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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis (MD&A) should be read in conjunction with our consolidated financial statements and notes and the MD&A in our Annual Report on Form 10-K for the year ended December 31, 2023*, and the financial statements and the related notes that appear elsewhere in this document.*

Recent Developments

Our Management Team is focused on leading NXP team members to work together and with our customers to create breakthrough technologies that make the connected world better, safer and more secure. The roles and/or individuals within the Management Team change from time to time for various reasons. Recent changes include Torsten Lehmann, Executive Vice President taking an extended medical leave and Henri Ardevol, Executive Vice President transitioning from a business facing role into a strategy role within the Management Team.

Overview

Quarter in Focus

  • Revenue was $3.1 billion, down 5.2% percent year-on-year;

  • GAAP gross margin was 57.3 percent, and GAAP operating margin was 28.7 percent;

  • Non-GAAP gross margin was 58.6 percent, and non-GAAP operating margin was 34.3 percent;

  • Cash flow from operations was $761 million, with net capital expenditures on property, plant and equipment of $184 million, resulting in non-GAAP free cash flow of $577 million;

  • During the second quarter of 2024, NXP returned capital to shareholders with the payment of $260 million in cash dividends and the repurchase of $310 million of its common shares, for a total capital return of $570 million;

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Sequential Results

Q2 2024 compared to Q1 2024

Revenue for the three months ended June 30, 2024 remained flat, $3,127 million compared to $3,126 million for the three months ended March 31, 2024, in line with management's expectations. Within our end markets, the Industrial IoT end market increased $42 million or 7.3% and the Communication Infrastructure & Other end market increased $39 million or 9.8%, which

were offset by decreases in the Automotive end market of $76 million or 4.2% and in the Mobile end market of $4 million or 1.1%.

When aggregating all end markets together and reviewing sales channel performance, revenues through NXP's third party distribution partners was $1,804 million, an increase of $65 million or 3.7% compared to the previous period. Revenues through NXP's third party direct OEM and EMS customers was $1,294 million, a decrease of $61 million or 4.5% versus the previous period.

From a geographic perspective, revenue increased quarter-on-quarter in the China region by 8.3%, while revenue decreased in the EMEA region by 9%, in the Asia Pacific region by 1.3% and in the Americas region by 0.9%.

Our gross profit percentage for the three months ended June 30, 2024 of 57.3% was relatively consistent compared with 57.0% for the three months ended March 31, 2024.

Operating income for the three months ended June 30, 2024 was $896 million compared to $856 million for the three months ended March 31, 2024, an increase of $40 million or 4.7%. Lower amortization of acquisition-related intangible assets was the main driver for the sequential decrease.

Results of operations

The following table presents operating results for each of the three- and six-month periods ended June 30, 2024 and July 2, 2023, respectively:

($ in millions, unless otherwise stated)Q2 2024% of RevenueQ2 2023% of RevenueYTD 2024% of RevenueYTD 2023% of Revenue
Revenue3,1273,2996,2536,420
% nominal growth(5.2)(0.4)(2.6)(0.4)
Gross profit1,7921,8813,5753,651
Gross margin57.3%57.0%57.2%56.9%
Research and development(594)19.0%(589)17.9%(1,158)18.5%(1,166)18.2%
Selling, general and administrative(270)8.6%(274)8.3%(576)9.2%(554)8.6%
Amortization of acquisition-related intangible assets(28)0.9%(81)2.5%(79)1.3%(166)2.6%
Other income (expense)(4)0.1%——%(10)0.2%(3)—%
Operating income (loss)89628.7%93728.4%1,75228.0%1,76227.4%
Financial income (expense)(75)2.4%(74)2.2%(145)2.3%(156)2.4%
Benefit (provision) for income taxes(154)4.9%(158)4.8%(295)4.7%(276)4.3%
Results relating to equity-accounted investees(3)0.1%(1)—%(4)0.1%(3)—%
Net income (loss)66421.2%70421.3%1,30820.9%1,32720.7%
Less: Net income (loss) attributable to non-controlling interests60.2%60.2%110.2%140.2%
Net income (loss) attributable to stockholders65821.0%69821.2%1,29720.7%1,31320.5%
Diluted earnings per share2.542.675.015.03

Revenue

Q2 2024 Overview

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Q2 2024 compared to Q2 2023

Revenue for the three months ended June 30, 2024 was $3,127 million compared to $3,299 million for the three months ended July 2, 2023, a decrease of $172 million or 5.2%, in line with management’s expectations.

YTD 2024 Overview

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YTD 2024 compared to YTD 2023

Revenue for the six months ended June 30, 2024 was $6,253 million compared to $6,420 million for the six months ended July 2, 2023, a decrease of $167 million or 2.6%.

Revenue by end market was as follows:

($ in millions, unless otherwise stated)Q2 2024Q2 2023% changeYTD 2024YTD 2023% change
Automotive1,7281,866(7.4)%3,5323,694(4.4)%
Industrial & IoT6165786.6%1,1901,08210.0%
Mobile34528421.5%69454427.6%
Communication Infrastructure & Other438571(23.3)%8371,100(23.9)%
Total Revenue3,1273,299(5.2)%6,2536,420(2.6)%

Revenue by sales channel was as follows:

($ in millions, unless otherwise stated)Q2 2024Q2 2023% changeYTD 2024YTD 2023% change
Distributors1,8041,6797.4%3,5433,17011.8%
OEM/EMS1,2941,596(18.9)%2,6493,190(17.0)%
Other292420.8%61601.7%
Total Revenue3,1273,299(5.2)%6,2536,420(2.6)%

Revenue by geographic region, which is based on the customer’s shipped-to location was as follows:

($ in millions, unless otherwise stated)Q2 2024Q2 2023% changeYTD 2024YTD 2023% change
China 1)1,0981,0316.5%2,1121,9786.8%
APAC, excluding China898958(6.3)%1,8081,933(6.5)%
EMEA (Europe, the Middle East and Africa)676797(15.2)%1,4191,522(6.8)%
Americas455513(11.3)%914987(7.4)%
Total Revenue3,1273,299(5.2)%6,2536,420(2.6)%
1) China includes Mainland China and Hong Kong

Q2 2024 compared to Q2 2023

From an end market perspective, NXP experienced growth in its Mobile and Industrial IoT end markets which were offset by declines in the Automotive and the Communication Infrastructure & Other end markets versus the year ago period.

Revenue in the Automotive end market was $1,728 million, a decrease of $138 million or 7.4% versus the year ago period. The decrease in the Automotive end market revenue was attributable to declines in our automotive processors and connectivity products, which were offset by growth in our ADAS – Safety products and advanced analog portfolio.

Revenue in the Industrial & IoT end market was $616 million, an increase of $38 million or 6.6% versus the year-ago period. Within the Industrial & IoT end market the year-on-year increase was across the entire product portfolio, including processors, advanced analog, connectivity and security.

Revenue in the Mobile end market was $345 million, an increase of $61 million or 21.5% versus the year ago period. The increase in the Mobile end market revenue was across the entire product portfolio, including mobile wallet and advanced analog.

Revenue in the Communication Infrastructure & Other end market was $438 million, a decrease of $133 million or 23.3% versus the year ago period. The decrease in the Communication Infrastructure & Other end market revenue was attributable to declines in our secure cards, RF power products and legacy processors.

When aggregating all end markets together, and reviewing sales channel performance, revenues through NXP’s third party distribution partners was $1,804 million, an increase of 7.4% versus the year-ago period. Revenues through direct OEM and EMS customers was $1,294 million, a decrease of 18.9% versus the year ago period.

From a geographic perspective, revenue increased year-on-year in the China region by 6.5%, while revenue decreased in the EMEA region by 15.2%, in the Americas region by 11.3%, and in the Asia Pacific region by 6.3%.

YTD 2024 compared to YTD 2023

From an end market perspective, NXP experienced growth in its Mobile and Industrial & IoT end markets, which were offset by declines in the Communication Infrastructure & Other and the Automotive end markets versus the year ago period.

Revenue in the Automotive end market was $3,532 million, a decrease of $162 million or 4.4% versus the year ago period. The decrease in the Automotive end market revenue was attributable to declines in our automotive processors and connectivity products, which were offset by growth in our advanced analog portfolio and ADAS – Safety products.

Revenue in the Industrial & IoT end market was $1,190 million, an increase of $108 million or 10.0% versus the year ago period. Within the Industrial & IoT end market the year-on-year increase was across the entire product portfolio, including processors, connectivity, advanced analog and security.

Revenue in the Mobile end market was $694 million, an increase of $150 million or 27.6% versus the year ago period. The increase in the Mobile end market revenue was attributable to increases in our mobile wallet and advanced analog products.

Revenue in the Communication Infrastructure & Other end market was $837 million, a decrease of $263 million or 23.9% versus the year ago period. The decrease in revenue of secure cards and RF power products was due to weak end market demand. Legacy processors experienced anticipated end-of-life trends.

When aggregating all end markets together, and reviewing sales channel performance, revenues through NXP’s third party distribution partners was $3,543 million, an increase of 11.8% versus the year-ago period. Revenues through direct OEM and EMS customers was $2,649 million, a decrease of 17.0% versus the year-ago period.

From a geographic perspective, revenue increased year-on-year in the China region by 6.8%, while revenue decreased in the Americas region by 7.4%, in the EMEA region by 6.8% and in the Asia Pacific region by 6.5%.

Gross profit

Q2 2024 compared to Q2 2023

Gross profit for the three months ended June 30, 2024 was $1,792 million, or 57.3% of revenue, compared to $1,881 million, or 57.0% of revenue for the three months ended July 2, 2023, was relatively consistent with revenue and costs, both of which had comparable decreases year on year.

YTD 2024 compared to YTD 2023

Gross profit for the six months ended June 30, 2024 was $3,575 million, or 57.2% of revenue, compared to $3,651 million, or 56.9% of revenue for the six months ended July 2, 2023. was relatively consistent with revenue and costs, both of which had comparable decreases in the year-to-date period.

Operating expenses

Q2 2024 compared to Q2 2023

Operating expenses for the three months ended June 30, 2024 totaled $892 million, or 28.5% of revenue, compared to $944 million, or 28.6% of revenue, for the three months ended July 2, 2023.

YTD 2024 compared to YTD 2023

Operating expenses for the six months ended June 30, 2024 totaled $1,813 million, or 29.0% of revenue, compared to $1,886 million, or 29.4% of revenue, for the six months ended July 2, 2023.

  • Research and development
($ in millions, unless otherwise stated)Q2 2024Q2 2023% changeYTD 2024YTD 2023% change
Research and development5945890.8%1,1581,166(0.7)%
As a percentage of revenue19.0%17.9%(1.1)ppt18.5%18.2%(0.3)ppt

Q2 2024 compared to Q2 2023

R&D costs for the three months ended June 30, 2024 increased by $5 million, or 0.8%, when compared to the three months ended July 2, 2023 mainly driven by higher license fees of $15 million and higher personnel-related costs of $5 million, offset by higher government grants and subsidies of $20 million.

YTD 2024 compared to YTD 2023

R&D costs for the six months ended June 30, 2024 decreased by $8 million, or 0.7%, when compared to the six months ended July 2, 2023 mainly driven by higher government grants and subsidies of $40 million, partly offset by higher license fees of $15 million and higher personnel-related costs of $9 million.

  • Selling, general and administrative
($ in millions, unless otherwise stated)Q2 2024Q2 2023% changeYTD 2024YTD 2023% change
Selling, general and administrative270274(1.5)%5765544.0%
As a percentage of revenue8.6%8.3%(0.3)ppt9.2%8.6%(0.6)ppt

Q2 2024 compared to Q2 2023

SG&A costs for the three months ended June 30, 2024 decreased by $4 million, or 1.5%, when compared to the three months ended July 2, 2023 mainly due to $7 million lower legal expenses.

YTD 2024 compared to YTD 2023

SG&A costs for the six months ended June 30, 2024 increased by $22 million, or 4.0%, when compared to the six months ended July 2, 2023 mainly due to higher personnel-related costs of $8 million and higher legal expenses of $9 million.

  • Amortization of acquisition-related intangible assets
($ in millions, unless otherwise stated)Q2 2024Q2 2023% changeYTD 2024YTD 2023% change
Amortization of acquisition-related intangible assets2881(65.4)%79166(52.4)%
As a percentage of revenue0.9%2.5%1.6ppt1.3%2.6%1.3ppt

Q2 2024 compared to Q2 2023

Amortization of acquisition-related intangible assets for the three months ended June 30, 2024 decreased by $53 million, or 65.4%, when compared to the three months ended July 2, 2023 mainly due to the effect of certain acquisition-related intangibles becoming fully amortized (with regard to the Marvell and former Freescale acquisitions).

YTD 2024 compared to YTD 2023

Amortization of acquisition-related intangible assets for the six months ended June 30, 2024 decreased by $87 million, or 52.4%, when compared to the six months ended July 2, 2023 mainly due to the effect of certain acquisition-related intangibles becoming fully amortized (with regard to the Marvell and former Freescale acquisitions).

Financial income (expense)

The following table presents the details of financial income and expenses:

($ in millions, unless otherwise stated)Q2 2024Q2 2023YTD 2024YTD 2023
Interest income39438985
Interest expense(97)(109)(202)(220)
Total other financial income/ (expense)(17)(8)(32)(21)
Total(75)(74)(145)(156)

Q2 2024 compared to Q2 2023

Financial income (expense) was an expense of $75 million for the three months ended June 30, 2024, compared to an expense of $74 million for the three months ended July 2, 2023. The change in financial income (expense) is attributable to a decrease in interest income of $4 million as a result of lower cash levels. Interest expense decreased by $12 million mainly due to the retirement of the 4.875% senior unsecured notes on March 1, 2024. Other financial income/ (expense) mainly consist of fair value adjustments in equity securities, a loss of $3 million for the three months ended June 30, 2024 versus a profit of $6 million for the three months ended July 2, 2023.

YTD 2024 compared to YTD 2023

Financial income (expense) was an expense of $145 million for the six months ended June 30, 2024, compared to an expense of $156 million for the six months ended July 2, 2023. The change in financial income (expense) is attributable to an increase in

interest income of $4 million as a result of higher interest rates. Interest expense decreased by $18 million mainly due to the retirement of the 4.875% senior unsecured notes on March 1, 2024. Other financial income/ (expense) mainly consist of fair value adjustments in equity securities, a loss of $5 million for the six months ended June 30, 2024 versus a profit of $5 million for the six months ended July 2, 2023.

Benefit (provision) for income taxes

Our provision for income taxes for 2024 is based on our EAETR of 17.8% , which is lower than the Netherlands statutory tax rate of 25.8%, primarily due to tax benefits from the Netherlands and foreign tax incentives.

Q2 2024Q2 2023YTD 2024YTD 2023
Tax benefit (provision) calculated at EAETR(147)(147)(286)(273)
Discrete tax benefit (provision) items(7)(11)(9)(3)
Benefit (provision) for income taxes(154)(158)(295)(276)
Effective tax rate18.8%18.3%18.4%17.2%

Q2 2024 compared to Q2 2023

The effective tax rate of 18.8% for the second quarter of 2024 was higher than the EAETR due to the income tax expense for discrete items of $7 million. The discrete items are primarily related to changes in estimates for previous years, and the impact of foreign currency on income tax related items. In addition to this, there was a recapture of tax expense of $1 million due to a higher EAETR compared to prior quarter.

YTD 2024 compared to YTD 2023

For the first six months ended 2024 the effective tax rate of 18.4% was higher than 17.8% due to an net result of unfavorable discrete items of $9 million.

The effective tax rate of 18.4% for the first six months of 2024 was higher compared to the rate for the first six months ended 2023 of 17.2% due to a different mix of the benefit (provision) for income taxes in the locations that we operate in, lower foreign tax incentives in the current period as a result of a decrease in qualifying income, newly enacted alternative minimum tax law as per 2024, and also due to the impact of the discrete items in the respective periods.

Results Relating to Equity-accounted Investees

Q2 2024 compared to Q2 2023

Results relating to equity-accounted investees amounted to a loss of $3 million for the three months ended June 30, 2024, whereas the three months ended July 2, 2023 results relating to equity-accounted investees amounted to a loss of $1 million.

YTD 2024 compared to YTD 2023

Results relating to equity-accounted investees amounted to a loss of $4 million for the six months ended June 30, 2024, whereas the six months ended July 2, 2023 results relating to equity-accounted investees amounted to a loss of $3 million.

Non-controlling Interests

Q2 2024 compared to Q2 2023

Non-controlling interests are related to the third-party share in the results of consolidated companies, predominantly SSMC. Their share of non-controlling interests amounted to a profit of $6 million for the three months ended June 30, 2024, compared to a profit of $6 million for the three months ended July 2, 2023.

YTD 2024 compared to YTD 2023

Non-controlling interests are related to the third-party share in the results of consolidated companies, predominantly SSMC. Their share of non-controlling interests amounted to a profit of $11 million for the six months ended June 30, 2024, compared to a profit of $14 million for the six months ended July 2, 2023.

Liquidity and Capital Resources

We derive our liquidity and capital resources primarily from our cash flows from operations. We continue to generate strong positive operating cash flows. At the end of the second quarter of 2024, our cash balance was $2,859 million, a decrease of $1,003 million compared to December 31, 2023 having fully retired our $1 billion aggregate principal amount of outstanding 4.875% senior unsecured notes due March 2024. Taking into account the available amount of the Unsecured Revolving Credit Facility of $2,500 million, we had access to $5,359 million of liquidity as of June 30, 2024. We currently use cash to fund operations, meet working capital requirements, for capital expenditures and for potential common stock repurchases, dividends and strategic investments. Based on past performance and current expectations, we believe that our current available sources of funds (including cash and cash equivalents, short-term deposits, RCF Agreement of $2.5 billion, plus anticipated cash generated from operations) will be adequate to finance our operations, working capital requirements, capital expenditures and potential dividends for at least the next twelve months.

($ in millions, unless otherwise stated)YTD 2024YTD 2023
Cash from operations1,6121,388
Capital expenditures(411)(452)
Cash to shareholders(1,134)(796)

Cash and short-term deposits

At June 30, 2024, our cash and short-term deposits balance was $3,259 million of which $241 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.

Capital expenditures

Our cash outflows for capital expenditures were $411 million in the first six months of 2024, compared to $452 million in the first six months of 2023.

Capital return

Under our Quarterly Dividend Program, interim dividends of $1.014 per ordinary share were paid on January 5, 2024 ($261 million), dividends of $1.014 per ordinary share were paid on April 10, 2024 ($260 million) and dividends of $1.014 per ordinary share were paid on July 10, 2024 ($259 million).

In the first six months of 2024 we repurchased approximately $613 million of shares.

Debt

Our total debt, inclusive of aggregate principal, unamortized discounts, premiums, debt issuance costs and fair value adjustments, amounted to $10,180 million as of June 30, 2024, a decrease of $995 million compared to December 31, 2023 ($11,175 million). On March 1, 2024, we fully retired at maturity our $1 billion aggregate principal amount of outstanding 4.875% senior unsecured notes using available cash on balance sheet.

As of June 30, 2024, we had outstanding fixed-rate notes with varying maturities for an aggregate principal amount of $10,250 million (collectively the “Notes”), of which $500 million is payable within 12 months. Future interest payments associated with the Notes total $2,921 million, with $378 million payable within 12 months.

Our net debt position (see section Use of Certain Non-GAAP Financial Measures) at June 30, 2024 amounted to $6,921 million, compared to $6,904 million as of December 31, 2023.

Additional Capital Requirements

Expected working and other capital requirements are described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. At June 30, 2024, other than for changes disclosed in the “Notes to Condensed Consolidated Financial Statements” and “Liquidity and Capital Resources” in this Quarterly Report, there have been no other material changes to our expected working and other capital requirements described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Cash flows

Our cash and cash equivalents during the first six months of 2024 decreased by $996 million (excluding the effect of changes in exchange rates on our cash position of $(7) million) as follows:

($ in millions, unless otherwise stated)YTD 2024YTD 2023
Net cash provided by (used for) operating activities1,6121,388
Net cash (used for) provided by investing activities(513)(606)
Net cash provided by (used for) financing activities(2,095)(763)
Increase (decrease) in cash and cash equivalents(996)19

Cash Flow from Operating Activities

For the first six months of 2024 our operating activities provided $1,612 million in cash. This was primarily the result of net income of $1,308 million, adjustments to reconcile the net income of $602 million and changes in operating assets and liabilities of $(305) million. Adjustments to net income (loss) include offsetting non-cash items, such as depreciation and amortization of $448 million, share-based compensation of $229 million and changes in deferred taxes of $(87) million. Changes in operating assets and liabilities were primarily driven by a $322 million decrease in accounts payable and other liabilities as a result of lower purchase volumes and timing related to payments, $15 million increase in receivables and other current assets due to the linearity of revenue between the two periods, customer mix, and the related timing of cash collection, and $14 million increase in inventories in order to align inventory on hand with expected demand, partially offset by a $46 million decrease in other non-current assets from the application of prepayments used to secure long-term production supply.

For the first six months of 2023 our operating activities provided $1,388 million in cash. This was primarily the result of net income of $1,327 million, adjustments to reconcile the net income of $630 million and changes in operating assets and liabilities of $(575) million. Adjustments to net income (loss) includes offsetting non-cash items, such as depreciation and amortization of $564 million, share-based compensation of $201 million and changes in deferred taxes of $(137) million. Changes in operating assets and liabilities were primarily driven by a $325 million increase in inventories due to increased production levels in order to align inventory on hand with expected demand, $158 million increase in receivables and other current assets due to the linearity of revenue between the two periods, customer mix, and the related timing of cash collection, partially offset by $92 million increase in accounts payable and other liabilities as a result of timing related to payments.

Cash Flow from Investing Activities

Net cash used for investing activities amounted to $513 million for the first six months of 2024 and principally consisted of the cash outflows for capital expenditures of $411 million, $34 million for the purchase of investments (driven primarily by the initial capital contribution of approximately $22 million into European Semiconductor Manufacturing Company (ESMC) GmbH) and $87 million for the purchase of identified intangible assets, including EDA (electronic design automation).

Net cash used for investing activities amounted to $606 million for the first six months of 2023 and principally consisted of the cash outflows for capital expenditures of $452 million, $58 million for the purchase of investments, and $93 million for the purchase of identified intangible assets.

Cash Flow from Financing Activities

Net cash used for financing activities of $2,095 million for the first six months of 2024 was primarily driven by the payment of $1 billion to retire at maturity our outstanding 4.875% senior unsecured notes due March 2024, dividend payment to common stockholders of $521 million, and purchase of treasury shares and restricted stock unit holdings of $613 million, partially offset by the proceeds from the issuance of common stock through stock plans of $40 million.

Net cash used for financing activities of $763 million for the first six months of 2023 was primarily driven by the dividend payment to common stockholders of $483 million and the purchase of treasury shares and restricted stock unit holdings of $313 million, partially offset by the proceeds from the issuance of common stock through stock plans of $33 million.

Information Regarding Guarantors of NXP (unaudited)

Summarized Combined Financial Information for Guarantee of Securities of Subsidiaries

All debt instruments are guaranteed, fully and unconditionally, jointly and severally, by NXP Semiconductors N.V. and issued or guaranteed by NXP USA, Inc., NXP B.V. and NXP LLC, (together, the “Subsidiary Obligors” and together with NXP Semiconductors N.V., the “Obligor Group”). Other than the Subsidiary Obligors, none of the Company’s subsidiaries (together the “Non-Guarantor Subsidiaries”) guarantee the Notes. The Company consolidates the Subsidiary Obligors in its consolidated financial statements and each of the Subsidiary Obligors are wholly owned subsidiaries of the Company.

All of the existing guarantees by the Company rank equally in right of payment with all of the existing and future senior indebtedness of the Obligor Group. There are no significant restrictions on the ability of the Obligor Group to obtain funds from respective subsidiaries by dividend or loan.

The following tables present summarized financial information of the Obligor Group on a combined basis, with intercompany balances and transactions between entities of the Obligor Group eliminated and investments and equity in the earnings of the Non-Guarantor Subsidiaries excluded. The Obligor Group’s amounts due from, amounts due to, and intercompany transactions with Non-Guarantor Subsidiaries have been disclosed below the table, when material.

Summarized Statements of Income

For the six months ended
($ in millions)June 30, 2024
Revenue3,586
Gross Profit1,832
Operating income648
Net income239

Summarized Balance Sheets

As of
($ in millions)June 30, 2024December 31, 2023
Current assets3,2494,298
Non-current assets11,82811,773
Total assets15,07716,071
Current liabilities1,2842,005
Non-current liabilities10,07410,566
Total liabilities11,35812,571
Obligor's Group equity3,7193,500
Total liabilities and Obligor's Group equity15,07716,071

NXP Semiconductors N.V. is the head of a fiscal unity for the corporate income tax and VAT that contains the most significant Dutch wholly-owned group companies. The Company is therefore jointly and severally liable for the tax liabilities of the tax entity as a whole, and as such the income tax expense of the Dutch fiscal unity has been included in the Net income of the Obligor Group.

The financial information of the Obligor Group includes sales executed through a Non-Guarantor Subsidiary single-billing entity as a sales agent on behalf of an entity in the Obligor Group. The Obligor Group has sales to non-guarantors (for the six months ended June 30, 2024: $344 million). The Obligor Group has amounts due from equity financing (June 30, 2024: $6,978 million; December 31, 2023: $5,441 million) and due to debt financing (June 30, 2024: $3,141 million; December 31, 2023: $2,346 million) with non-guarantor subsidiaries.

Use of Certain Non-GAAP Financial Measures

Non-GAAP Financial Measures

In addition to providing financial information on a basis consistent with U.S. generally accepted accounting principles (“US GAAP” or “GAAP”), NXP also provides selected financial measures on a non-GAAP basis which are adjusted for specified items. The adjustments made to achieve these non-GAAP financial measures or the non-GAAP financial measures as specified are described below, including the usefulness to management and investors.

In managing NXP’s business on a consolidated basis, management develops an annual operating plan, which is approved by our Board of Directors, using non-GAAP financial measures. In measuring performance against this plan, management considers the actual or potential impacts on these non-GAAP financial measures from actions taken to reduce costs with the goal of increasing our gross margin and operating margin and when assessing appropriate levels of research and development efforts. In addition, management relies upon these non-GAAP financial measures when making decisions about product spending, administrative budgets, and other operating expenses. We believe that these non-GAAP financial measures, when coupled with the GAAP results and the reconciliations to corresponding GAAP financial measures, provide a more complete understanding of the Company’s results of operations and the factors and trends affecting NXP’s business. We believe that they enable investors to perform additional comparisons of our operating results, to assess our liquidity and capital position and to analyze financial performance excluding the effect of expenses unrelated to core operating performance, certain non-cash expenses and share-based compensation expense, which may obscure trends in NXP’s underlying performance. This information also enables investors to compare financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management.

The presentation of these and other similar items in NXP’s non-GAAP financial results should not be interpreted as implying that these items are non-recurring, infrequent, or unusual. These non-GAAP financial measures are provided in addition to, and not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

Non-GAAP Adjustment or MeasureDefinitionUsefulness to Management and Investors
Purchase price accounting effectsPurchase price accounting ("PPA") effects reflect the fair value adjustments impacting acquisition accounting and other acquisition adjustments charged to the Consolidated Statement of Operations. This typically relates to inventory, property, plant and equipment, as well as intangible assets, such as developed technology and marketing and customer relationships acquired. The PPA effects are recorded within both cost of revenue and operating expenses in our US GAAP financial statements. These charges are recorded over the estimated useful life of the related acquired asset, and thus are generally recorded over multiple years.We believe that excluding these charges related to fair value adjustments for purposes of calculating certain non-GAAP measures allows the users of our financial statements to better understand the historic and current cost of our products, our gross margin, our operating costs, our operating margin, and also facilitates comparisons to peer companies.
RestructuringRestructuring charges are costs primarily related to employee severance and benefit arrangements. Charges related to restructuring are recorded within both cost of revenue and operating expenses in our US GAAP financial statementsWe exclude restructuring charges, including any adjustments to charges recorded in prior periods, for purposes of calculating certain non-GAAP measures because these costs do not reflect our core operating performance. These adjustments facilitate a useful evaluation of our core operating performance and comparisons to past operating results and provide investors with additional means to evaluate expense trends.
Share-based compensationShare-based compensation consists of incentive expense granted to eligible employees in the form of equity based instruments. Charges related to share-based compensation are recorded within both cost of revenue and operating expenses in our US GAAP financial statements.We exclude charges related to share-based compensation for purposes of calculating certain non-GAAP measures because we believe these charges, which are non-cash, are not representative of our core operating performance as they can fluctuate from period to period based on factors that are not within our control, such as our stock price on the dates share-based grants are issued. We believe these adjustments provide investors with a useful view, through the eyes of management, of our core business model, how management currently evaluates core operational performance, and additional means to evaluate expense trends.
Other incidentalsOther incidentals consist of certain items which may be non-recurring, unusual, infrequent or directly related to an event that is distinct and non-reflective of the Company’s core operating performance. These may include such items as process and product transfer costs, certain charges related to acquisitions and divestitures, litigation and legal settlements, costs associated with the exit of a product line, factory or facility, environmental or governmental settlements, and other items of similar nature.We exclude these certain items which may be non-recurring, unusual, infrequent or directly related to an event that is distinct and non-reflective of the Company’s core operating performance for purposes of calculating certain non-GAAP measures. These adjustments facilitate a useful evaluation of our core operating performance and comparisons to past operating results and provide investors with additional means to evaluate expense trends.
Non-GAAP Adjustment or MeasureDefinitionUsefulness to Management and Investors
Non-GAAP Provision for income taxesNon-GAAP provision for income taxes is NXP's GAAP provision for income taxes adjusted for the income tax effects of the adjustments to our GAAP measure, including the effects of purchase price accounting (“PPA”), restructuring costs, share-based compensation, other incidental items and certain other adjustments to financial income (expense) items. Additionally, adjustments are made for the income tax effect of any discrete items that occur in the interim period. Discrete items primarily relate to unexpected tax events that may occur as these amounts cannot be forecasted (e.g., the impact of changes in tax law and/or rates, changes in estimates or resolved tax audits relating to prior year tax provisions, the excess or deficit tax effects on share-based compensation, etc.).The non-GAAP provision for income taxes is used to ascertain and present on a comparable basis NXP's provision for income tax after adjustments, the usefulness of which is described within this table. Additionally, the income tax effects of the adjustments to achieve the noted non-GAAP measures are used to determine NXP's non-GAAP net income (loss) attributable to stockholders and accordingly, our diluted non-GAAP earnings per share attributable to stockholders.
Free Cash FlowFree Cash Flow represents operating cash flow adjusted for net additions to property, plant and equipment.We believe that free cash flow provides insight into our cash-generating capability and our financial performance, and is an efficient means by which users of our financial statements can evaluate our cash flow after meeting our capital expenditure.
Net debtNet debt represents total debt (short-term and long-term) after deduction of cash and cash equivalents and short-term deposits.We believe this measure provides investors with useful supplemental information about the financial performance of our business, enables comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect of calculating our net leverage.

The following are reconciliations of our most comparable US GAAP measures to our non-GAAP measures presented:

($ in millions)For the three months ended
June 30, 2024March 31, 2024July 2, 2023
GAAP gross profit$1,792$1,783$1,881
PPA effects(12)(12)(14)
Restructuring(4)(3)—
Share-based compensation(15)(15)(13)
Other incidentals(10)(5)(18)
Non-GAAP gross profit$1,833$1,818$1,926
GAAP Gross Margin57.3%57.0%57.0%
Non-GAAP Gross Margin58.6%58.2%58.4%
GAAP research and development$(594)$(564)$(589)
Restructuring(4)(3)—
Share-based compensation(58)(58)(51)
Other incidentals—(1)(1)
Non-GAAP research and development$(532)$(502)$(537)
GAAP selling, general and administrative$(270)$(306)$(274)
PPA effects(1)——
Restructuring2(1)—
Share-based compensation(41)(42)(38)
Other incidentals(2)(29)(2)
Non-GAAP selling, general and administrative$(228)$(234)$(234)
GAAP operating income (loss)$896$856$937
($ in millions)For the three months ended
June 30, 2024March 31, 2024July 2, 2023
GAAP operating income (loss)$896$856$937
PPA effects(41)(63)(95)
Restructuring(6)(7)—
Share-based compensation(114)(115)(102)
Other incidentals(14)(39)(21)
Non-GAAP operating income (loss)$1,071$1,080$1,155
GAAP Operating Margin28.7%27.4%28.4%
Non-GAAP Operating Margin34.3%34.5%35.0%
GAAP Income tax benefit (provision)$(154)$(141)$(158)
Income tax effect153022
Non-GAAP Income tax benefit (provision)$(169)$(171)$(180)
($ in millions)For the three months ended
June 30, 2024March 31, 2024July 2, 2023
Net cash provided by (used for) operating activities$761$851$756
Net capital expenditures on property, plant and equipment(184)(224)(200)
Non-GAAP free cash flow$577$627$556
($ in millions)For the three months ended
June 30, 2024March 31, 2024July 2, 2023
Long-term debt$9,681$10,178$10,171
Short-term debt499—999
Total debt10,18010,17811,170
Less: cash and cash equivalents(2,859)(2,908)(3,863)
Less: short-term deposits(400)(400)—
Net debt$6,921$6,870$7,307

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