SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
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| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2013
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
OR
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
Date of event requiring this shell company report
Commission filenumber: 1-13546
STMicroelectronics N.V.
(Exact name of registrant as specified in its chartercharter))
Not Applicable | The Netherlands | |
(Translation of registrant’s | (Jurisdiction of incorporation | |
name into | or |
39, Chemin du Champ des Filles1228 Plan-Les-OuatesGenevaSwitzerlandWTC Schiphol Airport
Schiphol Boulevard 265
1118 BH Schiphol
The Netherlands
(Address of principal executive officesoffices))
Carlo Bozotti
39, Cheminchemin du Champ des Filles
1228 Plan-Les-Ouates
Geneva
Switzerland
Tel: +41 22 929 29 29
Fax: +41 22 929 29 88
(Name, Telephone,E-mail and/or Facsimile number and Address of Company Contact PersonPerson)
)
Title of Each Class: | Name of Each Exchange on Which Registered: | |
Common shares, nominal value €1.04 per share | New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
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 annual report:
881,686,303890,606,763 common shares at December 31, 20102013
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If 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 the Securities Exchange Act of 1934.
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:
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitionsdefinition of “large accelerated filer,”filer”, “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act. (Check one):
Large accelerated filer | x | Accelerated filer | ¨ | |||||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ | (Do not check if a smaller reporting company) |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP x | ||||
International Financial Reporting Standards as issued
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by 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 to follow.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).
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In this annual report oronForm 20-F (the“Form 20-F”), references to “we”, “us” and “Company” are to STMicroelectronics N.V. together with its consolidated subsidiaries, references to “EU” are to the European Union, references to “€” and the “Euro” are to the Euro currency of the EU, references to the “United States” and “U.S.” are to the United States of America and references to “$” orand to “U.S. dollars” are to United States dollars. References to “mm” are to millimeters and references to “nm” are to nanometers.
We have compiled market size and ST market share data in this annual report using statistics and other information obtained from severalthird-party sources. Except as otherwise disclosed herein, all references to trade association data are references to World Semiconductor Trade Statistics (“WSTS”). Certain terms used in this annual report are defined in “Certain Terms”.
We report our financial statements in U.S. dollars and prepare our Consolidated Financial Statements in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). We also report certainnon-U.S. GAAP financial measures (free cash flow and net financial position), which are derived from amounts presented in the financial statements prepared under U.S. GAAP. Furthermore, since 2005, we have beenare required by Dutch law to report our Statutory and Consolidated Financial Statements, previously reported using generally accepted accounting principles in the Netherlands, in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) and adopted inby the European Union. The IFRS financial statements are reported separately and can differ materially from the statements reported in U.S. GAAP.
Various amounts and percentages used in thisForm 20-F have been rounded and, accordingly, they may not total 100%.
We and our affiliates own or otherwise have rights to the trademarks and trade names, including those mentioned in this annual report, used in conjunction with the marketing and sale of our products.
CAUTIONARY NOTE REGARDINGFORWARD-LOOKING STATEMENTS
Some of the statements contained in thisForm 20-F that are not historical facts, particularly in “Item 3. Key Information — Risk Factors”, “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects” and “— Business Outlook”, are statements of future expectations and otherforward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended) that are based on management’s current views and assumptions, and are conditioned upon and also involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those in such statements due to, among other factors:
uncertainmacro-economic and industry trends;
customer demand and acceptance for the products which we design, manufacture and sell;
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unanticipated events or circumstances, which may either impact our ability to execute the planned reductions in our net operating expenses and / or meet the objectives of our R&D programs, which benefit from public funding;
government decisions regarding funding for our R&D programs;
future events or circumstances, which may have an impact on the timing and final cost of the wind-down of theST-Ericsson joint venture;
the loading and the manufacturing performance of our production facilities;
the functionalities and performance of our IT systems, which support our critical operational activities including manufacturing, finance and sales;
variations in the foreign exchange markets and, more particularly, in the rate of the U.S. dollar exchange rate as compared to the Euro and the other major currencies we use for our operations;
the impact of intellectual property (“IP”) claims by our competitors or other third parties, and our ability to obtain required licenses on reasonable terms and conditions;
restructuring charges and associated cost savings that differ in amount or timing from our estimates;
changes in our overall tax position as a result of changes in tax laws, the outcome of tax audits or changes in international tax treaties which may impact our results of operations as well as our ability to accurately estimate tax credits, benefits, deductions and provisions and to realize deferred tax assets;
the outcome of ongoing litigation as well as the impact of any new litigation to which we may become a defendant;
natural events such as severe weather, earthquakes, tsunami, volcano eruptions or other acts of nature, health risks and epidemics in locations where we, our customers or our suppliers operate;
changes in economic, social, political, or infrastructure conditions in the locations where we, our customers, or our suppliers operate, including as a result ofmacro-economic or regional events, military conflict, social unrest, or terrorist activities; and
availability and costs of raw materials, utilities,third-party manufacturing services, | ||
Suchforward-looking |
Unfavorable changes in the above or other factors listed under “Item 3. Key Information — Risk Factors” from time to time in our Securities and Exchange Commission (“SEC”) filings, could have a material adverse effect on our businessand/or financial condition.
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Identity of Directors, Senior Management and Advisers |
Not applicable.
Offer Statistics and Expected Timetable |
Not applicable.
Key Information |
Selected Financial Data
The table below sets forth our selected consolidated financial data for each of the years in thefive-year period ended December 31, 2010.2013. Such data have been derived from our audited Consolidated Financial Statements. Audited Consolidated audited financial statementsFinancial Statements for each of the years in thethree-year period ended December 31, 2010,2013, including the Notes thereto (collectively, the “Consolidated Financial Statements”), are included elsewhere in thisForm 20-F, while data for prior periods have been derived from our audited Consolidated Financial Statements used in such periods.
The following information should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and the audited Consolidated Financial Statements and the related Notes thereto included in “Item 18. Financial Statements” in thisForm 20-F.
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(In millions except per share and ratio data) | ||||||||||||||||||||
Consolidated Statements of Income Data: | ||||||||||||||||||||
Net sales | $ | 10,262 | $ | 8,465 | $ | 9,792 | $ | 9,966 | $ | 9,838 | ||||||||||
Other revenues | 84 | 45 | 50 | 35 | 16 | |||||||||||||||
Net revenues | 10,346 | 8,510 | 9,842 | 10,001 | 9,854 | |||||||||||||||
Cost of sales | (6,331 | ) | (5,884 | ) | (6,282 | ) | (6,465 | ) | (6,331 | ) | ||||||||||
Gross profit | 4,015 | 2,626 | 3,560 | 3,536 | 3,523 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative | (1,175 | ) | (1,159 | ) | (1,187 | ) | (1,099 | ) | (1,067 | ) | ||||||||||
Research and development(1) | (2,350 | ) | (2,365 | ) | (2,152 | ) | (1,802 | ) | (1,667 | ) | ||||||||||
Other income and expenses, net(2) | 90 | 166 | 62 | 48 | (35 | ) | ||||||||||||||
Impairment, restructuring charges and other related closure costs | (104 | ) | (291 | ) | (481 | ) | (1,228 | ) | (77 | ) | ||||||||||
Total operating expenses | (3,539 | ) | (3,649 | ) | (3,758 | ) | (4,081 | ) | (2,846 | ) | ||||||||||
Operating income (loss) | 476 | (1,023 | ) | (198 | ) | (545 | ) | 677 | ||||||||||||
Other-than-temporary impairment charge and realized losses on financial assets | — | (140 | ) | (138 | ) | (46 | ) | — | ||||||||||||
Interest income (expense), net | (3 | ) | 9 | 51 | 83 | 93 | ||||||||||||||
Earnings (loss) on equity investments and gain on investment divestiture | 242 | (337 | ) | (553 | ) | 14 | (6 | ) | ||||||||||||
Gain (loss) on financial instruments, net | (24 | ) | (5 | ) | 15 | — | — | |||||||||||||
Income (loss) before income taxes and noncontrolling interest | 691 | (1,496 | ) | (823 | ) | (494 | ) | 764 | ||||||||||||
Income tax benefit (expense) | (149 | ) | 95 | 43 | 23 | 20 | ||||||||||||||
Income (loss) before noncontrolling interest | 542 | (1,401 | ) | (780 | ) | (471 | ) | 784 | ||||||||||||
Net loss (income) attributable to noncontrolling interest | 288 | 270 | (6 | ) | (6 | ) | (2 | ) | ||||||||||||
Net income (loss) attributable to parent company | $ | 830 | $ | (1,131 | ) | $ | (786 | ) | $ | (477 | ) | $ | 782 | |||||||
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Year Ended December 31, | ||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
(In millions except per share and ratio data) | ||||||||||||||||||||
Consolidated Statements of Income Data: | ||||||||||||||||||||
Net sales | 8,050 | $ | 8,380 | $ | 9,630 | $ | 10,262 | $ | 8,465 | |||||||||||
Other revenues | 32 | 113 | 105 | 84 | 45 | |||||||||||||||
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Net revenues | 8,082 | 8,493 | 9,735 | 10,346 | 8,510 | |||||||||||||||
Cost of sales | (5,468 | ) | (5,710 | ) | (6,161 | ) | (6,331 | ) | (5,884 | ) | ||||||||||
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Gross profit | 2,614 | 2,783 | 3,574 | 4,015 | 2,626 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative | (1,066 | ) | (1,166 | ) | (1,210 | ) | (1,175 | ) | (1,159 | ) | ||||||||||
Research and development(1) | (1,816 | ) | (2,413 | ) | (2,352 | ) | (2,350 | ) | (2,365 | ) | ||||||||||
Other income and expenses, net(2) | 95 | 91 | 109 | 90 | 166 | |||||||||||||||
Impairment, restructuring charges and other related closure costs | (292 | ) | (1,376 | ) | (75 | ) | (104 | ) | (291 | ) | ||||||||||
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Total operating expenses | (3,079 | ) | (4,864 | ) | (3,528 | ) | (3,539 | ) | (3,649 | ) | ||||||||||
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Operating income (loss) | (465 | ) | (2,081 | ) | 46 | 476 | (1,023 | ) | ||||||||||||
Other-than-temporary impairment charge and realized gains (losses) on financial assets | — | — | 318 | — | (140 | ) | ||||||||||||||
Interest income (expense), net | (5 | ) | (35 | ) | (25 | ) | (3 | ) | 9 | |||||||||||
Income (loss) onequity-method investments and gain on investment divestiture | (122 | ) | (24 | ) | (28 | ) | 242 | (337 | ) | |||||||||||
Gain (loss) on financial instruments, net | — | 3 | 25 | (24 | ) | (5 | ) | |||||||||||||
Income (loss) before income taxes and noncontrolling interest | (592 | ) | (2,137 | ) | 336 | 691 | (1,496 | ) | ||||||||||||
Income tax benefit (expense) | (37 | ) | (51 | ) | (181 | ) | (149 | ) | 95 | |||||||||||
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Net income (loss) | (629 | ) | (2,188 | ) | 155 | 542 | (1,401 | ) | ||||||||||||
Net loss (income) attributable to noncontrolling interest | 129 | 1,030 | 495 | 288 | 270 | |||||||||||||||
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Net income (loss) attributable to parent company | (500 | ) | (1,158 | ) | 650 | 830 | (1,131 | ) | ||||||||||||
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Earnings per share (basic) attributable to parent company stockholders | (0.56 | ) | (1.31 | ) | 0.74 | 0.94 | (1.29 | ) | ||||||||||||
Earnings per share (diluted) attributable to parent company stockholders | (0.56 | ) | (1.31 | ) | 0.72 | 0.92 | (1.29 | ) | ||||||||||||
Number of shares used in calculating earnings per share (basic) | 889.5 | 886.7 | 883.6 | 880.4 | 876.9 | |||||||||||||||
Number of shares used in calculating earnings per share (diluted) | 889.5 | 886.7 | 904.5 | 911.1 | 876.9 |
Consolidated Balance Sheets Data (end of period): Cash and cash equivalents Short-term deposits Marketable securities Restricted cash Non-current marketable securities Total assets Short-term debt Long-term debt (excluding current portion)(3) Total parent company stockholders’ equity(4) Common stock and capital surplus Other Data: Dividend per share(5) Capital expenditures(6) Net cash from operating activities Depreciation and amortization Debt-to-equity ratio(7) Year Ended December 31, 2013 2012 2011 2010 2009 (In millions except per share and ratio data) 1,836 2,250 1,912 1,892 1,588 1 1 — 67 — 57 238 413 1,052 1,032 — 4 8 7 250 — — — 72 42 9,173 10,434 12,094 13,349 13,655 225 630 733 720 176 928 671 826 1,050 2,316 5,643 6,225 7,603 7,587 7,147 3,737 3,711 3,700 3,671 3,637 0.40 0.40 0.40 0.28 0.12 531 476 1,258 1,034 451 366 612 880 1,794 816 910 1,107 1,279 1,240 1,367 $ 0.20 $ 0.21 $ 0.21 $ 0.23 $ 0.35
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2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(In millions except per share and ratio data) | ||||||||||||||||||||
Earnings (loss) per share (basic) attributable to parent company shareholders | $ | 0.94 | $ | (1.29 | ) | $ | (0.88 | ) | $ | (0.53 | ) | $ | 0.87 | |||||||
Earnings (loss) per share (diluted) attributable to parent company shareholders | $ | 0.92 | $ | (1.29 | ) | $ | (0.88 | ) | $ | (0.53 | ) | $ | 0.83 | |||||||
Number of shares used in calculating earnings per share (basic) | 880.4 | 876.9 | 892.0 | 898.7 | 896.1 | |||||||||||||||
Number of shares used in calculating earnings per share (diluted) | 911.1 | 876.9 | 892.0 | 898.7 | 958.5 | |||||||||||||||
Consolidated Balance Sheet Data (end of period): | ||||||||||||||||||||
Cash and cash equivalents | $ | 1,892 | $ | 1,588 | $ | 1,009 | $ | 1,855 | $ | 1,659 | ||||||||||
Short-term deposits | 67 | — | — | — | 250 | |||||||||||||||
Marketable securities | 1,052 | 1,032 | 651 | 1,014 | 764 | |||||||||||||||
Restricted cash | 7 | 250 | 250 | 250 | 218 | |||||||||||||||
Non-current marketable securities | 72 | 42 | 242 | 369 | — | |||||||||||||||
Total assets | 13,349 | 13,655 | 13,913 | 14,272 | 14,198 | |||||||||||||||
Short-term borrowings and current portion of long-term debt | 720 | 176 | 143 | 103 | 136 | |||||||||||||||
Long-term debt (excluding current portion)(3) | 1,050 | 2,316 | 2,554 | 2,117 | 1,994 | |||||||||||||||
Total parent company shareholders’ equity(4) | 7,587 | 7,147 | 8,156 | 9,573 | 9,747 | |||||||||||||||
Common stock and capital surplus | 3,671 | 3,637 | 3,480 | 3,253 | 3,177 | |||||||||||||||
Other Data: | ||||||||||||||||||||
Dividends per share(5) | $ | 0.28 | $ | 0.12 | $ | 0.36 | $ | 0.30 | $ | 0.12 | ||||||||||
Capital expenditures(6) | 1,034 | 451 | 983 | 1,140 | 1,533 | |||||||||||||||
Net cash from operating activities | 1,794 | 816 | 1,722 | 2,188 | 2,491 | |||||||||||||||
Depreciation and amortization | 1,240 | 1,367 | 1,366 | 1,413 | 1,766 | |||||||||||||||
Debt-to-equity ratio(7) | 0.23 | 0.35 | 0.33 | 0.23 | 0.22 | |||||||||||||||
Net financial position: resources (debt)(7) | $ | 1,152 | $ | 420 | $ | (545 | ) | $ | 1,268 | $ | 761 | |||||||||
Net financial position to total parent company shareholders’ equity ratio(7) | 0.15 | 0.06 | (0.07 | ) | 0.13 | 0.08 |
(1) | ||
Our reported research and development expenses |
(2) | “Other income and expenses, net” includes, among other things: funds received through government agencies for research and development programs; costs incurred for |
(3) | We repurchased a portion of our 2016 convertible bonds (“2016 Convertible |
(4) | Certain shares that we repurchased |
(5) | Dividend per share represents the |
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(6) | ||
Capital expenditures are net of proceeds from sale and certain funds received through government agencies, the effect of which is to reduce our cash used in investing activities and to decrease depreciation. |
(7) | Debt-to-equity ratio is the |
Risks Related to the Semiconductor Industry which Impact Us
The semiconductor industry is cyclical and downturns in the semiconductor industry can negatively affect our results of operations and financial condition.
The semiconductor industry is cyclical and has been subject to significant economic downturns at various times.times, impacted by global economic conditions. Downturns are typically characterized by diminishedreduction in overall demand, giving rise to production overcapacity, accelerated erosion of average selling prices, reduced revenues and high inventory levels, and reduced revenues. Downturnswhich could result in a significant deterioration of our results of operations. Furthermore, downturns may be the result ofindustry-specific factors, such asbuilt-in excess capacity, product obsolescence, price erosion evolving standards,and changes inend-customer demand,and/or macroeconomic trends impacting global economies.demand. Such macroeconomic trends relate to the semiconductor industry as a whole and not necessarily to the individual semiconductor markets to which we sell our products. The negative effects on our
business from industry downturns may also be increased to the extent that such downturns are concurrent with the timing of new increases in production capacity or the introduction of new advanced technologies in our industry. We have experienced revenue volatility and market downturns in the past and expect to experience them in the future, which could have a material adverse impact on our results of operations and financial condition.
In the event of a global or regional economic recessionslowdown impacting business and consumer confidence, which resulted in a precipitous decline in the demand for semiconductor products.products can decline precipitously. As a result, our business, financial conditions and results of operations were affected.have been affected in the past and could also be affected in the future. To the extent that the current economic environment in which we conduct our operations worsens, our business, financial condition and results of operations could be significantly and adversely affected.
In particular, economic downturns affecting the semiconductor industry may result in a variety of risks tothat could significantly affect our business, including:
6declines in revenues;
underutilization of manufacturing capacity;
deterioration of our gross margins, profitability and net cash flow;
increased volatility and/or declines in our share price;
increased volatility or adverse movements in foreign currency exchange rates;
delays in, or curtailment of, purchasing decisions by our customers or potential customers either as a result of overall economic uncertainty or as a result of their inability to access the liquidity necessary to engage in purchasing initiatives or new product development;
closure of our wafer fabrication plants (“fabs”) and associated restructuring plans;
lower valuations of ourequity-method investments and lower valuations on our divestitures or our exit from joint ventures;
downgrade of our corporate credit ratings / outlook from one or more independent rating agencies, which may negatively impact our ability to access additional liquidity;
increased credit risk associated with our customers or potential customers, particularly those that may operate in industries most affected by the economic downturn; and
impairment of goodwill or other assets associated with our product segments.
We may not be able to match our production capacity to demand.
As a result of the cyclicality and volatility of the semiconductor industry, it is difficult to predict future developments in the markets we serve, making it hard to estimate requirements for production capacity. If markets, major customers or certain product designs or technologies do not perform as we have anticipated, we risk under-utilizationunderutilization of our facilities or the manufacturing of excess inventories, in the event of overestimated demand or having insufficient capacity to meet customer demand in the event of underestimated demand.
The net increase of manufacturing capacity, defined as the difference between capacity additions and capacity reductions, may exceed demand requirements, leading to overcapacity and price erosion. If the semiconductor market doesor major customers do not grow as we anticipated when making investments in production capacity, we risk overcapacity.overcapacity and related unused capacity charges. In addition, if demand for our products is lower than expected, this may result inwrite-offs of inventories and losses on products, and could require us to undertake restructuring measures that may involve significant charges to our earnings. In the past, overcapacity for certain products or technologies and cost optimization initiatives have led us to close manufacturing facilities that used more mature process technologies and, as a result, to incur significant impairment and restructuring charges and other related closure costs. Furthermore, in the recent period,during certain periods, we have also experienced an increasing demand in certain market segments and product technologies, which has led to a shortage of capacity and an increase in the lead times of our delivery to customers. See “Item 5. Operating and Financial Review and Prospects — Results of Operations — Impairment, restructuring charges and other related closure costs”.
Competition in the semiconductor industry is intense, and we may not be able to compete successfully if our product design technologies, process technologies and products do not meet market requirements or if we are unable to obtain the necessary IP.
We compete in different product lines to various degrees on the following characteristics:
price;
technical performance;
product features;
product system compatibility;
product design and technology;
timely introduction of new products;
product availability;
process technology;
manufacturing capabilities; and
sales and technical support.
Given the intense competition in the semiconductor industry, if our products are not selected based on any of the above factors, our business, financial condition and results of operations willcould be materially adversely affected.
We face significant competition in each of our product lines. Similarly, many of our competitors also offer a large variety of products. Some of our competitors may have greater financialand/or more focused research and development (“R&D”) resources than we do. If these competitors substantially increase the resources they devote to developing and marketing products that compete with ours, we may not be able to compete successfully. Any consolidation among our competitors could also enhance their product offerings, manufacturing efficiency and financial resources, further strengthening their competitive position.
As we are a supplier of a broad range of products, we are required to make significant investments in R&D across our product portfolio in order to remain competitive. Many of the resulting products that we market in turn, have short life cycles, with some being approximately one year.year or less. Economic conditions may impair our ability to maintain our current level of R&D investments and, therefore, we may need to become more focused in our R&D investments across our broad range of product lines. This could significantly impairOn December 10, 2012, we announced our ability to remain a viable competitorstrategic plan, centered on leadership in theSense & Power and Automotive Products and in Embedded Processing Solutions, specifically focusing on five product areas whereareas: MEMS and sensors, smart power, automotive products, microcontrollers, and digital consumer and ASICs. However, there can be no assurance that we will successfully compete in each product area when our competitors’ R&D investments are highercould be more effective than ours.
We regularly devote substantial resources to winning competitive bid selection processes, known as “product design wins”, to develop products for use in our customers’ equipment and products. These selection processes can be lengthy and can require us to incur significant design and development expenditures, with no guarantee of winning or generating revenue. Delays in developing new products with anticipated technological advances or in commencing volume shipments of new products as well as failure to win new design projects for customers may
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Even after obtaining a product design win from one of our customers, we may still experience delays in generating revenue from our products as a result of our customers’ or our lengthy development and design cycle. In addition, a major change, delay or cancellation of a customer’s plans could significantly adversely affect our financial results, as we may have incurred significant expense and generated no revenue at the time of such change, delay or cancellation. Finally, if our customers fail to successfully market and sell their own products, it could materially adversely affect our business, financial condition and results of operations as the demand for our products falls.
We also regularly incur costs to develop IP internally or acquire it from third parties without any guarantee of realizing the anticipated value of such expenditures if our competitors develop technologies that are more accepted than ours, or if market demand does not materialize as anticipated. In addition to amortization expenses relating to purchased IP, the value of these assets may be subject to impairment with associated charges being made to our Consolidated Financial Statements. See “Item 5. Operating and Financial Review and Prospects”. There is no assurance that our IP purchases will be successful and will not lead to impairments and associated charges.
The competitive environment of the semiconductor industry as well as the resulting consolidation and vertical integration at the customer level may lead to erosion of our market share, impactingimpact our capacity to compete.compete and require us to restructure.
The intensely competitive environment of the semiconductor industry and the high costs associated with developing marketable products and manufacturing technologies as well as investing in production capabilities may lead to improve our competitive positionfurther changes, including consolidation and cost structurevertical integration, in the semiconductor industry.
Our sales have, at times, increasedevolved at a slower pace than the semiconductor industry as a whole and our market share has declined, even in relation to the markets we served. ThereWhile, in 2013, we gained market share in the markets we serve, there is no assurance that we will be able to maintain or grow our market share if we are unable to accelerate product innovation, identify new applications for our products, further penetrate and extend our customer base and realize manufacturing improvementsand/or otherwise control our costs.improvements. In addition, in recent years the major growth of the semiconductor industry has continued to increase manufacturing capacitybeen in Asia, in order to access lower-costsupported also by more competitive production and to benefit from higher overall efficiency, which has led tocosts, resulting in a more competitive environment. We may also inincur losses of market share if we are unable to take the future, if market conditions so require, consider additionalrequired measures to improve our cost structure and competitiveness in the semiconductor market, such as seeking more competitive sources of production, discontinuing certain product familiesproducts or performing additional restructurings, which in turn may result in loss of revenues, asset impairments, unused capacity charges and/or capital losses.
The semiconductor industry may also be impacted by changes in the political, social or economic environment, including as a result of military conflict, social unrest and/or terrorist activities, as well as natural events such as severe weather, health risks, epidemics or earthquakes in the countries in which we, our key customers and our suppliers, operate.
We may face greater risks due to the international nature of our business, including in the countries where we, our customers or our suppliers operate, such as:
negative economic developments in global economies and instability of foreign governments, including the threat of war, terrorist attacks or civil unrest;
epidemics such as disease outbreaks, pandemics and other health related issues;
changes in laws and policies affecting trade and investment, including through the imposition of new constraints on investment and trade; and
varying practices of the regulatory, tax, judicial and administrative bodies.
Risks Related to Our Operations
Market dynamics are drivinghave driven, and continue to drive us, to a strategic repositioning, which has led us to enter into significant joint ventures.repositioning.
In recent years, we have recently undertaken several new initiatives to reposition our business, both through divestitures and new investments. Our strategies to improve our results of operations and financial condition led us, and may in the future lead us, to make
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We are constantly monitoring our product portfolio and cannot exclude that additional steps in this repositioning process may be required; further, we cannot assure that any strategic repositioning of our business, including executed and possible future acquisitions, dispositions or joint ventures, will be successful and may not result in further impairment and associated charges.
Acquisitions and divestitures involve a number of risks that could adversely affect our operating results, including the risk that we may be unable to successfully integrate businesses or teams we acquire with our culture and strategies on a timely basis or at all, and the risk that we may be required to record charges related to the goodwill or otherlong-term assets associated with the acquired businesses. Changes in our expectations due to changes in market developments that we cannot foresee have in the past resulted in our writing off amounts associated with the goodwill of acquired companies, and future changes may require similar furtherwrite-offs in future periods. We cannot be certain that we will be able to achieve the full scope of the benefits we expect from a particular acquisition, divestiture or investment. Our business, financial condition and results of operations may suffer if we fail to coordinate our resources effectively to manage both our existing businesses and any acquired businesses. In addition, the financing of future acquisitions or divestitures may negatively impact our financial conditionposition and could require us to needraise additional funding from the capital markets.
Other risks associated with acquisitions or joint ventures include:
in the case of joint ventures, our ability to effectively control the joint venture when management acts independently;
also in the case of joint ventures, our ability to plan and the activitiesanticipate business and financial results which relies, for that portion of our business, on the joint ventures include:venture’s management ability to plan and anticipate business and financial results and their timely and accurate reporting to us;
the diversion of management’s attention;
insufficient IP rights or issues concerning ownership of key IP;
assumption of potential liabilities, disclosed or undisclosed, associated with the business acquired, which liabilities may exceed the amount of indemnification available from the seller;
potential inaccuracies in the financials of the business acquired;
the ability for businesses acquired or contributed to a joint venture to maintain the quality of products and services that we have historically provided;
our ability to attract and retain qualified management for the acquired business or business contributed to a joint venture;
our ability to retain customers of an acquired entity or business;
employment issues and costs linked to restructuring plans; and
the ability of the joint venture to succeed in a new business not associated with our core business.
Identified risks associated with divestitures include:
loss of activities and technologies that may have complemented our divestiture activities include:
9remaining businesses or operations;
impairment of goodwill and other assets associated with the business to be divested;
employment issues and restructuring costs linked to divestitures and closures; and
diversion of management’s attention.
These and other factors may cause a materially adverse effect on our results of operations and financial condition.
Our strategic plan may be unsuccessful if we cannot respond to significant changes in the semiconductor market.
In late 2012, we announced our strategic plan centered on leadership in Sense & Power and Automotive Products and in Embedded Processing Solutions, which included, as part of this new plan, our decision to exitST-Ericsson after a transition period and established a targeted operating margin of about 10%. Thesplit-up ofST-Ericsson was completed in the third quarter of 2013 and we are in the process of finalizing itswind-down. There can be no assurance that we will successfully implement our strategic plan and achieve our new financial model, which is dependent upon solid revenue growth, improving gross margins and reducing our operating costs. Our success is contingent upon our ability to respond to the following significant changes currently
characterizing the semiconductor market: thelong-term structural growth of the overall market for semiconductor products, which has moved from double digit average annual growth to single digit average annual growth over the last several years and which has become more strongly correlated with the global macroeconomic environment; the acceleration of new product innovation and the strong development of new applications in areas such as smart consumer devices, trust and data security, healthcare & wellness, and energy and power management savings; the growing importance of the Asia Pacific region, particularly China and other emerging countries, which represent the fastest growing regional markets; the evolving customer demand to seek new system level, turnkey solutions from semiconductor suppliers; the evolution of the customer base, which also includes polarization and vertical integration at leading manufacturers; the expansion of available manufacturing capacity through third party providers; and the evolution of advanced process development R&D partnerships.
In difficult market conditions, our high fixed costs adversely impact our results.
In less favorable industry environments, we are driven to reduce prices in response to competitive pressures and we are also faced with a decline in the utilization rates of our manufacturing facilities due to decreases in product demand. Reduced average selling prices and demand for our products both adversely affect our results of operations. Since the semiconductor industry is characterized by high fixed costs, we are not always able to cut our total costs in line with revenue declines. Furthermore, in periods of lower customer demand for our products, our fabs do not operate at full capacity and the costs associated with the excess capacity are charged directly to cost of sales as unused capacity charges. Additionally, a significant number of our manufacturing facilities are located in France and Italy and their cost of operation have been significantly affected by the rise over the last few years of the Euro against the U.S. dollar, our reporting currency. See “Item 5. Operating and Financial Review and Prospects”. While markets improved in 2010, the difficult conditions experienced in 2008 and 2009 had a significant effect on the capacity utilization and related manufacturing efficiencies of our fabs and, consequently, our gross margins. We cannot guarantee that such market conditions, and increased competition in our core product markets, will not lead to further price erosion, lower revenue growth rates and lower margins.
The competitive environment of the semiconductor industry has led to industry consolidation and we may face even more intense competition from newly merged competitors or we may seek to acquire a competitor in order to improve our market share.
A significant variation of the value of the U.S. dollar against the principal currencies that have a material impact on us (primarily the Euro, but also certain other currencies of countries where we have operations)operations, such as the Singapore dollar) could result in a favorable impact on our net income in the case of an appreciation of the U.S. dollar, or a negative impact on our net income if the U.S. dollar depreciates relative to these currencies.currencies, in particular with respect to the Euro. Currency exchange rate fluctuations affect our results of operations because our reporting currency is the U.S. dollar, in which we receive the major partportion of our revenues, while, more importantly, we incur a significant portion of our costs in currencies other than the U.S. dollar. Certain significant costs incurred by us, such as a significant part of our manufacturing labor costs, selling, general and administrative (“SG&A”) expenses, and R&D expenses, and — in certain jurisdictions — depreciation charges are incurred in the currencies of the jurisdictions in which our operations are located, which mainly includes the Euro zone. Our effective average exchange rate, which reflects actual exchange rate levels combined with the impact of cash flow hedging programs, was $1.36$1.31 to €1.00 in 2010, compared to $1.37 to €1.00 in 2009.
In order to reduce the exposure of our financial results to the fluctuations in exchange rates, our principal strategy has been to balance as much as possible the proportion of sales to our customers denominated in U.S. dollars with the amount of purchases from our suppliers denominated in U.S. dollars and to reduce the weight of the other costs, including labor costs and depreciation, denominated in Euros and in other currencies. In order to further reduce our exposure to U.S. dollar exchange rate fluctuations, we have hedged certain line items on our consolidated statements of income (“Consolidated Statements of Income”), in particular with respect to a portion of the cost of goods sold, most of the R&D expenses and certain selling, general and administrativeSG&A expenses located in the Euro zone andzone. We also hedge certain manufacturing costs denominated in Sweden.Singapore dollars. No assurance can be given that our hedging transactions will prevent us from incurring higherEuro-denominated manufacturing costs when translated into our U.S.dollar-based accounts in the event of a weakening of the
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Our results of operations and financial condition could be adversely impacted by a negative resolution of economic conditions in Europe.
The financial markets and global economic conditions have been negatively impacted by the European economic crisis that began in 2010 and spread to several Euro zone countries, in particular Greece, Ireland, Italy, Portugal and Spain. This resulted in a sovereign liquidity crisis, with a significant increase in the interest rates on the national debt of several Euro zone countries and the downgrading of several sovereign debt ratings, which has contributed to a general slowdown of economic growth and higher debt levels. While it appears that the
financial crisis in the Euro zone is beginning to ease, we cannot exclude a potential further deterioration of economic conditions, which could have a material adverse effect on our results given our significant operations and assets in Europe, in particular, our manufacturing activities in France, Italy and Malta.
Because we have our own manufacturing facilities, our capital needs are high compared to those competitors who do not produce their own products.
As a result of our choice to maintain control of a certain portion of our advanced and proprietary manufacturing technologies to better serve our customer base, and to develop our strategic alliances, significant amounts of capital to maintain or upgrade our facilities could be required in the future. We monitor our capital expenditures taking into consideration factors such as trends in the semiconductor market and capacity utilization. WhileThese expenditures may increase in the last three years our aggregate capital expenditures decreased, as expressed in terms of percentage to sales,future if we are planning in 2011 capital expenditures of approximately $1.1 billion to $1.5 billionrequired to upgrade andor expand the capacity of our manufacturing facilities in order to respond to the increasingcustomer demand from customers andfor increased quantities or for new more advanced products in certain segments particularly for micro-electro-mechanical systems (“MEMS”), Automotive and Smartphone and Tablet platforms.we serve. There is no assurance that future market demand and products required by our customers will meet our expectations. Failure to invest appropriately or in a timely manner could have a material adverse effect on our business, and results of operations. See “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources”.
We may also need additional funding in the coming years to finance our investments, to pursue other business combinations or to purchase other companies or technologies developed by third parties or to refinance our maturing indebtedness.
In an increasingly complex and competitive environment, we may need to invest in other companies, in IP and/or in technology developed either by us or by third parties to maintain or improve our position in the market. We may also consider acquisitionsmarket or to complement or expand our existing business. In addition, a portion of the outstanding cash is devoted to redeem maturing indebtedness. Although there are no current plans to issue new debt or equity, theThe foregoing may also require us to issuesecure additional financing, including through the issuance of debt, equity or both; theboth. The timing and the size of any new share or bond offering would depend upon market conditions as well as a variety of factors, and anyfactors. In addition, the capital markets may from time to time offer terms of financing that are particularly favorable. We cannot exclude that we may access the capital markets opportunistically to take advantage of market conditions. Any such transaction or any announcement concerning such a transaction could materially impact the market price of our common shares. If we are unable to access such capital on acceptable terms, this may adversely affect our business and results of operations.
Our R&D efforts are increasingly expensive and dependent on technology alliances, and our business, results of operations and prospects could be materially adversely affected by the failure or termination of such alliances, or failure to find new partners and/or to develop new process technologies and products.alliances.
We are dependent on alliances to develop or access new technologies, particularly in light of the increasinghigh levels of investment required for R&D activities, and there can be no assurance that these alliances will be successful. We are a member of the International Semiconductor Development Alliance (“ISDA”), a technology alliance led by IBM with GlobalFoundries, Freescale, Infineon, Renesas, Samsung and Toshiba to develop complementary metal-on silicon oxide semiconductor (“CMOS”) process technology used in semiconductor development and manufacturing for 32/28-nm and 22/20-nm nodes. This alliance also includes collaboration on IP development and platforms to speed the design of
System-on-Chip (“SoC”) devices in CMOS process technologies. In 2009, we also entered into an agreement with IBM to develop value-added derivative SoC technologies in Crolles, France.
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To support our proprietary R&D for derivative technology investments and investments in cooperative R&D ventures such as the Nano 2012 agreement will terminate in 2012 and there can be no assurance thatISDA alliance, a continuation of the program will be fundedtechnology alliance led by the French administration or that a new program will be signed and at which terms it will be granted.
We also receive a material amount of R&D tax credits in France, which are directly linked to the amount spent for our R&D activities. In 2013, we booked $146 million, which reflected amounts relating to our R&D activities in France during 2013. In 2012 and 2011, the amounts were $152 million and $159 million, respectively. In the event of a change in the development, productionFrench R&D tax credit regime, this could affect our continued ability to invest in R&D as we currently do and introduction ofwe could experience a material adverse effect on our new products,business and financial results.
If we fail to meet the condition and approval requirements applicable to public funding we have received in the past, we may face demands for repayment, which may increase our costs and impact our results of operations.
We have entered into public funding agreements in turnFrance and Italy, which set forth the parameters for state support to us under selected programs. These funding agreements require compliance with EU regulations and approval by EU authorities. These agreements also set forth certain conditions relating to the nature and amount of the investments, as well as employment. See “Item 4. Information on the Company — Public Funding”.
The application for and implementation of such grants often involves compliance with extensive regulatory requirements including, in the case of subsidies to be granted within the EU, notification to the European Commission by the member state making the contemplated grant prior to disbursement and receipt of required EU approval. In addition, compliance withproject-related ceilings on aggregate subsidies defined under EU law often involves highly complex economic evaluations. Furthermore, public funding arrangements are generally subject to annual andproject-by-project reviews and approvals. If we fail to meet applicable formal or other requirements, we may under certain circumstances be required to refund previously received amounts, which could have a material adverse effect on our results of operations. In addition, if we do not complete projects for which public funding has been approved, or meet certain objectives set forth in funding programs, which may include certain conditions of employment and manufacturing capacity to be met, we may be required to repay any advances received for ongoing milestones, which may lead to a material adverse effect on our results of operations and our financial position. See “Item 4. Information on the discontinuationCompany — Public Funding”.
If we fail to receive the necessary funding for our R&D program, we may have to reconsider our strategy, which could adversely impact our results of an existing or planned product. Asoperations.
In certain product families, our strategy is based on technological excellence in advanced CMOS, which is R&D intensive. We plan to fund this R&D program with, among other resources, grants from the French government under the Nano-2017 agreement, which is currently subject to EU approval. If the approval from the EU is not received and, as a result, the program is not funded, our relationshipstrategy with our customersrespect to the development of advanced CMOS technology would have to be reconsidered. While we expect to receive public funding under this agreement, there is no guarantee that the program will be approved or if it is approved, that there will be no modifications that could be impairednegatively affect the R&D program, all of which could trigger additional restructuring plans.
Our operating results may vary significantly from quarter to quarter and annually and may differ significantly from our expectations or guidance.
Our operating results are affected by a wide variety of other factors that could materially and adversely affect revenues and profitability or lead to significant variability of operating results. These factors include, among others, the cyclicality of the semiconductor and electronic systems industries, capital requirements, inventory management, availability of funding, competition, new product developments, technological changes, manufacturing problems and manufacturing problems.effective tax rates. For example, if anticipated sales or shipments do not occur when expected, expenses and inventory levels in a given quarter can be disproportionately high, and our results of operations for that quarter, and potentially for future quarters, may be adversely affected. In addition, our effective tax rate currently takes into consideration certain favorable tax rates and incentives, which, in the future, may not be available to us. See Note 23 to our Consolidated Financial Statements.
A number of other factors could lead to fluctuations in quarterly and annual operating results, including:
performance of our key customers in the markets they serve;
order cancellations or reschedulings by customers;
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excess inventory held by customers leading to reduced bookings or product returns by key customers;
manufacturing capacity and utilization rates;
restructuring and impairment charges and other related closure costs;
losses onequity-method investments;
fluctuations in currency exchange rates, particularly between the U.S. dollar and other currencies in jurisdictions where we have activities;
IP developments;
receipt of governmental funding;
changes in anydistribution and sales arrangements;
failure to win new design projects;
manufacturing performance and yields;
product liability or warranty claims;
litigation;
taxation;
acquisitions or divestitures;
problems in obtaining adequate raw materials or production equipment on a timely basis;
property loss or damage or interruptions to our business, including as a result of fire, natural disasters or other disturbances at our facilities or those of our customers and suppliers that may exceed the amounts recoverable under our insurance policies; and
changes in the market value or yield of the above factors havefinancial instruments in the past and may in the future adversely affectwhich we invest our operating results. Furthermore, inliquidity.
In periods of industry overcapacity or when our key customers encounter difficulties in their end markets, orders are more exposed to cancellations, reductions, price renegotiation or postponements, which in turn reduce our management’s ability to forecast the next quarter or full year production levels, revenues and margins. For these reasons and others that we may not yet have identified, our revenues and operating results may differ materially from our expectations or guidance as visibility is reduced. See “Item 4. Information on the Company — Backlog”.
Our business is dependent in large part on continued growth in the industries and segments into which our products are sold and on our ability to attract and retain new customers. A market decline in any of these industries or our inability to attract new customers could have a material adverse effect on our results of operations.
We derive and expect to continue to derive significant sales from the telecommunications, consumer, computer and communication infrastructure,peripherals, automotive and industrial markets. Growth of demand in these market segments havehas fluctuated significantly in the past, and may in the future, based on numerous factors, including:
spending levels of the market segment participants;
reduced demand resulting from a drop in consumer confidence and/or a deterioration of general economic conditions;
development of new consumer products or applications requiring high semiconductor content;
evolving industry standards; and
the rate of adoption of new or alternative technologies.
We cannot predict the rate, or the extent to which, the telecommunications, consumer, computer and communication infrastructure,peripherals, automotive and industrial markets will grow. In 2009, the declineChanges in these markets, resultedcoupled with a lower penetration of certain of our customers could result in slower growth and a decline in demand for our products, which had a material adverse effect on our business, financial condition and results of operations.
In addition, our spending on process and product development well ahead of market acceptance could have a material adverse effect on our business, financial condition and results of operations if projected industry growth rates do not materialize as forecasted.
Our business is dependent upon our ability to attract and retain new customers.customers who are successful in identifying and serving new potential,fast-growing markets. The competition for such new customers or new markets is intense. There can be no assurance that we will be successful in attracting and retaining new customers.customers or be able to identify early on any new market prospects. Our failure to do so could materially adversely affect our business, financial position and results of operations.
Our business is also dependent upon continuing to supply existing large customers, their business success and the fit of our product offering with their productsroad-map. Our customers’ products strategy may change from time to time and we have no certainty that our business, financial position and results of operations will not be affected.
Disruptions in our relationships with any one of our key customers, and/or material changes in their strategy or financial condition, could adversely affect our results of operations.
A substantial portion of our sales is derived from several large customers, some of whom have entered into strategic alliancesagreements with us. As of December 31, 2010, our largest customer, the Nokia group of companies, accounted for 13.9% of our 2010 net revenues, compared to 16.1% in 2009 and 17.5% in 2008. We cannot guarantee that our largest customers will continue to book the same level of sales with us and our joint ventures that they have in the past, or will not solicit alternative suppliers or will continue to succeed in the markets they serve. Many of our key customers operate in cyclical businesses that are also highly competitive, and their own demands and market positions may vary considerably. In recent years, certain customers of the semiconductor industry have experienced consolidation.consolidation and have vertically integrated their businesses. Such consolidations and vertical integrations may impact our business in the sense that our relationships with the new entities could be either reinforced or jeopardized pursuant thereto. Our customers have in the past, and may in the future, vary order levels significantly from period to period, request postponements to scheduled delivery dates or modify their bookings. We cannot guarantee that we will be able to maintain or enhance our market share with our key customers or distributors. If we were to lose important design wins for our products with our key customers, or if any key customer or distributor were to reduce or change its bookings, seek alternate suppliers, increase its product
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Our operating results can also vary significantly due to impairment of goodwill and other intangible assets incurred in the course of acquisitions and equity investments, as well as to impairment of tangible assets due to changes in the business environment.
Our operating results can also vary significantly due to impairment of goodwill, other intangible assets and equity investments booked pursuant to acquisitions, joint venture agreements and to the purchase of technologies and licenses from third parties, which has increased significantly since 2008 due to M&A transactions.parties. Because the market for our products is characterized by rapidly changing technologies, and because of significant changes in the semiconductor industry, and the potential failure of our business initiatives, our future cash flows may not support the value of goodwill and other intangibles registered in our consolidated balance sheet.sheets (“Consolidated Balance Sheets”). We are required to perform an impairment test of our goodwill on an annual basis.basis, which is done in the third quarter. In addition, we are also required to assess the carrying values of intangible and tangible assets when impairment indicators exist. As a result of such tests, we could be required to book an impairment charge in our consolidated statement of income if the carrying value in our consolidated balance sheetConsolidated Balance Sheets is in excess of the fair value. The amount of any potential impairment is not predictable as it depends on our estimates of projected market trends, results of operations and cash flows. Any potential impairment, if required, could have a material adverse impact on our results of operations.
We performed our annual impairment test in the third quarter of 20102013 and, with the exception of a $56 million impairment charge with respect to our Digital Convergence Group (“DCG”) business, we incurred no chargeother impairment charges as the fair value generatedof those reporting units exceeded their carrying value. See “Item 5. Operating and Financial Review and Prospects — Overview — Critical Accounting Policies Using Significant Estimates — Impairment of goodwill”, “— Intangible assets subject to amortization” and “— Income (loss) onEquity-method Investments”.
We depend on patents to protect our rights to our technology and may face claims of infringing the IP rights of others.
We depend on our ability to obtain patents and other IP rights covering our products and their design and manufacturing processes. We intend to continue to seek patents on our inventions relating to product designs and
manufacturing processes. However, the process of seeking patent protection can be long and expensive, and we cannot guarantee that we will receive patents from currently pending or future applications. Even if patents are issued, they may not be of sufficient scope or strength to provide meaningful protection or any commercial advantage. In addition, effective patent, copyright and trade secret protection may be unavailable or limited in some countries. Competitors may also develop technologies that are protected by patents and other IP and therefore either be unavailable to us or be made available to us subject to adverse terms and conditions. We have in the past used our patent portfolio to negotiate broad patentcross-licenses with many of our competitors enabling us to design, manufacture and sell semiconductor products, without fear of infringing patents held by such competitors. We may not, however, in the future be able to obtain such licenses or other rights to protect necessary IP on favorable terms for the conduct of our business, and such failure may adversely impact our results of operations.
We have from time to time received, and may in the future receive, communications alleging possible infringement of patents and other IP rights. Some of those claims are made by so callednon-practicing entities against which we are unable to assert our own broad patent portfolio to lever licensing terms and conditions. Competitors with whom we do not have patentcross-license agreements may also develop technologies that are protected by patents and other IP rights and which may be unavailable to us or only made available on unfavorable terms and conditions. We may therefore become involved in costly litigation brought against us regarding patents, mask works, copyrights, trademarks or trade secrets. We are currently involved in several lawsuits. See “Item 8. Financial Information — Legal Proceedings”. IP litigation may also involve our customers who in turn may seek indemnification from us should we not prevail and/or who may decide to curtail their orders for those of our products over which claims have been asserted. Such lawsuits may therefore have a material adverse effect on our business. We may be forced to stop producing substantially all or some of our products or to license the underlying technology upon economically unfavorable terms and conditions or we may be required to pay damages for the prior use of third party IP and/or face an injunction.
The outcome of IP litigation, given the complex technical issues it involves, is inherently uncertain and may divert the efforts and attention of our management and other specialized technical personnel. Furthermore, litigation can result in significant costs and, if not resolved in our favor, could materially and adversely affect our business, financial condition and results of operations.
We operate in many jurisdictions with highly complex and varied tax regimes. Changes in tax rules or the outcome of tax assessments and audits could cause a material adverse effect on our results.
We operate in many jurisdictions with highly complex and varied tax regimes. Changes in tax rules or the outcome of tax assessments and audits could have a material adverse effect on our results in any particular quarter. Our tax rate is variable and depends on changes in the level of operating results within various local jurisdictions and on changes in the applicable taxation rates of these jurisdictions, as well as changes in estimated tax provisions due to new events. We currently receive certain tax benefits in some countries, and these benefits may not be available in the future due to changes in the local jurisdictions. As a result, our effective tax rate could increase in the coming years.
In line with our strategic repositioning of our product segments exceededportfolio, the carrying valueacquisition or divestiture of their assets. In addition, we performed an impairment testbusinesses in different jurisdictions could materially affect our effective tax rate.
We evaluate our deferred tax asset position and the need for a valuation allowance on a regular basis. This assessment requires the exercise of judgment on the part of our Wirelessmanagement with respect to, among other things, benefits that could be realized from available tax strategies and future taxable income, as well as other positive and negative factors. The ultimate realization of deferred tax assets onis dependent upon, among other things, our ability to generate future taxable income that is sufficient to utilize losscarry-forwards or tax credits before their expiration or our ability to implement prudent and feasible tax planning strategies. The recorded amount of total deferred tax assets could be reduced, resulting in a quarterly basis,loss in our consolidated income statement, a decrease in our total assets and, consequently, in our stockholders’ equity, if our estimates of projected future taxable income and benefits from available tax strategies are reduced as a result of the ongoing losses suffereda change in management’s assessment or due to other factors, such as divestitures, or if changes in current tax regulations are enacted that segment and concluded that no charges are required basedimpose restrictions on the current plantiming or extent of our joint-venture ST-Ericsson. However, manyability to utilize tax loss and creditcarry-forwards in the future. A change in the estimated amounts and the character of the factors usedfuture result may require additional valuation allowances, resulting in assessing fair values for such assets are outside ofa negative impact on our control and the estimates used in such analysesconsolidated income statement.
We are subject to change. Due to the ongoing uncertaintypossibility of the current market conditions, which may continue to negatively impact our market value, we will continue to monitor the carrying valueloss contingencies arising out of tax claims, assessment of uncertain tax positions and provisions for specifically identified income tax exposures. There are currently tax audits ongoing
in certain of our assets. If market and economic conditions further deteriorate, thisjurisdictions, which could result in future non-cash impairment charges against income. Further impairment charges could also result from new valuations triggered by changesmaterial adjustments in our product portfoliotax position. There can be no assurance that we will be successful in resolving potential tax claims that arose or strategic transactions,can arise from these audits. We have booked provisions on the basis of the best current understanding; however, we could be required to book additional provisions in future periods for amounts that cannot be assessed at this stage. Our failure to do so and/or the need to increase our provisions for such as ST-Ericsson, especially if ST-Ericsson, is unable to successfully compete.
Because we depend on a limited number of suppliers for raw materials and certain equipment, we may experience supply disruptions if suppliers interrupt supply, increase prices or experience material adverse changes in their financial condition.
Our ability to meet our customers’ demand to manufacture our products depends upon obtaining adequate supplies of quality raw materials on a timely basis. A number of materials are available only from a limited number of suppliers, or only from a limited number of suppliers in a particular region. In addition, we purchase raw materials such as silicon wafers, lead frames, mold compounds, ceramic packages and chemicals and gases from a number of suppliers on ajust-in-time basis, as well as other materials such as copper and gold whose prices on the world markets have fluctuated significantly during recent periods. Although supplies for the raw materials we currently use are adequate, shortages could occur in various essential materials due to interruption of supply or increased demand in the industry. In addition, the costs of certain materials such as copper and gold, have increased due to market pressures and we may not be able to pass on such cost increases to the prices we charge to our customers. We also purchase semiconductor manufacturing equipment from a limited number of suppliers and, because such equipment is complex, it is difficult to replace one supplier with another or to substitute one piece of equipment for another. In addition, suppliers may extend lead times, limit our supply or increase prices due to capacity constraints or other factors. Furthermore, suppliers tend to focus their investments on providing the most technologically advanced equipment and materials and may not be in a position to address our requirements for equipment or materials of older generations. Shortages of supplies have in the past impacted and may in the future impact the semiconductor industry, in particular with respect to silicon wafers due to increased demand and decreased production. Although we work closely with our suppliers to avoid these types of shortages, there can be no assurancesassurance that we will not encounter these problems in the future. Our quarterly or annual results of operations would be adversely affected if we were unable to obtain adequate supplies of raw materials or equipment in a timely
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If our outside contractors fail to perform, this could adversely affect our ability to exploit growth opportunities.
We currently use outside contractors both for front and back-end activities, and it is likely that we will increasingly rely on foundries for a growing portion of our needs.front andback-end activities. The foundries we contract with are primarily manufacturers ofhigh-speed complementarymetal-on silicon oxide semiconductor (“HCMOS”) wafers, and nonvolatile memory technology, while ourback-end subcontractors engage in the assembly and testing of a wide variety of packaged devices. If our outside suppliers are unable to satisfy our demand, or experience manufacturing difficulties, delays or reduced yields, our results of operations and ability to satisfy customer demand could suffer. Our internal manufacturing costs include depreciation and other fixed costs, while costs for products outsourced are based on market conditions. Prices for these services also vary depending on capacity utilization rates at our suppliers, quantities demanded, product technology and geometry. Furthermore, these outsourcing costs can vary materially from quarter to quarter and, in cases of industry shortages, they can increase significantly further, negatively impacting our gross margin.
Our manufacturing processes are highly complex, costly and potentially vulnerable to impurities, disruptions or inefficient implementation of production changes that can significantly increase our costs and delay product shipments to our customers.
Our manufacturing processes are highly complex, require advanced and increasingly costly equipment and are continuously being modified or maintained in an effort to improve yields and product performance. Impurities or other difficulties in the manufacturing process can lower yields, interrupt production or result in losses of products in process. As system complexity and production changes have increased andsub-micron technology has become more advanced using ever finer geometries, manufacturing tolerances have been reduced and requirements for precision have become even more demanding. Although in the past few years we have significantly enhanced our manufacturing capability in terms of efficiency, precision and capacity, we have from time to time experienced bottlenecks and production difficulties that have caused delivery delays and quality control problems, as is common in the semiconductor industry. We cannot guarantee that we will not experience bottlenecks, production or transition difficulties in the future. In addition, during past periods of high demand for
our products, our manufacturing facilities have operated at high capacity, which has led to production constraints. Furthermore, if production at a manufacturing facility is interrupted, we may not be able to shift production to other facilities on a timely basis, or customers may purchase products from other suppliers. In either case, the loss of revenue and damage to the relationship with our customer could be significant. Furthermore, we periodically transfer production equipment between production facilities and must ramp up and test such equipment once installed in the new facility before it can reach its optimal production level.
We depend on patents to protect our rights to our technology and may face claims of infringing the IP rights of others.
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Despite our corporate quality programs and commitment, our products may not in each case comply with specifications or customer requirements. We may face product liability or warranty claims based on epidemic, security or delivery failures. Although our general practice, in line with industry standards, is to contractually limit our liability to the repair, replacement or refund of defective products, warranty or product liability claims could result in significant expenses relating to compensation payments or other indemnification to maintain good customer relationships if a customer threatens to terminate or suspend our relationship pursuant to a defective product supplied by us. No assurance can be made that we will be successful in maintaining our relationships with customers with whom we incur quality problems, which could have a material adverse affecteffect on our business. Furthermore, we could incur significant costs and liabilities if litigation occurs to defend against such claims and if damages are awarded against us. In addition, it is possible for one of our customers to recall a product containing one of our parts. Costs or payments we may make in connection with warranty claims or product recalls may adversely affect our results of operations. There is no guarantee that our insurance policies will be available or adequate to protect us against such claims.
Our systems are subject to security breaches and other cybersecurity incidents.
We may, from time to time, experience cyber attacks of varying degrees, and as a result, unauthorized parties may have obtained, and may in the future obtain, access to our computer systems and networks. Such cyber attacks could result in the misappropriation of our proprietary information and technology, the compromise of personal and confidential information of our employees, customers or suppliers or interrupt our business. The reliability and security of our information technology infrastructure and software, and our ability to expand and continually update technologies in response to our changing needs is critical to our business. We may incur significant costs in order to implement, maintain and/or update security systems that we feel are necessary to protect our computer systems. To the extent that any disruptions or security breaches result in significant loss or damage to our data, or inappropriate disclosure of significant proprietary information, it could cause damage to our reputation and affect our relationships with our customers and suppliers and ultimately harm our business.
Some of our production processes and materials are environmentally sensitive, which could expose us to liability and increase our costs due to environmental regulations and laws or because of damage to the environment.
We are subject to many environmental laws and regulations wherever we operate that govern, among other things, the use, storage, discharge and disposal of chemicals, gases and other hazardous substances used in our manufacturing processes, air emissions, waste water discharges, waste disposal, as well as the investigation and remediation of soil and ground water contamination.
A number of environmental requirements in the European Union, including some that have only recently come into force, affect our business. See “Item 4. Information on the Company — Environmental Matters”. These requirements are partly under revision by the European Union and their potential impacts cannot currently be determined in detail. SuchThe implementation of such regulations however, could adversely affect our manufacturing costs or product sales by requiring us to acquire costly equipment, materials or greenhouse gas allowances, or to incur other significant expenses in adapting our manufacturing processes or waste and emission disposal processes. We are not in a position to quantify specific costs, in part because these costs are part of our business process. Furthermore, environmental claims or our failure to comply with present or future regulations could result in the assessment of damages or imposition of fines against us, suspension of production or a cessation of operations. As with other companies engaged in similar activities, any failure by us to control the use of, or adequately restrict the discharge of, chemicals or hazardous substances could subject us to future liabilities. Any specific liabilities we identify as probable would be reflected in our consolidated balance sheet.Consolidated Balance Sheets. To date, we have not identified any such specificprobable liabilities and have therefore not booked reserves for any specific environmental risks.
Loss of key employees could hurt our competitive position.
As is common in the semiconductor industry, success depends to a significant extent upon our key senior executives and R&D, engineering, marketing, sales, manufacturing, support and other personnel. Our success
also depends upon our ability to continue to attract, retain and motivate qualified personnel. The competition for such employees is intense, and the loss of the services of any of these key personnel without adequate replacement or the inability to attract new qualified personnel could have a material adverse effect on us.
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The ultimate realization of deferred tax assets is dependent upon, among other things, our ability to generate future taxable income that is sufficient to utilize loss carry-forwards or tax credits before their expiration. The recorded amount of total deferred tax assets could be reduced, resulting in a decrease in our total assets and, consequently, in our shareholders’ equity, if our estimates of projected future taxable income and benefits from available tax strategies are reduced as a result of a change in management’s assessment or due to other factors, or if changes in current tax regulations are enacted that impose restrictions on the timing or extent of our ability to utilize tax loss and credit carry-forwards in the future. A change in the estimated amounts and the character of the future result may require additional valuation allowances, resulting in a negative impact on our income statement.
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From time to time, the unanimous approval by shareholdersFrench or Italian Shareholder of ST Holding beforehas changed and may change in future. For example, in 2013, the Ministry of the Economy and Finance announced its intent to sell its investment in ST Holding. Sales of our common shares or the issuance of financial instruments exchangeable into our common shares or any announcements concerning a potential sale by ST Holding, can make any decision with respectFT1CI, Bpifrance, CEA or the Ministry of the Economy and Finance, could materially impact the market price of our common shares depending on the timing and size of such sale, market conditions as well as a variety of other factors.
In addition, substantial issuances by us of new common shares or convertible bonds could cause our common share price to certain actions to be taken by us. Furthermore,drop significantly as permitteda result of substantial dilution in the percentage of our shares held by our Articlesthen existing shareholders. The issuance of Association,common stock for acquisitions or other corporate actions may have the Supervisory Board has specified selected actions byeffect of diluting the Managing Board that require the approvalvalue of the Supervisory Board. See “Item 7. Major Shareholders and Related Party Transactions — Major Shareholders”. These requirements for the prior approval of various actions to be taken by us and our subsidiaries may give rise to a conflict of interest between our interests and investors’ interests, on the one hand, and the interests of the individual shareholders approving such actions, on the other, and may affect the ability of our Managing Board to respond as may be necessary in the rapidly changing environment
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Our shareholder structure and our preference shares may deter a change of control.
We have an option agreement (the “Option Agreement”) with an independent foundation, Stichting ContinuiteitContinuiteït ST (the “Stichting”), whereby we could issue a maximum of 540,000,000 preference shares in the event of actions considered hostile by our Managing Board and Supervisory Board, such as a creeping acquisition or an unsolicited offer for our common shares, which are unsupported by our Managing Board and Supervisory Board and which the board of the Stichting determines would be contrary to the interests of our Company, our shareholders and our other stakeholders. See “Item 7. Major Shareholders and Related Party Transactions — Major Shareholders — Shareholders’ AgreementsAgreement — Preference Shares”.
No preference shares have been issued to date. The effect of the issuance of preference shares pursuant to the Option Agreement may be to deter potential acquirers from effecting an unsolicited acquisition resulting in a change of control or otherwise taking actions considered hostile by our Managing Board and Supervisory Board. In addition, our shareholders have authorized us to issue additional capital within the limits of the authorization by our authorized share capital,shareholders’ meeting, subject to the requirements of our Articles of Association, without the need to seek a specific shareholder resolution for each capital increase. See “Item 10. Additional Information7. Major Shareholders and Related Party Transactions — Memorandum and Articles of AssociationMajor Shareholders — Share CapitalShareholders’ Agreement — Issuance of Shares, Preemptive Preference Shares and Capital Reduction (Articles 4 and 5)”Shares”.
Our direct or indirectmajor shareholders may sell our existing common shares or issue financial instruments exchangeable into our common shares at any time. In addition, substantial salesissuances by us of new common shares or convertible bonds could cause our common share price to drop significantly.
The STH Shareholders’ Agreement, to which we are not a party, between respectively CEA, Bpifrance, FT1CI, our French Shareholder controlled by ArevaBpifrance and CEA, and the Ministry of the Economy and Finance, our Italian shareholder, which is in the process of signing a deed of adherence to the STH Shareholders’ Agreement,Shareholder, permits our respective French and Italian indirect shareholders to cause ST Holding to dispose of its stake in us at its sole discretion at any time from their current level, and to reducethereby reducing the current level of their respective indirect interests in our common shares. Such disposals could be made by way of sales of our shares or through issuance of financial instruments exchangeable for our shares, equity swaps or structured finance transactions.
The details of the STH Shareholders’ Agreement, as reported by ST Holding II,its parties, are further explained in “Item 7. Major Shareholders and Related Party Transactions — Major Shareholders”. Disposals of our shares by the parties to the STH Shareholders’ Agreement can be made by way of the issuance of financial instruments exchangeable for our shares, equity swaps, structured finance transactions or sales of our shares. An announcement with respect to one or more of such dispositions could be made at any time without our advance knowledge.
Sales of our common shares or issuethe issuance of bondsfinancial instruments exchangeable into our common shares or any announcements concerning a potential sale by ST Holding, FT1CI, Areva,Bpifrance, CEA or the Ministry of the Economy and Finance, could materially impact the market price of our common shares. Theshares depending on the timing and size of any future share or exchangeable bond offering by ST Holding, FT1CI, Areva, CEA or the Ministry of the Economy and Finance would depend uponsuch sale, market conditions as well as a variety of other factors.
In addition, substantial issuances by us of new common shares or convertible bonds could cause our common share price to drop significantly as a result of substantial dilution in the percentage of our shares held by our then existing shareholders. The issuance of common stock for acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our shareholders, and might have an adverse effect on any trading market for our common stock.
We are required to prepare financial statements under IFRS and we also prepare Consolidated Financial Statements under U.S. GAAP, and such dual reporting may impair the clarity of our financial reporting.
We use U.S. GAAP as our primary set of reporting standards. Applying U.S. GAAP in our financial reporting is designed to ensure the comparability of our results to those of our competitors, as well as the continuity of our reporting, thereby providing our stakeholders and potential investors with a clear understanding of our financial performance. As we are incorporated in The Netherlands and our shares are listed on Euronext Paris and on the Borsa Italiana, we are subject to EU regulations requiring us to also report our results of operations and financial statements using IFRS.
As a result of the obligation to report our financial statements under IFRS, we prepare our results of operations using both U.S. GAAP and IFRS, which are currently not consistent. Such dual reporting can materially increase the complexity of our financial communications. Our financial condition and results of operations reported in accordance with IFRS will differ from our financial condition and results of operations reported in accordance with U.S. GAAP, which could give rise to confusion in the marketplace.
If our internal control over financial reporting fails to meet the requirements of Section 404 of theSarbanes-Oxley Act, it may have a materially adverse effect on our stock price.
The SEC, as required by Section 404 of theSarbanes-Oxley Act of 2002, adopted rules that require us to include a management report assessing the effectiveness of our internal control over financial reporting in our annual report onForm 20-F. In addition, we must also include an attestation by our independent registered public accounting firm regarding the effectiveness of our internal control over financial reporting. We have successfully completed our Section 404 assessment and received the auditors’ attestation as of December 31, 2013. However, in the future, if we fail to complete a favorable assessment from our management or to obtain an “unqualified” auditors’ attestation, we may be subject to regulatory sanctions or may suffer a loss of investor confidence in the reliability of our financial statements, which could lead to an adverse effect on our stock price.
Because we are subject to the corporate law of theThe Netherlands, U.S. investors might have more difficulty protecting their interests in a court of law or otherwise than if we were a U.S. company.
Our corporate affairs are governed by our Articles of Association and by the laws governing corporations incorporated in theThe Netherlands. The corporate affairs of each of our consolidated subsidiaries are governed by the Articles of Association and by the laws governing such corporations in the jurisdiction in which such consolidated subsidiary is incorporated. The rights of the investors and the responsibilities of members of our Managing and Supervisory Board and Managing BoardBoards under Dutch law are not as clearly established as under the rules of some U.S. jurisdictions. Therefore, U.S. investors may have more difficulty in protecting their interests in the face of actions by our management, members of our Supervisory Board or our controlling shareholders than U.S. investors would have if we were incorporated in the United States.
Our executive offices and a substantial portion of our assets are located outside the United States. In addition, ST Holding II and most members of our Managing and Supervisory Boards are residents of jurisdictions other than the United States and Canada. As a result, it may be difficult or impossible for shareholders to effect service within
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judgments obtained against such persons in courts in jurisdictions outside the United States or Canada. This could be true in any legal action, including actions predicated upon the civil liability provisions of U.S. securities laws. In addition, it may be difficult or impossible for shareholders to enforce, in original actions brought in courts in jurisdictions located outside the United States, rights predicated upon U.S. securities laws.
We have been advised by Dutch counsel that the United States and theThe Netherlands do not currently have a treaty providing for reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. As a consequence, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the federal securities laws of the United States, will not be enforceable in theThe Netherlands. However, if the party in whose favor such final judgment is rendered brings a new suit in a competent court in theThe Netherlands, such party may submit to theThe Netherlands court the final judgment that has been rendered in the United States. If theThe Netherlands court finds that the jurisdiction of the federal or state court in the United States has been based on grounds that are internationally acceptable and that proper legal procedures have been observed, the court in theThe Netherlands would, under current practice, give binding effect to the final judgment that has been rendered in the United States unless such judgment contradicts theThe Netherlands’ public policy.
Information on the Company |
History and Development of the Company
STMicroelectronics N.V. was formed and incorporated in 1987 and resulted from the combination of the semiconductor business of SGS Microelettronica (then owned by Società Finanziaria Telefonica (S.T.E.T.), an Italian corporation) and thenon-military business of Thomson Semiconducteurs (then owned by the formerThomson-CSF, now Thales, a French corporation). We completed our initial public offering in December 1994 with simultaneous listings on Euronextthe Bourse de Paris (now known as “Euronext Paris”) and the New York Stock Exchange (“NYSE”). In 1998, we listed our shares on the Borsa Italiana.Italiana S.p.A. (“Borsa Italiana”). Until 1998, we operated asSGS-Thomson Microelectronics N.V. Our length of life is indefinite. We are organized under the laws of theThe Netherlands. We have our corporate legal seat in Amsterdam, theThe Netherlands, and our head offices at WTC Schiphol Airport, Schiphol Boulevard 265, 1118 BH Schiphol, Airport, theThe Netherlands. Our telephone number there is +31-20-654-3210.+31-20-654-3210. Our headquarters and operational offices are managed through our wholly owned subsidiary, STMicroelectronics International N.V., and are located at 39 Chemin du Champ des Filles,1228 Plan-Les-Ouates, Geneva, Switzerland. Our main telephone number there is +41-22-929-2929.+41-22-929-2929. Our agent for service of process in the United States related to our registration under the U.S. Securities Exchange Act of 1934, as amended, is Corporation Service Company (CSC), 80 State Street, Albany, New York, 12207. Our operations are also conducted through our various subsidiaries, which are organized and operated according to the laws of their country of incorporation, and consolidated by STMicroelectronics N.V.
Business Overview
We are a global independent semiconductor company that designs, develops, manufactures and markets a broad range of semiconductor products used in a wide variety of microelectronic applications, including automotive products, computer peripherals, telecommunications systems, consumer products, industrial automation and control systems. Semiconductors are the basic building blocks used to create an increasing variety of electronic products and systems. Since the invention of the transistor in 1948, continuous improvements in semiconductor process and design technologies have led to smaller, more complex and more reliable devices at a lower cost per function. As performance has increased and size and unitary cost have decreased, semiconductors have expanded beyond their original primary applications (i.e. computer systems) to applications such as telecommunication systems, consumer goods, automotive products and industrial automation and control systems. In addition, system users and designers have demanded systems with more functionality, higher levels of performance, greater reliability and shorter design cycle times, all in smaller packages at lower costs.
Our major customers include Apple, Blackberry, Bosch, Cisco, Continental, Delta, Gemalto, Conti,Hewlett-Packard,
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Although cyclical changes in production capacity in the semiconductor industry and demand for electronic systems have resulted in pronounced cyclical changes in the level of semiconductor sales and fluctuations in prices and margins for semiconductor products from time to time, the semiconductor industry has experienced
substantial growth over thelong-term. Factors that contribute tolong-term growth include the development of new semiconductor applications, increased semiconductor content as a percentage of total system cost, emerging strategic partnerships and growth in the electronic systems industry.
We offer a broad and diversified product portfolio and develop products for a wide range of market applications to reduce our dependence on any single product, application or end market. Within our diversified portfolio, we have focused on developing products that leverage our technological strengths in creating customized,system-level solutions withhigh-growth digital andmixed-signal content. Our product families are comprised of differentiatedapplication-specific products (we define as being our dedicated analog,mixed-signal and digitalapplication-specific standard products integrated circuits (“ASICs”) andapplication-specific standard products (“ASSP”) offerings andsemi-custom devices) that are organized under our two product segments, which are: (i) Sense & Power and Automotive Consumer, Computer and Communication InfrastructureProducts (“ACCI”SP&A”) comprised of Automotive (“APG”), Industrial & Power Discrete (“IPD”), Analog & MEMS (“AMS”) and Other SP&A; and (ii) Embedded Processing Solutions (“EPS”) comprised of Digital Convergence Group (“DCG”), Imaging, BiCMOS ASIC and Silicon Photonics (“IBP”), Microcontrollers, Memory & Security (“MMS”), Wireless (“Wireless”WPS”) segments, which are formerST-Ericsson legacy products, and our Industrial and Multisegment Sector (“IMS”), consisting mainly of power discrete devices, analog, microcontrollers and MEMS.
Our products are manufactured and designed using a broad range of manufacturing processes and proprietary design methods. We use all of the prevalentfunction-oriented process technologies, including CMOS, bipolar and nonvolatile memory technologies. In addition, by combining basic processes, we have developed advancedsystems-oriented technologies that enable us to produce differentiated andapplication-specific products, including bipolar CMOS technologies (“BiCMOS”) formixed-signal applications, and diffusedmetal-on silicon oxide semiconductor (“DMOS”) technology and bipolar, CMOS and DMOS (“BCD technologies”BCD”) technologies for intelligent power applications, MEMS and embedded memory technologies. This broad technology portfolio, a cornerstone of our strategy for many years, enables us to meet the increasing demand for SoCSystem-on-Chip (“SoC”) andSystem-in-Package (“SiP”) solutions. Complementing this depth and diversity of process and design technology is our broad IP portfolio that we also use to enter into broad patentcross-licensing agreements with other major semiconductor companies.
Our principal investment and resource allocation decisions in the semiconductor business area are for expenditures on technology R&D as well as capital investments infront-end andback-end manufacturing facilities, which are planned at the corporate level; therefore, our product segments share common R&D for process technology and manufacturing capacity for mostsome of their products.
For information on our segments and product lines, see “Item 5. Operating and Financial Review and Prospects — Results of Operations — Segment Information”.
Results of Operations
For our 20102013 Results of Operations, see “Item 5. Operating and Financial Review and Prospects — Results of Operations — Segment Information”.
Strategy
ST is a global leader in multimedia convergence, powerthe semiconductor market serving customers across the spectrum of Sense & Power and sensor applications, dedicating significant resourcesAutomotive Products and Embedded Processing Solutions. From energy management and savings to product innovationtrust and increasingly becomingdata security, from healthcare and wellness to smart consumer devices, in the home, car and office, at work and at play, ST is found everywhere microelectronics make a solution provider in orderpositive and innovative contribution to drive higher value and increase our market share inpeople’s life. By getting more from technology to get more from life, ST stands for life augmented.
Our strategy, which we announced on December 10, 2012, takes into account the evolution of the markets we serve. As a worldwide semiconductor leader, we are well positioned to implement our strategy after having accomplished two major strategic transformations, namely a refocus of our product portfolio and our move towards being an asset lighter company. In addition, our strategy to enhance market share by developing innovative products and targeting new key customers is gaining momentum. Our strong capital structure enables us to operate as a long-term, viable supplier of semiconductor products and to possibly participate as a consolidator into the industry consolidation in high margin segments like advanced analog, MEMS, microcontrollers and automotive.
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We continue to utilize outside contractors for certain foundryadvance towards our target financial model including an operating margin of about 10%, expected bymid-2015, based on a combination of revenue growth, gross margin improvement and back-end services.
Product Segments
In the Semiconductors business area, we have decided to reduce our capital intensity in order to optimize opportunities between internal and external front-end production, reduce our dependence on market cycles that impact the loading of our fabs, and decrease the impact of depreciation on our financial performance. We have been able to reduce thecapex-to-sales ratio from a historic average of 26% of sales during the period of 1995 through 2004, to approximately 8.6% of sales in the last three years aggregated.
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In 2013, we ran our business along product lines and managed our revenues and internal operating income performance based on the following product segments:
Sense & Power and Automotive Products (SP&A), including the following product lines:
Automotive (APG);
Industrial & Power Discrete (IPD);
Analog & MEMS (AMS); and
Other SP&A;
Embedded Processing Solutions (EPS), comprised of the following product lines:
Digital Convergence Group (DCG);
Imaging, BiCMOS ASIC and Silicon Photonics (IBP);
Microcontrollers, Memory & Security (MMS);
Wireless (WPS), which are formerST-Ericsson legacy products; and
Other EPS.
In 2013, we revised our results from prior periods in accordance with this segment structure. The preparation of segment information based on the current segment structure requires us to make estimates and assumptions in determining the operating income (loss) of the segments for the prior reporting periods. We alsobelieve that the revised 2012 and 2011 presentation is consistent with that of 2013 and we use these comparatives when managing our company. In the Subsystems business area, we design, develop, manufacture and market subsystems and modules for a wide variety of products in the telecommunications, automotive and industrial markets in our Subsystems division.including mobile phone accessories, battery chargers, ISDN power supplies andin-vehicle equipment for electronic toll payment. Based on its immateriality, we do not report information separately for Subsystems. For a description of the main categories of products soldand/or services performed for each of the last three fiscal years, see Note 2925 to our Consolidated Financial Statements.
ACCI
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Automotive Products Group(APG)
Our automotive products include digital and mixed signal devices that enable features like airbag controls,anti-skid braking systems, vehicle stability control, ignition and injection circuits, multiplex wiring, RF and power management for body and chassis electronics, engine management, advanced safety, instrumentation, car radio and infotainment. We hold a leading position in the global IC market for automotive semiconductor products. In addition to our own products and technologies, we also work with Freescale Semiconductor on 90nm and 55nm embedded Flash Technology and other common products based on cost-effective 32-bit microcontrollers for use in many automotive applications.
We offer a broad range of products:
(i) Automotive Electronics Division.Powertrain. We design and manufacture smart power products to enhance performance safety and comfort while reducing the automobile’s environmental impact of the automobile. For body and chassis electronics requirements, our products range from microcontrollers used in lighting, door and window/wiper applications to mixed signal control in junction boxes, power solutions, dashboards and climate control needs.impact. For powertrain, and safety, our products are used for engine emissions and fuel economy improvements and powertrain electrification with mixed signal power management power driver and analog signal processing. In this area, we are clearly a market leader due to continuous process innovation, such as the recently introduced110-nm. We also manufacture32-bit microcontrollers for engine control and automatic gearbox applications. In this area we benefit from our competitive advantage in technology R&D with our recent 40-nm process currently in a qualification phase and our300-mm plant in Crolles.
(ii) Chassis-Safety. OurChassis-Safety products are used for passive and active safety systemssystems. Ourchassis-safety products are used for applications relating to braking, vehicle steering and powertrain electrification with microcontrollers, mixed signal power management and, in some cases, RF sensing.
(iii) Automotive Infotainment DivisionBody Electronics. We design and manufacture power, smart power products and microcontrollers addressing applications like door modules,anti-theft, lighting, wipers and body control modules.
(iv) Infotainment. We design and produce products comprisingto provide a full solution in the digital area of automotive applications. We create full solutions for automotive infotainment analog and digital car radio forincluding tolling, navigation and telematics applications. The increasingly complex requirements of the car/driver interface continue to create market opportunities for re-use ofus to use the company’s media processing and multi-format global positioning (“GPS”) capabilities intoin car multimedia applications. We have the skills and competence to provide thea total solution, which includesincluding GPS navigation, media processing, audio amplification and signal processing. We also supply components to satellite radio applications, including base-bandbase band products to market leaders in this segment.
ComputerIn 2013, we reinforced our strong position in braking applications, with two important wins with two global Tier 1s, and Communications Infrastructureentered into new partnerships with car manufacturers to address radical innovation and open new growth opportunities. We also landed a win for an injector driver for a gasolinedirect-injection
BCDIndustrial and Power Division.Discrete (IPD) This organization serves the markets
The IPD Group’s activities focus on developing a broad range of hard disk drive (“HDD”)innovative and Printers withcompetitive products developed on our BCD technology. Mainincluding Power, Smart Power and Analog ICs. Our key product focus includes: power management ICs for smartphones and tablets, industrial ASICs and ASSPs for factory automation, motion control and lighting; tunable capacitors for mobile phones; SiC DIODES for high power converters, High Performance Triacs, SCRs and High Efficiency Rectifiers, IGBT power modules for industrial applications, are motor controllershigh voltage and low voltage Power MOSFETs for HDDapplications such as “point of load”, telecomDC-DC converters, PFC, switch mode power supplies and motor drivers and head drivers for printers.
In the wireless field,particular we focus on the ASIC market due to our many years of experiencefollowing most attractive segments:
(i) Smart Grid. Key applications include smart metering, renewable energy, energy saving, power conversion,HEV-EV and LED lighting.
(ii) Automation. Key automation applications include factory automation, industrial motor drives, home & building automation, networking and security.
(iii) Portable. Our key portable applications include smartphone, tablet, handheld consumer, fitness and consumer medical.
(iv) Power Conversion. Our key applications include SMPS, PC Power, telecom, UPS, welding, adapter and server.
IPD developments during 2013 include:
(i) Industrial. ASICs with extended lifetimes from major EMEA automation companies as well as another for a dedicated power supply for utilities metering; significant wins with a large Asian welding customer and with Intelligent Power Modules forair-conditioning andmotor-control applications; ViperPlushigh-voltage converters designed in at a major Taiwanese SMPS manufacturer; German factory automation customers with newest octal intelligent power switch; and big design wins forvery-high-voltagesuper-junction MOSFETs with a European lighting leader and forhigh-voltage devices in Japan and Korea forSwitched-Mode Power Supply and LED applications;
(ii) Consumer. Intelligent power modules scored several design wins fromhome-appliance leaders in the fieldsU.S. and Europe; andhigh-voltage gate driver forwashing-machine applications and forhigh-voltage converters to be used in coffee machines and washing machines for several major European manufacturers;
(iii) Innovative Solutions. New LED lighting platform for a major U.S. manufacturer; many diverse design wins with the innovativedigital-power STLUX385x platform; and multiple wins forsilicon-carbide power diodes inhigh-power server applications; and
(iv) Portable. Very high market share with AMOLED drivers; wins for RF antenna tuner for smartphones;field-effect rectifier diodes for mobile and tablet chargers at a leading Asian OEM; and won key EMIFfilters & protection-device sockets with leadinggame-console, tablet, notebook and other portable applications. Strong momentum with new advanced analog power management ICs for efficient battery management thanks to the transfer of digital baseband, radio frequency and mixed-signal products. Our activity in digital SoC for the HDD market is focused on selected customer/product and is no longer part of our development for future business.
Computer System DivisionAnalog & MEMS (AMS).
We are focusing mainly on inkjetpositioning AMS in the High End Analog world that comprises MEMS, many kinds of Sensors, Interfaces, low power RF Transceivers and laser printer components and are an important supplier of digital engines including those in high-performance photo-quality applications and multifunction printers. We are also expanding our offerings to include a reconfigurable ASSP product family, known as SPEArAnalogtmfront-end. (Structured Processor Enhanced Architecture), designed for flexibility andease-of-use by customers on printers and other computing, industrial and networking applications.
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The Group also develops innovative, differentiated and value added analog products such as:
audio amplifier ICs, used in a variety ofend-products from portable to professional audio systems;
touch screen controllers, named FingerTip Chips, forin-cell andon-cell LCD and AMOLED panel technology for smartphones and tablets applications;
low power infrared sensors;
battery-less low power wireless sensor nodes for applications in healthcare, industrial and consumer applications;
gas flow sensors for next generation fully electronicgas-meters;
high-resolution ICs for 3D and 4D ultrasound imaging; and
high performance standard products like operational amplifiers and comparators, current sensors, real time clock chips, smart resets, supervisors and new generation interface chips.
Important 2013 developments include the production of a6-axis MEMS device for the flagship model of an Asian Smartphone manufacturer and the start ofhigh-volume production of the 4th generation3-axis gyroscope for a major consumer electronics manufacturer. We also started production for an accelerometer for airbag in Automotive and launched mass production of a Smart iNEMO module, containing an accelerometer, gyro and brain for a handheld gaming system from a major manufacturer. iNEMO modules integrate different types of sensors to offer more compact, robust and easy-to-assemble solutions compared to discrete MEMS products and brings motion sensing systems to the level required for the most demanding applications, such as enhanced gesture recognition/gaming, augmented reality, indoor navigation and localization-based services. In addition, we received a win for a high end digital terrestrial, satellite,top port microphone in a new tablet and received environmental sensor success with the launch of a new environmental sensor for a leading Chinese smartphone manufacturer.
Embedded Processing Solutions (EPS)
Digital Convergence Group (DCG)
We provide a complete and flexible solution across a broad range of applications for deliveringhigh-definition content and rich services to end users, from complex ASICs for network infrastructure and gaming to ASSPs for digitalset-top boxes and monitors. DCG’s 2013 developments include:
(i) wins inset-top box, including: receiving awards for newset-top box Class2 product family, with full certification from Nagra and Viaccess; Sumitomo Electric Networks’ selecting of Orly for its Advanced Generation of Smart IPTVset-top boxes; receiving an important design at a key customer for the U.S. cable modem based on Orly; our selection by MitraStar Technology for the newestset-top boxes from Kbro Broadband; and IPTV achieving DOCSIS 3 certification for SoC products addressing thecable-data gateway and interactiveset-top box products. We continue to expand our product offeringsmarkets; and customer base by introducing innovative platform solutions offering advanced technologies
(ii) momentum inFD-SOI, including: receiving 15 design wins as of the current date and a wide rangesustained high level of customer interest; delivering a test chip to a top customer in the consumer services.
(iii) exit from the capabilitydigital TV ASSP SoC market and reduced presence in standalone display port components (furthermore, in February 2014, we entered into a small transaction transferring a part of our display port standalone product portfolio to jointly develop highly integrateda third party which hired some employees engaged in this activity).
Imaging, BiCMOS ASIC & Silicon Photonics (IBP)
The IBP Group’s activities focus on developing innovative, competitive and low power solutions and systems for their digital consumerBiCMOS ASIC and Silicon Photonics as well as Imaging products. We utilize our expertiseFor BiCMOS ASIC & Silicon Photonics, we are focused on developing products for RF, Optical ICs and knowledgeSilicon Photonics. For Imaging products, we address image capture and processing product requirements for various segments of the digital consumer ecosystem, advanced technologiesindustry, due to four product families, CMOS image sensors, CMOS photonic sensors, Imaging modules and hardware/software IP to providebest-in-class differentiated ASIC products for a select base of customers and markets.
IBP’s 2013 developments include:
(i) for our high volume image sensor business: high volume innovative image sensors using ST’s proprietarybackside-illumination (“BSI”) technology to focuscamera integrators; our presence in the imaging business by concentrating on selling CMOS sensors as opposeddeliveringhigh-value dedicated Image Signal Processor (“ISP”) to modules, focusing our technology and products offering towards higher margin and pursuing new opportunities beyond wireless applications.
(ii) for silicon photonics: securing design wins for ASICs using silicon photonics with two of many applications today.
(iii) with regard to diversification: sampling and demonstrating to automotive market leaders a broad product portfolio of linearnewhigh-performance ISP and switching voltage regulators, addressing various applications, from general purpose “point of load”, for most of the market segments (consumer, computer and data storage, mobile phones, industrial, medical, automotive, aerospace), to specific functions such as camera flash LED, LCD backlighting and organic LED power supply, for the mobile handset and other portable device markets; Low Noise Block supply and control for set top box; and multiple channels DC-DC for motherboards are also featured.
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Microcontrollers, Memory & Security (MMS)
MMS activities focus on microcontrollers dedicated to General purpose and high operating temperature are required.
MMS
MMS is also involved in the memories (EEPROM), which are used for parameter storage in various electronic devices in all market segments. RF EEPROM memories are opening many new opportunities everywhere.
These products are manufactured in processes capable of embedding nonvolatile memories as appropriate.
During 2013, we continued to expand our leadership in32-bit by receiving several design wins, such as:
sensor-hub in various mobile applications at a major manufacturer;
next-generationlow-powerfitness-monitoring system at a key Americas OEM;
Samsung’s latest wearable device and smartphone;
several other design wins forsmart-watch applications at major global OEMs; and
Wi-Fi modules forInternet-of-Things applications at various customers.
We also expanded our secure microcontroller business:
embedded ST33 Secure Element in major OEMs’ showcase smartphone;
growing adoption of the ST31, our secure32-bit MCU, in contact and contactless banking applications; and
achievedBank-Card Test Center certification for our secure microcontroller for Dual Interface Banking in China.
Wireless (WPS)
Wireless
Upon our decision to exitST-Ericsson and break up theST-Ericsson business (legacy products went to ST and the design, development and manufacture of semiconductors and platforms for mobile applications. In addition, this segment spearheads our ongoing effortsLTE modem to maintain and develop innovative solutions for our mobile customers while consolidating our world leadership position in wireless. Wireless is comprised of four product lines: 2G, EDGE, TD-SCDMA & Connectivity; 3G Multimedia & Platforms; LTE & 3G Modem Solutions; in which since February 3, 2009,Ericsson), we report the portionrevenues of sales and operating results ofphased outST-Ericsson JVS as consolidatedproducts in our revenue and operating results; and Otherthe Wireless in which we report other revenues, cost of sales and other items related to the wireless business but outside of the ST-Ericsson JVS.
Strategic Alliances with Customers and Industry Partnerships
We believe that strategic alliances with customers and industry partnerships are critical to success in the semiconductor industry. We have entered into several strategic customer alliances, including alliances with Bosch, Continental, Hewlett-Packard, Marelli, Nokia, Pioneer, Samsung, Seagate, Sharp, SonyEricsson and Western Digital. Customer alliances provide us with valuable systems and applicationknow-how and access to markets for key products, while allowing our customers to share some of the risks of product development with us and to gain access to our process technologies and manufacturing infrastructure. We are actively working to expand the number of our customer alliances, targeting OEMs in the United States, in Europe and in Asia.
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Customers and Applications
We design, develop, manufacture and market thousands of products that we sell to thousands of customers. Our top 20major customers include Apple, Blackberry, Bosch, Cisco, Continental, Delta, Gemalto, Conti,Hewlett-Packard, LG Electronics, Motorola, Nokia, Pace, Panasonic, Philips, Research in Motion,Oberthur, Samsung, Seagate, Sharp, Siemens, Sony Ericsson and Western Digital. To many of our key customers we provide a wide range of products, includingapplication-specific products, discrete devices, memory products and programmable products. Our position as a strategic supplier of application-specific products to certain customers fostersbroad range portfolio helps foster close relationships that provide us with customers, which provides opportunities to supply such customers’ requirements for othermultiple products, including discrete devices, programmable products and memory products. We also sell our products through distributors and retailers, including Arrow Electronics, Avnet, Tomen, Wintech and Yosun.
No customer the Nokia group of companies, represented approximately 13.9% of our net revenues, compared to approximately 16.1% in 2009 and 17.5% in 2008. No other single customer accounted for more thanexceeded 10% of our total net revenues.revenues in both 2013 and 2012. There can be no assurance that suchour customers or distributors or any other customers, will continue to place orders with us in the future at the same levels as in prior periods. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — Disruptions in our relationships with any one of our key customers,and/or material changes in their strategy or financial condition, could adversely affect our results of operations”.
Sales, Marketing and Distribution
In 2010,2012, we operatedreorganized our Sales & Marketing organization with the primary objectives of accelerating sales growth and gaining market share. The changes were designed along three key drivers: strengthening the effectiveness of the development of our global accounts; boosting demand creation through an enhanced focus on geographical coverage; and establishing marketing organizations in our regional sales organizations in EMEA (which includes allthat are fully aligned with the Product Groups.
Following this reorganization, the previous sales organization structured by market segment was replaced by a new sales organization organized by a combination of Europe, the Middle Eastcountry/area coverage and Africa), the Americas, Greater China-South Asiakey accounts coverage. Our Sales & Marketing organization is now structured into six units: four regional sales organizations and Japan-Korea. Atwo major accounts units.
Regional Sales Organizations
Our four regional sales organizations, a description of our regional sales organizations’ activities andwhich follows below, have a similar structure during 2010 is below.
(i) EMEA — TheIn EMEA, region is divided into four business units: automotive, convergence EMS, industrialthere are seven sales organizations. Four are geographically defined and multimarket. Each business unit is dedicated to customers operating mainly in its market segment, actively promoting a broad range of products, including commoditiescover North, Central, West and dedicated ICs, as well as proposing solutions through itsSouth & Emerging Markets. Three sales force, field application engineers, supply-chain management, customer service and technical competence centerunits have worldwide responsibility for system solutions, with support functions provided locally or centrally (through central labs).
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(iii) GreaterChina-South Asia — The Greater China-South Asia region comprises six business units: automotive (Detroit, Michigan); industrial (Boston, Massachusetts); consumer, industrialgeographical sales units with offices covering North China (Beijing), Central China (Shanghai), South China (Hong Kong), Taiwan (Taipei), India (New Delhi) and medical (Chicago, Illinois); communications, consumerASEAN/Australia & New Zealand (Singapore). It is further supported by a centralized Channel coordination function, as well as six key product groups, namely, DCG, IBP, APG, IPD, AMS and computer Peripherals (San Jose, CaliforniaMMS, and Longmont, Colorado); RFIDfour new major accounts. In 2013, the company also opened 7 new offices (6 in mainland China and communications (Dallas, Texas);1 in Taiwan) in the region.
(iv) Japan-Korea — TheJapan-Korea region comprises three geographical sales units with offices covering East Japan (Tokyo and Nagoya), West Japan (Osaka), Korea(Seoul) and four new major accounts. It is further supported by key product groups, namely, DCG/IBP, APG, IPD/AMS and MMS plus a comprehensive Sales Channel Management that provides products and sales support for the regional distribution (Boston, Massachusetts). A central product-marketing operation in Bostonnetwork. Each geographical sales unit sells each product from our portfolio that fits the applications. Marketing and Application organization provides product support and training for standard products for the Americas region. In addition, a comprehensive distribution business unit provides product and sales support for the regional distribution network.
The sales and marketing activities performed by our regional sales organizations are supported by product marketing that is carried out by each product division,group, which also includes product development functions. This matrix system reinforces our sales and marketing activities and our broader strategic objectives. An important component of our regional sales and marketing efforts is to expand our customer base, which we seek to do by adding sales representatives, regional competence centers and new generations of electronic tools for customer support.
We also useengage distributors and representatives to distribute our products around the world. Typically, distributors handle a wide variety of products, including products that compete with our products, and fill orders for many customers. Most of our sales to distributors are made under agreements allowing for price protectionand/or theright-of-return right of return on unsold merchandise. We generally recognize revenues upon the transfer of ownership of the goods at the contractual point of delivery. Sales representatives generally do not offer products that compete directly with our products, but may carry complementary items manufactured by others. Representatives do not maintain a product inventory. Their customers place large quantity orders directly with us and are referred to distributors for smaller orders.
At the request of certain of our customers, we also sell and deliver our products to EMS, which, on a contractual basis with our customers, incorporate our products into the application-specificapplication specific products they
manufacture for our customers. Certain customers require us to hold inventory on consignment in their hubs and only purchase inventory when they require it for their own production. This may lead to delays in recognizing revenues, as revenue recognition will occur, within a specific period of time, at the actual withdrawal of the products from the consignment inventory, at the customer’s option.
For a breakdown of net revenues by product segment and geographic region for the last three fiscal years, see “Item 5. Operating and Financial Review and Prospects”.
Research and Development
We believe that researchmarket driven R&D founded on leading edge products and development (“R&D”)technologies is critical to our success. The main R&D challenge we face is to continually increaseincreasing the functionality, speed andcost-effectiveness of our semiconductor devices, while ensuring that technological developments translate into profitable commercial products as quickly as possible.
We are market driven in our R&D and focused on leading-edge products and technologies developed in close collaboration with strategic alliance partners, leading universities and research institutions, key customers, leading EDA vendors and global equipment manufacturers working at the cutting edge of their own markets. In addition, we have a technology council comprised of 15 leading experts to review, evaluate and advise us on the competitive landscape. Front-endcombinefront-end manufacturing and technology R&D while being separate organizations, are under the responsibilitysame organization for each of our Chief Operating Officer, thereby ensuringSP&A and EPS to ensure a smooth flow of information between the R&D and
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We devote significant effort to R&D because semiconductor manufacturers face immense pressure to be the first to make breakthroughs thatwe believe such investment can be leveraged into competitive advantages; newadvantages. New developments in semiconductor technology can make end products significantly cheaper, smaller, faster, more reliable and embedded with more functionalities than their predecessors andpredecessors. They also enable, through their timely appearance on the market, significant value creation opportunities. For a description of our R&D expenses, see “Item 5. Operating and Financial Review and Prospects — Results of Operations — Research and Development Expenses”.
With the core CMOS and analog technologies in our portfolio, we are aggressively proceeding to miniaturization in line with industry requirements. To ensure that newdifferentiate our offering for higher value systems, we also seek to combine our core technologies can be exploitedwith our specific knowhow and expertise, in commercial products as quickly as possible, an integral partparticular in the area of our R&D philosophy is concurrent engineering, meaning that new fabrication processes and the tools needed to exploit them are developed simultaneously. Typically, these include not only EDA software, but also cell libraries that allow access to our rich IP portfolio and a demonstrator product suitable for subsequent commercialization. In this way, when a new process is delivered to our product segments or made available to external customers, they are more able to develop commercial products immediately.
Our R&D design centers located in France and India have been specialized in the development of these functions, offeringoffer a significant advantage for us in quickly and cost effectively introducing products in the consumer and wireless market.
In 2008, we entered into an R&D alliance with the ISDAInternational Semiconductor Development Alliance (“ISDA”) led by IBM, whose other core members are Samsung and Global Foundries, to develop leading edge core CMOS technologies at32/28 nm28-nm and22/20 nm20-nm nodes. In 2013, we extended our participation in ISDA to cover the next nodes(14/10/7-nm). We are also working with the CEA Leti and IBM to develop in Crolles ourFD-SOIderivative technologies fromtechnology, which, for the28-nm node and the next generation,14-nm, are in development, and for the10-nm, it is on our roadmap. ThisFD-SOItechnology portfolio. In this context, five strategic objectives have been established.
In 2009, we also entered into a framework agreement with the French Ministry of Economy, Industry and Employment for the “Nano2012”“Nano-2012” Research and Development program. For more information, seeThis program expired at the end of 2012. On July 22, 2013, we announced theNano-2017 Research and Development program. See “Item 4. Information on the Company5. Operating and Financial Review and Prospects — Public Funding”Other Developments”. In addition,
Furthermore, our manufacturing facility in Crolles, France houses a R&D center, that is operated in the legal form of a French Groupement d’intérêt économique named “Centre Commun de Microelectronique de Crolles”. Laboratoire d’Electronique de Technologie d’Instrumentation, (“LETI”), a research laboratory of CEA (one of our indirect shareholders), is our partner.
Institut de Recherche Technologique (“IRT”), was set up by CEA in the frame of the French initiative “Investissements d’Avenir”. We participate in this program, which takes place on CEA’s premises, through investment and by contributing the expertise of some of our researchers.
There can be no assurance that we will be able to generate the necessary funding to support the ongoing costs of our R&D programs, or that we will be able to develop future technologies and commercially implement them on satisfactory terms, or that our alliances will allow the successful development ofstate-of-the-art core CMOS or derivative CMOSFD-SOI technologies on satisfactory terms.terms and in line with market requirements. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — Our R&D efforts are increasingly expensive and dependent on technology alliances, and our business, results of operations and prospects could be materially adversely affected by the failure or termination of such alliances, or failure to find new partnersand/oralliances”. to develop new process technologies and products”.
In Italy, our technology R&D development activities occur principally in Agrate encompassesand Catania. In Agrate, such activities encompass prototyping, pilot and volume production of the newly developed technologies with the objective of accelerating process industrialization andtime-to-market time to market for Smart Power affiliation (BCD), including on SOI, High Voltage CMOS and MEMS. It is the result of an ongoing cooperationIn addition, we plan to set up a 300-mm pilot line for manufacturing and R&D for advanced BCD technology. We also run a joint operation under a consortium agreement with Micron Technologies. Please refer to “Item 5 — Other developments”. Our IP design centerTechnologies (“Micron”) in Greater Noida, India supports all ofwhich we and Micron each manage our major design activities worldwide and hosts a major centralrespective technology R&D activity focused on softwareprograms. In Catania, we develop new technologies for power discretes, SICs and core libraries development, with a strong emphasis on system solutions. The fundamental mission of ourgallium arsenide.
Our Advanced SystemSystems Technology (“AST”) organization, is to createprimarily located in Agrate, creates system knowledge that
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We also play leadership roles in numerous projects running under the European Union’s IST (Information Society Technologies) programs. We activelyalso participate in thesejoint European research programs, and continue collaborative R&D efforts such as the CATRENE,ITEA, the Cluster for Application and Technology Research in Europe on NanoElectronics (“CATRENE”), ARTEMIS and ENIACthe European Nanoelectronics Initiative Advisory Council (“ENIAC”) programs.
Property, Plants and Equipment
We currently operate 1514 main manufacturing sites around the world. The table below sets forth certain information with respect to our current manufacturing facilities, products and technologies.Front-end manufacturing facilities are fabs andback-end facilities are assembly, packaging and final testing plants.
Location | Products | Technologies | ||
Front-end facilities | ||||
Crolles1, France | Application-specific products | Fab:200-mm CMOS and | ||
Crolles2, France | Application-specific | |||
Fab: | ||||
Agrate, Italy | ||||
Nonvolatile memories, microcontrollers andapplication-specific products MEMS | Fab 1:200-mm BCD, MEMS, Fab 2:200-mm, embedded |
Location | Products | Technologies | ||
Rousset, France | Microcontrollers, nonvolatile memories and Smartcard ICs,application-specific products | Fab 1:200-mm CMOS, | ||
Catania, Italy | Power transistors, Smart Power and analog ICs andapplication-specific products, MEMS | Fab 1:150-mm Powermetal-on Fab 2:200-mm, | ||
Tours, France | ||||
Protection thyristors, diodes and ASD power transistors, IPAD | Fab: |
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Ang Mo Kio, Singapore | Analog, microcontrollers, power transistors, commodity products, nonvolatile memories, andapplication-specific products | Fab 1: Fab Fab 3: 200mm BCD and Power | ||||
Back-end facilities | ||||||
Muar, Malaysia | Application-specific and standard products, microcontrollers | Ball Grid Array, Power | ||||
Kirkop, Malta | Application-specific products, MEMS, Embedded Flash for Automotive | Ball Grid Array, QFP, Land | ||||
Toa Payoh, Singapore | Optical packages research and development, EWS and Testing Center | |||||
Bouskoura, Morocco | Nonvolatile memories, discrete and standard products, micromodules, RF and subsystems | Power, SOIC, Micromodules | ||||
Shenzhen, China(1) | Nonvolatile memories, optical packages, discrete,application-specific and standard products | Ball Grid Array, Camera | ||
Longgang, China | Discrete and standard products | Power, PDIP (wind down and | ||
Calamba, Philippines | Application specific products and standard products, MEMS | Ball Grid Array, QFN, |
(1) | Jointly operated with SHIC, a subsidiary of Shenzhen Electronics Group. | |
Fab 2 in Ang Mo Kio is to be reduced essentially to Microfluidics products, while in Catania Fab 1 will be progressively converted into 200-mm and merged with Fab 2. There will be consolidation of our back-end activity in China to Shenzhen (closure of Longgang).
At the end of 2010,2013, ourfront-end facilities had a total maximum capacity of approximately 125,000130,000 200-mm equivalent wafer starts per week. The number of wafer starts per week varies from facility to facility and from period to period as a result of changes in product mix. Among the200-mm wafers production facilities, the fabs based in Europe (Crolles and Rousset, France; Agrate and Catania, Italy) had full installed capacity as of December 31, 2010. Among the150-mm wafers production facilities, two (at Catania, Italy and Tours, France) had full design capacity installed as of December 31, 2010. As of the same date, the fab in Singapore had approximately two-thirds of the full design capacity installed.
We own all of our manufacturing facilities, except Crolles2, France,but certain facilities (Muar-Malaysia, Shenzhen and Longgang-China, Toa Payoh and Ang Mo Kio-Singapore) are built on land, which isare the subject of leases for the building shell and some equipment that represents overall a small percentage of total assets.
We have historically subcontracted a portion of total manufacturing volumes to external suppliers. In 20102013 we purchased approximately 15%9% from external foundries of our total silicon from external foundries.production. Our plan is to extend sourcing of silicon from external foundries up to above 20% of our total needs.
At December 31, 2010,2013, we had approximately $630$163 million in outstanding commitments for purchases of equipment and other assets for delivery in 2011.2014. In 2010, we increased2013, our capital spending, to approximately $1,040net of proceeds, was $531 million, from $451above the $476 million registered in 2009.2012. In the 2009-20102011-2013 period the ratio of capital investment spending to revenues was approximately 7.9%about 8.6%. Such a level of capital spending in 2010 was designed to respond to the revamping market demand, while optimizing in parallel opportunities between internal and external front-end production. For more information, see “Item 5. Operating and Financial Review and Prospects — Financial Outlook”Outlook: Capital Investment”.
Our manufacturing processes are highly complex, require technologically advanced and costly equipment and are continuously being modified in an effort to improve yields and product performance. Impurities or other difficulties in the manufacturing process can lower yields, interrupt production or result in losses of products in process. As system complexity has increased andsub-micron technology has become more advanced, manufacturing tolerances have been reduced and requirements for precision and excellence have become even more demanding. Although our increased manufacturing efficiency has been an important factor in our improved results of operations, we have from time to time experienced production difficulties that have caused delivery delays and quality control problems, as is common in the semiconductor industry.
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In addition, as is common in the semiconductor industry, we have from time to time experienced difficulty in ramping up production at new facilities or effecting transitions to new manufacturing processes and, consequently, have suffered delays in product deliveries or reduced yields. There can be no assurance that we will not experience manufacturing problems in achieving acceptable yields, product delivery delays or interruptions in production in the future as a result of, among other things, capacity constraints, production bottlenecks, construction delays, equipment failure or maintenance, ramping up production at new facilities, upgrading or expanding existing facilities, changing our process technologies, or contamination or fires, storms, earthquakes or other acts of nature, any of which could result in a loss of future revenues. In addition, the development of larger fabrication facilities that requirestate-of-the-artsub-micronstate-of-the-artsub-micron technology andlarger-sized wafers has increased the potential for losses associated with production difficulties, imperfections or other causes of defects. In the event of an incident leading to an interruption of production at a fab, we may not be able to shift production to other facilities on a timely basis, or our customers may decide to purchase products from other suppliers, and, in either case, the loss of revenues and the impact on our relationship with our customers could be significant. Our operating results could also be adversely affected by the increase in our fixed costs and operating expenses related to increases in production capacity if revenues do not increase commensurately. Finally, in periods of high demand, we increase our reliance on external contractors for foundry andback-end service. Any failure to perform by such subcontractors could impact our relationship with our customers and could materially affect our results of operations.
Intellectual Property (IP)
IP rights that apply to our various products include patents, copyrights, trade secrets, trademarks and mask work rights. A mask work is thetwo- orthree-dimensional layout of an integrated circuit. IncludingWe currently own approximately 16,000 patents and pending patent applications, owned by us and our affiliate ST-Ericsson, we currently owncorresponding to over 20,000 patents and pending patent applications which have been registered in multiple countries around the world and correspond to more than 10,0009,000 patent families (each patent family containing all patents originating from the same invention). Together we also increased to 839 our filings of, including 598 original new patent applications around the worldfiled in 2010.
Our success depends in part on our ability to obtain patents, licenses and other IP rights covering our products and their design and manufacturing processes. To that end, we intend to continue to seek patents on our innovations in our circuit designs, manufacturing processes, packaging technology and system applications as well as on industry standards and other inventions. The process of seeking patent protection can be long and expensive, and there can be no assurance that patents will issue from currently pending or future applications or that, if patents are issued, they will be of sufficient scope or strength to provide meaningful protection or any commercial advantage to us. In addition, effective copyright and trade-secrettrade secret protection may be unavailable or limited in certain countries. Competitors may also develop technologies that are protected by patents and other IP rights and therefore such technologies may be unavailable to us or available to us subject to adverse terms and conditions. Management believes that our IP represents valuable assets and intends to protect our investment in technology by enforcing all of our IP rights. We arehave also endeavouringset up a dedicated team actively seeking to optimize the value from our IP portfolio by creating a new business unit in 2010.the licensing of our design technology and other IP, including patents. We have used our patent portfolio to enter into several broad patentcross-licenses with several major semiconductor companies enabling us to design, manufacture and sell semiconductor products without fear of infringing patents held by such companies, and intend to continue to use our patent portfolio to enter into such patentcross-licensing agreements with industry participants on favorable terms and conditions. As our sales increase compared to those of our competitors, the strength of our patent portfolio may not be sufficient to guarantee the conclusion or renewal of broad patentcross-licenses on terms whichthat do not affect our results of operations. Furthermore, as a result of litigation, or to address our business needs, we may be required to take a license to third-partythird party IP rights upon economically unfavorable terms and conditions, and possibly pay damages for prior use,and/or face an injunction or exclusion order, all of which could have a material adverse effect on our results of operations and ability to compete.
From time to time, we are involved in IP litigation and infringement claims. See “Item 8. Financial Information — Legal Proceedings”. In the event a third-partythird party IP claim were to prevail, our operations may be interrupted and we may incur costs and damages, which could have a material adverse effect on our results of operations, cash flow and financial condition.
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Backlog
Our sales are made primarily pursuant to standard purchase orders that are generally booked from one to twelve months in advance of delivery. Quantities actually purchased by customers, as well as prices, are subject to variations between booking and delivery and, in some cases, to cancellation due to changes in customer needs or industry conditions. During periods of economic slowdownand/or industry overcapacityand/or declining selling prices, customer orders are not generally made far in advance of the scheduled shipment date. Such reduced lead time can reduce management’s ability to forecast production levels and revenues. When the economy rebounds, our customers may strongly increase their demands, which can result in capacity constraints due to our inability to match manufacturing capacity with such demand.
In addition, our sales are affected by seasonality, with the first quarter generally showing lowest revenue levels in the year, and the third or fourth quarter historically generating the highest amounthigher amounts of revenues due to electronic products purchased from many of our targeted market segments.
We also sell certain products to key customers pursuant to frame contracts. Frame contracts are annual contracts with customers setting forth quantities and prices on specific products that may be ordered in the future. These contracts allow us to schedule production capacity in advance and allow customers to manage their inventory levels consistent withjust-in-time principles while shortening the cycle times required to produce ordered products. Orders under frame contracts are also subject to a high degree of volatility, because they reflect expected market conditions which may or may not materialize. Thus, they are subject to risks of price reduction, order cancellation and modifications as to quantities actually ordered resulting in inventorybuild-ups.
Furthermore, developing industry trends, including customers’ use of outsourcing and their deployment of new and revised supply chain models, may reduce our ability to forecast changes in customer demand and may increase our financial requirements in terms of capital expenditures and inventory levels.
We entered 20102013 with a backlog significantly higherlower than we had compared to 2009 due to the strong improvement in the semiconductor industry registered in the second half of 2009. During 2010, our backlog grew2012, as a result of a strong increasedifficult industry environment. During 2013, our backlog declined, in order flow,particular in the second half, mainly reflecting a more favorable industry environment and new products. As a resultthe impact of this improvement,the wind-down of the ST-Ericsson business. Excluding the Wireless product line, we entered 20112014 with a backlog significantly higher thansimilar to what we had entering 2010.
Competition
Markets for our products are intensely competitive. While only a few companies compete with us in all of our product lines, we face significant competition in each of our product lines.them. We compete with major international semiconductor companies. Smaller niche companies are also increasing their participation in the semiconductor market, and semiconductor foundry companies have expanded significantly, particularly in Asia. Competitors include manufacturers of standard semiconductors, ASICs and fully customized ICs, including both chip andboard-level products, as well as customers who develop their own IC products and foundry operations. Some of our competitors are also our customers.
The primary international semiconductor companies that compete with us include Analog Devices, Atmel, Avago, Broadcom, Fairchild Semiconductor, Freescale Semiconductor, Infineon, Intel, International Rectifier, InvenSense, Linear Technology, LSI Logic, Marvell, Maxim, MediaTek, Microchip Technology, Mstar, National Semiconductor, NXP Semiconductors, ON Semiconductor, Qualcomm, Renesas, ROHM Semiconductor, Samsung, Texas Instruments, Trident, Toshiba, TSMC and Vishay.
We compete in different product lines to various degrees on the basis of price, technical performance, product features, product system compatibility, customized design, availability, quality and sales and technical support. In particular, standard products may involve greater risk of competitive pricing, inventory imbalances and severe market fluctuations than differentiated products. Our ability to compete successfully depends on elements both within and outside of our control, including successful and timely development of new products and manufacturing processes, product performance and quality, manufacturing yields and product availability, customer service, pricing, industry trends and general economic trends.
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We are organized in a matrix structure with geographic regions interacting with product divisions,groups, both being supported by shared technology and manufacturing operations and by central functions, designed to enable us to be closer to our customers and to facilitate communication among the R&D, production, marketing and sales organizations.
While STMicroelectronics N.V. is the parent company, and the principal player ofwe also conduct our business, ST NV also conducts its operations through service activities from our subsidiaries. We provide certain administrative, human resources, legal, treasury, strategy, manufacturing, marketing and other overhead services to our consolidated subsidiaries pursuant to service agreements for which we recover the cost. We have two joint ventures with Ericsson, which operate as independent JV companies and are currently governed by a fully balanced Board and an independent management team. Our Consolidated Financial Statements include “JVS and related affiliates”, responsible for the full commercial operation of the combined businesses, namely sales and marketing. Its parent company is ST-Ericsson Holding AG (“JVS”), which is owned 50% plus a controlling share by us. The other JV is focused on fundamental R&D activities. Its parent company is ST-Ericsson AT SA (“JVD”), which is owned 50% plus a controlling share by Ericsson and is therefore accounted for by us under the equity method.
The following table lists our consolidated subsidiaries and our percentage ownership as of December 31, 2010:
Legal Seat | Name | Percentage Ownership (Direct or Indirect) | |||||
Australia, Sydney | |||||||
STMicroelectronics PTY Ltd | 100 | ||||||
Belgium, | Proton World International N.V. | 100 | |||||
Brazil, Sao Paulo | South America Comércio de Cartões Inteligentes Ltda | 100 | |||||
Brazil, Sao Paulo | STMicroelectronics Ltda | 100 | |||||
Brazil, Sao Paulo | Incard do Brazil Ltda | 50 | |||||
Canada, Ottawa | STMicroelectronics (Canada), Inc. | 100 | |||||
China, Beijing | STMicroelectronics | 100 | |||||
China, Shanghai | |||||||
STMicroelectronics | 100 | ||||||
China, | STMicroelectronics (Shanghai) R&D Co. Ltd | 100 | |||||
China, Shanghai | STMicroelectronics (China) Investment Co. Ltd | 100 | |||||
China, Shenzhen | Shenzhen STS Microelectronics Co. Ltd | 60 | |||||
China, | STMicroelectronics (Shenzhen) Manufacturing Co. Ltd | 100 | |||||
China, | STMicroelectronics (Shenzhen) | 100 |
Legal Seat | Name | Percentage Ownership (Direct or Indirect) | ||||
Czech Republic, Prague | STMicroelectronics Design and Application s.r.o. | 100 | ||||
Finland, Nummela | STMicroelectronics | 100 | ||||
France, Crolles | STMicroelectronics | 100 | ||||
France, Grenoble | STMicroelectronics | 100 | ||||
France, Le Mans | STMicroelectronics | 100 | ||||
France, Grenoble | ||||||
STMicroelectronics | 100 | |||||
France, Montrouge | ||||||
STMicroelectronics | 100 | |||||
France, Rousset | ||||||
STMicroelectronics | 100 | |||||
France, | STMicroelectronics | 100 | ||||
Germany,Aschheim-Dornach | ||||||
STMicroelectronics | 100 | |||||
Germany,Aschheim-Dornach | STMicroelectronics | 100 | ||||
Holland, Amsterdam | STMicroelectronics | 100 | ||||
Holland, Amsterdam | ||||||
STMicroelectronics | 100 | |||||
Holland, Amsterdam | STMicroelectronics | 100 | ||||
Hong Kong | ||||||
STMicroelectronics | 100 | |||||
India, New Delhi | ||||||
STMicroelectronics | 100 | |||||
India, | STMicroelectronics Pvt Ltd | 100 | ||||
Israel, Netanya | STMicroelectronics Ltd | |||||
100 | ||||||
Italy, Agrate Brianza | ||||||
STMicroelectronics |
34S.r.l.
100 | ||||||
Italy, | Dora S.p.A. | 100 | ||||
Italy, | CO.RI.M.ME. | 100 | ||||
Italy, | STMicroelectronics Services S.r.l. | 100 | ||||
Italy, | ST-POLITO Scarl | 75 | ||||
Japan, Tokyo | STMicroelectronics | 100 | ||||
Malaysia, Kuala Lumpur | ||||||
STMicroelectronics | 100 | |||||
Malaysia, Muar | ||||||
STMicroelectronics | 100 | |||||
Malta, Kirkop | STMicroelectronics | 100 | ||||
Mexico, Guadalajara | ||||||
STMicroelectronics | 100 | |||||
Morocco, Casablanca | Electronic Holding S.A. | 100 | ||||
Morocco, | STMicroelectronics S.A.S. (Maroc) | 100 | ||||
Philippines, Calamba | STMicroelectronics, | 100 | ||||
Philippines, Calamba | ST-Ericsson | |||||
100 | ||||||
Philippines, | Mountain Drive Property, Inc. | |||||
Singapore, Ang Mo Kio | ||||||
STMicroelectronics | 100 | |||||
Singapore, | STMicroelectronics Pte Ltd | 100 | ||||
Singapore | Veredus Laboratories Pte Ltd | |||||
Spain, | STMicroelectronics Iberia S.A. | 100 | ||||
Sweden, | STMicroelectronics A.B. | 100 | ||||
Switzerland, Geneva | ||||||
STMicroelectronics S.A. | 100 | |||||
Switzerland, | INCARD | 100 | ||||
Switzerland, | ST New Ventures S.A. | 100 | ||||
Thailand, Bangkok | ||||||
STMicroelectronics (Thailand) Ltd | 100 | |||||
United Kingdom, | Inmos Limited | 100 | ||||
United Kingdom, | STMicroelectronics | 100 | ||||
United Kingdom, | STMicroelectronics (Research & Development) Limited | 100 | ||||
United Kingdom, | ||||||
Synad Technologies Limited | 100 | |||||
United | ||||||
STMicroelectronics Inc. | 100 | |||||
United States, | ||||||
Genesis Microchip Inc. | 100 | |||||
United States, | Genesis Microchip | 100 | ||||
United States, | Genesis Microchip LLC | 100 | ||||
United States, | Genesis Microchip Limited Partnership | 100 | ||||
United States, | Sage Inc. | 100 | ||||
United States, | Faroudja, Inc. | 100 | ||||
United States, | Faroudja Laboratories Inc. | 100 | ||||
United States, | STMicroelectronics (North America) Holding, Inc. | 100 | ||||
United States, | The Portland Group, Inc. | 100 |
The following table lists our principal equityequity-method investments and our percentage ownership as of December 31, 2010:
Legal Seat | Name | Percentage Ownership (Direct or Indirect) | ||||||
France, Grenoble | MicroOLED S.A.S | 39.6 | ||||||
Italy, Catania | ||||||||
3Sun S.r.l. | 33.3 | |||||||
Switzerland, Geneva | ST-Ericsson SA | |||||||
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We participate in certain programs established by the EU, individual countries and local authorities in Europe (principally(primarily in France and Italy). Such funding is generally provided to encourage R&D activities and capital investment, industrialization and the economic development of underdeveloped regions. These programs are partially supported by direct funding, tax credits and specific loans (low-interest(low-interest financing).
Public funding in France, Italy and Europe generally is open to all companies, regardless of their ownership or country of incorporation. The EU has developed model contracts for R&D funding that require beneficiaries to disclose the results to third parties on reasonable terms. As disclosed, the conditions for receipt of government funding may include eligibility restrictions, approval by EU authorities, annual budget appropriations, compliance with European Commission regulations, as well as specifications regarding objectives and results.
Some of our R&D government funding contracts involve advance payments that require us to justify our expenses after receipt of funds. Certain specific contracts (Crolles, Grenoble, Rousset and Tours, France and Catania, Italy) contain obligationscommitments to maintain a minimum level of employment andand/or investment during a certain amount of time. There could be penalties (i.e., a partial refund due to the government) if these objectives are not fulfilled. Other contracts contain penalties for late deliveries or for breach of contract, which may result in repayment obligations.
The main programs for R&D in which we are involved include: (i) the Eureka-CATRENEEureka CATRENE cooperative R&D program (Cluster for Application and Technology Research in Europe on NanoElectronics), which is the successor of MEDEA+ (which ended in 2008); (ii) EU R&D projects with FP6 and FP7 (Sixth and Seventh(Seventh Frame Program) for Information and Communication Technology; (iii) European industry initiativesJoint Technology Initiatives (JTI) such as ENIAC (European Nanoelectronics Initiative)Initiative Advisory Committee) and ARTEMIS (Embedded Computing Systems Initiative); operated by Joint Undertakings formed by the European Union, some member states and industry; and (iv) national or regional programs for R&D and for industrialization in the electronics industries involving many companies and laboratories. The pan-Europeanpan European programs cover a period of several years, while national or regional programs in France and Italy are subject mostly to annual budget appropriation.
In December 2013, the European Commission formalized Horizon 2020, the European Union’s new research and innovation framework for 2014 through 2020, which also includes provisions to continue supporting thepublic-private partnerships that existed under FP7. In particular, the new ECSEL (Electronic Components and Systems for European Leadership) JTI will be supported to boost Europe’s electronics manufacturing capabilities. ECSEL is a merger of the ARTEMIS initiative and the ENIAC initiative, and it also incorporates research and innovation on smart systems under EPoSS. ECSEL is expected to start in early 2014 and run for 10 years.
In Italy, there are some national funding programs established to support the new FIRST (Fondo per gli Investimenti nella Ricerca Scientifica e Tecnologica) that will groupgroups previous funding regulations (FIRB,FIRB (Fondo per gli Investimenti della Ricerca di Base, aimed to fund fundamental research), FAR (Fondo per le Agevolazioni alla Ricerca, to fund industrial research), and FSC (Fondo per lo Sviluppo e la Coesione) the FCS (Fondo per la Competitività e lo Sviluppo). The FRI (Fondo rotativo per il sostegno alle imprese e agli investimenti in ricerca) funds research and innovation activities and the new FIT (Fondo speciale rotativo per l’Innovazione Tecnologica) FCS (Fondo per la Crescita Sostenibile) that is designed to fund precompetitive development in manufacturing. These programs are not limited to microelectronics and are suitableintended to support industry R&D in any segment. Italian programs often cover several years and the approval phase is quite long, up to two or
three years. In 2010,2013, within the strategic program “industria 2015” (involving a two-step evaluation procedure) atPON (Programma Operativo Nazionale “Ricerca e competitività 2007 2013”), the endItalian Research Ministry finalized the complete ranking of the second evaluation stage, threeapproved proposals for the DTA (Distretti ad Alta Tecnologia), and seven projects ofinvolving the company have beenwere formalized and one of our proposals was selected for funding.
In Italy, according to the ARTEMIS and ENIAC Joint Undertaking procedures related to calls for proposals, in 20102013 the Italian Research Ministry has approved public grants for sevenan additional four ENIAC projects (of which one was under the ENIAC’s call for “Key Enabling Technologies — Pilot Lines) and one for ARTEMIS project (under the ARTEMIS Innovation Pilot Program call) involving the company.
Furthermore, there are some regional funding tools for research that can be addressed by local initiatives, primarily in the regions of Puglia, Sicily, Campania and Val d’Aosta, provided that a reasonable regionalsocio-economic impact could be recognized in terms of industrial exploitation, new professional hiringand/or cooperation with local academia and public laboratories.
In 2006, the EU Commission allowed the modification of the conditions of a grant pertaining to the building, facilitizationfacilitation and equipment of our facility in Catania, Italy (the “M6 Plant”). Following this decision, the authorized timeframe for completion of the project was extended and the Italian government was authorized to allocate €446 million, out of the €542 million grants originally authorized, for the completion of the M6 Plant if we made a further investment of €1,700 million between January 1, 2006 through the end of 2009. The M6 plant andOn the Contratto di programma havebasis of the investments actually realized during the period, we recorded an amount of approximately €78 million as funding for capital investment of which approximately €44 million has been transferredreceived to Numonyx, which will benefit from future M6 grants linked todate. On September 13, 2011, the completionEuropean Commission initiated a review of the M6 plantinvestment and assume related responsibilities. Under a Memorandum of Understanding dated July 30, 2009benefits, requesting information from the Italian Authorities declared their willingness to release public grants in connection with a revisiongovernment about the status and the ownership of the current M6 Program Agreement so that original project (consisting in €1,700 millionbenefits of investments to complete the M6 plant so asinvestment during the period2001-2006. The Italian authorities responded to make it able to produce memories with corresponding public fundsall such requests for €446 million) is replaced by 2 separate projects, oneinformation in 2011 and 2012 concerning primarily the history of the investment made, the motivation of the state aid granted, the formal interpretation related to Numonyx R&D activities inthe definition of “investment activation”, and its Italian sites and the secondapplication to the finalization of the announced joint venture in the photovoltaic field with Enel and Sharp, and the conversion of the industrial destination of the new M6 facility in Catania from production of memories to production of photovoltaic panels. In particular, as part of the joint venture in the photovoltaic field with Enel and Sharp, we have contributed the M6 plant, reacquired from Numonyx, to the new joint venture, which will make the necessary investments to convert industrial destination of M6 from production of memories to production of photovoltaic panels up to a
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Another important contribution is given by the Ministry of Industry (“FCE”) and by local public authorities. Specific support for microelectronics is provided through FCE to over 30all the companies with activities in France in the semiconductor industry. The amount of support under French programs is decided annually and subject to budget appropriation. In 2010,2012, we continuedterminated the execution of the framework agreement with the French Ministry of Economy, Industry and Employment, the “Nano2012”“Nano-2012” Research and Development program.program, which is designed to promote the development of advanced CMOS(32-nm and below) technologies for system on chip semiconductor products in theGrenoble-Crolles region of France, in cooperation with the ISDA. In this program, STMicroelectronics (Crolles and Grenoble sites) was the leading contributor, with over 30 other partners (universities, public research laboratories, large groups and small companies (SMEs)). Under this frame agreement, we are the Coordinator and Project Leader and have been allocated up toan overall funding budget of €340 million (about $450 million) in grants was put in place for us for the period2008-2012, ifsubject to the conclusion of agreements every year with the public authorities (the French State being represented by the Ministry of Industry, and local authorities), and provided that all technical parameters and objectives are met. Nano2012 is designed
Due to promote development of advanced CMOS (32nm and below) technologies forsystem-on-chip semiconductor productsa major change in the Grenoble-Crolles regiontaxation regime in France, the local authorities have received lower tax receipts than before. During the“Nano-2012” program, some of the local authorities involved have, as a result of such tax receipts, decided to suspend their funding obligations related to the“Nano-2012” program. Therefore, the benefit for us and the other partners ended up being lower than expected as the French government did not agree to compensate us for the shortfall in support from the local authorities. At the end of 2012, the program ended and a final review was completed in April 2013. The final review concluded that the technical program had been fully executed in line with the plans, helping to further develop the Grenoble ecosystem.
On July 22, 2013, the French Prime Minister announced theNano-2017 Research and Development program, afive-yearpublic-private strategic R&D program led by us to further advance our leadership in key embedded processing solutions and technologies. The project draws support from a broad coalition of French national, regional and local authorities as well as by the European community through the ENIAC Joint Technology Initiative. Funding for the program is subject to approval by the European Commission. Ultimately,“Nano-2017” will strengthen our leadership in such key technologies asFD-SOI(low-power,high-performance processing),next-generation imaging (sensors and image signal processors), andnext-generation embeddednon-volatile memories. These technologies are at the core of our embedded processing solutions which include microcontrollers, imaging solutions, digital consumer products, application processors and digital ASICs. Thepan-European enlargement of this program (with partners in close to 20 European countries) will also contribute to the strengthening of European cooperation in themicro-nanoelectronics sector, along the entire value chain, from materials and equipment to components and system design. This program relies on leading industry clusters in Europe, such as Dresden (Germany),Leuven-Eindhoven(Belgium-the Netherlands) andGrenoble-Crolles (France). While we expect to receive public funding under the Nano 2017 agreement in the course of the current quarter, there is no guarantee that the program will be approved or if it is approved, that there will be no modifications that could negatively affect the R&D program, all of which could have a material adverse effect on our results of operations. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — If we fail to receive the necessary funding for our R&D program, we may have to reconsider our strategy, which could adversely impact our results of operations” and “— If we fail to meet the condition and approval requirements applicable to public funding, which we have received in the past, we may face demands for repayment, which may increase our costs and impact our results of operations”.
A new type of R&D support program was set up in France in 2011, as part of a global rejuvenation effort aimed at research and industry (“Investissements d’Avenir” or IA). This program is coordinated by the CGI (Commissariat Général aux Investissements d’Avenir) and targets industrial sectors of high relevance. We have been granted three projects under this frame, which started in 2013: one for “Tours 2015” covering three types of technologies developed in cooperation with public laboratories, one for Rousset “MAGE” targeting the ISDA (International Semiconductor Development Alliance) led by IBMdevelopment ofultra-low power secure microcontrollers and grouping seven leading world-wide semiconductor partners.
We also benefit from tax credits for R&D activities in several countries (notably in France). R&D tax credits consist of tax benefits granted to companies on aan open andnon-discriminatory base for their research & development activities. See “Item 5. Operating and Financial Review and Prospects — Results of Operations — Research and Development Expenses”.
Funding for R&D activities is the most common form of funding that we receive. Public funding for R&D is recorded as “Other Income and Expenses, net” in our consolidated statementsConsolidated Statements of incomeIncome and booked pro rata in relation to the relevant cost once the agreement with the respective government agency has been signed and all applicable conditions are met. See Note 2 to our Consolidated Financial Statements.
Government support for capital expenditures funding has been used to support our capital investment. Although receipt of these funds is not directly reflected in our results of operations, the resulting lower amounts recorded in property, plant and equipment costs reduce the level of depreciation recognized by us. In Italy the new “Tremonti-ter” allows business income tax reduction excluding from taxation of business income an amount equal to 50 percent of the value of investments in a detailed list of new machinery and new equipment, made from July 1, 2009 through June 30, 2010. See Note 112 to our Consolidated Financial Statements.
As a third category of government funding, we receive some loans, mainly related to large capital investment projects, at preferential interest rates. See Note 1513 to our Consolidated Financial Statements.
Funding of programs in France and Italy is subject to annual appropriation, and if such governments or local authorities were unable to provide anticipated funding on a timely basis or if existing government-government orlocal-authority-funded programs were curtailed or discontinued, or if we were unable to fulfill our eligibility requirements, such an occurrence could have a material adverse effect on our business, operating results and financial condition. Another reason for the delayed funding execution, after national approval, is the obligation European governments have to notify the European Commission DG Competition when their support exceeds €7.5 million. From time to time, we have experienced delays in the receipt of funding under these programs. As the availability of such funding areis substantially outside our control, there can be no assurance that we will continue to benefit from such government support, that sufficient alternative funding would be available if necessary, or that any such alternative funding would be provided on terms as favorable to us as those previously committed. Due to changes in legislationand/or review by the competent administrative or judicial bodies, there can be no assurance that government funding granted to us may not be revoked or challenged or discontinued, in whole or in part, by any competent state or European authority, until the legal time period for challenging or
revoking such funding has fully lapsed. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — The lack ofIf we fail to meet the condition and approval requirements applicable to public funding available to us, changeswe have received in existing public funding programs orthe past, we may face demands for repayment, which may increase our costs and impact our results of operations”operations.”.
Suppliers
We use three main critical types of suppliers in our business: equipment suppliers, raw material suppliers and external silicon foundries and back-end subcontractors.
In thefront-end process, we use steppers, scanners, tracking equipment, strippers,chemo-mechanical polishing equipment, cleaners, inspection equipment, etchers, physical and chemicalvapor-deposition equipment, implanters, furnaces, testers, probers and other specialized equipment. The manufacturing tools that we use in theback-end process include bonders,burn-in ovens, testers and other specialized equipment. The quality and technology of equipment used in the IC manufacturing process defines the limits of our technology. Demand for increasingly smaller chip structures means that semiconductor producers must quickly incorporate the latest
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Our manufacturing processes use many raw materials, including silicon wafers, lead frames, mold compound, ceramic packages and chemicals and gases. The prices of many of these raw materials are volatile.volatile due to the specificity of the market. We obtain our raw materials and supplieshave therefore adopted a “multiple sourcing strategy” designed to protect us from diverse sources on ajust-in-time basis. Althoughthe risk of price disruption. The same strategy applies to supplies for the raw materials used by us are currently adequate, shortages could occur in variousto avoid potential material disruption of essential materials due to interruption of supply or increasedmaterial when industry demand in the industry.is ramping up. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — Because we depend on a limited number of suppliers for raw materials and certain equipment, we may experience supply disruptions if suppliers interrupt supply, increase prices or experience material adverse changes in their financial condition”.
Finally, we also use external subcontractors to outsource wafer manufacturing, andas well as assembly and testing of finished products. See “— Property, Plants and Equipment” above.
Environmental Matters
Our manufacturing operations use many chemicals, gases and other hazardous substances, and we are subject to a variety of evolving environmental, and health and safety regulations related, among other things, to the use, storage, discharge and disposal of such chemicals and gases and other hazardous substances, emissions and wastes, as well as the investigation and remediation of soil and ground water contamination. In most of the jurisdictions in which we operate, we must obtain permits, licenses and other forms of authorization, or give prior notification, in order to operate. Because a large portion of our manufacturing activities are located in the EU, we are subject to European Commission regulation on environmental protection, as well as regulations of the other jurisdictions where we have operations.
Consistent with our PSE (PrinciplesPrinciples of Sustainable Excellence),Excellence (“PSE”) and Sustainability Strategy, we have established proactive environmental policies with respect to the handling of chemicals, gases, emissions and waste disposals from our manufacturing operations, and we have not suffered material environmental claims in the past. We believe that our activities comply with presently applicable environmental regulations in all material respects. We have engaged outside consultants to audit all of our environmental activities and created environmental management teams, information systems and training. We have also instituted environmental control procedures for processes used by us as well as our suppliers. As a company, we have been certified to be in compliance with the quality standard ISO9001:2008, and with the technical specification ISO/TS16949:2009, and2009; with the environmental standards ISO14001 and the European EMAS (Eco-Management(Eco Management and Audit Scheme).
Our activities are subject to two directives: Directive 2002/95/EC on the restriction of the use of certain hazardous substances in electrical and electronic equipment (“ROHS” Directive, as amended in particularamended), which was replaced, with effect from January 3, 2013, by Commission Decision 2005/618/ECDirective 2011/65/EU of August 18, 2005);June 8, 2011, entitled “ROHS 2” Directive; and Directive 2002/96/EC on waste electrical and electronic equipment (“WEEE” Directive, as modified
amended), which will be replaced, with effect from February 15, 2014 by Directive 2003/108/2012/19/EU of July 4, 2012. Moreover our products, due to their final applications, may be subject to the end of life vehicles Directive 2000/53/EC (“ELV” Directive, 2008/34/as amended) Directive 2006/66/EC (Battery Directive) and Directive 2008/12/EC)2007/47/EC (Medical Devices as amended). Both Directives are in the process of being replaced by new directives that are expected to be adopted in 2011. The ROHS Directive aims at banning the use of lead and other flame-retardantmetals and of other flame retardant substances in electric and electronic equipment placed on the market, while the new text is also introducing new requirements within the design and manufacturing phases of the products manufacturing electronic components. The WEEE Directive promotes the recovery and recycling of electrical and electronic waste. Duewaste, while not imposing any “take back” activities to unclear statutory definitions and interpretations, weour operations, since ST products, being semiconductor components (not equipment) are unable at this time to determine in detail the ramifications of our activities underexcluded from the WEEE Directive. The WEEE Directive to be adopted in 2011 may or may not clarify such definitions with respect to our activities.take back scope. At this stage, we do not participateonly one subsidiary (located in France) participates to a “take back” organization in France.
Our activities in the EU are also subject to the European Directive 2003/87/EC (as amended) establishing a scheme for greenhouse gas allowance trading (as modified by Directive 2004/101/EC and Directive 2008/101/EC), and applicable national legislation. The 2003 Directive was also amended by Directive 2009/29/EC, which must be transposed into national law by the European Member States on or before December 31, 2012. Two of our manufacturing sites (Crolles, France, and Agrate, Italy) have been allocated a quota of greenhouse gas for the period2008-2012. Failure to comply would force us to acquire potentially expensive additional emission allowancesThe Crolles site in France was removed from third parties, or to pay a fee for each extra ton of gas emitted. Our on-going programs to reduce CO2 emissions should allow us to comply with the greenhouse gas quota allocations that have been defined for Crolles and Agrate for the period2008-2012. At this stage, the emission permits are allocated for free to the industry. However, pursuant to provisions createdallocation scheme in 2010 by the 2009 Directive, a growing percentage of the permits will be auctioned by Member States beginning in 2013. Moreover, the French authorities will be implementing aand our site in Agrate, Italy, was removed from the scheme by the Italian authorities in 2012. We were able to complete the courseallocation period of 2011 where part of the permits (up to 10%) will be auctioned, pursuant to Law n°2010-16572008-2012 of December 2010. We
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Regulations implementing the registration, evaluation, authorization and restriction of chemicals (“REACH”) were adoptedcame into force in 2008.2008, and are required to be fully implemented by 2018. We intend to proactively implement such legislation, in line with our commitment toward environmental protection. The implementation of any such legislation could adversely affect our manufacturing costs or product sales by requiring us to develop new processes, acquire costly equipment or materials, or to incur other significant expenses in adapting our manufacturing processes or waste and emission disposal processes. However, we are currently unable to evaluate such specific expenses and therefore have no specific reserves for environmental risks. Furthermore, environmental claims or our failure to comply with present or future regulations could result in the assessment of damages or imposition of fines against us, suspension of production or a cessation of operations and, as with other companies engaged in similar activities, any failure by us to control the use of, or adequately restrict the discharge of hazardous substances could subject us to future liabilities. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — Some of our production processes and materials are environmentally sensitive, which could expose us to liability and increase our costs due to environmental regulations and laws or because of damage to the environment”.
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Operating and Financial Review and Prospects |
Overview
The following discussion should be read in conjunction with our Consolidated Financial Statements and Notes thereto included elsewhere in thisForm 20-F.20-F. The following discussion contains statements of future expectations and otherforward-looking statements within the meaning of Section 27A of the Securities Act of 1933, or Section 21E of the Securities Exchange Act of 1934, each as amended, particularly in the sections “—“— Critical Accounting Policies Using Significant Estimates”Estimates”, “—“— Business Outlook” and “—Outlook”,“— Liquidity and Capital Resources” and“— Financial Outlook”Outlook: Capital Investment”. Our actual results may differ significantly from those projected in theforward-looking statements. statements. For a discussion of factors that might cause future actual results to differ materially from our recent results or those projected in theforward-looking statements in addition to the factors set forth below, see
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Critical Accounting Policies Using Significant Estimates
The preparation of our Consolidated Financial Statements in accordance with U.S. GAAP requires us to make estimates and assumptions. The primary areas that require significant estimates and judgments by us include, but are not limited to:
sales returns and allowances;
determination of the best estimate of the selling price for deliverables in multiple element sale arrangements;
inventory obsolescence reserves and normal manufacturing capacity thresholds to determine costs capitalized in inventory;
provisions for litigation and claims and recognition and measurement of loss contingencies;
valuation at fair value of assets acquired or sold, including intangibles, goodwill, investments and tangible assets;
annual andtrigger-based impairment review of our goodwill and intangible assets, as well as an assessment, in each reporting period, of events, which could trigger interim impairment testing onlong-lived assets;
estimated value of the consideration to be received and used as fair value for asset groups classified as assets held for sale and the assessment of probability of realizing the sale;
assessment ofother-than-temporary impairment charges on financial assets, includingequity-method investments;
restructuring charges and other related exit costs;
assumptions used in assessing the number of awards expected to vest onstock-based compensation plans;
assumptions used in calculating pension obligations; and
determination of the amount of taxes expected to be paid and tax benefit expected to be received, including deferred income tax assets, valuation allowance and provisions for uncertain tax positions and claims.
We base the estimates and assumptions on historical experience and on various other factors such as market trends, market information used by market participants and the latest available business plans that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. While we regularly evaluate our estimates and assumptions, the actual results we experience could differ materially and adversely from our estimates. To the extent there are material differences between our estimates and actual results, future results of operations, cash flows and financial position could be significantly affected. With respect
Our Consolidated Financial Statements include theST-Ericsson joint ventures; in particular, until the end of August 2013, we fully consolidatedST-Ericsson SA and related affiliates (“JVS”), which was owned 50% plus a controlling share by us. Following the transfer of one share to Ericsson and the Wireless segment, our accounting reliesnew shareholder agreement, we ceased to hold control and to consolidate JVS and started to account for it under the equity method as of September 1, 2013. The other joint venture, focused on estimates basedfundamental R&D activities, whose parent company isST-Ericsson AT SA (“JVD”), was owned 50% plus a controlling share by Ericsson and was therefore accounted for by us under the equity method until its sale to Ericsson on the business plan of ST-Ericsson, as submitted by ST-Ericsson’s CEO to ST-Ericsson’s Board of Directors.
We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our Consolidated Financial Statements:
Revenue recognition.recognition. Our policy is to recognize revenues from sales of products to our customers when all of the following conditions have been met: (a) persuasive evidence of an arrangement exists; (b) delivery has occurred; (c) the selling price is fixed or determinable; and (d) collectability is reasonably assured. ThisOur revenue recognition usually occurs at the time of shipment.
Consistent with standard business practice in the semiconductor industry, price protection is granted to distributordistribution customers on their existing inventory of our products to compensate them for declines in market prices. We accrue a provision for price protection based on a rolling historical price trend computed on a monthly basis as a percentage of gross distributor sales. This historical price trend represents differences in recent months between the invoiced price and the final price to the distributor, adjusted if required, to accommodate for a significant movechange in the current market price. We record the accrued amounts as a deduction of revenue at the time of the sale.our sale to distributors. The ultimate decision to authorize a distributor refund remains fully within our control. The short outstanding inventory time period, our ability to foresee changes invisibility into the standard inventory product pricing (as opposed to pricing for certain customized products) and our lengthylong distributor pricing history, have enabled us to reliably estimate price protection provisions atperiod-end. If market conditions differ from our assumptions, this could have an impact on
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Our customers occasionally return our products for technical reasons. Our standard terms and conditions of sale provide that if we determine that our products are non-conforming,do not conform, we will repair or replace them, or issue a credit note or rebate of the purchase price. In certain cases, when the products we have supplied have been proven to be defective, we have agreed to compensate our customers for claimed damages in order to maintain and enhance our business relationship. Quality returns are usually associated withend-user customers, not with distribution channels. Quality returns are not related to any technological obsolescence issues and are identified shortly after sale in customer quality control testing. We book a provisionprovide for such returns when they are considered probable and can be reasonably estimated. We record the accrued amounts as a reduction of revenue.
Our insurance policiespolicy relating to product liability only covercovers physical and other direct damages caused by defective products. We carry only limited insurance against immaterialnon-consequential damages in the event of a product recall. damages. We record a provision for warranty costs as a charge against cost of sales based on historical trends of warranty costs incurred as a percentage of sales which we have determined to be a reasonable estimate of the probable losses to be incurred for warranty claims in a period.
Any potential warranty claims are subject to our determination that we are at fault and liable for damages, and that such claims usually must be submitted within a short period of time following the date of sale. This warranty is given in lieu of all other warranties, conditions or terms expressed or implied by statute or common law. Our contractual terms and conditions typically limit our liability to the sales value of the products that gave rise to the claim.
While the majority of our sales agreements contain standard terms and conditions, we may, from time to time, enter into agreements that contain multiple elements ornon-standard terms and conditions, which require revenue recognition judgments. In such cases, following the guidance related to revenue recognition, the arrangement is allocated to the different elements based onvendor-specific objective evidence, third party evidence or our best estimates of the selling price of the separable deliverables. These arrangements generally do not includeperformance-,cancellation-,termination-, orrefund-type provisions.
Trade accounts receivable.We maintain an allowance for doubtful accounts for potential estimated potential losses resulting from our customers’ inability to make required payments. We base our estimates on historical collection trends and record a provision accordingly. Furthermore, we are required to evaluate our customers’ credit ratings from time to timefinancial condition periodically and take an additionalrecord a provision for any specific account that we consider as doubtful. In 2010,2013, we did not record any new material specific provision related to bankrupt customers. If we receive information that the financial condition of our customers has deteriorated, resulting in an impairment of their ability to make payments, additional allowances could be required. Such deterioration is increasingly likely in the case of a crisis in the credit markets. While the majority of our sales agreements contain standard terms
Business combinations and conditions, we may, from time to time, enter into agreements that contain multiple elements or non-standard terms and conditions, which require revenue recognition judgments. In such cases, following the guidance related to revenue recognition, we allocate the revenue to different deliverables based on best estimates of selling prices of each deliverable.
Impairment of goodwill.goodwill. Goodwill recognized in business combinations is not amortized andbut is instead subject to antested for impairment test to be performed on an annual basis,annually in the third quarter, or more frequently if indicators ofa triggering event indicating a possible impairment exist, in order to assess the recoverability of its carrying value.exists. Goodwill subject to potential impairment is tested at a reporting unit level, which represents a component of an operating segment for which discrete financial information is available. Our reporting unit “Wireless” includes ST-Ericsson.available, after performing a qualitative assessment to determine whether an impairment test is necessary, in cases when we have chosen such option. This impairment test determines whether the fair value of each reporting unit for which goodwill is allocated is lower than the total carrying amount of relevant net assets allocated to such reporting unit, including its allocated goodwill. If lower, the implied fair value of the reporting unit goodwill is then compared to the carrying value of the goodwill and an impairment charge is recognized for any excess. In determining the fair value of a reporting unit, we use the lower of a value determined by applying a market approach with financial metrics of comparable public companies andcompared to an estimate of the expected discounted future cash flows associated with the reporting unit. Significant management judgments and estimates are used in forecasting the future discounted cash flows.flows, including: the applicable industry’s sales volume forecast and selling price evolution, the reporting unit’s market penetration and its revenues evolution, the market acceptance of certain new technologies and products, the relevant cost structure, the discount rates applied using a weighted average cost of capital and the perpetuity rates used in calculating cash flow terminal values. Our evaluations are based on financial plans updated with the latest available projections of the semiconductor market, evolution, our sales
expectations and our costs evaluation, and are consistent with the plans and estimates that we use to manage our business. It is possible, however, that the plans and estimates used may prove to be incorrect, and future adverse changes in market conditions, changes in strategies, lack of performance of major customers or operating results of acquired businesses that are not in line with our estimates may require impairments.
We performed our annual impairment test of certain goodwill.
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Further impairment charges could also result from new valuations triggered by changes in our product portfolio or strategic transactions,alternatives, particularly in the event of a downward shift in future revenues or operating cash flowflows in relation to our current plans.
Intangible assets subject to amortization.amortization. Intangible assets subject to amortization include the cost of technologies and licenses purchased from third parties, as well as from the purchase method of accounting for acquisitions, purchased software and internally developed software that is capitalized. In addition, intangible assets subject to amortization include intangible assets purchased from third parties recorded at cost and intangible assets acquired throughin business combinations such as corerecorded at fair value, comprised of technologies and licenses, trademarks and contractual customer relationships.relationships and computer software. Intangible assets subject to amortizationwith finite useful lives are reflected net of any impairment losses and are amortized over their estimated useful life. The carrying value ofWe evaluate each reporting period whether there is reason to suspect that intangible assets subject to amortization is evaluated wheneverheld for use might not be recoverable. If we identify events or changes in circumstances indicatewhich are indicative that the carrying amount mayis not be recoverable. In determining recoverability,recoverable, we initially assess whether the carrying value exceeds the undiscounted cash flows associated with the intangible assets. If exceeded, we then evaluate whether an impairment charge is required by determining if the asset’s carrying value also exceeds its fair value. An impairment losscharge is recognized for the excess of the carrying amount over the fair value. We normally estimate the fair value using a market approach with financial metrics of comparable public companies and estimate the expected discounted future cash flows associated with the intangible assets. Significant management judgments and estimates are required to forecast undiscounted cash flows associated with the future operating results used in the discounted cash flow method of valuation.intangible assets. Our evaluations are based on financial plans including the plan we receive from ST-Ericsson, updated with the latest available projections of growth in the semiconductor market and our sales expectations. They are consistent with the plans and estimates that we use to manage our business. It is possible, however, that the plans and estimates used may be incorrect and that future adverse changes in market conditions or operating results of businesses acquired may not be in line with our estimates and may therefore require us to recognize impairment ofcharges on certain intangible assets.
As noted above, following our annual impairment test of goodwill, we recorded an impairment charge of $18 million in the third quarter we conductedof 2013 for the yearly impairment test, which did not result in a need to recognize an additional impairment. In the fourth quarter, we tested the fair value of the Wireless business and no additional impairment was required. The fair values comfortably exceeded the carrying values of our intangible assets for eachdedicated to the DCG reporting unit. However, many of the factors used in assessing fair values for such assets are outside of our control and the estimates used in such analyses are subject to change.
We will continue to monitor the carrying valuesvalue of our intangible assets. If market conditions deteriorate, or our Wireless business experiences a further decline in revenues, this could result in futurenon-cash impairment charges against income.earnings. Further impairment charges could also result from new valuations triggered by changes in our product portfolio or by strategic transactions, particularly in the event of a downward shift in future revenues or operating cash flowflows in relation to our current plans. plans or in case of capital injections by, or equity transfers to, third parties at a value lower than the one underlying the carrying amount.
At December 31, 2010,2013, the value of intangible assets subject to amortization in our Consolidated Balance Sheet amounted to $731$217 million.
Property, plant and equipment.equipment. Our business requires substantial investments in technologically advanced manufacturing facilities, which may become significantly underutilized or obsolete as a result of rapid changes in demand and ongoing technological evolution. We estimate the useful life for the majority of our manufacturing
equipment, the largest component of ourlong-lived assets, to be six years, except for our300-mm manufacturing equipment whose useful life wasis estimated to be ten years. This estimate is based on our experience using the equipment over time. Depreciation expense is a major element of our manufacturing cost structure. We begin to depreciate newnewly acquired equipment when it is placed into service.
We evaluate each reporting period if there is reason to suspect impairment on tangible assets or groups of assets held for use and we perform an impairment review when there is reason to suspect that the carrying value of tangible assets or groups oftheselong-lived assets might not be recoverable. In determiningrecoverable, particularly in case of a restructuring plan. If we identify events or changes in circumstances which are indicative that the recoverability of assets to be held and used,carrying amount is not recoverable, we initially assess whether the carrying value exceeds the undiscounted cash flows associated with the tangible assets or group of assets. If exceeded, we then evaluate whether an impairment charge is required by determining if the asset’s carrying value also exceeds its fair value. We normally estimate this fair value based on independent market appraisals or the sum of discounted future cash flows, using market assumptions such as the utilization of our fabrication facilities and the ability to upgrade such facilities, change in the selling price and the adoption of new technologies. We also evaluate and adjust, if appropriate, the continued validity of an asset’sassets’ useful lifelives at each Balance Sheet date or when impairment indicators are identified. Assets classified as held for sale are reflectedreported as current assets at the lower of their carrying amount and fair value less selling costs to sell and are not depreciated during the selling period. Selling costsdepreciated. Costs to sell include incremental direct costs to transact the sale that we would not have incurred except for the decision to sell.
Our evaluations are based on financial plans updated with the latest projections of growth in the semiconductor market and our sales expectations, from which we derive the future production needs and loading of our
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Inventory.Inventory. Inventory is stated at the lower of cost and net realizableor market value. Cost is based on the weighted average cost by adjusting the standard cost to approximate actual manufacturing costs on a quarterly basis; therefore, the cost is dependent uponon our manufacturing performance. In the case of underutilization of our manufacturing facilities, we estimate the costs associated with the excess capacity. These costs are not included in the valuation of inventoriesinventory but are charged directly to the cost of sales. Net realizableMarket value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses and cost of completion. As required, we evaluate inventory acquired as part of purchase accountingin business combinations at fair value, less completion and distribution costs and related margin.
While we perform, on a continuous basis, inventorywrite-offs of products andsemi-finished products, the valuation of inventory requires us to estimate a reserve for obsolete or excess inventory as well as inventory that is not of saleable quality. ProvisionsReserve for obsolescence areis estimated for excess uncommitted inventories based on the previous quarter’s sales, order backlog and production plans. To the extent that future negative market conditions generate order backlog cancellations and declining sales, or if future conditions are less favorable than the projected revenue assumptions, we could be required to record additional inventory provisions,reserve, which would have a negative impact on our gross margin.
Restructuring charges.charges. We have undertaken, and we may continue to undertake, significant restructuring initiatives, which have required us, or may require us in the future, to develop formalized plans for exiting any of our existing activities. We recognize the fair value of a liability for costs associated with exiting an activity when we have a probable liability existspresent obligation and itthe amount can be reasonably estimated. We record estimated charges for non-voluntary termination benefit arrangements such as severance and outplacement costs meeting the criteria for a liability as described above. Given the significance and timing of the execution of suchour restructuring activities, the process is complex and involves periodic reviews of estimates made at the time the original decisions were taken. This process can require more than one year due to requisite governmental and customer approvals and our capability to transfer technology andknow-how to other locations. As we operate in a highly cyclical industry, we monitor and evaluate business conditions on a regular basis. If broader or newer initiatives, which could include production curtailment or closure of other manufacturing facilities, were to be taken, we may be required to incur additional charges as well as change estimates of the amounts previously recorded. The potential impact of these changes could be material and could have a material adverse effect on our results of operations or financial condition. For 2010,In 2013, the net amount of restructuring charges and other related closure costs amounted to $93$183 million before taxes.
ST-Ericssonbreak-up. Pursuant to the memorandum of understanding with Ericsson, which described the principles for thebreak-up andwind-down of theST-Ericsson joint venture,ST-Ericsson activities were split into three main parts. The first part included the design, development and related expenses associated with the R&D costs for the LTE multimode thin modem products, which since March 2, 2013, has been fully funded by Ericsson. The second part related to theST-Ericsson business on existing products, French and Italian employees and the Calamba and Muar facilities, which have been, since March 2, 2013, fully accounted for in our accounts with no attribution to noncontrolling interest in our Consolidated Statement of Income. The third part was related to thewind-down activities remaining atST-Ericsson, equally funded by both parties.
On July 17, 2013, we and Ericsson signed a Definitive Framework Agreement in line with the principles described above, which established the split ofST-Ericsson’s activities between ST and Ericsson, the form of the transfers, the allocation of intangibles, the allocation of intellectual property, the assumption of liabilities, the principle of a balancedbreak-up applied through equal cash funding at closing and the tail payment by Ericsson to ST in case of an onward sale by Ericsson of the LTE multimode thin modem business. In addition, we and Ericsson also signed funding commitment letters to the residual jointwind-down operations to ensure solvency capped at $149 million for each partner. Additionally, Ericsson and ST have released an indemnity letter, on terms that are customary under such circumstances, to ST-Ericsson’s directors and officers, which include the CEO, the CFO and other senior executives of our company.
On August 2, 2013, the transaction closed and various activities were transferred to the respective parents, including the sale of our shares inST-Ericsson JVD, and the sale byST-Ericsson JVS of its Swedish subsidiary, in each case, to Ericsson. At the same time, certain businesses have been sold by ST-Ericsson to third parties.
At the beginning of September 2013, we sold one share ofST-Ericsson JVS to Ericsson for its nominal value and signed the new shareholder agreement, changing the ownership structure ofST-Ericsson JVS to bring both partners to an equal ownership proportion. As a consequence, we determined that while we no longer have control over the entity, we retain a significant influence and account for it under the equity method.
As a result of the foregoing, theST-Ericssonbreak-up was completed during the third quarter of 2013 and ST-Ericsson results have been deconsolidated since September 1, 2013.
Share-based compensation. compensation. We measure our the cost ofshare-based compensation cost service awards based on itsthe fair value of the award on the grant date of each award. This cost is recognized over the period during which an employee is required to provide service in exchange for the award or the requisite service period, usually the vesting period, and is adjusted for actual forfeitures that occur before vesting. Our date. In 2013, ourshare-based compensation plans may awardawarded shares contingent on the achievement of certain performance conditions based on financial objectives, including our financial results.results when compared to certain industry performances. In 2013, approximatelyone-half of the shares awarded were contingent on the achievement of certain performance conditions. In order to assessdetermineshare-based compensation to be recorded for the fair valueperiod, we use significant estimates on the number of this share-based compensation, we are requiredawards expected to estimate certain items,vest, including the probability of meeting certainachieving the fixed performance conditions including those relating to industry performances compared to our financial results, and our best estimates of award forfeitures and employees’ service period. Asperiods. Our assumptions related to industry performance are generally taken with a result,one quarter lag in relation to our nonvested Stock Award Plan,line with the availability of market information. In 2013, we recorded a total pre-tax expensecharge of $34approximately $26 million in 2010, out of which $6 million was relatedrelating to the 2007 plan, $4 million was related to the 2008 plan; $12 million to the 2009 plan and $12 million to the 2010 plan.
Earnings (loss)Income(loss) on Equity Investments.Equity-method Investments. We are required to record our proportionate share ofin the results of the entities that we account for under the equity method. This recognition is based on results reported by these entities, sometimes on a one-quarter lag, and, for such purpose, we relyrelying on their internal controls. In 2010, we recognized a loss of approximately $28 million relatedreporting systems to the ST-Ericsson JVD entities we account for under the equity method, net of the amortization of basis differences, a gain of approximately $8 million on our investment in Numonyx and $3 million loss related to other investments. Moreover, we recognized a $265 million gain on the sale of the
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investments and, if required, additionalother-than-temporary impairment charges could negatively impact our future results. As of December 31, 2013, the value in our Consolidated Balance Sheets of our equity investments was $63 million.
Financial assets.assets. We classify our financial assets in the following categories:held-for-tradingtwo categories, trading andavailable-for-sale. Such classification depends on the purpose for which the investments are acquired. We determine the classification of our financial assets at initial recognition. We have not elected to apply the fair value option on any financial assets. Unlisted equity securities with no readily determinable fair value are carried at cost. Regular purchases and sales of financial assetscost; they are recognized on the trade date — the date on which we commit to purchase or sell the asset. Financial assets are initially recognized at fair value;neither classified as trading nor asavailable-for-sale financial assets.
Trading andheld-for-tradingavailable-for-sale financial assets are subsequently carriedmeasured at fair value. The gain (loss) on the sale of the financial assets is reported as a non-operating element on the consolidated statements of income. The fair valuesvalue of quoted debt and equity securities areis based on current market prices. If the market for a financial asset is not active, and if no observable market price is obtainable, or if the security is not quoted, we measure fair value by using assumptions and estimates. For unquoted equity securities, these assumptions and estimates include the use of recentarm’s-length transactions; for debt securities without available observable market price, we establish fair value by reference to publicly available indexes of securities with the same rating and comparable or similar underlying collaterals or industries’ exposure, which we believe approximates the amount that would be received from the sale of the asset in an orderly exit value in the current market.transaction between market participants. In measuring fair value, we make maximum use of market inputs and rely as little as possible on entity-specificminimize the use of unobservable inputs. Based on the previously adopted mark to model methodology, in 2010 we had no additional impairment onAs of December 31, 2013, the value in our Consolidated Balance Sheet of the Auction Rate Securities (“ARS”) that Credit Suisse purchased on our account contrary to our mandate. For more information about the ARS purchased by Credit Suisse contrary to our instruction, which are still accounted for and owned by us pending the execution of the favorable arbitration award against Credit Suisse Securities LLC (“Credit Suisse”) by the Financial Industry Regulatory Authority (“FINRA”) and confirmed on March 19, 2010 and on August 24, 2010 by the ruling of the federal district courtfinancial assets was $57 million invested in New York, see “Item 8. Financial Information — Legal Proceedings”.
Income taxes.taxes. We are required to make estimates and judgments in determining income tax expensefor the period, comprising current and deferred income tax. We need to assess the income tax expected to be paid or the tax benefit expected to be received related to the current year taxable profit and loss in each individual tax jurisdiction and recognize deferred income tax for financial statement purposes. These estimates and judgments also occur inall temporary differences arising between the calculationtax bases of certain tax assets and liabilities and provisions.their carrying amount in the Consolidated Financial Statements. Furthermore, we assess all material open income tax positions in all tax jurisdictions to determine any uncertain tax positions, and to record a provision for those that are not more likely than not to be sustained upon examination by the adoption of the FASB guidance on accounting for uncertaintytaxing authorities, which could require potential tax claims or assessments in income taxes requiresvarious jurisdictions. In such an evaluation of the probability ofevent and in case any tax uncertaintiesassessment exceeds our provisions, we could be required to record additional charges in our accounts, which could significantly exceed our best estimates and the recognition of the relevant charges.
We are also required to assess the likelihood of recoveryrealization of our deferred tax assets and partially depend onST-Ericsson management as deferred tax assets at ST-Ericsson are concerned. This assessment requires the exercise of judgement on the part oforiginated by our management with respect to, among other things, benefits that could be realized from available tax strategies and future taxable income, as well as other positive and negative factors.net operating loss carry forwards. The ultimate realization of deferred tax assets is dependent upon, among other things, our ability to generate future taxable income that is sufficient to utilizeprofit available against loss carry-forwardscarry forwards or tax credits before their expiration. If recovery is not likely, we are requiredexpiration or our ability to implement prudent and feasible tax planning strategies or the possibility to settle uncertain tax positions against available net operating loss carry forwards or similar tax losses and credits. We record a valuation allowance against the deferred tax assets when we consider it is more likely than not that we estimate will not ultimately be recoverable, which would increase our provision for income taxes. Ourthe deferred tax assets have increased substantially in the periodwill not be realized.
2007-2009 in light of our negative net earnings, particularly atST-Ericsson, while decreased in 2010 due to improved performances resulting in net income. As of December 31, 2010,2013, we recorded in our accounts certainhad current deferred tax assets of $123 million andnon-current deferred tax assets of $227 million, net of valuation allowances.
We could be required to record further valuation allowances based on our current operating assumptions. However,thereby reducing the recorded amount of total deferred tax assets, could be reduced, resulting in a decrease inan increase of our total assets and, consequently, in our shareholders’ equity,income tax charge, if our estimates of projected future taxable income and benefits from available tax strategies are reduced as a result of a change in management’sour assessment or due to other factors, or if changes in current tax regulations are enacted that impose restrictions on the timing or extent of our ability to utilize net operating losses and tax loss and creditcarry-forwards in the future. Likewise, a change in the tax rates applicable in the various jurisdictions or unfavorable outcomes of any ongoing tax audits could have a material impact on our future tax provisions in the periods in which these changes could occur. In particular, a significant part of the increase in the deferred tax assets was recorded in relation to net operating losses incurred in ST-Ericsson joint-venture. These net operating losses will expire in seven years; currently, no valuation allowance was recorded at December 31, 2010 on the basis of the most updated business plans including its tax considerations. The future recoverability of these net operating losses is partly dependent on the successful market penetration of new product releases. We have received several design wins to support our forecasted recoverability of the deferred tax assets; however, negative developments in the new product roll-out could require adjustments to our evaluation of the deferred tax asset valuation.
Patent and other Intellectual Property(“IP”IP”) litigation or claims.claims. As is the case with many companies in the semiconductor industry, we have from time to time received, and may in the future receive, communicationcommunications alleging possible infringement of patents and other IP rights of third parties. Furthermore, we may become involved in costly
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We record a provision when we believe that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We regularly evaluate losses and claims with the support of our outside counsel to determine whether they need to be adjusted based on current information available to us. From timeSuch estimates are difficult to timethe extent that they are largely dependent on the status of ongoing litigation that may vary based on positions taken by the Court with respect to issues submitted, demands of opposing parties, changing laws, discovery of new facts or other matters of fact or law. As of December 31, 2013, based on our current evaluation of ongoing litigation and claims we face, cases where contingent liability cannot readily be reasonably estimated.we have not estimated any amounts that could have a material impact on our results of operations and financial condition with respect to probable risks. We currently estimate that possible losses for known claims are in the range of $30 million to $50 million. In the event of litigation that is adversely determined with respect to our interests, or in the event that we need to change our evaluation of a potentialthird-party claim based on new evidence, facts or communications, unexpected rulings or changes in the law, this could have a material adverse effect on our results of operations or financial condition at the time it were to materialize. We are in discussion with several parties with respect to claims against us relating to possible infringement of other parties’ IP rights. We are also involved in severalcertain legal proceedings concerning such issues. See “Item 8. Financial Information — Legal Proceedings”.
and/or face an injunction, all of which singly or in the aggregate could have an adverse effect on our results of operation and our ability to compete.
There can be no assurance that all IP litigation or claims and other claims to which we are currently subject will be resolved in our favor or as currently anticipated. If the outcome of any claim or litigation were to be unfavorable to us, we could incur monetary damages, and/or face an injunction, all of which singly or in the aggregate could have an adverse effect on our results of operations and our ability to compete.
Pension andPost-Employment Benefits. Our results of operations and our Consolidated Balance Sheets include amounts for pension obligations andpost-employment benefits that are measured using actuarial valuations. At December 31, 2013, our pension andpost-employment benefit obligations net of plan assets amounted to $366 million. These valuations are based on key assumptions, including discount rates, expectedlong-term rates of return on funds, turnover rates and salary increase rates. These assumptions used in the determination of the net periodic benefit cost are updated on an annual basis at the beginning of each fiscal year or more frequently upon the occurrence of significant events. Any changes in the pension schemes or in the above assumptions can have an impact on our valuations. The measurement date we use for our plans is December 31.
As a consequence of our decision to downsize our UK operations, we have proposed that the UK pension schemes (the Bristol Scheme and the Marlow Scheme) be merged, which will generate moderate funding savings and provide the Trustees with additional security through a larger and stronger principal employer. The merger of the two schemes is still under discussion with the Trustees and is not expected to materially change our pension liabilities.
Fiscal Year 20102013
Under Article 35 of our Articles of Association, our financial year extends from January 1 to December 31, which is the period end of each fiscal year. The first quarter of 20102013 ended on March 27, 2010.30, 2013. The second quarter of 20102013 ended on June 26, 201029, 2013 and the third quarter of 20102013 ended on September 25, 2010.28, 2013. The fourth
quarter of 20102013 ended on December 31, 2010.2013. Based on our fiscal calendar, the distribution of our revenues and expenses by quarter may be unbalanced due to a different number of days in the various quarters of the fiscal year.
In 20112014 the first quarter will end on April 2,March 29, the second quarter will end on July 2,June 28, the third quarter will end on October 1September 27 and the fourth quarter will end on December 31.
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The total available market is defined as the “TAM”, while the serviceable available market, the “SAM”, is defined as the market for products produced by us (which consists of the TAM and excludes PC motherboard major devices such as Microprocessors (“MPUs”), DRAMs, optoelectronics devices and Flash Memory).
Based on published industry data by WSTS, semiconductor industry revenues increased in 20102013 on ayear-over-year basis by approximately 32%5% for the TAM and 26% for the SAM to reach about $306 billion. The SAM declined by approximately $298 billion and $171 billion, respectively.2% to reach about $139 billion. In the fourth quarter, the TAM and the SAM decreased approximately 4% and 2% sequentially, while increasingincreased on ayear-over-year basis by 12%approximately 8% and 14%3%, respectively.
With reference to our business performance, in 20102013, we registered a solid progressiondecline of 4.8% in terms of revenues with particularly strong results noted byas a consequence of our exit fromST-Ericsson. Excluding the ACCI and IMSWireless product segments. Our yearlyline, our revenues increased to $10,346 million, our highest ever net revenues, resulting in3.2%, a 21.6% increase over 2009; thisbetter performance was belowthan the SAM, as a combination of IMSwith the main contributions coming from our microcontrollers and ACCI growing faster than their servedautomotive products. We also made good progress on our customer diversification, mass market and Wireless decliningdistribution initiatives, with no customers above 10% and an increase of revenues in distribution, which was up by approximately 3 percentage points, reaching a growing market due to product portfolio transition.
On ayear-over year basis, our revenues decreased by 6.8%, which is the result of an increase of 4.2% in our SP&A segment whereas our EPS segment decreased 19.4%, mainly driven by the phasing out of the Wireless product line and weak demand forset-top box legacy products in the Digital Convergence product line. Excluding the Wireless product line, on ayear-over-year basis, our revenues in the fourth quarter of 2013 increased by 3.9% and sequential basisEPS revenues by 9.7% and 6.6%, respectively, as they continued to benefit from strong demand from our customers, mainly in Automotive and Industrial and Multi segment sectors. Compared to the SAM, our sequential performance was significantly better, although it was lower on ayear-over-year5.0%. basis.
Our effective average exchange rate for 20102013 and 2012 was $1.36$1.31 for €1.00 compared to $1.37 for €1.00 for 2009.€1.00. Our effective average exchange rate for the fourth quarter of 20102013 was $1.34 for €1.00, same ascompared to $1.31 for €1.00 for the third quarter of 20102013 and compared to $1.43$1.30 for €1.00 in the fourth quarter of 2009.2012. For a more detailed discussion of our hedging arrangements and the impact of fluctuations in exchange rates, see “Impact of Changes in Exchange Rates” below.
Our 20102013 gross margin reached 38.8%was 32.3% of revenues, increasingdecreasing by 7.9 percentage50 basis points compared to the prior year. The main factors contributingyear, primarily due to the improvement during 2010 were: (i) higher sales volumenegative impact of selling prices and consequently,lower technology licensing revenues, partially offset by improved manufacturing efficiencies, lower unused capacity charges and the improved loadingabsence of our fabs, while the 2009$53 millionone-time charge related to the 2012 arbitration award to NXP. Our fourth quarter 2013 gross margin was penalized32.9%, increasing by approximately 4 percentage50 basis points on a sequential basis, reflecting improved manufacturing efficiencies, partially offset by a negative currency effect, the negative impact of selling prices and a higher amount of unused capacity charges; (ii) overall improvement in our manufacturing efficiencies resulting from our cost optimization initiatives and restructuring plans; and (iii) new product introductions in several of our product lines.
In 2013, we made solid progress in executing the strategy we announced in December 2012 but we still have much to 39.9%,accomplish. We completed the split up sequentiallyofST-Ericsson in a timely manner and on ayear-over-year basis, by 70 and 290 basis points, respectively.
Impairment and restructuring charges significantly decreased to $292 million from $1,376 million in 2012 mainly due to lower impairment charges. 2012 included a $1,234 millionnon-cash impairment charge on Wireless goodwill and other intangible assets.
Our operating losses were $465 million in 2013, improving compared to the researchloss of $2,081 million in 2012. The improvement in our operating losses in 2013 was mainly driven by our reduction of operating expenses and development activities.
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System-on-Chips for3-D and connected TVs, MEMS microphones and pressure sensors and advanced analog products for medical and smart grid applications. Also, ST-Ericsson will ramp new products, such as their thin modem and, in the second half of the year, U8500 smartphone platforms.
While the semiconductor market did not perform as expected in 2013, we are encouraged by the positivemacro-economic signs and by the market dynamics expected in 2014. We are well positioned to capture opportunities and to continue to grow faster than the market we serve as we focus on product leadership in Sense & Power and Automotive and in Embedded Processing.
In 2014, we plan to advance towards our operating margin target of about 10%, expected bymid-2015, based on a combination of revenue growth, gross margin improvement and reduction of net expenses towards the low end of our target range.
We expect theNano-2017 R&D grants to become effective in the first quarter of 2014, subject to the approval by the European Union. There is no guarantee that the program will be approved or if it is approved, that there will be no modifications that could negatively affect the R&D program, all of which could have a material adverse effect on our results of operations. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — If we fail to receive the necessary funding for our R&D program, we may have to reconsider our strategy, which could adversely impact our results of operations.”
This outlook is based on an assumed effective currency exchange rate of approximately $1.32 equal$1.35 to €1.00 €1.00for 2011the 2014 first quarter.quarter and includes the impact of existing hedging contracts. The first quarter will close on April 2, 2011.
These areforward-looking statements that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially;materially; in particular, refer to those known risks and uncertainties described in “Cautionary“Cautionary Note RegardingForward-Looking Statements” Statements” and“Item 3. Key Information — Risk Factors” herein.
Other Developments
On March 11, 2013, were-asserted our MEMS technology and Item 3. “Key Information— Risk Factors” herein.
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On May 28, 2013, we announced that ST-Ericsson sold the assets and intellectual property rights associated with its mobile connectivity Global Navigation Satellite System business to a leading semiconductor company.
In addition to the assets and intellectual property rights associated with this business, a world class team of 130 industry veterans located in Daventry (UK), Bangalore (India) and Singapore joined the buyer at closing of the transaction which occurred in August 2013. A gain of $66 million has been registered in our consolidated financial statements. On August 5, 2013, we and Ericsson announced the closing of the Numonyx transaction, Numonyx would take oversplit up of ST-Ericsson, less than nine months after we announced our strategic plan. We have taken on some of the existing ST-Ericsson products as well as certain assembly and test facilities. In total, approximately 1,000 employees have joined STMicroelectronics.
On March 17, 2013, we repaid with available cash the residual outstanding 2013 Senior Bonds.
On March 26, 2013, we signed a new Euro 350 million loan agreement with the European Investment Bank (“EIB”). The facility, with final maturity eight years after disbursement, was fully drawn by us in the fourth quarter of 2013 in U.S. dollars. This new facility supports our activities in R&D and innovation related to the design and realization of the next generation of technologies and electronic devices.
On May 21, 2013, we announced our leadership of Places2Be, a3-year, €360 millionadvanced-technologypilot-line project with the participation of 18 other leading European companies and academic institutions to support the industrialization ofFully-DepletedSilicon-On-Insulator(FD-SOI) microelectronics technology. Places2Be (“Pilot Lines for Advanced CMOS Enhanced by SOI in 2x nodes, Built in Europe”) aims to support the deployment of anFD-SOI pilot line at28-nm and the subsequent node, as well as a dual source that will enable volume manufacturing in Europe. Places2Be will drive the creation of a European microelectronics design ecosystem using thisFD-SOI platform and explore the path towards the next step for this technology (14/10-nm).
On June 17, 2013, we announced that we had signed a comprehensive agreement with Rambus Inc. expanding existing licenses between the two companies, settling all or partoutstanding claims, and committing both organizations to explore additional opportunities for collaboration. The multifaceted agreement gives Rambus access to ourFully-Depleted Silicon On Insulator(FD-SOI)process-technology design environment while giving us secured license terms from the Cryptography Research, Inc. (CRI) division of Rambus that makes it possible for us to expand deployment of security technology for banking, identity, PayTV, video gaming, smartphones, and government, across a wider range of products.
Our Annual General Meeting of Shareholders was held on June 21, 2013 in Amsterdam and, among others, the following decisions were adopted by our Shareholders:
The adoption of our obligations under2012 Statutory Annual Accounts prepared in accordance with International Financial Reporting Standards (IFRS);
The distribution of a semi-annual cash dividend of US$0.10 in the guarantee. On May 31, 2010, Numonyx notified us that on May 28, 2010, Hynix had delivered a call option exercise noticesecond quarter of 2013, and of US$0.10 in the third quarter of 2013, per common share, to them. Following these events, our $250 million depositbe paid in favorJune and September of 2013;
Approval of thestock-based portion of the Numonyx-Hynix joint venture was released to us on August 31, 2010, upon the completioncompensation of Hynix’s purchaseour President and CEO;
The appointment of Numonyx’s equity interest in the Hynix-Numonyx Joint Venture.
The reappointment of Mr. Alessandro Ovi as member of the Supervisory Board for a three-year term, expiring at the 2016 Annual General Meeting of Shareholders;
The amendment of the compensation scheme of the Supervisory Board;
The approval of a new four-year Unvested Stock Award Plan for Management and Key Employees; and
Authorization to our Managing Board, for eighteen months as of our 2013 Annual General Meeting, to repurchase our shares, subject to the approval of our Supervisory Board.
On July 22, 2013, we announced theNano-2017 Research and Development program, afive-yearpublic-private strategic R&D program led by us to further advance our leadership in New York denied Credit Suisse’s motionkey embedded processing solutions and technologies. The project draws support from a broad coalition of French national, regional and local authorities as well as by the European community through the ENIAC Joint Technology Initiative. Funding for the program is subject to vacateapproval by the award, also grantingEuropean Commission. Ultimately,Nano-2017 strengthens our petition to affirmleadership in such key technologies asFD-SOI(low-power,high-performance processing),next-generation imaging (sensors and image signal processors), andnext-generation embeddednon-volatile memories. These technologies are at the awardcore of our embedded processing solutions which include microcontrollers, imaging solutions, digital consumer products, application processors and directing Credit Suisse to pay usdigital ASICs.
On July 24, 2013, we announced the unpaid balance. Basedpublication of our 2012 Sustainability Report. Our sixteenth annual Sustainability Report contains comprehensive details of our Sustainability strategy, policies and performance during 2012.
On December 2, 2013, we announced that our Shareholders had adopted all resolutions proposed at the Extraordinary General Meeting (“EGM”) held on December 2, 2013:
The distribution of a cash dividend of US$0.10 per common share for each of the ruling we should receive approximately $357 million, which includes approximately $27 millionfourth quarter of interest to date,2013 and first quarter of 2014; and
An amendment of our Articles of Association authorizing the Supervisory Board, in addition to the approximately $75 million previously received in DecemberGeneral Meeting of Shareholders, to resolve upon selling a portionthe distribution of these securities. On March 31, 2010,quarterly dividends from the New York Court for the Southern District issued a judgment confirming the March 19, 2010 order and closing the case. On August 24, 2010, the New York Court for the Southern District issued a judgment confirming the ruling of March 2010, which was subsequently appealed by Credit Suisse. After filing the required supersedeas bond, Credit Suisse filed on September 21, 2010 a motion of appeal to the US Court of Appealreserves of the Second Circuit, and three days later we filed a motion for an expedited appeal. On February 24, 2011, we received notice thatCompany. Immediately after the US CourtEGM was held, the Articles of Appeals for the Second Circuit has fixed March 28, 2011 as the trial date.
49
Results of Operations
Segment Information
We operate in two business areas: Semiconductors and Subsystems.
In the Semiconductors business area, we design, develop, manufacture and market a broad range of products, including discrete and standard commodity components,application-specific integrated circuits (“ASICs”),full-custom devices andsemi-custom devices andapplication-specific standard products (“ASSPs”) for analog, digital andmixed-signal applications. In addition, we further participate in the manufacturing value chain of Smartcard products, through our divisions, which include the production and sale of both silicon chips and Smartcards.
Effective January 1, 2013, our segment reporting reflects our strategy announced on December 10, 2012. Our strategy takes into account the evolution of the markets we are in and the environment we see in the years to come and is based on our leadership in our two product segments, supported by a Sales & Marketing organization with a particular focus on our major accounts, as well as expanding our penetration of the mass market and focusing on five growth drivers: Automotive Products, Application Processors, including Digital Consumer Products, MEMS and Sensors, Microcontrollers and Smart cards.
Our segments are as follows:
Sense & Power and Automotive Products (SP&A), including the following product lines: |
50
Industrial & Power Discrete (IPD);
Analog & MEMS (AMS); and
Other SP&A;
Embedded Processing Solutions (EPS), comprised of the following product lines:
Digital Convergence Group (DCG);
Imaging, BiCMOS ASIC and Silicon Photonics (IBP);
Microcontrollers, Memory & Security (MMS);
Wireless (WPS); and
Other EPS.
In 2013, we report the portion of sales and operating results of ST-Ericsson JVS as consolidated in our revenue and operating results; and
In the Subsystems business area, we design, develop, manufacture and market subsystems and modules for the telecommunications, automotive and industrial markets including mobile phone accessories, battery chargers, ISDN power supplies andin-vehicle equipment for electronic toll payment. Based on its immateriality to our business as a whole, the Subsystems segmentbusiness area does not meet the requirements for a reportable segment as defined in the guidance on disclosures about segments of an enterprise and related information.
The following tables present our consolidated net revenues and consolidated operating income (loss) by product segment. For the computation of the segments’ internal financial measurements, we use certain internal rules of allocation for the costs not directly chargeable to the segments, including cost of sales, selling, general and administrative (“SG&A”) expenses and a significant part of research and development (“R&D”) expenses. Additionally, inIn compliance with our internal policies, certain cost items are not charged to the segments, including unused capacity charges, impairment, restructuring charges and other related closure costs, includingST-Ericsson plans, unused capacity charges,phase-out andstart-up and phase out costs of certain manufacturing facilities, certainone-time corporate items such as the 2012 NXP arbitration award charge, strategic and special R&D programs or othercorporate-sponsored initiatives, including certain corporate levelcorporate-level operating expenses acquired IP R&D, other non-recurrent purchase accounting items and certain other miscellaneous charges.
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In millions) | ||||||||||||
Net revenues by product segments: | ||||||||||||
Automotive Consumer Computer and Communication Infrastructure (“ACCI”)(1) | $ | 4,169 | $ | 3,152 | $ | 4,055 | ||||||
Industrial and Multi segment Sector (“IMS”) | 3,899 | 2,687 | 3,403 | |||||||||
Wireless | 2,219 | 2,585 | 2,030 | |||||||||
Others(2) | 59 | 86 | 55 | |||||||||
Flash Memory Group (“FMG”) | — | — | 299 | |||||||||
Total consolidated net revenues | $ | 10,346 | $ | 8,510 | $ | 9,842 | ||||||
51
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(In millions) | ||||||||||||
Net revenues by product line and product segment: | ||||||||||||
Automotive (APG) | $ | 1,668 | $ | 1,554 | $ | 1,678 | ||||||
Industrial & Power Discrete (IPD) | 1,801 | 1,747 | 2,104 | |||||||||
Analog & MEMS (AMS) | 1,306 | 1,320 | 1,335 | |||||||||
Other SP&A | — | 1 | 3 | |||||||||
Sense & Power and Automotive Products (SP&A) | 4,775 | 4,622 | 5,120 | |||||||||
Digital Convergence Group (DCG) | 735 | 888 | 1,084 | |||||||||
Imaging, BiCMOS ASIC and Silicon Photonics (IBP) | 462 | 437 | 722 | |||||||||
Microcontrollers, Memory & Security (MMS) | 1,367 | 1,147 | 1,175 | |||||||||
Wireless (WPS) | 704 | 1,345 | 1,552 | |||||||||
Other EPS | 1 | 9 | 33 | |||||||||
Embedded Processing Solutions (EPS) | 3,269 | 3,826 | 4,566 | |||||||||
Others(1) | 38 | 45 | 49 | |||||||||
Total consolidated net revenues | �� | $ | 8,082 | $ | 8,493 | $ | 9,735 |
(1) | ||
In |
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In millions) | ||||||||||||
Net revenues by product lines: | ||||||||||||
Automotive Products Group (“APG”)(1) | $ | 1,420 | $ | 1,005 | $ | 1,386 | ||||||
Computer and Communication Infrastructure (“CCI”) | 1,125 | 932 | 1,077 | |||||||||
Home Entertainment & Displays (“HED”) | 1,006 | 787 | 1,086 | |||||||||
Imaging (“IMG”) | 569 | 417 | 499 | |||||||||
Others | 49 | 11 | 7 | |||||||||
Automotive Consumer Computer and Communication Infrastructure (“ACCI”) | 4,169 | 3,152 | 4,055 | |||||||||
Analog, Power and Micro-Electro-Mechanical Systems (“APM”) | 2,714 | 1,887 | 2,393 | |||||||||
Microcontrollers, non-Flash, non-volatile Memory and Smartcard products (“MMS”)(1) | 1,181 | 798 | 1,010 | |||||||||
Others | 4 | 2 | — | |||||||||
Industrial and Multisegment Sector (“IMS”) | 3,899 | 2,687 | 3,403 | |||||||||
2G, EDGE TD-SCDMA & Connectivity | 956 | 1,027 | 737 | |||||||||
3G Multimedia & Platforms | 1,223 | 1,529 | 1,293 | |||||||||
LTE & 3G Modem Solutions | 35 | 18 | — | |||||||||
Others | 5 | 11 | — | |||||||||
Wireless | 2,219 | 2,585 | 2,030 | |||||||||
Others | 59 | 86 | 55 | |||||||||
Flash Memory Group (“FMG”) | — | — | 299 | |||||||||
Total consolidated net revenues | $ | 10,346 | $ | 8,510 | $ | 9,842 | ||||||
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(In millions) | ||||||||||||
Operating income (loss) by product segment: | ||||||||||||
Sense & Power and Automotive Products (SP&A) | $ | 270 | $ | 409 | $ | 757 | ||||||
Embedded Processing Solutions (EPS)(1) | (399 | ) | (883 | ) | (489 | ) | ||||||
Others(2) | (336 | ) | (1,607 | ) | (222 | ) | ||||||
Total consolidated operating income (loss) | $ | (465 | ) | $ | (2,081 | ) | $ | 46 | ||||
(As a percentage of net revenues) | ||||||||||||
Operating income (loss) by product segment: | ||||||||||||
Sense & Power and Automotive Products (SP&A)(3) | 5.7 | % | 8.8 | % | 14.8 | % | ||||||
Embedded Processing Solutions (EPS)(1)(3) | (12.2 | )% | (23.1 | )% | (10.7 | )% | ||||||
Others(2) | — | — | — | |||||||||
Total consolidated operating income (loss)(4) | (5.8 | )% | (24.5 | )% | 0.5 | % |
(1) | ||
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In millions) | ||||||||||||
Operating income (loss) by product segment: | ||||||||||||
Automotive Consumer Computer and Communication Infrastructure (“ACCI”) | $ | 410 | $ | (69 | ) | $ | 142 | |||||
Industrial and Multisegment Sector (“IMS”) | 681 | 91 | 476 | |||||||||
Wireless(1) | (483 | ) | (356 | ) | (65 | ) | ||||||
Others(2) | (132 | ) | (689 | ) | (767 | ) | ||||||
Operating income (loss) excluding FMG | 476 | (1,023 | ) | (214 | ) | |||||||
Flash Memory Group (“FMG”) | — | — | 16 | |||||||||
Operating income (loss) | $ | 476 | $ | (1,023 | ) | $ | (198 | ) |
The majority of Wireless’ activities |
(2) | Operating loss of “Others” includes items such as |
52
special R&D programs, |
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(As percentage of net revenues) | ||||||||||||
Operating income (loss) by product segment: | ||||||||||||
Automotive Consumer Computer and Communication Infrastructure (“ACCI”)(1) | 9.8 | % | (2.2 | )% | 3.5 | % | ||||||
Industrial and Multisegment Sector (“IMS”)(1) | 17.5 | 3.4 | 14.0 | |||||||||
Wireless(1) | (21.8 | ) | (13.8 | ) | (3.2 | ) | ||||||
Others(2) | — | — | — | |||||||||
Flash Memory Group (“FMG”) | — | — | 5.4 | |||||||||
Total consolidated operating income (loss)(3) | 4.6 | % | (12.0 | )% | (2.0 | )% |
(3) | ||
As a percentage of net revenues per product segment. |
(4) | ||
As a percentage of total net revenues. |
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In millions) | ||||||||||||
Reconciliation to consolidated operating income (loss): | ||||||||||||
Total operating income (loss) of product segments | $ | 608 | $ | (334 | ) | $ | 553 | |||||
Total operating income FMG | — | — | 16 | |||||||||
Unused capacity charges | (3 | ) | (322 | ) | (57 | ) | ||||||
Impairment, restructuring charges and other related closure costs | (104 | ) | (291 | ) | (481 | ) | ||||||
Start-up/phase-out costs | (15 | ) | (39 | ) | (17 | ) | ||||||
Strategic and other research and development programs | (18 | ) | (22 | ) | (24 | ) | ||||||
Acquired In-Process R&D and other non recurring purchase accounting items | — | — | (185 | ) | ||||||||
Other non-allocated provisions(1) | 8 | (15 | ) | (3 | ) | |||||||
Total operating loss Others | (132 | ) | (689 | ) | (767 | ) | ||||||
Total consolidated operating income (loss) | $ | 476 | $ | (1,023 | ) | $ | (198 | ) |
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(In millions) | ||||||||||||
Reconciliation to consolidated operating income (loss): | ||||||||||||
Total operating income (loss) of product segments | $ | (129 | ) | $ | (474 | ) | $ | 268 | ||||
Unused capacity charges | (32 | ) | (172 | ) | (149 | ) | ||||||
Impairment, restructuring charges and other related closure costs | (292 | ) | (1,376 | ) | (75 | ) | ||||||
Strategic and other research and development programs | (15 | ) | (12 | ) | (13 | ) | ||||||
Phase-out and start-up costs | (5 | ) | — | (8 | ) | |||||||
NXP arbitration award | — | (54 | ) | — | ||||||||
Othernon-allocated provisions(1) | 8 | 7 | 23 | |||||||||
Total operating loss Others | (336 | ) | (1,607 | ) | (222 | ) | ||||||
Total consolidated operating income (loss) | $ | (465 | ) | $ | (2,081 | ) | $ | 46 |
(1) | ||
Includes unallocated income and expenses such as certain |
Net revenues by location of order shipment and by market segmentchannel
The table below sets forth information on our net revenues by location of order shipment:
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In millions) | ||||||||||||
Net Revenues by Location of Order Shipment:(1) | ||||||||||||
EMEA | $ | 2,592 | $ | 2,413 | $ | 3,024 | ||||||
Americas | 1,331 | 1,015 | 1,334 | |||||||||
Greater China — South Asia | 4,558 | 3,457 | 3,928 | |||||||||
Japan-Korea | 1,865 | 1,625 | 1,556 | |||||||||
Total | $ | 10,346 | $ | 8,510 | $ | 9,842 |
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(In millions) | ||||||||||||
Net Revenues by Location of Shipment:(1) | ||||||||||||
EMEA | $ | 1,958 | $ | 2,100 | $ | 2,328 | ||||||
Americas | 1,221 | 1,253 | 1,342 | |||||||||
GreaterChina-South Asia | 3,400 | 3,555 | 4,359 | |||||||||
Japan-Korea | 1,503 | 1,585 | 1,706 | |||||||||
Total | $ | 8,082 | $ | 8,493 | $ | 9,735 |
(1) | ||
Net revenues by location of |
53
classified as Greater |
The table below shows our net revenues by location of order shipment and market segment applicationchannel in percentage of net revenues:
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(As percentage of net revenues) | ||||||||||||
Net Revenues by Location of Order Shipment:(1) | ||||||||||||
EMEA | 25.0 | % | 28.4 | % | 30.7 | % | ||||||
Americas | 12.9 | 11.9 | 13.6 | |||||||||
Greater China — South Asia | 44.1 | 40.6 | 39.9 | |||||||||
Japan-Korea | 18.0 | 19.1 | 15.8 | |||||||||
Total | 100.0 | 100.0 | 100.0 | |||||||||
Net Revenues by Market Segment Application:(2) | ||||||||||||
Automotive | 14.0 | 12.2 | 13.8 | |||||||||
Computer | 13.0 | 12.9 | 12.0 | |||||||||
Consumer | 12.2 | 11.5 | 13.6 | |||||||||
Telecom | 31.8 | 39.9 | 33.3 | |||||||||
Industrial and Other | 8.1 | 7.7 | 9.0 | |||||||||
Distribution | 20.9 | 15.8 | 18.3 | |||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % |
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(As percentage of net revenues) | ||||||||||||
Net Revenues by Market Channel:(1) | ||||||||||||
OEM | 74.4 | 77.6 | 77.3 | |||||||||
Distribution | 25.6 | 22.4 | 22.7 | |||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % |
(1) | ||
Original Equipment Manufacturers (“OEM”) are | ||
54
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(As percentage of net revenues) | ||||||||||||
Net sales | 99.2 | % | 99.5 | % | 99.5 | % | ||||||
Other revenues | 0.8 | 0.5 | 0.5 | |||||||||
Net revenues | 100.0 | 100.0 | 100.0 | |||||||||
Cost of sales | (61.2 | ) | (69.1 | ) | (63.8 | ) | ||||||
Gross profit | 38.8 | 30.9 | 36.2 | |||||||||
Selling, general and administrative | (11.4 | ) | (13.6 | ) | (12.0 | ) | ||||||
Research and development | (22.7 | ) | (27.8 | ) | (21.9 | ) | ||||||
Other income and expenses, net | 0.9 | 1.9 | 0.6 | |||||||||
Impairment, restructuring charges and other related closure costs | (1.0 | ) | (3.4 | ) | (4.9 | ) | ||||||
Operating income (loss) | 4.6 | (12.0 | ) | (2.0 | ) | |||||||
Other-than-temporary impairment charge and realized losses on financial assets | — | (1.6 | ) | (1.4 | ) | |||||||
Interest income (expense), net | 0.0 | 0.1 | 0.5 | |||||||||
Earnings (loss) on equity investments and gain on investment divestiture | 2.3 | (4.0 | ) | (5.6 | ) | |||||||
Gain (loss) on financial instruments, net | (0.2 | ) | (0.1 | ) | 0.2 | |||||||
Income (loss) before income taxes and noncontrolling interest | 6.7 | (17.6 | ) | (8.3 | ) | |||||||
Income tax benefit expense | (1.5 | ) | 1.1 | 0.4 | ||||||||
Income (loss) before noncontrolling interest | 5.2 | (16.5 | ) | (7.9 | ) | |||||||
Net loss (income) attributable to noncontrolling interest | 2.8 | 3.2 | (0.1 | ) | ||||||||
Net income (loss) attributable to parent company | 8.0 | % | (13.3 | )% | (8.0 | )% |
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(As percentage of net revenues) | ||||||||||||
Net sales | 99.6 | % | 98.7 | % | 98.9 | % | ||||||
Other revenues | 0.4 | 1.3 | 1.1 | |||||||||
Net revenues | 100.0 | 100.0 | 100.0 | |||||||||
Cost of sales | (67.7 | ) | (67.2 | ) | (63.3 | ) | ||||||
Gross profit | 32.3 | 32.8 | 36.7 | |||||||||
Selling, general and administrative | (13.2 | ) | (13.8 | ) | (12.4 | ) | ||||||
Research and development | (22.5 | ) | (28.4 | ) | (24.1 | ) | ||||||
Other income and expenses, net | 1.2 | 1.1 | 1.1 | |||||||||
Impairment, restructuring charges and other related closure costs | (3.6 | ) | (16.2 | ) | (0.8 | ) | ||||||
Operating income (loss) | (5.8 | ) | (24.5 | ) | 0.5 | |||||||
Other-than-temporary impairment charge and realized gain on financial assets | — | — | 3.3 | |||||||||
Interest expense, net | 0.0 | (0.4 | ) | (0.3 | ) | |||||||
Loss onequity-method investments | (1.5 | ) | (0.3 | ) | (0.3 | ) | ||||||
Gain on financial instruments, net | — | 0.0 | 0.3 | |||||||||
Income (loss) before income taxes and noncontrolling interest | (7.3 | ) | (25.2 | ) | 3.5 | |||||||
Income tax expense | (0.5 | ) | (0.6 | ) | (1.9 | ) | ||||||
Net income (loss) | �� | (7.8 | ) | (25.8 | ) | 1.6 | ||||||
Net loss (income) attributable to noncontrolling interest | 1.6 | 12.2 | 5.1 | |||||||||
Net income (loss) attributable to parent company | (6.2 | )% | (13.6 | )% | 6.7 | % |
20102013 vs. 20092012
Net Revenuesrevenues
Year Ended December 31, | ||||||||||||
2010 | 2009 | % Variation | ||||||||||
(Audited, in millions) | ||||||||||||
Net sales | $ | 10,262 | $ | 8,465 | 21.2 | |||||||
Other revenues | 84 | 45 | 87.1 | |||||||||
Net revenues | $ | 10,346 | $ | 8,510 | 21.6 |
Year Ended December 31, | % Variation | |||||||||||
2013 | 2012 | Year-Over-Year | ||||||||||
(In millions) | ||||||||||||
Net sales | $ | 8,050 | $ | 8,380 | (3.9 | )% | ||||||
Other revenues | 32 | 113 | (71.5 | ) | ||||||||
Net revenues | $ | 8,082 | $ | 8,493 | (4.8 | )% |
Our 2013 net revenues reached a record $10,346 million, increasing 21.6%decreased compared to prior year, astheyear-ago period, mainly due to our decision to exit fromST-Ericsson, less favorable market conditions and a resultlower level of licenses. Net revenues decreased by 4.8% with a broad product portfolio and significantly better industry conditions. In 2010, we recognized $84 million in other revenues, mainly consistingdecrease of the proceeds from the licensing of CMOS technologies which accounted for $57 million. The revenue increase was entirely driven by volume, which accounted for an approximate 31% increase, partially balanced by an approximateapproximately 9% decline in average selling prices. The sellingprices of which approximately 6% was due to a pure price decrease resulted fromeffect and 3% was due to a less favorable product mix, partially offset by an increase of approximately 4% in volume. In 2013, net revenues excluding the Wireless product line increased by 3.2%.
SP&A registered an increase of approximately 3%, while EPS revenues were down by approximately 15%. Within SP&A, all product lines except AMS increased their revenues with APG up by approximately 7% and IPD up by approximately 3%. Within EPS, Wireless product line sales registered a decline of approximately 48%, following thewind-down of theST-Ericsson joint venture while DCG decreased by approximately 17%. IBP and MMS increased by about 6% and 19%, respectively, compared to the prior year.
By market channel, our revenues registered an increase in Distribution, which was up by approximately 3 percentage points, reaching a 26% share of total revenues. By location of shipment, all regions were negatively impacted mainly by the exit ofST-Ericsson. In 2013 and 2012, no customer exceeded 10% of our total net revenues.
Gross profit
Year Ended December 31, | % Variation | |||||||||||
2013 | 2012 | Year-Over-Year | ||||||||||
(In millions) | ||||||||||||
Cost of sales | $ | (5,468 | ) | $ | (5,710 | ) | 4.2 | % | ||||
Gross profit | 2,614 | 2,783 | (6.1 | ) | ||||||||
Gross margin (as percentage of net revenues) | 32.3 | % | 32.8 | % | — |
In 2013, gross margin was 32.3%, decreasing by 50 basis points compared to the prior year, mainly due to the negative pricing impact of approximately 6%selling prices, lower technology licensing revenues and a less favorable product mix, impact of 3% due to a strong volume increase in IMS and ACCI coupled with a volume decrease in Wireless.
55
Year Ended December 31, | ||||||||||||
2010 | 2009 | % Variation | ||||||||||
(Audited, in millions) | ||||||||||||
Cost of sales | $ | (6,331 | ) | $ | (5,884 | ) | (7.6 | ) | ||||
Gross profit | 4,015 | 2,626 | 52.9 | |||||||||
Gross margin (as a percentage of net revenues) | 38.8 | % | 30.9 | % |
Selling, general and administrative expenses
Year Ended December 31, | ||||||||||||
2010 | 2009 | % Variation | ||||||||||
(Audited, in millions) | ||||||||||||
Selling, general and administrative expenses | $ | (1,175 | ) | $ | (1,159 | ) | (1.4 | ) | ||||
As a percentage of net revenues | (11.4 | )% | (13.6 | )% |
Year Ended December 31, | % Variation | |||||||||||
2013 | 2012 | Year-Over- Year | ||||||||||
(In millions) | ||||||||||||
Selling, general and administrative expenses | $ | (1,066 | ) | $ | (1,166 | ) | 8.6 | % | ||||
As percentage of net revenues | (13.2 | )% | (13.8 | )% | — |
The amount of our selling, generalSG&A expenses decreased in 2013, mainly associated with the exit ofST-Ericsson and administrative expenses registered a slight increaseour cost savings initiatives. Ourshare-based compensation charges were $13 million in 20102013, compared to $6 million in dollar terms, they decreased as2012.
As a percentage of revenues, from 13.6%our SG&A expenses amounted to 13.2% in 2009 to 11.4% in 2010, as leveraged by the higher revenues.
Research and development expenses
Year Ended December 31, | ||||||||||||
2010 | 2009 | % Variation | ||||||||||
(Audited, in millions) | ||||||||||||
Research and development expenses | $ | (2,350 | ) | $ | (2,365 | ) | 0.6 | |||||
As a percentage of net revenues | (22.7 | )% | (27.8 | )% |
Year Ended December 31, | % Variation | |||||||||||
2013 | 2012 | Year-Over- Year | ||||||||||
(In millions) | ||||||||||||
Research and development expenses | $ | (1,816 | ) | $(2,413) | 24.7 | % | ||||||
As percentage of net revenues | (22.5 | )% | (28.4 | )% | — |
Ouryear-over-year 2013 R&D expenses remained basically flatdecreased compared to 2012, mainly due to the exit ofST-Ericsson and our ongoing cost saving measures and restructuring initiatives, mainly in the ST-Ericsson perimeter, while maintaining our commitment to invest insavings initiatives. Our 2013 R&D activities. The R&D expense to sales ratio was at about 23% of revenues in 2010, also reflecting the current effort in product transition in Wireless.
As a percentage of revenues, 2013 R&D equaled 22.5%, decreasing compared to 28.4% in the prior year.
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Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
(Audited, in millions) | ||||||||
Research and development funding | $ | 106 | $ | 202 | ||||
Start-up/phase-out costs | (15 | ) | (39 | ) | ||||
Exchange gain, net | 11 | 11 | ||||||
Patent costs, net of gain from settlement | (12 | ) | (5 | ) | ||||
Gain on sale of long-lived assets, net | 4 | 3 | ||||||
Other, net | (4 | ) | (6 | ) | ||||
Other income and expenses, net | $ | 90 | $ | 166 | ||||
As a percentage of net revenues | 0.9 | % | 2.0 | % |
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
(In millions) | ||||||||
Research and development funding | $ | 57 | $ | 102 | ||||
Phase-out andstart-up costs | (4 | ) | — | |||||
Exchange gain, net | 8 | 5 | ||||||
Patent costs | (40 | ) | (20 | ) | ||||
Gain on sale of businesses andnon-current assets | 83 | 9 | ||||||
Other, net | (9 | ) | (5 | ) | ||||
Other income and expenses, net | $ | 95 | $ | 91 | ||||
As percentage of net revenues | 1.2 | % | 1.1 | % |
start-up and phase-out costs and patent claim costs net of settlement agreements. Income from R&D funding was associated with our R&D projects, which, upon project approval, qualifyqualifies as funding on the basis of contracts with local government agenciesagencies. In 2013, we recognized an income, net, of $95 million, increasing compared to an income, net, of $91 million in locations where we pursue our activities. In 2010,2012, mainly due to the balancesale of these factors resultedbusinesses andnon-current assets associated with the Global Navigation Satellite System business in net incomeST-Ericsson and with the sale of $90 million, significantlyPortland Compiler Group in ST, partially offset by a lower than in the previous year, which benefitedamount of R&D funding. No grants from thecatch-upNano-2017 of funding related also to prior years. The 2010 amount also included a significant declineR&D program were recognized in 2013.
start-up and phase-out costs, benefiting from a more stabilized structure of our manufacturing activities.
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
(Audited, in millions) | ||||||||
Impairment, restructuring charges and other related closure costs | $ | (104 | ) | $ | (291 | ) |
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
(In millions) | ||||||||
Impairment, restructuring charges and other related closure costs | $ | (292 | ) | $ | (1,376 | ) |
In 2010,2013, we recorded $104$292 million of impairment and restructuring charges and other related closure costs, which were basically related to two plans: the manufacturing restructuring plan, which is expected to be completed in the second half of 2011, and the ST-Ericsson restructuring plan. The breakdown was as follows:
$88 million in restructuring charges related to our headcount reduction initiative targeting quarterly net operating expenses in the range of $600 to $650 million by the beginning of 2014;
$86 million in impairment and restructuring charges related to theST-Ericsson exit;
$56 million in impairment charges on the DCG goodwill and dedicated intangible assets following our yearly impairment test;
$37 million in impairment and restructuring charges related to the manufacturing consolidation plans;
$9 million in restructuring charges related to theST-Ericsson restructuring plans before deconsolidation;
$5 million impairment charge on Veredus as a result of the reclassification of its assets as Assets held for sale as of December 31, 2013. On January 13, 2014, we sold a 50% stake in Veredus shares to a third party investor; and
$11 million related to other restructuring initiatives.
In 2012, we recorded $1,376 million of impairment, restructuring charges and other related closure costs, of which: $1,234 million as anon-cash impairment on our Wireless goodwill and other intangible assets; $66 million related to theST-Ericsson restructuring plan announced in April 2012; $23 million related to the manufacturing restructuring plan as part of the closure of our Ain Sebaa (Morocco), Carrollton (Texas) and Phoenix (Arizona) sites, including $101 million of one-time termination benefits, as well as other relevant charges and $25 million as impairment charges on the fair value of Carrollton and Phoenix assets; $100sites; $21 million related to the newST-Ericsson restructuring plans previously announced in April2011 and December 2009 by ST-Ericsson, primarily consisting of on-going termination benefits pursuant2009; $20 million recorded in relation to the closure of certain locationsour Digital restructuring plan announced in Europe and the United States; $59October 2012; $8 million related to other ongoingrestructuring initiatives and newly committed restructuring plans, consisting primarily of voluntary termination benefits and early retirement arrangements in some of our European locations; and $6a $4 million as impairment charge on certain goodwill.
Operating income (loss)loss
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
(Audited, in millions) | ||||||||
Operating income (loss) | $ | 476 | $ | (1,023 | ) | |||
As a percentage of net revenues | 4.6 | % | (12.0 | )% |
57
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
(In millions) | ||||||||
Operating loss | $ | (465 | ) | $ | (2,081 | ) | ||
As percentage of net revenues | (5.8 | )% | (24.5 | )% |
SP&A registered operating income reached $476of $270 million significantly better than ouror approximately 6% of revenues, down from $409 million or about 9% of revenues, mainly as a consequence of increased operating expenses also following the reassignment to the segment of some resources fromST-Ericsson aimed to accelerate and improve product innovation for the segment. EPS registered an improvement in its operating loss from $883 million or approximately 23% of revenues to an operating loss of $1,023$399 million in 2009. In 2009, the high levelor about 12% of operating losses wasrevenues, mainly due to the sharp drop in revenues originated by the market downturn, the high amount of unused capacity charges associated with the lowreduced level of fab loadingoperating expenses as a consequence of the exit fromST-Ericsson and the higher amountgain from the sale of businesses only partially offset by reduced gross profit due to the lower revenues level. The segment “Others” decreased its losses to $336 million in 2013, from $1,607 million in 2012, mainly due to lower impairment and restructuring charges.
Other-than-temporary impairment charge and realized losses on financial assetsInterest expense, net
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
(Audited, in millions) | ||||||||
Other-than-temporary impairment charge and realized losses on financial assets | $ | 0 | $ | (140 | ) |
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
(In millions) | ||||||||
Interest expense, net | $ | (5 | ) | $ | (35 | ) |
other-than-temporary impairment charge or realized losses on financial assets as of December 31, 2010. The 2009 amount was related to another-than-temporary impairment of $72 million and a realized loss of $68 million, both linked to the portfolio of ARS purchased on our account by Credit Suisse contrary to our instruction. See “Liquidity and Capital Resources”.
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
(Audited, in millions) | ||||||||
Interest income (expense), net | $ | (3 | ) | $ | 9 |
Loss on equityequity-method investments
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
(In millions) | ||||||||
Loss onequity-method investments | $ | (122 | ) | $ | (24 | ) |
In 2013, we recorded a charge of $122 million, of which $104 million related to our share in 3Sun, which consisted of a $35 million operating loss and gain on investment divestiture$69 million asnon-cash
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
(Audited, in millions) | ||||||||
Loss on equity investments and gain on investment divestiture | $ | 242 | $ | (337 | ) |
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LossGain on financial instruments, net
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
(Audited, in millions) | ||||||||
Loss on financial instruments, net | $ | (24 | ) | $ | (5 | ) |
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
(In millions) | ||||||||
Gain on financial instruments, net | $ | — | $ | 3 |
The $24$3 million lossgain on financial instrumentsassets in 20102012 was mainly associated with the balance between (i) a loss of $15 million related to the net premium paid on financial contracts designated to hedge part of the disposal of our share in Numonyx; (ii) a loss of $3 million related to the sale of a senior Floating Rate Notes (“FRN”); (iii) a loss of $13 million related to the sale of shares of our equity participation in Micron; and (iv) a gain of $7$2 million related to the repurchase of our 2016 Convertible Bonds. In 2009, we registered a loss of $8Bonds and $1 million related to the sale of a cancellable swap purchased to hedge the fair value of a portion of the convertible bonds due 2016 carrying a fixed interest rate, partially balanced by a $3 million gain related to a partial repurchase of our 2016 Convertible Bonds.
Income tax benefit (expense)expense
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
(Audited, in millions) | ||||||||
Income tax benefit (expense) | $ | (149 | ) | $ | 95 |
Year Ended December 31, | ||||||||
2013 �� | 2012 | |||||||
(In millions) | ||||||||
Income tax expense | $ | (37 | ) | $ | (51 | ) |
During 2013, we registered an income tax expense of $149$37 million, reflecting the actual tax charge calculated on our income before income taxes in each of our jurisdictions. This expense included the recognition of deferred tax assets, potentialnet of valuation allowances, on our deferred tax assets associated with our estimates of the net operating loss recoverability in certain jurisdictions and our best estimate on additional tax charges related to potential uncertain tax positions. The 2009 benefit was reflecting thepositions and claims.
Net loss before taxes.
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
(In millions) | ||||||||
Net loss (income) attributable to noncontrolling interest | $ | 129 | $ | 1,030 | ||||
As percentage of net revenues | 1.6 | % | 12.2 | % |
NetIn 2013, we recorded $129 million loss attributable to noncontrolling interest, mainly relating to Ericsson’s interest in theST-Ericsson
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
(Audited, in millions) | ||||||||
Net loss attributable to noncontrolling interest | $ | 288 | $ | 270 | ||||
As a percentage of net revenues | 2.8 | % | 3.2 | % |
ownership in the losses of the consolidated ST-Ericsson JVS, while the corresponding 2009 amount was $276 million.
Net income (loss)loss attributable to parent company
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
(Audited, in millions) | ||||||||
Net income (loss) attributable to parent company | $ | 830 | $ | (1,131 | ) | |||
As a percentage of net revenues | 8.0 | % | (13.3 | )% |
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
(In millions) | ||||||||
Net loss attributable to parent company | $ | (500 | ) | $ | (1,158 | ) | ||
As percentage of net revenues | (6.2 | )% | (13.6 | )% |
In 2010,2013, we reported a net incomeloss of $830 million.$500 million, significantly improving compared to 2012 due to the aforementioned factors. In 2009,2012, we hadreported a net loss of $1,131 million as a result of adverse economic conditions, which negatively impacted our operations and certain non-operating charges.
The 2013 net loss attributable to the parent company was $0.92 in 2010, whereas in 2009 we reported a loss$(0.56) per share compared to $(1.31) per share in 2012.
In 2013, the impact after tax of $(1.29).
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Net revenues
Year Ended December 31, | % Variation | |||||||||||
2012 | 2011 | Year-Over- Year | ||||||||||
(In millions) | ||||||||||||
Net sales | $ | 8,380 | $ | 9,630 | (13.0 | )% | ||||||
Other revenues | 113 | 105 | 7.3 | |||||||||
Net revenues | $ | 8,493 | $ | 9,735 | (12.8 | )% |
2009 vs. 2008Our 2012 net revenues decreased compared to theyear-ago
Net revenues decreased by approximately 9%10% for SP&A and 16% for EPS. Within EPS, Wireless product line revenues registered a decline of approximately 13%.
By market channel, the TAMrelative breakdown between OEM and 13% forDistribution remained similar from one period to the SAM.
Year Ended December 31, | ||||||||||||
2009 | 2008 | % Variation | ||||||||||
(Audited, in millions) | ||||||||||||
Net sales | $ | 8,465 | $ | 9,792 | (13.5 | ) | ||||||
Other revenues | 45 | 50 | (10.2 | ) | ||||||||
Net revenues | $ | 8,510 | $ | 9,842 | (13.5 | ) |
By location of shipment, all regions were negatively impacted in terms of revenues decreased significantly due toby the difficult market environment experienced overall by the semiconductor industry. Our revenues performance was basically in line with the SAM’s decline. The majorityconditions. In 2012, no customer exceeded 10% of our market segments was negatively impacted by these difficult conditions and registered declining rates, except for Telecom, which benefited from the additional contribution of the NXP and EMP wireless businesses integrated in August 2008 and February 2009, respectively. Such a negative trend in ourtotal net revenues was driven by the large drop in units sold since average selling prices basically remained flat as a result of an improved product mix.
Gross profit
Year Ended December 31, | % Variation | |||||||||||
2012 | 2011 | Year-Over- Year | ||||||||||
(In millions) | ||||||||||||
Cost of sales | $ | (5,710 | ) | $ | (6,161 | ) | 7.3 | % | ||||
Gross profit | 2,783 | 3,574 | (22.1 | ) | ||||||||
Gross margin (as percentage of net revenues) | 32.8 | % | 36.7 | % | — |
In 2012, gross margin was 32.8%, decreasing by 390 basis points compared to 17.5% during 2008, excluding FMG.
Year Ended December 31, | ||||||||||||
2009 | 2008 | % Variation | ||||||||||
(Audited, in millions) | ||||||||||||
Cost of sales | $ | (5,884 | ) | $ | (6,282 | ) | 6.3 | |||||
Gross profit | 2,626 | 3,560 | (26.2 | ) | ||||||||
Gross margin (as a percentage of net revenues) | 30.9 | % | 36.2 | % | — |
Selling, general and administrative expenses
Year Ended December 31, | ||||||||||||
2009 | 2008 | % Variation | ||||||||||
(Audited, in millions) | ||||||||||||
Selling, general and administrative expenses | $ | (1,159 | ) | $ | (1,187 | ) | 2.3 | |||||
As a percentage of net revenues | (13.6 | )% | (12.1 | )% | — |
Year Ended December 31, | % Variation | |||||||||||
2012 | 2011 | Year-Over- Year | ||||||||||
(In millions) | ||||||||||||
Selling, general and administrative expenses | $ | (1,166 | ) | $ | (1,210 | ) | 3.6 | % | ||||
As percentage of net revenues | (13.8 | )% | (12.4 | )% | — |
Our selling, general and administrativeSG&A expenses decreased by approximately 2.3% despite the additional activities related to the integration of the NXP and EMP businesses,in 2012 mainly due to the favorable impact of the strengthening U.S. dollar exchange rate and savings from the progression of cost restructuring plans. saving initiatives. Ourshare-based compensation charges were $6 million in 2012, compared to $16 million in 2011.
As a percentage of revenues, theyour SG&A expenses amounted to 13.8%, slightly increasing in comparison to 12.4% in 2011 due to lower volumes of sales.
Research and development expenses
Year Ended December 31, | % Variation | |||||||||||
2012 | 2011 | Year-Over- Year | ||||||||||
(In millions) | ||||||||||||
Research and development expenses | $ | (2,413 | ) | $ | (2,352 | ) | (2.6 | )% | ||||
As percentage of net revenues | (28.4 | )% | (24.1 | )% | — |
Our R&D expenses increased to 13.6% compared to 2011, mainly because 2011 benefited from a $100 million billing of R&D services. On the prior year, due primarily toother side, the sharp decline2012 R&D expenses benefited from ongoing cost saving measures and restructuring initiatives mainly in our sales. The 2009 amountST-Ericsson and a more favorable exchange rate. Our 2012 R&D expenses included $19$3 million ofshare-based compensation charges, compared to $37$8 million in 2008.
60
Year Ended December 31, | ||||||||||||
2009 | 2008 | % Variation | ||||||||||
(Audited, in millions) | ||||||||||||
Research and development expenses | $ | (2,365 | ) | $ | (2,152 | ) | (9.9 | ) | ||||
As a percentage of net revenues | (27.8 | )% | (21.9 | )% | — |
As a percentage of revenues, 2012 R&D equaled 28.4%, increasing compared to 24.1% in the year-ago period.
Other income and expenses, net
Year Ended December 31, | ||||||||
2009 | 2008 | |||||||
(Audited, in millions) | ||||||||
Research and development funding | $ | 202 | $ | 83 | ||||
Start-up/phase-out costs | (39 | ) | (17 | ) | ||||
Exchange gain (loss) net | 11 | 20 | ||||||
Patent costs, net of gain from settlement | (5 | ) | (24 | ) | ||||
Gain on sale of other non-current assets | 3 | 4 | ||||||
Other, net | (6 | ) | (4 | ) | ||||
Other income and expenses, net | $ | 166 | $ | 62 | ||||
As a percentage of net revenues | 2.0 | % | 0.6 | % |
Year Ended December 31, | ||||||||
2012 | 2011 | |||||||
(In millions) | ||||||||
Research and development funding | $ | 102 | $ | 128 | ||||
Phase-out andstart-up costs | — | (8 | ) | |||||
Exchange gain, net | 5 | 8 | ||||||
Patent costs | (20 | ) | (28 | ) | ||||
Gain on sale ofnon-current assets | 9 | 15 | ||||||
Other, net | (5 | ) | (6 | ) | ||||
Other income and expenses, net | $ | 91 | $ | 109 | ||||
As percentage of net revenues | 1.1 | % | 1.1 | % |
In 2012, we recognized an income, and expenses, net, mainly included, as income, items such as R&D funding and exchange gain and, as expenses,start-up and phase-out costs. R&D funding income was associated with our R&D projects, which, upon project approval, qualifies as funding pursuant to contracts with local government agencies in locations where we pursue our activities. In 2009, the balance of these factors resulted in net income of $166$91 million, a significant improvementdecreasing compared to 2011 mainly due to the equivalent period in 2008, resulting from the booking of new funding for an R&D program in France. As a result, total funding reached in 2009 was $202 million, which included thecatch-up of 2008 projects, and resulted in an amount significantly higher compared to 2008. The 2009 amount also included a higherlower level of phase-out costs associated with the closure of our facilities in Carrollton, Texas and Ain Sebaa, Morocco.
Impairment, restructuring charges and other related closure costs
Year Ended December 31, | ||||||||
2009 | 2008 | |||||||
(Audited, in millions) | ||||||||
Impairment, restructuring charges and other related closure costs | $ | (291 | ) | $ | (481 | ) |
Year Ended December 31, | ||||||||
2012 | 2011 | |||||||
(In millions) | ||||||||
Impairment, restructuring charges and other related closure costs | $ | (1,376 | ) | $ | (75 | ) |
In 2009,2012, we recorded $291$1,376 million inof impairment, restructuring charges and other related closure costs, of which:
61
In 2011, we recorded $75 million of impairment, restructuring charges and $88other related closure costs, of which: $37 million for other previouslywas recorded in relation to the manufacturing restructuring plan as part of the closure of our Carrollton and newly announced restructuring plans, consisting primarilyPhoenix sites, and was composed of voluntaryone-time termination benefits, as well as other related closure charges, mainly associated with the Phoenix fab, where production was terminated in the first quarter of 2011; $26 million related to the cost savings plan announced in June 2011 byST-Ericsson, primarily consisting of employee termination benefits; $7 million related to the workforce reduction plans announced in April and early retirement arrangements in someDecember 2009 byST-Ericsson, pursuant to the closure of our European locations.
Operating lossincome (loss)
Year Ended December 31, | ||||||||
2009 | 2008 | |||||||
(Audited, in millions) | ||||||||
Operating loss | $ | (1,023 | ) | $ | (198 | ) | ||
As a percentage of net revenues | (12.0 | )% | (2.0 | )% |
Year Ended December 31, | ||||||||
2012 | 2011 | |||||||
(In millions) | ||||||||
Operating income (loss) | $ | (2,081 | ) | $ | 46 | |||
As percentage of net revenues | (24.5 | )% | 0.5 | % |
Our operating results were largely impacted bydeteriorated compared to the strongprior year mainly due to thenon-cash impairment charge on Wireless goodwill and other intangible assets, the impact of lower revenues, higher restructuring charges, the NXP arbitration award charge and higher unused capacity charges. Furthermore, 2011 benefited from a $100 million billing of R&D services. This resulted in an operating loss of $2,081 million in 2012 compared to an operating income of $46 million in 2011.
Our segments reported a decline in their profitability levels compared to theyear-ago period, mainly due to lower levels of revenues. SP&A operating income was $409 million or approximately 9% of revenues which also triggered the recognitionin 2012, down from $757 million, or about 15% of significant underutilization charges. As a result, we2011 revenues. In 2012, EPS registered an operating loss of $1,023$883 million significantly larger than ouror about negative 23% of revenues, down from a $489 million operating loss or approximately negative 11% of $1982011 revenues. Wireless product line operating loss increased from $812 million in 2008.
Other-than-temporary impairment charge and realized lossesgains on financial assets
Year Ended December 31, | ||||||||
2009 | 2008 | |||||||
(Audited, in millions) | ||||||||
Other-than-temporary impairment charge and realized losses on financial assets | $ | (140 | ) | $ | (138 | ) |
Year Ended December 31, | ||||||||
2012 | 2011 | |||||||
(In millions) | ||||||||
Other-than-temporary impairment charge and realized gains on financial assets | $ | — | $ | 318 |
In 2011, the income of $318 million represented a balance of (i) a realized gain on financial assets of $323 million as a result of the cash settlement from Credit Suisse against the transfer of ownership of the whole portfolio of Auction Rate Securities, and (ii) another-than-temporary impairment charge of $72$5 million as an adjustment of the fair value of certain marketable securities.
Interest expense, net
Year Ended December 31, | ||||||||
2012 | 2011 | |||||||
(In millions) | ||||||||
Interest expense, net | $ | (35 | ) | $ | (25 | ) |
In 2012, we registered an expense increase compared with theyear-ago period, mainly due toST-Ericsson increased utilization of the parent’s loan facility. As in 2011,ST-Ericsson had aone-off sale of certain R&D tax credits anticipating their collection by three years and also interest expenses related to the sale without recourse of its trade receivables.
Loss onequity-method investments
Year Ended December 31, | ||||||||
2012 | 2011 | |||||||
(In millions) | ||||||||
Loss onequity-method investments | $ | (24 | ) | $ | (28 | ) |
In 2012, we recorded a realizedcharge of $24 million, out of which $16 million related to 3Sun and $7 million to our proportionate share in the loss of $68 million, both linked toST-Ericsson JVD primarily reflecting our share of the portfolio of ARS purchased on our accountimpairment charge recorded by Credit Suisse contrary to our instruction. See “Liquidity and Capital Resources”.
Year Ended December 31, | ||||||||
2009 | 2008 | |||||||
(Audited, in millions) | ||||||||
Interest income, net | $ | 9 | $ | 51 |
62
Year Ended December 31, | ||||||||
2009 | 2008 | |||||||
(Audited, in millions) | ||||||||
Loss on equity investments | $ | (337 | ) | $ | (553 | ) |
Gain (loss) on financial instruments, net
Year Ended December 31, | ||||||||
2009 | 2008 | |||||||
(Audited, in millions) | ||||||||
Gain (loss) on financial instruments, net | $ | (5 | ) | $ | 15 |
Year Ended December 31, | ||||||||
2012 | 2011 | |||||||
(In millions) | ||||||||
Gain on financial instruments, net | $ | 3 | $ | 25 |
The cancellable swaps convert the fixed rate interest expense recorded on the convertible bonds due 2016 to a variable interest rate based upon adjusted LIBOR. Until November 1, 2008, the cancellable swaps met the criteria for designation as a fair value hedge. Due to the exceptionally low U.S. dollar interest rate as a consequence of the financial crisis, we assessed in 2008 that the swaps were no longer effective as of November 1, 2008 and the fair value hedge relationship was discontinued. Consequently, the swaps were classified asheld-for-trading financial assets. An unrealized gain of $15 million was recognized in earnings from the discontinuance date and was reported on the line “Unrealized gain on financial assets” in the consolidated statement of income for the year ended December 31, 2008.
Income tax benefitexpense
Year Ended December 31, | ||||||||
2009 | 2008 | |||||||
(Audited, in millions) | ||||||||
Income tax benefit | $ | 95 | $ | 43 |
Year Ended December 31, | ||||||||
2012 | 2011 | |||||||
(In millions) | ||||||||
Income tax expense | $ | (51 | ) | $ | (181 | ) |
During 2012, we registered an income tax benefitexpense of $95$51 million, reflecting the actual tax benefit estimatedcharge calculated on our lossincome before income taxes in each of our jurisdictions. This benefit wasexpense included the recognition of deferred tax assets, net of about $56 million booked as a tax expense related to the valuation allowances, on our deferred tax asset associated with our estimates of the net operating loss recoverability in certain jurisdictions.
Net loss (income) attributable to noncontrolling interest
Year Ended December 31, | ||||||||
2009 | 2008 | |||||||
(Audited, in millions) | ||||||||
Net loss (income) attributable to noncontrolling interest | $ | 270 | $ | (6 | ) | |||
As a percentage of net revenues | 3.2 | % | (0.1 | )% |
Year Ended December 31, | ||||||||
2012 | 2011 | |||||||
(In millions) | ||||||||
Net loss (income) attributable to noncontrolling interest | $ | 1,030 | $ | 495 | ||||
As percentage of net revenues | 12.2 | % | 5.1 | % |
In 2009,2012, we booked $270recorded $1,030 million as a resultloss attributable to noncontrolling interest, which primarily represented the share of themainly included Ericsson’s ownership inST-Ericsson JVS. In 2011, we recorded $495 million loss attributable to noncontrolling interest, thatwhich mainly included $413 million of the 20% owned by NXP in the ST-NXP joint ventureST-Ericsson JVS losses and $92 million charge for the montha valuation allowance related to part of January 2009 and the 50% owned by Ericsson in the consolidated ST-Ericsson JVS as of February 2009. This amount reflected their share in the joint venture’sST-Ericsson’s accumulated net operating losses.
63
Net income (loss) attributable to parent company
Year Ended December 31, | ||||||||
2009 | 2008 | |||||||
(Audited, in millions) | ||||||||
Net income (loss) attributable to parent company | $ | (1,131 | ) | $ | (786 | ) | ||
As a percentage of net revenues | (13.3 | )% | (8.0 | )% |
Year Ended December 31, | ||||||||
2012 | 2011 | |||||||
(In millions) | ||||||||
Net income (loss) attributable to parent company | $ | (1,158 | ) | $ | 650 | |||
As percentage of net revenues | (13.6 | )% | 6.7 | % |
In 2009,2012, we reported a loss of $1,131 million as a result of adverse economic conditions, which negatively impacted our operations and certain non-operating charges. In 2008, we had a net loss of $786$1,158 million, a significant decline compared to 2011 due to the aforementioned factors. In 2011, we reported a net income of $650 million.
The 2012 net loss attributable to the parent company was $(1.31) per share compared to diluted earnings of $0.72 per share in 2011.
In 2012, the impact after tax of impairment, restructuring charges and other related closure costs and otherone-time items, net of tax, was $(1.29) in 2009.
Quarterly Results of Operations
Certain quarterly financial information for the years 20102013 and 20092012 are set forth below. Such information is derived from our unaudited Consolidated Financial Statements, prepared on a basis consistent with the Consolidated Financial Statements that include, in our opinion, all normal adjustments necessary for a fair statement of the interim information set forth therein. Operating results for any quarter are not necessarily indicative of results for any future period. In addition, in view of the significant growthvolatility we have experienced in recent years, the increasingly competitive nature of the markets in which we operate, the changes in products mix and the currency effects of changes in the composition of sales and production among different geographic regions, we believe thatperiod-to-period comparisons of our operating results should not be relied upon as an indication of future performance.
Our quarterly and annual operating results are also affected by a wide variety of other factors that could materially and adversely affect revenues and profitability or lead to significant variability of operating results, including, among others, capital requirements and the availability of funding, competition, new product development, changes in technology, manufacturing problems, litigation and possible IP claims. In addition, a number of other factors could lead to fluctuations in operating results, including order cancellations or reduced bookings by key customers or distributors, IP developments, international events, currency fluctuations, problems in obtaining adequate raw materials on a timely basis, impairment, restructuring charges and other related closure costs, as well as the loss of key personnel. As only a portion of our expenses varies with our revenues, there can be no assurance that we will be able to reduce costs promptly or adequately in relation to revenue declines to compensate for the effect of any such factors. As a result, unfavorable changes in the above or other factors have in the past and may in the future adversely affect our operating results. Quarterly results have also been and may be expected to continue to be substantially affected by the cyclical nature of the semiconductor and electronic systems industries, the speed of some process and manufacturing technology developments, market demand for existing products, the timing and success of new product introductions and the levels of provisions and other unusual charges incurred. Certain additions of our quarterly results will not total our annual results due to rounding.
In the fourth quarter of 2010,2013, based upon published industry data by WSTS, the TAM and the SAM increasedyear-over-year by approximately 12%8% and 14%3%, reaching approximately $75$80 billion and $44$36 billion, while sequentially, theythe TAM and the SAM both decreased approximately 4%by about 1% and 2%, respectively.
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Three Months Ended | % Variation | |||||||||||||||||||
December 31, 2010 | September 25, 2010 | December 31, 2009 | Sequential | Year-Over-Year | ||||||||||||||||
(Unaudited, in millions) | ||||||||||||||||||||
Net sales | $ | 2,810 | $ | 2,634 | $ | 2,570 | 6.7 | 9.4 | ||||||||||||
Other revenues | 23 | 23 | 13 | (1.3 | ) | 72.2 | ||||||||||||||
Net revenues | $ | 2,833 | $ | 2,657 | $ | 2,583 | 6.6 | 9.7 | ||||||||||||
Three Months Ended | % Variation | |||||||||||||||||||
December 31, 2013 | September 28, 2013 | December 31, 2012 | Sequential | Year-Over- Year | ||||||||||||||||
(Unaudited, in millions) | ||||||||||||||||||||
Net sales | $ | 2,008 | $ | 2,005 | $ | 2,111 | 0.2 | % | �� | (4.9 | )% | |||||||||
Other revenues | 7 | 8 | 51 | (14.3 | ) | (87.0 | ) | |||||||||||||
Net revenues | $ | 2,015 | $ | 2,013 | $ | 2,162 | 0.1 | % | (6.8 | )% |
Year-over-year comparison
Our fourth quarter 2010of 2013 net revenues increased in all product segmentswere $2,015 million, decreasing by 6.8% compared to the year ago quarter, exceptyear-ago period. Excluding the phasing out of the Wireless product line, revenues increased by 3.9% as a result of higher volume by about 6%, partially offset by a decline in Wireless, and in all regions, except EMEA, reflecting the broad based recovery in the semiconductor market. Such performance was drivenaverage selling prices by approximately 2%.
By product segment, SP&A registered an increase of approximately 15% in volume,4%, while average selling prices declinedEPS revenues were down by approximately 5%19%.
By market channel, our revenues registered an increase in Distribution, which was up by approximately 4 percentage points, reaching a 27% share of total revenues, compared to 23% in the fourth quarter of 2012.
By location of order shipment, almost all regions were positively impacted by strong local demand from their customers, registering revenue growth of 15%, 14% and 12% indecreased on a year-over-year basis; Japan-Korea, Greater China-South Asia and EMEA were mainly negatively impacted by the exit of ST-Ericsson while Americas and Japan-Korea, respectively. EMEA experiencedwere mainly impacted by a decrease in DCG revenues.
In the fourth quarter of about 2%. Our largest2013, no customer exceeded 10% of our total net revenues. In the Nokiafourth quarter of 2012, the Samsung group of companies accounted for approximately 14%11% of our fourth quarter 2010 net revenues, compared to about 15% in the fourth quarter of 2009.
Sequential comparison
On a sequential basis, our revenues increased by 6.6%, near the top of our targeted range of 2% to 7% sequential growth. The quarter experienced a continued solid demand for our products; all market segments increased on a sequential basis, except Consumer, also benefiting from a higher number of days in the quarter. This favorable trend was supported bywere almost flat (+0.1%) with an approximate 4%3% increase in units sold, and about 3% increase from average selling prices the latter due to a more favorable product mix.
By product segment, SP&A revenues increased by approximately 4%, reflecting a solid contribution from Automotive and Imaging product lines, while Home Entertainment and Displays as well as Computer and Communication Infrastructure were slightly decreasing,2% mainly due to seasonal factors. IMS’s revenues increased by about 12% mainly as a result of higher sales volume, led by the strong performance of MEMS, Microcontrollers, Industrial and others. Wireless revenues also increased by 3%, driven by a stronger demand.
By market channel, the fourth quarter of 2010, our largest customer,2013 showed a sequential increase for Distribution, which reached a 27% share of revenues from the Nokia group of companies, accounted for approximately 14% of our net revenues, remaining stable compared to25% share registered in the third quarter of 2010.
By location of shipment, all regions declined sequentially except GreaterChina-South Asia, which increased by approximately 4% on a sequential basis
Both in the fourth and the third quarters of 2013, no customer exceeded 10% of our total net revenues.
Gross profit
Three Months Ended | % Variation | |||||||||||||||||||
December 31, 2010 | September 25, 2010 | December 31, 2009 | Sequential | Year-Over-Year | ||||||||||||||||
(Unaudited, in millions) | ||||||||||||||||||||
Cost of sales | (1,704 | ) | $ | (1,616 | ) | $ | (1,626 | ) | (5.4 | ) | (4.8 | ) | ||||||||
Gross profit | 1,129 | 1,041 | 957 | 8.4 | 18.1 | |||||||||||||||
Gross margin (as a percentage of net revenues) | 39.9 | % | 39.2 | % | 37.0 | % |
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Three Months Ended | % Variation | |||||||||||||||||||
December 31, 2013 | September 28, 2013 | December 31, 2012 | Sequential | Year-Over- Year | ||||||||||||||||
(Unaudited, in millions) | ||||||||||||||||||||
Cost of sales | $ | (1,353 | ) | $ | (1,361 | ) | $ | (1,465 | ) | 0.6 | % | 7.6 | ||||||||
Gross profit | 662 | 652 | 697 | 1.5 | (5.0 | ) | ||||||||||||||
Gross margin (as percentage of net revenues) | 32.9 | % | 32.4 | % | 32.3 | % | — | — |
On a sequential basis, gross margin in the fourth quarter increased by 7050 basis points, asmainly due to improved manufacturing efficiencies, partially offset by a resultnegative currency effect, the negative impact of theselling prices and a higher volumes, improved product mix and efficiencies.
Selling, general and administrative expenses
Three Months Ended | % Variation | |||||||||||||||||||
December 31, 2010 | September 25, 2010 | December 31, 2009 | Sequential | Year-Over-Year | ||||||||||||||||
(Unaudited, in millions) | ||||||||||||||||||||
Selling, general and administrative expenses | $ | (310 | ) | $ | (281 | ) | $ | (303 | ) | (10.5 | ) | (2.4 | ) | |||||||
As percentage of net revenue | (11.0 | )% | (10.6 | )% | (11.7 | )% | — | — |
Three Months Ended | % Variation | |||||||||||||||||||
December 31, 2013 | September 28, 2013 | December 31, 2012 | Sequential | Year- Over- Year | ||||||||||||||||
(Unaudited, in millions) | ||||||||||||||||||||
Selling, general and administrative expenses | $ | (249 | ) | $ | (253 | ) | $ | (291 | ) | 1.5 | % | 14.2 | % | |||||||
As percentage of net revenues | (12.4 | )% | (12.6 | )% | (13.5 | )% | — | — |
The amount of our selling, general and administrative expenses did not register a material variation on theyear-over-year basis. On a sequential basis, SG&A expenses increased, reflectingdecreased on a longeryear-over-year basis, mainly due to thewind-down ofST-Ericsson and our cost savings initiatives. As a percentage of revenues, our SG&A expenses amounted to 12.4%, decreasing in comparison to 13.5% in the prior year’s fourth quarter as well as less favorable seasonal impact. Our and 12.6% in the prior quarter.
Research and development expenses
Three Months Ended | % Variation | |||||||||||||||||||
December 31, 2013 | September 28, 2013 | December 31, 2012 | Sequential | Year-Over- Year | ||||||||||||||||
(Unaudited, in millions) | ||||||||||||||||||||
Research and development expenses | $ | (407 | ) | $ | (423 | ) | $ | (585 | ) | 3.7 | % | 30.4 | % | |||||||
As percentage of net revenues | (20.2 | )% | (21.0 | )% | (27.1 | )% | — | — |
R&D expenses both decreasedyear-over-year and sequentially mainly due to the ST-Ericsson wind-down and the benefits of our cost savings initiatives.
The fourth quarter of 2013 included $3 million ofshare-based compensation charges were $4compared to $1 million in the fourth quarter of 2010, compared to $5 million in the fourth quarter of 20092012 and $5 million in the third quarter of 2010.
Three Months Ended | % Variation | |||||||||||||||||||
December 31, 2010 | September 25, 2010 | December 31, 2009 | Sequential | Year-Over-Year | ||||||||||||||||
(Unaudited, in millions) | ||||||||||||||||||||
Research and development expenses | $ | (604 | ) | $ | (558 | ) | $ | (603 | ) | (8.2 | ) | (0.2 | ) | |||||||
As percentage of net revenues | (21.3 | )% | (21.0 | )% | (23.3 | )% | — | — |
As a percentage of revenues, fourth quarter 20102013 R&D equaled 21.3%20.2%, a 2 percentagedecrease of approximately 690 basis points decrease compared to theyear-ago period driven by the reduction in our operating expenses and notwithstanding the level of reduced revenues. On a sequential basis, expenses to revenues percentage decreased by 80 basis points due to increasing revenues.
Other income and expenses, net
Three Months Ended | ||||||||||||
December 31, 2010 | September 25, 2010 | December 31, 2009 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Research and development funding | $ | 32 | $ | 25 | $ | 44 | ||||||
Start-up/phase-out costs | (6 | ) | (5 | ) | (2 | ) | ||||||
Exchange gain (loss) net | 4 | 4 | 2 | |||||||||
Patent costs, net of gain from settlement | (4 | ) | (3 | ) | (5 | ) | ||||||
Gain on sale of long-lived assets, net | 2 | — | 2 | |||||||||
Other, net | 2 | (3 | ) | (2 | ) | |||||||
Other income and expenses, net | $ | 30 | $ | 18 | $ | 39 | ||||||
As a percentage of net revenues | 1.1 | % | 0.7 | % | 1.5 | % |
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Three Months Ended | ||||||||||||
December 31, 2013 | September 28, 2013 | December 31, 2012 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Research and development funding | $ | 28 | $ | 9 | $ | 41 | ||||||
Phase-out costs andstart-up costs | (3 | ) | (1 | ) | — | |||||||
Exchange gain, net | 2 | 2 | 1 | |||||||||
Patent costs | (13 | ) | (12 | ) | (5 | ) | ||||||
Gain on sale of businesses andnon-current assets | 1 | 81 | 2 | |||||||||
Other, net | (3 | ) | (1 | ) | (2 | ) | ||||||
Other income and expenses, net | $ | 12 | $ | 78 | $ | 37 | ||||||
As percentage of net revenues | 0.6 | % | 3.8 | % | 1.7 | % |
Impairment, restructuring charges and other related closure costs
Three Months Ended | ||||||||||||
December 31, 2010 | September 25, 2010 | December 31, 2009 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Impairment, restructuring charges and other related closure costs | $ | (32 | ) | $ | (27 | ) | $ | (96 | ) |
Three Months Ended | ||||||||||||
December 31, 2013 | September 28, 2013 | December 31, 2012 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Impairment, restructuring charges and other related closure costs | $ | (29 | ) | $ | (120 | ) | $ | (588 | ) |
In the fourth quarter of 2010,2013, we recorded $32$29 million of impairment, restructuring charges and other related closure costs, of which:
In the third quarter of 2010,2013, we recorded $27$120 million of impairment, restructuring charges and other related closure costs, primarily consisting of: $56 million recorded as impairment charges on the DCG goodwill and dedicated intangible assets following our yearly impairment test, $35 million recorded as impairment and restructuring charges related to the manufacturing consolidation plans and $22 million recorded as restructuring charges related to our headcount reduction initiative targeting quarterly net operating expenses in the range of $600 to $650 million by the beginning of 2014.
In the fourth quarter of 2012, we recorded $588 million of impairment, restructuring charges and other related closure costs, of which: $7$544 million relatedwas recorded as anon-cash impairment on our Wireless goodwill and other intangible assets, $20 million was recorded in relation to our manufacturingDigital restructuring plan which contemplated the closure of our Ain Sebaa (Morocco), Carrollton (Texas) and Phoenix (Arizona) sites,announced in October 2012 and was composed of one-timeemployee termination benefits, as well as other relevant$7 million impairment charges mainlyon intangible assets with no future use, $16 million was related to the Carrollton and Phoenix fabs; $18 million related to the plansST-Ericsson restructuring plan announced in April and December 2009 by ST-Ericsson,2012, primarily consisting of on-goingemployee termination benefits pursuant to the workforce reduction plan and the closure of certain locations in Europe; and $2$8 million was related to other restructuring initiatives.
Operating loss
Three Months Ended | ||||||||||||
December 31, 2013 | September 28, 2013 | December 31, 2012 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Operating loss | $ | (11 | ) | $ | (66 | ) | $ | (730 | ) | |||
As percentage of net revenues | (0.6 | )% | (3.3 | )% | (33.8 | )% |
The fourth quarter of 2009, we recorded $962013 registered an operating loss of $11 million compared to an operating loss of $66 million in the prior quarter and an operating loss of $730 million in theyear-ago quarter. The fourth quarter of 2013 registered an improvement in our operating results, both year-over-year and sequentially, driven by lower operating expenses and lower impairment and restructuring charges and other related closure costs, of which: $16 million wascharges.
By product segment, SP&A reported an increase in its operating income compared to the prior quarter. Our EPS segment increased sequentially its operating losses, mainly due to theone-time positive impact recorded in preparation of the closure of our Ain Sebaa (Morocco), Carrollton (Texas) and Phoenix (Arizona) sites, and was composed of one-time termination benefits, as well as other relevant charges; $17 million related to the plan announced in April 2009 by ST-Ericsson, primarily consisting of on-going termination benefits pursuant to the closure of certain locations in Europe and the United States and $45 million related to a plan announced in December 2009 by ST-Ericsson, primarily consisting of on-going termination benefits pursuant to workforce reduction; and $18 million related to other ongoing and newly committed restructuring plans, consisting primarily of voluntary termination benefits and early retirement arrangements in some of our European locations.
Three Months Ended | ||||||||||||
December 31, 2010 | September 25, 2010 | December 31, 2009 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Operating income (loss) | $ | 213 | $ | 193 | $ | (6 | ) | |||||
In percentage of net revenues | 7.5 | % | 7.3 | % | (0.2 | )% |
Interest expense, net
Three Months Ended | ||||||||||||
December 31, 2013 | September 28, 2013 | December 31, 2012 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Interest expense, net | $ | (3 | ) | $ | (2 | ) | $ | (9 | ) |
We recorded net interest expense of $193 million in the prior quarter. The recovery in our revenues led to a strong increase in loading, thereby reducing underutilization charges from $13$3 million in the fourth quarter of 2009 and to an immaterial amount in the fourth quarter of 2010.
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Three Months Ended | ||||||||||||
December 31, 2010 | September 25, 2010 | December 31, 2009 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Other-than-temporary impairment charge and realized losses on financial assets | $ | 0 | $ | 0 | $ | (68 | ) |
Three Months Ended | ||||||||||||
December 31, 2010 | September 25, 2010 | December 31, 2009 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Interest income (expense), net | $ | (5 | ) | $ | (2 | ) | $ | 3 |
Income (loss) on our cash resources. On a sequential basis the net interest expense increased by $3 million.
Three Months Ended | ||||||||||||
December 31, 2010 | September 25, 2010 | December 31, 2009 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Loss on equity investments | $ | (10 | ) | $ | (8 | ) | $ | (13 | ) |
Three Months Ended | ||||||||||||
December 31, 2013 | September 28, 2013 | December 31, 2012 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Income (loss) onequity-method investments | $ | (12 | ) | $ | (8 | ) | $ | (11 | ) |
In the fourth quarter of 2010,2013, we recorded a charge of $10$12 million, of which $9$7 million related to our proportionate share of the losses inST-Ericsson JVD as a losspick-up including amortization of basis differenceJVS, which has been accounted for under the equity method since September 1, 2013 and $1$5 million related to other investments.
Gain (loss) on financial instruments, net
Three Months Ended | ||||||||||||
December 31, 2010 | September 25, 2010 | December 31, 2009 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Gain (loss) on financial instruments, net | $ | (12 | ) | $ | (1 | ) | $ | 3 |
Three Months Ended | ||||||||||||
December 31, 2010 | September 25, 2010 | December 31, 2009 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Income tax expense | $ | (50 | ) | $ | (44 | ) | $ | (48 | ) |
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Three Months Ended | ||||||||||||
December 31, 2013 | September 28, 2013 | December 31, 2012 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Income tax expense | $ | (8 | ) | $ | (49 | ) | $ | (39 | ) |
Our tax rate is variable and depends on changes in the level of operating results within various local jurisdictions and on changes in the applicable taxation rates of these jurisdictions, as well as changes in estimatedestimations of our tax provisions due to new events.provisions. Our income tax amounts and rates depend also on our loss carryforwardscarry-forwards and their relevant valuation allowances, which are based on estimated projected plans;plans and available tax planning strategies; in the case of material changes in these plans, the valuation allowances could be adjusted accordingly with an impact on our tax charges. We currently enjoy certain tax benefits in some countries. Such benefits may not be available in the future due to changes in the local jurisdictions; our effective tax rate could be different in future quartersperiods and may increase in the coming years. In addition, our yearly income tax charges include the estimated impact of provisions related to potential tax positions that arewhich have been considered uncertain.
Net loss (income) attributable to noncontrolling interest
Three Months Ended | ||||||||||||
December 31, 2010 | September 25, 2010 | December 31, 2009 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Net loss attributable to noncontrolling interest | $ | 83 | $ | 60 | $ | 59 |
Three Months Ended | ||||||||||||
December 31, 2013 | September 28, 2013 | December 31, 2012 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Net loss (income) attributable to noncontrolling interest | $ | (2 | ) | $ | (17 | ) | $ | 361 |
In the fourth quarter of 2010,2013, we booked $83recorded $2 million as a resultrepresenting the income attributable to noncontrolling interest representing the loss attributable to noncontrolling interest, which mainly included the 50% owned by Ericsson in the consolidated ST-Ericsson JVS. In the third quarter of 2010, the corresponding amount was $60 million. These amounts reflected Ericsson’s share in the joint venture’s loss.
quarter of 2013 and in the fourth quarter of 2012, the corresponding amounts were not material.
Net income (loss)loss attributable to parent company
Three Months Ended | ||||||||||||
December 31, 2010 | September 25, 2010 | December 31, 2009 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Net income (loss) attributable to parent company | $ | 219 | $ | 198 | $ | (70 | ) | |||||
As percentage of net revenues | 7.7 | % | 7.4 | % | (2.7 | )% |
Three Months Ended | ||||||||||||
December 31, 2013 | September 28, 2013 | December 31, 2012 | ||||||||||
(Unaudited, in millions) | ||||||||||||
Net loss attributable to parent company | $ | (36 | ) | $ | (142 | ) | $ | (428 | ) | |||
As percentage of net revenues | (1.8 | )% | (7.1 | )% | (19.8 | )% |
For the fourth quarter of 2010,2013, we reported a net incomeloss of $219$36 million, a significant improvement compared to previous periods due to the aforementioned factors.
Earnings per diluted share for the fourth quarter of 20102013 was $0.24$(0.04) compared to $0.22$(0.16) in the third quarter of 20102013 and $(0.08) loss$(0.48) per share in theyear-ago quarter.
In the fourth quarter of 2010,2013, the impact per share after tax of impairment, restructuring charges and other related closure costs and otherone-time items, a non U.S. GAAP measure, was estimated to be approximately $(0.03) per share, while in the third quarter of 2010,2013, it was estimated to be approximately $(0.01)$(0.13) per share. In the year agoyear-ago quarter, the impact of impairment, restructuring charges and impairment charges,other-than-temporary impairment charge, the loss on our Numonyx equity investmentother related closure costs and non-recurrentotherone-time items was estimated to be approximately $(0.12)$(0.37) per share.
Impact of Changes in Exchange Rates
Our results of operations and financial condition can be significantly affected by material changes in the exchange rates between the U.S. dollar and other currencies, particularly the Euro.
As a market rule, the reference currency for the semiconductor industry is the U.S. dollar and productthe market prices of semiconductor products are mainly denominated in U.S. dollars. However, revenues for some of our products (primarily our dedicated products sold in Europe and Japan)Europe) are quoted in currencies other than the U.S. dollar and as such are directly affected by fluctuations in the value of the U.S. dollar. As a result of currency variations, the appreciation of the Euro compared to the U.S. dollar could increase, in the short term,short-term, our level of revenues when reported in U.S. dollars. Revenues for all other products, which are either quoted in U.S. dollars and billed in U.S. dollars or in local currencies for payment, tend not to be affected significantly by fluctuations in exchange rates, except to the extent that there is a lag between the changes in currency rates and the adjustments in the local currency equivalent of the price paid for such products. Furthermore, certain significant costs incurred by us, such as manufacturing labor costs, and depreciation charges, selling, general and administrativeSG&A expenses, and R&D expenses, are largely incurred in the
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In summary, as our reporting currency is the U.S. dollar, currency exchange rate fluctuations affect our results of operations: in particular, if the U.S. dollar weakens, our results are negatively impacted since we receive a limited part of our revenues, and more importantly, we incur a significant part of our costs, in currencies other than the U.S. dollar. On the other hand, our results are favorably impacted when the dollar strengthens. Our consolidated statementsThe impact on our accounts could therefore be material, in the case of income fora material variation of the year ended December 31, 2010 included income and expense items translated at the average U.S. dollar exchange rate for the period.
Our principal strategy to reduce the risks associated with exchange rate fluctuations has been to balance as much as possible the proportion of sales to our customers denominated in U.S. dollars with the amount of materials, purchases and services from our suppliers denominated in U.S. dollars, thereby reducing the potential exchange rate impact of certain variable costs relative to revenues. Moreover, in order to further reduce the exposure to U.S. dollar exchange fluctuations, we have hedged certain line items on our consolidated statementsConsolidated Statements of income,Income, in particular with respect to a portion of the costs of goods sold, most of the R&D expenses and certain selling and general and administrativeSG&A expenses, located in the Euro zone.zone, which we account for as cash flow hedging contracts. We use three different types of hedging contracts, consisting of forward contracts, collars and options.
Our Consolidated Statements of Income for 2013 included income and expense items translated at the average U.S. dollar exchange rate for the period, plus the impact of the hedging contracts expiring during the period. Our effective average exchange rate for 2013 and 2012 was $1.36$1.31 for €1.00 for 2010 compared to $1.37 for €1.00 for 2009.€1.00. Our effective average exchange rate was $1.34 for €1.00 for the fourth quarter of 20102013 and $1.34$1.31 for €1.00 for the third quarter of 20102013, while it was $1.43$1.30 for €1.00 infor the fourth quarter of 2009.2012. These effective exchange rates reflect the actual exchange rates combined with the impact of cash flow hedging contracts that matured in the period.
The time horizon of our cash flow hedging contracts for manufacturing costs and operating expenses for up to 12 months and in the third quarter of 2010 we decided to extend the time horizon of our cash flow hedging contracts for manufacturing costs and operating expenses formay run up to 24 months, for a limited percentage of our exposure to the Euro and under certain currency market circumstances. As of December 31, 2010,2013, the outstanding hedged amounts were €797€660 million to cover manufacturing costs and €498€489 million to cover operating expenses, at an average exchange rate of about $1.33 and $1.32$1.3671 to €1.00 respectively (includingand $1.3626 to €1.00 (considering the premium paid to purchase foreign exchange options)options and collars at strike), maturing over the period from January 2, 2014 to December 4, 2011 to September 5, 2012.2014. As of December 31, 2010,2013, these outstanding hedging contracts and certain expiredexpiring contracts covering manufacturing expenses capitalized in inventory representedresulted in a deferred profit of approximately $31$39 million afterbefore tax, recorded in “Other“Accumulated other comprehensive income”income (loss)” in Netthe Consolidated Statements of Equity, compared to a deferred gainprofit of approximately $6$24 million afterbefore tax at December 31, 2009.
We also hedge certain manufacturing costs denominated in order to further reduce our exposure to fluctuations in the U.S. dollar exchange rate, we have begun hedging certain line items on our consolidated statements of income, particularly with respect to the portion of our R&D expenses incurred in Sweden. AsSingapore dollars (SGD); as of December 31, 2010,2013, the outstanding hedged amounts were SEK 805SGD 149 million at an average exchange rate of about SEK 7.13SGD 1.2540 to $1.00 maturing over the period from January 7, 20119, 2014 to December 8, 2011.4, 2014. As of December 31, 2010,2013, these outstanding hedging contracts representedand certain expiring contracts covering manufacturing expenses capitalized in inventory resulted in a deferred profitloss of approximately $7$1 million afterbefore tax, recorded in “Other“Accumulated other comprehensive income”income (loss)” in Netthe Consolidated Statements of Equity.
Our cash flow hedging policy is not intended to cover theour full exposure and is based on hedging a portion of our exposure in the next quarterfour quarters and a declining percentage of our exposure in each quarter thereafter. In 2010,2013, as a result of EUR USDour cash flow hedging, we recorded a net lossprofit of $81$33 million, consisting of a lossprofit of $37about $14 million to R&D expenses, a lossprofit of $37about $16 million to costs of goods sold and a lossprofit of $7$3 million to selling, general and administrativeSG&A expenses, while in 2009,2012, we recorded a net gainloss of $71 million, consisting of a gain of $36 million to R&D expenses, a gain of $29 million to cost of goods sold and a gain of $6 million to selling, general and administrative expenses. million.
In addition in 2010, as a result of USD SEKto our cash flow hedging, we recorded a gain of $2 million related to SEK-denominated R&D expenses.
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For a more detailed discussion, see Item 3, “Key“Item 3. Key Information — Risk Factors — Risks Related to Our Operations”.
Impact of Changes in Interest Rates
Interest rates may fluctuate upon changes in financial market conditions and material changes can affect our results fromof operations and financial condition, since these changes can impact the total interest income received on our cash and cash equivalents and marketable securities, as well as the total interest expense paid on our financial debt.
Our interest income (expense), net, as reported onin our consolidated statementsConsolidated Statements of income,Income, is the balance between interest income received from our cash and cash equivalentequivalents and marketable securities investments and interest expense paid on our long-term debtfinancial liabilities (including the sale without recourse of receivables) and bank fees (including fees on committed credit lines). Our interest income is dependent upon fluctuations in interest rates, mainly in U.S. dollars and Euros, since we invest primarily on ashort-term basis; any increase or decrease in the market interest rates would mean an equivalent increase or decrease in our interest income. Our interest expenses are also dependent upon fluctuations in interest rates, since our financial liabilities mainly associated with our long-term debt, comprisedconsist of 2016 Convertible Bonds (with a fixed rate of 1.5%), our 2013 Senior Bonds, which is fixed quarterly at a rate of EURIBOR plus 40bps, and European Investment Bank Floating Rate Loans at LIBORLibor and Euribor plus variable spreads;spreads. Our 2016 Convertible Bond was fully redeemed in the second quarter of 2012. On March 17, 2013, we repaid with available cash the residual Euro 350 million outstanding 2013 Senior Bonds with a partprincipal amount at issuance of these interest expenses are at fixed rates. See Note 22 to our Consolidated Financial Statements.
At December 31, 2010,2013, our total financial resources, including cash and cash equivalents and marketable securities, current and non-current, generated an average interest income rate of 0.4%0.28%. InAt the same period,date, the average interest rate on our average cost ofoutstanding debt rate was 1.1%0.90%.
Impact of Changes in Equity Prices
As consideration for the divestiture of our share in Numonyx,December 31, 2013, we received 66.88 million Micron shares and we owed $78 million to one of our partners. These shares weredid not hold any significant equity participations, which could be subject to alock-up period through November 7, 2010; through December 31, 2010, material impact in changes in equity prices. However, we sold 46.8 million shares at an average price of $8.48 per share, including the unwinding of the applicable hedging contracts. We received proceeds of $319 million net of the $78 million paymenthold equity participations whose carrying value could be reduced due to onefurther losses or impairment charges of our partners referred to above and realized a $13 million loss in the fourth quarter income statement as a result of having not fully hedged 16 million shares.
Liquidity and Capital Resources
Treasury activities are regulated by our policies, which define procedures, objectives and controls. The policies focus on the management of our financial risk in terms of exposure to currency rates and interest rates. Most treasury activities are centralized, with any local treasury activities subject to oversight from our head treasury office. The majority of our cash and cash equivalents are held in U.S. dollars and Euros and are placed with financial institutions rated “A” or better. Part of our liquidity is also held in Euros to naturally hedge intercompany payables and financial
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Our total liquidity and capital resources were $2,922$1,894 million as of December 31, 2010, slightly increasing2013, decreasing compared to $2,912$2,493 million at December 31, 2009, after having done certain transactions, including, among others, a repurchase for a total amount of $508 million of our 2016 Convertible Bonds and 2013 Senior Bonds and paid $212 million of dividends to shareholders.2012. As of December 31, 2010,2013, our total liquidity and capital resources were comprised of $1,892$1,836 million in cash and cash equivalents, of which $66$1 million is held at the ST-Ericsson level, $67 million as inshort-term deposits and $891$57 million in marketable securities, all considered as current assets, and $72 million in ARS, considered as non-current assets. Additionally, in order to reconcile with our consolidated balance sheet as of December 31, 2010, we had $7 million as restricted cash, related to certain margin calls and we held $161 million fair value of the remaining Micron shares considered in our balance sheet as current marketable securities.
As of December 31, 2010, the $891 million held by us in2013, marketable securities as current assets was composed of $563 million invested in Aaa treasury bills from the French, German and U.S. governments and $328were $57 million invested in senior debt securities at floating rate notes issued by primary financial institutions with an average rating excluding one impaired debt security for a notional value of €15 million, of Aa3/A+Baa2/A-/A from Moody’s, and S&P and Fitch, respectively. Both the treasury bills and theThe Floating Rate Notes are classified asavailable-for-sale and reported at fair value, with changes in fair value recognized as a separate component of “Accumulated other comprehensive income”income (loss)” in the consolidated statementConsolidated Statements of changes in equity,Equity, except if deemed to beother-than-temporary. We reportedSince the duration of the marketable securities portfolio was 0.05 year, the value of the securities as of December 31, 2010 a before tax increase of $4 million compared2013 corresponded to December 31, 2009par value. As such, the cumulative change in the fair value of our FRN portfolio. Since the durationmarketable securities portfolio was not material as of the FRN portfolio is only an average of 1.5 years and the securities have a minimum Moody’s rating of A2, we expect the value of the securities to return to par as the final maturity approaches (with the only exception being the €15 million of Senior Floating Rate Notes issued by Lehman Brothers, the value of which was impaired through an“other-than-temporary” charge in 2008).December 31, 2013. The fair value of these securities is based on market prices publicly available through major financial information providers. The market price of the FRNmarketable securities is influenced by changes in the credit standing of the issuer but is not significantly impacted by movement in interest rates. In 2010,2013, we invested $1,100reported proceeds of $184 million in French, German and U.S. treasury bills, of which $1,011 million waspursuant to sold or matured duringtreasury bills and Floating Rate Notes.
In 2011, we received cash proceeds of $356.8 million from Credit Suisse as the year. The change in fair valuefull and final payment for the settlement of all outstanding litigation concerning Auction Rate Securities. Upon receipt of the $563 million debt securities classified asavailable-for-sale was not material at December 31, 2010. The average durationfunds, the ownership of the treasury billswhole portfolio is less than three months and the securities are rated Aaa by Moody’s.
72the settlement, out of which $6 million was reported on the line “selling, general and administrative” and $323 million as a realized gain on financial assets. This $356.8 million plus the $75 million already cashed in made a total amount of $431.8 million that exceeded all losses and costs associated with the litigation.
We maintain a significant cash position and a low debt to equitydebt-to-equity ratio, which provide us with adequate financial flexibility. As in the past, our cash management policy is to finance our investment needs mainly with net cash generated from operating activities.
During 2010,2013, our net cash decreased by $414 million, due to the evolution of ournet cash flow produced an increaseused in our cashinvesting and cash equivalents of $304 million, generated byfinancing activities exceeding the net cash from operating activities.
The evolutioncomponents of our cash flow for each period is as follows:
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In millions) | ||||||||||||
Net cash from operating activities | $ | 1,794 | $ | 816 | $ | 1,722 | ||||||
Net cash from (used in) investing activities | (526 | ) | 290 | (2,417 | ) | |||||||
Net cash used in financing activities | (876 | ) | (513 | ) | (67 | ) | ||||||
Effect of changes in exchange rates | (88 | ) | (14 | ) | (84 | ) | ||||||
Net cash increase (decrease) | $ | 304 | $ | 579 | $ | (846 | ) |
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(In millions) | ||||||||||||
Net cash from operating activities | $ | 366 | $ | 612 | $ | 880 | ||||||
Net cash used in investing activities | (379 | ) | (396 | ) | (287 | ) | ||||||
Net cash from (used in) financing activities | (388 | ) | 135 | (529 | ) | |||||||
Effect of changes in exchange rates | (13 | ) | (13 | ) | (44 | ) | ||||||
Net cash increase (decrease) | $ | (414 | ) | $ | 338 | $ | 20 |
Net cash from operating activities.activities. The net cash from operating activities in 2013 was $366 million, decreasing compared to $612 million in the prior year period. Net cash from operating activities is the sum of (i) net income (loss) adjusted for certain non-cash items and (ii) changes in assets and liabilities. The decrease in net cash from operating activities in 20102013 compared to 2012 resulted from the less favorable changes in assets and liabilities, which was $1,794partially balanced by the net loss adjusted fornon-cash items:
Net income (loss) adjusted fornon-cash items increased to $333 million largely improvingof cash generated in 2013 compared to $109 million in the prior year period, followingmainly due to the overall improvementimproved operating results;
Changes in our financial results (see “Resultsassets and liabilities generated cash for a total amount of Operations” for more information)$33million in 2013, compared to $503 million of cash generated in the prior year period, mainly due to a negative change in trade payables ($139 million), trade receivables ($57 million) and inventories ($22 million). In 2012, changes were positive, mainly associated with a favorable variation in inventories ($191 million) and trade payables ($148 million). Furthermore, the negative trend in trade receivables also included an unfavorable net cash impact of $72 million, deriving from the sales, with no recourse, of trade and other receivables, compared to a favorable $26 million in 2012.
Net cash from (used in)used in investing activities.activities. Investing activities used $526$379 million of cash in 2010,2013, mainly fordue to payments for tangible assets, and net cash from proceeds of the sale of Micron shares. Additionally, such amount included some investments in intangible and financial assets. Payments for the purchase of tangible assets totaled $1,034 million, a significant increase fromand for intangible and financial assets, partially offset by the $451 million registered in the prior year period, as we upgraded our production capacity in line with the strong increase in demand for our products. Moreover, the net cash from investing activities included $319 million as net proceeds from the sale of Micron stock received on our Numonyx investment divestiture and the releasemarketable securities. Payments for purchase of the $250tangible assets, net of proceeds, totaled $531 million, of restricted cash associated with the Hynix-Numonyx JV, following the disposal of our sharescompared to $476 million in Numonyx. Investing activity in 2009 generated net cash of $290 million, entirely due to $1,137 million net proceeds received from Ericsson as part of a business combination.
Net cash from(used in) financing activities.activities. Net cash used in financing activities was $876$388 million in 2010 with an increase2013 compared to the $513$135 million usedgenerated in 20092012, mainly due to the partial buyback$455 million repayment of our issued debt: our 2016 Convertible Bonds for a total cash consideration of $410 million and ourthe residual outstanding 2013 Senior Bonds for the amount of EUR 74 million. Moreover, the 2010 amountBonds. The financing activities in 2013 included $218$346 million as a repayment of long term debt at maturity and $212 million asin dividends paid to shareholders.
Free cash flow (nonCash Flow(non U.S. GAAP measure)measure). We also present free cash flow,Free Cash Flow, which is a non U.S. GAAP measure, defined as (i) net cash from (used in) operating activities plus (minus)(ii) net cash from (used in)used in investing activities, excluding payment for purchases (and proceeds from the sale) of marketable securities,short-term deposits and restricted cash, which are considered as temporary financial investments. The result of this definition is ultimately net cash from operating activities plus payment for purchase and proceeds from the sale of marketable securities (both currenttangible, intangible and non-current), short-term depositsfinancial assets, proceeds received in sale of businesses, payment for business acquisitions, net proceeds from sale of stock received on investment divestiture and restricted cash.payment for funding of joint ventures liquidation. We believe free cash flowFree Cash Flow, a non U.S. GAAP measure, provides useful information for investors and management because it measures our capacity to generate cash from our operating and investing activities to sustain our operating activities.operations. Free cash flowCash Flow is not a U.S. GAAP measure and does not represent total cash flow since it does not include the cash flows generated by or used in financing activities. Free Cash Flow reconciles with the total cash flow and the net cash increase (decrease) by including the payment for purchases (and proceeds from the sale) of marketable securities,short-term deposits, restricted cash and net cash from joint ventures deconsolidation, the net cash from (used in)
financing activities and the effect of changes in exchange rates. In addition, our definition of free cash flowFree Cash Flow may differ from
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Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(Audited, in millions) | ||||||||||||
Net cash from operating activities | $ | 1,794 | $ | 816 | $ | 1,722 | ||||||
Net cash from (used in) investing activities | (526 | ) | 290 | (2,417 | ) | |||||||
Payment for purchase and proceeds from sale of marketable securities (current and non-current), short-term deposits and restricted cash, net | (307 | ) | 258 | (351 | ) | |||||||
Free cash flow | $ | 961 | $ | 1,364 | $ | (1,046 | ) |
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(In millions) | ||||||||||||
Net cash from operating activities | $ | 366 | $ | 612 | $ | 880 | ||||||
Net cash used in investing activities | (379 | ) | (396 | ) | (287 | ) | ||||||
Excluding: | ||||||||||||
Payment for purchase and proceeds from sale of marketable securities,short-term deposits, restricted cash, net and net cash from joint ventures deconsolidation | (166 | ) | (183 | ) | (881 | ) | ||||||
Payment for purchase and proceeds from sale of tangible, intangible assets and businesses, payment for funding of joint ventures liquidation, payment for business acquisitions and net proceeds from sale of stock received on investment divestiture(1) | (545 | ) | (579 | ) | (1,168 | ) | ||||||
Free Cash Flow (non U.S. GAAP measure) | $ | (179 | ) | $ | 33 | $ | (288 | ) |
(1) | Reflects the total of the following line items reconciled with our Consolidated Statements of Cash Flows relating to the investing activities: Payment for purchase of tangible assets, Proceeds from sale of tangible assets, Payment for purchase of intangible and financial assets, Proceeds from sale of intangible and financial assets, Proceeds received in sale of businesses, Payment for funding of joint ventures liquidation, Payment for business acquisitions, net of cash and cash equivalents acquired, Net proceeds from sale of stock received on investment divestiture. |
Free Cash Flow was negative $179 million in 2010, of which $3492013, deteriorating compared to positive $33 million in the fourth quarter of 2010, supported by a significant improvement in the2012, primarily due to lower cash generated from operating activities. In 2009, free cash flow was $1,364 million, mainly as a result of the $1,137 million net proceeds received from Ericsson as part of a business combination. Excluding the effects of business combinations in both periods, our free cash flow in 2010 was $972 million, including $319 million proceeds from the sale of Micron shares, largely improving by $745 million compared to 2009, in line with the overall improvement in our financial results.
Capital Resources
Net financial position (nonFinancial Position(non U.S. GAAP measure).measure Our net financial position).Our Net Financial Position represents the balance between our total financial resources and our total financial debt. Our total financial resources include cash and cash equivalents, current and non-current marketable securities,short-term deposits and restricted cash, and our total financial debt includes bank overdrafts, short term borrowings and current portion of long-termshort-term debt andlong-term debt, as represented in our consolidatedConsolidated Balance Sheet.Sheets. Net financial positionFinancial Position is not a U.S. GAAP measure but we believe it provides useful information for investors because it gives evidence of our global position either in terms of net indebtedness or net cash by measuring our capital resources based on cash and cash equivalents and marketable securities and the total level of our financial indebtedness.indebtedness, which included the 50% ofST-Ericsson indebtedness up to September 1, 2013 when we deconsolidatedST-Ericsson. Consequently, we have in prior periods presented the Net Financial Position attributable to ST (“ST Net Financial Position”), which did not include theST-Ericsson indebtedness towards Ericsson, our partner in ST-Ericsson JVS. Our net financial positionNet Financial Position for each period has been determined as follows from our Consolidated Balance Sheets at December 31, 2010:
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In millions) | ||||||||||||
Cash and cash equivalents, net of bank overdrafts | $ | 1,892 | $ | 1,588 | $ | 989 | ||||||
Marketable securities, current(1) | 891 | 1,032 | 651 | |||||||||
Restricted cash | — | 250 | 250 | |||||||||
Short-term deposits | 67 | — | — | |||||||||
Marketable securities, non-current | 72 | 42 | 242 | |||||||||
Total financial resources | 2,922 | 2,912 | 2,132 | |||||||||
Short-term borrowings and current portion of long-term debt | (720 | ) | (176 | ) | (123 | ) | ||||||
Long-term debt | (1,050 | ) | (2,316 | ) | (2,554 | ) | ||||||
Total financial debt | (1,770 | ) | (2,492 | ) | (2,677 | ) | ||||||
Net financial position | $ | 1,152 | $ | 420 | $ | (545 | ) | |||||
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
(In millions) | ||||||||||||
Cash and cash equivalents | $ | 1,836 | $ | 2,250 | $ | 1,912 | ||||||
Marketable securities | 57 | 238 | 413 | |||||||||
Restricted cash | — | 4 | 8 | |||||||||
Short-term deposits | 1 | 1 | — | |||||||||
Total financial resources | 1,894 | 2,493 | 2,333 | |||||||||
Bank overdrafts andshort-term debt | (225 | ) | (630 | ) | (740 | ) | ||||||
Long-term debt | (928 | ) | (671 | ) | (826 | ) | ||||||
Total financial debt | (1,153 | ) | (1,301 | ) | (1,566 | ) | ||||||
Net Financial Position | 741 | 1,192 | 767 | |||||||||
ST-Ericsson net debt to Ericsson | — | — | 400 | |||||||||
ST Net Financial Position | $ | 741 | $ | 1,192 | $ | 1,167 |
Our net financial positionNet Financial Position as of December 31, 2010 resulted in2013 was a net cash position of $1,152$741 million, representing a solid improvementdecreasing compared to the net cash position of $420$1,192 million at December 31, 2009, mainly due to favorable free cash flow. In the same period,2012, as a result of our cashnegative Free Cash Flow and cash equivalents increased significantly to $1,892 million, while total financial debt decreased by $722 million.
At December 31, 2010,2013, our financial debt was $1,770$1,153 million, comprisedcomposed of $720(i) $225 million short-term, of which $645 million as the current portion of our long-term debt mainly related to our 2016 Convertible Bonds and $1,050(ii) $928 million long-term.oflong-term debt. The breakdown of our total financial debt included: (i) $534 million of our 2016 Convertible Bonds; (ii) $569 million of our 2013 Senior Bonds (corresponding to €500 million at issuance); (iii) $569$1,132 million in European Investment Bank loans (the “EIB Loans”); (iv) $12, (ii) $20 million in loans from other
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Additionally, we had unutilized committedmedium-term credit facilities with core relationship banks of $730 million. At December 31, 2013, the amounts available under ourshort-term lines of credit facility to $300 million.
Ourlong-term capital market financing instruments contain debt contains standard covenants,conditions, but dodoes not impose minimum financial ratios or similar obligations on us. Upon a change of control, the holders of our 2016 Convertible Bonds and 2013 Senior Bonds may require us to repurchase all or a portion of such holder’s bonds.
As of December 31, 2010,2013, debt payments due by period and based on the assumption that convertible debt redemptions are at the holder’s first redemption optionyear were as follows:
Payments Due by Period | ||||||||||||||||||||||||||||
Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | ||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||
Long-term debt (including current portion) | $ | 1,695 | $ | 645 | $ | 109 | $ | 676 | $ | 106 | $ | 84 | $ | 75 |
Payments Due by Period | ||||||||||||||||||||||||||||
Total | 2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | ||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||
Long-term debt (including current portion) | $ | 1,153 | $ | 225 | $ | 205 | $ | 195 | $ | 119 | $ | 117 | $ | 292 |
In February 2006, we issued $1,131 million principal amount at maturity zero coupon senior convertible bonds due in February 2016. The bonds arewere convertible by the holder at any time prior to maturity at a conversion rate of 43.833898 shares per one thousand dollar face value of the bonds corresponding to 42,694,216 equivalent shares. The holders can redeem the convertible bonds upon a change of control or on February 23, 2012 at a price of $1,093.81 and on February 24, 2014 at a price of $1,126.99 per one thousand dollar face value of the bonds. On February 23, 2011, the holders redeemed 41,123 convertible bonds at a price of $1,077.58, out of the total of 490,170 outstanding bonds, or about 8%. We can call the bonds at any time after March 10, 2011 subject to our share price exceeding 130% of the accreted value divided by the conversion rate for 20 out of 30 consecutive trading days. In order to optimize our liquidityliability management and yield, we repurchased a portion of our 2016 Convertible Bonds during 2009 (98,000 bonds for a total cash consideration of $103 million and corresponding to 4,295,722 shares) and in 2010 (385,830 bonds for a total cash consideration of $410 million and corresponding to 16,912,433 shares).
In March 2006, STMicroelectronics Finance B.V. (“ST BV”), one of our wholly-owned subsidiaries,a wholly owned subsidiary, issued Floating Ratethe 2013 Senior Bonds with a principal amount of €500 million at an issue price of 99.873%. The notes,Bonds. These bonds, which maturematured on March 17, 2013, paypaid a quarterly coupon rate of the three-month EURIBOREuribor plus 0.40% on June 17, September 17, December 17 and. On March 17, of each year through maturity. The notes have a put for early repayment in case of a change of control. The Floating Rate2013, we repaid at maturity with available cash the residual outstanding 2013 Senior Bonds issued by ST BV are guaranteed by ST NV. We repurchased a portion of our 2013 Senior Bonds: (i) during the third quarter 2010, forin the amount of $17 million and (ii) during the fourth quarter 2010 for the amount of $81$455 million.
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Our contractual obligations, commercial commitments and contingencies as of December 31, 2010,2013, and for each of the five years to come and thereafter, were as follows(1):
Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | ||||||||||||||||||||||
Operating leases(2) | $ | 378 | $ | 103 | $ | 77 | $ | 49 | $ | 29 | $ | 26 | $ | 94 | ||||||||||||||
Purchase obligations(2) | 1,116 | 1,003 | 74 | 24 | 14 | — | 1 | |||||||||||||||||||||
of which: | ||||||||||||||||||||||||||||
Equipment and other asset purchase | 632 | 632 | — | — | — | — | — | |||||||||||||||||||||
Foundry purchase | 224 | 224 | — | — | — | — | — | |||||||||||||||||||||
Software, technology licenses and design | 260 | 147 | 74 | 24 | 14 | — | 1 | |||||||||||||||||||||
Other obligations(2) | 371 | 158 | 174 | 30 | 6 | — | 3 | |||||||||||||||||||||
Long-term debt obligations (including current portion)(3)(4)(5) of which: | 1,695 | 645 | 109 | 676 | 106 | 84 | 75 | |||||||||||||||||||||
Capital leases(3) | 11 | 4 | 2 | 2 | 2 | — | 1 | |||||||||||||||||||||
Pension obligations(3) | 326 | 30 | 29 | 30 | 36 | 32 | 169 | |||||||||||||||||||||
Other non-current liabilities(3) | 295 | 32 | 67 | 17 | 9 | 8 | 162 | |||||||||||||||||||||
Total | $ | 4,181 | $ | 1,971 | $ | 530 | $ | 826 | $ | 200 | $ | 150 | $ | 504 |
Total | 2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | ||||||||||||||||||||||
Operating leases(2) | $ | 242 | $ | 54 | $ | 37 | $ | 29 | $ | 26 | $ | 22 | $ | 74 | ||||||||||||||
Purchase obligations(2) | 434 | 383 | 48 | 3 | — | — | — | |||||||||||||||||||||
of which: | ||||||||||||||||||||||||||||
Equipment and other asset purchases | 163 | 163 | — | — | — | — | — | |||||||||||||||||||||
Foundry purchases | 92 | 92 | — | — | — | — | — | |||||||||||||||||||||
Software, design, technologies and licenses | 179 | 128 | 48 | 3 | — | — | — | |||||||||||||||||||||
Other obligations(2) | 481 | 155 | 120 | 100 | 80 | 24 | 2 | |||||||||||||||||||||
Long-term debt obligations (including current portion)(3)(4) | 1,153 | 225 | 205 | 195 | 119 | 117 | 292 | |||||||||||||||||||||
of which: | ||||||||||||||||||||||||||||
Capital leases(3) | 1 | 1 | — | — | — | — | — | |||||||||||||||||||||
Pension obligations(3) | 369 | 12 | 21 | 20 | 34 | 31 | 251 | |||||||||||||||||||||
Otherlong-term liabilities(3) | 158 | — | 73 | 12 | 10 | 9 | 54 | |||||||||||||||||||||
Total | $ | 2,837 | $ | 829 | $ | 504 | $ | 359 | $ | 269 | $ | 203 | $ | 673 |
(1) | ||
Contingent liabilities which cannot be quantified are excluded from the table above. |
(2) | Items not reflected on the Consolidated Balance Sheet at December 31, |
(3) | Items reflected on the Consolidated Balance Sheet at December 31, |
(4) | See Note | |
As a result of our planned closures of certain manufacturing facilities, some of the aforementioned contracts have been terminated. The termination fees for the sites still in operation have not been taken into account.
Operating leases are mainly related to building leases and to equipment. The amount disclosed is composed of minimum payments for future leases from 20112014 to 20152018 and thereafter. We lease land, buildings, plants and equipment under operating leases that expire at various dates undernon-cancelable lease agreements.
Purchase obligations are primarily comprised of purchase commitments for equipment, for outsourced foundry wafers and for software licenses.
Other obligations primarily relate to firm contractual commitments with respect to partnership and cooperation agreements.
Long-term debt obligations mainly consist of bank loans, convertibleloans. In 2014, we expect to redeem with available cash and non-convertible debt issued by us that is totally or partially redeemable for cash at the option of the holder. They include maximum future amounts that may be redeemable for cash at the option of the holder, at fixed prices.equivalents a $225 million loan received from European Investment Bank as an annual installment. See “Net“— Net financial position (non U.S. GAAP measure)”.
Pension obligations and termination indemnities amounting to $326$369 million consist of our best estimates of the amounts projected to be payable by us for the retirement plans based on the assumption that our employees will work for us until they reach the age of retirement.pension andpost-employment plans. The final actual amount to be paid and related timing of such payments may vary significantly due to early retirements, terminations and changes in assumptions rates. See Note 1614 to our Consolidated Financial Statements. As part of the FMG deconsolidation,Flash divestiture, we retained the obligation to fund the severance payment (“(trattamento di fine rapporto”rapporto) due to certain transferred employees by the defined amount of about $26$17 million which qualifies as a defined benefit plan and was classified as an other non-current liability“otherlong-term liability” at December 31, 2010.
Other non-currentlong-term liabilities include, in addition to the above-mentioned pension obligation, future obligations related to our restructuring plans and miscellaneous contractual obligations. They also include at December 31, 2010,2013, following the FMG deconsolidationFlash divestiture in 2008, along-term liability for capacity rights amounting to $33$4 million. In accordance with the authoritative guidance for accounting for uncertainty in income taxes, as of December 31, 2010,2013, we had unrecognized tax benefits of $116$255 million. We do not expect to recognize any of these tax benefits in 2011.2014. We are not, however, able to provide a reasonably reliable estimate of when these benefits will be recognized.
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We had no materialoff-balance sheet arrangements at December 31, 2010.
Financial OutlookOutlook: Capital Investment
Our policy is to modulate our capital spending according to the evolution of the semiconductor market. Based on current visibility on demand, we anticipate our capital expenditure to be approximately$510-550 million in 2014, to be adjusted based on demand thereafter. The increase in demand that we have been broadly facing across all end markets requires the acceleration of somemost important of our capex spending in order to adapt our supply capability to this increasing level of demand. In order to support our innovative product portfolio and to fuel revenue growth faster than the served market dynamic, we expect to invest approximately $1.1 billion to $1.5 billion in 2011 based on anticipated revenue growth. The most significant of our 20112014 capital expenditure projects are expected to be: (a) for the ourfront-end facilities: (i) in our300-mm fab in Crolles, technology evolution to consolidate the capability for20-nm processes and mix evolution to support the productionramp-up ramp up of the newestnew technologies for microcontrollers and capacity growth, and activities to prepare the next step to 4,500 wafers per week, planned by end 2012 within the framework of our Crolles Nano 2012 program;automotive advanced products; (ii) the completion of the 32nm/28nm R&D capability investment in Crolles; (iii) the upgrade and partial conversion to 150-mm of our125-mm fab in Ang-Mo-Kio (Singapore); (iv)a few selective programs of mix evolution, in our200-mm fabs, mainly in the fabsarea of Crolles and Rousset; (v) capacity increase in selected proprietaryanalog processes; (iii) qualification of technologies in our200-mm fabs in Italy (MEMS, Advanced BCDsSingapore and PMOS)Catania; and (vi)(iv) quality, safety, securitymaintenance, and maintenanceproductivity and cost savings investments in both150-mm and200-mm200-mmfront-end front end fabs; (b) for the ourback-end facilities, capital expenditures will mainly be dedicated to: (i) capacity growth on strategiccertain package families, mainly in the areas of Automotive, MEMS and Wireless, to sustain markedmarket demand; (ii) further consolidation of our presence in China (Longgang and Shenzhen), in Muar and in Calamba; (iii) modernization of package lines (copper bonding);targeting cost savings benefits; and (iv)(iii) specific investments in the areas of factory automation, quality, environment and energy saving;savings; and (c) an overall capacity increaseadjustment in final testing and wafers probing (EWS) for all product lines.
We will continue to monitor our level of capital spending by taking into consideration factors such as trends in the semiconductor industry and capacity utilization and announced additions.utilization. We expect to haveneed significant capital requirementsfinancial resources in the coming years for capital expenditures and for our investments in addition we intend to continue to devote a substantial portion of our net revenues tomanufacturing and R&D and to continue to support ST-Ericsson towards its expected recovery.&D. We plan to fund our capital requirements from cash provided by operating activities, available funds and available support from third parties, and may have recourse to borrowings under available credit lines and, to the extent necessary or attractive based on market conditions prevailing at the time, the issuingissuance of debt, convertible bonds or additional equity securities. A substantial deterioration of our economic results, and consequently of our profitability, could generate a deterioration of the cash generated by our operating activities. Therefore, there can be no assurance that, in future periods, we will generate the same level of cash as in the previousprior years to fund our capital expendituresexpenditure plans for expending/expanding/upgrading our production facilities, our working capital requirements, our R&D and industrializationmanufacturing costs.
We have an equity investment in 3Sun. We are currently evaluating our strategy and multiple scenarios are being considered. We currently foresee that there may be a need to call forprovide additional financial resources to 3Sun. In the redemptionevent of a withdrawal by one of our outstanding 2016 Convertible Bonds, which occurred for 41,123 bonds, for an amount of $44 million. The residual amount outstanding after the exercise was $449 million, which can be exercised on February 23, 2012 for an amount of $491 million. Furthermore, therepartners, our financial support could be possible financial needs for temporary bridge short-term financing by the parent companiescover up to 50% of the required funding.
Furthermore, as a result of the exit from theST-Ericsson joint venture.
We believe that we have the financial resources needed to meet our currently projected business requirements for the next twelve months, including capital expenditures for our manufacturing activities, working capital requirements, approved dividend payments and the repayment of our debts in line with their maturity dates. We may use some of our available cash to repurchase a portion of our outstanding debt securities, including possibly our 2016 Convertible Bonds and 2013 Senior Bonds, should market conditions permit.
Impact of Recently Issued U.S. Accounting Standards
See Note 2 to our Consolidated Financial Statements.
EquityEquity-method investments
See Note 1210 to our Consolidated Financial Statements.
Backlog and Customers
See “Item 4. Information on the Company — Backlog”.
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Directors, Senior Management and Employees |
Directors and Senior Management
The management of our companyCompany is entrusted to the Managing Board under the supervision of the Supervisory Board.
Supervisory Board
Our Supervisory Board advises our Managing Board and is responsible for supervising the policies pursued by our Managing Board and the general course of our affairs and business. Our Supervisory Board consists of
such number of members as is resolved by our annual shareholders’general meeting of Shareholders upon anon-binding proposal of our Supervisory Board, with a minimum of six members. Decisions by our annual shareholders’general meeting of Shareholders concerning the number and the identity of our Supervisory Board members are taken by a simple majority of the votes cast at a meeting, provided quorum conditions are met (15% of our issued and outstanding share capital present or represented).
Our Supervisory Board hadwas composed of the following eightnine members as of December 31, 2010:
Name(1) | Position | Year Appointed(2) | Term Expires | Age | ||||||||||
Antonino Turicchi | Chairman | 2008 | (3) | 2011 | 45 | |||||||||
Gérald Arbola | Vice-Chairman | 2004 | 2011 | 62 | ||||||||||
Raymond Bingham | Member | 2007 | 2013 | 65 | ||||||||||
Douglas Dunn | Member | 2001 | 2012 | 66 | ||||||||||
Didier Lombard | Member | 2004 | 2011 | 69 | ||||||||||
Alessandro Ovi | Member | 2007 | (4) | 2013 | 67 | |||||||||
Bruno Steve | Member | 1989 | 2011 | 69 | ||||||||||
Tom de Waard | Member | 1998 | 2011 | 64 |
Name | Position | Year Appointed | Term Expires | Age | ||||||||||
Didier Lombard | Chairman | 2004 | 2014 | 71 | ||||||||||
Bruno Steve | Vice Chairman | 1989 | 2014 | 72 | ||||||||||
Jean d’Arthuys | Member | 2011 | 2014 | 47 | ||||||||||
Janet G. Davidson | Member | 2013 | (1) | 2016 | 57 | |||||||||
Jean-Georges Malcor | Member | 2011 | 2014 | 57 | ||||||||||
Alessandro Ovi | Member | 2007 | 2016 | 69 | ||||||||||
Alessandro Rivera | Member | 2011 | 2014 | 43 | ||||||||||
Martine Verluyten | Member | 2012 | 2015 | 62 | ||||||||||
Tom de Waard | Member | 1998 | 2014 | 67 |
(1) | ||
Ms. Davidson was appointed as a member of | ||
Resolutions of our Supervisory Board require the approval of at least three-quartersthree quarters of its members in office. Our Supervisory Board must meet upon request by two or more of its members or by our Managing Board. Our Supervisory Board has established procedures for the preparation of Supervisory Board resolutions and the calendar for Supervisory Board meetings. Our Supervisory Board meets at least five times a year, including once per quarter to approve our quarterly and annual accounts and their release. Our Supervisory Board has adopted a Supervisory Board Charter setting forth its duties, responsibilities and operations, as mentioned below. This charter is available on our website at(www.st.com).
Pursuant to Dutch law, there is no mandatory retirement age for members of our Supervisory Board. Members of the Supervisory Board may be suspended or dismissed by our annual shareholders’ meeting. Our Supervisory Board may make a proposal to our annual shareholders’ meeting for the suspension or dismissal of one or more of its members. Each member of our Supervisory Board must resign no later than three years after appointment, as described in our Articles of Association, but may be reappointed following the expiration of his/her term of office.
http://www.st.com/stonline/company/governance/index.htm.Biographies of our Current Supervisory Board Members
Didier Lombard has been a member of our Supervisory Board at our 2008 annual shareholders’ meetingsince 2004 and has been its Chairman since May 2011. Mr. Lombard serves on May 14, 2008. He was also appointed Chairman of our Supervisory Board at that time. Mr. TuricchiBoard’s Compensation Committee, Strategic Committee and Nominating and Corporate Governance Committee. He is the Chairman of both the Compensation Committee and the Strategic Committee. Mr. Lombard was appointed Chairman and Chief Executive Officer of Orange (formerly France Telecom) in March 2005, and served as Chief Executive Officer until February 2010 and Chairman until March 2011. Mr. Lombard began his career in the Research and Development division of Orange in 1967. From 1989 to 1990, he served as scientific and technological director at the Ministry of Research and Technology. From 1991 to 1998, he served as General Director for industrial strategies at the French Ministry of Economy, Finances and Industry, and from 1999 to 2003 he served as an Ambassador at large for foreign investments in France and as President of the French Agency for International Investments. From 2003 through February 2005, he served as Orange’s Senior Executive Vice President in charge of technologies, strategic partnerships and new usages and as a member of Orange’s Executive Committee. Mr. Lombard is also a member of the Board of Directors of Thales and Technicolor (previously Thomson), one of our Supervisory Board’s Strategic Committee,customers, as well as its Compensation Committee, and also serves on the Nomination and Corporate Governance Committee. Mr. Turicchi was the General Manager of Cassa Depositi e Prestiti from June 2002 until January 2009, and was a member of the Supervisory Board of Numonyx from March 30, 2008 until May 7, 2010. Since 1994,Radiall. Mr. Turicchi has held positions with the Italian Ministry of the Treasury (now known as the Ministry of the Economy and Finance). In 1999, he was promoted as the director responsible for conducting securitization operations and managing financial operations as part of the treasury’s debt management functions. Between 1999 and June 2002, Mr. TuricchiLombard was also a member of the board of Mediocredito del Friuli; from 1998 until 2000, he served on the board of Mediocredito di Roma; and from 2000 until 2003, he
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Bruno Steve has been a member of our Supervisory Board since 1989 and has been its Vice Chairman since May 2011. He has previously held the positions of Chairman and member. Mr. Steve serves on our Supervisory Board’s Compensation Committee, Strategic Committee and Nominating and Corporate Governance Committee. He was with Istituto per la Ricostruzione Industriale IRI S.p.A. (“I.R.I”), a former shareholder of Finmeccanica, Finmeccanica and other affiliates of I.R.I. in various senior positions for over 17 years. Mr. Steve served as Chairman of the Statutory Auditors of Selex Galileo S.p.A. until December 2012. He previously served as
member of the Statutory Auditors of Pirelli Tyres S.p.A. Until December 1999, he served as Chairman of MEI. He served as the Chief Operating Officer of Finmeccanica from 1988 to July 1997 and Chief Executive Officer from May 1995 to July 1997. He was Senior Vice President of Planning, Finance and Control of I.R.I. from 1984 to 1988. Prior to 1984, Mr. Steve served in several key executive positions at Telecom Italia. Until December 2012, he was also a professor at LUISS Guido Carli University in Rome. Mr. Steve was Vice Chairman from May 1999 to March 2002, Chairman from March 2002 to May 2003 and member until his resignation on April 21, 2004 of the Supervisory Board of ST Holding, our largest shareholder.
Jean d’Arthuys has been a member of our Supervisory Board since May 2011. Mr. d’Arthuys serves on our Supervisory Board’s Compensation Committee, Strategic Committee and Nominating and Corporate Governance Committee. Mr. d’Arthuys is also the Chairman and CEO of FT1CI. He joined Bpifrance (formerly Fonds Stratégique d’Investissement) in 2010 as Director and member of the Executive Committee. Mr. d’Arthuys was a partner in the fund PAI Partners from 2007 until 2010, in particular in charge of the sectors media, internet and telecom. He was previously Chairman and Chief Executive Officer of television channels Paris Premiere and W9. Mr. d’Arthuys spent the main part of his career at the Executive Board of the Group M6, where he had various functions (from 1996 until 2007). He managed in particular the activities of digital television and the development of the Group. He was a board member of TPS, Sportfive and Newsweb. Mr. d’Arthuys was also Chairman and Chief Executive Officer of the soccer club Girondins de Bordeaux. Mr. d’Arthuys graduated from HEC Business School.
Janet G. Davidson has been a member of our Supervisory Board since June 2013. She serves on our Supervisory Board’s Audit Committee and Strategic Committee. She began her career in 1979 as a member of the Technical Staff of Bell Laboratories, Lucent Technologies (as of 2006 Alcatel Lucent), and served from 1979 through 2011 in several key positions, most recently as Chief Strategy Officer (2005 – 2006), Chief Compliance Officer (2006 – 2008) and EVP Quality & Customer Care (2008 – 2011). From 2005 through 2012, Ms. Davidson was a member of the Lehigh University Board of Trustees. In 2007 she served on the Riverside Symphonia Board of Trustees and in 2005 and 2006, Ms. Davidson was a member of the Liberty Science Center Board of Trustees. Ms. Davidson is currently (since 2011) a member of the board of the Alcatel Lucent Foundation. Ms. Davidson is a graduate of the Georgia Institute of Technology (Georgia Tech), Atlanta, GA, USA, and Lehigh University, Bethlehem, PA, USA and holds a Master’s degree in Electrical Engineering.
Jean-Georges Malcor has been a member of our Supervisory Board since May 2011. Mr. Malcor serves on our Supervisory Board’s Audit Committee. He is the Chief Executive Officer of CGG. He is a graduate of Ecole Centrale de Paris. He also holds a Master of Sciences degree from Stanford University, and a Doctorat from Ecole des Mines. Mr. Malcor began his career at the Thales group as an acoustic engineer in the Underwater Activities division where he was particularly in charge of hydrophone and geophone design and towed streamer programs. He then moved to the Sydney based Thomson Sintra Pacific Australia, becoming Managing Director of the CEA since July 24, 2009.
Alessandro Ovi was a member of our Supervisory Board from 1994 until his term expired at our Annual General Meeting of Shareholders in March 2005. He was reappointed to our Supervisory Board at ourthe 2007 annual shareholders’ meeting.Annual General Meeting of Shareholders and served on the Strategic Committee and the Audit Committee until his term expired. He was reappointed to the Supervisory Board on June 21, 2013. Mr. Ovi serves on our Supervisory Board’s Audit Committee and Strategic Committee. Mr. Ovi received a doctoral degree in Nuclear Engineering from the Politecnico in Milan and a Master’s Degree in Operations Research from the Massachusetts Institute of Technology. He has been special advisor to the President of the European Community for five years and has served on the boards of Telecom Italia S.p.A, Finmeccanica S.p.A. and Alitalia S.p.A. Currently, he is also a director of LandiRenzo S.p.A and Almaviva S.p.A. Mr. Ovi is a Life Trustee in Carnegie
Mellon University and a member of the board in the Italian Institute of Technology. Until April 2000, he was the Chief Executive Officer of Tecnitel S.p.A., a subsidiary of Telecom Italia Group. Prior to joining Tecnitel S.p.A., Mr. Ovi was the Senior Vice President of International Affairs and Communications at I.R.I.
Alessandro Rivera has been a member of our Supervisory Board since May 2011. Mr. Rivera serves on our Supervisory Board’s Compensation Committee and Nominating and Corporate Governance Committee. He has been the Head of Directorate IV “Financial Sector Policy and Regulation Legal Affairs” at the Department of the Treasury, Ministry of Economy and Finance, since 2008. He served as Head of Unit in the Department of the Treasury from 2000 to 2008 and was responsible for a variety of policy matters: financial services and markets, banking foundations, accounting, finance, corporate governance and auditing. Since 2008, Mr. Rivera has been a Government representative in the “Consiglio Superiore” of the Bank of Italy as well as serving on the board of directors and Compensation Committee of Cassa Depositi e Prestiti S.p.A. and Posta Italiana S.p.A., the Financial Services Committee and the European Securities Committee. He was a member of the Accounting Regulatory Committee from 2002 to 2008 and a member of the Audit Regulatory Committee from 2005 to 2008. He served on the board of Italia Lavoro S.p.A. from 2005 to 2008 and was a member of the Audit Committee and the StrategicCompensation Committee. Since January 2010, Mr. Bingham has been an Advisory Director of General Atlantic LLC, a global private equity firm, and a Managing Director from September 2006 to December 2009. From August 2005 to August 2006, Mr. BinghamRivera was a private investor. Mr. Bingham was Executivealso the Chairman of the Audit Committee of the “Fondo nazionale di garanzia degli intermediari finanziari” (Italian investor compensation scheme) from 2003 to 2008. From 2001 to 2010, he was the Project Leader and Deputy Project Leader in several twinning projects with Eastern European Countries (the Russian Federation, the Czech Republic, Lithuania, and Bulgaria). He also served on the board of Mediocredito del Friuli — Venezia Giulia S.p.A from 2001 to 2003.
Martine Verluyten has been a member of our Supervisory Board since May 2012. Ms. Verluyten serves on our Supervisory Board’s Audit Committee and has been its Chair since April 22, 2013. Until 2011, Ms. Verluyten acted as CFO of DirectorsUmicore N.V. based in Brussels. Previously she was CFO of Cadence Design Systems Inc.Mobistar N.V.(2001-2006), a supplier having initially joined Mobistar in 2000 as Group Controller. She had earlier worked at Raychem since 1976, holding various management positions during her 23 year tenure, from Manager European Consolidations(1976-1979), to General Accounting Manager based in the US(1979-1983). She was then promoted to Division Controller Telecom Division Europe from 1983 to 1990. In 1990, she was appointed Finance & Administration Director back in Europe, then in 1995, Europe Controller Finance & Administration Director until 1999. Ms. Verluyten is also member of electronic design automation softwarethe board of directors of Thomas Cook plc, 3i plc and services, from May 2004 to July 2005, and servedGBL (“group Bruxelles Lambert”). Ms. Verluyten began her career in 1973 at KPMG as a director of Cadence from November 1997 to July 2005. Prior to being Executive Chairman, he served as President and Chief Executive Officer of Cadence from April 1999 to May 2004, and as Executive Vice President and Chief Financial Officer from April 1993 to April 1999. Mr. Bingham also serves as a Director of Spansion Inc., Dice Holdings, Oracle Corporation and Flextronics International, Ltd.
Tom de Waard has been a member of our Supervisory Board since 1998. Mr. de Waard has beenserves on our Supervisory Board’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. He was Chairman of the Audit Committee sincefrom 1999 until 2013 and is also Chairman of the NominationNominating and Corporate Governance Committee. In addition, he serves on our Supervisory Board’s Compensation Committee. Mr. de Waard has beenwas a partner ofat Clifford Chance, a leading international law firm, since March 2000 and was the Managing Partner of Clifford Chance’s Amsterdam office from May 1, 2002 until May 1, 2005.October 2011. From January 1, 2005 to January 1, 2007 he was a member of the Management Committee of Clifford Chance. Prior to joining Clifford Chance, he was a partner at Stibbe, where he held several positions since 1971 and gained extensive experience working with major international companies, particularly with respect to corporate finance. He is a member of the Amsterdam bar and was President of the Netherlands Bar Association from 1993 through 1995. He received his law degree from Leiden University in 1971. Mr. de Waard is the chairman of the Supervisory Board of BE Semiconductor Industries N.V. (“BESI”) and a member of its audit compensationAudit Compensation and nominating committees.Nominating Committees. Mr. de Waard is a member of the Supervisory Board of N.V. Nuon Energy and Chairman of its Compensation Committee.
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Membership and Attendance.Attendance. As of December 31, 2010,2013, the composition of our Supervisory Board’s committees was as follows: i)(i) Ms. Martine Verluyten is the Chair of the Audit Committee, and Ms. Janet G. Davidson and Messrs. Jean-Georges Malcor, Alessandro Ovi and Tom de Waard are members of the Audit Committee; (ii) Mr. Didier Lombard is the Chairman of the Compensation Committee, and Messrs. Jean d’Arthuys, Alessandro Rivera, Bruno Steve and Tom de Waard are members of the Compensation Committee; (iii) Mr. Tom de Waard is the Chairman of the Audit Committee, and Messrs. Raymond Bingham, Douglas Dunn and Bruno Steve are all voting members; ii) Mr. Antonino Turicchi is the Chairman of the Compensation Committee, and Messrs. Gérald Arbola, Tom de Waard and Bruno Steve are members; iii) Mr. Tom de Waard is the Chairman of the NominationNominating and Corporate Governance Committee, and Messrs. Gérald Arbola,Jean d’Arthuys, Didier Lombard, Alessandro Rivera and Bruno Steve are members of the Nominating and Antonino Turicchi are members;Corporate Governance Committee; and iv)(iv) Mr. Antonino TuricchiDidier Lombard is the Chairman of the Strategic Committee, and Ms. Janet G. Davidson and Messrs. Gérald Arbola, Raymond Bingham, Douglas Dunn, Didier Lombard andJean d’Arthuys, Alessandro Ovi and Bruno Steve are members.
80members of the Strategic Committee.
Nominating | ||||||||||||||||||||
and | ||||||||||||||||||||
Corporate | ||||||||||||||||||||
Audit | Compensation | Strategic | Governance | |||||||||||||||||
Number of Meetings Attended in 2010(1) | Full Board | Committee | Committee | Committee | Committee | |||||||||||||||
Antonino Turicchi | 11 | — | 4 | 1 | 3 | |||||||||||||||
Gérald Arbola | 11 | — | 4 | 1 | 3 | |||||||||||||||
Raymond Bingham | 9 | 8 | — | 1 | — | |||||||||||||||
Douglas Dunn | 11 | 10 | — | 1 | — | |||||||||||||||
Didier Lamouche(2) | 10 | 8 | — | — | — | |||||||||||||||
Didier Lombard | 11 | — | 4 | 1 | 3 | |||||||||||||||
Alessandro Ovi | 11 | 1 | — | 1 | — | |||||||||||||||
Bruno Steve | 11 | 9 | 4 | — | 3 | |||||||||||||||
Tom de Waard | 11 | 10 | 4 | — | 3 |
Number of Meetings Attended in 2013 | Full Board | Audit Committee | Compensation Committee | Strategic Committee | Nominating & Corporate Governance Committee | |||||||||||||||
Didier Lombard | 10 | n/a | 3 | 1 | 5 | |||||||||||||||
Bruno Steve | 9 | n/a | 3 | 1 | 4 | |||||||||||||||
Jean d’Arthuys | 8 | n/a | 2 | 1 | 5 | |||||||||||||||
Janet G. Davidson(1) | 6 | 5 | n/a | 1 | n/a | |||||||||||||||
Jean-Georges Malcor | 10 | 10 | n/a | n/a | n/a | |||||||||||||||
Alessandro Ovi | 10 | 10 | n/a | 1 | n/a | |||||||||||||||
Alessandro Rivera | 10 | n/a | 3 | n/a | 4 | |||||||||||||||
Martine Verluyten | 8 | 9 | n/a | n/a | n/a | |||||||||||||||
Tom de Waard | 10 | 9 | 3 | n/a | 5 | |||||||||||||||
Raymond Bingham(2) | 4 | 5 | n/a | n/a | n/a |
(1) | Ms. Davidson was appointed as a member of our Supervisory Board on June 21, 2013. |
(2) | ||
Mr. |
Audit Committee.Committee The.Our Audit Committee was established in 1996 to assist the Supervisory Board in fulfilling its oversight responsibilities relating to corporate accounting, reporting practices, and the quality and integrity of our financial reports as well as our auditing practices, legal and regulatory related risks, execution of our auditors’ recommendations regarding corporate auditing rules and the independence of our external auditors.
Our Audit Committee met ten10 times during 2010 and, in addition, held several conference calls related to subjects that arose during the year.2013. At many of the Audit Committee’s meetings, the committee received presentations on current financial and accounting issues and had the opportunity to interview our CEO, CFO, General Counsel, Compliance Officer and external and internal auditors. TheOur Audit Committee also met with outside U.S. legal counsel to discuss corporate requirements pursuant to NYSE’s corporate governance rules and the Sarbanes-OxleySarbanes Oxley Act. TheOur Audit Committee also proceeded with its annual review of our internal audit function. TheOur Audit Committee reviewed our annual Consolidated Financial Statements in U.S. GAAP for the year ended December 31, 2010,2013, and the results press release was published on January 24, 2011.
Our Audit Committee approved the compensation of our external auditors for 20102013 and provisionally approveddiscussed the scope of their audit, audit-relatedaudit related and non-audit-relatednon-audit related services for 2011.
At the end of each quarter, prior to each Supervisory Board meeting to approve our quarterly results and earnings press release, theour Audit Committee reviewed our interim financial information and the proposed press release and had the opportunity to raise questions to management and the independent registered public accounting firm. In addition, theour Audit Committee reviewed our quarterly “Operating and Financial Review and Prospects” and Consolidated Financial Statements (and notes thereto) before they were filed withfurnished to the SEC and voluntarily certified by the CEO and the CFO (pursuant to sections 302 and 906 of the Sarbanes-OxleySarbanes Oxley Act). TheOur Audit Committee also reviewed Operating and Financial Review and Prospects and our Consolidated Financial Statements contained in our 2010thisForm 20-F, prior to theits approval by our Supervisory Board’s meeting to approve the full year results.Board. Furthermore, theour Audit Committee monitored our compliance with the European Directive and applicable provisions of Dutch law that require us to prepare a set of accounts pursuant to IFRS in advance of our annual shareholders’ meetings,Annual General Meeting of Shareholders, which was held on May 25, 2010.June 21, 2013. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations”.
Also in 2010,2013, our Audit Committee reviewed with our external auditors our compliance with Section 404 of theSarbanes-Oxley Act. In addition, theour Audit Committee regularly discussed the progress of the implementation of internal control over financial reporting and reviewed management’s conclusions as to the effectiveness of internal control.
As part of each of its quarterly meetings, our Audit Committee reviewed our financial results as presented by Management and whistleblowing reports, including independent investigative reports provided by internal audit or outside consultants on such matters.
Compensation Committee.Committee. Our Compensation Committee proposeswas established to advise our Supervisory Board in relation to the compensation forof our President and Chief Executive Officer and sole member of our Managing
Board, as well as for our Chief Operating Officer, including the variable portion of such compensation based on performance criteria recommended by our Compensation Committee. It also approves any increase in the incentive component of
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Among its main activities, thein 2013 our Compensation Committee: (i) agreedreviewed the objectives met as compared to propose athe performance criteria relating to the CEO bonus for the CEO related to fiscal year 2009 equalended on December 31, 2012; (ii) reviewed the performance criteria relating to 65% of his base salary andthe CEO bonus for the COO related to fiscal year 2009 equal to 50%ending on December 31, 2013; (iii) reviewed the compensation scheme for members of his base salary, givenour Supervisory Board, as proposed by our Supervisory Board at the difficult market conditionsannual general meeting of shareholders held on June 21, 2013; and (iv) established, on behalf and with the objectives that had been met; (ii) recommendedapproval of the entire Supervisory Board, the applicable performance criteria, which must be met by the CEOsenior managers and COO in order to benefit from the bonus that was approved by our 2010 Annual General Meeting of Shareholders as part of the Managing Board compensation policy; and (iii) proposed performance criteria, which must be met by the CEO as well as all otherselected key employees participating in the employees stock award plans to benefit from such awards. In particular, theour Compensation Committee recommended that the performance targets for the base bonus of our CEO and COO be based on, among other factors, market share, introduction of new products for ACCI and IMS, the budget for 2010, the Company’s share price evolution versus SOX from July 27, 2010 through January 25, 2011, corporate governanceSOXX, new major accounts revenues as well as certain financial targets and special programs, including restructuring and5-year plan. The Compensation Committee, on behalf of, and with the approval of, the entire Supervisory Board, also set the criteria for a special incentive bonus.
For the 2010 nonvested2013 unvested stock award plan, theour Compensation Committee, on behalf, and with the approval, of the entire Supervisory Board, established the applicable performance criteria, which are based on sales and operating income evolution, as compared against a panel of semiconductor companies, and cash flow before acquisitions as well as cash restructuring costs, with the target to have it positive for the second half of 2010.
Strategic Committee.Committee. Our Strategic Committee was createdestablished to advise the Supervisory Board on and monitor key developments within the semiconductor industry and our overall strategy, and is, in particular, involved in supervising the execution of strategic transactions. Thecorporate strategies and in reviewinglong-term planning and budgeting. Our Strategic Committee met only once in 2010, as several of the2013. In addition, there were strategic discussions, were extended to involve all Supervisory Board members andmany of which occurred at extended Supervisory Board meetings.meetings and involved all Supervisory Board members. Among its main activities, theour Strategic Committee reviewed prospects and various possible scenarios and opportunities to meet the challenges of the semiconductor market, including the evaluation of possible divestitures and partnerships to invest in new markets.
Nominating and Corporate Governance Committee.Committee. Our Nominating and Corporate Governance Committee was created to establishadvise the Supervisory Board on the selection criteria and appointment procedures forrelating to the appointment of members to our Supervisory Board and Managing Board, and to resolve issuesreview principles relating to corporate governance. TheOur Nominating and Corporate Governance Committee met three5 times during 20102013 to discuss the selection of candidate members to our Supervisory Board, changes to the Dutch Corporate Governance Code, recent developments in U.S. law regarding corporate governance and preparations for the Annual General Meeting.
Secretariat and Controllers.Controllers. Our Supervisory Board appoints a Secretary and Vice Secretary as proposed by our Supervisory Board.Secretary. Furthermore, the Managing Board makes an Executive Secretary available to our Supervisory Board, who is also appointed by the Supervisory Board. The Secretary, Vice Secretary and Executive Secretary constitute the Secretariat of the Supervisory Board. The mission of the Secretariat is primarily to organize meetings, to ensure the continuing education and training of our Supervisory Board members and to maintain record-keeping. Messrs.record keeping. Mr. Bertrand Loubert andserves as Secretary, Mr. Luigi Chessa serveserves as Vice Secretary and ViceMr. Philippe Dereeper, our Chief Compliance Officer, serves as Executive Secretary respectively, for our Supervisory Board, and for each of the Compensation, Nominating and Corporate Governance and Strategic Committees of our Supervisory Board. Our Chief Compliance Officer, Ms. Alisia Grenville, serves as the Executive Secretary of our Supervisory Board. In addition, Mr. Willem Toussaint serves as the Secretarysecretary of theour Audit Committee.
Our Supervisory Board appoints and dismisses two financial experts (“Controllers”). The mission of the Controllers is primarily to assist our Supervisory Board in evaluating our operational and financial performance, business plan, strategic initiatives and the implementation of Supervisory Board decisions, as well as to review the operational reports provided under the responsibility of the Managing Board. The Controllers generally meet once a month with the management of the Company and report to our Supervisory Board. The current Controllers are Messrs. Christophe DuvalNicolas Manardo and Andrea Novelli, who have served as controllers since our 2005 annual shareholders’ meeting.
The STH Shareholders’ Agreement between our principal indirect shareholders contains provisions with respect to the appointment of the Secretary, Vice Secretary and Controllers, which are described in “Item 7. Major Shareholders and Related Party Transactions”.
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In accordance with Dutch law, our management is entrusted to the Managing Board under the supervision of our Supervisory Board. Mr. Carlo Bozotti, who wasre-appointed in 20082011 for a three-yearthree year term to expire at the
end of our annual shareholders’ meeting in 2011,2014 Annual General Meeting of Shareholders, is currently the sole member of our Managing Board with the function of President and Chief Executive Officer. The Supervisory Board has announced that it will reappoint Mr. Bozotti for a further three-year term. Mr. Alain Dutheil served as our Chief Operating Officer, reporting to Mr. Bozotti until January 26, 2011 and Mr. Didier Lamouche has succeeded Mr. Dutheil in this position as of January 26, 2011. Mr. Lamouche serves as Chief Operating Officer, reporting to Mr. Bozotti. Since its creation in 1987, our managing boardManaging Board has always been comprised of a sole member. The member of our Managing Board is appointed for a three-yearthree year term, as described in our Articles of Association, which may be renewed one or more times in accordance with our Articles of Association upon anon-binding proposal by our Supervisory Board at our shareholders’ meeting and adoption by a simple majority of the votes cast at the shareholders’ meeting where at least 15% of the issued and outstanding share capital is present or represented. If our Managing Board were to consist of more than one member, our Supervisory Board would appoint one of the members of our Managing Board to be chairman of our Managing Board for a three-yearthree year term, as defined in our Articles of Association (upon approval of at least three-quartersthree quarters of the members of our Supervisory Board). In such case, resolutions of our Managing Board would require the approval of a majority of its members.
Our shareholders’ meeting may suspend or dismiss one or more members of our Managing Board at a meeting at which at least one-halfone half of the outstanding share capital is present or represented. If a quorum is not present, a further meeting shall be convened, to be held within four weeks after the first meeting, which shall be entitled, irrespective of the share capital represented, to pass a resolution with regard to the suspension or dismissal of one or more members of our Managing Board. Such a quorum is not required if a suspension or dismissal is proposed by our Supervisory Board. In that case, a resolution to dismiss or to suspend a member of our Managing Board can be taken by a simple majority of the votes cast at a meeting where at least 15% of our issued and outstanding share capital is present or represented. Our Supervisory Board may suspend members of our Managing Board, but a shareholders’ meeting must be convened within three months after such suspension to confirm or reject the suspension. Our Supervisory Board shall appoint one or more persons who shall, at any time, in the event of absence or inability to act of all the members of our Managing Board, be temporarily responsible for our management.
Under Dutch law, our Managing Board is entrusted with our general management and the representation of the Company. Our Managing Board must seek prior approval from our shareholders’ meeting for decisions regarding a significant change in the identity or nature of the Company. Under our Articles of Association, our Managing Board must obtain prior approval from our Supervisory Board for (i) all proposals to be submitted to a vote at a shareholders’ meeting; (ii) the formation of all companies, acquisition or sale of any participation, and conclusion of any cooperation and participation agreement; (iii) all of ourmulti-year plans and the budget for the coming year, covering investment policy, policy regarding R&D, as well as commercial policy and objectives, general financial policy, and policy regarding personnel; and (iv) all acts, decisions or operations covered by the foregoing and constituting a significant change with respect to decisions already taken by our Supervisory Board. In addition, under our Articles of Association, our Supervisory Board and our shareholders’ meeting may specify by resolution certain additional actions by our Managing Board that require its prior approval.
In accordance with our Corporate Governance Charter, the sole member of our Managing Board and our Executive Officerssenior managers may not serve on the board of a public company without the prior approval of our Supervisory Board. Pursuant to the charter adopted by our Supervisory Board, the sole member of our Managing Board must inform our Supervisory Board of any (potential) conflict of interest and pursuant to such charter and Dutch law, any Managing Board resolution regarding a transaction in relation to which the sole member of our Managing Board has a conflict of interest must be approved and adopted by our Supervisory Board. Should our entire Supervisory Board also have a conflict of interest, the resolution must be adopted by our shareholders’ meeting pursuant to Dutch law. We are not aware of any potential conflicts of interests between the private interest or other duties of our sole Management Board member and our Executive Officerssenior managers and their duties to our Company.
Pursuant to the charter adopted by our Supervisory Board, the following decisions by our Managing Board with regardsregard to the Company and any of our direct or indirect subsidiaries (an “ST Group Company”) require prior approval from our Supervisory Board: (i) any modification of our or any ST Group Company’s Articles of Association or other constitutional documents, other than those of wholly-ownedwholly owned subsidiaries; (ii) any change in our or any ST Group Company’s authorized share capital or any issue, acquisition or disposal by us of our own shares, or any ST Group Company’s shares, or change in share rights or issue of any instruments granting an interest in our or an ST Group Company’s capital or profits other than those of our wholly-ownedwholly owned subsidiaries; (iii) any liquidation or dissolution of us or any ST Group Company or the disposal of all or a substantial and material part of our business or assets, or those of any ST Group Company, or of any shares in any such ST Group Company; (iv) any merger, acquisition or joint venture agreement (and, if substantial and material, any agreement relating to IP) or formation of a new company to which we or any ST Group Company is, or is proposed to be, a party, as well as the formation of new companies by us or any ST Group Company (with the understanding that only acquisitions above $25 million per transaction are subject to prior Supervisory Board
approval); (v) approval of our draft consolidated balance
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Executive OfficersSenior Management
Our executive officerssenior managers support our Managing Board in its management of the Company, without prejudice to our Managing Board’s ultimate responsibility. New corporate officers during 2010 and the first quarter of 2011 include: Didier Lamouche who joined the Company on November 1, 2010 and following
In August 2013, we introduced a transition period became the Chief Operating Officer on January 26, 2011; and Tjerk Hooghiemstra, who joined our company in February 2010 in the new, position of Executive Vice President, Chief Administrative Officer. In this role, Mr. Hooghiemstra reports to the President and CEO, Carlo Bozotti. We created this new position with the aim of generating synergies among many staff organizations, by optimizing the functions of Human Resources, Health & Safety, Education, Legal, Internal Communication, Security, and Corporate Responsibility. Claudia Levo joined the Company in January 2011 as Corporate Vice President, Communication and Fabio Gualandris rejoined the Company in February 2011 as Corporate Vice President and Director of Product Quality Excellence.
As a company committed to good governance, we hold several corporate meetings on a regular basis. Such meetings, which involve the participation of several of our executive officers,senior management, include:
Corporate Operations Reviews (COR), which meets twice per quarter to review monthly results andshort-term forecasts.
Corporate Staff Meeting, which meets once per quarter to review the business in its entirety and to plan and forecast for the next quarter and beyond.
Corporate Strategic Committee, which meets six times per year, sets corporate policy, coordinates strategies of our various functions and drives major cross functional programs.
Our senior managers as of December 31, 2013 were:
Name | Position(1) | Years with Company | Years in Semi-Conductor Industry | Age | ||||||||||
Carlo Bozotti | President and Chief Executive Officer | 37 | 37 | 61 | ||||||||||
Jean-Marc Chery | Executive Vice President, Vice Chairman of the Corporate Strategic Committee, General Manager, Embedded Processing Solutions (EPS) | 29 | 29 | 53 | ||||||||||
Carlo Ferro(1) | Chief Financial Officer, Executive Vice President Finance, Legal, Infrastructure and Services | 14 | 14 | 53 | ||||||||||
Mario Arlati(2) | Executive Vice President, Member of the Corporate Strategic Committee, Strategies and Business Management | 39 | 39 | 65 | ||||||||||
Georges Auguste | Executive Vice President, General Manager Packaging and Test Manufacturing | 27 | 39 | 64 | ||||||||||
Eric Aussedat | Executive Vice President, General Manager Imaging, BiCMOS ASIC & Silicon Photonics Group | 32 | 32 | 60 | ||||||||||
Orio Bellezza | Executive Vice President, Member of the Corporate Strategic Committee, General Manager,Front-End Manufacturing & Technology R&D Sense & Power and Automotive Products (SP&A) | 30 | 30 | 54 | ||||||||||
GianLuca Bertino | Executive Vice President, General Manager, Digital Convergence Group | 16 | 27 | 54 | ||||||||||
Philippe Brun | Corporate Vice President, Human Resources and Sustainable Development | 27 | 27 | 55 | ||||||||||
Marco Luciano Cassis | Executive Vice President, President, Japan and Korea Region | 26 | 26 | 50 | ||||||||||
Andrea Cuomo | Executive Vice President, Advanced Systems Technology and Special Projects, STMicroelectronics Chairman, 3Sun | 30 | 30 | 59 | ||||||||||
Claude Dardanne | Executive Vice President, Member of the Corporate Strategic Committee, General Manager, Microcontroller, Memory & Secure MCU Group | 31 | 34 | 61 | ||||||||||
Lorenzo Grandi | Corporate Vice President, Corporate Control | 26 | 26 | 52 | ||||||||||
Paul Grimme | Executive Vice President, Member of the Corporate Strategic Committee, General Manager, Sales & Marketing, Europe, Middle East and Africa | 5 | 33 | 54 | ||||||||||
Fabio Gualandris | Executive Vice President, Product Quality Excellence | 26 | 29 | 54 | ||||||||||
François Guibert | Executive Vice President, President, Greater China-South Asia Region | 33 | 36 | 60 | ||||||||||
Joel Hartmann | Executive Vice President, Front-End Manufacturing & Technology R&D, Embedded Processing Solutions (EPS) | 13 | 35 | 58 |
Name Position(1) Otto Kosgalwies Executive Vice President, Member of the Corporate Strategic Committee, Company Infrastructures and Services Robert Krysiak Executive Vice President, President, Americas Region Philippe Magarshack Executive Vice President, Design Enablement & Services Marco Monti Executive Vice President, General Manager Automotive Product Group Carmelo Papa Executive Vice President, Member of the Corporate Strategic Committee, General Manager, Industrial & Power Discrete Group Georges Penalver Chief Strategy Officer, Executive Vice President, Member of the Corporate Strategic Committee, Strategy, Communication, Human Resources and Quality Benedetto Vigna Executive Vice President, Member of the Corporate Strategic Committee, General Manager, Analog, MEMS & Sensors Group STMicroelectronics Years with
Company Years in
Semi-Conductor
Industry Age 30 30 58 31 31 59 19 28 52 27 27 52 31 31 64 2 2 57 19 19 44
(1) | ||
Mr. Carlo Ferro returned to |
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Years in | ||||||||||||||
Semi- | ||||||||||||||
Years with | Conductor | |||||||||||||
Name | Position | Company | Industry | Age | ||||||||||
Carlo Bozotti, Chairman | President and Chief Executive Officer | 34 | 34 | 58 | ||||||||||
Alain Dutheil, Vice Chairman(1) | Chief Operating Officer | 27 | 41 | 65 | ||||||||||
Georges Auguste(2) | Executive Vice President, Packaging and Test Manufacturing | 24 | 36 | 61 | ||||||||||
Orio Bellezza | Senior Executive Vice President, Member of the Corporate Strategic Committee and General Manager, Front-End Manufacturing | 27 | 27 | 51 | ||||||||||
Gian Luca Bertino | Executive Vice President, Computer and Communications Infrastructure | 13 | 24 | 51 | ||||||||||
Marco Luciano Cassis | Executive Vice President, Japan & Korea Region | 23 | 23 | 47 | ||||||||||
Patrice Chastagner | Corporate Vice President, Human Resources | 26 | 26 | 63 | ||||||||||
Jean-Marc Chery | Senior Executive Vice President, Member of the Corporate Strategic Committee and Chief Technology Officer | 26 | 26 | 50 | ||||||||||
Andrea Cuomo | Senior Executive Vice President, Member of the Corporate Strategic Committee and General Manager, Sales & Marketing, Europe, Middle East and Africa | 27 | 27 | 56 | ||||||||||
Claude Dardanne | Executive Vice President, General Manager, Microcontrollers, Memories & Secure MCUs | 28 | 31 | 58 | ||||||||||
Carlo Ferro | Senior Executive Vice President, Member of the Corporate Strategic Committee and Chief Financial Officer | 11 | 11 | 50 | ||||||||||
Alisia Grenville | Corporate Vice President, Chief Compliance Officer | 3 | 3 | 43 | ||||||||||
Paul Grimme | Executive Vice President and General Manager, Automotive Product Group | 2 | 30 | 51 | ||||||||||
François Guibert | Executive Vice President, President, Greater China & South Asia Region | 30 | 33 | 57 | ||||||||||
Tjerk Hooghiemstra(3) | Senior Executive Vice President, Member of the Corporate Strategic Committee and Chief Administrative Officer | 1 | 7 | 54 | ||||||||||
Otto Kosgalwies | Executive Vice President, Infrastructure and Services | 27 | 27 | 55 | ||||||||||
Robert Krysiak | Executive Vice President and General Manager, Americas | 28 | 28 | 56 | ||||||||||
Philippe Lambinet | Senior Executive Vice President, Member of the Corporate Strategic Committee and General Manager, Home Entertainment & Displays Group | 17 | 24 | 53 | ||||||||||
Loïc Lietar | Executive Vice President, New Ventures | 25 | 25 | 48 | ||||||||||
Pierre Ollivier | Corporate Vice President and General Counsel | 21 | 21 | 55 | ||||||||||
Carlo Ottaviani(4) | Corporate Vice President, Communication | 46 | 46 | 67 | ||||||||||
Carmelo Papa | Senior Executive Vice President, Member of the Corporate Strategic Committee and General Manager, Industrial Multisegment Sector | 28 | 28 | 61 | ||||||||||
Jeffrey See | Executive Vice President, Packaging and Test Manufacturing | 41 | 41 | 65 |
(2) | Mr. | |
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Carlo Bozotti is our President and Chief Executive Officer of ST and the sole member of our Managing Board. As CEO, Mr. Bozottihas held this position since March 2005. He is the ChairmanSole Member of our Executivethe Managing Board and chairs the Company’s Corporate Strategic Committee. Prior to taking on this new role at the 2005 annual shareholders’ meeting, Mr. Bozotti served as Corporate Vice President, Memories Product Group (“MPG”) since August 1998. Mr. Bozotti joined SGS-ATES (later renamed SGS Microelettronica), a predecessor company to STMicroelectronics, in 1977. Ten years later, when SGS Microelettronica in 1977 after graduating in Electronic Engineering fromof Italy merged with Thomson Semiconducteurs of France to form a new European champion, which is ST today and is among the University of Pavia.leading semiconductor companies worldwide, Mr. Bozotti served asbecame General Manager of the Telecom Product Manager for the Industrial, Automotive and Telecom products in the Linear Division and as Business Unit Manager for the Monolithic Microsystems Division from 1987Division. Subsequently, he was promoted to 1988. He was appointed Director of Corporate Strategic Marketing and Key Accounts for the Headquarters Region in 1988 and, becamelater, to Corporate Vice President, Marketing and Sales, Americas RegionAmericas. In 1994, Mr. Bozotti was appointed Corporate Vice President for Europe and the Headquarters Regions, overseeing the Company’s sales in 1991.Europe, as well as sales to key customers and strategic marketing worldwide. From 1998 to 2005, Mr. Bozotti served as Corporate Vice President MPGand General Manager of the Memory Products Group. Leveraging ST’s deep understanding of client and market needs, through the years Mr. Bozotti has contributed to forging a number of strategic customer alliances and joint ventures with other industry leaders in different market segments. In late 2012, Mr. Bozotti announced a strategic plan realigning the Company with changing market dynamics and announcing the decision to exit from August 1998 through March 2005,ST-Ericsson after having serveda transition period. The new ST focuses on two key pillars — Sense and Power and Automotive products and Embedded Processing Solutions — with five growth drivers: MEMS and sensors, smart power, automotive products, microcontrollers, and application processors including digital consumer. In 2011, Mr. Bozotti began a second (non-consecutive) term as Corporatethe President of the European Semiconductor Industry Association (ESIA). Mr. Bozotti graduated with a degree in Electronic Engineering from the University of Pavia, Italy.
Jean-Marc Chery is Executive Vice President, EuropeGeneral Manager, Embedded Processing Solutions (EPS) at ST, and Headquarters Region from 1994 to 1998. In 2008,has held this position since May 2013. He also holds overall responsibility for the Technology R&D andFront-End Manufacturing of EPS, as well as the Packaging & Test Manufacturing and Product Quality Excellence for the whole Company. Mr. Bozotti was appointed Chairman of the Supervisory Board of Numonyx until it was acquired by Micron in 2010. As of February 1, 2009, heChery is Vice Chairman of the Board of Directors of ST-Ericsson.
Mr. Dutheil joined Texas Instruments in 1969 as a Production Engineer, becoming Director for Discrete Products in France and Human Resources Director in France in 1980 and Director of Operations for Portugal in 1982. He joined Thomson Semiconductors in 1983 as General Manager of a plant in Aix-en-Provence, France and then became General Manager of SGS-Thomson Discrete Products Division. From 1989 to 1994, Mr. Dutheil served as Director for Worldwide Back-end Manufacturing, in addition to serving as Corporate Vice President for Human Resources from 1992 until 2005. From August 2008 through January 2009, Mr. Dutheil acted as CEO for our joint venture ST-NXP Wireless and as of the end of May 2011, Mr. Dutheil will retire from STMicroelectronics.
Carlo Ferro is Chief Financial Officer, Executive Vice President Finance, Legal, Infrastructure and Services and has held the CFO position since May 2003, with temporary suspension during his tenure atST-Ericsson, where he first served as Chief Operating Officer (February 2012- March 2013) and then was appointed President and Chief Executive Officer in April 2013 to lead there-organization to split up thejoint-venture business and resources to the two shareholders and wind-down the JV. Since August 2013, his overall responsibilities at ST encompass, in addition to Finance and Control, Central Operational Planning, Global Procurement, Legal, Intellectual Property, Compliance, Information and Communication Technology, Investor Relations, and Public Affairs in Italy. Mr. Ferro is a member of our Corporate Strategic Committee. He also maintains the role of President and CEO ofST-Ericsson. From 1992 to 1996, Mr. Ferro gained extensive experience in Planning and Control, Corporate Finance and M&A at Finmeccanica, the leading Italianhigh-tech engineering and manufacturing group and a diplomaformer shareholder of STMicroelectronics. Over the next three years he held executive positions for Elsag Bailey Process Automation NV, a global leader in process control listed at NYSE, first as Vice President for Strategic Planning, and later as Vice President for Planning and Control and Principal Financial Officer. In 1999, Mr. Ferro joined ST as Group Vice President Corporate Finance, overseeing finance and accounting for all the Company’s worldwide affiliates, tax planning, internal control, internal audit, and finance for M&A. In 2002, he became Deputy CFO, and was promoted to Chief Financial Officer in 2003. Mr. Ferro sits on the Board of Directors of STS, the Company’s manufacturing joint venture in China, and holds board memberships at ST’s affiliates in France and Italy. He served as Chairman of Incard, sole Managing Director of ST Service Srl and as board member and Chair of the Audit Committee of ST-Ericsson. He graduated in Business Administrationand Economics from Caenthe LUISS Guido Carli University in 1976. PriorRome, where he served as a professor of Planning and Control until 1996 and as an associate professor of Finance from 2008 through 2011. He is a Certified Public Accountant in Italy.
Mario Arlati is Executive Vice President, Strategies and Business Management for the Company’s Sense & Power and Automotive Products (SP&A) Segment and has held this position since August 2013. Mr. Arlati is a member of our Corporate Strategic Committee. Mr. Arlati started his professional career atSGS-ATES, a predecessor company of STMicroelectronics. He was an integral member of the teams that managed the 1987 merger of SGS Microelettronica and Thomson Semiconducteurs, and later, in 1994, ST’s Initial Public Offering on the NYSE and Euronext Paris, followed in 1998 by ST’s listing on the Borsa Italiana. Mr. Arlati’s career has covered all of the various functions including Accounting, Business Control, Finance, and Consolidation Reporting, in positions of increasing responsibility. He was promoted to joining us,Corporate Controller and later became Chief Accounting Officer and Head of External Reporting. He also participated in the establishment of the ST Foundation, an independent charitable organization, serving as a Director since its inception. From February 2012 to July 2013, Mr. Arlati served as Chief Financial Officer of ST. He graduated with a degree in Business and Economics from Università Cattolica in Milan, Italy.
Georges Auguste is Executive Vice President and General Manager of ST’s Packaging and Test Manufacturing organization and has held this position since May 2011. Mr. Auguste workedstarted his career in semiconductors with Philips Components from 1974as a technical manager. He joined Thomson Semiconducteurs, a predecessor company to STMicroelectronics, in 1986, and two years later was appointed General Manager of the manufacturing facility in various positions in the field of manufacturing.Nancy, France. From 1990, to 1997, he headed our operations in Morocco, and from 1997 to 1999, Mr. Auguste served as Managing Director of the Company’s operations in Morocco. In 1997, he was appointed Director of the Total Quality and Environmental Management.
Eric Aussedat is Executive Vice President and General Manager of Imaging, BiCMOS ASIC and Silicon Photonics Group and has managed these responsibilities since February 2012. Mr. Aussedat joined Thomson Semiconducteurs, a predecessor company to ST, as Product Engineer in 1981. He held various positions in product engineering and planning and was promoted Planning Manager of the Video Products Group in 1986. Later on, Mr. Aussedat was appointed to manage the product and manufacturing planning operations of INMOS, a UK company acquired by ST in 1989. Subsequently, he supervised the Engineering and Test Strategy for the Programmable Product Group before his promotion to the Head of ST’s Microcontroller Division in 1995. From 2000 to 2004, Mr. Aussedat led the TV and Display Division, and he became General Manager of ST’s Cellular Communication Division in 2005. Two years later, Mr. Aussedat was appointed General Manager of the Imaging Division, which has significantly strengthened its profitability under his direction. Mr. Aussedat graduated with a degree in Electronic Engineering from the Institut National Polytechnique in Grenoble and earned a diploma from the Institut d’Administration des Entreprises of Grenoble.
Orio Bellezza is Executive Vice President and General Manager ofFront-End Manufacturing is& Technology R&D for the Company’s Sense & Power and Automotive Products (SP&A) Segment. He has been responsible for allFront-End Manufacturing since 2008 and assumed additional responsibility for technology R&D for automotive and industrial & multisegment products in February 2012. He is a member of our wafer fabrication operations and facilities.Corporate Strategic Committee. Mr. Bellezza joinedSGS-ATES, a predecessor company to STMicroelectronics, in 1984. He graduated with honors in Chemistry from Milan University in 1983. He joined SGS-ATES in 1984 as a Process Engineer and after two yearssoon moved to the Company’s Central R&D department, where he worked first as a Development Engineerorganization and later asparticipated in several key projects, including the Process Integration Manager, responsible for submicron EPROM (Erasable Programmable Read-Only Memories)introduction of process technology modules.modules for manufacturingsub-micronnon-volatile memories. In 1996, Mr. Bellezza was namedappointed Director of ST’s R&D facility in Agrate and led its upgrade and expansion into the Agrate R1 ResearchCompany’s development center fornon-volatile memory and Development facility.smart-power technologies. In 2002, he was appointedbecame Vice President of Central R&D, and then in 2005, was namedappointed to Vice President and Assistant General Manager ofFront-End Technology and Manufacturing. He has published technical papers and earned several patents innon-volatile memories. Mr. Bellezza also served ongraduated with a degree in Chemistry from the BoardUniversity of the ST-Hynix memory-manufacturing joint venture established in Wuxi (China).
Gian Luca Bertino is our Executive Vice President and General Manager of ST’s Digital Convergence Group and has held this position since February 2012. Mr. Bertino started his professional career with Olivetti Personal Computers, where he rose through the ranks to Head of Development, Portable PCs. Bertino joinedSGS-Thomson Microelectronics (now STMicroelectronics) in 1997 as a Market Development Manager. The following year he was appointed Director of the Computer and Consumer Business Unit, responsible for sales and marketing in Europe, and was promoted to Europe Region Vice President, Computer and Communications Infrastructure. HeConsumer, in 2000. In 2003, Mr. Bertino joined ST’s Telecommunications, Peripherals and Automotive Group as Vice President and General Manager of the Data Storage Division, where he strengthened the Company’s partnerships in the storage segment. In 2005, Mr. Bertino was promoted to Corporate Vice President and General Manager of ST’s Computer Product Group, and in 2008, Mr. Bertino’s group was expanded to include the Communication Infrastructure organization. Mr. Bertino graduated in 1985with a degree in Electronic Engineering from the Polytechnic of Turin.Turin, Italy.
Philippe Brun is a Corporate Vice President in charge of ST’s Human Resources & Sustainable Development. Responsible for HR at ST since August 2012, his mission was expanded to cover the Company’s social responsibility, as well as environment, health, and safety in August 2013. Mr. Brun started his career at the Pechiney Group (now Rio Tinto). In 1986, he joined Thomson Semiconducteurs, a predecessor to STMicroelectronics, as aback-end process engineer. From 19861989 to 1997 he held several positions within1996, Mr. Brun managed Human Resources at the ResearchGrenoble, France site and Development organization of Olivetti’s semiconductor group before joining ST in 1997. Previously,served as Site Director at the Company’s St. Genis facility (France). In 1996, he was promoted to Human Resources Director responsible for over 10,000 employees in ST’s manufacturing organization worldwide. From 1999 to 2010, Mr. Brun served as Fab Operations and Site Director at ST’s plant in Rousset, France. In January 2011, he was appointed Group Vice President, Peripherals, General ManagerVP for execution excellence in ST’sFront-End Manufacturing organization. Mr. Brun graduated with an engineering degree from the Ecole Nationale Supérieure d’Arts et Métiers (ENSAM) in France and holds a Master degree in Aerospace engineering from the University of our Data Storage Division withinColorado and a management degree from the Telecommunications, Peripherals and Automotive (TPA) Groups.
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Audio Business Unit and a year later he was subsequently promoted to Director of Audio and Automotive Group, responsible for design, marketing, sales, application support and customer services.service. In 2004, Mr. Cassis was named Vice President of Marketing for the automotive, computer peripheral, and telecom products. In 2005, he advanced to Vice PresidentVP Automotive Segment Group and joined the Board of STMicroelectronics K.K., the Japanese subsidiary, STMicroelectronics K.K.
Andrea Cuomo is CorporateExecutive Vice President, Human Resources.Advanced Systems Technology (AST) and Special Projects, and has held this position since January 2012. He is a graduate of the HEC business school in France and in 1988 became the Grenoble Site Director, guiding the emergence of this facility to become one of the most important hubs in Europe for advanced, complex silicon chip development and solutions. As Human Resources Manager for the Telecommunications, Peripherals and Automotive (TPA) Groups, which was our largest product group at the time, he was also TQM Champion and applied the principle of continuous improvement to human resources as well as to manufacturing processes. Since March 2003, he has also been servingserves as Chairman of STMicroelectronics S.A. in France.
Claude Dardanne is Executive Vice President and General Manager of our Microcontrollers, MemoriesST’s Microcontroller, Memory & Secure MCUsMCU Group which is part of our Industrial & Multisegment Sector, and has held this position since January 2007. He is a member of our Corporate Strategic Committee. Mr. Dardanne started his career with Thomson Semiconducteurs, a predecessor company to ST. From 1982, he was responsible for the marketing of microcontroller and microprocessor products. Between 1989 and 1994, Mr. Dardanne served as Marketing Director at Apple Computer, France, andAlcatel-Mietec, Belgium, covering markets such as Education, Banking, as well as Automotive and Industrial. In 1994, he rejoined ST as Director of Central Marketing for the Memory Products Group. In 1998, Mr. Dardanne became Head of the EEPROM (Electronically Erasable ProgrammableRead-Only Memory) Division and was promoted to Group Vice President and General Manager of the SerialNon-Volatile Memories Division in 2002. Two years later, he was appointed Group Deputy General Manager and Head of the Smart Card Division. Mr. Dardanne was born near Limoges, France, in 1952, and graduated with a degree in Electronic Engineering from the Ecole Supérieure d’Ingénieurs en Génie Electrique in Rouen, France.
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Paul Grimme is Executive Vice President and General Manager, Sales & Marketing, for ST’s Europe, Middle East and Africa Region, and has held this position since January 2012. Mr. Grimme is a member of STMicroelectronics’ Automotive Product Group. He was born in 1959 in Yankton, South Dakota, and graduated from the University of Nebraska (Lincoln) with a degree in Electrical Engineering and from the University of Texas (Austin) with a Master of Business Administration.our Corporate Strategic Committee. Mr. Grimme began his career at Motorola, where he held positions of increasing responsibility in product engineering, marketing and operations management. He served as Corporate Vice President and General Manager of the8/16-bit Products Division. In 1999, Mr. Grimme was promoted to Vice President and General Manager of the Advanced Vehicle Systems Division. He was later appointed Senior Vice President of the Transportation and Standard Products Group and continued in that role at Freescale Semiconductor after Motorola spun off its semiconductor business. Mr. Grimme also served as Senior Vice President and General Manager of Freescale Semiconductor’s Microcontroller Solutions Group. Mr. Grimme joined STMicroelectronics as DeputyST in early 2009 and later that year he was appointed Executive Vice President and General Manager of theSTMicroelectronics’ Automotive Product Group in early 2009.Group. Mr. Grimme was promoted to his current positiongraduated from the University of Nebraska (Lincoln) with a degree in September 2009.
Fabio Gualandris is Corporatean Executive Vice President of ST in charge of Product Quality Excellence.Excellence and has held this position since February 2011. Mr. Gualandris joined the R&D organization of SGS Microelettronica, a predecessor company to ST, in 1984, and was promoted to R&D Director of Operations in 1989. In 1996, Mr. Gualandris became Automotive Business Unit Director, focusing on product quality and development.
After two years in the USU.S. as President and CEO of Semitool, a semiconductor-manufacturingsemiconductor manufacturing equipment vendor, he rejoined ST in 2000 as Group VP responsible for the RAM/PSRAM Product Division and the Flash Automotive Business Unit. In 2005, Mr. Gualandris was appointed CEO of ST Incard, an STsmart-card subsidiary. Two years later, he contributed to the carve out of ST’s Flash Memory Group and subsequently joined Numonyx, the joint venture with Intel, as VP and Supply Chain General Manager. Mr. Gualandris has authored several technical and managerial papers, holds some international patents, and served as a board member in Incard SA, ST Incard, and theNumonyx-Hynix joint venture in China. He also served as Board member and President of Numonyx Italy. Mr. Gualandris was born in Bergamo, Italy, in 1959. He graduated in Physics from the University of Milan.
François Guibert is Executive Vice President of ST and President of the Company’s Greater China-South Asia Region. Guibert has led ST’s operations in Asia Pacific since 2006; his responsibilities were expanded to include Greater China & Southin 2010. Guibert joined Thomson Semiconducteurs, a predecessor company to ST, in 1981, after three years at Texas Instruments. He was appointed Director of Semicustom Business for Asia Region.Pacific in 1987 and later became President of ST’s Taiwan operations. Guibert also held senior positions in Corporate Business Development and Investor Relations. In 2005, he was promoted to Corporate Vice President, Emerging Markets. Guibert serves as Director of ST’s JV with Shenzhen High Tech Industrial Company. He chairs the EU-ASEAN Business Council, the Board of Advisors for the Singapore Semiconductor Industry Association, and sits on boards at EuroCham in Singapore and Alliance Francaise de Singapour. Guibert previously chaired the Board at Veredus Laboratories, ST’s Singapore-based life-sciences subsidiary, and was a board member at the Singapore Economic Development Board. He was decorated Knight of the National Order of Merit in France in 2009. François Guibert was born in Beziers, France, in 1953, and graduated with a degree in Electronic Engineering from Ecole Centrale Marseille, France.
Joel Hartmann is Executive Vice President of ST,Front-End Manufacturing and Technology R&D, Embedded Processing Solutions (EPS). He has managed these responsibilities for ST’s digital products since February 2012. Mr. Hartmann is also in charge of the Company’s manufacturing operations in Crolles, France. From 1979 to 2000, Mr. Hartmann worked atCEA-Leti, anapplied-research center for microelectronics, information and healthcare technologies in Grenoble, France. In 2000, he joined ST as Director of the Crolles2 Alliance, thelarge-scale semiconductor manufacturing R&D initiative of STMicroelectronics, NXP and Freescale Semiconductor. In 2008, Mr. Hartmann was promoted to Group Vice President and Director of Advanced CMOS Logic & Derivative Technologies. In 2010, he gained additional responsibilities as aco-leader of the Semiconductor Research and Development Center in Fishkill, NY, within the IBM ISDA Technology Alliance for the development of advanced CMOS process. Mr. Hartmann sits on the Board of the SOI Industry Consortium Initiative and is a Member of the IEEE Electron Device Society. He has filed 15 patents on semiconductor technology and devices and authored 10 publications in this field to date. Mr. Hartmann graduated from the Ecole Nationale Supérieure d’Ingénieurs de MarseillesPhysique de Grenoble (ENSPG) with a degree in 1978. After three years at Texas Instruments, he joined Thomson Semiconducteurs in 1981 as Sales Manager Telecom. From 1983 to 1986, he was responsible for ICs and strategic marketing of telecom products in North America. In 1988 he was appointed Director of our Semi-custom Business for Asia Pacific and in 1989 he became President of ST-Taiwan. Since 1992 he has occupied senior positions in Business Development and Investor Relations and was Group Vice President, Corporate Business Development which includes M&A activities from 1995 to the end of 2004. In January 2005, Mr. Guibert was promoted to the position of Corporate Vice President, Emerging Markets Region and in October 2006, he was appointed to his current position. In 2008, Mr. Guibert was appointed a member of Veredus’ Board of Directors.
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Robert Krysiak is an Executive Vice President of STMicroelectronicsST and General ManagerPresident of the Company’s Americas Region and has held this position since January 2010. He also chairs ST’s Task Force on Electronic Manufacturing Services, the Worldwide Computer Market Program and the Worldwide Medical Program. Mr. Krysiak started his professional career in 1983 with INMOS, a company acquired bySGS-Thomson Microelectronics (now STMicroelectronics) in 1989. He formed and led a CPU design group since 1992, and in 1997 he was appointed Group Vice President and General Manager of ST’s STAR division, which incorporated16/32/64-bit microcontrollers and DSP products. Two years later he became Group Vice President responsible for micro cores development, including advancedSystem-on-Chip products for the digital consumer market. In 2001, Mr. Krysiak took charge of ST’s DVD division. In 2004, he was promoted to Marketing Director for the Home, Personal, and Communications sector, the Company’s largest product organization at the time. In
2005, when ST created its Greater China regional organization, covering ST’s operations in China, Hong Kong, and Taiwan, Mr. Krysiak was appointed Corporate Vice President and General Manager. Mr. Krysiak was born in Bristol, UK in 1954. He graduated from Cardiff University, UK, with a degree in Electronics and holds an MBA from the University of Bath, UK.
Philippe LambinetMagarshack is Senior Executive Vice President Member of the Corporate Strategic Committee and General Manager Home EntertainmentST in charge of Design Enablement & Displays Group.Services. He graduated from the Paris Ecole Supérieure d’Electricité in 1979 with a Master’s Degree in Electronics. He began his professional careerhas had these responsibilities since March 2012. From 1985 to 1989, Mr. Magarshack worked as a software engineer with Control Data Corporationmicroprocessor designer at AT&T Bell Labs in 1979the USA. In 1989, he joinedThomson-CSF in Grenoble, France, and took responsibility for libraries and ASIC design kits for the military market. In 1994, Mr. Magarshack joined the Central R&D Group ofSGS-THOMSON Microelectronics (now STMicroelectronics), where he has held several roles in 1980 joined Thomson’s semiconductor subsidiary EFCISCAD and Libraries management for advancedintegrated-circuit manufacturing processes. In 2005, Mr. Magarshack was promoted to work in application engineering. He later supervised ASIC Operations at Thomson’s Mostek Corporation in Carrollton, Texas and in 1990 took charge of design and marketing for Mixed Signal Semi-custom Products within the Company’s Programmable Products Group. In 1997, he became Group Vice President and General Manager of the Digital Video Division. He then joined Advanced Digital Broadcast Group (ADB) as CEO of ADB-SACentral CAD and became COO of ADB Holdings SADesign Solutions at ST’s Technology R&D and Vice Chairman. As of January 2011, heManufacturing organization. Mr. Magarshack is also Corporate Strategy Officer in charge of Strategic Planning and Corporate Business Development.
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Carmelo Papa is Executive Vice President, Strategies,General Manager of the Industrial & Power Discrete Group and contributed to establishinghas held this position since January 2012. He also leads ST’s R&D partnership with IBMOnline Marketing operations and two joint ventures —holds overall responsibility for the Numonyx flash-memory joint venture with Intel and ST-Ericsson, combining the wireless operationsSystem Lab, part of ST, NXP and Ericsson.ST’s Central Labs organization. Mr. LiétarPapa sits on the Board of Directors of the Global Semiconductor Alliance (GSA). He has been in chargeST New Ventures SA and is a member of STMicroelectronics’ strategy from January 2008 to January 2011. During this time, he was responsible for the Company’s Strategic Planning, Corporate Business Development and Corporate Communication (from February 2010). Mr. Lietar also sat on the Board of Directors of ST-Ericsson from February 2009 to January 2011. He graduated with a degree in Engineering from the École Polytechnique, Paris, in 1984, a Master’s degree in Microelectronics from Orsay University (1985) and he holds an MBA from Columbia University, New York (1993).
Georges Penalver is Chief Strategy Officer of ST, Executive Vice President Strategy, Communication, Human Resources and General Manager, Packaging & Test Manufacturing. AfterQuality and has held this position since August 2013. His overall responsibilities include Corporate Strategy and Development, Corporate Communication, Human Resources, Corporate Security, Product Quality Excellence, Public Affairs in France and EU, and ST New Ventures. He is a member of our Corporate Strategic Committee. Mr. See graduated fromPenalver started his career in 1980 with Sagem, where he developed the Singapore Polytechnic in 1965, he became a Chartered Electronic Engineer atBroadband Communications Business, overseeing the Institutionlaunch of Electrical Engineers (IEE) intelecommunication products, the UK. In 1969,international industrial deployments, and the development of global sales networks. Mr. See joined SGS Microelettronica, a forerunner company of ST, as a Quality Supervisor at its first Assembly and Test facility in Toa Payoh, Singapore and was promoted to Deputy Back-End Plant Manager in 1980. In 1983, Mr. SeePenalver was appointed to manageSagem’s Management Board in 2001 and served as Deputy CEO, pushing the mass development of mobile and Internet services. In 2005, he joined the France Telecom Orange Group as Deputy CEO for Strategy and Business Development, responsible, at the group level, for product marketing and management of services in France Telecom Orange, product creation and development for the entire group, and Orange Labs’ activities worldwide. In 2011, Mr. Penalver used his extensive experience to become astart-upco-founder and managing partner of CathayaCapital Fund. Mr. Penalver serves as EMEA Regional Leadership Director for the Global Semiconductor Alliance. He is a Knight of the region’s first wafer fabrication plant(125-mm)French “Ordre National du Mérite”. Mr. Penalver holds a degree from the Ecole Nationale Supérieure d’Arts et Métiers (Gold) and from the Ecole Nationale Supérieure des Télécommunications in Ang Mo Kio, Singapore and becameParis.
Benedetto Vigna is Executive Vice President, General Manager of the front-end operationsAnalog, MEMS & Sensors Group, and has held this position since September 2011. Mr. Vigna is a member of our Corporate Strategic Committee.
In 1995, Mr. Vigna joined ST’s R&D Labs and launched the Company’s efforts in 1992. In 2001, Mr. See was appointed Vice President and Assistant General Manager of Central Front-End Manufacturing and General ManagerMEMS. Six years later, he became Director of the Asia Pacific Manufacturing Operations,MEMS Business Unit, responsible for wafer fabricationdesign, manufacturing and electrical wafer sortmarketing of ST’s MEMS accelerometers and gyroscopes. These have been successfully adopted by large consumer equipment manufacturers formotion-activated user interfaces in many popular devices, including the region.
As is common in the semiconductor industry, our success depends to a significant extent upon, among other factors, the continued service of our key senior executives and research and development, engineering, marketing, sales, manufacturing, support and other personnel, and on our ability to continue to attract, retain and motivate qualified personnel. The competition for such employees is intense, and the loss of the services of any of these key personnel without adequate replacement or the inability to attract new qualified personnel could have a material adverse effect on us. We do not maintain insurance with respect to the loss of any of our key personnel. See “Item 3.
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Compensation
The aggregate compensation for the members and former membersmember of our Supervisory Board in respect of service in 20102013 was €942,875.00€979,500 before any withholding taxes and applicable mandatory social contributions, as set forth in the following table.
Supervisory Board Members | Directors’ Fees(1) | |||
Didier Lombard | € | 164,625 | ||
Bruno Steve | € | 160,500 | ||
Jean d’Arthuys | € | 0 | (2) | |
Janet G. Davidson(3) | € | 94,625 | ||
Raymond Bingham(4) | € | 6,750 | ||
Jean-Georges Malcor | € | 95,875 | ||
Alessandro Ovi | € | 102,875 | ||
Alessandro Rivera | € | 93,000 | ||
Martine Verluyten | € | 145,875 | ||
Tom de Waard | € | 115,375 | ||
Total | € | 979,500 |
(1) | These amounts include a fixed annual compensation for the directors’ mandate, together with attendance fees from January 1, 2013 until December 31, 2013. |
(2) | Mr. d’Arthuys would have been entitled to receive €99,000 in 2013, but he waived his right to receive any compensation from the Company in relation to his mandate as a member of |
(3) | Ms. Davidson was appointed as a member of our Supervisory Board |
(4) | Mr. Bingham was |
We do not have any service agreements with members of our Supervisory Board.
The total amount paid as compensation in 20102013 to our executive officers,senior management on duty on December 31, 2013, including Mr. Carlo Bozotti, the sole member of our Managing Board and our President and CEO, as well as executive officers employed by us during 2010, was approximately $15.7$17.4 million before any withholding taxes. Such amount also includes the amounts of EIP paid to the executive officerssenior management pursuant to a Corporate Executive Incentive Program (the “EIP”) that entitles selected executives to a yearly bonus based upon the individual performance of such executives. The maximum bonus awarded under the EIP is based upon a percentage of the executive’s salary and is adjusted to reflect our overall performance. The participants in the EIP must satisfy certain personal objectives that are focused,inter alia,, on return on net assets, customer service, profit, cash flow and market share. The relative charges andnon-cash benefits were approximately $12.5$10.9 million. Within such amount, the remuneration of ourthe current sole member of our Managing Board and President and CEO in 20102013 was:
Sole Member of Our Managing Board and | Non-cash | |||||||||||||||
President and CEO | Salary | Bonus(1) | Benefits(2) | Total | ||||||||||||
Carlo Bozotti | $ | 804,824 | $ | 510,906 | $ | 957,323 | $ | 2,273,053 |
Sole Member of Our Managing Board and President and CEO | Salary | Bonus(1) | Charges and Non-Cash Benefits(2) | Total | ||||||||||||
Carlo Bozotti | $ | 1,059,559 | $ | 1,165,514 | $ | 1,181,232 | $ | 3,406,305 |
(1) | ||
The bonus paid to the sole member of our Managing Board and President and CEO during the |
(2) | Including stock awards, employer social contributions, company car allowance, pension contributions and miscellaneous allowances. In accordance with the resolutions adopted at our Annual General Meeting of Shareholders held on May 30, 2012, the bonus of the sole member of our Managing Board and our President and CEO during the 2013 financial year included a portion of a bonus payable in stock awards and corresponding to 33,621 shares based on fulfillment of a number ofpre-defined objectives. |
Mr. Bozotti wasre-appointed as sole member of our Managing Board and President and Chief Executive Officer of our company by our annual shareholders’ meetingAnnual General Meeting of Shareholders on May 14, 20083, 2011 for a three-yearthree year period. At our annual shareholders’ meeting in 2011, the mandate of Mr. Bozotti will expire; however, the Supervisory Board will propose for shareholder approval the reappointment of Mr. Bozotti for a three-year term at our annual shareholders’ meeting in 2011. In each of the years 2007, 20082010, 2011 and 2009,2012, Mr. Bozotti was granted, in accordance with the compensation policy approved by the shareholders’our Shareholders’ meeting, up to 100,000 nonvestedunvested Stock Awards. The vesting of such stock awards is conditional upon certain performance criteria, fixed by our Supervisory Board, being achieved as well as Mr. Bozotti’s continued service with us.
In 2009, our Supervisory Board approved the terms of Mr. Bozotti’s employment by us, which are consistent with the compensation policy approved by our 2005 annual shareholders’ meeting. Annual General Meeting of Shareholders.
Effective May 1, 2011, the terms of Mr. Bozotti’s employment were further modified and reviewed by our Supervisory Board.
Mr. Bozotti has two employment agreements with us, the first with our Dutch parent company, which relates to his activities as sole member of our Managing Board and representative of the Dutch legal entity, and the second in Switzerland, which relates to his activities as President and CEO, EIP, Pension and other items covered by the compensation policy approved by our shareholders.
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With regard to Mr. Bozotti’s 2008 nonvested stock awards, the Supervisory Board, upon the recommendation of its Compensation Committee, noted that only one out of the three performance criteria linked to sales, operating income and return on net assets had been met under the Employee stock award Plan and concluded that Mr. Bozotti was entitled to 33,331 stock awards, which vest as defined by the Plan one year, two years and three years, respectively, after the date of the grant, provided Mr. Bozotti is still an employee at such time (subject to the acceleration provisions in the event of a change in control).
With regard to Mr. Bozotti’s 20102011 stock awards, the Supervisory Board, upon recommendation of the Compensation Committee, noted that none of the three performance criteria linked to sales, operating income and return on net assets had been met under the employee stock award plan and concluded that Mr. Bozotti was not entitled to any stock award.
With regard to Mr. Bozotti’s 2012 stock awards, the Supervisory Board, upon recommendation of the Compensation Committee, noted that only two out of the three performance criteria linked to sales, operating income and cash flow had been met under the employee stock award plan and concluded that Mr. Bozotti was entitled to 66,672 stock awards, which vest as defined by the plan one year, two years and three years, respectively, after the date of the grant provided Mr. Bozotti is still an employee at such time (subject to the acceleration provisions in the event of a change in control).
During 2013, Mr. Bozotti did not exercise any stock options granted to him, and did not sell any vested stock awards or purchase or sell any of our shares.
With regard to Mr. Bozotti’s 2013 stock awards, the Supervisory Board, upon recommendation of the Compensation Committee, set the criteria for the attribution of the 100,000 stock awards permitted. The Supervisory Board, however, has not yet determined whether the performance criteria which condition the vesting (and which, likeas for all executive employees benefiting from nonvestedunvested share awards, are linked to sales, operating income and cash flow) have been met.
Our Supervisory Board has approved the establishment of a complementary pension plan for our top executive management, comprising the CEO, COO and other key executives to be selected by the CEO, according to the general criteria of eligibility and service set up by the Supervisory Board upon the proposal of its Compensation Committee. InWith respect to such plan, we have set up an independent foundation under Swiss law which manages the plan and to which we make contributions. Pursuant to this plan, in 20102013 we made a contribution of $0.3 million to the plan of our current President and Chief Executive Officer $0.4 million to the plan of our Chief Operating Officer, and $0.4$0.6 million to the plan for all other beneficiaries. The amount of pension plan payments made for other beneficiaries, such as former employees retired in 20102013 and no longer salaried in 2010 were $0.52013, was $0.8 million.
We did not extend any loans or overdrafts to our Supervisory Board members or to the sole member of our Managing Board and President and CEO. Furthermore, we have not guaranteed any debts or concluded any leases with our Supervisory Board members or their families, or the sole member of the Managing Board or his family. We did advance certain funds relating to withholding taxes on behalf of one of our Supervisory Board members in connection with his sale of restricted stock awards. Such advances were not material and have been fully repaid to the Company.
For information regarding stock options and other stock-basedstock based compensation granted to members of our Supervisory Board, the Managing Board and our executive officers,senior management, please refer to “— Stock Awards and Options” below.
The current members of our Executive Committee and the Managing Board were covered in 20102013 under certain group life and medical insurance programs provided by us. The aggregate additional amount set aside by us in 20102013 to provide pension, retirement or similar benefits for our Executive Committee and our Managing Board as a group is in addition to the amounts allocated to the complementary pension plan described above and is estimated to have been approximately $3.6$5.2 million, which includes statutory employer contributions for state-runstate run retirement, similar benefit programs and other miscellaneous allowances.
Share Ownership
None of the members of our Supervisory Board and Managing Board or our executive officerssenior management holds shares or options to acquire shares representing more than 1% of our issued share capital.
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Our stock options and stock awardstock-based compensation plans are designed to incentivize, attract and retain our executives and key employees by aligning compensation with our performance and the evolution of our share price. We have adopted stock-basedstock based compensation plans comprising either stock options or nonvestedunvested stock awards that benefitfor our President and CEOsenior management as well as key employees (employee stock optionsand/or employee nonvested stock award plans) and stock options or vested stock awards that benefitemployees. Upon the proposal of our Supervisory Board, our Annual General Meeting of Shareholders held on June 21, 2013 resolved to abolish and terminate thestock-based compensation for members and professionals (Supervisoryof our Supervisory Board stock optionsas (previously) included in theand/orthree-yearstock-based stock award plans).
Pursuant to the shareholders’ resolutions adopted by our 2008 and 2009 annual shareholders’ meeting,general meetings of shareholders, our Supervisory Board, upon the proposal of the Managing Board and the recommendation of the Compensation Committee, took the following actions:
approved, for a five year period, our 2008 unvested Stock Award Plan for Executives and Key Employees, under which directors, managers and selected employees may be granted stock awards upon the fulfillment of restricted criteria, such as those linked to our performance and continued service with us;
approved conditions relating to our 2009 unvested stock award allocation under the 2008 Stock Award Plan, including restriction criteria linked to our performance;
approved conditions relating to our 2010 unvested stock award allocation under the 2008 Stock Award Plan, including restriction criteria linked to our performance;
approved conditions relating to our 2011 unvested stock award allocation under the 2008 Stock Award Plan, including restriction criteria linked to our performance; and
approved conditions relating to our 2012 unvested stock award allocation under the 2008 Stock Award Plan, including restriction criteria linked to our performance.
At our Annual General Meeting of Shareholders held on June 21, 2013, it was resolved to approve a newfour-year Unvested Stock Award Plan for the Management and Key Employees, which provides that stock awards may be granted under restricted criteria to selected employees.
We use our treasury shares to cover the stock awards granted under the Employee USA Plans. Asunvested stock award plans. In the year ended as of December 31, 2010, 3,251,7372013, 2,507,616 stock awards granted in relation to the 2007, 20082010 and 2009 plans2012 had vested, leaving 28,734,00220,096,542 treasury shares outstanding. The 2010 Employee nonvested stock award planallocation for 2013 generated an additional charge of $12$13 million in the consolidated statementsstatement of income for 2010,2013, which corresponds to the cost per service in the year for all granted shares that are (or are expected to be) vested pursuant to the financial performance criteria being met.
The exercise of stock options and the sale or purchase of shares of our stock by the members or professionals of our Supervisory Board, the sole member of our Managing Board and President and CEO, and all our employees are subject to an internal policy which involves,inter alia,, certain blackout periods.
Employee and Managing Board Stock-BasedStock Based Compensation Plans
2001 Stock Option Plan.Plan At the annual shareholders’ meeting on April 25,. Our 2001 our shareholdersAnnual General Meeting of Shareholders approved resolutions authorizing the Supervisory Board, for a period of five years, to adopt and administer a stock option plan (in the form of five annual tranches) that provided for the granting to our managers and professionals of options to purchase up to a maximum of 60 million common shares (the “2001 Stock Option Plan”). The amount of options granted to the sole member of our Managing Board and President and CEO is determined by our Compensation Committee, upon delegation from our Supervisory Board and, since 2005, has been submitted for approval by our annual shareholders’ meeting. The amount of stock options granted to other employees was made by our Compensation Committee on delegation by our Supervisory Board and following the recommendation of the sole member of our Managing Board and President and CEO. In addition, the Supervisory Board delegated to the sole member of our Managing Board and President and CEO the flexibility to grant, each year, up to a determined number of share awards to our employees pursuant to the 2001 Stock Option Plan in special cases or in connection with an acquisition.
In 2005, our shareholders at our annual shareholders’ meetingAnnual General Meeting of Shareholders approved a modification to our 2001 Stock Option Plan so as to provide the grant of up to four million nonvestedunvested stock awards instead of stock options to our senior executives and certain of our key employees, as well as the grant of up to 100,000 nonvested Stock Awardsunvested stock awards instead of stock options to our President and CEO. A total of 4,159,915 sharesunvested stock awards have been awardedgranted pursuant to the modification of such Plan,plan, which include sharesincludes unvested stock awards that were awardedgranted to employees who subsequently left our Company thereby forfeiting their awards. Certain forfeited shareunvested stock awards were subsequently awarded to other employees.
Pursuant to such approval, the Compensation Committee, upon delegation from our Supervisory Board, approved the conditions that apply to the vesting of such awards. These conditions related to both our financial
performance, pursuant to certain defined criteria in 2005 and during the first quarter of 2006, and the continued presence of the beneficiaries of the nonvestedunvested stock awards at the defined vesting dates in 2006, 2007 and 2008. Of the shares awarded, none remain outstanding and nonvestedunvested as of December 31, 2010.
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April 25, 2001
(outstanding grants)
Tranche 1 | Tranche 2 | Tranche 3 | Tranche 4 | Tranche 5 | Tranche 6 | Tranche 7 | ||||||||
Date of the grant | 27-Apr-01 | 4-Sep-01 | 1-Nov-01 | 2-Jan-02 | 25-Jan-02 | 25-Apr-02 | 26-Jun-02 | |||||||
Total Number of Shares which may be purchased | 9,521,100 | 16,000 | 61,900 | 29,400 | 3,656,103 | 9,708,390 | 318,600 | |||||||
Vesting Date | 27-Apr-03 | 4-Sep-03 | 1-Nov-03 | 2-Jan-04 | 25-Jan-03 | 25-Apr-04 | 26-Jun-04 | |||||||
Expiration Date | 27-Apr-11 | 4-Sep-11 | 1-Nov-11 | 2-Jan-12 | 25-Jan-12 | 25-Apr-12 | 26-Jun-12 | |||||||
Exercise Price | $39.00 | $29.70 | $29.61 | $33.70 | $31.09 | $31.11 | $22.30 | |||||||
Terms of Exercise | 32% on | 32% on | 32% on | 32% on | 50% on | 32% on | 32% on | |||||||
27-Apr-03 | 4-Sep-03 | 1-Nov-03 | 2-Jan-04 | 25-Jan-03 | 25-Apr-04 | 26-Jun-04 | ||||||||
32% on | 32% on | 32% on | 32% on | 50% on | 32% on | 32% on | ||||||||
27-Apr-04 | 4-Sep-04 | 1-Nov-04 | 2-Jan-05 | 25-Jan-04 | 25-Apr-05 | 26-Jun-05 | ||||||||
36% on 27-Apr-05 | 36% on 4-Sep-05 | 36% on 1-Nov-05 | 36% on 2-Jan-06 | 36% on 25-Apr-06 | 36% on 26-Jun-06 | |||||||||
Number of Shares to be acquired with Outstanding Options as of December 31, 2010 | 6,628,730 | 0 | 29,800 | 18,100 | 2,443,311 | 6,914,869 | 91,206 | |||||||
Held by Managing Board/Executive Officers | 313,500 | 0 | 0 | 0 | 122,300 | 324,530 | 0 |
Tranche 10 | Tranche 11 | Tranche 12 | Tranche 13 | Tranche 14 | Tranche 15 | Tranche 16 | Tranche 17 | |||||||||||||||||||||||||
Date of the grant | 14 Mar 03 | 3 Jun 03 | 24 Oct 03 | 2 Jan 04 | 26 Apr 04 | 1 Sep 04 | 31 Jan 05 | 17 Mar 05 | ||||||||||||||||||||||||
Total Number of Shares which may be purchased | 11,533,960 | 306,850 | 135,500 | 86,400 | 12,103,490 | 175,390 | 29,200 | 13,000 | ||||||||||||||||||||||||
Vesting Date | 14 Mar 05 | 3 Jun 05 | 24 Oct 05 | 2 Jan 06 | 26 Apr 06 | 1 Sep 06 | 31 Jan 07 | 17 Mar 07 | ||||||||||||||||||||||||
Expiration Date | 14 Mar 13 | 3 Jun 13 | 24 Oct 13 | 2 Jan 14 | 26 Apr 14 | 1 Sep 14 | 31 Jan 15 | 17 Mar 15 | ||||||||||||||||||||||||
Exercise Price | $19.18 | $22.83 | $25.90 | $27.21 | $22.71 | $17.08 | $16.73 | $17.31 | ||||||||||||||||||||||||
Terms of Exercise | | 32% on 14 Mar 05 | | | 32% on 3 Jun 05 | | | 32% on 24 Oct 05 | | | 32% on 2 Jan 06 | | | 32% on 26 Apr 06 | | | 32% on 1 Sep 06 | | | 32% on 31 Jan 07 | | | 32% on 17 Mar 07 | | ||||||||
| 32% on 14 Mar 06 | | | 32% on 3 Jun 06 | | | 32% on 24 Oct 06 | | | 32% on 2 Jan 07 | | | 32% on 26 Apr 07 | | | 32% on 1 Sep 07 | | | 32% on 31 Jan 08 | | | 32% on 17 Mar 08 | | |||||||||
| 36% on 14 Mar 07 | | | 36% on 3 Jun 07 | | | 36% on 24 Oct 07 | | | 36% on 2 Jan 08 | | | 36% on 26 Apr 08 | | | 36% on 1 Sep 08 | | | 36% on 31 Jan 09 | | | 36% on 17 Mar 09 | | |||||||||
Number of Shares which may be acquired with Outstanding Options as of December 31, 2013 | 0 | 0 | 0 | 1,900 | 8,056,365 | 86,786 | 13,200 | 0 | ||||||||||||||||||||||||
Held by Managing Board/Senior Management | 0 | 0 | 0 | 0 | 408,200 | 0 | 0 | 0 |
2001 Plan (Employees) (continued)April 25, 2001(outstanding grants)
Tranche 8 | Tranche 9 | Tranche 10 | Tranche 11 | Tranche 12 | Tranche 13 | Tranche 14 | Tranche 15 | Tranche 16 | Tranche 17 | |||||||||||
Date of the grant | 1-Aug-02 | 17-Dec-02 | 14-Mar-03 | 3-Jun-03 | 24-Oct-03 | 2-Jan-04 | 26-Apr-04 | 1-Sep-04 | 31-Jan-05 | 17-Mar-05 | ||||||||||
Total Number of Shares which may be purchased | 24,500 | 14,400 | 11,533,960 | 306,850 | 135,500 | 86,400 | 12,103,490 | 175,390 | 29,200 | 13,000 | ||||||||||
Vesting Date | 1-Aug-04 | 17-Dec-04 | 14-Mar-05 | 3-Jun-05 | 24-Oct-05 | 2-Jan-06 | 26-Apr-06 | 1-Sep-06 | 31-Jan-07 | 17-Mar-07 | ||||||||||
Expiration Date | 1-Aug-12 | 17-Dec-12 | 14-Mar-13 | 3-Jun-13 | 24-Oct-13 | 2-Jan-14 | 26-Apr-14 | 1-Sep-14 | 31-Jan-15 | 17-Mar-15 | ||||||||||
Exercise Price | $20.02 | $21.59 | $19.18 | $22.83 | $25.90 | $27.21 | $22.71 | $17.08 | $16.73 | $17.31 | ||||||||||
Terms of Exercise | 32% on | 32% on | 32% on | 32% on | 32% on | 32% on | 32% on | 32% on | 32% on | 32% on | ||||||||||
1-Aug-04 | 17-Dec-04 | 14-Mar-05 | 3-Jun-05 | 24-Oct-05 | 2-Jan-06 | 26-Apr-06 | 1-Sep-06 | 31-Jan-07 | 17-Mar-07 | |||||||||||
32% on | 32% on | 32% on | 32% on | 32% on | 32% on | 32% on | 32% on | 32% on | 32% on | |||||||||||
1-Aug-05 | 17-Dec-05 | 14-Mar-06 | 3-Jun-06 | 24-Oct-06 | 2-Jan-07 | 26-Apr-07 | 1-Sep-07 | 31-Jan-08 | 17-Mar-08 | |||||||||||
36% on | 36% on | 36% on | 36% on | 36% on | 36% on | 36% on | 36% on | 36% on | 36% on | |||||||||||
1-Aug-06 | 17-Dec-06 | 14-Mar-07 | 3-Jun-07 | 24-Oct-07 | 2-Jan-08 | 14-Mar-08 | 1-Sep-08 | 31-Jan-09 | 17-Mar-09 | |||||||||||
Number of Shares to be acquired with Outstanding Options as of December 31, 2010 | 1,300 | 12,900 | 8,868,063 | 163,950 | 112,150 | 11,700 | 9,432,285 | 107,231 | 17,300 | 6,000 | ||||||||||
Held by Managing Board/ Executive Officers | 0 | 0 | 392,200 | 0 | 31,000 | 0 | 475,400 | 0 | 0 | 0 |
In 2008, in accordance with the Employee Unvested Share Award Plan, as approved by our shareholders at our annual shareholders’ meeting in 2008 up to six million nonvested stock awards could be granted to our senior executives and certainAnnual General Meeting of our key employees. Our shareholders at our annual shareholders’ meeting in 2008 also approved the grant of up to 100,000 nonvested Stock Awards to our President and CEO. 5,773,705 shares have been awarded under such allocation as of December 31, 2010, out of which up to 628,510 remain outstanding but nonvested as of December 31, 2010.
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2008 Unvested Share Award Plan — 2011 Allocation
In accordance with the Employee Unvested Share Award Plan, as approved by our 2008 Annual General Meeting of Shareholders and further approved by our 2011 Annual General Meeting of Shareholders, up to 6,150,000 unvested stock awards could be granted to our senior executives and certain of our key employees. Our shareholders at our annual shareholders’ meeting in 2011 approved the grant of up to 100,000 unvested stock awards to our President and CEO. 5,976,630 unvested stock awards have been granted under such allocation as of December 31, 2013, out of which none remain outstanding and unvested as of December 31, 2013.
2008 Unvested Share Award Plan — 2012 Allocation
In accordance with the Employee Unvested Share Award Plan, as approved by our 2008 Annual General Meeting of Shareholders and further approved by our 2012 Annual General Meeting of Shareholders, up to 6,500,000 unvested stock awards could be granted to our senior executives and certain of our key employees. Our shareholders at our annual shareholders’ meeting in 2012 approved the grant of up to 100,000 unvested Stock Awards to our President and CEO. 6,566,375 shares6,520,765 unvested stock awards have been awardedgranted under such allocation as of December 31, 2010,2013, out of which up to 6,506,8203,152,539 remain outstanding but nonvestedunvested as of December 31, 2010.
2013 Unvested Share Award Plan — 2013 Allocation
In accordance with the Employee Unvested Share Award Plan, as approved by our 2013 Annual General Meeting of Shareholders, up to 6,900,000 unvested stock awards could be granted to our senior executives and certain of our key employees. Our shareholders at our annual shareholders’ meeting in 2013 approved the grant of up to 100,000 unvested stock awards to our President and CEO. 6,412,045 unvested stock awards have been granted under such allocation as of December 31, 2013, out of which 6,379,320 remain outstanding but unvested as of December 31, 2013.
Pursuant to such approval, the Compensation Committee, upon delegation from our Supervisory Board, has approved the conditions which shall apply (when applicable) to the vesting of such awards. These conditions relate both to our financial performance meeting certain defined criteria in 2010,2013, and to the continued presence at the defined vesting dates in 2011, 20122014, 2015 and 20132016 of the beneficiaries of the nonvestedunvested stock awards.
Furthermore, the Compensation Committee, on behalf of the entire Supervisory Board and with the approval of the entire Supervisory Board, approved the list of beneficiaries of the unvested stock awards and delegated to our President and Chief Executive Officer the right to grant certain additional unvested stock awards to key employees, in exceptional cases, provided that the total number of unvested stock awards granted to executives and key employees shall not exceed 6,516,4606,900,000 for 2010 shares.
Supervisory Board Stock OptionBased Compensation Plans
2002 Stock Option Plan for members and professionals of our Supervisory Board.Board A. Our 2002 Annual General Meeting of Shareholders approved the adoption of a stock option plan was adopted on March 27, 2002for members and professionals of our Supervisory Board (the “2002 Stock Option Plan”). Pursuant to thisThe 2002 Stock Option Plan the annual shareholders’ meeting authorizedprovided for the grant of 12,000 options per year to each member of our Supervisory Board during the course of his three-year tenure (during the three-year period from2002-2005),and 6,000 options per year to allthe professionals of the professionals.our Supervisory Board. Pursuant to the 1999 and 2002 Plans,Stock Option Plan, stock options for the subscription of 819,000396,000 shares were granted to the members of the Supervisory Board and professionals. Options were granted to members and professionals of our Supervisory Board, under the 1999, and 2002 Stock Option Plans as shown in the table below:
1999 and 2002 Plans
Stock Option Plan
(for Supervisory Board Membersmembers and Professionals)(outstanding grants)professionals)
Date of Annual | May 31, 1999 | March 27, 2002 | ||||||||
Shareholders’ Meeting | Tranche 2 | Tranche 3 | Tranche 1 | Tranche 2 | Tranche 3 | |||||
Date of the grant | 16-Jun-00 | 27-Apr-01 | 25-Apr-02 | 14-Mar-03 | 26-Apr-04 | |||||
Total Number of Shares which may be purchased | 103,500 | 112,500 | 132,000 | 132,000 | 132,000 | |||||
Vesting Date | 16-Jun-01 | 27-Apr-02 | 25-May-02 | 14-Apr-03 | 26-May-04 | |||||
Expiration Date | 16-Jun-08 | 27-Apr-11 | 25-Apr-12 | 14-Mar-13 | 26-Apr-14 | |||||
Exercise Price | $62.01 | $39.00 | $31.11 | $19.18 | $22.71 | |||||
Terms of Exercise | All exercisable after 1 year | All exercisable after 1 year | All exercisable after 1 year | All exercisable after 1 year | All exercisable after 1 year | |||||
Number of Shares to be acquired with Outstanding Options as of December 31, 2010 | 0 | 90,000 | 108,000 | 108,000 | 132,000 |
Date of Annual Shareholders’ Meeting | March 27, 2002 | |||||||||||
Tranche 1 | Tranche 2 | Tranche 3 | ||||||||||
Date of the grant | 25 Apr 2002 | 14 Mar 2003 | 26 Apr 2004 | |||||||||
Total Number of Shares which may be purchased | 132,000 | 132,000 | 132,000 | |||||||||
Vesting Date | 25 May 2002 | 14 Apr 2003 | 26 May 2004 | |||||||||
Expiration Date | 25 Apr 2012 | 14 Mar 2013 | 26 Apr 2014 | |||||||||
Exercise Price | $31.11 | $19.18 | $22.71 | |||||||||
Terms of Exercise | | All exercisable after 1 year | | | All exercisable after 1 year | | | All exercisable after 1 year | | |||
Number of Shares to be acquired with Outstanding Options as of December 31, 2013 | 0 | 0 | 132,000 |
At December 31, 2010,2013, options to purchase a total of 90,000 common shares were outstanding under the 1999 Stock Option Plan and options to purchase 348,000132,000 common shares were outstanding under the 2002 Supervisory Board Stock Option Plan.
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In 2005, 66,000 sharesstock awards were granted to the beneficiaries under such plan, which had completely vested as of December 31, 2008. In 2006, 66,000 sharesstock awards were granted to the beneficiaries under such plan, which had completelyall vested as of December 31, 2009. In 2007, 165,000 sharesstock awards were granted to the beneficiaries under such plan, out of which 0 were outstandinghad all vested as of December 31, 2010.
The table below reflects the grants to the Supervisory Board members and professionals under the 2005 Stock-BasedStock Based Compensation Plan as of December 31, 2010. See Note 17 to our Consolidated Financial Statements.
2005 | 2006 | 2007 | ||||||||||
Total number of Shares outstanding | 0 | 0 | 0 | |||||||||
Expiration date | 25-Oct-15 | 29-Apr-16 | 28-Apr-17 |
2005 | 2006 | 2007 | ||||||||||
Total number of stock awards outstanding | 31,115 | 30,000 | 60,000 | |||||||||
Expiration date | 25 Oct 2015 | 29 Apr 2016 | 28 Apr 2017 |
2008, 2009 and 2010 Stock-basedStock based Compensation for members and professionals of the Supervisory Board.Board. Our 2008 annual shareholders’ meetingAnnual General Meeting of Shareholders approved the adoption of a new three-year stock-basedthree year stock based compensation plan for Supervisory Board members and professionals. This plan provides for the grant of a maximum number of 15,000 newly issued sharesstock awards per year for each member of the Supervisory Board and 7,500 newly issued sharesstock awards for each of the professionals of the Supervisory Board at aan exercise price of €1.04 per share, corresponding to the nominal value of our share.shares. In 2008, 165,000 sharesstock awards were granted to the beneficiaries under such plan, out of which 42,50075,000 were outstanding as of December 31, 2010.2013. In 2009, 165,000 sharesstock awards were granted to the beneficiaries under such plan, out of which 95,00075,000 were outstanding as of December 31, 2010.2013. In 2010, 172,500 sharesstock awards were granted to the beneficiaries under such plan, out of which 150,00082,500 were outstanding as of December 31, 2010.
The table below reflects the grants to the Supervisory Board members and professionals under the 2008 Stock-BasedStock Based Compensation Plan as of December 31, 2010. See Note 172013.
2008 | 2009 | 2010 | ||||||||||
Total number of stock awards outstanding | 75,000 | 75,000 | 82,500 | |||||||||
Expiration date | 16 May 2018 | 20 May 2019 | 27 May 2020 |
2011 and 2012Stock-based Compensation for members and professionals of the Supervisory Board. Our 2011 Annual General Meeting of Shareholders approved the adoption of a new three year stock based compensation plan for Supervisory Board members and professionals. This plan provides for the grant of a maximum number of 15,000 stock awards per year for each member of the Supervisory Board and 7,500 stock awards for each of the professionals of the Supervisory Board at an exercise price of €1.04 per share, corresponding to the nominal value of our Consolidated Financial Statements.
2008 | 2009 | 2010 | ||||||||||
Total number of Shares outstanding | 42,500 | 95,000 | 150,000 | |||||||||
Expiration date | 14-May-18 | 20-May-19 | 27-May-20 |
At our Annual General Meeting of Shareholders held on June 21, 2013, it was resolved to abolish and terminate thestock-based compensation for our Supervisory Board members and professionals as (previously) included in thethree-yearStock-Based Compensation Plan for members and professionals of the Supervisory Board. No options were granted in 2013 to the Supervisory Board.
2011 | 2012 | |||||||
Total number of stock awards outstanding | 117,500 | 122,500 | ||||||
Expiration date | 05 May 21 | 02 June 22 |
Employees
The tables below set forth the breakdown of employees including the employees of the consolidated entities of ST-Ericsson JVS, by main category of activity and geographic area for the past three years.
At December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
France | 11,080 | 10,960 | 10,790 | |||||||||
Italy | 8,620 | 8,290 | 8,200 | |||||||||
Rest of Europe | 2,760 | 3,200 | 2,320 | |||||||||
United States | 1,870 | 2,000 | 3,250 | |||||||||
Mediterranean (Malta, Morocco, Tunisia) | 4,760 | 4,630 | 5,840 | |||||||||
Asia | 24,210 | 22,480 | 21,410 | |||||||||
Total | 53,300 | 51,560 | 51,810 | |||||||||
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At December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
France | 10,350 | 10,430 | 10,570 | |||||||||
Italy | 9,450 | 8,840 | 8,780 | |||||||||
Rest of Europe | 950 | 2,190 | 2,630 | |||||||||
United States | 1,040 | 1,280 | 1,310 | |||||||||
Mediterranean (Malta, Morocco, Tunisia) | 4,490 | 4,440 | 4,440 | |||||||||
Asia | 19,110 | 21,280 | 21,720 | |||||||||
Total | 45,390 | 48,460 | 49,450 |
At December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Research and Development | 8,970 | 11,490 | 11,940 | |||||||||
Marketing and Sales | 2,190 | 2,460 | 2,510 | |||||||||
Manufacturing | 29,550 | 29,450 | 29,810 | |||||||||
Administration and General Services | 2,220 | 2,520 | 2,580 | |||||||||
Divisional Functions | 2,460 | 2,540 | 2,610 | |||||||||
Total | 45,390 | 48,460 | 49,450 |
At December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Research and Development | 11,910 | 12,330 | 11,900 | |||||||||
Marketing and Sales | 2,540 | 2,640 | 2,670 | |||||||||
Manufacturing | 33,580 | 31,300 | 32,290 | |||||||||
Administration and General Services | 2,620 | 2,560 | 2,470 | |||||||||
Divisional Functions | 2,650 | 2,730 | 2,480 | |||||||||
Total | 53,300 | 51,560 | 51,810 | |||||||||
Major Shareholders and Related Party Transactions |
Major Shareholders
The following table sets forth certain information with respect to the ownership of our issued common shares based on information available to us as of February 14, 2011:
Common Shares Owned | ||||||||
Shareholders | Number | % | ||||||
ST Holding II | 250,704,754 | 27.54 | ||||||
Public | 575,278,098 | 63.19 | ||||||
Brandes Investment Partners(1) | 55,703,451 | 6.12 | ||||||
Treasury shares | 28,734,002 | 3.16 | ||||||
Total | 910,420,305 | 100 | ||||||
Common Shares Owned | ||||||||
Shareholders | Number | % | ||||||
ST Holding | 250,704,754 | 27.53 | ||||||
Public | 639,902,009 | 70.26 | ||||||
Treasury shares | 20,096,542 | 2.21 | ||||||
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Total | 910,703,305 | 100 | ||||||
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Our principal shareholders do not have different voting rights from those of our other shareholders.
As of December 31, 2010,2013, FT1CI (the “French Shareholder”), which is controlled by ArevaBpifrance and CEA, and the Italian Ministry of the Economy and Finance (the “Italian Shareholder”), each directly held 50% each in STMicroelectronics Holding N.V. (“ST Holding.Holding”). The indirect interest of FT1CIthe French Shareholder and the Ministry of the Economy and FinanceItalian Shareholder in us is split on a50%-50% basis. Through a structured tracking stock system implemented in the articlesArticles of associationAssociation of ST Holding, and ST Holding II, FT1CIthe French Shareholder and the Ministry of the Economy and FinanceItalian Shareholder each indirectly heldhold 125,352,377 of our common shares, representing approximately 13.7% of our issued share capital as of December 31, 2010.2013. Any disposals or, as the case may be, acquisitions by ST Holding II on behalf of FT1CIthe French Shareholder or the Ministry of the Economy and Finance,Italian Shareholder, will decrease or, as the case may be, increase the indirect interest of, respectively, FT1CIthe French Shareholder or the Ministry of the Economy and Finance,Italian Shareholder, in our issued share capital. FT1CI is a jointly held company originally set up by Areva and France Telecomestablished to control the interest of the French shareholders in ST Holding. As of December 31, 2010, Areva2013, Bpifrance (as defined below) and CEA are the sole shareholders of FT1CI. FollowingFT1CI, holding respectively 79.2% and 20.8% of FT1CI’s share capital. Bpifrance is an investment fund 50% owned by Caisse des dépôts et consignations and 50% owned by the transfer to the MinistryFrench State. On July 12, 2013, all of the Economy and Financeshares of all of CDP’s shares in STMicroelectronics N.V. on December 21, 2010, CDP no longer has a shareholding in ST Holding. Following a preliminary announcement on December 16, 2010 and documents subsequently filed by ST Holding II with the Securities and Exchange Commission, we became aware that theFonds Stratégique d’Investissement(“FSI”) entered intowere transferred to BPI Groupe SA, a binding share purchase agreement with Arevacompany co-controlled on February 8, 2011 with a view to acquiring Areva’s stake in FT1CI, at a price of €7.00 per share for a total of €695 million,50/50 basis by the French State (through the Etablissement Public Industriel et Commercial BPI Groupe (“EPIC BPI Groupe”)) and thereby become an indirect 10.9% shareholder in STMicroelectronics N.V. FSI is a strategic investment fund 51% owned byCaisse des Dépôts et Consignations,and 49% owned byFSI was renamed Bpifrance Participations (“Bpifrance”). This reorganization does not affect the French government. Areva (formerly known as CEA-Industrie) is a corporation controlled by CEA. Areva is listed on Euronext Parisshareholding in the form of Investment Certificates.Company. CEA is a French-governmentFrench government funded technological research organization. CDP is an Italian corporation 70% owned by the Ministry of the Economy and Finance and 30% owned by a consortium of 66 Italian banking foundations.
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Common Shares Owned | ||||||||
Number | % | |||||||
December 31, 2010 | 250,704,754 | 27.5 | ||||||
December 31, 2009 | 250,704,754 | 27.5 | ||||||
December 31, 2008 | 250,704,754 | 27.5 |
Common Shares Owned | ||||||||
Number | % | |||||||
December 31, 2013 | 250,704,754 | 27.5 | ||||||
December 31, 2012 | 250,704,754 | 27.5 | ||||||
December 31, 2011 | 250,704,754 | 27.5 |
Announcements about additional disposals of our shares by ST Holding II on behalf of one or more of its indirect shareholders, Areva,Bpifrance, CEA, the Ministry of the Economy and Finance or FT1CI may come at any time.
The chart below illustrates the shareholding structure as of December 31, 2013:
(1) | In addition to the 27.5% held by ST Holding and the 70.3% held by the Public, 2.2% are held by us as Treasury Shares. |
Shareholders’ AgreementsAgreement
STH Shareholders’ Agreement
We were formed in 1987 as a result of the decision by Thomson-CSFThomson CSF (now called Thales) and STET (now called Telecom Italia S.p.A.) to combine their semiconductor businesses and to enter into a shareholders’ agreement on April 30, 1987, which was amended on December 10, 2001, restated on March 17, 2004 and further amended on February 26, 2008. The February 26, 2008 amended and restated agreement (as amended, the “STH Shareholders’ Agreement”) supersedes and replaces all previous agreements. The current parties to the STH Shareholders’ Agreement are Areva,Bpifrance, CEA and their joint company FT1CI (the “French Shareholder”) and the Ministry of the Economy and Finance and FT1CI. Following the Ministry of the Economy and Finance’s acquisition of all of CDP’s shares in us, held indirectly through ST Holding, CDP is no
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RestructuringMerger of the Holding Companies
The French Shareholder and the parties agreed to restructureItalian Shareholder merged the two holding companies (ST Holding and ST Holding II), effective June 1, 2012, in order to simplify the structure to the extent possible or desirable. In any case, at least one holding company will continuethrough which they own their interests in us. ST Holding II ceased to exist, while ST Holding continues to hold our common shares. The company that now holds or may hold our common shares in the future for indirect shareholders is referred to below as the “holding company”.
Standstill
The STH Shareholders’ Agreement contains a standstill provision that precludes any of the parties and the parties’ affiliates from acquiring, directly or indirectly, any of our common shares or any instrument providing for the right to acquire any of our common shares other than through the holding company. The standstill is in effect for as long as such party holds our common shares through ST Holding.the holding company. The parties agreed to continue to hold their stakes in us at all times through the current holding structure of ST Holding and ST Holding II,the holding company, subject to exercising the preference share option granted to ST Holding if ST Holding were to choose not to exercise such rights directly.
Corporate Governance
The STH Shareholders’ Agreement provides for a balanced corporate governance of the indirect interests in us between FT1CI and the Ministry of the Economy and Finance (FT1CI and the Ministry of the Economy and Finance are collectively
defined as “STH Shareholders” and individually defined as “STH Shareholder”) for the duration of the “Balance Period”, despite actual differences in indirect economic interest in us. The “Balance Period” is defined as (i) a period through March 17, 2011, provided that each STH Shareholder owns at all times a voting stake at least equal to 10.5% of our issued and outstanding shares, and (ii) subject to the aforementioned condition, thereafterlasts as long as each STH Shareholder owns at any time including as a result of the exercise of the “Re-balancing Option” (as defined below), a voting stake in ST Holding equal to at least 47.5% of the total voting stakes. Duringstakes of ST Holding.
As of January 1, 2012, if any STH Shareholder falls under this threshold, it will not be able to restore the Balance Period each of FT1CIby subsequently increasing its voting stake, and the Ministry of the Economy and Finance has an option to rebalance their shareholdings, referred to as the “Rebalancing Option”, as further described below.
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During the Balance Period, any other decision, to the extent that a resolution of the holding company is required, must be pursuant to the unanimous approval of the shareholders, including but not limited to the following: (i) the definition of the role and structure of our Managing Board and Supervisory Board, and those of the holding company; (ii) the powers of the Chairman and theVice-Chairman of our Supervisory Board, and that of the holding company; (iii) information by the holding company’s managing board and supervisory board, and those of us; (iv) treatment of confidential information; (v) appointment of any additional members of our Managing Board and that of the holding company; (vi) remuneration of the members of our Managing Board and those of the holding company; (vii) internal audit of STMicroelectronics N.V. and of the holding company; (viii) industrial and commercial relationships between STMicroelectronics N.V. and the Ministry of the Economy and Finance or STMicroelectronics N.V. and either or both FT1CI shareholders, or any of their affiliates; and (ix) any of the decisions listed in article 16.1 of our Articles of Association including our budget andpluri-annual plans.
In addition, the following resolutions, to the extent that a resolution of the holding company is required, must be resolved upon by a shareholders’ resolution of the holding company, which shall require the unanimous approval of the STH Shareholders: (i) any alteration in the holding company’s articles of association; (ii) any issue, acquisition or disposal by the holding company of its shares or change in share rights; (iii) any alteration in our authorized share capital or issue by us of new sharesand/or of any financial instrument giving rights to subscribe for our common shares; any acquisition or disposal by the holding company of our sharesand/or any right to subscribe for our common shares; any modification to the rights attached to our common shares; any merger, acquisition or joint venture agreement to which we are or are proposed to be a party; and any other items on the agenda of our general shareholders’ meeting; (iv) the liquidation or dissolution of the holding company; (v) any legal merger, legalde-merger, acquisition or joint venture agreement to which the holding company is proposed to be a party; and (vi) the adoption or approval of our annual accounts or those of the holding company or a resolution concerning a dividend distribution by us.
At the end of the Balance Period (i.e., once a shareholder’s voting stake in ST Holding has decreased under the 47.5% threshold (such STH Shareholder being thereafter referred to as “minority shareholder” and the other one being referred to as “majority shareholder”)), the members of our Supervisory Board and those of the holding company designated by the minority shareholder of the holding company will immediately resign upon request of the holding company’s majority shareholder, subject to the rights described in the previousfollowing paragraph.
After the end of the Balance Period, unanimous approval by the shareholders of the holding company remains required to approve:
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(i) | As long as any of the STH Shareholders indirectly owns at least the lesser of 3% of our issued and outstanding share capital or 10% of the STH Shareholders’ aggregate stake in us at such time, with respect to the holding company, any changes to the articles of association, any issue, acquisition or disposal of shares in the holding company or change in the rights of its shares, its liquidation or dissolution and any legal merger,de-merger, acquisition or joint venture agreement to which the holding company is proposed to be a party. |
(ii) | As long as any of the STH Shareholders indirectly owns at least 33% of the STH Shareholders’ aggregate stake in us, certain changes to our articles of association (including any alteration in our authorized share capital, or any issue of share capital and/or financial instrument giving the right to subscribe for our common shares, changes to the rights attached to our shares, changes to the preemptive rights, issues relating to the form, rights and transfer mechanics of the shares, the composition and operation of the Managing and Supervisory Boards, matters subject to the Supervisory Board’s approval, the Supervisory Board’s voting procedures, extraordinary meetings of shareholders and quorums for voting at shareholders meetings). |
(iii) | Any decision to vote our shares held by the holding company at any general meeting of our shareholders with respect to any substantial and material merger decision. In the event of a failure by the STH Shareholders to reach a common decision on the relevant merger proposal, our shares attributable to the minority shareholder and held by the holding company will be counted as present for purposes of a quorum of shareholders at one of our shareholders meetings, but will not be voted (i.e., will be abstained from the vote in a way that they will not be counted as a negative vote or as a positive vote). |
(iv) | In addition, the minority shareholder will have the right to designate at least one member of the list of candidates for our Supervisory Board to be proposed by the holding company if that shareholder indirectly owns at least 3% of our total issued and outstanding share capital, with the majority STH Shareholder retaining the right to appoint that number of members to our Supervisory Board that is at least proportional to such majority shareholder’s voting stake. |
Finally, at the end of the Balance Period, the unanimous approval required for other decisions taken at the STMicroelectronics N.V. level shall only be compulsory to the extent possible, taking into account the actual power attached to the direct and indirect shareholding together held by the STH Shareholders in our company.
Disposals of our Common Shares
The STH Shareholders’ Agreement provides that each STH Shareholder retains the right to cause the holding company to dispose of its stake in us at its sole discretion, provided it is pursuant to either (i) the issuance of financial instruments, (ii) an equity swap, (iii) a structured finance deal or (iv) a straight sale. ST Holding IIThe holding company may enter into escrow arrangements with STH Shareholders with respect to our shares, whether this be pursuant to exchangeable notes, securities lending or other financial instruments. STH Shareholders that dispose of our shares through the issuance of exchangeable instruments, an equity swap or a structured finance deal maintain the voting rights of the underlying shares in their ST Holding voting stake provided that such rights remain freely and continuously held by the holding company as though the holding company were still holding the full ownership of the shares.
As long as any of the parties to the STH Shareholders’ Agreement has a direct or indirect interest in us, except in the case of a public offer, no sales by a party may be made of any of our shares or of FT1CI, ST Holding or ST Holding II to any of our top ten competitors, or any company that controls such competitor.
Re-adjusting and Re-balancing options
The STH Shareholders’ Agreement provides fortag-along rights, preemptive rights, and provisions with respect to a change of control of any of the shareholders or any controlling shareholder of FT1CI, on the one
hand, and the Ministry of the Economy and Finance, on the other hand. The shareholders may transfer shares of the holding company or FT1CI to any of the shareholders’ affiliates, which would include the Italian state or the French state with respect to entities controlled by a state. The shareholders and their ultimate shareholders will be prohibited from launching any takeover process on any of the other shareholders.
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Duration
The STH Shareholders’ Agreement will remain in force as long as the Ministry of the Economy and Finance, on the one hand, and any of Areva,Bpifrance, FT1CI or CEA, on the other hand, are shareholders of the holding company.
Preference Shares
As is the case with other companies controlled by the French government, the French government has appointedmay appoint aCommissaire du Gouvernementand aContrôleur d’Etatfor FT1CI. Pursuant to DecreeNo. 94-214, dated March 10, 1994, these government representatives have the right (i) to attend any board meeting of FT1CI, and (ii) to veto any board resolution or any decision of the president of FT1CI within ten days of such board meeting (or, if they have not attended the meeting, within ten days of the receipt of the board minutes or the notification of such president’s decision); such veto lapses if not confirmed within one month by the Ministry of the Economy or the Ministry of the Industry. FT1CI is subject to certain points of the Decree of August 9, 1953 pursuant to which the Ministry of the Economy and any other relevant ministries have the authority to approve decisions of FT1CI relating to budgets or forecasts of revenues, operating expenses and capital expenditures. The effect of these provisions may be that the decisions taken by us and our subsidiaries that, by the terms of the STH Shareholders’ Agreement, require prior approval by FT1CI, may be adversely affected by these veto rights under French law.
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On November 22, 2006, our Supervisory Board decided to authorize us to enter into an option agreement with an independent foundation, Stichting Continuïteit ST (the “Stichting”). This is a common practice used by a majority of publicly traded Dutch companies. Our Managing Board and our Supervisory Board, along with the board of the Stichting, have declared that they are jointly of the opinion that the Stichting is legally independent of our Company and our major shareholders. Our Supervisory Board approved this option agreement, entered into on January 22, 2007, with a duration of ten years, to reflect changes in Dutch legal requirements, not in response to any hostile takeover attempt. It provides for the issuance of up to a maximum of 540,000,000 preference shares.
No preference shares have been issued to date. The effect of the preference shares may be to deter potential acquirers from effecting an unsolicited acquisition resulting in a change of control as well as to create alevel-playing field in the event actions which are considered hostile by our Managing Board and Supervisory Board, as described above, occur and which the board of the Stichting determines to be contrary to our interests and our shareholders and other stakeholders. In addition, any issuance of additional capital within the limits of our authorized share capital, as approved by our shareholders, is subject to approval by our Supervisory Board, other than pursuant to an exercise of the call option granted to the Stichting.
Related Party Transactions
One of the members of our Supervisory Board is managing director of Areva SA, which is a controlled subsidiary of CEA, one of the members of our Supervisory Board is a member of the Board of Directors of Technicolor (formerly known as Thomson), another is the non-executive Chairman of the Board of Directors of ARM Holdings PLC (“ARM”), two of our Supervisory Board members are non-executive directors of Soitec, two of the members of the Supervisory Board are also members of the Supervisory Board of BESI and one of the members of our Supervisory Board is a member of the Supervisory Board of BESI. A former member of our Supervisory Board, whose mandate ended in June 2013, is a director of Oracle Corporation (“Oracle”) and Flextronics International. France TelecomA former member of our senior management, who resigned effective March 31, 2013, is a member of the Board of Directors of Soitec and its subsidiaries Equant and Orange,Adecco. Adecco, as well as Oracle’s new subsidiary PeopleSoft, supply certain services to our Company. We have a long-term joint R&D partnership agreement with LETI, a wholly-owned subsidiary of CEA. We have certain licensing agreements with ARM, and havealso conducted transactions with Soitec and BESI as well as with Technicolor and Flextronics. From time to time, we may enter into transactions with or invest in subsidiaries of certain of our significant shareholders, former shareholders or other companies in which they invest (including but not limited to: Adecco, Areva, Altis, MicroOLED and Orange). Each of the aforementioned arrangements and transactions areis negotiated without the personal involvement of our Supervisory Board members or, where applicable, the senior managers concerned, and we believe that they are made on an arm’s-length basis in line with market practices and conditions.
See Note 2824 to Our Consolidated Financial Statements for transactions with significant shareholders, their affiliates and other related parties, which also include transactions between us and our equityequity-method investments.
Financial Information |
Financial Statements
Please see “Item 18. Financial Statements” for a list of the financial statements filed with thisForm 20-F.
Legal Proceedings
As is the case with many companies in the semiconductor industry, we have from time to time received, and may in the future receive, communications from other semiconductor companies or third parties alleging possible infringement of patents.third party patents or other third party intellectual property rights. In addition, from time to time, we enter into discussions regarding broad patentcross-license arrangements with other industry participants and there can be no assurance that such discussions will be brought to a successful conclusion and result in the intended agreement. Furthermore, we may become involved in costly litigation brought against us regarding patents, copyrights, trademarks, trade secrets or mask works. In the event that the outcome of such IP litigation would be unfavorable to us, we may be required to take a license tofor third party patents or other IP rights upon economically unfavorable terms and conditions, and possibly pay damages for prior use,and/or face an injunction, all of which singly or in the aggregate could have a material adverse effect on our results of operations and ability to compete. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — We depend on patents to protect our rights to our technology and may face claims of infringing the IP rights of others” included in thisForm 20-F, which may be updated from time to time in ourForm 20-F. public filings. We are also party to certain disputes which are not related to patents or other IP rights.
We record a provision when, based on our best estimate, we consider it probable that a liability has been incurred and when the amount of the probable loss can be reasonably estimated. As of December 31, 2013, provisions for estimated probable losses with respect to legal proceedings were not considered material. We regularly evaluate losses and claims to determine whether they need to be adjusted based on the most current information available to us and using our best judgment. There can be no assurance that our recorded reserves will be sufficient to cover the extent of our potential liabilities. Legal costs associated with claims are expensed as incurred.
We are a party to legal proceedings with Tessera, Inc. (“Tessera”)
In 2006, Tessera added ST asinitiated a co-defendant to apatent infringement lawsuit filed by Tessera on October 7, 2005, against Advanced Micro Devices Inc., Spansion, ChipMOS, Advanced Semiconductor Engineering, Siliconware Precision Industriesus and STATS Chippacnumerous other semiconductor manufacturers in the U.S. District Court for the Northern District of California, claiming ST infringes certain patents related toCalifornia. Tessera claims that our ball grid array (“BGA”) packaging technology.packages infringe certain patents owned by Tessera, also claimsand that our U.S. affiliate, STMicroelectronics, Inc (“ST Inc.”),we breached the terms of a 1997 license agreement with Tessera. The District Court Action is stayed pending resolutionby failing to pay royalties to Tessera on sales of the ITC proceeding discussed below, including all appeals.
103 Tessera patents expired in September 2010. The U.S. Court of Appeals for the Federal Circuit subsequently affirmed the ITC’s decision and on November 28, 2011 the U.S. Supreme Court denied the defendants’ petition
We were a party to legal proceedings with Rambus Inc. (“Rambus”)
On December 21,1, 2010, Rambus filed a complaint with the ITC against us and numerous other parties, asserting that we engaged in unfair trade practices by importing certain semiconductor chips that include memory controllers and/or certain peripheral interface technologies such as SerDes, PCI Express, SATA and SAS that allegedly infringe certain patents owned by Rambus. The complaint sought an exclusion order to bar importation into the United States of all accused semiconductor chips that infringe any claim of the asserted patents, as well as products of certain party customers incorporating the same. On July 25, 2012, the ITC elected to terminate the ITC investigation with a finding of no violation of section 337 of the Tariff Act of 1930. On September 25, 2012, Rambus filed a notice of appeal with the U.S. Court of Appeals for the Federal Circuit issued a decision affirming the ITC’s final determination. We are considering further appeals. The Tessera patents expired on September 21, 2010. As a result, the ITC’s exclusion order expired on that date. We continue to assess the merits of all ongoing litigation with Tessera.
We and our subsidiaries are also involved in other legal proceedings, claims and litigation arising in the ordinary course of business.
All pending claims and litigation proceedings involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to prosecute and defend. The results of legal proceedings are inherently uncertain, and material adverse outcomes are possible, including the six patents asserted by Rambusrisk of an injunction. The resolution of intellectual property litigation may require us to pay damages for past infringement or to obtain a license under the other party’s intellectual property rights that could requireone-time license fees or ongoing royalties, which could adversely impact our product gross margins in future periods, or could prevent us from manufacturing or selling some of our products or limit or restrict the ITC. Rambus claims these patents read on certain peripheral interfacesand/or memory controllers which meet the requirements defined by certain industry setting standards bodiesfocus of employees involved in such as JEDEC. A number of these patents have expired. The District Court case will remain stayedlitigation with respectregard to the six Rambus patents asserted inwork they normally perform for us. From time to time we may enter into confidential discussions regarding the ITC and the Court may elect to stay this matter in its entirety.
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Risk Management and Insurance
We cover our industrial and business risks through insurance contractspolicies and programs with top rankingleading insurance carriers with at least investment grade ratings, to the extent reasonably permissible by the insurance market which does not provide insurance coverage for certain risks and imposes certain limits, terms and conditions on coverage that it does provide.
Risks may be covered either through local policies or through corporate policies negotiated on a worldwide level for the ST Group of Companies. Corporate insurance policies and programs are negotiated when the risks are recurrent in variousseveral of our affiliated companies.
Currently we have four corporate insurance policies and programs covering the following risks:
Property damage and business interruption;
General liability and product liability;
Directors and officers liability; and
Transportation risks.
Our insurance policies generally cover atwelve-month period although may be subscribed for a longer period if conditions for a longer term arrangement are deemed beneficial to us. Such policies are subject to certain terms and conditions, exclusions and limitations, generally in line with prevailing conditions, exclusions and limitations, in the insurance market. Pursuant to such conditions, risks such as terrorism, earthquake, fire, floods, consequential damages and loss of production, may not be fully insured and we may not, in the event of a claim under a policy, receive an indemnification from our insurers commensurate with the full amount of the damage we have incurred. Furthermore, our product liability insurance covers physical and direct damages, which may be caused by our products,products; however, immaterial,non-consequential damages resulting from failure to deliver or delivery of defective products are generallymight not be covered because such risks are considered to occur in the ordinary course of business and cannotmight not be insured. We may decide to subscribe for excess coverage in addition to the coverage provided by our standard policies. If we suffer damage or incur a claim, which is not covered by one of our corporate insurance policies, this may have a material adverse effect on our results of operations.
Risk and fire engineering site assessments are performed, on an annual assessmentsbasis, through an external consultant of our leading property insurer’s professional fire and risk exposureengineers in the field of property damage/damage and business interruption in our production sites, to assess potential losses and actual risk exposure. Suchexposures, including natural catastrophes. Then, such assessments are usually provided to insurers,co-insurers andre-insurers underwriters to subscribe our underwriters.risks. We do not own or operate any insurance captive companies, which acts anas insurer for our own risks, although we may consider such an option in the future.
The company, under the direction of our CEO and supervision of the Audit Committee of our Supervisory Board, has implemented a corporate Enterprise Risk Management (“ERM”) process, which is led by our Chief Audit and Risk Executive. The corporate top down risk map is updated on an annual basis and organizations’ risk owners are appointed to ensure the development of thebottom-up risk mapping, as well as the implementation and monitoring of risk mitigation action plans both at corporate and organizations levels.
Reporting Obligations in IFRS
We are incorporated in theThe Netherlands and our shares are listed on Euronext Paris and Borsa Italiana. Consequently, we are subject to an EU regulation issued on September 29, 2003 requiring us to report our results of operations and Consolidated Financial Statements using IFRS. As from January 1, 2009 we are also required to prepare asemi-annual set of accounts using IFRS reporting standards.
We use U.S. GAAP as our primary set of reporting standards, as U.S. GAAP has been our reporting standard since our creation in 1987. Until the SEC adopted rules allowing foreign private issuers to file financial statements prepared in accordance with IFRS without reconciliation to U.S. GAAP, U.S. GAAP was the sole admitted reporting standard for companies like us whose shares are listed on the NYSE.
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Dividend Policy
We formulated a revised dividend policy which was submitted for discussion at our Annual General Meeting of Shareholders held in Amsterdam on June 21, 2013. As a result, we distribute a dividend on a quarterly basis based on a semi-annual decision which is based on a proposal of our Managing Board and adopted by either our Supervisory Board or our meeting of shareholders proposed by our Supervisory Board.
Our dividend policy reads as follows: we seek to use our available cash in order to develop and enhance our position in the very capital-intensivea competitive semiconductor market while at the same time managing our cash resources to reward our shareholders for their investment and trust in us.
dividend policy, which portion of the profits or distributable reserves shall not be retained in reserves to fund future growth or for other purposes and makes a proposal concerning the amount, if any, of the quarterly cash dividend.
Based on our annual results, projected capital requirements as well as business conditions and prospects, the Managing Board proposes eachtwice a year to the Supervisory Board the allocation of our earnings involving, whenever deemed possible and desirable in line with our objectives and financial situation, the distribution of a cash dividend.
See “Item 10. Additional Information — Memorandum and Articles of Association — Articles of Association — Distribution of Profits (Articles 37, 38, 39 and 40)”.
In the past five years, we have paid the following dividends:
On December 2, 2013, our shareholders adopted the payment of asemi-annual cash dividend of $0.10 per share in the fourth quarter of 2013 and first quarter of 2014, paid in December 2013 and to be paid in March 2014, respectively.
On June 21, 2013, our shareholders adopted the payment of asemi-annual cash dividend of $0.10 per share in the second quarter and third quarter of 2013, paid in June and September of 2013, respectively.
On May 30, 2012, our shareholders adopted the payment of an annual cash dividend with respect to the year ended December 31, 2011 of $0.40 per share paid in four equal installments.
On May 3, 2011, our shareholders adopted the payment of an annual cash dividend with respect to the year ended December 31, 2010 of $0.40 per share paid in four equal installments.
On May 25, 2010, our shareholders adopted the payment of an annual cash dividend with respect to the year ended December 31, 2009 of $0.28 per share paid in four equal installments.
On May 20, 2009, our shareholders adopted the payment of an annual cash dividend with respect to the year ended December 31, 2008 of $0.12 per share paid in four equal installments.
Future dividends will depend on our accumulated profits, our capacity to generate cash flow, our financial situation, the general economic situation and prospects and any other factors that the Supervisory Board, upon the recommendation of our Managing Board, shall deem important.
Listing |
Since 1994, our common shares have been traded on the NYSE under the symbol “STM” and CUSIP #861012102 and listed on the compartment A (large capitalizations) of Euronext (formerly known as ParisBourse) and were quoted on SEAQ International.Paris under the ISIN Code NL0000226223. On June 5, 1998, our common shares were also listed for the first timebegan trading on the Borsa Italiana (Italian Stock Exchange), where they haveItaliana.
On September 13, 2013, the NASDAQ OMX Group, Inc. announced the results of the annualre-ranking of the PHLX Semiconductor Sector Index (“SOX”). Effective September 23, 2013, ST was removed from the index. ST had been tradeda member of the SOX since that date.
On December 5, 2013, the Conseil Scientifique, an independent group of experts responsible for setting the rules and the periodical selection of the CAC 40 Index, announced the results of the annualre-ranking of the CAC 40 Index. Effective December 23, 2013, ST was removed from the CAC 40 and subsequently entered the CAC Next 20 Index. ST had been a member of the CAC 40 since November 12, 1997, our common shares have been included in the1997. The CAC 40 Index is the main benchmark for Euronext which tracks a sample ofParis and contains 40 stocks selected from among the top 100 market capitalization and the most active stocks listed on Euronext and which is the underlying asset for options and futures contracts. The base value was 1,000 at December 31, 1987.
Since March 18, 2002, we were admitted intoour common shares have been included in the FTSE MIB Index (formerly the S&P/MIB (formerly theand MIB 30 Index), which was comprisedIndex, respectively). The FTSE MIB Index measures the performance of 40 Italian equities and seeks to replicate the broad sector weights of the 40 leadingItalian stock market. The Index is derived from the universe of stocks based upon their industry, market capitalization and liquidity, listedtrading on the Borsa Italiana. It featured free-float adjustment, highItaliana main equity market. Each stock is analyzed for size and liquidity, and broad, accurate representation of market performance based on the leading companies in leading industries. On June 1, 2009, the Borsa Italiana introduced a new series of indexes and, as a result, our shares were included in the new FTSE MIBoverall Index which replaced the S&P/MIB Index.has appropriate sector representation. The new
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Average Daily Trading | ||||||||||||||||
Volumes | ||||||||||||||||
Number of | Price Ranges | |||||||||||||||
Calendar Period | Shares | Capital | High | Low | ||||||||||||
(€) | (€) | (€) | ||||||||||||||
Annual Information for the Past Five Years | ||||||||||||||||
2006 | 5,748,008 | 78,944,778 | 16.56 | 11.34 | ||||||||||||
2007 | 5,430,551 | 71,352,748 | 15.61 | 9.70 | ||||||||||||
2008 | 7,490,827 | 54,414,076 | 9.89 | 4.52 | ||||||||||||
2009 | 4,613,574 | 23,933,547 | 7.02 | 2.97 | ||||||||||||
2010 | 4,851,846 | 31,541,910 | 8.08 | 5.16 | ||||||||||||
Quarterly Information for the Past Two Years | ||||||||||||||||
2009 | ||||||||||||||||
First quarter | 4,318,138 | 17,103,184 | 5.29 | 2.97 | ||||||||||||
Second quarter | 5,127,833 | 25,919,626 | 5.96 | 3.67 | ||||||||||||
Third quarter | 4,519,462 | 25,896,652 | 6.78 | 4.96 | ||||||||||||
Fourth quarter | 4,504,956 | 26,817,174 | 7.02 | 5.18 | ||||||||||||
2010 | ||||||||||||||||
First quarter | 4,801,646 | 30,812,542 | 7.51 | 5.73 | ||||||||||||
Second quarter | 5,796,237 | 40,110,699 | 8.08 | 5.91 | ||||||||||||
Third quarter | 4,474,706 | 26,911,085 | 6.99 | 5.16 | ||||||||||||
Fourth quarter | 4,375,441 | 29,175,576 | 7.9 | 5.32 | ||||||||||||
Monthly Information for the Past Six Months | ||||||||||||||||
2010 | ||||||||||||||||
September | 4,319,386 | 24,237,054 | 5.92 | 5.21 | ||||||||||||
October | 4,921,804 | 27,993,347 | 6.36 | 5.32 | ||||||||||||
November | 4,621,433 | 30,390,124 | 7.10 | 6.14 | ||||||||||||
December | 3,641,292 | 27,860,634 | 7.90 | 6.74 | ||||||||||||
2011 | ||||||||||||||||
January | 6,154,303 | 52,861,945 | 9.23 | 7.90 | ||||||||||||
February (as of February 22, 2011) | 4,725,633 | 42,924,699 | 9.64 | 8.44 |
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Average Daily Trading | ||||||||||||||||
Volumes | ||||||||||||||||
Number of | Price Ranges | |||||||||||||||
Calendar Period | Shares | Capital | High | Low | ||||||||||||
(€) | (€) | (€) | ||||||||||||||
Annual Information for the Past Five Years | ||||||||||||||||
2006 | 10,316,084 | 141,689,828 | 16.55 | 11.33 | ||||||||||||
2007 | 7,485,654 | 98,885,773 | 15.60 | 9.80 | ||||||||||||
2008 | 7,194,358 | 52,370,415 | 9.90 | 4.52 | ||||||||||||
2009 | 6,606,116 | 34,222,931 | 7.03 | 2.97 | ||||||||||||
2010 | 6,893,012 | 44,735,516 | 8.09 | 5.15 | ||||||||||||
Quarterly Information for the Past Two Years | ||||||||||||||||
2009 | ||||||||||||||||
First quarter | 4,708,890 | 18,660,286 | 5.29 | 2.97 | ||||||||||||
Second quarter | 7,575,169 | 38,304,696 | 5.95 | 3.67 | ||||||||||||
Third quarter | 6,923,926 | 39,684,060 | 6.79 | 4.96 | ||||||||||||
Fourth quarter | 7,216,727 | 42,888,549 | 7.03 | 5.15 | ||||||||||||
2010 | ||||||||||||||||
First quarter | 7,758,354 | 49,763,066 | 7.45 | 5.72 | ||||||||||||
Second quarter | 7,201,572 | 49,838,879 | 8.09 | 5.92 | ||||||||||||
Third quarter | 6,272,460 | 37,708,887 | 6.98 | 5.15 | ||||||||||||
Fourth quarter | 6,377,399 | 42,307,065 | 7.90 | 5.33 | ||||||||||||
Monthly Information for the Past Six Months | ||||||||||||||||
2010 | ||||||||||||||||
September | 6,441,728 | 36,167,374 | 5.92 | 5.21 | ||||||||||||
October | 6,896,594 | 39,262,969 | 6.36 | 5.33 | ||||||||||||
November | 6,552,763 | 43,112,710 | 7.10 | 6.12 | ||||||||||||
December | 5,764,488 | 43,307,153 | 7.90 | 6.74 | ||||||||||||
2011 | ||||||||||||||||
January | 8,690,661 | 74,561,733 | 9.24 | 7.91 | ||||||||||||
February (as of February 22, 2011) | 7,182,106 | 65,229,234 | 9.64 | 8.44 |
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Average Daily Trading | ||||||||||||||||
Volumes | ||||||||||||||||
Number of | Price Ranges | |||||||||||||||
Calendar Period | Shares | Capital | High | Low | ||||||||||||
(US$) | (US$) | (US$) | ||||||||||||||
Annual Information for the Past Five Years | ||||||||||||||||
2006 | 1,069,476 | 18,428,607 | 19.90 | 14.55 | ||||||||||||
2007 | 1,823,514 | 32,857,113 | 20.84 | 14.22 | ||||||||||||
2008 | 2,615,829 | 28,015,734 | 14.35 | 5.90 | ||||||||||||
2009 | 1,707,480 | 12,411,885 | 10.28 | 3.73 | ||||||||||||
2010 | 2,016,329 | 17,374,954 | 10.73 | 6.51 | ||||||||||||
Quarterly Information for the Past Two Years | ||||||||||||||||
2009 | ||||||||||||||||
First quarter | 1,780,595 | 9,166,855 | 7.15 | 3.73 | ||||||||||||
Second quarter | 1,632,902 | 11,183,826 | 8.30 | 4.97 | ||||||||||||
Third quarter | 1,483,681 | 11,785,948 | 9.99 | 6.89 | ||||||||||||
Fourth quarter | 1,980,001 | 17,386,576 | 10.28 | 7.86 | ||||||||||||
2010 | ||||||||||||||||
First quarter | 1,848,123 | 16,398,605 | 9.97 | 7.87 | ||||||||||||
Second quarter | 2,659,613 | 23,515,408 | 10.73 | 7.28 | ||||||||||||
Third quarter | 2,047,063 | 15,879,451 | 8.86 | 6.51 | ||||||||||||
Fourth quarter | 1,512,684 | 13,632,354 | 10.51 | 7.22 | ||||||||||||
Monthly Information for the Past Six Months | ||||||||||||||||
2010 | ||||||||||||||||
September | 1,456,937 | 10,671,019 | 7.83 | 6.89 | ||||||||||||
October | 1,599,100 | 12,632,132 | 8.82 | 7.22 | ||||||||||||
November | 1,617,386 | 14,501,789 | 9.34 | 8.55 | ||||||||||||
December | 1,330,253 | 13,459,133 | 10.51 | 8.96 | ||||||||||||
2011 | ||||||||||||||||
January | 2,139,628 | 24,593,957 | 12.29 | 10.60 | ||||||||||||
February (as of February 22, 2011) | 1,834,631 | 22,623,447 | 12.89 | 11.63 |
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The Mercato Telematico Azionario (the “MTA”), the Italian automated screen-based quotation system on which our common shares are listed, is organized and administered by Borsa Italiana S.p.A. (“Borsa Italiana”) subject to the supervision of the Commissione Nazionale per le Società e la Borsa (“CONSOB”) the public authority charged, inter alia, with regulating investment companies, securities markets and public offerings of securities in Italy to ensure the transparency and regularity of dealings and protect investors. Borsa Italiana was established to manage the Italian regulated financial markets (including the MTA) as part of the implementation in Italy of the EU Investment Services Directive pursuant to Legislative Decree No. 415 of July 23, 1996 (the “Eurosim Decree”) and as modified by Legislative Decree No. 58 of February 24, 1998, as amended (the “Financial Act”). Borsa Italiana became operative in January 1998, replacing the administrative body Consiglio di Borsa, and has issued rules governing the organization and the administration of the Italian stock exchange, futures and options markets as well as the admission to listing on and trading in these markets. As of October 1, 2007, upon a merger with the London Stock Exchange, 99.9% of the share capital of Borsa Italiana is held by the London Stock Exchange Group plc, which, as of June 25, 2009, held such interest through its subsidiary, London Stock Exchange Group Holdings (Italy) LTD.
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New York Stock Exchange | Euronext Paris | Borsa Italiana (Milan) | ||||||||||||||||||||||
Price Ranges | Price Ranges | Price Ranges | ||||||||||||||||||||||
Calendar Period | High | Low | High | Low | High | Low | ||||||||||||||||||
(US$) | (US$) | (€) | (€) | (€) | (€) | |||||||||||||||||||
Annual Information for the Past Five Years | ||||||||||||||||||||||||
2009 | 10.28 | 3.73 | 7.02 | 2.97 | 7.03 | 2.97 | ||||||||||||||||||
2010 | 10.73 | 6.51 | 8.08 | 5.16 | 8.09 | 5.15 | ||||||||||||||||||
2011 | 13.53 | 5.34 | 9.73 | 3.96 | 9.73 | 3.96 | ||||||||||||||||||
2012 | 8.60 | 4.51 | 6.46 | 3.64 | 6.46 | 3.62 | ||||||||||||||||||
2013 | 10.05 | 7.11 | 7.69 | 5.24 | 7.69 | 5.26 | ||||||||||||||||||
Quarterly Information for the Past Two Years 2012 | ||||||||||||||||||||||||
First quarter | 8.60 | 6.03 | 6.46 | 4.59 | 6.46 | 4.59 | ||||||||||||||||||
Second quarter | 8.15 | 4.61 | 6.19 | 3.64 | 6.19 | 3.62 | ||||||||||||||||||
Third quarter | 6.77 | 4.51 | 5.17 | 3.68 | 5.17 | 3.67 | ||||||||||||||||||
Fourth quarter | 7.25 | 5.31 | 5.45 | 4.17 | 5.45 | 4.18 | ||||||||||||||||||
2013 | ||||||||||||||||||||||||
First quarter | 9.09 | 7.22 | 6.70 | 5.46 | 6.78 | 5.46 | ||||||||||||||||||
Second quarter | 10.05 | 7.11 | 7.69 | 5.51 | 7.69 | 5.51 | ||||||||||||||||||
Third quarter | 9.93 | 7.92 | 7.62 | 6.04 | 7.62 | 6.02 | ||||||||||||||||||
Fourth quarter | 9.23 | 7.20 | 6.95 | 5.24 | 6.96 | 5.26 | ||||||||||||||||||
Monthly Information for the Past Six Months 2013 | ||||||||||||||||||||||||
September | 9.60 | 8.02 | 7.15 | 6.10 | 7.14 | 6.10 | ||||||||||||||||||
October | 9.23 | 7.56 | 6.95 | 5.51 | 6.96 | 5.51 | ||||||||||||||||||
November | 8.05 | 7.20 | 5.96 | 5.37 | 5.96 | 5.37 | ||||||||||||||||||
December | 8.04 | 7.20 | 5.85 | 5.24 | 5.86 | 5.26 | ||||||||||||||||||
2014 | ||||||||||||||||||||||||
January | 8.29 | 7.35 | 6.12 | 5.44 | 6.13 | 5.45 | ||||||||||||||||||
February (as of February 11, 2013) | 8.45 | 7.89 | 6.22 | 5.82 | 6.22 | 5.82 |
Source: Bloomberg
Of the 890,606,763 common shares outstanding as of December 31, 2013, 41,678,079, or 4.7%, were registered in the common share registry maintained on our behalf in New York and 598,223,930, or 67.2%, of our common shares outstanding were listed on Euroclear France and traded on Euronext Paris and on the Borsa Italiana in Milan.
Market Information
Since 1994, our shares have been traded on the NYSE. In addition, our shares have been listed on the Borsa Italiana since 1998 and on the Euronext Paris since 2001.
Additional Information |
Memorandum and Articles of Association
Applicablenon-U.S. Regulations
Applicable Dutch Legislation
We were incorporated under the laws of theThe Netherlands by deed of May 21, 1987, and we are governed by Book 2 of the Dutch Civil Code. Set forth below is a summary of certain provisions of our Articles of Association and relevant Dutch corporate law. The summary below does not purport to be complete and is qualified in its entirety by reference to our Articles of Association and relevant Dutch corporate law.
The summary below sets forth our current Articles of Association as most recently amended on May 20, 2009.
We are subject to various provisions of the Dutch Financial Markets Supervision Act ((Wet op het financieel toezicht)toezicht(the) (the “FMSA”) and, in particular, to the provisions summarized below.
Unless an exemption or an exception applies, we are subject to (i) a prohibition from offering securities in theThe Netherlands or have securities admitted to trading on a regulated market situated or operating in theThe Netherlands without the publication of a prospectus, which has been approved by the Dutch Authority for the Financial Markets (“(Autoriteit Financiële Markten”Markten) (“AFM”) or by a supervisory authority of another European Union (“EU”) Member State or State, not being an EU Member State, that is party to the European Economic Area (“EEA”) Agreement (“Member State”) (and the same prohibition applies for such offers in other jurisdictions of the EEA);
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On October 28, 2007, the Dutch legislation implementing Directive 2004/25/EC on takeover bids (the “Takeover Directive”) entered into force. This legislation requires a shareholder who (individually or jointly) obtains control to launch an offer to all of our other shareholders. Such control is deemed present if a (legal) person is able to exercise, alone or acting in concert, at least 30% of the voting rights in our shareholders’ meeting. The acquisition of control does not require an act of the person who obtains control (e.g., if we repurchase shares as a consequence of which the relative stake of a major shareholder increases (and may result in control having been obtained)).
In the event control is acquired, whether or not by acting in concert, two options exist: (i) either a mandatory offer is launched or (ii) within 30 days the relevant stake is decreased below the 30% voting rights threshold, provided the voting rights have not been exercised during this period and our shares are not sold to a controlling shareholder. The Enterprise Chamber of the Amsterdam Court of Appeal (“(Ondernemingskamer”) may extend this period by an additional 60 days.
The Dutch legislation contains a substantial number of exemptions to the obligation to launch a (mandatory) offer. One of those exemptions is that Stichting Continuïteit ST, an independent foundation, is allowed to cross the 30% voting rights threshold when obtaining our preference shares after the announcement of a public offer, but only for a maximum period of two years.
As of January 1, 2013, certain Dutch statutory provisions have been introduced limiting the number of supervisory positions that members of our Managing and Supervisory Boards may hold.
A member of our Supervisory Board may only be appointed as such if he/she does not hold more than four supervisory positions at otherso-called “large Dutch entities”. The position of chairman equals two positions. A member of our Managing Board may only be appointed as such if he/she does not hold more than two supervisory positions at other large Dutch entities and does not hold the position of chairman of the supervisory board orone-tier board at such other entity. The term “supervisory position” includes the position of supervisory director,non-executive director or member of a supervisory board that has been set up pursuant to the articles of association. Supervisory positions at several entities belonging to the same group constitute one position.
Supervisory positions atnon-Dutch entities are not taken into account. An appointment by the Enterprise Chamber of the Amsterdam Court of Appeal as part of corporate inquiry proceedings is not taken into account.
As of January 1, 2013, statutory provisions have been introduced that require a balanced participation by men and women on our Managing Board and Supervisory Board. Where seats on a managing board and supervisory board are to be divided among individuals, balanced participation is deemed to exist if at least 30% of the seats are held by men and at least 30% are held by women.
If we do not achieve the requisite gender balance, we are required to explain this in our statutory IFRS Annual Report. Since its creation in 1987, our Managing Board has always been comprised of a sole member as result of which gender balance cannot be reached. Currently, our Supervisory Board comprises nine members of which 2 are female and 7 are male.
As of January 1, 2014, Dutch statutory provisions have been introduced to adjust and reclaim bonuses of members of a managing board of (among others) Dutch public limited liability companies, including us. Bonuses that have been granted (but not yet paid) to our sole member of the Managing Board can be adjusted in retrospect to an appropriate amount if such bonus under the circumstances would be inappropriate according to principles of reasonableness and fairness. Also, bonuses that have been granted (and paid) to the sole member of our Managing Board can be reclaimed in retrospect in whole or in part if the bonus was granted on the basis of incorrect information regarding the achievement of certain targets on which the bonus was based or regarding circumstances subject to which the bonus was granted. If and when any remuneration has been adjusted or reclaimed, we will be obliged to include a statement in the explanation to our statutory IFRS Annual Accounts regarding the amount of the adjustment or reclamation of such bonus.
Furthermore, these new statutory provisions prescribe that in the event of (a) a public offer on our common shares, (b) a proposal to approve a Managing Board resolution regarding a significant change in the identity or nature of us or our enterprise (as further described below under “Authority of our Shareholders’ Meeting(Articles 12, 16, 19, 25, 28, 32 and 41)”, and (c) a proposal for a legal merger or legal demerger, we are obliged to set off the amount of the increase in value of shares, depositary receipts or rights to claim or acquire shares that were granted by way of remuneration to the sole member of our Managing Board with his remuneration in any of the events described above.
Finally, these new statutory provisions prescribe that at the shareholders’ meeting in which the statutory IFRS Annual Accounts are adopted, the implementation of the compensation policy during the past financial year must be accounted for.
Applicable French Legislation
As our registered offices are based in theThe Netherlands, the AMFFrenchAutorité des marchés financiers (“AMF”) is not the competent market authority to control our disclosure obligations. The AMF General Regulation only requires that the periodic and ongoing information to be disclosed pursuant to the EU Transparency Directive and which content is controlled by the AFM (for instance, the annual,half-yearly and quarterly financial reports or any inside information) also be disclosed at the same time in France and made available on our Internet website.
In addition, as our shares are listed on Euronext Paris, in France, we must (i) inform the AMF of any modification of our bylaws and articles of incorporation that would add or remove a “poison pill” mechanism (pursuant toArticle 223-20 of the AMF General Regulation); and (ii) disclose information on a monthly basis on the total number of shares and voting rights composing our capital, if those numbers have changed compared to the previously disclosed numbers (pursuant toArticle 223-16 of the AMF General Regulation).
Articles 241-1 to241-6241-5 of the AMF General Regulation on buyback programs for equity securities admitted to trading on a regulated market and transaction reporting requirements are also applicable to our companyCompany as well asArticles 611-1 to632-1 of the AMF General Regulation on market abuse (insider dealing and market manipulation).
As a general rule, the information disclosed to the public must be accurate, precise and fairly presented.
All financial instruments traded on Euronext Paris are distributed between three capitalization compartments, A, B, and C, whose regulations are generally applicable to us. See “Item 9. Listing”.
Other provisions of French securities regulations are not applicable to us.
Regarding the regulation of public tender offers,Articles 231-1 to237-13 of the AMF General Regulation may apply to our shares, except for the provisions concerning the mandatory filing of a tender offer and the squeeze out.
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Our common shares are listed on theMercato Telematico Azionario
As a result of our admission to the FTSE MIB Index, we now must comply with certain additional stock market rules. These additional provisions require that we announce through a press release, within one month from ouryear-end closing (i) the month in which the payment of the dividend for the year ended, where applicable, is planned to take place (if different from the month when the previous dividend was distributed), and (ii) our intent, if any, of adopting a policy of distributing interim dividends for the current year, mentioning the months when the distribution of dividends and interim dividends will take place. In the event of a modification of the information referred to in (i) and (ii) above, we shall be required to promptly update such information in another press release. In addition, stock splits and certain other transactions must be carried out in accordance with the Borsa Italiana’s calendar. We must notify the Italian stock market of any modification to the amount and distribution of our share capital. The notification must be made no later than one day after the modification has become effective under the rules to which we are subject.
We are required to communicate to the CONSOB and the Borsa Italiana the same information that we are required to disclose to the AMF and the AFM regarding transactions in our securities and any exercise of stock options by our Supervisory Board members and executive officers,senior management, as described below.
Articles of Association
Purposes of the Company (Article 2)
Article 2 of our Articles of Association sets forth the purposes of our company. According to Article 2, our purposes shall be to participate in or take, in any manner, any interests in other business enterprises; to manage such enterprises; to carry on business in semiconductors and electronic devices; to take and grant licenses and other industrial property interests; to assume commitments in the name of any enterprises with which we may be associated within a group of companies; and to take any other action, such as but not limited to the granting of securities or the undertaking of obligations on behalf of third parties, which in the broadest sense of the term, may be related or contribute to the aforementioned objects.
Company and Trade Registry
We are registered with the trade register (handelsregister) of the Dutch Chamber of Commerce and Industry in Amsterdam((Kamer van Koophandel en Fabrieken voor Amsterdam)) under no. 33194537.
Supervisory Board and Managing Board
Our Articles of Association do not include any provisions related to a Supervisory Board member’s:
power to vote on proposals, arrangements or contracts in which such member is directly interested;
power, in the absence of an independent quorum, to vote on compensation to themselves or any members of the Supervisory Board; or
borrowing powers exercisable by the directors and how such borrowing powers can be varied.
Our Supervisory Board Charter and Dutch law, however, explicitly prohibits members of our Supervisory Board from participating in discussions and voting on matters where any such member has a conflict of interest.
If our entire Supervisory Board would have a conflict of interest, our shareholders’ meeting is the competent corporate body to adopt the relevant resolution. Our Articles of Association provide that our shareholders’ meeting must adopt the compensation of our Supervisory Board members.
Neither our Articles of Association nor our Supervisory Board Charter havehas a requirement or policy that Supervisory Board members hold a minimum number of our common shares.
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Our Supervisory Board determines the compensation of the sole member of our Managing Board, within the scope of the compensation policy adopted by our shareholders’ meeting upon the proposal of our Supervisory Board. Our Supervisory Board will submit for approval by the shareholders’ meeting a proposal regarding the compensation in the form of shares or rights to acquire shares. This proposal sets forth at least how many shares or rights to acquire shares may be awarded to our Managing Board and which criteria apply to an award or a modification.
Compensation of our Supervisory Board (Article 23)
Our shareholders’ meeting determines the compensation of our Supervisory Board members. Our shareholders’ meeting shall have the authority to decide whether such compensation will consist of a fixed amountand/or an amount that is variable in proportion to profits or any other factor.
Information from our Managing Board to our Supervisory Board (Article 18)
At least once per year our Managing Board shall inform our Supervisory Board in writing of the main features of our strategic policy, our general and financial risks and our management and control systems.
Our Managing Board shall then submit to our Supervisory Board for approval:
our operational and financial objectives;
our strategy designed to achieve the objectives;
• | ||
the parameters to be applied in relation to our strategy,inter alia, regarding financial ratios; and | ||
corporate social responsibility issues that are relevant to the enterprise.
For more information on our Supervisory Board and our Managing Board, see “Item 6. Directors, Senior Management and Employees”.
Adoption of Annual Accounts and Discharge of Management and Supervision Liability (Article 25)
Each year, within four months after the end of our financial year, our Managing Board must prepare our statutory annual accounts, certified by one or several auditors appointed by our shareholders’ meeting and submit them to our shareholders’ meeting for adoption. Within this period and in accordance with the statutory obligations to which we are subject, our Managing Board must make generally available: (i) our statutory annual accounts, (ii) our annual report, (iii) the auditor’s statement, as well as (iv) other annual financial accounting documents which we, under or pursuant to the law, must make generally available together with our statutory annual accounts.
Each year, our shareholders’ meeting votes whether or not to discharge the members of our Supervisory Board and of our Managing Board for their supervision and management, respectively, during the previous financial year. In accordance with the applicable Dutch legislation, the discharge of the members of our Managing Board and the Supervisory Board must, in order to be effective, be the subject of a specific resolution on the agenda of our shareholders’ meeting. Under Dutch law, this discharge does not extend to matters not disclosed to our shareholders’ meeting.
Distribution of Profits (Articles 37, 38, 39 and 40)
Subject to certain exceptions, dividends may only be paid out of the profits as shown in our adopted annual accounts. Our profits must first be used to set up and maintain reserves required by Dutch law and our Articles of Association. Subsequently, if any of our preference shares are issued and outstanding, preference shareholders shall be paid a dividend, which will be a percentage of the paid up part of the par value of their preference shares. Our Supervisory Board may then, upon proposal of our Managing Board, also establish reserves out of our
annual profits. The portion of our annual profits that remains after the establishment or maintenance of reserves and the payment of a dividend to our preference shareholders is at the disposal of our shareholders’ meeting. No distribution may be made to our shareholders when the equity after such distribution is or becomes inferior to thefully-paid share capital, increased by the legal reserves. Our preference shares are cumulative by nature, which means that if in a financial year the dividend or the preference shares cannot be (fully) paid, the deficit must first be paid in the following financial year.
Our Supervisory Board independently as well as our shareholders’ meeting, may, upon the proposal of our Supervisory Board, may each declare distributions out of our share premium reserve and other reserves available for shareholder distributions under Dutch law. Pursuant to a
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For the history of dividends paid by us to our shareholders in the past five years, see “Item 8. Financial Information — Dividend Policy”.
Shareholders’ Meetings, Attendance at Shareholders’ Meetings and Voting Rights
Notice Convening the Shareholders’ Meeting (Articles 25, 26, 27, 28 and 29)
Our ordinary shareholders’ meetings are held at least annually, within six months after the close of each financial year, in Amsterdam, Haarlemmermeer (Schiphol Airport), Rotterdam or The Hague, theThe Netherlands. Extraordinary shareholders’ meetings may be held as often as our Supervisory Board deems necessary, and must be held upon the written request of registered shareholders or other persons entitled to attend shareholders’ meetings of at least 10% of the total issued share capital to our Managing Board or our Supervisory Board specifying in detail the business to be dealt with. Such written requests may not be submitted electronically. In the event that the Managing Board or the Supervisory Board does not convene the shareholders’ meeting within six weeks of such a request, the aforementioned shareholders or individuals may be authorized by a competent judicial authority.
Notice of shareholders’ meetings shall be given by our Managing Board or by our Supervisory Board or by those who according to the law or our Articles of Association are entitled thereto. The notice shall be given in such manner as shall be authorized or required by law (including but not limited to a written notice, a legible and reproducible message sent by electronic means and an announcement published by electronic means), as well as in accordance with the regulations of a stock exchange where our shares are officially listed at our request. In addition, shareholders and other persons entitled to attend the shareholders’ meetings that are registered in our share register shall be notified by letter that the meeting is being convened. The notice convening the shareholders’ meeting shall be given with due observance of the statutory notice period, which is currently 42 days prior to the meeting.
The notice of the shareholders’ meeting states the business to be transacted as well as other information prescribed by law and our Articles of Association. The agenda is fixed by the author of the notice of the meeting; however, one or more shareholders or other persons entitled to attend shareholders’ meetings representing at leastone-tenth of our issued share capital may, provided that the request was made at least five days prior to the date of convocation of the meeting, request that proposals be included on the agenda. Notwithstanding the previous sentence, proposals of persons who are entitled to attend shareholders’ meetings will be included on the agenda, if such proposals are made in writing to our Managing Board within a period of sixty days before that meeting by persons who are entitled to attend our shareholders’ meetings who, solely or jointly, represent at least 1% of our issued share capital or a market value of at least €50,000,000.€50 million. The requests referred to in the previous two sentences may not be submitted electronically. The aforementioned requests must comply with conditions stipulated by our Managing Board, subject to the approval of our Supervisory Board, which shall be posted on our website.
We are exempt from the proxy solicitation rules under the United States Securities Exchange Act of 1934. Euroclear France will provide notice of shareholders’ meetings to, and compile voting instructions from, holders of shares held directly or indirectly through Euroclear France at the request of the Company, the Registrar or the
voting Collection Agent. A voting collection agent must be appointed; TMF Netherlands B.V. (formerly known as Netherlands Management Company B.V.) acts as our voting collection agent. DTCThe Depository Trust Company (“DTC”) will provide notice of shareholders’ meetings to holders of shares held directly or indirectly through DTC and the New York Transfer Agent and Registrar will compile voting instructions. In order for holders of shares held directly or indirectly through Euroclear France to attend shareholders’ meetings in person, such holders must withdraw their shares from Euroclear France and have such shares registered directly in their name or in the name of their nominee. In order for holders of shares held directly or indirectly through DTC to attend shareholders’ meetings of shareholders in person, such holders need not withdraw such shares from DTC but must follow rules and procedures established by the New York Transfer Agent and Registrar.
Attendance at Shareholders’ Meetings and Voting Rights (Articles 6, 30, 31, 32, 33 and 34)
Each share is entitled to one vote.
All shareholders and other persons entitled to attend and to vote at shareholders’ meetings are entitled to attend the shareholders’ meeting either in person or represented by a person holding a written proxy, to address the shareholders’ meeting and, as for shareholders and other persons entitled to vote, to vote, subject to our Articles of Association. Subject to the approval of our Supervisory Board, our Managing Board may resolve that shareholders
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Our Managing Board may, subject to the approval of our Supervisory Board, resolve that each person entitled to attend and vote at shareholders’ meetings is authorized to vote via an electronic means of communication, either in person or by a person authorized in writing, provided that such person can be identified via the electronic means of communication and furthermore provided that such person can directly take note of the business transacted at the meeting. Our Managing Board may, subject to the approval of our Supervisory Board, attach conditions to the use of the electronic means of communication, which conditions shall be announced in the notice convening the shareholders’ meeting and must be posted on our website.
Dutch law prescribes a fixed registration date of 28 days prior to the shareholders’ meeting, which means that that shareholders and other persons entitled to attend shareholders’ meetings are those persons who have such rights at the 28th day prior to the shareholders’ meeting and, as such, are registered in a register designated by our Managing Board, regardless of who is a shareholder or otherwise a person entitled to attend shareholders’ meetings at the time of the meeting if a registration date as referred to in our Articles of Association hadwould not been prescribed or determined.be applicable. In the notice convening the shareholders’ meeting, the time of registration must be mentioned as well as the manner in which shareholders and other persons entitled to attend shareholders’ meetings can register themselves and the manner in which they can exercise their rights.
Our Managing orBoard may, subject to the approval of our Supervisory Board, may also resolve that persons entitled to attend and vote at shareholders’ meetings may vote via an electronic means of communication determined by our Managing or Supervisory Board within a period to be set by our Managing or Supervisory Board prior to our shareholders’ meeting, which period cannot commence earlier than the registration date (as described above). Votes cast in accordance with the provisions of the preceding sentence are equal to votes cast at our shareholders’ meeting.
Shareholders and other persons entitled to attend meetings of shareholders may be represented by proxies with written authorization, which must be shown for admittance to the meeting. All matters regarding admittance to the shareholders’ meeting, the exercise of voting rights and the result of voting, as well as any other matters regarding the business of the shareholders’ meeting, shall be decided upon by the chairman of that meeting, in accordance with the requirements of Section 2:13 of the Dutch Civil Code.
Our Articles of Association allow for separate meetings for holders of common shares and for holders of preference shares. At a meeting of holders of preference shares at which the entire issued capital of shares of such class is represented, valid resolutions may be adopted even if the requirements in respect of the place of the meeting and the giving of notice have not been observed, provided that such resolutions are adopted by unanimous vote. Also, valid resolutions of preference shareholder meetings may be adopted outside a meeting if all persons entitled to vote on our preference shares indicate in writing that they vote in favor of the proposed resolution, provided that no depositary receipts for preference shares have been issued with our cooperation. Our managing boardManaging Board may, subject to the approval of our Supervisory Board, resolve that written resolutions may be
adopted via an electronic means of communication. Our Managing Board may, subject to the approval of our Supervisory Board, attach conditions to the use of the electronic means of communication, which conditions shall be notified in writing to all holders of preference shares and other persons entitled to vote on our preference shares.
Authority of our Shareholders’ Meeting (Articles 12, 16, 19, 25, 28, 32 and 41)
Our shareholders’ meeting decides upon (i) the discharge of the members of our Managing Board for their management during the past financial year and the discharge of the members of our Supervisory Board for their supervision during the past financial year; (ii) the adoption of our statutory annual accounts and the distribution of dividends; (iii) the appointment of the members of our Supervisory Board and our Managing Board; and (iv) any other resolutions listed on the agenda by our Supervisory Board, our Managing Board or our shareholders and other persons entitled to attend shareholders’ meetings.
Furthermore, our shareholders’ meeting has to approve resolutions of our Managing Board regarding a significant change in the identity or nature of us or our enterprise, including in any event (i) transferring our enterprise or practically our entire enterprise to a third party, (ii) entering into or canceling anylong-term cooperation between us or a subsidiary(dochtermaatschappij)of us and any other legal person or company or as a fully liable general partner of a limited partnership or a general partnership, provided that such cooperation or the cancellation thereof is of essential importance to us, and (iii) us or a subsidiary(dochtermaatschappij)of us
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Our Articles of Association may only be amended (and our liquidation can only be decided on) if amendments are proposed by our Supervisory Board and approved by a simple majority of the votes cast at a shareholders’ meeting at which at least 15% of the issued and outstanding share capital is present or represented. The complete proposal for the amendment (or liquidation) must be made available for inspection by the shareholders and the other persons entitled to attend shareholders’ meetings at our offices as from the day of the notice convening such meeting until the end of the meeting. Any amendment of our Articles of Association that negatively affects the rights of the holders of a certain class of shares requires the prior approval of the meeting of holders of such class of shares.
Quorum and Majority (Articles 4, 13 and 32)
Unless otherwise required by our Articles of Association or Dutch law, resolutions of shareholders’ meetings require the approval of a majority of the votes cast at a meeting at which at least 15% of the issued and outstanding share capital is present or represented, subject to the provisions explained below. We may not vote our common shares held in treasury. Blank and invalid votes shall not be counted.
A quorum of shareholders, present or represented, holding at least half of our issued share capital, is required to dismiss a member of our Managing Board, unless the dismissal is proposed by our Supervisory Board. In the event of the lack of a quorum, a second shareholders’ meeting must be held within four weeks, with no applicable quorum requirement. Any decision or authorization by the shareholders’ meeting which has or could have the effect of excluding or limiting preferential subscription rights must be taken by a majority of at leasttwo-thirds of the votes cast, if at the shareholders’ meeting less than 50% of the issued and outstanding share capital is present or represented. Otherwise such a resolution can be taken by a simple majority at a meeting at which at least 15% of the issued and outstanding share capital is represented.
Disclosure of Holdingsholdings and capital interest under Dutch Law
Holders of our shares or rights to acquire shares (which includes,inter alia, options and convertible bonds) may be subject to notification obligations under Chapter 5.3 of the FMSA.
Under Chapter 5.3 of the FMSA, any person whose direct or indirect interest (including potential interest, such as options and convertible bonds) in our share capital or voting rights reaches or crosses a threshold percentage must notify the AFM either (a) immediately, if this is the result of an acquisition or disposal by it; or (b) no later than on the 4th trading day following the entry in the AFM’s public register, if this is the result of a change in our share capital or votes which the AFM has entered in its public register. The threshold percentages are 3, 5, 10, 15, 20, 25, 30, 40, 50, 60, 75 and 95 percent. Dutch Parliament is currently considering adopting a legislative proposal pursuant to which the 5 percent threshold will be replaced by a 3 percent threshold. Under the same proposal each holder of a 3 percent interest would need to declare, in a filing to be publicly made with the AFM, whether it has any objections to our strategy as publicly submitted to the AFM.
Furthermore, persons holding 5%3% or more in our voting rights or capital interest on December 31 at 24:00 hours must within four weeks after December 31 notify the AFM of any changes in the composition of their interest since their last notification.
The following instruments qualify as “shares”: (i) shares, (ii) depositary receipts for shares (or negotiable instruments similar to such receipts), (iii) negotiable instruments for acquiring the instruments under (i) or (ii) (such as convertible bonds), and (iv) options for acquiring the instruments under (i) or (ii). Dutch Parliament is currently considering adopting a legislative proposal pursuant to which holdings of instruments of which the value is dependent on an increase in value
Under Section 5.45 of the FMSA, a notification obligation can also arise other than through the holding of shares or dividend rights but that are not settled in these shares (such as contracts for differences) will also qualify as holdings of shares.
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As of July 1, 2013 a new Section 5.39 subsection 2 of the FMSA entered into force requiring the holder of a financial instrument representing a short position in our shares to notify the AFM if such short position, expressed in a capital percentage, reaches or crosses a threshold percentage either (a) immediately, if this is the result of an acquisition or disposal by it; or (b) no later than on the 4th trading day following the entry in the AFM’s public register, if this is the result of a change in our share capital which the AFM has entered in its public register. The threshold percentages are the same as referred to above in this section. Short position refers to the gross short position (i.e., a long position held by the holder cannot be offset against the short position).
The aforementioned disclosure requirement on gross short positions exists in addition to the requirement for the holder of a financial instrument representing a short position in our shares under the Regulation (EU) No 236/2012 on short selling and certain aspects of credit default swaps (the “EU Shortselling Regulation”), effective as of November 2012, to notify AFM of the net short position (i.e., long positions are offset against short positions) if such short position, expressed in a capital percentage, reaches or crosses a threshold percentage; The threshold percentages are 0.2% each 0.1% above that. Notifications as of 0.5% and each 0.1% above that will be published by the AFM.
Under Section 5.48 of the FMSA, the sole member of our Managing Board and each of the members of our Supervisory Board must without delay notify the AFM of any changes in his interest or potential interest in our share capital or voting rights.
The AFM will publish all notifications on its public website (www.afm.nl).
Non-compliance with the notification obligations of Chapter 5.3 of the FMSA can lead to imprisonment or criminal fines, or administrative fines or other administrative sanctions. In addition,non-compliance with these notification obligations may lead to civil sanctions, including, without limitation, suspension of the voting rights attaching to our shares held by the offender for a maximum of three years, (suspension and) nullification of a resolution adopted by our shareholders’ meeting (if it is likely that such resolution would not have been adopted if the offender had not voted) and a prohibition for the offender to acquire our shares or votes for a period of notno more than five years.
Share Capital (Articles 4, 5 and 6)
Our shares may not be issued at less than their par value; our common shares must be fully paid up at the time of their issuance. Our preference shares must be paid up for at least 25% of their par value at the time of
their issuance (and the remaining 75% if and when requested by our Managing Board). Our authorized share capital is not restricted by redemption provisions, sinking fund provisions or liability to further capital calls by us. Our Articles of Association allows for the acquisition of own shares and the cancellation of shares. There are no conditions imposed by our Memorandum and Articles of Association governing changes in capital which are more stringent than is required by law.
Type II shares are common shares in the form of an entry in our shareholders register with the issue of a share certificate consisting of a main part without a dividend coupon. In addition to type II shares, type I shares are available. Type I shares are common shares in the form of an entry in our shareholders register without the issue of a share certificate. Type II shares are only available should our Supervisory Board decide to offer them. Our preference shares are in the form of an entry in our shareholders register without issue of a share certificate.
Non-issued authorized share capital, which is different from issued share capital, allows us to proceed with capital increases excluding the preemptive rights, upon our Supervisory Board’s decision, withindecision. Our annual shareholders’ meeting, held on May 3, 2011, authorized our Supervisory Board to proceed with capital increases excluding the preemptive rights up to a maximum of 10% of our issued common share capital as of December 31, 2011, increased with another 15% of our issued common share capital as of December 31, 2011, in case of mergers and acquisitions, but never exceeding the limits of theour authorized share capital. This authorization granted by our shareholders’ meetingis valid for three years as of April 26, 2007.25, 2012. However, it is not possible to predict if we will request such an authorization again and at what time and under what conditions. The impact of any future capital increases within the limit of our authorized share capital, upon the decision of our Supervisory Board acting on the delegation granted to it by our shareholders’ meeting, cannot therefore be evaluated.
Other securities in circulation which give access to our share capital include (i) the options giving the right to subscribe to our shares granted to our employees, including the sole member of our Managing Board and our executive officers;senior managers; (ii) the options giving the right to subscribe to our shares granted in the past to the members of our Supervisory Board, its secretaries and controllers, as described in “Item 6. Directors, Senior Management and Employees”; and (iii) our 2013 Senior Bonds as described above; and (iv) our 2016 Convertible Bonds.
We do not have securities not representing our share capital.
Issuance of Shares, Preemptive Rights, Preference Shares and Capital Reduction (Articles 4 and 5)
Unless excluded or limited by the shareholders’ meeting or our Supervisory Board according to the conditions described below, each holder of common shares has a pro rata preemptive right to subscribe to an offering of common shares issued for cash in proportion to the number of common shares which he owns. There is no preemptive right with respect to an offering of shares fornon-cash consideration, with respect to an offering of shares to our employees or to the employees of one of our subsidiaries, or with respect to preference shares.
Our shareholders’ meeting, upon proposal and on the terms and conditions set by our Supervisory Board, has the power to issue shares. The shareholders’ meeting may also authorize our Supervisory Board, for a period of no more than five years, to issue shares and to determine the terms and conditions of share issuances. Our shares cannot be issued at below par and, as for our common shares, must be fully paid up at the time of their issuance. Our preference shares must be paid up for at least 25% of their par value.
Our shareholders’ meeting, upon proposal by our Supervisory Board, also has the power to limit or exclude preemptive rights in connection with new issuances of shares. Such a resolution of the shareholders’ meeting must
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Our annual shareholders’ meeting, held on April 26, 2007,May 3, 2011, has authorized our Supervisory Board has been authorized for a period of five years to resolve upon (i) the issuance of shares or the granting of rights to (i) issue any number ofsubscribe for common sharesand/or preference shares as comprised in our authorized share capital, from timeup to time;a maximum of 10% of our issued common share capital, as per December 31, 2011, increased with another 15% of our issued common share capital, as per December 31, 2011, in the case of mergers and acquisitions, (ii) to fixupon the terms and conditions of share issuance;an issuance of common shares, and (iii) to exclude upon the limitation and/or to limit preemptiveexclusion ofpre-emptive rights of existing shareholders; and (iv) to grant rights to subscribe forshareholders upon issuance of common sharesand/or preference shares, all for athree-year period as of five years fromApril 25, 2012, but never exceeding the datelimits of such annual shareholders’ meeting.
Upon the proposal of our Supervisory Board, our shareholders’ meeting may, in accordance with the legal provisions, reduce our issued capital by canceling the shares that we hold in treasury, by reducing the par value of the shares or by canceling our preference shares.
See “Item 7. Major Shareholders and Related Party Transactions” for details on changes in the distribution of our share capital over the past three years.
We may issue preference shares in certain circumstances. See “Item 7. Major Shareholders and Related Party Transactions — Major Shareholders — Shareholders’ Agreements — Preference Shares”.
The effect of the preference shares may be to deter potential acquirers from effecting an unsolicited acquisition resulting in a change of control or otherwise taking action as considered hostile by our Managing Board and Supervisory Board. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — Our shareholder structure and our preference shares may deter a change of control”.
No preference shares have been issued to date and therefore none are currently outstanding.
Liquidation Rights (Articles 42 and 43)
In the event of our dissolution and liquidation, after payment of all debts and liquidation expenses, the holders of preference shares if issued, would receive the paid up portion of the par value of their preference shares. Any assets then remaining shall be distributed among the registered holders of common shares in proportion to the par value of their shareholdings.
Acquisition of Shares in Our Own Share Capital (Article 5)
We may acquire our own shares, subject to certain provisions of Dutch law and of our Articles of Association, if and to the extent that (i) the shareholders’ equity less the payment required to make the acquisition does not fall below the sum of thepaid-up andcalled-up portion of the share capital and any reserves required by Dutch law, and (ii) the aggregate nominal value of shares that we or our subsidiaries acquire, hold or hold in pledge would not exceedone-tenth of our issued share capital. Share acquisitions may be effected by our Managing Board, subject to the approval of our Supervisory Board, only if the shareholders’ meeting has authorized our Managing Board to effect such repurchases, which authorization may apply for a maximum period of 18 months. We may not vote shares we hold in treasury. Our purchases of our own shares are subject to acquisition price conditions as authorized by our shareholders’ meeting. Pursuant to a shareholders’ resolution adopted at our annual shareholders’ meetingAnnual General Meeting of Shareholders held on May 25, 2010,June 21, 2013, our Managing Board, subject to the approval of our Supervisory Board, is authorized for a period up to November 24, 2011December 20, 2014 (inclusive) to acquire STour shares subject to the limits set forth above and the acquisition price conditions set forth in such shareholders’ resolution.
Our Articles of Association provide that we shall be able to acquire shares in our own share capital in order to transfer these shares under employee stock option or stock purchase plans, without an authorization of our shareholders’ meeting.
Limitations on Right to Hold or Vote Shares
There are currently no limitations imposed by Dutch law or by our Articles of Association on the right ofnon-resident holders to hold or vote the shares.
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None.
Exchange Controls
None.
Taxation
Dutch Taxation
The following is a general summary and the tax consequences as described herein may not apply to a holder of common shares. Any potential investor should consult his tax adviser for more information about the tax consequences of acquiring, owning and disposing of common shares in his particular circumstances.
This taxation summary solely addresses the principal Dutch tax consequences of the acquisition, ownership and disposal of common shares. It does not consider every aspect of taxation that may be relevant to a particular holder of common shares under special circumstances or who is subject to special treatment under applicable law. Where in this summary English terms and expressions are used to refer to Dutch concepts, the meaning to be attributed to such terms and expressions shall be the meaning to be attributed to the equivalent Dutch concepts under Dutch tax law. Where in this Dutch Taxation summary the terms “the“The Netherlands” and “Dutch” are used, these refer solely to the European part of the Kingdom of the Netherlands. This summary also assumes that we are organized, and that our business will be conducted, in the manner outlined in thisForm 20-F. A change to such organizational structure or to the manner in which we conduct our business may invalidate the contents of this summary, which will not be updated to reflect any such change.
This summary is based on the tax law of theThe Netherlands (unpublished case law not included) as it stands at the date of thisForm 20-F. The law upon which this summary is based is subject to change, perhaps with retroactive effect. Any such change may invalidate the contents of this summary, which will not be updated to reflect such change.
Where in this Dutch Taxation paragraph reference is made to “your common shares”, that concept includes, without limitation, that:
1. | you own one or more common shares and in addition to the title to such common shares, you have an economic interest in such common shares; |
2. | you hold the entire economic interest in one or more common shares; |
3. | you hold an interest in an entity, such as a partnership or a mutual fund, that is transparent for Dutch tax purposes, the assets of which comprise one or more common shares, within the meaning of 1. or 2. above; or |
4. | you are deemed to hold an interest in common shares, as referred to under 1. to 3., pursuant to the attribution rules of article 2.14a, of the Dutch Income Tax Act 2001 (Wet inkomstenbelasting 2001), with respect to property that has been segregated, for instance in a trust or a foundation. |
Taxes on income and capital gains
The summary set out in this section “Dutch Taxation” applies only to a holder of common shares who is aNon-resident holder of common shares.
For the purposes of this section, you are a “Non-resident“Non-resident holder of common shares” if you satisfy the following tests:
(a) you are neither resident, nor deemed to be resident, in theThe Netherlands for purposes of Dutch income tax or corporation tax, as the case may be, and, if you are an individual, you have not elected to be treated as a resident of theThe Netherlands for Dutch income tax purposes;
(b) your common shares and any benefits derived or deemed to be derived from such common shares have no connection with your past, present or future employment or membership of a management board ((bestuurder)bestuurder) or a supervisory board ((commissaris)commissaris);
(c) your common shares do not form part of a substantial interest or a deemed substantial interest in us within the meaning of Chapter 4 of the Dutch Income Tax Act 2001 (Wet inkomstenbelasting 2001)2001), unless such interest forms part of the assets of an enterprise;enterprise, or, if you are not an individual, you do not hold the substantial interest with the predominant objective or one of the predominant objectives to avoid the levy of income tax or dividend withholding tax of another person; and
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Generally, if a person holds an interest in us, such interest forms part of a substantial interest, or a deemed substantial interest, in us if any one or more of the following circumstances is present:
1. You — either alone or, in the case of an individual, together with your partner (partner), if any, or pursuant to article 2.14a, of the Dutch Income Tax Act 2001 (Wet(Wet inkomstenbelasting 2001)2001) — own or are deemed to own, directly or indirectly, either a number of shares in us representing 5% or more of our total issued and outstanding capital (or the issued and outstanding capital of any class of our shares), or rights to acquire, directly or indirectly, shares, whether or not already issued, representing 5% or more of our total issued and outstanding capital (or the issued and outstanding capital of any class of our shares), or profit participating certificates (winstbewijzen) relating to 5% or more of our annual profit or to 5% or more of our liquidation proceeds.
2. Your shares, profit participating certificates or rights to acquire shares in us are held by you or deemed to be held by you following the application of anon-recognition provision.
3. Your partner or any of your relatives by blood or by marriage in the direct line (including foster children) or of those of your partner has a substantial interest (as described under 1. and 2. above) in us.
If you are entitled to the benefits from shares or profit participating certificates (for instance if you are a holder of a right of usufruct), you are deemed to be a holder of shares or profit participating certificates, as the case may be, and your entitlement to benefits is considered a share or profit participating certificate, as the case may be.
If you are a holder of common shares and you satisfy test a., but do not satisfy any one or more of tests b.(b), c.(c), and d.(d), your Dutch income tax position or corporation tax position, as the case may be, is not discussed in thisForm 20-F.
If you are aNon-resident holder of common shares you will not be subject to any Dutch taxes on income or capital gains (other than the dividend withholding tax described below) in respect of any benefits derived or deemed to be derived by you from your common shares, including any capital gain realized on the disposal thereof, except if:
1. you derive profits from an enterprise, directly, or pursuant to aco-entitlement to the net value of such enterprise, other than as a shareholder, if you are an individual, or other than as a holder of securities, if you are not an individual, such enterprise is either managed in theThe Netherlands or carried on, in whole or in part, through a permanent establishment or a permanent representative in theThe Netherlands, and your common shares are attributable to such enterprise; or
2. you are an individual and you derive benefits from common shares that are taxable as benefits from miscellaneous activities in theThe Netherlands.
You may, inter alia, derive, or be deemed to derive, benefits from your common shares that are taxable as benefits from miscellaneous activities in the following circumstances:
a. if your investment activities go beyond the activities of an active portfolio investor, for instance in the case of use of insider knowledge (voorkennis) or comparable forms of special knowledge, on the understanding that such benefits will be taxable in theThe Netherlands only if such activities are performed or deemed to be performed in theThe Netherlands; or
b. if you hold common shares, whether directly or indirectly, and any benefits to be derived from such common shares are intended, in whole or in part, as remuneration for activities performed or deemed to be performed in theThe Netherlands by you or by a person who is a connected person to you as meant by article 3.92b, paragraph 5, of the Dutch Income Tax Act 2001 (Wet inkomstenbelasting 2001).
Attribution rule
Benefits derived or deemed to be derived from certain miscellaneous activities by a child or a foster child who is under eighteen years of age are attributed to the parent who exercises, or the parents who exercise, authority over the child, irrespective of the country of residence of the child.
Dividend withholding tax
We are generally required to withhold Dutch dividend withholding tax at a rate of 15% from dividends distributed by us.
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distributions in cash or in kind, deemed and constructive distributions and repayments of capital not recognized aspaid-in for Dutch dividend withholding tax purposes;
liquidation proceeds and proceeds of repurchase or redemption of shares in excess of the average capital recognized aspaid-in for Dutch dividend withholding tax purposes;
the par value of shares issued by us to a holder of common shares or an increase of the par value of shares, as the case may be, to the extent that it does not appear that a contribution, recognized for Dutch dividend withholding tax purposes, has been made or will be made; and
• | ||
partial repayment of capital, recognized aspaid-in for Dutch dividend withholding tax purposes, if and to the extent that there are net profits (zuivere winst), unless (a) the general meeting of our shareholders has resolved in advance to make such repayment and (b) the par value of the shares concerned has been reduced by an equal amount by way of an amendment to our articles of association. |
If you are aNon-resident holder of common shares isand if you are resident in thenon-European part of the Kingdom of the Netherlands or Aruba or in a country that has concluded a double taxation treaty with theThe Netherlands, such holderyou may be eligible for a full or partial relief from the dividend withholding tax, provided such relief is timely and duly claimed.
Pursuant to domestic rules to avoid dividend stripping, dividend withholding tax relief will only be available to you if you are the beneficial owner (uiteindelijk gerechtigde) of dividends distributed by us. The Dutch tax authorities have taken the position that thisbeneficial-ownership test can also be applied to deny relief from dividend withholding tax under double tax treaties and the Tax Arrangement for the Kingdom (Belastingregeling voor het Koninkrijk) and the Tax Arrangement for the country of The Netherlands (Belastingregeling voor het land Nederland). If you receive proceeds from your common shares, you shall not be recognized as the beneficial owner of such proceeds if, in connection with the receipt of the proceeds, you have given a consideration, in the framework of a composite transaction including, without limitation, the mere acquisition of one or more dividend coupons or the creation ofshort-term rights of enjoyment of shares (kortlopende genotsrechten op aandelen), whereas it may be presumed that (i) such proceeds in whole or in part, directly or indirectly, inure to a person who would not have been entitled to an exemption from, reduction or refund of, or credit for, dividend withholding tax, or who would have been entitled to a smaller reduction or refund of, or credit for, dividend withholding tax than you, the actual recipient of the proceeds; and (ii) such person acquires or retains, directly or indirectly, an interest in common shares or similar instruments, comparable to its interest in common shares prior to the time the composite transaction was first initiated.
In addition, if you are aNon-resident holder of common shares that is not an individual, you are entitled to an exemption from dividend withholding tax, provided that the following tests are satisfied:
1. you are, according to the tax law of a Member State of the European Union or a state designated by ministerial decree, that is a party to the Agreement regarding the European Economic Area, resident there and you are not transparent for tax purposes according to the tax law of such state;
2. any one or more of the following threshold conditions are satisfied:
a. at the time the dividend is distributed by us, you hold shares representing at least 5% of our nominal paid up capital; or
b. you have held shares representing at least 5% of our nominal paid up capital for a continuous period of more than one year at any time during the four years preceding the time the dividend is distributed by us, provided that such period ended after December 31, 2006;us; or
c. you are connected with us within the meaning of article 10a, paragraph 4, of the Dutch Corporation Tax Act 1969 (Wet(Wet op de vennootschapsbelasting 1969)1969); or
d. an entity connected with you within the meaning of article 10a, paragraph 4, of the Dutch Corporation Tax Act 1969 (Wet(Wet op de vennootschapsbelasting 1969)1969) holds at the time the dividend is distributed by us, shares representing at least 5% of our nominal paid up capital;
3. you are not considered to be resident outside the Member States of the European Union or the states designated by ministerial decree, that are a party to the Agreement regarding the European Economic Area, under the terms of a double taxation treaty concluded with a third State; and
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The exemption from dividend withholding tax is not available to you if you are aNon-resident holder of common shares and pursuant to a provision for the prevention of fraud or abuse included in a double taxation treaty between theThe Netherlands and your country of residence, you would not be entitled to the reduction of tax on dividends provided for by such treaty. Furthermore, the exemption from dividend withholding tax will only be available to you if you are the beneficial owner of dividends distributed by us. If you are aNon-resident holder of common shares and you are resident in a Member State of the European Union with which theThe Netherlands has concluded a double taxation treaty that provides for a reduction of tax on dividends based on the ownership of the number of voting rights, the test under 2.a. above is also satisfied if such holder ownsyou own 5% of the voting rights in us.
The convention of December 18, 1992, between the Kingdom of the Netherlands and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (the “U.S./NL Income Tax Treaty”) provides for an exemption for dividends received by exempt pension trusts and exempt organizations, as defined therein. In such case, a refund may be obtained of the difference between the amount withheld and the amount that theThe Netherlands was entitled to levy in accordance with the U.S./NL Income Tax Treaty by filing the appropriate forms with the Dutch tax authorities within the term set therefor.
If we receive a profit distribution from a qualifying foreign entity, or a repatriation of qualifying foreign branch profit, that is exempt from Dutch corporation tax and that has been subject to a foreign withholding tax of at least 5%, we may be entitled to retain a reductionportion of the amount of Dutch dividend withholding tax imposed in respect of a dividend distributed by us, that mustordinarily would be paidrequired to be remitted to the Dutch tax authoritiesauthorities. Such portion is the lesser of:
3% of the dividends paid by us in respect of dividends distributedwhich Dutch dividend withholding tax is withheld; and
3% of the qualifying profit distributions grossed up by us. Such reduction is the lesser of:foreign tax withheld on such distributions received from foreign subsidiaries and branches prior to the distribution of the dividend by us during the current calendar year and the two preceding calendar years (to the extent such distributions have not been taken into account previously when applying this test).
Non-resident holders of common shares are urged to consult their tax advisers regarding the general creditability or deductibility of Dutch dividend withholding tax and, in particular, the impact on such investors of our potential ability to receive a reduction as described in the previous paragraph.
See the section “Dutch“— Dutch Taxation — Taxes on income and capital gains” above for a description of the termNon-resident holder of common shares.
Gift and inheritance taxes
If you dispose of common shares by way of gift, in form or in substance, or if you die, no Dutch gift tax or Dutch inheritance tax, as applicable, will be due, unless:
you are, or you were, resident or deemed to be resident in The Netherlands for purposes of Dutch gift tax or Dutch inheritance tax, as applicable; or
you made a gift of common shares, then became a resident or deemed resident of The Netherlands, and died as a resident or deemed resident of The Netherlands within 180 days of the date of the gift.
For purposes of the above, a gift of common shares made under a condition precedent (opschortende voorwaarde) is deemed to be made at the time the condition precedent is satisfied.
Other taxes and duties
No Dutch registration tax, transfer tax, stamp duty or any other similar documentary tax or duty, other than court fees, is payable in theThe Netherlands by you in respect of or in connection with (i) the subscription, issue, placement, allotment, delivery of common shares, (ii) the deliveryand/or enforcement by way of legal proceedings (including the enforcement of any foreign judgment in the courts of theThe Netherlands) of the documents relating to the issue of common shares or the performance by us of our obligations under such documents, or (iii) the transfer of common shares.
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The following discussion is a general summary of the material U.S. federal income tax consequences to a U.S. holder (as defined below) of the ownership and disposition of our common shares. You are a U.S. holder only if you are a beneficial owner of common shares:
that is, for U.S. federal income tax purposes, (a) a citizen or individual resident of the United States, (b) a U.S. domestic corporation or a U.S. domestic entity taxable as a corporation, (c) an estate, the income of which is subject to U.S. federal income taxation regardless of its source, or (d) a trust, if a court within the United States can exercise primary supervision over the administration of the trust and one or more U.S. persons are authorized to control all substantial decisions of the trust;
that owns, directly, indirectly or by attribution, less than 10% of our voting power or outstanding share capital;
that holds the common shares as capital assets;
whose functional currency for U.S. federal income tax purposes is the U.S. dollar;
that is a resident of the United States and not also a resident of The Netherlands for purposes of the U.S./NL Income Tax Treaty;
that is entitled, under the “limitation on benefits” provisions contained in the U.S./NL Income Tax Treaty, to the benefits of the U.S./NL Income Tax Treaty; and
that does not have a permanent establishment or fixed base in The Netherlands.
This summary does not discuss all of the tax consequences that may be relevant to you in light of your particular circumstances. Also, it does not address holders that may be subject to special rules including, but not limited to, U.S. expatriates,tax-exempt organizations, persons subject to the alternative minimum tax, banks, securitiesbroker-dealers, financial institutions, regulated investment companies, insurance companies, traders in securities who elect to apply amark-to-market method of accounting, persons holding our common shares as part of a straddle, hedging or conversion transaction, or persons who acquired common shares pursuant to the exercise of employee stock options or otherwise as compensation. Because this is a general summary, you are advised to consult your own tax advisor with respect to the U.S. federal, state, local and applicable foreign tax consequences of the ownership and disposition of our common shares. In addition, you are advised to consult your own tax advisor concerning whether you are entitled to benefits under the U.S./NL Income Tax Treaty.
If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) holds common shares, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. If you are a partner in a partnership that holds common shares, you are urged to consult your own tax advisor regarding the specific tax consequences of the ownership and the disposition of common shares.
This summary is based on the Internal Revenue Code of 1986, as amended, (the “Code”), the U.S./NL Income Tax Treaty, judicial decisions, administrative pronouncements and existing, temporary and proposed Treasury regulations as of the date of thisForm 20-F, all of which are subject to change or changes in interpretation, possibly with retroactive effect.
Dividends
In general, you must include the gross amount of distributions paid (including the amount of any Dutch taxes withheld from those distributions) to you by us with respect to the common shares in your gross income asforeign-source taxable dividend income. A dividends-received deduction will not be allowed with respect to dividends paid by us. The amount of any distribution paid in foreign currency (including the amount of any Dutch withholding tax thereon) will be equal to the U.S. dollar value of the foreign currency on the date of actual or constructive receipt by you regardless of whether the payment is in fact converted into U.S. dollars at that time. Gain or loss, if any, realized on a subsequent sale or other disposition of such foreign currency will beU.S.-source ordinary income or loss. Special rules govern and specific elections are available to accrual method taxpayers to determine the U.S. dollar amount includible in income in the case of taxes withheld in a foreign currency. Accrual basis taxpayers are urged to consult their own tax advisors regarding the requirements and elections applicable in this regard.
Subject to applicable limitations, Dutch taxes withheld from a distribution paid to you at a rate not exceeding the rate provided in the U.S./NL Income Tax Treaty will be eligible for credit against your U.S. federal income tax liability. As described in “— Taxation — Dutch Taxation” above, under limited
circumstances we may be
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Certainnon-corporate U.S. holders (including individuals) are eligible for reduced rates of U.S. federal income tax in respect of “qualified dividend income” received in taxable years beginning before January 1, 2013.. For this purpose, “qualified dividend income” generally includes dividends paid by anon-U.S. corporation if, among other things, the U.S. holders meet certain minimum holding period and other requirements and thenon-U.S. corporation satisfies certain requirements, including either that (i) the shares of thenon-U.S. corporation are readily tradable on an established securities market in the United States, or (ii) thenon-U.S. corporation is eligible for the benefits of a comprehensive income tax treaty with the United States (such as the U.S./NL Income Tax Treaty) which provides for the exchange of information. We currently believe that dividends paid by us with respect to our common shares should constitute “qualified dividend income” for U.S. federal income tax purposes; however, this is a factual matter and subject to change. You are urged to consult your own tax advisor regarding the availability to you of a reduced dividend tax rate in light of your own particular situation.
Sale, Exchange or Other Disposition of Common Shares
Upon a sale, exchange or other disposition of common shares, you generally will recognize capital gain or loss in an amount equal to the difference between the amount realized and your tax basis in the common shares, as determined in U.S. dollars. This gain or loss generally will beU.S.-source gain or loss, and will be treated aslong-term capital gain or loss if you have held the common shares for more than one year. If you are an individual, capital gains generally will be subject to U.S. federal income tax at preferential rates if specified minimum holding periods are met. The deductibility of capital losses is subject to significant limitations.
Net Investment Income Tax
Certain U.S. holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally will be subject to a 3.8% tax on “net investment income”, including, among other things, dividends on, and gains from the sale or other taxable disposition of, our common shares, subject to certain limitations and exceptions. You should consult your own tax advisor regarding the effect, if any, of such tax on your ownership and disposition of our common shares.
Passive Foreign Investment Company Status
We believe that we should not be classified as a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes for the year ended December 31, 20102013 and we do not expect to become a PFIC in the foreseeable future. This conclusion is a factual determination that must be made annually at the close of each taxable year and therefore we can provide no assurance that we will not be a PFIC in our current or any future taxable year. If we were to be characterized as a PFIC for any taxable year, the tax on certain distributions on our common shares and on any gains realized upon the disposition of common shares may be materially less favorable than as described herein. In addition, if we were a PFIC in a taxable year in which we were to pay dividends or the prior taxable year, such dividends would not be “qualified dividend income” (as described above) and would be taxed at the higher rates applicable to other items of ordinary income. You should consult your own tax advisor regarding the application of the PFIC rules to your ownership of our common shares.
U.S. Information Reporting and Backup Withholding
Dividend payments with respect to common shares and proceeds from the sale, exchange, retirement or other disposition of our common shares may be subject to information reporting to the U.S. Internal Revenue
Service (the “IRS”) and possible U.S. backup withholding. Backup withholding will not apply to you, however, if you furnish a correct taxpayer identification number or certificate of foreign status and make any other required certification, or if you are otherwise exempt from backup withholding. U.S. persons required to establish their exempt status generally must provide certification on IRSForm W-9.Non-U.S. holders generally will not be subject to U.S. information reporting or backup withholding. However, these holders may be required to provide certification ofnon-U.S. status (generally onForm W-8BEN) in connection with payments received in the United States or through certainU.S.-related financial intermediaries. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any
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In addition, U.S. holders should be aware of annual reporting requirements with respect to the holding of certain foreign financial assets, including our common shares that are not held in an account maintained by certain types of financial institutions, if the aggregate value of all of such assets exceeds $50,000 (or $100,000 for married couples filing a joint return). You should consult your own tax advisor regarding the application of the information reporting and backup withholding rules to our common shares and the application of the annual reporting requirements to your particular situation.
Documents on Display
Any statement in thisForm 20-F about any of our contracts or other documents is not necessarily complete. If the contract or document is filed as an exhibit to thisForm 20-F the contract or document is deemed to modify the description contained in thisForm 20-F. You must review the exhibits themselves for a complete description of the contract or document.
Our Articles of Association, the minutes of our annual shareholders’ meetings, reports of the auditors and other corporate documentation may be consulted by the shareholders and any other individual authorized to attend the meetings at our head office at Schiphol Airport Amsterdam, theThe Netherlands, at the registered offices of the Managing Board in Geneva, Switzerland and at CréditAgricole-Indosuez, 9, Quai du PrésidentPaul-Doumer, 92400 Courbevoie, France.
You may review a copy of our filings with the U.S. Securities and Exchange Commission (the “SEC”), including exhibits and schedules filed with it, at the SEC’s public reference facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at1-800-SEC-0330 for further information. In addition, the SEC maintains an Internetinternet site athttp://www.sec.gov(www.sec.gov) that contains reports and other information regarding issuers that file electronically with the SEC. These SEC filings are also available to the public from commercial document retrieval services.
WE ARE REQUIRED TO FILE REPORTS AND OTHER INFORMATION WITH THE SEC UNDER THE SECURITIES EXCHANGE ACT OF 1934. REPORTS AND OTHER INFORMATION FILED BY U.S. WITH THE SEC MAY BE INSPECTED AND COPIED AT THE SEC’S PUBLIC REFERENCE FACILITIES DESCRIBED ABOVE OR THROUGH THE INTERNET AT HTTP://WWW.SEC.GOV.(WWW.SEC.GOV). AS A FOREIGN PRIVATE ISSUER, WE ARE EXEMPT FROM THE RULES UNDER THE EXCHANGE ACT PRESCRIBING THE FURNISHING AND CONTENT OF PROXY STATEMENTS AND OUR OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS ARE EXEMPT FROM THE REPORTING AND SHORT- SWINGSHORT-SWING PROFIT RECOVERY PROVISIONS CONTAINED IN SECTION 16 OF THE EXCHANGE ACT. UNDER THE EXCHANGE ACT, AS A FOREIGN PRIVATE ISSUER, WE ARE NOT REQUIRED TO PUBLISH FINANCIAL STATEMENTS AS FREQUENTLY OR AS PROMPTLY AS UNITED STATES COMPANIES.
In addition, material filed by us with the SEC can be inspected at the offices of the New York Stock Exchange at 20 Broad Street, New York, NY 10005 and at the offices of The Bank of New York Mellon, as New York Share Registrar, at 101 Barclay Street, New York, NY 10286 (telephone:1-888-269-2377).
Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to changes in financial market conditions in the normal course of business due to our operations in different foreign currencies and our ongoing investing and financing activities. Market risk is the uncertainty to which future earnings or asset/liability values are exposed due to operating cash flows denominated in foreign currencies and various financial instruments used in the normal course of operations. The major financial risks to which we are exposed are the foreign exchange risks related to the fluctuations of the
U.S. dollar exchange rate compared to the Euro and the other major currencies the coverage of our foreign currency exposures,in which costs are incurred, the variation of the interest rates and the risks associated to the investments of our available cash. We have established policies, procedures and internal processes governing our management of market risks and the use of financial instruments to manage our exposure to such risks.
Our interest income (expense), net, as reported onin our consolidated statementsConsolidated Statements of income,Income, is the balance between interest income received from our cash and cash equivalentequivalents and marketable securities investments and interest expense paid on our long-term debt.financial liabilities and bank fees (including fees on committed credit lines). Our interest income (expense) is dependent on theupon fluctuations in the interest rates, mainly in the U.S. dollardollars and the Euro,Euros, since we are investinginvest primarily on ashort-term basis; any increase or decrease in the short-term market interest rates would mean an equivalent increase or decrease in our interest income. See “Item 5. Operating and Financial Review and Prospects — Impact of Changes in Interest Rates”.
We place our cash and cash equivalents, or a part of it, with high credit quality financial institutions with at least a single “A”long-term rating from two of the major rating agencies, meaning at least A3 from Moody’s Investor Service andA- from Standard & Poor’sS&P or Fitch, Ratings,or better, invested as term deposits treasury bills and FRN marketable securities and, as such, we are exposed to the fluctuations of the market interest rates on our placement and our cash, which can have an impact on our accounts. We manage the credit risks associated with financial instruments through credit approvals, investment limits and centralized monitoring procedures but do not normally
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We also have a significant amount of receivables relating to tax credits, refunds and funding from the governments of certain countries in the Euro zone. As of December 31, 2010,2013, we had ARS, purchased by Credit Suisse contrary$513 million oflong-term government receivables almost entirely from France and Italy. In the event of a default of these countries, we could be required to our instruction, representing interests in collateralized obligations and credit linked notes, withrecognize a par value of $261 million that were carried on our balance sheet asavailable-for-salesignificant loss. financial assets at an amount of $72 million, including a favorable revaluation of $45 million through Other comprehensive income in our Total Equity. See “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources”. In December 2009, Credit Suisse, because of its contingent interest in certain securities held by us and issued by Deutsche Bank, requested that we either tender the securities or accept that the amount that would be received by us pursuant to such tender ($75 million) be deducted from the sum to be collected by us if and when the FINRA award is confirmed and enforced. See “Item 8. Financial Information — Legal Proceedings”. Pursuant to legal advice, and while reserving our legal rights, we participated in the tender offer. As a result, we sold ARS with a face value of $154 million, collected $75 million and registered $68 million as realized losses on Financial Assets. Through such action, we have endeavored to protect our rights to immediately recover the full amounts awarded to us pursuant to the FINRA award, upon confirmation and enforcement of such award by the United States District Court for the Southern District of New York.
We do not anticipate any material adverse effect on our financial position, resultresults of operations or cash flows resulting from the use of our instruments in the future. There can be no assurance that these strategies will be effective or that transaction losses can be minimized or forecasted accurately.
The information below summarizes our market risks associated with cash and cash equivalents,short-term deposits, marketable securities and debt obligations and other significant financial instruments as of December 31, 2010.2013. The information below should be read in conjunction with Note 2523 to our Consolidated Financial Statements.
The table below presents principal amounts and relatedweighted-average interest rates by year of maturity for our investment portfolio and debt obligations (in millions of U.S. dollars, except percentages):
Fair Value at | ||||||||||||||||||||||||||||||||
December 31, | ||||||||||||||||||||||||||||||||
Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | 2010 | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 1,892 | 1,892 | |||||||||||||||||||||||||||||
Average interest rate | 0.28 | % | ||||||||||||||||||||||||||||||
Current marketable securities | $ | 891 | 891 | |||||||||||||||||||||||||||||
Average interest rate | 0.43 | % | ||||||||||||||||||||||||||||||
Non current marketable securities | $ | 72 | 72 | |||||||||||||||||||||||||||||
Average interest rate | 2.95 | % | ||||||||||||||||||||||||||||||
Short-term deposit | $ | 67 | 67 | |||||||||||||||||||||||||||||
Average interest rate | 0.76 | % | ||||||||||||||||||||||||||||||
Long-term debt: | $ | 1,695 | 645 | 109 | 676 | 106 | 84 | 75 | 1,685 | |||||||||||||||||||||||
Average interest rate | 1.15 | % |
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Total | 2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | Fair Value at December 31, 2013 | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 1,836 | $ | 1,836 | ||||||||||||||||||||||||||||
Cash at bank and on hand | $ | 213 | $ | 213 | ||||||||||||||||||||||||||||
Deposits at call with banks | $ | 1,623 | $ | 1,623 | ||||||||||||||||||||||||||||
Short-term deposits | $ | 1 | $ | 1 | ||||||||||||||||||||||||||||
Average interest rate | 0.27 | % | ||||||||||||||||||||||||||||||
Current marketable securities | $ | 57 | $ | 57 | ||||||||||||||||||||||||||||
Average interest rate | 0.46 | % | ||||||||||||||||||||||||||||||
Long-term debt: | $ | 1,153 | 225 | 205 | 195 | 119 | 117 | 292 | $ | 1,153 | ||||||||||||||||||||||
Average interest rate | 0.90 | % |
Amounts in millions of U.S. Dollars | ||||
Long-term debt by currency as of December 31, 2013: | ||||
U.S. dollar | $ | 1,012 | ||
Euro | 141 | |||
Total in U.S. dollars | $ | 1,153 | ||
Amounts in millions of U.S. Dollars | ||||
Long-term debt by currency as of December 31, 2012: | ||||
U.S. dollar | $ | 689 | ||
Euro | 612 | |||
Total in U.S. dollars | $ | 1,301 |
FORWARD CONTRACTS AND CURRENCY OPTIONS AT DECEMBER 31, 20102013
Notional Amount | Average Rate | Fair Value | ||||||||||||||||
Buy | EUR | Sell | USD | 2,067 | 1.32 | 34 | ||||||||||||
Buy | USD | Sell | EUR | 80 | 1.34 | 0 | ||||||||||||
Buy | JPY | Sell | EUR | 37 | 109.70 | 0 | ||||||||||||
Buy | USD | Sell | INR | 45 | 46.01 | 1 | ||||||||||||
Buy | USD | Sell | JPY | 23 | 83.81 | 1 | ||||||||||||
Buy | JPY | Sell | USD | 13 | 82.07 | 0 | ||||||||||||
Buy | SGD | Sell | USD | 134 | 1.30 | 1 | ||||||||||||
Buy | MYR | Sell | USD | 6 | 3.10 | 0 | ||||||||||||
Buy | GBP | Sell | USD | 40 | 1.55 | 0 | ||||||||||||
Buy | USD | Sell | GBP | 11 | 1.55 | 0 | ||||||||||||
Buy | SEK | Sell | USD | 191 | 7.03 | 8 | ||||||||||||
Buy | USD | Sell | SEK | 13 | 6.73 | 0 | ||||||||||||
Buy | CZK | Sell | USD | 1 | 18.72 | 0 | ||||||||||||
Buy | CHF | Sell | USD | 28 | 0.95 | 0 | ||||||||||||
Buy | USD | Sell | CHF | 1 | 0.96 | 0 | ||||||||||||
Buy | CNY | Sell | USD | 24 | 6.62 | 0 | ||||||||||||
Buy | USD | Sell | CNY | 1 | 6.67 | 0 | ||||||||||||
Buy | TWD | Sell | USD | 3 | 30.40 | 0 | ||||||||||||
Buy | PHP | Sell | USD | 1 | 44.24 | 0 | ||||||||||||
Buy | NOK | Sell | USD | 6 | 5.95 | 0 | ||||||||||||
2,725 | — | 43 | ||||||||||||||||
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Notional Amount | Average Rate | Fair Value | ||||||||||||||||
Buy | EUR | Sell | USD | 1 | 1.3670 | 0 | ||||||||||||
Buy | JPY | Sell | EUR | 7 | 84.8268 | 0 | ||||||||||||
Buy | USD | Sell | INR | 34 | 65.2309 | 1 | ||||||||||||
Buy | USD | Sell | JPY | 18 | 102.9425 | 0 | ||||||||||||
Buy | JPY | Sell | USD | 12 | 103.5952 | 0 | ||||||||||||
Buy | SGD | Sell | USD | 68 | 1.2594 | 0 | ||||||||||||
Buy | MYR | Sell | USD | 14 | 3.2748 | 0 | ||||||||||||
Buy | GBP | Sell | USD | 28 | 1.6344 | 0 | ||||||||||||
Buy | SEK | Sell | USD | 6 | 3.6643 | 0 | ||||||||||||
Buy | CZK | Sell | USD | 1 | 19.9000 | 0 | ||||||||||||
Buy | CHF | Sell | USD | 55 | 0.8872 | 0 | ||||||||||||
Buy | CNY | Sell | USD | 33 | 5.5318 | 0 | ||||||||||||
Buy | KRW | Sell | USD | 9 | 1,060.9868 | 0 | ||||||||||||
Buy | TWD | Sell | USD | 10 | 29.5988 | 0 | ||||||||||||
Buy | PHP | Sell | USD | 1 | 26.7261 | 0 | ||||||||||||
Buy | AUD | Sell | USD | 0 | 0.8927 | 0 | ||||||||||||
Buy | BRL | Sell | USD | 12 | -2.3440 | 0 | ||||||||||||
Buy | TND | Sell | USD | 1 | 1.6445 | 0 | ||||||||||||
Buy | HUF | Sell | USD | 0 | 215.7000 | 0 | ||||||||||||
Buy | USD | Sell | CAD | 9 | 1.0559 | 0 | ||||||||||||
Buy | PLN | Sell | USD | 0 | 3.0150 | 0 | ||||||||||||
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319 | 1 |
Our FX forward contracts and FX currency options, including collars, designated as a hedge, are further described in Note 23 to our Consolidated Financial Statements.
FORWARD CONTRACTS AND CURRENCY OPTIONS AT DECEMBER 31, 20092012
Notional Amount | Average Rate | Fair Value | ||||||||||||||||
Buy | EUR | Sell | USD | 1,669 | 1.4 | —4 | ||||||||||||
Buy | USD | Sell | CAD | 8 | 1.1 | 0 | ||||||||||||
Buy | JPY | Sell | EUR | 19 | 131.7 | 0 | ||||||||||||
Buy | INR | Sell | USD | 28 | 46.9 | 0 | ||||||||||||
Buy | USD | Sell | JPY | 31 | 90.5 | 0 | ||||||||||||
Buy | JPY | Sell | USD | 3 | 92.1 | 0 | ||||||||||||
Buy | SGD | Sell | USD | 96 | 1.4 | 0 | ||||||||||||
Buy | MYR | Sell | USD | 11 | 3.4 | 0 | ||||||||||||
Buy | GBP | Sell | USD | 39 | 1.6 | 0 | ||||||||||||
Buy | USD | Sell | GBP | 14 | 1.6 | 0 | ||||||||||||
Buy | SEK | Sell | USD | 84 | 7.3 | 2 | ||||||||||||
Buy | USD | Sell | SEK | 4 | 7.2 | 0 | ||||||||||||
Buy | CZK | Sell | USD | 1 | 18.3 | 0 | ||||||||||||
Buy | CHF | Sell | USD | 34 | 1.0 | 0 | ||||||||||||
Buy | USD | Sell | CHF | 12 | 1.0 | 0 | ||||||||||||
Buy | CNY | Sell | USD | 8 | 6.8 | 0 | ||||||||||||
Buy | TWD | Sell | USD | 4 | 32.3 | 0 | ||||||||||||
Buy | PHP | Sell | USD | 1 | 46.2 | 0 | ||||||||||||
Buy | NOK | Sell | USD | 5 | 5.8 | 0 | ||||||||||||
Buy | USD | Sell | NOK | 1 | 5.8 | 0 | ||||||||||||
2,072 | — | (2 | ) | |||||||||||||||
Notional Amount | Average Rate | Fair Value | ||||||||||||||||
Buy | EUR | Sell | USD | 291 | 1.3195 | 4 | ||||||||||||
Buy | JPY | Sell | EUR | 4 | 113.6353 | 0 | ||||||||||||
Buy | EUR | Sell | JPY | 6 | 113.3413 | 0 | ||||||||||||
Buy | USD | Sell | INR | 42 | 54.9706 | 0 | ||||||||||||
Buy | USD | Sell | JPY | 33 | 85.8875 | 1 | ||||||||||||
Buy | JPY | Sell | USD | 10 | 85.8910 | 0 | ||||||||||||
Buy | SGD | Sell | USD | 77 | 1.2207 | 0 | ||||||||||||
Buy | MYR | Sell | USD | 14 | 3.0597 | 0 | ||||||||||||
Buy | GBP | Sell | USD | 32 | 1.6185 | 0 | ||||||||||||
Buy | SEK | Sell | USD | 118 | 6.5254 | 1 | ||||||||||||
Buy | CZK | Sell | USD | 0 | 19.0259 | 0 | ||||||||||||
Buy | CHF | Sell | USD | 82 | 0.9151 | 0 | ||||||||||||
Buy | CNY | Sell | USD | 47 | 6.2386 | 0 | ||||||||||||
Buy | KRW | Sell | USD | 15 | 1,063.4208 | 0 | ||||||||||||
Buy | TWD | Sell | USD | 8 | 29.0001 | 0 | ||||||||||||
Buy | PHP | Sell | USD | 1 | 41.0000 | 0 | ||||||||||||
Buy | NOK | Sell | USD | 13 | 5.5817 | 0 | ||||||||||||
Buy | BRL | Sell | USD | 14 | 2.0584 | 0 | ||||||||||||
Buy | ZAR | Sell | USD | 0 | 8.4945 | 0 | ||||||||||||
Buy | TND | Sell | USD | 1 | 1.5500 | 0 | ||||||||||||
Buy | HUF | Sell | USD | 0 | 220.8676 | 0 | ||||||||||||
Buy | USD | Sell | CAD | 9 | 0.9972 | 0 | ||||||||||||
Buy | PLN | Sell | USD | 0 | 3.0826 | 0 | ||||||||||||
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817 | 6 |
Our FX forward contracts and FX currency options, including collars, designated as a hedge, are further described in Note 23 to our Consolidated Financial Statements.
Description of Securities Other than Equity Securities |
We sell ordinary shares in the United States that are evidenced by American registered certificates (“New York Shares”). In connection therewith, a holder of our New York Shares may have to pay, either directly or indirectly, certain fees and charges, as described in Item 12D.3. In addition, we receive fees and other direct and indirect payments from our New York agent, Bank of New York Mellon (“BNY Mellon” or “New York Agent”), located at 101 Barclay Street, New York, NY 10286, that are related to our New York Shares, as described in Item 12D.4.
12.D.3 Fees and Charges that a holder of our New York Shares May Have to Pay
BNY Mellon collects fees for the delivery and surrender of New York Shares directly from investors depositing or surrendering New York Shares for the purpose of withdrawal or from intermediaries acting for them. BNY Mellon does not have the right to assess cash distribution fees or annual service fees on holders of our New York Shares.
Persons depositing or withdrawing our New York Shares must pay to BNY Mellon:
$5.00 (or less) per 100 New York Shares (or portion of 100 New York Shares) for the issuance of New York Shares, including issuances resulting from a distribution of shares or rights or other property, and cancellation of New York Shares for the purpose of withdrawal, including if the New York Share agreement terminates;
Taxes and other governmental charges BNY Mellon or the custodian have to pay on any New York Shares or share underlying a New York Share, such as stock transfer, stamp duty or withholding taxes, as necessary; and
Any charges incurred by the New York Agent or its agents for servicing the deposited securities, as necessary.
12D.4 Fees and Other Payments Made by the New York Agent to Us
In 2010,2013, a total of $1,040,617$1 million was paid by BNY Mellon to us or on our behalf for our New York Share program. Specifically, the following types of fees were paid: our NYSE annual listing fees; investor relations fees paid to third party vendors; BNY Mellon custodian fees, standardout-of-pocket maintenance costs paid to vendors for the New York Shares (primarily consisting of expenses related to our Annual General Meeting, such as those for the production and distribution of proxy materials, customization of voting cards and tabulation of shareholder votes) and other expenses related toSarbanes-Oxley compliance.
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Defaults, Dividend Arrearages and Delinquencies |
None.
Material Modifications to the Rights of Security Holders and Use of Proceeds |
None.
Controls and Procedures |
Disclosure Controls and Procedures
Evaluation
Our management, including the CEO and CFO, performed an evaluation of the effectiveness of the design and operation of our “disclosuredisclosure controls and procedures” (Disclosure Controls)procedures (“Disclosure Controls”) as of the end of the period covered by thisForm 20-F. The controls evaluation was conducted under the supervision and with the participation of management, including our CEO and CFO. Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as thisForm 20-F, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our quarterly evaluation of Disclosure Controls includes an evaluation of some components of our internal control over financial reporting, and internal control over financial reporting is also separately evaluated on an annual basis.
The evaluation of our Disclosure Controls included a review of the controls’ objectives and design, our implementation of the controls and their effect on the information generated for use in thisForm 20-F. In the course of the controls evaluation, we reviewed identified data errors, control problems or acts of fraud and sought to confirm that appropriate corrective actions, including process improvements, were being undertaken. This type of evaluation is performed at least on a quarterly basis so that the conclusions of management, including the CEO and CFO, concerning the effectiveness of the Disclosure Controls can be reported in our periodic reports onForm 6-K andForm 20-F. The components of our Disclosure Controls are also evaluated on an ongoing basis by our Internal Audit Department, which as of December 2010, reports directly to theour Audit Committee. The overall goals of these various evaluation activities are to monitor our Disclosure Controls, and to modify them as necessary. Our intent is to maintain the Disclosure Controls as dynamic systems that change as conditions warrant.
50-50% governance structure of their two parents.
Changes in Internal Control over Financial Reporting
There were no changes to provide reasonable assuranceour internal control over financial reporting that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC, and that material information related to STMicroelectronics and its consolidated subsidiaries is made known to management, including the CEO and CFO, particularlyoccurred during the period whencovered by this form20-F that have materially affected, or are reasonably likely to materially affect, our periodic reportsinternal control over financial reporting.
Limitations on Effectiveness of Controls
No system of internal control over financial reporting, including one determined to be effective, may prevent or detect all misstatements. It can provide only reasonable assurance regarding financial statement preparation and presentation. Also, projections of the results of any evaluation of the effectiveness of internal control over financial reporting into future periods are being prepared.
Other Reviews
We have sent thisForm 20-F to our Audit Committee and Supervisory Board, which had an opportunity to raise questions with our management and independent auditors before we filed it with the SEC.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010,2013, the end of our fiscal year. Management based its assessment on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) inInternal Control-Integrated Framework (1992). Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies and our overall control environment. Based on this assessment management concluded that, as of December 31, 2010,2013, our internal control over financial reporting was effective.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 20102013 has been audited by PricewaterhouseCoopers SA, an independent registered public accounting firm, as stated in their report which appears in Item 18 of thisForm 20-F.
Attestation Report of the Registered Public Accounting Firm
Please see the “Report of Independent Registered Accounting Firm” included in our Consolidated Financial Statements.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by theForm 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. During 2009, our wireless business merged with EMP into a new JV Company owned 50% plus + 1 share by us and governed by a Board of Directors comprised of eight members, half designated by us and half by Ericsson. The design and operation of ST-Ericsson’s internal control is under the responsibility of ST-Ericsson’s CEO and CFO, on whose certification we rely.
Audit Committee Financial Expert |
Our Supervisory Board has concluded that Martine Verluyten, the Chair of our Audit Committee, and Tom de Waard, a member of our Audit Committee, qualified as an “audit committee financial expert” as defined in Item 16A and is independent as defined in the listing standards applicable to us as a listed issuer as required by Item 16A(2) ofForm 20-F.
Code of Ethics |
Policy on Business Conduct and Ethics
Since 1987, we have had a corporate policy on Business Conduct and Ethics (the “Ethics Policy”) for all of our employees, including our chief executive officer and chief financial officer. We have adapted this Ethics Policy to reflect recent regulatory changes. The Ethics Policy, which is designed to promote honest and ethical business conduct, to deter wrongdoing and to provide principles to which our employees are expected to adhere and which they are expectedadvocate. The Ethics Policy is applicable to advocate.
Principal Accountant Fees and Services |
PricewaterhouseCoopers SA has served as our independent registered public accounting firm since 1996. The auditors are elected by the shareholders’ meeting once every three years. PricewaterhouseCoopers was reelected for a one-yearthree-year term by our May 25, 20103, 2011 shareholders’ meeting, which will expire at our shareholders’ meeting in 2011. Our Supervisory Board has decided to propose for re-election PricewaterhouseCoopers for an additional three-year term at the annual shareholders’ meeting to be held on May 3, 2011.
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Percentage of | Percentage of | |||||||||||||||
2010(1) | Total Fees | 2009(1) | Total Fees | |||||||||||||
Audit Fees | ||||||||||||||||
Statutory audit, certification, audit of individual and Consolidated Financial Statements | $ | 7,571,718 | 99 | % | $ | 7,494,914 | 98 | % | ||||||||
Audit-related fees | 24,590 | — | 155,867 | 2 | ||||||||||||
Non-audit Fees | ||||||||||||||||
Tax compliance fees | 74,728 | 1 | % | 3,883 | — | |||||||||||
Other fees | — | — | — | — | ||||||||||||
Total | $ | 7,671,036 | 100 | % | $ | 7,654,614 | 100 | % | ||||||||
2013(1) | Percentage of Total Fees | 2012(1) | Percentage of Total Fees | |||||||||||||
Audit Fees | ||||||||||||||||
Statutory audit, certification, audit of individual and Consolidated Financial Statements | $ | 6,154,142 | 98.9 | % | $ | 6,745,561 | 99.3 | % | ||||||||
Audit-related fees | $ | 23,527 | 0.4 | % | $ | 15,817 | 0.2 | |||||||||
Non-audit Fees | ||||||||||||||||
Tax compliance fees | $ | 41,577 | 0.7 | % | $ | 34,855 | 0.5 | |||||||||
Other fees | — | — | — | — | ||||||||||||
Total | $ | 6,219,246 | 100 | % | $ | 6,796,233 | 100 | % | ||||||||
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(1) | ||
These figures include the fees paid for the audit ofST-Ericsson. |
Audit Fees consist of fees billed for the annual audit of our company’s Consolidated Financial Statements, the statutory audit of the financial statements of the Company’s subsidiaries and consultations on complex accounting issues relating to the annual audit. Audit Fees also include services that only our independent auditor can reasonably provide, such as comfort letters andcarve-out audits in connection with strategic transactions, certainregulatory-required attest and certifications letters, consents and the review of documents filed with U.S., French and Italian stock exchanges.
Audit-related services are assurance and related fees consisting of the audit of employee benefit plans, due diligence services related to acquisitions and certainagreed-upon procedures.
Tax Fees include fees billed for tax compliance services, including the preparation of original and amended tax returns and claims for refund; tax consultations, such as assistance in connection with tax audits and expatriate tax compliance.
Audit CommitteePre-approval Policies and Procedures
Our Audit Committee is responsible for selecting the independent registered public accounting firm to be employed by us to audit our financial statements, subject to ratification by the Supervisory Board and approval by our shareholders for appointment. Our Audit Committee also assumes responsibility (in accordance with Dutch law) for the retention, compensation, oversight and termination of any independent auditor employed by us. We adopted a policy (the “Policy”), which was approved in advance by our Audit Committee, for thepre-approval of audit and permissiblenon-audit services provided by our independent auditors (PricewaterhouseCoopers). The Policy defines thoseaudit-related services eligible to be approved by theour Audit Committee.
All engagements with the external auditors, regardless of amount, must be authorized in advance by our Audit Committee, pursuant to the Policy and itspre-approval authorization or otherwise.
The independent auditors submit a proposal foraudit-related services to our Audit Committee on a quarterly basis in order to obtain prior authorization for the amount and scope of the services. The independent auditors must state in the proposal that none of the proposed services affect their independence. The proposal must be endorsed by the office of our CFO with an explanation of why the service is needed and the reason for sourcing it to the audit firm and validation of the amount of fees requested.
We do not intend to retain our independent auditors for permissiblenon-audit services other than by exception and within a limited amount of fees, and the Policy provides that such services must be explicitly authorized by theour Audit Committee.
The CorporateChief Audit Vice Presidentand Risk Executive is responsible for monitoring that the actual fees are complying with thepre-approval amount and scope authorized by theour Audit Committee. During 2010,2013, all services provided to us by PricewaterhouseCoopers were approved by theour Audit Committee pursuant to paragraph (c)(7)(i) ofRule 2-01 ofRegulation S-X.
Exemptions from the Listing Standards for Audit Committees |
Not applicable.
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
Period | Total Number of Securities Purchased | Average Price Paid per Security | Total Number of Securities Purchased as Part of Publicly Announced Programs | Maximum Number of Securities that May yet be Purchased Under the Programs | |||||||||||||||
2013-01-01 to2013-01-31 | — | — | |||||||||||||||||
— | |||||||||||||||||||
2013-02-01 to2013-02-28 | — | ||||||||||||||||||
22,592,633 | — | ||||||||||||||||||
2013-03-01 to2013-03-31 | — | ||||||||||||||||||
22,592,633 | — | ||||||||||||||||||
2013-04-01 to2013-04-30 | — | ||||||||||||||||||
22,582,447 | — | ||||||||||||||||||
2013-05-01 to2013-05-31 | — | ||||||||||||||||||
20,179,847 | — | ||||||||||||||||||
2013-06-01 to2013-06-30 | — | ||||||||||||||||||
20,163,122 | — | ||||||||||||||||||
2013-07-01 to2013-07-31 | — | ||||||||||||||||||
20,129,501 | — | ||||||||||||||||||
2013-08-01 to2013-08-31 | — | ||||||||||||||||||
20,129,501 | — | ||||||||||||||||||
2013-09-01 to2013-09-30 | — | ||||||||||||||||||
20,109,780 | — | ||||||||||||||||||
2013-10-01 to2013-10-31 | — | ||||||||||||||||||
20,109,780 | — | ||||||||||||||||||
2013-11-01 to2013-11-30 | — | ||||||||||||||||||
20,096,542 | — | ||||||||||||||||||
2013-12-01 to2013-12-31 | — | ||||||||||||||||||
20,096,542 | — |
As of December 31, 20102013 we held 28,734,00220,096,542 of our common shares in treasury pursuant to repurchases made in prior years, and as of January 31, 2014 we currently hold 28,716,90620,048,104 of such shares. We did not repurchase our common shares in 20102013 and we have not announced any additional repurchase programs.
Change in Registrant’s Certifying Accountant |
Not applicable.
Corporate Governance |
Our consistent commitment to the principles of good corporate governance is evidenced by:
Our corporate organization under Dutch law that entrusts our management to a Managing Board acting under the supervision and control of a Supervisory Board totally independent from the Managing Board. Members of our Managing Board and of our Supervisory Board are appointed and dismissed by our shareholders;
Our early adoption of policies on important issues such as “business ethics” and “conflicts of interest” and strict policies to comply with applicable regulatory requirements concerning financial reporting, insider trading and public disclosures;
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Our compliance with Dutch securities laws, because we are a company incorporated under the laws of The Netherlands, as well as our compliance with American, French and Italian securities laws, because our shares are listed in these jurisdictions, in addition to our compliance with the corporate, social and financial laws applicable to our subsidiaries in the countries in which we do business;
Ourbroad-based activities in the field of corporate social responsibility, encompassing environmental, social, health, safety, educational and other related issues;
Our implementation of anon-compliance reporting channel (managed by a third party) for issues regarding accounting, internal controls or auditing. A special ombudsperson has been appointed by our Supervisory Board, following the proposal of its Audit Committee, to collect all complaints, whatever their source, regarding accounting, internal accounting controls or auditing matters, as well as the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;
Our Principles of Sustainable Excellence (“PSE”), which require us to integrate and execute all of our business activities, focusing on our employees, customers, shareholders and global business partners;
Our Corporate Ethics Committee, whose mandate is to provide guidance and recommendations to the management and employees of STMicroelectronics in their efforts to comply withethics-related policies, procedures and principles applicable throughout the Company;
Our Chief Compliance Officer, who reports to the Chief Financial Officer, Executive Vice President Finance, Legal, Infrastructure and Services, also acts as Executive Secretary to our Supervisory Board; and
As a Dutch company, we are subject to the Dutch Corporate Governance Code as revised by the Dutch Corporate Governance Monitoring Committee on December 10, 2008. As we are listed on the NYSE, Euronext Paris, the Borsa Italiana in Milan, but not in theThe Netherlands, our policies and practices cannot be in every respect consistent with all Dutch “Best Practice” recommendations. We have summarized our policies and practices in the field of corporate governance in the ST Corporate Governance Charter, including our corporate organization, the remuneration principles which apply to our Managing and Supervisory Boards, our information policy and our corporate policies relating to business ethics and conflicts of interests, which was approved by our shareholders at our 2004 annual shareholders’ meeting. We are committed to informing our shareholders of any significant changes in our corporate governance policies and practices at our annual shareholders’ meeting. Along with our Supervisory Board Charter (which includes the charters of our Supervisory Board Committees) and our Code of Business Conduct and Ethics, the current version of our ST Corporate Governance Charter is posted on our website at http:/www.st.com/stonline/company/governance/index.htm,(www.st.com), and these documents are available in print to any shareholder who may request them.
Our Supervisory Board is carefully selected based upon the combined experience and expertise of its members. Certain of our Supervisory Board members, as disclosed in their biographies set forth above, have existing relationships or past relationships with Areva,FT1CI, Bpifrance, CEA and the Italian Ministry of the Economy and Finance, who are currently parties to the STH Shareholders’ Agreement as well as with ST Holding, or ST Holding II, our major shareholder or with other parties that are among our suppliers, customers or technology partners. See “Item 7. Major Shareholders and Related Party Transactions — Major Shareholders — Shareholders’ AgreementsAgreement — STH Shareholders’ Agreement”. See also “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — The interests of our controlling shareholders, which are in turn controlled respectively by the French and Italian governments, may conflict with investors’ interests”. Such relationships may give rise to potential conflicts of interest. However, in fulfilling their duties under Dutch law, Supervisory Board members serve the best interests of all of our stakeholders and of our business and must act independently in their supervision of our management. Our Supervisory Board has adopted criteria to assess the independence of its members in accordance with corporate governance listing standards of the NYSE.
Our Supervisory Board has on various occasions discussed Dutch corporate governance standards, the implementing rules and corporate governance standards of the SEC and of the NYSE, as well as other corporate governance standards.
The Supervisory Board has determined, based on the evaluations by an ad hoc committee, the following independence criteria for its members: Supervisory Board members must not have any material relationship with STMicroelectronics N.V., or any of our consolidated subsidiaries, or our management. A “material relationship” can include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, among others, but does not include a relationship with direct or indirect shareholders.
We believe we are fully compliant with all material NYSE corporate governance standards, to the extent possible for a Dutch company listed on Euronext Paris, Borsa Italiana, as well as the NYSE. Because we are a Dutch company, the Audit Committee is an advisory committee to the Supervisory Board, which reports to the Supervisory Board, and our shareholders must approve the selection of our statutory auditors. Our Audit Committee has established a charter outlining its duties and responsibilities with respect to the monitoring of our accounting, auditing, financial reporting and the appointment, retention and oversight of our external auditors. In addition, our Audit Committee has established procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, and the confidential anonymous submission by our employees regarding questionable accounting or auditing matters.
No member of the Supervisory Board or Managing Board has been (i) subject to any convictions in relation to fraudulent offenses during the five years preceding the date of thisForm 20-F, (ii) no member has been associated with any company in bankruptcy, receivership or liquidation in the capacity of member of the administrative, management or supervisory body, partner with unlimited liability, founder or senior manager in the five years preceding the date of thisForm 20-F or (iii) subject to any official public incriminationand/or
sanction by statutory or regulatory authorities (including professional bodies) or disqualified by a court from acting as a member of the administrative, management or supervisory bodies of any issuer or from acting in the management or conduct of the affairs of any issuer during the five years preceding the date of thisForm 20-F.
Pursuant to our Supervisory Board Charter, the Supervisory Board is responsible for handling and deciding on potential reported conflicts of interests between the Company on the one hand and members of the Supervisory Board, andas well as the Managing Board on the other hand.
135
136
Financial Statements |
Not applicable.
Financial Statements |
Page | ||||
Financial Statements: | ||||
F-2 | ||||
Consolidated Statements of Income for the Years Ended December 31, | F-3 | |||
F-4 | ||||
F-5 | ||||
Consolidated Statements of Equity for the Years Ended December 31, 2013, 2012 and 2011 | F-7 | |||
Financial Statement | ||||
S-1 |
Exhibits |
1.1 | ||
Amended and | ||
8.1 | Subsidiaries and | |
12.1 | Certification of Carlo Bozotti, President and Chief Executive Officer and Sole Member of the Managing Board of STMicroelectronics N.V., pursuant to Section 302 of theSarbanes-Oxley Act of 2002. | |
12.2 | Certification of Carlo Ferro, Chief Financial Officer, Executive Vice President, Finance, Legal, Infrastructure and | |
13.1 | Certification of Carlo Bozotti, President and Chief Executive Officer and Sole Member of the Managing Board of STMicroelectronics N.V., and Carlo Ferro, Chief Financial Officer, Executive Vice President, Finance, Legal, Infrastructure and | |
15.1 | Consent of Independent Registered Public Accounting Firm. | |
101 | Interactive Data |
137
ASD | application-specific discrete technology | |
ASIC | application-specific | |
ASSP | application-specific | |
BCD | ||
bipolar, CMOS and DMOS process technology | ||
BiCMOS | bipolar and CMOS process technology | |
CMOS | ||
complementarymetal-on silicon oxide semiconductor | ||
CODEC | audio coding and decoding functions | |
DMOS | ||
diffusedmetal-on silicon oxide semiconductor | ||
DRAMs | dynamic random access memory | |
DSP | ||
digital signal processor | ||
EMAS | Eco-Management and Audit Scheme, the voluntary European Community scheme for companies performing industrial activities for the evaluation and improvement of environmental performance | |
EEPROM | electrically erasable programmableread-only memory | |
EPROM | erasable programmableread-only memory | |
EWS | electrical wafer sorting | |
GPS | ||
global positioning system | ||
HCMOS | ||
high-speed complementarymetal-on silicon oxide semiconductor | ||
IC | integrated circuit | |
IGBT | insulated gate bipolar transistors | |
IP | intellectual property | |
IPAD | integrated passive and active devices | |
ISO | International Organization for Standardization | |
MEMS | micro-electro-mechanical system | |
MOS | ||
metal-on silicon oxide semiconductor process technology | ||
MOSFET | metal-on silicon oxide semiconductor field effect transistor | |
138
NFC | near field communication | ||
ODM | original design manufacturer | ||
OEM | original equipment manufacturer | ||
PDIP | plastic dualin-line package | ||
QFP | quad-flatno-leads package | ||
QFN | quad-flat package | ||
RAM | |||
random access memory | |||
RF | radio frequency | ||
SAM | |||
serviceable available market | |||
SiP | system-in-package | ||
SoC | system-on-chip | ||
SOI | |||
silicon on insulator | |||
SOIC |
| ||
SPEArTM | structured processor enhanced architecture | ||
SRAM | static random access memory | ||
TAM | |||
total available market | |||
VIPpowerTM | |||
vertical integration power | |||
139
The registrant hereby certifies that it meets all of the requirements for filing onForm 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
STMICROELECTRONICS N.V. | ||||
Date: March 5, 2014 | ||||
By: | ||||
/s/ Carlo Bozotti | ||||
Carlo Bozotti | ||||
President and Chief Executive Officer |
140
Index to Consolidated Financial Statements
Page | ||||
Financial Statements: | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-7 | ||||
Financial Statement Schedule: | ||||
S-1 |
F-1
To the Supervisory Board and Shareholders of STMicroelectronics N.V.:
In our opinion, the consolidated financial statements of STMicroelectronics N.V. listed in the index appearing under Item 18 of this 20102013 Annual Report to Shareholders onForm 20-F present fairly, in all material respects, the financial position of STMicroelectronics N.V. and its subsidiaries at December 31, 20102013 and December 31, 2009,2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20102013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule ofscheduleof STMicroelectronics N.V. listed in the index appearing under Item 18 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financialconsolidatedfinancial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010,2013, based on criteria established inInternal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in “Management’s Report on Internal Control over Financial Reporting”, appearing under Item 15 of this 20102013 Annual Report to Shareholders onForm 20-F. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers SA
/s/ Mike Foley | /s/ Claudia Benz | |||
Mike Foley | Claudia Benz | |||
Geneva, Switzerland | ||||
March 5, 2014 |
F-2
CONSOLIDATED STATEMENTS OF INCOME
Twelve Months Ended | ||||||||||||
December 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Net sales | 10,262 | 8,465 | 9,792 | |||||||||
Other revenues | 84 | 45 | 50 | |||||||||
Net revenues | 10,346 | 8,510 | 9,842 | |||||||||
Cost of sales | (6,331 | ) | (5,884 | ) | (6,282 | ) | ||||||
Gross profit | 4,015 | 2,626 | 3,560 | |||||||||
Selling, general and administrative | (1,175 | ) | (1,159 | ) | (1,187 | ) | ||||||
Research and development | (2,350 | ) | (2,365 | ) | (2,152 | ) | ||||||
Other income and expenses, net | 90 | 166 | 62 | |||||||||
Impairment, restructuring charges and other related closure costs | (104 | ) | (291 | ) | (481 | ) | ||||||
Operating income (loss) | 476 | (1,023 | ) | (198 | ) | |||||||
Other-than-temporary impairment charge and realized losses on financial assets | — | (140 | ) | (138 | ) | |||||||
Interest income (expense), net | (3 | ) | 9 | 51 | ||||||||
Loss on equity investments and gain on investment divestiture | 242 | (337 | ) | (553 | ) | |||||||
Gain (loss) on financial instruments, net | (24 | ) | (5 | ) | 15 | |||||||
Income (loss) before income taxes and noncontrolling interest | 691 | (1,496 | ) | (823 | ) | |||||||
Income tax (expense) benefit | (149 | ) | 95 | 43 | ||||||||
Income (loss) before noncontrolling interest | 542 | (1,401 | ) | (780 | ) | |||||||
Net loss (income) attributable to noncontrolling interest | 288 | 270 | (6 | ) | ||||||||
Net income (loss) attributable to parent company | 830 | (1,131 | ) | (786 | ) | |||||||
Earnings (loss) per share (Basic) attributable to parent company shareholders | 0.94 | (1.29 | ) | (0.88 | ) | |||||||
Earnings (loss) per share (Diluted) attributable to parent company shareholders | 0.92 | (1.29 | ) | (0.88 | ) | |||||||
Twelve months ended | ||||||||||||
In million of U.S. dollars except per share amounts | December 31, 2013 | December 31, 2012 | December 31, 2011 | |||||||||
Net sales | 8,050 | 8,380 | 9,630 | |||||||||
Other revenues | 32 | 113 | 105 | |||||||||
|
|
|
|
|
| |||||||
Net revenues | 8,082 | 8,493 | 9,735 | |||||||||
Cost of sales | (5,468 | ) | (5,710 | ) | (6,161 | ) | ||||||
|
|
|
|
|
| |||||||
Gross profit | 2,614 | 2,783 | 3,574 | |||||||||
Selling, general and administrative | (1,066 | ) | (1,166 | ) | (1,210 | ) | ||||||
Research and development | (1,816 | ) | (2,413 | ) | (2,352 | ) | ||||||
Other income and expenses, net | 95 | 91 | 109 | |||||||||
Impairment, restructuring charges and other related closure costs | (292 | ) | (1,376 | ) | (75 | ) | ||||||
|
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|
|
|
| |||||||
Operating income (loss) | (465 | ) | (2,081 | ) | 46 | |||||||
Other-than-temporary impairment charge and realized gains on financial assets | — | — | 318 | |||||||||
Interest expense, net | (5 | ) | (35 | ) | (25 | ) | ||||||
Loss on equity-method investments | (122 | ) | (24 | ) | (28 | ) | ||||||
Gain on financial instruments, net | — | 3 | 25 | |||||||||
|
|
|
|
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| |||||||
Income (loss) before income taxes and noncontrolling interest | (592 | ) | (2,137 | ) | 336 | |||||||
Income tax expense | (37 | ) | (51 | ) | (181 | ) | ||||||
|
|
|
|
|
| |||||||
Net income (loss) | (629 | ) | (2,188 | ) | 155 | |||||||
Net loss (income) attributable to noncontrolling interest | 129 | 1,030 | 495 | |||||||||
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| |||||||
Net income (loss) attributable to parent company | (500 | ) | (1,158 | ) | 650 | |||||||
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| |||||||
Earnings per share (Basic) attributable to parent company stockholders | (0.56 | ) | (1.31 | ) | 0.74 | |||||||
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Earnings per share (Diluted) attributable to parent company stockholders | (0.56 | ) | (1.31 | ) | 0.72 | |||||||
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The accompanying notes are an integral part of these audited consolidated financial statements
F-3
CONSOLIDATED BALANCE SHEETSSTATEMENTS OF COMPREHENSIVE INCOME
As at | ||||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Assets | ||||||||
Current assets : | ||||||||
Cash and cash equivalents | 1,892 | 1,588 | ||||||
Restricted cash | 7 | — | ||||||
Short-term deposits | 67 | — | ||||||
Marketable securities | 1,052 | 1,032 | ||||||
Trade accounts receivable, net | 1,230 | 1,367 | ||||||
Inventories, net | 1,497 | 1,275 | ||||||
Deferred tax assets | 218 | 298 | ||||||
Assets held for sale | 28 | 31 | ||||||
Other receivables and assets | 609 | 753 | ||||||
Total current assets | 6,600 | 6,344 | ||||||
Goodwill | 1,054 | 1,071 | ||||||
Other intangible assets, net | 731 | 819 | ||||||
Property, plant and equipment, net | 4,046 | 4,081 | ||||||
Long-term deferred tax assets | 329 | 333 | ||||||
Equity investments | 133 | 273 | ||||||
Restricted cash | — | 250 | ||||||
Non-current marketable securities | 72 | 42 | ||||||
Other investments and other non-current assets | 384 | 442 | ||||||
6,749 | 7,311 | |||||||
Total assets | 13,349 | 13,655 | ||||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities: | ||||||||
Short term borrowings and current portion of long-term debt | 720 | 176 | ||||||
Trade accounts payable | 1,233 | 883 | ||||||
Other payables and accrued liabilities | 1,004 | 1,049 | ||||||
Dividends payable to shareholders | 62 | 26 | ||||||
Deferred tax liabilities | 7 | 20 | ||||||
Accrued income tax | 96 | 126 | ||||||
Total current liabilities | 3,122 | 2,280 | ||||||
Long-term debt | 1,050 | 2,316 | ||||||
Reserve for pension and termination indemnities | 326 | 317 | ||||||
Long-term deferred tax liabilities | 59 | 37 | ||||||
Other non-current liabilities | 295 | 342 | ||||||
1,730 | 3,012 | |||||||
Total liabilities | 4,852 | 5,292 | ||||||
Commitment and contingencies | ||||||||
Equity | ||||||||
Parent company shareholders’ equity | ||||||||
Common stock (preferred stock: 540,000,000 shares authorized, not issued; common stock: Euro 1.04 nominal value, 1,200,000,000 shares authorized, 910,420,305 shares issued, 881,686,303 shares outstanding) | 1,156 | 1,156 | ||||||
Capital surplus | 2,515 | 2,481 | ||||||
Accumulated result | 3,241 | 2,723 | ||||||
Accumulated other comprehensive income | 979 | 1,164 | ||||||
Treasury stock | (304 | ) | (377 | ) | ||||
Total parent company shareholders’ equity | 7,587 | 7,147 | ||||||
Noncontrolling interest | 910 | 1,216 | ||||||
Total equity | 8,497 | 8,363 | ||||||
Total liabilities and equity | 13,349 | 13,655 | ||||||
Twelve months ended | ||||||||||||
In million of U.S. dollars | December 31, 2013 | December 31, 2012 | December 31, 2011 | |||||||||
Net income (loss) | (629 | ) | (2,188 | ) | 155 | |||||||
Other comprehensive income (loss), net of tax : | ||||||||||||
Currency translation adjustments arising during the period | 103 | 64 | (106 | ) | ||||||||
Foreign currency translation adjustments | 103 | 64 | (106 | ) | ||||||||
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Unrealized gains (losses) arising during the period | 1 | 6 | — | |||||||||
Less : reclassification adjustment for (income) losses included in net income (loss) | — | — | (33 | ) | ||||||||
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Unrealized gains (losses) on securities | 1 | 6 | (33 | ) | ||||||||
Unrealized gains (losses) arising during the period | 36 | 30 | (13 | ) | ||||||||
Less : reclassification adjustment for (income) losses included in net income (loss) | (29 | ) | 59 | (112 | ) | |||||||
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Unrealized gains (losses) on derivatives | 7 | 89 | (125 | ) | ||||||||
Prior service cost arising during the period | (5 | ) | (4 | ) | — | |||||||
Net gains (losses) arising during the period | 74 | (20 | ) | (72 | ) | |||||||
Less : amortization of prior service cost included in net periodic pension cost | 5 | 5 | 1 | |||||||||
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| |||||||
Defined benefit pension plans | 74 | (19 | ) | (71 | ) | |||||||
Other comprehensive income (loss), net of tax | 185 | 140 | (335 | ) | ||||||||
Comprehensive income (loss) | (444 | ) | (2,048 | ) | (180 | ) | ||||||
Less : comprehensive income (loss) attributable to noncontrolling interest | (134 | ) | (1,014 | ) | (521 | ) | ||||||
Comprehensive income (loss) attributable to the company’s stockholders | (310 | ) | (1,034 | ) | 341 |
The accompanying notes are an integral part of these audited consolidated financial statements
F-4
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYBALANCE SHEETS
Accumulated | ||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||
Common | Capital | Treasury | Accumulated | Comprehensive | Noncontrolling | Total | ||||||||||||||||||||||
Stock | Surplus | Stock | Result | Income (Loss) | Interests | Equity | ||||||||||||||||||||||
Balance as of December 31, 2007 | 1,156 | 2,097 | (274 | ) | 5,274 | 1,320 | 53 | 9,626 | ||||||||||||||||||||
Repurchase of common stock | (313 | ) | (313 | ) | ||||||||||||||||||||||||
Issuance of shares by subsidiary | 152 | 246 | 398 | |||||||||||||||||||||||||
Stock-based compensation expense | 75 | 105 | (105 | ) | 75 | |||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||
Net income (loss) | (786 | ) | 6 | (780 | ) | |||||||||||||||||||||||
Other comprehensive loss, net of tax | (226 | ) | (19 | ) | (245 | ) | ||||||||||||||||||||||
Comprehensive loss | (1,025 | ) | ||||||||||||||||||||||||||
Dividends, $0.36 per share | (319 | ) | (10 | ) | (329 | ) | ||||||||||||||||||||||
Balance as of December 31, 2008 | 1,156 | 2,324 | (482 | ) | 4,064 | 1,094 | 276 | 8,432 | ||||||||||||||||||||
Purchase of equity from noncontrolling interest | 119 | (211 | ) | (92 | ) | |||||||||||||||||||||||
Business combination | 1,411 | 1,411 | ||||||||||||||||||||||||||
Stock-based compensation expense | 38 | 105 | (105 | ) | 38 | |||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||
Net loss | (1,131 | ) | (270 | ) | (1,401 | ) | ||||||||||||||||||||||
Other comprehensive income, net of tax | 70 | 15 | 85 | |||||||||||||||||||||||||
Comprehensive loss | (1,316 | ) | ||||||||||||||||||||||||||
Dividends, $0.12 per share | (105 | ) | (5 | ) | (110 | ) | ||||||||||||||||||||||
Balance as of December 31, 2009 | 1,156 | 2,481 | (377 | ) | 2,723 | 1,164 | 1,216 | 8,363 | ||||||||||||||||||||
Stock-based compensation expense | 34 | 73 | (73 | ) | 34 | |||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||
Net income (loss) | 830 | (288 | ) | 542 | ||||||||||||||||||||||||
Equity Investment divestiture | 8 | 8 | ||||||||||||||||||||||||||
Other comprehensive loss, net of tax | (185 | ) | (11 | ) | (196 | ) | ||||||||||||||||||||||
Comprehensive income | 354 | |||||||||||||||||||||||||||
Dividends, $0.28 per share | (247 | ) | (7 | ) | (254 | ) | ||||||||||||||||||||||
Balance as of December 31, 2010 | 1,156 | 2,515 | (304 | ) | 3,241 | 979 | 910 | 8,497 | ||||||||||||||||||||
As at | ||||||||
In million of U.S. dollars | December 31, 2013 | December 31, 2012 | ||||||
Assets | ||||||||
Current assets : | ||||||||
Cash and cash equivalents | 1,836 | 2,250 | ||||||
Short-term deposits | 1 | 1 | ||||||
Marketable securities | 57 | 238 | ||||||
Trade accounts receivable, net | 1,049 | 1,005 | ||||||
Inventories | 1,336 | 1,353 | ||||||
Deferred tax assets | 123 | 137 | ||||||
Assets held for sale | 16 | — | ||||||
Other current assets | 389 | 518 | ||||||
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| |||||
Total current assets | 4,807 | 5,502 | ||||||
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| |||||
Goodwill | 90 | 141 | ||||||
Other intangible assets, net | 217 | 213 | ||||||
Property, plant and equipment, net | 3,156 | 3,481 | ||||||
Non-current deferred tax assets | 227 | 414 | ||||||
Restricted cash | — | 4 | ||||||
Long-term investments | 76 | 119 | ||||||
Other non-current assets | 600 | 560 | ||||||
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| |||||
4,366 | 4,932 | |||||||
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| |||||
Total assets | 9,173 | 10,434 | ||||||
|
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|
|
In million of U.S. dollars Liabilities and equity Current liabilities: Short-term debt Trade accounts payable Other payables and accrued liabilities Dividends payable to stockholders Deferred tax liabilities Accrued income tax Total current liabilities Long-term debt Post-employment benefit obligations Long-term deferred tax liabilities Other long-term liabilities Total liabilities Commitment and contingencies Equity Parent company stockholders’ equity Common stock (preferred stock: 540,000,000 shares authorized, not issued; common stock: Euro 1.04 par value, 1,200,000,000 shares authorized, 910,703,305 shares issued, 890,606,763 shares outstanding) Capital surplus Retained earnings Accumulated other comprehensive income Treasury stock Total parent company stockholders’ equity Noncontrolling interest Total equity Total liabilities and equity As at December 31,
2013 December 31,
2012 225 630 694 797 937 942 89 89 — 11 48 86 1,993 2,555 928 671 366 477 11 14 158 353 1,463 1,515 3,456 4,070 1,156 1,156 2,581 2,555 1,076 1,959 1,042 794 (212 ) (239 ) 5,643 6,225 74 139 5,717 6,364 9,173 10,434
The accompanying notes are an integral part of these audited consolidated financial statements
F-5
CONSOLIDATED STATEMENTS OF CASH FLOWSEQUITY
Twelve Months Ended | ||||||||||||
December 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income (loss) | 542 | (1,401 | ) | (780 | ) | |||||||
Items to reconcile net income (loss) and cash flows from operating activities: | ||||||||||||
Depreciation and amortization | 1,240 | 1,367 | 1,366 | |||||||||
Amortization of discount on convertible debt | 10 | 13 | 18 | |||||||||
Other-than-temporary impairment charge and realized losses on financial assets | — | 140 | 138 | |||||||||
Loss (gain) on financial instruments, net | 24 | 5 | (15 | ) | ||||||||
Non-cash stock-based compensation | 34 | 37 | 76 | |||||||||
Other non-cash items | (122 | ) | (101 | ) | 83 | |||||||
Deferred income tax | 120 | (24 | ) | (69 | ) | |||||||
Loss on equity investments and gain on investment divestiture | (245 | ) | 337 | 553 | ||||||||
Impairment, restructuring charges and other related closure costs, net of cash payments | (38 | ) | (4 | ) | 371 | |||||||
Changes in assets and liabilities: | ||||||||||||
Trade receivables, net | 139 | (300 | ) | 565 | ||||||||
Inventories, net | (252 | ) | 553 | (299 | ) | |||||||
Trade payables | 212 | (54 | ) | (34 | ) | |||||||
Other assets and liabilities, net | 130 | 248 | (251 | ) | ||||||||
Net cash from operating activities | 1,794 | 816 | 1,722 | |||||||||
Cash flows from investing activities: | ||||||||||||
Payment for purchase of tangible assets | (1,034 | ) | (451 | ) | (983 | ) | ||||||
Payment for purchase of marketable securities | (1,100 | ) | (1,730 | ) | — | |||||||
Proceeds from sale of marketable securities | 1,219 | 1,371 | 351 | |||||||||
Proceeds from sale of non current marketable securities | — | 75 | — | |||||||||
Disposal of financial instrument | — | 26 | — | |||||||||
Investment in short-term deposits | (62 | ) | — | — | ||||||||
Release of restricted cash | 250 | — | — | |||||||||
Investment in intangible and financial assets | (107 | ) | (138 | ) | (91 | ) | ||||||
Net proceeds from sale of stock received on investment divestiture | 319 | — | — | |||||||||
Proceeds received in business combinations | — | 1,155 | — | |||||||||
Payment for business acquisitions, net of cash and cash equivalents acquired | (11 | ) | (18 | ) | (1,694 | ) | ||||||
Net cash from (used in) investing activities | (526 | ) | 290 | (2,417 | ) | |||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from long-term debt | 1 | 1 | 663 | |||||||||
Proceeds from short term borrowings | 75 | — | — | |||||||||
Repurchase of issued debt | (508 | ) | (103 | ) | — | |||||||
Repayment of long-term debt | (218 | ) | (134 | ) | (187 | ) | ||||||
Increase (decrease) in short-term facilities | — | (20 | ) | 20 | ||||||||
Repurchase of common stock | — | — | (313 | ) | ||||||||
Dividends paid to shareholders | (212 | ) | (158 | ) | (240 | ) | ||||||
Dividends paid to noncontrolling interests | (7 | ) | (5 | ) | (10 | ) | ||||||
Purchase of equity from noncontrolling interests | — | (92 | ) | — | ||||||||
Other financing activities | (7 | ) | (2 | ) | — | |||||||
Net cash used in financing activities | (876 | ) | (513 | ) | (67 | ) | ||||||
Effect of changes in exchange rates | (88 | ) | (14 | ) | (84 | ) | ||||||
Net cash increase (decrease) | 304 | 579 | (846 | ) | ||||||||
Cash and cash equivalents at beginning of the period | 1,588 | 1,009 | 1,855 | |||||||||
Cash and cash equivalents at end of the period | 1,892 | 1,588 | 1,009 | |||||||||
Supplemental cash information: | ||||||||||||
Interest paid | 15 | 34 | 63 | |||||||||
Income tax paid (refund) | 23 | (141 | ) | 154 |
In million of U.S. dollars, except per | Common Stock | Capital Surplus | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interest | Total Equity | |||||||||||||||||||||
Balance as of December 31, 2010 | 1,156 | 2,515 | (304 | ) | 3,241 | 979 | 910 | 8,497 | ||||||||||||||||||||
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Stock-based compensation expense | 29 | 33 | (33 | ) | 29 | |||||||||||||||||||||||
Business combination | 9 | 9 | ||||||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||
Net income (loss) | 650 | (495 | ) | 155 | ||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | (309 | ) | (26 | ) | (335 | ) | ||||||||||||||||||||||
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Comprehensive income (loss) | (180 | ) | ||||||||||||||||||||||||||
Dividends to noncontrolling interest | (5 | ) | (5 | ) | ||||||||||||||||||||||||
Dividends, $0.40 per share | (354 | ) | (354 | ) | ||||||||||||||||||||||||
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Balance as of December 31, 2011 | 1,156 | 2,544 | (271 | ) | 3,504 | 670 | 393 | 7,996 | ||||||||||||||||||||
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Stock-based compensation expense | 11 | 32 | (32 | ) | 11 | |||||||||||||||||||||||
Contribution of noncontrolling interest | 765 | 765 | ||||||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||
Net loss | (1,158 | ) | (1,030 | ) | (2,188 | ) | ||||||||||||||||||||||
Other comprehensive income (loss), net of tax | 124 | 16 | 140 | |||||||||||||||||||||||||
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Comprehensive income (loss) | (2,048 | ) | ||||||||||||||||||||||||||
Dividends to noncontrolling interest | (5 | ) | (5 | ) | ||||||||||||||||||||||||
Dividends, $0.40 per share | (355 | ) | (355 | ) | ||||||||||||||||||||||||
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Balance as of December 31, 2012 | 1,156 | 2,555 | (239 | ) | 1,959 | 794 | 139 | 6,364 | ||||||||||||||||||||
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Stock-based compensation expense | 26 | 27 | (27 | ) | 26 | |||||||||||||||||||||||
Joint ventures deconsolidation | 58 | 73 | 131 | |||||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||
Net loss | (500 | ) | (129 | ) | (629 | ) | ||||||||||||||||||||||
Other comprehensive income (loss), net of tax | 190 | (5 | ) | 185 | ||||||||||||||||||||||||
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Comprehensive income (loss) | (444 | ) | ||||||||||||||||||||||||||
Dividends to noncontrolling interest | (4 | ) | (4 | ) | ||||||||||||||||||||||||
Dividends, $0.40 per share | (356 | ) | (356 | ) | ||||||||||||||||||||||||
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Balance as of December 31, 2013 | 1,156 | 2,581 | (212 | ) | 1,076 | 1,042 | 74 | 5,717 | ||||||||||||||||||||
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The accompanying notes are an integral part of these audited consolidated financial statements
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve Months Ended | ||||||||||||
In million of U.S. dollars | December 31, 2013 | December 31, 2012 | December 31, 2011 | |||||||||
Cash flows from operating activities: | ||||||||||||
Net income (loss) | (629 | ) | (2,188 | ) | 155 | |||||||
Items to reconcile net income (loss) and cash flows from operating activities: | ||||||||||||
Depreciation and amortization | 910 | 1,107 | 1,279 | |||||||||
Other-than-temporary impairment charge and realized gains on financial assets | — | — | (318 | ) | ||||||||
Gain on financial instruments, net | — | (3 | ) | (25 | ) | |||||||
Gain on sale of businesses | (80 | ) | — | — | ||||||||
Non-cash stock-based compensation | 26 | 11 | 29 | |||||||||
Other non-cash items | (113 | ) | (65 | ) | (151 | ) | ||||||
Deferred income tax | (48 | ) | (80 | ) | 47 | |||||||
Loss on equity-method investments | 122 | 24 | 28 | |||||||||
Impairment, restructuring charges and other related closure costs, net of cash payments | 145 | 1,303 | (79 | ) | ||||||||
Changes in assets and liabilities: | ||||||||||||
Trade receivables, net | (57 | ) | 35 | 184 | ||||||||
Inventories | (22 | ) | 191 | (59 | ) | |||||||
Trade payables | (139 | ) | 148 | (384 | ) | |||||||
Other assets and liabilities, net | 251 | 129 | 174 | |||||||||
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Net cash from operating activities | 366 | 612 | 880 | |||||||||
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Cash flows from investing activities: | ||||||||||||
Payment for purchase of tangible assets | (543 | ) | (492 | ) | (1,284 | ) | ||||||
Proceeds from sale of tangible assets | 12 | 16 | 26 | |||||||||
Payment for purchase of marketable securities | — | (450 | ) | (352 | ) | |||||||
Proceeds from sale of marketable securities | 184 | 630 | 818 | |||||||||
Proceeds from settlement of non-current marketable securities | — | — | 350 | |||||||||
Proceeds from matured short-term deposits | — | — | 73 | |||||||||
Restricted cash | — | — | (95 | ) | ||||||||
Release of restricted cash | 3 | 3 | 87 | |||||||||
Net cash variation for joint ventures deconsolidation | (21 | ) | — | — | ||||||||
Payment for funding of joint ventures liquidation | (15 | ) | — | — | ||||||||
Payment for purchase of intangible and financial assets | (92 | ) | (117 | ) | (95 | ) | ||||||
Proceeds from sale of intangible and financial assets | 1 | 15 | — | |||||||||
Net proceeds from sale of stock received on investment divestiture | — | — | 195 | |||||||||
Proceeds received in sale of businesses | 92 | — | — | |||||||||
Payment for business acquisitions, net of cash and cash equivalents acquired | — | (1 | ) | (10 | ) | |||||||
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Net cash used in investing activities | (379 | ) | (396 | ) | (287 | ) | ||||||
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In million of U.S. dollars Cash flows from financing activities: Proceeds from long-term debt Proceeds from short-term borrowings Repurchase / repayment of issued debt Repayment of long-term debt Repayment of short-term borrowings Increase (decrease) in short-term facilities Dividends paid to stockholders Dividends paid to noncontrolling interests Other financing activities Net cash from (used in) financing activities Effect of changes in exchange rates Net cash increase (decrease) Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period Supplemental cash information: Interest paid Income tax paid Twelve Months Ended December 31,
2013 December 31,
2012 December 31,
2011 477 464 3 145 390 333 (455 ) (219 ) (422 ) (166 ) (109 ) (108 ) (35 ) (20 ) (8 ) — (7 ) 7 (346 ) (355 ) (327 ) (4 ) (5 ) (5 ) (4 ) (4 ) (2 ) (388 ) 135 (529 ) (13 ) (13 ) (44 ) (414 ) 338 20 2,250 1,912 1,892 1,836 2,250 1,912 10 26 17 23 51 83
The accompanying notes are an integral part of these audited consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(inIn millions of U.S. dollars, except share and per-share amounts)
1. | |
THE COMPANY |
STMicroelectronics N.V. (the “Company”) is registered in The Netherlands with its corporate legal seat in Amsterdam, the Netherlands, and its corporate headquarters located in Geneva, Switzerland.
The Company is a global independent semiconductor company that designs, develops, manufactures and markets a broad range of semiconductor integrated circuits (“ICs”) and discrete devices. The Company offers a diversified product portfolio and develops products for a wide range of market applications, including automotive products, computer peripherals, telecommunications systems, consumer products, industrial automation and control systems. Within its diversified portfolio, the Company is focused on developing products that leverage its technological strengths in creating customized, system-level solutions with high-growth digital and mixed-signal content.
2. | |
ACCOUNTING POLICIES |
The accounting policies of the Company conform to accounting principles generally accepted accounting principles in the United States of America (“U.S. GAAP”). All balances and values in the current and prior periods are in millions of U.S. dollars, except share and per-share amounts. Under Article 35 of the Company’s Articles of Association, the financial year extends from January 1 to December 31, which is the period-end of each fiscal year.
2.1 —– Principles of consolidation
The Company’s consolidated financial statements include the assets, liabilities, results of operations and cash flows of its majority-owned subsidiaries. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are de-consolidateddeconsolidated from the date that control ceases. Intercompany balances and transactions have been eliminated in consolidation. In compliance with U.S. GAAP, guidance, the Company assesses for consolidation any entity identified as a Variable Interest Entity (“VIE”) and consolidates any VIEs, for which the Company is determined to be the primary beneficiary, as described in Note 2.10.
When the Company owns some, but not all, of the voting stock of a consolidated entity, the shares held by third parties represent a noncontrolling interest. The consolidated financial statements are prepared based on the total amount of assets and liabilities and income and expenses of the consolidated subsidiaries. However, the portion of these items that does not belong to the Company is reported on the line “Noncontrolling interest” in the consolidated financial statements.
2.2 —– Use of estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions. The primary areas that require significant estimates and judgments by management include, but are not limited to:
sales returns and allowances,
determination of the best estimate of the selling price for deliverables in multiple element sale arrangements,
inventory obsolescence reserves and normal manufacturing capacity thresholds to determine costs capitalized in inventory, provisions for litigation and claims and recognition and measurement of loss contingencies, valuation at fair value of | ||
F-7
estimated value of the consideration to be received and per-share amounts)used as fair value for asset groups classified as assets held for sale and the assessment of probability of realizing the sale,
assessment of other-than-temporary impairment charges on financial assets, including equity-method investments,
restructuring charges and other related exit costs,
assumptions used in assessing the number of awards expected to vest on stock-based compensation plans,
assumptions used in calculating pension obligations, and
determination of the amount of taxes expected to be paid and tax benefit expected to be received, including deferred income tax assets, valuation allowance and provisions for uncertain tax positions and claims.
The Company bases the estimates and assumptions on historical experience and on various other factors such as market trends, market information used by market participants and the latest available business plans that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. While the Company regularly evaluates its estimates and assumptions, the actual results experienced by the Company could differ materially and adversely from management’sthose estimates. To the extent there are material differences between the estimates and the actual results, future results of operations, cash flows and financial position could be significantly affected.
2.3 —– Foreign currency
The U.S. dollar is the reporting currency of the Company. The U.S. dollar is the currency of the primary economic environment in which the Company operates since the worldwide semiconductor industry uses the U.S. dollar as a currency of reference for actual pricing in the market. Furthermore, the majority of the Company’s transactions are denominated in U.S. dollars, and revenues from external sales in U.S. dollars largely exceed revenues in any other currency. However, labor costs are concentrated primarily in the countries of the Euro zone.
The functional currency of each subsidiary of the Company is either the local currency or the U.S. dollar, depending on the basis of the economic environment in which each subsidiary operates. Foreign currency transactions, including operations in local currency when the U.S. dollar is the functional currency, are translatedmeasured into the functional currency using the period average exchange rate prevailing at the date of the transactions.rate. Foreign exchange gains and losses resulting from the translation at reporting date of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated statements of income on the line “Other income and expenses, net”.
For consolidation purposes, the results and financial position of the subsidiaries whichwhose functional currency is different from the U.S. dollar are translated into the U.S. dollar reporting currency as follows:
(a) | assets and liabilities for each consolidated balance sheet presented are translated at the closing exchange rate as of the balance sheet date; |
(b) | income and expenses for each consolidated statement of income presented are translated at the monthly average exchange rate; |
(c) | the resulting exchange differences are reported as Currency Translation Adjustments (“CTA”), a component of “Other comprehensive income (loss)” in the consolidated statements of comprehensive income. |
2.4 —– Cash and cash equivalents
Cash and cash equivalents representincludes cash on hand, and deposits held at call with external financial institutions and other short-term highly liquid investments with an original maturitymaturities of ninety daysthree months or less thatless. They are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in cash.value because of changes in interest rates. Bank overdrafts are not netted against cash and cash equivalents and are shown as part of current liabilities on the consolidated balance sheets.
2.5 — Restricted cash
Trade accounts receivable are amounts due from customers for goods sold and services performedrendered to third parties in the ordinary course of business. They are recognized at their salesbilling value, net of allowances for doubtful accounts. The Company maintains an allowance for doubtful accounts for potential estimated losses resulting from its customers’
F-8
In the event of sales of receivables andsuch as factoring, the Company derecognizes the receivables and accounts for them as a sale only to the extent that the Company has surrendered control over the receivables in exchange for a consideration other than beneficial interest in the transferred receivables.
2.7 —2.6 – Inventories
Inventories are stated at the lower of cost or net realizablemarket value. Cost is based on the weighted average cost by adjusting standard cost to approximate actual manufacturing costs on a quarterly basis; the cost is therefore dependent on the Company’s manufacturing performance. In the case of underutilization of manufacturing facilities, the costs associated with the excess capacity are not included in the valuation of inventories but charged directly to cost of sales. Net realizableMarket value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses and cost of completion.
The Company performs, on a continuous basis, inventory write-offwrite-offs of products, which have the characteristics of slow-moving, old production date and technical obsolescence. Additionally,Indeed, the Company evaluates its product inventory to identify obsolete or slow-selling stock and records a specific provisionreserve if the Company estimates the inventory will eventually become obsolete. ProvisionsReserve for obsolescence areis estimated for excess uncommitted inventory based on the previous quarter sales, orders’order backlog and production plans.
2.8 —2.7 – Current and deferred income tax
Income tax for the period comprises current and deferred income tax. Current income tax represents the income tax expected to be paid or the tax benefit expected to be received related to the current year income ortaxable profit and loss in each individual tax jurisdiction. Deferred income tax is recognized, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying amount in the consolidated financial statements. However deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit and loss. Deferred income tax is determined using tax rates and laws that are enacted byat the balance sheet date and are expected to apply when the related deferred income tax asset is
realized or the deferred income tax liability is settled. The effect on deferred tax assets and liabilities from changes in tax laws and tax rates is recognized in earnings in the period in which the law is enacted. Deferred income tax assets are recognized in full, but the Company assesses whether it is probable that future taxable profit will be available against which temporary differences can be utilized. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, is presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, in application of the new guidance relating to the presentation in the financial statements of unrecognized tax benefits when these types of tax credits or carryforward exist, as described in Note 2.24. A valuation allowance is provided for deferred tax assets when management considers it is more likely than not that they will not be realized.
The Company utilizes the flow-through method to account for its investment credits and research and developmentrecognizes a deferred tax credits, reflecting the credits as a reduction of tax expense in the year they are recognized. As described in Note 2.20, French research tax credits are recorded as grants and reported as a reduction of research and development expenses.
F-9
At each reporting date, the Company assesses all material open income tax positions in all tax jurisdictions to determine any uncertain tax positions. The Company uses a two-step process for the evaluation of uncertain tax positions. The first step consists of determining whether a benefit may be recognized; the assessment is based on a more-likely-than-not recognition threshold. If the sustainability is lower than 50%, a full provision should be accounted for. In case of a sustainability threshold in step one permitshigher than 50%, the Company must perform a second step in order to measure the amount of recognizable tax benefit, from an uncertainnet of any liability for tax position to be recognized only if it is more likely than not, or 50 percent assured, that the tax position will be sustained upon examination by the taxing authorities.uncertainties. The measurement methodology in step two is based on a “cumulative probability” approach, resulting in the recognition of the largest amount that is greater than 50 percent50% likely of being realized upon settlement with the taxing authority. As described in Note 2.24, the unrecognized tax benefit is recorded as a reduction of a deferred tax asset to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of the tax position. The Company classifies accruedaccrues for interest and penalties related toon uncertain tax positionsliabilities reported on the consolidated balance sheets. Interests and penalties are classified as components of income tax expense in its consolidated statements of income. Uncertain tax positions, unrecognized tax benefits and related accrued interest and penalties are further described in Note 23.
2.9 —2.8 – Assets held for sale
Assets are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction rather than through continuing use. The assets are classified as assets to be disposed of byheld for sale when the following conditions have been met: management has approved the plan to sell; assets are available for immediate sale; assets are actively being marketed; sale is probable within one year; price is reasonable in the market and it is unlikely that there will be significant changes in the assets to be sold or a withdrawal to the plan to sell. Assets classified as held for sale are reported as current assets at the lower of their carrying amount and fair value less costs to sell. Costs to sell include incremental direct costs to transact the sale that would not have been incurred except for the decision to sell. Depreciation is not charged on long-lived assets classified asheld-for-sale. held for sale. When theheld-for-sale accounting treatment requires an impairment charge for the difference between the carrying amount and the fair value, such impairment is reflected on the consolidated statements of income on the
line “Impairment, restructuring charges and other related closure costs”. If the long-lived assets no longer meet theheld-for-sale model, they are reported as assets held for useand used and thus reclassified from current assets to the line “Property, plant and equipment, net” in the consolidated balance sheet.sheets. The assets are measured at the lower of their fair value at the date of the subsequent decision not to sell and their carrying amount prior to their classification as assets held for sale, adjusted for any depreciation that would have been recognized if the long-lived assets had not been classified as assets held for sale. Any required adjustment to the carrying value of the asset that is reclassified as held and used is recorded in the income statement at the time of the reclassification and reported in the same income statement caption that was used to report adjustments to the carrying value of the asset during the time it was held for sale (line “Impairment, restructuring charges and other related closure costs”).
2.10 —2.9 – Business combinations and goodwill
The Company assesses each investment in equity securities to determine whether the investee is a Variable Interest Entity (“VIE”). The Company consolidates the VIEs for which the Company is determined to be the primary beneficiary. The primary beneficiary of a VIE is the party that: (i) has the power to direct the most significant activities of the VIE and (ii) is obligated to absorb losses or has the rights to receive returns that would be considered significant to the VIE. Assets, liabilities, and the noncontrolling interest of newly consolidated VIEs are initially measured at fair value in the same manner as if the consolidation resulted from a business combination.
The purchase accounting method is applied to all business combinations concluded on or after January 1, 2009, is on the basis of the amended U.S. GAAP purchase accounting guidance.combinations. The net of the acquisition-date amount of the identifiable assets acquired, equity instruments issued, and liabilities assumed isare measured at fair value on the acquisition date. Any contingent purchase price and contingent assets and liabilities,acquired contingencies are recorded at fair value on the acquisition date, regardless of the likelihood of payment.date. Acquisition-related transaction costs and restructuring costs relating to the acquired business are expensed as incurred. Acquired in-process research and development (“IPR&D”) costs areis capitalized and recorded as an intangible asset on the acquisition date, subject to impairment testing until the research or development is completed or abandoned. The excess of the aggregate of the consideration transferred and the fair value of any noncontrolling interest in the acquiree over the net of the acquisition-date amount of the identifiable assets acquired and liabilities assumed is recorded as goodwill. In case of a bargain purchase, the Company reassesses whether it has correctly identified all of the assets acquired and all of
F-10
Goodwill represents the excess of the aggregate of the consideration transferred and the fair value of any noncontrolling interest in the acquiree over the net of the acquisition-date amount of the identifiable assets acquired and liabilities assumed. Goodwill is carried at cost less accumulated impairment losses. Goodwill is not amortized but is tested annually for impairment, or more frequently if indicators of impairment exist. Goodwill subject to potential impairment is tested at a reporting unit level, which representsafter performing a component of an operating segment for which discrete financial information“qualitative” assessment to determine whether impairment testing is available and is subjectnecessary, in cases where the Company has elected to regular review by segment management. Thisapply such option. The impairment test determines whether the fair value of each reporting unit for which goodwill is allocated is lower than the total carrying amount of relevant net assets allocated to such reporting unit, including its allocated goodwill. If lower, the implied fair value of the reporting unit goodwill is then compared to the carrying value of the goodwill and an impairment charge is recognized for any excess. In determining the fair value of a reporting unit, the Company uses a market approach with financial metrics of comparable public companies and estimates the expected discounted future cash flows associated with the reporting unit. Significant management judgments and estimates are used in forecasting the future discounted cash flows, including: the applicable industry’s sales volume forecast and selling price evolution, the reporting unit’s market penetration and its revenues evolution, the market acceptance of certain new technologies and products, the relevant cost structure, the discount rates applied using a weighted average cost of capital and the perpetuity rates used in calculating cash flow terminal values.
2.11 —2.10 – Intangible assets with finite useful lives
Intangible assets subject to amortization include the intangible assets purchased from third parties recorded at cost and the intangible assets acquired in business combinations recorded at fair value, which include trademarks, technologies and licenses, contractual customer relationships and computer software.
Trademarks, technologies and technology licenses
Separately acquired trademarks and licenses are recorded at historical cost. Trademarks and licenses acquired in a business combination are recognized at fair value at the acquisition date. Trademarks and licenses have a finite useful life which ranges from 3 to 7 years and are carried at cost less accumulated amortization and impairment losses, if any. Amortization begins when the intangible asset is available for use and is calculated using the straight-line method to allocate the cost of trademarks and licenses over the estimated useful lives. The estimate useful lives on licenses range from 3 to 7 years while trademarks have a useful life ranging from 2 to 3 years.
Contractual customer relationships
Separately acquired computer software is recorded at historical cost. Costs associated with maintaining computer software programmesprograms are expensed in the consolidated statements of income as incurred. The capitalization of costs for internally generated software developed by the Company for its internal use begins when the preliminary project stage is completed and when the Company, implicitly or explicitly, authorizes and commits to funding a computer software project. It must be probable that the project will be completed and will be used to perform the function intended. AmortisationAmortization on computer software begins when the software is available for use and is calculated using the straight-line method over the estimated useful life, which does not exceed 4 years.
The carrying value of intangible assets with finite useful lives is evaluated whenever changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized in the consolidated
F-11
2.12 —2.11 – Property, plant and equipment
Property, plant and equipment are stated at historical cost, net of governmentcapital investment funding, accumulated depreciation and any impairment losses. Property, plant and equipment acquired in a business combination are recognized at fair value at the acquisition date. Major additions and improvements are capitalized, minor replacements and repairs are charged to current operations.
Land is not depreciated. Depreciation on fixed assets is computed using the straight-line method over their estimated useful lives, as follows:
Buildings | 33 years | |||
Facilities | 5-10 years | |||
Machinery and equipment | 3-10 years | |||
Computer and R&D equipment | 3-6 years | |||
Other | 2-5 years |
The Company evaluates each period whether there is reason to suspect that tangible assets or groups of assets held for useand used might not be recoverable. Several impairment indicators exist for making this assessment, such as: restructuring plans, significant changes in the technology, market, economic or legal environment in which the Company operates or in the market to which the asset is dedicated, or available evidence of obsolescence of the asset, or indication that its economic performance is, or will be, worse than expected. In determining the
recoverability of assets to be held and used, the Company initially assesses whether the carrying value of the tangible assets or group of assets exceeds the undiscounted cash flows associated with these assets. If exceeded, the Company then evaluates whether an impairment charge is required by determining if the asset’s carrying value also exceeds its fair value. This fair value is normally estimated by the Company based on independent market appraisals or the sum of discounted future cash flows, using market assumptions such as the utilization of the Company’s fabrication facilities and the ability to upgrade such facilities, change in the selling price and the adoption of new technologies. The Company also evaluates, and adjusts if appropriate, the assets’ useful lives, at each balance sheet date or when impairment indicators exist.
When property, plant and equipment are retired or otherwise disposed of, the net book value of the assets is removed from the Company’s books. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are included in “Other income and expenses, net” in the consolidated statements of income.
Lease arrangements in which the Company has substantially all the risks and rewards of ownership are classified as capital leases. Assets leased under capital leases are included in “Property, plant and equipment, net” and recorded at inception at the lower of their fair value and the present value of the minimum lease payments. They are depreciated over the shorter of the estimated useful life and the lease term unless there is a reasonable certainty that ownership will be obtained by the end of the lease term. The financial liability corresponding to the contractual obligation to proceed to future lease payments is included in long-term debt, as described in Note 2.15.2.14. Lease arrangements classified as operating leases are arrangements in which the lessor retains a significant portion of the risks and rewards of ownership of the leased assets. Payments made under operating leases are charged to the consolidated statements of income on a straight-line basis over the lease period.
2.13 —2.12 – Investments
The Company assesses each investment to determine whether the investee is a Variable Interest Entity (“VIE”). The Company consolidates the VIEs for which the Company is determined to be the primary beneficiary, as described in Note 2.10.
Investments in public companies that have readily determinable fair values and for which the Company does not have the ability to exercise significant influence the Company classifies theseare classified as trading or available-for-sale equity securities, asheld-for-trading oravailable-for-sale as described in Note 2.24.2.22. Investments in equity securities without readily determinable fair values and for which the Company does not have the ability to exercise significant influence are accounted for under the cost method.cost-method. Under the cost methodcost-method of accounting, investments are carried at historical cost and are adjusted only for declines in value. The fair value of a cost methodcost-method investment is estimated on a non-recurring basis when
F-12
Equity-method investments are all entities over which the Company has the ability to exercise significant influence but not control, generally representing a shareholding of between 20% and 50% of the voting rights. These investments are valued under the equity methodequity-method and are initially recognized at cost. Goodwill on equityequity-method investments is included in the carrying value of the investment and is not individually tested for impairment. EquityEquity-method investments also include entities which the Company determines to be variable interest entities,VIEs, as described in Note 2.10,2.9, if the Company has the ability to exercise significant influence over the entity’s operations even if the Company owns less than 20% and is not the primary beneficiary. Equity investments are presented on the face of the consolidated balance sheets. The Company’s share in the result
of operations of equityequity-method investments is recognized in the consolidated statements of income on the line “Earnings“Income (loss) on equityequity-method investments” and in the consolidated balance sheets as an adjustment to the carrying amount of the investments. Where there has been a change recognized directly in the equity of the investee, the Company recognizes its share in the adjustment, when applicable, directly in the consolidated statement of changes in equity. The financial statements of the equityequity-method investments are prepared for the same reporting period as the Company or with a quartertime lag not exceeding three months if the investee cannot issue financial statements in a timing compliant withwithin the closing timeframe requirements of the Company. Where necessary, adjustments are made to bring the accounting policies in line with those of the Company. At each period-end, the Company assesses whether there is objective evidence that its interests in equityequity-method investments are impaired. Once a determination is made that another-than-temporary impairment exists, the Company writes down the carrying value of the equityequity-method investment to its fair value at the balance sheet date, which establishes a new cost basis. The fair value of an equityequity-method investment is measured on a non-recurring basis using primarily a combination of an income approach, based on discounted cash flows, and a market approach with financial metrics of comparable public companies.
2.13 – Provisions
In determining loss contingencies, the Company when it acted, until 2010, as a guarantor, recognized, atconsiders the inceptionlikelihood of a guarantee,loss of an asset or the incurrence of a liability foras well as the fair value ofability to reasonably estimate the obligation the Company assumed under the guarantee. When the guarantee was issued in conjunction with the formation of a partially owned business or a venture accounted for under the equity method, the recognition of the liability for the guarantee resulted in an increase to the carrying amount of the investment. The liabilities recognized for the obligations of the guarantees undertakensuch loss or liability. An estimated loss from a loss contingency is accrued by the Company were measured subsequently on each reporting date, the initial liability being reduced as the Company, as a guarantor, was released from the risk underlying the guarantee.
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2.14 – Long-term debt buyback is reported in the consolidated statements of income on the line “Gain (loss) on financial instruments, net”.
Bank loans and senior bonds
As described in Note 2.12,2.11, lease arrangements in which the Company has substantially all the risks and rewards of ownership are classified as capital leases. The Company reports the leased assets on the line “Property, plant and equipment”equipment, net” and recognizes a financial liability corresponding to the contractual obligation to proceed to future lease payments, which is included in long-term debt. Each lease payment is allocated between the debt repayment and interest expense. Borrowings are
Short-term debt is classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.
2.16 —2.15 – Employee benefits
(a) Pension obligations
The Company sponsors various pension schemes for its employees. These schemes conform to local regulations and practices in the countries in which the Company operates. They are generally funded through payments to insurance companies, trustee-administered funds or state institutions, determined by periodic actuarial calculations. Such plans include both defined benefit and defined contribution plans. AFor defined benefit plan is a pension plan that definesplans, the amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity for which the Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
employees remaining in service for a specified period of time (the vesting period). In this case, the past-servicepast service costs are amortized on a straight-line basis over the vesting period. The net periodic benefit cost of the year is determined based on the assumptions used at the end of the previous year.
For defined contribution pension plans, the Company pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Company has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.
(b) Other post-retirementpost-employment obligations
The Company provides post-retirementpost-employment benefits to some of its retirees. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and to the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment using an accounting
F-14
(c) Termination benefits
Termination benefits are payable when employmentan employee is involuntarily terminated, or whenever an employee accepts voluntary termination in exchange for termination benefits. For the accounting treatment and timing recognition of the involuntarily termination benefits, the Company distinguishes between one-time termination benefit arrangements and on-goingongoing termination benefit arrangements. A one-time termination benefit arrangement is established by a termination plan and applies to a specified termination event or for a specified future period.event. One-time involuntary termination benefits are recognized as a liability when the termination plan meets certain criteria and has been communicated to employees. If employees are required to render future service in order to receive these one-time termination benefits, the liability is recognized ratably over the future service period. Termination benefits other than one-time termination benefits are termination benefits for which criteria forthe communication arecriterion is not met but that are committed to by management, or termination obligations that are not specifically determined in a new and single plan. These termination benefits are all legal, contractual and past practice termination obligations to be paid to employees in case of involuntary termination. These termination benefits are accrued for atwhen commitment datecreates a present obligation to others for the benefits expected to be paid, when it is probable that employees will be entitled to the benefits and the amount can be reasonably estimated.
In case of special termination benefits proposedrelated to encourage voluntary termination,redundancy programs, the Company recognizes a provision for voluntary termination benefits at the date on which the employee irrevocably accepts the offer and the amount can be reasonably estimated.
(d) Profit-sharing and bonus plans
The Company recognizes a liability and an expense for bonuses and profit-sharing plans when it is contractually obliged or where there is a past practice that has created a constructivepresent obligation.
(e) Other long- termlong-term employee benefits
The Company provides long-term employee benefits such as seniority awards in certain countries. The entitlement to these benefits is usually conditional on the employee completing a minimum service period. The expected costs of these benefits are accrued over the period of employment using an accounting methodology similar to that for defined benefit pension plans. Actuarial gains and losses arising from experience adjustments, and changes in actuarial assumptions, are charged or credited to earnings in the period of change. These obligations are valued annually with the assistance of independent qualified actuaries.
(f) Share-based compensation
The Company grants nonvested sharesunvested stock awards to senior executives and selected employees members and professionals of the Supervisory Board. The shares are granted for free to employees and at their nominal value forfree. Until 2012, the members and professionals of the Supervisory Board.Board received share options with an exercise price equal to the par value of the shares (Euro 1.04). The awards granted to employees contingently vest upon achieving certain market or performance conditions and upon completion of an average three-year service period. SharesFor certain employees, awards contingently vest upon achieving three performance conditions. The awards granted to the Supervisory Board vestvested unconditionally along the same vesting period as employees but arewere not forfeited even if the service period iswas not completed. The Company measures the cost of share-based servicethe awards based on the grant-date fair value of the award.shares. That cost is recognized over the period during which an employee is required to provide service in exchange for the award or the requisite service period, usually the vesting period. Compensation is recognized only for the awards that ultimately vest. The compensation cost is recorded through earnings over the vesting period against equity, under “Capital surplus” in the consolidated statementstatements of changes in equity. The compensation cost is calculated based on the number of awards expected to vest, which includes assumptions on the number of awards to be forfeited due to the employees’ failing to providefulfill the service condition, and forfeitures following the non-completion of one or more performance conditions. When the stock-award plan contains a market condition feature, the market condition is reflected in the estimated fair value of the award at grant date.
Liabilities for the Company’s portion of payroll taxes are not accrued for over the vesting period but are recognized at vesting, which is the event triggering the measurement of employee-related social charges, based on
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2.17 —2.16 – Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
Where the Company purchases its equity share capital (treasury shares)stock), the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the Company’s shareholders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received net of directly attributable incremental transaction costs and the related income tax effect is included in equity.
2.18 —2.17 – Comprehensive income (loss)
Comprehensive income (loss) is defined as the change in equity of a business during a period except those changes resulting from investment by shareholdersstockholders and distributions to shareholders.stockholders. In the accompanying consolidated financial statements, “Other comprehensive income (loss)” and “Accumulated other comprehensive income (loss)”income” primarily consists of temporary unrealized gains or losses(losses) on securities classified asavailable-for-sale, the unrealized gain (loss)gains (losses) on derivatives designated as cash flow hedge and the impact of recognizing the overfunded and underfundedfunded status of defined benefit plans, , all net of tax, as well as foreign currency translation adjustments.
2.20 —2.18 – Revenue Recognition
Revenue is recognized as follows:
Net sales
Revenue from products sold to customers is recognized when all the following conditions have been met: (a) persuasive evidence of an arrangement exists; (b) delivery has occurred; (c) the selling price is fixed or determinable; and (d) collection is reasonably assured. This usually occurs at the time of shipment.
Consistent with standard business practice in the semiconductor industry, price protection is granted to distribution customers on their existing inventory of the Company’s products to compensate them for declines in
market prices. The ultimate decision to authorize a distributor refund remains fully within the control of the Company. The Company accrues a provision for price protection based on a rolling historical price trend computed on a monthly basis as a percentage of gross distributor sales. This historical price trend represents differences in recent months between the invoiced price and the final price to the distributor, adjusted if required, to accommodate a significant movechange in the current market price. The short outstanding inventory time period, visibility into the standard inventory product pricing (as opposed to certain customized products) and long distributor pricing history have enabled the Company to reliably estimate price protection provisions at period-end. The Company records the accrued amounts as a deduction of revenue at the time of the sale.
F-16
The Company’s insurance policy relating to product liability only covers physical damage and other direct damages caused by defective products. The Company does not carrycarries limited insurance against immaterial non consequential damages. The Company records a provision for warranty costs as a charge against cost of sales, based on historical trends of warranty costs incurred as a percentage of sales, which management has determined to be a reasonable estimate of the probable losses to be incurred for warranty claims in a period. Any potential warranty claims are subject to the Company’s determination that the Company is at fault for damages, and such claims usually must be submitted within a short period of time following the date of sale. This warranty is given in lieu of all other warranties, conditions or terms expressed or implied by statute or common law. The Company’s contractual terms and conditions typically limit its liability to the sales value of the products which gave rise to the claims.
While the majority of the Company’s sales agreements contain standard terms and conditions, the Company may, from time to time, enter into agreements that contain multiple elements or non-standard terms and conditions, which require revenue recognition judgments. Where multiple elements exist in an arrangement, the arrangement is allocated to the different elements based upon verifiable objective evidence of the fair value of the elements for periods prior to 2008. In 2009, the Company early adopted new U.S. GAAP guidance for multiple deliverable arrangements and allocation has been based since that date on verifiablevendor-specific objective evidence, third party evidence or management’s best estimate of the selling price of the separable deliverables. These arrangements generally do not include performance-, cancellation-, termination- or refund-type provisions.
Revenues under multiple deliverable arrangements
The Company, from time to time, enters into agreements with multiple deliverables. The Company entered into certain agreements related to the licensing of manufacturing processes which include the delivery of a) licenses and process documentation and b) various training and implementation support. In the current agreements, the delivery of each instance of process documentation, as well as the training and support, are considered to be separate units of accounting. The timing of services in these arrangements varies depending on the contractual terms, but revenue is recognized either prorata for short duration service periods, or as the specific services are rendered for longer duration service periods, as appropriate.
As these manufacturing processes are not normally sold by the Company or other similar manufacturers, the valuation is based on best estimates of selling prices for such deliverables. These best estimates are determined by the groups responsible for the negotiation of the agreements and are primarily based on either: a) the total amount of the agreement, assuming that subsequent services are insignificant to the sale of the license and process documentation, b) cash payments to be paid by the customer in advance of delivery prior to incurring related services or training and/or c) information derived from the negotiation process between the Company and the customer. Training and support are valued based on past history of similar services or the group’s determined value based on a cost plus analysis.
The actual and past revenues for multiple deliverable arrangements are:
In millions of U.S. dollars | 2013 | 2012 | 2011 | |||||||||
Licenses and process documentation | — | 9 | 56 | |||||||||
Training and support services | 2 | 9 | 14 | |||||||||
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Total Revenues under Multiple Deliverable Arrangements | 2 | 18 | 70 | |||||||||
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Due to the long nature of some of the payments in these agreements, some revenue is deferred until collectability is reasonably assured.
Other revenues
Other revenues consist of license revenue, service revenue related to transferring licenses, patent royalty income, sale of scrap materials and manufacturing by-products.
Funding
The Company receives funding mainly from governmental agencies and income is recognized when all contractual conditions for receipt of these funds are fulfilled. The Company’s primary sources for government funding are French, Italian & other European Union (“EU”) governmental entities and Singapore agencies.entities. Such funding is generally provided to encourage research and development activities, industrialization and local economic development. The conditions for receipt of government funding may include eligibility restrictions, approval by EU authorities, annual budget appropriations, compliance with European Commission regulations, as well as specifications regarding objectives and results. Certain specific contracts contain obligations to maintain a minimum level of employment and investment during a certain period of time. There could be penalties if these objectives are not fulfilled. Other contracts contain penalties for late deliveries or for breach of contract, which may result in repayment obligations. The Company’s revenue recognition policy, fundingFunding related to these contracts is recorded when the conditions required by the contracts are met. The Company’s funding programs are classified under three general categories: funding for research and development activities, capital investment, and loans.
Funding for research and development activities is the most common form of funding that the Company receives. Public funding for research and development is recorded as “Other income and expenses, net” in the Company’s consolidated statements of income. Public funding for research and development is recognized ratably as the related costs are incurred once the agreement with the respective governmental agency has been signed and all applicable conditions are met. Furthermore, following the enactment of the French Finance Act for 2008, which included several changes to the research tax credit regime (“Crédit Impôt Recherche”), French research tax credits are deemed to be grants in substance. Unlike other research and development funding, the amounts to be received are determinable in advance and accruable as the funded research expenditures are made. They are thus reported as a reduction of research and development expenses. The research tax credits are to be reimbursedpaid in cash by the French tax authorities within three years in case they are not deducted from income tax payable during this period of time.
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Funding receivables are reported as non-current assets unless cash settlement features of the receivables evidence that collection is expected within one year. Long-term receivables that do not present any tax attribute or legal restriction are reflected in the balance sheetsheets at their discounted net present value. The subsequent accretion of the discountdiscounting effect is recorded as non-operating income in “Interest income (expense), net”.
The Company receives certain loans, mainly related to large capital investment projects, at preferential interest rates. The Company records these loans as debt in its consolidated balance sheet.
2.21 —2.19 – Advertising costs
Advertising costs are expensed as incurred and are recorded as selling, general and administrative expenses. Advertising expenses for 2010, 20092013, 2012 and 20082011 were $11 million, $9$12 million and $10$12 million, respectively.
2.22 —2.20 – Research and development
Research and development expenses include costs incurred by the Company, the Company’s share of costs incurred by other research and development interest groups, and costs associated with co-development contracts. Research and development expenses do not include marketing design center costs, which are accounted for as selling expenses and process engineering, pre-production or process transfer costs which are recorded as cost of sales. Research and development costs are charged to expenseexpensed as incurred. The amortization expense recognized on technologies and licenses purchased by the Company from third parties to facilitate the Company’s research is recordedreported as research and development expenses. Research and development expenses also include charges originated from purchase accounting, such as in-process research and development recognized on business combinations concluded before January 1, 2009 and amortization of acquired intangible assets. Research and development expenses are reported net of research tax credits received in the French jurisdiction, as described in Note 2.20.
2.23 —2.21 – Start-up and phase-out costs
Start-up
costs represent costs incurred in thestart-up and testing of the Company’s new manufacturing facilities, before reaching the earlier of a minimum level of production or2.24 —2.22 – Financial assets
The Company did not hold at December 31, 20102013 and 20092012 any financial assets classified asheld-to-maturity or financial assets for which the Company would have elected to apply the fair value option. Consequently, the Company classified its financial assets in the following categories:held-for-trading trading andavailable-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. Unlisted equity securities with no readily determinable fair value are carried at cost, as described in Note 2.13.2.12. They are neither classified asheld-for-trading nor asavailable-for-sale.
Purchases and sales of financial assets are recognized on the trade date —– the date on which the Company commits to purchase or sell the asset. Financial assets classified asavailable-for-sale and financial assets classified asheld-for-trading trading are initially recognized and subsequently carried at fair value. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership; the relevant gain (loss) is reported as a non-operating element on the consolidated statements of income on the line “Gain (loss) on financial instruments, net”.
F-18
from the sale of the asset in an orderly exit value intransaction between market participants at the current market.measurement date. In measuring fair value, the Company makes maximum use of market inputs and relies as little as possible on entity-specificminimizes the use of unobservable inputs.
Held-for-tradingTrading financial assets
A financial asset is classified in this category if it is a security acquired principally for the purpose of selling in the short term or if it is a derivative instrument not designated as a hedge. Financial assets in this category are classified as current assets when they are expected to be realized within twelve months of the balance sheet date.Marked-to-market gains or losses arising from changes in the fair value of trading financial assets are reported in the consolidated statements of income within “Other income and expenses, net” in the period in which they arise, when the transactions for such instruments occur within the Company’s operating activities, as it is the case for trading derivatives that do not qualify as hedging instruments, as described in Note 2.25.2.23. Gains and losses arising from changes in the fair value of financial assets not related to the operating activities, of the Company, such as discontinued fair value hedge on interest rate risk exposure, are presented in the consolidated statements of income as a non-operating element within “Gain (loss) on financial instruments, net” in the period in which they arise.
Available-for-sale financial assets
Available-for-sale
financial assets are non-derivative financial assets that are either designated in this category or not classified asheld-for-trading. They are included in current assets when they represent investments of funds available for current operations or when management intends to dispose of the securities within twelve months of the balance sheet date.Changes in the fair value, including declines determined to be temporary, of securities classified asavailable-for-sale are recognized as a separate component of “Accumulated other“Other comprehensive income (loss)” in the consolidated statements of changes in equity. The cumulative loss or gain is measured as the difference between the value at initial recognition and the current fair value, less any impairment loss on that financial asset previously recognized in earnings.
The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets classified asavailable-for-sale is impaired. When equity securities classified as available for saleavailable-for-sale are determined to beother-than-temporarily impaired, the accumulated fair value adjustments previously recognized in equitycomprehensive income are reported as a non-operating element on the consolidated statements of income on the line “Other-than- temporary“Other-than-temporary impairment charge and realized lossesgains (losses) on financial assets”. For debt securities, if a credit loss exists, but the Company does not intend to sell the impaired security and is not more likely than not to be required to sell before recovery, the impairment is separated into the estimated amount relating to credit loss, and the amount relating to all other factors.factors of declines in fair value. Only the estimated credit loss amount is recognized currently in earnings on the line“Other-than-temporary “Other-than-temporary impairment charge and realized lossesgains (losses) on financial assets”, with the remainder of the loss amount recognized in accumulated other comprehensive income (loss). Impairment losses recognized in the consolidated statements of income are not reversed through earnings.
When securities classified as available for saleavailable-for-sale are sold, the accumulated fair value adjustments previously recognized in equitycomprehensive income are reported as a non-operating element on the consolidated statements of income on the line “Gain (loss) on financial assets”instruments, net”. The cost of securities sold and the amount reclassified out of accumulated other comprehensive income into earnings is determined based on the specific identification of the securities sold.
2.25 —2.23 – Derivative financial instruments and hedging activities
Derivative financial instruments are initially recognized on the date a derivative contract is entered into and are subsequently measured at their fair value. The method of recognizing the gain or loss resulting from the derivative
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The Company documents, at inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Derivative instruments that are not designated as hedges are classified asheld-for-trading trading financial assets, as described in Note 2.24.
Derivative financial instruments classified as held for trading
The Company conducts its business on a global basis in various major international currencies. As a result, the Company is exposed to adverse movements in foreign currency exchange rates. The Company enters into foreign currency forward contracts and currency options to reduce its exposure to changes in exchange rates and the associated risk arising from the denomination of certain assets and liabilities in foreign currencies at the Company’s subsidiaries. These instruments do not qualify as hedging instruments, as per U.S. GAAP guidance, and aremarked-to-market at each period-end with the associated changes in fair value recognized in “Other income and expenses, net” in the consolidated statements of income, as described in Note 2.24.
Cash Flow Hedge
To reduce its exposure to U.S. dollar exchange rate fluctuations, the Company hedges certain Euro-denominated forecasted transactions that cover at reporting date a large part of its research and development, selling, general and administrative expenses as well as a portion of its front-end manufacturing costs of semi-finished goods through the use of currency forward contracts and currency options, including collars. The Company also hedges certain Swedish krona-denominated forecasted transactions that cover at reporting date a large part of its future research and development expenses through the use of currency forward contracts.
The derivative instruments are designated and qualify for cash flow hedge at inception of the contract and on an on-goingongoing basis over the duration of the hedge relationship. They are reflected at their fair value in the consolidated balance sheets. The criteria for designating a derivative as a hedge include the instrument’s effectiveness in risk reduction and, in most cases, aone-to-one matching of the derivative instrument to its underlying transaction with the critical terms of the hedging instrument matching the terms of the hedged forecasted transaction. This enables the Company to conclude that changes in cash flows attributable to the risk being hedged are expected to be completely offset by the hedging derivatives.
For derivative instruments designated as cash flow hedge, the gain or losschange in fair value from the effective portion of the hedge is reported as a component of “Accumulated other“Other comprehensive income (loss)” in the consolidated statements of changes in equitycomprehensive income and is reclassified into earnings in the same period in which the hedged transaction affects earnings, and within the same consolidated statements of income line item as the impact of the hedged transaction. For these derivatives, ineffectiveness appears if the cumulative gain or loss on the derivative hedging instrument exceeds the cumulative change in the expected future cash flows on the hedged transactions. Effectiveness on transactions hedged through purchased options is measured on the full fair value of the option, including time value. However, on certain specific combined options (contingent zero-cost collars), the contingency premium is excluded from effectiveness measurement and recorded immediately in earnings, as described in Note 27.
When a forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in “Accumulated other comprehensive income (loss)” in the consolidated statements of changes in equity is immediately transferred to the consolidated statements of income within “Other income and expenses, net” if the de-designated derivative relates to operating activities. If upon de-designation, the derivative instrument is held
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In order to optimize its hedging strategy, the Company can be required to cease the designation of certain cash flow hedge transactions and enter into a new designated cash flow hedge transaction with the same hedged forecasted transaction but with a new hedging instrument. De-designation and re-designation are formally authorized and limited to the de-designation of purchased currency options with re-designation of the cash flow hedge through subsequent forward contractcontracts when the Euro/U.S. dollar exchange rate is decreasing, the intrinsic value of the option is nil, the hedged transaction is still probable of occurrence and meets at re-designation date all criteria for hedge accounting. At de-designation date, the net derivative gain or loss related to the de-designated cash flow hedge deferred in “Accumulated other comprehensive income (loss)” in the consolidated statements of changes in equity continues to be reported in net equity.other comprehensive income. From de-designation date, the change in fair value of the de-designated hedging item is recognized each period in the consolidated statements of income on the line “Other income and expenses, net”, as described in Note 2.24.2.22. The net derivative gain or loss related to the de-designated cash flow hedge deferred in net equityother comprehensive income is reclassified to earnings in the same period in which the hedged transaction affects earnings, and within the same consolidated statements of income line item as the impact of the hedged transaction.
Fair Value Hedges
(a) | Accounting pronouncements effective in 2013 |
In June 2009, the FASB issued amendments to the guidance on accounting for transfers of financial assets and the guidance on consolidation of variable interest entities. The amendment regarding accounting for transfers of financial assets includes: (i) eliminating the qualifying special-purpose entity (“QSPE”) concept; (ii) a new unit of account definition that must be met for transfers of portions of financial assets to be eligible for sale accounting; (iii) clarifications and changes to the derecognition criteria for a transfer to be accounted for as a sale; (iv) a change to the amount of recognized gain or loss on a transfer of financial assets accounted for as a sale when beneficial interests are received by the transferor, and (v) extensive new disclosures. The amendment regarding consolidation of variable interest entities includes: (i) the elimination of exemption for QSPEs; (ii) a new approach for determining who should consolidate a variable-interest entity and (iii) changes to when it is necessary to reassess who should consolidate a variable-interest entity. Both amendments are effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2009 and for interim periods within that first year. Earlier adoption was prohibited. The Company adopted the amendments as of January 1, 2010. The new guidance did not have any significant impact on the Company’s financial position or results of operations. See further information on variable interest entities in Notes 8 and 12.
F-21
In February 2013, the FASB issued new guidance on reporting amounts reclassified out of accumulated other comprehensive income. The new guidance requires that the effect of significant amounts reclassified from each component of accumulated other comprehensive income be presented either in a single note or parenthetically on the face of the financial statements, based on its source and the allowance for credit losses. It amendsincome statement line items affected by the Codificationreclassification. If a component is not required to provide informationbe reclassified to net income in orderits entirety, companies would instead cross reference to understand the nature of credit risk in a company’s financing receivables, how that risk is analyzed in determining the related allowancefootnote for additional information. The Company adopted the new guidance in 2013 and reported amounts reclassified out of accumulated other comprehensive income in Note 15.
In July 2013, the FASB issued guidance on how to present an unrecognized tax benefit (“UTB”) when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Under the new guidance, UTBs will be netted against all available same-jurisdiction losses and changes to the allowance during the reporting period. It defines a finance receivable as a contractual right to receive money on demand or in fixed or determinable datesother tax carryforwards that is recognized as an asset in the entity’s statement of financial position but excludes from its scope certain financial instruments such as trade accounts receivable with contractual maturities of one year or less that arose from the sale of goods and services. A significant change from the current disclosure requirements is that the informationwould be utilized. The new guidance must be providedadopted prospectively, but optional retrospective adoption for both the finance receivables and the related allowance for credit losses at disaggregated levels. The new disclosure guidance introduces two new defined terms that will govern the level of disaggregation: a portfolio segment, defined as the level at which an entity determines its allowance for credit losses, and a class of financing receivable, defined as a group of finance receivables determined on the basis of their initial measurement attribute.all periods presented is allowed. The guidance is effective for the Company for bothannual and interim and annual reporting periods endingbeginning after December 15, 2010.2013, with early adoption permitted. The Company applied theseearly adopted the guidance as at December 31, 2013, on a prospective basis. The impact of the new disclosure requirements toguidance upon adoption was the presentation of $229 million unrecognized tax benefits against existing net operating loss carryforward available in four tax jurisdictions, reported on the line “Non-current deferred tax assets” of the consolidated financial statements for the year endedbalance sheet as at December 31, 2010 and such requirements did not have any impact on the notes to the consolidated financial statements.
(b) | Accounting pronouncements expected to impact the Company’s operations that are not yet effective and have not been adopted early by the Company |
In December 2010,March 2013, the FASB issued amendment to thenew guidance on testingobligations resulting from joint and several liability arrangements for goodwill impairment. The amendment modifies Step 1which the total amount of the goodwill impairment testobligation is fixed at the reporting date. An entity should recognize the respective portion of the obligation it agrees to pay among its co-obligors and assess any additional amounts it expects to pay related to amounts borrowed by its co-obligors applying the measurement principles of
the contingencies model under ASC 450. Enhanced disclosures similar to those required for reporting unitsfinancial guarantees will be required for those obligations. The guidance is effective for interim and annual periods beginning after December 15, 2013, with zeroearly adoption permitted. The Company will adopt the new guidance when effective and does not expect any significant impact of this adoption.
In March 2013, the FASB issued clarified guidance on whether, when and how to release cumulative translation adjustment (“CTA”) into earnings in various deconsolidation and consolidation transactions. Complete or negative carrying amounts, for which thesubstantially complete liquidation of a foreign entity is required to assess whether it is more likely than not thatrelease CTA for transactions occurring within a foreign entity. Transactions impacting investments in the reporting units’ goodwill is impaired. If theforeign entity determines that it is more likely than not that the goodwillmay result in a full or partial release of oneCTA even though complete or more of its reporting units is impaired, the entity should perform Step 2substantially complete liquidation of the goodwill impairment test for those reporting units.foreign entity has not occurred. For transactions involving step acquisitions, the CTA associated with the previous equity-method investment will be fully released when control is obtained and consolidation occurs. The amendmentguidance is effective for fiscal years beginning after December 15, 2010. Earlier2013, with early adoption is not permitted. The Company will adopt the amendment as of January 1, 2011 and does not expect any significant impact on the Company’s financial position and results of operations.
F-22
3. | |
MARKETABLE SECURITIES |
Changes in the value of marketable securities, as reported in current and non-current assets on the consolidated balance sheets as at December 31, 20102013 and December 31, 20092012 are detailed in the tables below:
Change in | ||||||||||||||||||||||||||||||||||||
fair value | ||||||||||||||||||||||||||||||||||||
included in | ||||||||||||||||||||||||||||||||||||
OCI* for | ||||||||||||||||||||||||||||||||||||
available- | Change in | Foreign | ||||||||||||||||||||||||||||||||||
for-sale | fair value | exchange | ||||||||||||||||||||||||||||||||||
December 31, | Other | Other | marketable | recognized | result | December 31, | ||||||||||||||||||||||||||||||
2009 | Purchase | increase | Sale | decrease | securities | in earnings | through OCI* | 2010 | ||||||||||||||||||||||||||||
In millions of U.S. dollars | ||||||||||||||||||||||||||||||||||||
Aaa debt securities issued by the U.S. Treasury | 340 | 690 | — | (680 | ) | — | — | — | — | 350 | ||||||||||||||||||||||||||
Aaa debt securities issued by foreign governments | 144 | 410 | — | (331 | ) | — | — | — | (10 | ) | 213 | |||||||||||||||||||||||||
Senior debt Floating Rate Notes issued by financial institutions | 548 | — | — | (208 | ) | — | 4 | (3 | ) | (13 | ) | 328 | ||||||||||||||||||||||||
Auction Rate Securities | 42 | — | — | — | — | 30 | — | — | 72 | |||||||||||||||||||||||||||
Equity securities classified as held-for-trading | — | — | 20 | — | (22 | ) | — | 2 | — | — | ||||||||||||||||||||||||||
Equity securities classified as available-for-sale | — | — | 583 | (375 | ) | (14 | ) | (33 | ) | — | 161 | |||||||||||||||||||||||||
Total | 1,074 | 1,100 | 603 | (1,594 | ) | (22 | ) | 20 | (34 | ) | (23 | ) | 1,124 | |||||||||||||||||||||||
In millions of U.S. dollars | December 31, 2012 | Purchase | Sale | Change in fair value included in OCI* for available- for-sale marketable securities | Change in fair value recognized in earnings | Foreign exchange result through OCI* | December 31, 2013 | |||||||||||||||||||||
Debt securities issued by the U.S. Treasury | 150 | — | (150 | ) | — | — | — | — | ||||||||||||||||||||
Senior debt Floating Rate Notes issued by financial institutions | 88 | — | (34 | ) | — | — | 3 | 57 | ||||||||||||||||||||
Total | 238 | — | (184 | ) | — | — | 3 | 57 |
* | Other Comprehensive Income |
Increase in | Other than | |||||||||||||||||||||||||||||||
fair value | temporary | |||||||||||||||||||||||||||||||
included in | impairment | |||||||||||||||||||||||||||||||
OCI* for | charge and | Foreign | Foreign | |||||||||||||||||||||||||||||
available- | realized | exchange | exchange | |||||||||||||||||||||||||||||
for-sale | losses on | result | result | |||||||||||||||||||||||||||||
December 31, | marketable | marketable | through | through | December 31, | |||||||||||||||||||||||||||
2008 | securities | securities | Purchase | Sale | P&L | OCI* | 2009 | |||||||||||||||||||||||||
In millions of U.S. dollars | ||||||||||||||||||||||||||||||||
Aaa debt securities issued by the U.S. Treasury | — | — | — | 1,060 | (720 | ) | — | — | 340 | |||||||||||||||||||||||
Aaa debt securities issued by foreign governments | — | — | — | 670 | (543 | ) | 14 | 3 | 144 | |||||||||||||||||||||||
Senior debt Floating Rate Notes issued by financial institutions | 651 | 8 | — | — | (108 | ) | — | (3 | ) | 548 | ||||||||||||||||||||||
Auction Rate Securities | 242 | 15 | (140 | ) | — | (75 | ) | — | — | 42 | ||||||||||||||||||||||
Total | 893 | 23 | (140 | ) | 1,730 | (1,446 | ) | 14 | — | 1,074 | ||||||||||||||||||||||
In millions of U.S. dollars | December 31, 2011 | Purchase | Sale | Change in fair value included in OCI* for available- for-sale marketable securities | Change in fair value recognized in earnings | Foreign exchange result through OCI* | December 31, 2012 | |||||||||||||||||||||
Debt securities issued by the U.S. Treasury | 100 | 450 | (400 | ) | — | — | — | 150 | ||||||||||||||||||||
Debt securities issued by foreign governments | 81 | — | (81 | ) | — | — | — | — | ||||||||||||||||||||
Fixed rate debt securities issued by financial institutions | 27 | — | (25 | ) | — | — | (2 | ) | — | |||||||||||||||||||
Senior debt Floating Rate Notes issued by financial institutions | 205 | — | (124 | ) | 6 | 1 | — | 88 | ||||||||||||||||||||
Total | 413 | 450 | (630 | ) | 6 | 1 | (2 | ) | 238 |
* | Other Comprehensive Income |
The Company investedU.S. Treasury Bills amounting to $150 million as of December 31, 2012 were sold in 2010 $1,100 million in French, German and U.S. government bonds, of which $1,011 million was sold or matured in 2010.2013. They were rated Aaa by Moody’s as at December 31, 2012. The change in fair value of the $563 million government debtthese marketable securities classified asavailable-for-sale was not material as at December 31, 2010.2012. The Company estimated the fair value of these financial assets based on publicly quoted market prices, which corresponded to a Level 1 fair value measurement hierarchy.
All securities were classified as available-for-sale and recorded at fair value, with changes in fair value recognized as a separate component of the consolidated statements of comprehensive income, except for those declines deemed to be other-than-temporary.
Only two investment positions in Senior debt Floating Rate Notes, with an average rating of Baa2/A-/A, were outstanding as at December 31, 2013, with a duration of 0.05 year. Due to the short duration before maturity, the value of the securities as at December 31, 2013 corresponded to par value; no credit loss was identified on these instruments and the cumulative change in fair value recognized as a separate component of “Accumulated other comprehensive income (loss)” in the consolidated statement of equity was not material as at December 31, 2013. The Company estimated the fair value of these financial assets based on publicly quoted market prices, which corresponds to a levelLevel 1 fair value measurement hierarchy. The durationaggregate amortized cost basis of the government bonds portfolio is less than three months on averagethese securities totalled $57 million and the securities are rated Aaa by Moody’s and AAA by Standard & Poor’s.
As at December 31, 2011, the Company held $5 million in fair value recognized as a separate componentEuro-denominated senior unsecured bonds issued by Lehman Brothers, for an original investment of “Accumulated other comprehensive income”Euro 15 million. Those debt securities were sold in 2012, generating cash proceeds totalling $5 million. The gain, which was not material, was reported on the line “Gain on financial instruments, net” on the consolidated statement of changes in equity, exceptincome for those changes deemed to beother-than-temporary impairment.
The debt securities’ entire amortized cost basis. Since the duration of the floating rate note portfolio is 1.5 years on average
F-23
F-24
4. | |
TRADE ACCOUNTS RECEIVABLE, NET |
Trade accounts receivable, net consisted of the following:
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Trade accounts receivable | 1,247 | 1,386 | ||||||
Less valuation allowance | (17 | ) | (19 | ) | ||||
Total | 1,230 | 1,367 |
December 31, 2013 | December 31, 2012 | |||||||
Trade accounts receivable | 1,058 | 1,015 | ||||||
Allowance for doubtful accounts | (9 | ) | (10 | ) | ||||
Total | 1,049 | 1,005 |
Bad debt expense in 2010, 20092013, 2012, and 20082011 was $1$2 million, $2$1 million and $1 million, respectively. In 2010, 20092013 and 2008,2012 none of the customers represented over 10% of consolidated net revenues while in 2011, one customer, the Nokia group of companies, represented 13.9%, 16.1% and 17.5%10.4% of consolidated net revenues, respectively.
The Company enters into factoring transactions to accelerate the realization in cash of some trade accounts receivable within the ST-Ericsson venture described in details in Note 8. In 2010, $781 million ofreceivable. As at December 31, 2013 and 2012, trade accounts receivable were sold without recourse for $56 million and $127 million respectively. Such factoring transactions totaled respectively $570 million and $1,143 million for the years 2013 and 2012, with a financial cost oftotaling $2 million, $4 million and $3 million respectively for the years 2013, 2012 and 2011, reported on the line “Interest income (expense),expense, net” ofon the consolidated statement of incomeincome.
5. | INVENTORIES |
Inventories are stated at the lower of cost or market value. Cost is based on the weighted average cost by adjusting standard cost to approximate actual manufacturing costs on a quarterly basis; the cost is therefore dependent on the Company’s manufacturing performance. In the case of underutilization of manufacturing facilities, the costs associated with the excess capacity are not included in the valuation of inventories but charged directly to cost of sales.
Reserve for obsolescence is estimated for excess uncommitted inventories based on the year ended December 31, 2010.
Inventories, net of reserve, consisted of the following:
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Raw materials | 80 | 73 | ||||||
Work-in-process | 976 | 769 | ||||||
Finished products | 441 | 433 | ||||||
Total | 1,497 | 1,275 |
F-25
December 31, 2013 | December 31, 2012 | |||||||
Raw materials | 84 | 78 | ||||||
Work-in-process | 885 | 941 | ||||||
Finished products | 367 | 334 | ||||||
Total | 1,336 | 1,353 |
6. | |
OTHER |
Other receivables andcurrent assets consisted of the following:
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Receivables from government agencies | 171 | 208 | ||||||
Taxes and other government receivables | 117 | 272 | ||||||
Advances | 68 | 79 | ||||||
Prepayments | 51 | 50 | ||||||
Loans and deposits | 15 | 14 | ||||||
Interest receivable | 6 | 10 | ||||||
Derivative instruments | 85 | 36 | ||||||
Receivables from equity investments | 33 | 15 | ||||||
Other current assets | 63 | 69 | ||||||
Total | 609 | 753 |
December 31, 2013 | December 31, 2012 | |||||||
Receivables from government agencies | 127 | 156 | ||||||
Taxes and other government receivables | 56 | 68 | ||||||
Advances | 46 | 84 | ||||||
Prepayments | 54 | 74 | ||||||
Loans and deposits | 13 | 15 | ||||||
Interest receivable | 1 | 1 | ||||||
Derivative instruments | 43 | 36 | ||||||
Receivables from equity-method investments | 8 | 16 | ||||||
Other current assets | 41 | 68 | ||||||
Total | 389 | 518 |
Derivative instruments are further described in Note 27.
7. | |
|
Goodwill allocated to purchase the 20% noncontrolling interest of NXP in ST-NXP wireless for a price of $92 million. Transactions with NXP noncontrolling interests are summarized in the table below:
Twelve Months Ended | ||||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
In millions of U.S. dollars | ||||||||
Net income (loss) attributable to parent company | 830 | (1,131 | ) | |||||
Transfers from noncontrolling interests: | ||||||||
Increase in parent company’s capital surplus for purchase of outstanding 20% of ST-NXP shares | — | 119 | ||||||
Change from net income (loss) attributable to parent company and transfers (to) from noncontrolling interests | 830 | (1,012 | ) |
F-26
F-27
Automotive | ||||||||||||||||
Consumer | ||||||||||||||||
Computer and | Industrial and | |||||||||||||||
Communication | Wireless | Multisegment | ||||||||||||||
Infrastructure | Sector | Sector | ||||||||||||||
(“ACCI”) | (“Wireless”) | (“IMS”) | Total | |||||||||||||
December 31, 2008 | 51 | 816 | 91 | 958 | ||||||||||||
Business Combination | — | 131 | — | 131 | ||||||||||||
Vision goodwill impairment | (6 | ) | — | — | (6 | ) | ||||||||||
Foreign currency translation | (2 | ) | (11 | ) | 1 | (12 | ) | |||||||||
December 31, 2009 | 43 | 936 | 92 | 1,071 | ||||||||||||
Business Combinations | — | — | 1 | 1 | ||||||||||||
Decrease in goodwill due to a release of contingent consideration liability booked initially under FAS 141 | — | (6 | ) | — | (6 | ) | ||||||||||
Foreign currency translation | — | (7 | ) | (5 | ) | (12 | ) | |||||||||
December 31, 2010 | 43 | 923 | 88 | 1,054 |
Sense & Power and Automotive (SP&A) | Embedded Processing Solutions (EPS) | Others | Total | |||||||||||||
December 31, 2011 | 11 | 1,043 | 5 | 1,059 | ||||||||||||
Business Combinations | 1 | — | — | 1 | ||||||||||||
Foreign currency translation | — | 3 | — | 3 | ||||||||||||
Impairment loss | — | (922 | ) | — | (922 | ) | ||||||||||
December 31, 2012 | 12 | 124 | 5 | 141 | ||||||||||||
Sale of business | — | — | (5 | ) | (5 | ) | ||||||||||
Re-classification to AHFS | (10 | ) | — | — | (10 | ) | ||||||||||
Foreign currency translation | — | 2 | — | 2 | ||||||||||||
Impairment loss | — | (38 | ) | — | (38 | ) | ||||||||||
December 31, 2013 | 2 | 88 | — | 90 |
Goodwill as at December 31, 20102013 is net of accumulated impairment losses of $1,024 million, of which $1,018 million relates to the EPS segment and 2009. Accumulated impairment amounted$6 million relates to $67 millionthe segment “Others”. Goodwill as at December 31, 20102012 is net of accumulated impairment losses of $986 million, of which $980 million relates to the EPS segment and 2009.
In 2012, the Company closed a transaction to combine the businesses of Ericsson Mobile Platforms (“EMP”) and ST-NXPrecorded on Wireless into a new venture, named ST-Ericsson, as described in Note 8. An amount of $143 million of the purchase price for this transaction was allocated to goodwill. Additionally, at the beginning ofgoodwill an impairment loss totalling $922 million.
During the third quarter of 2009, the Company made final adjustments to the NXP business combination and decreased goodwill by $12 million.
F-28
8. | |
OTHER INTANGIBLE ASSETS |
Other intangible assets consisted of the following:
Gross | Accumulated | Net | ||||||||||
December 31, 2010 | Cost | Amortization | Cost | |||||||||
Technologies & licences | 827 | (609 | ) | 218 | ||||||||
Contractual customer relationships | 488 | (122 | ) | 366 | ||||||||
Purchased software | 309 | (256 | ) | 53 | ||||||||
Construction in progress | 82 | — | 82 | |||||||||
Other intangible assets | 91 | (79 | ) | 12 | ||||||||
Total | 1,797 | (1,066 | ) | 731 | ||||||||
Gross | Accumulated | Net | ||||||||||
December 31, 2009 | Cost | Amortization | Cost | |||||||||
Technologies & licences | 787 | (501 | ) | 286 | ||||||||
Contractual customer relationships | 485 | (70 | ) | 415 | ||||||||
Purchased software | 302 | (226 | ) | 76 | ||||||||
Construction in progress | 28 | — | 28 | |||||||||
Other intangible assets | 91 | (77 | ) | 14 | ||||||||
Total | 1,693 | (874 | ) | 819 | ||||||||
December 31, 2013 | Gross Cost | Accumulated Amortization | Net Cost | |||||||||
Technologies & licences | 616 | (484 | ) | 132 | ||||||||
Contractual customer relationships | 5 | (5 | ) | — | ||||||||
Purchased software | 338 | (290 | ) | 48 | ||||||||
Construction in progress | 37 | — | 37 | |||||||||
Other intangible assets | 62 | (62 | ) | — | ||||||||
|
|
|
|
|
| |||||||
Total | 1,058 | (841 | ) | 217 | ||||||||
|
|
|
|
|
| |||||||
December 31, 2012 | Gross Cost | Accumulated Amortization | Net Cost | |||||||||
Technologies & licences | 742 | (630 | ) | 112 | ||||||||
Contractual customer relationships | 13 | (11 | ) | 2 | ||||||||
Purchased software | 356 | (312 | ) | 44 | ||||||||
Construction in progress | 39 | — | 39 | |||||||||
Other intangible assets | �� | 104 | (88 | ) | 16 | |||||||
|
|
|
|
|
| |||||||
Total | 1,254 | (1,041 | ) | 213 | ||||||||
|
|
|
|
|
|
The line “Construction in progress” in the table above includes internally developed software under construction and software nonot ready for intended use.
The line “Other intangible assets” consists primarily of internally developed software. The amortization expense on capitalized software costs in 2010, 20092013, 2012 and 20082011 was $30$17 million, $20$38 million and $15$33 million, respectively.
During the third quarter of 2013, an impairment test was performed on the DCG reporting unit, as detailed in Note 7. Prior to conducting the impairment test on goodwill, the Company evaluated the recoverability of the long-lived assets dedicated to the DCG reporting unit, including acquired technologies and capitalized software. Recoverability of these intangible assets was assessed based on the undiscounted future cash flows expected to result from their use. Based on management’s best estimates about future developments and scenarios of the DCG reporting unit, as well as assumptions on alternative future use, the Company concluded that the undiscounted future cash flows were less than the carrying value. Therefore, these intangible assets were considered to be impaired. The amount of the impairment loss was measured as the difference between the carrying amount of these assets and the fair value based on a discounted cash flow approach. The impairment on intangible assets totaled $18 million and was composed of $17 million impairment on acquired technologies and $1 million impairment on capitalized software.
Veredus, a 67% investment of the Company, has been classified as Assets held for sale as of December 31, 2013. Consequently, Veredus intangibles were re-classified to Assets held for sale for $11 million as of December 31, 2013. On January 13, 2014, the Company sold a 50% stake in Veredus shares to a third party investor.
The amortization expense in 2010, 20092013, 2012 and 20082011 was $207$72 million, $208$177 million and $141$211 million, respectively.
The estimated amortization expense of the existing intangible assets for the following years is:
Year | ||||
2011 | 225 | |||
2012 | 147 | |||
2013 | 72 | |||
2014 | 54 | |||
2015 | 46 | |||
Thereafter | 187 | |||
Total | 731 |
F-29
Year | ||||
2014 | 64 | |||
2015 | 55 | |||
2016 | 45 | |||
2017 | 26 | |||
2018 | 13 | |||
Thereafter | 14 | |||
Total | 217 |
9. | |
PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consisted of the following:
Gross | Accumulated | Net | ||||||||||
December 31, 2010 | Cost | Depreciation | Cost | |||||||||
Land | 88 | — | 88 | |||||||||
Buildings | 948 | (306 | ) | 642 | ||||||||
Capital leases | 74 | (64 | ) | 10 | ||||||||
Facilities & leasehold improvements | 3,037 | (2,382 | ) | 655 | ||||||||
Machinery and equipment | 13,916 | (11,534 | ) | 2,382 | ||||||||
Computer and R&D equipment | 519 | (441 | ) | 78 | ||||||||
Other tangible assets | 211 | (144 | ) | 67 | ||||||||
Construction in progress | 124 | — | 124 | |||||||||
Total | 18,917 | (14,871 | ) | 4,046 | ||||||||
Gross | Accumulated | Net | ||||||||||
December 31, 2009 | Cost | Depreciation | Cost | |||||||||
Land | 96 | — | 96 | |||||||||
Buildings | 1,004 | (294 | ) | 710 | ||||||||
Capital leases | 79 | (61 | ) | 18 | ||||||||
Facilities & leasehold improvements | 3,158 | (2,332 | ) | 826 | ||||||||
Machinery and equipment | 13,765 | (11,632 | ) | 2,133 | ||||||||
Computer and R&D equipment | 544 | (458 | ) | 86 | ||||||||
Other tangible assets | 252 | (146 | ) | 106 | ||||||||
Construction in progress | 106 | — | 106 | |||||||||
Total | 19,004 | (14,923 | ) | 4,081 | ||||||||
December 31, 2013 | Gross Cost | Accumulated Depreciation | Net Cost | |||||||||
Land | 94 | — | 94 | |||||||||
Buildings | 987 | (429 | ) | 558 | ||||||||
Facilities & leasehold improvements | 3,218 | (2,826 | ) | 392 | ||||||||
Machinery and equipment | 14,684 | (12,728 | ) | 1,956 | ||||||||
Computer and R&D equipment | 463 | (414 | ) | 49 | ||||||||
Other tangible assets | 137 | (121 | ) | 16 | ||||||||
Construction in progress | 91 | — | 91 | |||||||||
|
|
|
|
|
| |||||||
Total | 19,674 | (16,518 | ) | 3,156 | ||||||||
|
|
|
|
|
|
December 31, 2012 | Gross Cost | Accumulated Depreciation | Net Cost | |||||||||
Land | 93 | — | 93 | |||||||||
Buildings | 966 | (395 | ) | 571 | ||||||||
Facilities & leasehold improvements | 3,151 | (2,649 | ) | 502 | ||||||||
Machinery and equipment | 14,553 | (12,363 | ) | 2,190 | ||||||||
Computer and R&D equipment | 504 | (451 | ) | 53 | ||||||||
Other tangible assets | 165 | (145 | ) | 20 | ||||||||
Construction in progress | 52 | — | 52 | |||||||||
|
|
|
|
|
| |||||||
Total | 19,484 | (16,003 | ) | 3,481 | ||||||||
|
|
|
|
|
|
The line “Construction in progress” in the table above includes property, plant and equipment under construction and equipment under qualification before operating.
Facilities & leasehold improvements, Machinery and equipment and Other tangible assets include assets acquired under capital lease. The Net Cost of Assets under capital lease for the years ended December 31, 2013 and 2012 was $1 million and $3 million, respectively.
The depreciation charge in 2010, 20092013, 2012 and 20082011 was $1,033$838 million, $1,159$930 million and $1,225$1,068 million, respectively.
Capital investment funding has totaled $4$3 million in each offor the yearsyear ended December 31, 2010, 20092013, $1 million for the year ended December 31, 2012 and 2008, respectively.$11 million for the year ended December 31, 2011. Public funding reduced depreciation charges by $13$6 million, $22$10 million and $25$12 million in 2010, 20092013, 2012 and 20082011, respectively.
For the years ended December 31, 2010, 20092013, 2012 and 20082011 the Company made equipment sales for cash proceeds of $29$12 million, $10$16 million and $8$26 million, respectively.
10. | |
|
December 31, 2013 | December 31, 2012 | |||||||
Equity-method investments | 63 | 106 | ||||||
Cost-method investments | 13 | 13 | ||||||
|
|
|
| |||||
Total | 76 | 119 | ||||||
|
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|
|
Equity-method investments
Equity-method investments as at December 31, 20102013 and December 31, 20092012 were as follows:
December 31, 2010 | December 31, 2009 | |||||||||||||||
Carrying | Ownership | Carrying | Ownership | |||||||||||||
value | Percentage | value | Percentage | |||||||||||||
In millions of USD, except percentages | ||||||||||||||||
Numonyx Holdings B.V. | — | — | 193 | 48.6 | % | |||||||||||
ST-Ericsson AT SA | 39 | 49.9 | % | 67 | 49.9 | % | ||||||||||
3Sun S.r.l. | 83 | 33.3 | % | — | — | |||||||||||
Other equity investments | 11 | — | 13 | — | ||||||||||||
Total | 133 | 273 |
F-30
In millions of U.S. dollars, except percentages | December 31, 2013 | December 31, 2012 | ||||||||||||||
Carrying value | Ownership percentage | Carrying value | Ownership percentage | |||||||||||||
ST-Ericsson AT SA | — | — | 9 | 49.0 | % | |||||||||||
ST-Ericsson SA | 50 | 50.0 | % | — | — | |||||||||||
3Sun S.r.l. | 13 | 33.3 | % | 91 | 33.3 | % | ||||||||||
MicroOLED SAS | — | 39.6 | % | 6 | 39.6 | % | ||||||||||
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| |||||||||
Total | 63 | 106 | ||||||||||||||
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|
|
F-31
On February 3, 2009, the Company announced the closing of a transaction to combine the businesses of Ericsson Mobile Platforms (“EMP”) and ST-NXP Wireless into a new venture, named ST-Ericsson. As part of the transaction, the Company received an interest in both ST-Ericsson Holding AG (parent of “JVS” group of companies) andST-Ericsson AT Holding AG (parent of “JVD” group of companies) in which the Company ownsowned respectively 50% plus a controlling share and 50% less a controlling share held by Ericsson. The Company’s investment in JVD at the date of the transaction was valued at $99 million. In 2010, ST-Ericsson Holding AG was merged intoand ST-Ericsson AT SA. In 2010,Holding AG were merged in ST-Ericsson SA and ST-Ericsson AT SA respectively.
The Company evaluated that both JVS and JVD were variable interest entities. The Company determined that it controlled JVS and therefore consolidated JVS, but that it was not the line “Loss on equity investmentsprimary beneficiary of JVD and gain ontherefore accounted for its investment divestiture” in JVD under the Company’s consolidated statementequity-method.
On August 2, 2013, the Company sold its JVD shares to Ericsson for the value of income included a charge of $28 million related to JVD. This amount includes the amortization of basis differences. The Company’s current maximum exposure to loss as a result of its involvement with JVD is limited to its equity investment thatin JVD ($4 million), leading to the de-recognition of its equity investment in JVD.
On September 9, 2013, the Company sold 1 JVS share to Ericsson for its nominal value changing the ownership structure of JVS to bring both partners to an equal ownership proportion. As a result and in combination with the new shareholder agreement, the Company lost the control of JVS and as such JVS was deconsolidated from the Company’s financial statements. The deconsolidation of JVS did not result in a gain or loss for the Company. The fair value of the Company’s retained noncontrolling interest was evaluated at $55 million. Due to the loss pick-up recognized during the fourth quarter 2013, the value of the investment amounted to $39$50 million as atof December 31, 2010.
Before the deconsolidation of JVS, certain assets and companies of the JVS group of companies were transferred to both partners for their net book value which was representative of their fair value. The transactions did not result in cash exchange between the partners.
3Sun S.r.l. (“3Sun”)
3Sun is a joint initiative between Enel Green Power, Sharp and the Company for the manufacture of thin film photovoltaic panels in Catania, Italy. Each partner owns a third of the common shares of the entity. The Company has determined that 3Sun is not a variable interest entity.VIE. However the Company exercises a significant influence over 3Sun and consequently accounts for its investment in 3Sun under the equity method.
In 2013, the Company exercisedparticipated for €19 million in 3Sun’s equity increase, out of which €9 million as a loan conversion to equity.
Taking into consideration the latest business developments, the generated losses and its rightcurrent financial situation, 3Sun recorded in the second quarter of 2013 an impairment charge of €159 million in addition to indirectly purchase the Numonyx M6 facility in Catania, Italy. On July 1, 2010, Numonyx contributed the M6 going concern and facility to 3Sun and immediately transferred the newly issued sharesits operating losses, out of 3Sun to the Company against the redemption of the $78which $69 million subordinated notes issued by Numonyx and heldwas recognized by the Company. These debt securities are further describedFor the year 2013, the line “Loss on equity-method investments” in Note 13. Since the investment in 3Sun is denominated in euro, the investment is revalued at each reporting date closing, the exchange difference being recorded as currency translation adjustment in “Accumulated other comprehensive income” in theCompany’s consolidated statement of changesincome included a charge of $35 million related to 3Sun, in equity. Theaddition to the $69 million of impairment. As of December 31, 2013, the Company’s current maximum exposure to loss as a result of its involvement with 3Sun iswas limited to its equityequity-method investment amounting to $13 million and a shareholder’s loan amounting to $17 million and, under certain conditions, to participate to a share capital increase up to €7 million.
MicroOLED S.A.S. (“MicroOLED”)
In the third quarter 2012, the Company invested approximately $7 million in shares of MicroOLED, obtaining 39.6% of the voting rights. MicroOLED is based in Grenoble, France and develops OLED micro-displays. The Company has determined that amounted$4 million out of the total value of its investment is a basis difference created by the identification of technology intangibles in MicroOLED. The Company accounts for its share of results in MicroOLED with a quarter lag. Due to $83the uncertainty associated with the ability of MicroOLED to continue as a going concern, the full residual value of the investment amounting to $4.1 million was impaired during the third quarter of 2013.
The summarized financial information of the Company’s equity-method investments as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 is presented below:
In millions of U.S. dollars | December 31, 2013 | December 31, 2012 | ||||||
Current assets | 266 | 121 | ||||||
Non-current assets | 287 | 573 | ||||||
Current liabilities | 178 | 168 | ||||||
Non-current liabilities | 249 | 297 |
In millions of U.S. dollars | 2013 | 2012 | 2011 | |||||||||
Total revenues | 282 | 422 | 255 | |||||||||
Operating income (loss) | (271 | ) | (51 | ) | (10 | ) | ||||||
Net income (loss) | (282 | ) | (103 | ) | (11 | ) |
Cost-method investments
Cost-method investments as at December 31, 2010.
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Investments carried at cost | 28 | 29 | ||||||
Available-for-sale equity securities | 11 | 10 | ||||||
Long-term notes from equity investment | — | 173 | ||||||
Held-for-trading equity securities | 7 | 7 | ||||||
Long-term receivables related to funding | 8 | 8 | ||||||
Long-term receivables related to tax refund | 278 | 170 | ||||||
Long-term receivables from third party | 19 | — | ||||||
Debt issuance costs, net | 1 | 4 | ||||||
Prepaid for pension | 4 | 2 | ||||||
Derivative instruments designated as cash flow-hedge | 6 | — | ||||||
Deposits and other non-current assets | 22 | 39 | ||||||
Total | 384 | 442 | ||||||
F-32
11. | OTHER NON-CURRENT ASSETS |
Other non-current assets consisted of the deal concluded with Micron Technology Inc. for the sale of Numonyx. As such, as at May 7, 2010, $102 million of these debt securities, including accumulated interests, were extinguished, the remaining $78 million being cancelled upon the transfer of M6 facility full ownership to the Company, as described in Note 12.
December 31, 2013 | December 31, 2012 | |||||||
Available-for-sale equity securities | 11 | 10 | ||||||
Trading equity securities | 8 | 8 | ||||||
Long-term State receivables | 513 | 470 | ||||||
Long-term receivables from third parties | 7 | 2 | ||||||
Long-term loans to affiliates | 17 | 28 | ||||||
Prepaid for pension | 10 | 5 | ||||||
Deposits and other non-current assets | 34 | 37 | ||||||
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| |||||
Total | 600 | 560 | ||||||
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Long-term State receivables include receivables related to funding and receivables related to tax refund. Funding are mainly public grants to be received from governmental agencies in Italy and France as part of long-term research and development, industrialization and capital investment projects.
12. | |
OTHER PAYABLES AND ACCRUED LIABILITIES |
Other payables and accrued liabilities consisted of the following:
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Payroll | 368 | 325 | ||||||
Social charges | 177 | 149 | ||||||
Taxes other than income taxes | 76 | 80 | ||||||
Advances | 31 | 47 | ||||||
Payables to equity investments | 36 | 30 | ||||||
Obligations for capacity rights | 12 | 21 | ||||||
Derivative instruments | 11 | 34 | ||||||
Provision for restructuring | 129 | 180 | ||||||
Current portion of pension and other long-term benefits | 21 | 30 | ||||||
Royalties | 34 | 35 | ||||||
Obligation related to cash collateral | 7 | 0 | ||||||
Others | 102 | 118 | ||||||
Total | 1,004 | 1,049 |
December 31, 2013 | December 31, 2012 | |||||||
Employee related liabilities | 383 | 397 | ||||||
Employee compensated absences | 128 | 127 | ||||||
Taxes other than income taxes | 85 | 71 | ||||||
Advances | 32 | 45 | ||||||
Payables to equity-method investments | 81 | 45 | ||||||
Obligations for capacity rights | 3 | 1 | ||||||
Derivative instruments | 4 | 1 | ||||||
Provision for restructuring | 65 | 75 | ||||||
Current portion of pension | 12 | 16 | ||||||
Royalties | 37 | 39 | ||||||
Others | 107 | 125 | ||||||
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Total | 937 | 942 | ||||||
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The terms of the agreement for the inception of Numonyx, a company created in 2007 from the Company’s and Intel’s flash memory business key assets and sold in 2010 to Micron Technology Inc., included rights granted to
Numonyx to use certain assets retained by the Company. As at December 31, 20102013 and 20092012 the value of such rights totaled $44$6 million and $65$14 million respectively, of which $11$3 million and $18$1 million respectively were reported as current liabilities.
Derivative instruments are further described in Note 27.
F-33
13. | |
LONG-TERM DEBT |
Long-term debt consisted of the following:
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Bank loans: | ||||||||
1.79% due 2010, floating interest rate at Libor + 1.0% | — | �� | 40 | |||||
Funding program loans from European Investment Bank: | ||||||||
0.32% due 2014, floating interest rate at Libor + 0.017% | 80 | 100 | ||||||
0.31% due 2015, floating interest rate at Libor + 0.026% | 47 | 56 | ||||||
0.34% due 2016, floating interest rate at Libor + 0.052% | 116 | 136 | ||||||
0.62% due 2016, floating interest rate at Libor + 0.317% | 155 | 180 | ||||||
0.50% due 2016, floating interest rate at Libor + 0.213% | 171 | 200 | ||||||
Other funding program loans: | ||||||||
0.90% (weighted average), due 2010, fixed interest rate | — | 12 | ||||||
0.46% (weighted average), due 2012, fixed interest rate | 2 | 6 | ||||||
0.50% (weighted average), due 2013, fixed interest rate | 3 | 3 | ||||||
0.49% (weighted average), due 2014, fixed interest rate | 3 | 8 | ||||||
0.50% (weighted average), due 2016, fixed interest rate | 1 | 2 | ||||||
0.50% (weighted average), due 2017, fixed interest rate | 1 | 67 | ||||||
0.74% (weighted average), due 2018, fixed interest rate | 2 | — | ||||||
Capital leases: | ||||||||
6.48% (weighted average), due 2011, fixed interest rate | 2 | 8 | ||||||
6.00% (weighted average), due 2014, fixed interest rate | 7 | 9 | ||||||
5.29% (weighted average), due 2017, fixed interest rate | 2 | 2 | ||||||
Senior Bonds: | ||||||||
1.43%, due 2013, floating interest rate at Euribor + 0.40% | 569 | 720 | ||||||
Convertible debt: | ||||||||
1.50% convertible bonds due 2016 | 534 | 943 | ||||||
Total long-term debt | 1,695 | 2,492 | ||||||
Less current portion (excluding short term borrowings) | (645 | ) | (176 | ) | ||||
Total long-term debt, less current portion | 1,050 | 2,316 | ||||||
December 31, 2013 | December 31, 2012 | |||||||
Funding program loans from European Investment Bank: | ||||||||
0.26% due 2014, floating interest rate at Libor + 0.017% | 20 | 40 | ||||||
0.26% due 2015, floating interest rate at Libor + 0.026% | 19 | 28 | ||||||
0.29% due 2016, floating interest rate at Libor + 0.052% | 58 | 77 | ||||||
0.56% due 2016, floating interest rate at Libor + 0.317% | 77 | 103 | ||||||
0.46% due 2016, floating interest rate at Libor + 0.213% | 86 | 114 | ||||||
1.34% due 2020, floating interest rate at Libor + 1.099% | 87 | 100 | ||||||
1.20% due 2020, floating interest rate at Libor + 0.956% | 193 | 221 | ||||||
1.04% due 2020, floating interest rate at Euribor + 0.817% | 121 | 132 | ||||||
0.88% due 2021, floating interest rate at Libor + 0.525% | 240 | — | ||||||
0.92% due 2021, floating interest rate at Libor + 0.572% | 231 | — | ||||||
Other funding program loans: | ||||||||
0.55% (weighted average), due 2014-2018, fixed interest rate | 5 | 7 | ||||||
Other long-term loans: | ||||||||
1.95% (weighted average), due 2017, fixed interest rate | 10 | 12 | ||||||
0.67% (weighted average), due 2018, fixed interest rate | 2 | — | ||||||
0.87% (weighted average), due 2020, fixed interest rate | 3 | — | ||||||
Capital leases: | ||||||||
5.95% (weighted average), due 2015-2017, fixed interest rate | 1 | 5 | ||||||
Senior Bonds: | ||||||||
0.58%, due 2013, floating interest rate at Euribor + 0.40% | — | 462 | ||||||
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Total long-term debt | 1,153 | 1,301 | ||||||
Less current portion | (225 | ) | (630 | ) | ||||
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Total long-term debt, less current portion | 928 | 671 | ||||||
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Long-term debt is denominated in the following currencies:
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
U.S. dollar | 1,113 | 1,666 | ||||||
Euro | 582 | 826 | ||||||
Total | 1,695 | 2,492 |
December 31, 2013 | December 31, 2012 | |||||||
U.S. dollar | 1,012 | 689 | ||||||
Euro | 141 | 612 | ||||||
Total | 1,153 | 1,301 |
The European Investment Bank’s loans denominated in EUR,Euros, but drawn in USD,U.S. dollars, are classified asUSD-denominated U.S. dollar-denominated debt.
F-34
December 31, | ||||
2010 | ||||
2011 | 645 | |||
2012 | 109 | |||
2013 | 676 | |||
2014 | 106 | |||
2015 | 84 | |||
Thereafter | 75 | |||
Total | 1,695 | |||
December 31, 2013 | ||||
2014 | 225 | |||
2015 | 205 | |||
2016 | 195 | |||
2017 | 119 | |||
2018 | 117 | |||
Thereafter | 292 | |||
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Total | 1,153 | |||
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In March 2006, STMicroelectronics Finance B.V. (“ST BV”), a wholly owned subsidiary of the Company, issued floating rate senior bonds with a principal amount of €500Euro 500 million at an issue price of 99.873%. The notes, which maturematured on March 17, 2013, paywere paying a coupon rate of the three-month Euribor plus 0.40% on the 17th of June, September, December and March of each year through maturity. In the event of changes to the tax laws of the Netherlands or any successor jurisdiction, ST BV or the Company may redeem the full amount of senior bonds for cash. In the event of certain change in control triggering events, the holders can cause ST BV or the Company to repurchase all or a portion of the bonds outstanding. During 2010, the Company repurchased 74 thousand bonds for a total cash consideration of $98 million.
Credit facilities
The Company had unutilized committed medium termmedium-term credit facilities with core relationship banks totalling $492 million. In addition, the aggregate amount of the Company’s and its subsidiaries’ total available short-term credit facilities, excluding foreign exchange credit facilities, was approximately $664$730 million as atof December 31, 2010. In addition, ST-Ericsson had $100 million of committed line from Ericsson as parent company, of which $75 was withdrawn and reported as “Short-term borrowings” at December 31, 2010.2013. The Company also has threefour committed long-term amortizing credit facilities with the European Investment Bank as part of R&D funding programs. The first one, signed on December 6, 2006 for a total of €245 million for R&D in France was fully drawn in U.S. dollars for a total amount of $341 million, of which $98$97 million were paid backremained outstanding as at December 31, 2010.2013. The second one, signed on July 21, 2008, for a total amount of €250 million for R&D projects in Italy, was fully drawn in U.S. dollars for $380 million, of which $54$163 million was paid backremained outstanding as at December 31, 2010.2013. The third one, signed inon September 27, 2010 foras a total of €350 million multi-currency loan for R&D projectsprograms in FranceEurope, was undrawndrawn mainly in U.S. dollars for an amount of $321 million and only partially in Euros for an amount of €100 million, of which $401 million remained outstanding as at December 31, 2010.
F-35
14. | |
|
The Company and its subsidiaries have a number of defined benefit pension plans, mainly unfunded, and other long-term employees’ benefits covering employees in various countries. The defined benefit plans provide for pension benefits the amounts of which are calculated based on factors such as years of service and employee compensation levels. The other long-term employees’ plans provide for benefits due during the employees’ period of service after certain seniority levels. The Company uses a December 31 measurement date for the majority of its plans. Eligibility is generally determined in accordance with local statutory requirements. For Italian termination indemnity plan (“TFR”), generated before July 1, 2007, the Company continues to measure the vested benefits to which Italian employees are entitled as if they retiredleft the company immediately as of December 31, 2010,2013, in compliance with U.S. GAAP guidance on determining vested benefit obligations for defined benefit pension plans.
The changes in benefit obligation and plan assets were as follows:
Pension Benefits | Other Long-Term Benefits | |||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Change in benefit obligation: | ||||||||||||||||
Benefit obligation at beginning of year | 654 | 587 | 43 | 42 | ||||||||||||
Service cost | 25 | 22 | 8 | 4 | ||||||||||||
Interest cost | 26 | 25 | 2 | 2 | ||||||||||||
Employee contributions | 5 | 4 | — | — | ||||||||||||
Benefits paid | (12 | ) | (25 | ) | (3 | ) | (2 | ) | ||||||||
Effect of settlement | (18 | ) | (16 | ) | — | (3 | ) | |||||||||
Effect of curtailment | (2 | ) | (2 | ) | (1 | ) | — | |||||||||
Actuarial (gain) loss | 19 | 29 | 4 | (1 | ) | |||||||||||
Transfer in | — | 12 | — | 1 | ||||||||||||
Transfer out | (2 | ) | (5 | ) | — | (1 | ) | |||||||||
Plan amendment | 12 | — | — | — | ||||||||||||
Foreign currency translation adjustment | (6 | ) | 23 | (3 | ) | 1 | ||||||||||
Benefit obligation at end of year | 701 | 654 | 50 | 43 | ||||||||||||
Change in plan assets: | ||||||||||||||||
Plan assets at fair value at beginning of year | 339 | 262 | — | — | ||||||||||||
Expected return on plan assets | 18 | 16 | — | — | ||||||||||||
Employer contributions | 24 | 46 | — | — | ||||||||||||
Employee contributions | 5 | 5 | — | — | ||||||||||||
Benefits paid | (4 | ) | (13 | ) | — | — | ||||||||||
Effect of settlement | (18 | ) | (14 | ) | — | — | ||||||||||
Actuarial gain (loss) | 1 | 25 | — | — | ||||||||||||
Transfer in | — | 7 | — | — | ||||||||||||
Transfer out | — | (6 | ) | — | — | |||||||||||
Foreign currency translation adjustments | 7 | 11 | — | — | ||||||||||||
Plan assets at fair value at end of year | 372 | 339 | — | — | ||||||||||||
Funded status | (329 | ) | (315 | ) | (50 | ) | (43 | ) | ||||||||
Net amount recognized in the balance sheet consisted of the following: | ||||||||||||||||
Non current assets | 4 | 2 | — | — | ||||||||||||
Current liabilities | (18 | ) | (8 | ) | (3 | ) | (9 | ) | ||||||||
Non Current liabilities | (315 | ) | (309 | ) | (47 | ) | (34 | ) | ||||||||
Net amount recognized | (329 | ) | (315 | ) | (50 | ) | (43 | ) |
F-36
Pension Benefits | Other Long-Term Benefits | |||||||||||||||
December 31, 2013 | December 31, 2012 | December 31, 2013 | December 31, 2012 | |||||||||||||
Change in benefit obligation: | ||||||||||||||||
Benefit obligation at beginning of year | 901 | 794 | 63 | 52 | ||||||||||||
Service cost | 37 | 40 | 8 | 9 | ||||||||||||
Interest cost | 28 | 31 | 2 | 3 | ||||||||||||
Employee contributions | 5 | 6 | — | — | ||||||||||||
Benefits paid | (19 | ) | (21 | ) | (4 | ) | (3 | ) | ||||||||
Effect of curtailment | (3 | ) | — | (2 | ) | — | ||||||||||
Effect of settlement | (32 | ) | (31 | ) | — | — | ||||||||||
Actuarial (gain) loss | (92 | ) | 58 | — | 2 | |||||||||||
Transfer in | 12 | 70 | 1 | 3 | ||||||||||||
Transfer out | (12 | ) | (70 | ) | (1 | ) | (3 | ) | ||||||||
Acquisition / change in scope | 9 | — | 1 | — | ||||||||||||
Plan amendment | 5 | 4 | — | — | ||||||||||||
ST-Ericsson deconsolidation | (49 | ) | — | (4 | ) | — | ||||||||||
Foreign currency translation adjustment | 17 | 20 | 1 | — | ||||||||||||
Benefit obligation at end of year | 807 | 901 | 65 | 63 | ||||||||||||
Change in plan assets: | ||||||||||||||||
Plan assets at fair value at beginning of year | 422 | 378 | — | — | ||||||||||||
Expected return on plan assets | 18 | 18 | — | — | ||||||||||||
Employer contributions | 29 | 34 | — | — | ||||||||||||
Employee contributions | 5 | 6 | — | — | ||||||||||||
Benefits paid | (9 | ) | (11 | ) | — | — | ||||||||||
Effect of settlement | (25 | ) | (30 | ) | — | — | ||||||||||
Actuarial gain (loss) | 14 | 17 | — | — | ||||||||||||
Transfer in | 8 | 40 | — | — | ||||||||||||
Transfer out | (8 | ) | (40 | ) | — | — | ||||||||||
Foreign currency translation adjustments | 5 | 10 | — | — | ||||||||||||
ST-Ericsson deconsolidation | (11 | ) | — | — | — | |||||||||||
Plan assets at fair value at end of year | 448 | 422 | — | — | ||||||||||||
Funded status | (359 | ) | (479 | ) | (65 | ) | (63 | ) | ||||||||
Net amount recognized in the balance sheet consisted of the following: | ||||||||||||||||
Non-current assets | 10 | 5 | — | — | ||||||||||||
Current liabilities | (12 | ) | (16 | ) | (5 | ) | (3 | ) | ||||||||
Long-term liabilities | (357 | ) | (468 | ) | (60 | ) | (60 | ) | ||||||||
Net amount recognized | (359 | ) | (479 | ) | (65 | ) | (63 | ) |
Actuarial | Prior service | |||||||||||
(gains)/losses | cost | Total | ||||||||||
Other comprehensive income as at December 31, 2008 | 74 | 6 | 80 | |||||||||
Net amount generated/arising in current year | 4 | — | 4 | |||||||||
Amortization | (6 | ) | (2 | ) | (8 | ) | ||||||
Foreign currency translation adjustment | 4 | — | 4 | |||||||||
Effect of curtailment/settlement | (4 | ) | — | (4 | ) | |||||||
Other comprehensive income as at December 31, 2009 | 72 | 4 | 76 | |||||||||
Net amount generated/arising in current year | 21 | 12 | 33 | |||||||||
Amortization | (9 | ) | (5 | ) | (14 | ) | ||||||
Foreign currency translation adjustment | 2 | — | 2 | |||||||||
Other comprehensive income as at December 31, 2010 | 86 | 11 | 97 |
Actuarial (gains)/losses | Prior service cost | Total | ||||||||||
Other comprehensive loss as at December 31, 2011 | 175 | 10 | 185 | |||||||||
Net amount generated/arising in current year | 43 | 4 | 47 | |||||||||
Amortization | (14 | ) | (5 | ) | (19 | ) | ||||||
Foreign currency translation adjustment | 5 | — | 5 | |||||||||
Other comprehensive loss as at December 31, 2012 | 209 | 9 | 218 | |||||||||
Net amount generated/arising in current year | (105 | ) | 5 | (100 | ) | |||||||
Amortization | (15 | ) | (5 | ) | (20 | ) | ||||||
Foreign currency translation adjustment | 2 | — | 2 | |||||||||
Other comprehensive loss as at December 31, 2013 | 91 | 9 | 100 |
In 2011,2014, the Company expects to amortize $5$2 million of actuarial losses and $1 million of past service cost.
The accumulated benefit obligations were as follows:
Pension Benefits | Other Long-Term Benefits | |||||||||||||||
December 31, 2013 | December 31, 2012 | December 31, 2013 | December 31, 2012 | |||||||||||||
Accumulated benefit obligations | 717 | 779 | 51 | 49 |
The components of the net periodic benefit cost included the following:
Pension Benefits | Other Long-term Benefits | |||||||||||||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | December 31, | December 31, | |||||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
Service cost | 25 | 22 | 20 | 8 | 4 | 4 | ||||||||||||||||||
Interest cost | 26 | 25 | 32 | 2 | 2 | 3 | ||||||||||||||||||
Expected return on plan assets | (18 | ) | (16 | ) | (18 | ) | — | — | — | |||||||||||||||
Amortization of actuarial net loss (gain) | 4 | 6 | 2 | 3 | (1 | ) | 1 | |||||||||||||||||
Amortization of prior service cost | 1 | 2 | 2 | 1 | — | — | ||||||||||||||||||
Effect of settlement | 5 | 2 | (3 | ) | — | — | — | |||||||||||||||||
Effect of curtailment | (2 | ) | (2 | ) | (1 | ) | (1 | ) | — | — | ||||||||||||||
Net periodic benefit cost | 41 | 39 | 34 | 13 | 5 | 8 | ||||||||||||||||||
Pension Benefits | Other Long-term Benefits | |||||||||||||||||||||||
Year ended December 31, 2013 | Year ended December 31, 2012 | Year ended December 31, 2011 | Year ended December 31, 2013 | Year ended December 31, 2012 | Year ended December 31, 2011 | |||||||||||||||||||
Service cost | 37 | 40 | 34 | 8 | 9 | 8 | ||||||||||||||||||
Interest cost | 28 | 31 | 33 | 2 | 3 | 3 | ||||||||||||||||||
Expected return on plan assets | (18 | ) | (18 | ) | (20 | ) | — | — | — | |||||||||||||||
Amortization of actuarial net loss (gain) | 11 | 12 | 6 | — | 2 | (5 | ) | |||||||||||||||||
Amortization of prior service cost | 5 | 5 | 1 | — | — | — | ||||||||||||||||||
Effect of settlement | 1 | — | (1 | ) | — | — | ||||||||||||||||||
Effect of curtailment | — | — | — | (2 | ) | — | — | |||||||||||||||||
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Net periodic benefit cost | 64 | 70 | 53 | 8 | 14 | 6 | ||||||||||||||||||
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The weighted average assumptions used in the determination of the benefit obligation and the plan assetassets for the pension plans and the other long-term benefits were as follows:
December 31, | December 31, | December 31, | ||||||||||
Assumptions | 2010 | 2009 | 2008 | |||||||||
Discount rate | 4.68 | % | 5.11 | % | 5.23 | % | ||||||
Salary increase rate | 3.13 | % | 3.08 | % | 3.46 | % | ||||||
Expected long-term rate of return on funds for the pension expense of the year | 4.99 | % | 5.28 | % | 5.69 | % |
Assumptions | December 31, 2013 | December 31, 2012 | ||||||
Discount rate | 3.83 | % | 3.43 | % | ||||
Salary increase rate | 2.82 | % | 2.92 | % | ||||
Expected long-term rate of return on funds for the pension expense of the year | 4.88 | % | 4.43 | % |
The weighted average assumptions used in the determination of the net periodic benefit cost for the pension plans and the other long-term benefits were as follows:
Assumptions | Year ended December 31, 2013 | Year ended December 31, 2012 | Year ended December 31, 2011 | |||||||||
Discount rate | 3.43 | % | 4.14 | % | 4.68 | % | ||||||
Salary increase rate | 2.92 | % | 2.99 | % | 3.13 | % | ||||||
Expected long-term rate of return on funds for the pension expense of the year | 4.43 | % | 4.57 | % | 4.99 | % |
The discount rate was determined by comparison againstreference to market yields on high quality long-term corporate bond ratesbonds applicable to the respective country of each plan.plan, with terms consistent with the term of the benefit obligations concerned. In developing the expected long-term rate of return on assets, the Company modelled the expected long-term rates of return for broad categories of investments held by the plan against a number of various potential economic scenarios.
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Percentage of Plan Assets at December | ||||||||
Asset Category | 2010 | 2009 | ||||||
Equity securities | 39 | % | 38 | % | ||||
Bonds securities remunerating interest | 32 | % | 33 | % | ||||
Real estate | 7 | % | 9 | % | ||||
Other | 22 | % | 20 | % | ||||
Total | 100 | % | 100 | % |
Percentage of Plan Assets at December | ||||||||
Asset Category | 2013 | 2012 | ||||||
Equity securities | 43 | % | 37 | % | ||||
Bonds securities remunerating interest | 30 | % | 31 | % | ||||
Real estate | 2 | % | 2 | % | ||||
Other | 25 | % | 30 | % | ||||
Total | 100 | % | 100 | % |
The Company’s detailed pension plan asset allocation including the fair-value measurements of those plan assets as at December 31, 20102013 is as follows:
Quoted Prices in | Significant | |||||||||||||||
Active Markets | Significant Other | Unobservable | ||||||||||||||
for Identical | Observable Inputs | Inputs | ||||||||||||||
Total | Assets (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Cash and cash equivalents | 24 | 24 | — | — | ||||||||||||
Equity securities | 144 | 143 | 1 | — | ||||||||||||
Government debt securities | 68 | 34 | 34 | — | ||||||||||||
Corporate debt securities | 50 | 24 | 26 | — | ||||||||||||
Derivatives | 30 | 25 | 5 | — | ||||||||||||
Investment funds | 23 | 1 | 20 | 2 | ||||||||||||
Real estate | 27 | 7 | 15 | 5 | ||||||||||||
Other (mainly insurance assets — contracts and reserves) | 6 | 1 | — | 5 | ||||||||||||
TOTAL | 372 | 259 | 101 | 12 |
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other (Level 2) | Significant (Level 3) | |||||||||||||
Cash and cash equivalents | 7 | 7 | — | — | ||||||||||||
Equity securities | 192 | 7 | 185 | — | ||||||||||||
Government debt securities | 12 | 12 | — | — | ||||||||||||
Corporate debt securities | 122 | 4 | 118 | — | ||||||||||||
Investment funds | 1 | 1 | — | — | ||||||||||||
Real estate | 9 | — | 5 | 4 | ||||||||||||
Other (mainly insurance assets – contracts and reserves) | 105 | — | — | 105 | ||||||||||||
TOTAL | 448 | 31 | 308 | 109 |
The Company’s detailed pension plan asset allocation including the fair-value measurements of those plan assets as at December 31, 2012 is as follows:
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other (Level 2) | Significant (Level 3) | |||||||||||||
Cash and cash equivalents | 5 | 5 | — | — | ||||||||||||
Equity securities | 156 | 9 | 147 | — | ||||||||||||
Government debt securities | 13 | 12 | 1 | — | ||||||||||||
Corporate debt securities | 119 | 4 | 115 | — | ||||||||||||
Investment funds | 7 | 1 | 3 | 3 | ||||||||||||
Real estate | 9 | — | 5 | 4 | ||||||||||||
Other (mainly insurance assets – contracts and reserves) | 113 | — | — | 113 | ||||||||||||
TOTAL | 422 | 31 | 271 | 120 |
For plan assets measured at fair value using significant unobservable inputs (Level 3), the reconciliation between January 1, 20102013 and December 31, 20102013 is presented as follows:
In millions of U.S. dollars | Fair Value Measurements using Significant Unobservable Inputs (Level 3) | |||
January 1, 2013 | 120 | |||
Contributions (employer and employee) | ||||
Benefits paid | (2 | ) | ||
Settlements | ) | |||
ST-Ericsson deconsolidation | (4 | ) | ||
Foreign currency translation adjustment | ||||
December 31, 2013 | 109 | |||
For plan assets measured at fair value using significant unobservable inputs (Level 3), the reconciliation between January 1, 2012 and December 31, 2012 is presented as follows:
In millions of U.S. dollars | Fair Value Measurements using Significant Unobservable Inputs (Level 3) | |||
January 1, 2012 | 104 | |||
Actual return on plan assets | 3 | |||
Contributions (employer and employee) | 16 | |||
Benefits paid | (3 | ) | ||
Settlements | (7 | ) | ||
Reclassification to Level 3 | 4 | |||
Foreign currency translation adjustment | 3 | |||
December 31, 2012 | 120 | |||
The Company’s investment strategy for its pension plans is to maximizeoptimize the long-term rate ofinvestment return on plan assets within relation to the liability structure to maintain an acceptable level of risk in order to minimizewhile minimizing the cost of providing pension benefits whileand maintaining adequate funding levels.levels in accordance with applicable rules in each jurisdiction. The Company’s practice is to periodically conduct a review in each subsidiary of its asset allocation strategy.strategy, in such a way that the asset allocation is in line with the targeted asset allocation with reasonable boundaries. This was the case for year-end 2013. A portion of the fixed income allocation is reserved in short-term cash to provide for expected benefits to be paid. The Company’s equityasset portfolios are managed in such a way as to achieve optimaladapted diversity and in certain jurisdictions they are entirely managed by the multi-employer funds. The Company does not manage any assets internally.
After considering the funded status of the Company’s defined benefit plans, movements in the discount rate, investment performance and related tax consequences, the Company may choose to make contributions to its pension plans in any given year in excess of required amounts. The Company contributions to plan assets were $24$29 million and $46$34 million in 20102013 and 20092012 respectively and the Company expects to contribute cash of $16$26 million in 2011.
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Years | Pension Benefits | Other Long-term Benefits | ||||||
2011 | 30 | 2 | ||||||
2012 | 29 | 2 | ||||||
2013 | 30 | 8 | ||||||
2014 | 36 | 3 | ||||||
2015 | 32 | 4 | ||||||
From 2016 to 2020 | 195 | 18 |
Years | Pension Benefits | Other Long-term Benefits | ||||||
2014 | 29 | 5 | ||||||
2015 | 21 | 9 | ||||||
2016 | 20 | 4 | ||||||
2017 | 34 | 4 | ||||||
2018 | 31 | 5 | ||||||
From 2019 to 2023 | 211 | 28 |
The Company has certain defined contribution plans, which accrue benefits for employees on a pro-rata basis during their employment period based on their individual salaries. The Company accrued benefits related to defined contribution pension plans of $14$19 million and $13 millionboth as of December 31, 20102013 and 2009 respectively.2012. The annual cost of these plans amounted to approximately $89 million, $81$94 million and $72$98 million in 2010, 20092013, 2012 and 2008,2011, respectively. The benefits accrued to the employees on a pro-rata basis, during their employment period, are based on the individuals’ salaries.
15. | |
SHAREHOLDERS’ EQUITY |
15.1 | Outstanding shares |
The authorized share capital of the Company is EUREuro 1,810 million consisting of 1,200,000,000 common shares and 540,000,000 preference shares, each with a nominal value of EUR 1.04.€1.04. As at December 31, 20102013 the number of shares of common stock issued was 910,420,305910,703,305 shares (910,319,305(910,559,805 at December 31, 2009)2012).
As of December 31, 20102013 the number of shares of common stock outstanding was 881,686,303 (878,333,566890,606,763 (887,953,202 at December 31, 2009)2012).
15.2 | Preference shares |
The 540,000,000 preference shares, when issued, will entitle a holder to full voting rights and to a preferential right to dividends and distributions upon liquidation.
On January 22, 2008,2007, an option agreement was concluded between the Company and Stichting Continuïteit ST. This option agreement provides for the issuance of 540,000,000 preference shares. Any such shares should be issued by the Company to the Foundation, upon its request and in its sole discretion, upon payment of at least 25% of the par value of the preference shares to be issued. The issuing of the preference shares is conditional upon (i) the Company receiving an unsolicited offer or there being the threat of such an offer; (ii) the Company’s Managing and Supervisory Boards deciding not to support such an offer and; (iii) the Board of the Foundation determining that such an offer or acquisition would be contrary to the interests of the Company, its shareholders and itsother stakeholders. The preference shares may remain outstanding for no longer than two years. There were no preference shares issued as of December 31, 2010.
15.3 | Treasury stock |
Following the authorization by the Supervisory Board, announced on April 2, 2008, to repurchase up to 30 million shares of its common stock, the Company acquired 29,520,220 shares as at December 31,in 2008, for a total amount of approximately $313 million, also reflected at cost, as a reduction of the shareholders’parent company stockholders’ equity. This repurchase intends
As of December 31, 2013, the Company owned a number of treasury shares equivalent to cover the transfer of shares to employees upon vesting of future share based remuneration programs.
The treasury shares have been designated for allocation under the Company’s share based remuneration programs of non-vested shares including such plans as approved by the 2005, 2006, 2008 and 2009 Annual General Meeting of Shareholders.unvested shares. As of December 31, 2010, 14,186,2182013, 22,823,678 of these treasury shares were transferred to employees under the Company’s share based remuneration programs, of which 3,251,7372,510,061 in the year ended December 31, 2010.
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15.4 | Stock option plans |
In 2002, the Shareholders voted to adopt a Stock Option Plan for Supervisory Board Members and Professionals of the Supervisory Board. Under this plan, 12,000 options cancould be granted per year to each member of the Supervisory Board and 6,000 options per year to each professional advisor to the Supervisory Board. Options would vest 30thirty days after the date of grant. The optionsgrant and expire ten years after the date of grant.
A summary of the stock option activity for the plans for the three years ended December 31, 2010, 20092013, 2012 and 20082011 follows:
Price Per Share | ||||||||||||
Weighted | ||||||||||||
Number of Shares | Range | Average | ||||||||||
Outstanding at December 31, 2007 | 46,765,635 | $ | 16.73 - $62.01 | $ | 31.42 | |||||||
Options expired | (5,923,552 | ) | $ | 44.00 - $62.01 | $ | 59.10 | ||||||
Options forfeited | (1,410,650 | ) | $ | 16.73 - $62.01 | $ | 27.90 | ||||||
Outstanding at December 31, 2008 | 39,431,433 | $ | 16.73 - $39.00 | $ | 27.35 | |||||||
Options forfeited | (1,487,601 | ) | $ | 17.08 - $39.00 | $ | 27.69 | ||||||
Outstanding at December 31, 2009 | 37,943,832 | $ | 16.73 - $39.00 | $ | 27.33 | |||||||
Options forfeited | (2,646,937 | ) | $ | 17.08 - $39.00 | 29.55 | |||||||
Outstanding at December 31, 2010 | 35,296,895 | $ | 16.73 - $39.00 | 27.17 | ||||||||
Exercise Price Per Share | ||||||||||||
Number of Shares | Range | Weighted Average | ||||||||||
Outstanding at December 31, 2010 | 35,296,895 | $ | 16.73-$39.00 | $ | 27.17 | |||||||
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Options forfeited | (8,843,743 | ) | $ | 17.08-$39.00 | $ | 35.11 | ||||||
Outstanding at December 31, 2011 | 26,453,152 | $ | 16.73-$33.70 | $ | 24.51 | |||||||
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Options forfeited | (9,762,680 | ) | $ | 17.08-$33.70 | $ | 30.50 | ||||||
Outstanding at December 31, 2012 | 16,690,472 | $ | 16.73-$27.21 | $ | 21.00 | |||||||
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Options forfeited | (8,400,221 | ) | $ | 16.73-$27.21 | $ | 19.39 | ||||||
Outstanding at December 31, 2013 | 8,290,251 | $ | 16.73-$27.21 | $ | 22.64 | |||||||
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The weighted average remaining contractual life of options outstanding as of December 31, 2010, 20092013, 2012 and 20082011 was 1.9, 2.90.3, 0.8 and 3.91.2 years, respectively.
The range of exercise prices, the weighted average exercise price and the weighted average remaining contractual life of options exercisable as of December 31, 20102013 were as follows:
Weighted | ||||||||||||||
Weighted | average | |||||||||||||
Option price | average | remaining | ||||||||||||
Number of shares | range | exercise price | contractual life | |||||||||||
130,531 | $ | 16.73 - $17.31 | $ | 17.04 | 3.8 | |||||||||
18,809,704 | $ | 19.18 - $24.88 | $ | 21.02 | 2.8 | |||||||||
153,650 | $ | 25.90 - $29.70 | $ | 26.72 | 2.4 | |||||||||
16,203,010 | $ | 31.09 - $39.00 | $ | 34.38 | 0.9 |
Number of shares | Option price Range | Weighted average exercise price | Weighted average remaining contractual life (years) | |||
1,900 | $25.90-$27.21 | $27.21 | 0.01 | |||
8,188,365 | $19.18-$22.83 | $22.71 | 0.32 | |||
99,986 | $16.73-$17.08 | $17.03 | 0.72 |
15.5 | Unvested share awards for the Supervisory Board |
On April 28, 2007,an annual basis and until the year 2012, the Compensation Committee (on behalf of the entire Supervisory Board and with its approval) granted 165,000used to grant stock-based awards (the options to acquire common shares in the share capital of the Company) to the members of the Supervisory Board and professionals of the Supervisory Board (“The 2007 Supervisory Board Plan”), of which 22,500 awards were immediately waived. These. The awards were granted at the nominal value of the share of €1.04 and vested over the following period: one third after 12 months, one third after 24 months and one third after 36 months following the date(exercise price of the grant. Nevertheless,
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The table below summarizes grants under the graded vestingoutstanding stock award plans as authorized by the Compensation Committee:
Year of grant | Options granted and vested | Options waived at grant | ||||||
2005 | 66,000 | (15,000 | ) | |||||
2006 | 66,000 | (15,000 | ) | |||||
2007 | 165,000 | (22,500 | ) | |||||
2008 | 165,000 | (22,500 | ) | |||||
2009 | 165,000 | (7,500 | ) | |||||
2010 | 172,500 | (7,500 | ) | |||||
2011 | 172,500 | (30,000 | ) | |||||
2012 | 180,000 | (22,500 | ) | |||||
2013 | No options granted |
A summary of the grant,options’ activity by plan for the first trancheyears ended December 31, 2012 and December 31, 2013 is presented below:
Year | Outstanding as of 31.12.2011 | Granted and vested | Waived at grant | Exercised | Expired/ Cancelled | Outstanding as of 31.12.2012 | Exercised | Expired / Cancelled | Outstanding as of 31.12.2013 | Shares corresponding to exercised option not yet available for trade as of 31.12.2013 | ||||||||||||||||||||||||||||||
2005 | 34,115 | — | — | — | — | 34,115 | (3,000 | ) | — | 31,115 | — | |||||||||||||||||||||||||||||
2006 | 33,000 | — | — | — | — | 33,000 | (3,000 | ) | — | 30,000 | — | |||||||||||||||||||||||||||||
2007 | 82,500 | — | — | — | — | 82,500 | (22,500 | ) | — | 60,000 | — | |||||||||||||||||||||||||||||
2008 | 85,000 | — | — | — | — | 85,000 | (10,000 | ) | — | 75,000 | — | |||||||||||||||||||||||||||||
2009 | 95,000 | — | — | — | — | 95,000 | (20,000 | ) | — | 75,000 | — | |||||||||||||||||||||||||||||
2010 | 107,500 | — | — | — | — | 107,500 | (25,000 | ) | — | 82,500 | — | |||||||||||||||||||||||||||||
2011 | 142,500 | — | — | — | — | 142,500 | (25,000 | ) | — | 117,500 | — | |||||||||||||||||||||||||||||
2012 | — | 180,000 | (22,500 | ) | — | — | 157,500 | (35,000 | ) | — | 122,500 | 10,000 |
The total intrinsic value of this plan, representing 45,000 shares, vested as at April 28, 2008. Furthermore, followingoptions exercised during the endyear 2013 amounted to $1 million.
At the Company’s Annual General Meeting of mandate of oneShareholders held on 21 June 2013, it was resolved to abolish and terminate the stock-based compensation for the Supervisory Board members and professionals.
15.6 | Unvested share awards for the employees |
On an annual basis, the Compensation Committee (on behalf of the membersSupervisory Board and with its approval) grants stock-based awards to the senior executives along with selected employees (the “Employee Plan”). The awards are granted for free under the Employee Plan. Until 2012 all the awards were subject to completion of the Board, 7,500performance conditions. Starting from 2013, there are two types of unvested shares: (1) shares were accelerated in 2008. The second tranche of this plan, representing 45,000granted to employees, vesting independently on the performance conditions and (2) shares vested as at April 28, 2009. In 2010, the third tranche of the plan, representing 45,000 shares vested as at April 28, 2010. As of December 31 2010, no awards were outstanding under the 2007 Supervisory Board Plan.
The first tranche of one of the local subplans, representing 4,248 shares, vested as at June 19, 2008. In addition, 31,786 shares were accelerated during the year, of which 2,999table below summarizes grants under the subplans. The second tranche of the original plan, representing 1,048,429 shares and the second tranche of one of the local subplans, representing 3,914 shares, vested as at April 26, 2009. The first tranche of the other local subplan, representing 768,157 shares, vested as at June 19, 2009. In addition, 32,360 shares were accelerated during 2009, of which 4,974 under the subplans. In 2010, the third tranche of the original plan and the third tranche of one of the local subplans, representing respectively 1,097,454 and 4,395 shares, vested as at April 26, 2010. The second tranche of the other local subplan, representing 395,853 shares, vested as at June 19, 2010. In addition, 35,857 shares were accelerated during the year, of which 12,262 under one of the subplans. These shares were transferred to employees from the treasury shares owned by the Company. At December 31, 2010, no awards were outstanding under the 2007 Employee Plan.
F-41
Date of grant | Plan name | Number of shares granted | Number of shares waived | Number of shares lost on performance conditions | ||||||||||
July 22, 2010 | 2010 Employee Plan | 6,344,725 | — | (2,076,448 | ) | |||||||||
December 17, 2010 | 2010 Employee Plan | 221,650 | — | (73,524 | ) | |||||||||
July 25, 2011 | 2011 Employee Plan | 5,881,630 | — | (5,824,445 | ) | |||||||||
November 14, 2011 | 2011 Employee Plan | 95,000 | — | (91,540 | ) | |||||||||
May 30, 2012 | 2012 CEO Special Bonus | 100,862 | — | — | ||||||||||
July 23, 2012 | 2012 Employee Plan | 6,216,285 | (2,400 | ) | (1,991,558 | ) | ||||||||
December 21, 2012 | 2012 Employee Plan | 304,480 | — | (100,373 | ) | |||||||||
July 22, 2013 | 2013 Employee Plan | 5,750,730 | — | (*) | ||||||||||
December 18, 2013 | 2013 Employee Plan | 659,515 | — | (*) | ||||||||||
December 27, 2013 | 2013 Employee Plan | 1,800 | — | — |
(*) | As at December 31, 2013, a final determination of the achievement of the performance conditions had not yet been made by the Compensation Committee of the Supervisory Board. |
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F-43
Nonvested Shares | Number of Shares | Exercise price | ||||||
Outstanding as at December 31, 2008 | 11,169,105 | $ | 0-€1.04 | |||||
Awards granted: | ||||||||
2008 Employee Plan | 50,400 | $ | 0 | |||||
2009 Employee Plan | 5,583,540 | $ | 0 | |||||
2009 Supervisory Board Plan | 165,000 | € | 1.04 | |||||
Awards forfeited: | ||||||||
2006 Employee Plan | (8,507 | ) | $ | 0 | ||||
2007 Employee Plan | (52,896 | ) | $ | 0 | ||||
2008 Employee Plan | (73,057 | ) | $ | 0 | ||||
2009 Employee Plan | (42,800 | ) | $ | 0 | ||||
2009 Supervisory Board Plan | (7,500 | ) | € | 1.04 | ||||
Awards cancelled on failed vesting conditions: | ||||||||
2008 Employee Plan | (3,780,782 | ) | $ | 0 | ||||
Awards vested: | ||||||||
2006 Employee Plan | (1,694,162 | ) | $ | 0 | ||||
2006 Supervisory Board Plan | (14,000 | ) | € | 1.04 | ||||
2007 Employee Plan | (1,898,592 | ) | $ | 0 | ||||
2007 Supervisory Board Plan | (45,000 | ) | € | 1.04 | ||||
2008 Employee Plan | (451,979 | ) | $ | 0 | ||||
2008 Supervisory Board Plan | (47,500 | ) | € | 1.04 | ||||
Outstanding as at December 31, 2009 | 8,851,270 | $ | 0-€1.04 | |||||
Awards granted: | ||||||||
2010 Employee Plan | 6,566,375 | $ | 0 | |||||
2010 Supervisory Board Plan | 172,500 | € | 1.04 | |||||
Awards forfeited: | ||||||||
2007 Employee Plan | (5,944 | ) | $ | 0 | ||||
2008 Employee Plan | (13,730 | ) | $ | 0 | ||||
2009 Employee Plan | (49,682 | ) | $ | 0 | ||||
2010 Employee Plan | (59,555 | ) | $ | 0 | ||||
2010 Supervisory Board Plan | (7,500 | ) | € | 1.04 | ||||
Awards cancelled on failed vesting conditions: | ||||||||
2009 Employee Plan | (1,830,111 | ) | $ | 0 | ||||
Awards vested: | ||||||||
2007 Employee Plan | (1,595,384 | ) | $ | 0 | ||||
2007 Supervisory Board Plan | (45,000 | ) | € | 1.04 | ||||
2008 Employee Plan | (769,462 | ) | $ | 0 | ||||
2008 Supervisory Board Plan | (52,500 | ) | € | 1.04 | ||||
2009 Employee Plan | (886,891 | ) | $ | 0 | ||||
2009 Supervisory Board Plan | (62,500 | ) | € | 1.04 | ||||
2010 Supervisory Board Plan | (15,000 | ) | € | 1.04 | ||||
Outstanding as at December 31, 2010 | 10,196,886 | $ | 0-€1.04 | |||||
Unvested Shares | Outstanding as at December 31, 2012 | Granted | Forfeited / waived | Cancelled on failed vesting conditions | Vested | Outstanding as at December 31, 2013 | ||||||||||||||||||
2010 Employee Plan | 1,485,836 | — | (21,180 | ) | — | (1,464,656 | ) | — | ||||||||||||||||
2012 CEO Special Bonus | 100,862 | — | — | — | (33,621 | ) | 67,241 | |||||||||||||||||
2012 Employee Plan | 6,473,520 | — | (219,711 | ) | (2,091,931 | ) | (1,009,339 | ) | 3,152,539 | |||||||||||||||
2013 Employee Plan | — | 6,412,045 | (30,280 | ) | — | (2,445 | ) | 6,379,320 | ||||||||||||||||
Total | 8,060,218 | 6,412,045 | (271,171 | ) | (2,091,931 | ) | (2,510,061 | ) | 9,599,100 |
The grant date fair value of nonvestedunvested shares granted to employees under the 20072010 Employee Plan was $19.35. The$8.74. For the 2010 Employee Plan, the fair value of the nonvestedunvested shares granted reflected the market price of the shares at the date of the grant.grants. On April 1, 2008, the Compensation Committee approved the statement that two performance conditions were fully met and that for one condition only one half of it was achieved. Consequently, the compensation expense recorded on the 2007 Employee Plan reflects the statement that five sixths of the awards granted vested, as far as the service condition is met.
F-44
The grant date fair value of unvested shares granted to employees under the 2011 Employee Plan was $9.08. For the 2011 Employee Plan, the fair value of the unvested shares granted reflected the market price of the shares at the date of the grants. On April 23, 2012, the Compensation Committee approved the statement that none of the three performance conditions were met. Consequently, the compensation expense recorded on the 2011 Employee Plan was reversed in the income statement for the year ended December 31, 2012.
The grant date fair value of unvested shares granted to the CEO under the 2012 CEO Special Bonus Plan was $6.32. On the 2012 CEO Special Bonus Plan, the fair value of the unvested shares granted reflected the market price of the shares at the date of the grant.
The grant date fair value of unvested shares granted to employees under the 2012 Employee Plan was $4.87. For the 2012 Employee Plan, the fair value of the unvested shares granted reflected the market price of the shares at the date of the grants. On April 11, 2013, the Compensation Committee approved the statement that two performance conditions were fully met. Consequently, the compensation expense recorded on the 2012 Employee Plan reflects the statement that two thirds of the awards granted will fully vest, as far as the service condition is met.
The grant date fair value of nonvestedunvested shares granted to employees under the 20102013 Employee Plan was $8.69.$9.55. On the 20102013 Employee Plan, the fair value of the nonvestedunvested shares granted reflected the market price of the shares at the date of the grant. Ongrants. Moreover, for the contrary,portion of the shares subject to performance conditions (3,004,475 shares) the Company estimates the number of awards expected to vest by assessing the probability of achieving the performance conditions. At December 31, 2010,2013, a final determination of the achievement of the performance conditions had not yet been made by the Compensation Committee of the Supervisory Board. However, the Company has estimated that two thirdthirds of the awards subject to performance conditions are expected to vest. Consequently, the compensation expense recorded for the 20102013 Employee Plan reflects the vesting of two third of the awards granted with performance conditions, subject to the service condition being met. The assumption of the expected number of awards to be vested upon achievement of the performance conditions is subject to changes based on the final measurement of the conditions, which is expected to occur in the first quarterhalf of 2011.
The following table illustrates the classification of pre-payroll tax and social contribution stock-based compensation expense included in the consolidated statements of income for the yearyears ended December 31, 2010,2013, December 31, 20092012 and December 31, 2008,2011, respectively:
December 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Cost of sales | 6 | 7 | 15 | |||||||||
Selling, general and administrative | 18 | 19 | 37 | |||||||||
Research and development | 10 | 11 | 24 | |||||||||
Loss on equity investment | — | 1 | 2 | |||||||||
Total pre-payroll tax and social contribution compensation | 34 | 38 | 78 |
December 31, 2013 | December 31, 2012 | December 31, 2011 | ||||||||||
Cost of sales | 5 | 2 | 5 | |||||||||
Selling, general and administrative | 13 | 6 | 16 | |||||||||
Research and development | 8 | 3 | 8 | |||||||||
Total pre-payroll tax and social contribution compensation | 26 | 11 | 29 | |||||||||
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Compensation cost, excluding payroll tax and social contribution, capitalized as part of inventory was $2 million at December 31, 2010 and 2009 whereas it amounted to $32013, $1 million at December 31, 2008.2012 and $2 million at December 31, 2011. As of December 31, 20102013 there was $33$42 million of total unrecognized compensation cost related to the grant of nonvestedunvested shares, which is expected to be recognized over a weighted average period of approximately 18.110 months.
The total deferred income tax expense recognized in the consolidated statements of income related to unvested share-based compensation expense amounted to $3$5 million and $2 million for the yearyears ended December 31, 2010, including a shortfall recorded on the 2007 Employee Plan closed during 2010 due to the vesting fair value being significantly lower than the grant fair value.2013 and 2012, respectively. The total deferred income tax benefit recognized in the consolidated statementsstatement of income related to unvested share-based compensation expense amounted to $8$7 million and $3 millionfor the year ended December 31, 2011.
15.7 | Accumulated other comprehensive income (loss) attributable to parent company stockholders |
The table below details the changes in AOCI attributable to the company’s stockholders by component, net of tax, for the years ended December 31, 20092013, 2012 and 2008, respectively.
Cash Flow Hedges | Available- For-Sale Securities | Defined Benefit Pension Plan Items | Foreign Currency Translation Adjustments (“CTA”) | Total | ||||||||||||||||
December 31, 2010 | 61 | 26 | (88 | ) | 969 | 968 | ||||||||||||||
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Cumulative tax impact | — | (4 | ) | 15 | — | 11 | ||||||||||||||
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December 31, 2010, net of tax | 61 | 22 | (73 | ) | 969 | 979 | ||||||||||||||
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OCI before reclassifications | (15 | ) | — | (81 | ) | (101 | ) | (197 | ) | |||||||||||
Amounts reclassified from AOCI | (110 | ) | (33 | ) | 3 | — | (140 | ) | ||||||||||||
OCI for the year ended December 31, 2011 | (125 | ) | (33 | ) | (78 | ) | (101 | ) | (337 | ) | ||||||||||
Cumulative tax impact | 9 | 1 | 18 | — | 28 | |||||||||||||||
OCI for the year ended December 31, 2011, net of tax | (116 | ) | (32 | ) | (60 | ) | (101 | ) | (309 | ) | ||||||||||
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December 31, 2011 | (64 | ) | (7 | ) | (166 | ) | 868 | 631 | ||||||||||||
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Cumulative tax impact | 9 | (3 | ) | 33 | — | 39 | ||||||||||||||
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December 31, 2011, net of tax | (55 | ) | (10 | ) | (133 | ) | 868 | 670 | ||||||||||||
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OCI before reclassifications | 28 | 6 | (57 | ) | 64 | 41 | ||||||||||||||
Amounts reclassified from AOCI | 62 | — | 18 | — | 80 | |||||||||||||||
OCI for the year ended December 31, 2012 | 90 | 6 | (39 | ) | 64 | 121 | ||||||||||||||
Cumulative tax impact | (11 | ) | — | 14 | — | 3 | ||||||||||||||
OCI for the year ended December 31, 2012, net of tax | 79 | 6 | (25 | ) | 64 | 124 | ||||||||||||||
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December 31, 2012 | 26 | (1 | ) | (205 | ) | 932 | 752 | |||||||||||||
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Cumulative tax impact | (2 | ) | (3 | ) | 47 | — | 42 | |||||||||||||
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December 31, 2012, net of tax | 24 | (4 | ) | (158 | ) | 932 | 794 | |||||||||||||
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OCI before reclassifications | 40 | 2 | 80 | 104 | 226 | |||||||||||||||
Amounts reclassified from AOCI | (28 | ) | — | 14 | — | (14 | ) | |||||||||||||
Impact of ST-Ericsson deconsolidation | — | — | 11 | 49 | 60 | |||||||||||||||
OCI for the year ended December 31, 2013 | 12 | 2 | 105 | 153 | 272 | |||||||||||||||
Cumulative tax impact | (3 | ) | 3 | (24 | ) | — | (24 | ) | ||||||||||||
OCI for the year ended December 31, 2013, net of tax | 9 | 5 | 81 | 153 | 248 | |||||||||||||||
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December 31, 2013 | 38 | 1 | (100 | ) | 1,085 | 1,024 | ||||||||||||||
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Cumulative tax impact | (5 | ) | — | 23 | — | 18 | ||||||||||||||
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December 31, 2013, net of tax | 33 | 1 | (77 | ) | 1,085 | 1,042 | ||||||||||||||
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Items reclassified out of Accumulated other comprehensive income (loss)
Unrealized | Impact on | |||||||||||||||||||
Foreign | gain (loss) on | Unrealized | change on | Accumulated | ||||||||||||||||
currency | available-for-sale | gain (loss) on | accounting | other | ||||||||||||||||
translation | financial assets, | derivatives, | standards, | comprehensive | ||||||||||||||||
adjustment | net of tax | net of tax | net of tax | income (loss) | ||||||||||||||||
Balance as of December 31, 2007 | 1,327 | (2 | ) | 12 | (17 | ) | 1,320 | |||||||||||||
Other comprehensive income (loss) | (163 | ) | (14 | ) | (1 | ) | (48 | ) | (226 | ) | ||||||||||
Balance as of December 31, 2008 | 1,164 | (16 | ) | 11 | (65 | ) | 1,094 | |||||||||||||
Other comprehensive income (loss) | 61 | 10 | (5 | ) | 4 | 70 | ||||||||||||||
Balance as of December 31, 2009 | 1,224 | (6 | ) | 6 | (60 | ) | 1,164 | |||||||||||||
Other comprehensive income (loss) | (255 | ) | 28 | 55 | (13 | ) | (185 | ) | ||||||||||||
Balance as of December 31, 2010 | 969 | 22 | 61 | (73 | ) | 979 |
F-45
Details about AOCI components | Amounts reclassified from AOCI in the year ended December 31, 2013 | Amounts reclassified from AOCI in the year ended December 31, 2012 | Amounts reclassified from AOCI in the year ended December 31, 2011 | Affected line item in the statement where net income | ||||||||||
Gains (Losses) on Cash Flow Hedges | ||||||||||||||
Foreign exchange derivative contracts | 16 | (39 | ) | 65 | Cost of sales | |||||||||
Foreign exchange derivative contracts | 3 | (5 | ) | 8 | Selling, general and administrative | |||||||||
Foreign exchange derivative contracts | 14 | (27 | ) | 44 | Research and development | |||||||||
Foreign exchange derivative contracts | — | — | 6 | Gain (loss) on financial instruments, net | ||||||||||
(4 | ) | 12 | (11 | ) | Income tax expense | |||||||||
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29 | (59 | ) | 112 | Net of tax | ||||||||||
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Defined Benefit Pension Plan Items | ||||||||||||||
Amortization of actuarial gains (losses) | (1 | ) | (1 | ) | — | Cost of sales | ||||||||
Amortization of actuarial gains (losses) | (5 | ) | (6 | ) | — | Selling, general and administrative | ||||||||
Amortization of actuarial gains (losses) | (6 | ) | (7 | ) | (1 | ) | Research and development | |||||||
Amortization of prior service cost | — | — | — | Cost of sales | ||||||||||
Amortization of prior service cost | (1 | ) | (1 | ) | — | Selling, general and administrative | ||||||||
Amortization of prior service cost | (4 | ) | (4 | ) | (1 | ) | Research and development | |||||||
5 | 6 | 1 | Income tax benefit | |||||||||||
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(12 | ) | (13 | ) | (1 | ) | Net of tax | ||||||||
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Gains (Losses) on Available-For-Sale Securities | ||||||||||||||
Available-For-Sale Securities | — | — | 47 | OTTI and realized gains on financial assets | ||||||||||
Available-For-Sale Securities | — | — | (14 | ) | Gain (loss) on financial instruments, net | |||||||||
— | — | — | Income tax expense | |||||||||||
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— | — | 33 | Net of tax | |||||||||||
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Total reclassifications for the year | 17 | (72 | ) | 144 | ||||||||||
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Attributable to noncontrolling interest | (2 | ) | 5 | (11 | ) | |||||||||
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Attributable to the Company’s stockholders | 15 | (67 | ) | 133 | ||||||||||
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15.8 | Noncontrolling interest |
The noncontrolling interest was as follows:
Balance as of December 31, 2010 | 910 | |||
Business combination | 9 | |||
Comprehensive income (loss): | ||||
Net income (loss) | (495 | ) | ||
Unrealized gains (losses) on derivatives, net of tax | (10 | ) | ||
Other components of other comprehensive income (loss), net of tax | (16 | ) | ||
Other comprehensive income (loss), net of tax | (26 | ) | ||
Comprehensive income (loss) | (521 | ) | ||
Dividends to noncontrolling interest | (5 | ) | ||
Balance as of December 31, 2011 | 393 | |||
Contribution of noncontrolling interest | 765 | |||
Comprehensive income (loss): | ||||
Net loss | (1,030 | ) | ||
Unrealized gains (losses) on derivatives, net of tax | 10 | |||
Other components of other comprehensive income (loss), net of tax | 6 | |||
Other comprehensive income (loss), net of tax | 16 | |||
Comprehensive income (loss) | (1,014 | ) | ||
Dividends to noncontrolling interest | (5 | ) | ||
Balance as of December 31, 2012 | 139 | |||
Joint ventures deconsolidation | 73 | |||
Comprehensive income (loss): | ||||
Net loss | (129 | ) | ||
Unrealized gains (losses) on derivatives, net of tax | (3 | ) | ||
Other components of other comprehensive income (loss), net of tax | (2 | ) | ||
Other comprehensive income (loss), net of tax | (5 | ) | ||
Comprehensive income (loss) | (134 | ) | ||
Dividends to noncontrolling interest | (4 | ) | ||
Balance as of December 31, 2013 | 74 |
In December 2012 both parents decided to forgive their respective loans to ST-Ericsson. The Ericsson part of accumulated other comprehensive income reclassifiedthe loan forgiven was recorded as earningsa contribution of noncontrolling interest.
15.9 | Dividends |
The Extraordinary General Meeting of Shareholders held on December 2, 2013 authorized the distribution of a semi-annual cash dividend per common share of $0.10 in the fourth quarter of 2013 and $0.10 in the first quarter of 2014, to be paid in December 2013 and March 2014, respectively. The first payment, totaling $89 million, was approximately $6executed in December 2013. The remaining $0.10 per share cash dividend to be paid in the first quarter of 2014 totaled $89 million relatedand was reported as “Dividends payable to cash flow hedge transactions outstandingstockholders” on the consolidated balance sheet as at December 31, 2009,2013.
The Annual General Meeting of Shareholders held on June 21, 2013 authorized the distribution of a semi-annual cash dividend per common share of $0.10 in the second quarter of 2013 and $0.10 in the third quarter of 2013, to be paid in June and September of 2013, respectively. The first payment for Euronext Paris and Borsa Italiana, amounting to $75 million, was executed in the second quarter of 2013. The first payment for the New York Stock Exchange which was executed in July 2013 and the forecasted hedged transaction occurredremaining $0.10 per share cash dividend, totaling $93 million, was paid in 2010.
At the Company’s Annual General Meeting of Shareholders held on May 25, 2010,30, 2012, the distribution of a cash dividend of $0.28$0.40 per common share, amounting to approximately $247$355 million, to be paid in four equal installments, was adopted by the Company’s shareholders. Through December 31, 2010,2012, three installments were paid for an amount of $186$266 million including withholding tax. The remaining $0.07$0.10 per share cash dividend to be paid in the first quarter of 20112013 totaled $62$89 million and was reported as “dividends“Dividends payable to shareholders”stockholders” on the consolidated balance sheet as at December 31, 2010.
In 20082011 the cash dividend was of $0.36$0.40 per share for a total amount paid of $319$354 million.
EARNINGS |
For the years ended December 31, 2010, 20092013, 2012 and 2008,2011, earnings (loss) per share (“EPS”) was calculated as follows:
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Basic EPS | ||||||||||||
Net income (loss) | 830 | (1,131 | ) | (786 | ) | |||||||
Weighted average shares outstanding | 880,375,234 | 876,928,190 | 891,955,940 | |||||||||
Basic EPS | 0.94 | (1.29 | ) | (0.88 | ) | |||||||
Diluted EPS | ||||||||||||
Net income (loss) | 830 | (1,131 | ) | (786 | ) | |||||||
Convertible debt interest | 10 | — | — | |||||||||
Net income (loss) adjusted | 840 | (1,131 | ) | (786 | ) | |||||||
Weighted average shares outstanding | 880,375,234 | 876,928,190 | 891,955,940 | |||||||||
Dilutive effect of stock options | — | — | — | |||||||||
Dilutive effect of nonvested shares | 3,555,806 | — | — | |||||||||
Dilutive effect of convertible debt | 27,180,653 | — | — | |||||||||
Number of shares used in calculating diluted EPS | 911,111,693 | 876,928,190 | 891,955,940 | |||||||||
Diluted EPS | 0.92 | (1.29 | ) | (0.88 | ) |
Year ended December 31, 2013 | Year ended December 31, 2012 | Year ended December 31, 2011 | ||||||||||
Basic EPS | ||||||||||||
Net income (loss) attributable to parent company | (500 | ) | (1,158 | ) | 650 | |||||||
Weighted average shares outstanding | 889,541,922 | 886,699,953 | 883,619,377 | |||||||||
Basic EPS | (0.56 | ) | (1.31 | ) | 0.74 | |||||||
Diluted EPS | ||||||||||||
Net income (loss) attributable to parent company | (500 | ) | (1,158 | ) | 650 | |||||||
Convertible debt interest | — | — | 5 | |||||||||
Net income (loss) attributable to parent company adjusted | (500 | ) | (1,158 | ) | 655 | |||||||
Weighted average shares outstanding | 889,541,922 | 886,699,953 | 883,619,377 | |||||||||
Dilutive effect of unvested shares | — | — | 3,771,729 | |||||||||
Dilutive effect of convertible debt | — | — | 17,073,640 | |||||||||
Number of shares used in calculating diluted EPS | 889,541,922 | 886,699,953 | 904,464,746 | |||||||||
Diluted EPS | (0.56 | ) | (1.31 | ) | 0.72 |
In 2013 and 2012, if the Company had reported income, outstanding stock options would have includedanti-dilutive shares totalling approximately 8,290,251 shares and 16,690,472 shares, respectively. In 2011 outstanding stock options included anti-dilutive shares totalling approximately 35,296,89526,453,152 shares. At December 31, 2009 and 2008, if the Company had reported an income, outstanding stock options would have included anti-dilutive shares totalling approximately 37,943,832 shares and 39,431,433 shares, respectively.
17. | |
F-46
2009 | 2010 | 2011 | 2012 | 2013 | ||||||||||||||||
In millions of U.S. dollars | ||||||||||||||||||||
Licenses and process documentation | 23 | 29 | 19 | — | — | |||||||||||||||
Training and support services | 1 | 28 | 8 | 2 | 7 | |||||||||||||||
Total Revenues under Multiple Deliverable Arrangements | 24 | 57 | 27 | 2 | 7 | |||||||||||||||
OTHER INCOME AND EXPENSES, NET |
Other income and expenses, net consisted of the following:
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Research and development funding | 106 | 202 | 83 | |||||||||
Start-up and phase-out costs | (15 | ) | (39 | ) | (17 | ) | ||||||
Exchange gain, net | 11 | 11 | 20 | |||||||||
Patent costs, net of gain from settlement | (12 | ) | (5 | ) | (24 | ) | ||||||
Gain on sale of long-lived assets, net | 4 | 3 | 4 | |||||||||
Other, net | (4 | ) | (6 | ) | (4 | ) | ||||||
Total | 90 | 166 | 62 | |||||||||
Year ended December 31, 2013 | Year ended December 31, 2012 | Year ended December 31, 2011 | ||||||||||
Research and development funding | 57 | 102 | 128 | |||||||||
Phase-out and start-up costs | (4 | ) | — | (8 | ) | |||||||
Exchange gain, net | 8 | 5 | 8 | |||||||||
Patent costs | (40 | ) | (20 | ) | (28 | ) | ||||||
Gain on sale of businesses and non-current assets | 83 | 9 | 15 | |||||||||
Other, net | (9 | ) | (5 | ) | (6 | ) | ||||||
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Total | 95 | 91 | 109 | |||||||||
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The Company receives significant public funding from governmental agencies in several jurisdictions. Public funding for research and development is recognized ratably as the related costs are incurred once the agreement with the respective governmental agency has been signed and all applicable conditions have been met.
Phase-out costs are costs incurred during the closing stage of a Company’s manufacturing facility. They are treated in the same manner as start-up costs. Start-up
costs represent costs incurred in thestart-up and testing of the Company’s new manufacturing facilities, before reaching the earlier of a minimum level of production or six months after the fabrication line’s quality certification.Exchange gains and losses included in “Other income and expenses, net” represent the portion of exchange rate changes on transactions denominated in currencies other than an entity’s functional currency and the changes in fair value ofheld-for-trading trading derivative instruments which are not designated as hedge and which have a cash flow effect related to operating transactions, as described in Note 27.
Patent costs include legal and attorney fees and payment for claims, patent pre-litigation consultancy and legal fees. They are reported net of settlements, if any, which primarily includesinclude reimbursements of prior patent litigation costs.
F-47
18. | |
IMPAIRMENT, RESTRUCTURING CHARGES AND OTHER RELATED CLOSURE COSTS |
Impairment, restructuring charges and other related closure costs incurred in 2010, 2009,2013, 2012, and 20082011 are summarized as follows:
Total impairment, | ||||||||||||||||
restructuring | ||||||||||||||||
charges and other | ||||||||||||||||
Restructuring | Other related | related closure | ||||||||||||||
Year Ended December 31, 2010 | Impairment | charges | closure costs | costs | ||||||||||||
Manufacturing restructuring plan | (1 | ) | (15 | ) | (11 | ) | (27 | ) | ||||||||
STE restructuring plan | (10 | ) | (59 | ) | (5 | ) | (74 | ) | ||||||||
Goodwill annual impairment test | — | — | — | — | ||||||||||||
Other restructuring initiatives | — | (1 | ) | (2 | ) | (3 | ) | |||||||||
Total | (11 | ) | (75 | ) | (18 | ) | (104 | ) | ||||||||
Total impairment, | ||||||||||||||||
restructuring | ||||||||||||||||
charges and other | ||||||||||||||||
Restructuring | Other related | related closure | ||||||||||||||
Year Ended December 31, 2009 | Impairment | charges | closure costs | costs | ||||||||||||
Manufacturing restructuring plan | (25 | ) | (69 | ) | (32 | ) | (126 | ) | ||||||||
STE restructuring plan | — | (99 | ) | (1 | ) | (100 | ) | |||||||||
Goodwill annual impairment test | (6 | ) | — | — | (6 | ) | ||||||||||
Other restructuring initiatives | (4 | ) | (53 | ) | (2 | ) | (59 | ) | ||||||||
Total | (35 | ) | (221 | ) | (35 | ) | (291 | ) |
Total impairment, | ||||||||||||||||
restructuring | ||||||||||||||||
charges and other | ||||||||||||||||
Restructuring | Other related | related closure | ||||||||||||||
Year Ended December 31, 2008 | Impairment | charges | closure costs | costs | ||||||||||||
Manufacturing restructuring plan | (77 | ) | (79 | ) | (8 | ) | (164 | ) | ||||||||
FMG deconsolidation | (190 | ) | (2 | ) | (24 | ) | (216 | ) | ||||||||
Goodwill annual impairment test | (13 | ) | — | — | (13 | ) | ||||||||||
Other restructuring initiatives | (10 | ) | (75 | ) | (3 | ) | (88 | ) | ||||||||
Total | (290 | ) | (156 | ) | (35 | ) | (481 | ) | ||||||||
Year ended December 31, 2013 | Impairment | Restructuring charges | Other related closure costs | Total impairment, restructuring charges and other related closure costs | ||||||||||||
ST-Ericsson restructuring plans | — | (6 | ) | (3 | ) | (9 | ) | |||||||||
ST-Ericsson exit | (17 | ) | (69 | ) | — | (86 | ) | |||||||||
Digital restructuring plan | (2 | ) | (1 | ) | (2 | ) | (5 | ) | ||||||||
$600-650 million net opex plan | — | (88 | ) | — | (88 | ) | ||||||||||
Manufacturing consolidation | (29 | ) | (8 | ) | — | (37 | ) | |||||||||
Annual impairment test | (56 | ) | — | — | (56 | ) | ||||||||||
Assets held for sale impairment | (5 | ) | — | — | (5 | ) | ||||||||||
Other restructuring initiatives | — | (6 | ) | — | (6 | ) | ||||||||||
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Total | (109 | ) | (178 | ) | (5 | ) | (292 | ) | ||||||||
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Year ended December 31, 2012 | Impairment | Restructuring charges | Other related closure costs | Total impairment, restructuring charges and other related closure costs | ||||||||||||
Manufacturing restructuring plan | (21 | ) | — | (2 | ) | (23 | ) | |||||||||
ST-Ericsson restructuring plan | — | (1 | ) | — | (1 | ) | ||||||||||
ST-Ericsson cost savings plan | — | (10 | ) | (10 | ) | (20 | ) | |||||||||
ST-Ericsson April 2012 restructuring plan | (2 | ) | (60 | ) | (4 | ) | (66 | ) | ||||||||
ST-Ericsson exit | (544 | ) | — | — | (544 | ) | ||||||||||
Digital restructuring plan | (7 | ) | (13 | ) | — | (20 | ) | |||||||||
Annual impairment test | (694 | ) | — | — | (694 | ) | ||||||||||
Other restructuring initiatives | — | — | (8 | ) | (8 | ) | ||||||||||
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Total | (1,268 | ) | (84 | ) | (24 | ) | (1,376 | ) | ||||||||
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Year ended December 31, 2011 Manufacturing restructuring plan ST-Ericsson restructuring plan ST-Ericsson cost savings plan Other restructuring initiatives Total Impairment Restructuring
charges Other related
closure costs Total impairment,
restructuring
charges and other
related closure costs (3 ) (13 ) (21 ) (37 ) (1 ) (3 ) (3 ) (7 ) — (26 ) — (26 ) — (1 ) (4 ) (5 ) (4 ) (43 ) (28 ) (75 )
Impairment charges and disposal loss
In 2010,2013, the Company recorded impairment charges of $109 million corresponding primarily to:
$56 million, as part of the annual impairment test performed during the third quarter, on Digital Convergence Group goodwill ($38 million) and dedicated intangible assets ($18 million);
$29 million on certain long-lived assets as part of the Company’s manufacturing consolidation;
$17 million impairment primarily related to long-lived assets as part of the exit of ST-Ericsson; and
$5 million impairment charge on Veredus assets classified as Assets held for $11sale, as of December 31, 2013.
In 2012, the Company recorded impairment charges of $1,268 million corresponding to:
$1,234 million on Wireless goodwill and other intangible assets of which $690 million impairment on Wireless goodwill as part of the annual impairment test performed during the third quarter and $544 million impairment on Wireless goodwill and other intangible assets recorded in December following the Company’s decision to exit ST-Ericsson. The $1,234 million amount is composed of an impairment charge of $922 million on Wireless goodwill, $261 million impairment on Wireless customer relationships, $45 million impairment on Wireless capitalized software and $6 million impairment on acquired technology;
$21 million impairment on the Carrollton (Texas) building and facilities;
$7 million impairment charges on intangibles for which no alternative future use was identified within the Company, as part of the Digital restructuring plan;
$4 million impairment on certain intangibles as part of the annual impairment test; and
$2 million impairment charges primarily related to long-lived assets with no alternative future use within the Company.
In 2011, the Company recorded impairment charges of $4 million primarily related to long-lived assets for which no alternative future use was identified within the Company, pursuant to the termination of certain lease contracts. In 2010, the Company performed an analysis to determine if it was still valid to report Carrollton property and other long-lived assets as “Assets held for sale” in the consolidated balance sheets as at December 31, 2010. Based on continued interest in the property and the Company’s intent and actions to sale, the “Assets held for sale” model was confirmed with no additional impairment in the consolidated statements of income.
F-48
The Company is currently engaged in twothree major restructuring plans, the STE restructuringManufacturing consolidation plan, the $600-650 million net opex plan and the manufacturingDigital restructuring plan thatwhich are briefly described hereafter. The
In July 2013, the Company is also engagedannounced that it will wind down certain 6-inch manufacturing lines and consolidate back-end activities in various initiatives aimed at reducingChina to Shenzhen (the “Manufacturing consolidation plan”).
Further to the announcement on December 10, 2012 to reduce the Company’s net operating expenses throughcomprised of combined selling, general and administrative and research and development expenses, net of R&D grants, to the level of $600 million to $650 million on a workforce reduction.
In April 2009, ST-EricssonOctober 2012, the Company announced a restructuringsavings plan (the “STE“Digital restructuring plan”). The main actions included, impacting primarily the Digital Convergence Group product line, designed to achieve $150 million in annual savings upon completion by the restructuring plan were a re-alignmentend of product roadmaps to create a more agile and cost-efficient R&D organization and a reduction in workforce of 1,200 worldwide to reflect further integration activities following the merger. On December 3, 2009, ST-Ericsson expanded its restructuring plan, targeting additional annualized savings in operating expenses and spending, along with an extensive R&D efficiency program.
In 2010,2013, the Company incurred restructuring charges and other related closure costs for $93$183 million relatingcorresponding to:
$88 million for the $600-650 million net opex plan corresponding to employee termination benefits;
$69 million recorded before ST-Ericsson deconsolidation for the ST-Ericsson exit, primarily to:related to employee termination benefits, net of an adjustment of $31 million mainly resulting from a significant reduction of estimated restructured employees in Sweden, as part of the exit of ST-Ericsson;
$9 million recorded before ST-Ericsson deconsolidation for the ST-Ericsson restructuring plans, primarily related to employee termination benefits;
$8 million for the Manufacturing consolidation plan corresponding to employee termination benefits; and
$9 million for other restructuring plans.
In 2009,2012, the Company incurred restructuring charges and other related closure costs for $256$108 million relatingcorresponding to:
$64 million for the ST-Ericsson April 2012 restructuring plan composed of $60 million employee termination benefits and $4 million other closure costs mainly related to lease contract terminations pursuant to the closure of certain locations;
$20 million for the ST-Ericsson cost savings plan primarily to:related to employee termination benefits and lease contract termination costs recorded at cease-use date pursuant to the closure of certain locations;
$13 million for the Digital restructuring plan primarily related to employee termination benefits; and
$11 million for other restructuring plans.
In 2008,2011, the Company incurred restructuring charges and other related closures costs for $71 million corresponding to:
$34 million for the manufacturing restructuring plan, corresponding primarily to lease contract termination costs recorded at cease-use date and one-time termination benefits to be paid to employees who rendered services until the complete closure of the Carrollton (Texas) and Phoenix (Arizona) fabs. This plan was substantially finalized in the second quarter of 2011;
$26 million for the ST-Ericsson cost savings plan, consisting mainly in ongoing termination benefits accrued for involuntary leaves and benefits paid within voluntary leave arrangements;
$6 million for the ST-Ericsson restructuring plan composed of $3 million employee termination benefits and $3 million lease contract termination costs and other closure costs for $191pursuant to the closure of certain locations; and
$5 million relating primarily to:
F-49restructuring charges and other related closure costs related to other committed restructuring initiatives.
STE | Manufacturing | Other | ||||||||||||||||||
Restructuring | Restructuring | FMG | restructuring | |||||||||||||||||
plan | plan | disposal | initiatives | Total | ||||||||||||||||
Provision as at December 31, 2008 | — | 113 | 20 | 101 | 234 | |||||||||||||||
Charges incurred in 2009 | 100 | 101 | — | 55 | 256 | |||||||||||||||
Amounts paid | (17 | ) | (156 | ) | (20 | ) | (103 | ) | (296 | ) | ||||||||||
Provision as at December 31, 2009 | 83 | 58 | — | 53 | 194 | |||||||||||||||
Charges incurred in 2010 | 67 | 26 | — | 7 | 100 | |||||||||||||||
Adjustments for unused provisions | (3 | ) | — | — | (4 | ) | (7 | ) | ||||||||||||
Amounts paid | (81 | ) | (27 | ) | — | (34 | ) | (142 | ) | |||||||||||
Currency translation effect | (6 | ) | — | — | (3 | ) | (9 | ) | ||||||||||||
Provision as at December 31, 2010 | 60 | 57 | — | 19 | 136 | |||||||||||||||
ST-Ericsson exit | ST-Ericsson restructuring plans | $600-650 million net opex plan | Digital restructuring plan | Manufacturing Restructuring plan | Manufacturing consolidation | Other restructuring initiatives | Total | |||||||||||||||||||||||||
Provision as at December 31, 2011 | — | 36 | — | — | 4 | — | 13 | 53 | ||||||||||||||||||||||||
Charges incurred in 2012 | 8 | 96 | — | 13 | 2 | — | 3 | 122 | ||||||||||||||||||||||||
Adjustments for unused provisions | — | (11 | ) | — | — | — | — | (3 | ) | (14 | ) | |||||||||||||||||||||
Amounts paid | — | (65 | ) | — | (1 | ) | (3 | ) | — | (4 | ) | (73 | ) | |||||||||||||||||||
Currency translation effect | — | 3 | — | — | — | — | -3 | |||||||||||||||||||||||||
Provision as at December 31, 2012 | 8 | 59 | — | 12 | 3 | — | 9 | 91 | ||||||||||||||||||||||||
Charges incurred in 2013 | 100 | 12 | 88 | 3 | — | 8 | 6 | 217 | ||||||||||||||||||||||||
Adjustments for unused provisions | (31 | ) | (3 | ) | — | — | — | — | — | (34 | ) | |||||||||||||||||||||
Amounts paid | (30 | ) | (56 | ) | (44 | ) | (9 | ) | (1 | ) | — | (7 | ) | (147 | ) | |||||||||||||||||
Currency translation effect | (1 | ) | — | 2 | — | — | — | — | 1 | |||||||||||||||||||||||
ST-Ericsson break-up and deconsolidation | (46 | ) | (12 | ) | — | — | — | — | 6 | (52 | ) | |||||||||||||||||||||
Provision as at December 31, 2013 | — | — | 46 | 6 | 2 | 8 | 14 | 76 |
An amount of $65 million is expected to be paid within twelve months, as detailed in Note 12.
The manufacturing restructuring plan, iswhich was expected to result in pre-tax charges in the range of $270 to $300 million, resulted in a total charge of $313 million. This plan is now completed.
The Digital restructuring plan is expected to result in a total pre-tax charge of $25 million to $30 million, of which $276$16 million have been incurred as of December 31, 2010. This2013. The plan is substantially completed in 2013.
The $600-650 million net opex plan resulted in an $88 million charge incurred as of December 31, 2013. The plan is currently expected to be completed in 2014.
The Manufacturing consolidation plan resulted in an $8 million charge incurred as of December 31, 2013. The plan is expected to be completed in 2015.
Upon the second half of 2011.
In 2010,2013, total amounts paid for restructuring and related closure costs amounted to $142$147 million. The total actual costs that the Company will incur may differ from these estimates based on the timing required to complete the restructuring plan, the number of people involved, the final agreed termination benefits and the costs associated with the transfer of equipment, products and processes.
19. | |
INTEREST |
Interest income (expense),expense, net consisted of the following:
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Income | 31 | 59 | 132 | |||||||||
Expense | (34 | ) | (50 | ) | (81 | ) | ||||||
Total | (3 | ) | 9 | 51 | ||||||||
Year ended December 31, 2013 | Year ended December 31, 2012 | Year ended December 31, 2011 | ||||||||||
Income | 18 | 41 | 21 | |||||||||
Expense | (23 | ) | (76 | ) | (46 | ) | ||||||
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Total | (5 | ) | (35 | ) | (25 | ) | ||||||
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No borrowing cost was capitalized in 2010, 20092013, 2012 and 2008.2011. Interest income on government Bonds and floating rate notes classified asavailable-for-sale marketable securities amounted to $3less than $1 million for the year ended December 31, 2010, $82013, $2 million for the year ended December 31, 20092012 and to $37$6 million for the year ended December 31, 2008. Interest income on auction rate securities totaled $2 million, $7 million and $14 million for2011.
In 2013, net interest included a one-time interest payment received with respect to a U.S. tax refund in the years ended December 31, 2010, 2009 and 2008 respectively. Interest income on Numonyx long term notes classified asavailable-for-sale until May 7, 2010 amounted to $5 million, $16 million and $11 million for the year ended December 31, 2010, 2009 and 2008 respectively.
F-50
20. | |
INCOME TAX |
Income (loss) before income tax is comprised of the following:
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Income (loss) recorded in The Netherlands | 264 | (376 | ) | (1,232 | ) | |||||||
Income (loss) from foreign operations | 427 | (1,120 | ) | 409 | ||||||||
Income (loss) before income tax benefit (expense) | 691 | (1,496 | ) | (823 | ) | |||||||
Year ended December 31, 2013 | Year ended December 31, 2012 | Year ended December 31, 2011 | ||||||||||
Income (loss) recorded in The Netherlands | (30 | ) | (33 | ) | 54 | |||||||
Income (loss) from foreign operations | (562 | ) | (2,104 | ) | 282 | |||||||
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Income (loss) before income tax benefit (expense) | (592 | ) | (2,137 | ) | 336 | |||||||
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STMicroelectronics N.V. and its subsidiaries are individually liable for income taxes in their jurisdictions. Tax losses can only offset profits generated by the taxable entity incurring such loss.
Income tax benefit (expense) is comprised of the following:
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
The Netherlands taxes — current | (3 | ) | 4 | (1 | ) | |||||||
Foreign taxes — current | (53 | ) | (54 | ) | (25 | ) | ||||||
Current taxes | (56 | ) | (50 | ) | (26 | ) | ||||||
The Netherlands taxes — deferred | (4 | ) | — | — | ||||||||
Foreign taxes — deferred | (89 | ) | 145 | 69 | ||||||||
Income tax benefit (expense) | (149 | ) | 95 | 43 | ||||||||
Year ended December 31, 2013 | Year ended December 31, 2012 | Year ended December 31, 2011 | ||||||||||
The Netherlands taxes – current | 5 | (1 | ) | (11 | ) | |||||||
Foreign taxes – current | (90 | ) | (130 | ) | (104 | ) | ||||||
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Current taxes | (85 | ) | (131 | ) | (115 | ) | ||||||
The Netherlands taxes – deferred | — | — | (2 | ) | ||||||||
Foreign taxes – deferred | 48 | 80 | (64 | ) | ||||||||
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Income tax benefit (expense) | (37 | ) | (51 | ) | (181 | ) | ||||||
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The principal items comprising the differences in income taxes computed at the Netherlands statutory rate of 25.5%25.0% in 2010, 20092013, 2012 and 2008,2011, and the effective income tax rate are the following:
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Income tax benefit (expense) computed at statutory rate | (176 | ) | 382 | 210 | ||||||||
Non-deductible, non-taxable and other permanent differences, net | (50 | ) | (34 | ) | — | |||||||
Income (loss) on equity investment | 62 | (84 | ) | (139 | ) | |||||||
Valuation allowance adjustments | (54 | ) | (56 | ) | (18 | ) | ||||||
Impact of prior years adjustments | (29 | ) | 21 | 48 | ||||||||
Effects on deferred taxes of changes in enacted tax rates | 3 | (7 | ) | — | ||||||||
Current year credits | 76 | 76 | 66 | |||||||||
Other tax and credits | (12 | ) | (4 | ) | 2 | |||||||
Benefits from tax holidays | 77 | 2 | 34 | |||||||||
Impact of uncertain tax positions | 32 | (23 | ) | (31 | ) | |||||||
Impact of FMG deconsolidation | — | — | (77 | ) | ||||||||
Earnings of subsidiaries taxed at different rates | (78 | ) | (178 | ) | (52 | ) | ||||||
Income tax benefit (expense) | (149 | ) | 95 | 43 | ||||||||
Year ended December 31, 2013 | Year ended December 31, 2012 | Year ended December 31, 2011 | ||||||||||
Income tax benefit (expense) computed at statutory rate | 148 | 534 | (84 | ) | ||||||||
Non-deductible, non-taxable and other permanent differences, net | (2 | ) | (81 | ) | (2 | ) | ||||||
Income (loss) on equity-method investments | (31 | ) | (6 | ) | (7 | ) | ||||||
Valuation allowance adjustments | (83 | ) | (197 | ) | (130 | ) | ||||||
Current year credits | 60 | 77 | 94 | |||||||||
Other tax and credits | (42 | ) | (17 | ) | (32 | ) | ||||||
Benefits from tax holidays | 18 | 38 | 113 | |||||||||
Impact of uncertain tax positions | (33 | ) | (83 | ) | (2 | ) | ||||||
Earnings of subsidiaries taxed at different rates | (72 | ) | (316 | ) | (131 | ) | ||||||
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Income tax benefit (expense) | (37 | ) | (51 | ) | (181 | ) | ||||||
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The lines “Impactvaluation allowance adjustments of prior years’ adjustments”2013 include $32 million related to the activities of ST-Ericsson companies until their deconsolidation. In 2013, 2012 and “Impact of uncertain tax positions” include amounts that are further described in the reconciliation of unrecognized tax benefits, included in this note.
F-51
The tax holidays represent a tax exemption period aimed to attract foreign technological investment in certain tax jurisdictions. The effect of the tax benefits, from tax holidays for countries which are profitable, on basic earnings per share was $0.09, $0.00$0.02, $0.04 and $0.04$0.13 for the years ended December 31, 2010, 2009,2013, 2012, and 2008,2011, respectively. These agreements are present in various countries and include programs that reduce up to and including 100% of taxes in years affected by the agreements. The Company’s tax holidays expire at various dates through the year ending December 31, 2019.2022. In certain countries, tax holidays can be renewed depending on the Company still meeting certain conditions at the date of expiration of the current tax holidays.
Deferred tax assets and liabilities consisted of the following:
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Tax loss carryforwards and investment credits | 609 | 639 | ||||||
Inventory valuation | 25 | 34 | ||||||
Impairment and restructuring charges | 84 | 95 | ||||||
Fixed asset depreciation in arrears | 47 | 53 | ||||||
Receivables for government funding | 7 | 18 | ||||||
Tax allowances granted on past capital investments | 1,113 | 1,096 | ||||||
Pension service costs | 49 | 41 | ||||||
Stock awards | 7 | 11 | ||||||
Commercial accruals | 10 | 7 | ||||||
Other temporary differences | 99 | 62 | ||||||
Total deferred tax assets | 2,050 | 2,056 | ||||||
Valuation allowances | (1,396 | ) | (1,337 | ) | ||||
Deferred tax assets, net | 654 | 719 | ||||||
Accelerated fixed asset depreciation | (83 | ) | (66 | ) | ||||
Acquired intangible assets | (34 | ) | (31 | ) | ||||
Advances of government funding | (16 | ) | (13 | ) | ||||
Other temporary differences | (40 | ) | (35 | ) | ||||
Deferred tax liabilities | (173 | ) | (145 | ) | ||||
Net deferred income tax asset | 481 | 574 |
December 31, 2013 | December 31, 2012 | |||||||
Tax loss carryforwards and investment credits | 658 | 820 | ||||||
Less unrecognized tax benefit | (229 | ) | — | |||||
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Tax loss carryforward net of unrecognized tax benefit | 429 | 820 | ||||||
Inventory valuation | 14 | 24 | ||||||
Impairment and restructuring charges | 63 | 61 | ||||||
Fixed asset depreciation in arrears | 58 | 75 | ||||||
Capitalized development costs | 45 | |||||||
Receivables for government funding | 22 | 15 | ||||||
Tax credits granted on past capital investments | 1,131 | 1,114 | ||||||
Pension service costs | 66 | 97 | ||||||
Stock awards | 2 | — | ||||||
Commercial accruals | 10 | 10 | ||||||
Other temporary differences | 70 | 98 | ||||||
Total deferred tax assets | 1,910 | 2,314 | ||||||
Valuation allowances | (1,454 | ) | (1,634 | ) | ||||
Deferred tax assets, net | 456 | 680 | ||||||
Accelerated fixed asset depreciation | (58 | ) | (64 | ) | ||||
Acquired intangible assets | (11 | ) | (30 | ) | ||||
Advances of government funding | (35 | ) | (26 | ) | ||||
Other temporary differences | (13 | ) | (34 | ) | ||||
Deferred tax liabilities | (117 | ) | (154 | ) | ||||
Net deferred income tax asset | 339 | 526 |
At the end of December 2013, the tax loss carryforward and the valuation allowance decreased by $240 and $258 million respectively, mainly due to the deconsolidation of ST-Ericsson companies.
For a particular tax-paying component of the Company and within a particular tax jurisdiction, all current deferred tax liabilities and assets are offset and presented as a single amount, similarly to non-current deferred tax liabilities and assets. The Company does not offset deferred tax liabilities and assets attributable to different tax-paying components or to different tax jurisdictions.
The net deferred tax assets are recorded in legal entities which have been historically profitable and are expected to be profitable in the next coming years.
As of December 31, 2010,2013, the Company and its subsidiaries have gross deferred tax assets on tax loss carryforwards and investment credits that expire starting 2011,2014, as follows:
Year | ||||
2011 | 29 | |||
2012 | 53 | |||
2013 | 13 | |||
2014 | 21 | |||
2015 | 14 | |||
Thereafter | 479 | |||
Total | 609 | |||
Year | ||||
2014 | 8 | |||
2015 | 22 | |||
2016 | 19 | |||
2017 | 15 | |||
2018 | 13 | |||
Thereafter | 581 | |||
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Total | 658 | |||
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The valuation allowance for a particular tax jurisdiction is allocated between current and non-current deferred tax assets for that jurisdiction on a pro rata basis. The “Tax allowancescredits granted on past capital investments” mainly
F-52
The amount of deferred tax benefit (expense) recorded as a component of other comprehensive income (loss) was $7 million and ($3)$(31) million in 20102013 and 2009 respectively andwas related primarily to the tax effects of the recognized unfunded status on defined benefits plans.
The cumulative amount of distributable earnings related to the evaluation of uncertain incomeCompany’s investments in foreign subsidiaries and corporate joint ventures was $859 million as at December 31, 2013. Due to the Company’s legal and tax positions based on a “more likely than not” threshold,structure, with the Company applies a two-step process to determine if a tax position will be sustained upon examination by the taxing authorities. The recognition threshold in step one permits the benefit from an uncertain income tax position to be recognized only if it is more likely than not, or 50 percent assured, that the tax position will be sustained upon examination by the taxing authorities. The measurement methodology in step two is based on a “cumulative probability” approach, resultingparent company established in the recognitionNetherlands, there was no significant tax impact from the distribution of the largest amount thatearnings from investments in foreign subsidiaries and corporate joint ventures. This is greater than 50 percent likely of being realized upon settlement with the taxing authority.
A reconciliation of the 20102013, 2012 and 2011 beginning and ending amounts of unrecognized tax benefits is as follows:
Balance at December 31, 2009 | $ | 193 | ||
Additions based on tax positions related to the current year | 44 | |||
Additions for tax positions of prior years | 5 | |||
Reductions for tax positions of prior years | (44 | ) | ||
Settlements | (36 | ) | ||
Reductions for lapse of statute of limitations | (1 | ) | ||
Foreign currency translation | (12 | ) | ||
Balance at December 31, 2010 | 149 | |||
December 31, 2013 | December 31, 2012 | December 31, 2011 | ||||||||||
Balance at beginning of year | 227 | 148 | 149 | |||||||||
Additions based on tax positions related to the current year | 52 | 44 | 36 | |||||||||
Additions for tax positions of prior years | 27 | 39 | 19 | |||||||||
Reduction for tax positions of prior years | (48 | ) | — | (3 | ) | |||||||
Reduction for lapse of statute of limitations | — | — | (50 | ) | ||||||||
Reduction due to ST-Ericsson deconsolidation | (8 | ) | — | — | ||||||||
Settlements | — | (1 | ) | — | ||||||||
Prepayment | (1 | ) | (6 | ) | — | |||||||
Foreign currency translation | 6 | 3 | (3 | ) | ||||||||
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Balance at end of year | 255 | 227 | 148 | |||||||||
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At December 31, 2013, $229 million of unrecognized tax benefits in 2009 waswere classified as follows:
Balance at December 31, 2008 | $ | 153 | ||
Additions based on tax positions related to the current year | 38 | |||
Additions for tax positions of prior years | 10 | |||
Reductions for tax positions of prior years | (9 | ) | ||
Foreign currency translation | 1 | |||
Balance at December 31, 2009 | $ | 193 |
effective tax rate if recognized.while at December 31, 2012, there were $26 million. It is reasonably possible that certain of the uncertain tax positions disclosed in the table above could increase within the next 12 months due to on-goingongoing tax audits. The Company is not able to make an estimate of the range of the reasonably possible change.
Additionally, the Company elected to classify accrued interest and penalties related to uncertain tax positions as components of income tax expense in its consolidated statements of income. Interest and penalties are not material for the years presented or on a cumulative basis.
The tax years that remain open for review in the Company’s major tax jurisdictions, including France, Italy, United States and India, are from 1996 to 2010.
F-53
21. | |
COMMITMENTS |
The Company’s commitments as of December 31, 20102013 were as follows:
Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | ||||||||||||||||||||||
In million US$ | ||||||||||||||||||||||||||||
Operating leases | 378 | 103 | 77 | 49 | 29 | 26 | 94 | |||||||||||||||||||||
Purchase obligations | 1,116 | 1,003 | 74 | 24 | 14 | — | 1 | |||||||||||||||||||||
of which: | ||||||||||||||||||||||||||||
Equipment purchase | 632 | 632 | — | — | — | — | — | |||||||||||||||||||||
Foundry purchase | 224 | 224 | — | — | — | — | — | |||||||||||||||||||||
Software, technology licenses and design | 260 | 147 | 74 | 24 | 14 | — | 1 | |||||||||||||||||||||
Other obligations | 371 | 158 | 174 | 30 | 6 | — | 3 | |||||||||||||||||||||
Total | $ | 1,865 | $ | 1,264 | $ | 325 | $ | 103 | $ | 49 | $ | 26 | $ | 98 | ||||||||||||||
In millions of U.S. dollars | Total | 2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | |||||||||||||||||||||
Operating leases | 242 | 54 | 37 | 29 | 26 | 22 | 74 | |||||||||||||||||||||
Purchase obligations | 434 | 383 | 48 | 3 | — | — | — | |||||||||||||||||||||
of which: | ||||||||||||||||||||||||||||
Equipment purchase | 163 | 163 | — | — | — | — | — | |||||||||||||||||||||
Foundry purchase | 92 | 92 | — | — | — | — | — | |||||||||||||||||||||
Software, design, technologies and licenses | 179 | 128 | 48 | 3 | — | — | — | |||||||||||||||||||||
Other obligations | 481 | 155 | 120 | 100 | 80 | 24 | 2 | |||||||||||||||||||||
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Total | 1,157 | 592 | 205 | 132 | 106 | 46 | 76 | |||||||||||||||||||||
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As a consequence of the Company’s planned closures of certain of its manufacturing facilities, some of the contracts as reported above have been terminated. The termination fees for the sites still in operation have not been taken into account.
Operating leases are mainly related to building and equipment leases. The amount disclosed is composed of minimum payments for future leases from 20112014 to 20152018 and thereafter. The Company leases land, buildings, plants and equipment under operating leases that expire at various dates under non-cancellable lease agreements. Operating lease expense was $135 million, $174 million and $92$83 million for the yearsyear ended December 31, 2010, 20092013, $114 million for the year ended December 31, 2012 and 2008, respectively.
Purchase obligations are primarily comprised of purchase commitments for equipment, for outsourced foundry wafers and for software licenses.
Other obligations primarily relate to firm contractual commitments with respect to partnership and cooperation agreements.
22. | |
CONTINGENCIES, CLAIMS AND LEGAL PROCEEDINGS |
The Company is subject to the possibility ofpossible loss contingencies arising in the ordinary course of business. These include but are not limited to: warranty cost on the products of the Company, breach of contract claims, claims for unauthorized use of third-party intellectual property, tax claims beyond assessed uncertain tax positions as well as claims for environmental damages. In determining loss contingencies, the Company considers the likelihood of a loss ofimpairing an asset or the incurrence of a liability at the date of the financial statements as well as the ability to reasonably estimate the amount of such loss. The Company records a provision for a loss contingency when information available before the financial statements are issued or liability. An estimated loss is recorded whenare available to be issued indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and when the amount of the loss can be reasonably estimated. The Company regularly reevaluatesre-evaluates claims to determine
whether provisions need to be readjusted based on the most current information available to the Company. Changes in these evaluations could result in an adverse material impact on the Company’s results of operations, cash flows or its financial position for the period in which they occur.
The Company has received and may in the future receive communications alleging possible infringements in particular in the case of third party patents and similaror other third party intellectual property rights of others.rights. Furthermore, the Company periodically conductsfrom time to time enters into discussions regarding a broad patent cross license discussionsarrangement with other industry participants whichparticipants. There is no assurance that such discussions may or not be successfully concluded.brought to a successful conclusion and result in the intended agreement. The Company may become involved in costly litigation brought against the Company regarding patents, mask works, copy-rights, trade-markscopyrights, trademarks or trade secrets. In the event that the outcome of any litigation would be unfavorable to the Company, the Company may be required to take a license to third party patentsand/or other intellectual property rights at economically unfavorable terms and conditions, and possibly pay damages for prior useand/or face an injunction, all of which individually or in the aggregate could have a material adverse effect on the Company’s results of operations, cash flows, financial positionand/or ability to compete.
The Company is otherwise also involved in various lawsuits, claims, investigations and proceedings incidental to its business and operations.
F-54
Litigation with Spansion Inc and Spansion LLC in the US District court for the Northern District of California, pursuant to which Tessera was claiming an injunction as well as an unspecified amount of monetary damages for breach of a 1997 License Agreement by STMicroelectronics Inc. The Company expects that once the appellate process concerning the ITC ruling is completed, Tessera will seek to lift the stay on the pending proceedings in the Federal Court for the Northern District of California. The asserted Tessera patents have all now expired. The Company continues to assess the merits of all ongoing litigation with Tessera.
On December 1, 2010, Rambus Inc. filed a complaint inwith the ITC against STMicroelectronics NV, STMicroelectronics Inc., along withthe Company and numerous other semiconductor respondents: Broadcom Corporation, Freescale Inc., LSI Corporation, Nvidia Corporation, and Mediatek Inc. and 22 customer respondents, alleging, among other things,parties, asserting that the Company engaged in unfair trade practices by importing certain semiconductor partschips that include memory controllers and/or certain peripheral interface technologies such as SerDes, PCI Express, SATA and customer products incorporating such semiconductor parts,SAS that allegedly infringe certain patents owned by Rambus relating to standard technologies in the field of double data rate memory controller and peripheral interfaces.Rambus. The ITC complaint seekssought an exclusion order barring theto bar importation of accused products into the United States.States of all accused semiconductor chips that infringe any claim of the asserted patents, as well as products of certain party customers incorporating the same. On December 29, 2010July 25, 2012, the ITC votedelected to institute an investigation based on Rambus’ complaint and on February 15, 2011 the Administrative Law Judge atterminate the ITC issued a procedural order pursuant to which a hearing is currently scheduled to be held in October 2011, an Initial Determination to be rendered no later than January 4, 2012,investigation with a final determination expectedfinding of no violation of section 337 of the Tariff Act of 1930. On September 25, 2012, Rambus filed a notice of appeal with the U.S. Court of Appeals for May 2012.the Federal Circuit. Also on December 1, 2010, Rambus filed related lawsuitsa lawsuit against the Company and other co-defendants in the U.S. District Court for the Northern District of California against STMicroelectronics NV, STMicroelectronics Inc. and certain other semiconductor respondents alleging among other things, that certaininfringement of semiconductor products infringe on 19nineteen Rambus patents including the same patents involved in the ITC matter as well as other patents owned by Rambus in relation to memory controller and high speed interface technologies. Rambus seeks unspecified monetary damages, enhanced damages, and injunctive relief. Respondents have requested that the proceedings in US District Court be stayed pending the outcome of the ITC proceedings. The Company continues to assess the merits of the ITC complaint and the Northern District of California lawsuit.
The resolution of the creation of ST-NXP Wireless, the Company’s wireless semiconductor products joint venture with NXP, in August 2008. The claim is currently evaluated by NXP at approximately $59 million. In January 2009, NXP agreed upon our request to withdraw its claim against ST-Ericsson. The Company is contesting the NXP claim vigorously. An arbitration hearing is currently planned to occur in Paris as from May 23, 2011.
in any of these types of disputes may have a material adverse outcomes are possible.
F-55
Other Contingencies
The Company regularly evaluates claims and legal proceedings together with their related probable losses to determine whether they need to be adjusted based on the current information available to the Company. There can be no assurance that its recorded reserves will be sufficient to cover the extent of its potential liabilities. Legal costs associated with claims are expensed as incurred. In the event of litigation which is adversely determined with respect to the Company’s interests, or in the event the Company needs to change its evaluation of a potential third-party claim, based on new evidence or communications, a material adverse effect could impact its operations or financial condition at the time it were to materialize. As of December 31, 20102013, provisions were recorded by the Companyfor estimated probable losses with respect to claims and legal proceedings when the Company considered both that it was probable that a liability had been incurred and the associated amount could be reasonably estimated. The amount of such reserves iswere not considered material. Additionally, at this time, the Company does not believe that the reasonably possible loss contingencies in aggregate, as they can be reasonably estimated, is a material amount to the financial statements as a whole, including results of operations, cash flows and financial position.
23. | |
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT |
23.1 | Financial risk factors |
The Company is exposed to changes in financial market conditions in the normal course of business due to its operations in different foreign currencies and its ongoing investing and financing activities. The Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance. The Company uses derivative financial instruments to hedge certain risk exposures.
Risk management is carried out by a central treasury department (Corporate Treasury) reporting to the Chief Financial Officer.. Simultaneously, a Treasury Committee, chaired by the CFO, steers treasury activities and ensures compliance with corporate policies approved by the Board of Directors.policies. Treasury activities are thus regulated by the Company’s policies, which define procedures, objectives and controls. The policies focus on the management of financial risk in terms of exposure to market risk, credit risk and liquidity risk. Treasury controls are subject to internal audits. Most treasury activities are centralized, with any local treasury activities subject to oversight from head treasury office. Corporate Treasury identifies, evaluates and hedges financial risks in close cooperation with the Company’s operating units. It provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, price risk, credit risk, use of derivative financial instruments, and investments of excess liquidity. The majority of cash and cash equivalents is held in U.S. dollars and EuroEuros and is placed with financial institutions rated at least a single “A” long termlong-term rating from two of the major rating agencies, meaning at least A3 from Moody’s Investor Service and A- from Standard & Poor’s and Fitch Ratings. Marginal amountsRatings, or better. These ratings are heldclosely and continuously monitored in other currencies.order to manage exposure to the counterparty’s risk. Hedging transactions are performed only to hedge exposures deriving from operating, investing and financing activities conducted in the normal course of business.
Market risk
Foreign exchange risk
The Company conducts its business on a global basis in various major international currencies. As a result, the Company is exposed to adverse movements in foreign currency exchange rates, primarily with respect to the Euro. Foreign exchange risk mainly arises from recognized assets and liabilities at the Company’s subsidiaries and future commercial transactions.
Management has set up a policy to require the Company’s subsidiaries to hedge their entire foreign exchange risk exposure with the Company through financial instruments transacted or overseen by Corporate Treasury. To manage their foreign exchange risk arising from foreign-currency-denominated assets and liabilities, entities in the Companysubsidiaries use forward contracts and purchased currency options, transacted by Corporate Treasury.options. Foreign exchange risk arises when recognized assets and liabilities are denominated in a currency that is not the entity’s functional currency. These instruments do not qualify as hedging instruments for accounting purposes. Forward contracts and currency options, including collars, are also used by the Company to reduce its exposure to U.S. dollar fluctuations in Euro-denominated forecasted intercompany transactions that cover a large part of its research and development, selling, general and administrative expenses as well as a portion of its front-end manufacturing costs of semi-finished goods. The Company also hedges through the use of currency forward contracts certain Swedish-krona denominatedSingapore dollar-denominated manufacturing forecasted
F-56
It is the Company’s policy to keephave the foreign exchange exposures in all the currencies hedged month by month against the monthly standard rate. At each month end, the forecasted flows for the coming month are hedged together with the fixing of the new standard rate. For this reason the hedging transactions will have an exchange rate very close to the standard rate at which the forecasted flows will be recorded on the following month. As such, the foreign exchange exposure of the Company, which consists in the balance sheet positions and other contractually agreed transactions, is always equivalent to zero and any movement in the foreign exchange rates will not therefore influence the exchange effect on items of the consolidated statement of income. Any discrepancy from the forecasted values and the actual results is constantly monitored and prompt actions are taken, if needed.
Derivative Instruments Not Designated as a Hedge
As described above, the Company enters into foreign currency forward contracts and currency options to reduce its exposure to changes in exchange rates and the associated risk arising from the denomination of certain assets and liabilities in foreign currencies atin the Company’s subsidiaries. These include receivables from international sales by various subsidiaries, payables for foreign currency-denominated purchases and certain other assets and liabilities arising from intercompany transactions.
The notional amount of these financial instruments totaled $874$319 million, $717$817 million and $505$517 million at December 31, 2010, 20092013, 2012 and 2008,2011, respectively. The principal currencies covered are the Euro, the Singapore dollar, the Japanese yen, the Swiss franc, the Swedish krona,Indian rupee, the China Yuan Renminbi, the British pound and the Malaysian ringgit.
The risk of loss associated with forward contracts is equal to the exchange rate differential from the time the contract is entered into until the time it is settled. The risk of loss associated with purchased currency options is equal to the premium paid when the option is not exercised.
Foreign currency forward contracts and currency options not designated as cash flow hedge outstanding as of December 31, 20102013 have remaining terms of 36 days to 611 months, maturing on average after 2240 days.
Derivative Instruments Designated as a Hedge
To further reduce its exposure to U.S. dollar exchange rate fluctuations, the Company hedges through the use of currency forward contracts and currency options, including collars, certain Euro-denominated forecasted intercompany transactions that cover at year-end a large part of its research and development, selling, general and administrative expenses, as well as a portion of its front-end manufacturing costs of semi-finished goods. The Company also hedges through the use of currency forward contracts certain Swedish-kronamanufacturing transactions denominated forecasted transactions that cover at reporting date a large part of its future research and development expenses.
The principles regulating the hedging strategy for derivatives designated as cash flow hedge are established as follows: (i) for R&D and Corporatecorporate costs, between 50% andup to 80% of the total forecasted transactions; (ii) for manufacturing costs, between 40% andup to 70% of the total forecasted transactions. In order to follow a dynamic hedge strategy, the Company may change the percentage of the designated hedged item within the limit of 100% of the forecasted transaction. The maximum length of time over which the Company hedgescould hedge its exposure to the variability of cash flows for forecasted transactions is 24 months.
For the year ended December 31, 20102013, the Company recorded a decrease in cost of sales and operating expenses of $16 million and $17 million, respectively, related to the realized gain incurred on such hedged transactions. For the year ended December 31, 2012 the Company recorded an increase in cost of sales and operating expenses of $37$39 million and $42$32 million, respectively, related to the realized loss incurred on such hedged transactions. For the year ended December 31, 20092011 the Company recorded a reduction in cost of sales and operating expenses of $29$65 million and $42$52 million, respectively, related to the realized gain incurred on such hedged transactions. For the year ended December 31, 2008 the Company recorded a reduction in cost of sales of $4 million and an increase of operating expenses of $3 million related to the realized gain (loss) incurred on such hedged transactions. No significant ineffective portion of the hedge was recorded on the line “Other income and expenses, net” of the consolidated statements of income for the years ended December 31, 2010, 20092013, 2012 and 2008.
The notional amount of foreign currency forward contracts and currency options, including collars, designated as cash flow hedge totaled $1,850, $1,354$1,702 million, $1,552 million and $763$1,759 million at December 31, 2010, 20092013, 2012 and 2008,2011, respectively. The forecasted transactions hedged at December 31, 20102013 were determined to be highly probablehave a high probability of occurrence.
As of December 31, 2010,2013, $38 million of deferred gains on derivative instruments, net ofbefore deferred tax of $1$5 million, included in “Accumulated other comprehensive income/income (loss)” were expected to be reclassified as earnings during
F-57
As at December 31, 2010,2013, the Company had the following outstanding derivative instruments that were entered into to hedge Euro-denominated and Swedish-krona denominatedSingapore dollar-denominated forecasted intercompany transactions:
Notional amount for | ||||||||
hedge on forecasted | Notional amount for | |||||||
R&D and other | hedge on forecasted | |||||||
operating expenses | manufacturing costs | |||||||
In millions of Euros | ||||||||
Forward contracts | 415 | 662 | ||||||
Currency options | 20 | 27 | ||||||
Collars | 63 | 108 |
In millions of Euros | Notional amount for hedge on forecasted R&D and other operating expenses | Notional amount for hedge on forecasted manufacturing costs | ||
Forward contracts | 187 | 207 | ||
Currency options Currency collars | 49 253 | 105 348 | ||
In millions of Singapore dollars | Notional amount for hedge on forecasted R&D and other operating expenses | Notional amount for hedge on forecasted manufacturing costs | ||
Forward contracts | — | 149 |
Cash flow and fair value interest rate risk
The Company’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Company to cash flow interest rate risk. Borrowings issued at fixed rates expose the Company to fair value interest rate risk.
The Company analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Since all the liquidity of the Company is invested in floating rate instruments, the Company’s interest rate risk arises from the mismatch of fixed rate liabilities and floating rate liquid assets.
F-58
As part of its ongoing investing activities, the Company may be exposed to equity security price risk for investments in public entities classified asavailable-for-sale, as described in Note 2.24.entities. In order to hedge the exposure to this market risk, the Company may enter into certain derivative hedging transactions. In the first quarter of 2010, the Company purchased a put option in order to hedge a potential equity position in an unaffiliated company, for a total notional amount of 10 million shares. The put option did not meet at that time the criteria for designation as a hedging instrument and was consequently classified as aheld-for-trading financial asset in the first quarter of 2010. The Company reported on that period an unrealized loss amounting to $6 million on the line “Gain (loss) on financial instruments, net” in the consolidated statement of income. On April 6, 2010, the Company entered into a written call option, with a notional amount of 5 million shares, to be combined to the existing purchased put in order to structure a zero-cost collar as a single hedging instrument of the highly probable forecasted sale of Micron shares received upon the sale of Numonyx equity investment as described in Note 3. From inception of the hedging relationship and on an on-going basis until November 30, 2010, the combined options qualified for cash flow hedge accounting. As a result, the change in fair value of the hedging instrument was reported as a component of “Accumulated other comprehensive income (loss)” in the consolidated statement of changes in equity. Since the critical terms of the structured collar matched the critical terms of the hedged transaction, no ineffectiveness was reported in earnings. Effectiveness was measured on the full fair value of the combined options. During the fourth quarter, the Company sold the underlying hedged 10,000,000 Micron shares and simultaneously unwound the purchased put and written call composing the collar. Total proceeds from the unwinding of the derivative instruments totaled $5 million, which generated a non-operating gain of $4 million reported on the line “Gain (loss) on financial instruments, net” on the consolidated statement of income for the year ended December 31, 2010. The impact of the sale of Micron shares is described in Note 3.
F-59
As at December 31, 2010 | As at December 31, 2009 | |||||||||||
Balance sheet | Fair | Balance sheet | Fair | |||||||||
Asset Derivatives | location | value | location | value | ||||||||
In millions of U.S. dollars | ||||||||||||
Derivatives designated as a hedge: | ||||||||||||
Foreign exchange forward contracts | Other receivables and assets | 46 | Other receivables and assets | 24 | ||||||||
Currency options | Other receivables and assets | — | Other receivables and assets | 9 | ||||||||
Currency collars | Other investments and other non-current assets | 6 | — | — | ||||||||
Contingent zero-cost collars | Other receivables and assets | 27 | — | — | ||||||||
Total derivatives designated as a hedge | 79 | 33 | ||||||||||
Derivatives not designated as a hedge: | ||||||||||||
Foreign exchange forward contracts | Other receivables and assets | 12 | Other receivables and assets | 3 | ||||||||
Total derivatives not designated as a hedge: | 12 | 3 | ||||||||||
91 | ||||||||||||
Total Derivatives | 36 | |||||||||||
As at December 31, 2010 | As at December 31, 2009 | |||||||||||
Balance sheet | Fair | Balance sheet | Fair | |||||||||
Liability Derivatives | location | value | location | value | ||||||||
In millions of U.S. dollars | ||||||||||||
Derivatives designated as a hedge: | ||||||||||||
Foreign exchange forward contracts | Other payables and accrued liabilities | (8 | ) | Other payables and accrued liabilities | (19 | ) | ||||||
Currency options | Other payables and accrued liabilities | — | Other payables and accrued liabilities | (8 | ) | |||||||
Currency collars | Other payables and accrued liabilities | (2 | ) | — | ||||||||
Total derivatives designated as a hedge | (10 | ) | (27 | ) | ||||||||
Derivatives not designated as a hedge: | ||||||||||||
Foreign exchange forward contracts | Other payables and accrued liabilities | (1 | ) | Other payables and accrued liabilities | (7 | ) | ||||||
Total derivatives not designated as a hedge: | (1 | ) | (7 | ) | ||||||||
(11 | ) | |||||||||||
Total Derivatives | (34 | ) | ||||||||||
F-60
In millions of U.S. dollars | As at December 31, 2013 | As at December 31, 2012 | ||||||||||
Asset Derivatives | Balance sheet location | Fair value | Balance sheet location | Fair value | ||||||||
Derivatives designated as a hedge: | ||||||||||||
Foreign exchange forward contracts | Other current assets | 26 | Other current assets | 21 | ||||||||
Currency collars | Other current assets | 10 | Other current assets | 8 | ||||||||
Currency options | Other current assets | 5 | Other current assets | — | ||||||||
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| |||||||||
Total derivatives designated as a hedge | 41 | 29 | ||||||||||
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Derivatives not designated as a hedge: | ||||||||||||
Foreign exchange forward contracts | Other current assets | 2 | Other current assets | 7 | ||||||||
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| |||||||||
Total derivatives not designated as a hedge: | 2 | 7 | ||||||||||
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| |||||||||
Total Derivatives | 43 | 36 | ||||||||||
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|
In millions of U.S. dollars | As at December 31, 2013 | As at December 31, 2012 | ||||||||||
Liability Derivatives | Balance sheet location | Fair value | Balance sheet location | Fair value | ||||||||
Derivatives designated as a hedge: | ||||||||||||
Foreign exchange forward contracts | Other payables and accrued liabilities | (1 | ) | Other payables and accrued liabilities | — | |||||||
Currency collars | Other payables and accrued liabilities | (2 | ) | |||||||||
|
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Total derivatives designated as a hedge | (3 | ) | — | |||||||||
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| |||||||||
Derivatives not designated as a hedge: | ||||||||||||
Foreign exchange forward contracts | Other payables and accrued liabilities | (1 | ) | Other payables and accrued liabilities | (1 | ) | ||||||
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| |||||||||
Total derivatives not designated as a hedge: | (1 | ) | (1 | ) | ||||||||
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(4 | ) | |||||||||||
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| |||||||||
Total Derivatives | (1 | ) |
Amount of gain | ||||||||||
(loss) recognized in | ||||||||||
Location of gain (loss) | earnings on derivative | |||||||||
recognized in earnings | December 31, | December, | ||||||||
on derivative | 2010 | 2009 | ||||||||
In millions of U.S. dollars | ||||||||||
Cancellable swaps | Gain(loss) on financial assets | — | (8 | ) |
Gain (loss) deferred in | ||||||||||||||||||
OCI on derivative | Location of gain | Gain (loss) reclassified from OCI into earnings | ||||||||||||||||
December 31, | December 31, | (loss) reclassified | December 31, | December 31, | ||||||||||||||
2010 | 2009 | from OCI into earnings | 2010 | 2009 | ||||||||||||||
In millions of U.S. dollars | ||||||||||||||||||
Foreign exchange forward contracts | 19 | 2 | Cost of sales | (31 | ) | 31 | ||||||||||||
Foreign exchange forward contracts | 3 | 1 | Selling, general and administrative | (6 | ) | 7 | ||||||||||||
Foreign exchange forward contracts | 16 | 6 | Research and development | (32 | ) | 38 | ||||||||||||
Currency options | (1 | ) | (1 | ) | Cost of sales | (6 | ) | (2 | ) | |||||||||
Currency options | — | — | Selling, general and administrative | (1 | ) | (1 | ) | |||||||||||
Currency options | (1 | ) | (1 | ) | Research and development | (3 | ) | (2 | ) | |||||||||
Currency collars | — | — | Cost of sales | — | — | |||||||||||||
Currency collars | 2 | — | Research and development | — | — | |||||||||||||
Combined options | — | — | Gain (loss) on financial instruments, net | 4 | — | |||||||||||||
Contingent zero-cost collars | 27 | — | Gain (loss) on financial instruments, net | 16 | — | |||||||||||||
Total | 65 | 7 | (59 | ) | 71 |
In millions of U.S. dollars | Gain (loss) deferred in OCI on derivative | Location of gain (loss) reclassified from OCI into earnings | Gain (loss) reclassified from OCI into | |||||||||||||
December 31, 2013 | December 31, 2012 | December 31, 2013 | December 31, 2012 | |||||||||||||
Foreign exchange forward contracts | 14 | 11 | Cost of sales | 13 | (25 | ) | ||||||||||
Foreign exchange forward contracts | 2 | 1 | Selling, general and administrative | 2 | (2 | ) | ||||||||||
Foreign exchange forward contracts | 10 | 9 | Research and development | 13 | (18 | ) | ||||||||||
Currency options | 1 | — | Cost of sales | — | (1 | ) | ||||||||||
Currency options | 1 | — | Research and development | — | (1 | ) | ||||||||||
Currency collars | 6 | 5 | Cost of sales | 3 | (13 | ) | ||||||||||
Currency collars | 1 | 1 | Selling, general and administrative | 1 | (3 | ) | ||||||||||
Currency collars | 3 | 2 | Research and development | 1 | (8 | ) | ||||||||||
Total | 38 | 29 | 33 | (71 | ) |
No significant ineffective portion of the cash flow hedge relationships was recorded in earnings for the years ended December 31, 20102013 and December 31, 2009.2012. No amount was excluded from effectiveness measurement on foreign exchange forward contracts, currency options and collars. For contingent zero-cost collars, the $9 million contingency premium was excluded from hedge effectiveness measurement and, as described above, was immediately recorded in earnings on the line “Gain (loss) on financial instruments, net”.
The effect on the consolidated statements of income for the year ended December 31, 20102013 and December 31, 20092012 of derivative instruments not designated as a hedge is presented in the table below:
Gain (Loss) Recognized | ||||||||||
in earnings | ||||||||||
Location of gain recognized in | December 31, | December 31, | ||||||||
earnings | 2010 | 2009 | ||||||||
In millions of U.S. dollars | ||||||||||
Foreign exchange forward contracts | Other income and expenses, net | (41 | ) | 20 | ||||||
Currency options | Other income and expenses, net | — | — | |||||||
Total | (41 | ) | 20 |
In millions of U.S. dollars | Location of gain recognized in earnings | Gain recognized in earnings | ||||||||
December 31, 2013 | December 31, 2012 | |||||||||
Foreign exchange forward contracts | Other income and expenses, net | 10 | 20 | |||||||
Total | 10 | 20 |
The Company did not enter into any derivative containing significant credit-risk-related contingent features.
F-61
The Company selects banksand/or financial institutions that operate with the group based on the criteria of long termlong-term rating from at least two major Rating Agencies and keeping a maximum outstanding amount per instrument with each bank group not to exceed 20% of the total.
Europe, primarily in France and in Italy, the Company has decidedassessed in 2013, 2012 and 2011 the level of direct and indirect exposures in the Euro zone. The analysis focused on cash and cash equivalents, loans and receivables, deferred tax assets and other financial assets held in European countries experiencing economic, fiscal or political strains that increase the likelihood of default. To identify the countries at risk, the Company considered recent economic developments, such as credit downgrades, widening credit spreads and public deficit reduction plans and the impact such developments could have on the Company’s financial position, results of operations, liquidity, and capital resources. The assessment also aimed at identifying indirect exposures to further tighten the counterparty concentrationcurrent economic environment in the Euro zone, such as concentrations of cash and financial instruments with financial institutions highly exposed to the sovereign debt crisis. The Company concluded that the situation in the Euro zone was in evolution but that no factors indicated a high level of credit risk profile. The maximum outstanding counterparty risk has been reduced and currently does not exceed 15% for major international banks with large market capitalization.
The Company monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. If certain customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal and external ratings in accordance with limits set by management. The utilization of credit limits is regularly monitored. Sales to customers are primarily settled in cash. At December 31, 20102013 and 2009, one2012, no customer the Nokia Group of companies, represented 23.8% and 20.8%more than 10% of trade accounts receivable, net respectively.net. Any remaining concentrations of credit risk with respect to trade receivables are limited due to the large number of customers and their dispersion across many geographic areas.
Liquidity risk
Prudent liquidity risk management includes maintaining sufficient cash and cash equivalents, short-term deposits and marketable securities, the availability of funding from committed credit facilities and the ability to close out market positions. The Company’s objective is to maintain a significant cash position and a low debt to equitydebt-to-equity ratio, which ensure adequate financial flexibility. Liquidity management policy is to finance the Company’s investments with net cash provided from operating activities.
Management monitors rolling forecasts of the Company’s liquidity reserve on the basis of expected cash flows.
23.2 | Capital risk management |
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returnscreate value for shareholders and benefits and returns for other stakeholders, as to maintain an optimal capital structure. In order to maintain or adjust the capital structure, the Company may adjustreview the amount of dividends paid to shareholders, return capital to shareholders, or issue new shares.
Consistent with others in the industry, the Company monitors capital on the basis of the net debt-to-equity ratio. This ratio is calculated as the net financial position of the Company, defined as the difference between total cash position (cash and cash equivalents, marketable securities —– current and non-current, excluding Micron shares as detailed inNote 3-non-current-, short-term deposits and non-currentcurrent restricted cash, if any) net of total financial debt (bank overdrafts, if any, short-term borrowings and current portion of long-term debt as well as long-term debt), divided by total parent company shareholders’ equity.
23.3 | Fair value measurement |
The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Company is the bid price. If the market for a financial asset is not active and if no observable market price is obtainable, the Company measures fair value by using significant assumptions and estimates. InWhen measuring fair value, the Company makes maximum use of market inputs and relies as little as possible on entity-specificminimizes the use of unobservable inputs.
F-62
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets for | Significant Other | Significant | ||||||||||||||
December 31, | Identical Assets | Observable Inputs | Unobservable Inputs | |||||||||||||
2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Description | ||||||||||||||||
In millions of U.S. dollars | ||||||||||||||||
Aaa debt securities issued by the U.S. Treasury | 350 | 350 | — | — | ||||||||||||
Aaa debt securities issued by foreign governments | 213 | 213 | — | — | ||||||||||||
Euro-denominated Senior debt Floating Rate Notes issued by Lehman Brothers | 10 | — | — | 10 | ||||||||||||
Euro-denominated Senior debt Floating Rate Notes issued by other financial institutions | 118 | 118 | — | — | ||||||||||||
U.S.-denominated Senior debt Floating Rate Notes issued by other financial institutions | 200 | 200 | — | — | ||||||||||||
Auction Rate Securities | 72 | — | — | 72 | ||||||||||||
Micron shares classified asavailable-for-sale | 161 | 161 | — | — | ||||||||||||
Other equity securities classified asavailable-for-sale | 11 | 11 | — | — | ||||||||||||
Equity securities held for trading | 8 | 8 | — | — | ||||||||||||
Derivative instruments designated as cash flow hedge | 69 | — | 69 | — | ||||||||||||
Derivative instruments not designated as a hedge | 11 | — | 11 | — | ||||||||||||
Total | 1,223 | 1,061 | 80 | 82 |
F-63
Fair Value Measurements using | ||||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other (Level 2) | Significant (Level 3) | ||||||||||||||
Description | December 31, 2013 | |||||||||||||||
In millions of U.S. dollars | ||||||||||||||||
Euro-denominated Senior debt Floating Rate Notes issued by financial institutions | 27 | 27 | — | — | ||||||||||||
U.S.-denominated Senior debt Floating Rate Notes issued by financial institutions | 30 | 30 | — | — | ||||||||||||
Equity securities classified as available-for-sale | 11 | 11 | — | — | ||||||||||||
Equity securities classified as held-for-trading | 8 | 8 | — | — | ||||||||||||
Derivative instruments designated as cash flow hedge | 38 | — | 38 | — | ||||||||||||
Derivative instruments not designated as a hedge | 1 | — | 1 | — | ||||||||||||
Total | 115 | 76 | 39 | — |
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets for | Significant Other | Significant | ||||||||||||||
December 31, | Identical Assets | Observable Inputs | Unobservable Inputs | |||||||||||||
2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Description | ||||||||||||||||
In millions of U.S. dollars | ||||||||||||||||
Aaa debt securities issued by the U.S. Treasury | 340 | 340 | — | — | ||||||||||||
Aaa debt securities issued by foreign governments | 144 | 144 | — | — | ||||||||||||
Euro-denominated Senior debt Floating Rate Notes issued by Lehman Brothers | 11 | — | — | 11 | ||||||||||||
Euro-denominated Senior debt Floating Rate Notes issued by other financial institutions | 177 | 177 | — | — | ||||||||||||
U.S.-denominated Senior debt Floating Rate Notes issued by other financial institutions | 360 | 360 | — | — | ||||||||||||
Auction Rate Securities | 42 | — | — | 42 | ||||||||||||
Available-for-sale long term subordinated notes | 173 | — | — | 173 | ||||||||||||
Equity securities classified asavailable-for-sale | 10 | 10 | — | — | ||||||||||||
Equity securities held for trading | 7 | 7 | — | — | ||||||||||||
Derivative instruments designated as cash flow hedge | 6 | — | 6 | — | ||||||||||||
Derivative instruments not designated as a hedge | (4 | ) | — | (4 | ) | — | ||||||||||
Total | 1,266 | 1,038 | 2 | 226 |
Fair Value Measurements using | ||||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other (Level 2) | Significant (Level 3) | ||||||||||||||
Description | December 31, 2012 | |||||||||||||||
In millions of U.S. dollars | ||||||||||||||||
Debt securities issued by the U.S. Treasury | 150 | 150 | — | — | ||||||||||||
Euro-denominated Senior debt Floating Rate Notes issued by financial institutions | 59 | 59 | — | — | ||||||||||||
U.S.-denominated Senior debt Floating Rate Notes issued by financial institutions | 29 | 29 | — | — | ||||||||||||
Equity securities classified as available-for-sale | 10 | 10 | — | — | ||||||||||||
Equity securities classified as held-for-trading | 8 | 8 | — | — | ||||||||||||
Derivative instruments designated as cash flow hedge | 29 | — | 29 | — | ||||||||||||
Derivative instruments not designated as a hedge | 6 | — | 6 | — | ||||||||||||
Total | 291 | 256 | 35 | — |
No asset was measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as at December 31, 2013 and December 31, 2012.
The table below details assets (liabilities) measured at fair value on a non-recurring basis as at December 31, 2013:
Fair value measurements using | ||||||||||||||||
In millions of U.S. dollars | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other (Level 2) | Significant (Level 3) | |||||||||||||
Description | December 31, 2013 | |||||||||||||||
Assets held for sale | 16 | — | — | 16 | ||||||||||||
Total |
The assets held for sale are reported at the lower of net book value and fair value less costs to sell. For fair value measurements using significant unobservable inputs (Level 3), fair value is estimated based on the estimated
price that a market participant would pay for equity investments or the indexation of historical costs (indirect cost approach) for property, plant and equipment. The latter approach relies on the principle of substitution according to which a market participant would not pay more for an asset than the cost to replace it with an identical or similar new unit of equivalent utility. Under this approach, the fair value of the asset is determined by adjusting the asset’s replacement costs for losses in value attributable to physical, functional and economic obsolescence. For certain tangible assets classified as assets held for sale, replacement costs were deduced by trending historical purchasing and manufacturing costs less soft costs. The price index multipliers applied for indexing replacement costs were estimated based on the historical development of producer price indices.
For assets (liabilities) measured at fair value on a non-recurring basis using significant unobservable inputs (Level 3), the reconciliation between January 1, 20102013 and December 31, 20102013 is presented as follows:
In millions of U.S. dollars | Fair Value Measurements using Significant Unobservable Inputs (Level 3) | ||||||
January 1, | |||||||
Assets held for sale Sale of | | (5 | ) | ||||
Deconsolidation of | ( | ) | |||||
Veredus asset group | |||||||
December 31, 2013 | 16 | ||||||
Amount of total losses for the period included in earnings attributable to assets still held at the reporting date |
F-64
( | ) | |||
No significant portion of the aggregate carrying amount of cost-method investments was evaluated for impairment in 2013 and in 2012, since there were no identified events or changes in circumstances that may have had a significant adverse effect on the line“Other-than-temporary impairment charge on financial assets”
As described in Notes 7 and 8, the Company recorded a total impairment charge of $56 million on goodwill and intangible assets associated with the DCG reporting unit. The measurement of goodwill and intangible assets upon impairment testing is classified as a Level 3 fair value measurement due to the significance of unobservable inputs developed using entity-specific information. The Company used the income approach to measure the fair value of the reporting unit. Under the income approach, the fair value was determined based on the present value of the estimated future cash flows associated with the reporting unit. Cash flow projections were based on a nonrecurring basis as at December 31, 2010:
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets for | Significant Other | Significant | ||||||||||||||
December 31, | Identical Assets | Observable Inputs | Unobservable Inputs | |||||||||||||
2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
In millions of U.S. dollars | ||||||||||||||||
Description | ||||||||||||||||
Investments in equity securities carried at cost | 28 | — | — | 28 | ||||||||||||
Assets held for sale | 28 | — | 28 | — | ||||||||||||
Total | 56 | — | 28 | 28 |
Prior to conducting the impairment test on goodwill, the Company evaluated the recoverability of the long-lived assets (liabilities) measured at fair valueassigned to the DCG reporting unit. The impairment on a nonrecurring basis as at December 31, 2009:
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets for | Significant Other | Significant | ||||||||||||||
December 31, | Identical Assets | Observable Inputs | Unobservable Inputs | |||||||||||||
2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Description | ||||||||||||||||
In millions of U.S. dollars | ||||||||||||||||
Investments in equity securities carried at cost | 29 | — | — | 29 | ||||||||||||
Numonyx equity investment | 193 | — | — | 193 | ||||||||||||
Assets held for sale | 31 | — | 31 | — | ||||||||||||
Total | 253 | — | 31 | 222 |
F-65intangible assets totaled $18 million and was composed of $17 million on acquired technologies and $1 million on capitalized software. The Company used the income approach, which was based on cash flow projections expected to result from their use or potential sale. The discount rate used was based on the weighted-average cost of capital adjusted for the relevant risk associated with the assets.
2010 | 2009 | |||||||||||||||
Carrying | Estimated Fair | Carrying | Estimated Fair | |||||||||||||
Description | Amount | Value | Amount | Value | ||||||||||||
In millions of U.S. dollars | ||||||||||||||||
Long-term debt | ||||||||||||||||
— Bank loans (including current portion) | 592 | 591 | 829 | 829 | ||||||||||||
— Senior Bonds | 569 | 566 | 720 | 712 | ||||||||||||
— Convertible debt | 534 | 528 | 943 | 918 | ||||||||||||
Total | 1,695 | 1,685 | 2,492 | 2,459 |
2013 | 2012 | |||||||||||||||||||
Description | Level | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||||
In millions of U.S. dollars | ||||||||||||||||||||
Cash and cash equivalents | 1 | 1,836 | 1,836 | 2,250 | 2,250 | |||||||||||||||
Long-term debt | 1,153 | 1,153 | 1,301 | 1,301 | ||||||||||||||||
- Bank loans (including current portion) | 2 | 1,153 | 1,153 | 839 | 839 | |||||||||||||||
- Senior Bonds | 2 | — | — | 462 | 462 |
No securities were in an unrealized loss position as at December 31, 2013.
The table below details securities that currently arewere in an unrealized loss position.position as at December 31, 2012. The securities are segregated by investment type and the length of time that the individual securities have been in a continuous unrealized loss position as of December 31, 2010.
December 31, 2010 | ||||||||||||||||||||||||
Less than 12 months | More than 12 months | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Description | Values | Losses | Values | Losses | Values | Losses | ||||||||||||||||||
Senior debt floating rate notes | — | — | 317 | (5 | ) | 317 | (5 | ) | ||||||||||||||||
Micron shares classified asavailable-for-sale | 161 | (15 | ) | — | — | 161 | (15 | ) | ||||||||||||||||
Total | 161 | (15 | ) | 317 | (5 | ) | 478 | (20 | ) | |||||||||||||||
F-66
December 31, 2012 | ||||||||||||||||||||||||
Less than 12 months | More than 12 months | Total | ||||||||||||||||||||||
Description | Fair Values | Unrealized Losses | Fair Values | Unrealized Losses | Fair Values | Unrealized Losses | ||||||||||||||||||
Senior debt floating rate notes | — | — | 88 | (1 | ) | 88 | (1 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | — | — | 88 | (1 | ) | 88 | (1 | ) | ||||||||||||||||
|
|
|
|
|
|
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|
|
|
|
|
December 31, 2009 | ||||||||||||||||||||||||
Less than 12 months | More than 12 months | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Description | Values | Losses | Values | Losses | Values | Losses | ||||||||||||||||||
Senior debt floating rate notes | 105 | (2 | ) | 209 | (7 | ) | 314 | (9 | ) | |||||||||||||||
Numonyx long-term subordinated notes | 173 | (11 | ) | — | — | 173 | (11 | ) | ||||||||||||||||
Total | 278 | (13 | ) | 209 | (7 | ) | 487 | (20 | ) | |||||||||||||||
Debt securities classified as available for saleavailable-for-sale
The fair value of floating rate notes and government bondsthese debt securities is estimated based upon quoted market prices for identical instruments. For Lehman Brothers senior unsecured bonds, fair value measurement was reassessed in 2008 from a Level 1 fair value measurement hierarchy to a Level 3 following Lehman Brothers Chapter 11 filing. Fair value measurement for these debt securities relies on information received from a major credit rating entity based on historical recovery rates.
Foreign exchange forward contracts, currency options and collars
The fair value of these instruments is estimated based upon quoted market prices for similar instruments.
Equity securities classified asavailable-for-sale
The fair values of these instruments are estimated based upon market prices for the same or similar instruments. For shares on which a sale restriction is attached, the market price is discounted in order to reflect such restriction.
EquityTrading equity securities held for trading
The fair value of these instruments is estimated based upon quoted market prices for the same instruments.
Equity securities carried at cost
The non-recurring fair value measurement is based on the valuation of the underlying investments on a new round of third party financing or upon liquidation.
Long-term debt and current portion of long-term debt
The fair value of long-term debt was determined based on quoted market prices, and by estimating future cash flows on aborrowing-by-borrowing basis and discounting these future cash flows using the Company’s incremental borrowing rates for similar types of borrowing arrangements.
Cash and cash equivalents, accounts receivable, bank overdrafts, short-term borrowings, and accounts payable
The carrying amounts reflected in the consolidated financial statements are reasonable estimates of fair value due to the relatively short period of time between the origination of the instruments and their expected realization.
F-67
24. | |
RELATED PARTY TRANSACTIONS |
Transactions with significant shareholders, their affiliates and other related parties were as follows:
December 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Sales & other services | 322 | 356 | 325 | |||||||||
Research and development expenses | (206 | ) | (201 | ) | (63 | ) | ||||||
Other purchases | (94 | ) | (167 | ) | (77 | ) | ||||||
Other income and expenses | — | — | (7 | ) | ||||||||
Accounts receivable | 53 | 58 | 63 | |||||||||
Accounts payable | 63 | 60 | 65 |
December 31, 2013 | December 31, 2012 | December 31, 2011 | ||||||||||
Sales & other services | 118 | 226 | 269 | |||||||||
Research and development expenses | (121 | ) | (282 | ) | (235 | ) | ||||||
Other purchases | (71 | ) | (53 | ) | (60 | ) | ||||||
Accounts receivable | 12 | 53 | 54 | |||||||||
Accounts payable | 82 | 62 | 42 |
For the years ended December 31, 2010,2013, December 31, 20092012 and 2008,2011, the related party transactions were primarily with significant shareholders of the Company, or their subsidiaries and companies in which management of the Company perform similar policymaking functions. These include, but are not limited to: Areva, France Telecom Orange, Finmeccanica,BESI, Cassa Depositi e Prestiti, Flextronics, MicroOLED, Soitec, Oracle and Technicolor. The related party transactions presented in the table above also include transactions between the Company and its equityequity-method investments as listed in Note 12.
Until the sale of its JVD shares to Ericsson on August 2, 2013, leading to the de-recognition of its equity investment in Note 12, on February 10, 2010,JVD, the Company together with its partners Intel Corporation and Francisco Partners, entered into a definitive agreement with Micron Technology Inc., in which Micron would acquire Numonyx Holdings B.V. in an all-stock transaction. On May 7, 2010, this transaction closed. Since that date, Numonyx is no longer a related party to the Company.
The Company contributed cash amounts totalling $1made a contribution of $0.5 million for the yearsyear ended December 31, 2010 and 2008 and made no contribution in 20092013 to the ST Foundation, a non-profit organization established to deliver and coordinate independent programs in line with its mission. The Company made no contribution to ST Foundation in the year ended December 31, 2012. Certain members of the Foundation’s Board are senior members of the Company’s management.
25. | |
SEGMENT INFORMATION |
The Company operates in two business areas: Semiconductors and Subsystems.
In the Semiconductors business area, the Company designs, develops, manufactures and markets a broad range of products, including discrete and standard commodity components, application-specific integrated circuits (“ASICs”), full custom devices and semi-custom devices and application-specific standard products (“ASSPs”) for analog, digital, and mixed-signal applications. In addition, the Company further participates in the manufacturing value chain of Smartcard products, through its Incard division, which includes the production and sale of both silicon chips and Smartcards.
In the Subsystems business area, the Company designs, develops, manufactures and markets subsystems and modules for the telecommunications, automotive and industrial markets including mobile phone accessories, battery chargers, ISDN power supplies and in-vehicle equipment for electronic toll payment. Based on its immateriality to its business as a whole, the Subsystems segmentbusiness area does not meet the requirements for a reportable segment as defined in the U.S. GAAP guidance.
Effective January 1, 2013, the segment reporting reflects the Company’s strategy announced on December 10, 2012. The strategy takes into account the evolution of Numonyx, a new independent semiconductor company from the key assets of its and Intel’s Flash memory business (“FMG deconsolidation”),markets the Company has ceased reporting underis in and the FMG segment.
F-68
The organization existing in 2013 was as follows:
Sense & Power and Automotive Products (SP&A), including:
Automotive (APG),
Industrial & Power Discrete (IPD),
Analog & MEMS (AMS), and
Other SP&A;
Embedded Processing Solutions (EPS), comprised of:
Digital Convergence Group (DCG),
Imaging, BI-CMOS ASIC and Silicon Photonics (IBP),
Microcontrollers, Memory & Security (MMS),
Wireless (WPS), and
Other EPS.
In 2013, the Company reorganizedrevised its segments. Aresults from prior periods in accordance with the new segment was created to report wireless operations; the product line Mobile, Multimedia & Communications Group (“MMC”) which was part of segment Application Specific Groups (“ASG”) was abandoned and its divisions were reallocated to different product lines. The remaining part of ASG is now comprised of Automotive Consumer Computer and Communication Infrastructure Product Segment (“ACCI”).
F-69
Net revenues by product segment:
December 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
In million of U.S dollars | ||||||||||||
Net revenues by product segment: | ||||||||||||
Automotive Consumer Computer and Communication Infrastructure (ACCI) | 4,169 | 3,152 | 4,055 | |||||||||
Industrial and Multisegment Sector (IMS) | 3,899 | 2,687 | 3,403 | |||||||||
Wireless | 2,219 | 2,585 | 2,030 | |||||||||
Flash Memory Group (FMG) | — | — | 299 | |||||||||
Others(1) | 59 | 86 | 55 | |||||||||
Total consolidated net revenues | $ | 10,346 | $ | 8,510 | $ | 9,842 | ||||||
In millions of U.S. dollars | December 31, 2013 | December 31, 2012 | December 31, 2011 | |||||||||
Sense & Power and Automotive Products (SP&A) | 4,775 | 4,622 | 5,120 | |||||||||
Embedded Processing Solutions (EPS) | 3,269 | 3,826 | 4,566 | |||||||||
Others(1) | 38 | 45 | 49 | |||||||||
Total consolidated net revenues | 8,082 | 8,493 | 9,735 |
(1) | Includes revenues from sales of |
Net revenues by product segment and by product line :
December 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
In million of U.S dollars | ||||||||||||
Net revenues by product lines: | ||||||||||||
Automotive Products Group (“APG”) | 1,420 | 1,005 | 1,386 | |||||||||
Computer and Communication Infrastructure (“CCI”) | 1,125 | 932 | 1,077 | |||||||||
Home Entertainment & Displays (“HED”) | 1,006 | 787 | 1,086 | |||||||||
Imaging (“IMG”) | 569 | 417 | 499 | |||||||||
Others | 49 | 11 | 7 | |||||||||
Automotive Consumer Computer and Communication Infrastructure (ACCI) | 4,169 | 3,152 | 4,055 | |||||||||
Analog, Power and Micro-Electro-Mechanical Systems (“APM”) | 2,714 | 1,887 | 2,393 | |||||||||
Microcontrollers, non-Flash, non-volatile Memory and Smart Card products (“MMS”) | 1,181 | 798 | 1,010 | |||||||||
Others | 4 | 2 | — | |||||||||
Industrial and Multisegment Sector (IMS) | 3,899 | 2,687 | 3,403 | |||||||||
2G, EDGE TD-SCDMA & Connectivity | 956 | 1,027 | 737 | |||||||||
3G Multimedia & Platforms | 1,223 | 1,529 | 1,293 | |||||||||
LTE & 3G Modem Solutions | 35 | 18 | — | |||||||||
Others | 5 | 11 | — | |||||||||
Wireless | 2,219 | 2,585 | 2,030 | |||||||||
Others | 59 | 86 | 55 | |||||||||
Flash Memory Group (FMG) | — | — | 299 | |||||||||
Total consolidated net revenues | $ | 10,346 | $ | 8,510 | $ | 9,842 |
F-70
December 31, 2013 | December 31, 2012 | December 31, 2011 | ||||||||||
In millions of U.S. dollars | ||||||||||||
Automotive (APG) | 1,668 | 1,554 | 1,678 | |||||||||
Industrial & Power Discrete (IPD) | 1,801 | 1,747 | 2,104 | |||||||||
Analog & MEMS (AMS) | 1,306 | 1,320 | 1,335 | |||||||||
Other SP&A | — | 1 | 3 | |||||||||
Sense & Power and Automotive Products (SP&A) | 4,775 | 4,622 | 5,120 | |||||||||
Digital Convergence Group (DCG) | 735 | 888 | 1,084 | |||||||||
Imaging, Bi-CMOS ASIC and Silicon Photonics (IBP) | 462 | 437 | 722 | |||||||||
Microcontrollers, Memory & Security (MMS) | 1,367 | 1,147 | 1,175 | |||||||||
Wireless (WPS) | 704 | 1,345 | 1,552 | |||||||||
Other EPS | 1 | 9 | 33 | |||||||||
Embedded Processing Solutions (EPS) | 3,269 | 3,826 | 4,566 | |||||||||
Others | 38 | 45 | 49 | |||||||||
Total consolidated net revenues | 8,082 | 8,493 | 9,735 |
December 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
In million of U.S dollars | ||||||||||||
Automotive Consumer Computer and Communication Infrastructure (ACCI) | 410 | (69 | ) | 142 | ||||||||
Industrial and Multisegment Sector (IMS) | 681 | 91 | 476 | |||||||||
Wireless | (483 | ) | (356 | ) | (65 | ) | ||||||
Flash Memory Group (FMG) | — | — | 16 | |||||||||
Total operating income (loss) of product segments | 608 | (334 | ) | 569 | ||||||||
Others(1) | (132 | ) | (689 | ) | (767 | ) | ||||||
Total consolidated operating income (loss) | 476 | (1,023 | ) | (198 | ) | |||||||
In millions of U.S. dollars | December 31, 2013 | December 31, 2012 | December 31, 2011 | |||||||||
Sense & Power and Automotive Products (SP&A) | 270 | 409 | 757 | |||||||||
Embedded Processing Solutions (EPS) | (399 | ) | (883 | ) | (489 | ) | ||||||
Total operating income (loss) of product segments | (129 | ) | (474 | ) | 268 | |||||||
Others(1) | (336 | ) | (1,607 | ) | (222 | ) | ||||||
Total consolidated operating income (loss) | (465 | ) | (2,081 | ) | 46 |
(1) | ||
Operating loss of “Others” includes items such as |
Reconciliation to consolidatedof operating income (loss) of segments to the total operating income (loss):
December 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
In million of U.S dollars | ||||||||||||
Total operating income (loss) of product segments | 608 | (334 | ) | 553 | ||||||||
Total operating income FMG | — | — | 16 | |||||||||
Strategic R&D, other R&D programs and R&D funding | (18 | ) | (22 | ) | (24 | ) | ||||||
Phase-out andstart-up costs | (15 | ) | (39 | ) | (17 | ) | ||||||
Impairment & restructuring charges | (104 | ) | (291 | ) | (481 | ) | ||||||
Unused capacity charges | (3 | ) | (322 | ) | (57 | ) | ||||||
Acquired In-Process R&D and other non-recurring | — | — | (185 | ) | ||||||||
purchase accounting(1) | ||||||||||||
Other non-allocated provisions(2) | 8 | (15 | ) | (3 | ) | |||||||
Total operating loss Others(3) | (132 | ) | (689 | ) | (767 | ) | ||||||
Total consolidated operating income (loss) | 476 | (1,023 | ) | (198 | ) | |||||||
In millions of U.S. dollars | December 31, 2013 | December 31, 2012 | December 31, 2011 | |||||||||
Total operating income (loss) of product segments | (129 | ) | (474 | ) | 268 | |||||||
Strategic and other research and development programs | (15 | ) | (12 | ) | (13 | ) | ||||||
Phase-out and start-up costs | (5 | ) | — | (8 | ) | |||||||
Impairment, restructuring charges and other related closure costs | (292 | ) | (1,376 | ) | (75 | ) | ||||||
Unused capacity charges | (32 | ) | (172 | ) | (149 | ) | ||||||
NXP arbitration award | — | (54 | ) | — | ||||||||
Other non-allocated provisions(1) | 8 | 7 | 23 | |||||||||
Total operating loss Others | (336 | ) | (1,607 | ) | (222 | ) | ||||||
Total consolidated operating income (loss) | (465 | ) | (2,081 | ) | 46 |
(1) | ||
Includes unallocated income and expenses such as certain | ||
The following is a summary of operations by entities located within the indicated geographic areas for 2010, 20092013, 2012 and 2008.2011. Net revenues represent sales to third parties from the country in which each entity is located. Long-lived assets consist of property, plant and equipment, net (PP&E, net). A significant portion of property, plant and equipment expenditures is attributable to front-end and back-end facilities, located in the different countries in which the Company operates. As such, the Company mainly allocates capital spending resources according to geographic areas rather than along product segment areas.
F-71
December 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
In million of U.S dollars | ||||||||||||
The Netherlands | 1,863 | 1,553 | 2,737 | |||||||||
France | 174 | 139 | 178 | |||||||||
Italy | 149 | 121 | 185 | |||||||||
USA | 1,109 | 798 | 1,032 | |||||||||
Singapore | 5,939 | 4,697 | 4,939 | |||||||||
Japan | 436 | 300 | 492 | |||||||||
Other countries | 676 | 902 | 279 | |||||||||
Total | 10,346 | 8,510 | 9,842 | |||||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
In million of U.S dollars | ||||||||
The Netherlands | 17 | 24 | ||||||
France | 1,646 | 1,623 | ||||||
Italy | 783 | 850 | ||||||
Other European countries | 237 | 158 | ||||||
USA | 37 | 74 | ||||||
Singapore | 552 | 546 | ||||||
Malaysia | 298 | 264 | ||||||
Other countries | 476 | 542 | ||||||
Total | 4,046 | 4,081 | ||||||
December 31, | December 31, | December 31, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
In million of U.S dollars | ||||||||||||
The Netherlands | 3 | 8 | 5 | |||||||||
France | 420 | 242 | 462 | |||||||||
Italy | 175 | 44 | 138 | |||||||||
Other European countries | 55 | 29 | 66 | |||||||||
USA | (9 | ) | 6 | 2 | ||||||||
Singapore | 172 | 27 | 106 | |||||||||
Malaysia | 100 | 35 | 104 | |||||||||
Other countries | 118 | 60 | 100 | |||||||||
Total | 1,034 | 451 | 983 | |||||||||
F-72
In millions of U.S. dollars | December 31, 2013 | December 31, 2012 | December 31, 2011 | |||||||||
The Netherlands | 1,860 | 1,524 | 1,928 | |||||||||
France | 289 | 189 | 172 | |||||||||
Italy | 78 | 131 | 157 | |||||||||
USA | 1,041 | 1,014 | 1,120 | |||||||||
Singapore | 3,860 | 3,784 | 4,945 | |||||||||
Japan | 420 | 418 | 497 | |||||||||
Other countries | 534 | 1,433 | 916 | |||||||||
|
|
|
|
|
| |||||||
Total | 8,082 | 8,493 | 9,735 | |||||||||
|
|
|
|
|
|
Property, plant and equipment
In millions of U.S. dollars | December 31, 2013 | December 31, 2012 | ||||||
The Netherlands | 333 | 241 | ||||||
France | 1,063 | 1,222 | ||||||
Italy | 690 | 716 | ||||||
Other European countries | 131 | 169 | ||||||
USA | 17 | 18 | ||||||
Singapore | 341 | 441 | ||||||
Malaysia | 195 | 238 | ||||||
Other countries | 386 | 436 | ||||||
|
|
|
| |||||
Total | 3,156 | 3,481 | ||||||
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in millions of U.S. dollars, except share and per-share amounts)
December 31, | December 31, | December 31, | ||||||||||
In million of U.S dollars | 2010 | 2009 | 2008 | |||||||||
The Netherlands | 57 | 37 | 47 | |||||||||
France | 375 | 430 | 497 | |||||||||
Italy | 204 | 249 | 287 | |||||||||
Other European countries | 193 | 186 | 93 | |||||||||
USA | 25 | 62 | 81 | |||||||||
Singapore | 188 | 207 | 195 | |||||||||
Malaysia | 81 | 83 | 79 | |||||||||
Other countries | 117 | 113 | 87 | |||||||||
Total | 1,240 | 1,367 | 1,366 |
F-73
VALUATION AND QUALIFYING ACCOUNTS
Balance at | Charged to | Balance | ||||||||||||||||||
Valuation and qualifying accounts deducted | beginning | Translation | costs and | Additions/ | at end of | |||||||||||||||
from the related asset accounts | of period | adjustment | expenses | (Deductions) | period | |||||||||||||||
(Currency-millions of U.S. dollars) | ||||||||||||||||||||
2010 | ||||||||||||||||||||
Inventories | 50 | 67 | (67 | ) | 50 | |||||||||||||||
Accounts Receivable | 19 | 1 | (3 | ) | 17 | |||||||||||||||
Deferred Tax Assets | 1,337 | (13 | ) | 81 | (9 | ) | 1396 | |||||||||||||
2009 | ||||||||||||||||||||
Inventories | 72 | 102 | (124 | ) | 50 | |||||||||||||||
Accounts Receivable | 25 | 2 | (8 | ) | 19 | |||||||||||||||
Deferred Tax Assets | 1,283 | 6 | 79 | (31 | ) | 1,337 | ||||||||||||||
2008 | ||||||||||||||||||||
Inventories | 39 | 108 | (75 | ) | 72 | |||||||||||||||
Accounts Receivable | 21 | 1 | 3 | 25 | ||||||||||||||||
Deferred Tax Assets | 1,123 | (6 | ) | 170 | (4 | ) | 1,283 |
Valuation and qualifying accounts deducted | Balance at beginning of period | Translation adjustment | Charged to costs and expenses | Additions/ (Deductions) | Balance at end of period | |||||||||||||||
(Currency — millions of U.S. dollars) | ||||||||||||||||||||
2013 | ||||||||||||||||||||
Inventories | 49 | 58 | (69 | ) | 38 | |||||||||||||||
Accounts Receivable | 10 | 0 | 2 | (3 | ) | 9 | ||||||||||||||
Deferred Tax Assets | 1,634 | 7 | 67 | (254 | ) | 1,454 | ||||||||||||||
2012 | ||||||||||||||||||||
Inventories | 60 | 95 | (106 | ) | 49 | |||||||||||||||
Accounts Receivable | 15 | 1 | (6 | ) | 10 | |||||||||||||||
Deferred Tax Assets | 1,514 | 6 | 123 | (9 | ) | 1,634 | ||||||||||||||
2011 | ||||||||||||||||||||
Inventories | 50 | 103 | (93 | ) | 60 | |||||||||||||||
Accounts Receivable | 17 | 1 | (3 | ) | 15 | |||||||||||||||
Deferred Tax Assets | 1,396 | (11 | ) | 138 | (9 | ) | 1,514 |
S-1