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Electronics Production | April 23, 2009

Freescale to close facilities in France and Japan

Freescale has initiating a series of actions to eliminate its 150mm manufacturing capability. These will result in the closure of the company’s Sendai, Japan fabrication facility. In addition, the company has initiated a formal consultation with employees at its Toulouse, France facility.


Business Restructuring
The company recently initiated actions to complete the exit of the cellular handset business. These actions encompass employment reductions with certain severance and other exit costs. We anticipate completing these actions by December 31, 2009. Implementation of this plan and any specific employment actions are subject to satisfaction of legal requirements, including prior consultation on the plan with work councils in some of the countries in which we operate. Severance related charges for these actions are estimated to be approximately $70 million.

As previously reported, the Company is implementing a series of restructuring actions to streamline its cost structure, reduce its breakeven and re-direct some research and development investments into growth markets. Total severance and related cash requirements associated with these actions, inclusive of the costs associated with completing the exit of the cellular handset business detailed above, total approximately $270 million with corresponding annualized savings of approximately $700 million realized by 2010.

Future Manufacturing Roadmap
In order to remain competitive and maintain an efficient manufacturing footprint, the company announced today that it is initiating a series of actions to eliminate its 150mm manufacturing capability. These actions will result in the closure of the company’s Sendai, Japan fabrication facility. In addition, the company has initiated a formal consultation with employees at its Toulouse, France facility. The proposal to close the facility will be evaluated through Freescale’s Toulouse Work Council. These actions are expected to be completed by the end of 2011 with severance costs anticipated at approximately $200 million with ongoing annual cost savings of approximately $100 million upon completion.

The chip manufacturer also published its fiscal report for the 1Q of 2009.

Net Sales
Net sales for the first quarter of 2009 were $840 million, compared to $1.41 billion in the first quarter of 2008 and $940 million in the fourth quarter of 2008. "Even though our first quarter results were impacted by continued economic and market challenges, we made significant progress on our restructuring initiatives and improvements to our capital structure,” said Rich Beyer, chairman and CEO. “Our plan to reduce our annual operating costs by $600 million is on track, and we reduced our long-term debt by approximately $1.9 billion through the debt exchange.”

Operating Results
Net sales for the first quarter of 2009 declined 11% from the fourth quarter of 2008 and 40% compared to the same period last year. Excluding sales in its cellular products group, revenues for the company’s remaining businesses declined 15% from the fourth quarter of 2008 and 31% compared to the first quarter of 2008.

The reported loss from operations for the three months ended April 3, 2009 was $351 million, compared to a loss of $152 million in the first quarter of 2008. The adjusted operating loss for the three months ended April 3, 2009 was $140 million compared to earnings of $206 million last year.

Net earnings for the first quarter of 2009 were $1.76 billion. Included in net earnings was a one-time net gain of approximately $2.26 billion as a result of the long-term debt eliminated as part of the debt exchange completed by the company. Upon completion of this transaction, the face amount of the company’s outstanding long-term debt obligations decreased by approximately $1.9 billion and the related expected annual cash interest expense decreased by approximately $140 million.

Product Revenues
The company’s net sales figures for the first quarter of 2009 are as follows:
- Microcontroller net sales were $246 million in the first quarter of 2009, compared to $304 million in the fourth quarter of 2008 and $458 million in the first quarter of 2008.
- RF, Analog and Sensor net sales were $184 million in the first quarter of 2009, compared to $232 million in the fourth quarter of 2008 and $259 million in the first quarter of 2008.
- Networking and Multimedia net sales were $228 million in the first quarter of 2009, compared to $273 million in the fourth quarter of 2008 and $269 million in the first quarter of 2008.
- Cellular net sales were $95 million in the first quarter of 2009, compared to $64 million in the fourth quarter of 2008 and $318 million in the first quarter of 2008.
- Other net sales were $87 million in the first quarter of 2009 compared to $67 million in the fourth quarter of 2008 and $101 million in the first quarter of 2008.

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