74922_002_Spansion_bmk.ps 2050 XXK Annual Report Placeholder

User Manual: 2050 XXK

Open the PDF directly: View PDF PDF.
Page Count: 204 [warning: Documents this large are best viewed by clicking the View PDF Link!]

Spansion Inc.
2008 Proxy Statement
and
2007 Annual Report on Form 10-K
April 9, 2008
Dear Stockholder:
On behalf of the Board of Directors, you are cordially invited to attend the 2008 Annual Meeting of
Stockholders of Spansion Inc. to be held at the Four Seasons Hotel, 2050 University Avenue, East Palo Alto,
California, on Tuesday, May 27, 2008 at 11:00 a.m., local time. The formal notice of the Annual Meeting appears
on the following page. The attached Notice of Annual Meeting and Proxy Statement describe the matters that we
expect to be acted upon at the Annual Meeting and provide additional information for stockholders.
During the Annual Meeting, stockholders will hear a presentation by Spansion and have the opportunity to
ask questions. Whether or not you plan to attend the Annual Meeting, it is important that your shares be
represented. Please vote as soon as possible. You may vote via the Internet, by telephone or by mailing a
completed proxy card as an alternative to voting in person at the Annual Meeting. Voting by any of these
methods will ensure your representation at the Annual Meeting.
We encourage you to sign up for electronic delivery of future proxy materials in order to conserve natural
resources and help us reduce printing costs and postage fees. For more information, please see “Questions and
Answers” in the Proxy Statement.
We urge you to carefully review the proxy materials and to vote FOR the director nominees and FOR the
ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for
the current fiscal year.
We look forward to seeing you at the Annual Meeting.
/s/ Dr. Bertrand F. Cambou
Dr. Bertrand F. Cambou
President and Chief Executive Officer
SPANSION INC.
915 DeGUIGNE DRIVE
P.O. BOX 3453
SUNNYVALE, CALIFORNIA 94088
NOTICE OF 2008 ANNUAL MEETING OF STOCKHOLDERS
We will hold the 2008 Annual Meeting of Stockholders of Spansion Inc. at the Four Seasons Hotel, 2050
University Avenue, East Palo Alto, California, on Tuesday, May 27, 2008. The meeting will start at 11:00 a.m.
local time. At the Annual Meeting, our stockholders will be asked to:
1. Elect two Class A directors to serve for a three-year term expiring at the 2011 annual meeting of
stockholders;
2. Elect one Class C director to serve for a three-year term expiring at the 2011 annual meeting of
stockholders;
3. Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for
the current fiscal year; and
4. Transact any other business that properly comes before the meeting and any postponement or
adjournment of the Annual Meeting.
Only record holders of Common Stock at the close of business on March 31, 2008, the record date for the
Annual Meeting, are entitled to receive notice of and to vote on all matters submitted to a vote of stockholders at
the Annual Meeting. Only record holders of the Class A Common Stock are entitled to vote on the election of the
Class A directors, and only record holders of Class C Common Stock are entitled to vote on the election of the
Class C director. Record holders of all classes of Common Stock are entitled to vote as a single class on all other
matters submitted to a vote of the stockholders. Stockholders are urged to read the attached proxy statement
carefully for additional information concerning the matters to be considered at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in person. Stockholders who plan to
attend in person are nevertheless requested to vote online, by telephone, or by signing and returning their proxy
cards to make certain that their vote will be represented at the Annual Meeting should they unexpectedly be
unable to attend.
By Order of the Board of Directors,
/s/ Robert C. Melendres
ROBERT C. MELENDRES
Corporate Secretary
This proxy statement and accompanying proxy card are first being distributed on or about April 9, 2008.
YOUR VOTE IS IMPORTANT.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE URGE YOU TO VOTE
ONLINE AT PROXYVOTE.COM, BY TELEPHONE, OR COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
VOTING ONLINE, BY TELEPHONE, OR BY RETURNING YOUR PROXY CARD WILL ENSURE
THAT YOUR VOTE IS COUNTED IF YOU LATER DECIDE NOT TO ATTEND THE MEETING.
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ............................................................. 1
ITEM 1—ELECTION OF DIRECTORS ...................................................... 5
CORPORATE GOVERNANCE ............................................................. 8
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS ............................. 13
DIRECTORCOMPENSATION............................................................. 16
SECURITY OWNERSHIP ................................................................. 19
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE ........................ 22
EXECUTIVE OFFICERS .................................................................. 22
EXECUTIVECOMPENSATION ........................................................... 24
EQUITY COMPENSATION PLAN INFORMATION ........................................... 46
ITEM 2—RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ........ 47
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................................ 49
AUDIT COMMITTEE REPORT ............................................................ 59
OTHER MATTERS ...................................................................... 59
ANNUAL REPORT AND FINANCIAL STATEMENTS ......................................... 59
SPANSION INC.
PROXY STATEMENT
2008 ANNUAL MEETING OF STOCKHOLDERS
QUESTIONS AND ANSWERS
1. Q: WHO IS SOLICITING MY VOTE?
A: This proxy solicitation is being made by the Board of Directors of Spansion Inc. All expenses of
soliciting proxies, including clerical work, printing and postage, will be paid by us. Our directors,
officers and other employees may solicit proxies in person, by mail, by telephone, by facsimile,
through the Internet or by other means of communication, but such persons will not be specifically
compensated for such services.
2. Q: WHEN WAS THIS PROXY STATEMENT MAILED TO STOCKHOLDERS?
A: This proxy statement was first mailed to stockholders on or about April 9, 2008.
3. Q: WHAT MAY I VOTE ON?
A: Spansion stockholders may vote as follows:
Holders of Class A Common Stock may vote on the election of two director nominees, Dr. Bertrand
F. Cambou and Mr. David E. Roberson, to serve as Class A Directors on our Board of Directors;
The holder of Class C Common Stock may vote on the election of one director nominee, Mr. Gilles
Delfassy, to serve as Class C Director on our Board of Directors; and
Holders of Class A Common Stock and Class C Common Stock, voting together as a single class,
may vote on the ratification of the appointment of Ernst & Young LLP as our independent
registered public accounting firm for the current fiscal year.
4. Q: HOW DOES THE BOARD OF DIRECTORS RECOMMEND I VOTE ON THE PROPOSALS?
A: The Board recommends that you vote:
FOR each of the director nominees; and
FOR ratification of the appointment of Ernst & Young LLP as our independent registered public
accounting firm for the current fiscal year.
5. Q: WHO IS ENTITLED TO VOTE?
A: Stockholders as of the close of business on March 31, 2008, the Record Date, are entitled to vote on all
items properly presented at the Annual Meeting for which they are eligible to vote. On the Record
Date, 158,323,770 shares of our Class A Common Stock and one share of our Class C Common Stock
were outstanding. Our Class B Common Stock and Class D Common Stock have been retired and no
shares are outstanding. Consequently, the only stockholders entitled to vote are record holders of
shares of Class A Common Stock and Class C Common Stock (together, the “Common Stock”). Every
stockholder is entitled to one vote for each share of Common Stock held. A list of these stockholders
will be available during ordinary business hours at the principal place of business of Spansion, located
at 915 DeGuigne Drive, Sunnyvale, California 94085-3836, at least ten days before the Annual
Meeting. The list of stockholders will also be available at the time and place of the Annual Meeting.
1
6. Q: HOW DO I VOTE BY MAIL?
A: If you complete and properly sign each proxy card you receive and return it to us in the prepaid
envelope, it will be voted by one of the individuals indicated on the card (your “proxy”) as you direct.
If you return your signed proxy card but do not mark the boxes showing how you wish to vote, your
shares will be voted FOR the election of the director nominees and FOR the ratification of the
appointment of our auditors. If your shares are held by your broker, see question 12 below.
7. Q: CAN I VOTE BY TELEPHONE OR ELECTRONICALLY?
A: If you live in the United States or Canada, you may submit your proxy by following the Vote by
Telephone instructions on the proxy card. If you have Internet access, you may submit your proxy
from any location in the world by following the Vote by Internet instructions on the proxy card.
8. Q: WHO CAN ATTEND THE ANNUAL MEETING?
A: Only stockholders as of the Record Date, holders of proxies for those stockholders and other persons
invited by us can attend. If your shares are held by your broker in “street name,” you must bring a
letter from your broker or a copy of your proxy card to the meeting showing that you were the direct
or indirect beneficial owner of the shares on the Record Date to attend the meeting.
9. Q: CAN I VOTE AT THE MEETING?
A: Yes. If you attend the meeting and plan to vote in person, we will provide you with a ballot at the
meeting. If your shares are registered directly in your name, you are considered the stockholder of
record and have the right to vote in person at the meeting. If your shares are held by your broker in
“street name,” you are considered the beneficial owner of the shares held in street name. As a
beneficial owner, if you wish to vote at the meeting, you must bring to the meeting a legal proxy from
your broker showing that you were the beneficial owner of the shares on the Record Date and are
authorized to vote those shares.
10. Q: CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD OR AFTER I HAVE
VOTED BY TELEPHONE OR ELECTRONICALLY?
A: Yes. You may change your vote at any time before the voting concludes at the Annual Meeting by:
Sending in another proxy with a later date by mail, telephone or over the Internet;
Notifying our Corporate Secretary in writing before the Annual Meeting that you wish to revoke
your proxy; or
Voting in person at the Annual Meeting.
11. Q: HOW DO I VOTE MY SHARES IF THEY ARE HELD IN STREET NAME?
A: If your shares are held by your broker in “street name,” you will receive a form from your broker
seeking instruction as to how your shares should be voted. We urge you to complete this form and
instruct your broker how to vote on your behalf. You can also vote in person at the Annual Meeting,
but you must bring a legal proxy from the broker showing that you were the beneficial owner of your
shares on the Record Date and are authorized to vote the shares.
12. Q: WHAT IS BROKER “DISCRETIONARY” VOTING?
A: If you hold your shares through a broker, your broker is permitted to vote your shares on routine
“discretionary” items, such as the election of directors and ratification of our independent registered
public accounting firm, if it has transmitted the proxy materials to you and has not received voting
instructions from you on how to vote your shares before the deadline set by your broker.
2
13. Q: WHAT IS A “QUORUM?”
A: A “quorum” is a majority of the outstanding shares of Common Stock. They may be present at the
Annual Meeting or represented by proxy. There must be a quorum for the Annual Meeting to be held.
If you submit a properly executed proxy card, even if you abstain from voting, you will be considered
part of the quorum. Broker “non-votes” are also considered a part of the quorum. Broker non-votes
occur when a broker holding shares for a beneficial owner does not vote on a particular matter
because the broker does not have discretionary voting power with respect to that item and has not
received voting instructions from the beneficial owner.
14. Q: HOW ARE MATTERS PASSED OR DEFEATED?
A: The director nominees receiving the highest number of affirmative votes from holders of our Class A
Common Stock and the affirmative vote of the holder of our Class C Common Stock will be elected
as Class A directors and a Class C director, respectively. A properly executed proxy marked
“WITHHOLD AUTHORITY” with respect to the election of one or more directors will not be voted
with respect to the director or directors indicated, although it will be counted for purposes of
determining whether there is a quorum.
Ratification of the appointment of our independent registered public accounting firm must receive
affirmative votes from more than 50 percent of the shares of Common Stock that are present in
person or represented by a proxy and entitled to vote on that proposal at the Annual Meeting. In
tabulating the voting results for any particular proposal, shares that constitute broker non-votes are
not considered entitled to vote on that proposal. However, abstentions and broker non-votes will be
treated as shares present for the purpose of determining the presence of a quorum for the transaction
of business. As a result, abstentions will have the same effect as negative votes and broker non-votes
are not counted for purposes of determining whether stockholder approval of the matter has been
obtained.
15. Q: WHO WILL COUNT THE VOTES?
A: Votes will be tabulated by Computershare Trust Company, N.A.
16. Q: HOW WILL VOTING ON ANY BUSINESS NOT DESCRIBED IN THE NOTICE OF
ANNUAL MEETING BE CONDUCTED?
A: We do not know of any business to be considered at the Annual Meeting other than the proposals
described in this proxy statement. If any other business is presented at the Annual Meeting, your
signed proxy card gives authority to Dr. Bertrand F. Cambou, our President and Chief Executive
Officer, and Mr. Robert C. Melendres, our Executive Vice President, Business Development, Chief
Legal Officer and Corporate Secretary, to vote on such matters at their discretion.
17. Q: HOW CAN I OBTAIN ELECTRONIC COPIES OF THE PROXY MATERIALS FOR THE
2008 ANNUAL MEETING?
A: This proxy statement and Spansion’s Annual Report on Form 10-K for Fiscal 2007 are available
electronically at the Investor Relations page of our website at investor.spansion.com/
2008_Proxy_Statement.
18. Q: HOW CAN I ELECT TO RECEIVE FUTURE PROXY MATERIALS ELECTRONICALLY?
A: We strongly encourage you to elect to receive future proxy materials electronically in order to
conserve natural resources and to help us reduce printing costs and postage fees. With electronic
delivery, you will be notified via e-mail as soon as the proxy materials are available on the Internet,
and you can submit your votes online. To sign up for electronic delivery:
Go to our website at investor.spansion.com/2008_Proxy_Statement;
3
Click on “Electronic Proxy Statement;” and
Follow the directions provided to complete your enrollment.
Once you enroll for electronic delivery, you will receive proxy materials electronically as long as
your account remains active or until you cancel your enrollment.
19. Q: WHEN ARE THE STOCKHOLDER PROPOSALS FOR THE 2009 ANNUAL MEETING
DUE?
A: In accordance with the rules of the Securities and Exchange Commission, in order for stockholder
proposals to be considered for inclusion in the proxy statement for the 2009 Annual Meeting, they
must be submitted in writing to our Corporate Secretary, Spansion Inc., 915 DeGuigne Drive, P.O.
Box 3453, Sunnyvale, California 94088 on or before December 10, 2008. In addition, our bylaws
provide that for directors to be nominated or other proposals to be properly presented at a
stockholders meeting, an additional notice of any nomination or proposal must be received by us
between February 26, 2009 and March 28, 2009. However, if our 2009 Annual Meeting is not within
30 days of May 27, 2009, to be timely, the notice by the stockholder must be received by our
Corporate Secretary not later than the close of business on the tenth day following the day on which
the first public announcement of the date of the Annual Meeting was made or the notice of the
meeting was mailed, whichever occurs first. More information on our bylaws and a description of the
information that must be included in the stockholder notice is included in this proxy statement
beginning on page 8 under the heading “Consideration of Stockholder Nominees for Director.”
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
2008 ANNUAL STOCKHOLDERS MEETING TO BE HELD ON MAY 27, 2008.
The proxy statement to security holders is available at investor.spansion.com/2008_Proxy_Statement.
4
ITEM 1—ELECTION OF DIRECTORS
General
Our Board of Directors currently consists of nine directors. Our Certificate of Incorporation provides that
the Board of Directors consists of three classes of directors, each serving staggered three-year terms. At each
annual meeting of stockholders, directors will be elected for a term of three years to succeed those directors
whose terms are expiring.
Our Certificate of Incorporation also provides that, subject to each holder’s aggregate ownership interest in
Spansion, the holders of Class C Common Stock, voting together as a separate class, are entitled to vote for one
director to the Board (the “Class C Director”). As the sole holder of our Class C Common Stock, Fujitsu
Microelectronics Limited, a wholly owned subsidiary of Fujitsu Limited, has the right to elect the Class C
Director. The holders of Class A Common Stock, voting together as a separate class, are entitled to vote for all
other directors to the Board (the “Class A Directors”).
Classified Board
Our Board of Directors is currently composed of the following classes of directors:
Class Expiration Member
Class I 2009 David K. Chao (Class A Director)
Robert L. Edwards (Class A Director)
Donald L. Lucas (Class A Director)
Class II 2010 Boaz Eitan (Class A Director)
Patti S. Hart (Class A Director)
John M. Stich (Class A Director)
Class III 2008 Bertrand F. Cambou (Class A Director)
Gilles Delfassy (Class C Director)
David E. Roberson (Class A Director)
Election of Class III Directors
At the Annual Meeting, three directors will be elected for a three-year term, which expires at our 2011
Annual Meeting of Stockholders, until their successors are duly elected and qualified in accordance with our
bylaws. Two of the nominees, Dr. Cambou and Mr. Roberson, are presently member of our Board of Directors
and serve as Class A Directors. Mr. Delfassy, who is also a nominee and presently a member of our Board of
Directors, serves as a Class C Director. Upon the recommendation of the Nominating and Corporate Governance
Committee, the Board of Directors has nominated Dr. Cambou, Mr. Delfassy and Mr. Roberson for re-election as
Class III directors. See “Nominees” below. If Dr. Cambou, Mr. Delfassy or Mr. Roberson should be unable or
decline to serve at the time of the Annual Meeting, the persons named as proxies on the proxy card will vote for
such substitute nominee(s) as our Board of Directors recommends, or vote to allow the vacancy created thereby
to remain open until filled by our Board of Directors. The Board of Directors has no reason to believe that the
nominees will be unable or decline to serve as directors if elected.
The Board of Directors recommends that the holders of Class A Common Stock vote in favor of the election
of Dr. Cambou and Mr. Roberson as Class A Directors and that the holder of Class C Common Stock vote in
favor of the election of Mr. Delfassy as a Class C Director. Proxies received will be voted “FOR” the nominees
named below, unless marked to the contrary.
Nominees
The following director nominees are standing for election by the holders of our Class A Common Stock:
Bertrand F. Cambou, age 52, has served as our President and Chief Executive Officer since July 2003. From
July 2003 until November 2005, he served as a member of Spansion LLC’s Board of Managers. Since November
5
2005, he has served as a Class A Director. Beginning in January 2002 until December 2005, he served as a vice
president of Advanced Micro Devices, Inc. (AMD), first as group vice president of AMD’s Memory Group, and
later as an executive vice president. Dr. Cambou was chief operating officer and co-president of Gemplus
International S.A. from June 1999 to January 2002. Also during this time, he was a board member of Gemplus
International S.A. and of Ingenico Ltd. Dr. Cambou’s career includes a 15-year tenure at Motorola Inc., where he
held various management positions including senior vice president and general manager of the Networking and
Computing System Group as well as chief technical officer of the Semiconductor Sector. Dr. Cambou received
his engineering degree from Supelec, Paris, and his doctorate in electrical engineering from Paris XI University.
He is the author of 15 U.S. patents.
David E. Roberson, age 53, has served as a Class A Director since the consummation of our initial public
offering in December 2005. Since May 2007, Mr. Roberson has served as senior vice president and general
manager of the StorageWorks Division of Hewlett-Packard Company. Prior to that, he served as president and
chief executive officer and as a member of the board of directors of Hitachi Data Systems from April 2006 until
May 2007. From April 2004 until April 2006, Mr. Roberson served as president and chief operating officer of
Hitachi Data Systems, and from April 2000 until April 2004 he served as its chief operating officer.
Mr. Roberson received a bachelor’s degree in Social Ecology from the University of California, Irvine and a law
degree from Golden Gate University School of Law in San Francisco, California. Mr. Roberson also studied
financial management at Harvard Business School.
The following director nominee is standing for election by the holder of our Class C Common Stock:
Gilles Delfassy, age 52, has served as a Class C Director since September 2007. Until his retirement in
January 2007, Mr. Delfassy served in various senior management positions at Texas Instruments Incorporated,
which he joined in 1978, most recently as a senior vice president. Mr. Delfassy is also a member of the Board of
Directors of Anadigics, Inc. Mr. Delfassy received an Engineering Diploma (equivalent to master’s of science in
electrical engineering) at Ecole Nationale Superieure d’Electronique et d’ Automatique de Toulouse. He also
graduated in Business Administration from Institute d’Administration des Entreprises de Paris.
Other Directors
The following six directors whose terms of office do not expire in 2008 will continue to serve after the
Annual Meeting until such time as their respective terms of office expire and their respective successors are duly
elected and qualified:
David K. Chao, age 41, has served as a Class A Director since the consummation of our initial public
offering in December 2005. Mr. Chao is a co-founder of DCM (formerly known as Doll Capital Management), a
venture capital firm based in the Silicon Valley, and has been a general partner of DCM since 1996. Prior to
founding DCM, Mr. Chao was a co-founder and member of the board of directors of Japan Communications, Inc.
He also worked as a management consultant at McKinsey & Company and as a marketing manager at Apple
Computer. Prior to these positions, he was an account executive for Recruit, a Japanese human resources,
advertising and services company. Mr. Chao serves on the boards of numerous DCM portfolio companies,
including 51job, Inc., where he has served since 2000. He is a management board member of the Stanford
Graduate School of Business board of trustees and a member of The Thacher School board of trustees. Mr. Chao
received a bachelor’s degree in economics and East Asian studies from Brown University and a master’s degree
in business administration from Stanford University.
Robert L. Edwards, age 52, has served as a Class A Director since December 2006. Since March 2004,
Mr. Edwards has served as executive vice president and chief financial officer of Safeway, Inc. Prior to that, he
served as executive vice president and chief financial officer of Maxtor Corporation from September 2003 until
March 2004. Prior to joining Maxtor, Mr. Edwards was senior vice president, chief financial officer and chief
administrative officer at Imation Corporation, where he was employed from 1998 to August 2003. He is also a
6
director of Casa Ley, in which Safeway has a 49% ownership interest. Mr. Edwards holds a bachelor’s degree in
accounting and a master’s degree in business administration from Brigham Young University.
Boaz Eitan, age 59, has served as a Class A Director and Executive Vice President and Chief Executive
Officer, Saifun since March 2008. Dr. Eitan founded Saifun Semiconductors Ltd. (Saifun) in 1996 and served as
its Chief Executive Officer and Chairman of the Board of Directors from 1996 to 2008, when Spansion acquired
Saifun. From 1992 to 1997, Dr. Eitan managed the Israeli design center of WaferScale Integration Inc., which he
established in 1992. From 1983 to 1992, Dr. Eitan held various positions at WaferScale Integration Inc.,
including manager of the Device Physics group, director of memory products and Vice President of Product and
Technology Development. From 1981 to 1983, Dr. Eitan served as a physicist at Intel Corporation’s research and
development center in Santa Clara, California. Dr. Eitan holds a Ph.D. and an M.Sc. in Applied Physics and a
B.Sc. in Mathematics and Physics from the Hebrew University, Jerusalem. He is the inventor of Saifun’s NROM
technology. Dr. Eitan is named as the inventor of over 85 issued U.S. patents, over 45 pending U.S. patent
applications and a number of issued non-U.S. patents and pending non-U.S. patent applications.
Patti S. Hart, age 52, has served as a Class A Director since the consummation of our initial public offering
in December 2005. Ms. Hart most recently served as chairman and chief executive officer of Pinnacle Systems
from March 2004 until August 2005. Prior to joining Pinnacle Systems in 2004, Ms. Hart was chairman and chief
executive officer of Excite@Home from April 2001 until March 2002. Prior to joining Excite@Home in 2001,
Ms. Hart served as chairman, president and chief executive officer of Telocity and as a member of Telocity’s
board of directors from July 1999 through its sale to DirecTV in March 2001. From 1986 to 1999, Ms. Hart
worked at Sprint Corporation, most recently as president and chief operations officer of Sprint’s Long Distance
Division. Ms. Hart is also a member of the board of directors for Korn Ferry International, International Game
Technology and LIN TV Corp., and is a former board member of Plantronics Inc., Vantive Corporation,
EarthLink, Inc. and Premisys Corporation. Ms. Hart holds a bachelor’s degree in marketing and economics from
Illinois State University.
Donald L. Lucas, age 77, has served as Chairman of the Board of Directors and as a Class A Director since
September 2007. Since 1967, Mr. Lucas has been actively engaged in venture capital activities as a private
individual. He has been a director of Oracle Corporation since 1980 and serves as chairman of their executive
committee. Mr. Lucas also currently serves as chairman of the board of directors of DexCom, Inc. and 51job,
Inc., and as a director of Cadence Design Systems, Inc. and Vimicro Corp. Mr. Lucas received a bachelor’s
degree from Stanford University and a master’s degree from the Stanford Graduate School of Business.
John M. Stich, age 66, has served as a Class A Director since December 2006. He is the Honorary Consul
General of Japan at Dallas. Previously, he spent 35 years at Texas Instruments, with his most recent position as
chief marketing officer in Japan. He lived and worked for Texas Instruments in Asia for a total of 24 years where
he held various additional management positions such as vice president of semiconductors for Texas Instruments
Asia Ltd., managing director of Texas Instruments Hong Kong Ltd., and marketing director of Texas Instruments
Taiwan Limited. Mr. Stich has been active in leading various industry associations, including serving as:
governor of the American Chambers of Commerce in Japan and Hong Kong, and chairman of the Semiconductor
Industry Association (Japan Chapter). Currently, he is a director of Stonestreet One, Inc. and Diodes Inc. In
addition, Mr. Stich is a member of the Dallas/Taipei and Dallas/Sendai Sister City Committees, a member of the
Advisory Council for Southern Methodist University’s Asian Studies Program, a director of the Japan America
Society of Dallas/Fort Worth, Vice-Dean of the Consular Corps of Dallas/Fort Worth, and a member of the
Pastoral Council of Prince of Peace church. Mr. Stich holds a bachelor’s degree in electrical engineering from
Marquette University.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE
PROPOSED DIRECTOR NOMINEES LISTED ABOVE.
7
CORPORATE GOVERNANCE
Principles of Corporate Governance
The Board of Directors has adopted Principles of Corporate Governance to address significant corporate
governance issues. The Principles of Corporate Governance provide a framework for our corporate governance
matters and include topics such as Board and Board Committee composition, the role and functions of the Board,
the responsibilities of various Board committees and Board evaluations. The Nominating and Corporate
Governance Committee is responsible for reviewing and recommending any changes on the Principles of
Corporate Governance to the Board.
Director Independence
The Board of Directors affirmatively determines the independence of each director and nominee for election
as a director in accordance with the elements of independence set forth in the NASDAQ Stock Market listing
standards. On March 12, 2008, the Board conducted a review of director independence. During this review, the
Board considered transactions and relationships between each director or any member of his or her immediate
family and Spansion and our subsidiaries and affiliates, including those reported under “Certain Relationships
and Related Transactions” on page 49. The Board also considered whether there were any transactions or
relationships between directors or any member of their immediate families (or any entity on which a director or
an immediate family member is an executive officer, general partner or significant equity holder) and members
of Spansion’s executive team or their affiliates. The purpose of this review was to determine whether any
transactions or relationships exist that are inconsistent with a determination of director independence.
As part of this review, the Board of Directors considered: (i) the ownership interest that Mr. Chao’s firm,
DCM, has in Vendavo, Inc., which provides software we purchased through an agreement with SAP Inc.;
(ii) Mr. Delfassy’s service on the board of directors of Discretix Inc., which licenses software to us;
(iii) Mr. Lucas’ service on the board of directors of Cadence Design Systems, Inc., which provides equipment
and services to us; and (iv) Mr. Roberson’s employment with Hewlett-Packard Company, which is one of our
customers. The Board determined that none of these relationships violate the elements of independence set forth
in the NASDAQ Stock Market listing standards and, therefore, seven of the nine members of Spansion’s Board
of Directors are independent directors. More specifically, the Board of Directors affirmatively determined that
each of the following non-employee directors is independent and has no relationship with Spansion, except as a
director and stockholder of Spansion:
• David K. Chao • Patti S. Hart • David E. Roberson
• Gilles Delfassy • Donald L. Lucas • John M. Stich
Robert L. Edwards
In addition, the Board affirmatively determined that Dr. Cambou is not independent because he is the
President and Chief Executive Officer of Spansion and that Dr. Eitan is not independent because he is Executive
Vice President and Chief Executive Officer, Saifun. Dr. Eitan joined Spansion in March 2008, when we acquired
Saifun Semiconductors Limited, which is a wholly owned subsidiary of Spansion.
Nominations for Directors
Process for Evaluating and Selecting Potential Director Candidates
Our Nominating and Corporate Governance Committee is responsible for annually identifying and
recommending to the Board of Directors the nominees to be selected by the Board for each annual meeting of
stockholders (or special meeting of stockholders at which directors are to be elected) and recommending
candidates to fill any vacancies on the Board (whether through the resignation of any director or through the
increase in the number of directors by the Board). The Nominating and Corporate Governance Committee is also
8
responsible for periodically assessing and developing the appropriate criteria to be utilized in evaluating potential
director nominees, and communicating such criteria to the Board.
Minimum Qualifications for Director Nominees
The Nominating and Corporate Governance Committee has established the following minimum criteria for
evaluating prospective candidates to be selected by the Board:
Reputation for integrity, strong moral character and adherence to high ethical standards;
Holds or has held a generally recognized position of leadership in community or chosen field of
endeavor, and has demonstrated high levels of accomplishment;
Demonstrated business acumen and experience, and ability to exercise sound business judgment and
common sense in matters that relate to the current and long-term objectives of Spansion;
Ability to read and understand basic financial statements and other financial information pertaining to
Spansion;.
Commitment to understand our business, industry and strategic objectives;
Commitment and ability to regularly attend and participate in meetings of the Board of Directors, Board
committees and stockholders (taking into account the number of other company boards on which the
candidate serves), and ability to generally fulfill all responsibilities as a director;
Willingness to represent and act in the interests of all stockholders of Spansion rather than the interests
of a particular group;
Good health, and ability to serve;
For prospective non-employee directors, independence under Securities and Exchange Commission
rules and the NASDAQ Stock Market listing standards, and the absence of any conflict of interest
(whether due to a business or personal relationship) or legal impediment to, or restriction on, the
nominee serving as a director; and
Willingness to accept the nomination to serve as a director of Spansion.
Other Factors for Potential Consideration
The Nominating and Corporate Governance Committee will also consider the following factors in
connection with its evaluation of each prospective director nominee:
Whether the prospective director nominee will foster a diversity of skills and experiences;
Whether the prospective director nominee possesses the requisite education, training and experience to
qualify as “financially literate” or as an “audit committee financial expert” under applicable Securities
and Exchange Commission rules and the NASDAQ Stock Market listing standards;
For incumbent directors standing for re-election, the director’s performance during his or her term,
including the number of meetings attended, level of participation, and overall contribution to Spansion;
The number of other company Boards on which the prospective director nominee serves; and
Whether the prospective director nominee will add to or complement the Board’s existing strengths.
Process for Identifying, Evaluating and Recommending Director Nominees
The Nominating and Corporate Governance Committee initiates the process for identifying, evaluating
and recommending prospective director nominees by preparing a list of potential candidates who, based
on their biographical information and other information available to the Nominating and Corporate
9
Governance Committee, appear to meet the criteria specified above and who have specific qualities,
skills or experience being sought (based on input from the Board).
Outside Advisors. The Nominating and Corporate Governance Committee may engage a third-party
search firm or other advisors to assist in identifying prospective director nominees.
Stockholder Suggestions for Potential Nominees. The Nominating and Corporate Governance
Committee will consider suggestions of prospective director nominees from stockholders. Stockholders
may recommend individuals for consideration in accordance with the procedures set forth below in
“Consideration of Stockholder Nominees for Director.” The Nominating and Corporate Governance
Committee will evaluate a prospective director nominee suggested by any stockholder in the same
manner and against the same criteria as any other prospective director nominee identified by the
Nominating and Corporate Governance Committee from any other source.
Nomination of Incumbent Directors. The re-nomination of existing directors should not be viewed as
automatic, but should be based on continuing qualification under the criteria set forth above. For
incumbent directors standing for re-election, the Nominating and Corporate Governance Committee will
assess the incumbent director’s performance during his or her term, including the number of meetings
attended; level of participation, and overall contribution to Spansion; composition of the Board at that
time; and any changed circumstances affecting the individual director which may bear on his or her
ability to continue to serve on the Board.
Management Directors. The number of officers or employees of Spansion serving at any time on the
Board should be limited such that at all times a majority of the directors is “independent” under
applicable Securities and Exchange Commission rules and the NASDAQ Stock Market listing
standards.
After reviewing appropriate biographical information and qualifications, first-time candidates will be
interviewed by at least one member of the Nominating and Corporate Governance Committee and by
the Chief Executive Officer.
Upon completion of the above procedures, the Nominating and Corporate Governance Committee shall
determine the list of potential candidates to be recommended to the Board for nomination at the annual
meeting.
The Board of Directors will select the slate of nominees only from candidates identified, screened and
approved by the Nominating and Corporate Governance Committee.
Consideration of Stockholder Nominees for Director
The policy of the Nominating and Corporate Governance Committee is to consider properly submitted
stockholder nominations for candidates to serve on our Board. Pursuant to our bylaws, stockholders who wish to
nominate persons for election to the Board of Directors at the 2009 annual meeting must be stockholders of
record when they give us notice of such nomination, must be entitled to vote at the meeting and must comply
with the notice provisions in our bylaws. A stockholder’s notice must be delivered to our Corporate Secretary or
the Chair of the Nominating and Corporate Governance Committee not less than 60 nor more than 90 days before
the anniversary date of the immediately preceding annual meeting. For our 2009 annual meeting, the notice must
be delivered between February 26, 2009 and March 28, 2009. However, if our 2009 annual meeting is not within
30 days of May 27, 2009, the notice must be delivered no later than the close of business on the tenth day
following the earlier of the day on which the first public announcement of the date of the Annual Meeting was
made or the day the notice of the meeting is mailed. The stockholder’s notice must include the following
information for the person proposed to be nominated:
Name, age, nationality, business and residence addresses;
Principal occupation and employment;
10
The class and number of shares of stock owned beneficially and of record by the proposed nominee;
Any other information required to be disclosed in a proxy statement with respect to the proposed
nominee; and
The proposed nominee’s written consent to being a nominee and to serving as a director if elected.
The stockholder’s notice must also include the following information for the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal is made:
Names and addresses;
The number of shares of stock owned beneficially and of record by them;
A description of any arrangements or understandings between them and each proposed nominee and any
other persons (including their names) pursuant to which the nominations are to be made;
A representation that they intend to appear in person or by proxy at the Annual Meeting to nominate the
person named in the notice;
A representation as to whether they are part of a group that intends to deliver a proxy statement or solicit
proxies in support of the nomination; and
Any other information that would be required to be included in a proxy statement.
The Chair of the Annual Meeting will announce whether the procedures in the bylaws have been followed,
and if not, declare that the nomination be disregarded. If the nomination is made in accordance with the
procedures in our bylaws, the Nominating and Corporate Governance Committee will apply the same criteria in
evaluating the nominee as it would any other director nominee candidate and will recommend to the Board
whether or not the stockholder nominee should be nominated by the Board and included in our proxy statement.
These criteria are described below in the description of the Nominating and Corporate Governance Committee on
page 15. The nominee and nominating stockholder must be willing to provide any information reasonably
requested by the Nominating and Corporate Governance Committee in connection with its evaluation.
Communications with the Board or Non-Management Directors
Stockholders who wish to communicate with Spansion’s Board of Directors or with non-management
directors may send their communications in writing to our Corporate Secretary, Spansion Inc., 915 DeGuigne
Drive, P.O. Box 3453, Sunnyvale, California 94088 or send an email to Corporate.Secretary@spansion.com.
Spansion’s Corporate Secretary will forward these communications to our independent directors except for spam,
junk mail, mass mailings, product complaints or inquiries, job inquiries, surveys, business solicitations or
advertisements, or patently offensive or otherwise inappropriate material. Communications will not be forwarded
to the independent directors unless the stockholder submitting the communication identifies himself or herself by
name and sets out the number of shares of stock he or she owns beneficially or of record.
Codes of Business Conduct and Ethics
The Board of Directors has adopted a code of conduct, entitled “Code of Business Conduct,” which applies
to all directors and employees and which was designed to help directors and employees resolve ethical and
compliance issues encountered in the business environment. The Code of Business Conduct governs matters such
as conflicts of interest, compliance with laws, confidentiality of company information, encouraging the reporting
of any illegal or unethical behavior, fair dealing and use of company assets. The Board of Directors has also
adopted a Code of Ethics for the Chief Executive Officer, the Chief Financial Officer, the Corporate Controller
and All Other Senior Finance Executives. The Code of Ethics governs matters such as financial reporting,
conflicts of interest and compliance with laws, rules, regulations and Spansion’s policies.
11
You can access Spansion’s Principles of Corporate Governance, Code of Business Conduct and Code of
Ethics at the Investor Relations page of our website at www.spansion.com or by writing to us at Corporate
Secretary, Spansion Inc., 915 DeGuigne Drive, P.O. Box 3453, Sunnyvale, California 94088, or emailing us at
Corporate.Secretary@spansion.com. We will provide you with this information free of charge. Please note that
information contained on our website is not incorporated by reference in, or considered to be a part of, this
document. We will post on our website any amendment to the Code of Ethics, as well as any waivers of the Code
of Ethics, that are required to be disclosed by the rules of the Securities and Exchange Commission or the
NASDAQ Stock Market.
12
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors
The Board of Directors has Audit, Compensation, Finance and Nominating and Corporate Governance
Committees. The Strategy Committee was created in March 2007 and dissolved in March 2008. The members of
these committees and their chairs are recommended by the Nominating and Corporate Governance Committee
and then appointed by the Board. During the 2007 fiscal year, the Board of Directors held nine regularly
scheduled and special meetings, the Audit Committee held thirteen regularly scheduled and special meetings, the
Compensation Committee held five regularly scheduled and special meetings, the Finance Committee held three
regularly scheduled and special meetings, the Nominating and Corporate Governance Committee held six
regularly scheduled and special meetings, and the Strategy Committee held five regularly scheduled and special
meetings. All directors attended at least 75 percent of the meetings of the Board of Directors and Board
committees during the periods that he or she served in fiscal 2007, except for Dr. Hector de J. Ruiz, who resigned
as Chairman of the Board on September 20, 2007. The independent directors hold regularly scheduled sessions
without any members of Spansion’s management present. Four such sessions of the independent directors were
held in fiscal 2007. Spansion’s directors are strongly encouraged to attend the Annual Meeting of Stockholders.
All seven members of our Board of Directors attended the 2007 Annual Meeting of Stockholders.
On March 16, 2007, the Board established the position of Lead Independent Director and, upon the
recommendation of our Nominating and Corporate Governance Committee, designated Mr. David E. Roberson
as Lead Independent Director. The general authority and responsibilities of the Lead Independent Director are
established by the Board, and include presiding at all meetings of the Board when the Chairman is not present;
serving as a liaison between the independent directors and the Chairman of the Board; evaluating and approving
the information, agenda and meeting schedules sent to the Board; calling and chairing meetings of the
independent directors; recommending to the Nominating and Corporate Governance Committee the membership
of the Board committees and selection of committee chairpersons; recommending the retention of advisors and
consultants who report directly to the Board; assisting in ensuring compliance with and implementation of the
Board’s corporate governance principles; and being available for consultation and communication with
stockholders. On September 20, 2007, upon the appointment of an independent Chairman of the Board of
Directors, Mr. Roberson resigned from his position as Lead Independent Director.
Audit Committee
The Audit Committee, which has been established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended, currently consists of Mr. Robert L. Edwards, as Chair, Mr. John M. Stich
and Mr. Roberson, each of whom was determined by the Board of Directors to be financially literate and
“independent” as such term is defined for Audit Committee members by the NASDAQ Stock Market listing
standards. Mr. Roberson served as Chair of the Audit Committee until Mr. Edwards was appointed as Chair on
March 16, 2007, Mr. David K. Chao served as a member of the Audit Committee until September 20, 2007 and
Ms. Patti S. Hart served as a member of the Audit Committee until March 12, 2008. The Board of Directors has
determined that Messrs. Edwards and Roberson are each an “audit committee financial expert” as defined under
the rules of the Securities and Exchange Commission.
The Audit Committee assists the Board with its oversight responsibilities regarding our accounting and
financial reporting processes, the audit of our financial statements, the integrity of our financial statements, our
internal accounting and financial controls, our compliance with legal and regulatory requirements, the
independent registered public accounting firm’s qualifications and independence and the performance of our
internal audit function and the independent registered public accounting firm. The Audit Committee is also
directly responsible for the appointment, compensation, retention and oversight of the work of the independent
registered public accounting firm, which reports directly to the Audit Committee. The Audit Committee meets
alone with our financial and legal personnel, our internal auditor and with our independent registered public
13
accounting firm, who have free access to the Audit Committee at any time. The director of our Internal Audit
Department reports directly to the Chair of the Audit Committee, confers regularly with our Chief Financial
Officer and serves a staff function for the Audit Committee.
Compensation Committee
The Compensation Committee consists of Ms. Hart, as Chair, and Mr. Gilles Delfassy and Mr. Roberson,
each of whom was determined by the Board to be “independent.” Mr. Roberson served as a member of the
Compensation Committee until March 16, 2007 and then was reappointed to the Compensation Committee on
December 20, 2007. Messrs. Chao, Edwards and John M. Stich each served on the Compensation Committee
until September 20, 2007.
The Compensation Committee assists the Board with its oversight responsibilities regarding our
compensation plans, policies and benefit programs. The Compensation Committee also assists the Board in
discharging its responsibilities regarding oversight of the compensation of executive officers and directors,
including by designing (in consultation with management or the Board), recommending to the Board for approval
and evaluating our compensation plans, policies and programs for executive officers and directors. The
Compensation Committee shall ensure that compensation programs are designed to encourage high performance,
promote accountability and assure that employee interests are aligned with the interests of the Company’s
stockholders. In fulfilling its responsibilities, the Compensation Committee may delegate any or all of its
responsibilities to a subcommittee of the Compensation Committee, except for the adoption and approval of
cash- and equity-based compensation plans, matters that involve executive compensation or matters where the
Compensation Committee has determined such compensation is intended to comply with Section 162(m) of the
Internal Revenue Code or is intended to be exempt from Section 16(b) under the Securities Exchange Act of
1934, as amended, pursuant to Rule 16b-3.
The Compensation Committee approves all equity awards granted to executive officers and the annual
equity awards granted to employees following Spansion’s annual performance evaluation process. The
Compensation Committee has delegated to our Grant Committee, which consists of our Chief Executive Officer,
Chief Financial Officer and Chief Operating Officer, authority to approve stock option and restricted stock unit
awards to non-executive officers, subject to established guidelines. The purpose of this delegation is to provide
administrative flexibility to recognize new hires and promotions or achievements for employees below the level
of executive officer. The Compensation Committee approves all equity awards granted to non-executive officers
that are not within the guidelines established for the Grant Committee. The Compensation Committee also
reviews all equity awards approved by the Grant Committee.
The agendas for meetings of the Compensation Committee are determined by the Chair with the assistance
of members of our Human Resources and Legal Departments. Compensation Committee meetings are attended
by the Chief Executive Officer, the Chief Legal Officer, the Corporate Vice President, Human Resources and
other members of management in the Human Resources and Legal Departments. The Compensation Committee
also meets in executive sessions without any members of management present. The Chair reports the
Compensation Committee’s decisions and recommendations on executive compensation to the Board of
Directors.
Finance Committee
The Finance Committee consists of Mr. Donald L. Lucas, as Chair, and Messrs. Chao, Delfassy and
Edwards. The Finance Committee assists the Board with its oversight responsibilities regarding financial matters,
including by reviewing our corporate capital structure, material transactions and investments to assess their
impact on our strategic plans and business operations. The Finance Committee also assists the Board in
discharging its responsibilities regarding oversight of the development and implementation of Spansion’s
business strategies.
14
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee consists of Mr. Roberson, as Chair, Ms. Hart and
Mr. Stich, each of whom was determined by the Board of Directors to be “independent.” Mr. Chao and Ms. Hart
each served on the Nominating and Corporate Governance Committee until September 20, 2007, Mr. Chao
served as Chair until Mr. Roberson was appointed as Chair on March 16, 2007 and Ms. Hart was reappointed on
March 20, 2008. The Nominating and Corporate Governance Committee assists the Board with its oversight
responsibilities regarding the identification of qualified candidates to become Board members, the selection of
nominees for election as directors at the next Annual Meeting of Stockholders (or special meeting of
stockholders at which directors are to be elected), the selection of candidates to fill any vacancies on the Board,
the selection of Board members for each committee of the Board, the development and recommendation to the
Board of a set of applicable corporate governance guidelines and principles and oversight of the evaluation of the
Board. In seeking candidates to determine if they are qualified to become Board members, the Nominating and
Corporate Governance Committee looks for the following attributes, which, among others, the Nominating and
Corporate Governance Committee deems appropriate: personal and professional integrity, ethics and values;
experience in corporate management, such as serving as an officer or former officer of a publicly held company;
experience serving as a director of a privately or publicly held company; experience in our industry and with
relevant social policy concerns; ability to make independent analytical inquiries; academic expertise in an area of
our operations; and practical and mature business judgment. For a detailed description of the process for
nomination of director candidates by stockholders, please see information under the heading “Consideration of
Stockholder Nominees for Director” on page 10. The Nominating and Corporate Governance Committee will use
the same standards to evaluate all director candidates, whether or not the candidates are proposed by
stockholders.
Strategy Committee
The Strategy Committee, which had authority to monitor and review material strategic transactions,
including any potential mergers, acquisitions, consolidations, joint ventures or similar transactions, and to make
recommendations to the Board regarding such transactions, was established in March 2007 and dissolved in
March 2008.
Bylaws and Committee Charters
You can access Spansion’s bylaws and the charters of our Audit, Compensation, Finance and Nominating
and Corporate Governance Committees at the Investor Relations page of our website at www.spansion.com or by
writing to us at Corporate Secretary, Spansion Inc., 915 DeGuigne Drive, P.O. Box 3453, Sunnyvale, California
94088, or emailing us at Corporate.Secretary@spansion.com. We will provide you with this information free of
charge. Please note that information contained on our website is not incorporated by reference in, or considered
to be a part of, this document.
Compensation Committee Interlocks and Insider Participation
The individuals who served as members of the Compensation Committee during fiscal 2007 were Ms. Hart
and Messrs. Chao, Delfassy, Edwards, Roberson and Stich. No member of the Compensation Committee was at
any time during fiscal 2007 or at any other time an officer or employee of Spansion, and no member had any
relationship with Spansion requiring disclosure under Item 404 of Regulation S-K. None of our executive
officers has served on the board of directors or compensation committee of any other entity that has or has had
one or more executive officers who served as a member of the Board of Directors or the Compensation
Committee during fiscal 2007.
15
DIRECTOR COMPENSATION
Spansion uses a combination of cash and equity-based incentive compensation to attract and retain qualified
candidates to serve on the Board of Directors. Our independent director compensation is determined by the Board
of Directors acting upon the recommendation of the Compensation Committee. In setting director compensation,
our Board of Directors considers, among other things, the significant amount of time that directors spend in
fulfilling their duties, the skill-level required by directors and competitive market data provided by Hewitt
Associates, an independent compensation consultant. Directors who are also employees of Spansion, or who are
otherwise determined to not be independent, receive no additional compensation for service as a director. We
may reimburse any of our directors and, in some circumstances, spouses who accompany directors, for travel,
lodging and related expenses they incur in attending Board of Directors and Board committee meetings.
Cash Compensation
During fiscal 2007, our independent directors received fees for their services as set forth in the table below.
Board retainer and meeting fees have not changed for fiscal 2008. All annual cash compensation is paid in
quarterly installments, in advance.
Annual Retainer (1) ................................................................. $ 60,000
Additional Annual Retainers
Chairperson ................................................................... $100,000
Audit Committee Chair .......................................................... $ 15,000
Compensation Committee Chair ................................................... $ 7,500
Finance Committee Chair ......................................................... $ 7,500
Nominating and Corporate Governance Committee Chair ............................... $ 7,500
Strategy Committee Chair ........................................................ $ 7,500
Lead Independent Director ........................................................ $ 30,000
Fees Per Board Meeting in Excess of Eight Board Meetings (2) .............................. $ 2,000
Fees Per Committee Meeting in Excess of Twelve Committee Meetings (2) ..................... $ 2,000
(1) All independent directors, including directors serving as Chairperson, receive this annual retainer.
(2) If in any calendar year an independent director is required to and does attend (i) more than eight meetings of
our Board of Directors, such director will receive $2,000 for each Board meeting attended in excess of eight,
or (ii) more than twelve meetings of a specific Board committee on which he or she serves, such director
will receive $2,000 per such Board committee meeting in excess of twelve.
Equity-Based Incentive Compensation
Each independent director received an initial stock option award exercisable for 20,000 shares of our
Class A Common Stock and an initial restricted stock unit award of 20,000 units that convert upon vesting into
20,000 shares of our Class A Common Stock. These awards were made at the time of our initial public offering
of our Class A Common Stock in December 2005 or, if later, upon the director’s appointment to our Board of
Directors. In addition, an independent director who serves as Chairperson of the Board receives an additional
initial restricted stock unit award of 10,000 units that convert upon vesting into 10,000 shares of our Class A
Common Stock.
For each year of continued service, independent directors receive an annual stock option award exercisable
for 10,000 shares of our Class A Common Stock and an annual restricted stock unit award of 10,000 units that
convert upon vesting into 10,000 shares of our Class A Common Stock. In addition, for each year of continued
service, an independent director serving as the Chairperson of the Board shall receive an additional annual stock
option award exercisable for 5,000 shares of our Class A Common Stock and an additional annual restricted
16
stock unit award of 5,000 units that convert upon vesting into 5,000 shares of our Class A Common Stock. All
annual equity-based compensation is awarded to independent directors on the date of the annual stockholders
meeting. At the annual stockholders meeting, each independent director who (i) joined our Board of Directors at
or prior to the last annual stockholders meeting, or (ii) joined our Board of Directors after the last annual
stockholders meeting but attended at least three meetings of the full Board of Directors, is entitled to receive an
annual equity award at that annual stockholders meeting.
All stock option and restricted stock unit awards granted to our independent directors vest 25% on the
anniversary of the grant date and the remainder vests in equal installments quarterly over the remaining 36
months, except for the stock option and restricted stock unit awards granted to our independent directors in
December 2005 at the time of the initial public offering of our Class A Common Stock. Those awards vested
25% on January 28, 2007 and the remainder vests in equal installments quarterly over the remaining 36 months
beginning January 28, 2007.
Director Summary Compensation Table for Fiscal 2007
The following table provides information concerning compensation expense paid to or earned by each of our
independent directors for fiscal 2007. Dr. Cambou, our President and Chief Executive Officer, does not receive
additional compensation for his services as a director.
Name (1)
Fees Earned or
Paid in Cash (6)
($)
Stock
Awards (7)(8)(9)
($)
Option
Awards (7)(8)(9)
($)
Total
($)
David K. Chao ............................... 61,875 75,137 41,258 178,270
Gilles Delfassy (2) ........................... 15,000 11,342 4,904 31,246
Robert L. Edwards ........................... 71,250 72,108 36,539 179,897
Patti S. Hart ................................. 67,500 75,137 41,258 183,895
Donald L. Lucas (2) .......................... 41,875 17,013 4,904 63,792
David E. Roberson ........................... 84,375 75,137 41,258 200,770
John M. Stich ............................... 65,625 72,509 36,742 174,876
Toshihiko Ono (3) (4) ......................... —
Hector de J. Ruiz (3) (5) ....................... —
(1) Bertrand F. Cambou, Spansion’s President and Chief Executive Officer, is not included in this table as he is
an employee of Spansion and thus receives no compensation for his services as director. The compensation
received by Dr. Cambou as an employee of Spansion is shown in the Fiscal 2007 Summary Compensation
Table on page 33.
(2) Messrs. Delfassy and Lucas were elected to Spansion’s Board of Directors on September 20, 2007.
(3) Mr. Ono and Dr. Ruiz were non-independent directors and consequently received no compensation for their
services as a director.
(4) Mr. Ono resigned from the Board of Directors on March 16, 2007.
(5) Dr. Ruiz resigned from the Board of Directors on September 20, 2007.
(6) Mr. Lucas earned $1,875 for his service as Chair of the Finance Committee during the fourth quarter of
fiscal 2007 but did not receive payment until February 2008.
(7) On May 29, 2007, Messrs. Chao and Roberson and Ms. Hart received their annual stock option award
exercisable for 10,000 shares of our Class A Common Stock and a restricted stock unit award of 10,000
units that convert upon vesting into 10,000 shares of our Class A Common Stock. The grant date fair value
computed in accordance with FAS 123(R) of the fiscal 2007 annual stock option awards and restricted stock
unit awards was $49,817 and $107,300, respectively.
17
(8) As of December 30, 2007, the aggregate number of shares of Class A Common Stock underlying stock
option and restricted stock unit awards for each of our independent directors was:
Name (1)
Aggregate Number of Shares
Underlying Stock Options
Aggregate Number of Shares
Underlying Restricted Stock Units
David K. Chao ............................... 30,000 21,250
Gilles Delfassy ............................... 20,000 20,000
Robert L. Edwards ............................ 20,000 15,000
Patti S. Hart .................................. 30,000 21,250
Donald L. Lucas .............................. 20,000 30,000
David E. Roberson ............................ 30,000 21,250
John M. Stich ................................ 20,000 15,000
Toshihiko Ono ............................... —
Hector de J. Ruiz .............................. —
(9) Reflects the grant date fair value of each stock option and restricted stock unit award computed in
accordance with FAS 123(R). The assumption used in valuation of these awards are set forth in the notes to
our consolidated financial statements, which are included in our Annual Report on Form 10-K for the fiscal
year ended December 30, 2007, filed with the Securities Exchange Commission on February 28, 2007.
These amounts do not correspond to the actual value that will be recognized by the Named Executive
Officers.
18
SECURITY OWNERSHIP
Security Ownership of Certain Beneficial Owners
The following table sets forth the beneficial owners of more than five percent of the outstanding shares of
Spansion Common Stock as of March 31, 2008. This information is based upon our records and other
information available from outside sources. We are not aware of any other beneficial owner of more than five
percent of any class of Spansion Common Stock. Except as otherwise indicated, to our knowledge, each person
has sole investment and voting power with respect to the shares shown as beneficially owned.
Name and Address of Beneficial Owner Title of Class
Number of
Shares Beneficially
Owned
Percent of
Class Beneficially
Owned (1)
Fujitsu Microelectronics Limited (2) .....................
Shinjuku Daiichi Seimei Building, 2-7-1 Nishi-Shinjuku,
Shinjuku-ku
Tokyo 163-0701, Japan
Class A
Class C
18,352,934
1
11.59%
100%
Prudential Financial, Inc. (3) (4) .........................
751 Broad Street
Newark, NJ 07102-3777
Class A 15,311,456 9.67%
Ameriprise Financial, Inc. (5) (6) ........................
145 Ameriprise Financial Center
Minneapolis, MN 55474
Class A 15,262,314 9.63%
FMRLLC(7)(8).....................................
82 Devonshire Street
Boston, MA 02109
Class A 14,135,029 8.92%
AMD Investments, Inc. (9) .............................
One AMD Place
Sunnyvale, CA 94088
Class A 14,039,910 8.86%
Donald Smith & Co., Inc. (10) ..........................
152 West 57th Street
New York, NY 10019
Class A 13,507,800 8.53%
Janus Capital Management LLC (11) (12) (13) .............
151 Detroit Street
Denver, CO 80206
Class A 7,948,434 5.02%
(1) Based on 158,323,770 shares of Class A Common Stock and one share of Class C Common Stock
outstanding as of March 31, 2008. Calculated in accordance with the rules of the Securities Exchange Act of
1934, as amended.
(2) The Class A Common Stock information is based on information set forth in a Schedule 13D/A filed with
the Securities and Exchange Commission on March 24, 2008. Fujitsu Microelectronics Limited is the holder
of the single outstanding share of Class C Common Stock, and therefore holds 100 percent of the Class C
Common Stock.
(3) Based on information set forth in a Schedule 13G/A filed with the Securities and Exchange Commission on
February 6, 2008. According to the Schedule 13G/A, Prudential Financial, Inc. has sole voting power with
respect to 2,950,600 shares, shared voting power with respect to 11,941,573 shares, sole dispositive power
with respect to 2,950,600 shares and shared dispositive power with respect to 12,360,856 shares.
(4) Prudential Financial, Inc. has the power to direct the voting and disposition of the securities held by
Jennison Associates LLC.
(5) Based on information set forth in a Schedule 13G filed with the Securities and Exchange Commission on
February 13, 2008. According to the Schedule 13G, Ameriprise Financial, Inc. has shared voting power with
respect to 140,470 shares and shared dispositive power with respect to 15,262,314 shares.
19
(6) Ameriprise Financial, Inc. has the power to direct the voting and disposition of the securities held by
RiverSource Funds and RiverSource Investments LLC.
(7) Based on information set forth in a Schedule 13G filed with the Securities and Exchange Commission on
March 10, 2008.
(8) Edward C. Johnson 3d and FMR LLC, have the power to direct the disposition of the securities held by
Fidelity Management & Research Company.
(9) Based on information set forth in a Schedule 13D/A filed with the Securities and Exchange Commission on
November 28, 2006 and in Forms 4 filed with the Securities and Exchange Commission on February 22,
2007, February 26, 2007 and February 28, 2007. AMD Investments, Inc. is a wholly owned subsidiary of
AMD (U.S.) Holdings, Inc., which is a wholly owned subsidiary of Advanced Micro Devices, Inc. (AMD).
AMD (U.S.) Holdings, Inc. and AMD are indirect beneficial owners of the reported securities.
(10) Based on information set forth in a Schedule 13G/A filed with the Securities and Exchange Commission on
February 8, 2008. According to the Schedule 13G/A, Donald Smith & Co., Inc. has sole voting power with
respect to 10,144,000 shares and sole dispositive power with respect to 13,507,800 shares.
(11) Based on information set forth in a Schedule 13G filed with the Securities and Exchange Commission on
February 14, 2008. According to the Schedule 13G, Janus Capital Management LLC has sole voting power
with respect to 7,948,434 shares and sole dispositive power with respect to 7,948,434 shares.
(12) Janus Capital Management LLC (“Janus Capital”) is the investment adviser of Janus Growth and Income
Fund (“Janus Growth”) and consequently has voting control and investment discretion over securities held
by Janus Growth. Janus Capital therefore may be deemed to be the beneficial owner with sole voting power
and sole dispositive power with respect to such securities.
(13) Janus Capital indirectly owns Enhanced Investment Technologies LLC (“INTEC”) and Perkins, Wolf,
McDonnell and Company, LLC (“Perkins Wolf”). Due to this ownership structure, holdings for Janus
Capital, Perkins Wolf and INTECH are aggregated for the purposes of the Schedule 13G filed on
February 14, 2008. Janus Capital therefore may be deemed to be the beneficial owner with sole voting
power and sole dispositive power with respect to such securities.
20
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information known to us with respect to beneficial ownership of Spansion
Class A Common Stock, as of March 31, 2008, for our current directors and the nominees for election as
directors, each of our executive officers listed in the Fiscal 2007 Summary Compensation Table on page 33, and
all of our directors and executive officers as a group. This ownership information is based upon information
provided by the individuals.
Name (1) Shares Currently Owned
Shares Acquirable Currently
or Within 60 Days
Aggregate
Shares Beneficially
Owned (2)
Percent of Class
Beneficially
Owned (2)(3)
Bertrand F. Cambou ..... 121,608 199,331 320,939 *
David K. Chao .......... 10,000 17,500 27,500 *
Gilles Delfassy ......... — —
Robert L. Edwards ...... 6,250 6,250 12,500 —
Boaz Eitan ............. 7,905,021 7,905,021 4.99%
Patti S. Hart ............ 32,000 17,500 49,500 *
Donald L. Lucas ........ — —
David E. Roberson ...... 18,000 (4) 17,500 35,500 *
John M. Stich .......... 16,250 (5) 6,250 22,500 *
James E. Doran ......... 29,650 102,759 132,409 *
Thomas T. Eby ......... 23,721 99,420 123,141 *
AhmedNawaz.......... 3,909 33,937 37,846 *
Dario Sacomani ......... — 96,562 96,562 *
All directors and executive
officers as a group (14
persons) ............. 8,179,983 666,331 8,846,314 5.58%
* Less than one percent.
(1) The address of each beneficial owner is 915 DeGuigne Drive, Sunnyvale, CA 94085-3836.
(2) The number and percentage of shares beneficially owned is determined under the rules of the Securities and
Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has
sole or shared voting power or investment power and also any share which the individual has the right to
acquire within 60 days of March 31, 2008, through the exercise of any stock option or the vesting of any
restricted stock unit. Unless otherwise indicated in the footnotes, each person has sole voting and investment
power (or shares such powers with his or her spouse) with respect to the shares shown as beneficially
owned.
(3) Percent of class beneficially owned is based on 158,323,770 shares of Spansion Class A Common Stock
outstanding as of March 31, 2008.
(4) Represents the direct beneficial ownership of 8,000 shares and the indirect beneficial ownership of 10,000
shares that are held in an IRA owned by Mr. Roberson.
(5) Represents the direct beneficial ownership of 6,250 shares and the indirect beneficial ownership of 10,000
shares that are held by Mr. Stich’s family LLC.
21
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive
officers (as defined under Section 16) and any persons holding more than ten percent of a registered class of
equity securities to file reports of ownership and changes in ownership with the Securities and Exchange
Commission. Their initial report must be filed using the Securities and Exchange Commission’s Form 3 and they
must report subsequent stock purchases, sales, option exercises and other changes using the Securities and
Exchange Commission’s Form 4, which must be filed within two business days of most transactions. In some
cases, such as changes in ownership arising from gifts and inheritances, the Securities and Exchange Commission
allows delayed reporting at year-end on the Securities and Exchange Commission’s Form 5. Officers, directors
and persons who beneficially own more than ten percent of a registered class of our equity securities are required
by Securities and Exchange Commission regulations to furnish us with copies of all reports they file pursuant to
Section 16(a). We make the services of our legal department available to our officers and directors to assist them
in meeting their filing obligations.
Based solely on our review of these reports and written representations from our directors and executive
officers, we believe that during fiscal 2007, each of Spansion’s directors, executive officers and ten percent
security-holders complied with all applicable Section 16(a) filing requirements.
EXECUTIVE OFFICERS
Bertrand F. Cambou, age 52, has served as our President and Chief Executive Officer since July 2003. From
July 2003 until November 2005, he served as a member of Spansion LLC’s Board of Managers. Since November
2005, he has served as a member of our Board of Directors. Beginning in January 2002 until December 2005, he
served as a vice president of AMD, first as group vice president of their memory group, and later as an executive
vice president. Dr. Cambou was chief operating officer and co-president of Gemplus International S.A. from June
1999 until January 2002. Also during this time, he was a board member of Gemplus International S.A. and of
Ingenico Ltd. Dr. Cambou’s career includes a 15-year tenure at Motorola Inc. where he held various management
positions including senior vice president and general manager of the Networking and Computing System Group
as well as chief technical officer of the Semiconductor Sector. Dr. Cambou received his engineering degree from
Supelec, Paris, and his doctorate in electrical engineering from Paris XI University. He is the author of 15 U.S.
patents.
James E. Doran, age 59, has served as our Executive Vice President and Chief Operating Officer since
February 2006. He served as Executive Vice President of Group Operations from April 2004 until February
2006. From July 2003 through April 2004, Mr. Doran was Spansion LLC’s Group Vice President of Worldwide
Technology Development and Manufacturing. Mr. Doran served as a member of Spansion LLC’s Board of
Managers from July 2003 until November 2005, and served as a member of our Board of Directors from
November 2005 until consummation of Spansion’s initial public offering in December 2005. As Executive Vice
President and Chief Operating Officer, he is responsible for worldwide operations, business processes and
infrastructure. From March 2001 until June 2003, Mr. Doran served as vice president of worldwide technology
development and manufacturing for AMD’s memory group. Prior to that, Mr. Doran was vice president and
general manager of a German subsidiary of AMD from September 1999 until March 2001. Prior to September
1999, Mr. Doran served as vice president, Fab 25 and earlier as vice president, Submicron Development Center
(SDC) Operations. Mr. Doran joined AMD in 1990 as director of the SDC. Before joining AMD, Mr. Doran was
vice president of operations for Paradigm Semiconductor and a fabrication facility manager at Intel Corporation.
Mr. Doran holds a bachelor’s degree in physics from Northwestern University and a master’s degree in physics
from the University of Wisconsin.
Thomas T. Eby, age 47, has served as our Executive Vice President, Consumer, Set Top Box and Industrial
Division since September 2007. He is responsible for the division’s marketing, product and platform engineering,
22
infrastructure development and program management functions. From October 2005 until September 2007,
Mr. Eby served as our Executive Vice President and Chief Marketing and Sales Officer, and from January 2005
until October 2005, he served as our Executive Vice President and Chief Marketing Officer. From July 2003 until
December 2004, he was our Executive Vice President with responsibility for leading the integration of the former
AMD and Fujitsu Limited assets that were contributed to Spansion LLC. Beginning in 1998, Mr. Eby served as a
vice president of AMD, including roles as group vice president of AMD’s Communication Group, then as the
group vice president of strategy & business development for AMD and later as senior vice president. In addition,
Mr. Eby held a wide range of sales and marketing positions both in the United States and Europe. Mr. Eby holds
a bachelor’s degree in electrical engineering and computer sciences from Princeton University.
Robert C. Melendres, age 43, has served as our Executive Vice President, Corporate Development and Chief
Legal Officer since January 2007. From February 2006 until January 2007, he served as our Executive Vice
President, Corporate Development, General Counsel and Corporate Secretary. He was appointed as Spansion’s
Corporate Secretary in March 2005. He served as our Corporate Vice President, Corporate Development and
General Counsel from January 2005 until February 2006. From July 2002 until January 2005, Mr. Melendres
served at AMD in various management positions responsible for business development, most recently as the
corporate vice president, business development. Prior to joining AMD, Mr. Melendres served in various senior
management positions, including president and general counsel of WebGain, Inc. from July 2000 until July 2002.
He also served as director of worldwide contracts and business practices for IBM Corp., and IBM legal counsel
from June 1993 until July 2000. Mr. Melendres holds a bachelor’s degree in economics from the University of
California at Los Angeles and a juris doctorate from Harvard Law School.
Ahmed Nawaz, age 58, has served as our Executive Vice President, Wireless Solutions Division since
November 2006. He is responsible for the division’s marketing, platform engineering, infrastructure development
and program management functions. Prior to joining Spansion, Mr. Nawaz was a management consultant from
January 2006 to November 2006. From March 2001 to December 2005, he was executive vice president of
worldwide sales at Agere Systems. Prior to that, Mr. Nawaz was President of Worldwide Sales, Strategy and
Business Development, from April 2000 to March 2001, and President, Integrated Circuits Division, from June
1998 to April 2000, of Lucent’s Microelectronics and Communications Technologies Group. He joined AT&T in
1992 and moved to Lucent following its spin-off from AT&T in 1996. Mr. Nawaz also spent 14 years in various
design, engineering, marketing and general management positions in Texas Instruments Incorporated’s
semiconductor group. Mr. Nawaz holds a master’s degree in electrical engineering from the University of
Missouri and a master’s degree in Business Administration from Houston Baptist University.
Dario Sacomani, age 51, has served as our Executive Vice President and Chief Financial Officer since
February 2006. From June 2002 until December 2005, he was employed at Richardson Electronics, Ltd., where
he served as chief financial officer, senior vice president and board director from June 2002 until July 2005. Prior
to Richardson Electronics, Mr. Sacomani was senior vice president, chief financial officer and treasurer of ON
Semiconductor, a spin-off of Motorola, Inc., from August 1999 until April 2002. Mr. Sacomani also spent 18
years at Motorola in several finance positions within Motorola’s Semiconductors Products Sector, including as
vice president and group controller of the Semiconductor Components Group.
23
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Introduction
This Compensation Discussion and Analysis presents material information necessary to understand the
objectives and policies of our compensation program for executives. Throughout this discussion, those
individuals named in the Fiscal 2007 Summary Compensation Table on page 33 are referred to as our “Named
Executive Officers” and the Compensation Committee of the Board of Directors is referred to as the
“Committee.”
Roles and Responsibilities
The role of the Committee, as described on page 14, is to oversee Spansion’s compensation strategies and
programs for our executive officers, including total compensation for the Named Executive Officers. The role of
Spansion’s management is to review Spansion’s executive compensation programs, policies and governance and
make recommendations regarding these matters. Management is responsible for, among other things:
Reviewing the effectiveness of the compensation programs, including competitiveness and alignment
with Spansion’s objectives;
Recommending changes to compensation programs, as may be required, to ensure achievement of all
program objectives; and
Recommending salaries, bonuses and other awards for executive officers other than the Chief Executive
Officer.
The Committee is authorized to engage its own independent advisors to assist in carrying out its
responsibilities. During fiscal 2007, the Committee engaged Hewitt Associates (“Hewitt”) as its independent
compensation consultant to provide advice on matters related to executive compensation and general
compensation programs. The Committee, at its discretion, may replace Hewitt or hire additional consultants at
any time. Hewitt is independent from Spansion because it does not provide any other services to Spansion and
receives compensation from Spansion only for services it provides to the Committee. Hewitt’s engagement
includes gathering and analyzing data, and reviewing and advising on principal aspects of executive and
non-employee director compensation. This includes base salaries, bonuses, and equity awards for executive
officers, and cash compensation and equity awards for non-employee directors.
At the Committee’s invitation, Hewitt attended all of the Committee’s meetings held during fiscal 2007.
Hewitt provided independent expertise on executive compensation issues, including more specifically:
Composition of the group of publicly traded semiconductor industry companies with which we compete
for talent (collectively, the “Compensation Peer Group”);
Competitive market pay analysis for executive officers and directors;
Executive compensation strategy and program design, including pay philosophy, peer group selection,
incentive design and policies and terms related to severance and change of control arrangements; and
Impact of pertinent regulations on executive compensation and benefit programs.
Compensation Program Philosophy and Objectives
Spansion has a market-based “pay for performance” compensation philosophy designed to both attract and
retain talented executive officers while supporting our business strategy. In line with that philosophy, a
significant percentage of the total potential compensation for our executive officers is performance-based. We
24
have no pre-established policy or target for allocating between either cash and non-cash or short-term and long-
term incentive compensation. Rather, the Committee periodically reviews relevant market data to determine the
appropriate components and level of an executive officer’s compensation.
The compensation program for our executive officers is designed to:
Recognize and reward executives for achieving both company and individual performance objectives in
support of Spansion’s business strategy;
Provide competitive pay opportunities relative to the Compensation Peer Group;
Align the respective interests of the executive officers and our stockholders through compensation that
varies based on achievement of financial objectives; and
Maintain flexible pay programs that can be modified to respond to changes in competitive trends and
Spansion’s business strategy and financial position.
Setting Compensation
Generally, we set compensation for our Named Executive Officers in the same manner used to set
compensation for our other executive officers. Details regarding the specific compensation for each of our
Named Executive Officers for fiscal 2007 are set forth in the Fiscal 2007 Summary Compensation Table on page
33.
Competitive Market Data
In September 2007, based on the review and recommendations presented by Hewitt, and in consultation
with Hewitt, the Committee reviewed and approved a revised Compensation Peer Group to be used for
benchmarking and for setting executive compensation for fiscal 2008. To determine the appropriate
Compensation Peer Group, the Committee considered companies within the semiconductor industry that have
revenue, number of employees, market capitalization, location and scope of international operations similar to
our corresponding components. The Committee will continue to periodically review and update the
Compensation Peer Group as appropriate.
Based on the cited criteria, six companies (Advanced Micro Devices, Inc.; Agere Systems Inc.; Applied
Materials, Inc.; Broadcom Corporation; Freescale Semiconductor; and Micron Technology, Inc.) were removed
from our prior Compensation Peer Group and two companies (Amkor Technology, Inc. and Cypress
Semiconductor Corporation) were added to the group. The Compensation Peer Group established for fiscal 2008
is as follows:
Altera Corporation
Amkor Technology, Inc.
Analog Devices, Inc.
Atmel Corporation
Cypress Semiconductor
Corporation
Fairchild Semiconductor
Juniper Networks, Inc.
KLA-Tencor Corporation
Lam Research Corporation
Linear Technology Corporation
LSI Corporation
Maxim Integrated Products, Inc.
National Semiconductor
Corporation
Novellus Systems, Inc.
NVIDIA Corporation
ON Semiconductor Corp.
SanDisk Corporation
Xilinx, Inc.
Total compensation targets for our Named Executive Officers are set between the 50th and 60th percentiles
for compensation paid to similarly situated executives in the Compensation Peer Group, taking into consideration
the targets for base salary, bonus and equity awards. We set these targets slightly higher than the median
compensation of executives in the Compensation Peer Group to better position Spansion to attract and retain
highly qualified executive officers. As part of our annual performance review process, total compensation targets
25
were adjusted for our Named Executive Officers based on the 2008 Compensation Peer Group. In most cases,
compensation targets were reduced. Our incentive compensation, including cash and equity, is structured so that
when our corporate performance meets or exceeds our established objectives, executive officers have an
opportunity to receive incentive compensation greater than comparable market targets. When our corporate
performance does not meet our established objectives, executive officers receive incentive compensation that is
generally below comparable market targets. For fiscal 2007, total compensation for our Named Executive
Officers was well below our collective compensation targets, primarily as a result of below target bonus
payments and equity awards as most performance targets for short-term performance-based incentive
compensation were not met.
Performance Evaluations
We conduct annual performance evaluations of all Spansion employees, including our Named Executive
Officers. As part of the executive officer evaluation, we consider a number of performance criteria, including
among other things, the Named Executive Officer’s ability to:
Meet specific performance objectives;
Set the strategy and direction of his organization, consistent with Spansion’s overall objectives; and
Effectively lead his organization.
The Chief Executive Officer evaluates the performance of each of the other executive officers, including the
other Named Executive Officers, and presents the evaluations to the Committee for review and approval. The
Committee performs an independent evaluation of the Chief Executive Officer’s performance.
Compensation Review
In preparation for decisions regarding compensation actions for each of the Named Executive Officers for
the upcoming year, the Committee reviews tally sheets that reflect total current compensation, equity awards
(vested and unvested) and benefits information. In addition, the Committee considers each individual’s
performance, contributions, role and responsibilities, leadership abilities, growth potential and compensation
relative to peers within Spansion. The Committee also considers the competitive market for comparable
executives in the Compensation Peer Group. Following this review, the Committee sets the compensation for the
Chief Executive Officer and for the other executive officers, taking into consideration the Chief Executive
Officer’s compensation recommendations for each of the other executive officers. The final compensation
packages for all Named Executive Officers, including the Chief Executive Officer, contain the components
described below.
2007 Executive Compensation Components
Spansion seeks to achieve the compensation program objectives stated above through five principal
compensation components:
Base salary;
Short-term performance-based incentive compensation;
Long-term equity-based incentive compensation;
Change of control agreements; and
Benefits and perquisites.
Spansion’s practices with respect to each of these five principal compensation components, as well as other
components of compensation, are set forth below.
26
Base Salary
Spansion provides base salaries to compensate executive officers for services performed during the fiscal
year. Each executive officer’s salary is intended to reflect the individual’s job responsibilities and value to
Spansion in terms of expertise and performance, taking into account competitive market data and internal pay
relationships. For our Named Executive Officers, generally, base salaries are targeted at the 60th percentile of
base salaries paid to similarly situated individuals in the Compensation Peer Group.
Base salaries for the Named Executive Officers are evaluated on an annual basis using the criteria described
above. In April 2007, all Named Executive Officers, excluding Mr. Nawaz, who joined Spansion in November
2006, were eligible for and received a merit increase. Merit increases ranged from six percent to eight percent,
resulting in competitive pay levels relative to the 2007 Compensation Peer Group. The annual base salaries as of
the end of fiscal 2006 and fiscal 2007 for each of our Named Executive Officers were as follows:
Base Salary
as of
December 31,
2006
Base Salary
as of
December 30,
2007
Bertrand F. Cambou .................................................. $675,000 $715,500
Dario Sacomani ..................................................... $375,000 $405,000
James E. Doran ..................................................... $425,000 $459,000
Thomas T. Eby ...................................................... $388,241 $411,536
AhmedNawaz ...................................................... $425,000 $425,000
Short-Term Performance-Based Incentive Compensation
Our executive officers have an opportunity to earn annual cash awards under a short-term performance-
based incentive compensation plan (the “STIP”) designed to compensate them for the achievement of
pre-determined annual corporate objectives and individual objectives that correlate closely with the corporate
objectives. At the beginning of each fiscal year, the Committee approves the target cash bonus opportunities and
objectives for that year relevant to the STIP. Our STIP is referred to as the “Pay for Performance Plan.”
The target bonus opportunity for each executive officer is based on the individual’s position within Spansion
and competitive data from the Compensation Peer Group, and is established as a percentage of base salary. For
our Named Executive Officers, generally, awards are targeted between the 50th and 60th percentiles of bonus
awards made to similarly situated individuals in the Compensation Peer Group. STIP payouts are contingent
upon Spansion’s performance as measured against the pre-determined annual corporate objectives approved by
the Committee. For fiscal 2007, approximately 80 percent of our Chief Executive Officer’s, and approximately
70 percent of the other Named Executive Officers’, bonus opportunity is based directly on Spansion’s
achievement relative to these pre-determined annual objectives for specific metrics that have been approved by
the Committee. If these objectives are achieved, the remainder of the bonus opportunity for the executive officer
is based on his individual performance, recognizing achievement against other critical objectives. If none of the
annual corporate performance objectives are achieved, no bonuses are paid, irrespective of the executive officer’s
performance. The Committee reviews and approves all recommended STIP payments for the executive officers.
Prior to the second quarter of fiscal 2007, the only corporate performance metric established by the
Committee was Spansion’s achievement of operating profit. In the second quarter of fiscal 2007, the Committee
reassessed that metric and established additional corporate performance metrics to take into account market share
and the sale of advanced technology products that are key to Spansion’s future success. At that time, the
Committee also set specific objectives for each metric. The objectives for each metric were set at performance
levels that we believe are very difficult to achieve. The final corporate performance metrics for fiscal 2007, and
their relative weighting out of 100 percent, were as follows:
Achieve breakeven on operating profit, including the effect of equity-based expense (70 percent
weighting);
27
Increase NOR segment share in the Flash memory market relative to fiscal 2006 (15 percent weighting);
and
Achieve a threshold level of revenue from certain products based on specified advanced technologies
(15 percent weighting).
The target STIP award opportunities for our Named Executive Officers are generally between the 50th and
60th percentiles of similar opportunities in the Compensation Peer Group, and they range from 70 percent to 125
percent of base salary, with actual awards determined as follows:
No awards would be paid if Spansion did not achieve the minimum performance objectives for at least
one of the metrics, and
Payment of 7.5 percent to 200 percent of the target awards would be made depending on Spansion’s
level of performance against each metric, assuming the minimum performance objective was achieved
on at least one of the metrics and considering the relative weighting of each metric.
Spansion did not achieve breakeven on operating profit or the threshold revenue level from products based
on specified advanced technologies for fiscal 2007. However, we did increase our NOR segment share relative to
fiscal 2006, achieving our minimum objective for that metric. This resulted in the funding of bonuses in an
amount equal to 13 percent of the STIP target opportunity. As noted above, at least 70 percent of each Named
Executive Officer’s award was based directly on our performance against the corporate objectives. The
remainder of their awards, while funded by Spansion’s performance against our corporate objectives, was based
on each executive officer’s individual performance. The individual portion of the STIP was recommended by the
Chief Executive Officer and approved by the Committee based on a number of performance criteria, including
attainment of individual performance objectives (which include organizational profitability, new product
introductions and improvements in manufacturing yields), ability to successfully set the strategy and direction of
his organization (through actions such as establishment of strategic business partnerships or creation of corporate
efficiencies), and ability to effectively lead his organization (through actions such as improving global
integration and improving organizational efficiency). The table below describes for each Named Executive
Officer for fiscal 2007 the target percentage of base salary, target amount attainable, payout opportunity range as
a percent of base salary, award amount and award as a percent of base salary.
Named Executive Officer
Target
Percent of
Base Salary
Target
Amount
Payout Range
as Percent of
Base Salary
Award
Amount
Award as
Percent of
Base Salary
Bertrand F. Cambou ...................... 125% $894,375 0% to 250% $125,000 18%
Dario Sacomani .......................... 70% $283,500 0% to 140% $ 60,000 15%
James E. Doran .......................... 70% $321,300 0% to 140% $ 80,000 17%
Thomas T. Eby .......................... 70% $288,075 0% to 140% $ 40,000 10%
AhmedNawaz ........................... 70% $297,500 0% to 140% $ 40,000 9%
The amounts of STIP awards for fiscal 2007 for Named Executive Officers are presented in the Non-Equity
Incentive Plan Compensation column of the Fiscal 2007 Summary Compensation Table on page 33. The
individual fiscal 2007 target award percentages remain unchanged for fiscal 2008 as they continue to be in
alignment with those of the Compensation Peer Group. The corporate performance metrics for fiscal 2008 also
remain unchanged, although objectives that we believe are very difficult to achieve have again been set for each
metric. The difficulty of achieving our performance objectives is demonstrated by the fact that no STIP awards
were achieved for fiscal 2006, and only minimal award levels (i.e., 13 percent of target) were achieved for fiscal
2007.
Long-Term Equity-Based Incentive Compensation
A fundamental tenet of our compensation philosophy is that equity participation by our executive officers
creates a vital long-term partnership between our executive officers and our stockholders. We believe that equity-
based compensation promotes equity ownership among executives, drives performance toward the achievement
28
of long-term stockholder value, provides balance to the awards provided under the STIP, and helps to promote
the retention of the officers through vesting contingencies. Our stockholder-approved 2007 Equity Incentive Plan
is our long-term incentive plan (the “LTIP”), and it is designed to align the interests of executive officers over a
multi-year period directly with the interests of stockholders.
The Committee administers the LTIP and approves target award levels based on data from the
Compensation Peer Group and an executive’s position within Spansion. For our Named Executive Officers,
generally, award levels are targeted at the 50th percentile of equity awards made to similarly situated individuals
in the Compensation Peer Group in an attempt to provide equity award opportunities that are competitive with
those of our peers. The Committee reviews target award levels annually.
The LTIP provides for various awards in the form of stock options, stock appreciation rights, restricted
stock units, stock bonuses, restricted stock, performance stock, stock units, phantom stock, dividend equivalents,
and similar rights to purchase or acquire shares. To date, awards under the LTIP have been made in the forms of
stock options and restricted stock units. Generally, employees below the vice president level are granted
restricted stock unit awards and vice presidents and executive officers, including our Named Executive Officers,
receive a combination of stock option and restricted stock unit awards. We grant stock options to vice presidents
and executive officers in order to tie their compensation more directly to total stockholder return.
The Committee approves all equity awards for executive officers and the annual equity awards granted to
employees following Spansion’s annual performance evaluation process. The annual awards are generally
granted in the second fiscal quarter, following the first quarter earnings release, at regularly scheduled
Committee meetings. The Committee has delegated to our Grant Committee, which consists of our Chief
Executive Officer, Chief Financial Officer and Chief Operating Officer, authority to approve stock option and
restricted stock unit awards to non-executive officers, subject to established guidelines. The purpose of this
delegation is to provide administrative flexibility to recognize new hires and promotions or achievements for
employees below the level of executive officer. The Committee approves all equity awards granted to
non-executive officers that are not within the guidelines established for the Grant Committee. The Committee
also reviews all equity awards approved by the Grant Committee.
Each equity award granted under the LTIP typically vests over four years from the grant date. Prior to the
exercise of a vested stock option or the vesting of a restricted stock unit, the holder of the stock option or
restricted stock unit has no rights as a stockholder with respect to the shares subject to such awards. With limited
exceptions, vesting ceases upon termination of employment.
The exercise price for a stock option awarded under the LTIP is equal to the closing price of Spansion’s
Class A Common Stock, as quoted on the NASDAQ Stock Market, on the date the award is granted. Spansion
has never granted a stock option with an exercise price that is less than the closing price of its Common Stock on
the grant date, nor has it ever granted a stock option priced on a date other than the grant date.
The annual equity awards granted to our executive officers for fiscal 2007 consisted of a combination of
stock option and restricted stock unit awards that ranged, in the aggregate, from 97,500 shares to 162,500 shares.
These awards were competitive relative to those of the 50th percentile of the Compensation Peer Group. All of
our Named Executive Officers were eligible for and received, in April 2007, an annual equity award for fiscal
2007. Since Mr. Nawaz had recently joined Spansion, he received a relatively smaller annual equity award in
April 2007 and a supplemental award in June 2007. Mr. Nawaz’ aggregate awards for fiscal 2007 were within the
range of the annual awards received by the other Named Executive Officers.
The Named Executive Officers are eligible for annual equity awards in fiscal 2008, subject to the approval
of the Committee. The awards for fiscal 2007 for each of our Named Executive Officers are shown in the Grants
of Plan-Based Awards for Fiscal 2007 table on page 35.
29
Change of Control Agreements
The Committee recognizes that from time to time Spansion may consider potential transactions that could
result in a change of control of the ownership and management of Spansion. Therefore, the Committee
determined that it is in the best interests of Spansion and its stockholders to provide our key executive officers
with an incentive in the form of certain benefits to maintain their focus and dedication to Spansion
notwithstanding a possible transaction that could result in a change of control. The Committee consulted with
Hewitt regarding the type and level of benefits that similarly situated companies, including those in the
Compensation Peer Group, provide for their key employees. Hewitt advised the Committee based on pertinent
market data, including Institutional Shareholder Services’ recommendations. Based largely on Hewitt’s advice,
the Committee approved a form of change of control severance agreement (the “Agreement”) that would provide
an incentive to executive officers for their continued service up to and after a change of control.
Under the terms of the Agreement, the executive officer would receive, subject to certain conditions, the
following benefits in the event of a change of control and termination of employment:
A lump sum separation payment;
Acceleration of unvested equity;
Reimbursement for premium payments for medical and dental COBRA continuation coverage for a
limited time; and
In certain cases, tax-related benefits.
We have entered into an Agreement with each of our Named Executive Officers. The benefits available to
each Named Executive Officer under their respective Agreements are the same with the exception of the base
salary portion of the lump sum separation payment and tax-related benefit. The base salary portion of the lump
sum separation payment for each of Messrs. Doran, Eby, Nawaz and Sacomani is two times the aggregate of
(i) his base salary and (ii) his target bonus opportunity under the STIP, whereas the base salary portion of the
lump sum separation payment for Dr. Cambou is equal to three times the aggregate of (i) his base salary and
(ii) his target bonus opportunity under the STIP. The disparity in the payout level between Dr. Cambou and the
other Named Executive Officers is attributable to Dr. Cambou’s role as Chief Executive Officer and the
particular importance of his continued dedication to Spansion at a time when Spansion could be considering a
transaction that results in a change of control. In addition, the Agreements for Dr. Cambou and Messrs. Doran,
Eby and Sacomani, which expire in November 2009, provide for reimbursement of any 280G excise tax they
may be subject to as a result of benefits they receive under their respective Agreements. Our new form of change
of control severance agreement does not contain a provision that provides reimbursement for excise tax. We have
entered into this new form of change of control severance agreement with Mr. Nawaz. Additional details
regarding our change of control severance agreements are set forth in the discussion under “Termination in
Connection With a Change of Control” on page 39 and the tables that follow the discussion.
Benefits and Perquisites
Retirement Savings Plan. The Spansion Retirement Savings Plan (the “401(k) Plan”) is a tax-qualified
401(k) plan to which all U.S. employees may contribute on a before-tax basis up to the lesser of 100 percent of
eligible pay or the contribution limit prescribed by the Internal Revenue Code. Spansion contributes to each
employee’s 401(k) account $0.50 on each $1 of pay deferred by employees under the 401(k) Plan. Spansion’s
contributions are capped at three percent of the employee’s pay. All contributions to the 401(k) Plan, including
Spansion’s matching contributions, are fully vested at the time the contribution is made.
Executive Deferred Compensation Program. Our U.S. executive officers, as well as our other U.S.
executives, are eligible to participate in the Spansion Executive Investment Account (“EIA”) Plan. Participants in
the EIA Plan may defer up to 50 percent of base salary and up to 100 percent of bonus payments under the STIP
or sales incentive plan. Spansion contributes to each employee’s EIA account $0.50 on each $1 of pay deferred
30
under the EIA Plan in excess of the applicable compensation limit set by the Internal Revenue Code. Spansion’s
contributions are capped at three percent of the employee’s pay. Currently, none of our executive officers
participates in the EIA Plan.
Life and Long-Term Disability Insurance. We provide our U.S. executive officers with life insurance such
that the executive officer’s beneficiary will receive a death benefit of up to three times the executive’s annual
salary, to a maximum of $3 million. In addition, our executive officers are eligible to participate in our Executive
Disability Plan, which pays up to $15,000 a month if an executive is unable to work due to a disability.
Other Health and Welfare Benefits and Perquisites. Spansion offers health and welfare benefits, in
accordance with applicable local regulations and competitive practice, to employees in all of the countries in
which we operate. During fiscal 2007, our executive officers were eligible to participate in those plans offered in
their respective work locations. We also provide our executive officers with a monthly automobile allowance and
company-paid financial counseling benefits. At the end of fiscal 2007, we discontinued a physical examination
benefit that had been provided to executive officers because the standard health benefits program offered to all
employees, including executive officers, adequately covers this benefit. We may offer relocation benefits to
employees when their job requires relocation. In the event that an executive officer voluntarily terminates his or
her employment, such executive officer may be required to repay to Spansion a portion of his or her relocation
benefits.
Tax and Accounting Implications
$1 Million Deduction Limit. Section 162(m) of the Internal Revenue Code generally limits a tax deduction
to public corporations for certain executive compensation in excess of $1 million per fiscal year. Certain types of
compensation are deductible only if performance criteria are approved by stockholders. The Committee will
endeavor to structure compensation plans to achieve maximum deductibility under Section 162(m) with minimal
sacrifices in flexibility and corporate objectives. While the Committee will consider deductibility under
Section 162(m) with respect to future compensation arrangements with executive officers, deductibility will not
be the sole factor used in ascertaining appropriate levels or modes of compensation. Since corporate objectives
may not always be consistent with the requirements for full deductibility, certain compensation paid by Spansion
in the future may not be fully deductible under Section 162(m).
Accounting for Equity-Based Compensation. Beginning on December 26, 2005, Spansion began accounting
for equity-based awards in accordance with the requirements of FASB Statement 123(R) “Share-Based
Payment.”
Impact of Section 409A. To avoid adverse 409A impact, Spansion does not grant stock options to U.S.
employees with an exercise price less than the fair market value of the Company’s Class A Common Stock on
the date of grant.
31
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis
required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the
Compensation Committee recommended to the Board of Directors that the Compensation Discussion and
Analysis be included in this Proxy Statement.
THE COMPENSATION COMMITTEE
Patti S. Hart, Chair
Gilles Delfassy
David E. Roberson
32
Fiscal 2007 Summary Compensation Table
The table below summarizes the total compensation paid to or earned by each of the Named Executive
Officers for the fiscal year ended December 30, 2007. No defined benefit pension plan was offered to the Named
Executive Officers in fiscal 2007, and none of the Named Executive Officers elected to defer compensation
under our EIA Plan in fiscal 2007.
Spansion has not entered into any employment agreements with any of the Named Executive Officers. All
employees, including the Named Executive Officers, agree to their employment-related compensation and
benefits by executing our employment offer letter, which, in the case of Named Executive Officers, are filed with
the Securities and Exchange Commission.
Name and Principal
Position Year
Salary
($)(1) Bonus ($)
Stock
Awards
($) (2)
Option
Awards
($) (3)
Non-Equity
Incentive Plan
Compensation
($)
All Other
Compensation
($) (4) Total ($)
Bertrand F. Cambou . .
President and Chief
Executive Officer
2007
2006
703,038
692,787 (5)
477,435
573,961
539,066
359,421
125,000
39,447 (6)
42,108 (6)
1,883,986
1,668,277
Dario Sacomani .....
Executive Vice
President and Chief
Financial Officer
2007
2006
395,769
315,865
187,500 (7)
54,183
321,852
235,698
60,000
143,016 (8)
80,516 (8)
974,820
819,579
James E. Doran .....
Executive Vice
President and Chief
Operating Officer
2007
2006
448,538
427,345
230,592
286,990
281,310
199,679
80,000
32,629
38,387
1,073,069
952,401
Thomas T. Eby ......
Executive Vice
President, Consumer,
Set-Top Box &
Industrial Division
2007
2006
404,368
388,186
190,971
229,578
275,021
199,679
40,000
50,172 (9)
37,933
960,532
855,376
AhmedNawaz ......
Executive Vice
President, Wireless
Solutions Division
2007
2006
425,000
49,038 (10)
400,000 (11)
116,608
4,908
190,410
9,327
40,000
236,559 (12)
12,834 (12)
1,008,577
476,107
(1) The amounts shown in the Salary column reflect 53 weeks of salary in fiscal 2006 and 52 weeks of salary in
fiscal 2007 for the Named Executive Officers who were employed by Spansion for the full fiscal years. All
Named Executive Officers were employed for the full years except for Mr. Sacomani, whose employment
commenced on February 28, 2006, and Mr. Nawaz, whose employment commenced on November 20, 2006.
(2) The amounts shown in the Stock Awards column reflect the recognized compensation expense for stock
awards, excluding the impact of service-based forfeitures for financial statement reporting purposes for the
fiscal years ended December 31, 2006 and December 30, 2007. The amounts also reflect the grant date fair
value of each restricted stock unit award computed in accordance with FAS 123(R). The assumption used in
valuation of these awards are set forth in the notes to our consolidated financial statements, which are
included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2007, filed with the
Securities Exchange Commission on February 28, 2008. These amounts do not correspond to the actual
value that will be recognized by the Named Executive Officers.
(3) The amounts shown in the Option Awards column reflect the recognized compensation cost for option
awards, excluding the impact of service-based forfeitures for financial statement reporting purposes for the
33
fiscal years ended December 31, 2006 and December 30, 2007. Black-Scholes-Merton assumptions used in
the calculation of these amounts are disclosed in Note 4 of the notes to Spansion’s audited consolidated
financial statements for the fiscal year ended December 30, 2007 included in Spansion’s Annual Report on
Form 10-K filed with the Securities and Exchange Commission on February 28, 2008. These amounts do
not correspond to the actual value that will be recognized by the Named Executive Officers.
(4) The amounts shown in the All Other Compensation column reflect the following compensation for each
Named Executive Officer, although only values exceeding ten percent of the total amount of perquisites and
personal benefits are specified in these footnotes:
Matching 401(K) contributions: The contribution in fiscal 2006 for each of Dr. Cambou and Messrs.
Sacomani, Doran and Eby was $6,600. The contribution in fiscal 2007 for each of Dr. Cambou and
Messrs. Sacomani, Doran, Eby and Nawaz was $6,750.
Life insurance premium benefits: The value in fiscal 2006 for Messrs. Doran and Eby was $6,625
and $6,872, respectively.
Car allowance (based on 53 weeks in fiscal 2006 and 52 weeks in fiscal 2007): The amount in fiscal
2006 for each of Dr. Cambou and Messrs. Doran and Eby was $24,462, and for Messrs. Sacomani
and Nawaz was $21,231 and $2,769, respectively. The car allowance paid in fiscal 2007 for each of
Dr. Cambou and Messrs. Sacomani, Doran, Eby and Nawaz was $24,000.
Financial planning services: Dr. Cambou received a reimbursement in the amount of $6,000 in fiscal
2006 and $6,600 in fiscal 2007.
(5) Dr. Cambou’s salary for fiscal 2006 was effective as of December 16, 2005 but not implemented until
January 2006. Therefore, the salary paid to Dr. Cambou in fiscal 2006 includes six days of retroactive pay
that would otherwise have been paid to him in fiscal 2005.
(6) In addition to the items noted in footnote 4 above, the amount reflects the cost of home security services of
$2,683 in fiscal 2006 and $215 in fiscal 2007 provided for Dr. Cambou.
(7) The amount reflects a bonus paid as part of Mr. Sacomani’s employment arrangement. The total amount is
$187,500, of which $112,500 was paid in fiscal 2006. The remaining amount of $75,000 was paid in fiscal
2007.
(8) The amount includes relocation and relocation-related personal travel expense paid by Spansion to
Mr. Sacomani in the amount of $51,906 in fiscal 2006 and $111,486 in fiscal 2007.
(9) In addition to the items noted in footnote 4 above, the amount reflects a payment of vacation cash out to
Mr. Eby in the amount of $14,932 in fiscal 2007.
(10) Mr. Nawaz was hired as Spansion’s Executive Vice President, Wireless Solutions Division on
November 20, 2006.
(11) The amount reflects a bonus paid as part of Mr. Nawaz’s employment arrangement. The total amount is
$400,000, of which $266,667 was paid in January 2007 and $133,333 was paid in November 2007.
(12) In addition to the items noted in footnote 4 above, the amount reflects relocation benefits paid by Spansion
to Mr. Nawaz in the amount of $10,000 in fiscal 2006 and $202,279 in fiscal 2007.
34
Grants of Plan-Based Awards for Fiscal 2007
The table below summarizes all grants of plan-based awards to all Named Executive Officers during fiscal
2007, which ended on December 30, 2007. The stock option awards and the unvested portion of the stock awards
identified in the table below are also reported in the Outstanding Equity Awards at Fiscal 2007 Year-End Table
on page 36.
Name Grant Date
Estimated Possible Payouts Under
Non-Equity Incentive
Plan Awards (1)
All Other
Stock
Awards:
Number
of
Shares of
Stock or
Units
(2) (#)
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(3) (#)
Exercise
or
Base
Price
of
Option
Awards
($ / Sh)
Grant
Date Fair
Value of
Stock and
Option
Awards
(4) ($)
Threshold
($)
Target
($)
Maximum
($)
Bertrand F. Cambou ...... — 894,375 1,788,750
4/20/2007 (5) 187,500 10.41 906,225
4/20/2007 (6) 75,000 00.00 780,750
Dario Sacomani .......... — 283,500 567,000
4/20/2007 (5) 75,000 10.41 362,490
4/20/2007 (6) 30,000 00.00 312,300
James E. Doran .......... — 321,300 642,600
4/20/2007 (5) 82,500 10.41 398,739
4/20/2007 (6) 33,000 00.00 343,530
Thomas T. Eby .......... — 288,075 576,150
4/20/2007 (5) 75,000 10.41 362,490
4/20/2007 (6) 30,000 00.00 312,300
AhmedNawaz ........... 297,500 595,000
6/13/2007 (7) 32,500 11.53 173,979
6/13/2007 (8) 13,000 00.00 149,890
4/20/2007 (5) 30,000 10.41 144,996
4/20/2007 (6) 12,000 00.00 124,920
(1) Reflect the target and maximum target bonus amounts for fiscal 2007 performance under the short-term
performance-based incentive compensation plan, as described in “Compensation Discussion and Analysis—
Short-Term Performance-Based Incentive Compensation.” The actual bonus amounts were determined by
the Compensation Committee in March 2008 and are reflected in the “Non-Equity Incentive Plan
Compensation” column of the Fiscal 2007 Summary Compensation Table.
(2) All restricted stock units granted to Named Executive Officers vest 25% on the anniversary of the grant date
and the remainder vests in equal installments quarterly over the remaining 36 months.
(3) All stock options granted to Named Executive Officers vest 25% on the anniversary of the grant date and
the remainder vests in equal installments quarterly over the remaining 36 months.
(4) Reflects the grant date fair value of each stock option and restricted stock unit award computed in
accordance with FAS 123(R). The assumption used in valuation of these awards are set forth in the notes to
our consolidated financial statements, which are included in our Annual Report on Form 10-K for the fiscal
year ended December 30, 2007, filed with the Securities Exchange Commission on February 28, 2008.
These amounts do not correspond to the actual value that will be recognized by the Named Executive
Officers.
(5) Represents an annual stock option award granted on April 20, 2007 under the 2005 Equity Incentive Plan.
(6) Represents an annual restricted stock unit award granted on April 20, 2007 under the 2005 Equity Incentive
Plan.
(7) Represents a stock option award granted on June 13, 2007 under the 2007 Equity Incentive Plan.
(8) Represents a restricted stock unit award granted on June 13, 2007 under the 2007 Equity Incentive Plan.
35
Outstanding Equity Awards at Fiscal 2007 Year-End
The table below summarizes the outstanding Spansion equity awards held and exercisable by Named
Executive Officers at the end of fiscal 2007. Spansion does not offer an equity incentive plan, as defined under
Item 402(a)(6)(iii) of Regulation S-K.
Option Awards Stock Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Number of
Securities
Underlying
Unexercised
Options
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#) (1)
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($) (2)Name Exercisable Unexercisable
Bertrand F. Cambou ............ 98,437 126,563 (3) 12.00 12/15/2012 42,864 (4) 171,027
187,500 (5) 10.41 04/20/2014 75,000 (7) 299,250
Dario Sacomani ............... 54,687 70,313 (5) 14.74 03/03/2013
75,000 (6) 10.41 04/20/2014 30,000 (7) 119,700
James E. Doran ................ 54,687 70,313 (3) 12.00 12/15/2012 21,432 (4) 85,514
82,500 (6) 10.41 04/20/2014 33,000 (7) 131,670
Thomas T. Eby ................ 54,687 70,313 (3) 12.00 12/15/2012 17,146 (4) 68,413
75,000 (6) 10.41 04/20/2014 30,000 (7) 119,700
AhmedNawaz ................ 18,750 56,250 (8) 14.93 12/07/2013 15,000 (9) 59,850
30,000 (6) 10.41 04/20/2014 12,000 (7) 47,880
32,500 (10) 11.53 06/13/2014 13,000 (11) 51,870
(1) Each restricted stock unit represents a contingent right to receive one share of Spansion Class A Common
Stock. There is no exercise price.
(2) Based on closing price of $3.99 of Spansion Class A Common Stock on December 28, 2007.
(3) The stock option was granted on December 15, 2005 and vests over a four-year period with 25% of the
shares vesting on January 28, 2007, and the remaining shares vesting in equal quarterly installments over the
remaining 36 months beginning April 28, 2007.
(4) The restricted stock unit award was granted on December 15, 2005 and vests over a four-year period, with
25% of the shares vesting on April 28, 2006, and the remaining shares vesting in equal quarterly
installments over the remaining 36 months beginning July 28, 2006.
(5) The stock option was granted on March 3, 2006 and vests over a four-year period, with 25% of the shares
vesting on January 28, 2007, and the remaining shares vesting in equal quarterly installments over the
remaining 36 months beginning April 28, 2007.
(6) The stock option was granted on April 20, 2007 and vests over a four-year period, with 25% of the shares
vesting on the anniversary of the date of grant and the remaining shares vesting in equal quarterly
installments over the remaining 36 months beginning July 20, 2007.
(7) The restricted stock unit award was granted on April 20, 2007 and vest over a four-year period, with 25% of
the shares vesting on the anniversary of the date of grant and the remaining shares vesting in equal quarterly
installments over the remaining 36 months beginning July 20, 2007.
(8) The stock option was granted on December 7, 2006 and vests over a four-year period, with 25% of the
shares vesting on the anniversary of the date of grant and the remaining shares vesting in equal quarterly
installments over the remaining 36 months beginning December 7, 2007.
(9) The restricted stock unit award was granted on December 7, 2006 and vests over a four-year period with
25% of the shares vesting on the anniversary of the date of grant and the remaining shares vesting in equal
quarterly installments over the remaining 36 months beginning December 7, 2007.
(10) The stock option was granted on June 13, 2007 and vests over a four-year period, with 25% of the shares
vesting on the anniversary of the date of grant and the remaining shares vesting in equal quarterly
installments over the remaining 36 months beginning September 13, 2008.
36
(11) The restricted stock unit award was granted on June 13, 2007 and vests over a four-year period with 25% of
the shares vesting on the anniversary of the date of grant and the remaining shares vesting in equal quarterly
installments over the remaining 36 months beginning September 13, 2008.
The table below summarizes the outstanding Advanced Micro Devices, Inc.’s (AMD) equity awards held by
Named Executive Officers at the end of fiscal 2007. Some of our Named Executive Officers held, or continue to
hold, stock options that were granted to them by AMD prior to our initial public offering in December 2005. As a
result of Spansion’s secondary public offering in November 2006, AMD’s percentage ownership in Spansion
declined to below 30 percent. Consequently, all remaining AMD stock options that were granted to our Named
Executive Officers ceased vesting, and all unvested AMD stock options were canceled.
Option Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Option
Exercise
Price
($)
Option
Expiration
DateName Exercisable
James E. Doran ............................................. 37,500 (1) 14.64 11/21/2008
10,000 (2) 14.22 11/21/2008
15,000 (3) 15.50 11/21/2008
15,000 (4) 16.66 11/21/2008
71,492 (5) 14.86 11/21/2008
10,000 (6) 11.33 11/21/2008
(1) Stock option was granted on February 2, 2004 and unvested amounts were canceled prior to the end of fiscal
2006.
(2) Stock option was granted on April 30, 2004 and unvested amounts were canceled prior to the end of fiscal
2006.
(3) Stock option was granted on October 25, 2004 and unvested amounts were canceled prior to the end of
fiscal 2006.
(4) Stock option was granted on February 3, 2005 and unvested amounts were canceled prior to the end of fiscal
2006.
(5) Stock option was granted on January 30, 2004 and unvested amounts were canceled prior to the end of fiscal
2006.
(6) Stock option was granted on July 28, 2004 and unvested amounts were canceled prior to the end of fiscal
2006.
Option Exercises and Stock Vested for Fiscal 2007
The table below summarizes the Spansion restricted stock units vested by Named Executive Officers during
fiscal 2007. There were no Spansion or AMD stock option exercises by Named Executive Officers during fiscal
2007.
Stock Awards
Name
Number of Shares
Acquired on Vesting
(#)
Value Realized
on Vesting
($) (1)
Bertrand F. Cambou .............................................. 28,575 299,106
Dario Sacomani ................................................. —
James E. Doran .................................................. 14,288 149,560
Thomas T. Eby .................................................. 11,430 119,640
AhmedNawaz .................................................. 5,000 22,450
(1) The value realized equals the fair market value of Spansion Class A Common Stock on the vesting date, as
measured by the closing price on that date, multiplied by the number of shares that vested.
37
Pension Benefits for Fiscal 2007
We provide a defined benefit plan for certain employees of our subsidiary in Japan. We do not provide a
defined benefit plan for any of our other employees. Therefore, none of our Named Executive Officers are
entitled to receive any benefits from a defined benefit plan.
Nonqualified Deferred Compensation for Fiscal 2007
Our executive officers, and our other executives, who are located in the United States are eligible to
participate in the Spansion Executive Investment Account Plan (the “EIA Plan”). Participants in the EIA Plan
may defer up to 50 percent of base salary and up to 100 percent of bonus payments under the Short-Term
Performance-Based Incentive Compensation Plan or Sales Incentive Plan. Spansion matches up to three percent
of pay ($0.50 on each $1 of pay deferred under the EIA Plan) on the executive’s base salary in excess of the
applicable compensation limit set by the Internal Revenue Code. Currently, none of our executive officers
participates in the EIA Plan.
Potential Payments upon Termination, a Change of Control or Other Event
Following is a general discussion of the compensation available to our Named Executive Officers in the
event an executive’s employment terminates. The actual payments can be determined only at the time of the
executive’s separation from Spansion. For purposes of illustration, however, tables below reflect the
compensation Spansion would have provided to the Named Executive Officers had their employments terminated
effective December 28, 2007.
Termination for Any Reason
When employment terminates for any reason, each Named Executive Officer is entitled to receive
compensation earned during the time the executive was employed. Such compensation includes:
Compensation earned during the fiscal year;
Vested equity awards issued under any Spansion equity plan pursuant to the applicable terms and
conditions of each award;
Amounts deferred under the EIA Plan;
Benefits accrued under Spansion’s Retirement Savings Plan; and
Accrued unused vacation pay.
Retirement
If employment termination is due to retirement (which is achieved when an employee has reached 60 years
of age and has provided 15 years of service to Spansion), in addition to compensation listed above under
“Termination for Any Reason,” each Named Executive Officer receives all or a pro rata portion of the payment
he or she would otherwise have been entitled to receive under Spansion’s Short-Term Performance-Based
Incentive Compensation Plan (“STIP”) so long as the Named Executive Officer was an active participant in the
STIP for at least six months of the plan year.
Termination Due to Death
In the event employment termination is due to death, in addition to compensation listed above under
“Termination for Any Reason,” each Named Executive Officer’s beneficiary receives all or a pro-rata portion of
the payment he or she would otherwise have been entitled to receive under the STIP, as long as the Named
Executive Officer was an active participant in the STIP for at least six months of the plan year, and life insurance
38
benefits. In addition, if the executive has at least 15 years of service, all equity awards that would have vested
any time during the calendar year in which the death occurred are accelerated to vest on the executive’s
employment termination date.
Termination Due to Disability
In the event employment termination is due to a disability, in addition to compensation listed above under
“Termination for Any Reason,” each Named Executive Officer is eligible to receive benefits under the Spansion
disability plans in which he or she participated at the time of the termination; and if the executive has at least 15
years of service, all equity awards that would have vested any time during the calendar year in which the
disability occurred are accelerated to vest on the executive’s employment termination date.
Involuntary Termination in Connection with a Reduction in Force
In the event employment termination is involuntary due to a reduction in force, in addition to any
compensation due under “Termination for Any Reason” and “Retirement” listed above, each Named Executive
Officer receives, but only in return for executing a general release agreement: a lump sum payment based on
length of service (the “Severance Pay Period”), payment for four months of medical COBRA continuation
coverage, use of Spansion’s employee assistance program for a period of time, eight weeks base salary, any STIP
award not yet paid following the close of a plan year, and, at Spansion’s discretion, additional compensation to
be determined by Spansion for any sabbatical the executive had earned but not taken prior to the termination
date. Additionally, vesting for Spansion equity awards held by the executive that would regularly vest during the
Severance Pay Period is accelerated to vest on the executive’s employment termination date.
Termination in Connection With a Change of Control
In fiscal 2005, we entered into a Change of Control Severance Agreement (the “Initial COC Agreement”)
with each of our then-current executive officers, including Dr. Cambou and Messrs. Doran, Eby, and Sacomani,
four of our current Named Executive Officers. Under the Initial COC Agreements, if within 24 months following
a change of control (as described below), an executive officer’s employment was terminated by Spansion or its
successor other than for Cause (as defined in the Initial COC Agreement) or by reason of death or disability, or if
the executive officer terminated employment for Good Reason (as defined in the Initial COC Agreement), in
addition to the compensation listed above under the heading “Termination of Employment for Any Reason,” the
following would have occurred:
The executive officer would have received a lump sum payment consisting of a pro rata portion of the
executive officer’s actual bonus payment, if any, under the STIP, plus two times (three times in the case
of the Chief Executive Officer) the aggregate of (i) the executive’s then current base salary and (ii) the
executive’s target bonus opportunity under the STIP;
Acceleration of all unvested equity granted to the executive officer under any Spansion equity incentive
plan and held by the executive officer at the effective termination date;
Payment of premiums incurred by the executive officer for medical and dental COBRA continuation
coverage as of the effective termination date, and ending the earlier of 18 months from that termination
date or the date the executive officer begins receiving comparable medical and dental benefits through
other employment; and
Upon a change of control, an executive may be subject to certain excise taxes pursuant to Section 4999
of the Internal Revenue Code, as amended (the “IRC”). Should change of control payments have
exceeded 15 percent of the qualified 280G limit under Section 4999, the executive would have been
reimbursed such that the after-tax benefit would have been the same as if no excise tax had been
applied. Otherwise, calculated change-of-control payments in excess of the 280G limit would have been
reduced such that the executive officer would not have been subject to any excise tax.
39
Generally, under the Initial COC Agreements, a change of control is conclusively presumed to have
occurred on:
The acquisition by any person, other than by us, of beneficial ownership of more than 33 percent of
either our then-outstanding membership interests or shares of our common stock, or the combined
voting power of our then-outstanding voting securities entitled to vote generally in the election of
directors;
A change of the majority of our board of directors as of a determination date (the “incumbent board”),
provided, however, that any individual becoming a new board director subsequent to the determination
date whose election or nomination for election by our security holders was approved by a vote of at least
two-thirds of the members comprising the incumbent board shall be considered as though such
individual were a member of the incumbent board;
The consummation of a reorganization, merger, statutory share exchange or consolidation or similar
transaction, a sale or other disposition of all or substantially all of our assets, or an acquisition of assets
or stock of another entity, whereby the individuals and entities that were the beneficial owners of our
then-outstanding common stock and other then-outstanding voting securities cease to own more than 50
percent of the then-outstanding equity interests and the combined voting power of our then-outstanding
voting securities entitled to vote generally in the election of directors; or
The approval by our stockholders of a complete liquidation or dissolution other than in the context of a
transaction that does not constitute a change of control as described above.
In September 2007, the Board of Directors, upon the recommendation of the Compensation Committee,
approved an amended and restated form of the Initial COC Agreement (the “Amended COC Agreement”). The
Amended COC Agreement incorporates deadlines for change of control payments in compliance with the
regulations implementing section 409A of the IRC and is otherwise substantially similar to the Initial COC
Agreement. Also in September 2007, the Committee approved a new form of change of control severance
agreement (the “Current COC Agreement”) for use going forward for all new eligible executive officers. The
Current COC Agreement is substantially similar to the Initial COC Agreement, except that the Current COC
Agreement:
Does not contain the provision allowing for a tax gross-up in connection with change of control
payments that exceeded 15 percent of the qualified 280G limit under Section 4999 of the IRC;
Includes an “alternative cap” provision allowing for the highest after-tax benefit without additional cost
to Spansion; and
Includes deadlines for change of control payments in accordance with the regulations implementing
section 409A of the IRC.
During October and November 2007, we entered into an Amended COC Agreement with Dr. Cambou and
Messrs. Doran, Eby and Sacomani, and we entered into a Current COC Agreement with Mr. Ahmed Nawaz. On
November 26, 2007, we notified each of the executive officers with whom we entered into an Amended COC
Agreement that we intend to cancel their respective Amended COC Agreements on or about November 27, 2009.
When the Amended COC Agreements terminate, we expect to enter into a Current COC Agreement, or such
other form of change of control agreement that the Board of Directors deems appropriate, with each executive
officer who is eligible for such agreement at that time.
The forms of Initial COC Agreement, Amended COC Agreement and Current COC Agreement have been
filed with the Securities and Exchange Commission.
40
The following table shows the potential payments that would have been made to each of the Named
Executive Officers if their respective employment with us had terminated as of December 28, 2007:
Bertrand F. Cambou
Executive Benefits
and Payments Upon
Termination as of December 28,
2007
Voluntary
Termination
Normal
Retirement
(60 years
and 15
years
Service)
Involuntary
Not for
Cause
Termination
(Reduction
in Force)
For Cause
Termination
Involuntary
or for Good
Reason
Following
Change of
Control
Within 24
Months Death Disability
Compensation:
Base Salary ............... $ 178,875 (1) $2,146,500 (2)
Short-term Incentive ........ — (3) $ 125,000 (4) $2,683,125 (5) $ 125,000 (4)
Long-term Incentive
Stock Options—Unvested and
Accelerated ............. — (6) — (6)
Restricted Stock Units—
Unvested and
Accelerated ............. $ 28,505 (6) $ 470,277 (6)
Subtotal: ................. $ 332,380 $5,299,902 $ 125,000
Benefits and Perquisites:
Post-Employment Health
Insurance (COBRA) ...... $ 3,687 $ 19,112
Life Insurance Proceeds ..... $1,000,000 —
Survivor Income Benefit .... $ 4,000 —
Accrued Vacation Pay ...... $ 34,372 $ 34,372 $ 34,372 $ 34,372 $ 34,372 $ 34,372 $ 34,372
Sabbatical ................ $ 27,519 —
Reduction in Severance (due
to modified gross-up) ..... $ (237,517) — —
Subtotal: ................. $ 34,372 $ 34,372 $ 65,578 $ 34,372 $ (184,033) $1,038,372 $ 34,372
Vested Benefits:
Stock Awards ............. — (6) — (6) — (6) — (6)
Retirement Savings Plan .... $637,657 $637,657 $ 637,657 $637,657 $ 637,657 $ 637,657 $637,657
Subtotal: ................. $637,657 $637,657 $ 637,657 $637,657 $ 637,657 $ 637,657 $637,657
TOTAL .................. $672,029 $672,029 $1,035,615 $672,029 $5,753,526 $1,801,029 $672,029
(1) Dr. Cambou is eligible to receive 13 weeks of severance pay upon an involuntary, not for cause, termination.
(2) Dr. Cambou is eligible to receive three times his annual base salary of $715,500 upon termination as described
under “Termination in Connection with a Change of Control” above.
(3) Ineligible due to age and years of service requirements.
(4) Pro rata amount of bonuses earned.
(5) Dr. Cambou is eligible to receive three times his annual target bonus of $894,375 upon termination in the event
of a change of control as described under “Termination in Connection with a Change of Control” above.
(6) Stock value is calculated based on the in-the-money position using a fair market value of $3.99 on
December 28, 2007, which was the last business day of fiscal 2007.
41
Dario Sacomani
Executive Benefits
and Payments Upon
Termination as of
December 28, 2007
Voluntary
Termination
Normal
Retirement
(60 years
and 15
years
Service)
Involuntary
Not for
Cause
Termination
(Reduction
in Force)
For Cause
Termination
Involuntary
or for Good
Reason
Following
Change of
Control
Within 24
Months Death Disability
Compensation:
Base Salary ............. $ 77,885 (1) $ 810,000 (2)
Short-term Incentive ...... (3) $ 60,000 (4) $ 567,000 (5) $ 60,000 (4)
Long-term Incentive
Stock Options—Unvested
and Accelerated ........ — (6) — (6)
Restricted Stock Units—
Unvested and
Accelerated ........... — (6) $ 119,700 (6)
Bonus Repayment ........ $18,750 (7)
Subtotal: ............... $18,750 $137,885 $1,496,700 $ 60,000
Benefits and Perquisites:
Post-Employment Health
Insurance (COBRA) .... $ 3,687 $ 19,112
Life Insurance Proceeds .... $1,000,000 —
Survivor Income Benefit . . . $ 4,000
Accrued Vacation Pay ..... $16,605 $16,605 $ 16,605 $16,605 $ 16,605 $ 16,605 $16,605
Relocation Repayment ..... $ 344(8)
Subtotal: ............... $16,949 $16,605 $ 20,292 $16,605 $ 35,717 $1,020,605 $16,605
Vested Benefits:
Stock Awards ............ — (6) — (6)
Retirement Savings Plan . . . $59,387 $59,387 $ 59,387 $59,387 $ 59,387 $ 59,387 $59,387
Subtotal: ............... $59,387 $59,387 $ 59,387 $59,387 $ 59,387 $ 59,387 $59,387
TOTAL ................ $95,086 $75,992 $217,564 $75,992 $1,591,804 $1,139,992 $75,992
(1) Mr. Sacomani is eligible to receive 10 weeks of severance pay upon an involuntary, not for cause,
termination.
(2) Mr. Sacomani is eligible to receive two times his annual base salary of $405,000 upon termination as
described under “Termination in Connection with a Change of Control” above.
(3) Ineligible due to age and years of service requirements.
(4) Pro rata amount of bonuses earned.
(5) Mr. Sacomani is eligible to receive two times his annual target bonus of $283,500 upon termination in the
event of a change of control as described under “Termination in Connection with a Change of Control”
above.
(6) Stock value is calculated based on the fair market value $3.99 on December 28, 2007, which was the last
business day of fiscal 2007.
(7) Repayment of a pro rata amount of a bonus paid as part of Mr. Sacomani’s employment arrangement.
(8) Repayment of a pro rata amount of Sacomani’s relocation benefits.
42
James E. Doran
Executive Benefits
and Payments Upon
Termination as of
December 28, 2007
Voluntary
Termination
Normal
Retirement
(60 years
and 15
years
Service)
Involuntary
Not for
Cause
Termination
(Reduction
in Force)
For Cause
Termination
Involuntary
or for Good
Reason
Following
Change of
Control
Within 24
Months Death Disability
Compensation:
Base Salary ............ $ 260,394 (1) $ 918,000 (2)
Short-term Incentive ..... — (3) $ 80,000 (4) $ 642,600 (5) $ 80,000 (4)
Long-term Incentive
Stock Options—Unvested
and Accelerated ....... — (6) — (6)
Restricted Stock Units—
Unvested and
Accelerated .......... $ 69,649 (6) $ 217,184 (6)
Subtotal: .............. $ 410,043 $ 1,777,784 $ 80,000
Benefits and Perquisites:
Post-Employment Health
Insurance (COBRA) . . . $ 3,687 $ 19,112
Life Insurance Proceeds . . $1,377,000
Survivor Income
Benefit .............. $ 4,000 —
Accrued Vacation Pay .... $ 55,682 $55,682 $ 55,682 $ 55,682 $ 55,682 $ 55,682 $ 55,682
Sabbatical ............. $ 70,615 — —
Subtotal: .............. $ 55,682 $55,682 $ 129,984 $ 55,682 $ 74,794 $1,436,682 $ 55,682
Vested Benefits:
Stock Awards .......... — (6) — (6)
Retirement Savings
Plan ................ $773,813 $773,813 $ 773,813 $773,813 $ 773,813 $ 773,813 $773,813
Subtotal: .............. $773,813 $773,813 $ 773,813 $773,813 $ 773,813 $ 773,813 $773,813
TOTAL ............... $829,495 $829,495 $1,313,840 $829,495 $ 2,626,391 $2,290,495 $829,495
(1) Mr. Doran is eligible to receive 29.5 weeks of severance pay upon an involuntary, not for cause,
termination.
(2) Mr. Doran is eligible to receive two times his annual base salary of $459,000 upon termination as described
under “Termination in Connection with a Change of Control” above.
(3) Ineligible due to age and years of service requirements.
(4) Pro rata amount of bonuses earned.
(5) Mr. Doran is eligible to receive two times his annual target bonus of $321,300 upon termination in the event
of a change of control as described under “Termination in Connection with a Change of Control” above.
(6) Stock value is calculated based on the fair market value $3.99 on December 28, 2007, which was the last
business day of fiscal 2007.
43
Thomas T. Eby
Executive Benefits
and Payments Upon
Termination as of
December 28, 2007
Voluntary
Termination
Normal
Retirement
(60 years
and 15
years
Service)
Involuntary
Not for
Cause
Termination
(Reduction
in Force)
For Cause
Termination
Involuntary
or for
Good
Reason
Following
Change of
Control
Within 24
Months Death Disability
Compensation:
Base Salary ............ $ 360,094 (1) $ 823,071 (2)
Short-term Incentive ..... — (3) $ 40,000 (4) $ 576,150 (5) $ 40,000 (4)
Long-term Incentive
Stock Options—Unvested
and Accelerated ....... — (6) — (6)
Restricted Stock Units—
Unvested and
Accelerated .......... $ 90,493 (6) $ 188,113 (6)
Subtotal: .............. $ 490,587 $1,587,334 $ 40,000
Benefits and Perquisites:
Post-Employment Health
Insurance (COBRA) . . . $ 3,687 $ 19,112
Life Insurance Proceeds . . $1,235,000
Survivor Income
Benefit .............. $ 4,000 —
Accrued Vacation Pay .... $ 26,546 $ 26,546 $ 26,546 $ 26,546 $ 26,546 $ 26,546 $ 26,546
Sabbatical ............. $ 15,828 — —
Subtotal: .............. $ 26,546 $ 26,546 $ 46,061 $ 26,546 $ 45,658 $1,265,546 $ 26,546
Vested Benefits:
Stock Awards .......... — (6) — (6)
Retirement Savings
Plan ................ $812,927 $812,927 $ 812,927 $812,927 $ 812,927 $ 812,927 $812,927
Subtotal: .............. $812,927 $812,927 $ 812,927 $812,927 $ 812,927 $ 812,927 $812,927
TOTAL ............... $839,473 $839,473 $1,349,575 $839,473 $2,445,919 $2,118,473 $839,473
(1) Mr. Eby is eligible to receive 45.5 weeks of severance pay upon involuntary not for cause, termination.
(2) Mr. Eby is eligible to receive two times his annual base salary of $411,536 upon termination as described
under “Termination in Connection with a Change of Control” above.
(3) Ineligible due to age and years of service requirements.
(4) Pro rata amount of bonuses earned.
(5) Mr. Eby is eligible to receive two times his annual target bonus of $288,075 upon termination in the event of
a change of control as described under “Termination in Connection with a Change of Control” above.
(6) Stock value is calculated based on the fair market value $3.99 on December 28, 2007, which was the last
business day of fiscal 2007.
44
Ahmed Nawaz
Executive Benefits
and Payments Upon
Termination as of
December 28, 2007
Voluntary
Termination
Normal
Retirement
(60 years
and 15
years
Service)
Involuntary
Not for
Cause
Termination
(Reduction
in Force)
For Cause
Termination
Involuntary
or for
Good
Reason
Following
Change of
Control
Within 24
Months Death Disability
Compensation:
Base Salary ............ $ 81,731 (1) $ 850,000 (2)
Short-term Incentive ..... — (3) $ 40,000 (4) $ 595,000 (5) $ 40,000 (4)
Long-term Incentive
Stock Options—Unvested
and Accelerated ....... — (6) — (6)
Restricted Stock Units—
Unvested and
Accelerated .......... $ 4,988 (6) $ 159,600 (6)
Bonus Repayment ....... 366,667 (7)
Subtotal: .............. 366,667 $126,719 $1,604,600 $ 40,000
Benefits and Perquisites:
Post-Employment Health
Insurance (COBRA) . . . $ 3,687 $ 18,692
Life Insurance Proceeds . . . $1,000,000
Survivor Income Benefit . . $ 4,000
Accrued Vacation Pay .... $ 19,182 $19,182 $ 19,182 $19,182 $ 19,182 $ 19,182 $19,182
Relocation Repayment .... 194,589 (8)
Subtotal ............... $213,771 $19,182 $ 22,869 $19,182 $ 37,874 $1,023,182 $19,182
Vested Benefits:
Stock Awards ........... — (6) — (6)
Retirement Savings Plan . . $ 26,811 $26,811 $ 26,811 $26,811 $ 26,811 $ 26,811 $26,811
Subtotal: .............. $ 26,811 $26,811 $ 26,811 $26,811 $ 26,811 $ 26,811 $26,811
TOTAL ................ $607,249 $45,993 $176,399 $45,993 $1,669,285 $1,089,993 $45,993
(1) Mr. Nawaz is eligible to receive 10 weeks of severance pay upon an involuntary, not for cause, termination.
(2) Mr. Nawaz is eligible to receive two times his annual base salary of $425,000 upon termination as described
under “Termination in Connection with a Change of Control” above.
(3) Ineligible due to age and years of service requirements.
(4) Pro rata amount of bonuses earned.
(5) Mr. Nawaz is eligible to receive two times his annual target bonus of $297,500 upon termination in the
event of a change of control as described under “Termination in Connection with a Change of Control”
above.
(6) Stock value is calculated based on the fair market value $3.99 on December 28, 2007, which was the last
business day of fiscal 2007.
(7) Repayment of a pro rata amount of a bonus paid as part of Mr. Nawaz’s employment arrangement.
(8) Repayment of a pro rata amount of Mr. Nawaz’s relocation benefits.
45
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes the number of outstanding options, warrants and rights granted to
employees and directors, as well as the number of securities remaining available for future issuance under
Spansion’s 2005 Equity Incentive Plan (the “2005 Plan”) and 2007 Equity Incentive Plan (the “2007 Plan”) as of
December 30, 2007.
(a) (b) (c)
Plan category
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(#)
Weighted-average
exercise price of
outstanding
options, warrants
and rights
($)
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a))
(#)
Equity compensation plans approved by security
holders ............................... 6,690,394 (1) $11.53 (2) 7,506,427 (3)
Equity compensation plans not approved by
security holders ........................ —
Total .................................. 6,690,394 7,506,427
(1) Includes the following:
3,327, 718 shares issuable upon exercise of outstanding stock options awarded under the 2005 Plan.
2,912,741 shares issuable upon vesting of outstanding restricted stock units awarded under the 2005
Plan.
209,250 shares issuable upon exercise of outstanding stock options awarded under the 2007 Plan.
240,685 shares issuable upon vesting of outstanding restricted stock units awarded under the 2007 Plan.
(2) Represents a weighted average exercise price of $11.67 for stock options outstanding under the 2005 Plan,
and $9.31 for stock options outstanding under the 2007 Plan. Excludes the following:
2,912,741 shares issuable upon vesting of outstanding restricted stock units awarded under the 2005
Plan.
240,685 shares issuable upon vesting of outstanding restricted stock units awarded under the 2007 Plan.
(3) Includes 360,839 shares that were cancelled as of December 30, 2007 under the 2005 Plan and are now
available to be issued under the 2007 Plan.
46
ITEM 2—RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We are asking stockholders to ratify the appointment of Ernst & Young LLP as our independent registered
public accounting firm for our current fiscal year. Our current fiscal year began on December 31, 2007 and will
end on December 28, 2008. Unless you indicate otherwise, your proxy will vote FOR the ratification of the
appointment of Ernst & Young LLP as our independent registered public accounting firm for the current fiscal
year.
The Audit Committee appoints the independent registered public accounting firm annually. Before
appointing Ernst & Young LLP for fiscal 2008, the Audit Committee carefully considered the firm’s
qualifications and performance during fiscal 2006 and fiscal 2007. In addition, the Audit Committee reviewed
and pre-approved all audit and permissible non-audit services performed by Ernst & Young LLP and the fees
charged for such services in fiscal 2006 and 2007. The Audit Committee also examined, among other things, the
effect that the performance of non-audit services may have upon Ernst & Young LLP’s independence.
Although ratification by stockholders is not required by law, the Board of Directors has determined that it is
desirable to request ratification of this selection by the stockholders. Notwithstanding its selection, the Audit
Committee, in its discretion, may appoint a new independent registered public accounting firm at any time during
the year if the Audit Committee believes that such a change would be in the best interest of Spansion and its
stockholders. If the stockholders do not ratify the appointment of Ernst & Young LLP, the Audit Committee may
reconsider its selection.
A representative of Ernst & Young LLP is expected to be present at the Annual Meeting and will have an
opportunity to make a statement if he or she so desires. He or she will also be available to respond to appropriate
questions from stockholders.
Audit Committee Pre-Approval Policy
The Audit Committee has established a pre-approval policy for audit, audit-related and tax services that can
be performed by the independent auditors without specific authorization from the Audit Committee, subject to
certain restrictions. The pre-approval policy identifies the specific services pre-approved by the Audit Committee
and the applicable limitations, while ensuring the independence of the independent auditors to audit Spansion’s
financial statements is not impaired. Under the pre-approval policy, the Audit Committee pre-approves all audit
and non-audit services not prohibited by law to be provided by the independent registered public accounting firm.
Such pre-approval authority for non-audit services may be delegated by the Audit Committee to one or more of
its members. Any pre-approval decisions must be consistent with the guidelines and fee levels or budgeted
amounts established annually by the Audit Committee, provided that the member or members to whom such
authority is delegated shall report any pre-approval decisions to the full Audit Committee at its next regular
meeting. Any proposed services exceeding the fee levels or budgeted amounts established by the Audit
Committee must be specifically approved by the Audit Committee. All Ernst & Young LLP services and fees in
fiscal 2006 and fiscal 2007 were pre-approved by the Audit Committee.
Service Fees Paid to the Independent Registered Public Accounting Firm
Audit Fees. Audit fees of Ernst & Young LLP during fiscal 2006 and fiscal 2007 were associated with the
annual audit of our consolidated financial statements, statutory audits required internationally, and fees related to
other regulatory filings, including our registration statement in connection with our secondary public offering in
fiscal 2006. Audit fees for fiscal 2006 and fiscal 2007 included fees related to Ernst & Young LLP’s audit of the
effectiveness of Spansion’s internal controls pursuant to Section 404 of the Sarbanes-Oxley Act. Audit fees for
fiscal 2006 were $3.1 million. Audit fees for fiscal 2007 were $2.3 million.
Audit-Related Fees. Fees for audit-related services rendered by Ernst & Young LLP were $0.2 million in
fiscal 2007. There were no fees for audit-related services paid to Ernst & Young LLP for fiscal 2006
47
Tax Fees. Tax fees paid to Ernst & Young LLP for fiscal 2007 were $0.1 million. There were no tax fees
paid to Ernst & Young LLP for fiscal 2006.
All Other Fees. There were no other fees paid to Ernst & Young LLP for fiscal 2007 and fiscal 2006.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
“FOR” THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP
AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR THE CURRENT FISCAL YEAR.
48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Review and Approval of Transactions with Related Persons
The Audit Committee has adopted a written policy for approval of transactions between Spansion and its
directors, director nominees, executive officers, greater than five percent beneficial owners and their respective
immediate family members, where the amount involved in the transaction exceeds or is expected to exceed
$120,000 in a single calendar year. The related person transactions described in this proxy statement were
approved by the Board of Directors before this policy was adopted.
The policy provides that the Audit Committee reviews certain transactions subject to the policy and
determines whether or not to approve or ratify those transactions. In doing so, the Audit Committee takes into
account, among other factors it deems appropriate:
the related person’s interest in the transaction;
the approximate dollar value of the amount involved in the transaction;
the approximate dollar value of the amount of the related person’s interest in the transaction without
regard to the amount of any profit or loss;
whether the transaction was undertaken in the ordinary course of business of Spansion;
whether the transaction with the related person is proposed to be, or was, entered into on terms no less
favorable to Spansion than terms that could have been reached with an unrelated third party;
the purpose of, and the potential benefits to Spansion of, the transaction; and
any other information regarding the transaction or the related person in the context of the proposed
transaction that would be material to investors in light of the circumstances of the particular transaction.
In addition, the Audit Committee has delegated authority to the Chair of the Audit Committee to
pre-approve or ratify certain transactions. A summary of any new transactions pre-approved or ratified by the
Chair is provided to the full Audit Committee for its review in connection with its next scheduled Audit
Committee meeting.
The Audit Committee has considered and adopted standing pre-approvals under the policy for limited
transactions with related persons. Pre-approved transactions include:
employment of executive officers, subject to certain conditions;
any compensation paid to a director if the compensation is required to be reported in Spansion’s proxy
statement under Item 402 of Regulation S-K promulgated by the Securities and Exchange Commission;
any transaction with another company at which a related person’s only relationship is as an employee
(other than an executive officer or director) or beneficial owner of less than ten percent of that
company’s equity, if the aggregate amount involved does not exceed the greater of $1,000,000, or two
percent of that company’s total annual revenues;
any charitable contribution, grant or endowment by the Company to a charitable organization,
foundation or university at which a related person’s only relationship is as an employee (other than an
executive officer or director), if the aggregate amount involved does not exceed the lesser of
$1,000,000, or two percent of the charitable organization’s total annual receipts; and
any transaction where the related person’s interest arises solely from the ownership of Spansion’s
Class A Common Stock and all holders of Spansion’s Class A Common Stock received the same benefit
on a pro rata basis.
A summary of new transactions covered by the standing pre-approvals described above is provided to the
Audit Committee for its review at each regularly schedule Audit Committee meeting.
49
Overview
We have ongoing relationships and transactions with Advanced Micro Devices, Inc. (“AMD”) and Fujitsu
Limited (“Fujitsu”). Dr. Ruiz, Chairman of the Board and Chief Executive Officer of AMD, was the Chairman of
our Board of Directors until September 20, 2007. Mr. Ono, Corporate Senior Executive Vice President and
Representative Director of Fujitsu Limited, was a member of our Board of Directors until March 16, 2007. Due
to their respective positions with AMD and Fujitsu, Dr. Ruiz could be deemed to have an indirect material
interest in the transactions with AMD (as described below), and Mr. Ono could be deemed to have an indirect
material interest in the transactions with Fujitsu (as described below).
On March 18, 2008, we completed our acquisition of Saifun Semiconductors Limited (“Saifun”). In
connection with the Saifun acquisition, the Board of Directors appointed Dr. Boaz Eitan, Executive Vice
President and Chief Executive Officer, Saifun, as a member of the Board effective as of the closing of the
acquisition. Dr. Eitan serves as a Class II director and will serve until our 2010 annual meeting of stockholders or
until his earlier removal, resignation or death. Also in connection with the Saifun acquisition, we entered into a
Noncompetition and Retention Agreement with Dr. Eitan whereby he will receive an annual gross salary equal to
the Israeli shekel equivalent of $260,000 (as determined according to the representative rate of exchange
published by the Bank of Israel). In addition, Dr Eitan will be eligible for an annual performance bonus and one
time retention bonus if he remains employed by Spansion at the one year anniversary of the closing of the Saifun
acquisition. The Noncompetition and Retention Agreement also contains a two-year non-competition provision
and a two-year non-solicitation provision.
We are also currently party to several agreements with AMD and Fujitsu. These agreements include:
the Amended and Restated Fujitsu Distribution Agreement;
the Amended and Restated Intellectual Property Contribution and Ancillary Matters Agreement;
the Amended and Restated Patent Cross-License Agreement with Fujitsu;
the Amended and Restated Patent Cross-License Agreement with AMD;
the Amended and Restated Non-Competition Agreement;
various software license, maintenance, consulting and development agreements;
various service agreements and leases; and
agreements with Fujitsu related to the sale of our JV1 and JV2 wafer fabrication facilities (the “JV1/JV2
Facilities”) and certain equipment, assets and inventory located at these facilities (the “JV1/JV2
Transaction”).
Amended and Restated Fujitsu Distribution Agreement
We and Fujitsu are party to the Amended and Restated Fujitsu Distribution Agreement, which provides that
Fujitsu acts as a distributor for sales of our products in Japan and throughout the rest of the world, except for
Europe and the Americas, with limited exceptions. We license use of the Spansion trademark to Fujitsu so that
our products are sold under our own brand name. We also indemnify Fujitsu from and against any third-party
action claiming our products infringe upon a third-party’s intellectual property rights up to the amounts paid to
Fujitsu by their customers for the affected products.
Under the Fujitsu Distribution Agreement, our prices are based on our recommended sales prices, subject to
adjustment in certain cases based on Fujitsu’s sales prices to their customers, less an agreed-upon distribution
margin. Fujitsu has agreed to use its best efforts to promote the sale of our products in Japan and to specified
customers served by Fujitsu. In the event that we reasonably determine that Fujitsu’s sales performance is not
satisfactory based on specified criteria, then we have the right to require Fujitsu to propose and implement an
agreed-upon corrective action plan. If we reasonably believe that the corrective action plan is inadequate, we can
50
take steps to remedy deficiencies ourselves through means that include selling products ourselves or appointing
another distributor as a supplementary distributor. The Fujitsu Distribution Agreement will expire on
September 30, 2008 although we and Fujitsu can mutually agree to terminate the agreement at any time. Either
party can terminate the Fujitsu Distribution Agreement for a material breach of performance thereunder after a
failure to cure the breach within 120 days. Currently, the distribution margin earned by Fujitsu on the sale of
certain of our products is 4.3 percent.
Amended and Restated Intellectual Property Contribution and Ancillary Matters Agreement
AMD and Fujitsu have each contributed to us various intellectual property rights and technologies pursuant
to an Amended and Restated Intellectual Property Contribution and Ancillary Matters Agreement. Under this
agreement, we became owners, or joint owners with each of Fujitsu and AMD, of certain patents, patent
applications, trademarks, and other intellectual property rights and technology. AMD and Fujitsu reserved rights,
on a royalty-free basis, to practice the contributed patents and to license these patents to their affiliates and
successors-in-interest to their semiconductor groups. AMD and Fujitsu each have the right to use the jointly
owned intellectual property for their own internal purposes and to license such intellectual property to others to
the extent consistent with their non-competition obligations to us. Subject to our confidentiality obligations to
third parties, and only for so long as AMD’s and Fujitsu’s ownership interests in us remain above specific
minimum levels, we are obligated to identify any of our technology to each of AMD and Fujitsu, and to provide
copies of and training with respect to that technology to them. In addition, we have granted a non-exclusive,
perpetual, irrevocable fully paid and royalty-free license of our rights, other than patent and trademark rights, in
that technology to each of AMD and Fujitsu. AMD may grant licenses under our patents, provided that these
licenses are of no broader scope than, and are subject to the same terms and conditions that apply to, any license
of AMD’s patents granted in connection with such license, and the recipient of such license grants to us a license
of similar scope under its patents.
Amended and Restated Patent Cross-License Agreements
In connection with our reorganization as Spansion LLC in June 2003, we granted to each of AMD and
Fujitsu, and AMD and Fujitsu each granted to us, non-exclusive licenses under certain patents and patent
applications of their semiconductor groups to make, have made, use, sell, offer to sell, lease, import and
otherwise dispose of certain semiconductor-related products anywhere in the world. The patents and patent
applications that are licensed are those with an effective filing date prior to the termination of our patent cross-
license agreements. The agreements will automatically terminate on the later of June 30, 2013 and the date AMD
or Fujitsu, as applicable, sells its entire equity interest in us. The agreements may be terminated by a party on a
change in control of the other party or its semiconductor group. The licenses to patents under license at the time
of the termination will survive until the last such patent expires.
In cases where there is a change of control of us, AMD, Fujitsu, or the semiconductor group of AMD or
Fujitsu, as the case may be, each other party to the cross-license agreement shall have the right to terminate the
agreement (or to invoke the provisions described in this paragraph if the agreement had been previously
terminated) by giving 30 days written notice within 90 days after receiving notice of the change of control. If so
terminated, the rights, licenses and immunities granted under the agreement will continue solely with respect to
those licensed patents that are entitled to an effective filing date that is on or before, and are licensed as of, the
date of such change of control, and will continue until the expiration of the last to expire of such licensed patents.
Moreover, with respect to circuit patents, which are patents (other than process patents) covering elements using
electrical signals to achieve a particular function, the rights, licenses and immunities granted to the party
undergoing the change of control are limited solely to:
each existing and pending product of such party as of the date of change of control;
each existing and pending product of the acquiring third party of such party as of the date of change of
control that would have been in direct competition with products described in (i) above; and
successor products of products described in (i) and (ii) above.
51
We will continue to make royalty payments associated with licenses that survive the termination of the
agreement. We currently pay royalties to each of AMD and Fujitsu in the amount of 0.15 percent of net sales of
our products. The royalty rates will be further reduced to zero percent in November 2008. The royalty rates were
negotiated by AMD, Fujitsu and us. In fiscal 2007, we incurred approximately $3.2 million of expenses related to
royalties to each of AMD and Fujitsu under their respective patent cross-license agreements.
Amended and Restated Non-Competition Agreement
We are party to a non-competition agreement with AMD and Fujitsu, whereby AMD and Fujitsu each agree
not to directly or indirectly engage in a business that manufactures or supplies standalone semiconductor devices
(including single chip, multiple chip or system devices) containing certain Flash memory, which is the business
in which we primarily compete. This non-competition agreement does not prevent AMD or Fujitsu from
manufacturing or selling products that incorporate Flash memory (whether it be Spansion Flash memory or a
competitive product). Although AMD currently has no other operations that compete in the Flash memory
market, Fujitsu currently produces and sells products that incorporate Spansion Flash memory or competitive
Flash memory. Furthermore, AMD and Fujitsu each agree that if either of them acquires a business that has a
division or other operations that manufactures or supplies standalone semiconductor devices (including single
chip, multiple chip or system devices) containing certain Flash memory, AMD and Fujitsu will provide us with a
right of first offer to acquire the competing division or operations. AMD and Fujitsu are required to use their
commercially reasonable efforts to divest the competing division or operations if we do not purchase them. These
non-competition obligations of AMD will last until the earlier of (i) the dissolution of our company, and (ii) two
years after the date on which AMD’s ownership interest in us is less than or equal to five percent. These
non-competition obligations of Fujitsu will last until the earlier of (i) the dissolution of our company, and (ii) two
years after the date on which Fujitsu’s ownership interest in us is less than or equal to five percent.
We, AMD and Fujitsu also agreed not to solicit each other’s employees. Without our prior written consent,
each of AMD and Fujitsu will not directly or indirectly either for itself or another person, (i) hire any individual
employed by our company or (ii) solicit or encourage any individual to terminate his or her employment with our
company. These obligations not to solicit or hire do not apply if (A) our company has terminated the employment
of such individual or (B) at least two years has elapsed since such individual has voluntarily terminated his or her
employment with our company. Similarly, without the prior written consent of AMD or Fujitsu, we agreed not to
directly or indirectly either for ourselves or another person, (i) hire any individual employed by AMD or Fujitsu
or (ii) solicit or encourage any individual to terminate his or her employment with AMD or Fujitsu. These
obligations not to solicit or hire do not apply if (A) AMD or Fujitsu, as applicable, has terminated the
employment of such individual or (B) at least two years has elapsed since such individual has voluntarily
terminated his or her employment with AMD or Fujitsu, as applicable. These non-solicitation obligations of
AMD will last until the earlier of (i) the dissolution of our company, and (ii) two years after the date on which
AMD’s ownership interest in us is less than or equal to five percent. These non-solicitation obligations of Fujitsu
will last until the earlier of (i) the dissolution of our company, and (ii) two years after the date on which Fujitsu’s
ownership interest in us is less than or equal to five percent. These non-solicitation obligations of our company
with respect to AMD employees or Fujitsu employees will terminate at the same time as the non-solicitation
obligations of AMD or Fujitsu, as applicable, terminate.
AMD/Fujitsu Service Agreements
We were party to various service agreements with each of AMD and Fujitsu. Under its IT Services
Agreement and General Services Agreement, AMD provided certain administrative services to us. Under its IT
Services Agreement and General Services Agreement, Fujitsu provided, among other things, information
technology, research and development, quality assurance, insurance, facilities, environmental, and human
resources services primarily to our manufacturing facilities in Japan. For services rendered, AMD and Fujitsu
were each paid fees in an amount equal to cost plus five percent except for services procured by AMD and
Fujitsu from third parties, which were provided to us at cost. AMD and Fujitsu each had the right to approve
52
certain amendments to the other’s service agreements with us. Each of these service agreements expired on
June 30, 2007. The services that were previously provided under these services agreement are currently provided
by AMD and Fujitsu to us on a purchase order basis. For fiscal 2007, the total charges to us for services from
AMD were approximately $600,000 and the total charges to us for services from Fujitsu were approximately
$2.8 million.
Research and Design Services Agreement
We were party to an agreement pursuant to which we provided certain research and design services to AMD
and Spansion (China) Limited provided manufacturing support services to AMD Technologies (China) Co. Ltd.,
AMD’s microprocessor assembly and test facility in Suzhou, China. For services rendered, we were paid fees
generally in an amount equal to cost plus five percent. For fiscal 2007, the total charge to AMD for these services
was approximately $137,000. This service agreement expired on June 30, 2007.
Fujitsu Manufacturing Services Agreement
Prior to September 30, 2006, we were party to an agreement pursuant to which Fujitsu provided
manufacturing services to us at volumes ordered by us and prices established on a quarterly basis. Prices were on
the basis of product-type and were equal to Fujitsu’s good faith estimate of its projected material, labor and
overhead costs for the applicable product-type plus three percent. If Fujitsu’s aggregate expended labor and
overhead costs for the manufacturing services actually purchased by us during a fiscal quarter were less than
97 percent of the projected labor and overhead costs for such fiscal quarter, then we were required to pay Fujitsu
the amount of such deficiency in order to protect Fujitsu’s labor and overhead commitments from situations
where the actual amounts of services purchased by us were materially different from projected orders. These
services consisted of assembly and testing services for our products. The Manufacturing Services Agreement
expired on September 30, 2006. Currently, such manufacturing services are provided by Fujitsu to us on a
purchase order basis. As a result of manufacturing services provided by Fujitsu, we incurred approximately $3.6
million of expenses in fiscal 2007.
Spansion Japan/Fujitsu Foundry Agreement
On March 31, 2005, Spansion Japan, one of our subsidiaries, entered into a foundry manufacturing
agreement with Fujitsu. Under this agreement, Spansion Japan provides wafer process foundry manufacturing
services for Fujitsu’s microcontroller products that contain embedded Flash memory. The agreement has a term
of three years and is automatically renewed for additional one-year periods absent notification of termination by
a party at least two years prior to the termination date. This agreement terminated on April 2, 2007, upon the
effectiveness of the closing of the JV1/JV2 Transaction (the “JV1/JV2 Closing”). Fees paid by Fujitsu to
Spansion Japan under this agreement were approximately $2.9 million for fiscal 2007.
Remediation Agreement
In connection with our reorganization as of June 30, 2003, AMD contributed to us assets, including real
property located in Sunnyvale, California, which is a Superfund listed property under CERCLA. A clean up order
was issued by the San Francisco Bay Regional Water Quality Control Board, and a record of decision for
remedial action for the site was issued by the U.S. Environmental Protection Agency in 1991, pursuant to which
AMD must conduct groundwater remediation activities. To clarify their respective responsibilities regarding the
release of hazardous substances at the Sunnyvale property prior to its contribution to Spansion, we entered into a
remediation agreement with AMD and Fujitsu, pursuant to which AMD covenants to conduct remediation
activities in accordance with the U.S. EPA’s record of decision and the San Francisco Bay Regional Water
Quality Control Board’s order. AMD also agreed to indemnify Fujitsu and us against any losses incurred by
Fujitsu and us in connection with this environmental condition for actions taken prior to the contribution of the
property to Spansion.
53
Software Agreements
We are party to various software license, maintenance, consulting services, and development agreements
with AMD relating to certain AMD manufacturing software. Under a software license agreement, AMD granted
us various licenses to use certain AMD manufacturing software in our manufacturing facilities. We also have
granted AMD corresponding licenses to use improvements made to the software by us. Under a software
maintenance and services agreement, AMD agreed to provide us software maintenance and support for the AMD
manufacturing software. Under a consulting services agreement, AMD agreed to provide certain manufacturing
software consulting services as may be mutually agreed upon between AMD and us. Additionally, under a joint
development agreement, we have agreed with AMD to jointly develop manufacturing software in accordance
with statements of work that may be mutually agreed upon from time to time. The software license agreement
has no expiration date, but may be terminated by AMD upon a breach by us of the terms of the agreement, our
insolvency, or a change of control as defined in the agreement. The software maintenance and services agreement
expired on December 15, 2007, but automatically is renewed for additional one year terms unless either party
provides 120 days notice to the contrary. The consulting services agreement expired on December 31, 2007. The
joint development agreement expires on December 31, 2011 unless terminated earlier in accordance with the
terms of the agreement. For fiscal 2007, the total amount that we paid to AMD under these agreements was
approximately $1.6 million.
Leases
In connection with our reorganization, Fujitsu’s subsidiary, Fujitsu VLSI, agreed to lease premises in Aichi,
Japan, to Spansion Japan for a term of one year, to be automatically renewed for one-year periods unless three
months prior notice is given by either party. Under this lease, Fujitsu VLSI also provides various office services
to Spansion Japan. We pay Fujitsu VLSI approximately $17,000 per month (based on the exchange rate as of
December 30, 2007) for the premises lease and the office services.
We lease from Fujitsu the land upon which JV3 and SP1, our fabrication facilities in Aizu-Wakamatsu,
Japan, are located. As a result of our lease with Fujitsu, we incurred approximately $1.6 million in expenses in
fiscal 2007.
We agreed to lease approximately 170,000 square feet of space at our facilities in Austin, Texas to AMD for
a term of two years expiring December 31, 2007. On December 19, 2007, we agreed to extend the term of the
lease for the majority of the premises to June 30, 2008, and for a small portion of the premises to December 31,
2008. The space is used for office, warehouse, and data center purposes. Under the terms of the lease, AMD paid
a quarterly rental equal to a percentage of the total operating expenses of the premises. We received from AMD
approximately $3.0 million in fiscal 2007.
We also leased from Fujitsu the land upon which JV1/JV2 are located. We incurred $80,000 in expenses in
fiscal 2007 under this lease. This lease terminated on April 2, 2007 at the time of the JV1/JV2 Closing.
Stockholders Agreement
We are party to a Stockholders Agreement with AMD and Fujitsu that imposes certain restrictions and
obligations on AMD and Fujitsu and on their respective shares of our common stock and that provides for certain
matters pertaining to our management and governance. Pursuant to the Stockholders Agreement, AMD and
Fujitsu agree to vote all shares of common stock held by them or their affiliates so as to cause the election of
each Class A director proposed for election by the nominating committee of our board of directors. The
Stockholders Agreement also provided for certain rights relating to the appointment of directors to serve on our
Board. These rights terminated when AMD and Fujitsu’s ownership fell below 15 percent of our capital stock.
We will allow AMD or Fujitsu, as the case may be, to have one representative attend the meetings of our
board of directors as a non-voting participant for so long as such stockholder owns at least five percent of our
capital stock, on an as converted to common stock basis.
54
Neither stockholder can transfer shares in an amount equal to or greater than one percent of the then
outstanding common stock to any entity whose principal business competes with us, without first obtaining the
consent of the non-transferring stockholder, such consent not to be unreasonably withheld after June 30, 2007.
The Stockholders Agreement also provides for our cooperation with information. AMD and Fujitsu are both
publicly traded companies, each of which is subject to legal and stock exchange reporting and other disclosure
requirements. Accordingly, we will agree with AMD and Fujitsu to provide, subject to limitations, various
financial and other information relating to us and to assist them in connection with their respective reporting,
disclosure and other obligations. Each party has agreed that it will use any information provided under the
agreement, unless otherwise made public, only in connection with these obligations and that it will not use the
information for any other purpose, including in connection with the sale or purchase of securities issued by us.
Pursuant to the Stockholders Agreement, we have agreed to grant AMD and Fujitsu rights to request us to
register all or any part of their shares of Class A Common Stock under the Securities Act of 1933, as amended. In
addition, subject to limitations, AMD and Fujitsu have rights to request that their shares be included in any
registration of our common stock that we initiate.
With the exception of board observer rights and registration rights, AMD’s rights under the Stockholders
Agreement terminated on March 18, when AMD’s aggregate ownership interest in us fell below ten percent.
Commercial Die Purchases
We purchased from Fujitsu approximately $18.5 million of commercial die that we incorporate in our multi-
chip package products during fiscal 2007. The prices paid by us to Fujitsu for these commercial die are
determined through a bidding process that we use with our other suppliers. In selecting commercial die suppliers,
we consider a number of factors, including price and whether the product design used by our end customer
incorporates commercial die of specified suppliers. We believe that we could obtain a similar volume of
commercial die from alternative sources without a material adverse effect on our operations, although there may
be some delay due to the time required to qualify an alternate supplier.
JV1/JV2 Transaction
Asset Purchase Agreement
On September 28, 2006, Spansion Japan entered into an Asset Purchase Agreement with Fujitsu, pursuant to
which Spansion Japan sold to Fujitsu, effective as of the JV1/JV2 Closing, the JV1/JV2 Facilities, and certain of
its assets, including inventory, located in the JV1/JV2 Facilities. The purchase price for the JV1/JV2 Facilities
was approximately $150 million plus the value of the inventory as of the JV1/JV2 Closing.
The obligations of Spansion Japan under the Asset Purchase Agreement are being guaranteed by Spansion
Inc., Spansion LLC and Spansion Technology Inc. The sale of the JV1/JV2 Facilities closed on April 2, 2007.
Master Lease Agreement
In connection with the sale of the JV1/JV2 Facilities, on September 28, 2006 Spansion Japan and Fujitsu
entered into a Master Lease Agreement for certain equipment, located at the JV1/JV2 Facilities and identified on
equipment schedules agreed to by the parties. Effective upon the JV1/JV2 Closing, Spansion Japan began to
lease to Fujitsu the equipment under the Master Lease Agreement. The initial term of each lease schedule will
continue for the number of months specified in the applicable schedule unless otherwise terminated in
accordance with the terms of the applicable schedule or the Master Lease Agreement. Fujitsu has the option to
renew or extend the lease term for any or all of the equipment at the end of the initial term or any extension
thereof for up to six months. If specified demand targets for wafers are not met, and subject to conditions
55
described in the Master Lease Agreement, each of Spansion Japan and Fujitsu will have a right to terminate the
lease of some or all of the leased equipment on or after June 30, 2008, by giving notice to the other party prior to
December 31, 2007.
Subject to the terms of the Master Lease Agreement, Fujitsu will have a right of first refusal in the event of
the sale by Spansion Japan of any equipment for a purchase price equal to the highest offer received from a third
party. In addition, subject to the terms of the Master Lease Agreement, Fujitsu will have the option to purchase
any or all of the equipment at the expiration of the applicable term, upon any early lease termination or if any
equipment is not returned in its proper condition for a purchase price equal to the fair market value of the
equipment at the time of purchase or any other purchase price as may be set forth in the applicable schedule.
The obligations of Spansion Japan under the Master Lease Agreement are being guaranteed by Spansion
Inc., Spansion LLC and Spansion Technology Inc. Fujitsu paid approximately $2.3 million in fees to Spansion
Japan in fiscal 2007 under the Master Lease Agreement.
Foundry Agreement
In connection with the sale of the JV1/JV2 Facilities, Spansion Japan and Fujitsu entered into a Foundry
Agreement, pursuant to which Fujitsu provides certain foundry services for the manufacture of our products at
the JV1/JV2 Facilities.
Pursuant to the Foundry Agreement, Fujitsu began to provide foundry services to us commencing upon the
JV1/JV2 Closing. The Foundry Agreement also includes minimum capacity and purchase commitments between
both the parties resulting in financial penalties if such capacity and purchase commitments are not achieved. The
initial term of the Foundry Agreement ends on December 31, 2009. Spansion Japan and Fujitsu have agreed to
enter into discussions to decide whether or not to extend the initial term of the Foundry Agreement by
December 31, 2008, and Fujitsu has agreed to give Spansion Japan at least 12-months prior notice of its intent to
cease providing foundry services to Spansion Japan under the Foundry Agreement. Either Spansion Japan or
Fujitsu may terminate the Foundry Agreement in the event that the other party fails to correct or cure its material
breach under the Foundry Agreement within 60 days of receipt of written notice from the non-defaulting party
specifying such breach. We incurred approximately $159.7 million in expenses in fiscal 2007 under the Foundry
Agreement.
Secondment and Transfer Agreement
In connection with the sale of the JV1/JV2 Facilities, Spansion Japan and Fujitsu entered into a Secondment
and Transfer Agreement, or Secondment Agreement, pursuant to which Spansion Japan seconds certain
employees to Fujitsu commencing upon the JV1/JV2 Closing. In addition, certain employees will ultimately be
transferred to Fujitsu. Unless the parties otherwise agree, the period of secondment for seconded employees not
designated for transfer will end no later than June 30, 2008, and no later than December 31, 2009 for seconded
employees designated for transfer.
The seconded employees remain employees of Spansion Japan and remain eligible to participate in
Spansion Japan’s various benefit plans, and Fujitsu is required to reimburse Spansion Japan for all compensation
and expenses associated with such seconded employees and incurred by Spansion Japan during the secondment
period.
The Secondment Agreement can be terminated (i) by the mutual written agreement of Spansion Japan and
Fujitsu, (ii) by either Spansion Japan or Fujitsu in the event that the other party materially defaults in the
performance of a material obligation under the Secondment Agreement and the breaching party has not cured
such breach within 120 days after receipt of notice of default by the non-breaching party and (iii) by either
Spansion Japan or Fujitsu in the event that the other party is subject to bankruptcy or insolvency proceedings.
56
The Secondment Agreement automatically terminates (i) on the transfer date of the last of the transferred
employees or (ii) upon the termination of the Foundry Agreement unless otherwise agreed by Spansion Japan and
Fujitsu. Fujitsu paid approximately $21.0 million in fees to Spansion Japan in fiscal 2007 under the Secondment
Agreement.
Wafer Processing Services Agreement
In connection with the JV1/JV2 Closing, on April 2, 2007, Spansion Japan and Fujitsu entered into a Wafer
Processing Services Agreement (the “Wafer Processing Agreement”), pursuant to which Fujitsu provides certain
wafer processing services to Spansion Japan at the JV1/JV2 Facilities. The term of the Wafer Processing
Agreement commenced on April 2, 2007 and is effective until December 31, 2009. The Wafer Processing
Agreement will automatically terminate upon termination or expiration of that certain Foundry Agreement dated
as of September 28, 2006, among Spansion Japan, Spansion Inc., Spansion LLC and Spansion Technology Inc.
and Fujitsu. Either Spansion Japan or Fujitsu may terminate the Wafer Processing Agreement in the event that
the other party fails to correct or cure any material breach by such other party of any covenant or obligation
under the Wafer Processing Agreement within 60 days of receipt of written notice from the non-defaulting party
specifying such breach. We incurred approximately $8.1 million in expenses in fiscal 2007 under the Wafer
Processing Services Agreement.
Sort Services Agreement
In connection with the JV1/JV2 Closing, on April 2, 2007, Spansion Japan and Fujitsu entered into a Sort
Services Agreement (the “Sort Services Agreement”), pursuant to which Fujitsu provides probe testing services
of Spansion Japan’s wafers at the JV1/JV2 Facilities. The term of the Sort Services Agreement commenced on
April 2, 2007 and is effective until December 31, 2009. Spansion Japan may terminate the Sort Services
Agreement in its sole discretion with 60 days’ prior written notice to Fujitsu, and either Spansion Japan or Fujitsu
may terminate the Sort Services Agreement in the event that the other party fails to correct or cure any material
breach by such other party of any covenant or obligation under the Sort Services Agreement within 60 days of
receipt of written notice from the non-defaulting party specifying such breach. We incurred approximately $20.0
million in expenses in fiscal 2007 under the Sort Services Agreement.
Rental Agreement
In connection with the JV1/JV2 Closing, on April 2, 2007, Spansion Japan and Fujitsu Semiconductor
Technology, Inc., a Japanese corporation (“FSET”), entered into a Rental Agreement (the “Rental Agreement”),
pursuant to which Spansion Japan rents certain equipment (the “Rental Equipment”) to FSET for the sole
purpose of fulfilling the obligations of Fujitsu in the Sort Services Agreement. Spansion Japan will retain title to
the Rental Equipment at all times, and FSET is prohibited form selling, pledging or otherwise encumbering or
disposing of the Rental Equipment. The term of the Rental Agreement commenced on April 2, 2007 and is
effective until the termination or expiration of the Sort Services Agreement. FSET paid approximately $3.6
million in fees to Spansion Japan in fiscal 2007 under the Rental Agreement.
Services Agreement
In connection with the JV1/JV2 Closing, on April 2, 2007, Spansion Japan and FSET entered into a Services
Agreement (the “Services Agreement”), pursuant to which Spansion Japan provides certain human resource
services and information technology (“IT”) services to FSET (collectively, the “Services”). Any services are to
be provided pursuant to statements of works, which may be updated by Spansion Japan and FSET from time to
time upon mutual agreement. Spansion Japan will provide the Services to FSET at cost plus five percent (5%).
Pursuant to the Services Agreement, Spansion Japan shall perform the Services with the same degree of
accuracy, quality and completeness as it would provide similar services to its own divisions or affiliates
(“Service Level”).
57
The term of the Services Agreement commenced on April 2, 2007 and is effective until March 31, 2009.
FSET may terminate all or a part of any individual Service at any time with six months’ advance notice to
Spansion Japan. FSET may also terminate all or a part of any individual Service if Spansion Japan’s provision of
such Service fails to comply with the applicable Service Level for such Service and Spansion Japan fails to
correct its performance failure within 60 days of receipt of written notice from FSET of such failure. In addition,
FSET may terminate the Services Agreement in the event that Spansion Japan fails to correct or cure any
material breach of any obligation under the Services Agreement within 90 days of receipt of written notice from
FSET of such breach, and Spansion Japan may terminate the Services Agreement in the event FSET fails to make
any payments due to Spansion Japan under the Services Agreement within 90 days of receipt of written notice
from Spansion Japan of such default in payment. FSET paid approximately $825,000 in fees to Spansion Japan in
fiscal 2007 under the Services Agreement.
Notwithstanding anything to the contrary set forth in any of our previous filings under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate
future filings, including this proxy statement, in whole or in part, the following report will not be
incorporated by reference into any such filings, nor will it be deemed to be soliciting material or deemed
filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, or under
the Securities Exchange Act of 1934, as amended.
58
AUDIT COMMITTEE REPORT
The Audit Committee reviewed and discussed Spansion’s audited financial statements for the fiscal year
ended December 30, 2007, with Spansion management and Ernst & Young LLP, Spansion’s independent
registered public accounting firm. The Audit Committee also discussed with Ernst & Young LLP the matters
required to be discussed by Statement on Auditing Standards No. 61. This included a discussion of the
independent registered public accounting firm’s judgments as to the quality, not just the acceptability, of
Spansion’s accounting principles and such other matters that generally accepted auditing standards require to be
discussed with the Audit Committee.
The Audit Committee also received and reviewed the written disclosures and the letter from Ernst & Young
LLP required by Independence Standards Board Standard No. 1, Independence Discussion with Audit
Committees, and the Audit Committee discussed the independence of Ernst & Young LLP with that firm.
Based on the Audit Committee’s review and discussions noted above, the Audit Committee recommended
to the Board that the audited financial statements be included in Spansion’s Annual Report on Form 10-K for the
fiscal year ended December 30, 2007 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
Robert L. Edwards, Chair
David E. Roberson
John M. Stich
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for consideration at the Annual
Meeting. If any other matters are properly brought before the meeting, the proxies will be voted in accordance
with the best judgment of the person or persons voting such proxies.
ANNUAL REPORT AND FINANCIAL STATEMENTS
Spansion’s Annual Report on Form 10-K, which includes Spansion’s audited financial statements for the
fiscal year ended December 30, 2007, has accompanied or preceded this proxy statement. You may also access a
copy of Spansion’s Annual Report on Form 10-K in the Investor Relations section of www.spansion.com. Upon
your request, we will provide, without any charge, a copy of any of Spansion’s filings with the Securities and
Exchange Commission. Requests should be directed to Spansion’s Corporate Secretary at Spansion Inc., 915
DeGuigne Drive, P.O. Box 3453, Sunnyvale, California 94088 or by email to
Corporate.Secretary@spansion.com.
Spansion is a registered trademark of Spansion Inc. Other product and company names used in this
publication are for identification purposes only and may be trademarks of their respective companies.
59
Directions to Four Seasons Hotel Silicon Valley at East Palo Alto
2050 University Avenue, East Palo Alto, California 94303
Telephone: 650.566.1200 Facsimile: 650.566.1221
Directions From San Francisco International Airport and San Francisco
Travel south on Highway 101 to the University Avenue exit
Turn left onto University Avenue and make the first right at Woodland
Turn right into the hotel entrance
Directions From Points North of the Golden Gate Bridge
Follow Highway 101 south towards San Francisco, over the Golden Gate Bridge ($5 toll)
Just past the toll booths, exit at Highway 1/Park Presidio
Follow Highway 1/Park Presidio through Golden Gate Park and onto 19th Avenue
Follow 19th Avenue to Highway 280 south
Merge onto Highway 280 south and travel 14 miles to Highway 92 east
Travel east on Highway 92 to Highway 101 south
Proceed south on Highway 101 for 10 miles to the University Avenue exit
Turn left onto University Avenue and make the first right at Woodland
Turn right into the hotel entrance
Directions From the Monterey Peninsula, Santa Cruz and San Jose
Travel north on Highway 1 to Highway 17
Follow Highway 17 towards San Jose
Proceed on Highway 17, which will become Highway 880
Follow Highway 880 to Highway 101 north, toward Palo Alto
Exit at University Avenue
Travel west on University Avenue and make the first right at Woodland
Turn right into the hotel entrance
Directions From San Jose Airport
Departing the airport terminal, follow the signs to Highway 101 north
Travel north on Hwy 101 approximately 14 Miles
Exit at University Avenue
Travel west on University Avenue and make the first right at Woodland
Turn right into the hotel entrance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ÈANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended December 30, 2007
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission File Number 000-51666
SPANSION INC.
(Exact name of registrant as specified in its charter)
Delaware 20-3898239
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
915 DeGuigne Drive
P.O. Box 3453
Sunnyvale, CA 94088
(408) 962-2500
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Name of each exchange
on which registered
Class A Common Stock, $0.001 Par Value Per Share NASDAQ Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ÈNo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ÈNo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer ÈAccelerated filer Non-accelerated filer
(Do not check if a smaller
reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes No È
The aggregate market value of Common Stock held by non-affiliates of the registrant (based upon the closing sale price on the NASDAQ
Global Select Market on July 1, 2007 was approximately $1,140 million. Shares held by each executive officer, director and by each person who
owns 10% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other purposes.
The number of shares outstanding of each of the registrant’s classes of common stock as of the close of business on February 26, 2008:
Class Number of Shares
Class A Common Stock, $0.001 par value 135,572,590
Class C Common Stock, $0.001 par value 1
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2008 Annual Meeting of Stockholders are incorporated into Part III hereof.
Spansion Inc.
FORM 10-K
For The Fiscal Year Ended December 30, 2007
INDEX
Page
PART I
ITEM 1. BUSINESS .................................................................. 3
ITEM 1A. RISK FACTORS ............................................................. 16
ITEM 1B. UNRESOLVED STAFF COMMENTS ........................................... 38
ITEM 2. PROPERTIES ............................................................... 38
ITEM 3. LEGAL PROCEEDINGS ...................................................... 39
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................ 40
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ................... 41
ITEM 6. SELECTED FINANCIAL DATA ................................................ 43
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTSOFOPERATIONS .................................................. 44
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ...... 63
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ...................... 66
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE ............................................... 118
ITEM 9A. CONTROLS AND PROCEDURES .............................................. 118
ITEM 9B. OTHER INFORMATION ...................................................... 118
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ........... 119
ITEM 11. EXECUTIVE COMPENSATION ................................................ 119
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS .................................... 119
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE ............................................................ 119
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES ............................... 119
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES .......................... 120
SIGNATURES ......................................................................... 127
PART I
ITEM 1. BUSINESS
Cautionary Statement Regarding Forward-Looking Statements
The statements in this report include forward-looking statements. These statements relate to future events or
our future financial performance. Forward-looking statements may include words such as “may,” “will,”
“should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue”
or other wording indicating future results or expectations. Forward-looking statements are subject to risks and
uncertainties, and actual events or results may differ materially. Factors that could cause our actual results to
differ materially include, but are not limited to, those discussed under “Risk Factors” in this report and the
following factors:
our ability to successfully introduce our next generation products to market in a timely manner;
our ability to effectively and timely achieve volume production of our next generation products;
our ability to improve our gross margins and to implement successfully our cost reduction efforts;
our ability to increase market acceptance of our products based on our MirrorBit technology;
our ability to accelerate our product development cycle;
our ability to penetrate further the integrated category of the Flash memory market with our high
density products and expand the number of customers in emerging markets;
our ability to successfully develop and transition to the latest technologies;
our ability to finance, construct and equip SP1 and have 300-millimeter Flash memory wafer
manufacturing capacity in fiscal 2008;
our ability to control our operating expenses, particularly our marketing, general and administrative
costs;
our ability to develop our MirrorBit ORNAND, MirrorBit ORNAND2, MirrorBit Quad and MirrorBit
Eclipse architectures, introduce new products based on these architectures, and to achieve customer
acceptance of these products, particularly among mobile phone OEMs;
our ability to develop systems-level solutions that provide value to customers of our products;
our ability to enter new markets not traditionally served by Flash memory, for example, integrating
logic functions within high density arrays of Flash memory and replacing DRAM in servers with
MirrorBit Flash memory; and
our ability to negotiate successfully patent and other intellectual property licenses and patent cross-
licenses and acquire additional patents.
We undertake no obligation to revise or update any forward-looking statements to reflect any event or
circumstance that arises after the date of this report, or to conform such statements to actual results or changes
in our expectations.
Our Company
We are a semiconductor device company exclusively dedicated to designing, developing, manufacturing,
marketing and selling Flash memory solutions. Our Flash memory is integrated into a broad range of electronic
products, including mobile phones, consumer electronics, automotive electronics, networking and
telecommunications equipment, and computer peripherals. Our Flash memory solutions are incorporated in
products from original equipment manufacturers, or OEMs, in each of these markets, including all of the top ten
mobile phone OEMs, all of the top ten consumer electronics OEMs and all of the top ten automotive electronics
OEMs.
3
We are headquartered in Sunnyvale, California. We operate three Flash memory wafer fabrication facilities,
or fabs, four assembly, test mark and pack sites and a development fab, known as our Submicron Development
Center, or SDC. For financial information about geographic areas and for information with respect to our sales,
refer to the information set forth in Item 7—Management’s Discussion and Analysis of Financial Condition and
Results of Operations, beginning on page 44, below.
We were originally organized as a Flash memory manufacturing venture of Advanced Micro Devices, Inc.
(AMD) and Fujitsu Limited (Fujitsu) in 1993 named Fujitsu AMD Semiconductor Limited, or FASL. The
primary function of FASL was to manufacture and sell Flash memory wafers to AMD and Fujitsu, who in turn
converted the Flash memory wafers into finished Flash memory products and sold them to their customers. AMD
and Fujitsu were also responsible for all research and development and marketing activities and provided FASL
with various support and administrative services.
By 2003, AMD and Fujitsu desired to expand the operations of FASL to: achieve economies of scale; add
additional Flash memory wafer fabrication capacity; include assembly, test, mark and pack operations; include
research and development capabilities and include various marketing and administrative functions. To
accomplish these goals, in 2003, AMD and Fujitsu reorganized our business as a Flash memory company called
FASL LLC, later renamed Spansion LLC, by integrating the manufacturing venture with other Flash memory
assets of AMD and Fujitsu. Since this reorganization, until the beginning of the second quarter of fiscal 2006, we
manufactured and sold finished Flash memory devices to customers worldwide through our two sole distributors,
AMD and Fujitsu. Since the beginning of the second quarter of fiscal 2006, we have sold our products directly to
our customers, including customers not served solely by Fujitsu. Fujitsu is currently our sole distributor in Japan
and also as a nonexclusive distributor throughout the rest of the world, other than Europe and the Americas with
limited exceptions. We were reorganized from Spansion LLC into Spansion Inc., a Delaware corporation, in
connection with our initial public offering in December 2005.
Our mailing address and executive offices are located at 915 DeGuigne Drive, Sunnyvale, California 94088,
and our telephone number is (408) 962-2500. References in this report to “Spansion,” “we,” “us,” “our,” or the
“Company” shall mean Spansion Inc. and our consolidated subsidiaries, unless the context indicates otherwise.
We post on the Investor Relations page of our Web site, www.spansion.com, a link to our filings with the
SEC, our Code of Ethics for our Chief Executive Officer, Chief Financial Officer, Corporate Controller and other
Senior Finance Executives, our Code of Business Conduct, which applies to all directors and all our employees,
and the charters of our Audit, Compensation, Finance, Nominating and Corporate Governance and Strategy
committees. Our filings with the SEC are posted as soon as reasonably practical after they are filed electronically
with the SEC. You can also obtain copies of these documents by writing to us at: Corporate Secretary, Spansion
Inc., 915 DeGuigne Drive, Sunnyvale, California 94088, or emailing us at: Corporate.Secretary@spansion.com.
These documents and filings are provided free of charge.
For a discussion of the risk factors related to our business operations, please see the sections entitled,
“Cautionary Statement Regarding Forward-Looking Statements,” above, and the “Risk Factors” set forth under
Item 1A below.
For fiscal 2007, our net sales were approximately $2.5 billion and our net loss was approximately
$263.5 million, reflecting a decline in net sales of approximately three percent and an increase in net loss by
approximately 78 percent over fiscal 2006 net sales of approximately $2.6 billion and net loss of approximately
$148 million.
According to market research firm iSuppli, in the first nine months of 2007, we were responsible for
approximately 32 percent of all NOR Flash memory net sales, making us the largest supplier of NOR Flash
memory in the world. We were also one of the largest suppliers for the overall Flash memory market, with a
12 percent market share, based on end sales of our products. In 2006, based on iSuppli data, we were the largest
4
supplier of NOR Flash memory, responsible for approximately 31 percent of all NOR Flash memory sales, and
we were one of the largest suppliers for the overall Flash memory market, with a 12 percent market share, based
on end sales of our products.
Our Industry
Consumers are increasingly demanding access to digital content through sophisticated communications
equipment, consumer electronic products and automotive electronics. People now expect to instantly access,
store and interact with multimedia content, including photos, music, video and text files using such products as
mobile phones, digital cameras, DVD players, digital HDTVs, set top boxes, or STBs, MP3 players, video
players and automotive electronics such as navigation systems. The primary semiconductor component used to
store and access this kind of digital content is Flash memory, and as a result, Flash memory has become one of
the most critical components of electronic products. Most electronic products use Flash memory to store
important program instructions, known as code, as well as multimedia or other digital content, known as data.
Code storage allows the basic operating instructions, operating system software or program code to be retained,
which allows an electronic product to function, while data storage allows digital content, such as multimedia
files, to be retained. There are two major architectures of Flash memory in the market today: NOR Flash
memory, which is used for code and data storage in mobile phones and primarily for code storage in consumer
and industrial electronics, and NAND Flash memory, which is primarily used for data storage in removable
memory applications, such as Flash memory cards and USB drives, and is increasingly being used in high-end
mobile phones and embedded applications such as MP3 players.
The Flash memory market can be divided into two major categories based on application: the integrated
category, which includes wireless and embedded applications, and the removable storage category. Within the
integrated category, portable, battery-powered communications applications are referred to as “wireless” and all
other applications, such as consumer, industrial, telecommunications and automotive electronics, are referred to
as “embedded.” Within the removable storage category, applications include Flash memory cards and USB
drives. Based on iSuppli data, the wireless portion of the integrated category, which primarily consists of mobile
phones, represented the largest market for NOR Flash memory in fiscal 2007. We focus primarily on the
integrated category of the Flash memory market, including wireless and embedded applications. Global demand
for NAND Flash memory is growing much faster than that of NOR Flash memory largely on the strength of
growth in multimedia consumer applications such as MP3 audio players and video players together with
removable storage in applications such as Flash memory cards for digital photography, USB storage for general
purpose use and an emerging trend for solid state drive solutions to replace hard drives in portable computer
applications.
Products
Our current product portfolio is predominately based on NOR architecture, and ranges from 1 megabit to 2
gigabits with a breadth of interfaces and features. While historically our products have been based on floating
gate technology, the majority of our new product designs use MirrorBit technology. Our products have
traditionally been designed to support code, or combined code and data storage applications, and serve the
wireless and/or embedded applications in the integrated category of the Flash memory market.
Mobile phone applications represent a majority of our sales in fiscal 2007 and fiscal 2006 and are largely
based on multi-chip package, or MCP, solutions that include Flash memory together with volatile memory such
as dynamic random access memory, or DRAM. Embedded applications represent most of the balance of our sales
in fiscal 2007 and fiscal 2006. While historically net sales to wireless applications far exceeded net sales to
embedded applications, during fiscal 2007 we began to see a shift toward a balance between these two
applications. Sales of MirrorBit technology-based products increased from approximately 50 percent of our total
net sales in fiscal 2006 to approximately 71 percent in fiscal 2007. The remainder of our sales has been based on
floating gate technology.
5
Technology
Flash memory technology refers to the structure of an individual memory cell or transistor. Our products are
based on two technologies, single-bit-per-cell floating gate technology and two- or more-bit-per-cell MirrorBit
technology. In the first quarter of fiscal 2007, we began commercial shipments of products based on our
MirrorBit Quad technology, the industry’s first four-bit-per-cell technology. Our products that are designed
primarily for code storage and execution applications are based on NOR Flash memory architecture and utilize
either traditional floating gate technology or our MirrorBit technology. Our products that are designed for content
delivery or data storage applications and utilize our MirrorBit ORNAND and MirrorBit Quad architectures.
Floating Gate Technology. Floating gate is the conventional memory cell technology that is utilized by
most Flash memory companies today for both NOR and NAND products. A memory cell comprises a transistor
having a source, a drain and a control gate to regulate the current flow between the source and the drain, thereby
defining whether the memory cell stores a “0” bit or a “1” bit by storing charge in the cell storage medium.
Floating gate is a memory cell technology in which the “floating gate” is a conductive storage medium between
the control gate and the source and drain. It is referred to as a floating gate as it is electrically isolated or
“floating” from the rest of the cell to ensure that stored charge does not leak away resulting in memory loss. We
have created innovations in floating gate technology that have become industry standards, such as negative gate
erase, single power supply and embedded programming algorithms, and we continue to hold a leading position in
the Flash memory market with our products based on floating gate technology. Our products using floating gate
technology are typically used for code storage in applications requiring very high read speeds or the ability to
operate at extreme temperatures in harsh environments such as those found in automotive applications. The
majority of low density applications also use products based on floating gate technology.
MirrorBit Technology. To achieve storage density of two bits per cell, and most recently four bits per cell,
we developed MirrorBit technology. MirrorBit technology stores two distinct charges in a single memory cell,
with each charge equivalent to one bit of data thereby at least doubling the density, or storage capacity, of each
memory cell and enabling higher density, lower cost products. This is made possible because MirrorBit
technology stores charge in a nonconductive storage medium, silicon nitride, which eliminates the need for a
floating gate, as opposed to the conductive storage medium used by floating gate technology. While electrons
stored in a particular location of a MirrorBit nitride cell stay in place, those stored in a floating gate diffuse,
preventing the storage of more than one charge in a floating gate cell.
MirrorBit technology is the foundation for expanding our product roadmap with enhanced capabilities. For
example, in the first quarter of fiscal 2007 we began selling products for content delivery applications using
MirrorBit Quad technology, a technology with the ability to store four bits per cell. MirrorBit Quad, as with our
two-bit-per-cell MirrorBit technology, stores charges in two distinct locations in a non-conducting nitride storage
medium but the quantity of each charge is variable to produce the equivalent of two bits of data in each location
for a total of four bits per cell. Furthermore, MirrorBit technology has the ability to efficiently integrate logic
functions on the same device within high-density arrays of Flash memory which will enable us to create new
types of Flash memory products not available on the market today, such as our planned HD-SIM product that is
designed to integrate high performance processors and significant security capabilities. Also, we have leveraged
our MirrorBit technology to expand our Flash memory offering into new areas such as serial interface Flash
memory known as Serial Peripheral Interface. We believe that these Flash memory innovations made possible by
MirrorBit technology will enable us to expand our opportunity in the Flash memory market.
Process Technology
Process technology refers to the particular method used to manufacture semiconductor integrated circuits.
Like most semiconductor companies, we direct significant efforts toward invention and development of
manufacturing processes technologies that achieve one or more of the following objectives: reduction of our
manufacturing costs, improvement of our device performance, and addition of product features and capabilities.
We achieve these goals primarily through a combination of optimizing the number of process steps required to
6
produce a product, and by reducing the scale or size of key structures in our integrated circuits such as the cells
or transistors used to store charge and the surrounding circuits that manage and interface to these cells. We
develop each process technology using particular design rules and refer to this as the process or technology node
using nanometers as a measurement of length of certain critical structures in the process. By shrinking the
transistors, we enable more transistors in the same area, which allows us to manufacture more bits per wafer at
each successive process node, decreasing material cost per bit and increasing yield for a given density.
During fiscal 2007, we offered products manufactured on technology nodes from 320-nanometer to
90-nanometer, utilizing MirrorBit and floating gate cell technology. We continue to manufacture products based
on floating gate technology at process nodes from 320-nanometer to 110-nanometer. However, the majority of
our wafer production is now focused on MirrorBit technology. The majority of our production during fiscal 2007
was the manufacture of MirrorBit products using 110- and 90-nanometer process technology for both MirrorBit
NOR and MirrorBit ORNAND products. We sampled MirrorBit ORNAND products using our 65-nanometer
process technology in 2007 and also sampled 65-nanometer MirrorBit Quad products in January 2008. Our 300-
millimeter wafer fabrication facility in Aizu-Wakamatsu, Japan, SP1, is now manufacturing 65-nanometer
MirrorBit ORNAND products which we expect to sell to customers upon qualification. We plan to sample
MirrorBit products manufactured with 45-nanometer process technology by the end of fiscal 2008. We believe
that as we continue to reduce the size of our process nodes, from 90-nanometer to 65-nanometer to 45-nanometer
and beyond, our transition to more advanced process nodes will provide us and our customers cost and
performance benefits.
Architecture
Flash memory architecture may be defined as the connection of cells in a memory array with circuits that
give access to and manage these cells for read, write and erase operations. Traditionally, customers requiring fast
read performance and superior reliability have chosen a NOR architecture for program code storage as well as for
combined code and data storage purposes. Flash memory customers requiring higher densities, faster write
speeds and lower costs mostly for removable data storage applications have typically chosen a NAND
architecture. Our products have historically implemented a NOR architecture and therefore have fast random and
sequential read, fast random write and high reliability. To address applications in the integrated category of the
market that use products with a NAND architecture, we instead developed a new architecture called ORNAND
based on our MirrorBit technology that draws from some of the best attributes of both NOR and NAND
architectures. We began commercial shipments of MirrorBit ORNAND-based products to customers in the
second quarter of fiscal 2006.
During fiscal 2007, we announced plans for products based on our MirrorBit Eclipse architecture, which we
anticipate will provide high-performance code execution, fast write capability and a combination of two bits per
cell and four bits per cell, combining attributes of MirrorBit NOR, MirrorBit ORNAND and MirrorBit Quad
architectures in a single die. We expect to have products based on two bits per cell MirrorBit Eclipse architecture
available mid-year fiscal 2008.
In November 2007, we announced plans for the next generation of MirrorBit ORNAND architecture, which
we refer to as MirrorBit ORNAND2. The new architecture is planned to expand the current MirrorBit ORNAND
product portfolio with new solutions at 45-nanometer that require 25 percent fewer mask layers than Spansion’s
65-nanometer MirrorBit ORNAND products and is expected to support faster write speed performance and lower
cost. MirrorBit ORNAND2 products are expected to be available in early 2009.
Starting at the 65-nanometer process node, both new and existing architectures, such as MirrorBit Eclipse
and MirrorBit ORNAND, will include a new capability we refer to as Built In Self Test, or BIST. BIST is
available because a microcontroller is designed and built into our Flash memory die. Within a customers’
application, this microcontroller manages the Flash memory, replacing the previous use of fixed function circuits
dedicated to this task. However, at the test stage of our manufacturing process we can utilize this same
microcontroller to perform self-testing of the Flash memory die. This ability for the die to test itself enables the
7
use of lower cost testers and also permits all die on a wafer to be tested simultaneously. The ability to test all die
on a wafer simultaneously is particularly significant in combination with our 300-millimeter manufacturing
capacity. When using BIST, the test time for a 300-millimeter wafer is similar to a 200-millimeter wafer when
producing the same Flash memory die. However, a 300-millimeter wafer can produce more than twice the
number of die, effectively doubling test throughput and cutting the test cost in half. Utilizing BIST in our
manufacturing processes enables us to significantly reduce test cost and support additional cost savings over
conventional test processes using more expensive testers.
Wireless Products
Our products for wireless applications, particularly for mobile phones, offer a combination of low power
consumption with fast performance and competitive cost structure for a wide range of customer platforms and
wireless applications with different interface requirements. Key wireless products include the following:
WS and NS Families. The WS and NS product families, with a 1.8 volt interface, are used for a broad range
of mobile phones from low-end to higher-end with capabilities such as complex ring tones, enhanced color
displays, higher resolution cameras and larger internal storage for multimedia content including music, videos
and pictures. The WS and NS families, which include products based on floating gate and MirrorBit technology,
combine a high performance burst-mode 1.8-volt interface, with Simultaneous Read/Write and Advanced Sector
Protection features at 16-megabit to 512-megabit densities for code and data requirements. WS and NS products
are usually combined with third-party SRAM, pSRAM or DRAM die in a single MCP to meet mobile phone
memory needs.
PL and GL Families. The PL and GL product families, with a 3-volt interface, enable code and data
applications in low-end and mid-range mobile phones. The PL and GL product families, which are manufactured
using floating gate and MirrorBit technology, include products with a page-mode interface, simultaneous Read/
Write capability and Advanced Sector Protection at 32-megabit to 256-megabit densities for wireless
applications providing scalable platforms for code and data applications. PL and GL products are usually
combined with third-party SRAM and pSRAM die in a single MCP to meet mobile phone memory needs.
MS Family. The MS family, which includes 512-megabit to 2-gigabit density devices with a 1.8-volt
interface, enables enhanced data applications in mid-range and higher-end mobile phones. The MS family, which
is manufactured using ORNAND architecture based on MirrorBit technology, has faster write speeds than current
NOR products and includes an interface similar to floating gate NAND. MS products, on their own or together
with code-optimized Flash memory products such as those from the WS and NS families, are usually combined
with third-party low-power SDRAM die in a single MCP to meet mobile phone memory needs.
Embedded Products
We offer a variety of general purpose as well as highly optimized products to serve the diverse needs of the
embedded portion of the integrated category. Key embedded products include the following:
AL and GL Families. The AL and GL product families address applications where high reliability coupled
with low cost are important, including consumer, networking and telecommunications. The AL product family
offers densities as low as 4 megabits, supports a simpler feature set and provides a standard interface for value-
focused applications, such as DVD players. The GL product family offers densities up to 1 gigabit in production
and includes a page-mode interface and Advanced Sector Protection to support high performance consumer
applications, such as high-end STBs and digital video recorders, or DVRs. MirrorBit technology is utilized for
the GL family, while both MirrorBit and floating gate technology are utilized for the AL family.
CD Family. The CD product family addresses automotive engine and transmission control applications,
which require high reliability and feature rich, high performance solutions operating over wide temperature
ranges. The CD product family combines a high performance burst-mode 2.5-volt interface, with Simultaneous
8
Read/Write and Advanced Sector Protection at 16- and 32-megabit densities. Because engine and transmission
control units must withstand extreme temperatures, this family operates at up to 145°C and is available in a fully
tested die-only solution for incorporation into special customer modules. We use our floating gate technology to
meet the extreme operating temperature range and very high reliability requirements of automotive Flash
memory customers.
FL Family. The FL product family addresses the need for continued cost reduction in applications such as
personal computers and personal computer peripherals, for example in hard disk drives and graphics cards and in
consumer applications such as DVD players and home networking. The FL family utilizes our MirrorBit
technology and a Serial Peripheral Interface with a low pin count package to provide optimal low cost solutions
at densities from 4 to 128 megabits.
Development Platforms
We provide development tools and subsystems to customers of our Flash memory products that help them
easily and quickly design Flash devices into their integrated products. We assist these customers in prototyping
their designs with our Flash memory devices by providing the necessary hardware development tools and
platforms for design, development, verification, evaluation and programming. Our goal is to streamline and
simplify the design and development cycle by providing consistent and comprehensive tools to support the
design and development process, from initial system bring-up to final product deployment.
For example, our Productivity, Adaptive Communication & Entertainment, or PACE, development platform
offers customers of our Flash memory products the benefit of utilizing our products on fully functional cell
phone and PDA platforms running with multiple operating systems and with a variety of popular baseband and
CPU chipsets. We believe this reference platform can remove significant design overhead and complexity from
product development cycles. Additionally, PACE enables system tuning and optimization before final product
release. PACE is used in generating benchmarks, creating reference designs, debugging software, integrating new
hardware platforms and systems and prototyping next generation wireless architectures.
Together with our key partners, we created the Platform Independent Storage Module, or PISMO, memory
interface standard. PISMO is used to create standard memory modules recommended for development platforms
and we offer comprehensive support of our Flash memory products on PISMO modules. PISMO modules enable
our partners and customers to significantly reduce system development and debugging time and the PISMO
standard is supported by a large number of system and chipset companies. PISMO allows design and system
validation of memory combinations before any MCP is produced, allowing system design and software
development to start while the final product is being manufactured. Together with our partners, we offer a
comprehensive set of personal computer and embedded development environments based on PISMO.
Other examples of our development tools include Spansion USB Programmer, or SUP, and a variety of
devices models. SUP is a portable Flash programmer system used to program and verify our Flash memory
devices. The SUP provides basic programming and verification functions in addition to the ability to exercise our
advanced Flash memory features and enhancements all through the USB port of any personal computer or laptop.
Sales and Marketing
We market and sell our products worldwide under the Spansion trademark. Since the beginning of the second
quarter of fiscal 2006, we have sold our products to our customers directly or through distributors, including
customers not served solely by Fujitsu. Fujitsu is currently our sole distributor in Japan and our nonexclusive
distributor throughout the rest of the world, other than Europe and the Americas, with limited exceptions.
We market our products through a variety of direct and indirect channels. We focus on direct relationships
with many of the top mobile phone OEMs and embedded Flash memory customers worldwide. We supplement
9
this effort with programs designed to support design-in of our products on reference designs, which are typically
used by a broad base of wireless providers when choosing Flash memory solutions. For embedded Flash memory
customers, we focus our marketing efforts on providers of complementary silicon to ensure our products
interoperate effectively with the most widely used components in various embedded applications.
Our marketing activities targeting customers, reference design houses and our potential partners include a
combination of direct marketing activities such as trade shows, events and marketing collateral and indirect
activities such as public relations and other marketing communications activities.
Customers
We serve our customers worldwide directly or through our distributors, including Fujitsu, who buy products
from us and resell them to their customers, either directly or through third-party distributors. Customers for our
products consist of OEMs, original design manufacturers, or ODMs, and contract manufacturers. Among those
customers, Nokia Corporation accounted for approximately 10 percent of our net sales in fiscal 2007. For fiscal
2006 and fiscal 2005, AMD accounted for approximately 13 percent and 56 percent of our net sales. For fiscal
2007, fiscal 2006 and fiscal 2005, Fujitsu accounted for approximately 35 percent, 36 percent and 44 percent of
our net sales. AMD’s sales force responsible for selling our products was transferred to us in the second quarter
of fiscal 2005. We currently use Fujitsu as our sole distributor in Japan and with limited exceptions as a
nonexclusive distributor throughout the rest of the world, other than Europe and the America.
Original Equipment Manufacturers
OEMs consist primarily of foreign and domestic manufacturers of mobile phones, consumer electronics,
automotive electronics and networking equipment companies, selected regional accounts and customers in other
target applications.
Third-Party Distributors
Our third-party distributors typically resell to OEMs, ODMs and contract manufacturers. Sales through our
direct distributors are typically made pursuant to agreements that provide return rights for discontinued products
or for products that are not more than twelve months older than their manufacturing date code. In addition, some
of our agreements with distributors may contain standard stock rotation provisions permitting limited levels of
product returns. Our distribution agreement with Fujitsu grants limited stock rotation rights to Fujitsu and allows
Fujitsu to provide similar limited rights to some of its distributors. However, to date, Fujitsu has not extended
these rights to its distributors.
We generally warrant that products sold to our customers and our distributors will, at the time of shipment,
be free from defects in workmanship and materials and conform to our approved specifications. Subject to
specific exceptions, we offer a one-year limited warranty.
Research and Development
Research and development is critical to our success and is focused on process, product and system level
development. We conduct our product and system engineering activities primarily in Sunnyvale, California and
in Kawasaki, Japan with additional design and development engineering teams located in the United States,
Europe and Asia. Our primary development focus is on MirrorBit products for the integrated category of the
Flash memory market. We conduct our process development primarily at our SDC facility located in Sunnyvale,
California, our Fab 25 facility located in Austin, Texas and our facilities in Aizu-Wakamatsu, Japan. Currently,
we are developing new non-volatile memory process technologies with continuing refinement of our
65-nanometer process technology and plans for development of 45-nanometer and more advanced technology. In
February 2007, we stopped further development of manufacturing processes on 200-millimeter at our SDC
10
facility with all future development at the SDC now focused on 300-millimeter wafers at 65-nanometer process
technology and beyond.
We also participate in alliances or other arrangements with external partners in the area of product
technology, process technology and systems solutions to reduce the cost of development for ourselves and our
Flash memory customers. Furthermore, these relationships with external partners enable us to broaden our
product offerings and accelerate access to new technologies.
Our research and development expenses for fiscal 2007, fiscal 2006 and fiscal 2005 were $437 million,
$342 million and $293 million, respectively. For more information, see “Management’s Discussion and Analysis
of Financial Condition and Results of Operations.”
Manufacturing
We own and operate seven manufacturing facilities, of which three, Fab 25, JV3 and SP1, are wafer
fabrication facilities and four are assembly and test facilities. Fab 25 and JV3 are in full production with
200-millimeter wafers and we have begun production of 300-millimeter pre-qualification wafers at SP1.
We believe the use of advanced process technologies at SP1 in combination with 300-millimeter wafers and
BIST will result in significant cost benefits in the future. By utilizing 65-nanometer MirrorBit process technology
in early 2008 and with plans to utilize 45-nanometer MirrorBit process technology in 2009 we believe our SP1
manufacturing facility will be using one of the most advanced Flash memory process technologies in the
industry. Utilizing 300-millimeter wafers enables two and a quarter times more surface area than 200-millimeter
wafers and will support greater than two and a quarter times the number of similar die from 200-millimeter
wafers while utilizing a similar wafer processing time. Leveraging in early 2008 BIST in our 65-nanometer
technology and beyond will enable us to significantly reduce test cost versus 200-millimeter BIST on the same
process node and support additional cost savings over conventional test process using more expensive testers.
In addition to our investment in 300-millimeter manufacturing capacity, we continue to optimize our
200-millimeter manufacturing. Fab 25 is focused almost exclusively on 90-nanometer MirrorBit process
technology while JV3 is focused on 110-nanometer MirrorBit technology.
To augment our internal wafer fabrication capacity, we have foundry agreements with Taiwan
Semiconductor Manufacturing Company Limited, Semiconductor Manufacturing International Corporation and
Fujitsu Limited. We believe these arrangements provide us flexibility to focus on advanced technologies at our
own facilities, while supporting customer demand for products based on trailing-edge technologies from foundry.
Our foundry arrangements also support our advanced technology for peaks in customer demand and for
additional capacity when our own capacity may be temporarily reduced due to process node transitions at our
facilities.
In April 2007, we completed the sale of the JV1 and JV2 wafer fabrication facilities located in Aizu-
Wakamatsu, Japan, and certain equipment, assets and inventory located at these facilities, to Fujitsu for
approximately $150 million plus the value of the inventory at the time of closing (the JV1/JV2 Transaction).
Fujitsu currently provides foundry services to us for the manufacture of products at our former JV1 and JV2
wafer fabrication facilities.
11
The locations of our wafer fabrication facilities, the process technologies currently employed and the
approximate clean room square footage are described in the table below.
Wafer Fabrication Facilities
Name/Location
Wafer Size
(diameter in
millimeters)
Process
Technology
(in nanometers)
Approximate
Clean Room
Square Footage
Austin, Texas
Fab25 .................................. 200 65to110 120,000
Aizu-Wakamatsu, Japan
JV3..................................... 200 110to170 142,500
SP1..................................... 300 65 86,700
The following table describes the location and approximate clean room square footage of our assembly and
test facilities.
Assembly and Test Facilities
Location
Approximate
Clean Room
Square Footage
Bangkok, Thailand ...................................................... 78,000
Kuala Lumpur, Malaysia ................................................. 71,300
Penang, Malaysia ....................................................... 71,000
Suzhou, China ......................................................... 30,250
Our manufacturing processes require many raw materials, such as silicon wafers, mold compound,
substrates and various chemicals and gases, and the necessary equipment for manufacturing. We obtain these
materials and equipment from a large number of suppliers located throughout the world.
Environmental Matters
Many of our facilities are located on properties or in areas with a long history of industrial activity. Prior to
our reorganization in 2003, environmental audits were conducted for each of our manufacturing facilities. The
audits described various conditions customary of facilities in our industry and, in particular, noted historical soil
and groundwater contamination at our Sunnyvale, California facility arising from the leakage of chlorinated
solvent storage tanks that previously had been located on this property. This property is listed on the U.S.
Environmental Protection Agency’s Superfund National Priorities List. AMD, as the former owner of the
property, is investigating and remediating this contamination.
In connection with our reorganization in 2003, each of AMD and Fujitsu agreed to indemnify us against
losses arising out of the presence or release, prior to June 30, 2003, of hazardous substances at or from these and
other sites they each contributed to us. Conversely, our subsidiary agreed to indemnify each of AMD and Fujitsu
from and against liabilities arising out of events or circumstances occurring after June 30, 2003, in connection
with the operation of our business. We also share some permits and facilities with AMD and Fujitsu. For
example, our Aizu-Wakamatsu manufacturing facilities are located adjacent to other manufacturing facilities of
Fujitsu. AMD and Fujitsu, on the one hand, and we, on the other, agreed to indemnify the other against liability
arising from permit violations attributable to our respective activities. To the extent AMD and Fujitsu cannot
meet their obligations under any of their indemnity agreements, or material environmental conditions arise, we
may be required to incur costs to address these matters, which could have a material adverse effect on us.
12
We have made and will continue to make capital and other expenditures to comply with environmental laws,
but we do not expect compliance with environmental requirements to result in material expenditures in the
foreseeable future. Environmental laws and regulations are complex, change frequently and have tended to
become more stringent over time—factors that could alter the current outlook. See “Risk Factors—We are
subject to a variety of environmental laws that could result in liabilities.”
Competition
Our principal NOR Flash memory competitors are Intel Corporation, Samsung Electronics Co., Ltd., and
STMicroelectronics. In May 2007, reflecting the trend towards consolidation in the NOR Flash memory industry,
Intel Corporation, STMicroelectronics and Francisco Partners collectively announced their intention to form an
independent semiconductor company, named Numonyx, which is expected to be focused on Flash memory
technologies and products. Numonyx is being created from the key assets of Flash memory businesses of Intel
Corporation and STMicroelectronics. Numonyx is expected to replace Intel Corporation and STMicroelectronics
as principal competitors for NOR Flash memory.
We increasingly compete with NAND Flash memory manufacturers where NAND Flash memory has the
ability to replace NOR Flash memory in customer applications and as we develop data storage solutions such as
MirrorBit ORNAND, MirrorBit Quad and MirrorBit ORNAND2 based products for the integrated category of
the Flash memory market. Our principal NAND Flash memory competitors include Samsung Electronics Co.,
Ltd, Toshiba Corporation, Hynix Semiconductor Inc. and STMicroelectronics. In the future, our principal NAND
Flash memory competitors may include Intel Corporation, Micron Technology, Inc., IM Flash Technology LLC
(the joint venture between Intel Corporation and Micron Technology, Inc.) Numonyx and SanDisk Corporation.
We believe Flash memory providers must also possess the following attributes to remain competitive:
strong relationships with OEMs, ODMs and contract manufacturers that are acknowledged leaders
within their respective industries;
discipline to continually reduce costs ahead of historically declining semiconductor market prices;
strong market focus to identify emerging Flash memory applications;
leadership in research and development;
flexibility in manufacturing capacity and utilization so as to take advantage of industry conditions
through market cycles;
access to the financial resources needed to maintain a highly competitive technological position;
the ability to establish and sustain strategic relationships and alliances with key industry participants;
and
rapid time to market for new products, measured by the time elapsed from first conception of a new
product to its commercialization.
Employees
As of December 30, 2007, we had approximately 9,300 employees. Some employees of our wholly owned
Japanese subsidiary, Spansion Japan, are represented by a company union.
Backlog
We generally manufacture and market standard lines of products. Consequently, a significant portion of our
sales are made from inventory on a current basis. Sales are made primarily pursuant to purchase orders for
current delivery or agreements covering purchases over a period of time. These orders or agreements may be
13
revised or canceled without penalty. Generally, in light of current industry practice and experience, we do not
believe that backlog information is necessarily indicative of actual sales for any succeeding period.
Intellectual Property and Licensing
Our success depends in part on our proprietary technology. While we attempt to protect our proprietary
technology through patents, copyrights and trade secrets, we believe that our success will depend more upon
technological expertise, continued development of new products, and successful cost reductions achievable by
improving process technologies. In addition, we have access to intellectual property through certain cross-license
arrangements with AMD and Fujitsu. There can be no assurance that we will be able to protect our technology or
that competitors will not be able to develop similar technology independently. We currently have a number of
United States and foreign patents and patent applications. There can be no assurance that the claims allowed on
any patents we hold will be sufficiently broad to protect our technology, or that any patents will issue from any
application pending or filed by us. In addition, there can be no assurance that any patents issued to us will not be
challenged, invalidated or circumvented or that the rights granted thereunder will provide competitive advantages
to us.
Rights to Intellectual Property
We rely on a combination of protections provided by contracts, including confidentiality and non-disclosure
agreements, copyrights, patents, trademarks and common law rights, such as trade secrets, to protect our
intellectual property. Our U.S. patents are potentially valid and enforceable for either 17 years from the date they
were issued or 20 years from the date they were filed. Accordingly, some of our existing patents will only survive
for a few more years while others will survive for approximately another 15 years. We do not believe that the
expiration of any specific patent will have a material adverse effect on us. In addition, the duration of our valid
and enforceable trademarks is indefinite.
AMD and Fujitsu have each contributed to us various intellectual property rights pursuant to an Amended
and Restated Intellectual Property Contribution and Ancillary Matters Agreement. Under this agreement, we
became owners, or joint owners with each of Fujitsu and AMD, of certain patents, patent applications,
trademarks, and other intellectual property rights and technology. AMD and Fujitsu reserved rights, on a royalty-
free basis, to practice the contributed patents and to license these patents to their affiliates and
successors-in-interest to their semiconductor groups. AMD and Fujitsu each have the right to use the jointly-
owned intellectual property for their own internal purposes and to license such intellectual property to others to
the extent consistent with their non-competition obligations to us. Subject to our confidentiality obligations to
third parties, and only for so long as AMD’s and Fujitsu’s ownership interests in us remain above specific
minimum levels, we are obligated to identify any of our technology to each of AMD and Fujitsu, and to provide
copies of and training with respect to that technology to them. In addition, we have granted a non-exclusive,
perpetual, irrevocable, fully paid and royalty-free license of our rights in that technology to each of AMD and
Fujitsu.
In connection with our reorganization in June 2003, we entered into separate patent cross-license
agreements with each of AMD and Fujitsu in which we granted to AMD or Fujitsu, as applicable, and AMD or
Fujitsu, as applicable, each granted to us, non-exclusive licenses under certain patents and patent applications of
their semiconductor groups to make, have made, use, sell, offer to sell, lease, import and otherwise dispose of
specific semiconductor-related products anywhere in the world. The patents and patent applications that are
licensed are those with an effective filing date prior to the termination of our patent cross-license agreements.
Each agreement will automatically terminate on the later of June 30, 2013 or the date AMD or Fujitsu, whichever
is the other party to the agreement, sells its entire equity interest in us. Each agreement may be terminated by a
party on a change in control of the other party or its semiconductor group. The licenses to patents under license at
the time of the termination will survive until the last such patent expires.
14
Under each agreement, in cases where there is a change of control of us or the other party (AMD or Fujitsu,
or each of their semiconductor groups, as applicable), the other party shall have the right to terminate the
agreement (or to invoke the provisions described in this paragraph if the agreement had been previously
terminated) by giving 30 days written notice within 90 days after receiving notice of the change of control. If so
terminated, the rights, licenses and immunities granted under the agreement will continue solely with respect to
those licensed patents that are entitled to an effective filing date that is on or before, and are licensed as of, the
date of such change of control, and will continue until the expiration of the last to expire of such licensed patents.
Moreover, with respect to circuit patents, which are patents (other than process patents) covering elements
relating to electrical signals to achieve a particular function, the rights, licenses and immunities granted to the
party undergoing the change of control are limited solely to:
i. each existing and pending product of such party as of the date of change of control;
ii. each existing and pending product of the acquiring third party of such party as of the date of change of
control that would have been in direct competition with products described in (i) above; and
iii. successor products of products described in (i) and (ii) above provided such successor product is based
substantially on the same technology.
We will continue to make royalty payments associated with licenses that survive the termination of the
cross-license agreement. In fiscal 2007, fiscal 2006 and fiscal 2005, we incurred royalty expenses of
approximately $3 million, $6 million and $14 million to each of AMD and Fujitsu under their respective patent
cross-license agreements. The royalty rate we pay to each of AMD and Fujitsu under our patent cross-license
agreements with them was reduced from one percent of net sales of our products to 0.5 percent on October 1,
2005, and was further reduced to 0.3 percent on December 21, 2005. Following the conversion of our Class D
common stock into Class A common stock, the royalty rate was further reduced to 0.15 percent and terminates in
November 2008.
As a subsidiary of AMD up until our initial public offering, we were the beneficiary of AMD’s intellectual
property arrangements with third parties, including patent cross-license agreements with other major
semiconductor companies such as Intel, Motorola and IBM, and licenses from third parties for technology
incorporated in our products and software used to operate our business. Since the completion of our initial public
offering in December 2005, we are no longer a beneficiary under a number of these agreements. Furthermore,
upon the conversion of the outstanding shares of Class D common stock into shares of Class A common stock,
we lost all rights as a beneficiary under most of these license agreements. As a result, we may be subject to
claims that we are infringing intellectual property rights of third parties through the manufacture and sale of our
products and the operation of our business. Therefore, absent negotiating our own license agreements with the
third parties who own such intellectual property, we will be vulnerable to claims by such parties that our products
or operations infringe such parties’ patents or other intellectual property rights.
Under our Amended and Restated Intellectual Property Contribution and Ancillary Matters Agreement with
AMD and Fujitsu that we executed in December 2005, AMD agreed to enforce its applicable patents to
minimize, to the extent reasonably possible, any of our losses incurred as a result of the infringement of third-
party patents, provided that the details of the manner in which AMD enforces its patents, including which of its
patents AMD enforces, is left to AMD’s reasonable discretion. However, as a result of the conversion of the
Class D common stock, AMD is no longer obligated to provide us this benefit. We will continue to attempt to
negotiate our own agreements and arrangements with third parties for intellectual property and technology that is
important to our business, including the intellectual property that we previously had access to through our
relationship with AMD. We will also attempt to acquire new patents as our success in negotiating patent cross-
license agreements with other industry participants will depend in large part upon the strength of our patent
portfolio relative to that of the third party with which we are negotiating. If the third-party benefits from an
existing patent cross-license agreement with AMD, in many cases it will retain the rights that it has under that
agreement even after we cease to be an AMD subsidiary, including rights to utilize the patents that AMD and
Fujitsu transferred to us in connection with our reorganization as Spansion LLC in June 2003 and in connection
15
with our initial public offering. In many cases, any such third party will also retain such rights to utilize any
patents that have been issued to us or acquired by us subsequent to our reorganization and prior to our no longer
being a subsidiary of AMD. Our negotiating position will therefore be impaired, because the other party will
already be entitled to utilize a large number, or even all, of our patents, while we will no longer have the right to
utilize that party’s patents. As a result, we may be unable to obtain access to the other party’s patent portfolio on
favorable terms or at all. Similarly, with respect to licenses from third parties for technology incorporated in our
products or software used to operate our business, we may not be able to negotiate prices with these third parties
on terms as favorable to us as those available when we were a subsidiary of AMD because we are not able to take
advantage of AMD’s size and purchasing power. These parties, and other third parties with whom AMD had no
prior intellectual property arrangement, may file lawsuits against us seeking damages (potentially including
treble damages) or an injunction against the sale of our products that incorporate allegedly infringed intellectual
property or against the operation of our business as presently conducted. Such litigation could be extremely
expensive and time-consuming. We cannot assure you that such litigation would be avoided or successfully
concluded. The award of damages, including material royalty payments, or the entry of an injunction against the
manufacture or sale of some or all of our products, would have a material adverse effect on us.
Patents and Patent Applications
As of December 31, 2007, we had 1,273 U.S. patents and 609 foreign patents as well as 615 patent
applications pending in the United States. We expect to file future patent applications in both the United States
and abroad on significant inventions, as we deem appropriate. In addition, under our cross-license agreement
with AMD, AMD granted us the right to use a substantial number of patents that AMD owns. Similarly, under
our cross-license agreement with Fujitsu, Fujitsu also granted us the right to use a substantial number of patents
that Fujitsu owns.
Pending Acquisition of Saifun Semiconductors Ltd.
On October 8, 2007, we and Saifun Semiconductors Ltd. (Saifun) entered into an Agreement and Plan of
Merger and Reorganization, dated as of October 7, 2007. Upon consummation of the acquisition of Saifun, we
plan to license certain of our and Saifun’s intellectual property to semiconductor companies operating directly in
the non-volatile memory market or integrating non-volatile memory technology into products whose primary
application is outside the non-volatile memory market, and provide design and product development services to
such licensees.
ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the risks
described below and the other information in this annual report. If any of the following risks occur, our business
could be materially harmed, and our financial condition and results of operations could be materially and
adversely affected. As a result, the price of our common stock could decline, and you could lose all or part of
your investment.
The demand for our products depends in large part on continued growth in the industries into which they
are sold. A decline in the markets served by any of these industries, or a decline in demand for Flash
memory products in these industries, would have a material adverse effect on our results of operations.
Sales of our Flash memory products are dependent to a large degree upon consumer demand for mobile
phones. In fiscal 2006 and fiscal 2007, wireless customers, who primarily consist of mobile phone OEMs
represented the largest market for NOR Flash memory. The market research firm iSuppli projects that wireless
handset NOR Flash memory will represent approximately 61 percent of all NOR Flash memory sales in 2008,
excluding commercial die such as the DRAM that is bundled in our multi-chip packages, or MCPs. In fiscal
2007, fiscal 2006 and fiscal 2005, sales to wireless Flash memory customers drove a majority of our sales.
16
Similarly, sales of our products targeting embedded Flash memory customers are dependent upon demand
for consumer electronics such as set top boxes, or STBs, and DVD players, automotive electronics, industrial
electronics such as networking equipment, personal computers and personal computer peripheral equipment such
as printers. Sales of our products are also dependent upon the inclusion of increasing amounts of Flash memory
content in some of these products. In fiscal 2007 and fiscal 2006, sales to embedded Flash memory customers
drove a significant portion of our sales.
If demand for mobile phones or products in the embedded portion of the integrated category of the Flash
memory market, or the Flash memory content of these products, is below our or analysts’ expectations, if the
functionality of successive generations of such products does not require increasing Flash memory density or if
such products no longer require Flash memory due to alternative technologies or otherwise, our operating results
would be materially adversely affected.
Our business has been characterized by average selling prices that decline over time, which can negatively
affect our results of operations.
Historically, average selling prices of our products have decreased during the products’ lives, and we expect
this trend to continue. When our average selling prices on existing products decline, our net sales and gross
margins also decline unless we are able to compensate by selling more units, reducing our manufacturing costs or
introducing and selling new, higher margin products with higher densities and/or advanced features. If average
selling prices for our products decline, our operating results could be materially adversely affected.
Moreover, during downturns, periods of extremely intense competition, or the presence of oversupply in the
industry, average selling prices for our products have declined at a high rate over relatively short time periods as
compared to historical rates of decline. For example, during the second quarter of fiscal 2007, our average selling
prices decreased by approximately 11 percent compared with the first quarter of fiscal 2007 due to unanticipated
intense competitive pricing environments in the Flash memory market that were greater than expected. We are
unable to predict average selling prices for any future periods and may experience unanticipated, sharp declines
in average selling prices for our products. When such steep pricing declines occur, we may not be able to
mitigate the effects by selling more or higher margin units, or by reducing our manufacturing costs. In such
circumstances, our operating results could be materially adversely affected.
We have lost rights to key intellectual property arrangements because we are no longer a beneficiary of
AMD’s patent cross-license agreements and other licenses, which creates a greatly increased risk of patent
or other intellectual property infringement claims against us.
As a subsidiary of Advanced Micro Devices, Inc (AMD) until our initial public offering in December 2005,
we were the beneficiary of AMD’s intellectual property arrangements with third parties, including patent cross-
license agreements with other major semiconductor companies such as Intel, Motorola and IBM, and licenses
from third parties for technology incorporated in our products and software used to operate our business. As a
result of the conversion of the outstanding shares of Class D common stock into shares of Class A common stock
in November 2006, we ceased to be a beneficiary under most of the remainder of these license agreements. As a
result, we may be subject to claims that we are infringing intellectual property rights of third parties through the
manufacture and sale of our products and the operation of our business. Therefore, absent negotiating our own
license agreements with the third parties who own such intellectual property, we will be vulnerable to claims by
such parties that our products or operations infringe such parties’ patents or other intellectual property rights.
We will continue to attempt to negotiate our own agreements and arrangements with third parties for
intellectual property and technology that are important to our business, including the intellectual property that we
previously had access to through our relationship with AMD. We will also continue to attempt to acquire new
patents as our success in negotiating patent cross-license agreements with other industry participants will depend
in large part upon the strength of our patent portfolio relative to that of the third party with which we are
negotiating. If such third-party benefits from an existing patent cross-license agreement with AMD or Fujitsu
17
Limited (Fujitsu), in many cases such third party will retain the rights that it has under that agreement, including
rights to utilize the patents that AMD and Fujitsu transferred to us in connection with our reorganization as
Spansion LLC in June 2003. In many cases, third parties also retain such rights to utilize any patents that have
been issued to us or acquired by us between the dates of our reorganization in 2003 and our initial public offering
in 2005 or, in some cases, between the dates of our reorganization in 2003 and the conversion of the Class D
common stock in 2006. Our negotiating position will therefore be impaired, because the other party will already
be entitled to utilize a large number of our patents, while we will no longer have the right to utilize that party’s
patents. As a result, we may be unable to obtain access to the other party’s patent portfolio on favorable terms or
at all. Similarly, with respect to licenses from third parties for technology incorporated in our products or
software used to operate our business, we may not be able to negotiate prices with these third parties on terms as
favorable to us as those previously available to us because we are not able to take advantage of AMD’s size and
purchasing power. These parties, and other third parties with whom AMD had no prior intellectual property
arrangement, may file lawsuits against us seeking damages (potentially including treble damages) or an
injunction against the sale of our products that incorporate allegedly infringed intellectual property or against the
operation of our business as presently conducted. Such litigation could be extremely expensive and time
consuming. We cannot assure you that such litigation would be avoided or successfully concluded. The award of
damages, including material royalty payments, or the entry of an injunction against the manufacture or sale of
some or all of our products, would have a material adverse effect on us.
The Flash memory market is highly cyclical and has experienced severe downturns that have materially
adversely affected, and may in the future materially adversely affect, our business.
The Flash memory market is highly cyclical and has experienced severe downturns, often as a result of wide
fluctuations in supply and demand, constant and rapid technological change, continuous new product
introductions and price erosion. Our financial performance has been, and may in the future be, adversely affected
by these downturns. We have incurred substantial losses in past downturns, due principally to:
substantial declines in average selling prices, particularly due to aggressive pricing by competitors and
an imbalance in product supply and demand;
a decline in demand for end-user products that incorporate our products; and
less than expected demand in the distribution channels such as by mobile phone OEMs.
For example, during the first quarter of fiscal 2007, our business was adversely affected by a seasonal drop
in unit shipments, and during the first nine months of fiscal 2007, our business was adversely affected by a
greater than average decline in average selling prices as a result of intense competitive pressures. Our historical
financial information does not necessarily indicate what our results of operations, financial condition or cash
flows will be in the future. If our net sales decline in the future, or if these or other similar conditions continue or
occur again in the future, our business would likely be materially adversely affected.
If our expense reduction efforts are not effective, our business could be materially adversely affected.
We incurred net losses in each of fiscal 2007, 2006 and 2005 of approximately $263.5 million,
$147.8 million and $304.1 million. As a result, we continue to undertake actions in an effort to significantly
reduce our expenses. These actions include the sale of non-performing assets, the consolidation of certain
functional operations and other activities related to reducing expenses. We cannot assure you that we will be able
to achieve anticipated expense reductions. If our expense reduction efforts are unsuccessful, our operating results
may be materially adversely affected.
Although we expect that the Saifun acquisition will result in benefits to us, those benefits may not occur
because of integration and other challenges.
Achieving the expected benefits of the Saifun acquisition will depend on the timely and efficient integration
of our and Saifun’s technology, operations, business culture and personnel. This will be particularly challenging
18
due to the fact that Saifun was headquartered in Israel and we are headquartered in California. The integration
may not be completed as quickly as expected, and if we fail to effectively integrate the companies or the
integration takes longer than expected, we may not achieve the expected benefits of the acquisition. The
challenges involved in this integration include, among others:
retaining the licensees and customers of both companies, including licensees and customers of Saifun
who may compete with us;
retaining the main sources of supply of both companies;
incorporating Saifun’s technology into our current and future technology and product lines;
integrating Saifun’s sales force into our worldwide sales network;
demonstrating to Saifun’s licensees and customers that the acquisition will not result in adverse changes
in pricing, customer service standards or support;
coordinating research and development activities to enhance introduction of new products and
technologies;
integrating Saifun’s internal control over financial reporting with our internal control over financial
reporting;
migrating Saifun to our information systems;
integrating Saifun’s engineering operations with ours;
persuading the employees of both companies that the companies’ business cultures are compatible;
maintaining employee morale and retaining key employees;
ensuring there are no delays in releasing new products and technologies to market; and
coordinating geographically separate organizations.
This integration effort is international in scope, complex, time consuming and expensive, and may disrupt
the respective businesses or result in the loss of licensees, customers or key employees or the diversion of the
attention of management. In addition, the integration process may strain our financial and managerial controls
and reporting systems and procedures. This may result in the diversion of management and financial resources
from our core business objectives. There can be no assurance that we will successfully integrate Saifun into our
business or that we will realize the anticipated benefits of the acquisition. If we do not realize the anticipated
benefits of the acquisition, or if charges and other accounting changes resulting from the acquisition adversely
affect our earnings, the acquisition could result in a reduction of our per-share earnings as compared to the
per-share earnings that would have been achieved by us if the acquisition had not occurred. Also, if Saifun
shareholders promptly sell the Spansion Class A common stock received in the transaction, such sales could
cause a decline in the market price of our common stock.
If we complete the acquisition of Saifun, political, economic and military conditions in Israel may adversely
affect our business.
Saifun’s headquarters and business operations are located in Israel, which is affected and surrounded by
unstable political, economic and military conditions. We cannot predict the effect of continued or increased
violence in Lebanon or Gaza, or the effect of military action elsewhere in the Middle East. Continued armed
conflicts or political instability in the region would harm business conditions and could adversely affect the
combined company’s results of operations. Furthermore, several countries continue to restrict or ban business
with Israel and Israeli companies. These restrictive laws and policies may limit the combined company’s ability
to make sales in those countries, and, as a global company, may limit our own ability to efficiently administer our
worldwide resources.
19
The proposed acquisition of Saifun may result in a loss of licensees or customers.
We and Saifun operate in a highly competitive industry, and the combined company’s future performance
will be affected by its ability to retain each company’s existing licensees and customers. Some of Saifun’s
licensees and customers are our competitors or work with our competitors and may reduce or terminate their
business relationships with Saifun in anticipation of the acquisition or with the combined company as a result of
our acquisition of Saifun.
We may not realize the expected value of Saifun’s NROM technology.
We expect that licensees of Saifun’s NROM technology will continue to implement and expand their uses of
the technology. If such licensees fail to successfully implement the NROM technology in a timely manner or in a
large number of their products, the value of NROM technology could be diminished. Moreover, if leading Flash
memory semiconductor manufacturers adopt and achieve success with other technologies or incorporate Saifun’s
NROM technology but fail to achieve success with its products, the value of the NROM technology could be
adversely affected.
In addition, we cannot assure you that Saifun’s patents, including those covering NROM technology, would
not be challenged, invalidated or circumvented, or that rights granted under these patents will provide a
competitive advantage to us. If Saifun’s patents are ultimately challenged, invalidated or circumvented, we may
be materially adversely affected.
Our business may be adversely affected if our acquisition of Saifun is delayed or not completed.
Our acquisition of Saifun is subject to several customary conditions, including obtaining clearance from
governmental entities. If our acquisition of Saifun is delayed or not consummated, we could be subject to a
number of risks that may adversely affect our business, including:
the adverse consequences resulting from our management’s attention having been diverted from our
day-to-day business over an extended period of time;
the disruption to our relationships with customers, suppliers and partners as a result of our and their
efforts relating to the acquisition;
any consequent potential loss of business to our competitors;
the significant costs and expenses that we may have incurred relating to the acquisition; and
our inability to realize the benefits we expect by acquiring Saifun.
We cannot assure you that we will successfully complete our acquisition of Saifun, and any inability to
successfully complete, or a delay in completing, the Saifun acquisition could have a material adverse effect on us.
A significant market shift to NAND architecture would materially adversely affect us.
Flash memory products are generally based on either NOR or NAND architecture. To date, our Flash
memory products have been based on NOR architecture which are typically produced at a higher cost-per-bit
than NAND-based products. We do not currently manufacture products based on NAND architecture. We have
developed our MirrorBit ORNAND, MirrorBit Quad and MirrorBit Eclipse architectures to address certain
portions of the integrated category of the Flash memory market served by NAND-based products, but we cannot
be certain that our MirrorBit ORNAND-, Quad- or Eclipse- based products will satisfactorily address those
market needs.
During 2004, industry sales of NAND-based Flash memory products grew at a higher rate than sales of
NOR-based Flash memory products, resulting in NAND vendors in aggregate gaining a greater share of the
20
overall Flash memory market and NOR vendors in aggregate losing overall market share. This trend continued in
2005 and 2006 when sales of NAND-based Flash memory products represented a majority of the Flash memory
products sold in the Flash memory market. In 2007, according to iSuppli, total sales for the Flash memory market
reached approximately $21.8 billion, of which approximately 35 percent was classified as sales of NOR-based
Flash memory products and approximately 65 percent was classified as sales of NAND-based Flash memory
products. iSuppli estimates that sales of NAND-based Flash memory products grew by approximately 15 percent
from 2005 to 2006 and will grow at a 18 percent compound annual growth rate from 2006 to 2011, while sales of
NOR-based Flash memory products grew by approximately six percent from 2005 to 2006 and will decline by
approximately three percent compound annual growth rate from 2006 to 2011. We expect the Flash memory
market trend of decreasing market share for NOR-based Flash memory products relative to NAND-based Flash
memory products to continue in the foreseeable future.
Moreover, the removable storage category of the Flash memory market, which is predominantly served by
floating gate NAND vendors, is expected to constitute a significant portion of the Flash memory market for the
foreseeable future. As mobile phones and other consumer electronics become more advanced, they will require
higher density Flash memory to meet the increased data storage requirements associated with music downloads,
photos and videos. Because storage requirements will increase to accommodate data-intensive applications,
OEMs may increasingly choose higher density floating gate NAND-based Flash memory products over
MirrorBit NOR-, ORNAND-, Quad- or Eclipse-based Flash memory products for their applications. If this
occurs and OEMs continue to prefer the attributes and characteristics of floating gate NAND-based products over
those of MirrorBit NOR-, ORNAND-, Quad- or Eclipse-based products for their applications, we may be
materially and adversely affected. Moreover, some of our competitors are able to manufacture floating gate
NAND-based Flash memory products on 300-millimeter wafers produced in much larger capacity fabs than our
SP1 fab or may choose to utilize more advanced manufacturing process technologies than we use today to offer
products competitive to ours at a lower cost. If floating gate NAND vendors continue to increase their share of
the Flash memory market, our market share may decrease, which would materially adversely affect us.
In addition, even if products based on NAND architecture are unsuccessful in displacing products based on
NOR architecture, the average selling prices for our products may be adversely affected by a significant decline
in the price for NAND-based products. Such a decline may result in downward price pressure in the overall Flash
memory market affecting the price we can obtain for our NOR-based products, which would adversely affect us.
We believe such downward pricing pressure was a factor in the steep declines in average selling prices in the first
half of 2007. If the prices for NAND products do not improve, or continue to decline, we may be materially
adversely affected.
We have a substantial amount of, and continue to incur, indebtedness which could adversely affect our
financial position.
We currently have and will continue to have for the foreseeable future, a substantial amount of
indebtedness. Our indebtedness has increased over time and may increase in the future. At the time of our initial
public offering in December 2005, our aggregate principal amount of outstanding debt was approximately $760.0
million. As of December 30, 2007, we had an aggregate principal amount of approximately $1.4 billion in
outstanding debt. In order to advance our business with new technologies, like other semiconductor
manufacturers, we are required to make sizable capital investment in facilities and equipment. If cash flow from
operations is not sufficient to meet capital requirements, we may need to incur additional indebtedness.
Our substantial indebtedness may:
require us to use a substantial portion of our cash flows from operations to make debt service
payments;
make it difficult for us to satisfy our financial obligations;
21
limit our ability to use our cash flows, use our available financings to the fullest extent possible, or
obtain additional financing for future working capital, capital expenditures, acquisitions or other
general corporate purposes;
limit our flexibility to plan for, or react to, changes in our business and industry;
place us at a competitive disadvantage compared to our less leveraged competitors; and
increase our vulnerability to the impact of adverse economic and industry conditions.
Financial market conditions may impede access to or increase the cost of financing operations and
investments.
The recent changes in U.S. and global financial and equity markets, including market disruptions and
tightening of the credit markets, may make it more difficult for us to obtain financing for our operations or
investments or increase the cost of obtaining financing. In addition, our borrowing costs can be affected by short
and long-term debt ratings assigned by independent rating agencies which are based, in significant part, on our
performance as measured by credit metrics such as interest coverage and leverage ratios. A decrease in these
ratings could increase our cost of borrowing or make it more difficult for us to obtain financing, which would
materially adversely affect us.
We are currently party to and intend to enter into debt arrangements in the future, each of which may
subject us to restrictive covenants which could limit our ability to operate our business.
We are party to a $175.0 million senior secured revolving credit facility that imposes various restrictions
and covenants on us that limits our ability to:
enter into any mergers, consolidations or sales of property, or sales of inventory, equipment and assets
except in the ordinary course of business;
make any distributions except for distributions from Spansion LLC to us in specified circumstances;
make investments, except for the purchase of inventory, equipment and intellectual property in the
ordinary course of business, unless we meet minimum liquidity requirements consisting of availability
under the revolving credit facility and domestic cash of at least $200.0 million, provided, however, that
investments are limited to no more than a total of $50.0 million while the reduced minimum liquidity
requirement is in place;
incur additional debt, enter into capital leases and, in limited cases, make loans to subsidiaries;
engage in transactions with affiliates unless the transactions are in the normal course of business,
negotiated at arms-length and disclosed to the agent for the lenders;
incur any new liens except for equipment leases and loans; and
prepay any debt, except that debt of foreign subsidiaries may be prepaid by the applicable foreign
subsidiary and we may prepay any debt as long as after such repayment we meet minimum liquidity
requirements consisting of availability under the revolving credit facility plus domestic cash of at least
$250.0 million.
In addition, the indentures governing Spansion LLC’s $250.0 million principal amount of 11.25% Senior
Notes due 2016 and Spansion LLC’s $625.0 million aggregate principal amount of Senior Secured Floating Rate
Notes due 2013 impose substantially similar restrictions and covenants on us which could limit our ability to
respond to market conditions, make capital investments or take advantage of business opportunities.
In the future, we will likely incur additional indebtedness through arrangements such as credit agreements or
term loans that may also impose similar restrictions and covenants. These restrictions and covenants limit, and
22
any future covenants and restrictions likely will limit, our ability to respond to market conditions, to make capital
investments or to take advantage of business opportunities. Any debt arrangements we enter into would likely
require us to make regular interest payments, which would adversely affect our results of operations.
As of December 30, 2007, we were in compliance with the financial covenants under our debt instruments.
However, we cannot assure you that in the future we will be able to satisfy the covenants, financial tests and
ratios of our debt instruments, which can be affected by events beyond our control. If we fail to comply with such
covenants, we cannot assure you that we will be able to obtain waivers for any future failures to comply with our
financial covenants, or amendments which will prevent a failure to comply in the future. A breach of any of the
covenants, financial tests or ratios under our debt instruments could result in a default under the applicable
agreement, which in turn could trigger cross-defaults under our other debt instruments, any of which would
materially adversely affect us.
If we cannot generate sufficient operating cash flows and obtain external financing, we may be unable to
make all of our planned capital expenditures.
Our ability to fund anticipated capital expenditures depends on generating sufficient cash flows from
operations and the continued availability of external financing. We expect our total capital expenditures for fiscal
2008 to be approximately $535.0 million. Our capital expenditures, together with ongoing operating expenses,
will be a substantial drain on our cash flows and may decrease our cash balances. The timing and amount of our
capital requirements cannot be precisely determined at this time and will depend on a number of factors,
including demand for our products, product mix, changes in industry conditions and market competition.
We may assess markets for external financing opportunities, including debt and equity. Such financing may
not be available when needed or, if available, may not be available on satisfactory terms. Moreover, the funds
availability under our existing $175.0 million senior secured revolving credit facility may be adversely affected by
our financial condition, results of operations and incurrence or maintenance of additional debt, such as our 11.25%
Senior Notes due 2016 and our 2.25% Exchangeable Senior Secured Debentures. Also, funds availability under the
Spansion Japan 2007 Credit Facility are based on capital deliveries, which may not be made in a timely manner, to
SP1, our Flash memory manufacturing facility in Aizu-Wakamatsu, Japan. Finally, any equity financing may not be
desirable because of resulting dilution to our stockholders. Our inability to obtain needed financing or to generate
sufficient cash from operations may require us to abandon projects or curtail capital expenditures. If we cannot
generate sufficient operating cash flows or obtain external financing, we may be delayed in achieving, or may not
achieve, needed manufacturing capacity, and we could be materially adversely affected.
If we are unable to timely and efficiently expand our manufacturing capacity to implement 300-millimeter
wafer capacity at SP1, and achieve a competitive wafer cost for SP1 output, our business and financial
results could be materially adversely affected.
We have expanded our manufacturing capacity to produce 300-millimeter wafers at SP1. In fiscal 2006, we
commenced a plan to spend approximately $1.2 billion over three years to construct and equip SP1 for
production of 65-nanometer process technology on 300-millimeter wafers, and we expect to sample
45-nanometer process technology on 300-millimeter wafer capacity in late 2008. In order for SP1 to produce
wafers at a competitive cost, we must achieve suitable economies of scale which we anticipate will require
additional capital expenditures at SP1 to reach our planned manufacturing capacity. Financing may not be
available when needed or, if available, may not be available on satisfactory terms. If we do not achieve our
desired capacity at the anticipated cost, or if we cannot obtain suitable financing, we could be materially
adversely affected.
The timing for implementing 300-millimeter capacity in SP1 will also depend in part on our ability to
execute our plan for equipping the facility and other factors that may be beyond our control, such as delivery
schedules for the required machinery and equipment and construction schedules. If we are delayed in
23
implementing this capability or are unable to obtain foundry services at competitive rates or to timely and
efficiently ramp production on 300-millimeter wafers, we will not achieve anticipated cost savings associated
with this technology and our gross margins could decline. Even if we are successful in implementing this
capacity, if the demand for our products is not sufficient to support the additional capacity when it becomes
available, we could be materially and adversely affected.
The loss of a significant customer or a reduction in demand for our Flash memory products from a
significant customer could have a material adverse effect on us.
We serve our customers worldwide directly through our sales force and indirectly through our distributors,
who purchase products from us and sell them to customers, either directly or through their distributors. Our
customers consist of OEMs, ODMs and contract manufacturers. In fiscal 2007, fiscal 2006 and fiscal 2005, the
five largest of these customers accounted for a significant portion of end sales of our products. If one of these
customers stopped purchasing our Flash memory products, or if one of these customers were to materially reduce
its demand for our products, we could be materially adversely affected. For example, in the fourth quarter of
fiscal 2006 we were materially adversely affected by the reduced customer demand for some of our custom high
density NOR-based Flash memory solutions.
Our business strategy is to continue to maintain and increase our market share, diversify our customer base
in the integrated category of the Flash memory market, and enter new markets enabled by our MirrorBit
technology. We cannot assure you that we will be successful in implementing this strategy, and if we are
unsuccessful, we could be materially adversely affected. If we fail to successfully diversify our customer base
and we lose a significant customer or suffer a reduction in demand from a significant customer, our business may
be materially adversely affected.
If we fail to successfully develop, introduce and commercialize new products and technologies or to
accelerate our product development cycle, we may be materially adversely affected.
Our success depends to a significant extent on the development, qualification, production, introduction and
acceptance of new product designs and improvements that provide value to Flash memory customers. We must
also be able to accomplish this process at a faster pace than we currently do. For example, we introduced
products on 90-nanometer process technology in fiscal 2006, plan production on 65-nanometer process
technology in the first quarter of fiscal 2008, and plan to introduce products on 45-nanometer process technology
in late fiscal 2008. Our ability to develop and qualify new products and related technologies to meet evolving
industry requirements, at prices acceptable to our customers and on a timely basis are significant factors in
determining our competitiveness in our target markets. If we are delayed in developing or qualifying new
products or technologies, we could be materially adversely affected. For example, during the first quarter of
fiscal 2005, we experienced a delay in qualifying and introducing a new Flash memory product based on our
MirrorBit technology for wireless Flash memory customers. The delay, which was due to our having to re-design
the product in order to achieve higher performance specifications under all temperature conditions, contributed to
lower than anticipated net sales during first six months of fiscal 2005 and caused us to lose market share.
Competitors may introduce new memory or other technologies that may make our Flash memory products
uncompetitive or obsolete.
Our competitors are working on a number of new technologies, including FRAM, MRAM, polymer, charge
trapping and phase-change based memory technologies. Some of our competitors have announced plans to bring
to market products based on phase-change based memory technology in 2008. If such products are successfully
developed and commercialized as a viable alternative to MirrorBit or floating gate Flash memory, these other
products could pose a competitive threat to a number of Flash memory companies, including us. In addition,
some of Saifun’s licensees and customers are our competitors or work with our competitors and have licensed
Flash memory intellectual property associated with NROM technology from Saifun. Use of this NROM
24
intellectual property or use of independently developed charge trapping Flash memory technology by our
competitors, if successfully developed and commercialized, may allow these competitors to develop Flash
memory technology that may compete with our proprietary MirrorBit technology.
If we fail to successfully develop products based on our new MirrorBit ORNAND, MirrorBit Eclipse,
MirrorBit Quad or MirrorBit ORNAND2 architectures, or if there is a lack of market acceptance of these
products, our future operating results would be materially adversely affected.
We are positioning ourselves to address the increasing demand for data optimized Flash memory by offering
higher density, lower cost and more versatile products based on our new MirrorBit ORNAND, MirrorBit Quad,
MirrorBit Eclipse and MirrorBit ORNAND2 architectures. The success of these architectures requires that we
timely and cost effectively develop, manufacture and market products based on these architectures that are
competitive with floating gate NAND-based Flash memory solutions. We began commercial shipments of
MirrorBit ORNAND-based products in the second quarter of fiscal 2006 and began commercial shipments of
MirrorBit Quad-based products in the first quarter of fiscal 2007. However, if we fail to develop and
commercialize these products and additional products based on these architectures on a timely basis, our future
operating results would be materially adversely affected. Furthermore, if market acceptance of products based on
our MirrorBit architectures occurs at a slower rate than we anticipate, our ability to compete will be reduced, and
we would be materially adversely affected. If we do not achieve market acceptance of these architectures or
subsequent MirrorBit products, our future operating results would be materially adversely affected.
Manufacturing capacity constraints may adversely affect us.
There may be situations in which our manufacturing capacity is inadequate to meet the demand for some of
our products. We continue to depend on foundry, subcontractor and similar arrangements with third parties to
meet demand. Our arrangements with third-party suppliers do not necessarily include capacity guarantees. If a
third-party manufacturer on which we rely does not have the capacity to deliver an adequate amount of product
to meet actual demand, we may not be able to obtain the manufacturing capacity, either in our own facilities or
through other third-party arrangements, to meet such demand. During fiscal 2006, demand for certain of our
products exceeded the available supply. As a result, we were unable to meet the demand of some of our
customers for these products. This adversely impacted our relationships with these customers, and comparable
situations in the future could cause harm to our reputation in the marketplace, cause these customers to move
future business to our competitors or cause us to make financial concessions to our customers. Any of these
occurrences could have a material adverse effect on us. Also, in the third and fourth quarters of fiscal 2005 and
fiscal 2006, we experienced capacity constraints for final test and assembly of some of our products. While we
have worked internally and with subcontractors to increase capacity to meet anticipated demand, we cannot
assure you that we will not experience similar constraints in the future. These capacity constraints limit our
ability to respond to rapid and short-term surges or changes in demand for our products. If we are unable to
obtain sufficient manufacturing capacity to meet anticipated demand, either in our own facilities or through
foundry, subcontractor or similar arrangements with third parties, or if we are unable to obtain foundry services
at competitive rates, our business may be materially adversely affected.
Our increased reliance on third-party manufacturers entails risks that could materially adversely affect us.
We currently obtain foundry services from other companies, including Taiwan Semiconductor
Manufacturing Company Limited and Fujitsu (as a result of the sale of our JV1/JV2 manufacturing facilities in
April 2007). In addition, we recently entered into an agreement with Semiconductor Manufacturing International
Corporation under which we may obtain foundry services in the future. We also use independent contractors to
perform some of the assembly, testing and packaging of our products. Third-party manufacturers are often under
no obligation to provide us with any specified minimum quantity of product. We depend on these manufacturers
to allocate to us a portion of their manufacturing capacity sufficient to meet our needs, to produce products of
acceptable quality and at acceptable manufacturing yields and to deliver those products to us on a timely basis at
25
acceptable prices. We cannot assure you that these manufacturers will be able to meet our near-term or long-term
manufacturing requirements.
These manufacturers also make products for other companies, including certain of our competitors, and/or
for themselves and could choose to prioritize capacity for themselves or other customers beyond any minimum
guaranteed amounts, reduce deliveries to us or, in the absence of price guarantees, increase the prices they charge
us on short notice, such that we may not be able to pass cost increases on to our customers. Because it could take
several quarters or more to establish a relationship with a new manufacturing partner, we may be unable to
secure an alternative supply for specific products in a short timeframe or at all at an acceptable cost to satisfy our
production requirements. In addition, we may be required to incur additional development, manufacturing and
other costs to establish alternative sources of supply. Other risks associated with our increased dependence on
third-party manufacturers include: their ability to adapt to our proprietary technology, reduced control over
delivery schedules, quality assurance, manufacturing yields and cost, lack of capacity in periods of excess
demand, misappropriation of our intellectual property, reduced ability to manage inventory and parts and risks
associated with operating in foreign countries. If we are unable to secure sufficient or reliable suppliers of wafers
or obtain the necessary assembling, testing and packaging services, our ability to meet customer demand for our
products may be adversely affected, which could have a material adverse effect on us.
Industry overcapacity could require us to lower our prices and have a material adverse effect on us.
Semiconductor companies with their own manufacturing facilities and specialist semiconductor foundries,
which are subcontractors that manufacture semiconductors designed by others, have added significant capacity in
recent years and are expected to continue to do so. In the past, capacity additions sometimes exceeded demand
requirements leading to oversupply situations and downturns in the industry. Fluctuations in the growth rate of
industry capacity relative to the growth rate in demand for Flash memory products contribute to cyclicality in the
Flash memory market, which may in the future negatively impact our average selling prices and materially
adversely affect us.
Industry overcapacity could cause us to under-utilize our manufacturing capacity and have a material
adverse effect on us.
It is difficult to predict future growth or decline in the markets we serve, making it very difficult to estimate
requirements for production capacity. If our target markets do not grow as we anticipate, we may under-utilize
our manufacturing capacity. This may result in write-downs or write-offs of inventories and losses on products
the demand for which is lower than we anticipate. In addition, during periods of industry overcapacity, such as
we have recently experienced, customers do not generally order products as far in advance of the scheduled
shipment date as they do during periods when our industry is operating closer to capacity, which can exacerbate
the difficulty in forecasting capacity requirements.
Many of our costs are fixed. Additionally, pursuant to some of our subcontractor and foundry arrangements
with third parties we may incur and pay penalties, according to which we have agreed to pay for a certain amount
of product even if we do not accept delivery of all of such amount. Accordingly, during periods in which we
under-utilize our manufacturing capacity as a result of reduced demand for some of our products, our costs
cannot be reduced in proportion to the reduced revenues for such periods. When this occurs, our operating results
are materially adversely affected.
Our customers’ ability to change booked orders may lead to excess inventory.
Because our manufacturing processes require long lead times, we use indicators such as booking rates and
book-to-bill ratios, in conjunction with other business metrics, to schedule production in our fabrication facilities.
Consequently, when customers change orders booked by us, our planned manufacturing capacity may be greater
or less than actual demand, resulting in less than optimal inventory levels. When this occurs, we adjust our
26
production levels but such adjustments may not prevent our production of excess inventory in environments
when bookings and book-to-bill ratios are strong. As a result, our business may be materially adversely affected.
Intense competition in the Flash memory market could materially adversely affect us.
Our principal NOR Flash memory competitors are Intel Corporation, Samsung Electronics Co., Ltd. and
STMicroelectronics. In the future, our principal NOR Flash memory competitors may also include Numonyx, the
announced joint venture between Intel, STMicroelectronics and Francisco Partners. Additional significant NOR
Flash memory competitors include Silicon Storage Technology, Inc., Macronix International Co., Ltd., Toshiba
Corporation and Sharp Electronics Corp.
We increasingly compete with NAND Flash memory manufacturers where NAND Flash memory has the
ability to replace NOR Flash memory in customer applications and as we develop data storage solutions based on
our MirrorBit ORNAND, MirrorBit Quad, MirrorBit Eclipse and MirrorBit ORNAND2 architectures for the
integrated category and select portions of the removable category of the Flash memory market. Our principal
NAND Flash memory competitors include Samsung Electronics Co., Ltd, Toshiba Corporation, Hynix
Semiconductor Inc. and STMicroelectronics. In the future our principal NAND Flash memory competitors may
include Intel Corporation, Micron Technology, Inc., IM Flash Technology LLC, the joint venture between Intel
and Micron Technology, Inc., Numonyx and SanDisk Corporation.
The Flash memory market is characterized by intense competition. The basis of competition is cost, selling
price, performance, quality, customer relationships and ability to provide value-added solutions. In particular, in
the past, our competitors have aggressively priced their products, which resulted in decreased average selling
prices for our products in the first half of fiscal 2007 and adversely impacted our results of operations. Some of
our competitors, including Intel, Samsung, STMicroelectronics, Toshiba, and Sharp, are more diversified than we
are and may be able to sustain lower operating margins in their Flash memory business based on the profitability
of their other, non-Flash memory businesses. In addition, recent capital investments by competitors have resulted
in substantial industry manufacturing capacity, which may further contribute to a competitive pricing
environment. Some of our competitors are able to manufacture floating gate NAND-based Flash memory
products on 300-millimeter wafers produced in much larger capacity fabs than our SP1 fab or may choose to
utilize more advanced manufacturing process technologies than we use today to offer products competitive to
ours at a lower cost. Moreover, products based on our MirrorBit ORNAND-, MirrorBit Quad-, MirrorBit
Eclipse- and MirrorBit ORNAND2-based architectures may not have the price, performance, quality and other
features necessary to compete successfully for these applications.
We expect competition in the market for Flash memory devices to intensify as existing manufacturers
introduce new products, new manufacturers enter the market, industry-wide production capacity increases and
competitors aggressively price their Flash memory products to increase market share. Competition also may
increase if NOR memory vendors merge, if NAND memory vendors acquire NOR businesses or other NAND
businesses, or if our competitors otherwise consolidate their operations. Furthermore, we face increasing
competition from NAND Flash memory vendors in some portions of the integrated Flash memory market.
To compete successfully, we must decrease our manufacturing costs and develop, introduce and sell
products at competitive prices that meet the increasing demand for greater Flash memory content in mobile
phones, consumer electronics, automotive and other applications. If we are unable to compete effectively, we
could be materially adversely affected.
We cannot be certain that our substantial investments in research and development will lead to timely
improvements in technology or that we will have sufficient resources to invest in the level of research and
development that is required to remain competitive.
We make substantial investments in research and development for design, process technologies and
production in an effort to design and manufacture advanced Flash memory products. For example, in fiscal 2006
27
and fiscal 2007, our research and development expenses were approximately $342.0 million and $436.8 million,
respectively, or approximately 13 and 17 percent, respectively, of our net sales.
Currently, we are developing new non-volatile memory process technologies, including 65-nanometer
and 45-nanometer process technologies. Our Submicron Development Center facility is developing
manufacturing process technologies on 300-millimeter wafers. We cannot assure you that we will have
sufficient resources to maintain the level of investment in research and development that is required for us to
remain competitive, which could materially adversely affect us. Further, we cannot assure you that our
investments in research and development will result in increased sales or competitive advantage, which could
adversely affect our operating results.
Unless we maintain manufacturing efficiency, we may not become profitable and our future profitability
could be materially adversely affected.
The Flash memory industry is characterized by rapid technological changes. For example, new manufacturing
process technologies using smaller feature sizes and offering better performance characteristics are generally
introduced every one to two years. The introduction of new manufacturing process technologies allows us to
increase the functionality of our products while at the same time optimizing performance parameters, decreasing
power consumption and/or increasing storage capacity. In addition, the reduction of feature sizes enables us to
produce smaller chips offering the same functionality and thereby considerably reduces the costs per bit. In order to
remain competitive, it is essential that we secure the capabilities to develop and qualify new manufacturing process
technologies. For example, our leading Flash memory products must be manufactured at 65-nanometer and more
advanced process technologies and on 300-millimeter wafers. If we are delayed in transitioning to these
technologies and other future technologies, we could be materially adversely affected.
Manufacturing our products involves highly complex processes that require advanced equipment. Our
manufacturing efficiency is an important factor in our profitability, and we cannot be sure that we will be able to
maintain or increase our manufacturing efficiency to the same extent as our competitors. For example, we
continuously modify our manufacturing processes in an effort to improve yields and product performance and
decrease costs. We are continuing to transition products to 90-nanometer process technology and developing the
65-nanometer process technology for the manufacture of some of our products. During periods when we are
implementing new process technologies, manufacturing facilities may not be fully productive. We may fail to
achieve acceptable yields or may experience product delivery delays as a result of, among other things, capacity
constraints, delays in the development of new process technologies, changes in our process technologies,
upgrades or expansion of existing facilities, impurities or other difficulties in the manufacturing process. Any of
these occurrences could adversely impact our relationships with customers, cause harm to our reputation in the
marketplace, cause customers to move future business to our competitors or cause us to make financial
concessions to our customers. For example, in the third quarter of fiscal 2006, we had lower than expected yields
on 12,000 raw wafers and, as a result, we were unable to meet the demand of some of our customers, including in
Japan, and our revenue and gross margins were adversely affected.
Improving our manufacturing efficiency in future periods is dependent on our ability to:
develop advanced process technologies and advanced products that utilize those technologies;
successfully transition to 65-nanometer and more advanced process technologies;
continue to reduce test times;
ramp product and process technology improvements rapidly and effectively to commercial volumes
across our facilities;
achieve acceptable levels of manufacturing wafer output and yields, which may decrease as we
implement more advanced technologies; and
maintain our quality controls and rely upon the quality and process controls of our suppliers.
28
If we cannot adequately protect our technology or other intellectual property in the United States and
abroad, through patents, copyrights, trade secrets, trademarks and other measures, we may lose a
competitive advantage and incur significant expenses.
We rely on a combination of protections provided by contracts, including confidentiality and
non-disclosure agreements, copyrights, patents, trademarks and common law rights, such as trade secrets, to
protect our intellectual property. However, we cannot assure you that we will be able to adequately protect our
technology or other intellectual property from third-party infringement or from misappropriation in the United
States and abroad. Any patent owned or licensed by us or issued to us could be challenged, invalidated or
circumvented or rights granted under these patents or licenses may not provide a competitive advantage to us.
Furthermore, patent applications that we file may not result in issuance of a patent or, if a patent is issued, the
patent may not be issued in a form that is advantageous to us. Despite our efforts to protect our intellectual
property rights, others may independently develop similar products, duplicate our products or design around
our patents and other intellectual property rights. In addition, it is difficult to monitor compliance with, and
enforce, our intellectual property on a worldwide basis in a cost-effective manner. Foreign laws may provide
less intellectual property protection than afforded in the United States. If we cannot adequately protect our
technology or other intellectual property rights in the United States and abroad, we may be materially
adversely affected.
We are party to intellectual property litigation and may become party to other intellectual property claims or
litigation that could cause us to incur substantial costs or pay substantial damages or prohibit us from
selling our products.
We provide indemnities relating to non-infringement of patents and other intellectual property
indemnities to certain of our customers in connection with the delivery, design, manufacture and sale of our
products. From time to time, we may be notified, or third parties may bring actions against us based on
allegations, that we are infringing the intellectual property rights of others. If any such claims are asserted
against us, we may seek to obtain a license under the third party’s intellectual property rights. We cannot
assure you that we will be able to obtain all of the necessary licenses on satisfactory terms, if at all. In the
event that we cannot obtain a license, these parties may file lawsuits against us seeking damages (potentially
including treble damages) or an injunction against the sale of our products that incorporate allegedly infringed
intellectual property or against the operation of our business as presently conducted, which could result in our
having to stop the sale of some of our products, increase the costs of selling some of our products, or cause
damage to our reputation. The award of damages, including material royalty payments, or the entry of an
injunction against the manufacture and sale of some or all of our products, would have a material adverse
effect on us. We could decide, in the alternative, to redesign our products or to resort to litigation to challenge
or defend such claims, either of which could be expensive and time-consuming and may have a material
adverse effect on us.
For example, Tessera, Inc. filed lawsuits against us alleging that we have infringed certain of Tessera’s
patents. Tessera has sought to enjoin such alleged infringements, to recover an unspecified amount of damages,
and to bar our importation and sale of allegedly infringing products. In addition, Fujitsu has informed us that
Texas Instruments has asserted that a number of our products infringe some of Texas Instruments’ patents.
Fujitsu has also informed us that it expects us to defend and indemnify Fujitsu against Texas Instruments’ claims.
Fujitsu has provided us with formal notice that they believe we have a duty to defend or indemnify Fujitsu under
the terms of our distribution agreement. Since then, we and Fujitsu have been discussing the issues raised by this
notice, and if Fujitsu were to terminate our distribution agreement, we could be materially adversely affected.
Defending these alleged infringement claims and similar claims could be extremely expensive and time-
consuming and an award of damages or an injunction could have a material adverse effect on us. We cannot
assure you that litigation related to the intellectual property rights of ours or others can be avoided or will be
successfully concluded.
29
Our inability to design and implement new enterprise-wide information systems in a timely and cost-
effective manner could materially adversely affect us.
Although we have completed our physical separation from AMD’s information systems, we are continuing
to design and implement our own enterprise-wide information systems. These systems have been designed to
automate more fully our business processes and affect most of our functional areas including sales, finance,
procurement, inventory control, collections, order processing and manufacturing. In connection with the
implementation of these information systems, we may experience functional and performance problems,
including problems relating to the information systems’ response time and data integrity. In addition, resolution
of any such problems could entail significant additional costs. We cannot assure you that we will be able to
implement these information systems successfully or on a timely basis and in a cost-effective manner or that
these information systems will not fail or prove to be unsuitable for our needs. Our inability to implement or
resolve problems with these information systems in a timely and cost-effective manner could materially
adversely affect us.
If essential equipment or adequate supplies of satisfactory materials are not available to manufacture our
products, we could be materially adversely affected.
Our manufacturing operations depend upon obtaining deliveries of equipment and adequate supplies of
materials on a timely basis. We purchase equipment and materials from a number of suppliers. From time to
time, suppliers may extend lead times, limit supply to us or increase prices due to capacity constraints or other
factors. Because the equipment that we purchase is complex, it is difficult for us to substitute one supplier for
another or one piece of equipment for another. Some raw materials we use in the manufacture of our products are
available from a limited number of suppliers. Our manufacturing operations also depend upon the quality and
usability of the materials we use in our products, including raw materials and wafers we receive from our
suppliers. For example, in the third quarter of fiscal 2006, we had lower than expected yields on 12,000 raw
wafers received from one of our suppliers and our revenue and gross margins were adversely affected. If the
materials we receive from our suppliers do not meet our manufacturing requirements or product specifications,
we may be materially adversely affected.
We also rely on purchasing commercial memory die such as DRAMs from third-party suppliers to
incorporate these die into multi-chip package, or MCP, products. The availability of these third-party purchased
commercial die is subject to market availability, and the process technology roadmaps and manufacturing
capacities of our vendors. In addition, some of our major suppliers, including Samsung, are also our competitors.
Interruption of supply from a competitor that is a supplier or otherwise or increased demand in the industry could
cause shortages and price increases in various essential materials. If we are unable to procure these materials, or
if the materials we receive from our suppliers do not meet our production requirements or product specifications,
we may have to reduce our manufacturing operations or our manufacturing yields may be adversely affected.
Such a reduction and yield issues have in the past and could in the future have a material adverse effect on us.
Our inability to continue to attract, retain and motivate qualified personnel could impact our business.
Our future success depends upon the continued service of numerous qualified engineering, manufacturing,
marketing, sales and executive personnel. We cannot assure you that our equity incentive plan or our employee
benefit plans will be effective in motivating or retaining our employees or attracting new employees.
Competition for qualified employees among companies that rely heavily on engineering and technology is
intense, and the loss of key employees or executive personnel or an inability to attract, retain and motivate
additional highly skilled employees could materially adversely affect us.
Costs related to defective products could have a material adverse effect on us.
One or more of our products may be found to be defective after the product has been shipped to customers
in volume. The cost of product replacements or product returns may be substantial, and our reputation with our
30
customers would be damaged. In addition, we could incur substantial costs to implement modifications to fix
defects. Any of these problems could materially adversely affect us.
Uncertainties involving the ordering of our products could materially adversely affect us.
Flash memory suppliers compete in part on the basis of their ability to deliver products to end customers on
short lead times and it is common for prevailing lead times in the market to be shorter than the minimum
manufacturing cycle time. To deliver products with competitive lead times, we must maintain a buffer stock of
product to fulfill customer orders. Because our buffer stock must be produced before customer orders are
received, our production levels are based on forecasts of customer demand. Generally, we sell our products
pursuant to individual purchase orders from our direct customers, distributors and our distributors’ customers.
Generally, these customers and distributors may cancel their orders for standard products thirty days prior to
shipment without incurring a significant penalty.
Customer demand for our products may be difficult to predict because such customers may change their
inventory practices on short notice for any reason or they may cancel or defer product orders. Inaccurate
forecasts of customer demand or cancellation or deferral of product orders could result in excess or obsolete
inventory, which could result in write-downs of inventory. Because market conditions are uncertain, we could be
materially adversely affected if we are unable to accurately predict demand for our products.
Our investments in marketable debt securities are subject to risks which may cause losses and affect the
liquidity of these investments.
Our cash and cash equivalents as of December 30, 2007, totaled $199.1 million and consisted of cash,
money market funds and commercial paper. Our marketable securities totaled $216.7 million, and included
student loan backed and municipal bond backed auction rate securities. These marketable securities are subject to
general credit, liquidity, market risks and interest rate fluctuations that have affected various sectors of the
financial markets and caused overall tightening of the credit markets. Although during fiscal 2007, we had no
declines in the fair value of any of our marketable securities, we cannot assure you that the market risks
associated with our investment portfolio will not in the future have a negative adverse effect on our results of
operations, liquidity and financial condition.
As of February 20, 2008, within our marketable securities portfolio we held approximately $122.0 million
of AAA/Aaa securities with auction reset features (auction rate securities) whose underlying assets are student
loans and are substantially backed by the U.S. government Federal Family Education Loan Program. Since the
end of fiscal 2007, we have liquidated a significant portion of our auction rate securities, but we recently were
unsuccessful in liquidating a part of our remaining portfolio. Although our auction rate securities are sponsored
by the U.S. government and are currently rated AAA/Aaa, our ability to liquidate these investments in the near
term may be limited. We cannot assure you that auctions on our auction rate securities holdings will succeed in
the near future. Any delays in liquidating these securities in the future could have a material adverse effect on us.
Unfavorable currency exchange rate fluctuations could adversely affect us.
As a result of our foreign operations, we have sales, expenses, assets and liabilities that are denominated in
Japanese yen and other foreign currencies. For example,
some of our manufacturing costs are denominated in Japanese yen, Chinese renminbi, and other foreign
currencies such as the Thai baht and Malaysian ringgit;
sales of our products to Fujitsu are denominated in both US dollars and Japanese yen; and
some fixed asset purchases are denominated in Japanese yen and European Union euros.
31
Consequently, movements in exchange rates could cause our net sales and expenses to fluctuate, affecting
our profitability and cash flows. We use foreign currency forward contracts to reduce our exposure to foreign
currency exchange rate fluctuations. The objective of these contracts is to reduce the impact of foreign
currency exchange rate movements on our operating results and on the cost of capital asset acquisitions. We
do not use these contracts for speculative or trading purposes. We cannot assure you that these activities will
be successful in reducing our foreign currency exchange rate exposure. Failure to do so could have a material
adverse effect on us.
Worldwide economic and political conditions may adversely affect demand for our products.
Worldwide economic conditions may adversely affect demand for our products. Because our sales are
primarily to customers purchasing Flash memory that addresses the wireless and embedded applications, our
business depends on the overall economic conditions and the economic and business conditions within our
customers’ industries. A weakening of the worldwide economy or the demand for our customers’ products may
cause a decrease in demand for our products, which could materially adversely affect us.
Our consolidated financial results could also be significantly and adversely affected by geopolitical
concerns and world events, such as wars and terrorist attacks. Our revenues and financial results have been and
could be negatively affected to the extent geopolitical concerns continue and similar events occur or are
anticipated to occur. In particular, consequences of military action in the Middle East have in the past, and may
in the future, adversely affect demand for our products and our relationship with various third parties with which
we collaborate. In addition, terrorist attacks may negatively affect our operations, directly or indirectly, and such
attacks or related armed conflicts may directly impact our physical facilities or those of our suppliers or
customers. Furthermore, these attacks may make travel and the transportation of our products more difficult and
more expensive, which could materially adversely affect us.
The United States has been and may continue to be involved in armed conflicts that could have a further
impact on our sales and our supply chain. Political and economic instability in some regions of the world may
also result and could negatively impact our business. The consequences of armed conflicts are unpredictable, and
we may not be able to foresee events that could have a material adverse effect on us. More generally, any of these
events could cause consumer confidence and spending to decrease or result in increased volatility in the U.S.
economy and worldwide financial markets. Any of these occurrences could have a material adverse effect on us.
Our operations in foreign countries are subject to political and economic risks, which could have a material
adverse effect on us.
The majority of our wafer fabrication capacity is located in Japan and nearly all final test and assembly of
our products is performed at our facilities in China, Malaysia and Thailand and by third parties in Taiwan and
Japan. In addition, we have international sales operations and, as part of our business strategy, we are continuing
to seek to expand our product sales in high growth markets. The political and economic risks associated with our
sales to, and operations in, foreign countries include:
• expropriation;
changes in political or economic conditions;
changes in tax laws, trade protection measures and import or export licensing requirements;
difficulties in protecting our intellectual property;
difficulties in achieving headcount reductions;
changes in foreign currency exchange rates;
restrictions on transfers of funds and other assets of our subsidiaries between jurisdictions;
changes in freight and interest rates;
32
disruption in air transportation between the United States and our overseas facilities; and
loss or modification of exemptions for taxes and tariffs.
Any conflict or uncertainty in the countries in which we operate, including public health or safety concerns,
natural disasters or general economic factors, could have a material adverse effect on our business. Any of the
above risks, should they occur, could have a material adverse effect on us.
We are subject to a variety of environmental laws that could result in liabilities.
Our properties and many aspects of our business operations are subject to various domestic and international
environmental laws and regulations, including those relating to materials used in our products and manufacturing
processes; chemical use and handling; waste minimization; discharge of pollutants into the environment; the
treatment, transport, storage and disposal of solid and hazardous wastes; and remediation of contamination.
Certain of these laws and regulations require us to obtain permits for our operations, including permits related to
the discharge of air pollutants and wastewater. From time to time, our facilities are subject to investigation by
governmental regulators. Environmental compliance obligations and liability risks are inherent in many of our
manufacturing and other activities. Any failure to comply with applicable environmental laws, regulations or
permits may subject us to a range of consequences, including fines, suspension of production, alteration of
manufacturing processes, sales limitations, and criminal and civil liabilities or other sanctions. We could also be
held liable for any and all consequences arising out of exposure to hazardous materials used, stored, released,
disposed of by us or located at or under our facilities, or for other environmental or natural resource damage.
Certain environmental laws, including the U.S. Comprehensive, Environmental Response, Compensation and
Liability Act of 1980, or the Superfund Act, impose joint and several liability on current and previous owners or
operators of real property for the cost of removal or remediation of hazardous substances and costs related to
damages to natural resources. Liability can attach even if the owner or operator did not know of, or was not
responsible for, the release of such hazardous substances. These environmental laws also can result in liability for
persons, like us, who arrange for hazardous substances to be sent to disposal or treatment facilities, in the event
such facilities are found to be contaminated. Such persons can be responsible for cleanup costs at a disposal or
treatment facility, even if they never owned or operated the contaminated facility. One property where we
currently conduct research and development operations is listed on the U.S. Environmental Protection Agency’s
Superfund National Priorities List. However, other parties currently are responsible for all investigation, cleanup
and remediation activities. Although we have not been named a responsible party at this site, if we were so named,
costs associated with the cleanup of the site could have material adverse effect upon us.
We have not been named a responsible party at any Superfund or other contaminated site. If we were ever
so named, costs associated with the cleanup of the site could be material. Additionally, contamination that has
not yet been identified could exist at one or more of our facilities, and identification of such contamination could
have a material adverse effect on us.
Our business is subject to complex and dynamic environmental regulatory schemes. While we have
budgeted for reasonably foreseeable environmental expenditures, we cannot assure you that environmental laws
will not change or become more stringent in the future. Future environmental regulations could require us to
procure expensive pollution abatement or remediation equipment; to modify product designs; or to incur other
expenses associated with compliance with such regulations. For example, the European Union and China
recently began imposing stricter requirements regarding reduced lead content in semiconductor packaging.
Therefore, we cannot assure you that our costs of complying with current and future environmental and health
and safety laws, or liabilities arising from past or future releases of, or exposure to, hazardous substances, will
not have a material adverse effect on our business.
33
Our worldwide operations and the operations of our suppliers could be subject to natural disasters and
other business disruptions, which could harm our future revenue and financial condition and increase our
costs and expenses.
Our worldwide operations could be subject to natural disasters and other business disruptions, such as a
world health crisis, fire, earthquake, tsunami, volcano eruption, flood, hurricane, power loss, power shortage,
telecommunications failure or similar events, which could harm our future revenue and financial condition and
increase our costs and expenses. For example, our corporate headquarters are located near major earthquake fault
lines in California, and one of our two wafer fabrication facilities, as well as our new 300-millimeter wafer
fabrication facility, SP1, are located near major earthquake fault lines in Japan. In addition, our assembly and test
facilities located in China, Malaysia and Thailand may be affected by tsunamis. In the event of a major
earthquake or tsunami, we could experience loss of life of our employees, destruction of facilities or other
business interruptions. If such business disruptions result in cancellations of customer orders or contribute to a
general decrease in economic activity or demand for our products, or directly impact our marketing,
manufacturing, financial, and logistics functions, our results of operations and financial condition could be
materially adversely affected.
Furthermore, the operations of our suppliers could be subject to natural disasters and other business
disruptions, which could cause shortages and price increases in various essential materials, such as liquid
hydrogen, which are required to manufacture our products or commercial memory die such as DRAMs for
incorporation into our MCP products. If we are unable to procure an adequate supply of materials that are
required for us to manufacture our products, or if the operations of our other suppliers of such materials are
affected by an event that causes a significant business disruption, then we may have to reduce our manufacturing
operations. Such a reduction could in the future have a material adverse effect on us.
We may be delayed or prevented from taking actions that require the consent of AMD and Fujitsu, whose
interests may differ from or conflict with our interests or those of our other stockholders, which could
decrease the value of your shares.
Our bylaws provide that for so long as AMD or Fujitsu maintains an aggregate ownership interest in us of at
least 10 percent, we will not be able to amend our certificate of incorporation or bylaws or effect any resolution
to wind up Spansion Inc. or any other subsidiary without their prior consent.
We cannot assure you that the interests of AMD and Fujitsu will be aligned with our interests or those of our
other stockholders with respect to such decisions. As a result, we may be unable to take steps that we believe are
desirable and in the best interests of our stockholders. In addition, these consent rights could make an acquisition
of us more difficult, even if the acquisition may be considered beneficial by some stockholders.
The interests of AMD and Fujitsu, and our director nominated by Fujitsu, may differ from or conflict with
our interests or those of our other stockholders.
When exercising their rights as our stockholders, either alone or in concert, AMD and Fujitsu may take into
account not only our interests but also their interests and the interests of their other affiliates. Our interests and
the interests of AMD and Fujitsu may at times conflict since the growth of our business depends, in part, on
successful competition with other semiconductor companies. These conflicts may result in lost corporate
opportunities for us, including opportunities to enter into lines of business that may overlap with those pursued
by AMD and Fujitsu. We may not be able to resolve any potential conflicts, and, even if we do so, the resolution
may be less favorable to us than if we were dealing with unaffiliated parties.
Various other conflicts of interest between AMD, Fujitsu and us may arise in the future in a number of areas
relating to our business and relationships, including potential acquisitions of businesses or properties, intellectual
property matters, transfers by AMD or Fujitsu of all or any portion of its ownership interest in us or its other
34
assets, which could be to one of our competitors, indemnity arrangements, service arrangements and business
opportunities that may be attractive to AMD, Fujitsu and us.
AMD and Fujitsu are two of our largest stockholders. Fujitsu has the right to elect one member to our board
of directors. Each stockholder’s ability to elect directors is subject to reduction based on the amount of our
common stock that they own and this right terminates when their ownership in us falls below 10 percent.
Individuals who are our directors and also officers of Fujitsu have a duty of care and loyalty to us when
acting in their capacities as our directors and a duty of care and loyalty to Fujitsu when acting as their officers or
directors. However, our certificate of incorporation provides that in the event a director or officer of our company
who is also a director or officer of Fujitsu acquires knowledge of a potential business opportunity that may be
deemed a corporate opportunity of our company and Fujitsu, such opportunity will belong to Fujitsu, as
applicable, unless it has been expressly offered to such director or officer in writing solely in his or her capacity
as a director or officer of our company. Ownership of AMD common stock by any of our officers could create, or
appear to create, potential conflicts of interest when those directors and officers are faced with decisions that
could have different implications for AMD than they do for us.
Our stock price may decline as a result of sales of common stock by us, AMD or Fujitsu.
Our reorganization in 2003 was the commencement of AMD’s and Fujitsu’s respective divestures of their
Flash memory businesses. Our initial public offering in December 2005 and our secondary stock offering in
November 2006 have been vehicles by which AMD and Fujitsu further reduced their holdings in us. In early
2007, AMD also sold large numbers of our shares in the public market under Rule 144, and we expect AMD to
continue its divesture. Sales of substantial amounts of our common stock, or the possibility of such sales, could
adversely affect the market price of our common stock and impede our ability to raise capital through the
issuance of additional equity securities. We cannot predict with any certainty the effects of AMD’s sales;
however, any further sale by AMD, or a sale by Fujitsu or us of our common stock in the public market, or the
perception that sales could occur, could adversely affect prevailing market prices for our common stock. In
addition, we could issue and sell additional shares of our common stock. Any sale by us of our common stock
would have a dilutive effect on the outstanding shares, and could adversely affect the prevailing market prices for
our common stock.
Third parties may seek to hold us responsible for liabilities of AMD and Fujitsu that we did not assume in
our agreements.
Under our agreements with AMD and Fujitsu, we agreed to assume liabilities related to our business after
June 30, 2003, and liabilities related to our business prior to June 30, 2003 if such liabilities were reflected as
accruals or reserves on the AMD and Fujitsu contributed balance sheets. Our assumed liabilities include claims
made with respect to Flash memory products sold after June 30, 2003, even if such products were manufactured
prior to June 30, 2003, and warranty claims with respect to products sold prior to June 30, 2003 to the extent such
warranty claims were reflected as accruals or reserves on the AMD and Fujitsu contributed balance sheets. The
allocation of assets and liabilities between AMD, Fujitsu and us may not reflect the allocation that would have
been reached between unaffiliated parties and may be less favorable to us as a result. Third parties may seek to
hold us responsible for AMD’s and Fujitsu’s retained liabilities. If our losses for AMD’s and Fujitsu’s retained
liabilities were significant and we were ultimately held liable for them, we cannot assure you that we would be
able to recover the full amount of our losses.
We rely on Fujitsu to be our sole distributor in Japan.
We currently rely on Fujitsu to act as the sole distributor of our products to customers in Japan, which was
one of our most important geographic markets in fiscal 2006 and in fiscal 2007. Under our distribution agreement
with Fujitsu, Fujitsu has agreed to use its best efforts to promote the sale of our products in Japan and to other
35
customers served by Fujitsu. In the event that we reasonably determine that Fujitsu’s sales performance in Japan
and to those customers served by Fujitsu is not satisfactory based on specified criteria, then we have the right to
require Fujitsu to propose and implement an agreed-upon corrective action plan. If we reasonably believe that the
corrective action plan is inadequate, we can take steps to remedy deficiencies ourselves through means that
include appointing another distributor as a supplementary distributor to sell products in Japan and to customers
served by Fujitsu. Pursuing these actions would be costly and disruptive to the sales of our products in Japan. If
Fujitsu’s sales performance in Japan is unsatisfactory or if we are unable to successfully maintain our distribution
agreement and relationship with Fujitsu, as a result of its seeking indemnity from us in respect of certain
infringement claims made by Texas Instruments or otherwise, and we can not timely find a suitable
supplementary distributor, we could be materially adversely affected.
On December 28, 2007, we entered into an amendment to our distribution agreement with Fujitsu which
provides, among other terms, that Fujitsu no longer has territorial exclusivity in Japan and that effective April 1,
2008 we may enter into distribution agreements with Fujitsu’s sub-distributors in Japan. We also agreed to
negotiate in good faith a successor distribution agreement with Fujitsu Electronics, Inc., or such other
semiconductor sales group affiliate of Fujitsu. If Fujitsu, Fujitsu Electronics, Inc., or another semiconductor sales
group affiliate of Fujitsu unexpectedly or abruptly terminates its distribution agreement with us, or otherwise
ceases its support of our customers in Japan, we would be required to rely on a relationship with another
distributor or establish our own local sales organization and support functions. Although we are currently
establishing a sales organization and infrastructure in Japan, we cannot be certain that we will be successful in
selling our products to customers currently served by Fujitsu or new customers. If customers currently served by
Fujitsu, or potential new customers, refuse to purchase our products directly from us or from another distributor,
our sales in Japan may decline, and we could be materially adversely affected.
AMD and Fujitsu may continue to use all of our intellectual property and the intellectual property they have
transferred to us.
In connection with our reorganization as Spansion LLC in June 2003, AMD and Fujitsu transferred
approximately 400 patents and patent applications to us. In addition, AMD and Fujitsu contributed additional
patents to us at the time of our initial public offering. However, both AMD and Fujitsu have retained the rights to
use any patents contributed to us for an unlimited period of time. In addition, under their respective patent cross-
license agreements with us, AMD and Fujitsu have also obtained licenses to our present and future patents with
effective filing dates prior to the later of June 30, 2013, or such date on which they have transferred all of their
shares in us, although the scope of patents under license can be impacted by a change in control of the parties or
their semiconductor groups. These licenses continue until the last to expire of the patents under license expires
and provide AMD and Fujitsu with licenses to all of our present and future patents in existence through such
cross-license termination date. Furthermore, we entered into an Amended and Restated Intellectual Property
Contribution and Ancillary Matters Agreement with AMD and Fujitsu in connection with our reorganization as
Spansion Inc. in December 2005. Pursuant to that agreement, subject to our confidentiality obligations to third
parties, and only for so long as AMD’s and Fujitsu’s ownership interests in us remain above specific minimum
levels, we are obligated to identify any of our technology to each of AMD and Fujitsu, and to provide copies of
and training with respect to that technology to them. In addition, pursuant to this agreement we have granted a
non-exclusive, perpetual, irrevocable fully paid and royalty-free license of our rights, other than patent and
trademark rights, in that technology to each of AMD and Fujitsu.
Under our non-competition agreement, both AMD and Fujitsu have agreed that they will not directly or
indirectly engage in a business, and have agreed to divest any acquired business, that manufactures or supplies
standalone semiconductor devices (including single chip, multiple chip or system devices) containing certain
Flash memory, which is the business in which we primarily compete. With respect to each of AMD and Fujitsu,
this non-competition restriction will last until the earlier of (i) two years from the date such stockholder’s
ownership in us falls to or below five percent, or (ii) the dissolution of our company. After that time, should they
ever decide to re-enter the Flash memory business, AMD or Fujitsu could use our present and future patents and
36
technologies licensed by us to AMD and Fujitsu under the cross licenses and our Amended and Restated
Intellectual Property Contribution and Ancillary Matters Agreement to compete against us. If either AMD or
Fujitsu were to compete with us, we could be materially adversely affected.
Our stock price may be volatile, and stockholders may lose all or part of their investment.
The market price of shares of our common stock has been volatile and may in the future be subject to wide
fluctuations in response to many risk factors listed in this section, and others beyond our control, including:
actual or anticipated changes in our operating results;
changes in financial estimates by securities analysts;
fluctuations in the valuation of companies perceived to be comparable to us;
announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures,
joint ventures or other strategic initiatives; and
stock price and volume fluctuations attributable to inconsistent trading volume levels or other factors.
Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected
and continue to affect the market prices of equity securities of many companies. These fluctuations often have
been unrelated or disproportionate to the operating performance of those companies. These broad market and
industry fluctuations, as well as general economic, political and market conditions such as recessions, interest
rate changes or international currency fluctuations, may negatively impact the market price of shares of our
common stock. In the past, companies that have experienced volatility in the market price of their stock have
been subject to securities class action litigation. We may be the target of this type of litigation in the future.
Securities litigation against us could result in substantial costs and divert our management’s attention from other
business concerns, which could materially adversely affect us.
If securities or industry analysts publish negative reports about our business, the price and trading volume
of our securities could decline.
The trading market for our securities depends, in part, on the research reports and ratings that securities or
industry analysts or ratings agencies publish about us, our business and the Flash memory market in general. We
do not have any control over these analysts or agencies. If one or more of the analysts or agencies who cover us
downgrades us or our securities, the price of our securities may decline. If one or more of these analysts cease
coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial
markets, which could cause the price of our securities or trading volume to decline.
We currently do not intend to pay dividends on our common stock and, consequently, our stockholders’ only
opportunity to achieve a return on their investment is through appreciation in the price of our common
stock.
We currently do not plan to pay dividends on shares of our common stock in the foreseeable future and are
currently prohibited from doing so in specific circumstances under agreements governing our borrowing
arrangements. The terms of our senior secured revolving credit facility limit our ability to pay cash dividends on
any shares of our common stock. Furthermore, if we are in default under this credit facility, our ability to pay
cash dividends will be limited in the absence of a waiver of that default or an amendment to that facility. Similar
prohibitions are applicable under the indenture governing the outstanding notes issued by Spansion LLC. In
addition, because we are a holding company, our ability to pay cash dividends on shares of our common stock
may be limited by restrictions on our ability to obtain sufficient funds through dividends from our subsidiaries,
including the restrictions under the indenture governing the notes. Our common stock will rank junior as to
payment of dividends to any series of preferred stock that we may issue in the future. Generally, unless full
dividends including any cumulative dividends still owing on all outstanding shares of any preferred stock have
37
been paid, no dividends will be declared or paid on our common stock. Consequently, your only opportunity to
achieve a return on your investment in our company will be if the market price of our common stock appreciates.
Any future issuance of our preferred stock could adversely affect holders of our common stock.
Our board of directors is authorized to issue shares of preferred stock without any action on the part of our
stockholders. Our board of directors also has the power, without stockholder approval, to set the terms of any
such series of shares of preferred stock that may be issued, including voting rights, dividend rights and
preferences over our common stock with respect to dividends or if we liquidate, dissolve or wind up our business
and other terms. If we issue preferred stock in the future that has preference over our common stock with respect
to the payment of dividends or upon our liquidation, dissolution or winding up of our affairs, or if we issue
preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of our
common stock or the market price of our common stock could be adversely affected.
The use of our net operating loss carryforwards may be limited.
If we conduct an offering of our common stock, we may experience an “ownership change” as defined in
the Internal Revenue Code such that our ability to utilize our federal net operating loss carryforwards of
approximately $594.4 million as of December 30, 2007 may be limited under certain provisions of the Internal
Revenue Code. As a result, we may incur greater tax liabilities than we would in the absence of such a limitation
and any increased liabilities could materially adversely affect us.
Provisions in our corporate governance documents as well as Delaware law may delay or prevent an
acquisition of us that stockholders may consider favorable, which could decrease the value of your shares.
Our certificate of incorporation and bylaws and Delaware law contain provisions that could make it more
difficult for a third party to acquire us without the consent of our board of directors. These provisions include
restrictions on the ability of our stockholders to remove directors, a classified board of directors and limitations
on action by our stockholders by written consent. In addition, our board of directors has the right to issue
preferred stock without stockholder approval, which could be used to make an acquisition of us more difficult.
Although we believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics
and thereby provide for an opportunity to receive a higher bid by requiring potential acquirers to negotiate with
our board of directors, these provisions apply even if the offer may be considered beneficial by some
stockholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our principal engineering, manufacturing and administrative facilities comprise approximately 4.8 million
square feet and are located in the United States, France, Japan, Korea, Malaysia, Thailand and China. Over
4.3 million square feet of this space is in buildings we own. The remainder of this space is leased. We lease from
Fujitsu Limited (Fujitsu) approximately 1.3 million square feet of land in Aizu-Wakamatsu, Japan for our wafer
fabs including the land upon which JV3 and SP1 are located and we lease office space in Aichi, Japan from a
subsidiary of Fujitsu, Fujitsu VLSI. We lease approximately 635,000 square feet of land in Suzhou, China for our
assembly and test facility. Our Fab 25 facility in Austin, Texas and our facility in Sunnyvale, California are
encumbered by liens securing our senior secured term loan facility and our senior secured floating rate notes. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual
Obligations.”
38
Our facility leases have terms of generally one to five years. We currently do not anticipate difficulty in
either retaining occupancy of any of our facilities through lease renewals prior to expiration or through
month-to-month occupancy or replacing them with equivalent facilities. Our land lease in Aizu-Wakamatsu
expires in 2033.
ITEM 3. LEGAL PROCEEDINGS
Tessera, Inc. v. Spansion LLC, et al., Civil Action No. 05-04063 (CW), in the United States District Court
for the Northern District of California
On October 7, 2005, Tessera, Inc. filed a complaint, Civil Action No. 05-04063, for patent infringement
against Spansion LLC in the United States District Court for the Northern District of California under the patent
laws of the United States of America, 35 U.S.C. section 1, et seq., including 35 U.S.C. section 271. The
complaint alleges that Spansion LLC’s Ball Grid Array (BGA) and multichip packages infringe the following
Tessera patents: United States Patent No. 5,679,977, United States Patent No. 5,852,326, United States Patent
No. 6,433,419 and United States Patent No. 6,465,893. On December 16, 2005, Tessera filed a First Amended
Complaint naming Spansion Inc. and Spansion Technology Inc., our wholly owned subsidiary, as defendants. On
January 31, 2006, Tessera filed a Second Amended Complaint adding Advanced Semiconductor Engineering,
Inc., Chipmos Technologies, Inc., Chipmos U.S.A., Inc., Silicon Precision Industries Co., Ltd., Siliconware USA,
Inc., ST Microelectronics N.V., ST Microelectronics, Inc., Stats Chippac Ltd., Stats Chippac, Inc., and Stats 34
Chippac (BVI) Limited. The Second Amended Complaint alleges that Spansion LLC’s BGA and multichip
packages infringe the four Tessera patents identified above. The Second Amended Complaint further alleges that
each of the newly named defendants is in breach of a Tessera license agreement and is infringing on a fifth
Tessera patent, United States Patent No. 6,133,627. The Second Amended Complaint seeks unspecified damages
and injunctive relief. On February 9, 2006, Spansion filed an answer to the Second Amended Complaint and
asserted counterclaims against Tessera. On April 18, 2006, U.S. District Court Judge Claudia Wilken issued a
Case Management Order that set a trial date of January 28, 2008. On March 13, 2007, Judge Wilken issued an
order vacating the trial date. On April 12, 2007, Judge Wilken issued an order referring case management
scheduling issues to a Special Master, and directing that the court will appoint an expert in the case to testify on
the ultimate merits of the technical issues relating to infringement and patent validity. On April 26, 2007,
Spansion, along with other defendants, filed a motion to stay the District Court action pending resolution of the
proceeding before the International Trade Commission described below. On May 24, 2007, Judge Wilken issued
an order staying the District Court action until final resolution of the ITC action.
Tessera has requested the following findings and remedies in this District Court action:
a finding that Tessera’s patents are valid and enforceable and that we are deliberately and willfully
infringing Tessera’s patents;
injunctive relief prohibiting us from engaging in any further conduct that would infringe Tessera’s
patents;
An award to Tessera to recover all damages, including interest on damages, from the alleged
infringement;
An award of treble damages for deliberate and willful conduct;
a finding that the case is exceptional, in which case attorney fees should be awarded to the prevailing
party; and
An unspecified award of attorneys’ fees and costs.
We believe that we have meritorious defenses against Tessera’s claims and we intend to defend the lawsuit
vigorously.
39
In the Matter of Certain Semiconductor Chips with Minimized Chip Package Size and Products Containing
Same, in the United States International Trade Commission
On April 17, 2007, Tessera, Inc. filed a complaint under section 337 of the Tariff Act of 1930, 19 U.S.C. §
1337, in the United States International Trade Commission against respondents ATI Technologies, Inc.,
Freescale Semiconductor, Inc., Motorola, Inc., Qualcomm, Inc., Spansion Inc., Spansion LLC and
STMicroelectronics N.V. Tessera claims that “face up” and “stacked-chip” small format laminate Ball Grid
Array (BGA) packages, including the Spansion 5185941F60 chip assembly, infringe certain specified claims of
United States Patent Nos. 5,852,326 and 6,433,419 (the Asserted Patents). The complaint requests that the
International Trade Commission institute an investigation into the matter.
Tessera has requested the following relief in the International Trade Commission action:
a permanent exclusion order pursuant to section 337(d) of the Tariff Act of 1930, as amended, excluding
from entry into the United States all semiconductor chips with small format laminate BGA
semiconductor packaging that infringe any of the Asserted Patents, and all products containing such
infringing small format laminate BGA semiconductor packaged chips; and
a permanent cease and desist order pursuant to section 337(f) of the Tariff Act of 1930, as amended,
directing respondents with respect to their domestic inventories to cease and desist from marketing,
advertising, demonstrating, sampling, warehousing inventory for distribution, offering for sale, selling,
distributing, licensing, or using any semiconductor chips with small format laminate BGA
semiconductor packaging that infringe any of the Asserted Patents, and/or products containing such
semiconductor chips.
On May 15, 2007, the International Trade Commission instituted an investigation pursuant to 19 U.S.C. §
1337, entitled In the Matter of Certain Semiconductor Chips with Minimized Chip Package Size and Products
Containing Same, Inv. No. 337-TA-605. On June 8, 2007, the respondents in this matter filed a motion to stay the
International Trade Commission investigation pending reexamination of the Asserted Patents by the U.S. Patent
and Trademark Office. On July 11, 2007, the administrative law judge ordered that an Initial Determination shall
be due on May 21, 2008 and that a target date for completion of the investigation shall be August 21, 2008. On
October 17, 2007, the International Trade Commission investigation was reassigned to Administrative Law Judge
Theodore Essex, who set a hearing for February 25, 2008. On February 26, 2008, Judge Essex issued an Initial
Determination granting respondents’ motion for a stay of the ITC investigation pending completion of the
reexamination of the Asserted Patents by the United States Patent & Trademark Office.
We believe that we have meritorious defenses against Tessera’s claims and we intend to defend this
proceeding vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered
by this report.
40
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Price of Common Stock
Our Class A common stock has been traded on The NASDAQ Global Select Market under the symbol
“SPSN” since December 15, 2005. The following table sets forth the high and low per shares sales prices for our
Class A common stock for fiscal 2007 and fiscal 2006 as reported on the NASDAQ Global Select Market.
High Low
Fiscal Year Ended December 30, 2007
Fourth Quarter .......................................... $ 8.68 $ 3.96
Third Quarter ........................................... $12.64 $ 7.86
Second Quarter ......................................... $12.83 $ 9.49
First Quarter ........................................... $15.05 $11.32
High Low
Fiscal Year Ended December 31, 2006
Fourth Quarter .......................................... $17.94 $13.35
Third Quarter ........................................... $18.50 $13.18
Second Quarter ......................................... $18.59 $12.90
First Quarter ........................................... $16.19 $12.31
As of February 26, 2008, there were six holders of record of our Class A common stock. Because many of
our shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total
number of stockholders represented by these recordholders.
We currently do not plan to pay dividends on shares of our common stock in the foreseeable future and are
currently prohibited from doing so in specific circumstances under agreements governing our borrowing arrangements.
41
Stock Performance Graph
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange
Act of 1934, as amended (the Exchange Act), or incorporated by reference into any filing of Spansion under the
Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific
reference in such filing.
The following graph shows a comparison from December 16, 2005 (the date our Class A common stock
commenced trading on the Nasdaq Global Select Market) through December 30, 2007 of the cumulative total
return for our Class A common stock, The Nasdaq Market Index and the S&P 500 Semiconductors Index. Such
returns are based on historical results and are not intended to suggest future performance. Data for The Nasdaq
Market Index and the S&P 500 Semiconductors Index assume reinvestment of dividends. We have never paid
dividends on our Class A common stock and have no present plans to do so.
$0
$25
$50
$75
$100
$125
$150
12/16/05 12/25/05 12/31/06 12/30/07
Spansion Inc. Nasdaq Market Index
S&P 500 Semiconductors Index
42
ITEM 6. SELECTED FINANCIAL DATA
The following summary historical financial data should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial
statements and related notes included elsewhere in this Form 10-K.
Effective June 30, 2003, we adopted a fiscal year ending the last Sunday of December. Fiscal 2003 was
therefore a transition year beginning April 1, 2003 and ending December 28, 2003 and included approximately
39 weeks. Fiscal 2004 and fiscal 2005 included 52 weeks each. Fiscal 2006 and fiscal 2007 included 53 weeks
and 52 weeks, respectively.
Year Ended
Dec. 30,
2007
Year Ended
Dec. 31,
2006
Year Ended
Dec. 25,
2005
Year Ended
Dec. 26,
2004
Nine Months
Ended
Dec. 28,
2003
(in thousands, except per share amounts)
Statement of Operations Data:
Net sales ............................ $1,627,253 $1,310,479 $ — $ — $ —
Net sales to related parties/members ....... 873,560 1,268,795 2,002,805 2,262,227 1,193,212
Total net sales ........................ 2,500,813 2,579,274 2,002,805 2,262,227 1,193,212
Cost of sales ......................... 2,065,143 2,063,639 1,809,929 1,840,862 1,086,030
Gross profit .......................... 435,670 515,635 192,876 421,365 107,182
Other expenses:
Research and development .............. 436,785 342,033 292,926 280,954 146,947
Sales, general and administrative ......... 239,317 264,358 184,833 137,159 74,200
Operating income (loss) ................ (240,432) (90,756) (284,883) 3,252 (113,965)
Interest and other income (expense), net .... 32,595 11,681 3,173 3,198 1,335
Interest expense ....................... (80,803) (70,903) (45,032) (40,165) (20,733)
Loss before income taxes ............... (288,640) (149,978) (326,742) (33,715) (133,363)
Benefit for income taxes ................ 25,144 2,215 22,626 14,013 4,420
Net loss ............................. $ (263,496) $ (147,763) $ (304,116) $ (19,702) $ (128,943)
Net loss per common share:
Basic and Diluted(1) .................... $ (1.95) $ (1.15) $ (4.15) $ (0.27) $ (1.78)
Shares used in per share calculation:
Basic and Diluted(1) .................... 134,924 128,965 73,311 72,549 72,549
Dec. 30,
2007
Dec. 31,
2006
Dec. 25,
2005
Dec. 26,
2004
Dec. 28,
2003
Balance Sheet Data:
Cash, cash equivalents and marketable
securities .......................... $ 415,742 $ 885,769 $ 725,816 $ 196,138 $ 329,544
Working capital ....................... 592,518 1,085,027 881,902 359,420 640,184
Total assets .......................... 3,815,645 3,549,717 3,301,965 2,919,515 3,125,623
Long-term debt and capital lease obligations,
including current portion, and notes
payable to banks under revolving loans . . 1,401,333 1,118,047 759,613 773,597 899,684
Total stockholders’ equity/members’
capital ............................ 1,632,448 1,845,760 1,921,977 1,647,207 1,657,595
(1) Diluted net loss per share is computed using the weighted-average number of common shares and excludes
potential common shares, as their effect is antidilutive. The potential common shares that were antidilutive for
fiscal 2007, fiscal 2006 and fiscal 2005 were approximately 18.4 million, 16.8 million and 5.5 million shares,
respectively, issuable upon exercise of outstanding stock options, upon vesting of outstanding restricted stock
units and upon conversion of Spansion LLC’s 2.25% Exchangeable Senior Subordinated Debentures.
43
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction
with the consolidated financial statements and related notes as of December 30, 2007 and December 31, 2006
and for the fiscal years ended December 30, 2007, December 31, 2006 and December 25, 2005, which are
included in this annual report.
Overview
We are a semiconductor device company exclusively dedicated to designing, developing, manufacturing,
marketing and selling Flash memory solutions. There are two major architectures of Flash memory in the market
today: NOR Flash memory, which is primarily used for code and data storage in mobile phones and primarily for
code storage in consumer and industrial electronics, and NAND Flash memory, which is primarily used for data
storage in removable memory applications, such as Flash memory cards and USB drives, and is increasingly
being used in high-end mobile phones and embedded applications such as MP3 players. Global demand for
NAND Flash memory has grown much faster than that of NOR Flash memory largely on the strength of growth
in multimedia consumer applications such as MP3 audio players and video players together with removable
storage in applications such as Flash memory cards for digital photography, USB storage for general purpose use
and an emerging trend for solid state drive solutions to replace hard drives in portable computer applications.
The Flash memory market can be divided into two major categories based on application: the integrated
category, which includes wireless and embedded applications, and the removable storage category. Within the
integrated category, portable, battery-powered communications applications are referred to as “wireless” and all
other applications, such as consumer, industrial, telecommunications and automotive electronics, are referred to
as “embedded.” Within the removable storage category applications include Flash memory cards and USB
drives.
We focus primarily on the integrated category of the Flash memory market, including the wireless and
embedded portions. More than two thirds of our net sales are based on our products containing our two or
more-bit-per cell MirrorBit technology, and the balance of our net sales are based on single-bit-per-cell floating
gate technology. We expect that products using our MirrorBit technology will continue to represent the
substantial majority of total net sales. Our Flash memory is integrated into a broad range of electronic products,
including mobile phones, consumer electronics, automotive electronics, networking and telecommunications
equipment, and personal computer peripherals.
Through April 2, 2007, we operated four Flash memory wafer fabrication facilities, or fabs, four assembly
and test sites and a development fab, known as our Submicron Development Center, or SDC. On April 2, 2007,
we sold two fabs located in Japan to Fujitsu Limited (Fujitsu), and in fiscal 2007 we started to equip and test our
new 300-millimeter fab, SP1, in Japan. We currently operate three Flash memory wafer fabrication facilities, one
in the US and two in Japan. Our headquarters are located in Sunnyvale, California. In fiscal 2007, we sold
products on technology nodes ranging from 320-nanometer to 65-nanometer, utilizing MirrorBit and floating
gate cell technology. We serve our customers worldwide directly or through our distributors, including Fujitsu,
who buy products from us and resell them to their customers, either directly or through third-party distributors.
Customers for our products consist of OEMs, original design manufacturers or ODMs and contract
manufacturers.
Fiscal 2007 was a particularly difficult year for the Flash memory semiconductor industry as a whole, as
blended average selling prices (ASPs) for Flash memory devices fell at a rate greater than experienced
historically. With the significant decrease in ASPs, a direct result of increased competitive pricing behavior, we
intensified our efforts to accelerate cost reductions at a pace faster than the ASP decline. Although we believe we
achieved significant cost reductions, our financial results nonetheless were negatively impacted because the rate
of ASP decline was greater than the rate at which we were able to reduce our costs. Despite the challenges we
faced during fiscal 2007, we continued to evolve our technology and increase our share of the NOR flash
44
segment. During fiscal 2007, we introduced technology advancements and achieved customer acceptance of our
products manufactured using our 90-nanometer MirrorBit technology node process technology.
During fiscal 2007, we focused a significant portion of our efforts in several areas: SP1, our new
300-millimeter fab in Aizu-Wakamatsu, Japan; our disposition of our JV1 and JV2 wafer fabrication facilities in
Aizu-Wakamatsu, Japan; cost reductions; development of new technologies and architectures; and the acquisition
of Saifun Semiconductors Ltd.:
We concentrated much of our capital expenditure investments in SP1, which we believe will be an
important contributor to our future financial performance. In order to gain technological and cost-
effectiveness advantages, we equipped SP1, allowing us to begin manufacturing 300-millimeter wafers
in first quarter of fiscal 2008 at technology nodes of 65-nanometers. Additionally, we expect to begin
introducing production at the 45-nanometer node in late fiscal 2008. By using advance manufacturing
process technology and larger wafers, we believe we can attain important cost savings, and offer
advanced products to our customers.
In April 2007, we sold our older JV1 and JV2 wafer fabrication facilities in Aizu-Wakamatsu, Japan to
Fujitsu. Concurrently with the closing of the sale, we entered into a foundry arrangement with Fujitsu
for products to be manufactured at the JV1 and JV2 facilities. The sale of JV1 and JV2 enabled us to
redeploy our capital toward leading-edge technologies, while we believe the foundry arrangement
maintains our access to legacy products to augment manufacturing capabilities during peak demand
periods and to provide our customers with long-term supply stability.
We intensified and accelerated our cost reduction efforts in response to the changing business
environment and increased ASP declines. The fiscal 2007 cost reduction actions included increased
productivity and output of internal wafer fabs, improvement of cumulative product yields, test time
reductions and price reductions with external suppliers.
During fiscal 2007, we began recognizing revenue from sales of products employing our 90-nanometer
MirrorBit technology including products based on our ORNAND architecture and introduced certain
technologies which we believe will be important to our future success including our MirrorBit Eclipse
and our MirrorBit ORNAND2 architectures.
In October 2007, we announced that we entered into a definitive merger agreement for us to acquire
Saifun Semiconductors Ltd. We believe the acquisition of Saifun is an opportunity for future growth and
improved financial performance, by serving as a vehicle for our entry into the Flash memory technology
licensing business.
In fiscal 2007, the sales from products based on MirrorBit technology exceeded two-thirds of our total net
sales. The percentage of our total net sales attributable to MirrorBit products grew from approximately 23 percent in
fiscal 2005 to approximately 50 percent in fiscal 2006 to approximately 71 percent in fiscal 2007. In fiscal 2008, we
expect the trend of our customers’ adoption of MirrorBit technology to continue and sales of MirrorBit products to
increase. Moreover, we intend to introduce products based on our MirrorBit Eclipse architecture in early 2008. We
believe these products will reduce our customers’ costs, enable increased memory capacity and higher performance,
greater customer product flexibility, which could contribute to sales growth for our company.
For fiscal 2007, our net sales were approximately $2.5 billion and our net loss was approximately
$263.5 million. For fiscal 2006, our net sales were approximately $2.6 billion and our net loss was approximately
$147.8 million. For fiscal 2005, our net sales were approximately $2.0 billion and our net loss was approximately
$304.1 million. Total net sales for fiscal 2007 decreased three percent compared to the corresponding period of
fiscal 2006, primarily attributable to a 10 percent decline in blended average selling prices, which was partially
offset by an increase of seven percent in unit shipments in fiscal 2007.
Our results for fiscal 2007 reflected an increase in unit shipments and sales from products based on our
MirrorBit technology, which represented approximately 71 percent of total net sales and 46 percent of total units
45
shipped for fiscal 2007, compared with approximately 50 percent of total net sales and 30 percent of total units
shipped for fiscal 2006. We expect this trend of increased unit shipments and sales generated from such products
to continue in fiscal 2008.
Our cash and cash equivalents at December 30, 2007, totaled $199.1 million and consisted of cash, money
market funds and commercial paper and our marketable securities totaled $216.7 million at December 30, 2007.
We believe that our anticipated cash flows from operations and current cash balances, our existing credit
facilities and available external financing will be sufficient to fund working capital requirements, capital
investments, debt service and operations, and to meet our cash needs for at least the next twelve months.
Our ability to fund our cash needs over the long term will depend on our ability to generate cash in the
future, which is subject to general economic, financial, competitive and other factors, such as those discussed in
Part I, Item 1A “Risk Factors,” many of which are beyond our control. Should we require additional funding,
such as to satisfy our short-term and long-term debt obligations when due or to make additional capital
investments, we may need to raise the required additional funds through additional bank borrowings or public or
private sales of debt or equity securities. We cannot assure you that such funding will be available in needed
quantities or on terms favorable to us, if at all.
Basis of Presentation
Fiscal 2007, Fiscal 2006 and Fiscal 2005
Our fiscal years end on the last Sunday of December. Fiscal 2007, fiscal 2006 and fiscal 2005 consisted of
52, 53 and 52 weeks, respectively.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with U.S. generally accepted
accounting principles. The preparation of these financial statements requires us to make estimates and judgments
that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an
on-going basis, including those related to our revenues, inventories, asset impairments, income taxes and pension
benefits. We base our estimates on experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities. The actual results may differ from these estimates or our estimates may be affected by
different assumptions or conditions.
We believe the following critical accounting policies are the most significant to the presentation of our
financial statements and require the most difficult, subjective and complex judgments.
Estimates of Sales Returns and Allowances
From time to time we may accept sales returns or provide pricing adjustments to customers who do not have
contractual return or pricing adjustment rights. We record a provision for estimated sales returns and allowances
on product sales in the same period that the related revenues are recorded, which primarily impacts gross margin.
We base these estimates on actual historical sales returns, allowances, historical price reductions, market activity,
and other known or anticipated trends and factors. These estimates are subject to management’s judgment, and
actual provisions could be different from our estimates and current provisions, resulting in future adjustments to
our revenues and operating results.
Impairment of Long-Lived Assets
We have significant investments in long-lived assets, principally capital equipment, which could be exposed
to impairment. Therefore, we consider at each balance sheet date whether indicators of impairment of long-lived
46
assets are present. These indicators may include, but are not limited to significant under-performance of a
business or product line in relation to expectations, significant negative industry or economic trends, and
significant changes or planned changes in our use of the assets. If we identify indicators of impairment,
recoverability of an asset that will continue to be used in our operations is measured by comparing the carrying
amount of the asset in question to our estimate of the related total future undiscounted net cash flows attributable
to the asset. If an asset carrying value is not recoverable through the related undiscounted cash flows, the asset is
considered to be impaired. The impairment is measured by the difference between the asset’s carrying amount
and its fair value. Fair value is determined by discounted future cash flow modeling, appraisals or other methods.
Estimated future cash flows, terminal values and discount rates used in valuation models require significant
management judgment. We may incur impairment losses in future periods if factors influencing our estimates of
the undiscounted cash flows change. Impairment losses were not material in any of the periods presented.
Income Taxes
Prior to our reorganization into Spansion Inc. we operated as a Delaware limited liability company that had
elected to be treated as a partnership for U.S. federal tax reporting purposes and therefore, we were not a U.S.
taxable entity. We now operate as Spansion Inc., which is a taxable entity for U.S. federal tax reporting purposes.
Our foreign subsidiaries are wholly owned and are taxable as corporations in their respective foreign countries of
formation. In determining taxable income for financial statement reporting purposes, we must make estimates
and judgments. These estimates and judgments are applied in the calculation of specific tax liabilities and in the
determination of the recoverability of deferred tax assets, which arise from temporary differences between the
recognition of assets and liabilities for tax and financial statement reporting purposes. The recognition and
measurement of current and deferred income tax assets and liabilities impact our tax provision.
We must assess the likelihood that we will be able to recover our deferred tax assets. Unless recovery of
these deferred tax assets is considered more likely than not, we must increase our provision for taxes by
recording a charge to income tax expense, in the form of a valuation allowance against those deferred tax assets
for which we believe it is not more likely than not they will be realized. We consider past performance, future
expected taxable income and prudent and feasible tax planning strategies in determining the need for a valuation
allowance.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of
complex tax rules and the potential for future adjustment by the relevant tax jurisdiction. If our estimates of these
taxes are greater or less than actual results, an additional tax benefit or charge will result.
Inventory Valuation
The valuation of inventory impacts gross margin. At each balance sheet date, we evaluate our ending
inventories for excess quantities and obsolescence. This evaluation includes analysis of sales levels by product
and projections of future demand. These projections assist us in determining the carrying value of our inventory
and are also used for near-term factory production planning. We do not value inventories on hand in excess of
forecasted demand of six months. In addition, we write off inventories that we consider obsolete. We adjust
remaining specific inventory balances to approximate the lower of our standard manufacturing cost or market
value. Among other factors, management considers forecasted demand in relation to the inventory on hand,
competitiveness of product offerings, market conditions and product life cycles when determining obsolescence
and net realizable value. If we anticipate future demand or market conditions to be less favorable than our
previous projections, additional inventory write-downs may be required and would be reflected in cost of sales in
the period the revision is made. This would have a negative impact on our gross margin in that period. If in any
period we are able to sell inventories that were not valued or that had been written down in a previous period,
related revenues would be recorded without any offsetting charge to cost of sales, resulting in a net benefit to our
gross margin in that period.
47
Pension and Post-Retirement Benefits
We provide a pension plan for certain employees of Spansion Japan, and as a result, we have significant
pension benefit costs and credits that are computed and recorded in our financial statements based on actuarial
valuations. The actuarial valuations require assumptions and methods which must be used to develop the best
estimate of the benefit costs. These valuation assumptions include salary growth, long-term return on plan assets,
discount rates and other factors. The salary growth assumptions reflect our future and near-term outlook for
salary growth within the industry. Long-term return on plan assets is determined based on historical results in the
debt and equity markets and management’s expectation of the current economic environment and the allocation
target and expected future yields of each asset class. The discount rate assumption is based on current investment
yields on Japanese government long-term bonds, as no deep corporate market exists for high quality corporate
debt instruments. Actual results that differ from these assumptions are accumulated and amortized over the future
life of the plan participants. While we believe that the assumptions used are appropriate, significant differences in
actual experience or significant changes in assumptions would affect the pension costs and obligations.
Stock-Based Compensation Expenses
Effective December 26, 2005, we adopted Financial Accounting Standards Board (FASB) Statement
No. 123(R), “Share-Based Payment,which requires a public entity to reflect on its income statement, instead of
pro forma disclosures in its financial footnotes, the cost of employee services received in exchange for an award
of equity instruments based on the grant-date fair value of the award. Statement 123(R) supersedes our previous
accounting under Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to
Employees,” for periods beginning in fiscal 2006. The valuation and recognition of share-based compensation
impact gross margin, research and development expenses, and sales, general and administrative expenses.
We estimated the fair value of our stock-based awards to employees using the Black-Scholes-Merton option
pricing model, which requires the use of input assumptions, including expected volatility, expected life, expected
dividend rate, and expected risk-free rate of return. The assumptions for expected volatility and expected life are
the two assumptions that significantly affect the grant date fair value. Stock-based compensation expense
recognized during a period is based on the higher of the grant-date fair value of the portion of share-based
payment awards that is ultimately expected to vest, or actually vest, during the period. Compensation expense for
all share-based payment awards was recognized using the straight-line attribution method reduced for estimated
forfeitures.
We estimate volatility based on our recent historical volatility and the volatilities of our competitors who are
in the same industry sector with similar characteristics (“guideline” companies) because of the lack of historical
realized volatility data on our business. We use the simplified calculation of expected life described in the
Securities and Exchange Commission’s Staff Accounting Bulletin 107, due to changes in the vesting terms and
contractual life of current option grants compared to our historical grants. If we determined that another method
used to estimate expected volatility or expected life was more reasonable than our current methods, or if another
method for calculating these input assumptions was prescribed by authoritative guidance, the fair value
calculated for share-based awards could change significantly. Higher volatility and longer expected lives result in
an increase to share-based compensation determined at the date of grant. In addition, Statement No. 123(R)
requires us to develop an estimate of the number of share-based awards that will be forfeited due to employee
turnover. Prior to the fourth quarter of fiscal 2007, we did not have sufficient historical forfeiture experience
related to our own stock-based awards and therefore, estimated our forfeitures based on the average of our own
fiscal 2006 forfeiture rate and historical forfeiture rates for Advanced Micro Devices, Inc. (AMD), as we
believed these forfeiture rates to be the most indicative of our own expected forfeiture rate. Beginning the fourth
quarter of fiscal 2007, we estimated forfeitures based on the weighted average of our own fiscal 2007 and 2006
forfeiture rates. Statement 123(R) requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those estimates.
48
Results of Operations
Total Net Sales for Fiscal 2007, Fiscal 2006 and Fiscal 2005
The following is a summary of our total net sales for fiscal 2007, fiscal 2006 and fiscal 2005.
Year Ended
Dec. 30, 2007 Dec. 31, 2006 Dec. 25, 2005
(in thousands)
Total net sales ............................................. $2,500,813 $2,579,274 $2,002,805
Total Net Sales Comparison for Fiscal 2007 and Fiscal 2006
Total net sales of approximately $2,500.8 million in fiscal 2007 decreased three percent compared to total
net sales in fiscal 2006. The decrease in total net sales was primarily attributable to an approximately 10 percent
decrease in blended ASPs (defined as total net sales divided by total unit shipments), which was partially offset
by an approximately seven percent increase in unit shipments. The decrease in blended ASPs was primarily the
result of unusually high price declines in the overall semiconductor memory industry during fiscal 2007. We
believe our increase in unit shipments resulted in large part from our increased share in the NOR segment of the
Flash memory market. We also believe that increased sales of MirrorBit products, which rose from
approximately 50 percent of total net sales in fiscal 2006 to approximately 71 percent of total net sales in fiscal
2007, were the primary reason for our increasing share of the NOR segment of the Flash memory market. Under
another measure, our ASP per bit (defined as total net sales divided by total Flash memory bits shipped) declined
approximately 38 percent in fiscal 2007 compared to fiscal 2006 also reflecting the unusually high price declines
in the overall semiconductor memory industry during fiscal 2007.
Total Net Sales Comparison for Fiscal 2006 and Fiscal 2005
Total net sales of approximately $2,579.3 million in fiscal 2006 reflected an increase of approximately 29
percent compared to total net sales in fiscal 2005. The increase in total net sales was primarily attributable to an
approximately 28 percent increase in unit shipments. We believe the increase was primarily driven by higher
demand for MirrorBit products which rose from approximately 23 percent of total net sales in fiscal 2005 to
approximately 50 percent of total net sales in fiscal 2006. Blended ASPs in fiscal 2006 as compared to fiscal
2005 were relatively flat. While we experienced an increase in ASPs of our MirrorBit products, the increases
were offset by a decrease in ASPs of our other products.
Net Sales Comparison—WSD and CSID for Fiscal 2007 and Fiscal 2006
Year Ended
Dec. 30, 2007 Dec. 31, 2006
Variance in
Dollars
Variance
in Percent
(in thousands)
Wireless Solutions Division (WSD) ..................... $1,362,508 $1,549,155 $(186,647) (12)%
Consumer, Set Top Box and Industrial Division (CSID) ..... 1,130,265 1,025,229 105,036 10%
Other ............................................. 8,040 4,890 3,150 64%
Total net sales ...................................... $2,500,813 $2,579,274 $ (78,461) (3)%
Net sales in our Wireless Solutions Division (WSD) decreased approximately 12 percent in fiscal 2007 as
compared to fiscal 2006. The overall unexpectedly high ASP degradation experienced in fiscal 2007 was focused
on the more competitive wireless market, resulting in our WSD net sales decline.
Net sales in our Consumer, Set Top Box and Industrial Division (CSID) increased 10 percent in fiscal 2007
as compared to fiscal 2006. The ASP decline was less severe in this business unit and the increase in CSID net
49
sales was due to a higher acceptance of our high density MirrorBit products by our customers in the CSID
business, which is a significant change from our historical trend of net sales of mid- and lower-density products.
In addition, CSID has been successful in expanding in the serial peripheral interface market with our MirrorBit
technology.
For fiscal 2007, our WSD business accounted for approximately 54 percent of our total net sales, and our
CSID business accounted for approximately 45 percent of our total net sales, as compared to 60 percent and 40
percent, respectively for fiscal 2006. We believe a combination of business conditions in the overall Flash
memory market and our efforts to sell our products containing MirrorBit technology led to the large percentage
shift between our two primary business units.
Gross Margin; Operating Expenses; Interest and Other Income (Expense), Net; Interest Expense and
Income Taxes Benefit
The following is a summary of gross margin; operating expenses; interest and other income, net; interest
expense and (benefit) provision for income taxes for fiscal 2007, fiscal 2006 and fiscal 2005.
Year Ended
Dec. 30, 2007 Dec. 31, 2006 Dec. 25, 2005
(in thousands)
Net sales .................................................. $2,500,813 $2,579,274 $2,002,805
Cost of sales ............................................... 2,065,143 2,063,639 1,809,929
Gross margin ............................................... 17% 20% 10%
Research and development .................................... 436,785 342,033 292,926
Sales, general and administrative ............................... 239,317 264,358 184,833
Operating loss .............................................. (240,432) (90,756) (284,883)
Interest and other income (expense), net .......................... 32,595 11,681 3,173
Interest expense ............................................. (80,803) (70,903) (45,032)
Income taxes benefit ......................................... 25,144 2,215 22,626
The decrease in gross margin in fiscal 2007 was primarily due to the unusually high price declines in the
flash memory industry. Our ASP per bit declined by 38 percent in fiscal 2007 as compared to fiscal 2006. During
fiscal 2007, we reduced our cost per bit (defined as total cost of sales divided by total bits shipped) by 36 percent
as compared to fiscal 2006, as we executed cost reduction plans that included increased productivity and output
of internal wafer fabs, improvement of cumulative product yields, test time reductions and price negotiations
with external suppliers. However, the significant reduction in our cost per bit was not sufficient to offset the rate
of decline in ASP per bit during fiscal 2007. This resulted in a decline in our gross margin.
The increase in gross margin in fiscal 2006 was primarily due to an increase in the sales of our higher
margin MirrorBit products and improved factory utilization. MirrorBit sales represented approximately 50
percent of sales in fiscal 2006 compared to approximately 23 percent of sales in fiscal 2005.
Research and development expenses of approximately $436.8 million in fiscal 2007 reflected an increase of
28 percent compared to approximately $342.0 million in fiscal 2006. The increase in research and development
expense in fiscal 2007 was primarily due to an increase in 300-millimeter development costs at SP1 and the SDC,
which together represented approximately 66 percent of the increase for fiscal 2007. During fiscal 2007,
development costs from SP1 were included in research and development expenses, which in part caused the
increase from fiscal 2006 research and development expenses. Also, approximately 20 percent of the increase
was due to higher labor costs during fiscal 2007, primarily related to increased headcount during the period, and
approximately 12 percent of the increase was due to a gain on the sale of our 200-millimeter equipment of
approximately $11.5 million in fiscal 2006 with no comparable gain in fiscal 2007. We expect research and
development expenses to decrease as a percent of net sales in fiscal 2008.
50
Research and development expenses of approximately $342.0 million in fiscal 2006 increased 17 percent
compared to approximately $292.9 million in fiscal 2005. Approximately 40 percent of the increase was due to
an increase in 300-millimeter development costs in SDC in fiscal 2006, offset in part by a gain on the sale of our
200-millimeter equipment of approximately $11.5 million. Also, approximately 30 percent of the increase was
due to higher labor costs during fiscal 2006, primarily related to increased headcount during the period and the
impact of an extra work week in fiscal 2006. Research and development expense included $4.7 million of stock-
based compensation expense in fiscal 2006. We did not have a comparable charge for the corresponding period
of fiscal 2005.
Sales, general and administrative expenses of approximately $239.3 million in fiscal 2007 decreased
9 percent compared to approximately $264.4 million in fiscal 2006. Approximately 60 percent of the decrease
was due to lower information technology and other administrative expenses as a result of the reduction in
services provided by AMD. Since fiscal 2006, we have expanded our administrative functions and significantly
reduced our reliance on administrative services provided by AMD. Also, approximately 24 percent of the
decrease was due to outside consulting charges that were primarily related to operational efficiency initiatives
incurred in fiscal 2006 which were not incurred in fiscal 2007. We expect sales, general and administrative
expenses will be approximately flat as a percent of net sales in fiscal 2008.
Sales, general and administrative expenses of approximately $264.4 million in fiscal 2006 increased 43
percent compared to approximately $184.8 million in fiscal 2005. The increase was primarily due to expenses
incurred as a result of the formation of our own sales force and additional information technology, legal and
consulting fees incurred as a new public entity. These additional costs accounted for approximately 73 percent of
the increase in fiscal 2006. Sales, general and administrative expense included $7.0 million of stock-based
compensation expense in fiscal, 2006. We did not have a comparable charge for the corresponding period of
fiscal 2005.
Interest and other income (expense), net, increased by $20.9 million in fiscal 2007 compared to fiscal 2006,
primarily due to a $13.9 million decrease in loss on early extinguishment of debt and a $6.3 million increase in
interest income for fiscal 2007 due to the combined effect of increases in our invested cash, cash equivalents and
marketable securities balances, and an increase in our average investment portfolio yield of approximately 0.4
percent. The increase in interest and other income (expense), net for fiscal 2007 was also partially due to a $7.5
million gain realized on the sale of land in Asia in the second quarter of fiscal 2007 as compared to a $6.9 million
gain on the sale of marketable securities in the second quarter of fiscal 2006.
Interest and other income (expense), net increased by $8.5 million in fiscal 2006 compared to fiscal 2005,
primarily due to an increase of $18.7 million of interest income generated from a portion of the proceeds from
our Senior Secured Term Loan Facility and initial public offering in December 2005 that was invested in cash
equivalents and marketable securities, and $6.9 million of realized gain from the sale of marketable securities.
This increase was partially offset by a $17.3 million loss on early extinguishment of debt as a result of the
repurchase and cancellation of the 12.75% Senior Subordinated Notes.
Interest expense increased by approximately $9.9 million in fiscal 2007 as compared to fiscal 2006,
primarily due to the increase in average debt balances. The increase in the debt balance was primarily attributable
to a borrowing of $500.0 million under the Senior Secured Term Loan Facility during the fourth quarter of fiscal
2006, subsequently replaced by the $625.0 million Senior Secured Floating Rate Notes during the second quarter
of fiscal 2007, and a borrowing of $256.5 million under our Spansion Japan 2007 Credit Facility in 2007. The
increase in interest expense incurred was partially offset by approximately $16.9 million of interest capitalized
related to the build out of SP1, an approximately $8.2 million reduction in interest expense related to an
adjustment to a capital lease obligation during fiscal 2007, and a lower average interest rate on our debt portfolio.
The average interest rates for fiscal 2007 were 7.58 percent as compared to 7.85 percent for fiscal 2006. We do
not anticipate interest capitalization after the first quarter of fiscal 2008 due to the expected completion of the
build out of SP1 during that quarter.
51
Interest expense increased by $25.9 million in fiscal 2006 as compared to fiscal 2005, primarily due to the
additional interest expense on the 11.25% Senior Notes and 12.75% Senior Subordinated Notes issued by
Spansion LLC, our wholly owned operating company subsidiary, at the end of the fourth quarter of fiscal 2005.
The Senior Subordinated Notes were repurchased in the second quarter of fiscal 2006 in connection with the
issuance of our 2.25% Exchangeable Senior Subordinated Debentures. The increase in fiscal 2006 was also due
to the additional interest expense incurred on the borrowing of $500.0 million under the Senior Secured Term
Loan Facility in the fourth quarter of fiscal 2006.
We recorded income tax benefits of approximately $25.1 million in fiscal 2007, approximately $2.2 million
in fiscal 2006, and approximately $22.6 million in fiscal 2005.
The benefit for income taxes recorded for fiscal 2007 differs from the benefit for income taxes that would be
derived by applying a U.S. statutory 35 percent rate to the loss before income taxes primarily due to our inability
to benefit from U.S. operating losses due to lack of a history of earnings, a decrease of $21.0 million in the
valuation allowance associated with deferred tax assets of our Japanese subsidiary and income that was incurred
and tax effected in foreign jurisdictions with different tax rates.
The decrease of $21.0 million in the valuation allowance associated with deferred tax assets of our Japanese
subsidiary was recorded due to our change in judgment about the realizability of our Japanese deferred tax assets.
This amount included the effect of the change in the beginning of the year balance of the valuation allowance that
will be realized in future years, and the portion of the valuation allowance that was recognized in the current year
as part of the effective tax rate.
The benefit for income taxes recorded for fiscal 2006 and 2005 differs from the benefit for income taxes that
would be derived by applying a U.S. statutory 35 percent rate to the loss before income taxes primarily due to our
inability to benefit from U.S. operating losses due to lack of a history of earnings, and income that was incurred
and tax effected in foreign jurisdictions with different tax rates.
As of December 30, 2007, we recorded a valuation allowance of approximately $238.2 million against our
U.S. deferred tax assets, net of deferred tax liabilities. This valuation allowance offsets all of our net U.S.
deferred tax assets. As of December 30, 2007, we have also recorded valuation allowances of approximately
$35.5 million against various foreign deferred tax assets for which we believe it is not more likely than not that
they will be realized.
52
Other Items
In the second quarter of fiscal 2006, we began selling our products directly to AMD’s former customers and
customers not served solely by Fujitsu. The following table summarizes net sales by geographic areas for the
periods presented:
Year Ended
Dec. 30, 2007 Dec. 31, 2006 Dec. 25, 2005
(in thousands)
Geographical sales(1):
Net sales to end customers(2):
North America ..................................... $ 295,632 $ 174,930 $
China ............................................ 658,205 479,040
Korea ............................................ 260,854 282,596
EMEA ........................................... 333,430 312,114
Others ............................................ 79,132 61,799
Net sales to related parties:
United States (net sales to AMD)(3) ..................... 336,172 1,114,150
Japan (net sales to Fujitsu) ........................... 873,560 932,623 888,655
Total ..................................................... $2,500,813 $2,579,274 $2,002,805
(1) Geographical sales are based on the customer’s bill-to location.
(2) Net sales to end customers represent sales since the end of the first quarter of fiscal 2006 to AMD’s former
customers and customers not served solely by Fujitsu.
(3) For fiscal 2006, these represent sales during the first quarter.
The impact on our operating results from changes in foreign currency exchange rates has not been material,
principally because our expenses denominated in yen are generally comparable to our sales denominated in yen,
and we enter into foreign currency exchange contracts to mitigate our exposure when yen denominated expenses
and sales are not comparable.
53
Contractual Obligations
The following table summarizes our contractual obligations at December 30, 2007. The table is
supplemented by the discussion following the table.
Total 2008 2009 2010 2011 2012
2013 and
Beyond
(in thousands)
Senior Secured Floating Rate
Notes ................... $ 625,000 $ — $ — $ — $ — $ — $ 625,000
Spansion Japan 2007 Credit
Facility ................. 256,503 61,561 82,081 112,861
Senior Notes ............... 250,000 —————250,000
Exchangeable Senior
Subordinated Debentures . . . 207,000 —————207,000
Capital lease obligations ...... 74,012 33,092 25,616 8,774 6,530
Other Credit Facility—
Subsidiaries .............. 7,433 7,143 290 — — —
Total principal contractual
obligations .............. 1,419,948 101,796 107,987 121,635 6,530 1,082,000
Operating leases ............ 25,511 12,888 8,085 2,205 805 625 903
Unconditional purchase
commitments(1) ........... 612,305 313,644 190,061 61,510 31,845 15,025 220
Interest payments on debt and
capital leases ............. 592,089 96,451 93,312 88,268 85,509 85,274 143,275
Total contractual obligations . . $2,649,853 $524,779 $399,445 $273,618 $124,689 $100,924 $1,226,398
(1) Unconditional purchase commitments include agreements to purchase goods or services that are enforceable
and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be
purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.
Unconditional purchase commitments exclude agreements that are cancelable without penalty. These
agreements are related principally to inventory and other items.
Senior Secured Floating Rate Notes
In May 2007, Spansion LLC, issued $625.0 million aggregate principal amount of the Senior Secured
Floating Rate Notes due 2013 (the Notes). Interest on the Notes accrues at a rate per annum, reset quarterly,
equal to the three-month London Interbank Offered Rate plus 3.125 percent. Interest is payable on
March 1, June 1, September 1 and December 1 of each year beginning September 1, 2007 until the maturity date
of June 1, 2013. As of December 30, 2007, the Notes bear interest at approximately 8.25 percent.
In connection with the issuance of the Notes, we, Spansion LLC and Spansion Technology Inc. (STI), our
indirect wholly owned subsidiary, executed a pledge and security agreement pursuant to which and subject to
exceptions specified therein, the Notes are secured by a first priority lien on all of Spansion LLC’s inventory
(excluding returned inventory), equipment and real property and proceeds thereof (excluding receivables or
proceeds arising from sales of inventory in the ordinary course of business), presently owned or acquired in the
future by Spansion LLC and by each of the current and any future guarantors. The Notes are also secured by a
second-priority lien that is junior to the liens securing Spansion LLC’s Revolving Credit Agreement dated as of
September 19, 2005, as amended, on substantially all other real and personal property and proceeds thereof,
including receivables or proceeds arising from sales of inventory in the ordinary course of business presently
owned or acquired in the future by us and by each of the current and any future guarantors. The Notes are further
secured by certain deeds of trust related to real property owned by Spansion LLC in California and Texas. As of
54
December 30, 2007, the Notes are collateralized by a first priority lien on our inventory and property, plant and
equipment with a total net book value of approximately $1.2 billion, and by a second priority lien on our
accounts receivable with a net book value of approximately $217.0 million.
Upon the occurrence of a change of control of Spansion LLC, holders of the Notes may require Spansion
LLC to repurchase the Notes for cash equal to 101 percent of the aggregate principal amount to be repurchased
plus accrued and unpaid interest. Beginning June 1, 2008, Spansion LLC may redeem all or any portion of the
Notes, at any time or from time to time at redemption prices specified therein. Prior to June 1, 2008, Spansion
LLC may redeem up to 35 percent of the Notes from the proceeds of certain equity offerings at a redemption
price of 100 percent.
Certain events are considered “Events of Default,” which may result in the accelerated maturity of the
Notes, including:
Spansion LLC’s failure to pay when due the principal or premium amount on any of the Notes at
maturity, upon acceleration, redemption, optional redemption, required repurchase or otherwise;
Spansion LLC’s failure to pay interest on any of the Notes for 30 days after the date when due;
Spansion LLC’s or the guarantors’ failure to comply with certain restrictions on Spansion LLC’s or
Guarantors’ ability to merge, consolidate or sell substantially all of its assets;
Spansion LLC’s failure to perform or observe any other covenant or agreement in the Notes or in the
Indenture for a period of 45 days after receiving notice of such failure;
A default by Spansion LLC or any restricted subsidiary (as defined in the Indenture) under any
indebtedness that results in acceleration of such indebtedness, or the failure to pay any such
indebtedness at maturity, in an aggregate principal amount in excess of $50.0 million (or its foreign
equivalent at the time);
If any judgment or judgments for the payment of money in an aggregate amount in excess of $50.0
million (or its foreign equivalent at the time) is rendered against Spansion LLC, the guarantors or any
significant subsidiary and is not waived, satisfied or discharged for any period of 60 consecutive days
during which a stay of enforcement is not in effect;
Certain events of bankruptcy, insolvency or reorganization with respect to Spansion LLC or any
significant subsidiary;
If any note guaranty ceases to be in full force and effect, other than in accordance with the terms of the
Indenture, or a guarantor denies or disaffirms its obligations under its note guaranty, other than in
accordance with the terms of the Indenture; or
Any lien securing the collateral underlying the Notes at any time ceases to be in full force and effect,
and does not constitute a valid and perfected lien on any material portion of the collateral intended to be
covered thereby, if such default continues for 30 days after notice.
Spansion Japan 2007 Credit Facility
On March 30, 2007, Spansion Japan, our indirect wholly owned subsidiary, entered into an agreement with
certain Japanese financial institutions that provides Spansion Japan with a committed 48.4 billion yen senior
secured term loan facility (