Supplemental Guarantor Condensed Consolidating Financial Statements | Supplemental Guarantor Condensed Consolidating Financial Statements Pursuant to the terms of our acquisition by a consortium of private equity funds (“Sponsors”) in a transaction referred to as the “Merger” in December 2006, Freescale Inc. continues as a wholly-owned indirect subsidiary of Freescale Ltd. The reporting entity subsequent to the Merger is Freescale Ltd. As a result of the Merger and subsequent debt redemption and refinancing transactions, we had $1,762 million aggregate principal amount of Senior Notes outstanding as of July 3, 2015 , as further discussed in Note 4, “Debt.” The senior secured notes are jointly and severally guaranteed on a secured, senior basis, and the senior unsecured notes are jointly and severally guaranteed on an unsecured, senior basis, and in each case, are subject to certain exceptions, by Freescale Ltd., its wholly owned direct and indirect subsidiaries created in connection with the Merger, and SigmaTel, LLC (together, the “Guarantors”). Each Guarantor fully and unconditionally guarantees, jointly and severally with the other Guarantors, as a primary obligor and not merely as a surety, the due and punctual payment and performance of the obligations. As of July 3, 2015 , other than SigmaTel, LLC, none of Freescale Inc.’s domestic or foreign subsidiaries (“Non-Guarantors”) guarantee the Senior Notes or Credit Facility. In the future, other subsidiaries may be required to guarantee all or a portion of the Senior Notes, if and to the extent they guarantee the Credit Facility. (The relationship between the Company and the parent companies is defined and discussed in Note 1, “Basis of Presentation and Principles of Consolidation,” to our consolidated financial statements in the Annual Report.) The following tables present our results of operations, financial position and cash flows of Freescale Ltd., the Guarantors, Freescale Inc., the Non-Guarantors and eliminations for the three and six months ended July 3, 2015 and July 4, 2014 and as of July 3, 2015 and December 31, 2014 , to arrive at the information on a consolidated basis: Supplemental Condensed Consolidating Statement of Operations (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Net sales $ — $ — $ 1,508 $ 1,596 $ (1,906 ) $ 1,198 Cost of sales — — 1,019 1,509 (1,906 ) 622 Gross margin — — 489 87 — 576 Research and development — — 145 71 — 216 Selling, general and administrative 2 — 164 52 (95 ) 123 Amortization expense for acquired intangible assets — — 5 — — 5 Reorganization of business, merger expenses and other — — 15 (9 ) — 6 Operating (loss) earnings (2 ) — 160 (27 ) 95 226 Loss on extinguishment or modification of long-term debt — — (9 ) — — (9 ) Other income (expense), net 195 195 56 98 (615 ) (71 ) Earnings before income taxes 193 195 207 71 (520 ) 146 Income tax expense — — 10 14 — 24 Net earnings $ 193 $ 195 $ 197 $ 57 $ (520 ) $ 122 Supplemental Condensed Consolidating Statement of Comprehensive Earnings (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Net earnings $ 193 $ 195 $ 197 $ 57 $ (520 ) $ 122 Other comprehensive earnings, net of tax: Derivative instruments adjustments: Reclassification adjustment for items in net earnings — — 3 — — 3 Post-retirement adjustments: Gains arising during the period — — 101 — — 101 Amortization of actuarial (losses) gains in net earnings — — (1 ) 1 — — Other comprehensive earnings — — 103 1 — 104 Comprehensive earnings $ 193 $ 195 $ 300 $ 58 $ (520 ) $ 226 Supplemental Condensed Consolidating Statement of Operations (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Net sales $ — $ — $ 1,526 $ 1,588 $ (1,923 ) $ 1,191 Cost of sales — — 1,041 1,536 (1,923 ) 654 Gross margin — — 485 52 — 537 Research and development — — 143 76 — 219 Selling, general and administrative 2 — 164 58 (96 ) 128 Amortization expense for acquired intangible assets — — 4 — — 4 Reorganization of business, merger expenses and other — — 3 3 — 6 Operating (loss) earnings (2 ) — 171 (85 ) 96 180 Loss on extinguishment or modification of long-term debt — — — — — — Other income (expense), net 175 175 5 98 (536 ) (83 ) Earnings before income taxes 173 175 176 13 (440 ) 97 Income tax expense — — 1 10 — 11 Net earnings $ 173 $ 175 $ 175 $ 3 $ (440 ) $ 86 Supplemental Condensed Consolidating Statement of Comprehensive Earnings (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Net earnings $ 173 $ 175 $ 175 $ 3 $ (440 ) $ 86 Other comprehensive earnings, net of tax: Derivative instrument adjustments: Unrealized gains arising during the period — — 3 — — 3 Reclassification adjustment for items in net earnings — — 1 — — 1 Post-retirement adjustments: Amortization of actuarial gains included in net earnings (loss) — — (2 ) 1 — (1 ) Other comprehensive earnings — — 2 1 — 3 Comprehensive earnings $ 173 $ 175 $ 177 $ 4 $ (440 ) $ 89 Supplemental Condensed Consolidating Statement of Operations (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Net sales $ — $ — $ 2,995 $ 3,130 $ (3,758 ) $ 2,367 Cost of sales — — 2,052 2,944 (3,758 ) 1,238 Gross margin — — 943 186 — 1,129 Research and development — — 293 145 — 438 Selling, general and administrative 4 — 322 107 (189 ) 244 Amortization expense for acquired intangible assets — — 10 — — 10 Reorganization of business and other — — 31 1 — 32 Operating (loss) earnings (4 ) — 287 (67 ) 189 405 Loss on extinguishment or modification of long-term debt — — (30 ) — — (30 ) Other income (expense), net 267 267 40 200 (923 ) (149 ) Earnings before income taxes 263 267 297 133 (734 ) 226 Income tax expense — — 25 9 — 34 Net earnings $ 263 $ 267 $ 272 $ 124 $ (734 ) $ 192 Supplemental Condensed Consolidating Statement of Comprehensive Earnings (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Net earnings $ 263 $ 267 $ 272 $ 124 $ (734 ) $ 192 Other comprehensive earnings, net of tax: Derivative instrument adjustments: Unrealized losses arising during the period — — (8 ) — — (8 ) Reclassification adjustment for items included in net earnings — — 6 — — 6 Post-retirement adjustments: Gains arising during the period — — 101 — — 101 Amortization of actuarial (losses) gains included in net earnings — — (1 ) 2 — 1 Other comprehensive earnings — — 98 2 — 100 Comprehensive earnings $ 263 $ 267 $ 370 $ 126 $ (734 ) $ 292 Supplemental Condensed Consolidating Statement of Operations (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Net sales $ — $ — $ 2,922 $ 3,093 $ (3,697 ) $ 2,318 Cost of sales — — 2,071 2,902 (3,697 ) 1,276 Gross margin — — 851 191 — 1,042 Research and development — — 278 151 — 429 Selling, general and administrative 4 — 330 116 (196 ) 254 Amortization expense for acquired intangible assets — — 7 — — 7 Reorganization of business and other — — 4 13 — 17 Operating (loss) earnings (4 ) — 232 (89 ) 196 335 Loss on extinguishment or modification of long-term debt — — (59 ) — — (59 ) Other income (expense), net 154 154 (14 ) 199 (679 ) (186 ) Earnings before income taxes 150 154 159 110 (483 ) 90 Income tax expense — — 5 22 — 27 Net earnings $ 150 $ 154 $ 154 $ 88 $ (483 ) $ 63 Insert Title Here Supplemental Condensed Consolidating Statement of Comprehensive Earnings (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Net earnings $ 150 $ 154 $ 154 $ 88 $ (483 ) $ 63 Other comprehensive earnings, net of tax: Derivative instrument adjustments: Unrealized gains arising during the period — — 6 — — 6 Reclassification adjustment for items included in net earnings — — 2 — — 2 Post-retirement adjustments: Amortization of actuarial (losses) gains included in net earnings — — (2 ) 1 — (1 ) Other comprehensive earnings — — 6 1 — 7 Comprehensive earnings $ 150 $ 154 $ 160 $ 89 $ (483 ) $ 70 Supplemental Condensed Consolidating Balance Sheet (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Assets Cash and cash equivalents $ 2 $ — $ 95 $ 491 $ — $ 588 Inter-company receivable 259 — 591 492 (1,342 ) — Accounts receivable, net — — 130 430 — 560 Inventory, net — — 318 422 — 740 Other current assets — — 109 65 — 174 Total current assets 261 — 1,243 1,900 (1,342 ) 2,062 Property, plant and equipment, net — — 353 408 — 761 Investment in affiliates (3,434 ) (3,210 ) 1,368 — 5,276 — Intangible assets, net — — 55 — — 55 Inter-company note receivable — 125 1 350 (476 ) — Other assets, net — — 130 157 — 287 Total assets $ (3,173 ) $ (3,085 ) $ 3,150 $ 2,815 $ 3,458 $ 3,165 Liabilities and shareholders’ (deficit) equity Current portion of long-term debt and capital lease obligations $ — $ — $ 35 $ — $ — $ 35 Inter-company payable — — 513 829 (1,342 ) — Accounts payable — — 269 172 — 441 Accrued liabilities and other — — 206 123 — 329 Total current liabilities — — 1,023 1,124 (1,342 ) 805 Long-term debt — — 5,169 — — 5,169 Inter-company note payable — 349 — 127 (476 ) — Other liabilities — — 168 196 — 364 Total liabilities — 349 6,360 1,447 (1,818 ) 6,338 Total shareholders’ (deficit) equity (3,173 ) (3,434 ) (3,210 ) 1,368 5,276 (3,173 ) Total liabilities and shareholders’ (deficit) equity $ (3,173 ) $ (3,085 ) $ 3,150 $ 2,815 $ 3,458 $ 3,165 Supplemental Condensed Consolidating Balance Sheet (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Assets Cash and cash equivalents $ 4 $ — $ 181 $ 511 $ — $ 696 Inter-company receivable 161 — 509 472 (1,142 ) — Accounts receivable, net — — 130 432 — 562 Inventory, net — — 335 410 — 745 Other current assets — — 105 61 — 166 Total current assets 165 — 1,260 1,886 (1,142 ) 2,169 Property, plant and equipment, net — — 349 401 — 750 Investment in affiliates (3,710 ) (3,710 ) 1,350 — 6,070 — Intangible assets, net — — 51 8 — 59 Inter-company note receivable — 123 1 166 (290 ) — Other assets, net 7 — 131 159 — 297 Total assets $ (3,538 ) $ (3,587 ) $ 3,142 $ 2,620 $ 4,638 $ 3,275 Liabilities and shareholders’ (deficit) equity Current portion of long-term debt and capital lease obligations $ — $ — $ 35 $ — $ — $ 35 Inter-company payable — — 501 641 (1,142 ) — Accounts payable — — 251 162 — 413 Accrued liabilities and other — — 260 137 — 397 Total current liabilities — — 1,047 940 (1,142 ) 845 Long-term debt — — 5,535 — — 5,535 Inter-company note payable 43 123 — 124 (290 ) — Other liabilities — — 270 206 — 476 Total liabilities 43 123 6,852 1,270 (1,432 ) 6,856 Total shareholders’ (deficit) equity (3,581 ) (3,710 ) (3,710 ) 1,350 6,070 (3,581 ) Total liabilities and shareholders’ (deficit) equity $ (3,538 ) $ (3,587 ) $ 3,142 $ 2,620 $ 4,638 $ 3,275 Supplemental Condensed Consolidating Statement of Cash Flows (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Cash flow provided by (used for) operating activities $ 41 $ (224 ) $ 295 $ 334 $ (71 ) $ 375 Cash flows from investing activities: Purchases of property, plant and equipment — — (44 ) (53 ) — (97 ) Acquisitions and strategic investment activity — — (10 ) — — (10 ) Payments for purchased licenses and other assets — — (21 ) (18 ) — (39 ) Inter-company loans and capital transactions (43 ) (45 ) 24 (184 ) 248 — Cash flow used for investing activities (43 ) (45 ) (51 ) (255 ) 248 (146 ) Cash flows from financing activities: Retirements of and payments for long-term debt and capital lease obligations — — (394 ) — — (394 ) Proceeds from stock option exercises and ESPP share purchases 51 — — — — 51 Excess tax benefits from share-based compensation plans — 23 2 — 25 Payments for contractual arrangements — — (2 ) — — (2 ) Purchases of treasury shares (8 ) — — — — (8 ) Inter-company loans, dividends and capital transactions (43 ) 269 43 (92 ) (177 ) — Cash flow provided by (used for) financing activities — 269 (330 ) (90 ) (177 ) (328 ) Effect of exchange rate changes on cash and cash equivalents — — — (9 ) — (9 ) Net decrease in cash and cash equivalents (2 ) — (86 ) (20 ) — (108 ) Cash and cash equivalents, beginning of period 4 — 181 511 — 696 Cash and cash equivalents, end of period $ 2 $ — $ 95 $ 491 $ — $ 588 Supplemental Condensed Consolidating Statement of Cash Flows For the Six Months Ended July 4, 2014 (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Cash flow provided by (used for) operating activities $ 28 $ — $ (31 ) $ 234 $ (87 ) $ 144 Cash flows from investing activities: Purchases of property, plant and equipment — — (42 ) (70 ) — (112 ) Acquisitions and strategic investment activity — — (11 ) — — (11 ) Payments for purchased licenses and other assets — — (30 ) (14 ) — (44 ) Inter-company loans and capital transactions (780 ) (782 ) — (2 ) 1,564 — Cash flow used for investing activities (780 ) (782 ) (83 ) (86 ) 1,564 (167 ) Cash flows from financing activities: Retirements of and payments for long-term debt and capital lease obligations — — (1,333 ) — — (1,333 ) Debt issuance proceeds, net of debt issuance costs — — 590 — — 590 Proceeds from equity offering, net of offering costs 717 — — — — 717 Proceeds from stock option exercises and ESPP share purchases 39 — — — — 39 Excess tax benefits from share-based compensation plans — — 5 — — 5 Inter-company loans, dividends and capital transactions — 782 780 (85 ) (1,477 ) — Cash flow provided by (used for) financing activities 756 782 42 (85 ) (1,477 ) 18 Effect of exchange rate changes on cash and cash equivalents — — — 2 — 2 Net increase (decrease) in cash and cash equivalents 4 — (72 ) 65 — (3 ) Cash and cash equivalents, beginning of period 1 — 235 511 — 747 Cash and cash equivalents, end of period $ 5 $ — $ 163 $ 576 $ — $ 744 |