Item 8. Financial Statements and Supplementary Data

List of Financial Statements

Report of independent registered public accounting firm	57
Consolidated Statements of Operations	60
Consolidated Statements of Comprehensive Income	61
Consolidated Balance Sheets	62
Consolidated Statements of Cash Flows	63
Consolidated Statements of Changes in Equity	65
Notes to the Consolidated Financial Statements	66
Supplementary Financial Data (unaudited)	110

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

NXP Semiconductors N.V.

Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of NXP Semiconductors N.V. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, cash flows and changes in equity for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting

principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of fair value of certain intangible assets acquired in Marvell business acquisition

As discussed in Note 3 to the consolidated financial statements, on December 6, 2019, the Company acquired Marvell’s Wireless WiFi Connectivity Business Unit, Bluetooth technology portfolio and related assets (“Marvell”) in a business combination for net consideration of $1,705 million. The assets acquired included amongst others $324 million of developed technology and $170 million of in-process R&D. Management valued these intangible assets on a preliminary basis using the multi-period excess earnings method under the income approach. This method reflects the present values of the projected cash flows that are expected to be generated by the developed technology and in-process R&D less charges representing the contribution of other assets to those cash flows.

We identified the evaluation of the preliminary acquisition date fair values of the developed technology and in-process R&D as a critical audit matter. There was a high degree of subjectivity in evaluating the discounted cash flow models used to calculate the acquisition-date fair value of these intangible assets including the allocation of projected cash flows between developed technology and in-process R&D. In addition, the discounted cash flow models included internally-developed assumptions such as expected revenue growth rates, profitability and discount rates, and the calculated fair values of such assets were sensitive to possible changes to these assumptions.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s acquisition-date valuation process including controls related to the development of the assumptions based on comparable market data. We compared the assumptions, including the Company’s forecasted growth rates and profitability, to those of market participants. We also involved valuation professionals with specialized skills and knowledge, who assisted in developing an estimate of the fair value of the acquired business using the Company’s cash flow forecast and an independently developed discount rate, and

evaluating the Company’s discount rate by comparing it against a discount rate range that was independently developed using publicly available market data for comparable entities and transactions.

Evaluation of the accrued liability and disclosure of range of reasonably possible losses related to personal injury claims

As discussed in Note 16 to the consolidated financial statements, the Company is involved as a defendant in personal injury claims. Specifically, the Company is involved in legal proceedings claiming personal injuries to the children of former employees as a result of the employees’ alleged exposure to chemicals used in semiconductor manufacturing clean room environments operated by the Company or former parent companies Philips and Motorola. These personal injury claims allege a link between working in semiconductor manufacturing clean room facilities and birth defects. As at December 31, 2019, the Company has accrued $44 million and disclosed the aggregate range of reasonably possible losses in excess of the amount accrued between $0 million and $66 million for potential and current legal proceedings, of which a portion relates to personal injury claims.

We identified the evaluation of the accrued liability and the disclosure of the aggregate range of reasonably possible losses in excess of the amount accrued related to personal injury claims as a critical audit matter, because it required subjective auditor judgment. This is due to the nature of the estimate resulting from the varying stages of the proceedings, the existence of multiple defendants in such claims whose share of liability has yet to be determined, the numerous unresolved issues in many of the claims, and the attendant uncertainty of the various potential outcomes of such claims.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s personal injury claims accrual and disclosure process, including controls related to the evaluation of information from external and internal legal counsel and controls related to the development of assumptions and review of other information used in the Company’s calculations. We inspected letters received directly from the Company’s external legal counsel to confirm underlying information used by the Company in its calculation of the accrual and the range of reasonably possible losses. We inquired of management and its internal legal counsel and evaluated key inputs and assumptions used in its calculation. We evaluated the Company’s ability to estimate its monetary exposure to personal injury claims by comparing historically recorded liabilities to actual amounts incurred through settlement agreements.

/s/ KPMG Accountants N.V.

We have served as the Company’s auditor since 2009*.*

Amstelveen, the Netherlands

February 27, 2020

NXP Semiconductors N.V.

Consolidated Statements of Operations

($ in millions, unless otherwise stated)	For the years ended December 31,
	2019			2018			2017
Revenue	8,877			9,407			9,256
Cost of revenue	(4,259	)		(4,556	)		(4,637	)
Gross profit	4,618			4,851			4,619
Research and development	(1,643	)		(1,700	)		(1,554	)
Selling, general and administrative	(924	)		(993	)		(1,090	)
Amortization of acquisition-related intangible assets	(1,435	)		(1,449	)		(1,448	)
Total operating expenses	(4,002	)		(4,142	)		(4,092	)
Other income (expense)	25			2,001			1,575
Operating income (loss)	641			2,710			2,102
Financial income (expense):
Extinguishment of debt	(11	)		(26	)		(41	)
Other financial income (expense)	(339	)		(309	)		(325	)
Income (loss) before income taxes	291			2,375			1,736
Benefit (provision) for income taxes	(20	)		(176	)		483
Results relating to equity-accounted investees	1			59			53
Net income (loss)	272			2,258			2,272
Less: Net income (loss) attributable to non-controlling interests	29			50			57
Net income (loss) attributable to stockholders	243			2,208			2,215
Earnings per share data:
Net income (loss) per common share attributable to stockholders in $:
– Basic	0.86			6.78			6.54
– Diluted	0.85			6.72			6.41
Weighted average number of shares of common stock outstanding during the year (in thousands):
– Basic	282,056			325,781			338,646
– Diluted	285,911			328,606			345,802

See accompanying notes to the Consolidated Financial Statements.

NXP Semiconductors N.V.

Consolidated Statements of Comprehensive Income

($ in millions, unless otherwise stated)	For the years ended December 31,
	2019			2018			2017
Net income (loss)	272			2,258			2,272
Other comprehensive income (loss), net of tax:
Change in fair value cash flow hedges *	5			(11	)		10
Change in foreign currency translation adjustment *	(15	)		(51	)		156
Change in net actuarial gain (loss)	(38	)		5			(16	)
Change in net unrealized gains (losses) available-for-sale securities *	—			3			(7	)
Total other comprehensive income (loss)	(48	)		(54	)		143
Total comprehensive income (loss)	224			2,204			2,415
Less: Comprehensive income (loss) attributable to non-controlling interests	29			50			57
Total comprehensive income (loss) attributable to stockholders	195			2,154			2,358

*	Reclassification adjustments included in Cost of revenue, Selling, general and administrative, Research and development and Results relating to equity-accounted investees in the Consolidated Statements of Operations.

See accompanying notes to the Consolidated Financial Statements.

NXP Semiconductors N.V.

Consolidated Balance Sheets

($ in millions, unless otherwise stated)	As of December 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents	1,045			2,789
Accounts receivables, net	667			792
Assets held for sale	50			—
Inventories, net	1,192			1,279
Other current assets	313			365
Total current assets	3,267			5,225
Non-current assets:
Other non-current assets	732			545
Property, plant and equipment, net	2,448			2,436
Identified intangible assets, net	3,620			4,467
Goodwill	9,949			8,857
Total non-current assets	16,749			16,305
Total assets	20,016			21,530
Liabilities and equity
Current liabilities:
Accounts payable	944			999
Restructuring liabilities - current	32			60
Accrued liabilities	815			1,219
Short-term debt	—			1,107
Total current liabilities	1,791			3,385
Non-current liabilities:
Long-term debt	7,365			6,247
Restructuring liabilities	—			5
Deferred tax liabilities	282			450
Other non-current liabilities	923			753
Total non-current liabilities	8,570			7,455
Equity:
Non-controlling interests	214			185
Stockholders’ equity:
Preferred stock, par value €0.20 per share:
Authorized: 645,754,500 (2018: 645,754,500 shares)
Issued: none
Common stock, par value €0.20 per share:
Authorized: 430,503,000 shares (2018: 430,503,000 shares)
Issued and fully paid: 315,519,638 shares (2018: 328,702,719 shares)	64			67
Capital in excess of par value	15,184			15,460
Treasury shares, at cost: 34,082,242 shares (2018: 35,913,021 shares)	(3,037	)		(3,238	)
Accumulated other comprehensive income (loss)	75			123
Accumulated deficit	(2,845	)		(1,907	)
Total Stockholders’ equity	9,441			10,505
Total equity	9,655			10,690
Total liabilities and equity	20,016			21,530

See accompanying notes to the Consolidated Financial Statements.

NXP Semiconductors N.V.

Consolidated Statements of Cash Flows

($ in millions, unless otherwise stated)	For the years ended December 31,
	2019			2018			2017
Cash flows from operating activities:
Net income (loss)	272			2,258			2,272
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization	2,047			1,987			2,173
Share-based compensation	346			314			281
Amortization of discount on debt	42			42			40
Amortization of debt issuance costs	11			10			12
Net (gain) loss on sale of assets	(20	)		—			(1,615	)
(Gain) loss on extinguishment of debt	11			26			41
Results relating to equity-accounted investees	(1	)		(54	)		(22	)
Deferred tax expense (benefit)	(175	)		(211	)		(797	)
Changes in operating assets and liabilities:
(Increase) decrease in receivables and other current assets	116			187			31
(Increase) decrease in inventories	128			(65	)		(120	)
Increase (decrease) in accounts payable and accrued liabilities	(460	)		(129	)		225
Decrease (increase) in other non-current assets	43			(22	)		(100	)
Exchange differences	15			14			30
Other items	(2	)		12			(4	)
Net cash provided by (used for) operating activities	2,373			4,369			2,447
Cash flows from investing activities:
Purchase of identified intangible assets	(102	)		(50	)		(66	)
Capital expenditures on property, plant and equipment	(526	)		(611	)		(552	)
Proceeds from disposals of property, plant and equipment	23			1			2
Purchase of interests in businesses, net of cash acquired	(1,698	)		(18	)		—
Proceeds from sale of interests in businesses, net of cash divested	37			159			2,682
Purchase of available-for-sale securities	(19	)		(9	)		—
Proceeds from the sale of securities	1			2			—
Proceeds from return of equity investment	—			4			—
Other	—			—			6
Net cash provided by (used for) investing activities	(2,284	)		(522	)		2,072
Cash flows from financing activities:
Payment of cash convertible note	(1,150	)		—			—
Proceeds from settlement of cash convertible note hedge	144			—			—
Payment of bond hedge derivatives - convertible option	(145	)		—			—
Repayment of Bridge Loan	—			(1,000	)		—
Proceeds from Bridge Loan	—			1,000			—
Repurchase of long-term debt	(600	)		(1,273	)		(2,728	)
Principal payments on long-term debt	—			(1	)		(16	)
Proceeds from the issuance of long-term debt	1,750			1,997			—
Cash paid for debt issuance costs	(24	)		(23	)		—
Cash paid for terminated acquisition adjustment event	—			(60	)		—
Dividends paid to non-controlling interests	—			(54	)		(89	)
Dividends paid to common stockholders	(319	)		(74	)		—
Cash proceeds from exercise of stock options	84			39			233

	NXP Semiconductors N.V. Consolidated Statements of Cash Flows (Continued)
	Purchase of treasury shares and restricted stock unit withholdings	(1,443	)		(5,006	)		(286	)
	Cash paid on behalf of shareholders for tax on repurchased shares	(128	)		(142	)		—
	Net cash provided by (used for) financing activities	(1,831	)		(4,597	)		(2,886	)
	Effect of changes in exchange rates on cash positions	(2	)		(8	)		20
	Increase (decrease) in cash and cash equivalents	(1,744	)		(758	)		1,653
	Cash and cash equivalents at beginning of period	2,789			3,547			1,894
	Cash and cash equivalents at end of period	1,045			2,789			3,547
	Supplemental disclosures to the consolidated cash flows
	Net cash paid during the period for:
	Interest	242			177			245
	Income taxes, net of refunds	368			188			356
	Net gain (loss) on sale of assets:
	Cash proceeds from the sale of assets	21			—			2,688
	Book value of these assets	(1	)		—			(1,073	)
		20			—			1,615
	Non-cash adjustment related to the adoption of ASC 606:
	Receivables	—			(36	)		—
	Inventories	—			22			—

See accompanying notes to the Consolidated Financial Statements.

NXP Semiconductors N.V.

Consolidated Statements of Changes in Equity

For the years ended December 31, 2019**,** 2018 and 2017

($ in millions, unless otherwise stated)		Outstan-ding number of shares (in thousands)			Common stock			Capital in excess of par value			Treasury shares at cost			Accumul-ated other compre-hensive income (loss)			Accumu-lated deficit			Total stockhol-ders’ equity			Non- controll-ing interests			Total equity
Balance as of December 31, 2016		335,392			71			15,679			(915	)		34			(3,934	)		10,935			221			11,156
Net income (loss)																	2,215			2,215			57			2,272
Other comprehensive income														143						143						143
Share-based compensation plans								281												281						281
Shares issued pursuant to stock awards		10,054									859						(626	)		233						233
Treasury shares and restricted stock unit withholdings		(2,522	)								(286	)								(286	)					(286	)
Dividends non-controlling interests																				—			(89	)		(89	)
Cumulative effect adjustments																	6			6						6
Balance as of December 31, 2017		342,924			71			15,960			(342	)		177			(2,339	)		13,527			189			13,716
Net income (loss)																	2,208			2,208			50			2,258
Other comprehensive income														(57	)					(57	)					(57	)
Share-based compensation plans								311												311						311
Shares issued pursuant to stock awards		4,242									457						(418	)		39						39
Treasury shares and restricted stock unit withholdings		(37,076	)								(3,353	)								(3,353	)					(3,353	)
Treasury shares, retired		(17,300	)		(4	)		(811	)								(838	)		(1,653	)					(1,653	)
Shareholder tax on repurchased shares																	(381	)		(381	)					(381	)
Dividends non-controlling interests																				—			(54	)		(54	)
Dividends common stock																	(147	)		(147	)					(147	)
Cumulative effect adjustments														3			8			11						11
Balance as of December 31, 2018		292,790			67			15,460			(3,238	)		123			(1,907	)		10,505			185			10,690
Net income (loss)																	243			243			29			272
Other comprehensive income														(48	)					(48	)					(48	)
Share-based compensation plans								356												356						356
Shares issued pursuant to stock awards		4,513									422						(338	)		84						84
Treasury shares and restricted stock unit withholdings		(2,683	)								(221	)								(221	)					(221	)
Treasury shares, retired		(13,183	)		(3	)		(632	)								(587	)		(1,222	)					(1,222	)
Shareholder tax on repurchased shares																	95			95						95
Dividends common stock																	(351	)		(351	)					(351	)
Balance as of December 31, 2019		281,437			64			15,184			(3,037	)		75			(2,845	)		9,441			214			9,655

See accompanying notes to the Consolidated Financial Statements.

NXP Semiconductors N.V.

Notes to the Consolidated Financial Statements

All amounts in millions of $ unless otherwise stated

Note 1 – Basis of Presentation and Overview

The Consolidated Financial Statements include the Company and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. Net income (loss) includes the portion of the earnings of subsidiaries applicable to non-controlling interests. The income (loss) and equity attributable to non-controlling interests are disclosed separately in the Consolidated Statements of Operations and in the Consolidated Balance Sheets under non-controlling interests. We have reclassified certain prior period amounts to conform to current period presentation.

Segment reporting

Prior to January 1, 2019, HPMS was our sole reportable segment. Corporate and Other represented the remaining portion to reconcile to the Consolidated Financial Statements. Effective January 1, 2019, NXP removed the reference to HPMS in its organizational structure in acknowledgment of the one reportable segment representing the entity as a whole and reflects the way in which our chief operating decision maker executes operating decisions, allocates resources, and manages the growth and profitability of the Company.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP 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 the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Marvell

In December 2019, we completed the acquisition of Marvell’s Wireless WiFi Connectivity Business Unit, Bluetooth technology portfolio and related assets, for $1.7 billion in cash, net of closing adjustments.

Note 2 - Significant Accounting Policies

Revenue recognition

The Company recognizes revenue under the core principle to depict the transfer of control to customers in an amount reflecting the consideration the Company expects to be entitled. In order to achieve that core principle, the Company applies the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

The vast majority of the Company’s revenue is derived from the sale of semiconductor products to distributors, Original Equipment Manufacturers (“OEMs”) and similar customers. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the consideration to which the Company expects to be entitled. Variable consideration is estimated and includes the impact of discounts, price protection, product returns and distributor incentive programs. The estimate of variable consideration is dependent on a variety of factors, including contractual terms, analysis of historical data, current economic conditions, industry demand and both the current and forecasted pricing environments. The process of evaluating these factors is highly subjective and requires significant estimates, including, but not limited to, forecasted demand, returns, pricing assumptions and inventory levels. The estimate of variable consideration is not constrained because the Company has extensive experience with these contracts.

Revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs at shipment. In determining whether

control has transferred, the Company considers if there is a present right to payment and legal title, and whether risks and rewards of ownership having transferred to the customer. The Company expenses sales commissions when incurred because the amortization period would have been one year or less.

For sales to distributors, revenue is recognized upon transfer of control to the distributor. For some distributors, contractual arrangements are in place which allow these distributors to return products if certain conditions are met. These conditions generally relate to the time period during which a return is allowed and reflect customary conditions in the particular geographic market. Other return conditions relate to circumstances arising at the end of a product life cycle, when certain distributors are permitted to return products purchased during a pre-defined period after the Company has announced a product’s pending discontinuance. These return rights are a form of variable consideration and are estimated using the most likely method based on historical return rates in order to reduce revenues recognized. However, long notice periods associated with these announcements prevent significant amounts of product from being returned. For sales where return rights exist, the Company has determined, based on historical data, that only a very small percentage of the sales of this type to distributors is actually returned. Repurchase agreements with OEMs or distributors are not entered into by the Company.

Sales to most distributors are made under programs common in the semiconductor industry whereby distributors receive certain price adjustments to meet individual competitive opportunities. These programs may include credits granted to distributors, or allow distributors to return or scrap a limited amount of product in accordance with contractual terms agreed upon with the distributor, or receive price protection credits when our standard published prices are lowered from the price the distributor paid for product still in its inventory. In determining the transaction price, the Company considers the price adjustments from these programs to be variable consideration that reduce the amount of revenue recognized. The Company’s policy is to estimate such price adjustments using the most likely method based on rolling historical experience rates, as well as a prospective view of products and pricing in the distribution channel for distributors who participate in our volume rebate incentive program. We continually monitor the actual claimed allowances against our estimates, and we adjust our estimates as appropriate to reflect trends in pricing environments and inventory levels. The estimates are also adjusted when recent historical data does not represent anticipated future activity. Historically, actual price adjustments for these programs relative to those estimated have not materially differed.

Cash and cash equivalents

Cash and cash equivalents include all cash balances and short-term highly liquid investments with a maturity of three months or less at acquisition that are readily convertible into known amounts of cash. Cash and cash equivalents are stated at face value which approximates fair value.

Receivables

Receivables are carried at amortized cost, net of allowances for doubtful accounts and net of rebates and other contingent discounts granted to distributors. When circumstances indicate a specific customer’s ability to meet its financial obligation to us is impaired, we record an allowance against amounts due and value the receivable at the amount reasonably expected to be collected. For all other customers, we evaluate our trade accounts receivable for collectability based on numerous factors including objective evidence about credit-risk concentration, collective debt risk based on average historical losses, and specific circumstances such as serious adverse economic conditions in a specific country or region.

Inventories

Inventories are stated at the lower of cost or market, less advance payments on work in progress. The cost of inventories is determined using the first-in, first-out (FIFO) method. An allowance is made for the estimated losses due to obsolescence. This allowance is determined for groups of products based on purchases in the recent past and/or expected future demand and market conditions. Abnormal amounts of idle facility expense and waste are not capitalized in inventory. The allocation of fixed production overheads to the inventory cost is based on the normal capacity of the production facilities.

Property, plant and equipment

Property, plant and equipment are stated at cost, less accumulated depreciation and impairment losses. Depreciation is calculated using the straight-line method over the expected economic life of the asset. Depreciation of special tooling is also based on the straight-line method unless a depreciation method other than the straight-line method better represents the consumption pattern. Gains and losses on the sale of property, plant and equipment are included in other income and expense. Plant and equipment under capital leases are initially recorded at the lower of the fair value of the leased property or the present value of minimum lease payments. These assets and leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 is intended to improve financial reporting of leasing transactions by requiring organizations that lease assets to recognize assets and liabilities for the rights and obligations created by leases that extend more than twelve months from the balance sheet date. This accounting update also requires additional disclosures surrounding the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for financial statements issued for annual and interim periods beginning after December 15, 2018 for public business entities and we have adopted the standard.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), followed in July 2018 by ASU 2018-10, Codification Improvements to Topic 842 Leases, and ASU 2018-11, Leases (Topic 842): Targeted Improvements. Under the new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of this adoption and the required disclosures, the Company revised its accounting policy for leases as stated below.

The new standard became effective for us on January 1, 2019. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. See also Note 15, Leases.

We elected to adopt the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs, along with the practical expedient to use hindsight when determining the lease term.

We determine if an arrangement is a lease at inception of the arrangement. Once it is determined that an arrangement is, or contains, a lease, that determination should only be reassessed if the legal arrangement is modified. Changes to assumptions such as market-based factors do not trigger a reassessment. Determining whether a contract contains a lease requires judgement. In general, arrangements are considered to be a lease when all of the following apply:

–	It conveys the right to control the use of an identified asset for a period of time in exchange for consideration;

–	We have substantially all economic benefits from the use of the asset; and

–	We can direct the use of the identified asset

The terms of a lease arrangement determine how a lease is classified and the resulting income statement recognition. When the terms of a lease effectively transfer control of the underlying asset, the lease represents an in substance financed purchase (sale) of an asset and the lease is classified as a finance lease by the lessee and a sales-type lease by the lessor. When a lease does not effectively transfer control of the underlying asset to the lessee, but the lessor obtains a guarantee for the value of the asset from a third party, the lessor would classify a lease as a direct financing lease. All other leases are classified as operating leases.

With the exception of four instances (with a combined value of $82 million), the Company’s lease arrangements are all operating leases.

Lease assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at January 1, 2019 or commencement date, if later, in determining the present value of future payments. The lease ROU asset includes any lease payment made and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease which are included in the measurement of the ROU assets and lease liabilities when it is reasonably certain that we will exercise that option.

For operating leases, the lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. For finance leases each lease payment is allocated between the liability and finance cost. The finance cost is charged to the Consolidated statement of operations over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The finance lease asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

We have lease agreements with lease and non-lease components. Except for gas and chemical contracts, NXP did not make the election to treat the lease and non-lease components as a single component, and considers the non-lease components as a separate unit of account.

Business combinations

We allocate the purchase price paid for assets acquired and liabilities assumed in connection with our acquisitions based on their estimated fair values at the time of acquisition. This allocation involves a number of assumptions, estimates and judgments that could materially affect the timing or amounts recognized in our financial statements.

Significant judgment is required in estimating the fair value of acquired intangible assets, including the valuation methodology, estimations of future cash flows, discount rates, market segment growth rates, and our assumed market segment share, as well as the estimated useful life of intangible assets. Further judgment is required in estimating the fair values of deferred tax assets and liabilities, uncertain tax positions and tax-related valuation allowances, which are initially estimated as of the acquisition date, as well as inventory, property, plant and equipment, pre-existing liabilities or legal claims, deferred revenue and contingent consideration, each as may be applicable.

The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management but are inherently uncertain. Our assumptions and estimates are based upon comparable market data and information obtained from our management and the management of the acquired companies as well as the amount and timing of future cash flows (including expected revenue growth rates and profitability), the underlying product or technology life cycles, the economic barriers to entry and the discount rate applied to the cash flows. As such, acquired tangible and identified intangible assets are classified as Level 3 assets. Unanticipated market or macroeconomic events and circumstances may occur that could affect the accuracy or validity of the estimates and assumptions

Goodwill

We record goodwill when the purchase price of an acquisition exceeds the fair value of the net tangible and identified intangible assets acquired. We assign the goodwill to our reporting unit based on the relative expected fair value provided by the acquisition. We perform an impairment assessment at least once annually, or more frequently if indicators of potential impairment exist, which includes evaluating qualitative and quantitative factors to assess the likelihood of an impairment of a reporting unit’s goodwill. We perform impairment tests using a fair value approach when necessary. The reporting unit’s carrying value used in an impairment test represents the assignment of various assets and liabilities, excluding certain corporate assets and liabilities, such as cash, investments and debt.

Identified intangible assets

Licensed technology and patents are generally amortized on a straight-line basis over the periods of benefit. We amortize all acquisition-related intangible assets that are subject to amortization over their estimated useful life based on economic benefit. Acquisition-related in-process R&D assets represent the fair value of incomplete R&D projects that had not reached technological feasibility as of the date of acquisition; initially, these assets are not subject to amortization. Assets related to projects that have been completed are subject to amortization, while assets related to projects that have been abandoned are impaired and expensed to R&D. In the quarter following the period in which identified intangible assets become fully amortized, we remove the fully amortized balances from the gross asset and accumulated amortization amounts.

We perform a quarterly review of finite-lived identified intangible assets to determine whether facts and circumstances indicate that the useful live is shorter than we had originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, we assess recoverability by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If an asset’s useful life is shorter than originally estimated, we accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life. We perform an impairment assessment for indefinite-lived intangible assets at least once annually, or more frequently if indicators of potential impairment exist, to determine whether it is more likely than not that the carrying value of the assets may not be recoverable. If necessary, a quantitative impairment test is performed to compare the fair value of the indefinite-lived intangible asset with its carrying value. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets.

Fair value measurements

Fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for an identical asset or liability, we develop assumptions based on market observable data and, in the absence of such data, utilize internal information that we consider to be consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Priority is given to observable inputs. These two types of inputs form the basis for the following fair value hierarchy.

•	Level 1: Quoted prices for identical assets or liabilities in active markets.

•	Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and valuations based on models where the inputs or significant value drivers are observable, either directly or indirectly.

•	Level 3: Significant inputs to the valuation model are unobservable.

Foreign currencies

The Company uses the U.S. dollar as its reporting currency. The functional currency of the holding company is the U.S. dollar. For consolidation purposes, the financial statements of the entities within the Company with a functional currency other than the U.S. dollar, are translated into U.S. dollars. Assets and liabilities are translated using the exchange rates on the applicable balance sheet dates. Income and expense items in the statements of operations, statements of comprehensive income and statements of cash flows are translated at monthly exchange rates in the periods involved.

The effects of translating the financial position and results of operations from functional currencies to reporting currency are recognized in other comprehensive income and presented as a separate component of accumulated other comprehensive income (loss) within stockholders’ equity. If the operation is a non-wholly owned subsidiary, then the relevant proportionate share of the translation difference is recorded under non-controlling interests.

The following table sets out the exchange rates for U.S. dollars into euros applicable for translation of NXP’s financial statements for the periods specified.

	$ per € 1
	period end			average**(1)**			high			low
Year-ended December 31, 2019	1.1217			1.1210			1.0935			1.1476
Year-ended December 31, 2018	1.1451			1.1794			1.1352			1.2431
Year-ended December 31, 2017	1.1932			1.1310			1.0474			1.1932

(1) The average of the noon-buying rate at the end of each fiscal month during the period presented.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of operations, except when the foreign exchange exposure is part of a qualifying cash flow or net investment hedge accounting relationship, in which case the related foreign exchange gains and losses are recognized directly in other comprehensive income to the extent that the hedge is effective and presented as a separate component of accumulated other comprehensive income (loss) within stockholders’ equity. To the extent that the hedge is ineffective, such differences are recognized in the statement of operations. Currency gains and losses on intercompany loans that have the nature of a permanent investment are recognized as translation differences in other comprehensive income and are presented as a separate component of accumulated other comprehensive income (loss) within equity.

Derivative financial instruments including hedge accounting

The Company uses derivative financial instruments in the management of its foreign currency risks and the input costs of gold for a portion of our anticipated purchases within the next 12 months.

The Company measures all derivative financial instruments based on fair values derived from market prices of the instruments or from option pricing models, as appropriate, and records these as assets or liabilities in the balance sheet. Changes in the fair values are immediately recognized in the statement of operations unless cash flow hedge accounting is applied.

Changes in the fair value of a derivative that is highly effective and designated and qualifies as a cash flow hedge are recorded in accumulated other comprehensive income (loss), until earnings are affected by the variability in cash flows of the designated hedged item. The application of cash flow hedge accounting for foreign currency risks is limited to transactions that represent a substantial currency risk that could materially affect the financial position of the Company.

Foreign currency gains or losses arising from the translation of a financial liability designated as a hedge of a net investment in a foreign operation are recognized directly in other comprehensive income, to the extent that the hedge is effective, and are presented as a separate component of accumulated other comprehensive income (loss) within stockholders’ equity.

To the extent that a hedge is ineffective, the ineffective portion of the fair value change is recognized in the Consolidated Statements of Operations. When the hedged net investment is disposed of, the corresponding amount in the accumulated other comprehensive income is transferred to the statement of operations as part of the profit or loss on disposal.

On initial designation of the hedge relationship between the hedging instrument and hedged item, the Company documents this relationship, including the risk management objectives and strategy in undertaking the hedge transaction and the hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Company makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of whether the hedging instruments are expected to be “highly effective” in

offsetting the changes in the fair value or cash flows of the respective hedged items attributable to the hedged risk.

When cash flow hedge accounting is discontinued because it is not probable that a forecasted transaction will occur within a period of two months from the originally forecasted transaction date, the Company continues to carry the derivative on the Consolidated Balance Sheets at its fair value, and gains and losses that were accumulated in other comprehensive income are recognized immediately in earnings. In situations in which hedge accounting is discontinued, the Company continues to carry the derivative at its fair value on the Consolidated Balance Sheets, and recognizes any changes in its fair value in earnings.

The gross notional amounts of the Company’s foreign currency derivatives by currency for the years ended December 31, 2019 and December 31, 2018 were as follows:

	2019			2018
Euro	579			1,100
Chinese renminbi	90			127
Japanese yen	29			21
Malaysian ringgit	138			82
Singapore dollar	49			57
Swiss franc	28			25
Taiwan dollar	103			102
Thai baht	69			75
Other	63			51

Dividends to shareholders

Dividends to the Company’s shareholders are charged to retained earnings when the dividends are approved.

Stock repurchases and retirement

For each reacquisition of common stock, the number of shares and the acquisition price for those shares is added to the existing treasury stock count and total value. When treasury shares are retired, the Company's policy is to allocate the excess of the repurchase price over the par value of shares acquired to both Retained Earnings and Capital in Excess of Par. The portion allocated to Capital in Excess of Par is calculated by applying a percentage, determined by dividing the number of shares to be retired by the number of shares issued, to the balance of Capital in Excess of Par as of the retirement date.

Research and development

Costs of research and development are expensed in the period in which they are incurred, except for in-process research and development assets acquired in business combinations, which are capitalized and, after completion, are amortized over their estimated useful lives.

Advertising

Advertising costs are expensed when incurred.

Debt issuance costs

Direct costs incurred to obtain financings are capitalized and subsequently amortized over the term of the debt using the effective interest rate method. Upon extinguishment of any related debt, any unamortized debt issuance costs are expensed immediately.

Restructuring

The provision for restructuring relates to the estimated costs of initiated restructurings that have been approved by Management. When such plans require discontinuance and/or closure of lines of activities, the anticipated costs of closure or discontinuance are recorded at fair value when the liability has been incurred. The Company determines the fair value based on discounted projected cash flows in the absence of other observable inputs such as quoted prices. The restructuring liability includes the estimated cost of termination benefits provided to former or inactive employees after employment but before retirement, costs to terminate leases and other contracts, and selling costs associated with assets held for sale and other costs related to the closure of facilities. One-time employee termination benefits are recognized ratably over the future service period when those employees are required to render services to the Company, if that period exceeds 60 days or a longer legal notification period. However, generally, employee termination benefits are covered by a contract or an ongoing benefit arrangement and are recognized when it is probable that the employees will be entitled to the benefits and the amounts can be reasonably estimated.

Other income (expense)

Other income (expense) primarily consists of gains and losses related to divestment of activities and subsidiaries, as well as gains and losses related to the sale of long-lived assets and other non-core operating items. As from January 1, 2019, this includes income derived from manufacturing service arrangements (“MSA”) and transitional service arrangements (“TSA”) that are put in place when we divest a business or activity as well as related expenditures.

Financial income and expense

Financial income and expense is comprised of interest income on cash and cash equivalent balances, the interest expense on borrowings, the accretion of the discount or premium on issued debt, the gain or loss on the disposal of financial assets, impairment losses on financial assets and gains or losses on hedging instruments recognized in the statement of operations.

Borrowing costs that are not directly attributable to the acquisition, construction or production of property, plant and equipment are recognized in the statement of operations using the effective interest method.

Income taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts. Measurement of deferred tax assets and liabilities is based upon the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax liabilities for income taxes or withholding taxes on dividends from subsidiaries are recognized in situations where the company does not consider the earnings indefinitely reinvested and to the extent that the withholding taxes are not expected to be refundable.

Deferred tax assets, including assets arising from loss carryforwards, are recognized, net of a valuation allowance, if based upon the available evidence it is more likely than not that the asset will be realized.

The income tax benefit from a tax position is recognized only if it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authorities. The income tax benefit recognized is measured based on the largest benefit that is greater than 50 percent likely to be realized upon resolution of the uncertainty. A liability for unrecognized tax benefits and the related interest and penalties is recorded under accrued liabilities and other non-current liabilities in the balance sheet based on the timing of the expected payment. Penalties related to income taxes are recorded as income tax expense, whereas interest is reported as financial expense in the statement of operations.

Postretirement benefits

The Company’s employees participate in pension and other postretirement benefit plans in many countries. The costs of pension and other postretirement benefits and related assets and liabilities with respect to the Company’s employees participating in the various plans are based upon actuarial valuations.

Some of the Company’s defined-benefit pension plans are funded with plan assets that have been segregated and restricted in a trust, foundation or insurance company to provide for the pension benefits to which the Company has committed itself.

The net liability or asset recognized in the balance sheet in respect of the postretirement plans is the present value of the projected benefit obligation less the fair value of plan assets at the balance sheet date. Most of the Company’s plans are unfunded and result in a provision or a net liability.

For the Company’s major plans, the discount rate is derived from market yields on high quality corporate bonds. Plans in countries without a deep corporate bond market use a discount rate based on the local government bond rates.

Benefit plan costs primarily represent the increase in the actuarial present value of the obligation for benefits based on employee service during the year and the interest on this obligation in respect of employee service in previous years, net of the expected return on plan assets and net of employee contributions.

Actuarial gains and losses arise mainly from changes in actuarial assumptions and differences between actuarial assumptions and what has actually occurred. They are recognized in the statement of operations, over the expected average remaining service periods of the employees only to the extent that their net cumulative amount exceeds 10% of the greater of the present value of the obligation or of the fair value of plan assets at the end of the previous year (the corridor). Events which invoke a curtailment or a settlement of a benefit plan will be recognized in our statement of operations.

In calculating obligation and expense, the Company is required to select actuarial assumptions. These assumptions include discount rate, expected long-term rate of return on plan assets, assumed health care trend rates and rates of increase in compensation costs determined based on current market conditions, historical information and consultation with and input from our actuaries. Changes in the key assumptions can have a significant impact to the projected benefit obligations, funding requirements and periodic cost incurred.

Unrecognized prior-service costs related to the plans are amortized to the statements of operations over the average remaining service period of the active employees.

Contributions to defined-contribution and multi-employer pension plans are recognized as an expense in the statements of operations as incurred.

The Company determines the fair value of plan assets based on quoted prices or comparable prices for non-quoted assets. For a defined-benefit pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement defined benefit plan it is the accumulated postretirement benefit obligation.

The Company recognizes as a component of other comprehensive income, net of taxes, the gains or losses and prior service costs that arise during the year but are not recognized as a component of net periodic benefit cost. Amounts recognized in accumulated other comprehensive income, including the gains or losses and the prior services costs are adjusted as they are subsequently recognized as components of net periodic benefit costs.

For all of the Company’s postretirement benefit plans, the measurement date is December 31, our year-end.

Share-based compensation

We recognize compensation expense for all share-based awards based on the grant-date estimated fair values, net of an estimated forfeiture rate. We use the Black-Scholes option pricing model to determine the estimated fair value for certain awards. Share-based compensation cost for restricted share units (“RSU”s) with time-based vesting is measured based on the closing fair market value of our common stock on the date of the grant, reduced by the present value of the estimated expected future dividends, and then multiplied by the number of RSUs granted. Share-based compensation cost for performance-based share units (“PSU”s) granted with performance or market conditions is measured using a Monte Carlo simulation model on the date of grant.

The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service periods in our Consolidated Statements of Operations. For stock options and RSUs, the grant-date value, less estimated pre-vest forfeitures, is expensed on a straight-line basis over the vesting period. PSUs are expensed using a graded vesting schedule. The vesting period for stock options is generally four years, for RSUs and PSUs it is generally three years.

Earnings per share

Basic earnings per share attributable to stockholders is calculated by dividing net income or loss attributable to stockholders of the Company by the weighted average number of common shares outstanding during the period.

To determine diluted share count, we apply the treasury stock method to determine the dilutive effect of outstanding stock option shares, RSUs, PSUs and Employee Stock Purchase Plan (“ESPP”) shares. Under the treasury stock method, the amount the employee must pay for exercising share-based awards and the amount of compensation cost for future service that the Company has not yet recognized are assumed to be used to repurchase shares.

Concentration of risk

Financial instruments, including derivative financial instruments, that may potentially subject NXP to concentrations of credit risk, consist principally of cash and cash equivalents, short-term investments, long-term investments, accounts receivable and forward contracts.

We sell our products to OEMs and to distributors in various markets, who resell these products to OEMs, or their subcontract manufacturers. One of our distributors accounted for 14% of our revenue in 2019, 14% in 2018 and 15% in 2017. One other distributor accounted for less than 10% of our revenue in 2019, 10% in 2018 and less than 10% in 2017. No other distributor accounted for greater than 10% of our revenue for 2019, 2018 or 2017. One OEM for which we had direct sales to accounted for 11% of our revenue in 2019, 11% in 2018 and 11% in 2017. No other individual OEM for which we had direct sales to accounted for more than 10% of our revenue for 2019, 2018 or 2017.

Credit exposure related to NXP’s foreign currency forward contracts is limited to the realized and unrealized gains on these contracts.

The Company is using outside suppliers or foundries for a portion of its manufacturing capacity.

We have operations in Europe and Asia subject to collective bargaining agreements which could pose a risk to the Company in the near term but we do not expect that our operations will be disrupted if such is the case.

New accounting pronouncements not yet adopted

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, the one step quantitative impairment test

calculates goodwill impairment as the excess of the carrying value of a reporting unit over its fair value, up to the carrying value of the goodwill. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. The ASU should be applied on a prospective basis. The Company does not expect the adoption of this guidance to have a material impact on our financial position or results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes certain disclosure requirements, including the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. ASU 2018-13 also adds disclosure requirements, including changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2019, with early adoption permitted. The amendments on changes in unrealized gains and losses, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company does not expect the adoption of this guidance to have a material impact on our financial statement disclosures.

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 removes disclosures that no longer are considered cost beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant. ASU 2018-14 should be applied on a retrospective basis to all periods presented and is effective for annual reporting periods beginning after December 15, 2020, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on our financial statement disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 requires a customer in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. Therefore, a customer in a hosting arrangement that is a service contract determines which project stage an implementation activity relates to. Costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed. ASU 2018-15 also requires the customer to expense the capitalized implementation costs over the term of the hosting arrangement, and to apply the existing impairment guidance in Subtopic 350-40 to the capitalized implementation costs as if the costs were long-lived assets. ASU 2018-15 can be applied either retrospectively or prospectively and is effective for annual reporting periods beginning after December 15, 2019, and interim periods therein, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on our financial position or results of operations.

Accounting standards adopted in 2019

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. Existing sale-leaseback guidance, including guidance for real estate, is replaced with a new model applicable to both lessees and lessors. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 Leases, and ASU 2018-11, Leases (Topic 842): Targeted Improvements. ASU 2018-11 clarifies narrow aspects of Topic 842. ASU 2018-11 provides entities with an additional transition method to adopt the new leases standard. Under the new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In March 2019, the FASB issued ASU 2019-01

Leases (Topic 842): Codification Improvements, which clarified transition disclosures. The new leases standard became effective for us on January 1, 2019, and the Company applied the new transition method in ASU 2018-11. The most significant impact of adopting ASC 842 was related to recording lease asset and related liabilities on our balance sheet, which did not have a material impact on our financial position or results of operations.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvement to Accounting for Hedging Activities. ASU 2017-12 simplifies certain aspects of hedge accounting and improves disclosures of hedging arrangements through the elimination of the requirement to separately measure and report hedge ineffectiveness. The ASU generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. Entities must apply the amendments to cash flow and net investment hedge relationships that exist on the date of adoption using a modified retrospective approach. The presentation and disclosure requirements must be applied prospectively. ASU 2017-12 became effective for us on January 1, 2019. The adoption of this guidance did not have a material impact on our financial position or results of operations.

No other new accounting pronouncements were issued or became effective in the period that had, or are expected to have, a material impact on our Consolidated Financial Statements.

Note 3 – Acquisitions and Divestments

2019

On December 6, 2019, we completed the acquisition Marvell’s Wireless WiFi Connectivity Business Unit, Bluetooth technology portfolio and related assets for total consideration of $1.7 billion, net of closing adjustments. The acquisition complements NXP’s processing, security and connectivity offerings in the Industrial & IoT, as well as in the Automotive and Communication Infrastructure markets.

The preliminary fair values of the assets acquired and liabilities assumed in the acquisition, by major class, were recognized as follows:

Tangible fixed assets	2
Inventory	50
Identified intangible assets	514
Goodwill	1,138
Deferred tax assets	1
Net assets acquired	1,705

The purchase price allocation contained preliminary valuations related to identified intangible assets as some of the estimates and assumptions are subject to change within the measurement period as additional information becomes available.

Goodwill arising from the acquisition is attributed to the anticipated growth from new product sales, sales to new customers, the assembled workforce and synergies expected from the combination. Substantially all of the goodwill recognized is expected to be deductible for income tax purposes.

The identified intangible assets assumed were recognized as follows:

	Fair Value			Weighted Average Estimated Useful Life (in Years)
Customer relationships (included in customer-related)	20			6
Developed technology (included in technology-based)	324			4.4
In-process research and development (1)	170			N/A
Total identified intangible assets	514

1)

Acquired in-process research and development (“IPR&D”) is an intangible asset classified as an indefinite lived asset until the completion or abandonment of the associated research and development effort. IPR&D will be amortized over an estimated useful life to be determined at the date the associated research and development effort is completed, or expensed immediately when, and if, the project is abandoned. Acquired IPR&D is not amortized during the period that it is considered indefinite lived, but rather is subject to annual testing for impairment or when there are indicators for impairment.

Variations of the income approach were applied to estimate the fair values of the intangible assets acquired. Developed technology and IPR&D were valued using the multi-period excess earnings method which reflects the present values of the projected cash flows that are expected to be generated by the existing technology and IPR&D less charges representing the contribution of other assets to those cash flows. Customer relationships were valued using the distributor method which uses market-based data to support the selection of profitability related to the customer relationship function.

Acquisition-related transaction costs ($5 million) such as legal, accounting and other related expenses were recorded as a component of selling, general and administrative expense in our consolidated statement of operations.

Pro forma financial information (unaudited)

The following unaudited pro forma financial information presents combined consolidated results of operations for each of the fiscal years presented, as if Marvell’s Wireless WiFi Connectivity Business Unit, Bluetooth technology portfolio and related assets had been acquired as of January 1, 2018:

	2019			2018
Revenue	9,169			9,715
Net income (loss) attributable to stockholders	237			2,154
Net income (loss) per common share attributable to stockholders:
– Basic	0.84			6.61
– Diluted	0.83			6.55

The pro forma information include the effect of certain purchase accounting adjustments such as the estimate changes in amortization and depreciation for identified intangible assets and property, plant and equipment acquired and adjustments to share-based compensation expense. The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the revenue or operating results that would have been achieved had the acquisition actually taken place as of January 1, 2018 or of the results of future operations of the combined business. In addition, these results are not intended to be a projection of future results and do not reflect synergies that might be achieved from the combined operations.

On March 27, 2019, we sold our remaining equity interest in WeEn, receiving net cash proceeds of $37 million.

2018

There were no material acquisitions during 2018. On July 10, 2018, NXP completed the sale of its 40% equity interest of Suzhou ASEN Semiconductors Co., Ltd. to J&R Holding Limited, receiving $127 million in cash proceeds. The net gain realized on the sale of $51 million is included in the Statement of Operations in the line item “Results relating to equity-accounted investees”.

In June 2018, NXP completed the sale of 24% of its equity interest in WeEn to Tianjin Ruixin Semiconductor Industry Investment Centre LLP, receiving $32 million in cash proceeds. At December 31, 2018, due to the intended sale of the remaining interest in WeEn, NXP transferred the remaining holding to other current assets.

2017

There were no material acquisitions during 2017. On April 19, 2017, we sold our shares in Advanced Semiconductor Manufacturing Corporation Ltd. (ASMC), representing a 27.47 percent ownership, for a total consideration of $54 million. The gain on the sale of $31 million is included in the Statement of Operations in the line item “Results relating to equity-accounted investees”.

On February 6, 2017, we divested our Standard Products (“SP”) 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”), receiving $2.6 billion in cash proceeds, net of cash divested. Prior to February 6, 2017, the results of the SP business were included in the reportable segment SP.

The gain on the sale of $1,597 million is included in the Statement of Operations in the line item “Other income (expense)” and is composed of the following:

Total cash consideration	2,750
Assets held for sale	(1,117	)
Cash divested	(138	)
Liabilities held for sale	199
Other adjustments	(69	)
Transaction costs	(28	)
Gain				1,597

Note 4 – Assets Held for Sale

In the second quarter of 2019, NXP management, in reviewing its portfolio, concluded that certain activities (Voice and Audio Solutions (VAS)) no longer fit the NXP strategic portfolio and took actions that resulted in the assets meeting the held for sale criteria. On August 16, 2019, NXP reached a definitive agreement with Shenzhen Goodix Technology Co., Ltd. ("Goodix") from China, under which Goodix will acquire all of these assets for an amount of $165 million. On February 3, 2020, we completed the transaction. Refer to Note 24 Subsequent Events.

The VAS assets presentation as held for sale does not meet the criteria to be classified as a discontinued operation at December 31, 2019 primarily due to the disposal of this business not representing a strategic shift that will have a major effect on the Company’s operations and financial results.

The following table summarizes the carrying value of the VAS assets held for sale:

	December 31, 2019
Inventories	8
Identified intangible assets, net	1
Goodwill	41
Assets held for sale	50

Note 5 - Supplemental Financial Information

Statement of Operations Information

Disaggregation of revenue

The following table presents revenue disaggregated by sales channel:

	2019			2018			2017	1)
Distributors	4,409			4,891			4,760
Original Equipment Manufacturers and Electronic Manufacturing Services	4,352			4,229			4,194
Other 2)	116			287			302
Total	8,877			9,407			9,256

1)	As noted above, prior period amounts have not been adjusted for the impact of adopting ASC 606 under the modified retrospective method.

2)	Prior year information has been reclassified to align with NXP's current year presentation.

Depreciation, amortization and impairment

Depreciation and amortization, including impairment charges, are as follows:

	2019			2018			2017
Depreciation of property, plant and equipment	518			478			611
Amortization of internal use software	8			8			21
Amortization of other identified intangible assets (*)	1,521			1,501			1,541
	2,047			1,987			2,173

(*)	For the period ending December 31, 2017, the amount includes IPR&D impairment charges of $23 million, of which $16 million related to assets acquired from Freescale.

Depreciation of property, plant and equipment is primarily included in cost of revenue.

Other income (expense)

As of January 1, 2019, income derived from manufacturing service arrangements (“MSA”) and transitional service arrangements (“TSA”) that are put in place when we divest a business or activity, is included in other income (expense). These arrangements are short-term in nature and are expected to decrease as the divested business or activity becomes more established.

	2019		2018		2017
Income from MSA and TSA arrangements	62		—		—
Expenses from MSA and TSA arrangements	(62	)	—		—
Result from MSA and TSA arrangements	—		—		—
Other, net	25		2,001		1,575
Total	25		2,001		1,575

Financial income (expense)

	2019			2018			2017
Interest income	57			48			27
Interest expense	(370	)		(273	)		(310	)
Total interest expense, net	(313	)		(225	)		(283	)
Net gain (loss) on extinguishment of debt	(11	)		(26	)		(41	)
Foreign exchange rate results	(15	)		(14	)		(30	)
Miscellaneous financing costs/income, net (*)	(11	)		(70	)		(12	)
Total other financial income (expense)	(37	)		(110	)		(83	)
Total	(350	)		(335	)		(366	)

(*)	For the period ending December 31, 2018, the amount includes one-time charges ($60 million) on certain financial instruments for compensation related to an adjustment event required by the termination of the Qualcomm Purchase Agreement.

Equity-accounted investees

Results related to equity-accounted investees at the end of each period were as follows:

	2019			2018			2017
Company’s share in income (loss)	(2	)		7			17
Other results	3			52			36
	1			59			53

The total carrying value of investments in equity-accounted investees is summarized as follows:

		2019					2018
		Shareholding %		Amount			Shareholding %		Amount
Others		—		11			—		13
				11					13

In July 2018, we completed the sale of our 40% equity interest in Suzhou ASEN Semiconductors Co., Ltd., receiving $127 million in cash proceeds.

In June 2018, we completed the sale of 24% of our equity interest in WeEn, receiving $32 million in cash proceeds. At December 31, 2018, due to the intended sale of the remaining interest in WeEn, NXP transferred the remaining holding to other current assets.

On April 19, 2017, we sold our shares in Advanced Semiconductor Manufacturing Corporation Ltd. (ASMC), representing a 27.47 percent ownership, for total consideration of $54 million. The gain on the sale of $31 million is included in the Statement of Operations in the line item “Results relating to equity-accounted investees”.

Balance Sheet Information

Cash and cash equivalents

At December 31, 2019 and December 31, 2018, our cash balance was $1,045 million and $2,789 million, respectively, of which $188 million and $140 million was held by SSMC, our consolidated joint venture company with TSMC. Under the terms of our joint venture agreement with TSMC, a portion of this cash can be distributed by way of a dividend to us, but 38.8% of the dividend will be paid to our joint venture partner. During 2019, no dividend (2018: $139 million) was paid by SSMC.

Note 6 - Restructuring Charges

At each reporting date, we evaluate our restructuring liabilities, which consist primarily of termination benefits, to ensure that our accruals are still appropriate. During 2019, 2018 and 2017, there were no new significant restructuring programs.

The following table presents the changes in the position of restructuring liabilities in 2019:

	Balance January 1, 2019			Additions			Utilized			Released			Other changes**(1)**			Balance December 31, 2019
Restructuring liabilities	65			29			(57	)		(4	)		(1	)		32

(1)	Other changes primarily related to translation differences and internal transfers.

The total restructuring liability as of December 31, 2019 of $32 million is classified in the balance sheet under current liabilities.

The utilization of the restructuring liabilities mainly reflects the execution of ongoing restructuring programs the Company initiated in earlier years.

The following table presents the changes in the position of restructuring liabilities in 2018:

	Balance January 1, 2018			Additions			Utilized			Released			Other changes**(1)**			Balance December 31, 2018
Restructuring liabilities	89			5			(25	)		—			(4	)		65

(1)	Other changes primarily related to translation differences and internal transfers.

The total restructuring liability as of December 31, 2018 of $65 million is classified in the balance sheet under current liabilities ($60 million) and non-current liabilities ($5 million).

The utilization of the restructuring liabilities mainly reflects the execution of ongoing restructuring programs the Company initiated in earlier years.

The components of restructuring charges recorded in 2019, 2018 and 2017 are as follows:

	2019			2018			2017
Personnel lay-off costs	32			4			7
Other exit costs	—			2			10
Release of provisions/accruals	(4	)		—			(16	)
Net restructuring charges	28			6			1

The restructuring charges recorded in operating income are included in the following line items in the statement of operations:

	2019			2018			2017
Cost of revenue	3			—			3
Selling, general and administrative	9			7			10
Research & development	16			—			(12	)
Other income (expense)	—			(1	)		—
Net restructuring charges	28			6			1

Note 7 - Income Taxes

In 2019, NXP generated income before income taxes of $291 million (2018: income of $2,375; 2017: income of $1,736 million). The components of income (loss) before income taxes are as follows:

	2019			2018			2017
Netherlands	429			2,570			1,679
Foreign	(138	)		(195	)		57
	291			2,375			1,736

The components of income tax benefit (expense) are as follows:

	2019			2018			2017
Current taxes:
Netherlands	(90	)		(296	)		(179	)
Foreign	(105	)		(91	)		(135	)
	(195	)		(387	)		(314	)
Deferred taxes:
Netherlands	(28	)		2			(259	)
Foreign	203			209			1,056
	175			211			797
Total income tax benefit (expense)	(20	)		(176	)		483

A reconciliation of the statutory income tax rate in the Netherlands as a percentage of income (loss) before income taxes and the effective income tax rate is as follows:

	2019						2018						2017
	amount			%			amount			%			amount			%
Statutory income tax rate in the Netherlands	73			25.0			594			25.0			434			25.0
Rate differential between the local statutory rates and the statutory rate of the Netherlands	16			5.5			19			0.8			(78	)		(4.5	)
Net change in valuation allowance	59			20.2			10			0.4			19			1.1
Non-deductible expenses/losses	52			17.8			64			2.7			38			2.2
Sale of non-deductible goodwill	—			—			—			—			66			3.8
The U.S. Tax Cuts and Jobs Act	—			—			(3	)		(0.1	)	1)	(734	)		(42.3	)
Netherlands tax incentives	(68	)		(23.2	)		(252	)		(10.6	)		(130	)		(7.5	)
Foreign tax incentives	(118	)		(40.5	)		(119	)		(5.0	)		(82	)		(4.7	)
Adjustments of prior years' income taxes	(3	)		(1.2	)		(83	)		(3.5	)		(5	)		(0.3	)
Other differences	9			3.3			(54	)		(2.3	)		(11	)		(0.6	)
Effective tax rate	20			6.9			176			7.4			(483	)		(27.8	)

1)	This is only relating to the 2017 provisional income tax.

We recorded an income tax expense of $20 million in 2019, which reflects an effective tax rate of 6.9% compared to an expense of $176 million and an effective rate of 7.4% in 2018.The effective tax rate reflects the impact of tax incentives, a portion of our earnings being taxed in foreign jurisdictions at rates different than the Netherlands statutory tax rate, adjustments of prior years' income taxes, change in valuation allowance and non-deductible expenses. The impact of these items results in offsetting factors that attribute to the change in the effective tax rate between the two periods, with the significant drivers outlined below:

•

The Company benefits from certain tax incentives, which reduce the effective tax rate in a relative location. The dollar amount of the incentive in any given year is commensurate with the taxable income in that same period. For 2019, the Netherlands tax incentives was lower than 2018, mainly due to the fact that NXP had received a break-up fee from Qualcomm of $2 billion in 2018 which drove a higher income before tax in 2018.

•

The adjustments to prior years’ income taxes was higher in 2018 as a result of the agreement NXP reached with the Dutch tax authorities relative to the application of the Dutch innovation box regime to the taxable income attributable to the Netherlands. This agreement is effective from January 1, 2017. As such, the Company was able to refine its estimate of the Dutch tax liability, recognizing an additional income tax benefit of $67 million in 2018.

•	The increase in the valuation allowance is mainly due to new Dutch corporate income tax law applicable as from 2019. A portion of the interest expenses is non-deductible in the year it is recorded but can be carried forward without expiration.

•	The higher other differences in 2018 relate primarily to a tax benefit on the liquidation of a former investment of $45 million.

On December 22, 2017, the President of the United States signed into law what is informally called the Tax Cuts and Jobs Act, a comprehensive U.S. tax reform package that was effective January 1, 2018. Under the accounting rules, companies are required to recognize the effects of changes in tax laws and tax rates on deferred tax assets and liabilities in the period in which the new legislation is enacted. The effects of the Tax Cuts and Jobs Act on NXP’s 2017 Financial Statements was an income tax benefit of $734 million. No election was made to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. In 2018, the analysis of the enactment date impact of the Tax Cuts and Jobs Act was finalized. Accordingly, an additional income tax benefit of $3 million was recorded in the year ended December 31, 2018.

The Company benefits from income tax holidays in certain jurisdictions which provide that we pay reduced income taxes in those jurisdictions for a fixed period of time that varies depending on the jurisdiction. The predominant income tax holiday is expected to expire at the end of 2026. The impact of this tax holiday decreased foreign income taxes by $12 million in 2019 (2018: $21 million; 2017: $23 million). The benefit of this tax holiday on net income per share (diluted) was $0.04 in 2019 (2018: $0.06; 2017: $0.07).

Deferred tax assets and liabilities

The principal components of deferred tax assets and liabilities are presented below:

	2019			2018
Operating loss and tax credit carry forwards	499			598
Disallowed interest carry forwards	103			117
Other accrued liabilities	111			83
Pensions	95			83
Other non-current liabilities	53			—
Share-based compensation	15			18
Restructuring liabilities	5			12
Receivables	64			83
Inventories	4			2
Other current assets/liabilities	—			2
Total Deferred Tax Assets	949			998
Valuation allowance	(190	)		(145	)
Total Deferred Tax Assets, net of valuation allowance	759			853
Identified intangible assets, net	(520	)		(828	)
Undistributed earnings of foreign subsidiaries	(99	)		(96	)
Property, plant and equipment, net	(34	)		(47	)
Goodwill	(43	)		(39	)
Other non-current assets	(52	)		—
Total Deferred Tax Liabilities	(748	)		(1,010	)
Net Deferred Tax Position	11			(157	)

The classification of the deferred tax assets and liabilities in the Company’s Consolidated Balance Sheets is as follows:

	2019			2018
Deferred tax assets within other non-current assets	293			293
Deferred tax liabilities within non-current liabilities	(282	)		(450	)
	11			(157	)

The Company has significant deferred tax assets resulting from net operating loss carryforwards, tax credit carryforwards and deductible temporary differences that may reduce taxable income or income taxes payable in future periods. Valuation allowances have been established for deferred tax assets based on a “more likely than not” threshold. The realization of our deferred tax assets depends on our ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The valuation allowance increased by $45 million during 2019 (2018: $5 million increase). Besides the net change in the valuation allowance of $59 million this also includes a decrease of the valuation allowance due to a change in tax rates for $6 million and the expiration of tax attributes for $8 million.

We consider all available evidence in forming a judgment regarding the valuation allowance as of December 31, 2019, including events that occur subsequent to year end but prior to the issuance of the financial statements. The deferred tax assets are recognized to the extent that we consider it more likely than not that these assets will be realized. In making such a determination, we consider all available positive and negative evidence, including reversal of existing temporary differences, projected future taxable income and tax planning strategies.

At December 31, 2019 tax loss carryforwards of $734 million (inclusive of $191 million of U.S. state tax losses) will expire as follows:

		Balance			Scheduled expiration
		December 31,
		2019			2020			2021			2022			2023			2024			2025- 2029			later			unlimited
Tax loss carryforwards		734			6			1			16			2			4			165			140			400

This overview is excluding disallowed interest carryforwards of $479 million which have an unlimited expiration date.

The Company also has tax credit carryforwards of $500 million (excluding the effect of unrecognized tax benefits), which are available to offset future tax, if any, and which will expire as follows:

		Balance			Scheduled expiration
		December 31,
		2019			2020			2021			2022			2023			2024			2025- 2029			later			unlimited
Tax credit carryforwards		500			16			1			11			10			10			112			286			54

The net income tax receivable (excluding the liability for unrecognized tax benefits) as of December 31, 2019 amounted to $2 million (2018: net income tax payable of $154 million) and includes amounts directly receivable from or payable to tax authorities.

The Company does not indefinitely reinvest the majority of the undistributed earnings of its subsidiaries. Consequently, the Company has recognized a deferred tax liability of $99 million at December 31, 2019 (2018: $96 million) for the additional income taxes and withholding taxes payable upon the future remittances of these earnings of foreign subsidiaries. The Company considers $45 million of the undistributed earnings indefinitely reinvested although the timing of the reversal can be controlled. Upon repatriation of those earnings the Company would be subject to tax of $9 million which is not recognized as deferred tax liability at December 31, 2019.

A reconciliation of the beginning and ending amount of unrecognized tax benefits excluding interest and penalties is as follows:

	2019			2018			2017
Balance as of January 1,	165			177			146
Translation differences	(1	)		(4	)		4
Lapse of statute of limitations	(3	)		—			—
Increases from tax positions taken during prior periods	4			7			19
Decreases from tax positions taken during prior periods	(4	)		(17	)		—
Increases from tax positions taken during current period	7			7			10
Decreases relating to settlements with the tax authorities	(9	)		(5	)		(2	)
Balance as of December 31,	159			165			177

Of the total unrecognized tax benefits at December 31, 2019, $134 million, if recognized, would impact the effective tax rate. All other unrecognized tax benefits, if recognized, would not affect the effective tax rate as these would be offset by compensating adjustments in the Company’s deferred tax assets that would be subject to valuation allowance based on conditions existing at the reporting date.

The Company classifies interest related to an underpayment of income taxes as financial expense and penalties as income tax expense. The total related interest and penalties recorded during the year 2019 amounted to a $3 million benefit (2018: $3 million benefit; 2017: $6 million expense). As of December 31, 2019 the Company has recognized a liability for related interest and penalties of $11 million (2018: $14 million; 2017: $17 million). It is reasonably possible that the total amount of unrecognized tax benefits may significantly

increase/decrease within the next 12 months of the reporting date due to, for example, completion of tax examinations. It is estimated that this reasonably possible change will not be significant.

The Company files income tax returns in the Netherlands, the U.S.A. and in various other foreign jurisdictions. Tax filings of our subsidiaries are routinely audited in the normal course of business by tax authorities around the world. Tax years that remain subject to examination by major tax jurisdictions: the Netherlands (2016-2018), Germany (2013-2018), USA (2005-2018), China (2009-2018), Taiwan (2014-2018), Thailand (2014-2018), Malaysia (2011-2018) and India (2004, 2005, 2007-2018).

Note 8 - Accounts Receivable, net

Accounts receivable, net are summarized as follows:

	2019			2018
Accounts receivable from third parties	669			795
Allowance for doubtful accounts	(2	)		(3	)
	667			792

The following table presents accounts receivable, net disaggregated by sales channel:

	2019			2018
Distributors	80			93
Original Equipment Manufacturers and Electronic Manufacturing Services	536			651
Other 1)	51			48
	667			792

1)	Represents accounts receivable, net for other services.

Note 9 - Inventories, net

Inventories are summarized as follows:

	2019			2018
Raw materials	52			74
Work in process	894			949
Finished goods	246			256
	1,192			1,279

The portion of finished goods stored at customer locations under consignment amounted to $41 million as of December 31, 2019 (2018: $52 million).

The amounts recorded above are net of an allowance for obsolescence of $114 million as of December 31, 2019 (2018: $111 million).

Note 10 - Property, Plant and Equipment, net

The following table presents details of the Company’s property, plant and equipment, net of accumulated depreciation:

	Useful Life (in years)		2019			2018
Land			164			165
Buildings	9 to 50		1,359			1,246
Machinery and installations	2 to 10		3,749			3,435
Other Equipment	1 to 5		665			611
Prepayments and construction in progress			253			278
			6,190			5,735
Less accumulated depreciation			(3,742	)		(3,299	)
Property, plant and equipment, net of accumulated depreciation			2,448			2,436

Land with a book value of $164 million (2018: $165 million) is not depreciated.

There was no significant construction in progress and therefore no related capitalized interest.

Note 11 - Identified Intangible Assets

The changes in identified intangible assets were as follows:

	Total
Balance as of January 1, 2018
Cost	9,335
Accumulated amortization/impairment	(3,472	)
Book value	5,863
Changes in book value:
Acquisitions/additions	114
Amortization	(1,509	)
Translation differences	(1	)
Total changes	(1,396	)
Balance as of December 31, 2018
Cost	9,183
Accumulated amortization/impairment	(4,716	)
Book value	4,467
Changes in book value:
Acquisitions/additions	683
Transfer to assets held for sale	(1	)
Amortization	(1,529	)
Translation differences	—
Total changes	(847	)
Balance as of December 31, 2019
Cost	9,384
Accumulated amortization/impairment	(5,764	)
Book value	3,620

Identified intangible assets as of December 31, 2019 and 2018 respectively were composed of the following:

	December 31, 2019						December 31, 2018
	Gross carrying amount			Accumulated amortization			Gross carrying amount			Accumulated amortization
IPR&D(1)	272			—			276			—
Marketing-related	81			(67	)		81			(50	)
Customer-related	968			(340	)		964			(301	)
Technology-based	8,063			(5,357	)		7,862			(4,365	)
Identified intangible assets	9,384			(5,764	)		9,183			(4,716	)

(1) IPR&D is not subject to amortization until completion or abandonment of the associated research and development effort.

The estimated amortization expense for these identified intangible assets, excluding software, for each of the five succeeding years is:

2020	1,400
2021	685
2022	575
2023	344
2024	164
Thereafter	452

All intangible assets, excluding IPR&D and goodwill, are subject to amortization and have no assumed residual value.

The expected weighted average remaining life of identified intangibles is 3 years as of December 31, 2019.

Note 12 - Goodwill

The changes in goodwill in 2019 and 2018 were as follows:

	2019			2018
Balances as of January 1
Cost	8,971			9,020
Accumulated impairment	(114	)		(154	)
Book value	8,857			8,866
Changes in book value:
Acquisitions	1,138			11
Transfer to assets held for sale	(41	)		—
Translation differences	(5	)		(20	)
Total changes	1,092			(9	)
Balances as of December 31
Cost - Balance	10,063			8,971
Accumulated impairment - Balance	(114	)		(114	)
Book value - Balance	9,949			8,857

No goodwill impairment charges were required to be recognized in 2019 or 2018

The fair value of the reporting unit substantially exceeds the carrying value of the reporting unit.

See Note 23, “Segments and Geographical Information”, for goodwill by segment and Note 3, “Acquisitions and Divestments”.

Note 13 - Postretirement Benefit Plans

Pensions

Our employees participate in employee pension plans in accordance with the legal requirements, customs and the local situation in the respective countries. These are defined-benefit pension plans, defined-contribution plans and multi-employer plans.

The Company’s employees in The Netherlands participate in a multi-employer plan, implemented for the employees of the Metal and Electrical Engineering Industry ("Bedrijfstakpensioenfonds Metalektro" or "PME") in accordance with the mandatory affiliation to PME effective for the industry in which NXP operates. As this affiliation is a legal requirement for the Metal and Electrical Engineering Industry it has no expiration date. This PME multi-employer plan (a career average plan) covers 1,380 companies and 631,000 participants. The plan monitors its risk on an aggregate basis, not by company or participant and can therefore not be accounted for as a defined benefit plan. The pension fund rules state that the only obligation for affiliated companies will be to pay the annual plan contributions. There is no obligation for affiliated companies to fund plan deficits. Affiliated companies are also not entitled to any possible surpluses in the pension fund.

Every participating company contributes the same fixed percentage of its total pension base, being pensionable salary minus an individual offset. The Company’s pension cost for any period is the amount of contributions due for that period.

The contribution rate for the mandatory scheme will increase from 25.02% (2019) to 26.41% (2020).

PME multi-employer plan	2019			2018			2017
NXP’s contributions to the plan	31			34			35
(including employees’ contributions)	4			4			4
Average number of NXP’s active employees participating in the plan	2,129			2,183			2,271
NXP’s contribution to the plan exceeded more than 5 percent of the total contribution (as of December 31 of the plan’s year end)	No			No			No

The amount for pension costs included in the statement of operations for the year 2019 was $98 million (2018: $105 million; 2017: $97 million) of which $47 million (2018: $49 million; 2017: $42 million) represents defined-contribution plans and $27 million (2018: $30 million; 2017: $31 million) represents the PME multi-employer plans.

Defined-benefit plans

The benefits provided by defined-benefit plans are based on employees’ years of service and compensation levels. Contributions are made by the Company, as necessary, to provide assets sufficient to meet the benefits payable to defined-benefit pension plan participants.

These contributions are determined based upon various factors, including funded status, legal and tax considerations as well as local customs. The Company funds certain defined-benefit pension plans as claims are incurred.

The total cost of defined-benefit plans amounted to a cost of $24 million in 2019 (2018: a cost of $26 million; 2017: a benefit of $1 million) consisting of $24 million ongoing cost (2018: $26 million ongoing cost; 2017: $24 million ongoing cost offset by a gain of $25 million from special events resulting from restructurings, divestments, curtailments and settlements).

The table below provides a summary of the changes in the pension benefit obligations and defined-benefit pension plan assets for 2019 and 2018, associated with the Company’s dedicated plans, and a reconciliation of the funded status of these plans to the amounts recognized in the Consolidated Balance Sheets.

	2019			2018
Projected benefit obligation
Projected benefit obligation at beginning of year	617			651
Service cost	14			16
Interest cost	12			12
Actuarial (gains) and losses	50			(12	)
Curtailments and settlements	—			—
Benefits paid	(23	)		(31	)
Exchange rate differences	(5	)		(19	)
Projected benefit obligation at end of year	665			617
Plan assets
Fair value of plan assets at beginning of year	201			195
Actual return on plan assets	5			4
Employer contributions	22			38
Curtailments and settlements	—			—
Benefits paid	(23	)		(31	)
Exchange rate differences	(2	)		(5	)
Fair value of plan assets at end of year	203			201
Funded status	(462	)		(416	)
Classification of the funded status is as follows
– Accrued pension cost within other non-current liabilities	(452	)		(407	)
– Accrued pension cost within accrued liabilities	(10	)		(9	)
Total	(462	)		(416	)
Accumulated benefit obligation
Accumulated benefit obligation for all Company-dedicated benefit pension plans	621			578
Plans with assets less than accumulated benefit obligation
Funded plans with assets less than accumulated benefit obligation
– Fair value of plan assets	198			197
– Accumulated benefit obligations	364			348
– Projected benefit obligations	396			376
Unfunded plans
– Accumulated benefit obligations	253			226
– Projected benefit obligations	264			236
Amounts recognized in accumulated other comprehensive income (before tax)
Total AOCI at beginning of year	94			113
– Net actuarial loss (gain)	47			(16	)
– Exchange rate differences	(1	)		(3	)
Total AOCI at end of year	140			94

The weighted average assumptions used to calculate the projected benefit obligations were as follows:

	2019			2018
Discount rate	1.2	%		2.0	%
Rate of compensation increase	1.5	%		1.8	%

The weighted average assumptions used to calculate the net periodic pension cost were as follows:

	2019			2018			2017
Discount rate	2.0	%		1.9	%		2.0	%
Expected returns on plan assets	2.7	%		3.0	%		3.1	%
Rate of compensation increase	1.8	%		1.8	%		1.9	%

For the Company’s major plans, the discount rate used is based on high quality corporate bonds (iBoxx Corporate Euro AA 10+).

Plans in countries without a deep corporate bond market use a discount rate based on the local sovereign rate and the plans maturity (Bloomberg Government Bond Yields).

Expected returns per asset class are based on the assumption that asset valuations tend to return to their respective long-term equilibria. The Expected Return on Assets for any funded plan equals the average of the expected returns per asset class weighted by their portfolio weights in accordance with the fund’s strategic asset allocation.

The components of net periodic pension costs were as follows:

	2019			2018			2017
Service cost	14			16			15
Interest cost on the projected benefit obligation	12			12			11
Expected return on plan assets	(6	)		(6	)		(6	)
Amortization of net (gain) loss	4			4			4
Curtailments & settlements	—			—			(25	)
Net periodic cost	24			26			(1	)

The components of net periodic pension cost other than the service cost component are included in Other financial income (expense) in the Consolidated Statements of Operations.

The estimated net actuarial loss (gain) and prior service cost that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next year (2020) are $3 million and $0 respectively.

Plan assets

The actual pension plan asset allocation at December 31, 2019 and 2018 is as follows:

	2019			2018
Asset category:
Equity securities	31	%		33	%
Debt securities	43	%		44	%
Insurance contracts	7	%		7	%
Other	19	%		16	%
	100	%		100	%

We met our target plan asset allocation. The investment objectives for the pension plan assets are designed to generate returns that, along with the future contributions, will enable the pension plans to meet their future obligations. The investments in our major defined benefit plans largely consist of government bonds, “Level 2” Corporate Bonds and cash to mitigate the risk of interest fluctuations. The asset mix of equity, bonds, cash and other categories is evaluated by an asset-liability modeling study for our largest plan. The assets of funded plans in other countries mostly have a large proportion of fixed income securities with return characteristics that are

aligned with changes in the liabilities caused by discount rate volatility. Total pension plan assets of $203 million include $180 million related to the German and Japanese pension funds.

The following table summarizes the classification of these assets.

	2019									2018
	Level I			Level II			Level III			Level I			Level II			Level III
Equity securities	—			59			—			—			63			—
Debt securities	11			62			—			9			64			—
Insurance contracts	—			14			—			—			14			—
Other	2			18			14			1			16			12
	13			153			14			10			157			12

The Company currently expects to make $14 million of employer contributions to defined-benefit pension plans and $9 million of expected cash payments in relation to unfunded pension plans in 2020.

Estimated future pension benefit payments

The following benefit payments are expected to be made (including those for funded plans):

2020	21
2021	21
2022	24
2023	24
2024	27
Years 2025-2029	147

Postretirement health care benefits

In addition to providing pension benefits, NXP provides retiree healthcare benefits in the US which are accounted for as defined-benefit plans. In 2016, NXP also provided retiree healthcare benefits in the U.K. The liability associated with the U.K. benefits was divested in association with the sale of Standard Products during 2017.

The accumulated postretirement benefit obligation at the end of 2019 equals $9 million (2018: $11 million).

Note 14 - Debt

Short-term debt

	2019			2018
Short-term bank borrowings	—			—
Current portion of long-term debt (*)	—			1,107
Total	—			1,107

(*)	Net of adjustment for debt issuance costs.

Long-term debt

The following table summarizes the outstanding long-term debt as of December 31, 2019 and 2018:

	2019							2018
	Maturities		Amount			Effective rate		Amount			Effective rate
Fixed-rate 4.125% senior unsecured notes	Jun, 2020		—			4.125		600			4.125
Fixed-rate 4.125% senior unsecured notes	Jun, 2021		1,350			4.125		1,350			4.125
Fixed-rate 4.625% senior unsecured notes	Jun, 2022		400			4.625		400			4.625
Fixed-rate 3.875% senior unsecured notes	Sep, 2022		1,000			3.875		1,000			3.875
Fixed-rate 4.625% senior unsecured notes	Jun, 2023		900			4.625		900			4.625
Fixed-rate 4.875% senior unsecured notes	Mar, 2024		1,000			4.875		1,000			4.875
Fixed-rate 5.35% senior unsecured notes	Mar, 2026		500			5.350		500			5.350
Fixed-rate 3.875% senior unsecured notes	Jun, 2026		750			3.875		—			—
Fixed-rate 5.55% senior unsecured notes	Dec, 2028		500			5.550		500			5.550
Fixed-rate 4.3% senior unsecured notes	Jun, 2029		1,000			4.300		—			—
Fixed-rate 1% cash convertible notes	Dec, 2019		—			1.000		1,150			1.000
Floating-rate revolving credit facility (RCF)	Jun, 2024		—					—			—
Total principal			7,400					7,400
Liabilities arising from capital lease transactions			—					27
Unamortized discounts, premiums and debt issuance costs			(35	)				(31	)
Fair value of embedded cash conversion option			—					(42	)
Total debt, including unamortized discounts, premiums, debt issuance costs and fair value adjustments			7,365					7,354
Current portion of long-term debt			—					(1,107	)
Long-term debt			7,365					6,247

	Range of interest rates			Average rate of interest			Principal amount outstanding 2019			Due in 2020			Due after 2020			Due after 2024			Average remaining term (in years)		Principal amount outstanding 2018
USD notes	3.9%-5.6%			4.5	%		7,400			—			7,400			2,750			4.7		6,250
2019 Cash Convertible Senior Notes	1.0	%		1.0	%		—			—			—			—					1,150
Revolving Credit Facility (1)	—	%		—	%		—			—			—			—					—
Bank borrowings	—	%		—	%		—			—			—			—					—
Liabilities arising from capital lease transactions																					27
				4.5	%		7,400			—			7,400			2,750			4.7		7,427

(1)	We do not have any borrowings under the $1,500 million Revolving Credit Facility as of December 31, 2019 and 2018.

As of December 31, 2019, the following principal amounts of long-term debt are due in the next 5 years:

2020	—
2021	1,350
2022	1,400
2023	900
2024	1,000
Due after 5 years	2,750
	7,400

As of December 31, 2019, the book value of our outstanding long-term debt was $7,400 million, less debt issuance costs of $33 million and original issuance/debt discount of $2 million.

As of December 31, 2019, we had no aggregate principal amount of variable interest rate indebtedness under our loan agreements. The remaining tenor of unsecured debt is on average 4.7 years.

Accrued interest as of December 31, 2019 is $52 million (December 31, 2018: $31 million).

2019 Financing Activities

2024 Revolving Credit Facility

On June 11, 2019, NXP B.V. together with NXP Funding LLC, entered into a $1.5 billion unsecured revolving credit facility agreement, replacing the $600 million secured revolving credit facility, entered into on December 7, 2015.

2020 Senior Notes

On June 11, 2019, NXP B.V. together with NXP Funding LLC, commenced a cash tender offer for any and all of their $600 million outstanding aggregate principal amount of the 4.125% Senior Notes due 2020 (“4.125% 2020 Notes”). An amount of $553 million aggregate principal amount of the 4.125% 2020 Notes were tendered in this offer and retired on June 18, 2019. The remaining $47 million were redeemed under the terms of the indenture governing these notes on July 3, 2019.

2026 and 2029 Senior Unsecured Notes

On June 18, 2019, NXP B.V., together with NXP USA Inc. and NXP Funding LLC, issued $750 million of 3.875% Senior Unsecured Notes due 2026 and $1 billion of 4.3% Senior Unsecured Notes due 2029. NXP used a portion of the net proceeds of the offering of these notes to repay in full, the 2020 Senior Notes, as described above. The remaining proceeds were used to refinance the $1,150 million aggregate principal amount of Cash Convertible Notes due 2019 issued by NXP Semiconductors N.V. on December 1, 2014 upon the maturity of these notes on December 1, 2019.

2019 Cash Convertible Senior Notes

On December 2, 2019, NXP repaid the Cash Convertible Notes upon their maturity through a combination of available cash and payments made by the counterparties under privately negotiated convertible note hedge transactions (the “Cash Convertible Notes Hedges”), as further described in Note 21 of the notes to consolidated financial statements in this report.

Certain terms and Covenants of the notes

The Company is not required to make mandatory redemption payments or sinking fund payments with respect to the notes.

The indentures governing the notes contain covenants that, among other things, limit the Company’s ability and that of restricted subsidiaries to incur additional indebtedness, create liens, pay dividends, redeem capital stock or make certain other restricted payments or investments; enter into agreements that restrict

dividends from restricted subsidiaries; sell assets, including capital stock of restricted subsidiaries; engage in transactions with affiliates; and effect a consolidation or merger. The Company has been in compliance with any such indentures and financing covenants.

No portion of long-term and short-term debt as of December 31, 2019 and December 31, 2018 has been secured by collateral on substantially all of the Company’s assets and of certain of its subsidiaries.

We are in compliance with all covenants under our debt agreements as of December 31, 2019.

2019 Cash Convertible Senior Notes

In November 2014, NXP issued $1,150 million principal amount of its 2019 Cash Convertible Senior Notes (the “Notes”). The 2019 Cash Convertible Senior Notes had a stated interest rate of 1.00% payable June 1 and December 1 of each year, beginning on June 1, 2015. The initial purchasers’ transaction fees and expenses totaling $16 million were capitalized as deferred financing costs and are amortized over the term of the 2019 Cash Convertible Senior Notes using the effective interest method. The Cash Convertible Notes matured on December 1, 2019. All of the holders elected to convert their Cash Convertible Notes for settlement on December 2, 2019, and none of the Cash Convertible Notes were repurchased or converted into cash prior to such date.

The cash conversion feature of the Cash Convertible Notes was a derivative liability that required bifurcation from the Cash Convertible Notes in accordance with FASB ASC Topic 815, "Derivatives and Hedging" ("ASC Topic 815"), and was carried at fair value, with changes in fair value reported in our Consolidated Statements of Operations in other (expense) income, net. The initial fair value liability of the embedded cash conversion option simultaneously reduced the carrying value of the Cash Convertible Notes (effectively an original issuance discount). The embedded cash conversion option is measured and reported at fair value on a recurring basis, within Level 3 of the fair value hierarchy. The fair value of the embedded cash conversion option at December 31, 2018 was $24 million which is recorded in other long-term liabilities in the accompanying balance sheet. For the year ended December 31, 2019, the change in the fair value of the embedded cash conversion option resulted in a profit of $24 million (2018: a profit of $277 million).

In connection with the issuance of the Cash Convertible Notes, we entered into privately negotiated convertible note hedge transactions (the "Cash Convertible Notes Hedges"), whereby NXP had the option to receive the cash amount that may be due to the Notes holders at maturity in excess of the $1,150 million principal amount of the notes, subject to certain conversion rate adjustments in the Notes Indenture. These were cash settled in the fourth quarter. The Cash Convertible Notes Hedges were recorded as a derivative asset under ASC Topic 815 and were carried at fair value. See Note 21 for additional information regarding the Cash Convertible Notes Hedges and the Cash Conversion Derivative and their fair values.

On December 2, 2019, we repaid the $1,150 million aggregate principal amount of the Cash Convertible Notes using available cash. In addition, on December 1, 2019 we settled the Cash Conversion Derivative of $144 million, which was fully funded by payments made by the counterparties for the settlement of the Cash Convertible Notes Hedges.

In separate transactions, NXP also sold warrants, to various parties for the purchase of up to 11.18 million shares of NXP’s common stock at an initial strike price of $133.32 per share in a private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended, or the Securities Act. The warrants expire on various dates ranging from March 2, 2020 to May 26, 2020, and will be net share settled. Under the terms of the warrants, the calculation agency may adjust certain terms of its warrants upon the announcement, termination or occurrence of certain events, including the payment of cash dividends. The warrant transactions may also be terminated if the calculation agent determines that no such adjustment will produce a commercially reasonable result, and that the relevant event is reasonably likely to occur. As a result of the payment of cash dividends, the terms of the warrants have been adjusted, resulting in the right to purchase up to 11.38 million shares of NXP's common stock at an adjusted strike price of $130.99 per share, as of December 31, 2019. Any additional adjustment in the future may increase our delivery obligations upon expiration and settlement of the warrants or our obligations upon their cancellation, termination or unwinding, which would be settled using shares of our

stock. NXP received $134 million in cash proceeds from the sale of the Warrants, which were at the time of issuance recorded in Other non-current liabilities. As of January 1, 2016, as of result of the acquisition of Freescale, NXP has concluded that the functional currency of the holding company is USD. Consequently, beginning from January 1, 2016, the Warrants with a carrying value of $168 million were reclassified to stockholders’ equity, and mark-to-market accounting is no longer applicable. The Warrants are included in diluted earnings per share to the extent the impact is dilutive. As of December 31, 2019, the Warrants were not dilutive.

The principal amount, unamortized debt discount and net carrying amount of the liability component of the 2019 Cash Convertible Senior Notes as of December 31, 2018 was as follows:

(in millions)		2018
Principal amount of 2019 Cash Convertible Senior Notes		1,150
Unamortized debt discount of 2019 Cash Convertible Senior Notes		45
Net liability of 2019 Cash Convertible Senior Notes		1,105

The effective interest rate, contractual interest expense and amortization of debt discount for the 2019 Cash Convertible Senior Notes for fiscal 2018 were as follows:

(in millions, except percentage)		2018
Effective interest rate		5.14	%
Contractual interest expense		12
Amortization of debt discount		44

Note 15 – Leases

Operating and finance lease assets relate to buildings (corporate offices, research and development and manufacturing facilities and datacenters), land, machinery and installations and other equipment (vehicles and certain office equipment). These leases, except for land leases, have remaining lease terms of 1 to 30 years (land leases 48 to 90 years), some of which may include options to extend the leases for up to 5 years, and some of which may include options to terminate the leases within 1 year. As of December 31, 2019, assets recorded under finance leases amounted to $82 million and accumulated depreciation associated with finance leases was $9 million.

The components of lease expense were as follows

	2019
Operating lease cost	59
Finance lease cost:
Amortization of right-of-use assets	3
Interest on lease liabilities	1
Total finance lease cost	4
Other information related to leases was as follows:
	2019
Supplemental cash flows information:
Operating cash flows from operating leases	53
Operating cash flows from finance leases	1
Financing cash flows from finance leases	2
Right-of-use assets obtained in exchange for lease obligations:
Operating leases 1)	279
Finance leases	—
1) $188 million recorded on January 1, 2019 in accordance with the adoption of ASC 842.
Weighted average remaining lease term:
Operating leases	5.9
Finance leases	12.4
Weighted average discount rate:
Operating leases	3.1	%
Finance leases	4.5	%

Future minimum lease payments as of December 31, 2019 were as follows:

	As of
	December 31, 2019
	Operating leases			Finance leases
2020	68			3
2021	51			3
2022	37			3
2023	30			3
2024	22			3
Thereafter	52			18
Total future minimum lease payments	260			33
Less: imputed interest	(22	)		(8	)
Total	238			25

Rent expense amounted to $12 million in 2019 (containing as from 2019 only services related to leased assets as well as short-term leases) compared to $57 million and $63 million in 2018 and 2017, respectively (containing all leases of land and buildings and other equipment as well as related services).

Lease liabilities related to leases are split between current and non-current:

	As of
	December 31, 2019
	Operating leases			Finance leases
Other current liabilities	62			2
Other non-current liabilities	176			23
Total	238			25

Operating lease right-of-use assets are $226 million as of December 31, 2019 and are included in other non-current assets in the consolidated balance sheet.

Note 16 - Commitments and Contingencies

Purchase Commitments

The Company maintains purchase commitments with certain suppliers, primarily for raw materials, semi-finished goods and manufacturing services and for some non-production items. Purchase commitments for inventory materials are generally restricted to a forecasted time-horizon as mutually agreed upon between the parties. This forecasted time-horizon can vary for different suppliers. As of December 31, 2019, the Company had purchase commitments of $290 million, which are due through 2044.

Litigation

We are regularly involved as plaintiffs or defendants in claims and litigation relating to a variety of matters such as contractual disputes, personal injury claims, employee grievances and intellectual property litigation. In addition, our acquisitions, divestments and financial transactions sometimes result in, or are followed by, claims or litigation. Some of these claims may possibly be recovered from insurance reimbursements. Although the ultimate disposition of asserted claims cannot be predicted with certainty, it is our belief that the outcome of any such claims, either individually or on a combined basis, will not have a material adverse effect on our consolidated financial position. However, such outcomes may be material to our consolidated statement of operations for a particular period. The Company records an accrual for any claim that arises whenever it considers that it is probable that it is exposed to a loss contingency and the amount of the loss contingency can be reasonably estimated. Legal fees are expensed when incurred.

Based on the most current information available to it and based on its best estimate, the Company also reevaluates at least on a quarterly basis the claims that have arisen to determine whether any new accruals need to be made or whether any accruals made need to be adjusted. Based on the procedures described above, the Company has an aggregate amount of $44 million accrued for potential and current legal proceedings pending as of December 31, 2019, compared to $123 million accrued at December 31, 2018 (without reduction for any related insurance reimbursements). The accruals are included in “Other current liabilities” and “Other non-current liabilities”. As of December 31, 2019, the Company’s balance related to insurance reimbursements was $25 million (December 31, 2018: $65 million) and is included in “Other current assets” and “Other non-current assets”.

The Company also estimates the aggregate range of reasonably possible losses in excess of the amount accrued based on currently available information for those cases for which such estimate can be made. The estimated aggregate range requires significant judgment, given the varying stages of the proceedings, the existence of multiple defendants (including the Company) in such claims whose share of liability has yet to be determined, the numerous yet-unresolved issues in many of the claims, and the attendant uncertainty of the various potential outcomes of such claims. Accordingly, the Company’s estimate will change from time to time, and actual losses may be more than the current estimate. As at December 31, 2019, the Company believes that for all litigation pending its potential aggregate exposure to loss in excess of the amount accrued (without reduction for any amounts that may possibly be recovered under insurance programs) could range between $0 and $66 million. Based upon our past experience with these matters, the Company would expect to receive

insurance reimbursement on certain of these claims that would offset the potential maximum exposure of up to $53 million.

In addition, the Company is currently assisting Motorola in the defense of personal injury lawsuits due to indemnity obligations included in the agreement that separated Freescale from Motorola in 2004. The multi-plaintiff Motorola lawsuits are pending in the Circuit Court of Cook County, Illinois. These claims allege a link between working in semiconductor manufacturing clean room facilities and birth defects in 23 individuals. The Motorola suits allege exposures between 1965 and 2006. Each claim seeks an unspecified amount of damages for the alleged injuries; however, legal counsel representing the plaintiffs has indicated they will seek substantial compensatory and punitive damages from Motorola for the entire inventory of claims which, if proven and recovered, the Company considers to be material. A portion of any indemnity due to Motorola will be reimbursed to NXP if Motorola receives an indemnification payment from its insurance coverage. Motorola has potential insurance coverage for many of the years indicated above, but with differing types and levels of coverage, self-insurance retention amounts and deductibles. We are in discussions with Motorola and their insurers regarding the availability of applicable insurance coverage for each of the individual cases. Motorola and NXP have denied liability for these alleged injuries based on numerous defenses.

Environmental remediation

In each jurisdiction in which we operate, we are subject to many environmental, health and safety laws and regulations that govern, among other things, emissions of pollutants into the air, wastewater discharges, the use and handling of hazardous substances, waste disposal, the investigation and remediation of soil and ground water contamination and the health and safety of our employees. We are also required to obtain environmental permits from governmental authorities for certain of our operations.

As with other companies engaged in similar activities or that own or operate real property, the Company faces inherent risks of environmental liability at our current and historical manufacturing facilities. Certain environmental laws impose liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances. Certain of these laws also assess liability on persons who arrange for hazardous substances to be sent to disposal or treatment facilities when such facilities are found to be contaminated.

Soil and groundwater contamination has been identified at our properties in Nijmegen, the Netherlands and near Phoenix, Arizona, United States. The remediation processes at these locations are expected to continue for many years.

As of December 31, 2019, we have recorded $90 million for environmental remediation costs, which are primarily included in other non-current liabilities in the accompanying Consolidated Balance Sheet. This amount represents the undiscounted future cash flows of our estimated share of costs incurred in environmental cleanup sites without considering recovery of costs from any other party or insurer, since in most cases potentially responsible parties other than us may exist and be held responsible.

Note 17 - Stockholders’ Equity and Earnings per Share

The share capital of the Company as of December 31, 2019 consists of 1,076,257,500 authorized shares, including 430,503,000 authorized shares of common stock, and 645,754,500 authorized but unissued shares of preferred stock.

Effective July 26, 2018, the board of directors of NXP, as authorized by its annual general meeting of shareholders (the “AGM”), authorized the repurchase of $5 billion of the Company’s stock for a period of 18 months. In October 2018, the board of directors of NXP authorized the additional repurchase of shares up to a maximum 20% (approximately 69 million shares) of the number of shares issued. As of year-end 2018, NXP repurchased 54.4 million shares, for a total of approximately $5 billion, of which a number of 17,300,143 shares had been cancelled. Effective June 17, 2019, the board of directors of NXP, as authorized by its annual general meeting of shareholders (the “AGM”), renewed and revised this authorization for a period of 18 months to repurchase ordinary shares up to the statutory limit. During the fiscal year-ended December 31, 2019, NXP repurchased 15.9 million shares, for a total of approximately $1.4 billion, of which a number of 13,183,081

shares had been cancelled. As a result, the number of issued NXP shares as per November 27, 2019 is 315,519,638 shares. At December 31, 2019, the Company has issued and paid up 315,519,638 shares (2018: 328,702,719 shares) of common stock each having a par value of €0.20 or a nominal stock capital of €63 million (2018: €66 million).

Cash dividends

The following dividends were declared in 2019 and 2018 under NXP’s quarterly dividend program which was introduced as of the third quarter of 2018:

	2019			2018			2017
Dividends declared (in millions)	351			147			—
Dividends declared (per share)	1.25			0.50			—

Share-based awards

The Company has granted share-based awards to the members of our board of directors, management team, our other executives, selected other key employees/talents of NXP and selected new hires to receive the Company’s shares in the future. See Note 18, “Share-based Compensation”.

Treasury shares

From time to time, last on June 17, 2019, the General Meeting of Shareholders authorizes the Board of Directors to repurchase shares of our common stock. On that basis, for the first time in 2011 and latest effective November 19, 2019, the Board of Directors executed various share repurchase programs. In accordance with the Company’s policy to provide share-based awards from its treasury share inventory, shares which have been repurchased and are held in treasury for delivery upon exercise of options and under restricted and performance share programs, are accounted for as a reduction of stockholders’ equity. Treasury shares are recorded at cost, representing the market price on the acquisition date. When issued, shares are removed from treasury shares on a first-in, first-out (FIFO) basis.

Differences between the cost and the proceeds received when treasury shares are reissued, are recorded in capital in excess of par value. Deficiencies in excess of net gains arising from previous treasury share issuances are charged to retained earnings.

The following transactions took place resulting from employee option and share plans:

	2019			2018			2017
Total shares in treasury at beginning of year	35,913,021			3,078,470			10,609,980
Total cost	3,238			342			915
Shares acquired under repurchase program	15,865,718			54,376,181			2,522,589
Average price in $ per share	90.94			92.07			113.36
Amount paid	1,443			5,006			286
Shares delivered	4,513,416			4,241,487			10,054,099
Average price in $ per share	93.55			107.75			85.42
Amount received	84			39			233
Shares retired	13,183,081			17,300,143			—
Total shares in treasury at end of year	34,082,242			35,913,021			3,078,470
Total cost	3,037			3,238			342

Shareholder tax on repurchased shares

Under Dutch tax law, the repurchase of a company’s shares by an entity in the Netherlands is a taxable event (unless exemptions apply). The tax on the repurchased shares is attributed to the shareholders, with NXP making the payment on the shareholders’ behalf. As such, the tax on the repurchased shares is accounted for within stockholders’ equity.

The computation of earnings per share (EPS) is presented in the following table:

	2019			2018			2017
Net income (loss)	272			2,258			2,272
Less: Net income (loss) attributable to non-controlling interests	29			50			57
Net income (loss) attributable to stockholders	243			2,208			2,215
Weighted average number of shares outstanding (after deduction of treasury shares) during the year (in thousands)	282,056			325,781			338,646
Plus incremental shares from assumed conversion of:
Options 1)	776			1,145			4,517
Restricted Share Units, Performance Share Units and Equity Rights 2)	3,079			1,680			2,639
Warrants 3)	—			—			—
Dilutive potential common share	3,855			2,825			7,156
Adjusted weighted average number of shares outstanding (after deduction of treasury shares) during the year (in thousands) 1)	285,911			328,606			345,802
EPS attributable to stockholders in $:
Basic net income (loss)	0.86			6.78			6.54
Diluted net income (loss)	0.85			6.72			6.41

1)

Stock options to purchase up to 0.1 million shares of NXP’s common stock that were outstanding in 2019 (2018: 0.1 million shares; 2017: 0.1 million shares) were anti-dilutive and were not included in the computation of diluted EPS because the exercise price was greater than the average fair market value of the common stock or the number of shares assumed to be repurchased using the proceeds of unrecognized compensation expense and exercise prices was greater than the weighted average number of shares underlying outstanding stock options.

2)

Unvested RSU’s, PSU’s and equity rights of 0.7 million shares that were outstanding in 2019 (2018: 0.9 million shares; 2017: 0.7 million shares) were anti-dilutive and were not included in the computation of diluted EPS because the number of shares assumed to be repurchased using the proceeds of unrecognized compensation expense was greater than the weighted average number of outstanding unvested RSU’s, PSU’s and equity rights or the performance goal has not been met.

3)

Warrants to purchase up to 11.4 million shares of NXP's common stock at the price of $130.99 per share were outstanding in 2019 (2018: 11.2 million shares at a price of $132.55; 2017: 11.2 million shares at a price of $133.32). Upon exercise, the warrants will be net share settled. At the end of 2019, 2018 and 2017, the warrants were not included in the computation of diluted EPS because the warrants’ exercise price was greater than the average fair market value of the common shares.

Note 18 - Share-based Compensation

Share-based compensation expense is included in the following line items in our statement of operations:

	2019			2018			2017
Cost of revenue	42			40			33
Research and development	141			133			122
Selling, general and administrative	163			141			126
	346			314			281

The income tax (expense) benefit recognized in net income related to share-based compensation expenses was $27 million (includes $3 million of excess tax benefits), $27 million (includes $4 million of excess tax benefits) and $51 million (includes $27 million of excess tax benefits) for the years ended December 31, 2019, 2018 and 2017, respectively.

Long Term Incentive Plans (LTIP’s)

The LTIP was introduced in 2010 and is a broad-based long-term retention program to attract, retain and motivate talented employees as well as align stockholder and employee interests. The LTIP provides share-based compensation (“awards”) to both our eligible employees and non-employee directors. Awards that may be granted include performance shares, stock options and restricted shares. On October 29, 2019, the Company granted PSU awards to certain executives of the Company with a performance measure of Relative Total Shareholder Return (“Relative TSR”). Each PSU, which cliff vests on the third anniversary of the date of grant, entitles the grant recipient to receive from 0 to 2 common shares for each of the target units awarded based on the Relative TSR of the Company's share price as compared to a set of peer companies. The Company estimates the fair value of the PSUs using a Monte Carlo valuation model, utilizing assumptions underlying the Black-Scholes methodology. The grant date fair value was $142.41 per PSU. The fair value of the PSUs is recognized as compensation cost over the service period of 3 years. Awards granted generally will become fully vested upon a termination event occurring within one year following a change in control, as defined. A termination event is defined as either termination of employment or services other than for cause or constructive termination of resulting from a significant reduction in either the nature or scope of duties and responsibilities, a reduction in compensation or a required relocation. The number of shares authorized and available for awards at December 31, 2019 was 29.2 million.

A charge of $339 million was recorded in 2019 for the LTIP (2018: $307 million; 2017: $272 million).

A summary of the activity for our LTIP’s during 2019 is presented below.

Stock options

The options have a strike price equal to the closing share price on the grant date. The fair value of the options has been calculated using the Black-Scholes formula, using the following assumptions:

•	an expected life varying from 5.76 to 6.25 years, calculated in accordance with the guidance provided in SEC Staff bulletin No. 110 for plain vanilla options using the simplified method, since our equity shares have been publicly traded for only a limited period of time and we do not have sufficient historical exercise data at the grant date of the options;

•	a risk-free interest rate varying from 1.0% to 1.9% (2018: 0.8% to 2.1%; 2017: 0.8% to 2.8%);

•	no expected dividend payments; and

•	a volatility of 42 – 45% based on the volatility of a set of peer companies. Peer company data has been used given the short period of time our shares have been publicly traded.

Above assumptions were valid at the moment NXP granted option. Changes in the assumptions can materially affect the fair value estimate.

	Stock options			Weighted average exercise price in USD			Weighted average remaining contractual term		Aggregate intrinsic value
Outstanding at January 1, 2019	2,104,088			51.81
Granted	—			—
Exercised	880,581			50.97
Forfeited	20,598			72.07
Outstanding at December 31, 2019	1,202,909			52.08			3.99		90
Exercisable at December 31, 2019	1,193,418			51.85			3.97		90

No options were granted in 2019, 2018 and 2017.

The intrinsic value of the exercised options was $48 million (2018: $59 million; 2017: $311 million), whereas the amount received by NXP was $45 million (2018: $30 million; 2017: $137 million). The tax benefit

realized from stock options exercised during fiscal 2019, 2018, and 2017 was $31 million, $34 million, and $83 million, respectively.

At December 31, 2019, there were no (2018: $7 million) unrecognized compensation cost related to non-vested stock options (2018 cost expected to be recognized over a weighted-average period of 0.8 years).

Performance share units

Financial performance conditions

	Shares			Weighted average grant date fair value in USD
Outstanding at January 1, 2019	222,496			75.28
Granted	—			—
Vested	—			—
Forfeited	27,398			73.00
Outstanding at December 31, 2019	195,098			75.60

In 2019, the weighted average grant date fair value of performance share units granted was $141.64 (2018: $121.18; 2017: no PSU’s granted).

Market performance conditions

	Shares			Weighted average grant date fair value in USD
Outstanding at January 1, 2019	1,478,986			121.18
Granted	400,025			141.64
Vested	—			—
Forfeited	34,824			121.37
Outstanding at December 31, 2019	1,844,187			125.61

No performance share units vested in 2019 (the fair value of the performance share units at the time of vesting in 2018: $6 million; 2017: $39 million).

At December 31, 2019, there was a total of $135 million (2018: $143 million; 2017: $4 million) of unrecognized compensation cost related to non-vested performance share units. This cost is expected to be recognized over a weighted-average period of 2.0 years (2018: 2.6 years; 2017: 1.3 years).

Restricted share units

	Shares			Weighted average grant date fair value in USD
Outstanding at January 1, 2019	6,511,564			94.73
Granted	2,953,782			111.62
Vested	3,119,913			96.13
Forfeited	338,842			96.50
Outstanding at December 31, 2019	6,006,591			102.20

The weighted average grant date fair value of restricted share units granted in 2019 was $111.62 (2018: $84.77; 2017: $115.05). The fair value of the restricted share units at the time of vesting was $325 million (2018: $263 million; 2017: $328 million).

At December 31, 2019, there was a total of $501 million (2018: $484 million; 2017: $483 million) of unrecognized compensation cost related to non-vested restricted share units. This cost is expected to be recognized over a weighted-average period of 1.5 years (2018: 1.5 years; 2017: 1.6 years).

Management Equity Stock Option Plan (“MEP”)

Awards are no longer available under these plans. Current employees who owned vested MEP Options could have exercised such MEP Options during the five-year period subsequent to September 18, 2013, subject to these employees remaining employed by us and subject to the applicable laws and regulations.

No charge was recorded in 2019, 2018 and 2017 for options granted under the MEP. No MEP Options were outstanding as of December 31, 2019 (2018: no options outstanding; 2017: 231,924 vested options with a weighted average exercise price of €35.72).

The intrinsic value of exercised options was $16 million in 2018 and $206 million in 2017, whereas the amount received by NXP was $9 million in 2018 and $60 million in 2017.

Note 19 - Accumulated Other Comprehensive Income (Loss)

Total comprehensive income (loss) represents net income (loss) plus the results of certain equity changes not reflected in the Consolidated Statements of Operations. The after-tax components of accumulated other comprehensive income (loss) and their corresponding changes are shown below:

	Currency translation differences			Change in fair value cash flow hedges			Net actuarial gain/(losses)			Unrealized gains/losses available-for sale securities			Accumulated Other Comprehensive Income (loss)
As of December 31, 2017	269			8			(97	)		(3	)		177
Other comprehensive income (loss) before reclassifications	(51	)		(10	)		9			—			(52	)
Amounts reclassified out of accumulated other comprehensive income (loss)	—			(4	)		—			3			(1	)
Income tax effects	—			3			(4	)		—			(1	)
Other comprehensive income (loss)	(51	)		(11	)		5			3			(54	)
As of December 31, 2018	218			(3	)		(92	)		—			123
Other comprehensive income (loss) before reclassifications	(15	)		(6	)		(54	)		—			(75	)
Amounts reclassified out of accumulated other comprehensive income (loss)	—			13			—			—			13
Income tax effects	—			(2	)		16			—			14
Other comprehensive income (loss)	(15	)		5			(38	)		—			(48	)
As of December 31, 2019	203			2			(130	)		—			75

Note 20 - Related-party Transactions

The Company’s related parties are the members of the board of directors of NXP Semiconductors N.V., the members of the management team of NXP Semiconductors N.V. and equity-accounted investees and, up to July 26, 2018, Qualcomm Incorporated. As of the divestment of the SP business on February 7, 2017, the newly formed Nexperia has become a related party.

We have a number of strategic alliances and joint ventures. We have relationships with certain of our alliance partners in the ordinary course of business whereby we enter into various sale and purchase transactions, generally on terms comparable to transactions with third parties. However, in certain instances upon divestment of former businesses where we enter into supply arrangements with the former owned business, sales are conducted at cost.

The following table presents the amounts related to revenue and other income and purchase of goods and services incurred in transactions with these related parties:

	2019			2018			2017
Revenue and other income	82			133			130
Purchase of goods and services	64			106			144

The following table presents the amounts related to receivable and payable balances with these related parties:

	2019			2018
Receivables	21			25
Payables	9			49

As part of the divestment of the SP business, we entered into a lease commitment and related services to Nexperia, that is $64 million as of December 31, 2019, and committed $50 million to an investment fund

affiliated with Nexperia’s owners. The lease commitments are reflected in our recorded lease liabilities in other current and non-current liabilities.

Note 21 - Fair Value of Financial Assets and Liabilities

The following table summarizes the estimated fair value and carrying amount of our financial instruments measured on a recurring basis:

	December 31, 2019									December 31, 2018
	Fair value hierarchy			Carrying amount			Estimated fair value			Carrying amount			Estimated fair value
Assets:
Money market funds	1			6			6			1,906			1,906
Notes hedges	3			—			—			24			24
Other financial assets	2			42			42			32			32
Derivative instruments-assets	2			10			10			6			6
Liabilities:
Short-term debt	2			—			—			(2	)		(2	)
Short-term debt (2019 Cash Convertible Senior Notes)	2			—			—			(1,105	)		(1,327	)
Long-term debt (bonds)	2			(7,365	)		(7,922	)		(6,222	)		(6,191	)
Other long-term debt	2			—			—			(25	)		(25	)
Notes Embedded Conversion Derivative	3			—			—			(24	)		(24	)
Derivative instruments-liabilities	2			(1	)		(1	)		(2	)		(2	)

The following methods and assumptions were used to estimate the fair value of financial instruments:

Financial assets and financial liabilities measured at fair value on a recurring basis

Investments in money market funds (as part of our cash and cash equivalents) have fair value measurements which are all based on quoted prices in active markets for identical assets or liabilities.

Other financial assets and derivatives

For other financial assets and derivatives the fair value is based upon significant other observable inputs depending on the nature of the other financial asset and derivative.

Notes hedges and Notes Embedded Conversion Derivative

The Notes hedges and the Notes Embedded Conversion Derivative, which were settled along with the aggregate principal amount of the 2019 Cash Convertible Notes, are measured at fair value using level 3 inputs. The instruments are not actively traded and are valued at the measurement date using an option pricing model that uses observable inputs for the share price of NXP’s common stock, risk-free interest rate, dividend yield and the term, in combination with a significant unobservable input for volatility. Volatility has historically been determined by a hypothetical market place. The volatility factor utilized at December 31, 2018 was 34.8%. The change in the fair value of the Notes hedges and Notes Embedded Conversion Derivative was solely the gain and loss, respectively for each instrument that was recognized.

Debt

The fair value is estimated on the basis of observable inputs other than quoted prices in active markets for identical liabilities for certain issues, or on the basis of discounted cash flow analyses. Accrued interest is included under accrued liabilities and not within the carrying amount or estimated fair value of debt.

Assets and liabilities recorded at fair value on a non-recurring basis

We measure and record our non-marketable equity investments (non-marketable equity method and cost method investments) and non-financial assets, such as intangible assets and property, plant and equipment, at fair value when an impairment charge is required.

Note 22 - Other Financial Instruments, Derivatives and Currency Risk

We conduct business in diverse markets around the world and employ a variety of risk management strategies and techniques to manage foreign currency exchange rate and interest rate risks. Our risk management program focuses on the unpredictability of financial markets and seeks to minimize the potentially adverse effects that the volatility of these markets may have on our operating results. One way we achieve this is through the active hedging of risks through the selective use of derivative instruments.

Derivatives are recorded on our Consolidated Balance Sheets at fair value which fluctuates based on changing market conditions.

The Company does not purchase or hold financial derivative instruments for trading purposes.

Currency risk

The Company’s transactions are denominated in a variety of currencies. The Company uses financial instruments to reduce its exposure to the effects of currency fluctuations. Accordingly, the Company’s organizations identify and measure their exposures from transactions denominated in other than their own functional currency. We calculate our net exposure on a cash flow basis considering balance sheet items, actual orders received or made and anticipated revenue and expenses. The Company generally hedges foreign currency exposures in relation to transaction exposures, such as receivables/payables resulting from such transactions and part of anticipated sales and purchases. The Company generally uses forwards to hedge these exposures. As of January 1, 2016, as a result of the acquisition of Freescale, NXP has concluded that the functional currency of the holding company is USD. Beginning from January 1, 2016, our U.S. dollar-denominated notes and short term loans will no longer need to be re-measured. Prior to January 1, 2016, the U.S. dollar-denominated debt held by our Dutch subsidiary (which had at that time a euro functional currency) could have generated adverse currency results in financial income and expenses depending on the exchange rate movement between the euro and the U.S. dollar. This exposure was partially mitigated by the application of net investment hedge accounting, which had been applied since May 2011. The U.S. dollar exposure of the net investment in U.S. dollar functional currency subsidiaries was hedged by certain of our U.S. dollar denominated debt. The hedging relationship was assumed to be highly effective. Foreign currency gains or losses on this U.S. dollar debt that were recorded in a euro functional currency entity that were designated as, and to the extent they were effective, as a hedge of the net investment in our U.S. dollar foreign entities, were reported as a translation adjustment in other comprehensive income within equity, and offset in whole or in part the foreign currency changes to the net investment that were also reported in other comprehensive income. Absent the application of net investment hedging, these amounts would have been recorded as a loss within financial income (expense) in the statement of operations.

Note 23 - Segments and Geographical Information

As discussed in Note 1, we changed our reporting segments to better align with our organizational structure and with the way our chief operating decision maker makes operating decisions, allocates resources, and manages the growth and profitability of the business.

Revenue attributed to geographic areas is based on the customer’s shipped-to location (except for intellectual property license revenue which is attributable to the Netherlands). Long-lived assets include Property and equipment, net, which were based on the physical location of the assets as of the end of each year.

Geographical Information

	Revenue									Property, plant and equipment, net
	2019			2018			2017			2019			2018			2017
China	3,147			3,430			3,640			265			287			281
Netherlands	275			349			304			221			214			198
United States	840			919			922			845			782			770
Singapore	1,006			1,220			1,082			321			298			211
Germany	526			531			570			52			55			57
Japan	780			735			750			—			—			—
South Korea	327			357			356			—			—			—
Malaysia	120			112			103			337			373			369
Other countries	1,856			1,754			1,529			407			427			409
	8,877			9,407			9,256			2,448			2,436			2,295

Note 24 - Subsequent Events

On February 3, 2020, NXP completed the sale of the Company's Voice and Audio Solutions (VAS) assets, pursuant to the definitive agreement dated August 16, 2019, with Shenzhen Goodix Technology Co., Ltd. ("Goodix") from China, for a net cash amount of $161 million inclusive of final working capital adjustments.

Supplementary Financial Data (unaudited)

NXP Semiconductors N.V.

Financial Information by Quarter (unaudited)

(In millions, except per share amounts)	2019 for Quarter Ended
		December 31			September 29			June 30			March 31
Revenue		2,301			2,265			2,217			2,094
Gross profit		1,209			1,186			1,151			1,072
Net income (loss) attributable to shareholders		114			109			41			(21	)
Earnings per share - Basic		0.41			0.39			0.15			(0.07	)
Earnings per share - Diluted		0.40			0.38			0.14			(0.07	)
Dividends per share of common stock:
- Declared		0.375			0.375			0.25			0.25
- Paid		0.375			0.25			0.25			0.25

(In millions, except per share amounts)	2018 for Quarter Ended
		December 31			September 30			July 1			April 1
Revenue		2,403			2,445			2,290			2,269
Gross profit		1,243			1,256			1,180			1,172
Net income (loss) attributable to shareholders		276			1,820			54			58
Earnings per share - Basic		0.94			5.64			0.16			0.17
Earnings per share - Diluted		0.94			5.60			0.16			0.17
Dividends per share of common stock:
- Declared		0.25			0.25			—			—
- Paid		0.25			—			—			—