TechWeb

Spansion Inc. Reports Fourth Quarter 2010 Results

Jan 26, 2011 (03:01 PM EST)
URL: http://www.techweb.com/show-press-release/X826740/spansion-inc-reports-fourth-quarter-2010-results.html

Company Achieves Fifth Consecutive Quarter of Embedded Revenue Growth

SUNNYVALE, Calif., Jan. 26, 2011 /PRNewswire/ -- Spansion Inc. (NYSE: CODE), a leading provider of Flash memory solutions, today announced operating results for its fourth fiscal quarter ended December 26, 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 $327.7 million, operating loss of $1.4 million, and net loss of $13.6 million. On a non-GAAP basis, adjusted net sales were $330.3 million, adjusted operating income was $60.5 million, and adjusted net income was $48.3 million.

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

"We had another solid quarter, increasing our market share, customer design wins and achieving the fifth consecutive quarter of embedded revenue growth," said John Kispert, president and CEO of Spansion. "We are confident about our future as we continue to partner with customers to deliver differentiated Flash memory solutions that meet their design requirements."


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


Q4 2010

Q3 2010

Q4 2009

Net sales

$327.7

$307.6

$307.1

Gross margin

20.9%

10.0%

33.1%

Operating income (loss)

($1.4)

($55.4)

$20.7

Operating margin

(0.0%)

(18.0%)

6.7%

Net income/(loss)

($13.6)

($64.9)

$4.3

Diluted net income per share (Predecessor)

N/A

N/A

$0.02

Diluted net (loss) per share (Successor)

($0.22)

($1.09)

N/A





Non-GAAP results, in $millions


Q4 2010

Q3 2010

Q4 2009

Adjusted net sales

$330.3

$319.7

$307.1

Adjusted operating income

$60.5

$48.2

$41.4

Adjusted net income

$48.3

$38.7

$34.8

Adjusted EBITDA

$88.4

$76.2

$71.1




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 first quarter of 2011, Spansion estimates U.S. GAAP net sales and non-GAAP adjusted net sales in the range of $280 million to $305 million, GAAP net loss per diluted share of $0.11 to $0.26, and non-GAAP adjusted net income per diluted share of $0.30 to $0.47. This outlook is in line with the industry's typical seasonality.

Quarterly Conference Call

Spansion will host a conference call to discuss fourth quarter 2010 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: 1-866-788-0546 (US), 1-857-350-1684 (International), Passcode: 23204854

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 54520720 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.

Company News:

http://www.spansion.com/news

Investor Relations Web site:

http://investor.spansion.com

Spansion Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except per share amounts)






Successor

Successor

Predecessor


Three Months Ended
December 26, 2010

Three Months Ended
September 26, 2010

Three Months Ended
December 27, 2009

Net sales

$ 327,723

$307,594

$ 307,146

Cost of sales

259,130

276,838

205,504

Gross profit

68,593

30,756

101,642





Research and development

25,748

26,246

25,533

Sales, general and administrative

44,271

59,948

41,661

Restructuring (credits) / charges

-

-

1,206

Asset impairment charges

-

-

12,538





Operating income (loss)

(1,426)

(55,438)

20,704

Interest & other income (expense), net

(1,567)

1,378

1,110

Interest expense

(10,179)

(9,124)

(8,099)





Income (loss) before reorganization
items and income taxes

(13,172)

(63,184)

13,715

Reorganization items

-

-

(9,736)





Income (loss) before income taxes

(13,172)

(63,184)

3,979

Provision (benefit) for income taxes

454

1,670

(350)

Net income (loss)

$ (13,626)

$ (64,854)

$ 4,329





Net income (loss) per common share




    Basic

$ (0.22)

$(1.09)

$ 0.03

    Diluted

$ (0.22)

$(1.09)

$ 0.02

Shares used in per share calculation




    Basic

62,314

59,271

162,239

    Diluted

62,314

59,271

174,139




Spansion Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except per share amounts)






Successor

Predecessor

Predecessor


Period from
May 11, 2010 to
December 26, 2010

Period from
December 28, 2009
to May 10, 2010

Year Ended
December 27, 2009

Net sales

$ 764,687

$ 403,619

$ 1,410,653

Cost of sales

647,381

274,817

1,103,757

Gross profit

117,306

128,802

306,896





Research and development

65,414

35,068

136,449

Sales, general and administrative

122,478

68,105

216,298

Restructuring (credits) / charges

-

(2,772)

46,852

Asset impairment charges

-

-

12,538





Operating income (loss)

(70,586)

28,401

(105,241)

Interest & other income (expense), net

175

(2,904)

4,038

Interest expense

(24,180)

(30,573)

(50,976)

Gain on deconsolidation of subsidiary

-

-

30,100





Income (loss) before reorganization
items and income taxes

(94,591)

(5,076)

(122,079)

Reorganization items

-

370,340

(391,383)





Income (loss) before income taxes

(94,591)

365,264

(513,462)

Provision (benefit) for income taxes

2,101

1,640

597

Net income (loss)

$ (96,692)

$ 363,624

$ (514,059)





Net income (loss) per common share




    Basic

$ (1.60)

$ 2.24

$ (3.18)

    Diluted

$ (1.60)

$ 2.24

$ (3.18)

Shares used in per share calculation




    Basic

60,470

162,439

161,847

    Diluted

60,470

162,610

161,847




Spansion Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands)






Successor

Predecessor





December 26, 2010

December 27, 2009

Assets




Current assets:




Cash and cash equivalents

$ 329,294

$ 324,903


Short-term investments

24,979

100,335


Accounts receivable

166,301

129,174


Accounts receivable from related parties

-

366,602


Allowance for doubtful accounts

(326)

(56,408)


Inventories

168,937

141,723


Deferred income taxes

6,885

13,332


Prepaid expenses and other current assets

50,210

49,533




Total current assets

746,280

1,069,194







Property, plant and equipment, net

259,940

322,710

Intangible assets

197,733

-

Goodwill


163,645

-

Other assets


31,237

46,073

Total assets

$ 1,398,835

$ 1,437,977







Liabilities and Stockholders' Deficit



Current liabilities:




Short term note

-

$ 64,150


Accounts payable

119,288

33,463


Accrued liabilities

109,444

112,676


Accounts payable to related parties

-

221,211


Accrued compensation and benefits

39,978

21,630


Deferred income

22,238

62,958


Current portion of long-term debt

13,689

-


Income taxes payable

637

83




Total current liabilities

305,274

516,171







Deferred income taxes

3,877

13,405

Long-term debt, less current portion

441,220

-

Other long-term liabilities

24,179

9,825

Liabilities subject to compromise

-

1,756,269




Total liabilities

774,550

2,295,670







Common stock and additional paid in capital

721,774

2,484,482

Retained deficit

(96,692)

(3,342,370)

Accumulated other comprehensive income

(797)

195

Stockholders' (deficit)/earnings

624,285

(857,693)







Total liabilities and stockholders' deficit

$ 1,398,835

$ 1,437,977




Spansion Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)




Successor

Successor

Predecessor



Three Months Ended December 26, 2010

Period from
May 11, 2010
to December 26, 2010

Period from December, 28 2009
to May 10, 2010

Cash Flows from Operating Activities:




Net income (loss)

$ (13,626)

$ (96,692)

$ 363,624

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





Depreciation and amortization, and in-process research and development write-off

54,615

137,206

43,788


Gain on discharge of pre-petition obligations

-

-

(434,046)


Provision for deferred income taxes

3,424

(1,213)

7,000


Provision for doubtful accounts

71

331

7,229


(Gain) on sale and disposal of property, plant and equipment

59

(1,483)

(2,107)


Compensation recognized under employee stock plans

3,515

8,323

7,052


Impairment on investments in Densbit and Virident

-

-

3,011


Gain on sale of Suzhou plant

-

(3,701)

(5,224)


Gain from approved settlement of
rejected capital leases and various licenses

-

-

(22,517)


Write-off financing cost for old debts

-

-

13,022


Amortization of inventory fresh-start markup

22,507

90,173

-


Mark to market on hedging derivatives

1,329

1,329

-






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





Decrease (increase) in accounts receivable

(18,632)

(27,857)

10,156


(Increase) decrease in inventories

(10,988)

31,552

(7,242)


Decrease (increase) in prepaid expenses and other current assets

(8,238)

(16,577)

(3,894)


Decrease (increase) in other assets

(502)

652

1,534


(Decrease) increase in accounts payable,
accrued liabilities and accrued compensation and benefits

(22,758)

(62,850)

23,213


(Decrease) increase in deferred income

349

7,125

(3,240)

Net cash provided (used) by operating activities

11,125

66,318

1,359






Cash Flows from Investing Activities:




Proceeds from sale of property, plant and equipment

4,818

20,534

9,620

Purchases of property, plant and equipment

(27,216)

(49,299)

(14,046)

Proceeds from redemption of auction rate securities

-

44,700

62,425

Purchase of distribution business

-

(13,125)

-

Purchase of treasury bills

(24,979)

(54,968)

-

Proceeds from maturity of treasury bills

29,989

29,989

-

Cash proceeds from sale of Suzhou plant

-

-

18,687

Net cash provided (used) by investing activities

(17,388)

(22,169)

76,686






Cash Flows from Financing Activities:




Proceeds from borrowings, net of issuance costs

195,587

195,588

438,082

Payments on debt and capital lease obligations

(198,842)

(204,798)

(691,176)

Proceeds from issuance of new common stock, net of fees

124,448

124,447

-

Purchase of Japan claim in shares

(85,000)

(85,000)

-

Proceeds from Rights Offering, net of expenses

-

-

104,875

Net cash (used) provided by financing activities

36,193

30,237

(148,219)






Effect of exchange rate changes on cash and cash equivalents

(327)

179

-

Net increase in cash and cash equivalents

29,603

74,565

(70,174)

Cash and cash equivalents at the beginning of period

299,691

254,729

324,903

Cash and cash equivalents at end of period

$329,294

$329,294

$ 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.

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 of Financial Condition and Results of Operations" 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 or the SEC's web site at www.sec.gov.



Three months ending March 27, 2011

In $ millions, except per share data

GAAP

NON-GAAP

Net Sales

$280 – $305

$280 - $305(a)

Diluted Net Income/(Loss) per share

($0.26) – ($0.11)

$0.30 - $0.47(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 from Chapter 11 proceedings.



(b)

Estimated non-GAAP amounts differ from GAAP in that they (i) exclude the impact of non-recurring items [$0 to $1 million], (ii) exclude fresh start accounting related adjustments[$25 to $35 million], (iii) exclude litigation expenses with Samsung [$2 to $3 million], and (iv) includes net sales lost from product sell-through that was physically located with distributors as of the date of emergence from Chapter 11 proceedings of  [$1 to $2 million] and (v) the tax effect of these non-GAAP adjustments in the first quarter of 2011 which is estimated to be zero.



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


Net Sales to Adjusted Net Sales




($ in millions)

Q410

Q310

Q409

GAAP net sales

327.7

307.6

307.1

Add: Net sales lost due to fresh start accounting

2.6

12.1

-

Non-GAAP net sales

330.3

319.7

307.1




Operating Income to Adjusted Operating Income


($ in millions)

Q410

Q310

Q409

GAAP operating income / (loss)

(1.4)

(55.4)

20.7

Add: fresh start operating expense adjustments




Net Sales lost due to fresh start accounting

2.6

12.1

-

Depreciation

25.1

26.0

-

Amortization from intangibles

5.2

5.2

-

Inventory Mark-Up

22.5

49.1

-

Deferred COGS

(2.7)

(7.7)

-

Gain on the sale of Suzhou plant

-

(2.4)

-

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

-

-

1.2

Add: litigation expense with Samsung

9.2

21.3

5.0

Add: asset impairment charges

-

-

14.4

Add: acquisition related charges

-

-

0.1

Adjusted Operating Income

60.5

48.2

41.4




Net Income to Adjusted Net Income




($ in millions)

Q410

Q310

Q409

GAAP net income / (loss)

(13.6)

(64.9)

4.3

Add: fresh start operating expense adjustments




Net Sales lost due to fresh start accounting

2.6

12.1

-

Depreciation

25.1

26.0

-

Amortization from intangibles

5.2

5.2

-

Inventory Mark-Up

22.5

49.1

-

Deferred COGS

(2.7)

(7.7)

-

Gain on the sale of Suzhou plant

-

(2.4)

-

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

-

-

5.1

Add: acquisition related charges

-

-

0.1

Add: Impairment charges

-

-

14.4

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

-

-

9.7

Add: litigation expense with Samsung

9.2

21.3

5.0

Less gain on divestiture

-

-

(3.8)

Less: tax impact for adjustments

-

-

-

Adjusted net income

48.3

38.7

34.8





Net Income to Adjusted EBITDA




($ in millions)

Q410

Q310

Q409

GAAP net income / (loss)

(13.6)

(64.9)

4.3

Add: interest

11.8

7.7

7.0

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

-

-

9.7

Add: taxes

0.4

1.7

(0.4)

Add: depreciation and amortization

54.6

56.4

27.9

Add: Asset Impairment charges

0

0

1.9

Add: fresh start adjustments

22.5

51.1

-

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

-

-

13.7

Add: litigation expense with Samsung

9.2

21.3

5.0

Add: stock based compensation charges

3.5

2.9

1.9

Add: acquisition related charges

-

-

0.1

Adjusted EBITDA

88.4

76.2

71.1




SOURCE Spansion Inc.