Spansion Inc. Reports Second Quarter 2014 Results

SUNNYVALE, Calif., July 30, 2014 /PRNewswire/ -- Spansion Inc. (NYSE: CODE), a global leader in embedded systems solutions, today announced operating results for its second quarter ended June 29, 2014.

On a U.S. GAAP basis, Spansion reported second quarter net sales of $314.7 million, gross margin of 29.5%, operating loss of $8.0 million and net loss of $12.0 million or $0.20 per share.

On a non‑GAAP basis, gross margin was 33.2%, operating income was $22.1 million and net income was $15.6 million.

For a reconciliation of GAAP to non-GAAP results, see accompanying tables "Reconciliation of U.S. GAAP to Non-GAAP Financial Measures."

Second Quarter 2014 Financial Highlights:

  • Revenue of $314.7 million, a 61.3% year-over-year increase
  • Non-GAAP gross margin of 33.2%
  • Non-GAAP operating income of $22.1 million or 7.0% of revenue
  • Adjusted EBITDA of $36.1 million or 11.5% of revenue
  • Non-GAAP Diluted EPS of $0.24
  • Cash, cash equivalents and short term investments of $304.8 million

Note: Percentages may not calculate precisely due to rounding.

Second Quarter 2014 Business Highlights:

  • Maintained embedded market leadership
  • Strong growth of newer products (NAND, 45 nm flash, MCUs and analog)
  • Continued design win momentum
  • Launched new automotive MCUs and energy harvesting power management circuits

"Demand continued to be strong in the second quarter across all of our businesses. However, we experienced supply challenges with a foundry partner, which impacted product delivery to customers," said John Kispert, CEO of Spansion.  "Looking forward, we are optimistic about our strong design win momentum and the opportunities for delivering integrated systems in high-growth embedded markets, enabled by our product roadmap and strong relationships with customers around the world." 

Quarterly Conference Call and Accompanying Slide Presentation

Spansion will host a conference call Wednesday, July 30, 2014, at 1:30 PM PT/ 4:30 PM ET to discuss its second quarter 2014 results. A live webcast of the conference call, with an accompanying slide presentation, may be accessed through the investor relations section of Spansion's website at http://investor.spansion.com/.

Dial-in: 1-877-415-3185 (toll free), 1-857-244-7328 (International), Passcode: 33476465

An audio replay will be available within two hours of the call through August 6, 2014 and may be accessed via dial-in at 1-888-286-8010 (US), 1-617-801-6888 (International), with the Passcode 73249969 or by webcast on the investor relations section of Spansion's website at http://investor.spansion.com/.

Second Quarter 2014 Results

U.S. GAAP Results, in $millions except per share data and percentages


Q2 2014

Q1 2014

Q2 2013

Net Sales

$314.7

$311.8

$195.1

Gross Margin

29.5%

28.8%

29.4%

Operating Loss

($8.0)

($9.4)

($0.6)

Operating Margin

(2.5%)

(3.0%)

(0.3%)

Net Loss

($12.0)

($22.5)

($3.2)

Diluted Net Loss Per Share

($0.20)

($0.38)

($0.06)


Non-GAAP Results, in $millions except per share data and percentages


Q2 2014

Q1 2014

Q2 2013

 Net Sales

$314.7

$311.8

$195.1

Gross Margin

33.2%

33.0%

33.6%

Operating Income

$22.1

$19.0

$18.4

Operating Margin

7.0%

6.1%

9.5%

Net Income

$15.6

$11.6

$15.7

Diluted Net Income Per Share

$0.24

$0.18

$0.26

Note: Percentages may not calculate precisely due to rounding.

Business Outlook

For the third quarter of 2014, Spansion estimates net sales in the range of $305 million to $345 million and GAAP diluted net loss per share of ($0.18) to ($0.13). Non-GAAP gross margin is expected to be in the range of 33.5% to 36.5%, and non-GAAP diluted EPS is expected to be in the range of $0.22 to $0.30. These estimates exclude amortization of intangibles of approximately $9 million, accretion of non-cash interest associated with convertible notes of $1 million to $2 million, and equity compensation expense of approximately $2 million in COGS and $8 million in Net Income. These estimates also exclude charges related to defensive litigation of $3 million to $4 million, and one time items related to the recently acquired Fujitsu Microcontroller and Analog business including (i) $1 million to $2 million in inventory markup related to fair value accounting, (ii) $1 million to $2 million in integration related costs, and (iii) restructuring costs of $1 million to $2 million.

About Spansion

Spansion (NYSE: CODE) is a global leader in embedded systems solutions. Spansion's flash memory, microcontrollers, analog and mixed-signal products drive the development of faster, intelligent, secure and energy efficient electronics. Spansion is at the heart of electronics systems, connecting, controlling, storing and powering everything from automotive electronics and industrial systems to the highly interactive and immersive consumer devices that are enriching people's daily lives. For more information, visit http://www.spansion.com.

Spansion®, the Spansion logo, MirrorBit®, MirrorBit® Eclipse™ and combinations thereof, are trademarks or registered trademarks of Spansion LLC in the United States and other countries. Other names used are for informational purposes only and may be trademarks of their respective owners.

Cautionary Statement

This press release contains "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward looking statements include statements regarding our estimated net sales, net loss per share, non-GAAP gross margin and non-GAAP earnings per share, expectations regarding demand for and interest in our products, and the estimated amounts of certain expense items that are adjusted in the presentation of non-GAAP results, for the third quarter of 2014. Forward-looking statements are subject to risks and uncertainties, and actual events or results may differ materially from those projected in such statements. Factors that could cause our actual results to differ materially include, but are not limited to, those discussed under "Part I, Item 1A. Risk Factors" in our 2013 Annual Report on Form 10-K, as amended by the Form 10-K/A filed July 8, 2014. These risks include our ability to:  accurately forecast customer demand for our products; manage risks associated with our investment in new business strategies and acquisitions, such as our acquisition of the MCA business from Fujitsu; maintain our distribution relationships and channels in the future; manage risks associated with our global customer base and support structure; maintain and manage relations with third party manufacturers; maintain manufacturing efficiency; and protect our intellectual property and defend against infringement or other intellectual property claims.  Except as required by applicable law, we undertake no obligation to revise or update any forward-looking statements to reflect any events or circumstances that arise after the date of this report, or to conform such statements to actual results or changes in our expectations.

 

Spansion Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except per share amounts)

 


Three Months
Ended
June 29, 2014

Three Months
Ended
March 30, 2014

Three Months
Ended
June 30, 2013

Net sales

$314,666

$311,750

$195,070

Cost of sales

221,844

221,918

137,714

Gross Profit

92,822

89,832

57,356

Research and development

39,702

43,562

23,548

Sales, general and administrative

61,081

55,631

34,414

Operating loss

(7,961)

(9,361)

(606)

Interest income and other, net

5,941

(4,600)

3,118

Interest expense

(6,139)

(6,087)

(7,378)

Loss before income taxes

(8,159)

(20,048)

(4,866)

Provision (benefit) for income taxes

3,815

2,447

(1,635)

Net loss

(11,974)

(22,495)

(3,231)

Net loss per common share




          Basic

$(0.20)

$(0.38)

$(0.06)

          Diluted

$(0.20)

$(0.38)

$(0.06)

Shares used in per share calculation




          Basic

60,799

59,771

58,646

          Diluted

60,799

59,771

58,646

 

Spansion Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands except par value and shares)

 


Assets

June 29, 2014

March 30, 2014

December  29, 2013


Current assets:






Cash and cash equivalents

$268,930

$262,473

$286,069



Short-term investments

35,843

26,922

25,428



Accounts receivable, net

177,958

176,714

177,838



Inventories

251,564

256,891

254,154



Deferred income taxes

5,275

4,638

4,592



Prepaid expenses and other current assets

53,642

49,347

52,756




               Total current assets


793,212

776,985

800,837










Property, plant and equipment, net

188,265

184,648

185,505


Intangible assets

150,118

158,950

167,949


Goodwill

166,508

166,473

166,422


Other assets

66,890

50,980

60,208


                               Total assets

$1,364,993

$1,338,036

$1,380,921










Liabilities and  Equity





Current liabilities:






Accounts payable

147,606

128,524

126,680



Accrued compensation and benefits

39,281

62,735

57,876



Accrued liabilities and other

151,405

146,059

86,352



Income taxes payable

1,201

3,846

4,651



Deferred income

34,668

27,035

30,247



Current portion of long-term debt

2,390

2,394

97,320




               Total current liabilities


376,551

370,593

403,126










Deferred income taxes

4,331

3,704

3,675


Long-term debt, less current portion

406,593

406,013

404,612


Other long-term liabilities

53,058

31,976

32,048





Total liabilities


840,533

812,286

843,461


Stockholders' equity





Class A Common stock, $0.001 par value, 150,000,000 shares authorized, 61,118,304 shares issued and outstanding (60,358,585 shares as of March 30, 2014 and 58,882,949 shares as of December 29, 2013)

61

61

59


Class B common stock, $0.001 par value, 1 share authorized, 0 share issued and outstanding as of June 29, 2014 and March 30, 2014  (1 share issued and outstanding as of December 29, 2013)

-

-

-


Preferred Stock, $0.001 par value, 50,000,000 shares authorized, 0 shares issued and outstanding

-

-

-


Additional paid-in capital

772,398

761,212

747,393


Accumulated deficit

(240,429)

(228,454)

(205,959)


Accumulated other comprehensive loss

(7,570)

(7,069)

(4,033)



                     Total stockholders' equity

524,460

525,750

537,460


                 Total liabilities and stockholders' equity

$1,364,993

$1,338,036

$1,380,921











 

Spansion Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

 



Three Months
Ended
June 29, 2014

Three Months
Ended
March 30, 2014

Three Months
Ended
June 30, 2013


Cash Flows from Operating Activities:





Net Loss

$(11,974)

$(22,495)

$(3,231)


Adjustments to reconcile net loss to net cash

provided by operating activities:






Depreciation and amortization

26,950

26,306

19,827



Provision (benefit) from deferred income taxes

(31)

(47)

34



Reserve reversal on final settlement of bankruptcy claims

(3,205)

-

-



Gain on pension assets

(2,494)

-

-



Net loss (gain) on sale and disposal of property,

plant and equipment

10

(34)

(365)



Gain on recovery from impaired investments

(457)

(449)

-



Loss on repurchase of 7.875% Senior Notes

-

1,137

-



Compensation recognized under employee stock plans

7,121

8,481

7,672



Changes in operating assets and liabilities 

11,647

6,480

(15,432)


           Net cash provided by operating activities

27,567

19,379

8,505


Cash Flows from Investing Activities:






Proceeds from sale of property, plant and equipment

11

96

322



Purchase of property, plant and equipment

(12,270)

(10,316)

(11,829)



Purchase of marketable securities

(13,547)

(9,876)

(67,080)



Proceeds from sale and maturities of marketable securities

4,626

8,382

14,727



Proceeds from recovery of impaired investments

457

449

-


            Net cash used for investing activities

(20,723)

(11,265)

(63,860)


Cash Flows from Financing Activities:





Proceeds from issuance of common stock due to options exercised

4,065

5,341

839


Payments on financing arrangements

(4,666)

-

(1,079)


Repurchase of 7.875% Senior Notes including costs

-

(96,319)

-


Refinancing costs on Term loan and Revolver

-

-

(84)


Net proceeds from sale of Sunnyvale property

-

58,908

-


            Net cash used for financing activities

(601)

(32,070)

(324)


Effect of exchange rate on cash and cash equivalents

214

360

(518)


Net increase (decrease) in cash and cash equivalents

6,457

(23,596)

(56,197)


Cash and cash equivalents at the beginning of period

262,473

286,069

261,732


Cash and cash equivalents at end of period

$268,930

$262,473

$205,535


Use of Non-GAAP Financial Information

To provide investors and others with additional information regarding Spansion's operating results, we have disclosed in this press release certain non-GAAP financial measures, including gross profit, operating income, net income, and adjusted EBITDA. These non-GAAP financial measures are a supplement to, and not a substitute for or superior to, the company's results presented in accordance with U.S. GAAP.

The non-GAAP financial measures are provided to enhance the user's overall understanding of the company's operating performance. Specifically, the company believes the non-GAAP information provides useful measures to investors regarding the company's financial performance by excluding certain expenses that the company believes are not indicative of its core operating results. For more information on non-GAAP financial measures, please see the reconciliations of such measures in the tables of this release.

Management believes these non-GAAP financial measures reflect Spansion's ongoing business in a manner that allows for meaningful period-to-period comparison and analysis of trends in Spansion's business, as they exclude expenses that are not reflective of ongoing operating results and provide useful information to investors and others in understanding and evaluating Spansion's operating results and future prospects in the same manner as management. During the quarter ended June 29, 2014, the presentation of non-GAAP financial information included the addition of intangible amortization, equity compensation expense, inventory markup amortization, bankruptcy reserve reversal, acquisition related costs, litigation reserve, financing arrangements related costs and others to net income as they are either non-cash or non-recurring in nature. The amounts in the U.S. GAAP to Non-GAAP reconciliation below for litigation reserves include the impact of actual expense incurred and adjustments to the accrual for estimated defensive litigation costs for the next 4 quarters per Company policy. Actual expense incurred for defensive litigation was $3.6 million in Q1 2014 and $3.0 million in Q2 2014.

Reconciliation of U.S. GAAP to Non-GAAP Financial Measures

Gross Profit to Non-GAAP Gross Profit





($ in millions)

Q2 2014

Q1 2014

Q2 2013


GAAP gross profit

$92.8

$89.8

$57.4


Add: Intangibles amortization

8.9

9.2

6.8


Add: Inventory mark-up amortization relating to Microcontroller and Analog business acquisition

1.1

2.0

-


Add: Equity compensation expense

1.4

1.5

1.3


Add: Acquisition related costs

0.3

0.5

-


Non-GAAP Gross Profit

$104.6

$103.0

$65.5



Operating Loss to Non-GAAP Operating Income



($ in millions)

Q2 2014

Q1 2014

Q2 2013


GAAP operating loss

$(8.0)

$(9.4)

$(0.6)


Add: Intangibles amortization

8.9

9.2

6.8


Add: Inventory mark-up amortization relating to Microcontroller and Analog business acquisition

1.1

2.0

-


Add: Equity compensation expense

7.1

8.5

7.7


Add: Acquisition related costs

1.2

7.6

4.5


Add: Litigation reserve

11.7

1.1

-


Non-GAAP Operating Income

$22.1

$19.0

$18.4



Net Loss to Non-GAAP Net Income and Adjusted EBITDA

($ in millions)

Q2 2014

Q1 2014

Q2 2013

GAAP net loss

$(12.0)

$(22.5)

$(3.2)

Add: Intangibles amortization

8.9

9.2

6.8

Add: Inventory mark-up amortization relating to Microcontroller and Analog business acquisition

1.1

2.0

-

Add: Equity compensation expense

7.1

8.5

7.7

Add: Financing arrangements related costs

-

4.8

-

Add: Accretion of interest on the senior exchangeable notes

1.2

1.1

-

Add: Litigation reserve

11.7

1.1

-

Add: Acquisition related costs

0.5

7.8

4.5

Less: Reserve reversal on final settlement of bankruptcy claims

(3.2)

-

-

Add: Others

0.2

(0.3)

-

Non-GAAP Net Income

$15.6

$11.6

$15.7

Add: Interest income and other, net

4.5

5.0

4.3

Add: Taxes

2.0

2.4

(1.6)

Add: Depreciation

14.0

13.2

12.2

Adjusted EBITDA

$36.1

$32.2

$30.6


Note: Totals may not add precisely due to rounding.










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SOURCE Spansion Inc.



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