ANNUAL REPORT for the FINANCIAL YEAR ENDED December 31, 2020 NXP SEMICONDUCTORS N.V
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ANNUAL REPORT FOR THE FINANCIAL YEAR ENDED December 31, 2020 NXP SEMICONDUCTORS N.V. Forward-looking statements This document includes forward-looking statements which future. Readers are cautioned not to place undue reliance on include statements regarding NXP’s business strategy, these forward-looking statements, which speak to results financial condition, results of operations, and market data, only as of the date the statements were made. as well as any other statements which are not historical Except for any ongoing obligation to disclose material facts. By their nature, forward-looking statements are information as required by the United States federal subject to numerous factors, risks and uncertainties that securities laws, NXP does not have any intention or could cause actual outcomes and results to be materially obligation to publicly update or revise any forward-looking different from those projected. These factors, risks and statements after we distribute this document, whether to uncertainties include the following: the duration and spread reflect any future events or circumstances or otherwise. For of the COVID-19 outbreak, its severity, the actions to a discussion of potential risks and uncertainties, please refer contain the virus or treat its impact, and how quickly and to to the risk factors listed in filings with the U.S. Securities what extent normal economic and operating conditions can and Exchange Commission (“SEC”). Copies of our SEC resume; market demand and semiconductor industry filings are available on our Investor Relations website, conditions; the ability to successfully introduce new www.nxp.com/investor or from the SEC website, technologies and products; the demand for the goods into www.sec.gov. which NXP’s products are incorporated; trade disputes between the U.S. and China, potential increase of barriers to Use of fair value measurements international trade and resulting disruptions to NXP's established supply chains; the ability to generate sufficient In presenting the NXP Group’s financial position, fair cash, raise sufficient capital or refinance corporate debt at values are used for the measurement of various items in or before maturity; the ability to meet the combination of accordance with the applicable accounting standards. These corporate debt service, research and development and fair values are based on market prices, where available, and capital investment requirements; the ability to accurately are obtained from sources that we consider to be reliable. estimate demand and match manufacturing production Users are cautioned that these values are subject to changes capacity accordingly or obtain supplies from third-party over time and are only valid as of the period end date. producers; the potential impact of the outbreak of When a readily determinable market value does not exist, COVID-19 on NXP's business, operations, results of we estimate fair values using valuation models which we operations, financial condition, workforce or the operations believe are appropriate for their purpose. These require or decisions of customers, suppliers or business customers; management to make significant assumptions with respect the access to production capacity from third-party to future developments which are inherently uncertain and outsourcing partners and any events that might affect their may therefore deviate from actual developments. In certain business or NXP’s relationship with them including the cases independent valuations are obtained to support outbreak of COVID-19 or the requirements to suspend management’s determination of fair values. activities with customers or suppliers because of changing import and export regulations; the ability to secure adequate Basis of presentation and timely supply of equipment and materials from suppliers; the ability to avoid operational problems and The accompanying financial information included in this product defects and, if such issues were to arise, to correct document is based on International Financial Reporting them quickly; the ability to form strategic partnerships and Standards (“IFRS”) as adopted by the European Union, joint ventures and to successfully cooperate with alliance unless otherwise indicated. partners; the ability to win competitive bid selection For internal and external reporting purposes, NXP follows processes to develop products for use in customers’ accounting principles generally accepted in the United equipment and products; the ability to successfully hire and States of America (“U.S. GAAP”). U.S. GAAP is NXP’s retain key management and senior product engineers; and, primary accounting standard for the Company’s setting of the ability to maintain good relationships with our suppliers. financial and operational performance targets. In addition, this document contains information concerning Statutory financial statements the semiconductor industry and NXP’s business generally, which is forward-looking in nature and is based on a variety These Group financial statements and the Company of assumptions regarding the ways in which the financial statements of NXP Semiconductors N.V. contain semiconductor industry, NXP’s markets and product areas the statutory financial statements of the Company prepared may develop. NXP has based these assumptions on in accordance with Dutch law. information currently available, if any one or more of these assumptions turn out to be incorrect, actual results may differ from those predicted. While NXP does not know, what impact any such differences may have on its business, if there are such differences, its future results of operations and its financial condition could be materially adversely affected. There can be no assurances that a pandemic, epidemic or outbreak of contagious diseases, such as COVID-19, will not have a material and adverse impact on our business, operating results and financial condition in the [-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 5 Management commentary 15 Introduction 15 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 29 Audit committee Report 63 Compensation Committee Report 64 Nominating and Governance Committee Report 65 Audited financial statements 65 Group Financial Statements 66 Consolidated financial statements 66 Notes to the consolidated financial statements 73 Company Financial Statements 136 Company financial statements 136 Notes to the company financial statements 138 Other information 142 Independent Auditor’s Report 142 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 2020 2019 Revenue 8,612 8,877 Operating income 715 957 as a % of revenue 8.3 % 10.8 % Net income 308 541 - per common share in $: * basic 1.00 1.82 * diluted 0.98 1.78 Earnings before interest, tax, depreciation and amortization (EBITDA) 1) 3,237 3,430 as a % of revenue 37.6 % 38.6 % Cash flows before financing activities 2,121 136 Shareholders’ equity 11,183 11,444 Employees at end of period 28,900 29,400 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 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, 2020, we generated revenue of $8,612 million, compared to $8,877 million for the year ended December 31, 2019. 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). 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. We are registered at the office of the Commercial