NXP Semiconductors
Annual Report 2017

Plain-text annual report

Table of ContentsAs filed with the Securities and Exchange Commission on April 11, 2018 UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 20-F ☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGEACT OF 1934OR ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017OR ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934OR SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934Date of event requiring this shell company report For the transition period from to Commission file number 001-34841 NXP Semiconductors N.V.(Exact name of Registrant as specified in its charter) The Netherlands(Jurisdiction of incorporation or organization)High Tech Campus 60, Eindhoven 5656 AG, the Netherlands(Address of principal executive offices)Jean Schreurs, SVP and Chief Corporate Counsel, High Tech Campus 60, 5656 AG, Eindhoven, the NetherlandsTelephone: +31 40 2728686 / E-mail: jean.schreurs@nxp.com(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act. Title of each class Name of each exchange on which registeredCommon shares—par value euro (EUR) 0.20 per share The Nasdaq Global Select MarketSecurities registered or to be registered pursuant to Section 12(g) of the Act.None(Title of class)Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.Common shares—par value EUR 0.20 per share(Title of class) Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the AnnualReport. Class Outstanding at December 31, 2017Ordinary shares, par value EUR 0.20 per share 346,002,862 sharesIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ NoIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934. ☐ Yes ☒ NoNote—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934from their obligations under those Sections.Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. ☒ Yes ☐ NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). ☒ Yes ☐ NoIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. Seedefinition of “large accelerated filer”, “accelerated filer”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one) Large accelerated filer ☒ Accelerated filer ☐Non-accelerated filer ☐ Emerging growth company ☐If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected notto use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of theExchange Act. ☐Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ☒ International Financial Reporting Standards as issuedby the International Accounting Standards Board ☐ Other ☐ If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected tofollow. Item 17 ☐ Item 18 ☐If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No Table of ContentsTABLE OF CONTENTS Page Introduction 1 Part I 2 Item 1. Identity of Directors, Senior Management and Advisers 2 Item 2. Offer Statistics and Expected Timetable 2 Item 3. Key Information 2 A. Selected Financial Data 2 B. Capitalization and Indebtedness 4 C. Reasons for the Offer and Use of Proceeds 4 D. Risk Factors 4 Item 4. Information on the Company 17 A. History and Development of the Company 17 B. Business Overview 18 C. Organizational Structure 26 D. Property, Plant and Equipment 27 Item 4A. Unresolved Staff Comments 27 Item 5. Operating and Financial Review and Prospects 27 A. Operating Results 30 B. Liquidity and Capital Resources 36 C. Research and Development, Patents and Licenses, etc. 41 D. Trend Information 41 E. Off-Balance Sheet Arrangements 42 F. Tabular Disclosure of Contractual Obligations 42 G. Safe Harbor 42 Item 6. Directors, Senior Management and Employees 43 A. Directors and Senior Management 43 B. Compensation 47 C. Board Practices 53 D. Employees 55 E. Share Ownership 55 Item 7. Major Shareholders and Related Party Transactions 56 A. Major Shareholders 56 B. Related Party Transactions 56 C. Interests of Experts and Counsel 56 Item 8. Financial Information 57 A. Consolidated Statements and Other Financial Information 57 B. Significant Changes 57 Item 9. The Offer and Listing 57 A. Offer and Listing Details 57 B. Plan of Distribution 57 C. Markets 57 D. Selling Shareholders 57 E. Dilution 58 F. Expenses of the Issue 58 Table of Contents Page Item 10. Additional Information 58 A. Share Capital 58 B. Memorandum and Articles of Association 58 C. Material Contracts 58 D. Exchange Controls 58 E. Taxation 58 F. Dividends and Paying Agents 63 G. Statement by Experts 63 H. Documents on Display 63 I. Subsidiary Information 64 Item 11. Quantitative and Qualitative Disclosures About Market Risk 64 Item 12. Description of Securities Other than Equity Securities 65 Part II 65 Item 13. Defaults, Dividend Arrearages and Delinquencies 65 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 65 Item 15. Controls and Procedures 65 Item 16. A. Audit Committee Financial Expert 66 B. Code of Ethics 66 C. Principal Accountant Fees and Services 66 D. Exemptions from the Listing Standards for Audit Committees 67 E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 67 F. Change in Registrant’s Certifying Accountant 67 G. Corporate Governance 67 H. Mine Safety Disclosures 69 Part III 69 Item 17. Financial Statements 69 Item 18. Financial Statements 69 Item 19. Exhibits 70 GLOSSARY 74 Financial Statements F-1 Table of ContentsIntroductionThis Annual Report on Form 20-F for the fiscal year ended December 31, 2017 (the “Annual Report”) contains forward-looking statements that containrisks and uncertainties. Our actual results may differ significantly from future results as a result of factors such as those set forth in Part I. Item 3.D. RiskFactors and Part I, Item 5.G. Safe Harbor.The financial information included in this Annual Report is based on United States Generally Accepted Accounting Principles (U.S. GAAP), unlessotherwise indicated.In presenting and discussing our financial position, operating results and cash flows, management uses certain non-U.S. GAAP financial measures.These non-U.S. GAAP financial measures should not be viewed in isolation or as alternatives to the equivalent U.S. GAAP measures and should be used inconjunction with the most directly comparable U.S. GAAP measures. A discussion of non-U.S. GAAP measures included in this Annual Report and areconciliation of such measures to the most directly comparable U.S. GAAP measures are set forth under “Use of Certain Non-U.S. GAAP FinancialMeasures” contained in this Annual Report under Part I, Item 5.A. Operating Results.Unless otherwise required, all references herein to “we”, “our”, “us”, “NXP” and the “Company” are to NXP Semiconductors N.V. and its consolidatedsubsidiaries.A glossary of abbreviations and technical terms used in this Annual Report is set forth on page 74. 1Table of ContentsPART IItem 1. Identity of Directors, Senior Management and AdvisersNot applicable.Item 2. Offer Statistics and Expected TimetableNot applicable.Item 3. Key InformationOn June 14, 2016, NXP announced an agreement to divest its Standard Products (“SP”) business to a consortium of financial investors consistingof Beijing JianGuang Asset Management Co., Ltd (“JAC Capital”) and Wise Road Capital LTD (“Wise Road Capital”). On February 6, 2017, we divested SP(subsequently named “Nexperia”), receiving $2.6 billion in cash proceeds, net of cash divested.On February 20, 2018, NXP entered into an amendment (the “Purchase Agreement Amendment”) to that certain Purchase Agreement, dated as ofOctober 27, 2016 (as amended, the “Purchase Agreement”), with Qualcomm River Holdings B.V. (“Buyer”), a wholly-owned, indirect subsidiary ofQUALCOMM Incorporated (“Qualcomm”). Pursuant to the Purchase Agreement Amendment, Buyer agreed to revise the terms of its tender offer to acquire allof the issued and outstanding common shares of NXP and increase the offer price from $110 per share to $127.50 per share, less any applicable withholdingtaxes and without interest to the holders thereof, payable in cash, for estimated total cash consideration of $44 billion. The tender offer is not subject to anyfinancing condition. In addition, Buyer and NXP agreed to reduce the minimum condition of outstanding common shares of NXP that must be validlytendered and not properly withdrawn from 80% of the outstanding common shares to 70% of the outstanding common shares as of the expiration of thetender offer. Pending the receipt of certain regulatory approvals, as well as satisfaction of other customary closing conditions, the proposed transaction isexpected to close in the first half of 2018.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 ofrecommendation by the NXP Board, NXP will be obligated to pay to Buyer a termination compensation equal to $1.25 billion in cash. If the PurchaseAgreement is terminated under certain circumstances, including circumstances relating to the failure to obtain antitrust approvals or failure to complete in allmaterial respects certain internal reorganization steps and related dispositions with respect to NXP, Buyer will be obligated to pay to NXP a terminationcompensation equal to $2 billion in cash.On November 6, 2017, Broadcom Limited (“Broadcom”) proposed an unsolicited offer to acquire all of the issued and outstanding shares ofQualcomm, subject to a number of conditions, including regulatory approvals. On March 14, 2018, Broadcom withdrew and terminated its offer to acquireQualcomm.A. Selected Financial DataThe following table presents a summary of our selected historical consolidated financial data. We prepare our financial statements in accordance withU.S. GAAP.The results of operations for prior years are not necessarily indicative of the results to be expected for any future period.On February 6, 2017, we divested our Standard Products (“SP”) business, receiving $2.6 billion in cash proceeds, net of cash divested. Prior toFebruary 6, 2017, the results of the SP business were included in the reportable segment SP.On December 7, 2015, we acquired Freescale Semiconductor, Ltd. (“Freescale”) for a total consideration of $11.6 billion (the “Merger”). The results oftheir operations and the estimated fair value of the assets acquired and liabilities assumed in the business combination are included in our financialstatements from the date of acquisition forward. 2Table of ContentsThe selected historical consolidated financial data should be read in conjunction with the discussion under Part I, Item 5.A. Operating Results and theConsolidated Financial Statements and the accompanying notes included elsewhere in this Annual Report. As of and for the years ended December 31, ($ in millions unless otherwise stated) 2017(1) 2016 2015 2014 2013 Consolidated Statements of Operations: Revenue 9,256 9,498 6,101 5,647 4,815 Gross profit(2) 4,619 4,069 2,787 2,640 2,177 Total operating expenses(3) (4,092) (4,228) (2,035) (1,601) (1,535) Other income (expense)(4) 1,575 9 1,263 10 9 Operating income (loss) 2,102 (150) 2,015 1,049 651 Financial income (expense) (366) (453) (529) (410) (274) Net income (loss) attributable to stockholders 2,215 200 1,526 539 348 Earnings per share data: Net income per common shareattributable to stockholders in $ • Basic 6.54 0.59 6.36 2.27 1.40 • Diluted 6.41 0.58 6.10 2.17 1.36 Weighted average number of shares of common stock outstanding during the year (in thousands) • Basic 338,646 338,477 239,764 237,954 248,526 • Diluted 345,802 347,607 250,116 248,609 255,050 Consolidated balance sheet data(5): Cash and cash equivalents 3,547 1,894 1,614 1,185 670 Total assets 24,049 24,898 26,354 6,850 6,402 Net assets 13,716 11,156 11,803 801 1,546 Working capital(6) 4,077 3,386 2,820 1,340 939 Total debt(7), (8) 6,565 9,187 9,212 3,956 3,274 Total stockholders’ equity 13,527 10,935 11,515 538 1,301 Common stock 71 71 68 51 51 Other operating data: Capital expenditures (552) (389) (341) (329) (215) Depreciation and amortization(9) 2,173 2,205 517 405 514 Consolidated statements of cash flows data: Net cash provided by (used for): Operating activities 2,447 2,303 1,330 1,468 891 Investing activities 2,072 (627) (430) (387) (240) Financing activities (2,886) (1,392) (449) (554) (598) Net cash provided by (used for) continuing operations 1,633 284 451 527 53 (1)Reflects the results of the SP business up to the February 6, 2017 divestment.(2)Gross profit in 2016 includes a charge of $448 million (2015: $149 million), resulting from the purchase accounting effect on the inventory acquiredfrom Freescale.(3)Total operating expenses in 2016 include charges related to the acquisition of Freescale as follows - $1,430 million for the amortization of acquisition-related intangibles, which includes an impairment charge of $89 million relative to In-process research and development (IPR&D) that was acquiredfrom Freescale, and $53 million of merger and integration related costs. In 2015, total operating expenses include charges related to the acquisition ofFreescale as follows - $226 million in restructuring charges, $105 million for the amortization of acquisition-related intangibles, $49 million of stockbased compensation charges related to employees terminated as a result of the Merger and $42 million of merger related costs.(4)Other income (expense) in 2017 includes the recognition of the gain on the sale of our SP business ($1,597 million). Other income (expense) in 2015includes the recognition of the gains from the sale of our Bipolar business on November 9, 2015 and the sale of our RF Power business on December 7,2015. See the section on Other Significant Transactions in Part I, Item 4. B. Business Overview.(5)Consolidated balance sheet data as of 2015 includes the impact of purchase accounting on the assets acquired and liabilities assumed in connectionwith our acquisition of Freescale.(6)Working capital is calculated as current assets less current liabilities (excluding short-term debt).(7)On December 7, 2015, in connection with the Merger, NXP entered into a $2.7 billion secured term loan (“Term Loan B”). Proceeds from among othersthe Term Loan B were used to (i) pay the cash consideration in connection with the Merger, (ii) effect the repayment of certain amounts underFreescale’s outstanding credit facility and (iii) pay certain transaction costs. In February 2017, NXP repaid all Term Loans, including Term Loan B,with the funds from the proceeds of the divestment of the SP business. Additionally, $500 million was repaid on the 2021 unsecured senior notes inMarch 2017.(8)As adjusted for our cash and cash equivalents our net debt was calculated as follows: ($ in millions) 2017 2016 2015 2014 2013 Long-term debt 5,814 8,766 8,656 3,936 3,234 Short-term debt 751 421 556 20 40 Total debt 6,565 9,187 9,212 3,956 3,274 Less: cash and cash equivalents (3,547) (1,894) (1,614) (1,185) (670) Net debt 3,018 7,293 7,598 2,771 2,604 Net debt is a non-GAAP financial measure. See “Use of Certain Non-GAAP Financial Measures” under Part I, 5.A. Operating Results. 3Table of Contents(9)Depreciation and amortization includes the effect of purchase accounting related to acquisitions. The effect of purchase accounting in depreciation andamortization was $1,741 million in 2017, $1,782 million (which includes an impairment charge of $89 million relative to IPR&D that was acquiredfrom Freescale) in 2016, $252 million in 2015, $164 million in 2014 and $246 million in 2013.As used in this Annual Report, “euro”, or “€” means the single unified currency of the European Monetary Union. “U.S. dollar”, “USD”, “U.S. $” or “$”means the lawful currency of the United States of America. As used in this Annual Report, the term “noon buying rate” refers to the exchange rate for euro,expressed in U.S. dollars per euro, as announced by the Federal Reserve Bank of New York for customs purposes as the rate in the city of New York for cabletransfers in foreign currencies.The table below shows the average noon buying rates for U.S. dollars per euro for the five years ended December 31, 2017. The averages set forth in thetable below have been computed using the noon buying rate on the next to last business day of each fiscal month during the periods indicated. Year ended December 31, 2017 2016 2015 2014 2013 Average $ per € 1.1301 1.1065 1.1150 1.3297 1.3281 The following table shows the high and low noon buying rates for U.S. dollars per euro for each of the six months in the six-month period endedApril 2, 2018: Month High Low ($ per €) 2017 October 1.1847 1.1580 November 1.1936 1.1577 December 1.2022 1.1725 2018 January 1.2488 1.1922 February 1.2482 1.2211 March 1.2440 1.2216 On April 2, 2018, the noon buying rate was $1.2288 per €1.00.Fluctuations in the value of the euro relative to the U.S. dollar have had a significant effect on the translation into U.S. dollar of our euro-denominatedassets, liabilities, revenue and expenses, and may continue to do so in the future. For further information on the impact of fluctuations in exchange rates onour operations, see the “Fluctuations in Foreign Rates May Have An Adverse Effect On Our Financial Results” section in Part I, Item 3.D. Risk Factors andthe “Foreign Currency Risks” section in Part I, Item 11. Quantitative and Qualitative Disclosures About Market Risk.B. Capitalization and IndebtednessNot applicable.C. Reasons for the Offer and Use of ProceedsNot applicable.D. Risk FactorsThe following section provides an overview of the risks to which our business is exposed. You should carefully consider the risk factors describedbelow and all other information contained in this Annual Report, including the Consolidated Financial Statements and related notes. The occurrence of therisks described below could have a material adverse impact on our business, financial condition or results of operations. Various statements in this AnnualReport, including the following risk factors, contain forward-looking statements. Please also refer to Part I, Item 5.G. Safe Harbor, contained elsewhere inthis Annual Report.Risks related to our businessThere are risks and uncertainties associated with the pending offer by Qualcomm River Holdings B.V. (“Buyer”), an indirect, wholly ownedsubsidiary of QUALCOMM Incorporated, to purchase all of NXP’s outstanding common shares.As described elsewhere in this Annual Report, on February 20, 2018, Buyer and NXP entered into the Purchase Agreement Amendment under whichBuyer agreed to revise the terms of its tender offer to acquire all of the issued and outstanding common shares of NXP and increase the offer price from $110per share to $127.50 per share, less any applicable withholding taxes and without interest to the holders thereof, payable in cash, subject to the satisfaction orwaiver of the conditions in the Purchase Agreement. There are a number of risks and uncertainties relating to this transaction, including the following: 4Table of Contents •disruptions from the announcement of the proposed transaction, whether completed or not, may harm our relationships with our employees,customers, distributors, suppliers or other business partners or negatively affect our operating results and business generally; •various conditions to the closing of the transaction may not be satisfied or waived; •70% of NXP’s outstanding shares must be tendered in the Offer as a closing condition to the transaction; •the occurrence of any event, change or other circumstances that could give rise to the termination of the Purchase Agreement, which, amongother things, may cause our share price to decline to the extent that the current price of our common shares reflects an assumption that thetransaction will be completed; •the failure to complete the transaction may result in negative publicity and a negative impression of us in the investment community; •we may be subject to legal proceedings related to the transaction contemplated by the Purchase Agreement; •failure to obtain all regulatory approvals related to the transaction, may delay the closing or result in the imposition of conditions, limitations orrestrictions that could, under certain circumstances, cause Buyer to abandon the transaction; •the Purchase Agreement may be terminated in circumstances that would require us to pay Buyer termination compensation in the amount of$1.25 billion; •developments beyond our control, including but not limited to changes in domestic or global economic conditions that may affect the timing orsuccess of the transaction; •the attention of our employees and management may be diverted due to activities related to the transaction; •our ability to attract, recruit, retain and motivate current and prospective employees who may be uncertain about their future roles andrelationships with us following the completion of the transaction may be adversely affected; and •the Purchase Agreement restricts us from engaging in certain actions without Buyer’s approval, which could prevent us from pursuing certainbusiness opportunities outside the ordinary course of business that arise prior to the closing of the transaction.The semiconductor industry is highly cyclical.Historically, the relationship between supply and demand in the semiconductor industry has caused a high degree of cyclicality in the semiconductormarket. Semiconductor supply is partly driven by manufacturing capacity, which in the past has demonstrated alternating periods of substantial capacityadditions and periods in which no or limited capacity was added. As a general matter, semiconductor companies are more likely to add capacity in periodswhen current or expected future demand is strong and margins are, or are expected to be, high. Investments in new capacity can result in overcapacity, whichcan lead to a reduction in prices and margins. In response, companies typically limit further capacity additions, eventually causing the market to be relativelyundersupplied. In addition, demand for semiconductors varies, which can exacerbate the effect of supply fluctuations. As a result of this cyclicality, thesemiconductor industry has in the past experienced significant downturns, such as in 1997/1998, 2001/2002 and in 2008/2009, often in connection with, orin anticipation of, maturing life cycles of semiconductor companies’ products and declines in general economic conditions. These downturns have beencharacterized by diminishing demand for end-user products, high inventory levels, under-utilization of manufacturing capacity and accelerated erosion ofaverage selling prices. The foregoing risks have historically had, and may continue to have, a material adverse effect on our business, financial condition andresults of operations.Significantly increased volatility and instability and unfavorable economic conditions may adversely affect our business.In 2008 and 2009, Europe, the United States and international markets experienced increased volatility and instability. In 2015, volatility andinstability in financial markets continued following renewed investor concerns related to the economic situation in parts of the world, a decline in the growthrate of the Chinese economy, increased hostilities in the Middle East, and other world events. These, or other events, could further adversely affect theeconomies of the European Union, the United States and those of other countries and may exacerbate the cyclicality of our business. Among other factors, weface risks attendant to unfavourable changes related to interest rates, rates of economic growth, fiscal, monetary and trade policies of governments, tax ratesand policy and changes in demand for end-user products and changes in interest rates.Despite indications of recovery and aggressive measures taken by governments and central banks, there is a significant risk that the global economycould fall into recession again. If economic conditions remain uncertain or deteriorate, our business, financial condition and results of operations could bematerially adversely affected.As a consequence of the significantly increased volatility and instability, it is difficult for us, our customers and suppliers to forecast demand trends.We may be unable to accurately predict the extent or duration of cycles or their effect on our financial condition or result of operations and can give noassurance as to the timing, extent or duration of the current or future business cycles. A recurrent decline in demand or the failure of demand to return to priorlevels could place pressure on our results of operations. The timing and extent of any changes to currently prevailing market conditions is uncertain andsupply and demand may be unbalanced at any time. 5Table of ContentsThe semiconductor industry is highly competitive. If we fail to introduce new technologies and products in a timely manner, this could adverselyaffect our business.The semiconductor industry is highly competitive and characterized by constant and rapid technological change, short product lifecycles, significantprice erosion and evolving standards. Accordingly, the success of our business depends to a significant extent on our ability to develop new technologiesand products that are ultimately successful in the market. The costs related to the research and development necessary to develop new technologies andproducts are significant and any reduction of our research and development budget could harm our competitiveness. Meeting evolving industry requirementsand introducing new products to the market in a timely manner and at prices that are acceptable to our customers are significant factors in determining ourcompetitiveness and success. Commitments to develop new products must be made well in advance of any resulting sales, and technologies and standardsmay change during development, potentially rendering our products outdated or uncompetitive before their introduction. If we are unable to successfullydevelop new products, our revenue may decline substantially. Moreover, some of our competitors are well-established entities, are larger than us and havegreater resources than we do. If these competitors increase the resources they devote to developing and marketing their products, we may not be able tocompete effectively. Any consolidation among our competitors could enhance their product offerings and financial resources, further strengthening theircompetitive position. In addition, some of our competitors operate in narrow business areas relative to us, allowing them to concentrate their research anddevelopment efforts directly on products and services for those areas, which may give them a competitive advantage. As a result of these competitivepressures, we may face declining sales volumes or lower prevailing prices for our products, and we may not be able to reduce our total costs in line with thisdeclining revenue. If any of these risks materialize, they could have a material adverse effect on our business, financial condition and results of operations.In many of the market segments in which we compete, we depend on winning selection processes, and failure to be selected could adversely affect ourbusiness in those market segments.One of our business strategies is to participate in and win competitive bid selection processes to develop products for use in our customers’ equipmentand products. These selection processes can be lengthy and require us to incur significant design and development expenditures, with no guarantee ofwinning a contract or generating revenue. Failure to win new design projects and delays in developing new products with anticipated technological advancesor in commencing volume shipments of these products may have an adverse effect on our business. This risk is particularly pronounced in markets wherethere are only a few potential customers and in the automotive market, where, due to the longer design cycles involved, failure to win a design-in couldprevent access to a customer for several years. Our failure to win a sufficient number of these bids could result in reduced revenue and hurt our competitiveposition in future selection processes because we may not be perceived as being a technology or industry leader, each of which could have a material adverseeffect on our business, financial condition and results of operations.The demand for our products depends to a significant degree on the demand for our customers’ end products.The vast majority of our revenue is derived from sales to manufacturers in the automotive, identification, wireless infrastructure, lighting, industrial,mobile, consumer and computing markets. Demand in these markets fluctuates significantly, driven by consumer spending, consumer preferences, thedevelopment of new technologies and prevailing economic conditions. In addition, the specific products in which our semiconductors are incorporated maynot be successful, or may experience price erosion or other competitive factors that affect the price manufacturers are willing to pay us. Such customers havein the past, and may in the future, vary order levels significantly from period to period, request postponements to scheduled delivery dates, modify theirorders or reduce lead times. This is particularly common during periods of low demand. This can make managing our business difficult, as it limits thepredictability of future revenue. It can also affect the accuracy of our financial forecasts. Furthermore, developing industry trends, including customers’ use ofoutsourcing and new and revised supply chain models, may affect our revenue, costs and working capital requirements. Additionally, a significant portion ofour products is made to order.If customers do not purchase products made specifically for them, we may not be able to resell such products to other customers or may not be able torequire the customers who have ordered these products to pay a cancellation fee. The foregoing risks could have a material adverse effect on our business,financial condition and results of operations.The semiconductor industry is characterized by continued price erosion, especially after a product has been on the market.One of the results of the rapid innovation in the semiconductor industry is that pricing pressure, especially on products containing older technology,can be intense. Product life cycles are relatively short, and as a result, products tend to be replaced by more technologically advanced substitutes on a regularbasis.In turn, demand for older technology falls, causing the price at which such products can be sold to drop, in some cases precipitously. In order tocontinue profitably supplying these products, we must reduce our production costs in line with the lower revenue we can expect to generate per unit. Usually,this must be accomplished through improvements in process technology and production efficiencies. If we cannot advance our process technologies orimprove our efficiencies to a degree sufficient to maintain required margins, we will no longer be able to make a profit from the sale of these products.Moreover, we may not be able to cease production of such products, either due to contractual obligations or for customer relationship reasons, and as a resultmay be required to bear a loss on such products. We cannot guarantee that competition in our core product markets will not lead to price erosion, lowerrevenue or lower margins in the future. Should reductions in our manufacturing costs fail to keep pace with reductions in market prices for the products wesell, this could have a material adverse effect on our business, financial condition and results of operations. 6Table of ContentsGoodwill and other identifiable intangible assets represent a significant portion of our total assets, and we may never realize the full value of ourintangible assets.Goodwill and other identifiable intangible assets are recorded at fair value on the date of an acquisition. As a result of our acquisition of Freescale, werecognized goodwill of $7.4 billion and intangible assets of $8.5 billion. We review our goodwill and other intangible assets balance for impairment uponany indication of a potential impairment, and in the case of goodwill, at a minimum of once a year. Impairment may result from, among other things, asustained decrease in share price, deterioration in performance, adverse market conditions, adverse changes in applicable laws or regulations, includingchanges that restrict the activities of or affect the products and services we sell, challenges to the validity of certain registered intellectual property, reducedsales of certain products incorporating intellectual property and a variety of other factors. The amount of any quantified impairment must be expensedimmediately as a charge to results of operations. Depending on future circumstances, it is possible that we may never realize the full value of our intangibleassets. Any future determination of impairment of goodwill or other identifiable intangible assets could have a material adverse effect on our financialposition, results of operations and stockholders’ equity.As our business is global, we need to comply with laws and regulations in countries across the world and are exposed to international business risksthat could adversely affect our business.We operate globally, with manufacturing, assembly and testing facilities in several continents, and we market our products globally.As a result, we are subject to environmental, labor and health and safety laws and regulations in each jurisdiction in which we operate. We are alsorequired to obtain environmental permits and other authorizations or licenses from governmental authorities for certain of our operations. In the jurisdictionswhere we operate, we need to comply with differing standards and varying practices of regulatory, tax, judicial and administrative bodies.In addition, the business environment is also subject to many economic and political uncertainties, including the following international businessrisks: •negative economic developments in economies around the world and the instability of governments and international trade arrangements, suchas the expected withdrawal of the United Kingdom from the European Union, the sovereign debt crisis in certain European countries andpotential increase of barriers to international trade; •social and political instability in a number of countries around the world, including continued hostilities and civil unrest in the Middle East.The instability may have a negative effect on our business, financial condition and operations via our customers and volatility in energy pricesand the financial markets; •potential terrorist attacks; •epidemics and pandemics, which may adversely affect our workforce, as well as our local suppliers and customers in particular in Asia; •adverse changes in governmental policies, especially those affecting trade and investment; •our customers or other groups of stakeholders might impose requirements that are more stringent than the laws in the countries in which we areactive; •volatility in foreign currency exchange rates, in particular with respect to the U.S. dollar, and transfer restrictions, in particular in Greater China;and •threats that our operations or property could be subject to nationalization and expropriation.No assurance can be given that we have been or will be at all times in complete compliance with the laws and regulations to which we are subject orthat we have obtained or will obtain the permits and other authorizations or licenses that we need. If we violate or fail to comply with laws, regulations,permits and other authorizations or licenses, we could be fined or otherwise sanctioned by regulators. In this case, or if any of the international business riskswere to materialize or become worse, they could have a material adverse effect on our business, financial condition and results of operations.In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for publiccompanies, further increasing legal and financial compliance costs. These laws, regulations and standards are subject to varying interpretations, in manycases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory andgoverning bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure.Interruptions in our information technology systems could adversely affect our business.We rely on the efficient and uninterrupted operation of complex information technology applications, systems and networks to operate our business.The reliability and security of our information technology infrastructure and software, and our ability to expand and continually update technologies inresponse to our changing needs is critical to our business. Any significant interruption in our business applications, systems or networks, including but notlimited to new system implementations, computer viruses, cyberattacks, security breaches, facility issues or energy blackouts could have a material adverseimpact on our business, financial condition and results of operations. 7Table of ContentsOur computer systems and networks are subject to attempted security breaches and other cybersecurity incidents, which, if successful, could impactour business.We have, from time to time, experienced attempted cyber-attacks of varying degrees to obtain access to our computer systems and networks. As of thedate of this Annual Report, no such attacks have succeeded in obtaining access to our critical systems. However, such attacks may be successful in the future.Cyber-attacks could result in the misappropriation of our proprietary information and technology, the compromise of personal and confidential informationof our employees, customers or suppliers or interrupt our business. In the current environment, there are numerous and evolving risks to cybersecurity andprivacy, including criminal hackers, state-sponsored intrusions, industrial espionage, employee malfeasance, and human or technological error. Computerhackers and others routinely attempt to breach the security of technology products, services, and systems, and those of customers, suppliers, and some ofthose attempts may be successful. Such breaches could result in, for example, unauthorized access to, disclosure, modification, misuse, loss, or destruction ofour, our customer, or other third party data or systems, theft of sensitive or confidential data including personal information and intellectual property, systemdisruptions, and denial of service. In the event of such breaches, we, our customers or other third parties could be exposed to potential liability, litigation, andregulatory action, as well as the loss of existing or potential customers, damage to our reputation, and other financial loss. In addition, the cost andoperational consequences of responding to breaches and implementing remediation measures could be significant. As these threats continue to develop andgrow, we have been adapting the security measures and we continue to increase the amount we allocate to implement, maintain and/or update securitysystems to protect data and infrastructure. As a global enterprise, we could also be impacted by existing and proposed laws and regulations, as well asgovernment policies and practices related to cybersecurity, privacy and data protection. Additionally, cyber-attacks or other catastrophic events resulting indisruptions to or failures in power, information technology, communication systems or other critical infrastructure could result in interruptions or delays tous, our customers, or other third party operations or services, financial loss, potential liability, and damage our reputation and affect our relationships with ourcustomers and suppliers.In difficult market conditions, our high fixed costs combined with low revenue may negatively affect our results of operations.The semiconductor industry is characterized by high fixed costs and, notwithstanding our utilization of third-party manufacturing capacity, most ofour production requirements are met by our own manufacturing facilities. In less favorable industry environments, like we faced in the second half in 2011,we are generally faced with a decline in the utilization rates of our manufacturing facilities due to decreases in demand for our products. During such periods,our fabrication plants could operate at lower loading level, while the fixed costs associated with the full capacity continue to be incurred, resulting in lowergross profit.The semiconductor industry is capital intensive and if we are unable to invest the necessary capital to operate and grow our business, we may notremain competitive.To remain competitive, we must constantly improve our facilities and process technologies and carry out extensive research and development, each ofwhich requires investment of significant amounts of capital. This risk is magnified by the indebtedness we currently have, since we are required to use aportion of our cash flow to service that debt. If we are unable to generate sufficient cash flow or raise sufficient capital to meet both our debt service andcapital investment requirements, or if we are unable to raise required capital on favorable terms when needed, this could have a material adverse effect on ourbusiness, financial condition and results of operations.We rely to a significant extent on proprietary intellectual property. We may not be able to protect this intellectual property against improper use byour competitors or others.Our success and future revenue growth depends, in part, on our ability to protect our proprietary technology, our products, our proprietary designs andfabrication processes, and other intellectual property against misappropriation by others. We primarily rely on patent, copyright, trademark and trade secretlaws, as well as nondisclosure agreements and other methods, to protect our intellectual property. We may have difficulty obtaining patents and otherintellectual property rights to protect our proprietary products, technology and intellectual property, and the patents and other intellectual property rights wereceive may be insufficient to provide us with meaningful protection or commercial advantage. We may not be able to obtain patent protection or secureother intellectual property rights in all the countries in which we operate, and under the laws of such countries, patents and other intellectual property rightsmay be or become unavailable or limited in scope. Even if new patents are issued, the claims allowed may not be sufficiently broad to effectively protect ourproprietary technology, processes and other intellectual property. In addition, any of our existing patents, and any future patents issued to us may bechallenged, invalidated or circumvented. The protection offered by intellectual property rights may be inadequate or weakened for reasons or circumstancesthat are out of our control. Further, our proprietary technology, designs and processes and other intellectual property may be vulnerable to disclosure ormisappropriation by employees, contractors and other persons. It is possible that competitors or other unauthorized third parties may obtain, copy, use ordisclose our proprietary technologies, our products, designs, processes and other intellectual property despite our efforts to protect our intellectual property.While we hold a significant number of patents, there can be no assurances that additional patents will be issued or that any rights granted under our patentswill provide meaningful protection against misappropriation of our intellectual property. Our competitors may also be able to develop similar technologyindependently or design around our patents. We may not have foreign patents or pending applications corresponding to all of our primary patents andapplications. Even if foreign patents are granted, effective enforcement in foreign countries may not be available. In particular, intellectual property rights aredifficult to enforce in some countries, since the application 8Table of Contentsand enforcement of the laws governing such rights may not have reached the same level as compared to other jurisdictions where we operate. Consequently,operating in some countries may subject us to an increased risk that unauthorized parties may attempt to copy or otherwise use our intellectual property orthe intellectual property of our suppliers or other parties with whom we engage. There is no assurance that we will be able to protect our intellectual propertyrights or have adequate legal recourse in the event that we seek legal or judicial enforcement of our intellectual property rights under the laws of suchcountries. Any inability on our part to adequately protect our intellectual property may have a material adverse effect on our business, financial conditionand results of operations.We may become party to intellectual property claims or litigation that could cause us to incur substantial costs, pay substantial damages or prohibitus from selling our products.We have from time to time received, and may in the future receive, communications alleging possible infringement of patents and other intellectualproperty rights of others. Further, we may become involved in costly litigation brought against us regarding patents, copyrights, trademarks, trade secrets orother intellectual property rights. If any such claims are asserted against us, we may seek to obtain a license under the third party’s intellectual propertyrights. We cannot assure you that we will be able to obtain any or all of the necessary licenses on satisfactory terms, if at all. In the event that we cannotobtain or take the view that we don’t need a license, these parties may file lawsuits against us seeking damages (and potentially treble damages in the UnitedStates) or an injunction against the sale of our products that incorporate allegedly infringed intellectual property or against the operation of our business aspresently conducted. Such lawsuits, if successful, could result in an increase in the costs of selling certain of our products, our having to partially orcompletely redesign our products or stop the sale of some of our products and could cause damage to our reputation. Any litigation could require significantfinancial and management resources regardless of the merits or outcome, and we cannot assure you that we would prevail in any litigation or that ourintellectual property rights can be successfully asserted in the future or will not be invalidated, circumvented or challenged. The award of damages, includingmaterial royalty payments, or the entry of an injunction against the manufacture and sale of some or all of our products, could affect our ability to compete orhave a material adverse effect on our business, financial condition and results of operations.We rely on strategic partnerships, joint ventures and alliances for manufacturing and research and development. However, we often do not controlthese partnerships and joint ventures, and actions taken by any of our partners or the termination of these partnerships or joint ventures could adverselyaffect our business.As part of our strategy, we have entered into a number of long-term strategic partnerships with other leading industry participants. For example, wehave entered into a joint venture with Taiwan Semiconductor Manufacturing Company Limited (“TSMC”) called Systems on Silicon ManufacturingCompany Pte. Ltd. (“SSMC”). In 2015, we established WeEn Semiconductors, a Bipolar joint venture in China with JianGuang Asset Management Co, Ltd.See Part I, Item 4.A. History and Development of the Company - Other Significant Transactions.If any of our strategic partners in industry groups or in any of the other alliances we engage with were to encounter financial difficulties or change theirbusiness strategies, they may no longer be able or willing to participate in these groups or alliances, which could have a material adverse effect on ourbusiness, financial condition and results of operations. We do not control some of these strategic partnerships, joint ventures and alliances in which weparticipate. We may also have certain obligations, including some limited funding obligations or take or pay obligations, with regard to some of our strategicpartnerships, joint ventures and alliances. For example, we have made certain commitments to SSMC, in which we have a 61.2% ownership share, wherebywe are obligated to make cash payments to SSMC should we fail to utilize, and TSMC does not utilize, an agreed upon percentage of the total availablecapacity at SSMC’s fabrication facilities if overall SSMC utilization levels drop below a fixed proportion of the total available capacity.We may from time to time desire to exit certain product lines or businesses, or to restructure our operations, but may not be successful in doing so.From time to time, we may decide to divest certain product lines and businesses or restructure our operations, including through the contribution ofassets to joint ventures. We have, in recent years, exited several of our product lines and businesses, and we have closed several of our manufacturing andresearch facilities. We may continue to do so in the future. However, our ability to successfully exit product lines and businesses, or to close or consolidateoperations, depends on a number of factors, many of which are outside of our control. For example, if we are seeking a buyer for a particular business line,none may be available, or we may not be successful in negotiating satisfactory terms with prospective buyers. In addition, we may face internal obstacles toour efforts. In particular, several of our operations and facilities are subject to collective bargaining agreements and social plans or require us to consult withour employee representatives, such as work councils which may prevent or complicate our efforts to sell or restructure our businesses. In some cases,particularly with respect to our European operations, there may be laws or other legal impediments affecting our ability to carry out such sales orrestructuring.If we are unable to exit a product line or business in a timely manner, or to restructure our operations in a manner we deem to be advantageous, thiscould have a material adverse effect on our business, financial condition and results of operations. Even if a divestment is successful, we may face indemnityand other liability claims by the acquirer or other parties. 9Table of ContentsWe may from time to time restructure parts of our processes. Any such restructuring may impact customer satisfaction and the costs ofimplementation may be difficult to predict.Between 2008 and 2011, we executed a redesign program and, in 2013 we executed a restructuring initiative designed to improve operationalefficiency and to competitively position the company for sustainable growth. In 2015, we began a restructuring initiative to prepare for and implement theintegration of Freescale into our existing businesses. We plan to continue to restructure and make changes to parts of the processes in our organization.Furthermore, if the global economy remains volatile or if the global economy reenters a deeper and longer lasting recession, our revenues could decline, andwe may be forced to take additional cost savings steps that could result in additional charges and materially affect our business. The costs of implementingany restructurings, changes or cost savings steps may differ from our estimates and any negative impacts on our revenues or otherwise of such restructurings,changes or steps, such as situations in which customer satisfaction is negatively impacted, may be larger than originally estimated.If we fail to extend or renegotiate our collective bargaining agreements and social plans with our labor unions as they expire from time to time, ifregular or statutory consultation processes with employee representatives such as works councils fail or are delayed, or if our unionized employees were toengage in a strike or other work stoppage, our business and operating results could be materially harmed.We are a party to collective bargaining agreements and social plans with our labor unions. We are also required to consult with our employeerepresentatives, such as works councils, on items such as restructurings, acquisitions and divestitures. Although we believe that our relations with ouremployees, employee representatives and unions are satisfactory, no assurance can be given that we will be able to successfully extend or renegotiate theseagreements as they expire from time to time or to conclude the consultation processes in a timely and favorable way. The impact of future negotiations andconsultation processes with employee representatives could have a material impact on our financial results. Also, if we fail to extend or renegotiate our laboragreements and social plans, if significant disputes with our unions arise, or if our unionized workers engage in a strike or other work stoppage, we couldincur higher ongoing labor costs or experience a significant disruption of operations, which could have a material adverse effect on our business.Our working capital needs are difficult to predict.Our working capital needs are difficult to predict and may fluctuate. The comparatively long period between the time at which we commencedevelopment of a product and the time at which it may be delivered to a customer leads to high inventory and work-in-progress levels. The volatility of ourcustomers’ own businesses and the time required to manufacture products also makes it difficult to manage inventory levels and requires us to stockpileproducts across many different specifications.Our business may be adversely affected by costs relating to product defects, and we could be faced with product liability and warranty claims.We make highly complex electronic components and, accordingly, there is a risk that defects may occur in any of our products. Such defects can giverise to significant costs, including expenses relating to recalling products, replacing defective items, writing down defective inventory and loss of potentialsales. In addition, the occurrence of such defects may give rise to product liability and warranty claims, including liability for damages caused by suchdefects. If we release defective products into the market, our reputation could suffer and we may lose sales opportunities and incur liability for damages.Moreover, since the cost of replacing defective semiconductor devices is often much higher than the value of the devices themselves, we may at times facedamage claims from customers in excess of the amounts they pay us for our products, including consequential damages. We also face exposure to potentialliability resulting from the fact that our customers typically integrate the semiconductors we sell into numerous consumer products, which are then sold intothe marketplace. We are exposed to product liability claims if our semiconductors or the consumer products based on them malfunction and result in personalinjury or death. We may be named in product liability claims even if there is no evidence that our products caused the damage in question, and such claimscould result in significant costs and expenses relating to attorneys’ fees and damages. In addition, our customers may recall their products if they prove to bedefective or make compensatory payments in accordance with industry or business practice or in order to maintain good customer relationships. If such arecall or payment is caused by a defect in one of our products, our customers may seek to recover all or a portion of their losses from us. If any of these risksmaterialize, our reputation would be harmed and there could be a material adverse effect on our business, financial condition and results of operations.Our business has suffered, and could in the future suffer, from manufacturing problems.We manufacture, in our own factories as well as with third parties, our products using processes that are highly complex, require advanced and costlyequipment and must continuously be modified to improve yields and performance. Difficulties in the production process can reduce yields or interruptproduction, and, as a result of such problems, we may on occasion not be able to deliver products or do so in a timely or cost-effective or competitive manner.As the complexity of both our products and our fabrication processes has become more advanced, manufacturing tolerances have been reduced andrequirements for precision have become more demanding. As is common in the semiconductor industry, we have in the past experienced manufacturingdifficulties that have given rise to delays in delivery and quality control problems. There can be no assurance that any such occurrence in the future wouldnot materially harm our results of operations. Further, we may suffer disruptions in our manufacturing operations, either due to production difficulties such asthose described above or as a result of external factors beyond our control. We may, in the future, experience manufacturing difficulties or permanent ortemporary loss of manufacturing capacity due to the preceding or other risks. Any such event could have a material adverse effect on our business, financialcondition and results of operations. 10Table of ContentsWe rely on the timely supply of equipment and materials and could suffer if suppliers fail to meet their delivery obligations or raise prices. Certainequipment and materials needed in our manufacturing operations are only available from a limited number of suppliers.Our manufacturing operations depend on deliveries of equipment and materials in a timely manner and, in some cases, on a just-in-time basis. Fromtime to time, suppliers may extend lead times, limit the amounts supplied to us or increase prices due to capacity constraints or other factors. Supplydisruptions may also occur due to shortages in critical materials, such as silicon wafers or specialized chemicals. Because the equipment that we purchase iscomplex, it is frequently difficult or impossible for us to substitute one piece of equipment for another or replace one type of material with another. A failureby our suppliers to deliver our requirements could result in disruptions to our manufacturing operations. Our business, financial condition and results ofoperations could be harmed if we are unable to obtain adequate supplies of quality equipment or materials in a timely manner or if there are significantincreases in the costs of equipment or materials.Failure of our third party suppliers to perform could adversely affect our ability to exploit growth opportunities.We currently use outside suppliers for a portion of our manufacturing capacity. Outsourcing our production presents a number of risks. If our outsidesuppliers are unable to satisfy our demand, or experience manufacturing difficulties, delays or reduced yields, our results of operations and ability to satisfycustomer demand could suffer. In addition, purchasing rather than manufacturing these products may adversely affect our gross profit margin if the purchasecosts of these products are higher than our own manufacturing costs would have been. Prices for foundry products also vary depending on capacityutilization rates at our suppliers, quantities demanded, product technology and geometry. Furthermore, these outsourcing costs can vary materially fromquarter to quarter and, in cases of industry shortages, they can increase significantly, negatively affecting our gross profit.Loss of our key management and other personnel, or an inability to attract such management and other personnel, could affect our business.We depend on our key management to run our business and on our senior engineers to develop new products and technologies. Our success willdepend on the continued service of these individuals. Although we have several share based compensation plans in place, we cannot be sure that these planswill help us in our ability to retain key personnel, especially considering the fact that the stock options under some of our plans become exercisable upon achange of control (in particular, when a third party, or third parties acting in concert, obtains, whether directly or indirectly, control of us). The loss of any ofour key personnel, whether due to departures, death, ill health or otherwise, could have a material adverse effect on our business. The market for qualifiedemployees, including skilled engineers and other individuals with the required technical expertise to succeed in our business, is highly competitive and theloss of qualified employees or an inability to attract, retain and motivate the additional highly skilled employees required for the operation and expansion ofour business could hinder our ability to successfully conduct research activities or develop marketable products. The foregoing risks could have a materialadverse effect on our business.Disruptions in our relationships with any one of our key customers could adversely affect our business.A substantial portion of our revenue is derived from our top customers, including our distributors. We cannot guarantee that we will be able to generatesimilar levels of revenue from our largest customers in the future. If one or more of these customers substantially reduce their purchases from us, this couldhave a material adverse effect on our business, financial condition and results of operations.We receive subsidies and grants in certain countries, and a reduction in the amount of governmental funding available to us or demands forrepayment could increase our costs and affect our results of operations.As is the case with other large semiconductor companies, we receive subsidies and grants from governments in some countries. These programs aresubject to periodic review by the relevant governments, and if any of these programs are curtailed or discontinued, this could have a material adverse effecton our business, financial condition and results of operations. As the availability of government funding is outside our control, we cannot guarantee that wewill continue to benefit from government support or that sufficient alternative funding will be available if we lose such support. Moreover, if we terminateany activities or operations, including strategic alliances or joint ventures, we may face adverse actions from the local governmental agencies providing suchsubsidies to us. In particular, such government agencies could seek to recover such subsidies from us and they could cancel or reduce other subsidies wereceive from them. This could have a material adverse effect on our business, financial condition and results of operations.Legal proceedings covering a range of matters are pending in various jurisdictions. Due to the uncertainty inherent in litigation, it is difficult topredict the final outcome. An adverse outcome might affect our results of operations.We and certain of our businesses are involved as plaintiffs or defendants in legal proceedings in various matters. For example, we are involved in legalproceedings claiming personal injuries to the children of former employees as a result of employees’ alleged exposure to chemicals used in semiconductormanufacturing clean room environments operated by us or our former parent companies Philips and Motorola. Furthermore, because we continue to utilizethese clean rooms, we may become subject to future claims alleging personal injury that may lead to additional liability. A judgment against us or materialdefense cost could harm our business, financial condition and results of operations. 11Table of ContentsWe are exposed to a variety of financial risks, including currency risk, interest rate risk, liquidity risk, commodity price risk, credit risk and othernon-insured risks, which may have an adverse effect on our financial results.We are a global company and, as a direct consequence, movements in the financial markets may impact our financial results. We are exposed to avariety of financial risks, including currency fluctuations, interest rate risk, liquidity risk, commodity price risk and credit risk and other non-insured risks.We have euro-denominated assets and liabilities and, since our reporting currency is the U.S. dollar, the impact of currency translation adjustments to suchassets and liabilities may have a negative effect on our stockholders’ equity. We continue to hold or convert a part of our cash in euros as a hedge for euroexpenses and euro interest payments. We are exposed to fluctuations in exchange rates when we convert U.S. dollars to euro. We enter into diverse financialtransactions with several counterparties to mitigate our currency risk. We only use derivative instruments for hedging purposes.We are also a purchaser of certain base metals, precious metals, chemicals and energy used in the manufacturing process of our products, the prices ofwhich can be volatile. Credit risk represents the loss that would be recognized at the reporting date if counterparties failed to perform upon their agreedpayment obligations. Credit risk is present within our trade receivables. Such exposure is reduced through ongoing credit evaluations of the financialconditions of our customers and by adjusting payment terms and credit limits when appropriate. We invest available cash and cash equivalents with variousfinancial institutions and are in that respect exposed to credit risk with these counterparties. We actively manage concentration risk on a daily basis adheringto a treasury management policy. We seek to limit the financial institutions with which we enter into financial transactions, such as depositing cash, to thosewith a strong credit rating wherever possible. If we are unable to successfully manage these risks, they could have a material adverse effect on our business,financial condition and results of operations.The impact of a negative performance of financial markets and demographic trends on our defined benefit pension liabilities and costs cannot bepredicted.We sponsor defined benefit pension plans in a number of countries and a significant number of our employees are covered by our defined benefitpension plans. As of December 31, 2017, we had recognized a net accrued benefit liability of $456 million, representing the unfunded benefit obligations ofour defined pension plans. The funding status and the liabilities and costs of maintaining these defined benefit pension plans may be impacted by financialmarket developments. For example, the accounting for such plans requires determining discount rates, expected rates of compensation and expected returnson plan assets, and any changes in these variables can have a significant impact on the projected benefit obligations and net periodic pension costs. Negativeperformance of the financial markets could also have a material impact on funding requirements and net periodic pension costs. Our defined benefit pensionplans may also be subject to demographic trends. Accordingly, our costs to meet pension liabilities going forward may be significantly higher than they aretoday, which could have a material adverse impact on our financial condition.Future changes to Dutch, U.S. and other foreign tax laws could adversely affect us.The European Commission, U.S. Congress and Treasury Department, the Organization for Economic Co-operation and Development, and othergovernment agencies in jurisdictions where we and our affiliates do business have had an extended focus on issues related to the taxation of multinationalcorporations, particularly payments made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. As a result, the taxlaws in the European Union, U.S. and other countries in which we and our affiliates do business could change on a prospective or retroactive basis, and anysuch changes could adversely affect us and our affiliates.Recent examples include the Organization for Economic Co-operation and Development’s recommendations on base erosion and profit shifting, theEuropean Commission’s Anti-Tax Avoidance Directive and the Corporate Tax Package released in October 2016 which includes a Common ConsolidatedCorporate Tax Base. These initiatives include recommendations and proposals that, if enacted in countries in which we and our affiliates do business, couldadversely affect us and our affiliates.For a discussion of the Tax Cuts and Jobs Act, recently enacted in the United States, please see the discussion below under the heading “We areexposed to a number of different tax uncertainties, which could have an impact on tax results”.We are exposed to a number of different tax uncertainties, which could have an impact on tax results.We are required to pay taxes in multiple jurisdictions. We determine the taxes we are required to pay based on our interpretation of the applicable taxlaws and regulations in the jurisdictions in which we operate. We may be subject to unfavorable changes in the respective tax laws and regulations to whichwe are subject. Tax controls, audits, change in controls and changes in tax laws or regulations or the interpretation given to them may expose us to negativetax consequences, including interest payments and potentially penalties. We have issued transfer-pricing directives in the areas of goods, services andfinancing, which are in accordance with the Guidelines of the Organization of Economic Co-operation and Development (OECD). As transfer pricing has across border effect, the focus of local tax authorities on implemented transfer pricing procedures in a country may have an impact on results in anothercountry. 12Table of ContentsTransfer pricing uncertainties can also result from disputes with local tax authorities about transfer pricing of internal deliveries of goods and servicesor related to financing, acquisitions and divestments, the use of tax credits and permanent establishments, and tax losses carried forward. These uncertaintiesmay have a significant impact on local tax results. We also have various tax assets resulting from acquisitions. Tax assets can also result from the generationof tax losses in certain legal entities. Tax authorities may challenge these tax assets. In addition, the value of the tax assets resulting from tax losses carriedforward depends on having sufficient taxable profits in the future.Additionally, in December of 2017, the United States enacted a budget reconciliation act amending the Internal Revenue Code of 1986 (the “Tax Cutsand Jobs Act”). The Tax Cuts and Jobs Act contains provisions affecting the tax treatment of both U.S. companies (such as certain of our subsidiaries) andnon-U.S. companies that could materially affect us. The Tax Cuts and Jobs Act includes provisions that reduce the U.S. corporate tax rate, impose a baseerosion minimum tax on income of a U.S. corporation determined without regard to certain otherwise deductible payments made to certain foreign affiliates,and impose a one-time transition tax on certain historic earnings and profits of U.S.-owned foreign subsidiaries. Many of the provisions of the Tax Cuts andJobs Act will require guidance through the issuance of Treasury regulations or other guidance in order to assess their effect. There may be a substantial delaybefore such regulations are promulgated, increasing the uncertainty as to the ultimate effect of the statutory amendments on us. It is also possible that therewill be technical corrections legislation proposed with respect to the Tax Cuts and Jobs Act next year, the effect of which cannot be predicted. For furtherinformation regarding the impact of the Tax Cuts and Jobs Act on us, please see Part I, Item 5.A. Operating Results.We may not be able to maintain a competitive worldwide effective corporate tax rate.We cannot give any assurance as to what our effective tax rate will be in the future, because of, among other things, uncertainty regarding the taxpolicies of the jurisdictions where we operate. Our actual effective tax rate may vary from our expectation and that variance may be material. Additionally,the tax laws of the Netherlands, the U.S., and other jurisdictions could change in the future, and such changes could cause a material change in our effectivetax rate.There may from time to time exist deficiencies in our internal control systems that could adversely affect the accuracy and reliability of our periodicreporting.We are required to establish and periodically assess the design and operating effectiveness of our internal control over financial reporting. Despite thecompliance procedures that we have adopted to ensure internal control over financial controls, there may from time to time exist deficiencies in our internalcontrol systems that could adversely affect the accuracy and reliability of our periodic reporting. Our periodic reporting is the basis of investors’ and othermarket professionals’ understanding of our businesses. Imperfections in our periodic reporting could create uncertainty regarding the reliability of our resultsof operations and financial results, which in turn could have a material adverse impact on our reputation or share price.Environmental laws and regulations expose us to liability and compliance with these laws and regulations, and any such liability may adverselyaffect our business.We are subject to many environmental, health and safety laws and regulations in each jurisdiction in which we operate, which govern, among otherthings, emissions of pollutants into the air, wastewater discharges, the use and handling of hazardous substances, waste disposal, the investigation andremediation of soil and ground water contamination and the health and safety of our employees. We are also required to obtain environmental permits fromgovernmental authorities for certain of our operations. We cannot assure you that we have been or will be at all times in complete compliance with such laws,regulations and permits. If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators.As with other companies engaged in similar activities or that own or operate real property, we face inherent risks of environmental liability at ourcurrent and historical manufacturing facilities. Certain environmental laws impose strict, and in certain circumstances, joint and several liability on current orprevious owners or operators of real property for the cost of investigation, removal or remediation of hazardous substances as well as liability for relateddamages to natural resources. Certain of these laws also assess liability on persons who arrange for hazardous substances to be sent to disposal or treatmentfacilities when such facilities are found to be contaminated. While we do not expect that any contamination currently known to us will have a materialadverse effect on our business, we cannot assure you that this is the case or that we will not discover new facts or conditions or that environmental laws or theenforcement of such laws will not change such that our liabilities would be increased significantly. In addition, we could also be held liable for consequencesarising out of human exposure to hazardous substances or other environmental damage. In summary, we cannot assure you that our costs of complying withcurrent and future environmental and health and safety laws, or our liabilities arising from past or future releases of, or exposures to, regulated materials, willnot have a material adverse effect on our business, financial conditions and results of operations.Scientific examination of, political attention to and rules and regulations on issues surrounding the existence and extent of climate change may resultin an increase in the cost of production due to increase in the prices of energy and introduction of energy or carbon tax. A variety of regulatory developmentshave been introduced that focus on restricting or managing the emission of carbon dioxide, methane and other greenhouse gases. Enterprises may need topurchase at higher costs new equipment or raw materials with lower carbon footprints. Environmental laws and regulations could also require us to acquirepollution abatement or remediation equipment, modify product designs, or incur expenses. New materials that we are evaluating for use in our operationsmay become subject to regulation. These developments and further legislation that is likely to be enacted could affect our operations negatively. Changes inenvironmental regulations could increase our production and operational costs, which could adversely affect our results of operations and financialcondition. 13Table of ContentsCertain natural disasters, such as flooding, large earthquakes, volcanic eruptions or nuclear or other disasters, may negatively impact our business.There is increasing concern that climate change is occurring and may cause a rising number of natural disasters.Environmental and other disasters, such as flooding, large earthquakes, volcanic eruptions or nuclear or other disasters, or a combination thereof maynegatively impact our business. If flooding, a large earthquake, volcanic eruption or other natural disaster were to directly damage, destroy or disrupt ourmanufacturing facilities, it could disrupt our operations, delay new production and shipments of existing inventory or result in costly repairs, replacements orother costs, all of which would negatively impact our business. Even if our manufacturing facilities are not directly damaged, a large natural disaster mayresult in disruptions in distribution channels or supply chains and significant increases in the prices of raw materials used for our manufacturing process. Forinstance, the nuclear incident following the tsunami in Japan in 2011 impacted the supply chains of our customers and suppliers. Furthermore, any disasteraffecting our customers (or their respective customers) may significantly negatively impact the demand for our products and our revenues.The impact of any such natural disasters depends on the specific geographic circumstances but could be significant, as some of our factories are locatedin areas with known earthquake fault zones, flood or storm risks, including but not limited to the Philippines, Singapore, Taiwan, Malaysia or Thailand.There is increasing concern that climate change is occurring that may cause a rising number of natural disasters with potentially dramatic effects on humanactivity. We cannot predict the economic impact, if any, of natural disasters or climate change.The price of our common stock historically has been volatile. The price of our common stock may fluctuate significantly.The stock market in recent years has experienced significant price and volume fluctuations that have often been unrelated to the operating performanceof companies. The market price for our common stock has varied between a high of $118.20 on November 3, 2017 and a low of $96.00 on January 23, 2017in the twelve-month period ending on December 31, 2017. Although the pending Offer may reduce the volatility of the market price of our common stock inthe near term, volatility may revert to historical levels for many reasons, including in response to the risks described in this section, including the risksassociated with the Offer, or for reasons unrelated to our operations, such as reports by industry analysts, investor perceptions or negative announcements byour customers, competitors, peer companies or suppliers regarding their own performance, or announcements by our competitors of significant contracts,strategic partnerships, joint ventures, joint marketing relationships or capital commitments, the passage of legislation or other regulatory developmentsaffecting us or our industry, as well as industry conditions and general financial, economic and political instability. In the past, following periods of marketvolatility, shareholders have instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divertresources and the attention of executive management from our business regardless of the outcome of such litigation.The Merger with Freescale may not be accretive and may cause dilution to our earnings per share, which may harm the market price of our shares ofcommon stockWe entered into the Merger with the expectation that it will be accretive to earnings per share in the near term. This expectation is based on estimateswhich may materially change. We could also encounter the failure to realize all of the benefits anticipated in the Merger. All of these factors could causedilution to our earnings per share or decrease or delay the expected accretive effect of the Merger and cause a decrease in the price of our shares of commonstock.Future sales of our shares of common stock could depress the market price of our outstanding shares of common stock.The market price of our shares of common stock could decline as a result of sales of a large number of shares of our common stock in the market, or theperception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equitysecurities in the future at a time and at a price that we deem appropriate.In the future, we may issue additional shares of common stock in connection with acquisitions and other investments, as well as in connection with ourcurrent or any revised or new equity plans for management and other employees. The amount of our common stock issued in connection with any suchtransaction could constitute a material portion of our then outstanding common stock.Our actual operating results may differ significantly from our guidance.From time to time, we release guidance regarding our future performance that represents our management’s estimates as of the date of release. Thisguidance, which consists of forward-looking statements, is prepared by our management and is qualified by, and subject to, the assumptions and the otherinformation contained or referred to in such release and the factors described under “Forward-Looking Statements”. Our guidance is not prepared with a viewtoward compliance with published guidelines of the American Institute of Certified Public Accountants, and neither our independent registered publicaccounting firm nor any other independent expert or outside party compiles or examines the guidance and, accordingly, no such person expresses anyopinion or any other form of assurance with respect thereto.Our guidance is based upon a number of assumptions and estimates that, while presented with numerical specificity, is inherently subject to significantbusiness, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions withrespect to future business decisions, some of which will change. We generally state possible outcomes as high and low ranges which are intended to provide asensitivity analysis as variables are changed but are not intended to represent that actual results could not fall outside of the suggested ranges. The principalreason that we release this data is to provide a basis for our management to discuss our business outlook with analysts and investors. We do not accept anyresponsibility for any projections or reports published by any such persons. 14Table of ContentsGuidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidance furnished by us will notmaterialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate of what management believes is realizable as of thedate of release. Actual results will vary from the guidance and the variations may be material. Investors should also recognize that the reliability of anyforecasted financial data diminishes the farther in the future the data is forecasted. In light of the foregoing, investors are urged to put the guidance in contextand not to place undue reliance on it.Any failure to successfully implement our operating strategy, or the occurrence of any of the events or circumstances set forth in, or incorporated byreference into, this Annual Report could result in the actual operating results being different than the guidance, and such differences may be adverse andmaterial.Risks related to our corporate structureUnited States civil liabilities may not be enforceable against us.We are incorporated under the laws of the Netherlands and substantial portions of our assets are located outside of the United States. In addition,certain members of our board, our officers and certain experts named herein reside outside the United States. As a result, it may be difficult for investors toeffect service of process within the United States upon us or such other persons residing outside the United States, or to enforce outside the United Statesjudgments obtained against such persons in U.S. courts in any action. In addition, it may be difficult for investors to enforce, in original actions brought incourts in jurisdictions located outside the United States, rights predicated upon the U.S. laws.In the absence of an applicable treaty for the mutual recognition and enforcement of judgments (other than arbitration awards) in civil and commercialmatters to which the United States and the Netherlands are a party, a judgment obtained against the Company in the courts of the United States, whether ornot predicated solely upon the U.S. federal securities laws, including a judgment predicated upon the civil liability provisions of the U.S. securities law orsecurities laws of any State or territory within the United States, will not be directly enforceable in the Netherlands.In order to obtain a judgment which is enforceable in the Netherlands, the claim must be relitigated before a competent court of the Netherlands; therelevant Netherlands court has discretion to attach such weight to a judgment of the courts of the United States as it deems appropriate; based on case law, thecourts of the Netherlands may be expected to recognize and grant permission for enforcement of a judgment of a court of competent jurisdiction in the UnitedStates without re-examination or relitigation of the substantive matters adjudicated thereby, provided that (i) the relevant court in the United States hadjurisdiction in the matter in accordance with standards which are generally accepted internationally; (ii) the proceedings before that court complied withprinciples of proper procedure; (iii) recognition and/or enforcement of that judgment does not conflict with the public policy of the Netherlands; and(iv) recognition and/or enforcement of that judgment is not irreconcilable with a decision of a Dutch court rendered between the same parties or with anearlier decision of a foreign court rendered between the same parties in a dispute that is about the same subject matter and that is based on the same cause,provided that earlier decision can be recognized in the Netherlands.Based on the foregoing, there can be no assurance that U.S. investors will be able to enforce against us or members of our board of directors, officers orcertain experts named herein who are residents of the Netherlands or countries other than the United States any judgments obtained in U.S. courts in civil andcommercial matters.In addition, there is doubt as to whether a Dutch court would impose civil liability on us, the members of our board of directors, our officers or certainexperts named herein in an original action predicated solely upon the U.S. laws brought in a court of competent jurisdiction in the Netherlands against us orsuch members, officers or experts, respectively.We are a Dutch public company with limited liability. The rights of our stockholders may be different from the rights of stockholders governed by thelaws of U.S. jurisdictions.We are a Dutch public company with limited liability (naamloze vennootschap). Our corporate affairs are governed by our articles of association andby the laws governing companies incorporated in the Netherlands. The rights of stockholders and the responsibilities of members of our board of directorsmay be different from the rights and obligations of stockholders in companies governed by the laws of U.S. jurisdictions. In the performance of its duties, ourboard of directors is required by Dutch law to consider the interests of our company, its stockholders, its employees and other stakeholders, in all cases withdue observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or inaddition to, your interests as a stockholder. See Part II, Item 16G. Corporate Governance.We are a foreign private issuer and, as a result, are not subject to U.S. proxy rules but are subject to Exchange Act reporting obligations that, tosome extent, are more lenient and less frequent than those of a U.S. issuer.We report under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as a non-U.S. company with foreign private issuer status.Because we qualify as a foreign private issuer under the Exchange Act and although we follow Dutch laws and regulations with regard to such matters, we areexempt from certain provisions of the Exchange Act that are applicable to U.S. public 15Table of Contentscompanies, including: (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registeredunder the Exchange Act (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities andliability for insiders who profit from trades made in a short period of time and (iii) the rules under the Exchange Act requiring the filing with the Commissionof quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence ofspecified significant events. In addition, foreign private issuers are required to file their Annual Report on Form 20-F by 120 days after the end of each fiscalyear while U.S. domestic issuers that are large accelerated filers are required to file their Annual Report on Form 10-K within 60 days after the end of eachfiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures ofmaterial information. As a result of the above, even though we are contractually obligated and intend to make interim reports available to our stockholders,copies of which we are required to furnish to the Securities and Exchange Commission (the “SEC”) on a Form 6-K, and even though we are required to furnishreports on Form 6-K disclosing whatever information we have made or are required to make public pursuant to Dutch law or distribute to our stockholdersand that is material to our company, you may not have the same protections afforded to investors in companies that are not foreign private issuers.We are a foreign private issuer and, as a result, in accordance with the listing requirements of the Nasdaq Global Select Market we rely on certainhome country governance practices rather than the corporate governance requirements of the Nasdaq Global Select Market.We are a foreign private issuer. As a result, in accordance with the listing requirements of the Nasdaq Global Select Market we rely on home countrygovernance requirements and certain exemptions thereunder rather than relying on the corporate governance requirements of the Nasdaq Global SelectMarket. For an overview of our corporate governance principles, see Part II, Item 16.G.- Corporate Governance, including the section describing thedifferences between the corporate governance requirements applicable to common stock listed on the Nasdaq Global Select Market and the Dutch corporategovernance requirements. Accordingly, you may not have the same protections afforded to stockholders of companies that are not foreign private issuers.Risks related to our indebtednessOur debt obligations expose us to risks that could adversely affect our financial condition, which could adversely affect our results of operations.As of December 31, 2017, we had outstanding indebtedness with an aggregate principal amount of $6,650 million. Our substantial indebtedness couldhave a material adverse effect on our business by: •increasing our vulnerability to adverse economic, industry or competitive developments; •requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness,therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities; •exposing us to the risk of increased interest rates in the event we have borrowings under our $600 million revolving credit facility agreement(“the RCF Agreement”) because loans under the RCF Agreement bear interest at a variable rate; •making it more difficult for us to satisfy our obligations with respect to our indebtedness and any failure to comply with the obligations of anyour debt instruments, including restrictive covenants and borrowing conditions, could result in an event default under the indentures governingour notes and agreements governing other indebtedness; •restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; •limiting our ability to obtain additional financial for working capital, capital expenditures, restructurings, product development, research anddevelopment, debt service requirements, investments, acquisitions and general corporate or other purposes; and •limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantagecompared to our competitors who are less highly leveraged and who therefore, may be able to take advantage of opportunities that our leverageprevents us from exploiting.Despite our level of indebtedness, we may still incur significantly more debt, which could further exacerbate the risks described above and affect ourability to service and repay our debt.If we do not comply with the covenants in our debt agreements or fail to generate sufficient cash to service and repay our debt, it could adverselyaffect our operating results and our financial condition.The RCF Agreement and the indentures governing our unsecured notes or any other debt arrangements that we may have require us to comply withvarious covenants. If there were an event of default under any of our debt instruments that was not cured or waived, the holders of the defaulted debt couldterminate commitments to lend and cause all amounts outstanding with respect to the debt to be due and payable immediately, which in turn could result incross defaults under our other debt instruments. Our assets and cash flow may not be sufficient to fully repay borrowings under all of our outstanding debtinstruments if some or all of these instruments are accelerated upon an event of default.Our ability to make scheduled payments or to refinance our debt obligations depends on our financial condition and operating performance, which issubject to prevailing economic and competitive conditions and to certain financial, business, competitive, legislative, regulatory and other factors beyondour control. Our business may not generate sufficient cash flow from operations, or future borrowings under the RCF Agreement or from other sources may notbe available to us in an amount sufficient to enable us to repay our indebtedness, or to fund our other liquidity needs, including our working capital andcapital expenditure requirements, and we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructureor refinance our indebtedness. 16Table of ContentsIf our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capitalexpenditures, or to sell assets, seek additional capital, restructure or refinance our indebtedness or reduce or delay capital expenditures, strategic acquisitions,investments and alliances, any of which could have a material adverse effect on our business. We cannot guarantee that we will be able to obtain enoughcapital to service our debt and fund our planned capital expenditures and business plan. Our ability to restructure or refinance our debt will depend on thecondition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us tocomply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict usfrom adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timelybasis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. These alternative measures maynot be successful and may not permit us to meet our scheduled debt service obligations.The rating of our debt by major rating agencies may further improve or deteriorate, which could affect our additional borrowing capacity andfinancing costs.The major debt rating agencies routinely evaluate our debt. These ratings are based on current information furnished to the ratings agencies by us andinformation obtained by the ratings agencies from other sources. An explanation of the significance of such rating may be obtained from such rating agency.There can be no assurance that such credit ratings will remain in effect for any given period of time or that such ratings will not be lowered, suspended orwithdrawn entirely by the rating agencies, if, in each rating agency’s judgment, circumstances so warrant. Actual or anticipated changes or downgrades in ourcredit ratings, including any announcement that our ratings are under further review for a downgrade, could affect our market value and/or increase ourcorporate borrowing costs.The conditional conversion feature of the 2019 Cash Convertible Senior Notes, if triggered, may adversely affect our financial condition andoperating results.In the event the conditional conversion feature of the 2019 Cash Convertible Senior Notes is triggered, holders thereof will be entitled to convert the2019 Cash Convertible Senior Notes solely into cash at any time during specified periods at their option. If one or more holders elect to convert their 2019Cash Convertible Senior Notes, we would be required to pay cash to settle any such conversion, which could adversely affect our liquidity. In addition, evenif holders do not elect to convert their 2019 Cash Convertible Senior Notes, we could be required under applicable accounting rules to reclassify all or aportion of the outstanding aggregate principal of the 2019 Cash Convertible Senior Notes as a current rather than long-term liability, which may adverselyaffect our net working capital.The accounting for the 2019 Cash Convertible Senior Notes results in recognized interest expense significantly greater than the stated interest rateof the 2019 Cash Convertible Senior Notes and may result in volatility to our Consolidated Statements of Operations.We will settle conversions of the 2019 Cash Convertible Senior Notes entirely in cash. Accordingly, the conversion option that is part of the 2019Cash Convertible Senior Notes is accounted for as a derivative pursuant to applicable accounting standards relating to derivative instruments and hedgingactivities. In general, this resulted in an initial valuation of the conversion option, which was bifurcated from the debt component of the 2019 CashConvertible Senior Notes, resulting in an original issue discount. The original issue discount is amortized and recognized as a component of interest expenseover the term of the 2019 Cash Convertible Senior Notes, which results in an effective interest rate reported in our Consolidated Statements of Operationssignificantly in excess of the stated coupon of 1.0%. This accounting treatment reduces our earnings, but does not affect the amount of cash interest paid toholders of Notes or our cash flows.For each financial statement period after issuance of the 2019 Cash Convertible Senior Notes, a hedge gain or loss is reported in our ConsolidatedStatements of Operations to the extent the valuation of the conversion option changes from the previous period. The cash convertible note hedge transactionswe entered into in connection with the 2019 Cash Convertible Senior Notes are also accounted for as derivative instruments, generally offsetting the gain orloss associated with changes to the valuation of the conversion option. Although we do not expect there to be a material net impact to our ConsolidatedStatements of Operations as a result of issuing the 2019 Cash Convertible Senior Notes and entering into the cash convertible note hedge transactions, wecannot assure you that these transactions will be completely offset, which may result in volatility to our Consolidated Statements of Operations.Item 4. Information on the CompanyA. History and Development of the CompanyCorporate InformationOur legal name is NXP Semiconductors N.V. and our commercial name is “NXP” or “NXP Semiconductors”. 17Table of ContentsWe are incorporated in the Netherlands as a Dutch public company with limited liability (naamloze vennootschap).On August 5, 2010, we made an initial public offering of 34 million shares of our common stock and listed our common stock on the Nasdaq GlobalSelect Market.We are a holding company (the “holding” company) whose only material assets are the direct ownership of 100% of the shares of NXP B.V., a Dutchprivate company with limited liability (besloten vennootschap met beperkte aansprakelijkheid).Our corporate seat is in Eindhoven, the Netherlands. Our principal executive office is at High Tech Campus 60, 5656 AG Eindhoven, the Netherlands,and our telephone number is +31 40 2729999. Our registered agent in the United States is NXP USA, Inc., 6501 William Cannon Dr. West, Austin, Texas78735, United States of America, phone number +1 512 8952000.Business CombinationsOn February 20, 2018, Buyer and NXP entered into the Purchase Agreement Amendment under which Buyer agreed to revise the terms of its tenderoffer to acquire all of the issued and outstanding common shares of NXP and increase the offer price from $110 per share to $127.50 per share, less anyapplicable withholding taxes and without interest to the holders thereof, payable in cash, subject to the satisfaction or waiver of the conditions in thePurchase Agreement. Pending the receipt of certain regulatory approvals, as well as satisfaction of other customary closing conditions, the proposedtransaction is expected to close in the first half of 2018.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 ofrecommendation by the NXP Board, NXP will be obligated to pay to Buyer a termination compensation equal to $1.25 billion in cash. If the PurchaseAgreement is terminated under certain circumstances, including circumstances relating to the failure to obtain antitrust approvals or failure to complete in allmaterial respects certain internal reorganization steps and related dispositions with respect to NXP, Buyer will be obligated to pay to NXP a terminationcompensation equal to $2 billion in cash.On December 7, 2015, NXP acquired Freescale in a stock and cash transaction for a total consideration of $11.6 billion. In connection with the Merger,each outstanding share of Freescale common stock was converted into 0.3521 shares of NXP common stock and $6.25 in cash, without interest. NXP issued110 million shares of common stock to former holders of Freescale common stock, representing 32% of the 342 million total shares of outstanding NXPcommon stock after the Merger. Freescale’s financial results from the Merger date through December 31, 2017, are included in NXP’s Consolidated Statementof Operations, as discussed herein. NXP accounted for the Merger under the acquisition method of accounting in accordance with Financial AccountingStandards Board Accounting Standards Topic 805, Business Combinations, with NXP treated as the accounting acquirer, see further discussion below.The Merger created a market leader in automotive, broad based microcontroller and security semiconductor solutions, with a highly complementaryproduct portfolio. The Merger enables NXP to better serve a broader array of customers in strategic markets.Other Significant TransactionsOn March 27, 2018, NXP Semiconductors N.V. through its subsidiary NXP B.V., has entered into a definitive agreement to sell its 40% equity interestof Suzhou ASEN Semiconductors Co., Ltd. to J&R Holding Limited. The closing of this transaction is expected in the second quarter of 2018, subject tocustomary regulatory approvals.On April 19, 2017, we sold our shares in Advanced Semiconductor Manufacturing Corporation Ltd. (ASMC), representing a 27.47 percent ownership,for a total consideration of $54 million.On June 14, 2016, we announced an agreement to divest our Standard Products (“SP”) business to a consortium of financial investors consisting of JACCapital and Wise Road Capital. On February 6, 2017 NXP divested SP, receiving $2.6 billion in cash proceeds, net of cash divested.On December 7, 2015, we divested our RF Power business to JAC Capital.On November 9, 2015, we completed setting up WeEn Semiconductors, a Bipolar Power joint venture in China with JAC Capital. WeEnSemiconductors, in which JAC Capital owns 51% and we own 49%, combines our advanced technology from our former Bipolar Power business line withJAC Capital’s strong connections in the Chinese manufacturing network and distribution channels to lower manufacturing costs and boost profit margins ofhigh end electronic products in China.B. Business OverviewSemiconductor Market OverviewSemiconductors perform a broad variety of functions within electronic products and systems, including processing data, sensing, storing informationand converting or controlling electronic signals. Semiconductors vary significantly depending upon the specific function or application of the end productin which the semiconductor is used and the customer who is deploying it. Semiconductors also vary on a number of technical characteristics including thedegree of integration, level of customization, programmability and the process technology utilized to manufacture the semiconductor. Advances insemiconductor technology have increased the functionality and performance of semiconductors, improving their features and power consumptioncharacteristics while reducing their size and cost. These advances have resulted in growth of semiconductors and electronic content across a diverse array ofproducts. The semiconductor market totaled $412 billion in 2017. 18Table of ContentsOur CompanyWe are a global semiconductor company and a long-standing supplier in the industry, with over 50 years of innovation and operating history. For theyear ended December 31, 2017, we generated revenue of $9,256 million, compared to $9,498 million for the year ended December 31, 2016.We provide leading High Performance Mixed Signal (HPMS) and, until February 6, 2017, Standard Product (SP) solutions that leverage our combinedportfolio of intellectual property, deep application knowledge, process technology and manufacturing expertise in the domains of cryptography—security,high-speed interface, radio frequency (RF), mixed-signal analog-digital (mixed A/D), power management, digital signal processing and embedded systemdesign.Our product solutions are used in a wide range of end-market applications including: automotive, personal security and identification, wireless andwireline infrastructure, mobile communications, multi-market industrial, consumer and computing. We engage with leading global original equipmentmanufacturers (OEM) and sell products in all major geographic regions.Reporting SegmentsUntil February 6, 2017, NXP was organized into two market oriented reportable segments, High Performance Mixed Signal (“HPMS”) and StandardProducts (“SP”). Corporate and Other represents the remaining portion (or “segment”) to reconcile to the Consolidated Financial Statements. You can find adescription of each of our reportable segments below. We also have a manufacturing group that manages our manufacturing and supply chain activities.Markets, applications and productsHPMS products consist of highly differentiated application-specific semiconductors and system solutions, which accounted for 99% of our totalproduct revenue in 2017. We believe the HPMS market is an attractive market due to the growth in excess of the overall semiconductor market, the highbarriers to entry, the loyalty of the customer base, the relative pricing stability and lower long-term capital intensity.SP products consisted primarily of discrete semiconductor devices that could be incorporated in many different types of electronics equipment, weretypically sold to a wide variety of customers, and accounted for 1% of our total product revenue in 2017, as it was divested on February 6, 2017.High Performance Mixed SignalThe HPMS segment consists of the following four business lines: Automotive, Secure Identification Solutions, Secure Connected Devices and SecureInterfaces and Infrastructure.We focus on developing products and system and sub-system solutions that are innovative and allow our customers to bring their end products tomarket more quickly. Our products, particularly our application system and sub-system solutions, help our customers design critical parts of their endproducts and thus help many of them to differentiate themselves based on feature performance, advanced functionality, cost or time-to-market.We apply our technical expertise in the areas of RF, analog, power management, interface, security technologies and digital processing across ourpriority applications markets. Our strong RF capabilities are utilized in our high performance RF for wireless infrastructure and industrial applications, carsecurity and car radio products, mobile connectivity and contactless identification products. Our power technologies and capabilities are applied in AC-DCpower conversion, power management and audio power products, while our ability to design ultra-low power semiconductors is used in a wide range of ourproducts including our consumer, mobile, identification, healthcare products and our microcontrollers. Our high-speed interface design skills are applied invarious interface products, and our security capability is used in our identification solutions, digital networking and microcontroller solutions. Finally, ourdigital processing capabilities are used in our microcontroller and application processor based products, our digital networking products, our Auto DSPs andthe products leveraging our Coolflux ultra-low power DSPs, such as in our hearing aid products. 19Table of ContentsThe below table provides an overview of the key applications per each business line, the leading market positions and our key customers. Automotive Secure Identification Solutions Secure Connected Devices Secure Interfaces andInfrastructureKey applications •  Car access & immobilizers•  In vehicle networking•  Car entertainment•  ADAS•  Telematics•  ABS•  Transmission/ throttle control•  Automotive Lighting•  Gateways•  Battery Management•  Sensors •  Secure identity•  Tagging •  Secure transactions•  Mobile handset•  Tablet•  Personal computer•  Smart buildings•  White goods & home appliances•  Medical/Personal Healthcare•  Industrial/ IoT•  Consumer/TV/Set top box •  Wireless base stations•  Networking•  Satellite & CATV infra•  Radar•  Power supplies•  Lighting•  Mobile Handsets•  Pachinko machinesSelected marketleading positions •  #1 in Automotive semiconductors•  #1 Can/LIN/ Flex Ray in-vehiclenetworking•  #1 passive keyless entry/ immobilizers•  #1 car radio•  #1 Chassis & Safety•  #1 Powertrain•  #2 automotive MCU•  #2 audio amplifiers •  #1 e-Government•  #1 Transport & Access management•  #1 Banking •  #1 I broad based MCU•  #1 NFC •  #1 in RF Power•  #1 in communication processorsKey OEM andelectronicmanufacturingservices (EMS)end customers •  Autoliv•  Bosch•  Continental•  Delphi•  Denso•  Fujitsu Ten•  Lear•  TRW•  Valeo•  Visteon •  Avery Dennison•  Bundesdruckerei•  China Vision Microelectronic•  Chutian Dragon•  Eastcompeace•  Gemalto•  Giesecke•  HID•  Linxens•  Smartrac •  Amazon•  Apple•  BBK•  Bosch•  Huawei•  LG•  Relaince•  Samsung•  Visteon•  ZLG Electronics •  Apple•  Arris•  Cisco•  Ericsson•  Huawei•  Fujitsu•  NEC•  Nokia•  Samsung•  ZTEThe table above provides a list of our key OEM, ODM and electronic manufacturing services end customers in alphabetical order, based on 2017revenue, of which some of whom are supplied by distributors. Key distributors across these applications are Arrow, Avnet, Edom, Nexty, Vitec and WPG.Automotive. Growth in semiconductor sales to the global automotive market relies on global economic trends, the unit growth of automobilesmanufactured and the growth in semiconductor content per vehicle which is being driven by the proliferation of electronic features throughout the vehicle.Among the highest growth applications are advanced driver assistance systems (ADAS), infotainment (information, convenience and connectivity), securein-vehicle networking and electrified powertrain (hybrid and electric vehicles).Due to the high degree of regulatory scrutiny and safety requirements, the automotive semiconductor market is characterized by stringent qualificationprocesses, zero defect quality processes, functionally safe design architecture, high reliability, extensive design-in timeframes and long product life cycleswhich results in significant barriers to entry.Semiconductor content per vehicle continues to increase due to government regulation for improved safety and emissions, the standardization ofhigher-end options across a greater number of vehicle classes as well as consumer demand for greater fuel efficiency, advanced safety and multimediaapplications. Automotive safety features are evolving from passive safety systems to active safety systems with ADAS such as radar, vision,vehicle-to-vehicle and vehicle-to-infrastructure (V2X) systems. We believe regulatory actions and consumer demand in both the developed and emergingmarkets should drive the increase in applications such as ADAS, secure connectivity, electronic safety and stability control. Semiconductor content pervehicle is also increasing to address applications such as engine management, fuel economy improvement, driver comfort, convenience and user interface. Inaddition, with the increase in overall semiconductor content in modern automobiles, the demand for secure in-vehicle networking continues to increase asvarious subsystems communicate within the automobile and with external devices and networks. Data integrity and security hardware features forsafeguarding memory, communication and system data are also increasing in importance.As a result of the Merger with Freescale, NXP became the largest semiconductor supplier to the automotive industry with strong positions in CarEntertainment, In-Vehicle Networking, Secure Car Access, Chassis & Safety and Powertrain. The combined portfolio is highly complementary, enabling NXPto address a broader scope of complete and complex solutions for our automotive partners. We continue to invest in growth areas including the evolution ofthe Secure Connected Car, ADAS and other safety and comfort applications.In Car Entertainment, we are the market leader with the broadest portfolio of products offerings addressing both audio and visual head-end unitapplications. Our leadership in audio processing for mid-to-high-end car radio is driven by excellent reception performance as well as high-levels ofintegration of terrestrial, satellite and digital multi-band tuners. Within the low-end and after-market car radio, our leadership is a result of highly integrated,single-chip radio solutions that offer our customers ease of implementation and lower total cost of ownership. In digital reception, we have developed multi-standard radios based on our software-defined radio implementation. In addition, we provide class-AB and class-D audio amplifiers and power analogproducts for car entertainment. Our i.MX applications processors, which are developed and brought to market by our Microcontroller and Processor teams, arehighly integrated ARM-based application processors with integrated audio, video and graphics capability. 20Table of ContentsIn the In-vehicle Networking market, we are the market leader, having played a defining role in setting in-vehicle networking standards including theCAN, LIN, FlexRay and more recently the two-wire automotive Ethernet standard. We are a leading supplier to major OEMs and continue to drive newsystem concepts, such as partial networking for enhanced energy efficiency.In the Secure Car Access market, we are the market leader in two-way secure entry products, and have pioneered the development of next generationpassive keyless entry/start with our customers. As a result of our R&D innovations we are a key supplier to almost all major automobile manufacturers forsecure access products.In Chassis & Safety we offer a broad range of sensors and microcontrollers. Our inertial sensors enable vehicle stability control and airbag crashdetection while our pressure sensors are well-positioned for continued growth in tire pressure monitoring, occupancy detection and engine control.In Powertrain, we offer power management solutions which provide the intelligence engine management systems that reduce emissions and improvefuel efficiency. In December 2013, we announced a joint venture with Datang Telecom, targeting the China domestic hybrid and electrical car market. Thisjoint venture became active in April 2014.In ADAS, we are developing solutions for Radar, Vision and Secure V2X. In 2013, we made a strategic investment in Cohda Wireless, an equipmentvendor in the Intelligent Transport Systems (ITS) market with whom we co-operate for V2X solutions. In December 2013, we also announced the intendedsale of our Telematics Module business to Telit Communications which closed in March 2014.We employ our proprietary processes for automotive-grade, high-voltage, RF and non-volatile processes as well as our technology standards andleading edge security IP developed by our Secure Identification Solutions business, to deliver our automotive solutions. We design our products to becompliant with all key global relevant automotive quality standards (such as ISO/TS16949 and VDA6.3).For the full year 2017, we had High Performance Mixed Signal revenue of $3,762 million in automotive applications, compared to $3,379 million in2016, which represents a 11% year over year increase. According to Strategy Analytics, the total market for automotive semiconductors was $34.1 billion in2016, and projects it will grow at a compounded annual growth rate of 5.9% between 2016 and 2020.Secure Identification Solutions (SIS). The SIS business is focused on delivering solutions to address the security and privacy requirements of threespecific end market dynamics: (1) the increasing adoption of chip-based banking cards (“Banking”); (2) the increasing usage of high-volume, single-paymentplatform systems for urban transportation (“Transit—Access”); and (3) the increased need to provide government sponsored products to assure privacy andsecure cross-border movement of people (“eGov”).Nearly all of SIS products consist of multi-functional solutions comprised of passive RF connectivity devices facilitating information transfer from theuser document to reader infrastructure; secure, tamper-proof microcontroller devices in which information is securely encrypted (“secure element”); andsecure real-time operating system software products to facilitate the encryption-decryption of data, and the interaction with the reader infrastructure systems.Our solutions are developed to assure extreme levels of security of user information, undergoing stringent and continued global governmental and bankingcertification processes, as well as delivering the highest level of device performance enabling significant throughput and productivity to our customers.In the banking sector NXP is the market leader in the contact, contactless and dual-interface bank card market. We have innovated and deployed“multi-application” banking solutions which support a combination of payment, transit and access solutions all leveraging a single physical bank card. Inthe transit and access market, NXP’s MIFARE products are ubiquitous throughout the world, having been deployed in over 750 cities, facilitating the masstransit requirements of over one billion people per day. Additionally our transit and access products are deployed in application such as employeeidentification for facility access and security. We are also focused on deploying our technology into new emerging market applications such as interactivegaming, theme-park attendee management and supply chain and inventory product management to support high velocity supply chain management. In theeGovernment sector, NXP is a market leader providing solutions for chip-based cross-border passports, drivers-licenses, health cards and other governmentsponsored identification documents. We have also worked with emerging market government agencies to facilitate government sponsored identity cardswhich also serve as payment platforms helping the mass-population of under-banked.For the full year 2017, we had High Performance Mixed Signal revenue of $523 million in SIS, compared to $737 million in 2016, which represents a29% year over year decline. According to ABI Research, the market size for secure identification ICs was $3.5 billion in 2016, and is expected to grow at acompounded annual rate of 3.9% to $4.1 billion in 2020.Secure Connected Devices (SCD). The SCD business is focused on delivering solutions to enable the future of connected devices – also known as“Internet of Things” (IoT). We believe the future growth of secure connected devices requires the ability to deliver four fundamental functional capabilities:(1) embedded microcontrollers; (2) connectivity – short range RF and wireless technology (Bluetooth LE, Zigbee, Thread and NFC); (3) security; and(4) sensor. We see end-markets and applications emerging in the area of Mobile Payments, Smart Home-Health, Smart Cities, Wearables and Smart Industrial.The SCD business has a broad portfolio products which we believe enables NXP to successfully compete and deliver all aspects of semiconductor-based technologies for connected devices including microcontrollers, secure mobile transactions solutions and various connectivity solutions. 21Table of ContentsPost-Merger, we are the largest supplier of broad based microcontrollers. We differentiate ourselves versus our competitors with a broad portfolio ofproducts addressing different processing power, connectivity standards, peripherals and security levels depending on customers evolving requirements.We have a strong position in multi-purpose 32-bit ARM-based microcontrollers serving a broad array of applications. Our portfolio is highly scalable,and is coupled with our extensive software and design tools. This enables our customers to design-in and deploy our MCUs families, leveraging a consistentsoftware development environment. Due to the scalability of our portfolio we are able to help future-proof our customer’s products as their systems evolve,becoming more complex or requiring greater processing capabilities over time. We believe we have the broadest ARM portfolio in the industry.Our i.MX family of processors are designed in conjunction with a broad suite of additional products including power management solutions, audiocodecs, touch sensors and accelerometers to provide full systems solutions across a wide range of operating systems and applications. Our i.MX 6 family ofapplications processors integrates one, two or four ARM Cortex-A9 cores running up to 1.2 GHz and includes five devices: the single-core i.MX 6Solo andi.MX 6SoloLite, dual-core i.MX 6Dual and i.MX 6DualLite, and quad-core i.MX 6Quad processors. Together, these products provide a family of applicationsprocessors featuring software, power and pin compatibility across single, dual and quad core implementations. Software support includes Linux and Androidimplementations.We are the market leader in secure mobile transactions. NXP has pioneered and led the development of the ISO standard for Near FieldCommunications (NFC), which is rapidly emerging as the de facto standard for secure short-range connectivity. In combination with our industry leadingSmartMX family of secure element device as well as our secure operating system, NXP has garnered market leadership in the deployment of mobile walletsand mobile payment. Our position leverages our decades long position in cryptography and security in the Banking, Transit – Access and eGov sectors.NXP has a broad and diverse portfolio of connectivity assets, IP and application knowledge which we believe enables us to fulfill our customer’sconnectivity requirements for IoT applications, including smart lighting, smart energy, wireless remote controls & switches and healthcare monitoring.In February 2015 we acquired Quintic, which brought assets and IP to broaden our connectivity portfolio. Specifically, Quintic is an innovator in thearea of Bluetooth Low Energy (BTLE), a key connectivity standard for IoT devices.Our mobile audio business focuses on smart speaker drivers and leverages many of the same core technologies and competencies as our personalhealthcare business. We also sell software solutions for mobile phones through our NXP Software business. The NXP Software solutions business developsaudio solutions that enable mobile device manufacturers to produce differentiated hand held products that enhance the end-user experience. Our software hasbeen incorporated into over 1 billion mobile devices produced by many of the world’s leading mobile device manufacturers.Our personal healthcare revenue is generated by our hearing aid products, which leverage our proprietary, ultra-low power Coolflux – brand of DSPdevices, our low power audio IC design capabilities and our magnetic induction radio technology. We design customer-specific ICs for major hearing aidOEMs, and many of these customers fund our product development efforts.Our overall High Performance Mixed Signal revenue in the SCD business was $2,587 million in 2017, compared to $2,146 million in 2016, whichrepresents a 21% year over year growth. We estimate the worldwide market for Microcontrollers 32-bit was $7.5 billion in 2016, and we expect acompounded annual growth rate of 9.7% between 2016 and 2020.Our leadership in secure/smartcard Microcontrollers and our position in the non-secure Microcontrollers outside Automotive creates a number oneposition in broad based Microcontrollers.Secure Interfaces and Infrastructure (SI&I). Our SI&I businesses consist of: Digital Networking Processors, Secure Interface and System ManagementProducts, High-performance RF Power-Amplifiers (HPRF) and Smart Antennae solutions.NXP is a significant participant in the communications infrastructure market. Our communications processors are programmable semiconductors thatperform tasks related to control and management of digital data, as well as network interfaces. They are designed to handle tasks related to data transmissionbetween nodes within a network, the manipulation of that data upon arrival at its destination and protocol conversion. Our product portfolio includes 32-bitand 64-bit offerings ranging from a single core to 28- and 45-nanometer multicore QorIQ communications processors. Wireless-infrastructure processorscombine communication processors with DSP functionality and specific wireless acceleration technology. Our portfolio of secure wireless-infrastructureprocessors targets small cells and macro base stations. These products perform baseband processing and support multiple cellular-network air-interfaces suchas LTE-Advanced, TD-LTE, LTE, HSPA+, TD-SCDMA, and CDMA2000K. Used by leading OEMs worldwide, our broad portfolio of wireless-infrastructureand communications processors satisfies wireless infrastructure requirements.We are major supplier in the highly fragmented interface and system management products. Our products address many interface standards and weserve various applications across the mobile, computing, industrial, consumer and automotive markets. We have broad product portfolios including UARTs.Bridges-devices, I2 C, SPI, LED-lighting controllers, low power real-time clocks and watch ICs, HDMI switches and transceivers, and display portmultiplexers. Our core competency is the ability to deliver products that manage high speed data and system voltage over the same interface. We generate alarge part of our revenue by selling products to a very broad customer base, which we serve through our distribution channel. We have successfully engagedwith leading OEMs to drive semi-custom products which in turn allow us to refine and accelerate our innovation and product roadmaps. We are engaged indevelopment activities and standard setting initiatives with many of the innovation leaders in each of these markets. Key growth drivers will be the adoptionrate of new high-speed interface standards such as USB type-C. 22Table of ContentsWe are also active in high efficiency AC-DC power conversion ICs for notebook personal computers. Our strength in AC-DC power conversion is basedon our leading edge high-voltage power analog process technologies and engineering capabilities in designing high efficiency power conversion products.Due to worldwide conservation efforts, many countries, states and local governments have adopted regulations that increase the demand for higher powerefficiency solutions in computing and consumer applications, especially in power conversion.We are the market leader in HPRF power amplifiers for markets, such as mobile base stations, wireless connectivity, satellite and CATV infrastructureand receivers, industrial applications, and to a lesser extent the military and aerospace markets. We are engaged with the majority of the largest customers inmobile base stations and in several other application areas.Both Freescale and NXP prior to the Merger were the main suppliers into the HPRF power amplifier market. As a result of the Merger, NXP was requiredto sell its HPRF business. On December 7, 2015 NXP completed the divestment of its RF Power business to JAC Capital.We also have a business offering Smart Antennae solutions based on Low Noise Amplifier (LNA) technology. We engage and sell our Smart Antennaesolutions to varied customers in the mobile, consumer electronics and cable television infrastructure markets.Our overall revenue in these businesses was $1,873 million in 2017 versus $1,824 million in 2016, which represents an increase of 3% year over year.Standard ProductsUntil February 6, 2017, our SP business supplied a broad range of standard semiconductor components, such as small signal discretes, power discretes,protection and signal conditioning devices and standard logic devices, which were largely produced in dedicated in-house high-volume manufacturingoperations. Our portfolio consisted of a large variety of catalog products, using widely-known production techniques, with characteristics that were largelystandardized throughout the industry as well as leading discrete solutions especially in the field of ESD protection / EMI filtering and low loss rectificationand power switching. Our SP products were often sold as separate components, but in many cases, were used in conjunction with our HPMS solutions, oftenwithin the same subsystems. Further, we were able to leverage customer engagements where we provided standard products devices, as discrete components,within a system to identify and pursue potential HPMS opportunities.Our products were sold both directly to OEMs as well as through distribution, and were primarily differentiated on cost, packaging type andminiaturization, and supply chain performance. Alternatively, our innovative products included “design-in” products, which required significant engineeringeffort to be designed into an application solution. For these products, our efforts made it more difficult for a competitor to easily replace our product, whichmade these businesses more predictable in terms of revenue and pricing than is typical for standard products.Corporate and OtherWe manufacture integrated circuits and discrete semiconductors through a combination of wholly owned manufacturing facilities, manufacturingfacilities operated jointly with other semiconductor companies and third-party foundries and assembly and test subcontractors. We manage ourmanufacturing assets together through one centralized organization to ensure we realize scale benefits in asset utilization, purchasing volumes and overheadleverage across businesses.In the future, we expect to outsource an increased part of our internal demand for wafer foundry and packaging services to third-party manufacturingsources in order to increase our flexibility to accommodate increased demand.The manufacturing of a semiconductor involves several phases of production, which can be broadly divided into “front-end” and “back-end”processes. Front-end processes take place at highly complex wafer manufacturing facilities (called fabrication plants or “wafer fabs”), and involve theimprinting of substrate silicon wafers with the precise circuitry required for semiconductors to function. The front-end production cycle requires high levelsof precision and involves as many as 300 process steps. Back-end processes involve the assembly, test and packaging of semiconductors in a form suitable fordistribution. In contrast to the highly complex front-end process, back-end processing is generally less complicated, and as a result we tend to determine thelocation of our back-end facilities based more on cost factors than on technical considerations.We primarily focus our internal and joint venture wafer manufacturing operations on running proprietary specialty process technologies that enable usto differentiate our products on key performance features, and we generally outsource wafer manufacturing in process technologies that are available at third-party wafer foundries when it is economical to do so. In addition, we increasingly focus our in-house manufacturing on our competitive 8-inch facilities,which predominantly run manufacturing processes in the 140 nanometer, 180 nanometer and 250 nanometer process nodes, and have concentrated themajority of our manufacturing base in Asia. This focus increases our return on invested capital and reduces capital expenditures.Our front-end manufacturing facilities use a broad range of production processes and proprietary design methods, including CMOS, bipolar, bipolarCMOS (“BiCMOS”) and double-diffused metal on silicon oxide semiconductor (“DMOS”) technologies. Our wafer fabs produce semiconductors with linewidths ranging from 90 nanometers to 3 microns for integrated circuits and 0.5 microns to greater than 4 microns for discretes. This broad technologyportfolio enables us to meet increasing demand from customers for system solutions, which require a variety of technologies. 23Table of ContentsOur back-end manufacturing facilities test and package many different types of products using a wide variety of processes. To optimize flexibility, weuse shared technology platforms for our back-end assembly operations. Most of our assembly and test activities are maintained in-house.The following table shows selected key information with respect to our major front-end and back-end facilities: Site Ownership Wafer sizes used Line widths used (vm) Technology/Products (Microns) Front-end(1) Singapore(2) 61.2% 8” 0.14-0.25 CMOSNijmegen, the Netherlands 100% 8” 0.14-0.80 CMOS, BiCMOS, LDMOSOak Hill, Austin, US 100% 8” 0.25 CMOS, BiCMOS, Sensors,LDMOS, HDTMOS, PowerCMOSChandler, US 100% 8” 0.25-0.50 CMOS, eNVM, PowerCMOSAustin Technology andManufacturing Center, US 100% 8” 0.09-0.18 CMOS, eNVM, PowerCMOS,Advanced CMOS, SoCBack-end(3) Kaohsiung, Taiwan 100% — — NFC, Automotive Car-access, Micro-controllersBangkok, Thailand 100% — — Automotive In-Vehicle Networking andSensors, Banking and e-Passport modules,Standard LogicKuala Lumpur, Malaysia 100% — — Micro-processors, Micro-controllers, PowerManagement, Analog and Mixed Signal, RFdevicesTianjin, China 100% — — Micro-controllers, Automotive MCU, Analogand Sensors (1)In front-end we entered into a joint venture with JAC Capital for the Bipolar products in which we currently hold a 49% interest. The Jilin front end fabtransferred into this JV.(2)Joint venture with TSMC; we are entitled to 60% of the joint venture’s annual capacity.(3)On March 27, 2018, we entered into a definitive agreement to sell our 40% equity interest in Suzhou ASEN Semiconductors Co., Ltd., a back-endmanufacturing joint venture with ASE in Suzhou, China. We expect this transaction to close in the second quarter of 2018, subject to customaryregulatory approvals.We use a large number of raw materials in our front- and back-end manufacturing processes, including silicon wafers, chemicals, gases, lead frames,substrates, molding compounds and various types of precious and other metals. Our most important raw materials are the raw, or substrate, silicon wafers weuse to make our semiconductors. We purchase these wafers, which must meet exacting specifications, from a limited number of suppliers in the geographicregion in which our fabrication facilities are located. At our wholly owned fabrication plants, we use raw wafers ranging from 6 inches to 8 inches in size. OurSSMC wafer fab facility, which produces 8 inch wafers, is jointly owned by TSMC and ourselves. We are leveraging our experience in that fab facility inoptimizing our remaining wholly owned Nijmegen wafer fab. The Merger has added multiple 8 inch fabs for production of a wide portfolio of analog, mixedsignal and processors products and this large scale and knowledge base will enable us to further optimize processes. Emerging fabrication technologiesemploy larger wafer sizes and, accordingly, we expect that our production requirements will in the future shift towards larger substrate wafers.We typically source our other raw materials in a similar fashion as our wafers, although our portfolio of suppliers is more diverse. Some of our suppliersprovide us with materials on a just-in-time basis, which permits us to reduce our procurement costs and the negative cash flow consequences of maintaininginventories, but exposes us to potential supply chain interruptions. We purchase most of our raw materials on the basis of fixed price contracts, but generallydo not commit ourselves to long-term purchase obligations, which permits us to renegotiate prices periodically.Sales, Marketing and CustomersWe market our products worldwide to a variety of OEMs, ODMs, contract manufacturers and distributors. We generate demand for our products bydelivering HPMS solutions to our customers, and supporting their system design-in activities by providing application architecture expertise and local fieldapplication engineering support.Our sales and marketing teams are organized into six regions, which are EMEA (Europe, the Middle East and Africa), the Americas, Japan, South Korea,Greater China and Asia Pacific. These sales regions are responsible for managing the customer relationships, design-in and promotion of new products. Weseek to further expand the presence of application engineers closely supporting our customers and to increase the amount of product development work thatwe can conduct jointly with our leading customers. Our web-based marketing tool is complementary to our direct customer technical support. 24Table of ContentsOur sales and marketing strategy focuses on deepening our relationship with our top OEMs and electronic manufacturing service customers anddistribution partners and becoming their preferred supplier, which we believe assists us in reducing sales volatility in challenging markets. We have long-standing customer relationships with most of our customers. Our 10 largest OEM end customers, some of whom are supplied by distributors, in alphabeticalorder, are Apple, Bosch, Continental, Delphi, Denso, Huawei, LG, Samsung, Visteon and ZTE. When we target new customers, we generally focus oncompanies that are leaders in their markets either in terms of market share or leadership in driving innovation. We also have a strong position with ourdistribution partners being a top three semiconductor supplier (other than microprocessors and memory ICs) through distribution worldwide. Our 3 largestdistribution partners are Arrow, Avnet and WPG.Our revenue is primarily the sum of our direct sales to OEMs plus our distributors’ resale of NXP products. One distributor accounted for more than10% of total 2017 revenue: Avnet accounted for 15% of our revenue in 2017, 13% in 2016 and 14% in 2015. WPG accounted for less than 10% of ourrevenue in 2017, less than 10% of our revenue in 2016 and 14% in 2015. No other distributor accounted for more than 10% of our revenue in 2017, 2016 or2015. With 11% of total revenue, Continental was the only OEM for which we had direct sales to that accounted for more than 10% of revenue in 2017. In2016 and 2015, this percentage was below 10%.Research and Development, Patents and Licenses, etc.See the discussion set forth under Part I, Item 5.C. Research and Development, Patents and Licenses, etc.CompetitionWe compete with many different semiconductor companies, ranging from multinational companies with integrated research and development,manufacturing, sales and marketing organizations across a broad spectrum of product lines, to “fabless” semiconductor companies, to companies that arefocused on a single application market segment or standard product. Most of these competitors compete with us with respect to some, but not all, of ourbusinesses.Our key competitors in alphabetical order include Analog Devices Inc., Broadcom, Cavium, Infineon, Intel, Maxim Integrated Products, Microchip,Renesas, Power Integrations, Silicon Laboratories, STMicroelectronics and Texas Instruments.The basis on which we compete varies across market segments and geographic regions. Our HPMS businesses compete primarily on the basis of ourability to timely develop new products and the underlying intellectual property and on meeting customer requirements in terms of cost, product features,quality, warranty and availability. In addition, our HPMS system solutions businesses require in-depth knowledge of a given application market in order todevelop robust system solutions and qualified customer support resources.Legal ProceedingsThe information set forth under the “Litigation” caption of note 17 of our notes to the Consolidated Financial Statements included in Part III, Item 18of this Annual Report is incorporated herein by reference. For additional discussion of certain risks associated with legal proceedings, see Part I, Item 3.D.Risk Factors.Environmental RegulationThe information set forth under the “Environmental remediation” caption of note 17 of our notes to the Consolidated Financial Statements included inPart III, Item 18 of this Annual Report is incorporated herein by reference. For additional discussion of certain risks associated with environmental regulation,see Part I, Item 3.D. Risk Factors. 25Table of ContentsC. Organizational StructureA list of our significant subsidiaries, including name, country of incorporation or residence and proportion of ownership interest and voting power isprovided as “Exhibit 21.1” under Part III, Item 19. Exhibits and is incorporated herein by reference.CORPORATE STRUCTUREThe following chart reflects our corporate structure as of December 31, 2017. (1)For a more detailed description of our Long-Term Incentive Plans see the discussion set forth under “Share Based Compensation Plans” contained inthis Annual Report in Part I, Item 6.B. Compensation.(2)As of December 31, 2017, we had $1,150 million aggregate principal amount of 2019 Cash Convertible Senior Notes outstanding.(3)As of December 31, 2017, no borrowings were outstanding under the RCF Agreement.(4)As of December 31, 2017, we had $5,500 million aggregate principal amount of unsecured notes outstanding.(5)This list of material subsidiaries includes the subsidiaries that are guarantors under our RCF Agreement. Other subsidiaries provide a guarantee undercertain of our other outstanding indebtedness. See Part I, Item 5.B. Liquidity and Capital Resources, under the captions 2017 Financing Activities,2016 Financing Activities and 2015 Financing Activities.(6)On March 27, 2018, we entered into a definitive agreement to sell our 40% equity interest of ASEN. The closing of this transaction is expected in thesecond quarter of 2018, subject to customary regulatory approvals. 26Table of ContentsD. Property, Plant and EquipmentNXP uses 95 sites in 30 countries with 10.9 million square feet of total owned and leased building space of which 9.5 million square feet is ownedproperty.The following table sets out our principal real property holdings as of December 31, 2017: Location Use Owned/leased Building space(square feet) Eindhoven, the Netherlands Headquarters Leased 152,666 Nijmegen, the Netherlands Manufacturing Owned 1,515,550 Singapore (SSMC) * Manufacturing Owned 757,852 Bangkok, Thailand Manufacturing Owned 547,882 Kaohsiung, Taiwan Manufacturing Owned 636,395 Tianjin, China Manufacturing Owned 447,624 Kuala Lumpur, Malaysia Manufacturing Owned 828,858 Chandler, United States Manufacturing Owned 1,173,196 Austin (Oak Hill), United States Manufacturing Owned 1,514,389 Austin (Ed Bluestein), United States Manufacturing Owned 1,158,731 *Joint venture between TSMC and NXP.Areas which are not fully closed are not considered as buildings (eg. sport fields, parking space). If it is not practicable to differentiate betweenproduction facility and offices in the same building all is considered manufacturing.Item 4A. Unresolved Staff CommentsNot applicable.Item 5. Operating and Financial Review and ProspectsCritical Accounting EstimatesThe 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 itsestimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonableunder 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 ourConsolidated Financial Statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need tomake estimates regarding matters that are inherently uncertain. Our most critical accounting estimates include: •the valuation of inventory, which impacts gross margin; •the assessment of recoverability of goodwill, identified intangible assets and tangible fixed assets, which impacts gross margin or operatingexpenses when we record asset impairments or accelerate their depreciation or amortization; •revenue recognition, which impacts our results of operations; •the recognition of current and deferred income taxes (including the measurement of uncertain tax positions), which impacts our provision forincome taxes; •the assumptions used in the determination of postretirement benefit obligations, which impacts operating expenses; •the assumptions used in the determination of share based compensation, which impacts gross margin and operating expenses; and •the recognition and measurement of loss contingencies, which impacts gross margin or operating expenses when we recognize a losscontingency or revise the estimates for a loss contingency.In the following section, we discuss these policies further, as well as the estimates and judgments involved.InventoriesInventories are valued at the lower of cost or market. We regularly review our inventories and write down our inventories for estimated losses due toobsolescence. This allowance is determined for groups of products based on sales of our products in the recent past and/or expected future demand. Futuredemand is affected by market conditions, technological obsolescence, new products and strategic plans, each of which is subject to change with little or noforewarning. In estimating obsolescence, we utilize information that includes projecting future demand.The need for strategic inventory levels to ensure competitive delivery performance to our customers are balanced against the risk of inventoryobsolescence due to rapidly changing technology and customer requirements. 27Table of ContentsThe change in our reserves for inventories was primarily due to the normal review and accrual of obsolete or excess inventory. If actual future demandor market conditions are less favorable than those projected by our management, additional inventory write-downs may be required.GoodwillGoodwill is required to be tested for impairment at least annually or sooner whenever events or changes in circumstances indicate that the assets maybe impaired. Such events or changes in circumstances can be significant changes in business climate, operating performance or competition, or upon thedisposition of a significant portion of a reporting unit. A significant amount of judgment is involved in determining if an indicator of impairment hasoccurred between annual test dates. This impairment review compares the fair value for each reporting unit containing goodwill to its carrying value.Determining the fair value of a reporting unit involves the use of significant estimates and assumptions, including projected future cash flows, discount ratesbased on weighted average cost of capital and future economic and market conditions. We base our fair-value estimates on assumptions we believe to bereasonable. Actual cash flow amounts for future periods may differ from estimates used in impairment testing.For the annual impairment assessment in 2017, we determined that for each of our reporting units, it was more likely than not that the fair value of thereporting units exceeded the carrying value. During the fourth quarter of each of the prior two fiscal years, we have completed our annual impairmentassessments and concluded that goodwill was not impaired in any of these years.Impairment or disposal of identified intangible assets and tangible fixed assetsWe perform reviews of property, plant and equipment, and certain identifiable intangibles, excluding goodwill, to determine if facts and circumstancesindicate 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 andcircumstances exist, we assess the recoverability of the long-lived assets by comparing the projected undiscounted net cash flows associated with the relatedasset 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 torecover the recorded value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flowsattributable 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.The assumptions and estimates used to determine future values and remaining useful lives of our intangible and other long-lived assets are complexand subjective. They can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as changesin our business strategy and our forecasts for specific product lines. In 2017, we recognized impairment charges of $23 million, of which $16 million (2016:$89 million) relative to IPR&D that was acquired from Freescale . In 2015, we recognized disposals of intangibles relative to our sale of the Bipolar and RFPower Businesses.Revenue recognitionThe Company’s revenue is derived from sales to distributors, made-to-order sales to 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 isfixed or determinable, and collection is reasonably assured, based on the terms and conditions of the sales contract. For made-to-order sales, these criteria aremet 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 thecustomer is generally not contractually required, since, for made-to-order customers, design approval occurs before manufacturing and subsequently deliveryfollows without further acceptance protocols. Payment terms used are those that are customary in the particular geographic market. When management hasestablished that all aforementioned conditions for revenue recognition have been met and no further post-shipment obligations exist, revenue is recognized.For sales to distributors, revenue is recognized upon sale to the distributor (sell-in accounting). We record reductions to sales associated with reservesfor allowances for collectibility, discounts, price protection, product returns and distributor incentive programs at the time the related sale is recognized. Theestablishment of such reserves 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. The process of evaluating these factors is highly subjective and requiressignificant estimates, including, but not limited to, forecasted demand, returns, pricing assumptions and inventory levels. In future periods, additionalprovisions may be necessary due to a deterioration in the semiconductor pricing environment, reductions in anticipated demand for semiconductor productsand/or lack of market acceptance for new products. If these factors result in a significant adjustment to our reserves, they could significantly impact our futureoperating results.Distributor reserves estimate the impact of credits granted to distributors under certain programs common in the semiconductor industry wherebydistributors receive certain price adjustments to meet individual competitive opportunities, or are allowed to return or scrap a limited amount of product inaccordance with contractual terms agreed upon with the distributor, or receive price protection credits when our standard published prices are lowered fromthe 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 prospectiveview of products and pricing in the distribution channel for distributors who participate in our volume rebate incentive program, in order to estimate theproper provision for this program at the end of any given reporting period. We continually monitor the actual claimed allowances against our estimates, andwe adjust our estimates as appropriate to reflect trends in pricing environments and inventory levels. Distributor reserves are also adjusted when recenthistorical data does not represent anticipated future activity. 28Table of ContentsIncome taxesDeferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax basis of assets andliabilities and their reported amounts. Measurement of deferred tax assets and liabilities is based upon the enacted tax rates expected to apply to taxableincome in the years in which those temporary differences are expected to be recovered or settled. Deferred tax liabilities for withholding taxes on dividendsfrom subsidiaries are recognized in situations where the company does not consider the earnings indefinitely reinvested and to the extent that thesewithholding 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 evidenceit is more likely than not that the asset will be realized.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 uponexamination by the relevant taxing authorities. The income tax benefit recognized is measured based on the largest benefit that is more than 50% likely to berealized upon resolution of the uncertainty. Unrecognized tax benefits are presented as a reduction to the deferred tax asset for related net operating losscarryforwards, unless these would not be available, in which case the uncertain tax benefits are presented together with the related interest and penalties as aliability, under accrued liabilities and other non-current liabilities based on the timing of the expected payment. Penalties are recorded as income taxexpense, whereas interest is reported as financial expense in the statement of operations.Postretirement benefitsThe Company’s employees participate in pension and other postretirement benefit plans in many countries. The costs of pension and otherpostretirement benefits and related assets and liabilities with respect to the Company’s employees participating in defined-benefit plans are based uponactuarial valuations.The projected defined-benefit obligation is calculated annually by qualified actuaries using the projected unit credit method. For the Company’s majorplans, the discount rate is derived from market yields on high quality corporate bonds. Plans in countries without a deep corporate bond market use adiscount rate based on the local government bond rates.In calculating obligation and expense, the Company is required to select actuarial assumptions. These assumptions include discount rate, expectedlong-term rate of return on plan assets and rates of increase in compensation costs determined based on current market conditions, historical information andconsultation with and input from our actuaries. Changes in the key assumptions can have a significant impact to the projected benefit obligations, fundingrequirements and periodic pension cost incurred. A sensitivity analysis is provided in note 15, “Postretirement Benefit Plans”.The Company determines the fair value of plan assets based on quoted prices or comparable prices for non-quoted assets. For a defined-benefit pensionplan, the benefit obligation is the projected benefit obligation; for any other postretirement defined benefit plan it is the accumulated postretirement benefitobligation.Share-based compensationWe recognize compensation expense for all share-based awards based on the grant-date estimated fair values, net of an estimated forfeiture rate. We usethe 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 presentvalue of the estimated expected future dividends, and then multiplied by the number of RSUs granted. Share-based compensation cost for performance-basedshare units (“PSU”s) granted with performance or market conditions is measured using a Monte Carlo simulation model on the date of grant.Our valuation models and generally accepted valuation techniques require us to make assumptions and to apply judgment to determine the fair valueof our awards. These assumptions and judgments include estimating the volatility of our stock price, expected dividend yield, employee turnover rates andemployee stock option exercise behaviors. Due to the lack of extensive history as a public company, the computation of the expected volatility assumptionsused in the Black-Scholes calculations for grants was based on historical volatilities and implied volatilities of our peer group companies. When establishingthe expected life assumption, we used the ‘simplified’ method prescribed in ASC Topic 718 for companies that do not have adequate historical data. The risk-free interest rate is measured as the prevailing yield for a U.S. Treasury security with a maturity similar to the expected life assumption. We also estimate aforfeiture rate at the time of grant and revise this rate in subsequent periods if actual forfeitures or vesting differ from the original estimates.We evaluate the assumptions used to value our awards on a quarterly basis. If factors change and we employ different assumptions, share-basedcompensation expense may differ significantly from what we have recorded in the past. If there are any modifications or cancellation of the underlyingunvested securities, we may be required to accelerate, increase or cancel any remaining unearned share-based compensation expense. 29Table of ContentsLitigation and claimsWe are regularly involved as plaintiffs or defendants in claims and litigation relating to matters such as commercial transactions and intellectualproperty rights. In addition, our divestments sometimes result in, or are followed by, claims or litigation by either party. From time to time, we also are subjectto alleged patent infringement claims. We rigorously defend ourselves against these alleged patent infringement claims. There can be no assurance that theCompany’s accruals will be sufficient to cover the extent of its potential exposure to losses. Historically, legal actions have not had a material adverse effecton the Company’s business, results of operations or financial condition.The estimated aggregate range of reasonably possible losses is based on currently available information in relation to the claims that have arisen andon the Company’s best estimate of such losses for those cases for which such estimate can be made. For certain claims, the Company believes that an estimatecannot currently be made. The estimated aggregate range requires significant judgment, given the varying stages of the proceedings (including the fact thatmany of them are currently in preliminary stages), the existence of multiple defendants (including the Company) in such claims whose share of liability hasyet to be determined, the numerous yet-unresolved issues in many of the claims, and the attendant uncertainty of the various potential outcomes of suchclaims. Accordingly, the Company’s estimate will change from time to time, and actual losses may be more than the current estimate.Use of Certain Non-GAAP Financial MeasuresNet debt is a non-GAAP financial measure and represents total debt (short-term and long-term) after deduction of cash and cash equivalents.Management believes this measure is an appropriate reflection of our net leverage.We understand that, although net debt is used by investors and securities analysts in their evaluation of companies, this concept has limitations as ananalytical tool and it should not be used as an alternative to any other measure in accordance with U.S. GAAP.A. Operating ResultsYear Ended December 31, 2017 Compared to Year Ended December 31, 2016Results of OperationsThe following table presents the composition of operating income for the years ended December 31, 2017 and 2016. ($ in millions, unless otherwise stated) 2017 2016 Revenue 9,256 9,498 % nominal growth (2.5) 55.7 Gross profit 4,619 4,069 Research and development (1,554) (1,560) Selling, general and administrative (SG&A) (1,090) (1,141) Amortization of acquisition-related intangible assets (1,448) (1,527) Other income (expense) 1,575 9 Operating income (loss) 2,102 (150) RevenueThe following table presents revenue by segment for the years ended December 31, 2017 and 2016. 2017 2016 ($ in millions, unless otherwise stated) Revenue % nominal growth Revenue % nominal growth High Performance Mixed Signal (“HPMS”) 8,745 8.1 8,086 71.3 Standard Products (“SP”) 118 (90.3) 1,220 (1.7) Corporate and Other 393 104.7 192 37.1 Total 9,256 (2.5) 9,498 55.7 Revenue decreased by $242 million to $9,256 million in 2017 compared to $9,498 million in 2016, a nominal decrease of 2.5%, reflecting thedivestment of the SP business.Our HPMS segment reported an increase in revenue of $659 million to $8,745 million in 2017 compared to $8,086 million in 2016, resulting in 8.1%nominal growth. The increase was primarily due to increased demand in Automotive and Secure Connected Devices and to a lesser extent in SecureInterface & Infrastructure offset by lower sales in Secure Identification Solutions due to a combination of lower overall market demand and average salesprice compression.Revenue for our SP segment was $118 million in 2017, compared to $1,220 million in 2016. The decrease was attributable to the divestment of the SPbusiness on February 6, 2017. As of the divestment date, revenue derived from services to the former SP activities (Nexperia) in order to support theirseparation and, on a limited basis, their ongoing operations, is included in the Corporate & Other segment. As the Nexperia business develops or acquires itsown foundry and packaging capabilities, our revenue from this source is expected to decline.Revenue for Corporate and Other amounted to $393 million in 2017, compared to $192 million in 2016 and mainly related to our manufacturingoperations, including revenue derived from services to Nexperia. 30Table of ContentsGross ProfitThe following table presents gross profit by segment for the years ended December 31, 2017 and 2016. 2017 2016 ($ in millions, unless otherwise stated) GrossProfit % of segmentrevenue GrossProfit % of segmentrevenue HPMS 4,527 51.8 3,625 44.8 SP 45 38.1 437 35.8 Corporate and Other 47 12.0 7 3.6 Total 4,619 49.9 4,069 42.8 Gross profit in 2017 was $4,619 million, or 49.9% of revenue compared to $4,069 million, or 42.8% of revenue in 2016. The increase of $550 millionwas primarily driven by the absence of the impact of purchase accounting on inventory recognized in 2016, as a result of the acquisition of Freescale, inaddition to the continued improvement of our operational performance and improved product mix, partly offset by the impact of the divestment of SP.Our HPMS segment had a gross profit of $4,527 million, or 51.8% of revenue in 2017, compared to $3,625 million, or 44.8% of revenue in 2016. Theincrease in the gross profit percentage of 7.0 points as a percentage of revenue was primarily driven by the absence of the impact of purchase accounting oninventory ($448 million) in 2016, in addition to the continued improvement of our operational performance and improved product mix.Gross profit in our SP segment was $45 million, or 38.1% of revenue in 2017, compared to $437 million, or 35.8% of revenue in 2016. The decrease ingross profit was a result of the divestment of the SP business on February 6, 2017.Operating ExpensesThe following table presents operating expenses by segment for the years ended December 31, 2017 and 2016. 2017 2016 ($ in millions, unless otherwise stated) Operatingexpenses % of segmentrevenue Operatingexpenses % of segmentrevenue HPMS 3,871 44.3 3,937 48.7 SP 14 11.9 168 13.8 Corporate and Other 207 52.7 123 64.1 Total 4,092 44.2 4,228 44.5 The following table below presents the composition of operating expenses by line item in the statement of operations. ($ in millions, unless otherwise stated) 2017 2016 Research and development 1,554 1,560 Selling, general and administrative 1,090 1,141 Amortization of acquisition-related intangible assets 1,448 1,527 Operating expenses 4,092 4,228 Operating expenses were $4,092 million, or 44.2% of revenue in 2017, compared to $4,228 million, or 44.5% of revenue in 2016, a decrease of$136 million. The decrease in operating expenses was primarily the result of realized synergies from the acquisition of Freescale, lower expenses related tothe amortization of acquisition-related intangible assets, in addition to the impact of the divestment of SP, with only one month of operating activities in thecurrent period.In our HPMS segment, operating expenses amounted to $3,871 million, or 44.3% of revenue in 2017, compared to $3,937 million, or 48.7% of revenuein 2016. The decrease was primarily the result of realized synergies from the acquisition of Freescale and lower expenses related to the amortization ofacquisition-related intangible assets.Operating expenses in our SP segment decreased to $14 million, or 11.9% of revenue in 2017, compared to $168 million or 13.8% of revenue in 2016.The decrease in operating expenses was a result of the divestment of the SP business on February 6, 2017.Operating expenses in Corporate and Other amounted to $207 million, or 52.7% of revenue in 2017, compared to $123 million or 64.1% of revenue in2016. The increase in operating expenses was a result of incurred expenses associated with the proposed acquisition by QUALCOMM Incorporated andincreased legal costs in connection with potential and current legal proceedings. The decrease in operating expenses as a percentage of revenue is driven bythe increase in revenue as a result of the services we now provide to Nexperia. 31Table of ContentsRestructuring ChargesTotal restructuring and restructuring related costs amounted to $1 million in 2017, compared to $68 million in 2016.In 2016, the restructuring charges were for various specific targeted actions and were comprised of employee severance costs.Other Income (Expense)The following table presents other income (expense) for the years ended December 31, 2017 and 2016. ($ in millions, unless otherwise stated) 2017 2016 Other income (expense) 1,575 9 Other income (expense) reflects income of $1,575 million for 2017 compared to $9 million of income in 2016. Included in 2017 is the realized gain of$1,597 million on the sale of the SP business in 2017.Financial Income (Expense) ($ in millions) For the years ended December 31, 2017 2016 Interest income 27 11 Interest expense (310) (408) Foreign exchange rate results (30) (15) Net gain (loss) on extinguishment of debt (41) (32) Other (12) (9) Total (366) (453) Financial income (expense) was an expense of $366 million in 2017, compared to an expense of $453 million in 2016. The change in financial income(expense) is primarily attributable to (i) the decrease in interest expense, net, as a result of repayment of debt in 2017, offset by (ii) a less favorable impact offoreign exchange rate results and by (iii) higher debt extinguishment cost related to repayment of debt.Benefit (Provision) for Income TaxesThe effective tax rate reflects the impact of tax incentives, a portion of our earnings being taxed in foreign jurisdictions at rates different than theNetherlands statutory tax rate and the mix of income and losses in various jurisdictions. We recorded a tax benefit of $483 million in 2017, which reflects abenefit of 27.8% compared with a benefit of $851 million (141.1%) for 2016.On December 22, 2017, the President of the United States signed into law what is informally called the Tax Cuts and Jobs Act, a comprehensive U.S.tax reform package that, effective January 1, 2018, among other things, lowered the corporate income tax rate from 35% to 21%, moved the country towards aterritorial tax system with a one-time mandatory tax on previously deferred foreign earnings of foreign subsidiaries and introduced a 30% limitation ondeductibility of interest. Under the accounting rules, companies are required to recognize the effects of changes in tax laws and tax rates on deferred tax assetsand liabilities in the period in which the new legislation is enacted. The effects of the Tax Cuts and Jobs Act on NXP include three major categories(i) re-measurement of deferred taxes, (ii) reassessment of the realizability of deferred tax assets and (iii) recognition of liabilities for taxes on mandatorydeemed repatriation. As described further below, we recorded an income tax benefit of $734 million in the year ended December 31, 2017. As we do not haveall the necessary information to analyze all income tax effects of the Tax Cuts and Jobs Act, this is a provisional amount which we believe represents areasonable estimate of the accounting implications of this tax reform. We will continue to evaluate the Tax Cuts and Jobs Act and adjust the provisionalamounts as additional information is obtained. The ultimate impact of tax reform may differ from our provisional amounts due to changes in ourinterpretations and assumptions, as well as additional regulatory guidance that may be issued.We expect to complete our detailed analysis no later than the fourth quarter of 2018. Below is a brief description of each of the three categories ofeffects from U.S. tax reform and its impact on the Company: i.A deferred tax benefit of $565 million related to the revaluation of NXP USA’s net deferred tax liabilities due to the reduction of the U.S.corporate tax rate from 35% to 21%. The Company believes that the disallowed interest available per end of full year 2017 can still be carriedforward and therefore continued to recognize a deferred tax asset of $156 million in this respect. ii.A deferred tax benefit of $277 million for the reversal of net deferred tax liabilities previously accrued related to NXP USA’s cumulativeundistributed foreign earnings. The Company believes this is a reasonable estimate of the impact of the Tax Cuts and Jobs Act but considers therelease of this deferred tax liability as provisional pending further interpretation and guidance regarding whether future distribution frompre-1987 earnings and profits (E&P) will be subject to U.S. income tax. iii.A deferred tax expense of $108 million for the mandatory repatriation “Toll Tax”. The Company expects to utilize part of its unused foreign taxcredit carryforwards that existed at the end of 2016 to fully cover the Toll Tax. Additional work is necessary to do a more detailed analysis ofpost-1986 earnings and profits (E&P) and creditable foreign-taxes of U.S.-owned subsidiaries. Further, the Toll Tax is based in part on theamount of those earnings held in cash and other specific assets, which may be further defined by regulatory guidance. 32Table of ContentsAs previously discussed, on February 6, 2017 we divested Standard Products, receiving $2.75 billion in cash proceeds. In relation to the gain that willbe realized, the Company currently estimates that we will incur approximately $360 million of capital gains taxes that will come due in increments during2017-2019. Cash payments for income taxes that are relative to our ongoing operations are expected to remain at approximately $35 to $40 million perquarter during 2018. In relation to the gain we made additional cash payments in 2017 of $270 million. For the period 2018-2019, we currently estimateadditional cash payments relative to this gain of approximately $90 million.In the fourth quarter of 2017, the Company recorded an adjustment to recognize tax expense in the amount of $121 million related to the first threequarters of 2017. The adjustment relates to transfer pricing and purchase accounting. Other than the amount related to goodwill (see Note 14), the adjustmentdid not impact financial statements for the years ended December 31, 2016 or 2015.Results Relating to Equity-accounted InvesteesResults relating to the equity-accounted investees amounted to a gain of $53 million in 2017, which includes $31 million gain resulting from the saleof ASMC in April 2017. In 2016, results relating to the equity-accounted investees amounted to a gain of $11 million.Non-controlling InterestsNon-controlling interests are related to the third party share in the results of consolidated companies, predominantly SSMC. Their share ofnon-controlling interests amounted to a profit of $57 million in 2017, compared to a profit of $59 million in 2016.Year Ended December 31, 2016 Compared to Year Ended December 31, 2015Results of OperationsThe following table presents the composition of operating income for the years ended December 31, 2016 and 2015. ($ in millions, unless otherwise stated) 2016 2015 Revenue 9,498 6,101 % nominal growth 55.7 8.0 Gross profit 4,069 2,787 Research and development (1,560) (890) Selling, general and administrative (SG&A) (1,141) (922) Amortization of acquisition-related intangible assets (1,527) (223) Other income (expense) 9 1,263 Operating income (loss) (150) 2,015 RevenueThe following table presents revenue by segment for the years ended December 31, 2016 and 2015. 2016 2015 ($ in millions, unless otherwise stated) Revenue % nominal growth Revenue % nominal growth High Performance Mixed Signal (“HPMS”) 8,086 71.3 4,720 12.2 Standard Products (“SP”) 1,220 (1.7) 1,241 (2.7) Corporate and Other 192 37.1 140 (14.6) Total 9,498 55.7 6,101 8.0 Revenue increased by $3,397 million to $9,498 million in 2016 compared to $6,101 million in 2015, a nominal increase of 55.7%, reflecting theinclusion of the operations of Freescale.Our HPMS segment reported an increase in revenue of $3,366 million to $8,086 million in 2016 compared to $4,720 million in 2015, resulting in71.3% nominal growth. The increase was primarily due to incremental revenue from the acquired Freescale businesses from December 7, 2015, onward, partlyoffset by the divestment of RF Power on December 7, 2015.Revenue for our SP segment decreased $21 million to $1,220 million in 2016, compared to $1,241 million in 2015. The decrease was primarilyattributable to the transfer of the Bipolar Power business line activities into a joint venture (WeEn Semiconductors) with JAC Capital in China.Revenue for Corporate and Other amounted to $192 million in 2016, compared to $140 million in 2015 and mainly related to our manufacturingoperations. 33Table of ContentsGross ProfitThe following table presents gross profit by segment for the years ended December 31, 2016 and 2015. 2016 2015 ($ in millions, unless otherwise stated) GrossProfit % of segmentrevenue GrossProfit % of segmentrevenue HPMS 3,625 44.8 2,367 50.1 SP 437 35.8 417 33.6 Corporate and Other 7 3.6 3 2.1 Total 4,069 42.8 2,787 45.7 Gross profit in 2016 was $4,069 million, or 42.8% of revenue compared to $2,787 million, or 45.7% of revenue in 2015. The increase of $1,282 millionwas primarily driven by the inclusion of the operating activity of Freescale partly offset by the effects of PPA, and to a lesser extent, stock basedcompensation expense. The decrease in the gross profit percentage was primarily driven by the effect of purchase accounting in our HPMS segment.Our HPMS segment had a gross profit of $3,625 million, or 44.8% of revenue in 2016, compared to $2,367 million, or 50.1% of revenue in 2015. Thedecrease in the gross profit percentage of 5.3 points as a percentage of revenue was primarily driven by the effects of purchase accounting in two areas -inventory of $448 million (2015: $149 million) and property, plant and equipment of $209 million (2015: $15 million), both as a result of the acquisition ofFreescale, and to a lesser extent, restructuring activity ($12 million) and stock based compensation expense ($42 million).Gross profit in our SP segment was $437 million, or 35.8% of revenue in 2016, compared to $417 million, or 33.6% of revenue in 2015. The increase inthe gross profit percentage of 2.2 points was a result of lower depreciation expense as a result of the fixed assets of the SP business being classified as held forsale and depreciation being discontinued on those fixed assets.Operating ExpensesThe following table presents operating expenses by segment for the years ended December 31, 2016 and 2015. 2016 2015 ($ in millions, unless otherwise stated) Operatingexpenses % of segmentrevenue Operatingexpenses % of segmentrevenue HPMS 3,937 48.7 1,674 35.5 SP 168 13.8 223 18.0 Corporate and Other 123 — 138 — Total 4,228 44.5 2,035 33.4 The following table below presents the composition of operating expenses by line item in the statement of operations. ($ in millions, unless otherwise stated) 2016 2015 Research and development 1,560 890 Selling, general and administrative 1,141 922 Amortization of acquisition-related intangible assets 1,527 223 Operating expenses 4,228 2,035 Operating expenses were $4,228 million, or 44.5% of revenue in 2016, compared to $2,035 million, or 33.4% of revenue in 2015, an increase of$2,193 million, or an increase of 11.1 points as a percentage of revenue. The increase in operating expenses was primarily due to the acquisition of Freescale:the inclusion of their operating activity from December 7, 2015 onward and the related amortization of acquisition related intangibles of $1,430 million(2015: $105 million).In our HPMS segment, operating expenses amounted to $3,937 million, or 48.7% of revenue in 2016, compared to $1,674 million, or 35.5% of revenuein 2015. The increase was primarily driven by the acquisition of Freescale: the inclusion of their operating activity from December 7, 2015 onward and therelated amortization of acquisition related intangibles of $ 1,430 million (2015: $105 million), which includes an impairment charge of $89 million (2015:nil) relative to IPR&D that was acquired from Freescale.Operating expenses in our SP segment decreased to $168 million, or 13.8% of revenue in 2016 compared to $223 million or 18.0% of revenue in 2015.The decrease in operating expenses was primarily driven by a continued strong focus on cost controls and the effect of the divestment of the Bipolaractivities. 34Table of ContentsRestructuring ChargesTotal restructuring and restructuring related costs amounted to $68 million in 2016, compared to $264 million in 2015.In 2016, the restructuring charges were for various specific targeted actions and were comprised of employee severance costs. In 2015, the restructuringcharges mainly related to the acquisition of Freescale and were comprised of severance costs of $239 million, and other exit costs of $27 million.Other Income (Expense)The following table presents other income (expense) for the years ended December 31, 2016 and 2015. ($ in millions, unless otherwise stated) 2016 2015 Other income (expense) 9 1,263 Other income (expense) reflects income of $9 million for 2016 compared to $1,263 million of income in 2015. Included in 2015 is the gain on the saleof NXP’s Bipolar Power business line and RF Power business to JAC Capital in the fourth quarter of 2015.Financial Income (Expense) ($ in millions) For the years ended December 31, 2016 2015 Interest income 11 6 Interest expense (408) (227) Foreign exchange rate results (15) (193) Net gain (loss) on extinguishment of debt (32) — Change in fair value of the warrant liability — (31) Other (9) (84) Total (453) (529) Financial income (expense) was an expense of $453 million in 2016, compared to an expense of $529 million in 2015. The change in financial income(expense) is primarily attributable to (i) a more favorable impact of foreign exchange rate results, (ii) lower other financial income and expense related itemsthan in 2015, offset by (iii) the increase in interest expense, net, as a result of the debt that we assumed in the acquisition of Freescale and by (iv) a$32 million loss on the early extinguishment of debt due to certain financing activities completed during 2016. Beginning on January 1, 2016, as a result ofthe acquisition of Freescale, NXP concluded that the functional currency of the holding company was USD. With this change in functional currency, the U.S.dollar-denominated notes held by NXP no longer need to be re-measured, resulting in less foreign exchange rate results in our operations and the warrantswere reclassified to stockholders’ equity, and mark-to-market accounting was no longer applicable.Benefit (Provision) for Income TaxesThe effective tax rate reflects the impact of tax incentives, a portion of our earnings being taxed in foreign jurisdictions at rates different than theNetherlands statutory tax rate and the mix of income and losses in various jurisdictions. We recorded a tax benefit of $851 million in 2016, which reflects abenefit of 141.1% compared with a benefit of $104 million (7.0%) for 2015.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 dispositionof SP, we concluded that the valuation allowance should be reduced by $395 million as of December 31, 2016, as the SP divestiture provided an objectivelyverifiable source of income against which tax losses can be utilized. As a result, we 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 ConsolidatedBalance 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 our determinationthat sufficient positive evidence existed to support a more likely than not determination that the U.S. deferred tax assets were realizable.As a result, the significant change in our effective tax rate was primarily due to the reversals of valuation allowances in the Netherlands and Germany asa result of the SP divestiture, a reversal of the valuation allowance in the U.S. related to the Company’s determination that sufficient positive evidenceexisted to support a more likely than not determination that the U.S. deferred tax assets were realizable, and the impact of purchase accounting as a result ofthe acquisition of Freescale, slightly offset by the impact of the inclusion of the operations of Freescale, which resulted in significant amortization expensefor acquired intangibles, additional depreciation expense as a result of the fair value adjustments on tangible assets and a significant impact to the mix ofincome and losses between jurisdictions. In addition, the tax expense related to transactions associated with internal restructurings resulting from theFreescale acquisition represented a higher percentage of earnings before tax for 2016 as compared to 2015. 35Table of ContentsAs previously discussed, on February 6, 2017 we divested Standard Products, receiving $2.75 billion in cash proceeds. In relation to the gain that willbe realized, the Company currently estimates that we will incur approximately $450 million of capital gains taxes that will come due in increments during2017, 2018 and 2019. Cash payments for income taxes that are relative to our ongoing operations are expected to remain at approximately $30 to$35 million per quarter during 2017. In relation to the gain we expect additional cash payments for income taxes to be approximately $30 million in the firstquarter of 2017 and approximately $90 million in each of the second, third and fourth quarters of 2017. For the years ended December 31, 2018 and 2019, wecurrently estimate in each year additional cash payments for income taxes relative to this gain of approximately $75 million.Results Relating to Equity-accounted InvesteesResults relating to the equity-accounted investees amounted to a gain of $11 million in 2016, compared to a gain of $9 million in 2015.Non-controlling InterestsNon-controlling interests are related to the third party share in the results of consolidated companies, predominantly SSMC. Their share ofnon-controlling interests amounted to a profit of $59 million in 2016, compared to a profit of $73 million in 2015.B. Liquidity and Capital ResourcesLiquidity and Capital ResourcesAs of December 31, 2017, our cash balance was $3,547 million, of which $250 million was held by SSMC, our consolidated joint venture companywith 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 thedividend will be paid to our joint venture partner. In 2017, a dividend of $228 million was distributed, of which $89 million was distributed to the jointventure partner.Taking into account the available undrawn amount under the RCF Agreement, we had access to $4,147 million of liquidity as of December 31, 2017.Our capital expenditures were $552 million in 2017, compared to $389 million in 2016.The total amount of cash used for financing activities amounted to $2,886 million.As of December 31, 2017, we had an undrawn availability of $600 million remaining under the RCF Agreement.For the year ended December 31, 2017, we incurred total net interest expense of $283 million compared to $397 million during 2016. The weightedaverage interest rates on our debt instruments as of December 31, 2017 and December 31, 2016 were 3.7% for both years.We repurchased 2.5 million shares of our common stock pursuant to our share buyback program during 2017 at a weighted average price of $113.36per share. Share repurchases since the announcement of the potential acquisition by Qualcomm solely relate to employee equity transactions.Our sources of liquidity include cash on hand, cash flow from operations and amounts available under the RCF Agreement. We believe that, based onour current level of operations as reflected in our results of operations for the year ended December 31, 2017, these sources of liquidity will be sufficient tofund our operations, capital expenditures, and debt service for at least the next twelve months.From time to time, we engage in discussions with third parties regarding potential acquisitions of, or investments in, businesses, technologies andproduct lines. Any such transaction could require significant use of our cash and cash equivalents, or require us to arrange for new debt and equity financingto 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 operatingactivities sufficient to permit us to pay principal, premium, if any, and interest on our indebtedness. Our business may not generate sufficient cash flow fromoperations, or we may not have enough capacity under the RCF Agreement, or from other sources in an amount sufficient to enable us to repay ourindebtedness, including the RCF Agreement, the unsecured notes or to fund our other liquidity needs, including working capital and capital expenditurerequirements. In any such case, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure orrefinance our indebtedness. See Part I, Item 3.D. Risk Factors. The Purchase Agreement restricts us from engaging in certain actions without Buyer’s approval,including material acquisitions outside the ordinary course of business.Cash Flow from Operating ActivitiesIn 2017 our operating activities provided $2,447 million in cash. This was primarily the result of net income of $2,272 million, adjustments toreconcile the net income of $113 million and changes in operating assets and liabilities of $62 million. Net income includes offsetting non-cash items, suchas depreciation and amortization of $2,173 million, the gain on the sale of assets of ($1,615) million, share-based compensation of $281 million,amortization of the discount on debt and debt issuance costs of $52 million, a loss on extinguishment of debt of $41 million and changes in deferred taxes of($797) million. 36Table of ContentsIn 2016 our operating activities provided $2,303 million in cash. This was primarily the result of net income of $259 million, adjustments to reconcilethe net income of $1,673 million and changes in operating assets and liabilities of $371 million. The net income includes non-cash items, such asdepreciation and amortization of $2,205 million, share-based compensation of $338 million, amortization of the discount on debt and debt issuance costs of$50 million, a loss on extinguishment of debt of $32 million and changes in deferred taxes of ($925) million.In 2015 our operating activities provided $1,330 million in cash. This was primarily the result of net income of $1,599 million and changes inoperating assets and liabilities of $56 million. Net income includes non-cash items, such as the gain on the sale of assets of ($1,263) million, depreciation andamortization of $517 million and share-based compensation of $216 million.Cash Flow from Investing ActivitiesNet cash provided by investing activities amounted to $2,072 million in 2017 and principally consisted of the cash inflow from proceeds from the sale(net of cash) of the SP business, partly offset by the cash outflows for capital expenditures of $552 million and $66 million for the purchase of identifiedintangible assets, mainly related to the purchase of licenses.Net cash used for investing activities amounted to $627 million in 2016 and principally consisted of cash outflows for purchases of interests inbusiness (net of cash) of $202 million, capital expenditures of $389 million and $59 million for the purchase of identified intangible assets, mainly related tothe purchase of licenses, partly offset by proceeds of $20 million from the sale of business (net of cash).Net cash used for investing activities amounted to $430 million in 2015 and principally consisted of cash outflows for purchases of interests inbusiness (net of cash) of $1,692 million, capital expenditures of $341 million and $12 million for the purchase of identified intangible assets, mainly relatedto the purchase of software offset by proceeds of $1,605 million from the sale of business (net of cash).Cash Flow from Financing ActivitiesNet cash used for financing activities was $2,886 million in 2017, $1,392 million in 2016 and $449 million in 2015. The cash flows related tofinancing transactions in 2017, 2016 and 2015 are primarily related to the financing activities described below under the captions 2017 Financing Activities,2016 Financing Activities and 2015 Financing Activities, respectively.In addition to the financing activities described below, net cash used for financing activities by year included: Year ended December 31, 2017 2016 2015 Dividends paid to non-controlling interests (89) (126) (51) Cash proceeds from exercise of stock options 233 115 51 Purchase of treasury shares (286) (1,280) (475) Excess tax benefits from share-based compensation plans — 5 — 2017 Financing Activities2017 and 2020 Term LoansIn February 2017, NXP repaid (i) all its outstanding floating-rate term loan due March 2017 in an aggregate principal amount of $388 million, (ii) allits outstanding floating-rate term loan due January 2020 in an aggregate principal amount of $387 million and (iii) all its outstanding floating-rate term loandue December 2020 in an aggregate principal amount of $1,436 million, in each case, together with accrued interest and applicable fees. The repaymentoccurred in February 2017 with the funds for these repayments coming from the proceeds of the divestment of the SP business.2021 Senior Unsecured NotesIn March 2017, NXP redeemed $500 million of the outstanding aggregate principal amount of its 5.75% Senior Unsecured Notes due 2021, whichrepresented all of the outstanding aggregate principal amount of these Notes. The funds for this redemption coming from available surplus cash.2016 Financing Activities2020 Term LoanOn 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 NotesOn August 11, 2016, NXP B.V., together with NXP Funding LLC, issued U.S. dollar-denominated 3.875% Senior Unsecured Notes with an aggregateprincipal amount of $1,000 million, due September 1, 2022. The interest is payable semi-annually on March 1 and 37Table of ContentsSeptember 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 theaccompanying Consolidated Balance Sheet. NXP used the net proceeds from the offering of the Notes to redeem the remaining $960 million aggregateprincipal amount of its outstanding Senior Secured Notes due 2022 and to pay for certain costs and expenses related thereto.2021 Additional Senior Unsecured NotesOn August 1, 2016, NXP B.V., together with NXP Funding LLC, issued an aggregate principal amount of $500 million of 4.125% Senior UnsecuredNotes 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% SeniorNotes due 2021 originally issued on May 23, 2016. NXP used the net proceeds from the offering of the Additional Notes to redeem $200 million aggregateprincipal amount of its outstanding Senior Notes due 2016 and used the remainder of the proceeds for general corporate purposes.2021 and 2023 Senior Unsecured NotesOn May 23, 2016, NXP B.V. together with NXP Funding LLC issued U.S. dollar-denominated 4.125% and 4.625% Senior Unsecured Notes withaggregate 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 andDecember 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 torepay $1,250 million aggregate principal amount of its existing Secured Term Loan B due 2020 and $500 million aggregate principal amount of itsoutstanding Senior Secured Notes due 2021.2016 Senior Unsecured NotesOn February 23, April 27 and August 1, 2016, NXP B.V., together with NXP Funding LLC, issued redemption notices for an aggregate principalamount of $200 million, $100 million and $200 million, respectively, of its outstanding 3.5% Senior Unsecured Notes due 2016. The funds from thisredemption came from available surplus cash.2015 Financing ActivitiesRCF AgreementOn December 7, 2015, NXP B.V. and NXP Funding LLC, entered into a $600 million revolving credit facility agreement (the “RCF Agreement”). Thereare currently no borrowings under this facility.Secured Bridge Term Credit AgreementOn December 7, 2015, NXP B.V. and NXP Funding LLC, entered into a $1,000 million secured bridge term credit facility agreement (the “SecuredBridge Term Credit Agreement”). The Secured Bridge Term Credit Agreement was repaid in full on December 16, 2015.Secured NotesIn connection with the Merger, the Indenture, dated as of May 31, 2013 (the “2021 Freescale Indenture”), by and among Freescale Semiconductor, Inc.(the “Freescale Issuer”), an indirect, wholly-owned subsidiary of Freescale, Freescale Semiconductor Holdings II, Ltd., Freescale Semiconductor Holdings III,Ltd., Freescale Semiconductor Holdings IV, Ltd., Freescale Semiconductor Holdings V, Inc. and SigmaTel LLC (the “Freescale Indenture Guarantors”) andThe Bank of New York Mellon Trust Company, N.A., as trustee (the “2021 Freescale Trustee”), governing Freescale’s 5.00% Senior Secured Notes due 2021(the “2021 Freescale Notes”) and the Indenture, dated as of November 1, 2013 (the “2022 Freescale Indenture” and, together with the 2021 FreescaleIndenture, the “Freescale Indentures”), by and among the Freescale Issuer, the Freescale Indenture Guarantors and Wells Fargo Bank, National Association, astrustee (the “2022 Freescale Trustee”, together with the 2021 Freescale Trustee, the “Freescale Trustees”), governing Freescale’s 6.00% Senior Secured Notesdue 2022 (the “2022 Freescale Notes” and, together with the 2021 Freescale Notes, the “Secured Notes”) were amended and restated on December 7, 2015(the “A&R Freescale Indentures”). In accordance with the A&R Freescale Indentures, among other things, (x) certain amendments previously approved by theholders of the Freescale Notes as part of the consents solicitations that launched on March 23, 2015 and closed on April 2, 2015 became operative and (y) theNXP B.V., NXP Funding LLC, NXP Semiconductors Netherlands B.V., NXP Semiconductors UK Limited, NXP Semiconductors USA, Inc., NXPSemiconductors Germany GmbH, NXP Semiconductors Hong Kong Limited, NXP Semiconductors Philippines Inc., NXP Semiconductors Singapore Pte. Ltd.,NXP Semiconductors Taiwan Ltd. and NXP Manufacturing (Thailand) Ltd. entered into and acceded to the A&R Freescale Indentures as additionalguarantors.2020 Senior Unsecured Notes and 2022 Senior Unsecured NotesOn June 9, 2015 our subsidiary, NXP B.V. together with NXP Funding LLC issued U.S dollar-denominated 4.125% and 4.625% Senior UnsecuredNotes with an aggregate principal amounts of $600 million due 2020 and $400 million due 2022, respectively (the “2020 Senior Unsecured Notes” and the“2022 Senior Unsecured Notes”). The 2020 Senior Unsecured Notes bear interest at a rate of 4.125% per year, while the 2022 Senior Unsecured Notes bearinterest at a rate of 4.625% per year, payable semi-annually on June 15 and December 15 of each year, beginning on December 15, 2015. The 2020 SeniorUnsecured Notes will mature on June 15, 2020. The 2022 Senior Unsecured Notes will mature on June 15, 2022. The 2020 Senior Unsecured Notes and the2022 Senior Unsecured Notes were issued at par and were recorded at their fair value of $600 million and $400 million, respectively, on the accompanyingConsolidated Balance Sheet. 38Table of ContentsTerm Loan BOn December 7, 2015, NXP B.V. and NXP Funding LLC, in connection with the Merger entered into a $2,700 million secured term credit agreement(the “Secured Term Credit Agreement”). The term loan under the Secured Term Credit Agreement was issued at 99.25% of par and was recorded at a fair valueof $2,680 million on the accompanying Consolidated Balance Sheet.The net proceeds of the 2020 Senior Unsecured Notes and 2022 Senior Unsecured Notes, together with the net proceeds of the Term Loan B, theSecured Bridge Term Credit Agreement, cash-on-hand and/or other available financing resources, were used to (i) pay the cash consideration in connectionwith the acquisition of Freescale, (ii) effect the repayment of certain amounts under Freescale’s outstanding credit facility and (iii) pay certain transactioncosts.Debt PositionShort-term DebtAs of December 31, 2017, our short-term debt amounted to $751 million.As of December 31, 2016, our short-term debt amounted to $421 million.Long-term DebtAs of December 31, 2017, we had outstanding debt of: ($ in millions) December 31,2016 Accrual/releaseOriginalIssuance/DebtDiscount andDebt IssuanceCost Debt Exchanges/Repurchases/NewBorrowings Other(14) December 31,2017 U.S. dollar-denominated secured term credit agreement dueJanuary 2020 (1) 379 4 (383) — — U.S. dollar-denominated secured term credit agreement dueDecember 2020 (2) 1,405 17 (1,422) — — U.S. dollar-denominated 3.75% senior unsecured notes due June2018(3) 748 1 — (749) — U.S. dollar-denominated 4.125% senior unsecured notes dueJune 2020(4) 595 2 — — 597 U.S. dollar-denominated 5.75% senior unsecured notes dueFebruary 2021(5) 497 3 (500) — — U.S. dollar-denominated 4.125% senior unsecured notes dueJune 2021 (6) 1,349 — — — 1,349 U.S. dollar-denominated 4.625% senior unsecured notes dueJune 2022 (7) 397 — — — 397 U.S. dollar-denominated 4.625% senior unsecured notes dueJune 2023 (8) 893 1 — — 894 U.S. dollar-denominated 3.875% senior unsecured notes dueJune 2023 (9) 993 1 — — 994 U.S. dollar-denominated 5.75% senior unsecurednotes due March 2023 (10) 496 1 — — 497 U.S. dollar-denominated 1.00% cash convertible senior notesdue December 2019(11) 1,014 45 — — 1,059 8,766 75 (2,305) (749) 5,787 RCF Agreement (12) — — Other long-term debt (13) — — 29 (2) 27 Total long-term debt 8,766 75 (2,276) (751) 5,814 (1)On November 27, 2013, we entered into the 2020 Term Loan for an aggregate principal amount of $400 million at a rate of interest of LIBOR plus2.50% with a floor of 0.75%. The 2020Term Loan was fully repaid in the course of 2017.(2)On September 22, 2016, we entered into a new Term Loan F for an aggregate principal amount of $1,440 million at a rate of interest of LIBOR plus2.50% with a floor of 0.00%. The Term Loan was fully repaid in the course of 2017.(3)On May 20, 2013, we issued $750 million aggregate principal amount of 3.75% Senior Unsecured Notes due 2018. On April 9, 2018, we fullyredeemed the $750 million of outstanding principal.(4)On June 9, 2015, we issued $600 million aggregate principal amount of 4.125% Senior Unsecured Notes due 2020.(5)On February 14, 2013, we issued $500 million aggregate principal amount of 5.75% Senior Unsecured Notes due 2021. The notes were fully redeemedin the course of 2017. 39Table of Contents(6)On May 23, 2016, and August 1, 2016, we issued $850 million and $500 million, respectively, aggregate principal amount of 4.125% SeniorUnsecured Notes due 2021.(7)On June 9, 2015, we issued $400 million aggregate principal amount of 4.625% Senior Unsecured Notes due 2022.(8)On May 23, 2016, we issued $900 million aggregate principal amount of 4.625% Senior Unsecured Notes due 2023.(9)On August 11, 2016, we issued $1,000 million aggregate principal amount of 3.875% Senior Unsecured Notes due 2022.(10)On March 15, 2013, we issued $500 million aggregate principal amount of 5.75% Senior Unsecured Notes due 2023. On April 2, 2018, we fullyredeemed the $500 million of outstanding principal.(11)On November 24, 2014, we issued $1,150 million aggregate principal amount of 1.00% Cash Convertible Senior Notes due 2019.(12)On December 7, 2015, we entered into a $600 million Revolving Credit Facility agreement due 2020.(13)Other long-term debt consists primarily of capital lease obligations.(14)Other mainly relates to the reclassification of the current portion of long-term debt and the purchase price accounting step-up of the Freescale Notes.We may from time to time continue to seek to retire or purchase our outstanding debt through cash purchases and/or exchanges, in open marketpurchases, privately negotiated transactions or otherwise. See the discussion in Part I, Item 5.B. Liquidity and Capital Resources and Part II, Item 10.C.Material Contracts.Certain Terms of the 2019 Cash Convertible Senior NotesWe have issued $1,150 million aggregate principal amount of 2019 Cash Convertible Senior Notes, which bear interest at 1.00% per annum andmature on December 1, 2019, unless earlier converted, repurchased or redeemed. The 2019 Cash Convertible Senior Notes pay interest on June 1 andDecember 1 of each year, beginning on June 1, 2015. The 2019 Cash Convertible Senior Notes are senior unsecured obligations of NXP Semiconductor N.V.and will be settled solely in cash upon conversion. We may not redeem the 2019 Cash Convertible Senior Notes prior to their maturity date other thanfollowing the occurrence of certain tax law changes as set forth in the indenture governing the 2019 Cash Convertible Senior Notes (the “Convertible NotesIndenture”). Upon the occurrence of certain events which constitute a “fundamental change” under the Convertible Notes Indenture, such as certain changeof control, the holders of 2019 Cash Convertible Senior Notes may require us to repurchase for cash all or part of their 2019 Cash Convertible Senior Notes ata price equal to 100% of the principal amount thereof plus accrued and unpaid interest.Prior to September 1, 2019, holders may convert their 2019 Cash Convertible Senior Notes only upon satisfaction of certain conditions specified in theConvertible Notes Indentures. On or after September 1, 2019 until the close of business on the second scheduled trading day immediately preceding thematurity date, holders may, at their option, convert their 2019 Cash Convertible Senior Notes solely into cash at any time.Upon conversion, in lieu of receiving any shares of our common stock, a holder will receive, per $1,000 principal amount of 2019 Cash ConvertibleSenior Notes being converted, an amount in cash equal to the settlement amount, determined as described in the Convertible Notes Indenture. Theconversion rate will initially be 9.7236 shares of our common stock per $1,000 principal amount (equivalent to an initial conversion price of $102.84 pershare). The conversion rate for the 2019 Cash Convertible Senior Notes is subject to customary anti-dilution adjustments and will also be adjusted for anyfundamental change or tax redemption, each as described in the Convertible Notes Indenture.Concurrently with the issuance of the 2019 Cash Convertible Senior Notes, we entered into cash convertible note hedge and warrant transactions.Cash Convertible Note Hedge Transactions and Warrant TransactionsOn November 24, 2014 and November 25, 2014, in connection with our issuances of the 2019 Cash Convertible Senior Notes, we entered into cashconvertible note hedge transactions with affiliates of the initial purchasers of the 2019 Cash Convertible Senior Notes (in such capacity, the “OptionCounterparties”) to offset any cash payment we are required to make in excess of the principal amount of the 2019 Cash Convertible Senior Notes.In these transactions, we paid $208 million for call options, subject to customary anti-dilution adjustments, that cover an aggregate 11.18 millionshares of NXP’s common stock, with an initial strike price of $102.84 per share. The Option Counterparties or their respective affiliates may enter into, orunwind, various over-the-counter derivatives and/or purchase or sell our common stock in open market and/or privately negotiated transactions prior tomaturity of the 2019 Cash Convertible Senior Notes, including during any observation period for the settlement of conversions of the 2019 Cash ConvertibleSenior Notes, or upon any repurchase of the 2019 Cash Convertible Senior Notes by us, which could adversely impact the price of our common stock and ofthe 2019 Cash Convertible Senior Notes.Separately, we sold warrants to the Option Counterparties for $134 million giving them the right to purchase from us, subject to customary anti-dilution adjustments, 11.18 million shares of NXP’s common stock, with an initial strike price of $133.32 per share. The warrants will have a dilutive effectwith respect to our common stock to the extent that the market price per share of our common stock exceeds the strike price of the warrants on or prior to theexpiration date of the warrants. The warrants expire on various dates starting from March 2, 2020, and will be net share settled. Under the terms of thewarrants, each Option Counterparty may adjust certain terms of its warrants upon the announcement, termination or occurrence of certain events. The warranttransactions may also be terminated if the Option Counterparty determines that no such 40Table of Contentsadjustment will produce a commercially reasonable result, and that the relevant event is reasonably likely to occur. In particular, each Option Counterpartymay adjust the terms of its warrants to compensate it for the economic effect of the announcements relating to the proposed acquisition of NXP by Qualcomm(including announcements of consummation, cancellation, withdrawal or discontinuance of the proposed acquisition), taking into account changes involatility, expected dividends, stock loan rate or liquidity and any stock price discontinuity relevant to our common stock or the warrants. There have beenno adjustments made at this time. Any such adjustment in the future may increase our delivery obligations upon expiration and settlement of the warrants orour obligations upon their cancellation, termination or unwinding, which would be settled using shares of our stock.C. Research and Development, Patents and Licenses, etc.Research and DevelopmentWe believe that our future success depends on our ability to both improve our existing products and to develop new products for both existing andnew markets. We direct our research and development efforts largely to the development of new HPMS semiconductor solutions where we see significantopportunities for growth. We target applications that require stringent overall system and subsystem performance. As new and challenging applicationsproliferate, we believe that many of these applications will benefit from our solutions. We have assembled a global team of highly skilled semiconductor andembedded software design engineers with expertise in RF, analog, power management, interface, security and digital processing. As of December 31, 2017,we had 8,633 employees in research and development. Our research and development expenses were $1,554 million in 2017, $1,560 million in 2016 and$890 million in 2015.To outpace market growth we invest in research and development to extend or create leading market positions, with an emphasis on fast growingsizable market segments, such as identification and smart mobile, and emerging markets, such as the Internet of Things and automotive solid state lighting.Finally, we invest a few percent of our total research and development expenditures in research activities that develop fundamental new technologies orproduct categories that could contribute significantly to our company growth in the future.We annually perform a fundamental review of our business portfolio and our related new product and technology development opportunities in orderto decide on changes in the allocation of our research and development resources. For products targeting established markets, we evaluate our research anddevelopment expenditures based on clear business need and risk assessments. For break-through technologies and new market opportunities, we look at thestrategic fit and synergies with the rest of our portfolio and the size of the potential addressable market. Overall, we allocate our research and development tomaintain a healthy mix of emerging growth and mature businesses.Intellectual PropertyThe creation and use of intellectual property is a key aspect of our strategy to differentiate ourselves in the marketplace. We seek to protect ourproprietary technologies by obtaining patents, trademarks, domain names, retaining trade secrets and defending, enforcing and utilizing our intellectualproperty rights, where appropriate. We believe this strategy allows us to preserve the advantages of our products and technologies, and helps us to improvethe return on our investment in research and development. We have a broad portfolio of over 9,000 patent families (each patent family includes all patentsand patent applications originating from the same invention). To protect certain confidential technical information and software, we rely on copyright andtrade secret law and enter into confidentiality agreements as applicable. In situations where we believe that a third party has infringed on our intellectualproperty, we enforce our rights through all available legal means to the extent that we determine the benefits of such actions to outweigh any costs and risksinvolved.We own a number of trademarks that are used in the conduct of our business. Where we consider it desirable, we develop names for our new productsand secure trademark protection. Our trademarks allow us to further distinguish our company and our products and are important in our relationships withcustomers, suppliers, partners and end-users.While our patents, trademarks, trade secrets and other intellectual property rights constitute valuable assets, we do not view any individual right orasset as being material to our operations as a whole. We believe it is the combination of our proprietary technology, patents, know-how and other intellectualproperty rights and assets that creates an advantage for our business.In addition to obtaining our own patents and other intellectual property rights, we have entered into licensing agreements and other arrangementsauthorizing us to use intellectual property rights, confidential technical information, software and other technology owned by third parties. We also engage,in certain instances, in licensing and selling of certain of our technology, patents and other intellectual property rights.D. Trend InformationWithin the overall umbrella of Secure Connections for a Smarter World, NXP addresses four key macro growth trends: Intelligent Devices, Mobility,Hyper-connectivity and Security that drive applications such as the Connected Car, Portable & Wearable and the Internet of Things, with Security being arequirement across all applications. Our innovative solutions are used in a wide range of applications. Many electronic payment and government ID servicesare enabled by our secure identification solutions and with the transition of those services to new form factors in secure connected devices, there is strongmarket demand for embedded security solutions such as mobile payment, cyber-security and authentication. Fast innovation in smart phones & tablets drivesdemand for our secure interface and power solutions while always-on requirements in secure connected devices further drive demand for our advanced mobileaudio, sensing and connectivity solutions, with advanced magnetic induction radios for implantable medical devices such as 41Table of Contentshearing aids as an example. Cities, buildings and industrial production systems all want to become smart, connected and secure; they provide fertile newmarkets for our broad range of microcontrollers smart grid, intelligent logistics and industrial security solutions. Next generation networks which deliver theincreasing demand for data are enabled by our new high-performance RF power amplifier products allow wireless network operators to expand networkcapacity with fewer base stations and Digital Networks. Our new high-performance RF power amplifier products allow wireless network operators to expandnetwork capacity with fewer base stations. The automotive industry brings fast trends in advanced driver assistance, seamless consumer electronicsexperience and energy efficiency, and we respond to those by delivering solutions for secure car access, car entertainment and in-vehicle networking. Inaddition, we leverage our core competencies to innovate in the transition to highly and eventually fully automated cars with ground breaking solutions insecure vehicle-to-infrastructure & vehicle-to-vehicle and radar.We believe that we are strategically positioned to capture rapid growth in emerging markets through our strong position in Asia Pacific (excludingJapan), which represented 60% of our revenue in 2017, compared to 62% of our revenue in 2016. In particular, Greater China represented 41% of our revenuein 2017, compared to 42% of our revenue in 2016.E. Off-balance Sheet ArrangementsAs of December 31, 2017, we had no material off-balance sheet arrangements.F. Tabular Disclosure of Contractual ObligationsPresented below is a summary of our contractual obligations as of December 31, 2017. ($ in millions) Total 2018 2019 2020 2021 2022 2023 andthereafter Long-term and short-term debt (1) 6,650 750 1,150 600 1,350 1,400 1,400 Capital lease obligations 29 2 2 2 1 2 20 Operating leases 132 34 29 24 15 9 21 Interest on the notes (2) 923 231 218 195 151 105 23 Long-term purchase contracts 633 379 155 66 13 5 15 Total contractual cash obligations (2)(3)(4) 8,367 1,396 1,554 887 1,530 1,521 1,479 (1)The amounts noted herein represent contractual payments of principal only.(2)The cash interest on the notes was determined on the basis of contractual agreed interest rates for other debt instruments.(3)As of December 31, 2017, we had reserves of $194 million recorded for uncertain tax positions, including interest and penalties. We are not includingthis amount in the long-term contractual obligations table presented because of the difficulty in making reasonably reliable estimates of the timing ofcash settlements, if any, with the respective taxing authorities.(4)Certain of these obligations are denominated in currencies other than U.S. dollars, and have been translated from foreign currencies into U.S. dollarsbased on an aggregate average rate of $1.1310 per €1.00, in effect at December 31, 2017. As a result, the actual payments will vary based on anychange in exchange rate.Our debt instruments had accrued interest of $35 million as of December 31, 2017 (December 31, 2016: $48 million).In addition to the above obligations, we enter into a variety of agreements in the normal course of business, containing provisions that certain penaltiesmay be charged if we do not fulfill our commitments. It is not possible to predict with certainty the maximum potential amount of future payments underthese or similar provisions due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular case.Historically, payments pursuant to such provisions have not been material and we believe that any future payments required pursuant to such provisionswould not have a material adverse effect on our consolidated financial condition. However, such payments may be material to our Consolidated Statement ofOperations for a specific period.We sponsor pension plans in many countries in accordance with legal requirements, customs and the local situation in the countries involved. Theseare defined-benefit pension plans, defined contribution pension plans and multi-employer plans. Contributions to funded pension plans are made asnecessary, to provide sufficient assets to meet future benefits payable to plan participants. These contributions are determined by various factors, includingfunded status, legal and tax considerations and local customs. The expected cash outflows in 2017 and subsequent years are uncertain and may change as aconsequence of statutory funding requirements as well as changes in actual versus currently assumed discount rates, estimations of compensation increasesand returns on pension plan assets.G. Safe HarborThis Annual Report includes forward-looking statements. When used in this Annual Report, the words “anticipate”, “believe”, “estimate”, “forecast”,“expect”, “intend”, “plan” and “project” and similar expressions, as they relate to us, our management or third parties, identify forward-looking statements.Forward-looking statements include statements regarding our business strategy, financial condition, results of operations and market data, as well as anyother statements that are not historical facts. These statements reflect beliefs of our management, as well as assumptions made by our management andinformation currently available to us. Although we believe that these beliefs and assumptions are reasonable, these statements are subject to numerousfactors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected. These factors, risks anduncertainties expressly qualify all subsequent oral and written forward-looking statements attributable to us or persons acting on our behalf and include, inaddition to those listed under Part I, Item 3.D. Risk Factors and elsewhere in this Annual Report, the following: 42Table of Contents • our ability to complete merger and acquisition-related activity and risks and uncertainties associated with the pending offer by Buyer, a wholly-ownedsubsidiary of Qualcomm, to purchase all of NXP’s outstanding common shares; • the diversion of management time on transaction-related issues; • the outcome of regulatory reviews of the transaction; • market demand and semiconductor industry conditions; • our ability to successfully introduce new technologies and products; • the demand for the goods into which our products are incorporated; • our ability to generate sufficient cash, raise sufficient capital or refinance our debt at or before maturity to meet both our debt service and research anddevelopment and capital investment requirements; • our ability to accurately estimate demand and match our production capacity accordingly; • our ability to obtain supplies from third-party producers; • our access to production from third-party outsourcing partners, and any events that might affect their business or our relationship with them; • our ability to secure adequate and timely supply of equipment and materials from suppliers; • our ability to avoid operational problems and product defects and, if such issues were to arise, to rectify them quickly; • our ability to form strategic partnerships and joint ventures and successfully cooperate with our alliance partners; • our ability to win competitive bid selection processes; • our ability to develop products for use in our customers’ equipment and products; • our ability to successfully hire and retain key management and senior product engineers; and • our ability to maintain good relationships with our suppliers.We do not assume any obligation to update any forward-looking statements and disclaim any obligation to update our view of any risks oruncertainties described herein or to publicly announce the result of any revisions to the forward-looking statements made in this Annual Report, except asrequired by law.In addition, this Annual Report contains information concerning the semiconductor industry and business segments generally, which is forward-looking in nature and is based on a variety of assumptions regarding the ways in which the semiconductor industry, our market and business segments willdevelop. We have based these assumptions on information currently available to us, including through the market research and industry reports referred to inthis Annual Report. If any one or more of these assumptions turn out to be incorrect, actual market results may differ from those predicted. While we do notknow what impact any such differences may have on our business, if there are such differences, they could have a material adverse effect on our future resultsof operations and financial condition, and the trading price of our common stock.Item 6. Directors, Senior Management and EmployeesA. Directors and Senior ManagementThe following description sets forth certain information about management and management-related matters. We have a one-tier board structure.Board of DirectorsSet forth below are the names, ages and positions as of December 31, 2017, of the persons who serve as members of our board of directors. Name Age PositionRichard L. Clemmer 66 Executive director, president and chief executive officerSir Peter Bonfield 73 Non-executive director and chairman of the boardJohannes P. Huth 57 Non-executive director and vice-chairman of the boardKenneth A. Goldman 68 Non-executive directorDr. Marion Helmes 52 Non-executive directorJosef Kaeser 60 Non-executive directorIan Loring 51 Non-executive directorEric Meurice 61 Non-executive directorPeter Smitham 75 Non-executive directorJulie Southern 58 Non-executive directorGregory Summe 61 Non-executive director • Richard L. Clemmer (1951, American). Mr. Clemmer became executive director, president and chief executive officer on January 1, 2009. Prior tothat, from December 2007, Mr. Clemmer was a member of the supervisory board of NXP B.V. and a senior advisor of Kohlberg Kravis Roberts & Co.Prior to joining NXP, he was the President and CEO of Agere Systems, served as Chairman of u-Nav Microelectronics Corporation, and was executivevice president and chief financial officer at Quantum Corporation. Prior to that, Mr. Clemmer worked for Texas Instruments Incorporated as senior vicepresident and semiconductor group chief financial officer. Mr. Clemmer also serves on the board of NCR Corporation. 43Table of Contents • Sir Peter Bonfield CBE FREng (1944, British). Sir Peter has been appointed a non-executive director and the chairman of our board of directors inAugust 2010. Prior to that, Sir Peter was the chairman of the supervisory board of NXP B.V. from September 29, 2006. Sir Peter served as chiefexecutive officer and chairman of the executive committee for British Telecom plc from 1996 to 2002 and prior to that was chairman and chiefexecutive officer of ICL plc (now Fujitsu Services Holdings Ltd.). Sir Peter also worked in the semiconductor industry during his tenure as a divisionaldirector at Texas Instruments Incorporated, for whom he held a variety of senior management positions around the world. Sir Peter currently holdsnon-executive directorships at Taiwan Semiconductor Manufacturing Company Limited and serves as Chairman of Global Logic Inc. Sir Peter is Chairof Council and Senior Pro-Chancellor at Loughborough University, Chairman of the Board at East West Institute UK, Board Director at East WestInstitute USA and Board Mentor at CMi in Belgium. He is also Advisor to Longreach LLP in Hong Kong, Alix Partners UK LLP in London and G3Good Governance Ltd in London and The Hampton Group in London. • Johannes P. Huth (1960, German). Mr. Huth has been appointed a non-executive director and vice-chairman of our board of directors in August 2010.Prior to that, Mr. Huth was a member and chairman of our supervisory board and a member and vice-chairman of NXP B.V.’s supervisory board fromSeptember 29, 2006. Mr. Huth joined Kohlberg Kravis Roberts & Co. LLP in May 1999 and is a Member of KKR and Head of KKR’s operations inEurope, the Middle East and Africa. He is also a member of the Firm’s Management Committee and several of the Firm’s Investment Committees. Priorto joining KKR, he was a member of the Management Committee of Investcorp and jointly responsible for Investcorp’s operations in Europe. From1986 to 1991, he worked at Salomon Brothers, where he was a Vice President in the Mergers and Acquisitions departments in London and New York.Mr. Huth currently is also member of the Supervisory Boards of GEG German Estate Group AG and of Airbus DS Electronics & Border Security GmbH,and member of the Boards of SoftwareOne AG, Cognita Ltd. and of GfK SE. He is the Chairman of the Trustees of Impetus – Private Equity Foundation,a charitable organization set up by the Private Equity industry focused on providing support to charities involved with young people not in education,employment or training. He is Vice-Chair of the Board of Trustees of the Design Museum, trustee of the Staedel Museum in Frankfurt and trustee of TheEducation Endowment Foundation, and a member of the Global Advisory Board of the University of Chicago Booth School of Business. He is aVisiting Fellow of Oxford University and a Fellow of the Royal Society of Arts and member of the Conseil d’Administration of Les Arts Decoratifs inParis. He earned a BSc with Highest Honors from the London School of Economics and an MBA from the University of Chicago. • Kenneth A. Goldman (1949, American). Mr. Goldman has been appointed a non-executive director of our board of directors effective August 6, 2010.Mr. Goldman is former chief financial officer of Yahoo!, Inc. Prior to October 2012, Mr. Goldman served as senior vice president, finance andadministration, and chief financial officer of Fortinet, Inc, a provider of unified threat management solutions, from September 2007 to September 2012.From November 2006 to August 2007, Mr. Goldman served as executive vice president and chief financial officer of Dexterra, Inc. From August 2000until March 2006, Mr. Goldman served as senior vice president, finance and administration, and chief financial officer of Siebel Systems, Inc., and fromDecember 1999 to December 2003, Mr. Goldman served on the Financial Accounting Standards Board’s primary advisory group. Mr. Goldmancurrently serves on the board of directors of Trinet, GoPro, Inc., RingCentral, Inc. and several private companies. Mr. Goldman in 2015 was appointedto a three year term on the Standards Advisory Group which advises the PCAOB. Mr. Goldman was a member of board of trustees of Cornell Universityfrom 2005 to 2013 and was designated as Emeritus Trustee. He was formerly a member of the Treasury Advisory Committee on the Auditing Profession,a public committee that made recommendations in September 2008 to encourage a more sustainable auditing profession. Mr. Goldman holds a B.S. inElectrical Engineering from Cornell University and an M.B.A. from the Harvard Business School. • Dr. Marion Helmes (1965, German). Dr. Helmes has been appointed a non-executive director of our board of directors in October 2013. Dr. Helmeswas the Speaker of the Management Board of Celesio AG until July 2014; in addition she was CFO of Celesio from January 2012 until July 2014. Priorto joining Celesio, she was member of the board of management and CFO of Q-Cells SE and from 1997 until 2010 she held various management rolesat ThyssenKrupp, including CFO of ThyssenKrupp Stainless and CFO of ThyssenKrupp Elevator. Dr. Helmes is currently also non-executive director,Vice-Chairman, member of the Presiding Committee, member of the Compensation Committee and member of the Audit and Finance Committee ofProSiebenSat.1 Media SE. Dr. Helmes is currently also non-executive director, Member of the Nomination Committee and Chairman of the AuditCommittee of Bilfinger SE, non-executive director, Member of the Nomination Committee and the Audit Committee of British American Tobacco plc.and also non-executive director and Member of the Audit committee of Uniper SE. • Josef Kaeser (1957, German). Mr. Kaeser has been appointed a non-executive director of our board of directors effective September 1, 2010.Mr. Kaeser is the president and chief executive officer of Siemens AG since August 2013. Prior to this, from May 2006 to August 2013, he was memberof the managing board and chief financial officer of Siemens AG. From 2004 to 2006, Mr. Kaeser served as chief strategy officer for Siemens AG and asthe chief financial officer for the mobile communications group from 2001 to 2004. Mr. Kaeser has additionally held various other positions within theSiemens group since he joined Siemens in 1980. Mr. Kaeser also serves on the managing board of Siemens AG and the board of directors of SiemensLtd., India, Daimler AG and Allianz Deutschland AG. • Ian Loring (1966, American). Mr. Loring has been appointed a non-executive director of our board of directors in August 2010. Mr. Loring became amember of our supervisory board and the supervisory board of NXP B.V. on September 29, 2006 and is a managing director of Bain Capital Partners,LLC. Prior to joining Bain Capital Partners in 1996, Mr. Loring worked at Berkshire Partners and has previously also worked at Drexel BurnhamLambert. Mr. Loring played a leading role in Bain Capital’s media, technology and telecommunications investments such as Warner Music Group,ProSiebenSat.1 Media, Advertising Directory Solutions, iHeart Media (formerly Clear Channel Communication Inc.), and Blue Coat Systems, Inc. Heserves as a director of The Weather Company, BMC Software, Inc., Viewpoint, Inc. and Vertafore, Inc. 44Table of Contents • Eric Meurice (1956, French). Mr. Meurice has been appointed a non-executive director of the board of directors effective April 1, 2014. Mr. Meuricewas the CEO and Chairman of the management board of ASML Holding NV (The Netherlands), a leading provider of manufacturing equipment andtechnology to the semiconductor industry from 2004 to 2013. Under his watch, ASML became the largest Lithography vendor in the world, leading toa significant equity investment and funding commitment by its customers. Before Joining ASML, he was Executive Vice President of ThomsonTelevision, where he completed the merger of his division with TCL Corporation, one of the largest Chinese consumer electronics company. Before2001, he served as head of Dell Computers’ Western, Eastern Europe and EMEA emerging market businesses. He gained extensive technologyexperience in the semiconductor industry between 1984 and 1994, first at Intel, in the micro-controller group, and then at ITT Semiconductors, aprovider then of digital video and audio DSP integrated circuits. Mr. Meurice is an independent director of IPG Photonics, a US based Laser supplier,since June 2014 and of UMICORE, a Belgium based materials specialist, since April 2015. He served on the board of Verigy LTD (former HP testdivision), until its acquisition by Advantest in 2011. From July 1, 2013 to April 1, 2014 he was non-executive director of ARM Holdings plc (UK,semiconductor intellectual property supplier). • Peter Smitham (1942, British). Mr. Smitham has been appointed a non-executive director of our board of directors effective December 7, 2015,Mr. Smitham retired from his position as a partner of the private equity firm Permira on December 31, 2009, but until August 1, 2015, he was a memberof Permira Advisers LLP, which he joined in 1985, the year the London office was founded. Mr. Smitham was the managing partner of the Londonoffice from 1994 until 1998 and led Permira’s European business from 1996 until 2000. He has worked on numerous transactions focusing ontechnology, including Memec Group Holdings Limited, The Roxboro Group, Solartron Group and Technology plc. Until its merger with NXP,Mr. Smitham was a director of Freescale; he joined the Freescale board in June 2007 and has been a member of the Compensation and LeadershipCommittee and the Nominating and Corporate Governance Committee of the Freescale board. He has a degree in Geography from Swansea University,Wales, and attended the Senior Executive Program at Stanford Business School. • Ms. Julie Southern (1959, British). Ms. Southern has been appointed a non-executive director of our board of directors in October 2013. She was withVirgin Atlantic Limited (UK) from 2000 to May 2013. From 2010 to 2013 Ms. Southern was chief commercial officer and from 2000 to 2010 she waschief financial officer of Virgin Atlantic. Prior to joining Virgin Atlantic, she was group finance director at Porsche Cars Great Britain and finance andoperations director at W H Smith – H J Chapman & Co Ltd. Prior to that, she was chartered accountant at Price Waterhouse Coopers. Ms. Southerncurrently holds non-executive directorships at Rentokil-Initial Plc, Cineworld PLC and DFS PLC and is Chair of the respective Audit Committees. Atthe same time, Ms. Southern is a non-executive director and Chair of the Remuneration Committee for Stagecoach Group plc. • Gregory L. Summe (1956 American). Mr. Summe has been appointed a non-executive director of our board of directors effective December 7, 2015,Mr. Summe is the Managing Partner of Glen Capital Partners, a Boston based hedge fund, which he founded in 2013. Mr. Summe was the managingdirector and vice chairman of Global Buyout at The Carlyle Group, a leading global private equity firm, from September 2009 to May 2014. Prior tojoining Carlyle, he was the chairman and chief executive officer of PerkinElmer, Inc., a global leader in Health Sciences, a company he led from 1998to May 2009. He also served as a senior advisor to Goldman Sachs Capital Partners, from 2008 to 2009. He was a director of Freescale Semiconductorfrom September 2010 until its merger with NXP in December 2015 and served as Chairman of the Freescale board since May 2014 and Chairman of theCompensation and Leadership Committee. Prior to PerkinElmer, Mr. Summe was with AlliedSignal, now Honeywell International, serving as thepresident of General Aviation Avionics, president of the Aerospace Engines Group and president of the Automotive Products Group. Before joiningAlliedSignal, he was the general manager of Commercial Motors at General Electric and was a partner with the consulting firm of McKinsey &Company, Inc. Mr. Summe holds B.S. and M.S. degrees in electrical engineering from the University of Kentucky and the University of Cincinnati, andan M.B.A. with distinction from the Wharton School at the University of Pennsylvania. He is in the Engineering Hall of Distinction at the University ofKentucky. Mr. Summe also serves on the boards of directors of the State Street Corporation, where he is the chairman of the Nomination & Governanceand Strategy committees. He also serves on the board of Ohana Biosciences, a biotech company. Mr. Summe previously served on the board of directorsof Automatic Data Processing, Inc. (ADP), Biomet Inc., TRW Corp, Veyance Technologies, Inc., Export Trading Group Ltd, Euromax International Inc.and LMI Aerospace. 45Table of ContentsManagement TeamSet forth below are the names, ages as of December 31, 2017, and positions of the executive officers who together with our chief executive officer,Mr. Clemmer, constitute our management team. Name Age PositionRichard L. Clemmer 66 Executive director, president and chief executive officerPeter Kelly 60 Executive vice president strategy, M&A and integration and chief financial officerTareq Bustami 48 Senior Vice President and general manager Digital Networking businessGuido Dierick 58 Executive vice president and general counselPaul Hart 41 Senior Vice President and general manager Radio Frequency businessSteve Owen 57 Executive vice president sales & marketingDavid Reed 59 Executive vice president and general manager operationsKeith Shull 66 Executive vice president and chief human resources officerKurt Sievers 48 Executive vice president and general manager Automotive businessRuediger Stroh 55 Executive vice president and general manager Security Connectivity business • Peter Kelly (1957, American). Mr. Kelly is executive vice president, chief financial officer and a member of the management team, focusing onStrategy, M&A, and the integration with Freescale. He joined NXP in March, 2011 and serves as NXP’s chief financial officer. Mr. Kelly has over 30years of applicable experience in the global technology industry and has extensive financial expertise having worked in financial managementpositions in several other companies, including as CFO of UGI Corp. and Agere Systems Inc. Mr. Kelly also serves on the boards of Plexus, Corp. andGraphic Packaging Holding Co. • Tareq Bustami (1969, American). Mr. Bustami is senior vice president and general manager of the Digital Networking business at NXP. He joinedNXP in 2015, having served as general manager at Freescale up until the merger with NXP. He has more than 20 years of semiconductor experiencefocused on the networking industry. He rejoined Freescale in 2012 to lead product strategy, product definition and marketing operations for DigitalNetworking. Previously, he ran product marketing for LSI’s networking multicore family of processors. He began his career at Freescale where he ledproduct marketing for the company’s PowerQUICC III family. • Guido Dierick (1959, Dutch). Mr. Dierick is executive vice president, general counsel, secretary of our board of directors and member of themanagement team. Since 2000 he has been responsible for legal and intellectual property matters at NXP. He previously was employed by Philips from1982 and worked in various legal positions. • Paul Hart (1976, American). Mr. Hart is senior vice president and general manager of the Radio Frequency business. He joined NXP in 2015, havingserved as general manager at Freescale up until the merger with NXP. He has 15 years of experience in the high power RF field, focusing on technologydevelopment and customer enablement. He joined Motorola Semiconductor as an RF engineer in 2001 and transferred to Freescale in 2006. • Steve Owen (1960, British). Mr. Owen is executive vice president, global sales & marketing and member of the management team. He has extensiveexperience in developing business internationally and served in various marketing and sales leadership positions at NXP and Philips since 1998. • David Reed (1958, American). Mr. Reed is executive vice president of Technology and Operations at NXP. He joined NXP in 2015, having served asgeneral manager at Freescale until the merger with NXP. He has 30 years of extensive international experience with global execution of fabs,assembly/test, packaging, R&D, foundries and joint ventures for Analog, Automotive, Logic and Wireless customers. He joined FreescaleSemiconductor in 2012 as Senior Vice President, Manufacturing Operations. Previously he was vice president and general manager atGLOBALFOUNDRIES. He began his career at Texas Instruments in 1984 where he held multiple overseas and leadership assignments. • Keith Shull (1951, American). Mr. Shull is executive vice president and chief human resources officer for NXP. He joined NXP in 2015 and has over35 years of experience, having led global HR organizations in a range of industries worldwide, including Arrow Electronics, Visteon and WalterEnergy. • Kurt Sievers (1969, German). Mr. Sievers is executive vice president, member of the management team and general manager of the Automotivebusiness for NXP. He has previously managed our High Performance Mixed Signal businesses focused on the automotive application markets and theautomotive safety and comfort business line and served in various positions at Philips since 1995. 46Table of Contents • Ruediger Stroh (1962, German). Mr. Stroh is executive vice president, member of the management team and general manager of the Security &Connectivity business for NXP. Before joining NXP in May, 2009, he led LSI Corporation’s Storage Peripherals business, overseeing silicon solutionsfor hard disk and solid state drives addressing consumer and enterprise markets. Previously, he headed Agere System Inc’s storage division and servedas chief executive officer for a number of start-up companies. Mr. Stroh began his career at Siemens AG where he held multiple management positionsbefore joining Infineon Technologies AG.B. CompensationIn accordance with Dutch law, our stockholders have adopted a compensation policy for the board of directors. The remuneration of our non-executivedirectors is determined at the general meeting of shareholders and the remuneration of our executive directors is resolved upon by our board of directors, withdue observance of our compensation policy. Our chief executive officer is our only executive director. The executive director does not participate in thediscussions of our board of directors on his compensation, nor does the chief executive officer vote on such a matter. To the extent the stockholders at afuture stockholder meeting do not adopt the proposal of the board, the board must prepare a new proposal. After adoption of a proposal, only subsequentamendments will require stockholder approval. Furthermore, any proposed share or option-based director compensation (including any performanceconditions relating to such compensation) must be submitted by our board to the general meeting of stockholders for its approval, detailing the number ofshares or options over shares that may be awarded to the directors and the criteria that apply to such award or any modification of such rights.Compensation Policy and ObjectivesThe objective in establishing the compensation policies for our chief executive officer, the other members of our management team and other membersof our leadership, is to provide a compensation package that is aligned with our strategic goals and that enables us to attract, motivate and retain highlyqualified professionals who provide leadership for NXP’s success in dynamic and competitive markets. NXP seeks to accomplish this goal in a way thatrewards performance and is aligned with its shareholders’ long-term interests. We believe that the best way to achieve this is by linking executivecompensation to individual performance targets, on the one hand, and to NXP’s performance, on the other hand. Our executive compensation packagetherefore includes a significant variable part, consisting of an annual cash incentive, shares and stock options. Executive performance targets are determinedannually, at the beginning of the year, and assessed after the year once the financial performance of the year is known by, respectively, our nominating andcompensation committee, our executive director or the other members of our management team. The compensation package for our board of directors,including our chief executive officer, the other members of our management team and our NXP leadership is benchmarked on a regular basis against othercompanies in the high-tech and semiconductors industry.Summary Compensation TableThe following table summarizes the total compensation paid to our chief executive officer and to each member of our board of directors, in each of theyears presented. Any amounts that are paid to individuals in Euros are presented in U.S. dollars, where the average exchange rate for the year was used forconversion. In addition to this Form 20-F which is completed on the basis of U.S GAAP and the SEC requirements for Form 20-F, NXP Semiconductors N.V.has statutory filing requirements in the Netherlands. As a result, NXP is also required to submit to its shareholders on an annual basis audited financialstatements completed on the basis of International Financial Reporting Standards (IFRS). The table below provides information under both bases ofaccounting to enable the reader of our financial statements to have the holistic view of all compensation related information for these individuals underapplicable requirements for NXP. Specific IFRS related disclosures have been indicated as such (12). 47Table of ContentsName and Principal Position Year Base Salaryand/orDirectors Fees($) AnnualIncentive($) 1) Performanceand RestrictedShare Units(#) 2) StockOptions(#) 3) Grant DateFair Value ofShare andOptionAwards($) 4) Cost ofShare andOptionAwards(IFRS)($) 5) OtherCompensation($) 6) PensionCosts($) PensionAllowances($) 7) TotalCompensation($) 4) TotalCosts(IFRS)($) 5) Richard L. ClemmerExecutive director, chief executive officerand president 201710) 1,291,625 774,006 136,364 — 15,902,770 13,791,056 947,065 19,414 584,841 19,519,721 17,408,007 201610) 1,263,580 546,815 139,266 30,751 14,500,097 12,749,940 1,033,574 18,100 572,394 17,934,560 16,184,403 201510) 1,273,330 1,530,511 71,918 165,877 10,500,021 13,184,688 1,117,837 13,927 577,052 15,012,678 17,697,345 Sir Peter BonfieldNon-executive director and chairman of theboard 2017 323,031 — 1,715 — 200,003 200,583 — — — 523,034 523,614 2016 398,788 — 2,019 — 200,043 224,478 — — — 598,831 623,266 2015 312,625 — 2,740 — 200,020 272,796 — — — 512,645 585,421 Johannes P. HuthNon-executive director and vice-chairmanof the board 2017 97,000 — 1,715 — 200,003 200,583 — — — 297,003 297,583 2016 94,500 — 2,019 — 200,043 224,478 — — — 294,543 318,978 2015 91,000 — 2,740 — 200,020 272,796 — — — 291,020 363,796 Kenneth A. GoldmanNon-executive director 2017 115,000 — 1,715 — 200,003 200,583 — — — 315,003 315,583 2016 109,167 — 2,019 — 200,043 224,478 — — — 309,210 333,645 2015 101,000 — 2,740 — 200,020 272,796 — — — 301,020 373,796 Dr. Marion HelmesNon-executive director 2017 100,000 — 1,715 — 200,003 200,583 — — — 300,003 300,583 2016 96,250 — 2,019 — 200,043 224,478 — — — 296,293 320,728 2015 91,000 — 2,740 — 200,020 246,763 — — — 291,020 337,763 Josef KaeserNon-executive director 2017 100,000 — 1,715 — 200,003 200,583 — — — 300,003 300,583 2016 96,250 — 2,019 — 200,043 224,478 — — — 296,293 320,728 2015 91,000 — 2,740 — 200,020 272,796 — — — 291,020 363,796 Ian LoringNon-executive director 2017 85,000 — 1,715 — 200,003 200,583 — — — 285,003 285,583 2016 85,000 — 2,019 — 200,043 224,478 — — — 285,043 309,478 2015 85,000 — 2,740 — 200,020 272,796 — — — 285,020 357,796 Eric Meurice 9)Non-executive director 2017 110,000 — 1,715 — 200,003 200,583 — — — 310,003 310,583 2016 105,416 — 2,019 — 200,043 203,373 — — — 305,459 308,789 2015 99,000 — 2,740 — 200,020 196,817 — — — 299,020 295,817 Peter Smitham 8)Non-executive director 2017 97,000 — 1,715 — 200,003 200,583 — — — 297,003 297,583 2016 94,500 — 2,019 — 200,043 35,624 — — — 294,543 130,124 2015 — — — — — — — — — — — Gregory L. Summe 8)Non-executive director 2017 100,000 — 1,715 — 200,003 200,583 — — — 300,003 300,583 2016 96,250 — 2,019 — 200,043 35,624 — — — 296,293 131,874 2015 — — 1,947 — 167,929 56,535 — — — 167,929 56,535 Julie SouthernNon-executive director 2017 100,000 — 1,715 — 200,003 200,583 — — — 300,003 300,583 2016 96,250 — 2,019 — 200,043 224,478 — — — 296,293 320,728 2015 91,000 — 2,740 — 200,020 246,763 — — — 291,020 337,763 Rick Tsai 9)Non-executive director 2017(11) 77,917 — — — — (35,624) — — — 77,917 42,293 2016 85,000 — 2,019 — 200,043 203,373 — — — 285,043 288,373 2015 85,000 — 2,740 — 200,020 196,817 — — — 285,020 281,817 Total 2017 2,596,573 774,006 17,902,800 15,761,262 947,065 19,414 584,841 22,824,699 20,683,161 2016 2,620,951 546.815 16,700,570 14,799,280 1,033,574 18,100 572,394 21,492,404 19,591,114 2015 2,319,955 1,530,511 12,468,130 15,492,363 1,117,837 13,927 577,052 18,027,412 21,051,645 1)The annual incentive amount is related to the performance in the year reported, which is then paid to the individual in the subsequent year. See Part I,Item 6.B. Compensation for additional information regarding the incentive plan. The amounts reported are the amounts that have been accrued asannual incentive bonus for our chief executive officer for our performance in the respective years. The actual annual incentive amount for 2017 will bepaid in 2018 based on achievement of the predetermined targets.2)Represents the number of Performance and Restricted share units granted to the individual in the year reported. See Part I, Item 6.B. Compensation andNote 9 Share-based Compensation to the Consolidated Financial Statements in Part III, Item 18. Financial Statements for additional informationregarding our long-term incentive plans.3)Represents the number of Stock Options granted to the individual in the year reported. See Part I, Item 6.B. Compensation and Note 9 Share-basedCompensation to the Consolidated Financial Statements in Part III, Item 18. Financial Statements for additional information regarding our long-termincentive plans.4)Amounts reflect the aggregate grant date fair value of Performance and Restricted share units and Stock Option awards granted in accordance withFASB ASC Topic 718. These amounts do not represent the actual amounts paid to or realized by the individuals in the year reported. See Note 9 Share-based Compensation to the Consolidated Financial Statements in Part III, Item 18. Financial Statements for additional information.5)Amounts reflect the costs of Performance and Restricted share units and Stock Options in accordance with IFRS 2. These amounts do not represent theactual amounts paid to or realized by the individuals in the year reported, but represent amounts charged to the income of the year. Total costs (IFRS)includes this item, not the grant date fair value of the awards. 48Table of Contents6)Amounts primarily relate to additional arrangements for our CEO such as housing compensation and relocation allowances, medical insurance,accident insurance, school fee reimbursement and company car arrangements that are broadly in line with those for the NXP executives globally.7)Due to legislative changes in the Netherlands, effective January 1, 2015 a new pension arrangement applies to our chief executive officer (as to otheremployees working under a Dutch employment contract). Refer to below explanation under the heading Pensions.8)Peter Smitham and Mr. Gregory L. Summe were appointed as non-executive directors of the Company effective December 7, 2015.9)Eric Meurice was appointed effective April 1, 2014 and Mr. Rick Tsai was appointed effective July 1, 2014. Dr. Tsai’s director term expired at theannual meeting of shareholders on June 1, 2017, and he did not stand for re-election to the board of directors.10)In 2017, Mr. Clemmer received no performance share units that had financial performance conditions or market performance conditions and 136,364restricted share units. In 2016, Mr. Clemmer received 13,105 performance share units that had financial performance conditions, no performance shareunits that had market performance conditions and 126,161 restricted share units. In 2015, Mr. Clemmer received 71,918 performance share units thathad financial performance conditions, no performance share units that had market performance conditions and no restricted share units.11)As a result of not standing for re-election by Mr. Rick Tsai as noted in Note 9, 2,019 awards were forfeited resulting in a reversal of the related costs inaccordance with IFRS2.12)During 2016, NXP decided to expand its disclosures of compensation information, specifically in the areas of the cost for compensation charged to theincome statement (IFRS), including Performance and Restricted Share Units and Stock Options, for our chief executive officer and the other members ofour board of directors. In our previous filings, the required disclosures were not explicitly displayed as prescribed by IAS 24 paragraph 17 and section383c Book 2 Title 9 of the Dutch Civil Code. Therefore, the expanded disclosure over the years 2015, 2016 and 2017 are presented in the above table.In connection with the disclosure requirements of IAS 24 paragraph 17, we consider the board of directors as our key management personnel.Base SalaryWe currently pay our chief executive officer an annual base salary of €1,142,000, the chairman of our board of directors an annual fixed fee of€275,000 and the other members of our board of directors an annual fixed fee of $85,000 gross. Since the annual meeting of shareholders of June 2, 2016,members of our Audit Committee receive an additional annual fixed fee of $15,000 (2015 through 2016: $6,000) gross and the chairman receives anadditional annual fixed fee of $15,000 (2015 through 2016: $10,000); members of our Nominating & Compensation Committee receive an additional annualfixed fee of $12,000 (2015 through 2016: $6,000) gross and the chairman receives an additional annual fixed fee of $13,000 (2015 through 2016: $8,000).For the year ended December 31, 2017, the current and former members of our management team as a group (in total 12 members) received a total aggregateBase salary of €5,320,294, compared to a total aggregate Base salary of €5,889,544 (in total 12 members) in 2016 and €7,303,951 (in total 19 members) in2015.Annual IncentiveEach year, our chief executive officer, the other members of our management team and our other executives can qualify to earn a variable cashincentive, subject to whether certain specific and challenging performance targets have been met. For our chief executive officer, the on-target cash incentivepercentage is set at 75% of the base salary, with the maximum cash incentive set at 150% of the annual base salary. The cash incentive pay-out in any yearrelates to the achievements of the preceding financial year in relation to agreed targets.To support the performance culture, the Annual Incentive plan is based on EBIT at group level and business / support level, as well as – since 2017 –revenue targets (over 2016 and 2015, the Annual Incentive Plan was not based on revenue targets, but on market share targets). Any targets are set by theboard of directors, at the proposal of its nominating & compensation committee.Over the year 2017, our chief executive officer realized a target achievement of 79.9% and thus an amount of €684,344 has been accrued as an annualincentive bonus for our chief executive officer for our performance in 2017. Over the year 2016, our chief executive officer realized a target achievement of57.7%, and thus an amount of €494,201 was accrued in 2016 (paid in 2017) as an annual incentive bonus for our performance in 2016 (over the year 2015,the target achievement was 161.5%, and thus an amount of €1,383,248 was accrued in 2015 (paid in 2016)). The total annual incentive bonus amountaccrued in 2017 and to be paid in 2018 to members of our management team, including our chief executive officer, is €3,425,733. The amount of annualincentive bonus for the 2016 performance period and 2015 performance period paid to members of our management team, including our chief executiveofficer, was €2,443,300 and €5,518,340, respectively. 49Table of ContentsShare Based Compensation PlansThe purpose of our share based compensation plans, is to align the interests of directors and management with those of our stockholders by providingadditional incentives to improve our medium and long term performance, by offering the participants an opportunity to share in the success of NXP.In the period from 2007 until our initial public offering in August 2010, we granted stock options (“MEP Options”) to the members of our managementteam and to approximately 135 of our other executives under the Management Equity Stock Option Plan (“MEP”). The MEP Options became fullyexercisable upon the Private Equity Consortium ceasing to hold 30% of our shares of common stock on September 18, 2013. Current employees owningMEP Options may exercise such MEP Options during the period of five years as of September 18, 2013, subject to these employees remaining employed byus and subject to the applicable laws and regulations. On December 31, 2017, grants to 3 participants were outstanding, in total representing 231,924 sharesof common stock, consisting of 231,924 stock options. These MEP Options can be exercised at exercise prices which vary from €30.00 to €40.00 per MEPOption.Since 2010, we have maintained annual Long Term Incentive Plans, under which performance stock, restricted stock and stock options may be grantedto the members of our board of directors, management team, our other executives, selected other key employees/talents of NXP and selected new hires. Underthese Long Term Incentive Plans, equity incentives may be granted on, or the first Nasdaq trading day after NXP publishes its quarterly financials. In view ofthe merger with Freescale, a specific grant under the 2015 plan was made to Freescale employees who joined NXP on December 7, 2015. Performance stockunits and restricted stock units vest over a period of one to four years, subject to relevant performance criteria relating to operating income being met in thecase of performance stock units, and stock options vest over four years. Beginning with the 2014 LTIP plans, performance stock units granted to the membersof our management team, including the CEO, vest over a period of four years, and restrictive stock units granted to the non-executive directors in our boardvest over a period of one year. In view of the previously announced tender offer by Qualcomm to acquire all the issued and outstanding NXP shares, inOctober 2016, the board of directors, advised by its nominating & compensation committee, resolved to only grant restricted stock units under the 2016Long term Incentive Plan. Awards granted generally will become fully vested upon a termination event occurring within one year following a change incontrol, as defined. A termination event is defined as either termination of employment or services other than for cause or constructive termination ofresulting from a significant reduction in either the nature or scope of duties and responsibilities, a reduction in compensation or a required relocation.The size of the annual equity pool available for Long Term Incentive Plan 2010 awards from November 2, 2010 up to the fourth quarter of 2011 was foran aggregate of up to 7,200,000 common shares in our share capital. On December 31, 2017, grants to 42 participants were outstanding, in total representingsome 71,067 shares of common stock, consisting of 71,067 stock options.The size of the annual equity pool available for Long Term Incentive Plan 2011 awards from November 1, 2011 up to the fourth quarter of 2012 was foran aggregate of up to 8.6 million (including 1.4 million which remained from the 2010 LTIP pool) common shares in our share capital. On December 31,2017, grants to 100 participants were outstanding, in total representing 294,587 shares of common stock, consisting of 294,587 stock options.The size of the annual equity pool available for Long Term Incentive Plan 2012 awards from October 25, 2012 up to the fourth quarter of 2013 was foran aggregate of up to 9.3 million (including 2.1 million which remained from the 2011 LTIP pool) common shares in our share capital. On December 31,2017, grants to 184 participants were outstanding, in total representing 406,234 shares of common stock, consisting of 406,234 stock options.The size of the annual equity pool available for Long Term Incentive Plan 2013 awards from October 24, 2013 up to the fourth quarter of 2014 is for anaggregate of up to 6.7 million (including 0.4 million which remained from the 2012 LTIP pool) common shares in our share capital. On December 31, 2017,grants to 56 participants were outstanding, in total representing 267,606 shares of common stock, consisting of 1,850 performance stock units, 187 restrictedstock units and 265,569 stock optionsThe size of the annual equity pool available for Long Term Incentive Plan 2014 awards from October 23, 2014 up to the fourth quarter of 2015 is for anaggregate of up to 7.5 million (including 2.2 million which remained from the 2013 LTIP pool) common share in our share capital. On December 31, 2017grants to 151 participants were outstanding, in total representing 595,995 shares of common stock, consisting of 77,276 performance stock units, 165,600restricted stock units and 353,119 stock options.The size of the annual equity pool available for Long Term Incentive Plan 2015 awards from October 29, 2015 up to the fourth quarter of 2016 is for anaggregate of up to 5.2 million (including 4.2 million which remained from the 2014 LTIP pool) common share in our share capital. On December 31, 2017grants to 5,491 participants were outstanding, in total representing 1,667,353 shares of common stock, consisting of 241,603 performance stock units,641,092 restricted stock units and 784,658 stock options.In view of the Merger, NXP exchanged on December 7, 2015 the outstanding Freescale equity into 4,924,043 restricted stock units and 2,871,861stock options. On December 31, 2017 grants to 2,939 participants were outstanding, in total representing 1,927,801 shares of common stock, consisting of1,122,002 restricted stock units and 805,799 stock options.The size of the annual equity pool available for Long Term Incentive Plan 2016 awards from October 27, 2016 up to the fourth quarter of 2017 is for anaggregate of up to 5.6 million (including 4.3 million which remained from the 2015 LTIP pool) common share in our share capital. On December 31, 2017grants to 6,110 participants were outstanding, in total representing 1,938,946 shares of common stock, consisting of 1,938,946 restricted stock units. In lightof the announced tender offer by Qualcomm on all the NXP shares, only restricted stock units were granted under the 2016 Long term Incentive Plan. 50Table of ContentsThe size of the annual equity pool available for Long Term Incentive Plan 2017 awards from October 26, 2017 up to the fourth quarter of 2018, or somuch earlier if the proposed transaction with Qualcomm closes earlier, is for an aggregate of up to 4.0 million (including 2.7 million which remained from the2016 LTIP pool) common share in our share capital. On December 31, 2017 grants to 8,543 participants were outstanding, in total representing 2,543,783shares of common stock, consisting of 2,543,783 restricted stock units. In light of the announced tender offer by Qualcomm on all the NXP shares, onlyrestricted stock units were granted under the 2017 Long term Incentive Plan.As of December 31, 2017, under the above equity plans, a total amount of 3,212,957 stock options, 320,729 performance stock units and 6,411,610restricted stock units were outstanding, in total representing 9,945,296 shares of common stock.Shares to be delivered under any equity program may be newly issued, for up to 10% of our share capital, or they may come out of treasury stock or bepurchased from time to time upon the decision of our board of directors.As of December 31, 2017, the following stock options, restricted stock units, performance stock units and shares of common stock were outstandingwith members of our board of directors:Richard L. Clemmer, CEO and presidentAs of December 31, 2017, our chief executive officer held 491,571 shares of common stock and had been granted the following unvested stockoptions, restricted stock units and performance stock units, which were outstanding: Series Number of StockOptions ExercisePrice (in $) Stock OptionsExercisable Number of Stock Optionsper vesting schedule 10/29/18 10/29/19 2016/February 15,376 76.31 0 7,688 7,688 Series Number of StockOptions ExercisePrice (in $) Stock OptionsExercisable Number of Stock Optionsper vesting schedule 10/29/18 10/29/19 2015/October 82,939 73.00 0 41,469 41,470 Series Number of StockOptions ExercisePrice (in $) Stock OptionsExercisable Stock Optionsper vestingschedule 10/23/18 2014/October 40,419 64.18 0 40,419 Series Number ofRestrictedStock Units Number of Restricted Stock Units per vesting schedule 10/26/18 10/26/19 10/26/20 2017/October 136,364 45,454 45,455 45,455 Series Number ofRestrictedStock Units Number of Restricted Stock Unitsper vesting schedule 10/27/18 10/27/19 2016/October 84,108 42,054 42,054 Series Number ofPerformanceStock Units Number of Performance Stock Units per vesting schedule 10/29/18 10/29/19 10/29/20 2016/February 13,105 Maximum9,828 Maximum13,105 Up to13,105 Series Number ofPerformanceStock Units Number of Performance Stock Units per vesting schedule 10/23/18 10/23/19 10/23/20 2015/October 71,918 Maximum53,938 Maximum71,918 Up to71,918 51Table of ContentsSeries Number ofPerformanceStock Units Number of PerformanceStock Unitsper vesting schedule 10/23/18 10/23/19 2014/October 17,529 Maximum17,529 Up to17,529 Series Number ofPerformanceStock Units Numberof PerformanceStock Unitsper vestingschedule 11/1/18 2014/October 16,880 Maximum16,880 Other members of our board of directorsAs of December 31, 2017, the other members of our board of directors held the following number of shares of common stock:Sir Peter Bonfield: 33,580 from vested stock unitsMr. Goldman: 20,232 from vested stock unitsMr. Huth: 13,844 from vested stock unitsDr. Helmes: 1,284 from vested stock unitsMr. Kaeser: 35,199 from vested stock unitsMr. Loring: 1,284 from vested stock unitsMr. Meurice: 6,826 from vested stock unitsMr. Smitham: 1,284 from vested stock unitsMs. Southern: 8,224 from vested stock unitsMr. Summe: 5,665 from vested stock unitsTo each of the non-executive members of our board of directors, the following restricted stock units had been granted and were outstanding as ofDecember 31, 2017: Series Number ofRestrictedStock Units Number ofStock Units pervesting schedule 10/26/18 2017/October 1,715 1,715 PensionsIt has been our long-standing practice that our chief executive officer and eligible members of the management team under a Dutch employmentcontract participate in the executives’ pension plan, which we established in the Netherlands and which consisted of a combination of a career average and adefined-contribution plan. Due to legislative changes in the Netherlands, effective January 1, 2015 a new pension arrangement applies to our employeesworking under Dutch employment contracts, including our chief executive officer. Since January 1, 2015, pension plans which allow pension accrual basedon a pensionable salary exceeding an amount of €100,000 (threshold is adapted by the fiscal authorities each year, 2017: €103,317) are, for fiscal purposes,considered to be non-qualifying schemes.The following pension arrangement is in place for our chief executive officer, and members of the management team and other executives under Dutchcontract with effect from January 1, 2015: • Pension Plan in the Netherlands, which is a Collective Defined Contribution plan with an age-dependent fixed contribution percentage up to amaximum pensionable salary of €100,000 (2017: €103,317). The Pension Plan has a target retirement age of 67 and a target accrual rate of1.85%; • Introduction of a Benefit Allowance of 12.3% of the pensionable salary above €103,317 (2017) for all current and new employees • Compensation of remaining loss in pension accrual, compared to 2014, as an individual Retirement allowance • Individual compensation (Retirement allowance) will be protected for 5 years (up to end 2019) and then reduced to 75%, 50%, 25% in thefollowing 3 years (2020-2021-2022). No individual compensation after year 8 (January 2023 onwards) 52Table of ContentsThe total pension cost of the Company related to these revised pension arrangements (including the temporary Retirement Allowance for the remaining7 years) is at a comparable level over a period of time to the pension cost under the former Executive Pension Plan.The changed pension arrangements as per January 1, 2015 resulted for our chief executive officer into a decrease in pension, retirement or similarbenefits from €589,262 ($781,479) in 2014 to €12,491 ($13,927) in 2015, and an increase in Pension Allowances from nil in 2014 to €517,535 ($577,052) in2015. As said, a similar approach was followed for the other MT members in The Netherlands – as other lower ranked management members.In 2017, we paid for our chief executive officer a total pension plan contribution of €17,165 ($19,414) (€16,358 ($18,100) in 2016 and €12,491($13,927) in 2015) and an aggregated amount of €517,092 ($584,841) as Retirement Allowance and individual Allowance in 2017 (€517,319 ($572,394) in2016).C. Board PracticesManagement StructureWe have a one-tier board structure, consisting of an executive director and non-executive directors.Powers, Composition and FunctionThe board of directors consists of one executive director and ten non-executive directors. The number of executive and non-executive directors isdetermined by the board of directors and our directors are appointed for one year and are re-electable each year at the general meeting of stockholders. Theexecutive director, Mr. Clemmer, has been appointed as our chief executive officer.The appointment of the directors will be made by our general meeting of stockholders upon a binding nomination of the board of directors. Aresolution to appoint a director nominated by the board of directors is adopted by a simple majority of the votes cast. The nomination shall state whether thedirector is proposed to be an executive or non-executive director. The general meeting of stockholders may at all times overrule the binding nature of such anomination by a resolution adopted by at least a two thirds majority of the votes cast, provided such majority represents more than half of our issued sharecapital. The board of directors may then make a new nomination. If a nomination has not been made or has not been made in due time, this shall be stated inthe notice and the general meeting of stockholders shall be free to appoint a director at its discretion. The latter resolution of the general meeting ofstockholders must also be adopted by at least two thirds majority of the votes cast, provided such majority represents more than half of our issued sharecapital.Under our articles of association and Dutch corporate law, the members of the board of directors are collectively responsible for the management,general and financial affairs and policy and strategy of our company. Our executive director will be responsible for the day-to-day management of theCompany and for the preparation and execution of board resolutions, to the extent these tasks are not delegated to a committee of the board of directors. Ourchief executive officer or all directors acting jointly may represent our company with third parties.A conflict of interest between the Company and one or more of our directors is not expected to have any impact on the authority of directors torepresent the Company. Under our board regulations, a conflict needs to be reported to the board of directors and the board of directors shall resolve on theconsequences, if any. Dutch law, in case of a conflict, does not allow the directors concerned to participate in discussions or vote on such matters.Our non-executive directors will supervise the executive director and our general affairs and provide general advice to the executive director.Furthermore the non-executive directors will perform such acts that are delegated to them pursuant to our articles of association or by our board regulation.One of the non-executive directors has been appointed as chairman of the board and another non-executive director has been appointed as vice-chairman ofthe board of directors.Each director owes a duty to us to properly perform the duties assigned to him and to act in the corporate interest of our company. Under Dutch law, thecorporate interest extends to the interests of all corporate stakeholders, such as stockholders, creditors, employees, customers and suppliers.The members of our board of directors may be suspended or dismissed at any time by the general meeting of stockholders. A resolution to suspend ordismiss a director will have to be adopted by at least a two thirds majority of the votes cast, provided such majority represents more than half of our issuedshare capital and unless the proposal to suspend or dismiss a member of the board of directors is made by the board of directors itself, in which caseresolutions shall be adopted by a simple majority of votes cast. Dutch law facilitates the suspension of executive directors by the board.In the event that one or more directors are prevented from acting or in the case of a vacancy or vacancies for one or more directors, the board ofdirectors remains properly constituted. The board of directors is expected to have the power, without prejudice to its responsibility, to cause our company tobe represented by one or more attorneys. These attorneys shall have such powers as shall be assigned to them on or after their appointment and in conformitywith our articles of association, by the board of directors.The board of directors has adopted board regulations governing its performance, its decision making, its composition, the tasks and working procedureof the committees and other matters relating to the board of directors, the chief executive officer, the non-executive directors and the committees establishedby the board of directors. In accordance with our board regulations, resolutions of our board of directors will be adopted by a simple majority of votes cast ina meeting at which at least the majority of its members is present or represented. Each member of the board of directors has the right to cast one vote. In a tievote, the proposal will be rejected. 53Table of ContentsAdditional ArrangementsOur chief executive officer has a contract of employment the term of which is linked to his board membership which expires the earlier of (i) closing ofthe proposed transaction with Qualcomm and (ii) the next meeting of stockholders. Most of the other members of our management team and our executiveshave a contract of employment for an indefinite term. The main elements of any new employment contract that we will enter into with a member of the boardof directors will be made public no later than the date of the public notice convening the general meeting of stockholders at which the appointment of suchmember of the board of directors will be proposed. Non-executive directors of our board do not have a contract of employment.In addition to the main conditions of employment, a number of additional arrangements apply to our chief executive officer and other members of themanagement team; these arrangements do not apply to the non-executive members of our board of directors. These additional arrangements, such as housingcompensation and relocation allowances, medical insurance, accident insurance, school fee compensation and company car arrangements are broadly in linewith those for the NXP executives globally. In the event of disablement, our chief executive officer and other members of the management team are entitledto benefits in line with those for other NXP executives. In the event of our chief executive officer’s death while in the service of NXP, any unvested equityawards (including any NXP stock options, performance stock units and restricted stock units) will vest. In line with regulatory requirements, the Company’spolicy forbids personal loans, guarantees or similar arrangements to members of our board, and consequently no loans, guarantees or similar arrangementswere granted to such members since 2010, nor were any such loans outstanding as of December 31, 2017. The contract of employment entered into with ourchief executive officer as of January 1, 2009, provides that if our chief executive officer terminates his employment within six months of a change of control,then he will be entitled to two years’ base salary (gross) plus twice the amount of his target annual bonus (gross).Unless the law provides otherwise, the members of our board of directors are expected to be reimbursed by us for various costs and expenses, such asreasonable costs of defending claims, as formalized in the articles of association. Under certain circumstances, described in the articles of association, such asan act or failure to act by a member of our board of directors that can be characterized as intentional (opzettelijk), intentionally reckless (bewust roekeloos) orseriously culpable (ernstig verwijtbaar), there will be no entitlement to this reimbursement.Board CommitteesWhile retaining overall responsibility, our board of directors has assigned certain of its tasks to permanent committees. Members of the permanentcommittees will be appointed by the board of directors. The board of directors will also determine the tasks of each committee. Our board of directors hasestablished an audit committee and a nominating and compensation committee, each of which will have the responsibilities and composition describedbelow: • Audit Committee. Our audit committee consists of five independent non-executive directors, Messrs. Goldman, Kaeser, Summe, and Dr. Helmes andMs. Southern; all five members are independent directors under the Dutch corporate governance rules and under the Nasdaq and SEC audit committeestructure and membership requirements. Mr. Goldman, who is appointed as chairman of the audit committee, qualifies as an “audit committee financialexpert” as such term is defined in Item 16.A. Audit Committee Financial Expert and as determined by our board of directors. Our audit committeeassists the board of directors in supervising, monitoring and advising the board of directors on financial reporting, risk management, compliance withrelevant legislation and regulations and our Code of Conduct (the “Code”). It will oversee the preparation of our financial statements, our financialreporting process, our system of internal business controls and risk management, our internal and external audit process and our internal and externalauditor’s qualifications, independence and performance. Our audit committee also reviews our annual and interim financial statements and other publicdisclosures, prior to publication. On a quarterly basis, the non-executive directors who are part of the audit committee reports their findings to theplenary board of directors. Our audit committee also recommends to our stockholders the appointment of external auditors. The external auditor attendsmost meetings of the audit committee. The findings of the external auditor, the audit approach and the risk analysis are also discussed at thesemeetings. • Nominating and Compensation Committee. Our nominating and compensation committee consists of four non-executive directors, Sir Peter Bonfieldand Messrs. Huth, Meurice and Smitham; all four members are independent directors under the Dutch corporate governance rules and under the Nasdaqand SEC compensation committee structure and membership requirements. Mr. Meurice is appointed as chairman of this committee. The nominating &compensation committee determines selection criteria and appointment procedures for members of our board of directors, periodically assesses thescope and composition of our board of directors and evaluates the performance of its individual members. It is responsible for recommending to theboard of directors the compensation package for our executive directors, with due observance of the remuneration policy adopted by the generalmeeting of stockholders. It reviews employment contracts entered into with our executive directors, makes recommendations to our board of directorswith respect to major employment-related policies and oversees compliance with our employment and compensation-related disclosure obligationsunder applicable laws. 54Table of ContentsLimitation of Liability and Indemnification MattersUnless prohibited by law in a particular circumstance, our articles of association require us to reimburse the members of the board of directors and theformer members of the board of directors for damages and various costs and expenses related to claims brought against them in connection with the exerciseof their duties. However, there shall be no entitlement to reimbursement if and to the extent that (i) a Dutch court has established in a final and conclusivedecision that the act or failure to act of the person concerned may be characterized as willful ( opzettelijk ), intentionally reckless ( bewust roekeloos ) orseriously culpable ( ernstig verwijtbaar ) conduct, unless Dutch law provides otherwise or this would, in view of the circumstances of the case, beunacceptable according to standards of reasonableness and fairness, or (ii) the costs or financial loss of the person concerned are covered by an insurance andthe insurer has paid out the costs or financial loss. We may enter into indemnification agreements with the members of the board of directors and our officersto provide for further details on these matters. We have purchased directors’ and officers’ liability insurance for the members of the board of directors andcertain other officers, substantially in line with that purchased by similarly situated companies.At present, there is no pending litigation or proceeding involving any member of the board of directors, officer, employee or agent whereindemnification will be required or permitted. We are not aware of any threatened litigation or proceedings that might result in a claim for suchindemnification.D. EmployeesAs of December 31, 2017 we had 30,100 full-time equivalent employees. The following table indicates the % of full–time equivalent employees pergeographic area: % as of December 31, 2017 2016 Europe and Africa 20 18 Americas 20 15 Greater China 24 28 Asia Pacific 36 39 Total 100 100 The decrease in full-time equivalents from December 31, 2016 is primarily a result of the divestment of the SP business on February 6, 2017.We have not experienced any material strikes or labor disputes in the past. A number of our employees are members of a labor union. In variouscountries, local law requires us to inform and consult with employee representatives on matters relating to labor conditions. We consider our employeerelations to be good.E. Share OwnershipInformation with respect to share ownership of members of our board of directors is included in Part I, Item 7. Major Shareholders and Related PartyTransactions and notes 18 and 20 to our Consolidated Financial Statements, which are incorporated herein by reference. Information with respect to the grantof shares and stock options to employees is included in note 9 to our Consolidated Financial Statements which are incorporated herein by reference. In orderto maintain a strong alignment between the interests of NXP’s management and our shareholders, we have adopted an equity ownership policy for thePresident/CEO and the other members of our management team. The number of shares to be maintained by the members of our management team increaseseach time our shares are being delivered upon the vesting of stock options or other rights to our shares. The management team members are required tomaintain a certain number of our shares until the time that he or she is no longer employed by us. 55Table of ContentsItem 7. Major Shareholders and Related Party TransactionsA. Major ShareholdersThe following table shows the amount and percentage of our common stock beneficially owned as of December 31, 2017, December 31, 2016 andDecember 31, 2015, except as noted below, by (i) each person who is or was known by us to own beneficially more than 5% of our common stock, (ii) eachcurrent member of our board of directors, and (iii) all members of the board as a group. A person is a “beneficial owner” of a security if that person has orshares voting or investment power over the security or if he has the right to acquire beneficial ownership within 60 days. Unless otherwise noted, thesepersons may be contacted at our executive offices and, unless otherwise noted, have to our knowledge sole voting and investment power over the shareslisted. Common Stock Beneficially Owned as of December 31 2017 2016 2015 Number %* Number %* Number %* BlackRock, Inc. (1) 19,595,928 5.66 — — — — Elliott Associates L/P. (2) 16,437,756 4.75 — — — — T. Rowe — — 32,862,425 9.50 — — FMR LLC — — 12,618,417 3.65 22,525,068 6.51 Blackstone Funds — — — — 33,275,028 9.62 Richard L. Clemmer 563,679 0.16 4,553,772 1.32 4,188,683 1.21 Sir Peter Bonfield 33,580 0.01 32,611 0.01 30,487 0.01 Johannes P. Huth 13,844 0.004 12,560 0.004 8,135 0.002 Kenneth Goldman 20,232 0.006 21,433 0.006 33,526 0.01 Dr. Marion Helmes 1,284 0.0004 9,914 0.003 6,487 0.002 Josef Kaeser 35,199 0.01 33,915 0.01 30,487 0.01 Ian Loring 1,284 0.0004 40,912 0.01 36,486 0.01 Eric Meurice 6,826 0.002 5,857 0.002 3,117 0.001 Peter Smitham 1,284 0.0004 — — — — Julie Southern 8,224 0.002 6,940 0.002 4,127 0.001 Gregory L. Summe 5,665 0.002 4,381 0.001 4,381 0.001 Rick Tsai — — 5,857 0.002 3,117 0.001 All directors as a group 691,101 0.20 4,728,152 1.37 4,349,033 1.26 *Percentage computations are based on 346,002,862 shares of our common stock issued and outstanding as of December 31, 2017, December 31, 2016and December 31, 2015.(1)Information about the number of common shares owned by BlackRock, Inc. (“Blackrock”) on December 31, 2017, is based solely on a Schedule 13Gfiled by Blackrock with the SEC on February 8, 2018. Blackrock’s address is 55 East 52nd Street, New York, NY 10055. Blackrock beneficially ownedan aggregate of 19,595,928 common shares, has sole power to vote 17,128,078 shares and the sole power to dispose of 19,595,554 shares of ourcommon stock.(2)Information about the number of common shares owned by Elliott Associates, L.P. (“Elliott”) on January 24, 2018, is based solely on a Schedule13D/A filed by Elliott with the SEC on January 25, 2018. Elliot’s address is 40 West 57th Street, New York, NY 10019. Collectively, Elliott Associates,L.P., Elliott International, L.P. (“Elliott International”) and Elliott International Capital Advisors Inc. (“EICA”) beneficially own an aggregate of16,437,756 shares of our common stock. This does not include notional principal amount derivative agreements in the form of cash settled swaps withrespect to 2,226,485 and 4,731,280 of our common shares held by Elliott and Elliott International, respectively, in which Elliott and ElliottInternational disclaim beneficial ownership.No shareholders held different voting rights.See Part I, Item 3. Key Information for a description of our Purchase Agreement with Buyer, a wholly-owned, indirect subsidiary of Qualcomm andtender offer commenced by Buyer to acquire all of our issued and outstanding common shares for a revised offer price of $127.50 per share, less anyapplicable withholding taxes and without interest to the holders thereof, payable in cash, for estimated total cash consideration of $44 billion, which willresult, subject to the satisfaction or waiver of the conditions in the Purchase Agreement, in a change in control of NXP.B. Related Party TransactionsThe transactions NXP has with related parties are not deemed to be material, individually or in the aggregate. See Part III, Item 18. FinancialStatements, note 20 Related-party Transactions.C. Interests of Experts and CounselNot applicable. 56Table of ContentsItem 8. Financial InformationA. Consolidated Statements and Other Financial InformationConsolidated StatementsSee Part III, Item 18. Financial Statements.Dividend PolicyWe currently retain all of our earnings for use in the operation and expansion of our business, to repurchase or redeem capital stock, and in therepayment of our debt. We have never declared or paid any cash dividends on our common stock and may not pay any cash dividends in the foreseeablefuture. Whether or not dividends will be paid in the future will depend on, among other things, our results of operations, financial condition, level ofindebtedness, cash requirements, covenants in our financings, contractual restrictions and other factors that our board of directors and our stockholders maydeem relevant. If, in the future, our board of directors decides not to allocate profits to our reserves (making such profits available to be distributed asdividends), any decision to pay dividends on our common stock will be at the discretion of our stockholders. In addition, under the terms of the PurchaseAgreement, we must obtain consent in advance from Buyer to declare, set aside or pay any dividend on our common stock.B. Significant ChangesNot applicable.Item 9. The Offer and ListingA. Offer and Listing DetailsThe following table shows the high and low closing sales prices of the common stock on the stock market of Nasdaq as reported in the Official PriceList for the following periods: Most recent six months March 2018 February 2018 January 2018 December 2017 November 2017 October 2017 High Low High Low High Low High Low High Low High Low 124.78 116.26 125.71 114.88 121.08 117.87 117.09 113.75 117.46 113.00 117.05 113.12 On April 2, 2018, the closing sales price of the common stock on the stock market of Nasdaq was $115.22. 2017 2016 2015 High Low High Low High Low 1st quarter 104.22 96.00 84.44 64.00 108.03 72.38 2nd quarter 109.98 103.17 94.49 75.04 112.25 95.33 3rd quarter 113.09 109.11 102.01 76.05 99.28 79.26 4th quarter 117.46 113.00 104.49 96.59 97.95 73.00 High Low 2017 117.46 96.00 2016 104.49 64.00 2015 112.25 72.38 2014 77.85 42.94 2013 45.95 25.29 B. Plan of DistributionNot applicable.C. MarketsThe shares of common stock of the Company are listed on the stock market of the Nasdaq Global Select Market in New York under the ticker symbol“NXPI”.D. Selling ShareholdersNot applicable. 57Table of ContentsE. DilutionNot applicable.F. Expenses of the IssueNot applicable.Item 10. Additional InformationA. Share CapitalNot applicable.B. Memorandum and Articles of AssociationThe information required by this section is incorporated by reference to Exhibit 3.2 of Amendment No. 7 to the Company’s Registration Statement onForm F-1, filed on August 2, 2010 (File No. 333-166128).C. Material ContractsOther than the material contracts described below, we have not entered into any material contracts other than in the ordinary course of business.2017We have not entered into any material contracts other than in the ordinary course of business in 2017. See Part I, Item 3. Key Information for adescription of our Purchase Agreement with Buyer, a wholly-owned, indirect subsidiary of Qualcomm and tender offer commenced by Buyer to acquire all ofour issued and outstanding common shares for a revised offer price of $127.50 per share, less any applicable withholding taxes and without interest to theholders thereof, payable in cash, for estimated total cash consideration of $44 billion. The Purchase Agreement restricts NXP from engaging in certain actionsoutside the ordinary course of business without Buyer’s approval.2016See Part I, Item 5.B. Liquidity and Capital Resources – 2016 Financing Activities for a description of the 2021 and 2023 Senior Unsecured Notes.See Part I, Item 3. Key Information for a description of our divestment of the SP business.On June 13, 2016, we entered into amendments to the Shareholder Agreements with certain former Freescale shareholders (the “Sponsors”) to amendthe transfer restrictions for the Sponsors in relation to NXP shares received in the Merger.See Part I, Iterm 5.B. Liquidity and Capital Resources – 2016 Financing Activities for a description of the 2022 Senior Unsecured Notes.See Part I, Item 5.B. Liquidity and Capital Resources – 2016 Financing Activities for a description of the 2020 Term Loan.D. Exchange ControlsCash dividends payable on our ordinary shares and cash interest payments to holders of our debt securities may be remitted from the Netherlands tononresidents without legal restrictions imposed by the laws of the Netherlands, except that (i) such payments must be reported to the Dutch Central Bank forstatistical purposes only and (ii) the transfer of funds to jurisdictions subject to general economic sanctions adopted in connection with policies of the UnitedNations, European Commission or similar measures imposed directly by the Government of the Netherlands may be restricted.E. TaxationCertain Tax Considerations-Holder of Common StockSummary of Dutch Tax ConsiderationsThe following summary describes the material Dutch tax consequences of the ownership and disposition of our shares of common stock as of the datehereof and is intended as general information only. This summary does not contain a detailed description of all the Dutch tax law consequences applicable toyou as a holder of shares of common stock in the Company in light of your particular circumstances and does not address the effects of any non-Dutch taxlaws. For Dutch tax purposes, a holder of our shares may include an individual who or an entity that does not have the legal title of the shares, but to whomnevertheless the shares are attributed based either on such individual or entity holding a beneficial interest in the shares or based on specific statutoryprovisions, including statutory provisions pursuant to which shares are attributed to an individual who is, or who has directly or indirectly inherited from aperson who was, the settlor, grantor or similar originator of a trust, foundation or similar entity that holds the shares. 58Table of ContentsIf you are considering the purchase, ownership or disposition of our shares, you should consult your own tax advisors concerning the Dutch taxconsequences to you in light of your particular situation as well as any consequences arising under the laws of any other taxing jurisdiction.The following summary is based on the Dutch tax law as applied and interpreted by Dutch tax courts and as published and in effect on the date hereof,without prejudice to any amendments introduced at a later date and implemented with or without retroactive effect. For the purpose of this paragraph, “Dutchtaxes” means taxes of whatever nature levied by or on behalf of the Netherlands or any of its subdivisions or taxing authorities. The Netherlands means thepart of the Kingdom of the Netherlands located in Europe and does not include Bonaire, St. Eustatius and Saba. Any reference made to a treaty for theavoidance of double taxation concluded by the Netherlands includes the Tax Regulation for the Kingdom of the Netherlands (Belastingregeling voor hetKoninkrijk), the Tax Regulation for the country of the Netherlands (Belastingregeling voor het land Nederland), the Tax Regulation the NetherlandsCuraçao (Belastingregeling Nederland Curaçao), the Tax Regulation the Netherlands Saint Martin (Belastingregeling Nederland Sint Maarten) and theAgreement between the Taipei Representative Office in the Netherlands and the Netherlands Trade and Investment Office in Taipei for the avoidance ofdouble taxation.Withholding TaxA stockholder is generally subject to Dutch dividend withholding tax at a rate of 15 percent on dividends distributed by us, if any. Generally, we areresponsible for the withholding of such dividend withholding tax at source; the dividend withholding tax is for the account of the stockholder.Dividends distributed by us include, but are not limited to: • distributions of profits in cash or in kind, whatever they be named or in whatever form; • proceeds from the liquidation of the Company, or proceeds from the repurchase of shares by the Company, in excess of the average paid-incapital recognized for Dutch dividend withholding tax purposes; • the par value of shares issued to a stockholder or an increase in the par value of shares, to the extent that no contribution, recognized for Dutchdividend withholding tax purposes, has been made or will be made; and • partial repayment of paid-in capital, that is (i) not recognized for Dutch dividend withholding tax purposes, or (ii) recognized for Dutch dividendwithholding tax purposes, to the extent that we have net profits (zuivere winst), unless (a) the general meeting of stockholders has resolved inadvance to make such repayment and (b) the par value of the shares concerned has been reduced with an equal amount by way of an amendmentto our articles of association. The term net profits includes anticipated profits that have yet to be realized.Notwithstanding the above, no withholding is required in the event of a repurchase of shares, if certain conditions are fulfilled.Furthermore, subject to certain exceptions under Dutch domestic law, we may not be required to transfer to the Dutch tax authorities the full amount ofDutch dividend withholding tax withheld in respect of dividends distributed by us, if we have received a profit distribution from a qualifying foreignsubsidiary (including a subsidiary resident on Bonaire, St. Eustatius or Saba), which distribution is exempt from Dutch corporate income tax and has beensubject to a foreign withholding tax of at least 5 percent. The amount that does not have to be transferred to the Dutch tax authorities can generally notexceed the lesser of (i) 3 percent of the dividends distributed by us and (ii) 3 percent of the profit distributions that we received from qualifying foreignsubsidiaries in the calendar year in which we distribute the dividends (up to the moment of such dividend distribution) and in the two previous calendaryears. Further limitations and conditions apply. We will, upon request, provide stockholders with information regarding the Dutch dividend withholding taxthat was retained by us.If a stockholder is resident in a country other than the Netherlands under the provisions of a treaty for the avoidance of double taxation between theNetherlands and such country, such stockholder may, depending on the terms of such treaty, be entitled to an exemption from, reduction in or refund ofDutch dividend withholding tax on dividends distributed by us.If a stockholder is subject to Dutch corporate income tax and is entitled to the participation exemption in relation to the benefits derived from theshares held by it and such shares are attributable to an enterprise carried out in the Netherlands, such stockholder will generally be entitled to an exemptionfrom Dutch dividend withholding tax on dividends distributed by us.If a stockholder is resident (i) in an EU member state, or (ii) in a state that is a party to the Agreement on the European Economic Area (“EEA”; Iceland,Liechtenstein or Norway), or (iii) in a designated third state with which the Netherlands has agreed to an arrangement for the exchange of information on taxmatters, it is entitled to a full or partial refund of Dutch dividend withholding tax incurred in respect of the Shares if the final tax burden in respect of thedividends distributed by the Company of a comparable Dutch resident stockholder is lower than the withholding tax incurred by the non-Dutch residentstockholder. The refund is granted upon request, and is subject to conditions and limitations. No entitlement to a refund exists if the disadvantage for thenon-Dutch resident stockholder is entirely compensated in his state of residence under the provisions of a treaty for the avoidance of double taxationconcluded between this state of residence and the Netherlands.If a stockholder is (A) resident (i) in an EU member state, or (ii) in a state that is a party to the EEA, or (iii) in a third state with which the Netherlandshas concluded a tax treaty for the avoidance of double taxation which contains a provision addressing dividends, according to the laws of that state, and(B) the stockholder is not considered a resident of another state under the terms of a tax treaty for the avoidance of double taxation concluded by that statewith a third state with which the Netherlands has not concluded a tax treaty for 59Table of Contentsthe avoidance of double taxation which contains a provision addressing dividends, not being another EU member state or a state that is a party to the EEA,and (C) the stockholder owns an interest in the Company to which the participation exemption or the participation credit would be applicable if thestockholder was resident in the Netherlands, this stockholder will generally be eligible for an exemption from or refund of Dutch dividend withholding taxon dividends distributed by us, unless (D) the stockholder (i) holds the shares with the main purpose, or one of the main purposes, to avoid taxation due byanother individual or entity, and (ii) holds the shares, or is deemed to hold the shares, as part of an artificial arrangement or transaction (or a series of artificialarrangements or composite of transactions).Furthermore, if a stockholder: (a)is an entity which is resident for Dutch tax purposes in a member state of the European Union, a state that is a party to the EEA or which is aqualifying stockholder resident elsewhere; (b)is not subject to a tax levied by reference to its profits in its country of residence; and (c)would not have been subject to Dutch corporate income tax had the stockholder been resident in the Netherlands for Dutch tax purposes;such stockholder will be eligible for a full refund of Dutch dividend withholding tax on dividends distributed by us, unless such stockholder iscomparable to an exempt investment institution (vrijgestelde beleggingsinstelling) or fiscal investment institution (fiscale beleggingsinstelling), asdescribed respectively in article 6a and 28 of the Dutch corporate income tax act 1969 ( Wet op de vennootschapsbelasting 1969). For purposes of (a) above,a qualifying stockholder is an entity that (i) is resident for Dutch tax purposes in a jurisdiction which has an arrangement for the exchange of tax informationwith the Netherlands and (ii) holds its shares as a portfolio investment, i.e. such shares are not held with a view to the establishment or maintenance of lastingand direct economic links between the stockholder and the Company and the shares do not allow the stockholder to participate effectively in themanagement or control of the Company.A stockholder who is considered to be resident in the United States and is entitled to the benefits of the convention between the United States and theNetherlands for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, dated December 18, 1992, as amendedmost recently by the Protocol signed March 8, 2004 (the “Treaty”), will be entitled to a reduction in the Dutch withholding tax by way of an exemption,reduction or refund, as follows: • if the U.S. stockholder is an exempt pension trust, as described in article 35 of the Treaty, or an exempt organization, as described in article 36 of theTreaty, the U.S. stockholder will be exempt from Dutch dividend withholding tax; • if the U.S. stockholder is a company which holds directly at least 10 percent of the voting power in the Company, the U.S. stockholder will be subjectto Dutch withholding tax at a rate not exceeding 5 percent; • if the U.S. stockholder is a company which holds directly at least 80 percent of the voting power in the Company and certain other conditions are met,the U.S. stockholder will be exempt from Dutch dividend withholding tax; and • in all other cases, the U.S. stockholder will be subject to Dutch dividend withholding tax at a rate of 15 percent.According to Dutch domestic anti-dividend stripping rules, no credit against Dutch (corporate) income tax, exemption from, reduction in or refund of,Dutch dividend withholding tax will be granted if the recipient of the dividend paid by us is not considered to be the beneficial owner ( uiteindelijkgerechtigde ) of such dividends as meant in these rules.Taxes on Income and Capital GainsThe description of taxation set out in this section of the Annual Report does not apply to any stockholder who is an individual for whom the income orcapital gains derived from our shares of common stock are attributable to employment activities, the income from which is taxable in the Netherlands.A stockholder will not be subject to Dutch taxes on income or capital gains in respect of the ownership and disposal of our shares, other than Dutchdividend withholding tax as described above, except if: (i)the stockholder is, or is deemed to be, resident in the Netherlands for Dutch (corporate) income tax purposes; (ii)the stockholder derives profits from an enterprise, whether as entrepreneur (ondernemer) or pursuant to a co-entitlement to the net worth of suchenterprise other than as an entrepreneur or a stockholder, which enterprise is, in whole or in part, carried on through a permanent establishment(vaste inrichting) or a permanent representative (vaste vertegenwoordiger) in the Netherlands, to which permanent establishment or a permanentrepresentative the shares are attributable; (iii)the stockholder is an individual and derives benefits from miscellaneous activities (resultaat uit overige werkzaamheden ) carried out in theNetherlands in respect of the shares, including, without limitation, activities which are beyond the scope of active portfolio investmentactivities; (iv)the stockholder is an individual and has a substantial interest (aanmerkelijk belang) or a fictitious substantial interest (fictief aanmerkelijkbelang) in the Company, which is not attributable to the assets of an enterprise; (v)the stockholder is not an individual and holds a substantial or fictitious substantial interest in the Company with the main purpose, or one of themain purposes, to avoid income tax due by an individual, and holds the shares, or is deemed to hold the shares, as part of an artificialarrangement or transaction (or a series of artificial arrangements or composite of transactions); 60Table of Contents (vi)the stockholder is not an individual and is entitled to a share in the profits of an enterprise or a co-entitlement to the net-worth of an enterprise,other than by way of the holding of securities, which enterprise is effectively managed in the Netherlands and to which enterprise the shares areattributable; or (vii)the stockholder is an individual and is entitled to a share in the profits of an enterprise, other than by way of the holding of securities, whichenterprise is effectively managed in the Netherlands and to which enterprise the shares are attributable.Generally, a stockholder has a substantial interest if such stockholder, alone or together with its partner, directly or indirectly (a) owns, or holds certainrights on, shares representing five percent or more of the total issued and outstanding capital of the Company, or of the issued and outstanding capital of anyclass of shares of the Company; (b) holds rights to, directly or indirectly, acquire shares, whether or not already issued, representing five percent or more ofthe total issued and outstanding capital of the Company, or of the issued and outstanding capital of any class of shares of the Company; or (c) owns, or holdscertain rights on, profit participating certificates that relate to five percent or more of the annual profit of the Company or to five percent or more of theliquidation proceeds of the Company. A stockholder will also have a substantial interest if its partner or one of certain relatives of the stockholder or of itspartner has a substantial interest.Generally, a stockholder has a fictitious substantial interest in the Company if, without having an actual substantial interest in the Company (i) anenterprise has been contributed to the Company in exchange for shares on an elective non-recognition basis; (ii) the shares have been obtained underinheritance law or matrimonial law, on a non-recognition basis, while the disposing stockholder had a substantial interest in the Company; (iii) the shareshave been acquired pursuant to a share merger, legal merger or legal demerger, on an elective non-recognition basis, while the stockholder prior to thistransaction had a substantial interest in an entity that was party thereto; or (iv) the shares held by the stockholder, prior to dilution, qualified as a substantialinterest and, by election, no gain was recognized upon disqualification of these shares.Gift Tax and Inheritance TaxNo Dutch gift or inheritance tax is due in respect of any gift of the shares by, or inheritance of the shares on the death of, a stockholder, except if: (i)at the time of the gift or death of the stockholder, the stockholder is resident, or is deemed to be resident, in the Netherlands; (ii)the stockholder passes away within 180 days after the date of the gift of the shares and is not, or not deemed to be, at the time of the gift, but is, ordeemed to be, at the time of its death, resident in the Netherlands; or (iii)the gift of the shares is made under a condition precedent and the stockholder is resident, or is deemed to be resident, in the Netherlands at thetime the condition is fulfilled.For purposes of Dutch gift or inheritance tax, an individual who is of Dutch nationality will be deemed to be resident in the Netherlands if theindividual has been resident in the Netherlands at any time during the ten years preceding the date of the gift or his/her death. For purposes of Dutch gift tax,any individual, irrespective of its nationality, will be deemed to be resident in the Netherlands if he has been resident in the Netherlands at any time duringthe 12 months preceding the date of the gift.Other Taxes and DutiesNo other Dutch taxes, including turnover tax and taxes of a documentary nature, such as capital tax, stamp or registration tax or duty, are payable by oron behalf of a stockholder by reason only of the purchase, ownership and disposal of the shares.ResidencyA stockholder will not become resident, or deemed resident in the Netherlands for tax purposes by reason only of holding the shares.United States Federal Income Tax ConsiderationsThe following summary describes the material United States federal income tax consequences of the ownership and disposition of our shares as of thedate hereof. The summary set forth below is applicable only to United States Holders (as defined below) (i) who are residents of the United States for purposesof the Treaty, (ii) whose shares do not, for purposes of the Treaty, form part of the business property of a permanent establishment, or pertain to a fixed base, inthe Netherlands, and (iii) who otherwise qualify for the full benefits of the Treaty. Except where noted, this summary deals only with shares held as capitalassets. As used herein, the term “United States Holder” means a beneficial owner of a share that is for United States federal income tax purposes: • an individual citizen or resident of the United States; • a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws ofthe United States, any state thereof or the District of Columbia; • an estate the income of which is subject to United States federal income taxation regardless of its source; or • a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authorityto control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to betreated as a United States person. 61Table of ContentsThis summary does not represent a detailed description of the United States federal income tax consequences applicable to you if you are subject tospecial treatment under the United States federal income tax laws, including if you are: • a dealer in securities or currencies; • a financial institution; • a regulated investment company; • a real estate investment trust; • an insurance company; • a tax-exempt organization; • a person holding our shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle; • a trader in securities that has elected the mark-to-market method of accounting for your securities; • a person liable for alternative minimum tax; • a person who owns or is deemed to own 10% or more of our voting stock; • a person holding our shares in connection with a trade or business conducted outside of the United States; • a partnership or other pass-through entity for United States federal income tax purposes; or • a person whose “functional currency” is not the United States dollar.The summary below is based upon the provisions of the United States Internal Revenue Code of 1986, as amended (the “Code”), and regulations,rulings and judicial decisions thereunder as of the date hereof, and such authorities may be replaced, revoked or modified, perhaps retroactively, so as toresult in United States federal income tax consequences different from those discussed below.If a partnership (or other entity treated as a partnership for United States federal income tax purposes) holds our shares, the tax treatment of a partnerwill generally depend upon the status of the partner and the activities of the partnership. If you are a partnership or a partner of a partnership holding ourshares, you should consult your tax advisors.This summary does not contain a detailed description of all the United States federal income tax consequences to you in light of your particularcircumstances and does not address the Medicare tax on net investment income or the effects of any state, local or non-United States tax laws. If you areconsidering the purchase, ownership or disposition of our shares, you should consult your own tax advisors concerning the United States federal income taxconsequences to you in light of your particular situation as well as any consequences arising under the laws of any other taxing jurisdiction.Taxation of DividendsThe gross amount of distributions on the shares (including any amounts withheld in respect of Dutch withholding taxes to the extent such amounts areactually transferred to the Dutch tax authorities, as described under “Certain Tax Considerations—Holder of Common Stock—Summary of Dutch TaxConsiderations—Withholding Tax” above) will be taxable as dividends to the extent paid out of our current or accumulated earnings and profits, asdetermined under United States federal income tax principles. Such amounts taxable as dividends (including any portion thereof withheld and paid over tothe Dutch tax authorities) will be includable in your gross income as ordinary income on the day actually received by you or on the day received by yournominee or agent that holds the shares on your behalf. Such dividends will not be eligible for the dividends received deduction allowed to corporationsunder the Code.With respect to non-corporate United States investors, certain dividends received from a qualified foreign corporation may be subject to reduced ratesof taxation. A qualified foreign corporation includes a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with theUnited States which the United States Treasury Department determines to be satisfactory for these purposes and which includes an exchange of informationprovision. The United States Treasury Department has determined that the Treaty meets these requirements. We believe we are currently eligible for thebenefits of the Treaty. A foreign corporation is also treated as a qualified foreign corporation with respect to dividends paid by that corporation on shares thatare readily tradable on an established securities market in the United States. United States Treasury Department guidance indicates that our shares, which arelisted on the Nasdaq Global Select Market, are considered readily tradable on an established securities market in the United States. There can be no assurancethat our shares will be considered readily tradable on an established securities market in later years.Non-corporate holders that do not meet a minimum holding period requirement during which they are not protected from a risk of loss or that elect totreat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless ofour status as a qualified foreign corporation. For this purpose, the minimum holding period requirement will not be met if a share has been held by a holderfor 60 days or less during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respectto such dividend, appropriately reduced by any period in which such holder is protected from risk of loss. In addition, the rate reduction will not apply todividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. Thisdisallowance applies even if the minimum holding period has been met. You should consult your own tax advisors regarding the application of these rules toyour particular circumstances.The maximum rate of withholding tax on dividends paid to you pursuant to the Treaty is 15 percent. You may be required to properly demonstrate tothe Company and the Dutch tax authorities your entitlement to the reduced rate of withholding under the Treaty. Subject to certain conditions andlimitations, Dutch withholding taxes on dividends may be treated as foreign taxes eligible for credit against your United States federal income tax liability.However, amounts withheld to reflect Dutch withholding taxes will not be creditable to the extent that we are allowed to reduce the amount of thewithholding tax that is actually transferred to the Dutch tax authorities, as described under “Certain Tax Considerations—Holder of Common Stock—Summary of Dutch Tax Considerations—Withholding Tax“ above. For purposes of calculating the foreign tax credit, dividends paid on the shares will betreated as income from sources outside the United States and will generally constitute passive category income. Further, in certain circumstances, if you: 62Table of Contents • have held shares for less than a specified minimum period during which you are not protected from risk of loss, or • are obligated to make payments related to the dividends,you will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on the shares. The rules governing the foreign tax credit arecomplex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, as determined underUnited States federal income tax principles, the distribution will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of theshares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain recognized on a sale or exchange.However, we do not expect to determine earnings and profits in accordance with United States federal income tax principles. Therefore, you should expectthat a distribution will generally be treated as a dividend (as discussed above).Passive Foreign Investment CompanyBased on the composition of our income and valuation of our assets, including goodwill, we do not believe we were a passive foreign investmentcompany (a “PFIC”) for the 2017 taxable year, and we do not expect to become one in the future, although there can be no assurance in this regard. If,however, we are or become a PFIC, you could be subject to additional United States federal income taxes on gain recognized with respect to the shares and oncertain distributions, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules. Non-corporate United States Holders willnot be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable year in which such dividends are paid or in thepreceding taxable year.Taxation of Capital GainsFor United States federal income tax purposes, you will recognize taxable gain or loss on any sale or exchange of a share in an amount equal to thedifference between the amount realized for the share and your tax basis in the share. Such gain or loss will generally be capital gain or loss. Capital gains ofnon-corporate United States Holders (including individuals) derived with respect to capital assets held for more than one year are eligible for reduced rates oftaxation. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by you will generally be treated as United States sourcegain or loss.Information Reporting and Backup WithholdingIn general, information reporting will apply to dividends in respect of our shares and the proceeds from the sale, exchange or redemption of our sharesthat are paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt recipient. Backup withholding mayapply to such payments if you fail to provide a taxpayer identification number or certification of other exempt status or fail to report in full dividend andinterest income.Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your United States federal income taxliability provided the required information is furnished to the Internal Revenue Service.F. Dividends and Paying AgentsNot applicable.G. Statement by ExpertsNot applicable.H. Documents on DisplayWe are a “foreign private issuer” as such term is defined in Rule 405 under the Securities Act, and are not subject to the same requirements that areimposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we are subject to reporting obligations that, in certain respects, are less detailedand less frequent than those of U.S. domestic reporting companies. We are subject to the informational requirements of the Exchange Act and are required tofile reports and other information with the SEC. Shareholders may read and copy any of our reports and other information at, and obtain copies upon paymentof prescribed fees from, the Public Reference Room maintained by the SEC at 100 F Street N.E., Washington, D.C. 20549. The public may obtain informationon the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings are also publicly available free of charge on the SEC’swebsite at www.sec.gov 63Table of ContentsI. Subsidiary InformationNot applicable.Item 11. Quantitative and Qualitative Disclosures about Market RiskWe are exposed to changes in interest rates and foreign currency exchange rates because we finance certain operations through fixed and variable ratedebt instruments and denominate our transactions in a variety of foreign currencies. Changes in these rates may have an impact on future cash flow andearnings. We manage these risks through normal operating and financing activities and, when deemed appropriate, through the use of derivative financialinstruments. We do not enter into financial instruments for trading or speculative purposes.By using derivative instruments, we are subject to credit and market risk. The fair market value of the derivative instruments is determined by usingvaluation models whose inputs are derived using market observable inputs, including interest rate yield curves, as well as foreign exchange and commodityspot and forward rates, and reflects the asset or liability position as of the end of each reporting period. When the fair value of a derivative contract is positive,the counterparty owes us, thus creating a receivable risk for us. We are exposed to counterparty credit risk in the event of non-performance by counterpartiesto our derivative agreements. We minimize counterparty credit (or repayment) risk by entering into transactions with major financial institutions ofinvestment grade credit rating. Our exposure to market risk is not hedged in a manner that completely eliminates the effects of changing market conditions onearnings or cash flow.Interest Rate RiskOur RCF Agreement has a $600 million borrowing capacity with floating rate interest, but there are currently no borrowings under this facility. AtDecember 31, 2017, we had no aggregate principal amount outstanding under the Term Loans. A hypothetical increase in LIBOR based interest rates wouldnot have caused any change to our interest expense on our floating rate debt.Additional information regarding our notes is provided in notes 2, Significant Accounting Policies, and 16, Debt, of our notes to the ConsolidatedFinancial Statements included in Part III, Item 18. of this Annual Report is incorporated herein by reference.Foreign Currency RisksWe are also exposed to market risk from changes in foreign currency exchange rates, which could affect operating results as well as our financialposition and cash flows. We monitor our exposures to these market risks and generally employ operating and financing activities to offset these exposureswhere appropriate. If we do not have operating or financing activities to sufficiently offset these exposures, from time to time, we may employ derivativefinancial instruments such as swaps, collars, forwards, options or other instruments to limit the volatility to earnings and cash flows generated by theseexposures. Derivative financial instruments are only used for hedging purposes and not for trading or speculative purposes. Counterparties to our derivativescontracts are all major banking institutions. In the event of financial insolvency or distress of a counterparty to our derivative financial instruments, we maybe unable to settle transactions if the counterparty does not provide us with sufficient collateral to secure its net settlement obligation to us, which couldhave a negative impact on our results. The Company measures all derivative financial instruments based on fair values derived from market prices of theinstruments or from option pricing models, as appropriate and record these as assets or liabilities in the balance sheet. Changes in the fair values arerecognized in the statement of operations immediately unless cash flow hedge accounting is applied. A summary of our foreign currency accounting policiesis provided in note 2, Significant Accounting Policies, of our notes to the Consolidated Financial Statements included in Part III, Item 18. of this AnnualReport is incorporated herein by reference.At December 31, 2017 our net asset related to foreign currency forward contracts designated as hedges of foreign currency risk on certain operatingexpenditure transactions was $10 million. If our forecasted operating expenditures for currencies in which we hedge were to decline by 20% and foreignexchange rates were to change unfavorably by 20% in our hedged foreign currency, we would incur a negligible loss.Financial assets and liabilities held by consolidated subsidiaries that are not denominated in the functional currency of those entities are subject to theeffects of currency fluctuations and may affect reported earnings. As a global company, we face exposure to adverse movements in foreign currency exchangerates. We may hedge currency exposures associated with certain assets and liabilities denominated in nonfunctional currencies and certain anticipatednonfunctional currency transactions. As a result, we could experience unanticipated gains or losses on anticipated foreign currency cash flows, as well aseconomic loss with respect to the recoverability of investments.Our primary foreign currency exposure relates to the U.S. dollar to euro exchange rate. However, our foreign currency exposures also relate, but are notlimited, to the Chinese Yuan, the Japanese Yen, the Pound Sterling, the Malaysian Ringgit, the Singapore Dollar, the Taiwan Dollar and the Thailand Baht. 64Table of ContentsEquity Price RiskCash Convertible Senior NotesOur Cash Convertible Senior Notes include conversion and settlement provisions that are based on the price of our common stock at conversion or atmaturity of the notes. In addition, the hedges and warrants associated with these convertible notes also include settlement provisions that are based on theprice of our common stock. The amount of cash we may be required to pay to the holders at conversion or maturity of the notes is determined by the price ofour common stock. The amount of cash that we may receive from hedge counterparties in connection with the related hedges and the number of shares thatwe may be required to provide warrant counterparties in connection with the related warrants are also determined by the price of our common stock.Item 12. Description of Securities Other than Equity SecuritiesNot applicable.PART IIItem 13. Defaults, Dividend Arrearages and DelinquenciesNoneItem 14. Material Modifications to the Rights of Security Holders and Use of ProceedsNoneItem 15. Controls and ProceduresDisclosure Controls and ProceduresAs of the end of the period covered by this Annual Report, our management, with the participation of our chief executive officer and chief financialofficer, conducted an evaluation pursuant to Rule 13a-15(e) and 15d-15(e) of the Exchange Act of the effectiveness of the design and operation of ourdisclosure controls and procedures. Based on this evaluation, our chief executive officer and chief financial officer concluded that as of the end of the periodcovered by this Annual Report such disclosure controls and procedures were effective to provide reasonable assurance that information required to bedisclosed in reports we filed or submitted under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in therules and forms of the SEC, and included controls and procedures designed to ensure that information required to be disclosed in such reports wasaccumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisionsregarding required disclosure.Management’s Report on Internal Control over Financial ReportingThe Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules13a-15(f) and 15(d)-15(f) of the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance, notabsolute assurance, regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.generally accounting principles.Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Moreover, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 based on the criteriaestablished in “Internal Control - Integrated Framework (2013)” by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Based on that assessment our management concluded that our internal control over financial reporting was effective as of December 31, 2017.NXP continues to integrate Freescale Semiconductor, Ltd. which was acquired on December 7, 2015. In 2017, management enhanced controls inresponse to changes to our organizational structure. Other than the aforementioned, there have not been any changes in the Company’s internal controls overfinancial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.It should be noted that any control system, regardless of how well it is designed and operated, can provide only reasonable, not absolute, assurance thatits objectives will be met. Control systems can be circumvented by the individual acts of some persons, by collusion of two or more people, or bymanagement override of the control. In addition, controls may become inadequate because of changes in conditions, or the degree of compliance with thepolicies or procedures may deteriorate. Because of these and other inherent limitations of control systems, there can be no assurance that any design willsucceed in achieving its stated goals under all potential future conditions, regardless of how remote. 65Table of ContentsAttestation Report of the Independent Registered Public Accounting FirmFor the year ended December 31, 2017 an attestation report regarding internal control over financial reporting of the Company’s independentregistered public accounting firm is required. The attestation is included in Part III, Item 18. Financial Statements.Item 16A. Audit Committee Financial ExpertMr. Goldman, chairman of our audit committee, qualifies as an “audit committee financial expert” as such term is defined in Item 16A of Form 20-F andas determined by our board of directors. Our board of directors has determined that Mr. Goldman is an independent director under the Nasdaq Global SelectMarket Corporate Governance Rules. For further information relating to the qualifications and experience of Mr. Goldman, see Part I, Item 6. Directors,Senior Management and Employees.Item 16B. Code of EthicsWe have adopted the Code applicable to all of our employees, directors and officers, including our president and chief executive officer, chief financialofficer, controller or principal accounting officer or other persons performing similar functions, which is a “code of ethics” as defined in Item 16B on Form20-F and as required by The Nasdaq Global Select Market Listing Rules, which refers to Section 406(c) of the Sarbanes-Oxley Act.The Code outlines our general commitment to be a responsible social partner and the way in which we attempt to interact with our stakeholders,including stockholders, suppliers, customers, employees and the market. The Code expresses our commitment to an economically, socially and ethicallysustainable way of working. It covers our policy on a diverse array of subjects, including corporate gifts, child labor, International Labor Organizationconventions, working hours, sexual harassment, free-market competition, bribery and the integrity of financial reporting.The Code is available on our website at www.nxp.com/investor/governance. We will disclose on this website any amendments to, or waivers from, ourCode (to the extent applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performingsimilar functions). The information contained on our website or that can be accessed through our website neither constitutes part of this Annual Report nor isincorporated by reference herein.Item 16C. Principal Accountant Fees and ServicesThe Company has instituted a comprehensive auditor independence policy that regulates the relation between the Company and its external auditorsand is available on our website ( www.nxp.com/investor ). The policy includes rules for the pre-approval by the audit committee of all services to be providedby the external auditor. The policy also describes the prohibited services that may not be provided. Proposed services may be pre-approved at the beginningof the year by the audit committee (annual pre-approval) or may be pre-approved during the year by the audit committee in respect of a particularengagement (specific pre-approval). The annual pre-approval is based on a detailed, itemized list of services to be provided, designed to ensure that there isno management discretion in determining whether a service has been approved and to ensure the audit committee is informed of each service it ispre-approving. Unless pre-approval with respect to a specific service has been given at the beginning of the year, each proposed service requires specificpre-approval during the year. Any annually pre-approved services where the fee for the engagement is expected to exceed pre-approved cost levels orbudgeted amounts will also require specific pre-approval. The term of any annual pre-approval is 12 months from the date of the pre-approval unless the auditcommittee states otherwise. During 2017, there were no services provided to the Company by the external auditors which were not pre-approved by the auditcommittee.The external auditor attends, in principle, all meetings of the audit committee. The findings of the external auditor, the audit approach and the riskanalysis are also discussed at these meetings. The external auditor attends the meeting of the board of directors at which the report of the external auditor withrespect to the audit of the annual accounts is discussed, and at which the annual accounts are approved. In its audit report on the annual accounts to the boardof directors, the external auditor refers to the financial reporting risks and issues that were identified during the audit, internal control matters, and any othermatters, as appropriate, requiring communication under the auditing standards generally accepted in the Netherlands and the United States.Our Consolidated Financial Statements included in this Annual Report have been audited by KPMG Accountants N.V., an independent registeredpublic accounting firm. These financial statements have been approved by the board of directors.The following table shows the fees billed by KPMG for audit and other services provided for fiscal years 2017 and 2016. All figures are net of ValueAdded Tax and other similar taxes assessed on the amount billed by KPMG. All of the services reflected in the following fee table were approved inconformity with the Audit Committee’s pre-approval process. ($ in millions) 2017 2016 Audit Services 4.7 3.8 Audit-Related Services 0.2 — Tax Services — — All Other Services — 0.1 Total 4.9 3.9 66Table of ContentsAudit Services.This category includes KPMG’s audit of our annual financial statements and internal control over financial reporting, review of financial statementsincluded in our quarterly reports, and services that are typically provided by the independent registered public accounting firm in connection with statutoryand regulatory filings or engagements for those fiscal years. This category also includes statutory audits; consultation and advice on new accountingpronouncements, and technical advice on various accounting matters related to the consolidated financial statements or statutory financial statements that weare required to file; comfort letters; and consents issued in connection with SEC filings or private placement documents.Audit-Related Services.This category consists of assurance and related services provided by KPMG that are reasonably related to the performance of the audit or review of ourfinancial statements, and are not included in the fees reported in the table above under “Audit Services”. The services for the fees disclosed under thiscategory primarily include services related to local statutes or regulations.Tax Services.This category consists of tax services provided with respect to tax consulting, tax compliance, tax audit assistance, tax planning, expatriate taxservices, and transfer pricing. of which there were none in 2017 and 2016.All Other Services.This category consists of services provided by KPMG that are not included in the category descriptions defined above under “Audit Services”, “Audit-Related Services”, or “Tax Services”.Item 16D. Exemptions from the Listing Standards for Audit CommitteesNot applicable.Item 16E. Purchases of Equity Securities by the Issuer and Affiliated PurchasersThe following table provides a summary of shares repurchased by the Company in 2017: Period begin Period end Period Total Numberof SharesPurchased Average PricePaid per Share Total Number ofShares Purchasedas Part of PubliclyAnnounced Plans orPrograms MaximumNumber of Sharesthat May Yet BePurchased Underthe Plans orPrograms January 1 February 5 January 238,551 98.40 238,551 2,935,384 February 6 March 5 February 16,463 99.46 16,463 2,918,921 March 6 April 2 March 5,403 103.83 5,403 2,913,518 April 3 May 7 April 79,146 103.76 79,146 2,834,372 May 8 June 4 May 11,345 106.78 11,345 2,823,027 June 5 July 2 June 5,861 108.40 5,861 2,817,166 July 3 August 6 July 18,286 109.73 18,286 2,798,880 August 7 September 3 August 86 112.42 86 2,798,794 September 4 October 1 September 1,125 112.44 1,125 2,797,669 October 2 November 5 October 619,877 116.51 619,877 2,177,792 November 6 December 3 November 1,435,151 115.27 1,435,151 742,641 December 4 December 31 December 91,295 114.33 91,295 651,346 Total 2017 2,522,589 113.36 2,522,589 From time to time, last in June 2017, the General Meeting of Shareholders authorized the Board of Directors to repurchase shares of our common stock.On that basis, the Board of Directors resolved to repurchase shares to cover in part employee stock options and equity rights under its long term incentiveplans. The purchases identified in the table were all pursuant to this authorization.Item 16F. Change in Registrant’s Certifying AccountantNot applicable.Item 16G. Corporate GovernanceThe Dutch Corporate Governance CodeSince our initial public offering in August 2010, we have been required to comply with the Dutch corporate governance code. The current Dutchcorporate governance code is dated December 8, 2016 replacing the former 2008 code and applies to all Dutch companies listed on a government-recognizedstock exchange, whether in the Netherlands or elsewhere. The code is based on a “comply or explain” principle. Accordingly, companies are required todisclose in their Annual Reports filed in the Netherlands whether or not they are complying with the various rules of the Dutch corporate governance codethat are addressed to the board of directors or, if any, the 67Table of Contentssupervisory board of the company and, if they do not apply those provisions, to give the reasons for such non-application. The code contains principles andbest practice provisions for managing boards, supervisory boards, stockholders and general meetings of stockholders, financial reporting, auditors, disclosure,compliance and enforcement standards.The Dutch corporate governance code provides that if a company indicates to what extent it applies the best practice provisions, such company will bedeemed to have applied the Dutch corporate governance code.The following discussion summarizes the primary differences between our corporate governance structure and best practice provisions of the Dutchcorporate governance code: • Best practice provision 3.1.2 states that stock options granted to members of our board shall, in any event, not be exercised in the first three years afterthe date of granting and shares granted to board members without financial consideration shall be retained for a period of at least five years or until atleast the end of the employment, if this period is shorter. Under our equity incentive schemes, part of the stock options granted to our chief executiveofficer are exercisable one year after the date of grant, and members of our board who received restrictive shares and performance shares are not requiredto retain these shares for at least five years. Although a deviation from the Corporate Governance Code, we hold the view that the combination ofequity incentives granted to our chief executive officer, in relation to his obligation—laid down in the NXP Executive Equity Ownership Policy ofOctober 2013—to maintain at least 20% of the after tax number of NXP shares delivered upon the vesting of any performance stock units granted as ofOctober 2013, as well as the applicable strict vesting and performance criteria, will enhance the goal of promoting long-term investments in theCompany. The same is true for the equity grants made to other members of our board, which also have very strict vesting criteria with the purpose ofcreating long-term commitment to the Company. • Pursuant to best practice provision 4.3.3, a general meeting of stockholders is empowered to cancel binding nominations of candidates for the board,and to dismiss members of the board by a simple majority of votes of those in attendance, although the company may require a quorum of at least onethird of the voting rights outstanding. If such quorum is not represented, but a majority of those in attendance vote in favor of the proposal, a secondmeeting may be convened and its vote will be binding, even without a one-third quorum. Our articles of association currently state that the generalmeeting of stockholders may at all times overrule a binding nomination by a resolution adopted by at least a two-thirds majority of the votes cast, ifsuch majority represents more than half of the issued share capital. Although a deviation from provision 4.3.3 of the Dutch Corporate GovernanceCode, we hold the view that these provisions will enhance the continuity of the Company’s management and policies.Effective January 1, 2012, Dutch law does not allow directors to vote on a matter with regard to which they have an interest.The Nasdaq Global Select Market Corporate Governance RulesWe are a foreign private issuer. As a result, in accordance with the listing requirements of the Nasdaq Global Select Market, we rely on home countrygovernance requirements and are exempt from certain corporate governance requirements that would otherwise apply in accordance with the listingrequirements of the Nasdaq Global Select Market. These exemptions and home country rules relied on by us are described below: • We are exempt from Nasdaq’s quorum requirements applicable to meetings of stockholders. Pursuant to Dutch corporate law, the validity of aresolution by the general meeting of stockholders does not depend on the proportion of the capital or stockholders represented at the meeting (i.e.quorum), unless the law or articles of association of a company provide otherwise. Our articles of association provide that a resolution proposed to thegeneral meeting of stockholders by the board of directors shall be adopted by a simple majority of votes cast, unless another majority of votes orquorum is required under Dutch law or our articles of association. All other resolutions shall be adopted by a two thirds majority of the votes cast,provided such majority represents at least half of the issued share capital, unless another majority of votes or quorum is required under Dutch law. Tothis extent, our practice varies from the requirement of Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a quorum, and thatsuch quorum may not be less than one-third of the outstanding voting stock. • We are exempt from Nasdaq’s requirements regarding the solicitation of proxies and provision of proxy statements for meetings of stockholders. Weinform stockholders of meetings in a public notice. We prepare a proxy statement and solicit proxies from the holders of our listed stock. Our practicein this regard, however, differs from the typical practice of U.S. corporate issuers in that the advance record date for determining the holders of recordentitled to attend and vote at our stockholder meetings is determined by Dutch law (currently 28 days prior to the meeting). As an administrativenecessity, we establish a mailing record date in advance of each meeting of stockholders for purposes of determining the stockholders to which theproxy statement and form of proxy will be sent. However, only stockholders of record on the specified record date are entitled to attend and vote,directly or by proxy, at the meeting. • Nasdaq requires stockholder approval prior to the issuance of securities when a stock option or purchase plan is to be established or materiallyamended or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors,employees or consultants. Under Dutch law and the Dutch corporate governance code, stockholder approval is only required for equity compensationplans (or changes thereto) for members of the board, and not for equity compensation plans for other groups of employees. However, we note that underDutch law, the stockholders have the power to issue shares or rights to subscribe for shares at the general meeting of the stockholders unless such powerhas been delegated to the board. On June 1, 2017, our general meeting of stockholders has empowered our board of directors to issue additional sharesand grant rights to subscribe for shares of common stock, up to 10% of the issued share capital which authorization can be used for general purposesand an additional 10% if the shares of common stock are issued or rights are granted in connection with an acquisition, merger or (strategic) alliance,and to restrict or exclude pre-emptive rights pertaining to (the right to subscribe for) shares for a period of 18 months from June 1, 2017 untilDecember 1, 2018. 68Table of Contents • As a foreign private issuer, we are exempt from Nasdaq’s requirement that compensation committees be comprised exclusively of independent directorsprovided that we describe the home country practice followed in lieu of such requirement and disclose the reasons for not having such an independentcompensation committee. Under Dutch law and the Dutch corporate governance code, the general meeting of stockholders must adopt a policy inrespect of the remuneration of the board. In accordance with our articles of association and our board rules, the remuneration of the executive directorsis determined by the board of directors upon the recommendation of our nominating and compensation committee. Accordingly, applicable laws,regulations and corporate governance rules and practices do not require independence of the members of our nominating and compensation committee.Currently, all three members of our nominating and compensation committee are independent directors under the Dutch corporate governance rulesand under the Nasdaq and SEC compensation committee structure and membership requirements. • We are exempt from Nasdaq’s requirement to have independent director oversight of director nominations. In accordance with Dutch law, our articles ofassociation require that our directors will be appointed by the general meeting of stockholders upon the binding nomination of the board. Inaccordance with our board rules, the nominating and compensation committee will recommend the nomination of directors to our board. • Nasdaq requires us to adopt a nominations committee charter or a board resolution addressing the nominations process. In accordance with the Dutchcorporate governance code, we have adopted the committee’s charter. However, the nominations process has been set out in our articles of associationand board rules.Moreover, we will not distribute Annual Reports to all of our stockholders in accordance with Nasdaq rules. Dutch law requires that the externalauditors be appointed at the general meeting of stockholders and not by the audit committee. Our audit committee, which consists of members of our board ofdirectors, shall only make a recommendation to the stockholders through the board of directors for the appointment and compensation of the independentregistered public accounting firm and shall oversee and evaluate the work of our independent registered public accounting firm.Item 16H. Mine Safety DisclosuresNot applicable.PART IIIItem 17. Financial StatementsNot applicable.Item 18. Financial StatementsSee pages F-1 to F-44 69Table of ContentsItem 19. Exhibits ExhibitNumber Description of Document 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 NXPSemiconductors 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 RegistrationStatement on Form F-1 of NXP Semiconductors N.V., filed on August 2, 2010 (File No. 333-166128)) 4.1 Senior Unsecured Indenture dated as of March 12, 2013 among NXP B.V. and NXP Funding LLC as Issuers, each of the Guarantors named onthe signature pages thereto and Deutsche Bank Trust Company Americas as Trustee (incorporated by reference to Exhibit 4.7 of the Form 20-Fof NXP Semiconductors N.V. filed on February 28, 2014) 4.2 Senior Unsecured Indenture dated as of May 20, 2013 among NXP B.V. and NXP Funding LLC as Issuers, each of the Guarantors named onthe signature pages thereto and Deutsche Bank Trust Company Americas as Trustee (incorporated by reference to Exhibit 4.8 of the Form 20-Fof NXP Semiconductors N.V. filed on February 28, 2014) 4.3 Indenture dated as of December 1, 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) 4.4 Senior Unsecured Indenture dated June 9, 2015 among NXP B.V. and NXP Funding LLC as Issuers, each of the Guarantors named on thesignature pages thereto and Deutsche Bank Trust Company Americas as Trustee (incorporated by reference to Exhibit 4.10 of the Form 20-F ofNXP Semiconductors N.V. filed on February 26, 2016) 4.5 RCF Agreement dated as of December 7, 2015 among NXP B.V. and NXP Funding LLC as Borrowers, the several lenders from time to timeparties 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 PartnersLLC, Citigroup Markets Limited and Coöperative Centrale Raiffeisen-Boerenleenbank B.A. as Co-Managers (incorporated by reference toExhibit 4 of the Form 6-K of NXP Semiconductors N.V. filed on December 7, 2015) 4.6 RCF Guaranty Agreement dated as of December 7, 2015 among NXP B.V., NXP Funding LLC and each of the subsidiary guarantors listed onthe signature pages thereto, Morgan Stanley Senior Funding, Inc. as Collateral Agent and Morgan Stanley Senior Funding, Inc. asAdministrative Agent (incorporated by reference to Exhibit 5 of the Form 6-K of NXP Semiconductors N.V. filed on December 7, 2015) 4.7 Supplemental Guaranty dated as of December 7, 2015 to the guarantee dated as of March 4, 2011 among NXP B.V., each of the Guarantorslisted on the signature pages thereto, Barclays Bank PLC as Administrative Agent, Morgan Stanley Senior Funding, Inc. as Global CollateralAgent and Mizuho Corporate Ban, Ltd. as Taiwan Collateral Agent (incorporated by reference to Exhibit 10.4 of the Form 8-K of FreescaleSemiconductor, Ltd. filed on December 7, 2015) 4.8 Senior Indenture dated as of May 23, 2016, between NXP B.V. and NXP Funding LLC as Issuers, each of the guarantors party thereto andDeutsche Bank Trust Company Americas as Trustee (incorporated by reference to Exhibit 2 of the Form 6-K of NXP Semiconductors N.V. filedon August 2, 2016) 4.9 Senior Indenture dated as of August 11, 2016, among NXP B.V. and NXP Funding LLC as Issuers, each of the guarantors party thereto andDeutsche Bank Trust Company Americas as Trustee (incorporated by reference to Exhibit 4.21 of the Form 20-F of NXP Semiconductors N.V.filed on March 3, 2017)4.10 2016 New Term Loan Joinder Agreement dated as of September 22, 2016, by and among the Tranche F Lenders defined therein, NXP B.V. andNXP Funding LLC as Borrowers and Credit Suisse AG as Administrative Agent (incorporated by reference to Exhibit 4.22 of the Form 20-F ofNXP Semiconductors N.V. filed on March 3, 2017)10.1 Intellectual Property Transfer and License Agreement dated as of September 28, 2006 between Koninklijke Philips Electronics N.V. and NXPB.V. (incorporated by reference to Exhibit 10.1 of the Amendment No. 3 to the Registration Statement on Form F-1 of NXP SemiconductorsN.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 VLC.V. (incorporated by reference to Exhibit 10.2 of the Amendment No. 3 to the Registration Statement on Form F-1 of NXP SemiconductorsN.V. filed on June 30, 2010 (File No. 333-166128)) 70Table of ContentsExhibitNumber Description of Document10.3 Shareholders’ agreement dated as of March 30, 1999, as amended among EBD Investments Pte. Ltd., Koninklijke Philips Electronics N.V. andTaiwan Semiconductor Manufacturing Company Ltd. (incorporated by reference to Exhibit 10.4 of the Amendment No. 3 to the RegistrationStatement 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 RegistrationStatement on Form F-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128))10.5 Building Lease Contract dated as of May 12th, 2000 between the Export Processing Zone Administration (Ministry of Economic Affairs) andNXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.10 of the Amendment No. 2 to the Registration Statement on FormF-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128))10.6 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 10.8 of the Form 20-F of NXPSemiconductors N.V. filed on February 28, 2014)10.7 Agreement with regard to the Lease of Additional Land dated as of July 1, 2008 between the Export Processing Zone Administration (Ministryof Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.14 of the Amendment No. 2 to theRegistration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128))10.8 Agreement with regard to the Lease of a Dangerous Goods Warehouse dated as of November 27, 2009 between the Export Processing ZoneAdministration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.15 of theAmendment 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 Land at Property Number AL012 dated as of July 1, 2008 between the Export Processing ZoneAdministration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.18 of theAmendment 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 AL020 dated as of July 1, 2008 between the Export Processing ZoneAdministration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.19 of theAmendment 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 ZoneAdministration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.19 of theAmendment 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 CL102 dated as of July 1, 2008 between the Export Processing ZoneAdministration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.21 of theAmendment 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 dated as of September 30, 2008 between the Export Processing Zone Administration (Ministry ofEconomic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.22 of the Amendment No. 2 to theRegistration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128))10.14 Agreement with regard to the Lease of Land at Property Number CL102 dated as of July 1, 2008 between the Export Processing ZoneAdministration (Ministry of Economic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.21 of theAmendment No. 2 to the Registration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128)) 71Table of ContentsExhibitNumber Description of Document10.15 Agreement with regard to the Lease of Land dated as of September 30, 2008 between the Export Processing Zone Administration (Ministry ofEconomic Affairs) and NXP Semiconductors Taiwan Ltd. (incorporated by reference to Exhibit 10.22 of the Amendment No. 2 to theRegistration Statement on Form F-1 of NXP Semiconductors N.V. filed on June 10, 2010 (File No. 333-166128))10.16 Management Equity Stock Option Plan Terms and Conditions dated August 2010 (incorporated by reference to Exhibit 10.19 of the Form 20-Fof NXP Semiconductors N.V. filed on March 13, 2012)10.17 Management Equity Stock Option Plan Terms and Conditions dated January 2011 (incorporated by reference to Exhibit 10.20 of the Form 20-Fof NXP Semiconductors N.V. filed on March 13, 2012)10.18 Long Term Incentive Plan 2010 Terms and Conditions with regard to the Stock Option Plan, the Performance Stock Unit Plan, Restricted StockUnit Plan and Share Plan (incorporated by reference to Exhibit 10.21 of the Form 20-F of NXP Semiconductors N.V. filed on March 13, 2012)10.19 NXP Global Equity Incentive Program (incorporated by reference to Exhibit 10.26 of the Amendment No. 3 to the Registration Statement onForm F-1 of NXP Semiconductors N.V. filed on June 30, 2010 (File No. 333-166128))10.20 Long Term Incentive Plan 2011 Terms and Conditions with regard to the Stock Option Plan, the Performance Stock Unit Plan, Restricted StockUnit Plan and Share Plan (incorporated by reference to Exhibit 4.8 of the Form 20-F of NXP Semiconductors N.V. filed on March 13, 2012)10.21 Long Term Incentive Plan 2012/3 Terms and Conditions with regard to the Stock Option Plan, the Performance Stock Unit Plan, RestrictedStock Unit Plan and Share Plan (incorporated by reference to Exhibit 10.23 of the Form 20-F 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 andRestricted Stock Unit Plan (incorporated by reference to Exhibit 10.22 of the Form 20-F 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, theRestricted Stock Unit Plan and the Keep Restricted Stock Unit Plan (incorporated by reference to Exhibit 10.22 of the Form 20-F of NXPSemiconductors N.V. filed on March 6, 2015). 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 NXPSemiconductors N.V. filed on February 26, 2016). Long Term Incentive Plan 2016/17 Terms and Conditions with regard to the Restricted StockUnit Plan (incorporated by reference to Exhibit 10.22 of the Form 20-F of NXP Semiconductors N.V. filed on March 3, 2017). Long TermIncentive Plan 2017/18 Terms and Conditions with regard to the Restricted Stock Unit Plan10.22 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)10.23 Agreement and Plan of Merger, dated as of March 1, 2015, by and among NXP Semiconductors N.V., Freescale Semiconductor, Ltd. and NimbleAcquisition Limited (incorporated by reference to Exhibit 1 of the Form 6-K of NXP Semiconductors N.V. filed on March 3, 2015)10.24 Shareholders’ agreement dated as of December 7, 2015 among NXP Semiconductors N.V., P4 Sub L.P. 1, Permira IV L.P. 2, Permira InvestmentsLimited and P4 Co-Investment L.P. (incorporated by reference to Exhibit 10.25 of the Form 20-F of NXP Semiconductors N.V. filed onFebruary 26, 2016)10.25 Shareholders’ agreement dated as of December 7, 2015 among NXP Semiconductors N.V., Carlyle Partners IV Cayman, L.P., CPIVCoinvestment Cayman, L.P., Carlyle Asia Partners II, L.P., CAP II Co-Investment, L.P., CEP II Participations S.a.r.l. SICAR, Carlyle JapanPartners, 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 onFebruary 26, 2016)10.26 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 TransactionParticipation Partners (Cayman) L.P., Blackstone Firestone Principal Transaction Partners (Cayman) L.P., Blackstone Family InvestmentPartnership (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)10.27 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) 72Table of ContentsExhibitNumber Description of Document10.28 Amendment, dated as of June 13, 2016, to the Shareholders Agreement dated as of December 7, 2015 among the Company and BlackstoneCapital 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 BlackstoneParticipation Partnership (Cayman) V L.P. (incorporated by reference to Exhibit 1 of the Form 6-K of NXP Semiconductors N.V. filed onJune 14, 2016)10.29 Amendment, dated as of June 13, 2016, to the Shareholders Agreement dated as of December 7, 2015 among the Company and Carlyle PartnersIV 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 NXPSemiconductors 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 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 NXPSemiconductors 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 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 ofNXP Semiconductors N.V. filed on June 14, 2016)10.32 Sale and Purchase Agreement, dated June 14, 2016, between NXP B.V., Beijing Jianguang Asset Management Co., Ltd. and Wise Road CapitalLTD (incorporated by reference to Exhibit 10.33 of the Form 20-F of NXP Semiconductors N.V. filed on March 3, 2017)10.33 Purchase Agreement, dated October 27, 2016, by and between Qualcomm River Holdings B.V. and NXP Semiconductors N.V. (incorporated byreference to Exhibit 2 of the Form 6-K of NXP Semiconductors N.V. filed on October 27, 2016)10.34 Amendment No. 1, dated February 20, 2018, to Purchase Agreement, dated October 27, 2016, by and between Qualcomm River Holdings B.V.and NXP Semiconductors N.V. (incorporated by reference to Exhibit 1 of the Form 6-K of NXP Semiconductors N.V. filed on February 20, 2018)12.1 Certification of R.L. Clemmer filed pursuant to 17 CFR 240. 13a-14(a)12.2 Certification of P. Kelly filed pursuant to 17 CFR 240. 13a-14(a)13.1 Certification of R.L. Clemmer furnished pursuant to 17 CFR 240. 13a-14(b)13.2 Certification of P. Kelly furnished pursuant to 17 CFR 240. 13a-14(b)21.1 List of Significant Subsidiaries of the Registrant23 Consent of KPMG Accountants N.V. 73Table of ContentsGLOSSARY 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/oramplitude 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 takesplace 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 CMOScircuitry with higher voltage or higher speed bipolar circuitry.Bipolar A process technology used to create semiconductors for applications involving the use of higher powerlevels than are possible with a CMOS chip. Due to the geometry of a bipolar circuit, these devices aresignificantly larger than CMOS devices. The speed of the most advanced bipolar devices exceeds thoseattainable with CMOS, but only at very large electrical currents. As a result, the number of bipolardevices 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. BLEhas been included in the majority of smart phones for the past couple of years, with its initial applicationas 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. Anautomobile immobilizer is an electronic device fitted to an automobile which prevents the engine fromrunning unless the correct key (or other token) is present.Chip Semiconductor device.CMOS Complementary Metal Oxide Semiconductor. The most common integrated circuit fabricationtechnology in the semiconductor industry. The technology is used to make integrated circuits wheresmall size and high speed are important. As a result of the very small feature sizes that can be attainedthrough CMOS technology, however, the ability of these integrated circuits to cope with high electricalcurrents 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 aresingle devices, usually with two terminals (diodes) or three terminals (transistors). These are eitherapplied as peripheral components on printed circuit boards, or used for special purposes such as veryhigh power applications.DMOS Diffused Metal on Silicon Oxide Semiconductor. A process technology used to manufacture integratedcircuits that can operate at high voltage.DSP Digital signal processor. A specialized microprocessor optimized to process sequences of numbers orsymbols which represent signals.EMI filtering Electromagnetic interference (or EMI, also called radio frequency interference or RFI when in highfrequency or radio frequency) is disturbance that affects an electrical circuit due to either electromagneticinduction or electromagnetic radiation emitted from an external source. 74Table of ContentseNVM Embedded non-volatile memory (eNVM) offers broad areas of applications for MCU(microcontroller) in Automotive, Mobility, and Security markets with key advantages such as denseboard designs with reduced number of parts, reduced system costs, reduced noise, higher system speeddue to fast code access, in-system on-board re-programmability of code and data storage, lower powerdissipation, 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 objectscaused by direct contact or induced by an electrostatic field. This term is used in the context ofelectronics 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 insteadfocuses on designing and marketing its products, while outsourcing manufacturing to an independentfoundry.FlexRay A new communications protocol designed for the high data transmission rates required by advancedautomotive 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 areimprinted 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 uncompresseddigital dataHDTMOS High cell density TMOS (HDTMOS) is an advancement in power MOSFET technology that reducespower dissipation. This results in lower thermal generation and a reduction in the component’s total partcount.HPRF power amplifier High power RF (HPRF) system mainly consists of RF power amplifiers and waveguide distributionsystem. RF power amplifiers produce RF energy and waveguides transmit this RF energy to theaccelerator modules.HSPA+ Evolved High-Speed Packet Access, or HSPA+, is a technical standard for wireless, broadbandtelecommunication 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 amotherboard, embedded system or mobile phone.IC Integrated Circuit. A miniaturized electronic circuit that has been manufactured in the surface of a thinsubstrate of semiconductor material.ICN 6,8 NXP wafer fab facilities located in Nijmegen, Netherlands, processing 6” or 8” diameter wafers. As of endDecember 2014, only ICN 8 is still in use.i.MX i.MX applications processors are multicore ARM-based solutions for multimedia and displayapplications 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 aspurchases.IoT The Internet of Things (IoT) is the network of physical objects—devices, vehicles, buildings and otheritems which are embedded with electronics, software, sensors and network connectivity, which enablesthese objects to collect and exchange data. The Internet of Things allows objects to be sensed andcontrolled remotely across existing network infrastructure, creating opportunities for more directintegration 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 leadingsbanks 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. 75Table of ContentsLTE Long Term Evolution (LTE) is a 4G wireless broadband technology standard for wireless communicationof high-speed data for mobile phones and data terminals, increasing the capacity and speed using adifferent radio interface together with core network improvements.Memory Any device that can store data in machine readable format. Usually used synonymously with randomaccess memory and read only memory.Microcontroller A microprocessor combined with memory and interface integrated on a single circuit and intended tooperate as an embedded system.Micron A metric unit of linear measure which equals one millionth of a meter. A human hair is about 100 micronsin 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 thattranslate real world analog signals and phenomena such as radio frequency communication and powersignals, sound, light, temperature, pressure, acceleration, humidity and chemical characteristics intodigital or power signals that can be fed into the central microprocessing or storage devices at the heart ofan application system solution.MOS Metal Oxide Semiconductor. A metal insulator semiconductor structure in which the insulating layer isan oxide of the substrate material.MOSFET Metal Oxide Semiconductor Field Effect Transistor. A device used for amplifying or switching electronicsignals.Nanometer A metric unit of linear measure which equals one billionth of a meter. There are 1,000 nanometers in 1micron.NFC Near field communication. A technology which allows devices to establish a secure point-to-pointwireless connection at very close ranges (within several centimeters), and which is being increasinglyadopted in mobile devices and point-of-sale terminals or other devices.ODM Original Design Manufacturer. A company which manufactures a product which ultimately will bebranded by another firm for sale.OEM Original Equipment Manufacturer. A manufacturer that designs and manufactures its products for the endconsumer 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 waferscontaining hundreds or thousands of chips.QorIQ QorIQ processing platforms are complete system on chip (SoC) processors for networking applicationsacross 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 toalternating current having characteristics such that, if the current is input to an antenna, anelectromagnetic (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 electricalsignals. 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 semiconductorindustry as a base material.SoC A system on a chip or system on chip (SoC) is an integrated circuit (IC) that integrates all components ofa computer or other electronic system into a single chip. It may contain digital, analog, mixed-signal, andoften 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 electricalfilaments, plasma or gas. 76Table of ContentsSPI Serial Peripheral Interface Bus. A synchronous serial data link standard that operates in full duplex mode.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. Itis 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 forthe 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 overa computer or peripheral device serial port.USB Universal Serial Bus. A standard that provides a serial bus standard for connecting devices, usually to acomputer.Wafer A disk made of a semiconducting material, such as silicon, usually either 100, 125, 150, 200 or 300millimeters in diameter, used to form the substrate of a chip. A finished wafer may contain severalthousand chips.White goods A term which refers to large household appliances such as refrigerators, stoves, dishwashers and othersimilar 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 isdesigned for multi-channel control systems, alarm systems, and lighting control. It also has other varioushome and industry applications. 77Table of ContentsSIGNATURESThe 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 tosign this Annual Report on its behalf. NXP Semiconductors N.V.(Registrant)/s/ RICHARD L. CLEMMER /s/ PETER KELLYRichard L. Clemmer Peter KellyChief Executive Officer(Principal Executive Officer) Chief Financial Officer(Principal Financial and Accounting Officer)Date: April 11, 2018 78Table of ContentsINDEX TO CONSOLIDATED FINANCIAL STATEMENTSThe following financial statements and related schedules, together with the report of independent registered public accounting firms thereon, are filedas 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, 2017, 2016 and 2015 F-3 Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015 F-4 Consolidated Balance Sheets as of December 31, 2017 and 2016 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 F-6 Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015 F-8 Notes to the Consolidated Financial Statements F-9 F-1Table of ContentsReport of Independent Registered Public Accounting FirmThe Board of Directors and StockholdersNXP Semiconductors N.V.:Opinions on the Consolidated Financial Statements and Internal Control Over Financial ReportingWe have audited the accompanying consolidated balance sheets of NXP Semiconductors N.V. and subsidiaries (the Company) as of December 31, 2017 and2016, the related consolidated statements of operations, comprehensive income, cash flows, and changes in equity for each of the years in the three-yearperiod ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internalcontrol over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, inconformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internalcontrol over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission.Basis for OpinionsThe Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting,and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on InternalControl over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on theCompany’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company AccountingOversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities lawsand the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internalcontrol over financial reporting was maintained in all material respects.Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financialstatements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles usedand significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internalcontrol over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely 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 ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.We have served as the Company’s auditor since 2009. /s/ KPMG Accountants N.V.Amstelveen, the NetherlandsApril 11, 2018 F-2Table of ContentsNXP Semiconductors N.V.Consolidated Statements of Operations ($ in millions, unless otherwise stated) For the years ended December 31, 2017 2016 2015 Revenue 9,256 9,498 6,101 Cost of revenue (4,637) (5,429) (3,314) Gross profit 4,619 4,069 2,787 Research and development (1,554) (1,560) (890) Selling, general and administrative (1,090) (1,141) (922) Amortization of acquisition-related intangible assets (1,448) (1,527) (223) Other income (expense) 1,575 9 1,263 Operating income (loss) 2,102 (150) 2,015 Financial income (expense): Extinguishment of debt (41) (32) — Other financial income (expense) (325) (421) (529) Income (loss) before income taxes 1,736 (603) 1,486 Benefit (provision) for income taxes 483 851 104 Results relating to equity-accounted investees 53 11 9 Net income (loss) 2,272 259 1,599 Less: Net income (loss) attributable to non-controlling interests 57 59 73 Net income (loss) attributable to stockholders 2,215 200 1,526 Earnings per share data: Net income (loss) per common share attributable to stockholders in $: – Basic 6.54 0.59 6.36 – Diluted 6.41 0.58 6.10 Weighted average number of shares of common stock outstanding during the year (in thousands): – Basic 338,646 338,477 239,764 – Diluted 345,802 347,607 250,116 See accompanying notes to the Consolidated Financial Statements. F-3Table of ContentsNXP Semiconductors N.V.Consolidated Statements of Comprehensive Income ($ in millions, unless otherwise stated) For the years ended December 31, 2017 2016 2015 Net income (loss) 2,272 259 1,599 Other comprehensive income (loss), net of tax: Change in net investment hedge — — (190) Change in fair value cash flow hedges * 10 — — Change in foreign currency translation adjustment * 156 (124) 131 Change in net actuarial gain (loss) (16) (27) 31 Change in net unrealized gains (losses) available-for-sale securities * (7) 4 (1) Total other comprehensive income (loss) 143 (147) (29) Total comprehensive income (loss) 2,415 112 1,570 Less: Comprehensive income (loss) attributable to non-controlling interests 57 59 73 Total comprehensive income (loss) attributable to stockholders 2,358 53 1,497 *Reclassification adjustments included in Cost of revenue, Selling, general and administrative, Research and development and Results relating toequity-accounted investees in the Consolidated Statements of Operations.See accompanying notes to the Consolidated Financial Statements. F-4Table of ContentsNXP Semiconductors N.V.Consolidated Balance Sheets ($ in millions, unless otherwise stated) As of December 31, 2017 2016 Assets Current assets: Cash and cash equivalents 3,547 1,894 Accounts receivables, net 879 1,033 Assets held for sale — 1,104 Inventories, net 1,236 1,113 Other current assets 382 254 Total current assets 6,044 5,398 Non-current assets: Other non-current assets 981 962 Property, plant and equipment, net 2,295 2,352 Identified intangible assets, net 5,863 7,343 Goodwill 8,866 8,843 Total non-current assets 18,005 19,500 Total assets 24,049 24,898 Liabilities and equity Current liabilities: Accounts payable 1,146 973 Liabilities held for sale — 198 Restructuring liabilities - current 74 129 Accrued liabilities 747 712 Short-term debt 751 421 Total current liabilities 2,718 2,433 Non-current liabilities: Long-term debt 5,814 8,766 Restructuring liabilities 15 22 Deferred tax liabilities 701 1,659 Other non-current liabilities 1,085 862 Total non-current liabilities 7,615 11,309 Equity: Non-controlling interests 189 221 Stockholders’ equity: Preferred stock, par value €0.20 per share: Authorized: 645,754,500 (2016: 645,754,500 shares) Issued: none Common stock, par value €0.20 per share: Authorized: 430,503,000 shares (2016: 430,503,000 shares) Issued and fully paid: 346,002,862 shares (2016: 346,002,862 shares) 71 71 Capital in excess of par value 15,960 15,679 Treasury shares, at cost:3,078,470 shares (2016: 10,609,980 shares) (342) (915) Accumulated other comprehensive income (loss) 177 34 Accumulated deficit (2,339) (3,934) Total Stockholders’ equity 13,527 10,935 Total equity 13,716 11,156 Total liabilities and equity 24,049 24,898 See accompanying notes to the Consolidated Financial Statements. F-5Table of ContentsNXP Semiconductors N.V.Consolidated Statements of Cash Flows ($ in millions, unless otherwise stated) For the years ended December 31, 2017 2016 2015 Cash flows from operating activities: Net income (loss) 2,272 259 1,599 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 2,173 2,205 517 Share-based compensation 281 338 216 Excess tax benefits from share-based compensation plans — (5) — Change in fair value of warrant liability — — 31 Amortization of discount on debt 40 34 39 Amortization of debt issuance costs 12 16 11 Net (gain) loss on sale of assets (1,615) (11) (1,263) (Gain) loss on extinguishment of debt 41 32 — Results relating to equity-accounted investees (22) (11) (9) Changes in deferred taxes (797) (925) (168) Changes in operating assets and liabilities: (Increase) decrease in receivables and other current assets 31 (51) (78) (Increase) decrease in inventories (120) 568 82 Increase (decrease) in accounts payable and accrued liabilities 225 (156) 127 Decrease (increase) in other non-current assets (100) 5 30 Exchange differences 30 15 193 Other items (4) (10) 3 Net cash provided by (used for) operating activities 2,447 2,303 1,330 Cash flows from investing activities: Purchase of identified intangible assets (66) (59) (12) Capital expenditures on property, plant and equipment (552) (389) (341) Proceeds from disposals of property, plant and equipment 2 1 7 Purchase of interests in businesses, net of cash acquired — (202) (1,692) Proceeds from sale of interests in businesses, net of cash divested 2,682 20 1,605 Proceeds from return of equity investment — — 1 Other 6 2 2 Net cash provided by (used for) investing activities 2,072 (627) (430) Cash flows from financing activities: Net (repayments) borrowings of short-term debt — (6) (2) Amounts drawn under the revolving credit facility — 200 — Repayments under the revolving credit facility — (200) — Repurchase of long-term debt (2,728) (3,295) (3,586) Principal payments on long-term debt (16) (38) (32) Proceeds from the issuance of long-term debt — 3,259 3,680 Cash paid for debt issuance costs — (26) (32) Dividends paid to non-controlling interests (89) (126) (51) Cash proceeds from exercise of stock options 233 115 51 Purchase of treasury shares and restricted stock unit withholdings (286) (1,280) (475) Hold-back payments on prior acquisitions — — (2) Excess tax benefits from share-based compensation plans — 5 — Net cash provided by (used for) financing activities (2,886) (1,392) (449) Effect of changes in exchange rates on cash positions 20 (4) (22) Increase (decrease) in cash and cash equivalents 1,653 280 429 Cash and cash equivalents at beginning of period 1,894 1,614 1,185 Cash and cash equivalents at end of period 3,547 1,894 1,614 See accompanying notes to the Consolidated Financial Statements.F-6Table of ContentsNXP Semiconductors N.V.Consolidated Statements of Cash Flows (Continued) ($ in millions, unless otherwise stated) For the years ended December 31, 2017 2016 2015 Supplemental disclosures to the consolidated cash flows Net cash paid during the period for: Interest 245 348 172 Income taxes 356 67 40 Net gain (loss) on sale of assets: Cash proceeds from the sale of assets 2,688 21 1,612 Book value of these assets (1,073) (10) (349) 1,615 11 1,263 Non-cash investing and financing information: Assets received in lieu of cash from the sale of businesses: Issuance of common stock for business combinations — — 9,686 Exchange of Term Loan B for Term Loan F — 1,422 — See accompanying notes to the Consolidated Financial Statements. F-7Table of ContentsNXP Semiconductors N.V.Consolidated Statements of Changes in EquityFor the years ended December 31, 2017, 2016 and 2015 ($ in millions, unless otherwise stated) Outstandingnumber ofshares (inthousands) Commonstock Capital inexcess ofpar value Treasurysharesat cost Accumulatedothercomprehensiveincome (loss) Accumulateddeficit Totalstockholders’equity Non-controllinginterests Totalequity 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 and restricted stock unit withholdings (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 compensationplans 21 21 21 Treasury shares and restricted stock unit withholdings (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 Net income (loss) 2,215 2,215 57 2,272 Other comprehensive income 143 143 143 Share-based compensation plans 281 281 281 Treasury shares and restricted stock unit withholdings (2,522) (286) (286) (286) Shares issued pursuant to stock awards 10,054 859 (626) 233 233 Dividends non-controlling interests (89) (89) Cumulative effect adjustments 6 6 6 Balance as of December 31, 2017 342,924 71 15,960 (342) 177 (2,339) 13,527 189 13,716 See accompanying notes to the Consolidated Financial Statements. F-8Table of ContentsNXP Semiconductors N.V.Notes to the Consolidated Financial StatementsAll amounts in millions of $ unless otherwise stated1 The CompanyNXP 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, up to February 6, 2017, Standard Product solutions that leverage our deep application insight andour technology and manufacturing expertise in radio frequency, analog, power management, interface, security and digital processing products. Our productsolutions 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 June 14, 2016, NXP announced an agreement to divest its Standard Products (“SP”) business to a consortium of financial investors consistingof Beijing JianGuang Asset Management Co., Ltd (“JAC Capital”) and Wise Road Capital LTD (“Wise Road Capital”). On February 6, 2017, we divested SP,receiving $2.6 billion in cash proceeds, net of cash divested.On February 20, 2018, NXP entered into an amendment (the “Purchase Agreement Amendment”) to that certain Purchase Agreement, dated as ofOctober 27, 2016 (as amended, the “Purchase Agreement”), with Qualcomm River Holdings B.V. (“Buyer”), a wholly-owned, indirect subsidiary ofQUALCOMM Incorporated (“Qualcomm”). Pursuant to the Purchase Agreement Amendment, Buyer agreed to revise the terms of its tender offer to acquire allof the issued and outstanding common shares of NXP increasing the offer price from $110 per share to $127.50 per share, less any applicable withholdingtaxes and without interest to the holders thereof, payable in cash, for estimated total cash consideration of $44 billion. The tender offer is not subject to anyfinancing condition. In addition, Buyer and NXP agreed to reduce the minimum condition of outstanding common shares of NXP that must be validlytendered and not properly withdrawn from 80% of the outstanding common shares to 70% of the outstanding common shares as of the expiration of thetender offer (April 25, 2018). Pending the receipt of certain regulatory approvals, as well as satisfaction of other customary closing conditions, the proposedtransaction is expected to close in the first half of 2018. An Extraordinary General Meeting of NXP’s shareholders was convened on January 27, 2017, inconnection with the offer where the shareholders of NXP approved all resolutions brought before them, with 95% of the votes cast in favor of each suchresolution.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 ofrecommendation by the NXP Board, NXP will be obligated to pay to Buyer a termination compensation equal to $1.25 billion in cash. If the PurchaseAgreement is terminated under certain circumstances, including circumstances relating to the failure to obtain antitrust approvals or failure to complete in allmaterial respects certain internal reorganization steps and related dispositions with respect to NXP, Buyer will be obligated to pay to NXP a terminationcompensation equal to $2 billion in cash.During 2017, NXP incurred expenses of $59 million associated with the proposed acquisition by the Buyer. The expenses, included in the Statement ofOperations in the line item ‘Selling, General and Administrative’, consisted of legal and consulting costs, retention incentives and costs related to dedicatedresources associated with the proposed acquisition.On December 7, 2015, we acquired Freescale Semiconductor, Ltd. (“Freescale”). The results presented in the Consolidated Financial Statements andNotes to the Consolidated Financial Statements include Freescale’s results of operations for the periods of December 7, 2015 through December 31, 2015,2016 and 2017 (the “Post-Merger Period”).2 Significant Accounting PoliciesThe Consolidated Financial Statements include the accounts of the Company together with its consolidated subsidiaries, including NXP B.V. and allentities 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 ofthe entity that most significantly impact the entity’s economic performance and the obligation to absorb the losses or the right to receive benefits of theentity that could be potentially significant to the Company. Investments in companies in which the Company exercises significant influence but does notcontrol, 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 ofthe earnings of subsidiaries applicable to non-controlling interests. The income (loss) and equity attributable to non-controlling interests are disclosedseparately 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 estimatesThe preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts ofrevenue and expenses during the reporting period. Actual results could differ from those estimates. F-9Table of ContentsFair value measurementsFair 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 themeasurement date. In the absence of active markets for an identical asset or liability, we develop assumptions based on market observable data and, in theabsence of such data, utilize internal information that we consider to be consistent with what market participants would use in a hypothetical transaction thatoccurs at the measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our marketassumptions. 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 thatare not active; and valuations based on models where the inputs or significant value drivers are observable, either directly or indirectly. • Level 3: Significant inputs to the valuation model are unobservable.Foreign currenciesThe 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 thatthe functional currency of the holding company is the U.S. dollar. Prior to January 1, 2016, the functional currency of the holding company was the euro. Asof January 1, 2017, as a result of internal reorganizations, NXP changed the functional currency of the principal Netherlands subsidiary to the U.S. dollar. Forconsolidation purposes, the financial statements of the entities within the Company with a functional currency other than the U.S. dollar, are translated intoU.S. dollars. Assets and liabilities are translated using the exchange rates on the applicable balance sheet dates. Income and expense items in the statementsof 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 othercomprehensive income and presented as a separate component of accumulated other comprehensive income (loss) within stockholders’ equity. If theoperation 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 periodsspecified. $ per € 1 period end average(1) high low 2017 1.1932 1.1310 1.0474 1.1932 2016 1.0474 1.1065 1.0474 1.1423 2015 1.0915 1.1150 1.0869 1.2155 (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 orvaluation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation atyear-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of operations, except when theforeign exchange exposure is part of a qualifying cash flow or net investment hedge accounting relationship, in which case the related foreign exchangegains and losses are recognized directly in other comprehensive income to the extent that the hedge is effective and presented as a separate component ofaccumulated other comprehensive income (loss) within stockholders’ equity. To the extent that the hedge is ineffective, such differences are recognized inthe statement of operations. Currency gains and losses on intercompany loans that have the nature of a permanent investment are recognized as translationdifferences in other comprehensive income and are presented as a separate component of accumulated other comprehensive income (loss) within equity.Derivative financial instruments including hedge accountingThe Company uses derivative financial instruments in the management of its foreign currency risks and the input costs of gold for a portion of ouranticipated 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 pricingmodels, as appropriate, and records these as assets or liabilities in the balance sheet. Changes in the fair values are immediately recognized in the statement ofoperations 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 othercomprehensive income (loss), until earnings are affected by the variability in cash flows of the designated hedged item. The application of cash flow hedgeaccounting for foreign currency risks is limited to transactions that represent a substantial currency risk that could materially affect the financial position ofthe Company. F-10Table of ContentsForeign currency gains or losses arising from the translation of a financial liability designated as a hedge of a net investment in a foreign operation arerecognized directly in other comprehensive income, to the extent that the hedge is effective, and are presented as a separate component of accumulated othercomprehensive income (loss) within stockholders’ equity.To the extent that a hedge is ineffective, the ineffective portion of the fair value change is recognized in the Consolidated Statements of Operations.When the hedged net investment is disposed of, the corresponding amount in the accumulated other comprehensive income is transferred to the statement ofoperations 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 usedto assess the effectiveness of the hedging relationship. The Company makes an assessment, both at the inception of the hedge relationship as well as on anongoing basis, of whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of therespective hedged items attributable to the hedged risk.When cash flow hedge accounting is discontinued because it is not probable that a forecasted transaction will occur within a period of two monthsfrom the originally forecasted transaction date, the Company continues to carry the derivative on the Consolidated Balance Sheets at its fair value, and gainsand losses that were accumulated in other comprehensive income are recognized immediately in earnings. In situations in which hedge accounting isdiscontinued, the Company continues to carry the derivative at its fair value on the Consolidated Balance Sheets, and recognizes any changes in its fair valuein earnings.The gross notional amounts of the Company’s foreign currency derivatives by currency were as follows: 2017 2016 Euro 696 459 Chinese renminbi 132 45 Japanese yen 29 35 Malaysian ringgit 89 73 Singapore dollar 64 41 Swiss franc 34 4 Taiwan dollar 122 94 Thai baht 68 43 Other 16 5 Cash and cash equivalentsCash and cash equivalents include all cash balances and short-term highly liquid investments with a maturity of three months or less at acquisition thatare readily convertible into known amounts of cash. Cash and cash equivalents are stated at face value which approximates fair value.ReceivablesReceivables are carried at amortized cost, net of allowances for doubtful accounts and net of rebates and other contingent discounts granted todistributors. When circumstances indicate a specific customer’s ability to meet its financial obligation to us is impaired, we record an allowance againstamounts due and value the receivable at the amount reasonably expected to be collected. For all other customers, we evaluate our trade accounts receivablefor collectibility based on numerous factors including objective evidence about credit-risk concentration, collective debt risk based on average historicallosses, and specific circumstances such as serious adverse economic conditions in a specific country or region.InventoriesInventories 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 onpurchases in the recent past and/or expected future demand and market conditions. Abnormal amounts of idle facility expense and waste are not capitalizedin inventory. The allocation of fixed production overheads to the inventory cost is based on the normal capacity of the production facilities.Property, plant and equipmentProperty, 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 depreciationmethod other than the straight-line method better represents the consumption pattern. Gains and losses on the sale of property, plant and equipment areincluded 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 orthe present value of minimum lease payments. These assets and leasehold improvements are amortized using the straight-line method over the shorter of thelease term or the estimated useful life of the asset. F-11Table of ContentsGoodwillWe record goodwill when the purchase price of an acquisition exceeds the fair value of the net tangible and identified intangible assets acquired. Weassign the goodwill to our reporting units based on the relative expected fair value provided by the acquisition. We perform an annual impairment assessmentin the fourth quarter of each year, or more frequently if indicators of potential impairment exist, which includes evaluating qualitative and quantitativefactors to assess the likelihood of an impairment of a reporting unit’s goodwill. We perform impairment tests using a fair value approach when necessary. Thereporting unit’s carrying value used in an impairment test represents the assignment of various assets and liabilities, excluding certain corporate assets andliabilities, such as cash, investments and debt.Identified intangible assetsLicensed technology and patents are generally amortized on a straight-line basis over the periods of benefit. We amortize all acquisition-relatedintangible assets that are subject to amortization over their estimated useful life based on economic benefit. Acquisition-related in-process R&D assetsrepresent the fair value of incomplete R&D projects that had not reached technological feasibility as of the date of acquisition; initially, these assets are notsubject to amortization. Assets related to projects that have been completed are subject to amortization, while assets related to projects that have beenabandoned are impaired and expensed to R&D. In the quarter following the period in which identified intangible assets become fully amortized, we removethe 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 isshorter than we had originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, we assessrecoverability by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives againsttheir 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 usefullife is shorter than originally estimated, we accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life. Weperform an annual impairment assessment in the fourth quarter of each year for indefinite-lived intangible assets, or more frequently if indicators of potentialimpairment exist, to determine whether it is more likely than not that the carrying value of the assets may not be recoverable. If necessary, a quantitativeimpairment test is performed to compare the fair value of the indefinite-lived intangible asset with its carrying value. Impairments, if any, are based on theexcess of the carrying amount over the fair value of those assets.Research and developmentCosts of research and development are expensed in the period in which they are incurred, except for in-process research and development assetsacquired in business combinations, which are capitalized and, after completion, are amortized over their estimated useful lives.AdvertisingAdvertising costs are expensed when incurred.Debt issuance costsDirect 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 recognitionThe Company’s revenue is derived from sales to distributors, made-to-order sales to Original Equipment Manufacturers (“OEMs”) and similarcustomers.Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or the service has been provided, the sales price isfixed or determinable, and collection is reasonably assured, based on the terms and conditions of the sales contract. For made-to-order sales, these criteria aremet 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 thecustomer is generally not contractually required, since, for made-to-order customers, design approval occurs before manufacturing and subsequently deliveryfollows without further acceptance protocols. Payment terms used are those that are customary in the particular geographic market. When management hasestablished that all aforementioned conditions for revenue recognition have been met, revenue is recognized. F-12Table of ContentsFor sales to distributors, revenue is recognized upon sale to the distributor (sell-in accounting). The same recognition principles apply and similarterms and conditions as for sales to other customers are applied. However, for some distributors contractual arrangements are in place, which allow thesedistributors to return products if certain conditions are met. These conditions generally relate to the time period during which a return is allowed and reflectcustomary conditions in the particular geographic market. Other return conditions relate to circumstances arising at the end of a product life cycle, whencertain distributors are permitted to return products purchased during a pre-defined period after the Company has announced a product’s pendingdiscontinuance. However, long notice periods associated with these announcements prevent significant amounts of product from being returned. Repurchaseagreements 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 wherebydistributors receive certain price adjustments to meet individual competitive opportunities, or are allowed to return or scrap a limited amount of product inaccordance with contractual terms agreed upon with the distributor, or receive price protection credits when our standard published prices are lowered fromthe 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 prospectiveview of products and pricing in the distribution channel for distributors who participate in our volume rebate incentive program, in order to estimate theproper provision for this program at the end of any given reporting period. We continually monitor the actual claimed allowances against our estimates, andwe adjust our estimates as appropriate to reflect trends in pricing environments and inventory levels. Distributor reserves are also adjusted when recenthistorical 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 todistributors is actually returned. In accordance with this historical data, a pro rata portion of the sales to these distributors is not recognized but deferred untilthe 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 chargesbilled to customers in revenue and include the related shipping costs in cost of revenue.RestructuringThe provision for restructuring relates to the estimated costs of initiated restructurings that have been approved by Management. When such plansrequire discontinuance and/or closure of lines of activities, the anticipated costs of closure or discontinuance are recorded at fair value when the liability hasbeen incurred. The Company determines the fair value based on discounted projected cash flows in the absence of other observable inputs such as quotedprices. The restructuring liability includes the estimated cost of termination benefits provided to former or inactive employees after employment but beforeretirement, 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 theCompany, if that period exceeds 60 days or a longer legal notification period. However, generally, employee termination benefits are covered by a contract oran ongoing benefit arrangement and are recognized when it is probable that the employees will be entitled to the benefits and the amounts can be reasonablyestimated.Financial income and expenseFinancial income and expense is comprised of interest income on cash and cash equivalent balances, the interest expense on borrowings, the accretionof 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 onhedging instruments recognized in the statement of operations. For periods prior to January 1, 2016, the mark-to-market of our warrant liability and foreignexchange 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 ofFreescale, NXP concluded that the functional currency of the holding company is USD. Beginning from January 1, 2016, the warrants are classified instockholders’ equity, and mark-to-market accounting is no longer applicable. In addition to our U.S. dollar-denominated notes, term loans and RCFagreements 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 thestatement of operations using the effective interest method.Income taxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected taxconsequences of temporary differences between the tax basis of assets and liabilities and their reported amounts. Measurement of deferred tax assets andliabilities is based upon the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to berecovered or settled. Deferred tax liabilities for income taxes or withholding taxes on dividends from subsidiaries are recognized in situations where thecompany 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 evidenceit is more likely than not that the asset will be realized. F-13Table of ContentsThe 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 uponexamination by the relevant taxing authorities. The income tax benefit recognized is measured based on the largest benefit that is more than 50 percent likelyto be realized upon resolution of the uncertainty. The liability for unrecognized tax benefits and the related interest and penalties is recorded under accruedliabilities and other non-current liabilities in the balance sheet based on the timing of the expected payment. Penalties are recorded as income tax expense,whereas interest is reported as financial expense in the statement of operations.Postretirement benefitsThe Company’s employees participate in pension and other postretirement benefit plans in many countries. The costs of pension and otherpostretirement benefits and related assets and liabilities with respect to the Company’s employees participating in the various plans are based upon actuarialvaluations.Some of the Company’s defined-benefit pension plans are funded with plan assets that have been segregated and restricted in a trust, foundation orinsurance 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 obligationless 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 deepcorporate 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 theyear 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 employeecontributions.Actuarial gains and losses arise mainly from changes in actuarial assumptions and differences between actuarial assumptions and what has actuallyoccurred. They are recognized in the statement of operations, over the expected average remaining service periods of the employees only to the extent thattheir 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, expectedlong-term rate of return on plan assets, assumed health care trend rates and rates of increase in compensation costs determined based on current marketconditions, historical information and consultation with and input from our actuaries. Changes in the key assumptions can have a significant impact to theprojected 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 theactive 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 pensionplan, the benefit obligation is the projected benefit obligation; for any other postretirement defined benefit plan it is the accumulated postretirement benefitobligation.The Company recognizes as a component of other comprehensive income, net of taxes, the gains or losses and prior service costs that arise during theyear but are not recognized as a component of net periodic benefit cost. Amounts recognized in accumulated other comprehensive income, including thegains 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.Share-based compensationWe recognize compensation expense for all share-based awards based on the grant-date estimated fair values, net of an estimated forfeiture rate. We usethe 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 presentvalue of the estimated expected future dividends, and then multiplied by the number of RSUs granted. Share-based compensation cost for performance-basedshare 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 ourConsolidated Statements of Operations. For stock options and RSUs, the grant-date value, less estimated pre-vest forfeitures, is expensed on a straight-linebasis over the vesting period. PSUs are expensed using a graded vesting schedule. The vesting period for stock options is generally four years, for RSUs isgenerally three years and PSUs is one to three years. F-14Table of ContentsEarnings per shareBasic earnings per share attributable to stockholders is calculated by dividing net income or loss attributable to stockholders of the Company by theweighted 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, PSUsand Employee Stock Purchase Plan (“ESPP”) shares. Under the treasury stock method, the amount the employee must pay for exercising share-based awardsand the amount of compensation cost for future service that the Company has not yet recognized are assumed to be used to repurchase shares.Concentration of riskFinancial instruments, including derivative financial instruments, that may potentially subject NXP to concentrations of credit risk, consist principallyof 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 ourdistributors accounted for 15% of our revenue in 2017, 13% in 2016 and 14% in 2015 and one other distributor accounted for less than 10% of our revenuein 2017, less than 10% in 2016 and 14% in 2015. No other distributor accounted for greater than 10% of our revenue for 2017, 2016 or 2015. One OEM forwhich we had direct sales to accounted for 11% of our revenue in 2017, and less than 10% in 2016 and 2015. No other individual OEM for which we haddirect sales to accounted for more than 10% of our revenue for 2017, 2016 or 2015.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 thesetransactions 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 2019Cash Convertible Senior Notes, which were issued during fiscal 2014. The 2019 Cash Convertible Senior Note hedges are adjusted to fair value eachreporting period and unrealized gains and losses are reflected in NXP’s Consolidated Statements of Operations. Because the fair value of the 2019 CashConvertible Senior Notes embedded conversion derivative and the 2019 Cash Convertible Senior Notes hedges are designed to have similar offsettingvalues, 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 donot expect that our operations will be disrupted if such is the case.Accounting standards adopted in 2017In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based PaymentAccounting. The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. The new standardrequires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid incapital pools. The standard also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liabilityaccounting. In addition, the ASU allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The new standardbecame effective for us on January 1, 2017. The adoption of this standard did not 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 ASU2016-16, 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 ofthe asset. The new standard became effective for us on January 1, 2017, due to the Company’s decision to early adopt. The adoption of this standard did nothave a material impact on our financial position or results of operations.New standards to be adopted after 2017In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenuerecognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods orservices to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. In August 2015, the FASBissued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of the newstandard 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. Inthe fourth quarter of 2017, the Company finalized its assessment of the new standard. The analysis included reviewing the significant revenue streams andidentifying whether there may be differences in timing of revenue recognition under the new standard, as well as assessing performance obligations, variableconsideration, and contract costs. The Company F-15Table of Contentswill adopt this standard as of January 1, 2018 by applying the modified retrospective transition method. Under that method, the cumulative effect of initiallyapplying the new standard to existing contracts as of January 1, 2018 will be recognized as an adjustment to the opening balance of retained earnings in thefirst quarter of 2018, and revenues reported in the periods prior to the date of adoption will not change. Based on our assessment, the Company does notexpect the adoption of Topic 606 to have a material impact on our financial position, results of operations or disclosures because, for the vast majority of ourcontracts, revenue is recognized at a point in time upon shipment and transfer of control, which is consistent with our current revenue recognition model.There are a limited number of contracts with products that have no alternative use and an enforceable right to payment for performance completed to date,which under Topic 606 are recognized over time and under Topic 605 are recognized upon delivery. The impact of these contracts and other differences isnot material.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): IdentifyingPerformance Obligations and Licensing. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-ScopeImprovements and Practical Expedients and ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SECGuidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting. InDecember 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. Theseamendments 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 howit should apply the control principle to certain types of arrangements. ASU 2016-10 clarifies the following two aspects of ASU 2014-09: identifyingperformance 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 andhandling fees and freight services. ASU 2016-12 provides clarification to Topic 606 on how to assess collectability, present sales tax, treat noncashconsideration, and account for completed and modified contracts at the time of transition. In addition, ASU 2016-12 clarifies that an entity retrospectivelyapplying 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 transitionrequirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09, which is effective for fiscal years, and forinterim periods within those years, beginning after December 15, 2017. The Company has determined that the adoption of this guidance will not have amaterial impact on our financial position or results of operations.In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and FinancialLiabilities (Subtopic 825-10). The new standard requires equity investments (except those accounted for under the equity method of accounting, or those thatresult in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities touse the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets andfinancial 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 newstandard will be effective for us on January 1, 2018. The adoption of this guidance is not expected to have a material impact on our financial position orresults 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 balancesheet 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 eitheroperating or finance. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenuerecognition standard. Existing sale-leaseback guidance, including guidance for real estate, is replaced with a new model applicable to both lessees andlessors.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 842may have on our financial position or results of operations.In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses how certain cashreceipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash flow, and other Topics. ASU2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. The Company does not expect theadoption 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 introducesa 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 thegross 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 screenreduces the number of transactions that need to be further evaluated as a business. ASU 2017-01 is effective for annual reporting periods, and interim periodstherein, beginning after December 15, 2017. The Company does not expect the adoption of this guidance to have a material impact on our financial positionor results of operations. F-16Table of ContentsIn January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, the one step quantitativeimpairment test calculates goodwill impairment as the excess of the carrying value of a reporting unit over its fair value, up to the carrying value of thegoodwill. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with earlyadoption permitted. The ASU should be applied on a prospective basis. The Company does not expect the adoption of this guidance to have a materialimpact on our financial position or results of operations.In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic PensionCost and Net Periodic Postretirement Benefit Cost (“net benefit cost”). The ASU requires that the service cost component be presented separately from theother components of net benefit cost. Services costs should be presented with other employee compensation costs within operations or capitalized ininventory or other assets in accordance to the company’s accounting policies. The other components of net benefit costs should be presented separatelyoutside of a subtotal of income from operations, if one is presented. ASU 2017-07 is effective for annual reporting periods, and interim periods therein,beginning after December 15, 2017. The presentation of the service cost component should be applied retrospectively, and any capitalization of the servicecost component should be applied prospectively. The Company does not expect the adoption of this guidance to have a material impact on our financialposition or results of operations.In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvement to Accounting for Hedging Activities.ASU 2017-12 simplifies certain aspects of hedge accounting and improves disclosures of hedging arrangements through the elimination of the requirement toseparately measure and report hedge ineffectiveness. The ASU generally requires the entire change in the fair value of a hedging instrument to be presented inthe same income statement line as the hedged item. Entities must apply the amendments to cash flow and net investment hedge relationships that exist on thedate of adoption using a modified retrospective approach. The presentation and disclosure requirements must be applied prospectively. ASU 2017-12 iseffective for annual reporting periods, and interim periods therein, beginning after December 15, 2018, with early adoption permitted. The Company does notexpect the adoption of this guidance to have a material impact on our financial position or results of operations.3 Acquisitions and Divestments2017There were no material acquisitions during 2017. On April 19, 2017, we sold our shares in Advanced Semiconductor Manufacturing Corporation Ltd.(ASMC), representing a 27.47 percent ownership, for a total consideration of $54 million. The gain on the sale of $31 million is included in the Statement ofOperations in the line item “Results relating to equity-accounted investees”.On February 6, 2017, we divested our Standard Products (“SP”) business to a consortium of financial investors consisting of Beijing JianGuang AssetManagement Co., Ltd (“JAC Capital”) and Wise Road Capital LTD (“Wise Road Capital”), receiving $2.6 billion in cash proceeds, net of cash divested. Priorto February 6, 2017, the results of the SP business were included in the reportable segment SP.The gain on the sale of $1,597 million is included in the Statement of Operations in the line item “Other income (expense)” and is composed of thefollowing: Total cash consideration 2,750 Assets held for sale (1,117) Cash divested (138) Liabilities held for sale 199 Other adjustments (69) Transaction costs (28) Gain 1,597 2016There were no material divestments during 2016. On August 8, 2016, we acquired a business for $200 million. The total purchase price has beenallocated to goodwill ($14 million), other intangible assets ($177 million), inventories ($8 million) and tangible fixed assets ($1 million). The otherintangible assets relate to core technology ($172 million) with an amortization period of 7 years and existing technology ($5 million) with an amortizationperiod of 2 years.2015On 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 ofOperations.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 cashper such common share. F-17Table of ContentsThe 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 andperformance-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 estimatedfair 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 inputsthat are unobservable and significant to the overall fair value measurement. As such, acquired tangible and identified intangible assets are classified asLevel 3 assets. During 2016, we made certain adjustments to the preliminary allocation of the purchase price. A decrease of $33 million was recorded todeferred taxes, an increase of $3 million was recorded to accounts payable, accrued liabilities and other current liabilities, a decrease of $5 million wasrecorded to inventories with a corresponding net decrease of $25 million recorded to goodwill. Our valuation procedures related to the acquired assets andassumed liabilities were completed during the fourth quarter of 2016.The identified intangible assets consist of existing technology and platform technology, In-Process Research & Development (“IPR&D”), orderbacklog, trade name and customer relationships. The useful lives range between one year and nineteen years.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 anddevelopment effort. IPR&D will be amortized over an estimated useful life to be determined at the date the associated research and development effortis completed, or expensed immediately when, and if, the project is abandoned. Acquired IPR&D is not amortized during the period that it is consideredindefinite 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 tothe 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 creditfacility and Secured Notes and the payment of certain transaction costs in relation to the acquisition of Freescale were funded by cash on hand, the SecuredBridge Term Credit Agreement, the net proceeds of the 2020 Senior Unsecured Notes and 2022 Senior Unsecured Notes and the net proceeds of Term LoanB. See Note 16, “Debt” in the Consolidated Financial Statements. F-18Table of ContentsPro forma financial information (unaudited)The following unaudited pro forma financial information presents combined consolidated results of operations as if Freescale had been acquired as ofJanuary 1, 2015: 2015 Revenue 9,850 Net income (loss) attributable to stockholders (84) Net income (loss) per common share attributable to stockholders: - Basic (0.25) - Diluted (0.25) The pro forma information excludes the result of operations of NXP’s RF Power business and includes adjustments to amortization and depreciation foridentified intangible assets and property, plant and equipment acquired, adjustments to share-based compensation expense and interest expense for theadditional indebtedness incurred to complete the acquisition. The pro forma result has been prepared for comparative purposes only and does not purport tobe indicative of the revenue or operating results that would have been achieved had the acquisition actually taken place as of January 1, 2015 or of theresults 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 synergiesthat might be achieved from the combined operations.Other acquisitionsIn addition to the above mentioned acquisition of Freescale, we completed two other acquisitions qualifying as business combinations: the acquisitionof 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 netliabilities 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 SecureIdentification Solutions business line. Both business lines are part of the reportable segment HPMS.DivestmentsIn 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 networkand distribution channels. This transaction closed on November 9, 2015. The results of the Bipolar Power business were included in the reportable segmentSP.In May 2015, we announced an agreement with JianGuang Asset Management Co., Ltd. (JAC Capital) in China to sell NXP’s RF Power Business. Thistransaction 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).4 Assets Held for SaleOn June 14, 2016, NXP announced an agreement to divest its Standard Products (“SP”) business to a consortium of financial investors consistingof Beijing JianGuang Asset Management Co., Ltd (“JAC Capital”) and Wise Road Capital LTD (“Wise Road Capital”). On February 6, 2017, we divested SP,receiving $2.6 billion in cash proceeds, net of cash divested. 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 did not meet the criteria to be classified as a discontinued operation at December 31, 2016primarily due to the disposal of this business not representing a strategic shift that would have a major effect on the Company’s operations and financialresults. F-19Table of ContentsThe following table summarizes the carrying value of assets and liabilities held for sale which was 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) 5 Supplemental Financial InformationStatement of Operations InformationDepreciation, amortization and impairmentDepreciation and amortization, including impairment charges, are as follows: 2017 2016 2015 Depreciation of property, plant and equipment 611 609 262 Amortization of internal use software 21 24 26 Amortization of other identified intangible assets (*) 1,541 1,572 229 2,173 2,205 517 (*) For the period ending December 31, 2017, the amount includes IPR&D impairment charges of $23 million, of which $16 million related to assetsacquired from Freescale. For the period ending December 31, 2016, the amount included impairment charges relative to IPR&D acquired as part of theacquisition of Freescale of $89 million.Depreciation of property, plant and equipment is primarily included in cost of revenue.Other income (expense) 2017 2016 2015 Result on disposal of businesses 1,572 8 1,257 Result on disposal of properties 1 1 6 Other income (expense) 2 — — 1,575 9 1,263 Financial income (expense) 2017 2016 2015 Interest income 27 11 6 Interest expense (310) (408) (227) Total interest expense, net (283) (397) (221) Net gain (loss) on extinguishment of debt (41) (32) — Foreign exchange rate results (30) (15) (193) Change in fair value of the warrant liability — — (31) Miscellaneous financing costs/income, net (12) (9) (84) Total other financial income (expense) (83) (56) (308) Total (366) (453) (529) From May 2011 until December 31, 2015, the Company applied net investment hedging. As of January 1, 2016, as a result of the acquisition ofFreescale, NXP has concluded that the functional currency of the holding company is USD. Beginning from January 1, 2016, the warrants will now beclassified in stockholders’ equity, and mark-to-market accounting will no longer be applicable. In addition our U.S. dollar-denominated notes, term loans andRCF agreements are no longer re-measured. The U.S. F-20Table of Contentsdollar 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. Asa result, a charge of $190 million in 2015 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 investeesResults related to equity-accounted investees at the end of each period were as follows: 2017 2016 2015 Company’s share in income (loss) 17 11 8 Other results 36 — 1 53 11 9 The total carrying value of investments in equity-accounted investees is summarized as follows: 2017 2016 Shareholding % Amount Shareholding % Amount ASMC — — 27 21 ASEN 40 66 40 56 WeEn 49 65 49 62 Others 15 15 146 154 Investments in equity-accounted investees are included in Corporate and Other.On April 19, 2017, we sold our shares in Advanced Semiconductor Manufacturing Corporation Ltd. (ASMC), representing a 27.47 percent ownership,for a total consideration of $54 million. The gain on the sale of $31 million is included in the Statement of Operations in the line item “Results relating toequity-accounted investees”. 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 InformationCash and cash equivalentsAt December 31, 2017 and December 31, 2016, our cash balance was $3,547 million and $1,894 million, respectively, of which $250 million and$316 million was held by SSMC, our consolidated joint venture company with TSMC. Under the terms of our joint venture agreement with TSMC, a portionof 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 2017, a dividend of$228 million (2016: $325 million) has been paid by SSMC.6 Restructuring ChargesAt each reporting date, we evaluate our restructuring liabilities, which consist primarily of termination benefits, to ensure that our accruals are stillappropriate. During 2017, there were no new restructuring programs.During 2016, we recognized $52 million of employee severance costs in our restructuring liabilities, which was primarily related to specific targetedactions.In December 2015, we began the implementation of the planned restructuring and cost reduction activities in connection with the acquisition ofFreescale. We recognized $216 million of employee severance costs and $23 million of other exit costs related to this plan in 2015.The following table presents the changes in the position of restructuring liabilities in 2017 by segment: BalanceJanuary 1,2017 Additions Utilized Released Otherchanges(1) BalanceDecember 31,2017 HPMS 148 7 (65) (16) 12 86 SP 3 — — — (3) — Corporate and Other — — — — 3 3 151 7 (65) (16) 12 89 (1)Other changes primarily related to translation differences and internal transfers.The total restructuring liability as of December 31, 2017 of $89 million is classified in the balance sheet under current liabilities ($74 million) andnon-current liabilities ($15 million). F-21Table of ContentsThe 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 2016 by segment: BalanceJanuary 1,2016 Additions Utilized Released Otherchanges(1) BalanceDecember 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) andnon-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 components of restructuring charges less releases recorded in the liabilities in 2017, 2016 and 2015 are as follows: 2017 2016 2015 Personnel lay-off costs 7 52 239 Other exit costs 10 19 27 Release of provisions/accruals (16) (3) (2) Net restructuring charges 1 68 264 The restructuring charges less releases recorded in operating income are included in the following line items in the statement of operations: 2017 2016 2015 Cost of revenue 3 18 18 Selling, general and administrative 10 9 155 Research & development (12) 41 91 Net restructuring charges 1 68 264 7 Provision for Income TaxesIn 2017, NXP generated an income before income taxes of $1,736 million (2016: a loss of $603 million; 2015: an income of $1,486 million). Thecomponents of income (loss) before income taxes are as follows: 2017 2016 2015 Netherlands 1,679 537 1,528 Foreign 57 (1,140) (42) 1,736 (603) 1,486 The components of the benefit (provision) for income taxes are as follows: 2017 2016 2015 Current taxes: Netherlands (179) (7) (13) Foreign (135) (67) (51) (314) (74) (64) Deferred taxes: Netherlands (259) 205 (4) Foreign 1,056 720 172 797 925 168 Total benefit (provision) for income taxes 483 851 104 F-22Table of ContentsOn December 22, 2017, the President of the United States signed into law what is informally called the Tax Cuts and Jobs Act, a comprehensive U.S.tax reform package that, effective January 1, 2018, among other things, lowered the corporate income tax rate from 35% to 21%, moved the country towards aterritorial tax system with a one-time mandatory tax on previously deferred foreign earnings of foreign subsidiaries and introduced a 30% limitation ondeductibility of interest. Under the accounting rules, companies are required to recognize the effects of changes in tax laws and tax rates on deferred tax assetsand liabilities in the period in which the new legislation is enacted. The effects of the Tax Cuts and Jobs Act on NXP include three major categories(i) re-measurement of deferred taxes, (ii) reassessment of the realizability of deferred tax assets and (iii) recognition of liabilities for taxes on mandatorydeemed repatriation. As described further below, we recorded an income tax benefit of $734 million in the year ended December 31, 2017. As we do not haveall the necessary information to analyze all income tax effects of the Tax Cuts and Jobs Act, this is a provisional amount which we believe represents areasonable estimate of the accounting implications of this tax reform. We will continue to evaluate the Tax Cuts and Jobs Act and adjust the provisionalamounts as additional information is obtained. The ultimate impact of tax reform may differ from our provisional amounts due to changes in ourinterpretations and assumptions, as well as additional regulatory guidance that may be issued.We expect to complete our detailed analysis no later than the fourth quarter of 2018. Below is a brief description of each of the three categories ofeffects from U.S. tax reform and its impact on the Company: i.A deferred tax benefit of $565 million related to the revaluation of NXP USA’s net deferred tax liabilities due to the reduction of the U.S.corporate tax rate from 35% to 21%. The Company believes that the disallowed interest available per end of full year 2017 can still be carriedforward and therefore continued to recognize a deferred tax asset of $156 million in this respect. ii.A deferred tax benefit of $277 million for the reversal of net deferred tax liabilities previously accrued related to NXP USA’s cumulativeundistributed foreign earnings. The Company believes this is a reasonable estimate of the impact of the Tax Cuts and Jobs Act but considers therelease of this deferred tax liability as provisional pending further interpretation and guidance regarding whether future distribution frompre-1987 earnings and profits (E&P) will be subject to U.S. income tax. iii.A deferred tax expense of $108 million for the mandatory repatriation “Toll Tax”. The Company expects to utilize part of its unused foreign taxcredit carryforwards that existed at the end of 2016 to fully cover the Toll Tax. Additional work is necessary to do a more detailed analysis ofpost-1986 earnings and profits (E&P) and creditable foreign-taxes of U.S.-owned subsidiaries. Further, the Toll Tax is based in part on theamount of those earnings held in cash and other specific assets, which may be further defined by regulatory guidance.A reconciliation of the statutory income tax rate in the Netherlands as a percentage of income (loss) before income taxes and the effective income taxrate is as follows: (in percentages) 2017 2016 2015 Statutory income tax in the Netherlands 25.0 25.0 25.0 Rate differential local statutory rates versus statutory rate of the Netherlands (4.5) 24.2 (4.3) Net change in valuation allowance 1.1 72.6 (13.8) Prior year adjustments (0.3) 0.1 — Non-taxable income (1.0) 1.7 (0.1) Non-deductible expenses/losses 2.2 (7.0) 4.0 Excess deduction from share-based compensation (0.9) (1.2) — Sale of non-deductible goodwill 3.8 — 2.7 The U.S. Tax Cuts and Jobs Act (42.3) — — Other tax legislation and tax rate changes (0.7) (0.1) 0.2 Tax effects of remitted and unremitted earnings and withholding taxes 1.3 (2.7) 0.1 Other permanent differences (1.1) 8.4 0.8 Tax on gains related to internal corporate reorganization transaction — (10.3) — Unrecognized tax benefits 1.8 (0.5) 0.1 Netherlands tax incentives (7.5) 17.9 (18.5) Foreign tax incentives (4.7) 13.0 (3.2) Effective tax rate (27.8%) 141.1% (7.0%) The Company benefits from income tax holidays in certain jurisdictions which provide that we pay reduced income taxes in those jurisdictions for afixed 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 ofthis tax holiday decreased foreign taxes by $23 million in 2017 (2016: $24 million; 2015: $29 million). The benefit of this tax holiday on net income pershare (diluted) was $0.07 in 2017 (2016: $0.07; 2015: $0.11).The other permanent differences mainly relate to the tax effect on foreign exchange results in 2016. F-23Table of ContentsDeferred tax assets and liabilitiesThe principal components of deferred tax assets and liabilities are presented below: 2017 2016 Operating loss and tax credit carryforwards 621 1,031 Disallowed interest carryforwards 156 432 Other accrued liabilities 100 107 Pensions 93 86 Stock Based Compensation 25 58 Restructuring liabilities 16 40 Receivables 71 36 Inventories 3 27 Other assets 2 10 Total Gross Deferred Tax Assets 1,087 1,827 Valuation Allowance (140) (127) Total Net Deferred Tax Assets 947 1,700 Intangible assets (including purchase accounting basis difference) (1,161) (2,431) Undistributed earnings of foreign subsidiaries (109) (367) Property, plant and equipment (including purchase accounting basis difference) (54) (134) Total Deferred Tax Liabilities (1,324) (2,932) Net Deferred Tax Position (377) (1,232) The classification of the deferred tax assets and liabilities in the Company’s Consolidated Balance Sheets is as follows: 2017 2016 Deferred tax assets within other non-current assets 324 427 Deferred tax liabilities within non-current liabilities (701) (1,659) (377) (1,232) The Company has significant deferred tax assets resulting from net operating loss carryforwards, tax credit carryforwards and deductible temporarydifferences 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 carrybackor carryforward periods provided for in the tax law for each applicable tax jurisdiction. The valuation allowance increased by $13 million during 2017 (2016:$505 million decrease).ASC 740, Income Taxes, requires that we consider all available evidence in forming a judgement regarding the valuation allowance as of December 31,2017, including events that occur subsequent to year end but prior to the issuance of the financial statements. The deferred tax assets are recognized to theextent that we consider it more likely than not that these assets will be realized. In making such a determination, we consider all available positive andnegative evidence, including reversal of existing temporary differences, projected future taxable income and tax planning strategies impacting interestdeductibility limitations in the U.S.In the U.S. the predominant reason for the change in the valuation allowance is a $16 million increase for the change in tax rates related to tax reformpassed in December 2017. State taxes are deductible in determining federal taxable income, therefore state deferred tax assets are recorded net of the federaleffect. Due to tax reform, the federal tax rate changed from 35% to 21%, therefore state deferred tax assets that were previously presented net of federal effectat 65% are now recorded at 79% post tax reform resulting in an increase to deferred tax assets. The Company has recorded a valuation allowance on a sizableportion of its state R&D credits and since the deferred tax asset for state R&D credits has increased the associated valuation allowance also increased.The valuation allowance as of December 31, 2016 included events that occurred subsequent to the 2016 year end but prior to the issuance of thefinancial statements. As a result of the February 6, 2017 disposition of SP, NXP concluded that the valuation allowance should be reduced by $395 million asof December 31, 2016, as the SP divestiture provided an objectively verifiable source of income against which tax losses can be utilized. As a result, theCompany recognized an additional benefit of $392 million in the benefit (provision) for income taxes in the consolidated statement of operations and anadditional $7 million in capital in excess of par value in the consolidated balance sheet in the fourth quarter of 2016. F-24Table of ContentsAt December 31, 2017 tax loss carryforwards of $906 million (inclusive of $250 million of U.S. state tax losses) will expire as follows: Balance Scheduled expiration December 31, 2017 2018 2019 2020 2021 2022 2023-2027 later unlimited Tax loss carryforwards 906 6 22 4 — 15 66 228 565 The Company also has tax credit carryforwards of $580 million (excluding the effect of unrecognized tax benefits), which are available to offset futuretax, if any, and which will expire as follows: Balance Scheduled expiration December 31, 2017 2018 2019 2020 2021 2022 2023-2027 later unlimited Tax credit carryforwards 580 6 12 16 1 11 205 278 51 The net income tax receivable (excluding the liability for unrecognized tax benefits) as of December 31, 2017 amounted to $59 million (2016: netincome tax payable of $10 million) and includes amounts directly receivable from or payable to tax authorities.The Company does not indefinitely reinvest the undistributed earnings of its subsidiaries. Consequently, the Company has recognized a deferred taxliability of $109 million at December 31, 2017 (2016: $367 million) for the additional income taxes and withholding taxes payable upon the futureremittances of these earnings of foreign subsidiaries. The U.S. Tax Cuts and Jobs Act set up a participation exemption regime in the U.S. and future dividenddistribution from NXP USA’s foreign subsidiaries will generally be exempted from U.S. federal income taxes effective on January 1, 2018. Consequently, thedeferred U.S. income tax liability of $277 million recognized at December 31, 2016 was written off in the fourth quarter of 2017.A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: 2017 2016 2015 Balance as of January 1, 146 149 125 Assumed in the acquisition of Freescale — — 121 Decreases from activities which are held for sale — (7) — Increases from tax positions taken during prior periods 22 1 1 Decreases from tax positions taken during prior periods — (3) (111) Increases from tax positions taken during current period 11 10 15 Decreases relating to settlements with the tax authorities (2) (4) (2) Balance as of December 31, 177 146 149 Of the total unrecognized tax benefits at December 31, 2017, $149 million, if recognized, would impact the effective tax rate. All other unrecognizedtax benefits, if recognized, would not affect the effective tax rate as these would be offset by compensating adjustments in the Company’s deferred tax assetsthat 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 relatedinterest and penalties recorded during the year 2017 amounted to $6 million (2016: $2 million; 2015: $7 million). As of December 31, 2017 the Companyhas recognized a liability for related interest and penalties of $17 million (2016: $12 million; 2015: $14 million). It is reasonably possible that the totalamount of unrecognized tax benefits may significantly increase/decrease within the next 12 months of the reporting date due to, for example, completion oftax examinations; however, an estimate of the range of reasonably possible change cannot be made.The Company files income tax returns in the Netherlands, the U.S.A. and in various other foreign jurisdictions. Tax filings of our subsidiaries areroutinely audited in the normal course of business by tax authorities around the world. Tax years that remain subject to examination by major taxjurisdictions: the Netherlands (2013-2016), Germany (2004-2016), USA (2004-2016), China (2007-2016), Taiwan (2012-2016), Thailand (2012-2016),Malaysia (2006-2016) and India (2006-2017).In the fourth quarter of 2017, the Company recorded an adjustment to recognize tax expense in the amount of $121 million related to the first threequarters of 2017. The adjustment relates to transfer pricing and purchase accounting. Other than the amount related to goodwill (see Note 14), the adjustmentdid not impact financial statements for the years ended December 31, 2016 or 2015. F-25Table of Contents8 Earnings per ShareThe computation of earnings per share (EPS) is presented in the following table: 2017 2016 2015 Net income (loss) 2,272 259 1,599 Less: Net income (loss) attributable to non-controlling interests 57 59 73 Net income (loss) attributable to stockholders 2,215 200 1,526 Weighted average number of shares outstanding (after deduction of treasury shares) during theyear (in thousands) 338,646 338,477 239,764 Plus incremental shares from assumed conversion of: Options 1) 4,517 5,582 6,194 Restricted Share Units, Performance Share Units and Equity Rights 2) 2,639 3,548 4,158 Warrants 3) — — — Dilutive potential common share 7,156 9,130 10,352 Adjusted weighted average number of shares outstanding (after deduction of treasury shares)during the year (in thousands) 1) 345,802 347,607 250,116 EPS attributable to stockholders in $: Basic net income (loss) 6.54 0.59 6.36 Diluted net income (loss) 6.41 0.58 6.10 1)Stock options to purchase up to 0.1 million shares of NXP’s common stock that were outstanding in 2017 (2016: 1.4 million shares; 2015: 0.7 millionshares) were anti-dilutive and were not included in the computation of diluted EPS because the exercise price was greater than the average fair marketvalue of the common stock or the number of shares assumed to be repurchased using the proceeds of unrecognized compensation expense and exerciseprices was greater than the weighted average number of shares underlying outstanding stock options.2)Unvested RSU’s, PSU’s and equity rights of 0.7 million shares that were outstanding in 2017 (2016: 0.9 million shares; 2015: 0.5 million shares) wereanti-dilutive and were not included in the computation of diluted EPS because the number of shares assumed to be repurchased using the proceeds ofunrecognized compensation expense was greater than the weighted average number of outstanding unvested RSU’s, PSU’s and equity rights or theperformance goal has not been met.3)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 2017 (2016: 11.2 millionshares at a price of $133.32; 2015: 11.2 million shares at a price of $133.32). Upon exercise, the warrants will be net share settled. At the end of 2017,2016 and 2015, the warrants were not included in the computation of diluted EPS because the warrants’ exercise price was greater than the average fairmarket value of the common shares.9 Share-based CompensationShare-based compensation expense is included in the following line items in our statement of operations: 2017 2016 2015 Cost of revenue 33 49 15 Research and development 122 123 45 Selling, general and administrative 126 166 156 281 338 216 The income tax benefit recognized in net income related to share-based compensation expenses was $51 million (includes $27 million of excess taxbenefits related to the adoption of ASU 2016-09), $58 million and $18 million for the years ended December 31, 2017, 2016 and 2015, respectively.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 alignstockholder 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. Awards granted generally will become fully vested upon atermination event occurring within one year following a change in control, as defined. A termination event is defined as either termination of employment orservices other than for cause or constructive termination of resulting from a significant reduction in either the nature or scope of duties and responsibilities, areduction in compensation or a required relocation. The number of shares authorized and available for awards at December 31, 2017 was 1.4 million.A charge of $272 million was recorded in 2017 for the LTIP (2016: $331 million; 2015: $206 million). F-26Table of ContentsA summary of the activity for our LTIP’s during 2017 is presented below.Stock optionsThe 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 plainvanilla options using the simplified method, since our equity shares have been publicly traded for only a limited period of time and we do nothave sufficient historical exercise data at the grant date of the options; • a risk-free interest rate varying from 0.8% to 2.8% (2016: 0.8% to 2.8%; 2015: 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 ourshares have been publicly traded.Changes in the assumptions can materially affect the fair value estimate. Stock options Weighted averageexerciseprice in USD Weighted averageremaining contractualterm Aggregate intrinsicvalue Outstanding at January 1, 2017 7,168,652 41.07 Granted — — Exercised 3,976,326 34.47 Forfeited 211,293 61.99 Outstanding at December 31, 2017 2,981,033 48.39 5.3 205 Exercisable at December 31, 2017 1,936,121 37.35 4.6 154 No options were granted in 2017 (the weighted average per share grant date fair value of stock options granted in 2016: $34.59; 2015: $34.05).The intrinsic value of the exercised options was $311 million (2016: $145 million; 2015: $112 million), whereas the amount received by NXP was$137 million (2016: $88 million; 2015: $39 million). The tax benefit realized from stock options exercised during fiscal 2017, 2016, and 2015 was$83 million, $79 million, and $10 million, respectively.At December 31, 2017, there was a total of $25 million (2016: $56 million) of unrecognized compensation cost related to non-vested stock options.This cost is expected to be recognized over a weighted-average period of 1.2 years (2016: 1.5 years).Performance share unitsFinancial performance conditions Shares Weighted average grantdate fair valuein USD Outstanding at January 1, 2017 408,714 71.52 Granted — — Vested 97,355 64.46 Forfeited 28,421 67.93 Outstanding at December 31, 2017 282,938 74.31 No PSU’s were granted in 2017 (the weighted average grant date fair value of performance share units granted in 2016: $82.53; 2015: $75.28).Market performance conditions Shares Weighted average grantdate fair valuein USD Outstanding at January 1, 2017 325,183 38.63 Granted — — Vested 270,029 37.78 Forfeited 17,363 48.22 Outstanding at December 31, 2017 37,791 40.28 The fair value of the performance share units at the time of vesting was $39 million (2016: $147 million; 2015: $66 million). At December 31, 2017,there was a total of $4 million (2016: $12 million) of unrecognized compensation cost related to non-vested performance share units. This cost is expected tobe recognized over a weighted-average period of 1.3 years (2016: 1.8 years). F-27Table of ContentsRestricted share units Shares Weighted averagegrant date fairvalue in USD Outstanding at January 1, 2017 6,920,879 87.48 Granted 2,882,420 115.05 Vested 2,984,488 85.31 Forfeited 407,201 84.17 Outstanding at December 31, 2017 6,411,610 101.13 The weighted average grant date fair value of restricted share units granted in 2017 was $115.05 (2016: $98.16; 2015: $79.22). The fair value of therestricted share units at the time of vesting was $328 million (2016: $334 million; 2015: $209 million).At December 31, 2017, there was a total of $483 million (2016: $422 million) of unrecognized compensation cost related to non-vested restricted shareunits. This cost is expected to be recognized over a weighted-average period of 1.6 years (2016: 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 yearperiod 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 2017 (2016: no charge, 2015: no charge) for options granted under the MEP.The following table summarizes the information about NXP’s outstanding MEP Options and changes during 2017.Stock options Stockoptions Weighted averageexercise price inEUR Weighted averageremainingcontractual term Aggregateintrinsicvalue Outstanding at January 1, 2017 2,534,272 23.67 Granted — — Exercised 2,302,348 22.46 Forfeited — — Expired — — Outstanding at December 31, 2017 231,924 35.72 0.7 14 Exercisable at December 31, 2017 231,924 35.72 0.7 14 The intrinsic value of exercised options was $206 million (2016: $13 million; 2015: $12 million), whereas the amount received by NXP was$60 million (2016: $7 million; 2015: $4 million).The number of vested options at December 31, 2017 was 231,924 (2016: 2,534,272 vested options) with a weighted average exercise price of €35.72(2016: €23.67 weighted average exercise price).At December 31, 2017, there was no unrecognized compensation cost related to non-vested stock options.10 Accounts Receivables, netAccounts receivable are summarized as follows: 2017 2016 Accounts receivable from third parties 882 1,035 Allowance for doubtful accounts (3) (2) 879 1,033 11 Inventories, netInventories are summarized as follows: 2017 2016 Raw materials 62 52 Work in process 901 854 Finished goods 273 207 1,236 1,113 F-28Table of ContentsThe portion of finished goods stored at customer locations under consignment amounted to $69 million as of December 31, 2017 (2016: $53 million).The amounts recorded above are net of an allowance for obsolescence of $107 million as of December 31, 2017 (2016: $84 million).12 Property, Plant and Equipment, netThe following table presents details of the Company’s property, plant and equipment, net of accumulated depreciation: Useful Life(in years) 2017 2016 Land 166 165 Buildings 9 to 50 1,200 1,146 Machinery and installations 2 to 10 3,179 2,959 Other Equipment 1 to 5 453 278 Prepayments and construction in progress 172 118 5,170 4,666 Less accumulated depreciation (2,875) (2,314) Property, plant and equipment, net of accumulated depreciation 2,295 2,352 Land with a book value of $166 million (2016: $165 million) is not depreciated.There was no significant construction in progress and therefore no related capitalized interest.13 Identified Intangible AssetsThe changes in identified intangible assets were as follows: Total Other intangibleassets Software Balance as of January 1, 2016: 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 Changes in book value: Acquisitions/additions 78 68 10 Amortization (1,539) (1,518) (21) Impairment (23) (23) — Translation differences 4 4 — Total changes (1,480) (1,469) (11) Balance as of December 31, 2017: Cost 9,335 9,227 108 Accumulated amortization/impairment (3,472) (3,378) (94) Book value 5,863 5,849 14 F-29Table of ContentsIdentified intangible assets as of December 31, 2017 and 2016 respectively were composed of the following: December 31, 2017 December 31, 2016 Grosscarryingamount Accumulatedamortization Grosscarryingamount Accumulatedamortization IPR&D 1) 687 — 1,380 — Marketing-related 82 (34) 81 (18) Customer-related 1,155 (437) 1,146 (322) Technology-based 7,303 (2,907) 6,790 (1,739) 9,227 (3,378) 9,397 (2,079) Software 108 (94) 115 (90) Identified intangible assets 9,335 (3,472) 9,512 (2,169) 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: 2018 1,493 2019 1,534 2020 1,328 2021 562 2022 491 All intangible assets, excluding IPR&D and 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, 2017.14 GoodwillThe changes in goodwill in 2017 and 2016 were as follows: 2017 2016 Balances as of January 1 Cost 9,029 9,414 Accumulated impairment (186) (186) Book value 8,843 9,228 Changes in book value: Acquisitions — 14 Purchase accounting and other adjustments related to Freescale acquisition (28) (25) Transfer to assets held for sale — (349) Translation differences 51 (25) Total changes 23 (385) Balances as of December 31 Cost 9,020 9,029 Accumulated impairment (154) (186) Book value 8,866 8,843 No goodwill impairment charges were required to be recognized in 2017 or 2016.In 2016, goodwill includes $14 million related to an acquisition of a business for $200 million.Transfer to assets held for sale in 2016 includes our SP business, which closed in the first quarter of 2017.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 PlansPensionsOur employees participate in employee pension plans in accordance with the legal requirements, customs and the local situation in the respectivecountries. These are defined-benefit pension plans, defined-contribution plans and multi-employer plans. F-30Table of ContentsThe Company’s employees in The Netherlands participate in a multi-employer plan, implemented for the employees of the Metal and ElectricalEngineering Industry (“Bedrijfstakpensioenfonds Metalektro or PME”) in accordance with the mandatory affiliation to PME effective for the industry inwhich 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 1,340 companies and 623,000 participants. The plan monitors its risk on an aggregate basis, not by company orparticipant and can therefore not be accounted for as a defined benefit plan. The pension fund rules state that the only obligation for affiliated companies willbe to pay the annual plan contributions. There is no obligation for affiliated companies to fund plan deficits. Affiliated companies are also not entitled to anypossible 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. TheCompany’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 25.77% (2017) to 25.35% (2018). PME multi-employer plan 2017 2016 2015 NXP’s contributions to the plan 35 36 37 (including employees’ contributions) 4 4 4 Average number of NXP’s active employees participating in the plan 2,271 2,415 2,668 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 2017 was $97 million (2016: $102 million; 2015: $69 million) ofwhich $42 million (2016: $44 million; 2015: $21 million) represents defined-contribution plans and $31 million (2016: $32 million; 2015: $32 million)represents the PME multi-employer plans.Defined-benefit plansThe benefits provided by defined-benefit plans are based on employees’ years of service and compensation levels. Contributions are made by theCompany, 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. TheCompany funds certain defined-benefit pension plans as claims are incurred.The total cost of defined-benefit plans amounted to a benefit of $1 million in 2017 (2016: a cost of $26 million; 2015: a cost of $16 million)consisting of $24 million ongoing cost (2016: $27 million; 2015: $20 million) and a gain of $25 million from special events resulting from restructurings,divestments, curtailments and settlements (2016: $1 million; 2015: $4 million). F-31Table of ContentsThe table below provides a summary of the changes in the pension benefit obligations and defined-benefit pension plan assets for 2017 and 2016,associated with the Company’s dedicated plans, and a reconciliation of the funded status of these plans to the amounts recognized in the ConsolidatedBalance Sheets. 2017 2016 Projected benefit obligation Projected benefit obligation at beginning of year 564 561 Service cost 15 17 Interest cost 11 14 Actuarial (gains) and losses 15 53 Curtailments and settlements (1) (15) Benefits paid (22) (21) Pension liabilities held-for-sale — (28) Exchange rate differences 69 (17) Projected benefit obligation at end of year 651 564 Plan assets Fair value of plan assets at beginning of year 172 190 Actual return on plan assets 8 3 Employer contributions 18 21 Curtailments and settlements (1) (15) Benefits paid (21) (21) Pension assets held-for-sale — (2) Exchange rate differences 19 (4) Fair value of plan assets at end of year 195 172 Funded status (456) (392) Classification of the funded status is as follows - Prepaid pension cost within other non-current assets — — - Accrued pension cost within other non-current liabilities (443) (380) - Accrued pension cost within accrued liabilities (13) (12) Total (456) (392) Accumulated benefit obligation Accumulated benefit obligation for all Company-dedicated benefit pension plans 613 524 Plans with assets less than accumulated benefit obligation Funded plans with assets less than accumulated benefit obligation - Fair value of plan assets 190 171 - Accumulated benefit obligations 375 327 - Projected benefit obligations 401 357 Unfunded plans - Accumulated benefit obligations 233 195 - Projected benefit obligations 243 204 Amounts recognized in accumulated other comprehensive income (before tax) Total AOCI at beginning of year 91 42 - Net actuarial loss (gain) 9 54 - Exchange rate differences 13 (5) Total AOCI at end of year 113 91 The weighted average assumptions used to calculate the projected benefit obligations were as follows: 2017 2016 Discount rate 1.9% 2.0% Rate of compensation increase 1.8% 1.9% The weighted average assumptions used to calculate the net periodic pension cost were as follows: 2017 2016 2015 Discount rate 2.0% 2.5% 2.6% Expected returns on plan assets 3.1% 3.5% 4.2% Rate of compensation increase 1.9% 2.2% 1.8% 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 (BloombergGovernment Bond Yields). F-32Table of ContentsExpected returns per asset class are based on the assumption that asset valuations tend to return to their respective long-term equilibria. The ExpectedReturn on Assets for any funded plan equals the average of the expected returns per asset class weighted by their portfolio weights in accordance with thefund’s strategic asset allocation.The components of net periodic pension costs were as follows: 2017 2016 2015 Service cost 15 17 12 Interest cost on the projected benefit obligation 11 14 11 Expected return on plan assets (6) (6) (6) Amortization of net (gain) loss 4 2 3 Curtailments & settlements (25) (1) (6) Other — — 2 Net periodic cost (1) 26 16 A sensitivity analysis shows that if the discount rate increases by 1% from the level of December 31, 2017, with all other variables held constant, thenet periodic pension cost would decrease by $3 million. If the discount rate decreases by 1% from the level of December 31, 2017, with all other variablesheld 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 periodicbenefit cost over the next year (2018) are $4 million and nil respectively.Plan assetsThe actual pension plan asset allocation at December 31, 2017 and 2016 is as follows: 2017 2016 Asset category: Equity securities 32% 29% Debt securities 47% 52% Insurance contracts 7% 7% Other 14% 12% 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 thefuture contributions, will enable the pension plans to meet their future obligations. The investments in our major defined benefit plans largely consist ofgovernment bonds, “Level 2” Corporate Bonds and cash to mitigate the risk of interest fluctuations. The asset mix of equity, bonds, cash and other categoriesis 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 fixedincome securities with return characteristics that are aligned with changes in the liabilities caused by discount rate volatility. Total pension plan assets of$195 million include $183 million related to the German and Japanese pension funds.The following table summarizes the classification of these assets. 2017 2016 Level I Level II Level III Level I Level II Level III Equity securities — 62 — — 48 — Debt securities 10 72 — 9 72 — Insurance contracts — 13 — — 12 — Other 2 16 8 5 11 4 12 163 8 14 143 4 The Company currently expects to make $7 million of employer contributions to defined-benefit pension plans and $8 million of expected cashpayments in relation to unfunded pension plans. F-33Table of ContentsEstimated future pension benefit paymentsThe following benefit payments are expected to be made (including those for funded plans): 2018 22 2019 17 2020 18 2021 20 2022 23 Years 2023-2027 135 Postretirement health care benefitsIn addition to providing pension benefits, NXP provides retiree healthcare benefits in the US and the UK which are accounted for as defined-benefitplans. In 2016, NXP also provided retiree healthcare benefits in the U.K. The liability associated with the U.K. benefits was divested in association with thesale of Standard Products during 2017.The accumulated postretirement benefit obligation at the end of 2017 equals $14 million (2016: $18 million).16 DebtShort-term debt 2017 2016 Short-term bank borrowings — — Current portion of long-term debt (*) 751 421 Total 751 421 (*) Net of adjustment for debt issuance costs.Long-term debtThe following table summarizes the outstanding long-term debt as of December 31, 2017 and 2016: 2017 2016 Maturities Amount Effectiverate Amount Effectiverate Floating-rate term loan Mar, 2017 — — 388 2.770 Floating-rate term loan Jan, 2020 — — 387 3.270 Floating-rate term loan Dec, 2020 — — 1,436 3.270 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 1,350 4.125 Fixed-rate 5.75% senior unsecured notes Feb, 2021 — — 500 5.750 Fixed-rate 3.875% senior unsecured notes Sep, 2022 1,000 3.875 1,000 3.875 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 4.625 900 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 6,650 9,361 Liabilities arising from capital lease transactions 29 15 Unamortized discounts, premiums and debt issuance costs (28) (61) Fair value of embedded cash conversion option (86) (128) Total debt, including unamortized discounts, premiums, debt issuance costs and fair valueadjustments 6,565 9,187 Current portion of long-term debt (751) (421) Long-term debt 5,814 8,766 F-34Table of Contents Range ofinterest rates Averagerate ofinterest Principalamountoutstanding2017 Due in2018 Due after2018 Due after2022 Averageremainingterm(in years) Principalamountoutstanding2016 USD notes 3.8%-5.8% 4.3% 5,500 750 4,750 1,400 3.7 8,211 2019 Cash Convertible Senior Notes 1.0%-1.0% 1.0% 1,150 — 1,150 — 1.9 1,150 Revolving Credit Facility (1) — — — — — — — — Bank borrowings — — — — — — — — Liabilities arising from capital lease transactions 2.6%-13.8% 4.7% 29 2 27 20 14.2 15 3.7% 6,679 752 5,927 1,420 3.4 9,376 (1) We do not have any borrowings under the $600 million Revolving Credit Facility as of December 31, 2016 and 2017.As of December 31, 2017, the following principal amounts of long-term debt are due in the next 5 years: 2018 752 2019 1,152 2020 602 2021 1,351 2022 1,402 Due after 5 years 1,420 6,679 As of December 31, 2017, the book value of our outstanding long-term debt was $5,814 million, less debt issuance costs of $34 million and lessoriginal issuance/debt discount of $79 million.As of December 31, 2017, we had no aggregate principal amount of variable interest rate indebtedness under our loan agreements. The remaining tenorof secured debt is on average 3.4 years.Accrued interest as of December 31, 2017 is $35 million (December 31, 2016: $48 million).2017 Financing Activities2017 and 2020 Term LoansOn February 7, 2017, NXP B.V., together with NXP Funding LLC, delivered notice that it would repay (i) all its outstanding floating-rate term loan dueMarch 2017 (“Term Loan E”) in an aggregate principal amount of $388 million, (ii) all its outstanding floating-rate term loan due January 2020 (“Term LoanD”) 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 aggregateprincipal amount of $1,436 million, in each case, together with accrued interest and applicable fees. Repayment occurred in February 2017 and the funds forthese repayments came from the proceeds of the divestment of the SP business.2021 Senior Unsecured NotesOn February 7, 2017, NXP B.V. together with NXP Funding LLC, delivered notice that it would repay to holders of its 5.75% Senior Unsecured Notesdue 2021 (the “Notes”) $500 million of the outstanding aggregate principal amount of these Notes, which represented all of the outstanding aggregateprincipal amount of the Notes, as permitted under Article 3 of the indenture dated February 14, 2013 and paragraph 5 of the Notes. Repayment occurred inMarch 2017 and the funds for this redemption came from available surplus cash.Certain terms and Covenants of the notesThe Company is not required to make mandatory redemption payments or sinking fund payments with respect to the notes.The indentures governing the notes contain covenants that, among other things, limit the Company’s ability and that of restricted subsidiaries to incuradditional indebtedness, create liens, pay dividends, redeem capital stock or make certain other restricted payments or investments; enter into agreementsthat restrict dividends from restricted subsidiaries; sell assets, including capital stock of restricted subsidiaries; engage in transactions with affiliates; andeffect a consolidation or merger. The Company has been in compliance with any such indentures and financing covenants.No portion of long-term and short-term debt as of December 31, 2017 (2016: $2,211 million) have been secured by collateral on substantially all of theCompany’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 theCompany’s current and future material wholly owned subsidiaries (“Guarantors”). F-35Table of ContentsPursuant to various security documents related to the $600 million committed revolving credit facility, the Company and each Guarantor has grantedfirst 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 thanSMST 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 andequipment, 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, indemnificationrights, 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, fraudulentpreference, “thin capitalization” rules or similar matters or providing security would be outside the applicable pledgor’s capacity or conflict withfiduciary duties of directors or cause material risk of personal or criminal liability after using commercially reasonable efforts to overcome suchobstacles; and • if providing such security would have a material adverse effect (as reasonably determined in good faith by such subsidiary) on the ability of suchsubsidiary 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 thecase of bank accounts, to the banks with whom the accounts are maintained. Such notice will only be provided after the secured notes areaccelerated.Subject to agreed security principles, if material property is acquired by the Company or a Guarantor that is not automatically subject to a perfectedsecurity interest under the security documents, then the Company or relevant Guarantor will within 60 days provide security over this property and delivercertain certificates and opinions in respect thereof as specified in the indenture governing the notes.2019 Cash Convertible Senior NotesIn November 2014, NXP issued $1,150 million principal amount of its 2019 Cash Convertible Senior Notes (the “Notes”). The 2019 Cash ConvertibleSenior 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 ConvertibleSenior Notes does not contain any financial covenants. Contractual interest payable on the 2019 Cash Convertible Senior Notes began accruing in December2014 and is payable semi-annually each December 1st and June 1st. The initial purchasers’ transaction fees and expenses totaling $16 million werecapitalized 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 followingevents: • the price of NXP’s common stock reaches 130% of the conversion price on each applicable trading day during certain periods of time specifiedin 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 commonstock 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 mayconvert their 2019 Cash Convertible Senior Notes into cash at any time, regardless of the foregoing circumstances. NXP may not redeem the 2019 CashConvertible Senior Notes prior to maturity.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 of2019 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 conversionpayable in cash. Upon cash conversion, a holder will receive the sum of the daily settlement amounts, calculated on a proportionate basis for each day, duringa 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 repurchasefor 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 thatthe portion of any global note or certified note, as applicable, not F-36Table of Contentstendered for repurchase has a principal amount of at least $200,000, on the fundamental change repurchase date. A fundamental change is any transaction orevent (whether by means of an exchange offer, change of common stock, liquidation, consolidation, merger, reclassification, recapitalization or otherwise) inwhich more than 50% of NXP’s common stock is exchanged for, converted into, acquired for or constitutes solely the right to receive, consideration. Atransaction or transactions described above will not constitute a fundamental change, however, if at least 90% of the consideration received or to be receivedby our common shareholders, excluding cash payments for fractional shares, in connection with such transaction or transactions consists of shares of commonequity 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 ortransactions 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, 2017, none of the conditions allowing the holders of the 2019 Cash Convertible Senior Notes to convert the 2019 CashConvertible 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 debthost. The embedded cash conversion option within the Cash Convertible Notes is required to be separated from the Cash Convertible Notes and accountedfor separately as a derivative liability, with changes in fair value reported in our Consolidated Statements of Income in other (expense) income, net until thecash conversion option settles or expires. The initial fair value liability of the embedded cash conversion option simultaneously reduced the carrying valueof the Cash Convertible Notes (effectively an original issuance discount). The embedded cash conversion option is measured and reported at fair value on arecurring basis, within Level 3 of the fair value hierarchy. The fair value of the embedded cash conversion option at December 31, 2017 was $301million (2016: $258 million) which is recorded in other long-term liabilities in the accompanying balance sheet. For the year ended December 31, 2017, thechange in the fair value of the embedded cash conversion option resulted in a loss of $43 million (2016: a loss of $17 million).Concurrently with the pricing of the 2019 Cash Convertible Senior Notes, NXP entered into hedge transactions, or the Notes Hedges, with variousparties 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 principalamount of the notes, subject to certain conversion rate adjustments in the Notes Indenture. These options expire on December 1, 2019, and must be settled incash. 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 inNXP’s Consolidated Balance Sheet. As of December 31, 2017, the estimated fair value of the Notes Hedges was $301 million (2016: $258 million).The Notes Embedded Conversion Derivative and the Notes Hedges are adjusted to fair value each reported period and unrealized gains and losses arereflected in NXP’s Consolidated Statements of Operations. Because the fair values of the Notes Embedded Conversion Derivative and the Notes Hedges aredesigned to have similar offsetting values, there was no impact to NXP’s Consolidated Statements of Operations relating to these adjustments to fair valueduring fiscal 2017 (2016: 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 an initialstrike 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 Warrantsexpire on various dates starting from March 2, 2020 and will be net share settled. Under the terms of the warrants, any Option Counterparty may adjust certainterms of its warrants upon the announcement, termination or occurrence of certain events. The warrant transactions may also be terminated if the OptionCounterparty determines that no such adjustment will produce a commercially reasonable result, and that the relevant event is reasonably likely to occur. Inparticular, each Option Counterparty may adjust the terms of its warrants to compensate it for the economic effect of the announcements relating to theproposed acquisition of NXP by Qualcomm (including announcements of consummation, cancellation, withdrawal or discontinuance of the proposedacquisition), taking into account changes in volatility, expected dividends, stock loan rate or liquidity and any stock price discontinuity relevant to ourcommon stock or the warrants. There have been no adjustments made at this time. Any such adjustment in the future may increase our delivery obligationsupon expiration and settlement of the warrants or our obligations upon their cancellation, termination or unwinding, which would be settled using shares ofour stock. NXP received $134 million in cash proceeds from the sale of the Warrants, which were at the time of issuance recorded in Other non-currentliabilities. 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, andmark-to-market accounting is no longer applicable. The Warrants are included in diluted earnings per share to the extent the impact is dilutive. As ofDecember 31, 2017, 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 ofDecember 31, 2017 and 2016 was as follows: (in millions) As of December 31 2017 2016 Principal amount of 2019 Cash Convertible Senior Notes 1,150 1,150 Unamortized debt discount of 2019 Cash Convertible Senior Notes 91 136 Net liability of 2019 Cash Convertible Senior Notes 1,059 1,014 F-37Table of ContentsThe effective interest rate, contractual interest expense and amortization of debt discount for the 2019 Cash Convertible Senior Notes for fiscal 2017and 2016 were as follows: (in millions, except percentage) 2017 2016 Effective interest rate 5.14% 5.14% Contractual interest expense 12 12 Amortization of debt discount 42 40 As of December 31, 2017, the if-converted value of the 2019 Cash Convertible Senior Notes exceeded the principal amount of the Notes. The total fairvalue of the 2019 Cash Convertible Senior Notes was $1,418 million.Impact of Conversion Contingencies on Financial StatementsAt the end of each quarter until maturity of the 2019 Cash Convertible Senior Notes, NXP will reassess whether the stock price conversion conditionhas been satisfied. If one of the early conversion conditions is satisfied in any future quarter, NXP would classify its net liability under the 2019 CashConvertible Senior Notes as a current liability on the Consolidated Balance Sheet as of the end of that fiscal quarter. If none of the early conversionconditions have been satisfied in a future quarter prior to the one-year period immediately preceding the maturity date, NXP would classify its net liabilityunder 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 holdersof the 2019 Cash Convertible Senior Notes elect to convert their 2019 Cash Convertible Senior Notes prior to maturity, any unamortized discount andtransaction fees will be expensed at the time of conversion.17 Commitments and ContingenciesLease CommitmentsAt December 31, 2017 and 2016, there were no material capital lease obligations. Long-term operating lease commitments totaled $132 million as ofDecember 31, 2017 (2016: $113 million). The long-term operating leases are mainly related to the rental of buildings and tools. These leases expire atvarious dates during the next 30 years. Future minimum lease payments under operating leases are as follows: 2018 34 2019 29 2020 24 2021 15 2022 9 Thereafter 21 Total future minimum leases payments 132 Rent expense amounted to $63 million in 2017 (2016: $68 million; 2015: $70 million).Purchase CommitmentsThe Company maintains purchase commitments with certain suppliers, primarily for raw materials, semi-finished goods and manufacturing services andfor some non-production items. Purchase commitments for inventory materials are generally restricted to a forecasted time-horizon as mutually agreed uponbetween the parties. This forecasted time-horizon can vary for different suppliers. As of December 31, 2017, the Company had purchase commitments of$633 million, which are due through 2026.LitigationWe are regularly involved as plaintiffs or defendants in claims and litigation relating to a variety of matters such as contractual disputes, personalinjury claims, employee grievances and intellectual property litigation. In addition, our acquisitions, divestments and financial transactions sometimes resultin, or are followed by, claims or litigation. Some of these claims may possibly be recovered from insurance reimbursements. Although the ultimatedisposition of asserted claims cannot be predicted with certainty, it is our belief that the outcome of any such claims, either individually or on a combinedbasis, will not have a material adverse effect on our consolidated financial position. However, such outcomes may be material to our Consolidated Statementof 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 aloss contingency and the amount of the loss contingency can be reasonably estimated.Based on the most current information available to it and based on its best estimate, the Company also reevaluates at least on a quarterly basis theclaims 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 proceduresdescribed above, the Company has an aggregate amount of $104 million accrued for potential and current legal proceedings pending as of December 31,2017, compared to $55 million accrued (without reduction for any related insurance reimbursements) at December 31, 2016. The accruals are included in“Accrued liabilities” and “Other non-current liabilities”. As of December 31, 2017, the Company’s balance related to insurance reimbursements was$61 million and is included in “Other current assets” and “Other non-current assets”. F-38Table of ContentsThe Company also estimates the aggregate range of reasonably possible losses in excess of the amount accrued based on currently availableinformation for those cases for which such estimate can be made. The estimated aggregate range requires significant judgment, given the varying stages of theproceedings (including the fact that many of them are currently in preliminary stages), the existence of multiple defendants (including the Company) in suchclaims whose share of liability has yet to be determined, the numerous yet-unresolved issues in many of the claims, and the attendant uncertainty of thevarious potential outcomes of such claims. Accordingly, the Company’s estimate will change from time to time, and actual losses may be more than thecurrent estimate. As at December 31, 2017, the Company believes that for all litigation pending its potential aggregate exposure to loss in excess of theamount accrued (without reduction for any amounts that may possibly be recovered under insurance programs) could range between $0 and $277 million.Based upon our past experience with these matters, the Company would expect to receive insurance reimbursement on certain of these claims that wouldoffset the potential maximum exposure of up to $204 million.In addition, the Company is currently assisting Motorola in the defense of eight personal injury lawsuits due to indemnity obligations included in theagreement that separated Freescale from Motorola in 2004, and is defending one suit related to semiconductor operations that occurred prior to NXP’sseparation from Philips. The multi-plaintiff Motorola lawsuits are pending in Cook County, Illinois, and the legacy NXP suit is pending in Santa Fe, NewMexico. These claims allege a link between working in semiconductor manufacturing clean room facilities and birth defects in 51 individuals. The eightMotorola suits allege exposures that occurred between 1965 and 2006. Each suit seeks an unspecified amount of damages in compensation for the allegedinjuries; however, legal counsel representing the plaintiffs has indicated they will seek substantial compensatory and punitive damages from Motorola for theentire inventory of claims which, if proven and recovered, the Company considers to be material. In the Motorola suits, a portion of any indemnity due toMotorola will be reimbursed to NXP if Motorola receives an indemnification payment from its insurance coverage. Motorola has potential insurancecoverage for many of the years indicated above, but with differing types and levels of coverage, self-insurance retention amounts and deductibles. We are indiscussions with Motorola and their insurers regarding the availability of applicable insurance coverage for each of the individual cases. Motorola and NXPhave denied liability for these alleged injuries based on numerous defenses.Environmental remediationIn each jurisdiction in which we operate, we are subject to many environmental, health and safety laws and regulations that govern, among otherthings, emissions of pollutants into the air, wastewater discharges, the use and handling of hazardous substances, waste disposal, the investigation andremediation of soil and ground water contamination and the health and safety of our employees. We are also required to obtain environmental permits fromgovernmental 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 liabilityat our current and historical manufacturing facilities. Certain environmental laws impose liability on current or previous owners or operators of real propertyfor the cost of removal or remediation of hazardous substances. Certain of these laws also assess liability on persons who arrange for hazardous substances tobe 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, 2017, we have recorded $89 million for environmental remediation costs, which are primarily included in other non-currentliabilities in the accompanying Consolidated Balance Sheet. This amount represents the undiscounted future cash flows of our estimated share of costsincurred in environmental cleanup sites without considering recovery of costs from any other party or insurer, since in most cases potentially responsibleparties other than us may exist and be held responsible.18 Stockholders’ EquityThe share capital of the Company as of December 31, 2017 and 2016 consists of 1,076,257,500 authorized shares, including 430,503,000 authorizedshares of common stock, and 645,754,500 authorized but unissued shares of preferred stock.At December 31, 2017, the Company has issued and paid up 346,002,862 shares (2016: 346,002,862 shares) of common stock each having a par valueof €0.20 or a nominal stock capital of €69 million.Share-based awardsThe Company has granted share-based awards to the members of our board of directors, management team, our other executives, selected other keyemployees/talents of NXP and selected new hires to receive the Company’s shares in the future. See note 9, “Share-based Compensation”. F-39Table of ContentsTreasury sharesShare repurchases since the announcement of the potential acquisition by Qualcomm solely relate to employee equity transactions. In connection withthe 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 areheld 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 afirst-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 inexcess 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: 2017 2016 2015 Total shares in treasury at beginning of year 10,609,980 3,998,982 19,171,454 Total cost 915 342 1,219 Shares acquired under repurchase program 2,522,589 15,537,868 5,336,310 Average price in $ per share 113.36 82.36 88.93 Amount paid 286 1,280 475 Shares delivered 10,054,099 8,926,870 5,008,782 Average price in $ per share 85.42 79.25 62.30 Amount received 233 115 51 Shares issued for the business combination — — 15,500,000 Total shares in treasury at end of year 3,078,470 10,609,980 3,998,982 Total cost 342 915 342 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 Statementsof Operations. The after-tax components of accumulated other comprehensive income (loss) and their corresponding changes are shown below: Netinvestmenthedge Currencytranslationdifferences Changein fairvaluecashflowhedges Netactuarialgain/(losses) Unrealizedgains/lossesavailable-forsalesecurities AccumulatedOtherComprehensiveIncome (loss) 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 comprehensiveincome (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 Other comprehensive income (loss) before reclassifications 156 29 (20) (3) 162 Amounts reclassified out of accumulated other comprehensiveincome (loss) — (15) — (6) (21) Tax effects — (4) 4 2 2 Other comprehensive income (loss) 156 10 (16) (7) 143 As of December 31, 2017 — 269 8 (97) (3) 177 F-40Table of Contents20 Related-party TransactionsThe Company’s related parties are the members of the board of directors of NXP Semiconductors N.V., the members of the management team of NXPSemiconductors N.V., equity-accounted investees and Qualcomm Incorporated. As of the divestment of the SP business on February 6, 2017, the newlyformed Nexperia has become a related party.OtherWe have a number of strategic alliances and joint ventures. We have relationships with certain of our alliance partners in the ordinary course ofbusiness whereby we enter into various sale and purchase transactions, generally on terms comparable to transactions with third parties. However, in certaininstances upon divestment of former businesses where we enter into supply arrangements with the former owned business, sales are conducted at cost.The following table presents the amounts related to revenue and other income and purchase of goods and services incurred in transactions with theserelated parties: 2017 2016 2015 Revenue and other income 130 59 8 Purchase of goods and services 144 116 85 The following table presents the amounts related to receivable and payable balances with these related parties: 2017 2016 Receivables 54 13 Payables 77 29 As part of the divestment of the SP business, we entered into a lease commitment to Nexperia in the amount of $41 million and committed $50 millionto an investment fund affiliated with Nexperia’s owners.21 Fair Value of Financial Assets and LiabilitiesThe following table summarizes the estimated fair value and carrying amount of our financial instruments measured on a recurring basis: December 31, 2017 December 31, 2016 Fair valuehierarchy Carryingamount Estimatedfair value Carryingamount Estimatedfair value Assets: Notes hedges 31) 301 301 258 258 Other financial assets 2 29 29 40 40 Derivative instruments-assets 2 10 10 3 3 Liabilities: Short-term debt 2 (2) (2) (15) (15) Short-term debt (bonds) 2 (749) (755) (406) (406) Long-term debt (bonds) 2 (4,728) (4,879) (7,752) (8,011) 2019 Cash Convertible Senior Notes 2 (1,059) (1,418) (1,014) (1,310) Other long-term debt 2 (27) (27) (1) (1) Notes Embedded Conversion Derivative 31) (301) (301) (258) (258) Derivative instruments-liabilities 2 — — (6) (6) 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 fairvalue hierarchy.The following methods and assumptions were used to estimate the fair value of financial instruments:Other financial assets and derivativesFor other financial assets and derivatives the fair value is based upon significant other observable inputs depending on the nature of the other financialasset and derivative.Notes hedges and Notes Embedded Conversion DerivativeAt December 31, 2017, the Notes hedges and the Notes Embedded Conversion Derivative are measured at fair value using level 3 inputs. Theinstruments are not actively traded and are valued at the measurement date using an option pricing model that uses observable inputs for the share price ofNXP’s common stock, risk-free interest rate, dividend yield and the term, in combination with a significant unobservable input for volatility. Volatility hashistorically been determined by a hypothetical market place. During the second quarter of 2017, an adjustment was made to this factor where we utilized thehypothetical F-41Table of Contentsmarketplace and also considered the implied volatility in actively traded call options with a similar term. The volatility factor utilized at December 31, 2017was 29% and at December 31, 2016 the volatility factor utilized was 37%. The change in the fair value of the Notes hedges and Notes Embedded ConversionDerivative was solely the gain and loss, respectively for each instrument that was recognized.DebtThe fair value is estimated on the basis of observable inputs other than quoted prices in active markets for identical liabilities for certain issues, or onthe basis of discounted cash flow analyses. Accrued interest is included under accrued liabilities and not within the carrying amount or estimated fair value ofdebt.Assets and liabilities recorded at fair value on a non-recurring basisWe 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 RiskWe conduct business in diverse markets around the world and employ a variety of risk management strategies and techniques to manage foreigncurrency exchange rate and interest rate risks. Our risk management program focuses on the unpredictability of financial markets and seeks to minimize thepotentially adverse effects that the volatility of these markets may have on our operating results. One way we achieve this is through the active hedging ofrisks 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 riskThe Company’s transactions are denominated in a variety of currencies. The Company uses financial instruments to reduce its exposure to the effects ofcurrency fluctuations. Accordingly, the Company’s organizations identify and measure their exposures from transactions denominated in other than theirown functional currency. We calculate our net exposure on a cash flow basis considering balance sheet items, actual orders received or made and anticipatedrevenue and expenses. The Company generally hedges foreign currency exposures in relation to transaction exposures, such as receivables/payables resultingfrom such transactions and part of anticipated sales and purchases. The Company generally uses forwards to hedge these exposures. As of January 1, 2016, asa result of the acquisition of Freescale, NXP has concluded that the functional currency of the holding company is USD. Beginning from January 1, 2016, ourU.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 byour Dutch subsidiary (which had at that time a euro functional currency) could have generated adverse currency results in financial income and expensesdepending on the exchange rate movement between the euro and the U.S. dollar. This exposure was partially mitigated by the application of net investmenthedge accounting, which had been applied since May 2011. The U.S. dollar exposure of the net investment in U.S. dollar functional currency subsidiarieswas hedged by certain of our U.S. dollar denominated debt. The hedging relationship was assumed to be highly effective. Foreign currency gains or losses onthis 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 netinvestment in our U.S. dollar foreign entities, were reported as a translation adjustment in other comprehensive income within equity, and offset in whole orin part the foreign currency changes to the net investment that were also reported in other comprehensive income. Absent the application of net investmenthedging, these amounts would have been recorded as a loss within financial income (expense) in the statement of operations. No amount resulting fromineffectiveness of net investment hedge accounting was recognized in the statement of operations in 2015 and 2014.23 Segments and Geographical InformationPrior to February 6, 2017, NXP was organized into two reportable segments, High Performance Mixed Signal (“HPMS”) and Standard Products (“SP”).As of February 6, 2017, the SP reportable segment was divested and HPMS remains as the sole reportable segment. Corporate and Other represents theremaining portion to reconcile to the Consolidated Financial Statements. Effective with the Merger, the operations of Freescale were primarily incorporatedinto 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 acrosseight application areas: automotive, identification, mobile, consumer, computing, wireless infrastructure, lighting and industrial, and software solutions formobile phones. Our SP business segment offered standard products for use across many application markets, as well as application-specific standard productspredominantly used in application areas such as mobile handsets, computing, consumer and automotive. The segments each include revenue from the saleand licensing of intellectual property related to that segment. F-42Table of ContentsBecause the Company meets the criteria for aggregation set forth under ASC 280 “Segment Reporting”, and the operating segments have similareconomic characteristics, the Company aggregates the results of operations of the Automotive, Secure Identification Solutions, Secure Connected Devicesand Secure Interfaces and Infrastructure operating segments into one reportable segment, HPMS, and prior to February 6, 2017, the Standard Products andGeneral 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 aboutresources to be allocated to the segments and to assess their performance. Segment results that are reported to the CODM include items directly attributable toa 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 ourassets are used jointly or managed at corporate level. Arithmetical allocation of these assets to the various businesses is not deemed to be meaningful and assuch total assets per segment has been omitted.Detailed information by segment for the years 2017, 2016 and 2015 is presented in the following tables. Revenue 2017 2016 2015 HPMS 8,745 8,086 4,720 SP 118 1,220 1,241 Corporate and Other (1) 393 192 140 9,256 9,498 6,101 Operating income (loss) 2017 2016 2015 HPMS 656 (302) 1,885 SP 31 268 264 Corporate and Other (1) 1,415 (116) (134) 2,102 (150) 2,015 (1) Corporate and Other is not a reporting segment under ASC 280 “Segment Reporting”. Corporate and Other includes revenue related to manufacturingoperations, unallocated expenses not related to any specific business segment and corporate restructuring charges. The gain on the sale of thedivestment of SP business is included in the operating income of Corporate and Other. Goodwill assigned to segments Cost atJanuary 1,2017 Acquisitions Transfer toasset heldfor sale Translationdifferencesand otherchanges Cost atDecember 31,2017 HPMS 8,728 — — 22 8,750 SP 32 — — (32) — Corporate and Other (1) 269 — — 1 270 9,029 — — (9) 9,020 See note 3 for further information regarding the acquisition of Freescale. AccumulatedimpairmentatJanuary 1,2017 Translationdifferencesand otherchanges Accumulatedimpairment atDecember 31,2017 HPMS (154) — (154) SP (32) 32 — Corporate and Other (1) — — — (186) 32 (154) (1) Corporate and Other is not a reporting segment under ASC 280 “Segment Reporting”. F-43Table of ContentsGeographical Information Revenue (1) Property, plant and equipment, net 2017 2016 2015 2017 2016 2015 China 3,640 3,882 3,135 281 251 360 Netherlands 304 285 177 198 183 161 United States 922 906 415 770 922 1,115 Singapore 1,082 984 526 211 166 186 Germany 570 623 392 57 52 98 Japan 750 550 316 — 1 2 South Korea 356 369 268 — — 1 Malaysia 103 231 41 369 378 473 Other countries 1,529 1,668 831 409 399 526 9,256 9,498 6,101 2,295 2,352 2,922 (1) Revenue attributed to geographic areas is based on the customer’s shipped-to location (except for intellectual property license revenue which isattributable to the Netherlands).24 Subsequent EventsNXP Semiconductors N.V. through its subsidiaries NXP B.V. and NXP Funding LLC, delivered notice on March 2, 2018 to the holders of its 5.75%Senior Notes due 2023 (the “Notes”) that on April 2, 2018, it fully redeemed the $500 million of outstanding principle amount of the Notes, as permittedunder Article 3 of the indenture dated February 14, 2013 and paragraph 5 of the Notes. The funds for this redemption coming from available surplus cash.Additionally, on March 9, 2018, NXP Semiconductors N.V. through its subsidiaries NXP B.V. and NXP Funding LLC, delivered notice to the holdersof its 3.75% Senior Notes due 2018 (the “Notes”) that on April 9, 2018, it fully redeemed the $750 million of the outstanding aggregate principal amount ofthe Notes, as permitted under Article 3 of the indenture dated February 14, 2013 and paragraph 5 of the Notes. The funds for this redemption coming fromavailable surplus cash.On March 27, 2018, NXP Semiconductors N.V. through its subsidiary NXP B.V., has entered into a definitive agreement to sell its 40% equity interestof Suzhou ASEN Semiconductors Co., Ltd. to J&R Holding Limited. The closing of this transaction is expected in the second quarter of 2018, subject tocustomary regulatory approvals. F-44Exhibit 10.21 NXP Restricted Stock Units Plan 2017/18 Page 1 of 7 NXP Restricted Stock Units Plan October 26, 2017 TERMS AND CONDITIONSOFNXP RESTRICTED STOCK UNITS PLAN 2017/18Article 1 DefinitionsIn this NXP Restricted Stock Units Plan the following definitions shall apply: 1.  Board: the board of directors of NXP.2.  Change of Control: a transaction or series of transactions or the conclusion of an agreement, which alone or taken together has theeffect that as a result thereof a third party, or third parties acting in concert, obtains, whether directly orindirectly, Control of NXP.3.  Control: (i) the ownership, whether direct or indirect, of a party or parties acting in concert, of more than 50.1% percentof (a) the issued Share capital and/or (b) the voting rights in the general meeting of shareholders; or (ii) theright, whether direct or indirect, of a party or parties acting in concert to control the composition of the majorityof the Board of NXP, or the majority of its voting rights, by contract or otherwise.4.  Custody Account: a custody account maintained in the name of a Participant.5.  Date of Grant: the date at which a Restricted Stock Unit is granted pursuant to this Plan. The Dates of Grant of any RestrictedStock Units shall be the same dates as the dates of publication of the NXP’ annual and/or quarterly results. Therelevant Date of Grant and categorization of any Restricted Stock Unit with respect to any grant hereunder shallbe determined by NXP.6.  Date of Vesting: the date of vesting shall be the first, second or third anniversary of the Date of Grant of such Restricted StockUnit as specified in the Grant Letter. For this purpose, Restricted Stock Units may be categorized as “1 YearTerm Restricted Stock Units”, “2 Year Term Restricted Stock Units” or “3 Year Term Restricted Stock Units”.7.  Eligible Individual: Means an employee of NXP and its direct and indirect subsidiaries or such other person as determined by or onbehalf of the Board.8.  Employing Company: Any of NXP and its direct and indirect subsidiaries and such other company as designated by or on behalf of theBoard.9.  Good Reason: If the Participant does not have an employment agreement with the Employing Company in which GoodReason is defined, “Good Reason” means, in the absence of the Participant’s written consent, any of thefollowing: (i) a material reduction by the Employing Company in the Page 2 of 7 NXP Restricted Stock Units Plan October 26, 2017  Participant’s base salary or target bonus unless the base salary or target bonus of other NXP employees orofficers in a similar position is reduced by a similar percentage or amount as part of cost reductions,restructuring, or job grade alignment affecting all of the company or the Participant’s Employing Company orbusiness unit; or (ii) a material diminution in the Participant’s duties or responsibilities (other than as a result ofthe Participant’s physical or mental incapacity which impairs his or her ability to materially perform his or herduties or responsibilities as confirmed by a doctor reasonably acceptable to the Participant or his or herrepresentative and such diminution lasts only for so long as such doctor determines such incapacity impairs theParticipant’s ability to materially perform his or her duties or responsibilities). A lateral job change that doesnot materially diminish the Participant’s duties or responsibilities will not constitute Good Reason.10.  Grant Letter: the letter in which Restricted Stock Units are granted to an Eligible Individual.11.  NXP: NXP Semiconductors N.V.12.  Participant: an individual who has accepted any Restricted Stock Units under this Plan.13.  Plan: this NXP Restricted Stock Units Plan.14.  Restricted Stock Unit: the conditional right granted to a Participant to receive one Share, subject to the terms and conditions of thisPlan. Restricted Stock Units may be categorized as “1 Year Term Restricted Stock Units”, “2 Year TermRestricted Stock Units” or “3 Year Term Restricted Stock Units”, as applicable.15.  Share: a common share in the share capital of NXP (to be) delivered under this Plan.Article 2Grant of Restricted Stock Units 1.Any Restricted Stock Units may be granted by or on behalf of the Board to an Eligible Individual, subject to the terms and conditions of this Plan andany other NXP policies or guidelines that may apply to such individual. Any Restricted Stock Units offered to any such individual and the terms andconditions governing such rights shall be deemed accepted by such individual with effect from the applicable Date of Grant in case NXP has notreceived, in accordance with a procedure established by NXP, a notice of rejection of such rights within fourteen (14) days of the Grant Letter or suchlater date as may be determined by NXP. 2.The Grant Letter shall reflect, inter alia, the Date of Grant, the number and category of Restricted Stock Units awarded, the vesting schedule andrelevant specifications, if any. Page 3 of 7 NXP Restricted Stock Units Plan October 26, 2017 Article 3Vesting of a Restricted Stock Unit 1.A Restricted Stock Unit will vest (i.e. become unconditional and the corresponding Shares will be delivered to the relevant Participant) on orimmediately following the relevant Date of Vesting subject to (i) any specifications in the Grant Letter, and (ii) Article 4 (Termination of Employment).In the event that the Participant’s employment is terminated by the Employing Company without the Participant being a Bad Leaver (as defined inArticle 4(2)) or by the Participant for Good Reason, in either case within twelve months following a Change of Control, all unvested Restricted StockUnits shall become immediately vested (for 100%, accelerated vesting), unless the Grant Letter stipulates differently. 2.Whether any applicable specifications are met, and whether the relevant Participant is still employed by an Employing Company at the relevant time,will be established by the Board or its delegate, in each case, in its sole discretion.Article 4Termination of Employment 1.Unvested Restricted Stock Units shall lapse, on the earliest of the following occasions, without notice and without any compensation: a.if a Participant’s employment terminates and such Participant is no longer employed by any Employing Company; b.upon violation by the Participant of any provision of this Plan or the Grant Letter in which case the Restricted Stock Units shall lapse on the dateof such violation (rather than the date on which such violation comes to the attention of NXP). 2.For purposes of this Program, a “Bad Leaver” shall be a Participant whose employment with NXP or an Employing Company is terminated (i) followingthe Participant committing an act of theft, fraud, serious misconduct or deliberate falsification of records in relation to his duties for NXP or theEmploying Company, (ii) following the Participant being convicted of or pleading guilty to a serious criminal offence (misdrijf) relating to his dutiesfor NXP or the Employing Company (excluding any motoring or non-duty related minor offence), which act or criminal offence referred to in (i) and/or(ii) has a material adverse effect upon NXP or the Employing Company, (iii) with immediate effect because of an urgent cause (dringende reden) asreferred to in article 7:678 of the Dutch Civil Code for cause, (iv) a Participant materially violates the NXP Code of Conduct or similarly significantrule or policy of NXP or the Employing Company, or (v) a Participant within the twelve (12) month period following the termination of employment,directly or indirectly and in any capacity whatsoever, engages in any activities in competition with the activities of any member of the NXP group,including the Participant personally actively soliciting or personally actively endeavoring to entice away or personally actively recruiting any NXPemployees in said period.Article 5Non-transferabilityThe Restricted Stock Units are strictly personal, and may not be assigned, transferred, pledged, hypothecated, or otherwise encumbered or disposed of in anymanner nor may any transaction be entered into with the same effect. The Participant may not engage in any transactions on any exchange on the basis of anyRestricted Stock Units. Page 4 of 7 NXP Restricted Stock Units Plan October 26, 2017 Article 6Delivery and Holding of Shares 1.NXP may require a Participant to maintain a Custody Account in connection with this Plan. Nothing contained in this Plan shall obligate NXP toestablish or maintain or cause to establish or maintain a Custody Account for any Participant. The Participant will provide NXP with the details thereof. 2.Subject to the terms and conditions of this Plan and the Grant Letter, and further to the Participants election via the website, NXP will deliver a Share toa Participant on or as soon as reasonably practicable, and in any event within 2.5 months, after the relevant Date of Vesting. In no event shall NXP haveany obligation to deliver any Shares to a Participant prior to the relevant Date of Vesting. 3.Any Shares to be delivered pursuant to Article 6(2) will be credited to the Custody Account.Article 7Capital DilutionNXP may make any equitable adjustment or substitution of the number or kind of Shares subject to the Restricted Stock Units, as it, in its sole discretion,deems equitable to reflect any significant corporate event of or by NXP, for example a change in the outstanding Shares by reason of any stock dividend orsplit, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other corporate change, or any distribution to holders of Sharesother than regular cash dividends.Article 8Costs and Taxes 1.All costs of delivering any Shares under this Plan to a Participant’s Custody Account and any other costs connected with the Shares shall be borne bythe Participant. 2.Any and all taxes, duties, levies, charges or social security contributions (“Taxes”) which arise under any applicable national, state, local or supra-national laws, rules or regulations, whether already effective on the Date of Grant of any Restricted Stock Units or becoming effective thereafter, andany changes or modifications therein and termination thereof which may result for the Participant in connection with this Plan (including, but notlimited to, the grant of the Restricted Stock Units, the ownership of the Restricted Stock Units and/or the delivery of any Shares under this Plan, theownership and/or the sale of any Shares acquired under this Plan) shall be for the sole risk and account of the Participant. 3.NXP and any other Employing Company shall have the right to deduct or withhold (or cause to be deducted or withheld) from any salary payment orother sums due by NXP or any other Employing Company to Participant, or requiring the Participant or beneficiary of the Participant, to pay to NXP anamount necessary to settle any Taxes and any costs determined by NXP necessary to be withheld in connection with this Plan (including, but notlimited to, the grant of the Restricted Stock Units or the delivery of any Shares under this Plan). Page 5 of 7 NXP Restricted Stock Units Plan October 26, 2017 Article 9Cash AlternativeIn exceptional circumstances, at the sole discretion of the Board, upon the Date of Vesting, NXP may advise a Participant resident outside the Netherlands torequest in writing an amount in cash as an alternative to Shares. Upon such request the Participant is entitled to receive an amount in U.S. Dollars, equal tothe price of a Share listed at the NASDAQ Global Select Market with dividend, if any, at closing of NASDAQ, multiplied by the relevant number of vestedRestricted Stock Units. If on the date of receipt of the request from the Participant, Shares have not been traded at NASDAQ, the price of a Share will be theopening price of the first subsequent trading day at NASDAQ. Any costs to be paid and any applicable Taxes due shall be deducted from the amount to bereceived by the Participant.Article 10General ProvisionsInsider trading rules 1.Each Participant shall comply with any applicable “insider trading” laws and regulations, including the “NXP Semiconductor N.V.’ Insider TradingPolicy”.Authority for this Plan 2.NXP shall have the authority to interpret this Plan, to establish, amend, and rescind any rules and regulations relating to this Plan, to determine and—ifdeemed necessary or advisable—amend the terms and conditions of any agreements entered into hereunder, to make all other determinations necessaryor advisable for the administration of this Plan. To the extent required by law, the general meeting of shareholders of NXP will be requested to adopt orapprove such changes. 3.NXP may delegate the authority to perform administrative and operational functions with respect to this Plan to officers or employees of subsidiaries ofNXP and to service providers. Such delegation may include the authority to interpret this Plan and establish, amend and rescind rules, regulations termsand conditions in force from time to time applicable to Restricted Stock Units granted and the Shares obtained under this Plan.Shareholder rights 4.No Participant shall have any rights or privileges of shareholders (including the right to receive dividends and to vote) with respect to Shares to bedelivered pursuant to the Restricted Stock Units until such Shares are actually delivered to him in accordance with Article 6 of this Plan. The Sharesdelivered shall carry the same rights as common shares of NXP traded at NASDAQ on the day on which these Shares are delivered.Non-recurring discretionary grant 5.Eligibility and participation shall be at the sole discretion of NXP or the Employing Company and as such do not qualify as terms and conditions ofemployment. The Grant in one year does not create rights for future years. 6.The (value of) Restricted Stock Units granted to, or Shares acquired by a Participant pursuant to such Restricted Stock Unit, under this Plan shall not beconsidered as compensation in determining a Participant’s benefits under any benefit plan of an Employing Company, including but not limited to,group life insurance, long-term disability, family survivors, or any retirement, pension or savings plan. Page 6 of 7 NXP Restricted Stock Units Plan October 26, 2017 7.Nothing contained in this Plan, Grant Letter or any agreement entered into pursuant hereto shall confer upon any Participant any right to be employedwith any Employing Company for any period of time, or to be entitled to any remuneration or benefits not set forth in this Plan, or to interfere with orlimit in any way with the right of any Employing Company or any of its subsidiaries to terminate such Participant’s employment or to discharge orretire any Participant at any time.Miscellaneous 8.If a provision of this Plan is deemed illegal or invalid, the illegality or invalidity shall not affect the remaining parts of this Plan, this Plan shall beconstrued as if the illegal or invalid provisions had not been included in this Plan. 9.Where the context requires, words in either gender shall include also the other gender.Choice of law and forum 10.This Plan shall be governed by and construed in accordance with the laws of The Netherlands, without regard to its principles of conflict of laws. Anydispute arising under or in connection with this Plan shall be settled by the competent courts in Amsterdam, The Netherlands. • • • • • Page 7 of 7 NXP Restricted Stock Units Plan October 26, 2017 Exhibit 12.1Certification of R. Clemmer filed pursuant to 17 CFR 240. 13a-14(a)CERTIFICATIONI, Rick Clemmer, certify that:1. I have reviewed this annual report on Form 20-F of NXP Semiconductors N.V.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the companyand have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annualreport that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the company’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controlover financial reporting. Dated: April 11, 2018/s/ Rick ClemmerRick ClemmerExecutive Director, President and Chief Executive OfficerExhibit 12.2Certification of P. Kelly filed pursuant to 17 CFR 240. 13a-14(a)CERTIFICATIONI, Peter Kelly, certify that:1. I have reviewed this annual report on Form 20-F of NXP Semiconductors N.V.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report;4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the companyand have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annualreport that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the company’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controlover financial reporting. Date: April 11, 2018/s/ Peter KellyPeter KellyExecutive Vice President and Chief Financial OfficerExhibit 13.1Certification of R. Clemmer filed pursuant to 17 CFR 240. 13a-14(b)CERTIFICATIONPursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), theundersigned officer of NXP Semiconductors N.V. (the “Company”), hereby certifies, to such officer’s knowledge, that:The Annual Report on Form 20-F for the year ended December 31, 2017 (the “Report”) of the Company fully complies with the requirements of section 13(a)or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents, in all material respects, the financial condition andresults of operations of the Company.Dated: April 11, 2018 /s/ Rick ClemmerRick ClemmerExecutive Director, President and Chief Executive OfficerThe foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350,chapter 63 of title 18, United States Code) and is not being filed as part of the Report or as a separate disclosure document.Exhibit 13.2Certification of P. Kelly filed pursuant to 17 CFR 240. 13a-14(b)CERTIFICATIONPursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), theundersigned officer of NXP Semiconductors N.V. (the “Company”), hereby certifies, to such officer’s knowledge, that:The Annual Report on Form 20-F for the year ended December 31, 2017 (the “Report”) of the Company fully complies with the requirements of section 13(a)or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents, in all material respects, the financial condition andresults of operations of the Company.Date: April 11, 2018 /s/ Peter KellyPeter KellyExecutive Vice President and Chief Financial OfficerThe foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350,chapter 63 of title 18, United States Code) and is not being filed as part of the Report or as a separate disclosure document.Exhibit 21.1LIST OF SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT.List of direct and indirect subsidiaries as of December 31, 2017 Country ofIncorporation Name legal entityAustralia Cohda Wireless Pty Ltd. (27%)*Austria NXP Semiconductors Austria GmbHAustria Catena DSP GmbHBelgium NXP Semiconductors Belgium N.V.Brazil NXP Semicondutores Brasil Ltda.British Virgin Islands Freescale Semiconductor Holding LimitedCanada NXP Canada Inc.Cayman Islands Freescale Semiconductor Cayman Holdings Ltd.China NXP (China) Management Ltd.China NXP (Chongqing) Semiconductors Co. Ltd.China NXP Semiconductors (Shanghai) Co., Ltd.China Suzhou ASEN Semiconductors Co., Ltd. (40%)*China WeEn Semiconductors Co., Ltd. (49%)*China Datang NXP Semiconductors Co., Ltd (49%)*China NXP Qiangxin (Tianjin) IC Design Co. Ltd. (75%)*China Freescale Semiconductor (China) Ltd.Czech Republic NXP Semiconductors Czech Republic s.r.o.France NXP Semiconductors France SASGermany SMST Unterstützungskasse GmbHGermany NXP Semiconductors Germany GmbHGermany Catena Germany GmbHHong Kong Semiconductors NXP Ltd.Hong Kong NXP Semiconductors Asia Hong Kong LimitedHong Kong Freescale Semiconductor Asia Enablement LimitedHungary NXP Semiconductors Hungary Ltd.Hungary Providence Holdings Befektetési Korlátolt Felelősségű TársaságIndia NXP India Pvt. Ltd.India Intoto Software India Private LimitedIreland GloNav Ltd.Israel NXP Semiconductors Israel LimitedIsrael Freescale Semiconductor Israel LimitedJapan NXP Japan LimitedKorea NXP Semiconductors Korea Ltd.Luxembourg Freescale Semiconductor Luxembourg Investing Services S.à.r.l.Luxembourg Freescale Semiconductor Luxembourg Treasury Services S.à.r.l.Malaysia Freescale Asia Fulfillment Centre Sdn Bhd.Malaysia Freescale Semiconductor Malaysia Sdn Bhd.Mexico NXP Semiconductors México, S. de R.L. de C.V.Netherlands NXP B.V.Netherlands NXP Semiconductors Netherlands B.V.Netherlands NXP Software B.V.Netherlands Catena Holding B.V.Netherlands Catena Microelectronics B.V.Netherlands Catena Radio Design B.V.Philippines NXP Philippines, Inc.Romania NXP Semiconductors Romania SrlRussia NXP Semiconductors Moscow LLCSingapore NXP Semiconductors Singapore Pte. Ltd.Singapore Systems on Silicon Manufacturing Company Pte Ltd (61.2%)*Sweden Catena Wireless Electronics ABSweden NXP Semiconductors Nordic ABSwitzerland NXP Semiconductors Switzerland AGSwitzerland Freescale Semiconductor EME&A SATaiwan NXP Semiconductors Taiwan Ltd.Thailand NXP Manufacturing (Thailand) Co., Ltd.Thailand NXP Semiconductors (Thailand) Co., Ltd.Turkey NXP Semiconductors Elektonik Ticaret A.S.United Kingdom NXP Laboratories UK Holding Ltd.United Kingdom NXP Laboratories UK Ltd.United Kingdom Athena SCS LimitedUnited Kingdom Freescale Semiconductor Holding UK LimitedUnited Kingdom Freescale Semiconductor UK LimitedUSA NXP Funding LLCUSA Intoto LLCUSA Freescale Semiconductor International CorporationUSA Zenverge LLCUSA Freescale Semiconductor Holdings V, Inc.USA NXP USA, Inc. * =joint ventureExhibit 23Consent of Independent Registered Public Accounting FirmThe Board of DirectorsNXP Semiconductors N.V:We consent to the incorporation by reference in the registration statements on Form F-3 (No. 333-209942) and Form S-8 (No. 333-221118, No. 333-220341,No. 333-203192, No. 333-190472, No. 333-172711) of NXP Semiconductors N.V of our report dated April 11, 2018, with respect to the consolidated balancesheets of NXP Semiconductors N.V. and subsidiaries as of December 31, 2017 and 2016, 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, 2017, and the related notes(collectively, the “consolidated financial statements”), and the effectiveness of internal control over financial reporting, which report appears in theDecember 31, 2017 Annual Report on Form 20-F of NXP Semiconductors N.V../s/ KPMG Accountants N.V.Amstelveen The NetherlandsApril 11, 2018

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