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1.1.
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History and development of STMicroelectronics
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STMicroelectronics N.V. (“STMicroelectronics”, “ST” or “the Company”) was formed and incorporated in 1987 as a result of the combination of the semiconductor business of SGS Microelettronica (then owned by Società Finanziaria Telefonica (S.T.E.T.), an Italian corporation) and the non-military business of Thomson Semiconducteurs (then owned by Thomson-CSF, now Thales, a French corporation). We completed our initial public offering in December 1994 with simultaneous listings on the Bourse de Paris (now known as “Euronext Paris”) and the New York Stock Exchange (“NYSE”). In 1998, we also listed our shares on the Borsa Italiana S.p.A. (“Borsa Italiana”).
We operated as SGS-Thomson Microelectronics N.V. until May 1998, when we changed our name to STMicroelectronics N.V. We are organized under the laws of The Netherlands, with our corporate legal seat in Amsterdam, The Netherlands, and our head offices at WTC Schiphol Airport, Schiphol Boulevard 265, 1118 BH Schiphol, The Netherlands. Our telephone number there is +31-20-654-3210. Our headquarters and operational offices are managed through our wholly owned subsidiary, STMicroelectronics International N.V., and are located at 39, chemin du Champ des Filles, 1228 Plan-les-Ouates, Geneva, Switzerland. Our main telephone number there is +41-22-929-2929. Our operations are also conducted through our various subsidiaries, which are organized and operated according to the laws of their country of incorporation, and consolidated by STMicroelectronics N.V.
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1.2.
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Strategy & objectives
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We are a global leader in the semiconductor market, serving a broad range of customers across different areas. We focus on the Internet of Things and Smart Driving. Our strategy takes into account the evolution of the markets we serve and the environment and opportunities we see for the years to come. We focus on developing industry-leading products and solutions for the application areas which are expected to experience solid growth rates driven by long-term trends affecting people’s lives. These trends include population ageing and concentration in cities, ubiquitous connectivity, and the need for more energy efficiency across all applications.
Our intelligent and energy-efficient products and solutions are used in a wide variety of applications that power the electronics at the heart of everyday life. We enable smarter driving by making vehicles safer, greener and more connected. We help make homes and cities smarter though the evolution of devices and systems to become more efficient, intelligent, aware and connected. Our products make workplaces and factories more efficient and flexible, and allow them to operate in a more sustainable manner while becoming safer for the people working there. And we enable creators of smart connected consumer devices to develop and take to market their devices quickly and efficiently. In doing this we ensure that ST is found everywhere microelectronics make a positive and innovative contribution to people’s lives. By getting more from technology to get more from life, ST stands for
life
.augmented.
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1.3.
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Organizational structure
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We are organized in a matrix structure with geographic regions interacting with product lines, both supported by shared technology and manufacturing operations and by central functions, designed to enable us to be closer to our customers and to facilitate communication among the R&D, production, marketing and sales organizations.
While STMicroelectronics N.V. is the parent company, we also conduct our operations through service activities from our subsidiaries. We provide certain administrative, human resources, legal, treasury, strategy, manufacturing, marketing and other overhead services to our consolidated subsidiaries pursuant to service agreements for which we recover the cost.
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STMicroelectronics
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Semi Annual Report 2016
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1.4.
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Products and activities
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We are a global independent semiconductor company that designs, develops, manufactures and markets a broad range of products, including discrete and standard commodity components, application-specific integrated circuits (“ASICs”), full custom devices and semi-custom devices and application-specific standard products (“ASSPs”) for analog, digital and mixed-signal applications. In addition, we further participate in the manufacturing value chain of Smartcard products, which include the production and sale of both silicon chips and Smartcards.
Our diverse product portfolio is built upon a unique, strong foundation of proprietary and differentiated leading-edge technologies. We use all of the prevalent function-oriented process technologies, including complementary metal-on silicon oxide semiconductor (“CMOS”), bipolar and non-volatile memory technologies. In addition, by combining basic processes, we have developed advanced systems-oriented technologies that enable us to produce differentiated and application-specific products, including our fully depleted silicon-on-insulator (“FD-SOI”) technology offering superior performance and power efficiency compared to bulk CMOS, bipolar CMOS technologies (“Bi-CMOS”) and radio frequency silicon-on-insulator (“RF-SOI”) for mixed-signal and high-frequency applications, and diffused metal-on silicon oxide semiconductor (“DMOS”) technology and bipolar, CMOS and DMOS (“BCD”) technologies for intelligent power applications, Silicon Carbide (“SiC”) for high-power, high-efficiency applications, MEMS and embedded memory technologies. This broad technology portfolio, a cornerstone of our strategy, enables us to meet the increasing demand for System-on-Chip (“SoC”) and System-in-Package (“SiP”) solutions. Complementing this depth and diversity of process and design technology is our IP portfolio which we also use to enter into broad patent cross-licensing agreements with other major semiconductor companies.
In the first half of 2016, our organization changed to align with our strategic focus on Smart Driving and Internet of Things applications. Comparative numbers were restated accordingly.
Our reportable segments are as follows:
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Automotive and Discrete Group (ADG)
, comprised of all automotive dedicated ICs, both digital and analog, and discrete products;
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Analog and MEMS Group (AMG)
, comprised of low-power analog ICs, both general purpose and high-end, smart power products for industrial and power conversion, and micro-machinery activity;
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Microcontrollers and Digital ICs Group (MDG)
, comprised of general purpose and secure microcontrollers, EEPROM memories, and digital ICs outside of automotive.
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“
Others” includes all the financial values related to 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.
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1.5.
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Sales, Marketing and Distribution
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Our sales and marketing is organized by a combination of country/area coverage and key accounts coverage with the primary objective being to accelerate sales growth and gain market share, particularly with regards to: strengthening the effectiveness of the development of our global accounts; boosting demand creation through an enhanced focus on geographical coverage; and establishing regional sales and marketing teams that are fully aligned with our product lines.
We have three regional sales organizations: EMEA; Americas; and Asia Pacific. The sales and marketing activities performed by our regional sales organizations are supported by product marketing that is carried out by each product group, which also includes product development functions. This matrix system reinforces our sales and marketing activities and our broader strategic objectives. An important component of our regional sales and marketing efforts is to expand our customer base, which we seek to do by adding sales representatives, regional competence centers and new generations of electronic tools for customer support.
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STMicroelectronics
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Semi Annual Report 2016
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1.6.
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Research & Development
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Since our creation, we have maintained an unwavering commitment to R&D. Our innovation in semiconductor technology as well as in hardware and software contribute to our making successful products that create value for us and our customers. Our complete design platforms, including a large selection of IPs and silicon-proven models and design rules, enable the fast development of products designed to meet customer expectations in terms of reliability, quality, competitiveness in price and time-to-market. We contribute to making our customers’ products more efficient, more appealing, more reliable and safer.
We draw on a rich pool of chip fabrication technologies, including FD-SOI, CMOS, imaging, embedded non-volatile memories, mixed-signal, analog and MEMS and power processes. We combine front-end manufacturing and technology R&D under the same organization to ensure a smooth flow of information between the R&D and manufacturing organizations. We leverage significant synergies and shared activities between our product groups to cross-fertilize them. Technology R&D expenses are allocated to the relevant product groups on the basis of the estimated efforts.
We have advanced R&D centers which offer us a significant advantage in quickly and cost effectively introducing products. Furthermore, we have established a strong culture of partnership and through the years have created a network of strategic collaborations with key customers, suppliers, competitors, and leading universities and research institutes around the world.
STMicroelectronics was one of the first global industrial companies to recognize the importance of environmental responsibility, our initial efforts beginning in the early 1990s. Today, sustainability at STMicroelectronics is about creating value and minimizing risks for our customers, investors, employees and partners through the effective management of our economic, environmental and social impacts to ensure long-term business success. Our approach to sustainability is expressed at a high level in our Code of Conduct and Company policies and, in a more operational way, in our Sustainability strategy. To ensure the Company remains focused on the most material topics for our business and stakeholders, we regularly update our sustainability strategy and deploy initiatives and programs related to people, business, environment and our operations across all of our sites.
STMicroelectronics is included in some of the main Sustainability indices (DJSI Europe, FTSE4Good, Euronext Vigeo, ECPI).
Further information on ST’s Sustainability efforts can be found at:
http://www.st.com/web/en/about_st/company_reports_st.html
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STMicroelectronics
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Semi Annual Report 2016
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2.
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Report of the Managing Board
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The total available market is defined as the “TAM”, while the serviceable available market, the “SAM”, is defined as the market for products produced by us (which consists of the TAM and excludes major devices such as Microprocessors (“MPUs”), Dynamic random-access memories (“DRAMs”), optoelectronics devices, Flash Memories and the Wireless Application Specific market products such as Broadband and Application Processor).
Based on the industry data published by World Semiconductor Trade Statistics (WSTS), semiconductor industry revenues decreased in the first half of 2016 on a year-over-year basis by approximately 6% for the TAM while they remained stable for the SAM to reach approximately $
157
billion and $
74
billion, respectively.
Our effective average exchange rate for the first half of 2016 was $
1.11
for €1.00 compared to $1.20 for €1.00 for the first half of 2015.
Our first half 2016 revenues amounted to $
3,316
million, a
4.3
% decrease on a year-over-year basis. This year-over-year decrease is mainly due to a decrease in volume, partially offset by an increase in average selling prices, entirely due to an improved product mix. Excluding businesses undergoing a phase-out (mobile legacy products, camera modules and set-top box), our revenues decreased by 2.5%. ADG revenues increased by 0.3% on solid growth in automotive products offset to a large measure by lower power discrete sales. MDG revenues were flat compared to the year-ago period, experiencing an increase in volumes fully offset by a decrease in average selling prices. AMG revenues decreased 16.2%, impacted by both lower volumes and a decrease in average selling prices, mainly as a consequence of lower sales of MEMS
.
Our first half 2016 gross margin reached
30.4
% of revenues, representing an increase of
160
basis points compared to the prior year period, primarily due to a significant decrease of impairment and amortization of capitalized development costs as prior year period included impairment of capitalized development costs for certain products within our DPG product line. Gross margin also benefited from favorable currency effects, net of hedging, improved manufacturing efficiencies and lower unused capacity charges, partially offset by decreasing selling prices.
Combined selling, general and administrative (SG&A) and research and development (R&D) expenses increased to $
1,049
million for the first half of 2016, compared to $1,031 million in the prior year period, mainly driven by lower capitalized development costs, salary and variable incentive increases and longer calendar period, partially offset by favorable currency effects and the benefit of our restructuring plans.
In the first half of 2016, our combined other income and expenses increased to an income of $
62
million, compared to an income of $40 million in the prior year period, mainly due to the favorable impact of hedging contracts, partially offset by lower income from R&D funding.
Operating profit increased to $
22
million in the first half of 2016 compared to $5 million in prior year, mainly due to our margin increase, partially offset by
lower revenues and higher combined SG&A and R&D expenses
.
In first half of 2016, our free cash flow (a non GAAP measure) amounted to $78 million, a $16 million decrease compared to the first half of 2015.
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STMicroelectronics
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Semi Annual Report 2016
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Report of the Managing Board
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We operate in two business areas: Semiconductors and Subsystems.
In the Semiconductors business area, we design, develop, manufacture and market a broad range of products, including discrete and standard commodity components, application-specific integrated circuits (“ASICs”), full-custom devices and semi-custom devices and application-specific standard products (“ASSPs”) for analog, digital, and mixed-signal applications. In addition, we further participate in the manufacturing value chain of Smartcard products, which includes the production and sale of both silicon chips and Smartcards.
During the first half of 2016, our internal organization changed to align with our strategic focus on Smart Driving and on Internet of Things applications. Comparative numbers were restated accordingly.
Our reportable segments are as follows:
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Automotive and Discrete Group (ADG)
, comprised of all automotive dedicated ICs, both digital and analog, and discrete products.
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Analog and MEMS Group (AMG)
, comprised of low-power analog ICs, both general purpose and high-end, smart power products for industrial and power conversion, and micro-machinery activity.
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Microcontrollers and Digital ICs Group (MDG)
, comprised of general purpose and secure microcontrollers, EEPROM memories, and digital ICs outside of automotive.
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“
Others” includes all the financial values related to 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.
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 its business as a whole, the Subsystems business area does not meet the requirements for a reportable segment as defined in the IFRS guidance.
Please refer to note 3.6.5 of the Semi Annual Financial Statements for further information.
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2.3.
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Liquidity and financial position
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We maintain a significant cash position and a low debt-to-equity ratio, which provide us with adequate financial flexibility. As in the past, our cash management policy is to finance our investment needs mainly with net cash generated from operating activities.
During the first half of 2016, the evolution of our net cash decreased by $
89
million, due to the net cash used in investing activities and financing activities, including $145 million dividends paid to stockholders, exceeding the net cash from operating activities.
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STMicroelectronics
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Semi Annual Report 2016
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Report of the Managing Board
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The evolution of our cash flow for the comparable periods is set forth below:
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(unaudited)
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In millions of USD
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July 2, 2016
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June 27, 2015
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Net cash from operating activities
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464
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540
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Net cash used in investing activities
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(386
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)
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(466
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)
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Net cash used in financing activities
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(167
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)
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(196
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)
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Effect of change in exchange rates
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-
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(8
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)
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Net cash decrease
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(89
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)
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(130
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)
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Net cash from operating activities
The net cash from operating activities for the first half of 2016 was $
464
million, decreasing compared to the prior year period as a result of a decrease of the net result adjusted for non-cash items and unfavorable changes in assets and liabilities. Net cash from operating activities is the sum of (i) the net result adjusted for certain non-cash items and (ii) changes in assets and liabilities.
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Net result adjusted for non-cash items generated $
437
million of cash during the first half of 2016 compared to $476 million in the prior year period.
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Changes in assets and liabilities generated cash for a total amount of $
27
million in the first half of 2016 while it generated cash for a total amount of $64 million in the prior year period.
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Net cash used in investing activities
Investing activities used $
386
million of net cash in the first half of 2016, mainly due to investment in intangible assets for $
150
million of which the largest part is related to capitalization of development costs, as well as payments for tangible asset, net of proceeds, for a total of $
236
million. Investing activity in the first half of 2015 used $466 million of cash mainly due to investment in intangible assets for $183 million of which the largest part is related to capitalization of development costs, as well as payments for tangible asset, net of proceeds, for a total of $250 million.
Net cash used in financi
ng
activities
Net cash used in financing activities was $
167
million in the first half of 2016, compared to $196 million in the first half of 2015. The first half of 2016 included $
145
million of dividends paid to stockholders, compared to $175 million in the prior year period.
Free cash flow (non GAAP measure)
Our free cash flow was positive $78 million for the first half of 2016, compared to positive $94 million for the first half of 2015.
Free Cash Flow, a non GAAP measure, is 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 and proceeds received in the sale of businesses. We believe Free Cash Flow 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 GAAP measure and does not represent total cash flow since it does not include the cash flows generated by or used in financing activities.
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STMicroelectronics
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Semi Annual Report 2016
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Report of the Managing Board
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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.
Financial position
As at July 2, 2016, our total financial resources amounted to $
2,027
million and were comprised of:
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$
1,682
million of cash and cash equivalents,
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$
345
million invested in U.S. Government Treasury Bonds with an average rating of Aaa/AA+/AAA from Moody’s, S&P and Fitch, respectively, reported at fair value.
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As at July 2, 2016, the aggregate amount of our interest bearing loans and borrowings, including the current portion, was $1,603 million, which included:
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$
678
million in European Investment Bank loans (the “EIB Loans”),
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$
917
million in the Senior Bonds,
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$
8
million in other long-term loans and loans from other funding programs.
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The EIB Loans are comprised of four long-term amortizing credit facilities as part of R&D funding programs. The first, for R&D in France, drawn for a total amount of $341 million, was fully amortized in the first half of 2016. The second for R&D projects in Italy, was drawn for a total amount of $380 million, of which $
54
million remained outstanding as of July 2, 2016. The third, a €350 million multi-currency loan to support our industrial and R&D programs, was drawn mainly in U.S. dollars for an amount of $321 million and only partially in Euros for an amount of €100 million, of which the equivalent of $271 million remained outstanding as of July 2, 2016. The fourth, a €350 million multicurrency loan supporting our R&D programs, was drawn in U.S. dollars for an amount of $471 million, of which $353 million is outstanding as of July 2, 2016. At July 2, 2016, the amounts available under our back-up and uncommitted credit facilities were unutilized.
The Senior Bonds were issued on July 3, 2014, for a principal amount of $1,000 million (Tranche A for $600 million and Tranche B for $400 million), due 2019 and 2021, respectively, for net proceeds of approximately $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. The Senior Bonds are convertible by the bondholders if certain conditions are satisfied on a net-share settlement basis, except if an alternative settlement is elected by us. We can also redeem the Senior Bonds prior to their maturity in certain circumstances. Upon initial recognition, the proceeds were allocated between host debt and embedded components by determining the fair value of the embedded non-equity derivative instruments using an income approach. The liability component will accrete to par value until maturity based on the effective interest rate (Tranche A: 2.54% and Tranche B: 3.13%, including 1% p.a. nominal interest).
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2.4.
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Business and financial outlook
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Our backlog is currently underpinned by a healthy demand in the markets we serve and this makes us confident we can grow revenues in the second half of 2016, year-over-year. We expect that in the second half of 2016, power discretes and AMG (Analog and MEMS Group) will restart year-over-year growth and that automotive, microcontrollers and imaging will continue their positive revenue momentum. At the same time we remain vigilant due to the macro-economic uncertainties, especially in Europe, which could impact overall GDP and semiconductor demand.
Our policy is to modulate our capital spending according to the evolution of the semiconductor market. Based on market recovery forecast and ongoing strategic initiatives, our capital expenditure is estimated to be within the range of $600 million to $670 million for 2016, to be adjusted based on demand thereafter. The most important of our 2016 capital expenditure projects are expected to be : (a) for our front end facilities: (i) in our 300 mm fab in Crolles, R&D, technology evolution and, based on demand of new products, new specialized capacity to support the production ramp up of new technologies;
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STMicroelectronics
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Semi Annual Report 2016
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Report of the Managing Board
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(ii) mix evolution, and a few selected programs of capacity growth and infrastructure preparation, mainly in the area of mixed signal and discrete processes, in particular in the Silicon Carbide (SiC) technology; (iii) qualification and ramp-up of technologies in 200 mm in Singapore, Agrate, Italy and expansion of the 200 mm fab in Catania, Italy; and (iv) quality, safety, maintenance, and productivity and cost savings investments in both 150 mm and 200 mm front end fabs; (b) for our back end facilities: (i) capacity growth on certain package families, to sustain market demand and secure service and 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; and (c) an overall capacity adjustment in final testing and wafers probing (EWS) to meet increased demand and a changed product mix.
We will continue to monitor our level of capital spending by taking into consideration factors such as trends in the semiconductor industry, capacity utilization and customer’s demand on new specific products. 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 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 2016, we have recognized grants for an aggregate amount of €315 million. The Nano2017 contract contains certain covenants which, in the event they are not fulfilled, may affect our ability to access such funding.
As a result of our exit from the ST-Ericsson joint venture, our exposure is limited to covering 50% of ST-Ericsson’s needs to complete the wind-down, which are estimated to be negligible, based on our current visibility of the ST-Ericsson liquidation balance.
We believe that we have the financial resources needed to meet our currently projected business requirements for the next twelve months, including capital expenditures for our manufacturing activities, working capital requirements, approved dividend payments and the repayment of our debts in line with their maturity dates.
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2.5.
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Other developments in the First Half of 2016
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On May 25, 2016 all of the proposed resolutions were adopted at our Annual General Meeting of Shareholders, held in Amsterdam. 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, 2015, prepared in accordance with International Financial Reporting Standards (IFRS) as adopted in the European Union;
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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 2016 and first quarter of 2017 to shareholders of record in the month of each quarterly payment;
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The appointment of Mr. Salvatore Manzi as a member of the Supervisory Board, for a three-year term expiring at the 2019 Annual General Meeting of Shareholders, in replacement of Mr. Alessandro Ovi whose mandate expired as of the 2016 Annual General Meeting of Shareholders;
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Semi Annual Report 2016
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Report of the Managing Board
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The reappointment of Ms. Janet Davidson as a member of the Supervisory Board for a three-year term, expiring at the 2019 Annual General Meeting of Shareholders;
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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; and
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The authorization to our Managing Board, for eighteen months following the 2016 Annual General Meeting of Shareholders, to repurchase our shares, subject to the approval of our Supervisory Board.
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On May 26, 2016 we announced the publication of our 2015 Sustainability Report.
On July 29, 2016, we announced the acquisition of ams’ (SIX: AMS) assets related to Near-Field Communication (NFC) and Radio-frequency identification (RFID) reader business. We acquired intellectual property, technologies, products and business highly complementary to our secure microcontroller solutions serving mobile devices, wearables, banking, identification, industrial, automotive and IoT markets. The ams’ assets were acquired in exchange for a (i) cash payment of $77.8 million (funded with available cash), and (ii) deferred earn-out contingent on future results for which we currently estimates will be about $13 million but which in any case will not exceed $37 million.
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2.6.
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Related party transactions
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Please refer to note 3.6.18 of the Semi Annual Financial Statements.
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2.7.
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Financial Risk Management
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STMicroelectronics and its subsidiaries (together “the Group”) are exposed to changes in financial market conditions in the normal course of business due to its operations in different foreign currencies and its ongoing investing and financing activities. The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures. See note 3.6.9.4 of the Semi Annual Financial Statements for further information.
Financial risk management is carried out by a central treasury department (Corporate Treasury). Additionally, a Treasury Committee, chaired by the CFO, steers treasury activities and ensures compliance with corporate policies. Treasury activities are thus regulated by the Company’s policies, which define procedures, objectives and controls. The policies focus on the management of financial risk in terms of exposure to market risk, credit risk and liquidity risk. Treasury controls are subject to internal audits. Most treasury activities are centralized, with any local treasury activities subject to oversight from Corporate Treasury. Corporate Treasury identifies, evaluates and hedges financial risks in close cooperation with the Group’s operating units. It provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, price risk, credit risk, use of derivative financial instruments, and investments of excess liquidity. The majority of cash and cash equivalents is held in U.S. dollars and is placed with financial institutions rated at least a single “A” long-term rating from two of the major rating agencies, meaning at least A3 from Moody’s Investor Service and A- from Standard & Poor’s and Fitch Ratings, or better. These ratings are closely and continuously monitored in order to manage exposure to the counterparty’s risk. Foreign currency operations and hedging transactions are performed only to hedge exposures deriving from operating, investing and financing activities in the normal course of business.
The Semi Annual Financial Statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the group’s annual financial statements as at December 31, 2015. There have been no changes in the risk management department or in any risk management policies since year end.
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STMicroelectronics
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Semi Annual Report 2016
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Report of the Managing Board
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Foreign exchange risk
The Group conducts its business on a global basis in various major international currencies. As a result, the Group is exposed to adverse movements in foreign currency exchange rates, primarily with respect to the Euro and the Singapore dollar. Foreign exchange risk mainly arises from future commercial transactions and recognized assets and liabilities at the Group’s subsidiaries.
Cash flow and fair value interest rate risk
The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.
Credit risk
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily for trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.
Liquidity risk
Prudent liquidity risk management includes maintaining sufficient cash and cash equivalents and marketable securities, the availability of funding from committed credit facilities and the ability to close out market positions. The Group’s objective is to maintain a significant cash position and a low debt to equity ratio, which ensure adequate financial flexibility. Liquidity management policy is to finance the Group’s investments with net cash provided from operating activities. Compared to year end, there was no material change in the contractual undiscounted cash out flows for financial liabilities.
|
2.8.
|
Business risk information
|
Below is a list of the main risks factors related to the semiconductor industry and specifically related to our operations, which may affect the result and performance of STMicroelectronics and the ability of management to predict the future:
|
·
|
Uncertain macro-economic and industry trends, which may impact end-market demand for our products;
|
|
·
|
Customer demand that differs from projections;
|
|
·
|
The ability to design, manufacture and sell innovative products in a rapidly changing technological environment;
|
|
·
|
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;
|
|
·
|
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;
|
|
·
|
The Brexit vote and the perceptions as to the impact of the withdrawal of the U.K. from the EU 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;
|
|
·
|
Financial difficulties with any of our major distributors or significant curtailment of purchases by key customers;
|
|
·
|
The loading, product mix, and manufacturing performance of our production facilities;
|
|
·
|
The functionalities and performance of our IT systems, which support our critical operational activities including manufacturing, finance and sales, and any breaches of our IT systems or those of our customers or suppliers;
|
|
|
STMicroelectronics
Ÿ
Semi Annual Report 2016
|
Report of the Managing Board
12
|
|
|
·
|
Variations in the foreign exchange markets and, more particularly, the U.S. dollar exchange rate as compared to the Euro and the other major currencies we use for our operations;
|
|
·
|
The impact of intellectual property (“IP”) claims by our competitors or other third parties, and our ability to obtain required licenses on reasonable terms and conditions;
|
|
·
|
The ability to successfully restructure underperforming business lines and associated restructuring charges and cost savings that differ in amount or timing from our estimates;
|
|
·
|
Changes in our overall tax position as a result of changes in tax laws, the outcome of tax audits or changes in international tax treaties which may impact our results of operations as well as our ability to accurately estimate tax credits, benefits, deductions and provisions and to realize deferred tax assets;
|
|
·
|
The outcome of ongoing litigation as well as the impact of any new litigation to which we may become a defendant;
|
|
·
|
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;
|
|
·
|
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; and
|
|
·
|
Availability and costs of raw materials, utilities, third-party manufacturing services and technology, or other supplies required by our operations.
|
|
2.9.
|
Auditor’s involvement
|
The Interim Condensed Consolidated Financial Statements and interim Report of the Managing Board have not been audited or reviewed by an external auditor.
This report of the Managing Board is dated August 23, 2016.
|
|
STMicroelectronics
Ÿ
Semi Annual Report 2016
|
Report of the Managing Board
13
|
|
3.
|
Interim Condensed Consolidated Financial Statements (“Semi Annual Financial Statements”)
|
The Semi Annual Financial Statements of the Group for the six months ended July 2, 2016, as presented by the Managing Board, have not been audited nor reviewed by an external auditor.
|
3.1.
|
Consolidated income statement
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
Six-month period ended
|
|
In millions of USD, except per share amounts
|
|
Notes
|
|
|
July 2, 2016
|
|
|
June 27, 2015
|
|
Sales
|
|
|
|
|
|
3,303
|
|
|
|
3,447
|
|
Other revenues
|
|
|
|
|
|
13
|
|
|
|
18
|
|
Total revenues
|
|
|
3.6.5
|
|
|
|
3,316
|
|
|
|
3,465
|
|
Cost of sales
|
|
|
3.6.15
|
|
|
|
(2,307
|
)
|
|
|
(2,469
|
)
|
Gross profit
|
|
|
|
|
|
|
1,009
|
|
|
|
996
|
|
Selling, general and administrative
|
|
|
3.6.15
|
|
|
|
(469
|
)
|
|
|
(455
|
)
|
Research and development
|
|
|
3.6.15
|
|
|
|
(580
|
)
|
|
|
(576
|
)
|
Other income
|
|
|
3.6.16
|
|
|
|
66
|
|
|
|
77
|
|
Other expenses
|
|
|
3.6.16
|
|
|
|
(4
|
)
|
|
|
(37
|
)
|
Operating profit (loss)
|
|
|
|
|
|
|
22
|
|
|
|
5
|
|
Finance income
|
|
|
|
|
|
|
9
|
|
|
|
9
|
|
Finance costs
|
|
|
|
|
|
|
(23
|
)
|
|
|
(31
|
)
|
Share of profit (loss) of associates and jointly controlled entities
|
|
|
|
|
|
|
9
|
|
|
|
12
|
|
Profit (loss) before income tax
|
|
|
|
|
|
|
17
|
|
|
|
(5
|
)
|
Income tax benefit (expense)
|
|
|
|
|
|
|
(5
|
)
|
|
|
38
|
|
Net profit (loss)
|
|
|
|
|
|
|
12
|
|
|
|
33
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
The equity holders of the parent
|
|
|
|
|
|
|
9
|
|
|
|
31
|
|
Non-controlling interests
|
|
|
|
|
|
|
3
|
|
|
|
2
|
|
Net profit (loss)
|
|
|
|
|
|
|
12
|
|
|
|
33
|
|
Earnings per share attributable to the equity holders of the parent
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (Basic)
|
|
|
3.6.17
|
|
|
|
0.01
|
|
|
|
0.04
|
|
Earnings per share (Diluted)
|
|
|
3.6.17
|
|
|
|
0.01
|
|
|
|
0.04
|
|
The accompanying notes are an integral part of these interim consolidated financial statements
|
|
STMicroelectronics
Ÿ
Semi Annual Report 2016
|
Semi Annual Financial Statements
14
|
|
|
3.2.
|
Consolidated statement of comprehensive income
|
|
|
(unaudited)
|
|
|
|
Six-month period ended
|
|
In millions of USD
|
|
July 2, 2016
|
|
|
June 27, 2015
|
|
Net result
|
|
|
12
|
|
|
|
33
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
Items that will not be reclassified to profit or loss
|
|
|
|
|
|
|
|
|
Re-measurements of employee benefit obligations
|
|
|
-
|
|
|
|
-
|
|
Income tax effect
|
|
|
-
|
|
|
|
-
|
|
Re-measurements of employee benefit obligations, net of tax
|
|
|
-
|
|
|
|
-
|
|
Total items that will not be reclassified to profit or loss
|
|
|
-
|
|
|
|
-
|
|
Items that may be subsequently reclassified to profit or loss
|
|
|
|
|
|
|
|
|
Exchange differences on translation of foreign operations
|
|
|
35
|
|
|
|
(160
|
)
|
Cash flow hedges
|
|
|
23
|
|
|
|
17
|
|
Income tax effect
|
|
|
-
|
|
|
|
-
|
|
Net movement on cash flow hedges
|
|
|
23
|
|
|
|
17
|
|
Gain (loss) on available-for-sale financial assets
|
|
|
11
|
|
|
|
-
|
|
Income tax effect
|
|
|
(2
|
)
|
|
|
-
|
|
Net gain (loss) on available-for-sale financial assets
|
|
|
9
|
|
|
|
-
|
|
Total items that may be reclassified subsequently to profit or loss
|
|
|
67
|
|
|
|
(143
|
)
|
Other comprehensive income (loss), net of tax
|
|
|
67
|
|
|
|
(143
|
)
|
Total comprehensive income (loss), net of tax
|
|
|
79
|
|
|
|
(110
|
)
|
Attributable to:
|
|
|
|
|
|
|
|
|
The equity holders of the parent
|
|
|
76
|
|
|
|
(112
|
)
|
Non-controlling interests
|
|
|
3
|
|
|
|
2
|
|
Total comprehensive income (loss), net of tax
|
|
|
79
|
|
|
|
(110
|
)
|
The accompanying notes are an integral part of these interim consolidated financial statements
|
|
STMicroelectronics
Ÿ
Semi Annual Report 2016
|
Semi Annual Financial Statements
15
|
|
|
3.3.
|
Consolidated statement of financial position
|
In millions of USD
|
|
Notes
|
|
|
July 2, 2016 (unaudited)
|
|
|
December 31, 2015
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
3.6.7
|
|
|
|
2,295
|
|
|
|
2,326
|
|
Goodwill
|
|
|
3.6.8
|
|
|
|
59
|
|
|
|
58
|
|
Intangible assets
|
|
|
3.6.7
|
|
|
|
1,034
|
|
|
|
1,021
|
|
Investments in associates and jointly controlled entities
|
|
|
3.6.6
|
|
|
|
44
|
|
|
|
44
|
|
Other non-current financial assets
|
|
|
3.6.9.1
|
|
|
|
32
|
|
|
|
33
|
|
Deferred tax assets
|
|
|
|
|
|
|
693
|
|
|
|
654
|
|
Other non-current assets
|
|
|
|
|
|
|
368
|
|
|
|
434
|
|
Total non-current assets
|
|
|
|
|
|
|
4,525
|
|
|
|
4,570
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
3.6.10
|
|
|
|
1,266
|
|
|
|
1,251
|
|
Trade accounts receivable
|
|
|
|
|
|
|
886
|
|
|
|
820
|
|
Other current financial assets
|
|
|
3.6.9.1
|
|
|
|
357
|
|
|
|
344
|
|
Other receivable and assets
|
|
|
|
|
|
|
412
|
|
|
|
402
|
|
Cash and cash equivalents
|
|
|
3.6.11
|
|
|
|
1,682
|
|
|
|
1,771
|
|
Total current assets
|
|
|
|
|
|
|
4,603
|
|
|
|
4,588
|
|
Assets held for sale
|
|
|
|
|
|
|
-
|
|
|
|
1
|
|
Total assets
|
|
|
|
|
|
|
9,128
|
|
|
|
9,159
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity attributable to the equity holders of the parent
|
|
|
|
5,218
|
|
|
|
5,335
|
|
Non-controlling interests
|
|
|
|
|
|
|
64
|
|
|
|
61
|
|
Total equity
|
|
|
3.6.13
|
|
|
|
5,282
|
|
|
|
5,396
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing loans and borrowings
|
|
|
3.6.9.3
|
|
|
|
1,432
|
|
|
|
1,424
|
|
Other non-current financial liabilities
|
|
|
3.6.9.2
|
|
|
|
61
|
|
|
|
56
|
|
Employee benefits
|
|
|
|
|
|
|
426
|
|
|
|
414
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
15
|
|
|
|
15
|
|
Non-current provisions
|
|
|
|
|
|
|
258
|
|
|
|
238
|
|
Other non-current liabilities
|
|
|
|
|
|
|
34
|
|
|
|
55
|
|
Total non-current liabilities
|
|
|
|
|
|
|
2,226
|
|
|
|
2,202
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing loans and borrowings – current portion
|
|
|
3.6.9.3
|
|
|
|
171
|
|
|
|
191
|
|
Trade accounts payable
|
|
|
|
|
|
|
597
|
|
|
|
525
|
|
Other payables and accrued liabilities
|
|
|
|
|
|
|
405
|
|
|
|
347
|
|
Employee benefits – current portion
|
|
|
|
|
|
|
379
|
|
|
|
403
|
|
Current provisions
|
|
|
|
|
|
|
32
|
|
|
|
30
|
|
Other current financial liabilities
|
|
|
3.6.9.2
|
|
|
|
9
|
|
|
|
25
|
|
Income tax payable
|
|
|
|
|
|
|
27
|
|
|
|
40
|
|
Total current liabilities
|
|
|
|
|
|
|
1,620
|
|
|
|
1,561
|
|
Total equity and liabilities
|
|
|
|
|
|
|
9,128
|
|
|
|
9,159
|
|
The accompanying notes are an integral part of these interim consolidated financial statements
|
|
STMicroelectronics
Ÿ
Semi Annual Report 2016
|
Semi Annual Financial Statements
16
|
|
|
3.4.
|
Consolidated statement of changes in equity
|
For the six-month period ended July 2, 2016
In millions of USD
|
|
Ordinary shares
|
|
|
Capital surplus
|
|
|
Treasury shares
|
|
|
Other reserves
|
|
|
Retained earnings
|
|
|
Equity attributable to the equity holders of the parent
|
|
|
Non-controlling interests
|
|
|
Total equity
|
|
As at January 1, 2016
|
|
|
1,157
|
|
|
|
2,433
|
|
|
|
(289
|
)
|
|
|
970
|
|
|
|
1,064
|
|
|
|
5,335
|
|
|
|
61
|
|
|
|
5,396
|
|
Net result
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
9
|
|
|
|
3
|
|
|
|
12
|
|
Other comprehensive income, net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
67
|
|
|
|
-
|
|
|
|
67
|
|
|
|
-
|
|
|
|
67
|
|
Total comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
67
|
|
|
|
9
|
|
|
|
76
|
|
|
|
3
|
|
|
|
79
|
|
Employee share award scheme, net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
46
|
|
|
|
19
|
|
|
|
(46
|
)
|
|
|
19
|
|
|
|
-
|
|
|
|
19
|
|
Dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(212
|
)
|
|
|
(212
|
)
|
|
|
-
|
|
|
|
(212
|
)
|
As at July 2, 2016 (unaudited)
|
|
|
1,157
|
|
|
|
2,433
|
|
|
|
(243
|
)
|
|
|
1,056
|
|
|
|
815
|
|
|
|
5,218
|
|
|
|
64
|
|
|
|
5,282
|
|
The accompanying notes are an integral part of these interim consolidated financial statements
|
|
STMicroelectronics
Ÿ
Semi Annual Report 2016
|
Semi Annual Financial Statements
17
|
|
For the six-month period ended June 27, 2015
In millions of USD
|
|
Ordinary shares
|
|
|
Capital surplus
|
|
|
Treasury shares
|
|
|
Other reserves
|
|
|
Retained earnings
|
|
|
Equity attributable to the equity holders of the parent
|
|
|
Non-controlling interests
|
|
|
Total equity
|
|
As at January 1, 2015
|
|
|
1,157
|
|
|
|
2,433
|
|
|
|
(334
|
)
|
|
|
1,108
|
|
|
|
1,285
|
|
|
|
5,649
|
|
|
|
61
|
|
|
|
5,710
|
|
Net result
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
31
|
|
|
|
31
|
|
|
|
2
|
|
|
|
33
|
|
Other comprehensive income, net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(143
|
)
|
|
|
-
|
|
|
|
(143
|
)
|
|
|
-
|
|
|
|
(143
|
)
|
Total comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(143
|
)
|
|
|
31
|
|
|
|
(112
|
)
|
|
|
2
|
|
|
|
(110
|
)
|
Employee share award scheme, net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
45
|
|
|
|
20
|
|
|
|
(45
|
)
|
|
|
20
|
|
|
|
-
|
|
|
|
20
|
|
Dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(349
|
)
|
|
|
(349
|
)
|
|
|
-
|
|
|
|
(349
|
)
|
As at June 27, 2015 (unaudited)
|
|
|
1,157
|
|
|
|
2,433
|
|
|
|
(289
|
)
|
|
|
985
|
|
|
|
922
|
|
|
|
5,208
|
|
|
|
63
|
|
|
|
5,271
|
|
The accompanying notes are an integral part of these interim consolidated financial statements
|
|
STMicroelectronics
Ÿ
Semi Annual Report 2016
|
Semi Annual Financial Statements
18
|
|
|
3.5.
|
Consolidated statement of cash flows
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
Six-month period ended
|
|
In millions of USD
|
|
Note
|
|
|
July 2, 2016
|
|
|
June 27, 2015
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Cash generated from operations
|
|
|
3.6.12
|
|
|
|
498
|
|
|
|
562
|
|
Interests paid
|
|
|
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Income tax paid
|
|
|
|
|
|
|
(28
|
)
|
|
|
(16
|
)
|
Net cash from operating activities
|
|
|
|
|
|
|
464
|
|
|
|
540
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for purchases of tangible assets
|
|
|
|
|
|
|
(238
|
)
|
|
|
(251
|
)
|
Proceeds from sale of tangible assets
|
|
|
|
|
|
|
2
|
|
|
|
1
|
|
Payments for purchase of intangible assets
|
|
|
|
|
|
|
(150
|
)
|
|
|
(183
|
)
|
Restricted cash
|
|
|
|
|
|
|
-
|
|
|
|
(20
|
)
|
Payment for disposal of associates
|
|
|
|
|
|
|
-
|
|
|
|
(13
|
)
|
Net cash used in investing activities
|
|
|
|
|
|
|
(386
|
)
|
|
|
(466
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Repayment of interest-bearing loans and borrowings
|
|
|
|
|
|
|
(21
|
)
|
|
|
(21
|
)
|
Dividends paid to equity holders of the parent Company
|
|
|
|
|
|
|
(145
|
)
|
|
|
(175
|
)
|
Other financing activities
|
|
|
|
|
|
|
(1
|
)
|
|
|
-
|
|
Net cash used in financing activities
|
|
|
|
|
|
|
(167
|
)
|
|
|
(196
|
)
|
Effect of changes in exchange rates
|
|
|
|
|
|
|
-
|
|
|
|
(8
|
)
|
Net cash decrease
|
|
|
|
|
|
|
(89
|
)
|
|
|
(130
|
)
|
Cash and cash equivalents at the beginning of the period
|
|
|
|
|
|
|
1,771
|
|
|
|
2,017
|
|
Cash and cash equivalents at the end of the period
|
|
|
3.6.11
|
|
|
|
1,682
|
|
|
|
1,887
|
|
The accompanying notes are an integral part of these interim consolidated financial statements
|
|
STMicroelectronics
Ÿ
Semi Annual Report 2016
|
Semi Annual Financial Statements
19
|
|
|
3.6.
|
Notes to the consolidated financial statements
|
|
3.6.1.
|
Corporate information
|
STMicroelectronics N.V. is organized under the laws of the Netherlands with its corporate legal seat in Amsterdam, the Netherlands, and head offices at WTC Schiphol Airport, Schiphol Boulevard 265, 1118 BH Schiphol, the Netherlands. Headquarters and operational offices are managed through STMicroelectronics International N.V., a wholly owned subsidiary of STMicroelectronics N.V., and are located at 39, chemin du Champ des Filles, 1228 Plan-les-Ouates, Geneva, Switzerland.
STMicroelectronics and its subsidiaries (together “the Group”) are a global independent semiconductor group that designs, develops, manufactures and markets a broad range of products, including discrete and standard commodity components, application-specific integrated circuits (“ASICs”), full custom devices and semi-custom devices and application-specific standard products (“ASSPs”) for analog, digital and mixed-signal applications. In addition, the Group participates in the manufacturing value chain of Smartcard products, which includes the production and sale of both silicon chips and Smartcards. The Group’s intelligent and energy-efficient products and solutions are used in a wide variety of applications that power the electronics at the heart of everyday life. The Group enables smarter driving by making vehicles safer, greener and more connected. The Group helps make homes and cities smarter though the evolution of devices and systems to become more efficient, intelligent, aware and connected. Our products make workplaces and factories more efficient and flexible, and allow them to operate in a more sustainable manner while becoming safer for the people working there. In doing this, the Group’s products are found everywhere microelectronics make a positive and innovative contribution to people’s lives. By getting more from technology to get more from life, ST stands for
life
.augmented.
STMicroelectronics is a publicly traded company, listed on the New York Stock Exchange, on Euronext Paris and on the Borsa Italiana (Italian Stock Exchange).
These unaudited Semi Annual Financial Statements were approved by the Supervisory Board on August 23, 2016.
|
3.6.2.
|
Basis of preparation
|
These unaudited Semi Annual Financial Statements for the six-month period ended July 2, 2016 have been prepared in accordance with IAS 34, “Interim Financial Reporting”, as adopted in the European Union.
The unaudited Semi Annual Financial Statements do not include all the information and disclosures required in the annual financial statements. They should be read in conjunction with the annual financial statements for the year ended December 31, 2015, prepared in accordance with IFRS, as adopted in the European Union, filed with the AFM (Autoriteit Financiële Markten) on April 1, 2016 and adopted by our Annual General Meeting of Shareholders on May 25, 2016.
|
3.6.3.
|
Significant accounting policies
|
The accounting policies adopted in the preparation of the Semi Annual Financial Statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended December 31, 2015.
|
|
STMicroelectronics
Ÿ
Semi Annual Report 2016
|
Semi Annual Financial Statements
20
|
|
Standards, amendments to standards and interpretations effective in 2016
Amendments to IAS 1:
Disclosure Initiative: The amendments address materiality, disaggregation and subtotals in the statement of consolidation position or the income statement and the statement of comprehensive income. The amendments became effective on January 1, 2016 and had no material impact on the Group’s financial statements.
The following amended standards became effective on January 1, 2016 with no significant impact on the accounting policies, financial position or performance of the Group:
|
●
|
IFRS 11 Joint Arrangements (amendment):
Accounting for Acquisitions of Interests in Joint Operations
|
|
●
|
Amendments to IAS 16 and IAS 38:
Clarification of Acceptable Methods of Depreciation and Amortization
|
|
●
|
Amendment to IAS 19:
Employee Benefits – Employee contributions
|
|
●
|
Improvements to IFRS (2012-214 cycle)
|
Standards, amendments to standards and interpretations issued but not yet effective
IFRS 9 Financial Instruments:
The IASB completed in 2014 its comprehensive work on the replacement of IAS 39, which included three phases: classification and measurement of financial assets and financial liabilities, with the issuance of the original IFRS 9; impairment of financial assets; and hedge accounting, with the issuance of the corresponding amendments to IFRS 9. The final standard has not yet been endorsed by the European Union. The adoption of IFRS 9 will have an effect on the classification and measurement of the Group’s financial assets, together with the assessment of their impairment but will potentially have no impact on classification and measurements of financial liabilities. The new approach to hedge accounting will also have an effect on the way hedged transactions and derivatives designated as hedging instruments are reported. The Group is reviewing the effect the comprehensive version of IFRS 9 will have on its financial position and performance.
IFRS 15 Revenue from contracts with customers:
The new standard on revenue recognition, updated in 2016 with finalized amendments addressing implementation issues, sets forth a single revenue accounting model, which calls to more professional judgment and includes expanded disclosures. According to the new guidance, revenue recognition depicts the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled for these goods and services. Revenue is recognized when (or as) control of the goods and services is transferred to the customer. Even if IFRS 15 is not a five-step model, the following steps can be identified in order to apply the new revenue accounting model: (i) identification of the contracts with customers; (ii) identification of the purchase obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to purchase obligations and; (v) revenue recognition for each purchase obligation. IFRS 15 has not been ratified by the European Union yet. The areas on which IFRS 15 may create significant changes are: (i) changes in the timing of revenue recognition; (ii) inclusion of variable consideration in the transaction price; (iii) allocation of the transaction price based on standalone selling prices. The Group will adopt IFRS 15 when effective and is currently assessing its impact on existing contracts, transactions and business practices.
IFRS 16 Leases:
The new standard on lease accounting no longer distinguishes for the lessee between a finance lease and an operating lease. It sets forth a single lease accounting model for virtually all lease contracts. The lessee recognizes a lease liability reflecting future lease payments and a “right of use” asset, as economically, a lease contract is equal to acquiring the right to use an asset with the purchase price paid in installments. Lessees recognize interest expense on the lease liability and a depreciation charge on the “right of use” asset. The standard includes optional exemptions, as for short-term leases (twelve months or less). If one of the exemptions is elected, the lease contract is accounted for in a way that is similar to current operating lease accounting. Lessor accounting is similar to current practice. However, significant new disclosures are required. IFRS 16 has not been ratified by the European Union yet. The Group will adopt IFRS 16 when effective and is currently assessing its impact on existing contracts, transactions and business practices, almost exclusively as a lessee.
The following amendments are not expected to have a material impact on the accounting policies, financial position or performance of the Group:
|
●
|
Amendments to IFRS 2
: Share-based payment
|
|
●
|
Amendments to IAS 12:
Recognition of Deferred Tax Assets for Unrealized Losses
|
|
●
|
Amendments to IAS 7:
Disclosure Initiative
|
|
●
|
Amendments to IFRS 10 and IAS 28:
Sale or Contribution of Assets between an Investor and its Associate and Joint Venture
|
|
|
STMicroelectronics
Ÿ
Semi Annual Report 2016
|
Semi Annual Financial Statements
21
|
|
The preparation of the Semi Annual Financial Statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities, income and expenses. Actual results may differ from these estimates.
In preparing these Semi Annual Financial Statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated Financial Statements for the year ended December 31, 2015, with the exception of changes in estimates and assumptions that are required in determining the provision for income taxes.
|
3.6.5.
|
Operating segment information
|
The Group operates in two business areas: Semiconductors and Subsystems.
In the Semiconductors business area, the Group designs, develops, manufactures and markets a broad range of products, including discrete and standard commodity components, application-specific integrated circuits (“ASICs”), full-custom devices and semi-custom devices and application-specific standard products (“ASSPs”) for analog, digital and mixed-signal applications. In addition, the Group further participates in the manufacturing value chain of Smartcard products, which includes the production and sale of both silicon chips and Smartcards.
During the first half of 2016, the internal organization changed to align with the Group’s strategic focus on Smart Driving and on Internet of Things applications. Comparative numbers were restated accordingly.
The Group’s reportable segments are as follows:
|
·
|
Automotive and Discrete Group (ADG)
, comprised of all automotive dedicated ICs, both digital and analog, and discrete products.
|
|
·
|
Analog and MEMS Group (AMG)
, comprised of low-power analog ICs, both general purpose and high-end, smart power products for industrial and power conversion, and micro-machinery activity.
|
|
·
|
Microcontrollers and Digital ICs Group (MDG)
, comprised of general purpose and secure microcontrollers, EEPROM memories, and digital ICs outside of automotive.
|
“Others” includes all the financial values related to 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.
In the Subsystems business area, the Group designs, develops, manufactures and markets subsystems and modules for the telecommunications, automotive and industrial markets including mobile phone accessories, battery chargers, ISDN power supplies and in-vehicle equipment for electronic toll payment. Based on its immateriality to its business as a whole, the Subsystems business area does not meet the requirements for a reportable segment as defined in the IFRS guidance.
|
|
STMicroelectronics
Ÿ
Semi Annual Report 2016
|
Semi Annual Financial Statements
22
|
|
For the computation of the segments’ internal financial measurements, the Group uses 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 the Group’s internal policies, certain cost items 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 the 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 to promote the utilization of the fabs.
The following tables present the Group’s consolidated net revenues by reportable segment and by location of shipment:
|
|
(unaudited)
|
|
|
|
Six-month period ended
|
|
In millions of USD
|
|
July 2, 2016
|
|
|
June 27, 2015
|
|
Net revenues by reportable segment:
|
|
|
|
|
|
|
Automotive and Discrete Group (ADG)
|
|
|
1,392
|
|
|
|
1,388
|
|
Analog and MEMS Group (AMG)
|
|
|
745
|
|
|
|
890
|
|
Microcontrollers and Digital ICs Group (MDG)
|
|
|
1,089
|
|
|
|
1,088
|
|
Others
|
|
|
90
|
|
|
|
99
|
|
Total consolidated net revenues
|
|
|
3,316
|
|
|
|
3,465
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
Six-month period ended
|
|
In millions of USD
|
|
July 2, 2016
|
|
|
June 27, 2015
|
|
Net Revenues by Location of Shipment:
1
|
|
|
|
|
|
|
|
|
EMEA
|
|
|
949
|
|
|
|
914
|
|
Americas
|
|
|
516
|
|
|
|
547
|
|
Asia Pacific
2
|
|
|
1,851
|
|
|
|
2,004
|
|
Total
|
|
|
3,316
|
|
|
|
3,465
|
|
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
As of the first half of 2016, the Group has 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.
|
|
STMicroelectronics
Ÿ
Semi Annual Report 2016
|
Semi Annual Financial Statements
23
|
|
Net operating profit (loss) by reportable segment and reconciliation to operating profit (loss) are as follows:
|
|
(unaudited)
|
|
|
|
Six-month period ended
|
|
In millions of USD
|
|
July 2, 2016
|
|
|
June 27, 2015
|
|
Automotive and Discrete Group (ADG)
|
|
|
100
|
|
|
|
82
|
|
Analog and MEMS Group (AMG)
|
|
|
3
|
|
|
|
68
|
|
Microcontrollers and Digital ICs Group (MDG)
|
|
|
5
|
|
|
|
(29
|
)
|
Sub-total operating profit (loss) of reportable segments
|
|
|
108
|
|
|
|
121
|
|
Impairment, restructuring charges and other related closure costs
|
|
|
(40
|
)
|
|
|
(50
|
)
|
Manufacturing results
|
|
|
(21
|
)
|
|
|
(28
|
)
|
Operating results of other businesses
|
|
|
(49
|
)
|
|
|
(48
|
)
|
Strategic and other research and development programs and other non-allocated provisions
3
|
|
|
(3
|
)
|
|
|
(2
|
)
|
IFRS/US GAAP Adjustments:
|
|
|
|
|
|
|
|
|
Net impact of capitalized development costs
|
|
|
26
|
|
|
|
18
|
|
Derivative instruments not designated as hedge instruments under IFRS
|
|
|
6
|
|
|
|
13
|
|
IFRIC 21 adjustment on levies
|
|
|
(7
|
)
|
|
|
(7
|
)
|
IAS 19R adjustment on defined benefit plans
|
|
|
2
|
|
|
|
1
|
|
Other non-allocated expenses and IFRS adjustments impact
|
|
|
-
|
|
|
|
(13
|
)
|
Sub-total Operating loss Others and US GAAP to IFRS adjustments impact on operating profit (loss)
|
|
|
(86
|
)
|
|
|
(116
|
)
|
Total operating profit (loss)
|
|
|
22
|
|
|
|
5
|
|
3
Includes unallocated income and expenses such as certain corporate-level operating expenses and other costs/income that are not allocated to the operating segments.
|
|
STMicroelectronics
Ÿ
Semi Annual Report 2016
|
Semi Annual Financial Statements
24
|
|
|
3.6.6.
|
Investments in associates and jointly controlled entities
|
Investments in associates and jointly controlled entities as at July 2, 2016 and December 31, 2015 were as follows:
|
|
(unaudited)
July 2, 2016
|
|
|
December 31, 2015
|
|
In millions of USD
|
|
Carrying amount
|
|
|
% of interests
|
|
|
Carrying amount
|
|
|
% of interests
|
|
ST-Ericsson SA, in liquidation
|
|
|
44
|
|
|
|
50.0
|
%
|
|
|
44
|
|
|
|
50.0
|
%
|
Total
|
|
|
44
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
ST-Ericsson SA, in liquidation
On February 3, 2009, the Group announced the closing of a transaction to combine the businesses of Ericsson Mobile Platforms and ST-NXP Wireless into a new venture, named ST-Ericsson. As part of the transaction, the Group received an interest in ST-Ericsson Holding AG in which the Group owned 50% plus a controlling share. In 2010, ST-Ericsson Holding AG was merged in ST-Ericsson SA. The Group used to consolidate ST-Ericsson SA.
On September 9, 2013, the Group sold 1 ST-Ericsson SA share to Ericsson for its nominal value changing the ownership structure of ST-Ericsson SA to bring both partners to an equal ownership proportion. As a result and in combination with the new shareholder agreement, the Group lost the control of ST-Ericsson SA and as such ST-Ericsson SA was deconsolidated from the Group’s financial statements as of September 1, 2013. The deconsolidation of ST-Ericsson SA did not result in a gain or loss for the Group. The fair value of the Group’s retained non-controlling interest was evaluated at $55 million. In addition, the Group and its partner signed funding commitment letters, capped at $149 million each partner, to the residual joint wind-down operations to ensure solvency. These are not drawn as of July 2, 2016.
Before the deconsolidation of ST-Ericsson SA, certain assets and companies of the ST-Ericsson SA group of companies were transferred to both partners for their net book value which was representative of their fair value. The transactions did not result in cash exchange between the partners. ST-Ericsson SA entered into liquidation on April 15, 2014.
|
|
STMicroelectronics
Ÿ
Semi Annual Report 2016
|
Semi Annual Financial Statements
25
|
|
|
3.6.7.
|
Property, plant and equipment and intangible assets
|
Changes in the net carrying amount of property, plant and equipment and intangible assets are detailed as follows:
In millions of USD
|
|
Property, plant and equipment
|
|
|
Intangible assets
|
|
Net book value as at January 1, 2016
|
|
|
2,326
|
|
|
|
1,021
|
|
Additions
|
|
|
280
|
|
|
|
152
|
|
Disposals
|
|
|
(1
|
)
|
|
|
-
|
|
Impairment / Write-Offs
|
|
|
-
|
|
|
|
(36
|
)
|
Amortization / Depreciation expense
|
|
|
(334
|
)
|
|
|
(103
|
)
|
Foreign currency translation
|
|
|
24
|
|
|
|
-
|
|
Net book value as at July 2, 2016 (unaudited)
|
|
|
2,295
|
|
|
|
1,034
|
|
The Group has commitments to purchase property, plant and equipment after the end of the interim period in the amount of $
170
million.
The impairment and write-offs for the first half of 2016 amounted to $36 million (first half 2015: $61 million), of which $33 million recorded in cost of sales and $3 million in research and development, and are mainly resulting from the write-offs of the capitalized development costs related to certain projects that were cancelled.
Goodwill allocated to reportable segments
and changes in the carrying amount of goodwill were
as follows:
In millions of USD
|
Automotive and Discrete Group (ADG)
|
Microcontrollers and Digital ICs Group (MDG)
|
Analog and MEMS Group (AMG)
|
Total
|
As at January 1, 2016
|
-
|
56
|
2
|
58
|
Foreign currency translation
|
-
|
1
|
-
|
1
|
As at July 2, 2016 (unaudited)
|
-
|
57
|
2
|
59
|
As described in Note 3.6.5, during the first half of fiscal year 2016, the organization changed to align with the Group’s strategic focus on Smart Driving and on Internet of Things applications and this resulted in a change in the Group’s reportable segments. Goodwill was allocated to the new reportable segments following the allocation of the reporting units for which it was related. The Group also completed an assessment of any potential goodwill impairment indicators immediately prior to the reallocation and determined that no impairment indicators existed.
|
|
STMicroelectronics
Ÿ
Semi Annual Report 2016
|
Semi Annual Financial Statements
26
|
|
|
3.6.9.
|
Other financial assets and financial liabilities
|
|
3.6.9.1.
|
Other financial assets
|
In millions of USD
|
|
(unaudited)
July 2, 2016
|
|
|
December 31, 2015
|
|
Other financial assets (including derivatives)
|
|
|
|
|
|
|
Other financial assets
|
|
|
|
|
|
|
Available-for-sale investments – quoted debt and equity securities
|
|
|
356
|
|
|
|
346
|
|
Available-for-sale investments – unquoted equity securities
|
|
|
13
|
|
|
|
13
|
|
Restricted cash
|
|
|
-
|
|
|
|
4
|
|
Other
|
|
|
8
|
|
|
|
8
|
|
Total other financial assets
|
|
|
377
|
|
|
|
371
|
|
Current
|
|
|
345
|
|
|
|
339
|
|
Non-current
|
|
|
32
|
|
|
|
32
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
|
5
|
|
|
|
2
|
|
Currency collars
|
|
|
2
|
|
|
|
1
|
|
Derivatives not designated as hedges (held for trading)
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
|
4
|
|
|
|
2
|
|
Currency collars
|
|
|
1
|
|
|
|
1
|
|
Total derivatives financial instruments
|
|
|
12
|
|
|
|
6
|
|
Current
|
|
|
12
|
|
|
|
5
|
|
Non-current
|
|
|
-
|
|
|
|
1
|
|
Total other financial assets (including derivatives)
|
|
|
389
|
|
|
|
377
|
|
Total current
|
|
|
357
|
|
|
|
344
|
|
Total non-current
|
|
|
32
|
|
|
|
33
|
|
|
|
STMicroelectronics
Ÿ
Semi Annual Report 2016
|
Semi Annual Financial Statements
27
|
|