Edgar Filing: STMICROELECTRONICS NV

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

Report on Form 6-K dated August 4, 2014

Commission File Number: 1-13546

STMicroelectronics N.V.

(Name of Registrant)

WTC Schiphol Airport

Schiphol Boulevard 265

1118 BH Schiphol Airport

The Netherlands

(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F Q Form 40-F £

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes £ No Q

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes £ No Q

Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

Yes £ No Q

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- __________

Enclosure: STMicroelectronics N.V.’s Second Quarter and First Half 2014:

Operating and Financial Review and Prospects;

Unaudited Interim Consolidated Statements of Income, Statements of Comprehensive Income, Balance Sheets, Statements of Cash Flow, and Statements of Equity and related Notes for the three months and six months ended June 28, 2014; and

Certifications pursuant to Sections 302 (Exhibits 12.1 and 12.2) and 906 (Exhibit 13.1) of the Sarbanes-Oxley Act of 2002, submitted to the Commission on a voluntary basis.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

The following discussion should be read in conjunction with our Unaudited Interim Consolidated Statements of Income, Statements of Comprehensive Income, Balance Sheets, Statements of Cash Flows and Statements of Equity for the three months and six months ended June 28, 2014 and Notes thereto included elsewhere in this Form 6-K, and our annual report on Form 20-F for the year ended December 31, 2013 as filed with the U.S. Securities and Exchange Commission (the “Commission” or the “SEC”) on March 5, 2014 (the “Form 20-F”). The following discussion contains statements of future expectations and other forward-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 “Business Overview” and “Liquidity and Capital Resources—Financial Outlook: Capital Investment”. Our actual results may differ significantly from those projected in the forward-looking statements. For a discussion of factors that might cause future actual results to differ materially from our recent results or those projected in the forward-looking statements in addition to the factors set forth below, see “Cautionary Note Regarding Forward-Looking Statements” and “Item 3. Key Information—Risk Factors” included in the Form 20-F. We assume no obligation to update the forward-looking statements or such risk factors.

Our Management’s Discussion and Analysis of Financial Position and Results of Operations (“MD&A”) is provided in addition to the accompanying unaudited interim consolidated financial statements (“Consolidated Financial Statements”) and notes to assist readers in understanding our results of operations, financial condition and cash flows. Our MD&A is organized as follows:

Critical Accounting Policies using Significant Estimates.

Business Overview, a discussion of our business and overall analysis of financial and other relevant highlights of the three months and six months ended June 28, 2014 designed to provide context for the other sections of the MD&A, including our expectations for selected financial items for the third quarter of 2014.

Other Developments in the Second Quarter 2014.

Results of Operations, containing a year-over-year and sequential analysis of our financial results for the three months and six months ended June 28, 2014, as well as segment information.

Legal Proceedings.

Discussion of the impact of changes in exchange rates, interest rates and equity prices on our activity and financial results.

Liquidity and Capital Resources, presenting an analysis of changes in our balance sheets and cash flows, and discussing our financial condition and potential sources of liquidity.

Impact of Recently Issued U.S. Accounting Standards.

Backlog and Customers, discussing the level of backlog and sales to our key customers.

Disclosure Controls and Procedures.

Cautionary Note Regarding Forward-Looking Statements.

Critical Accounting Policies Using Significant Estimates

There were no material changes in the first half of 2014 to the information provided under the heading “Critical Accounting Policies Using Significant Estimates” included in our annual report on Form 20-F for the fiscal year ended December 31, 2013.

Fiscal Year

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 2014 ended on March 29, 2014. The second quarter ended on June 28. The third quarter and the fourth quarter of 2014 will end on September 27 and December 31, 2014, respectively. 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 and can also differ from equivalent prior years’ periods. There were 91 days in the second quarter of 2014 compared to 91 days in the second quarter of 2013 and 88 days in the first quarter of 2014.

Business Overview

Our results of operations for each period were as follows:

	Three Months Ended									% Variation
	June 28, 2014			March 29, 2014			June 29, 2013			Sequential			Year-Over-Year
	(Unaudited, in millions, except per share amounts)
Net revenues	$	1,864		$	1,825		$	2,045			2.1	%		(8.9	)%
Gross profit		634			599			672			6.0	%		(5.5	)%
Gross margin as percentage of net revenues		34.0	%		32.8	%		32.8	%
Operating income (loss)		98			(4	)		(107	)
Net income (loss) attributable to parent company		38			(24	)		(152	)
Earnings per share		0.04			(0.03	)		(0.17	)

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 major devices such as Microprocessors (“MPUs”), DRAMs, optoelectronics devices, Flash Memories and the Wireless Application Specific market (Broadband and Application Processor)).

Based on the most recently published estimates by WSTS, semiconductor industry revenues increased in the second quarter of 2014 on a year-over-year basis by approximately 11% for both the TAM and the SAM to reach approximately $83 billion and $38 billion, respectively. Sequentially, both the TAM and the SAM increased by approximately 5%.

During the second quarter we made positive business and financial progress in key areas: from revenue to gross margin improvement as a result of our product, marketing and manufacturing initiatives. Our performance benefited from the combination of favorable macro-economic and market dynamics, especially in Industrial and Automotive, and from the traction of our innovative portfolio and mass-market initiatives.

The Nano2017 program was approved by the European Union in the second quarter of 2014 and we, in our role as Coordinator and Project Leader of Nano2017, have been allocated an overall funding budget of about €400 million for the period 2013-2017, subject to the conclusion of agreements every year with the public authorities and linked to the achievement of technical parameters and objectives.

To strengthen our capital structure and significantly enhance our financial flexibility, we took advantage of favorable terms and raised $1 billion in July through a convertible bond offering. We intend to use the net proceeds of the offering for general corporate purposes.

Second quarter 2014 revenues amounted to $1,864 million, an 8.9% decrease on a year-over-year basis. Sense & Power and Automotive Products (SP&A) segment revenues decreased by about 1% primarily due to a decrease in Analog & MEMS, partially offset by growth in Automotive and Industrial & Power Discrete. Embedded Processing Solutions (EPS) segment revenues decreased by approximately 20% mainly due to the phasing-out of the legacy ST-Ericsson products and weak performance in Digital Convergence Group and Imaging, only partially offset by the growth in Microcontrollers. Excluding legacy ST-Ericsson products, our revenues decreased by 2.1%. Sequentially, we registered a 2.1% increase, which was slightly higher than the 2% increase at the mid-point of our guidance; the major contributors to this growth were Microcontrollers, Industrial & Power Discrete and Automotive. The Digital Convergence Group, excluding legacy ST-Ericsson products, increased revenues slightly on a sequential basis from the first quarter of 2014, which we believe was the low point of this product line’s revenues. Compared to the served market, our performance was below the SAM both on a year-over-year and sequential basis. For a detailed description of our segments, see “Results of Operations—Segment Information” below.

Our effective average exchange rate for the second quarter of 2014 was $1.36 for €1.00 compared to $1.30 for €1.00 for the second quarter of 2013 and $1.35 for €1.00 in the first quarter of 2014. 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 second quarter 2014 gross margin was 34.0% of revenues, compared to the 33.6% mid-point of our guidance, and increasing sequentially by 120 basis points, mainly due to improved manufacturing efficiencies and a more favorable product mix, partially offset by the negative impact of lower selling prices. On a year-over-year comparison, our second quarter 2014 gross margin improved by 120 basis points.

Our combined selling, general and administrative (SG&A) and research and development (R&D) costs amounted to $626 million, decreasing by about 15% compared to $738 million in the prior-year quarter mainly due to the ST-Ericsson wind-down and the impact of our cost savings initiatives. On a sequential basis, operating expenses increased by about 3% compared to $606 million in the prior quarter, mainly due to there being more calendar days in the second quarter compared to the first quarter.

Other income and expenses, net in the second quarter, significantly increased to $110 million, compared to $15 million and $2 million in the first and year-ago quarter, respectively. The second quarter of 2014 included $100 million related to the catch-up for 2013 and the first quarter of 2014 funding of the Nano2017 R&D program which started January 1, 2013, but was not recognized until the second quarter following the obtention of EU approval.

Our operating income was $98 million in the second quarter of 2014 improving from a loss of $107 million in the second quarter of 2013 and a loss of $4 million in the first quarter of 2014. Compared to the year-ago period, the improvement in our operating results was mainly due to the savings in operating expenses, lower amounts of impairment and restructuring charges and higher R&D grants, including grants related to previous periods. Sequentially, the improvement in our operating results was mainly due to higher gross profit and increased other income following the recognition of Nano2017 grants. In our Sense & Power and Automotive segment, both of the Industrial & Power Discrete and Automotive product lines delivered sequential growth and strong operating margin improvements. In total, SP&A’s operating margin reached double-digits. In our Embedded Processing Solutions segment, our leadership in microcontrollers continues to be a key driver of improvement as our general-purpose microcontrollers business had its fifth consecutive quarter of record revenues. Also, as anticipated, our digital consumer and ASIC business started to grow after reaching an inflection point in the first quarter.

In the third quarter, we expect to see sequential revenue growth in all areas of our product portfolio. In SP&A, IPD and APG are expected to perform better than seasonal, benefiting from both the favorable macro-environment conditions as well as from our market position, and we also expect to see growth in AMS. In EPS, MMS is expected to moderately grow in the third quarter, after posting a record second quarter; our activities in Digital, including DCG and IBP, are also expected to grow. We expect third quarter 2014 revenues to increase about 3% on a sequential basis, plus or minus 3.5 percentage points.

Based upon our revenue growth outlook as well as product mix between analog and digital we anticipate that our third quarter gross margin will increase to about 34.4% at the midpoint of the range, plus or minus 2.0 percentage points, despite a higher level of unused capacity charges as our manufacturing capacity in digital technology is not yet fully utilized.

Excluding the second quarter one-time effect related to the recognition of the Nano2017 grants, we anticipate further improvement in our operating margin in the third quarter, as we continue to progress step-by-step towards reaching our target financial model.

This outlook is based on an assumed effective currency exchange rate of approximately $1.355 = €1.00 for the 2014 third quarter and includes the impact of existing hedging contracts. The third quarter will close on September 27, 2014.

These are forward-looking statements that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially; in particular, refer to those known risks and uncertainties described in “Cautionary Note Regarding Forward-Looking Statements” and Item 3. “Key Information — Risk Factors” in our Form 20-F as may be updated from time to time in our SEC filings.

Other Developments in the second quarter of 2014

On May 14, we and Samsung Electronics Co. Ltd. announced the signing of a comprehensive agreement on 28-nm Fully Depleted Silicon-on-Insulator (FD-SOI) technology for multi-source manufacturing collaboration. The licensing accord provides customers with advanced manufacturing solutions from Samsung’s state-of-the-art 300-mm facilities and assures the industry of high-volume production for ST’s FD-SOI technology.

On June 13, we announced that all the resolutions were approved at our Annual General Meeting of Shareholders (AGM). The main resolutions approved by the shareholders were:

The reappointment of Mr. Carlo Bozotti as the sole member of the Managing Board and the Company’s President and Chief Executive Officer for a three-year term, expiring at the 2017 AGM;

The reappointment for a three-year term, expiring at the 2017 AGM, of the following members of the Supervisory Board: Messrs. Didier Lombard, Jean d’Arthuys, Jean-Georges Malcor and Alessandro Rivera;

The appointment, as new members of the Supervisory Board, for a three-year term expiring at the 2017 AGM, of Ms. Heleen Kersten and Mr. Maurizio Tamagnini in replacement of Mr. Tom de Waard and Mr. Bruno Steve, whose terms expired;

The adoption of the Company's 2013 Statutory Annual Accounts prepared in accordance with International Financial Reporting Standards;

The distribution of a cash dividend of US$0.10 per common share for each of the second quarter of 2014, paid in June 2014, and third quarter of 2014, to be paid in September 2014 to shareholders of record in the month of each quarterly payment; and

The appointment of PricewaterhouseCoopers Accountants N.V. as the Company’s external auditor for the 2014 and 2015 financial years.

Following the conclusion of the AGM, the members of the Supervisory Board appointed Mr. Maurizio Tamagnini as the Chairman and Mr. Didier Lombard as the Vice-Chairman of the Supervisory Board, respectively, for a three-year term expiring at the 2017 AGM.

On June 25, the European Commission approved €400 million in aid for the Nano2017 R&D program led by us; the aid, granted to us by France for the development of new technologies in the Nanoelectronics sector, was in line with European Union state-aid rules.

On June 26, we announced the pricing of a $1 billion dual-tranche offering of convertible bonds (the “Bonds’’). The Bonds were issued in two tranches, one of $600 million with a maturity of 5 years and one of $400 million with a maturity of 7 years. We intend to use the net proceeds of the offering for general corporate purposes. We also announced the launch of a share buy-back program for the repurchase of up to twenty million ordinary shares, currently intended to meet our obligations in relation to our employee stock award plans.

On June 27, we announced the publication of our 2013 Sustainability Report. This annual report contains comprehensive details of our Sustainability strategy, policies and performance during 2013 and illustrates how our sustainability programs play a major role throughout the business to create value for all of our stakeholders.

On July 22, 2014, we signed an agreement with Enel Green Power to transfer our equity stake in 3Sun, a joint venture in the photovoltaic panels manufacturing. Pursuant to this agreement, at closing, subject to customary precedent conditions, we will pay up to €15 million to Enel Green Power in exchange for our full release from any obligation concerning the joint venture or Enel Green Power. Also, at closing, we will forgive the outstanding €13 million shareholders loan to the joint venture.

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 and semi-custom devices and application-specific standard products (“ASSPs”) for analog, digital and mixed-signal applications. In addition, we further participate in the manufacturing value chain of Smartcard products, which include the production and sale of both silicon chips and Smartcards.

In 2014, our segments are as follows:

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, BI-CMOS ASIC and Silicon Photonics (IBP);

Microcontrollers, Memory & Secure MCU (MMS); and

Other EPS.

In 2014, we revised our revenues by product line from prior periods following the reclassification of Image Signal Processor business from IBP product line to DCG product line. In addition, the Wireless former product line has been reclassified into the DCG product line. We believe that the revised 2013 revenues presentation is consistent with that of 2014 and we use these comparatives when managing our company.

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 and in-vehicle equipment for electronic toll payment. Based on its immateriality to our business as a whole, the Subsystems business 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. All the financial values related to Subsystems including net revenues and related costs, are reported in the segment “Others”.

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 part of research and development (“R&D”) expenses. In compliance with our internal policies, certain cost items are not charged to the segments, including impairment, restructuring charges and other related closure costs, unused capacity charges, phase-out and start-up costs of certain manufacturing facilities, certain one-time corporate items, strategic and special R&D programs or other corporate-sponsored initiatives, including certain corporate-level operating expenses and certain other miscellaneous charges. In addition, depreciation and amortization expense is part of the manufacturing costs allocated to the product segments and is neither identified as part of the inventory variation nor as part of the unused capacity charges; therefore, it cannot be isolated in the costs of goods sold. Finally, R&D grants are allocated to our product lines proportionally to the incurred R&D expenses on the sponsored projects.

	Three Months Ended				Six Months Ended
	June 28, 2014		June 29, 2013		June 28, 2014		June 29, 2013
	(Unaudited, in millions)				(Unaudited, in millions)
Net revenues by product line and product segment:

Automotive (APG)	$	463	$	416	$	907	$	801
Industrial & Power Discrete (IPD)		475		466		917		896
Analog & MEMS (AMS)		264		327		568		640
Sense & Power and Automotive Products (SP&A)		1,202		1,209		2,392		2,337
Digital Convergence Group (DCG)		184		375		389		870
Imaging, BI-CMOS ASIC and Silicon Photonics (IBP)		76		98		153		170
Microcontrollers, Memory & Secure MCU (MMS)		396		351		742		651
Other EPS		1		-		1		1
Embedded Processing Solutions (EPS)		657		824		1,285		1,692
Others(1)		5		12		12		26
Total consolidated net revenues	$	1,864	$	2,045	$	3,689	$	4,055

____________

(1)	In the second quarter of 2014, “Others” includes revenues from the sales of Subsystems ($2 million) and sales of materials and other products not allocated to product segments ($3 million).

	Three Months Ended						Six Months Ended
	June 28, 2014			June 29, 2013			June 28, 2014			June 29, 2013
	(Unaudited, in millions)						(Unaudited, in millions)
Operating income (loss) by product segment:

Sense & Power and Automotive Products (SP&A)	$	126		$	42		$	230		$	99
Embedded Processing Solutions (EPS)		14			(106	)		(66	)		(316	)
Others(1)		(42	)		(43	)		(71	)		(171	)
Total consolidated operating income (loss)	$	98		$	(107	)	$	93		$	(388	)

____________

(1)

Operating loss of “Others” includes items such as impairment, restructuring charges and other related closure costs, unused capacity charges, phase-out and start-up costs of certain manufacturing facilities, certain one-time corporate items and other unallocated expenses such as: strategic or special R&D programs, certain corporate-level operating expenses and other costs that are not allocated to the product segments, as well as operating earnings of the Subsystems and Other Products Group.

	Three Months Ended						Six Months Ended
	June 28, 2014			June 29, 2013			June 28, 2014			June 29, 2013
	(Unaudited, as percentage of net revenues)						(Unaudited, as percentage of net revenues)
Operating income (loss) by product segment:

Sense & Power and Automotive Products (SP&A)(1)		10.5	%		3.5	%		9.6	%		4.3	%
Embedded Processing Solutions (EPS) (1)		2.1			(12.8	)		(5.1	)		(18.7	)
Others		-			-			-			-
Total consolidated operating income (loss)(2)		5.3	%		(5.2	)%		2.5	%		(9.6	)%

____________

(1)	As a percentage of net revenues per product segment.

(2)	As a percentage of total net revenues.

	Three Months Ended						Six Months Ended
	June 28, 2014			June 29, 2013			June 28, 2014			June 29, 2013
	(Unaudited, in millions)						(Unaudited, in millions)
Reconciliation to consolidated operating loss:

Total operating income (loss) of product segments	$	140		$	(64	)	$	164		$	(217	)
Unused capacity charges		(5	)		(2	)		(10	)		(26	)
Impairment, restructuring charges and other related closure costs		(20	)		(43	)		(32	)		(144	)
Strategic and other research and development programs		(2	)		(6	)		(3	)		(10	)
Phase-out and start-up costs		(3	)		-			(6	)		-
Other non-allocated provisions(1)		(12	)		8			(20	)		9
Total operating loss Others		(42	)		(43	)		(71	)		(171	)
Total consolidated operating income (loss)	$	98		$	(107	)	$	93		$	(388	)

____________

(1)	Includes unallocated income and expenses such as certain corporate-level operating expenses and other costs/income that are not allocated to the product segments.

Net revenues by location of shipment and by market channel

The table below sets forth information on our net revenues by location of shipment:

	Three Months Ended				Six Months Ended
	June 28, 2014		June 29, 2013		June 28, 2014		June 29, 2013
	(Unaudited, in millions)				(Unaudited, in millions)
Net Revenues by Location of Shipment(1):

EMEA	$	508	$	516	$	976	$	1,006
Americas		276		322		555		626
Greater China-South Asia		820		839		1,623		1,632
Japan-Korea		260		368		535		791
Total	$	1,864	$	2,045	$	3,689	$	4,055

____________

(1)

Net revenues by location of shipment are classified by location of customer invoiced or reclassified by shipment destination in line with customer demand. For example, products ordered by U.S.-based companies to be invoiced to Greater China-South Asia affiliates are classified as Greater China-South Asia revenues. Furthermore, the comparison among the different periods may be affected by shifts in shipment from one location to another, as requested by our customers.

The table below shows the percentage of our net revenues by market channel:

	Three Months Ended						Six Months Ended
	June 28, 2014			June 29, 2013			June 28, 2014			June 29, 2013
	(Unaudited, in millions)						(Unaudited, in millions)
Net Revenues by Market Channel(1):

OEM		69	%		74	%		69	%		75	%
Distribution		31			26			31			25
Total		100	%		100	%		100	%		100	%

____________

(1)	Original Equipment Manufacturers (“OEM”) are the end-customers to which we provide direct marketing application engineering support, while Distribution customers refers to the distributors and representatives that we engage to distribute our products around the world.

The following table sets forth certain financial data from our unaudited Consolidated Statements of Income:

	Three Months Ended (unaudited)
	June 28, 2014						March 29, 2014						June 29, 2013
	$ million			% of net revenues			$ million			% of net revenues			$ million			% of net revenues
Net sales	$	1,858			99.7	%	$	1,801			98.7	%	$	2,034			99.4	%
Other revenues		6			0.3			24			1.3			11			0.6
Net revenues		1,864			100			1,825			100.0			2,045			100
Cost of sales		(1,230	)		(66.0	)		(1,226	)		(67.2	)		(1,373	)		(67.2	)
Gross profit		634			34.0			599			32.8			672			32.8
Selling, general and administrative		(237	)		(12.7	)		(228	)		(12.4	)		(285	)		(13.9	)
Research and development		(389	)		(20.9	)		(378	)		(20.7	)		(453	)		(22.1	)
Other income and expenses, net		110			5.9			15			0.8			2			0.1
Impairment, restructuring charges and other related closure costs		(20	)		(1.1	)		(12	)		(0.7	)		(43	)		(2.1	)
Operating income (loss)		98			5.2			(4	)		(0.2	)		(107	)		(5.2	)
Interest income (expense), net		(3	)		(0.1	)		(2	)		(0.1	)		7			0.4
Loss on equity method investments		(52	)		(2.8	)		(8	)		(0.4	)		(89	)		(4.4	)
Gain on financial instruments, net		-			-			1			-			-			-
Income (loss) before income taxes and noncontrolling interest		43			2.3			(13	)		(0.7	)		(189	)		(9.2	)
Income tax benefit (expense)		(7	)		(0.4	)		(9	)		(0.5	)		16			0.8
Net income (loss)		36			1.9			(22	)		(1.2	)		(173	)		(8.4	)
Net loss (income) attributable to noncontrolling interest		2			0.1			(2	)		(0.1	)		21			1.0
Net income (loss) attributable to parent company	$	38			2.0	%	$	(24	)		(1.3	)%	$	(152	)		(7.4	)%

Second Quarter 2014 vs. First Quarter 2014 and Second Quarter 2013

Net revenues

	Three Months Ended						% Variation
	June 28, 2014		March 29, 2014		June 29, 2013		Sequential	Year-Over-Year
	(Unaudited, in millions)
Net sales	$	1,858	$	1,801	$	2,034
Other revenues		6		24		11
Net revenues	$	1,864	$	1,825	$	2,045	2.1%	(8.9)%

Year-over-year comparison

Our second quarter 2014 net revenues decreased by 8.9% as a result of an approximate 4% decrease in average selling prices and 5% lower volume. The decrease in average selling prices resulted from a pure pricing effect with a neutral impact of the product mix. Excluding legacy ST-Ericsson products, our revenues decreased by 2.1%.

By product segment, our revenues were down by approximately 20% in EPS, while SP&A registered a decrease of approximately 1%. Excluding legacy ST-Ericsson products, EPS segment revenues decreased by approximately 5%. Within the SP&A segment, APG and IPD revenues increased by about 11% and 2% respectively while AMS registered a decline of approximately 19%. Within EPS, IBP and DCG including legacy ST-Ericsson products registered a decline of revenues of approximately 22% and 51% respectively while MMS increased by about 13%.

By market channel, our revenues registered a major increase in Distribution, whose share of total revenues was up by approximately 5%, reaching 31% of our total revenues.

By location of shipment, all regions dropped mostly due to the phase-out of legacy ST-Ericsson products.

In the second quarter of 2014 and 2013, no customer exceeded 10% of our total net revenues.

Sequential comparison

On a sequential basis, our revenues increased by 2.1%, in line with our quarterly guidance. The sequential increase resulted from an approximate 8% increase in units sold partially offset by an approximate 6% decrease in average selling prices. Excluding legacy ST-Ericsson products and the first quarter one-time licensing revenues, our revenues increased by 4.7%.

By product segment, both SP&A and EPS increased their revenues by 0.9% and 4.6% respectively. In SP&A, the key drivers of our top-line growth were IPD and APG product lines, increasing by 7.4% and 4.2%, respectively, partially offset by a decline in AMS revenues of 13.3%. In EPS, the growth was driven by MMS whose revenues increased by 14.5%, while legacy ST-Ericsson products sales, within the DGC product line, decreased by about 45%.

By market channel, the second quarter of 2014 showed a sequential improvement for Distribution from the 30% share registered in the first quarter of 2014.

By location of shipment, sequential growth was led by EMEA with an increase of 8.3% driven by automotive and industrial customers, followed by Greater China & South Asia with an increase of 2.0%. Japan & Korea decreased by 5.3% reflecting lower sales of legacy ST-Ericsson products and the Americas decreased by 0.7%.

Gross profit

	Three Months Ended									% Variation
	June 28, 2014			March 29, 2014			June 29, 2013			Sequential			Year-Over-Year
	(Unaudited, in millions)
Cost of sales	$	(1,230	)	$	(1,226	)	$	(1,373	)		(0.3	)%		10.5	%
Gross profit		634			599			672			6.0			(5.5	)
Gross margin (as percentage of net revenues)		34.0	%		32.8	%		32.8	%

In the second quarter, gross margin was 34.0%, increasing on a year-over-year basis by approximately 120 basis points.

On a sequential basis, gross margin in the second quarter increased by 120 basis points, mainly due to improved manufacturing efficiencies and a more favorable product mix, partially offset by the negative impact of lower selling prices.

Selling, general and administrative expenses

	Three Months Ended									% Variation
	June 28, 2014			March 29, 2014			June 29, 2013			Sequential			Year-Over-Year
	(Unaudited, in millions)
Selling, general and administrative expenses	$	(237	)	$	(228	)	$	(285	)		(4.5	)%		16.7	%
As percentage of net revenues		(12.7	)%		(12.4	)%		(13.9	)%

The amount of our SG&A expenses decreased on a year-over-year basis, mainly due to the ST-Ericsson wind-down and our cost savings initiatives. Sequentially, our SG&A expenses mainly increased due to a longer calendar. As a percentage of revenues, our SG&A expenses amounted to 12.7%, decreasing year-over-year by 1.2 percentage points, and increasing sequentially by 0.3 percentage points.

Research and development expense

	Three Months Ended									% Variation
	June 28, 2014			March 29, 2014			June 29, 2013			Sequential			Year-Over-Year
	(Unaudited, in millions)
Research and development expenses	$	(389	)	$	(378	)	$	(453	)		(3.0	)%		14.0	%
As percentage of net revenues		(20.9	)%		(20.7	)%		(22.1	)%

The second quarter of 2014 R&D expenses decreased on a year-over-year basis, mainly due to the ST-Ericsson wind-down and our cost savings initiatives. Sequentially, our R&D expenses mainly increased due to a longer calendar.

The second quarter 2014 R&D expenses were net of research tax credits, which amounted to $33 million compared to $38 million in the prior-year quarter and $35 million in the prior quarter.

As a percentage of revenues, our R&D expenses amounted to 20.9%, decreasing year-over-year by 1.2 percentage points, and increasing sequentially by 0.2 percentage points.

Other income and expenses, net

	Three Months Ended
	June 28, 2014			March 29, 2014			June 29, 2013
	(Unaudited, in millions)
Research and development funding	$	130		$	21		$	10
Phase-out and start-up costs		(3	)		(3	)		-
Exchange gain (loss), net		2			(1	)		1
Patent costs		(16	)		(13	)		(8	)
Gain on sale of businesses and non-current assets		1			13			2
Other, net		(4	)		(2	)		(3	)
Other income and expenses, net	$	110		$	15		$	2
As percentage of net revenues		5.9	%		0.8	%		0.1	%

In the second quarter of 2014, we recognized an income, net of $110 million, increasing compared to previous periods mainly due to income from R&D funding. Income from R&D funding is associated with our R&D projects, which, upon project approval, qualifies as funding on the basis of contracts with local government agencies. The second quarter of 2014 included $100 million related to the catch-up of funding of the Nano2017 R&D program which started January 1, 2013, but was not recognized until the second quarter following the obtention of EU approval.

Impairment, restructuring charges and other related closure costs

	Three Months Ended
	June 28, 2014			March 29, 2014			June 29, 2013
	(Unaudited, in millions)
Impairment, restructuring charges and other related closure costs	$	(20	)	$	(12	)	$	(43	)

In the second quarter of 2014, we recorded $20 million of impairment, restructuring charges and other related closure costs, mainly due to the following:

$15 million 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 (“plan 600”); and

$5 million restructuring charges related to the manufacturing consolidation plans.

In the first quarter of 2014, we recorded $12 million of impairment, restructuring charges and other related closure costs, of which: (i) $10 million restructuring charges related to our “plan 600”; and (ii) $2 million restructuring charges related to the manufacturing consolidation plans.

In the second quarter of 2013, we recorded $43 million of impairment, restructuring charges and other related closure costs, of which: (i) $33 million in restructuring charges related to our “plan 600”; (ii) $5 million in restructuring charges related to the previously announced ST-Ericsson restructuring plans; (iii) $1 million in restructuring charges in relation to our Digital restructuring plan announced in October 2012; (iv) $8 million in impairment charges primarily related to certain assets considered as assets held for sale as part of the ST-Ericsson exit, offset by a $9 million net reduction of the restructuring provision in relation to the ST-Ericsson exit; and (v) $5 million in restructuring charges related to other restructuring initiatives.

Operating income (loss)

	Three Months Ended
	June 28, 2014			March 29, 2014			June 29, 2013
	(Unaudited, in millions)
Operating income (loss)	$	98		$	(4	)	$	(107	)
In percentage of net revenues		5.2	%		(0.2	)%		(5.2	)%

The second quarter of 2014 registered an operating income of $98 million compared to an operating loss of $107 million in the year-ago quarter and an operating loss of $4 million in the prior quarter. Compared to the year-ago period, the improvement in our operating results was mainly due to the savings in operating expenses, lower amounts of impairment and restructuring charges and higher other income. Sequentially, the improvement in our operating results was mainly due to higher other income.

Our SP&A segment reported an increase in its operating income compared to the year-ago and prior quarter periods. Our EPS segment registered an operating income, due entirely to the positive impact of the catch-up for 2013 and the first quarter of 2014 related to the Nano2017 grants, compared to an operating loss in the year-ago and prior quarter periods. In the second quarter of 2014, the operating result without the effect of the Nano2017 grants catch-up would have been a loss of approximately $80 million. The segment “Others” registered an operating loss of $42 million, from $43 million in the year-ago period and $28 million in the prior quarter period.

Interest income (expense), net

	Three Months Ended
	June 28, 2014			March 29, 2014			June 29, 2013
	(Unaudited, in millions)
Interest income (expense), net	$	(3	)	$	(2	)	$	7

We recorded a net interest expense of $3 million, compared to a net income of $7 million in the prior year quarter and a net expense of $2 million in the prior quarter. The prior year quarter income was mainly the result of a one-time interest payment received with respect to a U.S. tax refund.

Loss on equity-method investments

	Three Months Ended
	June 28, 2014			March 29, 2014			June 29, 2013
	(Unaudited, in millions)
Loss on equity-method investments	$	(52	)	$	(8	)	$	(89	)

In the second quarter of 2014, we recorded a charge of $52 million, of which $1 million related to our share in ST-Ericsson JVS losses and $51 million related to 3Sun, including impairment and other charges associated with our decision to exit the joint venture. On July 22, 2014, we signed an agreement to transfer all 3Sun ownership and obligations to Enel Green Power.

In the second quarter of 2013, we recorded a charge of $89 million, of which $91 million related to our share in 3Sun results, which consisted of $22 million operating losses and $69 million as non-cash item following the impairment of 3Sun’s assets.

Income tax (expense) benefit

	Three Months Ended
	June 28, 2014			March 29, 2014			June 29, 2013
	(Unaudited, in millions)
Income tax (expense) benefit	$	(7	)	$	(9	)	$	16

During the second quarter of 2014, we registered an income tax expense of $7 million, reflecting the discrete effective tax rate estimated in each of our jurisdictions, applied to the second quarter consolidated result before taxes, as opposed to an estimated effective tax rate due to significant uncertainty in estimating the effective tax rate. In addition, our income tax included the estimated impact of provisions related to potential tax positions which have been considered uncertain.

Net loss (income) attributable to noncontrolling interest

	Three Months Ended
	June 28, 2014		March 29, 2014			June 29, 2013
	(Unaudited, in millions)
Net loss (income) attributable to noncontrolling interest	$	2	$	(2	)	$	21

In the second quarter of 2014, we recorded $2 million representing the loss attributable to noncontrolling interest mainly related to our joint venture in Shenzhen, China for assembly operating activities. In the second quarter of 2013, the corresponding amount was a loss of $21 million which mainly reflected Ericsson’s share in the ST-Ericsson JVS joint venture’s result, prior to the deconsolidation as of September 1, 2013.

Net income (loss) attributable to parent company

	Three Months Ended
	June 28, 2014			March 29, 2014			June 29, 2013
	(Unaudited, in millions)
Net income (loss) attributable to parent company	$	38		$	(24	)	$	(152	)
As percentage of net revenues		2	%		(1.3	)%		(7.4	)%

For the second quarter of 2014, we reported a net income of $38 million compared to a $152 million loss in the year-ago quarter and a $24 million loss in the prior quarter.

Earnings per share for the second quarter of 2014 was $0.04 compared to $(0.17) in the year-ago quarter and $(0.03) in the prior quarter.

In the second quarter of 2014, the impact per share after tax of impairment, restructuring charges and one-time charges, a non U.S. GAAP measure, was estimated to be approximately $(0.07) per share, while in the first quarter of 2014, it was estimated to be approximately $(0.02) per share. In the year-ago quarter, the impact of impairment, restructuring charges and one-time charges was estimated to be approximately $(0.11) per share.

First Half of 2014 vs. First Half of 2013

The following table sets forth consolidated statements of operations data for the periods indicated:

	Six Months Ended (Unaudited)						Six Months Ended (Unaudited)
	June 28, 2014			June 28, 2014			June 29, 2013			June 29, 2013
	$ million			% of net revenues			$ million			% of net revenues
Net sales	$	3,658			99.2	%	$	4,037			99.6	%
Other revenues		31			0.8			18			0.4
Net revenues		3,689			100			4,055			100
Cost of sales		(2,456	)		(66.6	)		(2,755	)		(67.9	)
Gross profit		1,233			33.4			1,300			32.1
Selling, general and administrative		(465	)		(12.6	)		(564	)		(13.9	)
Research and development		(768	)		(20.8	)		(986	)		(24.3	)
Other income and expenses, net		125			3.4			6			0.1
Impairment, restructuring charges and other related closure costs		(32	)		(0.9	)		(144	)		(3.6	)
Operating income (loss)		93			2.5			(388	)		(9.6	)
Interest expense, net		(4	)		(0.1	)		-			-
Loss on equity-method investments		(60	)		(1.6	)		(102	)		(2.5	)
Gain on financial instruments, net		1			0.0			-			-
Income (loss) before income taxes and noncontrolling interest		30			0.8			(490	)		(12.1	)
Income tax benefit		(16	)		(0.4	)		21			0.5
Net income (loss)		14			0.4			(469	)		(11.6	)
Net loss (income) attributable to noncontrolling interest		-			-			147			3.7
Net income (loss) attributable to parent company	$	14			0.4	%	$	(322	)		(7.9	)%

Net revenues

	Six Months Ended				% Variation
	June 28, 2014		June 29, 2013
	(Unaudited, in millions)
Net sales	$	3,658	$	4,037
Other revenues		31		18
Net revenues	$	3,689	$	4,055		(9.0	)%

Our first half 2014 net revenues decreased compared to the year-ago period, mainly due to the significant reduction of legacy ST-Ericsson products revenues following our decision to exit the ST-Ericsson joint venture. Excluding legacy ST-Ericsson products, our revenues decreased by approximately 1% compared to the year-ago period. Net revenues decreased by 9.0% as a result of a decline in average selling prices of approximately 5% and a decline in volume of approximately 4%.

By product segment, our revenues were down by approximately 24% for EPS, mainly due to DCG including legacy ST-Ericsson products and IBP partially balanced by MMS. SP&A registered an increase of approximately 2% mainly driven by APG and IPD.

By market channel, the major increase was in Distribution, which reached a 31% share of total revenues compared to approximately 25% in the first half of 2013.

By location of shipment, revenues declined in all regions.

In the first half of 2014, no customer exceeded 10% of our total net revenues, while Samsung Group represented approximately 11% of our total net revenues in the first half of 2013.

Gross profit

	Six Months Ended						% Variation
	June 28, 2014			June 29, 2013
	(Unaudited, in millions)
Cost of sales	$	(2,456	)	$	(2,755	)		10.9	%
Gross profit		1,233			1,300			(5.1	)
Gross margin (as percentage of net revenues)		33.4	%		32.1	%

Gross margin was 33.4% in the first half of 2014, increasing by 130 basis points compared to the year-ago period. We experienced an improvement in manufacturing efficiencies as well as lower unused capacity charges, which were partially offset by declining selling prices and volumes.

Selling, general and administrative expenses

	Six Months Ended						% Variation
	June 28, 2014			June 29, 2013
	(Unaudited, in millions)
Selling, general and administrative expenses	$	(465	)	$	(564	)		17.6	%
As percentage of net revenues		(12.6	)%		(13.9	)%

The amount of our SG&A expenses decreased mainly due to the ST-Ericsson wind-down and our cost savings initiatives. As a percentage of revenues, our SG&A expenses amounted to 12.6% in the first half of 2014, improving compared to 13.9% in the prior year’s half.

Research and development expenses

	Six Months Ended						% Variation
	June 28, 2014			June 29, 2013
	(Unaudited, in millions)
Research and development expenses	$	(768	)	$	(986	)		22.1	%
As percentage of net revenues		(20.8	)%		(24.3	)%		-

R&D expenses decreased in the first half of 2014 compared to the prior year’s first half, mainly due to the ST-Ericsson wind-down and our cost savings initiatives.

Total R&D expenses were net of research tax credits, which amounted to $68 million in the first half of 2014, compared to $69 million in the year-ago period.

Other income and expenses, net

	Six Months Ended
	June 28, 2014			June 29, 2013
	(Unaudited, in millions)
Research and development funding	$	152		$	20
Phase-out and star-up costs		(6	)		-
Exchange gain, net		1			4
Patent costs		(29	)		(15	)
Gain on sale of businesses and non current assets		13			2
Other, net		(6	)		(5	)
Other income and expenses, net	$	125		$	6
As percentage of net revenues		3.4	%		0.1	%

In the first half of 2014, we recognized an income net of $125 million, improving compared to $6 million in the first half of 2013, mainly due to the higher level of R&D funding following the European Union approval of the Nano2017 program.

Impairment, restructuring charges and other related closure costs

	Six Months Ended
	June 28, 2014			June 29, 2013
	(Unaudited, in millions)
Impairment, restructuring charges and other related closure costs	$	(32	)	$	(144	)

In the first half of 2014, we recorded $32 million of impairment, restructuring charges and other related closure costs, mainly due to the following:

$25 million restructuring charges related to our “plan 600”; and

$7 million restructuring charges related to the manufacturing consolidation plans.

In the first half of 2013, we recorded $144 million of impairment, restructuring charges and other related closure costs, of which: (i) $81 million in impairment and restructuring charges related to the ST-Ericsson exit; (ii) $47 million in restructuring charges related to our “plan 600”; (iii) $10 million in restructuring charges related to the previously announced ST-Ericsson restructuring plans and iv) $6 million in restructuring charges related to other restructuring initiatives.

Operating income (loss)

	Six Months Ended
	June 28, 2014			June 29, 2013
	(Unaudited, in millions)
Operating income (loss)	$	93		$	(388	)
As percentage of net revenues		2.5	%		(9.6	)%

Our operating results improved in the first half of 2014 compared to the first half of 2013 mainly due to improved manufacturing efficiencies, savings in operating expenses, lower amounts of impairment and restructuring charges and higher other income, which were partially offset by declining selling prices and volumes. This resulted in a first half 2014 operating income of $93 million compared to an operating loss of $388 million in the year-ago period.

SP&A registered an operating income of $230 million or approximately 10% of revenues, improving from $99 million or about 4% of revenues, due to higher revenues level, improved product mix and manufacturing efficiencies and higher other income. Mainly due to the catch-up related to the Nano2017 grants and the reduced level of operating expenses, EPS registered a significant improvement in its operating loss, from $316 million or about 19% of revenues in the first half of 2013 to $66 million or approximately 5% of revenues in the first half of 2014. The segment “Others” decreased its losses to $71 million, from $171 million in the year-ago period, mainly due to lower impairment and restructuring charges.

Interest expense, net

	Six Months Ended
	June 28, 2014			June 29, 2013
	(Unaudited, in millions)
Interest expense, net	$	(4	)	$	-

In the first half of 2014, interest expense on our borrowings was $8 million, partially balanced by $4 million in interest income. In the first half of 2013, interest expense was nil, comprised of $14 million interest expense on our borrowings almost entirely offset by the one-time interest payment received with respect to a U.S tax refund in the second quarter of 2013.

Loss on equity-method investments

	Six Months Ended
	June 28, 2014			June 29, 2013
	(Unaudited, in millions)
Loss on equity-method investments	$	(60	)	$	(102	)

In the first half of 2014, we recorded a charge of $60 million, out of which $9 million related to our share in ST-Ericsson JVS as a loss pick-up and $51 million related to 3Sun, including impairment and other charges associated with our decision to exit the joint venture. In the first half of 2013, we recorded a charge of $102 million, out of which $96 million related to our share in 3Sun results which consisted of $27 million operating losses and $69 million as non-cash item following 3Sun’s assets impairment. The remaining $6 million loss related to other investments.

Income tax (expense) benefit

	Six Months Ended
	June 28, 2014			June 29, 2013
	(Unaudited, in millions)
Income tax (expense) benefit	$	(16	)	$	21

During the first half of 2014, we registered an income tax expense of $16 million, reflecting the discrete effective tax rate estimated in each of our jurisdictions, applied to the consolidated result before taxes, as opposed to an estimated effective tax rate due to significant uncertainty in estimating the effective tax rate. In addition, our income tax included the estimated impact of provisions related to potential tax positions which have been considered uncertain.

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 estimations of our tax provisions. Our income tax amounts and rates depend also on our loss carry-forwards and their relevant valuation allowances, which are based on estimated projected 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 estimated tax rate could be different in future quarters 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 which have been considered uncertain.

Net loss (income) attributable to noncontrolling interest

	Six Months Ended
	June 28, 2014		June 29, 2013
	(Unaudited, in millions)
Net loss (income) attributable to noncontrolling interest	$	-	$	147

In the first half of 2014, the loss attributable to noncontrolling interest was nil. In the first half of 2013, the corresponding amount was a loss of $147 million which mainly reflected Ericsson’s share in the ST-Ericsson JVS joint venture’s result, prior to the deconsolidation as of September 1, 2013.

Net income (loss) attributable to parent company

	Six Months Ended
	June 28, 2014			June 29, 2013
	(Unaudited, in millions)
Net income (loss) attributable to parent company	$	14		$	(322	)
As percentage of net revenues		0.4	%		(7.9	)%

For the first half of 2014, we reported a net income of $14 million compared to a $322 million loss in the year-ago first half.

Legal Proceedings

For a discussion of legal proceedings, see Note 23 Contingencies, Claims and Legal proceedings to our Consolidated Financial Statements.

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 the 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) 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, 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 costs, SG&A expenses, and R&D expenses, are largely incurred in the currency of the jurisdictions in which our operations are located. Given that most of our operations are located in the Euro zone and other non-U.S. dollar currency areas, including Singapore, our costs tend to increase when translated into U.S. dollars when the dollar weakens or to decrease when the U.S. dollar strengthens.

In summary, as our reporting currency is the U.S. dollar, 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. The impact on our accounts could therefore be material, in the case of a material variation of the U.S. dollar exchange rate.

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 Statements of Income, in particular with respect to a portion of the costs of goods sold, most of the R&D expenses and certain SG&A expenses, located in the Euro 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 the three months and six months ended June 28, 2014 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 exchange rate was $1.36 for the second quarter of 2014 compared to $1.35 for €1.00 in the first quarter of 2014 and $1.30 for €1.00 in the second quarter of 2013. Our effective average exchange rate was $1.36 for €1.00 for the first half of 2014 compared to $1.30 for €1.00 in the first half of 2013. 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 for manufacturing costs and operating expenses may run up to 24 months, for a limited percentage of our exposure to the Euro and under certain currency market circumstances. As of June 28, 2014, the outstanding hedged amounts were €463 million to cover manufacturing costs and €334 million to cover operating expenses, at an average exchange rate of about $1.3990 for €1.00 and $1.3915 for €1.00 respectively (considering the options and the collars at strike), maturing over the period from July 1, 2014 to May 5, 2015. As of June 28, 2014, these outstanding hedging contracts and certain expiring contracts covering manufacturing expenses capitalized in inventory resulted in a deferred profit of approximately $4 million before tax, recorded in “Accumulated other comprehensive income (loss)” in the Consolidated Statements of Equity, compared to a deferred profit of approximately $39 million before tax at December 31, 2013.

We also hedge certain manufacturing costs denominated in Singapore dollars (SGD); as of June 28, 2014, the outstanding hedged amounts were SGD 124 million at an average exchange rate of about SGD 1.2587 to $1.00 maturing over the period from July 3, 2014 to June 4, 2015. As of June 28, 2014, these outstanding hedging contracts and certain expiring contracts covering manufacturing expenses capitalized in inventory resulted in a deferred profit of approximately $1 million before tax, recorded in “Accumulated other comprehensive income (loss)” in the Consolidated Statements of Equity, compared to a deferred loss of approximately $1 million before tax at December 31, 2013.

Our cash flow hedging policy is not intended to cover our full exposure and is based on hedging a portion of our exposure in the next four quarters and a declining percentage of our exposure in each quarter thereafter. In the second quarter of 2014, as a result of our cash flow hedging, we recorded a net profit of $11 million, consisting of a profit of about $2 million to R&D expenses, a profit of about $9 million to costs of goods sold and a profit of less than $1 million to SG&A expenses, while in the second quarter of 2013, we recorded a net profit of $1 million.

In addition to our cash flow hedging, in order to mitigate potential exchange rate risks on our commercial transactions, we purchase and enter into forward foreign currency exchange contracts and currency options to cover foreign currency exposure in payables or receivables at our affiliates, which we account for as fair value instruments. We may in the future purchase or sell similar types of instruments. See Item 11. “Quantitative and Qualitative Disclosures About Market Risk” in our Form 20-F, which may be updated from time to time in our public filings. Furthermore, we may not predict in a timely fashion the amount of future transactions in the volatile industry environment. No assurance may be given that our hedging activities will sufficiently protect us against declines in the value of the U.S. dollar. Consequently, our results of operations have been and may continue to be impacted by fluctuations in exchange rates. The net effect of our consolidated foreign exchange exposure resulted in a net gain of $2 million recorded in “Other income and expenses, net” in our Consolidated Statements of Income for the second quarter of 2014.

The assets and liabilities of subsidiaries are, for consolidation purposes, translated into U.S. dollars at the period-end exchange rate. Income and expenses, as well as cash flows, are translated at the average exchange rate for the period. The balance sheet impact, as well as the income statement and cash flow impact, of such translations have been, and may be expected to be, significant from period to period since a large part of our assets and liabilities and activities are accounted for in Euros as they are located in jurisdictions where the Euro is the functional currency. Adjustments resulting from the translation are recorded directly in equity, and are shown as “Accumulated other comprehensive income (loss)” in the Consolidated Statements of Equity. At June 28, 2014, our outstanding indebtedness was denominated mainly in U.S. dollars and in Euros.

For a more detailed discussion, see Item 3. “Key Information — Risk Factors — Risks Related to Our Operations” in our Form 20-F, which may be updated from time to time in our public filings.

Impact of Changes in Interest Rates

Interest rates may fluctuate upon changes in financial market conditions and material changes can affect our results of 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 in our Consolidated Statements of Income, is the balance between interest income received from our cash and cash equivalents and marketable securities investments and interest expense paid on our financial 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 a short-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 consist of European Investment Bank Floating Rate Loans at Libor and Euribor plus variable spreads.

At June 28, 2014, our total financial resources, including cash and cash equivalents and marketable securities, generated an average interest income rate of 0.26%. At the same date, the average interest rate on our outstanding debt was 0.97%.

Impact of Changes in Equity Prices

As of June 28, 2014, we did not hold any significant equity participations, which could be subject to a material impact in changes in equity prices. However, we hold equity participations whose carrying value could be reduced due to further losses or impairment charges of our equity-method investments. See Note 17 to our Consolidated Financial Statements.

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 at least a single A long-term rating, meaning at least A3 from Moody’s Investor Service (“Moody’s”) and A- from Standard & Poor’s (“S&P”) or Fitch Ratings (“Fitch”), or better. Marginal amounts are held in other currencies. See Item 11. “Quantitative and Qualitative Disclosures About Market Risk” in our Form 20-F, which may be updated from time to time in our public filings.

Cash flow

We maintain a significant cash position and a low debt-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 the first half of 2014, our net cash decreased by $333 million, due to the net cash used in investing and financing activities exceeding the net cash from operating activities.

The components of our cash flow for the comparable periods are set forth below:

	Six Months Ended
	June 28, 2014			June 29, 2013
	(In millions)
Net cash from operating activities	$	123		$	81
Net cash used in investing activities		(258	)		(227	)
Net cash used in financing activities		(196	)		(493	)
Effect of changes in exchange rates		(3	)		(28	)
Net cash decrease	$	(334	)	$	(667	)

Net cash from operating activities. Net cash from operating activities is the sum of (i) net income (loss) adjusted for non-cash items and (ii) changes in net working capital. The net cash from operating activities in the first half of 2014 was $123 million, increasing compared to $81 million in the prior year period. Net cash from operating activities in the first half of 2014 compared to the year-ago period benefited from an increased net income adjusted for non-cash items, which was partially offset by the unfavorable changes in net working capital, mainly due to the negative impact of other assets and liabilities driven by the recognition of the Nano2017 grants not collected as of the end of the second quarter.

Net cash used in investing activities. Investing activities used $258 million of cash in the first half of 2014, mainly due to payments for the purchase of tangible, intangible, financial assets and investment in short term deposits, partially offset by the proceeds from the sale of marketable securities and the sale of businesses. The increase in net cash used in investing activities compared to the prior-year period ($227 million) was primarily due to the investment in short term deposits for $50 million and the higher amount of payments for the purchase of tangible assets, partially offset by the proceeds from the sale of businesses for $19 million. Payments for purchase of tangible assets, net of proceeds, totaled $251 million compared to $232 million registered in the prior year period.

Net cash used in financing activities. Net cash used in financing activities was $196 million in the first half of 2014 decreasing compared to the $493 million used in the first half of 2013. The decrease in the net cash used in financing activities was primarily due to the $455 million repayment of the residual outstanding 2013 Senior Bonds in the first half of 2013, partially offset by the proceeds from short-term borrowings for $145 million in the same period. The first half of 2014 amount included $175 million in dividends paid to stockholders compared to $164 million in the prior year period.

Free Cash Flow (non U.S. GAAP measure).

We also present Free Cash Flow, which is a non U.S. GAAP measure, defined as (i) net cash from operating activities plus (ii) net cash used in investing activities, excluding payment for purchases (and proceeds from the sale) of marketable securities, 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 sale of tangible, intangible and financial assets and proceeds received in sale of businesses. We believe Free 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 operations. Free Cash 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 and net cash variation 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 Flow may differ from definitions used by other companies. Free Cash Flow is determined as follows from our Consolidated Statements of Cash Flows:

	Three Months Ended			Six Months Ended
	June 28, 2014			June 28, 2014			June 29, 2013
	(In millions)			(In millions)
Net cash from operating activities	$	71		$	123		$	81
Net cash used in investing activities		(219	)		(258	)		(227	)
Excluding:
Proceeds from sale of marketable securities, change in short term deposits, restricted cash, net and net variation for JV deconsolidation		49			(16	)		(53	)
Payment for purchase and proceeds from sale of tangible and intangible assets (1)		(170	)		(274	)		(280	)
Free Cash Flow (non U.S. GAAP measure)	$	(99	)	$	(151	)	$	(199	)

_____________

(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 assets, Payment for purchase of financial assets, Proceeds from sale financial assets, Proceeds received in sale of businesses.

Free Cash Flow was negative $151 million in the first half of 2014, improving compared to negative $199 million in the first half of 2013.

Net Financial Position (non U.S. GAAP measure).

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, marketable securities, short-term deposits and restricted cash, and our total financial debt includes bank overdrafts, short-term debt and long-term debt, as represented in our Consolidated Balance Sheets. Net Financial 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. Our Net Financial Position for each period has been determined as follows from our Consolidated Balance Sheets:

	As at
	June 28, 2014			March 29, 2014			June 29, 2013
	(In millions)
Cash and cash equivalents	$	1,502		$	1,744		$	1,583
Marketable securities		-			-			189
Short-term deposits		51			1			1
Total financial resources		1,553			1,745			1,773
Short-term debt		(225	)		(225	)		(313	)
Long-term debt		(905	)		(908	)		(651	)
Total financial debt		(1,130	)		(1,133	)		(964	)
Net Financial Position	$	423		$	612		$	809

Our Net Financial Position as of June 28, 2014 was a net cash position of $423 million, decreasing compared to the net cash position of $612 million at March 29, 2014, as a result of our negative Free Cash Flow and dividends payment.

Cash and cash equivalents amounted to $1,502 million as at June 28, 2014, as a result of our cash flow evolution as presented above.

Financial debt was $1,130 million as at June 28, 2014, composed of (i) $225 million of current portion of long-term debt and (ii) $905 million long-term debt. The breakdown of our total financial debt included: (i) $1,111 million in European Investment Bank loans (the “EIB Loans”), (ii) $17 million in loans from other funding programs, and (iii) $2 million of capital leases. The EIB Loans are comprised of four long-term amortizing credit facilities as part of our R&D funding programs. The first for R&D in France was drawn in U.S. dollars from 2006 to 2008 for a total amount of $341 million, of which $78 million remained outstanding as of June 28, 2014. The second for R&D projects in Italy, was drawn in U.S. dollars in 2008 for a total amount of $380 million, of which $163 million remained outstanding as of June 28, 2014. The third, signed in 2010, is a €350 million multi-currency loan to support our industrial and R&D programs. It was drawn mainly in U.S. dollars for an amount of $321 million and only partially in Euros for an amount of €100 million, of which the equivalent of $399 million remained outstanding as of June 28, 2014. The fourth, signed in the first quarter of 2013, is a €350 million multicurrency loan which also supports our R&D programs. It was drawn in U.S. dollars for an amount of $471 million, all of which is outstanding as of June 28, 2014. At June 28, 2014, the amounts available under our short-term lines of credit were unutilized.

Our long-term debt contains standard conditions, but does not impose minimum financial ratios.

On July 3, 2014, we issued $1,000 million principal amount of dual tranche senior unsecured convertible bonds (Tranche A for $600 million and Tranche B for $400 million), due 2019 and 2021, respectively, for net proceeds of approximately $995 million. Tranche A bonds were issued as zero-coupon bonds while Tranche B bonds bear a 1% per annum nominal interest, payable semi-annually. The conversion price at issuance is approximately $12, equivalent to a 30% and a 31% premium, respectively, on each tranche. The bonds are convertible by the bondholders if certain conditions are satisfied on a net-share settlement basis, except if an alternative settlement is elected by us. We can also redeem the bonds prior to their maturity in certain circumstances. We intend to use the net proceeds of the offering for general corporate purposes.

Upon initial recognition, the proceeds will be allocated between debt and equity by determining the liability component using either an income approach or a market approach or a combination of the two. The liability component will accrete to par value until maturity based on the effective interest rate. In the computation of diluted EPS, the convertible bonds will be dilutive only for the portion of net-share settlement underlying the conversion premium when the conversion option is in the money.

On June 26, 2014 we also announced the launch of a share buy-back program for the purchase of up to 20 million ordinary shares, as authorized by the shareholders’ meeting held on June 13, 2014. Purchases of shares will be made on the Borsa Italiana exclusively. The purchased shares will not be retired but are currently intended to meet our obligations in relation to the employee stock award plans.

On December 19, 2013, Moody’s lowered our senior debt rating from “Baa2” to “Baa3” with stable outlook.

On December 18, 2012, S&P lowered our senior debt rating from “BBB+” to “BBB” with negative outlook.

We are also rated “BBB-” from Fitch on an unsolicited basis.

As of June 28, 2014, debt payments due by period were as follows:

	Payments Due by Period
	Total		2014		2015		2016		2017		2018		Thereafter
	(In millions)
Long-term debt (including current portion)	$	1,130	$	203	$	205	$	195	$	119	$	117	$	291

Financial Outlook: 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 most important of our 2014 capital expenditure projects are expected to be: (a) for our front-end facilities: (i) in our 300-mm fab in Crolles, technology evolution to consolidate the capability for 20-nm processes and mix evolution to support the production ramp up of new technologies for microcontrollers and automotive advanced products; (ii) a few selective programs of mix evolution, mainly in the area of analog processes; (iii) qualification of technologies in 200-mm in Singapore and Catania; and (iv) quality, safety, maintenance, and productivity and cost savings investments in both 150-mm and 200-mm front-end fabs; (b) for our back-end facilities, capital expenditures will mainly be dedicated to: (i) capacity growth on certain package families, to sustain market demand; (ii) modernization and rationalization of package lines targeting cost savings benefits; and (iii) specific investments in the areas of factory automation, quality, environment and energy savings; and (c) an overall capacity adjustment in final testing and wafers probing (EWS) to meet increased demand and changed product mix.

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. We expect to need significant financial resources in the coming years for capital expenditures and for our investments in manufacturing and R&D. We plan to fund our capital requirements from cash provided by operating activities, available funds and 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 issuance 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 prior years to fund our capital expenditure plans for expanding/upgrading our production facilities, our working capital requirements, our R&D and manufacturing costs.

In support of our R&D activities, we signed the Nano2017 program with the French government, which was approved by the European Union in the second quarter of 2014 and, in our role as Coordinator and Project Leader of Nano2017, we have been allocated an overall funding budget of about €400 million for the period 2013-2017, subject to the conclusion of agreements every year with the public authorities and linked to the achievement of technical parameters and objectives.

As a result of our exit from the ST-Ericsson joint venture, our exposure is limited to covering 50% of ST-Ericsson’s needs to complete the wind-down, which are estimated to be negligible, based on our current visibility of the ST-Ericsson liquidation balance.

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.

Contractual Obligations, Commercial Commitments and Contingencies

Our contractual obligations, commercial commitments and contingencies are mainly comprised of: operating leases for land, buildings, plants and equipment; purchase commitments for equipment, outsourced foundry wafers and for software licenses; long-term debt obligations; pension obligations and other long-term liabilities.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements at June 28, 2014.

Impact of Recently Issued U.S. Accounting Standards

See Note 5 Recent Accounting Announcements to our Consolidated Financial Statements.

Backlog and Customers

During the second quarter of 2014, our bookings plus frames orders increased compared to the first quarter of 2014, reflecting an improved demand in several product lines. We entered the third quarter 2014 with a backlog higher than the level we had when entering the second quarter 2014. Backlog (including frame orders) is subject to possible cancellation, push back and a lower ratio of frame orders being translated into firm orders and, thus, it is not necessarily indicative of the amount of billings or growth to be registered in subsequent periods.

In the first half of 2014, no customer accounted for more than 10% of our total net revenues while Samsung group represented approximately 11% of our total net revenues in the first half of 2013. There is no guarantee that any customer will continue to generate revenues for us at the same levels as in prior periods. If we were to lose one or more of our key customers, or if they were to significantly reduce their bookings, not confirm planned delivery dates on frame orders in a significant manner or fail to meet their payment obligations, our operating results and financial condition could be adversely affected.

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 disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this report. 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 this periodic report, 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 this periodic report. 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 on Form 6-K and Form 20-F. The components of our Disclosure Controls are also evaluated on an ongoing basis by our Internal Audit Department, which reports directly to our 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.

Based upon the controls evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this periodic report, our Disclosure Controls were effective.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal 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 subject to inherent risk that the relevant controls may become inadequate due to changes in circumstances or that the degree of compliance with the underlying policies or procedures may deteriorate.

Other Reviews

We have sent this report to our Audit Committee, which had an opportunity to raise questions with our management and independent auditors before we submitted it to the Securities and Exchange Commission.

Cautionary Note Regarding Forward-Looking Statements

Some of the statements contained in this Form 6-K that are not historical facts, particularly in “ Business Overview” and in “Liquidity and Capital Resources—Financial Outlook: Capital Investment”, are statements of future expectations and other forward-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 anticipated by such statements due to, among other factors:

uncertain macro-economic and industry trends;

customer demand and acceptance for the products which we design, manufacture and sell;

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;

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, 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, tsunamis, 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 of macro-economic or regional events, military conflict, social unrest, or terrorist activities; and

availability and costs of raw materials, utilities, third-party manufacturing services, or other supplies required by our operations.

Such forward-looking statements are subject to various risks and uncertainties, which may cause actual results and performance of our business to differ materially and adversely from the forward-looking statements. Certain forward-looking statements can be identified by the use of forward-looking terminology, such as “believes”, “expects”, “may”, “are expected to”, “should”, “would be”, “seeks” or “anticipates” or similar expressions or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans or intentions. Some of these risk factors are set forth and are discussed in more detail in “Item 3. Key Information — Risk Factors” in our Form 20-F. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in our Form 20-F as anticipated, believed or expected. We do not intend, and do not assume any obligation, to update any industry information or forward-looking statements set forth in this Form 6-K to reflect subsequent events or circumstances.

Unfavorable changes in the above or other factors listed under “Item 3. Key Information — Risk Factors” from time to time in our SEC filings, could have a material adverse effect on our business and/or financial condition.

STMICROELECTRONICS N.V.

UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

	Pages
Consolidated Statements of Income for the Three and Six Months Ended June 28, 2014 and June 29, 2013 (unaudited)	F-1
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 28, 2014 and June 29, 2013 (unaudited)	F-3
Consolidated Balance Sheets as of June 28, 2014 (unaudited) and December 31, 2013 (audited)	F-5
Consolidated Statements of Cash Flows for the Six Months Ended June 28, 2014 and June 29, 2013 (unaudited)	F-6
Consolidated Statements of Equity (unaudited)	F-7
Notes to Interim Consolidated Financial Statements (unaudited)	F-8

STMicroelectronics N.V.
CONSOLIDATED STATEMENTS OF INCOME

	Three months ended
	(Unaudited)
	June 28,			June 29,
In million of U.S. dollars except per share amounts	2014			2013

Net sales		1,858			2,034
Other revenues		6			11
Net revenues		1,864			2,045
Cost of sales		(1,230	)		(1,373	)
Gross profit		634			672
Selling, general and administrative		(237	)		(285	)
Research and development		(389	)		(453	)
Other income and expenses, net		110			2
Impairment, restructuring charges and other related closure costs		(20	)		(43	)
Operating income (loss)		98			(107	)
Interest income (expense), net		(3	)		7
Loss on equity-method investments		(52	)		(89	)
Gain on financial instruments, net		-			-
Income (loss) before income taxes and noncontrolling interest		43			(189	)
Income tax benefit (expense)		(7	)		16
Net income (loss)		36			(173	)
Net loss (income) attributable to noncontrolling interest		2			21
Net income (loss) attributable to parent company		38			(152	)

Earnings per share (Basic) attributable to parent company stockholders		0.04			(0.17	)
Earnings per share (Diluted) attributable to parent company stockholders		0.04			(0.17	)


The accompanying notes are an integral part of these unaudited interim consolidated financial statements

F-1

STMicroelectronics N.V.
CONSOLIDATED STATEMENTS OF INCOME

	Six months ended
	(Unaudited)
	June 28,			June 29,
In million of U.S. dollars except per share amounts	2014			2013

Net sales		3,658			4,037
Other revenues		31			18
Net revenues		3,689			4,055
Cost of sales		(2,456	)		(2,755	)
Gross profit		1,233			1,300
Selling, general and administrative		(465	)		(564	)
Research and development		(768	)		(986	)
Other income and expenses, net		125			6
Impairment, restructuring charges and other related closure costs		(32	)		(144	)
Operating income (loss)		93			(388	)
Interest expense, net		(4	)		-
Loss on equity-method investments		(60	)		(102	)
Gain on financial instruments, net		1			-
Income (loss) before income taxes and noncontrolling interest		30			(490	)
Income tax benefit (expense)		(16	)		21
Net income (loss)		14			(469	)
Net loss (income) attributable to noncontrolling interest		-			147
Net income (loss) attributable to parent company		14			(322	)

Earnings per share (Basic) attributable to parent company stockholders		0.02			(0.36	)
Earnings per share (Diluted) attributable to parent company stockholders		0.02			(0.36	)


The accompanying notes are an integral part of these unaudited interim consolidated financial statements

F-2

STMicroelectronics N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three months ended
	(Unaudited)
	June 28,			June 29,
In million of U.S. dollars	2014			2013


Net income (loss)		36			(173	)
Other comprehensive income (loss), net of tax :
Currency translation adjustments arising during the period		(33	)		55
Foreign currency translation adjustments		(33	)		55
Unrealized gains (losses) arising during the period		-			-
Unrealized gains (losses) on securities		-			-
Unrealized gains (losses) arising during the period		(3	)		19
Less : reclassification adjustment for (income) losses included in net income (loss)		(10	)		-
Unrealized gains (losses) on derivatives		(13	)		19
Net gains (losses) arising during the period		-			-
Defined benefit pension plans		-			-
Other comprehensive income (loss), net of tax		(46	)		74
Comprehensive income (loss)		(10	)		(99	)
Less : comprehensive income (loss) attributable to noncontrolling interest		(1	)		(23	)
Comprehensive income (loss) attributable to the company’s stockholders		(9	)		(76	)



The accompanying notes are an integral part of these unaudited interim consolidated financial statements

F-3

STMicroelectronics N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Six months ended
	(Unaudited)
	June 28,			June 29,
In million of U.S. dollars	2014			2013


Net income (loss)		14			(469	)
Other comprehensive income (loss), net of tax :
Currency translation adjustments arising during the period		(36	)		(30	)
Foreign currency translation adjustments		(36	)		(30	)
Unrealized gains (losses) arising during the period		-			1
Unrealized gains (losses) on securities		-			1
Unrealized gains (losses) arising during the period		(8	)		(6	)
Less : reclassification adjustment for (income) losses included in net income (loss)		(21	)		(15	)
Unrealized gains (losses) on derivatives		(29	)		(21	)
Net gains (losses) arising during the period		1			1
Defined benefit pension plans		1			1
Other comprehensive income (loss), net of tax		(64	)		(49	)
Comprehensive income (loss)		(50	)		(518	)
Less : comprehensive income (loss) attributable to noncontrolling interest		1			(151	)
Comprehensive income (loss) attributable to the company’s stockholders		(51	)		(367	)



The accompanying notes are an integral part of these unaudited interim consolidated financial statements

F-4

STMicroelectronics N.V.
CONSOLIDATED BALANCE SHEETS