Item 8. Financial Statements and Supplementary Data

List of Financial Statements

Report of independent registered public accounting firm						54
- Ernst & Young Accountants LLP; Eindhoven, the Netherlands; PCAOB ID:			1396
- KPMG Accountants N.V.; Amstelveen, the Netherlands; PCAOB ID:			1012
Consolidated Statements of Operations						59
Consolidated Statements of Comprehensive Income						60
Consolidated Balance Sheets						61
Consolidated Statements of Cash Flows						62
Consolidated Statements of Changes in Equity						64
Notes to the Consolidated Financial Statements						65

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of NXP Semiconductors N.V.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of NXP Semiconductors N.V. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission “(2013 framework)”, and our report dated February 24, 2022 expressed an adverse opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the 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 audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits 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. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

			Effect on financial statements of material weakness in internal control over financial reporting
Description of the Matter			As disclosed in management’s report on internal control over financial reporting, the Company identified a material weakness as of December 31, 2021 associated with ineffective information technology general controls (ITGCs) in the areas of user access, change-management and IT operations over certain information technology (IT) systems that support the Company’s financial reporting processes. Automated and manual business process controls that are dependent on the affected ITGCs were also deemed ineffective, because they could have been adversely impacted to the extent that they rely upon information and configurations from the affected IT systems. This material weakness affects substantially all financial statement accounts. Auditing the significant financial statement accounts affected by the material weakness was determined to be a critical audit matter, because significant auditor judgment, including the assistance of IT professionals, was required to design and execute the incremental audit procedures related to the financial statement accounts that are reliant on IT systems impacted by the ineffective ITGCs and to assess the sufficiency of the procedures performed and evidence obtained.
How We Addressed the Matter in Our Audit			We used significant judgment and involved our IT professionals to determine the timing, nature and extent of incremental procedures to be performed over financial statement accounts that are reliant on IT systems impacted by the ineffective ITGCs, including the impacted automated and manual business process controls. These incremental procedures were performed closer to the balance sheet date and included, among others, lowering our testing thresholds, increasing sample sizes and manually testing the completeness and accuracy of system reports or other information generated by the Company’s impacted IT systems, including increasing the extent to which items selected for testing were agreed to source documents.

/s/ Ernst & Young Accountants LLP

We have served as the Company’s auditor since 2020.

Eindhoven, the Netherlands

February 24, 2022

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of NXP Semiconductors N.V.

Opinion on Internal Control Over Financial Reporting

We have audited NXP Semiconductors N.V.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, NXP Semiconductors N.V. (the Company) has not maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment.

Management has identified a material weakness associated with ineffective information technology general controls (ITGCs) in the areas of user access, change-management and IT operations, over certain information technology (IT) systems that support the Company’s financial reporting processes. Automated and manual business process controls that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted to the extent that they rely upon information and configurations from the affected IT systems.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, cash flows and changes in equity for the years in the periods ended December 31, 2021 and 2020 and the related notes (collectively referred to as the “consolidated financial statements”).This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2021 consolidated financial statements, and this report does not affect our report dated February 24, 2022, which expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible 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 internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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 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.

/s/ Ernst & Young Accountants LLP

Eindhoven, the Netherlands

February 24, 2022

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

NXP Semiconductors N.V.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of operations, comprehensive income, cash flows and changes in equity of NXP Semiconductors N.V. and subsidiaries (the Company) for the year ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations of the Company and its cash flows for the year ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit 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 audit 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. We believe that our audit provides a reasonable basis for our opinion.

/s/ KPMG Accountants N.V.

We served as the Company’s auditor from 2009 to 2019.

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,
			2021						2020						2019
Revenue			11,063						8,612						8,877
Cost of revenue			(4,996)						(4,377)						(4,259)
Gross profit			6,067						4,235						4,618
Research and development			(1,936)						(1,725)						(1,643)
Selling, general and administrative			(956)						(879)						(924)
Amortization of acquisition-related intangible assets			(592)						(1,327)						(1,435)
Total operating expenses			(3,484)						(3,931)						(4,002)
Other income (expense)			—						114						25
Operating income (loss)			2,583						418						641
Financial income (expense):
Extinguishment of debt			(22)						(60)						(11)
Other financial income (expense)			(381)						(357)						(339)
Income (loss) before income taxes			2,180						1						291
Benefit (provision) for income taxes			(272)						83						(20)
Results relating to equity-accounted investees			(2)						(4)						1
Net income (loss)			1,906						80						272
Less: Net income (loss) attributable to non-controlling interests			35						28						29
Net income (loss) attributable to stockholders			1,871						52						243
Earnings per share data:
Net income (loss) per common share attributable to stockholders in $:
– Basic			6.91						0.19						0.86
– Diluted			6.79						0.18						0.85
Weighted average number of shares of common stock outstanding during the year (in thousands):
– Basic			270,687						279,763						282,056
– Diluted			275,646						283,809						285,911

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,
			2021						2020						2019
Net income (loss)			1,906						80						272
Other comprehensive income (loss), net of tax:
Change in fair value cash flow hedges *			(11)						9						5
Change in foreign currency translation adjustment			(74)						78						(15)
Change in net actuarial gain (loss)			16						(45)						(38)
Total other comprehensive income (loss)			(69)						42						(48)
Total comprehensive income (loss)			1,837						122						224
Less: Comprehensive income (loss) attributable to non-controlling interests			35						28						29
Total comprehensive income (loss) attributable to stockholders			1,802						94						195

• 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,
			2021						2020
Assets
Current assets:
Cash and cash equivalents			2,830						2,275
Accounts receivables, net			923						765
Assets held for sale			—						—
Inventories, net			1,189						1,030
Other current assets			286						254
Total current assets			5,228						4,324
Non-current assets:
Other non-current assets			1,346						1,013
Property, plant and equipment, net			2,635						2,284
Identified intangible assets, net			1,694						2,242
Goodwill			9,961						9,984
Total non-current assets			15,636						15,523
Total assets			20,864						19,847
Liabilities and equity
Current liabilities:
Accounts payable			1,252						991
Restructuring liabilities - current			25						60
Other current liabilities			1,175						966
Total current liabilities			2,452						2,017
Non-current liabilities:
Long-term debt			10,572						7,609
Restructuring liabilities			12						14
Deferred tax liabilities			57						85
Other non-current liabilities			1,001						971
Total non-current liabilities			11,642						8,679
Equity:
Non-controlling interests			242						207
Stockholders’ equity:
Preferred stock, par value €0.20 per share:
Authorized: 645,754,500 (2020: 645,754,500 shares)
Issued: none
Common stock, par value €0.20 per share:
Authorized: 430,503,000 shares (2020: 430,503,000 shares)
Issued and fully paid: 274,519,638 shares (2020: 289,519,638 shares)			56						59
Capital in excess of par value			13,727						14,133
Treasury shares, at cost: 9,569,359 shares (2020: 9,044,952 shares)			(1,932)						(1,037)
Accumulated other comprehensive income (loss)			48						117
Accumulated deficit			(5,371)						(4,328)
Total Stockholders’ equity			6,528						8,944
Total equity			6,770						9,151
Total liabilities and equity			20,864						19,847

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,
			2021						2020						2019
Cash flows from operating activities:
Net income (loss)			1,906						80						272
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization			1,262						1,988						2,047
Share-based compensation			353						384						346
Amortization of discount (premium) on debt, net			1						(1)						42
Amortization of debt issuance costs			7						9						11
Net (gain) loss on sale of assets			(1)						(115)						(20)
(Gain) loss on extinguishment of debt			22						60						11
Results relating to equity-accounted investees			2						4						(1)
(Gain) loss on equity securities, net			2						(21)						—
Deferred tax expense (benefit)			(20)						(349)						(175)
Changes in operating assets and liabilities:
(Increase) decrease in receivables and other current assets			(176)						(51)						116
(Increase) decrease in inventories			(159)						163						128
Increase (decrease) in accounts payable and accrued liabilities			248						319						(460)
Decrease (increase) in other non-current assets			(350)						7						43
Exchange differences			(5)						16						15
Other items			(15)						(11)						(2)
Net cash provided by (used for) operating activities			3,077						2,482						2,373
Cash flows from investing activities:
Purchase of identified intangible assets			(132)						(130)						(102)
Capital expenditures on property, plant and equipment			(767)						(392)						(526)
Purchase of equipment leased to others			(33)						—						—
Insurance recoveries received for equipment damage			10						—						—
Proceeds from disposals of property, plant and equipment			1						4						23
Purchase of interests in businesses, net of cash acquired			(23)						(34)						(1,698)
Proceeds from sale of interests in businesses, net of cash divested			—						161						37
Purchase of investments			(8)						(30)						(19)
Proceeds from the sale of investments			8						2						1
Proceeds from return of equity investments			10						1						—
Net cash provided by (used for) investing activities			(934)						(418)						(2,284)
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)
Repurchase of long-term debt			(1,021)						(1,809)						(600)
Proceeds from the issuance of long-term debt			4,000						2,000						1,750
Cash paid for debt issuance costs			(47)						(15)						(24)
Dividends paid to non-controlling interests			—						(35)						—
Dividends paid to common stockholders			(562)						(420)						(319)
Proceeds from issuance of common stock through stock plans			62						72						84

NXP Semiconductors N.V. Consolidated Statements of Cash Flows (Continued)
Purchase of treasury shares and restricted stock unit withholdings			(4,015)						(627)						(1,443)
Cash paid on behalf of shareholders for tax on repurchased shares			—						—						(128)
Other, net			(2)						(1)						—
Net cash provided by (used for) financing activities			(1,585)						(835)						(1,831)
Effect of changes in exchange rates on cash positions			(3)						1						(2)
Increase (decrease) in cash and cash equivalents			555						1,230						(1,744)
Cash and cash equivalents at beginning of period			2,275						1,045						2,789
Cash and cash equivalents at end of period			2,830						2,275						1,045
Supplemental disclosures to the consolidated cash flows
Net cash paid during the period for:
Interest			356						336						242
Income taxes, net of refunds			353						148						368
Net gain (loss) on sale of assets:
Cash proceeds from the sale of assets			1						165						21
Book value of these assets			—						(50)						(1)
Non-cash investing activities:
Non-cash capital expenditures			243						119						133

See accompanying notes to the Consolidated Financial Statements.

NXP Semiconductors N.V.

Consolidated Statements of Changes in Equity

For the years ended December 31, 2021, 2020 and 2019

($ 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, 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 repurchased and retired						(15,866)						(3)						(632)						(221)												(587)						(1,443)												(1,443)
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
Net income (loss)																																				52						52						28						80
Other comprehensive income																														42												42												42
Share-based compensation plans																		384																								384												384
Shares issued pursuant to stock awards						3,867																		364												(292)						72												72
Treasury shares repurchased and retired						(4,829)						(5)						(1,267)						1,636												(991)						(627)												(627)
Expiration of stock purchase warrants																		(168)																		168						—												—
Dividends non-controlling interests																																										—						(35)						(35)
Dividends common stock																																				(420)						(420)												(420)
Balance as of December 31, 2020						280,475						59						14,133						(1,037)						117						(4,328)						8,944						207						9,151
Net income (loss)																																				1,871						1,871						35						1,906
Other comprehensive income																														(69)												(69)												(69)
Share-based compensation plans																		341																								341												341
Shares issued pursuant to stock awards						5,104																		525												(463)						62												62
Treasury shares repurchased and retired						(20,629)						(3)						(747)						(1,420)												(1,845)						(4,015)												(4,015)
Dividends common stock																																				(606)						(606)												(606)
Balance as of December 31, 2021						264,950						56						13,727						(1,932)						48						(5,371)						6,528						242						6,770

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

NXP has 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.

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 subjective and requires 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 applies the practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed. The Company applies the practical expedient to expense 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 credit loss 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 risk of credit loss based on numerous factors including historical loss rates, credit-risk concentration, 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 net realizable value. 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 finance 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

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 five instances (with a combined value of $67 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, the date of the adoption of ASC 842, or commencement date, if later, in determining the present value of future payments. The lease payments that are included in the lease liability are comprised of fixed payments (including in-substance fixed payments), less any lease incentives receivable; variable lease payments that depend on an index or rate; amounts expected to be payable by the lessee under residual value guarantees; the exercise price of a purchase option that the lessee is reasonably certain to exercise; and payments for terminating the lease unless it is reasonably certain that early termination will not occur. The lease ROU asset includes any lease payment made and initial direct costs incurred. Our lease terms include the non-cancelable period for which a lessee has the right to use an underlying asset, together with both periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and the periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise the 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.

Equity investments

NXP’s equity investments include equity method investments, marketable equity investments and non-marketable equity investments.

Equity method investments: NXP’s investments over which it has significant influence, but not control are accounted for using the equity method. Under the equity method, the investment is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the NXP’s share of net assets of the equity accounted investee since the acquisition date. NXP’s share of the results of operations of the equity accounted investees are recognized in ‘Results relating to equity-accounted investees’.

Marketable equity investments: all equity investments with a readily determinable fair value, other than equity-method investments, in unconsolidated entities are measured at fair value through earnings in the statement of operations on a recurring basis. We classify marketable securities as current or non-current based on the nature of the securities and their availability for use in current operations. Gains and losses on investments in marketable equity securities, realized and unrealized, are recognized in ‘Financial income (expense)’.

Non-marketable equity investments: all equity investments without a readily determinable fair value, other than equity-method investments, in unconsolidated entities are recorded at cost, less impairments, adjusted for observable price changes in orderly transactions for identical or similar securities. All gains and losses on investments in non-marketable equity investments, realized and unrealized, are recognized in ‘Financial income (expense)’.

We monitor our equity method investments and non-marketable equity securities for events or changes in circumstances which may indicate the investments are impaired. If an assessment indicates an investment is impaired, we recognize a charge for the difference between the estimated fair value and the carrying value. For equity method investments, we record impairment losses in earnings only when impairments are considered other-than-temporary.

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. One year 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 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.

Impairment or disposal of identified long-lived assets

We perform reviews of long-lived assets including property, plant and equipment, ROU assets, and intangible assets subject to amortization, whenever facts and circumstances indicate that the useful life is shorter than what we had originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, we assess the recoverability of the long-lived assets 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. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets or based on appraisals. Impairment losses, 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. Long-lived assets to be disposed of by sale are reported at the lower of their carrying amounts or their estimated fair values less costs to sell and are not depreciated.

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 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, 2021			1.1325						1.1818						1.2280						1.1325
Year-ended December 31, 2020			1.2280						1.1412						1.0862						1.2280
Year-ended December 31, 2019			1.1217						1.1210						1.0935						1.1476

(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 date of the transaction or the date of 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. The cash flows associated with these derivative instruments are classified in the consolidated statements of cash flows in the same category as the hedged transaction.

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 cash flows associated with these derivative instruments are classified in the consolidated statements of cash flows in the same category as the hedged transaction. 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, strategy in undertaking the hedge transaction and the hedged risk, and 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, 2021 and December 31, 2020 were as follows:

			2021						2020
Euro			528						532
Chinese renminbi			242						150
Great British pound			40						34
Japanese yen			41						21
Malaysian ringgit			122						122
Singapore dollar			76						65
Swiss franc			30						29
New Taiwan dollar			213						159
Thai baht			112						104
Other			54						48

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 repurchase 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. 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 an uncertain 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% 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 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. NXP’s grants through the incentive plan are equity settled. 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, PSUs and RSUs, the grant-date value, less estimated pre-vest forfeitures, is expensed on a straight-line basis over the vesting period. 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, Employee Stock Purchase Plan (“ESPP”) shares and MT Annual Incentive Plan. 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 to their subcontract manufacturers. One of our distributors accounted for 18% of our revenue in 2021, 17% in 2020 and 14% in 2019. No other distributor accounted for greater than 10% of our revenue for 2021, 2020 or 2019. One OEM for which we had direct sales to accounted for less than 10% of our revenue in 2021 and 2020 and 11% in 2019. No other individual OEM for which we had direct sales to accounted for more than 10% of our revenue for 2021, 2020 or 2019.

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

The Company uses 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 but we do not expect that our operations will be disrupted if such is the case.

Accounting standards adopted in 2021

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 modifies ASC 740 to simplify the accounting for income taxes, removing certain exceptions to the general principles in ASC 740 and amending existing guidance to improve consistent application. ASU 2019-12 became effective for us on January 1, 2021. We have assessed our current positions and the interrelation to the amendments and the adoption of this update did not have a material impact on the Company's consolidated financial statements and related disclosures.

In October 2020, the FASB issued ASU 2020-09, Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762, to reflect changes the U.S. Securities and Exchange Commission has made to its disclosure rules on guaranteed debt securities offerings. The new rules replace the previously required condensed consolidating financial information with summarized financial information of the issuer and the guarantor and, among other things, require expanded qualitative disclosures. We have elected to provide this information in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations as permitted by the new rules.

In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842) Lessors—Certain Leases with Variable Lease Payments. ASU 2021-05 continues to address any additional issues that may have arisen since the adoption of Topic 842 by public business entities. The amendments in this Update affect lessors with lease contracts that (1) have variable lease payments that do not depend on a reference index or a rate and (2) would have resulted in the recognition of a selling loss at lease commencement if classified as sales-type or direct financing. ASU 2021-05 became effective for us on December 15, 2021. We have assessed our current positions and the interrelation to the amendments and the adoption of this update did not have a material impact on the Company's consolidated financial statements and related disclosures.

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

2021

On July 6, 2021, we acquired Retune DSP for a total consideration of $15.7 million, net of closing adjustments.

2020

There were no material acquisitions during 2020. On February 3, 2020, we completed the sale of the Company's Voice and Audio Solutions (VAS) assets, pursuant to the definitive agreement dated August 16, 2019 and which was previously classified as held for sale, with Shenzhen Goodix Technology Co., Ltd. ("Goodix") from China, for a net cash amount of $161 million inclusive of final working capital adjustments. This resulted in a gain of $110 million recorded in Other income (expense) on the Consolidated Statements of Operations.

2019

On December 6, 2019, we completed the acquisition of 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 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

Our valuation procedures related to the acquired assets and assumed liabilities was completed during the second quarter of 2020.

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.

Note 4 - Supplemental Financial Information

Statement of Operations Information

Disaggregation of revenue

The following table presents revenue disaggregated by sales channel:

			2021						2020						2019
Distributors			6,325						4,720						4,409
Original Equipment Manufacturers and Electronic Manufacturing Services			4,587						3,728						4,352
Other			151						164						116
Total			11,063						8,612						8,877

Depreciation, amortization and impairment

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

			2021						2020						2019
Depreciation of property, plant and equipment			551						547						518
Amortization of internal use software			7						6						8
Amortization of other identified intangible assets (*)			704						1,435						1,521
			1,262						1,988						2,047

(*) For the period ending December 31, 2021, the amount includes an impairment charge as a result of the discontinuation of an IPR&D project for an amount of $36 million. For the period ending December 31, 2020, the amount includes an impairment relative to IPR&D acquired as part of the acquisition of Freescale for an amount of $36 million.

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

Other income (expense)

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 expected to decrease as the divested business or activity becomes more established.

The following table presents the split of other income (expense):

			2021			2020			2019
Result from MSA and TSA arrangements			(2)			—			—
Other, net			2			114			25
Total			—			114			25

Financial income (expense)

			2021						2020						2019
Interest income			4						13						57
Interest expense			(369)						(362)						(370)
Total interest expense, net			(365)						(349)						(313)
Net gain (loss) on extinguishment of debt			(22)						(60)						(11)
Foreign exchange rate results			5						(16)						(15)
Miscellaneous financing income (expense) and other, net			(21)						8						(11)
Total other financial income (expense)			(38)						(68)						(37)
Total			(403)						(417)						(350)

Balance Sheet Information

Cash and cash equivalents

At December 31, 2021 and December 31, 2020, our cash balance was $2,830 million and $2,275 million, respectively, of which $208 million and $185 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 2021, no dividend (2020: $90 million dividend) was paid by SSMC.

Equity Investments

At December 31, 2021 and December 31, 2020, the total carrying value of investments in equity securities is summarized as follows:

			2021						2020
Marketable equity securities			18						19
Non-marketable equity securities			19						40
Equity-accounted investments			75						61
			112						120

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

						2021												2020
						Shareholding %						Amount						Shareholding %						Amount
Wise Road Industry Investment Fund I, L.P.						8.41		%				31						10.17		%				29
Others						—						44						—						32
												75												61

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

			2021						2020						2019
Company’s share in income (loss)			(1)						(4)						(2)
Other results			(1)						—						3
			(2)						(4)						1

Other current liabilities

Other current liabilities at December 31, 2021 and December 31, 2020 consisted of the following:

			2021						2020
Accrued compensation and benefits			476						286
Income taxes payable			82						140
Dividend payable			149						105
Other			468						435
			1,175						966

Note 5 - 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 2021 and 2019, there were no new significant restructuring programs. In the fourth quarter of 2020, we recognized $38 million of employee severance costs in our restructuring liabilities, related to specific targeted actions.

The following table presents the changes in the position of restructuring liabilities in 2021:

			Balance January 1, 2021						Additions						Utilized						Released						Other changes**(1)**						Balance December 31, 2021
Restructuring liabilities			74						1						(37)						—						(1)						37

(1) Other changes primarily related to translation differences.

The total restructuring liability as of December 31, 2021 of $37 million is classified in the Consolidated Balance Sheets under current liabilities ($25 million) and non-current liabilities ($12 million).

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 2020:

			Balance January 1, 2020						Additions						Utilized						Released						Other changes**(1)**						Balance December 31, 2020
Restructuring liabilities			32						77						(36)						—						1						74

(1) Other changes primarily related to translation differences.

The total restructuring liability as of December 31, 2020 of $74 million is classified in the Consolidated Balance Sheets under current liabilities ($60 million) and non-current liabilities ($14 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 2021, 2020 and 2019 are as follows:

			2021						2020						2019
Personnel lay-off costs			1						78						32
Other exit costs			—						—						—
Release of provisions/accruals			—						—						(4)
Net restructuring charges			1						78						28

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

			2021						2020						2019
Cost of revenue			—						15						3
Research & development			1						39						16
Selling, general and administrative			—						24						9
Other (income) expense			—						—						—
Net restructuring charges			1						78						28

Note 6 - Income Taxes

In 2021, NXP generated income before income taxes of $2,180 million (2020: income of $1 million; 2019: income of $291 million). The components of income (loss) before income taxes are as follows:

			2021						2020						2019
Netherlands			942						447						429
Foreign			1,238						(446)						(138)
			2,180						1						291

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

			2021						2020						2019
Current taxes:
Netherlands			(106)						(147)						(90)
Foreign			(186)						(119)						(105)
			(292)						(266)						(195)
Deferred taxes:
Netherlands			10						58						(28)
Foreign			10						291						203
			20						349						175
Total income tax benefit (expense)			(272)						83						(20)

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:

			2021												2020												2019
			amount						%						amount						%						amount						%
Statutory income tax rate in the Netherlands			545						25.0						—						25.0						73						25.0
Rate differential between the local statutory rates and the statutory rate of the Netherlands			(42)						(1.9)						22						2,175.0						16						5.5
Net change in valuation allowance			(20)						(0.9)						35						3,500.0						59						20.2
Non-deductible expenses/losses			53						2.5						61						6,100.0						52						17.8
Netherlands tax incentives			(69)						(3.2)						(48)						(4,800.0)						(68)						(23.2)
Foreign tax incentives			(163)						(7.5)						(117)						(11,700.0)						(118)						(40.5)
Changes in estimates of prior years' income taxes			(21)						(1.0)						(13)						(1,300.0)						(3)						(1.2)
Sale of non-deductible goodwill			—						—						10						1,000.0						—						—
Withholding taxes			(8)						(0.4)						(31)						(3,100.0)						5						1.8
Other differences			(3)						(0.1)						(2)						(200.0)						4						1.5
Effective tax rate			272						12.5						(83)						(8,300.0)						20						6.9

.

We recorded an income tax expense of $272 million in 2021, which reflects an effective tax rate of 12.5% compared to a benefit of $83 million and an effective rate of (8300.0)% in 2020.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, changes in estimates of prior years' income taxes, change in valuation allowance and non-deductible expenses, sale of non-deductible goodwill and withholding taxes. 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. The dollar amount of the incentive in any given year is commensurate with the taxable income in that same period. For 2021, the foreign tax and Netherlands tax incentives were higher than 2020 by $67 million, mainly due to the fact that NXP increased its investment expenditures and benefited from higher qualifying income.

• The increase in the valuation allowance is mostly 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 release of the valuation allowance in 2021 is due to higher qualifying income compared to 2020 and 2019.

• The withholding tax benefit in 2021 is mainly due to changes in considering more undistributed earnings as indefinitely reinvested resulting in a tax benefit of $17 million.The difference of $36 million in the withholding tax benefit in 2020 as compared with the tax expense in 2019 is mainly due to changes in the applicable deferred tax liability rate regarding future remittances of the earnings of foreign subsidiaries and due to changes in considering more undistributed earnings as indefinitely reinvested.

• The tax effect of the non-deductible goodwill of $10 million is linked to the divestiture of the VAS business in 2020.

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 $14 million in 2021 (2020: $11 million; 2019: $12 million). The benefit of this tax holiday on net income per share (diluted) was $0.05 in 2021 (2020: $0.04; 2019: $0.04).

Deferred tax assets and liabilities

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

			2021						2020
Operating loss and tax credit carry forwards			317						480
Disallowed interest and tax incentive carry forwards			19						69
Other accrued liabilities			147						107
Pensions			104						121
Other non-current liabilities			60						58
Share-based compensation			9						13
Restructuring liabilities			6						15
Receivables			89						55
Inventories			5						8
Total Deferred Tax Assets			756						926
Valuation allowance			(161)						(227)
Total Deferred Tax Assets, net of valuation allowance			595						699
Identified intangible assets, net			(20)						(116)
Undistributed earnings of foreign subsidiaries			(38)						(54)
Property, plant and equipment, net			(7)						(15)
Goodwill			(83)						(66)
Other current and non-current assets			(63)						(56)
Total Deferred Tax Liabilities			(211)						(307)
Net Deferred Tax Position			384						392

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

			2021						2020
Deferred tax assets within other non-current assets			441						477
Deferred tax liabilities within non-current liabilities			(57)						(85)
			384						392

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 decreased by $66 million during 2021 (2020: $37 million increase). Besides the net change in the valuation allowance of $20 million this mainly includes a decrease of the valuation allowance due to liquidating a dormant legal entity for $17 million and for the remainder due to a change in estimates of prior years' income taxes.

We consider all available evidence in forming a judgment regarding the valuation allowance as of December 31, 2021, 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, 2021 tax loss carryforwards of $537 million (inclusive of $139 million of U.S. state tax losses) will expire as follows:

						Balance						Scheduled expiration
						December 31,
						2021						2022						2023						2024						2025						2026						2027-2031						later						unlimited
Tax loss carryforwards						537						13						2						3						10						13						91						45						360

This overview is excluding carried forward tax incentives of $78 million which have an unlimited expiration date.

The Company also has tax credit carryforwards of $363 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,
						2021						2022						2023						2024						2025						2026						2027-2031						later						unlimited
Tax credit carryforwards						363						10						11						11						19						22						49						188						53

The net income tax payable (excluding the liability for unrecognized tax benefits) as of December 31, 2021 amounted to $55 million (2020: net income tax payable of $117 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 $38 million at December 31, 2021 (2020: $54 million) for the additional income taxes and withholding taxes payable upon the future remittances of these earnings of foreign subsidiaries. The Company considers $345 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 $35 million, which is not recognized as deferred tax liability at December 31, 2021.

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

			2021						2020						2019
Balance as of January 1,			161						159						165
Translation differences			(1)						—						(1)
Lapse of statute of limitations			(1)						(4)						(3)
Increases from tax positions taken during prior periods			7						5						4
Decreases from tax positions taken during prior periods			(1)						—						(4)
Increases from tax positions taken during current period			11						7						7
Decreases relating to settlements with the tax authorities			—						(6)						(9)
Balance as of December 31,			176						161						159

Of the total unrecognized tax benefits at December 31, 2021, $152 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 2021 amounted to a $5 million expense (2020: $4 million expense; 2019: $3 million benefit). As of December 31, 2021 the

Company has recognized a liability for related interest and penalties of $18 million (2020: $13 million; 2019: $11 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 (2018-2020), Germany (2017-2020), USA (2005-2020), China (2011-2020), Taiwan (2016-2020), Thailand (2016-2020), Malaysia (2014-2020) and India (2004, 2005, 2007-2020).

Note 7 - Accounts Receivable, net

Accounts receivable, net are summarized as follows:

			2021						2020
Accounts receivable from third parties			925						767
Allowance for credit loss			(2)						(2)
			923						765

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

			2021						2020
Distributors			171						186
Original Equipment Manufacturers and Electronic Manufacturing Services			722						533
Other			30						46
			923						765

Note 8 - Inventories, net

Inventories are summarized as follows:

			2021						2020 1)
Raw materials			107						66
Work in process			846						738
Finished goods			236						226
			1,189						1,030
1) Certain prior period amounts have been reclassified, correcting for the current year presentation of the allowance for obsolescence between finished goods and work in process categories, with no impact on total net inventories.

The portion of finished goods stored at customer locations under consignment amounted to $12 million as of December 31, 2021 (2020: $31 million).

The amounts recorded above are net of an allowance for obsolescence of $120 million as of December 31, 2021 (2020: $122 million).

Note 9 - 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)						2021						2020
Land									164						165
Buildings			9 to 50						1,465						1,425
Machinery and installations			2 to 10						4,457						3,970
Other Equipment			1 to 5						802						751
Prepayments and construction in progress									423						210
									7,311						6,521
Less accumulated depreciation									(4,676)						(4,237)
Property, plant and equipment, net of accumulated depreciation									2,635						2,284

Note 10 - Identified Intangible Assets

The changes in identified intangible assets were as follows:

			Total
Balance as of January 1, 2020
Cost			9,384
Accumulated amortization/impairment			(5,764)
Book value			3,620
Changes in book value:
Acquisitions/additions			63
Transfer to assets held for sale			—
Amortization			(1,398)
Impairment			(43)
Total changes			(1,378)
Balance as of December 31, 2020
Cost			9,249
Accumulated amortization/impairment			(7,007)
Book value			2,242
Changes in book value:
Acquisitions/additions			163
Transfer to assets held for sale			—
Amortization			(674)
Impairment			(37)
Translation differences			—
Total changes			(548)
Balance as of December 31, 2021
Cost			4,715
Accumulated amortization/impairment			(3,021)
Book value			1,694

Identified intangible assets as of December 31, 2021 and 2020 respectively were composed of the following:

			December 31, 2021												December 31, 2020
			Gross carrying amount						Accumulated amortization						Gross carrying amount						Accumulated amortization
IPR&D(1)			96						—						147						—
Marketing-related			81						(81)						81						(81)
Customer-related			852						(325)						957						(381)
Technology-based			3,686						(2,615)						8,064						(6,545)
Identified intangible assets			4,715						(3,021)						9,249						(7,007)

(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 for each of the five succeeding years is:

2022			614
2023			383
2024			197
2025			101
2026			68
Thereafter			331

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 4 years as of December 31, 2021.

Note 11 - Goodwill

The changes in goodwill in 2021 and 2020 were as follows:

			2021						2020
Balances as of January 1
Cost			10,098						10,063
Accumulated impairment			(114)						(114)
Book value			9,984						9,949
Changes in book value:
Acquisitions			6						3
Transfer to assets held for sale			—						—
Translation differences			(29)						32
Total changes			(23)						35
Balances as of December 31
Cost - Balance			10,075						10,098
Accumulated impairment - Balance			(114)						(114)
Book value - Balance			9,961						9,984

No goodwill impairment charges were required to be recognized in 2021 or 2020.

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

See Note 3, “Acquisitions and Divestments”.

Note 12 - Postretirement Benefit Plans

Pensions

Our employees participate in employee pension plans in accordance with legal requirements, customs and the related matters 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 1,430 companies and 627,000 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 27.59% (2021) to 27.98% (2022).

PME multi-employer plan			2021						2020						2019
NXP’s contributions to the plan			37						33						31
(including employees’ contributions)			5						4						4
Average number of NXP’s active employees participating in the plan			2,075						2,048						2,129
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 2021 was $112 million (2020: $103 million; 2019: $98 million) of which $52 million (2020: $47 million; 2019: $47 million) represents defined-contribution plans and $32 million (2020: $29 million; 2019: $27 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 ongoing cost of defined-benefit plans amounted to $28 million in 2021 (2020: a cost of $27 million; 2019: a cost of $24 million).

The table below provides a summary of the changes in the pension benefit obligations and defined-benefit pension plan assets for 2021 and 2020, 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.

			2021						2020
Projected benefit obligation
Projected benefit obligation at beginning of year			790						665
Service cost			17						17
Interest cost			6						7
Actuarial (gains) and losses			(3)						65
Curtailments and settlements			—						—
Benefits paid			(22)						(22)
Exchange rate differences			(58)						58
Projected benefit obligation at end of year			730						790
Plan assets
Fair value of plan assets at beginning of year			224						203
Actual return on plan assets			19						5
Employer contributions			18						22
Curtailments and settlements			—						—
Benefits paid			(21)						(22)
Exchange rate differences			(18)						16
Fair value of plan assets at end of year			222						224
Funded status			(508)						(566)
Classification of the funded status is as follows
– Accrued pension cost within other non-current liabilities			(497)						(554)
– Accrued pension cost within accrued liabilities			(11)						(12)
Total			(508)						(566)
Accumulated benefit obligation
Accumulated benefit obligation for all Company-dedicated benefit pension plans			705						755
Plans with assets less than accumulated benefit obligation (including unfunded plans)
– Fair value of plan assets			217						220
– Accumulated benefit obligations			699						750
Amounts recognized in accumulated other comprehensive income (before tax)
Total AOCI at beginning of year			214						140
– Net actuarial loss (gain)			(24)						58
– Exchange rate differences			(15)						16
Total AOCI at end of year			175						214

The net amount of projected benefit obligation and plan assets for all underfunded (including unfunded) pension plans was $508 million and $566 million at December 31, 2021 and 2020, respectively, and was classified as liabilities in the Consolidated Balance Sheets.

For the year ended December 31, 2021, actuarial losses were primarily related to increases in discount rates of approximately 40 basis points on a weighted basis and updates to mortality table benchmarks in various countries. For the year ended December 31, 2020, actuarial losses were primarily related to decreases in discount rates of approximately 40 basis points on a weighted basis and updates to mortality table benchmarks in various countries.

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

			2021						2020
Discount rate			1.2		%				0.8		%
Rate of compensation increase			2.2		%				1.6		%

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

			2021						2020						2019
Discount rate			0.8		%				1.2		%				2.0		%
Expected returns on plan assets			2.6		%				2.6		%				2.7		%
Rate of compensation increase			1.6		%				1.5		%				1.8		%

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

Plans in certain Asian countries without a deep corporate bond market use a discount rate based on the local sovereign rate and the plans' maturities (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:

			2021						2020						2019
Service cost			18						17						14
Interest cost on the projected benefit obligation			6						7						12
Expected return on plan assets			(6)						(5)						(6)
Amortization of net (gain) loss			10						8						4
Curtailments & settlements			—						—						—
Net periodic cost			28						27						24

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.

Plan assets

The actual pension plan asset allocation at December 31, 2021 and 2020 is as follows:

			2021						2020
Asset category:
Equity securities			34		%				34		%
Debt securities			35		%				39		%
Insurance contracts			7		%				7		%
Other			24		%				20		%
			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 $222 million include $193 million related to the German and Japanese pension funds.

The following table summarizes the classification of these assets.

			2021																		2020
			Level I						Level II						Level III						Level I						Level II						Level III
Equity securities			—						71						—						—						71						—
Debt securities			6						53						—						8						62						—
Insurance contracts			—						15						—						—						15						—
Other			1						24						22						—						21						18
			7						163						22						8						169						18

The Company currently expects to make $12 million of employer contributions to defined-benefit pension plans and $10 million of expected cash payments in relation to unfunded pension plans in 2022.

Estimated future pension benefit payments

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

2022			22
2023			23
2024			25
2025			25
2026			28
Years 2027-2031			162

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.

The accumulated postretirement benefit obligation at the end of 2021 equals $4 million (2020: $6 million).

Note 13 - Debt

Long-term debt

The following table summarizes the outstanding long-term debt as of December 31, 2021 and 2020:

			2021																		2020
			Maturities						Amount						Interest rate						Amount						Interest rate
Fixed-rate 3.875% senior unsecured notes			Sep, 2022						—						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 2.7% senior unsecured notes			May, 2025						500						2.700						500						2.700
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						750						3.875
Fixed-rate 3.15% senior unsecured notes			May, 2027						500						3.150						500						3.150
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						1,000						4.300
Fixed-rate 3.4% senior unsecured notes			May, 2030						1,000						3.400						1,000						3.400
Fixed-rate 2.5% senior unsecured notes			May, 2031						1,000						2.500						—						—
Fixed-rate 2.65% senior unsecured notes			Feb, 2032						1,000						2.650						—						—
Fixed-rate 3.25% senior unsecured notes			May, 2041						1,000						3.250						—						—
Fixed-rate 3.125% senior unsecured notes			Feb, 2042						500						3.125						—						—
Fixed-rate 3.25% senior unsecured notes			Nov, 2051						500						3.250						—						—
Floating-rate revolving credit facility (RCF)			Jun, 2024						—						—						—						—
Total principal									10,650												7,650
Unamortized discounts, premiums and debt issuance costs									(78)												(41)
Total debt, including unamortized discounts, premiums, debt issuance costs and fair value adjustments									10,572												7,609
Current portion of long-term debt									—												—
Long-term debt									10,572												7,609

			Range of interest rates						Average rate of interest						Principal amount outstanding 2021						Due in 2022						Due after 2022						Due after 2026						Average remaining term (in years)						Principal amount outstanding 2020
USD notes			2.5%- 5.6%						3.7		%				10,650						—						10,650						7,000						9.05						7,650
Revolving Credit Facility (1)			—		%				—		%				—						—						—						—						—						—
Bank borrowings			—		%				—		%				—						—						—						—						—						—
															10,650						—						10,650						7,000						9.05						7,650

(1)We do not have any borrowings under the $1,500 million Revolving Credit Facility as of December 31, 2021 and 2020.

As of December 31, 2021, the following principal amounts of long-term debt are due in the next 5 years:

2022			—
2023			900
2024			1,000
2025			500
2026			1,250
Due after 5 years			7,000
			10,650

As of December 31, 2021, the book value of our outstanding long-term debt was $10,650 million, less debt issuance costs of $47 million and original issuance/debt discount of $31 million.

As of December 31, 2021, we had no aggregate principal amount of variable interest rate indebtedness under our loan agreements. The remaining tenor of unsecured debt is on average 9.1 years.

Accrued interest as of December 31, 2021 is $57 million (December 31, 2020: $57 million).

2021 Financing Activities

2032, 2042 and 2051 Senior Unsecured Notes

On November 30, 2021, NXP B.V., together with NXP USA Inc. and NXP Funding LLC, issued $1 billion of 2.65% Senior Unsecured Notes due 2032, $500 million of 3.125% Senior Unsecured Notes due 2042 and $500 million of 3.25% Senior Unsecured Notes due 2051. The Company used a portion of the net proceeds of the offering of these notes to redeem the $1 billion aggregate principal amount of outstanding 3.875% Senior Notes due 2022. The remaining net proceeds will be used for general corporate purposes, which may include capital expenditures or equity buyback transactions.

2031 and 2041 Senior Unsecured Notes

On May 11, 2021, NXP B.V., together with NXP USA Inc. and NXP Funding LLC, issued $1 billion of 2.5% Senior Unsecured Notes due 2031 and $1 billion of 3.25% Senior Unsecured Notes due 2041. The net proceeds of the 2.5% Senior Notes due 2031 ("2031 Notes") are being used to finance certain eligible green projects. Pending the allocation of an amount equal to the net proceeds of the 2031 Notes to finance these eligible green projects, the remaining net proceeds of the 2031 Notes, together with the net proceeds of the 3.25% Senior Notes due 2041, are temporarily being held as cash and other short-term securities or are being used for general corporate purposes, including capital expenditures, short-term debt repayment or equity buyback transactions.

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, 2021 and December 31, 2020 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, 2021.

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 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.

On December 2, 2019, we repaid the $1,150 million aggregate principal amount of the Cash Convertible Notes using available cash.

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 expired on various dates ranging from March 2, 2020 to May 26, 2020. During the full period the NXP share price was below the conversion price of the warrants, and as such, none of the warrants have been converted. The Warrants are included in diluted earnings per share to the extent the impact is dilutive. As of December 31, 2020, the Warrants were not dilutive.

Note 14 – 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, 2021, assets recorded under finance leases amounted to $82 million and accumulated depreciation associated with finance leases was $15 million (2020: $82 million and $12 million, respectively). Finance lease liabilities amounted to $23 million as of December 31, 2021 (December 31, 2020: $24 million).

The components of operating lease expense were as follows

			2021						2020						2019
Operating lease cost			66						65						59
Other information related to operating leases was as follows:
Supplemental cash flows information:
Operating cash flows from operating leases			64						63						53
Right-of-use assets obtained in exchange for lease obligations 1)			67						50						279
1) $188 million recorded on January 1, 2019 in accordance with the adoption of ASC 842.
Weighted average remaining lease term			6 years						6 years						6 years
Weighted average discount rate			2		%				3		%				3		%

Future minimum lease payments for operating leases as of December 31, 2021 were as follows:

			As of
			December 31, 2021
2022			60
2023			53
2024			40
2025			30
2026			28
Thereafter			45
Total future minimum lease payments			256
Less: imputed interest			(19)
Total			237

Rent expense amounted to $10 million in 2021 compared to $9 million in 2020 and $12 million in 2019 (containing services related to leased assets as well as short-term leases).

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

			As of December 31,
			2021						2020
Other current liabilities			56						60
Other non-current liabilities			181						177
Total			237						237

Operating lease right-of-use assets are $226 million as of December 31, 2021 (December 31, 2020: $223 million) and are included in other non-current assets in the consolidated balance sheet.

Note 15 - 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, 2021, the Company had purchase commitments of $4,354 million, which are due through 2044. Our long-term obligations increased substantially in 2021 as we locked in long-term supply with our key manufacturing partners.

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 $65 million accrued for potential and current legal proceedings pending as

of December 31, 2021, compared to $17 million accrued at December 31, 2020 (without reduction for any related insurance reimbursements). The accruals are included in “Other current liabilities” and “Other non-current liabilities”. As of December 31, 2021, the Company’s balance related to insurance reimbursements was $46 million (December 31, 2020: $8 million) and is included in “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, 2021, 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 million and $63 million. Based upon our past experience with these matters, the Company would expect to receive additional insurance reimbursement of up to $48 million on certain of these claims that would partially offset the potential aggregate exposure to loss in excess of the amount accrued.

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 18 individuals. The Motorola suits allege exposures between 1981 and 2006. Each claim seeks an unspecified amount of damages for the alleged injuries; however, legal counsel representing the plaintiffs have 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.

Loss recovery

In February 2021, NXP’s two wafer manufacturing facilities in Austin, Texas were negatively impacted by unusually severe winter weather conditions that corresponded with a widespread disruption of gas, electricity, and water. The Company has insurance coverage for the repair or replacement of assets that suffered damage or loss and business interruption coverage, including lost profits, and the reimbursement of other expenses and costs that have been incurred relating to the damages and losses suffered.

For the year ended December 31, 2021, the Company recognized $177 million in insurance proceeds directly offsetting the loss from operations that were incurred in the period.

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, 2021, we have recorded $87 million for environmental remediation costs, which are primarily included in other non-current liabilities in the accompanying Consolidated Balance Sheets. 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 16 - Stockholders’ Equity and Earnings per Share

The share capital of the Company as of December 31, 2021 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.

In November 2019, the board of directors of NXP (the "Board"), as authorized by the 2019 annual general meeting of shareholders, approved the repurchase of shares up to a maximum of $2 billion (the "2019 Share Repurchase Program"). In addition, the Board approved the purchase of shares from participants in NXP's equity programs who trade shares as trade for tax and this authorization will remain in effect until terminated by the Board. In March 2021, the Board, as authorized by the 2020 annual general meeting of shareholders, approved the repurchase of shares up to a maximum of $2 billion (the "2021 Share Repurchase Program"), and in August 2021, the Board, as authorized by the 2021 annual general meeting of shareholders, increased the 2021 Share Repurchase Program authorization by $2 billion, for a total of $4 billion approved for the repurchase of shares under the 2021 Share Repurchase Program.

During the fiscal year-ended December 31, 2020, NXP repurchased 4.8 million shares, for a total of approximately $0.6 billion, and during the year-ended December 31, 2021, NXP repurchased 20.6 million shares, for a total of approximately $4 billion. As approved by the board of directors, on December 15, 2020, NXP cancelled some 26 million shares and on November 30, 2021, NXP cancelled 15 million shares. As a result, the number of issued NXP shares as per December 31, 2020 is 289,519,638 shares and as per December 31, 2021, the Company has issued and paid up 274,519,638 shares of common stock each having a par value of €0.20 or a nominal stock capital of €55 million (2020: €58 million).

Cash dividends

The following dividends were declared in 2021, 2020 and 2019 under NXP’s quarterly dividend program which was introduced as of the third quarter of 2018:

			2021						2020						2019
Dividends declared (in millions)			606						420						351
Dividends declared (per share)			2.25						1.50						1.25

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 17, “Share-based Compensation”.

Treasury shares

From time to time, last on May 26, 2021, the General Meeting of Shareholders authorizes the Board of Directors to repurchase shares of our common stock. On that basis, the Board of Directors has approved 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:

			2021						2020						2019
Total shares in treasury at beginning of year			9,044,952						34,082,242						35,913,021
Total cost			1,037						3,037						3,238
Shares acquired under repurchase program			20,628,901						4,828,913						15,865,718
Average price in $ per share			194.63						129.70						90.94
Amount paid			4,015						627						1,443
Shares delivered			5,104,494						3,866,203						4,513,416
Average price in $ per share			102.88						94.26						93.55
Amount received			62						71						84
Shares retired			15,000,000						26,000,000						13,183,081
Total shares in treasury at end of year			9,569,359						9,044,952						34,082,242
Total cost			1,932						1,037						3,037

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:

			2021						2020						2019
Net income (loss)			1,906						80						272
Less: Net income (loss) attributable to non-controlling interests			35						28						29
Net income (loss) attributable to stockholders			1,871						52						243
Weighted average number of shares outstanding (after deduction of treasury shares) during the year (in thousands)			270,687						279,763						282,056
Plus incremental shares from assumed conversion of:
Options 1)			386						526						776
Restricted Share Units, Performance Share Units and Equity Rights 2)			4,573						3,520						3,079
Dilutive potential common share			4,959						4,046						3,855
Adjusted weighted average number of shares outstanding (after deduction of treasury shares) during the year (in thousands) 1)			275,646						283,809						285,911
EPS attributable to stockholders in $:
Basic net income (loss)			6.91						0.19						0.86
Diluted net income (loss)			6.79						0.18						0.85

1)No stock options to purchase shares of NXP’s common stock that were outstanding in 2021 (2020: none; 2019: 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 up to 0.1 million shares that were outstanding in 2021 (2020: 0.6 shares; 2019: 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.

Note 17 - Share-based Compensation

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

			2021						2020						2019
Cost of revenue			45						45						42
Research and development			165						159						141
Selling, general and administrative			143						180						163
			353						384						346

The income tax (expense) benefit recognized in net income related to share-based compensation expenses was $54 million (includes $32 million of excess tax benefits), $32 million (includes $10 million of excess tax benefits) and $27 million (includes $3 million of excess tax benefits) for the years ended December 31, 2021, 2020 and 2019, 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 November 2, 2021, 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 $257.26 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 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, 2021 was 23.8 million.

A charge of $331 million was recorded in 2021 for the LTIP (2020: $376 million; 2019: $339 million).

A summary of the activity for our LTIP’s during 2021 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 5.98 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 did not have sufficient historical exercise data at the grant date of the options;

• a risk-free interest rate varying from 1.2% to 1.9% (2020: 1.2% to 1.9%; 2019: 1.0% to 1.9%);

• no expected dividend payments; and

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

Above assumptions were valid at the moment NXP granted the options. 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, 2021			644,334						56.03
Granted			—						—
Exercised			182,847						54.54
Forfeited			3,275						17.96
Outstanding at December 31, 2021			458,212						56.90						2.70						78
Exercisable at December 31, 2021			458,212						56.90						2.70						78

No options were granted in 2021, 2020 and 2019.

The intrinsic value of the exercised options was $27 million (2020: $45 million; 2019: $48 million), whereas the amount received by NXP was $10 million (2020: $26 million; 2019: $45 million). The tax benefit realized from stock options exercised during fiscal 2021, 2020, and 2019 was $58 million, $33 million, and $31 million, respectively.

At December 31, 2021, there were no (2020: none) unrecognized compensation cost related to non-vested stock options.

Performance share units

Market performance conditions

			Shares						Weighted average grant date fair value in USD
Outstanding at January 1, 2021			2,131,694						131.81
Granted			238,043						257.18
Performance based adjustment 1)			499,303						121.37
Vested			1,914,161						121.20
Forfeited			79,301						—
Outstanding at December 31, 2021			875,578						181.50
1) The amount shown represents performance adjustments for performance-based awards granted on July 26, 2018. These units vested at 135% during 2021 based on the achievement of relative TSR performance conditions.

In 2021, the weighted average grant date fair value of performance share units granted was $257.18 (2020: $164.92; 2019: $141.64).

In 2021, the fair value of the performance share units at the time of vesting was $395 million (2020: nil ; 2019: nil).

At December 31, 2021, there was a total of $90 million (2020: $89 million; 2019: $135 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 1.7 years (2020: 2.0 years; 2019: 2.0 years).

Restricted share units

			Shares						Weighted average grant date fair value in USD
Outstanding at January 1, 2021			5,392,686						114.83
Granted			1,819,220						201.68
Vested			2,693,170						107.31
Forfeited			340,819						122.22
Outstanding at December 31, 2021			4,177,917						156.89

The weighted average grant date fair value of restricted share units granted in 2021 was $201.68 (2020: $129.05; 2019: $111.62). The fair value of the restricted share units at the time of vesting was $533 million (2020: $372 million; 2019: $325 million).

At December 31, 2021, there was a total of $546 million (2020: $502 million; 2019: $501 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 1.6 years (2020: 1.5 years; 2019: 1.5 years).

Note 18 - 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)												Accumulated Other Comprehensive Income (loss)
As of December 31, 2019			203						2						(130)												75
Other comprehensive income (loss) before reclassifications			78						15						(63)												30
Amounts reclassified out of accumulated other comprehensive income (loss)			—						(4)						—												(4)
Income tax effects			—						(2)						18												16
Other comprehensive income (loss)			78						9						(45)												42
As of December 31, 2020			281						11						(175)												117
Other comprehensive income (loss) before reclassifications			(74)						(9)						23												(60)
Amounts reclassified out of accumulated other comprehensive income (loss)			—						(6)						—												(6)
Income tax effects			—						4						(7)												(3)
Other comprehensive income (loss)			(74)						(11)						16												(69)
As of December 31, 2021			207						—						(159)												48

Note 19 - Related-party Transactions

The Company’s related parties are the members of the board of directors of NXP Semiconductors N.V., the executive officers of NXP Semiconductors N.V. and equity-accounted investees.

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:

			2021						2020						2019
Revenue and other income			8						54						82
Purchase of goods and services			4						36						64

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

			2021						2020
Receivables			1						3
Payables			3						7

Note 20 - Fair Value of Financial Assets and Liabilities

The following table summarizes the estimated fair value of our financial instruments which are measured at fair value on a recurring basis:

									Estimated fair value
			Fair value hierarchy						December 31, 2021						December 31, 2020
Assets:
Money market funds			1						2,111						1,469
Marketable equity securities			1						18						19
Derivative instruments-assets			2						5						18
Liabilities:
Derivative instruments-liabilities			2						(3)						—

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

Assets and liabilities measured at fair value on a recurring basis

Investments in money market funds (as part of our cash and cash equivalents) and marketable equity securities (as part of other non-current assets) have fair value measurements which are all based on quoted prices in active markets for identical assets or liabilities. For derivatives (as part of other current assets or accrued liabilities) the fair value is based upon significant other observable inputs depending on the nature of the derivative.

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

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

Assets and liabilities not recorded at fair value on a recurring basis

Financial instruments not recorded at fair value on a recurring basis include non-marketable equity securities and equity method investments that have not been remeasured or impaired in the current period and debt.

As of December 31, 2021, the estimated fair value of current and non-current debt was $11.3 billion ($8.6 billion as of December 31, 2020). The fair value is estimated on the basis of broker-dealer quotes, which are Level 2 inputs. Accrued interest is included under accrued liabilities and not within the carrying amount or estimated fair value of debt.

Note 21 - 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 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. 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 22 - Segments and Geographical Information

NXP has one reportable segment representing the entity as a whole, aligning 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. 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
			2021						2020						2019						2021						2020						2019
China			4,180						3,324						3,147						387						257						265
Netherlands			352						222						275						251						212						221
United States			964						750						840						719						766						845
Singapore			1,269						1,064						1,006						391						304						321
Germany			628						483						526						44						51						52
Japan			810						647						780						1						—						—
South Korea			467						327						327						—						—						—
Malaysia			123						95						120						326						288						337
Other countries			2,270						1,700						1,856						516						406						407
			11,063						8,612						8,877						2,635						2,284						2,448