Annual Report for the Financial Year Ended December 31, 2017
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ANNUAL REPORT FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2017 NXP SEMICONDUCTORS N.V. Forward-looking statements any such differences may have on our business, if there This document includes forward-looking statements are such differences, our future results of operations and which include statements regarding our business financial condition, and the market price of the notes, strategy, financial condition, results of operations, and could be materially adversely affected. Readers are market data, as well as any other statements which are cautioned not to place undue reliance on these forward- not historical facts. By their nature, forward-looking looking statements, which speak to results only as of the statements are subject to numerous factors, risks and date the statements were made; and, except for any uncertainties that could cause actual outcomes and ongoing obligation to disclose material information as results to be materially different from those projected. required by the United States federal securities laws, we These factors, risks and uncertainties include the do not have any intention or obligation to publicly update following: our ability to complete merger and acquisition- or revise any forward-looking statements after we related activity and risks and uncertainties associated distribute this document, whether to reflect any future with the pending offer by Qualcomm River Holdings B.V., events or circumstances or otherwise. For a discussion a wholly-owned subsidiary of QUALCOMM of potential risks and uncertainties, please refer to the Incorporated, to purchase all of NXP’s outstanding risk factors listed in our SEC filings. Copies of our filings common shares, market demand and semiconductor are available from our Investor Relations department or industry conditions, our ability to successfully introduce from the SEC website, www.sec.gov. new technologies and products, the demand for the Use of fair value measurements goods into which our products are incorporated, our In presenting the NXP Group’s financial position, fair ability to generate sufficient cash, raise sufficient capital values are used for the measurement of various items in or refinance our debt at or before maturity to meet both accordance with the applicable accounting standards. our debt service and research and development and These fair values are based on market prices, where capital investment requirements, our ability to accurately available, and are obtained from sources that we estimate demand and match our production capacity consider to be reliable. Users are cautioned that these accordingly or obtain supplies from third-party values are subject to changes over time and are only producers, our access to production from third-party valid as of the period end date. When a readily outsourcing partners, and any events that might affect determinable market value does not exist, we estimate their business or our relationship with them, our ability to fair values using valuation models which we believe are secure adequate and timely supply of equipment and appropriate for their purpose. These require materials from suppliers, our ability to avoid operational management to make significant assumptions with problems and product defects and, if such issues were respect to future developments which are inherently to arise, to rectify them quickly, our ability to form uncertain and may therefore deviate from actual strategic partnerships and joint ventures and developments. In certain cases independent valuations successfully cooperate with our alliance partners, our are obtained to support management’s determination of ability to win competitive bid selection processes to fair values. develop products for use in our customers’ equipment Basis of presentation and products, our ability to successfully establish a brand The accompanying financial information included in this identity, our ability to successfully hire and retain key document is based on International Financial Reporting management and senior product architects, and our Standards (“IFRS”) as adopted by the European Union, ability to maintain good relationships with our suppliers. unless otherwise indicated. In addition, this document contains information For internal and external reporting purposes, NXP concerning the semiconductor industry and our business follows accounting principles generally accepted in the segments generally, which is forward-looking in nature United States of America (“U.S. GAAP”). U.S. GAAP is and is based on a variety of assumptions regarding the NXP’s primary accounting standard for the Company’s ways in which the semiconductor industry, our market setting of financial and operational performance targets. segments and product areas will develop. We have Statutory financial statements based these assumptions on information currently These Group financial statements and the Company available to us. If any one or more of these assumptions financial statements of NXP Semiconductors N.V. turn out to be incorrect, actual market results may differ contain the statutory financial statements of the from those predicted. While we do not know what impact Company prepared in accordance with Dutch law. [-2] Contents Page Forward-looking statements 2 Financial highlights 4 Report of the Directors 5 About NXP History and development of the Company 5 Business overview 6 Management commentary Introduction 21 Reconciliation from IFRS to U.S. GAAP 21 Performance of the Group 22 Liquidity and capital resources 27 Employees 33 Subsequent events 33 Governance NXP’s Leadership 35 Corporate Governance 41 Report of the Nominating and compensation committee 86 Report of the Audit committee 86 Audited financial statements 87 Group Financial Statements Consolidated financial statements 88 Notes to the consolidated financial statements 95 Company Financial Statements Company financial statements 178 Notes to the company financial statements 179 Other information Independent Auditor’s Report 184 Statutory rules concerning appropriation of profit 192 Special statutory voting rights 193 Investor information 194 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 2017 2016 Revenue 9,256 9,498 Operating income 2,443 285 as a % of revenue 26.4 3.0 Income from operations 2,576 314 Net income 2,576 314 - per common share in $: ∗ basic 7.44 0.77 ∗ diluted 7.26 0.74 Earnings before interest, tax, depreciation and amortization (EBITDA) 1) 4,877 2,652 as a % of revenue 52.7 27.9 Cash flows before financing activities 4,519 1,676 Shareholders’ equity 14,856 12,011 Employees at end of period 30,100 40,400 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 are incorporated in the Netherlands as a Dutch public company with limited liability (naamloze vennootschap) registered with the Dutch Chamber of Commerce under number 34253298. 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. NXP Semiconductors N.V. is the 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 8952000. On March 2, 2015, NXP announced that the company had entered into a definitive agreement under which it would merge with Freescale Semiconductor, Ltd. (“Freescale”) (the “Merger”). The Merger was consummated on December 7, 2015. As a result, Freescale’s results of operations are included in NXP’s consolidated statements of income as from December 7, 2015. NXP accounted for the Merger under the acquisition method of accounting in accordance with IFRS 3 Business Combinations, with NXP treated as the accounting acquirer. The Merger created a market leader in automotive, broad based microcontroller and security semiconductor solutions, with a highly complementary product portfolio. The Merger enables NXP to better serve a broader array of customers in strategic markets. On June 14, 2016, NXP announced an agreement to divest its Standard Products business to a consortium of financial investors consisting of Beijing JianGuang Asset Management Co., Ltd (“JAC Capital”) and Wise Road Capital LTD (“Wise Road Capital”). On February 6, 2017 we divested SP, receiving $2.6 billion in cash proceeds, net of cash divested. On October 27, 2016, NXP entered into a purchase agreement (the “Purchase Agreement”) with Qualcomm River Holdings B.V. (“Buyer”), a wholly-owned, indirect subsidiary of QUALCOMM Incorporated. On February 20, 2018,