STMicroelectronics Reports 2008 Third Quarter and Nine-Month Revenues and Earnings (Revenue up 11%)

 

 

Reported earnings in the third quarter of 2008 also included some specific pre-tax quarter-related accounting factors, namely:

 

    --  The purchase accounting for the ST-NXP Wireless JV resulted in a $57
        million inventory step-up charged to Cost of Goods Sold and a $76
        million in-process R&D write-off. In addition, $12 million of
        recurring amortization is included in operating expenses.
    --  A non-cash charge of $344 million related to the Numonyx equity
        investment including $300 million of impairment to reflect deteriorated
        conditions in both the equity market multiples for comparable companies
        and the memory industry and $44 million of equity loss on Numonyx's Q2
        2008 results, mostly reflecting stand-up and purchase accounting items
        at Numonyx.
    --  Other impairment and restructuring charges of $22 million in operating
        profit and other-than-temporary impairment charges on financial assets
        of $14 million.

 

 

Q3 2008 SG&A expenses totaled $297 million, or 11.0% of net revenues, compared to 11.8% of net revenues in the prior quarter. The SG&A-to-sales ratio increased slightly from the 10.6% of the year ago quarter, reflecting about 100 basis points of estimated negative currency impact. R&D expenses in the third quarter 2008 totaled $602 million, including the one-time, non-cash $76 million charge for in-process R&D. Excluding the impact of this incremental expense, the R&D-to-sales ratio at 19.5% was essentially flat with the prior quarter. The ratio increased from 17.2% in the year ago quarter including an estimated negative currency impact of about 120 basis points.

 

Including restructuring, impairment and non-recurring purchase accounting effects, reported operating income was $55 million. Excluding these effects, the Q3 2008 operating margin improved from 6.7% in the prior quarter to 7.8%. The Company reported a net loss of $289 million or $0.32 per diluted share.

 

 

 

Operating Income and Earnings Reconciliation for Q3 2008

 

The table below illustrates the negative impact on our operating income, net earnings and earnings per share of certain exceptional one-time items incurred in Q3 2008.

 

 

    In US$M except EPS    Operating          Net          Diluted
                            Income       Earnings(a)       EPS(a)
    ------------------    ---------      -----------      -------

    Q3 2008 as reported       55            $(289)         $(0.32)

    NXP Wireless
     Purchase Accounting
     Adjustments(a)         (133)             (99)         $(0.11)

     Numonyx Impairment /
      Loss(a)                  0             (344)         $(0.39)

    Restructuring,
     Impairments, One-time
     & Other-than-temporary
     charges(a)              (22)             (24)         $(0.02)

    Q3 2008 ST Business
     Operations(b)          $210             $178           $0.19
    Margin (as a % of
     Sales)                  7.8%

    (a) The computation of net earnings and EPS for each line is based on an
        estimated effective tax rate applicable to each operating loss item.
        Furthermore, the computation of EPS in each line is based on the share
        count of 890.3 million shares applicable in case of all of the loss
        items; or 937.2 million shares for net earnings resulting from the
        reconciliation; this different applicable share count is due to our
        outstanding convertible bonds and justifies the difference of $0.01 of
        the sum of the items in respect to reported EPS. Diluted EPS is
        rounded to the $ cent and adjusted to sum to EPS as reflected. The
        Company believes that the foregoing EPS reconciliation is an
        appropriate analysis demonstrating the per share impact of the
        exceptional one-time events incurred in Q3 2008. However, due to the
        US GAAP requirement of applying a different share count for the
        purpose of calculating losses or earnings per share, the
        reconciliation necessarily involves some approximation.
    (b) ST Business Operations is a non-US GAAP measure and defined as the
        financial results of operations in the third quarter of 2008 excluding
        the effects of non recurring items related to the purchase accounting
        of ST-NXP Wireless JV, the impairment and loss related to Numonyx,
        other restructuring, and impairment charges and other-than-temporary
        impairment charges. The impact of these non-recurring elements on net
        earnings is net of applicable tax.

 

 

 

 

Cash Flow and Balance Sheet Highlights

 

Net cash from operating activities was $414 million in the 2008 third quarter. Net operating cash flow* was ($1.38) billion or $140 million, excluding $1.52 billion paid for M&A transactions, compared to $255 million in the year-ago quarter. For the first nine months, net cash from operating activities was $1.33 billion and net operating cash flow was $487 million, excluding the $1.69 billion paid for M&A transactions.

 

Capital expenditures were $247 million during the third quarter of 2008, compared to $272 million in the prior quarter and $228 million in the year-ago quarter. For the 2008 first nine months, capital expenditures were $777 million, or 10.3% of net sales, compared to $735 million or 10.1% of net sales in the first nine months of 2007. The Company reconfirms its goal to be at a capex-to-sales ratio of about 10% for the full year 2008.

 

In the 2008 third quarter, ST repurchased $148 million of common stock under the most recently approved plan, as well as paid $80 million in dividends. For the fourth quarter 2008 the global ex-dividend date will be November 24, 2008 and the dividend of $0.09 is planned to be paid on or after this date, in accordance with the schedule previously announced on April 2, 2008.

 

Inventory was $1.79 billion at quarter end including wireless inventory acquired from NXP. Excluding the NXP Wireless inventory and reflecting favorable currency translation, inventory decreased sequentially by $29 million, with inventory turns accelerating from 3.8 to 4.0.

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