NXP Semiconductors N.V. (NXPI) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the financial statements and the related notes that appear elsewhere in this document. This section of this Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 as filed with the SEC on February 22, 2024.

Our MD&A is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flows. MD&A is organized as follows:

•Overview - Overall analysis of financial and other highlights to provide context for the MD&A

•Results of Operations - An analysis of our financial results

•Financial Condition, Liquidity and Capital Resources - An analysis of changes in our balance sheets and cash flows and a discussion of our financial condition and potential sources of liquidity

•Critical Accounting Estimates - Accounting estimates that management believes are the most important to understanding the assumptions and judgments incorporated in our financial results and forecasts

•Use of Certain Non-GAAP Financial Measures - A discussion of the presentation of non-GAAP financial measures

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NXP has one reportable segment representing the entity as a whole. Our segment represents groups of similar products that are combined on the basis of similar design and development requirements, product characteristics, manufacturing processes and distribution channels, and how management allocates resources and measures results. See Note 1 to the consolidated financial statements for more information regarding our segment.

Overview

Year in Focus

•Revenue was $12.6 billion, down 5.0% year-on-year;

•GAAP gross margin was 56.4%, and GAAP operating margin was 27.1%;

•Non-GAAP gross margin was 58.1%, and non-GAAP operating margin was 34.6%;

•Cash flow from operations was $2,782 million, with net capital expenditures on property, plant and equipment of $693 million, resulting in non-GAAP free cash flow of $2,089 million; and

•During 2024, NXP returned capital to shareholders with the payment of $1,038 million in cash dividends and the repurchase of $1,373 million of its common shares, for a total capital return of $2,411 million.

On January 9, 2024, NXP acquired shares in the newly founded European Semiconductor Manufacturing Company GmbH (ESMC), which will build and operate a new 300mm semiconductor wafer manufacturing facility in Dresden, Germany. ESMC is 70% owned by TSMC, with Bosch, Infineon, and NXP each owning 10%. NXP will invest approximately $550 million (€500 million) for our equity position, of which $80 million has been invested in the year ended December 31, 2024.

On September 4, 2024, NXP acquired shares in the newly founded VisionPower Semiconductor Manufacturing Company Pte. Ltd. (VSMC), which will build and operate a new 300mm semiconductor wafer manufacturing facility in Singapore. VSMC is 60% owned by Vanguard International Semiconductor Corporation and 40% owned by NXP. NXP will invest $1,600 million for our equity position, of which $140 million has been invested in the year ended December 31, 2024. NXP has committed to contribute an additional $1,200 million to support the long-term capacity infrastructure that is expected to be paid through 2026, of which $275 million has been contributed in the year ended December 31, 2024.

On December 17, 2024, NXP entered into a definitive agreement to acquire Aviva Links for $242.5 million in cash. Subject to customary closing conditions, including regulatory approvals, the transaction is expected to close in the first half of 2025.

On January 7, 2025, NXP entered into a definitive agreement to acquire TTTech Auto for $625 million in cash. Subject to customary closing conditions, including regulatory approvals, the transaction is expected to close in the second half of 2025 with a possibility for an accelerated closing timeline.

On February 10, 2025, NXP entered into a definitive agreement to acquire Kinara, Inc. for $307 million in cash. Subject to customary closing conditions, including regulatory approvals, the transaction is expected to close in the first half of 2025.

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Revenue for the year ended December 31, 2024 was $12,614 million compared to $13,276 million for the year ended December 31, 2023, a decrease of $662 million or 5.0% year-on-year.

Our gross profit percentage for 2024 of 56.4% decreased when compared to 2023 (56.9%), reflecting a lower decline of cost of revenue compared with the decreased revenue.

We continue to generate strong operating cash flows, with $2,782 million in cash flows from operations for 2024. We returned $2,411 million to our shareholders during the year in dividends and repurchases of common stock. Our cash position at the end of 2024 was $3,292 million.

Quarter in Focus

•Revenue for the fourth quarter of 2024 was $3.1 billion, down 9.1% year-on-year;

•GAAP gross margin was 53.9%, and GAAP operating margin was 21.7%;

•Non-GAAP gross margin was 57.5%, and non-GAAP operating margin was 34.2%;

•Cash flow from operations was $391 million, with net capital expenditures on property, plant and equipment of $99 million, resulting in non-GAAP free cash flow of $292 million;

•During the fourth quarter of 2024, NXP returned capital to shareholders with the payment of $258 million in cash dividends and the repurchase of $455 million of its common shares, for a total capital return of $713 million.

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Sequential Results

Q4 2024 compared to Q3 2024

Revenue for the three months ended December 31, 2024 was $3,111 million compared to $3,250 million for the three months ended September 29, 2024, a decrease of $139 million or 4.3% quarter-on-quarter. NXP experienced declines in the Industrial & IoT end market of $47 million or 8.3%, Communication Infrastructure & Other end market of $42 million or 9.3%, Automotive end market of $39 million or 2.1%, and Mobile end market of $11 million or 2.7%.

When aggregating all end markets together and reviewing sales channel performance, revenue through NXP’s third party distribution partners was $1,763 million, a decrease of $134 million or 7.1% compared to the previous period. Revenue through NXP’s third party direct OEM and EMS customers was $1,321 million, consistent with the previous period.

From a geographic perspective, revenue increased in the Asia Pacific and China regions, partly offset by declines in the EMEA and the Americas regions.

The gross profit percentage for the fourth quarter of 2024 decreased to 53.9% from 57.4% in the third quarter of 2024, primarily due to an impairment of capital assets and higher restructuring costs for specific targeted actions under the new global restructuring programs in the fourth quarter of 2024.

Operating cash flows for the three months ended December 31, 2024 was $391 million compared to $779 million for the three months ended September 29, 2024, a decrease of $388 million or 50.2% quarter-on-quarter.

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Results of Operations

The following table presents the composition of operating income for the years ended December 31, 2024 and December 31, 2023.

Revenue

Revenue for the year ended December 31, 2024 was $12,614 million compared to $13,276 million for the year ended December 31, 2023, a decrease of $662 million or 5.0% year-on-year.

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Revenue by end market was as follows:

Revenue by sales channel was as follows:

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

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

Revenue in the Automotive end market was $7,151 million, a decrease of $333 million or 4.4% versus the year ago period, with processor and connectivity products contributing to the decline partly offset with growth in advanced analog and ADAS – Safety products.

Revenue in the Industrial & IoT end market was $2,269 million, a decrease of $82 million or 3.5% versus the year ago period, with processor products contributing to the decline partly offset with growth in advanced analog and connectivity products.

Revenue in the Mobile end market was $1,497 million, an increase of $170 million or 12.8% versus the year ago period, with mobile wallet products contributing to the growth.

Revenue in the Communication Infrastructure & Other end market was $1,697 million, a decrease of $417 million or 19.7% versus the year ago period, with the entire product portfolio contributing the decline.

When aggregating all end markets and reviewing sales channel performance, revenue through NXP’s third party distribution partners was $7,203 million, consistent with the year ago period with an increase of $8 million or 0.1%. Revenue through direct OEM and EMS customers was $5,291 million, a decrease of $672 million or 11.3% versus the year ago period.

From a geographic perspective, revenue increased in the China region and declined in the EMEA, Americas, and Asia Pacific regions versus the year ago period.

Gross Profit

Gross profit for the year ended December 31, 2024 was $7,119 million, or 56.4% of revenue, compared to $7,553 million, or 56.9% of revenue, relatively consistent with revenue and costs, both of which had comparable decreases year on year, with 2024 experiencing a slightly lower year on year utilization.

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Operating Expenses

Operating expenses for the year ended December 31, 2024 totaled $3,647 million, or 28.9% of revenue, compared to $3,877 million, or 29.2% of revenue, for the year ended December 31, 2023.

•Research and development

Research and development (R&D) costs primarily consist of engineer salaries and wages (including share based compensation and other variable compensation), engineering related costs (including outside services, fixed-asset, IP and other licenses related costs), shared service center costs and other pre-production related expenses.

R&D costs for the year ended December 31, 2024 decreased by $71 million, or 2.9%, when compared to last year primarily driven by lower bonus of $85 million and higher received government assistance due to subsidies and R&D tax credits of $60 million, partly offset by higher engineer salaries and wages of $25 million, higher share-based compensation costs of $22 million and higher licensing fees of $12 million.

•Selling, general and administrative

Selling, general and administrative (SG&A) costs primarily consist of personnel salaries and wages (including share based compensation and other variable compensation), communication and IT related costs, fixed-asset related costs and sales and marketing costs (including travel expenses).

SG&A costs for the year ended December 31, 2024 remained relatively flat, an increase of $5 million, or 0.4%, when compared to last year primarily driven by higher personnel salaries and wages, including social securities of $32 million, higher share-based compensation costs of $23 million and higher restructuring costs for specific targeted actions under global restructuring programs of $11 million, offset by lower bonus of $43 million and lower legal expenses of $26 million.

•Amortization of acquisition-related intangible assets

Amortization of acquisition-related intangible assets decreased by $164 million, or 54.7%, when compared to last year mainly from the effect of certain acquisition-related intangibles becoming fully amortized (with regard to the previous Marvell and Freescale acquisitions).

Other Income (Expense)

Other income (expense) includes results from manufacturing service arrangements (“MSA”) and transitional service arrangements (“TSA”) that are put into place when we divest a business or activity, as well as other activity. These arrangements are expected to decrease as the divested business or activity becomes more established. Other income (expense) reflects a loss of $55 million for 2024, compared to a loss of $15 million in 2023. Included in 2024 is a $40 million charge for a vacated deposit on an exited technology.

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Financial Income (Expense)

Financial income (expense) was an expense of $318 million in 2024, compared to an expense of $309 million in 2023. The change in financial income (expense) is attributable to a decrease in interest income of $27 million as a result of lower cash level in 2024, partially offset by higher interest rates. Interest expense decreased by $40 million as a result of redemption of debt. Other financial expenses increased due to adjustments in our investments as well as interest related to prior tax positions.

Benefit (Provision) for Income Taxes

We recorded an income tax expense of $545 million for the year ended December 31, 2024, which reflects an effective tax rate of 17.6% compared to an expense of $523 million (15.6%) for the year ended December 31, 2023.

The effective tax rate reflects the impact of tax incentives, a portion of our earnings being taxed in foreign jurisdictions at rates different than the Netherlands statutory tax rate, changes in estimates of prior years' income taxes, change in valuation allowance non-deductible expenses and withholding taxes. The impact of these items results in offsetting factors that attribute to the change in the effective tax rate between the two periods, with the significant drivers outlined below:

•The Company benefits from certain tax incentives, which reduce the effective tax rate. The dollar amount of the incentive in any given year is commensurate with the taxable income in that same period. In 2024, the foreign tax incentives are lower compared to 2023 primarily due to less qualifying income.

•As from 2024 a new alternative minimum tax law is applicable in The Netherlands, which is based on the OECD global anti-base erosion model rules (also known as Pillar Two). In accordance with this law, NXP N.V. recorded an additional tax expense in 2024.

•The higher favorable changes in estimates of prior years' income taxes in 2023 is primarily as a result of new guidance released by the Internal Revenue Service to clarify the treatment of specified research and experimental expenditures under Section 174.

•The other differences are mainly relating to excess tax benefits, unrecognized tax benefits, FX-effects and taxes due on Global Intangible Low-Taxed Income (GILTI) inclusions in the U.S. GILTI is recognized as a current period expense when incurred.

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Results Relating to Equity-accounted Investees

Results relating to equity-accounted investees amounted to a loss of $12 million in 2024, whereas in 2023 results relating to equity-accounted investees amounted to a loss of $7 million.

Non-controlling Interests

Non-controlling interests are related to the third-party share in the results of consolidated companies, predominantly SSMC. Their share of non-controlling interests amounted to a profit of $32 million for the year ended December 31, 2024, compared to a profit of $25 million for the year ended December 31, 2023.

Financial Condition, Liquidity and Capital Resources

We derive our liquidity and capital resources primarily from our cash flows from operations. We continue to generate strong positive operating cash flows, and we currently use cash to fund operations, meet working capital requirements, for capital expenditures and for potential common stock repurchases, dividends and strategic investments. Based on past performance and current expectations, we believe that our current available sources of funds (including cash and cash equivalents, RCF Agreement, Commercial Paper Program, EIB facilities, plus anticipated cash generated from operations) will be adequate to finance our operations, working capital requirements, capital expenditures and potential dividends for at least the next year.

Cash and short-term deposits

As of December 31, 2024, our cash balance was $3,292 million, a decrease of $979 million compared to our cash balance and short-term deposits on December 31, 2023 ($4,271 million), of which $261 million (2023: $214 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 2024 and 2023, no dividend was declared.

Revolving Credit Facility

Our amended and restated Unsecured Revolving Credit Facility (“RCF”) provides for $2,500 million of senior unsecured revolving credit commitments. We may borrow under this RCF in the future and use the proceeds for general corporate purposes and any other purpose not prohibited by the Amended and Restated Revolving Credit Agreement and related documentation. As of December 31, 2024, we do not have any borrowings under the RCF.

Commercial Paper Program

Under our Commercial Paper Program, we may issue short-term, unsecured commercial paper notes in amounts up to a maximum aggregate face amount of $2,000 million outstanding at any time, with maturities of up to 397 days from the date of issuance and at a discount from par or at par and bear interest at rates determined at the time of issuance. We may issue notes in the future and use the net proceeds for general corporate purposes. As of December 31, 2024, the Company had no commercial paper notes outstanding. Subsequent to year-end and through date of this report, we issued commercial paper notes with a duration of up to 96 days at an principal amounts of $215 million. The weighted-average interest rate of the Company's outstanding commercial paper notes is 4.60%.

EIB Facilities

Our facility agreements with the European Investment Bank, (“EIB") provide for an aggregate €1,000 million in unsecured senior loan facilities, the proceeds from which are expected to fund the research, development and innovation of semiconductor devices, technologies and solutions in five European countries. Borrowings on these facilities may be denominated in Euro or U.S. Dollar. See Financing Activities further below. As of December 31, 2024, the Company had a principal amount of $670 million outstanding under the EIB loan facilities with a maturity of December 2030 and a fixed annual interest rate of 4.45%. On February 11, 2025, we have provided notice to EIB that we will fully draw the remaining amounts under the EIB facility agreements, drawing on February 25, 2025, an additional total principal amount of $370 million with a fixed annual interest rate of 4.709% and a maturity of February 2031.

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Capital return

The common stock repurchase activity was as follows:

Under Dutch corporate law and our articles of association, NXP may acquire its own shares if the general meeting of shareholders has granted the board of directors the authority to effect such acquisitions. It is our standard practice to request our annual general meeting of shareholders (the “AGM”) every year to renew this authorization for a period of 18 months from the AGM. For repurchases of shares in 2023 and 2024, the board of directors made use of the authorizations renewed by the AGM on June 1, 2022, May 24, 2023 and May 29, 2024, respectively. Our board of directors has approved the purchase of shares from participants in NXP's equity programs to satisfy participants' tax withholding obligations ("trade for tax") and this authorization will remain in effect until terminated by the board of directors. In March 2021, the board of directors approved the additional repurchase of shares up to a maximum of $2 billion (the "2021 Share Repurchase Program"), and in August 2021, the board of directors increased the 2021 Share Repurchase Program authorization by $2 billion, for a total of $4 billion approved for the repurchase of shares under the 2021 Share Repurchase Program. In January 2022, the board of directors approved the repurchase of additional shares up to a maximum of $2 billion (the "2022 Share Repurchase Program") and in August 2024, the Board approved the repurchase of additional shares up to a maximum of $2 billion (the "2024 Share Repurchase Program"). During the fiscal year ended December 31, 2023, NXP repurchased 5.5 million shares, for a total of approximately $1 billion under the trade for tax, 2021 and 2022 Share Repurchase Programs and during the fiscal year ended December 31, 2024, NXP repurchased 5.7 million shares, for a total of approximately $1.4 billion under the trade for tax and 2022 Share Repurchase Program. Under Dutch tax law, the repurchase of a company’s shares by an entity domiciled in the Netherlands results in a taxable event (unless exemptions apply). The tax on the repurchased shares is attributed to the shareholders, with NXP making the payment on the shareholders’ behalf. As such, the tax on the repurchased shares is accounted for within stockholders’ equity.

Subject to Dutch corporate law and our articles of association, the board of directors of NXP may cancel shares acquired if authorized by the general meeting of shareholders. As with repurchases of our shares, it is our standard practice to request our annual general meeting of shareholders (the “AGM”) every year to renew this authorization for a period of 18 months from the AGM. The board of directors did not make use of the authorization during the fiscal year ended December 31, 2024.

Under our Quarterly Dividend Program, interim dividends of $1.014 per ordinary share were paid on April 10, 2024 ($260 million), dividends of $1.014 per ordinary share were paid on July 10, 2024 ($259 million), dividends of $1.014 per ordinary share were paid on October 9, 2024 ($258 million) and dividends of $1.014 per ordinary share were paid on January 8, 2025 ($258 million).

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Debt

Our total debt, inclusive of aggregate principal, unamortized discounts, premiums, debt issuance costs and fair value adjustments, amounted to $10,854 million as of December 31, 2024, a decrease of $321 million compared to December 31, 2023 ($11,175 million).

As of December 31, 2024, the Company had outstanding fixed-rate notes with varying maturities for an aggregate principal amount of $10,250 million (collectively the “Notes”), with $500 million payable within 12 months. Future interest payments associated with the Notes total $2,711 million, with $371 million payable within 12 months.

As of December 31, 2024, the Company had an outstanding loan with the European Investment Bank (EIB) under the EIB Facility A, with a maturity date of December 9, 2030 for a principal amount of $670 million. Future interest payments associated with the EIB Facility A Loan total $179 million, with $30 million payable within 12 months.

The Company had a net debt position (see section Use of Certain Non-GAAP Financial Measures) at December 31, 2024 of $7,562 million compared to $6,904 million as of December 31, 2023.

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

Additional capital requirements

We believe our current positions in cash and cash equivalents, together with our expected cash flow generated from operations and our expected financing activities will satisfy our working and other capital requirements for at least the next 12 months based on our current business plans. Recent and expected working and other capital requirements, in addition to the above matters, also include the items described below:

•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, 2024, the Company had purchase commitments, other than commitments directly with our foundry joint ventures, of $3,046 million, of which $936 million is expected to be paid in the next 12 months. We expect operating cash outflows to remain elevated as we make payments under these purchase agreements.

•The Company has committed to invest approximately $442 million in the newly founded ESMC GmbH, over the coming four years, of which approximately $102 million is expected to be paid in the next 12 months.

•Driven by our investment in VSMC, NXP has committed to invest an additional $1,460 million in equity through 2026, of which $1,072 million is expected to be paid in the next 12 months. NXP has also committed to contribute an additional $925 million to support the long-term capacity infrastructure that is expected to be paid through 2026, of which $634 million is expected to be paid in the next 12 months. In addition, NXP has an agreed purchase commitment with VSMC that over the lifetime of the factory the minimal loading will be between 80% - 90%, resulting in a total purchase commitment of approximately $14,242 million that is expected to be purchased over 37 years once wafer production starts.

•Amounts related to future lease payments for operating lease obligations at December 31, 2024 totaled $321 million, with $62 million expected to be paid within the next 12 months.

•The Company enters into certain technology license arrangements which are used in conjunction with research and development activities for product development. Payments for these technology licenses are made over varying time periods. Outstanding unpaid balances for technology licenses total $325 million as of December 31, 2024, of which $85 million is expected to be paid in the next 12 months.

•Cash outflows for capital expenditures were $727 million in 2024, compared to $827 million in 2023. We expect to reduce levels of capital expenditures as a percentage of revenue in 2025, given our focus on investments in foundry partners while still supporting current and future manufacturing and production capacity needs.

•Our research and development expenditures were $2,347 million in 2024 and $2,418 million in 2023, and we expect to maintain similar levels of investment in research and development as a percentage of revenue in 2025.

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•The Company has entered into definitive agreements to acquire in cash, Aviva Links ($242.5 million), TTTech Auto ($625 million) and Kinara, Inc. ($307 million), which are respectively expected to be paid within the next 12 months.

From time to time, we engage in discussions with third parties regarding potential acquisitions of, or investments in, businesses, technologies and product lines. Any such transaction could require significant use of our cash and cash equivalents, or require us to arrange for new debt and equity financing to fund the transaction. Our ability to make scheduled payments or to refinance our debt obligations depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions. In the future, we may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay principal, premium, if any, and interest on our indebtedness. Our business may not generate sufficient cash flow from operations, or we may not have enough capacity under the RCF Agreement, EIB Facility Agreements, Commercial Paper Program, or from other sources in an amount sufficient to enable us to repay our indebtedness, including outstanding commercial paper notes, and borrowings under the EIB Facility and RCF Agreements, the unsecured notes or to fund our other liquidity needs, including working capital and capital expenditure requirements. In any such case, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. See Part I, Item 1A. Risk Factors.

2024 Financing Activities

On November 21, 2024, NXP B.V., NXP Funding and NXP USA entered into definitive documentation to establish an unsecured Commercial Paper Program (the “CP Program”) under which, on a joint and several basis, short-term, unsecured commercial paper notes (the “CP Notes”) may be issued. Amounts available under the CP Program may be borrowed, repaid, and re-borrowed from time to time, with the aggregate principal amount of CP Notes outstanding under the CP Program at any time not to exceed $2,000 million. The net proceeds of issuances of the CP Notes are expected to be used for general corporate purposes.

On November 22, 2024, NXP B.V. entered into a facility agreement with the European Investment Bank, (“EIB Facility A”), which provides for a €640 million unsecured senior loan facility. The proceeds from borrowings under the EIB Facility A are expected to be used, together with proceeds from a second €360 million facility agreement (“EIB Facility B”) concluded in January 2025, to fund the research, development and innovation of semiconductor devices, technologies and solutions in five European countries. Borrowings on these facilities may be denominated in Euro or U.S. Dollar.

2023 Financing Activities

There were no significant financing activities during 2023.

Cash flows

Our cash and cash equivalents in 2024 decreased by $566 million (excluding the effect of changes in exchange rates on our cash position of $(4) million) as follows:

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•Cash Flow from Operating Activities

For the year ended December 31, 2024 our operating activities provided $2,782 million in cash. This was primarily the result of net income of $2,542 million, adjustments to reconcile the net income of $1,151 million and changes in operating assets and liabilities of $(923) million. Adjustments to net income include offsetting non-cash items, such as depreciation and amortization of $925 million, share-based compensation of $461 million, a loss on equity securities of $18 million, results relating to equity-accounted investees of $12 million and changes in deferred taxes of $(272) million. Changes in operating assets and liabilities were primarily driven by a $222 million increase in inventories in order to align inventory on hand with expected demand, $207 million increase in receivables and other current assets due to the related timing of cash collection (driven primarily by distributors), $188 million decrease in accounts payable and other liabilities as a result of timing related to payments and lower purchases, and $306 million increase in other non-current assets due to payments to secure production supply with multiple vendors (driven primarily by payments of $275 million to support the long-term capacity infrastructure of VSMC).

For the year ended December 31, 2023 our operating activities provided $3,513 million in cash. This was primarily the result of net income of $2,822 million, adjustments to reconcile the net income of $1,265 million and changes in operating assets and liabilities of $(594) million. Adjustments to net income include offsetting non-cash items, such as depreciation and amortization of $1,106 million, share-based compensation of $411 million, a gain on equity securities of $1 million, results relating to equity-accounted investees of $7 million and changes in deferred taxes of $(267) million. Changes in operating assets and liabilities were primarily driven by a $353 million increase in inventories due to improved supply capabilities, $138 million increase in receivables and other current assets from prepayments to secure production supply with multiple vendors, and $119 million decrease in accounts payable and other liabilities as a result of timing related to payments.

•Cash Flow from Investing Activities

Net cash used for investing activities amounted to $686 million for the year ended December 31, 2024 and principally consisted of the cash outflows for capital expenditures of $727 million, $149 million for the purchase of identified intangible assets, and $260 million for the purchase of investments (driven primarily by the capital contributions of approximately $80 million into ESMC and approximately $140 million into VSMC); partially offset by the $409 million for the proceeds of short-term deposits and $30 million for the advance payment from sale of property, plant and equipment.

Net cash used for investing activities amounted to $1,508 million for the year ended December 31, 2023 and principally consisted of the cash outflows for capital expenditures of $827 million, $409 investments in short-term deposits, $(179) million for the purchase of identified intangible assets, and $94 million for the purchase of investments.

•Cash Flow from Financing Activities

Net cash used for financing activities was $2,662 million for the year ended December 31, 2024. This was primarily driven by the repurchase of long-term debt of $1,000 million, the dividend payment to common stockholders of $1,038 million, and purchase of treasury shares and restricted stock unit holdings of $1,373 million; partially offset by the $670 million proceeds from issuance of long-term debt and $82 million proceeds from the issuance of common stock through stock plans.

Net cash used for financing activities was $1,990 million for the year ended December 31, 2023. This was primarily driven by the dividend payment to common stockholders of $1,006 million, and purchase of treasury shares and restricted stock unit holdings of $1,053 million; partially offset by the $71 million proceeds from the issuance of common stock through stock plans.

Information Regarding Guarantors of NXP (unaudited)

Summarized Combined Financial Information for Guarantee of Securities of Subsidiaries

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

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consolidates the Subsidiary Obligors in its consolidated financial statements and each of the Subsidiary Obligors are wholly owned subsidiaries of the Company.

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

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

Summarized Statements of Income

Summarized Balance Sheets

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

The financial information of the Obligor Group includes sales executed through a Non-Guarantor Subsidiary single-billing entity as a sales agent on behalf of an entity in the Obligor Group. The Obligor Group has sales to non-guarantors (2024: $699 million). The Obligor Group has amounts due from equity financing (2024: $5,749 million) and due to debt financing (2024: $2,283 million) with non-guarantor subsidiaries.

Use of Certain Non-GAAP Financial Measures

Non-GAAP Financial Measures

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

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

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

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

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Critical Accounting Estimates

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

The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our Consolidated Financial Statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain and based on information available when the estimates were made. In the following section, we discuss our most critical accounting estimates and the judgments involved.

Inventories

We regularly review our inventories and write down our inventories for estimated losses due to obsolescence. This allowance is determined for groups of products based on sales of our products in the recent past and/or projected future demand. Future demand is affected by market conditions, technological obsolescence, new products and strategic plans, each of which is subject to change with little or no forewarning.

Goodwill

Goodwill is required to be assessed for impairment at least once annually, 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. Such events or changes in circumstances can include significant changes in business climate, operating performance or competition, or upon the disposition of a significant portion of a reporting unit. A significant amount of judgment is involved in determining if an indicator of impairment has occurred between annual test dates. We perform impairment tests using a fair value approach when necessary. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions, including projected future cash flows, discount rates based on weighted average cost of capital and future economic and market conditions. We base our fair-value estimates on assumptions we believe to be reasonable. Actual cash flow amounts for future periods may differ from estimates used in impairment testing.

Impairment or disposal of identified long-lived assets

We perform reviews of long-lived assets including property, plant and equipment, and intangible assets subject to amortization, whenever facts and circumstances indicate that the useful life is shorter than what we had originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, we assess the recoverability of the long-lived assets 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. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets or based on appraisals. Impairment losses, if any, are based on the excess of the carrying amount over the fair value of those assets. Long-lived assets to be disposed of by sale are reported at the lower of their carrying amounts or their estimated fair values less costs to sell and are not depreciated.

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The assumptions and estimates used to determine future values and remaining useful lives of our intangible and other long-lived assets are complex and subjective. Future values include estimates of future cash flows and estimates of fair value. These assumptions and estimates can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our forecasts for specific product lines.

Revenue recognition

In determining the transaction price of contracts with customers, the Company evaluates whether the price is subject to refund or adjustment to determine the consideration to which the Company expects to be entitled. Variable consideration is estimated and includes the impact of discounts, price protection, product returns and distributor incentive programs. The estimate of variable consideration is dependent on a variety of factors, including contractual terms, analysis of historical data, current economic conditions, industry demand and both the current and forecasted pricing environments.

For some sales to distributors, contractual arrangements are in place which allow these distributors to return products if certain conditions are met. These return rights are a form of variable consideration and are estimated using the most likely method based on historical return rates in order to reduce revenues recognized. However, long notice periods associated with these announcements prevent significant amounts of product from being returned. For sales where return rights exist, the Company has determined, based on historical data, that only a small percentage of the sales of this type to distributors is actually returned. Sales to most distributors are made under programs common in the semiconductor industry whereby distributors receive certain price adjustments to meet individual competitive opportunities. These programs may include credits granted to distributors, or allow distributors 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. In determining the transaction price, the Company considers the price adjustments from these programs to be variable consideration that reduce the amount of revenue recognized. The Company’s policy is to estimate such price adjustments using the most likely method based on rolling historical experience rates, as well as a prospective view of products and pricing in the distribution channel for distributors who participate in our volume rebate incentive program. 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. The estimates are also adjusted when recent historical data does not represent anticipated future activity. Historically, actual price adjustments for these programs relative to those estimated have not materially differed.

Income taxes

The application of tax laws and regulations to calculate our tax liabilities is subject to legal and factual interpretation, judgment, and uncertainty in a multitude of jurisdictions. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations, and court rulings. For each jurisdiction, we recognize a tax liability and/or asset based on our best estimate of these technical merits.