Item 16C. Principal Accountant Fees and Services

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Item 16C. Principal Accountant Fees and Services

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The Company has instituted a comprehensive auditor independence policy that regulates the relation between the Company and its external auditors and is available on our website (www.nxp.com/investor/governance). The policy includes rules for the pre-approval by the audit committee of all services to be provided by the external auditor. The policy also describes the prohibited services that may not be provided. Proposed services may be pre-approved at the beginning of the year by the audit committee (annual pre-approval) or may be pre-approved during the year by the audit committee in respect of a particular engagement (specific pre-approval). The annual pre-approval is based on a detailed, itemized list of services to be provided, designed to ensure that there is no management discretion in determining whether a service has been approved and to ensure the audit committee is informed of each service it is pre-approving. Unless pre-approval with respect to a specific service has been given at the beginning of the year, each proposed service requires specific pre-approval during the year. Any annually pre-approved services where the fee for the engagement is expected to exceed pre-approved cost levels or budgeted amounts will also require specific pre-approval. The term of any annual pre-approval is 12 months from the date of the pre-approval unless the audit committee states otherwise. During 2013, there were no services provided to the Company by the external auditors which were not pre-approved by the audit committee.

The external auditor attends, in principle, all meetings of the audit committee. The findings of the external auditor, the audit approach and the risk analysis are also discussed at these meetings. The external auditor attends the meeting of the board of directors at which the report of the external auditor with respect to the audit of the annual accounts is discussed, and at which the annual accounts are approved. In its audit report on the annual accounts to the board of directors, the external auditor refers to the financial reporting risks and issues that were identified during the audit, internal control matters, and any other matters, as appropriate, requiring communication under the auditing standards generally accepted in the Netherlands and the United States.

Our Consolidated Financial Statements included in this Report have been audited by KPMG Accountants N.V., an independent registered public accounting firm. These financial statements have been approved by the relevant boards.

The aggregate fees billed for professional services rendered for the fiscal periods 2013 and 2012 were as follows:

Aggregate fees KPMG


($ in millions)	2013		2012
Audit fees		3.5		3.3
Audit-related fees		—		0.9
Tax fees		—		—
Other fees		0.1		0.2

		3.6		4.4

Audit fees consist of fees for the examination of both the consolidated and statutory financial statements. Audit fees also include fees that only our independent auditor can reasonably provide such as comfort letters and review of documents filed with the SEC.

Audit-related fees consist of fees in connection with audits of divestments and certain agreed upon procedures.

Tax fees consist of fees for professional services in relation to tax compliance, tax advice and tax planning.

Item 16D.	*Exemptions from the Listing Standards for Audit Committees*

Not applicable.

Item 16E.	*Purchases of Equity Securities by the Issuer and Affiliated Purchasers*

The following table provides a summary of shares repurchased by the Company in 2013:


Period begin	Period end		Period		Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1		February 3		January		—		—		—		2,846,339
February 4		March 3		February		1,015,857		31.53		1,015,857		1,830,482
March 4		March 31		March		100,000		31.70		100,000		1,730,482
April 1		May 5		April		941,039		27.21		941,039		789,443
May 6		June 2		May		500,000		28.52		500,000		289,443
June 3		June 30		June		271,000		29.22		121,225		168,218
July 1		August 4		July		—		—		—		168,218
August 5		September 1		August		920,216		35.34		920,216		9,248,002
September 2		September 29		September		3,357,649		37.78		3,357,649		5,890,353
September 30		November 3		October		2,131,891		40.75		2,131,891		3,758,462
November 4		December 1		November		1,249,141		41.69		1,249,141		2,509,321
December 2		December 31		December		584,845		40.92		524,020		1,985,301

				Total 2013		11,071,638		36.60		10,861,038

From time to time, last in May 2013, the General Meeting of Shareholders authorized the Board of Directors to repurchase shares of our common stock. On that basis, the Board of Directors resolved to repurchase shares to cover in part employee stock options and equity rights under its long term incentive plans. The purchases identified in the table were all pursuant to this authorization.

Item 16F.	Change in Registrant’s Certifying Accountant

Not applicable.

Item 16G.	Corporate Governance

The Dutch Corporate Governance Code

Since our initial public offering in August 2010, we have been required to comply with the Dutch corporate governance code. The Dutch corporate governance code, as revised, became effective on January 1, 2009, and applies to all Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere. The code is based on a “comply or explain” principle. Accordingly, companies are required to disclose in their Annual Reports filed in the Netherlands whether or not they are complying with the various rules of the Dutch corporate governance code that are addressed to the board of directors or, if any, the supervisory board of the company and, if they do not apply those provisions, to give the reasons for such non-application. The code contains principles and best practice provisions for managing boards, supervisory boards, stockholders and general meetings of stockholders, financial reporting, auditors, disclosure, compliance and enforcement standards.

The Dutch corporate governance code provides that if a company indicates to what extent it applies the best practice provisions, such company will deemed to have applied the Dutch corporate governance code.

The following discussion summarizes the primary differences between our corporate governance structure and best practice provisions of the Dutch corporate governance code:

	•		Best practice provisions II.2.4 and II.2.5 state that stock options granted to members of our board shall, in any event, not be exercised in the first three years after the date of granting and shares granted to board members without financial consideration shall be retained for a period of at least five years or until at least the end of the employment, if this period is shorter. Under our equity incentive schemes, part of the stock options granted to our chief executive officer in November 2010, November 2011, October 2012 and October 2013 are exercisable one year after the date of grant, and members of our board who received restrictive shares and performance shares in November 2010, November 2011, October 2012, March 2013 and October 2013 are not required to retain these shares for at least five years. Although a deviation from the Corporate Governance Code, we hold the view that the combination of equity incentives granted to our chief executive officer, in relation to his obligation—laid down in the NXP Executive Equity Ownership Policy of October 2013—to maintain at least 20% of the after tax number of NXP shares delivered upon the vesting of any performance stock units granted as of October 2013, as well as the applicable strict vesting and performance criteria, will enhance the goal of promoting long-term investments in the Company. The same is true for the equity grants made to other members of our board, which also have very strict vesting criteria with the purpose of creating long-term commitment to the Company.

	•		Best practice provision III.8.4 states that the majority of the members of the board shall be independent. In our board of directors, five out of nine non-executive members are independent. As such, the majority of our non-executive directors are independent, but only half of the full board of directors is independent. We aim to comply with this best practice in due course, but it is our view that given the nature of our business and considering our recent stockholder structure, it is justified that at this moment only the majority of our non-executive directors be independent.

	•		Pursuant to best practice provision IV.1.1, a general meeting of stockholders is empowered to cancel binding nominations of candidates for the board, and to dismiss members of the board by a simple

majority of votes of those in attendance, although the company may require a quorum of at least one third of the voting rights outstanding. If such quorum is not represented, but a majority of those in attendance vote in favor of the proposal, a second meeting may be convened and its vote will be binding, even without a one-third quorum. Our articles of association currently state that the general meeting of stockholders may at all times overrule a binding nomination by a resolution adopted by at least a two-thirds majority of the votes cast, if such majority represents more than half of the issued share capital. Although a deviation from provision IV.1.1 of the Dutch Corporate Governance Code, we hold the view that these provisions will enhance the continuity of the Company’s management and policies.

Effective January 1, 2012, Dutch law does not allow directors to vote on a matter with regard to which they have an interest.

The NASDAQ Global Select Market Corporate Governance Rules

We are a foreign private issuer. As a result, in accordance with the listing requirements of the NASDAQ Global Select Market, we rely on home country governance requirements and are exempt from certain corporate governance requirements that would otherwise apply in accordance with the listing requirements of the NASDAQ Global Select Market. These exemptions and home country rules relied on by us are described below:

	•		We are exempt from NASDAQ’s quorum requirements applicable to meetings of stockholders. Pursuant to Dutch corporate law, the validity of a resolution by the general meeting of stockholders does not depend on the proportion of the capital or stockholders represented at the meeting (i.e. quorum), unless the law or articles of association of a company provide otherwise. Our articles of association provide that a resolution proposed to the general meeting of stockholders by the board of directors shall be adopted by a simple majority of votes cast, unless another majority of votes or quorum is required under Dutch law or our articles of association. All other resolutions shall be adopted by a two thirds majority of the votes cast, provided such majority represents at least half of the issued share capital, unless another majority of votes or quorum is required under Dutch law. To this extent, our practice varies from the requirement of Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a quorum, and that such quorum may not be less than one-third of the outstanding voting stock.

	•		We are exempt from NASDAQ’s requirements regarding the solicitation of proxies and provision of proxy statements for meetings of stockholders. We inform stockholders of meetings in a public notice. We prepare a proxy statement and solicit proxies from the holders of our listed stock. Our practice in this regard, however, differs from the typical practice of U.S. corporate issuers in that the advance record date for determining the holders of record entitled to attend and vote at our stockholder meetings is determined by Dutch law (currently 28 days prior to the meeting). As an administrative necessity, we establish a mailing record date in advance of each meeting of stockholders for purposes of determining the stockholders to which the proxy statement and form of proxy will be sent. However, only stockholders of record on the specified record date are entitled to attend and vote, directly or by proxy, at the meeting.

	•		NASDAQ requires stockholder approval prior to the issuance of securities when a stock option or purchase plan is to be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors, employees or consultants. Under Dutch law and the Dutch corporate governance code, stockholder approval is only required for equity compensation plans (or changes thereto) for members of the board, and not for equity compensation plans for other groups of employees. However, we note that under Dutch law, the stockholders have the power to issue shares or rights to subscribe for shares at the general meeting of the stockholders unless such power has been delegated to the board. Our board is designated for a period of five years from the date of the public offering in August 2010 to issue shares and rights to subscribe for shares.

	•		NASDAQ requires the majority of the board of directors to be comprised of independent directors. Although the Dutch corporate governance code provides that the majority of the members of the board be independent, it also provides that if a company expressly indicates the reasons and the extent to which it does not apply the provisions of the Dutch corporate governance code, such company will deemed to have applied the code. As described under “—Corporate Governance—The Dutch Corporate Governance Code” above, five non-executive members of our board of directors are independent. We aim to comply with this best practice in due course, but it is our view that given the nature of our business and considering our recent stockholder structure, it is justified that at this moment only the majority of our non-executive directors be independent.

	•		As a foreign private issuer, we are exempt from NASDAQ’s requirement that compensation committees be comprised exclusively of independent directors provided that we describe the home country practice followed in lieu of such requirement and disclose the reasons for not having such an independent compensation committee. Under Dutch law and the Dutch corporate governance code, the general meeting of stockholders must adopt a policy in respect of the remuneration of the board. In accordance with our articles of association and our board rules, the remuneration of the executive directors is determined by the board of directors upon the recommendation of our nominating and compensation committee. Accordingly, applicable laws, regulations and corporate governance rules and practices do not require independence of the members of our nominating and compensation committee.

	•		We are exempt from NASDAQ’s requirement to have independent director oversight of director nominations. In accordance with Dutch law, our articles of association require that our directors will be appointed by the general meeting of stockholders upon the binding nomination of the board. In accordance with our board rules, the nominating and compensation committee will recommend the nomination of directors to our board.

	•		NASDAQ requires us to adopt a nominations committee charter or a board resolution addressing the nominations process. In accordance with the Dutch corporate governance code, we have adopted the committee’s charter. However, the nominations process has been set out in our articles of association and board rules.

Moreover, we will not distribute Annual Reports to all of our stockholders in accordance with NASDAQ rules. Dutch law requires that the external auditors be appointed at the general meeting of stockholders and not by the audit committee. Our audit committee, which consists of members of our board of directors, shall only make a recommendation to the stockholders through the board of directors for the appointment and compensation of the independent registered public accounting firm and shall oversee and evaluate the work of our independent registered public accounting firm.

PART III

Item	17. Financial Statements

We are furnishing the financial statements pursuant to the instructions of Part III, Item 18. Financial Statements of this Report.

Item	18. Financial Statements

See pages F-1 to F-53

Item	19. Exhibits


Exhibit Number		Description of Document

2.1#		Sale and Purchase Agreement, dated as of December 22, 2010, between NXP Semiconductors N.V., NXP B.V., the Dover Corporation, Knowles Electronics, LLC and EFF Acht Beteiligungsverwaltung GmbH (incorporated by reference to Exhibit 2.1 of the Form 20-F of NXP Semiconductors N.V. filed on March 13, 2012)

3.1		Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of Amendment No. 7 to the Registration Statement on Form F-1 of NXP Semiconductors N.V., filed on August 2, 2010 (File No. 333-166128))

3.2		Articles of Association of NXP Semiconductors N.V. (incorporated by reference to Exhibit 3.2 of Amendment No. 7 to the Registration Statement on Form F-1 of NXP Semiconductors N.V., filed on August 2, 2010 (File No. 333-166128))

4.1		Amended and Restated Shareholders’ Agreement dated August 5, 2010 among the AlpInvest Parties, Apax Parties, Bain Capital Parties, Co-Invest Parties, Kaslion S.à r.l., KASLION Holding B.V., the KKR Parties, Koninklijke Philips Electronics N.V., the Silver Lake Parties and Stichting Management Co-Investment NXP (incorporated by reference to Exhibit 2 of the current report on Form 6-K of NXP Semiconductors N.V. filed on August 10, 2010)

4.2		Registration Rights Agreement dated August 5, 2010 among NXP Semiconductors N.V., AlpInvest Partners CSI 2006 Lion C.V., AlpInvest Partners Later Stage II-A Lion C.V., Meridian Holding S.à.r.l., Bain Pumbaa Luxco S.à.r.l., KKR NXP Investor S.à.r.l., NXP Co-Investment Investor S.à.r.l., SLII NXP S.à.r.l., Koninklijke Philips Electronics N.V., Stichting Management Co-Investment NXP and certain hedge funds party to the agreement (incorporated by reference to Exhibit 3 of the current report on Form 6-K of NXP Semiconductors N.V. filed on August 10, 2010)

4.3		Secured Term Credit Agreement dated March 4, 2011 among NXP B.V. and NXP Funding LLC as borrower, Barclays Bank PLC as Administrative Agent, Morgan Stanley Senior Funding, Inc. as Global Collateral Agent, Mizuho Corporate Bank, Ltd. as Taiwan Collateral Agent, and the lenders party thereto. (incorporated by reference to Exhibit 4.8 of the Form 20-F of NXP Semiconductors N.V. filed on March 13, 2012)

4.4		Secured Revolving Credit Agreement dated April 27, 2012 among NXP Semiconductors N.V., NXP B.V. and NXP Funding LLC as borrower, Morgan Stanley Senior Funding, Inc. as Global Collateral Agent and Administrative Agent, Mizuho Corporate Bank, Ltd. as Taiwan Collateral Agent and the lenders party thereto. (incorporated by reference to Exhibit 4.10 of the Form 20-F of NXP Semiconductors N.V. filed on March 1, 2013)

4.5		New Term Loan Joinder Agreement dated December 10, 2012 amending the Secured Term Credit Agreement dated March 4, 2011 among NXP B.V. and NXP Funding LLC as borrower, Barclays Bank PLC as Administrative Agent, Morgan Stanley Senior Funding, Inc. as Global Collateral Agent, Mizuho Corporate Bank, Ltd. as Taiwan Collateral Agent, and the lenders party thereto. (incorporated by reference to Exhibit 4.12 of the Form 20-F of NXP Semiconductors N.V. filed on March 1, 2013)


Exhibit Number		Description of Document

4.6		Senior Unsecured Indenture dated as of February 14, 2013 among NXP B.V. and NXP Funding LLC as Issuers, each of the Guarantors named on the signature page thereto as borrower and Deutsche Bank Trust Company Americas as Trustee (incorporated by reference to Exhibit 4.13 of Form 20-F of NXP Semiconductors N.V. filed on March 13, 2012)

4.7		Senior Unsecured Indenture dated as of March 12, 2013 among NXP B.V. and NXP Funding LLC as Issuers, each of the Guarantors named on the signature pages thereto and Deutsche Bank Trust Company Americas as Trustee

4.8		Senior Unsecured Indenture dated as of May 20, 2013 among NXP B.V. and NXP Funding LLC as Issuers, each of the Guarantors named on the signature pages thereto and Deutsche Bank Trust Company Americas as Trustee

4.9		Senior Unsecured Indenture dated as of September 24, 2013 among NXP B.V. and NXP Funding LLC as Issuers, each of the Guarantors named on the signature page thereto and Deutsche Bank Trust Company Americas as Trustee

10.1		Intellectual Property Transfer and License Agreement dated as of September 28, 2006 between Koninklijke Philips Electronics N.V. and NXP B.V. (incorporated by reference to Exhibit 10.1 of the Amendment No. 3 to the Registration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 30, 2010 (File No. 333-166128))

10.2		Intellectual Property Transfer and License Agreement dated as of November 16, 2009 among NXP B.V., Virage Logic Corporation and VL C.V. (incorporated by reference to Exhibit 10.2 of the Amendment No. 3 to the Registration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 30, 2010 (File No. 333-166128))

10.3		Shareholders’ agreement dated as of March 30, 1999, as amended among EBD Investments Pte. Ltd., Koninklijke Philips Electronics N.V. and Taiwan Semiconductor Manufacturing Company Ltd. (incorporated by reference to Exhibit 10.4 of the Amendment No. 3 to the Registration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 30, 2010 (File No. 333-166128))

10.4		Lease Agreement dated as of December 23, 2004 between Jurong Town Corporation and Systems on Silicon Manufacturing Company Pte. Ltd. for the property at No. 70 Pasir Ris Drive 1, Singapore (incorporated by reference to Exhibit 10.8 of the Amendment No. 2 to the Registration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128))

10.5		Lease Agreement dated September 26, 2003 between Huangjiang Investment Development Company and NXP Semiconductors (Guangdong) Company Ltd. for the property at Tian Mei High Tech Industrial Park, Huang, Jiang Town, Dongguan City, China (incorporated by reference to Exhibit 10.9 of the Amendment No. 2 to the Registration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128))

10.6		Building Lease Contract dated as of May 12th, 2000 between the Export Processing Zone Administration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.10 of the Amendment No. 2 to the Registration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128))

10.7		Agreement with regard to the Lease of a Single (vehicle) Shelter dated as of October 30, 2009 between the Export Processing Zone Administration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.11 of the Amendment No. 2 to the Registration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128))

10.8		Agreement with regard to the Lease of Standard Plant Basements dated as of July 1, 2011 between the Export Processing Zone Administration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd.


Exhibit Number		Description of Document

10.9		Agreement with regard to the Lease of a Single (vehicle) Shelter dated as of March 8, 2010 between the Export Processing Zone Administration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.13 of the Amendment No. 2 to the Registration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128))

10.10		Agreement with regard to the Lease of Additional Land dated as of July 1, 2008 between the Export Processing Zone Administration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.14 of the Amendment No. 2 to the Registration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128))

10.11		Agreement with regard to the Lease of a Dangerous Goods Warehouse dated as of November 27, 2009 between the Export Processing Zone Administration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.15 of the Amendment No. 2 to the Registration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128))

10.12		Agreement with regard to the Lease of Land at Property Number AL012 dated as of July 1, 2008 between the Export Processing Zone Administration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.18 of the Amendment No. 2 to the Registration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128))

10.13		Agreement with regard to the Lease of Land at Property Number AL020 dated as of July 1, 2008 between the Export Processing Zone Administration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.19 of the Amendment No. 2 to the Registration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128))

10.14		Agreement with regard to the Lease of Land at Property Number AL071 dated as of July 1, 2008 between the Export Processing Zone Administration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.20 of the Amendment No. 2 to the Registration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128))

10.15		Agreement with regard to the Lease of Land at Property Number CL102 dated as of July 1, 2008 between the Export Processing Zone Administration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.21 of the Amendment No. 2 to the Registration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128))

10.16		Agreement with regard to the Lease of Land dated as of September 30, 2008 between the Export Processing Zone Administration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.22 of the Amendment No. 2 to the Registration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128))

10.17		Management Equity Stock Option Plan Terms and Conditions dated August 2010 (incorporated by reference to Exhibit 10.19 of the Form-20F of NXP Semiconductors N.V. filed on March 13, 2012)

10.18		Management Equity Stock Option Plan Terms and Conditions dated January 2011 (incorporated by reference to Exhibit 10.20 of the Form-20F of NXP Semiconductors N.V. filed on March 13, 2012)

10.19		Long Term Incentive Plan 2010 Terms and Conditions with regard to the Stock Option Plan, the Performance Stock Unit Plan, Restricted Stock Unit Plan and Share Plan (incorporated by reference to Exhibit 10.21 of the Form-20F of NXP Semiconductors N.V. filed on March 13, 2012)


Exhibit Number		Description of Document

10.20		NXP Global Equity Incentive Program (incorporated by reference to Exhibit 10.26 of the Amendment No. 3 to the Registration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 30, 2010 (File No. 333-166128))

10.21		Long Term Incentive Plan 2011 Terms and Conditions with regard to the Stock Option Plan, the Performance Stock Unit Plan, Restricted Stock Unit Plan and Share Plan (incorporated by reference to Exhibit 4.8 of the Form-20F of NXP Semiconductors N.V. filed on March 13, 2012)

10.22		Long Term Incentive Plan 2012/3 Terms and Conditions with regard to the Stock Option Plan, the Performance Stock Unit Plan, Restricted Stock Unit Plan and Share Plan (incorporated by reference to Exhibit 10.22 of the Form-20F of NXP Semiconductors N.V. filed on March 1, 2013) and Long Term Incentive Plan 2013/4 Terms and Conditions with regard to the Stock Option Plan, the Performance Stock Unit Plan and Restricted Stock Unit Plan

10.23		Employee Stock Purchase Plan Terms and Conditions (incorporated by reference to Exhibit 4.1 of the Form S-8 of NXP Semiconductors N.V. filed on August 8, 2013)

12.1		Certification of R. Clemmer filed pursuant to 17 CFR 240. 13a-14(a)

12.2		Certification of P. Kelly filed pursuant to 17 CFR 240. 13a-14(a)

13.1		Certification of R. Clemmer furnished pursuant to 17 CFR 240. 13a-14(b)

13.2		Certification of P. Kelly furnished pursuant to 17 CFR 240. 13a-14(b)

21.1		List of Significant Subsidiaries of the Registrant

22		Consent of KPMG Accountants N.V.

#	Confidential treatment previously requested and granted

GLOSSARY

32 bit ARM microcontrollers	Microcontroller based on a 32-bit processor core developed and licensed by ARM Technologies.

AC-DC	Conversion of alternating current to direct current.

Analog	A form of transmission that is a continuous wave of an electrical signal that varies in frequency and/or amplitude in response to variations of physical phenomena such as human speech or music.

Back-end	The packaging, assembly and testing stages of the semiconductors manufacturing process, which takes place after electronic circuits are imprinted on silicon wafers in the front-end process.

BCDMOS	Bipolar CMOS DMOS. A process technology that combines elements of bipolar, CMOS and DMOS technology and is capable of handling high voltages.

BiCMOS	A process technology that combines bipolar and CMOS processes, typically by combining digital CMOS circuitry with higher voltage or higher speed bipolar circuitry.

Bipolar

A process technology used to create semiconductors for applications involving the use of higher power levels than are possible with a CMOS chip. Due to the geometry of a bipolar circuit, these devices are significantly larger than CMOS devices. The speed of the most advanced bipolar devices exceeds those attainable with CMOS, but only at very large electrical currents. As a result, the number of bipolar devices that can be integrated into a single product is limited.

Can tuner	A module component used in television systems to convert broadcasts into a format suitable for television projection. Can tuners are rapidly being replaced by silicon tuners.

CAN	Controller Area Network. A network technology used in automotive network architecture.

CATV	An abbreviation for cable television.

Car access and immobilizers	An automobile technology segment focused on keyless entry and car immobilization applications. An automobile immobilizer is an electronic device fitted to an automobile which prevents the engine from running unless the correct key (or other token) is present.

Chip	Semiconductor device.

CFL	Compact Fluorescent Light. A type of fluorescent lamp designed to replace an incandescent lamp, while using less power and increasing rated life.

CMOS	Complementary Metal Oxide Semiconductor. The most common integrated circuit fabrication technology in the semiconductor

	industry. The technology is used to make integrated circuits where small size and high speed are important. As a result of the very small feature sizes that can be attained through CMOS technology, however, the ability of these integrated circuits to cope with high electrical currents and voltages is limited.

Coolflux DSP	A low power digital signal processor designed for mobile audio applications.

Digital	A form of transmission where data is represented by a series of bits or discrete values such as 0 and 1.

Diode	A semiconductor that allows currents to flow in one direction only.

Discrete semiconductors	Unlike integrated circuits, which contain up to tens of millions of transistors, discrete semiconductors are single devices, usually with two terminals (diodes) or three terminals (transistors). These are either applied as peripheral components on printed circuit boards, or used for special purposes such as very high power applications.

DMOS	Diffused Metal on Silicon Oxide Semiconductor. A process technology used to manufacture integrated circuits that can operate at high voltage.

DOCSIS 3.0	Data Over Cable Service Interface Specification (DOCSIS). Methods for transporting data over a cable (CATV) plant utilizing QAM and/or QPSK RF modulation.

DSP	Digital signal processor. A specialized microprocessor optimized to process sequences of numbers or symbols which represent signals.

DVB-C2	Digital Video Broadcasting—the DVB European consortium standard for the broadcast transmission of digital television over cable.

DVB-T2	Digital Video Broadcasting—Second Generation Terrestrial. A television broadcasting standard used to transmit compressed digital audio, video and other data using land based (terrestrial) signals.

EMI filtering	Electromagnetic interference (or EMI, also called radio frequency interference or RFI when in high frequency or radio frequency) is disturbance that affects an electrical circuit due to either electromagnetic induction or electromagnetic radiation emitted from an external source.

e-passport	A passport with secure data source chip used in providing personalized information.

ESD	Electrostatic discharge. The sudden and momentary electric current that flows between two objects caused by direct contact or induced by an electrostatic field. This term is used in the context of electronics to describe momentary unwanted currents that may cause damage to electronic equipment.

Fab (or wafer fab)	A semiconductor fabrication facility in which front-end manufacturing processes take place.

Fabless semiconductor company	A semiconductor company that does not have any internal wafer fab manufacturing capacity but instead focuses on designing and marketing its products, while outsourcing manufacturing to an independent foundry.

FlexRay	A new communications protocol designed for the high data transmission rates required by advanced automotive control systems.

Foundry	A semiconductor manufacturer that manufactures chips for third parties.

Front-end	The wafer processing stage of the semiconductors manufacturing process in which electronic circuits are imprinted onto raw silicon wafers. This stage is followed by the packaging, assembly and testing stages, which together comprise the back-end process.

GPS	Global Positioning System.

HDMI	High-Definition Multimedia Interface. A compact audio/video interface for transmitting uncompressed digital data.

I2 C	A multi-master serial single-ended computer bus that is used to attach low-speed peripherals to a motherboard, embedded system or mobile phone.

Integrated Circuit	Integrated Circuit. A miniaturized electronic circuit that has been manufactured in the surface of a thin substrate of semiconductor material.

ICN4,5,6,8	NXP wafer fab facilities located in Nijmegen, Netherlands, processing 4”, 5”, 6” or 8” diameter wafers.

In-process research and development	The value allocated to incomplete research and development projects in acquisitions treated as purchases.

Leadframe	A thin layer of metal that connects the wiring from tiny electrical technicals on the semiconductor surface to the large scale circuitry on electrical devices and circuit boards. Leadframes are used in almost all semiconductor packages.

LDMOS	Laterally Diffused Metal Oxide Semiconductor. A transistor used in RF/microwave power amplifiers.

LED	Light Emitting Diode. A semiconductor device which converts electricity into light.

LIBOR	London Interbank Offered Rate. The benchmark rate at which interbank term deposits within the leadings banks in London would be charged if borrowing from other banks.

LIN	Local Interconnect Network. A network technology used in automotive network architecture.

LNA	Low-Noise Amplifier. An electronic amplifier used to amplify very weak signals.

Magneto-resistive device	A device fabricated with magneto-resistive material (material that has the ability to change the value of its electrical resistance when an external magnetic field is applied to it).

Memory	Any device that can store data in machine readable format. Usually used synonymously with random access memory and read only memory.

Microcontroller	A microprocessor combined with memory and interface integrated on a single circuit and intended to operate as an embedded system.

Micron	A metric unit of linear measure which equals one millionth of a meter. A human hair is about 100 microns in diameter.

MIFARE	Trademarked name, owned by NXP, for the most widely used contactless smart card, or proximity card, technology, for payment in transportation systems.

Mixed-signal

The mixed-signal part of an application solution refers to the devices and sub-system solutions that translate real world analog signals and phenomena such as radio frequency communication and power signals, sound, light, temperature, pressure, acceleration, humidity and chemical characteristics into digital or power signals that can be fed into the central microprocessing or storage devices at the heart of an application system solution.

MMIC	Monolithic Microwave Integrated Circuit. A type of integrated circuit device that operates at microwave frequencies.

MOS	Metal Oxide Semiconductor. A metal insulator semiconductor structure in which the insulating layer is an oxide of the substrate material.

MOSFET	Metal Oxide Semiconductor Field Effect Transistor. A device used for amplifying or switching electronic signals.

Nanometer	A metric unit of linear measure which equals one billionth of a meter. There are 1,000 nanometers in 1 micron.

NFC	Near field communication. A technology which allows devices to establish a secure point-to-point wireless connection at very close ranges (within several centimeters), and which is being increasingly adopted in mobile devices and point-of-sale terminals or other devices.

ODM	Original Design Manufacturer. A company which manufactures a product which ultimately will be branded by another firm for sale.

OEM	Original Equipment Manufacturer. A manufacturer that designs and manufactures its products for the end consumer market.

Power MOS	A specific type of metal oxide semiconductor designed to handle large amounts of power.

Power scaling	Design technique used to increase output power without changing the geometry, shape, or principle of operation.

Process technologies	The technologies used in front-end processes to convert raw silicon wafers into finished wafers containing hundreds or thousands of chips.

QAM	Quadrature-Amplitude Modulation

QPSK	Quadrature phase shift keying

Rectifier	An electrical device that converts alternating current to direct current.

RF	Radio Frequency. A high frequency used in telecommunications. The term radio frequency refers to alternating current having characteristics such that, if the current is input to an antenna, an electromagnetic (EM) field is generated suitable for wireless broadcasting and/or communications.

Radio Frequency Identification	An RF chip used for identification.

Semiconductors	Generic term for devices such as transistors and integrated circuits that control the flow of electrical signals. The most common semiconductor material for use in integrated circuits is silicon.

Silicon	A type of semiconducting material used to make wafers. Silicon is widely used in the semiconductor industry as a base material.

Silicon tuners	Semiconductor devices for receiving broadcast television signals. Silicon tuners are expected to displace mechanical can tuners as the dominant technology in television receivers.

SIM	Subscriber Identity Module. A smart card that stores the key identifying a cellular phone service subscriber and related information.

Solid State Lighting	A type of lighting that uses semiconductor light-emitting diodes (LEDs), organic light-emitting diodes (OLED), or polymer light-emitting diodes (PLED) as sources of illumination rather than electrical filaments, plasma or gas.

SPI	Serial Peripheral Interface Bus. A synchronous serial data link standard that operates in full duplex mode.

SS MOS	Small signal power discrete including a metal oxide semiconductor field effect transistor.

SS Transistor	A small signal transistor.

Substrate	The base material made from silicon on which an integrated circuit is printed.

Telematics	The science of sending, receiving and storing information via telecommunication devices.

Thyristor	A four-layer semiconductor that is often used for handling large amounts of electrical power.

UART	Universal Asynchronous Receiver/Transmitter. An integrated circuit used for serial communications over a computer or peripheral device serial port.

USB	Universal Serial Bus. A standard that provides a serial bus standard for connecting devices, usually to a computer.

WACC	Weighted Average Cost of Capital. A calculation of a company’s cost of capital in which each category of capital is proportionally weighted.

Wafer	A disk made of a semiconducting material, such as silicon, usually either 100, 125, 150, 200 or 300 millimeters in diameter, used to form the substrate of a chip. A finished wafer may contain several thousand chips.

White goods	A term which refers to large household appliances such as refrigerators, stoves, dishwashers and other similar items.

Yield	The ratio of the number of usable products to the total number of manufactured products.

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.


				NXP Semiconductors N.V. (Registrant)

/s/ RICK CLEMMER				/s/ PETER KELLY
Rick Clemmer				Peter Kelly
Chief Executive Officer (Principal Executive Officer)				Chief Financial Officer (Principal Financial and Accounting Officer)

Date: February 28, 2014

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The following financial statements and related schedules, together with the report of independent registered public accounting firms thereon, are filed as part of this Annual Report:

Consolidated Financial Statements


Report of Independent Registered Public Accounting Firm, KPMG Accountants N.V.
Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 2011			F-3
Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011			F-4
Consolidated Balance Sheets as of December 31, 2013 and 2012			F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011			F-6
Consolidated Statements of Changes in Equity for the years ended December 31, 2013, 2012 and 2011			F-7
Notes to the Consolidated Financial Statements			F-8

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of NXP Semiconductors N.V.:

We have audited the accompanying consolidated balance sheets of NXP Semiconductors N.V. and subsidiaries (“the Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income, cash flows, and changes in equity for each of the years in the three-year period ended December 31, 2013. We also have audited the Company’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control–Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control–Integrated Framewor__k (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ KPMG Accountants N.V.

Amstelveen, the Netherlands

February 28, 2014

NXP Semiconductors N.V.

Consolidated Statements of Operations


($ in millions, unless otherwise stated)	For the years ended December 31,
	2013			2012			2011
Revenue		4,815			4,358			4,194
Cost of revenue		(2,638	)		(2,370	)		(2,288	)

Gross profit		2,177			1,988			1,906
Research and development		(639	)		(628	)		(635	)
Selling, general and administrative		(896	)		(977	)		(918	)
Other income (expense)		9			29			4

Operating income (loss)		651			412			357
Financial income (expense):
Extinguishment of debt		(114	)		(161	)		(32	)
Other financial income (expense)		(160	)		(276	)		(225	)

Income (loss) before income taxes		377			(25	)		100
Benefit (provision) for income taxes		(20	)		(1	)		(21	)
Results relating to equity-accounted investees		58			(27	)		(77	)

Income (loss) from continuing operations		415			(53	)		2
Income (loss) on discontinued operations, net of tax		—			1			434

Net income (loss)		415			(52	)		436
Less: Net income (loss) attributable to non-controlling interests		67			63			46

Net income (loss) attributable to stockholders		348			(115	)		390
Earnings per share data:
Basic earnings per common share attributable to stockholders in $
– Income (loss) from continuing operations		1.40			(0.46	)		(0.17	)
– Income (loss) from discontinued operations		—			—			1.74

– Net income (loss)		1.40			(0.46	)		1.57
Diluted earnings per common share attributable to stockholders in $
– Income (loss) from continuing operations		1.36			(0.46	)		(0.17	)
– Income (loss) from discontinued operations		—			—			1.74

– Net income (loss)		1.36			(0.46	)		1.57
Weighted average number of shares of common stock outstanding during the year (in thousands)
– Basic		248,526			248,064			248,812
– Diluted		255,050			248,064			248,812

See accompanying notes to the consolidated financial statements.

F-3

NXP Semiconductors N.V.

Consolidated Statements of Comprehensive Income


($ in millions, unless otherwise stated)	For the years ended December 31,
	2013			2012			2011
Net income (loss)		415			(52	)		436

Other comprehensive income (loss), net of tax:
Net investment hedge, net of deferred taxes of $0, $(8) and $0		68			18			(203	)
Changes in fair value cash flow hedges, net of deferred taxes $0, $0 and $0		(9	)		—			—
Foreign currency translation adjustments		(27	)		10			(19	)
Net actuarial gain (loss), net of deferred taxes of $(10), $3 and $(2)		10			(51	)		7
Reclassification adjustments, net of deferred taxes of $0:
Changes in fair value cash flow hedges *		5			—			—
Foreign currency translation adjustments		—			—			(2	)
Amortization of net actuarial gain (loss)		—			—			2

Total other comprehensive income (loss)		47			(23	)		(215	)

Total comprehensive income (loss)		462			(75	)		221
Less: Comprehensive income (loss) attributable to non- controlling interests		67			63			46

Total comprehensive income (loss) attributable to stockholders		395			(138	)		175

*	Included in Cost of revenue in the Consolidated Statements of Operations.

See accompanying notes to the consolidated financial statements.

F-4

NXP Semiconductors N.V.

Consolidated Balance Sheets


($ in millions, unless otherwise stated)	As of December 31,
	2013			2012
Assets
Current assets:
Cash and cash equivalents		670			617
Receivables, net		542			510
Assets held for sale		13			10
Inventories, net		740			715
Deferred tax assets		11			12
Other current assets		116			90

Total current assets		2,092			1,954

Non-current assets:
Investments in equity-accounted investees		52			45
Other non-current assets		144			128
Property, plant and equipment, net		1,048			1,070
Identified intangible assets, net		755			965
Goodwill		2,358			2,277

Total non-current assets		4,357			4,485

Total assets		6,449			6,439

Liabilities and equity
Current liabilities:
Accounts payable		544			562
Liabilities held for sale		1			—
Restructuring liabilities – current		103			138
Payroll and related benefits		260			193
Accrued liabilities		245			296
Short-term debt		40			307

Total current liabilities		1,193			1,496

Non-current liabilities:
Long-term debt		3,281			3,185
Pension and postretirement benefits		247			269
Restructuring liabilities		14			32
Other non-current liabilities		168			173

Total non-current liabilities		3,710			3,659

Equity:
Non-controlling interests		245			235
Stockholders’ equity:
Common stock, par value €0.20 per share:
Authorized: 430,503,000 shares (2012: 430,503,000 shares)
Issued and fully paid: 251,751,500 shares (2012: 251,751,500 shares)		51			51
Capital in excess of par value		6,175			6,090
Treasury shares, at cost: 4,170,833 shares (2012: 2,726,000 shares)		(167	)		(58	)
Accumulated deficit		(5,105	)		(5,334	)
Accumulated other comprehensive income (loss)		347			300

Total Stockholders’ equity		1,301			1,049

Total equity		1,546			1,284

Total liabilities and equity		6,449			6,439

See accompanying notes to the consolidated financial statements.

F-5

NXP Semiconductors N.V.

Consolidated Statements of Cash Flows


($ in millions, unless otherwise stated)	For the years ended December 31,
	2013			2012			2011
Cash flows from operating activities:
Net income (loss)		415			(52	)		436
(Income) loss from discontinued operations, net of tax		—			(1	)		(434	)

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization		514			533			591
Share-based compensation		88			52			31
Net (gain) loss on sale of assets		(2	)		(20	)		10
(Gain) loss on extinguishment of debt		114			161			32
Results relating to equity-accounted investees		(58	)		27			77
Changes in operating assets and liabilities:
(Increase) decrease in receivables and other current assets		(35	)		2			(32	)
(Increase) decrease in inventories		(22	)		(61	)		(104	)
Increase (decrease) in accounts payable and accrued liabilities		(76	)		61			(373	)
Decrease (increase) in other non-current assets		13			26			51
Exchange differences		(62	)		(28	)		(128	)
Other items		2			22			18

Net cash provided by (used for) operating activities		891			722			175

Cash flows from investing activities:
Purchase of identified intangible assets		(35	)		(29	)		(10	)
Capital expenditures on property, plant and equipment		(215	)		(251	)		(221	)
Proceeds from disposals of property, plant and equipment		6			2			15
Proceeds from disposals of assets held for sale		—			—			11
Purchase of interests in businesses		(1	)		(2	)		—
Proceeds from sale of interests in businesses		3			26			—
Proceeds from return of equity investment		4			12			—
Decrease (increase) in non-current assets and deposits		(2	)		(1	)		3

Net cash provided by (used for) investing activities		(240	)		(243	)		(202	)

Cash flows from financing activities:
Net (repayments) borrowings of short-term debt		(11	)		—			17
Amounts drawn under the revolving credit facility		530			760			200
Repayments under the revolving credit facility		(610	)		(530	)		(600	)
Repurchase of long-term debt		(2,429	)		(1,676	)		(1,997	)
Principal payments on long-term debt		(18	)		(20	)		(10	)
Net proceeds from the issuance of long-term debt		2,228			958			1,578
Dividends paid to non-controlling interests		(48	)		(40	)		(67	)
Purchase of non-controlling interest shares		(12	)		—			—
Cash proceeds from exercise of stock options		177			14			10
Purchase of treasury shares		(405	)		(40	)		(57	)

Net cash provided by (used for) financing activities		(598	)		(574	)		(926	)

Net cash provided by (used for) continuing operations		53			(95	)		(953	)

Cash flows from discontinued operations:
Net cash provided by (used for) operating activities		—			—			20
Net cash provided by (used for) investing activities		—			(45	)		791
Net cash provided by (used for) financing activities		—			—			(2	)

Net cash provided by (used for) discontinued operations		—			(45	)		809

Net cash provided by (used for) continuing and discontinued operations		53			(140	)		(144	)
Effect of changes in exchange rates on cash positions		—			14			(21	)

Increase (decrease) in cash and cash equivalents		53			(126	)		(165	)
Cash and cash equivalents at beginning of period		617			743			908

Cash and cash equivalents at end of period		670			617			743

See accompanying notes to the consolidated financial statements.

F-6

NXP Semiconductors N.V.

Consolidated Statements of Changes in Equity

For the years ended December 31, 2013, 2012 and 201****1


($ in millions, unless otherwise stated)	Outstanding number of shares (in thousands)			Common stock		Capital in excess of par value			Treasury shares at cost			Accumulated deficit			Accumulated other comprehensive income (loss)			Total stockholders’ equity			Non- controlling interests			Total equity
Balance as of January 1, 2011		250,752			51		6,006			—			(5,609	)		538			986			233			1,219

Net income (loss)													390						390			46			436
Other comprehensive income																(215	)		(215	)					(215	)
Share-based compensation plans							31												31						31
Issuance of additional shares		1,000																	—						—
Treasury shares		(5,689	)							(57	)								(57	)					(57	)
Shares issued pursuant to stock awards		1,774					10												10						10
Dividends non-controlling interests																						(67	)		(67	)

Balance as of December 31, 2011		247,837			51		6,047			(57	)		(5,219	)		323			1,145			212			1,357

Net income (loss)													(115	)					(115	)		63			(52	)
Other comprehensive income																(23	)		(23	)					(23	)
Share-based compensation plans							52												52						52
Treasury shares		(1,245	)				8			(34	)								(26	)					(26	)
Shares issued pursuant to stock awards		2,434					(19	)		33									14						14
Equity classified financial instruments							2												2						2
Dividends non-controlling interests																						(40	)		(40	)

Balance as of December 31, 2012		249,026			51		6,090			(58	)		(5,334	)		300			1,049			235			1,284

Net income (loss)													348						348			67			415
Other comprehensive income																47			47						47
Share-based compensation plans							88												88						88
Treasury shares		(11,072	)							(405	)								(405	)					(405	)
Shares issued pursuant to stock awards		9,627								296			(119	)					177						177
Dividends non-controlling interests																						(48	)		(48	)
Purchase of non-controlling interest shares							(3	)											(3	)		(9	)		(12	)

Balance as of December 31, 2013		247,581			51		6,175			(167	)		(5,105	)		347			1,301			245			1,546

See accompanying notes to the consolidated financial statements.

F-7

NXP Semiconductors N.V.

Notes to the Consolidated Financial Statements

All amounts in millions of $ unless otherwise stated

1 Basis of Presentation

The Company

NXP Semiconductors N.V. (including our subsidiaries, referred to collectively herein as “NXP”, “NXP Semiconductors”, “we”, “our”, “us” and the “Company”) is a global semiconductors company and a long-standing supplier in the industry, with over 50 years of innovation and operating history. We provide leading High Performance Mixed Signal and Standard Product solutions that leverage our deep application insight and our technology and manufacturing expertise in radio frequency, analog, power management, interface, security and digital processing products. Our product solutions are used in a wide range of application areas including: automotive, identification, wireless infrastructure, lighting, industrial, mobile, consumer, computing and software solutions for mobile phones.

We were incorporated in the Netherlands as a Dutch private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) under the name KASLION Acquisition B.V. on August 2, 2006, in connection with the sale by Philips of 80.1% of its semiconductor business to the “Private Equity Consortium”.

On May 21, 2010, we converted into a Dutch public company with limited liability (naamloze vennootschap) and changed our name to NXP Semiconductors N.V.

In August 2010, we made an initial public offering and listed on the NASDAQ Global Select Market.

Accounting policies

The Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). Historical cost is used as the measurement basis unless otherwise indicated.

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.

Reclassifications

Certain items previously reported have been reclassified to conform to the current period presentation.

The current liability for payroll and related benefits previously reflected on the Consolidated Balance Sheets within the caption Accrued Liabilities has been reclassified for all periods presented to a separate caption in the current year presentation.

Realignment of business segments

During the first quarter of 2013, we moved our General Purpose Logic Product Line from our HPMS segment (Portable & Computing) to our SP segment; and our NXP software product line to our HPMS Segment (Industrial & Infrastructure) from Corporate and Other to better reflect underlying market dynamics, product complexity and the management of the business. In addition, during the fourth quarter of 2013 we determined

F-8

that a change to our reportable segments was warranted due to the significant decline in external revenues and costs reported by Manufacturing Operations (“MO”). These external results are, to a large extent, derived from revenue of wafer foundry and packaging services to our divested businesses in order to support their separation and, on a limited basis, their ongoing operations. MO’s results are also not regularly reviewed by the Chief Operating Decision Maker (CODM) to assess operating performance and allocate resources as its primary function is to manage the Company’s internal manufacturing and supply chain activities and substantially all of its results are reflected within the operating segments utilizing its services. As a result, since Manufacturing Operations no longer meets the criteria for an operating segment, its results will be reflected within Corporate and Other effective the fourth quarter of 2013.

The changes described above to the Company’s internal management reporting structure were evaluated under the criteria of ASC Accounting Standards Codification (“ASC”) Topic 280 “Segment Reporting”. As a result of the above changes to the composition of our operating and reportable segments, corresponding information for prior periods have been reclassified to conform to the current period presentation.

Discontinued operations

During 2011, the Company sold its Sound Solutions business. See Note 17 “Discontinued Operations”.

2 Significant Accounting Policies

Principles for consolidated financial statements

The Consolidated Financial Statements include the accounts of the Company together with its consolidated subsidiaries, including NXP B.V. and all entities in which the Company holds a direct or indirect controlling interest, in such a way that the Company would have the power to direct the activities of the entity that most significantly impact the entity’s economic performance and the obligation to absorb the losses or the right to receive benefits of the entity that could be potentially significant to the Company. Investments in companies in which the Company exercises significant influence but does not control, are accounted for using the equity method. The Company’s share of the net income of these companies is included in results relating to equity-accounted investees in the consolidated statements of operations.

All intercompany balances and transactions have been eliminated in the Consolidated Financial Statements. 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.

Business combinations are accounted for using the acquisition method. Under the acquisition method, the identifiable assets acquired, liabilities assumed and any non-controlling interest in the acquiree are recognized as at the acquisition date, which is the date on which control is transferred to the Company. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

For acquisitions on or after January 1, 2010, the Company measures goodwill at the acquisition date as:

	•		The fair value of the consideration transferred; plus

	•		The recognized amount of any non-controlling interest in the acquiree; plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less

	•		The net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed

Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred.

F-9

Any contingent consideration payable is recognized at fair value at the acquisition date. The contingent consideration is remeasured at fair value and changes in the fair value of the contingent consideration are recognized in the statement of operations.

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 are observable or where the significant value drivers are observable.

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

Accounting for capital transactions of a subsidiary or an equity-accounted investee

The Company recognizes dilution gains or losses related to changes in ownership of consolidated entities directly in equity. In the case of loss of control of a subsidiary any dilution gain or loss is recognized in the consolidated statement of operations in the line item other income and expense. Dilution gains and losses related to equity-accounted investees are presented in the line item results relating to equity-accounted investees.

Foreign currencies

The Company uses the U.S. dollar as its reporting currency. The functional currency of the Holding company is the euro. 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 stockholder’s equity. However, if the operation is a non-wholly owned subsidiary, then the relevant proportionate share of the translation difference is recorded under non-controlling interests. When the Company’s ownership in a foreign operation is disposed of such that control, significant influence or joint control is lost, the related cumulative translation adjustments are recognized as income or expense as part of the gain or loss on the disposal. However, when the Company disposes only a part of its ownership interest in a foreign subsidiary while retaining control, the relevant proportion of the cumulative translation adjustments is reattributed to non-controlling interests. When the Company disposes of only part of its investment in a foreign equity-accounted investee, while retaining significant influence or joint control, the relevant proportion of the cumulative translation adjustments is recognized as income or expense as part of the gain or loss on the disposal. However, translation results from the Company’s functional currency (euro) into the Company’s reporting currency (U.S. dollar) will not be recycled to the statement of operations as long as there is the assumption that the proceeds from the sale will be reinvested.

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


	$ per € 1
	period end		average1)		high		low
2013		1.3765		1.3285		1.2818		1.3765
2012		1.3190		1.2887		1.2238		1.3347
2011		1.2938		1.3908		1.2938		1.4531

(1)	The average rates are the average rates based on monthly quotations.

The functional currency of foreign entities is generally the local currency, unless the primary economic environment requires the use of another currency. When foreign entities conduct their business in economies considered to be highly inflationary, they record transactions in the Company’s reporting currency instead of their local currency. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of operations, except when the foreign exchange exposure is part of a qualifying cash flow or net investment hedge accounting relationship, in which case the related foreign exchange gains and losses are recognized directly in other comprehensive income to the extent that the hedge is effective and presented as a separate component of accumulated other comprehensive income (loss) within stockholders’ equity. To the extent that the hedge is ineffective, such differences are recognized in the statement of operations. Currency gains and losses on intercompany loans that have the nature of a permanent investment are recognized as translation differences in other comprehensive income and are presented as a separate component of accumulated other comprehensive income (loss) within equity.

Derivative financial instruments including hedge accounting

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

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

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

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

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

On initial designation of the hedge relationship between the hedging instrument and hedged item, the Company documents this relationship, including the risk management objectives and strategy in undertaking the

F-11

hedge transaction and the hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Company makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items attributable to the hedged risk, and whether the actual results of each hedge are within a range of 80-125 percent.

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.

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. It also includes cash balances that cannot be freely repatriated based on certain country restrictions. Cash and cash equivalents are stated at face value which approximates fair value.

Receivables

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

Inventories

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

Property, plant and equipment

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

Goodwill

The Company accounts for goodwill in accordance with the provisions of ASC 350 “Intangibles-Goodwill and Other”. Accordingly, goodwill is not amortized but tested for impairment annually in the fourth quarter or more frequently if events and circumstances indicate that goodwill may be impaired.

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An impairment loss is recognized to the extent that the carrying amount of goodwill exceeds the asset’s implied fair value. This determination is made at the business operating segment level, which is for the Company the reporting unit level in accordance with ASC 350. The Company may use the option to assess first qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if the Company concludes otherwise, it is required to perform the first step of the two-step impairment test. The Company then determines the carrying value of each reporting unit by assigning the assets and liabilities, including the goodwill and intangible assets, to the reporting units. Furthermore, the Company determines the fair value of each reporting unit and compares it to the carrying amount of the reporting unit. If the carrying amount of a reporting unit exceeds the fair value of the reporting unit, the Company performs the second step of the impairment test. In the second step, the Company compares the implied fair value of the reporting unit’s goodwill with the carrying amount of the reporting unit’s goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to acquisition accounting in a business combination. The residual fair value after this allocation is the implied fair value of the reporting unit’s goodwill. The Company generally determines the fair value of the reporting units based on discounted projected cash flows in the absence of other observable inputs such as quoted prices.

The determination of the fair value of the reporting unit requires us to make significant judgments and estimates including projections of future cash flows from the business. These estimates and required assumptions include estimated revenue and revenue growth rates, operating margins used to calculate projected future cash flows, estimated future capital expenditures, future economic and market conditions, determination of market comparables and the estimated weighted average cost of capital (“WACC”).

We base our estimates on assumptions we believe to be reasonable but any such estimates are unpredictable and inherently uncertain. Actual future results may differ from these estimates. In addition, we make judgments and assumptions in allocating assets and liabilities to each of our reporting segments.

Identified Intangible assets

Identified Intangible assets with definitive lives arising from acquisitions are amortized using the straight-line method over their estimated useful lives. Remaining useful lives are evaluated every year to determine whether events and circumstances warrant a revision to the remaining period of amortization. The Company considers renewal and extension options in determining the useful life. However, based on experience the Company concluded that these assets have no extension or renewal possibilities. In-process research and development (“IPR&D”) projects acquired as part of a business combination with no alternative use are capitalized and indefinitely lived until completion or abandonment of the associated R&D efforts in accordance with ASC 350 “Intangibles-Goodwill and Other”. Upon completion of each project, IPR&D assets are amortized over their estimated useful lives. During development, IPR&D assets are not amortized but tested annually for impairment. There are currently no intangible assets with indefinite lives. Patents, trademarks and other intangible assets acquired from third parties are capitalized at cost and amortized over their estimated remaining useful lives.

Certain costs relating to the development and purchase of software for internal use are capitalized and subsequently amortized over the estimated useful life of the software in conformity with ASC 350.

Impairment or disposal of identified intangible assets and tangible fixed assets

The Company accounts for intangible assets other than goodwill and tangible fixed assets in accordance with the provisions of ASC 360 “Property, Plant and Equipment”. Long-lived assets other than goodwill are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a

F-13

comparison of the carrying amount of an asset with future undiscounted net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. The Company determines the fair value based on discounted projected cash flows. The review for impairment is carried out at the level where discrete cash flows occur that are largely independent of other cash flows in the absence of other observable inputs such as quoted prices. Management must make significant judgments and apply a number of assumptions in estimating the future cash flows. The estimated cash flows are determined based on, among other things, our strategic plans, long-range forecasts, estimated growth rates and assumed profit margins. The evaluation of identified intangible assets and tangible fixed assets for impairment is carried out at a Corporate level as the majority of our assets are used jointly or managed at Corporate level. Assets held for sale are reported at the lower of the carrying amount or fair value less cost to sell.

Non-current assets held for sale and disposal groups

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. The asset (or disposal group) must be available for immediate sale in its present condition and the sale must be highly probable.

Non-current assets (or disposal groups) classified as held for sale are measured at the lower of the asset’s carrying amount and the fair value less costs to sell. The Company determines the fair value based on discounted projected cash flows in the absence of other observable inputs such as quoted prices. Depreciation or amortization of an asset ceases when it is classified as held for sale, or included within a disposal group that is classified as held for sale.

Discontinued operations

A discontinued operation is a component of the Company that either has been disposed of, or that is classified as held for sale, and: (i) represents a separate major line of business or geographical area of operations that can be clearly distinguished from the rest of the Company in terms of operations and cash flows or (ii) is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations. Generally, a major line of business is a segment or business unit. Discontinued operations are carried at the lower of carrying amount or fair value less cost to sell. The Company determines the fair value based on discounted projected cash flows in the absence of other observable inputs such as quoted prices. Results from discontinued operations until the date of disposal are presented separately as a single amount in the consolidated statements of operations together with any gain or loss from disposal. Results from discontinued operations are reclassified for all periods presented and reflected as income (loss) from discontinued operations, net of tax, within the consolidated statements of operations.

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.

Guarantees

The Company complies with ASC 460 “Guarantees”. The Company recognizes, at the inception of a guarantee, a liability at the fair value of the obligation incurred, for guarantees within the scope of the recognition criteria. The Company determines the fair value based on either quoted prices for similar guarantees or discounted projected cash flows, whichever is available.

F-14

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.

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.

Diluted earnings per share attributable to stockholders is determined using the weighted-average number of common and potentially dilutive common shares outstanding during the period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising share-based awards, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of excess tax benefits that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares.

Revenue recognition

The Company’s revenue is primarily derived from made-to-order sales to Original Equipment Manufacturers (“OEMs”) and similar customers. The Company’s revenue is also derived from sales to distributors.

The Company applies the guidance in SEC Staff Accounting Bulletin (SAB) Topic 13 ‘Revenue Recognition’ and recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or the service has been provided, the sales price is fixed or determinable, and collection is reasonably assured, based on the terms and conditions of the sales contract. For made-to-order sales, these criteria are met at the time the product is shipped and delivered to the customer and title and risk have passed to the customer. Acceptance of the product by the customer is generally not contractually required, since, for made-to-order customers, design approval occurs before manufacturing and subsequently delivery follows without further acceptance protocols. Payment terms used are those that are customary in the particular geographic market. When management has established that all aforementioned conditions for revenue recognition have been met and no further post-shipment obligations exist, revenue is recognized.

For sales to distributors, revenue is recognized upon sale to the distributor (sell-in accounting). The same recognition principles apply and similar terms and conditions as for sales to other customers are applied. However, 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 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. However, long notice periods associated with these announcements prevent significant amounts of product from being returned. Repurchase agreements with OEMs or distributors are not entered into by the Company.

For sales where return rights exist, the Company has determined, based on historical data, that only a very small percentage of the sales to this type of distributor is actually returned. In accordance with these historical data, a pro rata portion of the sales to these distributors is not recognized but deferred until the return period has lapsed or the other return conditions no longer apply.

Revenue is recorded net of sales taxes, customer discounts, rebates and other contingent discounts granted to distributors. Shipping and handling costs billed to customers are recognized as revenue. Expenses incurred for shipping and handling costs of internal movements of goods are recorded as cost of revenue. Shipping and handling costs related to revenue to third parties are reported as selling expenses within selling, general and administrative.

F-15

Revenues from the sale or licensing of the Company’s intellectual property are recognized when the significant contractual obligations have been fulfilled and the fundamental revenue recognition criteria of SAB Topic 13 are met. Royalty income is recognized upon the sale of products subject to royalties and is recognized based upon reports received from licensees during the period, unless collectability is not reasonably assured, in which case revenue is recognized when payment is received from the licensee. Government grants, other than those relating to purchases of assets, are recognized as income as qualified expenditures are made. Software revenue is recognized in accordance with ASC 985 “Software Revenue Recognition” when the 4 criteria of SAB Topic 13 are met.

Financial income and expense

Financial income comprises interest income on funds invested and the net gain on the disposal of other financial assets.

Financial expense comprises interest expense on borrowings, accretion of the discount on provisions and contingent consideration, losses on disposal of financial assets, impairment losses recognized on financial assets (other than trade receivables) and 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.

Foreign currency gains and losses, not related to accounts receivable, accounts payable and intercompany current accounts, are reported on a net basis as either financial income or financial expense in the statement of operations depending on whether foreign currency movements are in a net gain or net loss position. Foreign currency gains and losses on accounts receivable, accounts payable and intercompany current accounts that are not hedged in a net investment hedge are reported under cost of revenue in the statement of operations.

Income taxes

Income taxes are accounted for using the asset and liability method.

Current tax is the expected tax payable on the taxable income for the year, using the tax rates enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date of the change. Deferred tax assets and liabilities are not discounted. Deferred tax liabilities for withholding taxes on dividends from subsidiaries are recognized in situations where the company does not consider the earnings permanently reinvested and to the extent that these 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 it is more likely than not that the asset will be realized. The Company has significant deferred tax assets primarily related to net operating losses in the Netherlands, France, Germany, the USA and other countries. The realization of deferred tax assets is not assured and is dependent on the generation of sufficient taxable income in the future. We have exercised judgment in determining whether it is more likely than not that we will realize the benefit of these net operating losses and other deductible temporary differences, based upon estimates of future taxable income in the various jurisdictions and any feasible tax planning strategies.

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, based on the technical merits of the position. The income tax benefit recognized in the financial statements from such position is measured based on the largest benefit that is more than 50% likely to be realized upon settlement with a taxing authority

F-16

that has full knowledge of all relevant information. The 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 are recorded as income tax expense, whereas interest is reported as financial expense in the statement of operations.

Postretirement benefits

The Company accounts for the cost of pension plans and postretirement benefits other than pensions in accordance with ASC 715 “Compensation-Retirement 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 defined-benefit 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 pension liability or asset recognized in the balance sheet in respect of defined benefit pension plans is the present value of the projected defined-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 pension provision or a net pension liability.

The projected defined-benefit obligation is calculated annually by qualified actuaries using the projected unit credit method. 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.

Pension costs in respect of defined-benefit pension plans primarily represent the increase in the actuarial present value of the obligation for pension 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 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 pension cost incurred. A sensitivity analysis is provided in Note 9, “Postretirement Benefit Plans”.

Unrecognized prior-service costs related to pension plans and postretirement benefits other than pensions 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.

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In accordance with the requirements of ASC 715, if the projected benefit obligation exceeds the fair value of plan assets, we recognize in the consolidated balance sheet a liability that equals the excess. If the fair value of plan assets exceeds the projected benefit obligation, we recognize in the balance sheet an asset that equals the excess.

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 pursuant to ASC 715. 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 pursuant to the recognition provisions of ASC 715.

For all of the Company’s defined pension benefit plans, the measurement date is year-end.

Share-based compensation

NXP has share-based payment plans under which its employees receive options and other share-based awards. The plans provide for the granting of stock options, performance share units, restricted stock units and equity rights. All plans are accounted for in accordance with the provisions of ASC 718 “Compensation, Stock Compensation” at the estimated fair value of the equity instruments measured at the grant date. For grants issued up to August 2010, the Company used a binomial option-pricing model to determine the estimated fair value for options and determined the fair value of equity rights on the basis of the estimated fair value of the Company, using a discounted cash flow technique. For option grants issued since August 2010, the Company uses the Black-Scholes method and determined the fair value of equity awards with a market condition using a Monte Carlo simulation approach. NXP stock options are granted with an exercise price equal to 100% of the market value of a share of common stock on the date of grant, generally have ten-year contractual terms, and vest ratably over four years from date of grant. NXP has also granted performance share units and restricted stock units at no cost to the employee that vest, subject to the relevant performance and service conditions being met, ratably over a three year period. In addition, NXP has granted performance share units that vest based on a combination of a required service period and satisfaction of meeting a market condition. These awards vest over a one-year or three-year period from the date of grant if the market condition has been met at that time. If the market condition has not been met, the awards will lapse and any compensation cost previously recognized will not be reversed. The estimated fair value of equity instruments is recognized as compensation expense over the requisite service period on a straight-line basis taking into account estimated forfeitures. For all performance share units, including the awards subject to a market condition, the recognition of cost is based on graded vesting.

Accounting standards adopted in 2013

The following accounting pronouncements became effective in 2013 and were adopted by the Company

	•		ASU No. 2013-02 “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”

On February 5, 2013, the FASB issued ASU 2013-02 which requires entities to disclose the following additional information about items reclassified out of accumulated other comprehensive income (AOCI):

	•		Changes in AOCI balances by component (e.g., unrealized gains or losses on available-for-sale securities or foreign-currency items). Both before-tax and net-of-tax presentations of the information are acceptable as long as an entity presents the income tax benefit or expense attributed to each component of OCI and reclassification adjustments in either the financial statements or the notes to the financial statements.

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	•		Significant items reclassified out of AOCI by component either on the face of the income statement or as a separate footnote to the financial statements.

The ASU did not change current U.S. GAAP requirements for condensed financial statement reporting of comprehensive income. However, public entities will need to include information about (1) changes in AOCI balances by component and (2) significant items reclassified out of AOCI in their interim reporting periods. The effective date for NXP was January 1, 2013. The amendments in the ASU should be applied prospectively. The ASU has an impact on the Company’s financial statements because of the additional disclosure requirements.

New standards to be adopted after 2013

	•		ASU No. 2013-05 “Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity”

On March 4, 2013, the FASB issued ASU 2013-05, which indicates that the entire amount of a cumulative translation adjustment (CTA) related to an entity’s investment in a foreign entity should be released when there has been a:

	•		Sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity.

	•		Loss of a controlling financial interest in an investment in a foreign entity (i.e., the foreign entity is deconsolidated).

	•		Step acquisition for a foreign entity (i.e., when an entity has changed from applying the equity method for an investment in a foreign entity to consolidating the foreign entity).

The ASU does not change the requirement to release a pro rata portion of the CTA of the foreign entity into earnings for a partial sale of an equity method investment in a foreign entity. The effective date for NXP is January 1, 2014. The ASU should be applied prospectively. The impact on the Company’s financial statements can be significant.

	•		ASU No.2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.”

On July 18, 2013 the FASB issued ASU 2013-11 which provides guidance on financial statement presentation of an unrecognized tax benefit (UTB) when a net operating loss (NOL) carryforward, a similar tax loss, or a tax credit carryforward exists.

Under the ASU, an entity must present a UTB, or a portion of a UTB, in the financial statements as a reduction to a deferred tax asset (DTA) for an NOL carryforward, a similar tax loss, or a tax credit carryforward except when:

	•		An NOL carryforward, a similar tax loss, or a tax credit carryforward is not available as of the reporting date under the governing tax law to settle taxes that would result from the disallowance of the tax position.

	•		The entity does not intend to use the DTA for this purpose.

If either of these conditions exists, an entity should present a UTB in the financial statements as a liability and should not net the UTB with a DTA. New recurring disclosures are not required because the ASU does not affect the recognition or measurement of uncertain tax positions under ASC 740.

NXP will apply the ASU prospectively as from January 1, 2014. The ASU will have no significant impact on the Company’s financial statements.

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3 Supplemental Financial Information

Statement of Operations Information

Revenue composition


	2013		2012		2011
Goods		4,766		4,346		4,170
Patents and licenses		49		12		24

		4,815		4,358		4,194

Depreciation, amortization and impairment

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


	2013		2012		2011
Depreciation of property, plant and equipment		246		247		290
Amortization of internal use software		32		24		10
Amortization of identified intangible assets		236		262		291

		514		533		591

Depreciation of property, plant and equipment is primarily included in cost of revenue. Amortization of intangible assets is primarily reported in the selling, general and administrative expenses.

Change in accounting estimate

We currently depreciate the capitalized cost of machinery and equipment used in our front-end and back-end manufacturing facilities. As a result of an extensive review completed in December 2013, we determined that the estimated useful life of the machinery and equipment used in our Standard Products front-end and back-end manufacturing processes has increased to ten years, from the five to seven years previously estimated. We reassessed the estimated useful life of these assets as a result of longer product life cycles, enhancements to manufacturing equipment, the versatility of manufacturing equipment to provide better flexibility to meet changes in customer demand and the ability to re-use equipment over several technology cycles.

We believe that the change in estimated useful life better reflects the future usage of this equipment. The effect of this change in estimated useful life which was adopted on December 31, 2013 will be recognized prospectively as a change in accounting estimate beginning January 1, 2014. The change in estimate is anticipated to cause a decrease in depreciation expense of approximately $26 million for the year ending December 31, 2014.

Foreign exchange differences

In 2013, cost of revenue included foreign exchange differences amounting to a loss of less than $1 million (2012: a loss of $4 million; 2011: a gain of $9 million).

Financial income and expense


	2013			2012			2011
Interest income		3			4			5
Interest expense		(182	)		(270	)		(312	)

Total interest expense, net		(179	)		(266	)		(307	)
Net gain (loss) on extinguishment of debt		(114	)		(161	)		(32	)
Foreign exchange rate results		62			28			128
Miscellaneous financing costs/income, net		(43	)		(38	)		(46	)

Total other financial income and expense		(95	)		(171	)		50

Total		(274	)		(437	)		(257	)

F-20

The Company has applied net investment hedging since May, 2011. The U.S. dollar exposure of the net investment in U.S. dollar functional currency subsidiaries of $1.7 billion has been hedged by our U.S. dollar-denominated notes. As a result in 2013 a benefit of $68 million (2012: a benefit of $26 million; 2011: a charge of $203 million) was recorded in other comprehensive income (loss) relating to the foreign currency result on the U.S. dollar-denominated notes that are recorded in a euro functional currency entity.

Earnings per share

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


	2013		2012			2011
Income (loss) from continuing operations		415		(53	)		2
Less: Net income (loss) attributable to non-controlling interests		67		63			46

Income (loss) from continuing operations attributable to stockholders		348		(116	)		(44	)
Income (loss) from discontinued operations attributable to stockholders		—		1			434

Net income (loss) attributable to stockholders		348		(115	)		390
Weighted average number of shares outstanding (after deduction of treasury shares) during the year (in thousands)		248,526		248,064			248,812
Plus incremental shares from assumed conversion of:
Options		5,004		—			—
Restricted Share Unites, Performance Share Units and Equity Rights		1,520		—			—

Dilutive potential common share		6,524		—			—
Adjusted weighted average number of shares outstanding (after deduction of treasury shares) during the year (in thousands) 1)		255,050		248,064			248,812

Basic EPS attributable to stockholders in $:
Income (loss) from continuing operations		1.40		(0.46	)		(0.17	)
Income (loss) from discontinued operations		—		—			1.74

Net income (loss)		1.40		(0.46	)		1.57

Diluted EPS attributable to stockholders in $:
Income (loss) from continuing operations		1.36		(0.46	)		(0.17	)
Income (loss) from discontinued operations		—		—			1.74

Net income (loss)		1.36		(0.46	)		1.57

1)	In 2013, 10,609,942 securities (2012: 32,394,794 securities; 2011: 27,789,634 securities) that could potentially dilute basic EPS were not included in the computation of dilutive EPSs because the effect would have been anti-dilutive for the period presented.

Balance Sheet Information

Cash and cash equivalents

At December 31, 2013, our cash balance was $670 million (2012: $617 million), of which $353 million (2012: $288 million) was held by SSMC, our joint venture company with TSMC. A portion of this cash can be distributed by way of dividend to us, but 38.8% of the dividend will be paid to our joint venture partner as well. In 2013, there was a dividend distribution from SSMC amounting to $120 million (2012: $100 million) of which $47 million (2012: $39 million) was paid to TSMC.

F-21

Receivables, net

Accounts receivable are summarized as follows:


	2013			2012
Accounts receivable from third parties		504			463
Allowance for doubtful accounts		(3	)		(4	)
Other receivables		41			51

		542			510

The current portion of income taxes receivable of $7 million (2012: $3 million) is included under other receivables.

Inventories, net

Inventories are summarized as follows:


	2013		2012
Raw materials		59		70
Work in process		597		515
Finished goods		84		130

		740		715

The portion of the finished goods stored at customer locations under consignment amounted to $22 million as of December 31, 2013 (2012: $20 million).

The amounts recorded above are net of an allowance for obsolescence of $63 million as of December 31, 2013 (2012: $61 million).

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)	2013	2012
Land		60		59
Buildings	9 to 50	441		452
Machinery and installations	2 to 10	1,336		1,338
Other Equipment	1 to 5	165		186
Prepayments and construction in progress		88		68

		2,090		2,103
Less accumulated depreciation		(1,042)		(1,033	)

Property, plant and equipment, net of accumulated depreciation		1,048		1,070

Land with a book value of $60 million (2012: $59 million) is not depreciated.

Property and equipment includes $62 million (2012: $77 million) related to assets acquired under capital leases. Accumulated depreciation related to these assets was $55 million (2012: $65 million). See Note 10 for information regarding capital lease obligations.

F-22

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

Accumulated other comprehensive income (loss), net of tax

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:


	Net investment hedge			Currency translation differences			Changes in fair value cash flow hedges			Net actuarial gain/(losses)			Accumulated Other Comprehensive Income (loss)
As of December 31, 2010		—			525			—			13			538
2011 other comprehensive income (loss)		(203	)		(21	)		—			9			(215	)

As of December 31, 2011		(203	)		504			—			22			323
2012 other comprehensive income (loss)		18			10			—			(51	)		(23	)

As of December 31, 2012		(185	)		514			—			(29	)		300
2013 other comprehensive income (loss)		68			(27	)		(4	)		10			47

As of December 31, 2013		(117	)		487			(4	)		(19	)		347

Cash Flow Information


	For the years ended December 31,
	2013			2012			2011
*Net cash paid during the period for:*
Interest		174			292			301
Income taxes		34			28			25

Net gain (loss) on sale of assets****:
Cash proceeds from the sale of assets		6			31			30
Book value of these assets		(4	)		(12	)		(40	)
Non-cash gains (losses)		—			1			—

		2			20			(10	)

*Non-cash financing information:*
Exchange of Term Loan C for Term Loan D		400			—			—

Other items****:
Other items consists of the following non-cash element in income:
Non-cash interest cost due to applying effective interest method		2			22			18

Cash flows from financing activities in 2013 included $12 million in connection with the acquisition of the remaining 40% non-controlling interest share from Jilin Sino-Microelectronics Co. Ltd.

F-23

4 Fair Value of Financial Assets and Liabilities

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


			December 31, 2013						December 31, 2012
	Fair value hierarchy1)		Carrying amount			Estimated fair value			Carrying amount			Estimated fair value
Assets:
Other financial assets		2		18			18			18			18
Derivative instruments-assets		2		1			1			1			1

Liabilities:
Short-term debt		2		(31	)		(31	)		(42	)		(42	)
Short-term debt (bonds)		1		(9	)		(9	)		(265	)		(267	)
Long-term debt (bonds)		1		(3,124	)		(3,181	)		(2,332	)		(2,453	)
Long-term debt (bonds) 2)		2		—			—			(608	)		(635	)
Other long-term debt		2		(157	)		(157	)		(245	)		(245	)
Derivative instruments-liabilities		2		(6	)		(6	)		(2	)		(2	)

1)	Transfers between the levels of fair value hierarchy are recognized when a change in circumstances would require it. There were no transfers during the reporting periods presented in the table above.

2)	Represent bonds which were privately held (floating rate secured notes 2016).

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

Other financial assets

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

Debt

The fair value is estimated on the basis of the quoted market prices for certain issues, or on the basis of discounted cash flow analyses. Accrued interest is included under accounts payable and not within the carrying amount or estimated fair value of debt.

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

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

5 Debt

Short-term debt


	2013		2012
Short-term bank borrowings		24		36
Current portion of long-term debt		16		271

Total		40		307

At December 31, 2013, short-term bank borrowings of $24 million (2012: $36 million) consisted of a local bank borrowing by our Chinese subsidiary.

F-24

The applicable weighted average interest rate during 2013 was 3.5% (2012: 3.6%).

Long-term debt


	Range of interest rates		Average rate of interest		Amount outstanding 2013		Due in 2014		Due after 2014		Due after 2018		Average remaining term (in years)		Amount outstanding December 31, 2012
EUR notes		—		—		—		—		—		—		—		187
USD notes		3.3-5.8		4.4		3,133		9		3,124		1,378		5.4		3,018
Revolving Credit Facility		2.4-2.4		2.4		150		—		150		—		3.2		230
Bank borrowings		2.0-2.0		2.0		4		1		3		—		1.1		5
Liabilities arising from capital lease transactions		2.6-13.8		5.7		10		6		4		—		1.6		16

				4.3		3,297		16		3,281		1,378		5.2		3,456

The following amounts of long-term debt at book value as of December 31, 2013 are due in the next 5 years:


2014			16
2015			14
2016			511
2017			624
2018			754
Due after 5 years			1,378

			3,297

As of December 31, 2013, the fixed rate notes and floating rate notes represented 68% and 32% respectively of the total principal amount of the notes outstanding at December 31, 2013. The remaining tenor of secured debt is on average 4.3 years.

Accrued interest as of December 31, 2013 is $27 million (December 31, 2012: $25 million).

Debt exchange and repurchase

At December 31, 2013 long-term debt increased to $3,281 million from $3,185 million at December 31, 2012.

In 2013, the book value of our long-term debt increased by $96 million to $3,281 million, mainly due to the issuance of new Senior Unsecured Notes (due 2016, 2018, 2021 and 2023) and the issuance of Term Loan D (due 2020), offset in part by the repayment of the Floating Rate Notes due 2013, repayment of Term Loans A2, B and C (due 2017, 2019 and 2020), repayment of the Floating Rate Notes due 2016 and repayment of the Fixed Rate Notes due 2018. Extinguishment of debt in 2013 resulted in a loss of $114 million compared to a loss of $161 million in 2012.

F-25

2013 Financing Activities

2021 Senior Unsecured Notes

On February 14, 2013 our subsidiary, NXP B.V. together with NXP Funding LLC issued Senior Unsecured Notes in the aggregate principal amount of $500 million, due February 15, 2021. The Notes were issued at par and were recorded at their fair value of $500 million on the accompanying Consolidated Balance Sheet. On March 4, 2013, the net proceeds of $495 million together with approximately $14 million of cash on hand were used to fully repay $494 million principal amount Senior Secured Term Loan Facility due April 3, 2017, as well as pay related call premiums of $10 million and accrued interest of $5 million.

2023 Senior Unsecured Notes

On March 12, 2013 our subsidiary, NXP B.V. together with NXP Funding LLC issued Senior Unsecured Notes in the aggregate principal amount of $500 million, due March 15, 2023. The Notes were issued at par and were recorded at their fair value of $500 million on the accompanying Consolidated Balance Sheet. On March 12, 2013, the net proceeds of $495 million were used to fully repay the $471 million principal amount Senior Secured Term Loan Facility due March 19, 2019, as well as pay related call premiums of $5 million and accrued interest of $5 million with the balance of $14 million used for general corporate purposes.

2018 Senior Unsecured Notes

On May 20, 2013 our subsidiary, NXP B.V. together with NXP Funding LLC issued Senior Unsecured Notes in the aggregate principal amount of $750 million, due June 1, 2018. The Notes were issued at par and were recorded at their fair value of $750 million on the accompanying Consolidated Balance Sheet. On May 21, 2013, the net proceeds of $743 million together with cash on hand were used to repay the €142 million principal amount Senior Secured Floating Rate Notes due October 2013 for an amount of $184 million, the $58 million principal amount Senior Secured Floating Rate Notes due October 2013 and the $615 million principal amount Senior Secured Floating Rate Notes due November 2016, as well as pay related call premiums of $16 million and accrued interest of $2 million.

2016 Senior Unsecured Notes

On September 24, 2013 our subsidiary, NXP B.V. together with NXP Funding LLC issued Senior Unsecured Notes in the aggregate principal amount of $500 million, due September 15, 2016. The Notes were issued at par and were recorded at their fair value of $500 million on the accompanying Consolidated Balance Sheet. On October 15, 2013, the net proceeds of $495 million were used to repay the $422 million principal amount Senior Secured Notes due August 2018, as well as pay related call premiums of $51 million and accrued interest of $8 million. The balance of $14 million was used for general corporate purposes.

2020 Term Loan

On December 11, 2013, our subsidiary, NXP B.V. together with NXP Funding LLC entered into a new $400 million aggregate principal amount Senior Secured Term Loan Facility due January 11, 2020. Concurrently, NXP called the $496 million principal amount Senior Secured Term Loan Facility due January 11, 2020. A $100 million draw-down under our existing Revolving Credit Facility and approximately $6 million of cash on hand were used to settle the combined transactions, as well as pay the related call premium of $5 million and accrued interest of $5 million. The exchange of Term Loan C for Term Loan D was a non-cash financing transaction.

The Company may from time to time continue to seek to retire or purchase its outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise.

F-26

U.S. dollar-denominated notes

The following table summarizes the outstanding notes as of December 31, 2013:


	Principal amount		Fixed/ floating		Interest rate	Current coupon rate			Maturity date
Term Loan		486		Floating	LIBOR plus 3.25% with a floor of 1.25%		4.5	%		2017
Term Loan		399		Floating	LIBOR plus 2.50% with a floor of 0.75%		3.25	%		2020
Senior Unsecured Notes		500		Fixed	3.5%		3.5	%		2016
Senior Unsecured Notes		750		Fixed	3.75%		3.75	%		2018
Senior Unsecured Notes		500		Fixed	5.75%		5.75	%		2021
Senior Unsecured Notes		500		Fixed	5.75%		5.75	%		2023
Revolving Credit Facility		150		Floating	LIBOR plus 2.25%		2.4	%		2017

Certain terms and Covenants of the U.S. dollar-denominated notes

The Company is not required to make mandatory redemption payments or sinking fund payments with respect to the notes. With respect to the Term Loans, the Company is required to repay $9 million annually.

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.

Certain portions of long-term and short-term debt as of December 31, 2013 in the principal amount of $1,033 million (2012: $3,470 million) have been secured by collateral on substantially all of the Company’s assets and of certain of its subsidiaries.

The notes are fully and unconditionally guaranteed jointly and severally, on a senior basis by certain of the Company’s current and future material wholly owned subsidiaries (“Guarantors”).

Pursuant to various security documents related to the above mentioned term loans and the $853 million (denominated €620 million) committed revolving credit facility, the Company and each Guarantor has granted first priority liens and security interests in, amongst others, the following, subject to the grant of further permitted collateral liens:

	(a)	all present and future shares of capital stock of (or other ownership or profit interests in) each of its present and future direct subsidiaries, other than SMST Unterstützungskasse GmbH, and material joint venture entities;

	(b)	all present and future intercompany debt of the Company and each Guarantor;

	(c)	all of the present and future property and assets, real and personal, of the Company, and each Guarantor, including, but not limited to, machinery and equipment, inventory and other goods, accounts receivable, owned real estate, leaseholds, fixtures, general intangibles, license rights, patents, trademarks, trade names, copyrights, chattel paper, insurance proceeds, contract rights, hedge agreements, documents, instruments, indemnification rights, tax refunds, but excluding cash and bank accounts; and

	(d)	all proceeds and products of the property and assets described above.

Notwithstanding the foregoing, certain assets may not be pledged (or the liens not perfected) in accordance with agreed security principles, including:

	•		if the cost of providing security is not proportionate to the benefit accruing to the holders; and

F-27

	•		if providing such security requires consent of a third party and such consent cannot be obtained after the use of commercially reasonable efforts; and

	•		if providing such security would be prohibited by applicable law, general statutory limitations, financial assistance, corporate benefit, fraudulent preference, “thin capitalization” rules or similar matters or providing security would be outside the applicable pledgor’s capacity or conflict with fiduciary duties of directors or cause material risk of personal or criminal liability after using commercially reasonable efforts to overcome such obstacles; and

	•		if providing such security would have a material adverse effect (as reasonably determined in good faith by such subsidiary) on the ability of such subsidiary to conduct its operations and business in the ordinary course as otherwise permitted by the indenture; and

	•		if providing such security or perfecting liens thereon would require giving notice (i) in the case of receivables security, to customers or (ii) in the case of bank accounts, to the banks with whom the accounts are maintained. Such notice will only be provided after the secured notes are accelerated.

Subject to agreed security principles, if material property is acquired by the Company or a Guarantor that is not automatically subject to a perfected security interest under the security documents, then the Company or relevant Guarantor will within 60 days provide security over this property and deliver certain certificates and opinions in respect thereof as specified in the indenture governing the notes.

6 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

Currency fluctuations may impact the Company’s financial results. A higher proportion of our revenue is in U.S. dollars or U.S. dollar- related currencies, compared to our costs and expenses resulting in a structural currency mismatch. Accordingly, our results of operations may be affected by changes in foreign exchange rates, particularly between the euro and the U.S. dollar. A strengthening of the euro against the U.S. dollar during any reporting period will reduce the operating income of the Company.

In addition, the U.S. dollar-denominated debt held by our Dutch subsidiary which has a euro functional currency may generate adverse currency results in financial income and expenses depending on the exchange rate movement between the euro and the U.S. dollar. This exposure has been partially mitigated by the application of net investment hedge accounting. In accordance with the provisions in ASC 815, “Derivatives and Hedging”, the Company has applied net investment hedging since May 2011. The U.S. dollar exposure of our net investment in U.S. dollar functional currency subsidiaries has been hedged by our U.S. dollar denominated debt for an amount of $1.7 billion. The hedging relationship is assumed to be highly effective. Foreign currency gains or losses on this U.S. dollar debt that is recorded in a euro functional currency entity that are designated as, and to the extent they are effective as, a hedge of the net investment in our U.S. dollar foreign entities, are 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 are also reported in other comprehensive income. As a result, in 2013, a

F-28

benefit of $68 million (2012: a benefit of $26 million) was recorded in other comprehensive income relating to the foreign currency result on the U.S. dollar-denominated notes that are recorded in a euro functional currency entity. Absent the application of net investment hedging, this amount would have been recorded as a gain within financial income (expense) in the statement of operations. No amount resulting from ineffectiveness of net investment hedge accounting was recognized in the statement of operations in 2013 (2012: no amount).

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. 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.

It is the Company’s policy that transaction exposures are hedged. 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.

Interest rate risk

The Company has significant outstanding debt, which creates an inherent interest rate risk. Long-term debt was $3,281 million as of December 31, 2013 and $3,185 million as of December 31, 2012.

A sensitivity analysis in relation to our long-term debt with floating interest shows that if interest rates were to increase by 1% from the level of December 31, 2013 with all other variables held constant, the annualized interest expense would increase by $3 million. If interest rates were to decrease by 1% from the level of December 31, 2013 with all other variables held constant, the annualized interest expense would decrease by less than $1 million. This impact is based on the outstanding debt position as of December 31, 2013.

7 Identified Intangible Assets

Intangible assets, net of accumulated amortization and impairments of $755 million and $965 million as of December 31, 2013 and 2012 respectively were composed of the following:


	December 31, 2013					December 31, 2012
	Gross		Accumulated amortization and impairments			Gross		Accumulated amortization and impairments
Marketing-related		19		(18	)		18		(16	)
Customer-related		437		(211	)		427		(177	)
Technology-based		2,104		(1,619	)		2,053		(1,383	)

		2,560		(1,848	)		2,498		(1,576	)
Software		137		(94	)		113		(70	)

Identified intangible assets		2,697		(1,942	)		2,611		(1,646	)

F-29

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


2014			157
2015			136
2016			131
2017			117
2018			96

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

The expected weighted average remaining life of identified intangibles is 5 years as of December 31, 2013.

The estimated amortization expense for software as of December 31, 2013 for each of the five succeeding years is:


2014			29
2015			10
2016			4
2017			—
2018			—

The expected weighted average remaining lifetime of software is 2 years as of December 31, 2013.

8 Goodwill

The changes in goodwill in 2013 and 2012 were as follows:


	2013			2012
Balances as of January 1
Cost		2,502			2,454
Accumulated impairment		(225	)		(223	)

Book value		2,277			2,231
Changes in book value:
Acquisitions		1			11
Divestments		—			(6	)
Translation differences\|\|		80			41

Total changes		81			46

Balances as of December 31
Cost		2,593			2,502
Accumulated impairment		(235	)		(225	)

Book value		2,358			2,277

Acquisitions in 2012 relate to the acquisition of the Catena Group. Divestments in 2012 relate to the divestment of the High Speed Data Converter business.

No goodwill impairment charges were required to be recognized in 2013 or 2012.

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

F-30

See Note 19, “Segment and Geographical Information”, for goodwill by segment and Note 16, “Acquisitions and Divestments”.

9 Postretirement Benefit Plans

Pensions

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

The Company’s employees in The Netherlands participate in a multi-employer plan, implemented for the employees of the Metal and Electrical Engineering Industry (“Bedrijfstakpensioenfonds Metalektro or PME”) in accordance with the mandatory affiliation to PME effective for the industry in which NXP operates. As this affiliation is a legal requirement for the Metal and Electrical Engineering Industry it has no expiration date. This PME multi-employer plan (a career average plan) covers approximately 1,300 companies and 632,000 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 coverage ratio of the PME plan was 103.8% as of December 31, 2013. Regulations require PME to have a coverage ratio (ratio of the plan’s assets to its obligations) of 104.3% for the total plan as of December 31, 2013, which needs to be achieved via a Recovery Plan. As the coverage ratio as of December 31, 2013 is below the path indicated in the Recovery Plan, PME has announced a reduction of pension rights of 0.5% as of December 31, 2013 and a reduction of the paid pensions of 0.5% as of April 1, 2014. The contribution rate for the mandatory scheme will increase from 27.0% (2013) to 27.1% (2014) to meet the funding requirements for the accrual of new pension rights.


PME multi-employer plan	2013		2012		2011
NXP’s contributions to the plan		51		53		59
(including employees’ contributions)		3		4		2
Average number of NXP’s active employees participating in the plan		3,133		3,229		3,256
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 2013 was $86 million (2012: $84 million; 2011: $90 million) of which $20 million (2012: $19 million; 2011: $16 million) represents defined-contribution plans and $45 million (2012: $47 million; 2011: $54 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.

F-31

The total cost of defined-benefit plans amounted to $21 million in 2013 (2012: $18 million; 2011: $20 million) consisting of $21 million ongoing cost (2012: $20 million; 2011: $21 million) and nil from special events resulting from restructurings, curtailments and settlements (2012: $2 million; 2011: $1 million).

The table below provides a summary of the changes in the pension benefit obligations and defined-benefit pension plan assets for 2013 and 2012, 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.


	2013			2012
Projected benefit obligation
Projected benefit obligation at beginning of year		419			342
Additions		—			—
Service cost		12			11
Interest cost		15			14
Actuarial (gains) and losses		(23	)		60
Curtailments and settlements		—			(2	)
Benefits paid		(24	)		(18	)
Exchange rate differences		7			12

Projected benefit obligation at end of year		406			419

Plan assets
Fair value of plan assets at beginning of year		162			147
Actual return on plan assets		5			14
Employer contributions		21			14
Benefits paid		(24	)		(18	)
Exchange rate differences		6			5

Fair value of plan assets at end of year		170			162

Funded status		(236	)		(257	)


Classification of the funded status is as follows
– Prepaid pension cost within other non-current assets		18			13
– Accrued pension cost within other non-current liabilities		(245	)		(260	)
– Accrued pension cost within accrued liabilities		(9	)		(10	)

Total		(236	)		(257	)

Accumulated benefit obligation
Accumulated benefit obligation for all Company-dedicated benefit pension plans		370			364

Plans with assets less than accumulated benefit obligation
Funded plans with assets less than accumulated benefit obligation
– Fair value of plan assets		17			24
– Accumulated benefit obligations		56			65
– Projected benefit obligations		84			85
Unfunded plans
– Accumulated benefit obligations		179			174
– Projected benefit obligations		187			194

Amounts recognized in accumulated other comprehensive income (before tax)
Total AOCI at beginning of year		22			(30	)
– Net actuarial loss (gain)		(21	)		52
– Exchange rate differences		1			—

Total AOCI at end of year		2			22

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


	2013			2012
Discount rate		3.7	%		3.5	%
Rate of compensation increase		2.3	%		2.4	%

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


	2013			2012			2011
Discount rate		3.5	%		4.4	%		4.3	%
Expected returns on plan assets		4.0	%		4.1	%		4.2	%
Rate of compensation increase		2.4	%		3.1	%		3.1	%

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

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

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

The components of net periodic pension costs were as follows:


	2013			2012			2011
Service cost		12			11			12
Interest cost on the projected benefit obligation		15			14			15
Expected return on plan assets		(7	)		(6	)		(6	)
Amortization of net (gain) loss		1			—			—
Curtailments & settlements		—			(2	)		(1	)
Other		—			1			—

Net periodic cost		21			18			20

A sensitivity analysis shows that if the discount rate increases by 1% from the level of December 31, 2013, with all other variables held constant, the net periodic pension cost would increase by $2 million. If the discount rate decreases by 1% from the level of December 31, 2013, with all other variables held constant, the net periodic pension cost would decrease by $2 million.

The estimated net actuarial loss (gain) and prior service cost that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next year (2014) are $(1) million and nil, respectively.

Plan assets

The actual pension plan asset allocation at December 31, 2013 and 2012 is as follows:


	2013			2012
Asset category:
Equity securities		32	%		26	%
Debt securities		53	%		58	%
Insurance contracts		—			3	%
Other		15	%		13	%

		100	%		100	%

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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 $170 million include $157 million related to the German, Swiss and Philippine pension funds.

The following table summarizes the classification of these assets.


	2013						2012
	Level I		Level II		Level III		Level I		Level II		Level III
Equity securities		1		51		—		3		38		—
Debt securities		15		66		—		20		68		—
Other		13		7		4		13		4		3

		29		124		4		36		110		3

The Company currently expects to make cash contributions of $74 million in 2014, consisting of $4 million of employer contributions to defined-benefit pension plans, $20 million of employer contributions to defined-contribution pension plans, $43 million of employer contributions to multi-employer plans and $7 million of expected cash payments in relation to unfunded pension plans.

Estimated future pension benefit payments

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


2014			16
2015			14
2016			15
2017			15
2018			17
Years 2019-2023			107

Postretirement benefits other than pensions

In addition to providing pension benefits, the Company provides postretirement healthcare benefits.

A curtailment gain of $8 million related to the retiree healthcare benefits in the United States is included in the consolidated statements of operations for 2013.

The accumulated postretirement benefit obligation other than pensions at the end of 2013 equals $2 million (2012: $9 million).

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10 Commitments and Contingencies

Lease Commitments

Property, plant and equipment includes $7 million as of December 31, 2013 (2012: $12 million) for capital leases and other beneficial rights of use, such as building rights and hire purchase agreements. The financial obligations arising from these contractual agreements are reflected in long-term debt. Long-term operating lease commitments totaled $107 million as of December 31, 2013 (2012: $153 million). The long-term operating leases are mainly related to the rental of buildings. These leases expire at various dates during the next 30 years. Future minimum lease payments under operating and capital leases are as follows:


	Operating Leases		Capital Leases
2014		24		6
2015		22		2
2016		16		2
2017		12		1
2018		9		—
Thereafter		24		—

Total future minimum leases payments		107		11
Less: amount representing interest				1

Present value of future minimum lease payments				10

Rent expense amounted to $65 million in 2013 (2012: $54 million; 2011: $51 million).

Guarantees

At the end of 2013 there were no material guarantees recognized by the Company.

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, 2013, the Company had purchase commitments of $166 million, which are due through 2019.

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.

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Soil and groundwater contamination has been identified at our properties in Hamburg, Germany and Nijmegen, the Netherlands. The remediation processes have been ongoing for several years and are expected to continue for several years.

Our former property in Lent, the Netherlands, is affected by trichloroethylene contamination. ProRail B.V., owns certain property located nearby and has claimed that we have caused trichloroethylene contamination on their property. We have rejected ProRail’s claims, as we believe that the contamination was caused by a prior owner of our property in Lent. While we are currently not taking any remediation or other actions, we estimate that our aggregate potential liability, if any, in respect of this property will not be material.

Asbestos contamination has been found in certain parts of our properties in Manchester in the United Kingdom and in Nijmegen, the Netherlands. Both in the United Kingdom and the Netherlands, we will be required to dispose of the asbestos when the buildings currently standing on the property are demolished or divested. We estimate our potential liability will not be material. Additionally, in the Netherlands, we will be required to remediate the asbestos contamination at a leased property, upon termination of the lease. The lease is not expected to end soon and we estimate the cost of remediation will not be material.

Litigation

We are regularly involved as plaintiffs or defendants in claims and litigation relating to matters such as commercial transactions and intellectual property rights. In addition, our divestments sometimes result in, or are followed by, claims or litigation by either party. From time to time, we also are subject to alleged patent infringement claims. We rigorously defend ourselves against these alleged patent infringement claims, and we rarely participate in settlement discussions. Although the ultimate disposition of asserted claims and proceedings 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.

With the support from its in-house and outside counsel and based on its best estimate, 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. 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 approximately $7 million accrued for legal proceedings pending as of December 31, 2013, compared to approximately $59 million as of December 31, 2012. Such accruals are for the greater part included in “Accrued liabilities”. There can be no assurance that the Company’s accruals will be sufficient to cover the extent of its potential exposure to losses. Historically, legal actions have not had a material adverse effect on the Company’s business, results of operations or financial condition.

Set forth below are descriptions of our most important legal proceedings pending as of December 31, 2013, for which the related loss contingency is either probable or reasonably possible, including the legal proceedings for which accruals have been made:

	•		Three former employees of Signetics Corp, a predecessor of NXP Semiconductors USA, Inc. and their respective children each separately filed various counts against NXP Semiconductors USA, Inc. (negligence, premises liability, strict liability, abnormal and ultrahazardous activity, willful and wanton misconduct and loss of consortium) asserting exposure to harmful chemicals and substances while the employees concerned were working in a factory “clean room” of Signetics Corp., resulting in alleged physical injuries and eventual birth defects to their children (cases No. N09C-10-032 JRJ, N10C-05-137 JRJ and 1-10-CV-188679). Initial discovery has commenced by both sides in above

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mentioned cases. Actual substantive responses are pending. A motion to dismiss has been filed in Case No. N09C-10 032 and Case No. N10C-05-137. The Court delayed her ruling pending the ruling by the Delaware Supreme Court and New Mexico Court of Appeal in similar cases. In Case No. 1-10-CV-188679 the Court denied a motion to dismiss and instructed parties to commence discovery. A trial setting conference is scheduled for May 5, 2014.

	•		In 2007, certain former employees of NXP Semiconductors France SAS employed by a subsidiary of the DSP Group, Inc. filed a claim against NXP Semiconductors France SAS before the Tribunal de Grande Instance in an emergency procedure (procédure de référé) to demand re-integration within NXP Semiconductors France SAS, following the closure of the DSP Group’s activities in France and the consequent termination of their employment agreements. The claim was rejected by the Tribunal de Grande Instance. The employees concerned then brought the same claim before the Social Court (Conseil de Prud’hommes) in Caen which, on April 27, 2010, also ruled in favor of NXP Semiconductors France SAS. The claimants filed for an appeal in last resort on May 18, 2010. The Cour d’Appel de Caen assigned the claim in her ruling of October 11, 2013. NXP Semiconductors France SAS has given notice of appeal for the Cour de Cassation.

The estimated aggregate range of reasonably possible losses is based on currently available information in relation to the claims that have arisen and on the Company’s best estimate of such losses for those cases for which such estimate can be made. For certain claims, the Company believes that an estimate cannot currently be made. The estimated aggregate range requires significant judgment, given the varying stages of the proceedings (including the fact that many of them are currently in preliminary stages), 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, 2013, the Company believes that for all litigation pending its aggregate exposure to loss in excess of the amount accrued could range between $0 and approximately $24 million.

11 Stockholders’ Equity

The share capital of the Company as of December 31, 2013 and 2012 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.

At December 31, 2013, the Company has issued and paid up 251,751,500 shares (2012: 251,751,500 shares) of common stock each having a par value of €0.20 or a nominal stock capital of €50 million.

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 13, “Share-based Compensation”.

Treasury shares

In connection with the Company’s share repurchase programs, which commenced in 2011, and which were extended effective August 1, 2013, and 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.

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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 in 2013:


	2013
Total shares in treasury at beginning of year		2,726,000
Total cost		58
Shares acquired under repurchase program		11,071,638
Average price in $ per share		36.60
Amount paid		405
Shares delivered		9,626,805
Average price in $ per share		30.13
Amount received		177
Total shares in treasury at end of year		4,170,833
Total cost		167

12 Related-party Transactions

The Company’s related parties are the Private Equity Consortium, the members of the board of directors of NXP Semiconductors N.V., the members of the management team of NXP Semiconductors N.V. and equity-accounted investees.

On February 4, 2013, certain of our stockholders offered 30 million shares of our common stock, priced at $30.35 per share; the offering was settled and closed on February 7, 2013. On March 7, 2013, certain of our stockholders offered 25 million shares of our common stock, priced at $31.40 per share; the offering was settled and closed on March 13, 2013. On September 13, 2013, certain of our stockholders offered 25 million shares of our common stock, priced at $37.65 per share; the offering was settled and closed on September 18, 2013. On December 9, 2013, certain of our stockholders offered 25 million shares of our common stock, priced at $42.50 per share; the offering was settled and closed on December 13, 2013. We did not receive any proceeds from these secondary offerings. The consortium of funds advised by Kohlberg Kravis Roberts & Co. L.P., AlpInvest Partners B.V., Apax Partners LLP, Bain Capital Partners, LLC and Silver Lake Technology Management, L.L.C (collectively the “Private Equity Consortium”) beneficially owns 14.82% of our shares of common stock as of December 31, 2013.

Advisory Services Agreements

KKR and Bain, as members of the Private Equity Consortium provide certain advisory services to NXP Semiconductors N.V. We have entered into separate agreements in this regard with the respective parties, under which both legal entities receive an annual advisory fee of $25,000 (with an aggregate total amount of $50,000 annually). Until mid December 2013, similar Advisory Service Agreements were in place with Apax, Silverlake and AlpInvest; these agreements have been terminated in view of the reduced shareholdings in NXP held by the respective three parties.

Other

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

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The following table presents the amounts related to revenue and expenses incurred in transactions with these related parties:


	2013		2012		2011
Revenue		—		33		133
Purchase of goods and services		102		204		137

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


		2013				2012
Payables			33				30

On September 7, 2010, Philips Pension Trustees Limited purchased Philips’ 42,715,650 shares of common stock in the Company (“Transfer Shares”) in a private transaction. In a subsequent private transaction, on October 29, 2010, PPTL Investment LP purchased the Transfer Shares from Philips Pension Trustees Limited by way of a transfer agreement, to which also Philips is a party (“Amended Transfer Agreement”). PPTL Investment LP acquired the Transfer Shares for the purpose of owning and managing such assets as may be contributed to Philips Pension Trustees Limited. In the period running from the aforementioned acquisition to December 31, 2013, PPTL Investment LP disposed of all its shares of common stock in various transactions.

13 Share-based Compensation

We record share-based compensation arrangements in accordance with ASC 718 “Compensation-Stock Compensation”. All share-based payments, including grants of stock options, performance share units, restricted share units and equity rights are recognized in our Consolidated Financial Statements based upon their respective grant date fair value.

Share-based compensation plans for employees were introduced in 2007. Subsequent to becoming a listed company in August 2010, the Company introduced additional share-based compensation plans for eligible employees. The additional plans introduced since November 2010 are referred to as the “Post-IPO Plans” and the plans introduced prior to November 2010 are referred to as the “Pre-IPO Plans”. No awards can be made any longer under the Pre-IPO Plans, and the number of shares authorized and available for awards under Post-IPO Plans as December 31, 2013 was approximately 2.7 million.

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


	2013		2012		2011
Cost of revenue		8		2		1
Research and development		13		5		2
Selling, general and administrative		67		45		28

		88		52		31

Post-IPO Long Term Incentive Plans (LTIP’s)

Under the LTIP’s, performance shares, stock options and restricted shares were granted to the members of our board of directors, management team, our other executives, selected other key employees/talents of NXP and selected new hires. 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 of 6.25 years, calculated in accordance with the guidance provided in SEC Staff bulletin No. 110 for plain vanilla options using the simplified method, since our equity shares have been publicly traded for only a limited period of time and we do not have sufficient historical exercise data;

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	•		a risk-free interest rate varying from 1.0% to 1.9% (2012: 0.8% to 1.3%; 2011: 1.2% to 2.8%);

	•		no expected dividend payments; and

	•		a volatility of 45-50% based on the volatility of a set of peer companies. Peer company data has been used given the short period of time our shares have been publicly traded.

Changes in the assumptions can materially affect the fair value estimate.

A charge of $87 million was recorded in 2013 for Post-IPO Plans (2012: $44 million; 2011: $17 million).

A summary of the status of NXP’s LTIP stock options and share rights and changes during 2013 is presented below.

Stock options


	Stock options			Weighted average exercise price in USD		Weighted average remaining contractual term		Aggregate intrinsic value
Outstanding at January 1, 2013		10,910,114			19.12
Granted		1,712,375			38.87
Exercised		(1,988,954	)		16.97
Forfeited		(387,717	)		19.86

Outstanding at December 31, 2013		10,245,818			22.82		8.4		237
Exercisable at December 31, 2013		2,590,201			17.72		7.7		73

The weighted average per share grant date fair value of stock options granted in 2013 was $17.83 (2012: $10.44; 2011: $7.81).

The intrinsic value of the exercised options was $41 million (2012: $7 million; 2011: $0.3 million), whereas the amount received by NXP was $34 million (2012: $9 million; 2011: $1 million).

At December 31, 2013, there was a total of $67 million of unrecognized compensation cost related to non-vested stock options. This cost is expected to be recognized over a weighted-average period of 2.9 years (2012: 3.3 years).

Performance share units

Financial performance conditions


	Shares			Weighted average grant date fair value in USD
Outstanding at January 1, 2013		2,408,474			19.55
Granted		547,510			39.59
Vested		(650,193	)		17.14
Forfeited		(101,488	)		20.32

Outstanding at December 31, 2013		2,204,303			25.21

The weighted average grant date fair value of performance share units granted in 2013 was $39.59 (2012: $23.35; 2011: $17.38). The fair value of the performance share units at the time of vesting was $27 million (2012: $1 million; 2011: $4 million).

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Market performance conditions


	Shares		Weighted average grant date fair value in USD
Outstanding at January 1, 2013		—		—
Granted		1,775,000		17.54
Vested		—		—
Forfeited		—		—

Outstanding at December 31, 2013		1,775,000		17.54

The weighted average grant date fair value of performance share units granted in 2013 was $17.54.

At December 31, 2013, there was a total of $44 million (2012: $29 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 1.8 years (2012: 1.9 years).

Restricted share units


	Shares			Weighted average grant date fair value in USD
Outstanding at January 1, 2013		3,300,123			20.56
Granted		2,137,870			39.23
Vested		(1,414,376	)		19.15
Forfeited		(201,722	)		20.98

Outstanding at December 31, 2013		3,821,895			31.50

The weighted average grant date fair value of restricted share units granted in 2013 was $39.23 (2012: $23.31; 2011: $17.52). The fair value of the restricted share units at the time of vesting was $57 million (2012: $21 million; 2011: $7 million).

At December 31, 2013, there was a total of $98 million (2012: $54 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 2.4 years (2012: 2.4 years).

Pre-IPO Plan (Management Equity Stock Option Plan)

Under the Management Equity Stock Option Plan (“MEP”), stock options were granted to certain employees of the Company. Under the MEP the participants acquire the right to purchase a certain number of shares of common stock at a predetermined price, i.e. exercise price, provided that certain conditions were met. All MEP Options (except for the options that are not vested yet) became fully exercisable upon the Private Equity Consortium holding less than 30% of our shares of common stock which occurred following the consummation of the secondary offering of shares on September 18, 2013. Current employees owning vested MEP Options may exercise such MEP Options during the five year period subsequent to September 18, 2013, subject to these employees remaining employed by us and subject to the applicable laws and regulations.

A charge of $1 million was recorded in 2013 (2012: $8 million, 2011: $14 million) for options granted under the Pre-IPO MEP.

The following table summarizes the information about NXP’s outstanding Pre-IPO MEP Options and changes during 2013.

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Stock options


	Stock options			Weighted average exercise price in EUR		Weighted average remaining contractual term		Aggregate intrinsic value
Outstanding at January 1, 2013		15,114,216			25.14
Granted		—			—
Exercised		(5,723,264	)		18.40
Forfeited		(1,747,246	)		26.09
Expired		(2,242,421	)		42.10

Outstanding at December 31, 2013		5,401,285			24.93		4.7		78
Exercisable at December 31, 2013		5,359,984			24.95		4.7		77

The intrinsic value of exercised options was $71 million (2012: $8 million; 2011: $19 million), whereas the amount received by NXP was $142 million (2012: $6 million; 2011: $9 million).

The number of vested options at December 31, 2013 was 5,359,984 (2012: 13,603,205 vested options) with a weighted average exercise price of €24.95 (2012: €22.96 weighted average exercise price).

At December 31, 2013, there was no unrecognized compensation cost related to non-vested stock options.

14 Restructuring Charges

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. At each reporting date, we evaluate our restructuring liabilities, which consist primarily of termination benefits, to ensure that our accruals are still appropriate.

The restructuring liability balance as of December 31, 2013 primarily relates to:

	•		The OPEX Reduction Program announced in 2012. This cost savings and restructuring program was initiated to improve operational efficiency and to competitively position the Company for sustainable growth. A liability has been recognized relating to the associated costs. Its implementation is expected to be substantially complete by the first quarter of 2014. The majority of the remaining cash expenditures relating to this initiative are anticipated to be paid by the fourth quarter of 2014. In 2013, as part of the OPEX Reduction Program, we recognized an additional charge of $16 million associated with onerous contracts relating to leased office buildings in the Netherlands and France. The remaining balance as of December 31, 2013 relating to this program amounts to $62 million. The OPEX Reduction Program is expected to be completed by mid 2015;

	•		Workforce reductions associated with the closure of our ICN 4 and ICN 6 wafer fabrication facilities in Nijmegen. ICN 4 and part of ICN 6 were closed in the fourth quarter of 2013. The remaining part of ICN 6 will close in the first quarter of 2014. This program was initiated to reduce our overall

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	manufacturing footprint, consistent with our current manufacturing strategy which focuses on capabilities that differentiate NXP in terms of product features, process capabilities, cost, supply chain and quality. The remaining balance as of December 31, 2013 relating to this program amounts to $43 million. The ICN 4 and ICN 6 program is expected to be completed in September 2014.

There are no material new restructuring projects in 2013

The most significant projects for restructuring in 2012

In 2012 we announced a cost savings and restructuring initiative, designed to improve operational efficiency and to competitively position the Company for sustainable growth. We recorded a restructuring charge of $90 million in 2012 associated with this initiative classified within the statement of operations under cost of goods sold of $17 million, mainly relating to the consolidation of MOS technologies from our German fabrication facility in Hamburg to the Company’s 8-inch Dutch facility in Nijmegen, and selling, general and administrative of $52 million and research and development of $21 million, to consolidate resources. This charge primarily related to a worldwide workforce reduction of approximately 650 employees, with the majority of the headcount reductions in Europe and the U.S. The restructuring liabilities of $90 million recognized for this initiative were reflected within current liabilities ($64 million) and non-current liabilities ($26 million) as of December 31, 2012 and primarily related to termination and employee benefit related costs.

The most significant projects for restructuring in 2011

In 2011 NXP undertook restructuring actions which include:

	•		the future closure of ICN 4 wafer fabrication facilities in Nijmegen, the Netherlands.

	•		actions to lower headcount, primarily in locations within Europe.

The following table presents the changes in the position of restructuring liabilities in 2013 by segment:


	Balance January 1, 2013		Additions		Utilized			Released			Other changes(1)			Balance December 31, 2013
HPMS		57		3		(23	)		(4	)		13			46
SP		41		6		(3	)		(7	)		(6	)		31
Corporate and Other		72		18		(39	)		(10	)		(1	)		40

		170		27		(65	)		(21	)		6			117

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

The total restructuring liability as of December 31, 2013 of $117 million is classified in the balance sheet under current liabilities ($103 million) and non-current liabilities ($14 million).

In 2013 the Company recorded $27 million of additional restructuring liabilities which largely consisted of $16 million stemming from onerous contracts relating to leased office buildings in the Netherlands and France and $8 million of termination benefits related to additional workforce reductions as part of its closure of ICN 4 and ICN 6.

Releases of restructuring liabilities of $21 million were recorded in 2013. These releases related mainly to liabilities for the closure of ICN 4 and ICN 6 (partly reversed) and liabilities related to other workforce reduction plans.

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

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The following table presents the changes in the position of restructuring liabilities in 2012 by segment:


	Balance January 1, 2012		Additions		Utilized			Released			Other changes(1)		Balance December 31, 2012
HPMS		36		27		(4	)		(2	)		—		57
SP		27		17		(3	)		(1	)		1		41
Corporate and Other		36		59		(22	)		(1	)		—		72

		99		103		(29	)		(4	)		1		170

(1)	Other changes primarily related to translation differences.

The total restructuring liability as of December 31, 2012 of $170 million is classified in the balance sheet under current liabilities ($138 million) and non-current liabilities ($32 million).

In 2012, the releases were primarily attributable to lower termination benefits due to attrition and employees that were transferred to other positions in NXP, who were originally expected to be laid off.

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 less releases recorded in the liabilities in 2013, 2012 and 2011 are as follows:


	2013			2012			2011
Personnel lay-off costs		10			101			66
Lease and Contract Terminations		17			2			—
Release of provisions/accruals		(21	)		(4	)		(8	)

Net restructuring charges		6			99			58

The following table summarizes the significant activity within, and components of, the Company’s restructuring obligations:


	Personnel lay-off costs			Lease and Contract Terminations			Total
Balance at December 31, 2011		98			1			99
Expense		97			2			99
Utilized 1)		(29	)		—			(29	)
Other changes 2)		1			—			1

Balance at December 31, 2012		167			3			170
Expense		(8	)		14			6
Utilized 1)		(54	)		(11	)		(65	)
Other changes 2)		5			1			6

Balance at December 31, 2013		110			7			117

1)	Represents cash payments.

2)	Other changes primarily related to translation differences.

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


	2013			2012		2011
Cost of revenue		—			18		24
Selling, general and administrative		7			59		15
Research & development		(1	)		22		19

Net restructuring charges		6			99		58

15 Provision for Income Taxes

In 2013, NXP generated income before income taxes of $377 million (2012: $25 million loss; 2011: $100 million income). The components of income (loss) before income taxes are as follows:


	2013		2012			2011
Netherlands		205		(93	)		(27	)
Foreign		172		68			127

		377		(25	)		100

The components of the provision for income taxes are as follows:


	2013			2012			2011
Current taxes:
Netherlands		(10	)		(1	)		(3	)
Foreign		(17	)		(20	)		(29	)

		(27	)		(21	)		(32	)
Deferred taxes:
Netherlands		1			5			(10	)
Foreign		6			15			21

		7			20			11

Total provision for income taxes		(20	)		(1	)		(21	)

F-45

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:


(in percentages)	2013			2012			2011
Statutory income tax in the Netherlands		25.0			25.0			25.0
Increase (reduction) in rate resulting from:
Rate differential local statutory rates versus statutory rate of the Netherlands		(3.4	)		64.0			(15.7	)
Net change in valuation allowance		5.3			(178.0	)		12.7
Prior year adjustments		(0.8	)		5.2			(2.0	)
Non-taxable income		(1.1	)		41.6			(10.8	)
Non-tax-deductible expenses/losses		6.6			(69.6	)		19.6
Other taxes and tax rate changes		2.3			18.2			(1.0	)
Withholding taxes		0.8			(7.6	)		6.9
Unrecognized tax benefits		0.8			(24.8	)		(1.0	)
Tax incentives		(30.2	)		122.0			(12.7	)

Effective tax rate		5.3	%		(4.0	)%		21.0	%

For the year 2013 the main part of tax incentives adjustment includes a tax benefit resulting from the application of the Dutch “Innovation box” tax rules. The Company benefits from income tax holiday incentives 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 income tax holiday of one of our subsidiaries is expected to expire at the end of 2021. The related tax benefit of 6.5% (2012: 89%) is also recorded above within tax incentives.

The Company has considered all items of income (including items recorded in other comprehensive income) in determining the amount of tax benefit that should be allocated to a loss from continuing operations. As a result, during 2012 we recorded $8 million non-cash tax benefit on a loss from continuing operations arising in one of our jurisdictions for the year ended December 31, 2012 which was exactly offset by $8 million income tax expense in other comprehensive income. Because the income tax expense on other comprehensive income is equal to the income tax benefit from continuing operations, our net deferred tax positions at December 31, 2012 were not impacted by this tax allocation.

Deferred tax assets and liabilities

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


	2013						2012
	Assets			Liabilities			Assets			Liabilities
Intangible assets		5			(160	)		13			(200	)
Property, plant and equipment		27			(36	)		20			(33	)
Inventories		2			—			2			—
Receivables		—			(1	)		1			—
Other assets		1			—			3			(5	)
Liabilities:
Pensions		36			(5	)		42			(1	)
Restructuring		27			—			46			—
Other		24			—			21			—
Long-term debt		—			(23	)		1			(7	)
Undistributed earnings of foreign subsidiaries		—			(31	)		—			(27	)
Tax loss carryforwards (including tax credit carryforwards)		686			—			659			—

Total gross deferred tax assets (liabilities)		808			(256	)		808			(273	)

Net deferred tax position		552						535
Valuation allowances		(607	)					(589	)

Net deferred tax assets (liabilities)		(55	)					(54	)

F-46

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 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 following possible sources of taxable income have been considered when assessing the realization of our deferred tax assets:

	•		Future reversals of existing taxable temporary differences;

	•		Future taxable income exclusive of reversing temporary differences and carryforwards;

	•		Taxable income in prior carryback years; and

	•		Tax-planning strategies.

The valuation allowance increased by $18 million during 2013 (2012: $44 million increase).

When the Company’s operating performance improves on a sustained basis, our conclusion regarding the need for such valuation allowance could change.

Subsequently recognized tax benefits related to the valuation allowance for deferred tax assets as of December 31, 2013, will be allocated as follows: $599 million of income tax benefit that would be reported in the consolidated statement of comprehensive income, $8 million to additional paid-in capital.

After the recognition of the valuation allowance against deferred tax assets, a net deferred tax liability remains of $55 million at December 31, 2013 (2012: $54 million). This net deferred tax liability relates to certain taxable temporary differences reversing outside the tax loss carryforward periods, deferred tax liabilities recorded for profitable entities and deferred tax liabilities for withholding taxes on undistributed earnings of foreign subsidiaries.

At December 31, 2013 tax loss carryforwards of $2,608 million will expire as follows:


	Balance December 31, 2013		Scheduled expiration

	2014		2015		2016		2017		2018		2019-2023		later		unlimited
Tax loss carryforwards		2,608		6		169		779		507		11		232		147	757

The Company also has tax credit carryforwards of $97 million, which are available to offset future tax, if any, and which will expire as follows:


	Balance December 31, 2013		Scheduled expiration

	2014		2015		2016		2017		2018		2019-2023		later		unlimited
Tax credit carryforwards		97		—		—		—		—		—		—		8	89

The classification of the deferred tax assets and liabilities in the Company’s consolidated balance sheets is as follows:


	2013			2012
Deferred tax assets within current assets		11			12
Deferred tax assets within other non-current assets		24			22
Deferred tax liabilities within accrued liabilities		(2	)		(4	)
Deferred tax liabilities within other non-current liabilities		(88	)		(84	)

		(55	)		(54	)

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The net income tax payable (excluding the liability for unrecognized tax benefits) as of December 31, 2013 amounted to $6 million (2012: $26 million payable) and includes amounts directly payable to or receivable from tax authorities.

As from 2009 the Company intends to repatriate the undistributed earnings of subsidiaries. Consequently, the Company has recognized a deferred income tax liability of $31 million at December 31, 2013 (2012: $27 million) for the additional withholding taxes payable upon the future remittances of these earnings of foreign subsidiaries.

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


	2013			2012			2011
Balance as of January 1,		139			169			195
Increases from tax positions taken during prior periods		1			16			—
Decreases from tax positions taken during prior periods		(4	)		(25	)		(12	)
Increases from tax positions taken during current period		7			2			10
Decreases relating to settlements with the tax authorities		—			(23	)		(24	)

Balance as of December 31,		143			139			169

Of the total unrecognized tax benefits at December 31, 2013, $17 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 unrecognized tax benefits as financial expense and penalties as income tax expense. The total related interest and penalties recorded during the year 2013 amounted to $1 million (2012: $(5) million; 2011: $3 million). As of December 31, 2013 the Company has recognized a liability for related interest and penalties of $4 million (2012: $3 million; 2011: $8 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; however, an estimate of the range of reasonably possible change cannot be made.

Tax years that remain subject to examination by major tax jurisdictions (mainly related to the Netherlands, Germany, USA, China, Taiwan, Thailand and the Philippines) are 2008, 2009, 2010, 2011, 2012 and 2013.

16 Acquisitions and Divestments

2013

There were no significant acquisitions and divestments in 2013.

2012

In April 2012, the Company acquired Catena, an electronic design and IP company. The purchase price consideration of $20 million, including the issuance of 599,000 treasury shares with a fair value of $14 million was allocated to goodwill of $11 million, other intangible assets with an amortization period of five years of $9 million, assets acquired of $7 million and liabilities assumed of $7 million. The goodwill is not deductible for income tax purposes.

The results of Catena are consolidated in the Automotive operating segment that is part of the reportable segment HPMS.

On July 19, 2012, we sold the High Speed Data Converter business (a product line of the High Performance Mixed Signal segment) to Integrated Device Technology (IDT) for $31 million. The gain on the sale of $19 million is included in other income (expense).

F-48

On January 4, 2012, Trident Microsystems, Inc., in which we held a 60% shareholding after the sale in 2010 of our digital television and set-top-box business line, filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code and was subsequently delisted from the NASDAQ. An initial distribution to shareholders took place on December 21, 2012. In view of the aforementioned distribution, NXP B.V. returned its shares in Trident. See Note 18 “Investments in Equity Accounted Investees” for an additional discussion of Trident.

2011

On July 4, 2011, we sold our Sound Solutions business to Knowles Electronics, LLC, an affiliate of Dover Corporation for $855 million in cash. See Note 17 “Discontinued Operations” for additional information.

17 Discontinued Operations

On July 4, 2011, we sold our Sound Solutions business (formerly included in our Standard Products segment) to Knowles Electronics, LLC (“Knowles Electronics”), an affiliate of Dover Corporation for $855 million in cash. The transaction resulted in a gain of $414 million, net of post-closing settlements, transaction-related costs, including working capital settlements, cash divested and taxes, which is included in income from discontinued operations. In relation to the other costs of this disposal, liabilities were included in the accrued liabilities and provisions for continuing operations. Cash payments of $45 million made in 2012 related to these liabilities are reported as cash flows from discontinued operations. The Consolidated Financial Statements have been reclassified for all periods presented to reflect the Sound Solutions business as a discontinued operation.

The following table summarizes the results of the Sound Solutions business included in the consolidated statements of income as discontinued operations for 2012 and 2011:


	2012		2011
Revenue		—		140
Costs and expenses		—		(116	)

Income attributable to discontinued operations		—		24
Provision for income taxes		—		(4	)

Income attributable to discontinued operations, net of taxes, before disposal		—		20
Gain on disposal of discontinued operations (net of taxes)		1		414

Income from discontinued operations after disposal		1		434

18 Investments in Equity-accounted Investees

Results relating to equity-accounted investees


	2013		2012			2011
Company’s share in income (loss)		7		7			(77	)
Other results		51		(34	)		—

		58		(27	)		(77	)

Company’s share in income (loss)


	2013		2012		2011
Trident		—		—		(82	)
ASMC		1		3		3
ASEN		6		4		2

		7		7		(77	)

F-49

On January 4, 2012, Trident and one of its subsidiaries, Trident Microsystems (Far East) Ltd., filed voluntary petitions under Chapter 11 of the United States Bankruptcy code, in the U.S. Bankruptcy Court for the District of Delaware and was subsequently delisted from the NASDAQ. The U.S. Bankruptcy Court approved the plan of liquidation and entered an order confirming such plan on December 13, 2012. An initial distribution to shareholders took place on December 21, 2012. In view of the aforementioned distribution, NXP B.V. returned its shares in Trident.

Other results

Other results relating to equity-accounted investees amounted to a gain of $51 million in 2013 and a loss of $34 million in 2012. The gain in 2013 primarily reflects a $46 million release of the contingent liability related to an arbitration commenced by ST. By ruling of April 2, 2013, the ICC arbitration tribunal dismissed all claims made by ST in this arbitration. No appeal is available to ST. Based on this award, the provision amounting to $46 million, established in 2012, was released. In 2012, a loss of $46 million related to extra provisions for the above mentioned legal claim of ST and a gain of $12 million related to a partial recovery of our equity investment in Trident are included.

Investments in equity-accounted investees

The changes in 2013 are as follows:


	Investments
Balance as of January 1		45
Changes:
Acquisitions/additions		—
Deductions		—
Share in income (loss)		7
Translation and exchange rate differences		—

Balance as of December 31		52

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


	2013				2012
	Shareholding %		Amount		Shareholding %		Amount
ASMC		27		18		27		17
ASEN		40		34		40		28

				52				45

Investments in equity-accounted investees are included in Corporate and Other.

The fair value of NXP’s shareholding in the publicly listed company ASMC based on the quoted market price at December 31, 2013 is $18 million.

19 Segments and Geographical Information

NXP is organized into two reportable segments, High Performance Mixed Signal (“HPMS”) and Standard Products (“SP”). Corporate and Other represents the remaining portion to reconcile to the Consolidated Financial Statements.

F-50

complexity and the management of the business. In addition, during the fourth quarter of 2013 we determined that a change to our reportable segments was warranted due to the significant decline in external revenues and costs reported by Manufacturing Operations (“MO”). These external results were, to a large extent, derived from revenue of wafer foundry and packaging services to our divested businesses in order to support their separation and, on a limited basis, their ongoing operations. They also reflect the ongoing results from the sale of wafers to our SSMC joint venture partner, TSMC. MO’s results are also not regularly reviewed by the Chief Operating Decision Maker, or CODM to assess operating performance and allocate resources as its primary function is to manage the Company’s internal manufacturing and supply chain activities and substantially all of its results are reflected within the operating segments utilizing its services. As a result, since Manufacturing Operations no longer meets the criteria for an operating segment, its results will be reflected within Corporate and Other effective the fourth quarter of 2013.

Our Chief Executive Officer, who is our CODM, regularly reviews financial information at the reporting segment level in order to make decisions about resources to be allocated to the segments and to assess their performance. Segment results that are reported to the CODM include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Asset information by segment is not provided to our CODM as the majority of our assets are used jointly or managed at corporate level. Arithmetical allocation of these assets to the various businesses is not deemed to be meaningful and as such total assets per segment has been omitted.

Our HPMS business segment delivers high performance mixed signal solutions to our customers to satisfy their system and sub-systems needs across eight application areas: automotive, identification, mobile, consumer, computing, wireless infrastructure, lighting and industrial, and software solutions for mobile phones. Our SP business segment offers standard products for use across many application markets, as well as application-specific standard products predominantly used in application areas such as mobile handsets, computing, consumer and automotive. The segments each include revenue from the sale and licensing of intellectual property related to that segment.

Corporate and Other includes unallocated expenses not related to any specific business segment and corporate restructuring charges.

Because the Company meets the criteria for aggregation set forth under ASC 280 “Segment Reporting”, and the operating segments have similar economic characteristics, the Company aggregates the results of operations of the Automotive, Identification, Infrastructure & Industrial and Portable & Computing operating segments into one reportable segment, HPMS, and the Standard Products and General Purpose Logic operating segments into another reportable segment, SP.

Detailed information by segment for the years 2013, 2012 and 2011 is presented in the following tables.


Revenue	2013		2012		2011
HPMS		3,533		2,976		2,653
SP		1,145		1,168		1,216
Corporate and Other (1)		137		214		325

		4,815		4,358		4,194


Operating income (loss)	2013			2012			2011
HPMS		712			479			288
SP		39			89			200
Corporate and Other (1)		(100	)		(156	)		(131	)

		651			412			357

(1)	Corporate and Other is not a segment under ASC 280 “Segment Reporting”.

F-51


Goodwill assigned to segments	Cost at January 1, 2013		Acquisitions		Translation differences and other changes		Cost at December 31, 2013
HPMS		1,725		1		62		1,788
SP		456		—		16		472
Corporate and Other (1)		321		—		12		333

		2,502		1		90		2,593


	Accumulated impairment at January 1, 2013			Translation differences and other changes			Accumulated impairment at December 31, 2013
HPMS		(186	)		(9	)		(195	)
SP		(39	)		(1	)		(40	)
Corporate and Other (1)		—			—			—

		(225	)		(10	)		(235	)

(1)	Corporate and Other is not a segment under ASC 280 “Segment Reporting”.

Geographical Information


	Revenue (1)						Property, plant and equipment
	2013		2012		2011		2013		2012		2011
China		2,047		1,699		1,514		115		131		120
Netherlands		146		94		123		180		180		187
Taiwan		98		112		80		91		80		70
United States		365		303		329		6		8		9
Singapore		421		436		383		214		226		229
Germany		434		447		508		80		88		96
South Korea		294		238		216		1		—		—
Other countries		1,010		1,029		1,041		361		357		352

		4,815		4,358		4,194		1,048		1,070		1,063

(1)	Revenue attributed to geographic areas is based on the customer’s shipped-to location (except for intellectual property license revenue which is attributable to the Netherlands).

Concentration of risk

A substantial portion of our revenue is derived from our top OEM customers, some of whom are supplied through distributors, in the automotive, identification, wireless infrastructure, lighting, industrial, mobile, consumer and computing markets. No end customer accounted for greater than 10% of the Company‘s revenues for the years presented. However, sales to one of our distributors, WPG, in 2013, 2012 and 2011 represented 11%, 12% and 12%, respectively, of revenue.

Furthermore, the Company is using outside suppliers or foundries for a portion of its manufacturing capacity.

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

F-52

20 Subsequent Events

Expansion stock repurchase program

On February 6, 2014, the Company announced that, effective the same date, NXP expanded its existing stock repurchase program. Under the expanded stock repurchase program, NXP may repurchase shares to cover in part employee stock options and equity rights under its long term incentive plans. The new repurchase program approved by the Board of Directors enables NXP to repurchase up to twenty-five (25) million shares of its common stock from time to time in both privately negotiated and open market transactions, subject to management’s evaluation of market conditions, terms of private transactions, the best interests of NXP shareholders, applicable legal requirements and other factors. There is no guarantee as to the exact number of shares that will be repurchased under the stock repurchase program, and NXP may terminate the repurchase program at any time.

On February 19, 2014, the Company announced that it has repurchased 5 million shares of its common stock from affiliates and from funds managed or advised by KKR in a private transaction. A $300 million draw-down under the Company’s existing Revolving Credit Facility was partly used to settle this repurchase of shares. Under the same stock repurchase plan, since it was announced on February 6, 2014, NXP previously already purchased approximately 2.9 million shares of common stock in various privately negotiated and open market transactions. As a result, NXP repurchased in total approximately 7.9 million shares in NXP under its expanded stock repurchase program up to and including February 21, 2014. The repurchased shares will be used to cover in part employee stock options and equity rights under NXP’s long term incentive plans. The repurchased shares are held as treasury shares and will be accounted for as a reduction of stockholders’ equity.

Senior Secured Term Loan

On February 14, 2014, our subsidiary, NXP B.V. together with NXP Funding LLC entered into a new $400 million aggregate principal amount Senior Secured Term Loan Facility due March 4, 2017. Concurrently, NXP called the $486 million principal amount Senior Secured Term Loan Facility due March 4, 2017. A $100 million draw-down under our existing Revolving Credit Facility was used to settle the combined transactions, as well as pay the related call premium of $5 million and accrued interest of $4 million. Approximately $5 million will be used for general corporate purposes. The exchange of the called Term Loan for the new Term Loan was a non-cash financing transaction.

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