Item 19. Exhibits

247K characters. Original on sec.gov · Markdown

Item 19. Exhibits

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Exhibit Number		Description of Document

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

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

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

4.1		Secured Term Credit Agreement dated March 4, 2011, as amended by (i) the Joinder and Amendment Agreement dated as of November 18, 2011, (ii) the New Term Loan Joinder Agreement dated as of February 16, 2012, (iii) the New Term Loan Joinder Agreement dated as of December 10, 2012, (iv) the 2013 New Term Loan Joinder Agreement dated as of November 27, 2013, and (v) the 2014 New Term Loan Joinder Agreement dated as of February 18, 2014, among NXP B.V. and NXP Funding LLC as borrowers, Barclays Bank PLC as Administrative Agent, Morgan Stanley Senior Funding, Inc. as Global Collateral Agent, Mizuho Corporate Bank, Ltd. as Taiwan Collateral Agent, and the lenders party thereto. (incorporated by reference to Exhibit 4.8 of the Form 20-F of NXP Semiconductors N.V. filed on March 13, 2012)

4.2		Secured Revolving Credit Agreement dated April 27, 2012, as amended by an Incremental Joinder Agreement dated as of October 29, 2012, among NXP Semiconductors N.V., NXP B.V. and NXP Funding LLC as borrower, Morgan Stanley Senior Funding, Inc. as Global Collateral Agent and Administrative Agent, Mizuho Corporate Bank, Ltd. as Taiwan Collateral Agent and the lenders party thereto. (incorporated by reference to Exhibit 4.10 of the Form 20-F of NXP Semiconductors N.V. filed on March 1, 2013)

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

4.4		Senior Unsecured Indenture dated as of March 12, 2013 among NXP B.V. and NXP Funding LLC as Issuers, each of the Guarantors named on the signature pages thereto and Deutsche Bank Trust Company Americas as Trustee (incorporated by reference to Exhibit 4.7 of the Form-20F of NXP Semiconductors N.V. filed on February 28, 2014)

4.5		Senior Unsecured Indenture dated as of May 20, 2013 among NXP B.V. and NXP Funding LLC as Issuers, each of the Guarantors named on the signature pages thereto and Deutsche Bank Trust Company Americas as Trustee (incorporated by reference to Exhibit 4.8 of the Form-20F of NXP Semiconductors N.V. filed on February 28, 2014)

4.6		Senior Unsecured Indenture dated as of September 24, 2013 among NXP B.V. and NXP Funding LLC as Issuers, each of the Guarantors named on the signature page thereto and Deutsche Bank Trust Company Americas as Trustee (incorporated by reference to Exhibit 4.9 of the Form-20F of NXP Semiconductors N.V. filed on February 28, 2014)

4.7		Senior Unsecured Indenture dated as of November 24, 2014 among NXP Semiconductors N.V. as Issuer and Deutsche Bank Trust Company Americas as Trustee (incorporated by reference to Exhibit 4.7 of the Form 20-F of NXP Semiconductors N.V. filed on March 6, 2015)

4.8		Support Agreement, dated as of March 1, 2015, by and among NXP Semiconductors N.V., Freescale Holdings L.P. and certain limited partners of Freescale Holdings L.P. (incorporated by reference to Exhibit 2 of the Form 6-K of NXP Semiconductors N.V. filed on March 3, 2015)

4.9		Commitment Letter, dated as of March 1, 2015, by and among NXP B.V., Credit Suisse Securities (USA) LLC and Credit Suisse AG, Cayman Islands Branch (incorporated by reference to Exhibit 3 of the Form 6-K of NXP Semiconductors N.V. filed on March 3, 2015)


Exhibit Number		Description of Document

4.10		Senior Unsecured Indenture dated June 9, 2015 among NXP B.V. and NXP Funding LLC as Issuers, each of the Guarantors named on the signature pages thereto and Deutsche Bank Trust Company Americas as Trustee (incorporated by reference to Exhibit 4.10 of the Form 20-F of NXP Semiconductors N.V. filed on February 26, 2016)

4.11		Secured Term Credit Agreement dated as of December 7, 2015 among NXP B.V. and NXP Funding LLC as Borrowers, the several lenders from time to time parties thereto, Morgan Stanley Senior Funding, Inc. as Collateral Agent, Credit Suisse AG as Administrative Agent, Credit Suisse Securities (USA) LLC, Morgan Stanley Senior Funding, Inc., Barclays Bank PLC, Deutsche Bank Securities Inc. and Bank of America, N.A. as Joint Lead Arrangers and Joint Bookrunners, and Goldman Sachs Lending Partners LLC, Citigroup Global Markets Limited and Coöperative Centrale Raiffeisen-Boerenleenbank B.A. as Co-Managers (incorporated by reference to Exhibit 2 of the Form 6-K of NXP Semiconductors N.V. filed on December 7, 2015)

4.12		Term Loan Guaranty Agreement dated as of December 7, 2015 among the guarantors listed on the signature pages thereto, Credit Suisse AG as Administrative Agent and Morgan Stanley Senior Funding, Inc. as Collateral Agent (incorporated by reference to Exhibit 3 of the Form 6-K of NXP Semiconductors N.V. filed on December 7, 2015)

4.13		RCF Agreement dated as of December 7, 2015 among NXP B.V. and NXP Funding LLC as Borrowers, the several lenders from time to time parties thereto, Morgan Stanley Senior Funding, Inc. as Collateral Agent, Morgan Stanley Senior Funding, Inc., as Administrative Agent, Citibank, N.A. as Letter of Credit Issuer, Credit Suisse Securities (USA) LLC, Morgan Stanley Senior Funding, Inc., Barclays Bank PLC, Deutsche Bank Securities Inc. and Bank of America N.A. as Joint Lead Arrangers and Joint Bookrunners, and Goldman Sachs Lending Partners LLC, Citigroup Markets Limited and Coöperative Centrale Raiffeisen-Boerenleenbank B.A. as Co-Managers (incorporated by reference to Exhibit 4 of the Form 6-K of NXP Semiconductors N.V. filed on December 7, 2015)

4.14		RCF Guaranty Agreement dated as of December 7, 2015 among NXP B.V., NXP Funding LLC and each of the the subsidiary guarantors listed on the signature pages thereto, Morgan Stanley Senior Funding, Inc. as Collateral Agent and Morgan Stanley Senior Funding, Inc. as Administrative Agent (incorporated by reference to Exhibit 5 of the Form 6-K of NXP Semiconductors N.V. filed on December 7, 2015)

4.15		Secured Bridge Term Credit Agreement dated as of December 7, 2015 among NXP B.V. and NXP Funding LLC as Borrowers, the lenders from time to time parties thereto, Morgan Stanley Senior Funding, Inc. as Collateral Agent and Credit Suisse AG as Administrative Agent (incorporated by reference to Exhibit 6 of the Form 6-K of NXP Semiconductors N.V. filed on December 7, 2015)

4.16		Bridge Loan Guaranty Agreement dated as of December 7, 2015 among NXP B.V., NXP Funding LLC and each of the subsidiary guarantors listed on the signature pages thereto, Morgan Stanley Senior Funding, Inc. as Collateral Agent and Credit Suisse AG as Administrative Agent (incorporated by reference to Exhibit 7 of the Form 6-K of NXP Semiconductors N.V. filed on December 7, 2015)

4.17		Supplemental Guaranty dated as of December 7, 2015 to the guarantee dated as of March 4, 2011 among NXP B.V., each of the Guarantors listed on the signature pages thereto, Barclays Bank PLC as Administrative Agent, Morgan Stanley Senior Funding, Inc. as Global Collateral Agent and Mizuho Corporate Ban, Ltd. as Taiwan Collateral Agent (incorporated by reference to Exhibit 10.4 of the Form 8-K of Freescale Semiconductor, Ltd. filed on December 7, 2015)

4.18		Amended and Restated 2021 Freescale Indenture dated as of December 7, 2015 among Freescale Semiconductor, Inc., the Guarantors listed on the signature pages thereto and the Bank of New York Mellon Trust Company, N.A. as Trustee (incorporated by reference to Exhibit 8 of the Form 6-K of NXP Semiconductors N.V. filed on December 7, 2015)

4.19		Amended and Restated 2022 Freescale Indenture dated as of December 7, 2015 among Freescale Semiconductor, Inc., the Guarantors listed on the signature pages thereto and Wells Fargo Bank, National Association as Trustee (incorporated by reference to Exhibit 9 of the Form 6-K of NXP Semiconductors N.V. filed on December 7, 2015)

4.20		Senior Indenture dated as of May 23, 2016, between NXP B.V. and NXP Funding LLC as Issuers, each of the guarantors party thereto and Deutsche Bank Trust Company Americas as Trustee (incorporated by reference to Exhibit 2 of the Form 6-K of NXP Semiconductors N.V. filed on August 2, 2016)

4.21		Senior Indenture dated as of August 11, 2016, among NXP B.V. and NXP Funding LLC as Issuers, each of the guarantors party thereto and Deutsche Bank Trust Company Americas as Trustee

4.22		2016 New Term Loan Joinder Agreement dated as of September 22, 2016, by and among the Tranche F Lenders defined therein, NXP B.V. and NXP Funding LLC as Borrowers and Credit Suisse AG as Administrative Agent

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

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


Exhibit Number		Description of Document

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

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

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

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

10.7		Agreement with regard to the Lease of Standard Plant Basements dated as of July 1, 2011 between the Export Processing Zone Administration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 4.8 of the Form-20F of NXP Semiconductors N.V. filed on February 28, 2014)

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

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

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

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

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

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

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

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


Exhibit Number		Description of Document

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

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

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

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

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

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

10.22		Agreement and Plan of Merger, dated as of March 1, 2015, by and among NXP Semiconductors N.V., Freescale Semiconductor, Ltd. and Nimble Acquisition Limited (incorporated by reference to Exhibit 1 of the Form 6-K of NXP Semiconductors N.V. filed on March 3, 2015) Long Term Incentive Plan 2012/3 Terms and Conditions with regard to the Stock Option Plan, the Performance Stock Unit Plan, Restricted Stock Unit Plan and Share Plan (incorporated by reference to Exhibit 10.22 of the Form-20F of NXP Semiconductors N.V. filed on March 1, 2013). Long Term Incentive Plan 2013/4 Terms and Conditions with regard to the Stock Option Plan, the Performance Stock Unit Plan and Restricted Stock Unit Plan (incorporated by reference to Exhibit 10.22 of the Form-20F of NXP Semiconductors N.V. filed on February 28, 2014). Long Term Incentive Plan 2014/5 Terms and Conditions with regard to the Stock Option Plan, the Performance Stock Unit Plan, the Restricted Stock Unit Plan and the Keep Restricted Stock Unit Plan (incorporated by reference to Exhibit 10.22 of the Form-20F of NXP Semiconductors N.V. filed on February 28, 2014). Long Term Incentive Plan 2015/6 Terms and Conditions with regard to the Stock Option Plan, the Performance Stock Unit Plan and the Restricted Stock Unit Plan (incorporated by reference to Exhibit 10.22 of the Form 20-F of NXP Semiconductors N.V. filed on February 26, 2016). Long Term Incentive Plan 2016/7 Terms and Conditions with regard to the Restricted Stock Unit Plan

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

10.24		Agreement and Plan of Merger, dated as of March 1, 2015, by and among NXP Semiconductors N.V., Freescale Semiconductor, Ltd. and Nimble Acquisition Limited (incorporated by reference to Exhibit 1 of the Form 6-K of NXP Semiconductors N.V. filed on March 3, 2015)

10.25		Shareholders’ agreement dated as of December 7, 2015 among NXP Semiconductors N.V., P4 Sub L.P. 1, Permira IV L.P. 2, Permira Investments Limited and P4 Co-Investment L.P. (incorporated by reference to Exhibit 10.25 of the Form 20-F of NXP Semiconductors N.V. filed on February 26, 2016)

10.26		Shareholders’ agreement dated as of December 7, 2015 among NXP Semiconductors N.V., Carlyle Partners IV Cayman, L.P., CPIV Coinvestment Cayman, L.P., Carlyle Asia Partners II, L.P., CAP II Co-Investment, L.P., CEP II Participations S.a.r.l. SICAR, Carlyle Japan Partners, L.P. and CJP Co-Investment, L.P. (incorporated by reference to Exhibit 10.26 of the Form 20-F of NXP Semiconductors N.V. filed on February 26, 2016)

10.27		Shareholders’ agreement dated as of December 7, 2015 among NXP Semiconductors N.V., Blackstone Capital Partners (Cayman) V L.P., Blackstone Capital Partners (Cayman) V-A L.P., BCP (Cayman) V-S L.P., BCP V Co-Investors (Cayman) L.P., Blackstone Firestone Transaction Participation Partners (Cayman) L.P., Blackstone Firestone Principal Transaction Partners (Cayman) L.P., Blackstone Family Investment Partnership (Cayman) V L.P., Blackstone Family Investment Partnership (Cayman) V-SMD L.P. and Blackstone Participation Partnership (Cayman) V L.P. (incorporated by reference to Exhibit 10.27 of the Form 20-F of NXP Semiconductors N.V. filed on February 26, 2016)

10.28		Shareholders’ agreement dated as of December 7, 2015 among NXP Semiconductors N.V., TPG Partners IV — AIV, L.P., TPG Partners V — AIV, L.P., and TPG FOF V-B, L.P. (incorporated by reference to Exhibit 10.28 of the Form 20-F of NXP Semiconductors N.V. filed on February 26, 2016)


Exhibit Number		Description of Document

10.29		Amendment, dated as of June 13, 2016, to the Shareholders Agreement dated as of December 7, 2015 among the Company and Blackstone Capital Partners (Cayman) V L.P., Blackstone Capital Partners (Cayman) V-A L.P., BCP (Cayman) V-S L.P., BCP V Co-Investors (Cayman) L.P., Blackstone Firestone Transaction Participation Partners (Cayman) L.P., Blackstone Firestone Principal Transaction Partners (Cayman) L.P., Blackstone Family Investment Partnership (Cayman) V L.P., Blackstone Family Investment Partnership (Cayman) V-SMD L.P. and Blackstone Participation Partnership (Cayman) V L.P. (incorporated by reference to Exhibit 1 of the Form 6-K of NXP Semiconductors N.V. filed on June 14, 2016)

10.30		Amendment, dated as of June 13, 2016, to the Shareholders Agreement dated as of December 7, 2015 among the Company and Carlyle Partners IV Cayman, L.P., CPIV Coinvestment Cayman, L.P., Carlyle Asia Partners II, L.P., CAP II Co-Investment, L.P., CEP II Participations S.a.r.l. SICAR, Carlyle Japan Partners, L.P. and CJP Co-Investment, L.P. (incorporated by reference to Exhibit 2 of the Form 6-K of NXP Semiconductors N.V. filed on June 14, 2016)

10.31		Amendment, dated as of June 13, 2016 to the Shareholders Agreement dated as of December 7, 2015 among the Company and P4 Sub L.P. 1, Permira IV L.P. 2, Permira Investments Limited and P4 Co-Investment L.P. (incorporated by reference to Exhibit 3 of the Form 6-K of NXP Semiconductors N.V. filed on June 14, 2016)

10.32		Amendment, dated as of June 13, 2016 to the Shareholders Agreement dated as of December 7, 2015 among the Company and TPG Partners IV — AIV, L.P., TPG Partners V — AIV, L.P., TPG FOF V-A, L.P. and TPG FOF V-B, L.P. (incorporated by reference to Exhibit 4 of the Form 6-K of NXP Semiconductors N.V. filed on June 14, 2016)

10.33		Sale and Purchase Agreement, dated June 14, 2016, between NXP B.V., Beijing Jianguang Asset Management Co., Ltd. and Wise Road Capital LTD

10.34		Purchase Agreement, dated October 27, 2016, by and between Qualcomm River Holdings B.V. and NXP Semiconductors N.V. (incorporated by reference to Exhibit 2 of the Form 6-K of NXP Semiconductors N.V. filed on October 27, 2016)

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

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

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

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

21.1		List of Significant Subsidiaries of the Registrant

23		Consent of KPMG Accountants N.V.

#	Confidential treatment previously requested and granted

GLOSSARY


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

AC-DC		Conversion of alternating current to direct current.

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

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

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

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

Bluetooth low energy		Bluetooth low energy (BLE) is a wireless computer network technology that, in comparison with “classic” Bluetooth, requires considerably less power and provides a similar communication range. BLE has been included in the majority of smart phones for the past couple of years, with its initial application as the communication between the smart phone and other personal devices like fitness trackers and head-sets. Recently also other applications like communication with light bulbs are emerging.

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

CATV		An abbreviation for cable television.

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

Chip		Semiconductor device.

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

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

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

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

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

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

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

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


eNVM		Embedded non-volatile memory (eNVM) offers broad areas of applications for MCU (microcontroller) in Automotive, Mobility, and Security markets with key advantages such as dense board designs with reduced number of parts, reduced system costs, reduced noise, higher system speed due to fast code access, in-system on-board re-programmability of code and data storage, lower power dissipation, improved reliability, and real-time control application.

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

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

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

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

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

Foundry		A semiconductor manufacturer that manufactures chips for third parties.

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

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

HDTMOS		High cell density TMOS (HDTMOS) is an advancement in power MOSFET technology that reduces power dissipation. This results in lower thermal generation and a reduction in the component’s total part count.

HPRF power amplifier		High power RF (HPRF) system mainly consists of RF power amplifiers and waveguide distribution system. RF power amplifiers produce RF energy and waveguides transmit this RF energy to the accelerator modules.

HSPA+		Evolved High-Speed Packet Access, or HSPA+, is a technical standard for wireless, broadband telecommunication with higher speeds for the end user that are comparable to the newer LTE networks.

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

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

ICN 6,8		NXP wafer fab facilities located in Nijmegen, Netherlands, processing 6” or 8” diameter wafers. As of end December 2014, only ICN 8 is still in use.

i.MX		i.MX applications processors are multicore ARM-based solutions for multimedia and display applications with scalability, high performance and low power capabilities.

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

IoT		The Internet of Things (IoT) is the network of physical objects—devices, vehicles, buildings and other items which are embedded with electronics, software, sensors and network connectivity, which enables these objects to collect and exchange data. The Internet of Things allows objects to be sensed and controlled remotely across existing network infrastructure, creating opportunities for more direct integration of the physical world into computer-based systems.

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

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

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

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

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


LTE		Long Term Evolution (LTE) is a 4G wireless broadband technology standard for wireless communication of high-speed data for mobile phones and data terminals, increasing the capacity and speed using a different radio interface together with core network improvements.

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

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

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

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

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

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

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

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

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

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

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

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

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

QorIQ		QorIQ processing platforms are complete system on chip (SoC) processors for networking applications across carrier, enterprise, military and industrial markets.

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

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

Radio Frequency Identification		An RF chip used for identification.

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

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

SoC		A system on a chip or system on chip (SoC) is an integrated circuit (IC) that integrates all components of a computer or other electronic system into a single chip. It may contain digital, analog, mixed-signal, and often radio-frequency functions—all on a single chip substrate.

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


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

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

SS Transistor		A small signal transistor.

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

TD-LTE		Time-division Long-Term Evolution (TD-LTE), is a 4G telecommunications technology and standard. It is one of two variants of the Long Term Evolution (LTE) technology standard.

TD-SCDMA		Time Division Synchronous Code Division Multiple Access (TD-SCDMA) is a 3G format of choice for the national standard of 3G mobile telecommunication in China.

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

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

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

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

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

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

ZigBee		ZigBee is a technology of data transfer in wireless networks. It has low energy consumption and is designed for multi-channel control systems, alarm systems, and lighting control. It also has other various home and industry applications.

SIGNATURES

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


				NXP Semiconductors N.V. (Registrant)

/s/ RICHARD L. CLEMMER				/s/ DANIEL DURN
Richard L. Clemmer				Daniel Durn
Chief Executive Officer (Principal Executive Officer)				Chief Financial Officer (Principal Financial and Accounting Officer)

Date: March 3, 2017

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

Consolidated Financial Statements


Report of Independent Registered Public Accounting Firm, KPMG Accountants N.V.			F-2
Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014			F-3
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014			F-4
Consolidated Balance Sheets as of December 31, 2016 and 2015			F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014			F-6
Consolidated Statements of Changes in Equity for the years ended December 31, 2016, 2015 and 2014			F-8
Notes to the Consolidated Financial Statements			F-9

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

NXP Semiconductors N.V.:

We have audited the accompanying consolidated balance sheets of NXP Semiconductors N.V. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income, cash flows, and changes in equity for each of the years in the three-year period ended December 31, 2016. We also have audited NXP Semiconductors N.V.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). NXP Semiconductors N.V.’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

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

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NXP Semiconductors N.V. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, NXP Semiconductors N.V. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).


/s/ KPMG Accountants N.V.
Amstelveen, the Netherlands
March 3, 2017

F-2

NXP Semiconductors N.V.

Consolidated Statements of Operations


($ in millions, unless otherwise stated)	For the years ended December 31,
	2016			2015			2014
Revenue		9,498			6,101			5,647
Cost of revenue		(5,429	)		(3,314	)		(3,007	)

Gross profit		4,069			2,787			2,640

Research and development		(1,560	)		(890	)		(763	)
Selling, general and administrative		(1,141	)		(922	)		(686	)
Amortization of acquisition-related intangible assets		(1,527	)		(223	)		(152	)
Other income (expense)		9			1,263			10

Operating income (loss)		(150	)		2,015			1,049

Financial income (expense):
Extinguishment of debt		(32	)		—			(3	)
Other financial income (expense)		(421	)		(529	)		(407	)

Income (loss) before income taxes		(603	)		1,486			639

Benefit (provision) for income taxes		851			104			(40	)
Results relating to equity-accounted investees		11			9			8

Net income (loss)		259			1,599			607

Less: Net income (loss) attributable to non-controlling interests		59			73			68

Net income (loss) attributable to stockholders		200			1,526			539

Earnings per share data:
Net income (loss) per common share attributable to stockholders in $:
– Basic		0.59			6.36			2.27
– Diluted		0.58			6.10			2.17

Weighted average number of shares of common stock outstanding during the year (in thousands):
– Basic		338,477			239,764			237,954
– Diluted		347,607			250,116			248,609

See accompanying notes to the consolidated financial statements.

F-3

NXP Semiconductors N.V.

Consolidated Statements of Comprehensive Income


($ in millions, unless otherwise stated)	For the years ended December 31,
	2016			2015			2014
Net income (loss)		259			1,599			607

Other comprehensive income (loss), net of tax:
Change in net investment hedge		—			(190	)		(214	)
Change in fair value cash flow hedges *		—			—			2
Change in foreign currency translation adjustment		(124	)		131			140
Change in net actuarial gain (loss)		(27	)		31			(66	)
Change in net unrealized gains (losses) available-for-sale securities		4			(1	)		1

Total other comprehensive income (loss)		(147	)		(29	)		(137	)

Total comprehensive income (loss)		112			1,570			470

Less: Comprehensive income (loss) attributable to non-controlling interests		59			73			68

Total comprehensive income (loss) attributable to stockholders		53			1,497			402

*	Reclassification adjustments included in Cost of revenue in the Consolidated Statements of Operations.

See accompanying notes to the consolidated financial statements.

F-4

NXP Semiconductors N.V.

Consolidated Balance Sheets


($ in millions, unless otherwise stated)	As of December 31,
	2016			2015
Assets
Current assets:
Cash and cash equivalents		1,894			1,614
Accounts receivables, net		1,033			1,047
Assets held for sale		1,104			15
Inventories, net		1,113			1,879
Other current assets		254			257

Total current assets		5,398			4,812

Non-current assets:
Other non-current assets		962			602
Property, plant and equipment, net		2,352			2,922
Identified intangible assets, net		7,343			8,790
Goodwill		8,843			9,228

Total non-current assets		19,500			21,542

Total assets		24,898			26,354

Liabilities and equity
Current liabilities:
Accounts payable		973			1,014
Liabilities held for sale		198			—
Restructuring liabilities - current		129			197
Accrued liabilities		712			781
Short-term debt		421			556

Total current liabilities		2,433			2,548

Non-current liabilities:
Long-term debt		8,766			8,656
Restructuring liabilities		22			43
Deferred tax liabilities		1,659			2,293
Other non-current liabilities		862			1,011

Total non-current liabilities		11,309			12,003

Equity:
Non-controlling interests		221			288
Stockholders’ equity:
Preferred stock, par value €0.20 per share:
Authorized: 645,754,500 (2015: 645,754,500 shares)
Issued: none
Common stock, par value €0.20 per share:
Authorized: 430,503,000 shares (2015: 430,503,000 shares)
Issued and fully paid: 346,002,862 shares (2015: 346,002,862 shares)		71			68
Capital in excess of par value		15,679			15,150
Treasury shares, at cost:
10,609,980 shares (2015: 3,998,982 shares)		(915	)		(342	)
Accumulated other comprehensive income (loss)		34			181
Accumulated deficit		(3,934	)		(3,542	)

Total Stockholders’ equity		10,935			11,515

Total equity		11,156			11,803

Total liabilities and equity		24,898			26,354

See accompanying notes to the consolidated financial statements.

F-5

NXP Semiconductors N.V.

Consolidated Statements of Cash Flows


($ in millions, unless otherwise stated)	For the years ended December 31,
	2016			2015			2014
Cash flows from operating activities:
Net income (loss)		259			1,599			607

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization		2,205			517			405
Share-based compensation		338			216			133
Excess tax benefits from share-based compensation plans		(5	)		—			—
Change in fair value of warrant liability		—			31			2
Amortization of discount on debt		34			39			3
Amortization of debt issuance costs		16			11			13
Net (gain) loss on sale of assets		(11	)		(1,263	)		(10	)
(Gain) loss on extinguishment of debt		32			—			3
Results relating to equity-accounted investees		(11	)		(9	)		(8	)
Changes in deferred taxes		(925	)		(168	)		1
Changes in operating assets and liabilities:
(Increase) decrease in receivables and other current assets		(51	)		(78	)		(111	)
(Increase) decrease in inventories		568			82			(42	)
Increase (decrease) in accounts payable and accrued liabilities		(156	)		127			222
Decrease (increase) in other non-current assets		5			30			13
Exchange differences		15			193			246
Other items		(10	)		3			(9	)

Net cash provided by (used for) operating activities		2,303			1,330			1,468

Cash flows from investing activities:
Purchase of identified intangible assets		(59	)		(12	)		(36	)
Capital expenditures on property, plant and equipment		(389	)		(341	)		(329	)
Proceeds from disposals of property, plant and equipment		1			7			4
Proceeds from disposals of assets held for sale		—			—			6
Purchase of interests in businesses, net of cash acquired		(202	)		(1,692	)		(8	)
Proceeds from sale of interests in businesses, net of cash divested		20			1,605			1
Proceeds from return of equity investment		—			1			—
Other		2			2			(25	)

Net cash provided by (used for) investing activities		(627	)		(430	)		(387	)

Cash flows from financing activities:
Net (repayments) borrowings of short-term debt		(6	)		(2	)		(17	)
Amounts drawn under the revolving credit facility		200			—			800
Repayments under the revolving credit facility		(200	)		—			(950	)
Repurchase of long-term debt		(3,295	)		(3,586	)		(92	)
Principal payments on long-term debt		(38	)		(32	)		(15	)
Proceeds from the issuance of long-term debt		3,259			3,680			1,150
Cash paid for debt issuance costs		(26	)		(32	)		(16	)
Proceeds from the sale of warrants		—			—			134
Cash paid for Notes hedge derivatives		—			—			(208	)
Dividends paid to non-controlling interests		(126	)		(51	)		(50	)
Cash proceeds from exercise of stock options		115			51			145
Purchase of treasury shares		(1,280	)		(475	)		(1,435	)
Hold-back payments on prior acquisitions		—			(2	)		—
Excess tax benefits from share-based compensation plans		5			—			—

Net cash provided by (used for) financing activities		(1,392	)		(449	)		(554	)

Effect of changes in exchange rates on cash positions		(4	)		(22	)		(12	)

Increase (decrease) in cash and cash equivalents		280			429			515
Cash and cash equivalents at beginning of period		1,614			1,185			670

Cash and cash equivalents at end of period		1,894			1,614			1,185

See accompanying notes to the consolidated financial statements.

F-6

NXP Semiconductors N.V.

Consolidated Statements of Cash Flows (Continued)


($ in millions, unless otherwise stated)	For the years ended December 31,
	2016			2015			2014
Supplemental disclosures to the consolidated cash flows

Net cash paid during the period for:
Interest		348			172			138
Income taxes		67			40			24

Net gain (loss) on sale of assets:
Cash proceeds from the sale of assets		21			1,612			11
Book value of these assets		(10	)		(349	)		(10	)
Non-cash gains (losses)		—			—			9

		11			1,263			10
Non-cash investing and financing information:
Assets received in lieu of cash from the sale of businesses:
Fair value of available-for-sale securities		—			—			9
Issuance of common stock for business combinations		—			9,686			—
Exchange of Term Loan B for Term Loan F		1,422			—			—
Exchange of Term Loan A1 for Term Loan E		—			—			400

See accompanying notes to the consolidated financial statements.

F-7

NXP Semiconductors N.V.

Consolidated Statements of Changes in Equity

For the years ended December 31, 2016, 2015 and 2014


($ in millions, unless otherwise stated)	Outstanding number of shares (in thousands)			Common stock		Capital in excess of par value		Treasury shares at cost			Accumulated other comprehensive income (loss)			Accumulated deficit			Total stockholders’ equity			Non- controlling interests			Total equity
Balance as of December 31, 2013		247,581			51		6,175		(167	)		347			(5,105	)		1,301			245			1,546

Net income (loss)															539			539			68			607
Other comprehensive income												(137	)					(137	)					(137	)
Share-based compensation plans							125											125						125
Treasury shares		(23,246	)						(1,435	)								(1,435	)					(1,435	)
Shares issued pursuant to stock awards		8,245							383						(238	)		145						145
Dividends non-controlling interests																					(50	)		(50	)

Balance as of December 31, 2014		232,580			51		6,300		(1,219	)		210			(4,804	)		538			263			801

Net income (loss)															1,526			1,526			73			1,599
Other comprehensive income												(29	)					(29	)					(29	)
Share-based compensation plans							218											218						218
Treasury shares		(5,336	)						(475	)								(475	)					(475	)
Shares issued pursuant to stock awards		5,008							315						(264	)		51						51
Issuance of common stock for business combination, net of issuance costs		109,751			17		8,632		1,037									9,686						9,686
Dividends non-controlling interests																					(51	)		(51	)
Changes in participation																					3			3

Balance as of December 31, 2015		342,003			68		15,150		(342	)		181			(3,542	)		11,515			288			11,803

Net income (loss)															200			200			59			259
Other comprehensive income												(147	)					(147	)					(147	)
Reclassification of Warrants							168											168						168
Share-based compensation plans							336											336						336
Excess tax benefits from share-based compensation plans							21											21						21
Treasury shares		(15,538	)						(1,280	)								(1,280	)					(1,280	)
Shares issued pursuant to stock awards		8,927							707						(592	)		115						115
Dividends non-controlling interests																					(126	)		(126	)
Other					3		4											7						7

Balance as of December 31, 2016		335,392			71		15,679		(915	)		34			(3,934	)		10,935			221			11,156

See accompanying notes to the consolidated financial statements.

F-8

NXP Semiconductors N.V.

Notes to the Consolidated Financial Statements

All amounts in millions of $ unless otherwise stated

1 The Company

NXP Semiconductors N.V. (including our subsidiaries, referred to collectively herein as “NXP”, “NXP Semiconductors”, “we”, “our”, “us” and the “Company”) is a global semiconductor company incorporated in the Netherlands as a Dutch public company with limited liability (naamloze vennootschap). We provide leading High Performance Mixed Signal and Standard Product solutions that leverage our deep application insight and our technology and manufacturing expertise in radio frequency, analog, power management, interface, security and digital processing products. Our product solutions are used in a wide range of application areas including: automotive, identification, wireless infrastructure, lighting, industrial, mobile, consumer, computing and software solutions for mobile phones.

On December 7, 2015, we acquired Freescale Semiconductor, Ltd. (“Freescale”). The results presented in the Consolidated Financial Statements and Notes to the Consolidated Financial Statements include Freescale’s results of operations for the periods of December 7, 2015 through December 31, 2015 and 2016 (the “Post-Merger Period”).

On October 27, 2016, NXP entered into a purchase agreement (the “Purchase Agreement”) with Qualcomm River Holdings B.V. (“Buyer”), a wholly-owned, indirect subsidiary of Qualcomm Incorporated. Pursuant to the Purchase Agreement, Buyer commenced a tender offer to acquire all of the issued and outstanding common shares of NXP for $110 per share in cash, for estimated total cash consideration of $38 billion. The tender offer is not subject to any financing condition. An Extraordinary General Meeting of NXP’s shareholders was convened on January 27, 2017, in connection with the offer where the shareholders of NXP approved all resolutions brought before them, with 95% of the votes cast in favor of each such resolution. In light of the foregoing, the tender offer is now conditioned on the tender of 80% of the outstanding shares of NXP, and Buyer, with NXP’s prior written consent (not to be unreasonably withheld, conditioned or delayed), may reduce the required threshold to a percentage not less than 70% of the outstanding shares. Pending the receipt of certain regulatory approvals, as well as satisfaction of other customary closing conditions, the proposed transaction is expected to close by the end of calendar 2017.

The Purchase Agreement contains certain termination rights for NXP and Buyer. If the Purchase Agreement is terminated under certain circumstances, including termination by NXP to enter into a superior proposal for an alternative acquisition transaction or a termination following a change of recommendation by the NXP Board, NXP will be obligated to pay to Buyer a termination compensation equal to $1.25 billion in cash. If the Purchase Agreement is terminated under certain circumstances, including circumstances relating to the failure to obtain antitrust approvals or failure to complete in all material respects certain internal reorganization steps and related dispositions with respect to NXP, Buyer will be obligated to pay to NXP a termination compensation equal to $2 billion in cash.

2 Significant Accounting Policies

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

All intercompany balances and transactions have been eliminated in the Consolidated Financial Statements. Net income (loss) includes the portion of the earnings of subsidiaries applicable to non-controlling interests. The income (loss) and equity attributable to non-controlling interests are disclosed separately in the consolidated statements of operations and in the consolidated balance sheets under non-controlling interests.

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

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

F-9

Fair value measurements

Fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for an identical asset or liability, we develop assumptions based on market observable data and, in the absence of such data, utilize internal information that we consider to be consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Priority is given to observable inputs. These two types of inputs form the basis for the following fair value hierarchy.

	•		Level 1: Quoted prices for identical assets or liabilities in active markets.

	•		Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and valuations based on models where the inputs or significant value drives are observable, either directly or indirectly.

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

Foreign currencies

The Company uses the U.S. dollar as its reporting currency. As of January 1, 2016, as a result of the acquisition of Freescale, NXP has concluded that the functional currency of the holding company is the U.S. dollar. Prior to January 1, 2016, the functional currency of the holding company (defined as NXP Semiconductors N.V. and NXP B.V.) was the euro. For consolidation purposes, the financial statements of the entities within the Company with a functional currency other than the U.S. dollar, are translated into U.S. dollars. Assets and liabilities are translated using the exchange rates on the applicable balance sheet dates. Income and expense items in the statements of operations, statements of comprehensive income and statements of cash flows are translated at monthly exchange rates in the periods involved.

The effects of translating the financial position and results of operations from functional currencies to reporting currency are recognized in other comprehensive income and presented as a separate component of accumulated other comprehensive income (loss) within stockholder’s equity. If the operation is a non-wholly owned subsidiary, then the relevant proportionate share of the translation difference is recorded under non-controlling interests.

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


	$ per € 1
	period end		average(1)		high		low
2016		1.0474		1.1065		1.0474		1.1423
2015		1.0915		1.1150		1.0869		1.2155
2014		1.2155		1.3262		1.2155		1.3857

(1)	The average of the noon-buying rate at the end of each fiscal month during the period presented.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of operations, except when the foreign exchange exposure is part of a qualifying cash flow or net investment hedge accounting relationship, in which case the related foreign exchange gains and losses are recognized directly in other comprehensive income to the extent that the hedge is effective and presented as a separate component of accumulated other comprehensive income (loss) within stockholders’ equity. To the extent that the hedge is ineffective, such differences are recognized in the statement of operations. Currency gains and losses on intercompany loans that have the nature of a permanent investment are recognized as translation differences in other comprehensive income and are presented as a separate component of accumulated other comprehensive income (loss) within equity.

Derivative financial instruments including hedge accounting

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

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

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

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

F-10

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

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

When cash flow hedge accounting is discontinued because it is not probable that a forecasted transaction will occur within a period of two months from the originally forecasted transaction date, the Company continues to carry the derivative on the consolidated balance sheets at its fair value, and gains and losses that were accumulated in other comprehensive income are recognized immediately in earnings. In situations in which hedge accounting is discontinued, the Company continues to carry the derivative at its fair value on the consolidated balance sheets, and recognizes any changes in its fair value in earnings.

The gross notional amounts of the Company’s foreign currency derivatives were $789 million at December 31, 2016 (2015: $213 million).

The gross notional amounts by currency were as follows:


	2016		2015
Euro		459		4
Chinese renminbi		45		(28	)
Japanese yen		35		26
Malaysian ringgit		73		60
Taiwan dollar		94		78
Thai baht		43		30
Other		40		43

		789		213

Cash and cash equivalents

Cash and cash equivalents include all cash balances and short-term highly liquid investments with a maturity of three months or less at acquisition that are readily convertible into known amounts of cash. Cash and cash equivalents are stated at face value which approximates fair value.

Receivables

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

Inventories

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

Property, plant and equipment

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

F-11

Goodwill

We record goodwill when the purchase price of an acquisition exceeds the fair value of the net tangible and identified intangible assets acquired. We assign the goodwill to our reporting units based on the relative expected fair value provided by the acquisition. We perform an annual impairment assessment in the fourth quarter of each year, or more frequently if indicators of potential impairment exist, which includes evaluating qualitative and quantitative factors to assess the likelihood of an impairment of a reporting unit’s goodwill. We perform impairment tests using a fair value approach when necessary. The reporting unit’s carrying value used in an impairment test represents the assignment of various assets and liabilities, excluding certain corporate assets and liabilities, such as cash, investments and debt.

Identified intangible assets

Licensed technology and patents are generally amortized on a straight-line basis over the periods of benefit. We amortize all acquisition-related intangible assets that are subject to amortization over their estimated useful life based on economic benefit. Acquisition-related in-process R&D assets represent the fair value of incomplete R&D projects that had not reached technological feasibility as of the date of acquisition; initially, these assets are not subject to amortization. Assets related to projects that have been completed are subject to amortization, while assets related to projects that have been abandoned are impaired and expensed to R&D. In the quarter following the period in which identified intangible assets become fully amortized, we remove the fully amortized balances from the gross asset and accumulated amortization amounts.

We perform a quarterly review of finite-lived identified intangible assets to determine whether facts and circumstances indicate that the useful live is shorter than we had originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, we assess recoverability by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If an asset’s useful life is shorter than originally estimated, we accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life. We perform an annual impairment assessment in the fourth quarter of each year for indefinite-lived intangible assets, or more frequently if indicators of potential impairment exist, to determine whether it is more likely than not that the carrying value of the assets may not be recoverable. If necessary, a quantitative impairment test is performed to compare the fair value of the indefinite-lived intangible asset with its carrying value. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets.

Research and development

Costs of research and development are expensed in the period in which they are incurred, except for in-process research and development assets acquired in business combinations, which are capitalized and, after completion, are amortized over their estimated useful lives.

Advertising

Advertising costs are expensed when incurred.

Debt issuance costs

Direct costs incurred to obtain financings are capitalized and subsequently amortized over the term of the debt using the effective interest rate method. Upon extinguishment of any related debt, any unamortized debt issuance costs are expensed immediately.

Revenue recognition

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

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or the service has been provided, the sales price is fixed or determinable, and collection is reasonably assured, based on the terms and conditions of the sales contract. For made-to-order sales, these criteria are met at the time the product is shipped and delivered to the customer and title and risk have passed to the customer. Acceptance of the product by the customer is generally not contractually required, since, for made-to-order customers, design approval occurs before manufacturing and subsequently delivery follows without further acceptance protocols. Payment terms used are those that are customary in the particular geographic market. When management has established that all aforementioned conditions for revenue recognition have been met, revenue is recognized.

F-12

For sales to distributors, revenue is recognized upon sale to the distributor (sell-in accounting). The same recognition principles apply and similar terms and conditions as for sales to other customers are applied. However, for some distributors contractual arrangements are in place, which allow these distributors to return products if certain conditions are met. These conditions generally relate to the time period during which a return is allowed and reflect customary conditions in the particular geographic market. Other return conditions relate to circumstances arising at the end of a product life cycle, when certain distributors are permitted to return products purchased during a pre-defined period after the Company has announced a product’s pending discontinuance. However, long notice periods associated with these announcements prevent significant amounts of product from being returned. Repurchase agreements with OEMs or distributors are not entered into by the Company.

Distributor reserves estimate the impact of credits granted to distributors under certain programs common in the semiconductor industry whereby distributors receive certain price adjustments to meet individual competitive opportunities, or are allowed to return or scrap a limited amount of product in accordance with contractual terms agreed upon with the distributor, or receive price protection credits when our standard published prices are lowered from the price the distributor paid for product still in its inventory. The Company’s policy is to use a rolling historical experience rate, as well as a prospective view of products and pricing in the distribution channel for distributors who participate in our volume rebate incentive program, in order to estimate the proper provision for this program at the end of any given reporting period. We continually monitor the actual claimed allowances against our estimates, and we adjust our estimates as appropriate to reflect trends in pricing environments and inventory levels. Distributor reserves are also adjusted when recent historical data does not represent anticipated future activity.

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

Revenue is recorded net of sales taxes, customer discounts, rebates and other contingent discounts granted to distributors. We include shipping charges billed to customers in revenue and include the related shipping costs in cost of revenue.

Restructuring

The provision for restructuring relates to the estimated costs of initiated restructurings that have been approved by Management. When such plans require discontinuance and/or closure of lines of activities, the anticipated costs of closure or discontinuance are recorded at fair value when the liability has been incurred. The Company determines the fair value based on discounted projected cash flows in the absence of other observable inputs such as quoted prices. The restructuring liability includes the estimated cost of termination benefits provided to former or inactive employees after employment but before retirement, costs to terminate leases and other contracts, and selling costs associated with assets held for sale and other costs related to the closure of facilities. One-time employee termination benefits are recognized ratably over the future service period when those employees are required to render services to the Company, if that period exceeds 60 days or a longer legal notification period. However, generally, employee termination benefits are covered by a contract or an ongoing benefit arrangement and are recognized when it is probable that the employees will be entitled to the benefits and the amounts can be reasonably estimated.

Financial income and expense

Financial income and expense is comprised of interest income on cash and cash equivalent balances, the interest expense on borrowings, the accretion of the discount or premium on issued debt, the gain or loss on the disposal of financial assets, impairment losses on financial assets and gains or losses on hedging instruments recognized in the statement of operations. For periods prior to January 1, 2016, the mark-to-market of our warrant liability and foreign exchange results on our U.S. dollar denominated debt that resides in a Euro entity were also included. As of January 1, 2016, as a result of the acquisition of Freescale, NXP concluded that the functional currency of the holding company is USD. Beginning from January 1, 2016, the warrants are classified in stockholders’ equity, and mark-to-market accounting is no longer applicable. In addition our U.S. dollar-denominated notes, term loans and RCF agreements are no longer re-measured.

Borrowing costs that are not directly attributable to the acquisition, construction or production of property, plant and equipment are recognized in the statement of operations using the effective interest method.

Income taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts. Measurement of deferred tax assets and liabilities is based upon the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax liabilities for income taxes or withholding taxes on dividends from subsidiaries are recognized in situations where the company does not consider the earnings indefinitely reinvested and to the extent that the withholding taxes are not expected to be refundable.

Deferred tax assets, including assets arising from loss carryforwards, are recognized, net of a valuation allowance, if based upon the available evidence it is more likely than not that the asset will be realized.

F-13

The income tax benefit from an uncertain tax position is recognized only if it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authorities. The income tax benefit recognized is measured based on the largest benefit that is more than 50 percent likely to be realized upon resolution of the uncertainty. The liability for unrecognized tax benefits and the related interest and penalties is recorded under accrued liabilities and other non-current liabilities in the balance sheet based on the timing of the expected payment. Penalties are recorded as income tax expense, whereas interest is reported as financial expense in the statement of operations.

The Company recognizes windfall tax benefits associated with share-based awards directly to stockholders’ equity when realized. A windfall tax benefit occurs when the actual tax benefit realized by the Company upon an employee’s disposition of a share-based award exceeds the deferred tax asset, if any, associated with the award that the Company had recorded. The Company records windfall tax benefits to stockholders’ equity. A shortfall occurs when the actual tax benefit realized by the Company upon an employee’s disposition of a share-based award is less than the deferred tax asset, if any, associated with the award that the Company has recorded. The Company records shortfall tax detriments when realized to stockholders’ equity to the extent that previous windfall tax benefits exist (referred to as the APIC windfall pool), with any remainder recognized in income tax expense. When assessing whether a tax benefit relating to share-based compensation has been realized, the Company follows the tax law ordering method, under which current year share-based compensation deductions are assumed to be utilized before net operating loss carryforwards and other tax attributes.

Postretirement benefits

The Company’s employees participate in pension and other postretirement benefit plans in many countries. The costs of pension and other postretirement benefits and related assets and liabilities with respect to the Company’s employees participating in the various plans are based upon actuarial valuations.

Some of the Company’s defined-benefit pension plans are funded with plan assets that have been segregated and restricted in a trust, foundation or insurance company to provide for the pension benefits to which the Company has committed itself.

The net liability or asset recognized in the balance sheet in respect of the postretirement plans is the present value of the projected benefit obligation less the fair value of plan assets at the balance sheet date. Most of the Company’s plans are unfunded and result in a provision or a net liability.

For the Company’s major plans, the discount rate is derived from market yields on high quality corporate bonds. Plans in countries without a deep corporate bond market use a discount rate based on the local government bond rates.

Benefit plan costs primarily represent the increase in the actuarial present value of the obligation for benefits based on employee service during the year and the interest on this obligation in respect of employee service in previous years, net of the expected return on plan assets and net of employee contributions.

Actuarial gains and losses arise mainly from changes in actuarial assumptions and differences between actuarial assumptions and what has actually occurred. They are recognized in the statement of operations, over the expected average remaining service periods of the employees only to the extent that their net cumulative amount exceeds 10% of the greater of the present value of the obligation or of the fair value of plan assets at the end of the previous year (the corridor). Events which invoke a curtailment or a settlement of a benefit plan will be recognized in our statement of operations.

In calculating obligation and expense, the Company is required to select actuarial assumptions. These assumptions include discount rate, expected long-term rate of return on plan assets, assumed health care trend rates and rates of increase in compensation costs determined based on current market conditions, historical information and consultation with and input from our actuaries. Changes in the key assumptions can have a significant impact to the projected benefit obligations, funding requirements and periodic cost incurred.

Unrecognized prior-service costs related to the plans are amortized to the statements of operations over the average remaining service period of the active employees.

Contributions to defined-contribution and multi-employer pension plans are recognized as an expense in the statements of operations as incurred.

The Company determines the fair value of plan assets based on quoted prices or comparable prices for non-quoted assets. For a defined-benefit pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement defined benefit plan it is the accumulated postretirement benefit obligation.

The Company recognizes as a component of other comprehensive income, net of taxes, the gains or losses and prior service costs that arise during the year but are not recognized as a component of net periodic benefit cost. Amounts recognized in accumulated other comprehensive income, including the gains or losses and the prior services costs are adjusted as they are subsequently recognized as components of net periodic benefit costs.

For all of the Company’s postretirement benefit plans, the measurement date is December 31, our year-end.

F-14

Share-based compensation

We recognize compensation expense for all share-based awards based on the grant-date estimated fair values, net of an estimated forfeiture rate. We use the Black-Scholes option pricing model to determine the estimated fair value for certain awards. Share-based compensation cost for restricted share units (“RSU”s) with time-based vesting is measured based on the closing fair market value of our common stock on the date of the grant, reduced by the present value of the estimated expected future dividends, and then multiplied by the number of RSUs granted. Share-based compensation cost for performance-based share units (“PSU”s) granted with performance or market conditions is measured using a Monte Carlo simulation model on the date of grant.

The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service periods in our Consolidated Statements of Operations. For stock options and RSUs, the grant-date value, less estimated pre-vest forfeitures, is expensed on a straight-line basis over the vesting period. PSUs are expensed using a graded vesting schedule. The vesting period for stock options is generally four years, for RSUs is generally three years and PSUs is one to three years.

Earnings per share

Basic earnings per share attributable to stockholders is calculated by dividing net income or loss attributable to stockholders of the Company by the weighted average number of common shares outstanding during the period.

To determine diluted share count, we apply the treasury stock method to determine the dilutive effect of outstanding stock option shares, RSUs, PSUs and Employee Stock Purchase Plan (“ESPP”) shares. Under the treasury stock method, the amount the employee must pay for exercising share-based awards, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of excess tax benefits that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares.

Concentration of risk

Financial instruments, including derivative financial instruments, that may potentially subject NXP to concentrations of credit risk, consist principally of cash and cash equivalents, short-term investments, long-term investments, accounts receivable and forward contracts.

We sell our products to OEMs and to distributors in various markets, who resell these products to OEMs, or their subcontract manufacturers. One of our distributors accounted for 13% of our revenue in 2016, 14% in 2015 and 13% in 2014 and one other distributor accounted for less than 10% of our revenue in 2016, 14% in 2015 and 13% in 2014. No other distributor accounted for greater than 10% of our revenue for 2016, 2015 or 2014. No individual OEM for which we had direct sales to accounted for more than 10% of our revenue for 2016, 2015 or 2014.

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

NXP is party to certain hedge transactions related to its 2019 Cash Convertible Senior Notes. NXP is subject to the risk that the counterparties to these transactions may not be able to fulfill their obligations under these hedge transactions.

NXP purchased options and issued warrants to hedge potential cash payments in excess of the principal and contractual interest related to its 2019 Cash Convertible Senior Notes, which were issued during fiscal 2014. The 2019 Cash Convertible Senior Note hedges are adjusted to fair value each reporting period and unrealized gains and losses are reflected in NXP’s Consolidated Statements of Operations. Because the fair value of the 2019 Cash Convertible Senior Notes embedded conversion derivative and the 2019 Cash Convertible Senior Notes hedges are designed to have similar offsetting values, there was no impact to NXP’s Consolidated Statements of Operations relating to these adjustments to fair value.

The Company is using outside suppliers or foundries for a portion of its manufacturing capacity.

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

Accounting standards adopted in 2016

In April 2015, the FASB issued ASU No. 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. Under this standard, if a cloud computing arrangement includes a software license, the software license element of the arrangement should be accounted for consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract. The new standard became effective for us on January 1, 2016. The adoption of this standard did not have a significant impact on our financial position or results of operations.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The new standard requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined and sets forth new disclosure requirements related to the adjustments. The new standard became effective for us on January 1, 2016. The adoption of this standard did not have a significant impact on our financial position or results of operations.

F-15

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740), which changes how deferred taxes are classified on our balance sheets and is effective for financial statements issued for annual periods beginning after December 15, 2016, with early adoption permitted. ASU 2015-17 requires all deferred tax assets and liabilities to be classified as non-current. The Company adopted this standard as of January 1, 2016 with prospective application. The adoption of this standard did not have a significant impact on our financial position. Prior periods were not retrospectively adjusted.

New standards to be adopted after 2016

In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. The standard permits the use of either the retrospective or cumulative effect transition method, and we are currently evaluating the method of adoption. The Company is still in the process of completing its analysis on the impact of this guidance, at this time, with the consideration that the Company currently recognizes distributor revenue based on sell-in accounting, the Company does not expect the adoption of Topic 606 to have a material impact on our financial position and results of operations.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10). The new standard requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The new standard will be effective for us on January 1, 2018. The expected adoption method of ASU 2016-01 is being evaluated by the Company and the adoption is not expected to have a significant impact on our financial position or results of operations.

In February, 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. Existing sale-leaseback guidance, including guidance for real estate, is replaced with a new model applicable to both lessees and lessors. The new standard will be effective for us on January 1, 2019 with early adoption permitted. We are currently evaluating the potential impact that Topic 842 may have on our financial position and results of operations.

In March, 2016 the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. The new standard requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. The standard also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the ASU allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The new standard will be effective for us on January 1 2017. The Company does not expect the adoption of this guidance to have a material impact on our financial position and results of operations.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients and ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. These amendments provide additional clarification and implementation guidance on the previously issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).

The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. ASU 2016-10 clarifies the following two aspects of ASU 2014-09: identifying performance obligations and licensing implementation guidance. ASU 2016-11 rescinds several SEC Staff Announcements that are codified in Topic 605, including, among other items, guidance relating to accounting for consideration given by a vendor to a customer, as well as accounting for shipping and handling fees and freight services. ASU 2016-12 provides clarification to Topic 606 on how to assess collectability, present sales tax, treat noncash consideration, and account for completed and modified contracts at the time of transition. In addition, ASU 2016-12 clarifies that an entity retrospectively applying the guidance in Topic 606 is not required to disclose the effect of the accounting change in the period of adoption. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09, which is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2017. The Company does not expect the adoption of this guidance to have a material impact on our financial position or results of operations.

F-16

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash flow, and other Topics. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. The Company does not expect the adoption of this guidance to have a material impact on our financial position or results of operations.

In October 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory. Under ASU 2016-16, the selling (transferring) entity is required to recognize a current tax expense or benefit upon transfer of the asset. Similarly, the purchasing (receiving) entity is required to recognize a deferred tax asset or deferred tax liability, as well as the related deferred tax benefit or expense, upon receipt of the asset. The new standard will be effective for us on January 1, 2017, due to the Company’s decision to early adopt. The Company does not expect the adoption of this guidance to have a material impact on our financial position or results of operations.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 introduces a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated as a business. ASU 2017-01 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. The Company does not expect the adoption of this guidance to have a material impact on our financial position or results of operations.

3 Acquisitions and Divestments

2016

There were no material divestments during 2016. On August 8, 2016, we acquired a business for $200 million. The total purchase price has been preliminarily allocated to goodwill ($14 million), other intangible assets ($177 million), inventories ($8 million) and tangible fixed assets ($1 million). The other intangible assets relate to core technology ($172 million) with an amortization period of 7 years and existing technology ($5 million) with an amortization period of 2 years. The measurement period still remains open pending the completion of valuation procedures related to the acquired assets and assumed liabilities.

2015

On December 7, 2015, we acquired Freescale for a purchase price of $11,639 million. Acquisition-related transaction costs ($42 million) such as legal, accounting and other related expenses were recorded as a component of selling, general and administrative expense in our consolidated statements of operations.

Under the terms of the merger agreement, each holder of Freescale common shares received (i) 0.3521 of an NXP ordinary share and (ii) $6.25 in cash per such common share.

The total purchase price amounts to $11,639 million and consisted of the following:


Cash payment of $6.25 per Freescale common share	1,948
Total value of NXP ordinary shares delivered	9,449
Value of NXP restricted share units delivered to holders of Freescale restricted share units and performance-based restricted share units	157
Value of NXP stock options delivered to holders of Freescale stock options	85

Total purchase price		11,639

The total purchase price has been allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values as of the date of the merger, December 7, 2015. The fair value of acquired tangible and identified intangible assets is determined based on inputs that are unobservable and significant to the overall fair value measurement. As such, acquired tangible and identified intangible assets are classified as Level 3 assets. During 2016, we made certain adjustments to the preliminary allocation of the purchase price. A decrease of $33 million was recorded to deferred taxes, an increase of $3 million was recorded to accounts payable, accrued liabilities and other current liabilities, a decrease of $5 million was recorded to inventories with a corresponding net decrease of $25 million recorded to goodwill. Our valuation procedures related to the acquired assets and assumed liabilities was completed during the fourth quarter of 2016.

The identified intangible assets consist of existing technology and platform technology, In-Process Research & Development (“IPR&D”), order backlog, trade name and customer relationships. The useful lives range between one year and nineteen years.

F-17

The allocation of the purchase price is as follows:


Total purchase price			11,639
Estimated fair value of net tangible assets acquired and liabilities assumed:
Cash and cash equivalents	427
Accounts receivable, net	511
Inventories, net	1,280
Other current assets	93
Property, plant and equipment	1,827
Other non-current assets	64
Accounts payable, accrued liabilities and other current liabilities	(714	)
Deferred taxes	(2,292	)
Other long-term liabilities	(329	)
Long-term debt	(5,091	)

			(4,224	)

Fair value (and useful lives) of identified intangible assets acquired:


Customer relationships (included in customer-related) (19 years)	764
Developed technology (included in technology-based) (5 years)	5,371
Sales order backlog (included in marketing-related) (1 year)	190
Trade name (included in marketing-related) (5 years)	81
In-process research and development*	2,017
Other	41

		8,464
Goodwill		7,399

Acquired IPR&D is an intangible asset classified as an indefinite lived asset until the completion or abandonment of the associated research and development effort. IPR&D will be amortized over an estimated useful life to be determined at the date the associated research and development effort is completed, or expensed immediately when, and if, the project is abandoned. Acquired IPR&D is not amortized during the period that it is considered indefinite lived, but rather is subject to annual testing for impairment or when there are indicators for impairment.

Goodwill is primarily attributable to the anticipated synergies and economies of scale expected from the operations of the combined company and to the assembled workforce of Freescale. All of the goodwill has been allocated to NXP’s HPMS segment. Goodwill is not deductible for income tax purposes.

The cash consideration paid in connection of the acquisition of Freescale, the repayment of certain amounts under Freescale’s outstanding credit facility and Secured Notes and the payment of certain transaction costs in relation to the acquisition of Freescale were funded by cash on hand, the Secured Bridge Term Credit Agreement, the net proceeds of the 2020 Senior Unsecured Notes and 2022 Senior Unsecured Notes and the net proceeds of Term Loan B. See Note 16, “Debt” in the Consolidated Financial Statements.

Pro forma financial information (unaudited)

The following unaudited pro forma financial information presents combined consolidated results of operations for each of the fiscal years presented, as if Freescale had been acquired as of January 1, 2014:


	2015			2014
Revenue		9,850			9,904
Net income (loss) attributable to stockholders		(84	)		(277	)

Net income (loss) per common share attributable to stockholders:
- Basic		(0.25	)		(0.81	)
- Diluted		(0.25	)		(0.81	)

The pro forma information excludes the result of operations of NXP’s RF Power business and includes adjustments to amortization and depreciation for identified intangible assets and property, plant and equipment acquired, adjustments to share-based compensation expense and interest expense for the additional indebtedness incurred to complete the acquisition. The pro forma result has been prepared for comparative purposes only and does not purport to be indicative of the revenue or operating results that would have been achieved had the acquisition actually taken place as of January 1, 2014 or of the results of future operations of the combined business. In addition, the result is not intended to be a projection of future results and does not reflect synergies that might be achieved from the combined operations.

F-18

Other acquisitions

In addition to the above mentioned acquisition of Freescale, we completed two other acquisitions qualifying as business combinations: the acquisition of Quintic’s Bluetooth Low Energy (“BTLE”) and Wearable businesses, located in China and the USA, and the acquisition of Athena SCS Ltd. (“Athena”), located in the United Kingdom. Both acquisitions were not significant to our consolidated results of operations.

The aggregate purchase price consideration of $102 million was allocated to goodwill ($40 million), other intangible assets ($68 million) and net liabilities assumed ($6 million). The other intangible assets relate to core technology ($29 million) with an amortization period varying up to 14 years, existing technology, ($17 million) with an amortization period varying up to 5 years and in-process R&D ($22 million).

The results of BTLE are consolidated in the Secure Connected Devices business line. The results of Athena are consolidated in the Secure Identification Solutions business line. Both business lines are part of the reportable segment HPMS.

Divestments

In February 2015, we announced the establishment of a 49% owned joint venture (WeEn) with JianGuang Asset Management Co., Ltd. (JAC Capital) in China to combine NXP’s advanced technology from its Bipolar Power business line with JAC Capital’s connections in the Chinese manufacturing network and distribution channels. This transaction closed on November 9, 2015. The results of the Bipolar Power business were included in the reportable segment SP.

In May 2015, we announced an agreement with JianGuang Asset Management Co., Ltd. (JAC Capital) in China to sell NXP’s RF Power Business. This transaction closed on December 7, 2015. The results of the RF Power business were consolidated in the reportable segment HPMS.

The gain on the sale of these businesses of $1,257 million is included in other income (expense).

2014

There were no significant acquisitions or divestments in 2014.

4 Assets Held for Sale

On June 14, 2016, NXP announced an agreement to divest its Standard Products (“SP”) business to a consortium of financial investors consisting of Beijing JianGuang Asset Management Co., Ltd (“JAC Capital”) and Wise Road Capital LTD (“Wise Road Capital”). On February 6, 2017, we divested SP, receiving $2.75 billion in cash proceeds. At December 31, 2016, the SP business segment met the criteria to be classified as held for sale. The results of the SP business segment are consolidated in the reportable segment SP.

The SP business segment presentation as held for sale does not meet the criteria to be classified as a discontinued operation at December 31, 2016 primarily due to the disposal of this business not representing a strategic shift that will have a major effect on the Company’s operations and financial results.

The following table summarizes the carrying value of assets and liabilities held for sale which is primarily relative to the SP business:


	2016
Trade accounts receivable, net		3
Other assets		28
Inventories, net		208
Property, plant and equipment, net		396
Identified intangible assets, net		133
Goodwill		336

Assets held for sale		1,104

Trade accounts payable		(110	)
Accrued and other liabilities		(88	)

Liabilities held for sale		(198	)

F-19

5 Supplemental Financial Information

Statement of Operations Information

Depreciation, amortization and impairment

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


	2016		2015		2014
Depreciation of property, plant and equipment		609		262		219
Amortization of internal use software		24		26		31
Amortization of other identified intangible assets (*)		1,572		229		155

		2,205		517		405

(*)	Includes impairment charges relative to IPR&D, which was acquired as part of the acquisition of Freescale of $89 million for 2016.

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

Other income (expense)


	2016		2015		2014
Result on disposal of businesses		8		1,257		6
Result on disposal of properties		1		6		3
Other income (expense)		—		—		1

		9		1,263		10

Financial income (expense)


	2016			2015			2014
Interest income		11			6			3
Interest expense		(408	)		(227	)		(158	)

Total interest expense, net		(397	)		(221	)		(155	)
Net gain (loss) on extinguishment of debt		(32	)		—			(3	)
Foreign exchange rate results		(15	)		(193	)		(246	)
Change in fair value of the warrant liability		—			(31	)		(2	)
Miscellaneous financing costs/income, net		(9	)		(84	)		(4	)

Total other financial income (expense)		(56	)		(308	)		(255	)

Total		(453	)		(529	)		(410	)

From May 2011 until December 31, 2015, the Company applied net investment hedging. As of January 1, 2016, as a result of the acquisition of Freescale, NXP has concluded that the functional currency of the holding company is USD. Beginning from January 1, 2016, the warrants will now be classified in stockholders’ equity, and mark-to-market accounting will no longer be applicable. In addition our U.S. dollar-denominated notes, term loans and RCF agreements will no longer need to be re-measured. The U.S. dollar exposure of the net investment in U.S. dollar functional currency subsidiaries of $1.7 billion was hedged by certain U.S. dollar-denominated notes. As a result, a charge of $190 million in 2015 and a charge of $214 million in 2014 was recorded in other comprehensive income (loss) relating to the foreign currency result on the U.S. dollar-denominated notes that were recorded in a euro functional currency entity.

Equity-accounted investees

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


	2016		2015		2014
Company’s share in income (loss)		11		8		8
Other results		—		1		—

		11		9		8

F-20

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


	2016				2015
	Shareholding %		Amount		Shareholding %		Amount
ASMC		27		21		27		21
ASEN		40		56		40		46
WeEn		49		62		49		59
Others				15				15

				154				141

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

The fair value of NXP’s shareholding in the publicly listed company ASMC based on the quoted market price at December 31, 2016 is $35 million.

Balance Sheet Information

Cash and cash equivalents

At December 31, 2016 and December 31, 2015, our cash balance was $1,894 million and $1,614 million, respectively, of which $316 million and $485 million was held by SSMC, our consolidated joint venture company with TSMC. Under the terms of our joint venture agreement with TSMC, a portion of this cash can be distributed by way of a dividend to us, but 38.8% of the dividend will be paid to our joint venture partner. During 2016, a dividend of $325 million (2015: $130 million) has been paid by SSMC.

6 Restructuring Charges

At each reporting date, we evaluate our restructuring liabilities, which consist primarily of termination benefits, to ensure that our accruals are still appropriate. During 2016, we recognized $52 million of employee severance costs in our restructuring liabilities, which was primarily related to specific targeted actions.

In December 2015, we began the implementation of the planned restructuring and cost reduction activities in connection with the acquisition of Freescale. We recognized $216 million of employee severance costs and $23 million of other exit costs related to this plan in 2015.

There were no material new restructuring projects in 2014.

The following table presents the changes in the position of restructuring liabilities in 2016 by segment:


	Balance January 1, 2016		Additions		Utilized			Released			Other changes(1)			Balance December 31, 2016
HPMS		234		52		(131	)		(3	)		(4	)		148
SP		6		—		(2	)		—			(1	)		3
Corporate and Other		—		—		—			—			—			—

		240		52		(133	)		(3	)		(5	)		151

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

The total restructuring liability as of December 31, 2016 of $151 million is classified in the balance sheet under current liabilities ($129 million) and non-current liabilities ($22 million).

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

The following table presents the changes in the position of restructuring liabilities in 2015 by segment:


	Balance January 1, 2015		Additions		Utilized			Released			Other changes(1)			Balance December 31, 2015
HPMS		14		226		(17	)		(1	)		12			234
SP		5		8		(6	)		—			(1	)		6
Corporate and Other		21		5		(23	)		(1	)		(2	)		—

		40		239		(46	)		(2	)		9			240

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

The total restructuring liability as of December 31, 2015 of $240 million is classified in the balance sheet under current liabilities ($197 million) and non-current liabilities ($43 million).

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

F-21

The components of restructuring charges less releases recorded in the liabilities in 2016, 2015 and 2014 are as follows:


	2016			2015			2014
Personnel lay-off costs		52			239			43
Other exit costs		19			27			1
Release of provisions/accruals		(3	)		(2	)		(16	)

Net restructuring charges		68			264			28

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


	2016		2015		2014
Cost of revenue		18		18		16
Selling, general and administrative		9		155		3
Research & development		41		91		9

Net restructuring charges		68		264		28

7 Provision for Income Taxes

In 2016, NXP generated a loss before income taxes of $603 million (2015: an income of $1,486 million; 2014: an income of $639 million). The components of income (loss) before income taxes are as follows:


	2016			2015			2014
Netherlands		537			1,528			398
Foreign		(1,140	)		(42	)		241

		(603	)		1,486			639

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


	2016			2015			2014
Current taxes:
Netherlands		(7	)		(13	)		(7	)
Foreign		(67	)		(51	)		(32	)

		(74	)		(64	)		(39	)
Deferred taxes:
Netherlands		205			(4	)		2
Foreign		720			172			(3	)

		925			168			(1	)

Total benefit (provision) for income taxes		851			104			(40	)

A reconciliation of the statutory income tax rate in the Netherlands as a percentage of income (loss) before income taxes and the effective income tax rate is as follows:


(in percentages)	2016			2015			2014
Statutory income tax in the Netherlands		25.0			25.0			25.0

Rate differential local statutory rates versus statutory rate of the Netherlands		24.2			(4.3	)		(2.5	)
Net change in valuation allowance		72.6			(13.8	)		2.4
Prior year adjustments		0.1			—			0.5
Non-taxable income		1.7			(0.1	)		(0.3	)
Non-deductible expenses/losses		(7.0	)		4.0			5.6
Sale of non-deductible goodwill		—			2.7			—
Other taxes and tax rate changes		7.1			1.0			—
Tax effects of remitted and unremitted earnings and withholding taxes		(2.7	)		0.1			1.3
Tax on gains related to internal corporate reorganization transactions		(10.3	)		—			—
Unrecognized tax benefits		(0.5	)		0.1			0.6
Netherlands tax incentives		17.9			(18.5	)		(21.5	)
Foreign tax incentives		13.0			(3.2	)		(4.8	)

Effective tax rate		141.1	%		(7.0	%)		6.3	%

F-22

The Company benefits from income tax holidays in certain jurisdictions which provide that we pay reduced income taxes in those jurisdictions for a fixed period of time that varies depending on the jurisdiction. The predominant income tax holiday is expected to expire at the end of 2024. The impact of this tax holiday decreased foreign taxes by $24 million and $29 million for 2016 and 2015, respectively_._ The benefit of this tax holiday on net income per share (diluted) was $0.07 (2015: $0.11).

Deferred tax assets and liabilities

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


	2016			2015
Operating loss and tax credit carryforwards		1,031			963
Accrued interest		432			545
Other accrued liabilities		107			147
Pensions		86			87
Stock Based Compensation		58			73
Restructuring		40			61
Receivables		36			11
Inventories (including purchase accounting basis difference)		27			(109	)
Other assets		10			9
Long-term debt		—			179

Total Gross Deferred Tax Assets		1,827			1,966
Valuation Allowance		(127	)		(632	)

Total Net Deferred Tax Assets		1,700			1,334
Intangible assets (including purchase accounting basis difference)		(2,431	)		(2,952	)
Undistributed earnings of foreign subsidiaries		(367	)		(359	)
Property, plant and equipment (including purchase accounting basis difference)		(134	)		(226	)

Total Deferred Tax Liabilities		(2,932	)		(3,537	)

Net Deferred Tax Position		(1,232	)		(2,203	)

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


	2016			2015
Deferred tax assets within other current assets		—			26
Deferred tax assets within other non-current assets		427			69
Deferred tax liabilities within accrued liabilities		—			(5	)
Deferred tax liabilities within non-current liabilities		(1,659	)		(2,293	)

		(1,232	)		(2,203	)

The Company has significant deferred tax assets resulting from net operating loss carryforwards, tax credit carryforwards and deductible temporary differences that may reduce taxable income or taxes payable in future periods. Valuation allowances have been established for deferred tax assets based on a “more likely than not” threshold. The realization of our deferred tax assets depends on our ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The valuation allowance decreased by $505 million during 2016 (2015: $5 million increase).

ASC 740, Income Taxes, requires that we consider all available evidence in forming a judgement regarding the valuation allowance as of December 31, 2016, including events that occur subsequent to year end but prior to the issuance of the financial statements. As a result of the February 6, 2017 disposition of SP, NXP concluded that the valuation allowance should be reduced by $395 million as of December 31, 2016, as the SP divestiture provided an objectively verifiable source of income against which tax losses can be utilized. As a result, the Company recognized an additional benefit of $392 million in the benefit (provision) for income taxes in the consolidated statement of operations and an additional $7 million in capital in excess of par value in the consolidated balance sheet in the fourth quarter. In the second quarter, the valuation allowance in the U.S. was reduced by $107 million as a result of the Company’s determination that sufficient positive evidence existed to support a more likely than not determination that the U.S. deferred tax assets were realizable.

At December 31, 2016 tax loss carryforwards of $1,899 million (inclusive of $270 million of U.S. state tax losses) will expire as follows:


	Balance
	December 31,		Scheduled expiration
	2016		2017		2018		2019		2020		2021		2022-2026		later		unlimited
Tax loss carryforwards		1,899		26		10		29		10		1		947		290		586

F-23

The Company also has tax credit carryforwards of $749 million (excluding the effect of unrecognized tax benefits), which are available to offset future tax, if any, and which will expire as follows:


	Balance December 31, 2016
		Scheduled expiration
		2017	2018	2019	2020	2021	2022-2026	later	unlimited
Tax credit carryforwards		749	1	8	12	32	18	336	282	60

The net income tax payable (excluding the liability for unrecognized tax benefits) as of December 31, 2016 amounted to $10 million (2015: $26 million) and includes amounts directly payable to or receivable from tax authorities.

The Company does not indefinitely reinvest the undistributed earnings of its subsidiaries. Consequently, the Company has recognized a deferred income tax liability of $367 million at December 31, 2016 (2015: $359 million) for the additional income taxes and withholding taxes payable upon the future remittances of these earnings of foreign subsidiaries.

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


	2016			2015			2014
Balance as of January 1,		149			125			143
Assumed in the acquisition of Freescale		—			121			—
Decreases from activities which are held for sale		(7	)		—			—
Increases from tax positions taken during prior periods		1			1			—
Decreases from tax positions taken during prior periods		(3	)		(111	)		(21	)
Increases from tax positions taken during current period		10			15			3
Decreases relating to settlements with the tax authorities		(4	)		(2	)		—

Balance as of December 31,		146			149			125

Of the total unrecognized tax benefits at December 31, 2016, $125 million, if recognized, would impact the effective tax rate. All other unrecognized tax benefits, if recognized, would not affect the effective tax rate as these would be offset by compensating adjustments in the Company’s deferred tax assets that would be subject to valuation allowance based on conditions existing at the reporting date.

The Company classifies interest related to unrecognized tax benefits as financial expense and penalties as income tax expense. The total related interest and penalties recorded during the year 2016 amounted to $2 million (2015: $7 million; 2014: $3 million). As of December 31, 2016 the Company has recognized a liability for related interest and penalties of $12 million (2015: $14 million; 2014: $7 million). It is reasonably possible that the total amount of unrecognized tax benefits may significantly increase/decrease within the next 12 months of the reporting date due to, for example, completion of tax examinations; however, an estimate of the range of reasonably possible change cannot be made.

The Company files income tax returns in the Netherlands, the USA and in various other foreign jurisdictions. Tax filings of our subsidiaries are routinely audited in the normal course of business by tax authorities around the world. Tax years that remain subject to examination by major tax jurisdictions (the Netherlands, Germany, USA, China, Taiwan, Thailand, Malaysia, the Philippines and India) vary by country, ranging from 2004 through 2016.

8 Earnings per Share

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


	2016		2015		2014
Net income (loss)		259		1,599		607
Less: Net income (loss) attributable to non-controlling interests		59		73		68

Net income (loss) attributable to stockholders		200		1,526		539

Weighted average number of shares outstanding (after deduction of treasury shares) during the year (in thousands)		338,477		239,764		237,954
Plus incremental shares from assumed conversion of:
Options 1)		5,582		6,194		6,753
Restricted Share Units, Performance Share Units and Equity Rights 2)		3,548		4,158		3,902
Warrants 3)		—		—		—

Dilutive potential common share		9,130		10,352		10,655
Adjusted weighted average number of shares outstanding (after deduction of treasury shares) during the year (in thousands) 1)		347,607		250,116		248,609

EPS attributable to stockholders in $:
Basic net income (loss)		0.59		6.36		2.27
Diluted net income (loss)		0.58		6.10		2.17

F-24

Stock options to purchase up to 1.4 million shares of NXP’s common stock that were outstanding in 2016 (2015: 0.7 million shares; 2014: 0.5 million shares) were anti-dilutive and were not included in the computation of diluted EPS because the exercise price was greater than the average fair market value of the common stock or the number of shares assumed to be repurchased using the proceeds of unrecognized compensation expense and exercise prices was greater than the weighted average number of shares underlying outstanding stock options.

Unvested RSU’s, PSU’s and equity rights of 0.9 million shares that were outstanding in 2016 (2015: 0.5 million shares; 2014: 1.2 million shares) were anti-dilutive and were not included in the computation of diluted EPS because the number of shares assumed to be repurchased using the proceeds of unrecognized compensation expense was greater than the weighted average number of outstanding unvested RSU’s, PSU’s and equity rights or the performance goal has not been met.

Warrants to purchase up to 11.2 million shares of NXP’s common stock at a price of $133.32 per share were outstanding in 2016 (2015: 11.2 million shares at a price of $133.32; 2014: nil). Upon exercise, the warrants will be net share settled. At the end of 2016 and 2015, the warrants were not included in the computation of diluted EPS because the warrants’ exercise price was greater than the average fair market value of the common shares.

9 Share-based Compensation

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


	2016		2015		2014
Cost of revenue		49		15		10
Research and development		123		45		20
Selling, general and administrative		166		156		103

		338		216		133

Long Term Incentive Plans (LTIP’s)

The LTIP was introduced in 2010 and is a broad-based long-term retention program to attract, retain and motivate talented employees as well as align stockholder and employee interests. The LTIP provides share-based compensation (“awards”) to both our eligible employees and non-employee directors. Awards that may be granted include performance shares, stock options and restricted shares. The number of shares authorized and available for awards at December 31, 2016 was 3.0 million.

A charge of $331 million was recorded in 2016 for the LTIP (2015: $206 million; 2014: $123 million).

A summary of the activity for our LTIP’s during 2016 is presented below.

Stock options

The options have a strike price equal to the closing share price on the grant date. The fair value of the options has been calculated using the Black-Scholes formula, using the following assumptions:

	•		an expected life varying from 5.76 to 6.25 years, calculated in accordance with the guidance provided in SEC Staff bulletin No. 110 for plain vanilla options using the simplified method, since our equity shares have been publicly traded for only a limited period of time and we do not have sufficient historical exercise data;

	•		a risk-free interest rate varying from 0.8% to 2.8% (2015: 0.8% to 2.8%; 2014: 0.8% to 2.8%);

	•		no expected dividend payments; and

	•		a volatility of 40-50% based on the volatility of a set of peer companies. Peer company data has been used given the short period of time our shares have been publicly traded.

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


	Stock options		Weighted average exercise price in USD		Weighted average remaining contractual term		Aggregate intrinsic value
Outstanding at January 1, 2016		10,034,650		38.53
Granted		108,419		80.44
Exercised		2,734,739		32.12
Forfeited		239,678		54.81

Outstanding at December 31, 2016		7,168,652		41.07		6.0		408
Exercisable at December 31, 2016		4,857,680		30.97		5.5		326

The weighted average per share grant date fair value of stock options granted in 2016 was $34.59 (2015: $34.05; 2014: $29.10).

F-25

The intrinsic value of the exercised options was $145 million (2015: $112 million; 2014: $129 million), whereas the amount received by NXP was $88 million (2015: $39 million; 2014: $55 million).

At December 31, 2016, there was a total of $56 million (2015: $110 million) of unrecognized compensation cost related to non-vested stock options. This cost is expected to be recognized over a weighted-average period of 1.5 years (2015: 1.8 years).

Performance share units

Financial performance conditions


	Shares		Weighted average grant date fair value in USD
Outstanding at January 1, 2016		775,324		49.68
Granted		32,716		82.53
Vested		398,951		30.00
Forfeited		375		49.60

Outstanding at December 31, 2016		408,714		71.52

The weighted average grant date fair value of performance share units granted in 2016 was $82.53 (2015: $75.28; 2014: $62.29).

Market performance conditions


	Shares		Weighted average grant date fair value in USD

Outstanding at January 1, 2016		1,905,269		26.85
Granted		—		—
Vested		1,580,086		27.28
Forfeited		—		—

Outstanding at December 31, 2016		325,183		38.63

The fair value of the performance share units at the time of vesting was $147 million (2015: $66 million; 2014: $70 million). At December 31, 2016, there was a total of $12 million (2015: $32 million) of unrecognized compensation cost related to non-vested performance share units. This cost is expected to be recognized over a weighted-average period of 1.8 years (2015: 1.9 years).

Restricted share units


	Shares		Weighted average grant date fair value in USD

Outstanding at January 1, 2016		8,237,861		78.03
Granted		2,739,672		98.16
Vested		3,688,422		75.61
Forfeited		368,232		76.00

Outstanding at December 31, 2016		6,920,879		87.48

The weighted average grant date fair value of restricted share units granted in 2016 was $98.16 (2015: $79.22; 2014: $63.42). The fair value of the restricted share units at the time of vesting was $334 million (2015: $209 million; 2014: $110 million).

At December 31, 2016, there was a total of $422 million (2015: $432 million) of unrecognized compensation cost related to non-vested restricted share units. This cost is expected to be recognized over a weighted-average period of 1.6 years (2015: 1.6 years).

Management Equity Stock Option Plan (“MEP”)

Awards are no longer available under these plans. Current employees owning vested MEP Options may exercise such MEP Options during the five year period subsequent to September 18, 2013, subject to these employees remaining employed by us and subject to the applicable laws and regulations.

No charge was recorded in 2016 (2015: no charge, 2014: no charge) for options granted under the MEP.

The following table summarizes the information about NXP’s outstanding MEP Options and changes during 2016.

F-26

Stock options


	Stock options		Weighted average exercise price in EUR		Weighted average remaining contractual term		Aggregate intrinsic value
Outstanding at January 1, 2016		2,748,942		24.14
Granted		—		—
Exercised		214,670		29.64
Forfeited		—		—
Expired		—		—

Outstanding at December 31, 2016		2,534,272		23.67		1.7		177
Exercisable at December 31, 2016		2,534,272		23.67		1.7		177

The intrinsic value of exercised options was $13 million (2015: $12 million; 2014: $74 million), whereas the amount received by NXP was $7 million (2015: $4 million; 2014: $86 million).

The number of vested options at December 31, 2016 was 2,534,272 (2015: 2,748,942 vested options) with a weighted average exercise price of €23.67 (2015: €24.14 weighted average exercise price).

At December 31, 2016, there was no unrecognized compensation cost related to non-vested stock options.

10 Accounts Receivables, net

Accounts receivable are summarized as follows:


	2016			2015
Accounts receivable from third parties		1,035			1,048
Allowance for doubtful accounts		(2	)		(1	)

		1,033			1,047

11 Inventories, net

Inventories are summarized as follows:


	2016		2015
Raw materials		52		66
Work in process		854		1,376
Finished goods		207		437

		1,113		1,879

The portion of finished goods stored at customer locations under consignment amounted to $53 million as of December 31, 2016 (2015: $69 million).

The amounts recorded above are net of an allowance for obsolescence of $84 million as of December 31, 2016 (2015: $84 million).

12 Property, Plant and Equipment, net

The following table presents details of the Company’s property, plant and equipment, net of accumulated depreciation:


	Useful Life (in years)		2016			2015
Land				111			160
Buildings		9 to 50		1,153			854
Machinery and installations		2 to 10		3,006			4,156
Other Equipment		1 to 5		278			227
Prepayments and construction in progress				118			108

				4,666			5,505
Less accumulated depreciation				(2,314	)		(2,583	)

Property, plant and equipment, net of accumulated depreciation				2,352			2,922

Land with a book value of $111 million (2015: $160 million) is not depreciated.

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

F-27

13 Identified Intangible Assets

The changes in identified intangible assets were as follows:


	Total			Other intangible assets			Software
Balance as of January 1, 2015:
Cost		1,866			1,715			151
Accumulated amortization/impairment		(1,293	)		(1,207	)		(86	)

Book value		573			508			65
Changes in book value:
Acquisitions/additions		8,551			8,543			8
Transfer to assets held for sale		(38	)		(38	)		—
Amortization		(255	)		(229	)		(26	)
Translation differences		(41	)		(35	)		(6	)

Total changes		8,217			8,241			(24	)
Balance as of December 31, 2015:
Cost		9,978			9,832			146
Accumulated amortization/impairment		(1,188	)		(1,083	)		(105	)

Book value		8,790			8,749			41
Changes in book value:
Acquisitions/additions		299			289			10
Transfer to assets held for sale		(138	)		(138	)		—
Amortization		(1,507	)		(1,483	)		(24	)
Impairment		(89	)		(89	)		—
Translation differences		(12	)		(10	)		(2	)

Total changes		(1,447	)		(1,431	)		(16	)
Balance as of December 31, 2016:
Cost		9,512			9,397			115
Accumulated amortization/impairment		(2,169	)		(2,079	)		(90	)

Book value		7,343			7,318			25

Identified intangible assets as of December 31, 2016 and 2015 respectively were composed of the following:


	December 31, 2016					December 31, 2015
	Gross carrying amount		Accumulated amortization			Gross carrying amount		Accumulated amortization
IPR&D 1)		1,380		—			2,016		—
Marketing-related		81		(18	)		119		(18	)
Customer-related		1,146		(322	)		1,287		(224	)
Technology-based		6,790		(1,739	)		6,410		(841	)

		9,397		(2,079	)		9,832		(1,083	)
Software		115		(90	)		146		(105	)

Identified intangible assets		9,512		(2,169	)		9,978		(1,188	)

1)	IPR&D is not subject to amortization until completion or abandonment of the associated research and development effort.

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


2017			1,423
2018			1,432
2019			1,472
2020			1,190
2021			462

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

The expected weighted average remaining life of identified intangibles is 5 years as of December 31, 2016.

F-28

14 Goodwill

The changes in goodwill in 2016 and 2015 were as follows:


	2016			2015
Balances as of January 1
Cost		9,414			2,328
Accumulated impairment		(186	)		(207	)

Book value		9,228			2,121
Changes in book value:
Acquisitions		14			7,464
Purchase accounting adjustments related to Freescale acquisition		(25	)		—
Transfer to assets held for sale		(349	)		(179	)
Translation differences		(25	)		(178	)

Total changes		(385	)		7,107
Balances as of December 31
Cost		9,029			9,414
Accumulated impairment		(186	)		(186	)

Book value		8,843			9,228

No goodwill impairment charges were required to be recognized in 2016 or 2015.

In 2016, goodwill includes $14 million related to an acquisition of a business for $200 million.

In 2015, goodwill includes the acquisitions of Freescale, Quintic’s Bluetooth Low Energy and Wearable businesses and Athena SCS Ltd.

Transfer to assets held for sale in 2016 includes our SP business, which closed in the first quarter of 2017. In 2015, transfer to assets held for sale includes our RF Power Business and Bipolar Power business, which were subsequently divested.

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

See note 23, “Segments and Geographical Information”, for goodwill by segment and note 3, “Acquisitions and Divestments”.

15 Postretirement Benefit Plans

Pensions

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

The Company’s employees in The Netherlands participate in a multi-employer plan, implemented for the employees of the Metal and Electrical Engineering Industry (“Bedrijfstakpensioenfonds Metalektro or PME”) in accordance with the mandatory affiliation to PME effective for the industry in which NXP operates. As this affiliation is a legal requirement for the Metal and Electrical Engineering Industry it has no expiration date. This PME multi-employer plan (a career average plan) covers 1,300 companies and 616,000 participants. The plan monitors its risk on an aggregate basis, not by company or participant and can therefore not be accounted for as a defined benefit plan. The pension fund rules state that the only obligation for affiliated companies will be to pay the annual plan contributions. There is no obligation for affiliated companies to fund plan deficits. Affiliated companies are also not entitled to any possible surpluses in the pension fund.

Every participating company contributes the same fixed percentage of its total pension base, being pensionable salary minus an individual offset. The Company’s pension cost for any period is the amount of contributions due for that period.

The contribution rate for the mandatory scheme will decrease from 26.1% (2016) to 25.8% (2017).


PME multi-employer plan	2016		2015		2014
NXP’s contributions to the plan		36		37		48
(including employees’ contributions)		4		4		4
Average number of NXP’s active employees participating in the plan		2,415		2,668		2,881
NXP’s contribution to the plan exceeded more than 5 percent of the total contribution (as of December 31 of the plan’s year end)		No		No		No

The amount for pension costs included in the statement of operations for the year 2016 was $102 million (2015: $69 million; 2014: $77 million) of which $44 million (2015: $21 million; 2014: $21 million) represents defined-contribution plans and $32 million (2015: $32 million; 2014: $41 million) represents the PME multi-employer plans.

F-29

Defined-benefit plans

The benefits provided by defined-benefit plans are based on employees’ years of service and compensation levels. Contributions are made by the Company, as necessary, to provide assets sufficient to meet the benefits payable to defined-benefit pension plan participants.

These contributions are determined based upon various factors, including funded status, legal and tax considerations as well as local customs. The Company funds certain defined-benefit pension plans as claims are incurred.

The total cost of defined-benefit plans amounted to $26 million in 2016 (2015: $16 million; 2014: $15 million) consisting of $27 million ongoing cost (2015: $20 million; 2014: $15 million) and a gain of $1 million from special events resulting from restructurings, curtailments and settlements (2015: $4 million; 2014: nil).

The table below provides a summary of the changes in the pension benefit obligations and defined-benefit pension plan assets for 2016 and 2015, associated with the Company’s dedicated plans, and a reconciliation of the funded status of these plans to the amounts recognized in the consolidated balance sheets.


	2016			2015
Projected benefit obligation
Projected benefit obligation at beginning of year		561			447
Service cost		17			12
Interest cost		14			11
Actuarial (gains) and losses		53			(18	)
Curtailments and settlements		(15	)		(16	)
Benefits paid		(21	)		(14	)
Pension liabilities held-for-sale		(28	)		—
Benefit obligation assumed in acquisitions		—			177
Exchange rate differences		(17	)		(38	)

Projected benefit obligation at end of year		564			561

Plan assets
Fair value of plan assets at beginning of year		190			157
Actual return on plan assets		3			7
Employer contributions		21			10
Curtailments and settlements		(15	)		(12	)
Benefits paid		(21	)		(14	)
Pension assets held-for-sale		(2	)		—
Plan assets acquired in acquisitions		—			56
Exchange rate differences		(4	)		(14	)

Fair value of plan assets at end of year		172			190

Funded status		(392	)		(371	)

Classification of the funded status is as follows
- Prepaid pension cost within other non-current assets		—			4
- Accrued pension cost within other non-current liabilities		(380	)		(368	)
- Accrued pension cost within accrued liabilities		(12	)		(7	)

Total		(392	)		(371	)

Accumulated benefit obligation
Accumulated benefit obligation for all Company-dedicated benefit pension plans		524			518

Plans with assets less than accumulated benefit obligation
Funded plans with assets less than accumulated benefit obligation
- Fair value of plan assets		171			73
- Accumulated benefit obligations		327			209
- Projected benefit obligations		357			243
Unfunded plans
- Accumulated benefit obligations		195			196
- Projected benefit obligations		204			204

Amounts recognized in accumulated other comprehensive income (before tax)
Total AOCI at beginning of year		42			70
- Net actuarial loss (gain)		54			(21	)
- Exchange rate differences		(5	)		(7	)

Total AOCI at end of year		91			42

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


	2016			2015
Discount rate		2.0	%		2.5	%
Rate of compensation increase		1.9	%		2.2	%

F-30

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


	2016			2015			2014
Discount rate		2.5	%		2.6	%		3.7	%
Expected returns on plan assets		3.5	%		4.2	%		4.2	%
Rate of compensation increase		2.2	%		1.8	%		2.3	%

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

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

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

The components of net periodic pension costs were as follows:


	2016			2015			2014
Service cost		17			12			10
Interest cost on the projected benefit obligation		14			11			13
Expected return on plan assets		(6	)		(6	)		(7	)
Amortization of net (gain) loss		2			3			(1	)
Curtailments & settlements		(1	)		(6	)		—
Other		—			2			—

Net periodic cost		26			16			15

A sensitivity analysis shows that if the discount rate increases by 1% from the level of December 31, 2016, with all other variables held constant, the net periodic pension cost would decrease by $4 million. If the discount rate decreases by 1% from the level of December 31, 2016, with all other variables held constant, the net periodic pension cost would increase by $3 million.

The estimated net actuarial loss (gain) and prior service cost that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next year (2017) are $2 million and nil respectively.

Plan assets

The actual pension plan asset allocation at December 31, 2016 and 2015 is as follows:


	2016			2015
Asset category:
Equity securities		29	%		29	%
Debt securities		52	%		55	%
Insurance contracts		7	%		6	%
Other		12	%		10	%

		100	%		100	%

We met our target plan asset allocation. The investment objectives for the pension plan assets are designed to generate returns that, along with the future contributions, will enable the pension plans to meet their future obligations. The investments in our major defined benefit plans largely consist of government bonds, “Level 2” Corporate Bonds and cash to mitigate the risk of interest fluctuations. The asset mix of equity, bonds, cash and other categories is evaluated by an asset-liability modeling study for our largest plan. The assets of funded plans in other countries mostly have a large proportion of fixed income securities with return characteristics that are aligned with changes in the liabilities caused by discount rate volatility. Total pension plan assets of $172 million include $161 million related to the German and Japanese pension funds.

F-31

The following table summarizes the classification of these assets.


	2016						2015
	Level I		Level II		Level III		Level I		Level II		Level III
Equity securities		—		48		—		—		49		—
Debt securities		9		72		—		7		81		—
Insurance contracts		—		12		—		—		12		—
Other		5		11		4		3		10		3

		14		143		4		10		152		3

The Company currently expects to make $11 million of employer contributions to defined-benefit pension plans and $6 million of expected cash payments in relation to unfunded pension plans.

Estimated future pension benefit payments

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


2017			21
2018			16
2019			17
2020			18
2021			20
Years 2022-2026			128

Postretirement health care benefits

In addition to providing pension benefits, NXP provides retiree healthcare benefits in the US and the UK which are accounted for as defined-benefit plans.

The accumulated postretirement benefit obligation at the end of 2016 equals $18 million (2015: $54 million).

16 Debt

Short-term debt


	2016		2015
Short-term bank borrowings		—		6
Current portion of long-term debt (*)		421		550

Total		421		556

(*)	Net of adjustment for debt issuance costs.

At December 31, 2015, short-term bank borrowings of $6 million consisted of a local bank borrowing by our Chinese subsidiary. The applicable weighted average interest rate during 2015 was 2.5%.

F-32

Long-term debt

The following table summarizes the outstanding long-term debt as of December 31, 2016 and 2015:


			2016					2015
	Maturities		Amount			Effective rate		Amount			Effective rate
Floating-rate term loan		Mar, 2017		388			2.770		392			2.750
Floating-rate term loan		Jan, 2020		387			3.270		391			3.250
Floating-rate term loan		Dec, 2020		1,436			3.270		2,700			3.750
Fixed-rate 3.5% senior unsecured notes		Sep, 2016		—			—		500			3.500
Fixed-rate 3.75% senior unsecured notes		Jun, 2018		750			3.750		750			3.750
Fixed-rate 4.125% senior unsecured notes		Jun, 2020		600			4.125		600			4.125
Fixed-rate 4.125% senior unsecured notes		Jun, 2021		1,350			4.125		—			—
Fixed-rate 5.75% senior unsecured notes		Feb, 2021		500			5.750		500			5.750
Fixed-rate 5% senior secured notes		May, 2021		—			—		500			5.000
Fixed-rate 3.875% senior unsecured notes		Sep, 2022		1,000			3.875		—			—
Fixed-rate 6% senior secured notes		Jan, 2022		—			—		960			6.000
Fixed-rate 4.625% senior unsecured notes		Jun, 2022		400			4.625		400			4.625
Fixed-rate 5.75% senior unsecured notes		Mar, 2023		500			5.750		500			5.750
Fixed-rate 4.625% senior unsecured notes		Jun, 2023		900			4.625		—			—
Fixed-rate 1% cash convertible notes		Dec, 2019		1,150			1.000		1,150			1.000
Floating-rate revolving credit facility		Dec, 2020		—			—		—			—

Total principal				9,361					9,343
Liabilities arising from capital lease transactions				15					31
Unamortized discounts, premiums and debtissuance costs				(61	)				(82	)
Fair value of embedded cash conversion option				(128	)				(167	)
Purchase accounting fair value adjustmentFreescale Senior Secured Notes				—					81

Total debt, including unamortized discounts,premiums, debt issuance costs and fair value adjustments				9,187					9,206
Current portion of long-term debt				(421	)				(550	)

Long-term debt				8,766					8,656


	Range of interest rates		Average rate of interest			Principal amount outstanding 2016		Due in 2017		Due after 2017		Due after 2021		Average remaining term (in years)		Principal amount outstanding 2015

USD notes		2.8%-5.8%		4.1	%		8,211		406		7,805		2,800		4.2		8,193
2019 Cash Convertible Senior Notes		1.0%-1.0%		1.0	%		1,150		—		1,150		—		2.9		1,150
Revolving Credit Facility (1)		—		—			—		—		—		—		—		—
Bank borrowings		—		—			—		—		—		—		—		—
Liabilities arising from capital lease transactions		2.5%-13.8%		3.0	%		15		15		—		—		1.3		31

				3.7	%		9,376		421		8,955		2,800		4.1		9,374

(1)	We do not have any borrowings under the $600 million Revolving Credit Facility as of December 31, 2016.

As of December 31, 2016, the following principal amounts of long-term debt are due in the next 5 years:


2017			421
2018			768
2019			1,167
2020			2,370
2021			1,850
Due after 5 years			2,800

			9,376

F-33

As of December 31, 2016, the book value of our outstanding long-term debt was $8,766 million, less debt issuance costs of $61 million and less original issuance/debt discount of $128 million.

As of December 31, 2016, the fixed rate notes and floating rate notes represented 76% and 24% respectively of the total principal amount of the notes outstanding at December 31, 2016. The remaining tenor of secured debt is on average 4.1 years.

Accrued interest as of December 31, 2016 is $48 million (December 31, 2015: $46 million).

2016 Financing Activities

2020 Term Loan

On September 22, 2016, NXP entered into a new $1,440 million aggregate principal amount Senior Secured Term Loan Facility due December 7, 2020. Concurrently, NXP repaid the $1,440 million principal amount Senior Secured Term Loan Facility due December 7, 2020.

2022 Senior Unsecured Notes

On August 11, 2016, NXP B.V., together with NXP Funding LLC, issued U.S. dollar-denominated 3.875% Senior Unsecured Notes with an aggregate principal amount of $1,000 million, due September 1, 2022. The interest is payable semi-annually on March 1 and September 1 of each year, beginning on March 1, 2017. The Notes were issued at par and were recorded at their fair value of $1,000 million on the accompanying Consolidated Balance Sheet. NXP used the net proceeds from the offering of the Notes to redeem the remaining $960 million aggregate principal amount of its outstanding Senior Secured Notes due 2022 and to pay for certain costs and expenses related thereto.

2021 Additional Senior Unsecured Notes

On August 1, 2016, NXP B.V., together with NXP Funding LLC, issued an aggregate principal amount of $500 million of 4.125% Senior Unsecured Notes due 2021 (the “Additional Notes”). The Additional Notes were issued at a price of 101.875% and are of the same class as the existing 4.125% Senior Notes due 2021 originally issued on May 23, 2016. NXP used the net proceeds from the offering of the Additional Notes to redeem $200 million aggregate principal amount of its outstanding Senior Notes due 2016 and used the remainder of the proceeds for general corporate purposes.

2021 and 2023 Senior Unsecured Notes

On May 23, 2016, NXP B.V. together with NXP Funding LLC issued U.S. dollar-denominated 4.125% and 4.625% Senior Unsecured Notes with aggregate principal amounts of $850 million, due June 1, 2021 and $900 million, due June 1, 2023. The interest is payable semi-annually on June 1 and December 1 of each year, beginning on December 1, 2016. These Notes were issued at par and were recorded at their fair value of $850 million and $900 million, respectively, on the accompanying Consolidated Balance Sheet. NXP used the net proceeds from the offering of the Notes and cash on hand to repay $1,250 million aggregate principal amount of its existing Secured Term Loan B due 2020 and $500 million aggregate principal amount of its outstanding Senior Secured Notes due 2021.

2016 Senior Unsecured Notes

On February 23, April 27 and August 1, 2016, NXP B.V., together with NXP Funding LLC, issued redemption notices for an aggregate principal amount of $200 million, $100 million and $200 million, respectively, of its outstanding 3.5% Senior Unsecured Notes due 2016. The funds from this redemption came from available surplus cash.

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

The Company is not required to make mandatory redemption payments or sinking fund payments with respect to the notes. With respect to the Term Loans, the Company is required to repay $18 million annually.

The indentures governing the notes contain covenants that, among other things, limit the Company’s ability and that of restricted subsidiaries to incur additional indebtedness, create liens, pay dividends, redeem capital stock or make certain other restricted payments or investments; enter into agreements that restrict dividends from restricted subsidiaries; sell assets, including capital stock of restricted subsidiaries; engage in transactions with affiliates; and effect a consolidation or merger. The Company has been in compliance with any such indentures and financing covenants.

F-34

Certain portions of long-term and short-term debt as of December 31, 2016 in the principal amount of $2,211 million (2015: $4,943 million) have been secured by collateral on substantially all of the Company’s assets and of certain of its subsidiaries.

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

Pursuant to various security documents related to the above mentioned term loans and the $600 million committed revolving credit facility, the Company and each Guarantor has granted first priority liens and security interests in, amongst others, the following, subject to the grant of further permitted collateral liens:

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

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

(c)

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

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

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

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

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

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

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

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

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

2019 Cash Convertible Senior Notes

In November 2014, NXP issued $1,150 million principal amount of its 2019 Cash Convertible Senior Notes (the “Notes”). The 2019 Cash Convertible Senior Notes have a stated interest rate of 1.00%, matures on December 1, 2019 and may be settled only in cash. The indenture for the 2019 Cash Convertible Senior Notes does not contain any financial covenants. Contractual interest payable on the 2019 Cash Convertible Senior Notes began accruing in December 2014 and is payable semi-annually each December 1st and June 1st. The initial purchasers’ transaction fees and expenses totaling $16 million were capitalized as deferred financing costs and are amortized over the term of the 2019 Cash Convertible Senior Notes using the effective interest method.

Prior to September 1, 2019, holders may convert their 2019 Cash Convertible Senior Notes into cash upon the occurrence of one of the following events:

	•		the price of NXP’s common stock reaches 130% of the conversion price on each applicable trading day during certain periods of time specified in the 2019 Cash Convertible Senior Notes;

	•		specified corporate transactions occur; or

	•		the trading price of the 2019 Cash Convertible Senior Notes falls below 98% of the product of (i) the last reported sales price of NXP’s common stock and (ii) the conversion rate on the date.

On or after September 1, 2019, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2019 Cash Convertible Senior Notes into cash at any time, regardless of the foregoing circumstances. NXP may not redeem the 2019 Cash Convertible Senior Notes prior to maturity.

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The initial cash conversion rate for the 2019 Cash Convertible Senior Notes is 9.7236 shares of NXP’s common stock per $1,000 principal amount of 2019 Cash Convertible Senior Notes, equivalent to a cash conversion price of $102.84 per share of NXP’s common stock, with the amount due on conversion payable in cash. Upon cash conversion, a holder will receive the sum of the daily settlement amounts, calculated on a proportionate basis for each day, during a specified observation period following the cash conversion date.

If a “fundamental change” (as defined below in this section) occurs at any time, holders will have the right, at their option, to require us to repurchase for cash all of their 2019 Cash Convertible Senior Notes, or any portion of the principal thereof that is equal to $1,000 or a multiple of $1,000 (provided that the portion of any global note or certified note, as applicable, not tendered for repurchase has a principal amount of at least $200,000, on the fundamental change repurchase date. A fundamental change is any transaction or event (whether by means of an exchange offer, change of common stock, liquidation, consolidation, merger, reclassification, recapitalization or otherwise) in which more than 50% of NXP’s common stock is exchanged for, converted into, acquired for or constitutes solely the right to receive, consideration. A transaction or transactions described above will not constitute a fundamental change, however, if at least 90% of the consideration received or to be received by our common shareholders, excluding cash payments for fractional shares, in connection with such transaction or transactions consists of shares of common equity that are listed or quoted on any permitted exchange or will be so listed or quoted when issued or exchanged in connection with such transaction or transactions and as a result of such transaction or transactions such consideration becomes the reference property for the 2019 Cash Convertible Senior Notes.

As of December 31, 2016, none of the conditions allowing the holders of the 2019 Cash Convertible Senior Notes to convert the 2019 Cash Convertible Senior Notes into cash had been met.

The requirement that NXP must settle the conversion of the Notes in cash gives rise to a derivative instrument that must be bifurcated from the debt host. The embedded cash conversion option within the Cash Convertible Notes is required to be separated from the Cash Convertible Notes and accounted for separately as a derivative liability, with changes in fair value reported in our Consolidated Statements of Income in other (expense) income, net until the cash conversion option settles or expires. The initial fair value liability of the embedded cash conversion option simultaneously reduced the carrying value of the Cash Convertible Notes (effectively an original issuance discount). The embedded cash conversion option is measured and reported at fair value on a recurring basis, within Level 3 of the fair value hierarchy. The fair value of the embedded cash conversion option at December 31, 2016 was $258 million (2015: $241 million) which is recorded in other long-term liabilities in the accompanying balance sheet. For the year ended December 31, 2016, the change in the fair value of the embedded cash conversion option resulted in a loss of $17 million (2015: a loss of $38 million).

Concurrently with the pricing of the 2019 Cash Convertible Senior Notes, NXP entered into hedge transactions, or the Notes Hedges, with various parties whereby NXP has the option to receive the cash amount that may be due to the Notes holders at maturity in excess of the $1,150 million principal amount of the notes, subject to certain conversion rate adjustments in the Notes Indenture. These options expire on December 1, 2019, and must be settled in cash. The aggregate cost of the Notes Hedges was $208 million. The Notes Hedges are accounted for as derivative assets, and are included in Other assets in NXP’s Consolidated Balance Sheet. As of December 31, 2016, the estimated fair value of the Notes Hedges was $258 million (2015: $241 million).

The Notes Embedded Conversion Derivative and the Notes Hedges are adjusted to fair value each reported period and unrealized gains and losses are reflected in NXP’s Consolidated Statements of Operations. Because the fair values of the Notes Embedded Conversion Derivative and the Notes Hedges are designed to have similar offsetting values, there was no impact to NXP’s Consolidated Statements of Operations relating to these adjustments to fair value during fiscal 2016 (2015: no impact).

In separate transactions, NXP also sold warrants, to various parties for the purchase of up to 11.18 million shares of NXP’s common stock at a strike price of $133.32 per share in a private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended, or the Securities Act. The Warrants expire on various dates from March 2, 2020, through April 30, 2020, and will be net share settled. NXP received $134 million in cash proceeds from the sale of the Warrants, which were at the time of issuance recorded in Other non-current liabilities. As of January 1, 2016, as of result of the acquisition of Freescale, NXP has concluded that the functional currency of the holding company is USD. Consequently, beginning from January 1, 2016, the Warrants with a carrying value of $168 million were reclassified to stockholders’ equity, and mark-to-market accounting is no longer applicable. The Warrants are included in diluted earnings per share to the extent the impact is dilutive. As of December 31, 2016, the Warrants were not dilutive.

The principal amount, unamortized debt discount and net carrying amount of the liability component of the 2019 Cash Convertible Senior Notes as of December 31, 2016 and 2015 was as follows:


(in millions)	As of December 31
	2016		2015
Principal amount of 2019 Cash Convertible Senior Notes		1,150		1,150
Unamortized debt discount of 2019 Cash Convertible Senior Notes		136		178
Net liability of 2019 Cash Convertible Senior Notes		1,014		972

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The effective interest rate, contractual interest expense and amortization of debt discount for the 2019 Cash Convertible Senior Notes for fiscal 2016 and 2015 were as follows:


(in millions, except percentage)	2016			2015
Effective interest rate		5.14	%		5.14	%
Contractual interest expense		12			12
Amortization of debt discount		40			38

As of December 31, 2016, the if-converted value of the 2019 Cash Convertible Senior Notes exceeded the principal amount of the Notes. The total fair value of the 2019 Cash Convertible Senior Notes was $1,310 million.

Impact of Conversion Contingencies on Financial Statements

At the end of each quarter until maturity of the 2019 Cash Convertible Senior Notes, NXP will reassess whether the stock price conversion condition has been satisfied. If one of the early conversion conditions is satisfied in any future quarter, NXP would classify its net liability under the 2019 Cash Convertible Senior Notes as a current liability on the Consolidated Balance Sheet as of the end of that fiscal quarter. If none of the early conversion conditions have been satisfied in a future quarter prior to the one-year period immediately preceding the maturity date, NXP would classify its net liability under the 2019 Cash Convertible Senior Notes as a non-current liability on the Consolidated Balance Sheet as of the end of that fiscal quarter. If the holders of the 2019 Cash Convertible Senior Notes elect to convert their 2019 Cash Convertible Senior Notes prior to maturity, any unamortized discount and transaction fees will be expensed at the time of conversion.

17 Commitments and Contingencies

Lease Commitments

At December 31, 2016 and 2015, there were no material capital lease obligations. Long-term operating lease commitments totaled $113 million as of December 31, 2016 (2015: $172 million). The long-term operating leases are mainly related to the rental of buildings and tools. These leases expire at various dates during the next 30 years. Future minimum lease payments under operating leases are as follows:


2017			33
2018			23
2019			17
2020			12
2021			5
Thereafter			23

Total future minimum leases payments			113

Rent expense amounted to $68 million in 2016 (2015: $70 million; 2014: $63 million).

Purchase Commitments

The Company maintains purchase commitments with certain suppliers, primarily for raw materials, semi finished goods and manufacturing services and for some non-production items. Purchase commitments for inventory materials are generally restricted to a forecasted time-horizon as mutually agreed upon between the parties. This forecasted time-horizon can vary for different suppliers. As of December 31, 2016, the Company had purchase commitments of $550 million, which are due through 2025.

Litigation

We are regularly involved as plaintiffs or defendants in claims and litigation relating to a variety of matters such as contractual disputes, personal injury claims, employee grievances and intellectual property litigation. In addition, our acquisitions, divestments and financial transactions sometimes result in, or are followed by, claims or litigation. Although the ultimate disposition of asserted claims cannot be predicted with certainty, it is our belief that the outcome of any such claims, either individually or on a combined basis, will not have a material adverse effect on our consolidated financial position. However, such outcomes may be material to our consolidated statement of operations for a particular period. The Company records an accrual for any claim that arises whenever it considers that it is probable that it is exposed to a loss contingency and the amount of the loss contingency can be reasonably estimated.

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Based on the most current information available to it and based on its best estimate, the Company also reevaluates at least on a quarterly basis the claims that have arisen to determine whether any new accruals need to be made or whether any accruals made need to be adjusted. Based on the procedures described above, the Company has an aggregate amount of approximately $22 million accrued for legal proceedings pending as of December 31, 2016, compared to approximately $28 million as of December 31, 2015. The accruals are included in “Accrued liabilities” and “Other non-current liabilities”. There can be no assurance that the Company’s accruals will be sufficient to cover the extent of its potential exposure to losses, but historically, legal actions have not had a material adverse effect on the Company’s business, results of operations or financial condition.

The Company also estimates the aggregate range of reasonably possible losses in excess of the amount accrued based on currently available information for those cases for which such estimate can be made. The estimated aggregate range requires significant judgment, given the varying stages of the proceedings (including the fact that many of them are currently in preliminary stages), the existence of multiple defendants (including the Company) in such claims whose share of liability has yet to be determined, the numerous yet-unresolved issues in many of the claims, and the attendant uncertainty of the various potential outcomes of such claims. Accordingly, the Company’s estimate will change from time to time, and actual losses may be more than the current estimate. As at December 31, 2016, the Company believes that for all litigation pending its aggregate exposure to loss in excess of the amount accrued could range between $0 and approximately $125 million.

Intellectual property litigation and infringement claims could cause us to incur significant expenses or prevent us from selling our products. The resolution of intellectual property litigation may require us to pay damages for past infringement or to obtain a license under the other party’s intellectual property rights that could require one-time license fees or ongoing royalties, require us to make material changes to our products and/or manufacturing processes, require us to cross-license certain of our patents and other intellectual property and/or prohibit us from manufacturing or selling one or more products in certain jurisdictions, which could adversely impact our operating results in future periods.

In addition, the Company is currently assisting Motorola in the defense of eight personal injury lawsuits due to indemnity obligations included in the agreement that separated Freescale from Motorola in 2004. The multi-plaintiff lawsuits are pending in the Circuit Court of Cook County, Illinois. These claims allege a link between working in semiconductor manufacturing clean room facilities and birth defects in 53 individuals. The eight suits allege exposures that occurred between 1965 and 2006. Each suit seeks an unspecified amount of damages in compensation for the alleged injuries; however, each plaintiff will likely seek substantial compensatory and punitive damages from Motorola which, if proven and recovered, the Company considers to be material. A portion of any indemnity due to Motorola will be reimbursed to NXP if Motorola receives an indemnification payment from its insurance coverage. Motorola has denied liability for these alleged injuries based on numerous defenses. Motorola has potential insurance coverage for many of the years indicated above, but with differing types and levels of coverage, self-insurance retention amounts and deductibles. Motorola has no insurance coverage for a potential punitive damage award. We are in discussions with Motorola and their insurers regarding the availability of applicable insurance coverage for each of the individual cases.

Environmental remediation

In each jurisdiction in which we operate, we are subject to many environmental, health and safety laws and regulations that govern, among other things, emissions of pollutants into the air, wastewater discharges, the use and handling of hazardous substances, waste disposal, the investigation and remediation of soil and ground water contamination and the health and safety of our employees. We are also required to obtain environmental permits from governmental authorities for certain of our operations.

As with other companies engaged in similar activities or that own or operate real property, the Company faces inherent risks of environmental liability at our current and historical manufacturing facilities. Certain environmental laws impose liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances. Certain of these laws also assess liability on persons who arrange for hazardous substances to be sent to disposal or treatment facilities when such facilities are found to be contaminated.

Soil and groundwater contamination has been identified at our properties in Hamburg, Germany and Nijmegen, the Netherlands and near Phoenix, Arizona, United States. The remediation processes at these locations are expected to continue for many years.

As of December 31, 2016 we have recorded $84 million for environmental remediation costs, which are primarily included in other non-current liabilities in the accompanying Consolidated Balance Sheet. This amount represents the undiscounted future cash flows of our estimated share of costs incurred in environmental cleanup sites without considering recovery of costs from any other party or insurer, since in most cases potentially responsible parties other than us may exist and be held responsible.

18 Stockholders’ Equity

The share capital of the Company as of December 31, 2016 and 2015 consists of 1,076,257,500 authorized shares, including 430,503,000 authorized shares of common stock, and 645,754,500 authorized but unissued shares of preferred stock.

At December 31, 2016, the Company has issued and paid up 346,002,862 shares (2015: 346,002,862 shares) of common stock each having a par value of €0.20 or a nominal stock capital of €69 million.

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Share-based awards

The Company has granted share-based awards to the members of our board of directors, management team, our other executives, selected other key employees/talents of NXP and selected new hires to receive the Company’s shares in the future. See note 9, “Share-based Compensation”.

Treasury shares

In connection with the Company’s share repurchase programs, which originally commenced in 2011, and which were extended effective August 1, 2013 and February 6, 2014, and in accordance with the Company’s policy to provide share-based awards from its treasury share inventory, shares which have been repurchased and are held in treasury for delivery upon exercise of options and under restricted and performance share programs, are accounted for as a reduction of stockholders’ equity. Treasury shares are recorded at cost, representing the market price on the acquisition date. When issued, shares are removed from treasury shares on a first-in, first-out (FIFO) basis.

Differences between the cost and the proceeds received when treasury shares are reissued, are recorded in capital in excess of par value. Deficiencies in excess of net gains arising from previous treasury share issuances are charged to retained earnings.

The following transactions took place resulting from employee option and share plans in 2016:


	2016
Total shares in treasury at beginning of year		3,998,982
Total cost		342
Shares acquired under repurchase program		15,537,868
Average price in $ per share		82.36
Amount paid		1,280
Shares delivered		8,926,870
Average price in $ per share		79.25
Amount received		115
Total shares in treasury at end of year		10,609,980
Total cost		915

19 Accumulated Other Comprehensive Income (Loss)

Total comprehensive income (loss) represents net income (loss) plus the results of certain equity changes not reflected in the Consolidated Statements of Operations. The after-tax components of accumulated other comprehensive income (loss) and their corresponding changes are shown below:


	Net investment hedge			Currency translation differences			Change in fair value cash flow hedges			Net actuarial gain/(losses)			Unrealized gains/losses available-for sale securities			Accumulated Other Comprehensive Income (loss)
As of December 31, 2014		(331	)		627			(2	)		(85	)		1			210
Other comprehensive income (loss) before reclassifications		(190	)		131			(2	)		28			(1	)		(34	)
Amounts reclassified out of accumulated other comprehensive income (loss)		—			—			2			—			—			2
Tax effects		—			—			—			3			—			3
Other comprehensive income (loss)		(190	)		131			—			31			(1	)		(29	)

As of December 31, 2015		(521	)		758			(2	)		(54	)		—			181
Reclassification		521			(521	)											—
Other comprehensive income (loss) before reclassifications		—			(124	)		—			(22	)		6			(140	)
Amounts reclassified out of accumulated other comprehensive income (loss)		—			—			(1	)		—			—			(1	)
Tax effects		—			—			1			(5	)		(2	)		(6	)
Other comprehensive income (loss)		—			(124	)		—			(27	)		4			(147	)

As of December 31, 2016		—			113			(2	)		(81	)		4			34

20 Related-party Transactions

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

Other

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

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


	2016		2015		2014
Revenue		59		8		11
Purchase of goods and services		116		85		103

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


	2016		2015
Receivables		13		24
Payables		29		24

21 Fair Value of Financial Assets and Liabilities

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


				December 31, 2016						December 31, 2015
	Fair value hierarchy			Carrying amount			Estimated fair value			Carrying amount			Estimated fair value
Assets:
Notes hedges		3	1)		258			258			241			241
Other financial assets		2			40			40			47			47
Derivative instruments-assets		2			3			3			2			2

Liabilities:
Short-term debt		2			(15	)		(15	)		(22	)		(22	)
Short-term debt (bonds)		2			(406	)		(406	)		(534	)		(535	)
Long-term debt (bonds)		2			(7,752	)		(8,011	)		(7,669	)		(7,723	)
2019 Cash Convertible Senior Notes		2			(1,014	)		(1,310	)		(972	)		(1,260	)
Other long-term debt		2			(1	)		(1	)		(15	)		(15	)
Notes Embedded Conversion Derivative		3	1)		(258	)		(258	)		(241	)		(241	)
Warrants		2			—			—			(168	)		(168	)
Derivative instruments-liabilities		2			(6	)		(6	)		(4	)		(4	)

1)	During the fourth quarter of 2016, the Notes hedges and the Notes Embedded Conversion Derivative were transferred from level 2 to level 3 of the fair value hierarchy.

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

Other financial assets and derivatives

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

Notes hedges and Notes Embedded Conversion Derivative

At December 31, 2016, the Notes hedges and the Notes Embedded Conversion Derivative are measured at fair value using level 3 inputs. The instruments are not actively traded and are valued at the measurement date using an option pricing model that uses observable inputs for the share price of NXP’s common stock, the risk-free interest rate, dividend yield and the term, in combination with a significant unobservable input for volatility, that we determine based upon a hypothetical market place and is a factor of 32%-48%. The change in the fair value of the Notes hedges and Notes Embedded Conversion Derivative was solely the gain and loss, respectively for each instrument that was recognized.

Debt

The fair value is estimated on the basis of observable inputs other than quoted prices in active markets for identical liabilities for certain issues, or on the basis of discounted cash flow analyses. Accrued interest is included under accrued liabilities and not within the carrying amount or estimated fair value of debt.

Warrants

At the time of the issuance of the 2019 Cash Convertible Senior Notes, NXP entered into separate warrant transactions with various parties for the purchase of up to 11.18 million shares of NXP’s common stock at a price of $133.32 per share in a private placement. The warrants expire on various dates from March 2, 2020, through April 30, 2020, and will be net share settled. NXP received $134 million in cash proceeds from the sale of the Warrants, which was recorded in other non-current liabilities. As of January 1, 2016, as a result of the acquisition of Freescale, NXP has concluded that the functional currency of

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the holding company is USD. Consequently, beginning from January 1, 2016, the warrants with a carrying value of $168 million were reclassified to stockholders’ equity, and mark-to-market accounting is no longer applicable. The warrants are included in diluted earnings per share to the extent the impact is dilutive. As of December 31, 2016, the warrants were not dilutive.

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

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

22 Other Financial Instruments, Derivatives and Currency Risk

We conduct business in diverse markets around the world and employ a variety of risk management strategies and techniques to manage foreign currency exchange rate and interest rate risks. Our risk management program focuses on the unpredictability of financial markets and seeks to minimize the potentially adverse effects that the volatility of these markets may have on our operating results. One way we achieve this is through the active hedging of risks through the selective use of derivative instruments.

Derivatives are recorded on our Consolidated Balance Sheets at fair value which fluctuates based on changing market conditions.

The Company does not purchase or hold financial derivative instruments for trading purposes.

Currency risk

The Company’s transactions are denominated in a variety of currencies. The Company uses financial instruments to reduce its exposure to the effects of currency fluctuations. Accordingly, the Company’s organizations identify and measure their exposures from transactions denominated in other than their own functional currency. We calculate our net exposure on a cash flow basis considering balance sheet items, actual orders received or made and anticipated revenue and expenses. The Company generally hedges foreign currency exposures in relation to transaction exposures, such as receivables/payables resulting from such transactions and part of anticipated sales and purchases. The Company generally uses forwards to hedge these exposures. As of January 1, 2016, as a result of the acquisition of Freescale, NXP has concluded that the functional currency of the holding company is USD. Beginning from January 1, 2016, our U.S. dollar-denominated notes and short term loans will no longer need to be re-measured. Prior to January 1, 2016, the U.S. dollar-denominated debt held by our Dutch subsidiary (which had at that time a euro functional currency) could have generated adverse currency results in financial income and expenses depending on the exchange rate movement between the euro and the U.S. dollar. This exposure was partially mitigated by the application of net investment hedge accounting, which had been applied since May 2011. The U.S. dollar exposure of the net investment in U.S. dollar functional currency subsidiaries was hedged by certain of our U.S. dollar denominated debt. The hedging relationship was assumed to be highly effective. Foreign currency gains or losses on this U.S. dollar debt that were recorded in a euro functional currency entity that were designated as, and to the extent they were effective, as a hedge of the net investment in our U.S. dollar foreign entities, were reported as a translation adjustment in other comprehensive income within equity, and offset in whole or in part the foreign currency changes to the net investment that were also reported in other comprehensive income. Absent the application of net investment hedging, these amounts would have been recorded as a loss within financial income (expense) in the statement of operations. No amount resulting from ineffectiveness of net investment hedge accounting was recognized in the statement of operations in 2015 and 2014.

23 Segments and Geographical Information

NXP is organized into two reportable segments, High Performance Mixed Signal (“HPMS”) and Standard Products (“SP”). Corporate and Other represents the remaining portion to reconcile to the Consolidated Financial Statements. Effective with the Merger, the operations of Freescale were primarily incorporated into the HPMS reportable segment.

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

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

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

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Detailed information by segment for the years 2016, 2015 and 2014 is presented in the following tables.


Revenue	2016		2015		2014
HPMS		8,086		4,720		4,208
SP		1,220		1,241		1,275
Corporate and Other (1)		192		140		164

		9,498		6,101		5,647


Operating income (loss)	2016			2015			2014
HPMS		(302	)		1,885			983
SP		268			264			120
Corporate and Other (1)		(116	)		(134	)		(54	)

		(150	)		2,015			1,049

(1)	Corporate and Other is not a segment under ASC 280 “Segment Reporting”. Corporate and Other includes revenue related to Manufacturing Operations, unallocated expenses not related to any specific business segment and corporate restructuring charges.


Goodwill assigned to segments	Cost at January 1, 2016		Acquisitions		Transfer to asset held for sale			Translation differences and other changes			Cost at December 31, 2016
HPMS		8,769		14		(6	)		(49	)		8,728
SP		373		—		(343	)		2			32
Corporate and Other (1)		272		—		—			(3	)		269

		9,414		14		(349	)		(50	)		9,029

See note 3 for further information regarding the acquisition of Freescale.


	Accumulated impairment at January 1, 2016			Translation differences and other changes		Accumulated impairment at December 31, 2016
HPMS		(154	)		—		(154	)
SP		(32	)		—		(32	)
Corporate and Other (1)		—			—		—
		(186	)		—		(186	)

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

Geographical Information


	Revenue (1)						Property, plant and equipment
	2016		2015		2014		2016		2015		2014
China		3,882		3,135		2,756		251		360		116
Netherlands		285		177		171		183		161		169
United States		906		415		396		922		1,115		5
Singapore		984		526		452		166		186		200
Germany		623		392		450		52		98		80
Japan		550		316		245		1		2		1
South Korea		369		268		287		—		1		1
Malaysia		231		41		47		378		473		79
Other countries		1,668		831		843		399		526		472

		9,498		6,101		5,647		2,352		2,922		1,123

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

24 Subsequent Events

NXP B.V. and NXP Funding LLC, subsidiaries of NXP, delivered notice on February 7, 2017 that it will pre-pay (i) all its outstanding floating-rate term loan due March 2017 (“Term Loan E”) in an aggregate principal amount of $388 million, (ii) all its outstanding floating-rate term loan due January 2020 (“Term Loan D”) in an aggregate principal amount of $387 million and (iii) all its outstanding floating-rate term loan due December 2020 (“Term Loan F”) in an aggregate principal amount of $1,436 million, in each case, together with accrued interest and applicable fees. The funds for these pre-payments will come from the proceeds of the previously announced completion of the divestiture of the Standard Products business of NXP.

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Additionally, on February 7, 2017, NXP B.V., together with NXP Funding LLC, delivered notice to holders of its 5.75% Senior Notes due 2021 (the “Notes”) that it will redeem on March 9, 2017, $500 million of the outstanding aggregate principal amount of these Notes, which represents all of the outstanding aggregate principal amount of the Notes, as permitted under Article 3 of the indenture dated February 14, 2013 and paragraph 5 of the Notes. The funds for this redemption will come from available surplus cash.

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