UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~October~~April 2, ~~2009~~2010

¨	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 ~~333~~001-~~141128-05~~32241

FREESCALE SEMICONDUCTOR, INC.

(Exact name of registrant as specified in its charter)


DELAWARE		20-0443182
(Jurisdiction)		(I.R.S. Employer Identification No.)

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

(512) 895-2000

(Registrant’s telephone number)

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large Accelerated Filer ¨		Accelerated Filer ¨
Non-Accelerated Filer x
(Do not check if a smaller reporting company)		Smaller reporting company ¨

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

There is no public trading market for the registrant’s common stock. As of ~~October~~April 16, ~~2009~~2010 there were 1,000 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

Table of Contents

		Page
Part I	Financial Information
Item 1.	Financial Statements:
	Condensed Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended October 2, 2009 and September 26, 2008	3
	Condensed Consolidated Statements of Operations (unaudited) for the Three Months Ended April 2, 2010 and April 3, 2009	3
	Condensed Consolidated Balance Sheets as of October 2, 2009 (unaudited) and December 31, 2008	4
	Condensed Consolidated Balance Sheets as of April 2, 2010 (unaudited) and December 31, 2009	4
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended October 2, 2009 and September 26, 2008	5
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended April 2, 2010 and April 3, 2009	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2518
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4429
Item 4.	Controls and Procedures	4530
Part II	Other Information
Item 1.	Legal Proceedings	4530
Item 1A.	Risk Factors	4632
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4732
Item 3.	Defaults Upon Senior Securities	4732
Item 4.	Submission of Matters to a Vote of Security Holders	47
Item 5.	Other Information	32
Item 5.	Other Information	47
Item 6.	Exhibits	32
Item 6.	Exhibits	47

PART I – FINANCIAL INFORMATION

Item 1.

Unaudited Financial Statements

Freescale Semiconductor, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended						~~Nine Months Ended~~
(in millions)	~~October~~April 2,~~2009~~2010			~~September~~April 263,~~2008~~2009			~~October 2,2009~~			~~September 26,2008~~
Net sales	$	~~893~~1,020		$	~~1,409~~840		$	~~2,557~~		$	~~4,286~~
Cost of sales		~~626~~651			~~821~~664			~~1,921~~			~~2,474~~
Gross margin		~~267~~369			~~588~~176			~~636~~			~~1,812~~
Selling, general and administrative		~~120~~116			~~166~~137			~~377~~			~~507~~
Research and development		~~193~~191			~~293~~244			~~648~~			~~864~~
Amortization expense for acquired intangible assets		~~122~~121			~~272~~122			~~366~~			~~817~~
Reorganization of businesses, contract settlement, and other		91			(139	)		197			(88	)
Reorganization of businesses and other		1			24
Impairment of goodwill and intangible assets		—			3,368			—			3,368
Operating loss		(60	)		(351	)
Merger expenses		—			2			—			7
(Loss) gain on extinguishment or modification of long-term debt, net		(47	)		2,264
Operating loss		(259	)		(3,374	)		(952	)		(3,663	)
Other expense, net		(153	)		(168	)
Gain on extinguishment of long-term debt, net		4			—			2,289			16
(Loss) income before income taxes		(260	)		1,745
Other expense, net		(142	)		(173	)		(445	)		(525	)
Income tax benefit		(4	)		(11	)
(Loss) income before income taxes and minority interest		(397	)		(3,547	)		892			(4,172	)
Net (loss) income	$	(256	)	$	1,756
Minority interest		—			16			—			16
Income tax expense (benefit)		11			(66	)		25			(262	)
Net (loss) income	$	(408	)	$	(3,497	)	$	867		$	(3,926	)

See accompanying notes.

Freescale Semiconductor, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in millions, except per share amount)	~~October~~April 2,~~2009~~2010(Unaudited)			December 31,~~2008~~2009
ASSETS
Cash and cash equivalents	$	1,~~334~~187		$	~~900~~1,359
Short-term investments		—			494
Accounts receivable, net		432			379
Accounts receivable, net		388			394
Inventory, net		617			606
Inventory		625			755
Other current assets		339			347
Other current assets		397			459
Total current assets		2,575			2,691
Total current assets		2,744			3,002
Property, plant and equipment, net		1,234			1,315
Property, plant and equipment, net		1,443			1,931
Intangible assets, net		657			780
Intangible assets		900			1,264
Other assets, net		350			328
Other assets, net		316			473
Total assets	$	4,816		$	5,114
Total assets	$	5,403		$	6,670
LIABILITIES AND STOCKHOLDER’S DEFICIT
Notes payable and current portion of long-term debt and capital lease obligations	$	~~117~~96		$	~~163~~114
Accounts payable		~~263~~355			~~246~~300
Accrued liabilities and other		~~531~~494			~~595~~481
Total current liabilities		~~911~~945			~~1,004~~895
Long-term debt		7,~~478~~378			97,~~610~~430
Deferred tax liabilities		~~385~~130			~~376~~131
Other liabilities		~~387~~487			~~354~~532
Total liabilities		98,~~161~~940			118,~~344~~988
Stockholder’s deficit:
Common stock, par value $.01 per share; 1,000 shares authorized, issued and outstanding at October 2, 2009 and December 31, 2008		—			—
Common stock, par value $.01 per share; 1,000 shares authorized, issued and outstanding at April 2, 2010 and December 31, 2009		—			—
Additional paid-in capital		7,~~227~~247			7,~~196~~241
Accumulated other comprehensive earnings		5543			3743
Accumulated deficit		(11,~~040~~414	)		(11,~~907~~158	)
Total stockholder’s deficit		(34,~~758~~124	)		(43,~~674~~874	)
Total liabilities and stockholder’s deficit	$	54,~~403~~816		$	65,~~670~~114

See accompanying notes.

Freescale Semiconductor, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	Three Months Ended
(in millions)	~~October~~April 2,~~2009~~2010			~~September~~April 263,~~2008~~2009
Net cash (used for) provided by operating activities	$	(71	)	$	709
Cash flows from operating activities:
Net (loss) earnings	$	(256	)	$	1,756
Depreciation and amortization		262			315
Reorganization of businesses and other		1			24
Stock-based compensation		6			16
Deferred incomes taxes		—			4
Loss (gain) on extinguishment and modification of long term debt		47			(2,264	)
Other non-cash items		21			32
Change in operating assets and liabilities:
Accounts receivable, net		(52	)		43
Inventory, net		(6	)		40
Accounts payable and accrued liabilities		30			4
Other operating assets and liabilities		(27	)		(50	)
Net cash provided by (used for) operating activities		26			(80	)
Cash flows from investing activities:
Sales and purchases of short-term investments, net		488			(53	)
Capital expenditures, net		(42	)		(15	)
Proceeds from sale of property, plant and equipment and assets held for sale		14			282
Proceeds from sale of businesses and investments		2			—
Proceeds from sale of businesses and investments		4			26
Sales and purchases of short-term investments, net		—			11
Payments for purchase licenses and other assets		(35	)		(53	)
Proceeds from sale of property, plant and equipment and assets held for sale		11			1
Capital expenditures		(46	)		(212	)
Payments for purchase licenses and other assets		(19	)		(13	)
Payments for acquisition of businesses, net of cash acquired		—			(94	)
Net cash used for investing activities		(48	)		(16	)
Other		—			(10	)
Net cash provided by (used for) investing activities		425			(114	)
Cash flows from financing activities (1):
Payments for long-term debt, capital lease obligations and notes payable		(110	)		(107	)
Retirements of and payments for long-term debt, capital lease obligations and notes payable		(837	)		(36	)
Debt issuance proceeds, net of debt issuance costs		184			—
Debt issuance proceeds		750			—
Other		(6	)		—
Proceeds from revolving loans		—			184
Net cash provided by (used for) financing activities		68			(107	)
Other		(48	)		(6	)
Effect of exchange rate changes on cash and cash equivalents		12			8
Net cash (used for) provided by financing activities		(135	)		142
Net increase in cash and cash equivalents		434			496
Effect of exchange rate changes on cash and cash equivalents		(15	)		(7	)
Cash and cash equivalents, beginning of period		900			206
Net (decrease) increase in cash and cash equivalents		(172	)		39
Cash and cash equivalents, end of period	$	1,334		$	702
Cash and cash equivalents, beginning of period		1,359			900
Cash and cash equivalents, end of period	$	1,187		$	939

(1) In the first quarter of 2009, a $2,264 non-cash gain on the extinguishment of long-term debt was recorded in connection with the Debt Exchange, as defined and discussed in Note 4 to our December 31, 2009 Annual Report on Form 10-K.

See accompanying notes.

Freescale Semiconductor, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Dollars in millions, except as noted)

(1) Summary of Significant Accounting Policies

Basis of Presentation: OnWith ~~December 1,~~over ~~2006~~50 years of operating history, Freescale Semiconductor, Inc. (“Freescale”) ~~was~~is ~~acquired by~~ a ~~consortium~~leader in ofthe ~~private~~design ~~equity~~and ~~funds~~manufacture ~~(the~~of ~~“Merger”)~~embedded processors. AtWe ~~the~~are ~~close~~based ofin ~~the Merger~~Austin, ~~all~~Texas ~~assets, liabilities, rights~~ and ~~obligations~~have ~~were~~design, ~~transferred~~research and ~~assigned to Freescale Holdings L.P.~~development, amanufacturing ~~Cayman Islands limited partnership (“Parent”)~~ and ~~Freescale~~sales ~~Acquisition~~operations ~~Corporation~~around ~~(formerly~~the ~~Firestone~~world. ~~Acquisition~~We ~~Corporation),~~currently anfocus ~~indirect~~on ~~wholly~~providing ~~owned~~products ~~subsidiary of Parent (“Merger Sub”). Pursuant~~ to the ~~terms~~automotive, ~~of the Merger~~consumer, industrial, ~~Merger~~networking ~~Sub~~and ~~was~~wireless ~~merged~~infrastructure ~~with~~industries. ~~and~~In ~~into Freescale,~~addition ~~and~~to asour aembedded ~~result~~processors, ~~Freescale~~we ~~continues~~offer asour ~~the~~customers ~~surviving corporation and~~ a ~~wholly~~broad ~~owned~~portfolio ~~indirect subsidiary~~ of ~~Parent.~~complementary Atdevices ~~the~~that ~~close~~provide ofconnectivity ~~the~~between ~~Merger~~products, ~~Freescale~~across ~~became~~networks aand ~~subsidiary~~to ~~of Freescale Semiconductor Holdings V, Inc.~~real-world ~~(“Holdings V”)~~signals, ~~which~~such isas ~~wholly owned by Freescale Semiconductor Holdings IV~~sound, ~~Ltd.~~vibration ~~(“Holdings IV”),~~and ~~which is wholly owned by Freescale Semiconductor Holdings III, Ltd~~pressure. ~~(“Holdings III”),~~Our ~~which~~complementary ~~is wholly~~products ~~owned~~include ~~by Freescale Semiconductor Holdings II~~sensors, ~~Ltd.~~radio ~~(“Holdings II”),~~frequency ~~which is wholly owned by Freescale Semiconductor Holdings I~~semiconductors, ~~Ltd.~~power ~~(“Holdings I”),~~management ~~substantially~~and ~~all~~other ofanalog ~~which~~and ismixed-signal ~~wholly~~integrated ~~owned by Parent~~circuits. ~~All~~Through ~~six~~our ofembedded ~~these~~processors ~~companies were formed for the purposes of facilitating the Merger~~ and ~~are collectively referred to as the “Parent Companies.” Subsequent to the closing of the Merger~~complementary products, we ~~issued~~are ~~approximately~~also ~~1,000~~able ~~shares~~to ofoffer our ~~common~~ ~~stock,~~customers ~~par~~platform-level ~~value $0.01~~products, inwhich ~~exchange~~incorporate ~~for~~both asemiconductors ~~contribution~~and ofsoftware. ~~approximately~~We ~~$7.1~~sell ~~billion.~~our ~~Freescale~~products ~~refers~~directly to ~~the~~original ~~operations~~equipment ofmanufacturers, ~~Freescale~~original ~~Semiconductor,~~design ~~Inc.~~manufacturers and ~~its subsidiaries. Freescale (which may be referred to as the “Company,”~~contract ~~“Freescale,”~~manufacturers ~~“we,”~~through ~~“us” or “~~our”) ~~refers~~global todirect ~~the~~sales ~~operations of Freescale Semiconductor, Inc~~force. ~~and its subsidiaries, as the context requires.~~

Our condensed consolidated financial statements include all majority-owned subsidiaries, a variable interest entity in which the Company is the primary beneficiary, and assets and liabilities of the Company. We consolidate the financial results of Freescale Semiconductor EME&A SA (“SBE”). The SBE was established to provide sales and distribution services to our European external customers from one centralized location. Freescale and Providence Holdings Hungary Kft (“Freescale Hungary”) each own a 50% interest in the SBE, with Freescale Hungary being the non-controlling interest holder. Freescale has concluded that we are the primary beneficiary of the SBE based on the amount of funding we provide towards the SBE’s operating activities and the alignment of our operating activities with that of the SBE. Included in the accompanying ~~condensed consolidated~~Condensed ~~balance~~Consolidated ~~sheet~~Balance Sheet as of ~~October~~April 2, ~~2009~~2010 is approximately $~~180~~216 million and $1512 million of assets and liabilities, respectively, attributed to the SBE. Our consolidation of the SBE did not have a material effect on non-controlling interest in the accompanying condensed consolidated financial statements. The consolidation of the SBE has not altered the operational agreements or other commitments of the SBE.

The accompanying condensed consolidated financial statements for Freescale as of ~~October~~April 2, ~~2009,~~2010 and December 31, ~~2008~~2009, and for the three ~~and nine~~ months ended ~~October~~April 2, ~~2009~~2010 and ~~September~~April 263, ~~2008~~2009 are unaudited, with the December 31, ~~2008~~2009 amounts included herein derived from the audited consolidated financial statements. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the financial position, results of operations and cash flows as of ~~October~~ April 2, ~~2009~~2010 and for all periods presented. Certain amounts reported in previous periods have been reclassified to conform to the current period presentation. WeFreescale ~~have~~and ~~evaluated~~its ~~all~~wholly-owned ~~subsequent~~subsidiaries ~~events~~are ~~through~~collectively referred ~~October 22~~to as the “Company,” ~~2009~~“Freescale,” ~~the~~“we,” ~~date the~~“us” ~~financial~~or ~~statements~~“our,” ~~were~~as ~~issued~~the context requires.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our December 31, ~~2008~~ 2009 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”). The results of operations for the three ~~and nine~~ months ended ~~October~~April 2, ~~2009~~2010 are not necessarily indicative of the operating results to be expected for the full year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our significant accounting policies and critical estimates are disclosed in our December 31, ~~2008~~2009 Annual Report on Form 10-K. ~~See~~Refer to “Significant Accounting Policies and Critical Estimates” within “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further information.

(2) Other Financial Data

Statements of Operations Supplemental Information

~~Impairment~~(Loss) Gain on Extinguishment or Modification of ~~Goodwill~~Long-Term ~~and Intangible~~Debt, ~~Assets~~Net

~~During~~We ~~the~~recorded ~~third~~a ~~quarter~~net ofcharge ~~2008, in connection with the termination~~ of ~~the~~$47 ~~amended~~million ~~and extended arrangement with Motorola, which was executed~~ in the ~~first~~accompanying ~~quarter~~Condensed ofConsolidated ~~2008~~Statement ~~(“Q1~~of ~~2008~~Operations ~~Motorola~~associated ~~Agreement”),~~with the close ~~significant decline in market capitalization~~ of the ~~public~~A&E ~~companies in our peer group~~Arrangement, ~~our~~which ~~intent~~includes ~~to pursue strategic alternatives for our cellular handset product group and~~ the ~~potential~~extinguishment ~~impact from weakening market conditions in our remaining businesses, we concluded that indicators~~ of ~~impairment~~debt ~~existed in relation to our goodwill~~ and our developed technology / purchased licenses, customer relationship, and trademark / tradename intangible assets. The goodwill, developed technology / purchased licenses, customer relationships, and trademarks / tradenames were established in purchase accounting at the ~~completion~~ issuance of the ~~Merger in December 2006.~~

In6 accordance with ASC Topic 350, “Intangibles-Goodwill and Other,” goodwill is required to be tested for impairment annually and if an event or conditions change that would more likely than not reduce the fair value of a reporting unit below its carrying value. As a result of the aforementioned impairment indicators, we updated the first step of our goodwill impairment test in the third quarter of 2008. The determination of fair value used in the impairment evaluation is based on a combination of the income approach, utilizing the discounted cash flow method, and the public company comparables approach, utilizing multiples of profit measures in order to estimate the fair value of the enterprise. We determined that our carrying value exceeded our fair value, indicating that goodwill was potentially impaired. As a result, we initiated the second step of the goodwill impairment test which involves calculating the implied fair value of our goodwill by allocating the fair value of the Company to all of our assets and liabilities other than goodwill and comparing it to the carrying amount of goodwill. As of the filing date for the Form 10-Q for the quarter ended September 26, 2008, we estimated that the implied fair value of our goodwill was less than its carrying value by approximately $2,627 million, which was recorded as a goodwill impairment charge in the third quarter of 2008. This charge was an estimate based on the results of the preliminary allocation of fair value in the second step of the goodwill impairment test. However, due to the timing and complexity of the valuation calculations required under the second step of the test, we did not finalize our allocation of fair value as of September 26, 2008 with regard to property, plant and equipment, deferred taxes and other items. The Company finalized and included the associated adjustments to the goodwill impairment charge in the fourth quarter of 2008.

As a result of the aforementioned impairment indicators and in accordance with ASC Topic 360, “Property, Plant, and Equipment,” we performed an analysis utilizing discounted future cash flows related to the specific amortized intangible assets to determine the fair value of each of our intangible asset groups (developed technology / purchased licenses, customer relationships, and trademarks / tradenames). Prior to a business reorganization of Freescale resulting in a change of the overall operating structure of our Company in the fourth quarter of 2007, we operated and accounted for our results under three reportable segments, and as such our intangible assets were included within those reportable segments. Upon concluding the net book value related to customer relationships and developed technology / purchased licenses intangible assets exceeded the future undiscounted cash flows and fair value attributable to such intangible assets, we recorded impairment charges of $696 million and $45 million related to our customer relationships and developed technology / purchased licenses intangible assets, respectively, in the third quarter of 2008.

Gain on Extinguishment of Long-Term Debt

During the third quarter of 2009, we recorded a $4 million pre-tax gain, net of the write-off of unamortized debt issuance costs in the Condensed Consolidated Statement of Operations in connection with the repurchase of $10 million of our Toggle Notes.

We recorded a $2,264 million pre-tax gain for debt extinguishment, net in the Condensed Consolidated Statement of Operations in the first quarter of 2009 in connection with the Debt Exchange. (See Note 4 for further discussion of this transaction.) Upon completion of the Debt Exchange, the carrying value of our outstanding long-term debt obligations on the Existing Notes declined by $2,853 million, including $24 million of accrued PIK Interest. This decline was partially offset by the issuance of Incremental Term Loans with a carrying value of $540 million. The Incremental Term Loans were valued based upon the public trading prices of the Existing Notes exchanged immediately prior to the launch of the Debt Exchange. We recorded $17 million of debt issuance costs in connection with the Incremental Term Loans. In addition, during the first nine months of 2009, we have repurchased $29 million of our Fixed Rate Notes and $27 million of our Toggle Notes, resulting in $25 million in pre-tax gains, net.

During the first nine months of 2008, we recorded a $16 million pre-tax gain, net in connection with the repurchase of $67 million of our Senior Subordinated Notes, $8 million of our Floating Rate Notes and $10 million of our Fixed Rate Notes. (Refer to Note 4 for definitions of capitalized terms and discussion.)

10.125% Secured Notes, and gains on repurchases of debt. (Refer to Note 4 for definition and discussion of A&E Arrangement and the 10.125% Secured Notes.) This charge consisted of expenses associated with the A&E Arrangement which were not eligible for capitalization under ASC Subtopic 470-50, “Modifications and Extinguishments” (“ASC Subtopic 470-50”), the write-off of unamortized debt issuance costs and remaining original issue discount related to the extinguished debt, and other related costs associated with closing the A&E Arrangement, partially offset by gains from repurchases of debt.

We recorded a $2,264 million pre-tax gain for debt extinguishment and modification, net in the accompanying Condensed Consolidated Statement of Operations in the first quarter of 2009 in connection with the Debt Exchange. (Refer to Note 4 in our December 31, 2009 Annual Report on Form 10-K for discussion of the transaction referred to as the Debt Exchange.)

Other Expense, Net

The following table displays the amounts comprising other expense, net in the Condensed Consolidated Statements of Operations:

	Three Months Ended						~~Nine Months Ended~~
	October 2,2009			September 26,2008			October 2,2009			September 26,2008
	April 2,2010			April 3,2009
Interest expense	$	(~~133~~148	)	$	(~~177~~173	)	$	~~(441~~	)	$	~~(546~~	)
Interest income		3			86			13			27
Interest expense, net		(~~130~~145	)		(~~169~~167	)		~~(428~~	)		~~(519~~	)
Other, net		(128	)		(41	)		~~(17~~	)		(6	)
Other expense, net	$	(~~142~~153	)	$	(~~173~~168	)	$	~~(445~~	)	$	~~(525~~	)

Cash paid for interest was $5562 million and $~~296~~90 million for the ~~third~~three ~~quarter and first nine~~ months ofended ~~2009~~April 2, ~~respectively,~~2010 and April 3, ~~$45 million and $412 million for the third quarter and first nine months of 2008~~2009, respectively. In the first ~~nine~~quarter ~~months~~ of 2009, cash paid for interest included $39 million of interest paid in connection with the Debt Exchange.

Other, Net

During the ~~third~~first quarter of ~~2009~~2010, in accordance with ASC Topic 815, “Derivatives and Hedging” (“ASC Topic 815”) we recognized pre-tax losses in other, net of $6 million due to the change in the fair value of our interest rate swaps and interest rate caps, as well as $1 million loss attributable to foreign currency fluctuations. Additionally, we recorded a $9 1 million pre-tax loss in other, net related to ~~certain~~one of our investments accounted for under the ~~cost~~equity method.

During the first nine months of 2009, we recorded the aforementioned $9 million pre-tax loss in other, net related to certain of our investments accounted for under the cost method, as well as a $3 million pre-tax loss on one of our investments accounted for under the equity method. Additionally, in accordance with ASC Topic 815, “Derivatives and Hedging” (“ASC Topic 815”), we recognized pre-tax losses in other, net of (i) $8 million related to the ineffective portion of our interest rate swaps that are no longer classified as a cash flow hedge and (ii) $4 million on the change in fair value of our interest rate swaps and caps. These losses were partially offset by a $4 million pre-tax gain in other, net recorded in the second quarter of 2009 in connection with a settlement of a Lehman Brothers Special Financing, Inc. (“LBSF”) swap arrangement with a notional amount of $400 million. (See further discussion of the LBSF swap arrangement in Note 4.)

During the first nine months of 2008, in accordance with ASC Topic 815, we recognized an $11 million pre-tax loss in other, net related to the cumulative ineffective portion and subsequent change in fair value of our interest rate swaps that are no longer classified as a cash flow hedge. We also recognized $4 million in pre-tax losses primarily attributable to one of our investments accounted for under the equity method, as well as foreign currency fluctuations. During the first quarter of 2008, we also recorded a $12 million pre-tax gain in other, net as a result of the sale of all of the shares in one of our investments accounted for under the cost method.

Comprehensive (Loss) Income

The components of total comprehensive ~~(loss) income (“OCI”)~~earnings, net of tax, were as follows:

	Three Months Ended						~~Nine Months Ended~~
	October 2,2009			September 26,2008			October 2,2009			September 26,2008
	April 2,2010			April 3,2009
Net (loss) income	$	(~~408~~256	)	$	(31,~~497~~756	)	$	~~867~~		$	~~(3,926~~	)
Net change in fair value on derivative contracts		3—			(24	)		12			6
Pension adjustments		(1	)		—			8			—
ASC Topic 715, “Compensation - Retirement Benefits” adjustment		—			2
Net change in cumulative translation adjustments		1—			1(5	)		(2	)		3
Total comprehensive (loss) income	$	(405	)	$	(3,498	)	$	885		$	(3,917	)
Total comprehensive earnings	$	(256	)	$	1,757

During the first ~~nine~~quarter ~~months~~ of 2009, in accordance with ASC Topic ~~715~~815, ~~“Compensation-Retirement~~ ~~Benefits,”~~ we ~~recorded~~reclassified a ~~gain of~~ $81 million topre-tax loss from accumulated other comprehensive ~~income~~earnings ~~related~~ to ~~curtailments~~other, ~~settlements~~net ~~and~~in ~~the~~connection ~~actuarial impact associated~~ with ~~our~~the ~~Japanese~~realization ~~pension~~of ~~obligations.~~the ~~These~~ineffective ~~items~~portion ~~were driven~~of by our ~~announcement~~interest torate ~~discontinue~~swaps ~~manufacturing~~that inwere ~~our~~no ~~Sendai,~~longer ~~Japan~~classified ~~facility by~~as ~~2011,~~a ~~along~~cash ~~with~~flow ~~other severance actions in Japan~~hedge. ~~(See further discussion in Note 9.)~~

Balance Sheets Supplemental Information

~~Short-Term~~Inventory, ~~Investments~~Net

Because continued macroeconomic weakness and financial market illiquidity may cause adverse pricing adjustments in its short-term investment portfolio, Freescale moved all of its short-term investments from a money market fund, which is a wholly owned subsidiary, to cash equivalent money market accounts in the first nine months of 2009. The money market fund ceased operations in the third quarter of 2009.

Inventory

Inventory consisted of the following:

	October 2,2009		December 31,2008
	April 2,2010		December 31,2009
Work in process and raw materials	$	~~460~~459	$	~~531~~444
Finished goods		~~165~~158		~~224~~162
	$	~~625~~617	$	~~755~~606

As of April 2, 2010 and December 31, 2009, our reserves for inventory deemed obsolete or in excess of forecasted demand, which are included in the amounts above, were $147 million and $155 million, respectively.

Property, Plant and Equipment, Net

Depreciation and amortization expense was approximately $~~162~~121 million and $~~501~~165 million for the ~~third~~three ~~quarter~~months ~~and~~ended ~~first~~April 2, ~~nine~~2010 ~~months~~and April 3, of 2009, including capital lease amortization expense of ~~$5 million and $15 million, respectively. Depreciation expense was~~ approximately $~~183~~4 million ~~and~~in ~~$545~~both ~~million for~~ the ~~third~~current ~~quarter~~ and ~~first~~prior ~~nine~~year ~~months of 2008, including capital lease amortization expense of $5 million and $15 million, respectively~~quarters. Accumulated depreciation and amortization was approximately $1,~~700~~958 million and $1,~~367~~821 million at ~~October~~April 2, 2010 ~~2009~~ and December 31, ~~2008~~2009, respectively.

During the first nine months of 2009, Freescale completed the exit from its wafer manufacturing facility in East Kilbride, Scotland. Accordingly, the associated East Kilbride facility assets are classified as held for sale as of October 2, 2009 and are included in other current assets on the Condensed Consolidated Balance Sheet.

During the first nine months of 2008, Freescale sold assets located at the 300-millimeter wafer fabrication facility located in Crolles, France, where we ended a development and manufacturing relationship with two other semiconductor manufacturers in the fourth quarter of 2007.

(3) Fair Value Measurement

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Authoritative guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are market inputs participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

Level 1 – quoted prices in active markets for identical assets or liabilities;

Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable;

Level 3 – inputs that are unobservable (for example, cash flow modeling inputs based on assumptions).

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

We measure cash and cash equivalents and derivative contracts at fair value on a recurring basis. The ~~table~~tables below ~~sets~~set forth, by level, ~~the~~ the fair value of these financial assets and liabilities as of ~~October~~April 2, 2010 and December 31, 2009, respectively. The table does not include assets and liabilities which are measured at historical cost or on any basis other than fair value. In the first quarter of 2010, there were no significant transfers between Level 1 and Level 2 inputs and no significant transfers in or out of Level 3 inputs.

As of April 2, 2010:


			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
*Assets*
Money market mutual funds ⁽¹⁾	$	823	$	823	$	—	$	—
Time deposits ⁽¹⁾		292		292		—		—
Asset-backed security⁽²⁾		5		—		—		5
Auction rate securities ⁽³⁾		29		—		—		29
Foreign currency derivative contracts ⁽⁴⁾		2		—		2		—
Interest rate cap arrangements ⁽⁵⁾		3		—		3		—
Other derivative⁽³⁾		2		—		—		2

Total Assets	$	1,156	$	1,115	$	5	$	36

*Liabilities*
Interest rate swap agreements ⁽⁶⁾	$	12	$	—	$	12	$	—
Foreign currency derivative contracts ⁽⁴⁾		2		—		2		—

Total Liabilities	$	14	$	—	$	14	$	—

As of December 31, 2009:


			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
*Assets*
Money market mutual funds ⁽¹⁾	$	1,013	$	1,013	$	—	$	—
Time deposits ⁽¹⁾		267		267		—		—
Asset-backed security⁽²⁾		5		—		—		5
Auction rate securities ⁽³⁾		30		—		—		30
Foreign currency derivative contracts ⁽⁴⁾		2		—		2		—
Interest rate cap arrangements ⁽⁵⁾		6		—		6
Other derivative⁽³⁾		3		—		—		3

Total Assets	$	1,326	$	1,280	$	8	$	38

*Liabilities*
Interest rate swap agreements ⁽⁶⁾	$	11	$	—	$	11	$	—
Foreign currency derivative contracts ⁽⁴⁾		4		—		4		—

Total Liabilities	$	15	$	—	$	15	$	—

The following footnotes indicate where the noted items are recorded in our accompanying Condensed Consolidated Balance Sheets at April 2, 2010 and December 31, 2009:

(1)	Money market funds and time deposits are reported as cash and cash equivalents.

(2)	The asset-backed security is reported as other current assets.

(3)	ARS and other derivatives are reported as other current assets.

(4)	Foreign currency derivative contracts are reported as other current assets or accrued liabilities and other.

(5)	Interest rate cap arrangements are reported as other assets.

(6)	Interest rate swap agreements are reported as accrued liabilities and other or other liabilities at April 2, 2010 and in other liabilities at December 31, 2009.

			Quoted Pricesin ActiveMarkets forIdenticalAssets		SignificantOtherObservableInputs		SignificantUnobservableInputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets
Money market mutual funds (1)	$	1,156	$	1,156	$	—	$	—
Time deposits (1)	$	103		103		—		—
Asset-backed securities (2)	$	5		—		—		5
Auction rate securities (3)	$	34		—		—		34
Other derivative (3)	$	9		—		6		3
Total Assets	$	1,307	$	1,259	$	6	$	42
Liabilities
Interest rate swap and cap agreements (5)	$	17		—		17		—
Foreign currency derivative contracts (4)	$	1		—		1		—
Total Liabilities	$	18	$	—	$	18	$	—

Valuation Methodologies

The ~~following~~asset-backed ~~footnotes~~security ~~indicate~~classified ~~where~~above ~~these~~as ~~items~~Level 3 ~~are~~is ~~recorded~~professionally managed and classified in other current assets. The pricing methodology applied includes a number of standard inputs to the valuation model including benchmark yields and other reference data. Due to the recent uncertainties in the credit markets, our ~~Condensed~~asset-backed ~~Consolidated~~security ~~Balance~~with ~~Sheet~~a atfair ~~October~~value of $5 million as of April 2, ~~2009:~~ 2010 is classified as Level 3.

~~(1)~~Due ~~Money~~to ~~market~~uncertainties ~~mutual~~in ~~funds~~the credit markets, the auctions for our ARS have failed to settle on their respective settlement dates, and ~~time~~as ~~deposits~~a result, Level 1 and Level 2 pricing is not available. Therefore, these securities are ~~reported~~classified as Level 3 assets, and we have used a discounted cash flow (“DCF”) model to determine the estimated fair value as of April 2, 2010. The assumptions used in preparing the DCF model include estimates for (i) the amount and timing of future interest and principal payments and (ii) the rate of return required by investors to own these securities in the current environment. We have an arrangement with UBS whereby we can exercise our rights under the agreement and sell all of our ARS to UBS during the period of June 30, 2010 through July 2, 2012 for par value. As a result of this arrangement, our ARS are classified as other current assets on the accompanying Condensed Consolidated Balance Sheet as of April 2, 2010. The $2 million value of the redemption rights was determined using a discounted cash ~~equivalents~~flow model similar to that used to value the ARS.

~~(2)~~In ~~Asset-backed~~determining ~~securities~~the ~~are~~fair ~~reported~~value of our interest rate swap derivatives, we use the present value of expected cash flows based on market observable interest rate yield curves commensurate with the term of each instrument. The fair value of our interest rate caps was also estimated based on market observable interest rate yield curves, as ~~other~~well ~~current~~as market observable interest rate volatility indexes. For foreign currency derivatives, our approach is to use forward contract valuation models employing market observable inputs, such as spot currency rates, time value and option volatilities. Since we only use observable inputs in our valuation of our derivative assets and liabilities, they are considered Level 2.

~~(3)~~The ~~Auction~~following ~~rate~~table ~~securities~~summarizes ~~and~~the ~~other~~change ~~derivatives~~in ~~are~~the ~~reported~~fair asvalue ~~other~~for ~~current~~Level ~~assets~~3 orinputs ~~long-term~~for ~~assets.~~the three months ended April 2, 2010 and April 3, 2009, respectively:

(4) Interest rate swap agreements are reported as accrued liabilities and other long-term liabilities.


	Level 3 - Significant Unobservable Inputs
Changes in Fair Value for the Quarter Ended April 2, 2010	Asset-backed securities		Auction rate securities			Other derivatives			Interest rate swap agreements			Total Gains (Losses)
Balance as of January 1, 2010	$	5	$	30		$	3		$	—
Total gains or losses (realized or unrealized):
Included in earnings*		—		1			(1	)		—			—
Included in OCI		—		—			—			—			—
Purchases, sales, issuances, and settlements, net		—		(2	)		—			—
Transfers in and/or out of Level 3		—		—			—			—

Balance as of April 2, 2010	$	5	$	29		$	2		$	—		$	—


The amount of total gains or losses for the quarter ended April 2, 2010 included in earnings attributable to the changes in unrealized gains or losses related to assets and liabilities still held as of April 2, 2010*	$	—	$	1		$	(1	)	$	—		$	—


	Level 3 - Significant Unobservable Inputs
Changes in Fair Value for the Quarter Ended April 3, 2009	Asset-backed securities		Auction rate securities			Other derivatives			Interest rate swap agreements			Total Gains (Losses)
Balance as of January 1, 2009	$	6	$	28		$	5		$	(11	)
Total gains or losses (realized or unrealized):
Included in earnings*		—		6			(4	)		—			2
Included in OCI		—		1			—			—			1
Purchases, sales, issuances, and settlements, net		—		—			—			—
Transfers in and/or out of Level 3		—		—			—			—

Balance as of April 3, 2009	$	6	$	35		$	1		$	(11	)	$	3


The amount of total gains or losses for the quarter ended April 3, 2009 included in earnings attributable to the changes in unrealized gains or losses related to assets and liabilities still held as of April 3, 2009*	$	—	$	6		$	(4	)	$	—		$	2

* The realized and unrealized gains (5losses) ~~Foreign~~reflected ~~currency~~in ~~derivative~~the ~~contracts~~table ~~are~~above ~~reported~~for asthe ~~accrued~~three ~~liabilities~~months ended April 2, 2010 and April 3, 2009 are recorded in other, net in the accompanying Condensed Consolidated Statements of Operations.

The following tables summarize the change in the fair value for instruments with Level 3 inputs for the three and nine months ended October 2, 2009:

	Level 3 - Significant Unobservable Inputs
Changes in Fair Value for the Three Months Ended October 2, 2009	Asset-backedsecurities			Auction ratesecurities			Otherderivatives		Total Gains(Losses)
Balance as of July 4, 2009	$	6		$	34		$	1
Total gains or losses (realized or unrealized):
Included in earnings*		—			1			1		2
Included in OCI		—			(1	)		—		(1	)
Purchases, sales, issuances, and settlements, net		(1	)		—			1
Transfers in and/or out of Level 3		—			—			—
Balance as of October 2, 2009	$	5		$	34		$	3	$	1
The amount of total gains or losses for the three months ended October 2, 2009 included in earnings attributable to the changes in unrealized gains or losses related to assets and liabilities still held as of October 2, 2009*	$	—		$	1		$	1	$	2

	Level 3 - Significant Unobservable Inputs
Changes in Fair Value for the Nine Months Ended October 2, 2009	Asset-backedsecurities			Auction ratesecurities			Otherderivatives			Interest rateswapagreements			Total Gains(Losses)
Balance as of January 1, 2009	$	6		$	28		$	5		$	(11	)
Total gains or losses (realized or unrealized):
Included in earnings*		—			7			(3	)		4			8
Included in OCI		—			(1	)		—			—			(1	)
Purchases, sales, issuances, and settlements, net		(1	)		—			1			7
Transfers in and/or out of Level 3		—			—			—			—
Balance as of October 2, 2009	$	5		$	34		$	3		$	—		$	7
The amount of total gains or losses for the nine months ended October 2, 2009 included in earnings attributable to the changes in unrealized gains or losses related to assets and liabilities still held as of October 2, 2009*	$	—		$	7		$	(3	)	$	—		$	4

* The realized and unrealized gains (losses) reflected in the table above for the three and nine months ended October 2, 2009 are recorded in other, net in the Condensed Consolidated Statements of Operations.

Fair Value of Other Financial Instruments

In addition to the assets and liabilities described above, our financial instruments also include accounts receivable, other investments, accounts payable, accrued liabilities and long-term debt. Except for the fair value of the principal amount our long-term debt, excluding accrued PIK Interest on the PIK-Election Notes (as defined in Note 4), which iswas $67,~~215~~378 million and $7,036 million at ~~October~~April 2, 2010 and December 31, 2009 (as determined based upon quoted market prices), the fair values of these financial instruments were not materially different from their carrying or contract values at ~~October 2,~~those ~~2009~~dates.

Assets and Liabilities Measured and Recorded at Fair Value on a Non-recurring Basis

We measure certain financial assets, including cost and equity method investments, at fair value on a nonrecurring basis. These assets are adjusted to fair value when they are deemed to be other-than-temporarily impaired. During the third quarter of 2009, we recorded $9 million in other-than-temporary impairments on such assets, which were determined by fair value measurements classified within Level 3 of the valuation hierarchy and based on our percentage ownership of the estimated value of these assets. As of ~~October~~April 2, ~~2009~~2010, the fair value of these ~~impaired~~ assets was $35 million.

(4) Debt

The carrying value of our long-term debt at April 2, 2010 and December 31, 2009 consisted of the following:


	April 2, 2010			December 31, 2009
Extended maturity term loan	$	2,258		$	—
Original maturity term loan		470			3,372
Revolving credit facility		532			644
Incremental term loans		566			558
Senior secured 10.125% notes due 2018		750			—
Senior unsecured floating rate notes due 2014		181			194
Senior unsecured 9.125%/9.875% PIK-election notes due 2014		544			560
Senior unsecured 8.875% notes due 2014		1,357			1,382
Senior subordinated 10.125% notes due 2016		764			764
Foreign subsidiary loan		45			61

		7,467			7,535
Less: current maturities		(89	)		(105	)

Total long-term debt	$	7,378		$	7,430

Amend and Extend Arrangement

On February 12, 2010, we received the requisite consents from our lenders to amend our Credit Facility. As a result, on February 19, 2010, we closed the transaction referred to as the Amend and Extend Arrangement (the “A&E Arrangement”) and announced the amendment of our Credit Facility and the private placement of $750 million aggregate principal amount of 10.125% senior secured notes due 2018 (“the 10.125% Secured Notes”). The gross proceeds of this offering were used to prepay amounts outstanding under our Credit Facility as follows: $635 million under the Original Term Loan, $3 million under the Incremental Term Loans, and $112 million under the Revolver. Further, the maturity of approximately $2,265 million of debt outstanding under the Original Term Loan was extended to December 1, 2016 and is now referred to as the “Extended Term Loan.” The terms of the amended Credit Facility also allow for one or more future issuances of additional senior secured notes to be secured on a pari passu basis with the obligations under the Credit Facility, so long as, among other things, the net cash proceeds from any such issuance are used to prepay amounts outstanding under the Credit Facility at par. (Capitalized terms are defined in the “Credit Facility” discussion which follows.)

Certain lenders under the Credit Facility who participated in the partial prepayment of that debt also purchased the 10.125% Secured Notes (“Purchasers”). Effectively, a portion of the Revolver and Original Term Loan was exchanged by the Purchasers for 10.125% Secured Notes. This portion of the transaction was accounted for as a substantial modification of debt under the guidelines of ASC Subtopic 470-50. This conclusion was reached as the difference between the present value of the cash flows under the terms of the 10.125% Secured Notes and the present value of the remaining cash flows under the portions of the Revolver and Original Term Loan held by the Purchasers exceeded 10 percent. A majority of the prepayments under the Credit Facility, however, were accomplished through an exchange of cash proceeds received from the issuance of the 10.125% Secured Notes, thus relieving Freescale and certain of Freescale’s parent companies of their obligations associated with that portion of the liability outstanding under the Credit Facility. This portion of the A&E Arrangement constitutes an extinguishment of debt under ASC Subtopic 470-50 and was accounted for accordingly.

~~(4)~~The ~~Debt~~issuance of the Extended Term Loan and the extinguishment of a portion of the Original Term Loan does not meet the definition of a substantial modification of debt under the guidelines of ASC Subtopic 470-50, as the present value of the cash flows under the Extended Term Loan vary by less than 10 percent from the present value of the cash flows of the extinguished portion of the Original Term Loan. In addition, of the $750 million aggregate principal amount of 10.125% Secured Notes, $726 million was accounted for as an issuance of debt, and as described previously, $24 million was accounted for as an exchange of debt by the Purchasers. The 10.125% Secured Notes were recorded at fair value based, in part, on public trading prices of the 10.125% Secured Notes on and around the close of the offering, in addition to the $750 million in cash proceeds received from the issuance.

~~Our~~Credit ~~carrying~~Facility ~~value of our long-term debt at October 2, 2009 and December 31, 2008 consisted of the following:~~

	October 2,2009			December 31,2008
Term loan	$	3,380		$	3,430
Incremental term loans		552			—
Revolving credit facility		644			460
Floating rate notes due 2014		194			475
9.125%/9.875% PIK-election notes due 2014		559			1,506
8.875% notes due 2014		1,414			2,287
Subordinated 10.125% notes due 2016		764			1,511
Foreign subsidiary loan		77			92
		7,584			9,761
Less: current maturities		(106	)		(151	)
Total long-term debt	$	7,478		$	9,610

At April 2, 2010, Freescale, along with certain other Freescale parent companies, had a senior secured credit facility (the “Credit Facility”) that included (i) the residual outstanding amount of our original maturity $3.5 billion term loan (“Original Term Loan”), (ii) our senior secured incremental term loans (the “Incremental Term Loans”), (iii) our revolving credit facility, including letters of credit and swing line loan sub-facilities, with a committed capacity of $578 million (“Revolver”), as reduced by the $112 million prepayment made in connection with the A&E Arrangement, and (iv) the aforementioned Extended Term Loan. The new terms of the Credit Facility are governed by the Amended and Restated Credit Agreement dated February 19, 2010.

~~Debt~~Extended ~~Exchange~~Maturity Term Loan

OnAt ~~February~~April 102, ~~2009~~2010, $2,258 million was outstanding under the Extended Term Loan, which will mature on December 1, 2016. The Extended Term Loan bears interest, at Freescale’s ~~invited~~option, ~~eligible~~at ~~holders~~a ofrate ~~each~~equal ofto ~~its~~a margin over either (i) ~~Senior~~a ~~Floating~~base ~~Rate~~rate ~~Notes~~equal ~~due~~to ~~2014~~the ~~(“Floating~~higher ~~Rate~~of ~~Notes”),~~either (iia) 9the prime rate of Citibank, N.~~125%/9~~A.~~875%~~ ~~Senior~~or ~~PIK-Election Notes~~(b) the ~~due~~federal ~~2014~~funds ~~(“Toggle~~rate, ~~Notes”)~~plus one-half of 1%; or, (~~iii~~ii) ~~8.875%~~a ~~Senior~~LIBOR ~~Fixed~~rate ~~Rate~~based ~~Notes~~on ~~due~~the ~~2014~~cost ~~(“Fixed~~of ~~Rate~~funds ~~Notes”)~~for ~~and~~deposit ~~(iv)~~in the currency of borrowing for the relevant interest period, adjusted for certain additional costs. The interest rate on the Extended Term Loan at April 102, 2010 was 4.~~125~~50%. ~~Senior~~Further, ~~Subordinated~~in ~~Notes~~connection ~~due~~with ~~2016~~the ~~(“Senior~~Amended ~~Subordinated~~and ~~Notes”)~~Restated toCredit ~~participate~~Agreement, asthe aspread ~~lender in~~over LIBOR with respect to the ~~issuance~~Extended ofTerm ~~new~~Loan ~~senior~~increased ~~secured~~from ~~incremental~~1.75% ~~term~~to ~~loans~~4.25%. ~~under~~Under the ~~existing~~Amended and Restated Credit ~~Facility~~Agreement, (Freescale continues to be required to repay a portion of the ~~“Incremental~~outstanding ~~Term~~term ~~Loans”)~~loans in aquarterly ~~transaction~~installments ~~referred~~in aggregate annual amounts equal to as1% of the ~~“Debt~~initial ~~Exchange~~outstanding Original Term Loan balance.” ~~The~~These ~~aggregate~~payments ~~principal~~will ~~amount~~be ratably applied against the balance of ~~Incremental~~the Original Term ~~Loans~~Loan ~~available~~and tothe ~~eligible~~Extended ~~holders~~Term inLoan based on the ~~invitations~~outstanding ~~was~~balances $1at ~~billion~~the effective date of the Amended and Restated Credit Agreement. In addition, ~~including~~under the ~~incremental~~Amended ~~term~~and ~~loans~~Restated ~~payable~~Credit asAgreement, ~~compensation~~there tois ~~certain~~an ofearly ~~Freescale’s~~maturity ~~advisors.~~acceleration clause ~~(The~~associated ~~Floating~~with ~~Rate~~the ~~Notes,~~Extended Term Loan such that principal amounts under the ~~Toggle~~Extended ~~Notes~~Term Loan will become due and payable on September 1, 2014 if, at June 30, 2014, (i) the ~~Fixed~~aggregate ~~Rate~~principal ~~Notes~~amount ~~and~~of the senior unsecured floating rate notes due 2014, the ~~Senior~~senior ~~Subordinated~~unsecured ~~Notes~~9.125% ~~are~~/ ~~collectively~~9.875% ~~referred~~PIK-election tonotes asdue 2014 and the ~~“Existing~~senior ~~Notes”~~unsecured 8.875% notes due 2014 exceeds $500 million and ~~are~~(ii) Freescale’s ~~discussed~~total ~~further~~leverage inratio ~~this~~is ~~Note~~greater than 4:1.)

OnOther March 10, 2009, Freescale’s invitation to participate in the Debt Exchange expired for all Floating Rate Notes, Fixed Rate Notes and Senior Subordinated Notes. On March 24, 2009, Freescale’s invitation to participate in the Debt Exchange expired for all Toggle Notes. Through the Debt Exchange, $2,829 million aggregate principal amounts of Existing Notes were retired, including $281 million of Floating Rate Notes, $957 million of Toggle Notes, $845 million of Fixed Rate Notes and $746 million of Senior Subordinated Notes. Based on the principal amount of Floating Rate Notes, Fixed Rate Notes and Senior Subordinated Notes delivered and accepted, Freescale issued approximately $665 million principal amount of Incremental Term Loans under the Incremental Amendment dated March 17, 2009. On March 26, 2009, based on the principal amount of Toggle Notes validly delivered and accepted, Freescale issued an additional $237 million principal amount of Incremental Term Loans. Furthermore, as compensation for the arranger services, additional Incremental Term Loans with a principal of $22 million were issued, for a total of approximately $924 million aggregate principal amount of Incremental Term Loans. At October 2, 2009, the Incremental Term Loans are recorded on the Condensed Consolidated Balance Sheet at a $367 million discount, which is subject to accretion to par value over the term of the restructured debt using the effective interest method.

InAt ~~the first quarter of 2009, we recorded a $2,264 million pre-tax gain in the Condensed Consolidated Statement of Operations in connection with the Debt Exchange.~~April The transaction meets the definition of a substantial modification of debt under the guidelines of ASC Topic 470, “Debt” and, accordingly, was accounted for as an extinguishment of debt. The basis for this determination is the present value of the cash flows under the terms of the new debt instrument were greater than 10 percent different from the present value of the remaining cash flows under the terms of the original instrument. The gain on the Debt Exchange was calculated by comparing the fair value of the new debt instrument to the carrying amount of the extinguished debt, net of the associated unamortized debt issuance costs. Upon completion of the Debt Exchange, the carrying value of our outstanding long-term debt obligations on the Existing Notes declined by $2,~~853~~ ~~million~~2010, ~~including $24 million of accrued PIK Interest (as defined later in this section). This decline was partially offset by~~ the ~~issuance of~~ Incremental Term Loans ~~with~~are arecorded ~~carrying~~on ~~value of $540 million. The Incremental Term Loans were valued based upon~~ the ~~public~~Condensed ~~trading~~Consolidated ~~prices~~Balance ofSheet ~~the Existing~~at ~~Notes~~a ~~exchanged immediately prior to the launch of the Debt Exchange. We recorded~~ $17 347 million ofdiscount, ~~debt~~which ~~issuance~~is ~~costs~~subject into ~~connection~~accretion ~~with~~to ~~the~~par ~~Incremental~~value ~~Term Loans, which are being amortized~~ over the term of the ~~Incremental~~debt ~~Term Loans~~ using the effective interest method.

The interest rate on the Original Term Loan and the Revolver at April 2, 2010 was 2.00% and 2.25%, respectively. In addition, the Revolver had a remaining borrowing capacity of $14 million, net of $32 million in outstanding letters of credit as of April 2, 2010.

The obligations under the Credit Facility as governed by the Amended and Restated Credit Agreement are unconditionally guaranteed by the same parties and in the same manner as under the original agreement that was in effect prior to the A&E Arrangement. In addition, the Credit Facility as governed by the Amended and Restated Credit Agreement is subject to the same prepayment requirements under certain circumstances and subject to certain exceptions as the original Credit Facility. (Refer to the guarantees discussion under “Credit Facility” in Note 4 to our December 31, 2009 Annual Report on Form 10-K for further information.)

~~Credit~~Senior ~~Facility~~Notes

~~At October 2, 2009, Freescale, Holdings III, IV and V had a senior secured credit facility (“Credit Facility”) that included (i) a $3~~10.~~5 billion~~125% ~~term~~Secured ~~loan~~Notes (“Term Loan”), (ii) the aforementioned Incremental Term Loans and (iii) a revolving credit facility, including letters of credit and swing line loan sub-facilities, with a committed capacity of $690 million (“Revolver”), excluding a non-funding commitment attributable to Lehman Commercial Paper, Inc. (“LCPI”), which filed a petition under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York on October 5, 2008. LCPI has a commitment in the amount of $60 million of the Revolver; but, we do not expect that borrowing requests will be honored by LCPI.

InFreescale ~~January~~had ~~2009,~~an ~~Freescale~~aggregate ~~drew~~principal ~~down~~amount of $~~184~~750 million, ~~net~~in of10.125% ~~LCPI~~Secured ~~non-funding~~Notes outstanding at April 2, ~~from~~2010. Relative to our overall indebtedness, the ~~Revolver~~10.125% ~~Freescale~~Secured ~~made~~Notes ~~this~~rank ~~financial~~in ~~decision~~right of payment pari passu to ~~further~~our ~~enhance~~existing ~~its~~senior ~~liquidity~~secured indebtedness, senior to senior unsecured indebtedness and ~~net~~senior ~~cash~~to ~~position~~all subordinated indebtedness. The 10.125% Secured Notes are governed by the Indenture Agreement dated as of February 19, 2010 (the “Indenture Agreement”).

Freescale’s ~~debt~~may ~~agreements~~redeem, ~~require~~in ~~additional~~whole ~~payments~~or ~~from~~in ~~proceeds~~part, ~~received~~the ~~upon~~10.125% ~~certain~~Secured ~~asset~~Notes ~~dispositions~~at any time prior to March 15, ~~excess~~2014 ~~cash~~at ~~flows~~a ~~and the~~redemption ~~incurrence~~price orequal ~~issuance~~to 100% of ~~certain~~the ~~debt~~principal balance, plus accrued and unpaid interest, if any, plus the applicable “make-whole” premium, as defined in the ~~debt~~Indenture ~~agreements~~Agreement. ~~Based~~Freescale ~~on our~~may ~~operating~~redeem, ~~results~~in ~~for~~whole or in part, the ~~year~~10.125% Secured ~~ended~~Notes at any time after March ~~December 31~~15, ~~2008~~2014 at a redemption price equal to 100% of the principal balance, we ~~made~~plus accrued and unpaid interest, if any, plus a ~~mandatory~~premium ~~prepayment~~declining over time as set forth in the ~~first~~Indenture ~~nine~~Agreement. ~~months~~In ofaddition, ~~2009~~at any ~~based~~time on or prior to March 15, 2013, Freescale may redeem up to 35% of the aggregate principal amount of the 10.125% Secured Notes with the proceeds of certain equity offerings, as described in the Indenture Agreement. If Freescale ~~excess~~experiences ~~cash~~certain ~~flows~~change of ~~approximately~~control ~~$24~~events, ~~million~~holders of the 10.125% Secured Notes may require Freescale to repurchase all or part of their 10.125% Secured Notes at 101% of the principal balance, plus accrued and unpaid interest. Each of our wholly-owned subsidiaries that guarantee indebtedness under the Credit Facility also guarantees the 10.125% Secured Notes. (Refer to the guarantees discussion in Note 4 to our December 31, 2009 Annual Report on Form 10-K for further information.)

~~The~~Other Term Loan will mature on December 1, 2013. The Revolver will be available through December 1, 2012, at which time all outstanding principal amounts under the Revolver will be due and payable. Borrowings under the Credit Facility may be used for working capital purposes, capital expenditures, investments, share repurchases, acquisitions and other general corporate purposes. At October 2, 2009, $3,380 million and $644 million were outstanding under the Term Loan and Revolver, respectively, and the Revolver had a remaining capacity of $17 million, excluding the LCPI commitment and $29 million in outstanding letters of credit.

~~The Term Loan and Revolver bear interest, at~~ Freescale’s ~~option,~~senior atunsecured afloating rate ~~equal~~notes todue a2014 ~~margin~~bear ~~over~~interest ~~either~~at ~~(i)~~ a ~~base~~ rate ~~equal to the higher of either (a) the prime rate of Citibank~~, ~~N.A.~~reset ~~or (b) the federal funds rate~~quarterly, ~~plus~~equal ~~one~~to 3-~~half~~month LIBOR ~~of 1%; or,~~ (~~ii) a~~which ~~LIBOR~~was ~~rate based on the cost of funds for deposit in the currency of borrowing for the relevant interest period, adjusted for certain additional costs~~0.26% ~~The interest rate~~ on ~~the Term Loan and the Revolver at October~~April 2, ~~2009~~2010) ~~was~~plus 23.00875% and 2.25%, respectively. The applicable margin for borrowings under the Revolver may be reduced subject to the attainment of certain leverage ratios. Freescale is also required to repay a portion of the outstanding Term Loan balance in quarterly installments in aggregate annual amounts equal to 1% of the initial outstanding balance for the first six years and nine months after the Term Loan closing date, with the remaining balance due upon maturity. Freescale is also required to pay quarterly facility commitment fees on the unutilized capacity of the Revolver at an initial rate of 0.50% per annum. ~~The commitment fee rate may be reduced subject to our attaining certain leverage ratios. Freescale is also required to pay customary letter of credit fees.~~

~~The~~Under ~~Incremental~~Freescale’s ~~Term~~senior unsecured ~~Loans~~9.125% ~~will~~/ ~~mature~~9.875% onPIK-election ~~December 15,~~notes due 2014. ~~These~~(“PIK-Election ~~loans~~Notes”), ~~are~~Freescale ~~guaranteed~~has byelected ~~the~~to ~~same~~use ~~guarantors under~~ the ~~existing~~ ~~Credit~~payment-in-kind ~~Facility agreement~~ (~~see~~“PIK”) ~~Note~~feature 4of in the ~~December 31,~~outstanding ~~2008 Annual Report on Form 10~~PIK-KElection ~~for~~Notes ~~further~~in ~~discussion)~~lieu ~~and~~of ~~are~~making ~~secured~~cash ~~by a security~~ interest inpayments (“PIK ~~all~~Interest”) ofthrough the ~~collateral~~interest ~~for~~period ~~the~~ending ~~obligations~~June 15, of2010, ~~Freescale~~ and ~~the~~have ~~guarantors under~~ the ~~existing~~option ~~Credit~~to ~~Facility~~continue ~~and~~to ~~related~~elect ~~loan documents. The Incremental Term Loans bear interest at a rate per annum equal~~ to ~~12.5%~~pay ~~and a default rate of 14.5%, and~~ interest onin the ~~Incremental~~form ~~Term~~of ~~Loans~~PIK isInterest ~~payable~~through ~~quarterly~~December 15, ~~in arrears~~2011. ~~Freescale is~~Accordingly, ~~required~~as toof ~~repay~~April 2, a2010, ~~portion~~$16 million of ~~the~~accrued ~~outstanding~~PIK ~~Incremental~~Interest ~~Term~~associated ~~Loan~~with ~~balance in quarterly installments in aggregate annual amounts equal to 1% of~~ the ~~initial~~PIK-Election ~~outstanding~~Notes ~~balance~~was ~~(subject~~classified ~~to reduction following prepayment of such Incremental Term Loans~~ as ~~set~~long-term ~~forth~~debt inon the ~~existing~~accompanying ~~Credit~~Condensed ~~Facility~~Consolidated ~~agreement),~~Balance ~~with the remaining balance due upon maturity~~Sheet.

Existing Notes

Freescale had an aggregate principal amount of $2,931 million in senior notes outstanding at October 2, 2009, consisting of (i) $194 million Floating Rate Notes bearing interest at a rate, reset quarterly, equal to 3-month LIBOR (which was 0.30% on October 2, 2009) plus 3.875% per annum, (ii) $559 million of Toggle Notes, (iii) $1,414 million of Fixed Rate Notes, and (iv) $764 million of Senior Subordinated Notes. Relative to our overall indebtedness, the Existing Notes (other than the Senior Subordinated Notes), rank in right of payment (i) equal to all senior unsecured indebtedness (ii) senior to all subordinated indebtedness (including the Senior Subordinated Notes), and (iii) junior to all secured indebtedness (including the Credit Facility), to the extent assets secure that indebtedness. The Senior Subordinated Notes are unsecured senior subordinated obligations and rank junior in right of payment to our senior indebtedness, including indebtedness under the Credit Facility and the other Existing Notes. The Existing Notes are governed by two Indentures dated as of December 1, 2006, as supplemented and amended.

In the third quarter of 2009, Freescale repurchased $10 million of its Toggle Notes at a $4 million discount. In the first nine months of 2009, Freescale repurchased $29 million of its Fixed Rate Notes and $27 million of its Toggle Notes at a $25 million discount, net of $1 million in non-cash charges associated with the recognition of unamortized debt issuance costs associated with the early retirement of this debt. Freescale used funds from the short-term investment portfolio for the purchase and early retirement of these notes. The redemption price on the repurchases included accrued and unpaid interest up to, but not including, the redemption date.

In 2008, Freescale elected to use the payment-in-kind (“PIK”) feature of its outstanding Toggle Notes in lieu of making cash interest payments (“PIK Interest”) for the interest period ending on June 15, 2009. In connection with this election, on December 4, 2008, Freescale delivered notice to The Bank of New York Mellon (formerly The Bank of New York), in its capacity as trustee under the Indenture governing the Toggle Notes, that, with respect to the interest that would be due on such notes on the June 15, 2009 interest payment date, it would make such interest payment by paying in kind at the PIK interest rate of 9.875% instead of paying interest in cash. As a result, Freescale issued a total of approximately $27 million of incremental Toggle Notes on June 15, 2009. Freescale also elected to use the PIK feature of its outstanding Toggle Notes for the interest period ending on December 15, 2009. Accordingly, as of October 2, 2009, $16 million of accrued PIK Interest associated with the Toggle Notes was classified as long-term debt.

In connection with the issuance of the Term Loan and Floating Rate Notes, Freescale also entered into interest rate swap and cap contracts with various counterparties as a hedge of the variable cash flows of our variable interest rate debt. See Note 5 for further details of these interest rate swap and cap contracts. In the first quarter of 2009, Freescale switched to 1-month LIBOR on the Term Loan in order to realize interest payment savings on decreasing interest rates.

Covenant Compliance

~~The~~Freescale’s Credit Facility and ~~Indentures~~indenture ~~have~~agreements contain restrictive covenants that limit the ability of our subsidiaries to, among other things, incur or guarantee additional indebtedness or issue preferred stock; pay dividends and make other restricted payments; ~~incur~~pay ~~restrictions on the payment of~~ dividends or make other distributions from our restricted subsidiaries; create or incur certain liens; make certain investments; transfer or sell assets; engage in transactions with affiliates; and, merge or consolidate with other companies or transfer all or substantially all of our assets. Under the Credit Facility and ~~Indentures,~~ indenture agreements, Freescale must comply with conditions precedent that must be satisfied prior to any borrowing, as well as ongoing compliance with specified affirmative and negative covenants. The Credit Facility and ~~Indentures~~indenture agreements also provide for customary events of default, including failure to pay any principal or interest when due, failure to comply with covenants and cross defaults or cross acceleration provisions. Freescale was in compliance with these covenants as of ~~October~~April 2, ~~2009~~2010.

Some of these covenants restrict us if we fail to meet financial ratios based on our level of profitability. ~~The~~Four ~~2009~~of ~~global~~our ~~economic environment has resulted in lower operating profitability, causing four~~ financial ratios (the total leverage ratio, the senior secured first lien leverage ratio, the fixed charge coverage ratio and the consolidated secured debt ratio) tocurrently fall outside of the ranges set forth in the Credit Facility and Indentures. This does not result in any form of non-compliance with our covenants contained within the Credit Facility and Indentures, but does impose certain of the restrictions discussed in the preceding paragraph, such as our ability to transfer or sell assets; merge or consolidate with other companies; make certain investments; and incur additional indebtedness.

Credit Ratings

As of ~~October~~ April 2, ~~2009~~2010, our corporate credit ratings from Standard & Poor’s, Moody’s and Fitch were B-, Caa1 and CCC, respectively.

~~Other~~13 ~~Indebtedness~~

During the third quarter of 2006, one of our foreign subsidiaries requested and received a draw from an existing Japanese yen-denominated revolving loan agreement to repay an intercompany loan. In the fourth quarter of 2008, the foreign subsidiary drew down an additional $37 million under this revolving loan, increasing the total amount outstanding to $92 million at December 31, 2008. In the third quarter of 2009, we entered into an amended arrangement for this revolving loan balance, whereby we will make quarterly payments of approximately $15 million beginning in the third quarter of 2009 and concluding in the fourth quarter of 2010. The land and buildings located at our Sendai, Japan manufacturing facility are pledged as collateral on this revolving loan until the fourth quarter of 2010 when the loan is fully repaid. In addition, our land and buildings at our Sendai, Japan design center are pledged as collateral until the fourth quarter of 2009. As of October 2, 2009, $77 million was outstanding under this loan. Previously, the entire balance was classified in notes payable and current portion of long-term debt and capital lease obligations on the Condensed Consolidated Balance Sheet; however, in connection with the amended arrangement, $15 million is classified as long-term debt.

Fair Value

At April 2, 2010 and December 31, 2009, the fair value of the aggregate principal amount of our long-term debt, excluding accrued PIK Interest on the PIK-Election Notes, was approximately $7,378 million and $7,036 million, respectively, which was determined based upon quoted market prices. Since considerable judgment is required in interpreting market information, the fair value of the long-term debt is not necessarily the amount which could be realized in a current market exchange.

Subsequent Event

On April 7, 2010, Freescale announced a private placement offering of $1,380 million aggregate principal amount of 9.25% senior secured notes due 2018 (the “9.25% Secured Notes”). The transaction closed on April 13, 2010. The 9.25% Secured Notes are secured on a pari passu basis with the obligations under the Credit Facility and the 10.125% Secured Notes. In the second quarter of 2010, the cash proceeds from the issuance of the 9.25% Secured Notes along with cash reserves were used to prepay the remaining balances under the Original Term Loan and the Incremental Terms Loans.

Debt Service

We are required to make debt service payments under the terms of our debt agreements. The obligated debt payments, for the remainder of 2010 are $70 million. Future obligated debt payments are $29 million in 2011, $560 million in 2012, $29 million in 2013, $2,111 million in 2014, $29 million in 2015 and $4,986 million thereafter. These amounts reflect the principal payments on the Credit Facility, our senior and subordinated notes (after giving effect to the 9.25% Secured Notes issued in the second quarter of 2010 as well as the prepayment of portions of the Credit Facility, as discussed in the preceding paragraph), as well as a Japanese yen-denominated revolving loan agreement of one of our foreign subsidiaries. These amounts exclude cash interest payments of approximately $456 million during the remainder of 2010, $623 million in 2011, $657 million in 2012, $645 million in 2013, $654 million in 2014, $476 million in 2015 and $784 million thereafter.

(5) Risk Management

Foreign Currency Risk

~~Effective~~At ~~January~~April 12, ~~2008,~~2010 weand ~~changed the~~December 31, ~~functional~~2009, ~~currency~~we ~~for~~had ~~certain~~net outstanding foreign ~~operations~~currency toexchange ~~the~~contracts ~~U.S~~not ~~dollar.~~designated Inas ~~accordance~~accounting hedges with ~~ASC~~notional ~~Topic~~amounts ~~830,~~totaling ~~“Foreign~~approximately ~~Currency~~$208 ~~Matters”~~million ~~(“ASC~~and ~~Topic~~$192 ~~830”)~~million, ~~once~~respectively, ~~the~~which ~~functional~~are ~~currency~~accounted for aat ~~foreign~~fair ~~entity~~value. isThese ~~determined, that~~forward ~~determination~~contracts ~~shall~~have beoriginal ~~used~~maturities ~~consistently~~of ~~unless~~less ~~significant~~than ~~changes~~three inmonths. ~~economic~~The ~~facts~~fair ~~and~~value ~~circumstances~~of ~~indicate clearly that~~ the ~~functional currency has changed. In December 2007, we formed Freescale Semiconductor EME&A SA~~forward ~~(“SBE”),~~contracts was a ~~European~~net ~~single~~unrealized ~~billing~~loss ~~entity~~of ~~established~~less tothan ~~provide~~$1 ~~sales~~million and ~~distribution~~$2 million ~~service~~at toApril 2, ~~our~~2010 ~~European external customers from one centralized location. Previously such activities were decentralized across our entities in Europe. The SBE negotiates~~ and ~~invoices~~December 31, ~~for~~2009, ~~all contracts with our European external customers~~respectively. ~~Subsequent~~Forward tocontract ~~the~~losses ~~implementation~~ of ~~the~~less ~~SBE,~~than ~~the~~$1 ~~other~~million ~~local~~and ~~foreign~~$8 ~~operations~~million infor ~~Europe provide support to~~ the ~~SBE~~first inquarter ~~servicing~~of ~~our~~2010 ~~customers~~ and ~~only record~~2009, ~~inter-company commission revenue from the SBE~~respectively, ~~which~~were isrecorded ~~denominated~~ in ~~the U.S dollar. In addition~~other, ~~all~~net ~~inter-company transactions, inter-company loans and other types of financing are denominated~~ in the ~~U.S.~~Condensed ~~dollar~~Consolidated ~~for~~Statements ~~all~~of ~~foreign~~Operations ~~operations~~related ~~in which~~to ~~the~~our ~~functional~~realized ~~currency~~and ~~changed.~~unrealized Inresults ~~accordance~~associated with ~~ASC~~these foreign ~~Topic~~exchange ~~830, the U~~contracts.S. ~~dollar~~Management isbelieves ~~the~~that ~~proper~~these ~~functional~~financial instruments ~~currency~~will asnot ~~financing~~subject isus ~~provided~~to byundue ~~U.S~~risk ~~dollar~~due ~~sources.~~to ~~The~~foreign ~~change~~exchange inmovements ~~functional~~because ~~currency~~gains ~~was~~and ~~applied~~losses on athese ~~prospective~~contracts ~~basis.~~should ~~The~~offset ~~U.S dollar-translated~~losses ~~amounts of nonmonetary assets~~ and ~~liabilities~~gains aton ~~December 31, 2007 became~~ the ~~historical accounting basis for those~~ assets and liabilities atbeing ~~January 1,~~hedged. ~~2008~~The ~~and~~following ~~for~~table ~~subsequent~~shows, ~~periods.~~in Asmillions ~~a result~~ of ~~this change in~~U.S. ~~functional currency~~dollars, ~~exchange~~the ~~rate~~notional ~~gains~~amounts ~~and~~of ~~losses are recognized on transactions in currencies other than~~ the ~~U.S.~~most ~~dollar~~significant ~~and~~net ~~included~~foreign inexchange ~~operations~~hedge positions for ~~the~~outstanding ~~period~~foreign inexchange ~~which~~contracts ~~the~~not ~~exchange~~designated ~~rate~~as ~~changed.~~accounting hedges:

At October 2, 2009 and December 31, 2008, we had net outstanding foreign currency exchange contracts not designated as accounting hedges with notional amounts totaling approximately $160 million and $199 million, respectively, which are accounted for at fair value. The fair value of the forward contracts was a net unrealized gain of less than $1 million and $9 million at October 2, 2009 and December 31, 2008, respectively. Forward contract gains (losses) of $2 million and $(12) million for the third quarter of 2009 and 2008, respectively, and $(2) million and $(8) million for the first nine months of 2009 and 2008, respectively, were recorded in other, net in the Condensed Consolidated Statements of Operations related to our realized and unrealized results associated with these foreign exchange contracts. Management believes that these financial instruments will not subject us to undue risk due to foreign exchange movements because gains and losses on these contracts should offset losses and gains on the assets and liabilities being hedged. The following table shows, in millions of U.S. dollars, the notional amounts of the most significant net foreign exchange hedge positions for outstanding foreign exchange contracts not designated as accounting hedges:


Buy (Sell)	April 2, 2010			December 31, 2009
Euro	$	64		$	48
Malaysian Ringgit	$	55		$	64
Israeli Shekel	$	10		$	16
Singapore Dollar	$	8		$	12
Taiwan Dollar	$	(10	)	$	3
Japanese Yen	$	(33	)	$	(20	)

Buy (Sell)	October 2,2009		December 31,2008
Euro	$	64	$	100
Malaysian Ringgit	$	43	$	48
Singapore Dollar	$	12	$	10
Indian Rupee	$	9	$	6
Israeli Shekel	$	6	$	4
British Pound	$	5	$	2

We have provided $7 million in collateral to two of our counterparties in connection with our foreign exchange hedging program as of April 2, 2010. This amount is classified as restricted cash and is recorded as a component of other current assets on the Condensed Consolidated Balance Sheet. We had no foreign currency exchange contracts designated as cash flow hedges at April 2, 2010 or December 31, 2009.

At October 2, 2009 and December 31, 2008, we had net outstanding foreign exchange contracts designated as cash flow hedges with notional amounts totaling approximately $8 million and $186 million, respectively, which are accounted for at fair value. The fair value of these contracts was a net unrealized loss of less than $1 million and $7 million at October 2, 2009 and December 31, 2008, respectively. Management believes that these financial instruments will not subject us to undue risk due to foreign exchange movements because gains and losses on these contracts should offset losses and gains on the forecasted expenses being hedged. We have provided $3 million in collateral to one of our counterparties in connection with our foreign exchange hedging program as of October 2, 2009. This amount is classified as restricted cash and is recorded as a component of other current assets on the Consolidated Condensed Balance Sheet.

Interest Rate Risk

We use interest rate swap agreements to assist in managing the floating rate portion of our debt portfolio. As of October 2, 2009, we have effectively fixed our interest rate on $500 million of our variable rate debt through December 1, 2009. This amount excludes a LBSF swap arrangement with a notional amount of $400 million which was settled during the second quarter of 2009 at a $4 million gain. LBSF filed a petition under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York on October 3, 2008. During 2008, we entered into two additional interest rate swaps, each with a notional amount of $100 million. These swaps are effective from December 1, 2009 through December 1, 2012. An interest rate swap is a contractual agreement to exchange payments based on underlying interest rates. We are required to pay the counterparties a stream of fixed interest payments at an average rate of 43.8476%, and in turn, receive ~~variable interest payments based on 3-month LIBOR (0.36% at October 2, 2009) from the counterparties. The net receipts or payments from the interest rate~~

1514

~~swap~~variable ~~agreements are recorded in other, net. As these~~ interest ~~rate~~payments ~~swaps~~based doon ~~not~~3-month ~~meet~~LIBOR ~~the~~(0.25% ~~requirements~~at ~~of a cash flow hedge~~April 2, ~~all~~2010) ~~related~~from ~~gains and losses due to~~ the ~~change in fair value will be recognized in other, net in the Condensed Consolidated Statement of Operations~~counterparties. ~~During~~In the first quarter of ~~2008~~2010, in accordance with ASC Topic 815, we recognized a ~~$25 million~~ pre-tax ~~loss in other, net related to the cumulative ineffective portion~~ and subsequent change in fair value of our interest rate swaps that are no longer classified as a cash flow hedge. In the second quarter 2008, in accordance with ASC Topic 815, we recognized a $14 million pre-tax gain related to the change in fair value of these interest rate swaps. In the third quarter and first nine months of 2009, we recognized a pre-tax loss of $3 million ~~pre-tax~~ associated with the change in fair value of ~~these~~our interest rate swaps.

In addition to interest rate swap agreements, we also use interest rate cap agreements to manage our floating rate debt. During the third quarter of 2009, we entered into two interest rate cap contracts with a counterparty as a hedge of the variable cash flows of our variable interest rate debt. Under the terms of these contracts, we have effectively hedged $400 million of our variable interest rate debt at a cap rate of 2.75%. The caps will become effective on December 1, 2009 and will mature on December 1, 2012. Accordingly, after December 1, 2009, we will continue to pay interest at a LIBOR-based rate on $400 million of our variable interest rate debt, so long as the short term rate does not exceed 2.75%. If the LIBOR-based rate exceeds the cap rate in any given interest period, we will subsequently receive a payment from the counterparty to ensure we pay no more than 2.75%, net on the related variable interest rate debt. The net payments from the interest rate cap agreements are recorded in other, net. As these interest rate caps do not meet the requirements of a cash flow hedge, all related gains and losses due to the change in fair value will be recognized in other, net in the Condensed Consolidated Statement of Operations. In the ~~third~~first quarter of ~~2009~~2010, in accordance with ASC Topic 815, we recognized a pre-tax loss of ~~less than~~ $1 3 million associated with the change in fair value of these interest rate caps.

(6) ~~Stock~~Income ~~and~~Taxes ~~Equity-Based Compensation Plans~~

WeIncome ~~participate~~taxes infor ~~Freescale~~the ~~Holdings~~interim ~~L.P.~~periods ~~and~~presented ~~Holdings~~herein Ihave ~~stock-based~~been ~~compensation~~included ~~plans~~in ~~whereby~~the ~~our~~accompanying ~~officers,~~condensed ~~directors and~~consolidated ~~key~~financial ~~employees~~statements on ~~may~~the bebasis ~~granted~~of ~~stock~~an ~~options,~~estimated ~~restricted~~annual ~~stock~~effective ~~units,~~tax ~~other stock-based awards and/or performance-related awards, including profit interests~~rate. ~~Our~~Excluding ~~employees~~amounts ~~and~~recorded ~~directors~~for ~~make~~discrete upevents, ~~all~~as of ~~the~~April 2, ~~participants~~2010, in the ~~plans;~~estimated ~~thus,~~annual ~~amounts related~~effective totax ~~Holdings~~rate Ifor ~~share~~2010 ~~based~~is ~~compensation~~an ~~have~~income ~~been~~tax ~~included~~expense inof ~~the~~1%. ~~disclosures~~Our ~~below.~~annual ~~Additionally,~~effective ~~stock~~tax ~~option,~~rate ~~restricted~~is ~~stock~~less than ~~unit~~the U.S. ~~(“RSU”)~~statutory ~~and~~35% ~~deferred~~percent ~~stock~~due ~~unit~~to (~~“DSU”~~i) minimal ~~awards~~tax ~~are~~expense recorded on ~~settled~~our ~~with~~U.S. earnings ~~shares~~due ~~of Holdings I common stock with an appropriate allocation of expense~~ to usvaluation allowances ~~attributable~~reflected toagainst ~~our~~U.S. ~~employees~~deferred ~~with~~tax anassets, ~~offset~~and to(ii) the ~~additional~~mix ~~paid-in~~of ~~capital~~earnings asand ~~the~~losses ~~awards~~by taxing ~~vest~~jurisdictions.

~~Our~~(7) ~~total~~Commitments ~~stock~~ and ~~equity-based~~Contingencies ~~compensation expense is presented below:~~

	Three Months Ended				Nine Months Ended
	October 2,2009		September 26,2008		October 2,2009		September 26,2008
Cost of sales	$	—	$	1	$	1	$	2
Selling, general and administrative		4		12		24		34
Research and development		—		1		2		3
Reorganization of businesses, contract settlement, and other		—		—		—		17
Total	$	4	$	14	$	27	$	56

Commitments

~~Stock~~Product ~~Option~~purchase ~~Exchange~~commitments associated with our strategic manufacturing relationships include take or pay provisions based on volume commitments for work in progress and forecasted demand based on 18-month rolling forecasts, which are adjusted monthly. The commitment under these relationships is $68 million as of April 2, 2010.

On April 6, 2009, Holdings I granted stock options to purchase shares of Holdings I common stock under the Freescale Holdings 2006 Management Incentive Plan and the 2007 Non-Executive Incentive Plan by entering into new non-qualified stock option agreements with certain officers and employees. The Compensation and Leadership Committee of the Holdings I Board of Directors approved the form of the non-qualified stock option agreements in connection with an exchange of existing vested and unvested Class B Limited Partnership Interests in Freescale Holdings L.P. (“Class B Interests”) and stock options to purchase Holdings I common stock, in each case, for new stock options to purchase Holdings I common stock (“Option Exchange”). Under the terms of each of the agreements, the new stock options have a term of ten years and vest and become exercisable in four equal installments on each of the first, second, third and fourth anniversaries of April 6th and are subject to the terms and conditions of the investors’ agreements. The exercise price for the new stock options granted under both agreements is equal to the fair market value per share of Holdings I common stock on the date of grant.

Previously granted stock options and Class B Interests were exchanged for new options with a lower exercise price granted on a one-for-one basis for stock options and on a one-for-one hundred forty four basis for Class B Interests (including the 1.2472% Class B-2008 Series Interest). Stock options to purchase an aggregate of approximately 16 million shares of Holdings I common stock and 67 thousand Class B Interests (including the 1.2472% Class B-2008 Series Interest) were exchanged for new stock options to purchase an aggregate of approximately

38 million shares of Holdings I common stock. Options granted pursuant to the Option Exchange have an exercise price of $1.24 per share. In accordance ASC Topic 718, “Compensation-Stock Compensation,”(“ASC Topic 718”), the increase in the fair value of the Holdings I stock options that occurred in connection with the Option Exchange resulted in a modification charge of approximately $18 million, which will be recognized over the vesting period of the new options (four years), less estimated forfeitures.

Non-qualified Options

In 2006, we adopted a stock-based compensation plan (“2006 Management Incentive Plan”), which authorizes stock-based awards to be granted to management and key employees for up to 31.2 million shares of Holdings I common stock. On February 4, 2009, the 2006 Management Incentive Plan was amended to allow up to approximately 60.5 million shares of Holdings I common stock to be issued under this plan. As of October 2, 2009, approximately 42 million non-qualified stock options (“2006 Options”), with exercise prices ranging from $1.24 to $7.00 per share, have been issued to certain members of management. (These stock options include those issued in connection with the Option Exchange.) The 2006 Options vest 25% on each of the first, second, third and fourth anniversaries of the date of grant and are subject to the terms and conditions of certain investor agreements. As of October 2, 2009, we had approximately $60 million in unamortized expense, net of expected forfeitures, which is being amortized on a straight-line basis over a period of four years in additional paid-in capital.

The fair value of the 2006 Options granted in the periods presented was estimated on the date of grant using the Black-Scholes option pricing method. The assumptions used in the model are outlined in the following table:

	Three and NineMonths EndedOctober 2, 2009
Weighted average grant date fair value per share	$	0.79
Weighted average assumptions used:
Expected volatility		71.1	%
Expected lives (in years)		6.30
Risk free interest rate		2.3	%
Expected dividend yield		—	%

In accordance with ASC Topic 718, the computation of the expected volatility assumptions used in the Black-Scholes calculations for grants was based on historical volatilities and implied volatilities of peer companies. The Company utilized the volatilities of peer companies due to its lack of extensive history as a public company and the fact its current equity is not publicly traded. The peer companies operate in the semiconductor industry and are of similar size. When establishing its expected life assumptions, we use the “simplified” method prescribed in ASC Topic 718 for companies that do not have adequate historical data. The risk-free interest rate is measured as the prevailing yield for a US Treasury security with a maturity similar to the expected life assumption.

A summary of changes in the 2006 Options outstanding during the nine months ended October 2, 2009 is presented below:

	Stock Options(in thousands)		Wtd. Avg.exercise priceper share		Wtd. Avg.RemainingContractualTerm (Years)	AggregateIntrinsic Value(in millions)
Balance at January 1, 2009	19,195		$	6.52	8	$	—
Granted (*)	38,936		$	1.24
Terminated, canceled or expired (*)	(16,530	)	$	6.45
Exercised	—
Balance at October 2, 2009	41,601		$	1.60	10	$	—

* The number of options granted and canceled/forfeited includes options granted and canceled in connection with the Option Exchange, as defined and discussed above.

In March 2007, we adopted the Freescale Semiconductor Holdings 2007 Employee Incentive Plan (“2007 Non-Executive Incentive Plan”), which authorizes the issuance of up to 4.9 million shares of Holdings I common stock in the form of stock-based awards to key employees. As of October 2, 2009, approximately 3.5 million non-qualified stock options (“2007 Options”), with exercise prices ranging from $1.24 to $7.00 per share, have been issued to key employees. (These stock options include those

issued in connection with the Option Exchange.) The 2007 Options vest 25% on each of the first, second, third and fourth anniversaries of the date of grant and are subject to certain shareholder agreements. As of October 2, 2009, we had approximately $7 million in unamortized expense, net of expected forfeitures, which is being amortized on a straight-line basis over a period of four years in additional paid-in capital.

The fair value of the 2007 Options granted in the periods presented was estimated on the grant date using the Black-Scholes option pricing method. The assumptions used in the model are outlined in the following table and were determined based on the process described above:

	Three and NineMonths EndedOctober 2, 2009
Weighted average grant date fair value per share	$	0.79
Weighted average assumptions used:
Expected volatility		71.0	%
Expected lives (in years)		6.30
Risk free interest rate		2.3	%
Expected dividend yield		—	%

A summary of changes in the 2007 Options outstanding during the nine months ended October 2, 2009 is presented below:

	Stock Options(in thousands)		Wtd. Avg.exercise priceper share		Wtd. Avg.RemainingContractualTerm (Years)	AggregateIntrinsic Value(in millions)
Balance at January 1, 2009	4,110		$	6.96	8	$	—
Granted (*)	3,690		$	1.24
Terminated, canceled or expired (*)	(4,321	)	$	6.64
Exercised	—
Balance at October 2, 2009	3,479		$	1.29	10	$	—

* The number of options granted and terminated, canceled or expired includes options granted and canceled in connection with the Option Exchange, as defined and discussed above.

Class B Interests

During the first nine months of 2009, 67 thousand Class B Interests, as well as the 1.2472% Class B-2008 Series Interest, were canceled in exchange for new stock options to purchase Holdings I common stock in connection with the Option Exchange. As of October 2, 2009, 130 thousand vested Class B Interests, held by certain former executives of Freescale, remain outstanding.

Restricted and Deferred Stock Units

During the first and second quarters of 2009, we granted performance-based Deferred Stock Units (“DSUs”) to certain executives of Freescale under the 2006 Management Incentive Plan. The number of DSUs that could be earned pursuant to such awards range from none to twice the number of target DSUs established at the grant date based upon the achievement of EBITDA and revenue growth levels measured against a group of peer companies over a three-year period from January 1, 2009. The performance-based DSUs, to the extent earned, vest 100% on the fourth anniversary of the grant date.

A summary of changes in restricted stock units (“RSUs”) and DSUs outstanding during the nine months ended October 2, 2009 is presented below:

	RSUs / DSUs(in thousands)
Non-vested RSU / DSU balance at January 1, 2009	5,294
Granted	8,924
Vested	(1,215	)
Issuances	(98	)
Terminated, canceled or expired	(428	)
Non-vested RSU / DSU balance at October 2, 2009	12,477

Under the terms of the RSU and DSU award agreements, shares of common stock are not issued to the participant upon vesting of the RSU or DSU. Shares are issued upon the earlier of: (i) the participant’s termination of employment; (ii) the participant’s death; (iii) the participant’s disability; (iv) a change of control; or (v) the seventh anniversary of the date of grant for RSUs and January 5, 2013 for DSUs. Vested RSUs and DSUs are considered outstanding until shares have been issued.

As of October 2, 2009, we had approximately $21 million in unamortized expense related to RSUs and DSUs, net of expected forfeitures, which are being amortized on a straight-line basis over a period of two to four years.

(7) Income Taxes

Income taxes for the interim periods presented herein have been included in the accompanying condensed consolidated financial statements on the basis of an estimated annual effective tax rate. As of October 2, 2009, the estimated annual effective tax rate for 2009 is an income tax expense of less than 1%, excluding income tax expense of $13 million recorded for discrete events occurring in the first nine months of 2009. Discrete events occurring in the first half of 2009 primarily reflect income tax expense related to a valuation allowance associated with the deferred tax assets of one of our foreign subsidiaries. The impact of the valuation allowance was partially offset by the release of income tax reserves related to foreign audit settlements.

During the second quarter of 2009, we recorded a $24 million income tax expense related to a valuation allowance against deferred tax assets in one of our foreign subsidiaries. We determined that it is more likely than not that these foreign deferred assets would not be realized based on consideration of available evidence. This assessment was primarily due to the acceleration of the timing of discontinuing the manufacturing operations within this foreign subsidiary. The assessment required considerable judgment on the part of management with respect to benefits that could be realized from future income, as well as other positive and negative factors.

During the first quarter of 2009, we recorded a $2,264 million net gain as a result of the reduction in our outstanding long-term debt in connection with the Debt Exchange. We continue to be in an overall three year domestic cumulative loss position, inclusive of the cancellation of debt gain. A valuation allowance of $560 million was recorded on our domestic deferred tax assets as of December 31, 2008, so substantially all of the domestic tax expense related to the cancellation of debt income was offset by a beneficial release of the valuation allowance on our domestic deferred tax assets. We anticipate paying some state income taxes in the U.S. resulting from the net debt extinguishment, although the amounts of the obligations are not expected to be material.

In 2009, the American Recovery and Reinvestment Act of 2009 (“the Act”) was passed which grants temporary relief under the Delayed Recognition of Cancellation of Debt Income (“CODI”) rules. The Act contains a provision that allows the taxpayer to elect a five-year deferral of CODI for debt reacquired in 2009, followed by recognition of CODI ratably over 2014 to 2018. The provision applies for specified types of repurchases including the acquisition of a debt instrument for cash and the exchange of one debt instrument for another. If we applied such delayed recognition of CODI, it would result in a deferred tax liability related to the amount of CODI delayed and could subject us to domestic cash income taxes in the future. We currently do not anticipate deferring CODI in connection with finalizing our Federal tax return in 2010. We also do not believe we will have any federal cash income tax expense associated with our CODI.

Our annual effective tax rate is less than the statutory 35% percent due to (i) minimal domestic tax expense in our domestic earnings due to the utilization of deferred tax assets, which were subject to a valuation allowance and (ii) the mix of earnings and losses by taxing jurisdictions and foreign tax rate differentials.

(8) Commitments and Contingencies

Leases

We own most of our major facilities, but do lease certain office, factory and warehouse space, land, and information technology and other equipment under principally noncancellable operating leases expiring through 2016. Rental expense, net of sublease income, for the nine months ended October 2, 2009 and September 26, 2008 was $25 million and $26 million, respectively. Future minimum lease payments, net of sublease rentals, of such operating leases for the fourth quarter of 2009 and

each of the five years subsequent to December 31, 2009 are $16 million, $42 million, $32 million, $25 million, $24 million and $23 million, respectively, and $33 million thereafter. Future sublease income for the fourth quarter of 2009 and each of the four years subsequent to December 31, 2009 is $2 million, $7 million, $4 million, $3 million and $1 million. Currently there is no sublease income scheduled beyond 2013.

As of October 2, 2009, we had $21 million in capital lease obligations. We recorded $12 million and $14 million in capital lease obligations in the nine months ended October 2, 2009 and September 26, 2008, respectively. Future minimum lease payments under capital leases for the fourth quarter of 2009 and each of the four years subsequent to December 31, 2009 are $4 million, $10 million, $5 million, $1 million and $1 million. Currently there are no capital lease payments scheduled beyond 2013.

Other Commitments

We are required to make debt service payments under the terms of our debt agreements. The remaining obligated debt payments for 2009 as of October 2, 2009 are $26 million. Future obligated debt payments are $106 million in 2010, $44 million in 2011, $688 million in 2012, $3,277 million in 2013, $3,046 million in 2014 and $764 million thereafter. These amounts exclude cash interest payments of approximately $148 million in the fourth quarter of 2009, $490 million in 2010, $539 million in 2011, $578 million in 2012, $558 million in 2013, $383 million in 2014 and $155 million thereafter.

Product purchase commitments associated with our strategic manufacturing relationships include take or pay provisions based on volume commitments for work in progress and forecasted demand based on 18-month rolling forecasts, which are adjusted monthly. The commitment under these relationships is $50 million as of October 2, 2009.

We have multi-year commitments under various software, service and supply contracts requiring payments for the fourth quarter of 2009 and each of the five years subsequent to December 31, 2009 of $43 million, $79 million, $49 million, $36 million, $29 million and $13 million, respectively, and $4 million thereafter.

Environmental

Under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (CERCLA, or Superfund), and equivalent state law, Motorola has been designated as a Potentially Responsible Party by the United States Environmental Protection Agency with respect to certain waste sites with which our operations may have had direct or indirect involvement. Such designations are made regardless of the extent of Motorola’s involvement. Pursuant to the master separation and distribution agreement entered into in connection with our spin-off from Motorola, Freescale has indemnified Motorola for these liabilities going forward. These claims are in various stages of administrative or judicial proceedings. They include demands for recovery of past governmental costs and for future investigations or remedial actions. The remedial efforts include environmental cleanup costs and communication programs. In many cases, the dollar amounts of the claims have not been specified and have been asserted against a number of other entities for the same cost recovery or other relief as was asserted against Freescale. We accrue costs associated with environmental matters when they become probable and reasonably estimable by recording the future estimated cash flows associated with such costs on a discounted basis. Due to the uncertain nature of these contingencies, the actual costs that will be incurred could materially differ from the amounts accrued.

Litigation

We are a defendant in various lawsuits, including intellectual property suits, and are subject to various claims which arise in the normal course of business. The Company records an associated liability when a loss is probable and the amount is reasonably estimable.

From time to time, we are involved in legal proceedings arising in the ordinary course of business, including tort, ~~and~~ contractual and customer disputes, claims before the United States Equal Employment Opportunity Commission and other employee grievances, and intellectual property litigation and infringement claims. Intellectual property litigation and infringement claims could cause us to incur significant expenses or prevent us from selling our products. Under agreements with Motorola, Freescale must indemnify Motorola for certain liabilities related to our business incurred prior to our separation from Motorola.

AOn ~~purported~~April 17, ~~class action~~2007, ~~Howell~~ ~~v. Motorola~~Tessera Technologies, Inc., et(“Tessera”) ~~al.,~~filed ~~was~~a ~~filed~~complaint against ~~Motorola~~Freescale, ~~and~~ATI Technologies, ~~certain~~Inc., ofMotorola, ~~its~~Inc., ~~directors~~Qualcomm, ~~officers~~Inc., ~~and~~Spansion, ~~employees~~Inc., inSpansion ~~the~~LLC, ~~United~~and ~~States~~STMicroelectronics ~~District~~N.V. ~~Court~~(collectively, ~~for~~ the ~~Northern District of Illinois (~~“~~Illinois District Court~~Respondents”) onin ~~July 21, 2003, alleging breach of fiduciary duty and violations of~~ the ~~Employment~~International ~~Retirement~~Trade ~~Income~~Commission ~~Security Act~~ (“~~ERISA~~ITC”). ~~The~~requesting ~~complaint alleged that~~ the ~~defendants~~ITC ~~had~~to ~~improperly~~enter ~~permitted participants in the Motorola 401(k) Plan~~an ~~(“Plan”)~~injunction tobarring ~~purchase or hold shares of common stock of Motorola because~~ the ~~price~~importation of ~~Motorola’s~~any ~~stock~~product ~~was~~containing ~~artificially~~a ~~inflated~~device bythat ainfringes ~~failure~~two toidentified ~~disclose~~patents ~~vendor~~related ~~financing~~ to ~~Telsim~~ball ingrid ~~connection~~array ~~with~~(“BGA”) ~~the~~packaging ~~sale of telecommunications equipment by Motorola~~technology. ~~The~~On ~~plaintiff~~April 17, ~~sought~~2007, toTessera ~~represent~~filed a ~~class~~parallel oflawsuit ~~participants~~ in the ~~Plan~~United States ~~for~~District ~~whose~~Court ~~individual~~for ~~accounts~~ the ~~Plan~~Eastern ~~purchased~~District ~~or held shares~~ of ~~common~~Texas ~~stock~~against ~~of Motorola from “May 16~~ATI, ~~2000 to the present~~Freescale,” Motorola and ~~sought~~Qualcomm claiming an unspecified amount of ~~damages.~~monetary Ondamage ~~September 30,~~as ~~2005,~~compensation for the ~~Illinois~~alleged ~~District~~infringement ~~Court~~of ~~dismissed~~ the ~~second~~same ~~amended~~Tessera ~~complaint filed on October 15, 2004~~patents. ~~Plaintiff~~Tessera’s ~~filed~~patent claims anrelate ~~appeal~~ to ~~the~~BGA ~~dismissal~~packaging ~~on October 27, 2005~~technology. On ~~March~~December 191, ~~2007~~ 2008, the ~~appeals~~ALJ ~~court~~issued ~~dismissed~~his ~~the~~determination ~~appeal.~~finding ~~Three~~in ~~new~~favor ~~purported~~of ~~lead plaintiffs intervened in~~ the ~~case,~~Respondents and ~~filed~~recommended athat ~~motion~~no ~~for~~injunction ~~class~~barring ~~certification~~importation ~~seeking~~of tothe ~~represent~~Respondents’ ~~Plan~~products ~~participants~~be ~~for~~entered. ~~whose~~In accordance ~~individual~~with ~~accounts~~its ~~the~~rights, ~~Plan~~Tessera ~~purchased and/or~~

2015

~~held~~petitioned ~~shares~~the ofITC ~~Motorola~~to ~~common~~review ~~stock~~the ~~from~~ALJ’s ~~May 16,~~determination ~~2000~~on ~~through~~ December 3115, ~~2002~~2008. On ~~September~~May 2820, ~~2007,~~2009 the ~~Illinois~~ITC ~~District~~issued ~~Court~~a ~~granted~~final the motion for class certification but narrowed the requested scope of the class. Motorola has sought leave to appeal in the appellate court and reconsideration in the Illinois District Court of certain aspects of the class certification order. Onfinding ~~October 25, 2007, the Illinois District Court modified the scope of the class, granted summary judgment dismissing two of the individually-named defendants in light of the narrowed class, and ruled~~ that ~~the judgment as to the original named plaintiff, Howell, would be immediately appealable. The class as certified includes~~ all ~~Plan participants for whose individual accounts~~ the ~~Plan~~Respondents ~~purchased~~infringe ~~and/or~~on ~~held shares of Motorola common stock from May 16, 2000 through May 14, 2001 with certain exclusions. On~~Tessera’s ~~February 15,~~asserted ~~2008~~patents, ~~Motorola~~ and ~~its~~granted ~~codefendants~~Tessera’s ~~filed~~request ~~motions~~ for ~~summary~~a ~~judgment~~Limited onExclusion ~~all~~Order ~~claims~~prohibiting ~~asserted by~~ the ~~class.~~importation ~~On October 23,~~of ~~2008,~~Respondents’ ~~the~~infringing ~~United~~products. ~~States~~Freescale ~~Court~~appealed ~~of Appeals for~~ the ~~Seventh Circuit heard Motorola~~ITC’s ~~interlocutory~~ ~~appeal~~decision ofto the ~~District~~Federal Court’s ~~order~~of ~~certifying the class~~Appeals. On ~~June 17,~~During ~~2009,~~ the ~~district court granted defendants’ motions for summary judgment on all claims. This ruling rendered moot the interlocutory~~pendency ~~appeals~~of ~~current before~~ the ~~Seventh~~appellate ~~Circuit. The plaintiffs appealed the June 17~~process, ~~2009 ruling~~we ~~of the district court.~~are Astaking aall ~~result~~necessary ofactions ~~the terms of its separation from Motorola, it is possible that Freescale could be held responsible~~ to ~~Motorola~~comply ~~for~~with athe ~~portion~~Limited ofExclusion ~~any judgment or settlement in this matter~~Order. We continue to assess the merits of this action as well as the potential effect on our consolidated financial position, results of operations and cash flows.

On ~~April~~March 1725, ~~2007~~2009, ~~Tessera Technologies, Inc. (“Tessera”) filed~~ a ~~complaint~~group ~~against~~of ~~Freescale,~~lenders ~~ATI Technologies, Inc., Motorola, Inc., Qualcomm, Inc., Spansion, Inc., Spansion LLC, and STMicroelectronics N.V.~~ (~~collectively, the~~ “~~Respondents~~plaintiffs”) inunder the ~~International~~Credit ~~Trade~~Facility ~~Commission (“ITC”) requesting the ITC enter an injunction barring the~~of ~~importation~~Freescale ~~of any product containing a device that infringes two identified patents related to ball grid array (“BGA”) packaging technology. On April 17, 2007, Tessera~~ filed a ~~parallel~~complaint ~~lawsuit in the United States District Court for the Eastern District of Texas~~ against ~~ATI,~~ Freescale, ~~Motorola~~challenging ~~and~~its ~~Qualcomm~~issuance ~~claiming an unspecified amount~~ of ~~monetary~~Incremental ~~damage~~Term asLoans ~~compensation~~under ~~for~~ the ~~alleged~~Credit ~~infringement of the same Tessera patents~~Facility. ~~Tessera~~Freescale’s ~~patent~~Annual ~~claims~~Report ~~relate~~on toForm ~~BGA packaging~~10-K ~~technology.~~filed Onwith ~~February 26, 2008,~~ the ~~Administrative~~Securities ~~Law~~Exchange ~~Judge~~Commission ~~(“ALJ”)~~on inFebruary 5, ~~the~~2010 ~~ITC~~contains more ~~proceeding~~details ~~granted~~on the ~~Respondents’~~allegations ~~motion~~and ~~to stay~~ the ~~ITC~~procedural ~~proceeding~~history ~~pending the completion~~ of the ~~reexamination~~case bythroughout ~~the U~~2009.S. ~~Patent~~The ~~and Trademark~~plaintiffs ~~Office~~had ofrecently ~~the~~sought ~~two~~to ~~patents~~enjoin ~~asserted~~Freescale byfrom ~~Tessera~~completing inits ~~the~~previously ~~ITC~~announced ~~proceeding.~~amendment Onto ~~March 27, 2008,~~ the ~~ITC~~Credit ~~reversed~~Facility, ~~this~~including ~~decision and ordered~~ the ~~reinstatement~~proposed extension of the ~~ITC~~maturity ~~proceeding, which occurred during the week~~ of ~~July 14,~~certain ~~2008.~~term ~~On December 1,~~loans ~~2008~~thereunder, ~~the~~and ~~ALJ~~its ~~issued~~issuance ~~his determination finding in favor~~ of ~~the~~senior ~~Respondents~~secured ~~and~~notes ~~recommending~~to ~~that~~repay noa ~~injunction~~portion ~~barring importation~~ of the ~~Respondents’~~Credit ~~products~~Facility be(the ~~entered~~“Proposed Transactions”). InOn ~~accordance~~February 18, ~~with~~2010, ~~its~~Freescale ~~rights,~~reached ~~Tessera~~agreement ~~petitioned~~with the ~~ITC~~plaintiffs to ~~review~~settle the ~~ALJ’s~~pending ~~determination on December 15, 2008~~litigation. OnAs ~~May 20~~a result, ~~2009~~ the ~~ITC~~plaintiffs ~~issued~~withdrew atheir ~~final~~application ~~order~~to ~~finding~~enjoin ~~that all~~ the ~~Respondents~~Proposed ~~infringe on Tessera’s asserted patents~~Transactions, and ~~granted~~the ~~Tessera’s~~closing ~~request~~occurred ~~for~~as ascheduled ~~Limited Exclusion~~on ~~Order~~February 19, ~~prohibiting the importation of Respondents’ infringing products~~2010. ~~Freescale~~In ~~appealed~~ the ~~ITC’s~~first ~~decision~~quarter ~~to the Federal Court~~ of ~~Appeals. During the pendency of the appellate process~~2010, wecosts ~~are taking all necessary actions~~associated ~~to comply~~ with ~~the~~this ~~Limited~~settlement ~~Exclusion~~were ~~Order. We~~recorded ~~continue~~within to(loss) ~~assess~~gain ~~potential~~on ~~effects~~extinguishment onor ~~our~~modification ~~consolidated~~of ~~financial~~long-term ~~position~~debt, ~~results~~net ofin ~~operations~~the ~~and~~accompanying ~~cash~~Condensed ~~flows~~Consolidated Statement of Operations.

OnPanasonic ~~March 25,~~Corporation ~~2009, a group of senior lenders under the Credit Facility, including ING Prime Rate Trust~~ (“~~ING~~Panasonic”), ~~filed~~is a ~~complaint~~former ~~against~~ Freescale licensee and ~~certain~~paid ~~unnamed~~royalties ~~unsecured~~to ~~debtholders in~~Freescale ~~the~~for ~~Supreme~~use ~~Court~~ of ~~the~~Freescale intellectual ~~State~~property ofunder ~~New~~a ~~York,~~patent ~~County~~license ofagreement ~~New~~that ~~York~~expired January 1, 2007. ~~The~~Since ~~suit~~the ~~challenges~~expiration ~~our~~of ~~right~~that tolicense, ~~issue~~Panasonic ~~the~~has ~~new~~been ~~Incremental~~operating ~~Term~~without ~~Loans~~a ~~under~~license ~~the~~to ~~Credit~~Freescale ~~Facility~~patents. toAfter ~~certain~~protracted ~~holders~~license ofrenewal ~~the~~negotiations ~~Existing~~which were ~~Notes~~not successful, ~~thereby~~Freescale ~~allowing~~filed ~~those~~several ~~unsecured~~lawsuits ~~debtholders to~~against ~~become~~Panasonic ~~secured~~and ~~lenders~~others, ~~with~~each ~~loans~~asserting that ~~are~~Panasonic ~~equal~~is ininfringing ~~priority~~various toFreescale ~~the plaintiffs’~~patents. ~~The~~On ~~plaintiffs~~March 1, ~~claim~~2010, ~~that~~Freescale ~~this~~filed ~~action~~one ~~has~~lawsuit ~~devalued~~in ~~their~~the ~~loans~~ITC ~~and~~seeking ~~put~~an injunction barring the ~~repayment~~importation of ~~their~~accused ~~loans~~products atinto ~~additional~~the ~~risk.~~United ~~The~~States, ~~complaint~~and ~~asserts~~two ~~that~~in ~~our representation~~the ~~and~~U.S. ~~warranty~~District ~~that~~Court ~~Freescale~~for ~~has~~the ~~not~~Western ~~experienced~~District aof ~~Material~~Texas ~~Adverse Effect~~ (~~“MAE”~~Austin) ~~since~~seeking ~~the~~unspecified ~~closing~~monetary ofdamages. ~~the~~On ~~Credit~~April 1, ~~Facility~~2010, ~~which~~Panasonic wefiled ~~made~~related aslawsuits aagainst ~~prerequisite~~Freescale and toothers, ~~the~~asserting ~~issuance~~that ofFreescale ~~new~~infringes ~~Incremental~~various ~~Term~~Panasonic ~~Loans,~~patents. ~~was~~One ~~untrue~~of ~~when~~these ~~made. The~~lawsuits ~~plaintiffs~~filed ~~argue~~in ~~that~~the ~~Freescale~~ITC ~~has~~seeks ~~suffered~~an ainjunction ~~MAE~~barring ~~between~~the ~~2006~~importation ~~and~~of ~~the~~accused ~~issuance~~products ofinto the ~~new~~United ~~Incremental~~States, ~~Term~~and ~~Loans.~~two ~~The~~lawsuits ~~plaintiffs~~ filed anin ~~amended~~the ~~complaint~~U.S. onDistrict Court ~~May 20,~~for ~~2009~~New ~~adding~~Jersey ~~additional~~seek ~~plaintiffs~~unspecified ~~and~~money ~~removing~~damages. ~~the~~On ~~unnamed~~April 7, ~~unsecured debtholders~~2010, asPanasonic ~~defendants.~~filed ~~Among~~an ~~other~~additional ~~things,~~lawsuit ~~the~~against ~~plaintiffs~~Freescale ~~are~~in ~~seeking~~Tokyo, ~~monetary~~Japan ~~damages~~seeking ~~suffered~~an asinjunction aprohibiting ~~result~~importation of ~~the~~accused ~~issuance~~products ofinto ~~new Incremental Term Loans~~Japan. ~~Freescale~~We ~~filed~~continue ~~a motion~~ to ~~dismiss~~ assess the ~~suit~~merits onof ~~June 19,~~the ~~2009.~~lawsuits Wefiled ~~believe~~by ~~that~~Panasonic ~~these claims~~as ~~made~~well byas the ~~lenders~~potential ~~are~~impact ~~without~~on ~~merit~~our ~~and~~consolidated ~~intend~~financial toposition, ~~vigorously~~results ~~defend~~of ~~this~~operations ~~action~~and cash flows.

Other Contingencies

In the ordinary course of business, we regularly execute contracts that contain customary indemnification provisions. Additionally, we execute other contracts considered outside the ordinary course of business which contain indemnification provisions. Examples of these types of agreements include business divestitures, business acquisitions, settlement agreements and third-party performance guarantees. In each of these circumstances, payment by us is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow us to challenge the other party’s claims. Further, our obligations under these agreements may be limited in terms of duration (typically limited to a duration of 24 months or less) and/or amounts are not to exceed the contract value. In some instances, we may have recourse against third parties for certain payments made by us.

Historically, we have not made significant payments for indemnification provisions contained in these agreements. As of ~~October~~April 2, ~~2009~~2010, there was one outstanding contract executed outside the ordinary course of business containing indemnification obligations with a maximum amount payable of $4 million. As of ~~October~~April 2, ~~2009~~2010, we have accrued $4 million related to known estimated indemnification obligations, and we believe there are no obligations that would result in material payments for any unknown matters.

21(8) Reorganization of Businesses and Other

~~Table~~Three ofMonths ~~Contents~~Ended April 2, 2010

(9) Reorganization of Businesses, Contract Settlement, and Other

We have entered into plans to reduce our workforce, discontinue product lines, exit or refocus our business strategies and consolidate manufacturing and administrative operations in an effort to improve our operational effectiveness, reduce costs and simplify our product portfolio. At each reporting date, we evaluate our accruals for exit costs and employee separation costs, which consist primarily of termination benefits (principally severance and relocation payments), to ensure that our accruals are still appropriate. In certain circumstances, accruals are no longer required because of efficiencies in carrying out our plans or because employees previously identified for separation resigned unexpectedly and did not receive severance or were redeployed due to circumstances not foreseen when the original plans were initiated. We reverse accruals to income when it is determined they are no longer required.

Nine Months Ended October 2, 2009

Reorganization of Business Program

During the fourth quarter of 2008, we ~~announced~~executed ~~that~~a werenewed ~~intend~~strategic ~~to renew our~~ focus on key market leadership positions. In connection with this announcement and given general market conditions, we ~~have~~ initiated a series of restructuring actions to streamline our cost structure and re-direct some research and development investments into growth markets (“Reorganization of Business Program”). These actions include (i) the ~~wind~~winding-down of our cellular handset business, (ii) restructuring our participation in the IBM alliance (a jointly-funded research alliance), (iii) discontinuing ~~manufacturing~~our 150mm manufacturing operations at our facilities in East Kilbride, Scotland, ~~facility and our~~ Sendai, Japan ~~facility,~~ and ~~consolidating logistical and certain administrative operations. We incurred $197 million in severance and exit costs associated with the Reorganization of Business Program~~Toulouse, ~~pension~~France ~~termination benefits, asset impairment charges~~ and ~~disposition~~(iv) consolidating ~~activities~~certain ~~in the first nine months of 2009. These actions have reduced and will reduce headcount in our supply chain,~~ research and development, sales, and marketing, and ~~general~~logistical and administrative ~~functions~~operations.

~~The~~16 ~~following table displays a roll-forward from January 1, 2009 to October 2, 2009 of the employee separation and exit cost accruals established related to the Reorganization of Business Program:~~

(in millions, except headcount)	Accruals atJanuary 1,2009		Charges	Adjustments		2009AmountsUsed		Accruals atOctober 2,2009
Employee Separation Costs
Supply chain	$	70	49	(7	)	(69	)	$	43
Selling, general and administrative		20	22	(1	)	(25	)		16
Research and development		25	89	(2	)	(48	)		64
Total	$	115	160	(10	)	(142	)	$	123
Related headcount		2,640	2,750	(170	)	(3,810	)		1,410
Exit and Other Costs	$	26	22	1		(28	)	$	21

In the first nine months of 2009, we recorded charges for severance costs in connection with our decision to exit our manufacturing facility in Sendai, Japan based on progress made towards closure during the second quarter of 2009 and severance costs associated with the wind-down of our cellular handset business. Additional reorganization costs consist primarily of severance costs related to our ongoing Reorganization of Business Program.

We separated approximately 3,810 employees during the first nine months of 2009. The $142 million used reflects cash payments made to employees separated as part of the Reorganization of Business Program through the first nine months of 2009. We will make additional payments to these separated employees and the remaining approximately 1,410 employees through the first half of 2011. We also reversed $10 million of severance accruals as a result of 170 employees previously identified for separation who either resigned and did not receive severance or were redeployed due to circumstances not foreseen when original plans were approved.

During the third quarter of 2009, we also recorded charges for exit costs of $23 million related primarily to costs to terminate various operating leases resulting from our Reorganization of Business Program. As of October 2, 2009, $2 million of these exit costs have been paid. During the third quarter of 2008, we recorded exit and other costs related to a strategic decision to restructure our participation in the IBM alliance, a jointly-funded research alliance among several semiconductor manufacturers which was formed to develop 300-millimeter technologies. We paid the remaining $26 million of the related charge for this action during the second quarter of 2009.

~~Termination~~The ~~Benefits~~following table displays a roll-forward from January 1, 2010 to April 2, 2010 of the employee separation and exit cost accruals established related to the Reorganization of Business Program:

We recorded $12 million in charges in the first nine months of 2009 related to our Japanese subsidiary’s pension plan. These charges are related to certain termination benefits and settlement costs in connection with our plan to discontinue our manufacturing operations in Sendai, Japan in 2011 and other previously executed severance actions in Japan.


(in millions, except headcount)	Accruals at January 1, 2010		Charges	Adjustments		2010 Amounts Used		Accruals at April 2, 2010
Employee Separation Costs
Supply chain	$	181	—	(2	)	(7	)	$	172
Selling, general and administrative		14	—	—		(1	)		13
Research and development		44	—	(2	)	(8	)		34

Total	$	239	—	(4	)	(16	)	$	219

Related headcount		1,750	—	(65	)	(65	)		1,620

Exit and Other Costs	$	16	—	1		(4	)	$	13

The $16 million used reflects cash payments made to employees separated as part of the Reorganization of Business Program in the first quarter of 2010. We will make additional payments to these separated employees and the remaining approximately 1,620 employees through the first half of 2012. We reversed $4 million of severance accruals as a result of 65 employees previously identified for separation who either resigned and did not receive severance or were redeployed due to circumstances not foreseen when original plans were approved. In addition, we also recorded $1 million of exit costs related to the prior year termination of various operating leases resulting from our Reorganization of Business Program. In the first quarter of 2010, $4 million of these exit costs were paid.

Asset Impairment Charges and Disposition Activities

During the first ~~nine~~quarter ~~months~~ of ~~2009~~2010, we recorded $195 million of non-cash impairment charges related to ~~certain~~our ~~assets~~manufacturing ~~classified~~facility ~~as held-for-sale and~~ in ~~connection with our consolidation of leased~~East ~~facilities. During the first nine months of 2009~~Kilbride, weScotland ~~also~~which ~~recorded~~was ~~gains~~classified ofas ~~(i) $2~~held-for-sale ~~million~~as ~~associated with the disposition~~ of ~~certain equipment formerly used in our cellular handset business, and (ii)~~April $2 ~~million in connection with the sale of a parcel of land at our Toulouse~~, ~~France manufacturing facility~~2010.

Other Reorganization of Business Programs

In the first ~~nine~~quarter ~~months~~ of ~~2009~~2010, we reversed $31 million of severance accruals related to reorganization of business programs initiated in periods ~~preceeding~~preceding the third quarter of 2008. These reversals were due to a number of employees previously identified for separation who resigned and did not receive severance or were redeployed due to circumstances not foreseen when original plans were approved. As of ~~the~~April 2, ~~end of the first nine months of 2009~~2010, we have $42 million of remaining severance, relocation and exit cost accruals associated with these programs. We expect to make the final payments related to these programs by the end of ~~2009.~~ 2010.

~~Nine~~Three Months Ended ~~September~~April 263, ~~2008~~2009

~~Motorola~~If ~~Arrangements~~the first quarter of 2009, we incurred $21 million in severance and ~~Cellular~~exit ~~Strategy~~costs associated with the Reorganization of Business Program and $4 million of non-cash impairment charges related to certain other assets classified as held-for-sale as of April 3, 2009. We also reversed $1 million of severance accruals related to reorganization of business programs initiated in prior periods. These reversals were due to a number of employees previously identified for separation who resigned and did not receive severance or were redeployed due to circumstances not foreseen when original plans were approved.

On17 October 2, 2008, we announced that we intend to renew our focus on key market leadership positions. In support of this targeted approach, we evaluated strategic options for our cellular handset product group. Concurrently, in September 2008, we updated our arrangement with Motorola, our largest cellular product customer. We had previously entered into the Q1 2008 Motorola Agreement whereby we received cash proceeds, provided certain pricing modifications and relieved Motorola of certain obligations. We deferred revenue related to the cash proceeds received, which was being recognized over the term of the arrangement beginning in the first quarter of 2008. In the third quarter of 2008, the Q1 2008 Motorola Agreement was terminated.

In the updated arrangement, Motorola agreed to provide certain consideration in exchange for eliminating its remaining minimum purchase commitments (“Q3 2008 Motorola Settlement Agreement”). We recorded a benefit of $296 million in reorganization of businesses, contract settlement, and other in connection with the Q3 2008 Motorola Settlement Agreement, which included the recognition of all remaining previously deferred revenue recorded under the Q1 2008 Motorola Agreement. As a result of these updated arrangements, our cellular handset revenues and our total operating earnings have decreased.

This benefit was partially offset by a $38 million charge for future foundry deliveries and contract termination fees associated with the cancellation of certain third-party manufacturing agreements. This charge resulted from the execution of the Q3 2008 Motorola Settlement Agreement.

Reorganization of Business Programs

In the third quarter of 2008, we recorded $56 million of severance accruals related to our Reorganization of Business Program. In addition to these severance costs, we recorded exit and other costs of $43 million in reorganization of businesses, contract settlement and other in the third quarter of 2008 related to a strategic decision to restructure our participation in the IBM alliance, a jointly-funded research alliance among several semiconductor manufacturers which was formed to develop 300-millimeter technologies. This cash charge represents a one-time fee to terminate future rights and obligations under the jointly-funded research alliance.

In the first nine months of 2008, we also recorded $28 million of severance accruals and other exit costs related to other reorganization of business programs initiated prior to the third quarter of 2008. We also reversed $2 million of severance accruals related to these earlier reorganization of business programs due to a number of employees previously identified for separation who either resigned and did not receive severance or were redeployed due to circumstances not foreseen when original plans were approved. An additional $7 million of severance accruals were reversed to goodwill due to efficiencies achieved through the execution of a research and design center consolidation program and the redeployment of certain resources.

Executive Leadership Transition

our former Chairman of the Board and Chief Executive Officer. We also recognized $8 million in severance costs related to Mr. Mayer’s separation and $1 million in compensation related to the sign-on bonus for Richard Beyer, our current Chairman of the Board and Chief Executive Officer.

Asset Impairment Charges

During the third quarter of 2008, we recorded $19 million of non-cash impairment charges, including an $18 million charge related to certain research and development assets and a $1 million charge related to certain other assets classified as held-for-sale as of September 26, 2008. During the first nine months of 2008, we also recorded an $8 million non-cash impairment charge related to our manufacturing facility located in Tempe, Arizona, which was classified as held-for-sale as of September 26, 2008.

Crolles Manufacturing and Research Alliance

During the first nine months of 2008, we finalized a grant related to our former research and manufacturing alliance in Crolles, France. We recognized a benefit of $9 million for the grant in reorganization of businesses, contract settlement and other related to the portion of the grant for assets sold during the first nine months of 2008. We also recorded a benefit of $5 million to research and development expense in connection with the receipt of this grant.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following is a discussion and analysis of our results of operations and financial condition for the three ~~and nine~~ months ended ~~October~~ April 2, ~~2009~~2010 and ~~September~~April 263, ~~2008~~2009. You should be read the following discussion of our results of operations and financial condition in conjunction with our condensed consolidated financial statements and the notes in “Item 8: ~~Financial~~ Financial Statements and Supplementary Data” of our December 31, ~~2008~~2009 Annual Report on Form 10-K. This discussion contains forward looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” in Part I, Item 1A of our December 31, ~~2008~~2009 Annual Report on Form 10-K. Actual results may differ materially from those contained in any forward looking statements.

Overview

Our Business. With over 50 years of operating history, Freescale is a leader in the design and manufacture of embedded processors. WeOur ~~currently~~largest ~~focus~~end-markets onare ~~providing~~the ~~products~~automotive toand ~~the~~networking ~~automotive~~markets, ~~consumer,~~however ~~industrial,~~we ~~networking~~also ~~and~~provide ~~wireless~~products to targeted ~~infrastructure~~industrial ~~industries~~and consumer electronics markets. In addition to our embedded processors, we offer our customers a broad portfolio of complementary devices that provide connectivity between products, across networks and to real-world signals, such as sound, vibration and pressure. Our complementary products include sensors, radio frequency semiconductors, power management and other analog and mixed-signal integrated circuits. Through our embedded processors and complementary products, we ~~are~~ also ~~able to~~ offer our customers platform-level products, which incorporate both semiconductors ~~and~~with software. We believe that our ability to offer platform-level products will be increasingly important to our long-term success in many markets within the ~~semiconductor~~ semiconductor industry as our customers continue to move toward providers of embedded processors and complementary products.

Revenues and Expenses. Our revenues are derived from the sale of our embedded processing and connectivity products and the licensing of our intellectual property.

We currently manufacture a substantial portion of our products internally at our five wafer fabrication facilities and two assembly and test facilities. We track our inventory and cost of sales by using standard costs that are reviewed at least once a year and are valued at the lower of cost or market value.

Our gross margin is significantly influenced by our utilization. Utilization refers only to our wafer fabrication facilities and is based on the capacity of the installed equipment. As utilization rates decrease, there is less operating leverage as fixed manufacturing costs are spread over lower output. We have experienced a significant ~~decline~~increase in our utilization rate to 5066% in the current quarter, compared to 6936% in the prior year quarter. Although ~~significantly~~ below historical levels, utilization has shown consistent improvement since the first quarter of 2009. ~~We anticipate continued pressure on our utilization and gross margin as compared to the prior year due to the current macro-economic environment.~~

Trends in Our Business. ~~Although~~We we have experienced sequential increases in revenues ~~over~~since the ~~first~~second ~~nine~~quarter ~~months~~ of 2009; however, ~~there~~revenues ~~continues~~continue to be ~~pressure~~below onpeak ~~revenues associated with the macroeconomic weakness as compared to~~ historical levels~~, particularly in the automotive industry~~. We expect continued uncertainty with respect to the automotive industry as well as with other of our end markets. AnExamples ~~example~~ of such uncertainty are unscheduled or temporary increases in demand that may challenge our ability to timely fill customer orders as well as sudden decreases in demand. This uncertainty may continue to affect our revenues and profitability induring ~~the~~2010. ~~fourth~~We ~~quarter~~will ofcontinue ~~2009.~~to ~~Given~~focus ~~the~~our ~~nature~~resources ofon ~~the~~our ~~global~~core ~~macroeconomic~~automotive and ~~weakness~~networking ~~and~~businesses, ~~its~~as ~~effects~~well onas ~~our~~targeted ~~end~~opportunities in various industrial and consumer electronics markets,. weRevenue ~~are~~growth ~~unable~~in tofuture ~~precisely~~periods ~~forecast~~is ~~when~~dependent orupon ifa ~~revenues~~general global economic recovery and ~~profitability~~our ~~will~~ability ~~return~~to achieve design wins and to ~~historical~~meet ~~levels~~product development launch cycles in our targeted markets, among other conditions.

We ~~have~~continue ~~been~~to ~~significantly~~be impacted by ~~the~~lower automotive ~~continued~~production ~~weakness~~compared into ~~the~~historical ~~global~~industry ~~automotive~~levels; ~~market~~however, asworldwide ~~light vehicle~~and ~~production~~U.S. ~~by the~~ Big 3 ~~U.S.~~light ~~automakers~~vehicle production in the ~~third~~first quarter of ~~2009~~2010 ~~declined~~increased ~~approximately~~significantly ~~27%~~ versus the prior year quarter. ~~The~~Our ~~bankruptcies~~automotive ofrevenues ~~both~~in ~~General~~the ~~Motors~~first ~~(“GM”)~~quarter of ~~and~~2010 ~~Chrysler,~~increased ~~and~~by ~~to a lesser extent~~57%, ~~Visteon~~as ~~and~~compared ~~Lear, has~~to ~~further~~the ~~impacted~~prior ~~automotive~~year ~~factory~~quarter ~~production. Our Microcontroller Solutions~~ and ~~Radio~~in ~~Frequency,~~line ~~Analog~~with ~~and~~market ~~Sensor~~growth ~~revenues~~rates. inAlthough the ~~third~~automotive ~~quarter~~industry ofhas ~~2009~~shown ~~declined~~some bysigns ~~25%~~of recovery, aslight ~~compared~~vehicle toproduction by the ~~third~~Big ~~quarter~~3 ~~of 2008~~U.S. Weautomakers ~~expect~~is ~~these~~still ~~conditions~~below toprior peak ~~persist~~levels. ~~into~~We ~~future~~are ~~quarters~~not ~~and~~able to ~~adversely~~precisely ~~affect~~forecast ~~our~~the ~~revenues~~level and ~~profitability~~duration ~~compared~~of tocurrent ~~historical~~demand ~~levels,~~or ~~but~~whether wethe ~~are~~industry ~~not~~may ~~able~~return to ~~precisely~~prior ~~forecast~~peak ~~the~~periods. ~~level~~In ~~and~~addition ~~duration~~to ofthe ~~such~~impact ~~weakened~~on ~~demand.~~our Inautomotive ~~addition~~business, while our cellular handset product group revenues increased ~~decreased 64~~27% in the first ~~nine~~quarter ~~months~~ of ~~2009~~2010 versus the ~~first~~prior ~~nine~~year ~~months~~quarter, ofthey ~~2008~~are ~~following~~still below prior period peak levels due to the termination of an arrangement with Motorola in 2008, whereby Motorola agreed to provide certain consideration in exchange for our eliminating their remaining minimum purchase commitments, and the winding-down of our cellular handset business.

InWe ~~light~~have ofexecuted ~~our renewed focus on key market leadership positions and given general market conditions, beginning in the fourth quarter of 2008 we initiated~~ a series of restructuring actions that we refer to as the “Reorganization of Business Program” inthat streamlined ~~order to streamline~~ our cost structure and re-~~direct~~directed some research and development investments into expected growth markets. These actions have continued through the current quarter and have reduced headcount in our supply chain, research and development, sales, marketing and general and administrative functions. Furthermore, in the first quarter of 2009 we also implemented certain non-severance austerity measures (executive salary reductions, mandatory time off without pay, savings plan company match elimination in countries where lawfully allowed), from which we have realized benefits during the first nine months of 2009. We expect such benefits to continue through the end of the current year.

2518

~~In association with the ongoing restructuring actions described above, on April 22,~~ ~~2009~~These ~~we announced~~ actions tohave ~~align~~significantly reduced our ~~spending~~workforce ~~with~~in our ~~prior~~supply ~~decision~~chain, toresearch ~~wind-down~~and ~~the~~development, ~~cellular~~sales, ~~handset~~marketing ~~business.~~and Wegeneral ~~plan~~and toadministrative ~~accomplish~~functions. ~~the~~As ~~majority~~ of ~~the employment reductions and pay certain severance costs by December~~April 312, ~~2009. Implementation~~2010, ofwe ~~this~~have completed ~~plan and any specific employment actions related to~~ the ~~plan~~majority ~~are subject to satisfaction~~ of ~~legal~~the ~~requirements,~~employee ~~including~~and ~~prior~~other ~~consultation~~actions onand ~~the~~have ~~plan~~realized ~~with~~approximately ~~work~~$720 ~~councils~~million in ~~some~~annualized ofcost ~~the countries in which we operate~~savings.

~~Total~~As ~~severance~~a ~~and~~result ~~related~~of ~~cash~~the ~~requirements~~recent ~~associated~~demand ~~with~~improvement ~~all~~and ofresulting ~~the~~revenue ~~aforementioned~~growth, ~~restructuring~~we ~~actions~~are ~~total approximately~~responding ~~$300 million~~ with ~~corresponding~~select ~~recurring~~increases ~~annualized~~in ~~savings~~headcount ofand capital ~~approximately~~expenditures ~~$800~~to ~~million~~meet ~~which~~the ~~are~~recent ~~expected~~increase toin beproduction. ~~realized~~We byalso ~~the~~terminated ~~first~~certain ~~half~~austerity ofmeasures ~~2010.~~(executive Wesalary ~~have~~reductions, ~~paid~~mandatory ~~approximately~~time ~~$190~~off ~~million~~without ofpay, ~~the~~savings ~~cash~~plan ~~restructuring~~company ~~charges~~match elimination in countries where lawfully allowed, ~~connection~~and ~~with~~certain ~~the~~other ~~actions~~employee ~~taken~~benefit ~~through~~curtailments) ~~October~~effective January 21, ~~2009~~2010, ~~resulting~~as ina ~~approximately~~result ~~$650~~of ~~million~~improving ~~in annualized cost savings~~profitability.

OnIn the ~~April 22,~~second quarter of 2009 and as a part of our Reorganization of Business Program, we also announced that we ~~are~~were ~~initiating~~executing a plan to exit our remaining 150mm manufacturing capability., Weas we have experienced a migration from 150mm technologies ~~to advanced technologies at our East Kilbride facility~~ and ~~this same~~ ~~trend~~products isto ~~also~~more ~~now~~advanced ~~impacting the~~ technologies and products ~~served by our Sendai, Japan and Toulouse, France 150mm fabs~~. The long-term trend in declining overall demand for the bulk of the products served by ~~these~~our 150mm fabs has resulted in low factory utilization, which ~~has~~was ~~been~~ accelerated by ~~today’s~~the weaker global economic climate. ~~This~~Accordingly, ~~plan~~we ~~will~~closed ~~result~~our 150mm fabrication facility in ~~the~~East ~~closure~~Kilbride, ofScotland ~~our~~in ~~Sendai~~the ~~fabrication~~second ~~facility~~quarter of 2009. We have also ~~initiated~~announced athe ~~formal~~closure ~~consultation~~of ~~with~~both ~~employees~~our at150mm ~~our~~fabrication facility in Toulouse, France and our 150mm fabrication facility in Sendai, Japan in the second half of 2011. ~~The~~We ~~proposal~~continue to ~~close~~evaluate the ~~facility~~closure isof ~~being~~the ~~evaluated~~Toulouse facility through consultation with our works council in Toulouse. We estimate the costs of the elimination of our 150mm manufacturing capability to be approximately $200 million, including approximately $190 million in cash severance costs and $10 million in cash costs for other exit costs. We anticipate ~~the majority of~~ these costs to be paid ~~during~~over the course of 2010 through the first half of ~~2011~~2012. We expect these actions will result in expected annualized cost savings of approximately $100 million.

Going forward, we expect our business will be highly dependent on demand for electronic content in automobiles, networking and wireless infrastructure equipment and other electronic devices. In addition, we operate in an industry that is highly cyclical and subject to constant and rapid technological change, product obsolescence, price erosion, evolving standards, short product life-cycles and wide fluctuations in product supply and demand. For more information on trends and other factors affecting our business, ~~see~~refer to Part III, “Item 1A: Risk Factors” in ~~this October 2, 2009 Quarterly Report on Form 10-Q. For a description of other risk factors affecting~~ our ~~business and results of operations, refer to our~~ December 31, ~~2008~~2009 Annual Report on Form 10-K ~~for the year ended December 31, 2008~~.

Results of Operations for the Three Months Ended ~~October~~April 2, ~~2009~~2010 and ~~September~~April 263, ~~2008~~2009

	Three Months Ended(Unaudited)
	Three Months Ended
(dollars in millions)	October 2,2009			% ofNet Sales		September 26,2008			% ofNet Sales
(Dollars in millions)	April 2,2010			% of NetSales		April 3,2009			% of NetSales
Orders	$	970		108.6	%	$	1,341		95.2	%
Operating Results
Net sales	$	893		100.0	%	$	1,409		100.0	%
Orders (unaudited)	$	1,118		109.6	%	$	879		104.6	%
Cost of sales		626		70.1	%		821		58.3	%
Net sales	$	1,020		100.0	%	$	840		100.0	%
Gross margin		267		29.9	%		588		41.7	%
Cost of sales		651		63.8	%		664		79.0	%
Selling, general and administrative		120		13.4	%		166		11.8	%
Gross margin		369		36.2	%		176		21.0	%
Research and development		193		21.6	%		293		20.8	%
Selling, general and administrative		116		11.4	%		137		16.3	%
Amortization expense for acquired intangible assets		122		13.7	%		272		19.3	%
Research and development		191		18.7	%		244		29.0	%
Reorganization of businesses, contract settlement, and other		91		10.2	%		(139	)	-9.9	%
Amortization expense for acquired intangible assets		121		11.9	%		122		14.5	%
Impairment of goodwill and intangible assets		—		—	%		3,368		239.0	%
Reorganization of businesses and other		1		0.1	%		24		2.9	%
Merger expenses		—		—	%		2		0.1	%
Operating loss		(60	)	-5.9	%		(351	)	-41.8	%
Operating loss		(259	)	-29.0	%		(3,374	)	-239.4	%
(Loss) gain on extinguishment or modification of long-term debt, net		(47	)	-4.6	%		2,264		269.5	%
Gain on extinguishment of long-term debt, net		4		0.4	%		—		—	%
Other expense, net		(153	)	-15.0	%		(168	)	-20.0	%
Other expense, net		(142	)	-15.9	%		(173	)	-12.3	%
(Loss) income before income taxes		(260	)	-25.5	%		1,745		207.7	%
Loss before income taxes and minority interest		(397	)	-44.5	%		(3,547	)	-251.7	%
Income tax benefit		(4	)	-0.4	%		(11	)	-1.3	%
Minority interest		—		—	%		16		1.1	%
Net (loss) income	$	(256	)	-25.1	%	$	1,756		209.0	%
Income tax expense (benefit)		11		1.2	%		(66	)	-4.7	%
Net loss	$	(408	)	-45.7	%	$	(3,497	)	-248.1	%

26Three Months Ended April 2, 2010 Compared to Three Months Ended April 3, 2009

Three Months Ended October 2, 2009 Compared to Three Months Ended September 26, 2008

Net Sales

We operate in one industry segment and engage primarily in the design, development, manufacture and marketing of a broad range of semiconductor products that are based on our core capabilities in embedded processing. In addition, we offer customers differentiated products that complement our embedded processors and provide connectivity, such as sensors, radio frequency semiconductors, and power management and other analog and mixed-signal semiconductors. Our capabilities enable us to offer customers a broad range of product offerings, from individual devices to platform-level products that combine semiconductors with software for a given application.

We19 sell our products to distributors and original equipment manufacturers (“OEMs”) in a broad range of market segments. The majority of our sales are derived from four major product design groups: Microcontroller Solutions, Cellular Products, Networking and Multimedia and Radio Frequency, Analog and Sensors. Other sales are attributable to revenue from intellectual property, sales to other semiconductor companies and miscellaneous businesses.

OurTable net sales and orders of approximately $893 million and $970 million in the third quarter of 2009 decreased 37% and 28%, respectively, compared to the prior year quarter. We experienced lower net sales in almost all product segments as a result of (i) the termination of certain minimum purchase commitments of our cellular products by Motorola, (ii) decreasing production in the global automotive industry along with the impact of the GM and Chrysler bankruptcies and the bankruptcies of certain of our customers, (iii) decreased demand from our distribution supply chain customers for consumer and industrial products, and (iv) lower capital spending in enterprise and wireline infrastructure and a decline in consumer spending affecting digital home and multimedia products which negatively impacts our networking business. Distribution sales approximated 20% of our total net sales and fell by 25% compared to the prior year quarter. Distribution inventory, in dollars, was 10.8 weeks of net sales at October 2, 2009, compared to 14.0 weeks of net sales at December 31, 2008 and 12.4 weeks of net sales as of September 26, 2008. Net sales by product design group for the three months ended October 2, 2009 and September 26, 2008 were as follows: Contents

	Three Months Ended
(in millions)	October 2,2009		September 26,2008
Microcontroller Solutions	$	291	$	408
Cellular Products		122		344
Networking and Multimedia		234		307
RF, Analog and Sensors		208		261
Other		38		89
Total net sales	$	893	$	1,409

We sell our products to distributors and original equipment manufacturers (“OEMs”) in automotive, consumer, industrial, networking and wireless infrastructure markets. The majority of our sales are derived from three major product design groups: Microcontroller Solutions, Networking and Multimedia and Radio Frequency, Analog and Sensors. We also derive sales from our former Cellular Products group which we are winding-down in connection with our decision to wind-down the cellular handset business. Although we are in the process of winding-down these cellular product offerings, in the near term, we expect to continue to provide products to our existing cellular customers. We expect the revenue stream associated with our cellular products to continue declining over time, relative to prior peak periods. Finally, Other sales are attributable to revenue from intellectual property, software, contract manufacturing sales to other semiconductor companies and miscellaneous items.

Our net sales and orders of approximately $1,020 million and $1,118 million in the first quarter of 2010 increased 21% and 27%, respectively, compared to the prior year quarter. We experienced higher net sales in all product design groups as a result of (i) increasing production in the global automotive industry, (ii) increased demand from our distribution supply chain customers for consumer and industrial products, and (iii) higher capital spending in enterprise and wireline infrastructure and an increase in consumer spending affecting multimedia products which positively impacts our networking business. Distribution sales approximated 24% of our total net sales and increased 59% compared to the prior year quarter, due primarily to increased demand in the consumer and industrial markets purchased through the distribution channel. Distribution inventory, in dollars and units, was 10.2 weeks and 8.4 weeks, respectively, of net sales at April 2, 2010, compared to 11.4 weeks and 8.0 weeks, respectively, of net sales at December 31, 2009. Net sales by product design group for the three months ended April 2, 2010 and April 3, 2009 were as follows:


	Three Months Ended
(Dollars in millions)	April 2, 2010		April 3, 2009
Microcontroller Solutions	$	374	$	248
Networking and Multimedia		255		228
RF, Analog and Sensors		245		184
Cellular Products		121		95
Other		25		85

Total Net Sales	$	1,020	$	840

Microcontroller Solutions

Our Microcontroller Solutions product line represents the largest component of our total net sales. Microcontrollers ~~and~~ and associated application development systems represented approximately 3337% and 2930% of our total net sales in the ~~third~~first quarter of ~~2009~~2010 and ~~2008~~2009, respectively. Demand for our microcontroller products is driven by the automotive, consumer, ~~industrial~~ industrial and computer peripherals markets. InThe ~~the third quarter of 2009, Microcontroller Solutions net sales declined by $117 million, or 29%, compared to the prior year quarter, primarily as a result of decreased global~~ automotive ~~demand~~end ~~and production cuts in the U.S. automotive~~ market. ~~The~~accounted ~~number~~for ~~of units produced by the Big 3 automakers in the U.S. was down approximately 27~~65% ~~compared to the third quarter~~ of ~~2008, reflecting a decline in demand. We were also affected by reduced demand in the consumer and industrial markets purchased through our distribution channel. We noted improving volumes of our~~ Microcontroller Solutions’ ~~products in the third quarter of 2009. Our Microcontroller Solutions’~~ net sales ~~increased by 22%~~ in ~~total and by 26% in~~ the ~~automotive~~first ~~marketplace, as compared to the second~~ quarter of ~~2009~~2010. This related primarily to a 35% increase in units produced by the Big 3 in the third quarter of 2009 and corresponding increases in our foreign markets, as compared to the second quarter of 2009, resulting from government incentive programs and the replenishment of inventories.

Microcontroller Solutions net sales increased by $126 million, or 51%, compared to the prior year quarter, primarily as a result of a rise in global automotive demand and a significant increase in both worldwide and U.S. Big 3 light vehicle production. We were also affected by increased demand in the consumer and industrial markets purchased through our distribution channel. Our Microcontroller Solutions’ net sales increased by 48% in the automotive marketplace, as compared to the first quarter of 2009. This increase related primarily to the aforementioned increase in units produced by the Big 3 in the first quarter of 2010 and corresponding increases in our foreign markets, compared to the first quarter of 2009, resulting from the replenishment of inventories due in part to increased sales associated with government incentive programs.

Networking and Multimedia

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Networking and Multimedia net sales ~~decreased~~increased by $7327 million, or 2412%, in the first ~~third~~ quarter of ~~2009~~2010 compared to the prior year quarter, as a result of ~~lower~~higher capital spending in communications infrastructure, combined with aan ~~decline~~increase in consumer spending affecting ~~digital~~our ~~home and~~ multimedia products.

Radio Frequency, Analog and Sensors

Our Radio Frequency, Analog and Sensors product line, which includes radio frequency devices, analog devices and sensors, represented 2324% and 1922% of our total net sales in the ~~third~~first quarter of ~~2009~~2010 and ~~2008~~2009, respectively. Demand for our Radio Frequency, Analog and Sensors products is driven by the automotive, consumer, industrial, wireless infrastructure and computer peripherals markets.; ~~Radio~~however ~~Frequency, Analog and Sensors net sales in~~ the ~~third quarter of 2009 decreased by $53 million, or 20%, compared to the prior year quarter, as a result of lower demand for both analog and sensor products from weaker~~ automotive ~~vehicle production. In addition, we have also experienced a decline in radio frequency product demand due to the~~ end ofmarket ~~the~~accounted ~~current~~for ~~phase~~57% of ~~China’s investment in that country’s 3G wireless infrastructure. Sequentially,~~ Radio Frequency, Analog and Sensors’ ~~net~~ sales ~~increased by 3%~~ in ~~total, and by 35% in~~ the ~~automotive~~first ~~marketplace, as compared to the second~~ quarter of ~~2009~~2010. This related primarily to a 35% increase in units produced by the Big 3 in the third quarter of 2009 and corresponding increases in our foreign markets, as compared to the second quarter of 2009, resulting from government incentive programs and the replenishment of inventories.

Radio Frequency, Analog and Sensors net sales in the first quarter of 2010 increased by $61 million, or 33%, compared to the prior year quarter, attributable to higher demand for both analog and sensor products resulting from a rise in global automotive demand and a significant increase in both worldwide and U.S. Big 3 light vehicle production. Our Radio Frequency, Analog and Sensors’ net sales increased by 77% in the automotive end marketplace, as compared to the first quarter of 2009. This increase related primarily to the aforementioned increase in units produced by the Big 3 in the first quarter of 2010 and corresponding increases in our foreign markets, compared to the first quarter of 2009, resulting from the replenishment of inventories due in part to increased sales associated with government incentive programs. Partially offsetting this trend is a decline in radio frequency product demand compared to the first quarter of 2009, due to the end of the current phase of China’s investment in that country’s 3G wireless infrastructure.

Cellular Products

As discussed above in “Trends in Our Business,” we ~~have~~are ~~announced the wind~~winding-down of our cellular handset business~~. Cellular Products~~, which includes baseband processors and power management integrated circuits, which represented 1412% and 2411% of our total net sales in the ~~third~~first quarter of ~~2009~~2010 and ~~2008~~2009, respectively. Cellular Products net sales in the first quarter of 2010 increased by $26 million, or 27%, compared to the prior year quarter, primarily as a result of higher demand from one of our customers for our baseband processors. Despite this positive trend, we are not able to precisely forecast the level and duration of this increase in demand for our Cellular Products.

In January 2008, we entered into an amended and extended arrangement with Motorola whereby we received cash proceeds, provided certain pricing modifications and relieved Motorola of certain obligations (“Q1 2008 Motorola Agreement”). We deferred revenue related to the cash proceeds received, which was being recognized over the updated term of the arrangement beginning in the first quarter of 2008. During the third quarter of 2008, we updated our agreement with Motorola whereby Motorola agreed to provide certain consideration in exchange for eliminating their remaining minimum purchase commitments (“Q3 2008 Motorola Settlement Agreement”). As a result of the Q3 2008 Motorola Settlement Agreement and our current sales being only for legacy products, our cellular handset revenues for the third quarter of 2009 decreased by $222 million, or 65%, versus the prior year quarter.

Other

We consider the following to be classified as other sales (“Other”): sales to other semiconductor companies, intellectual property revenues, product revenues associated with end markets outside of our product design group target markets, and revenues from sources other than semiconductors. Other represented 42% and 610% of our total net sales in the ~~third~~first quarter of ~~2009~~2010 and ~~2008~~2009, respectively. Demand for our Other products is driven primarily by capacity requirements of other semiconductor companies and the ability to license our intellectual property; both of these revenue streams are susceptible to timing and volume fluctuations. Other net sales decreased by $51 million, or 57%, in the third quarter of 2009 compared to the prior year quarter, primarily as a result of a $46 million, or 84%, decrease in foundry sales. As a percentage of net sales, intellectual property revenue was 2% and 1% for the third quarter of 2009 and 2008, respectively.

Other net sales decreased by $60 million, or 71%, in the first quarter of 2010 compared to the prior year quarter, due to a decrease in intellectual property revenue and a $20 million, or 69%, decrease in contract manufacturing sales. As a percentage of net sales, intellectual property revenue was 1% and 6% for the first quarter of 2010 and 2009, respectively.

Gross Margin

In the ~~third~~first quarter of ~~2009~~2010, our gross margin ~~decreased~~increased $~~321~~193 million compared to the prior year quarter. As a percentage of net sales, ~~gross~~ gross margin was 2936.92%, reflecting aan ~~decline~~increase of 1115.82 percentage points. This ~~decrease~~increase was attributable to ~~substantially~~higher ~~reduced~~ revenues which resulted in a ~~significant~~corresponding ~~decline~~30 percentage point increase in factory utilization. This ~~negatively~~positively impacted gross margin, as we are experiencing ~~less~~greater operating leverage of fixed manufacturing costs. In ~~response~~addition, tosince ~~these~~the ~~circumstances,~~prior weyear ~~have~~quarter we executed several cost savings initiatives, including reducing our cost of procured materials and services, ~~and executing a workforce~~internalizing ~~reduction~~certain ~~across~~wafer ~~our~~ manufacturing ~~organization.~~and Weassembly ~~have~~and ~~also~~test ~~discontinued~~contract ~~our~~services ~~manufacturing~~and ~~operations~~executing inworkforce ~~our~~reduction ~~East~~in ~~Kilbride,~~high ~~Scotland~~cost ~~site~~areas ~~and~~of ~~reduced~~ our ~~supply chain and~~ manufacturing ~~operations headcount by approximately 22% since September 26, 2008~~organization.

Selling, General and Administrative

Our selling, general and administrative expenses decreased $4621 million, or 2815%, in the ~~third~~first quarter of ~~2009~~2010 compared to the prior year quarter. This decrease was the result of a concerted company-wide drive and execution of a strategy to reduce costs across all selling, general and administration departmental functions and categories of expenses. We have executed workforce reductions and focused cost restructuring in the information technology, sales and marketing, and other administrative functions. We have reduced our headcount in the selling, general and administrative areas by approximately 13% since April 3, 2009. These savings were partially offset by the termination of austerity measures at the beginning of the first quarter of 2010.

2821

reductions and focused cost restructuring in the information technology, sales and marketing, and other administrative functions. These savings were partially offset by costs resulting from the execution of a settlement agreement with one of our customers over a third-party patent infringement claim. We have reduced our headcount in the selling, general and administrative areas by approximately 25% since September 26, 2008.

Research and Development

Our research and development expense decreased $~~100~~53 million, or 3422%, in the ~~third~~first quarter of ~~2009~~2010 compared to the prior year quarter. This decrease was the result of savings from an identified transformation plan including the restructuring of our participation in the IBM alliance, a jointly-funded research alliance created to develop 300-millimeter technologies. We experienced savings from the strategic realignment of our cellular handset business, which we are executing over the course of 2009. We have reduced our research and development headcount by approximately 2425% since ~~September~~April 263, ~~2008~~2009. These savings were partially offset by ~~external acquisitions and~~ internal investments in our remaining core businesses and the termination of austerity measures at the beginning of the first quarter of 2010.

~~Amortization~~Reorganization ~~Expense~~of ~~for~~Businesses ~~Acquired~~and ~~Intangible~~Other ~~Assets~~

~~Amortization~~In ~~expense~~the ~~for acquired~~first ~~intangible assets related~~quarter toof ~~developed technology~~2010, ~~tradenames,~~we ~~trademarks~~recorded ~~and~~$5 ~~customer relationships~~million ~~decreased~~of bynon-cash ~~$150~~asset ~~million~~impairment incharges ~~the~~and ~~third~~$1 ~~quarter~~million of ~~2009~~exit ~~compared~~costs related to the prior year ~~quarter~~termination of various operating leases resulting from our Reorganization of Business Program. ~~The~~ ~~decrease~~We ~~was~~also ~~the~~reversed ~~result~~$5 million of severance accruals as a ~~lower~~result ~~asset~~of ~~base~~employees ~~following~~previously ~~non-cash~~identified ~~impairment~~for ~~charges~~separation ~~recorded~~who ~~against~~either ~~these~~resigned ~~assets~~and indid not receive severance or were redeployed due to circumstances not foreseen when original plans were approved. In the ~~second~~first ~~half~~quarter of ~~2008.~~ 2009, we accrued $24 million in employee severance costs and asset impairment charges related to these actions.

~~Reorganization~~(Loss) ofGain ~~Businesses,~~on ~~Contract~~Extinguishment ~~Settlement,~~or ~~and~~Modification ~~Other~~of Long-Term Debt, Net

In ~~light~~the offirst ~~our~~quarter ~~renewed~~of ~~focus~~2010, onwe ~~key~~recorded ~~market~~a ~~leadership~~net ~~positions~~charge ~~and~~of ~~given~~$47 ~~general~~million ~~market conditions, beginning~~ in the ~~fourth~~accompanying ~~quarter~~Condensed Consolidated Statement of ~~2008~~Operations weassociated ~~initiated~~with the ~~Reorganization~~close of ~~Business~~the ~~Program~~A&E Arrangement, which ~~has~~includes ~~continued through~~ the ~~current~~extinguishment ~~quarter~~of debt and ~~has~~the ~~reduced~~issuance ~~headcount~~of inthe ~~our~~10.125% ~~supply~~Secured ~~chain~~Notes, ~~research~~ and ~~development,~~gains ~~sales,~~on ~~marketing~~repurchases ~~and~~of ~~general~~debt. ~~and~~This ~~administrative~~charge ~~functions.~~consisted Inof expenses associated with the ~~third~~A&E ~~quarter~~Arrangement, the write-off of ~~2009,~~unamortized wedebt ~~recorded~~issuance ~~$57~~costs ~~million~~and inremaining ~~employee~~original ~~severance~~issue ~~and~~discount ~~$12~~related ~~million~~to ofthe ~~non-cash~~extinguished ~~asset~~debt, ~~impairment~~and ~~charges~~other related tocosts, ~~these~~partially ~~actions.~~offset Weby ~~also~~gains ~~recorded~~from ~~exits~~repurchases ~~costs~~ of ~~$23~~debt. ~~million~~(Refer ~~related~~to ~~primarily~~“Financing Activities” towithin ~~costs~~“Liquidity toand ~~terminate~~Capital ~~various~~Resources” ~~operating leases~~for ~~resulting~~the ~~from~~definition ~~our~~and ~~Reorganization~~discussion of ~~Business~~terms ~~Program~~referenced in this section.)

~~During~~In the ~~third~~first quarter of ~~2008~~2009, we recorded a ~~benefit of~~ $~~296~~ 2,264 million inpre-tax ~~reorganization~~gain offor ~~businesses,~~debt ~~contract~~extinguishment ~~settlement,~~ and ~~other~~modification, net in connection with the Q3Debt ~~2008~~Exchange. ~~Motorola~~(Refer ~~Settlement~~to ~~Agreement,~~Note ~~which~~4 ~~included~~in ~~the~~our ~~recognition~~December 31, of2009 ~~all~~Annual ~~previously~~Report ~~deferred~~on ~~revenue~~Form ~~recorded~~10-K ~~under the Q1 2008 Motorola Agreement. This benefit was partially offset by a $38 million charge~~ for ~~future~~discussion ~~foundry~~of ~~deliveries and contract termination fees associated with~~ the ~~cancellation~~transaction ofreferred ~~certain~~to ~~third-party~~as ~~manufacturing agreements. This charge resulted from~~ the ~~execution~~Debt ~~of the Q3 2008 Motorola Settlement Agreement~~Exchange.)

During the third quarter of 2008, we accrued $56 million in employee severance costs in connection with our Reorganization of Business Program. We also recorded exit costs of $43 million related to a strategic decision to restructure our participation in a jointly-funded research alliance created to develop 300-millimeter technologies. In addition to these Reorganization of Business Program charges, we recorded $19 million of non-cash impairment charges in the third quarter of 2008 related to certain research and development assets.

Impairment of Goodwill and Intangible Assets

During the third quarter of 2008, in connection with the termination of the Q1 2008 Motorola Agreement, the significant decline in the market capitalization of the public companies in our peer group, our intent to pursue strategic alternatives for our cellular handset product group and the potential impact from weakening market conditions in our remaining businesses, we concluded that indicators of impairment existed related to our goodwill and intangible assets. These goodwill and intangible assets were established in purchase accounting at the completion of the Merger in December 2006. We recorded impairment charges of $2,627 million and $741 million associated with goodwill and intangible assets, respectively. The goodwill impairment charge was preliminary and represented our best estimate as of the end of the third quarter of 2008. We finalized and recorded associated adjustments to the goodwill impairment charge during the fourth quarter of 2008.

Gain on Extinguishment of Long-Term Debt, Net

During the third quarter of 2009, we recorded a $4 million pre-tax gain, net in the Condensed Consolidated Statement of Operations in connection with the repurchase of $10 million of our Toggle Notes.

Other Expense, Net

Other expense, net decreased $3115 million in the ~~third~~first quarter of ~~2009~~2010 compared to the prior year quarter. Net interest expense in the first ~~third~~ quarter of ~~2009~~2010 included interest expense of $~~133~~148 million partially offset by interest income of $3 million. Net interest expense in the ~~third~~first quarter of ~~2008~~2009 included interest expense of $~~177~~173 million partially offset by interest income of $8 6 million. The $4425 million decrease in interest expense over the prior year period was due to (i) savings related to the Debt Exchange (as previously defined and discussed in Note 4 to our December 31, 2009 Annual Report on Form 10-K) and the ~~accompanying~~retirement ~~condensed~~of outstanding debt during 2009 and the first quarter of 2010. This was partially offset by higher interest rates on the Extended Term Loan and 10.125% Secured Notes associated with the A&E Arrangement. (Refer to ~~consolidated~~“Financing ~~financial~~Activities” ~~statements)~~within “Liquidity and Capital Resources” for definitions and a discussion of terms used in the ~~retirement~~preceding sentence.) During the first quarter of 2010, we also recorded a $6 million loss due to the change in the fair value of our interest rate swaps and interest rate caps in other, net.

outstanding debt during 2009, and (ii) lower interest rates on our outstanding floating rate debt. This was partially offset by an increase in our revolving credit facility in the fourth quarter of 2008 and the first quarter of 2009. During the third quarter of 2009, we also recorded a $9 million loss in other, net related to certain of our investments accounted for under the cost method.

Minority Interest

Minority interest was $16 million in the third quarter of 2008 and represents Freescale Hungary’s proportionate share of the SBE’s earnings for the period.

Income Tax Expense

As of ~~October~~April 2, ~~2009~~2010, the estimated annual effective tax rate for ~~2009~~2010 is an income tax expense is 1%, excluding amounts recorded for discrete events. Although the Company is a Bermuda entity with a statutory income tax rate of ~~less~~zero, ~~than~~the 1%earnings of many of the Company’s subsidiaries are subject to taxation in the U.S. Our annual effective tax rate is less than the U.S. statutory 35% percent due to (i) minimal ~~domestic~~ tax expense recorded on in our ~~domestic~~ U.S. earnings due to ~~the~~valuation allowances ~~utilization~~reflected ofagainst U.S. deferred tax assets, ~~which were subject to a valuation allowance~~ and (ii) the mix of earnings and losses by taxing jurisdictions ~~and foreign tax rate differentials~~.

~~Results~~Reorganization of ~~Operations~~Businesses ~~for the Nine Months Ended October 2, 2009~~ and ~~September 26,~~Other ~~2008~~

	Nine Months Ended(Unaudited)
(dollars in millions)	October 2,2009			% ofNet Sales		September 26,2008			% ofNet Sales
Orders	$	2,714		106.1	%	$	4,175		97.4	%
Net sales	$	2,557		100.0	%	$	4,286		100.0	%
Cost of sales		1,921		75.1	%		2,474		57.7	%
Gross margin		636		24.9	%		1,812		42.3	%
Selling, general and administrative		377		14.8	%		507		11.8	%
Research and development		648		25.3	%		864		20.1	%
Amortization expense for acquired intangible assets		366		14.3	%		817		19.1	%
Reorganization of businesses, contract settlement, and other		197		7.7	%		(88	)	-2.1	%
Impairment of goodwill and intangible assets		—		—	%		3,368		78.6	%
Merger expenses		—		—	%		7		0.2	%
Operating loss		(952	)	-37.2	%		(3,663	)	-85.4	%
Gain on extinguishment of long-term debt, net		2,289		89.5	%		16		0.4	%
Other expense, net		(445	)	-17.4	%		(525	)	-12.2	%
Income (loss) before income taxes and minority interest		892		34.9	%		(4,172	)	-97.3	%
Minority interest		—		—	%		16		0.4	%
Income tax expense (benefit)		25		1.0	%		(262	)	-6.1	%
Net income (loss)	$	867		33.9	%	$	(3,926	)	-91.6	%

Three Months Ended April 2, 2010

Nine Months Ended October 2, 2009 Compared to Nine Months Ended September 26, 2008

Net Sales

Our net sales and orders of approximately $2,557 million and $2,714 million in the first nine months of 2009 decreased 40% and 35%, respectively, compared to the prior year period. We experienced lower net sales in almost all product segments as a result of (i) the termination of certain minimum purchase commitments of our cellular products by Motorola, (ii) decreasing production in the global automotive industry along with the impact of the GM and Chrysler bankruptcies and the bankruptcies of certain of our customers, (iii) decreased demand from our distribution supply chain customers for consumer and industrial, and (iv) lower capital spending in enterprise and wireline infrastructure and a decline in consumer spending affecting digital home and multimedia products, which negatively impacts our networking business. These decreases were partially offset by increased non product revenue from intellectual property sales. Intellectual property revenue increased to 3% as a percentage of net sales. Distribution sales approximated 20% of our total net sales and fell by 29% compared to the prior year period. Distribution inventory, in dollars, was 10.8 weeks of net sales at October 2, 2009, compared to 14.0 weeks of net sales at December 31, 2008 and 12.4 weeks of net sales at September 26, 2008. Net sales by product design group for the nine months ended October 2, 2009 and September 26, 2008 were as follows:

	Nine Months Ended
(in millions)	October 2,2009		September 26,2008
Microcontroller Solutions	$	775	$	1,326
Cellular Products		355		999
Networking and Multimedia		678		888
RF, Analog and Sensors		593		800
Other		156		273
Total net sales	$	2,557	$	4,286

Microcontroller Solutions

Our Microcontroller Solutions product line represents the largest component of our total net sales. Microcontrollers and associated application development systems represented approximately 30% and 31% of our total net sales in the first nine months of 2009 and 2008, respectively. Demand for our microcontroller products is driven by the automotive, consumer, industrial and computer peripherals markets. In the first nine months of 2009, Microcontroller Solutions net sales declined by $551 million, or 42%, compared to the prior year period, primarily as a result of decreased global automotive demand and production cuts in the U.S. automotive market. The Big 3 U.S. automakers produced 48% fewer vehicles during the first nine months of 2009 as compared to the first nine months of 2008. We were also affected by reduced demand in the consumer and industrial markets purchased through our distribution channel.

Networking and Multimedia

Our networking and multimedia product line, which includes communications and digital signal processors, networked multimedia devices and application processors, represented 27% and 21% of our total net sales in the first nine months of 2009 and 2008, respectively. Our primary end markets for our networking and multimedia products are the wireless and wireline infrastructure, enterprise, SOHO and home networking, and mobile consumer markets. Networking and Multimedia net sales decreased by $210 million, or 24%, in the first nine months of 2009 compared to the prior year period as a result of lower capital spending in communications infrastructure, combined with a decline in consumer spending affecting digital home and multimedia products.

Radio Frequency, Analog and Sensors

Our Radio Frequency, Analog and Sensors product line, which includes radio frequency devices, analog devices and sensors, represented 23% and 19% of our total net sales in the first nine months of 2009 and 2008, respectively. Demand for our Radio Frequency, Analog and Sensors products is driven by the automotive, consumer, industrial, wireless infrastructure and computer peripherals markets. Radio Frequency, Analog and Sensors net sales in the first nine months of 2009 decreased by $207 million, or 26%, compared to the prior year period as a result of lower demand for both analog and sensor product from weaker automotive vehicle production.

Cellular Products

As discussed above in “Trends in Our Business,” we have announced the wind-down of our cellular handset business. Cellular Products, which includes baseband processors and power management integrated circuits, represented 14% and 23% of our total net sales in the first nine months of 2009 and 2008, respectively.

In January 2008, we entered into the Q1 2008 Motorola Agreement, an amended and extended arrangement with Motorola whereby we received cash proceeds, provided certain pricing modifications and relieved Motorola of certain obligations. We deferred revenue related to the cash proceeds received, which was being recognized over the updated term of the arrangement beginning in the first quarter of 2008. During the third quarter of 2008, in the Q3 2008 Motorola Settlement Agreement, we updated our agreement with Motorola whereby Motorola agreed to provide certain consideration in exchange for eliminating their remaining minimum purchase commitments. As a result of these events, our cellular handset revenues for the first nine months of 2009 decreased 64% versus the prior year period.

Other

the first nine months of 2009 and 2008. Demand for our Other products is driven primarily by capacity requirements of other semiconductor companies and the ability to license our intellectual property; both of these revenue streams are susceptible to timing and volume fluctuations. Other net sales decreased by $117 million, 43%, in the first nine months of 2009 compared to the prior year period, primarily as a result of a $137 million, or 75%, decrease in foundry sales, partially offset by an increase in intellectual property revenue to 3% of our total net sales from less than 1% in the prior year period.

Gross Margin

In the first nine months of 2009, our gross margin decreased $1,176 million compared to the prior year period. As a percentage of net sales, gross margin was 24.9%, reflecting a decline of 17.4 percentage points. This decrease was attributable to substantially reduced revenues which resulted in a significant decline in average year-to-date factory utilization of approximately 29%, as compared to the prior year period. This negatively impacted gross margin, as we are experiencing less operating leverage of fixed manufacturing costs. In response to these circumstances, we have executed several cost savings initiatives, including reducing our cost of procured materials and services, and executing a workforce reduction across our manufacturing organization. On average, we had 22% fewer manufacturing and supply chain operations headcount during the first nine months of 2009 versus 2008.

Selling, General and Administrative

Our selling, general and administrative expenses decreased $130 million, or 26%, in the first nine months of 2009 compared to the prior year period. This decrease was the result of a coordinated effort to reduce costs across all selling, general and administration departmental functions and categories of expenses. We executed workforce reductions and focused cost restructuring in the information technology, legal, sales and marketing functions. On average, we had 21% fewer selling, general and administrative headcount during the first nine months of 2009 versus 2008. As a percent of our net sales, our selling, general and administrative expenses increased 3 percentage points primarily due to lower net sales.

Research and Development

Our research and development expense for the first nine months of 2009 decreased $216 million, or 25%, compared to the prior year period. This decrease was the result of savings from an identified transformation plan including the restructuring of our participation in the IBM alliance, a jointly-funded research alliance created to develop 300-millimeter technologies, the exit of our MRAM business and some initial savings from the strategic realignment of our cellular handset business. On average, we had 16% fewer research and development headcount during the first nine months of 2009 versus 2008. These savings were partially offset by external acquisitions and internal organic investments in our remaining core businesses. As a percent of our net sales, our research and development expenses increased 5 percentage points due to lower net sales.

Amortization Expense for Acquired Intangible Assets

Amortization expense for acquired intangible assets related to developed technology, tradenames, trademarks and customer relationships decreased by $451 million in the first nine months of 2009 compared to prior year period. The decrease was the result of a lower asset base following non-cash impairment charges recorded against these assets in the second half of 2008.

Reorganization of Businesses, Contract Settlement, and Other

In light of our renewed focus on key market leadership positions and given general market conditions, beginning in the fourth quarter of 2008 we initiated the Reorganization of Business Program which has continued through the current quarter and has reduced headcount in our supply chain, research and development, sales, marketing and general and administrative functions. In the first nine months of 2009, we recorded $150 million in employee severance, $23 million in exit costs, $19 million of non-cash asset impairment charges and $4 million of gains related to the sale and disposition of certain capital assets. We also recorded $12 million in charges in the first nine months of 2009 related to our Japanese subsidiary’s pension plan. These charges are related to certain termination benefits and settlement costs in connection with our plan to discontinue our manufacturing operations in Sendai, Japan in 2011 and other previously executed severance actions in Japan.

During the first nine months of 2008, we recorded a benefit of $296 million in reorganization of businesses, contract settlement, and other in connection with the Q3 2008 Motorola Settlement Agreement, which included the recognition of $187 million of previously deferred revenue recorded under the Q1 2008 Motorola Agreement. This benefit was partially offset by a $38 million charge for future foundry deliveries and contract termination fees associated with the cancellation of certain third-party manufacturing agreements. This charge resulted from the execution of the Q3 2008 Motorola Settlement Agreement.

During the first nine months of 2008, we accrued $56 million in employee severance costs in connection with our Reorganization of Business Program. We also recorded exit costs of $43 million related to a strategic decision to restructure our participation in the IBM alliance, a jointly-funded research alliance created to develop 300-millimeter technologies. In addition to these Reorganization of Business Program charges, we recorded $27 million of non-cash impairment charges in the first nine

months of 2008 related to certain research and development assets and our manufacturing facility located in Tempe, Arizona, which was classified as held-for-sale as of September 26, 2008, and $28 million of severance accruals and other exit costs related to other reorganization of business programs initiated prior to the third quarter of 2008.

As a result of a change in executive leadership in the first nine months of 2008, we recorded in reorganization of businesses, contract settlement, and other a $17 million non-cash charge for equity compensation expense as a result of the accelerated vesting of Class B Interests in connection with the execution of a separation agreement with our former Chief Executive Officer. We also recognized $8 million in severance costs related to this separation and $1 million in compensation related to the hiring of our current Chief Executive Officer.

Finally, we finalized a grant related to our former research and manufacturing alliance in Crolles, France. We recognized a benefit of $9 million for the grant in reorganization of businesses, contract settlement, and other related to the portion of the grant for assets sold during the first nine months of 2008.

Impairment of Goodwill and Intangible Assets

Merger Expenses

Merger expenses were $7 million in the first nine months of 2008 and consist primarily of retention costs associated with the SigmaTel, Inc. acquisition in the second quarter of 2008, as well as accounting, legal and other professional fees.

Gain on Extinguishment of Long-Term Debt

In the first nine months of 2009, a $2,264 million gain on the Debt Exchange was recorded in other, net. Upon completion of the Debt Exchange, the carrying value of our outstanding long-term debt obligations on the Existing Notes declined by $2,853 million, including $24 million of accrued PIK Interest. This decline was partially offset by the issuance of Incremental Term Loans with a carrying value of $540 million. We recorded $17 million of debt issuance costs in connection with the Incremental Term Loans. We also recorded a $25 million pre-tax gain, net in the accompanying Condensed Consolidated Statement of Operations in connection with the repurchase of $29 million of our Fixed Rate Notes and $27 million of our Toggle Notes.

During the first nine months of 2008, we recorded a $16 million pre-tax gain, net in connection with the repurchase of $67 million of our Senior Subordinated Notes, $10 million of our Fixed Rate Notes and $8 million of our Floating Rate Notes. (Terms defined and discussed in Note 4 to the accompanying condensed consolidated financial statements.)

Other Expense, Net

Other expense, net decreased $80 million in the first nine months of 2009 compared to the prior year period. Net interest expense in the first nine months of 2009 included interest expense of $441 million partially offset by interest income of $13 million. Net interest expense in the first nine months of 2008 included interest expense of $546 million partially offset by interest income of $27 million. The $105 million decrease in interest expense over the prior year period was due to (i) savings related to the Debt Exchange and the retirement of outstanding debt during 2009, and (ii) lower interest rates on our outstanding floating rate debt. This was partially offset by an increase in our revolving credit facility in the fourth quarter of 2008 and the first quarter of 2009. During the first nine months of 2009, we recorded a $9 million pre-tax loss in other, net related to certain of our investments accounted for under the cost method, as well as a $3 million pre-tax loss on one of our investments accounted for under the equity method.

During the second quarter of 2008, in accordance with ASC Topic 815, “Derivatives and Hedging” (“ASC Topic 815”), we recognized a $14 million pre-tax gain in other, net related to the change in fair value of our interest rate swaps. During the first quarter of 2008, in accordance with ASC Topic 815, we recognized a $25 million pre-tax loss in other, net related to the cumulative ineffective portion and subsequent change in fair value of our interest rate swaps that are no longer classified as a cash flow hedge. During the first half of 2008, we also recorded a $12 million pre-tax gain in other, net as a result of the sale of all of the shares in one of our investments accounted for under the cost method.

Minority Interest

Minority interest was $16 million in the first nine months of 2008 and represents Freescale Hungary’s proportionate share of the SBE’s earnings for the period.

Income Tax Expense

As of October 2, 2009, the estimated annual effective tax rate for 2009 is an income tax expense of less than 1%, excluding income tax expense of $13 million recorded for discrete events occurring in first nine months of 2009. These discrete events primarily reflect income tax expense related to a valuation allowance associated with the deferred tax assets of one of our foreign subsidiaries. The impact of the valuation allowance is partially offset by the release of income tax reserves related to foreign audit settlements.

During the first nine months of 2009, we recorded a $2,264 million net gain as a result of the reduction in our outstanding long-term debt in connection with the Debt Exchange. We continue to be in an overall three year domestic cumulative loss position, inclusive of the cancellation of debt gain. A valuation allowance of $560 million was recorded on our domestic deferred tax assets as of December 31, 2008, so substantially all of the domestic tax expense related to the cancellation of debt income was offset by a beneficial release of the valuation allowance on our domestic deferred tax assets. We anticipate paying some state income taxes in the U.S. resulting from the net debt extinguishment, although the amounts of the obligations are not expected to be material.

Reorganization of Businesses, Contract Settlement, and Other

Nine Months Ended October 2, 2009

Reorganization of Business Program

During the fourth quarter of 2008, we executed a renewed strategic focus on key market leadership positions. In connection with this announcement and given general market conditions, we initiated a series of restructuring actions ~~under~~to ~~the~~streamline our cost structure and re-direct some research and development investments into growth markets (“Reorganization of Business Program”). These actions include (i) the ~~wind~~winding-down of our cellular handset business, (ii) restructuring our participation in the IBM alliance (a jointly-funded research alliance), (iii) discontinuing ~~manufacturing~~our 150mm manufacturing operations at our facilities in East Kilbride, Scotland, ~~facility and our~~ Sendai, Japan ~~facility,~~ and ~~consolidating logistical and certain administrative operations. We incurred $197 million in severance and exit costs associated with the Reorganization of Business Program~~Toulouse, ~~pension~~France ~~termination benefits, asset impairment charges~~ and ~~disposition~~(iv) consolidating ~~activities~~certain ~~in the first nine months of 2009. These actions have reduced and will reduce headcount in our supply chain,~~ research and development, sales, and marketing, and ~~general~~logistical and administrative ~~functions~~operations.

~~The~~22 ~~following table displays a roll-forward from January 1, 2009 to October 2, 2009 of the employee separation and exit cost accruals established related to the Reorganization of Business Program:~~

(in millions, except headcount)	Accruals atJanuary 1,2009		Charges	Adjustments		2009AmountsUsed		Accruals atOctober 2,2009
Employee Separation Costs
Supply chain	$	70	49	(7	)	(69	)	$	43
Selling, general and administrative		20	22	(1	)	(25	)		16
Research and development		25	89	(2	)	(48	)		64
Total	$	115	160	(10	)	(142	)	$	123
Related headcount		2,640	2,750	(170	)	(3,810	)		1,410
Exit and Other Costs	$	26	22	1		(28	)	$	21

~~We separated approximately 3,810 employees during the first nine months of 2009.~~ The ~~$142 million~~following ~~used~~table ~~reflects~~displays ~~cash~~a ~~payments~~roll-forward ~~made~~from toJanuary 1, ~~employees~~2010 ~~separated as part of the Reorganization of Business Program through the first nine months of 2009. We will make additional payments~~ to ~~these~~April 2, ~~separated employees and the remaining approximately~~2010 ~~1,410~~of ~~employees through~~ the ~~first~~employee ~~half of 2011. We also reversed $10 million of severance accruals as a result of 170 employees previously identified for~~ separation ~~who either resigned~~ and ~~did~~exit ~~not~~cost ~~receive~~accruals ~~severance~~established orrelated ~~were redeployed due~~ to ~~circumstances~~ ~~not~~the ~~foreseen~~Reorganization ~~when~~of ~~original~~Business ~~plans~~Program: ~~were approved.~~


(in millions, except headcount)	Accruals at January 1, 2010		Charges	Adjustments		2010 Amounts Used		Accruals at April 2, 2010
Employee Separation Costs
Supply chain	$	181	—	(2	)	(7	)	$	172
Selling, general and administrative		14	—	—		(1	)		13
Research and development		44	—	(2	)	(8	)		34

Total	$	239	—	(4	)	(16	)	$	219

Related headcount		1,750	—	(65	)	(65	)		1,620

Exit and Other Costs	$	16	—	1		(4	)	$	13

~~Termination~~The $16 million used reflects cash payments made to ~~Benefits~~employees separated as part of the Reorganization of Business Program in the first quarter of 2010. We will make additional payments to these separated employees and the remaining approximately 1,620 employees through the first half of 2012. We reversed $4 million of severance accruals as a result of 65 employees previously identified for separation who either resigned and did not receive severance or were redeployed due to circumstances not foreseen when original plans were approved. In addition, we also recorded $1 million of exit costs related to the prior year termination of various operating leases resulting from our Reorganization of Business Program. In the first quarter of 2010, $4 million of these exit costs were paid.

Asset Impairment Charges and Disposition Activities

During the first ~~nine~~quarter ~~months~~ of ~~2009~~2010, we recorded $195 million of non-cash impairment charges related ~~primarily~~ to ~~certain other assets classified as held-for-sale and in connection with~~ our ~~consolidation~~manufacturing offacility ~~leased facilities. During the first nine months of 2009, we also recorded gains of (i) $2 million associated with the disposition of certain equipment formerly used~~ in ~~our~~East ~~cellular handset business~~Kilbride, ~~and~~Scotland ~~(ii) $2~~which ~~million~~was inclassified ~~connection~~as ~~with the~~ held-for-sale ofas ~~a parcel~~ of ~~land at our Toulouse~~April 2, ~~France manufacturing facility~~2010.

Other Reorganization of Business Programs

~~Nine~~Three Months Ended ~~September~~April 263, ~~2008~~ 2009

On October 2, 2008, we announced that we intend to renew our focus on key market leadership positions. In support of this targeted approach, we evaluated strategic options for our cellular handset product group. Concurrently, in September 2008, we updated our arrangement with Motorola, our largest cellular product customer. We had previously entered into the Q1 2008 Motorola Agreement whereby we received cash proceeds, provided certain pricing modifications and relieved Motorola of certain obligations. We deferred revenue related to the cash proceeds received, which was being recognized over the term of the arrangement beginning in the first quarter of 2008. In the third quarter of 2008, the Q1 2008 Motorola Agreement was terminated.

Reorganization of Business Programs

Executive Leadership Transition

During the first nine months of 2008, $26 million was recorded in reorganization of businesses and other related to the change in executive leadership. Of this amount, $17 million was a non-cash charge for equity compensation expense as a result of the accelerated vesting of certain Class B Interests in connection with the execution of a separation agreement with Michel Mayer, our former Chairman of the Board and Chief Executive Officer. We also recognized $8 million in severance costs related to Mr. Mayer’s separation and $1 million in compensation related to the sign-on bonus for Richard Beyer, our current Chairman of the Board and Chief Executive Officer.

Asset Impairment Charges

Crolles Manufacturing and Research Alliance

Liquidity and Capital Resources

Cash and Cash Equivalents

Of the $1,~~334~~187 million of cash and cash equivalents at ~~October~~April 2, ~~2009~~2010, $~~410~~433 million was held by our U.S. subsidiaries and $~~924~~754 million was held by our foreign subsidiaries. Repatriation of some of these funds could be subject to delay and could have potential tax consequences, principally with respect to withholding taxes paid in foreign jurisdictions.

Operating Activities

We ~~utilized~~generated $7126 million of cash flow ~~for~~from operations in the first ~~nine~~quarter ~~months~~ of ~~2009~~2010 and ~~generated~~utilized $~~709~~80 million of cash flow from operations in the first ~~nine~~quarter ~~months~~ of ~~2008~~2009. The ~~decrease~~increase in cash flow provided by operations ~~from the prior year period~~ is primarily attributable to ~~our~~the ~~significant~~21% ~~decline~~increase in revenues ~~during~~compared ~~2009~~to ~~and~~ the ~~first~~prior ~~nine~~year ~~months of 2008 benefitting from the receipt of funds in connection with an updated arrangement with Motorola~~quarter. Our days sales outstanding increased to ~~39 days at October 2, 2009 from~~ 38 days at ~~December~~April 31, 2008, primarily as a result of an increase in sales during the last two weeks of September 2009 versus the last two weeks of December 2008. Our days of inventory on hand (excluding the impact of purchase accounting on inventory and cost of sales) increased to 99 days at October 2, ~~2009 from 93 days at December 31,~~ 2008 as a result of a continued decrease in revenues. Days purchases outstanding increased to 42 days at October 2, 2009 from 36 days at December 31, 2008 primarily due to fluctuations in the timing of payments.

~~Investing~~23 ~~Activities~~

Our net cash provided by (used for) investing activities was $425 million and $(114) million for the first nine months of 2009 and 2008, respectively. Our investing activities are driven by investment of our excess cash, capital expenditures, strategic acquisitions and investments in other companies and sales of investments and businesses. Our capital expenditures were $46 million and $212 million for the first nine months of 2009 and 2008, respectively, and represented 2% and 5% of net sales, respectively.

The increase in the cash provided by investing activities in the first nine months of 2009 versus the prior year period was primarily the result of the generation of $488 million from the sale of our short-term investments in connection with our re-directing investments in a wholly-owned money market fund to cash equivalent money market accounts. The factors impacting our investing cash flows during the first nine months of 2008 were the proceeds from the sale of our property, plant and equipment located at the 300-millimeter wafer fabrication facility located in Crolles, France, where we ended a strategic development and manufacturing relationship with two other semiconductor manufacturers in the fourth quarter of 2007, partially offset by the utilization of $94 million of cash during the first nine months of 2008 in connection with the acquisition of SigmaTel, Inc.

2010 from 36 days at December 31, 2009. Our days of inventory on hand (excluding the impact of purchase accounting on inventory and cost of sales) increased to 90 days at April 2, 2010 from 87 days at December 31, 2009. Days purchases outstanding increased to 52 days at April 2, 2010 from 45 days at December 31, 2009 primarily due to fluctuations in the timing of payments.

Investing Activities

Our net cash used for investing activities was $48 million and $16 million for the first quarter of 2010 and 2009, respectively. Our investing activities are driven by investment of our excess cash, capital expenditures, strategic acquisitions and investments in other companies and sales of investments and businesses. The increase in cash utilized by investing activities was primarily the result of an increase in our capital expenditures, which were $42 million and $15 million for the first quarter of 2010 and 2009, respectively, and represented 4% and 2% of net sales, respectively. This increase was associated with investments to meet the current increase in customer demand.

Financing Activities

Our net cash ~~provided by~~ (~~used~~utilized for) provided by financing activities was $68(135) million and $~~(107)~~142 million ~~for~~in the first ~~nine~~quarter ~~months~~ of ~~2009~~2010 and ~~2008~~2009, respectively. The ~~increase~~decrease in cash provided by financing activities is attributable primarily to areceiving $184 million in proceeds from a draw down on the Revolver ~~(as~~in ~~described~~the ~~below),~~first ~~partially~~quarter ~~offset~~of by2009, ~~(i) the~~as ~~utilization~~well ofas utilizing $3074 million ofin cash tofor ~~repurchase a~~scheduled ~~portion~~payments and market-based repurchases of ~~our~~debt ~~Fixed~~in ~~Rate~~the ~~Notes~~first ~~and~~quarter ~~our~~of ~~Toggle~~2010. ~~Notes~~In ~~(both~~addition, aswe ~~defined~~utilized $48 million in ~~Note~~cash 4for tocosts incurred in connection with the ~~accompanying~~A&E ~~condensed~~Arrangement. ~~consolidated~~We ~~financial~~also ~~statements)~~made ~~and~~a ~~(ii)~~ $8024 million excess cash flow payment in the first quarter of ~~long-term~~2009 ~~debt~~in ~~and~~connection ~~capital~~with ~~lease~~the ~~payments,~~terms ~~including~~of our Credit Facility. Finally, the $24750 million ~~excess cash~~of ~~flow~~proceeds ~~payment~~from ~~described~~the ~~later~~issuance inof ~~this~~the ~~section~~10.125% Secured Notes were wholly offset by the prepayments of a portion of the Credit Facility as part of the A&E Arrangement.

~~During~~Amend ~~the first nine months of 2008, we utilized $67 million to repurchase a portion of our outstanding Senior Subordinated Notes, Fixed Rate Notes~~ and ~~Floating~~Extend ~~Rate~~Arrangement ~~Notes (all as defined in Note 4 to the accompanying condensed consolidated financial statements) and $40 million to make additional long-term debt and capital lease payments.~~

~~Debt~~On ~~Exchange~~February 12, 2010, we received the requisite consents from our lenders to amend our Credit Facility. As a result, on February 19, 2010, we closed the transaction referred to as the Amend and Extend Arrangement (the “A&E Arrangement”) and announced the amendment of our Credit Facility and the private placement of $750 million aggregate principal amount of 10.125% senior secured notes due 2018 (“the 10.125% Secured Notes”). The gross proceeds of this offering were used to prepay amounts outstanding under our Credit Facility as follows: $635 million under the Original Term Loan, $3 million under the Incremental Term Loans, and $112 million under the Revolver. Further, the maturity of approximately $2,265 million of debt outstanding under the Original Term Loan was extended to December 1, 2016 and is now referred to as the “Extended Term Loan.” The terms of the amended Credit Facility also allow for one or more future issuances of additional senior secured notes to be secured on a pari passu basis with the obligations under the Credit Facility, so long as, among other things, the net cash proceeds from any such issuance are used to prepay amounts outstanding under the Credit Facility at par. (Capitalized terms are defined in the “Credit Facility” discussion which follows.)

On February 10, 2009, Freescale invited eligible holders of each of its (i) Senior Floating Rate Notes due 2014 (“Floating Rate Notes”), (ii) 9.125%/9.875% Senior PIK-Election Notes due 2014 (“Toggle Notes”), (iii) 8.875% Senior Fixed Rate Notes due 2014 (“Fixed Rate Notes”) and (iv) 10.125% Senior Subordinated Notes due 2016 (“Senior Subordinated Notes”) to participate as a lender in the issuance of new senior secured incremental term loans under the existing Credit Facility (the “Incremental Term Loans”) in the Debt Exchange. The aggregate principal amount of Incremental Term Loans available to eligible holders in the invitations was $1 billion, including the incremental term loans payable as compensation to certain of Freescale’s advisors. (The Floating Rate Notes, the Toggle Notes, the Fixed Rate Notes and the Senior Subordinated Notes are collectively referred to as the “Existing Notes” and are discussed further in this Note.)

On March 10, 2009, Freescale’s invitation to participate in the Debt Exchange expired for all Floating Rate Notes, Fixed Rate Notes and Senior Subordinated Notes. On March 24, 2009, Freescale’s invitation to participate in the Debt Exchange expired for all Toggle Notes. Through the Debt Exchange, $2,829 million aggregate principal amounts of Existing Notes were retired, including $281 million of Floating Rate Notes, $957 million of Toggle Notes, $845 million of Fixed Rate Notes and $746 million of Senior Subordinated Notes. Based on the principal amount of Floating Rate Notes, Fixed Rate Notes and Senior Subordinated Notes delivered and accepted, Freescale issued approximately $665 million principal amount of Incremental Term Loans under the Incremental Amendment dated March 17, 2009. On March 26, 2009, based on the principal amount of Toggle Notes validly delivered and accepted, Freescale issued an additional $237 million principal amount of Incremental Term Loans. Furthermore, as compensation for the arranger services, additional Incremental Term Loans with a principal of $22 million were issued, for a total of approximately $924 million aggregate principal amount of Incremental Term Loans. At October 2, 2009, the Incremental Term Loans are recorded on the Condensed Consolidated Balance Sheet at a $367 million discount, which is subject to accretion to par value over the term of the restructured debt using the effective interest method. The Incremental Term Loans were valued based upon the public trading prices of the Existing Notes exchanged immediately prior to the launch of the Debt Exchange.

Upon completion of the Debt Exchange, the carrying value of Freescale’s outstanding long-term debt obligations on the Existing Notes declined by $2,853 million, including $24 million of accrued PIK Interest (as defined later in this section). This decline was partially offset by the issuance of Incremental Term Loans with a carrying value of $540 million. Freescale recorded $17 million of debt issuance costs in connection with the Incremental Term Loans.

Credit Facility

At ~~October~~ April 2, ~~2009~~2010, Freescale, ~~Holdings~~along ~~III,~~with IVcertain ~~and~~other VFreescale parent companies, had a senior secured credit facility (the “Credit Facility”) that included (i) athe residual outstanding amount of our original maturity $3.5 ~~billion~~ billion term loan (“Original Term Loan”), (ii) ~~the~~our ~~aforementioned~~senior secured incremental term loans (the “Incremental Term Loans”), ~~and~~ (iii) aour revolving credit facility, including letters of credit and swing line loan sub-facilities, with a committed capacity of $~~690~~578 million (“Revolver”), ~~excluding~~as areduced ~~non-funding commitment~~by ~~attributable~~the to$112 ~~Lehman~~million ~~Commercial~~prepayment ~~Paper,~~made ~~Inc.~~in ~~(“LCPI”),~~connection ~~which~~with ~~filed a petition under Chapter 11 of~~ the ~~U.S.~~A&E ~~Bankruptcy~~Arrangement, ~~Code~~and ~~with~~ (iv) the ~~United~~aforementioned ~~States~~Extended ~~Bankruptcy~~Term ~~Court~~Loan. ~~for~~The ~~the~~new ~~Southern~~terms ~~District~~ of ~~New~~the ~~York~~Credit onFacility ~~October 5, 2008.~~are ~~LCPI~~governed ~~has~~by ~~a commitment in~~ the ~~amount~~Amended ofand ~~$60~~Restated ~~million~~Credit ofAgreement ~~the~~dated ~~Revolver; but~~February 19, ~~we do not expect that borrowing requests will be honored by LCPI~~2010.

InExtended ~~January~~Maturity ~~2009,~~Term Loan ~~Freescale drew down $184 million, net of LCPI non-funding, from the Revolver. Freescale made this financial decision to further enhance its liquidity and net cash position.~~

At April 2, 2010, $2,258 million was outstanding under the Extended Term Loan, which will mature on December 1, 2016. The Extended Term Loan bears interest, at Freescale’s ~~debt~~option, ~~agreements~~at ~~require~~a ~~additional~~rate ~~payments~~equal ~~from~~to ~~proceeds~~a ~~received~~margin ~~upon~~over ~~certain~~either ~~asset~~(i) a ~~dispositions,~~base ~~excess~~rate ~~cash~~equal ~~flows and~~to the higher of either (a) the ~~incurrence~~prime rate of Citibank, N.A. or (b) the ~~issuance~~federal funds rate, plus one-half of ~~certain~~1%; ~~debt~~or, as(ii) a ~~defined~~LIBOR rate based on the cost of funds for deposit in the ~~debt~~currency ~~agreements~~of borrowing for the relevant interest period, adjusted for certain additional costs. ~~Based~~The interest rate on the Extended Term Loan at April ~~our~~2, ~~operating~~2010 ~~results~~was ~~for~~4.50%. Further, in connection with the ~~year~~Amended ~~ended December 31~~and Restated Credit Agreement, ~~2008~~the spread over LIBOR with respect to the Extended Term Loan increased from 1.75% to 4.25%. Under the Amended and Restated Credit Agreement, we ~~made~~Freescale continues to be required to repay a ~~mandatory~~portion ~~prepayment~~of the outstanding term loans in ~~the~~quarterly ~~first~~installments ~~nine~~in ~~months~~aggregate annual amounts equal to 1% of ~~2009~~the ~~based~~initial onoutstanding Original Term Loan balance. These payments will be ~~excess~~ratably ~~cash~~applied ~~flows~~against the balance of ~~approximately~~the ~~$24~~Original ~~million.~~Term Loan and the Extended Term Loan based

3724

~~The~~ on ~~Term~~the ~~Loan~~outstanding ~~will~~balances ~~mature~~at onthe ~~December 1,~~effective ~~2013.~~date ~~The~~of ~~Revolver~~the ~~will~~Amended beand ~~available~~Restated ~~through December 1~~Credit Agreement. In addition, ~~2012~~under the Amended and Restated Credit Agreement, atthere ~~which~~is ~~time~~an ~~all~~early ~~outstanding~~maturity acceleration ~~principal~~clause ~~amounts~~associated ~~under~~with the ~~Revolver~~Extended ~~will~~Term beLoan ~~due~~such ~~and~~that ~~payable.~~principal ~~Borrowings~~amounts under the ~~Credit~~Extended ~~Facility~~Term ~~may~~Loan bewill ~~used~~become ~~for~~due ~~working~~and ~~capital~~payable ~~purposes~~on September 1, ~~capital~~2014 ~~expenditures~~if, ~~investments~~at June 30, ~~share repurchases~~2014, ~~acquisitions~~ ~~and~~(i) the ~~other~~aggregate ~~general~~principal ~~corporate~~amount ~~purposes.~~of Atthe senior ~~October 2,~~unsecured ~~2009,~~floating ~~$3,380~~rate ~~million~~notes ~~and~~due ~~$644~~2014, ~~million~~the ~~were~~senior ~~outstanding~~unsecured ~~under~~9.125% ~~the~~/ ~~Term~~9.875% ~~Loan~~PIK-election ~~and~~notes ~~Revolver,~~due ~~respectively,~~2014 and the ~~Revolver~~senior ~~had~~unsecured a8.875% ~~remaining~~notes ~~capacity~~due of2014 exceeds $17500 million, ~~excluding the LCPI commitment~~ and ~~$29~~(ii) Freescale’s ~~million~~total inleverage ~~outstanding~~ratio ~~letters~~is ofgreater ~~credit~~than 4:1.

~~The~~Other Term Loan and Revolver bear interest, at Freescale’s option, at a rate equal to a margin over either (i) a base rate equal to the higher of either (a) the prime rate of Citibank, N.A. or (b) the federal funds rate, plus one-half of 1%; or, (ii) a LIBOR rate based on the cost of funds for deposit in the currency of borrowing for the relevant interest period, adjusted for certain additional costs. The interest rate on the Term Loan and the Revolver at October 2, 2009 was 2.00% and 2.25%, respectively. The applicable margin for borrowings under the Revolver may be reduced subject to the attainment of certain leverage ratios. Freescale is also required to repay a portion of the outstanding Term Loan balance in quarterly installments in aggregate annual amounts equal to 1% of the initial outstanding balance for the first six years and nine months after the Term Loan closing date, with the remaining balance due upon maturity. Freescale is also required to pay quarterly facility commitment fees on the unutilized capacity of the Revolver at an initial rate of 0.50% per annum. The commitment fee rate may be reduced subject to our attaining certain leverage ratios. Freescale is also required to pay customary letter of credit fees.

~~The~~At ~~Incremental Term Loans will mature on December~~April 152, ~~2014. These loans are guaranteed by the same guarantors under the existing Credit Facility agreement (see Note 4 in the December 31~~2010, ~~2008 Annual Report on Form 10-K for further discussion) and are secured by a security interest in all of~~ the ~~collateral for the obligations of Freescale and the guarantors under the existing Credit Facility and related loan documents. The~~ Incremental Term Loans ~~bear~~are ~~interest~~recorded aton athe ~~rate~~Condensed ~~per~~Consolidated ~~annum~~Balance ~~equal~~Sheet toat ~~12.5% and~~ a ~~default~~$347 million ~~rate of 14.5%~~discount, ~~and~~which ~~interest on the Incremental Term Loans~~ is ~~payable~~subject ~~quarterly~~to inaccretion ~~arrears. Freescale is required~~ to ~~repay~~par avalue ~~portion~~over of the ~~outstanding~~term ~~Incremental Term Loan balance in quarterly installments in aggregate annual amounts equal to 1%~~ of the ~~initial~~debt ~~outstanding~~using ~~balance (subject to reduction following prepayment of such Incremental Term Loans as set forth in~~ the ~~existing~~effective ~~Credit~~interest ~~Facility agreement), with the remaining balance due upon maturity~~method.

~~Existing~~The ~~Notes~~interest rate on the Original Term Loan and the Revolver at April 2, 2010 was 2.00% and 2.25%, respectively. In addition, the Revolver had a remaining borrowing capacity of $14 million, net of $32 million in outstanding letters of credit as of April 2, 2010.

~~Freescale~~The ~~had~~obligations anunder ~~aggregate~~the ~~principal~~Credit ~~amount~~Facility ofas ~~$2,931~~governed ~~million~~by inthe ~~senior~~Amended ~~notes~~and ~~outstanding~~Restated atCredit ~~October 2,~~Agreement ~~2009, consisting~~are ofunconditionally ~~(i) $194~~guaranteed ~~million~~by ~~Floating~~the same ~~Rate~~parties ~~Notes~~and ~~bearing~~in ~~interest~~the atsame amanner ~~rate,~~as ~~reset~~under ~~quarterly,~~the ~~equal~~original toagreement ~~3-month~~that ~~LIBOR (which~~ was ~~0.30%~~in oneffect ~~October 2,~~prior ~~2009)~~to ~~plus~~the 3A&E Arrangement.~~875% per~~ ~~annum~~In addition, ~~(ii) $559~~the ~~million~~Credit ofFacility ~~Toggle~~as ~~Notes, (iii) $1,414~~governed ~~million~~by ofthe ~~Fixed~~Amended ~~Rate Notes,~~ and ~~(iv) $764~~Restated ~~million~~Credit ofAgreement ~~Senior~~is ~~Subordinated~~subject ~~Notes. Relative~~ to ~~our overall indebtedness,~~ the ~~Existing~~same ~~Notes~~prepayment requirements ~~(other~~under ~~than~~certain ~~the~~circumstances ~~Senior~~and ~~Subordinated~~subject ~~Notes), rank in right of payment (i) equal~~ to ~~all~~ ~~senior~~certain ~~unsecured~~exceptions ~~indebtedness~~as ~~(ii) senior to all subordinated indebtedness (including~~ the ~~Senior~~original ~~Subordinated~~Credit ~~Notes),~~Facility. ~~and~~ (~~iii) junior~~Refer to ~~all~~the ~~secured~~guarantees ~~indebtedness~~discussion ~~(including~~under ~~the~~ “Credit Facility),” ~~to the extent assets secure that indebtedness. The Senior Subordinated Notes are unsecured senior subordinated obligations and rank junior~~ in ~~right~~Note of4 ~~payment~~ to our ~~senior indebtedness~~December 31, ~~including~~2009 ~~indebtedness~~Annual ~~under~~Report ~~the~~on ~~Credit Facility and the other Existing Notes. The Existing~~Form ~~Notes~~10-K ~~are~~for ~~governed~~further ~~by two Indentures dated as of December 1, 2006, as supplemented and amended~~information.)

InSenior ~~the third quarter of 2009, Freescale repurchased $10 million of its Toggle~~ Notes at a $4 million discount. In the first nine months of 2009, Freescale repurchased $29 million of its Fixed Rate Notes and $27 million of its Toggle Notes at a $25 million discount, net of $1 million in non-cash charges associated with the recognition of unamortized debt issuance costs associated with the early retirement of this debt. Freescale used funds from the short-term investment portfolio for the purchase and early retirement of these notes. The redemption price on the repurchases included accrued and unpaid interest up to, but not including, the redemption date.

In 2008, Freescale elected to use the payment-in-kind (“PIK”) feature of its outstanding Toggle Notes in lieu of making cash interest payments (“PIK Interest”) for the interest period ending on June 15, 200910. In connection with this election, on December 4, 2008, Freescale delivered notice to The Bank of New York Mellon (formerly The Bank of New York), in its capacity as trustee under the Indenture governing the Toggle Notes, that, with respect to the interest that would be due on such notes on the June 15, 2009 interest payment date, it would make such interest payment by paying in kind at the PIK interest rate of 9.875125% ~~instead~~Secured ~~of paying interest in cash. As a result, Freescale issued a total of approximately $27 million of incremental Toggle~~ Notes on June 15, 2009. Freescale also elected to use the PIK feature of its outstanding Toggle Notes for the interest period ending on December 15, 2009. Accordingly, as of October 2, 2009, $16 million of accrued PIK Interest associated with the Toggle Notes was classified as long-term debt.

InFreescale ~~connection~~had ~~with~~an ~~the~~aggregate ~~issuance~~principal amount of ~~the~~$750 ~~Term~~million ~~Loan~~in ~~and~~10.125% ~~Floating~~Secured ~~Rate~~ Notes, ~~Freescale~~outstanding ~~also~~at ~~entered~~April 2, ~~into~~2010. Relative ~~interest~~to ~~rate~~our ~~swap~~overall ~~contracts~~indebtedness, ~~with~~the ~~various~~10.125% ~~counterparties~~Secured asNotes arank ~~hedge~~in right of ~~the~~payment ~~variable~~pari ~~cash~~passu ~~flows~~to of our ~~variable~~ ~~interest~~existing ~~rate~~senior ~~debt.~~secured ~~Under the terms of the interest rate swap contracts~~indebtedness, wesenior ~~have~~to ~~effectively~~senior ~~converted~~unsecured ~~$500~~indebtedness ~~million~~and ofsenior ~~the variable interest rate debt~~ to ~~fixed~~all ~~interest~~subordinated ~~rate~~indebtedness. ~~debt~~The ~~from December 1, 2009 through December 1, 2012~~10.125% Secured ~~This~~Notes ~~amount~~are ~~excludes~~governed aby ~~LBSF~~the ~~swap~~Indenture ~~arrangement~~Agreement ~~with~~dated aas ~~notional amount~~ of ~~$400~~February 19, ~~million~~2010 ~~which was settled during~~ (the ~~second~~“Indenture ~~quarter of 2009 at a $4 million gain~~Agreement”). ~~LBSF filed a petition under Chapter 11 of~~

38Freescale may redeem, in whole or in part, the 10.125% Secured Notes at any time prior to March 15, 2014 at a redemption price equal to 100% of the principal balance, plus accrued and unpaid interest, if any, plus the applicable “make-whole” premium, as defined in the Indenture Agreement. Freescale may redeem, in whole or in part, the 10.125% Secured Notes at any time after March 15, 2014 at a redemption price equal to 100% of the principal balance, plus accrued and unpaid interest, if any, plus a premium declining over time as set forth in the Indenture Agreement. In addition, at any time on or prior to March 15, 2013, Freescale may redeem up to 35% of the aggregate principal amount of the 10.125% Secured Notes with the proceeds of certain equity offerings, as described in the Indenture Agreement. If Freescale experiences certain change of control events, holders of the 10.125% Secured Notes may require Freescale to repurchase all or part of their 10.125% Secured Notes at 101% of the principal balance, plus accrued and unpaid interest. Each of our wholly-owned subsidiaries that guarantee indebtedness under the Credit Facility also guarantees the 10.125% Secured Notes. (Refer to the guarantees discussion in Note 4 to our December 31, 2009 Annual Report on Form 10-K for further information.)

~~Table~~Other ~~of Contents~~

~~the~~Freescale’s ~~U.S.~~senior ~~Bankruptcy~~unsecured ~~Code~~floating ~~with~~rate ~~the~~notes ~~United~~due ~~States~~2014 ~~Bankruptcy~~bear ~~Court~~interest ~~for~~at ~~the~~a ~~Southern District of New York on October 3~~rate, ~~2008.~~reset ~~In the first quarter of 2009~~quarterly, ~~Freescale~~equal ~~switched~~ to 13-month ~~LIBOR~~ onLIBOR ~~the~~(which ~~Term~~was ~~Loan~~0.26% inon ~~order~~April 2, to2010) ~~realize~~plus ~~interest~~3.875% per ~~payment savings on decreasing interest rates~~annum.

~~During~~Under ~~the~~Freescale’s ~~third quarter of 2009,~~senior ~~Freescale~~unsecured ~~entered~~9.125% ~~into~~/ ~~two~~9.875% ~~interest~~PIK-election ~~rate~~notes ~~cap~~due ~~contracts~~2014 ~~with~~(“PIK-Election aNotes”), ~~counterparty~~Freescale ashas aelected ~~hedge~~to ofuse the ~~variable~~payment-in-kind ~~cash~~(“PIK”) ~~flows~~feature of ~~our~~the ~~variable~~outstanding ~~interest~~PIK-Election ~~rate~~Notes ~~debt.~~in ~~Under~~lieu ~~the terms~~ of ~~these~~making ~~contracts,~~cash ~~Freescale~~interest ~~has~~payments (“PIK ~~effectively~~Interest”) ~~hedged~~through ~~$400~~the ~~million~~interest ofperiod ~~its~~ending ~~variable interest~~June 15, ~~rate~~2010, ~~debt~~and athave athe ~~cap~~option ~~rate~~to ofcontinue ~~2.75%.~~to ~~The~~elect ~~caps~~to ~~will~~pay ~~become~~interest ~~effective~~in onthe ~~December 1,~~form ~~2009~~of ~~and~~PIK ~~will~~Interest ~~mature~~through on December 115, ~~2012~~2011. Accordingly, ~~after~~as ~~December~~of April 12, ~~2009~~2010, ~~Freescale will continue to pay interest at a LIBOR-based rate on~~ $~~400~~16 million of ~~its~~accrued ~~variable~~PIK ~~interest~~Interest ~~rate~~associated ~~debt,~~with ~~so long as~~ the ~~short~~PIK-Election ~~term~~Notes ~~rate~~was ~~does~~classified ~~not~~as ~~exceed 2.75%. If the LIBOR~~long-~~based~~term ~~rate~~debt ~~exceeds the cap rate in any given interest period, Freescale will subsequently receive a payment from its counterparty to ensure we pay no more than 2.75%, net~~ on the ~~related~~accompanying ~~variable~~Condensed ~~interest~~Consolidated ~~rate~~Balance ~~debt~~Sheet.

Covenant Compliance

~~The~~Freescale’s Credit Facility and ~~Indentures~~indenture ~~have~~agreements contain restrictive covenants that limit the ability of our subsidiaries to, among other things, incur or guarantee additional indebtedness or issue preferred stock; pay dividends and make other restricted payments; incur restrictions on the payment of dividends or other distributions from our restricted subsidiaries; create or incur certain liens; make certain investments; transfer or sell assets; engage in transactions with affiliates; and, merge or consolidate with other companies or transfer all or substantially all of our assets. Under the Credit Facility and Indentures, Freescale must comply with conditions precedent that must be satisfied prior to any borrowing, as well as ongoing compliance with specified affirmative and negative covenants. The Credit Facility and Indentures also provide for customary events of default, including failure to pay any principal or interest when due, failure to comply with covenants and cross defaults or cross acceleration provisions. Freescale was in compliance with these covenants as of October 2, 2009.

~~Some~~25 of these covenants restrict us if we fail to meet financial ratios based on our level of profitability. The 2009 global economic environment has resulted in lower operating profitability, causing four financial ratios (the total leverage ratio, the senior secured first lien leverage ratio, the fixed charge coverage ratio and the consolidated secured debt ratio) to fall outside of the ranges set forth in the Credit Facility and Indentures. This does not result in any form of non-compliance with our covenants contained within the Credit Facility and Indentures, but does impose certain of the restrictions discussed in the preceding paragraph, such as our ability to transfer or sell assets; merge or consolidate with other companies; make certain investments; and incur additional indebtedness.

make other restricted payments; pay dividends or make other distributions from our restricted subsidiaries; create or incur certain liens; make certain investments; transfer or sell assets; engage in transactions with affiliates; and, merge or consolidate with other companies or transfer all or substantially all of our assets. Under the Credit Facility and indenture agreements, Freescale must comply with conditions precedent that must be satisfied prior to any borrowing, as well as ongoing compliance with specified affirmative and negative covenants. The Credit Facility and indenture agreements also provide for customary events of default, including failure to pay any principal or interest when due, failure to comply with covenants and cross defaults or cross acceleration provisions. Freescale was in compliance with these covenants as of April 2, 2010.

Some of these covenants restrict us if we fail to meet financial ratios based on our level of profitability. Four of our financial ratios (the total leverage ratio, the senior secured first lien leverage ratio, the fixed charge coverage ratio and the consolidated secured debt ratio) currently fall outside of the ranges set forth in the Credit Facility and Indentures. This does not result in any form of non-compliance with our covenants contained within the Credit Facility and Indentures, but does impose certain of the restrictions discussed in the preceding paragraph, such as our ability to transfer or sell assets; merge or consolidate with other companies; make certain investments; and incur additional indebtedness.

Credit Ratings

As of ~~October~~ April 2, ~~2009~~2010, our corporate credit ratings from Standard & Poor’s, Moody’s and Fitch were B-, Caa1 and CCC, respectively.

~~Other~~Fair ~~Indebtedness~~Value

~~During~~At ~~the third quarter of 2006~~April 2, ~~one~~2010 ~~of our foreign subsidiaries requested~~ and ~~received~~December 31, ~~a draw~~2009, ~~from an existing Japanese yen-denominated revolving loan agreement to repay an intercompany loan. In~~ the ~~fourth~~fair ~~quarter~~value of ~~2008,~~ the ~~foreign~~aggregate ~~subsidiary~~principal ~~drew~~amount ~~down~~of anour ~~additional~~long-term ~~$37~~debt, ~~million under this revolving loan in order to enhance its cash~~excluding ~~position~~accrued ~~and~~PIK ~~liquidity,~~Interest ~~increasing~~on the ~~total~~PIK-Election ~~amount~~Notes, ~~outstanding~~was toapproximately $927,378 million atand ~~December 31~~$7,036 ~~2008. In the third quarter of 2009~~million, ~~we entered into an amended arrangement for this revolving loan balance~~respectively, ~~whereby~~which wewas ~~will~~determined ~~make~~based ~~quarterly~~upon ~~payments of~~quoted ~~approximately~~market ~~$15~~prices. ~~million~~Since ~~beginning~~considerable injudgment ~~the~~is ~~third~~required ~~quarter of 2009 and concluding~~ in ~~the~~interpreting ~~fourth~~market ~~quarter of 2010. The land and buildings located at our Sendai~~information, ~~Japan manufacturing facility are pledged as collateral on this revolving loan until~~ the ~~fourth~~fair ~~quarter~~value of ~~2010 when~~ the ~~loan~~long-term debt is ~~fully~~not ~~repaid.~~necessarily ~~In addition, our land and buildings at our Sendai, Japan design center are pledged as collateral until~~ the ~~fourth~~amount ~~quarter~~which ofcould ~~2009.~~be Asrealized ofin ~~October 2,~~a ~~2009,~~current ~~$77~~market ~~million was outstanding under this loan~~exchange.

Debt Service

EBITDA/Adjusted EBITDA

Adjusted earnings before cumulative effect of accounting change, interest, taxes, depreciation and amortization (“Adjusted EBITDA”) is a non-U.S. GAAP measure that we use to determine our compliance with certain covenants contained in the Credit Facility and the indentures governing the Existing Notes. Adjusted EBITDA is defined as EBITDA adjusted to add back certain non-cash, non-recurring and other items that are included in EBITDA and/or net earnings (loss), as required by various covenants in the indentures and the Credit Facility. We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors to demonstrate compliance with our financing covenants. Our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied to ratios based on Adjusted EBITDA.

Adjusted EBITDA does not represent, and should not be considered an alternative to, net earnings (loss), operating earnings (loss), or cash flow from operations as those terms are defined by U.S. GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. While Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements by other companies, our use of Adjusted EBITDA is not necessarily comparable to such other similarly titled captions of other companies. The definition of Adjusted EBITDA in the indentures and the Credit Facility allows us to add back certain charges that are deducted in calculating EBITDA and/or net earnings (loss). However, some of these expenses may recur, vary greatly and are difficult to predict. Further, our debt instruments require that Adjusted EBITDA be calculated for the most recent four fiscal quarters. As a result, the measure can be disproportionately affected by a particularly strong or weak quarter. Further, it may not be comparable to the measure for any subsequent four-quarter period or any complete fiscal year.

3926

~~Facility~~The ~~allows~~following usis toa ~~add~~reconciliation ~~back~~of ~~certain charges that are deducted in calculating EBITDA and/or~~ net ~~earnings (~~loss~~). However~~, ~~some~~which ofis ~~these~~a ~~expenses~~U.S. ~~may~~GAAP ~~recur,~~measure ~~vary~~of ~~greatly~~our ~~and are difficult to~~operating ~~predict. Further~~results, ~~our~~to ~~debt instruments require that~~ Adjusted EBITDA ~~be calculated~~ for ~~the~~Freescale ~~most~~Semiconductor ~~recent~~Holdings ~~four~~I, ~~fiscal quarters~~Ltd. As (a ~~result,~~parent ~~the~~company ~~measure~~of ~~can be disproportionately affected by a particularly strong or weak quarter. Further~~Freescale), itas ~~may~~defined ~~not~~in ~~be comparable~~our todebt ~~the measure for any subsequent four-quarter period or any complete fiscal year~~agreements.

The following is a reconciliation of net loss, which is a U.S. GAAP measure of our operating results, to Adjusted EBITDA (as defined in our debt agreements) for Holdings I:


(in millions)	Twelve Months Ended April 2, 2010
Net loss	$	(1,265	)
Interest expense, net		534
Income tax benefit		(239	)
Depreciation and amortization ^(*)		1,141

EBITDA		171
Non-cash stock-based employee compensation ⁽¹⁾		28
Other non-cash charges ⁽²⁾		16
Non-recurring/one-time items ⁽³⁾		334
Cost savings ⁽⁴⁾		177
Other defined terms ⁽⁵⁾		33

Adjusted EBITDA	$	759

(in millions)	Twelve MonthsEndedOctober 2,2009
Net loss	$	(3,167	)
Interest expense, net		611
Income tax benefit		(256	)
Depreciation and amortization (*)		1,331
EBITDA		(1,481	)
Non-cash stock-based employee compensation (1)		46
Other non-cash charges (2)		3,684
Non-recurring/one-time items (3)		(2,066	)
Cost savings (4)		200
Other defined terms (5)		62
Adjusted EBITDA	$	445

(*)

Excludes amortization of debt issuance costs, which are included in interest expense, net.

(1) Reflects non-cash, stock-based employee compensation expense under the provisions of ASC Topic 718, “~~compensation~~ Compensation-Stock ~~stock compensation~~Compensation.”

(2) Reflects the non-cash charges related to ~~purchase~~impairments ~~accounting~~of ~~adjustments for inventory~~property, ~~impairments~~plant ofand ~~intangible~~equipment ~~assets~~ and other non-cash items.

(3) Reflects ~~non-cash~~ gain on debt extinguishment, ~~one-time~~loss ~~Merger~~on ~~expenses~~modification of debt, and charges incurred due to our ~~reorganization~~Reorganization of ~~business~~Business ~~program~~Program.

(4)

Reflects cost savings that we expect to achieve from certain initiatives where actions have begun or have already been completed.

(5)

Reflects other adjustments required in determining our debt covenant compliance.

Contractual Obligations and Credit Facilities

We own most of our major facilities, but we do lease certain office, factory and warehouse space and land, as well as data processing and other equipment under principally non-cancelable operating leases.

Summarized in the table below are our obligations and commitments to make future payments under debt obligations and minimum lease payment obligations, net of minimum sublease income, as of October 2, 2009.

	Payments Due by Period
(in millions)	Q4 2009		2010		2011		2012		2013		2014		Thereafter		Total
Debt obligations (including short-term debt) (1)	$	26	$	106	$	44	$	688	$	3,277	$	3,046	$	764	$	7,951
Capital lease obligations (2)		4		10		5		1		1		—		—		21
Operating leases (3)		16		42		32		25		24		23		33		195
Software licenses		7		36		35		28		22		11		—		139
Service obligations		25		43		14		8		7		2		4		103
Foundry commitments (4)		50		—		—		—		—		—		—		50
Purchase commitments		11		—		—		—		—		—		—		11
Total cash contractual obligations (5)	$	139	$	237	$	130	$	750	$	3,331	$	3,082	$	801	$	8,470

(1) Reflects the principal payments on the Credit Facility, the Notes and a Japanese yen-denominated revolving loan agreement of one of our foreign subsidiaries. These amounts exclude the discount on the Incremental Term Loans discussed in Note 4 to the accompanying Condensed Consolidated Financial Statements, as well as cash interest payments of approximately $148 million in the fourth quarter of 2009, $490 million in 2010, $539 million in 2011, $578 million in 2012, $558 million in 2013, $383 million in 2014 and $155 million thereafter.

(2) Excludes interest of $1 million on capital lease obligations of $21 million at October 2, 2009.

(3) Sublease income on operating leases is approximately $2 million in the fourth quarter of 2009, $7 million in 2010, $4 million in 2011, $3 million in 2012 and $1 million in 2013. Currently there is no sublease income scheduled beyond 2013.

(4) Foundry commitments associated with our strategic manufacturing relationships are based on volume commitments for work in progress and forecasted demand based on 18-month rolling forecasts, which are adjusted monthly.

(5) As of October 2, 2009, unrecognized tax benefits under FIN 48 were $189 million. We are not including any amount related to uncertain tax positions in our long-term contractual obligations table presented because of the difficulty in making reasonably reliable estimates of the timing of cash settlements with the respective taxing authorities.

Future Financing Activities

~~As indicated in “Trends in~~ Our ~~Business,” we expect to experience continued pressure on our revenues in 2009 associated with the macroeconomic weakness. Our~~ primary future cash needs on a recurring basis will be for working capital, ongoing capital expenditures and debt service obligations. In addition, we expect to spend approximately $~~100~~70 million during the remainder of ~~2009 and the first half of~~ 2010 and approximately $~~200~~180 million inthrough the first half of ~~2011~~2012 in connection with the Reorganization of Business Program. We believe that our cash and cash equivalents balance as of ~~October~~April 2, ~~2009~~2010 of approximately $1,~~334~~187 million and cash flows from operations will be sufficient to fund our working capital needs, capital expenditures, restructuring plan and other business requirements for at least the next 12 months. ~~We also supplemented our liquidity by drawing down $184 million under our Revolver on January 21, 2009.~~ Our ability to borrow under ~~this~~ our Revolver is limited to $1714 million after taking into account $2932 million in outstanding letters of credit.

If our cash flows from operations are less than we expect or we require funds to consummate acquisitions of other businesses, assets, products or technologies, we may need to incur additional debt, sell or monetize certain existing assets or utilize our cash and cash equivalents. We incurred significant indebtedness and utilized significant amounts of cash and cash equivalents, short-term investments and marketable securities in order to complete the Merger. In the event additional funding is required, there can be no assurance that future funding will be available on terms favorable to us or at all.

As market conditions warrant, we and our major equity holders may from time to time repurchase debt securities issued by us, in privately negotiated or open market transactions, by tender offer or otherwise, or issue new debt securities in order to prepay amounts outstanding under our Credit Facility. In the first ~~nine~~quarter ~~months~~ of ~~2009~~2010, upon completion of the ~~Debt Exchange~~A&E Arrangement, Freescale (i) extended the ~~face~~maturity ~~amount~~of certain of our ~~outstanding~~borrowings ~~long-term~~under ~~debt~~the ~~obligations~~Credit ~~decreased~~Facility, by(ii) increased ~~approximately~~the $1interest rate with respect to the extended portion of the Credit Facility,~~929~~ ~~million~~and (iii) issued the 10.125% Secured Notes in order to prepay amounts outstanding under the Credit Facility, as discussed in “Financing Activities.” In connection with the ~~Debt~~A&E ~~Exchange~~Arrangement, our expected annual cash interest expense is anticipated to ~~decrease~~increase by approximately $~~140~~120 million. Freescale also repurchased $2968 million of its ~~Fixed~~senior ~~Rate~~unsecured ~~Notes~~notes, ~~and~~using ~~$27~~funds ~~million~~from ofcash ~~its~~reserves ~~Toggle~~for ~~Notes.~~the ~~Freescale~~repurchase ~~used~~and ~~funds~~early ~~from~~retirement ~~the~~of ~~short~~this long-term ~~investment~~debt ~~portfolio~~in ~~for~~ the ~~purchase~~first quarter of 2010.

AsFreescale ofelected ~~October 2, 2009, our election~~ to use the payment-in-kind (“PIK”) feature of ~~our~~ ~~outstanding~~its ~~Toggle~~senior ~~Notes~~unsecured in9.125% ~~lieu~~/ of9.875% ~~making~~PIK-election ~~cash~~notes ~~interest~~due ~~payments~~2014 ~~was~~(“PIK-Election ~~effective~~Notes”) for the interest period ending on ~~December~~June 15, ~~2009~~2010. We ~~will evaluate this option prior to the beginning of each eligible interest period, taking into account market conditions and other relevant factors at that time.~~ In connection with this election, we will make the interest payment due on the ~~Toggle~~PIK-Election Notes on ~~December~~June 15, ~~2009~~2010 by paying in kind at the PIK interest rate of 9.875% instead of paying interest in cash.

As27 discussed in “Trends in Our Business,” the 2009 global economic outlook will continue to adversely impact our business and result in lower operating profitability, as compared to prior year periods. The maintenance of certain of our financial ratios is based on our level of profitability. The 2009 global economic environment has resulted in lower operating profitability, causing four of our financial ratios (the total leverage ratio, the senior secured first lien leverage ratio, the fixed charge coverage ratio and the consolidated secured debt ratio) to fall outside of the ranges set forth in the Credit Facility and Indentures, which will impose certain of the restrictions as discussed in “Financing Activities.”

As discussed in “Trends in Our Business,” the 2010 global economic outlook may adversely impact our business and result in lower operating profitability, as compared to peak prior year periods. The maintenance of certain of our financial ratios is based on our level of profitability. The recent global economic environment has resulted in lower operating profitability, causing four of our financial ratios (the total leverage ratio, the senior secured first lien leverage ratio, the fixed charge coverage ratio and the consolidated secured debt ratio) to fall outside of the ranges set forth in the Credit Facility and indenture agreements, which will impose certain of the restrictions as discussed in “Financing Activities.”

On April 7, 2010, Freescale announced a private placement offering of a $1,380 million aggregate principal amount of 9.25% senior secured notes due 2018 (the “9.25% Secured Notes”). The transaction closed on April 13, 2010. The 9.25% Secured Notes are secured on a pari passu basis with the obligations under the Credit Facility and the 10.125% Secured Notes. In the second quarter of 2010, the cash proceeds from the issuance of the 9.25% Secured Notes along with cash reserves were used to prepay the remaining balances under the Original Term Loan and the Incremental Term Loans. In connection with this transaction, we expect minimal impact on our annual cash interest expense.

Off-Balance Sheet Arrangements

We use customary off-balance sheet arrangements, such as operating leases and letters of credit, to finance our business. None of these arrangements has or is likely to have a material effect on our results of operations, financial condition or liquidity.

Significant Accounting Policies and Critical Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our significant accounting policies and critical estimates are disclosed in our December 31, 2009 Annual Report on Form 10-K. No material changes to our significant accounting policies and critical estimates have occurred subsequent to December 31, 2009.

41Recent Accounting Pronouncements and Legislation Changes

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (the “Act”), which is a comprehensive health care reform bill for the U.S. In addition, on March 30, 2010, President Obama signed into law the reconciliation measure (“Heath Care and Education Reconciliation Act of 2010”), which modifies certain provisions of the Act. Although the new legislation did not have an impact on our consolidated financial position, results of operation or cash flows in the first quarter of 2010, the Company is continuing to assess the potential impacts on our future obligations, costs, and cash flows related to our health care benefits and post-retirement health-care obligations.

In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”). ASU 2010-06 requires new disclosures regarding significant transfers in and out of Levels 1 and 2, as well as information about activity in Level 3 fair value measurements, including presenting information about purchases, sales, issuances and settlements on a gross versus a net basis in the Level 3 activity roll forward. In addition, ASU 2010-06 clarifies existing disclosures regarding input and valuation techniques, as well as the level of disaggregation for each class of assets and liabilities. ASU No. 2009-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures pertaining to purchases, sales, issuances and settlements in the roll forward of Level 3 activity; those disclosures are effective for interim and annual periods beginning after December 15, 2010. The adoption of ASU 2010-06 had no current impact and is expected to have no subsequent impact on our consolidated financial position, results of operations or cash flows.

policies and critical estimates are disclosed in our December 31, 2008 Annual Report on Form 10-K. Other than the expanded discussion on our long-lived asset valuation methodology and associated key assumptions presented below, no material changes to our significant accounting policies and critical estimates have occurred subsequent to December 31, 2008.

Valuation of Long-Lived Assets

We assess the impairment of investments and long-lived assets, including our identifiable intangible assets, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. During the third quarter of 2008, we concluded that indicators of impairment existed related to certain of our intangible assets. We determined that our enterprise net book value exceeded its fair value, and that the net book value related these intangible assets exceeded the future undiscounted cash flows attributable to such intangible assets. Accordingly and as further described below, we performed an analysis utilizing discounted future cash flows related to these intangible assets to determine the fair value of each of the respective assets as of December 31, 2008. As a result of this analysis, we recorded impairment charges of $724 million, $99 million and $810 million related to our customer relationships, trademark / tradename and developed technology / purchased license intangible assets, respectively, in 2008.

We determine the fair value of our intangible assets in accordance with ASC Topic 820, “Fair Value Measurements and Disclosures.” Our impairment evaluation of identifiable intangible assets and PP&E includes an analysis of estimated future undiscounted net cash flows expected to be generated by the assets over their remaining estimated useful lives. If the estimated future undiscounted net cash flows are insufficient to recover the carrying value of the assets over the remaining estimated useful lives, we record an impairment loss in the amount by which the carrying value of the assets exceeds the fair value. We determine fair value based on either market quotes, if available, or discounted cash flows using a discount rate commensurate with the risk inherent in our current business model for the specific asset being valued. Examples of discounted cash flow methodologies utilized are the excess earnings method for developed technology / purchased licenses and customer relationships and the royalty savings method for trademarks and tradenames.

When applying either the excess earnings method or the royalty savings method, the cash flows expected to be generated by the intangible asset are discounted to their present value equivalent using an appropriate weighted average cost of capital (“WACC”) for the respective asset being valued. The WACC is calculated by weighting the required returns on interest-bearing debt and common equity capital in proportion to their estimated percentages in the Company’s expected capital structure. The WACC is adjusted to reflect the relative risk associated with the cash flows of the asset being valued.

The valuations of our customer relationships and developed technology / purchased licenses are based on the excess earnings method, which incorporates our long-term revenue projections as a key assumption. The long-term revenue projections utilized in the valuation of our customer relationships are adjusted using a retention curve derived based on historical experience and current expectations. The revenue attributable to developed technology / purchased licenses is determined by adjusting our long-term revenue projections for the percentage of our total revenue allocated to developed technology / purchased licenses in consideration of the estimated life of the underlying technologies. As technology in-process at the time the intangible asset was established and future technology begin to generate revenue, sales from developed technology / purchased licenses are projected to decline. The revenues described above are reduced by production and operating costs. The resulting cash flows are tax effected using an assumed market participant rate. We then adjust the cash flows for various contributory asset charges (working capital, fixed assets, technology royalty, trademark / tradename and assembled workforce). The resulting cash flows are discounted and result in the estimated fair value of the respective intangible asset. We also incorporate an estimate of the future tax savings from amortization in the estimated fair value of developed technology / purchased licenses.

We use the royalty savings method to value the trademark / tradename intangible asset. Our revenue projection over the expected remaining useful life of the trademarks / tradnames is a key assumption. We apply a royalty rate to the projected revenues. The royalty rate is based on product profitability, industry and markets served, trademark / tradename protection factors, and perceived licensing value. The resulting royalty savings are reduced by income taxes resulting from the annual royalty savings at a market participant corporate income tax rate to arrive at the after-tax royalty savings associated with owning the trademarks / tradnames. We also incorporate an estimate of the calculated future tax savings from the amortization of the trademarks / tradnames as an acquired intangible asset. Finally the present value of the estimated annual after-tax royalty savings for each year in the projection period and the present value of tax savings due to amortization are combined to estimate the fair value of the trademarks / tradnames.

The primary assumptions in each of these calculations are revenue and cost projections and the WACC utilized to discount the resulting cash flows. Our assumptions concerning revenues are impacted by global and local economic conditions in the various markets we serve. The primary drivers of the impairment recorded were the impact on future projected revenues of the termination of a supply agreement with Motorola, our intent to pursue strategic alternatives for our cellular handset product group and the weakening global market conditions. This global macroeconomic crisis resulted in weakening conditions in the

automotive, industrial, consumer, networking and wireless semiconductor markets we serve with products such as communication processors, RF technology, multimedia processors, sensors and analog power management. Our cost projections include production, research and development and selling, general and administrative costs to generate the revenues associated with the asset being valued. These cost projections are based upon historical and projected levels of each cost category based on our overall projections for the Company.

Our projected revenues for 2009 at the time of the fair value estimate were anticipated to approximate two-thirds of our 2008 revenues. Also, in connection with the higher return of investment required by both debt and equity market participants on and around December 31, 2008, the WACC utilized was approximately 600 basis points higher than historical levels. Continued pressure on our forecasted product shipments in the future due to the current global macroeconomic environment, loss of one or more significant customers, loss of market share or lack of growth in the industries into which the Company’s products are sold or an inability to ensure our cost structure is aligned to associated decreases in revenues could result in further impairment charges.

Recent Accounting Pronouncements

In June 2009, the FASB issued guidance now codified as ASC Topic 105, “Generally Accepted Accounting Principles” (“ASC Topic 105”) as the single source of authoritative non-governmental U.S. GAAP. ASC Topic 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place (the “Codification”). On the effective date of this Statement, the Codification superseded all then-existing non-SEC accounting and reporting standards, and all other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative. The provisions of ASC Topic 105 are effective for interim and annual periods ending after September 15, 2009. We adopted ASC Topic 105 in the third quarter of 2009. This pronouncement had no effect on our consolidated financial position, results of operations or cash flows, but impacted our financial reporting process by replacing all references to pre-Codification standards with references to the applicable Codification topic.

In May 2009, the FASB issued guidance now codified as ASC Topic 855, “Subsequent Events” (“ASC Topic 855”) which establishes the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. We adopted ASC Topic 815 in the second quarter of 2009. There was no subsequent material impact on our consolidated financial position, results of operations or cash flows. See Note 1 to the accompanying condensed consolidated financial statements for the related disclosure.

In March 2008, the FASB issued guidance now codified as ASC Topic 815, “Derivatives and Hedging” which amends and expands disclosures about fair value measurements. It requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This pronouncement is effective for financial statements issued for fiscal years beginning after November 15, 2008. We adopted ASC Topic 815 in the first quarter of 2009. There was no subsequent material impact on our consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued guidance now codified as ASC Topic 810, “Consolidation” (“ASC Topic 810”). ASC Topic 810 requires an entity to clearly identify and present ownership interests in subsidiaries held by parties other than the entity in the consolidated financial statements within the equity section but separate from the entity’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; changes in ownership interest be accounted for similarly, as equity transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary be measured at fair value. This pronouncement is effective for financial statements issued for fiscal years beginning after December 15, 2008. We adopted ASC Topic 810 in the first quarter of 2009. There was no subsequent material impact on our consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued guidance now codified as ASC Topic 805, “Business Combinations” (“ASC Topic 805”). Under ASC Topic 805, an entity is required to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. In addition, acquired in-process research and development is capitalized as an intangible asset and amortized over its estimated useful life. The adoption of ASC Topic 805 has changed our accounting treatment for business combinations on a prospective basis beginning in the first quarter of 2009. As referenced in Note 7 to the accompanying condensed consolidated financial statements, a portion of the

income tax benefit recorded for discrete events occurring in the first quarter of 2009 included the release of income tax reserves related to foreign audit settlements, which was accounted for in accordance with ASC Topic 805.

Item 3:

Quantitative and Qualitative Disclosures About Market Risk.

The fair value of the aggregate principal amount of our long-term debt, excluding accrued PIK Interest on the PIK-Election Notes, approximates $67,~~215~~378 million at ~~October~~April 2, ~~2009~~2010, which has been determined based upon quoted market prices~~; this compares to a carrying value of $7,478 million as of the same date~~. Since considerable judgment is required in interpreting market information, the fair value of the long-term debt is not necessarily indicative of the amount which could be realized in a current market exchange. The fair value of our interest rate swap agreements (excluding accrued interest) and interest rate cap ~~contracts~~agreements was ana net obligation of $8 million at ~~October~~April 2, ~~2009~~ 2010. The fair value of our interest rate swaps was estimated based on the yield curve at ~~October~~April 2, ~~2009~~2010, and the fair value of our interest rate caps was estimated based on the yield curve and interest rate volatility at ~~October~~April 2, ~~2009~~ 2010. A 10% decrease in market rates would increase the fair value of our long-term debt by $2752 million and increase the net obligation under our interest rate ~~swaps~~swap and interest rate cap agreements by $21 million.

A significant variation of the value of the U.S. dollar against the principal currencies that have a material impact on us could result in a favorable impact on our net income in the case of an appreciation of the U.S. dollar, or a negative impact on our net income if the U.S. dollar depreciates relative to these currencies. Currency exchange rate fluctuations affect our results of operations because our reporting currency is the U.S. dollar, in which we receive the major part of our revenues, while we incur a significant portion of our costs in currencies other than the U.S. dollar. Certain significant costs incurred by us, such as manufacturing labor costs, selling, general and administrative expenses are incurred in the currencies of the jurisdictions in which our operations are located.

In order to reduce the exposure of our financial results to the fluctuations in exchange rates, our principal strategy has been to balance as much as possible the proportion of sales to our customers denominated in U.S. dollars with the amount of purchases from our suppliers denominated in U.S. dollars. In order to further reduce our exposure to U.S. dollar exchange rate fluctuations, we have entered into foreign currency hedge agreements related to the currency and the amount of expenses we expect to incur in jurisdictions in which our operations are located. No assurance can be given that our hedging transactions will prevent us from incurring higher foreign currency-denominated manufacturing costs when translated into our U.S. dollar-based accounts in the event of a weakening of the U.S. dollar on the non-hedged portion of our costs and expenses. ~~See~~Refer to Note 5, “Risk Management,” to the accompanying condensed consolidated financial statements for further discussion.

At ~~October~~April 2, ~~2009~~2010, we had net outstanding foreign exchange contracts not designated as accounting hedges with notional amounts totaling $~~160~~208 million. These forward contracts have original maturities of less than three months. The fair value of these forward contracts was a net unrealized loss of less than $1 million at ~~October~~April 2, ~~2009~~2010. Forward contract ~~gains (~~losses) of ~~$2 million and $(12) million for the third quarter of 2009 and 2008,~~less ~~respectively,~~than ~~and~~ $~~(2)~~1 million and $(8) million for the first ~~nine~~quarter ~~months~~ of ~~2009~~2010 and ~~2008~~2009, respectively, were recorded in other, net in the Condensed Consolidated Statements of Operations related to our realized and unrealized results associated with these foreign exchange contracts. Management believes that these financial instruments should not subject us to undue risk due to foreign exchange movements because gains and losses on these contracts should offset losses and gains on the assets, liabilities, and transactions being hedged. The following table shows, in millions of United States dollars, the notional amounts of the most significant net foreign exchange hedge positions for outstanding foreign exchange contracts not designated as accounting hedges:

Buy (Sell)	~~October~~April 2,~~2009~~2010
Euro	$	64
Malaysian Ringgit	$	4355
Singapore Dollar	$	12
Israeli Shekel	$	10
Indian Rupee	$	9
Singapore Dollar	$	8
Israeli Shekel	$	6
Taiwan Dollar	$	(10	)
British Pound	$	5
Japanese Yen	$	(33	)

At October 2, 2009, we had net outstanding foreign exchange contracts designated as cash flow hedges with notional amounts totaling approximately $8 million, which are accounted for at fair value. The fair value of these contracts was a net unrealized loss of less than $1 million at October 2, 2009. Management believes that these financial instruments will not subject us to undue risk due to foreign exchange movements because gains and losses on these contracts should offset losses and gains on the forecasted expenses being hedged. We have provided $37 million in collateral to ~~one~~two of our counterparties in connection with our foreign exchange hedging program as of ~~October~~April 2, ~~2009~~2010.

Foreign exchange financial instruments that are subject to the effects of currency fluctuations, which may affect reported earnings, include financial instruments ~~and other financial instruments~~ which are not denominated in the functional currency of the legal entity holding the instrument. Derivative financial instruments consist primarily of forward contracts. Other financial instruments, which are not denominated in the functional currency of the legal entity holding the instrument, consist primarily of cash and cash equivalents, notes and accounts payable and receivable. The fair value of the foreign exchange financial instruments would hypothetically decrease by $48 million as of April 2, 2010, if the U.S. dollar were to appreciate against all other

4429

cash and cash equivalents, notes and accounts payable and receivable. The fair value of the foreign exchange financial instruments would hypothetically decrease by $32 million as of October 2, 2009, if the U.S. dollar were to appreciate against all other currencies by 10% of current levels. This hypothetical amount is suggestive of the effect on future cash flows under the following conditions: (i) all current payables and receivables that are hedged were not realized, (ii) all hedged commitments and anticipated transactions were not realized or canceled, and (iii) hedges of these amounts were not canceled or offset. We do not expect that any of these conditions will be realized. We expect that gains and losses on the derivative financial instruments should offset gains and losses on the assets, liabilities and future transactions being hedged. If the hedged transactions were included in the sensitivity analysis, the hypothetical change in fair value would be immaterial. The foreign exchange financial instruments are held for purposes other than trading.

Reference is made to the “Quantitative and Qualitative Disclosures About Market Risk” discussion within Management’s Discussion and Analysis of Financial Condition and Results of Operations in our December 31, ~~2008~~2009 Annual Report on Form 10-K. Other than the change to the fair value of our long-term debt, we experienced no significant changes in market risk during the ~~nine~~three months ended ~~October~~April 2, ~~2009~~2010. However, we cannot assure you that future changes in foreign currency rates or interest rates will not have a significant effect on our consolidated financial position, results of operations or cash flows.

Item 4:

Controls and Procedures.

(a) Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the quarter ended ~~October~~April 2, ~~2009~~2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - Other Information

Item 1:

Legal Proceedings.

Intellectual property matters, legal proceedings and environmental matters were previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008. Those matters have been updated below to the extent that there ~~have~~Property ~~been~~Matters any changes through our filing date of October 23, 2009. We are a defendant in various lawsuits, including intellectual property suits, and are subject to various claims which arise in the normal course of business. We record an associated liability when a loss is probable and the amount is reasonably estimable.

~~From~~Protection ~~time~~of toour ~~time,~~patent weportfolio ~~are~~and ~~involved~~other inintellectual property rights is very important to our ~~legal~~operations. ~~proceedings~~We ~~arising~~intend into ~~the~~continue ~~ordinary~~to ~~course~~license our intellectual property to third parties. We have a broad portfolio of ~~business~~approximately 6,300 ~~including~~patent ~~tort~~families and ~~contractual~~numerous ~~disputes~~licenses, ~~claims~~covering ~~before~~manufacturing ~~the~~processes, ~~United~~packaging ~~States~~technology, ~~Equal~~software ~~Employment~~systems and ~~Opportunity~~circuit ~~Commission~~design. ~~and~~A ~~other~~patent ~~employee~~family ~~grievances,~~includes ~~and~~all ~~intellectual~~of ~~property~~the ~~litigation~~equivalent patents and ~~infringement~~ ~~claims.~~patent ~~Intellectual~~applications ~~property~~that ~~litigation~~protect ~~and~~the ~~infringement~~same ~~claims~~invention, ~~could~~covering ~~cause~~different usgeographical toregions. ~~incur~~These ~~significant~~patents ~~expenses~~are ortypically ~~prevent~~valid usfor 20 years from ~~selling~~the ~~our~~date ~~products~~of filing. ~~Under~~We do ~~agreements~~not ~~with~~believe ~~Motorola,~~that ~~Freescale~~any ~~must~~individual ~~indemnify~~patent, ~~Motorola~~or ~~for~~the ~~certain liabilities~~expiration ~~related~~thereof, tois ~~our~~or ~~business~~would ~~incurred~~be ~~prior~~material to our ~~separation from Motorola~~business.

ALegal ~~purported class action, Howell~~Proceedings v. Motorola, Inc., et al., was filed against Motorola and certain of its directors, officers and employees in the United States District Court for the Northern District of Illinois (“Illinois District Court”) on July 21, 2003, alleging breach of fiduciary duty and violations of the Employment Retirement Income Security Act (“ERISA”). The complaint alleged that the defendants had improperly permitted participants in the Motorola 401(k) Plan (“Plan”) to purchase or hold shares of common stock of Motorola because the price of Motorola’s stock was artificially inflated by a failure to disclose vendor financing to Telsim in connection with the sale of telecommunications equipment by Motorola. The plaintiff sought to represent a class of participants in the Plan for whose individual accounts the Plan purchased or held shares of common stock of Motorola from “May 16, 2000 to the present,” and sought an unspecified amount of damages. On September 30, 2005, the Illinois District Court dismissed the second amended complaint filed on October 15, 2004. Plaintiff filed an appeal to the dismissal on October 27, 2005. On March 19, 2007, the appeals court dismissed the appeal. Three new purported lead plaintiffs intervened in the case, and filed a motion for class certification seeking to represent Plan participants for whose individual accounts the Plan purchased and/or held shares of Motorola common stock from May 16, 2000 through December 31, 2002. On September 28, 2007, the Illinois District Court granted the motion for class certification but narrowed the requested scope of the class. Motorola has sought leave to

45We are a defendant in various lawsuits, including intellectual property suits, and are subject to various claims which arise in the normal course of business. We record an associated liability when a loss is probable and the amount is reasonably estimable.

From time to time, we are involved in legal proceedings arising in the ordinary course of business, including tort, contractual and customer disputes, claims before the United States Equal Employment Opportunity Commission and other employee grievances, and intellectual property litigation and infringement claims. Intellectual property litigation and infringement claims could cause us to incur significant expenses or prevent us from selling our products. Under agreements with Motorola, Freescale must indemnify Motorola for certain liabilities related to our business incurred prior to our separation from Motorola.

On April 17, 2007, Tessera Technologies, Inc. (“Tessera”) filed a complaint against Freescale, ATI Technologies, Inc., Motorola, Inc., Qualcomm, Inc., Spansion, Inc., Spansion LLC, and STMicroelectronics N.V. (collectively, the “Respondents”) in the International Trade Commission (“ITC”) requesting the ITC to enter an injunction barring the

~~appeal~~importation inof ~~the~~any ~~appellate~~product ~~court~~containing ~~and~~a ~~reconsideration~~device inthat ~~the~~infringes ~~Illinois~~two ~~District~~identified ~~Court~~patents ofrelated ~~certain~~to ~~aspects~~ball ofgrid ~~the~~array ~~class~~(“BGA”) ~~certification~~packaging ~~order~~technology. On ~~October~~April 2517, 2007, ~~the~~Tessera ~~Illinois~~filed ~~District Court~~a ~~modified~~parallel ~~the~~lawsuit ~~scope~~in of the ~~class,~~United ~~granted~~States ~~summary~~District ~~judgment~~Court ~~dismissing~~for ~~two of~~ the ~~individually-named~~Eastern ~~defendants~~District ~~in light~~ of ~~the~~Texas ~~narrowed~~against ~~class~~ATI, ~~and~~Freescale, ~~ruled~~Motorola ~~that~~and ~~the~~Qualcomm ~~judgment~~claiming asan tounspecified ~~the~~amount ~~original~~of ~~named~~monetary ~~plaintiff,~~damage ~~Howell, would be immediately appealable. The class~~ as ~~certified~~compensation ~~includes all Plan participants~~ for ~~whose individual accounts~~ the ~~Plan~~alleged ~~purchased~~infringement ~~and/or held shares~~ of ~~Motorola~~the ~~common~~same ~~stock~~Tessera patents. ~~from~~Tessera’s ~~May 16,~~patent ~~2000~~claims ~~through~~relate ~~May 14,~~to ~~2001~~BGA ~~with~~packaging ~~certain exclusions~~technology. On ~~February~~December 151, 2008, ~~Motorola~~ ~~and~~the ~~its~~ALJ ~~codefendants~~issued ~~filed~~his ~~motions~~determination ~~for~~finding ~~summary~~in ~~judgment~~favor onof ~~all~~the ~~claims~~Respondents ~~asserted~~and byrecommended ~~the~~that ~~class.~~no ~~On October 23,~~injunction ~~2008,~~barring importation of the ~~United~~Respondents’ products ~~States~~be ~~Court~~entered. ofIn ~~Appeals~~accordance ~~for~~with ~~the~~its ~~Seventh~~rights, ~~Circuit~~Tessera ~~heard~~petitioned ~~Motorola’s~~the ~~interlocutory~~ITC ~~appeal~~to ofreview the ~~District~~ ~~Court~~ALJ’s ~~order~~determination ~~certifying~~on ~~the~~December 15, ~~class~~2008. On ~~June~~May 1720, 2009, the ~~district~~ITC ~~court~~issued ~~granted~~a ~~defendants’~~final ~~motions~~order ~~for~~finding ~~summary~~that ~~judgment~~all onthe ~~all~~Respondents ~~claims. This~~infringe ~~ruling~~on Tessera’s ~~rendered~~asserted ~~moot~~patents, ~~the~~and ~~interlocutory~~granted ~~appeals~~Tessera’s ~~current~~request ~~before~~for ~~the~~a ~~Seventh Circuit. The~~Limited ~~plaintiffs~~Exclusion ~~have~~Order ~~appealed~~prohibiting the ~~June 17,~~importation ~~2009 ruling~~ of ~~the~~Respondents’ ~~district~~infringing ~~court~~products. As aFreescale ~~result~~appealed of the ~~terms~~ITC’s ofdecision ~~its~~to ~~separation~~the ~~from~~Federal ~~Motorola,~~Court itof isAppeals. During ~~possible~~the ~~that~~pendency ~~Freescale~~of ~~could~~the beappellate ~~held~~process, ~~responsible~~we toare taking ~~Motorola~~all ~~for~~necessary aactions ~~portion~~to ~~of any~~comply ~~judgment~~with orthe ~~settlement~~Limited inExclusion ~~this matter~~Order. We continue to assess the merits of this action as well as the potential effect on our consolidated financial position, results of operations and cash flows.

On ~~April~~March 1725, ~~2007~~2009, ~~Tessera Technologies, Inc. (“Tessera”) filed~~ a ~~complaint~~group ~~against~~of ~~Freescale,~~lenders ~~ATI Technologies, Inc., Motorola, Inc., Qualcomm, Inc., Spansion, Inc., Spansion LLC, and STMicroelectronics N.V.~~ (~~collectively, the~~ “~~Respondents~~plaintiffs”) inunder the ~~International Trade Commission (“ITC”) requesting the ITC enter an injunction barring the~~ ~~importation~~Credit Facility of ~~any~~Freescale ~~product~~filed ~~containing~~ a ~~device~~complaint ~~that~~against ~~infringes~~Freescale ~~two~~challenging ~~identified~~its ~~patents~~issuance ~~related~~of toIncremental ~~ball~~Term ~~grid~~Loans ~~array~~under ~~(“BGA”)~~the ~~packaging~~Credit ~~technology~~Facility. OnFreescale’s ~~April 17,~~Annual ~~2007,~~Report ~~Tessera~~on ~~filed~~Form a10-K ~~parallel~~filed ~~lawsuit~~with in the ~~United~~Securities ~~States~~Exchange ~~District~~Commission ~~Court for~~on ~~the~~February 5, ~~Eastern~~2010 ~~District~~contains ofmore ~~Texas~~details ~~against~~on ~~ATI,~~the ~~Freescale,~~allegations ~~Motorola~~ and ~~Qualcomm claiming an unspecified amount of monetary damage as compensation for~~ the ~~alleged~~procedural ~~infringement~~history of the ~~same~~case ~~Tessera~~throughout ~~patents~~2009. ~~Tessera’s~~The ~~patent~~plaintiffs ~~claims~~had ~~relate~~recently sought to ~~BGA packaging~~enjoin ~~technology.~~Freescale Onfrom ~~February 26,~~completing ~~2008,~~its ~~the~~previously ~~Administrative~~announced ~~Law~~amendment ~~Judge~~to ~~(“ALJ”)~~the inCredit Facility, including the ~~ITC~~proposed ~~proceeding~~extension ~~granted~~of the ~~Respondents’~~maturity ~~motion~~of tocertain ~~stay~~term ~~the~~loans ~~ITC~~thereunder, ~~proceeding~~and ~~pending~~its ~~the~~issuance ~~completion~~ of ~~the~~senior ~~reexamination~~secured bynotes ~~the~~to ~~U.S.~~repay ~~Patent~~a ~~and Trademark~~portion ~~Office~~ of the ~~two~~Credit ~~patents~~Facility ~~asserted by Tessera in~~ (the ~~ITC~~“Proposed ~~proceeding~~Transactions”). On ~~March~~February 2718, ~~2008~~2010, ~~the~~Freescale reached ~~ITC~~agreement ~~reversed~~with ~~this decision and ordered~~ the ~~reinstatement~~plaintiffs ofto ~~the~~settle ~~ITC proceeding, which occurred during~~ the ~~week~~pending oflitigation. ~~July 14,~~As ~~2008.~~a ~~On December 1~~result, ~~2008,~~ the ~~ALJ~~plaintiffs ~~issued~~withdrew ~~his~~their ~~determination~~application ~~finding~~to inenjoin ~~favor of~~ the ~~Respondents~~Proposed ~~and recommending that no injunction barring importation of the Respondents’ products be entered. In accordance with its rights~~Transactions, ~~Tessera~~and ~~petitioned~~ the ~~ITC~~ toclosing ~~review~~occurred ~~the~~as ~~ALJ’s~~scheduled ~~determination~~ on ~~December~~February 1519, ~~2008~~2010. OnIn ~~May 20, 2009~~ the ~~ITC~~first ~~issued a final order finding that all the Respondents infringe on Tessera’s asserted patents, and granted Tessera’s request for a Limited~~quarter ~~Exclusion Order prohibiting the importation~~ of ~~Respondents’~~2010, ~~infringing~~costs ~~products.~~associated ~~Freescale~~with ~~appealed~~this ~~the~~settlement ~~ITC’s~~were ~~decision~~recorded towithin ~~the~~(loss) ~~Federal~~gain ~~Court~~on ofextinguishment ~~Appeals.~~or ~~During~~modification ~~the pendency~~ of ~~the~~long-term ~~appellate process~~debt, wenet ~~are taking~~in ~~all necessary actions to comply with~~ the ~~Limited~~accompanying ~~Exclusion~~Condensed ~~Order.~~Consolidated WeStatement ~~continue to assess potential effects on our consolidated financial position, results~~ of ~~operations and cash flows~~Operations.

~~Item~~Environmental ~~1A:~~Matters ~~Risk Factors.~~

~~Set~~Our ~~forth below~~operations are subject to a variety of environmental laws and ~~elsewhere~~regulations in ~~this~~each ~~report~~of ~~and~~the jurisdictions in which we operate governing, among other ~~documents~~things, weair ~~file~~emissions, ~~with~~wastewater discharges, the ~~Securities~~use, handling and ~~Exchange~~disposal ~~Commission~~of ~~are~~hazardous ~~risks~~substances and ~~uncertainties~~wastes, ~~that~~soil ~~could~~and ~~cause~~groundwater ~~our~~contamination, ~~actual~~and ~~results~~employee tohealth ~~materially~~and ~~differ~~safety. ~~from~~As ~~the~~with ~~results~~other ~~contemplated~~companies byengaged ~~the~~in ~~forward-looking~~similar industries, ~~statements~~environmental ~~contained~~compliance inobligations ~~this~~and ~~report~~liability ~~and~~risks are inherent in ~~other~~many ~~documents~~of weour ~~file~~manufacturing ~~with~~and other activities. In the ~~Securities~~United ~~and~~States, ~~Exchange~~certain ~~Commission.~~environmental ~~Some~~remediation oflaws, ~~the~~such ~~risk~~as ~~factors~~the ~~were~~federal ~~previously~~“Superfund” ~~disclosed~~law, incan ~~our~~impose ~~Annual~~the entire ~~Report~~cost onof ~~Form 10~~site clean-Kup, ~~for~~regardless ~~the~~of ~~year~~fault, ~~ended~~upon ~~December 31~~any single potentially responsible party, ~~2008. They~~ ~~have~~including ~~been~~companies ~~updated~~that owned, operated, or sent wastes to ~~include~~a ~~information~~site. asIn ofsome ~~October 2~~jurisdictions, ~~2009.~~environmental ~~Additional~~requirements ~~risks~~may ~~and~~become ~~uncertainties~~more ~~not~~stringent ~~presently~~in ~~known~~the future which could affect our ability to ~~us,~~obtain or ~~that~~maintain wenecessary ~~currently~~authorizations ~~deem~~and ~~immaterial,~~approvals ~~may~~or ~~also~~could ~~impair~~result ~~our~~in ~~business~~increased environmental compliance costs. We believe that our operations are in compliance in all material respects with current requirements under applicable environmental laws.

~~Our~~Motorola ~~operating~~was ~~results~~identified ~~may~~as bea ~~adversely~~potentially ~~impacted~~responsible ifparty ~~economic~~in ~~conditions impact~~ the ~~financial~~past, ~~viability~~and has ofbeen ~~our~~engaged ~~customers,~~in ~~distributors~~investigations, administrative proceedings and/or ~~supplier,~~cleanup processes with respect to past chemical releases into the environment. Freescale agreed to indemnify Motorola for certain environmental liabilities related to its ~~particularly~~business, inincluding the ~~automotive~~sites ~~industry~~described below. Potential future liability at these or other sites (excluding costs spent to date) may adversely affect our results of operations.

We52nd ~~regularly~~Street ~~review~~Facility, ~~the financial performance of our customers~~Phoenix, ~~distributors and suppliers~~AZ. ~~However,~~ ~~global~~In ~~economic~~1983, ~~conditions~~a ~~may~~trichloroethane ~~adversely~~leak ~~impact~~from ~~the~~a ~~financial~~solvent ~~viability~~tank ofled ~~and~~to ~~increase~~ the ~~credit~~discovery ~~risk~~of ~~associated~~chlorinated solvents ~~with our customers, distributors or suppliers. Customer insolvencies~~ in ~~key industries most affected by~~ the ~~economic~~groundwater ~~downturn,~~underlying ~~such~~a asformer ~~the~~Motorola ~~automotive~~facility ~~industry,~~located oron ~~the~~52nd ~~financial~~Street ~~failure~~in ~~of a large customer or distributor~~Phoenix, ~~an important supplier~~Arizona, orwhich aresulted ~~group~~in ~~thereof,~~the ~~could~~facility ~~have an adverse impact on our operating results~~ and ~~could~~adjacent ~~result~~areas ~~in us not~~ being ~~able~~ toplaced ~~collect~~on ~~our~~the ~~accounts~~federal ~~receivable~~National ~~balances.~~Priorities ~~For~~List ~~instance,~~of ~~bankruptcies~~Superfund ~~at Delphi, Visteon and Lear have challenged our abilities to collect pre-petition account receivable balances~~sites. The

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~~For~~ 52nd Street site was subsequently divided into three operable units by the Environmental Protection Agency (EPA), which is overseeing site investigations and cleanup actions with the Arizona Department of Environmental Quality (ADEQ). To date, two separate soil cleanup actions have been completed at the first operable unit (“Operable Unit One”), for which Motorola received letters stating that no further action would be required with respect to the soils. We also implemented and are operating a ~~description~~system to treat contaminated groundwater in Operable Unit One and prevent migration of ~~additional~~the ~~risk~~groundwater ~~factors~~from ~~affecting~~Operable Unit One. The EPA has not announced a final remedy for Operable Unit One and it is therefore possible that costs to be incurred at this operable unit in future periods may vary from our ~~business~~estimates. In relation to the second operable unit, the EPA issued a record of decision in July 1994, and ~~results~~subsequently issued a consent decree, which required Motorola to design a remediation plan targeted at containing and cleaning up solvent groundwater contamination downgradient of Operable Unit One. That remedy is now being implemented by Freescale and another ~~operations~~potentially responsible party pursuant to an administrative order. The EPA and ADEQ are currently performing a remedial investigation at the third operable unit (“Operable Unit Three”) to determine the extent of groundwater contamination. A number of additional potentially responsible parties, ~~refer~~including Motorola, have been identified in relation to ~~our~~Operable ~~December 31~~Unit Three. Because this investigation is in its early stages, ~~2008~~we ~~Annual~~cannot ~~Report~~predict at this time the extent to which we may be held liable for cleanup at Operable Unit Three or whether that liability would be material. The EPA recently announced it will conduct “vapor intrusion studies” in residential areas adjacent to the 52nd Street facility. We will continue to assess the potential effect on ~~Form~~our ~~10-K~~consolidated financial position, results of operations and cash flows as more information becomes available.

56th Street Facility, Phoenix, AZ. In 1985, the EPA initiated an inquiry concerning the former Motorola facility located on 56th Street in Phoenix, Arizona following the discovery of organic compounds in certain local area wells. Motorola completed several remedial actions at this site including soil excavation and cleanup. We subsequently undertook voluntary negotiations with ADEQ, which assumed primary responsibility for this matter in 2004 under the state’s Water Quality Assurance Revolving Fund Program.

Item 1A:

Risk Factors.

For a description of additional risk factors affecting our business and results of operations, refer to our December 31, 2009 Annual Report on Form 10-K.

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds.

(a)	Not applicable.

(b)	Not applicable.

(c)	Not applicable.

Item 3:

Defaults Upon Senior Securities.

Not applicable.

Item 4: Submission of Matters to a Vote of Security Holders.

Not applicable.

Item 5:

Other Information.

~~Stephen P~~None. Kaufman has resigned as a member of the Board of Directors and the Compensation and Leadership Committee of Freescale Holdings G.P., Ltd., (“Holdings G.P.”) the sole general partner of Freescale Holdings L.P., the direct parent of Freescale Semiconductor Holdings I, Ltd. (“Holdings I”), which is the indirect parent of Freescale Semiconductor, Inc. Holdings G.P. intends to leave Mr. Kaufman’s seat vacant at this time.

On August 6, 2007, as part of Mr. Kaufman’s compensation package for serving as an independent member of the Board of Directors of Holdings G.P., Mr. Kaufman was granted an option to purchase up to 125,000 shares of Holdings I common stock at an exercise price of $7.00 per share under the Holdings I 2006 Management Incentive Plan (the “2006 Plan”). On April 6, 2009, Mr. Kaufman exchanged this option for a new option to purchase up to 125,000 shares of Holdings I common stock under the 2006 Plan (the “Kaufman Option”). The terms of the Kaufman Option provided for vesting to commence on April 6, 2009, in four equal annual installments, and an exercise price of $1.24 per share. Effective upon Mr. Kaufman’s resignation, the Holdings I Board of Directors accelerated the vesting of Mr. Kaufman’s option to be vested and exercisable for up to 31,250 shares of the Company’s common stock. The Holdings I Board of Directors also authorized an extension of the exercise period of the vested option until November 30, 2011 or the tenth business day after Holdings I communicates its annual valuation for 2011.

Item 6:

Exhibits.

ExhibitNumber		Exhibit Title
10.1+		Form of Freescale Holdings GP, Ltd. and Freescale Semiconductor, Inc. Second Amendment to Employment Agreement, incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on August 4, 2009.
4.1		Indenture, dated as of February 19, 2010, by and among Freescale, the Guarantors named therein and The Bank of New York Mellon, as Trustee, governing the Notes, previously filed and incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on February 22, 2010.
31.1*		Certification of Richard Beyer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
4.2		Form of 10 1/8% Senior Secured Note (included as Exhibit A to Exhibit 4.1 referenced above), previously filed and incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on February 22, 2010.
31.2*		Certification of Alan Campbell pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
4.3		Indenture, dated as of April 13, 2010, by and among Freescale, the Guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee, governing the Notes, previously filed and incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on April 14, 2010.
32.1*		Certification of Richard Beyer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
4.4		Form of 9 1/4% Senior Secured Note (included as Exhibit A to Exhibit 4.3), previously filed and incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on April 14, 2010.
32.2*		Certification of Alan Campbell pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
10.1		Security Agreement, dated February 19, 2010, by and between Freescale, the Guarantors party thereto and Citibank, N.A., in its capacity as collateral agent for the holders of the Notes, previously filed and incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on February 22, 2010.
10.2		Intellectual Property Security Agreement, dated February 19, 2010, by and between Freescale, the guarantors party thereto and Citibank, N.A., in its capacity as collateral agent for the holders of the Notes, previously filed and incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on February 22, 2010.
10.3		Amendment Agreement dated as of February 19, 2010, to the Credit Agreement dated as of December 1, 2006, among Freescale, the guarantors party thereto, the lenders party thereto and Citibank, N.A., in its capacity as collateral agent for the lenders, Previously filed and incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on February 22, 2010.
10.4		Form of Amended and Restated Credit Agreement dated as of December 1, 2006, as amended and restated as of February 19, 2010, among Freescale, the guarantors party thereto, the lenders party thereto and Citibank, N.A., in its capacity as collateral agent for the lenders (included as Exhibit A to Exhibit 10.3 referenced above), previously filed and incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on February 22, 2010.
10.5		Security Agreement, dated April 13, 2010, by and between Freescale, the Guarantors party thereto and Citibank, N.A., in its capacity as collateral agent for the holders of the Notes, previously filed and incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on April 14, 2010.
10.6		Intellectual Property Security Agreement, dated April 13, 2010, by and between Freescale, the Guarantors party thereto and Citibank, N.A., in its capacity as collateral agent for the holders of the Notes, previously filed and incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on April 14, 2010.
31.1*		Certification of Chief Executive Officer.
31.2*		Certification of Chief Financial Officer.
32.1*		Section 1350 Certification (Chief Executive Officer).
32.2*		Section 1350 Certification (Chief Financial Officer).

* = filed herewith

~~+ =~~32 ~~indicates a management contract or compensatory plan arrangement~~

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	~~FREESCALE SEMICONDUCTOR, INC.~~	FREESCALE SEMICONDUCTOR, INC.
Date: October 23, 2009	By:	/s/ ALAN CAMPBELL
Date: April 23, 2010		By:	/s/ ALAN CAMPBELL
		~~Alan Campbell~~	Alan Campbell
		~~Chief Financial Officer~~	Chief Financial Officer

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