets we focus on such as transportation, industrial, consumer, communications and gaming require high performance and high reliability flash memory solutions, microcontroller, mixed-signal, and analog products, and other programmable semiconductors that run applications in a broad range of electronic systems. Our focus markets are generally characterized by longer design and product life cycles, relatively stable pricing, more predictable supply-demand outlook and lower capital investments. Within this embedded industry, we serve a well-diversified customer base through a predominantly differentiated, non-commodity, service oriented model that strives to meet our customers' needs. Our embedded solutions are incorporated in products manufactured by leading OEMs. In many cases, embedded customers require products with specific feature sets and wide operating temperatures to allow their products to work in extreme conditions. Some embedded customers require product availability from suppliers for over a decade of production. We spent many years refining the product and service strategy to address these market requirements and deliver products that go into a broad range of electronic applications such as automobiles, airplanes, set top boxes, games, telecommunications equipment, smart meters, factory automation and medical devices. Our products are designed to accommodate various voltage, interface and density requirements for a wide range of applications and customer platforms. The majority of our NOR flash memory product designs are based on our proprietary two-bit-per-cell MirrorBit® technology, which has a simpler cell architecture, higher yields and lower costs than competing floating gate NOR Flash memory technology. While historically we are known for our NOR products, we have been expanding our portfolio in the areas of NAND flash memory, microcontroller, mixed-signal, and analog products, as well as programmable system solutions or embedded system-on-chip solutions to broaden our customer engagement and bring differentiated products to embedded markets. In support of this strategy, we acquired the MCA business of FSL on August 1, 2013, for a purchase consideration of $150.0 million, net of cash. In addition to our products, we generate revenue by licensing our intellectual property to third parties and we assist our customers in developing and prototyping their designs by providing software and hardware development tools, drivers and simulation models for system-level integration. We are headquartered in Silicon Valleyin California, with research and development, manufacturing, assembly and sales operations in the United States, Asia, Europeand the Middle East. We own and operate a wafer fabrication facility in Austin, Texasand a final manufacturing facility in Bangkok, Thailand. Final manufacturing consists of assembly, test, mark and pack operations. We also own a manufacturing facility in Penang, Malaysia, which does small volumes of sort and pack operations. For geographical information with respect to our sales and assets refer to Note 18 of Consolidated Financial Statements. We were incorporated in Delawarein 2005. Our mailing address and executive offices are located at 915 DeGuigne Drive, Sunnyvale, California94085, and our telephone number is (408) 962-2500. References in this report to " Spansion," "we," "us," "our," or the "Company" shall mean Spansion Inc.and our consolidated subsidiaries, unless the context indicates otherwise. We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended or Exchange Act, and, in accordance therewith, file periodic reports, proxy statements and other information with the Securities and Exchange Commission, or SEC. Such periodic reports, proxy statements and other information are available for inspection and copying at the SEC's Public Reference Roomat 100 F Street, NE., Washington, DC20549 or may be obtained by calling the SECat 1-800- SEC-0330. In addition, the SECmaintains a website at http://www.sec.gov that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. We also post on the Investor Relations section of our website, http://www.spansion.com, under "Financial Information" a link to our filings with the SEC. We post our Code of Ethics for our Chief Executive Officer, Chief Financial Officer, Corporate Controller and other Senior Finance Executives, our Code of Business Conduct, which applies to all directors and all our employees, and the charters of our Audit, Compensation and Nominating and Corporate Governance committees under "Corporate Governance" on the Investor Relations section of our website. Our filings with the SECare posted as soon as reasonably practical after they are filed electronically with the SEC. Please note that information contained on our website is not incorporated by reference in, or considered to be a part of, this report. 24
-------------------------------------------------------------------------------- We completed the sale of our real property in
Sunnyvale, Californiaon January 23, 2014, for a consideration of $60.0 million. Pursuant to the sale, we will be relocating our offices and facilities to a new location. Beginning January 23, 2014, we have entered into a lease of the property and have the option to leaseback up to 24 months from that date.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our net sales, inventories, asset impairments, stock-based compensation expense, legal reserve and income taxes. We base our estimates on experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions. Business Acquisition Accounting for acquisitions requires us to estimate the fair value of consideration paid and the individual assets and liabilities acquired, which involves a number of judgments, assumptions and estimates that could materially affect the amount and timing of costs recognized. Accounting for acquisitions can also involve significant judgment to determine when control of the acquired entity is transferred. We obtain independent third party valuation studies to assist in determining fair values, including assistance in determining future cash flows, appropriate discount rates and comparable market values. The items involving the most significant assumptions, estimates and judgments included determining the fair value of the following: ? Intangible assets including estimated economic lives and straight-line amortization method;
? Deferred tax liability, including projections of future taxable income and tax
? Inventory, including estimated future selling prices, timing of product sales
and completion costs for work in process; and ? Estimated liability of employees pension related obligations. ? Property, plant and equipment. Revenue Recognition We recognize revenue from product sales to OEMs when the earnings process is complete, as evidenced by an agreement with the customer, transfer of title, fixed or determinable pricing and when collectability is reasonably assured. We record reserves for estimated customer returns based on historical experience. We sell directly to distributors under terms that provide for rights of return, stock rotation and price protection guarantees. Since we are unable to reliably estimate the resale price to our end customer and returns under the stock rotation rights to our distributors, we defer the recognition of revenue and related product costs on these sales as deferred income until distributors submit Point of Sales reports to us. We also sell some of our products to certain distributors under sales arrangements that do not allow for rights of return or price protection on unsold products. We recognize revenue on these sales when the earnings process is complete, as evidenced by an agreement with the customer, transfer of title, fixed or determinable pricing and when collectability is reasonably assured. Rights of return are granted whereby we are obligated to repurchase inventory from a distributor upon termination of the distributor's sales agreement with us. However, we are not required to repurchase the distributor's inventory under certain circumstances such as the failure to return the inventory in saleable condition, or, we may only be required to repurchase a portion of distributor's inventory, for example when the distributor has terminated the agreement for its convenience. Stock rotation rights are provided to distributors when we have given written notice to the distributor that a product is being removed from our published price list. The distributor has a limited period of time to return the product. All returns are for credit only; the distributor must order a quantity of products, the dollar value of which equals or exceeds the dollar value of the products being returned. Some distributors are also offered quarterly stock rotation. Such stock rotation is limited to a certain percentage of the previous three months' net shipments. 25 -------------------------------------------------------------------------------- A general price protection is granted to a distributor if we publicly announce a price reduction relating specifically to certain products, whereby the distributor is entitled to a credit equal to the difference between the price paid by the distributor and the newly announced price. Price protection adjustments are provided to distributors solely for those products that: (i) are shipped to the distributor during the period preceding the price reduction announcement; (ii) are part of the distributor's inventory at the time of the announcement; and (iii) are located at geographic territories previously authorized by us. In addition, if we judge that a distributor demonstrates that it needs a price lower than the current published price list in order to secure an order from the distributor's customers, we may, but we have no obligation to, grant the distributor a credit to offset the amount owed under our current published price. The distributor must submit the request for a reduction in price prior to the sale of products to its customer. If the request is approved and the sale occurs, the distributor must make a claim with the proof of resale to the end customers for a credit within a specified time period.
Gross deferred revenue and gross deferred cost of sales on shipments to distributors as of
December 29, 2013 December 30, 2012 (in thousands) Deferred revenue $ 65,649 $ 23,533 Less: deferred costs of sales (35,854 ) (14,850 ) Deferred income on shipments (1) $ 29,795 $ 8,683
(1) The deferred income of
sheets as of
million of deferred revenue related to our licensing revenue excluded in the
table above to separately illustrate the deferred income on product shipments.
Our distributors provide us with periodic data regarding the product, price, quantity, and end customer for products that are resold as well as the quantities of our products that they still have in stock. We reconcile distributors' reported inventories to their activities.
We have licensed our patents to other companies and will continue to do so in the future. The terms and conditions of license agreements are highly negotiated and can vary significantly. Generally, however, when a license agreement requires the payment of royalties to
Spansion, we recognize fixed payment amounts on the date they become due. For other agreements, we recognize revenue based on notification of the related sales from the licensees.
Estimates of Sales Returns and Allowances
We occasionally accept sales returns or provide pricing adjustments to customers who do not have contractual return or pricing adjustment rights. We record a provision for estimated sales returns and allowances on product sales in the same period that the related revenues are recorded, which impacts gross margin. We base these estimates on historical sales returns, allowances, and price reductions, market activity and other known or anticipated trends and factors. These estimates are subject to management's judgment, and actual returns and adjustments could be different from our estimates and current provisions, resulting in an impact to our future revenues and operating results. Inventory Valuation At each balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence. This evaluation includes analysis of sales levels by product and projections of future demand. These projections assist us in determining the carrying value of our inventory and are also used for near-term factory production planning. We write off inventory that we consider obsolete and adjust remaining specific inventory balances to approximate the lower of our manufacturing cost or market value. Among other factors, management considers forecasted demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life cycles when determining obsolescence and net realizable value. If we anticipate future demand or market conditions to be less favorable than our previous projections, additional inventory write-downs may be required and would be reflected in cost of sales in the period the write-down is made. This would have a negative impact on our gross margin in that period. If in any period we are able to sell inventories that were not valued or that had been written down in a previous period, related revenues would be recorded without any offsetting charge to cost of sales, resulting in a net benefit to our gross margin in that period. 26 --------------------------------------------------------------------------------
Stock-based compensation is estimated at the grant date based on the fair value of the stock award and is recognized as expense using the straight-line amortization method over the requisite service period.
We estimate the grant date fair value of all options using the Black-Scholes option pricing model, which requires the use of inputs like expected volatility, expected term, expected dividend yield, and expected risk-free rate of return. Our expected volatility is based largely on the historical volatility of our traded stock and to a lesser extent on the volatilities of our competitors with similar characteristics, who are in the same industry sector (guideline companies) because of the lack of sufficient historical realized volatility data on our stock price. We used the simplified calculation of expected term as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term of stock options since emergence from the Chapter 11 bankruptcy. If we determine that other methods to estimate expected volatility or expected life were more reasonable, or if other methods for calculating these input assumptions were prescribed by authoritative guidance, the fair value calculated for stock-based awards could change significantly. For key executive restricted stock units, the expense recognized in interim periods is dependent on the probability of the annual performance measure being achieved. We utilize forecast of future performance to assess this probability and this assessment requires considerable judgment. The expense is trued up at year end when actual annual performance is known. The fair value of the performance-based restricted stock awards (PSUs) is estimated using a Monte Carlo simulation to simulate a range of our possible future stock prices and the other companies in our peer group. The simulation requires assumptions for expected volatilities and correlation coefficients of each entity, risk-free rate of return, and dividend yield. Expected volatilities are based our historical volatilities over a period equal to the length of the measurement period and the other companies in the peer group. Correlation coefficients are based on the same data used to calculate historical volatilities and are used to model how each entity's stock price moves in relation each of the other companies included in the peer group. Dividends are assumed to be reinvested in the issuing entity over the measurement period, equating to a zero percent dividend yield for us and the other companies in the peer group. The vesting of these PSUs is based on the total shareholder return (TSR) of the Company, relative to its peer group. The peer group is determined by our Compensation Committee on an annual basis and TSR is measured at the end of each of two 18-month performance periods. In addition, we are required to develop an estimate of the number of share-based awards that will be forfeited due to employee turnover. The guidance on stock compensation requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates in order to derive our best estimate of awards ultimately expected to vest. We estimate forfeitures based on historical experience related to our own stock-based awards granted. We anticipate that these estimates will be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Income Taxes In determining taxable income for financial statement reporting purposes, we make estimates and judgments. These estimates and judgments are applied in the calculation of specific tax liabilities and in the determination of the recoverability of deferred tax assets, which arise from temporary differences between the recognition of assets and liabilities for tax and financial statement reporting purposes. We assess the likelihood that we will be able to recover our deferred tax assets. Unless recovery of these deferred tax assets is considered more likely than not, we increase our provision for taxes by recording a charge to income tax expense, in the form of a valuation allowance against those deferred tax assets for which we do not believe it is more likely than not they will be realized. We consider past performance, future expected taxable income and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In addition, the calculation of our tax liabilities involves the application of complex tax rules and the potential for future adjustments by the relevant tax jurisdiction. If our estimates of these taxes are greater or less than actual results, an additional tax benefit or charge will result. In determining the financial statement effects of an unrecognized tax position, we determine when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. In this determination, we assume that the position will be examined by a taxing authority that has full knowledge of all relevant information, and will be resolved in the court of last resort. The more likely than not recognition threshold means that no amount of tax benefits may be recognized for a tax position without a greater than 50% likelihood that it will be sustained upon examination. 27 --------------------------------------------------------------------------------
Goodwill We review goodwill for impairment at least annually in the fourth quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the asset might be impaired. We adopted
November 30thas the date of the annual impairment test. In September 2011, the Financial Accounting Standards Board(FASB) issued guidance that was intended to reduce the complexity and costs of testing for goodwill impairment by allowing an entity the option to make a qualitative evaluation about the likelihood of impairment to determine whether it should calculate the fair value of a reporting unit. The guidance 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 this guidance beginning fiscal 2012. We have a single reporting unit. Our fair value was substantially in excess of the carrying amount based on the quantitative assessment of goodwill that we performed in fiscal 2011. In fiscal 2012, we performed the qualitative assessment of goodwill and concluded that there was no impairment. In fiscal 2013, we performed a quantitative assessment of goodwill using the market valuation approach and concluded that there was no impairment to goodwill.
Impairment of Long-Lived Assets including Acquisition-Related Intangible Assets
We consider quarterly whether indicators of impairment relating to the long-lived assets are present. These indicators may include, but are not limited to, significant decreases in the market value of an asset, significant changes in the extent or manner in which an asset is used or an adverse change in our overall business climate. If these or other indicators are present, we test for recoverability of the intangible asset by determining whether the estimated undiscounted cash flows attributable to the asset in question is less than its carrying value. If less, we recognize an impairment loss based on the excess of the carrying amount of the asset over its fair value.
Estimates Relating to Litigation Reserve
Our litigation reserve policy is to record an estimate for litigation expenses required to defend ourselves over the course of a reasonable period of time. Currently, this is estimated at twelve months in accordance with the accounting guidance. Judgment is necessary to estimate these costs and an accrual is made when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.
New Accounting Pronouncements
July 2013, the FASB issued an accounting standard update permitting the Fed Funds Effective Swap Rate to be used as a U.S. benchmark interest rate for hedge accounting purposes, in addition to US Treasury interest rates and the LondonInterbank Offered Rate (LIBOR). This guidance is effective prospectively for qualifying new or redesignated hedging relationships, entered into on or after July 17, 2013. The adoption of this guidance did not affect our consolidated financial position, results of operations, or cash flows. In July 2013, the FASB issued an accounting standard update that resolves the diversity in practice regarding the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carry forward exists. The unrecognized tax benefit should be presented as a reduction to a deferred tax asset. This accounting standard update is effective for the first annual period beginning after December 15, 2013. We do not expect adoption of this guidance to affect our consolidated financial position, results of operations, or cash flows. In February 2013, the FASB issued guidance to provide enhanced disclosures related to reclassifications out of accumulated other comprehensive income. An entity will be required to disclose the net income line items impacted by significant reclassifications out of accumulated other comprehensive income if the item is reclassified in its entirety. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. The adoption of this guidance beginning the first quarter of fiscal 2013 did not have an impact on our consolidated financial position, results of operations or cash flows. In December 2011, the FASB issued an accounting standard update requiring enhanced disclosure related to certain financial instruments and derivative instruments that are offset in the balance sheet or subject to an enforceable master netting arrangement or similar arrangement. In January 2013, the FASB clarified the scope of this guidance as being applicable to derivatives, repurchase agreements and securities borrowing and lending transactions that are either offset or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirement becomes effective beginning the first quarter of fiscal year ending December 28, 2014. The adoption of this guidance is not expected to have an impact on our consolidated financial position, results of operations or cash flows. 28 --------------------------------------------------------------------------------
Results of Operations The following is a summary and analysis of our net sales, gross margin, operating income (loss), interest and other income (expense), net, interest expense and income tax provision for fiscal 2013, fiscal 2012 and fiscal 2011. Year Ended December 29, December 30, December 25, 2013 2012 2011 (in thousands, except for percentages) Total net sales
$ 971,690 $ 915,932 $ 1,069,883Cost of sales $ 719,062 $ 632,417 $ 847,797Gross profit $ 252,628 $ 283,515 $ 222,086Gross margin 26 % 31 % 21 % Research and development $ 126,768 $ 107,850 $ 106,644Sales, general and administrative $ 178,265 $ 135,607 $ 108,461Net gain on sale of KL land and building $ - $ (28,434 )$ -
Restructuring charges (credits) $ 6,017 $ 5,650
$ 12,295Operating income (loss) $ (58,422 ) $ 62,842 $ (5,314 )Interest and other income (expense), net $ 4,406 $ 4,688 $ 3,954 Interest expense $ (29,792 ) $ (30,147 ) $ (33,151 )Gain on acquisition of Microcontroller and Analog business $ 7,950 $ - $ - Provision for income taxes $ (2,410 ) $ (12,999 ) $ (21,037 )Net Sales Total net sales increased by $55.8 millionfrom $915.9 millionin fiscal 2012 to $971.7 millionin fiscal 2013. The increase was primarily due to revenues of $222.8 millionduring the third and fourth quarters of fiscal 2013 from our newly acquired MCA business. The increase was partially offset by a $159.6 milliondecline in flash embedded sales mainly due to lower gaming revenues in Japanas the majority of our gaming customers were in product transition, moving to newer product platforms during fiscal 2013. In addition, we also had downward pressure on selling prices due to continued imbalance in supply and demand in the flash market. Total net sales decreased by $154.0 millionfrom $1,069.9 millionin fiscal 2011 to $915.9 millionin fiscal 2012. The decrease was primarily due to $152.5 millionreduction in wireless sales and to a lesser extent, reduction in sales in the Asia Pacificregion. The global semiconductor market declined in 2012 due to the slow economic growth in developed markets and cautious consumer and enterprise spending. Gross Profit Our gross profit decreased by $30.9 millionfrom $283.5 millionin fiscal 2012 to $252.6 millionin fiscal 2013. The gross margin decreased from 31% in fiscal 2012 to 26% in fiscal 2013. The decrease in gross margin was mainly due to lower margins on revenues in the flash embedded markets, primarily driven by lower gaming revenues in Japanand a downward pressure on selling prices due to continued imbalance in supply and demand. This was partially offset by the addition of gross profit from the MCA business revenues, net of $30.2 millionamortization of a purchase accounting markup on the inventory purchased from FSL as a part of the acquisition, and efficiencies from factory operations. Our gross profit increased by $61.4 millionfrom $222.1 millionin fiscal 2011 to $283.5 millionin fiscal 2012. The increase was mainly due to improved internal fabrication facility utilization and efficiencies from the consolidation of our two assembly and test operations in Asiafollowing the closure of our Kuala Lumpur, Malaysiafacility in the second quarter of fiscal 2012. In addition, fiscal 2011 gross margins were adversely impacted by the residual effect of fresh-start-related inventory write-up amortization, $28.0 millionrelating to the write down of wireless inventory and $15.8 millionimpairment of wireless related assets. We did not have similar charges in fiscal 2012. 29
Research and development Our research and development, or R&D, expenses increased by
$18.9 millionfrom $107.9 millionin fiscal 2012 to $126.8 millionin fiscal 2013. The increase was mainly due to $34.6 millionof additional R&D expense relating to the MCA business incurred during the third and fourth quarters of fiscal 2013. The increase was partially offset by $9.7 millionof lower employee compensation and benefits due to the reduction in headcount as part of the restructuring activity in fiscal 2013, $3.5 millionlower development charges primarily relating to NAND development and $2.3 millionlower material costs on probe cards and other materials used in R&D projects in fiscal 2013. Our R&D expenses increased by $1.3 millionfrom $106.6 millionin fiscal 2011 to $107.9 millionin fiscal 2012. The increase was mainly due to $10.4 millionof higher employee compensation and benefits and $1.7 millionhigher development charges primarily relating to NAND development. The increase was partially offset by the non-recurrence in fiscal 2012 of certain R&D charges incurred in fiscal 2011 including $7.2 millionof asset impairment charges relating to R&D tools and equipment held for sale after the closure of our Sub-Micron Development Center(SDC) located in Sunnyvale, Californiaand $1.7 millionof technical support charges. In addition, our material costs for R&D projects were $1.3 millionlower in 2012 and depreciation was $1.0 millionlower due to the diminishing impact of fresh start accounting-related adjustments in fiscal 2012.
Sales, general and administrative
Our sales, general and administrative, or SG&A, expenses increased by
$42.7 millionfrom $135.6 millionin fiscal 2012 to $178.3 millionin fiscal 2013. The increase was mainly due to $23.9 millionof higher legal expenses relating to the Macronix patent infringement litigation, $23.1 millionof additional SG&A expenses relating to the MCA business incurred during the third and fourth quarters of fiscal 2013, and $12.7 millionMCA business integration costs. The increase was partially offset by $10.6 millionof lower employee compensation and benefits due to the reduction in headcount in fiscal 2013, $5.0 millionof lower travel, marketing activities and other outside services in fiscal 2013 and $1.7 millionof lower employee stock-based compensation expense in fiscal 2013. Our SG&A expenses increased by $27.1 millionfrom $108.5 millionin fiscal 2011 to $135.6 millionin fiscal 2012. In fiscal 2011, SG&A expenses were reduced by a $23.4 millionnet reduction in litigation reserves primarily as a result of settlement of the Samsung patent litigation. There was no comparable reduction in fiscal 2012. In addition, employee compensation and benefits expenses in fiscal 2012 were higher by $7.8 milliondue to annual salary adjustments, higher incentive compensation and increased stock based compensation. The increase was partially offset by $4.5 milliondue to lower depreciation and building allocation charges from the diminishing impact of fresh start accounting-related adjustments.
Net Gain on Sale of Land and Building in
We recognized a gain of
$28.4 million, net of selling expenses, on the sale of our assembly, pack, mark and test facility in Kuala Lumpur, Malaysiafacility (the KL facility), in the second quarter of fiscal 2012. There was not a similar transaction in fiscal 2013 and fiscal 2011. Restructuring Charges Beginning with the third quarter of fiscal 2013, in an effort to reduce our expense levels, given the competitive pricing pressures and slower than expected growth in Japanrevenues, we implemented a reduction in force to rationalize our global workforce. Restructuring charges increased by $0.3 millionfrom $5.7 millionin fiscal 2012 to $6.0 millionin fiscal 2013. Restructuring charges in fiscal 2013 were mainly comprised of $5.8 millionof severance expense and $0.4 millionof intangible assets written off due to closure of a design service facility. Restructuring charges for fiscal 2012 were comprised of $7.9 millionasset relocation and impairment charges relating to closure of the KL Facility and $1.9 millionof severance and employee related costs, offset by a $1.9 milliongain on the sale of equipment in the KL facility, a $1.9 milliongain on sales of equipment in Thailand, and a $0.9 millioncredit as a result of our prevailing in a labor-related lawsuit. Restructuring charges decreased by $6.6 millionfrom $12.3 millionin fiscal 2011 to $5.7 millionin fiscal 2012. Restructuring charges in fiscal 2012 were mainly comprised of $7.9 millionof asset relocation and impairment charges relating to the closure of the KL facility and $1.9 millionof severance and employee related costs, offset by a $1.9 milliongain on the sale of equipment in the KL facility, a $1.9 milliongain on sale of equipment in Thailand. 30 --------------------------------------------------------------------------------
Restructuring charges recorded in fiscal 2011 were mainly comprised of
Gain on acquisition
Gain on the MCA business acquisition of
Interest and Other Income (Expense), net
Interest and other income (expense) decreased by
$0.3 millionfrom $4.7 millionin fiscal 2012 to $4.4 millionin fiscal 2013. The decrease was due to $6.2 millionof costs relating to partial repurchase of 7.875% Senior Notes, benefit of $5.0 millionin fiscal 2012 relating to release of the claims reserve as a result of the settlement of a bankruptcy claim and preferential claims receipts compared to none in fiscal 2013, and $0.9 millionhigher realized and unrealized loss on foreign currency transactions in fiscal 2013. The decrease was offset by $10.0 millionof gain on recovery of a previously impaired investment and $2.4 millionof gain on ineffective cash flow hedges in fiscal 2013. Interest and other income (expense) increased by $0.7 millionfrom $4.0 millionin fiscal 2011 to $4.7 millionin fiscal 2012. The increase was mainly due to the release of the claims reserve of $4.0 millionas a result of the settlement of a bankruptcy claim in the fourth quarter of fiscal 2012 and $1.1 millionof gain from liquidation of previously impaired auction rate securities. The above increase was offset by $1.4 millionof higher preferential claim receipts during fiscal 2011 as compared to fiscal 2012, $1.1 millionof higher fees incurred on the amendment of the Term Loan in the fourth quarter of fiscal 2012 as compared to the amendment done in the second quarter of fiscal 2011, and a $0.9 millionincrease in realized and unrealized loss on foreign currency transactions in fiscal 2012. Interest Expense Our interest expense decreased by $0.3 millionfrom $30.1 millionin fiscal 2012 to $29.8 millionin fiscal 2013 due to various refinancing activities targeted at lowering the cost of our debt. Our interest expense decreased by $3.1 millionfrom $33.2 millionin fiscal 2011 to $30.1 millionin fiscal 2012. The decrease was due to $1.8 millionlower interest expense on the Senior Secured Term Loan facility (the Term Loan) as a result of continued principal repayments, both scheduled payments and prepayments amounting to $30.4 millionmade in fiscal 2012 and a $1.2 millionreduction in loss on interest rate swaps relating to the Term Loan. The average interest rate on our debt portfolio for fiscal 2013 and 2012 was 5.84% and 6.21% respectively. The average interest rate on our debt portfolio was 6.51% in fiscal 2011. Provision for Income Taxes
We recorded income tax expense of
Income tax expense recorded for fiscal 2013 differs from the income tax expense that would be derived by applying a U.S. statutory tax rate of 35% to the income before income taxes due to our inability to benefit from U.S. operating losses, and income that was earned and tax effected in foreign jurisdictions with different tax rates. The income tax expense includes foreign taxes as well as
$4.1 millionrelated to withholding tax on Samsung licensing revenue. These were offset by the release of reserves for uncertain tax positions of $4.6in foreign locations and the impact from the acquisition of the MCA business of $3.7 million. Income tax expense recorded for fiscal 2012 differs from the income tax expense that would be derived by applying a U.S. statutory tax rate of 35% to the income before income taxes due to our inability to benefit from U.S. operating losses, and income that was earned and tax effected in foreign jurisdictions with different tax rates. The income tax expense includes foreign taxes as well as $4.1 millionrelated to withholding tax on Samsung licensing revenue. Income tax expense recorded for fiscal 2011 differs from the benefit for income taxes that would be derived by applying a U.S. statutory tax rate of 35% to the loss before income taxes primarily due to our inability to benefit from U.S. operating losses due to a lack of a history of earnings, and income that was earned and tax effected in foreign jurisdiction with different tax rates. The income tax expense includes $15.4 millionfor foreign taxes as well as a $2.8 millioncorrection for uncertain tax positions of our foreign locations for the Successor period in fiscal 2011 and $5.2 millionrelated to withholding tax on Samsung licensing revenue. 31
-------------------------------------------------------------------------------- As of
December 29, 2013, we recorded a valuation allowance of approximately $355.5 millionagainst our U.S. deferred tax assets, net of deferred tax liabilities. This valuation allowance offsets all of our net U.S. deferred tax assets. As of December 29, 2013, we also recorded valuation allowances of approximately $2.4 millionagainst various foreign deferred tax assets for which we do not believe it is more likely than not that they will be realized. Contractual Obligations
The following table summarizes our contractual obligations at
2019 and Total 2014 2015 2016 2017 2018 Beyond (in thousands) Senior Secured Term Loan
$ 300,000 $ 3,858 $ 3,000 $ 3,000 $ 3,750 $ 3,000 $ 283,392Senior Notes(1) 94,064 94,064 Exchangeable Senior Notes 150,000 150,000 Interest on Debt 88,696 13,210 14,249 14,166 16,721 13,938 16,412 Other long term liabilities (2) 9,855 - 6,918 2,893 44 - - Operating leases 16,470 8,428 3,885 2,960 1,197 - - Unconditional purchase commitments (3) 106,059 53,110 25,382 27,567 - - - Total contractual obligations (4) $ 765,144 $ 172,670 $ 53,434 $ 50,586 $ 21,712 $ 16,938 $ 449,804
(1) The remaining balance of the outstanding 7.875% Senior Notes was redeemed on
January 21, 2014.
(2) The other long term liabilities mainly comprise payment commitments for long
term software license agreements with vendors, and asset retirement obligations.
(3) Unconditional purchase commitments (UPCs) include agreements to purchase
goods or services that are enforceable and legally binding on us and that
specify all significant terms, including fixed or minimum quantities to be
purchased; fixed, minimum or variable price provisions; and the approximate
timing of the transaction. A majority of these commitments relate to
inventory purchases. UPCs exclude agreements that are cancelable without a
(4) As of
million including interest and penalties. Due to the high degree of
uncertainty regarding the timing of potential future cash flows associated
with these liabilities, we are unable to make a reasonably reliable estimate
of the amount and period in which these liabilities might be paid.
Senior Secured Term Loan (Term Loan)
February 9, 2010, Spansion LLC, our wholly owned operating subsidiary, borrowed $450 millionunder a Senior Secured Term Loan facility pursuant to which we incurred financing points, fees to the arrangers and legal costs of approximately $11.1 million, which were charged to interest expense in the Predecessor. In addition, we paid the lenders approximately $10 millionof financing fees upon the release of Term Loan funds from escrow. During the fourth quarter of fiscal 2010, we issued $200.0 millionof our 7.875% Senior Notes due 2017 and concurrently repaid $196.0 millionof our Senior Secured Term Loan. On May 12, 2011, Spansion LLCamended the Term Loan to reduce the margin on base rate loans from 3.75% per annum to 2.50% per annum, to reduce the margin on Eurodollar rate loans from 4.75% per annum to 3.50% per annum, and to reduce the LIBORfloor on Eurodollar rate loans from 1.75% to 1.25%, effective as of May 16, 2011. We incurred a $2.5 millionre-pricing penalty associated with the amendment of the Term Loan, which was treated as a debt discount and amortized using the interest method over the term of the debt. On December 13, 2012, Spansion LLCamended the Term Loan, giving the Company the ability to add incremental term loans in an aggregate amount for all such increases not to exceed (a) $100 millionless the aggregate amount of incremental facilities under the Revolving Credit Facility and (b) an additional amount if, after giving effect to the incurrence of such additional amount, Spansion LLCis in compliance with a senior secured leverage ratio of 2.75:1.00. On the closing date of the December 2012amendment to the Term Loan (the Term Loan Facility), Spansion LLCpaid the lenders an upfront fee of approximately $1.1 million, which was treated as a debt discount and amortized using the interest method over the term of the debt. 32 -------------------------------------------------------------------------------- On December 19, 2013, Spansion LLCagain amended the Term Loan to reduce the interest rate on the approximately $214 millionprincipal amount outstanding from LIBORplus 4.00% (with a LIBORfloor of 1.25%) to LIBORplus 3.00% (with a LIBORfloor of 0.75%). In conjunction with the amendment, Spansion LLCborrowed an additional amount of approximately $82.0 millionunder the Term Loan, net of issuance costs. The amendment also provided for modifications to certain covenants and other provisions of the Term Loan Facility, including an extension of the maturity date to December 19, 2019from December 13, 2018and an increase of the general investment and restricted payments basket from $50 millionto $75 million. The other covenants and provisions of the Term Loan Facility remain unchanged. The amendment was accounted for as a modification of debt under the accounting guidelines. We incurred $2.1 millionin fees and costs in connection with the amendment, of which $1.8 millionwas treated as a debt discount to be amortized using the interest method over the term of the debt. The Term Loan Facility is collaterized by a first priority security interest in, among other items, (i) all equity interests of Spansion Technology LLC, Spansion LLCand each of its direct and indirect domestic subsidiaries, and certain intercompany debt, (ii) all present and future tangible and intangible assets of Spansion LLCand its direct and indirect domestic subsidiaries, and (iii) all proceeds and products of the property and assets described in (i) and (ii). The collateral described in the foregoing sentence also secures the 2012 Revolving Credit Facility described below and certain hedging arrangements on an equal priority basis. Spansion LLCmay elect that the loans under the Term Loan Facility bear interest at a rate per annum equal to (i) 2.00% per annum plus the highest of (a) the prime lending rate, and (b) the Federal Funds rate plus 0.50%; or (ii) 3.00% per annum plus a 1-month, 3-month, or 6-month LIBORrate (or 9-month and 12-month LIBORrate with the consent of all the lenders), subject to a 0.75% floor. The default rate is 2.00% above the rate otherwise applicable. The Term Loan Facility may be optionally prepaid at any time without premium, provided that, prior to the first six months from December 19, 2013, the closing date of the most recent amendment on the Term Loan Facility, a prepayment premium of 1% will be applied to any prepayment or refinancing of any portion of the Term Loan Facility in connection with Spansion LLC'sincurrence of debt with a lower interest rate or any amendment to the Term Loan Facility that has the effect of reducing the effective yield. The Term Loan Facility is subject to mandatory prepayments in an amount equal to: (a) 100% of the net cash proceeds from the sale or other disposition of all or any part of our assets or extraordinary receipts or those of any of our subsidiaries, in excess of $10 millionper fiscal year, respectively, subject to certain reinvestment rights, (b) all casualty and condemnation proceeds received by us or any of our subsidiaries in excess of $10 millionindividually or in an aggregate amount, subject to certain reinvestment rights, (c) 50% of the net cash proceeds received by us or any of our subsidiaries from the issuance of debt after the closing date of the Term Loan Facility (other than certain permitted indebtedness) and (d) 50% of our and our subsidiaries' excess cash flow, or 25%, if Spansion LLChas a leverage ratio of 2.5 to 1.0 or less, respectively. Voluntary prepayments will be applied to the remaining scheduled principal repayment installments of the Term Loan Facility on a pro-rata basis while mandatory prepayments will be applied to remaining scheduled amortization as directed by Spansion LLC. Under the Term Loan Facility, we are subject to a number of covenants, including limitations on (i) liens and further negative pledges, (ii) indebtedness, (iii) loans and other investments, (iv) mergers, consolidations and acquisitions, (v) sales, transfers and other dispositions of assets, (vi) and dividends and other distributions subject to a $75 milliongeneral restricted payment basket and an additional builder basket resulting from excess cash flow and certain proceeds.
2010 Revolving Credit Facility
May 10, 2010, we entered into a revolving credit facility agreement (the 2010 Revolving Credit Facility) with Bank of America and other financial institutions, which provided up to $65 millionto supplement our working capital. On August 15, 2011, the 2010 Revolving Credit Facility was amended to include, among other changes, a reduction of the commitment to $40 million. On December 13, 2012, we voluntarily terminated the 2010 Revolving Credit Facility and all outstanding fees and expenses due were paid off at termination.
2012 Revolving Credit Facility
December 13, 2012, we entered into the Revolving Credit Agreement (the 2012 Revolving Credit Facility) with Morgan Stanley Bank, N.A.and other financial institutions. 33
-------------------------------------------------------------------------------- The 2012 Revolving Credit Facility consists of an aggregate principal amount of
$50 million, with up to $25 millionavailable for issuance of letters of credit and up to $15 millionavailable as a swing line sub-facility. The size of the commitments under the 2012 Revolving Credit Facility may be increased in an aggregate amount for all such increases not to exceed (a) $230 millionless the aggregate amount of incremental facilities under the Term Loan Facility plus (b) an additional $50 millionif, after giving effect to the incurrence of such additional amount, Spansion LLCis in compliance with a senior secured leverage ratio of 2.75:1.00. The 2012 Revolving Credit Facility has a five year maturity ( December 13, 2017).
There is no amortization of loans drawn under the 2012 Revolving Credit Facility. Drawings in respect of any letter of credit will be reimbursed by
Spansion LLCmay elect that the loans under the 2012 Revolving Credit Facility bear interest at a rate per annum, equal to (i) a rate per annum as set forth under "Revolver Base Rate Loans" in the grid below plus the highest of (a) the prime lending rate, (b) the Federal Funds rate plus 0.50%, and (c) the LIBOR rate for an interest period of one-month plus 1.00%; or (ii) a rate per annum as set forth under "Revolver LIBOR Loans" in the grid below plus a 1-month, 3-month, or 6-month LIBORrate (or 9-month and 12-month LIBORrate with the consent of all the lenders). The default rate is 2.00% above the rate otherwise applicable. Leverage Ratio Revolver LIBOR Loans Revolver Base Rate Loans > 2.00:1.00 2.50% 1.50% ? 2.00:1.00 2.25% 1.25% On the closing date of the 2012 Revolving Credit Facility, Spansion LLCpaid each lender an upfront fee in an amount equal to 0.375% of the commitment amount of such lender. Spansion LLCis also liable for a per annum unused commitment fee according to the leverage ratio below payable (i) quarterly in arrears and (ii) on the date of termination or expiration of the commitments. Leverage Ratio Unused Commitment Fees > 2.00:1.00 0.50% ? 2.00:1.00 0.375% The 2012 Revolving Credit Facility is secured by a first priority security interest in, among other items, (i) all equity interests of Spansion Technology, Spansion LLCand each of its direct and indirect domestic subsidiaries, and certain intercompany debt, (ii) all present and future tangible and intangible assets of Spansion LLCand its direct and indirect domestic subsidiaries, and (iii) all proceeds and products of the property and assets described in (i) and (ii). The collateral described in the foregoing sentence also secures the Term Loan Facility and certain hedging arrangements on an equal priority basis. The 2012 Revolving Credit Facility may be optionally prepaid and unutilized commitments reduced at any time without premium or penalty. The 2012 Revolving Credit Facility is subject to mandatory prepayments, after payment in full of the outstanding loans under the Term Loan Facility, in an amount equal to 100% of the net cash proceeds from the sale or other disposition (including by way of casualty or condemnation) of all or any part of the assets and extraordinary receipts of Spansion Inc.or any of its subsidiaries in excess of $10 millionper fiscal year after the closing date of the Revolving Credit Facility (with certain exceptions and reinvestment rights). We are subject to (i) a minimum fixed coverage ratio of 1.25:1 and (ii) a maximum leverage ratio of 3.5:1, only if loans are drawn under the Revolving Credit Facility, or letters of credit in excess of $5 millionin aggregate are outstanding under the 2012 Revolving Credit Facility. Under the terms of the 2012 Revolving Credit Facility, we are subject to a number of covenants, including limitations on (i) liens and further negative pledges, (ii) indebtedness, (iii) loans and other investments, (iv) mergers, consolidations and acquisitions, (v) sales, transfers and other dispositions of assets, (vi) and dividends and other distributions subject to a $50 milliongeneral restricted payment basket and an additional builder basket resulting from excess cash flow and certain proceeds. On September 27, 2013, we amended our revolving credit facility to increase the revolving loan commitment from $50 millionto $70 million. The amendment to the Revolving Credit Facility contains additional covenants requiring: (a) the consolidated quick ratio as determined on the last day of any fiscal quarter to not be less than 1.25 to 1.0, and (b) the amount of consolidated cash, cash equivalent and other short-term marketable investments to not be less than $150 million. 34
-------------------------------------------------------------------------------- As of
December 29, 2013, we were in compliance with all of the 2012 Revolving Credit Facility's covenants. Drawdown under the 2012 Revolving Credit Facility requires that we meet or obtain a waiver to certain conditions precedent including the senior secured leverage ratio not to exceed 2.75:1.00 and compliance with the coverage and leverage ratios described above, as of the last day of the fiscal quarter most recently ended. Based on the financial results for the quarter ended December 29, 2013, we do not comply with the leverage ratio and we have not obtained a waiver for those conditions. As of December 30, 2012, availability on the 2012 Revolving Credit Facility was $50 millionwith no outstanding balance.
2.00% Senior Exchangeable Notes
August 26, 2013, Spansion LLC, our wholly-owned subsidiary, issued $150.0 millionof Senior Exchangeable Notes due 2020 (the Notes) in a private placement. The Notes are governed by an Indenture, dated August 26, 2013, between us and Wells Fargo Bank, National Association, as Trustee. They are fully and unconditionally guaranteed on a senior unsecured basis by us and Spansion Technology LLC. The Notes will mature on September 1, 2020, unless earlier repurchased or converted, and bear interest of 2.00% per year payable semi-annually in arrears on March 1and September 1, commencing on March 1, 2014. The Notes may be due and payable immediately in certain events of default. Pusuant to the indenture, there are covenants that limit the amount of dividends that could be declared or made. The most restrictive covenant limits dividends to approximately $100.0 million. The Notes are exchangeable for an initial exchange rate of 72.0929 shares of common stock per $1,000principal amount of the Notes (equivalent to an initial exchange price of approximately $13.87per share) subject to adjustments for anti-dilutive issuances and make-whole adjustments upon a fundamental change. A fundamental change includes a change in control, delisting of the Company's stock and liquidation, consolidation or merger of the Company. Prior to June 1, 2020, the Notes will be exchangeable under certain specified circumstances as described in the Indenture. The Notes were issued at face value, resulting in net proceeds of approximately $145.5 millionafter related offering expenses. In accounting for the Notes at issuance, we separated the Notes into debt and equity components according to the accounting standards for convertible debt instruments that may be fully or partially settled in cash upon conversion. The carrying amount of the debt component, which approximates its fair value, was estimated by using an interest rate for nonconvertible debt, with terms similar to the Notes. The excess of the principal amount of the Notes over the fair value of the debt component was recorded as a debt discount and a corresponding increase in additional paid-in capital. The debt discount is accreted to the carrying value of the Notes over their term as interest expense using the interest method. The amount recorded to additional paid-in capital is not to be remeasured as long as it continues to meet the conditions for equity classification. Upon issuance of the Notes, the Company recorded $110.2 millionas debt and $39.8 millionas additional paid-in capital in stockholders' equity. We incurred transaction costs of approximately $4.5 millionrelating to the issuance of the Notes. In accounting for these costs, we allocated the costs of the offering between debt and equity in proportion to the fair value of the debt and equity recognized in accordance with the applicable accounting guidance. The transaction costs allocated to the debt component of approximately $3.3 millionwere recorded as deferred offering costs in other non-current assets and amortized as interest expense over the term of the Notes. The transaction costs allocated to the equity component of approximately $1.2 millionwere recorded as a decrease of additional paid-in capital. The net carrying amount of the liability component of the Notes consists of the following: December 29, 2013 (in thousands) Principal amount $ 150,000 Unamortized debt discount $ 38,267 Net carrying value $ 111,733 35
The following table presents the interest expense recognized on the Notes:
Year Ended December 29, 2013 (in thousands) Contractual interest expense at 2% per annum $ 1,044 Amortization of debt issuance costs 130 Accretion of debt discount 1,557 Total $ 2,731 Capped Calls In connection with the issuance of the Notes, we entered into capped call transactions with certain bank counterparties to reduce the potential dilution to our common stock upon exchange of the Notes. The capped call transactions have a strike price of approximately
$13.87and a cap price of approximately $18.14, and are exercisable when and if the Notes are converted. If upon conversion of the Notes, the price of our common stock is above the strike price of the capped calls, the counterparties will deliver shares of our common stock and/or cash with an aggregate value approximately equal to the difference between the price of our common stock at the conversion date (as defined, with a maximum price for purposes of this calculation equal to the cap price) and the strike price, multiplied by the number of shares of our common stock related to the capped call transactions being exercised. The capped call transactions expire on September 1, 2020. We paid $15.4 millionfor these capped calls and recorded the payment as a decrease of additional paid-in capital.
7.875% Senior Notes due 2017
November 9, 2010, Spansion LLCcompleted an offering of $200 millionaggregate principal amount of 7.875% Senior Notes due 2017. The Senior Notes were issued at face value, resulting in net proceeds of approximately $195.6 millionafter related expenses. The Senior Notes were general unsecured senior obligations of Spansion LLCand were fully and unconditionally guaranteed by Spansion Inc.and Spansion Technology LLCon a senior unsecured basis. Interest was payable on May 15and November 15of each year beginning May 15, 2011. As of December 29, 2013, we were in compliance of the covenants under the Senior Notes indenture. On August 26, 2013, we used proceeds from the issuance and sale of the Notes to repurchase $105.9 millionof the Senior Notes. On January 21, 2014, we redeemed the remaining approximately $94.0 millionaggregate principal amount outstanding of Senior Notes at a redemption price that was 103.938% , which, with accrued and unpaid interest, and repurchase premium, was an aggregate price of $99.1 million.
Covenants in the Senior Notes indenture included limitations on the amount of dividends up to approximately
Liquidity and Capital Resources
December 29, 2013 December 30, 2012 (in thousands) Cash $ 282,163 $ 258,126 Money market funds 3,906 1,181 FDIC insured certificates of deposit 11,383 39,610 Time deposits 14,045 - Commercial paper - 14,980 Total cash and cash equivalents and short-term investments $ 311,497 $ 313,897 On
December 19, 2013, we amended the Term Loan to borrow an additional amount of $82.0 millionunder the facility which along with our existing cash was used to redeem the remaining approximately $94.0 millionof the outstanding 7.875% Senior Notes due 2017 in the first quarter of fiscal 2014. Other future uses of cash are expected to be primarily for working capital, debt service, capital expenditures, contractual obligations, acquisitions and strategic investments. We believe our anticipated cash flows from operations, and our current cash balances will be sufficient to fund working capital requirements, debt service, and operations and to meet our cash needs for at least the next twelve months.
Financial Condition (Sources and Uses of Cash)
Our cash flows for fiscal 2013, fiscal 2012 and fiscal 2011 are summarized as follows: Year Ended December 29, December 30, December 25, 2013 2012 2011 (in thousands) Net cash provided by operating activities
$ 91,403 $ 109,400 $ 38,335Net cash provided by (used in) investing activities (164,891 ) 20,541 (100,371 ) Net cash provided by (used in) financing activities 98,080 (60,946 ) (74,188 ) Effect of exchange rate changes on cash (700 ) (1,668 ) 1,780 Net increase (decrease) in cash and cash equivalents $ 23,892 $ 67,327 $ (134,444 )
Net Cash Provided by Operating Activities
Net cash provided by operations was
$91.4 millionin fiscal 2013, and was primarily due to net loss of $78.3 million, adjustments for non-cash items of $96.9 millionand an increase in operating assets and liabilities of $72.7 million. Adjustments for non-cash items primarily consisted of $91.2 millionof depreciation and amortization and $30.7 millionof stock compensation costs, which were partially offset by an $11.2 milliongain on recovery from impaired investments, a $7.9 milliongain on the acquisition of the MCA business and $5.0 millionof benefit for deferred income tax. The net increase in operating assets and liabilities was primarily due to an increase of $106.7 millionin accounts payable, accrued liabilities, accrued compensation and benefits and other liabilities and a decrease of $30.5 millionin inventory, which was partially offset by an increase of $69.0 millionin accounts receivable. Net cash provided by operations was $109.4 millionin fiscal 2012, and was primarily due to net income of $24.4 million, adjustments for non-cash items of $102.2 millionand a decrease in operating assets and liabilities of $17.2 million. Adjustments for non-cash items primarily consisted of $95.4 millionof depreciation and amortization, $34.4 millionof stock compensation costs, $5.9 millionof provision for deferred income tax and $2.1 millionof asset impairment charges, which were partially offset by a $28.4 milliongain on sale of the Kuala Lumpurland and buildings and a $6.1 milliongain from the sale of property, plant and equipment. The net decrease in operating assets and liabilities was primarily due to the decrease of $15.4 millionin accounts payable, accrued liabilities, accrued compensation and benefits and other liabilities. 37
-------------------------------------------------------------------------------- Net cash provided by operations was
$38.3 millionin fiscal 2011, and was primarily due to net loss of $55.5 million, adjustments for non-cash items of $200.2 millionand a decrease in operating assets and liabilities of $106.4 million. Adjustments for non-cash items primarily consisted of $149.7 millionof depreciation and amortization, $19.2 millionof stock compensation costs, $8.3 millionof amortization of inventory markup relating to fresh start accounting, and $19.5 millionof asset impairment charges. The net decrease in operating assets and liabilities was primarily due to the decrease of $135.7 millionin accounts payable, accrued liabilities, accrued compensation and benefits and other liabilities.
Net Cash Provided by (Used in) Investing Activities
Net cash used in investing activities was
$164.9 millionduring fiscal 2013, primarily due to $150.0 millionused for the acquisition of the MCA business, $120.5 millionused to purchase marketable securities and $56.0 millionof capital expenditures used to purchase property, plant and equipment, which were partially offset by $146.8 millionin proceeds from maturities of marketable securities. Net cash provided by investing activities was $20.5 millionduring fiscal 2012, primarily due to $45.6 millionfrom the sale of property, plant and equipment, $112.5 millionin proceeds from the redemption of marketable securities and $1.1 millionfrom the sale of auction rate securities, which were offset by $42.3 millionof capital expenditures used to purchase property, plant and equipment and $96.3 millionused to purchase marketable securities. Net cash used in investing activities was $100.4 millionduring fiscal 2011, primarily due to $66.5 millionof capital expenditures used to purchase property, plant and equipment and $88.8 millionused to purchase marketable securities, which were offset by $8.4 millionfrom the sale of property, plant and equipment and $45.9 millionin proceeds from the redemption of marketable securities.
Net Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities was
$98.1 millionduring fiscal 2013, primarily due to $150.0 millionproceeds from issuance of the Notes and $82.1 millionproceeds from additional borrowing on Term Loan, which were partially offset by $106.8 millionused for partial purchase of the 7.875% Senior Notes and $15.4 millionused for purchase of capped call for the Exchangeable Senior Notes.
Net cash used in financing activities was
Net cash used in financing activities was
$74.2 millionduring fiscal 2011, primarily due to $71.0 millionfor the purchase of bankruptcy claims and $7.5 millionof payments on debt and capital lease obligations, offset by $5.4 millionof proceeds from the issuance of common stock upon the exercise of stock options.
During the normal course of business, we make certain indemnities and commitments under which we may be required to make payments in relation to certain transactions. These indemnities include non-infringement of patents and intellectual property, indemnities to our customers in connection with the delivery, design, manufacture and sale of our products, indemnities to our directors and officers in connection with legal proceedings, indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, and indemnities to other parties to certain acquisition agreements. The duration of these indemnities and commitments varies, and in certain cases, is indefinite. We believe that substantially all of our indemnities and commitments provide for limitations on the maximum potential future payments we could be obligated to make. However, we are unable to estimate the maximum amount of liability related to our indemnities and commitments because such liabilities are contingent upon the occurrence of events, which are not reasonably determinable. Management believes that any liability for these indemnities and commitments would not be material to our accompanying consolidated financial statements.
We do not have any other significant off-balance sheet arrangements, as defined in Item 303(a) (4) (ii) of SEC Regulation S-K, as of