Annual Report for the Financial Year Ended December 31, 2019
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ANNUAL REPORT FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2019 NXP SEMICONDUCTORS N.V. Forward-looking statements This document includes forward-looking statements Except for any ongoing obligation to disclose material which include statements regarding NXP’s business information as required by the United States federal strategy, financial condition, results of operations, and securities laws, NXP does not have any intention or market data, as well as any other statements which are obligation to publicly update or revise any forward- not historical facts. By their nature, forward-looking looking statements after we distribute this document, statements are subject to numerous factors, risks and whether to reflect any future events or circumstances uncertainties that could cause actual outcomes and or otherwise. For a discussion of potential risks and results to be materially different from those projected. uncertainties, please refer to the risk factors listed in These factors, risks and uncertainties include the filings with the U.S. Securities and Exchange following: market demand and semiconductor Commission (“SEC”). Copies of our SEC filings are industry conditions; the ability to successfully available on our Investor Relations website, introduce new technologies and products; the end- www.nxp.com/investor or from the SEC website, market demand for the goods into which NXP’s www.sec.gov. products are incorporated; the ability to generate sufficient cash, raise sufficient capital or refinance Use of fair value measurements corporate debt at or before maturity; the ability to In presenting the NXP Group’s financial position, fair meet the combination of corporate debt service, values are used for the measurement of various items research and development and capital investment in accordance with the applicable accounting requirements; the ability to accurately estimate standards. These fair values are based on market demand and match manufacturing production capacity prices, where available, and are obtained from sources accordingly or obtain supplies from third-party that we consider to be reliable. Users are cautioned producers; the access to production capacity from that these values are subject to changes over time and third-party outsourcing partners; any events that might are only valid as of the period end date. When a affect third-party business partners or NXP’s readily determinable market value does not exist, we relationship with them; the ability to secure adequate estimate fair values using valuation models which we and timely supply of equipment and materials from believe are appropriate for their purpose. These suppliers; the ability to avoid operational problems require management to make significant assumptions and product defects and, if such issues were to arise, with respect to future developments which are to correct them quickly; the ability to form strategic inherently uncertain and may therefore deviate from partnerships and joint ventures and to successfully actual developments. In certain cases independent cooperate with alliance partners; the ability to win valuations are obtained to support management’s competitive bid selection processes to develop determination of fair values. products for use in customers’ equipment and products; the ability to achieve targeted efficiencies Basis of presentation and cost savings; the ability to successfully hire and retain key management and senior product architects; The accompanying financial information included in and, the ability to maintain good relationships with this document is based on International Financial our suppliers. Reporting Standards (“IFRS”) as adopted by the European Union, unless otherwise indicated. In addition, this document contains information concerning the semiconductor industry and NXP’s For internal and external reporting purposes, NXP business generally, which is forward-looking in nature follows accounting principles generally accepted in and is based on a variety of assumptions regarding the the United States of America (“U.S. GAAP”). U.S. ways in which the semiconductor industry, NXP’s GAAP is NXP’s primary accounting standard for the markets and product areas may develop. NXP has based Company’s setting of financial and operational these assumptions on information currently available, performance targets. if any one or more of these assumptions turn out to be incorrect, actual results may differ from those predicted. Statutory financial statements While NXP does not know, what impact any such These Group financial statements and the Company differences may have on its business, if there are such financial statements of NXP Semiconductors N.V. differences, its future results of operations and its contain the statutory financial statements of the financial condition could be materially adversely Company prepared in accordance with Dutch law. affected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak to results only as of the date the statements were made. [-2] Contents Page Forward-looking statements 2 Financial highlights 4 Report of the Directors 5 About NXP 5 History and development of the Company 5 Business overview 6 Management commentary 14 Introduction 14 Reconciliation from IFRS to U.S. GAAP 15 Performance of the Group 16 Financial Condition, Liquidity and Capital Resources 21 Employees 24 Subsequent events 25 Governance 26 NXP’s Leadership 26 Corporate Governance 30 Audit committee Report 60 Compensation Committee Report 61 Nominating and Governance Committee Report 62 Audited financial statements 63 Group Financial Statements 64 Consolidated financial statements 64 Notes to the consolidated financial statements 71 Company Financial Statements Company financial statements 135 Notes to the company financial statements 136 Other information 140 Independent Auditor’s Report 140 Statutory rules concerning appropriation of profit 151 Special statutory voting rights 152 Investor information 153 In this report the name “NXP” is sometimes used for convenience in contexts where reference is made to NXP Semiconductors N.V. and/or any of its subsidiaries in general. The name is also used where no useful purpose is served by identifying the particular company or companies. [-3] Financial Highlights $ in millions, unless otherwise stated 2019 2018 Revenue 8,877 9,407 Operating income 957 3,162 as a % of revenue 10.8% 33.6% Net income 541 2,646 - per common share in $: * basic 1.82 7.97 * diluted 1.78 7.87 Earnings before interest, tax, depreciation and amortization (EBITDA) 1) 3,430 5,499 as a % of revenue 38.6% 58.5% Cash flows before financing activities 136 3,847 Shareholders’ equity 11,444 12,205 Employees at end of period 29,400 30,000 1) EBITDA is defined as operating income plus the results relating to equity accounted investees, excluding depreciation, amortization and impairment charges. [-4] Report of the Directors About NXP History and development of the company Company Overview NXP Semiconductors N.V. is a global semiconductor company and a long-standing supplier in the industry, with over 50 years of innovation and operating history. For the year ended December 31, 2019, we generated revenue of $8,877 million, compared to $9,407 million for the year ended December 31, 2018. We provide leading solutions that leverage our combined portfolio of intellectual property, deep application knowledge, process technology and manufacturing expertise in the domains of cryptography-security, high-speed interface, radio frequency (RF), mixed-signal analog-digital (mixed A/D), power management, digital signal processing and embedded system design. Our product solutions are used in a wide range of end-market applications including: automotive, industrial & Internet of Things (IoT), mobile, and communication infrastructure. We engage with leading global original equipment manufacturers (OEM) and sell products in all major geographic regions. Our legal name is NXP Semiconductors N.V. and our commercial name is “NXP” or “NXP Semiconductors.” We were incorporated in the Netherlands in 2006 as a Dutch public company with limited liability (naamloze vennootschap). On August 5, 2010, we made an initial public offering of 34 million shares of our common stock and listed our common stock on Nasdaq. We are a holding company (the “Holding Company”) whose only material assets are the direct ownership of 100% of the shares of NXP B.V., a Dutch private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid). Our corporate seat is in Eindhoven, the Netherlands. Our principal executive office is at High Tech Campus 60, 5656 AG Eindhoven, the Netherlands, and our telephone number is +31 40 2729999. Our registered agent in the United States is NXP USA, Inc., 6501 William Cannon Dr. West, Austin, Texas 78735, United States of America, phone number +1 512 9338214. Business Combinations On December 6, 2019, NXP acquired Marvell Technology Group Ltd.'s ("Marvell") Wireless WiFi Connectivity Business Unit, Bluetooth technology portfolio and related assets, for total consideration of $1.7 billion. The financial results from the acquisition date through December 31, 2019, are included in NXP’s Consolidated Statement of Operations, as discussed herein. NXP accounted for the acquisition under the acquisition method of accounting in accordance with IFRS 3 Business Combinations. On October 27, 2016, NXP entered into a purchase agreement (the “Purchase Agreement”) with Qualcomm River