Freescale Semiconductor Reports Fourth Quarter and Fiscal Year 2005 Results
AUSTIN, Texas--Jan. 1, 20069, 2006--Freescale Semiconductor today reported its financial results for the fourth quarter and fiscal year ended December 31, 2005.The results include the reclassification of certain expenses to align the company's results with the adoption of FAS 123 in the first quarter of 2006. The reclassifications have no impact on reported revenue, net earnings or earnings per share.
Fourth quarter and fiscal year highlights include:
Fourth Quarter 2005
-- Net sales of $1.48 billion;
-- Gross margin of 45.4% (before reclassification of certain expenses described below and 45.0% as reported after reclassification);
-- Operating earnings of $202 million or 13.7% of net sales;
-- Net earnings of $192 million;
-- Diluted earnings per share of $.45.
Fiscal Year 2005
-- Net sales of $5.84 billion;
-- Gross margin of 42.6% (before the reclassification of certain line items and 42.2% as reported after reclassification);
-- Operating earnings of $600 million or 10.3% of net sales;
-- Net earnings of $563 million;
-- Diluted earnings per share of $1.33;
-- Repurchase of 4 million shares of the company's common stock.
"We delivered on our commitments in 2005," said Michel Mayer, chairman and CEO. "We are pleased with this performance, but clearly are not yet satisfied. We are focusing on a number of initiatives to enhance operating results and grow revenues in 2006 and beyond."
Fourth Quarter and Fiscal Year 2005 Overview
Fourth quarter 2005 results include an $8 million reversal of a write-down of receivables the company determined were impaired due to the bankruptcy of the U.S. subsidiaries of the Delphi Corporation originally recorded in the third quarter of 2005.
Sales
Net sales in the fourth quarter of 2005 were $1.48 billion, compared to $1.45 billion in the third quarter of 2005 and $1.43 billion in the fourth quarter of 2004. For the year, net sales were $5.84 billion compared to $5.72 billion in 2004.
Operating Earnings
Operating earnings for the fourth quarter of 2005 were $202 million or 13.7% of net sales compared to $152 million for the third quarter of 2005 and operating earnings of $15 million for the fourth quarter of 2004, inclusive of fourth quarter 2004 restructuring charges and separation expenses of $84 million.
Net Earnings
Net earnings for the fourth quarter of 2005 were $192 million, or $.45 per fully diluted share, compared to $164 million or $.38 per fully diluted share in the third quarter of 2005 and $5 million or $.01 per fully diluted share in the fourth quarter of 2004.
Operating Highlights
Cash, cash equivalents, short-term investments and marketable securities included in investments in the fourth quarter of 2005 increased sequentially by $143 million, inclusive of share repurchases of $103 million, and totaled $3.0 billion.
During the fourth quarter of 2005, the company repurchased 4 million shares of its common stock at an average price of $25.49 per share. Capital expenditures for the fourth quarter were $147 million and were $491 million for 2005.
Line Item Reclassification
The results include the reclassification of certain expenses to align the company's results with the adoption of FAS 123 in the first quarter of 2006. The reclassifications have no impact on reported revenue, net earnings or earnings per share.
The company has reclassified incentive compensation, technology and other related expenses from Cost of Goods Sold and Selling, General & Administrative (SG&A) to Cost of Goods Sold, Research & Development (R&D) and SG&A expense. The approximate line item impact as a percentage of sales from the reclassifications for fiscal 2005 lowers gross margin by .4%, increases R&D expense by 2.3%, and lowers SG&A expense by 2.7%.
In addition, the company has reclassified certain consumer product-related revenues from its Transportation and Standard Products segment to the Wireless and Mobile Solutions segment to reflect organizational changes and has revised its manufacturing ownership model. The reclassifications result in a change to the revenue and operating margin of each segment.
Transportation and Standard Products
The Transportation and Standard Products segment reported net sales of $649 million in the fourth quarter of 2005, compared to $620 million in the third quarter of 2005 and $618 million in the fourth quarter of 2004. Excluding the impact of the reclassifications referenced above, net sales would have been $672 million in the fourth quarter of 2005, compared to $637 million in the third quarter of 2005 and $631 million in the fourth quarter of 2004.
The segment's operating earnings were $117 million in the fourth quarter of 2005 (18.0% of net sales), including the $8 million impact from the reversal of the Delphi receivable referenced earlier, compared to $73 million in third quarter of 2005 and $54 million in the fourth quarter of 2004. Excluding the impact of the reclassifications, the segment's operating earnings would have been $108 million (16.1% of net sales) in the fourth quarter of 2005, compared to $70 million in third quarter of 2005 and $56 million in the fourth quarter of 2004.
Networking and Computing Systems
The Networking and Computing Systems segment reported net sales of $338 million, compared to $360 million in the third quarter of 2005 and $314 million in the fourth quarter of 2004.
Operating income in the fourth quarter was $73 million (21.6% of net sales) compared to $69 million in the third quarter of 2005 and $34 million in the fourth quarter of 2004. Excluding the impact of the reclassifications, the segment's operating earnings were $65 million (19.2% of net sales) in the fourth quarter of 2005, compared to $76 million in the third quarter of 2005 and $28 million in the fourth quarter of 2004.
Wireless and Mobile Solutions
The Wireless and Mobile Solutions segment reported net sales of $476 million in the fourth quarter of 2005, compared to $455 million in the third quarter of 2005 and $478 million in the fourth quarter of 2004. Excluding the impact of the reclassifications, net sales would have been $453 million in the fourth quarter of 2005, compared to $438 million in the third quarter of 2005 and $465 million in the fourth quarter of 2004.
The segment generated operating income of $38 million (8.0% of net sales) in the fourth quarter of 2005, compared to operating income of $35 million in the third quarter of 2005 and $36 million in the fourth quarter of 2004. Excluding the impact of the reclassifications the segment generated operating income of $38 million (8.4% of net sales) in the fourth quarter of 2005, compared to operating income of $30 million in the third quarter of 2005 and $37 million in the fourth quarter of 2004.
Other Operations
Other operations reported an operating loss of ($26) million in the fourth quarter of 2005 compared to operating losses of ($25) million in the third quarter of 2005 and ($109) million in the fourth quarter of 2004, which included $84 million of separation and restructuring charges.
First Quarter 2006 Outlook
For the first quarter of 2006, the company expects to report revenues of $1.435 to $1.535 billion. Gross margins for the first quarter of 2006 are expected to be slightly up from the operational level reported in the fourth quarter of 2005, excluding the benefit of the Delphi reversal and the impact of stock option expense related to FAS 123.
During the first quarter of 2006, the company will begin expensing stock options in accordance with FAS 123. The company expects the expense associated with stock options to be approximately $.04 per share in the first quarter.
Conference Call and Webcast
Freescale's quarterly earnings call is scheduled to begin at 4:00 p.m. Central time (USA) on Thursday, January 19, 2006. 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., recent accounting pronouncements 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. 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 2005 sales of $5.8 billion (US). www.freescale.com.
Freescale Semiconductor Inc. and Subsidiaries
Condensed Consolidated and Combined Statements of Operations
(Unaudited)
(In millions, except per share amounts)
Three Months Ended
-------------------------
December 31, December 31,
2005 2004
------------ ------------
Net sales $ 1,479 $ 1,428
Cost of sales 814 922
------------ ------------
Gross margin 665 506
------------ ------------
Selling, general and administrative 171 166
Research and development 294 274
Reorganization of businesses and other (2) 46
Separation expenses -- 5
------------ ------------
Operating earnings 202 15
------------ ------------
Other
Interest income/(expense), net 9 (5)
Gains on sales of investments and
businesses, net -- --
Other, net (6) (4)
------------ ------------
Total other 3 (9)
------------ ------------
Earnings before income taxes 205 6
Income tax expense 13 1
------------ ------------
Net earnings $ 192 $ 5
------------ ------------
Earnings per common share:
--------------------------
Basic $ 0.47 $ 0.01
Diluted $ 0.45 $ 0.01
Weighted average common shares outstanding:
-------------------------------------------
Basic 409 400
Diluted 429 412
Freescale Semiconductor Inc. and Subsidiaries
Condensed Consolidated and Combined Statements of Operations
(In millions, except per share amounts)
Twelve Months Ended
-------------------------
December 31, December 31,
2005 2004
------------ ------------
(unaudited)
Net sales $ 5,843 $ 5,715
Cost of sales 3,377 3,617
------------ ------------
Gross margin 2,466 2,098
------------ ------------
Selling, general and administrative 652 637
Research and development 1,195 1,099
Reorganization of businesses and other 9 22
Separation expenses 10 74
------------ ------------
Operating earnings 600 266
------------ ------------
Other
Interest income/(expense), net 6 (31)
Gains on sales of investments and
businesses, net 26 41
Other, net (19) (13)
------------ ------------
Total other 13 (3)
------------ ------------
Earnings before income taxes 613 263
Income tax expense 50 52
------------ ------------
Net earnings $ 563 $ 211
------------ ------------
Earnings per common share:
--------------------------
Basic $ 1.39 $ 1.08
Diluted $ 1.33 $ 1.06
Weighted average common shares outstanding:
-------------------------------------------
Basic 405 195
Diluted 423 200
Pro forma earnings per common share:
------------------------------------
Basic $ 0.63
Diluted $ 0.62
Weighted average common shares outstanding:
-------------------------------------------
Basic 334
Diluted 339
Freescale Semiconductor Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
December 31, December 31,
2005 2004
------------ ------------
(unaudited)
ASSETS
Cash, cash equivalents and short-term
investments $ 1,421 $ 2,374
Accounts receivable, net 531 448
Inventories 647 742
Other current assets 352 403
Assets held-for-sale 15 45
------------ ------------
Total current assets 2,966 4,012
------------ ------------
Property, plant and equipment, net 2,035 2,207
Investments 1,616 31
Other assets 553 469
------------ ------------
Total assets $ 7,170 $ 6,719
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable & current portion
of capital leases $ 7 $ 2
Accounts payable 469 474
Accrued liabilities and other 663 693
------------ ------------
Total current liabilities 1,139 1,169
------------ ------------
Long-term debt 1,230 1,269
Other liabilities 354 345
Total stockholders' equity 4,447 3,936
------------ ------------
Total liabilities and stockholders' equity $ 7,170 $ 6,719
------------ ------------
Freescale Semiconductor Inc. and Subsidiaries
Condensed Consolidated and Combined Statements of Operations
(Unaudited)
(In millions, except per share amounts)
Before Reclassifications After Reclassifications
Three Months Ended Three Months Ended
------------------------- -------------------------
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net sales $ 1,479 $ 1,428 $ 1,479 $ 1,428
Cost of sales 807 914 814 922
------------ ------------ ------------ ------------
Gross margin 672 514 665 506
------------ ------------ ------------ ------------
Selling, general
and
administrative 215 204 171 166
Research and
development 255 244 294 274
Reorganization of
businesses and
other -- 46 (2) 46
Separation
expenses -- 5 -- 5
------------ ------------ ------------ ------------
Operating earnings 202 15 202 15
------------ ------------ ------------ ------------
Other
Interest
income/
(expense), net 9 (5) 9 (5)
Gains on sales of
investments
and businesses, net -- -- -- --
Other, net (6) (4) (6) (4)
------------ ------------ ------------ ------------
Total other 3 (9) 3 (9)
------------ ------------ ------------ ------------
Earnings before
income taxes 205 6 205 6
Income tax expense 13 1 13 1
------------ ------------ ------------ ------------
Net earnings $ 192 $ 5 $ 192 $ 5
------------ ------------ ------------ ------------
Earnings per
common share:
--------------
Basic $ 0.47 $ 0.01 $ 0.47 $ 0.01
Diluted $ 0.45 $ 0.01 $ 0.45 $ 0.01
Weighted average
common shares
outstanding:
----------------
Basic 409 400 409 400
Diluted 429 412 429 412
Freescale Semiconductor Inc. and Subsidiaries
Condensed Consolidated and Combined Statements of Operations
(In millions, except per share amounts)
Before Reclassifications After Reclassifications
Twelve Months Ended Twelve Months Ended
------------------------- -------------------------
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
------------ ------------ ------------ ------------
(unaudited) (unaudited)
Net sales $ 5,843 $ 5,715 $ 5,843 $ 5,715
Cost of sales 3,354 3,575 3,377 3,617
------------ ------------ ------------ ------------
Gross margin 2,489 2,140 2,466 2,098
------------ ------------ ------------ ------------
Selling, general
and
administrative 809 799 652 637
Research and
development 1,060 965 1,195 1,099
Reorganization of
businesses and
other 10 36 9 22
Separation
expenses 10 74 10 74
------------ ------------ ------------ ------------
Operating earnings 600 266 600 266
------------ ------------ ------------ ------------
Other
Interest income/
(expense), net 6 (31) 6 (31)
Gains on sales of
investments and
businesses, net 26 41 26 41
Other, net (19) (13) (19) (13)
------------ ------------ ------------ ------------
Total other 13 (3) 13 (3)
------------ ------------ ------------ ------------
Earnings before
income taxes 613 263 613 263
Income tax expense 50 52 50 52
------------ ------------ ------------ ------------
Net earnings $ 563 $ 211 $ 563 $ 211
------------ ------------ ------------ ------------
Earnings per
common share:
--------------
Basic $ 1.39 $ 1.08 $ 1.39 $ 1.08
Diluted $ 1.33 $ 1.06 $ 1.33 $ 1.06
Weighted average
common shares
outstanding:
----------------
Basic 405 195 405 195
Diluted 423 200 423 200
Pro forma earnings
per common share:
------------------
Basic $ 0.63 $ 0.63
Diluted $ 0.62 $ 0.62
Weighted average
common shares
outstanding:
----------------
Basic 334 334
Diluted 339 339
Freescale Semiconductor Inc. and Subsidiaries
Condensed Consolidated Segment Information
(Unaudited)
(In millions)
Before Reclassifications After Reclassifications
Three Months Ended Three Months Ended
------------------------- -------------------------
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net sales:
Transportation and
Standard Products $ 672 $ 631 $ 649 $ 618
Networking and
Computing Systems 338 314 338 314
Wireless and
Mobile Solutions 453 465 476 478
Other 16 18 16 18
------------ ------------ ------------ ------------
Segment totals $ 1,479 $ 1,428 $ 1,479 $ 1,428
------------ ------------ ------------ ------------
Operating
earnings:
Transportation and
Standard Products $ 108 $ 56 $ 117 $ 54
Networking and
Computing Systems 65 28 73 34
Wireless and
Mobile Solutions 38 37 38 36
Other (9) (106) (26) (109)
------------ ------------ ------------ ------------
Segment totals $ 202 $ 15 $ 202 $ 15
------------ ------------ ------------ ------------
Freescale Semiconductor Inc. and Subsidiaries
Condensed Consolidated and Combined Segment Information
(In millions)
Before Reclassifications After Reclassifications
Twelve Months Ended Twelve Months Ended
------------------------- -------------------------
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
------------ ------------ ------------ ------------
(unaudited) (unaudited)
Net sales:
Transportation and
Standard Products $ 2,637 $ 2,565 $ 2,566 $ 2,508
Networking and
Computing Systems 1,434 1,462 1,434 1,462
Wireless and
Mobile Solutions 1,704 1,623 1,775 1,680
Other 68 65 68 65
------------ ------------ ------------ ------------
Segment totals $ 5,843 $ 5,715 $ 5,843 $ 5,715
------------ ------------ ------------ ------------
Operating
earnings:
Transportation and
Standard Products $ 343 $ 231 $ 361 $ 262
Networking and
Computing Systems 305 243 285 273
Wireless and
Mobile Solutions 88 (87) 78 (96)
Other (136) (121) (124) (173)
------------ ------------ ------------ ------------
Segment totals $ 600 $ 266 $ 600 $ 266
------------ ------------ ------------ ------------