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Spansion Inc. Reports Second Quarter 2010 Results | Cypress Semiconductor

Spansion Inc. Reports Second Quarter 2010 Results

Last Updated: July 21, 2010

SUNNYVALE, Calif., July 21, 2010 --

Spansion Inc. (NYSE: CODE), a leading provider of Flash memory solutions, today announced operating results for its second fiscal quarter ended June 27, 2010. Due to the unique impacts of fresh start accounting, Spansion is providing both GAAP and non-GAAP results. On a U.S. GAAP basis, Spansion reported net sales of $255.7 million, operating loss of $3.0 million, and net income of $341.8 million. On a non-GAAP basis, adjusted net sales were $292.7 million, adjusted operating income was $40.3 million, and adjusted net income was $27.4 million.

 

"Spansion delivered a solid quarter and is winning back customer designs," said John Kispert, Spansion president and CEO. "We see strong customer confidence moving forward and are well positioned to continue growing in 2010."


    U.S. GAAP results, in $millions except per share
     data and percentages
    ------------------------------------------------
                                  Q2 2010  Q1 2010  Q2 2009
    Net sales                      $255.7   $277.3   $376.3
    Gross margin                     22.9%    31.8%    25.5%
    Operating income (loss)         ($3.0)   $17.6    $10.1
    Operating margin                (1.2%)     6.4%     2.7%
    Net income (loss)              $341.8     $3.7    ($7.3)
    -----------------              ------     ----    -----
    Diluted net income (loss)
     per share (Predecessor)        $2.21    $0.02  ($0.04)
    -------------------------       -----    -----   ------
    Diluted net (loss) per share
     (Successor)                  ($0.31)      N/A      N/A
    ----------------------------   ------      ---      ---




    Non-GAAP results,  in $millions except per share
     data and percentages
    ------------------------------------------------
                                   Q2 2010  Q1 2010  Q2 2009
    Adjusted net sales              $292.7   $277.3   $376.3
    Adjusted operating income        $40.3    $30.5    $30.0
    Adjusted net income (loss)       $27.4    $24.2    $22.4
    --------------------------       -----    -----    -----
    Adjusted EBITDA                  $68.4    $59.6    $69.5
    ---------------                  -----    -----    -----



Due to payments required as part of the emergence from U.S. bankruptcy proceedings, the company's cash position decreased from $321 million at the end of Q1 2010 to $254 million at the end of second quarter 2010. These payments included $633 million to senior secured Floating Rate Note holders and administrative, priority and other plan of reorganization related payments of approximately $25 million. The company previously raisedapproximately $425 million as part of a senior secured term loan of $450 million and approximately $104 million pursuant to a rights offering of approximately 13.0 million shares. The cash proceeds from the term loan and rights offering were recorded as restricted cash in the financials of the first quarter of fiscal 2010.

Business Outlook

For the third quarter of 2010, Spansion estimates U.S. GAAP net sales in the range of $285 million to $300 million, non-GAAP adjusted net sales in the range of $300 million to $320 million, GAAP earnings per diluted share of ($0.66) to ($0.91), and non-GAAP adjusted earnings per diluted share of $0.40 to $0.60.

Quarterly Conference Call

Spansion will host a conference call to discuss second quarter 2010 results at 1:30 p.m. PDT / 4:30 p.m. EDT today. A live webcast of the conference call, together with a slide presentation that includes supplemental financial information and reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, can be accessed through the investor relations section of Spansion's website at http://www.spansion.com.

Dial-in: 1-877-312-5884, conference ID of 87909802

Webcast: http://investor.spansion.com/index.cfm

An audio replay will be available within two hours of the call and may be accessed via dial-in at 1-800-642-1687 with the conference ID of 87909802 or by webcast on the investor relations section of Spansion's website at http://www.spansion.com.

Use of Non-GAAP Financial Information

The non-GAAP and supplemental information provided in this press release is a supplement to, and not a substitute for or superior to, the company's financial results presented in accordance with U.S. GAAP. The non-GAAP financial measures presented by the company may be different than the non-GAAP financial measures presented by other companies.

The non-GAAP and supplemental information is 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 costs and expenses that the company believes are not indicative of its core operating results. The presentation of non-GAAP and supplemental information is not meant to be considered in isolation or as a substitute for results prepared and presented in accordance with U.S. GAAP.

About Spansion

Spansion's (NYSE: CODE) technology is at the heart of electronics systems, powering everything from the internet of today to the smart grid of tomorrow, positively impacting people's daily lives at work and play. Spansion's broad Flash memory product portfolio, smart innovation and industry leading service and support are enabling customers to achieve greater efficiency and success in their target markets. For more information, visit http://www.spansion.com.

Spansion(R), the Spansion logo, MirrorBit(R) and combinations thereof, are trademarks and 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 release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that these forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those statements. The risks and uncertainties include the company's ability to: manage costs; achieve adequate liquidity; execute on its new strategic focus; reach a sustainable business model; survive as a stand-alone entity; reach operational efficiency; and reach and sustain profitability. Additional risks related to the company's recent emergence from bankruptcy include: the company's ability to transfer wafer production capacity to another location or to a third-party foundry, or to find alternative methods of distributing and selling its products in the event that Spansion Japan is not successful or has difficulties as a reorganized company; any negative impacts on the company's business, results of operations, financial position or cash management arrangements; the negative impact on relationships with employees, customers, suppliers and contract manufacturers and other stakeholders; and the failure of the company to successfully implement the plan of reorganization. In addition, the instability of the global economy and tight credit markets could continue to adversely impact the company's business in several respects, including adversely impacting credit quality and insolvency risk of the company and its customers and business partners, including suppliers and distributors; bookings; and reductions and deferrals of demand for Spansion products. The company urges investors to review in detail the risks and uncertainties discussed in the company's Securities and Exchange Commission filings, including but not limited to the company's most recent Annual Report on Form 10-K for fiscal 2009 and Quarterly Reports on Form 10-Q. Unless otherwise required by applicable laws, the company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

    Company News:                             Investor Relations Web site:
                                               http://investor.spansion.com/
    http://www.spansion.com/news               financials.cfm


    Spansion Inc.
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
    (In thousands, except per share amounts)

                       Three Months Ended June 27,
                                  2010
                     ----------------------------
                     Successor      Predecessor    Predecessor   Predecessor
                     ---------      -----------    -----------   -----------
                    Period from     Period from    Three Months  Three Months
                       May 11,
                       2010 to    March 29, 2010       Ended         Ended
                      June 27,                       March 28,      June 28,
                        2010     to May 10, 2010        2010          2009
                     ---------   ---------------    ----------     ---------
    Net sales          $129,370          $126,282      $277,337      $376,301
    Cost of
     sales              111,413            85,697       189,120       280,266
    Gross
     profit              17,957            40,585        88,217        96,035
    -------              ------            ------        ------        ------

    Research
     and
     development         13,420            12,115        22,953        37,889
    Sales,
     general
     and
     administrative      18,259            20,497        47,608        33,788
     Restructuring
     (credits)
     /charges                 -            (2,785)           13        14,212
     -------------          ---            ------           ---        ------

    Operating
     income
     (loss)             (13,722)           10,758        17,643        10,146
    Interest &
     other
     income
     (expense),
     net                    364            (3,190)          286         1,916
    Interest
     expense             (4,877)          (11,237)      (19,336)       (9,212)
    --------             ------           -------       -------        ------

    Income
     (loss)
     before
     reorganization     (18,235)           (3,669)       (1,407)        2,850
    items and
     income
     taxes
     Reorganization
     items                    -           364,876         5,464        (9,842)
     --------------         ---           -------         -----        ------

    Income
     (loss)
     before
     income
     taxes              (18,235)          361,207         4,057        (6,992)
    Provision
     (benefit)
     for
     income
     taxes                  (21)            1,235           405           261
    Net income
     (loss)            $(18,214)         $359,972        $3,652       $(7,253)
    ----------         --------          --------        ------       -------

    Net income
     (loss)
     per
     common
     share
         Basic           $(0.31)            $2.22         $0.02        $(0.04)
         Diluted         $(0.31)            $2.21         $0.02        $(0.04)
         -------         ------             -----         -----        ------
    Shares
     used in
     per share
     calculation
         Basic           59,271           162,513       162,403       161,778
         Diluted         59,271           162,518       174,471       161,778
         -------         ------           -------       -------       -------


    Spansion Inc.
    CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
    (In thousands)


                                             Successor     Predecessor
                                             ---------     -----------
                                              June 27,    December 27,
                                                   2010            2009
                                                   ----            ----
    Assets
    Current assets:
      Cash and cash equivalents                $254,145        $324,903
      Auction rate securities                    25,885         100,335
      Accounts receivable                       139,912         129,174
      Accounts receivable from related
       parties                                 13,201         366,602
      Allowance for doubtful accounts            (305)        (56,408)
      Inventories                             244,536         141,723
      Deferred income taxes                     1,141          13,332
      Prepaid expenses and  other
       current assets                          44,930          49,533
      ---------------------------              ------          ------
                   Total current assets       723,445       1,069,194
                   --------------------       -------       ---------

    Property, plant and equipment, net        329,601         322,710
    Intangible assets                         207,276               -
    Goodwill                                  165,553               -
    Other assets                               41,394          46,073
                                   Total assets   $1,467,269      $1,437,977
                                   ============   ==========      ==========

    Liabilities and Stockholders'
     Deficit
    Current liabilities:
      Short term note                              $-         $64,149
      Accounts payable                         30,870          16,979
      Accrued liabilities                     196,084         129,161
      Accounts payable to related
       parties                                 24,402         221,211
      Accrued compensation and benefits        32,216          21,630
      Deferred income                          30,178          62,958
      Current portion of long-term debt        13,798               -
      Income taxes payable                     11,632              83
      --------------------                     ------             ---
                    Total current
                    liabilities               339,180         516,171
                   --------------             -------         -------

    Deferred income taxes                      12,073          13,405
    Long-term debt, less current
     portion                                  447,733               -
    Other long-term liabilities                10,327           9,825
    Liabilities subject to compromise               -       1,756,269
    ---------------------------------             ---       ---------
                   Total liabilities          809,313       2,295,670
                   =================          =======       =========

    Additional paid in capital                675,945       2,484,482
    Retained deficit                          (18,214)     (3,342,370)
    Accumulated other comprehensive
     income                                       225             195
    -------------------------------               ---             ---
               Stockholders'  (deficit)/earnings      657,956        (857,693)
               ---------------------------------      -------        --------


    Total liabilities and
     stockholders' deficit                 $1,467,269      $1,437,977
    ======================                 ==========      ==========



    Spansion Inc.
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
    (In thousands)

                                       Successor  Predecessor  Predecessor
                                       ---------  -----------  -----------
                                         Period      Period        Three
                                          from        from        Months
                                        May 11,    March 29,
                                        2010 to       2010        Ended
                                        June 27,     to May     March 28,
                                          2010      10, 2010       2010
    Cash Flows from Operating
     Activities:
    Net income (loss)                   $(18,214)    $359,972       $3,652
    Adjustments to reconcile net loss
     to net cash
    provided by operating activities:
      Depreciation and amortization       26,146       14,482       29,306
      Gain on discharge of pre-
       petition obligations                    -     (434,046)           -
      Provision for deferred income
       taxes                                  (3)       7,000            -
      Provision for doubtful accounts        310        1,640        5,591
      (Gain) on sale and disposal of
       property, plant and equipment        (266)      (3,219)       1,112
      Compensation recognized under
       employee stock plans                1,944        5,757        1,295
      Impairment on investments                -        3,011            -
      Gain on sale of Suzhou plant        (1,342)      (1,548)      (3,676)
      Gain from approved settlement of         -            -      (22,517)
      rejected capital leases and
       various licenses
      Write-off financing cost for old
       debts                                   -       13,020
      Amortization of inventory fresh-
       start markup                       18,597            -            -

    Changes in operating assets and
     liabilities,
    net of effects of deconsolidation
     of subsidiary:
      Decrease (increase) in accounts
       receivable                        (14,077)      (3,752)      13,908
      (Increase) decrease in
       inventories                        27,770       (3,434)      (3,808)
      Decrease (increase) in prepaid
       expenses and other current
       assets                             (6,271)      (9,935)       6,041
      Decrease (increase) in other
       assets                                177          342        1,192
      (Decrease) increase in accounts
       payable,                          (29,733)      45,643      (22,430)
      accrued liabilities and accrued
       compensation and benefits
      (Decrease) increase in deferred
       income                             (6,468)       4,939       (8,179)
      -------------------------------     ------        -----       ------
    Net cash provided (used) by
     operating activities                 (1,431)        (128)       1,487
    ---------------------------           ------         ----        -----

    Cash Flows from Investing
     Activities:
    Proceeds from sale of property,
     plant and equipment                   4,278        4,703        4,917
    Purchases of property, plant and
     equipment                            (4,561)      (5,553)      (8,493)
    Cash proceeds from sale of Suzhou
     plant                                     -            -       18,687
    Proceeds from redemption of
     auction rate securities              16,750       35,100       27,325
    Decrease (increase)  in
     restricted cash                           -      531,516     (531,516)
    Purchase of distribution business    (13,125)           -            -
    ---------------------------------    -------          ---          ---
    Net cash provided (used) by
     investing activities                  3,342      565,766     (489,080)
    ---------------------------            -----      -------     --------

    Cash Flows from Financing
     Activities:
    Proceeds from borrowings, net of
     issuance costs                            -            -      438,082
    Payments on debt and capital
     lease obligations                    (2,715)    (661,157)     (30,019)
    Proceeds from Rights Offering,
     net of expenses                           -       29,092       75,783
    ------------------------------           ---       ------       ------
    Net cash (used) provided by
     financing activities                 (2,715)    (632,065)     483,846
    ---------------------------           ------     --------      -------

    Effect of exchange rate changes
     on cash and cash equivalents            219            -            -
    -------------------------------          ---          ---          ---
    Net decrease in cash and cash
     equivalents                            (584)     (66,427)      (3,747)
    Cash and cash equivalents at the
     beginning of period                 254,729      321,156      324,903
    --------------------------------     -------      -------      -------
    Cash and cash equivalents at end
     of period                          $254,145     $254,729     $321,156
    ================================    ========     ========     ========



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 Adjusted net sales, Adjusted operating income, Adjusted net income, EBITDA 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 presented by the company may be different than non-GAAP financial measures presented by other companies.

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 costs and expenses that the company believes are not indicative of its core operating results, as well as the impact of fresh start accounting. The presentation of these non-GAAP financial measures are not meant to be considered in isolation or as a substitute for results or guidance prepared and presented in accordance with U.S. GAAP.

Spansion has provided a reconciliation of the non-GAAP financial measures used in this release to the most directly comparable GAAP financial measures:

 

  • Adjusted net sales differs from GAAP net sales in that it includes revenue lost from product sell-through that was physically located with the distributors as of the date of emergence.
  • Adjusted operating income differs from GAAP operating income in that it excludes the impact of non-recurring items, fresh start accounting related adjustments, litigation expenses with Samsung, one-time restructuring charges, and other bankruptcy related charges or credits.
  • Adjusted net income differs from net income in that it (i) excludes the impact of non-recurring items, fresh start accounting related adjustments, litigation expenses with Samsung, one-time restructuring and reorganization charges or credits, write-off of financing costs completed prior to emergence from bankruptcy, (ii) includes gross margins from revenue lost from product sell-through that was physically located with distributors as of the date of emergence, and (iii) is adjusted for the associated tax impact of all these changes.
  • Adjusted EBITDA differs from GAAP net income in that it (i) excludes interest expenses, taxes, depreciation, amortization, and stock based compensation charges, (ii) excludes the impact of non-recurring items, fresh start accounting related adjustments, litigation expenses with Samsung, one-time restructuring and reorganization charges or credits and write-off of financing costs completed prior to emergence from bankruptcy, and (iii) includes gross margins from revenue lost from product sell-through that was physically located with distributors as of the date of emergence.

 

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;
  • provide useful information to investors and others in understanding and evaluating Spansion's operating results and future prospects in the same manner as management and in comparing financial results across accounting periods;
  • reflect net sales for the company as inventory at the distributors, when sold-through, would not be recognized as revenue per fresh start accounting. The company intends to collect cash from the distributors and this adjustment is non-cash in nature; and
  • provide additional view of the performance of the company by adding interest expenses, taxes, depreciation and amortization to the net income. Further adjustments due to fresh start accounting, litigation expenses with Samsung, and stock based compensation charges attempt to exclude items that are either non-cash or non-recurring in nature.

 

The $450M term loan has maintenance financial covenants that use EBITDA as part of the measures, e.g. Consolidated Leverage ratio, which is a ratio of Indebtedness to Consolidated EBITDA; Consolidated Interest Coverage Ratio, which is a ratio of Consolidated EBITDA to interest expenses. EBITDA measures shared in the public domain are not only helpful for lenders and investors to evaluate the company's ability to service its major debt but also promote transparency of financial information with all.

Business Outlook

The guidance figures provided below and elsewhere in this press release are forward looking statements, reflect a number of estimates, assumptions and other uncertainties, and are approximate in nature because Spansion's future performance is difficult to predict. Such guidance is based on information available on the date of this press release, and Spansion assumes no obligation to update it.

Spansion's future performance involves risks and uncertainties, and the company's actual results could differ materially from the information below and elsewhere in the press release. Some of the factors that could impact the company's operating results are set forth under the caption "Cautionary Statements" above in the press release. More information about factors that could affect Spansion's operating results is included under the "Risk Factors" and "Management's Discussion and Analysis" section of its most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, copies of which may be obtained by visiting the company's investor relations website at http://investor.spansion.com/sec.cfm or the SEC's web site at www.sec.gov.


                                                Three months ending September
                                                          26, 2010
                                                -----------------------------
    In $ millions, except per share data          GAAP          NON-GAAP
    Revenues, millions                         285 - 300       $300 - $320 a
                                                ($0.66) -
    Diluted EPS, in U.S. dollars                  ($0.91)    $0.40 - $0.60 b


    (a)     Estimated non-GAAP amounts includes revenue lost from
    product sell-through that
     was physically located with the distributors as of the date of
     emergence.

    (b)     Estimated non-GAAP amount differs from GAAP in that it (i)
    excludes the impact of
     non-recurring items [$1 to $3 million], fresh start accounting
     related adjustments
    [$55 to $60 million], litigation expenses with Samsung [$3 to $5
    million], one-time
    restructuring [$1 to $2 million], and (ii) includes gross margins
    from revenue lost
    from product sell-through that was physically located with
    distributors as of the
    date of emergence [$15 to $20 million].


    Reconciliation of U.S. GAAP to non-GAAP financial measures
    Net Sales to Adjusted Net Sales
    -------------------------------
    ($ in millions)                             Q210      Q110       Q209
    ---------------                             ----      ----       ----
    GAAP net sales                               255.7     277.3       376.3
       Add: revenue lost due to fresh
        start accounting                          37.0
       ------------------------------             ----
    Non-GAAP net sales                           292.7     277.3       376.3
    ------------------                           -----     -----       -----


    Operating Income to Adjusted Operating
     Income
    --------------------------------------
    ($ in millions)                             Q210      Q110       Q209
    ---------------                             ----      ----       ----
    GAAP operating income / (loss)                (3.0)     17.6        10.1
      Add: fresh start operating expense
       adjustments
            Revenue lost due to fresh start
             accounting                           37.0
            Depreciation                          12.0
            Amortization from intangibles          2.3
            Inventory Mark-Up                     18.6
            Deferred COGS                        (27.7)
            Gain on the sale of Suzhou plant      (0.8)
     (Less)/add:: restructuring
      (credits) /charges                          (2.8)                 14.3
     Add: litigation expense with
      Samsung                                      4.6       9.7
     Add: asset impairment charges                           0.6         5.6
     Add: customer administration claim                      2.6
     ----------------------------------                      ---
     Adjusted Operating Income                    40.3      30.5        30.0
     -------------------------                    ----      ----        ----


    Net Income to Adjusted Net Income
    ---------------------------------
    ($ in millions)                             Q210      Q110       Q209
    ---------------                             ----      ----       ----
    GAAP net income / (loss)                     341.8       3.7        (7.3)
      Add: fresh start operating expense
       adjustments
            Revenue lost due to fresh start
             accounting                           37.0
            Depreciation                          12.0
            Amortization from intangibles          2.3
            Inventory Mark-Up                     18.6
            Deferred COGS                        (27.7)
            Gain on the sale of Suzhou plant      (0.8)
      (Less)/add:: restructuring
       (credits) /charges                         (2.8)                 14.3
      Add: customer administration claim                     2.6
      Add: financing charge write-off to
       interest                                    7.3      13.1
      (Less)/add: reorganization
       (gain)/expense                           (364.9)     (5.5)        9.8
      Add: asset impairment charges                          0.6         5.6
      Add: litigation expense with
       Samsung                                     4.6       9.7
      Less: tax impact for adjustments               0         0           0
      --------------------------------             ---       ---         ---
    Adjusted net income                           27.4      24.2        22.4
    -------------------                           ----      ----        ----




    Net Income to Adjusted EBITDA
    -----------------------------
    ($ in millions)                         Q210    Q110   Q209
    ---------------                         ----    ----   ----
    GAAP net income / (loss)                 341.8    3.7  (7.3)
      Add: interest                           18.9   19.1    7.3
      (Less)/add: reorganization
       (gain)/expense                       (364.9) (5.5)    9.8
      Add: taxes                               1.2    0.4    0.3
      Add: depreciation and amortization      26.3   27.7   37.4
      Add: fresh start adjustments            41.4
      (Less)/add:: restructuring
       (credits) /charges                     (2.8)         14.3
      Add: litigation expense with
       Samsung                                 4.6    9.7
      Add: stock based compensation
       charges                                 1.9    1.3    2.1
      Add: customer administration claim              2.6
      Add: asset impairment charges            0.0    0.6    5.6
      -----------------------------            ---    ---    ---
    Adjusted EBITDA                           68.4   59.6   69.5
    ---------------                           ----   ----   ----



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