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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended July 3, 2004

Or

For the transition period from             to            

Commission file number: 001-32241

FREESCALE SEMICONDUCTOR, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (512) 895-2000

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  ¨    No  x

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

The number of shares outstanding of each of the issuer’s classes of common stock as of the close of business on July 31, 2004:

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INDEX

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Part I – Financial Information

Freescale Semiconductor, Inc. and Subsidiaries

Condensed Consolidated and Combined Statements of Operations

(Unaudited)

(In millions, except per share amounts)

See accompanying notes to condensed consolidated and combined financial statements.

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Freescale Semiconductor, Inc. and Subsidiaries

Condensed Consolidated and Combined Balance Sheets

(In millions, except per share amounts)

See accompanying notes to condensed consolidated and combined financial statements.

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Freescale Semiconductor, Inc. and Subsidiaries

Condensed Consolidated and Combined Statement of Business/Stockholder’s Equity

(Unaudited)

(In millions)

See accompanying notes to condensed consolidated and combined financial statements.

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Freescale Semiconductor, Inc. and Subsidiaries

Condensed Consolidated and Combined Statements of Cash Flows

(Unaudited)

(In millions)

See accompanying notes to condensed consolidated and combined financial statements.

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Freescale Semiconductor, Inc. and Subsidiaries

Notes to Condensed Consolidated and Combined Financial Statements

(Unaudited)

(Dollars in millions, except as noted)

(1) Basis of Presentation

Freescale Semiconductor, Inc. (“Freescale Semiconductor”) was incorporated in Delaware on December 3, 2003 in preparation for the contribution and transfer by Motorola, Inc. (“Motorola”) of substantially all of its semiconductor businesses’ assets and liabilities to the Company (the “Contribution”) and an initial public offering (“IPO”) of Company Class A common stock. The Company completed the Contribution in the second quarter of 2004 and the IPO on July 21, 2004. The Company is currently a majority owned subsidiary of Motorola with Motorola holding all of the Company’s Class B shares of common stock outstanding. Prior to the IPO, Freescale Semiconductor was a wholly owned subsidiary of Motorola. We refer to the combined predecessor companies and businesses as the “Company”, “we”, “us” or “our” unless the context otherwise requires. Motorola has advised us that it intends to distribute its remaining ownership interest in us by means of a special dividend to its common stockholders (the “Distribution”) by the end of 2004.

The condensed combined financial statements include amounts prior to the Contribution that have been derived from the consolidated financial statements and accounting records of Motorola, principally representing Motorola’s Semiconductor Products Segment, using the historical results of operations, and historical basis of assets and liabilities of the semiconductor businesses. Management believes the assumptions underlying the condensed combined financial statements are reasonable. However, the condensed combined financial statements included herein may not necessarily reflect the Company’s results of operations, financial position and cash flows in the future or what its results of operations, financial position and cash flows would have been had the Company been a stand-alone company during the periods presented. Because a direct ownership relationship did not exist among all the various worldwide entities comprising the Company before the second quarter of 2004, Motorola’s net investment in the Company, including intercompany debt, is shown as Business equity in lieu of Stockholder’s equity in the condensed combined financial statements prior to the Contribution. During the second quarter of 2004, the Company completed the Contribution from Motorola. As a result, the Company recognized the par value and additional paid-in-capital in connection with the issuance of Class B common stock exchanged for the net assets contributed at that time, and the Company began accumulating retained earnings upon completion of the Contribution. Beginning in the second quarter of 2004, the Company’s consolidated financial statements include all majority owned subsidiaries and assets and liabilities of the Company. Investments in which the Company exercises significant influence, but which it does not control, are accounted for under the equity method of accounting. Investments in which the Company does not exercise significant influence are recorded at cost. All material intercompany transactions between and among the Company and its subsidiaries have been eliminated.

The Company and Motorola have entered into various agreements detailing the provisions of the Contribution and the separation of the Company from Motorola, and related tax, purchase and supply, transition services and employee matters. See Note 11 for additional discussion. Transactions between Freescale Semiconductor and Motorola have been identified in the condensed financial statements as transactions between related parties.

The accompanying condensed financial statements as of July 3, 2004 and for the three months and six months ended June 28, 2003 and July 3, 2004 are unaudited, with the December 31, 2003 amounts included herein derived from the audited combined financial statements. In the opinion of management, these unaudited condensed 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 July 3, 2004 and for all periods presented.

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 financial statements should be read in conjunction with the combined financial statements and notes thereto as of December 31, 2003 included in our registration statement on Form S-1 (File No. 333-11250). The results of operations for the six months ended July 3, 2004 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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(2) Relationship with Motorola

The Company’s net sales to other Motorola businesses included in Net sales were $170 million and $302 million for the three months ended June 28, 2003 and July 3, 2004, respectively, and $397 million and $578 million for the six months ended June 28, 2003 and July 3, 2004, respectively. Accounts receivable from sales to Motorola businesses were $43 million and $133 million as of December 31, 2003 and July 3, 2004, respectively. Accounts payable to Motorola were $13 million and $151 million as of December 31, 2003 and July 3, 2004, respectively. As of July 3, 2004, notes payable to Motorola were $428 million and bore interest at 1.6% annually. These notes were for working capital loans subsequent to the Contribution and asset purchases related to the Contribution. These notes were repaid in full following receipt of the IPO and debt offering proceeds as further discussed in Note 12.

The condensed combined statements of operations prior to the second quarter of 2004 include expense allocations for certain corporate functions historically provided by Motorola, including general corporate expenses, basic research costs, employee benefits and incentives and interest expense. These allocations were made on a specifically identifiable basis or using relative percentages, as compared to Motorola’s other businesses, net sales, payroll, fixed assets, inventory, net assets excluding debt, headcount or other reasonable methods.

After the first quarter of 2004, the expense allocation for certain corporate services ceased, and the Company began purchasing such services from Motorola under the terms of the transition services agreement as further discussed in Note 11. Additionally, subsequent to the Contribution, Motorola has a continuing obligation to settle certain liabilities on behalf of the Company. These transactions are accounted for as capital contributions, as they are not required to be repaid by the Company. Motorola’s capital contribution for the period after the Contribution totaled $21 million for the period ended July 3, 2004 and was composed of $29 million of separation expenses offset by $8 million of retained assets. Under the terms of the transition services agreement, the Company also receives compensation for services provided to Motorola in certain locations. The Company charged Motorola $6 million during the second quarter of 2004 for these services. These amounts were reported as a reduction to the cost classification to which such expenses were recognized, primarily Selling, general and administrative.

The following table presents the expense allocations reflected in the Company’s condensed statements of operations and expenses incurred under the transition services agreement.

The Company and Motorola considered these general corporate expenses, basic research and employee benefits and incentives allocations to be a reasonable reflection of the utilization of services provided. The Company’s interest expense as a stand-alone company may be higher or lower than the amounts reflected in the condensed statements of operations. The Company currently expects that it will no longer be dependent on Motorola for most support services by or near the anticipated date of the Distribution.

In conjunction with the Contribution, the Company has entered into a series of agreements, including a master separation and distribution agreement, a tax sharing agreement, employee matters agreement, transition services agreement, intellectual property license agreement, intellectual property assignment agreement, purchase and supply agreements and other related agreements that are intended to govern the ongoing relationship between the two companies (as further discussed in Note 11).

Motorola primarily uses a worldwide centralized approach to cash management and the financing of its operations with related activity between the Company and Motorola prior to the second quarter of 2004 was reflected as equity transactions in Owner’s net investment in the Company’s condensed balance sheets. Types of intercompany transactions include (1) cash deposits from the semiconductor businesses which were transferred to Motorola’s bank account on a regular basis, (2) cash borrowings from Motorola used to fund operations, capital expenditures or acquisitions, (3) capital contributions for income taxes, and (4) allocations of corporate expenses identified above.

Certain retiree benefits are available to eligible United States employees meeting certain age and service requirements upon termination of employment through the Motorola Post-retirement Healthcare Plan. At the date of the Distribution, the Company will assume responsibility for the retiree medical benefit obligation for all eligible retired participants, active vested participants, and active

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participants who vest within the three year period following the Distribution. The estimated amount of the retiree medical benefit obligation to be assumed by the Company is $214 million, and Motorola will also transfer $73 million in cash or other assets acceptable to Motorola and the Company as permitted by law without adverse tax consequences.

(3) Other Financial Data

Statements of Operations Information

Selling, General and Administrative

Investment incentives of $1 million and $1 million for the three months ended June 28, 2003 and July 3, 2004, respectively, and $46 million and $2 million for the six months ended June 28, 2003 and July 3, 2004, respectively, have been included as a reduction of Selling, general and administrative in the accompanying statements of operations. The incentives in the first six months of 2003 were primarily related to the development of our wafer fabrication facility in China. The Company recognizes the benefit associated with investment incentives when a legal right to the grant exists and there is reasonable assurance that the terms and conditions associated with the grant will be fulfilled and the grant proceeds will be received.

In 2002, as a result of the Company’s decision not to be the sole owner of a wafer fabrication facility in China, the Company recorded an $80 million provision associated with the potential obligation to reimburse the Chinese government for tax exemptions previously received. However, the acquirer of the wafer fabrication facility, Semiconductor Manufacturing International Corporation (SMIC), filed an application in January 2004 with the Chinese government to request that their exemption received from the Chinese government to exclude imported raw materials, construction material and production equipment, for VAT and duty, be expanded to include the Company’s obligations related to these exemptions. In February 2004, the Chinese government accepted this application, and the Company’s liability to reimburse these incentives was reduced by $51 million, of which $54 million has been recognized as a reduction of Selling, general and administrative and $3 million has been recognized as Income tax expense in the Company’s accompanying statements of operations for the six months ended July 3, 2004.

Other Income (Expense)

The following table displays the amounts comprising Interest expense, net, and Other included in Other income (expense) in the accompanying statements of operations:

Prior to the Contribution, Motorola allocated interest expense to the Company. Following the Contribution, the allocation of interest expense was discontinued as the Company would prospectively secure borrowings from outside sources, including Motorola through the IPO and concurrent debt offering, and would incur interest expense on such borrowings. Subsequent to July 3, 2004, the Company completed the sale of $1.25 billion of senior unsecured debt. (See Note 12).

Pro Forma Earnings Per Share

Prior to the completion of the IPO, the Company had approximately 278 million shares of Class B common stock outstanding as a result of the Contribution. The Company has presented pro forma basic and diluted earnings per share amounts for the three and six months ended July 3, 2004 as if the Contribution had occurred on January 1, 2004. The Company calculated its pro forma earnings

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per share in accordance with SFAS No. 128, “Earnings per Share.” Basic earnings per share is computed based on the weighted average number of common shares outstanding during the period. There is no difference between basic and diluted earnings per share since there were no outstanding options to purchase shares of the Company’s common stock or other potentially dilutive securities outstanding prior to the IPO. In connection with the IPO, certain employees have been awarded initial stock option grants to purchase Class A common stock of the Company or other equity-based awards.

Balance Sheet Information

Accounts Receivable

Accounts Receivable, net, consist of the following:

Inventories

Inventories consist of the following:

Property, Plant, and Equipment

Property, Plant and Equipment, net, consist of the following:

In connection with the Contribution, assets were recorded by the Company using Motorola’s historical cost basis in those assets. With regard to property, plant and equipment, this accounting results in the Company recognizing Motorola’s net book value of such assets as the Company’s initial book value. The calculation did not change the carrying value or depreciable lives of the assets and had no impact on depreciation expense.

Depreciation expense was $218 million and $185 million for the three months ended June 28, 2003 and July 3, 2004, respectively, and $447 million and $372 million for the six months ended June 28, 2003 and July 3, 2004, respectively.

Assets Held for Sale

Assets held for sale were $334 million and $56 million at December 31, 2003 and July 3, 2004, respectively. The assets held for sale at December 31, 2003 include $260 million related to building, machinery and equipment of a wafer fabrication facility in

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Tianjin, China that was sold on January 16, 2004 to SMIC. In conjunction with the asset sale, the Company also entered into a cross-patent license agreement. Consideration received for the cross-patent license agreement will be amortized over the five year term of the agreement. The Company transferred assets, entered into a cross-patent license agreement, paid $30 million in cash and received Series D convertible preference shares in SMIC and warrants valued at $321 million, resulting in a net gain of $6 million. The SMIC common stock was not among the net assets contributed to the Company by Motorola. During the six months ended July 3, 2004 the Company also sold a facility in South Queensferry, Scotland, a building in Austin, Texas, a building and property in Mesa, Arizona, and excess manufacturing equipment, all of which, including the Tianjin, China facility, were classified as held for sale as of December 31, 2003. The total net gains from the disposal of assets including assets held for sale were $5 million and $1 million for the three months ended June 28, 2003 and July 3, 2004, respectively, and $13 million and $12 million for the six months ended June 28, 2003 and July 3, 2004, respectively. These net gains are included in Operating earnings in the accompanying statements of operations. At July 3, 2004, assets held for sale primarily consist of the Sendai, Japan facility, the West Creek, Virginia property, a facility in Austin, Texas, and other individually insignificant assets. The Sendai, Japan facility was sold subsequent to July 3, 2004 and is expected to result in a gain of $3 million.

Investments

Investments consist of the following:

The Company recorded investment impairment charges of $5 million and $4 million for the six months ended June 28, 2003 and July 3, 2004, respectively, and there were no such charges during the three months ended June 28, 2003 and July 3, 2004. These impairment charges represent other-than-temporary declines in the value of investments within the Company’s investment portfolio and are included in the Other statement line of Other Income (Expense) in the accompanying statements of operations.

Gains on sales of investments and businesses consist of the following:

On March 11, 2004, all of the Company’s Series D convertible preference shares in SMIC were converted to 1.7 billion shares of common stock in connection with the IPO of SMIC. The Company sold 297 million shares of SMIC common stock in the IPO for $100 million in net proceeds, resulting in a $41 million gain. The 1.4 billion remaining shares of SMIC common stock are subject to restrictions on transfer that are released over an eighteen-month period, ending in September 2005. Warrants held by the Company for SMIC stock expired unexercised at the date of the IPO. The Company’s investment in SMIC common stock was classified as available-for-sale as of April 3, 2004. The SMIC common stock and certain other investments, with carrying values of $464 million, historically part of the semiconductor operations were not among the net assets contributed to the Company by Motorola.

Other Assets

Other assets consist of the following:

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Business Equity Information

Comprehensive Earnings

The net unrealized gains on securities included in Comprehensive earnings are comprised of the following:

(4) Stock Compensation Costs

The Company accounts for employee options to purchase Motorola stock and restricted stock and for employee participation in the Motorola employee stock purchase plan under the intrinsic value method of expense recognition. Compensation cost, if any, is recorded based on the excess of the quoted market price at grant date over the amount an employee must pay to acquire the stock. All unvested Motorola stock options held by the Company’s employees on the date of Distribution are expected to be converted into stock options to purchase Class A common stock of the Company. The Company has evaluated the pro forma effects of using the fair-value-based method of accounting and as such, net earnings (loss), basic pro forma earnings per common share and diluted earnings per common share would have been as follows:

(5) Asset Impairment Charges

For the three months ended June 28, 2003, there were reversals of $12 million that were primarily related to the reversal of asset impairments previously established to cover assets held for sale which were placed back in service and exit cost reversals. For the three months ended July 3, 2004, there was a reversal of $1 million of reserves established in prior periods to cover decommissioning costs which are no longer needed due to lower actual decommissioning costs at closed sites than previously estimated.

For the six months ended June 28, 2003, the Company had net asset impairment charges of $33 million that were primarily related to the impairment of specific facilities located in Arizona and Texas partially offset by the reversals of decommissioning costs which were no longer needed due to the sale of a facility, asset impairments previously established to cover assets held for sale which

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were placed back in service and exit costs. For the six months ended July 3, 2004, there was a reversal of $7 million of reserves established in prior periods to cover decommissioning costs which are no longer needed due to lower actual decommissioning costs at closed sites than previously estimated.

(6) Goodwill and Other Intangible Assets

Amortized intangible assets, which are included in Other assets, were composed of the following:

In connection with the Contribution, assets were recorded by the Company using Motorola’s historical cost basis in those assets. With regard to intangible assets, this accounting results in the Company recognizing Motorola’s net book value of such assets as the Company’s initial book value. The calculation did not change the carrying value or amortizable lives of the intangible assets and had no impact on amortization expense.

Amortization expense on intangible assets was $2 million and $2 million for the three months ended June 28, 2003 and July 3, 2004, respectively, and $4 million and $5 million for the six months ended June 28, 2003 and July 3, 2004, respectively. Amortization expense is estimated to be $10 million in 2004, $7 million in 2005, $3 million in 2006, $3 million in 2007, $3 million in 2008 and $2 million expected thereafter.

The following table displays a roll-forward of the carrying amount of goodwill from January 1, 2004 to July 3, 2004, by business segment:

The change in goodwill during the six months ended July 3, 2004 resulted from changes in foreign currency exchange rates.

(7) Commitments and Contingencies

In the ordinary course of business, the Company regularly executes contracts that contain indemnifications as it is customary business practice for most business arrangements that are reduced to a contract to contain some level of indemnity between parties. Additionally, the Company executes other contracts considered outside the ordinary course of business which contain indemnifications. One such contract entered into by the Company in the second quarter of 2004 is the Tax Sharing Agreement, as described in Note 11. Other 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 the Company is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the other party’s claims. Further, the Company’s obligations under these agreements may be limited in terms of duration, typically not in excess of 24 months, and/or amounts not in excess of the contract value, and in some instances, the Company may have recourse against third parties for certain payments made by the Company.

Historically, the Company has not made significant payments for indemnification provisions contained in these agreements. At December 31, 2003 and July 3, 2004, the Company had reserves of $5 million and $4 million, respectively, recorded as liabilities in the Company’s condensed balance sheets which have been provided to cover known estimated indemnification obligations. The Company believes that if it were to incur additional losses with respect to any unknown matters at July 3, 2004, such losses would not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

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(8) Segment Information

Summarized below are the Company’s segment net sales and operating earnings (loss) for the three and six month periods ended June 28, 2003 and July 3, 2004: