Freescale Semiconductor Announces First Quarter 2015 Results


NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION

Summary of Key Reconciling Items

(a)	Reflects the effects of acquisition accounting, including our acquisition by a consortium of investors in 2006, and the related amortization expense for developed technology, trademarks/tradenames and customer relationships along with inventory step-up recognition, as applicable.
(b)	Reflects non-cash, share-based compensation expense under the provisions of ASC Topic 718, "Compensation - Stock Compensation.”
(c)	Reflects items related to our reorganization of business programs, expenses associated with our proposed merger with NXP and other items.
(d)	Adjustments to reflect cash income tax expense.
(e)	Reflects losses on extinguishments and modifications of our long-term debt.
(f)	For the period in which we incurred a net loss but generated adjusted net earnings, dilutive shares have been included in the diluted weighted average shares and the diluted adjusted net earnings per share calculations.
(g)	Reflects adjustments required by our debt instruments, including business optimization expenses, relocation expenses and other items.
(h)	Reflects non-cash income tax benefit resulting when compensation cost from non-qualified share-based compensation recognized on the entity's tax return exceeds cost from equity-based compensation recognized in the financial statements.



Note 1
Adjusted operating earnings represents operating earnings adjusted for the following, as necessary: the impact of acquisition accounting, non-cash share-based compensation expense and reorganization of business, merger expenses and other items. Adjusted operating earnings is not a recognized term under U.S. GAAP. Adjusted operating earnings does not represent operating earnings, as that term is defined under U.S. GAAP, and should not be considered an alternative to operating earnings as an indicator of our operating performance. We have included information concerning adjusted operating earnings because we use such information to better evaluate the underlying performance of the Company. Adjusted operating earnings as presented herein is not necessarily comparable to similarly titled measures. A reconciliation of adjusted operating earnings to operating earnings, the most directly comparable U.S. GAAP measures, has been included in the preceding tables.

Adjusted net earnings is net earnings (loss) adjusted for the impact of acquisition accounting, non-cash share-based compensation expense, deferred and non-current tax expense, losses on extinguishment or modification of long-term debt and reorganization of business, merger expenses and other items, which we believe are not indicative of the performance of our ongoing operations. Adjusted earnings per common share is calculated by dividing adjusted net earnings by the basic or diluted weighted average common shares outstanding for the period. We present adjusted net earnings and adjusted earnings per share as supplemental performance measures. We believe adjusted net earnings and adjusted earnings per share are helpful to an understanding of our business and provide a means of evaluating our performance from period to period on a more consistent basis. This presentation should not be construed as an indication that similar items will not recur or that our future results will be unaffected by other items that we consider to be outside the ordinary course of our business. Because adjusted net earnings and adjusted earnings per share facilitate internal comparisons of our historical financial position and operating performance on a more consistent basis, we also use adjusted net earnings and adjusted earnings per share for business planning purposes, in measuring our performance relative to that of our competitors and in evaluating the effectiveness of our operational strategies. Adjusted net earnings and adjusted earnings per share have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of our results as reported under U.S. GAAP. A reconciliation of adjusted net earnings to net earnings (loss), the most directly comparable U.S. GAAP performance measure, has been included in the preceding tables.

EBITDA (earnings before interest, taxes, depreciation and amortization) excluding the effects of other items, is a non-U.S. GAAP financial measure and represents net earnings (loss) adjusted for depreciation, amortization, interest expense, net, income tax expense, non-cash share-based compensation expense, losses on extinguishment or modification of long-term debt, and reorganization of business, merger expenses and other items, as necessary. We have included information concerning EBITDA excluding the effects of other items because we use such information to supplementally evaluate the underlying performance of the Company. EBITDA excluding the effects of other items does not represent, and should not be considered an alternative to, net earnings, operating earnings, 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 EBITDA excluding the effects of other items and similar measures are frequently used as measures of operations and the ability to meet debt service requirements by other companies, our use of this financial measure is not necessarily comparable to such other similarly titled captions of other companies. A reconciliation of EBITDA excluding the effects of other items to net earnings (loss), the most directly comparable U.S. GAAP measure, has been included in the preceding tables.

Adjusted EBITDA as shown in the preceding tables is calculated in accordance with the agreement and indentures governing Freescale Semiconductor, Inc.’s notes and senior credit facilities. Adjusted EBITDA is net earnings adjusted for interest expense, net, income tax expense, depreciation and amortization expense, non-cash share-based compensation expense, losses on extinguishment and modification of long-term debt, reorganization of business, merger expenses and other items and other charges that are included in net earnings (loss). The ability of our subsidiaries to engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied to ratios under the indentures and the senior credit facilities based on adjusted EBITDA calculated for the most recent four fiscal quarters. Accordingly, we believe it is useful to provide the calculation of adjusted EBITDA to investors for purposes of determining our ability to engage in these activities. Adjusted EBITDA is a non-U.S. GAAP financial measure. Adjusted EBITDA does not represent, and should not be considered an alternative to, net earnings, operating earnings, 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. Although adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements by other companies, our calculation of adjusted EBITDA is not necessarily comparable to such other similarly titled captions of other companies. The calculation of adjusted EBITDA in the indentures and the senior credit facilities allows us to add back certain charges that are deducted in calculating net earnings. 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. We do not report adjusted EBITDA on a quarterly basis. In addition, the measure can be disproportionately affected by quarterly fluctuations in our operating results, and it may not be comparable to the measure for any subsequent quarter, four-quarter period or any complete fiscal year. A reconciliation of net earnings, which is a U.S. GAAP measure of our operating results, to adjusted EBITDA, calculated as described above, has been included in the preceding tables.

Free cash flow represents adjusted cash flows from operating activities, less purchases of property, plant and equipment, and is a measure that takes into consideration the capital investments required to maintain the operations of our business and execute our strategy, as cash flows from operating activities adds back non-cash depreciation expense to earnings but does not reflect a charge for necessary capital expenditures. Adjusted cash flows from operating activities represents cash flows from operating activities, plus excess tax benefits from share-based compensation. U.S. GAAP requires the excess tax benefits from share-based compensation to be reported as a financing cash flow rather than as an operating cash flow. We have added this benefit back to our calculation of adjusted cash flows from operating activities and free cash flow in order to generally classify cash flows arising from income taxes as operating cash flows. We believe adjusted cash flows from operating activities and free cash flow provides useful information to investors regarding our ability to generate cash from business operations that is available for acquisitions and other investments and service of debt principal. We use adjusted cash flows from operating activities and free cash flow as measures to monitor and evaluate performance. Adjusted cash flows from operating activities and free cash flow presented herein is not necessarily comparable to similarly titled measures. A reconciliation of adjusted cash flows from operating activities and free cash flow to cash flows from operating activities, the most directly comparable U.S. GAAP measure, has been included in the preceding tables.

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