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.*

Overview

Quarter in Focus

  • Revenue was $3.3 billion, down 5.4% year-on-year;

  • GAAP gross margin was 57.4%, and GAAP operating margin was 30.5%;

  • Non-GAAP gross margin was 58.2%, and non-GAAP operating margin was 35.5%;

  • Cash flow from operations was $779 million, with net capital expenditures on property, plant and equipment of $186 million, resulting in non-GAAP free cash flow of $593 million;

  • During the third quarter of 2024, NXP returned capital to shareholders with the payment of $259 million in cash dividends and the repurchase of $305 million of its common shares, for a total capital return of $564 million.

On September 4, 2024, NXP acquired shares in the newly founded VisionPower Semiconductor Manufacturing Company Pte. Ltd. (VSMC), which will build and operate a new 300mm semiconductor wafer manufacturing facility in Singapore. VSMC is 60% owned by Vanguard International Semiconductor Corporation and 40% owned by NXP. NXP will invest $1,600 million for our equity position, of which $140 million has been invested in the third quarter of 2024 and $740 million is expected to be paid in the next 12 months. NXP has committed to contribute an additional $1,200 million to support the long-term capacity infrastructure that is expected to be paid through 2026, of which $660 million is expected to be paid in the next 12 months.

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Sequential Results

Q3 2024 compared to Q2 2024

Revenue for the three months ended September 29, 2024 was $3,250 million compared to $3,127 million for the three months ended June 30, 2024, an increase of $123 million or 3.9% quarter-on-quarter, in line with management's expectations. Within our end markets, the Automotive end market increased $101 million or 5.8%, the Mobile end market increased $62 million or 18.0%, and the Communication Infrastructure & Other end market increased $13 million or 3.0%, which were offset by a decrease in the Industrial IoT end market of $53 million or 8.6%.

When aggregating all end markets together and reviewing sales channel performance, revenues through NXP's third party distribution partners was $1,897 million, an increase of $93 million or 5.2% compared to the previous period. Revenues through NXP's third party direct OEM and EMS customers was $1,321 million, an increase of $27 million or 2.1% versus the previous period.

From a geographic perspective, revenue increased quarter-on-quarter in the China region by 9.6%, in the EMEA region by 6.4%, and in the Americas region by 6.2%, while revenue decreased in the Asia Pacific region by 5.9%.

Our gross profit percentage for the three months ended September 29, 2024 of 57.4% was relatively consistent compared with 57.3% for the three months ended June 30, 2024.

Operating income for the three months ended September 29, 2024 was $990 million compared to $896 million for the three months ended June 30, 2024, an increase of $94 million or 10.5%. Increased revenue and a cost control focus were the main drivers for the sequential increase.

Results of operations

The following table presents operating results for each of the three- and nine-month periods ended September 29, 2024 and October 1, 2023, respectively:

($ in millions, unless otherwise stated)Q3 2024% of RevenueQ3 2023% of RevenueYTD 2024% of RevenueYTD 2023% of Revenue
Revenue3,2503,4349,5039,854
% nominal growth(5.4)(0.3)(3.6)(0.4)
Gross profit1,8661,9655,4415,616
Gross margin57.4%57.2%57.3%57.0%
Research and development(577)17.8%(601)17.5%(1,735)18.3%(1,767)17.9%
Selling, general and administrative(265)8.2%(294)8.6%(841)8.8%(848)8.6%
Amortization of acquisition-related intangible assets(29)0.9%(71)2.1%(108)1.1%(237)2.4%
Other income (expense)(5)0.2%(7)0.2%(15)0.2%(10)0.1%
Operating income (loss)99030.5%99228.9%2,74228.9%2,75427.9%
Financial income (expense)(82)2.5%(75)2.2%(227)2.4%(231)2.3%
Benefit (provision) for income taxes(173)5.3%(123)3.6%(468)4.9%(399)4.0%
Results relating to equity-accounted investees(6)0.2%(2)0.1%(10)0.1%(5)0.1%
Net income (loss)72922.4%79223.1%2,03721.4%2,11921.5%
Less: Net income (loss) attributable to non-controlling interests110.3%50.1%220.2%190.2%
Net income (loss) attributable to stockholders71822.1%78722.9%2,01521.2%2,10021.3%
Diluted earnings per share2.793.017.808.03

Revenue

Q3 2024 Overview

319231933194

Q3 2024 compared to Q3 2023

Revenue for the three months ended September 29, 2024 was $3,250 million compared to $3,434 million for the three months ended October 1, 2023, a decrease of $184 million or 5.4%, in line with management’s expectations.

YTD 2024 Overview

340634073408

YTD 2024 compared to YTD 2023

Revenue for the nine months ended September 29, 2024 was $9,503 million compared to $9,854 million for the nine months ended October 1, 2023, a decrease of $351 million or 3.6%.

Revenue by end market was as follows:

($ in millions, unless otherwise stated)Q3 2024Q3 2023% changeYTD 2024YTD 2023% change
Automotive1,8291,891(3.3)%5,3615,585(4.0)%
Industrial & IoT563607(7.2)%1,7531,6893.8%
Mobile4073778.0%1,10192119.5%
Communication Infrastructure & Other451559(19.3)%1,2881,659(22.4)%
Total Revenue3,2503,434(5.4)%9,5039,854(3.6)%

Revenue by sales channel was as follows:

($ in millions, unless otherwise stated)Q3 2024Q3 2023% changeYTD 2024YTD 2023% change
Distributors1,8971,947(2.6)%5,4405,1176.3%
OEM/EMS1,3211,463(9.7)%3,9704,653(14.7)%
Other322433.3%938410.7%
Total Revenue3,2503,434(5.4)%9,5039,854(3.6)%

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

($ in millions, unless otherwise stated)Q3 2024Q3 2023% changeYTD 2024YTD 2023% change
China 1)1,2031,1504.6%3,3153,1286.0%
APAC, excluding China845906(6.7)%2,6532,839(6.6)%
EMEA (Europe, the Middle East and Africa)719866(17.0)%2,1382,388(10.5)%
Americas483512(5.7)%1,3971,499(6.8)%
Total Revenue3,2503,434(5.4)%9,5039,854(3.6)%
1) China includes Mainland China and Hong Kong

Q3 2024 compared to Q3 2023

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

Revenue in the Automotive end market was $1,829 million, a decrease of $62 million or 3.3% 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 $563 million, a decrease of $44 million or 7.2% versus the year-ago period. The decrease in the Industrial & IoT end market revenue was attributable to declines in our processors and security products.

Revenue in the Mobile end market was $407 million, an increase of $30 million or 8.0% versus the year ago period. The increase in the Mobile end market revenue was attributable to growth in our mobile wallet products, which were offset by declines in our connectivity and advanced analog products.

Revenue in the Communication Infrastructure & Other end market was $451 million, a decrease of $108 million or 19.3% versus the year ago period. The decrease in the Communication Infrastructure & Other end market revenue was attributable to declines in our secure cards, legacy processors, and RF power products.

When aggregating all end markets together, and reviewing sales channel performance, revenues through NXP’s third party distribution partners was $1,897 million, a decrease of 2.6% versus the year-ago period. Revenues through direct OEM and EMS customers was $1,321 million, a decrease of 9.7% versus the year ago period.

From a geographic perspective, revenue increased year-on-year in the China region by 4.6%, while revenue decreased in the EMEA region by 17.0%, in the Asia Pacific region by 6.7%, and in the Americas region by 5.7%.

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 $5,361 million, a decrease of $224 million or 4.0% 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 $1,753 million, an increase of $64 million or 3.8% 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, security, and connectivity.

Revenue in the Mobile end market was $1,101 million, an increase of $180 million or 19.5% 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, which was offset by our connectivity products.

Revenue in the Communication Infrastructure & Other end market was $1,288 million, a decrease of $371 million or 22.4% 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 $5,440 million, an increase of 6.3% versus the year-ago period. Revenues through direct OEM and EMS customers was $3,970 million, a decrease of 14.7% versus the year-ago period.

From a geographic perspective, revenue increased year-on-year in the China region by 6.0%, while revenue decreased in the EMEA region by 10.5%, in the Americas region by 6.8%, and in the Asia Pacific region by 6.6%.

Gross profit

Q3 2024 compared to Q3 2023

Gross profit for the three months ended September 29, 2024 was $1,866 million, or 57.4% of revenue, compared to $1,965 million, or 57.2% of revenue for the three months ended October 1, 2023, 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 nine months ended September 29, 2024 was $5,441 million, or 57.3% of revenue, compared to $5,616 million, or 57.0% of revenue for the nine months ended October 1, 2023, relatively consistent with revenue and costs, both of which had comparable decreases in the year-to-date period.

Operating expenses

Q3 2024 compared to Q3 2023

Operating expenses for the three months ended September 29, 2024 totaled $871 million, or 26.8% of revenue, compared to $966 million, or 28.1% of revenue for the three months ended October 1, 2023.

YTD 2024 compared to YTD 2023

Operating expenses for the nine months ended September 29, 2024 totaled $2,684 million, or 28.2% of revenue, compared to $2,852 million, or 28.9% of revenue for the nine months ended October 1, 2023.

  • Research and development
($ in millions, unless otherwise stated)Q3 2024Q3 2023% changeYTD 2024YTD 2023% change
Research and development577601(4.0)%1,7351,767(1.8)%
As a percentage of revenue17.8%17.5%0.3ppt18.3%17.9%0.4ppt

Q3 2024 compared to Q3 2023

R&D costs for the three months ended September 29, 2024 decreased by $24 million, or 4.0%, when compared to the three months ended October 1, 2023 primarily driven by lower personnel-related costs of $13 million and higher government grants and subsidies of $12 million.

YTD 2024 compared to YTD 2023

R&D costs for the nine months ended September 29, 2024 decreased by $32 million, or 1.8%, when compared to the nine months ended October 1, 2023 mainly driven by higher government grants and subsidies of $52 million, partly offset by licensing fees of $15 million.

  • Selling, general and administrative
($ in millions, unless otherwise stated)Q3 2024Q3 2023% changeYTD 2024YTD 2023% change
Selling, general and administrative265294(9.9)%841848(0.8)%
As a percentage of revenue8.2%8.6%(0.4)ppt8.8%8.6%0.2ppt

Q3 2024 compared to Q3 2023

SG&A costs for the three months ended September 29, 2024 decreased by $29 million, or 9.9%, when compared to the three months ended October 1, 2023 primarily due to lower legal expenses of $28 million.

YTD 2024 compared to YTD 2023

SG&A costs for the nine months ended September 29, 2024 decreased by $7 million, or 0.8%, when compared to the nine months ended October 1, 2023 primarily due to lower legal expenses of $19 million.

  • Amortization of acquisition-related intangible assets
($ in millions, unless otherwise stated)Q3 2024Q3 2023% changeYTD 2024YTD 2023% change
Amortization of acquisition-related intangible assets2971(59.2)%108237(54.4)%
As a percentage of revenue0.9%2.1%(1.2)ppt1.1%2.4%(1.3)ppt

Q3 2024 compared to Q3 2023

Amortization of acquisition-related intangible assets for the three months ended September 29, 2024 decreased by $42 million, or 59.2%, when compared to the three months ended October 1, 2023 primarily due to the effect of certain acquisition-related intangibles becoming fully amortized (with regard to the previous Marvell and Freescale acquisitions).

YTD 2024 compared to YTD 2023

Amortization of acquisition-related intangible assets for the nine months ended September 29, 2024 decreased by $129 million, or 54.4%, when compared to the nine months ended October 1, 2023 primarily due to the effect of certain acquisition-related intangibles becoming fully amortized (with regard to the previous Marvell and Freescale acquisitions).

Financial income (expense)

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

($ in millions, unless otherwise stated)Q3 2024Q3 2023YTD 2024YTD 2023
Interest income3649125134
Interest expense(96)(109)(298)(329)
Total other financial income/ (expense)(22)(15)(54)(36)
Total(82)(75)(227)(231)

Q3 2024 compared to Q3 2023

Financial income (expense) was an expense of $82 million for the three months ended September 29, 2024, compared to an expense of $75 million for the three months ended October 1, 2023. Interest income decreased $13 million as a result of lower cash levels, and interest expense decreased by $13 million primarily due to the retirement of the 4.875% senior unsecured notes on March 1, 2024. Within Other financial income/ (expense), unrecognized tax benefit related interest increased $3 million. Additionally, fair value adjustments in equity securities resulted in a loss of $5 million for the three months ended September 29, 2024, versus a loss of $4 million for the three months ended October 1, 2023.

YTD 2024 compared to YTD 2023

Financial income (expense) was an expense of $227 million for the nine months ended September 29, 2024, compared to an expense of $231 million for the nine months ended September 29, 2024. Interest income decreased $9 million as a result of

lower cash levels, and interest expense decreased by $31 million primarily due to the retirement of the 4.875% senior unsecured notes on March 1, 2024. Within Other financial income/ (expense), unrecognized tax benefit related interest increased $10 million. Additionally, there were fair value adjustments in equity securities, a loss of $10 million for the nine months ended September 29, 2024, versus a profit of $1 million for the nine months ended October 1, 2023.

Benefit (provision) for income taxes

Our provision for income taxes for 2024 is based on our EAETR of 17.7% , which is lower than the Netherlands statutory tax rate of 25.8%, primarily due to tax benefits from the Netherlands and foreign tax incentives.

Q3 2024Q3 2023YTD 2024YTD 2023
Tax benefit (provision) calculated at EAETR(160)(134)(446)(407)
Discrete tax benefit (provision) items(13)11(22)8
Benefit (provision) for income taxes(173)(123)(468)(399)
Effective tax rate19.0%13.4%18.6%15.8%

Q3 2024 compared to Q3 2023

The effective tax rate of 19.0% for the third quarter of 2024 was higher than the EAETR due to the income tax expense for discrete items of $13 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 benefit of $1 million due to a higher EAETR compared to prior quarter.

YTD 2024 compared to YTD 2023

For the first nine months ended 2024 the effective tax rate of 18.6% was higher than 17.7% due to an net result of unfavorable discrete items of $22 million.

The effective tax rate of 18.6% for the first nine months of 2024 was higher compared to the rate for the first nine months ended 2023 of 15.8% due to a different mix of the benefit (provision) for income taxes in our operating locations, 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

Q3 2024 compared to Q3 2023

Results relating to equity-accounted investees amounted to a loss of $6 million for the three months ended September 29, 2024, whereas the three months ended October 1, 2023 results relating to equity-accounted investees amounted to a loss of $2 million.

YTD 2024 compared to YTD 2023

Results relating to equity-accounted investees amounted to a loss of $10 million for the nine months ended September 29, 2024, whereas the nine months ended October 1, 2023 results relating to equity-accounted investees amounted to a loss of $5 million.

Non-controlling Interests

Q3 2024 compared to Q3 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 three months ended September 29, 2024, compared to a profit of $5 million for the three months ended October 1, 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 $22 million for the nine months ended September 29, 2024, compared to a profit of $19 million for the nine months ended October 1, 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 third quarter of 2024, our cash balance was $2,748 million, a decrease of $1,114 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 $5,248 million of liquidity as of September 29, 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 operations2,3912,376
Capital expenditures(597)(652)
Cash to shareholders(1,698)(1,364)

Cash and short-term deposits

At September 29, 2024, our cash and short-term deposits balance was $3,148 million of which $236 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 $597 million in the first nine months of 2024, compared to $652 million in the first nine 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), dividends of $1.014 per ordinary share were paid on July 10, 2024 ($259 million) and dividends of $1.014 per ordinary share were paid on October 9, 2024 ($258 million).

In the first nine months of 2024 we repurchased approximately $918 million of shares.

Debt

Our total debt, inclusive of aggregate principal, unamortized discounts, premiums, debt issuance costs and fair value adjustments, amounted to $10,182 million as of September 29, 2024, a decrease of $993 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 September 29, 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 $2,862 million, with $378 million payable within 12 months.

Our net debt position (see section Use of Certain Non-GAAP Financial Measures) at September 29, 2024 amounted to $7,034 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 September 29, 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 nine months of 2024 decreased by $1,114 million (excluding the effect of changes in exchange rates on our cash position of nil million) as follows:

($ in millions, unless otherwise stated)YTD 2024YTD 2023
Net cash provided by (used for) operating activities2,3912,376
Net cash (used for) provided by investing activities(884)(879)
Net cash provided by (used for) financing activities(2,621)(1,296)
Increase (decrease) in cash and cash equivalents(1,114)201

Cash Flow from Operating Activities

For the first nine months of 2024 our operating activities provided $2,391 million in cash. This was primarily the result of net income of $2,037 million, adjustments to reconcile the net income of $910 million and changes in operating assets and liabilities of $(574) million. Adjustments to net income (loss) include offsetting non-cash items, such as depreciation and amortization of $666 million, share-based compensation of $344 million and changes in deferred taxes of $(127) million. Changes in operating assets and liabilities were primarily driven by a $204 million decrease in accounts payable and other liabilities as a result of lower purchase volumes and timing related to payments, $182 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, $100 million increase in inventories in order to align inventory on hand with expected demand, and $88 million increase in other non-current assets due to movements in our prepayments and balance of insurance reimbursements.

For the first nine months of 2023 our operating activities provided $2,376 million in cash. This was primarily the result of net income of $2,119 million, adjustments to reconcile the net income of $982 million and changes in operating assets and liabilities of $(746) million. Adjustments to net income (loss) includes offsetting non-cash items, such as depreciation and amortization of $837 million, share-based compensation of $304 million and changes in deferred taxes of $(170) million. Changes in operating assets and liabilities were primarily driven by a $359 million increase in inventories due to increased production levels in order to align inventory on hand with expected demand, $118 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 $220 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 $884 million for the first nine months of 2024 and principally consisted of the cash outflows for capital expenditures of $597 million, $193 million for the purchase of investments (driven primarily by the capital contributions of approximately $31 million into ESMC and approximately $140 million into VSMC) and $113 million for the purchase of identified intangible assets, including EDA (electronic design automation).

Net cash used for investing activities amounted to $879 million for the first nine months of 2023 and principally consisted of the cash outflows for capital expenditures of $652 million, $93 million for the purchase of investments, and $135 million for the purchase of identified intangible assets.

Cash Flow from Financing Activities

Net cash used for financing activities of $2,621 million for the first nine 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 payments to common stockholders of $780 million, and purchase of treasury shares and restricted stock unit holdings of $918 million, partially offset by the proceeds from the issuance of common stock through stock plans of $79 million.

Net cash used for financing activities of $1,296 million for the first nine months of 2023 was primarily driven by the dividend payments to common stockholders of $745 million and the purchase of treasury shares and restricted stock unit holdings of $619 million, partially offset by the proceeds from the issuance of common stock through stock plans of $70 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 nine months ended
($ in millions)September 29, 2024
Revenue5,480
Gross Profit2,791
Operating income1,038
Net income382

Summarized Balance Sheets

As of
($ in millions)September 29, 2024December 31, 2023
Current assets3,1754,298
Non-current assets11,99311,773
Total assets15,16816,071
Current liabilities1,2672,005
Non-current liabilities10,21910,566
Total liabilities11,48612,571
Obligor's Group equity3,6823,500
Total liabilities and Obligor's Group equity15,16816,071

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 nine months ended September 29, 2024: $519 million). The Obligor Group has amounts due from equity financing (September 29, 2024: $5,438 million; December 31, 2023: $5,441 million) and due to debt financing (September 29, 2024: $1,779 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
September 29, 2024June 30, 2024October 1, 2023
GAAP gross profit$1,866$1,792$1,965
PPA effects(12)(12)(13)
Restructuring—(4)—
Share-based compensation(14)(15)(14)
Other incidentals—(10)(18)
Non-GAAP gross profit$1,892$1,833$2,010
GAAP Gross Margin57.4%57.3%57.2%
Non-GAAP Gross Margin58.2%58.6%58.5%
GAAP research and development$(577)$(594)$(601)
Restructuring—(4)4
Share-based compensation(58)(58)(53)
Other incidentals——(2)
Non-GAAP research and development$(519)$(532)$(550)
GAAP selling, general and administrative$(265)$(270)$(294)
PPA effects(1)(1)(1)
Restructuring—2—
Share-based compensation(43)(41)(36)
Other incidentals(2)(2)(4)
Non-GAAP selling, general and administrative$(219)$(228)$(253)
GAAP operating income (loss)$990$896$992
($ in millions)For the three months ended
September 29, 2024June 30, 2024October 1, 2023
GAAP operating income (loss)$990$896$992
PPA effects(42)(41)(85)
Restructuring—(6)4
Share-based compensation(115)(114)(103)
Other incidentals(6)(14)(27)
Non-GAAP operating income (loss)$1,153$1,071$1,203
GAAP Operating Margin30.5%28.7%28.9%
Non-GAAP Operating Margin35.5%34.3%35.0%
GAAP Income tax benefit (provision)$(173)$(154)$(123)
Income tax effect91545
Non-GAAP Income tax benefit (provision)$(182)$(169)$(168)
($ in millions)For the three months ended
September 29, 2024June 30, 2024October 1, 2023
Net cash provided by (used for) operating activities$779$761$988
Net capital expenditures on property, plant and equipment(186)(184)(200)
Non-GAAP free cash flow$593$577$788
($ in millions)For the three months ended
September 29, 2024June 30, 2024October 1, 2023
Long-term debt$9,683$9,681$10,173
Short-term debt499499999
Total debt10,18210,18011,172
Less: cash and cash equivalents(2,748)(2,859)(4,042)
Less: short-term deposits(400)(400)—
Net debt$7,034$6,921$7,130

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