Freescale Semiconductor Announces Third Quarter 2007 Results
AUSTIN, Texas--Freescale Semiconductor Holdings I, Ltd. today announced financial results for the third quarter ended September 28, 2007.
Highlights for the quarter include:
- Net sales of $1.45 billion;
- Adjusted EBITDA of $396 million;
- Cash, cash equivalents and short-term investments of $772 million.
A description of Adjusted EBITDA and the reconciliations to our GAAP results are included in this press release and the accompanying tables.
Net Sales
Net sales for the third quarter of 2007 were $1.45 billion, compared to $1.62 billion in the third quarter of 2006. "Third quarter financial results improved sequentially and we generated strong cash flow,” said Michel Mayer, chairman and CEO. “The sequential improvement was due primarily to higher wireless revenues.”
Operating Highlights
Operating earnings, net earnings and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) include non-cash purchase accounting expenses related to the company’s acquisition by a private equity consortium in December 2006.
The company believes that providing operating earnings and EBITDA exclusive of these expenses is a more meaningful representation of the company’s ongoing financial performance. Including the aforementioned expenses, the operating and net losses for the third quarter of 2007 were $202 million and $261 million, respectively.
Excluding the aforementioned expenses, operating earnings were $195 million and EBITDA was $353 million. This compares to operating earnings of $270 million and EBITDA of $435 million in the third quarter of 2006.
The company also uses Adjusted EBITDA to measure compliance with certain of its debt covenants. Adjusted EBITDA for the third quarter of 2007 was $396 million. Adjusted EBITDA for the 12 months ended September 28, 2007 was $1.57 billion.
A table describing EBITDA and Adjusted EBITDA and reconciling net income to these measures is included in this press release.
Segment Results
The Transportation and Standard Products segment reported net sales of $653 million in the third quarter of 2007, compared to $682 million in the third quarter of 2006. EBITDA for the third quarter was $177 million, or 27% of net sales.
The Networking and Computing Systems segment reported net sales of $315 million in the third quarter of 2007, compared to $369 million in the third quarter of 2006. EBITDA for the third quarter was $103 million, or 33% of net sales.
The Wireless and Mobile Solutions segment reported net sales of $468 million in the third quarter of 2007, compared to $540 million in the third quarter of 2006. EBITDA for the third quarter was $71 million, or 15% of net sales.
Liquidity Highlights
Cash, cash equivalents and short-term investments were $772 million on September 28, 2007, compared to $541 million at the second quarter ending June 29, 2007. Capital expenditures were $73 million or 5% of net sales for the third quarter of 2007.
Conference Call and Webcast
Freescale's quarterly earnings call is scheduled to begin at 4 p.m. Central Daylight Time (USA) on October 23, 2007. The company will offer a live webcast of the conference call over the Internet at www.freescale.com/investor.
Caution Regarding Forward-looking Statements
This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, revenues, earnings, cash flows, capital expenditures, working capital and other financial items. These statements also relate to our business strategy, goals and expectations concerning our market position, future operations, margins, profitability, liquidity and capital resources. We have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will" and similar terms and phrases to identify forward-looking statements in this release.
Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct.
Actual results and trends in the future may differ materially from those suggested or implied by the forward-looking statements depending on a variety of factors, which are described in greater detail under “Risk Factors” in our Registration Statement on Form S-4/A filed with the SEC on June 22, 2007. All future written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the previous statements. We undertake no obligation to update any information contained herein or to publicly release the results of any revisions to any forward-looking statements that may be made to reflect events or circumstances that occur, or that we become aware of, after the date of this release.
About Freescale Semiconductor
Freescale Semiconductor is a global leader in the design and manufacture of embedded semiconductors for the automotive, consumer, industrial, networking and wireless markets. The privately held company is based in Austin, Texas, and has design, research and development, manufacturing or sales operations in more than 30 countries. Freescale is one of the world's largest semiconductor companies with 2006 sales of $6.4 billion (USD). www.freescale.com
Freescale™ and the Freescale logo are trademarks of Freescale Semiconductor, Inc. All other product or service names are the property of their respective owners. © Freescale Semiconductor, Inc. 2007.
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Freescale Semiconductor Holdings I,
Ltd. Consolidated Statements of Operations (Unaudited) |
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Successor |
Predecessor |
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| (in millions) | Three months ended September 28, 2007 | Three months ended June 29, 2007 | Three months ended September 29, 2006 | |||
| Net sales | $ 1,446 | $ 1,376 | $ 1,619 | |||
| Cost of sales | 869 | 809 | 873 | |||
| Gross margin | 577 | 567 | 746 | |||
| Selling, general and administrative | 163 | 165 | 181 | |||
| Research and development | 270 | 286 | 295 | |||
| Amortization expense for acquired intangible assets | 346 | 346 | 3 | |||
| Reorganization of businesses and other | - | 38 | (5) | |||
| Merger expenses | - | - | 7 | |||
| Operating (loss) earnings | (202) | (268) | 265 | |||
| Other (expense) income, net | (194) | (188) | 2 | |||
| (Loss) earnings before income taxes | (396) | (456) | 267 | |||
| Income tax (benefit) expense | (135) | (168) | 10 | |||
| Net (loss) earnings | $ (261) | $ (288) | $ 257 | |||
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Freescale Semiconductor Holdings I,
Ltd. Consolidated Statements of Operations (Unaudited) |
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| Successor | Predecessor | |||
| (in millions) | Nine months ended September 28, 2007 | Nine months ended September 29, 2006 | ||
| Net sales | $ 4,183 | $ 4,744 | ||
| Cost of sales | 2,895 | 2,572 | ||
| Gross margin | 1,288 | 2,172 | ||
| Selling, general and administrative | 488 | 553 | ||
| Research and development | 846 | 885 | ||
| Amortization expense for acquired intangible assets | 1,037 | 9 | ||
| Reorganization of businesses and other | 38 | (5) | ||
| Merger expenses | 3 | 7 | ||
| Operating (loss) earnings | (1,124) | 723 | ||
| Other (expense) income, net | (580) | 19 | ||
| (Loss) earnings before income taxes and cumulative effect of accounting change | (1,704) | 742 | ||
| Income tax (benefit) expense | (616) | 20 | ||
| (Loss) earnings before cumulative effect of accounting change | (1,088) | 722 | ||
| Cumulative effect of accounting change, net of income tax expense | - | 7 | ||
| Net (loss) earnings | $ (1,088) | $ 729 | ||
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Freescale Semiconductor Holdings I,
Ltd. Reconciliation of Non-GAAP Measures (Unaudited) |
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| Successor | Predecessor | |||||
| (in millions) |
Three months |
Three months |
Three months |
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| Adjusted gross margin | $ 623 | $ 605 | $ 746 | |||
| Incremental depreciation and amortization expense | 46 | 38 | - | |||
| Gross margin | $ 577 | $ 567 | $ 746 | |||
| Adjusted operating earnings | $ 195 | $ 159 | $ 270 | |||
| Incremental depreciation and amortization expense | 51 | 43 | - | |||
| Amortization expense for acquired intangible assets | 346 | 346 | 3 | |||
| Reorganization of businesses and other | - | 38 | (5) | |||
| Merger expenses | - | - | 7 | |||
| Operating (loss) earnings | $ (202) | $ (268) | $ 265 | |||
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Adjusted gross margin and adjusted operating earnings represent gross margin and operating (loss) earnings adjusted for the following as necessary: incremental depreciation expense for property, plant and equipment fair value step-up and associated with reduction in lives of certain manufacturing assets, amortization of acquired intangible assets, reorganization of businesses and other charges, and merger expenses. Adjusted gross margin and adjusted operating earnings are not recognized terms under generally accepted accounting principles (GAAP). Adjusted gross margin and adjusted operating earnings do not represent gross margin or operating (loss) earnings, as those terms are defined under GAAP, and should not be considered as alternatives to gross margin or operating (loss) earnings as an indicator of our operating performance. We have included information concerning adjusted gross margin and adjusted operating earnings because we use such information when evaluating gross margin and operating (loss) earnings to better evaluate the underlying performance of the Company. Adjusted gross margin and adjusted operating earnings as presented herein are not necessarily comparable to similarly titled measures. |
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Freescale Semiconductor Holdings I,
Ltd. Reconciliation of Non-GAAP Measures (Unaudited) |
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| Successor | Predecessor | |||
| (in millions) | Nine months ended September 28, 2007 | Nine months ended September 29, 2006 | ||
| Adjusted gross margin | $ 1,822 | $ 2,172 | ||
| Inventory step-up recognition | 416 | - | ||
| Incremental depreciation and amortization expense | 118 | - | ||
| Gross margin | $ 1,288 | $ 2,172 | ||
| Adjusted operating earnings | $ 503 | $ 734 | ||
| Inventory step-up recognition | 416 | - | ||
| Incremental depreciation and amortization expense | 133 | - | ||
| Amortization expense for acquired intangible assets | 1,037 | 9 | ||
| Reorganization of businesses and other | 38 | (5) | ||
| Merger expenses | 3 | 7 | ||
| Operating (loss) earnings | $ (1,124) | $ 723 | ||
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Adjusted gross margin and adjusted operating earnings represent gross margin and operating (loss) earnings adjusted for the following as necessary: inventory fair value step-up recognition, incremental depreciation expense for property, plant and equipment fair value step-up and associated with reduction in lives of certain manufacturing assets, amortization of acquired intangible assets, reorganization of businesses and other charges, and merger expenses. Adjusted gross margin and adjusted operating earnings are not recognized terms under generally accepted accounting principles (GAAP). Adjusted gross margin and adjusted operating earnings do not represent gross margin or operating (loss) earnings, as those terms are defined under GAAP, and should not be considered as alternatives to gross margin or operating (loss) earnings as an indicator of our operating performance. We have included information concerning adjusted gross margin and adjusted operating earnings because we use such information when evaluating gross margin and operating (loss) earnings to better evaluate the underlying performance of the Company. Adjusted gross margin and adjusted operating earnings as presented herein are not necessarily comparable to similarly titled measures. |
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Freescale Semiconductor Holdings I, Ltd. Condensed Consolidated Segment Information (Unaudited) |
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| (in millions) | Three Months Ended | |||||
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September 28, 2007 |
June 29, 2007 |
September 29, 2006 |
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| Net sales: | ||||||
| Transportation and Standard Products | $653 | $684 | $682 | |||
| Networking and Computing Systems | 315 | 328 | 369 | |||
| Wireless and Mobile Solutions | 468 | 353 | 540 | |||
| Other | 10 | 11 | 28 | |||
| Segment totals | $1,446 | $1,376 | $1,619 | |||
| EBITDA: | ||||||
| Transportation and Standard Products | $177 | $185 | $207 | |||
| Networking and Computing Systems | 103 | 104 | 134 | |||
| Wireless and Mobile Solutions | 71 | 29 | 91 | |||
| Other | 2 | (45) | (4) | |||
| Segment totals | $353 | $273 | $428 | |||
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Freescale Semiconductor Holdings I, Ltd. Segment EBITDA Excluding the Effects of Purchase Accounting and Other Items Non-GAAP Basis (Unaudited) |
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| (in millions) | Three Months Ended | |||||||
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September 28, 2007 |
June 29, 2007 |
September 29, 2006 |
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| Transportation and Standard Products | $177 | $185 | $207 | |||||
| Networking and Computing Systems | 103 | 104 | 134 | |||||
| Wireless and Mobile Solutions | 71 | 29 | 91 | |||||
| Other | 2 | (7) | (a) | 3 | (b) | |||
| Segment totals | $353 | $311 | $435 | |||||
| (a) Adjustment reflects add back of $38 million related to reorganization expenses. | ||||||||
| (b) Adjustment reflects add back of $7 million related to transaction expenses arising from the merger. | ||||||||
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Freescale Semiconductor Holdings I, Ltd. Condensed Consolidated Segment Information (Unaudited) |
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| (in millions) | Nine Months Ended | |||
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September 28, 2007 |
September 29, 2006 |
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| Net sales: | ||||
| Transportation and Standard Products | $2,002 | $2,032 | ||
| Networking and Computing Systems | 963 | 1,090 | ||
| Wireless and Mobile Solutions | 1,185 | 1,560 | ||
| Other | 33 | 62 | ||
| Segment totals | $4,183 | $4,744 | ||
| EBITDA: | ||||
| Transportation and Standard Products | $354 | $601 | ||
| Networking and Computing Systems | 119 | 383 | ||
| Wireless and Mobile Solutions | 76 | 272 | ||
| Other | (42) | (44) | ||
| Segment totals | $507 | $1,212 | ||
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Freescale Semiconductor Holdings I, Ltd. Segment EBITDA Excluding the Effects of Purchase Accounting and Other Items Non-GAAP Basis (Unaudited) |
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| (in millions) | Nine Months Ended | |||||
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September 28, 2007 |
September 29, 2006 |
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| Transportation and Standard Products | $540 | (a) | $601 | |||
| Networking and Computing Systems | 297 | (b) | 383 | |||
| Wireless and Mobile Solutions | 128 | (c) | 272 | |||
| Other | (1) | (d) | (37) | (e) | ||
| Segment totals | $964 | $1,219 | ||||
| (a) Adjustment reflects add back of $186 million from incremental expense related to the recognition of the step-up of inventory to fair value at the merger date. | ||||||
| (b) Adjustment reflects add back of $178 million from incremental expense related to the recognition of the step-up of inventory to fair value at the merger date. | ||||||
| (c) Adjustment reflects add back of $52 million from incremental expense related to the recognition of the step-up of inventory to fair value at the merger date. | ||||||
| (d) Adjustment reflects add back of $3 million related to transaction expenses arising from the merger and $38 million related to reorganization expenses. | ||||||
| (e) Adjustment reflects add back of $7 million related to transaction expenses arising from the merger. | ||||||
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Freescale Semiconductor Holdings I, Ltd. Adjusted EBITDA (Unaudited) |
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| Provided below is a reconciliation of net loss to EBITDA to Adjusted EBITDA: | ||||
| (in millions) | Three months ended September 28, 2007 | Twelve months ended September 28, 2007 | ||
| Net (loss) | $ (261) | $ (3,811) | ||
| Interest expense, net | 196 | 630 | ||
| Income tax (benefit) | (135) | (744) | ||
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Depreciation and amortization (a) |
553 | 1,911 | ||
| EBITDA | 353 | (2,014) | ||
| Non-cash stock-based employee compensation (1) | 11 | 357 | ||
| Other non-cash charges (2) | - | 2,820 | ||
| Non-recurring/one-time items (3) | 5 | 255 | ||
| Cost savings (4) | 6 | 54 | ||
| Other defined terms (5) | 21 | 98 | ||
| Adjusted EBITDA | $ 396 | $ 1,570 | ||
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(a) Excludes amortization of debt issuance costs, which are included in interest expense, net. |
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| (1) Reflects non-cash stock-based employee compensation expense under the provisions of SFAS No. 123(R), Share-based Payments. | ||||
| (2) Reflects the non-cash charges related to purchase accounting adjustments for in-process research and development, inventory and other non-cash items. | ||||
| (3) Reflects costs associated with Predecessor debt extinguishment, one-time Merger expenses and our reorganization of business program. | ||||
| (4) Reflects cost savings that we expect to achieve from certain initiatives where actions have begun or have already been completed. | ||||
| (5) Reflects other adjustments required in calculating our debt covenant compliance. | ||||
| Adjusted earnings before cumulative effect of accounting change, interest, taxes, depreciation and amortization (EBITDA) is a non-U.S. GAAP measure used to determine our compliance with certain covenants contained in the Credit Facilities and the indentures governing the Senior Notes and Senior Subordinated Notes. Adjusted EBITDA is defined as EBITDA adjusted to add back certain non-cash, non-recurring and other items that are included in EBITDA and/or net income (loss), as required by various covenants in the indentures and the Credit Facilities. We believe that the presentation of Adjusted EBITDA for the twelve months ended September 28, 2007 is appropriate to provide additional information to investors to demonstrate compliance with our financing covenants. Our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied to ratios based on Adjusted EBITDA. | ||||
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Adjusted EBITDA does not represent, and should not be considered an alternative to, net income (loss), operating income (loss), or cash flow from operations as those terms are defined by U.S. GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. While Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements by other companies, our use of Adjusted EBITDA is not necessarily comparable to such other similarly titled captions of other companies. The definition of Adjusted EBITDA in the indentures and the Credit Facilities allows us to add back certain charges that are deducted in calculating EBITDA and/or net income (loss). However, some of these expenses may recur, vary greatly and are difficult to predict. Further, our debt instruments required that Adjusted EBITDA be calculated for the most recent four fiscal quarters. As a result, the measure can be disproportionately affected by a particularly strong or weak quarter. Further, it may not be comparable to the measure for any subsequent four-quarter period or any complete fiscal year. |
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Freescale Semiconductor Holdings I, Ltd. Condensed Consolidated Balance Sheets (in millions) |
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| September 28, 2007 (unaudited) | December 31, 2006 | |||
| ASSETS | ||||
| Cash and cash equivalents | $ 272 | $ 177 | ||
| Short-term investments | 500 | 533 | ||
| Accounts receivable, net | 500 | 635 | ||
| Inventory | 846 | 1,188 | ||
| Other current assets | 356 | 317 | ||
| Total current assets | 2,474 | 2,850 | ||
| Property, plant and equipment, net | 2,929 | 3,232 | ||
| Goodwill | 5,317 | 5,313 | ||
| Intangible assets, net | 4,639 | 5,654 | ||
| Other assets, net | 567 | 690 | ||
| Total assets | $ 15,926 | $ 17,739 | ||
| LIABILITIES AND STOCKHOLDER'S EQUITY | ||||
| Notes payable and current portion of long-term debt and capital lease obligations | $ 94 | $ 85 | ||
| Accounts payable | 418 | 558 | ||
| Accrued liabilities and other | 743 | 716 | ||
| Total current liabilities | 1,255 | 1,359 | ||
| Long-term debt | 9,389 | 9,415 | ||
| Deferred tax liabilities | 1,197 | 1,858 | ||
| Other liabilities | 411 | 390 | ||
| Stockholder's equity | 3,674 | 4,717 | ||
| Total liabilities and stockholder's equity | $ 15,926 | $ 17,739 | ||