Freescale Semiconductor Reports Third Quarter 2005 Results
AUSTIN, Texas--Oct. 2, 20050, 2005--Freescale Semiconductor today reported its financial results for the third quarter ended September 30, 2005. Third quarter 2005 highlights include:-- Net sales of $1.45 billion;
-- Gross margin of 43.3%;
-- Net earnings of $164 million;
-- Diluted earnings per share of $.38 and;
-- Cash flow from operations of $384 million;
-- Also during the quarter, Freescale announced that its Board of Directors has authorized the company to repurchase up to $500 million of its outstanding shares of common stock.
Third quarter 2005 results include a $26 million pre-tax gain associated with the sale of the company's timing solutions business and a $10 million write-down of receivables the company determined were impaired due to the bankruptcy of the U.S. subsidiaries of the Delphi Corporation. Excluding the gain on sale and the receivable write-down, sales were $1.46 billion, gross margin was 43.7%, and diluted earnings per share were $.35.
"Our team turned in a good performance during the quarter," said Chairman and CEO Michel Mayer. "We have a lot of work left to do, but our third quarter results clearly indicate that we are on the right track to transform Freescale."
Third Quarter Overview
Sales
Net sales in the third quarter of 2005 were $1.45 billion, compared to $1.47 billion in the second quarter of 2005 and $1.43 billion in the third quarter of 2004.
Gross Margin
Gross margin in the third quarter of 2005 was 43.3%, compared to 41.6% in the second quarter of 2005 and 39.0% in the third quarter of 2004. Gross margin in the third quarter of 2005 benefited from higher capacity utilization along with continued cost controls and operational efficiencies.
Operating Earnings
Operating earnings for the third quarter of 2005 were $153 million or 10.6% of net sales. The company reported operating earnings of $139 million for the second quarter of 2005 and operating earnings of $81 million for the third quarter of 2004.
Net Earnings
Net earnings for the third quarter of 2005 were $164 million, or $.38 per fully diluted share, compared to $122 million or $.29 per fully diluted share in the second quarter of 2005 and $57 million or $.15 per fully diluted share in the third quarter of 2004.
Operating Highlights
Cash, cash equivalents, short-term investments and marketable securities included in investments in the third quarter of 2005 increased sequentially by $327 million and totaled $2.9 billion. Capital expenditures were $113 million. Research and development expenses totaled $274 million and included in-process research and development charges associated with the acquisition of Seaway Networks. Selling, general and administrative expenses were $201 million.
Transportation and Standard Products
The Transportation and Standard Products Segment reported net sales of $637 million in the third quarter of 2005, compared to $667 million in the second quarter of 2005 and $650 million in the third quarter of 2004. The segment's operating earnings were $70 million (11.0% of net sales) in the third quarter of 2005, compared to $87 million in the second quarter of 2005 and $74 million in the third quarter of 2004. Excluding the impact of the write down of receivables, third quarter revenues for the segment were $647 million and operating profit was $80 million (12.4% of net sales).
Networking and Computing Systems
The Networking and Computing Systems Segment reported net sales of $360 million, compared to $387 million in the second quarter of 2005 and $361 million in the third quarter of 2004. The segment's operating earnings were $76 million (21.1% of net sales) in the third quarter of 2005, compared to $94 million in the second quarter of 2005 and $58 million in the third quarter of 2004.
Wireless and Mobile Solutions
The Wireless and Mobile Solutions Segment reported net sales of $438 million in the third quarter of 2005, compared to $401 million in the second quarter of 2005 and $404 million in the third quarter of 2004. The segment generated operating income of $31 million (7.1% of net sales) in the third quarter of 2005, compared to operating income of $5 million in the second quarter of 2005 and an operating loss of ($9) million in the third quarter of 2004.
Other Operations
Other Operations includes the Metrowerks software business, other miscellaneous businesses and any factories in production start-up, including the Crolles 300 millimeter facility. It also includes any restructuring charges, separation expenses and miscellaneous income and expenses not attributable to any one of our business segments.
Other Operations reported an operating loss of ($24) million in the third quarter of 2005 compared to operating losses of ($47) million in the second quarter of 2005 and ($42) million in the third quarter of 2004.
Fourth Quarter 2005 Outlook
For the fourth quarter of 2005, the company expects to report revenues of $1.425 to $1.525 billion. Gross margins for the fourth quarter of 2005 are expected to increase slightly from the level reported in the third quarter of 2005.
Conference Call and Webcast
Freescale's quarterly earnings call is scheduled to begin at 4:00 p.m. Central time (USA) on Thursday, October 20, 2005. The company will offer a live webcast of the conference call over the Internet at www.freescale.com/investor.
The company uses certain non-GAAP financial measures in analyzing financial results because they are useful to investors and management in evaluating the company's ongoing operational performance. These financial measures facilitate making period-to-period comparisons exclusive of the impact of certain events, such as the separation from Motorola Inc. and restructuring charges. In addition, presentation of these non-GAAP financial measures enables investors to evaluate the company's performance under both the GAAP and pro forma measures that management uses to evaluate the company's performance. Where non-GAAP financial measures have been included in this press release, the company has reconciled the GAAP to the non-GAAP measures in the table below.
Caution Regarding Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as expects, anticipates, plans, believes, estimates, will or words of similar meaning and include statements regarding the plans and expectations for the upcoming quarter, the year and the future. Forward-looking statements are based on management's current expectations and assumptions, including but not limited to the following general underlying assumptions: the market for semiconductor products will grow over the long term; new technologies and applications will continue to be developed; and manufacturers of automotive, networking and wireless products will increasingly look to semiconductor providers for platform-level products and systems-on-a-chip. These assumptions are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and could cause actual outcomes to differ materially from the expectations of the company and its management. These uncertainties, risks and changes include, but are not limited to: a decline in market demand for our products; the loss of a major customer, or a substantial reduction in sales to any of our major customers; our ability to compete in products and prices in the intensely competitive and cyclical semiconductor industry; our reliance on, and the anticipated benefits of, third-party design and/or manufacturing relationships; our ability to license intellectual property from third parties and to protect the intellectual property we own; economic, social and political conditions in the countries in which we operate, or our customers or suppliers operate, including security risks, health conditions, possible disruption in transportation networks and fluctuations in foreign currency exchange rates; and the other risk factors discussed from time to time by the company in reports filed with the Securities and Exchange Commission. We urge you to carefully consider these and other risks which are described in the company's Form 10-K for the year ended December 31, 2004 and in the company's other SEC filings. The company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
About Freescale
Freescale Semiconductor Inc. is a global leader in the design and manufacture of embedded semiconductors for the automotive, consumer, industrial, networking and wireless markets. Freescale became a publicly traded company in July 2004 after more than 50 years as part of Motorola, Inc. The company is based in Austin, Texas, and has design, research and development, manufacturing or sales operations in more than 30 countries. Freescale, a member of the S&P 500(R), is one of the world's largest semiconductor companies with 2004 sales of $5.7 billion (US). www.freescale.com
Freescale Semiconductor Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In millions, except per share amounts)
Three Months Ended
--------------------------------------------
September 30, October 2, July 1,
2005 2004 2005
-------------- -------------- --------------
Net sales $ 1,450 $ 1,430 $ 1,472
Cost of sales 822 872 860
-------------- -------------- --------------
Gross margin 628 558 612
-------------- -------------- --------------
Selling, general and
administrative 201 230 202
Research and development 274 229 266
Reorganization of
businesses and other -- (1) --
Separation expenses -- 19 5
-------------- -------------- --------------
Operating earnings 153 81 139
-------------- -------------- --------------
Other
Interest expense, net -- (5) (1)
Other, net 25 (5) (2)
-------------- -------------- --------------
Total other 25 (10) (3)
-------------- -------------- --------------
Earnings before
income taxes 178 71 136
Income tax expense 14 14 14
-------------- -------------- --------------
Net earnings $ 164 $ 57 $ 122
-------------- -------------- --------------
Net earnings
per common share:
-------------------------
Basic $ 0.40 $ 0.15 $ 0.30
Diluted $ 0.38 $ 0.15 $ 0.29
Weighted average common
shares outstanding:
-------------------------
Basic 408 384 403
Diluted 428 390 420
Freescale Semiconductor Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
September 30, July 1, December 31,
2005 2005 2004
------------- ------------- -------------
(Unaudited) (Unaudited)
ASSETS
Cash, cash equivalents and
short-term investments $ 1,485 $ 2,555 $ 2,374
Accounts receivable, net 687 657 636
Inventories 637 671 742
Deferred income taxes 23 24 26
Other current assets 169 159 183
Assets held-for-sale 42 43 45
------------- ------------- -------------
Total current assets 3,043 4,109 4,006
------------- ------------- -------------
Property, plant and
equipment, net 2,006 2,051 2,207
Investments 1,413 14 31
Other assets 417 420 389
------------- ------------- -------------
Total assets $ 6,879 $ 6,594 $ 6,633
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 2 $ 2 $ 2
Accounts payable 429 411 474
Accrued liabilities
and other 583 505 669
------------- ------------- -------------
Total other
Total current liabilities 1,014 918 1,145
------------- ------------- -------------
Long-term debt 1,251 1,269 1,269
Deferred income taxes 28 27 26
Other liabilities 237 242 257
Total stockholders' equity 4,349 4,138 3,936
------------- ------------- -------------
Total liabilities and
stockholders' equity $ 6,879 $ 6,594 $ 6,633
------------- ------------- -------------
Freescale Semiconductor Inc. and Subsidiaries
Condensed Consolidated Segment Information
(Unaudited)
(In millions)
Three Months Ended
-----------------------------------------
September 30, October 2, July 1,
2005 2004 2005
------------- ------------- -------------
Net Sales:
Transportation and
Standard Products $ 637 $ 650 $ 667
Networking and
Computing Systems 360 361 387
Wireless and
Mobile Solutions 438 404 401
Other 15 15 17
--------------------------- -------------
Segment totals $ 1,450 $ 1,430 $ 1,472
------------- ------------- -------------
Operating earnings:
Transportation and
Standard Products $ 70 $ 74 $ 87
Networking and
Computing Systems 76 58 94
Wireless and
Mobile Solutions 31 (9) 5
Other (24) (42) (47)
------------- ------------- -------------
Segment totals $ 153 $ 81 $ 139
------------- ------------- -------------
Freescale Semiconductor Inc. and Subsidiaries
Reconciliation of Non-GAAP Measures
(Unaudited)
(In millions)
Three Months Ended
-----------------------------------------
September 30, October 2, July 1,
2005 2004 2005
------------- ------------- -------------
Net sales $ 1,450 $ 1,430 $ 1,472
Add: Receivables impairment 10 -- --
------------- ------------- -------------
Adjusted Net sales $ 1,460 $ 1,430 $ 1,472
------------- ------------- -------------
Gross margin $ 628 $ 558 $ 612
Add: Receivables impairment 10 -- --
------------- ------------- -------------
Adjusted gross margin $ 638 $ 558 $ 612
------------- ------------- -------------
Reorganization and
Separation Expenses
(Reversals)
Total reorganization of
business and other expenses
(reversals) $ -- $ (1) $ --
Separation expenses -- 19 5
------------- ------------- -------------
Total reorganization of
business and separation
expenses $ -- $ 18 $ 5
------------- ------------- -------------
Net earnings $ 164 $ 57 $ 122
Add: Total reorganization
and separation expenses -- 18 5
Add: Receivable impairment 10 -- --
Less: Gains on sales of
business (26) -- --
Add: Income tax (benefit) 1 (4) (1)
------------- ------------- -------------
Adjusted net earnings $ 149 $ 71 $ 126
------------- ------------- -------------
Diluted shares 428 390 420
Adjusted net earnings
per diluted share $0.35 $0.18 $0.30
September 30, July 1, December 31,
2005 2005 2004
------------- ------------- -------------
Cash and cash equivalents $ 299 $ 262 $ 382
Short-term investments 1,186 2,293 1,992
------------- ---------------------------
Total cash, cash equivalents
and short-term investments $ 1,485 $ 2,555 $ 2,374
------------- ------------- -------------