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 October 2, 2004
Or
| ¨ | 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 (State of Incorporation) |
20-0443182 (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 October 29, 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 |
| Page | ||||
| Part I Financial Information | ||||
| Item 1 | Financial Statements: | |||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 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 | 23 | ||
| Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 40 | ||
| Item 4 | Controls and Procedures | 41 | ||
| Part II Other Information | ||||
| Item 1 | Legal Proceedings | 42 | ||
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 43 | ||
| Item 3 | Defaults Upon Senior Securities | 43 | ||
| Item 4 | Submission of Matters to a Vote of Security Holders | 43 | ||
| Item 5 | Other Information | 43 | ||
| Item 6 | Exhibits | 43 | ||
2
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 |
Nine Months Ended |
|||||||||||||||
| September 27, 2003 |
October 2, 2004 |
September 27, 2003 |
October 2, 2004 |
|||||||||||||
| Net sales (includes direct sales to Motorola of $278, $305, $675 and $883, respectively) |
$ | 1,225 | $ | 1,430 | $ | 3,491 | $ | 4,287 | ||||||||
| Cost of sales |
854 | 872 | 2,533 | 2,661 | ||||||||||||
| Gross margin |
371 | 558 | 958 | 1,626 | ||||||||||||
| Selling, general and administrative |
185 | 230 | 464 | 595 | ||||||||||||
| Research and development |
244 | 229 | 763 | 721 | ||||||||||||
| Reorganization of businesses |
18 | (1 | ) | 53 | (10 | ) | ||||||||||
| Separation expenses |
— | 19 | — | 69 | ||||||||||||
| Operating earnings (loss) |
(76 | ) | 81 | (322 | ) | 251 | ||||||||||
| Other income (expense): |
||||||||||||||||
| Interest expense, net |
(34 | ) | (5 | ) | (94 | ) | (26 | ) | ||||||||
| Gains on sales of investments and businesses, net |
17 | — | 17 | 41 | ||||||||||||
| Other |
1 | (5 | ) | (5 | ) | (9 | ) | |||||||||
| Total other income (expense) |
(16 | ) | (10 | ) | (82 | ) | 6 | |||||||||
| Earnings (loss) before income taxes |
(92 | ) | 71 | (404 | ) | 257 | ||||||||||
| Income tax expense |
14 | 14 | 60 | 51 | ||||||||||||
| Net earnings (loss) |
$ | (106 | ) | $ | 57 | $ | (464 | ) | $ | 206 | ||||||
| Net earnings per common share: |
||||||||||||||||
| Basic |
$ | 0.15 | $ | 1.60 | ||||||||||||
| Diluted |
$ | 0.15 | $ | 1.57 | ||||||||||||
| Weighted average common shares outstanding: |
||||||||||||||||
| Basic |
384 | 129 | ||||||||||||||
| Diluted |
390 | 131 | ||||||||||||||
| Pro forma earnings per common share: |
||||||||||||||||
| Basic |
$ | 0.15 | $ | 0.66 | ||||||||||||
| Diluted |
$ | 0.15 | $ | 0.65 | ||||||||||||
| Pro forma weighted average common shares outstanding: |
||||||||||||||||
| Basic |
384 | 313 | ||||||||||||||
| Diluted |
390 | 315 | ||||||||||||||
See accompanying notes to condensed consolidated and combined financial statements.
3
Freescale Semiconductor, Inc. and Subsidiaries
Condensed Consolidated and Combined Balance Sheets
(In millions, except per share amounts)
| December 31, 2003 |
October 2, 2004 |
||||||
| (Unaudited) | |||||||
| ASSETS |
|||||||
| Cash and cash equivalents |
$ | 87 | $ | 2,173 | |||
| Accounts receivable, net (includes amounts due from Motorola of $43 and $162, respectively) |
327 | 581 | |||||
| Inventories |
693 | 713 | |||||
| Deferred income taxes |
20 | 22 | |||||
| Other current assets |
228 | 214 | |||||
| Assets held-for-sale |
334 | 45 | |||||
| Total current assets |
1,689 | 3,748 | |||||
| Property, plant and equipment, net |
2,357 | 2,193 | |||||
| Investments |
126 | 34 | |||||
| Other assets |
277 | 311 | |||||
| Total assets |
$ | 4,449 | $ | 6,286 | |||
| LIABILITIES AND BUSINESS/STOCKHOLDERS’ EQUITY |
|||||||
| Notes payable and current portion of long-term debt |
$ | 27 | $ | 4 | |||
| Accounts payable (includes amounts due to Motorola of $13 and $95, respectively) |
344 | 566 | |||||
| Accrued liabilities |
368 | 473 | |||||
| Total current liabilities |
739 | 1,043 | |||||
| Long-term debt |
2 | 1,250 | |||||
| Deferred income taxes |
48 | 12 | |||||
| Other liabilities |
104 | 119 | |||||
| Business/Stockholders’ 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; 130 shares issued and outstanding in 2004 |
— | 1 | |||||
| Class B common stock, $.01 par value; 1,000 shares authorized; 270 shares issued and outstanding in 2004 |
— | 3 | |||||
| Additional paid-in capital |
— | 3,792 | |||||
| Retained earnings |
— | 68 | |||||
| Owner’s net investment |
3,422 | — | |||||
| Non-owner changes to equity |
134 | (2 | ) | ||||
| Total business/stockholders’ equity |
3,556 | 3,862 | |||||
| Total liabilities and business/stockholders’ equity |
$ | 4,449 | $ | 6,286 | |||
See accompanying notes to condensed consolidated and combined financial statements.
4
Freescale Semiconductor, Inc. and Subsidiaries
Condensed Consolidated and Combined Statement of Business/Stockholders’ Equity
(Unaudited)
(In millions)
| Non-Owner Changes to Equity |
||||||||||||||||||||||||||||
| Owner’s Net Investment |
Fair Value Adjustment to Available-for- |
Foreign Currency Translation Adjustments |
Class A Common Stock |
Class B Common Stock |
Additional Paid-in- capital |
Retained Earnings |
Comprehensive Earnings | |||||||||||||||||||||
| Balances at January 1, 2004 |
$ | 3,422 | $ | — | $ | 134 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
| Net earnings |
138 | — | — | — | — | — | 68 | 206 | ||||||||||||||||||||
| 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) |
— | — | 14 | — | — | — | — | 14 | ||||||||||||||||||||
| Contribution |
(3,040 | ) | (104 | ) | (150 | ) | — | 3 | 3,291 | — | — | |||||||||||||||||
| Capital contribution by Motorola |
— | — | — | — | — | 11 | — | — | ||||||||||||||||||||
| Distributions to Motorola |
— | — | — | — | — | (1,127 | ) | — | — | |||||||||||||||||||
| IPO proceeds, net of offering costs |
— | — | — | 1 | — | 1,611 | — | — | ||||||||||||||||||||
| Amortization of deferred compensation |
— | — | — | — | — | 6 | — | — | ||||||||||||||||||||