UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
Report on Form 6-K dated August 1, 2017
Commission File Number: 1-13546
STMicroelectronics N.V.
(Name of Registrant)
WTC Schiphol Airport
Schiphol Boulevard 265
1118 BH Schiphol Airport
The Netherlands
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F Q Form 40-F £
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes £ No Q
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes £ No Q
Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3‑2(b) under the Securities Exchange Act of 1934:
Yes £ No Q
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- __________
Enclosure: STMicroelectronics N.V.’s Second Quarter and First Half 2017:
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Operating and Financial Review and Prospects;
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Unaudited Interim Consolidated Statements of Income, Statements of Comprehensive Income, Balance Sheets, Statements of Cash Flow, and Statements of Equity and related Notes for the three months and six months ended July 1, 2017; and
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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.
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OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Overview
The following discussion should be read in conjunction with our Unaudited Interim Consolidated Statements of Income, Statements of Comprehensive Income, Balance Sheets, Statements of Cash Flows and Statements of Equity for the three months and six months ended July 1, 2017 and Notes thereto included elsewhere in this Form 6‑K, and our annual report on Form 20‑F for the year ended December 31, 2016 as filed with the U.S. Securities and Exchange Commission (the “Commission” or the “SEC”) on March 3, 2017 (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:
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Critical Accounting Policies using Significant Estimates.
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Business Overview, a discussion of our business and overall analysis of financial and other relevant highlights of the three months and six months ended July 1, 2017 designed to provide context for the other sections of the MD&A, including our expectations for selected financial items for the third quarter of 2017.
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Other Developments in the second quarter of 2017.
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Results of Operations, containing a year-over-year and sequential analysis of our financial results for the three months and six months ended July 1, 2017, as well as segment information.
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Discussion of the impact of changes in exchange rates, interest rates and equity prices on our activity and financial results.
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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.
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Impact of Recently Issued U.S. Accounting Standards.
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Backlog and Customers, discussing the level of backlog and sales to our key customers.
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Disclosure Controls and Procedures.
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Cautionary Note Regarding Forward-Looking Statements.
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STMicroelectronics N.V. (“ST” or the “Company”) is a global semiconductor leader delivering intelligent and energy-efficient products and solutions that power the electronics at the heart of everyday life. ST’s products are found everywhere today, and together with our customers, we are enabling smarter driving and smarter factories, cities and homes, along with the next generation of mobile and Internet of Things devices. By getting more from technology to get more from life, ST stands for life.augmented.
Critical Accounting Policies Using Significant Estimates
There were no material changes in the first half of 2017 to the information provided under the heading “Critical Accounting Policies Using Significant Estimates” included in our Form 20-F.
Fiscal Year
Under Article 35 of our Articles of Association, our fiscal year extends from January 1 to December 31. The first quarter of 2017 ended on April 1, 2017 and the second quarter ended on July 1. The third quarter will end on September 30 and the fourth quarter will end on December 31, 2017. 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, as illustrated in the below table for the years 2016 and 2017.
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Q1
|
Q2
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Q3
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Q4
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Days
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2016
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93
|
91
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91
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91
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2017
|
91
|
91
|
91
|
92
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Business Overview
Our results of operations for each period were as follows:
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Three Months Ended
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% Variation
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Sequential
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Year‑Over‑Year
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(In millions, except per share amounts)
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Net revenues
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$
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1,923
|
|
|
$
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1,821
|
|
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$
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1,703
|
|
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5.6
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%
|
|
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12.9
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%
|
Gross profit
|
|
|
736
|
|
|
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685
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|
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577
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|
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7.4
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|
|
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27.6
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Gross margin as percentage of net revenues
|
|
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38.3
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%
|
|
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37.6
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%
|
|
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33.9
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%
|
|
+70bps
|
|
|
+440bps
|
|
Operating income (loss)
|
|
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178
|
|
|
|
129
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|
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28
|
|
|
|
-
|
|
|
|
-
|
|
Net income (loss) attributable to parent company
|
|
|
151
|
|
|
|
108
|
|
|
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23
|
|
|
|
-
|
|
|
|
-
|
|
Earnings per share
|
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$
|
0.17
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|
|
$
|
0.12
|
|
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$
|
0.03
|
|
|
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-
|
|
|
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-
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The total available market is defined as the “TAM”, while the serviceable available market, the “SAM”, is defined as the market for products sold by us (which consists of the TAM and excludes major devices such as Microprocessors (MPUs), Dynamic random-access memories (DRAMs), optoelectronics devices, Flash Memories and the Wireless Application Specific market products such as Baseband and Application Processor).
Based on the data published by World Semiconductor Trade Statistics (WSTS), semiconductor industry revenues increased in the second quarter of 2017, on a sequential basis, by approximately 6% for the TAM and increased 4% for the SAM, to reach approximately $98 billion and $43 billion, respectively. On a year-over-year basis, the TAM increased by approximately 24% while the SAM increased by approximately 15%.
Second quarter 2017 revenues amounted to $1,923 million, a 5.6% sequential increase; a better than seasonal performance and 60 basis points higher than the midpoint of our released guidance. On a sequential basis, both Analog and MEMS Group (AMG) and Automotive and Discrete Group (ADG) performed better than our average, with AMG’s revenues up 8.9% and ADG’s revenues up 6.6%. Microcontrollers and Digital ICs Group (MDG) revenues were up 3.3% sequentially, led by general purpose microcontrollers which posted a record quarter sales level, offset in part by lower sales of Digital ICs including the businesses undergoing phase-out. Imaging Product Division revenues, reported in Others, decreased temporarily reflecting, as anticipated, the timing of new programs ramping.
On a year-over-year basis, second quarter net revenues increased by 12.9% on growth across all product groups and strong traction with new products. AMG second quarter revenues grew 28.3% year-over-year while MDG revenues increased 10.0% on double-digit growth for general purpose microcontrollers offset in part by lower sales of businesses undergoing phase-out. ADG second quarter revenues increased 4.7% compared to the year-ago quarter. Automotive industry growth was also reflected in the results of the Company’s other businesses. Imaging Product Division second quarter revenues increased significantly year-over-year thanks to our Time-of-Flight technology.
Our revenue performance was above our served market (SAM) on a sequential basis but below on a year-over-year basis.
Our effective average exchange rate for the second quarter of 2017 was $1.09 for €1.00 compared to $1.08 for €1.00 in the first quarter of 2017 and $1.12 for €1.00 in the second quarter of 2016. For a more detailed discussion of our hedging arrangements and the impact of fluctuations in exchange rates, see “Impact of Changes in Exchange Rates”.
Our second quarter 2017 gross profit was $736 million and gross margin was at 38.3%, 20 basis points above the mid-point of our guidance. On a sequential basis, gross margin increased 70 basis points, reflecting both our product and profitability initiatives, leading to a more favorable product mix and improved manufacturing efficiencies partially offset by normal price pressure. Gross margin increased 440 basis points year-over-year, mainly due to significant manufacturing efficiencies, improved fab loading and favorable product mix, as well as favorable currency effects, net of hedging, partially offset by normal price pressure.
Our aggregated selling, general and administrative (SG&A) and research and development (R&D) costs amounted to $567 million, substantially flat compared to $568 million in the prior quarter, and $565 million in the year-ago quarter. On a sequential basis, operating expenses were negatively impacted by unfavorable currency effects, net of hedging, and variable salary incentive increase offset by increased level of R&D tax credit and benefits from the set-top box restructuring plan. On a year-over-year basis, operating expenses were positively impacted by benefits from the set-top box restructuring plan, favorable currency effects, net of hedging, and increased level of R&D tax credit substantially offset by yearly salary and variable incentive increases.
Other income and expenses, net, amounted to $15 million, slightly decreasing compared to the previous quarter, and decreasing from $28 million in the year-ago quarter, mainly as a consequence of a reduced level of R&D grants.
Impairment, restructuring charges and other related closure costs in the second quarter of 2017 were $6 million, compared to $5 million and $12 million in the prior and year-ago quarter, respectively, and related mainly to the set-top box restructuring plan announced in January 2016. We continued to make progress on our restructuring of the set-top box business. Exiting the second quarter of 2017, the restructuring plan was on track and had achieved a run-rate of about $132 million of the total $170 million of targeted annualized savings expected upon completion.
In the second quarter of 2017, our operating income was $178 million, improving from an income of $129 million in the first quarter of 2017 and from an income of $28 million in the year-ago quarter. Excluding restructuring and impairment charges, the second quarter of 2017 operating income was $184 million (9.6% of net revenues), compared to an income of $134 million in the previous quarter and an income of $40 million in the year-ago period. Sequentially, the improvement of our operating result before impairment and restructuring charges was mainly due to higher revenues and higher gross margin. On a year-over-year basis, operating income before impairment and restructuring charges improved by $144 million reflecting higher revenues, improved product mix, manufacturing efficiencies and better fab loading.
Our net cash from operating activities was positive at $369 million and net cash used in investing activities was $317 million, allowing us to generate a positive free cash flow (non U.S GAAP measure) of $52 million for the second quarter of 2017. In the period, our net cash variation, including the net cash used in financial activities which includes the dividend payment of $48 million, was positive $13 million.
Based on current booking activity and visibility on our key anticipated new program, we expect third quarter revenues to increase about 9.0% on a sequential basis, plus or minus 3.5 percentage points, representing year-over-year growth of about 16.6% at the mid-point of our guidance range. We expect this growth to come from all of our businesses, regions and sales channels. For our three Product Groups, we anticipate revenue growth in the third quarter to reflect higher than normal seasonality. In our Imaging business, we anticipate strong sequential growth, as the key new program ramps in the third quarter, followed by further revenue acceleration in the fourth quarter of this year. Looking at 2017 overall and based on current visibility, we expect our revenues to be at the high-end of the range that we gave at the Capital Markets Day (14% year-over-year revenue growth, plus or minus 1.5 percentage points). We anticipate another quarter of margin expansion with third quarter gross margin of about 39.0% plus or minus 2.0 percentage points, leading to strong year-over-year improvement in operating and net income.
This outlook is based on an assumed effective currency exchange rate of approximately $1.12 = €1.00 for the 2017 third quarter and includes the impact of existing hedging contracts. The third quarter will close on September 30, 2017.
These are forward-looking statements that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially; in particular, refer to those known risks and uncertainties described in “Cautionary Note Regarding Forward-Looking Statements” and Item 3. “Key Information — Risk Factors” in our Form 20-F as may be updated from time to time in our SEC filings.
Other Developments in the second quarter of 2017
On April 27, we announced the appointment of Jean-Marc Chery as Deputy CEO, effective July 1, 2017 upon shareholder approval of the reappointment of Carlo Bozotti as the sole member of the Managing Board and President and CEO of ST at our June 20, 2017 Annual General Meeting of Shareholders. In his new role, Chery holds overall responsibility for Technology and Manufacturing as well as for Sales and Marketing and continues to report to Carlo Bozotti. Also effective July 1, we have begun operating under a new organization and the Executive Team is now composed of:
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Jean-Marc Chery, Deputy CEO
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Orio Bellezza, President, Global Technology and Manufacturing
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Marco Cassis, President, Global Sales and Marketing
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Claude Dardanne, President, Microcontrollers and Digital ICs Group
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Carlo Ferro, Chief Financial Officer and President, Finance, Legal, Infrastructure and Services
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·
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Marco Monti, President, Automotive and Discrete Group
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·
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Georges Penalver, Chief Strategy Officer and President, Strategy, Communication, Human Resources and Quality
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Benedetto Vigna, President, Analog, MEMS and Sensors Group.
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On May 24, we announced the publication of our 2017 Sustainability Report. The report contains details and highlights of our sustainability strategy and our 2016 performance, in alignment with the United Nations Global Compact Ten Principles and Sustainable Development Goals.
On June 20, we announced that all the resolutions were approved at our Annual General Meeting of Shareholders (AGM). The main resolutions approved by the shareholders were:
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The adoption of the Company’s Statutory Annual Accounts for the year ended December 31, 2016, prepared in accordance with International Financial Reporting Standards (IFRS) and filed with the Netherlands Authority for the Financial Markets (AFM) on April 27, 2017;
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·
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The distribution of a cash dividend of $0.24 per outstanding share of the Company’s common stock, to be distributed in quarterly installments of $0.06 in each of the second, third and fourth quarters of 2017 and first quarter of 2018 to shareholders of record in the month of each quarterly payment;
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·
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The appointment of Mr. Frederic Sanchez as a new member of the Supervisory Board, for a three-year term expiring at the 2020 Annual General Meeting of Shareholders, in replacement of Mr. Didier Lombard whose mandate expired as of the 2017 AGM;
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·
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The reappointment, for a three-year term expiring at the 2020 Annual General Meeting of Shareholders, of the following members of the Supervisory Board: Ms. Heleen Kersten and Messrs. Jean-Georges Malcor, Alessandro Rivera and Maurizio Tamagnini;
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·
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The reappointment of Mr. Carlo Bozotti as the sole member of the Managing Board for a one-year term;
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·
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The approval of a new four-year Unvested Stock Award Plan for Management and Key Employees;
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·
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The approval of the stock-based portion of the compensation of the President and CEO;
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·
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The authorization to the Managing Board, for eighteen months following the AGM, to repurchase shares, subject to the approval of the Supervisory Board; and
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·
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The delegation to the Supervisory Board of the authority to issue new common and preference shares, to grant rights to subscribe for such shares and to limit and/or exclude existing shareholders’ pre-emptive rights on common shares for a period of eighteen months.
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Following the conclusion of our Annual General Meeting, the members of the Supervisory Board appointed Mr. Nicolas Dufourcq as the Chairman and Mr. Maurizio Tamagnini as the Vice-Chairman of the Supervisory Board, respectively.
On June 22, we announced the pricing of a $1.5 billion offering of senior unsecured bonds convertible into new or existing ordinary shares of STMicroelectronics. The New Convertible Bonds were issued in two tranches, one of $750 million with a maturity of 5 years and one of $750 million with a maturity of 7 years. The offering proceeds, net of costs (including costs in respect of the share buy-back program), will be used for general corporate purposes, including the early redemption of the outstanding $600 million Zero Coupon Convertible Bonds due 2019 and the future redemption of the outstanding $400 million 1.00% Convertible Bonds due 2021. We also announced the launch of a share buy-back program of up to 19 million shares for an amount up to $297 million intended to meet obligations arising from debt financial instruments that are exchangeable into equity instruments and to meet obligations arising from share award programs and the early redemption of the 2019 Convertible Bonds.
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, full‑custom devices and semi-custom devices and application-specific standard products 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.
Our reportable segments are as follows:
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Automotive and Discrete Group (ADG), comprised of all dedicated automotive ICs (both digital and analog), and discrete and power transistor products.
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·
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Analog and MEMS Group (AMG), comprised of low-power high-end analog ICs (both custom and general purpose) for all markets, smart power products for Industrial, Computer and Consumer markets, Touch Screen Controllers, Low Power Connectivity solutions (both wireline and wireless) for IoT, power conversion products, metering solutions for Smart Grid and all MEMS products, either sensors or actuators.
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·
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Microcontrollers and Digital ICs Group (MDG), comprised of general purpose and secure microcontrollers, EEPROM memories, and digital ASICs as well as restructured businesses such as set-top box ICs or former ST-Ericsson products.
|
“Others” includes all the financial values related to the Imaging Product Division (including the sensors and modules from our Time-of-Flight technology), Subsystems and other products, as well as items not allocated to the segments such as impairment, restructuring charges and other related closure costs, unused capacity charges, strategic or special research and development programs and other minor unallocated expenses such as: certain corporate-level operating expenses, patent claims and litigations, and other costs that are not allocated to the segments.
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 U.S. GAAP guidance.
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 expenses and a part of research and development expenses. In compliance with our internal policies, certain costs are not allocated 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 research and development 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 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 segments proportionally to the incurred R&D expenses on the sponsored projects.
Wafer costs are allocated to the segments based on actual cost. From time to time, with respect to specific technologies, wafer costs are allocated to segments based on market price.
Second Quarter 2017 vs. First Quarter 2017 and Second Quarter 2016
The following table sets forth certain financial data from our Unaudited Interim Consolidated Statements of Income:
|
|
Three Months Ended
|
|
|
|
July 1, 2017
|
|
|
April 1, 2017
|
|
|
July 2, 2016
|
|
|
|
$ million
|
|
|
% of net revenues
|
|
|
$ million
|
|
|
% of net revenues
|
|
|
$ million
|
|
|
% of net revenues
|
|
Net sales
|
|
$
|
1,911
|
|
|
|
99.4
|
%
|
|
$
|
1,818
|
|
|
|
99.8
|
%
|
|
$
|
1,698
|
|
|
|
99.7
|
%
|
Other revenues
|
|
|
12
|
|
|
|
0.6
|
|
|
|
3
|
|
|
|
0.2
|
|
|
|
5
|
|
|
|
0.3
|
|
Net revenues
|
|
|
1,923
|
|
|
|
100.0
|
|
|
|
1,821
|
|
|
|
100.0
|
|
|
|
1,703
|
|
|
|
100.0
|
|
Cost of sales
|
|
|
(1,187
|
)
|
|
|
(61.7
|
)
|
|
|
(1,136
|
)
|
|
|
(62.4
|
)
|
|
|
(1,126
|
)
|
|
|
(66.1
|
)
|
Gross profit
|
|
|
736
|
|
|
|
38.3
|
|
|
|
685
|
|
|
|
37.6
|
|
|
|
577
|
|
|
|
33.9
|
|
Selling, general and administrative
|
|
|
(240
|
)
|
|
|
(12.5
|
)
|
|
|
(234
|
)
|
|
|
(12.8
|
)
|
|
|
(229
|
)
|
|
|
(13.5
|
)
|
Research and development
|
|
|
(327
|
)
|
|
|
(17.0
|
)
|
|
|
(334
|
)
|
|
|
(18.3
|
)
|
|
|
(336
|
)
|
|
|
(19.7
|
)
|
Other income and expenses, net
|
|
|
15
|
|
|
|
0.8
|
|
|
|
17
|
|
|
|
0.9
|
|
|
|
28
|
|
|
|
1.6
|
|
Impairment, restructuring charges and other related closure costs
|
|
|
(6
|
)
|
|
|
(0.3
|
)
|
|
|
(5
|
)
|
|
|
(0.3
|
)
|
|
|
(12
|
)
|
|
|
(0.7
|
)
|
Operating income (loss)
|
|
|
178
|
|
|
|
9.3
|
|
|
|
129
|
|
|
|
7.1
|
|
|
|
28
|
|
|
|
1.6
|
|
Interest expense, net
|
|
|
(4
|
)
|
|
|
(0.3
|
)
|
|
|
(4
|
)
|
|
|
(0.3
|
)
|
|
|
(6
|
)
|
|
|
(0.3
|
)
|
Income (loss) on equity‑method investments
|
|
|
(2
|
)
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
0.5
|
|
Income (loss) before income taxes and noncontrolling interest
|
|
|
172
|
|
|
|
8.9
|
|
|
|
125
|
|
|
|
6.8
|
|
|
|
31
|
|
|
|
1.8
|
|
Income tax benefit (expense)
|
|
|
(19
|
)
|
|
|
(0.9
|
)
|
|
|
(16
|
)
|
|
|
(0.8
|
)
|
|
|
(6
|
)
|
|
|
(0.4
|
)
|
Net income (loss)
|
|
|
153
|
|
|
|
8.0
|
|
|
|
109
|
|
|
|
6.0
|
|
|
|
25
|
|
|
|
1.4
|
|
Net loss (income) attributable to noncontrolling interest
|
|
|
(2
|
)
|
|
|
(0.2
|
)
|
|
|
(1
|
)
|
|
|
(0.1
|
)
|
|
|
(2
|
)
|
|
|
-
|
|
Net income (loss) attributable to parent company
|
|
$
|
151
|
|
|
|
7.8
|
%
|
|
$
|
108
|
|
|
|
5.9
|
%
|
|
$
|
23
|
|
|
|
1.4
|
%
|
Net revenues
|
|
Three Months Ended
|
|
|
% Variation
|
|
|
|
July 1, 2017
|
|
|
April 1, 2017
|
|
|
July 2, 2016
|
|
|
Sequential
|
|
|
Year‑Over‑Year
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,911
|
|
|
$
|
1,818
|
|
|
$
|
1,698
|
|
|
|
5.1
|
%
|
|
|
12.5
|
%
|
Other revenues
|
|
|
12
|
|
|
|
3
|
|
|
|
5
|
|
|
|
260.1
|
|
|
|
154.8
|
|
Net revenues
|
|
$
|
1,923
|
|
|
$
|
1,821
|
|
|
$
|
1,703
|
|
|
|
5.6
|
%
|
|
|
12.9
|
%
|
Our second quarter 2017 net revenues increased sequentially by 5.6%, 60 basis points above the midpoint of our guidance. The sequential increase resulted from an increase in volume of approximately 9%, partially offset by a decrease of approximately 3% in average selling prices, entirely due to product mix.
On a year-over-year basis, our net revenues increased by 12.9% as a result of an approximate 25% increase in volume, partially offset by a 12% decrease in average selling prices, mainly due to the product mix and, to a lesser extent, to price pressure. Excluding the impact of certain businesses undergoing a phase-out (mobile legacy products and set-top box), our revenues increased by 14.1%.
No customer exceeded 10% of our total net revenues in the second quarter of 2017 or in the prior and year-ago quarter.
Net revenues by product group
|
|
Three Months Ended
|
|
|
% Variation
|
|
|
|
|
|
|
April 1,
2017
|
|
|
|
|
|
Sequential
|
|
|
Year-Over-Year
|
|
|
|
(In millions)
|
|
|
|
|
Automotive and Discrete Group (ADG)
|
|
$
|
755
|
|
|
$
|
708
|
|
|
$
|
721
|
|
|
|
6.6
|
%
|
|
|
4.7
|
%
|
Analog and MEMS Group (AMG)
|
|
|
482
|
|
|
|
443
|
|
|
|
376
|
|
|
|
8.9
|
|
|
|
28.3
|
|
Microcontrollers and Digital ICs Group (MDG)
|
|
|
612
|
|
|
|
593
|
|
|
|
556
|
|
|
|
3.3
|
|
|
|
10.0
|
|
Others
|
|
|
74
|
|
|
|
77
|
|
|
|
50
|
|
|
|
-
|
|
|
|
-
|
|
Total consolidated net revenues
|
|
$
|
1,923
|
|
|
$
|
1,821
|
|
|
$
|
1,703
|
|
|
|
5.6
|
%
|
|
|
12.9
|
%
|
Sequentially, all product groups experienced a revenue increase. ADG revenues increased 6.6%, with volumes increasing by around 13% partially offset by a decrease in average selling prices of 6%, mainly due to product mix impacted by a higher weight of power discrete products. AMG revenues increased 8.9% due to higher volumes of 8% and, to a lesser extent, to higher average selling prices of 1%, driven by improved product mix. Both analog and MEMS products contributed to the increase. MDG revenues increased 3.3% mainly due to higher volumes of 6%, partially offset by lower average selling prices of 3%. MDG performance was supported by general purpose microcontrollers which posted a record quarter sales level, offset in part by lower sales of Digital ICs including businesses undergoing phase-out.
On a year-over-year basis, AMG revenues increased 28.3%, impacted by both higher volumes of 23% and an increase in average selling prices of 5%, driven by richer product mix. MDG revenues increased 10.0% on double-digit growth for general purpose microcontrollers, offset in part by lower sales of businesses undergoing phase-out. As a result, MDG experienced an increase of 19% in volumes partially offset by a decrease in average selling prices of 9%. ADG revenues were higher by 4.7%, led by power discrete and, to a lesser extent, by automotive products. In ADG, on a year-over-year basis, volume increased by 34%, partially offset by lower average selling prices of 29%, mainly driven by product mix.
“Others”, mainly including revenues of our Imaging Product Division and of Subsystem products, declined revenues sequentially by 4% but increased revenues by around $24 million on a year-over-year basis thanks to revenues of our Time-of-Flight imaging products.
Net Revenues by Market Channel (1)
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OEM
|
|
|
66
|
%
|
|
|
66
|
%
|
|
|
66
|
%
|
Distribution
|
|
|
34
|
|
|
|
34
|
|
|
|
34
|
|
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 second quarter revenues in Distribution amounted to 34% of our total revenues, stable sequentially and compared to the prior year quarter.
Net Revenues by Location of Shipment (1)
|
|
Three Months Ended
|
|
|
% Variation
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential
|
|
|
Year-Over-Year
|
|
|
|
(In millions)
|
|
|
|
|
EMEA
|
|
$
|
522
|
|
|
$
|
501
|
|
|
$
|
485
|
|
|
|
4.1
|
%
|
|
|
7.5
|
%
|
Americas
|
|
|
250
|
|
|
|
260
|
|
|
|
270
|
|
|
|
(3.7
|
)
|
|
|
(7.2
|
)
|
Asia Pacific(2)
|
|
|
1,151
|
|
|
|
1,060
|
|
|
|
948
|
|
|
|
8.6
|
|
|
|
21.4
|
|
Total
|
|
$
|
1,923
|
|
|
$
|
1,821
|
|
|
$
|
1,703
|
|
|
|
5.6
|
%
|
|
|
12.9
|
%
|
(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 Asia Pacific affiliates are classified as Asia Pacific 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.
|
(2)
|
Since 2016, we have three regional sales organizations: EMEA; Americas; and Asia Pacific. Asia Pacific was created from the merger of the Japan & Korea and Greater China-South Asia regional sales organizations.
|
On a sequential basis, all regions except the Americas experienced revenues increases. In Asia Pacific, the increase of 8.6% was supported by all product groups. On a year-over-year basis, Asia Pacific registered an increase in revenues of 21.4% mainly supported by AMG and MDG, while EMEA grew 7.5% with ADG being the main contributor to the increase. The Americas experienced a revenue decrease of 7.2%, mainly due to lower sales in MDG.
Gross profit
|
|
Three Months Ended
|
|
|
Variation
|
|
|
|
July 1, 2017
|
|
|
April 1, 2017
|
|
|
July 2, 2016
|
|
|
Sequential
|
|
|
Year‑Over‑Year
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Cost of sales
|
|
$
|
(1,187
|
)
|
|
$
|
(1,136
|
)
|
|
$
|
(1,126
|
)
|
|
|
(4.5
|
)%
|
|
|
(5.4
|
)%
|
Gross profit
|
|
$
|
736
|
|
|
$
|
685
|
|
|
$
|
577
|
|
|
|
7.4
|
%
|
|
|
27.6
|
%
|
Gross margin (as percentage of net revenues)
|
|
|
38.3
|
%
|
|
|
37.6
|
%
|
|
|
33.9
|
%
|
|
+70 bps
|
|
|
+440 bps
|
|
In the second quarter of 2017, gross margin was 38.3%, 20 basis points above the midpoint of our guidance. Sequentially, gross margin increased by approximately 70 basis points, positively impacted by favorable product mix, manufacturing efficiencies and licensing revenues, partially offset by price erosion and unfavorable currency effects, net of hedging. In the quarter, unused capacity charges were substantially negligible, amounting to less than $ 1 million.
On a year-over-year basis, gross margin improved by approximately 440 basis points, benefiting from manufacturing efficiencies, lower unused capacity charges, favorable product mix and licensing revenues, as well as favorable currency effects, net of hedging, partially offset by price erosion. Unused capacity charges amounted to $8 million in the year-ago quarter.
Operating expenses
|
|
Three Months Ended
|
|
Variation |
|
|
July 1, 2017
|
|
|
April 1, 2017
|
|
July 2, 2016 |
|
|
Sequential
|
|
|
Year‑Over‑Year
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
(240
|
)
|
|
$
|
(234
|
)
|
|
$
|
(229
|
)
|
|
|
(2.4
|
)%
|
|
|
(4.7
|
)%
|
Research and development expenses
|
|
|
(327
|
)
|
|
|
(334
|
)
|
|
|
(336
|
)
|
|
|
1.9
|
|
|
|
2.5
|
|
Total operating expenses
|
|
$
|
(567
|
)
|
|
$
|
(568
|
)
|
|
$
|
(565
|
)
|
|
|
0.1
|
%
|
|
|
(0.4
|
)%
|
As percentage of net revenues
|
|
|
(29.5
|
)%
|
|
|
(31.2
|
)%
|
|
|
(33.2
|
)%
|
|
+170 bps
|
|
|
+370 bps
|
|
Second quarter 2017 operating expenses remained substantially flat sequentially and on a year-over-year basis. The increase in SG&A is due to the salary and incentive increases while the decrease in R&D is due to the benefits from the set-top box restructuring plan and higher level of research tax credit. As a percentage of revenues, our operating expenses amounted to 29.5%, decreasing sequentially and on a year-over-year basis, mainly due to higher revenues.
R&D expenses were net of research tax credits, which amounted to $30 million in the second quarter of 2017, compared to $23 million and $27 million in the prior and year-ago quarter, respectively.
Other income and expenses, net
|
|
Three Months Ended
|
|
|
|
July 1, 2017
|
|
|
April 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Research and development funding
|
|
$
|
16
|
|
|
$
|
16
|
|
|
$
|
26
|
|
Exchange gain (loss), net
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
Patent costs
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
Gain on sale of businesses and non‑current assets
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
Other, net
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
1
|
|
Other income and expenses, net
|
|
$
|
15
|
|
|
$
|
17
|
|
|
$
|
28
|
|
As percentage of net revenues
|
|
|
0.8
|
%
|
|
|
0.9
|
%
|
|
|
1.6
|
%
|
In the second quarter of 2017, we recognized other income, net of $15 million, decreasing sequentially due to higher patent litigation costs and decreasing compared to the year-ago quarter mainly due to lower income from R&D funding, since a portion of Nano2017 R&D funding, for the current year 2017, is subject to a pay-back clause and in consequence offset with the recognition of a liability relating to the contingent feature.
Impairment, restructuring charges and other related closure costs
|
|
Three Months Ended
|
|
|
|
July 1, 2017
|
|
|
April 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Impairment, restructuring charges and other related closure costs
|
|
$
|
(6
|
)
|
|
$
|
(5
|
)
|
|
$
|
(12
|
)
|
In the second quarter of 2017, we recorded $6 million of impairment, restructuring charges and other related closure costs, consisting of: (i) $3 million of restructuring charges related to the set-top box plan, net of $2 million of unused provisions taken in previous periods; and (ii) $3 million of restructuring charges related to the restructuring plan in our manufacturing Back-End plant of Bouskoura, Morocco.
In the first quarter of 2017, we recorded $5 million of impairment, restructuring charges and other related closure costs, consisting of: (i) $8 million of restructuring charges related to the set-top box plan; (ii) $2 million of restructuring charges related to the restructuring plan in Bouskoura, Morocco; and (iii) $5 million reversal on provisions related to previously announced restructuring plans, mainly the EPS restructuring plan, for which accrued provisions were not fully used at completion of the plan.
In the second quarter of 2016, we recorded $12 million of impairment, restructuring charges and other related closure costs, consisting of: (i) $9 million of restructuring charges related to the set-top box restructuring plan; and (ii) $3 million of impairment charges of certain long-lived assets.
Operating income (loss)
|
|
Three Months Ended
|
|
|
|
July 1, 2017
|
|
|
April 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Operating income (loss)
|
|
$
|
178
|
|
|
$
|
129
|
|
|
$
|
28
|
|
In percentage of net revenues
|
|
|
9.3
|
%
|
|
|
7.1
|
%
|
|
|
1.6
|
%
|
Second quarter of 2017 operating income was $178 million, compared to an operating income of $129 million and $28 million in the prior and year-ago quarter, respectively. Sequentially, the improvement in our operating results was mainly due to higher revenues and higher gross margin. Compared to the year-ago period, the increase of our operating results was mainly due to higher revenues, better gross margin, lower impairment and restructuring charges only partially offset by lower other income.
Operating income (loss) by product group
|
|
Three Months Ended
|
|
|
|
July 1, 2017
|
|
|
April 1, 2017
|
|
|
July 2, 2016
|
|
|
|
$ million
|
|
|
% of net revenues
|
|
|
$ million
|
|
|
% of net revenues
|
|
|
$ million
|
|
|
% of net revenues
|
|
Automotive and Discrete Group (ADG)
|
|
$
|
65
|
|
|
|
8.6
|
%
|
|
$
|
38
|
|
|
|
5.4
|
%
|
|
$
|
61
|
|
|
|
8.5
|
%
|
Analog and MEMS Group (AMG)
|
|
|
70
|
|
|
|
14.5
|
|
|
|
45
|
|
|
|
10.1
|
|
|
|
1
|
|
|
|
0.2
|
|
Microcontrollers and Digital ICs Group (MDG)
|
|
|
71
|
|
|
|
11.6
|
|
|
|
60
|
|
|
|
10.2
|
|
|
|
9
|
|
|
|
1.5
|
|
Others(1)
|
|
|
(28
|
)
|
|
|
-
|
|
|
|
(14
|
)
|
|
|
-
|
|
|
|
(43
|
)
|
|
|
-
|
|
Total operating income (loss)
|
|
$
|
178
|
|
|
|
9.3
|
%
|
|
$
|
129
|
|
|
|
7.1
|
%
|
|
$
|
28
|
|
|
|
1.6
|
%
|
____________
(1)
|
Operating result of “Others” includes operating earnings of the Imaging Product Division (including the sensors and modules from our Time-of-Flight technology), Subsystems and other products, as well as items not allocated to the segments, such as impairment, restructuring charges and other related closure costs, unused capacity charges, strategic or special research and development programs and other minor unallocated expenses such as: certain corporate-level operating expenses, patent claims and litigations, and other costs that are not allocated to the segments.
|
In the second quarter of 2017, ADG’s operating income improved sequentially from $38 million in the first quarter of 2017 to $65 million from a combination of the increased level of revenues and an improved level of operating margin. Both Automotive and Power Discrete contributed to the increase. AMG posted an operating profit of $70 million, increasing by $25 million compared to the prior quarter, with both Analog and MEMS contributing to the improvement. MDG’s operating income was $71 million, improving by $11 million sequentially, driven by better results in Microcontrollers.
Compared to a year ago, all groups improved their operating results. AMG’s operating income significantly improved to $70 million compared to break-even in the prior-year quarter, with both Analog and MEMS contributing to the improvement. MDG’s operating income increased by $62 million due to improvements in Digital as a result of our cost savings initiative, improved product mix, and improved results in Microcontrollers. ADG’s operating profit improved by $4 million, mainly driven by Power Discrete.
Reconciliation to consolidated operating income (loss)
|
|
Three Months Ended
|
|
|
|
July 1, 2017
|
|
|
April 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Total operating income of segments
|
|
$
|
206
|
|
|
$
|
143
|
|
|
$
|
71
|
|
Impairment, restructuring charges and other related closure costs
|
|
|
(6
|
)
|
|
|
(5
|
)
|
|
|
(12
|
)
|
Unallocated manufacturing results
|
|
|
2
|
|
|
|
1
|
|
|
|
(8
|
)
|
Operating results of other businesses(1)
|
|
|
(17
|
)
|
|
|
(5
|
)
|
|
|
(25
|
)
|
Strategic and other research and development programs and other non-allocated provisions(2)
|
|
|
(7
|
)
|
|
|
(5
|
)
|
|
|
2
|
|
Total operating loss Others
|
|
|
(28
|
)
|
|
|
(14
|
)
|
|
|
(43
|
)
|
Total consolidated operating income (loss)
|
|
$
|
178
|
|
|
$
|
129
|
|
|
$
|
28
|
|
____________
|
(1) |
Includes operating earnings of the Imaging Product Division (including the sensors and modules from our Time-of-Flight technology), Subsystems and other products.
|
|
(2) |
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
|
|
|
|
July 1, 2017
|
|
|
April 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Interest expense, net
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
|
$
|
(6
|
)
|
In the second quarter of 2017, we recorded a net interest expense of $4 million, flat sequentially and decreasing on a year-over-year basis. Interest expense recorded in the second quarter of 2017 included a $6 million charge on the senior unsecured convertible bonds issued in July 2014, of which $5 million was a non-cash interest expense resulting from the accretion of the discount on the liability component.
Income (loss) on equity-method investments
|
|
Three Months Ended
|
|
|
|
July 1, 2017
|
|
|
April 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Income (loss) on equity-method investments
|
|
$
|
(2
|
)
|
|
|
-
|
|
|
$
|
9
|
|
In the second quarter of 2017, we recorded a $2 million loss on our equity investment in Incard do Brazil (IdB).
During the second quarter of 2016, we recorded a $9 million income mainly due to a partial reverse of a reserve associated with our indemnity obligation undertaken when selling Numonyx, amid a better than anticipated actual outcome of certain tax items.
Income tax benefit (expense)
|
|
Three Months Ended
|
|
|
|
July 1, 2017
|
|
|
April 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Income tax benefit (expense)
|
|
$
|
(19
|
)
|
|
$
|
(16
|
)
|
|
$
|
(6
|
)
|
During the second quarter of 2017, we registered an income tax expense of $19 million, reflecting the estimated annual effective tax rate in each of our jurisdictions, applied to the first half of 2017 consolidated result before taxes. In addition, our income tax included the estimated impact of provisions related to potential tax positions which have been considered uncertain.
In the second quarter of 2016, we registered an income tax expense of $6 million.
Net income (loss) attributable to parent company
|
|
Three Months Ended
|
|
|
|
July 1, 2017
|
|
|
April 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Net income (loss) attributable to parent company
|
|
$
|
151
|
|
|
$
|
108
|
|
|
$
|
23
|
|
As percentage of net revenues
|
|
|
7.8
|
%
|
|
|
5.9
|
%
|
|
|
1.4
|
%
|
For the second quarter of 2017, we reported a net income attributable to parent company of $151 million, compared to $108 million in the prior quarter and $23 million in the year-ago quarter. The second quarter 2017 net income represented diluted earnings per share of $0.17 compared to $0.12 in the prior quarter and $0.03 in the prior-year quarter.
We also present Adjusted Diluted Earnings per Share, which is a non U.S. GAAP measure. Adjusted Diluted Earnings per Share is used to help management and investors understand our operations and to highlight the impact of excluded items like impairment, restructuring charges and other related closure costs and other one-time items, net of the estimated relevant tax impact. We believe Adjusted Diluted Earnings per Share provides useful information for management and investors because they measure our capacity to generate profits from our business operations, excluding the expenses related to the rationalizing of our activities and sites that we do not consider to be part of our on-going operating results, thereby offering, when read in conjunction with our U.S. GAAP financials, (i) the ability to make more meaningful period-to-period comparisons of our on-going operating results, (ii) the ability to better identify trends in our business and perform related trend analysis, and (iii) an easier way to compare our results of operations against investor and analyst financial models and valuations, which usually exclude these items. In addition, our definition of Adjusted Diluted Earnings per Share may differ from definitions used by other companies and therefore comparability may be limited. Therefore, when assessing the Company’s operating performance, investors should not consider this data in isolation, or as a substitute for the Company’s net income, operating income, earnings per share or any other operating performance measure that is calculated in accordance with U.S. GAAP.
Adjusted Diluted Earnings per Share (non U.S. GAAP measure) are determined as follows:
|
|
Three Months Ended
|
|
|
|
July 1, 2017
|
|
|
April 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In million, except U.S. dollars per share and shares outstanding)
|
|
Net income (loss) attributable to parent company
|
|
$
|
151
|
|
|
$
|
108
|
|
|
$
|
23
|
|
Impairment, restructuring and other related closure costs and one-time charges effect, net of tax
|
|
|
5
|
|
|
|
4
|
|
|
|
10
|
|
Convertible debt interest, net of tax
|
|
|
- |
|
|
|
6 |
|
|
|
- |
|
Adjusted net income attributable to parent company
|
|
$
|
156
|
|
|
$
|
118
|
|
|
$
|
33
|
|
Weighted average shares outstanding
|
|
|
911,113,735
|
|
|
|
973,899,715
|
|
|
|
885,466,516
|
|
Adjusted Diluted Earnings per Share (non U.S. GAAP measure)
|
|
$
|
0.17
|
|
|
$
|
0.12
|
|
|
$
|
0.04
|
|
First Half of 2017 vs. First Half of 2016
The following table sets forth consolidated statements of operations data for the periods indicated:
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
|
$ million
|
|
|
% of net revenues
|
|
|
$ million
|
|
|
% of net revenues
|
|
Net sales
|
|
$
|
3,728
|
|
|
|
99.6
|
%
|
|
$
|
3,303
|
|
|
|
99.6
|
%
|
Other revenues
|
|
|
16
|
|
|
|
0.4
|
|
|
|
13
|
|
|
|
0.4
|
|
Net revenues
|
|
|
3,744
|
|
|
|
100.0
|
|
|
|
3,316
|
|
|
|
100.0
|
|
Cost of sales
|
|
|
(2,322
|
)
|
|
|
(62.0
|
)
|
|
|
(2,201
|
)
|
|
|
(66.4
|
)
|
Gross profit
|
|
|
1,422
|
|
|
|
38.0
|
|
|
|
1,115
|
|
|
|
33.6
|
|
Selling, general and administrative
|
|
|
(474
|
)
|
|
|
(12.7
|
)
|
|
|
(457
|
)
|
|
|
(13.8
|
)
|
Research and development
|
|
|
(662
|
)
|
|
|
(17.7
|
)
|
|
|
(678
|
)
|
|
|
(20.5
|
)
|
Other income and expenses, net
|
|
|
32
|
|
|
|
0.9
|
|
|
|
55
|
|
|
|
1.7
|
|
Impairment, restructuring charges and other related closure costs
|
|
|
(11
|
)
|
|
|
(0.3
|
)
|
|
|
(40
|
)
|
|
|
(1.2
|
)
|
Operating income (loss)
|
|
|
307
|
|
|
|
8.2
|
|
|
|
(5
|
)
|
|
|
(0.2
|
)
|
Interest expense, net
|
|
|
(9
|
)
|
|
|
(0.2
|
)
|
|
|
(11
|
)
|
|
|
(0.3
|
)
|
Income (loss) on equity-method investments
|
|
|
(2
|
)
|
|
|
(0.1
|
)
|
|
|
9
|
|
|
|
0.3
|
|
Income (loss) before income taxes and noncontrolling interest
|
|
|
296
|
|
|
|
7.9
|
|
|
|
(7
|
)
|
|
|
(0.2
|
)
|
Income tax benefit (expense)
|
|
|
(34
|
)
|
|
|
(0.9
|
)
|
|
|
(8
|
)
|
|
|
(0.3
|
)
|
Net income
|
|
|
262
|
|
|
|
7.0
|
|
|
|
(15
|
)
|
|
|
(0.5
|
)
|
Net loss (income) attributable to noncontrolling interest
|
|
|
(4
|
)
|
|
|
(0.1
|
)
|
|
|
(3
|
)
|
|
|
-
|
|
Net income (loss) attributable to parent company
|
|
$
|
258
|
|
|
|
6.9
|
%
|
|
$
|
(18
|
)
|
|
|
(0.5
|
)%
|
Net revenues
|
|
Six Months Ended
|
|
|
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
% Variation
|
|
|
|
(In millions)
|
|
|
|
|
Net sales
|
|
$
|
3,728
|
|
|
$
|
3,303
|
|
|
|
12.9
|
%
|
Other revenues
|
|
|
16
|
|
|
|
13
|
|
|
|
24.2
|
|
Net revenues
|
|
$
|
3,744
|
|
|
$
|
3,316
|
|
|
|
12.9
|
%
|
Our first half 2017 net revenues increased compared to the year‑ago period by 12.9% as a result of an approximate 30% increase in volume, partially offset by a 17% decrease in average selling prices, which was mainly due to a less favorable product mix. Excluding businesses undergoing a phase-out (mobile legacy products and set-top box), our revenues increased by 14.1%.
No customer exceeded 10% of our total net revenues in the first half of 2017 and 2016.
Net revenues by product group
|
|
Six Months Ended
|
|
|
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
% Variation
|
|
|
|
(In millions)
|
|
|
|
|
Automotive and Discrete Group (ADG)
|
|
$
|
1,463
|
|
|
$
|
1,392
|
|
|
|
5.1
|
%
|
Analog and MEMS Group (AMG)
|
|
|
925
|
|
|
|
745
|
|
|
|
24.1
|
|
Microcontrollers and Digital ICs Group (MDG)
|
|
|
1,204
|
|
|
|
1,089
|
|
|
|
10.7
|
|
Others
|
|
|
152
|
|
|
|
90
|
|
|
|
-
|
|
Total consolidated net revenues
|
|
$
|
3,744
|
|
|
$
|
3,316
|
|
|
|
12.9
|
%
|
By product group, first half of 2017 AMG revenues were up 24.1% mainly supported by higher volumes of 21% and to a lesser extent, to higher average selling prices of 3%, due to product mix improvements. MDG revenues increased 10.7% compared to the prior period on strong growth in general purpose microcontrollers, partially offset by lower revenues for products undergoing phase-out. MDG experienced an increase of 17% in volumes partially offset by a decrease in average selling prices of 6%. ADG revenues increased 5.1%, driven by higher power discrete sales, resulting in higher volumes, partially offset by the evolution of the product mix. Imaging Product Division revenues increased significantly in the first half of 2017 compared to the prior period.
Net Revenues by Market Channel (1)
|
|
Six Months Ended
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
OEM
|
|
|
66
|
%
|
|
|
67
|
%
|
Distribution
|
|
|
34
|
|
|
|
33
|
|
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, Distribution reached 34% share of total revenues in the first half of 2017, compared to approximately 33% in the first half of 2016.
Net Revenues by Location of Shipment (1)
|
|
Six Months Ended
|
|
|
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
% Variation
|
|
|
|
(In millions)
|
|
|
|
|
EMEA
|
|
$
|
1,022
|
|
|
$
|
949
|
|
|
|
7.7
|
%
|
Americas
|
|
|
511
|
|
|
|
516
|
|
|
|
(1.0
|
)
|
Asia Pacific(2)
|
|
|
2,211
|
|
|
|
1,851
|
|
|
|
19.5
|
|
Total
|
|
$
|
3,744
|
|
|
$
|
3,316
|
|
|
|
12.9
|
%
|
____________
|
(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 Asia Pacific affiliates are classified as Asia Pacific 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.
|
|
(2) |
Since 2016, we have three regional sales organizations: EMEA; Americas; and Asia Pacific. Asia Pacific was created from the merger of the Japan & Korea and Greater China-South Asia regional sales organizations.
|
By location of shipment, Asia Pacific and EMEA registered an increase in revenues of 19.5% and 7.7%, respectively, with all product groups contributing to the increase, while the Americas registered lower revenues of 1%.
Gross profit
|
|
Six Months Ended
|
|
|
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
% Variation
|
|
|
|
(In millions)
|
|
|
|
|
Cost of sales
|
|
$
|
(2,322
|
)
|
|
$
|
(2,201
|
)
|
|
|
(5.5
|
)%
|
Gross profit
|
|
$
|
1,422
|
|
|
$
|
1,115
|
|
|
|
27.5
|
%
|
Gross margin (as percentage of net revenues)
|
|
|
38.0
|
%
|
|
|
33.6
|
%
|
|
+440 bps
|
|
Gross margin was 38.0% for the first half of 2017, increasing by approximately 440 basis points compared to the year‑ago period mainly due to improved manufacturing efficiencies, a more favorable product mix and lower level of unused capacity charges, partially offset by decreasing selling prices. Unused capacity charges amounted to $2 million in the first half of 2017 compared to $18 million in the year-ago period.
Operating expenses
|
|
Six Months Ended
|
|
|
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
% Variation
|
|
|
|
(In millions)
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
(474
|
)
|
|
$
|
(457
|
)
|
|
|
(3.6
|
)%
|
Research and development expenses
|
|
|
(662
|
)
|
|
|
(678
|
)
|
|
|
2.4
|
%
|
Total operating expenses
|
|
$
|
(1,136
|
)
|
|
$
|
(1,135
|
)
|
|
|
(0.1
|
)%
|
As percentage of net revenues
|
|
|
(30.3
|
)%
|
|
|
(34.3
|
)%
|
|
+400 bps
|
|
Our operating expenses remained substantially flat, positively impacted by favorable currency effects, net of hedging, and the benefit of our restructuring plans, partially offset by salary and variable incentive increases.
Total R&D expenses were net of research tax credits, which amounted to $53 million in the first half of both 2017 and 2016.
Other income and expenses, net
|
|
Six Months Ended
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Research and development funding
|
|
$
|
32
|
|
|
$
|
51
|
|
Phase-out and start-up costs
|
|
|
-
|
|
|
|
(3
|
)
|
Exchange gain (loss), net
|
|
|
2
|
|
|
|
4
|
|
Patent costs
|
|
|
(3
|
)
|
|
|
(2
|
)
|
Gain on sale of businesses and non‑current assets
|
|
|
2
|
|
|
|
1
|
|
Other, net
|
|
|
(1
|
)
|
|
|
4
|
|
Other income and expenses, net
|
|
$
|
32
|
|
|
$
|
55
|
|
As percentage of net revenues
|
|
|
0.9
|
%
|
|
|
1.7
|
%
|
In the first half of 2017, we recognized other income, net, of $32 million, decreasing compared to $55 million in the first half of 2016. The decrease is mainly due to lower income from R&D funding, since a portion of Nano2017 R&D funding, for the current year 2017, is subject to a pay-back clause and in consequence offset with the recognition of a liability relating to the contingent feature.
Impairment, restructuring charges and other related closure costs
|
|
Six Months Ended
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Impairment, restructuring charges and other related closure costs
|
|
$
|
(11
|
)
|
|
$
|
(40
|
)
|
In the first half of 2017, we recorded $11 million of impairment, restructuring charges and other related closure costs, consisting of: (i) $11 million of net restructuring charges related to the set-top box plan; (ii) $5 million of restructuring charges related to the restructuring plan in Bouskoura, Morocco; and (iii) $5 million reversal on provisions related to previously announced restructuring plans, mainly the EPS restructuring plan, for which accrued provisions were not fully used at completion of the plan.
In the first half of 2016, we recorded $40 million of impairment, restructuring charges and other related closure costs, primarily consisting of: (i) $35 million of restructuring charges related to the set-top box restructuring plan; (ii) $4 million of impairment charges of certain long-lived assets; and (iii) $1 million of other restructuring charges related to former restructuring plans.
Operating income (loss)
|
|
Six Months Ended
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Operating income (loss)
|
|
$
|
307
|
|
|
$
|
(5
|
)
|
As percentage of net revenues
|
|
|
8.2
|
%
|
|
|
(0.2
|
)%
|
Operating income in the first half of 2017 improved significantly by $312 million to $307 million compared to the prior period.
Operating income (loss) by product group
|
|
Six Months Ended
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
|
$ million
|
|
|
% of net revenues
|
|
|
$ million
|
|
|
% of net revenues
|
|
Automotive and Discrete Group (ADG)
|
|
$
|
103
|
|
|
|
7.1
|
%
|
|
$
|
100
|
|
|
|
7.2
|
%
|
Analog and MEMS Group (AMG)
|
|
|
115
|
|
|
|
12.4
|
|
|
|
3
|
|
|
|
0.3
|
|
Microcontrollers and Digital ICs Group (MDG)
|
|
|
131
|
|
|
|
10.9
|
|
|
|
5
|
|
|
|
0.5
|
|
Others(1)
|
|
|
(42
|
)
|
|
|
-
|
|
|
|
(113
|
)
|
|
|
-
|
|
Total consolidated operating income (loss)
|
|
$
|
307
|
|
|
|
8.2
|
%
|
|
$
|
(5
|
)
|
|
|
(0.2
|
)%
|
____________
(1)
|
Operating result of “Others” includes operating earnings of the Imaging Product Division, Subsystems and other products, as well as items not allocated to the segments such as impairment, restructuring charges and other related closure costs, unused capacity charges, strategic or special research and development programs and other minor unallocated expenses such as: certain corporate-level operating expenses, patent claims and litigation, and other costs that are not allocated to the segments.
|
MDG’s operating income had a positive improvement of $126 million, resulting in an operating margin of 10.9% for the 2017 first half with a higher margin for microcontrollers and memories and substantially reduced losses in digital businesses. AMG’s operating performance substantially improved with a positive swing in operating income of $112 million and expansion of its operating margin to 12.4% from essentially breakeven, with improvements coming from both MEMS and Analog. ADG’s operating income was up slightly from the 2016 first half and the operating margin was substantially stable at 7.1% compared to 7.2% in the year-ago period.
Reconciliation to consolidated operating income (loss)
|
|
Six Months Ended
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Total operating income of segments
|
|
$
|
349
|
|
|
$
|
108
|
|
Impairment, restructuring charges and other related closure costs
|
|
|
(11
|
)
|
|
|
(40
|
)
|
Unallocated manufacturing results
|
|
|
3
|
|
|
|
(21
|
)
|
Operating results of other businesses(1)
|
|
|
(22
|
)
|
|
|
(49
|
)
|
Strategic and other research and development programs and other non-allocated provisions(2)
|
|
|
(12
|
)
|
|
|
(3
|
)
|
Total operating loss Others
|
|
|
(42
|
)
|
|
|
(113
|
)
|
Total consolidated operating income (loss)
|
|
$
|
307
|
|
|
$
|
(5
|
)
|
____________
|
(1) |
Includes operating earnings of the Imaging Product Division (including the sensors and modules from our Time-of-Flight technology), Subsystems and other products.
|
|
(2) |
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
|
|
Six Months Ended
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Interest expense, net
|
|
$
|
(9
|
)
|
|
$
|
(11
|
)
|
In the first half of 2017, interest expense on our borrowings and banking fees was $20 million, of which $12 million was interest expense, mainly non-cash, related to the Senior Convertible Bonds issued on July 3, 2014, partially balanced by $11 million of interest income. In the first half of 2016, interest expense on our borrowings and banking fees was $20 million, mainly non-cash, related to the Senior Convertible Bonds issued on July 3, 2014, partially balanced by $9 million in interest income.
Income (loss) on equity-method investments
|
|
Six Months Ended
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Income (loss) on equity-method investments
|
|
$
|
(2
|
)
|
|
$
|
9
|
|
In the second half of 2017, we recorded a $2 million loss on our equity investment in Incard do Brazil (IdB).
During the first half of 2016, we recorded a $9 million income mainly due to a partial reverse of a reserve associated with our indemnity obligation undertaken when selling Numonyx, amid a better than anticipated actual outcome of certain tax items.
Income tax benefit (expense)
|
|
Six Months Ended
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Income tax benefit (expense)
|
|
$
|
(34
|
)
|
|
$
|
(8
|
)
|
During the first half of 2017, we registered an income tax expense of $34 million, reflecting an estimated annual tax rate. Our income tax also included the estimated impact of provisions related to potential tax positions which have been considered uncertain.
In the first half of 2016, we registered an income tax expense of $8 million.
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 also depend 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 income (loss) attributable to parent company
|
|
Six Months Ended
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Net income (loss) attributable to parent company
|
|
$
|
258
|
|
|
$
|
(18
|
)
|
As percentage of net revenues
|
|
|
6.9
|
%
|
|
|
(0.5
|
)%
|
For the first half of 2017, we reported net income of $258 million, representing diluted earnings per share of $0.28, compared to a net loss of $18 million in the year-ago period, representing diluted earnings per share of $(0.02).
We also present Adjusted Diluted Earnings per Share, which is a non U.S. GAAP measure. Adjusted Diluted Earnings per Share is used to help management and investors understand our operations and to highlight the impact of excluded items like impairment, restructuring charges and other related closure costs and other one-time items, net of the estimated relevant tax impact. We believe Adjusted Diluted Earnings per Share provides useful information for management and investors because they measure our capacity to generate profits from our business operations, excluding the expenses related to the rationalizing of our activities and sites that we do not consider to be part of our on-going operating results, thereby offering, when read in conjunction with our U.S. GAAP financials, (i) the ability to make more meaningful period-to-period comparisons of our on-going operating results, (ii) the ability to better identify trends in our business and perform related trend analysis, and (iii) an easier way to compare our results of operations against investor and analyst financial models and valuations, which usually exclude these items. In addition, our definition of Adjusted Diluted Earnings per Share may differ from definitions used by other companies and therefore comparability may be limited. Therefore, when assessing the Company’s operating performance, investors should not consider this data in isolation, or as a substitute for the Company’s net income, operating income, earnings per share or any other operating performance measure that is calculated in accordance with U.S. GAAP.
Adjusted Diluted Earnings per Share (non U.S. GAAP measure) are determined as follows:
|
|
Six Months Ended
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In million, except U.S. dollars per share and shares outstanding)
|
|
Net income (loss) attributable to parent company
|
|
$
|
258
|
|
|
$
|
(18
|
)
|
Impairment, restructuring and other related closure costs and one-time charges effect, net of tax
|
|
|
10
|
|
|
|
35
|
|
Adjusted net income attributable to parent company
|
|
$
|
268
|
|
|
$
|
17
|
|
Weighted average shares outstanding
|
|
|
906,546,813
|
|
|
|
884,685,968
|
|
Adjusted Diluted Earnings per Share (non U.S. GAAP measure)
|
|
$
|
0.30
|
|
|
$
|
0.02
|
|
Legal Proceedings
For a discussion of legal proceedings, see Note 24 Contingencies, Claims and Legal Proceedings to our Interim 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 practice, 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 certain of our 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 our level of revenues when reported in U.S. dollars or the depreciation of the Euro compared to the U.S. dollar could decrease our level of revenues when reported in U.S. dollars. Over time the prices in the industry tend to align to the equivalent amount in U.S. dollars, except that there is a lag between the changes in the currency rate and the adjustment in the price paid in local currency, which is proportional to the amplitude of the currency swing, and such adjustment could be only partial. 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.
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 Interim 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 two different types of hedging contracts: forward and options (including collars).
Our Interim Consolidated Statements of Income for the six months ended July 1, 2017 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 $1.09 for €1.00 in the second quarter of 2017 compared to $1.08 for €1.00 in the first quarter of 2017 and $1.12 for €1.00 in the second quarter of 2016. 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, depending on currency market circumstances. As of July 1, 2017, the outstanding hedged amounts were €780 million to cover manufacturing costs and €498 million to cover operating expenses, both at an average exchange rate of about $1.12 for €1.00 (considering the collars at upper strike), maturing over the period from July 5, 2017 to July 31, 2018. As of July 1, 2017, measured with respect to the exchange rate at period closing of about $1.14 to €1.00, these outstanding hedging contracts and certain expiring contracts covering manufacturing expenses capitalized in inventory resulted in a deferred profit before tax of approximately $49 million, recorded in “Accumulated other comprehensive income (loss)” in the Consolidated Statements of Equity, compared to a deferred loss before tax of approximately $44 million at December 31, 2016.
We also hedge certain manufacturing costs denominated in Singapore dollars (SGD); as of July 1, 2017, the outstanding hedged amounts were SGD 130 million at an average exchange rate of about SGD 1.39 to $1.00 maturing over the period from July 6, 2017 to May 31, 2018. As of July 1, 2017, these outstanding hedging contracts and certain expiring contracts covering manufacturing expenses capitalized in inventory resulted in a deferred profit before tax of approximately $1 million, recorded in “Accumulated other comprehensive income (loss)” in the Consolidated Statements of Equity, compared to a deferred loss before tax of approximately $3 million before tax at December 31, 2016.
Our cash flow hedging policy is not intended to cover our full exposure and is based on hedging a portion of our exposure in the next four quarters and a declining percentage of our exposure in each quarter thereafter. In the second quarter of 2017, as a result of our cash flow hedging, we recorded a net loss of $3 million reported in its entirety in costs of goods sold, while in the comparable quarter in 2016, we recorded a net gain of $7 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. 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 $1 million recorded in “Other income and expenses, net” in our Interim Consolidated Statements of Income for the second quarter of 2017.
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 July 1, 2017, 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 Interim 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 Convertible 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 a proportional 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 July 1, 2017, our total financial resources, including cash and cash equivalents and marketable securities, generated an average interest income rate of 1.25%. At the same date, the average interest rate on our outstanding debt was 2.41% including the non-cash effective interest of the convertible bonds, while the average cash interest rate was only 0.91%.
Impact of Changes in Equity Prices
As of July 1, 2017, 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 18 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 six months of 2017, our net cash increased by $25 million, due to the net cash from operating activities exceeding the net cash used in financing and investing activities.
The components of our cash flow for the comparable periods are set forth below:
|
|
Six Months Ended
|
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Net cash from operating activities
|
|
$
|
657
|
|
|
$
|
333
|
|
Net cash used in investing activities
|
|
|
(544
|
)
|
|
|
(254
|
)
|
Net cash used in financing activities
|
|
|
(106
|
)
|
|
|
(168
|
)
|
Effect of changes in exchange rates
|
|
|
18
|
|
|
|
-
|
|
Net cash increase (decrease)
|
|
$
|
25
|
|
|
$
|
(89
|
)
|
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 six months of 2017 was $657 million, increasing compared to $333 million in the prior-year period mainly due to higher net income and more favorable changes in net working capital.
Net cash used in investing activities. Investing activities used $544 million of cash in the first six months of 2017, increasing compared to $254 million in the prior-year period. Payments for purchase of tangible assets, net of proceeds, totaled $526 million, compared to $236 million registered in the prior year period.
Net cash used in financing activities. Net cash used in financing activities was $106 million for the first six months of 2017, compared to $168 million used for the first six months of 2016 and consisted mainly of $101 million of dividends paid to shareholders.
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, and net cash variation for joint ventures deconsolidation, 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, proceeds received in the sale of businesses and cash paid for business acquisitions. We believe Free Cash Flow, a non U.S. GAAP measure, provides useful information for investors and management because it measures our capacity to generate cash from our operating and investing activities to sustain our operations. Free Cash Flow is not a U.S. GAAP measure and does not represent total cash flow since it does not include the cash flows generated by or used in financing activities. Free Cash Flow reconciles with the total cash flow and the net cash increase (decrease) by including the payment for purchases (and proceeds from the sale) of marketable securities and net cash variation from joint ventures deconsolidation, the net cash from (used in) financing activities and the effect of changes in exchange rates. In addition, our definition of Free Cash Flow may differ from definitions used by other companies. Free Cash Flow is determined as follows from our Consolidated Statements of Cash Flows:
|
|
Three Months Ended |
|
|
Six Months Ended
|
|
|
|
July 1, 2017
|
|
|
July 1, 2017
|
|
|
July 2, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
$
|
369
|
|
|
$
|
657
|
|
|
$
|
333
|
|
Net cash used in investing activities
|
|
|
(317
|
)
|
|
|
(544
|
)
|
|
|
(254
|
)
|
Excluding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment for purchase and proceeds from sale of marketable securities and net variation for JV deconsolidation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Payment for purchase and proceeds from sale of tangible and intangible assets (1)
|
|
|
(317
|
)
|
|
|
(544
|
)
|
|
|
(254
|
)
|
Free Cash Flow (non U.S. GAAP measure)
|
|
$
|
52
|
|
|
$
|
113
|
|
|
$
|
79
|
|
_____________
(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 positive $113 million for the first half of 2017, compared to positive $79 million for the first half of 2016.
Net Financial Position (non U.S. GAAP measure).
Our Net Financial Position represents the difference between our total financial resources and our total financial debt. Our total financial resources include cash and cash equivalents, marketable securities and short-term deposits, and our total financial debt includes short-term debt, including bank overdrafts, 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 and management 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. In addition, our definition of Net Financial Position may differ from definitions used by other companies and therefore comparability may be limited. Our Net Financial Position for each period has been determined as follows from our Consolidated Balance Sheets:
|
|
As at
|
|
|
|
July 1, 2017
|
|
|
December 31, 2016
|
|
|
July 2, 2016
|
|
|
|
(In millions)
|
|
Cash and cash equivalents
|
|
$
|
1,654
|
|
|
$
|
1,629
|
|
|
$
|
1,682
|
|
Marketable securities
|
|
|
335
|
|
|
|
335
|
|
|
|
345
|
|
Total financial resources
|
|
|
1,989
|
|
|
|
1,964
|
|
|
|
2,027
|
|
Short-term debt
|
|
|
(117
|
)
|
|
|
(117
|
)
|
|
|
(171
|
)
|
Long‑term debt
|
|
|
(1,348
|
)
|
|
|
(1,334
|
)
|
|
|
(1,430
|
)
|
Total financial debt
|
|
|
(1,465
|
)
|
|
|
(1,451
|
)
|
|
|
(1,601
|
)
|
Net Financial Position
|
|
$
|
524
|
|
|
$
|
513
|
|
|
$
|
426
|
|
Our Net Financial Position as of July 1, 2017 was a net cash position of $524 million, increasing compared to the net financial position of $513 million at December 31, 2016.
Cash and cash equivalents amounted to $1,654 million as at July 1, 2017, as a result of our cash flow evolution as presented above.
Marketable securities amounted to $335 million as at July 1, 2017 and consisted of U.S. Treasury Bonds available for sale.
Financial debt was $1,465 million as at July 1, 2017, composed of: (i) $117 million of current portion of long-term debt and (ii) $1,348 million long‑term debt. The breakdown of our total financial debt included: (i) $511 million in European Investment Bank loans (the “EIB Loans”), (ii) $937 million in the Senior Bonds, and (iii) $17 million in other long-term loans and loans from other funding programs.
The EIB Loans are comprised of two long-term amortizing credit facilities as part of our R&D funding programs. The first, 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 $217 million remained outstanding as of July 1, 2017. The second, signed in 2013, is a €350 million multi-currency loan which also supports our R&D programs. It was drawn in U.S. dollars for an amount of $471 million, of which $294 million is outstanding as of July 1, 2017.
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 $994 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. On October 3, 2016, the conversion price was adjusted up to 1.24% on each tranche, pursuant dividend adjustment symmetric provision, which corresponds to 16,491 and 16,366 equivalent shares per each $200,000 bond par value for Tranche A and Tranche B, respectively. The Senior Bonds are convertible by the bondholders if certain conditions are satisfied or are callable by the issuer after a lock up period, following specific events, on a net share settlement basis or on a full-cash, full-shares basis at issuer’s decision. Upon initial recognition, the proceeds were allocated between debt and equity by determining the fair value of the liability component using an income approach. In the second quarter of 2017, we released a redemption notice to inform bondholders of our intention to early redeem the Tranche A bonds in July 2017. As a consequence, bondholders have exercised their conversion rights for $598 million nominal value on the total of $600 million of the Tranche A. As we have elected to net share settle the bonds, each conversion will follow the process defined in the original terms and conditions of the convertible bonds, which will determine the actual number of shares to be transferred upon each conversion. As a result we will deliver $598 million in cash and about 13 million shares from outstanding treasury shares (estimated number of shares as of July 28, 2017) and will complete the redemption by the end of August. No conversions were effectively completed as of the end of the second quarter of 2017. The conversion will consequently be reported in the third quarter of 2017, when the consideration is transferred to the bondholders. Notwithstanding the conversion of the $600 million tranche A of the $1 billion convertible bond, the contemporaneous issuance of $1.5 billion convertible debt on July 3, 2017 was treated as refinancing and in consequence the tranche A remained classified as “Long-term debt” as at July 1, 2017. As at July 1, 2017, the holders of Tranche B bonds have full conversion rights and the conversion option was in the money. The diluted EPS includes the dilutive effect of our Senior Bonds.
On June 22, 2017, we launched and priced a $1.5 billion offering of senior unsecured bonds convertible into new or existing ordinary shares of ST. The Bonds were issued in two $750 million tranches, one with a maturity of 5 years (37.5% conversion premium, negative 0.25 yield to maturity, 0% coupon) and the other 7 years (37.5% conversion premium, 0.25 yield to maturity, 0.25% coupon). Under the terms of the Bonds, we can satisfy the conversion rights either in cash or shares, or a combination of the two, at our selection. Assuming the exercise of the Issuer Soft Call at 130% of the Conversion Price after the initial lock-up period, the underlying shares under Net Shares Settlement will be 16.3 million. Proceeds from the issuance of the Bonds will be used for general corporate purposes, including the early redemption of the outstanding $600 million convertible bond due 2019 which will be completed by the end of August and the future redemption of the outstanding $400 million convertible bond due 2021. The issuance of the new Bonds occurred on July 3, 2017, therefore the impact to financial reporting will be effective in the third quarter of 2017.
We simultaneously launched a share buy-back program of up to 19 million shares for an amount up to $297 million intended to meet our obligations arising from debt financial instruments that are exchangeable into equity instruments and to meet obligations arising from employee share award programs. In the period between June 30, 2017 and July 28, 2017, ST has repurchased on the Mercato Telematico Azionario and other venues, 15,036,059 Company ordinary shares (equal to 1.7% of the Company’s share capital) at the weighted average purchase price of €13.6421 per share for an overall price of €205,123,153.
Our long-term debt contains standard conditions, but does not impose minimum financial ratios.
Our current ratings with the three major rating agencies that report on us on a solicited basis, are as follows: S&P: “BBB-” with stable outlook; Fitch: “BBB-” with positive outlook and on June 13, 2017, Moody’s affirmed our senior unsecured rating of “Ba1” and revised the outlook from stable to positive.
As of July 1, 2017, debt payments at redemption value by period were as follows:
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
|
|
(In millions)
|
|
Long-term debt (including current portion)
|
|
$
|
1,528
|
|
|
$
|
715
|
|
|
$
|
116
|
|
|
$
|
116
|
|
|
$
|
116
|
|
|
$
|
461
|
|
|
$
|
4
|
|
Financial Outlook: Capital Investment
Our policy is to modulate our capital spending according to the evolution of the semiconductor market. Based on increased demand and ongoing strategic initiatives, including new specialized products, we are accelerating our capital spending, aligned to the substantial revenue opportunities we see this year, particularly in the second half. Based upon a combination of new products and higher customer demand, we now anticipate capital investment in 2017 above our initial plan ($1.0 billion to $1.1 billion) to a range of about $1.25 billion to $1.3 billion. This investment will support both 2017 revenues and our future growth programs. Specifically, the Company is investing in 300mm front-end manufacturing and in back-end assembly and test to support new products. In particular, we anticipate a newly won program to ramp with substantial revenues in the second half of 2017. We see 2017 as a special period, with unique new product opportunities which require internal manufacturing due to technology specialization. We expect however, over the cycle, to remain at our strategic capital spending model with capex at or below 10% of sales. The most important of our 2017 capital expenditure projects are expected to be for our front end facilities: (i) in our 300 mm fab in Crolles, expanding within existing infrastructure capacity to support the production ramp up of a new program from the second half of 2017 onward; (ii) mix evolution, and a few selected programs of capacity growth and infrastructure preparation, mainly in the area of mixed signal and discrete processes, including the Silicon Carbide (SiC) technology; (iii) qualification and ramp-up of technologies in 200 mm in Singapore, Agrate, Italy, as well as the expansion of facilities and the increase of capacity in our 200mm fabs in Catania, Italy and Singapore. To accelerate increased capacity in 200 mm in Singapore, on July 26, 2017, we entered into an agreement with Micron Technologies to acquire, in several steps over time, and subject to meeting certain local Singapore requirements, the building facilities and tools of the former Numonyx fab. The most important 2017 capital investment for our back end facilities are expected to be: (i) capacity growth on certain package families, to sustain market demand and secure ramp up of specialty products for strategic customers; (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. Additionally we invest on overall capacity adjustment in final testing and wafers probing (EWS) to meet increased demand and a changed product mix as well as we invest in quality, safety, maintenance, productivity and cost savings in both 150 mm, 200 mm front end fabs and back end plants.
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. Based on the activity of each sponsored project, from the beginning of the program to the end of the second quarter of 2017, we have recognized grants for a cumulated amount of €383 million. The Nano2017 contract contains certain covenants which, in the event they are not fulfilled, may affect our ability to access such funding. Additionally, a portion of Nano2017 program is subject to a payback clause (“financial return”), depending on the future cumulated sales for certain products within the scope of the funded program on the period from 2018 to 2023. The financial return corresponds to the payment in 2024 of the original funded amount (€37 million) multiplied by a rate from 0% to 250%, depending on the cumulative amount of future sales. Based on current visibility, we estimate the return rate to reach 108%.
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 July 1, 2017.
Impact of Recently Issued U.S. Accounting Standards
See Note 5 Recent Accounting Announcements to our Consolidated Financial Statements.
Backlog and Customers
During the second quarter of 2017, our booking plus net frames orders increased compared to the first quarter of 2017 across all product groups. We entered the third quarter 2017 with a backlog higher than the level we had when entering in the second quarter 2017. 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 second quarter of 2017, no customer accounted for more than 10% of our total net revenues. 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 as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934 (“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 Securities and Exchange Act of 1934, 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, errors in process flow or delay in communication, 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:
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Uncertain macro-economic and industry trends, which may impact end-market demand for our products;
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Customer demand that differs from projections;
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The ability to design, manufacture and sell innovative products in a rapidly changing technological environment;
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Unanticipated events or circumstances, which may 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;
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Changes in economic, social, labor, 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 conflicts, social unrest, labor actions, or terrorist activities;
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The Brexit vote and the perceptions as to the impact of the withdrawal of the U.K. may adversely affect business activity, political stability and economic conditions in the U.K., the Eurozone, the EU and elsewhere. While we do not have material operations in the U.K. and have not experienced any material impact from Brexit on our underlying business to date, we cannot predict its future implications;
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Financial difficulties with any of our major distributors or significant curtailment of purchases by key customers;
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The loading, product mix, and manufacturing performance of our production facilities;
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The functionalities and performance of our IT systems, which support our critical operational activities including manufacturing, finance and sales, and any breaches of our IT systems or those of our customers or suppliers;
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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;
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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;
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The ability to successfully restructure underperforming business lines and associated restructuring charges and cost savings that differ in amount or timing from our estimates;
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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;
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The outcome of ongoing litigation as well as the impact of any new litigation to which we may become a defendant;
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Product liability or warranty claims, claims based on epidemic or delivery failure, or other claims relating to our products, or recalls by our customers for products containing our parts;
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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;
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Availability and costs of raw materials, utilities, third-party manufacturing services and technology, or other supplies required by our operations;
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Industry changes resulting from vertical and horizontal consolidation among our suppliers, competitors, and customers; and
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The ability to successfully ramp up new programs that could be impacted by factors beyond our control, including the availability of critical third party components and performance of subcontractors in line with our expectations.
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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
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Pages
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Consolidated Statements of Income for the Three and Six Months Ended July 1, 2017 and July 2, 2016 (unaudited)
|
F-1
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Consolidated Statements of Comprehensive Income for Three and Six Months Ended July 1, 2017 and July 2, 2016 (unaudited)
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F-3
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Consolidated Balance Sheets as of July 1, 2017 (unaudited) and December 31, 2016 (audited)
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F-5
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Consolidated Statements of Cash Flows for the Six Months Ended July 1, 2017 and July 2, 2016 (unaudited)
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F-6
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Consolidated Statements of Equity (unaudited)
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F-7
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Notes to Interim Consolidated Financial Statements (unaudited)
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F-8
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STMicroelectronics N.V.
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|
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CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
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Three months ended
|
|
|
|
(Unaudited)
|
|
|
|
July 01,
|
|
|
July 02,
|
|
In million of U.S. dollars except per share amounts
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
1,911
|
|
|
|
1,698
|
|
Other revenues
|
|
|
12
|
|
|
|
5
|
|
Net revenues
|
|
|
1,923
|
|
|
|
1,703
|
|
Cost of sales
|
|
|
(1,187
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)
|
|
|
(1,126
|
)
|
Gross profit
|
|
|
736
|
|
|
|
577
|
|
Selling, general and administrative
|
|
|
(240
|
)
|
|
|
(229
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)
|
Research and development
|
|
|
(327
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)
|
|
|
(336
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)
|
Other income and expenses, net
|
|
|
15
|
|
|
|
28
|
|
Impairment, restructuring charges and other related closure costs
|
|
|
(6
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)
|
|
|
(12
|
)
|
Operating income
|
|
|
178
|
|
|
|
28
|
|
Interest expense, net
|
|
|
(4
|
)
|
|
|
(6
|
)
|
Income (loss) on equity-method investments
|
|
|
(2
|
)
|
|
|
9
|
|
Income before income taxes and noncontrolling interest
|
|
|
172
|
|
|
|
31
|
|
Income tax expense
|
|
|
(19
|
)
|
|
|
(6
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)
|
Net income
|
|
|
153
|
|
|
|
25
|
|
Net income attributable to noncontrolling interest
|
|
|
(2
|
)
|
|
|
(2
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)
|
Net income attributable to parent company
|
|
|
151
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
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Earnings per share (Basic) attributable to parent company stockholders
|
|
|
0.17
|
|
|
|
0.03
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|
Earnings per share (Diluted) attributable to parent company stockholders
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|
|
0.17
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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The accompanying notes are an integral part of these unaudited interim consolidated financial statements
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STMicroelectronics N.V.
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CONSOLIDATED STATEMENTS OF INCOME
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|
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Six months ended
|
|
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(Unaudited)
|
|
|
July 01,
|
|
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July 02,
|
|
In million of U.S. dollars except per share amounts
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
3,728
|
|
|
|
3,303
|
|
Other revenues
|
|
|
16
|
|
|
|
13
|
|
Net revenues
|
|
|
3,744
|
|
|
|
3,316
|
|
Cost of sales
|
|
|
(2,322
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)
|
|
|
(2,201
|
)
|
Gross profit
|
|
|
1,422
|
|
|
|
1,115
|
|
Selling, general and administrative
|
|
|
(474
|
)
|
|
|
(457
|
)
|
Research and development
|
|
|
(662
|
)
|
|
|
(678
|
)
|
Other income and expenses, net
|
|
|
32
|
|
|
|
55
|
|
Impairment, restructuring charges and other related closure costs
|
|
|
(11
|
)
|
|
|
(40
|
)
|
Operating income (loss)
|
|
|
307
|
|
|
|
(5
|
)
|
Interest expense, net
|
|
|
(9
|
)
|
|
|
(11
|
)
|
Income (loss) on equity-method investments
|
|
|
(2
|
)
|
|
|
9
|
|
Income (loss) before income taxes and noncontrolling interest
|
|
|
296
|
|
|
|
(7
|
)
|
Income tax expense
|
|
|
(34
|
)
|
|
|
(8
|
)
|
Net income (loss)
|
|
|
262
|
|
|
|
(15
|
)
|
Net income attributable to noncontrolling interest
|
|
|
(4
|
)
|
|
|
(3
|
)
|
Net income (loss) attributable to parent company
|
|
|
258
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
Earnings per share (Basic) attributable to parent company stockholders
|
|
|
0.29
|
|
|
|
(0.02
|
)
|
Earnings per share (Diluted) attributable to parent company stockholders
|
|
|
0.28
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim consolidated financial statements
|
|
STMicroelectronics N.V.
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
(Unaudited)
|
|
|
|
July 01,
|
|
|
July 02,
|
|
In million of U.S. dollars
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
153
|
|
|
|
25
|
|
Other comprehensive income (loss), net of tax :
|
|
|
|
|
|
|
|
|
Currency translation adjustments arising during the period
|
|
|
111
|
|
|
|
(52
|
)
|
Foreign currency translation adjustments
|
|
|
111
|
|
|
|
(52
|
)
|
Unrealized gains (losses) arising during the period
|
|
|
-
|
|
|
|
2
|
|
Unrealized gains (losses) on securities
|
|
|
-
|
|
|
|
2
|
|
Unrealized gains (losses) arising during the period
|
|
|
63
|
|
|
|
(23
|
)
|
Less : reclassification adjustment for (income) losses included in net income
|
|
|
3
|
|
|
|
(7
|
)
|
Unrealized gains (losses) on derivatives
|
|
|
66
|
|
|
|
(30
|
)
|
Net gains (losses) arising during the period
|
|
|
2
|
|
|
|
2
|
|
Defined benefit pension plans
|
|
|
2
|
|
|
|
2
|
|
Other comprehensive income (loss), net of tax
|
|
|
179
|
|
|
|
(78
|
)
|
Comprehensive income (loss)
|
|
|
332
|
|
|
|
(53
|
)
|
Less : comprehensive income (loss) attributable to noncontrolling interest
|
|
|
2
|
|
|
|
2
|
|
Comprehensive income (loss) attributable to the company’s stockholders
|
|
|
330
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim consolidated financial statements
|
|
|
|
|
|
STMicroelectronics N.V.
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
(Unaudited)
|
|
|
|
July 01,
|
|
|
July 02,
|
|
In million of U.S. dollars
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
262
|
|
|
|
(15
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
Currency translation adjustments arising during the period
|
|
|
136
|
|
|
|
37
|
|
Less : reclassification adjustment for gains on disposal of equity investment
|
|
|
-
|
|
|
|
-
|
|
Foreign currency translation adjustments
|
|
|
136
|
|
|
|
37
|
|
Unrealized gains (losses) arising during the period
|
|
|
-
|
|
|
|
9
|
|
Unrealized gains (losses) on securities
|
|
|
-
|
|
|
|
9
|
|
Unrealized gains (losses) arising during the period
|
|
|
77
|
|
|
|
20
|
|
Less : reclassification adjustment for (income) losses included in net income (loss)
|
|
|
20
|
|
|
|
5
|
|
Unrealized gains (losses) on derivatives
|
|
|
97
|
|
|
|
25
|
|
Net gains (losses) arising during the period
|
|
|
4
|
|
|
|
3
|
|
Defined benefit pension plans
|
|
|
4
|
|
|
|
3
|
|
Other comprehensive income (loss), net of tax
|
|
|
237
|
|
|
|
74
|
|
Comprehensive income (loss)
|
|
|
499
|
|
|
|
59
|
|
Less : comprehensive income (loss) attributable to noncontrolling interest
|
|
|
4
|
|
|
|
3
|
|
Comprehensive income (loss) attributable to the company’s stockholders
|
|
|
495
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim consolidated financial statements
|
|
|
|
|
|
STMicroelectronics N.V.
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEETS
|
|
|
As at
|
|
|
|
|
|
|
|
|
|
|
July 01,
|
|
|
December 31,
|
|
In million of U.S. dollars
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current assets :
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
1,654
|
|
|
|
1,629
|
|
Marketable securities
|
|
|
335
|
|
|
|
335
|
|
Trade accounts receivable, net
|
|
|
1,012
|
|
|
|
939
|
|
Inventories
|
|
|
1,262
|
|
|
|
1,173
|
|
Other current assets
|
|
|
443
|
|
|
|
311
|
|
Total current assets
|
|
|
4,706
|
|
|
|
4,387
|
|
Goodwill
|
|
|
120
|
|
|