Spansion reports Q3-09 net sales of $327.6mn

SUNNYVALE, USA: 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 US GAAP basis of $1.5 million, or diluted net income per share of $0.01. Operating income for the quarter was $20 million and US GAAP gross and operating margins were 28.3 percent and 6.1 percent, respectively.

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.

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."

Restructuring
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 Corp. (SMIC). For the 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 US 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 recognized approximately $381.6 million as reorganization items in the Condensed Consolidated Statement of Operations. Reorganization items consist primarily of provisions for expected allowed claims and certain charges related to allowed claims.

The US 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 US GAAP, the financial results of Spansion Japan 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 US Bankruptcy Court to reject the foundry agreement. An order rejecting the foundry agreement was issued by the US 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 US 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 US 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.