Friday, April 24, 2009

Freescale 10Q - Continued restructuring

On April 22, 2009, we announced actions to align the Company’s spending with its prior decision to exit the cellular handset business. The plan, which encompasses employment reductions and certain severance costs, was finalized and approved by the Board of Directors on April 17, 2009 and is expected to be completed by December 31, 2009. Implementation of this plan and any specific employment actions related to the plan 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. Restructuring charges for these actions are estimated to be approximately $70 million in cash severance costs.
Total severance and related cash requirements associated with these actions, inclusive of the costs associated with completing the exit of the cellular handset business, total approximately $270 million with corresponding annualized savings of approximately $700 million realized by 2010. We have paid approximately $68 million of the cash restructuring charges in connection with the actions taken through April 3, 2009, resulting in approximately $280 million in annualized cost savings.
We also announced that we are initiating a plan to eliminate our 150mm manufacturing capability. We have experienced a migration from 150mm technologies to advanced technologies at our East Kilbride facility and are now seeing this happen to 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 fabs has resulted in low factory utilization, which has been accelerated by today’s global economic climate. This plan will result in the closure of our Sendai fabrication facility. We have also initiated a formal consultation with employees at our Toulouse facility. The proposal to close the facility will be evaluated through our Toulouse Workforce Council. The Board of Directors approved this plan on April 17, 2009, and we expect this plan to be completed by the end of 2011. We estimate the costs of this plan to be approximately $200 million, including approximately $190 million in cash severance costs and $10 million in cash costs for other exit costs.
Going forward, our business will be highly dependent on demand for electronic content in automobiles, networking and wireless infrastructure equipment and other electronic devices.