FREESCALE SEMICONDUCTOR INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended July 3, 2004

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number: 001-32241

FREESCALE SEMICONDUCTOR, INC.

(Exact name of registrant as specified in its charter)


Delaware		22-0443182
(State of Incorporation)		(I.R.S. Employer Identification No.)

6501 William Cannon Drive West Austin, Texas		78735
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (512) 895-2000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of each of the issuer’s classes of common stock as of the close of business on July 31, 2004:


Class		Number of Shares
Class A Common Stock; $.01 Par Value		130,021,341
Class B Common Stock; $.01 Par Value		269,978,659

INDEX


		Page
Part I Financial Information

Item 1	Financial Statements
	Condensed Consolidated and Combined Statements of Operations (Unaudited) for the Three Months and Six Months Ended June 28, 2003 and July 3, 2004	3
	Condensed Consolidated and Combined Balance Sheets as of December 31, 2003 and July 3, 2004 (Unaudited)	4
	Condensed Consolidated and Combined Statement of Business/Stockholder’s Equity (Unaudited) for the Six Months Ended July 3, 2004	5
	Condensed Consolidated and Combined Statements of Cash Flows (Unaudited) for the Six Months Ended June 28, 2003 and July 3, 2004	6
	Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4	Controls and Procedures	40

Part II Other Information

Item 1	Legal Proceedings	41
Item 2	Changes in Securities and Use of Proceeds	42
Item 3	Defaults Upon Senior Securities	43
Item 4	Submission of Matters to Vote of Security Holders	43
Item 5	Other Information	43
Item 6	Exhibits and Reports on Form 8-K	43

Part I – Financial Information

Freescale Semiconductor, Inc. and Subsidiaries

Condensed Consolidated and Combined Statements of Operations

(Unaudited)

(In millions, except per share amounts)


	Three Months Ended						Six Months Ended
	June 28, 2003			July 3, 2004			June 28, 2003			July 3, 2004
Net sales (includes sales to Motorola of $170, $302, $397 and $578, respectively)	$	1,115		$	1,461		$	2,266		$	2,857
Costs of sales		826			900			1,679			1,789

Gross margin		289			561			587			1,068

Selling, general and administrative		169			225			279			365
Research and development		259			242			519			492
Reorganization of businesses		(13	)		(2	)		35			(9	)
Separation expenses		—			41			—			50

Operating earnings (loss)		(126	)		55			(246	)		170

Other income (expense):
Interest expense, net		(25	)		—			(60	)		(21	)
Gains on sales of investments and businesses, net		—			—			—			41
Other		(1	)		(1	)		(6	)		(4	)

Total other income (expense)		(26	)		(1	)		(66	)		16

Earnings (loss) before income taxes		(152	)		54			(312	)		186
Income tax expense		22			11			46			37

Net earnings (loss)	$	(174	)	$	43		$	(358	)	$	149

Pro forma earnings per common share:
Basic				$	0.15					$	0.54
Diluted				$	0.15					$	0.54
Pro forma weighted average common shares outstanding:
Basic					278						278
Diluted					278						278

See accompanying notes to condensed consolidated and combined financial statements.

Freescale Semiconductor, Inc. and Subsidiaries

Condensed Consolidated and Combined Balance Sheets

(In millions, except per share amounts)


	December 31, 2003		July 3, 2004
			(Unaudited)
ASSETS
Cash and cash equivalents	$	87	$	713
Accounts receivable, net (includes amounts due from Motorola of $43 and $133, respectively)		327		539
Inventories		693		679
Deferred income taxes		20		50
Other current assets		228		260
Assets held-for-sale		334		56

Total current assets		1,689		2,297

Property, plant and equipment, net		2,357		2,234
Investments		126		38
Other assets		277		260

Total assets	$	4,449	$	4,829

LIABILITIES AND BUSINESS/STOCKHOLDER’S EQUITY
Notes payable and current portion of long-term debt (includes amounts payable to Motorola of $0 and $428, respectively)	$	27	$	438
Accounts payable (includes amounts due to Motorola of $13 and $151, respectively)		344		605
Accrued liabilities		368		327

Total current liabilities		739		1,370

Long-term debt		2		—
Deferred income taxes		48		30
Other liabilities		104		107

Business/Stockholder’s Equity:
Preferred stock, $.01 par value; 1,000 shares authorized; no shares issued and outstanding		—		—
Class A common stock, $.01 par value; 1,500 shares authorized; no shares issued and outstanding		—		—
Class B common stock, $.01 par value; 1,000 shares authorized; 278 shares issued and outstanding in 2004		—		3
Additional paid-in capital		—		3,312
Retained earnings		—		11
Owner’s net investment		3,422		—
Non-owner changes to equity		134		(4	)

Total business/stockholder’s equity		3,556		3,322

Total liabilities and business/stockholder’s equity	$	4,449	$	4,829

See accompanying notes to condensed consolidated and combined financial statements.

Freescale Semiconductor, Inc. and Subsidiaries

Condensed Consolidated and Combined Statement of Business/Stockholder’s Equity

(Unaudited)

(In millions)


				Non-Owner Changes to Equity
	Owner’s Net Investment			Fair Value Adjustment to Available-for- Sale Securities			Foreign Currency Translation Adjustments			Class B Common Stock		Additional Paid-in- capital		Retained Earnings		Comprehensive Earnings
Balances at January 1, 2004	$	3,422		$	—		$	134		$	—	$	—	$	—	$	—
Net earnings		138			—			—			—		—		11		149
Net transfers to Motorola		(520	)		—			—			—		—		—		—
Net unrealized gains on securities (net of tax effect of $0)		—			104			—			—		—		—		104
Net foreign currency translation adjustments (net of tax effect of $0)		—			—			12			—		—		—		12
Contribution		(3,040	)		(104	)		(150	)		3		3,291		—		—
Capital contribution by Motorola		—			—			—			—		21		—		—

Balances at July 3, 2004	$	—		$	—		$	(4	)	$	3	$	3,312	$	11	$	265

See accompanying notes to condensed consolidated and combined financial statements.

Freescale Semiconductor, Inc. and Subsidiaries

Condensed Consolidated and Combined Statements of Cash Flows

(Unaudited)

(In millions)


	Six Months Ended
	June 28, 2003			July 3, 2004
Operating
Net earnings (loss)	$	(358	)	$	149
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization		451			377
Separation expenses paid by Motorola		—			21
Charges (reversals) for reorganization of businesses		35			(49	)
Gains on sales of investments and businesses, net		—			(41	)
Deferred income taxes		24			25
Investment impairments and other		(1	)		(12	)
Changes in assets and liabilities, net of effects of acquisitions, dispositions and Contribution:
Accounts receivable		36			(216	)
Inventories		(22	)		15
Other current assets		(58	)		(59	)

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