Freescale Semiconductor Reports Fourth Quarter and Fiscal Year 2005 Results

AUSTIN, Texas—(BUSINESS WIRE)—Jan. 19, 2006— Freescale Semiconductor (NYSE: FSL) (NYSE: FSL.B) 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 .

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