Freescale Semiconductor Reports Second Quarter 2006 Results
AUSTIN, Texas--July 20, 2006--Freescale Semiconductor , today reported its financial results for the second quarter ended June 30, 2006.Second quarter 2006 highlights include:
-- Net sales of $1.60 billion;
-- Gross margin of 46.0%;
-- Net earnings of $260 million;
-- Diluted earnings per share of $.61 including certain favorable one-time income tax items totaling $14 million, or $.03 per diluted share, and stock option expense of $14 million or $.03 per diluted share.
"As we celebrate the second anniversary of our IPO, the Freescale team continues to make solid progress on improving our operational performance and we are starting to see the benefit of our focus on accelerating revenue growth," said Michel Mayer, chairman and CEO.
Second Quarter 2006
Sales
Net sales in the second quarter of 2006 were $1.60 billion, compared to $1.53 billion in the first quarter of 2006 and $1.47 billion in the second quarter of 2005, representing sequential growth of 5% and year over year growth of 9%.
Net Earnings
Net earnings for the second quarter of 2006 were $260 million, or $.61 per diluted share, which included stock based compensation expense for stock options of $.03 per diluted share.
This compares to $212 million or $.50 per diluted share in the first quarter of 2006, including stock option expense, and $122 million or $.29 per diluted share, reported without stock option expense, in the second quarter of 2005. Net earnings benefited from increased sales and higher gross margin performance compared to both the prior quarter and the prior year.
During the second quarter of 2006, the company recorded $14 million in one-time, non-cash tax benefits associated with reducing its valuation allowance by $10 million in one of its foreign entities and a $4 million tax benefit associated with changes in tax legislation in the State of Texas.
Operating Earnings
Operating earnings for the second quarter of 2006 were $251 million or 15.7% of net sales compared to $207 million or 13.6% of net sales for the first quarter of 2006 and $137 million or 9.3% of sales for the second quarter of 2005.
Operating Highlights
Gross margin for the second quarter of 2006 was 46%, compared to 45.3% in the first quarter of 2006 and 41% in the second quarter of 2005. Gross margin benefited primarily from higher sales and improvements to the company's product mix.
During the second quarter of 2006, the company repurchased 3.2 million shares of its common stock. Capital expenditures for the second quarter were $227 million.
Cash, cash equivalents, short-term investments and marketable securities included in investments totaled $3.2 billion in the second quarter of 2006.
Transportation and Standard Products
The Transportation and Standard Products segment reported net sales of $697 million in the second quarter of 2006, compared to $653 million in the first quarter of 2006 and $651 million in the second quarter of 2005.
The segment's operating earnings were $144 million in the second quarter of 2006 (21% of net sales), compared to $129 million in the first quarter of 2006 and $75 million in the second quarter of 2005.
Networking and Computing Systems
The Networking and Computing Systems segment reported net sales of $370 million, compared to $351 million in the first quarter of 2006 and $387 million in the second quarter of 2005.
Operating earnings in the second quarter were $102 million (28% of net sales), compared to $81 million in the first quarter of 2006 and $87 million in the second quarter of 2005.
Wireless and Mobile Solutions
The Wireless and Mobile Solutions segment reported net sales of $514 million in the second quarter of 2006, compared to $506 million in the first quarter of 2006 and $417 million in the second quarter of 2005.
The segment generated operating earnings of $26 million (5% of net sales) in the second quarter of 2006, compared to $34 million in the first quarter of 2006 and an operating loss of ($1) million in the second quarter of 2005.
Other Operations
Other operations, which includes revenues and expenses not directly attributed to any of the segments, reported an operating loss of ($21) million in the second quarter of 2006 compared to operating losses of ($37) million in the first quarter of 2006 and ($24) million in the second quarter of 2005.
Third Quarter 2006 Outlook
For the third quarter of 2006, the company expects to report revenues of $1.525 to $1.625 billion. Gross margins for the third quarter of 2006 are expected to be essentially in-line with the second quarter of 2006. Third quarter 2006 results will include approximately $14 million or $.03 per share of expense associated with the redemption of $400 million of the company's floating rate notes.
Conference Call and Webcast
Freescale's quarterly earnings call is scheduled to begin at 3:30 p.m. Central Daylight Time (USA) on Thursday, July 20, 2006. The company will offer a live webcast of the conference call via the Internet at www.freescale.com/investor.
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, which 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 the 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 the risks which are described in the company's Form 10-K for the year ended December 31, 2005 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 Statements of Operations
(In millions, except per share amounts)
(Unaudited)
Three Months Ended
-------------------------------------
June 30, March 31, July 1,
2006 2006 2005
----------- ----------- -----------
Net sales $ 1,599 $ 1,526 $ 1,472
Cost of sales 864 835 868
----------- ----------- -----------
Gross margin 735 691 604
----------- ----------- -----------
Selling, general and
administrative 185 187 162
Research and development 299 297 300
Separation expenses - - 5
----------- ----------- -----------
Operating earnings 251 207 137
----------- ----------- -----------
Other income (expense):
Interest income, net 8 12 1
Gains on sales of investments
and businesses, net 1 - -
Other, net (3) (1) (2)
----------- ----------- -----------
Total other income (expense) 6 11 (1)
----------- ----------- -----------
Earnings before income taxes
and cumulative effect of
accounting change 257 218 136
Income tax (benefit) expense (3) 13 14
----------- ----------- -----------
Earnings before cumulative
effect of accounting change 260 205 122
Cumulative effect of
accounting change, net of
income tax expense - 7 -
----------- ----------- -----------
Net earnings $ 260 $ 212 $ 122
----------- ----------- -----------
Earnings per common share
before cumulative effect of
accounting change:
Basic 0.64 0.50 0.30
Diluted 0.61 0.48 0.29
Cumulative effect of
accounting change per common
share:
Basic - 0.02 -
Diluted - 0.02 -
Net earnings per common share:
Basic 0.64 0.52 0.30
Diluted 0.61 0.50 0.29
Weighted average common shares
outstanding:
Basic 406 408 403
Diluted 424 425 420
Freescale Semiconductor, Inc. and Subsidiaries
Condensed Consolidated Segment Information
(Unaudited)
(In millions)
Three Months Ended
-------------------------------------
June 30, March 31, July 1,
2006 2006 2005
----------- ----------- -----------
Net sales:
Transportation and Standard
Products $ 697 $ 653 $ 651
Networking and Computing
Systems 370 351 387
Wireless and Mobile Solutions 514 506 417
Other 18 16 17
----------- ------------ ------------
Segment totals $ 1,599 $ 1,526 $ 1,472
----------- ----------- -----------
Operating earnings:
Transportation and Standard
Products $ 144 $ 129 $ 75
Networking and Computing
Systems 102 81 87
Wireless and Mobile Solutions 26 34 (1)
Other (21) (37) (24)
----------- ----------- -----------
Segment totals $ 251 $ 207 $ 137
----------- ----------- -----------
Freescale Semiconductor, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
June 30, December 31,
2006 2005
------------- -------------
(Unaudited)
ASSETS
Cash, cash equivalents and short-term
investments $ 1,487 $ 1,421
Accounts receivable, net 605 535
Inventories 693 647
Other current assets 343 367
------------- --------------
Total current assets 3,128 2,970
------------- --------------
Property, plant and equipment, net 2,159 2,035
Investments 1,736 1,616
Other assets 581 549
------------- --------------
Total assets $ 7,604 $ 7,170
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and current portion of
long-term debt and capital lease
obligations $ 407 $ 7
Accounts payable 593 469
Accrued liabilities and other 571 663
------------- --------------
Total current liabilities 1,571 1,139
------------- --------------
Long-term debt 831 1,230
Other liabilities 357 354
Total stockholders' equity 4,845 4,447
------------- --------------
Total liabilities and stockholders'
equity $ 7,604 $ 7,170
------------- -------------