You are here

Spansion Inc. Reports Third Quarter 2009 Results | Cypress Semiconductor

Spansion Inc. Reports Third Quarter 2009 Results

Last Updated: December 31, 2009

SUNNYVALE, Calif., Dec 31, 2009 --

Spansion Inc. today announced operating results for its quarter and nine months ended September 27, 2009. Spansion reported third quarter of 2009 net sales of $327.6 million, which reflects the company's refined focus and decision to concentrate primarily on embedded and targeted wireless applications. The company generated net income on a U.S. GAAP basis of $1.5 million, or diluted net income per share of $0.01. Operating income for the quarter was $20.0 million and U.S. GAAP gross and operating margins were 28.3% and 6.1%, respectively.

    U.S. GAAP Results
    (in millions, except margin and per share amounts)

                         Q3 2009     Q2 2009   Q1 2009   Q4 2008   Q3 2008
    Net sales            $327.6      $376.3    $399.6     $468.0    $630.9
    Gross margin           28.3%       25.5%      4.2%     (43.1%)    13.7%
    Operating income
     (loss)               $20.0       $10.1   $(156.1) $(2,007.3)   $(85.7)
    Operating margin        6.1%        2.7%    (39.1%)   (429.0%)   (13.6%)
    Net income (loss)      $1.5       $(7.3)  $(512.6) $(2,076.9)  $(135.3)
    Diluted net income
     (loss) per share     $0.01      $(0.04)   $(3.18)   $(12.90)   $(0.84)

The reduction in net sales and substantial improvements in operating and net income are a direct result of the company's strategy to exit unprofitable markets and restructure the company to support its refined focus.

Non-GAAP net income for the third quarter of 2009 excluding restructuring, reorganization, and other special charges and credits was $17.6 million, or non-GAAP net income per share of $0.10. Reconciliation between U.S. GAAP operating results and non-GAAP operating results is provided following the financial statements in this release.

    Non GAAP Results
    (in millions, except per share amounts)

                       Q3 2009      Q2 2009     Q1 2009   Q4 2008    Q3 2008
    Net income (loss)   $17.6        $16.8     $(156.2)   $(433.0)   $(116.8)

    Diluted net
     income (loss)
     per share          $0.10        $0.10      $(0.97)    $(2.69)    $(0.73)

As a result of a focus on cost reductions, efficiencies and improved asset management, the company continued to generate positive cash flows from operations and ended the third quarter of fiscal 2009 with $263.6 million in cash as compared to $220.5 million and $95.3 million at the end of the second and first quarters of fiscal 2009, respectively.

"Spansion is executing well against its plan," said Randy Furr, Spansion's CFO. "Net income has improved by approximately $135 million year over year for its fiscal third quarter on approximately half the net sales. By focusing on our core businesses and exiting unprofitable applications, we have shown that our strategy is working to deliver stronger financial results."


With a sustainable business model designed for profitability and generating positive free cash flow, the company is focused on servicing its core embedded customers as well as target wireless applications. The company has completed a number of restructuring activities to realign its business to support a refined target market of Flash memory applications. The company now maintains a more flexible manufacturing network that balances internal and external capacity to fulfill customer demand. Spansion's Fab 25 in Austin, Texas, is the company's main wafer fabrication facility, with supplemental foundry support provided by Spansion Japan, Fujitsu and Semiconductor Manufacturing International Corporation (SMIC). For final manufacturing (assembly, test, mark and pack), Spansion maintains two internal facilities with a number of additional external resources.

"Our restructuring efforts are paying off as highlighted in our improved third quarter performance," said John Kispert, Spansion president and CEO. "Over the past nine months we have taken a number of difficult actions relative to restructuring. I am proud to say that we now have those efforts behind us and can focus on the future. We expect to emerge from Chapter 11 in the first quarter of 2010 with a healthier capital structure and a broad product portfolio, positioned to compete in our target markets."

On December 22, the U.S. Bankruptcy Court approved Spansion's second amended disclosure statement in its plan of reorganization. A confirmation hearing for the plan of reorganization is scheduled for February 11, 2010.

For the nine months ended September 27, 2009, the company has recognized approximately $381.6 million as reorganization items in the Condensed Consolidated Statement of Operations included as part of this press release. Reorganization items consist primarily of provisions for expected allowed claims and certain charges related to allowed claims. The U.S. Bankruptcy Court will ultimately determine liability amounts that will be allowed for claims. As claims are resolved, or where better information becomes available and is evaluated, the company will make adjustments to the liabilities recorded on its quarterly or annual financial statements as appropriate. Any such adjustments could be material to the company's financial position or results of operations in any given period.

Spansion Japan

Spansion Japan Limited, a subsidiary of Spansion Inc., commenced corporate reorganization proceedings in Japan on March 3, 2009. As a result, and in accordance with U.S. GAAP, the financial results of Spansion Japan Limited are no longer included in the consolidated financial results of Spansion Inc. post March 3, 2009. Spansion Japan has supplied, and continues to supply, silicon wafers to Spansion LLC. Historically, the prices for the wafers sold by Spansion Japan to Spansion LLC were governed by a pre-bankruptcy foundry agreement. The prices the company pays to Spansion Japan for the wafers and related services are a material component of the company's "cost of goods sold." The company believes that the prices under the foundry agreement were significantly greater than fair value and thus the Company attempted to renegotiate these pricing terms with Spansion Japan. These efforts were unsuccessful and in October 2009, the company filed a motion with the U.S. Bankruptcy Court to reject the foundry agreement. An order rejecting the foundry agreement was issued by the U.S. Bankruptcy Court on November 19, 2009.

As a result of the rejection of the foundry agreement, there is no valid contract that establishes pricing for the wafers the company has received from Spansion Japan from February 9, 2009 (which is 20 days prior to the company's chapter 11 filing) through October 27, 2009, which is referred to in this press release as the "dispute period." The results of operations for the third quarter and nine months ended September 27, 2009 presented in this press release are based on the company's estimates of value for the goods and services provided by Spansion Japan during the dispute period. The U.S. Bankruptcy Court is scheduled to hear evidence to establish the value of wafers purchased during the dispute period from Spansion Japan on January 8, 2010. If the U.S. Bankruptcy Court finds that the value of wafers purchased during the dispute period from Spansion Japan is different than the company's estimates, it will have an impact on the results of operations and that impact could be material. Moreover, the result of that ruling could also have a material impact on the financial condition of the company.

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, company's financial results presented in accordance with United States 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, 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 United States GAAP.

About Spansion

Spansion (Pink Sheets: SPSNQ) is a leading Flash memory solutions provider dedicated to enabling, storing and protecting digital content in automotive, consumer electronics, networking and wireless applications. Spansion is focused exclusively on designing, developing, manufacturing, marketing, selling and licensing Flash memory solutions. For more information, visit

Spansion(R), the Spansion logo, MirrorBit(R), MirrorBit(R) Eclipse(TM), ORNAND(TM), EcoRAM(TM) 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; complete the chapter 11 reorganization process; 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. The risks and uncertainties related to creditor protection proceedings include: the company's ability to depend on Spansion Japan for wafer production and distribution of products in Japan, due to actions taken by either (i) Spansion Japan (at the direction of the Spansion Japan trustee or pursuant to orders of the Japanese court in the Spansion Japan corporate reorganization proceeding or otherwise) or (ii) the company or Spansion LLC (pursuant to the orders of the U.S. Bankruptcy Court or otherwise); 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 in reorganizing or if the company discontinues its business relationship with Spansion Japan; any other actions or orders taken by the U.S. Bankruptcy Court that may impact the company's operations; any negative impacts on the company's business, results of operations, financial position or cash management arrangements; the inability to freely deploy cash resources throughout the company's various geographical locations as all or part of the total worldwide cash may not be available in either the United States or for working capital as a result of limitations inherent in the chapter 11 proceedings in the United States or Spansion Japan's corporate reorganization proceeding or as a result of various restrictions in certain geographies; the negative impact on relationships with employees, customers, suppliers and contract manufacturers and other stakeholders; the failure of the company to obtain the U.S. Bankruptcy Court orders substantially on the terms applied for; the adequacy of the company's cash on hand to fund its ongoing operations; the failure of the company to obtain the requisite approvals of affected creditors or the courts for the proposed plan or reorganization, or to successfully implement such a plan or obtain sufficient exit financing, if required, within the time granted by the U.S. Bankruptcy Court, leading to the likely liquidation of the company's assets; and that following the approval of the proposed plan of reorganization, the company's outstanding common stock will be cancelled. 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 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.

    Spansion Inc.
    (In thousands, except per share amounts)

                                    Quarter Ended            YTD       YTD
                            September   June      March   September September
                                27       28        29         27       28
                               2009     2009      2009       2009     2008(*)

    Net sales              $327,578 $376,301  $399,628 $1,103,507 $1,813,852
    Cost of sales           234,952  280,266   383,035    898,253  1,523,654
    Gross profit             92,626   96,035    16,593    205,254    290,198

    Research and
     development             28,281   37,889    44,746    110,916    346,269
    Sales, general
     and administrative      36,820   33,788   104,029    174,637    197,122
    Restructuring charges     7,492   14,212    23,942     45,646     11,299
    Operating income (loss)
     before reorganization
     items                   20,033   10,146  (156,124)  (125,945)  (264,492)
    Other than temporary
     impairment on marketable
     securities                   -        -         -          -    (14,518)
    Gain on deconsolidation of
     subsidiary                   -        -    30,100     30,100          -
    Interest and other
     income (expense), net      532    1,916       480      2,928      7,347
    Interest expense         (9,199)  (9,212)  (24,466)   (42,877)   (79,249)
    Income (loss) before
     reorganization items
     and income taxes        11,366    2,850  (150,010)  (135,794)  (350,912)

    Reorganization items     (9,348)  (9,842) (362,457)  (381,647)         -

    Income (loss) before
     income taxes             2,018   (6,992) (512,467)  (517,441)  (350,912)

    Provision for income
     taxes                     (518)    (261)     (168)      (947)    (7,195)

    Net income (loss)        $1,500  $(7,253)$(512,635) $(518,388) $(358,107)

    Net income (loss) per common share

    Basic                     $0.01   $(0.04)   $(3.18)    $(3.21)    $(2.34)
    Diluted                   $0.01   $(0.04)   $(3.18)    $(3.21)    $(2.34)

    Shares used in per share calculation

    Basic                   162,090  161,778   161,283    161,717    153,216
    Diluted                 173,925  161,778   161,283    161,717    153,216

    * Prior quarters' numbers have been recast to give effect to the
    retroactive application of FSP APB 14-1 "Accounting for Convertible Debt
    Instruments That May Be Settled in Cash upon Conversion (Including
    Partial Cash Settlement)", now Accounting Standards Codification (ASC)

    Spansion Inc.
    (In thousands)

                                September 27     June 28   March 29    Dec. 28
                                    2009           2009      2009       2008*

    Current assets:
      Cash and cash equivalents   $263,554     $220,468    $95,327   $116,387
      Auction rate securities      104,138            -          -          -
      Accounts receivable          118,754      124,886    155,085    139,888
      Accounts receivable from
       related party               310,045      258,989    180,801    117,575
      Allowance for doubtful
       accounts                    (55,052)     (55,012)   (54,283)    (8,106)
      Inventories                  137,197      134,577    181,291    379,157
      Deferred income taxes          3,213        3,213      3,213      3,213
      Prepaid expenses and
       other current assets         66,201       26,248     34,732     35,225
        Total current assets       948,050      713,369    596,166    783,339

    Property, plant and
       equipment, net              343,140      396,780    440,600    795,030
    Auction rate securities              -      110,839    104,848     94,014
    Other assets                    62,398       86,368     94,900    101,489
    Total Assets                $1,353,588   $1,307,356 $1,236,514 $1,773,872

    Liabilities and Stockholders' Deficit

    Current liabilities:
      Note payable to banks
       under revolving loans           $ -          $ -        $ -   $105,687
      Short term note (UBS loan)    68,410       79,591     79,197          -
      Accounts payable and
       accrued liabilities         120,103       93,170     67,185    554,787
      Accounts payable and
       accrued liabilities to
       related party               146,440       66,121     21,926     79,684
      Accrued compensation
       and benefits                 16,814       21,266      7,534     60,412
      Income taxes payable             464          303      2,519      3,972
      Deferred income               69,111       69,271     43,524     35,285
      Current portion of
       long-term debt
       and obligations under
       capital leases                    -            -          -  1,126,849

        Total current liabilities  421,342      329,722    221,885  1,966,676

    Deferred income taxes            3,280        3,275      3,267      3,267
    Long-term debt, less current
     portion                             -            -          -    210,246
    Other long-term liabilities     27,015       36,953     47,280     44,330

    Liabilities subject to
     compromise                  1,765,933    1,805,761  1,827,146          -

    Total liabilities            2,217,570    2,175,711  2,099,578  2,224,519

    Stockholders' deficit         (863,982)    (868,355)  (863,064)  (450,647)

    Total liabilities and
     stockholders' deficit      $1,353,588   $1,307,356 $1,236,514 $1,773,872

    *  Derived from the December 28, 2008 audited financial statements of
    Spansion Inc. Prior quarters' numbers have been recast to give effect to
    the retroactive application of FSP APB 14-1 "Accounting for Convertible
    Debt Instruments That May Be Settled in Cash upon Conversion (Including
    Partial Cash Settlement)", now Accounting Standards Codification (ASC)

    Spansion Inc.
    (In thousands)

                                              Quarter Ended            YTD
                                      September  June      March    September
                                          27      28         29         27
                                         2009    2009       2009       2009
    Cash Flows from Operating
    Net income (loss)                   $1,500   $(7,253)$(512,635)$(518,388)
    Adjustments to reconcile net loss
     to net cash provided by operating
        Depreciation, amortization,
         and in-process research and
         development write-off          33,312    45,776    61,200   140,288
        Provision (benefit) for
         deferred income taxes               4         8         -        12
        Provision for doubtful accounts     39       730    17,708    18,477
        Net (gain) loss on sale and
         disposal of property, plant,
         and equipment                     530         -    (1,902)   (1,372)
        Compensation recognized under
         employee stock plans            2,875     2,138     5,430    10,443
        Gain on deconsolidation of
         subsidiary                          -         -   (30,100)  (30,100)
        Gain on sale of Suzhou entity     (784)        -         -      (784)
        Loss from write-off of rejected
         capital leases and various
         licenses                       (3,090)        -         -   (23,138)

    Changes in operating assets and
     liabilities, net of effects of
     deconsolidation of subsidiary:

        (Increase) in trade accounts
         receivable and other
         receivables                   (78,845)  (47,989)  (54,018) (180,852)
        (Increase) decrease in
          inventories                   (4,117)   46,714   142,499   185,096
        (Increase) decrease in
         prepaid expenses and other
         current assets                  5,849     8,484   (25,191)   (9,923)
        (Increase) decrease
         in other assets                (1,488)    2,426    (8,936)   (6,675)
        Increase (decrease) in
         accounts payable, accrued
         liabilities and accrued
         compensation                  118,376    55,767   383,219   581,332
        Increase (decrease) in
         income taxes payable              167    (2,217)     (277)   (2,327)
        Increase (decrease) in
         deferred income               (12,972)   25,746     3,226    16,000
    Net cash (used) provided by
     operating activities               67,536   130,330   (19,777)  178,089

    Cash Flows from Investing Activities:
    Proceeds from sale of property,
     plant and equipment                   785        15        45       845
    Purchases of property, plant
     and equipment                     (10,446)   (1,280)   (3,921)  (15,647)
    Loan made to an investee                 -         -    (5,263)   (5,263)
    Proceeds from redemption
     of ARS                             10,375         -         -    10,375
    Cash decrease due to
     deconsolidation of subsidiary           -         -   (52,092)  (52,092)
    Cash decreases due to the sale
     of Suzhou entity                  (10,431)        -         -   (10,431)
    Net cash used by investing
     activities                         (9,717)   (1,265)  (61,231)  (72,213)

    Cash Flows from Financing
    Proceeds from borrowings,
     net of issuance costs                   -         -   117,758   117,758
    Payments on debt and capital
     lease obligations                 (14,733)   (3,924)  (54,715)  (73,372)
    Net cash (used) provided
     by financing activities           (14,733)   (3,924)   63,043    44,386

    Effect of exchange rate changes
     on cash and cash equivalents            -         -    (3,095)   (3,095)
    Net (decrease) increase in cash
     and cash equivalents               43,086   125,141   (21,060)  147,167
    Cash and cash equivalents at
     the beginning of period           220,468    95,327   116,387   116,387
    Cash and cash equivalents at
     end of period                    $263,554  $220,468   $95,327  $263,554

    Spansion Inc.
    (In thousands, except per share amounts)

    Reconciliation of GAAP Net Income (Loss) to NON-GAAP Net Income (Loss)

                                            Quarter Ended
                      September    June      March     December    September
                          27        28         29          28          28
                         2009      2009       2009        2008        2008

    GAAP Net
     (loss)            $1,500   $(7,253) $(512,635) $(2,076,905)  $(135,347)

     charges               79        79         79       84,030       2,676
     charges            7,492    14,212     23,942        (138)       1,377
     charges            9,348     9,842    362,457            -           -
     charges                                          1,571,269           -
    Gain on
     of subsidiary          -         -    (30,100)           -           -
    Gain on
     divestiture         (784)        -          -            -           -
    Impairment of
     securities             -         -          -      (11,248)     14,518
    Income tax
     effect of
     adjustments            -         -          -            -           -

     Net income
     (loss)           $17,635   $16,880  $(156,257)   $(432,992)  $(116,776)

     net income
     (loss) per
     diluted share      $0.10     $0.10     $(0.97)      $(2.69)     $(0.73)
    Shares used
     in diluted
     calculation      173,925   174,367    161,283      161,000     160,687

    Spansion Inc.
    (In thousands)
                              Quarter Ended               YTD         YTD
                     September    June      March      September   September
                         27        28         29           27          28
                        2009      2009       2009         2009        2008
     (income)          $8,667    $7,296    $23,986      $39,949     $71,902
    Taxes                 518       261        168          947       7,195
     in cost of
     sales, R&D
     and SG&A          31,032    37,292     58,042      126,365     464,068
     in restructuring
     charges            2,328     2,857          -        5,184           -
     charges                -     5,596        211        5,808           -
    Amortization           79        79         79          237       5,739