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Freescale Semiconductor Announces Third Quarter 2015 Results

The following excerpt is from the company's SEC filing.

AUSTIN, Texas--(BUSINESS WIRE)--October 22, 2015--Freescale Semiconductor, Ltd. (NYSE:FSL) today announced financial results for the third quarter ended October 2, 2015. Highlights include:

GAAP Results

Non-GAAP Results*

• Net sales of $1.12 billion

• EBITDA** of $308 million

• Gross margin of 48.1%

• Adjusted earnings per share of $0.54

• Earnings per share of $0.25

“Third quarter results represented another q uarter of solid execution in a challenging environment,” said Gregg Lowe, president and CEO. Although revenues declined sequentially and year-over-year, the team delivered gross margins that were in line with Q2 and 180 basis points above third quarter last year. We managed operating expenses lower than prior periods and continued to deleverage the balance sheet. This, combined with the execution on gross margins, contributed to adjusted earnings per share of $0.54.”

“The fourth quarter will pose challenges as market conditions have continued to weaken,” Lowe said. “Our results will be impacted in the quarter by normal seasonal declines in our automotive related businesses, continued weakness in wireless infrastructure and enterprise spending which will negatively impact our RF and Digital Networking businesses and weak end-demand in industrial which will lead to lower Microcontroller revenues. Looking past the near term demand softness, we are encouraged by the growth prospects in our core markets and the significant value creation inherent in the combination with NXP Semiconductors.”

*Adjusted for various items as indicated and defined in Note 1 to the Notes to the Consolidated Financial Information attached to this press release.

**Reflects EBITDA excluding the effect of other items

Third Quarter Highlights

Net sales for the third quarter of 2015 were $1.12 billion, compared to $1.20 billion in the second quarter of 2015 and $1.21 billion in the third quarter of 2014.

Operating earnings for the period were $188 million, compared to $226 million in the second quarter of 2015 and $215 million in the third quarter of 2014. Third quarter 2015 operating earnings included $35 million of reorganization of business, merger expenses and other costs. These costs included an accrual for indemnification costs associated with ongoing semiconductor clean room litigation and ongoing costs associated with the company’s planned merger with NXP Semiconductors.

Net earnings for the third quarter were $80 million, or $0.25 per share, compared to net earnings of $122 million, or $0.38 per share, in the second quarter of 2015 and $125 million, or $0.40 per share, in the third quarter of 2014.

Adjusted operating earnings (defined in Note 1 to the Consolidated Financial Information attached to this press release) for the three months ended October 2, 2015 were $248 million compared to earnings of $258 million in the second quarter of 2015 and $243 million in the third quarter of 2014.

Adjusted net earnings (defined in Note 1 to the Consolidated Financial Information attached to this press release) for the third quarter of 2015 were $171 million, or $0.54 per share, compared to $182 million, or $0.57 per share, in the second quarter of 2015 and $150 million, or $0.49 per share, in the third quarter of 2014.

Descriptions of EBITDA excluding the effects of other items, Adjusted EBITDA, adjusted operating earnings and adjusted net earnings and the reconciliations to our GAAP results are included in the tables and notes attached to this press release.

Product Group Revenues

The company’s net sales figures for the third quarter of 2015 were as follows:

Microcontroller net sales were $304 million, compared to $291 million in the second quarter of 2015 and $250 million in the third quarter of last year. On a sequential and year-over-year basis, Microcontroller revenues benefitted from increased sales of its 32-bit microcontroller products into consumer and industrial markets and higher sales of applications processors into the consumer and automotive markets as well as into distribution.

RF net sales, which include sales of power amplifiers to the wireless infrastructure market, were $83 million, compared to $177 million in the second quarter of 2015 and $157 million in the third quarter of last year. The sequential and year-over-year decline in revenue is a result of slowing wireless capital expenditure spending in major markets, primarily in China.

Automotive MCU net sales were $299 million, compared to $305 million in the second quarter of 2015 and $303 million in the third quarter of last year. Automotive MCU benefitted from growth in vehicle semiconductor content offset by declines in worldwide automotive production, particularly in emerging markets.

Analog and Sensors net sales were $220 million, compared to $223 million in the second quarter of 2015 and $201 million in the third quarter of last year. Analog and Sensors sales benefitted from increased vehicle semiconductor content along with sales of analog and sensors sold into distribution and OEM accounts.

Digital Networking net sales were $195 million, compared to $184 million in the second quarter of 2015 and $281 million in the third quarter of last year. Networking net sales declined compared to the prior year primarily due to lower sales to certain service provider customers and lower sales into distribution.

Other net sales were $19 million, compared to $18 million in the second quarter of 2015 and $21 million in the third quarter of last year.

Capital Structure Activities

During the third quarter, the company completed the redemption of $302 million of its remaining 10.75% Notes. The company borrowed $200 million under its revolving credit facility to help fund this redemption. On October 14, 2015, the company repaid $50 million of the $200 million outstanding under the revolver. Freescale has reduced debt by approximately $1.45 billion and annualized interest expense by $160 million since January 2014.

Other Financial Information

Capital Expenditures for the quarter were $40 million;

Cash and Cash Equivalents were $552 million, inclusive of debt redemption activities during the quarter totaling $318 million, $118 million of which was funded by cash on hand;

Adjusted EBITDA* for the latest twelve months ended October 2, 2015 was $1.20 billion.

*Adjusted for various items as indicated and defined in Note 1 to the Notes to the Consolidated Financial Information attached to this press release.

Fourth Quarter 2015 Outlook

For the fourth quarter of 2015, the company expects:

Revenue to be in the range of $950 million to $1.0 billion;

Gross margins of 45.5 percent, plus or minus 50 basis points.

Merger with NXP Semiconductors

On March 1, 2015, Freescale entered into a definitive merger agreement with NXP Semiconductors. In anticipation of this transaction, which is expected to close during the fourth quarter of 2015, Freescale will not conduct a third quarter results conference call.

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 the closing of our proposed merger, our business strategy, goals and expectations concerning future revenues, operations, margins, profitability, liquidity and capital resources. 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...


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