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 November 12, 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 Third Quarter and Nine Months Ended September 27, 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 nine months ended September 27, 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 nine months ended September 27, 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 nine months ended September 27, 2014 designed to provide context for the other sections of the MD&A, including our expectations for selected financial items for the fourth quarter of 2014.

Other Developments in the Third Quarter 2014.

Results of Operations, containing a year-over-year and sequential analysis of our financial results for the three months and nine months ended September 27, 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 nine months 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 ended on September 27 and the fourth quarter will end December 31, 2014. 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 third quarter of 2014, the same number of days as in the second quarter of 2014 and the third quarter of 2013.

Business Overview

Our results of operations for each period were as follows:

	Three Months Ended									% Variation
	September 27, 2014			June 28, 2014			September 28, 2013			Sequential			Year-Over-Year
	(Unaudited, in millions, except per share amounts)
Net revenues	$	1,886		$	1,864		$	2,013			1.2	%		(6.3	%)
Gross profit		646			634			652			1.9	%		(0.9	%)
Gross margin as percentage of net revenues		34.3	%		34.0	%		32.4	%
Operating income (loss)		37			98			(66	)
Net income (loss) attributable to parent company		72			38			(142	)
Earnings per share		0.08			0.04			(0.16	)

The total available market is defined as the “TAM”, while the serviceable available market, the “SAM”, is defined as the market for products sold 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 products such as Baseband and Application Processor).

Based on the most recently published estimates by WSTS, semiconductor industry revenues increased in the third quarter of 2014 on a sequential basis by approximately 6% for the TAM and 4% for the SAM, to reach approximately $87 billion and $39 billion, respectively. On a year-over-year basis, both the TAM and the SAM increased by approximately 8% and 7%, respectively.

Our revenues increased by 1.2% sequentially and declined by 6.3% year-over-year. Excluding the former ST-Ericsson products that we are discontinuing, our revenues declined by 1.0% year-over-year.

The third quarter was a solid quarter in terms of performance across a number of metrics and year-over-year improvement: from gross margin to operating margin progression and from net income to cash flow generation. At the same time, the softening of demand towards the end of the quarter, specifically in the mass market and in microcontrollers, slowed our anticipated sequential revenue progress.

We are progressing in moving our digital businesses towards self-sustainability, with a sharper focus on developing and bringing to our customers our latest home gateway and set-top-box products as well as our FD-SOI and mixed process ASICs. In order to maintain the path of progress towards turning these businesses to profit, and in light of slower than expected future revenue growth in a weaker than anticipated market, we have launched a series of actions targeting an estimated $100 million annual operating expenses savings. We are discontinuing our commodity camera module products, while reinforcing our imaging effort on prioritized customer projects and opportunities. We are also combining our Digital Convergence Group (DCG) and Imaging, BI-CMOS ASIC and Silicon Photonics (IBP) product groups to create synergies. The plan will affect around 450 employees worldwide within the Embedded Processing Solution perimeter and total restructuring costs are expected to be about $50 million through completion, of which $13 million was posted in the third quarter of 2014. Finally, we are reviewing the implications to our process technology development following the recent announcements by our Research Alliance partners. We are engaged in discussions with our lead partner on this subject.

Third quarter 2014 revenues amounted to $1,886 million, a 1.2% sequential increase, inside our guidance of the quarter but below the 3% mid-point. The major contributors to this growth were DCG, Industrial & Power Discrete (IPD) and IBP. As anticipated, Analog & MEMS (AMS) returned to sequential revenue growth, with the ramp-up of new MEMS products including high-performance analog microphones and high-accuracy pressure sensors, and touch-screen controllers for volume markets. Digital Convergence Group grew sequentially driven primarily by our latest generation of broadcast set-top-box products.

On a year-over-year basis, revenues registered a 6.3% decrease or a 1.0% decrease excluding legacy ST-Ericsson products. Sense & Power and Automotive Products (SP&A) segment revenues increased by about 1% primarily due to an increase in Automotive and Industrial & Power Discrete, partially offset by a decrease in Analog & MEMS. Embedded Processing Solutions (EPS) segment revenues decreased by approximately 17% mainly due to the phasing-out of the legacy ST-Ericsson products and weak performance in the Imaging product line, only partially offset by the growth in Microcontrollers, Memory & Secure MCU (MMS).

Compared to the served market, our performance was below the SAM both on a year-over-year and sequential basis.

Our effective average exchange rate for the third quarter of 2014 was $1.34 for €1.00 compared to $1.36 for €1.00 in the second quarter of 2014 and $1.31 for €1.00 in the third quarter of 2013. 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 third quarter 2014 gross margin was 34.3% of revenues, compared to the 34.4% mid-point of our guidance, and increasing sequentially by 30 basis points, mainly due to improved manufacturing efficiencies, partially offset by the negative impact of lower selling prices and increased charges for unloading. On a year-over-year comparison, our third quarter 2014 gross margin improved by 190 basis points, mainly due to manufacturing efficiencies and an improved product mix, partially offset by lower selling prices and higher unused capacity.

Our combined selling, general and administrative (SG&A) and research and development (R&D) costs amounted to $603 million, decreasing by about 4% compared to $626 million in the prior quarter mainly due to seasonality. On a year-over-year basis, operating expenses decreased by about 11% compared to $676 million in the prior-year quarter mainly due to the ST-Ericsson wind-down and the impact of our cost savings initiatives.

Other income and expenses, net, decreased to $32 million compared to $110 million and $78 million in the previous 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 of 2014, following the European Union program approval. The third quarter of 2013 included a gain of around $80 million associated with the sale of ST-Ericsson’s Global Navigation Satellite System business to a third party and other sales of assets.

Our operating income was $37 million in the third quarter of 2014 deteriorating from an income of $98 million in the second quarter of 2014, while improving from a loss of $66 million in the third quarter of 2013. Sequentially, the deterioration in our operating results was mainly due to lower other income and higher impairment and restructuring charges, partially offset by savings in operating expenses. Excluding the positive impact of the catch-up of the Nano2017 grants in the second quarter of 2014, our operating income improved sequentially. Compared to the year-ago period, the improvement in our operating results was mainly due to the savings in operating expenses and lower amounts of impairment and restructuring charges, partially offset by lower other income.

We also showed progress in terms of free cash flow that turned positive at $140 million for the third quarter of 2014.

Shareholders received a quarterly dividend of $0.10 per share in each of the past two quarters. The decision regarding the distribution of a dividend for the fourth quarter of 2014 and first quarter of 2015 will be decided by our Supervisory Board at their regularly scheduled meeting on December 4, 2014. The semi-annual dividend resolution is decided by the Supervisory Board upon the recommendation of management. Based upon the Company’s financial resources and cash requirements, as well as our current visibility of the overall economic environment, management currently intends to recommend a continuation of the current dividend level. However, the ultimate decision remains within the discretion of our Supervisory Board.

In the fourth quarter, due to the ongoing soft market conditions, we expect net revenues to decrease sequentially by about 3.5% plus or minus 3.5 percentage points with all product groups decreasing except our Analog & MEMS group due to key products ramp-ups, such as analog microphones, new 6-axis gyroscopes and touch controllers.

Based upon our revenue growth outlook as well as product mix between analog and digital we anticipate that our fourth quarter 2014 gross margin will decrease to about 33.8% plus or minus 2.0 percentage points, reflecting significantly higher unused capacity charges negatively impacting gross margin by about 150 to 200 basis points compared to the third quarter of 2014. The higher level of expected unused capacity charges is mainly driven by our manufacturing capacity in digital technology that continues to be at a low level of utilization.

In light of slower than expected future revenues growth in a weaker than anticipated market, we have launched a number of measures to adjust our plans for our digital business. For the total Company we target in the mid-term an operating margin goal of about 10%. When looking to the second half of 2015, we believe we are on track for a substantial improvement from our operating margin in the third quarter of 2014.

This outlook is based on an assumed effective currency exchange rate of approximately $1.30 = €1.00 for the 2014 fourth quarter and includes the impact of existing hedging contracts. The fourth quarter will close on December 31, 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 third quarter of 2014

On August 21, we announced the posting of our IFRS 2014 Semi Annual Accounts for the six-month period ended June 28, 2014, on our website and filed with the Netherlands Authority for the Financial Markets.

On September 3, we announced that we and Tessera Technologies, Inc. reached a settlement for all outstanding claims and litigation between us. The terms and conditions of the agreement between the companies are confidential.

On November 10, we announced that we had completed the repurchase of 20 million shares under our share buy-back program for a total purchase price of about $156 million.

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.

During the first nine months of 2014, our segments were 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.

Effective in the fourth quarter of 2014, the existing Digital Convergence Group (DCG) and Imaging, BI-CMOS and Silicon Photonics (IBP) groups will be combined under one single organization, called Digital Product Group (DPG). DPG will focus on three main areas: ASSPs addressing home gateway and set-top box, as well as digital ASICs for consumer applications; mixed process and digital ASICs, including silicon photonics, addressing communication infrastructure; and differentiated imaging products.

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”.

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.

Third Quarter 2014 vs. Second Quarter 2014 and Third Quarter 2013

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

	Three Months Ended (unaudited)
	September 27, 2014						June 28, 2014						September 28, 2013
	$ million			% of net revenues			$ million			% of net revenues			$ million			% of net revenues
Net sales	$	1,870			99.2	%	$	1,858			99.7	%	$	2,005			99.6	%
Other revenues		16			0.8			6			0.3			8			0.4
Net revenues		1,886			100			1,864			100			2,013			100
Cost of sales		(1,240	)		(65.7	)		(1,230	)		(66.0	)		(1,361	)		(67.6	)
Gross profit		646			34.3			634			34.0			652			32.4
Selling, general and administrative		(226	)		(12.0	)		(237	)		(12.7	)		(253	)		(12.6	)
Research and development		(377	)		(20.0	)		(389	)		(20.9	)		(423	)		(21.0	)
Other income and expenses, net		32			1.7			110			5.9			78			3.8
Impairment, restructuring charges and other related closure costs		(38	)		(2.0	)		(20	)		(1.1	)		(120	)		(5.9	)
Operating income (loss)		37			1.9			98			5.2			(66	)		(3.3	)
Interest expense, net		(7	)		(0.4	)		(3	)		(0.1	)		(2	)		(0.1	)
Loss on equity method investments		-			-			(52	)		(2.8	)		(8	)		(0.4	)
Income (loss) before income taxes and noncontrolling interest		30			1.6			43			2.3			(76	)		(3.8	)
Income tax benefit (expense)		42			2.2			(7	)		(0.4	)		(49	)		(2.4	)
Net income (loss)		72			3.8			36			1.9			(125	)		(6.2	)
Net loss (income) attributable to noncontrolling interest		-			-			2			0.1			(17	)		(0.9	)
Net income (loss) attributable to parent company	$	72			3.8	%	$	38			2.0	%	$	(142	)		(7.1	)%

Net revenues

	Three Months Ended						% Variation
	September 27, 2014		June 28, 2014		September 28, 2013		Sequential			Year-Over-Year
	(Unaudited, in millions)
Net sales	$	1,870	$	1,858	$	2,005
Other revenues		16		6		8
Net revenues	$	1,886	$	1,864	$	2,013		1.2	%		(6.3	)%

Our third quarter 2014 net revenues increased sequentially by 1.2%, inside our guidance of the quarter but below the 3% mid-point. The sequential increase resulted from an approximate 7% increase in volume, partially offset by an approximate 6% decrease in average selling prices.

On a year-over-year basis, our net revenues decreased by 6.3% as a result of an approximate 7% decrease in average selling prices, slightly offset by higher volume. The reduction in average selling prices resulted from a pricing effect, down by approximately 4%, and a less favorable product mix of about 3%. Excluding legacy ST-Ericsson products, our revenues decreased by 1.0%.

No customer exceeded 10% of our total net revenues in the third quarter of 2014 or in the prior and year-ago quarters.

Net revenues by product line and product segment

	Three Months Ended						% Variation
	September 27, 2014		June 28, 2014		September 28, 2013		Sequential			Year-Over-Year
	(Unaudited, in millions)
Automotive (APG)	$	464	$	463	$	418		0.1	%		10.9	%
Industrial & Power Discrete (IPD)		486		475		458		2.4			6.3
Analog & MEMS (AMS)		268		264		329		1.5			(18.8	)
Sense & Power and Automotive Products (SP&A)		1,218		1,202		1,205		1.3			1.0
Digital Convergence Group (DCG)		202		184		314		10.2			(35.6	)
Imaging, BI-CMOS ASIC and Silicon Photonics (IBP)		84		76		128		10.4			(34.4	)
Microcontrollers, Memory & Secure MCU (MMS)		377		396		360		(4.8	)		4.8
Other EPS		-		1		-
Embedded Processing Solutions (EPS)		663		657		802		1.0			(17.3	)
Others		5		5		6		3.6			(6.6	)
Total consolidated net revenues	$	1,886	$	1,864	$	2,013		1.2	%		(6.3	)%

Sequentially, both SP&A and EPS increased their revenues by approximately 1%. Within the SP&A segment, both IPD and AMS increased their revenues by about 2% while APG revenues were stable. Within EPS, both IBP and DCG including legacy ST-Ericsson products increased by approximately 10% while MMS decreased by about 5%. In the third quarter of 2014, DCG benefited from the positive impact of an $8 million one-time license fee related to a transaction in the prior period.

On a year-over-year basis, our revenues were down by approximately 17% in EPS, while SP&A registered an increase 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 6% 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 34% and 36% respectively while MMS increased by about 5%.

In the third 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.

Net Revenues by Market Channel (1)

	Three Months Ended
	September 27, 2014			June 28, 2014			September 28, 2013
	(Unaudited, in %)
OEM		68	%		69	%		75	%
Distribution		32			31			25
Total		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.

By market channel, our revenues in Distribution amounted to 32%, increasing compared to the prior and year-ago quarters.

Net Revenues by Location of Shipment (1)

	Three Months Ended						% Variation
	September 27, 2014		June 28, 2014		September 28, 2013		Sequential			Year-Over-Year
	(Unaudited, in millions)
EMEA	$	503	$	508	$	478		(0.9	)%		5.1	%
Americas		297		276		302		7.4			(1.6	)
Greater China-South Asia		842		820		866		2.8			(2.8	)
Japan-Korea		244		260		367		(6.2	)		(33.3	)
Total	$	1,886	$	1,864	$	2,013		1.2	%		(6.3	)%

____________

(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.

Sequentially, Greater China & South Asia and America experienced increases in revenues while Japan & Korea and EMEA experienced decreases. On a year-over-year basis, the main decline in revenues was in the Japan & Korea region, mainly due to the phasing out of legacy ST-Ericsson products.

Gross profit

	Three Months Ended									Variation
	September 27, 2014			June 28, 2014			September 28, 2013			Sequential			Year-Over-Year
	(Unaudited, in millions)
Cost of sales	$	(1,240	)	$	(1,230	)	$	(1,361	)		(0.9	)%		8.9	%
Gross profit		646			634			652			1.9	%		(0.9	)%
Gross margin (as percentage of net revenues)		34.3	%		34.0	%		32.4	%	30 bps			190 bps

In the third quarter, gross margin was 34.3%, increasing sequentially by approximately 30 basis points, mainly due to improved manufacturing efficiencies, partially offset by the negative impact of lower selling prices and increased unused capacity charges. Unused capacity charges amounted to $14 million compared to $5 million in the previous quarter.

On a year-over-year basis, our margin increased by approximately 190 basis points, mainly due to improved manufacturing efficiencies and a more favorable product mix, partially offset by the negative impact of lower selling prices and higher unused capacity charges. There were no unused capacity charges in the year-ago quarter.

Operating expenses

	Three Months Ended									Variation
	September 27, 2014			June 28, 2014			September 28, 2013			Sequential			Year-Over-Year
	(Unaudited, in millions)
Selling, general and administrative expenses	$	(226	)	$	(237	)	$	(253	)		4.7	%		10.5	%
Research and development expenses		(377	)		(389	)		(423	)		3.2	%		10.9	%
As percentage of net revenues		(32.0	)%		(33.6	)%		(33.6	)%	160 bps			160 bps

The third quarter of 2014 operating expenses decreased sequentially mainly due to seasonal effects. On a year-over-year basis, our operating expenses decreased mainly due to the ST-Ericsson exit and our cost savings initiatives. As a percentage of revenues, our operating expenses amounted to 32.0%, decreasing both sequentially and year-over-year by approximately 160 basis points.

The third quarter 2014 R&D expenses were net of research tax credits, which amounted to $34 million compared to $33 million in the prior quarter and $34 million in the prior-year quarter.

Other income and expenses, net

	Three Months Ended
	September 27, 2014			June 28, 2014			September 28, 2013
	(Unaudited, in millions)
Research and development funding	$	27		$	130		$	9
Phase-out and start-up costs		(7	)		(3	)		(1	)
Exchange gain, net		2			2			2
Patent costs, net of reversal of unused provisions		1			(16	)		(12	)
Gain on sale of businesses and non-current assets		11			1			81
Other, net		(2	)		(4	)		(1	)
Other income and expenses, net	$	32		$	110		$	78
As percentage of net revenues		1.7	%		5.9	%		3.8	%

In the third quarter of 2014, we recognized an income, net of $32 million, decreasing sequentially mainly due to lower income from R&D funding and higher phase-out costs resulting from our manufacturing consolidation plans, partially offset by a higher gain on sale of businesses and non-current assets. The second quarter of 2014 included $100 million related to the catch-up related to previous periods of funding of the Nano2017 R&D program which started January 1, 2013, but was not recognized until the second quarter of 2014 following the European Union program approval.

On a year-over-year basis the decrease is mainly due to a lower gain on sale of businesses and non-current assets and higher phase-out costs resulting from our manufacturing consolidation plans, partially offset by higher R&D funding mainly coming from the Nano2017 R&D program and lower patent costs. The third quarter of 2013 included gains associated with the sale of the ST-Ericsson Global Navigation Satellite System business and with the sale of the Portland Compiler Group in ST.

Impairment, restructuring charges and other related closure costs

	Three Months Ended
	September 27, 2014			June 28, 2014			September 28, 2013
	(Unaudited, in millions)
Impairment, restructuring charges and other related closure costs	$	(38	)	$	(20	)	$	(120	)

In the third quarter of 2014, we recorded $38 million of impairment, restructuring charges and other related closure costs, primarily consisting of: (i) $23 million of impairment charges on the DCG dedicated intangible assets following our annual impairment test; and (ii) $13 million of restructuring charges related to the “EPS restructuring plan’’. For a discussion of our annual impairment test, see Note 7 Impairment, Restructuring Charges and Other Related Closure Costs and Note 15 Goodwill to our Consolidated Financial Statements.

In the second quarter of 2014, we recorded $20 million of impairment, restructuring charges and other related closure costs, consisting of: (i) $15 million of restructuring charges related to our “plan 600”; and (ii) $5 million of restructuring charges related to the manufacturing consolidation plans.

In the third quarter of 2013, we recorded $120 million of impairment, restructuring charges and other related closure costs, primarily consisting of: (i) $56 million of impairment charges on the DCG goodwill and dedicated intangible assets following our annual impairment test; (ii) $35 million of impairment and restructuring charges related to the manufacturing consolidation plans; and (iii) $22 million of restructuring charges related to our “plan 600”.

Operating income (loss)

	Three Months Ended
	September 27, 2014			June 28, 2014			September 28, 2013
	(Unaudited, in millions)
Operating income (loss)	$	37		$	98		$	(66	)
In percentage of net revenues		1.9	%		5.2	%		(3.3	)%

The third quarter of 2014 registered an operating income of $37 million compared to an operating income of $98 million in the prior quarter and an operating loss of $66 million in the year-ago quarter. Sequentially, the deterioration in our operating results was mainly due to lower other income and higher impairment and restructuring charges, partially offset by savings in operating expenses. Excluding the positive impact of the catch-up of the Nano2017 grants in the second quarter of 2014, the operating income improved sequentially. Compared to the year-ago period, the improvement in our operating results was mainly due to the savings in operating expenses and lower amounts of impairment and restructuring charges, partially offset by lower other income.

Operating income (loss) by product segment

	Three Months Ended (unaudited)
	September 27, 2014						June 28, 2014						September 28, 2013
	$ million			% of net revenues			$ million			% of net revenues			$ million			% of net revenues
Sense & Power and Automotive Products (SP&A)	$	114			9.4	%	$	126			10.5	%	$	75			6.2	%
Embedded Processing Solutions (EPS)		(27	)		(4.1	)		14			2.1			(18	)		(2.2	)
Others(1)		(50	)					(42	)					(123	)
Total consolidated operating income (loss)	$	37			1.9	%	$	98			5.2	%	$	(66	)		(3.3	)%

____________

(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.

Sequentially, our SP&A segment reported a decrease in its operating income while our EPS segment registered an operating loss after presenting an operating income in the previous quarter. Excluding the positive impact of the catch-up of the Nano2017 grants related to previous periods in the second quarter of 2014, both segments improved their performance sequentially. On a year-over-year basis, SP&A reported an increase in its operating income while EPS decreased its operating loss. Excluding the positive impact from the sale of businesses in the third quarter of 2014 and 2013, amounting to $11 million and $75 million respectively, EPS reduced its operating loss.

Reconciliation to consolidated operating income (loss)

	Three Months Ended
	September 27, 2014			June 28, 2014			September 28, 2013
	(Unaudited, in millions)
Total operating income of product segments	$	87		$	140		$	57
Unused capacity charges		(14	)		(5	)		-
Impairment, restructuring charges and other related closure costs		(38	)		(20	)		(120	)
Strategic and other research and development programs		(2	)		(2	)		(4	)
Phase-out and start-up costs		(7	)		(3	)		(1	)
Other non-allocated provisions(1)		11			(12	)		2
Total operating loss Others		(50	)		(42	)		(123	)
Total consolidated operating income (loss)	$	37		$	98		$	(66	)

____________

(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.

Interest expense, net

	Three Months Ended
	September 27, 2014			June 28, 2014			September 28, 2013
	(Unaudited, in millions)
Interest expense, net	$	(7	)	$	(3	)	$	(2	)

We recorded a net interest expense of $7 million, compared to an expense of $3 million in the prior quarter and $2 million in the prior-year quarter. The increase, both sequentially and on a year-over-year basis, has resulted from the interest expense on the dual tranche senior unsecured convertible bonds issued on July 3, 2014 (the “Senior Bonds”). The non-cash interest expense of the Senior Bonds amounted to $5 million in the third quarter 2014.

Loss on equity-method investments

	Three Months Ended
	September 27, 2014		June 28, 2014			September 28, 2013
	(Unaudited, in millions)
Loss on equity-method investments	$	-	$	(52	)	$	(8	)

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 third quarter of 2013, we recorded a charge of $8 million, of which $5 million related to our investment in MicroOLED SAS, which consisted of approximately $1 million of our share of losses and approximately $4 million as a non-cash impairment. Additionally, we recognized a loss of $3 million related to other investments, mainly 3Sun.

Income tax (expense) benefit

	Three Months Ended
	September 27, 2014		June 28, 2014			September 28, 2013
	(Unaudited, in millions)
Income tax (expense) benefit	$	42	$	(7	)	$	(49	)

During the third quarter of 2014, we registered an income tax benefit of $42 million, reflecting the discrete effective tax rate estimated in each of our jurisdictions, applied to the third quarter consolidated result before taxes, as opposed to an estimated effective tax rate due to significant uncertainty in estimating the effective tax rate. The third quarter of 2014 included $40 million of one-time tax benefits mainly related to previous year adjustments following the signature of an Advanced Price Agreement with the U.S. Internal Revenue Service and the review of the tax basis as a consequence of a recent court case ruling in respect to the U.S. Extraterritorial Income Exclusion Regime calculations. 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
	September 27, 2014		June 28, 2014		September 28, 2013
	(Unaudited, in millions)
Net loss (income) attributable to noncontrolling interest	$	-	$	2	$	(17	)

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 third quarter of 2013, the corresponding amount was an income of $17 million representing 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
	September 27, 2014			June 28, 2014			September 28, 2013
	(Unaudited, in millions)
Net income (loss) attributable to parent company	$	72		$	38		$	(142	)
As percentage of net revenues		3.8	%		2.0	%		(7.1	)%

For the third quarter of 2014, we reported a net income attributable to parent company of $72 million compared to a $38 million income in the prior quarter and a $142 million loss in the year-ago quarter.

Earnings per share for the third quarter of 2014 was $0.08 compared to $0.04 in the prior quarter and $(0.16) in the year-ago quarter.

In the third 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 $(0.05) per share, while in the second quarter of 2014, it was estimated to be approximately $(0.07) per share. In the year-ago quarter, the impact of impairment, restructuring charges and one-time charges was estimated to be approximately $(0.13) per share.

Nine Months of 2014 vs. Nine Months of 2013

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

	Nine Months Ended (Unaudited)
	September 27, 2014			September 27, 2014			September 28, 2013			September 28, 2013
	$ million			% of net revenues			$ million			% of net revenues
Net sales	$	5,529			99.2	%	$	6,042			99.6	%
Other revenues		46			0.8			25			0.4
Net revenues		5,575			100			6,067			100
Cost of sales		(3,696	)		(66.3	)		(4,115	)		(67.8	)
Gross profit		1,879			33.7			1,952			32.2
Selling, general and administrative		(691	)		(12.4	)		(817	)		(13.5	)
Research and development		(1,144	)		(20.5	)		(1,409	)		(23.2	)
Other income and expenses, net		157			2.8			84			1.3
Impairment, restructuring charges and other related closure costs		(71	)		(1.3	)		(263	)		(4.3	)
Operating income (loss)		130			2.3			(453	)		(7.5	)
Interest expense, net		(11	)		(0.2	)		(2	)		0.0
Loss on equity-method investments		(60	)		(1.1	)		(111	)		(1.8	)
Gain on financial instruments, net		1			0.0			-			-
Income (loss) before income taxes and noncontrolling interest		60			1.1			(566	)		(9.3	)
Income tax benefit		26			0.5			(29	)		(0.5	)
Net income (loss)		86			1.5			(595	)		(9.8	)
Net loss (income) attributable to noncontrolling interest		(1	)		(0.0	)		131			2.1
Net income (loss) attributable to parent company	$	85			1.5	%	$	(464	)		(7.7	)%

Net revenues

	Nine Months Ended
	September 27, 2014		September 28, 2013		% Variation
	(Unaudited, in millions)
Net sales	$	5,529	$	6,042
Other revenues		46		25
Net revenues	$	5,575	$	6,067		(8.1	)%

Our first nine months 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 joint venture. Net revenues decreased by 8.1% as a result of a decline in average selling prices of approximately 5% and a decline in volume of approximately 3%. Excluding legacy ST-Ericsson products, our revenues decreased by approximately 1% compared to the year-ago period.

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

Net revenues by product line and product segment

	Nine Months Ended
	September 27, 2014		September 28, 2013		% Variation
	(Unaudited, in millions)
Automotive (APG)	$	1,371	$	1,219		12.5	%
Industrial & Power Discrete (IPD)		1,404		1,353		3.7
Analog & MEMS (AMS)		835		970		(13.8	)
Sense & Power and Automotive Products (SP&A)		3,610		3,542		1.9
Digital Convergence Group (DCG)		591		1,184		(50.1	)
Imaging, BI-CMOS ASIC and Silicon Photonics (IBP)		236		298		(20.6	)
Microcontrollers, Memory & Secure MCU (MMS)		1,119		1,010		10.8
Other EPS		1		1
Embedded Processing Solutions (EPS)		1,947		2,493		(21.9	)
Others		18		32		(45.5	)
Total consolidated net revenues	$	5,575	$	6,067		(8.1	)%

By product segment, our revenues were down by approximately 22% for EPS, mainly due to DCG including legacy ST-Ericsson products and IBP, partially offset by MMS. SP&A registered an increase of approximately 2% mainly driven by APG, partially offset by AMS.

Net Revenues by Market Channel (1)

	Nine Months Ended
	September 27, 2014			September 28, 2013
	(Unaudited, in %)
OEM		69	%		75	%
Distribution		31			25
Total		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.

By market channel, in the first nine months of 2014, Distribution reached a 31% share of total revenues compared to approximately 25% in the first nine months of 2013.

Net Revenues by Location of Shipment (1)

	Nine Months Ended
	September 27, 2014		September 28, 2013		% Variation
	(Unaudited, in millions)
EMEA	$	1,479	$	1,484		(0.4	)%
Americas		851		928		(8.3	)
Greater China-South Asia		2,465		2,498		(1.3	)
Japan-Korea		780		1,157		(32.6	)
Total	$	5,575	$	6,067		(8.1	)%

____________

(1)

By location of shipment, revenues declined in all regions, with the largest decline in revenues in the Japan & Korea region, mainly due to the phasing out of legacy ST-Ericsson products.

Gross profit

	Nine Months Ended
	September 27, 2014			September 28, 2013			Variation
	(Unaudited, in millions)
Cost of sales	$	(3,696	)	$	(4,115	)		10.2	%
Gross profit		1,879			1,952			(3.7	)%
Gross margin (as percentage of net revenues)		33.7	%		32.2	%	150 bps

Gross margin was 33.7% for the first nine months of 2014, increasing by approximately 150 basis points compared to the year-ago period due to improvement in manufacturing efficiencies and a positive product mix, partially offset by declining selling prices and an unfavorable exchange rate. Unused capacity charges amounted to $24 million in the first nine months of 2014 compared to $26 million in the year-ago period.

Operating expenses

	Nine Months Ended
	September 27, 2014			September 28, 2013			Variation
	(Unaudited, in millions)
Selling, general and administrative expenses	$	(691	)	$	(817	)		15.4	%
Research and development expenses		(1,144	)		(1,409	)		18.8	%
As percentage of net revenues		(32.9	)%		(36.7	)%	380 bps

Our operating expenses decreased mainly due to the ST-Ericsson wind-down and our cost savings initiatives. As a percentage of revenues, our operating expenses amounted to 32.9% in the first nine months of 2014, decreasing by approximately 380 basis points compared to the year-ago period.

Total R&D expenses were net of research tax credits, which amounted to $103 million both in the first nine months of 2014 and the year-ago period.

Other income and expenses, net

	Nine Months Ended
	September 27, 2014			September 28, 2013
	(Unaudited, in millions)
Research and development funding	$	178		$	29
Phase-out and start-up costs		(13	)		(1	)
Exchange gain, net		3			6
Patent costs, net of reversals for unused provisions		(28	)		(27	)
Gain on sale of businesses and non current assets		25			83
Other, net		(8	)		(6	)
Other income and expenses, net	$	157		$	84
As percentage of net revenues		2.8	%		1.3	%

In the first nine months of 2014, we recognized an income net of $157 million, improving compared to $84 million in the first nine months of 2013. The increase is mainly due to the higher level of R&D funding following the European Union approval of the Nano2017 program, partially offset by a lower gain on sale of businesses and non-current assets as well as higher phase-out costs resulting from our manufacturing consolidation plans.

Impairment, restructuring charges and other related closure costs

	Nine Months Ended
	September 27, 2014			September 28, 2013
	(Unaudited, in millions)
Impairment, restructuring charges and other related closure costs	$	(71	)	$	(263	)

In the first nine months of 2014, we recorded $71 million of impairment, restructuring charges and other related closure costs, primarily consisting of: (i) $23 million of impairment charges on the DCG dedicated intangible assets following our annual impairment test; (ii) $24 million of restructuring charges related to our “plan 600”; (iii) $13 million of restructuring charges related to the “EPS restructuring plan’’; and (iv) $10 million of restructuring charges related to the manufacturing consolidation plans. For a discussion of our annual impairment test, see Note 7 Impairment, Restructuring Charges and Other Related Closure Costs and Note 15 Goodwill to our Consolidated Financial Statements.

In the first nine months of 2013, we recorded $263 million of impairment, restructuring charges and other related closure costs, primarily consisting of: (i) $86 million of impairment and restructuring charges related to the ST-Ericsson exit; (ii) $69 million of restructuring charges related to our “plan 600”; (iii) $56 million of impairment charges on the DCG goodwill and dedicated intangible assets following our annual impairment test; and (iv) $35 million of impairment and restructuring charges related to the manufacturing consolidation plans.

Operating income (loss)

	Nine Months Ended
	September 27, 2014			September 28, 2013
	(Unaudited, in millions)
Operating income (loss)	$	130		$	(453	)
As percentage of net revenues		2.3	%		(7.5	)%

Our operating results improved compared to the first nine months of 2013 mainly due to improved manufacturing efficiencies, savings in operating expenses, higher other income and lower amounts of impairment and restructuring charges, which were partially offset by declining selling prices and an unfavorable currency impact.

Operating income (loss) by product segment

	Nine Months Ended (unaudited)
	September 27, 2014						September 28, 2013
	$ million			% of net revenues			$ million			% of net revenues
Sense & Power and Automotive Products (SP&A)	$	344			9.5	%	$	174			4.9	%
Embedded Processing Solutions (EPS)		(93	)		(4.8	)		(333	)		(13.4	)
Others(1)		(121	)					(294	)
Total consolidated operating income (loss)(2)	$	130			2.3	%	$	(453	)		(7.5	)%

____________

(1)

SP&A registered an operating income of $344 million, improving from $174 million. EPS registered a significant improvement in its operating loss, from $333 million in the nine months of 2013 to an operating loss of $93 million in the first nine months of 2014.

Reconciliation to consolidated operating income (loss)

	Nine Months Ended
	September 27, 2014			September 28, 2013
	(Unaudited, in millions)
Total operating income (loss) of product segments	$	251		$	(159	)
Unused capacity charges		(24	)		(26	)
Impairment, restructuring charges and other related closure costs		(71	)		(263	)
Strategic and other research and development programs		(5	)		(14	)
Phase-out and start-up costs		(13	)		(1	)
Other non-allocated provisions(1)		(8	)		10
Total operating loss Others		(121	)		(294	)
Total consolidated operating income (loss)	$	130		$	(453	)

____________

(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.

Interest expense, net

	Nine Months Ended
	September 27, 2014			September 28, 2013
	(Unaudited, in millions)
Interest expense, net	$	(11	)	$	(2	)

In the first nine months of 2014, interest expense on our borrowings was $19 million, of which $5 million non-cash interest expense related to the Senior Bonds issued on July 3, 2014, partially balanced by an $8 million interest income. In the first nine months of 2013, interest expense was $2 million, comprised of $18 million interest expense partially offset by $16 million of interest income, including a one-time interest payment received with respect to a U.S. tax refund in the second quarter of 2013.

Loss on equity-method investments

	Nine Months Ended
	September 27, 2014			September 28, 2013
	(Unaudited, in millions)
Loss on equity-method investments	$	(60	)	$	(111	)

In the first nine months 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 nine months of 2013, we recorded a charge of $111 million, out of which $99 million related to our share in 3Sun which consisted of a $30 million operating loss and $69 million as a non-cash item following their asset impairment. The remaining $12 million loss related to other investments, mainly MicroOLED SAS and ST-Ericsson JVD.

Income tax (expense) benefit

	Nine Months Ended
	September 27, 2014		September 28, 2013
	(Unaudited, in millions)
Income tax (expense) benefit	$	26	$	(29	)

During the first nine months of 2014, we registered an income tax benefit of $26 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. The third quarter of 2014 includes $40 million of one-time tax benefits mainly related to previous year adjustments following the signature of an Advanced Price Agreement with the U.S. Internal Revenue Service and the review of the tax basis as a consequence of a recent court case ruling in respect to the U.S. Extraterritorial Income Exclusion Regime calculations. Our income tax also 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

	Nine Months Ended
	September 27, 2014			September 28, 2013
	(Unaudited, in millions)
Net loss (income) attributable to noncontrolling interest	$	(1	)	$	131

In the first nine months of 2014, we recorded $1 million representing the income attributable to noncontrolling interest. In the first nine months of 2013, we recorded $131 million representing the loss attributable to non-controlling interest, mainly relating to Ericsson’s interest in the ST-Ericsson joint venture prior to the deconsolidation effective September 1, 2013.

Net income (loss) attributable to parent company

	Nine Months Ended
	September 27, 2014			September 28, 2013
	(Unaudited, in millions)
Net income (loss) attributable to parent company	$	85		$	(464	)
As percentage of net revenues		1.5	%		(7.7	)%

For the first nine months of 2014, we reported a net income of $85 million, representing earnings per share of $0.10, compared to a $464 million loss in the year-ago period, representing earnings per share of $(0.52).

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 only 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 nine months ended September 27, 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 $1.34 for €1.00 in the third quarter of 2014 compared to $1.36 for €1.00 in the second quarter of 2014 and $1.31 for €1.00 in the third quarter of 2013. Our effective average exchange rate was $1.35 for €1.00 for the first nine months of 2014 compared to $1.30 for €1.00 for the first nine months 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 September 27, 2014, the outstanding hedged amounts were €655 million to cover manufacturing costs and €444 million to cover operating expenses, at an average exchange rate of about $1.36 for €1.00 and $1.38 for €1.00 respectively (considering the collars at upper strike), maturing over the period from September 30, 2014 to September 1, 2015. As of September 27, 2014, these outstanding hedging contracts and certain expiring contracts covering manufacturing expenses capitalized in inventory resulted in a deferred loss of approximately $51 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 September 27, 2014, the outstanding hedged amounts were SGD 130 million at an average exchange rate of about SGD 1.26 to $1.00 maturing over the period from October 2, 2014 to September 3, 2015. As of September 27, 2014, these outstanding hedging contracts and certain expiring contracts covering manufacturing expenses capitalized in inventory resulted in a deferred loss 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 third quarter of 2014, as a result of our cash flow hedging, we recorded a net profit of $2 million, consisting of a profit of about $1 million to R&D expenses and about $1 million to costs of goods sold, while in the third quarter of 2013, we recorded a net profit of $4 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 third 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 September 27, 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), non-cash interest expense on the Senior Bonds 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 include European Investment Bank Floating Rate Loans at Libor and Euribor plus variable spreads.

At September 27, 2014, our total financial resources, including cash and cash equivalents and marketable securities, generated an average interest income rate of 0.65%. At the same date, the average interest rate on our outstanding debt was 1.76%, of which an average of 0.70% related to cash interests.

Impact of Changes in Equity Prices

As of September 27, 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 Investors 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 nine months of 2014, our net cash increased by $294 million, due to the net cash from operating and financing activities exceeding the net cash used in investing activities.

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

	Nine Months Ended
	September 27, 2014			September 28, 2013
	(Unaudited, in millions)
Net cash from operating activities	$	404		$	96
Net cash used in investing activities		(681	)		(234	)
Net cash from (used in) financing activities		579			(658	)
Effect of changes in exchange rates		(8	)		(20	)
Net cash increase (decrease)	$	294		$	(816	)

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 for the first nine months of 2014 was $404 million, increasing compared to $96 million in the prior year period. Net cash from operating activities for the first nine months of 2014 compared to the year-ago period benefited from an increased net income adjusted for non-cash items, partially offset by the unfavorable changes in net working capital.

Net cash used in investing activities. Investing activities used $681 million of cash in the first nine months of 2014, mainly due to payments for the purchase of tangible, intangible, financial assets and marketable securities, 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 $234 million in prior-year period was primarily due to higher payment for purchase of marketable securities, net of proceeds and a lower amount of proceeds from the sale of businesses. Payments for purchase of tangible assets, net of proceeds, totaled $388 million compared to $398 million registered in the prior year period.

Net cash from (used in) financing activities. Net cash from financing activities was $579 million for the first nine months of 2014, compared to the $658 million used for the first nine months of 2013. The increase in the net cash from financing activities was primarily due to the $995 million net proceeds from the issuance of the Senior Bonds in 2014, partially offset by $93 million of repurchases of common stock. The first nine months of 2014 amount included $264 million in dividends paid to stockholders compared to $257 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 the 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			Nine Months Ended
	September 27, 2014			September 27, 2014			September 28, 2013
	(Unaudited, in millions)			(Unaudited, in millions)
Net cash from operating activities	$	281		$	404		$	96
Net cash used in investing activities		(424	)		(681	)		(234	)
Excluding:
Payment for purchase and proceeds from sale of marketable securities, change in short term deposits, restricted cash, net and net variation for JV deconsolidation		283			266			(132	)
Payment for purchase and proceeds from sale of tangible and intangible assets (1)		(141	)		(415	)		(366	)
Free Cash Flow (non U.S. GAAP measure)	$	140		$	(11	)	$	(270	)

_____________

(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 of financial assets, Proceeds received in sale of businesses.

Free Cash Flow was negative $11 million for the first nine months of 2014, compared to negative $270 million for the first nine months of 2013, reflecting the exit from ST-Ericsson, our performance improvement and a higher level of R&D grants cash collection.

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
	September 27, 2014			June 28, 2014			September 28, 2013
	(Unaudited, in millions)
Cash and cash equivalents	$	2,130		$	1,502		$	1,434
Marketable securities		330			-			91
Short-term deposits		-			51			1
Total financial resources		2,460			1,553			1,526
Short-term debt		(223	)		(225	)		(168	)
Long-term debt		(1,743	)		(905	)		(619	)
Total financial debt		(1,966	)		(1,130	)		(787	)
Net Financial Position	$	494		$	423		$	739

Our Net Financial Position as of September 27, 2014 was a net cash position of $494 million, increasing compared to the net cash position of $423 million at June 28, 2014, as a result of our positive Free Cash Flow and the net proceeds from the issuance of the Senior Bonds, partially offset by our dividends payment, the repurchase of common stock and the debt resulting from the issuance of the Senior Bonds.

Cash and cash equivalents amounted to $2,130 million as at September 27, 2014, as a result of our cash flow evolution as presented above.

Financial debt was $1,966 million as at September 27, 2014, composed of (i) $223 million of current portion of long-term debt and (ii) $1,743 million long-term debt. The breakdown of our total financial debt included: (i) $1,065 million in European Investment Bank loans (the “EIB Loans”), (ii) $883 million in the Senior Bonds, (iii) $17 million in loans from other funding programs, and (iv) $1 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 $68 million remained outstanding as of September 27, 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 $134 million remained outstanding as of September 27, 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 $392 million remained outstanding as of September 27, 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 September 27, 2014. At September 27, 2014, the amounts available under our back-up and uncommitted credit facilities were unutilized.

The Senior Bonds were issued on July 3, 2014, for a principal amount of $1,000 million (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 was approximately $12 on each tranche. The Senior 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 Senior Bonds prior to their maturity in certain circumstances. Upon initial recognition, the proceeds were allocated between debt and equity by determining the fair value of the liability component using an income approach. The liability component will accrete to par value until maturity based on the effective interest rate (Tranche A: 2.40% and Tranche B: 3.22%, including 1% p.a. nominal interest). In the computation of diluted EPS, the Senior Bonds will be dilutive only for the portion of net-share settlement underlying the conversion premium when the conversion option is in the money.

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

On June 26, 2014, we announced the launch of a share buy-back program for the purchase of up to 20 million shares, as authorized by the shareholders’ meeting held on June 13, 2014. Purchases of shares are made exclusively on the Borsa Italiana and amounted to 11,298,848 shares as of September 27, 2014. On November 10, 2014, we announced that we had completed the repurchase of 20 million shares under our buy-back program for a total purchase price of about $156 million. The repurchased shares will be held as treasury shares and used to cover employee stock awards under our long term incentive plans.

Our current rating with rating agencies are as follow: Moody’s: “Baa3” with stable outlook; S&P: “BBB” with negative outlook; Fitch (on an unsolicited basis): “BBB-” with stable outlook.

As of September 27, 2014, debt payments at redemption value by period were as follows:

	Payments Due by Period
	Total		2014		2015		2016		2017		2018		Thereafter
	(Unaudited, in millions)
Long-term debt (including current portion)	$	2,083	$	163	$	203	$	193	$	118	$	116	$	1,290

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 $510-530 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; (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. The Nano2017 contract contains certain covenants which, in in the event they are not fulfilled, may affect our ability to access such funding.

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 September 27, 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 third quarter of 2014, our booking plus net frames orders declined compared to the second quarter of 2014 above the normal seasonality, showing that the market entered a phase of softening particularly in mass market and microcontrollers. We entered the fourth quarter 2014 with a backlog lower than the level we had when entering in the third quarter 2014. Backlog (including frame orders) is subject to possible cancellation, push back and 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 nine months of 2014, no customer accounted for more than 10% of our total net revenues while Samsung group represented approximately 10% of our total net revenues in the first nine months 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 Nine Months Ended September 27, 2014 and September 28, 2013 (unaudited)	F-1
Consolidated Statements of Comprehensive Income for Three and Nine Months Ended September 27, 2014 and September 28, 2013 (unaudited)	F-3
Consolidated Balance Sheets as of September 27, 2014 (unaudited) and December 31, 2013 (audited)	F-5
Consolidated Statements of Cash Flows for the Nine Months Ended September 27, 2014 and September 28, 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)
	September 27,			September 28,
In million of U.S. dollars except per share amounts	2014			2013

Net sales		1,870			2,005
Other revenues		16			8
Net revenues		1,886			2,013
Cost of sales		(1,240	)		(1,361	)
Gross profit		646			652
Selling, general and administrative		(226	)		(253	)
Research and development		(377	)		(423	)
Other income and expenses, net		32			78
Impairment, restructuring charges and other related closure costs		(38	)		(120	)
Operating income (loss)		37			(66	)
Interest expense, net		(7	)		(2	)
Income (loss) on equity-method investments		-			(8	)
Income (loss) before income taxes and noncontrolling interest		30			(76	)
Income tax benefit (expense)		42			(49	)
Net income (loss)		72			(125	)
Net loss (income) attributable to noncontrolling interest		-			(17	)
Net income (loss) attributable to parent company		72			(142	)

Earnings per share (Basic) attributable to parent company stockholders		0.08			(0.16	)
Earnings per share (Diluted) attributable to parent company stockholders		0.08			(0.16	)


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

F-1

STMicroelectronics N.V.
CONSOLIDATED STATEMENTS OF INCOME

	Nine months ended
	(Unaudited)
	September 27,			September 28,
In million of U.S. dollars except per share amounts	2014			2013

Net sales		5,529			6,042
Other revenues		46			25
Net revenues		5,575			6,067
Cost of sales		(3,696	)		(4,115	)
Gross profit		1,879			1,952
Selling, general and administrative		(691	)		(817	)
Research and development		(1,144	)		(1,409	)
Other income and expenses, net		157			84
Impairment, restructuring charges and other related closure costs		(71	)		(263	)
Operating income (loss)		130			(453	)
Interest expense, net		(11	)		(2	)
Loss on equity-method investments		(60	)		(111	)
Gain on financial instruments, net		1			-
Income (loss) before income taxes and noncontrolling interest		60			(566	)
Income tax benefit (expense)		26			(29	)
Net income (loss)		86			(595	)
Net loss (income) attributable to noncontrolling interest		(1	)		131
Net income (loss) attributable to parent company		85			(464	)

Earnings per share (Basic) attributable to parent company stockholders		0.10			(0.52	)
Earnings per share (Diluted) attributable to parent company stockholders		0.10			(0.52	)


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)
	September 27,			September 28,
In million of U.S. dollars	2014			2013


Net income (loss)		72			(125	)
Other comprehensive income (loss), net of tax :
Currency translation adjustments arising during the period		(145	)		83
Foreign currency translation adjustments		(145	)		83
Unrealized gains (losses) arising during the period		(2	)		-
Unrealized gains (losses) on securities		(2	)		-
Unrealized gains (losses) arising during the period		(48	)		32
Less : reclassification adjustment for (income) losses included in net income (loss)		(2	)		(6	)
Unrealized gains (losses) on derivatives		(50	)		26
Net gains (losses) arising during the period		-			4