Annual Report for the Financial Year Ended December 31, 2014
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ANNUAL REPORT FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2014 NXP SEMICONDUCTORS N.V. Forward-looking statements cautioned not to place undue reliance on these forward- This document includes forward-looking statements looking statements, which speak to results only as of the which include statements regarding our business date the statements were made; and, except for any strategy, financial condition, results of operations, and ongoing obligation to disclose material information as market data, as well as any other statements which are required by the United States federal securities laws, we not historical facts. By their nature, forward-looking do not have any intention or obligation to publicly update statements are subject to numerous factors, risks and or revise any forward-looking statements after we uncertainties that could cause actual outcomes and distribute this document, whether to reflect any future results to be materially different from those projected. events or circumstances or otherwise. For a discussion These factors, risks and uncertainties include the of potential risks and uncertainties, please refer to the following: market demand and semiconductor industry risk factors listed in our SEC filings. Copies of our filings conditions, our ability to successfully introduce new are available from our Investor Relations department or technologies and products, the demand for the goods from the SEC website, www.sec.gov. into which our products are incorporated, our ability to generate sufficient cash, raise sufficient capital or Use of fair value measurements refinance our debt at or before maturity to meet both our In presenting the NXP Group’s financial position, fair debt service and research and development and capital values are used for the measurement of various items in investment requirements, our ability to accurately accordance with the applicable accounting standards. estimate demand and match our production capacity These fair values are based on market prices, where accordingly or obtain supplies from third-party available, and are obtained from sources that we producers, our access to production from third-party consider to be reliable. Users are cautioned that these outsourcing partners, and any events that might affect values are subject to changes over time and are only their business or our relationship with them, our ability to valid as of the period end date. When a readily secure adequate and timely supply of equipment and determinable market value does not exist, we estimate materials from suppliers, our ability to avoid operational fair values using valuation models which we believe are problems and product defects and, if such issues were appropriate for their purpose. These require to arise, to rectify them quickly, our ability to form management to make significant assumptions with strategic partnerships and joint ventures and respect to future developments which are inherently successfully cooperate with our alliance partners, our uncertain and may therefore deviate from actual ability to win competitive bid selection processes to developments. In certain cases independent valuations develop products for use in our customers’ equipment are obtained to support management’s determination of and products, our ability to successfully establish a brand fair values. identity, our ability to successfully hire and retain key management and senior product architects, and our Basis of presentation ability to maintain good relationships with our suppliers. The accompanying financial information included in this document is based on International Financial Reporting In addition, this document contains information Standards (“IFRS”) as adopted by the European Union, concerning the semiconductor industry and our business unless otherwise indicated. segments generally, which is forward-looking in nature and is based on a variety of assumptions regarding the For internal and external reporting purposes, NXP ways in which the semiconductor industry, our market follows accounting principles generally accepted in the segments and product areas will develop. We have United States of America (“U.S. GAAP”). U.S. GAAP is based these assumptions on information currently NXP’s primary accounting standard for the Company’s available to us. If any one or more of these assumptions setting of financial and operational performance targets. turn out to be incorrect, actual market results may differ from those predicted. While we do not know what impact Statutory financial statements any such differences may have on our business, if there These Group financial statements and the Company are such differences, our future results of operations and financial statements of NXP Semiconductors N.V. financial condition, and the market price of the notes, contain the statutory financial statements of the could be materially adversely affected. Readers are Company prepared in accordance with Dutch law. [-2] Contents Page Forward-looking statements 2 Financial highlights 4 Report of the Directors About NXP History and development of the Company 5 Business overview 6 Significant acquisitions and divestments 21 Management commentary Introduction 22 Reconciliation from IFRS to U.S. GAAP 22 Performance of the Group 23 Liquidity and capital resources 28 Employment 35 Subsequent events 36 Governance NXP’s Leadership 38 Corporate Governance 43 Report of the Nominating and compensation committee 61 Report of the Audit committee 62 Audited financial statements 62 Group Financial Statements Consolidated financial statements 63 Notes to the consolidated financial statements 70 Company Financial Statements Company financial statements 140 Notes to the company financial statements 141 Other information Independent Auditor’s Report 145 Statutory rules concerning appropriation of profit 147 Special statutory voting rights 148 Investor information 149 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 2014 2013 Revenue 5,647 4,815 Operating income 1,036 485 as a % of revenue 18.3 10.1 Income from continuing operations 610 199 Income (loss) from discontinued operations - - Net income 610 199 - per common share in $: basic 2.30 0.56 diluted 2.20 0.54 Earnings before interest, tax, depreciation and amortization (EBITDA) 1) 1,775 1,315 as a % of revenue 31.4 27.3 Cash flows before financing activities 1,081 651 Shareholders’ equity 1,038 1,826 Employees at end of period 27,884 25,691 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 Name and History Our legal name is NXP Semiconductors N.V. and our commercial name is “NXP” or “NXP Semiconductors”. We were incorporated in the Netherlands as a Dutch private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) under the name KASLION Acquisition B.V. on August 2, 2006, in connection with the sale by Philips of 80.1% of its semiconductor business to the “Private Equity Consortium”. Initially, the Private Equity Consortium invested in our Company through KASLION Holding B.V., a Dutch private company with limited liability. On May 21, 2010, we converted into a Dutch public company with limited liability (naamloze vennootschap) and changed our name to NXP Semiconductors N.V. Concurrently, we amended our articles of association in order to effect a 1-for-20 reverse stock split of our shares of common stock. On August 5, 2010, we made an initial public offering of 34 million shares of our common stock and listed our common stock on the NASDAQ Global Select Market. In 2014, the last members of the Private Equity Consortium sold their remaining shares of our common stock. Representatives of certain members of the Private Equity Consortium continue to serve on our Board of Directors. On March 2, 2015, NXP announced that the company has entered into a definitive agreement under which NXP will merge with Freescale Semiconductor, Ltd. (Freescale). Under the terms of the agreement, Freescale shareholders will receive $6.25 in cash and 0.3521 of an NXP ordinary share for each Freescale common share held at the close of the transaction. The purchase price implies a total equity value for Freescale of approximately $11.8 billion (based on NXP’s closing stock price as of February 27, 2015) and a total enterprise value of approximately $16.7 billion including Freescale's net debt. The transaction is expected to close in the second half of calendar 2015. NXP intends to fund the transaction with $1.0 billion of cash from its balance sheet, $1.0 billion of new debt and approximately 115 million of NXP ordinary shares. Post transaction, Freescale shareholders are expected to own approximately 32 percent of the combined company. The transaction has been unanimously approved by the boards of directors of both companies and is subject to regulatory approvals in various jurisdictions and customary closing conditions, as well as the approval of NXP and Freescale shareholders. Upon consummation, we expect to account for the merger during 2015 under the acquisition method of accounting in accordance with IFRS 3 Business