Item 5. Operating and Financial Review and Prospects

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Item 5. Operating and Financial Review and Prospects

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A. Operating Results

Effect of Acquisition Accounting

Our Formation

On September 29, 2006, Philips sold 80.1% of its semiconductor business to the Private Equity Consortium in a multi-step transaction. We refer to this acquisition as our “Formation”.

The Formation has been accounted for using the acquisition method. Accordingly, the $10,601 million purchase price has been “pushed down” within the NXP group and allocated to the fair value of assets acquired and liabilities assumed.

The carrying value of the net assets acquired and liabilities assumed, as of the Formation date on September 29, 2006, amounted to $3,302 million. This resulted in an excess of the purchase price over the carrying value of $7,299 million. The excess of the purchase price was allocated to intangible assets, step-up on tangible assets and liabilities assumed, using the estimated fair value of these assets and liabilities.

An amount of $3,096 million, being the excess of the purchase price over the estimated fair value of the net assets acquired, was allocated to goodwill. This goodwill is not amortized, but is tested for impairment at least annually.

Other Significant Acquisitions

Since its Formation, NXP has acquired various companies and businesses. These acquisitions have been accounted for using the acquisition method, and the respective purchase prices have been “pushed down” within the NXP group and allocated to the fair value of the assets acquired and the liabilities assumed. This has also resulted in an allocation to goodwill for the excess of the purchase price over the estimated fair value of the net assets acquired. The related goodwill is not amortized but included in the annual impairment test.

Adjusting the carrying value of the assets acquired in the Formation and subsequent acquisitions to their fair value has had an adverse effect on our operating income for various reporting periods, stemming from amortization charges on intangible assets and higher depreciation charges on tangible fixed assets that are the result of acquisition accounting effects.

The cumulative net effect resulting from the application of acquisition accounting is recorded in the financial statements with the term “PPA effect”. This effect is calculated taking into account the fact that any divestments and impairments in any particular reporting period reduce the amortization and depreciation charges going forward. Impairment losses are not part of the PPA effect.

Use of Certain Non-GAAP Financial Measures

Net debt is a non-GAAP financial measure and represents total debt (short-term and long-term debt) after deduction of cash and cash equivalents. Management believes this measure is a good reflection of our net leverage.

We understand that, although net debt is used by investors and securities analysts in their evaluation of companies, this concept has limitations as an analytical tool, and it should not be used as an alternative to any other measure in accordance with U.S. GAAP.

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Results of Operations

The following table presents the composition of operating income (loss) for the years ended December 31, 2013 and 2012.


($ in millions, unless otherwise stated)	2013			2012
Revenue		4,815			4,358
% nominal growth		10.5			3.9
Gross profit		2,177			1,988
Research and development		(639	)		(628	)
Selling, general and administrative (SG&A)		(896	)		(977	)
Other income (expense)		9			29

Operating income (loss)		651			412

Revenue

The following table presents revenue by segment for the years ended December 31, 2013 and 2012.


($ in millions, unless otherwise stated)	For the year ended December 31,
	2013					2012
	Revenue		% nominal growth			Revenue		% nominal growth
High Performance Mixed Signal		3,533		18.7			2,976		12.2
Standard Products		1,145		(2.0	)		1,168		(3.9	)
Corporate and Other		137		(36.0	)		214		(34.2	)

Total		4,815		10.5			4,358		3.9

Revenue increased by $457 million to $4,815 million in 2013 compared to $4,358 million in 2012, a nominal increase of 10.5%. The increase was driven by strong growth in HPMS which was partly offset by a decline in revenue from our SP segment and from Corporate and Other.

Our HPMS segment saw an increase in revenue of $557 million to $3,533 million in 2013 compared to $2,976 million in 2012. The increase was primarily driven by increased volumes in all four Business Units (Automotive, Identification, Infrastructure & Industrial and Portable & Computing). The highest volume increase was associated with our banking business within our Identification portfolio and within our Portable & Computing portfolio.

Revenue for our SP segment declined by $23 million to $1,145 million in 2013, compared to $1,168 million in 2012. The decline was primarily due to competitive pricing pressure in our protection and signal conditioning devices business.

Revenue from Corporate and Other amounted to $137 million in 2013, compared to $214 million in 2012 and mainly related to our manufacturing operations. The decline in revenue was primarily due to the expiration of contractual obligations to provide manufacturing services for previously divested businesses. As these businesses develop or acquire their own foundry and packaging capabilities, our revenue from these sources will further decline.

Gross Profit

The following table presents gross profit by segment for the years ended December 31, 2013 and 2012.


	2013						2012
($ in millions, unless otherwise stated)	Gross Profit			% of segment revenue			Gross Profit			% of segment revenue
HPMS		1,905			53.9			1,656			55.6
SP		285			24.9			346			29.6
Corporate and Other		(13	)		(9.5	)		(14	)		(6.5	)

Total		2,177			45.2			1,988			45.6

Gross profit in 2013 was $2,177 million, or 45.2% of revenue compared to $1,988 million, or 45.6% of revenue in 2012, an increase of $189 million. The increase in gross profit was mainly driven by higher revenue in the HPMS segment, partly offset by lower revenue due to competitive pricing pressure in our SP segment and the absence of the favorable legal award recorded in the second quarter of 2012 that increased our margin percentage. We were awarded a favorable judgment involving a dispute over the collection of a receivable that we recorded an allowance for doubtful accounts that impacted costs of revenue in a prior year. The arbitration tribunal arrived at an award on April 5, 2012, in favor of NXP. No appeal was possible against the arbitration award. Following this award, we reversed the allowance for doubtful accounts previously established, again impacting our gross margin, and the invoices underlying the outstanding accounts received were collected in May 2012.

Our HPMS segment had a gross profit of $1,905 million, or 53.9% of revenue in 2013, compared to $1,656 million, or 55.6% of revenue in 2012. The increase in gross profit was primarily due to increased revenue. This was partly offset by the absence of the favorable legal award recorded in the second quarter of 2012 and lower margins within our Identification portfolio.

Gross profit in our SP segment was $285 million, or 24.9% of revenue in 2013, compared to $346 million, or 29.6% of revenue in 2012. The decrease in gross profit was mainly attributed to lower revenue due to competitive price pressure.

Operating Expenses

The following table presents operating expenses by segment for the years ended December 31, 2013 and 2012.


	2013				2012
($ in millions, unless otherwise stated)	Operating expenses		% of segment revenue		Operating expenses		% of segment revenue
HPMS		1,193		33.8		1,197		40.2
SP		247		21.6		260		22.3
Corporate and Other		95		—		148		—

Total		1,535		31.9		1,605		36.8

The following table below presents the composition of operating expenses by line item in the statement of operations.


($ in millions, unless otherwise stated)	2013		2012
Research and development		639		628
Selling, general and administrative		896		977

Operating expenses		1.535		1,605

Operating expenses were $1,535 million, or 31.9% of revenue in 2013, compared to $1,605 million, or 36.8% of revenue in 2012, a decrease of $70 million. The decrease in operating expenses was primarily due to $73 million lower restructuring and restructuring related costs, $15 million lower IT systems reorganization costs, the absence of operating expenses associated with the divestment of our high speed data converter business that was sold in 2012 and cost savings associated with the restructuring activities. Also the PPA expenses decreased by $21 million mainly due to part of the intangible assets being fully amortized in the course of 2013. These decreases were partly offset by an increase of $30 million in share-based compensation costs and increased investments in research and development costs within our Identification business.

In our HPMS segment, operating expenses amounted to $1,193 million, or 33.8% of revenue in 2013, compared to $1,197 million, or 40.2% of revenue in 2012. The slight decrease was primarily driven by $24 million lower restructuring and restructuring related costs, the absence of operating expense associated with the divestment of our data converter business in 2012 and the current period cost savings associated with the restructuring activities. These decreases were partly offset by $26 million higher share-based compensation costs and increased investments in research and development costs within our Identification business.

Operating expenses in our SP segment decreased by $13 million to $247 million, or 21.6% of revenue in 2013 compared to $260 million or 22.3% of revenue in 2012. The decrease in operating expenses was mainly driven by the current period cost savings associated with the restructuring activities, partly offset by $7 million higher share-based compensation costs.

Operating expenses in Corporate and Other decreased by $53 million to $95 million in 2013 compared to $148 million in 2012. The strong decrease compared to the prior year period was primarily due to $45 million lower restructuring and restructuring related costs and $15 million lower IT systems reorganization costs.

Other Income (Expense)

The following table presents other income (expense) for the years ended December 31, 2013 and 2012.


($ in millions, unless otherwise stated)		2013				2012
Other income (expense)			9				29

Other income (expense) reflects income of $9 million for 2013 compared to $29 million of income in 2012. The decrease is primarily due to a gain of $19 million on the sale of our high speed data converter business during the third quarter of 2012.

Restructuring Charges

Net restructuring and restructuring related costs that affected our operating income amounted to $40 million in 2013 compared to $111 million in 2012.

In 2013, we had net restructuring charges of $6 million, recorded in the liabilities, which related mainly to a charge of $16 million associated with onerous contracts relating to leased office buildings in the Netherlands and France, as part of the OPEX Reduction Program, partly offset by some releases related to previous restructuring programs. Furthermore $34 million of restructuring costs were directly charged to our operating income.

Operating Income (Loss)

The following table presents operating income (loss) by segment for the years ended December 31, 2013 and 2012.


	2013					2012
($ in millions, unless otherwise stated)	Operating income (loss)			% of segment revenue		Operating income (loss)			% of segment revenue

HPMS		712			20.2		479			16.1
SP		39			3.4		89			7.6
Corporate and Other		(100	)		—		(156	)		—

Total		651			13.5		412			9.5

The table below summarizes the PPA effects for the years ended December 31, 2013 and 2012 on operating income (loss) by segment.


($ in millions, unless otherwise stated)	2013			2012
HPMS		(163	)		(190	)
SP		(59	)		(60	)
Corporate and Other		(24	)		(23	)

Total		(246	)		(273	)

The table below depicts the PPA effects within the Statement of Operations for the years ended December 31, 2013 and 2012.


($ in millions)	For the years ended December 31,
	2013			2012
Gross profit		(14	)		(20	)
Selling, general and administrative		(232	)		(253	)

Operating income (loss)		(246	)		(273	)

“PPA effects” reflect the amortization in the period related to fair value adjustments resulting from acquisition accounting and other acquisition adjustments charged to the income statement applied to the formation of NXP on September 29, 2006 and all subsequent acquisitions. The PPA effect on the Company’s gross profit refers to additional depreciation charges on tangible fixed assets, resulting from the step-up in fair values. The amortization charges related to long-lived intangible assets are reflected in general and administrative expenses.

The decrease in PPA effects results in part from the PPA being fully amortized in the course of 2013.

Financial Income (Expense)


($ in millions)	For the years ended December 31,
	2013			2012
Interest income		3			4
Interest expense		(182	)		(270	)
Foreign exchange rate results		62			28
Net gain (loss) on extinguishment of debt		(114	)		(161	)
Other		(43	)		(38	)

Total		(274	)		(437	)

Financial income (expense) (including the extinguishment of debt) was an expense of $274 million in 2013, compared to an expense of $437 million in 2012. Extinguishment of debt in 2013 amounted to a loss of $114 million compared to a loss of $161 million in 2012. In 2013, financial income (expense) included a gain of $62 million as a result of changes in foreign exchange rates mainly applicable to re-measurement of our U.S. dollar-denominated notes and short term loans, which reside in a euro functional currency entity, compared to a gain of $28 million in 2012. The net interest expense amounted to $179 million in 2013 compared to $266 million in 2012. This mainly related to a lower average interest percentage of 5.2% and 7.2%, respectively and lower average debt outstanding of $3.4 billion and $3.7 billion, respectively in 2013 compared to 2012.

Benefit (Provision) for Income Taxes

The provision for income taxes was $20 million for the year ended December 31, 2013, compared to $1 million for the year ended December 31, 2012, and the effective income tax rates were positive 5.3% and negative 4.0%, respectively. The change in the effective tax rate for the year ended December 31, 2013 compared to the same period in the previous year was primarily due to the mix of income and losses in the various tax jurisdictions in which the Company operates including jurisdictions where a full valuation allowance was recognized and in addition the year 2013 included more benefits for the effect of tax incentives in certain jurisdictions.

Results Relating to Equity-accounted Investees

Results relating to the equity-accounted investees amounted to a gain of $58 million in 2013, compared to a loss of $27 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.

Non-controlling Interests

Non-controlling interests are related to the third party share in the results of consolidated companies, predominantly SSMC. Their share of non-controlling interests amounted to a profit of $67 million in 2013, compared to a profit of $63 million in 2012.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Results of Operations

The following table presents the composition of operating income (loss) for the years ended December 31, 2012 and 2011.


($ in millions, unless otherwise stated)	2012			2011
Revenue		4,358			4,194
% nominal growth		3.9			(4.7	)
Gross profit		1,988			1,906
Research and development		(628	)		(635	)
Selling, general and administrative (SG&A)		(977	)		(918	)
Other income (expense)		29			4

Operating income (loss)		412			357

Revenue

The following table presents revenue by segment for the years ended December 31, 2012 and 2011.


($ in millions, unless otherwise stated)	For the year ended December 31,
	2012					2011
	Revenue		% nominal growth			Revenue		% nominal growth
High Performance Mixed Signal		2,976		12.2			2,653		2.7
Standard Products		1,168		(3.9	)		1,216		6.2
Corporate and Other		214		(34.2	)		325		(48.1	)

Total		4,358		3.9			4,194		(4.7	)

Revenue was $4,358 million in the full year of 2012 compared to $4,194 million for the full year of 2011. Revenue of our two market oriented segments, HPMS and SP, increased $275 million or 7.1% compared to the full year of 2011 despite an uncertain economic and demand environment. This increase was partly offset by a decline in revenue from Corporate and Other.

Our HPMS segment revenue grew 12% in 2012 to $2,976 million compared to $2,653 million in 2011. Within HPMS we saw robust growth within our Identification business, which was up 41% to $986 million, primarily driven by the accelerated ramp of our mobile transactions solutions and volume increases associated with our security identity product line. Our Portable & Computing business grew 13% year-on-year to $417 million as a result of increased volumes associated with specific design wins in the mobility market. Revenue from our Automotive business grew 1% versus 2011 to $939 million – with weakness in the European area offsetting very favorable results in North America and Asia. Our Industrial & Infrastructure business

revenue declined 3% to $634 million versus the prior year primarily as a result of weak demand throughout most of the year for high-performance RF devices, even though design win momentum continues to be strong. We also faced price declines across most of our product lines and unfavorable foreign currency effects.

Revenue for our SP segment decreased $48 million to $1,168 million in 2012, compared to $1,216 million in 2011. The decrease was primarily due to lower sales volumes in our small signal diode, integrated discrete and power business resulting from weakening demand with our distribution partners and the overall automotive market. Our SP segment was also impacted by competitive pricing pressure in 2012 compared to 2011.

Revenue in Corporate and Other during 2012 was $214 million compared to $325 million in 2011 and mainly related to Manufacturing Operations. The decline in revenue was primarily due to the expiration of contractual obligations to provide manufacturing services for previously divested businesses. As these divested businesses develop or acquire their own foundry and packaging capabilities, our revenue from these sources is further declining.

Gross Profit

The following table presents gross profit by segment for the years ended December 31, 2012 and 2011.


	2012						2011
($ in millions, unless otherwise stated)	Gross Profit			% of segment revenue			Gross Profit			% of segment revenue
HPMS		1,656			55.6			1,486			56.0
SP		346			29.6			449			36.9
Corporate and Other		(14	)		(6.5	)		(29	)		(8.9	)

Total		1,988			45.6			1,906			45.4

Gross profit in 2012 was $1,988 million, or 45.6% of revenue, compared to $1,906 million or 45.4% of revenue in 2011, an increase of $82 million. The increase in gross profit was mainly attributable to volume increases, the reversal of partial accounts receivable valuation allowance of $51 million as a result of collection of accounts receivable amounts following a legal award, lower restructuring and related costs of $14 million and lower PPA effects of $7 million. This was partially offset by price declines and unfavorable foreign currency effects. Our gross profit as a percentage of our revenue was also impacted by the dilutive effect of product sales at cost to divested businesses by our Manufacturing Operations as reported under Corporate and Other.

Our HPMS segment had a gross profit of $1,656 million or 55.6% of revenue in 2012, compared to $1,486 million or 56.0% in 2011. The improvement in gross profit was primarily attributed to higher revenue in the segment and to the reversal of partial accounts receivable valuation allowance of $51 million as a result of collection of accounts receivable amounts following a legal award, partially offset by price declines, and unfavorable foreign currency. Also included in our 2012 gross profit were restructuring and related costs of $1 million compared to 2011, where gross profit was reduced by $17 million due to actions taken to reduce headcount.

Our SP segment gross profit in 2012 was $346 million or 29.6% of revenue compared to $449 million or 36.9% of revenue in 2011. The decrease in gross profit was primarily due to lower revenue, higher product cost due to underutilized capacity capitalized in prior periods and price reductions. Restructuring and related costs were $15 million in 2012 mainly related to headcount restructuring, compared to $8 million in 2011.

Operating Expenses

The following table presents operating expenses by segment for the years ended December 31, 2012 and 2011.


	2012				2011
($ in millions, unless otherwise stated)	Operating expenses		% of segment revenue		Operating expenses		% of segment revenue
HPMS		1,197		40.2		1,198		45.2
SP		260		22.3		252		20.7
Corporate and Other		148		—		103		—

Total		1,605		36.8		1,553		37.0

The following table below presents the composition of operating expenses by line item in the statement of operations.


($ in millions, unless otherwise stated)	2012		2011
Research and development		628		635
Selling, general and administrative		977		918

Operating expenses		1,605		1,553

Operating expenses amounted to $1,605 million, or 36.8% of revenue in 2012 compared to $1,553 million or 37.0% of revenue in 2011. The increase in operating expenses in 2012 was primarily related to increased restructuring and related costs of $43 million, bonus of $30 million, and share-based compensation of $20 million. This was partially offset by lower PPA effects of $21 million, reduced research and development expenses due to our ongoing efforts to focus our resources towards our most profitable and growing businesses, the absence of $11 million of operating expenses after selling our high speed data converter business during 2012 and favorable foreign currency effects.

In our HPMS segment operating expenses amounted to $1,197 million, or 40.2% of revenue in 2012 compared to $1,198 million or 45.2% of revenue in 2011. The increase was driven by higher salary and benefit cost including bonus of $27 million and share-based compensation of $20 million. This was partially offset by reduced research and development expenses due to our ongoing efforts to focus our resources towards our most profitable and growing businesses, the absence of $11 million of operating expenses after selling our high speed data converter business during 2012 and favorable foreign currency.

Operating expenses in our SP segment were $260 million, or 22.3% of revenue in 2012 compared to $252 million or 20.7% of revenue in 2011. The increase in operating expenses was mainly driven by increased headcount and benefit related expenses including bonus of $3 million and share-based compensation of $4 million, investments in product and process innovation, and higher restructuring and other items of $2 million. This was partially offset by lower consultancy cost and PPA effects.

Operating expenses in Corporate and Other were $148 million in 2012 compared to $103 million in 2011. The increase was primarily due to a restructuring charge of $62 million recognized during 2012 primarily to support the announced cost savings and restructuring initiative compared to $22 million recognized for restructuring initiatives in 2011.

Other Income (Expense)

The following table presents other income (expense) for the years ended December 31, 2012 and 2011.


($ in millions, unless otherwise stated)		2012				2011
Other income (expense)			29				4

Other income (expense) reflects income of $29 million for 2012 compared to $4 million of income in 2011, primarily due to a gain of $19 million on the sale of our high speed data converter business during the third quarter of 2012 and the absence of $10 million loss on the sale of assets in 2011.

Restructuring Charges

Net restructuring and restructuring related costs that affected our operating income in 2012 were $111 million compared to $81 million in 2011.

In 2012, we had net restructuring charges of $99 million, recorded in the liabilities, which were mainly associated with a restructuring initiative during the fourth quarter of 2012, designed to improve operational efficiency and to competitively position the company for sustainable growth. In addition, we incurred $12 million of restructuring related costs in 2012 which were directly charged to our operating income. In 2011, we had restructuring charges of $66 million which were mainly related to the future closure of our ICN 4 wafer fabrication facility in Nijmegen, the Netherlands and actions to reduce headcount. These charges were partially offset by a release of restructuring liabilities of $8 million related to previous restructuring programs. Furthermore, we incurred $23 million of restructuring related costs in 2011 which were directly charged to our operating income. For additional information, see Note 14 to the Consolidated Financial Statements included in Part III, Item 18.

Operating Income (Loss)

The following table presents operating income (loss) by segment for the years ended December 31, 2012 and 2011.


	2012					2011
($ in millions, unless otherwise stated)	Operating income (loss)			% of segment revenue		Operating income (loss)			% of segment revenue
HPMS		479			16.1		288			10.9
SP		89			7.6		200			16.4
Corporate and Other		(156	)		—		(131	)		—

Total		412			9.5		357			8.5

The table below summarizes the PPA effects for the years ended December 31, 2012 and 2011 on operating income (loss) by segment.


($ in millions, unless otherwise stated)	2012			2011
HPMS		(190	)		(206	)
SP		(60	)		(69	)
Corporate and Other		(23	)		(26	)

Total		(273	)		(301	)

The table below depicts the PPA effects within the Statement of Operations for the years ended December 31, 2012 and 2011.


($ in millions)	For the years ended December 31,
	2012			2011
Gross profit		(20	)		(27	)
Selling, general and administrative		(253	)		(274	)

Operating income (loss)		(273	)		(301	)

“PPA effects” reflect the amortization in the period related to fair value adjustments resulting from acquisition accounting and other acquisition adjustments charged to the income statement applied to the Formation and all subsequent acquisitions. The PPA effect on the Company’s gross profit refers to additional depreciation charges on tangible fixed assets, resulting from the step-up in fair values. The amortization charges related to long-lived intangible assets are reflected in general and administrative expenses.

Financial Income (Expense)


($ in millions)	For the years ended December 31,
	2012			2011
Interest income		4			5
Interest expense		(270	)		(312	)
Foreign exchange rate results		28			128
Net gain (loss) on extinguishment of debt		(161	)		(32	)
Other		(38	)		(46	)

Total		(437	)		(257	)

Financial income (expense) (including the extinguishment of debt) was an expense of $437 million in 2012, compared to an expense of $257 million in 2011. Extinguishment of debt in 2012 amounted to a loss of $161 million compared to a loss of $32 million in 2011. In 2012, financial income (expense) included a gain of $28 million as a result of changes in foreign exchange rates mainly applicable to re-measurement of our U.S. dollar-denominated notes and short term loans, which reside in a euro functional currency entity, compared to a gain of $128 million in 2011. The net interest expense amounted to $266 million in 2012 compared to $307 million in 2011. This mainly related to lower average debt outstanding in 2012, compared to 2011.

Benefit (Provision) for Income Taxes

The provision for income taxes was $1 million for the year ended December 31, 2012, compared to $21 million for the year ended December 31, 2011, and the effective income tax rates were negative 4.0% and positive 21%, respectively. The change in the effective tax rate for the year ended December 31, 2012 compared to the same period in the previous year was primarily due to an increase in losses recorded in jurisdictions where a full valuation allowance was recognized and in addition the year 2012 included more benefits for the effect of tax incentives in certain jurisdictions.

Results Relating to Equity-accounted Investees

Results relating to the equity-accounted investees amounted to a loss of $27 million, compared to a loss of $77 million in 2011. The loss in 2012 primarily reflects extra provisions to the amount of $46 million for litigations, claims and proceedings which were offset by gains related to our investments in Trident, ASMC and ASEN. In 2011 the loss was mainly related to our investment in Trident.

Income (Loss) on Discontinued Operations

The income of discontinued operations, net of taxes was $1 million in 2012, compared to a gain of $434 million in 2011. This related entirely to the results of our Sound Solutions business, which was sold during 2011.

Non-controlling Interests

Non-controlling interests are related to the third party share in the results of consolidated companies, predominantly, SSMC. The share of non-controlling interests amounted to a profit of $63 million in 2012, compared to a profit of $46 million in 2011.

B. Liquidity and Capital Resources

Liquidity and Capital Resources

At the end of 2013 our cash balance was $670 million, an increase of $53 million compared to prior year. Taking into account the available undrawn amount of the Secured Revolving Credit Facility, we had access to $1,371 million of liquidity as of December 31, 2013.

Our capital expenditures were $215 million in 2013, compared to $251 million in 2012.

Since December 31, 2012, the liability in respect of our total debt has declined from $3,492 million to $3,321 million as of December 31, 2013.

This decline of $171 million was the result of several cash buybacks and debt redemptions in 2013, which were partially offset by the issuance of new bonds and entry into term loans.

The total amount of cash used for financing activities amounted to $598 million.

At the end of 2013, we had an undrawn availability of $701 million remaining under our Secured Revolving Credit Facility, net of outstanding bank guarantees, based on the end of year exchange rate. However, the amount of this availability varies with fluctuations between the euro and the U.S. dollar as the total amount of the facility, €620 million, is denominated in euro and the amounts drawn are denominated in U.S. dollars.

For the year ended December 31, 2013, we incurred total net interest expense of $179 million compared to $266 million during 2012. The weighted average interest rates on our debt instruments as of December 31, 2013 and December 31, 2012 were 4.3% and 5.4%, respectively.

As of December 31, 2013, our cash balance was $670 million, of which $353 million was held by SSMC, our consolidated joint venture company with TSMC. Under the terms of our joint venture agreement with TSMC, a portion of this cash can be distributed by way of a dividend to us, but 38.8% of the dividend will be paid to our joint venture partner. In 2013, a dividend of $120 million was distributed, of which $47 million was distributed to the joint venture partner.

Our cash balance is subject to certain restrictions in select countries that cannot be repatriated. The amount of cash that cannot be repatriated is inconsequential to our total liquidity.

We repurchased $405 million of our common stock pursuant to our share buyback program during 2013 at a weighted average price of $36.60 per share.

Our sources of liquidity include cash on hand, cash flow from operations and amounts available under the Secured Revolving Credit Facility. We believe that, based on our current level of operations as reflected in our results of operations for the year ended December 31, 2013, these sources of liquidity will be sufficient to fund our operations, capital expenditures, and debt service for at least the next twelve months.

Our ability to make scheduled payments or to refinance our debt obligations depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions. In the future, we may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay principal, premium, if any, and interest on our indebtedness. Our business may not generate sufficient cash flow from operations, or we may not have enough capacity under our Secured Revolving Credit Facility, or from other sources in an amount sufficient to enable us to repay our indebtedness, including the Secured Revolving Credit Facility, the Term Loans and the Unsecured Notes or to fund our other liquidity needs, including working capital and capital expenditure requirements. In any such case, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. See Part I, Item 3D. Risk Factors.

Cash Flow from Operating Activities

In 2013 our operating activities provided $891 million in cash. This was primarily the result of net income of $415 million and changes in operating assets and liabilities of $120 million. The net income includes non-cash items, such as depreciation and amortization, of $596 million.

Operating activities provided $722 million in cash in 2012. This was primarily the result of a net loss of $52 million and changes in operating assets and liabilities of $28 million. The net income includes non-cash items, such as depreciation and amortization, of $747 million.

In 2011 we generated cash from operating activities of $175 million. This was mainly driven by net income of $436 million and changes in operating assets and liabilities of $458 million. The net income includes non-cash items, such as depreciation and amortization, of $631 million.

Cash Flow from Investing Activities

Net cash used for investing activities amounted to $240 million in 2013 and principally consisted of cash outflows for capital expenditures of $215 million and $35 million for the purchase of identified intangible assets, mainly related to the purchase of software. Investing activities in 2012 used $243 million of net cash in 2012. This net use of cash primarily included $251 million for capital expenditures, and $29 million for the purchase of identified intangible assets, mainly related to the purchase of software, partially offset by proceeds from sale of interests in our data converters business of $26 million and $12 million of proceeds related to the partial recovery of our equity investments in Trident.

Net cash used for investing activities in 2011 was $202 million and included $221 million used for capital expenditures and $10 million for the purchase of identified intangible assets offset in part by $11 million of proceeds from the disposal of assets held for sale, related to the sale of our Southampton assets, and proceeds from the disposal of property, plant and equipment of $15 million, mainly related to the sale of our San José buildings.

Cash Flow from Financing Activities

Net cash used for financing activities was $598 million in 2013, $574 million in 2012 and $926 million in 2011. The cash flows related to financing transactions in 2013, 2012 and 2011 are primarily related to the financing activities described below under the captions 2013 Financing Activities, 2012 Financing Activities and 2011 Financing Activities, respectively_._

In addition to the financing activities described below, net cash used for financing activities by year included:


	Year ended December 31,
	2013			2012			2011
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	)

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 with an aggregate principal amount of $500 million, which mature 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, we used the net proceeds of $495 million together with approximately $14 million of cash on hand to fully repay $494 million principal amount Senior Secured Term Loan Facility due April 3, 2017, as well as to 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 with an aggregate principal amount of $500 million, which mature 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, we used the net proceeds of $495 million to fully repay the $471 million principal amount Senior Secured Term Loan Facility due March 19, 2019, to pay related call premiums of $5 million and accrued interest of $5 million. We used the balance of $14 million 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 with an aggregate principal amount of $750 million, which mature 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, we used the net proceeds of $743 million together with cash on hand to redeem €142 million aggregate principal amount of Senior Secured Floating Rate Notes due October 2013 for $184 million, to repurchase $58 million aggregate principal amount of Senior Secured Floating Rate Notes due October 2013, and to redeem $615 million aggregate principal amount of Senior Secured Floating Rate Notes due November 2016, as well as to 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 with an aggregate principal amount of $500 million, which mature 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, we used the net proceeds of $495 million to redeem $422 million aggregate principal amount of Senior Secured Notes due August 2018, as well as to pay related call premiums of $51 million and accrued interest of $8 million. We used the balance of $14 million 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.

2012 Financing Activities

2019 Term Loan

On February 16, 2012, our subsidiary, NXP B.V. together with NXP Funding LLC entered into a new $475 million aggregate principal amount Senior Secured Term Loan Facility due March 19, 2019. The Term Loan was issued with an original issue discount at 98.5% of par and was recorded at its fair value of $468 million on the accompanying Interim Consolidated Balance Sheet. The net proceeds of this issuance, together with a $330 million draw-down under our existing Secured Revolving Credit Facility and approximately $52 million of cash on hand, were used to redeem $510 million aggregate principal amount of the U.S. dollar-denominated 9.5%

Senior Notes due October 2015, €203 million aggregate principal amount of the euro-denominated 8 5/8% Senior Notes due October 2015, and pay related call premiums of $36 million and accrued interest of $31 million. The 2019 Term Loan was fully repaid on March 12, 2013.

Secured Revolving Credit Facility

On April 27, 2012, NXP B.V. and NXP Funding LLC concluded the Secured Revolving Credit Facility under which it borrowed $330 million to settle and close its existing revolving credit facility. It subsequently reduced its outstanding drawings to $230 million as of December 31, 2012.

On October 24, 2012, NXP B.V. and NXP Funding LLC agreed with certain participating banks to increase the borrowing capacity under the Secured Revolving Credit Facility subject to an effective date of October 29, 2012. The borrowing capacity under the Secured Revolving Credit Facility was increased by €120 million (approximately $155 million) up to a total amount of €620 million ($818 million). The Secured Revolving Credit Facility will expire on March 1, 2017 and will be used for general corporate purposes.

2013 Super Priority Notes

During 2012, NXP B.V. and NXP Funding LLC redeemed all Euro denominated Super Priority Notes 2013, which had an aggregate principal amount of €29 million and all U.S. dollar denominated Super Priority Notes 2013, which had an aggregate principal amount of $221 million.

2020 Term Loan

On December 10, 2012, our subsidiary, NXP B.V. together with NXP Funding LLC entered into a new $500 million aggregate principal amount Senior Secured Term Loan Facility due January 11, 2020. The Term Loan was issued with an original issue discount at 99.5% of par and was recorded at its fair value of $498 million on the accompanying Consolidated Balance Sheet. The net proceeds of this issuance, together with a $100 million draw-down under our existing revolving credit facility and approximately $12 million of cash on hand, were used to settle our tender offer for $500 million of the U.S. dollar-denominated 9.75% Senior Notes due 2018, and pay related call premiums of $86 million, accrued interest of $18 million and debt issuance costs of $6 million.

2011 Financing Activities

2016 Floating Rate Notes

During the fourth quarter 2011, NXP, in a two-step private exchange transaction, issued an additional $615 million principal amount of U.S. dollar-denominated senior secured floating rate notes due 2016. These notes were exchanged for $333 million principal amount of existing U.S. dollar-denominated floating rate notes due 2013 and €202 million principal amount of existing euro-denominated floating rate notes due 2013. On May 21, 2013, all the U.S. dollar-denominated senior secured floating rate notes due 2016 were redeemed.

2017 Term Loans

On March 4, 2011, our subsidiary, NXP B.V. together with NXP Funding LLC entered into a $500 million aggregate principal amount Senior Secured Term Loan Facility due April 3, 2017, which was drawn in the second quarter of 2011, on April 5, 2011. The First 2017 Term Loan was issued with an original issue discount at 99.5% of par and was recorded at its fair value of $497 million on the accompanying Consolidated Balance Sheet. The net proceeds of this issuance, together with available borrowing capacity under the Secured Revolving Credit Facility of $200 million, were used to redeem all $362 million of outstanding 2014 Dollar Fixed Rate Notes, $100 million of 2013 Dollar Floating Rate Secured Notes and €143 million of 2013 Euro Floating Rate Secured Notes as well as pay related call premiums of $14 million and accrued interest of $16 million.

During the fourth quarter 2011, NXP entered into a second $500 million Senior Secured Term Loan Facility due 2017. The Second 2017 Term Loan was issued with an original issue discount at 96% of par and was recorded at its fair value of $480 million on the accompanying Consolidated Balance sheet. NXP redeemed $275 million of its U.S. dollar-denominated Senior Secured Floating Rate Notes due 2013 and €150 million of its Euro-denominated Senior Secured Floating Rate Notes due 2013. The second 2017 Term Loan was fully repaid on March 4, 2013.

2012 Revolving Credit Facility

In the third quarter of 2011, the utilized borrow capacity of $600 million under the Secured Revolving Credit Facility was repaid, mainly from the proceeds of $855 million related to the divestment of NXP’s Sound Solutions business.

Senior Notes 2015/2018

In the third quarter of 2011, as a result of various open market transactions we repurchased €32 million aggregate principal amount of Euro denominated Senior Notes due in 2015, $96 million aggregate principal amount of U.S. dollar denominated Senior Notes due in 2015 and $78 million aggregate principal amount of U.S. dollar denominated Senior Secured Notes due in 2018.

Cash Flow from Discontinued Operations

Net cash used for discontinued operations in 2012 was $45 million reflecting a payment of $45 million to Dover Corporation related to outstanding commitments on the sale of the Sound Solution business.

On July 4, 2011, we executed an agreement with Dover Corporation pursuant to which Dover Corporation’s Knowles Electronics business acquired our Sound Solutions business. The divestiture of our Sound Solutions business resulted in net cash provided by investing activities from discontinued operations of $791 million in 2011.

Debt Position

Short-term Debt

In 2013, our short-term debt of $40 million included other short-term bank borrowings of $24 million, related to a local bank loan in China

In 2012, our short-term debt of $307 million included other short-term bank borrowings of $36 million, related to a local bank loan in China, and the current portion of the Senior Secured notes due 2013 of $245 million which was due within one year and is classified within short-term debt.

Long-term Debt

As of December 31, 2013, $2,250 million aggregate principal amount of Notes were outstanding and $885 million of borrowings under the Term Loans. We had borrowings of $150 million under the Secured Revolving Credit Facility.


($ in millions)	December 31, 2012		Accrual of Debt Discount		Debt Exchanges/ Repurchases/ New Borrowings			Other(11)			December 31, 2013
U.S. dollar-denominated floating senior secured notes due November 2016(1)		608		1		(609	)					—
U.S. dollar-denominated 9.75% senior secured notes due August 2018		422				(422	)					—
U.S. dollar-denominated secured term credit agreement due April 2017(2)		485				(5	)					480
U.S. dollar-denominated secured term credit agreement due April 2017(3)		472		1		(478	)		5			—
U.S. dollar-denominated secured term credit agreement due March 2019(4)		460				(465	)		5			—
U.S. dollar-denominated secured term credit agreement due April 2020(5)		493				(498	)		5			—
U.S. dollar-denominated secured term credit agreement due April 2020 (6)		—				398			(4	)		394
U.S. dollar-denominated 3.5% senior unsecured notes due September 2016(7)		—				500						500
U.S. dollar-denominated 3.75% senior unsecured notes due June 2018(8)		—				750						750
U.S. dollar-denominated 5.75% senior unsecured notes due February 2021(9)		—				500						500
U.S. dollar-denominated 5.75% senior unsecured notes due March 2023(10)		—				500						500

		2,940		2		171			11			3,124
Revolving Credit Facility		230				(80	)					150
Other long-term debt		15				(7	)		(1	)		7

Total long-term debt		3,185		2		84			10			3,281

(1)	Interest accrues at a rate of LIBOR plus 5.50%.

(2)	On March 4, 2011, we entered into the First 2017 Term Loan for an initial principal amount of $500 million at a rate of interest of LIBOR plus 3.25% with a floor of 1.25%.

(3)	On November 18, 2011, we entered into the Second 2017 Term Loan for a second tranche of principal amount of $500 million at a rate of interest of LIBOR plus 4.25% with a floor of 1.25%.

(4)	On February 16, 2012 we entered into the 2019 Term Loan for an initial principal amount of $475 million at a rate of interest of LIBOR plus 4% with a floor of 1.25%.

(5)	On December 10, 2012, we entered into the 2020 Term Loan for an initial principal amount of $500 million at a rate of interest of LIBOR plus 3.5% with a floor of 1.25%.

(6)	On December 11, 2013, we entered into the 2020 Term Loan for an initial principal amount of $400 million at a rate of interest of LIBOR plus 2.5% with a floor of 0.75%.

(7)	On September 24, 2013, we issued $500 million aggregate principal amount of 3.5% Senior Unsecured Notes due 2016.

(8)	On May 20, 2013, we issued $750 million aggregate principal amount of 3.75% Senior Unsecured Notes due 2018.

(9)	On February 14, 2013, we issued $500 million aggregate principal amount of 5.75% Senior Unsecured Notes due 2021.

(10)	On March 15, 2013, we issued $500 million aggregate principal amount of 5.75% Senior Unsecured Notes due 2023.

(11)	Other mainly concerns the reclassification of the current portion of long-term debt.

We may from time to time continue to seek to retire or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise. See the discussion in the “Recent Developments” section in Part I, Item 5A. Operating Results and Part II, Item 10C. Material Contracts.

Certain Terms and Covenants of the Notes

We are not required to make mandatory redemption payments or sinking fund payments with respect to the Secured Notes.

The Indentures governing the Existing Secured Notes contain covenants that, among other things, limit our ability and that of our restricted subsidiaries to incur additional indebtedness, create liens, pay dividends, redeem capital stock, 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. As of December 31, 2013, and as of the date of filing of this Annual Report on Form 20-F, we are in compliance with our restrictive covenants contained in the Indentures.

The Term Loans and the Secured Notes are fully and unconditionally guaranteed jointly and severally, on a senior basis by certain of our current and future material wholly owned subsidiaries.

Pursuant to various security documents related to the Term Loans, the Secured Notes and the Secured Revolving Credit Facility, we have granted first priority liens and security interests over substantially all of our assets, including the assets of our material wholly owned subsidiaries.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in accordance with U.S. GAAP requires our management to make judgments, assumptions and estimates that affect the amounts reported in our Consolidated Financial Statements and the accompanying Notes. Our management bases its estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

The accounting policies where management believes the nature of the estimates or assumptions involved is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change are as follows: Inventories, Goodwill, Impairment or disposal of identified intangible assets and tangible fixed assets, Revenue recognition, Income taxes, Postretirement benefits, Share-based compensation and Litigation and claims.

If actual results differ significantly from management’s estimates, there could be a material adverse effect on our results of operations, financial condition and liquidity.

C. Research and Development, Patents and Licenses, etc.

Research and Development

We believe that our future success depends on our ability to both improve our existing products and to develop new products for both existing and new markets. We direct our research and development efforts largely

to the development of new High Performance Mixed Signal semiconductor solutions where we see significant opportunities for growth. We target applications that require stringent overall system and subsystem performance. As new and challenging applications proliferate, we believe that many of these applications will benefit from our solutions. We have assembled a team of highly skilled semiconductor and embedded software design engineers with expertise in RF, analog, power management, interface, security and digital processing. As of December 31, 2013, we had approximately 3,272 employees in research and development, of which approximately 2,974 support our High Performance Mixed Signal businesses and approximately 298 support our Standard Products businesses. Our engineering design teams are located in India (Bangalore), China (Shanghai, Beijing), the United States (San Jose, Tempe), France (Caen, Suresnes), Germany (Hamburg, Dresden), Austria (Gratkorn), the Netherlands (Nijmegen, Eindhoven), Hong Kong, Singapore, the United Kingdom (Manchester, Sheffield), Switzerland (Zurich) and Belgium (Leuven). Our research and development expenses were $639 million in 2013 (of which 85% related to our High Performance Mixed Signal businesses) and $628 million in 2012.

To outpace market growth we invest in research and development to extend or create leading market positions, with an emphasis on fast growing sizable market segments, such as identification and smart mobile, and emerging segments, such as the Internet of Things and automotive solid state lighting. Finally, we invest around 4% of our total research and development expenditures in research activities that develop fundamental new technologies or product categories that could contribute significantly to our company growth in the future.

We annually perform a fundamental review of our business portfolio and our related new product and technology development opportunities in order to decide on changes in the allocation of our research and development resources. For products targeting established markets, we evaluate our research and development expenditures based on clear business need and risk assessments. For break-through technologies and new market opportunities, we look at the strategic fit and synergies with the rest of our portfolio and the size of the potential addressable market. Overall, we allocate our research and development to maintain a healthy mix of emerging growth and mature businesses.

Intellectual Property

The creation and use of intellectual property is a key aspect of our strategy to differentiate ourselves in the marketplace. We seek to protect our proprietary technologies by obtaining patents, retaining trade secrets and defending, enforcing and utilizing our intellectual property rights, where appropriate. We believe this strategy allows us to preserve the advantages of our products and technologies, and helps us to improve the return on our investment in research and development. Our portfolio of approximately 9,300 patents and patent applications, as well as our royalty-free licenses to patents held by Philips, give us the benefit of one of the largest patent portfolio positions in the High Performance Mixed Signal and Standard Products markets. To protect confidential technical information that is not subject to patent protection, we rely on trade secret law and frequently enter into confidentiality agreements with our employees, customers, suppliers and partners. In situations where we believe that a third party has infringed on our intellectual property, we enforce our rights through all available legal means to the extent that we determine the benefits of such actions to outweigh any costs involved.

We have engaged in licensing, selling and other activities aimed at generating income and other benefits from our intellectual property assets. We believe that there is an opportunity to generate additional income and other benefits from our intellectual property assets. This is a process that will take time before meaningful benefits can be reaped but the program has been further developed and is well underway.

While our patents and trade secrets constitute valuable assets, we do not view any one of them as being material to our operations as a whole. Instead, we believe it is the combination of our patents and trade secrets that creates an advantage for our business.

In addition to our own patents and trade secrets, we have entered into licensing, broad-scope cross licensing and other agreements authorizing us to use patents, trade secrets, confidential technical information, software and

related technology owned by third parties and/or operate within the scope of patents owned by third parties. We are party to process technology partnerships, such as our collaboration with the Interuniversitair Microelektronica Centrum VZW, through which we jointly develop complex semiconductor-related process technology. We also maintain research partnerships with universities across the world, particularly in Europe, China, Singapore and India.

We own a number of trademarks and, where we consider it desirable, we develop names for our new products and secure trademark protection for them.

D. Trend Information

We focus our business development efforts on what we believe to be the fastest-growing product opportunities and geographic markets.

We address four key macro growth trends in electronics: security, mobility and connected mobile devices, energy efficiency and healthcare. Many new forms of mobile electronic payment, authentication and cyber security are enabled by our secure microcontrollers. Growth of smart phones and tablets drive demand for interface solutions. Our new high-performance RF power amplifier products allow wireless network operators to expand network capacity with fewer base stations. Our innovative magnetic induction radio enables wireless connectivity with implantable medical devices such as hearing aids. Recent development activities targeting the need for greater energy efficiency include our LED lighting products and “green chip” high-efficiency AC-DC power conversion ICs for notebook adaptors.

We believe that we are strategically positioned to capture rapid growth in emerging markets through our strong position in Asia Pacific (excluding Japan), which represented 64% of our revenue in 2013, compared to 62% of our revenue in 2012. In particular, Greater China represented 45% of our revenue in 2013, compared to 41% of our revenue in 2012.

E. Off-balance Sheet Arrangements

As of December 31, 2013, we had no off-balance sheet arrangements.

F. Tabular Disclosure of Contractual Obligations

Presented below is a summary of our contractual obligations as at December 31, 2013


($ in millions)	Total		2014		2015		2016			2017			2018			2019 and thereafter
Long-term debt		3,287		10		12		510	(1)		623	(2)		754	(3)		1,378	(4)
Capital lease obligations		11		6		2		2			1			—			—
Short-term debt		24		24		—		—			—			—			—
Operating leases		107		24		22		16			12			9			24
Interest on the notes (5)		799		142		142		135			103			84			193
Long-term purchase contracts		166		78		50		16			10			6			6

Total contractual cash obligations (5)(6)		4,394		284		228		679			749			853			1,601

(1)	On September 24, 2013, we issued $500 million aggregate principal amount of 3.5% Senior Unsecured Notes due 2016.

(2)	On March 4, 2011, we entered into the First 2017 Term Loan with an initial principal amount of $500 million at a rate of interest of LIBOR plus 3.25% with a floor of 1.25%.

(3)	On May 20, 2013, we issued $750 million aggregate principal amount of 3.75% Senior Unsecured Notes due 2018.

(4)

On December 10, 2012, we entered into the 2020 Term Loan for an initial principal amount of $500 million at a rate of interest of LIBOR plus 3.5% with a floor of 1.25%. On December 11, 2013, NXP entered into a new $400 million aggregate principal amount senior secured term loan facility due January 11, 2020 at a rate of interest of LIBOR plus 2.5% with a floor of 0.75%. Concurrently, NXP called the $496 million principal amount senior secured term loan facility due January 11, 2020. On February 14, 2013, we issued $500 million aggregate principal amount of 5.75% Senior Unsecured Notes due 2021 and on March 15, 2013, we issued $500 million aggregate principal amount of 5.75% Senior Unsecured Notes due 2023.

(5)	The interest on the notes was determined on the basis of LIBOR interest rates for floating rate instruments and on the basis of contractual agreed interest rates for other debt instruments.

(6)	Certain of these obligations are denominated in currencies other than U.S. dollars, and have been translated from foreign currencies into U.S. dollars based on an aggregate average rate of $1.3285 per €1.00, in effect at December 31, 2013. As a result, the actual payments will vary based on any change in exchange rate.

Our debt instruments had accrued interest of $27 million as of December 31, 2013 (December 31, 2012: $25 million).

Certain contingent contractual obligations, which are not reflected in the table above, include contractual agreements, such as supply agreements, containing provisions that certain penalties may be charged if we do not fulfill our commitments.

We sponsor pension plans in many countries in accordance with legal requirements, customs and the local situation in the countries involved. These are defined-benefit pension plans, defined contribution pension plans and multi-employer plans. Contributions to funded pension plans are made as necessary, to provide sufficient assets to meet future benefits payable to plan participants. These contributions are determined by various factors, including funded status, legal and tax considerations and local customs. We currently estimate contributions to funded pension plans will be $67 million in 2014, consisting of $4 million in employer contributions to defined-benefit pension plans and $63 million in employer contributions to defined-contribution pension plans and multi-employer plans. The expected cash outflows in 2014 and subsequent years are uncertain and may change as a consequence of statutory funding requirements as well as changes in actual versus currently assumed discount rates, estimations of compensation increases and returns on pension plan assets.

G. Safe Harbor

This Annual Report includes forward-looking statements. When used in this Annual Report, the words “anticipate”, “believe”, “estimate”, “forecast”, “expect”, “intend”, “plan” and “project” and similar expressions, as they relate to us, our management or third parties, identify forward-looking statements. Forward-looking statements include statements regarding our business strategy, financial condition, results of operations and market data, as well as any other statements that are not historical facts. These statements reflect beliefs of our management, as well as assumptions made by our management and information currently available to us. Although we believe that these beliefs and assumptions are reasonable, these statements are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected. These factors, risks and uncertainties expressly qualify all subsequent oral and written forward-looking statements attributable to us or persons acting on our behalf and include, in addition to those listed under Part I, Item 3D. Risk Factors and elsewhere in this Report, the following:

	•		market demand and semiconductor industry conditions;

	•		our ability to successfully introduce new technologies and products;

	•		the demand for the goods into which our products are incorporated;

	•		our ability to generate sufficient cash, raise sufficient capital or refinance our debt at or before maturity to meet both our debt service and research and development and capital investment requirements;

	•		our ability to accurately estimate demand and match our production capacity accordingly;

	•		our ability to obtain supplies from third-party producers;

	•		our access to production from third-party outsourcing partners, and any events that might affect their business or our relationship with them;

	•		our ability to secure adequate and timely supply of equipment and materials from suppliers;

	•		our ability to avoid operational problems and product defects and, if such issues were to arise, to rectify them quickly;

	•		our ability to form strategic partnerships and joint ventures and successfully cooperate with our alliance partners;

	•		our ability to win competitive bid selection processes;

	•		our ability to develop products for use in our customers’ equipment and products;

	•		our ability to successfully hire and retain key management and senior product engineers; and

	•		our ability to maintain good relationships with our suppliers.

We do not assume any obligation to update any forward-looking statements and disclaim any obligation to update our view of any risks or uncertainties described herein or to publicly announce the result of any revisions to the forward-looking statements made in this Report, except as required by law.

In addition, this Report contains information concerning the semiconductor industry and business segments generally, which is forward-looking in nature and is based on a variety of assumptions regarding the ways in which the semiconductor industry, our market and business segments will develop. We have based these assumptions on information currently available to us, including through the market research and industry reports referred to in this Report. Although we believe that this information is reliable, we have not independently verified and cannot guarantee its accuracy or completeness. If any one or more of these assumptions turn out to be incorrect, actual market results may differ from those predicted. While we do not know what impact any such differences may have on our business, if there are such differences, they could have a material adverse effect on our future results of operations and financial condition, and the trading price of our common stock.

Item	6. Directors, Senior Management and Employees

A. Directors and Senior Management

The following description sets forth certain information about management and management-related matters. We have a one-tier board structure.

Board of Directors

Set forth below are the names, ages and positions as of December 31, 2013, of the persons who serve as members of our board of directors.


Name	Age		Position
Richard L. Clemmer		62	Executive director, president and chief executive officer
Sir Peter Bonfield		69	Non-executive director and chairman of the board
Johannes P. Huth		53	Non-executive director and vice-chairman of the board
Kenneth A. Goldman		64	Non-executive director
Dr. Marion Helmes*		48	Non-executive director
Josef Kaeser		56	Non-executive director
Ian Loring		47	Non-executive director
Michel Plantevin		57	Non-executive director
Jean-Pierre Saad*		33	Non-executive director
Julie Southern*		54	Non-executive director

*	Mr. Saad was appointed to replace Nicolas Cattelain, who resigned as non-executive director of the Company on May 30, 2013. On October 10, 2013, Dr. Helmes and Ms. Southern were appointed as non-executive directors of the Company. On October 10, 2013, Vikram Bhatia, and on December 13, 2013, Egon Durban and Roy MacKenzie resigned as non-executive directors of the Company.

	•		Richard L. Clemmer (1951, American). Mr. Clemmer became executive director, president and chief executive officer on January 1, 2009. Prior to that, from December 2007, Mr. Clemmer was a member of the supervisory board of NXP B.V. and a senior advisor of Kohlberg Kravis Roberts & Co. Prior to joining NXP, he was the President and CEO of Agere Systems, served as Chairman of u-Nav Microelectronics Corporation, and held a five-year tenure at Quantum Corporation where he was executive vice president and chief financial officer. Prior to that, Mr. Clemmer worked for Texas Instruments Incorporated as senior vice president and semiconductor group chief financial officer. Mr. Clemmer also serves on the board of NCR Corporation.

	•		Sir Peter Bonfield CBE FREng (1944, British). Sir Peter has been appointed as a non-executive director and as the chairman of our board of directors in August 2010. Prior to that, Sir Peter was the chairman of the supervisory board of NXP B.V. from September 29, 2006. Sir Peter served as chief executive officer and chairman of the executive committee for British Telecom plc from 1996 to 2002 and prior to that was chairman and chief executive officer of ICL plc (now Fujitsu Services Holdings Ltd.). Sir Peter also worked in the semiconductor industry during his tenure as a divisional director at Texas Instruments Incorporated, for whom he held a variety of senior management positions around the world. Sir Peter currently holds non-executive directorships at Telefonaktiebolaget LM Ericsson, Taiwan Semiconductor Manufacturing Company Limited, Mentor Graphics Corporation and Sony Corporation. Sir Peter is Chair of Council and Senior Pro-Chancellor at Loughborough University, Senior Advisor to N M Rothschild in London and Board Mentor at CMi in Belgium. He is also Advisor to Longreach LLP in Hong Kong and NVP LLP in New Jersey.

	•		Johannes P. Huth (1960, German). Mr. Huth has been appointed as a non-executive director and vice-chairman of our board of directors in August 2010. Prior to that, Mr. Huth was a member and chairman of our supervisory board and a member and vice-chairman of NXP B.V.’s supervisory board from September 29, 2006. He is currently the chairman of WMF AG, chairman of the supervisory board of ProSieben Sat 1 Media AG, a member of the board of KION AG, a member of the advisory board of Wild Flavors GmbH, a director of Kohlberg Kravis Roberts & Co. Ltd and President of Kohlberg Kravis Roberts & Co. SAS.

	•		Kenneth A. Goldman (1949, American). Mr. Goldman has been appointed as a non-executive director of our board of directors effective August 6, 2010. Mr. Goldman is chief financial officer of Yahoo!, Inc responsible for Yahoo!’s global finance functions including financial planning and analysis, controllership, tax, treasury and investor relations since October 2012. Prior to that, Mr. Goldman served as senior vice president, finance and administration, and chief financial officer of Fortinet, Inc, a provider of unified threat management solutions, from September 2007 to September 2012. From November 2006 to August 2007, Mr. Goldman served as executive vice president and chief financial officer of Dexterra, Inc. From August 2000 until March 2006, Mr. Goldman served as senior vice president, finance and administration, and chief financial officer of Siebel Systems, Inc., and from December 1999 to December 2003, Mr. Goldman served on the Financial Accounting Standards Board’s primary advisory group. Mr. Goldman also serves on the board of directors of Gigamon, an intelligent Traffic Visibility solutions provider, Infinera, Inc., and Yahoo! Japan. Mr. Goldman was a member of board of trustees of Cornell University from 2005 to 2013 and was designated as Emeritus Trustee. He was formerly a member of the Treasury Advisory Committee on the Auditing Profession, a public committee that made recommendations in September 2008 to encourage a more sustainable auditing profession. Mr. Goldman holds a B.S. in Electrical Engineering from Cornell University and an M.B.A. from the Harvard Business School.

	•		Dr. Marion Helmes (1965, German). Dr. Helmes has been appointed a non-executive director of our board of directors in October 2013. Dr. Helmes is the Speaker of the Management Board of Celesio AG since July 2013; in addition she is CFO of Celesio since July 2013. Prior to joining Celesio, she was member of the board of management and CFO of Q-Cells SE (from July 2011 to ultimo 2012) and from 1997 to 2011 she held various management roles at ThyssenKrupp, including CFO of ThyssenKrupp Stainless and CFO of ThyssenKrupp Elevator. Dr. Helmes currently is also member of the Central Advisory Board of Commerzbank AG and a member of the supervisory board and the audit committee of Fugro N.V (The Netherlands).

	•		Josef Kaeser (1957, German). Mr. Kaeser has been appointed as a non-executive director of our board of directors effective September 1, 2010. Mr. Kaeser is the president and chief executive officer of Siemens AG since August 2013. Prior to this, from May 2006 to August 2013, he was executive vice president and chief financial officer of Siemens AG. From 2004 to 2006, Mr. Kaeser served as chief strategy officer for Siemens AG and as the chief financial officer for the mobile communications group from 2001 to 2004. Mr. Kaeser has additionally held various other positions within the Siemens group since he joined Siemens in 1980. Mr. Kaeser also serves on the managing board of Siemens AG and the board of directors of Siemens Ltd., India, Allianz AG, Germany.

	•		Ian Loring (1966, American). Mr. Loring has been appointed a non-executive director of our board of directors in August 2010. Mr. Loring became a member of our supervisory board and the supervisory board of NXP B.V. on September 29, 2006 and is a managing director of Bain Capital Partners, LLC. Prior to joining Bain Capital Partners in 1996, Mr. Loring worked at Berkshire Partners and has previously also worked at Drexel Burnham Lambert. He serves as a director of SkillSoft Limited, Clear Channel Communications Inc., The Weather Channel Inc., Denon & Marantz and BMC Software, Inc. Mr. Loring previously served on the board of Warner Music Group Corporation, Cumulus Media Inc. and Echelon Telecom Inc.

	•		Michel Plantevin (1956, French). Mr. Plantevin has been appointed a non-executive director of our board of directors in August 2010. Mr. Plantevin became a member of our supervisory board and the supervisory board of NXP B.V. on September 29, 2006 and is a managing director of Bain Capital, LLC. Prior to joining Bain Capital LLC. in 2003, Mr. Plantevin worked at Goldman Sachs in London, and prior to that he was a partner with Bain & Company in London and Paris. He also serves as a director of FCI, Bravida AB, Trinseo and IMCD.

	•		Jean-Pierre Saad (1980, Belgian-Lebanese). Mr. Saad has been appointed as non-executive director of our board of directors effective May 30, 2013. Mr. Saad is a member of the European Telecom and Technology team of Kohlberg Kravis Roberts & Co and has been involved in Kohlberg Kravis Roberts & Co.’s investments in SBB/Telemach, Acteon, Legrand and Van Gansewinkel Groep. Prior to joining Kohlberg Kravis Roberts & Co., he was at Lehman Brothers in London.

	•		Ms. Julie Southern (1959, British). Ms. Southern has been appointed a non-executive director of our board of directors in October 2013. She was with Virgin Atlantic Limited (UK) from 2000 to May 2013. From 2010 to 2013 Ms. Southern was chief commercial officer and from 2000 to 2010 she was chief financial officer of Virgin Atlantic. Prior to joining Virgin Atlantic, she was group finance director at Porsche Cars Great Britain and finance and operations director at W H Smith – H J Chapman & Co Ltd. Prior to that, she was chartered accountant at Price Waterhouse Coopers.

Management Team

Set forth below are the names, ages as of December 31, 2013, and positions of the executive officers who together with our chief executive officer, Mr. Clemmer, constitute our management team.


Name	Age		Position
Richard L. Clemmer		62	Executive director, president and chief executive officer
Chris Belden		53	Executive vice president and general manager of operations
Guido Dierick		54	Executive vice president and general counsel
Alexander Everke		50	Executive vice president and general manager HPMS Industrial and Infrastructure
Dave French		57	Executive vice president of R&D, and general manager HPMS Portable and Computing
Loh Kin Wah		59	Executive vice president sales & marketing
Peter Kelly		56	Executive vice president and chief financial officer
Robert Rigby-Hall		48	Executive vice president and chief human resources officer
Sean Hunkler		51	Executive president and general manager of operations
Ruediger Stroh		51	Executive vice president and general manager HPMS Identification
Frans Scheper		51	Executive vice president and general manager Standard Products
Kurt Sievers		44	Executive vice president and general manager HPMS Automotive
Hai Wang		53	Executive vice president of R&D

	•		Chris Belden (1960, American). Mr. Belden is executive vice president, general manager of operations and member of the management team. He joined NXP as senior vice president, global manufacturing in March, 2008. Previously Mr. Belden worked for Applied Materials Inc., where he was responsible for global operations. Before that, he spent the majority of his career at Motorola, Inc. and Freescale Semiconductor Inc., where he was responsible for Freescale’s global manufacturing operations.

	•		Guido Dierick (1959, Dutch). Mr. Dierick is executive vice president, general counsel, secretary of our board of directors and member of the management team. Since 2000 he has been responsible for legal and intellectual property matters at NXP. He previously was employed by Philips from 1982 and worked in various legal positions.

	•		Alexander Everke (1963, German). Mr. Everke is executive vice president, member of the management team and general manager of our High Performance Mixed Signal businesses focused on the industrial and infrastructure application markets. He previously served in various senior management positions within NXP. Mr. Everke joined NXP in 2006 from Infineon Technologies AG, where he served last as general manager of the Chip Card & Security ICs business unit. Before Infineon, Mr. Everke worked for several years at Siemens AG.

	•		Dave French (1956, American). Mr. French is executive vice president, member of the management team and general manager of our High-Performance Mixed-Signal businesses focused on the portable and computing markets. Mr. French has more than 30 years experience in the semiconductor industry and has had direct experience in product development, marketing, manufacturing, strategic planning and business management. He started his career at Texas Instruments, working in microcontroller and DSP product line management and he later served as GM of logic products at Fairchild semiconductor, and GM of Analog Devices’ DSP business line. Mr. French also served as President and CEO of Cirrus Logic from 1999-2007 and joined NXP in April 2012, after working as an advisor to several venture-backed companies.

	•		Loh Kin Wah (1954, Malaysian). Mr. Loh Kin Wah is executive vice president, member of the management team, responsible for sales & marketing. Mr. Loh joined NXP in October, 2011. He previously was the President and CEO of Qimonda AG following its spin-out from Infineon Technologies AG. Prior to this appointment, he was a member of the Infineon AG Executive Management Board responsible for the Communication Business Group and subsequently the Memories Product Group. Mr. Loh has held a series of management positions within Infineon AG and its parent company Siemens AG, both in Europe and Asia.

	•		Peter Kelly (1957, American). Mr. Kelly is executive vice president and chief financial officer of NXP and a member of the management team. He joined NXP in March, 2011, sharing responsibility with Mr. Belden for managing our overall operations, and since July 2012 he is CFO. Mr. Kelly has over 30 years of applicable experience in the global technology industry and has extensive financial expertise having worked in financial management positions in several other companies, including as CFO of UGI Corp. and Agere Systems Inc. Mr. Kelly also serves on the board of Plexus, Corp.

	•		Robert Rigby-Hall (1965, British). Mr. Rigby-Hall is executive vice president, chief human resources officer and member of the management team since August, 2011. Previously, Mr. Rigby-Hall was chief HR officer of LexisNexis, a global provider of information and technology solutions, that is part of Anglo-Dutch group Reed Elsevier.

	•		Sean Hunkler (1962, American). Mr. Hunkler is executive vice president, general manager of operations and a member of the management team. He shares responsibility with Mr. Belden for managing the company’s Global Operations. Mr. Hunkler joined NXP in July, 2012 with more than 28 years of experience in the semiconductor and materials industries in the US and Asia, including leading roles in internal and external manufacturing operations for MEMC and Freescale. Previously, Mr. Hunkler also served as a non-executive director on the board of SMIC and is a founding trustee of the Virginia Commonwealth University Engineering Foundation Board.

	•		Ruediger Stroh (1962, German). Mr. Stroh is executive vice president, member of the management team and general manager of our High Performance Mixed Signal businesses focused on the identification application markets. Before joining NXP in May, 2009, he led LSI Corporation’s Storage Peripherals business, overseeing silicon solutions for hard disk and solid state drives addressing consumer and enterprise markets. Previously, he headed Agere System Inc’s storage division and served as chief executive officer for a number of start-up companies. Mr. Stroh began his career at Siemens AG where he held multiple management positions before joining Infineon Technologies AG.

	•		Frans Scheper (1962, Dutch). Mr. Scheper has been executive vice president and general manager for the Standard Products business since November, 2009, and has been a member of the management team since January, 2010. He has previously served as general manager of the general applications (discretes) business line within the multimarket business and served in various positions at Philips since 2000.

	•		Kurt Sievers (1969, German). Mr. Sievers has been executive vice president and general manager of our High Performance Mixed Signal businesses focused on the automotive application markets since November 2009 and since January 2010 he has been a member of the management team. He has previously managed the automotive safety and comfort business line and served in various positions at Philips since 1995.

	•		Hai Wang (1960, American). Dr. Wang is executive vice president of R&D, leads the NXP R&D leadership team and is a member of our management team. He joined NXP as senior vice president, global external manufacturing in operations in July 2010. Mr. Wang has more than 24 years of experience in the semiconductor industry, where his management experience spans from IC design, technology R&D, front end & back end operations, sourcing, marketing and IP licensing. Prior to joining NXP, he held senior executive positions at companies as LSI Corporation, Agere Systems and Flextronics Semiconductors. He was co-founder and CEO of start-up MiraWave, Inc. Mr. Wang started his career at National Semiconductor as a technology R&D engineer.

B. Compensation

In accordance with Dutch law, our stockholders have adopted a compensation policy for the board of directors. The remuneration of our executive directors is resolved upon by our board of directors, with due observance of our compensation policy. The respective executive director does not participate in the discussions of our board of directors on his compensation, nor does the chief executive officer vote on such a matter. Our chief executive officer is our only executive director. The remuneration of the non-executive directors has been resolved upon by our stockholders at a stockholder meeting at the proposal of our board of directors, prior to the consummation of the initial public offering in August 2010. To the extent the stockholders at a future stockholder meeting do not adopt the proposal of the board, the board must prepare a new proposal. After adoption of a proposal, only subsequent amendments will require stockholder approval. Furthermore, any proposed share or option-based director compensation (including any performance conditions relating to such compensation) must be submitted by our board to the general meeting of stockholders for its approval, detailing the number of shares or options over shares that may be awarded to the directors and the criteria that apply to such award or any modification of such rights. Prior to the consummation of the initial public offering in August 2010, our stockholders have approved such equity-based director compensation.

Compensation Policy and Objectives

The objective in establishing the compensation policies for our chief executive officer, the other members of our management team and our other executives, will be to provide a compensation package that is aligned with our strategic goals and that enables us to attract, motivate and retain highly qualified professionals. We believe that the best way to achieve this is by linking executive compensation to individual performance targets, on the one hand, and to NXP’s performance, on the other hand. Our executive compensation package will therefore include a significant variable part, consisting of an annual cash incentive, shares and stock options. Executive performance targets will be determined annually, at the beginning of the year, and assessed at the end of the year by, respectively, our nominating and compensation committee, our executive officers or the other members of our management team. The compensation package for our chief executive officer, the other members of our management team and our NXP executives is benchmarked on a regular basis against other companies in the high-tech and semiconductors industry.

Base Salary

We currently pay our chief executive officer an annual base salary of €1,142,000, the chairman of our board of directors an annual fixed fee of €275,000 and the other members of our board of directors an annual fixed fee of $85,000 gross. Members of our Audit Committee and the Nominating & Compensation Committee receive an additional annual fixed fee of $6,000 gross and the chairmen of both committees receive an additional annual fixed fee of $10,000 and $8,000 gross, respectively. For the year ended December 31, 2013, the members of our management team as a group (in total 13 members) received a total aggregate compensation of €7,974,976, compared to a total aggregate compensation of €7,800,000 (in total 14 members) in 2012.

Our chief executive officer, the other members of our management team and most of our executives have a contract of employment for an indefinite term. The main elements of any new employment contract that we will enter into with a member of the board of directors will be made public no later than the date of the public notice convening the general meeting of stockholders at which the appointment of such member of the board of directors will be proposed.

Annual Incentive

Each year, our chief executive officer, the other members of our management team and our other executives can qualify to earn a variable cash incentive, subject to whether certain specific and challenging performance targets have been met. For our chief executive officer, the on-target cash incentive percentage is set at 75% of the base salary, with the maximum cash incentive set at 150% of the annual base salary. The cash incentive pay-out

in any year relates to the achievements of the preceding financial year in relation to agreed targets. In 2013, an amount of €1,044,930 has been paid to our chief executive officer as annual incentive bonus for our performance in 2012. The total annual incentive bonus amount paid in 2013 to members of our management team, including our chief executive officer, is €4,002,021. In 2012, an amount of €70,200 has been paid to members of our management team, including our chief executive officer.

Share Based Compensation Plans

The purpose of our share based compensation plans, including the Management Equity Stock Option Plan implemented prior to the consummation of our initial public offering in August 2010 and our subsequent Long-Term Incentive Plans 2010, 2011, 2012 and 2013, is to align the interests of management with those of our stockholders by providing additional incentives to improve our medium and long term performance, by offering the participants an opportunity to share in the success of NXP.

In the period from 2007 until our initial public offering in August 2010, we granted stock options to the members of our management team and to approximately 135 of our other executives under the Management Equity Stock Option Plan (“MEP”). Under the MEP, the participants acquired the right to purchase a certain number of shares of common stock at a predetermined exercise price, provided that certain conditions are met. The stock options (“MEP Options”) have a vesting schedule as specified upon the grant to the individuals. Pursuant to our MEP, members of our management team and certain other executives will be allowed to exercise, from time to time, their vested MEP Options. The proportion of MEP Options available for exercise relates to the aggregate number of shares of common stock sold by our co-investors, including the Private Equity Consortium, and all such MEP Options became fully exercisable upon the Private Equity Consortium ceasing to hold 30% of our shares of common stock which was the case following the consummation of the secondary offering of shares on September 18, 2013. Current employees owning MEP Options may exercise such MEP Options during the period of five years as of September 18, 2013, subject to these employees remaining employed by us and subject to the applicable laws and regulations. As of December 31, 2013, a total of 5,401,285 MEP Options were granted and outstanding to a group of 54 (current) NXP executives (which includes our chief executive officer and other members of the management team and our chairman of the board of directors). These MEP Options can be exercised at exercise prices which vary from €2.00 to €50.00 per stock option.

In November 2010 and 2011, and in October 2012 and 2013, we introduced Long Term Incentive Plans 2010, 2011, 2012 and 2013, respectively, under which performance stock, restricted stock and stock options may be 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. Under these Long Term Incentive Plans 2010, 2011, 2012 and 2013, equity incentives may be granted on, or the day after, the dates NXP publishes its quarterly financials, beginning on November 2, 2010, November 1, 2011, October 25, 2012 and October 24, 2013, respectively. Performance stock and restricted stock vest over a period of three years, subject to relevant performance criteria relating to operating income being met, and stock options vest over four years. The size of the annual equity pool available for Long Term Incentive Plan 2010 awards from November 2, 2010 up to the fourth quarter of 2011 was for an aggregate of up to 7,200,000 common shares in our share capital. On December 31, 2013, grants to 531 participants were outstanding, in total representing some 1,826,587 shares of common stock, consisting of 33,334 performance stock units, 34,949 restricted stock units and 1,758,304 stock options.

The size of the annual equity pool available for Long Term Incentive Plan 2011 awards from November 1, 2011 up to the fourth quarter of 2012 was for an aggregate of up to 8,570,000 (including a number of 1,370,000 which remained from the 2010 LTIP pool) common shares in our share capital. On December 31, 2013, grants to 927 participants were outstanding, in total representing 4,945,875 shares of common stock, consisting of 1,131,122 performance stock units, 622,547 restricted stock units and 3,192,206 stock options.

The size of the annual equity pool available for Long Term Incentive Plan 2012 awards from October 25, 2012 up to the fourth quarter of 2013 was for an aggregate of up to 9.3 million (including 2.1 million which

remained from the 2011 LTIP pool) common shares in our share capital. On December 31, 2013, grants to 1,068 participants were outstanding, in total representing 7,271,390 shares of common stock, consisting of 2,289,337 performance stock units, 1,174,920 restricted stock units and 3,807,133 stock options.

The size of the annual equity pool available for Long Term Incentive Plan 2013 awards from October 24, 2013 up to the fourth quarter of 2014 is for an aggregate of up to 6.7 million (including 0.4 million which remained from the 2012 LTIP pool) common shares in our share capital. On December 31, 2013, grants to 1,494 participants were outstanding, in total representing 4,004,244 shares of common stock, consisting of 525,510 performance stock units, 1,990,559 restricted stock units and 1,488,175 stock options.

Shares to be delivered under any equity program may be newly issued, for up to 10% of our share capital, or they may come out of treasury stock or be purchased from time to time upon the decision of our board of directors.

As of December 31, 2013, the following stock options, restricted stock, performance stock and shares of common stock were outstanding with members of our board of directors:

Richard L. Clemmer, CEO and president

As of December 31, 2013, our chief executive officer held 223,233 shares and had been granted the following (vested and unvested) stock options and (unvested) performance stock units, which were outstanding:


Series	Number of Stock Options		Exercise Price (in $)		Number of Stock Options per vesting schedule
					10/24/14		10/24/15		10/24/16		10/24/17
2013/October		344,635		39.58		86,158		86,159		86,159		86,159


Series	Number of Stock Options		Exercise Price (in $)		Number of Stock Options per vesting schedule
					10/25/13		10/25/14		10/25/15		10/25/16
2012/October		410,000		23.49		102,500		102,500		102,500		102,500


Series	Number of Stock Options		Exercise Price (in $)		Number of Stock Options per vesting schedule
					11/01/12		11/01/13		11/01/14		11/01/15
2011/November		410,000		16.84		102,500		102,500		102,500		102,500


Series	Number of Stock Options		Exercise Price (in $)		Number of Stock Options per vesting schedule
					11/02/11		11/02/12		11/02/13		11/02/14
2010/November		360,252		13.27		90,063		90,063		90,063		90,063


Series	Number of Stock Options		Exercise Price (in €)		Number of Stock Options per vesting schedule
					01/01/10		01/01/11		01/01/12		01/01/13
2009/1		415,000		2.00		103,750		103,750		103,750		103,750
2009/2		1,400,000		15.00		350,000		350,000		350,000		350,000
2009/3		234,000		30.00		58,500		58,500		58,500		58,500
2009/4		374,252		40.00		93,563		93,563		93,563		93,563

Total		2,423,252				605,813		605,813		605,813		605,813


Series	Number of Performance Stock Units		Number of Performance Stock Units per vesting schedule
		10/24/14		10/24/15		10/24/16		10/24/17
2013/October	159,786		Maximum 33% of total		Maximum 67% of total		Up to 100% of total		Up to 100% of total


Series	Number of Performance Stock Units			Number of Performance Stock Units per vesting schedule
		03/01/14	03/01/16
2013/March		350,000		35,000	315,000


Series	Number of Performance Stock Units		Number of Performance Stock Units per vesting schedule
		10/25/14		10/25/15		10/25/16
2012/October	200,000		Maximum 100,000		Up to 200,000		Up to 200,000


Series	Number of Performance Stock Units		Number of Performance Stock Units per vesting schedule
		02/09/14		02/09/15
2011/November	300,000		Maximum 200,000		Up to 300,000

Sir Peter Bonfield, chairman of the board of directors

As of December 31, 2013, the chairman of our board of directors held 19,999 shares, and the following (vested) stock options and (unvested) restricted stock units had been granted to him and were outstanding:


Series	Number of Restricted Stock Units		Number of Stock Units per vesting schedule
		10/24/14		10/24/15		10/24/16
2013/October	5,055		1,685		1,685		1,685


Series	Number of Restricted Stock Units		Number of Stock Units per vesting schedule
		10/25/14		10/25/15
2012/October	6,667		3,333		3,334


Series	Number of Restricted Stock Units		Number of Stock Units per vesting schedule
		11/01/14
2011/November		3,334		3,334


Series		Number of Vested Stock Options				Exercise Price (in €)
2009/3			23,550				30.00

Other members of our board of directors

As of December 31, 2013, the other members of our board of directors held the following number of shares:

Mr. Huth: 89,999 of which 19,999 are from vested stock units

Mr. Goldman: 22,999 of which 19,999 are from vested stock units

Mr. Kaeser: 19,999 from vested stock units

Mr. Loring: 19,999 from vested stock units

Mr. Plantevin: 19,999 from vested stock units

To each of Messrs. Huth, Goldman, Kaeser, Loring and Plantevin, all being members of our board of directors, the following restricted stock units had been granted and were outstanding as of December 31, 2013:


Series	Number of Restricted Stock Units		Number of Stock Units per vesting schedule
		10/24/14		10/24/15	10/24/16
2013/October		5,055		1,685	1,685	1,685


Series	Number of Restricted Stock Units		Number of Stock Units per vesting schedule
		10/25/14		10/25/15
2012/October		6,667		3,333	3,334


Series	Number of Restricted Stock Units		Number of Stock Units per vesting schedule
		11/01/14
2011/November		3,334		3,334

To each of Dr. Helmes and Ms. Southern, and to Mr. Saad, in 2013 being appointed as member of our board of directors, the following restricted stock units had been granted and were outstanding as of December 31, 2013:


Series	Number of Restricted Stock Units			Number of Stock Units per vesting schedule
		10/24/14	10/24/15		10/24/16
2013/October		5,055	1,685		1,685	1,685

Pensions

Our chief executive officer and eligible members of the management team participate in the executives’ pension plan, which we set up in the Netherlands and which consists of a combination of a career average and a defined-contribution plan. The plan does not require employee contributions. We paid for our chief executive officer a total pension plan contribution of €591,508 in 2013 (2012: €572,369). We also paid a total pension plan contribution in the aggregate of €1,160,470 (2012: €1,260,000) to the members of our management team.

Additional Arrangements

In addition to the main conditions of employment, a number of additional arrangements apply to our chief executive officer and other members of the management team. These additional arrangements, such as housing compensation and relocation allowances, medical insurance, accident insurance, school fee compensation and company car arrangements are broadly in line with those for the NXP executives globally. In the event of disablement, our chief executive officer and other members of the management team are entitled to benefits in line with those for other NXP executives. In the event of our chief executive officer’s death while in the service of NXP, any unvested equity awards (including any NXP stock options, performance stock units and restricted stock units) will vest. In line with regulatory requirements, the Company’s policy forbids personal loans, guarantees or similar arrangements to members of our board, and consequently no loans, guarantees or similar arrangements were granted to such members since 2010, nor were any such loans outstanding as of December 31, 2013.

Unless the law provides otherwise, the members of our board of directors are expected to be reimbursed by us for various costs and expenses, such as reasonable costs of defending claims, as formalized in the articles of association. Under certain circumstances, described in the articles of association, such as an act or failure to act by a member of our board of directors that can be characterized as intentional (opzettelijk), intentionally reckless (bewust roekeloos) or seriously culpable (ernstig verwijtbaar), there will be no entitlement to this reimbursement.

Summary Compensation Table

The following table sets forth the annual compensation paid or granted during the year ended December 31, 2013 to the members of our board of directors on an individual basis for services in all capacities.


	Salary and/ or fees			Performance related compensation (€)		Number of stock, stock options and stock units granted		Non-equity incentive plan compensation or benefits in kind (€)		Pension, retirement or similar benefits (€)
Richard L. Clemmer		1,142,000	(1)		1,044,930		854,421		1,035,596		591,508
Sir Peter Bonfield		275,000	(1)		—		5,055		—		—
		6,000	(2)		—		—		—		—
Johannes P. Huth		91,000	(2)		—		5,055		—		—
Vikram Bhatia*		72,042	(2)		—		—		—		—
Nicolas Cattelain*		35,417	(2)		—		—		—		—
Egon Durban*		81,458	(2)		—		—		—		—
Kenneth A. Goldman		101,000	(2)		—		5,055		—		—
Dr. Marion Helmes*		19,716	(2)		—		5,055		—		—
Josef Kaeser		91,000	(2)		—		5,055		—		—
Ian Loring		85,000	(2)		—		5,055		—		—
Michel Plantevin		99,000	(2)		—		5,055		—		—
Roy MacKenzie*		81,458	(2)		—		—		—		—
Jean-Pierre Saad*		49,583	(2)		—		5,055		—		—
Julie Southern*		19,716	(2)		—		5,055		—		—

Total:		1,417,000	(1)		1,044,930		899,916		1,035,596		591,508
		832,390	(2)

1)	in €

2)	in $

Mr. Jean-Pierre Saad was appointed to replace Nicolas Cattelain, who resigned as non-executive director of the Company on May 30, 2013. On October 10, 2013, Dr. Marion Helmes and Ms. Julie Southern were appointed as non-executive directors of the Company. On October 10, 2013, Mr. Vikram Bhatia, and on December 13, 2013, Messrs. Egon Durban and Roy MacKenzie, resigned as non-executive directors of the Company.

The following table sets forth the annual compensation paid or granted during the year ended December 31, 2012 to the members of our board of directors on an individual basis for services in all capacities.


	Salary and/ or fees			Performance related compensation (€)		Number of stock, stock options and stock units granted		Non-equity incentive plan compensation or benefits in kind (€)		Pension, retirement or similar benefits (€)
Richard L. Clemmer		1,142,000	(1)		—		710,000		840,000		572,369
Sir Peter Bonfield		275,000	(1)		—		10,000		—		—
		6,000	(2)		—						—
Johannes P. Huth		91,000	(2)		—		10,000		—		—
Vikram Bhatia*		91,000	(2)		—		10,000		—		—
Nicolas Cattelain*		85,000	(2)		—		10,000		—		—
Egon Durban*		85,000	(2)		—		10,000		—		—
Kenneth A. Goldman		101,000	(2)		—		10,000		—		—
Josef Kaeser		91,000	(2)		—		10,000		—		—
Ian Loring		85,000	(2)		—		10,000		—		—
Michel Plantevin		99,000	(2)		—		10,000		—		—
Richard Wilson*		35,416	(2)		—		—		—		—
Roy MacKenzie*		49,584	(2)		—		10,000		—		—

Total:		1,417,000	(1)		—		810,000		840,000		572,369
		819,000	(2)

1)	in €

2)	in $

*	Mr. Richard Wilson resigned as non-executive director of the Company on May 30, 2012. Mr. Nicolas Cattelain resigned as nonexecutive director of the Company on May 30, 2013. On October 10, 2013, Mr. Vikram Bhatia, and on December 13, 2013, Messrs. Egon Durban and Roy MacKenzie, resigned as non-executive directors of the Company.

C. Board Practices

Management Structure

We have a one-tier board structure, consisting of an executive director and non-executive directors.

Powers, Composition and Function

The number of executive and non-executive directors is determined by the board of directors. The board of directors will consist of one executive director and nine non-executive directors. The executive director, Mr. Clemmer, has been appointed as our chief executive officer.

The appointment of the directors will be made by our general meeting of stockholders upon a binding nomination of the board of directors. A resolution to appoint a director nominated by the board of directors shall be adopted by a simple majority of the votes cast. The board of directors shall make a list of candidates containing the names of the nominated persons for each vacancy to be filled. The nomination shall state whether the director is proposed to be an executive or non-executive director. The general meeting of stockholders may at all times overrule the binding nature of such a nomination by a resolution adopted by at least a two thirds majority of the votes cast, provided such majority represents more than half of our issued share capital. The board of directors may then make a new nomination. If a nomination has not been made or has not been made in due time, this shall be stated in the notice and the general meeting of stockholders shall be free to appoint a director at its discretion. The latter resolution of the general meeting of stockholders must also be adopted by at least two thirds majority of the votes cast, provided such majority represents more than half of our issued share capital.

Under our articles of association and Dutch corporate law, the members of the board of directors are collectively responsible for the management, general and financial affairs and policy and strategy of our company. Our executive director will be responsible for the day-to-day management of the Company and for the preparation and execution of board resolutions, to the extent these tasks are not delegated to a committee of the board of directors. Our chief executive officer or all directors acting jointly may represent our company with third parties.

A conflict of interest between the Company and one or more of our directors is not expected to have any impact on the authority of directors to represent the Company. Under our board regulations, a conflict needs to be reported to the board of directors and the board of directors shall resolve on the consequences, if any. Effective per January 1, 2013, Dutch law, in case of a conflict, does not allow the directors concerned to participate in discussions or vote on such matters.

Our non-executive directors will supervise the executive director and our general affairs and provide general advice to the executive director. Furthermore the non-executive directors will perform such acts that are delegated to them pursuant to our articles of association or by our board regulation. One of the non-executive directors has been appointed as chairman of the board and another non-executive director has been appointed as vice-chairman of the board of directors.

Each director owes a duty to us to properly perform the duties assigned to him and to act in the corporate interest of our company. Under Dutch law, the corporate interest extends to the interests of all corporate stakeholders, such as stockholders, creditors, employees, customers and suppliers.

Our directors are appointed for one year and will be re-electable each year at the general meeting of stockholders. The members of our board of directors may be suspended or dismissed at any time by the general meeting of stockholders. A resolution to suspend or dismiss a director will have to be adopted by at least a two thirds majority of the votes cast, provided such majority represents more than half of our issued share capital and unless the proposal to suspend or dismiss a member of the board of directors is made by the board of directors itself, in which case resolutions shall be adopted by a simple majority of votes cast. Effective per January 1, 2013, Dutch law facilitates the suspension of executive directors by the board.

In the event that one or more directors are prevented from acting or in the case of a vacancy or vacancies for one or more directors, the board of directors remains properly constituted. The board of directors is expected to have the power, without prejudice to its responsibility, to cause our company to be represented by one or more attorneys. These attorneys shall have such powers as shall be assigned to them on or after their appointment and in conformity with our articles of association, by the board of directors.

The board of directors has adopted board regulations governing its performance, its decision making, its composition, the tasks and working procedure of the committees and other matters relating to the board of directors, the chief executive officer, the non-executive directors and the committees established by the board of directors. In accordance with our board regulations, resolutions of our board of directors will be adopted by a simple majority of votes cast in a meeting at which at least the majority of its members is present or represented. Each member of the board of directors has the right to cast one vote. In a tie vote, the proposal will be rejected.

Board Committees

While retaining overall responsibility, our board of directors has assigned certain of its tasks to permanent committees. Members of the permanent committees will be appointed by the board of directors. The board of directors will also determine the tasks of each committee. Our board of directors has established an audit committee and a nominating and compensation committee, each of which will have the responsibilities and composition described below:

	•		*Audit Committee.* Our audit committee consists of four independent non-executive directors, Messrs. Goldman and Kaeser and Dr. Helmes and Ms. Southern. Mr. Goldman, who is appointed as chairman of the audit committee, will qualify as an “audit committee financial expert” as such term is defined in Item 407(d)(5) of Regulation S-K and as determined by our board of directors. Our audit committee will assist the board of directors in supervising, monitoring and advising the board of directors on financial reporting, risk management, compliance with relevant legislation and regulations and our business code of conduct. It will oversee the preparation of our financial statements, our financial reporting process, our system of internal business controls and risk management, our internal and external audit process and our internal and external auditor’s qualifications, independence and performance. Our audit committee also will review our annual and interim financial statements and other public disclosures, prior to publication. At least once per year, the non-executive directors who are part of the audit committee will report their findings to the plenary board of directors. Our audit committee also recommends to our stockholders the appointment of external auditors. The external auditor will attend most meetings of the audit committee. The findings of the external auditor, the audit approach and the risk analysis are also discussed at these meetings.

	•		*Nominating and Compensation Committee.* Our nominating and compensation committee consists of three non-executive directors, Messrs. Huth and Plantevin and Sir Peter Bonfield, who is also an independent director. Mr. Plantevin is appointed as chairman of this committee. The nominating & compensation committee will determine selection criteria and appointment procedures for members of our board of directors, to periodically assess the scope and composition of our board of directors and to evaluate the performance of its individual members. It will be responsible for recommending to the board of directors the compensation package for our executive directors, with due observance of the remuneration policy adopted by the general meeting of stockholders. It will review employment

	contracts entered into with our executive directors, make recommendations to our board of directors with respect to major employment-related policies and oversee compliance with our employment and compensation-related disclosure obligations under applicable laws.

Limitation of Liability and Indemnification Matters

Unless prohibited by law in a particular circumstance, our articles of association require us to reimburse the members of the board of directors and the former members of the board of directors for damages and various costs and expenses related to claims brought against them in connection with the exercise of their duties. However, there shall be no entitlement to reimbursement if and to the extent that (i) a Dutch court has established in a final and conclusive decision that the act or failure to act of the person concerned may be characterized as willful (opzettelijk), intentionally reckless (bewust roekeloos) or seriously culpable (ernstig verwijtbaar) conduct, unless Dutch law provides otherwise or this would, in view of the circumstances of the case, be unacceptable according to standards of reasonableness and fairness, or (ii) the costs or financial loss of the person concerned are covered by an insurance and the insurer has paid out the costs or financial loss. We may enter into indemnification agreements with the members of the board of directors and our officers to provide for further details on these matters. We expect to purchase directors’ and officers’ liability insurance for the members of the board of directors and certain other officers, substantially in line with that purchased by similarly situated companies.

At present, there is no pending litigation or proceeding involving any member of the board of directors, officer, employee or agent where indemnification will be required or permitted. We are not aware of any threatened litigation or proceedings that might result in a claim for such indemnification.

Insofar as indemnification of liabilities arising under the Securities Act of 1933, as amended, may be permitted to members of the board of directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is therefore unenforceable.

D. Employees

The following table provides an overview of the number of full time employees we had per segment:


	As of December 31,
	2013		2012
High Performance Mixed Signal		3,128		3,065
Standard Products		1,864		1,960
Corporate and Other:
Manufacturing Operations		17,428		16,490
Central research and development		479		608
Sales and marketing		697		761
Information technology		307		333
Other shared services		1,761		1,914
Other		27		227

Total		25,691		25,358

The following table indicates the number of full time employees per geographic area:


	As of December 31,
	2013		2012
Europe and Africa		6,574		6,957
Americas		479		552
Greater China		7,335		7,243
Asia Pacific		11,303		10,606

Total		25,691		25,358

We have not experienced any material strikes or labor disputes in the past. A number of our employees are members of a labor union. In various countries, local law requires us to inform and consult with employee representatives on matters relating to labor conditions. We consider our employee relations to be good.

E. Share Ownership

Information with respect to share ownership of members of our board of directors is included in Part I, Item 7. Major Shareholders and Related Party Transactions and Notes 11 and 12 to our Consolidated Financial Statements, which are incorporated herein by reference. Information with respect to the grant of shares and stock options to employees is included in Note 13 to our Consolidated Financial Statements which are incorporated herein by reference. In order to maintain a strong alignment between the interests of NXP’s management and our shareholders, we have adopted an equity ownership policy for the President/CEO and the other members of our management team. The number of shares to be maintained by the members of our management team increases each time our shares are being delivered upon the vesting of stock options or other rights to our shares. The management team members are required to maintain a certain number of our shares until the time that he or she is no longer employed by us.

Previous: Item 4A. Unresolved Staff Comments · Next: Item 7. Major Shareholders and Related Party Transactions

Item 5. Operating and Financial Review and Prospects

Item 5. Operating and Financial Review and Prospects

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