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 $1,460 million aggregate principal amount of Senior Notes outstanding as of October 2, 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 October 2, 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 nine months ended October 2, 2015 and October 3, 2014 and as of October 2, 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 $ — $ — $ 1,405 $ 1,432 $ (1,717 ) $ 1,120 Cost of sales — — 952 1,346 (1,717 ) 581 Gross margin — — 453 86 — 539 Research and development — — 130 67 — 197 Selling, general and administrative 2 — 156 44 (87 ) 115 Amortization expense for acquired intangible assets — — 4 — — 4 Reorganization of business, merger expenses and other — — 33 2 — 35 Operating (loss) earnings (2 ) — 130 (27 ) 87 188 Loss on extinguishment or modification of long-term debt — — (19 ) — — (19 ) Other income (expense), net 107 107 1 93 (376 ) (68 ) Earnings before income taxes 105 107 112 66 (289 ) 101 Income tax expense — — 2 19 — 21 Net earnings $ 105 $ 107 $ 110 $ 47 $ (289 ) $ 80 Supplemental Condensed Consolidating Statement of Comprehensive Earnings (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Net earnings $ 105 $ 107 $ 110 $ 47 $ (289 ) $ 80 Other comprehensive (loss) earnings, net of tax: Derivative instruments adjustments: Unrealized losses arising during the period — — (25 ) — — (25 ) Reclassification adjustment for items in net earnings — — 6 — — 6 Post-retirement adjustments: Gains arising during the period — — — — — — Amortization of actuarial (losses) gains in net earnings — — (3 ) 1 — (2 ) Other comprehensive (loss) earnings — — (22 ) 1 — (21 ) Comprehensive earnings $ 105 $ 107 $ 88 $ 48 $ (289 ) $ 59 Supplemental Condensed Consolidating Statement of Operations (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Net sales $ — $ — $ 1,606 $ 1,637 $ (2,030 ) $ 1,213 Cost of sales — — 1,126 1,555 (2,030 ) 651 Gross margin — — 480 82 — 562 Research and development — — 139 74 — 213 Selling, general and administrative 1 — 176 54 (109 ) 122 Amortization expense for acquired intangible assets — — 4 — — 4 Reorganization of business, merger expenses and other — — 3 5 — 8 Operating (loss) earnings (1 ) — 158 (51 ) 109 215 Loss on extinguishment or modification of long-term debt — — (10 ) — — (10 ) Other income (expense), net 140 141 (7 ) 115 (471 ) (82 ) Earnings before income taxes 139 141 141 64 (362 ) 123 Income tax benefit — — — (2 ) — (2 ) Net earnings $ 139 $ 141 $ 141 $ 66 $ (362 ) $ 125 Supplemental Condensed Consolidating Statement of Comprehensive Earnings (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Net earnings $ 139 $ 141 $ 141 $ 66 $ (362 ) $ 125 Other comprehensive (loss) earnings, net of tax: Derivative instrument adjustments: Unrealized gains arising during the period — — (9 ) — — (9 ) Reclassification adjustment for items in net earnings — — (2 ) — — (2 ) Post-retirement adjustments: Amortization of actuarial gains included in net earnings (loss) — — (1 ) 1 — — Other comprehensive (loss) earnings — — (12 ) 1 — (11 ) Comprehensive earnings $ 139 $ 141 $ 129 $ 67 $ (362 ) $ 114 Supplemental Condensed Consolidating Statement of Operations (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Net sales $ — $ — $ 4,400 $ 4,562 $ (5,475 ) $ 3,487 Cost of sales — — 3,004 4,290 (5,475 ) 1,819 Gross margin — — 1,396 272 — 1,668 Research and development — — 423 212 — 635 Selling, general and administrative 6 — 478 151 (276 ) 359 Amortization expense for acquired intangible assets — — 14 — — 14 Reorganization of business and other — — 64 3 — 67 Operating (loss) earnings (6 ) — 417 (94 ) 276 593 Loss on extinguishment or modification of long-term debt — — (49 ) — — (49 ) Other income (expense), net 374 374 41 293 (1,299 ) (217 ) Earnings before income taxes 368 374 409 199 (1,023 ) 327 Income tax expense — — 27 28 — 55 Net earnings $ 368 $ 374 $ 382 $ 171 $ (1,023 ) $ 272 Supplemental Condensed Consolidating Statement of Comprehensive Earnings (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Net earnings $ 368 $ 374 $ 382 $ 171 $ (1,023 ) $ 272 Other comprehensive earnings, net of tax: Derivative instrument adjustments: Unrealized losses arising during the period — — (33 ) — — (33 ) Reclassification adjustment for items included in net earnings — — 12 — — 12 Post-retirement adjustments: Gains arising during the period — — 101 — — 101 Amortization of actuarial (losses) gains included in net earnings — — (4 ) 3 — (1 ) Other comprehensive earnings — — 76 3 — 79 Comprehensive earnings $ 368 $ 374 $ 458 $ 174 $ (1,023 ) $ 351 Supplemental Condensed Consolidating Statement of Operations (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Net sales $ — $ — $ 4,528 $ 4,730 $ (5,727 ) $ 3,531 Cost of sales — — 3,197 4,457 (5,727 ) 1,927 Gross margin — — 1,331 273 — 1,604 Research and development — — 417 225 — 642 Selling, general and administrative 5 — 506 170 (305 ) 376 Amortization expense for acquired intangible assets — — 11 — — 11 Reorganization of business and other — — 7 18 — 25 Operating (loss) earnings (5 ) — 390 (140 ) 305 550 Loss on extinguishment or modification of long-term debt — — (69 ) — — (69 ) Other income (expense), net 294 295 (21 ) 314 (1,150 ) (268 ) Earnings before income taxes 289 295 300 174 (845 ) 213 Income tax expense — — 5 20 — 25 Net earnings $ 289 $ 295 $ 295 $ 154 $ (845 ) $ 188 Supplemental Condensed Consolidating Statement of Comprehensive Earnings (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Net earnings $ 289 $ 295 $ 295 $ 154 $ (845 ) $ 188 Other comprehensive (loss) earnings, net of tax: Derivative instrument adjustments: Unrealized losses arising during the period — — (3 ) — — (3 ) Post-retirement adjustments: Amortization of actuarial (losses) gains included in net earnings — — (3 ) 2 — (1 ) Other comprehensive (loss) earnings — — (6 ) 2 — (4 ) Comprehensive earnings $ 289 $ 295 $ 289 $ 156 $ (845 ) $ 184 Supplemental Condensed Consolidating Balance Sheet (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Assets Cash and cash equivalents $ 3 $ — $ 65 $ 484 $ — $ 552 Inter-company receivable 246 — 567 460 (1,273 ) — Accounts receivable, net — — 159 428 — 587 Inventory, net — — 333 433 — 766 Other current assets — — 94 60 — 154 Total current assets 249 — 1,218 1,865 (1,273 ) 2,059 Property, plant and equipment, net — — 355 402 — 757 Investment in affiliates (3,325 ) (3,098 ) 1,435 — 4,988 — Intangible assets, net — — 52 — — 52 Inter-company note receivable — 127 — 354 (481 ) — Other assets, net — — 123 168 — 291 Total assets $ (3,076 ) $ (2,971 ) $ 3,183 $ 2,789 $ 3,234 $ 3,159 Liabilities and shareholders’ (deficit) equity Current portion of long-term debt and capital lease obligations $ — $ — $ 35 $ — $ — $ 35 Inter-company payable — — 509 764 (1,273 ) — Accounts payable — — 267 147 — 414 Accrued liabilities and other 3 — 225 118 — 346 Total current liabilities 3 — 1,036 1,029 (1,273 ) 795 Long-term debt — — 5,060 — — 5,060 Inter-company note payable — 354 — 127 (481 ) — Other liabilities — — 185 198 — 383 Total liabilities 3 354 6,281 1,354 (1,754 ) 6,238 Total shareholders’ (deficit) equity (3,079 ) (3,325 ) (3,098 ) 1,435 4,988 (3,079 ) Total liabilities and shareholders’ (deficit) equity $ (3,076 ) $ (2,971 ) $ 3,183 $ 2,789 $ 3,234 $ 3,159 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 $ 83 $ (226 ) $ 401 $ 371 $ (96 ) $ 533 Cash flows from investing activities: Purchases of property, plant and equipment — — (66 ) (71 ) — (137 ) Acquisitions and strategic investment activity — — (13 ) (20 ) — (33 ) Payments for purchased licenses and other assets — — (29 ) (25 ) — (54 ) Proceeds from note receivable — — 4 — — 4 Inter-company loans and capital transactions (93 ) (97 ) (8 ) (187 ) 385 — Cash flow used for investing activities (93 ) (97 ) (112 ) (303 ) 385 (220 ) Cash flows from financing activities: Retirements of and payments for long-term debt and capital lease obligations — — (721 ) — — (721 ) Debt issuance proceeds, net of debt issuance costs — — 200 — — 200 Proceeds from stock option exercises and ESPP share purchases 61 — — — — 61 Excess tax benefits from share-based compensation plans — — 25 1 — 26 Payments for contractual arrangements — — (2 ) — — (2 ) Purchases of treasury shares (9 ) — — — — (9 ) Inter-company loans, dividends and capital transactions (43 ) 323 93 (84 ) (289 ) — Cash flow provided by (used for) financing activities 9 323 (405 ) (83 ) (289 ) (445 ) Effect of exchange rate changes on cash and cash equivalents — — — (12 ) — (12 ) Net decrease in cash and cash equivalents (1 ) — (116 ) (27 ) — (144 ) Cash and cash equivalents, beginning of period 4 — 181 511 — 696 Cash and cash equivalents, end of period $ 3 $ — $ 65 $ 484 $ — $ 552 Supplemental Condensed Consolidating Statement of Cash Flows For the Nine Months Ended October 3, 2014 (in millions) Freescale Ltd. Guarantors Freescale Inc. Non-Guarantors Eliminations Consolidated Cash flow provided by operating activities $ 63 $ — $ 116 $ 262 $ (101 ) $ 340 Cash flows from investing activities: Purchases of property, plant and equipment — — (61 ) (114 ) — (175 ) Acquisitions and strategic investment activity — — (11 ) — — (11 ) Proceeds from sale of property, plant and equipment and assets held for sale — — 1 — — 1 Payments for purchased licenses and other assets — — (38 ) (25 ) — (63 ) Inter-company loans and capital transactions (820 ) (824 ) — (4 ) 1,648 — Cash flow used for investing activities (820 ) (824 ) (109 ) (143 ) 1,648 (248 ) Cash flows from financing activities: Retirements of and payments for long-term debt and capital lease obligations — — (1,451 ) — — (1,451 ) 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 44 — — — — 44 Excess tax benefits from share-based compensation plans — — 5 — — 5 Inter-company loans, dividends and capital transactions — 824 820 (97 ) (1,547 ) — Cash flow provided by (used for) financing activities 761 824 (36 ) (97 ) (1,547 ) (95 ) Effect of exchange rate changes on cash and cash equivalents — — — (7 ) — (7 ) Net increase (decrease) in cash and cash equivalents 4 — (29 ) 15 — (10 ) Cash and cash equivalents, beginning of period 1 — 235 511 — 747 Cash and cash equivalents, end of period $ 5 $ — $ 206 $ 526 $ — $ 737 |