Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 1.48M
2: EX-1.01 Underwriting Agreement or Conflict Minerals Report HTML 30K
8: R1 Cover Document HTML 74K
9: R2 Condensed Consolidated Statements of Operations HTML 120K
(Unaudited)
10: R3 Condensed Consolidated Statements of Comprehensive HTML 58K
Income (Unaudited)
11: R4 Condensed Consolidated Balance Sheets (Unaudited) HTML 160K
12: R5 Condensed Consolidated Balance Sheets (Unaudited) HTML 29K
(Parenthetical)
13: R6 Condensed Consolidated Statements of Cash Flows HTML 138K
(Unaudited)
14: R7 Condensed Consolidated Statements of Changes in HTML 101K
Equity (Unaudited)
15: R8 Condensed Consolidated Statements of Changes in HTML 59K
Equity (Unaudited) (Parenthetical)
16: R9 Basis of Presentation and Overview HTML 23K
17: R10 Significant Accounting Policies and Recent HTML 23K
Accounting Pronouncements
18: R11 Supplemental Financial Information HTML 161K
19: R12 Restructuring HTML 40K
20: R13 Income Taxes HTML 33K
21: R14 Identified Intangible Assets HTML 39K
22: R15 Debt HTML 76K
23: R16 Related-Party Transactions HTML 33K
24: R17 Fair Value Measurements HTML 35K
25: R18 Commitments and Contingencies HTML 28K
26: R19 Significant Accounting Policies and Recent HTML 22K
Accounting Pronouncements (Policies)
27: R20 Supplemental Financial Information (Tables) HTML 177K
28: R21 Restructuring (Tables) HTML 39K
29: R22 Income Taxes (Tables) HTML 30K
30: R23 Identified Intangible Assets (Tables) HTML 41K
31: R24 Debt (Tables) HTML 71K
32: R25 Related-Party Transactions (Tables) HTML 33K
33: R26 Fair Value Measurements (Tables) HTML 31K
34: R27 Acquisitions and Divestments (Details) HTML 27K
35: R28 Supplemental Financial Information - HTML 32K
Disaggregation of revenue (Details)
36: R29 Supplemental Financial Information - Depreciation, HTML 35K
amortization and impairment (Details)
37: R30 Supplemental Financial Information - Financial HTML 39K
income and expense (Details)
38: R31 Supplemental Financial Information - Earnings per HTML 84K
share (Details)
39: R32 Supplemental Financial Information - Cash and cash HTML 32K
equivalents (Details)
40: R33 Supplemental Financial Information - Inventories HTML 34K
(Details)
41: R34 Supplemental Financial Information (Details) - HTML 28K
Equity investments
42: R35 Supplemental Financial Information - Other current HTML 34K
liabilities (Details)
43: R36 Supplemental Financial Information - Accumulated HTML 62K
other comprehensive income (Loss) (Details)
44: R37 Supplemental Financial Information - Cash HTML 25K
dividends (Details)
45: R38 Supplemental Financial Information - Summary of HTML 30K
carrying value of investments in equity-accounted
investees (Details)
46: R39 Supplemental Financial Information - Results HTML 27K
relating to equity-accounted investees (Details)
47: R40 Restructuring - Change in Restructuring Reserve HTML 32K
(Details)
48: R41 Restructuring - Narrative (Details) HTML 24K
49: R42 Restructuring - Schedule of Restructuring Charges HTML 29K
Recorded in Operating Income (Details)
50: R43 Income Taxes - Schedule of Income Tax Expense HTML 26K
(Benefits) and Effective Tax Rate (Details)
51: R44 Income Taxes (Details) HTML 30K
52: R45 Identified Intangible Assets - Summary of HTML 36K
Identified Intangible Assets (Details)
53: R46 Identified Intangible Assets - Schedule of HTML 34K
Estimated Amortization Expense (Details)
54: R47 Identified Intangible Assets - Narrative (Details) HTML 22K
55: R48 Debt - Schedule of Outstanding Debt (Details) HTML 88K
56: R49 Related-Party Transactions - Schedule of Amounts HTML 26K
Related to Revenue and Other Income and Purchase
of Goods and Services Incurred in Transactions
(Details)
57: R50 Related-Party Transactions - Schedule of Amounts HTML 26K
Related to Receivable and Payable Balances with
Related Parties (Details)
58: R51 Fair Value Measurements - Summary of Financial HTML 38K
Instruments (Details)
59: R52 Fair Value Measurements (Details) HTML 25K
60: R53 Commitments and Contingencies - Narrative HTML 36K
(Details)
63: XML IDEA XML File -- Filing Summary XML 121K
61: XML XBRL Instance -- nxpi-20220703_htm XML 1.62M
62: EXCEL IDEA Workbook of Financial Reports XLSX 99K
4: EX-101.CAL XBRL Calculations -- nxpi-20220703_cal XML 193K
5: EX-101.DEF XBRL Definitions -- nxpi-20220703_def XML 324K
6: EX-101.LAB XBRL Labels -- nxpi-20220703_lab XML 1.19M
7: EX-101.PRE XBRL Presentations -- nxpi-20220703_pre XML 693K
3: EX-101.SCH XBRL Schema -- nxpi-20220703 XSD 118K
64: JSON XBRL Instance as JSON Data -- MetaLinks 326± 488K
65: ZIP XBRL Zipped Folder -- 0001413447-22-000049-xbrl Zip 579K
(Exact name of registrant as specified in its charter)
iNetherlands
i98-1144352
(State
or other jurisdiction
of incorporation or organization)
(I.R.S. employer identification number)
i60 High Tech Campus
i5656
AG
iEindhoven
iNetherlands
(Address
of principal executive offices)
(Zip code)
i+31
i40
i2729999
(Registrant’s
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
iCommon
shares, EUR 0.20 par value
iNXPI
iThe Nasdaq Global Select Market
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 1934 during 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 filing requirements for the past 90 days.
iYes☒ No ☐
Indicate by check mark whether the
Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
iYes☒ No ☐
Indicate by check mark whether the
Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes i☐ No ☒
As of July 22, 2022, there were
i262,598,471 shares of our common stock, €0.20 par value per share, issued and outstanding.
See
accompanying notes to the Condensed Consolidated Financial Statements
5
NXP SEMICONDUCTORS N.V.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
All amounts in millions of $ unless otherwise stated
1 iBasis
of Presentation and Overview
We prepared our interim condensed consolidated financial statements that accompany these notes in conformity with U.S. generally accepted accounting principles, consistent in all material respects with those applied in our Annual Report on Form 10-K for the year ended December 31, 2021.
We have made estimates and judgments affecting the amounts reported in our condensed consolidated financial statements and the accompanying notes. The actual results that we experience may differ materially from our estimates. The interim financial information is unaudited, but reflects all normal adjustments that are, in our opinion, necessary to provide a fair statement of results for the interim periods presented. This interim information should be read in conjunction with the
consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021.
2 iSignificant Accounting Policies and Recent Accounting Pronouncements
Significant Accounting Policies
For a discussion of our significant
accounting policies see, “Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – “Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no changes to our significant accounting policies since our Annual Report on Form 10-K for the year ended December 31, 2021.
i
Accounting standards recently adopted
No
new accounting pronouncements were issued or became effective in the period that had, or are expected to have, a material impact on our Consolidated Financial Statements.
3 Acquisitions and Divestments
2022
There were iino/
material acquisitions or divestments during the first six months of 2022.
2021
On July 6, 2021, we acquired Retune DSP for a total consideration of $i15.7 million, net of closing adjustments.
4 iSupplemental
Financial Information
Statement of Operations Information:
Disaggregation of revenue
i
The following table presents revenue disaggregated by sales channel:
Amortization
of other identified intangible assets 1)
i164
i168
i330
i375
Total
- Depreciation, amortization and impairment
i317
i305
i627
i646
/
1)
For the six month period ending July 4, 2021, the amount includes an impairment charge as a result of the discontinuation of an IPR&D project for an amount of $i36 million.
Less:
net income (loss) attributable to non-controlling interests
i13
i9
i22
i20
Net
income (loss) attributable to stockholders
i670
i397
i1,327
i750
Weighted
average number of shares outstanding (after deduction of treasury shares) during the year (in thousands)
i262,579
i272,686
i262,837
i275,145
Plus
incremental shares from assumed conversion of:
Options 1)
i295
i394
i309
i406
Restricted
Share Units, Performance Share Units and Equity Rights 2)
i1,818
i5,655
i1,763
i5,512
Dilutive
potential common shares
i2,113
i6,049
i2,072
i5,918
Adjusted
weighted average number of shares outstanding (after deduction of treasury shares) during the year (in thousands)
i264,692
i278,735
i264,909
i281,063
EPS
attributable to stockholders in $:
Basic net income (loss)
i2.55
i1.46
i5.05
i2.73
Diluted
net income (loss)
i2.53
i1.42
i5.01
i2.67
1)There
were iino/
stock options to purchase shares of NXP’s common stock that were outstanding in Q2 2022 and YTD 2022 (Q2 2021 and YTD 2021: iino/
shares) that were anti-dilutive and were not included in the computation of diluted EPS because the exercise price was greater than the average fair market value of the common stock or the number of shares assumed to be repurchased using the proceeds of unrecognized compensation expense and exercise prices were greater than the weighted average number of shares underlying outstanding stock options.
/
7
2)There were i0.3
million unvested RSUs, PSUs and equity rights that were outstanding in Q2 2022 and i0.3 million outstanding YTD 2022 (Q2 2021 and YTD 2021: iino/
shares) that were anti-dilutive and were not included in the computation of diluted EPS because the number of shares assumed to be repurchased using the proceeds of unrecognized compensation expense were greater than the weighted average number of outstanding unvested RSUs, PSUs and equity rights or the performance goal has not been met yet.
Balance Sheet Information
Cash and cash equivalents
At July 3, 2022 and December 31, 2021, our cash balance was $i3,545
million and $i2,830 million, respectively, of which $i193 million and $i208
million was held by SSMC, our consolidated joint venture company with TSMC. Under the terms of our joint venture agreement with TSMC, a portion of this cash can be distributed by way of a dividend to us, but i38.8% of the dividend will be paid to our joint venture partner. During both first six months of 2022 and 2021, iino/
dividends were declared by SSMC.
Inventories
The portion of finished goods stored at customer locations under consignment amounted to $i8 million as of July 3, 2022 (December 31, 2021: $i12
million).
Total comprehensive income (loss) represents net income (loss) plus the results of certain equity changes not reflected in the condensed consolidated statements of operations. iThe after-tax components of accumulated other comprehensive income (loss) and their corresponding changes are shown below:
The following dividends were declared during the first two quarters of 2022 and 2021 under NXP’s quarterly dividend program:
Fiscal
year 2022
Fiscal year 2021
Dividend per share
Amount
Dividend per share
Amount
First quarter
i0.845
i222
i0.5625
i155
Second
quarter
i0.845
i222
i0.5625
i152
/
The
dividend declared in the second quarter (not yet paid) is classified in the condensed consolidated balance sheet in other current liabilities as of July 3, 2022 and was subsequently paid on July 6, 2022.
5 iRestructuring
At
each reporting date, we evaluate our restructuring liabilities, which consist primarily of termination benefits, to ensure that our accruals are still appropriate.
i
The following table presents the changes in restructuring liabilities in 2022:
There
were ino significant restructuring costs incurred for both six month periods ended July 3, 2022 and July 4, 2021 and the utilization of the restructuring liabilities mainly reflects the execution of ongoing restructuring programs the Company initiated in earlier years.
9
These
restructuring charges recorded in operating income, for the periods indicated, are included in the following line items in the statement of operations:
Our
provision for income taxes for the first six months of 2022 was $i243 million (i15.4% effective tax rate) compared to a provision from income taxes of $i105 million
(i12.0% effective tax rate) for the first six months of 2021. The increase in the income tax expense was due to higher income before income taxes as a result of the improved operational performance of the company which was partly offset by an increase in tax incentives also taking into account the effect of specific US tax law that became effective as from 2022. In addition to this, in the first six months of 2021 there were income tax benefits due to changes in estimates of prior
positions and a net change in the valuation allowance.
The Company benefits from income tax incentives in certain jurisdictions which provide that we pay reduced income taxes in those jurisdictions for a fixed period of time that varies depending on the jurisdiction. The predominant income tax holiday is expected to expire at the end of 2026. The impact of this tax holiday decreased foreign income taxes for the second quarter of 2022 by $i4
million and decreased by $i3 million for the second quarter 2021 (YTD 2022: a decrease of $i7 million and YTD 2021: a decrease of $i7
million). The benefit of this tax holiday on net income per share (diluted) was $i0.02 for the second quarter of 2022 (YTD 2022: $i0.03) and $i0.02
for the second quarter of 2021 (YTD 2021: $i0.03).
7 iIdentified
Intangible Assets
i
Identified intangible assets as of July 3, 2022 and December 31, 2021, respectively, were composed of the following:
1) IPR&D
is not subject to amortization until completion or abandonment of the associated research and development effort.
/
i
The estimated amortization expense for these identified intangible assets for each of the five succeeding years is:
2022
(remaining)
i308
2023
i436
2024
i251
2025
i133
2026
i69
Thereafter
i330
/
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 i4 years as of July 3, 2022 (December 31, 2021: i4
years).
10
8 iDebt
Exchange Offers
On April 14, 2022, we initiated a registered exchange offering of our outstanding Senior
Unsecured Notes (the “Notes”) for new issues of substantially identical registered debt securities (the “Exchange Offers”). The Exchange Offers expired on May 16, 2022, at which time substantially all of the Notes were exchanged for registered senior unsecured notes with the U.S. Securities and Exchange Commission.
Debt Issuance and redemption
On May 16, 2022, NXP B.V., together with NXP Funding LLC and NXP USA, Inc., issued $i500 million
of i4.4% senior unsecured notes due June 1, 2027 and $i1 billion of i5.0%
senior unsecured notes due January 15, 2033.
On May 27, 2022 we redeemed the $i900 million aggregate principal amount of outstanding dollar-denominated i4.625%
Senior Unsecured Notes due 2023 in accordance with the terms of the indenture.
Unamortized
discounts, premiums and debt issuance costs
(i90)
(i78)
Total
debt, including unamortized discounts, premiums, debt issuance costs and fair value adjustments
i11,160
i10,572
Current
portion of long-term debt
i—
i—
Long-term
debt
i11,160
i10,572
/
9
iRelated-Party Transactions
The Company's related parties are the members of the board of directors of NXP Semiconductors N.V., the executive officers of NXP Semiconductors N.V. and equity-accounted investees.
i
The
following table presents the amounts related to revenue and other income and purchase of goods and services incurred in transactions with these related parties:
The
following methods and assumptions were used to estimate the fair value of financial instruments:
Assets and liabilities measured at fair value on a recurring basis
Investments in money market funds (as part of our cash and cash equivalents) and marketable equity securities (as part of other non-current assets) have fair value measurements which are all based on quoted prices in active markets for identical assets or liabilities. For derivatives (as part of other current assets or accrued liabilities) the fair value is based upon significant other observable inputs depending on the nature of the derivative.
Assets and liabilities recorded at fair value on a non-recurring basis
We measure and record our non-marketable equity securities, equity method investments and non-financial
assets, such as intangible assets and property, plant and equipment, at fair value when an impairment charge is required.
Assets and liabilities not recorded at fair value on a recurring basis
Financial instruments not recorded at fair value on a recurring basis include non-marketable equity securities and equity method investments that have not been remeasured or impaired in the current period and debt.
As of July 3, 2022, the estimated fair value of current and non-current debt was $i10.2
billion ($i11.3 billion as of December 31, 2021). The fair value is estimated on the basis of broker-dealer quotes, which are Level 2 inputs. Accrued interest is included under accrued liabilities and not within the carrying amount or estimated fair value of debt.
11 iCommitments
and Contingencies
Purchase Commitments
The Company maintains purchase commitments with certain suppliers, primarily for raw materials, semi-finished goods and manufacturing services and for some non-production items. Purchase commitments for inventory materials are generally restricted to a forecasted time-horizon as mutually agreed upon between the parties. This forecasted time-horizon can vary for different suppliers. As of July 3, 2022, the Company had purchase commitments of $i3,885 million,
which are due through 2044. Our long-term obligations increased substantially in 2021 as we locked in long-term supply with our key manufacturing partners.
Litigation
We are regularly involved as plaintiffs or defendants in claims and litigation relating to a variety of matters such as contractual disputes, personal injury claims, employee grievances and intellectual property litigation. In addition, our acquisitions, divestments and financial transactions sometimes result in, or are followed by, claims or litigation. Some of these claims may possibly be recovered from insurance reimbursements. Although the ultimate disposition of asserted claims cannot be predicted with certainty, it is our belief that the outcome of any such claims, either individually or on a combined basis, will not have a material adverse effect on our consolidated financial position. However, such outcomes
may be material to our condensed consolidated statement of operations for a particular period. The Company records an accrual for any claim that arises whenever it considers that it is probable that it is exposed to a loss contingency and the amount of the loss contingency can be reasonably estimated. The Company does not record a gain contingency until the period in which all contingencies are resolved and the gain is realized or realizable. Legal fees are expensed when incurred.
12
Based on the most
current information available to it and based on its best estimate, the Company also reevaluates at least on a quarterly basis the claims that have arisen to determine whether any new accruals need to be made or whether any accruals made need to be adjusted. Based on the procedures described above, the Company has an aggregate amount of $i61 million accrued
for potential and current legal proceedings pending as of July 3, 2022, compared to $i65 million accrued at December 31, 2021 (without reduction for any related insurance reimbursements). The accruals are included in “Other non-current liabilities”. As of July 3, 2022, the Company’s related
balance of insurance reimbursements was $i43 million (December 31, 2021: $i46 million) and is included in “Other non-current assets”.
The
Company also estimates the aggregate range of reasonably possible losses in excess of the amount accrued based on currently available information for those cases for which such estimate can be made. The estimated aggregate range requires significant judgment, given the varying stages of the proceedings, the existence of multiple defendants (including the Company) in such claims whose share of liability has yet to be determined, the numerous yet-unresolved issues in many of the claims, and the attendant uncertainty of the various potential outcomes of such claims. Accordingly, the Company’s estimate will change from time to time, and actual losses may be more than the current estimate. As at July 3, 2022, the
Company believes that for all litigation pending its potential aggregate exposure to loss in excess of the amount accrued (without reduction for any amounts that may possibly be recovered under insurance programs) could range between $i0 and $i72
million. Based upon our past experience with these matters, the Company would expect to receive additional insurance reimbursement of up to $i89 million on certain of these claims that would partially offset the potential aggregate exposure to loss in excess of the amount accrued.
In addition, the Company is currently assisting
Motorola in the defense of personal injury lawsuits due to indemnity obligations included in the agreement that separated Freescale from Motorola in 2004. The multi-plaintiff Motorola lawsuits are pending in the Circuit Court of Cook County, Illinois. These claims allege a link between working in semiconductor manufacturing clean room facilities and birth defects in i22 individuals. The Motorola suits allege exposures between 1980 and 2005. Each claim seeks an unspecified amount of damages for the alleged injuries; however, legal counsel representing the plaintiffs has indicated they will seek
substantial compensatory and punitive damages from Motorola for the entire inventory of claims which, if proven and recovered, the Company considers to be material. A portion of any indemnity due to Motorola will be reimbursed to NXP if Motorola receives an indemnification payment from its insurance coverage. Motorola has potential insurance coverage for many of the years indicated above, but with differing types and levels of coverage, self-insurance retention amounts and deductibles. We are in discussions with Motorola and their insurers regarding the availability of applicable insurance coverage for each of the individual cases. Motorola and NXP have denied liability for these alleged injuries based on numerous defenses.
13
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This interim Management’s Discussion and Analysis ("MD&A") should be read in conjunction with our consolidated financial statements and notes and the MD&A in our Annual Report on Form 10-K for the year ended December 31, 2021. This discussion contains forward-looking statements that involve a number of risks and uncertainties, including any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, uncertain events or assumptions, and other characterizations of future events or circumstances, including the expected timeline to remediate the identified material weakness in our internal control over financial reporting, the uncertain nature, magnitude, and duration of hostilities stemming
from Russia's recent military invasion of the Ukraine, and our response to the current global pandemic and the potential impact the pandemic will have on our operations, liquidity, customers, facilities and supply chain. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing, and in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K. Our actual results may differ materially from those contained in any forward-looking statements. We undertake no obligation to update any forward-looking statement to reflect subsequent events or circumstances.
Our MD&A is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flows. MD&A is organized as follows:
•Overview
- Overall analysis of financial and other highlights to provide context for the MD&A
•Results of Operations - An analysis of our financial results
•Liquidity and Capital Resources - An analysis of changes in our balance sheets and cash flows
•Information Regarding Guarantors of NXP - Financial information of the Obligor Group on a combined basis
Overview
($
in millions, unless otherwise stated)
Q2 2022
Q2 2021
YTD 2022
YTD 2021
Revenue
3,312
2,596
6,448
5,163
Gross
profit
1,882
1,422
3,659
2,777
Operating income (loss)
943
573
1,816
1,065
Cash
flow from operating activities
819
636
1,675
1,368
Total debt
11,160
9,591
11,160
9,591
Net debt
7,615
6,681
7,615
6,681
Diluted
weighted average number of shares outstanding
264,692
278,735
264,909
281,063
Diluted net income per share
2.53
1.42
5.01
2.67
Dividends
per common share
0.8450
0.5625
1.6900
1.1250
Q2 2022 compared to Q2 2021
Revenue for the three months ended July 3, 2022 was $3,312 million compared to $2,596 million for the three months ended July 4, 2021, an increase of $716 million or an increase of 27.6% year-on-year. Revenue growth during the quarter was due to increased volumes of products shipped driven by the continued industry-wide
demand for semiconductors across the company’s focused end markets, and the positive mix effects within the company’s focused end markets. Additionally, the company continued to experience the inflationary effects of increased input costs from its suppliers which were passed along to end customers in the form of higher average selling prices.
Our gross profit percentage for the second quarter of 2022 increased from 54.8% in the second quarter of 2021 to 56.8%, primarily from the continued significant acceleration of revenue in the second quarter of 2022 compared to the same period in 2021, which led to improved factory loading,
increased manufacturing volumes, and higher sales prices, which were mostly offset by higher input costs.
We continue to generate strong operating cash flows, with $819 million in cash flows from operations for the second quarter of 2022. We returned $224 million to our shareholders during the second quarter of 2022. Our cash position at the end of the second quarter of 2022 was $3,545 million. This includes the net proceeds of the $1.5 billion of senior unsecured debt issued by NXP on May 16, 2022.
YTD 2022 compared to YTD 2021
Revenue for the six months ended July 3, 2022 was $6,448 million compared to $5,163 million for the six months ended July
4, 2021, an increase of $1,285 million or an increase of 24.9% year-on-year. The increase within the first half 2022 is attributed to strong demand, across all of the end markets.
Our gross profit percentage for the six months ended July 3, 2022 increased from 53.8% for the six months ended July 4, 2021 to 56.7%, primarily from the continued significant acceleration of revenue in the first six months of 2022 compared to the same period in 2021, which led to improved factory loading, increased manufacturing volumes, and higher sales prices, which were mostly offset by higher input costs.
14
Cash
flow from operations for the first six months of 2022 was $1,675 million. Total shareholder return for the first six months of 2022 was $925 million. Our cash position remains solid, with the net proceeds of the $1.5 billion in newly issued debt adding to our cash and cash equivalents.
Results of operations
The following table presents operating income for each of the three month periods ended July 3, 2022 and July 4, 2021, respectively:
($
in millions, unless otherwise stated)
Q2 2022
Q2 2021
YTD 2022
YTD 2021
Revenue
3,312
2,596
6,448
5,163
%
nominal growth
27.6
42.9
24.9
34.5
Gross profit
1,882
1,422
3,659
2,777
Research
and development
(542)
(476)
(1,060)
(937)
Selling, general and administrative
(265)
(234)
(516)
(456)
Amortization of acquisition-related intangible assets
(134)
(139)
(269)
(319)
Other
income (expense)
2
—
2
—
Operating income (loss)
943
573
1,816
1,065
Revenue
Q2
2022 compared to Q2 2021
Revenue for the three months ended July 3, 2022 was $3,312 million compared to $2,596 million for the three months ended July 4, 2021, an increase of $716 million or an increase of 27.6% year-on-year, with growth in all of the Company’s four focus end markets.
YTD 2022 compared to YTD 2021
Revenue for the six months ended July 3, 2022 was $6,448 million compared to $5,163 for the six months ended July 4, 2021, an increase of $1,285 million or 24.9%, with growth in all of the
Company’s four end markets.
Revenue by end market was as follows:
($ in millions, unless otherwise stated)
Q2
2022
Q2 2021
Change
YTD 2022
YTD 2021
Change
Automotive
1,713
1,262
35.7
%
3,270
2,491
31.3
%
Industrial
& IoT
713
571
24.9
%
1,395
1,142
22.2
%
Mobile
388
347
11.8
%
789
693
13.9
%
Communication
Infrastructure & Other
498
416
19.7
%
994
837
18.8
%
Revenue
3,312
2,596
27.6
%
6,448
5,163
24.9
%
Revenue
by sales channel was as follows:
($ in millions, unless otherwise stated)
Q2 2022
Q2
2021
Change
YTD 2022
YTD 2021
Change
Distributors
1,829
1,518
20.5
%
3,509
2,986
17.5
%
OEM/EMS
1,441
1,040
38.6
%
2,853
2,104
35.6
%
Other
42
38
10.5
%
86
73
17.8
%
Revenue
3,312
2,596
27.6
%
6,448
5,163
24.9
%
Revenue
by geographic region, which is based on the customer’s shipped-to location was as follows:
($ in millions, unless otherwise stated)
Q2
2022
Q2 2021
Change
YTD 2022
YTD 2021
Change
Greater China and Asia Pacific
1,831
1,503
21.8
%
3,531
2,985
18.3
%
EMEA
(Europe, the Middle East and Africa)
668
461
44.9
%
1,306
928
40.7
%
Americas
435
336
29.5
%
867
657
32.0
%
Japan
230
188
22.3
%
448
377
18.8
%
South
Korea
148
108
37.0
%
296
216
37.0
%
Revenue
3,312
2,596
27.6
%
6,448
5,163
24.9
%
15
n
Automotive
n
Mobile
n
Industrial IoT
n
Comm
Infra & Other
n
Distributors
n
Other
n
OEM/EMS
Q2
2022 compared to Q2 2021
The increase in revenue is attributed to the combination of ongoing demand, across NXP’s Automotive, Industrial IoT, Mobile, and the Communications Infrastructure & Other end markets, as well as the effects of increased input costs from NXP suppliers which were passed along to our end customers in the form of higher average selling prices.
From an end market perspective, the year-on-year growth within the Automotive end market was driven by strong demand across the entire automotive product portfolio in support of the secular shift of electrification, advanced driver safety and assistance, and driver connectivity systems. The growth within the Industrial & IoT market reflects the continued adoption of our complete secure, connected edge processing solutions which leverage our broad processor portfolio, complimented by connectivity,
analog attach and security products. The growth within the Mobile end market was due to ongoing adoption of our secure embed transaction solutions along with the company’s growth in our advanced analog high speed interfaces. The growth within the Communication Infrastructure & Other end market was attributable to cellular base stations, the network edge equipment, and the secure access, transit and government sponsored identification market.
When aggregating all end markets together, and reviewing sales channel performance, business transacted through NXP's third party distribution partners was $1,829 million, an increase of 20.5%. Sales to NXP's direct OEM and EMS customers was $1,441 million, an
16
increase
of 38.6% versus the second quarter of 2021.
From a geographic perspective, revenue increased across all regions.
Revenue from the Automotive end market was $1,713 million, an increase of $451 million or 35.7% year-on-year. Within Automotive, customers are focused on the key functional pillars of safety, electrification and improved driver comfort to accelerate competitive differentiation. These broad functional areas are fundamentally enabled by the secular adoption of new and increased levels of semiconductor content, which is layered on top of a strong base of existing electronic content in modern automobiles. The increase in Automotive revenue during the second quarter of 2022 can be attributed to strong demand for advanced analog, embedded processing and radar solutions.
Revenue
from the Industrial & IoT end market was $713 million, an increase of $142 million or 24.9% year-on-year. The Industrial & IoT market is driven by the secular trend of multi-market OEMs seeking to enable secure, connected, high performance processing solutions at the edge of the network, whether it is in factory automation, smart building/smart home or the exploding plethora of connected IoT devices. The innovation in this market is being driven by thousands of relatively smaller customers, which NXP effectively services through its extended global distribution channel. During the second quarter of 2022, the year-on-year increase was driven by the continued demand for the company’s 32-bit ARM-based microcontrollers and crossover processors, and to a lesser degree industrial application processors. Additionally, the year-on-year increase was supported by demand for industrial
analog products, and point-of-sale security solutions.
Revenue from the Mobile end market was $388 million with an increase of $41 million or 11.8% year-on-year. The year-on-year increase was driven by strong adoption of secure mobile wallet solutions and increased demand in our advanced analog high speed interfaces, which was offset by declines in advanced power systems driven by load switch demand decline.Our mobile customers are primarily serviced through our global distribution channels.
Revenue in the Communication Infrastructure & Other end market was $498 million, an increase of $82 million or 19.7% year-on-year. The Communication Infrastructure & Other end market is an amalgamation of three separate product portfolios, which service multiple
end markets, including cellular base stations; the network edge equipment, and the secure access, transit and government sponsored identification market. The year-on-year growth in the second quarter of 2022 was driven by a combination of high performance RF Power amplifier products for cellular base-station applications, network edge equipment, and broad based demand for secure access and identification solutions. Offsetting these positive growth trends were declines in demand for the company’s smart antennae products used in the Android mobile handset market, as well as declines in demand for wireless access point solutions.
YTD 2022 compared to YTD 2021
The increase in revenue is primarily attributed to the combination of strong demand, from NXP’s Automotive, Industrial IoT,
and the Communications Infrastructure & Other end markets, and to a lesser degree the Mobile end market. The year-to-date growth rates are also influenced by higher average pricing, which were the result of rising inflationary effects on input costs from NXP suppliers, and passed along to our end customers.
From an end market perspective, within the automotive end market the year-on-year growth was driven by strong demand for advanced analog, embedded processing and radar in support of the secular shift of electrification, advanced driver safety and assistance, and driver connectivity systems. The growth within the Industrial & IoT market reflects the successful continuation of adoption of our complete secure, connected edge processing solutions which leverage our broad processor portfolio, complimented by analog attach, connectivity, and security products. Growth within the Mobile end market
was due to ongoing adoption of our secure embed transaction solutions along with the company’s growth in our advanced analog high speed interfaces. Growth within the Communication Infrastructure & Other end market was attributable to cellular base stations, the network edge equipment, and the secure access, transit and government sponsored identification market.
When aggregating all end markets together, and reviewing sales channel performance, business transacted through direct OEM and EMS customers was $2,853 million, an increase of 35.6% versus the first half of 2021. NXP's third party distribution partners was $3,509 million, an increase of 17.5%.
From a geographic perspective, revenue increased across all regions.
Revenue
in the Automotive end market was $3,270 million, an increase of $779 million or 31.3% versus the year ago period due to the ongoing demand for our automotive products supporting the secular shift of electrification, advanced driver safety and assistance, and driver connectivity systems.
Revenue in the Industrial & IoT end market was $1,395 million, an increase of $253 million or 22.2% versus the year ago period primarily driven by the continued demand for the company’s 32-bit ARM-based microcontrollers and crossover processors, and to a lesser degree industrial application processors. Additionally, the year-on-year increase was supported by demand for industrial analog products, IoT connectivity and point-of-sale security solutions.
Revenue
in the Mobile end market was $789 million, an increase of $96 million or 13.9% versus the year ago period due to strong adoption of secure mobile wallet solutions, and demand for our advanced analog high speed interfaces, offset by declines in embedded power solutions.
17
Revenue in the Communication Infrastructure & Other end market was $994 million, an increase of $157 million or 18.8% versus the year ago period due to a combination of strength from RF Power products levered to the secular build-out of 5G base stations, network edge equipment, and broad based demand for secure access and identification solutions. Offsetting these positive growth trends were declines in demand for the
company’s smart antennae products used in the Android mobile handset market, as well as declines in demand for wireless access point solutions.
Gross profit
Q2 2022 compared to Q2 2021
Gross profit for the three months ended July 3, 2022 was $1,882 million, or 56.8% of revenue, compared to $1,422 million, or 54.8% of revenue for the three months ended July 4, 2021.The increase of $460 million in gross profit was driven by the significant higher revenue in the second quarter of 2022 compared to the second quarter of 2021, which led to improved factory loading, increased manufacturing volumes, and higher sales prices, which were mostly offset by higher input costs.
YTD
2022 compared to YTD 2021
Gross profit for the six months ended July 3, 2022 was $3,659 million, or 56.7% of revenue, compared to $2,777 million, or 53.8% of revenue for the six months ended July 4, 2021. The increase of $882 million was primarily driven by the significant higher revenue in the first half of 2022 compared to the first half of 2021, which led to improved factory loading, increased manufacturing volumes, and higher sales prices, which were mostly offset by higher input costs.
Operating
expenses
Q2 2022 compared to Q2 2021
Operating expenses for the three months ended July 3, 2022 totaled $941 million, or 28.4% of revenue, compared to $849 million, or 32.7% of revenue, for the three months ended July 4, 2021.
YTD 2022 compared to YTD 2021
Operating expenses for the six months ended July 3, 2022 totaled $1,845 million, or 28.6% of revenue, compared to $1,712 million, or 33.2% of revenue, for the six months ended July 4, 2021.
The following table below presents the composition of operating expenses
by line item in the statement of operations:
($ in millions, unless otherwise stated)
Q2 2022
Q2 2021
YTD 2022
YTD
2021
Research and development
542
476
1,060
937
Selling, general and administrative
265
234
516
456
Amortization
of acquisition-related intangible assets
134
139
269
319
Total operating expenses
941
849
1,845
1,712
18
n
R&D
n
SG&A
n
Amortization
acquisition-related
Q2 2022 compared to Q2 2021
The increase in operating expenses was a result of the following items:
Research and development (R&D) costs primarily consist of engineer salaries and wages (including share based compensation and other variable compensation), engineering related costs (including outside services, fixed-asset, IP and other licenses related costs), shared service center costs and other pre-production related expenses. R&D costs for the three months ended July 3, 2022 increased by $66 million, or 13.9%, when compared to the three months ended July 4, 2021 mainly driven by:
+
higher personnel-related costs, including variable compensation costs;
+ higher pre-production related expenses; and
+ higher professional services.
Selling, general and administrative (SG&A) costs primarily consist of personnel salaries and wages (including share based compensation and other variable compensation), communication and IT related costs, fixed-asset related costs and sales and marketing costs (including travel expenses). SG&A costs for the three months ended July 3, 2022 increased by $31 million, or 13.2%, when compared to the three months ended July 4, 2021 mainly due to:
+
higher legal expense; and
+ higher professional services.
Amortization of acquisition-related intangible assets decreased by $5 million, or 3.6%, when compared to the three months ended July 4, 2021 driven by:
- certain intangibles became fully amortized during 2021.
YTD 2022 compared to YTD 2021
The increase in operating expenses was a result of the following items:
Research and development (R&D) costs primarily consist of engineer salaries and wages (including share based compensation
and other variable compensation), engineering related costs (including outside services, fixed-asset, IP and other licenses related costs), shared service center costs and other pre-production related expenses. R&D costs for the six months ended July 3, 2022 increased by $123 million, or 13.1%, when compared to the six months ended July 4, 2021 driven by:
+ higher personnel-related costs, including variable compensation costs;
+ higher pre-production related expenses; and
+ higher professional services .
Selling, general and administrative (SG&A) costs primarily consist of personnel
salaries and wages (including share based compensation and other variable compensation), communication and IT related costs, fixed-asset related costs and sales and marketing costs (including travel expenses). SG&A costs for the six months ended July 3, 2022 increased by $60 million, or 13.2%, when compared to the six months ended July 4, 2021 mainly due to:
+ higher legal expense;
+ higher professional services; and
+ higher IT related expenses.
19
Amortization
of acquisition-related intangible assets decreased by $50 million, or 15.7%, when compared to the six months ended July 4, 2021 driven by:
- an impairment charge in Q1 2021 as a result of the discontinuation of an IPR&D project.
Financial income (expense)
The following table presents the details of financial income and expenses:
($
in millions, unless otherwise stated)
Q2 2022
Q2 2021
YTD 2022
YTD 2021
Interest income
6
1
8
2
Interest expense
(106)
(90)
(210)
(177)
Total
interest expense, net
(100)
(89)
(202)
(175)
Extinguishment of debt
(18)
—
(18)
—
Foreign exchange
rate results
3
(1)
3
—
Miscellaneous financing costs/income and other, net
(13)
(10)
(16)
(12)
Total
other financial income (expense)
(28)
(11)
(31)
(12)
Total
(128)
(100)
(233)
(187)
Q2
2022 compared to Q2 2021
Financial income (expense) was an expense of $128 million in the second quarter of 2022 compared to an expense of $100 million in the second quarter of 2021. The change in financial income (expense) is primarily attributable to an increase in interest expense as a result of the net increase in debt, and debt extinguishment costs incurred in the second quarter of 2022. Higher interest rates resulted in an interest income increase in the second quarter of 2022.
YTD 2022 compared to YTD 2021
Financial income (expense) was an expense of $233 million in the first six months of 2022 compared to an expense of $187 million in the first six months of 2021. The change in financial income (expense) is primarily attributable to an increase in interest expense as a result of the net increase in debt, and debt extinguishment costs
incurred in the second quarter of 2022. Higher interest rates resulted in an interest income increase in the second quarter of 2022.
Benefit (provision) for income taxes
Q2 2022 compared to Q2 2021
Our provision for income taxes was $129 million (15.8% effective tax rate) for the second quarter of 2022 compared to a provision for income taxes of $65 million (13.7% effective tax rate) for the second quarter of 2021. The increase in the income tax expense was due to higher income before income taxes as a result of the improved operational performance of the company, which was partly offset by an increase in tax incentives also taking into account the effect of specific US tax law that became effective as
from 2022. In addition to this, in the second quarter of 2021 there was an income tax benefit due to a release of the valuation allowance and a lower taxable foreign exchange result.
YTD 2022 compared to YTD 2021
Our provision for income taxes for the first six months of 2022 was $243 million (15.4% effective tax rate) compared to a provision for income taxes of $105 million) (12.0% effective tax rate) for the first six months of 2021. The increase in the income tax expense was due to higher income before income taxes as a result of the improved operational performance of the company which was partly offset by an increase in tax incentives also taking into account the effect of specific US tax law that became effective as from 2022. In addition to this, in the first six months of 2021
there were income tax benefits due to changes in estimates of prior positions and a net change in the valuation allowance.
Net income (loss)
The following table presents the composition of net income for the periods reported:
($ in millions, unless otherwise stated)
Q2
2022
Q2 2021
YTD 2022
YTD 2021
Operating income (loss)
943
573
1,816
1,065
Financial
income (expense)
(128)
(100)
(233)
(187)
Benefit (provision) for income taxes
(129)
(65)
(243)
(105)
Results
relating to equity-accounted investees
(3)
(2)
9
(3)
Net income (loss)
683
406
1,349
770
20
Liquidity
and Capital Resources
We derive our liquidity and capital resources primarily from our cash flows from operations. We continue to generate strong positive operating cash flows. At the end of the second quarter of 2022, our cash balance was $3,545 million, an increase of $715 million compared to December 31, 2021. Taking into account the available amount of the Unsecured Revolving Credit Facility of $1,500 million, we had access to $5,045 million of liquidity as of July 3, 2022.
We currently use cash to fund operations, meet working capital requirements, for capital expenditures and for potential common stock repurchases, dividends and strategic investments. Based on past performance and current expectations, we believe that our current available sources
of funds (including cash and cash equivalents, RCF Agreement, plus anticipated cash generated from operations) will be adequate to finance our operations, working capital requirements, capital expenditures and potential dividends for at least the next twelve months. Our capital expenditures were $548 million in the first six months of 2022, compared to $300 million in the first six months of 2021. During the six month period ended July 3, 2022, we repurchased $554 million, or 2.7 million shares of our common stock pursuant to our share buyback programs at a weighted average price of $207.77 per share.
Our total debt amounted to $11,160 million as of Q2 2022, an increase of $588 million compared to December 31, 2021 ($10,572 million). On May 16, 2022, NXP issued
$500 million aggregate principal amount of 4.400% Senior Notes due in 2027 (the “4.400% 2027 Notes”) and $1 billion aggregate principal amount of 5.000% Senior Notes due in 2033 (the “2033 Notes”). The net proceeds of the 4.400% 2027 Notes, together with cash on hand, has been used to redeem the $900 million aggregate principal amount of outstanding dollar-denominated 4.625% Senior Unsecured Notes due 2023 in accordance with the terms of the indenture. NXP will allocate an amount equal to the net proceeds of the offering of the 2033 Notes to the financing of, in whole or in part, one or more eligible green projects. Pending allocation, NXP will temporarily hold the remaining net proceeds of the 2033 Notes as cash and other short-term securities or use for general corporate purposes, which may include capital expenditures, short-term debt repayment or equity buyback
transactions.
Exchange Offers
In connection with the sale of (i) NXP B.V.’s and NXP Funding LLC’s 4.875% Senior Notes due 2024 (the “2024 Notes”), 5.350% Senior Notes due 2026 (the “5.350% 2026 Notes”) and 5.550% Senior Notes due 2028 (the “2028 Notes”) and (ii) NXP B.V.’s, NXP Funding LLC’s and NXP USA Inc.’s 2.700% Senior Notes due 2025 (the “2025 Notes”), 3.875% Senior Notes due 2026 (the “3.875% 2026 Notes”), 3.150% Senior Notes due 2027 (the “3.150% 2027 Notes”), 4.300% Senior Notes due 2029 (the “2029 Notes”), 3.400% Senior Notes due 2030 (the “2030 Notes”), 2.500% Senior Notes due 2031 (the “2031 Notes”), 2.650% Senior Notes due 2032 (the “2032 Notes”), 3.250% Senior Notes due 2041 (the “2041 Notes”), 3.125% Senior Notes due 2042 (the “2042 Notes”) and 3.250%
Senior Notes due 2051 (the “2051 Notes”), which we collectively refer to as the “Notes”, the issuers of the Notes (the “Issuers”) entered into registration rights agreements pursuant to which the Issuers agreed, among other things, to use commercially reasonable efforts to file an exchange offer registration statement to exchange the Notes for new issues of substantially identical debt securities registered under the U.S. Securities Act of 1933 (the “Exchange Offers”).
On April 14, 2022, the registration statements on Form S-4 filed by the Issuers were declared effective by the SEC, registering the Exchange Offers. The Exchange Offers expired on May 16, 2022. Any outstanding Notes that were
not tendered for exchange in the Exchange Offers remain outstanding and continue to accrue interest and are entitled to the rights and benefits that such holders have under the indentures related to such outstanding Notes, except for any rights under the applicable registration rights agreement which terminated upon consummation of the Exchange Offers. This exchange had no impact on our financial position, result of operations or cash flows.
At July 3, 2022, our cash balance was $3,545 million of which $193 million was held by SSMC, our consolidated joint venture company with TSMC. Under the terms of our joint venture agreement with TSMC, a portion of this cash can be distributed
by way of a dividend to us, but 38.8% of the dividend will be paid to our joint venture partner.
Cash flows
Our cash and cash equivalents during the first six months of 2022 increased by $726 million as follows:
($ in millions, unless otherwise stated)
YTD 2022
YTD 2021
Net
cash provided by (used for) operating activities
1,675
1,368
Net cash (used for) provided by investing activities
(617)
(370)
Net cash provided by (used for) financing activities
(332)
(360)
Increase (decrease) in cash and cash equivalents
726
638
Cash
Flow from Operating Activities
For the first six months of 2022 our operating activities provided $1,675 million in cash. This was primarily the result of net income of $1,349 million, adjustments to reconcile the net income of $723 million and changes in operating assets and liabilities of $(402) million. Adjustments to net income (loss) includes offsetting non-cash items, such as depreciation and amortization of $627 million, share-based compensation of $178 million and changes in deferred taxes of $(98) million.
The change in operating assets and liabilities was attributable to the following:
21
The $111 million increase in receivables
and other current assets for the six months ended July 3, 2022 was mainly driven by the increase in accounts receivable due to the linearity of revenue between the two periods, customer mix, and the related timing of cash collections in the first six months of 2022 compared with the same period in 2021.
The $273 million increase in inventories for the six months ended July 3, 2022 was primarily related to increased production levels as we work to align inventory on hand with the current revenue forecasts.
The $270 million increase in accounts payable and other liabilities for the six months ended July 3, 2022 was primarily related to the increase of trade accounts
payable of $210 million as a result of increased demand and timing, $20 million in interest payable due to timing of interest payments, $53 million in income and social tax payables, partially offset by $13 million of other net movements including the non-cash adjustment for capital expenditures and purchased IP.
The $288 million increase in other non-current assets for the six months ended July 3, 2022 was primarily related to prepayments to secure long-term production supply with multiple vendors.
For the first six months of 2021 our operating activities provided $1,368 million in cash. This was primarily the result of net income of $770 million, adjustments to reconcile the net income of $851 million and changes in operating assets and liabilities of $(252) million.
Adjustments to net income (loss) includes offsetting non-cash items, such as depreciation and amortization of $646 million, share-based compensation of $184 million and changes in deferred taxes of $12 million.
Cash Flow from Investing Activities
Net cash used for investing activities amounted to $617 million for the first six months of 2022 and principally consisted of the cash outflows for capital expenditures of $548 million, $72 million for the purchase of identified intangible assets and $5 million for the purchase of equipment leased to others.
Net cash used for investing activities amounted to $370 million for the first six months of 2021 and principally consisted of the cash outflows for capital expenditures of $300 million and $72 million for the purchase of
identified intangible assets, partly offset by net proceeds of $2 million related to sales and purchases of investments.
Cash Flow from Financing Activities
Net cash used for financing activities was $332 million for the first six months of 2022 compared to net cash provided by financing activities of $360 million for the first six months of 2021, detailed in the table below:
($ in millions)
YTD 2022
YTD
2021
Repurchase of long-term debt
(917)
—
Proceeds from the issuance of long-term debt
1,496
2,000
Cash paid for debt issuance costs
(13)
(22)
Dividends
paid to common stockholders
(371)
(260)
Cash proceeds from exercise of stock options and savings from ESPP
28
31
Purchase of treasury shares
(554)
(2,108)
Other, net
(1)
(1)
Additional
Capital Requirements
Expected working and other capital requirements are described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. At July 3, 2022, other than for changes disclosed in the “Notes to Condensed Consolidated Financial Statements” and “Liquidity and Capital Resources” in this Quarterly Report, there have been no other material changes to our expected working and other capital requirements described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Information Regarding Guarantors of NXP (unaudited)
Summarized
Combined Financial Information for Guarantee of Securities of Subsidiaries
All debt instruments are guaranteed, fully and unconditionally, jointly and severally, by NXP Semiconductors N.V. and issued or guaranteed by NXP USA, Inc., NXP B.V. and NXP LLC, (together, the “Subsidiary Obligors” and together with NXP Semiconductors N.V., the “Obligor Group”). Other than the Subsidiary Obligors, none of the Company’s subsidiaries (together the “Non-Guarantor Subsidiaries”) guarantee the Notes. The
Company consolidates the Subsidiary Obligors in its consolidated financial statements and each of the Subsidiary Obligors are wholly owned subsidiaries of the Company.
22
All of the existing guarantees by the Company rank equally in right of payment with all of the existing and future senior indebtedness of the Obligor Group. There are no significant restrictions on the ability of the Obligor Group to obtain funds from respective subsidiaries
by dividend or loan.
The following tables present summarized financial information of the Obligor Group on a combined basis, with intercompany balances and transactions between entities of the Obligor Group eliminated and investments and equity in the earnings of the Non-Guarantor Subsidiaries excluded. The Obligor Group’s amounts due from, amounts due to, and intercompany transactions with Non-Guarantor Subsidiaries have been disclosed below the table, when material.
NXP
Semiconductors N.V. is the head of a fiscal unity for the corporate income tax and VAT that contains the most significant Dutch wholly-owned group companies. The Company is therefore jointly and severally liable for the tax liabilities of the tax entity as a whole, and as such the income tax expense of the Dutch fiscal unity has been included in the Net income of the Obligor Group.
The financial information of the Obligor Group includes sales executed through a Non-Guarantor Subsidiary single-billing entity as a sales agent on behalf of an entity in the Obligor Group. The Obligor Group has sales to non-guarantors (for the six months ended July 3, 2022: $365 million). The Obligor Group has amounts due from equity financing (July
3, 2022: $6,584 million; December 31, 2021: $5,167 million) and due to debt financing (July 3, 2022: $3,287 million; December 31, 2021: $3,053 million) with non-guarantor subsidiaries.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the Company’s market risk during the first six months of 2022.
For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation
of the Chief Executive Officer and Chief Financial Officer (Certifying Officers), evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) on July 3, 2022. Based on that evaluation, the Certifying Officers concluded the Company's disclosure controls and procedures were not effective as of such date due to a material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Ongoing Remediation of Previously Identified
Material Weakness
As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, we are implementing measures designed to ensure that control deficiencies contributing to the previously disclosed material weakness are remediated,
23
such that these controls are designed, implemented, and operating effectively. These remediation actions are ongoing, whereas we have expanded our controls or control designs based on updated enhanced risk assessments, put in place policies and implemented training programs, expanded our team and enhanced our reporting. The remediation actions, including those listed above, remain in
process where further modifications are necessary to address the material weakness. We expect these changes to materially improve our internal controls.
The weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Management believes the remediation of this material weakness will be completed prior to the end of fiscal 2022. However, there is no assurance as to when such remediation will be completed.
Changes in Internal Control Over Financial Reporting
As noted above, the Company has been implementing measures to remediate the material weakness in
our internal control over financial reporting. Other than the remediation efforts underway, there were no changes in the Company's internal control over financial reporting during the three month period ended July 3, 2022, which were identified in connection with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item
1. Legal Proceedings
Not applicable.
24
Item 1A. Risk Factors
Our global business operations expose us to international business risks that could adversely affect our business
If any of the following international business risks were to materialize or become worse, they could have a material adverse effect on our business, financial condition and results of
operations:
•negative economic developments in economies around the world and the instability of governments and international trade arrangements, such as the increase of barriers to international trade including the imposition of tariffs on imports by the United States and China, the withdrawal of the United Kingdom from the European Union, enhanced export controls on certain products and sanctions on certain industry sectors and parties in Russia and the sovereign debt crisis in certain European countries;
•social and political instability in a number of countries around the world, including continued hostilities and civil unrest in the Middle East and the Ukraine. The instability may have a negative effect on our business, financial condition and operations via our customers and global supply chain and
volatility in energy prices and the financial markets;
•potential terrorist attacks;
•epidemics and pandemics, such as the coronavirus outbreak, which may adversely affect our workforce, as well as our suppliers and customers;
•adverse changes in government policies, especially those affecting trade and investment;
•volatility in foreign currency exchange rates, in particular with respect to the U.S. dollar, and transfer restrictions, in particular in China; and
•threats that our operations or property could be subject to nationalization and expropriation.
In addition, Russia’s
recent invasion of Ukraine has led to sanctions, export controls and other penalties being levied by the United States, European Union and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk People’s Republic. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets. Any Russian response could also disrupt commercial and financial transactions. Further, conflict between Ukraine and Russia could adversely impact the global supply chain, disrupt our operations, or negatively impact the demand for our products in our primary end markets. Any such disruption could result in an adverse impact to our financial results.
For a description of other applicable risk factors, please refer
to Part I, Item 1A: “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In January 2022, the board of directors of NXP (the “Board”) approved a new $2 billion 2022 share repurchase program. The new $2 billion share repurchase authorization is in addition to the $4 billion 2021 share repurchase program previously authorized by the Board. In addition, the
Company purchases shares from participants in the Company’s equity programs who trade shares as trade for taxes.
The following share repurchase activity occurred under these programs during the three months ended July 3, 2022:
Period
Total Number
of Shares Purchased
Average Price Paid per Share
Number of Shares Purchased as Part of Publicly Announced Buy Back Programs
Maximum Number of Shares That May Yet Be Purchased Under the Buy Back Program
(1)Reflects shares surrendered by participants to satisfy tax withholding obligations in connection with the Company's equity programs.
Item 5. Other Information
Steve Owen, Executive Vice President Global Sales and Marketing of the Company, will step down from his role as Executive Vice President Global Sales and Marketing effective July 26, 2022. In connection with the termination of Mr. Owen’s employment contract,
Mr. Owen and the Company have entered into a Transition Services Agreement dated July 24, 2022 (the “Transition Services Agreement”). Pursuant to the Transition Services Agreement, Mr. Owen will remain employed by the Company through November 3, 2022. From July 26 through November 3, 2022, Mr. Owen will assist with transitionary and consulting responsibilities as may be necessary. Mr. Owen’s current salary and benefits, including participation in the annual incentive plan and vesting of outstanding equity awards, will continue through November 3, 2022, in accordance with the terms and conditions
of the annual incentive plan and applicable equity award agreements. In connection with the
25
termination of Mr. Owen’s employment contract, he will receive a lump sum payment in the amount of EUR 1,000,000. The Transition Services Agreement contains non-compete and non-solicitation provisions that apply until November 3, 2024 and customary release of claims provisions.
The foregoing description is qualified by reference to the terms of the Transition Services Agreement, which is filed herewith as Exhibit 10.1, and is incorporated
herein by reference.
Rule
13a-14(a) / 15d-14(a) Certification of Chief Executive Officer
31.2*
Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer
32.1*
Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer
101
The following materials from the
Company’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three and six months ended July 3, 2022 and July 4, 2021; (ii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended July 3, 2022 and Julyl 4, 2021; (iii) Condensed Consolidated Balance Sheets as of July 3, 2022 and December 31, 2021; (iv) Condensed Consolidated Statements of Cash Flows for the six months ended July 3, 2022 and July 4,
2021; (v) Condensed Consolidated Statements of Changes in Equity for the three and six months ended July 3, 2022 and July 4, 2021; and (vi) Notes to the Unaudited Condensed Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*
Filed
or furnished herewith.
+
Indicates management contract or compensatory plan or arrangement.
27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
1.I have reviewed this quarterly report on Form 10-Q 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 the statements 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 financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act 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 Registrant and have:
a)Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c)Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness 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 Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the
Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’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 reasonably likely to adversely affect the Registrant’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 Registrant’s internal control over financial reporting.
1.I have reviewed this quarterly report on Form 10-Q 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 the statements 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 financial condition,
results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act 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 Registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated
the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness 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 Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’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 reasonably likely to adversely affect the Registrant’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 Registrant’s internal control over financial reporting.
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Kurt Sievers, certify, as of the date hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of NXP Semiconductors N.V. on Form 10-Q for the period ended July 3, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all
material respects the financial condition and results of operations of NXP Semiconductors N.V. at the dates and for the periods indicated.
I, William J. Betz, certify, as of the date hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of NXP Semiconductors N.V. on Form 10-Q for the period ended July 3, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of NXP Semiconductors N.V. at the dates and for the periods indicated.