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Spansion Inc. Reports Second Quarter 2011 Results
Jul 27, 2011 (04:07 PM EDT)


SUNNYVALE, Calif., July 27, 2011 /PRNewswire/ -- Spansion Inc. (NYSE: CODE), a leading provider of Flash memory solutions, today announced operating results for its second fiscal quarter ended June 26, 2011. 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 $298.8 million, operating income of $36.1 million, and net income of $25.3 million. On a non-GAAP basis, adjusted net sales were $299.1 million, adjusted operating income was $44.9 million, and adjusted net income was $34.1 million.

(Logo: http://photos.prnewswire.com/prnh/20060118/SFW077LOGO)

"Spansion executed amid challenging global market conditions," said John Kispert, president and CEO of Spansion. "We maintained our NOR market share leadership in the embedded market and we are optimistic about our future as we continue to introduce new products, gain design win momentum and add licensing as a new stream of revenue."


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


Q2 2011

Q1 2011

Q2 2010

Net sales

$298.8

$292.9

$255.7

Gross margin

25.9%

23.5%

22.9%

Operating income (loss)

$36.1

$(0.7)

$(3.0)

Operating margin

12.1%

(0.0%)

(0.0%)

Net income/(loss)

$25.3

($14.1)

$341.8

Diluted net income per share (Predecessor)

N/A

N/A

$2.21

Diluted net (loss) per share (Successor)

$0.40

$(0.23)

$(0.31)





Non-GAAP results, in $millions


Q2 2011

Q1 2011

Q2 2010

Adjusted net sales

$299.1

$294.4

$292.7

Adjusted operating income

$44.9

$38.5

$40.2

Adjusted net income

$34.1

$25.1

$27.4

Adjusted EBITDA

$73.7

$66.6

$68.4




Upon emergence from bankruptcy on May 10, 2010, Spansion adopted fresh start accounting in accordance with U.S. GAAP. The adoption of fresh start accounting resulted in Spansion becoming a new entity for financial reporting purposes, whereby the U.S. GAAP financial statements on or after May 10, 2010 are not comparable to the financial statements prior to that date. Fresh start accounting required resetting the historical net book values of Spansion's assets and liabilities to the related fair values. References to "Successor" refer to Spansion and its consolidated subsidiaries after May 10, 2010, after giving effect to the cancellation of old common stock issued prior to May 10, 2010, the issuance of new common stock and settlement of existing debt and other adjustments in accordance with the reorganization plan, and the application of fresh start accounting. References to "Predecessor" refer to Spansion and its consolidated subsidiaries prior to May 10, 2010.

Business Outlook

For the third quarter of 2011, Spansion estimates U.S. GAAP net sales in the range of $285 million to $325 million, GAAP net income per diluted share of $0.42 to $0.54.


The following non-cash charges are included in the guidance above

($ in millions)

Favorable/(Unfavorable)

COGS

R&D

SG&A

Operating

Income

Tax

Net

Income

Fresh Start Inventory Adjustment

12.6

-

-

12.6

-

12.6

Intangible Amortization

6.3

-

-

6.3

-

6.3

Stock Based Compensation

1.0

1.5

3.3

5.8

-

5.8

Total

19.9

1.5

3.3

24.7

-

24.7




EPS excluding the above items is expected to be between $0.81 and $0.93

Quarterly Conference Call

Spansion will host a conference call to discuss second quarter 2011 results at 1:30 pm PDT / 4:30 pm 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://investor.spansion.com/

Dial-in: 1-866-788-0542 (US), 1-857-350-1680 (International), Passcode: 98646575

An audio replay will be available within two hours of the call and may be accessed via dial-in at 1-888-286-8010, international 1-617-801-6888 with the Passcode of 36022600 or by webcast on the investor relations section of Spansion's website at http://investor.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 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. A reconciliation of each non-GAAP financial measure to the most direct, comparable GAAP financial measure is included below.

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®, the Spansion logo, MirrorBit®, MirrorBit® Eclipse™ 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 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: 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.

Spansion Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except per share amounts)


Successor

Successor

Successor

Predecessor


Three Months
Ended
June 26, 2011

Three Months
Ended
March 27, 2011

Period from
May 11, 2010 to
June 27, 2010

Period from
March 29, 2010
to May 10, 2010

Net sales

$ 298,768

$ 292,937

$124,569

$101,786

Net sales to related parties

-

-

4,801

24,496

Total net sales

$ 298,768

$ 292,937

$ 129,370

$ 126,282

Cost of sales

221,336

224,165

111,413

85,697

Gross Profit

77,432

68,772

17,957

40,585


Research and development

30,567

29,829

13,420

12,115

Sales, general and administrative

10,779

39,683

18,259

20,497

Restructuring  credits

-

-

-

(2,785)


Operating income (loss)
before reorganization items

36,086

(740)

(13,722)

10,758

Interest & other income
(expense), net

(288)

747

364

(3,190)

Interest expense

(8,779)

(9,058)

(4,877)

(11,237)


Income (loss) before reorganization
items and income taxes

27,019

(9,051)

(18,235)

(3,669)

Reorganization items

-

-

-

364,876


Income (loss) before income taxes

27,019

(9,051)

(18,235)

361,207

Provision (benefit) for income taxes

1,731

5,097

(21)

1,235

Net income (loss)

$ 25,288

$ (14,148)

$  (18,214)

$  359,972


Net income (loss) per common share





Basic

$ 0.41

$ (0.23)

$      (0.31)

$ 2.22

Diluted

$ 0.40

$ (0.23)

$      (0.31)

$ 2.21

Shares used in per share calculation





Basic

62,106

62,140

59,271

162,513

Diluted

63,617

62,140

59,271

162,518




Spansion Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands)





Successor


Assets

June 26, 2011

March 27, 2011

June 27, 2010

Current assets:





Cash and cash equivalents

$  292,311

$ 283,435

$ 254,145


Short term investment

21,791

24,979

25,885


Accounts receivable, net

130,713

158,096

139,607


Accounts receivable from related party

-

-

13,201


Inventories

175,140

178,428

244,536


Deferred income taxes

3,897

7,258

1,141


Prepaid expenses and  other current assets

49,993

57,254

44,930




Total current assets

673,845

709,450

723,445








Property, plant and equipment, net

224,462

245,743

329,601

Intangible assets

187,095

192,722

207,276

Goodwill


161,974

161,936

165,553

Other assets


48,306

36,926

41,394

Total assets

$1,295,682

$ 1,346,777

$1,467,269








Liabilities and Stockholders' Equity (Deficit)




Current liabilities:





Accounts payable

95,872

97,498

30,870


Accounts payable to related parties

-

-

24,402


Accrued compensation and benefits

33,535

32,467

32,216


Other accrued liabilities

52,276

97,544

218,219


Income taxes payable

1,930

4,158

54


Deferred income

26,020

27,184

8,043


Current portion of long-term debt and
obligations under capital leases

2,771

25,221

13,798


Deferred income taxes

-

-

11,578




Total current liabilities

212,404

284,072

339,180








Deferred income taxes

1,304

4,728

12,073

Long-term debt, less current portion

445,538

427,549

447,733

Other long-term liabilities

28,633

28,567

10,327




Total liabilities

687,879

744,916

809,313








New Class A Common stock, $0.001 par value, 150,000,000
shares authorized, 61,744,120 shares issued and outstanding

62

63

59

New Class B common stock, $0.001 par value, 1 share
authorized, 1 share issued and outstanding

-

-

-

Additional paid in capital

694,698

714,259

675,886

Retained deficit

(85,551)

(110,839)

(18,214)

Accumulated other comprehensive income

(1,406)

(1,622)

225




Total stockholders' equity (deficit)

607,803

601,861

657,956








Total liabilities and stockholders' equity (deficit)

$1,295,682

$ 1,346,777

$ 1,467,269




Spansion Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)



Successor

Successor

Predecessor



Three Months
Ended
June 26, 2011

Three Months
Ended
March 27, 2011

Period from
May 11, 2010 to
June 27, 2010

Period from
March 29, 2010
to May 10, 2010

Cash Flows from Operating Activities:





Net income (loss)

$  25,288

$  (14,148)

$ (18,214)

$   359,972

Adjustments to reconcile net loss to net cash
provided by operating activities:





Depreciation and amortization

40,931

52,083

26,146

14,482

Gain on discharge of pre-petition obligations

-

-

-

(434,046)

Provision (benefit) for deferred income taxes

700

(1,457)

(3)

7,000

Impairment on investments in Densbit and Virident

-

-

-

3,011

Net gain on sale and disposal of property,
plant and equipment

(490)

(648)

(266)

(3,219)

Asset impairment charges

4,874

2,683

-

-

Compensation recognized under employee stock plans

5,048

4,548

1,945

5,757

Gain on sale of Suzhou plant

-

-

(1,342)

(1,548)

Amortization of inventory fresh start markup

1,473

6,787

18,597

-

Write-off financing cost for old debts

-

-

-

13,020

Changes in assets and liabilities

(29,936)

(71,236)

(28,293)

35,443

Net cash provided (used) by operating activities

47,888

(21,388)

(1,430)

(128)







Cash Flows from Investing Activities:





Proceeds from sale of property, plant and equipment

2,555

2,139

4,278

4,703

Purchases of property, plant and equipment

(15,272)

(13,575)

(4,561)

(5,553)

Proceeds from redemption of auction rate securities

-

-

16,750

35,100

Purchases of marketable securities

(21,791)

-

-

-

Proceeds from redemption of marketable securities

24,979

-

-

-

Decrease in restricted cash

-

-

-

531,516

Purchase of distribution business

-

-

(13,125)

-

Cash proceeds from sale of Suzhou plant

-

-

-

-

Net cash provided (used) by investing activities

(9,529)

(11,436)

3,342

565,766







Cash Flows from Financing Activities:





Proceeds from issuance of common stock
due to options exercised

4,378

-

-

-

  Payments on debt and capital lease obligations

(4,543)

(1,463)

(2,715)

(661,157)

  Proceeds from rights offering

-

-

-

29,092

  Cash settlement on hedging activities

(260)

(268)

-

-

  Purchase of bankruptcy claims

(28,987)

(12,000)

-

-

Net cash used by financing activities

(29,412)

(13,731)

(2,715)

(632,065)







Effect of exchange rate changes
on cash and cash equivalents

(71)

696

219

-

Net increase (decrease) in cash and cash equivalents

8,876

(45,859)

(584)

(66,427)

Cash and cash equivalents at the beginning of period

283,435

329,294

254,729

321,156

Cash and cash equivalents at end of period

$ 292,311

$ 283,435

$254,145

$  254,729




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, 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 from Chapter 11 proceedings.
  • 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 GAAP 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, (ii) includes net sales lost from product sell-through that was physically located with distributors as of the date of emergence from Chapter 11 proceedings 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 net sales lost from product sell-through that was physically located with distributors as of the date of emergence from Chapter 11 proceedings.

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 more accurately 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;
  • 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; and

To enable investors to assess the company's compliance with financial covenants under its debt instruments Spansion's 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; and Consolidated Interest Coverage Ratio which is a ratio of Consolidated EBITDA to interest expenses.

Reconciliation of U.S. GAAP to non-GAAP financial measures

Net Sales to Adjusted Net Sales

($ in millions)

Q2 2011

Q1 2011

Q2 2010

GAAP net sales

298.8

292.9

255.7

Add: Net sales lost due to fresh start accounting

0.3

1.4

37.0

Non-GAAP net sales

299.1

294.4

292.7

Operating Income to Adjusted Operating Income


($ in millions)

Q2 2011

Q1 2011

Q2 2010

GAAP operating income / (loss)

36.1

(0.7)

(3.0)

Add: fresh start operating expense adjustments




Net Sales lost due to fresh start accounting

0.3

1.4

37.0

Depreciation

11.5

23.1

12.0

Amortization from intangibles

5.7

5.2

2.3

Inventory Mark-Up

13.8

6.7

18.6

Deferred COGS

-

(0.2)

(27.7)

Gain on the sale of Suzhou plant

-

-

(0.8)

(Less)/add: restructuring (credits) / charges

-

-

(2.8)

Add: litigation expense related to Samsung

(26.3)

3.0

4.6

Add: asset impairment charges

3.8

-

-

Adjusted Operating Income

44.9

38.5

40.2





Net Income to Adjusted Net Income

($ in millions)

Q2 2011

Q1 2011

Q2 2010

GAAP net income / (loss)

25.3

(14.1)

341.8

Add: fresh start operating expense adjustments




Net Sales lost due to fresh start accounting

0.3

1.4

37.0

Depreciation

11.5

23.1

12.0

Amortization from intangibles

5.7

5.2

2.3

Inventory Mark-Up

13.8

6.7

18.6

Deferred COGS

-

(0.2)

(27.7)

Gain on the sale of Suzhou plant

-

-

(0.8)

(Less)/add: restructuring (credits) / charges

-

-

(2.8)

(Less)/add: reorganization (gain) / expense

-

-

(364.9)

Add: litigation expense related to Samsung

(26.3)

3.0

4.6

Add: asset impairment charges

3.8

-

-

Add: Financing charge write-off to interest

-

-

7.3

Adjusted net income

34.1

25.1

27.4





Net Income to Adjusted EBITDA

($ in millions)

Q2 2011

Q1 2011

Q2 2010

GAAP net income / (loss)

25.3

(14.1)

341.8

Add: interest

9.1

8.3

18.9

(Less)/add: reorganization (gain)/expense

-

-

(364.9)

Add: taxes

1.7

5.1

1.2

Add: depreciation and amortization

40.9

51.9

26.3

(Less)/add: restructuring (credits)/charges

-

-

(2.8)

Add: fresh start adjustments

14.2

7.9

41.4

Add: asset impairment charges

3.8

-

-

Add: litigation expense related to Samsung

(26.3)

3.0

4.6

Add: stock based compensation charges

5.0

4.5

1.9

Adjusted EBITDA

73.7

66.6

68.4




SOURCE Spansion Inc.