e20vf
As filed with the Securities and Exchange Commission on March
10, 2010
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 20-F
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o
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2009
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Date of event requiring this
shell company report
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Commission file number: 1-13546
STMicroelectronics
N.V.
(Exact name of registrant as
specified in its charter)
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Not Applicable
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The Netherlands
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(Translation of
registrants
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(Jurisdiction of
incorporation
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name into
English)
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or
organization)
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39, Chemin du Champ des
Filles
1228 Plan-Les-Ouates
Geneva
Switzerland
(Address of principal executive
offices)
Carlo Bozotti
39, Chemin du Champ des Filles
1228 Plan-Les-Ouates
Geneva
Switzerland
Tel: +41 22 929 29 29
Fax: +41 22 929 29 88
(Name, Telephone,
E-mail
and/or Facsimile number and Address of Company Contact
Person)
Securities registered or to be registered pursuant to
Section 12(b) of the Act:
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Title of Each Class:
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Name of Each Exchange on Which Registered:
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Common shares, nominal value 1.04 per share
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New York Stock Exchange
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Securities registered or to be
registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the
issuers classes of capital or common stock as of the close
of the period covered by the annual report:
878,333,566 common shares at
December 31, 2009
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes þ No
o
If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
Yes o No
þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days:
Yes þ No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes þ No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definition of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this
filing:
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U.S. GAAP þ
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International Financial Reporting Standards as issued o
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Other o
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by the International Accounting Standards Board
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If Other has been checked in response to the
previous question, indicate by check mark which financial
statement item the registrant has elected to follow.
Item 17 o Item 18 o
If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).
Yes o No
þ
PRESENTATION
OF FINANCIAL AND OTHER INFORMATION
In this annual report or
Form 20-F
(the
Form 20-F),
references to we, us and
Company are to STMicroelectronics N.V. together with
its consolidated subsidiaries, references to EU are
to the European Union, references to and the
Euro are to the Euro currency of the EU, references
to the United States and U.S. are to the
United States of America and references to $ or to
U.S. dollars are to United States dollars.
References to mm are to millimeters and references
to nm are to nanometers.
We have compiled market size and ST market share data in this
annual report using statistics and other information obtained
from several third-party sources. Except as otherwise disclosed
herein, all references to trade association data are references
to World Semiconductor Trade Statistics (WSTS).
Certain terms used in this annual report are defined in
Certain Terms.
We report our financial statements in U.S. dollars and
prepare our Consolidated Financial Statements in accordance with
generally accepted accounting principles in the United States
(U.S. GAAP). We also report certain
non-U.S. GAAP
financial measures (net operating cash flow and net financial
position), which are derived from amounts presented in the
financial statements prepared under U.S. GAAP. Furthermore,
since 2005, we have been required by Dutch law to report our
Statutory and Consolidated Financial Statements, previously
reported using generally accepted accounting principles in the
Netherlands, in accordance with International Financial
Reporting Standards (IFRS). The financial statements
reported in IFRS can differ materially from the statements
reported in U.S. GAAP.
Various amounts and percentages used in this
Form 20-F
have been rounded and, accordingly, they may not total 100%.
We and our affiliates own or otherwise have rights to the
trademarks and trade names, including those mentioned in this
annual report, used in conjunction with the marketing and sale
of our products.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this
Form 20-F
that are not historical facts, particularly in
Item 3. Key Information Risk
Factors, Item 4. Information on the
Company and Item 5. Operating and Financial
Review and Prospects and Business
Outlook, are statements of future expectations and 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 managements current views and
assumptions, and are conditioned upon and also involve known and
unknown risks and uncertainties that could cause actual results,
performance or events to differ materially from those in such
statements due to, among other factors:
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significant changes in demand in the key application markets and
from key customers served by our products make it extremely
difficult to accurately forecast and plan our future business
activities. In particular, following a period of significant
order cancellations, we recently experienced a strong surge in
customer demand, which has led to capacity constraints in
certain applications;
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significant differences in the gross margins we achieve compared
to expectations, based on changes in revenue levels, product mix
and pricing, capacity utilization and unused capacity charges,
excess or obsolete inventory, manufacturing yields, changes in
unit costs, impairments of long-lived assets (including
manufacturing, assembly/test and intangible assets), and the
timing, execution and associated costs for the announced
transfer of manufacturing from facilities designated for
closure, including phase-out and
start-up
costs;
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our ability to utilize and operate our manufacturing facilities
at sufficient levels to cover fixed operating costs in periods
of reduced customer demand, as well as our ability to ramp up
production efficiently and rapidly to respond to increased
customer demand, and the financial impact of obsolete or excess
inventories if actual demand differs from our expectations;
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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 outcome of ongoing litigation as well as any new litigation
to which we may become a defendant;
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volatility in the financial markets and overall economic
uncertainty increases the risk that the actual amounts
potentially realized upon a future sale of our debt and equity
investments could differ significantly from the fair values
currently assigned to them;
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2
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our ability to successfully integrate the acquisitions we
pursue, in particular the successful integration and operation
of the ST-Ericsson joint venture;
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ST-Ericsson is a new wireless joint venture, representing a
significant investment and risk for our business. The joint
venture is currently engaged in restructuring initiatives and
further declines in the wireless market, as well as the
inability of ST-Ericsson to complete its ongoing restructuring
plans or to successfully compete, could result in additional
significant impairment and restructuring charges;
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we currently also hold a significant non-marketable equity
investment in Numonyx and are a guarantor of $225 million
of its debts. On February 10, 2010, we announced that,
together with our partners Intel Corporation and Francisco
Partners, we have entered into a definitive agreement with
Micron Technology Inc. (Micron), pursuant to which
Micron will acquire Numonyx in an all-stock transaction. Upon
the closing of the transaction, which is subject to regulatory
review and other customary closing conditions, and based on
Microns closing stock price on February 9, 2010 of
$9.08 per share, we will receive in exchange for our
48.6% stake in Numonyx and the cancellation of the
30-year note
due to us by Numonyx approximately 66.6 million
shares of Micron common stock (taking into account a payable of
$77.8 million due by us to Francisco Partners). There is no
guaranty as to when, or if, the transaction will close, or
whether the transaction will close pursuant to the terms
currently planned. Furthermore, our shares in Micron are subject
to certain resale restrictions and, consequently, there is no
guaranty as to when we will be able to sell them and at what
price;
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our ability to compete in our industry since a high percentage
of our costs are fixed and are incurred in currencies other than
U.S. dollars, especially in light of the volatility in the
foreign exchange markets and, more particularly, in the
U.S. dollar exchange rate as compared to the other major
currencies we use for our operations;
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the effects of hedging, which we practice in order to minimize
the impact of variations between the U.S. dollar and the
currencies of the other major countries in which we have our
operating infrastructure, especially the Euro, in the currently
very volatile currency environment;
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our ability to execute our restructuring initiatives in
accordance with our plans if unforeseen events require
adjustments or delays in implementation or require new plans;
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our ability in an intensively competitive environment to secure
customer acceptance and to achieve our pricing expectations for
high-volume supplies of new products in whose development we
have been, or are currently, investing;
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the ability to maintain solid, viable relationships with our
suppliers and customers in the event they are unable to maintain
a competitive market presence due, in particular, to the effects
of the current economic environment;
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changes in the political, social or economic environment,
including as a result of military conflict, social unrest
and/or
terrorist activities, economic turmoil, as well as natural
events such as severe weather, health risks, epidemics or
earthquakes in the countries in which we, our key customers or
our suppliers, operate; and
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changes in our overall tax position as a result of changes in
tax laws or the outcome of tax audits, and our ability to
accurately estimate tax credits, benefits, deductions and
provisions and to realize deferred tax assets.
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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. 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 this
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 20-F
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 Securities and Exchange
Commission (SEC) filings, could have a material
adverse effect on our business
and/or
financial condition.
3
PART I
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Item 1.
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Identity
of Directors, Senior Management and Advisers
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Not applicable.
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Item 2.
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Offer
Statistics and Expected Timetable
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Not applicable.
Selected
Financial Data
The table below sets forth our selected consolidated financial
data for each of the years in the five-year period ended
December 31, 2009. Such data have been derived from our
audited Consolidated Financial Statements. Consolidated audited
financial statements for each of the years in the three-year
period ended December 31, 2009, including the Notes thereto
(collectively, the Consolidated Financial
Statements), are included elsewhere in this
Form 20-F,
while data for prior periods have been derived from our audited
Consolidated Financial Statements used in such periods.
The following information should be read in conjunction with
Item 5. Operating and Financial Review and
Prospects and the audited Consolidated Financial
Statements and the related Notes thereto included in
Item 18. Financial Statements in this
Form 20-F.
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Year Ended December 31,
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2009
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2008
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2007
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2006
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2005
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(In millions except per share and ratio data)
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Consolidated Statements of Income Data:
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Net sales
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$
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8,465
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$
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9,792
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$
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9,966
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$
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9,838
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$
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8,876
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Other revenues
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45
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50
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35
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16
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6
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Net revenues
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8,510
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9,842
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10,001
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9,854
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8,882
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Cost of sales
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(5,884
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)
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(6,282
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)
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(6,465
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)
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(6,331
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)
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(5,845
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)
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Gross profit
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2,626
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3,560
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3,536
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3,523
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3,037
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Operating expenses:
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Selling, general and administrative
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(1,159
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)
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(1,187
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)
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(1,099
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)
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(1,067
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)
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(1,026
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)
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Research and development(1)
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(2,365
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)
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(2,152
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(1,802
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)
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(1,667
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)
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(1,630
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)
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Other income and expenses, net(2)
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166
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62
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48
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(35
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)
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(9
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Impairment, restructuring charges and other related closure costs
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(291
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)
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(481
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)
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(1,228
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)
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(77
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)
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(128
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)
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Total operating expenses
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(3,649
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)
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(3,758
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)
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(4,081
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)
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(2,846
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)
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(2,793
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)
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Operating income (loss)
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(1,023
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)
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(198
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)
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(545
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)
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677
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244
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Other-than-temporary
impairment charge and realized losses on financial assets
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(140
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)
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(138
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)
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(46
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Interest income, net
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9
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51
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83
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93
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34
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Earnings (loss) on equity investments
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(337
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)
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(553
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)
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14
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(6
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)
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(3
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)
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Gain (loss) on financial assets
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(8
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)
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15
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Gain on convertible debt buyback
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3
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Income (loss) before income taxes and noncontrolling interest
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(1,496
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)
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(823
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)
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(494
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)
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764
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275
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Income tax benefit (expense)
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95
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43
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23
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|
20
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(8
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)
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Income (loss) before noncontrolling interest
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(1,401
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)
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(780
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)
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(471
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)
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784
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|
267
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Net loss (income) attributable to noncontrolling interest
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270
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(6
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)
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(6
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)
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(2
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)
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(1
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)
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Net income (loss) attributable to parent company
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$
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(1,131
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)
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$
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(786
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)
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$
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(477
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)
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|
$
|
782
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|
$
|
266
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4
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Year Ended December 31,
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2009
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2008
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2007
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2006
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2005
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(In millions except per share and ratio data)
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Earnings (loss) per share (basic) attributable to parent company
shareholders
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$
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(1.29
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)
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$
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(0.88
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)
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$
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(0.53
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)
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$
|
0.87
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$
|
0.30
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Earnings (loss) per share (diluted) attributable to parent
company shareholders
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$
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(1.29
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)
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$
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(0.88
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)
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$
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(0.53
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)
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$
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0.83
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$
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0.29
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Number of shares used in calculating earnings per share (basic)
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876.9
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892.0
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898.7
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896.1
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892.8
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Number of shares used in calculating earnings per share (diluted)
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876.9
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892.0
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898.7
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958.5
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935.6
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Consolidated Balance Sheet Data (end of period):
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Cash and cash equivalents
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|
$
|
1,588
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$
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1,009
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$
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1,855
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|
|
$
|
1,659
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|
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$
|
2,027
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|
Marketable securities
|
|
|
1,032
|
|
|
|
651
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|
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|
1,014
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|
|
|
764
|
|
|
|
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Short-term deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
|
|
|
|
Restricted cash
|
|
|
250
|
|
|
|
250
|
|
|
|
250
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|
|
|
218
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|
|
|
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Non-current marketable securities
|
|
|
42
|
|
|
|
242
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
13,655
|
|
|
|
13,913
|
|
|
|
14,272
|
|
|
|
14,198
|
|
|
|
12,439
|
|
Short-term debt (including current portion of long-term debt)
|
|
|
176
|
|
|
|
143
|
|
|
|
103
|
|
|
|
136
|
|
|
|
1,533
|
|
Long-term debt (excluding current portion)
|
|
|
2,316
|
|
|
|
2,554
|
|
|
|
2,117
|
|
|
|
1,994
|
|
|
|
269
|
|
Total parent company shareholders equity(3)
|
|
|
7,147
|
|
|
|
8,156
|
|
|
|
9,573
|
|
|
|
9,747
|
|
|
|
8,480
|
|
Common stock and capital surplus
|
|
|
3,637
|
|
|
|
3,480
|
|
|
|
3,253
|
|
|
|
3,177
|
|
|
|
3,120
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share(4)
|
|
$
|
0.12
|
|
|
$
|
0.36
|
|
|
$
|
0.30
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
Capital expenditures(5)
|
|
|
451
|
|
|
|
983
|
|
|
|
1,140
|
|
|
|
1,533
|
|
|
|
1,441
|
|
Net cash provided by operating activities
|
|
|
816
|
|
|
|
1,722
|
|
|
|
2,188
|
|
|
|
2,491
|
|
|
|
1,798
|
|
Depreciation and amortization
|
|
|
1,367
|
|
|
|
1,366
|
|
|
|
1,413
|
|
|
|
1,766
|
|
|
|
1,944
|
|
Debt-to-equity
ratio(6)
|
|
|
0.35
|
|
|
|
0.33
|
|
|
|
0.23
|
|
|
|
0.22
|
|
|
|
0.21
|
|
Net financial position: resources (debt)(6)
|
|
$
|
420
|
|
|
$
|
(545
|
)
|
|
$
|
1,268
|
|
|
$
|
761
|
|
|
$
|
225
|
|
Net financial position to total shareholders equity
ratio(6)
|
|
|
0.06
|
|
|
|
(0.07
|
)
|
|
|
0.13
|
|
|
|
0.08
|
|
|
|
0.03
|
|
|
|
|
(1) |
|
Our reported research and development expenses (R&D) are
mainly in the areas of product design and technology
development. They do not include marketing design center costs,
which are accounted for as selling expenses, or process
engineering, pre-production and process-transfer costs, which
are accounted for as cost of sales. As of 2009 and 2008, our
R&D expenses are net of certain tax credits. |
|
(2) |
|
Other income and expenses, net includes, among other
things: funds received through government agencies for research
and development programs; costs incurred for new
start-up and
phase-out activities not involving saleable production; foreign
currency gains and losses; gains on sales of tangible assets and
non-current assets; and the costs of certain activities relating
to IP. |
|
(3) |
|
In 2008, we repurchased 29,520,220 of our shares, for a total
cost of $313 million. We reflected this purchase at cost as
a reduction of shareholders equity. The repurchased shares
have been designated for allocation under our share-based
compensation programs as nonvested shares, including the plans
as approved by the 2005, 2006, 2007, 2008 and 2009 annual
general shareholders meetings, and those which may be
attributed in the future. As of December 31, 2009,
10,934,481 shares had been transferred to employees upon
the vesting of such stock awards. As of December 31, 2009,
we owned 31,985,739 treasury shares. |
|
(4) |
|
Dividend per share represents the yearly dividend as approved by
our annual general meeting of shareholders, which relates to the
prior years accounts. |
|
(5) |
|
Capital expenditures are net of certain funds received through
government agencies, the effect of which is to reduce our cash
used in investing activities and to decrease depreciation. |
|
(6) |
|
Net financial position: resources (debt) represents the balance
between our total financial resources and our total financial
debt. Our total financial resources include cash and cash
equivalents, current and non-current marketable securities,
short-term deposits and restricted cash, and our total financial
debt include bank |
5
|
|
|
|
|
overdrafts, current portion of long-term debt and long-term
debt, as represented in our consolidated balance sheet. Our net
financial position to total shareholders equity ratio is a
non-U.S.
GAAP financial measure. The most directly comparable U.S. GAAP
financial measure is considered to be
Debt-to-Equity
Ratio. However, the
Debt-to-Equity
Ratio measures gross debt relative to equity, and does not
reflect our current cash position. We believe that our net
financial position to total shareholders equity ratio is
useful to investors as a measure of our financial position and
leverage. The ratio is computed on the basis of our net
financial position divided by total parent company
shareholders equity. For more information on our net
financial position, see Item 5. Operating and
Financial Review and Prospects Liquidity and Capital
Resources Capital Resources Net
financial position. Our computation of net debt (cash) to
total shareholders equity ratio may not be consistent with
that of other companies, which could make comparability
difficult. |
Risk
Factors
Risks
Related to the Semiconductor Industry which Impact Us
The
semiconductor industry is cyclical and downturns in the
semiconductor industry can negatively affect our results of
operations and financial condition.
The semiconductor industry is cyclical and has been subject to
significant economic downturns at various times. Downturns are
typically characterized by diminished demand giving rise to
production overcapacity, accelerated erosion of average selling
prices, high inventory levels and reduced revenues. Downturns
may be the result of industry-specific factors, such as excess
capacity, product obsolescence, price erosion, evolving
standards, changes in end-customer demand,
and/or
macroeconomic trends impacting global economies. Such
macroeconomic trends relate to the semiconductor industry as a
whole and not necessarily to the individual semiconductor
markets to which we sell our products. The negative effects on
our business from industry downturns may also be increased to
the extent that such downturns are concurrent with the timing of
new increases in production capacity in our industry. We have
experienced revenue volatility and market downturns in the past
and expect to experience them in the future, which could have a
material adverse impact on our results of operations and
financial condition.
The recent financial market crisis spread into a global economic
recession impacting business and consumer confidence, which
resulted in a precipitous decline in the demand for
semiconductor products. As a result, our business, financial
conditions and results of operations have been affected. To the
extent that the current economic environment worsens, our
business, financial condition and results of operations could be
more significantly and adversely affected.
In particular, economic downturns affecting the semiconductor
industry may result in a variety of risks to our business,
including:
|
|
|
|
|
significant declines in sales;
|
|
|
|
significant reductions in selling prices;
|
|
|
|
the resulting significant impact on our gross margins,
profitability and net cash flow;
|
|
|
|
increased volatility
and/or
declines in our share price;
|
|
|
|
increased volatility or adverse movements in foreign currency
exchange rates;
|
|
|
|
delays in, or curtailment of, purchasing decisions by our
customers or potential customers either as a result of overall
economic uncertainty or as a result of their inability to access
the liquidity necessary to engage in purchasing initiatives or
new product development;
|
|
|
|
closure or underloading of wafer fabrication plants
(fabs);
|
|
|
|
decreased valuations of our equity investments;
|
|
|
|
increased credit risk associated with our customers or potential
customers, particularly those that may operate in industries
most affected by the economic downturn; and
|
|
|
|
impairment of goodwill or other assets.
|
We may
not be able to match our production capacity to
demand.
As a result of the cyclicality and volatility of the
semiconductor industry, it is difficult to predict future
developments in the markets we serve, making it hard to estimate
requirements for production capacity. If markets do not grow as
we have anticipated, or shrink faster than we have anticipated,
we risk under-utilization of our facilities or having
insufficient capacity to meet customer demand.
6
The net increase of manufacturing capacity, defined as the
difference between capacity additions and capacity reductions,
may exceed demand requirements, leading to overcapacity and
price erosion. If the semiconductor market does not grow as we
anticipated when making investments in production capacity, we
risk overcapacity. In addition, if demand for our products is
lower than expected, this may result in write-offs of
inventories and losses on products, and could require us to
undertake restructuring measures that may involve significant
charges to our earnings. In recent years, overcapacity and cost
optimization have led us to close manufacturing facilities that
used more mature process technologies and, as a result, to incur
significant impairment and restructuring charges and related
closure costs. See Item 5. Operating and Financial
Review and Prospects Impairment, Restructuring
Charges and Other Related Closure Costs.
Competition
in the semiconductor industry is intense, and we may not be able
to compete successfully if our product design technologies,
process technologies and products do not meet market
requirements or if we are unable to acquire the necessary
IP.
We compete in different product lines to various degrees on the
following characteristics:
|
|
|
|
|
price;
|
|
|
|
technical performance;
|
|
|
|
product features;
|
|
|
|
product system compatibility;
|
|
|
|
product design and technology;
|
|
|
|
timely introduction of new products;
|
|
|
|
product availability;
|
|
|
|
manufacturing yields; and
|
|
|
|
sales and technical support.
|
Given the intense competition in the semiconductor industry, if
our products are not selected based on any of the above factors,
our business, financial condition and results of operations will
be materially adversely affected.
We face significant competition in each of our product lines.
Similarly, many of our competitors also offer a large variety of
products. Some of our competitors may have greater financial
and/or more
focused research and development (R&D)
resources than we do. If these competitors substantially
increase the resources they devote to developing and marketing
products that compete with ours, we may not be able to compete
successfully. Any consolidation among our competitors could also
enhance their product offerings, manufacturing efficiency and
financial resources, further strengthening their competitive
position.
As we are a supplier of a broad range of products, we are
required to make significant investments in R&D across our
product portfolio in order to remain competitive. Many of the
resulting products that we market, in turn, have short life
cycles, with some being approximately one year. Current economic
conditions may impair our ability to maintain our current level
of R&D investments and, therefore, we may need to become
more focused in our R&D investments across our broad range
of product lines. This could significantly impair our ability to
remain a viable competitor in the product areas where our
competitors R&D investments are higher than ours.
We regularly devote substantial resources to winning competitive
bid selection processes, known as product design
wins, to develop products for use in our customers
equipment and products. These selection processes can be lengthy
and can require us to incur significant design and development
expenditures, with no guarantee of winning or generating
revenue. Delays in developing new products with anticipated
technological advances and failure to win new design projects
for customers or in commencing volume shipments of new products
may have an adverse effect on our business. In addition, there
can be no assurance that new products, if introduced, will gain
market acceptance or will not be adversely affected by new
technological changes or new product announcements from other
competitors that may have greater resources or are more focused
than we are. Because we typically focus on only a few customers
in a product area, the loss of a design win can sometimes result
in our failure to offer a generation of a product. This can
result in lost sales and could hurt our position in future
competitive selection processes because we may be perceived as
not being a technology or industry leader.
Even after obtaining a product design win from one of our
customers, we may still experience delays in generating revenue
from our products as a result of our customers or our
lengthy development and design cycle. In addition, a delay or
cancellation of a customers plans could significantly
adversely affect our financial results, as
7
we may have incurred significant expense and generated no
revenue at the time of such delay or cancellation. Finally, if
our customers fail to successfully market and sell their own
products, it could materially adversely affect our business,
financial condition and results of operations as the demand for
our products falls.
We also regularly incur costs to develop IP internally or
acquire it from third parties without any guarantee of realizing
the anticipated value of such expenditures if our competitors
develop technologies that are more accepted than ours, or if
market demand does not materialize as anticipated. In addition
to amortization expenses relating to purchased IP, the value of
these assets may be subject to impairment with associated
charges being made to our Consolidated Financial Statements. See
Item 5. Operating and Financial Review and
Prospects. There is no assurance that our IP purchases
will be successful and will not lead to impairments and
associated charges.
The
competitive environment of the semiconductor industry may lead
to erosion of our market share, impacting our capacity to
compete.
We are continuously considering various measures to improve our
competitive position and cost structure in the semiconductor
industry.
In the past, our sales have, at times, increased at a slower
pace than the semiconductor industry as a whole and our market
share has declined, even in relation to the markets we served.
There is no assurance that we will be able to maintain or grow
our market share if we are unable to accelerate product
innovation, identify new applications for our products, extend
our customer base, realize manufacturing improvements
and/or
otherwise control our costs. In addition, in recent years the
semiconductor industry has continued to increase manufacturing
capacity in Asia in order to access lower-cost production and to
benefit from higher overall efficiency, which has led to a more
competitive environment. We may also in the future, if market
conditions so require, consider additional measures to improve
our cost structure and competitiveness in the semiconductor
market, such as seeking more competitive sources of production,
discontinuing certain product families or performing additional
restructurings, which in turn may result in loss of revenues,
asset impairments
and/or
capital losses.
The
semiconductor industry may also be impacted by changes in the
political, social or economic environment, including as a result
of military conflict, social unrest and/or terrorist activities,
as well as natural events such as severe weather, health risks,
epidemics or earthquakes in the countries in which we, our key
customers and our suppliers, operate.
We may face greater risks due to the international nature of our
business, including in the countries where we, our customers or
our suppliers operate, such as:
|
|
|
|
|
negative economic developments in foreign economies and
instability of foreign governments, including the threat of war,
terrorist attacks or civil unrest;
|
|
|
|
epidemics such as disease outbreaks, pandemics and other health
related issues;
|
|
|
|
changes in laws and policies affecting trade and investment,
including through the imposition of new constraints on
investment and trade; and
|
|
|
|
varying practices of the regulatory, tax, judicial and
administrative bodies.
|
Risks
Related to Our Operations
Market
dynamics are driving us to a strategic repositioning, which has
led us to enter into significant joint ventures.
We have recently undertaken several new initiatives to
reposition our business, both through divestitures and new
investments. Our strategies to improve our results of operations
and financial condition may lead us to make significant
acquisitions of businesses that we believe to be complementary
to our own, or to divest ourselves of activities that we believe
do not serve our longer term business plans. In addition,
certain regulatory approvals for potential acquisitions may
require the divestiture of business activities. Our potential
acquisition strategies depend in part on our ability to identify
suitable acquisition targets, finance their acquisition and
obtain required regulatory and other approvals. Our potential
divestiture strategies depend in part on our ability to define
the activities in which we should no longer engage, and then
determine and execute appropriate methods to divest of them.
In 2008, we divested our Flash Memory activities by combining
our business with that of Intel and creating Numonyx, an
independent semiconductor company in the area of Flash memories.
On February 10, 2010, we announced that, together with our
partners Intel Corporation and Francisco Partners, we have
entered into a definitive agreement with Micron, pursuant to
which it will acquire Numonyx in an all-stock transaction. See
Note
8
28 to our Consolidated Financial Statements and
Item 5. Operating and Financial Review and
Prospects Other Developments. There is no
assurance when, or if, this transaction will close. Furthermore,
there is no guaranty that the transaction will close pursuant to
the terms currently planned.
In addition, in 2008, we completed the acquisition of Genesis
Microchip Inc. (Genesis Microchip) and the
acquisition of NXPs wireless business, creating the joint
venture ST-NXP Wireless, with us having an 80% ownership stake.
Furthermore, in 2009, we purchased the outstanding 20% held by
NXP in ST-NXP Wireless and simultaneously merged ST-NXP Wireless
with Ericsson Mobile Platforms (EMP), thereby
forming ST-Ericsson. The wireless activities run through
ST-Ericsson represent a significant portion of our business. The
integration process may be long and complex due to the fact that
we are merging three different companies, and may trigger a
significant amount of costs. See Note 7 to our Consolidated
Financial Statements. We may not be able to exercise the same
control over management as we did when the business was operated
by us. There is no assurance that we will be successful or that
the joint venture will produce the planned operational and
strategic benefits.
We also may consider from time to time entering into joint
ventures that may operate in our existing facilities but whose
businesses may not be specific to the semiconductor industry. We
have announced plans to establish, at an existing M6 facility
located in Catania, Italy to be contributed by us, a joint
venture with Enel Green Power (Enel) and Sharp to
manufacture Photovoltaic panels, which will be sold to Enel and
Sharp as well as on the open market.
We are constantly monitoring our product portfolio and cannot
exclude that additional steps in this repositioning process may
be required; further, we cannot assure that any strategic
repositioning of our business, including possible future
acquisitions, dispositions or joint ventures, will be successful
and may not result in further impairment and associated charges.
Acquisitions and divestitures involve a number of risks that
could adversely affect our operating results, including the risk
that we may be unable to successfully integrate businesses or
teams we acquire with our culture and strategies on a timely
basis or at all, and the risk that we may be required to record
charges related to the goodwill or other long-term assets
associated with the acquired businesses. Changes in our
expectations due to changes in market developments that we
cannot foresee have in the past resulted in our writing off
amounts associated with the goodwill of acquired companies, and
future changes may require similar further write-offs in future
periods. We cannot be certain that we will be able to achieve
the full scope of the benefits we expect from a particular
acquisition, divestiture or investment. Our business, financial
condition and results of operations may suffer if we fail to
coordinate our resources effectively to manage both our existing
businesses and any acquired businesses. In addition, the
financing of future acquisitions may negatively impact our
financial condition and could require us to need additional
funding from the capital markets.
Other risks associated with acquisitions and the activities of
our joint ventures include:
|
|
|
|
|
diversion of managements attention;
|
|
|
|
insufficient IP rights or potential inaccuracies in the
ownership of key IP;
|
|
|
|
assumption of potential liabilities, disclosed or undisclosed,
associated with the business acquired, which liabilities may
exceed the amount of indemnification available from the seller;
|
|
|
|
potential inaccuracies in the financials of the business
acquired;
|
|
|
|
that the businesses acquired will not maintain the quality of
products and services that we have historically provided;
|
|
|
|
whether we are able to attract and retain qualified management
for the acquired business;
|
|
|
|
whether we are able to retain customers of the acquired
entity; and
|
|
|
|
management, reporting and forecasting related to a
50-50 joint
venture that is fully consolidated in our results.
|
Other risks associated with our divestiture activities include:
|
|
|
|
|
diversion of managements attention;
|
|
|
|
loss of activities and technologies that may have complemented
our remaining businesses or operations;
|
|
|
|
loss of important services provided by key employees that are
assigned to divested activities; and
|
|
|
|
social issues or restructuring costs linked to divestitures and
closures.
|
9
These and other factors may cause a materially adverse effect on
our results of operations and financial condition.
In
difficult market conditions, our high fixed costs adversely
impact our results.
In less favorable industry environments, we are driven to reduce
prices in response to competitive pressures and we are also
faced with a decline in the utilization rates of our
manufacturing facilities due to decreases in product demand.
Reduced average selling prices and demand for our products
adversely affect our results of operations. Since the
semiconductor industry is characterized by high fixed costs, we
are not always able to cut our total costs in line with revenue
declines. Furthermore, in periods of lower customer demand for
our products, our fabs do not operate at full capacity and the
costs associated with the excess capacity are charged directly
to cost of sales as unused capacity charges. Additionally, a
significant number of our manufacturing facilities are located
in France and Italy and their cost of operation have been
significantly affected by the rise of the Euro against the
U.S. dollar, our reporting currency over the last few
years. See Item 5. Operating and Financial Review and
Prospects. The difficult market conditions experienced in
2008 and 2009 have had a significant affect on the capacity
utilization and related manufacturing efficiencies of our fabs
and, consequently, our gross margins. We cannot guarantee that
such market conditions, and increased competition in our core
product markets, will not lead to further price erosion, lower
revenue growth rates and lower margins.
The
competitive environment of the semiconductor industry has led to
industry consolidation and we may face even more intense
competition from newly merged competitors or we may seek to
acquire a competitor in order to improve our market
share.
The intensely competitive environment of the semiconductor
industry and the high costs associated with developing
marketable products and manufacturing technologies as well as
investing in production capabilities may lead to further
consolidation in the industry. Such consolidation can allow a
company to further benefit from economies of scale, provide
improved or more diverse product portfolios and increase the
size of its serviceable market. Consequently, we may seek to
acquire a competitor to improve our market position and the
applications and products we can market. Some of our
competitors, however, may also try to take advantage of such a
consolidation process and may have greater financial resources
to do so.
Our
financial results can be adversely affected by fluctuations in
exchange rates, principally in the value of the U.S.
dollar.
A significant variation of the value of the U.S. dollar
against the principal currencies that have a material impact on
us (primarily the Euro, but also certain other currencies of
countries where we have operations) could result in a favorable
impact on our net income in the case of an appreciation of the
U.S. dollar, or a negative impact on our net income if the
U.S. dollar depreciates relative to these currencies.
Currency exchange rate fluctuations affect our results of
operations because our reporting currency is the
U.S. dollar, in which we receive the major part of our
revenues, while, more importantly, we incur a significant
portion of our costs in currencies other than the
U.S. dollar. Certain significant costs incurred by us, such
as manufacturing labor costs and depreciation charges, selling,
general and administrative expenses, and R&D expenses, are
incurred in the currencies of the jurisdictions in which our
operations are located, which mainly includes the euro zone. Our
effective average exchange rate, which reflects actual exchange
rate levels combined with the impact of cash flow hedging
programs, was $1.37 to 1.00 in 2009, compared to $1.49 to
1.00 in 2008.
A decline of the U.S. dollar compared to the other major
currencies that affect our operations negatively impacts our
expenses, margins and profitability.
In order to reduce the exposure of our financial results to the
fluctuations in exchange rates, our principal strategy has been
to balance as much as possible the proportion of sales to our
customers denominated in U.S. dollars with the amount of
purchases from our suppliers denominated in U.S. dollars
and to reduce the weight of the other costs, including labor
costs and depreciation, denominated in Euros and in other
currencies. In order to further reduce our exposure to
U.S. dollar exchange rate fluctuations, we have hedged
certain line items on our consolidated statements of income, in
particular with respect to a portion of the cost of goods sold,
most of the R&D expenses and certain selling and general
and administrative expenses located in the Euro zone. No
assurance can be given that our hedging transactions will
prevent us from incurring higher Euro-denominated manufacturing
costs when translated into our U.S. dollar-based accounts
in the event of a weakening of the U.S. dollar. See
Item 5. Operating and Financial Review and Prospects
Impact of Changes in Exchange Rates and
Item 11. Quantitative and Qualitative Disclosures
About Market Risk.
10
Because
we have our own manufacturing facilities, our capital needs are
high compared to those competitors who do not produce their own
products.
As a result of our choice to maintain control of a certain
portion of our advanced proprietary manufacturing technologies
to better serve our customer base and to develop our strategic
alliances, significant amounts of capital to maintain or upgrade
our facilities could be required in the future. We monitor our
capital expenditures taking into consideration factors such as
trends in the semiconductor market and capacity utilization. In
the last three years our overall capital expenditures, as
expressed in terms of percentage to sales, have significantly
decreased, and we are planning for them to be in the range of 5%
to about 7% of our revenues, what we consider to be a
sustainable ratio for the foreseeable future. However, there is
no assurance that we will not over-invest in terms of capital
expenditures if future market demand does not meet our
expectations when making the decision to invest, or under-invest
in capital expenditures to address future increases and /or
changes in the products required by our customers. Failure to
invest appropriately or in a timely manner could have a material
adverse effect on our business, and results of operations See
Item 5. Operating and Financial Review and
Prospects Liquidity and Capital Resources.
We may
also need additional funding in the coming years to finance our
investments, to pursue other business combinations or to
purchase other companies or technologies developed by third
parties or to refinance our maturing indebtedness.
In an increasingly complex and competitive environment, we may
need to invest in other companies
and/or in
technology developed either by us or by third parties to
maintain or improve our position in the market. We may also
consider acquisitions to complement or expand our existing
business. In addition, we may be required to refinance maturing
indebtedness. Any of the foregoing may also require us to issue
additional debt, equity, or both; the timing and the size of any
new share or bond offering would depend upon market conditions
as well as a variety of factors, and any such transaction or any
announcement concerning such a transaction could materially
impact the market price of our common shares. If we are unable
to access such capital on acceptable terms, this may adversely
affect our business and results of operations.
Our
R&D efforts are increasingly expensive and dependent on
alliances, and our business, results of operations and prospects
could be materially adversely affected by the failure or
termination of such alliances, or failure to find new partners
in such alliance and/or in developing new process technologies
in line with market requirements.
We are dependent on alliances to develop or access new
technologies, particularly in light of the increasing levels of
investment required for R&D activities, and there can be no
assurance that these alliances will be successful. We are a
member of the International Semiconductor Development Alliance
(ISDA), a technology alliance led by IBM with
GlobalFoundries, Freescale, Infineon, NEC, Samsung and Toshiba
to develop complementary metal-on silicon oxide semiconductor
(CMOS) process technology used in semiconductor
development and manufacturing for 32/28-nm and 22/20-nm nodes.
This alliance also includes collaboration on IP development and
platforms to speed the design of
System-on-Chip
(SoC) devices in CMOS process technologies. In 2009,
we also entered into an agreement with IBM to develop
value-added derivative SoC technologies in Crolles France.
In February 2009, we completed the merger of ST-NXP Wireless and
EMP into ST-Ericsson, a joint venture with Ericsson. We plan to
deliver the benefits of our innovation to our customers and we
also expect ST-Ericsson to execute on its plan to transition to
the new portfolio strategy they have devised for their next
generation offering.
We continue to believe that we can maintain proprietary R&D
for derivative technology investments and share R&D
business models, which are based on cooperation and alliances,
for core R&D process technology if we receive adequate
support from state funding, as in the case of the Crolles Nano
2012 frame agreement signed by us with the French government in
2009, which includes certain conditions of employment and
manufacturing capacity to be met by 2012. This, coupled with
manufacturing and foundry partnerships, provides us with a
number of important benefits, including the sharing of risks and
costs, reductions in our own capital requirements, acquisitions
of technical know-how and access to additional production
capacities. In addition, it contributes to the fast acceleration
of semiconductor process technology development while allowing
us to lower our development and manufacturing costs. However,
there can be no assurance that alliances will be successful and
allow us to develop and access new technologies in due time, in
a cost-effective manner
and/or to
meet customer demands. Certain companies develop their own
process technologies, which may be more advanced than the
technologies we develop through our cooperative alliances.
Furthermore, if these alliances terminate before our intended
goals are accomplished we may lose our investment, or incur
additional unforeseen costs, and our business, results of
operations and prospects could be materially adversely affected.
In addition, if we are unable to develop or otherwise access new
technologies independently, we may fail to keep pace with the
rapid technology advances in
11
the semiconductor industry, our participation in the overall
semiconductor industry may decrease and we may also lose market
share in the market addressed by our products.
Our
operating results may vary significantly from quarter to quarter
and annually and may differ significantly from our expectations
or guidance.
Our operating results are affected by a wide variety of factors
that could materially and adversely affect revenues and
profitability or lead to significant variability of operating
results. These factors include, among others, the cyclicality of
the semiconductor and electronic systems industries, capital
requirements, inventory management, availability of funding,
competition, new product developments, technological changes and
manufacturing problems. For example, if anticipated sales or
shipments do not occur when expected, expenses and inventory
levels in a given quarter can be disproportionately high, and
our results of operations for that quarter, and potentially for
future quarters, may be adversely affected. In addition, our
effective tax rate currently takes into consideration certain
favorable tax rates and incentives, which, in the future, may
not be available to us. See Note 21 to our Consolidated
Financial Statements.
A number of other factors could lead to fluctuations in
quarterly and annual operating results, including:
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performance of our key customers in the markets they serve;
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order cancellations or reschedulings by customers;
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excess inventory held by customers leading to reduced bookings
or product returns by key customers;
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manufacturing capacity and utilization rates;
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restructuring and impairment charges;
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losses on equity investments;
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fluctuations in currency exchange rates, particularly between
the U.S. dollar and other currencies in jurisdictions where
we have activities;
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IP developments;
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changes in distribution and sales arrangements;
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failure to win new design projects;
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manufacturing performance and yields;
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product liability or warranty claims;
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litigation;
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acquisitions or divestitures;
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problems in obtaining adequate raw materials or production
equipment on a timely basis;
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property loss or damage or interruptions to our business,
including as a result of fire, natural disasters or other
disturbances at our facilities or those of our customers and
suppliers that may exceed the amounts recoverable under our
insurance policies;
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changes in the market value or yield of the financial
instruments in which we invest our liquidity; and
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a substantial part of our business is run through joint ventures
whose management acts independently pursuant to the joint
ventures rule of governance.
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Unfavorable changes in any of the above factors have in the past
and may in the future adversely affect our operating results.
Furthermore, in periods of industry overcapacity or when our key
customers encounter difficulties in their end markets, orders
are more exposed to cancellations, reductions, price
renegotiation or postponements, which in turn reduce our
managements ability to forecast the next quarter or full
year production levels, revenues and margins. For these reasons
and others that we may not yet have identified, our revenues and
operating results may differ materially from our expectations or
guidance as visibility is reduced. See Item 4.
Information on the Company Backlog.
12
Our
business is dependent in large part on continued growth in the
industries and segments into which our products are sold and on
our ability to attract and retain new customers. A market
decline in any of these industries or our inability to attract
new customers could have a material adverse effect on our
results of operations.
We derive and expect to continue to derive significant sales
from the telecommunications, consumer, computer and
communication infrastructure, automotive and industrial markets.
Growth of demand in these market segments have fluctuated in the
past, and may in the future, significantly based on numerous
factors, including:
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spending levels of the market segment participants;
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reduced demand resulting from a drop in consumer confidence
and/or a
deterioration of general economic conditions;
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development of new consumer products or applications requiring
high semiconductor content;
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evolving industry standards; and
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the rate of adoption of new or alternative technologies.
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We cannot predict the rate, or the extent to which, the
telecommunications, consumer, computer and communication
infrastructure, automotive and industrial markets will grow. In
2009, the decline in these markets resulted in slower growth and
a decline in demand for our products, which had a material
adverse effect on our business, financial condition and results
of operations.
In addition, spending on process and product development well
ahead of market acceptance could have a material adverse effect
on our business, financial condition and results of operations
if projected industry growth rates do not materialize as
forecasted.
Our business is dependent upon our ability to attract and retain
new customers. The competition for such new customers is
intense. There can be no assurance that we will be successful in
attracting and retaining new customers. Our failure to do so
could materially adversely affect our business, financial
position and results of operations.
Disruptions
in our relationships with any one of our key customers, and/or
material changes in their financial condition, could adversely
affect our results of operations.
A substantial portion of our sales is derived from several large
customers, some of whom have entered into strategic alliances
with us. As of December 31, 2009, our largest customer, the
Nokia group of companies, accounted for approximately 16.1% of
our 2009 net revenues, compared to 17.5% in 2008 and 21.1%
in 2007. We cannot guarantee that our largest customers will
continue to book the same level of sales with us that they have
in the past and will not solicit alternative suppliers. Many of
our key customers operate in cyclical businesses that are also
highly competitive, and their own demands and market positions
may vary considerably. In recent years, certain customers of the
semiconductor industry have experienced consolidation. Such
consolidations may impact our business in the sense that our
relationships with the new entities could be either reinforced
or jeopardized pursuant thereto. Our customers have in the past,
and may in the future, vary order levels significantly from
period to period, request postponements to scheduled delivery
dates or modify their bookings. We cannot guarantee that we will
be able to maintain or enhance our market share with our key
customers or distributors. If we were to lose important design
wins for our products with our key customers, or if any key
customer or distributors were to reduce or change its bookings,
seek alternate suppliers, increase its product returns or become
unable or fail to meet its payment obligations, our business
financial condition and results of operations could be
materially adversely affected. Some of our customers have
recently faced financial difficulties and liquidity constraints,
which have made them unable to fulfill their contractual
obligations, or could make them unable to fulfill such
obligations in the future. If customers do not purchase products
made specifically for them, we may not be able to resell such
products to other customers or require the customers who have
ordered these products to pay a cancellation fee. Furthermore,
developing industry trends, including customers use of
outsourcing and new and revised supply chain models, may reduce
our ability to forecast the purchase date for our products and
evolving customer demand, thereby affecting our revenues and
working capital requirements. For example, pursuant to industry
developments, some of our products are required to be delivered
on consignment to customer sites with recognition of revenue
delayed until such moment, which must occur within a defined
period of time, when the customer chooses to take delivery of
our products from our consignment stock.
13
Our
operating results can also vary significantly due to impairment
of goodwill and other intangible assets incurred in the course
of acquisitions, as well as to impairment of tangible assets due
to changes in the business environment.
Our operating results can also vary significantly due to
impairment of goodwill booked pursuant to acquisitions and to
the purchase of technologies and licenses from third parties,
which has increased significantly since 2008 due to M&A
transactions. Because the market for our products is
characterized by rapidly changing technologies, and because of
significant changes in the semiconductor industry, our future
cash flows may not support the value of goodwill and other
intangibles registered in our consolidated balance sheet.
Furthermore, the ability to generate revenues for our fixed
assets located in Europe may be impaired by an increase in the
value of the Euro with respect to the U.S. dollar, as the
revenues from the use of such assets are generated in
U.S. dollars. We are required to annually test goodwill and
to assess the carrying values of intangible and tangible assets
when impairment indicators exist. As a result of such tests, we
could be required to book impairment in our statement of income
if the carrying value in our consolidated balance sheet is in
excess of the fair value. The amount of any potential impairment
is not predictable as it depends on our estimates of projected
market trends, results of operations and cash flows. In
addition, the introduction of new accounting standards can lead
to a different assessment of goodwill carrying value, which
could lead to a potential impairment of the goodwill amount. Any
potential impairment, if required, could have a material adverse
impact on our results of operations.
We last performed our annual impairment testing in the third
quarter of 2009, while the value generated by all of our product
segments exceeded the carrying value of their assets. While we
recorded specific impairment charges related to the carrying
value of certain marketable securities and equity investments
during the period, a minor impairment charge was indicated by
such analyses on the net value of our assets subject to testing.
However, many of the factors used in assessing fair values for
such assets are outside of our control and the estimates used in
such analyses are subject to change. Due to the ongoing
uncertainty of the current market conditions, which may continue
to negatively impact our market value, we will continue to
monitor the carrying value of our assets. If market and economic
conditions further deteriorate, this could result in future
non-cash impairment charges against income. Further impairment
charges could also result from new valuations triggered by
changes in our product portfolio or strategic transactions,
including ST-Ericsson, especially if it is unable to complete
its ongoing restructuring plans or successfully compete, and
possible further impairment charges relating to our investment
in Numonyx, particularly, in the event of a downward shift in
expected revenues or operating cash flow.
Because
we depend on a limited number of suppliers for raw materials and
certain equipment, we may experience supply disruptions if
suppliers interrupt supply, increase prices or experience
material adverse changes in their financial
condition.
Our ability to meet our customers demand to manufacture
our products depends upon obtaining adequate supplies of quality
raw materials on a timely basis. A number of materials are
available only from a limited number of suppliers, or only from
a limited number of suppliers in a particular region. In
addition, we purchase raw materials such as silicon wafers, lead
frames, mold compounds, ceramic packages and chemicals and gases
from a number of suppliers on a
just-in-time
basis, as well as other materials such as copper and gold whose
prices on the world markets have fluctuated significantly during
recent periods. Although supplies for the raw materials we
currently use are adequate, shortages could occur in various
essential materials due to interruption of supply or increased
demand in the industry. In addition, the costs of certain
materials, such as copper and gold, have increased due to market
pressures and we may not be able to pass on such cost increases
to the prices we charge to our customers. We also purchase
semiconductor manufacturing equipment from a limited number of
suppliers and because such equipment is complex it is difficult
to replace one supplier with another or to substitute one piece
of equipment for another. In addition, suppliers may extend lead
times, limit our supply or increase prices due to capacity
constraints or other factors. Furthermore, suppliers tend to
focus their investments on providing the most technologically
advanced equipment and materials and may not be in a position to
address our requirements for equipment or materials of older
generations. Shortages of supplies have in the past impacted and
may in the future impact the semiconductor industry, in
particular with respect to silicon wafers due to increased
demand and decreased production. Although we work closely with
our suppliers to avoid these types of shortages, there can be no
assurances that we will not encounter these problems in the
future. Our quarterly or annual results of operations would be
adversely affected if we were unable to obtain adequate supplies
of raw materials or equipment in a timely manner or if there
were significant increases in the costs of raw materials or
problems with the quality of these raw materials.
14
If our
outside contractors fail to perform, this could adversely affect
our ability to exploit growth opportunities.
We currently use outside contractors, both for foundries and
back-end activities, and it is likely that we will increasingly
rely on foundries for a growing portion of our needs. The
foundries we contract with are primarily manufacturers of
high-speed complementary metal-on silicon oxide semiconductor
(HCMOS) wafers and nonvolatile memory technology,
while our back-end subcontractors engage in the assembly and
testing of a wide variety of packaged devices. If our outside
suppliers are unable to satisfy our demand, or experience
manufacturing difficulties, delays or reduced yields, our
results of operations and ability to satisfy customer demand
could suffer. Our internal manufacturing costs include
depreciation and other fixed costs, while costs for products
outsourced are based on market conditions. Prices for these
services also vary depending on capacity utilization rates at
our suppliers, quantities demanded, product technology and
geometry. Furthermore, these outsourcing costs can vary
materially from quarter to quarter and, in cases of industry
shortages, they can increase significantly further, negatively
impacting our gross margin.
Our
manufacturing processes are highly complex, costly and
potentially vulnerable to impurities, disruptions or inefficient
implementation of production changes that can significantly
increase our costs and delay product shipments to our
customers.
Our manufacturing processes are highly complex, require advanced
and increasingly costly equipment and are continuously being
modified or maintained in an effort to improve yields and
product performance. Impurities or other difficulties in the
manufacturing process can lower yields, interrupt production or
result in losses of products in process. As system complexity
and production changes have increased and
sub-micron
technology has become more advanced, manufacturing tolerances
have been reduced and requirements for precision have become
even more demanding. Although in the past few years we have
significantly enhanced our manufacturing capability in terms of
efficiency, precision and capacity, we have from time to time
experienced bottlenecks and production difficulties that have
caused delivery delays and quality control problems, as is
common in the semiconductor industry. We cannot guarantee that
we will not experience bottlenecks, production or transition
difficulties in the future. In addition, during past periods of
high demand for our products, our manufacturing facilities have
operated at high capacity, which has led to production
constraints. Furthermore, if production at a manufacturing
facility is interrupted, we may not be able to shift production
to other facilities on a timely basis, or customers may purchase
products from other suppliers. In either case, the loss of
revenue and damage to the relationship with our customer could
be significant. Furthermore, we periodically transfer production
equipment between production facilities and must ramp up and
test such equipment once installed in the new facility before it
can reach its optimal production level.
As is common in the semiconductor industry, we have, from time
to time, experienced and may in the future experience
difficulties in transferring equipment between our sites,
ramping up production at new facilities or effecting transitions
to new manufacturing processes. Our operating results may be
adversely affected by an increase in fixed costs and operating
expenses linked to production if revenues do not increase
commensurately with such fixed costs and operating expenses.
We
depend on patents to protect our rights to our technology and
may face claims of infringing the IP rights of
others.
We depend on our ability to obtain patents and other IP rights
covering our products and their design and manufacturing
processes. We intend to continue to seek patents on our
inventions relating to product designs and manufacturing
processes. However, the process of seeking patent protection can
be long and expensive, and we cannot guarantee that we will
receive patents from currently pending or future applications.
Even if patents are issued, they may not be of sufficient scope
or strength to provide meaningful protection or any commercial
advantage. In addition, effective patent, copyright and trade
secret protection may be unavailable or limited in some
countries. Competitors may also develop technologies that are
protected by patents and other IP and therefore either be
unavailable to us or be made available to us subject to adverse
terms and conditions. We have in the past used our patent
portfolio to negotiate broad patent cross-licenses with many of
our competitors enabling us to design, manufacture and sell
semiconductor products, without fear of infringing patents held
by such competitors. We may not, however, in the future be able
to obtain such licenses or other rights to protect necessary IP
on favorable terms for the conduct of our business, and such
failure may adversely impact our results of operations.
We have from time to time received, and may in the future
receive, communications alleging possible infringement of
patents and other IP rights. Competitors with whom we do not
have patent cross license agreements may also develop
technologies that are protected by patents and other IP rights
and which may be unavailable to us or only made available on
unfavorable terms and conditions. We may therefore become
involved in costly litigation
15
brought against us regarding patents, mask works, copyrights,
trademarks or trade secrets. We are currently involved in
several lawsuits, including litigation before the
U.S. International Trade Commission. See Item 8.
Financial Information Legal Proceedings. Such
lawsuits may have a material adverse effect on our business if
we do not prevail. We may be forced to stop producing
substantially all or some of our products or to license the
underlying technology upon economically unfavorable terms and
conditions or we may be required to pay damages for the prior
use of third party IP
and/or face
an injunction.
Finally, litigation could cost us financial and management
resources necessary to enforce our patents and other IP rights
or to defend against third party intellectual property claims
when we believe that the amounts requested for a license are
unreasonable.
We may
be faced with product liability or warranty
claims.
Despite our corporate quality programs and commitment, our
products may not in each case comply with specifications or
customer requirements. Although our practice, in line with
industry standards, is to contractually limit our liability to
the repair, replacement or refund of defective products,
warranty or product liability claims could result in significant
expenses relating to compensation payments or other
indemnification to maintain good customer relationships if a
customer threatens to terminate or suspend our relationship
pursuant to a defective product supplied by us. No assurance can
be made that we will be successful in maintaining our
relationships with customers with whom we incur quality
problems, which could have a material adverse affect on our
business. Furthermore, we could incur significant costs and
liabilities if litigation occurs to defend against such claims
and if damages are awarded against us. In addition, it is
possible for one of our customers to recall a product containing
one of our parts. Costs or payments we may make in connection
with warranty claims or product recalls may adversely affect our
results of operations. There is no guarantee that our insurance
policies will be available or adequate to protect against such
claims.
Some
of our production processes and materials are environmentally
sensitive, which could expose us to liability and increase our
costs due to environmental regulations and laws or because of
damage to the environment.
We are subject to many environmental laws and regulations
wherever we operate that govern, among other things, the use,
storage, discharge and disposal of chemicals, gases and other
hazardous substances used in our manufacturing processes, air
emissions, waste water discharges, waste disposal, as well as
the investigation and remediation of soil and ground water
contamination.
A number of environmental requirements in the European Union,
including some that have only recently come into force, affect
our business. See Item 4. Information on the
Company Environmental Matters. These
requirements are partly under revision by the European Union and
their potential impacts cannot currently be determined in
detail. Such regulations, however, could adversely affect our
manufacturing costs or product sales by requiring us to acquire
costly equipment, materials or greenhouse gas allowances, or to
incur other significant expenses in adapting our manufacturing
processes or waste and emission disposal processes. We are not
in a position to quantify specific costs, in part because these
costs are part of our business process. Furthermore,
environmental claims or our failure to comply with present or
future regulations could result in the assessment of damages or
imposition of fines against us, suspension of production or a
cessation of operations. As with other companies engaged in
similar activities, any failure by us to control the use of, or
adequately restrict the discharge of, chemicals or hazardous
substances could subject us to future liabilities. Any specific
liabilities we identify as probable would be reflected in our
consolidated balance sheet. To date, we have not identified any
such specific liabilities and have therefore not booked reserves
for any specific environmental risks.
Loss
of key employees could hurt our competitive
position.
As is common in the semiconductor industry, success depends to a
significant extent upon our key senior executives and R&D,
engineering, marketing, sales, manufacturing, support and other
personnel. Our success also depends upon our ability to continue
to attract, retain and motivate qualified personnel. The
competition for such employees is intense, and the loss of the
services of any of these key personnel without adequate
replacement or the inability to attract new qualified personnel
could have a material adverse effect on us.
We
operate in many jurisdictions with highly complex and varied tax
regimes. Changes in tax rules or the outcome of tax assessments
and audits could cause a material adverse effect on our
results.
We operate in many jurisdictions with highly complex and varied
tax regimes. Changes in tax rules or the outcome of tax
assessments and audits could have a material adverse effect on
our results in any particular quarter.
16
Our tax rate is variable and depends on changes in the level of
operating profits within various local jurisdictions and on
changes in the applicable taxation rates of these jurisdictions,
as well as changes in estimated tax provisions due to new
events. We currently receive certain tax benefits in some
countries, and these benefits may not be available in the future
due to changes in the local jurisdictions. As a result, our
effective tax rate could increase in the coming years.
In line with our strategic repositioning of our product
portfolio, the acquisition or divestiture of businesses in
different jurisdictions could materially affect our effective
tax rate in future periods.
We evaluate our deferred tax asset position and the need for a
valuation allowance on a regular basis. This assessment requires
the exercise of judgment on the part of our management with
respect to, among other things, benefits that could be realized
from available tax strategies and future taxable income, as well
as other positive and negative factors. The ultimate realization
of deferred tax assets is dependent upon, among other things,
our ability to generate future taxable income that is sufficient
to utilize loss carry-forwards or tax credits before their
expiration. The recorded amount of total deferred tax assets
could be reduced, resulting in a decrease in our total assets
and, consequently, in our shareholders equity, if our
estimates of projected future taxable income and benefits from
available tax strategies are reduced as a result of a change in
managements assessment or due to other factors, or if
changes in current tax regulations are enacted that impose
restrictions on the timing or extent of our ability to utilize
tax loss and credit carry-forwards in the future. A change in
the estimated amounts and the character of the future result may
require additional valuation allowances, resulting in a negative
impact on our income statement.
We are subject to the possibility of loss contingencies arising
out of tax claims, assessment of uncertain tax positions and
provisions for specifically identified income tax exposures.
There are currently tax audits ongoing in certain of our
jurisdictions. There can be no assurance that we will be
successful in resolving potential tax claims that can arise from
these audits. We have booked provisions on the basis of the best
current understanding; however, we could be required to book
additional provisions in future periods for amounts that cannot
be assessed at this stage. Our failure to do so
and/or the
need to increase our provisions for such claims could have a
material adverse effect on our financial position.
We are
required to prepare Consolidated Financial Statements using both
IFRS in addition to our Consolidated Financial Statements
prepared pursuant to U.S. GAAP and dual reporting may impair the
clarity of our financial reporting.
We are incorporated in the Netherlands and our shares are listed
on Euronext and on the Borsa Italiana, and, consequently, we are
subject to an EU regulation requiring us to report our results
of operations and Consolidated Financial Statements using IFRS.
As of January 1, 2009, we are also required to prepare a
semi-annual set of accounts using IFRS reporting standards. We
use U.S. GAAP as our primary set of reporting standards.
Applying U.S. GAAP in our financial reporting is designed
to ensure the comparability of our results to those of our
competitors, as well as the continuity of our reporting, thereby
providing our investors with a clear understanding of our
financial performance.
As a result of the obligation to report our Consolidated
Financial Statements under IFRS, we prepare our results of
operations using two different sets of reporting standards,
U.S. GAAP and IFRS, which are currently not consistent.
Such dual reporting materially increases the complexity of our
investor communications. Our financial condition and results of
operations reported in accordance with IFRS will differ from our
financial condition and results of operations reported in
accordance with U.S. GAAP, which could give rise to
confusion in the marketplace.
Our reporting under two different accounting standards filed
with the relevant regulatory authorities, also now in interim
periods, could result in confusion if recipients of the
information do not properly distinguish between the information
reported using U.S. GAAP and the information reported using
IFRS, particularly when viewing our profitability and operating
margins under one or the other set of accounting standards.
Given this risk, and the complexity of maintaining and reviewing
two sets of accounts, we are considering reporting primarily
under IFRS at some point in the future.
If our
internal control over financial reporting fails to meet the
requirements of Section 404 of the
Sarbanes-Oxley
Act, it may have a materially adverse effect on our stock
price.
The SEC, as required by Section 404 of the Sarbanes-Oxley
Act of 2002, adopted rules that require us to include a
management report assessing the effectiveness of our internal
control over financial reporting in our annual report on
Form 20-F.
In addition, we must also include an attestation by our
independent registered public accounting firm regarding the
effectiveness of our internal control over financial reporting.
We have successfully completed our Section 404 assessment
and received the auditors attestation as of
December 31, 2009. However, in
17
the future, if we fail to complete a favorable assessment from
our management or to obtain an unqualified
auditors attestation, we may be subject to regulatory
sanctions or may suffer a loss of investor confidence in the
reliability of our financial statements, which could lead to an
adverse effect on our stock price.
The
lack of public funding available to us, changes in existing
public funding programs or demands for repayment may increase
our costs and impact our results of operations.
Like many other manufacturers operating in Europe, we benefit
from governmental funding for R&D expenses and
industrialization costs (which include some of the costs
incurred to bring prototype products to the production stage),
as well as from incentive programs for the economic development
of underdeveloped regions. Public funding may also be
characterized by grants
and/or
low-interest financing for capital investment
and/or tax
credit investments. We have entered into public funding
agreements in France and Italy, which set forth the parameters
for state support to us under selected programs. These funding
agreements require compliance with EU regulations and approval
by EU authorities. We have also entered into the Nano 2012
funding program. See Item 4. Information on the
Company Public Funding.
Furthermore, we receive a material amount of R&D tax
credits in France, which is directly linked to the amount spent
for our R&D activities. In 2009, we booked
$146 million, which reflected amounts relating to yearly
activities.
We rely on receiving funds on a timely basis pursuant to the
terms of the funding agreements. However, the funding of
programs in France and Italy is subject to the annual
appropriation of available resources and compatibility with the
fiscal provisions of their annual budgets, which we do not
control, as well as to our continuing compliance with all
eligibility requirements. If we are unable to receive
anticipated funding on a timely basis, or if existing
government-funded programs were curtailed or discontinued, or if
we were unable to fulfill our eligibility requirements, this
could have a material adverse effect on our business, operating
results and financial condition. There is no assurance that any
alternative funding would be available, or that, if available,
it could be provided in sufficient amounts or on similar terms.
The application for and implementation of such grants often
involves compliance with extensive regulatory requirements
including, in the case of subsidies to be granted within the EU,
notification to the European Commission by the member state
making the contemplated grant prior to disbursement and receipt
of required EU approval. In addition, compliance with
project-related ceilings on aggregate subsidies defined under EU
law often involves highly complex economic evaluations.
Furthermore, public funding arrangements are generally subject
to annual and
project-by-project
reviews and approvals. If we fail to meet applicable formal or
other requirements, we may not be able to receive the relevant
subsidies, which could have a material adverse effect on our
results of operations. If we do not receive anticipated funding,
this may lead us to curtail or discontinue existing projects,
which may lead to further impairments. In addition, if we do not
complete projects for which public funding has been approved, we
may be required to repay any advances received for completed
milestones, which may lead to a material adverse effect on our
results of operations.
The
interests of our controlling shareholders, which are in turn
controlled respectively by the French and Italian governments,
may conflict with investors interests.
We have been informed that as of December 31, 2009,
STMicroelectronics Holding II B.V. (ST Holding
II), a wholly-owned subsidiary of STMicroelectronics
Holding N.V. (ST Holding), owned
250,704,754 shares, or approximately 27.5%, of our issued
common shares. ST Holding is therefore effectively in a position
to control actions that require shareholder approval, including
corporate actions, the election of our Supervisory Board and our
Managing Board and the issuance of new shares or other
securities.
We have also been informed that the shareholders agreement
among ST Holdings shareholders (the STH
Shareholders Agreement), to which we are not a
party, governs relations between our current indirect
shareholders Areva Group (Areva), Cassa Depositi e
Prestiti S.p.A. (CDP) and Commissariat à
lEnergie Atomique (CEA), each of which is
ultimately controlled by the French or Italian government. See
Item 7. Major Shareholders and Related Party
Transactions Major Shareholders. The STH
Shareholders Agreement includes provisions requiring the
unanimous approval by shareholders of ST Holding before ST
Holding can make any decision with respect to certain actions to
be taken by us. Furthermore, as permitted by our Articles of
Association, the Supervisory Board has specified selected
actions by the Managing Board that require the approval of the
Supervisory Board. See Item 7. Major Shareholders and
Related Party Transactions Major Shareholders.
These requirements for the prior approval of various actions to
be taken by us and our subsidiaries may give rise to a conflict
of interest between our interests and investors interests,
on the one hand, and the interests of the individual
shareholders approving such actions, on the other, and may
affect the ability of our Managing Board to respond as
18
may be necessary in the rapidly changing environment of the
semiconductor industry. Our ability to issue new shares or other
securities may be limited by the existing shareholders
desire to maintain their proportionate shareholding at a certain
minimum level and our ability to buy back shares may be limited
by our existing shareholders due to a Dutch law that may require
shareholders that own more than 30% of our voting rights to
launch a tender offer for our outstanding shares. Dutch law,
however, requires members of our Supervisory Board to act
independently in supervising our management and to comply with
applicable corporate governance standards.
Our
shareholder structure and our preference shares may deter a
change of control.
We have an option agreement with an independent foundation,
Stichting Continuiteit ST (the Stichting), whereby
we could issue a maximum of 540,000,000 preference shares in the
event of actions considered hostile by our Managing Board and
Supervisory Board, such as a creeping acquisition or an
unsolicited offer for our common shares, which are unsupported
by our Managing Board and Supervisory Board and which the board
of the Stichting determines would be contrary to the interests
of our Company, our shareholders and our other stakeholders. See
Item 7. Major Shareholders and Related Party
Transactions Major Shareholders
Shareholders Agreements Preference
Shares.
No preference shares have been issued to date. The effect of the
preference shares may be to deter potential acquirers from
effecting an unsolicited acquisition resulting in a change of
control or otherwise taking actions considered hostile by our
Managing Board and Supervisory Board. In addition, any issuance
of additional capital within the limits of our authorized share
capital, as approved by our shareholders, is subject to the
requirements of our Articles of Association, see
Item 10. Additional Information
Memorandum and Articles of Association Share Capital
as of December 31, 2009 Issuance of Shares,
Preemption Rights and Preference Shares (Article 4).
Our
direct or indirect shareholders may sell our existing common
shares or issue financial instruments exchangeable into our
common shares at any time. In addition, substantial sales by us
of new common shares or convertible bonds could cause our common
share price to drop significantly.
The STH Shareholders Agreement, to which we are not a
party, between respectively FT1CI, our French Shareholder
controlled by Areva and CEA, and CDP, our Italian shareholder,
permits our respective French and Italian indirect shareholders
to cause ST Holding to dispose of its stake in us at its sole
discretion at any time from their current level, and to reduce
the current level of their respective indirect interests in our
common shares. The details of the STH Shareholders
Agreement, as reported by ST Holding II, are further explained
in Item 7. Major Shareholders and Related Party
Transactions Major Shareholders. Disposals of
our shares by the parties to the STH Shareholders
Agreement can be made by way of the issuance of financial
instruments exchangeable for our shares, equity swaps,
structured finance transactions or sales of our shares. An
announcement with respect to one or more of such dispositions
could be made at any time without our advance knowledge.
In 2008, Finmeccanica sold approximately 26 million of our
shares representing approximately 2.85% of our share capital to
FT1CI, and, hence, CEA became a shareholder of FT1CI and is a
party to the STH Shareholders Agreement. In addition, in
December 2009, Finmeccanica sold all of its remaining 33,707,436
of our shares, held indirectly through ST Holding, to CDP and,
as a result, is no longer a party to the STH Shareholders
Agreement.
Finmeccanica Finance S.A. (Finmeccanica Finance), a
subsidiary of Finmeccanica, has issued 501 million
aggregate principal amount of exchangeable notes, exchangeable
into up to 20 million of our existing common shares due
2010 (the Finmeccanica Notes). Finmeccanica has
entered into a call option arrangement with Deutsche Bank for a
corresponding amount of our shares in the event the notes become
exchangeable. As of December 31, 2009, none of the
Finmeccanica Notes had been exchanged for our common shares.
Further sales of our common shares or issue of bonds
exchangeable into our common shares or any announcements
concerning a potential sale by ST Holding, FT1CI, Areva, CEA or
CDP, could materially impact the market price of our common
shares. The timing and size of any future share or exchangeable
bond offering by ST Holding, FT1CI, Areva, CEA or CDP would
depend upon market conditions as well as a variety of factors.
Because
we are a Dutch company subject to the corporate law of the
Netherlands, U.S. investors might have more difficulty
protecting their interests in a court of law or otherwise than
if we were a U.S. company.
Our corporate affairs are governed by our Articles of
Association and by the laws governing corporations incorporated
in the Netherlands. The corporate affairs of each of our
consolidated subsidiaries are governed by the Articles of
Association and by the laws governing such corporations in the
jurisdiction in which such consolidated subsidiary is
incorporated. The rights of the investors and the
responsibilities of members of our Supervisory Board
19
and Managing Board under Dutch law are not as clearly
established as under the rules of some U.S. jurisdictions.
Therefore, U.S. investors may have more difficulty in
protecting their interests in the face of actions by our
management, members of our Supervisory Board or our controlling
shareholders than U.S. investors would have if we were
incorporated in the United States.
Our executive offices and a substantial portion of our assets
are located outside the United States. In addition, ST
Holding II and most members of our Managing and Supervisory
Boards are residents of jurisdictions other than the United
States and Canada. As a result, it may be difficult or
impossible for shareholders to effect service within the United
States or Canada upon us, ST Holding II, or members of our
Managing or Supervisory Boards. It may also be difficult or
impossible for shareholders to enforce outside the United States
or Canada judgments obtained against such persons in
U.S. or Canadian courts, or to enforce in U.S. or
Canadian courts judgments obtained against such persons in
courts in jurisdictions outside the United States or Canada.
This could be true in any legal action, including actions
predicated upon the civil liability provisions of
U.S. securities laws. In addition, it may be difficult or
impossible for shareholders to enforce, in original actions
brought in courts in jurisdictions located outside the United
States, rights predicated upon U.S. securities laws.
We have been advised by our Dutch counsel, De Brauw Blackstone
Westbroek N.V., that the United States and the Netherlands do
not currently have a treaty providing for reciprocal recognition
and enforcement of judgments (other than arbitration awards) in
civil and commercial matters. As a consequence, a final judgment
for the payment of money rendered by any federal or state court
in the United States based on civil liability, whether or not
predicated solely upon the federal securities laws of the United
States, will not be enforceable in the Netherlands. However, if
the party in whose favor such final judgment is rendered brings
a new suit in a competent court in the Netherlands, such party
may submit to the Netherlands court the final judgment that has
been rendered in the United States. If the Netherlands court
finds that the jurisdiction of the federal or state court in the
United States has been based on grounds that are internationally
acceptable and that proper legal procedures have been observed,
the court in the Netherlands would, under current practice, give
binding effect to the final judgment that has been rendered in
the United States unless such judgment contradicts the
Netherlands public policy.
Removal
of our common shares from the CAC 40 on Euronext, the FTSE MIB
on the Borsa Italiana or the PHLX Semiconductor Sector Index
(SOX) could cause the market price of our common
shares to drop significantly.
Our common shares have been included in the CAC 40 index on
Euronext since November 12, 1997; the FTSE MIB index (which
replaced the S&P/MIB on June 1, 2009), or Italian
Stock Exchange, since March 18, 2002; and the SOX since
June 23, 2003. However, our common shares could be removed
from the CAC 40, the FTSE MIB or the SOX at any time if, for a
sustained period of time, our market capitalization were to fall
below the required thresholds for the respective indices or our
shares were to trade below a certain price, or in the case of a
delisting of our shares from one or more of the stock exchanges
where we are currently listed or if we were to decide to pursue
a delisting on one of the three stock exchanges on which we
maintain a listing as part of the measures we may from time to
time consider to simplify our administrative and overhead
expenses. Certain investors will only invest funds in companies
that are included in one of these indexes. Any such removal or
the announcement thereof could cause the market price of our
common shares to drop significantly.
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Item 4.
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Information
on the Company
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History
and Development of the Company
STMicroelectronics N.V. was formed and incorporated in 1987 and
resulted from the combination of the semiconductor business of
SGS Microelettronica (then owned by Società Finanziaria
Telefonica (S.T.E.T.), an Italian corporation) and the
non-military business of Thomson Semiconducteurs (then owned by
the former Thomson-CSF, now Thales, a French corporation). We
completed our initial public offering in December 1994 with
simultaneous listings on Euronext and the New York Stock
Exchange (NYSE). In 1998, we listed our shares on
the Borsa Italiana. Until 1998, we operated as SGS-Thomson
Microelectronics N.V. Our length of life is indefinite. We are
organized under the laws of the Netherlands. We have our
corporate legal seat in Amsterdam, the Netherlands, and our head
offices at WTC Schiphol Airport, Schiphol Boulevard 265, 1118 BH
Schiphol Airport, the Netherlands. Our telephone number there is
+31-20-654-3210. Our headquarters and operational offices 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 agent for service of process in the United
States related to our registration under the
U.S. Securities Exchange Act of 1934, as amended, is
Corporation Service Company (CSC), 80 State Street, Albany, New
York, 12207. Our operations are also conducted through our
various subsidiaries, which are
20
organized and operated according to the laws of their country of
incorporation, and consolidated by STMicroelectronics N.V.
Business
Overview
We are a global independent semiconductor company that designs,
develops, manufactures and markets a broad range of
semiconductor products used in a wide variety of microelectronic
applications, including automotive products, computer
peripherals, telecommunications systems, consumer products,
industrial automation and control systems. Our major customers
include Apple, Bosch, Cisco, Continental, Delta,
Hewlett-Packard, Huawei, LG Electronics, Marelli, Nintendo,
Nokia, Pace, Philips, Research in Motion, Samsung, Seagate,
Sharp, Sony Ericsson, Technicolor and Western Digital. We also
sell our products through distributors and retailers, including
Arrow Electronics, Avnet, Willas-Array, Wintech and Yosun.
The semiconductor industry has historically been a cyclical one
and we have responded through emphasizing balance in our product
portfolio, in the applications we serve, and in the regional
markets we address.
We offer a broad and diversified product portfolio and develop
products for a wide range of market applications to reduce our
dependence on any single product, application or end market.
Within our diversified portfolio, we have focused on developing
products that leverage our technological strengths in creating
customized, system-level solutions with high-growth digital and
mixed-signal content. Our product families are comprised of
differentiated application-specific products (which we define as
being our dedicated analog, mixed-signal and digital
application-specific standard products (ASICs) and
application-specific standard products (ASSP)
offerings and semi-custom devices) that we organized in 2009
under our Automotive, Consumer, Computer and Communication
Infrastructure (ACCI) and Wireless segment
(Wireless) and power devices, microcontrollers,
discrete products, special nonvolatile memory and Smartcard
products organized under our Industrial and Multi-segment Sector
(IMS).
Our products are manufactured and designed using a broad range
of manufacturing processes and proprietary design methods. We
use all of the prevalent function-oriented process technologies,
including CMOS, bipolar and nonvolatile 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
bipolar CMOS technologies (BiCMOS) for mixed-signal
applications, and diffused metal-on silicon oxide semiconductor
(DMOS) technology and bipolar, CMOS and DMOS
(BCD technologies) for intelligent power
applications and embedded memory technologies. This broad
technology portfolio, a cornerstone of our strategy for many
years, enables us to meet the increasing demand for SoC and
System-in-Package
(SiP) solutions. Complementing this depth and
diversity of process and design technology is our broad IP
portfolio that we also use to enter into broad patent
cross-licensing agreements with other major semiconductor
companies.
Our principal investment and resource allocation decisions in
the semiconductor business area are for expenditures on
technology R&D as well as capital investments in front-end
and back-end manufacturing facilities, which are planned at the
corporate level; therefore, our product segments share common
R&D for process technology and manufacturing capacity for
most of their products.
For information on our segments and product lines, see
Item 5. Operating and Financial Review and
Prospects Results of Operations Segment
Information.
Results
of Operations
For our 2009 Results of Operations, see Item 5.
Operating and Financial Review and Prospects Results
of Operations Segment Information.
Strategy
We aim to become the undisputed leader in multimedia convergence
and power applications, dedicating significant resources to
product innovation and increasingly becoming a solution provider
in order to drive higher value and increase our market share in
the markets we serve. As a worldwide semiconductor leader, we
are well positioned to implement our strategy after having
accomplished two major strategic transformations, namely a
refocus of our product portfolio and our move towards being an
asset lighter company. In addition, our strategy to enhance
market share by developing innovative products and targeting new
key customers is gaining momentum. Our strong capital structure
enables us to operate as a long-term, viable supplier of
semiconductor products.
21
The semiconductor industry, steadily recovering from the
difficult market conditions experienced from 2008 through the
second half of 2009, continues to undergo several significant
structural changes characterized by:
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the changing long-term structural growth of the overall market
for semiconductor products, which has moved from double-digit
average growth rate to single-digit average growth rate over the
last several years;
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the strong development of new emerging applications in areas
such as wireless communications, solid-state storage, digital
TV, video products and games as well as for energy saving and
medical applications;
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the importance of the Asia Pacific region, particularly China,
Taiwan and other emerging countries, which represent the fastest
growing regional markets;
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the importance of convergence between wireless, consumer and
computer applications, which drives customer demand to seek new
system-level, turnkey solutions from semiconductor suppliers;
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the evolution of the customer base from original equipment
manufacturers (OEM) to a mix of OEM, electronic
manufacturing service providers (EMS) and original
design manufacturers (ODM);
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the expansion of available manufacturing capacity through
third-party providers;
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the evolution of advanced process development R&D
partnerships; and
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the recent consolidation process, which may lead to further
strategic repositioning and reorganization amongst industry
players.
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Our strategy within this challenging environment is designed to
focus on the following complementary key elements:
Broad, balanced market exposure. We offer a
diversified product portfolio and develop products for a wide
range of market applications using a variety of technologies,
thereby reducing our dependence on any single product,
application or end market. Within our diversified portfolio, we
have focused on developing products that leverage our
technological strengths in creating customized, system-level
solutions for high-growth digital, advanced analog and
mixed-signal applications. We target five key markets comprised
of: (i) communications, primarily wireless and portable
multi-media; (ii) computer peripherals, including data
storage and printers; (iii) digital consumer, including
set-top boxes, digital TVs and digital audio;
(iv) automotive, including engine, body and safety, and
infotainment; and (v) industrial and multi-segment
products, including MEMS, microcontrollers, power supply,
motor-control, metering, banking and Smartcard.
Product innovation. We aim to be leaders in
multi-media convergence and power applications. In order to
serve these segments, our plan is to maintain and further
establish existing leadership positions for (i) platforms
and chipset solutions for multimedia applications; and
(ii) power applications, which are driving system solutions
for customer specific applications. We have the knowledge,
partners and financial resources to develop new, leading edge
products, such as cellular modems and application processor
solutions for wireless, MEMS, digital consumer products focused
on set-top boxes and digital TVs, SoC offerings in data storage
and system-oriented products for the multi-segment sector. We
are also targeting new end markets, such as medical and energy
saving applications.
Customer-based initiatives. We have a strategy
based on four tenets, which we believe will help us gain market
share. First, we work with our key customers to identify
evolving needs and new applications in order to develop
innovative products and product features. We have formal
alliances with certain strategic customers that allow us and our
customers to exchange information and which give our customers
access to our process technologies and manufacturing
infrastructure. Secondly, we are targeting new major key
accounts, where we can leverage our position as a supplier of
application-specific products with a broad range product
portfolio to better address the requirements of large users of
semiconductor products with whom our market share has been
historically quite low. Thirdly, we have targeted the mass
market, or those customers outside of our traditional top 50
customers, who require system-level solutions for multiple
market segments. Finally, we have focused on two regions as key
ingredients in our future sales growth. The first is Greater
China and South Asia and the second is Japan and Korea. We have
launched important marketing initiatives in both regions.
Global integrated manufacturing
infrastructure. We have a diversified,
leading-edge manufacturing infrastructure, comprising front-end
and back-end facilities, capable of producing silicon wafers
using our broad process technology portfolio, including our
CMOS, BiCMOS and BCD technologies as well as our discrete
technologies. Assembling, testing and packaging of our
semiconductor products take place in our large and modern
back-end facilities, which generally are located in low-cost
areas. In order to have adequate flexibility, we continue to
maintain relationships with outside contractors for foundry and
back-end services and plan to, over time, increase our
outsourcing levels.
22
Reduced asset intensity. While confirming our
mission to remain an integrated device manufacturing company,
and in conjunction with our decision to pursue the strategic
repositioning of our product portfolio, we have decided to
reduce our capital intensity in order to optimize opportunities
between internal and external front-end production, reduce our
dependence on market cycles that impact the loading of our fabs,
and decrease the impact of depreciation on our financial
performance. We have been able to reduce the
capex-to-sales
ratio from a historic average of 26% of sales during the period
of 1995 through 2004, to approximately 5.3% of sales in 2009.
Research and development (R&D)
leadership. The semiconductor industry is
increasingly characterized by higher costs and technological
risks involved in the R&D of leading edge CMOS process
development. These higher costs and technological risks have
driven us to enter into cooperative partnerships, in particular
for the development of basic CMOS technology. We are a member of
ISDA, a technology alliance led by IBM with GlobalFoundries,
Freescale, Infineon, NEC, Samsung and Toshiba to develop the
CMOS process technology for
32/28-nm and
22/20-nm nodes. Furthermore, in order to maintain our
differentiation capabilities through process technology
leadership, we are continuing our development of proprietary
derivatives of CMOS process technologies and of Smart Power,
analog, discretes, MEMS and mixed signal processes, for which
R&D costs are significantly lower than for CMOS.
Integrated presence in key regional
markets. We have sought to develop a competitive
advantage by building an integrated presence in each of the
worlds economic zones that we target: Europe, Asia, China
and America. An integrated presence means having product
development, sales and marketing capabilities in each region, in
order to ensure that we are well positioned to anticipate and
respond to our customers business requirements. We have
major front-end manufacturing facilities in Europe and Asia. Our
more labor-intensive back-end facilities are located in
Malaysia, China, Philippines, Singapore, Morocco and Malta,
enabling us to take advantage of more favorable production cost
structures, particularly lower labor costs. Major design centers
and local sales and marketing groups are within close proximity
of key customers in each region, which we believe enhances our
ability to maintain strong relationships with our customers.
Product quality excellence. We aim to develop
the quality excellence of our products and in the various
applications we serve and we have launched a company-wide
Product Quality Awareness program built around a three-pronged
approach: (i) the improvement of our full product cycle
involving robust design and manufacturing, improved detection of
potential defects, and better anticipation of failures through
improved risk assessment, particularly in the areas of product
and process changes; (ii) improved responsiveness to
customer demands; and (iii) ever increasing focus on
quality and discipline in execution.
Sustainable Excellence and Compliance. We are
committed to sustainable excellence and compliance. We conduct
our business based on our Principles for Sustainable
Excellence (PSE) and are focused on following
the highest ethical standards, empowering our people and
striving for quality and customer satisfaction, while creating
value for all of our partners.
Creating Shareholder Value. We remain focused
on creating value for our shareholders, which we measure in
terms of return on net assets in excess of our weighted average
cost of capital.
Products
and Technology
We design, develop, manufacture and market a broad range of
products used in a wide variety of microelectronic applications,
including telecommunications systems, computer systems, consumer
goods, automotive products and industrial automation and control
systems. Our products include discretes, microcontrollers,
Smartcard products, standard commodity components, ASICs (full
custom devices and semi-custom devices) and ASSPs for analog,
digital, and mixed-signal applications.
In 2009, we ran our business along product lines and managed our
revenues and internal operating income performance based on the
following product segments:
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Automotive, Consumer, Computer and Communication Infrastructure
(ACCI);
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Industrial and Multi segment Sector (IMS); and
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Wireless.
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We also design, develop, manufacture and market subsystems and
modules for a wide variety of products in the
telecommunications, automotive and industrial markets in our
Subsystems division. Based on its immateriality, we do not
report information separately for Subsystems. For a description
of the main categories of products sold
and/or
services performed for each of the last three fiscal years, see
Note 27 to our Consolidated Financial Statements.
23
ACCI
ACCI is responsible for the design, development and manufacture
of application-specific products using advanced bipolar, CMOS,
BiCMOS smart power technologies. The businesses in the ACCI
offer complete system solutions to customers in several
application markets. All products are ASSPs, full-custom or
semi-custom devices that may also include digital signal
processor (DSP) and microcontroller cores. The
businesses in the ACCI particularly emphasize dedicated
Integrated Circuits (ICs) for automotive, consumer,
computer peripherals, telecommunications infrastructure and
certain industrial application segments.
Our businesses in ACCI work closely with customers to develop
application-specific products using our technologies, IP, and
manufacturing capabilities. The breadth of our customer and
application base provides us with a better source of stability
in the cyclical semiconductor market.
ACCI is comprised of three major product lines
Automotive Products Group (APG); Computer and
Communication Infrastructure (CCI); and Home
Entertainment & Displays (HED).
Furthermore, we also operate an imaging business with a product
line called Imaging.
Automotive
Products Group
Our automotive products include airbag controls, anti-skid
braking systems, vehicle stability control, ignition and
injection circuits, multiplex wiring kits and products for body
and chassis electronics, engine management, instrumentation
systems and car infotainment. We hold a leading position in the
IC market for automotive products. In addition, we work with
Freescale Semiconductor on 90nm and 55nm embedded Flash
Technology and other common products based on cost-effective 32
bit microcontrollers for use in all automotive applications.
(i) Car Body Division. We manufacture
products for the body and chassis electronics requirements of
the car. These products range from microcontrollers used in
lighting, door and window/wiper applications to junction boxes,
power solutions, dashboards and climate-control needs.
(ii) Car Radio and Multi-media Division. We provide
our customers with full solutions for analog and digital car
radio solutions for tolling, navigation and other telematic
applications. The increasingly complex requirements of the
car/driver interface have opened a market for us in the area of
car multi-media to include products based on our Nomadik
platform of multi-media processors. We have the know-how and
experience to offer to the market complete telematics solutions,
which include circuits for global positioning system
(GPS) navigation, voice recognition, audio
amplification and audio signal processing.
(iii) Digital Broadcast Radio
Division. We provide a number of components to
the satellite radio market, including base-band products for the
reception of signals by the market leaders.
(iv) Powertrain and Safety Division. From
engine and transmission control to mechanical-electronic
solutions, microelectronics are steadily pervading all sectors
of the automotive industry. Our robust family of automotive
products provide a broad range of features that enhance
performance, safety and comfort while reducing the environmental
impact of the automobile. The devices support advanced
functions, enable improved vehicle performance and economy, and
deliver development savings by promoting hardware and software
reuse.
In the course of 2009, these divisions were combined into two
business units: Automotive Electronics Division and the
Automotive Infotainment Division.
Computer
and Communications Infrastructure
(i) BCD Power Division. This organization
serves the markets of hard disk drive (HDD) and
Printers with products developed on our BCD technology. Main
applications are motor controllers for HDD and motor drivers and
head drivers for printers.
(ii) Communication Infrastructure
Division. This division provides solutions for
the wireless and wireline infrastructure segments. Our wireline
telecommunications products, mainly digital and mixed signal
ASICs, are used for various application in the high-speed
electronic and optical communications market. In the wireless
field, we focus on the ASIC market due to our many years of
experience in the fields of digital baseband, radio frequency
and mixed-signal products.
(iii) Computer System Division. We are
focusing on inkjet and laser printer components and are an
important supplier of digital engines including those in
high-performance photo-quality applications and multifunction
printers. We are also expanding our offerings to include a
reconfigurable ASSP product family, known as
SPEArtm
(Structured Processor Enhanced Architecture), designed for
flexibility and
ease-of-use
by printer manufacturers.
24
(iv) Data Storage Division. We produce digital ASICs
for data storage applications, with advanced solutions for
read/write-channels, disk controllers and host interfaces. We
believe that based on sales, we are, and have been for many
years, one of the largest semiconductor companies supplying the
HDD market.
(v) Microfluidics Division. This division
builds on the years of our success in microfluidic product
design, developed primarily for the inkjet print-head product
line, and expands our offering into related fields, such as
molecular and health diagnostics. In the field of medical
diagnostic, we have developed specific Lab On Chip technology
and products. In 2008, we acquired a 41.2% stake in Veredus
Laboratories Pte Ltd (Veredus) to combine forces to
address this emerging market.
Home
Entertainment and Displays Group
Our HED addresses product requirements for the digital consumer
application market and has five divisions.
(i) Audio Division. We design and
manufacture a wide variety of components for use in audio
applications. Our audio products include audio power amplifiers,
audio processors and graphic-equalizer ICs.
(ii) Home Video Division. This division
focuses on products for digital retail, satellite, cable and
IPTV set-top box products. We continue to expand our product
offerings and customer base by introducing innovative platform
solutions offering advanced technologies and a wide range of
consumer services.
(iii) Interactive System Solutions
Division. We offer customers and partners the
capability to jointly develop highly integrated solutions for
their consumer products. We utilize our expertise and knowledge
of the digital consumer ecosystem, advanced technologies and
hardware/software IP to provide
best-in-class
differentiated products for a select base of customers and
markets.
(iv) TV & Monitor Division. We
address the digital television markets with a range of highly
integrated ASSPs and application-specific microcontrollers.
Following the acquisition of Genesis in 2008, we have worked to
develop our integrated digital television product portfolio. We
recently demonstrated our integrated Freeman product offering
for next generation digital TV at the 2010 Consumer Electronics
Show.
Imaging
Division
We focus on the wireless handset image-sensor market. We
are in production of CMOS-based camera modules and processors
for
low-and-high
density pixel resolutions, which also meet the auto focus,
advanced fixed focus and miniaturization requirements of this
market. In certain situations, we will also sell leading-edge
sensors.
IMS
The IMS is comprised of two product groups: Analog, Power and
Micro-Electro-Mechanical Systems (APM) and
Microcontrollers, non-Flash, non-volatile Memory and Smart Card
products (MMS). APM is responsible for the design,
development and manufacturing of Discrete Power devices (such as
MOSFET, insulated gate bipolar transistors (IGBT),
ASD and IPAD), Standard Analog devices (such as Op Amps, Voltage
Regulators and Timers), and Sensors (such as MEMS). Those are
the devices upon which we are positioning IMS for growth in the
High End Analog world that comprises Temperature Sensors,
Interfaces and High Voltage Controllers for main industrial
applications (such metering and lighting). MMS includes
microcontrollers, erasable programmable read-only memory
(EPROM), electrically erasable programmable
read-only memory (EEPROM) and Smartcards for a wide
range of applications.
The variety and range of IMS product portfolio is among
the best in the semiconductor environment, allowing IMS to
pursue a kit approach strategy by application that few of our
peers can match.
APM
(i) Advanced Analog and Mixed Signal
Division. We develop innovative, differentiated
and value-added analog products for a number of markets and
applications including
point-of-sales
terminals, power meters and white goods.
(ii) ASD and IPAD Division. This division
offers a full range of rectifiers, protection devices,
thyristors and Integrated Passive and Active Devices
(IPADTM). These components are used in various
applications, including telecommunications systems (telephone
sets, modems and line cards), household appliances and
industrial systems (motor-control and power-control devices).
More specifically, rectifiers are used in voltage converters and
regulators, while thyristors control current flows through a
variety of electrical devices, including lamps and household
appliances.
25
(iii) Industrial and Power Conversion
Division. We design and manufacture products for
industrial applications including lighting and power-line
communication; power supply and power management ICs for
computer, industrial, consumer, and telecom applications along
with power over Ethernet powered devices. In the industrial
market segment, our key products are power ICs for motor
control, including monolithic DMOS solutions and high-voltage
gate drivers, for a broad range of systems; intelligent power
switches for the factory automation and process control.
(iv) Linear and Interface Division. We
offer a broad product portfolio of linear and switching voltage
regulators, addressing various applications, from general
purpose point of load, for most of the market
segments (consumer, computer and data storage, mobile phones,
industrial, medical, automotive, aerospace), to specific
functions such as camera flash LED, LCD backlighting and organic
LED power supply, for the mobile handset and other portable
device markets; low noise block supply and control for set top
box; and multiple channels DC-DC for micro storage are also
featured.
(v) MEMS and Sensors, Transceivers and Healthcare
Division. We manufacture MEMS for a wide variety
of applications where real-world input is required. Our prior
product line of three-axis accelerometers was expanded over 2009
to include a complete family of high-performance multi-axis
gyroscopes. The combination of accelerometers and gyroscopes
enables accurate motion tracking into a 3D space, which is the
primary component of enhanced motion controlled user interfaces
in gaming, mobile phones, PND and portable multimedia media
players. The same devices are also employed in laptops,
automotive, HDDs and digital cameras.
In 2009, we also added active microphones and disposable
biosensors to the healthcare market to our product portfolio.
(vi) Power Bipolar, IGBT and RF
Division. This division produces all bipolar
power transistors, from low voltage devices to high voltage like
IGBT, classic bipolar transistors and both intelligent and
standard power modules, together with RF power transistors for
specific market clusters such as power conversion, medical and
motor control for both industrial and automotive. The Division
is in charge of High-Reliability (high-rel) products and
radiation-hardened (rad-hard) devices.
(vii) Power MOSFET Division. We design,
manufacture and sell Power MOSFETs (Metal-Oxide-Silicon Field
Effect Transistors) ranging from 20 to 1500 volts for most of
the switching and linear applications on
the market today. Our products are particularly well suited for
high voltage switch-mode power supplies and lighting
applications.
MMS
(i) Memory Division. They are used for
parameter storage in various electronic devices used in all
market segments.
(ii) Microcontroller Division. We offer a
wide range of 8-bit and 32-bit microcontrollers suitable for a
wide variety of applications from those where a minimum cost is
a primary requirement to those that need powerful real-time
performance and high-level language support. These products are
manufactured in processes capable of embedding nonvolatile
memories as appropriate.
(iii) Smartcard IC Division. Smartcards
are card devices containing ICs that store data and provide an
array of security capabilities. Our expertise in security is a
key to our leadership in the finance and
pay-TV
segments and development of IT applications.
(iv) Incard Division. The division
develops, manufactures and sells plastic cards (both memory and
microprocessor based) for banking, identification and telecom
applications. Incard operates as a standalone organization and
also directly controls the sales force for this product offering.
Wireless
The wireless segment resulted from the combination of our
wireless business with NXPs to create ST-NXP Wireless as
of August 2, 2008. Subsequently, we combined that business
with the EMP business to form a joint venture, ST-Ericsson,
which began operations on February 1, 2009.
Wireless is responsible for the design, development and
manufacture of semiconductors and platforms for mobile
applications. In addition, this segment spearheads our ongoing
efforts to maintain and develop innovative solutions for our
mobile customers while consolidating our world leadership
position in wireless. This segment is organized into five
groups: Wireless Multi Media (WMM);
Connectivity & Peripherals (C&P);
Cellular Systems (CS); Mobile Platforms
(MP), in which, since February 3, 2009, we
report the portion of sales and
26
operating results of ST-Ericsson as consolidated in the our
revenue and operating results; and, Other Wireless, in which we
report manufacturing margin, R&D revenues and other items
related to wireless business activities occurring outside of
ST-Ericsson.
We offer a complete solution in mobile handsets, serving several
major OEMs, with a combination of application specific ICs as
well as a growing capability in our platform offering. In this
market, we are strategically positioned in digital baseband,
energy management, audio coding and decoding functions
(CODEC) and radio frequency ICs and connectivity. We
are also transitioning to platform solutions.
Strategic
Alliances with Customers and Industry Partnerships
We believe that strategic alliances with customers and industry
partnerships are critical to success in the semiconductor
industry. We have entered into several strategic customer
alliances, including alliances with Bosch, Continental AG,
Hewlett-Packard, Marelli, Nokia, Pioneer, Samsung, Seagate,
SonyEricsson and Western Digital. Customer alliances provide us
with valuable systems and application know-how and access to
markets for key products, while allowing our customers to share
some of the risks of product development with us and to gain
access to our process technologies and manufacturing
infrastructure. We are actively working to expand the number of
our customer alliances, targeting OEMs in the United States, in
Europe and in Asia.
Partnerships with other semiconductor industry manufacturers
permit costly R&D and manufacturing resources to be shared
to mutual advantage for joint technology development. For
example, we are cooperating with the ISDA to co-develop 32/28-nm
and below process technologies. In addition, we have joint
development programs with leading suppliers such as Air Liquide,
ASM Lithography, Hewlett-Packard, PACKTEC, JSR, SOITEC, Teradyne
and with electronic design automation (EDA) tool
producers, including Apache, Atrenta, Cadence, Mentor and
Synopsys. We also participate in joint European research
programs, such as the ITEA, the Cluster for Application and
Technology Research in Europe or/and Electronics
(CATRENE) and the European Nanoelectronics
Initiative Advisory (ENIAC) programs.
Customers
and Applications
We design, develop, manufacture and market thousands of products
that we sell to thousands of customers. Our major customers
include Apple, Bosch, Cisco, Continental, Delta,
Hewlett-Packard, Huawei, LG Electronics, Marelli, Nintendo,
Nokia, Pace, Philips, Research in Motion, Samsung, Seagate,
Sharp, Sony Ericsson, Technicolor and Western Digital. To many
of our key customers we provide a wide range of products,
including application-specific products, discrete devices,
memory products and programmable products. Our position as a
strategic supplier of application-specific products to certain
customers fosters close relationships that provide us with
opportunities to supply such customers requirements for
other products, including discrete devices, programmable
products and memory products. We also sell our products through
distributors and retailers, including Arrow Electronics, Avnet,
Future Electronics, Rutronik and Yosun.
The following table sets forth certain of our significant
customers and certain applications for our products:
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Telecommunications
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Customers:
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Alcatel-Lucent
Cisco
Ericsson Finisar
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Huawei
LG Electronics
Motorola
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Nokia
Research in Motion
Samsung
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Sharp
Sony Ericsson
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Applications:
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Camera modules/mobile imaging
Entry platforms (mobile handsets)
Central office switching systems
Thin modems
Infrastructure
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Application processor &
integrated modem
Telephone terminals
Connectivity
Connected devices
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Computer Peripherals
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Customers:
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Agilent
Apple
Dell
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Delta
Hewlett-Packard
Hitachi
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Microsoft
Samsung
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Seagate
Western Digital
Eastman Kodak
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Applications:
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Data storage
Microfluidics /
print-head cartridges
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Power management
Printers
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Automotive
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Customers:
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Bosch
Continental
Delphi
Denso
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Harman
Hella
Kostal
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Lear
Marelli
Pioneer
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Valeo
Sirius Satellite Radio
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Applications:
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Airbags
Anti-lock braking systems
Body and chassis electronics
Engine management systems
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GPS multimedia
Radio/satellite radio
Telematics
Vehicle stability control
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Consumer
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Customers:
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ADB
AOC
Echostar
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Garmin
Pace
LG Electronics
Nintendo
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Sagem Connunications
Samsung
Cisco/SA
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Technicolor
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Applications:
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Audio processing
Digital TVs
Display Port
Internet TV
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High Definition DVD
Imaging
Set-top boxes
Multimedia player
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Industrial/Other
Applications
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Customers:
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Medtronic
Autostrade
Delta
Emerson
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Gemalto
General Electric
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Safran
Nagra
Nintendo
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Philips
Siemens
Taiwan-Liteon
Vodafone
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Applications:
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Battery chargers
Smartcard ICs
Intelligent power switches
Industrial automation/
control systems
Lighting systems
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MEMS
Motor controllers
Power supplies
Switch mode power supplies
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In 2009, our largest customer, the Nokia group of companies,
represented approximately 16.1% of our net revenues, compared to
approximately 17.5% in 2008 and 21.1% in 2007. No other single
customer accounted for more than 10% of our net revenues. There
can be no assurance that such customers or distributors, or any
other customers, will continue to place orders with us in the
future at the same levels as in prior periods. See
Item 3. Key Information Risk
Factors Risks Related to Our Operations
Disruptions in our relationships with any one of our key
customers could adversely affect our results of operations.
Sales,
Marketing and Distribution
In 2009, we operated regional sales organizations in EMEA, which
includes all of Europe, the Middle East and Africa, the
Americas, Asia Pacific, Greater China and Japan. A description
of our regional sales organizations activities and
structure during 2009 is below.
(i) EMEA The EMEA region is divided into
four business units: automotive, convergence EMS, industrial and
multimarket. Each business unit is dedicated to customers
operating mainly in its market segment, actively promoting a
broad range of products, including commodities and dedicated
ICs, as well as proposing solutions through its sales force,
field application engineers, supply-chain management, customer
service and technical competence centre for system solutions,
with support functions provided locally.
(ii) Americas In the Americas region,
the sales and marketing team is organized into six business
units: automotive (Detroit, Michigan); industrial (Boston,
Massachusetts); consumer, industrial and medical (Chicago,
Illinois); communications, consumer and computer Peripherals
(San Jose, California and Longmont, Colorado); RFID and
communications (Dallas, Texas); and distribution (Boston,
Massachusetts). A central product-marketing operation in Boston
provides product support and training for standard products for
the Americas region. In addition, a comprehensive distribution
business unit provides product and sales support for the
regional distribution network.
(iii) Asia Pacific In the Asia Pacific
region, the sales and marketing organization is managed from our
regional headquarters in Singapore and is organized into seven
business units (computer peripherals, automotive, industrial,
consumer, telecom, distribution and EMS) and central support
functions (service and business management, field quality, human
resources, strategic planning, finance, corporate communication
and design center). The business units are comprised of sales,
marketing, customer service, technical support and competence
center. We have sales offices in Korea, Malaysia, Thailand, the
Philippines, Vietnam, Indonesia and Australia. As of
January 1, 2009, we added a part of the Emerging Market
region to our sales perimeter and now have offices in India,
namely in Greater Noida, Mumbai, Pune and Bengalore. In Korea,
we have a strong local presence serving
28
the local Korean companies in telecom, consumer, automotive and
industrial applications. Our design center in Singapore carries
out full custom designs in HDD, smart card, imaging and display
applications.
(iv) Greater China In the Greater China
region, which encompasses China, Taiwan and Hong Kong, our
sales, design and support resources are designed to expand on
our many years of successful participation in this quickly
growing market, not only with transnational customers that have
transferred their manufacturing to China, but also with domestic
customers.
(v) Japan In Japan, the large majority
of our sales have historically been made through distributors,
as is typical for foreign suppliers to the Japanese market.
However, we are now seeking to work more directly with our major
customers to address their requirements. We provide marketing
and technical support services to customers through sales
offices in Tokyo and Osaka. In addition, we have established a
quality laboratory and an application laboratory in Tokyo. The
quality laboratory allows us to respond quickly to the local
requirement, while the application laboratory allows Japanese
customers to test our products in specific applications.
As of January 1, 2010, our regions in Asia are consolidated
into two: Greater China and South Asia; and Japan and Korea. See
Item 5. Operating and Financial Review and
Prospects Other Developments.
The sales and marketing activities performed by our regional
sales organizations are supported by product marketing that is
carried out by each product division, 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.
Most of our regional sales organizations operate dedicated
distribution organizations. To support the distribution network,
we operate logistic centers in Saint Genis, France and
Singapore. We also use distributors and representatives to
distribute our products around the world. Typically,
distributors handle a wide variety of products, including
products that compete with our products, and fill orders for
many customers. Most of our sales to distributors are made under
agreements allowing for price protection
and/or the
right-of-return
on unsold merchandise. We generally recognize revenues upon the
transfer of ownership of the goods at the contractual point of
delivery. Sales representatives generally do not offer products
that compete directly with our products, but may carry
complementary items manufactured by others. Representatives do
not maintain a product inventory. Their customers place large
quantity orders directly with us and are referred to
distributors for smaller orders.
At the request of certain of our customers, we also sell and
deliver our products to EMS, which, on a contractual basis with
our customers, incorporate our products into the
application-specific products they manufacture for our
customers. Certain customers require us to hold inventory on
consignment in their hubs and only purchase inventory when they
require it for their own production. This may lead to delays in
recognizing revenues, as revenue recognition will occur, within
a specific period of time, after the actual withdrawal of the
products from the consignment inventory, at the customers
option.
For a breakdown of net revenues by product segment and
geographic region for the last three fiscal years, see
Item 5. Operating and Financial Review and
Prospects.
Research
and Development
We believe that research and development (R&D)
is critical to our success. The main R&D challenge we face
is to continually increase the functionality, speed and
cost-effectiveness of our semiconductor devices, while ensuring
that technological developments translate into profitable
commercial products as quickly as possible.
We are market driven in our R&D and focused on leading-edge
products and technologies developed in close collaboration with
strategic alliance partners, leading universities and research
institutions, key customers, leading EDA vendors and global
equipment manufacturers working at the cutting edge of their own
markets. In addition, we have a technology council comprised of
15 leading experts to review, evaluate and advise us on the
competitive landscape. Front-end manufacturing and technology
R&D, while being separate organizations, are under the
responsibility of our Chief Operating Officer, thereby ensuring
a smooth flow of information between the R&D and
manufacturing organizations. The R&D activities relating to
new products are managed by the Product Segments and consist
mainly of design activities.
We devote significant effort to R&D because semiconductor
manufacturers face immense pressure to be the first to make
breakthroughs that can be leveraged into competitive advantages;
new developments in semiconductor technology can make end
products significantly cheaper, smaller, faster, more reliable
and embedded with more functionalities than their predecessors
and enable, through their timely appearance on the market,
significant value
29
creation opportunities. For a description of our R&D
expenses, see Item 5. Operating and Financial Review
and Prospects Research and Development
Expenses.
To ensure that new technologies can be exploited in commercial
products as quickly as possible, an integral part of our
R&D philosophy is concurrent engineering, meaning that new
fabrication processes and the tools needed to exploit them are
developed simultaneously. Typically, these include not only EDA
software, but also cell libraries that allow access to our rich
IP portfolio and a demonstrator product suitable for subsequent
commercialization. In this way, when a new process is delivered
to our product segments or made available to external customers,
they are more able to develop commercial products immediately.
In the same spirit, we develop, in a concurrent engineering
mode, a complete portfolio of Analog and RF IP. The new
generation of products now mix Analog and Digital IP Blocks, and
even complex RF solutions, high performance data converters and
high speed data transmission ports. Our R&D design centers
located in France, India and Morocco have been specialized in
the development of these functions, offering a significant
advantage for us in quickly and cost effectively introducing
products in the consumer and wireless market.
Our advanced R&D centers are strategically located around
the world, including in France, Italy, Belgium, Canada, China,
India, Singapore, Sweden, the United Kingdom and the United
States.
In 2008, we entered into an R&D alliance with the ISDA to
develop core 32/28nm and 22/20 nm CMOS technologies, and
derivative technologies, also working with CEA Leti, in 65nm,
45nm, 32nm and 22nm. In this context, five strategic objectives
have been established:
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Repatriate to Crolles the core CMOS technologies jointly
developed under the ISDA alliance.
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Accelerate the development and the number of differentiated
technologies for SoC so as to be able to supply amongst the
worlds leading prototypes ICs, thereby develop a strategy of
advanced differentiated products to compete with Asia foundries.
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Develop libraries and perform transversal R&D on the
methods and tools necessary to develop complex ICs using these
technologies.
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Perform advanced technology research linked to the conception of
CMOS nano electric functionalities advance devices on 300mm
wafers.
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Pervade local, national and European territories, taking
advantage of nano-electronic diffusion technologies to further
promote innovation in various application sectors.
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In 2009, we entered into a framework agreement with the French
Ministry of Economy, Industry and Employment for the
Nano2012 Research and Development program. For more
information, see Item 4. Information on the
Company Public Funding. In addition, our
manufacturing facility in Crolles, France houses a R&D
center that is operated in the legal form of a French Groupement
dintérêt économique named Centre
Commun de Microelectronique de Crolles. Laboratoire
dElectronique de Technologie dInstrumentation
(LETI), a research laboratory of CEA (one of our
indirect shareholders), is our partner.
There can be no assurance that we will be able to develop future
technologies and commercially implement them on satisfactory
terms, or that our alliances will allow the successful
development of
state-of-the-art
core or derivative CMOS technologies on satisfactory terms. See
Item 3. Key Information Risk
Factors Risks Related to Our Operations
Our R&D efforts are increasingly expensive and dependent on
alliances, and our business, results of operations and prospects
could be materially adversely affected by the failure or
termination of such alliances, or failure to find new partners
in such alliance, or in developing new process technologies in
line with market requirements.
The R2 activity in Agrate encompasses prototyping, pilot and
volume production of the newly developed technologies with the
objective of accelerating process industrialization and
time-to-market
for Smart power affiliation (BCD), including on SOI, High
Voltage CMOS and MEMS. It is the result of an ongoing
cooperation under a consortium with Numonyx. The R2 consortium
agreement is also part of the Micron deal. Please refer to
Item 5 Other developments. Our IP
design center in Greater Noida, India supports all of our major
design activities worldwide and hosts a major central R&D
activity focused on software and core libraries development,
with a strong emphasis on system solutions. The fundamental
mission of our Advanced System Technology (AST)
organization is to create system knowledge that supports our SoC
development. ASTs objective is to develop the advanced
architectures that will drive key strategic applications,
including digital consumer, wireless communications, computer
peripherals and Smartcards, as well as the broad range of
emerging automotive applications such as car multi-media.
ASTs challenge is to combine the expertise and
expectations of our customers, industrial and academic partners,
our central R&D teams and product segments to create a
cohesive,
30
practical vision that defines the hardware, software and system
integration knowledge that we will need in the next three to
five years and the strategies required to master them.
All of these worldwide activities create new ideas and
innovations that enrich our portfolio of IP and enhance our
ability to provide our customers with winning solutions.
Furthermore, an array of important strategic customer alliances
ensures that our R&D activities closely track the changing
needs of the industry, while a network of partnerships with
universities and research institutes around the world ensures
that we have access to leading-edge knowledge from all corners
of the world. We also play leadership roles in numerous projects
running under the European Unions IST (Information Society
Technologies) programs. We actively participate in these
programs and continue collaborative R&D efforts such as the
CATRENE, ARTEMIS and ENIAC programs.
Finally, we believe that platforms are the answer to the growing
need for full system integration, as customers require from
their silicon suppliers not just chips, but an optimized
combination of hardware and software. Our world-class engineers
and designers are currently developing platforms we selected to
spearhead our future growth in some of the fastest developing
markets of the microelectronics industry. The platforms include
the application arocessors and integrated modem, set-top
boxes/integrated digital TV, which include high definition and
3-D
capability, and in the area of computer peripherals, the SPEArTM
family of reconfigurable SoC ICs for printers and related
applications.
Property,
Plants and Equipment
We currently operate 15 main manufacturing sites around the
world. The table below sets forth certain information with
respect to our current manufacturing facilities, products and
technologies. Front-end manufacturing facilities are fabs and
back-end facilities are assembly, packaging and final testing
plants.
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Location
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Products
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Technologies
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Front-end facilities
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Crolles1, France
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Application-specific products, image sensors
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Fab: 200-mm CMOS and BiCMOS, Analog/RF, imaging
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Crolles2, France
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Application-specific products and leading edge logic products
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Fab: 300-mm research and development on deep sub-micron
(45-nm and
below) CMOS and differentiated SoC technology development,
imaging, TSV line
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Phoenix, Arizona
(entering the final stages of closure)
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Application-specific products and microcontrollers
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Fab: 200-mm BCD, BiCMOS, microcontrollers, CMOS
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Agrate, Italy
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Nonvolatile memories, microcontrollers and application- specific
products MEMS
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Fab 1: 200-mm BCD, MEMS, Microfluidics Fab 2: 200-mm, embedded
Flash, research and development on nonvolatile memories and BCD
technologies and Flash (operating in consortium with Numonyx)
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Rousset, France
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Microcontrollers, nonvolatile memories and Smartcard ICs,
application-specific products and image sensors
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Fab 1: 200-mm CMOS, Smartcard, embedded Flash, Analog/RF
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Catania, Italy
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Power transistors, Smart Power ICs and application-specific
products
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Fab 1: 150-mm
Power metal-on silicon oxide semiconductor process technology
(MOS),VIPowertm,
MO-3, MO-5
and Pilot Line RF
Fab 2: 200-mm, Microcontrollers, BCD, power MOS
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Tours, France
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Protection thyristors, diodes and ASD power transistors, IPAD
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Fab: 125-mm, 150-mm and 200-mm pilot line discrete
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Ang Mo Kio, Singapore
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Analog, microcontrollers, power transistors, commodity products,
nonvolatile memories, and application-specific products
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Fab 1: 125-mm, power MOS, bipolar, power Fab 2: 150-mm bipolar,
power MOS and BCD, EEPROM, Smartcard, Micros, CMOS logic Fab 3:
150 mm Microfluidics, MEMS, BCD, BiCMOS, CMOS
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Back-end facilities
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Muar, Malaysia
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Application-specific and standard products, microcontrollers
|
|
A building (block P) inside the plant has been contributed to STE
|
Kirkop, Malta
|
|
Application-specific products, MEMS, Embedded Flash for
Automotive
|
|
|
Toa Payoh, Singapore
|
|
Optical packages research and development, under reconversion
into an EWS center
|
|
|
Bouskoura, Morocco
|
|
Nonvolatile memories, discrete and standard products,
micromodules, RF and subsystems
|
|
|
Shenzhen, China(1)
|
|
Nonvolatile memories, discrete and standard products
|
|
|
Longgang, China
|
|
Discrete and standard products
|
|
|
Calamba, Philippines(2)
|
|
Application Specific Products and standard products
|
|
|
|
|
|
(1) |
|
Jointly operated with SHIC, a subsidiary of Shenzhen Electronics
Group. |
|
(2) |
|
Operated by ST but contributed to the ST-Ericsson joint venture. |
At the end of 2009, our front-end facilities had a total
capacity of approximately 115,000
200-mm
equivalent wafer starts per week. The number of wafer starts per
week varies from facility to facility and from period to period
as a result of changes in product mix. Among the
200-mm
wafers production facilities, the fabs based in Europe (Crolles
and Rousset, France; Agrate and Catania, Italy) had a comparable
installed capacity as of December 31, 2009. Among the
150-mm
wafers production facilities, two (at Catania, Italy and Tours,
France) had full design
32
capacity installed as of December 31, 2009. As of the same
date, the fab in Singapore had approximately two thirds of the
full design capacity installed.
Our advanced
300-mm wafer
pilot-line fabrication facility in Crolles, France had an
installed capacity of 2,800 wafers per week at the end of 2009,
and we plan to increase production to up to approximately 4,500
wafers per week as required by market conditions and within the
framework of our R&D Nano 2012 program.
We own all of our manufacturing facilities, except Crolles2,
France, which is the subject of leases for the building shell
and some equipment that represents overall a small percentage of
total assets.
We have historically subcontracted a portion of total
manufacturing volumes to external suppliers. In 2009, we reduced
our capital spending to $451 million, from
$983 million registered in 2008, and we maintained our
ratio of capital investment spending to revenues at 5.3%, in
line with our goal of keeping this ratio in the range of 5 to
about 7%. Such a level of capital spending is also designed to
reduce our dependence on economic cycles, which affects the
loading of our fabs, and decrease the effects of depreciation on
our financial performance while optimizing opportunities between
internal and external front-end production.
At December 31, 2009, we had approximately
$267 million in outstanding commitments for purchases of
equipment and other assets for delivery in 2010. For information
on our anticipated 2010 capital expenditure costs, see
Item 5. Operating and Financial Review and
Prospects Financial Outlook.
Our manufacturing processes are highly complex, require
technologically advanced and costly equipment and are
continuously being modified in an effort to improve yields and
product performance. Impurities or other difficulties in the
manufacturing process can lower yields, interrupt production or
result in losses of products in process. As system complexity
has increased and
sub-micron
technology has become more advanced, manufacturing tolerances
have been reduced and requirements for precision and excellence
have become even more demanding. Although our increased
manufacturing efficiency has been an important factor in our
improved results of operations, we have from time to time
experienced production difficulties that have caused delivery
delays and quality control problems, as is common in the
semiconductor industry.
The present environment is strongly affected by demand growth
and supply availability remains constrained throughout the
entire semiconductor market. Recently, our existing capacity has
been outstripped by the increase in business demand as a result
of the upturn in the semiconductor industry. This situation is
completely different from the one seen in the first six months
of 2009, where we had experienced a severe under-loading that
resulted in significant unused capacity charges and cost
inefficiencies despite our ongoing measures to reduce the
activity of our fabs. No assurance can be given that we will be
able to increase manufacturing efficiencies in the future to the
same extent as in the past, or that we will not experience
further production difficulties
and/or
unsaturation in the future.
In addition, as is common in the semiconductor industry, we have
from time to time experienced difficulty in ramping up
production at new facilities or effecting transitions to new
manufacturing processes and, consequently, have suffered delays
in product deliveries or reduced yields. There can be no
assurance that we will not experience manufacturing problems in
achieving acceptable yields, product delivery delays or
interruptions in production in the future as a result of, among
other things, capacity constraints, production bottlenecks,
construction delays, equipment failure or maintenance, ramping
up production at new facilities, upgrading or expanding existing
facilities, changing our process technologies, or contamination
or fires, storms, earthquakes or other acts of nature, any of
which could result in a loss of future revenues. In addition,
the development of larger fabrication facilities that require
state-of-the-art
sub-micron
technology and larger-sized wafers has increased the potential
for losses associated with production difficulties,
imperfections or other causes of defects. In the event of an
incident leading to an interruption of production at a fab, we
may not be able to shift production to other facilities on a
timely basis, or our customers may decide to purchase products
from other suppliers, and, in either case, the loss of revenues
and the impact on our relationship with our customers could be
significant. Our operating results could also be adversely
affected by the increase in our fixed costs and operating
expenses related to increases in production capacity if revenues
do not increase commensurately. Finally, in periods of high
demand, we increase our reliance on external contractors for
foundry and back-end service. Any failure to perform by such
subcontractors could impact our relationship with our customers
and could materially affect our results of operations.
Intellectual
Property (IP)
IP rights that apply to our various products include patents,
copyrights, trade secrets, trademarks and mask work rights. A
mask work is the two or three-dimensional layout of an
integrated circuit. Including patents owned by ST-Ericsson, we
currently own over 18,600 patents and pending patent
applications which have been registered in several countries
around the world and correspond to more than 9,600 patent
families (each patent family
33
containing all patents originating from the same invention). We
filed 736 new patent applications around the world in 2009
(including patent applications owned by ST-Ericsson).
Our success depends in part on our ability to obtain patents,
licenses and other IP rights covering our products and their
design and manufacturing processes. To that end, we intend to
continue to seek patents on our circuit designs, manufacturing
processes, packaging technology and other inventions. The
process of seeking patent protection can be long and expensive,
and there can be no assurance that patents will issue from
currently pending or future applications or that, if patents are
issued, they will be of sufficient scope or strength to provide
meaningful protection or any commercial advantage to us. In
addition, effective copyright and trade-secret protection may be
unavailable or limited in certain countries. Competitors may
also develop technologies that are protected by patents and
other IP rights and therefore such technologies may be
unavailable to us or available to us subject to adverse terms
and conditions. Management believes that our IP represents
valuable assets and intends to protect our investment in
technology by enforcing all of our IP rights. We have used our
patent portfolio to enter into several broad patent cross-
licenses with several major semiconductor companies enabling us
to design, manufacture and sell semiconductor products without
fear of infringing patents held by such companies, and intend to
continue to use our patent portfolio to enter into such patent
cross-licensing agreements with industry participants on
favorable terms and conditions. As our sales increase compared
to those of our competitors, the strength of our patent
portfolio may not be sufficient to guarantee the conclusion or
renewal of broad patent cross-licenses on terms which do not
affect our results of operations. Furthermore, as a result of
litigation, or to address our business needs, we may be required
to take a license to third-party IP rights upon economically
unfavorable terms and conditions, and possibly pay damages for
prior use,
and/or face
an injunction or exclusion order, all of which could have a
material adverse effect on our results of operations and ability
to compete.
From time to time, we are involved in IP litigation and
infringement claims. See Item 8. Financial
Information Legal Proceedings. In the event a
third-party IP claim were to prevail, our operations may be
interrupted and we may incur costs and damages, which could have
a material adverse effect on our results of operations, cash
flow and financial condition.
Finally, we have received from time to time, and may in the
future receive communications from competitors or other parties
alleging infringement of certain patents and other IP rights of
others, which has been and may in the future be followed by
litigation. Regardless of the validity or the successful
assertion of such claims, we may incur significant costs with
respect to the defense thereof, which could have a material
adverse effect on our results of operations, cash flow or
financial condition. See Item 3. Key
Information Risk Factors Risks Related
to Our Operations We depend on patents to protect
our rights to our technology.
Backlog
Our sales are made primarily pursuant to standard purchase
orders that are generally booked from one to twelve months in
advance of delivery. Quantities actually purchased by customers,
as well as prices, are subject to variations between booking and
delivery and, in some cases, to cancellation due to changes in
customer needs or industry conditions. During periods of
economic slowdown
and/or
industry overcapacity
and/or
declining selling prices, customer orders are not generally made
far in advance of the scheduled shipment date. Such reduced lead
time can reduce managements ability to forecast production
levels and revenues. When the economy rebounds, our customers
may strongly increase their demands, which can result in
capacity constraints due to our inability to match manufacturing
capacity with such demand.
In addition, our sales are affected by seasonality, with the
first quarter generally showing lowest revenue levels in the
year, and the third or fourth quarter generating the highest
amount of revenues due to electronic products purchased from
many of our targeted market segments.
We also sell certain products to key customers pursuant to frame
contracts. Frame contracts are annual contracts with customers
setting forth quantities and prices on specific products that
may be ordered in the future. These contracts allow us to
schedule production capacity in advance and allow customers to
manage their inventory levels consistent with
just-in-time
principles while shortening the cycle times required to produce
ordered products. Orders under frame contracts are also subject
to a high degree of volatility, because they reflect expected
market conditions which may or may not materialize. Thus, they
are subject to risks of price reduction, order cancellation and
modifications as to quantities actually ordered resulting in
inventory
build-ups.
Furthermore, developing industry trends, including
customers use of outsourcing and their deployment of new
and revised supply chain models, may reduce our ability to
forecast changes in customer demand and may increase our
financial requirements in terms of capital expenditures and
inventory levels.
34
We entered 2009 with a backlog significantly lower compared to
2008 due to the sharp decline in the semiconductor industry
registered in the second half of 2008. During 2009, our backlog
grew as a result of a strong increase in order flow in the
second half of the year, reflecting a more favorable industry
environment. As a result of this rebound, we entered 2010 with a
backlog significantly higher than we had entering 2009.
Competition
Markets for our products are intensely competitive. While only a
few companies compete with us in all of our product lines, we
face significant competition in each of our product lines. We
compete with major international semiconductor companies.
Smaller niche companies are also increasing their participation
in the semiconductor market, and semiconductor foundry companies
have expanded significantly, particularly in Asia. Competitors
include manufacturers of standard semiconductors, ASICs and
fully customized ICs, including both chip and board-level
products, as well as customers who develop their own IC products
and foundry operations. Some of our competitors are also our
customers.
The primary international semiconductor companies that compete
with us include Analog Devices, Broadcom, Infineon, Intel,
International Rectifier, Fairchild Semiconductor, Freescale
Semiconductor, Linear Technology, LSI Logic, Marvell, Maxim,
Mediatek, Microchip Technology, Mstar, National Semiconductor,
NEC Electronics, NXP Semiconductors, ON Semiconductor, Qualcomm,
Renesas, ROHM Semiconductor, Samsung, Texas Instruments,
Trident, Toshiba, TSMC and Vishay.
We compete in different product lines to various degrees on the
basis of price, technical performance, product features, product
system compatibility, customized design, availability, quality
and sales and technical support. In particular, standard
products may involve greater risk of competitive pricing,
inventory imbalances and severe market fluctuations than
differentiated products. Our ability to compete successfully
depends on elements both within and outside of our control,
including successful and timely development of new products and
manufacturing processes, product performance and quality,
manufacturing yields and product availability, customer service,
pricing, industry trends and general economic trends.
Organizational
Structure and History
We are a multinational group of companies that designs,
develops, manufactures and markets a broad range of products
used in a wide variety of microelectronic applications,
including telecommunications systems, computer systems, consumer
goods, automotive products and industrial automation and control
systems. We are organized in a matrix structure with geographic
regions interacting with product divisions, both being supported
by central functions, bringing all levels of management closer
to the customer and facilitating communication among the
R&D, production, marketing and sales organizations.
While STMicroelectronics N.V. is the parent company, we also
conduct our operations through 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 receive compensation. We have also recently created
two joint ventures with Ericsson, which operate as independent
JV companies and are currently governed by a fully balanced
Board and an independent management team. Our Consolidated
Financial Statements also include JVS and related
affiliates, responsible for the full commercial operation
of the combined businesses, namely sales and marketing. Its
parent company is ST-Ericsson Holding AG (JVS),
which is owned 50% plus a controlling share by us. The other JV
is focused on fundamental R&D activities. Its parent
company is ST-Ericsson AT Holding AG (JVD), which is
owned 50% plus a controlling share by Ericsson and is therefore
accounted for by us under the equity method.
The following table lists our consolidated subsidiaries and our
percentage ownership as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Percentage Ownership
|
|
Legal Seat
|
|
Name
|
|
(Direct or Indirect)
|
|
|
Australia Sydney
|
|
STMicroelectronics PTY Ltd
|
|
|
100
|
|
Belgium Zaventem
|
|
ST-Ericsson Belgium N.V.
|
|
|
50
|
|
Belgium Zaventem
|
|
Proton World International N.V.
|
|
|
100
|
|
Brazil Sao Paolo
|
|
STMicroelectronics Ltda
|
|
|
100
|
|
Brazil Sao Paulo
|
|
Incard do Brazil Ltda
|
|
|
50
|
|
Canada Ottawa
|
|
STMicroelectronics (Canada), Inc.
|
|
|
100
|
|
Canada Thorn hill
|
|
Genesis Microchip (Canada) Co.
|
|
|
100
|
|
China Beijing
|
|
STMicroelectronics (Beijing) R&D Co. Ltd
|
|
|
100
|
|
China Beijing
|
|
Beijing T3G Technology Co. Ltd
|
|
|
50
|
|
China Shanghai
|
|
STMicroelectronics (Shanghai) Co. Ltd
|
|
|
100
|
|
China Shanghai
|
|
STMicroelectronics (Shanghai) R&D Co. Ltd
|
|
|
100
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Percentage Ownership
|
|
Legal Seat
|
|
Name
|
|
(Direct or Indirect)
|
|
|
China Shanghai
|
|
STMicroelectronics (China) Investment Co. Ltd
|
|
|
100
|
|
China Shanghai
|
|
Shanghai NF Trading Ltd
|
|
|
50
|
|
China Shanghai
|
|
Shanghai NF Semiconductors Technology Ltd
|
|
|
50
|
|
China Shenzhen
|
|
Shenzhen STS Microelectronics Co. Ltd
|
|
|
60
|
|
China Shenzhen
|
|
STMicroelectronics (Shenzhen) Co. Ltd
|
|
|
100
|
|
China Shenzhen
|
|
STMicroelectronics (Shenzhen) Manufacturing Co. Ltd
|
|
|
100
|
|
China Shenzhen
|
|
STMicroelectronics (Shenzhen) R&D Co. Ltd
|
|
|
100
|
|
Czech Republic Prague
|
|
STMicroelectronics Design and Application s.r.o.
|
|
|
100
|
|
Czech Republic Prague
|
|
STN Wireless Sro
|
|
|
50
|
|
Finland Helsinki
|
|
ST-Ericsson R&D OY
|
|
|
50
|
|
Finland Lohja
|
|
ST-Ericsson OY
|
|
|
50
|
|
France Crolles
|
|
STMicroelectronics (Crolles 2) SAS
|
|
|
100
|
|
France Grenoble
|
|
STMicroelectronics (Grenoble 2) SAS
|
|
|
100
|
|
France Grenoble
|
|
ST-Ericsson (Grenoble) SAS
|
|
|
50
|
|
France Montrouge
|
|
STMicroelectronics S.A.
|
|
|
100
|
|
France Paris
|
|
ST-Ericsson (France) SAS
|
|
|
50
|
|
France Rousset
|
|
STMicroelectronics (Rousset) SAS
|
|
|
100
|
|
France Tours
|
|
STMicroelectronics (Tours) SAS
|
|
|
100
|
|
Germany Grasbrunn
|
|
STMicroelectronics GmbH
|
|
|
100
|
|
Germany Grasbrunn
|
|
STMicroelectronics Design and Application GmbH
|
|
|
100
|
|
Germany Grasbrunn
|
|
ST-NXP Wireless GmbH i.L.
|
|
|
50
|
|
Holland Amsterdam
|
|
STMicroelectronics Finance B.V.
|
|
|
100
|
|
Holland AmsterdamLuchtaven
|
|
ST-Ericsson Wireless N.V.
|
|
|
50
|
|
Holland Eindhoven
|
|
ST-Ericsson B.V.
|
|
|
50
|
|
Holland Eindhoven
|
|
ST-Ericsson Holding B.V.
|
|
|
50
|
|
Hong Kong Hong Kong
|
|
STMicroelectronics LTD
|
|
|
100
|
|
India Bangalore
|
|
NF Wireless India Pvt Ltd
|
|
|
50
|
|
India New Delhi
|
|
STMicroelectronics Marketing Pvt Ltd
|
|
|
100
|
|
India Noida
|
|
STMicroelectronics Pvt Ltd
|
|
|
100
|
|
India Noida
|
|
ST-Ericsson India Pvt Ltd
|
|
|
50
|
|
Ireland Dublin
|
|
NXP Falcon Ireland Ltd
|
|
|
50
|
|
Israel Netanya
|
|
STMicroelectronics Ltd
|
|
|
100
|
|
Italy Agrate Brianza
|
|
ST Incard S.r.l.
|
|
|
100
|
|
Italy Agrate Brianza
|
|
ST-Ericsson Srl
|
|
|
50
|
|
Italy Agrate Brianza
|
|
STMicroelectronics S.r.l.
|
|
|
100
|
|
Italy Aosta
|
|
DORA S.p.a.
|
|
|
100
|
|
Italy Catania
|
|
CO.RI.M.ME.
|
|
|
100
|
|
Italy Naples
|
|
STMicroelectronics Services S.r.l.
|
|
|
100
|
|
Japan Tokyo
|
|
STMicroelectronics KK
|
|
|
100
|
|
Japan Tokyo
|
|
ST-Ericsson KK
|
|
|
50
|
|
Korea Seoul
|
|
ST-Ericsson (Korea) Ltd
|
|
|
50
|
|
Malaysia - Kuala Lumpur
|
|
STMicroelectronics Marketing SDN BHD
|
|
|
100
|
|
Malaysia Muar
|
|
STMicroelectronics SDN BHD
|
|
|
100
|
|
Malaysia Muar
|
|
ST-Ericsson SDN.BHD
|
|
|
50
|
|
Malta Kirkop
|
|
STMicroelectronics (Malta) Ltd
|
|
|
100
|
|
Mexico Guadalajara
|
|
STMicroelectronics Marketing, S. de R.L. de C.V.
|
|
|
100
|
|
Mexico Guadalajara
|
|
STMicroelectronics Design and Applications, S. de R.L. de C.V.
|
|
|
100
|
|
Morocco Casablanca
|
|
STMicroelectronics S.A.S. (Maroc)
|
|
|
100
|
|
Morocco Rabat
|
|
Electronic Holding S.A.
|
|
|
100
|
|
Morocco Rabat
|
|
ST-Ericsson (Maroc) SAS
|
|
|
50
|
|
Norway Grimstad
|
|
ST-Ericsson A.S.
|
|
|
50
|
|
Philippines Calamba
|
|
STMicroelectronics, Inc..
|
|
|
100
|
|
Philippines Calamba
|
|
ST-Ericsson (Philippines) Inc.
|
|
|
50
|
|
Philippines Calamba
|
|
Mountain Drive Property, Inc.
|
|
|
20
|
|
Singapore Ang Mo Kio
|
|
STMicroelectronics ASIA PACIFIC Pte Ltd
|
|
|
100
|
|
Singapore Ang Mo Kio
|
|
STMicroelectronics Pte Ltd
|
|
|
100
|
|
Singapore Ang Mo Kio
|
|
ST-Ericsson Asia Pacific Pte Ltd
|
|
|
50
|
|
Spain Madrid
|
|
STMicroelectronics Iberia S.A.
|
|
|
100
|
|
Sweden Kista
|
|
STMicroelectronics A.B.
|
|
|
100
|
|
Sweden Kista
|
|
STMicroelectronics Wireless A.B.
|
|
|
50
|
|
Sweden Stockholm
|
|
ST-Ericsson A.B.
|
|
|
50
|
|
Switzerland Geneva
|
|
STMicroelectronics S.A.
|
|
|
100
|
|
36
|
|
|
|
|
|
|
|
|
|
|
Percentage Ownership
|
|
Legal Seat
|
|
Name
|
|
(Direct or Indirect)
|
|
|
Switzerland Geneva
|
|
INCARD S.A.
|
|
|
100
|
|
Switzerland Geneva
|
|
INCARD Sales and Marketing S.A.
|
|
|
100
|
|
Switzerland Geneva
|
|
ST-Ericsson S.A.
|
|
|
50
|
|
Switzerland Zurich
|
|
ST-Ericsson Holding AG
|
|
|
50
|
|
Taiwan Taipei
|
|
ST-Ericsson (Taiwan) Ltd
|
|
|
50
|
|
Thailand Bangkok
|
|
STMicroelectronics (Thailand) Ltd
|
|
|
100
|
|
Turkey Istanbul
|
|
STMicroelectronics Elektronik Arastirma ve Gelistirme Anonim
Sirketi
|
|
|
50
|
|
United Kingdom Bristol
|
|
Inmos Limited
|
|
|
100
|
|
United Kingdom Bristol
|
|
ST-Ericsson (UK) Ltd
|
|
|
50
|
|
United Kingdom Marlow
|
|
STMicroelectronics Limited
|
|
|
100
|
|
United Kingdom Marlow
|
|
STMicroelectronics (Research & Development) Limited
|
|
|
100
|
|
United Kingdom Reading
|
|
Synad Technologies Limited
|
|
|
100
|
|
United Kingdom Southampton
|
|
NF UK, Ltd
|
|
|
50
|
|
United States Carrollton
|
|
STMicroelectronics Inc.
|
|
|
100
|
|
United States Carrollton
|
|
ST-Ericsson Inc.
|
|
|
50
|
|
United States Carrollton
|
|
Genesis Microchip Inc.,
|
|
|
100
|
|
United States Carrollton
|
|
Genesis Microchip (Del) Inc.
|
|
|
100
|
|
United States Carrollton
|
|
Genesis Microchip LLC
|
|
|
100
|
|
United States Carrollton
|
|
Genesis Microchip Limited Partnership
|
|
|
100
|
|
United States Carrollton
|
|
Sage Inc.
|
|
|
100
|
|
United States Carrollton
|
|
Faroudja Inc.
|
|
|
100
|
|
United States Carrollton
|
|
Faroudja Laboratories Inc.
|
|
|
100
|
|
United States Wilmington
|
|
STMicroelectronics (North America) Holding, Inc.
|
|
|
100
|
|
United States Wilsonville
|
|
The Portland Group, Inc.
|
|
|
100
|
|
The following table lists our principal equity investments and
our percentage ownership as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Percentage Ownership
|
|
Legal Seat
|
|
Name
|
|
(Direct or Indirect)
|
|
|
The Netherlands Rotterdam
|
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Numonyx Holdings B.V.
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48.6
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Switzerland Zurich
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ST-Ericsson AT Holding AG
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49
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Singapore The Curie
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Veredus Laboratories Pte Ltd
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41.2
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South Korea Yongin-si
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ATLab Inc.
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8.1
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Italy Caivano
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INGAM Srl
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20
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In February 2010, we entered into a definitive agreement with
Micron Technology Inc., in which Micron will acquire Numonyx
Holdings B.V. in an all-stock transaction. Please refer to
Item 5 Other developments.
Public
Funding
We participate in certain programs established by the EU,
individual countries and local authorities in Europe
(principally France and Italy). Such funding is generally
provided to encourage R&D activities and capital
investment, industrialization and the economic development of
underdeveloped regions. These programs are partially supported
by direct funding, tax credits and specific loans (low-interest
financing).
Public funding in France, Italy and Europe generally is open to
all companies, regardless of their ownership or country of
incorporation. The EU has developed model contracts for R&D
funding that require beneficiaries to disclose the results to
third parties on reasonable terms. As disclosed, the conditions
for receipt of government funding may include eligibility
restrictions, approval by EU authorities, annual budget
appropriations, compliance with European Commission regulations,
as well as specifications regarding objectives and results.
Some of our R&D government funding contracts involve
advance payments that require us to justify our expenses after
receipt of funds. Certain specific contracts (Crolles, Grenoble,
Rousset, France and Catania, Italy) contain obligations to
maintain a minimum level of employment and investment during a
certain amount of time. There could be penalties (i.e., a
partial refund due to the government) if these objectives are
not fulfilled. Other contracts contain penalties for late
deliveries or for breach of contract, which may result in
repayment obligations.
The main programs for R&D in which we are involved include:
(i) the CATRENE cooperative R&D program, which is the
successor of MEDEA+ (which ended in 2008); (ii) EU R&D
projects with FP6 and FP7 (Sixth and Seventh Frame Program) for
Information Technology; (iii) European industry initiatives
such as ENIAC and ARTEMIS (Embedded Computing Systems
Initiative); and (iv) national or regional programs for
R&D and for industrialization in the electronics industries
involving many companies and laboratories. The pan-European
37
programs cover a period of several years, while national or
regional programs in France and Italy are subject mostly to
annual budget appropriation.
In Italy, there are some national funding programs established
to support the new FIRST (Fondo per gli Investimenti nella
Ricerca Scientifica e Tecnologica) that will group previous
funding regulations (FIRB, Fondo per gli Investimenti della
Ricerca di Base, aimed to fund fundamental research), FAR, Fondo
per le Agevolazioni alla Ricerca, to fund industrial research),
and the FCS (Fondo per la Competitività e lo Sviluppo). The
FRI (Fondo rotativo per il sostegno alle imprese e agli
investimenti in ricerca) funds research and innovation
activities and the FIT (Fondo speciale rotativo per
lInnovazione Tecnologica) is designed to fund
precompetitive development in manufacturing. These programs are
not limited to microelectronics and are suitable to support
industry R&D in any segment. Italian programs often cover
several years and the approval phase is quite long, up to
two/three years. In 2009, under a new call for proposals, the
strategic program industria 2015 (involving a
two-step evaluation procedure) finished the first stage
screening process and three of our projects proposed were
advanced as full proposals to the second evaluation stage.
Furthermore, there are some regional funding tools for research
that can be addressed by local initiatives, primarily in the
regions of Puglia, Sicily, Campania and Val dAosta,
provided that a reasonable regional socio-economic impact could
be recognized in terms of industrial exploitation, new
professional hiring
and/or
cooperation with local academia and public laboratories.
In 2006, the EU Commission allowed the modification of the
conditions of a grant pertaining to the building, facilitization
and equipment of our facility in Catania, Italy (the M6
Plant). Following this decision, the authorized timeframe
for completion of the project was extended and the Italian
government was authorized to allocate 446 million,
out of the 542 million grants originally authorized,
for the completion of the M6 Plant if we made a further
investment of 1,700 million between January 1,
2006 through the end of 2009. The M6 plant and the Contratto di
programma have been transferred to Numonyx, which will benefit
from future M6 grants linked to the completion of the M6 plant
and assume related responsibilities. Under a Memorandum of
Understanding dated July 30, 2009 the Italian Authorities
declared their willingness to release public grants in
connection with a revision of the current M6 Program Agreement
so that original project (consisting in 1,700 million
of investments to complete the M6 plant so as to make it able to
produce memories with corresponding public funds for
446 million) is replaced by 2 separate projects, one
related to Numonyx R&D activities in its Italian sites and
the second to the finalization of the announced joint venture in
the photovoltaic field with Enel and Sharp, and the conversion
of the industrial destination of the new M6 facility in Catania
from production of memories to production of photovoltaic
panels. In particular, subject to finalization of the announced
joint venture in the photovoltaic field with Enel and Sharp, we
will contribute the M6 plant to the new joint venture, which
will make the necessary investments to convert industrial
destination of M6 from production of memories to production of
photovoltaic panels up to a maximum of 1GW/year production
capability for a corresponding maximum investment of
1,150 million.
In France, support for R&D is given by ANR (Agence
Nationale de la Recherche), by OSEO (the agency taking over the
missions and budgets of the AII Agency for Industrial
Innovation), by the Ministry of Industry (FCE) and
local public authorities. Specific support for microelectronics
is provided through FCE to over 30 companies with
activities in the semiconductor industry. The amount of support
under French programs is decided annually and subject to budget
appropriation. In 2009, we entered into a framework agreement
with the French Ministry of Economy, Industry and Employment for
the Nano2012 Research and Development program, which
confirmed our position as the Coordinator and Project Leader and
allocated to us 340 million (about $450 million)
in grants for the period
2008-2012.
Nano2012 is designed to promote development of advanced CMOS
(32nm and below) technologies for
system-on-chip
semiconductor products in the Grenoble-Crolles region of France,
in cooperation with the ISDA.
We also benefit from tax credits for R&D activities in
several countries (notably in France). R&D tax credits
consist of tax benefits granted to companies on a open and
non-discriminatory base for their research activities. See
Item 5. Operating and Financial Review and
Prospects Research and Development Expenses.
Funding for R&D activities is the most common form of
funding that we receive. Public funding for R&D is recorded
as Other Income and Expenses, net in our
consolidated statements of income and booked pro rata in
relation to the relevant cost once the agreement with the
respective government agency has been signed and all applicable
conditions are met. See Note 2 to our Consolidated
Financial Statements.
Government support for capital expenditures funding has been
used to support our capital investment. Although receipt of
these funds is not directly reflected in our results of
operations, the resulting lower amounts recorded in property,
plant and equipment costs reduce the level of depreciation
recognized by us. In Italy the new Tremonti-ter
allows business income tax reduction excluding from taxation of
business income an amount equal
38
to 50 percent of the value of investments in a detailed
list of new machinery and new equipment, made from July 1,
2009 through June 30, 2010. See Note 10 to our
Consolidated Financial Statements.
As a third category of government funding, we receive some
loans, mainly related to large capital investment projects, at
preferential interest rates. See Note 14 to our
Consolidated Financial Statements.
Funding of programs in France and Italy is subject to annual
appropriation, and if such governments or local authorities were
unable to provide anticipated funding on a timely basis or if
existing government- or local-authority-funded programs were
curtailed or discontinued, or if we were unable to fulfill our
eligibility requirements, such an occurrence could have a
material adverse effect on our business, operating results and
financial condition. From time to time, we have experienced
delays in the receipt of funding under these programs. As the
availability of such funding are substantially outside our
control, there can be no assurance that we will continue to
benefit from such government support, that sufficient
alternative funding would be available if necessary or that any
such alternative funding would be provided on terms as favorable
to us as those previously committed. Due to changes in
legislation
and/or
review by the competent administrative or judicial bodies, there
can be no assurance that government funding granted to us may
not be revoked or challenged or discontinued in whole or in
part, by any competent state or European authority, until the
legal time period for challenging or revoking such funding has
fully lapsed. See Item 3. Key Information
Risk Factors Risks Related to Our
Operations Reduction in the amount of public funding
available to us, changes in existing public funding programs or
demands for repayment may increase our costs and impact our
results of operations.
Suppliers
We use three main critical types of suppliers in our business:
equipment suppliers, raw material suppliers and external
subcontractors.
In the front-end process, we use steppers, scanners, tracking
equipment, strippers, chemo-mechanical polishing equipment,
cleaners, inspection equipment, etchers, physical and chemical
vapor-deposition equipment, implanters, furnaces, testers,
probers and other specialized equipment. The manufacturing tools
that we use in the back-end process include bonders, burn-in
ovens, testers and other specialized equipment. The quality and
technology of equipment used in the IC manufacturing process
defines the limits of our technology. Demand for increasingly
smaller chip structures means that semiconductor producers must
quickly incorporate the latest advances in process technology to
remain competitive. Advances in process technology cannot be
brought about without commensurate advances in equipment
technology, and equipment costs tend to increase as the
equipment becomes more sophisticated.
Our manufacturing processes use many raw materials, including
silicon wafers, lead frames, mold compound, ceramic packages and
chemicals and gases. The prices of many of these raw materials
are volatile. We obtain our raw materials and supplies from
diverse sources on a
just-in-time
basis. Although supplies for the raw materials used by us are
currently adequate, shortages could occur in various essential
materials due to interruption of supply or increased demand in
the industry. See Item 3. Key Information
Risk Factors Risks Related to Our
Operations Because we depend on a limited number of
suppliers for raw materials and certain equipment, we may
experience supply disruptions if suppliers interrupt supply or
increase prices.
Finally, we also use external subcontractors to outsource wafer
manufacturing and assembly and testing of finished products. See
Property, Plants and Equipment above.
Environmental
Matters
Our manufacturing operations use many chemicals, gases and other
hazardous substances, and we are subject to a variety of
evolving environmental and health and safety regulations
related, among other things, to the use, storage, discharge and
disposal of such chemicals and gases and other hazardous
substances, emissions and wastes, as well as the investigation
and remediation of soil and ground water contamination. In most
jurisdictions in which we operate, we must obtain permits,
licenses and other forms of authorization, or give prior
notification, in order to operate. Because a large portion of
our manufacturing activities are located in the EU, we are
subject to European Commission regulation on environmental
protection, as well as regulations of the other jurisdictions
where we have operations.
Consistent with our PSE, we have established proactive
environmental policies with respect to the handling of
chemicals, gases, emissions and waste disposals from our
manufacturing operations, and we have not suffered material
environmental claims in the past. We believe that our activities
comply with presently applicable environmental regulations in
all material respects. We have engaged outside consultants to
audit all of our environmental activities and created
environmental management teams, information systems and
training. We have
39
also instituted environmental control procedures for processes
used by us as well as our suppliers. As a company, we have been
certified to be in compliance with the quality standard
ISO9001:2008 and with the technical specification
ISO/TS16949:2009.
Our activities are subject to two directives: Directive
2002/95/EC on the restriction of the use of certain hazardous
substances in electrical and electronic equipment
(ROHS Directive, as amended by Commission Decision
2005/618/EC of August 18, 2005); and Directive 2002/96/EC
on waste electrical and electronic equipment (WEEE
Directive, as modified by Directive 2003/108/EC of
December 8, 2003). Both Directives are in the process of
being replaced by new directives that are expected to be adopted
in mid-2010. The ROHS Directive aims at banning the use of lead
and other flame-retardant substances in manufacturing electronic
components. The WEEE Directive promotes the recovery and
recycling of electrical and electronic waste. Due to unclear
statutory definitions and interpretations, we are unable at this
time to determine in detail the ramifications of our activities
under the WEEE Directive. The WEEE Directive to be adopted in
2010 may or may not clarify such definitions with respect
to our activities. At this stage, we do not participate in a
take back organization in France.
Our activities in the EU are also subject to the European
Directive 2003/87/EC establishing a scheme for greenhouse gas
allowance trading (as modified by Directive 2004/101/EC), and
applicable national legislation. The 2003 Directive was amended
by Directive 2009/29/EC, which must be transposed into national
law by the European Member States on or before December 31,
2012. Two of our manufacturing sites (Crolles, France, and
Agrate, Italy) have been allocated a quota of greenhouse gas for
the period
2008-2012.
Failure to comply would force us to acquire potentially
expensive additional emission allowances from third parties, or
to pay a fee for each extra ton of gas emitted. Our on-going
programs to reduce
CO2
emissions should allow us to comply with the greenhouse gas
quota allocations that have been defined for Crolles and Agrate
for the period
2008-2012.
At this stage, the emission permits are allocated for free to
the industry. However, pursuant to provisions created by the
2009 Directive, a growing percentage of the permits will be
auctioned by Member States beginning in 2013. However, the
remaining permits will be allocated for free until 2027, when
all of the permits will be subject to auction.
In the United States, we participate in the Chicago Climate
Exchange program, a voluntary greenhouse gas trading program
whose members commit to reduce emissions. We have also
implemented voluntary reforestation projects in several
countries in order to sequester additional
CO2
emissions and report our emissions in our annual Corporate
Sustainable Report as well as through our internal Carbon
Disclosure Project.
Regulations implementing the registration, evaluation,
authorization and restriction of chemicals (REACH)
were adopted in 2008. We intend to proactively implement such
legislation, in line with our commitment toward environmental
protection. The implementation of any such legislation could
adversely affect our manufacturing costs or product sales by
requiring us to acquire costly equipment or materials, or to
incur other significant expenses in adapting our manufacturing
processes or waste and emission disposal processes. However, we
are currently unable to evaluate such specific expenses and
therefore have no specific reserves for environmental risks.
Furthermore, environmental claims or our failure to comply with
present or future regulations could result in the assessment of
damages or imposition of fines against us, suspension of
production or a cessation of operations and, as with other
companies engaged in similar activities, any failure by us to
control the use of, or adequately restrict the discharge of
hazardous substances could subject us to future liabilities. See
Item 3. Key Information Risk
Factors Risks Related to Our Operations
Some of our production processes and materials are
environmentally sensitive, which could lead to increased costs
due to environmental regulations or to damage to the
environment.
Industry
Background
The
Semiconductor Market
Semiconductors are the basic building blocks used to create an
increasing variety of electronic products and systems. Since the
invention of the transistor in 1948, continuous improvements in
semiconductor process and design technologies have led to
smaller, more complex and more reliable devices at a lower cost
per function. As performance has increased and size and unitary
cost have decreased, semiconductors have expanded beyond their
original primary applications (military applications and
computer systems) to applications such as telecommunications
systems, consumer goods, automotive products and industrial
automation and control systems. In addition, system users and
designers have demanded systems with more functionality, higher
levels of performance, greater reliability and shorter design
cycle times, all in smaller packages at lower costs.
Although cyclical changes in production capacity in the
semiconductor industry and demand for electronic systems have
resulted in pronounced cyclical changes in the level of
semiconductor sales and fluctuations in prices and margins for
semiconductor products from time to time, the semiconductor
industry has experienced substantial
40
growth over the long term. Factors that contribute to long-term
growth include the development of new semiconductor
applications, increased semiconductor content as a percentage of
total system cost, emerging strategic partnerships and growth in
the electronic systems industry, in particular, the Asia Pacific
region.
Semiconductor
Classifications
Process technologies, levels of integration, design specificity,
functional technologies and applications for different
semiconductor products vary significantly. As differences in
these characteristics have increased, the semiconductor market
has become highly diversified as well as subject to constant and
rapid change. Semiconductor product markets may be classified
according to each of these characteristics.
Semiconductors can be manufactured using different process
technologies, each of which is particularly suited to different
applications. Since the mid-1970s, the two dominant processes
have been bipolar (the original technology used to produce ICs)
and CMOS. Bipolar devices typically operate at higher speeds
than CMOS devices, but CMOS devices consume less power and
permit more transistors to be integrated on a single IC. CMOS
has become the prevalent technology, across all major mass
markets such as personal computers, consumer application and
cellular phones. Advanced technologies have been developed
during the last decade that are particularly suited to more
systems-oriented semiconductor applications. BiCMOS technologies
have been developed to combine the high-speed and high-voltage
characteristics of bipolar technologies with the low power
consumption and high integration of CMOS technologies. BCD
technologies have been developed that combine bipolar, CMOS and
DMOS technologies to target intelligent power control and
conversion applications. Such systems-oriented technologies
require more process steps and mask levels, and are more complex
than the basic function-oriented technologies.
Process technologies, referred to as MEMS, has significantly
developed in the last decade and has allowed to expand the scope
of traditional semiconductor devices from signal processing,
storage and power conversion, up to sensing and converting a
wide variety of physical dimensions such as pressure,
temperature and acceleration.
Semiconductors are often classified as either discrete devices
(such as individual diodes, thyristors and single high voltage
and power transistors, as well as optoelectronic products) or
ICs (in which thousands of functions are combined on a single
chip of silicon to form a more complex circuit).
Compared to the market for ICs, there is typically less
differentiation among discrete products supplied by different
semiconductor manufacturers. Also, discrete markets have
generally grown at slower, but more stable, rates than IC
markets.
Semiconductors may also be classified as either standard
components, ASSPs or ASICs. Standard components are used for a
broad range of applications, while ASSPs and ASICs are designed
to perform specific functions in specific applications.
The two basic functional technologies for semiconductor products
are analog and digital. Mixed-signal products combine both
analog and digital functionality. Analog devices monitor,
condition, amplify or transform analog signals, which are
signals that vary continuously over a wide range of values.
Analog/digital (or mixed-signal) ICs combine analog
and digital devices on a single chip to process both analog
signals and digital data. System designers are increasingly
demanding system-level integration in which complete electronic
systems containing both analog and digital functions are
integrated on a single IC.
Digital devices are divided into two major types: memory
products and logic devices. Memory products, which are used in
electronic systems to store data and program instructions, are
classified as either volatile memories (which lose their data
content when power to the device is switched off) or nonvolatile
memories (which retain their data content without the need for
continuous power).
The primary volatile memory devices are dynamic random access
memories (DRAMs). DRAMs are used in a
computers main memory. SRAMs are principally used as
caches and buffers between a computers microprocessor and
its DRAM-based main memory and in other applications such as
mobile handsets.
Nonvolatile memories are used to store program instructions.
Among such nonvolatile memories, read-only memories
(ROMs) are permanently programmed when they are
manufactured while programmable ROMs (PROMs) can be
programmed by system designers or end-users after they are
manufactured. Erasable PROMs (EPROMs) may be erased
after programming by exposure to ultraviolet. Electrically
erasable PROMs (EEPROMs) can be erased byte by byte
and reprogrammed in-system without the need for
removal.
Logic devices process digital data to control the operation of
electronic systems. The largest segment of the logic market
includes microprocessors, microcontrollers and DSPs.
Microprocessors are the central processing units of computer
systems. microcontrollers are complete computer systems
contained on single ICs that are
41
programmed to specific customer requirements. Microcontrollers
control the operation of electronic and electromechanical
systems by processing input data from electronic sensors and
generating electronic control signals. They are used in a wide
variety of consumer, communications, automotive, industrial and
computer products. DSPs are parallel processors used for high
complexity, high-speed real-time computations in a wide variety
of applications.
A significant number of our logic devices is constituted by ASSP
SoC, which gathers the functions of system control, multi-media
signal processing and communication protocols in a wide variety
of systems, such as smart-phones, set-top-boxes and
communication infrastructure platforms.
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Item 5.
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Operating
and Financial Review and Prospects
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Overview
The following discussion should be read in conjunction with
our Consolidated Financial Statements and Notes thereto included
elsewhere in this
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 Critical
Accounting Policies Using Significant Estimates,
Business Outlook and
Liquidity and Capital Resources
Financial Outlook. 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. We assume no
obligation to update the forward-looking statements or such risk
factors.
Critical
Accounting Policies Using Significant Estimates
The preparation of financial statements in accordance with
U.S. GAAP requires us to make estimates and assumptions.
The primary areas that require significant estimates and
judgments by us include, but are not limited to:
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sales returns and allowances;
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determination of best estimate of selling price for deliverables
in multiple element sale arrangements;
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inventory reserves and normal manufacturing capacity thresholds
to determine costs capitalized in inventory;
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accruals for litigation and claims;
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valuation at fair value of acquired assets including intangibles
and assumed liabilities in a business combination, goodwill,
investments and tangible assets as well as the impairment of
their related carrying values;
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the assessment in each reporting period of events, which could
trigger interim impairment testing;
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estimated value of the consideration to be received and used as
fair value for asset groups classified as assets to be disposed
of by sale and the assessment of probability to realize the sale;
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measurement of the fair value of debt and equity securities
classified as
available-for-sale,
including debt securities, for which no observable market price
is obtainable;
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the assessment of credit losses and
other-than-temporary
impairment charges on financial assets;
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the valuation of noncontrolling interests, particularly in case
of contribution in kind as part of a business combination;
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restructuring charges;
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assumptions used in calculating pension obligations;
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assumptions used to measure and recognize a liability for the
fair value of the obligation we assume at the inception of a
guarantee;
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deferred income tax assets including required valuation
allowances and liabilities as well as provisions for
specifically identified income tax exposures and income tax
uncertainties.
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42
We base the estimates and assumptions on historical experience
and on various other factors such as market trends and latest
available business plans that we believe to be reasonable under
the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities. While we regularly evaluate our estimates and
assumptions, the actual results we experience could differ
materially and adversely from our estimates. To the extent there
are material differences between our estimates and actual
results, future results of operations, cash flows and financial
position could be significantly affected. With respect to the
wireless segment, our estimates are made under the supervision
of ST-Ericssons CEO and CFO, who report to
ST-Ericssons Board of Directors.
We believe the following critical accounting policies require us
to make significant judgments and estimates in the preparation
of our Consolidated Financial Statements:
Revenue recognition. Our policy is to
recognize revenues from sales of products to our customers when
all of the following conditions have been met:
(a) persuasive evidence of an arrangement exists;
(b) delivery has occurred; (c) the selling price is
fixed or determinable; and (d) collectability is reasonably
assured. This usually occurs at the time of shipment.
Consistent with standard business practice in the semiconductor
industry, price protection is granted to distributor customers
on their existing inventory of our products to compensate them
for declines in market prices. We accrue a provision for price
protection based on a rolling historical price trend computed on
a monthly basis as a percentage of gross distributor sales. This
historical price trend represents differences in recent months
between the invoiced price and the final price to the
distributor, adjusted if required, to accommodate for a
significant move in the current market price. We record the
accrued amounts as a deduction of revenue at the time of the
sale. The ultimate decision to authorize a distributor refund
remains fully within our control. The short outstanding
inventory time period, our ability to foresee changes in
standard inventory product pricing (as opposed to pricing for
certain customized products) and our lengthy distributor pricing
history have enabled us to reliably estimate price protection
provisions at period-end. If market conditions differ from our
assumptions, this could have an impact on future periods. In
particular, if market conditions were to deteriorate, net
revenues could be reduced due to higher product returns and
price reductions at the time these adjustments occur.
Our customers occasionally return our products for technical
reasons. Our standard terms and conditions of sale provide that
if we determine that our products are non-conforming, we will
repair or replace them, or issue a credit or rebate of the
purchase price. In certain cases, when the products we have
supplied have been proven to be defective, we have agreed to
compensate our customers for claimed damages in order to
maintain and enhance our business relationship. Quality returns
are not related to any technological obsolescence issues and are
identified shortly after sale in customer quality control
testing. We provide for such returns when they are considered
likely and can be reasonably estimated. We record the accrued
amounts as a reduction of revenue.
Our insurance policies relating to product liability only cover
physical and other direct damages caused by defective products.
We carry only limited insurance against immaterial,
non-consequential damages in the event of a product recall. We
record a provision for warranty costs as a charge against cost
of sales based on historical trends of warranty costs incurred
as a percentage of sales which we have determined to be a
reasonable estimate of the probable losses to be incurred for
warranty claims in a period. Any potential warranty claims are
subject to our determination that we are at fault and liable for
damages, and that such claims usually must be submitted within a
short period following the date of sale. This warranty is given
in lieu of all other warranties, conditions or terms expressed
or implied by statute or common law. Our contractual terms and
conditions typically limit our liability to the sales value of
the products that gave rise to the claim.
We maintain an allowance for doubtful accounts for estimated
potential losses resulting from our customers inability to
make required payments. We base our estimates on historical
collection trends and record a provision accordingly.
Furthermore, we are required to evaluate our customers
credit ratings from time to time and take an additional
provision for any specific account that we consider doubtful. In
2009, we did not record any new material specific provision
related to bankrupt customers other than our standard provision
of 1% of total receivables based on estimated historical
collection trends. If we receive information that the financial
condition of our customers has deteriorated, resulting in an
impairment of their ability to make payments, additional
allowances could be required. Such deterioration is increasingly
likely given the current crisis in the credit markets. Under the
current financial situation, we are obliged to hold shipment to
certain of our customers on credit watch, which affects our
sales and aims at protecting us from credit risk.
While the majority of our sales agreements contain standard
terms and conditions, we may, from time to time, enter into
agreements that contain multiple elements or non-standard terms
and conditions, which require revenue recognition judgments.
Prior to 2009, where multiple elements existed in an agreement,
the revenue arrangement
43
was allocated to the different elements based upon verifiable
objective evidence of the fair value of the elements, as
governed under the guidance on revenue arrangements with
multiple deliverables, for such periods. In 2009, we early
adopted new revenue recognition guidance requiring allocation of
revenue to different deliverables based upon the best estimate
of selling price of each deliverable.
Goodwill and purchased intangible assets. The
purchase method of accounting for acquisitions requires
extensive use of estimates and judgments to allocate the
purchase price to the fair value of the net tangible and
intangible assets acquired. Goodwill and intangible assets
deemed to have indefinite lives are not amortized but are
instead subject to annual impairment tests. The amounts and
useful lives assigned to other intangible assets impact future
amortization. If the assumptions and estimates used to allocate
the purchase price are not correct or if business conditions
change, purchase price adjustments or future asset impairment
charges could be required. At December 31, 2009, the value
of goodwill amounted to $1,071 million. Of such amount,
$143 million was recognized in 2009 at the creation of
ST-Ericsson following the purchase price allocation.
Impairment of goodwill. Goodwill recognized in
business combinations is not amortized and is instead subject to
an impairment test to be performed on an annual basis, or more
frequently if indicators of impairment exist, in order to assess
the recoverability of its carrying value. Goodwill subject to
potential impairment is tested at a reporting unit level, which
represents a component of an operating segment for which
discrete financial information is available. This impairment
test determines whether the fair value of each reporting unit
for which goodwill is allocated is lower than the total carrying
amount of relevant net assets allocated to such reporting unit,
including its allocated goodwill. If lower, the implied fair
value of the reporting unit goodwill is then compared to the
carrying value of the goodwill and an impairment charge is
recognized for any excess. In determining the fair value of a
reporting unit, we usually estimate the expected discounted
future cash flows associated with the reporting unit.
Significant management judgments and estimates are used in
forecasting the future discounted cash flows. Our evaluations
are based on financial plans updated with the latest available
projections of the semiconductor market evolution, our sales
expectations and our costs evaluation, and are consistent with
the plans and estimates that we use to manage our business. It
is possible, however, that the plans and estimates used may be
incorrect, and future adverse changes in market conditions or
operating results of acquired businesses that are not in line
with our estimates may require impairment of certain goodwill.
As a result of our yearly impairment testing, we recorded
$6 million of impairment of goodwill charges in 2009.
We last performed our annual impairment testing in the third
quarter of 2009. We did not record any goodwill impairment
during the third or fourth quarter of 2009. However, many of the
factors used in assessing fair values for such assets are
outside of our control and the estimates used in such analyses
are subject to change. Due to the ongoing uncertainty of the
current market conditions, which may continue to negatively
impact our market value, we will continue to monitor the
carrying value of our assets. If market and economic conditions
deteriorate further, this could result in future non-cash
impairment charges against income. Further impairment charges
could also result from new valuations triggered by changes in
our product portfolio or strategic transactions, including
ST-Ericsson, and possible further impairment charges relating to
our investment in Numonyx (in the event its sale to Micron is
not finalized), particularly in the event of a downward shift in
future revenues or operating cash flow in relation to our
current plans.
Intangible assets subject to
amortization. Intangible assets subject to
amortization include the cost of technologies and licenses
purchased from third parties, as well as from the purchase
method of accounting for acquisitions, purchased software and
internally developed software that is capitalized. In addition,
intangible assets subject to amortization include intangible
assets acquired through business combinations such as core
technologies and customer relationships. Intangible assets
subject to amortization are reflected net of any impairment
losses and are amortized over their estimated useful life. The
carrying value of intangible assets subject to amortization is
evaluated whenever changes in circumstances indicate that the
carrying amount may not be recoverable. In determining
recoverability, we initially assess whether the carrying value
exceeds the undiscounted cash flows associated with the
intangible assets. If exceeded, we then evaluate whether an
impairment charge is required by determining if the assets
carrying value also exceeds its fair value. An impairment loss
is recognized for the excess of the carrying amount over the
fair value. We normally estimate the fair value based on the
projected discounted future cash flows associated with the
intangible assets. Significant management judgments and
estimates are required to forecast the future operating results
used in the discounted cash flow method of valuation. Our
evaluations are based on financial plans updated with the latest
available projections of growth in the semiconductor market and
our sales expectations. They are consistent with the plans and
estimates that we use to manage our business. It is possible,
however, that the plans and estimates used may be incorrect and
that future adverse changes in market conditions or operating
results of businesses acquired may not be in line with our
estimates and may therefore require us to recognize impairment
of certain intangible assets. At December 31, 2009, the
value of
44
intangible assets subject to amortization amounted to
$819 million, of which $48 million was related to the
ST-Ericsson joint venture consolidated in the first quarter of
2009.
Property, plant and equipment. Our business
requires substantial investments in technologically advanced
manufacturing facilities, which may become significantly
underutilized or obsolete as a result of rapid changes in demand
and ongoing technological evolution. We estimate the useful life
for the majority of our manufacturing equipment, the largest
component of our long-lived assets, to be six years, except for
our 300-mm
manufacturing equipment whose useful life was estimated to be
ten years. This estimate is based on our experience using the
equipment over time. Depreciation expense is a major element of
our manufacturing cost structure. We begin to depreciate new
equipment when it is placed into service.
We perform an impairment review when there is reason to suspect
that the carrying value of tangible assets or groups of assets
might not be recoverable. In determining the recoverability of
assets to be held and used, we initially assess whether the
carrying value exceeds the undiscounted cash flows associated
with the tangible assets or group of assets. If exceeded, we
then evaluate whether an impairment charge is required by
determining if the assets carrying value also exceeds its
fair value. We normally estimate this fair value based on market
appraisals or the sum of discounted future cash flows, using
market assumptions such as the utilization of our fabrication
facilities and the ability to upgrade such facilities, change in
the selling price and the adoption of new technologies. We also
evaluate the continued validity of an assets useful life
when impairment indicators are identified. Assets classified as
held for sale are reflected at the lower of their carrying
amount and fair value less selling costs and are not depreciated
during the selling period. Selling costs include incremental
direct costs to transact the sale that we would not have
incurred except for the decision to sell.
Our evaluations are based on financial plans updated with the
latest projections of growth in the semiconductor market and our
sales expectations, from which we derive the future production
needs and loading of our manufacturing facilities, and which are
consistent with the plans and estimates that we use to manage
our business. These plans are highly variable due to the high
volatility of the semiconductor business and therefore are
subject to continuous modifications. If future growth differs
from the estimates used in our plans, in terms of both market
growth and production allocation to our manufacturing plants,
this could require a further review of the carrying amount of
our tangible assets and result in a potential impairment loss.
In 2009, $25 million of impairment charges were recorded on
long-lived assets of our manufacturing sites in Carrollton,
Texas and in Phoenix, Arizona.
Inventory. Inventory is stated at the lower of
cost and net realizable value. Cost is based on the weighted
average cost by adjusting the standard cost to approximate
actual manufacturing costs on a quarterly basis; therefore, the
cost is dependent upon our manufacturing performance. In the
case of underutilization of our manufacturing facilities, we
estimate the costs associated with the excess capacity. These
costs are not included in the valuation of inventories but are
charged directly to the cost of sales. Net realizable value is
the estimated selling price in the ordinary course of business,
less applicable variable selling expenses and cost of
completion. As required, we evaluate inventory acquired as part
of purchase accounting at fair value, less completion and
distribution costs and related margin.
The valuation of inventory requires us to estimate obsolete or
excess inventory as well as inventory that is not of saleable
quality. Provisions for obsolescence are estimated for excess
uncommitted inventories based on the previous quarters
sales, order backlog and production plans. To the extent that
future negative market conditions generate order backlog
cancellations and declining sales, or if future conditions are
less favorable than the projected revenue assumptions, we could
be required to record additional inventory provisions, which
would have a negative impact on our gross margin.
Business combination. The purchase method of
accounting for business combinations requires extensive use of
estimates and judgments to allocate the purchase price to the
fair value of the net tangible and intangible assets acquired.
The amounts and useful lives assigned to other intangible assets
impact future amortization. If the assumptions and estimates
used to allocate the purchase price are not correct or if
business conditions change, purchase price adjustments or future
asset impairment charges could be required. On February 3,
2009, we announced the closing of our agreement to merge ST-NXP
Wireless into a joint venture with Ericsson Mobile Platforms
(EMP). Ericsson contributed $1,155 million in
cash, out of which $700 million was paid to us. We also
received $99 million as an equity investment in JVD, in
which we own 50% less a controlling share held by Ericsson. Our
contribution to the joint venture represented a total amount of
$2,210 million, of which $1,105 million was allocated
to noncontrolling interests in the wireless business. The
purchase price allocation resulted in the recognition of
$48 million in customer relationships, $23 million in
property, plant and equipment, $47 million liabilities net
of other current assets, $143 million on goodwill and
$306 million on Ericssons noncontrolling interest in
the joint venture.
45
Restructuring charges. We have undertaken, and
we may continue to undertake, significant restructuring
initiatives, which have required us, or may require us in the
future, to develop formalized plans for exiting any of our
existing activities. We recognize the fair value of a liability
for costs associated with exiting an activity when a probable
liability exists and it can be reasonably estimated. We record
estimated charges for non-voluntary termination benefit
arrangements such as severance and outplacement costs meeting
the criteria for a liability as described above. Given the
significance and timing of the execution of such activities, the
process is complex and involves periodic reviews of estimates
made at the time the original decisions were taken. This process
can require more than one year due to requisite governmental and
customer approvals and our capability to transfer technology and
know-how to other locations. As we operate in a highly cyclical
industry, we monitor and evaluate business conditions on a
regular basis. If broader or newer initiatives, which could
include production curtailment or closure of other manufacturing
facilities, were to be taken, we may be required to incur
additional charges as well as change estimates of the amounts
previously recorded. The potential impact of these changes could
be material and could have a material adverse effect on our
results of operations or financial condition. In 2009, the net
amount of restructuring charges and other related closure costs
amounted to $256 million before taxes.
Share-based compensation. We measure our
share-based compensation cost based on its fair value on the
grant date of each award. This cost is recognized over the
period during which an employee is required to provide service
in exchange for the award or the requisite service period,
usually the vesting period, and is adjusted for actual
forfeitures that occur before vesting. Our share-based
compensation plans may award shares contingent on the
achievement of certain financial objectives, including our
financial results. In order to assess the fair value of this
share-based compensation, we are required to estimate certain
items, including the probability of meeting market performance
and financial results targets, forfeitures and employees
service period. As a result, in relation to our nonvested Stock
Award Plan, we recorded a total pre-tax expense of
$38 million in 2009, out of which $4 million was
related to the 2006 plan; $17 million to the 2007 plan;
$8 million to the 2008 plan; and $9 million to the
2009 plan, provided that two out of the three performance
conditions have been met. The shares from the 2009 plan were
granted on July 28, 2009. The performance measurement
conditions for the 2009 plan include: evolution of sales and
evolution of operating income both compared against our top
competitors and actual cash flow as compared to the forecast. As
of December 31, 2009, according to our best estimates, we
anticipate that two criteria will probably be met: evolution of
sales and cash flow.
Earnings (loss) on Equity Investments. We are
required to record our proportionate share of the results of the
entities that we account for under the equity method. This
recognition is based on results reported by these entities,
sometimes on a one-quarter lag, and, for such purpose, we rely
on their internal controls. In 2009, we recognized approximately
$103 million, on a one quarter lag, as our proportional
interest in the loss recorded by Numonyx, based on our 48.6%
ownership interest, net of amortization of basis differences;
$5 million of which was recorded in the fourth quarter of
2009. In addition, we recognized in 2009, $32 million
related to the ST-Ericsson JVD entities we account for under the
equity method, net of the amortization of basis differences;
$7 million of which was recorded in the fourth quarter of
2009. In case of triggering events, we are required to determine
the fair value of our investment and assess the classification
of temporary versus
other-than-temporary
impairments of the carrying value. We make this assessment by
evaluating the business on the basis of the most recent plans
and projections or to the best of our estimates. In the first
quarter of 2009, due to the deterioration of both the global
economic situation and the Memory market segment, as well as
Numonyxs results, we assessed the fair value of our
investment and recorded an additional other-than temporary
impairment charge of $200 million. The calculation of the
impairment was based on both an income approach, using
discounted cash flows, and a market approach, using the metrics
of comparable public companies. We did not book any impairment
charge in the second, third or fourth quarter of 2009.
Financial assets. We classify our financial
assets in the following categories:
held-for-trading
and
available-for-sale.
Upon the adoption of FASB guidance on fair value measurements
for financial assets and liabilities, we did not elect to apply
the fair value option on any financial assets. Such
classification depends on the purpose for which the investments
are acquired. Management determines the classification of its
financial assets at initial recognition. Unlisted equity
securities with no readily determinable fair value are carried
at cost. They are neither classified as
held-for-trading
nor as
available-for-sale.
Regular purchases and sales of financial assets are recognized
on the trade date the date on which we commit to
purchase or sell the asset. Financial assets are initially
recognized at fair value, and transaction costs are expensed in
the consolidated statements of income.
Available-for-sale
and
held-for-trading
financial assets are subsequently carried at fair value. The
gain (loss) on the sale of the financial assets is reported as a
non-operating element on the consolidated statements of income.
The fair values of quoted debt and equity securities are based
on current market prices. If the market for a financial asset is
not active and if no observable market price is obtainable, we
measure fair value by using assumptions and estimates. For
unquoted equity securities, these assumptions and estimates
include the use of recent arms length
46
transactions; for debt securities without available observable
market price, we establish fair value by reference to publicly
available indexes of securities with same rating and comparable
or similar underlying collaterals or industries exposure,
which we believe approximates the orderly exit value in the
current market. In measuring fair value, we make maximum use of
market inputs and rely as little as possible on entity-specific
inputs. Based on the previously adopted mark to model
methodology, in 2009 we had an additional impairment of
$72 million on the value of the Auction Rate Securities
(ARS) that Credit Suisse purchased on our account
contrary to our mandate, that was considered as other than
temporary, with no additional loss in the third or fourth
quarter of 2009. For more information about the ARS purchased by
Credit Suisse contrary to our instruction, which are still
accounted for and owned by us pending the execution of the
favorable arbitration award against Credit Suisse Securities LLC
(Credit Suisse) by the Financial Industry Regulatory
Authority (FINRA), see Liquidity and Capital
Resources.
Income taxes. We are required to make
estimates and judgments in determining income tax expense or
benefit for financial statement purposes. These estimates and
judgments also occur in the calculation of certain tax assets
and liabilities and provisions. Furthermore, the adoption of the
FASB guidance on accounting for uncertainty in income taxes
requires an evaluation of the probability of any tax
uncertainties and the recognition of the relevant charges.
We are also required to assess the likelihood of recovery of our
deferred tax assets. If recovery is not likely, we are required
to record a valuation allowance against the deferred tax assets
that we estimate will not ultimately be recoverable, which would
increase our provision for income taxes. Our deferred tax assets
have increased substantially in recent years in light of our
negative net earnings. As of December 31, 2009, we recorded
in our accounts certain valuation allowances based on our
current operating assumptions. However, should our operating
assumptions change we may be impaired in our ability to fully
recover our deferred tax assets in the future. Likewise, a
change in the tax rates applicable in the various jurisdictions
could have an impact on our future tax provisions in the periods
in which these changes could occur.
Patent and other IP litigation or claims. As
is the case with many companies in the semiconductor industry,
we have from time to time received, and may in the future
receive, communication alleging possible infringement of patents
and other IP rights of third parties. Furthermore, we may become
involved in costly litigation brought against us regarding
patents, mask works, copyrights, trademarks or trade secrets. In
the event the outcome of a litigation claim is unfavorable to
us, we may be required to purchase a license for the underlying
IP right on economically unfavorable terms and conditions,
possibly pay damages for prior use,
and/or face
an injunction, all of which singly or in the aggregate could
have a material adverse effect on our results of operations and
on our ability to compete. See Item 3. Key
Information Risk Factors Risks Related
to Our Operations We depend on patents to protect
our rights to our technology.
We record a provision when we believe that it is probable that a
liability has been incurred and the amount of the loss can be
reasonably estimated. We regularly evaluate losses and claims
with the support of our outside counsel to determine whether
they need to be adjusted based on current information available
to us. Legal costs associated with claims are expensed as
incurred. In the event of litigation that is adversely
determined with respect to our interests, or in the event that
we need to change our evaluation of a potential third-party
claim based on new evidence or communications, this could have a
material adverse effect on our results of operations or
financial condition at the time it were to materialize. We are
in discussion with several parties with respect to claims
against us relating to possible infringement of other
parties IP rights. We are also involved in several legal
proceedings concerning such issues.
As of December 31, 2009, based on our assessment, we did
not record any provisions in our financial statements relating
to third party IP right claims since we had not identified any
risk of probable loss that is likely to arise out of asserted
claims or ongoing legal proceedings. There can be no assurance,
however, that these will be resolved in our favor. If the
outcome of any claim or litigation were to be unfavorable to us,
we could incur monetary damages,
and/or face
an injunction, all of which singly or in the aggregate could
have an adverse effect on our results of operation and our
ability to compete.
Pension and Post Retirement Benefits. Our
results of operations and our consolidated balance sheet include
an amount of pension and post retirement benefits that are
measured using actuarial valuations. At December 31, 2009,
our pension and long-term benefit obligations net of plan assets
amounted to $317 million based on the assumption that our
employees will work with us until they reach the age of
retirement. These valuations are based on key assumptions,
including discount rates, expected long-term rates of return on
funds and salary increase rates. These assumptions are updated
on an annual basis at the beginning of each fiscal year or more
frequently upon the occurrence of significant events. Any
changes in the pension schemes or in the above assumptions can
have an impact on our valuations. The measurement date we use
for the majority of our plans is December 31.
47
Other claims. We are subject to the
possibility of loss contingencies arising in the ordinary course
of business. These include, but are not limited to: warranty
costs on our products not covered by insurance, breach of
contract claims, tax claims and provisions for specifically
identified income tax exposure as well as claims for
environmental damages. In determining loss contingencies, we
consider the likelihood of a loss of an asset or the incurrence
of a liability, as well as our ability to reasonably estimate
the amount of such loss or liability. An estimated loss is
recorded when we believe that it is probable that a liability
has been incurred and the amount of the loss can be reasonably
estimated. We regularly reevaluate any losses and claims and
determine whether our provisions need to be adjusted based on
the current information available to us. In the event we are
unable to estimate in a correct and timely manner the amount of
such loss, this could have a material adverse effect on our
results of operations or financial condition at the time such
loss were to materialize.
For more information, see Note 2 to our Consolidated
Financial Statements.
Fiscal
Year 2009
Under Article 35 of our Articles of Association, our
financial year extends from January 1 to December 31, which
is the period end of each fiscal year. The first quarter of 2009
ended on March 28, 2009. The second quarter of 2009 ended
on June 27, 2009 and the third quarter of 2009 ended on
September 26, 2009. The fourth quarter of 2009 ended on
December 31, 2009. 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.
2009
Business Overview
The total available market is defined as the TAM,
while the serviceable available market, the SAM, is
defined as the market for products produced by us (which
consists of the TAM and excludes PC motherboard major devices
such as Microprocessors (MPUs), DRAMs,
optoelectronics devices and Flash Memories).
In 2009, the semiconductor industry continued to be negatively
impacted by the difficult conditions in the global economy,
which caused both the TAM and the SAM to register significant
declines compared to the prior year. However, although the early
part of the year was characterized by a steep downturn in
demand, there was a sharp turnaround in the latter part of the
year. This has resulted in difficulty for the industry to keep
up with demand. On a quarterly basis, during 2009 the industry
registered a sequential recovery after the bottom registered in
the first quarter. In particular, in the third and fourth
quarters the semiconductor market experienced a solid recovery,
driven by an overall surge in volume. Based on published
industry data by WSTS, semiconductor industry revenues declined
in 2009 on a
year-over-year
basis by approximately 9% for the TAM and 13% for the SAM to
reach approximately $226 billion and $135 billion,
respectively. However, in the fourth quarter the TAM and the SAM
increased 7% and 4% sequentially, exceeding their 2008 levels by
approximately 29% and 16%, respectively.
With reference to our business performance, following the
deconsolidation of our FMG segment during the first quarter of
2008, the consolidation of the NXP wireless business on
August 2, 2008 and the consolidation of the EMP wireless
business as of February 3, 2009, our operating results are
no longer directly comparable to previous periods.
In 2009, our revenues as reported were $8,510 million, or a
13.5% decline
year-over-year,
reflecting the difficult market conditions registered in the
semiconductor industry. As a result, our overall performance was
basically in line with the SAM.
Our quarterly revenues continuously recovered on a sequential
basis during 2009 after the bottom registered in the first
quarter, driven by a significant increase in demand by our
customers across all of our served market segments and regions.
Consequently, our fourth quarter revenues reached
$2,583 million, exceeding our
year-over-year
and sequential performance by 13.5% and 13.6%, respectively.
While our sequential performance was significantly better than
the SAM, our
year-over-year
revenue growth was below the SAM.
In 2009, our effective exchange rate was $1.37 for 1.00,
which reflects actual exchange rate levels and the impact of
cash flow hedging contracts, compared to an effective exchange
rate of $1.49 for 1.00 in 2008. In the fourth quarter of
2009 our effective exchange rate was $1.43, while in the third
quarter of 2009 and in the fourth quarter of 2008 our effective
exchange rate was $1.38 and $1.40, respectively, for 1.00.
For a more detailed discussion of our hedging arrangements and
the impact of fluctuations in exchange rates, see Impact
of Changes in Exchange Rates below.
Our 2009 gross margin dropped 5.3 percentage points on
a
year-over-year
basis to 30.9%, due to lower sales volume and pressure on
average selling prices as a result of the difficult market
conditions in the industry, as well as underutilization charges
associated with the significant loading reduction of all of our
manufacturing sites. In
48
addition to the severe impact of an unprecedented volume
discontinuity on fab operations and efficiency, unused capacity
charges negatively impacted our 2009 gross margin by
approximately 4 percentage points. The loading reduction
also resulted in part from our decision to cut inventory levels
in order to protect our cash resources in face of the turmoil in
the financial markets. The aforementioned negative impact of
such charges was partially offset by the more favorable
U.S. dollar exchange rate and the contribution of an
improved product portfolio mix following the wireless business
integration.
Our fourth quarter 2009 gross margin was 37.0%, increasing
both compared to the 36.1% registered in the equivalent period
in 2008 and the 31.3% reported in the third quarter of 2009. The
fourth quarter benefited from a more favorable economic
environment, which contributed to improved sales volume and,
consequently, the loading of our fabs. Our fourth quarter gross
margin was also favorably impacted by improved efficiencies
resulting from our restructuring and cost cutting measures, in
particular the closing of certain fabs. However, we were still
not at full saturation and our margin continued to reflect
certain unused capacity charges.
Our operating expenses, combining selling, general and
administrative expenses and research and development expenses,
grew in 2009 compared to 2008, due primarily to increased
R&D activities consolidated with our recent wireless
integration, and despite a significant favorable currency
impact. As in the previous year, 2009 R&D expenses were
accounted for net of certain tax credits directly associated
with our ongoing programs. In 2009, the amount of these credits
was $146 million compared to $161 million in 2008.
In 2009, we continued certain ongoing restructuring initiatives
and implemented new programs to streamline our cost structure,
in particular after the consolidation of the new wireless
activities. This resulted in impairment and restructuring
charges of $291 million, similar to the amount booked in
2008. In 2008, we reported additional charges of
$216 million in connection with the closing of the FMG
transaction.
Our Other income and expenses, net improved
significantly in 2009, supported by additional funds granted to
our R&D programs through new contracts signed with the
French government covering the period 2008 through 2012. Total
funding recognized in 2009 was approximately $202 million,
including the recognition of contracts signed in 2009 but also
related to 2008 projects, significantly higher than the
$83 million registered in the prior year period. As a
result, Other income and expenses, net resulted in
income of $166 million compared to income of
$62 million in 2008.
Our operating result in 2009 was a loss of $1,023 million
compared to a loss of $198 million in 2008. As indicated
above, our operating loss was largely negatively impacted by the
material drop in our revenues and unused capacity charges, which
exceeded the benefits of the strengthening U.S. dollar
exchange rate and higher amounts of R&D funding. Our fourth
quarter 2009 operating result was a loss of $6 million,
decreasing from the previous quarters loss of
$196 million, driven by higher sales volume and improved
manufacturing efficiencies. Our product segments, except
Wireless, achieved operating profit in the fourth quarter. IMS
and ACCI, in particular, registered a substantial improvement in
their level of profitability.
Interest income, net decreased significantly from
$51 million in 2008 to $9 million in 2009 due to lower
interest income resulting from significantly lower
U.S. dollar and Euro denominated interest rates registered
in the financial markets compared to 2008.
In 2009, we booked a $337 million loss on equity
investments, mainly consisting of $303 million related to
our proportional stake in Numonyx, which included a
$200 million equity investment impairment recorded in the
first quarter 2009. In 2008, our loss on equity investments was
$553 million almost entirely attributable to our loss in
Numonyx.
In summary, our profitability in 2009 was negatively impacted by
the following factors:
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sharp drop in demand as a result of the global economic downturn;
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negative pricing trend;
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manufacturing inefficiencies experienced in our fabs due to the
disruption in their operations throughout the year;
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unused capacity charges arising from the underutilization of our
fabs;
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loss recorded in relation to our equity investments, although
mitigated compared to the prior year;
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additional impairment and other restructuring charges related to
our ongoing and newly adopted plans, although lower compared to
the prior year;
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the additional R&D expenses inherited from the integrated
wireless businesses, while the synergy plans are being
implemented; and
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losses on financial assets, pending the payment by Credit Suisse
of the amount due pursuant to the FINRA arbitration award that
is favorable to us.
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The aforementioned factors were partially offset by the
following elements:
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favorable currency impact;
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improved product portfolio mix, after deconsolidating Flash and
integrating the wireless businesses;
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additional funding for our R&D projects;
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the cost savings resulting to date from the restructuring
programs that are in progress; and
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non-controlling interest related to the 50% ownership of
ST-Ericssons losses, which counterbalanced the negative
operating results in the wireless segment.
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Our fourth quarter financial results reflect a positive finish
to a very difficult year for us, the semiconductor industry and
the global economy. Our fourth quarter net revenues increased
sequentially above our outlook range and our gross margin came
above the midpoint of our outlook range. We approached
break-even with a $6 million loss after restructuring
charges of $96 million. Excluding restructuring charges,
our fourth quarter operating result therefore returned to
profitability. Our stronger than forecasted quarterly sequential
revenue performance was thanks to growth in all regions and
market segments, with all segments, except Telecom, posting
double-digit growth. As a result, we improved our financial
performance in the fourth quarter in terms of operating margins
and net operating cash flow despite an unfavorable currency
environment.
Despite the challenging economic environment, we made
significant progress over the course of 2009 by successfully
delivering on key actions announced earlier in the year. First,
we protected and then enhanced our cash position. Second, we
made excellent progress in lowering our cost base with a
$1 billion cost savings plan announced in mid-2009, which
we anticipate will be completed by around the middle of 2010.
Our focus on strong capital management is clearly evidenced from
our cash flow and balance sheet metrics. We took aggressive
actions to generate cash by accelerating our cash conversion
cycle, resulting in a $565 million reduction in inventory
and record turns above five times. We reduced the ratio of our
capital expenditures to sales to 5.3%, in line with our asset
lighter strategy. We repurchased approximately one-third of our
outstanding convertible bonds with no need of refinancing. We
closed the year with $2.9 billion in cash, restricted cash
and marketable securities and with a net cash position of
$420 million at of December 31, 2009, significantly
improving from a net debt of $545 million at
December 31, 2008.
Business
Outlook
We started the first quarter of 2010 with a solid backlog and
are working to serve our customers demand. In line with
historical trends, we expect to register a sequential net
revenue decrease in the first quarter of 2010 of between about
-7% and -13%, which equates to an increase of 35% to 45% in net
revenues when compared to the
year-over-year
period. We expect a better than historical evolution in our
gross margin to about 37.5%, plus or minus 1 percentage
point, thanks to better manufacturing loading and efficiencies
and an improved product mix.
Looking forward, we believe we are well positioned to benefit
from the industry upturn because of the important work we have
done in product and technology innovation. We plan to deliver
the benefits of our innovation to our customers and we also
expect ST-Ericsson to execute on its plan to transition to the
new portfolio strategy they have devised for their next
generation offering. Our recent design-wins for digital consumer
platforms, ASICs, and automotive products and our many promising
offerings including 32-bit microcontrollers, MEMS with our new
families of gyroscopes and active microphones, low-power sensors
for healthcare, and building automation applications highlight
our efforts to continuously improve our product portfolio.
We have emerged from the recession in a stronger financial
position. Our balance sheet is among the strongest in the
semiconductor industry, with healthy receivables, appropriate
inventory levels and a solid net cash position. Two of our three
product segments have returned to profitability and are expected
to improve their level of operating margin performance as we
move through 2010. We also expect ST-Ericsson to complete its
cost realignment plan during the year. Overall, we are confident
that all product segments will contribute to further improvement
in our operating results.
50
In summary, we are excited about the many opportunities ahead of
us. While we continue to make solid progress on reducing our
cost structure, our innovative product portfolio is positioning
us well to achieve sustainable profitability and cash flow
generation.
Our outlook is based on an assumed effective currency exchange
rate of approximately $1.42 = 1.00 for the 2010 first
quarter, which reflects an assumed exchange rate of $1.44 =
1.00, combined with the impact of existing hedging
contracts averaging a hedged rate of about $1.41 = 1.00.
In addition, the first quarter will close on March 27, 2010.
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 herein.
Other
Developments
On February 3, 2009, we announced the closing of our
agreement to merge ST-NXP Wireless into a joint venture with
EMP. Ericsson contributed $1.1 billion to the joint venture
and $700 million was paid to us. Prior to the closing of
the transaction, we exercised our option to buy out NXPs
20% ownership stake of ST-NXP Wireless. Governance of
ST-Ericsson is balanced, with each parent appointing four
directors to the board. Employing about
8,000 people roughly 3,000 from Ericsson and
approximately 5,000 from us ST-Ericsson is
headquartered in Geneva, Switzerland. On September 2, 2009,
ST-Ericsson announced the appointment of wireless industry
expert Gilles Delfassy as president and CEO. Mr. Delfassy
assumed his position on November 2, 2009.
On February 16, 2009, we announced that we had received a
favorable arbitration award by FINRA against Credit Suisse for
unauthorized investments made in ARS, awarding approximately
$406 million plus interest to us. For more information, see
Liquidity and Capital Resources.
At the end of March 2009, we entered into a framework agreement
with the French Ministry of Economy, Industry and Employment for
the Nano2012 Research and Development program, which
confirmed our position as the Coordinator and Project Leader and
allocated to us 340 million (about $450 million)
in grants for the period
2008-2012.
On July 17, 2009 we formally launched the program at our
site in Crolles, near Grenoble, France.
On March 31, 2009, we announced the completion of our
$500 million medium-term committed credit-facilities
program. The $500 million of credit facilities were
provided on a bilateral basis by Intesa-San Paolo,
Société Générale, Citibank, Centrobanca (UBI
Group) and Unicredit. The loan agreements had been executed
between October 2008 and March 2009 with commitments from the
banks for up to 3 years. We do not currently envisage any
utilization of these credit facilities, which have been set up
for liquidity purposes to strengthen the Companys
financial flexibility.
At our annual general meeting of shareholders held on
May 20, 2009, the following proposals, inter alia, were
approved
and/or
adopted by our shareholders:
|
|
|
|
|
The distribution of a cash dividend of $0.12 per common share,
to be paid in four equal installments, in May 2009, August 2009,
November 2009 and February 2010. Payment of an installment will
be made to shareholders of record in the month of each quarterly
payment;
|
|
|
|
The reappointment for a three-year term, expiring at the 2012
Annual General Meeting, for the following members of the
Supervisory Board: Mr. Doug Dunn and Dr. Didier
Lamouche; and
|
|
|
|
The maximum number of restricted Share Awards under
our existing
5-year
Employee Unvested Share Award Plan
(2008-2012)
of 30,500,000, which includes any Unvested Stock Awards granted
to our President and CEO as part of his compensation, with the
maximum number of restricted shares in 2009 to be
6,100,000.
|
On June 25, 2009, we announced the publication of our 2008
Corporate Responsibility Report. The report which covers all our
activities and sites in 2008, contains detailed indicators of
our performance across the full range of Social, Environmental,
Health & Safety, and Corporate Governance issues and
reaffirms our long-established commitment to serving its
stakeholders with integrity, transparency and excellence.
On September 22, 2009 we announced the appointment of Paul
Grimme as Corporate Vice President and General Manager of the
Automotive Product Group (APG), reporting to our President and
CEO, Carlo Bozotti.
In December 2009, we began a program to repurchase a portion of
our outstanding Zero Coupon Senior Convertible Bonds due 2016
(2016 Bonds). At December 31, 2009, a total of
98 thousand bonds with an accreted
51
value of $106 million had been repurchased for a total cash
consideration of $103 million. The bonds were repurchased
in off market transactions by financial intermediaries, acting
as agents for us. On January 14, 2010, we completed our
program, repurchasing over 200 thousand additional 2016 Bonds,
with an accreted value of $215 million for a total cash
consideration of $212 million. In all, the repurchased
bonds represented approximately $321 million, or 30.6% of
the total amount originally issued and were equivalent to
13,070,129 shares. The repurchased bonds have been cancelled in
accordance with their terms.
On December 3, 2009, we announced changes in our global
sales and marketing organization, which consolidated our regions
in Asia to two: Greater China and South Asia; and Japan and
Korea. Greater China and South Asia will be led by Corporate
Vice President Francois Guibert, and Japan and Korea will be led
by Corporate Vice President Marco Cassis. In addition, we
announced that Corporate Vice President Bob Krysiak will
spearhead our efforts to expand into Central and South America
and to continue to increase market share in North America. With
this move, we have put in place an organization to further
improve the overall focus and effectiveness of our sales and
marketing efforts.
On January 4, 2010, we announced the signature of a joint
agreement with Enel and Sharp for the manufacture of
triple-junction thin-film photovoltaic panels in Italy. The
factory, located in Catania, Italy in the existing M6 facility
to be contributed by us, is expected to have an initial
production capacity of 160 MW per year. The plants
capacity is targeted to be gradually increased to 480 MW
per year over the next few years and from its start will
represent the single most important production facility for
solar panels in Italy. Photovoltaic panel manufacturing at the
Catania plant is expected to start at the beginning of 2011.
On February 3, 2010, we announced that Tjerk Hooghiemstra
joined the Company as Executive
Vice-President,
Chief Administrative Officer, reporting to our President and
CEO, Carlo Bozotti. This new position was created with the aim
of generating synergies among several staff organizations by
optimizing the functions of Human Resources, Health &
Safety, Education, Legal, Internal Communication, Security and
Corporate Responsibility.
On February 10, 2010, we announced that we, together with
our partners Intel Corporation and Francisco Partners, had
entered into a definitive agreement with Micron Technology Inc.,
in which Micron will acquire Numonyx Holdings B.V. in an
all-stock transaction. In this transaction, upon the terms and
subject to the conditions of the definitive agreement, in
exchange for all of the outstanding capital stock of Numonyx,
the cancellation of
30-year
notes due to the Numonyx shareholders by Numonyx, and the
assumption of all outstanding restricted stock units held by
Numonyx employees at closing, Micron will issue to
Numonyxs shareholders an aggregate of 140 million
shares of Micron common stock, subject to a purchase price
adjustment on a linear basis of up to 10 million additional
shares of Micron common stock to the extent the volume weighted
average price of the Micron shares for the 20 trading days,
ending two days prior to the closing of the transaction, ranges
from $9.00 to $7.00 per share. At the closing, 15% of the Micron
shares issuable to us and the other sellers will be deposited
into escrow for 12 months as partial security for our
indemnification obligations to Micron. Micron shares will be
held by us as a financial investment. Based on Microns
closing stock price on February 9, 2010 of $9.08 per share,
we will receive in exchange for our 48.6% stake in
Numonyx and the cancellation of the
30-year note
due to us by Numonyx approximately 66.6 million
shares of Micron common stock (including the shares that will be
held in escrow and taking into account a payable of
$77.8 million that we owe to Francisco Partners) and the
transfer to us from Numonyx of the M6 industrial facility in
Catania, Italy. As previously announced, we plan to contribute
our M6 facility in Catania to our new photovoltaic joint
initiative with Enel and Sharp. Upon closing, Numonyx will repay
the full amount of its outstanding $450 million term loan,
while simultaneously terminating our $225 million guarantee
of its debt. The closing of the deal is subject to regulatory
approvals and customary closing conditions.
Results
of Operations
Segment
Information
We operate in two business areas: Semiconductors and Subsystems.
In the semiconductors business area, we design, develop,
manufacture and market a broad range of products, including
discrete and standard commodity components, application-specific
integrated circuits (ASICs), full-custom devices and
semi-custom devices and application-specific standard products
(ASSPs) for analog, digital and mixed-signal
applications. In addition, we further participate in the
manufacturing value chain of Smartcard products through our
divisions, which include the production and sale of both silicon
chips and Smart cards.
As of March 31, 2008, following the creation with Intel of
Numonyx, a new independent semiconductor company from the key
assets of our and Intels Flash memory business (FMG
deconsolidation), we ceased reporting the FMG segment.
52
Starting August 2, 2008, we reorganized our product groups.
A new segment was created to report wireless operations.
Moreover, as of February 3, 2009, we added the MP product
line to Wireless.
The organization during 2009 was as follows:
|
|
|
|
|
Automotive, Consumer, Computer and Communication Infrastructure
(ACCI), comprised of four product lines:
|
Automotive Products Group (APG);
Computer and Communication Infrastructure
(CCI);
Home Entertainment & Displays
(HED); and
Imaging (IMG).
|
|
|
|
|
Industrial and Multi segment Sector (IMS), comprised
of:
|
Analog Power and Micro-Electro-Mechanical Systems
(APM); and
Microcontrollers, non-Flash, non-volatile Memory and
Smart Card products (MMS).
|
|
|
|
|
Wireless (Wireless), comprised of:
|
|
|
|
|
|
Cellular Systems (CS);
|
|
|
|
Connectivity & Peripherals (C&P);
|
|
|
|
Mobile Platforms (MP);
|
|
|
|
Wireless Multi Media (WMM);
|
in which, since February 3, 2009, we report the portion of
sales and operating results of ST-Ericsson as consolidated in
our revenue and operating results; and
|
|
|
|
|
Other Wireless, in which we report manufacturing margin,
R&D revenues and other items related to the wireless
business but outside the ST-Ericsson JVS.
|
As of January 1, 2010, Wireless is comprised of the
following lines:
2 GE TD-SCDMA & Connectivity;
3G Multimedia & Platforms;
LTE & 3G Modem Solutions;
in which we report the portion of sales and operating results of
ST-Ericsson as consolidated in our revenue and operating
results; and
|
|
|
|
|
Other Wireless, in which we report manufacturing margin,
R&D revenues and other items related to the wireless
business but outside the ST-Ericsson JVS.
|
We have restated our results in prior periods for illustrative
comparisons of our performance by product segment. The
preparation of segment information based on the current segment
structure requires management to make significant estimates,
assumptions and judgments in determining the operating income of
the segments for the prior reporting periods. We believe that
the restated 2007 and 2008 presentation is consistent with
2009s and we use these comparatives when managing our
Company.
Our principal investment and resource allocation decisions in
the semiconductor business area are for expenditures on R&D
and capital investments in front-end and back-end manufacturing
facilities. These decisions are not made by product segments,
but on the basis of the semiconductor business area. All these
product segments share common R&D for process technology
and manufacturing capacity for most of their products.
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 segment
does not meet the requirements for a reportable segment as
defined in the guidance on disclosures about segments of an
enterprise and related information.
53
The following tables present our consolidated net revenues and
consolidated operating income by semiconductor product group
segment. For the computation of the segments internal
financial measurements, we use certain internal rules of
allocation for the costs not directly chargeable to the
segments, including cost of sales, selling, general and
administrative expenses and a significant part of R&D
expenses. Additionally, in compliance with our internal
policies, certain cost items are not charged to the segments,
including unused capacity charges, impairment, restructuring
charges and other related closure costs,
start-up
costs of new manufacturing facilities, some strategic and
special R&D programs or other corporate-sponsored
initiatives, including certain corporate level operating
expenses, acquired IP R&D, other non-recurrent purchase
accounting items and certain other miscellaneous charges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Net revenues by product segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Consumer Computer and Communication Infrastructure
(ACCI)
|
|
$
|
3,198
|
|
|
$
|
4,129
|
|
|
$
|
3,944
|
|
Industrial and Multi-segment Sector (IMS)
|
|
|
2,641
|
|
|
|
3,329
|
|
|
|
3,138
|
|
Wireless (Wireless)
|
|
|
2,585
|
|
|
|
2,030
|
|
|
|
1,495
|
|
Others(1)
|
|
|
86
|
|
|
|
55
|
|
|
|
60
|
|
Flash Memories Group (FMG)
|
|
|
|
|
|
|
299
|
|
|
|
1,364
|
|
Total consolidated net revenues
|
|
$
|
8,510
|
|
|
$
|
9,842
|
|
|
$
|
10,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes revenues from the sales of subsystems and other
products not allocated to product segments. |
For each product segment, the following table discloses the
revenues of their relevant product lines for the periods under
review:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Net revenues by product lines:
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Products Group (APG)
|
|
$
|
1,051
|
|
|
$
|
1,460
|
|
|
$
|
1,419
|
|
Computer and Communication Infrastructure (CCI)
|
|
|
932
|
|
|
|
1,077
|
|
|
|
1,123
|
|
Home Entertainment & Displays (HED)
|
|
|
787
|
|
|
|
1,086
|
|
|
|
963
|
|
Imaging (IMG)
|
|
|
417
|
|
|
|
499
|
|
|
|
439
|
|
Others
|
|
|
11
|
|
|
|
7
|
|
|
|
|
|
Automotive Consumer Computer and Communication Infrastructure
(ACCI)
|
|
|
3,198
|
|
|
|
4,129
|
|
|
|
3,944
|
|
Analog, Power and Micro-Electro-Mechanical Systems
(APM)
|
|
|
1,887
|
|
|
|
2,393
|
|
|
|
2,313
|
|
Microcontrollers, non-Flash, non-volatile Memory and Smartcard
products (MMS)
|
|
|
752
|
|
|
|
936
|
|
|
|
825
|
|
Others
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Industrial and Multisegment Sector (IMS)
|
|
|
2,641
|
|
|
|
3,329
|
|
|
|
3,138
|
|
Cellular Systems (CS)(1)
|
|
|
748
|
|
|
|
321
|
|
|
|
|
|
Connectivity & Peripherals (C&P)
|
|
|
416
|
|
|
|
416
|
|
|
|
207
|
|
Mobile Platforms (MP)
|
|
|
300
|
|
|
|
|
|
|
|
|
|
Wireless Multi Media (WMM)
|
|
|
1,110
|
|
|
|
1,293
|
|
|
|
1,288
|
|
Others
|
|
|
11
|
|
|
|
|
|
|
|
|
|
Wireless (Wireless)
|
|
|
2,585
|
|
|
|
2,030
|
|
|
|
1,495
|
|
Others
|
|
|
86
|
|
|
|
55
|
|
|
|
60
|
|
Flash Memories Group (FMG)
|
|
|
|
|
|
|
299
|
|
|
|
1,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated net revenues
|
|
$
|
8,510
|
|
|
$
|
9,842
|
|
|
$
|
10,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
CS includes the largest part of the revenues contributed by NXP
Wireless and, as such, there are no comparable numbers available
for 2007. C&P also partly benefited from the NXP wireless
contribution. |
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Operating income (loss) by product segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Consumer Computer and Communication Infrastructure
(ACCI)
|
|
$
|
(91
|
)
|
|
$
|
136
|
|
|
$
|
198
|
|
Industrial and Multisegment Sector (IMS)
|
|
|
113
|
|
|
|
482
|
|
|
|
469
|
|
Wireless (Wireless)(1)
|
|
|
(356
|
)
|
|
|
(65
|
)
|
|
|
105
|
|
Others(2)
|
|
|
(689
|
)
|
|
|
(767
|
)
|
|
|
(1,266
|
)
|
Operating income (loss) excluding FMG
|
|
|
(1,023
|
)
|
|
|
(214
|
)
|
|
|
(494
|
)
|
Flash Memories Group (FMG)
|
|
|
|
|
|
|
16
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated operating loss
|
|
$
|
(1,023
|
)
|
|
$
|
(198
|
)
|
|
$
|
(545
|
)
|
|
|
|
(1) |
|
The majority of Wireless activities are run through
ST-Ericsson JVS, a JV between us and Ericsson. The minority
interest of Ericsson in ST-Ericssons operating losses
(which are 100% included in the wireless segment) is credited in
the line Non controlling interest of our Income
Statement, which reported income of $265 million for the
year ended December 31, 2009. |
|
(2) |
|
Operating loss of Others includes items such as
unused capacity charges, impairment, restructuring charges and
other related closure costs,
start-up and
phase-out costs, and other unallocated expenses such as:
strategic or special R&D programs, acquired IP R&D and
other non-recurrent purchase accounting items, certain corporate
level operating expenses, certain patent claims and litigation,
and other costs that are not allocated to the product segments,
as well as operating earnings or losses of the Subsystems and
Other Products Group. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(As percentage of net revenues)
|
|
|
Operating income (loss) by product segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Consumer Computer and Communication Infrastructure
(ACCI)
|
|
|
(2.8
|
)%
|
|
|
3.3
|
%
|
|
|
5.0
|
%
|
Industrial and Multi-segment Sector (IMS)(1)
|
|
|
4.3
|
|
|
|
14.5
|
|
|
|
14.9
|
|
Wireless (Wireless)(1)
|
|
|
(13.8
|
)
|
|
|
(3.2
|
)
|
|
|
7.0
|
|
Others(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Flash Memories Group (FMG)(1)
|
|
|
0
|
|
|
|
5.4
|
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated operating loss(3)
|
|
|
(12.0
|
)%
|
|
|
(2.0
|
)%
|
|
|
(5.4
|
)%
|
|
|
|
(1) |
|
As a percentage of net revenues per product group. |
|
(2) |
|
Includes operating income (loss) from sales of subsystems and
other income (costs) not allocated to product segments. |
|
(3) |
|
As a percentage of total net revenues. |
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Reconciliation to consolidated operating loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss) of product segments
|
|
$
|
(334
|
)
|
|
$
|
553
|
|
|
$
|
772
|
|
Total operating income FMG
|
|
|
|
|
|
|
16
|
|
|
|
(51
|
)
|
Unused capacity charges
|
|
|
(322
|
)
|
|
|
(57
|
)
|
|
|
|
|
Impairment, restructuring charges and other related closure costs
|
|
|
(291
|
)
|
|
|
(481
|
)
|
|
|
(1,228
|
)
|
Start-up /
phase- out costs
|
|
|
(39
|
)
|
|
|
(17
|
)
|
|
|
(24
|
)
|
Strategic and other research and development programs
|
|
|
(13
|
)
|
|
|
(24
|
)
|
|
|
(20
|
)
|
Equipment write-off
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
R&D funding
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
Consulting fees related to business combinations
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
Acquired In-Process R&D and other non recurring purchase
accounting items
|
|
|
|
|
|
|
(185
|
)
|
|
|
|
|
Manufacturing services
|
|
|
16
|
|
|
|
|
|
|
|
|
|
Other non-allocated provisions(1)
|
|
|
(12
|
)
|
|
|
(3
|
)
|
|
|
6
|
|
Total operating loss Others
|
|
|
(689
|
)
|
|
|
(767
|
)
|
|
|
(1,266
|
)
|
Total consolidated operating loss
|
|
$
|
(1,023
|
)
|
|
$
|
(198
|
)
|
|
$
|
(545
|
)
|
|
|
|
(1) |
|
Includes unallocated income and expenses such as certain
corporate level operating expenses and other costs that are not
allocated to the product segments. |
Net
revenues by location of order shipment and by market
segment
The table below sets forth information on our net revenues by
location of order shipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Net Revenues by Location of Order Shipment:(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA
|
|
$
|
2,413
|
|
|
$
|
3,024
|
|
|
$
|
3,342
|
|
Americas
|
|
|
1,015
|
|
|
|
1,334
|
|
|
|
1,342
|
|
Asia Pacific
|
|
|
2,567
|
|
|
|
2,480
|
|
|
|
2,092
|
|
Greater China
|
|
|
2,132
|
|
|
|
2,492
|
|
|
|
2,750
|
|
Japan
|
|
|
383
|
|
|
|
512
|
|
|
|
475
|
|
Total
|
|
$
|
8,510
|
|
|
$
|
9,842
|
|
|
$
|
10,001
|
|
|
|
|
(1) |
|
Net revenues by location of order shipment are classified by
location of customer invoiced. 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 order
shipment from one location to another, as requested by our
customers. |
|
(2) |
|
As of January 1, 2009, Emerging Markets has been
reallocated to the EMEA, Americas and Asia Pacific organizations. |
56
The table below shows our net revenues by location of order
shipment and market segment application in percentage of net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(As percentage of net revenues)
|
|
|
Net Revenues by Location of Order Shipment:(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA
|
|
|
28.4
|
%
|
|
|
30.7
|
%
|
|
|
33.4
|
%
|
Americas
|
|
|
11.9
|
|
|
|
13.6
|
|
|
|
13.4
|
|
Asia Pacific
|
|
|
30.2
|
|
|
|
25.2
|
|
|
|
20.9
|
|
Greater China
|
|
|
25.0
|
|
|
|
25.3
|
|
|
|
27.5
|
|
Japan
|
|
|
4.5
|
|
|
|
5.2
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Net Revenues by Market Segment Application(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
|
|
|
12.2
|
%
|
|
|
13.8
|
%
|
|
|
14.4
|
%
|
Consumer
|
|
|
11.5
|
|
|
|
13.6
|
|
|
|
14.0
|
|
Computer
|
|
|
12.9
|
|
|
|
12.0
|
|
|
|
12.4
|
|
Telecom
|
|
|
39.9
|
|
|
|
33.3
|
|
|
|
33.5
|
|
Industrial and Other
|
|
|
7.7
|
|
|
|
9.0
|
|
|
|
7.5
|
|
Distribution
|
|
|
15.8
|
|
|
|
18.3
|
|
|
|
18.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
(1) |
|
Net revenues by location of order shipment are classified by
location of customer invoiced. 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 order
shipment from one location to another, as requested by our
customers. |
|
(2) |
|
As of January 1, 2009, Emerging Markets has been
reallocated to the EMEA, Americas and Asia Pacific organizations. |
|
(3) |
|
The above table estimates, within a variance of 5% to 10% in the
absolute dollar amount, the relative weighting of each of our
target segments. |
57
The following table sets forth certain financial data from our
Consolidated Statements of Income, expressed in each case as a
percentage of net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(As percentage of net revenues)
|
|
|
Net sales
|
|
|
99.5
|
%
|
|
|
99.5
|
%
|
|
|
99.7
|
%
|
Other revenues
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.3
|
|
Net revenues
|
|
|
100
|
|
|
|
100
|
|
|
|
100
|
|
Cost of sales
|
|
|
(69.1
|
)
|
|
|
(63.8
|
)
|
|
|
(64.6
|
)
|
Gross profit
|
|
|
30.9
|
|
|
|
36.2
|
|
|
|
35.4
|
|
Selling, general and administrative
|
|
|
(13.6
|
)
|
|
|
(12.1
|
)
|
|
|
(11.0
|
)
|
Research and development
|
|
|
(27.8
|
)
|
|
|
(21.9
|
)
|
|
|
(18.0
|
)
|
Other income and expenses, net
|
|
|
1.9
|
|
|
|
0.6
|
|
|
|
0.5
|
|
Impairment, restructuring charges and other related closure costs
|
|
|
(3.4
|
)
|
|
|
(4.9
|
)
|
|
|
(12.3
|
)
|
Operating loss
|
|
|
(12.0
|
)
|
|
|
(2.0
|
)
|
|
|
(5.4
|
)
|
Other-than-temporary
impairment charge and realized losses on financial assets
|
|
|
(1.6
|
)
|
|
|
(1.4
|
)
|
|
|
(0.4
|
)
|
Interest income, net
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
0.8
|
|
Gain (loss) on financial assets
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
Gain on convertible debt buyback
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
Earnings (loss) on equity investments
|
|
|
(4.0
|
)
|
|
|
(5.6
|
)
|
|
|
0.1
|
|
Loss before income taxes and noncontrolling interests
|
|
|
(17.6
|
)
|
|
|
(8.4
|
)
|
|
|
(4.9
|
)
|
Income tax benefit
|
|
|
1.1
|
|
|
|
0.4
|
|
|
|
0.2
|
|
Loss before noncontrolling interests
|
|
|
(16.5
|
)
|
|
|
(7.9
|
)
|
|
|
(4.7
|
)
|
Net loss (income) attributable to noncontrolling interest
|
|
|
3.2
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Net loss attributable to parent company
|
|
|
(13.3
|
)%
|
|
|
(8.0
|
)%
|
|
|
(4.8
|
)%
|
2009 vs.
2008
Based on published industry data by WSTS, semiconductor industry
revenue decreased by approximately 9% for the TAM and 13% for
the SAM.
Net
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
% Variation
|
|
|
|
(Audited, in millions)
|
|
|
Net sales
|
|
$
|
8,465
|
|
|
$
|
9,792
|
|
|
|
(13.5
|
)%
|
Other revenues
|
|
|
45
|
|
|
|
50
|
|
|
|
(10.2
|
)
|
Net revenues
|
|
$
|
8,510
|
|
|
$
|
9,842
|
|
|
|
(13.5
|
)%
|
In 2009, our net revenues decreased significantly due to the
difficult market environment experienced overall by the
semiconductor industry. Our revenues performance was basically
in line with the SAMs decline. The majority of our market
segments was negatively impacted by these difficult conditions
and registered declining rates, except for Telecom, which
benefited from the additional contribution of the NXP and EMP
wireless businesses integrated in August 2008 and February 2009,
respectively. Such a negative trend in our revenues was driven
by the large drop in units sold since average selling prices
basically remained flat as a result of an improved product mix.
By product segment, both ACCI and IMS registered double digit
declines, driven by a sharp drop in sales volume. Wireless,
however, increased approximately 27%, benefiting from the
additional contribution of the integrated wireless business.
By location of order shipment, all regions but Asia Pacific
registered a drop in revenues, ranging from declines of
approximately 25% and 24% in Japan and Americas, respectively,
to approximately 20% in EMEA and 14% in Greater China. Our
largest customer, the Nokia group of companies, accounted for
approximately 16.1% of our net revenues, compared to 17.5%
during 2008, excluding FMG.
58
Gross
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
% Variation
|
|
|
|
(Audited, in millions)
|
|
|
Cost of sales
|
|
$
|
(5,884
|
)
|
|
$
|
(6,282
|
)
|
|
|
6.3
|
%
|
Gross profit
|
|
$
|
2,626
|
|
|
$
|
3,560
|
|
|
|
(26.2
|
)%
|
Gross margin (as a percentage of net revenues)
|
|
|
30.9
|
%
|
|
|
36.2
|
%
|
|
|
|
|
Our gross profit in 2009 was largely penalized by unused
capacity charges of $322 million due to the significant
underloading of our wafer fabs planned in response to dropping
demand, coupled with our substantial reduction in inventory and
manufacturing inefficiencies. Consequently, our gross margin was
largely below the previous years result, totaling 30.9%,
or a drop of 5.3 percentage points, with unused capacity
charges estimated to account for approximately 4 percentage
points.
Gross profit and gross margin in 2009, however, benefited from
the positive impact of the strengthening U.S. dollar.
Selling,
general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
% Variation
|
|
|
(Audited, in millions)
|
|
Selling, general and administrative expenses
|
|
$
|
(1,159
|
)
|
|
$
|
(1,187
|
)
|
|
|
2.3
|
%
|
As a percentage of net revenues
|
|
|
(13.6
|
)%
|
|
|
(12.1
|
)%
|
|
|
|
|
Our selling, general and administrative expenses decreased by
approximately 2.3% despite the additional activities related to
the integration of the NXP and EMP businesses, mainly due to the
favorable impact of the strengthening U.S. dollar exchange
rate and savings from the progression of cost restructuring
plans. As a percentage of revenues, they increased to 13.6%
compared to the prior year, due primarily to the sharp decline
in our sales. The 2009 amount included $19 million of
share-based compensation charges compared to $37 million in
2008.
Research
and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
% Variation
|
|
|
(Audited, in millions)
|
|
Research and development expenses
|
|
$
|
(2,365
|
)
|
|
$
|
(2,152
|
)
|
|
|
(9.9
|
)%
|
As a percentage of net revenues
|
|
|
(27.8
|
)%
|
|
|
(21.9
|
)%
|
|
|
|
|
On a
year-over-year
basis, our R&D expenses increased in line with the
expansion of our activities, including, primarily, the
integration of the businesses from NXP and Ericsson. Our 2009
R&D expenses also benefited from a stronger
U.S. dollar exchange rate and savings from the progression
of cost restructuring plans for both us and ST-Ericsson. The
2009 amount included $11 million of share-based
compensation charges compared to $24 million in 2008.
Furthermore, there was $55 million related to amortization
charges generated by recently integrated intangibles, while the
year ago period included $23 million of such amortization
charges and $97 million as IP R&D. R&D expenses
in 2009 were net of research tax credits, which amounted to
$146 million, decreasing $15 million compared to the
year-ago period.
59
Other
income and expenses, net
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Audited,
|
|
|
|
in millions)
|
|
|
Research and development funding
|
|
$
|
202
|
|
|
$
|
83
|
|
Start-up/phase-out
costs
|
|
|
(39
|
)
|
|
|
(17
|
)
|
Exchange gain (loss) net
|
|
|
11
|
|
|
|
20
|
|
Patent costs, net of gain from settlement
|
|
|
(5
|
)
|
|
|
(24
|
)
|
Gain on sale of other non-current assets
|
|
|
3
|
|
|
|
4
|
|
Other, net
|
|
|
(6
|
)
|
|
|
(4
|
)
|
Other income and expenses, net
|
|
$
|
166
|
|
|
$
|
62
|
|
As a percentage of net revenues
|
|
|
2.0
|
%
|
|
|
0.6
|
%
|
Other income and expenses, net, mainly included, as income,
items such as R&D funding and exchange gain and, as
expenses,
start-up and
phase-out costs. R&D funding income was associated with our
R&D projects, which, upon project approval, qualifies as
funding pursuant to contracts with local government agencies in
locations where we pursue our activities. In 2009, the balance
of these factors resulted in net income of $166 million, a
significant improvement compared to the equivalent period in
2008, resulting from the booking of new funding for an R&D
program in France. As a result, total funding reached in 2009
was $202 million, which included the
catch-up of
2008 projects, and resulted in an amount significantly higher
compared to 2008. The 2009 amount also included a higher level
of phase-out costs associated with the closure of our facilities
in Carrollton, Texas and Ain Sebaa, Morocco.
Impairment,
restructuring charges and other related closure
costs
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
|
(Audited, in millions)
|
|
Impairment, restructuring charges and other related closure costs
|
|
$
|
(291
|
)
|
|
$
|
(481
|
)
|
In 2009, we recorded $291 million in impairment,
restructuring charges and other related closure costs, of which:
|
|
|
|
|
$126 million related to the closure of our Ain Sebaa
(Morocco), Carrollton (Texas) and Phoenix (Arizona) sites,
including $101 million of one-time termination benefits, as
well as other relevant charges and $25 million as
impairment charges on the fair value of Carrollton and Phoenix
assets;
|
|
|
|
$100 million related to the new plans announced in April
and December 2009 by ST-Ericsson, to be completed in 2010,
primarily consisting of on-going termination benefits pursuant
to the closure of certain locations in Europe and the United
States;
|
|
|
|
$59 million related to other ongoing and newly committed
restructuring plans, consisting primarily of voluntary
termination benefits and early retirement arrangements in some
of our European locations; and
|
|
|
|
$6 million as impairment on certain goodwill.
|
In 2008, this expense was mainly comprised of the following:
$216 million originated by the disposal of the FMG assets,
which required the recognition of $190 million as an
additional loss as a result of a revision in the terms of the
transaction from those expected at December 31, 2007 and
$26 million as restructuring and other related disposal
costs; $164 million incurred as part of our ongoing 2007
restructuring initiatives which included the closure of our fabs
in Phoenix and Carrollton (USA) and of our back-end facilities
in Ain Sebaa (Morocco); $13 million as impairment charges
on goodwill and certain financial investments; and
$88 million for other
60
previously and newly announced restructuring plans, consisting
primarily of voluntary termination benefits and early retirement
arrangements in some of our European locations.
Operating
loss
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
|
(Audited, in millions)
|
|
Operating loss
|
|
$
|
(1,023
|
)
|
|
$
|
(198
|
)
|
As a percentage of net revenues
|
|
|
(12.0
|
)%
|
|
|
(2.0
|
)%
|
Our operating results were largely impacted by the strong
decline in revenues, which also triggered the recognition of
significant underutilization charges. As a result, we registered
an operating loss of $1,023 million, significantly larger
than our operating loss of $198 million in 2008.
All of our product segments registered a decline in their
operating results on a
year-over-year
basis, driven by the drop in revenues. ACCI moved from a profit
of $136 million to a loss of $91 million. IMS
registered a profit of $113 million, compared to a profit
of $482 million in 2008. Wireless registered an operating
loss of $356 million compared to an operating loss of
$65 million in the year ago period, due to deteriorated
market conditions and additional charges associated with recent
acquisitions. The majority of Wireless activities are run
through ST-Ericsson JVS, the JV between us and Ericsson. The
minority interest of Ericsson in ST-Ericssons operating
losses (which are 100% included in the wireless segment) is
credited in the line Non controlling interest of our
Income Statement, which reported income of $265 million for
the year ended December 31, 2009. The Segment
Others reported a significant loss since it included
the allocation of $322 million of unused capacity charges,
$291 million impairment and restructuring charges and
$39 million phase-out costs related to the closure of
certain manufacturing facilities.
Other-than-temporary
impairment charges and realized losses on financial
assets
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
|
(Audited, in millions)
|
|
Other-than-temporary
impairment charges and realized losses on financial assets
|
|
$
|
(140
|
)
|
|
$
|
(138
|
)
|
The 2009 amount is related to an
other-than-temporary
impairment of $72 million and a realized loss of
$68 million, both linked to the portfolio of ARS purchased
on our account by Credit Suisse contrary to our instruction. See
Liquidity and Capital Resources.
Interest
income, net
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
|
(Audited, in millions)
|
|
Interest income, net
|
|
$
|
9
|
|
|
$
|
51
|
|
We recorded net interest income of $9 million, which
decreased compared to previous periods as a result of
significantly lower U.S. dollar and Euro denominated
interest rates, despite a higher amount of cash and cash
equivalents. The favorable impact of lower interest rates on our
financial liabilities at floating rate resulted in a lower
average cost of debt of 1.18%.
Loss
on equity investments
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
|
(Audited, in millions)
|
|
Loss on equity investments
|
|
$
|
(337
|
)
|
|
$
|
(553
|
)
|
The 2009 amount represented a loss of $337 million, which
includes $103 million as our net proportional share of the
loss reported by Numonyx, an additional impairment loss of
$200 million booked in the first quarter of 2009
61
on our Numonyx equity investment, a $32 million loss
related to our proportionate share in JVD as a loss
pick-up
including an amortization of basis difference and
$2 million related to other investments.
In 2008, our income on equity investments included our minority
interest in the joint venture with Hynix Semiconductor in China,
which was transferred to Numonyx on March 30, 2008.
Gain
(loss) on financial assets
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
|
(Audited, in millions)
|
|
Gain (loss) on financial assets
|
|
$
|
(8
|
)
|
|
$
|
15
|
|
In 2006, we entered into cancellable swaps with a combined
notional value of $200 million to hedge the fair value of a
portion of the convertible bonds due 2016 carrying a fixed
interest rate. The cancellable swaps convert the fixed rate
interest expense recorded on the convertible bonds due 2016 to a
variable interest rate based upon adjusted LIBOR. Until
November 1, 2008, the cancellable swaps met the criteria
for designation as a fair value hedge. Due to the exceptionally
low U.S. dollar interest rate as a consequence of the
financial crisis, we assessed in 2008 that the swaps were no
longer effective as of November 1, 2008 and the fair value
hedge relationship was discontinued. Consequently, the swaps
were classified as
held-for-trading
financial assets. An unrealized gain of $15 million was
recognized in earnings from the discontinuance date and was
reported on the line Unrealized gain on financial
assets in the consolidated statement of income for the
year ended December 31, 2008.
This instrument was sold in 2009 with a loss of $8 million
due to variation in the underlying interest rates compared to
December 31, 2008.
Gain
on convertible debt buyback
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
|
(Audited, in millions)
|
|
Gain on convertible debt buyback
|
|
$
|
3
|
|
|
$
|
|
|
The $3 million gain on convertible debt buyback is related
to the repurchase of bonds with a principal value of
$106 million for total cash consideration of
$103 million. Please see Capital Resources.
Income
tax benefit
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
|
(Audited, in millions)
|
|
Income tax benefit
|
|
$
|
95
|
|
|
$
|
43
|
|
In 2009, we registered an income tax benefit of
$95 million, reflecting the actual tax benefit estimated on
our loss before income taxes in each of our jurisdictions. This
benefit was net of about $56 million booked as a tax
expense related to the valuation allowances on our deferred tax
asset associated with our estimates of the net operating loss
recoverability in certain jurisdictions.
Net
loss (income) attributable to noncontrolling
interest
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
|
(Audited, in millions)
|
|
Net loss (income) attributable to noncontrolling interest
|
|
$
|
270
|
|
|
$
|
(6
|
)
|
As a percentage of net revenues
|
|
|
3.2
|
%
|
|
|
(0.1
|
)%
|
In 2009, we booked $270 million in income, which primarily
represented the share of the loss attributable to noncontrolling
interest that included the 20% owned by NXP in the ST-NXP joint
venture for the month of January 2009 and the 50% owned by
Ericsson in the consolidated ST-Ericsson Holding AG as of
February 2009. This amount reflected their share in the joint
ventures losses.
62
All periods included the recognition of noncontrolling interest
related to our joint venture in Shenzhen, China for assembly
operating activities. Such amounts were not material.
Net
loss attributable to parent company
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
|
(Audited, in millions)
|
|
Net loss attributable to parent company
|
|
$
|
(1,131
|
)
|
|
$
|
(786
|
)
|
As a percentage of net revenues
|
|
|
(13.3
|
)%
|
|
|
(8.0
|
)%
|
In 2009, we reported a loss of $1,131 million as a result
of adverse economic conditions, which negatively impacted our
operations and certain non-operating charges. In 2008, we had a
net loss of $786 million.
Loss per share was $(1.29) in 2009. The impact of restructuring,
impairment and
other-than-temporary
impairment charges was estimated to be approximately $(0.57) per
share. In 2008, loss per share was $(0.88) and was impacted for
approximately $(1.28) per share by restructuring, impairment
charges and other specific one-time items.
2008 vs.
2007
Based upon published industry data by WSTS, semiconductor
industry revenue decreased by approximately 2.8% for the TAM
while the SAM increased by approximately 2.4%.
Net
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
% Variation
|
|
|
|
(Audited, in millions)
|
|
|
Net sales
|
|
$
|
9,792
|
|
|
$
|
9,966
|
|
|
|
(1.8
|
)%
|
Other revenues
|
|
|
50
|
|
|
|
35
|
|
|
|
|
|
Net revenues
|
|
$
|
9,842
|
|
|
$
|
10,001
|
|
|
|
(1.6
|
)%
|
Our 2008 net revenues decreased 1.6% due to the
deconsolidation of FMG at the end of the first quarter of 2008,
despite the positive contribution received from the acquired NXP
wireless business. FMG revenues accounted for $299 million
in 2008 and $1,364 million in 2007, while the NXP wireless
contribution accounted for $491 million in 2008. Excluding
FMG and the NXP wireless business, our revenues in 2008 would
have registered a 4.8% increase over 2007, therefore exceeding
the SAMs performance. Such growth was due, in particular,
to an improved product mix and, partially, to an increase in
units sold.
All of our product group segments registered an increase in 2008
compared to 2007, with ACCI increasing by 4.7%, IMS by 6.1% and
WPS by 2.9%, excluding the NXP wireless business.
By market segment application, Industrial & Others was
the main contributor to positive
year-over-year
variation with growth of approximately 6.9% (13.1% excluding
Flash). Excluding Flash, Telecom increased by 22.4%.
By location of order shipment, Emerging Markets and Asia Pacific
registered the most significant growth, by 18.8% and 17.4%,
respectively. Japan had a more moderate increase by 7.8%, while
Europe and Greater China decreased significantly. Americas
remained basically flat. Excluding FMG, all regions increased
except for China which remained flat, with the main contributors
being Japan, Asia Pacific and Emerging Markets, which increased
by 42.8%, 34.6% and 28.1%, respectively.
In 2008, we had several large customers, with the largest one,
the Nokia Group of companies, accounting for approximately 18%
of our net revenues excluding FMG and the NXP wireless business,
decreasing from the 22% (excluding FMG) it accounted for in 2007.
63
Gross
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
% Variation
|
|
|
|
(Audited, in millions)
|
|
|
Cost of sales
|
|
$
|
(6,282
|
)
|
|
$
|
(6,465
|
)
|
|
|
2.8
|
%
|
Gross profit
|
|
$
|
3,560
|
|
|
$
|
3,536
|
|
|
|
0.7
|
%
|
Gross margin (as a percentage of net revenues)
|
|
|
36.2
|
%
|
|
|
35.4
|
%
|
|
|
|
|
Our gross profit increased slightly in 2008 compared to 2007, in
spite of lower revenues, the significant negative impact of the
U.S. dollar exchange rate and the inventory
step-up
one-time charge related to the purchase accounting for the NXP
wireless business. Excluding the inventory
step-up one
time charge, our gross margin increased to 37.1% of net revenues
compared to 35.4% in 2007, mainly driven by our portfolio
repositioning and improvements in our manufacturing performance.
Furthermore,
year-over-year
gross margin reflects an estimated 150 basis points
decrease related to the negative impact of currency fluctuations
and approximately 60 basis points related to unused
capacity charges.
Selling,
general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
% Variation
|
|
|
(Audited, in millions)
|
|
Selling, general and administrative expenses
|
|
$
|
(1,187
|
)
|
|
$
|
(1,099
|
)
|
|
|
(8.0
|
)%
|
As a percentage of net revenues
|
|
|
(12.1
|
)%
|
|
|
(11.0
|
)%
|
|
|
|
|
Our selling, general and administrative expenses increased by
approximately 8% mainly due to the impact of the weakening
U.S. dollar exchange rate and the additional expenses
originated by recent acquisitions. They also included
$14 million of amortization of intangible assets as part of
the purchase accounting for the NXP wireless business. In 2008,
such expenses included $37 million for share-based
compensation, which was the same amount we had registered in
2007.
Research
and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
% Variation
|
|
|
(Audited, in millions)
|
|
Research and development expenses
|
|
$
|
(2,152
|
)
|
|
$
|
(1,802
|
)
|
|
|
(19.5
|
)%
|
As a percentage of net revenues
|
|
|
(21.9
|
)%
|
|
|
(18.0
|
)%
|
|
|
|
|
Our R&D expenses increased for several reasons, such as
because of $97 million of one-time charges that were booked
as a write-off of IP R&D and $23 million of
amortization of acquired intangible assets related to the
purchase accounting for the NXP wireless business and Genesis.
Additionally, 2008 included higher expenses originated by the
expansion of our activities following the acquisition of Genesis
and a 3G wireless design team, as well as those associated with
the integration of the NXP wireless business. The negative
impact of the U.S. dollar exchange rate also contributed to
the increase. Such higher expenses, however, were partially
offset by the benefits of the FMG deconsolidation.
R&D expenses in 2008 also included $24 million of
share-based compensation charges, compared to $22 million
in 2007. In 2008, however, we benefited from $161 million
recognized as research tax credits following the amendment of a
law in France. The research tax credits were also available in
previous periods, however under different terms and conditions.
As such, in the past they were not shown as a reduction in
R&D expenses but rather as a reduction of income tax
expenses for the period.
64
Other
income and expenses, net
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Audited, in millions)
|
|
|
Research and development funding
|
|
$
|
83
|
|
|
$
|
97
|
|
Start-up/phase-out
costs
|
|
|
(17
|
)
|
|
|
(24
|
)
|
Exchange gain (loss) net
|
|
|
20
|
|
|
|
1
|
|
Patent litigation costs
|
|
|
(14
|
)
|
|
|
(18
|
)
|
Patent pre-litigation costs
|
|
|
(10
|
)
|
|
|
(10
|
)
|
Gain on sale of non-current assets
|
|
|
4
|
|
|
|
|
|
Other, net
|
|
|
(4
|
)
|
|
|
2
|
|
Other income and expenses, net
|
|
$
|
62
|
|
|
$
|
48
|
|
As a percentage of net revenues
|
|
|
0.6
|
%
|
|
|
0.5
|
%
|
Other income and expenses, net resulted in net
income of $62 million in 2008, compared to net income of
$48 million in 2007 primarily as a result of some exchange
gains and lower
start-up
costs. R&D funding included the income of some of our
R&D projects, which qualify as funding on the basis of
contracts with local government agencies in locations where we
pursue our activities. The majority of our R&D funding was
received in Italy and France and, compared to 2007, it decreased
slightly.
Impairment,
restructuring charges and other related closure
costs
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
|
(Audited, in millions)
|
|
Impairment, restructuring charges and other related closure costs
|
|
$
|
(481
|
)
|
|
$
|
(1,228
|
)
|
Impairment, restructuring charges and other related closure
costs continued to materially impact our results, although they
decreased significantly compared to the previous year. In 2008
this expense was mainly comprised of:
|
|
|
|
|
$216 million originated by the FMG assets disposal which
required the recognition of $190 million as an additional
loss and $26 million as restructuring and other related
disposal costs; this additional loss was the result of revised
terms of the transaction from those expected at
December 31, 2007;
|
|
|
|
$164 million incurred as part of our ongoing 2007
restructuring initiatives which include the closure of our fabs
in Phoenix and Carrollton (USA) and of our back-end facilities
in Ain Sebaa (Morocco);
|
|
|
|
$13 million as impairment charges on goodwill and certain
financial investments; and
|
|
|
|
$88 million for other previously and newly announced
restructuring plans, consisting primarily of voluntary
termination benefits and early retirement arrangements in some
of our European locations.
|
In 2007, we incurred $1,228 million of impairment,
restructuring charges and other related closure costs, including
$1,106 million loss booked upon signing the agreement for
the disposal of our FMG assets, a $1 million impairment
charge related to certain FMG equipment and $5 million in
FMG related closure costs, $73 million related to the
severance costs booked in relation to the 2007 restructuring
plan of our manufacturing activities, $5 million as
impairment charge on equity investment and certain technologies
and $38 million relating to previously announced headcount
reduction programs.
Operating
loss
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
|
(Audited, in millions)
|
|
Operating loss
|
|
$
|
(198
|
)
|
|
$
|
(545
|
)
|
As a percentage of net revenues
|
|
|
(2.0
|
)%
|
|
|
(5.4
|
)%
|
65
Our operating loss significantly decreased compared to 2007
primarily due to lower impairment charges, while our business
operations improved during the period, despite the significant
negative impact of fluctuations in the U.S. dollar exchange
rate.
Other-than-temporary
impairment charges on financial assets
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
|
(Audited, in millions)
|
|
Other-than-temporary
impairment charges on financial assets
|
|
$
|
(138
|
)
|
|
$
|
(46
|
)
|
At December 31, 2008, subsequent to the unauthorized
purchase made by Credit Suisse, we had Auction Rate Securities,
representing interests in collateralized obligations and credit
linked notes, that were carried on our balance sheet as
available-for-sale
financial assets at an amount of $242 million with a par
value of $415 million. For more details, see the paragraph
Liquidity and Capital Resources.
Interest
income, net
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
|
(Audited, in millions)
|
|
Interest income, net
|
|
$
|
51
|
|
|
$
|
83
|
|
In 2008, interest income, net contributed $51 million
compared to the $83 million recorded in 2007. The lower
amount is due to the decrease of our cash position after payment
for the NXP wireless business and Genesis, and also because of
less interest income received on our cash investments compared
to 2007 due to lower U.S. dollar denominated interest rates.
Earnings
(loss) on equity investments
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
|
(Audited, in millions)
|
|
Earnings (loss) on equity investments
|
|
$
|
(553
|
)
|
|
$
|
14
|
|
In 2008, we registered a loss on equity investments related to
our Numonyx investment, which was comprised of $480 million
as an impairment of our Numonyx evaluation and $65 million
as an equity loss related to our share of the Numonyx loss that
was recognized in the third and fourth quarters pursuant to
one-quarter lag reporting. The impairment of our investment in
Numonyx was required in light of (i) the turmoil in the
financial markets and its resulting impact on the market cap of
the industry, and (ii) the deviation from plan in
Numonyxs 2008 results and 2009 most recent forecast, since
our evaluation is primarily based on their operating performance
in terms of cash flow, revenues and EBITDA.
Income
tax benefit
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
|
(Audited, in millions)
|
|
Income tax benefit
|
|
$
|
43
|
|
|
$
|
23
|
|
In 2008, we registered an income tax benefit of
$43 million, reflecting the annual effective tax
computation for the loss before income taxes in each
jurisdiction. Furthermore, this benefit was net of a
$47 million provision booked as evaluation of uncertain tax
positions in one of our jurisdictions.
Our tax rate is variable and depends on changes in the level of
operating income within various local jurisdictions and on
changes in the applicable taxation rates of these jurisdictions,
as well as changes in estimated tax provisions due to new
events. We currently enjoy certain tax benefits in some
countries. As such benefits may not be available in the future
due to changes in the laws of the local jurisdictions, our
effective tax rate could be
66
different in future quarters and may increase in the coming
years. In addition, our yearly income tax charges include the
estimated impact of some provisions related to potential and
certain positions.
Net
loss
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
|
(Audited, in millions)
|
|
Net loss
|
|
$
|
(786
|
)
|
|
$
|
(477
|
)
|
As a percentage of net revenues
|
|
|
(8.0
|
)%
|
|
|
(4.8
|
)%
|
In 2008, we reported a net loss of $786 million, compared
to a net loss of $477 million in 2007. Our performance in
2008 was negatively impacted by the impairment charge associated
with our equity investment in Numonyx, the additional loss
recorded for the FMG deconsolidation, the one-time elements of
the purchase accounting used for the NXP wireless business and
the adverse impact of fluctuations in the U.S. dollar
exchange rate. During 2007, there was a significant amount of
impairment on the FMG deconsolidation once those assets were
reclassified for sale, significant restructuring charges and a
material negative effect of the weakening U.S. dollar
exchange rate. Loss per share in 2008 was $(0.88). Impairment,
restructuring charges and other specific items accounted for an
approximate $(1.28) loss net of taxes per diluted share in 2008,
while they accounted for $(1.29) per diluted share in the same
period in the prior year.
Quarterly
Results of Operations
Certain quarterly financial information for the years 2009 and
2008 are set forth below. Such information is derived from our
unaudited Consolidated Financial Statements, prepared on a basis
consistent with the Consolidated Financial Statements that
include, in the opinion of management, all normal adjustments
necessary for a fair statement of the interim information set
forth therein. Operating results for any quarter are not
necessarily indicative of results for any future period. In
addition, in view of the significant growth we have experienced
in recent years, the increasingly competitive nature of the
markets in which we operate, the changes in products mix and the
currency effects of changes in the composition of sales and
production among different geographic regions, we believe that
period-to-period
comparisons of our operating results should not be relied upon
as an indication of future performance.
Our quarterly and annual operating results are also affected by
a wide variety of other factors that could materially and
adversely affect revenues and profitability or lead to
significant variability of operating results, including, among
others, capital requirements and the availability of funding,
competition, new product development and technological change
and manufacturing developments in litigation and possible IP
claims. In addition, a number of other factors could lead to
fluctuations in operating results, including order cancellations
or reduced bookings by key customers or distributors, IP
developments, international events, currency fluctuations,
problems in obtaining adequate raw materials on a timely basis,
impairment, restructuring charges and other related closure
costs, as well as the loss of key personnel. As only a portion
of our expenses varies with our revenues, there can be no
assurance that we will be able to reduce costs promptly or
adequately in relation to revenue declines to compensate for the
effect of any such factors. As a result, unfavorable changes in
the above or other factors have in the past and may in the
future adversely affect our operating results. Quarterly results
have also been and may be expected to continue to be
substantially affected by the cyclical nature of the
semiconductor and electronic systems industries, the speed of
some process and manufacturing technology developments, market
demand for existing products, the timing and success of new
product introductions and the levels of provisions and other
unusual charges incurred. Certain additions of our quarterly
results will not total our annual results due to rounding.
In the fourth quarter of 2009, based upon published industry
data by WSTS, the TAM and the SAM increased
year-over-year
approximately 29% and 16%, reaching approximately
$67 billion and $39 billion, while sequentially, they
increased approximately 7% and 4%, respectively.
In the fourth quarter of 2009, our average effective exchange
rate was approximately $1.43 to 1.00, compared to $1.38 to
1.00 in the third quarter of 2009 and $1.40 to 1.00
in the year-ago quarter. Our effective exchange rate reflects
actual exchange rate levels combined with the impact of cash
flow hedging programs.
67
Net
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
% Variation
|
|
|
|
Dec 31, 2009
|
|
|
Sept 26, 2009
|
|
|
Dec 31, 2008
|
|
|
Sequential
|
|
|
Year-Over-Year
|
|
|
|
(Unaudited, in millions)
|
|
|
Net sales
|
|
$
|
2,570
|
|
|
$
|
2,269
|
|
|
$
|
2,264
|
|
|
|
13.3
|
%
|
|
|
13.5
|
%
|
Other revenues
|
|
|
13
|
|
|
|
6
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
2,583
|
|
|
$
|
2,275
|
|
|
$
|
2,276
|
|
|
|
13.6
|
%
|
|
|
13.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-over-year
comparison
Our fourth quarter 2009 net revenues increased in all
market segments compared to the year ago quarter, except in
Consumer, and in all regions, except Japan, reflecting the broad
based recovery in the semiconductor market. Such performance was
driven by an increase in sales volume, while average selling
prices declined approximately 6%.
ACCIs revenues increased by approximately 11%, driven by
the strong results observed in all its served markets. IMS
registered an increase of 8% across the majority of its product
lines, reflecting the overall recovery in the industrial and
multi-segment markets. Wireless sales registered growth of
approximately 24% and included the positive contribution of the
integrated EMP wireless business.
By location of order shipment, almost all regions were
positively impacted by strong local demand from their customers,
ranging from the greatest revenue increases of approximately 26%
and 25% in Asia Pacific and Greater China, respectively, to the
lowest of approximately 0.4% in the EMEA. Japan experienced a
decrease of 16% due to lower demand in the Consumer market. Our
largest customer, the Nokia group of companies, accounted for
approximately 15% of our fourth quarter 2009 net revenues,
which was the same as in the fourth quarter of 2008.
Sequential
comparison
On a sequential basis our revenues registered a strong
performance as well, with a 13.6% increase, exceeding the high
end of our targeted range of 12% sequential growth. This
improvement was the result of solid demand across all of our
product segments, as well as in all regions, with particular
strength in Japan, Greater China and the Americas. This
favorable trend was supported by an approximate 14% increase in
units sold, with an immaterial impact from average selling
prices.
ACCI revenues increased by 17%, reflecting a solid contribution
from Home Entertainment and Displays, as well as Computer and
Communication Infrastructure, mainly driven by a higher level of
units sold. IMS revenues increased by 23% mainly as a result of
higher sales volume. Wireless revenues increased by 1%, driven
by an increase in demand.
The sequential improvement in revenue was evident across all
market segments. Distribution and Computer led, with 35% and 22%
growth, respectively, followed by Automotive and Industrial.
On a regional basis, the strength we saw in Greater China and
Asia Pacific in the third quarter expanded to the other regions.
In terms of revenue growth, the sequential performance ranged
from an approximate 28% and 22% increase in Japan and Greater
China, respectively, to an approximate 8% increase in EMEA. In
the fourth quarter of 2009, our largest customer, the Nokia
group of companies, accounted for approximately 14.9% of our net
revenues, remaining stable compared to the third quarter of 2009.
Gross
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
% Variation
|
|
|
|
December 31, 2009
|
|
|
September 26, 2009
|
|
|
December 31, 2008
|
|
|
Sequential
|
|
|
Year-Over-Year
|
|
|
|
(Unaudited, in millions)
|
|
|
Cost of sales
|
|
$
|
(1,626
|
)
|
|
$
|
(1,562
|
)
|
|
$
|
(1,454
|
)
|
|
|
(4.1
|
)%
|
|
|
(11.9
|
)%
|
Gross profit
|
|
|
957
|
|
|
|
713
|
|
|
|
822
|
|
|
|
34.2
|
%
|
|
|
16.3
|
%
|
Gross margin (as a percentage of net revenues)
|
|
|
37.0
|
%
|
|
|
31.3
|
%
|
|
|
36.1
|
%
|
|
|
|
|
|
|
|
|
Fourth quarter gross margin reached a level of 37%, increasing
on a
year-over-year
basis by nearly 1 percentage point. The increase in gross
margin reflected higher revenues in the fourth quarter of 2009,
certain purchase
68
accounting related items charged in the fourth quarter of 2008
and an improved product mix and was partially off-set by the
unfavorable impact of exchange rates and market price pressure.
On a sequential basis, gross margin in the fourth quarter
increased by nearly 6 percentage points, due to higher
sales volume, increased fab loading and improved efficiencies.
Our manufacturing performance improved in the fourth quarter as
we continued to ramp towards full capacity, which has yet to be
accomplished. Unused capacity charges in the fourth quarter were
$13 million, significantly lower than the $47 million
registered in the third quarter.
Selling,
general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
% Variation
|
|
|
December 31, 2009
|
|
September 26, 2009
|
|
December 31, 2008
|
|
Sequential
|
|
Year-Over-Year
|
|
|
(Unaudited, in millions)
|
|
Selling, general and administrative expenses
|
|
$
|
(303
|
)
|
|
$
|
(290
|
)
|
|
$
|
(304
|
)
|
|
|
(4.8
|
)%
|
|
|
0.4
|
%
|
As percentage of net revenue
|
|
|
(11.7
|
)%
|
|
|
(12.7
|
)%
|
|
|
(13.4
|
)%
|
|
|
|
|
|
|
|
|
The amount of our selling, general and administrative expenses
was basically flat on a
year-over-year
basis, benefiting in the fourth quarter of 2009 amid cost
savings relating to our restructuring initiatives. On a
sequential basis, SG&A expenses increased, reflecting a
longer quarter, as well as a negative currency impact, which
were partially offset by ongoing cost saving measures. Our
share-based compensation charges were $5 million in the
fourth quarter of 2009, compared to $5 million in the
fourth quarter of 2008 and $3 million in the third quarter
of 2009.
The ratio to sales of our selling, general and administrative
expenses was mainly driven by the volume of our revenues. As a
percentage of revenues, they decreased to 11.7% compared to
13.4% in the prior years fourth quarter, while
sequentially they decreased from 12.7%.
Research
and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
% Variation
|
|
|
December 31, 2009
|
|
September 26, 2009
|
|
December 31, 2008
|
|
Sequential
|
|
Year-Over-Year
|
|
|
|
|
(Unaudited, in millions)
|
|
|
|
|
|
Research and development expenses
|
|
$
|
(603
|
)
|
|
$
|
(595
|
)
|
|
$
|
(572
|
)
|
|
|
(1.2
|
)%
|
|
|
(5.3
|
)%
|
As percentage of net revenues
|
|
|
(23.3
|
)%
|
|
|
(26.2
|
)%
|
|
|
(25.1
|
)%
|
|
|
|
|
|
|
|
|
The
year-over-year
increase in R&D expenses was primarily due to the
integration of Ericsson mobile platform activities and, to a
lesser extent, the weakening U.S. dollar exchange rate. On
a sequential basis, R&D expenses increased, reflecting a
longer quarter, as well as a negative currency impact, which
were partially offset by ongoing cost saving measures.
The fourth quarter of 2009 included $3 million of
share-based compensation charges compared to $4 million in
the fourth quarter of 2008 and $2 million in the third
quarter of 2009. In addition, the fourth quarter of 2009
included $15 million related to amortization charges
generated by recent acquisitions. Total R&D expenses were
net of research tax credits, which amounted to $33 million,
basically equivalent to prior periods.
As a percentage of revenues, fourth quarter 2009 R&D
equaled 23.3%, a decrease compared to the year ago period due to
increasing revenues.
69
Other
income and expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31, 2009
|
|
|
September 26, 2009
|
|
|
December 31, 2008
|
|
|
|
(Unaudited, in millions)
|
|
|
Research and development funding
|
|
$
|
44
|
|
|
$
|
26
|
|
|
$
|
19
|
|
Start-up/phase-out
costs
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(7
|
)
|
Exchange gain (loss) net
|
|
|
2
|
|
|
|
(4
|
)
|
|
|
|
|
Patent costs, net of gain from settlement
|
|
|
(5
|
)
|
|
|
11
|
|
|
|
(5
|
)
|
Gain on sale of other non-current assets
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
Other, net
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Other income and expenses, net
|
|
|
39
|
|
|
|
29
|
|
|
|
6
|
|
As a percentage of net revenues
|
|
|
1.5
|
%
|
|
|
1.3
|
%
|
|
|
0.3
|
%
|
Other income and expenses, net, mainly included, as income,
items such as R&D funding and, as expenses,
start-up
costs and patent claim costs net of settlement agreements.
Income from R&D funding was associated with our R&D
projects, which, upon project approval, qualifies as funding on
the basis of contracts with local government agencies in
locations where we pursue our activities. In the fourth quarter
of 2009, the balance of these factors resulted in net income of
$39 million, which was favorably impacted by R&D
funding of approximately $44 million, a higher amount
compared to the year-ago quarter.
Impairment,
restructuring charges and other related closure
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 31, 2009
|
|
September 26, 2009
|
|
December 31, 2008
|
|
|
(Unaudited, in millions)
|
|
Impairment, restructuring charges and other related closure costs
|
|
$
|
(96
|
)
|
|
$
|
(53
|
)
|
|
$
|
(91
|
)
|
In the fourth quarter of 2009, we recorded $96 million of
impairment and restructuring charges and other related closure
costs, of which:
|
|
|
|
|
$16 million was recorded in preparation of the closure of
our Ain Sebaa, Morocco, Carrollton, Texas and Phoenix (Arizona)
sites, and was composed of one-time termination benefits, as
well as other relevant charges;
|
|
|
|
$17 million related to the plan announced in April 2009 by
ST-Ericsson, to be completed by the mid- 2010, primarily
consisting of on-going termination benefits pursuant to the
closure of certain locations in Europe and the United States and
$45 million related to a new plan announced in December
2009 by ST-Ericsson, to be completed by 2010, primarily
consisting of on-going termination benefits pursuant to
workforce reduction; and
|
|
|
|
$18 million related to other ongoing and newly committed
restructuring plans, consisting primarily of voluntary
termination benefits and early retirement arrangements in some
of our European locations.
|
In the third quarter of 2009, we recorded impairment,
restructuring charges and other related closure costs of
$53 million, of which: $21 million of charges were
recorded in light of the closure of our Ain Sebaa (Morocco),
Carrollton (Texas) and Phoenix (Arizona) sites, composed of
$1 million impairment charges on the Phoenix assets and
$20 million of one-time termination benefits, as well as
other relevant charges; $17 million related to the
ST-Ericsson plan announced in April 2009, primarily consisting
of on-going termination benefits pursuant to the closure of
certain locations in Europe and the Unites States; and
$15 million related to other ongoing and newly committed
restructuring plans, consisting primarily of voluntary
termination benefits and early retirement arrangements in some
of our European locations.
In the fourth quarter of 2008, we recorded impairment,
restructuring charges and other related closure costs pertaining
to: $29 million related to one-time termination benefits to
be paid at the closure of our Carrollton (Texas) and Phoenix
(Arizona) sites, as well as other charges; $2 million
impairment costs associated with an investment in a minority
participation; $9 million charges related to the FMG
deconsolidation; and $51 million related to other ongoing
and newly committed restructuring plans, consisting primarily of
voluntary termination benefits and early retirement arrangements
in some of our European locations.
70
Operating
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 31, 2009
|
|
September 26, 2009
|
|
December 31, 2008
|
|
|
(Unaudited, in millions)
|
|
Operating loss
|
|
$
|
(6
|
)
|
|
$
|
(196
|
)
|
|
$
|
(139
|
)
|
In percentage of net revenues
|
|
|
(0.2
|
)%
|
|
|
(8.6
|
)%
|
|
|
(6.1
|
)%
|
Our operating results significantly improved compared to both
the third quarter of 2009 and the year ago period. The fourth
quarter 2009 registered an operating loss of $6 million
compared to a loss of $139 million in the year ago quarter
and $196 million in the prior quarter. The recovery in our
revenues led to a strong increase in loading, thereby reducing
underutilization charges from $57 million in the year ago
quarter and $47 million in third quarter 2009 to
$13 million in the fourth quarter of 2009.
The fourth quarter registered an improved operating result
despite the fact that our operating loss was impacted by
$96 million in restructuring, impairment and
other-than-temporary
impairment charges and other one-time charges related to
acquisitions, while in the third quarter of 2009 those charges
amounted $53 million. In the year-ago quarter, the negative
impact of impairment, restructuring and one-time charges related
to acquisitions was $91 million.
ACCI and IMS reported an operating profit, while Wireless
mitigated its loss from the year ago period. ACCI increased its
operating income from $18 million to $57 million,
driven by a growth in revenues. IMS registered a profit of
$90 million, compared to a profit of $101 million in
the year ago quarter, following a year of severe pressure on
market prices. Wireless posted an operating loss of
$48 million, improving compared to a loss of
$77 million in the year ago period, as a result of higher
revenues and the initial impact of the on-going synergies plan.
The segment Others was largely negative including
the allocation of impairment and restructuring charges and of
unused capacity charges.
Other-than-temporary
impairment charges and realized losses on financial
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 31, 2009
|
|
September 26, 2009
|
|
December 31, 2008
|
|
|
(Unaudited, in millions)
|
|
Other-than-temporary
impairment charges and realized losses on financial assets
|
|
$
|
(68
|
)
|
|
$
|
0
|
|
|
$
|
(55
|
)
|
The fourth quarter of 2009 income statement includes a pre-tax
non-cash loss of $68 million related to the sale of a part
of the portfolio of ARS purchased on our account by Credit
Suisse contrary to our instruction. See Liquidity and
Capital Resources.
Interest
income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 31, 2009
|
|
September 26, 2009
|
|
December 31, 2008
|
|
|
(Unaudited, in millions)
|
|
Interest income, net
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
3
|
|
We recorded net interest income of $3 million, similar to
the year-ago quarter, due to low U.S. dollar and Euro
denominated interest rates. On a sequential basis the net
interest income decreased by $1 million.
Loss
on equity investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 31, 2009
|
|
September 26, 2009
|
|
December 31, 2008
|
|
|
(Unaudited, in millions)
|
|
Earnings (loss) on equity investments
|
|
$
|
(13
|
)
|
|
$
|
(42
|
)
|
|
$
|
(204
|
)
|
In the fourth quarter of 2009, we recorded a charge of
$13 million, of which $5 million representing our net
proportional share of the loss reported by Numonyx, booked
pursuant to a one quarter lag, and $7 million related to
our proportionate share in JVD as a loss
pick-up
including amortization of basis difference.
71
Gain
on convertible debt buyback
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 31, 2009
|
|
September 26, 2009
|
|
December 31, 2008
|
|
|
(Unaudited, in millions)
|
|
Gain on convertible debt buyback
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
|
|
The $3 million gain on convertible debt buyback is related
to the repurchase of bonds with a principal value of
$106 million for total cash consideration of
$103 million. Please see Capital Resources.
Income
tax benefit (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 31, 2009
|
|
September 26, 2009
|
|
December 31, 2008
|
|
|
(Unaudited, in millions)
|
|
Income tax benefit (expense)
|
|
$
|
(48
|
)
|
|
$
|
(15
|
)
|
|
$
|
9
|
|
During the fourth quarter of 2009, we registered an income tax
expense of $48 million, reflecting actual tax provisions in
each jurisdiction. There was a tax charge in the fourth quarter
of 2009, notwithstanding the loss, because of a tax rate
true-up and
some valuation allowances taken on loss carryforwards in certain
jurisdictions.
Our tax rate is variable and depends on changes in the level of
operating results within various local jurisdictions and on
changes in the applicable taxation rates of these jurisdictions,
as well as changes in estimated tax provisions due to new
events. Our income tax amounts and rates depend also on our loss
carryforwards and their relevant valuation allowances, which are
based on estimated projected plans; in the case of material
changes in these plans, the valuation allowances could be
adjusted accordingly with an impact on our tax charges. We
currently enjoy certain tax benefits in some countries. Such
benefits may not be available in the future due to changes in
the local jurisdictions; our effective tax rate could be
different in future 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 that are uncertain.
Net
loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 31, 2009
|
|
September 26, 2009
|
|
December 31, 2008
|
|
|
(Unaudited, in millions)
|
|
Net loss attributable to noncontrolling interest
|
|
$
|
59
|
|
|
$
|
48
|
|
|
$
|
5
|
|
In the fourth quarter of 2009, we booked $59 million income
representing the loss attributable to noncontrolling interest,
which mainly included the 50% owned by Ericsson in the
consolidated ST-Ericsson Holding AG (JVS). In the third quarter
of 2009, the corresponding amount was $48 million. These
amounts reflected its share in the joint ventures loss.
All periods included the recognition of noncontrolling interest
related to our joint venture in Shenzhen, China for assembly
operating activities. Those amounts were not material.
Net
loss attributable to parent company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 31, 2009
|
|
September 26, 2009
|
|
December 31, 2008
|
|
|
(Unaudited, in millions)
|
|
Net loss attributable to parent company
|
|
$
|
(70
|
)
|
|
$
|
(201
|
)
|
|
$
|
(366
|
)
|
As percentage of net revenues
|
|
|
(2.7
|
)%
|
|
|
(8.8
|
)%
|
|
|
(16.1
|
)%
|
For the fourth quarter of 2009, we reported a net loss of
$70 million as a result of adverse economic conditions
impacting our operations and also due to certain specific
charges as described above.
Loss per share for the fourth quarter of 2009 was $(0.08)
compared to $(0.23) in the third quarter of 2009 and $(0.42) in
the year-ago quarter.
In the fourth quarter of 2009, the impact after tax of
restructuring, impairment and
other-than-temporary
impairment charges was estimated to be approximately $(0.12) per
share, while in the third quarter of 2009, it was approximately
$(0.06) per share. In the year ago quarter, the impact of
restructuring and impairment charges,
other-than-temporary
impairment charges, the loss on our Numonyx equity investment
and non-recurrent items was estimated to be approximately
$(0.36) per share.
72
Impact of
Changes in Exchange Rates
Our results of operations and financial condition can be
significantly affected by material changes in the exchange rates
between the U.S. dollar and other currencies, particularly
the Euro.
As a market rule, the reference currency for the semiconductor
industry is the U.S. dollar and product prices are mainly
denominated in U.S. dollars. However, revenues for some of
our products (primarily our dedicated products sold in Europe
and Japan) are quoted in currencies other than the
U.S. dollar and as such are directly affected by
fluctuations in the value of the U.S. dollar. As a result
of currency variations, the appreciation of the Euro compared to
the U.S. dollar could increase, in the short term, our
level of revenues when reported in U.S. dollars. Revenues
for all other products, which are either quoted in
U.S. dollars and billed in U.S. dollars or in local
currencies for payment, tend not to be affected significantly by
fluctuations in exchange rates, except to the extent that there
is a lag between the changes in currency rates and the
adjustments in the local currency equivalent of the price paid
for such products. Furthermore, certain significant costs
incurred by us, such as manufacturing, labor costs and
depreciation charges, selling, general and administrative
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 Sweden, our costs tend to increase
when translated into U.S. dollars when the dollar weakens
or to decrease when the U.S. dollar strengthens.
In summary, as our reporting currency is the U.S. dollar,
currency exchange rate fluctuations affect our results of
operations: if the U.S. dollar weakens, our results are
negatively impacted since we receive a limited part of our
revenues, and more importantly, we incur a significant part of
our costs, in currencies other than the U.S. dollar. Our results
are favorably impacted when the dollar strengthens. As described
below, our effective average U.S. dollar exchange rate
strengthened during 2009, particularly against the Euro, causing
us to report lower expenses and favorably impacting both our
gross margin and operating income. Our consolidated statements
of income for 2009 included income and expense items translated
at the average U.S. dollar exchange rate for the period.
Our principal strategy to reduce the risks associated with
exchange rate fluctuations has been to balance as much as
possible the proportion of sales to our customers denominated in
U.S. dollars with the amount of raw materials, purchases
and services from our suppliers denominated in
U.S. dollars, thereby reducing the potential exchange rate
impact of certain variable costs relative to revenues. Moreover,
in order to further reduce the exposure to U.S. dollar
exchange fluctuations, we have hedged certain line items on our
consolidated statements of income, in particular with respect to
a portion of the costs of goods sold, most of the R&D
expenses and certain selling and general and administrative
expenses, located in the Euro zone. Our effective average
exchange rate of the Euro to the U.S. dollar was $1.37 for
1.00 in 2009 compared to $1.49 for 1.00 in 2008. Our
effective average rate of the Euro to the U.S. dollar was
$1.43 for 1.00 for the fourth quarter of 2009 and $1.38
for 1.00 in the third quarter of 2009 while it was $1.40
for 1.00 for the fourth quarter of 2008. These effective
exchange rates reflect the actual exchange rates combined with
the impact of cash flow hedging contracts that matured in the
period.
As of December 31, 2009, the outstanding hedged amounts
were 432 million to cover manufacturing costs and
508 million to cover operating expenses, at an
average rate of about $1.46 and $1.43 for 1.00,
respectively (including the premium paid to purchase foreign
exchange options), maturing over the period from January to
December 2010. In the fourth quarter of 2008 the company decided
to extend the time horizon of its cash flow hedging contracts
for manufacturing costs and operating expenses for up to
12 months. As of December 31, 2009, these outstanding
hedging contracts and certain expired contracts covering
manufacturing expenses capitalized in inventory represented a
deferred gain of approximately $6 million after tax,
recorded in Other comprehensive income in equity,
compared to a deferred gain of approximately $64 million
after tax at September 26, 2009 and a deferred gain of
approximately $12 million after tax at December 31,
2008.
Our cash flow hedging policy is not intended to cover the full
exposure and is based on hedging a declining percentage of
exposure quarter after quarter. In addition, 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. We may in the future purchase or sell similar types
of instruments. See Item 11, Quantitative and
Qualitative Disclosures about Market Risk. Furthermore, we
may not predict in a timely fashion the amount of future
transactions in the volatile industry environment. Consequently,
our results of operations have been and may continue to be
impacted by fluctuations in exchange rates.
Our treasury strategies to reduce exchange rate risks are
intended to mitigate the impact of exchange rate fluctuations.
No assurance may be given that our hedging activities will
sufficiently protect us against declines in the value of the
U.S. dollar. Furthermore, if the value of the
U.S. dollar increases, we may record losses in connection
with the loss in value of the remaining hedging instruments at
the time. In 2009, as a result of cash flow
73
hedging, we recorded a net gain of $71 million, consisting
of a gain of $36 million to R&D expenses,
$29 million to costs of goods sold and a gain of
$6 million to selling, general and administrative expenses,
while in 2008, we recorded a net gain of $1 million,
consisting of a loss of $1 million to R&D expenses, a
gain of $4 million to costs of goods sold and a loss of
$2 million to selling, general and administrative expenses.
The net effect of the consolidated foreign exchange exposure
resulted in a net gain of $11 million in Other income
and expenses, net in 2009.
The asssets 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 of such translation adjustments
has been, and may be expected to be, significant from period to
period since a large part of our assets and liabilities are
accounted for in Euros as their functional currency. Adjustments
resulting from the translation are recorded directly in
shareholders equity, and are shown as Accumulated
other comprehensive income (loss) in the consolidated
statements of changes in equity. At December 31, 2009, 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.
Impact of
Changes in Interest Rates
Interest rates may fluctuate upon changes in financial market
conditions and material changes can affect our results from
operations and financial condition, since these changes can
impact the total interest income received on our cash and cash
equivalents and the total interest expense paid on our financial
debt.
Our interest income, net, as reported on our consolidated
statements of income, is the balance between interest income
received from our cash and cash equivalent and marketable
securities investments and interest expense paid on our
long-term debt. 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 short-term market interest rates
would mean an equivalent increase or decrease in our interest
income. As of December 31, 2009, approximately 40% of our
long-term debt was at fixed interest rates. Our interest
expenses are associated with our long-term Zero Coupon 2016
Convertible Bonds (with a fixed rate of 1.5%), our 2013 Floating
Rate Senior Bond, which is fixed quarterly at a rate of EURIBOR
plus 40bps, and European Investment Bank Floating Rate Loans
totaling $672 million at LIBOR plus variable spreads. To
manage the interest rate mismatch, in the second quarter of
2006, we entered into cancellable swaps to hedge a portion of
the fixed rate obligations on our outstanding long-term debt
with floating rate derivative instruments. Of the
$974 million in 2016 Convertible Bonds issued in the first
quarter of 2006, we entered into cancellable swaps for
$200 million of the principal amount of the bonds, swapping
the 1.5% yield equivalent on the bonds for 6 Month USD LIBOR
minus 3.375%, partially offsetting the interest rate mismatch of
the 2016 Convertible Bond. Our hedging policy was not intended
to cover the full exposure and all risks associated with these
instruments. Due to the exceptionally low U.S. dollar
interest rate brought about by the financial crisis, in 2008 we
determined that the swaps had not been effective since
November 1, 2008 and the fair value hedge relationship was
discontinued. Consequently, the swaps were designated as
held-for-trading
financial assets and reported at fair value as a component of
Other receivables and current assets in the
consolidated balance sheet at December 31, 2008 for
$34 million, since we intended to hold the derivative
instruments for a short period of time that would not exceed
twelve months. An unrealized gain of $15 million was
recognized in earnings from the discontinuance date and was
reported on the line Unrealized gain on financial
assets of the consolidated statement of income for the
year ended December 31, 2008. This instrument was sold
during the first quarter of 2009 with a positive cash flow
impact of $26 million and a loss of $8 million.
In December 2009, in order to reduce the negative carry of the
outstanding Zero Coupon Senior Convertible Bonds due 2016, we
began a program to repurchase a portion of them. At
December 31, 2009, 98 thousand bonds had been repurchased,
corresponding to 4,295,722 shares. In light of the put
option that will be exercisable by bondholders on
February 23, 2011, we decided to repurchase a portion of
the 2016 Bonds to optimize our liquidity management and yield
through that date. See Other Developments. We also
have $250 million of restricted cash at a fixed rate (Hynix
Semiconductor-Numonyx JV), which partially offsets the interest
rate mismatch of the 2016 Convertible Bond. Our hedging policy
is not intended to cover the full exposure and all risks
associated with these instruments.
At December 31, 2009, our total financial resources,
including cash, cash equivalents, marketable securities current
and non-current and restricted cash, generated an average
interest income rate of 0.86%. This does not include interest
income accrued on the shareholder loan to Numonyx.
74
Liquidity
and Capital Resources
Treasury activities are regulated by our policies, which define
procedures, objectives and controls. The policies focus on the
management of our financial risk in terms of exposure to
currency rates and interest rates. Most treasury activities are
centralized, with any local treasury activities subject to
oversight from our head treasury office. The majority of our
cash and cash equivalents are held in U.S. dollars and
Euros and are placed with financial institutions rated
A or better. Part of our liquidity is also held in
Euros to naturally hedge intercompany payables and financial
debt in the same currency and is placed with financial
institutions rated at least single A long-term rating, meaning
at least A3 from Moodys Investor Service and A- from
Standard & Poors or Fitch Ratings. Marginal
amounts are held in other currencies. See Item 11,
Quantitative and Qualitative Disclosures About Market
Risk.
As of December 31, 2009, our total liquidity and capital
resources were comprised of $1,588 million in cash and cash
equivalents, of which $186 million is held at the
ST-Ericsson level, $1,032 million in marketable securities
as current assets, of which $40 million is held at the ST
Ericsson level, $250 million as restricted cash and
$42 million in ARS, invested by Credit Suisse contrary to
our instruction, both items considered as non-current assets.
Our total capital resources were $2,912 million as of
December 31, 2009, a significant increase compared to
$2,132 million at December 2008. Such increase was
originated by the proceeds from the ST-Ericsson business
combination and from operating cash flow.
As of December 31, 2009, we had $1,032 million in
marketable securities as current assets, composed of
$484 million invested in Aaa treasury bills from the French
and U.S. governments, $548 million invested in senior
debt floating rate notes issued by primary financial
institutions with an average rating, excluding one impaired debt
security for a notional value of 15 million, of
Aa3/A+ from Moodys and S&P. Both the treasury bills
and the Floating Rate Notes are classified as
available-for-sale
and reported at fair value, with changes in fair value
recognized as a separate component of Accumulated other
comprehensive income in the consolidated statement of
changes in equity, except if deemed to be
other-than-temporary.
We reported as of December 31, 2009 a before tax increase
of $8 million compared to December 31, 2008 in the
fair value of our floating rate note portfolio. Since the
duration of the floating-rate note portfolio is only an average
of two years and the securities have a minimum Moodys
rating of A3, we expect the value of the securities to return to
par as the final maturity approaches (with the only exception
being the $15 million of Senior Floating Rate Notes issued
by Lehman Brothers, the value of which was impaired through an
other than temporary charge in 2008). The fair value
of these securities is based on market prices publicly available
through major financial information providers. The market price
of the Floating Rate Notes is influenced by changes in the
credit standing of the issuer but is not significantly impacted
by movement in interest rates. In 2009, we invested
$1,730 million in French and U.S. treasury bills, of
which $1,263 million was sold or matured during the year.
The change in fair value of the $484 million debt
securities classified as
available-for-sale
was not material at December 31, 2009. The duration of the
treasury bills portfolio is less than five months and the
securities are rated Aaa by Moodys.
Due to regulatory and withholding tax issues, we could not
directly provide the Hynix joint venture with the
$250 million long-term financing as originally planned. As
a result, in 2006, we entered into a ten-year term debt
guarantee agreement with an external financial institution
through which we guaranteed the repayment of the loan by the
joint venture to the bank. The guarantee agreement includes our
placing up to $250 million in cash in a deposit account
with a yield of 6.06%. The guarantee deposit will be used by the
bank in case of repayment failure from the joint venture (which
is now known as the Numonyx-Hynix joint venture), with
$250 million as the maximum potential amount of future
payments we, as the guarantor, could be required to make. In the
event of default and failure to repay the loan from the joint
venture, the bank will exercise our rights, subordinated to the
repayment to senior lenders, to recover the amounts paid under
the guarantee through the sale of the joint ventures
assets. The $250 million, which has been on deposit since
2007, was reported as Restricted cash on the
consolidated balance sheet at December 31, 2009. The debt
guarantee was evaluated under guidance related to disclosures
about credit derivatives and certain guarantees, and resulted in
the recognition of a $17 million liability, corresponding
to the fair value of the guarantee at inception of the
transaction. The debt guarantee obligation continues to be
reported on the line Other non-current liabilities
in the consolidated balance sheet at December 31, 2009,
since we retained the deposit, as an asset, and the related
guarantee at the formation of Numonyx. At December 31,
2009, the guarantee was not exercised. To the best of our
knowledge, at December 31, 2009, the joint venture was
current on its debt obligations, was not in default of any debt
covenants and did not expect to be in default on these
obligations in the foreseeable future. Our current maximum
exposure to loss as a result of our involvement with the joint
venture is limited to our indirect investment through Numonyx
and the debt guarantee commitments. Under the terms of the
recently signed agreement to sell Numonyx to Micron, we will
continue to retain the $250 million deposit with DBS Bank
Ltd. in Singapore, which is intended to guarantee the
Hynix-Numonyx
joint ventures debt financing for such amount. Under the
terms of the joint venture agreement with Hynix, upon the
closing of the sale of Numonyx, Hynix and Numonyx have certain
rights to buy or sell or cause the other party to buy or sell
their interests in the Hynix JV. We have entered into an
agreement with
75
Micron and Numonyx that provides that, in the event that Hynix
exercises its right to purchase Numonyx interest in the
Hynix joint venture following the closing of the Numonyx
transaction, Numonyx will take over all or part of our
obligations under the guarantee.
As of December 31, 2009, we had Auction Rate Securities,
purchased by Credit Suisse contrary to our instruction,
representing interests in collateralized debt obligations with a
par value of $261 million, that were carried on our balance
sheet as
available-for-sale
financial assets for $42 million, including the positive
revaluation of $15 million in other comprehensive income in
equity. Following the continued failure of auctions for these
securities which began in August 2007, we first registered a
decline in the value of these Auction Rate Securities as an
Other-than-temporary
impairment charge against net income for $46 million during
the fourth quarter of 2007. Since the initial failure of the
auctions in August 2007, the market for these securities has
completely frozen without any observable secondary market
trades, and consequently, during 2008 and 2009, the portfolio
experienced a further estimated decline in fair value charged to
our Income Statement pursuant applicable GAAP of
$127 million and $72 million, respectively, of which
no additional impairment was recorded during the third or fourth
quarter of 2009. The reduction in estimated fair value was
recorded as an
Other-than-temporary
impairment charge against net income.
The investments made in the aforementioned Auction Rate
Securities were made without our authorization and, in 2008, we
launched a legal action against Credit Suisse. On
February 16, 2009, the arbitration panel of FINRA awarded
us approximately $406 million comprising compensatory
damages, as well as interest and attorneys fees, and
authorized us to retain an interest award of approximately
$27 million, out of which $25 million has already been
paid, as well as to obtain interest at the rate of 4.64% on the
par value of the portfolio from December 31, 2008 until the
award is paid in full. In December 2009, Credit Suisse, because
of its contingent interest in certain securities held by us and
issued by Deutsche Bank, requested that we either tender the
securities or accept that the amount that would be received by
us pursuant to such tender ($75 million) be deducted from
the sum to be collected by us if and when the FINRA award is
confirmed and enforced. Pursuant to legal advice, and while
reserving our legal rights, we participated in the tender offer.
As a result, we sold ARS with a face value of $154 million,
collected $75 million and registered $68 million as
realized losses on financial assets. Such amount comes in
addition to the $245 million impairment that had been taken
as of September 30, 2009 with respect to the portfolio of
ARS purchased on our account by Credit Suisse contrary to our
instruction. These amounts should be recovered upon collection
of the award. We are seeking confirmation of the award from the
United States District Court of the Southern District of New
York.
Since the fourth quarter of 2007, as there was no information
available regarding mark to market bids and
mark to model valuations from the structuring
financial institutions for these securities, we based our
estimation of fair value on a theoretical model using yields
obtainable for comparable assets. The value inputs for the
evaluation of these securities were publicly available indices
of securities with the same rating, similar duration and
comparable/similar underlying collaterals or industries exposure
(such as ABX for the collateralized debt obligation and ITraxx
and IBoxx for the credit linked notes). The higher impairment
charges during 2008 and 2009 reflect downgrading events on the
collateral debt obligations comparing the relevant ABX indices
of a lower rating category and a general negative trend of the
corporate debt market. The estimated value of the collateralized
debt obligations could further decrease in the future as a
result of credit market deterioration
and/or other
downgrading.
Liquidity
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 2009, the evolution of our cash flow produced an increase
in our cash and cash equivalents of $579 million, generated
by net cash from both operating and investing activities, the
latter including the proceeds from the ST-Ericsson business
combination.
The evolution of our cash flow for each period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Net cash from (used in) operating activities
|
|
$
|
816
|
|
|
$
|
1,722
|
|
|
$
|
2,188
|
|
Net cash from (used in) investing activities
|
|
|
290
|
|
|
|
(2,417
|
)
|
|
|
(1,737
|
)
|
Net cash from (used in) in financing activities
|
|
|
(513
|
)
|
|
|
(67
|
)
|
|
|
(296
|
)
|
Effect of change in exchange rates
|
|
|
(14
|
)
|
|
|
(84
|
)
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash increase (decrease)
|
|
$
|
579
|
|
|
$
|
(846
|
)
|
|
$
|
196
|
|
76
Net cash from (used in) operating
activities. The net cash from operating
activities in 2009 was significantly lower compared to previous
periods due to a higher amount of net losses registered. See
Results of Operations for more information. However,
in response to the financial market crisis we focused on strong
capital management by taking aggressive actions to generate cash
by accelerating our cash conversion cycle, resulting in a
$553 million reduction in inventory and reflecting the
accelerated collection of States receivables, mainly certain
R&D tax credits.
As a result, our net cash from operating activities decreased
from $1,722 million in 2008 to $816 million in 2009.
Depreciation and amortization was $1,367 million in 2009,
equivalent to the prior year period.
Net cash from (used in) investing
activities. Investing activities generated cash
in 2009 primarily due to the net proceeds of
$1,155 million, received from Ericsson in relation to the
creation of ST-Ericsson. Payments for the purchase of tangible
assets totaled $451 million, a significant reduction from
the $983 million registered in the equivalent prior year
period. Furthermore, in 2009, we made payments of
$1,730 million for the purchases of marketable securities,
while we collected $1,446 million upon the sales of
marketable securities largely due to their maturity dates.
Net cash from (used in) financing
activities. Net cash used in financing activities
was $513 million in 2009 compared to the $67 million
used in 2008. The 2009 amount included $158 million as
dividends paid to shareholders, $134 million as repayment
at maturity of long term debt, $103 million related to the
repurchase of the 2016 Bonds and $92 million of purchase of
equity from noncontrolling interests related to the acquisition
of NXPs 20% stake in ST-NXP Wireless. There were no
proceeds from long term debt in 2009, while the corresponding
amount in 2008 was $663 million.
Net operating cash flow. We also present net
operating cash flow, defined as net cash from (used in)
operating activities plus (minus) net cash from (used in)
investing activities, excluding payment for purchases of and
proceeds from the sale of marketable securities (both current
and non-current), short-term deposits and restricted cash. We
believe net operating 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 operating activities. Net operating 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. In addition, our definition of net
operating cash flow may differ from definitions used by other
companies. Net operating cash flow is determined as follows from
our Audited Consolidated Statements of Cash Flow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Net cash from (used in) operating activities
|
|
$
|
816
|
|
|
$
|
1,722
|
|
|
$
|
2,188
|
|
Net cash from (used in) investing activities
|
|
|
290
|
|
|
|
(2,417
|
)
|
|
|
(1,737
|
)
|
Payment for purchase and proceeds from sale of marketable
securities (current and non-current), short-term deposits and
restricted cash, net
|
|
|
258
|
|
|
|
(351
|
)
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating cash flow
|
|
$
|
1,364
|
|
|
$
|
(1,046
|
)
|
|
$
|
840
|
|
We had favorable net operating cash flow of $1,364 million
in 2009, significantly higher compared to net negative operating
cash flow of $(1,046) million in 2008, mainly as a result
of the $1,137 million, net of related fees, received from
EMP as part of the creation of the ST-Ericsson joint venture.
Excluding the effects of business combinations, net operating
cash flow was favorable by $227 million in 2009, decreasing
compared to favorable net operating cash flow of
$648 million in 2008, because of the deterioration in our
operating results which negatively impacted the net cash from
operating activities.
Capital
Resources
Net
financial position
Our net financial position represents the balance between our
total financial resources and our total financial debt. Our
total financial resources include cash and cash equivalents,
current and non-current marketable securities, short-term
deposits and restricted cash, and our total financial debt
includes bank overdrafts, current portion of long-term debt and
long-term debt, as represented in our consolidated balance
sheet. Net financial position is not a U.S. GAAP measure
but we believe it provides useful information for investors
because it gives evidence of our global position either in terms
of net indebtedness or net cash by measuring our capital
resources based on cash,
77
cash equivalents and marketable securities and the total level
of our financial indebtedness. Our net financial position has
been determined as follows from our Consolidated Balance Sheets
at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Cash and cash equivalents, net of bank overdrafts
|
|
$
|
1,588
|
|
|
$
|
989
|
|
|
$
|
1,855
|
|
Marketable securities, current
|
|
|
1,032
|
|
|
|
651
|
|
|
|
1,014
|
|
Restricted cash
|
|
|
250
|
|
|
|
250
|
|
|
|
250
|
|
Marketable securities, non-current
|
|
|
42
|
|
|
|
242
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial resources
|
|
|
2,912
|
|
|
|
2,132
|
|
|
|
3,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
(176
|
)
|
|
|
(123
|
)
|
|
|
(103
|
)
|
Long-term debt
|
|
|
(2,316
|
)
|
|
|
(2,554
|
)
|
|
|
(2,117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial debt
|
|
|
(2,492
|
)
|
|
|
(2,677
|
)
|
|
|
(2,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financial position
|
|
$
|
420
|
|
|
$
|
(545
|
)
|
|
$
|
1,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our net financial position as of December 31, 2009 resulted
in a net cash position of $420 million, representing a
solid improvement compared to the net debt of $545 million
at December 31, 2008, due to the proceeds from the
ST-Ericsson business combination and favorable net operating
cash flow. In the same period, both our cash position and our
current marketable securities portfolio increased significantly
to $1,588 million and $1,032 million, respectively,
while total financial debt decreased by $185 million.
At December 31, 2009, the aggregate amount of our long-term
debt, including the current portion, was $2,492 million,
which included $943 million of our 2016 Convertible Bonds,
$720 million of our 2013 Senior Bonds (corresponding to
500 million at issuance) and $672 million in
European Investment Bank loans (the EIB Loans). The
EIB Loans represent two committed credit facilities as part of
R&D funding programs. The first, for 245 million
for R&D in France was fully drawn in U.S. dollars for
a total amount of $341 million, of which $49 million
had been paid back at December 31, 2009. The second, signed
on July 21, 2008, for 250 million for R&D
projects in Italy, was fully drawn in U.S. dollars for
$380 million at December 31, 2009. Additionally, we
had unutilized committed medium term credit facilities with core
relationship banks totaling $500 million. Furthermore, the
aggregate amount of our total available short-term credit
facilities, excluding foreign exchange credit facilities, was
approximately $759 million at December 31, 2009. In
addition, as the parent companies, we and Ericsson have granted
ST-Ericsson a $25 million committed facility and
$25 million unutilized committed line, respectively. The
withdrawal of that line is subject to approval of the parent
companies at STEs Board of Directors. We also maintain
uncommitted foreign exchange facilities totaling
$714 million at December 31, 2009. At
December 31, 2009, the amounts available under the
short-term lines of credit were not reduced by any borrowing.
Our long-term capital market financing instruments contain
standard covenants, but do not impose minimum financial ratios
or similar obligations on us. Upon a change of control, the
holders of our 2016 Convertible Bonds and 2013 Senior Bonds may
require us to repurchase all or a portion of such holders
bonds. See Note 14 to our Consolidated Financial Statements.
As of December 31, 2009, debt payments due by period and
based on the assumption that convertible debt redemptions are at
the holders first redemption option were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
Total
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
Thereafter
|
|
|
(In millions)
|
|
Long-term debt (including current portion)
|
|
$
|
2,492
|
|
|
$
|
176
|
|
|
$
|
1,063
|
|
|
$
|
119
|
|
|
$
|
836
|
|
|
$
|
114
|
|
|
$
|
92
|
|
|
$
|
92
|
|
In February 2006, we issued $1,131 million principal amount
at maturity zero coupon senior convertible bonds due in February
2016. The bonds are convertible by the holder at any time prior
to maturity at a conversion rate of 43.833898 shares per
one thousand dollar face value of the bonds corresponding to
42,694,216 equivalent shares. This conversion rate was adjusted
from 43.363087 shares per one thousand dollar face value of
the bonds at May 21, 2007, as the result of the
extraordinary cash dividend distribution of $0.36 per share
approved by the Annual General Meeting of Shareholders held on
May 14, 2008. This new conversion has been in effect since
May 19, 2008. The holders will also be able to redeem the
convertible bonds on February 23, 2011 at a price of
$1,077.58, on February 23, 2012 at a price of $1,093.81 and
on February 24, 2014 at a price of $1,126.99 per one
thousand dollar face value of the bonds. We can call the bonds
at any time after March 10, 2011 subject to our share price
exceeding 130% of the accreted value divided by the conversion
rate for 20 out of 30 consecutive trading days. On
78
December 30, 2009 we repurchased 98 thousand bonds for a
total cash consideration of $103 million, realizing a gain
on the repurchase of $3 million.
As of December 31, 2009, we have the following credit
ratings on our 2013 and 2016 Bonds:
|
|
|
|
|
|
|
Moodys Investors Service
|
|
Standard & Poors
|
|
Zero Coupon Senior Convertible Bonds due 2013
|
|
WR(1)
|
|
NR
|
Zero Coupon Senior Convertible Bonds due 2016
|
|
Baa1
|
|
BBB+
|
Floating Rate Senior Bonds due 2013
|
|
Baa1
|
|
BBB+
|
|
|
|
(1) |
|
Rating withdrawn since the redemption in August 2006 of
$1.4 billion of our 2013 Convertible Bonds. |
We are also rated A− from Fitch on an
unsolicited basis.
On February 6, 2009 Standard & Poors Rating
Services lowered our senior debt rating from
A− to BBB+ and Moodys
Investors Service affirmed the Baa1 senior debt ratings and
changed the outlook on the ratings to negative from stable.
In March 2006, STMicroelectronics Finance B.V. (ST
BV), one of our wholly-owned subsidiaries, issued Floating
Rate Senior Bonds with a principal amount of
500 million at an issue price of 99.873%. The notes,
which mature on March 17, 2013, pay a coupon rate of the
three-month Euribor plus 0.40% on June 17,
September 17, December 17 and March 17 of each year through
maturity. The notes have a put for early repayment in case of a
change of control. The Floating Rate Senior Bonds issued by ST
BV are collateralized with guarantee issued by us.
Contractual
Obligations, Commercial Commitments and Contingencies
Our contractual obligations, commercial commitments and
contingencies as of December 31, 2009, and for each of the
five years to come and thereafter, were as follows (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Operating leases(2)
|
|
$
|
481
|
|
|
$
|
131
|
|
|
$
|
98
|
|
|
$
|
68
|
|
|
$
|
43
|
|
|
$
|
26
|
|
|
$
|
115
|
|
Purchase obligations(2)
|
|
|
741
|
|
|
|
604
|
|
|
|
62
|
|
|
|
37
|
|
|
|
20
|
|
|
|
18
|
|
|
|
|
|
of which:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and other asset purchase
|
|
|
267
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foundry purchase
|
|
|
182
|
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software, technology licenses and design
|
|
|
292
|
|
|
|
155
|
|
|
|
62
|
|
|
|
37
|
|
|
|
20
|
|
|
|
18
|
|
|
|
|
|
Other obligations(2)
|
|
|
532
|
|
|
|
263
|
|
|
|
135
|
|
|
|
125
|
|
|
|
6
|
|
|
|
2
|
|
|
|
1
|
|
Long-term debt obligations (including current portion)(3)(4)(5)
of which:
|
|
|
2,492
|
|
|
|
176
|
|
|
|
1,063
|
|
|
|
119
|
|
|
|
836
|
|
|
|
114
|
|
|
|
184
|
|
Capital
leases(3)
|
|
|
19
|
|
|
|
8
|
|
|
|
4
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
1
|
|
Pension obligations(3)
|
|
|
317
|
|
|
|
41
|
|
|
|
21
|
|
|
|
28
|
|
|
|
28
|
|
|
|
37
|
|
|
|
162
|
|
Other non-current liabilities(3)
|
|
|
342
|
|
|
|
19
|
|
|
|
20
|
|
|
|
87
|
|
|
|
8
|
|
|
|
7
|
|
|
|
201
|
|
Total
|
|
$
|
4,905
|
|
|
$
|
1,234
|
|
|
$
|
1,399
|
|
|
$
|
464
|
|
|
$
|
941
|
|
|
$
|
204
|
|
|
$
|
663
|
|
|
|
|
(1) |
|
Contingent liabilities which cannot be quantified are excluded
from the table above. |
|
(2) |
|
Items not reflected on the Consolidated Balance Sheet at
December 31, 2009. |
|
(3) |
|
Items reflected on the Consolidated Balance Sheet at
December 31, 2009. |
|
(4) |
|
See Note 14 to our Consolidated Financial Statements at
December 31, 2009 for additional information related to
long-term debt and redeemable convertible securities. |
|
(5) |
|
Year of payment is based on maturity before taking into account
any potential acceleration that could result from a triggering
of the change of control provisions of the 2016 Convertible
Bonds and the 2013 Senior Bonds. |
As a result of our July 10, 2007 announcement relating to
the planned closures of certain manufacturing facilities, the
shutdown of plants in the United States is ongoing and
negotiations with suppliers continue. As no final date for the
closure has been set, some of the aforementioned contracts have
been terminated. The termination fees for the sites still in
operation have not been taken into account.
Operating leases are mainly related to building leases and to
equipment. The amount disclosed is composed of minimum payments
for future leases from 2010 to 2014 and thereafter. We lease
land, buildings, plants and equipment under operating leases
that expire at various dates under non-cancelable lease
agreements.
79
Purchase obligations are primarily comprised of purchase
commitments for equipment, for outsourced foundry wafers and for
software licenses.
Other obligations primarily relate to firm contractual
commitments with respect to cooperation agreements.
Long-term debt obligations mainly consist of bank loans,
convertible and non-convertible debt issued by us that is
totally or partially redeemable for cash at the option of the
holder. They include maximum future amounts that may be
redeemable for cash at the option of the holder, at fixed
prices. The outstanding long-term debt corresponding to the 2013
convertible debt was not material at December 31, 2009. See
Net financial position.
Pension obligations and termination indemnities amounting to
$317 million consist of our best estimates of the amounts
projected to be payable by us for the retirement plans based on
the assumption that our employees will work for us until they
reach the age of retirement. The final actual amount to be paid
and related timing of such payments may vary significantly due
to early retirements, terminations and changes in assumptions
rates. See Note 15 to our Consolidated Financial
Statements. As part of the FMG deconsolidation, we retained the
obligation to fund the severance payment (trattamento di
fine rapporto) due to certain transferred employees by the
defined amount of about $32 million which qualifies as a
defined benefit plan and was classified as an other non-current
liability at December 31, 2009.
Other non-current liabilities include, in addition to the
above-mentioned pension obligation, future obligations related
to our restructuring plans and miscellaneous contractual
obligations. They also include at December 31, 2009,
following the FMG deconsolidation in 2008, a long-term liability
for capacity rights amounting to $47 million. In addition,
we and Intel have each granted in favor of Numonyx B.V., in
which we hold a 48.6% equity investment through Numonyx, a 50%
guarantee not joint and several, for indebtedness related to the
financing arrangements entered into by Numonyx for a
$450 million term loan and a $100 million committed
revolving credit facility. We have estimated the guarantee to be
$69 million based on the fair value of the term loan over
4 years, including the effect of savings provided by the
guarantee. Upon the closing of the Numonyx deal with Micron,
Numonyx will repay the full amount of its outstanding
$450 million term loan, while simultaneously terminating
our $225 million guarantee of its debt. Please refer to
Other developments.
Off-Balance
Sheet Arrangements
We had no material off-balance sheet arrangements at
December 31, 2009.
Financial
Outlook
While we are reconfirming our target to have capital
expenditures to remain in the range of 5 to about 7% of
revenues, we expect a moderate increase compared to the
$451 million spent in 2009 in order to keep pace with the
sharp increase in customer demand. The most significant of our
2010 capital expenditure projects are expected to be:
(a) for the front-end facilities: (i) the increase of
up to 3200 wafers per week in the capacity of our
300-mm fab
in Crolles, and costs related to the preparation for an
additional increase to 3600 wafers per week; (ii) the
establishment of a 32nm R&D capability in Crolles;
(iii) the completion of the program for front-end fabs,
targeting the increased capacity in the Ang-Mo-Kio (Singapore)
150mm to 18K wafers per week; (iv) selective programs of
robustness / mix change in our
200-mm fabs,
mainly by installing tools transferred from internal sources;
(v) the strengthening of proprietary technologies in our
200-mm fab
in Agrate; and (vi) quality, safety, security, maintenance
both in 6 and 8 front end fabs; (b) for the
back-end facilities, the capital expenditures will mainly be
dedicated to the capacity increase: (i) growth of our
manufacturing presence in China (Longgang and Shenzhen) and the
Philippines (Calamba); (ii) further consolidation of our
presence in Malaysia (Muar); and (iii) specific investments
in the areas of quality, environment, energy saving and
(c) an overall capacity increase in wafers probing (EWS)
for all product groups.
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 announced
additions. We expect to have significant capital requirements in
the coming years and in addition we intend to continue to devote
a substantial portion of our net revenues to R&D. We plan
to fund our capital requirements from cash provided by operating
activities, available funds and available support from third
parties, and may have recourse to borrowings under available
credit lines and, to the extent necessary or attractive based on
market conditions prevailing at the time, the issuing of debt,
convertible bonds or additional equity securities. A substantial
deterioration of our economic results and consequently of our
profitability could generate a deterioration of the cash
generated by our operating activities. Therefore, there can be
no assurance that, in future periods, we will generate the same
level of cash as in the previous years to fund our capital
expenditures plans for expending/upgrading our production
facilities, our working capital requirements, our R&D and
industrialization costs.
80
On February 23, 2011, holders will be able to call for the
redemption of our 2016 convertible bonds, which we believe is
likely to occur in view of current market prices, for an amount
of $728 million. Furthermore, there could be possible
financial needs for temporary bridge financing by the parent
companies of the ST-Ericsson joint venture, the amount of which
cannot be estimated at this stage.
Impact of
Recently Issued U.S. Accounting Standards
See Note 2 to our Consolidated Financial Statements.
Equity
investments
See Note 11 to our Consolidated Financial Statements.
Backlog
and Customers
See Item 4. Information on the Company
Backlog.
|
|
Item 6.
|
Directors,
Senior Management and Employees
|
Directors
and Senior Management
The management of our company is entrusted to the Managing Board
under the supervision of the Supervisory Board.
Supervisory
Board
Our Supervisory Board advises our Managing Board and is
responsible for supervising the policies pursued by our Managing
Board and the general course of our affairs and business. Our
Supervisory Board consists of such number of members as is
resolved by our annual shareholders meeting upon a
non-binding proposal of our Supervisory Board, with a minimum of
six members. Decisions by our annual shareholders meeting
concerning the number and the identity of our Supervisory Board
members are taken by a simple majority of the votes cast at a
meeting, provided quorum conditions are met (15% of our issued
and outstanding share capital present or represented).
Our Supervisory Board currently has the following nine members:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Position
|
|
Year Appointed(1)
|
|
|
Term Expires
|
|
|
Age
|
|
|
Antonino Turicchi
|
|
Chairman
|
|
|
2008
|
(2)
|
|
|
2011
|
|
|
|
44
|
|
Gérald Arbola
|
|
Vice-Chairman
|
|
|
2004
|
|
|
|
2011
|
|
|
|
61
|
|
Raymond Bingham
|
|
Member
|
|
|
2007
|
|
|
|
2010
|
|
|
|
64
|
|
Douglas Dunn
|
|
Member
|
|
|
2001
|
|
|
|
2012
|
|
|
|
65
|
|
Didier Lamouche
|
|
Member
|
|
|
2006
|
|
|
|
2012
|
|
|
|
50
|
|
Didier Lombard
|
|
Member
|
|
|
2004
|
|
|
|
2011
|
|
|
|
68
|
|
Alessandro Ovi
|
|
Member
|
|
|
2007
|
(3)
|
|
|
2010
|
|
|
|
66
|
|
Bruno Steve
|
|
Member
|
|
|
1989
|
|
|
|
2011
|
|
|
|
68
|
|
Tom de Waard
|
|
Member
|
|
|
1998
|
|
|
|
2011
|
|
|
|
63
|
|
|
|
|
(1) |
|
As a member of the Supervisory Board. |
|
(2) |
|
Mr. Turicchi was also a Supervisory Board member from
2005-2007. |
|
(3) |
|
Mr. Ovi was also a Supervisory Board member from
1994-2005. |
At our annual shareholders meeting in 2010, the mandates
of Messrs. Bingham and Ovi will expire. The mandates of
Messrs. Arbola, de Waard, Lombard, Steve and Turicchi will
expire at our annual shareholders meeting in 2011 and the
mandates of Messrs. Dunn and Lamouche will expire at our
annual shareholders meeting in 2012.
Resolutions of our Supervisory Board require the approval of at
least three-quarters of its members in office. Our Supervisory
Board must meet upon request by two or more of its members or by
our Managing Board. Our Supervisory Board has established
procedures for the preparation of Supervisory Board resolutions
and the calendar for Supervisory Board meetings. Our Supervisory
Board meets at least five times a year, including once per
quarter to approve our quarterly and annual accounts and their
release. Our Supervisory Board has adopted a Supervisory
81
Board Charter setting forth its duties, responsibilities and
operations, as mentioned below. This charter is available on our
website at
http://www.st.com/stonline/company/governance/index.htm.
Pursuant to Dutch law, there is no mandatory retirement age for
members of our Supervisory Board. Members of the Supervisory
Board may be suspended or dismissed by our annual
shareholders meeting. Our Supervisory Board may make a
proposal to our annual shareholders meeting for the
suspension or dismissal of one or more of its members. The
members of our Supervisory Board receive compensation as
authorized by our annual shareholders meeting. Each member
of our Supervisory Board must resign no later than three years
after appointment, as described in our Articles of Association,
but may be reappointed following the expiration of his term of
office.
Biographies
Antonino Turicchi was re-appointed as a member of our
Supervisory Board at our 2008 annual shareholders meeting
on May 14, 2008. He was also appointed Chairman of our
Supervisory Board at that time. Mr. Turicchi is the
Chairman of our Supervisory Boards Strategic Committee, as
well as its Compensation Committee, and also serves on the
Nomination and Corporate Governance Committee. Mr. Turicchi
was the General Manager of Cassa Depositi e Prestiti from June
2002 until January 2009, and has been a member of the
Supervisory Board of Numonyx since March 2008. Since 1994,
Mr. Turicchi has held positions with the Italian Ministry
of the Treasury (now known as the Ministry of the Economy and
Finance). In 1999, he was promoted as the director responsible
for conducting securitization operations and managing financial
operations as part of the treasurys debt management
functions. Between 1999 and June 2002, Mr. Turicchi was
also a member of the board of Mediocredito del Friuli; from 1998
until 2000, he served on the board of Mediocredito di Roma; and
from 2000 until 2003, he served on the board of EUR S.p.A. He
also served as deputy chairman of Infrastrutture S.p.A. from
December 2002 to January 2006 and he was previously a member of
our Supervisory Board from March 2005 to April 2007.
Gérald Arbola was appointed to our Supervisory Board at our
2004 annual shareholders meeting and was reelected at our
2005 annual shareholders meeting. Mr. Arbola was
appointed the Vice-Chairman of our Supervisory Board on
May 14, 2008. Mr. Arbola previously served as Chairman
of our Supervisory Board from March 18, 2005 through
May 13, 2008. Mr. Arbola serves on the Supervisory
Boards Compensation Committee, Strategic Committee and
Nomination and Corporate Governance Committee. Mr. Arbola
is now Managing Director of Areva S.A., where he had also served
as Chief Financial Officer, and is a member of the Executive
Board of Areva since his appointment on July 3, 2001, which
was renewed on June 29, 2006. Mr. Arbola joined the
AREVA NC group (ex Cogema) in 1982 as Director of Planning and
Strategy for SGN, then served as Chief Financial Officer at SGN
from 1985 to 1989, becoming Executive Vice President of SGN in
1988 and Chief Financial Officer of AREVA NC in 1992. He was
appointed as a member of the executive committee in 1999, and
also served as Chairman of the Board of SGN in 1997 and 1998.
Mr. Arbola is currently a member of the board of directors
of AREVA NC, AREVA NP, and Areva T&D Holdings. On
July 22, 2008, he was nominated the director of the Suez
Environment Company, and he has been co-President of the Areva
Foundation since September 2006. Mr. Arbola is a graduate
of the Institut dEtudes Politiques de Paris and holds an
advanced degree in economics. He is the Chairman of the Board of
Directors of FT1CI and was the Chairman, until his resignation
on November 15, 2006, of the Supervisory Board of ST
Holding, our largest shareholder. In addition, he has been
Director of the CEA since July 24, 2009.
Raymond Bingham was appointed to our Supervisory Board at our
2007 annual shareholders meeting. He serves on the Audit
Committee and the Strategic Committee. Since November, 2006,
Mr. Bingham has been a Managing Director of General
Atlantic LLC, a global private equity firm. From August 2005 to
October 2006, Mr. Bingham was a private investor.
Mr. Bingham was Executive Chairman of the Board of
Directors of Cadence Design Systems Inc., a supplier of
electronic design automation software and services, from May
2004 to July 2005, and served as a director of Cadence from
November 1997 to July 2005. Prior to being Executive Chairman,
he served as President and Chief Executive Officer of Cadence
from April 1999 to May 2004, and as Executive Vice President and
Chief Financial Officer from April 1993 to April 1999.
Mr. Bingham also serves as a Director of Oracle Corporation
and Flextronics International, Ltd.
Tom de Waard has been a member of our Supervisory Board since
1998. Mr. de Waard has been Chairman of the Audit Committee
since 1999 and is also Chairman of the Nomination and Corporate
Governance Committee. In addition, he serves on our Supervisory
Boards Compensation Committee. Mr. de Waard has been a
partner of Clifford Chance, a leading international law firm,
since March 2000 and was the Managing Partner of Clifford Chance
Amsterdam office from May 1, 2002 until May 1, 2005.
From January 1, 2005 to January 1, 2007 he was a
member of the Management Committee of Clifford Chance. Prior to
joining Clifford Chance, he was a partner at Stibbe, where he
held several positions since 1971 and gained extensive
experience working with major international companies,
particularly with respect to corporate finance. He is a member
of the Amsterdam bar and was
82
President of the Netherlands Bar Association from 1993 through
1995. He received his law degree from Leiden University in 1971.
Mr. de Waard is the chairman of the Supervisory Board of BE
Semiconductor Industries N.V. (BESI) and a member of
its audit compensation and nominating committees. Mr. de Waard
is a member of the board of the foundation Stichting Sport
en Zaken.
Douglas Dunn has been a member of our Supervisory Board since
2001 and has served on the Audit Committee since such time. He
also serves on the Strategic Committee. He was formerly
President and Chief Executive Officer of ASML Holding N.V.
(ASML), an equipment supplier in the semiconductor
industry, a position from which he retired in 2004.
Mr. Dunn was appointed Chairman of the Board of Directors
of ARM Holdings plc (United Kingdom) in October 2006. In 2005,
Mr. Dunn was appointed to the board of Philips-LG LCD
(Korea) (of which he is no longer a board member as of
February 29, 2008), TomTom N.V. (Netherlands) and OMI, a
privately-held company (Ireland) (which was sold in November
2007 and of which he is no longer a board member), and also
serves as a non-executive director on the board of SOITEC
(France). He is also a member of the audit committees of SOITEC
and TomTom N.V., and a member of the Compensation Committee and
Strategic Committee of SOITEC. In May 2009, Mr. Dunn was
appointed to the Supervisory Board of BE Semiconductor
Industries N.V. (BESI) and is a member of its Audit
and Compensation/Nomination Committees. Mr. Dunn was a
member of the Managing Board of Royal Philips Electronics in
1998. From 1996 to 1998 he was Chairman and Chief Executive
Officer of Philips Consumer Electronics and from 1993 to 1996
Chairman and Chief Executive Officer of Philips Semiconductors
(now NXP Semiconductors). From 1980 to 1993 he was CEO of
Plessey Semiconductors. Prior to this, he held several positions
with Motorola Semiconductors (now Freescale).
Didier Lamouche has been a member of our Supervisory Board since
2006 and is a member of the Audit Committee. Dr. Lamouche
is a graduate of Ecole Centrale de Lyon and holds a PhD in
semiconductor technology. He has over 25 years experience
in the semiconductor industry. Dr. Lamouche started his
career in 1984 in the R&D department of Philips before
joining IBM Microelectronics where he held several positions in
France and the United States. In 1995, he became Director of
Operations of Motorolas Advanced Power IC unit in Toulouse
(France). Three years later, in 1998, he joined IBM as General
Manager of the largest European semiconductor site in Corbeil
(France) to lead its turnaround and transformation into a joint
venture between IBM and Infineon: Altis Semiconductor. He
managed Altis Semiconductor as CEO for four years. In 2003,
Dr. Lamouche rejoined IBM and was the Vice President for
Worldwide Semiconductor Operations based in New York (United
States) until the end of 2004. Since February 2005,
Dr. Lamouche has been the Chairman and CEO of Groupe Bull,
a France-based global company operating in the IT sector. He is
also a member of the Board of Directors of SOITEC, on whose
audit committee he serves, and Atari.
Didier Lombard was first appointed to our Supervisory Board at
our 2004 annual shareholders meeting and was reelected at
our 2005 annual shareholders meeting. He serves on the
Compensation, Strategic and Nomination and Corporate Governance
Committees of our Supervisory Board. Mr. Lombard has served
as Chairman of France Telecom since March 2005. He was also
Chief Executive Officer of France Telecom from March 2005
through February 2010. Mr. Lombard began his career in the
Research and Development division of France Telecom in 1967.
From 1989 to 1990, he served as scientific and technological
director at the Ministry of Research and Technology. From 1991
to 1998, he served as General Director for industrial strategies
at the French Ministry of Economy, Finances and Industry, and
from 1999 to 2003 he served as an Ambassador at large for
foreign investments in France and as President of the French
Agency for International Investments. From 2003 through February
2005, he served as France Telecoms Senior Executive Vice
President in charge of technologies, strategic partnerships and
new usages and as a member of France Telecoms Executive
Committee. Mr. Lombard also spent several years as
Ambassador in charge of foreign investment in France.
Mr. Lombard is also a member of the Board of Directors of
Thales and Technicolor, one of our customers, as well as a
member of the Supervisory Board of Radiall. Mr. Lombard was
also a member until his resignation on November 15, 2006 of
the Supervisory Board of ST Holding, our largest shareholder.
Mr. Lombard is a graduate of the Ecole Polytechnique and
the Ecole Nationale Supérieure des
Télécommunications.
Alessandro Ovi was a member of our Supervisory Board from 1994
until his term expired at our annual general shareholders
meeting on March 18, 2005. He was reappointed to our
Supervisory Board at the 2007 annual shareholders meeting
and serves on the Strategic Committee. Mr. Ovi received a
doctoral degree in Nuclear Engineering from the Politecnico in
Milan and a Masters Degree in Operations Research from the
Massachusetts Institute of Technology. He has been Special
Advisor to the President of the European Community for five
years and has served on the boards of Telecom Italia S.p.A,
Finmeccanica S.p.A. and Alitalia S.p.A. Currently, he is also a
director, and serves on the audit committee, of ENIA S.p.A. and
Telecom Italia Media S.p.A. He is also a director of LandiRenzo
Spa. Mr. Ovi is Life Trustee in Carnegie Mellon University
and Member of the Board in the Italian Institute of Technology.
Until April 2000, he was the Chief Executive Officer of Tecnitel
S.p.A., a subsidiary of
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Telecom Italia Group. Prior to joining Tecnitel S.p.A.,
Mr. Ovi was the Senior Vice President of International
Affairs and Communications at I.R.I.
Bruno Steve has been a member of our Supervisory Board since
1989 and has previously served as both its Chairman and
Vice-Chairman. Mr. Steve currently serves on our
Supervisory Boards Audit Committee, Compensation Committee
and Nomination and Corporate Governance Committee. He was with
Istituto per la Ricostruzione Industriale-IRI S.p.A.
(I.R.I), a former shareholder of Finmeccanica,
Finmeccanica and other affiliates of I.R.I. in various senior
positions for over 17 years. Mr. Steve is currently
Chairman of the Statutory Auditors of Selex Galileo S.p.A. He
previously served as Chairman of the Statutory Auditors of Selex
S.p.A. until December 2009 and as a member of the Statutory
Auditors of Pirelli. Until December 1999, he served as Chairman
of MEI. He served as the Chief Operating Officer of Finmeccanica
from 1988 to July 1997 and Chief Executive Officer from May 1995
to July 1997. He was Senior Vice President of Planning, Finance
and Control of I.R.I. from 1984 to 1988. Prior to 1984,
Mr. Steve served in several key executive positions at
Telecom Italia. He is also a professor at LUISS Guido Carli
University in Rome. Mr. Steve was Vice Chairman from May
1999 to March 2002, Chairman from March 2002 to May 2003 and
member until his resignation on April 21, 2004 of the
Supervisory Board of ST Holding, our largest shareholder.
Supervisory
Board Committees
Membership and Attendance. As of
December 31, 2009, the composition of our Supervisory
Boards committees was as follows: i) Mr. Tom de
Waard is the Chairman of the Audit Committee, and
Messrs. Raymond Bingham, Douglas Dunn, Didier Lamouche and
Bruno Steve are all voting members; ii) Mr. Antonino
Turicchi is the Chairman of the Compensation Committee, and
Messrs. Gérald Arbola, Tom de Waard, Didier Lombard
and Bruno Steve are members; iii) Mr. Tom de Waard is
the Chairman of the Nomination and Corporate Governance
Committee, and Messrs. Gérald Arbola, Didier Lombard,
Bruno Steve and Antonino Turicchi are members; and,
iv) Mr. Antonino Turicchi is the Chairman of the
Strategic Committee, and Messrs. Gérald Arbola,
Raymond Bingham, Douglas Dunn, Didier Lombard and Alessandro Ovi
are members.
Detailed information on attendance at full Supervisory Board and
Supervisory Board Committee meetings during 2009 is as follows:
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Nominating
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and
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Corporate
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Audit
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Compensation
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Strategic
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Governance
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Number of Meetings Attended in 2009
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Full Board
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Committee
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Committee
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Committee
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Committee
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Antonino Turicchi
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13
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3
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1
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1
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Gérald Arbola
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13
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3
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1
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Raymond Bingham
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13
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11
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1
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Douglas Dunn
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13
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11
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1
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Didier Lamouche
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9
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11
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Didier Lombard
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11
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3
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1
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1
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Alessandro Ovi
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13
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1
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Bruno Steve
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13
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9
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2
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Tom de Waard
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12
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11
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3
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Audit Committee. The Audit Committee was
established in 1996 to assist the Supervisory Board in
fulfilling its oversight responsibilities relating to corporate
accounting, reporting practices, and the quality and integrity
of our financial reports as well as our auditing practices,
legal and regulatory related risks, execution of our
auditors recommendations regarding corporate auditing
rules and the independence of our external auditors.
The Audit Committee met 11 times during 2009 and, in addition,
held several conference calls related to subjects that arose
during the year. At many of the Audit Committees meetings,
the committee received presentations on current financial and
accounting issues and had the opportunity to interview our CEO,
CFO, General Counsel, external and internal auditors. The Audit
Committee also met with outside U.S. legal counsel to
discuss corporate requirements pursuant to NYSEs corporate
governance rules and the Sarbanes-Oxley Act. The Audit Committee
also proceeded with its annual review of our internal audit
function. The Audit Committee reviewed our annual Consolidated
Financial Statements in U.S. GAAP for the year ended
December 31, 2009, and the results press release was
published on January 27, 2010.
The Audit Committee approved the compensation of our external
auditors for 2009 and provisionally approved the scope of their
audit, audit-related and non-audit-related services for 2010.
84
At the end of each quarter, prior to each Supervisory Board
meeting to approve our results and quarterly earnings press
release, the Audit Committee reviewed our interim financial
information and the proposed press release and had the
opportunity to raise questions to management and the independent
registered public accounting firm. In addition, the Audit
Committee reviewed our quarterly Operating and Financial
Review and Prospects and Consolidated Financial Statements
(and notes thereto) before they were filed with the SEC and
voluntarily certified by the CEO and the CFO (pursuant to
sections 302 and 906 of the Sarbanes-Oxley Act). The Audit
Committee also reviewed Operating and Financial Review and
Prospects and our Consolidated Financial Statements contained in
our 2009
Form 20-F.
Furthermore, the Audit Committee monitored our compliance with
the European Directive and applicable provisions of Dutch law
that require us to prepare a set of accounts pursuant to IFRS in
advance of our annual shareholders meetings, which was
held on May 20, 2009. See Item 3. Key
Information Risk Factors Risks Related
to Our Operations.
Also in 2009, our Audit Committee reviewed with our external
auditors our compliance with Section 404 of the
Sarbanes-Oxley Act. In addition, the Audit Committee regularly
discussed the progress of the implementation of internal control
over financial reporting and reviewed managements
conclusions as to the effectiveness of internal control.
As part of each of its quarterly meetings our Audit Committee
reviewed our financial results as presented by Management and
whistleblowing reports, including independent investigative
reports provided by internal audit or outside consultants on
such matters.
Compensation Committee. Our Compensation
Committee proposes to our Supervisory Board the compensation for
our President and Chief Executive Officer and sole member of our
Managing Board as well as for our Chief Operating Officer,
including the variable portion of such compensation based on
performance criteria recommended by our Compensation Committee.
It also approves any increase in the incentive component of
compensation for our executive officers. The Compensation
Committee is also informed of the compensation plans for our
executive officers and specifically approves stock-based
compensation plans for our executive officers and key employees.
The Compensation Committee met 3 times in 2009.
Among its main activities, the Compensation Committee:
(i) agreed, jointly with the CEO, to propose a bonus for
the CEO related to fiscal year 2008 equal to 75% of his base
salary, given the difficult market conditions and the objectives
that had been met; (ii) recommended the performance
criteria which must be met by the CEO in order to benefit from
the bonus that was approved by our 2009 Annual General Meeting
of Shareholders as part of the Managing Board compensation
policy, as well as the performance criteria to be met by our COO
to be eligible for his 2009 bonus; and (iii) proposed
performance criteria, which must be met by the CEO as well as
all other employees participating in the employees stock award
plans to benefit from such awards. In particular, the
Compensation Committee recommended the performance targets for
the base bonus of our CEO and COO be based on, among other
factors, market share, introduction of new products, the budget
for the second half of 2009, the Companys share price
versus SOX from July 29, 2009 through January 27,
2010, corporate governance and the restructuring program. The
Compensation Committee, on behalf, and with the approval, of the
entire Supervisory Board, also set the criteria for a special
incentive bonus.
For the 2009 nonvested stock award plan, the Compensation
Committee, on behalf, and with the approval, of the entire
Supervisory Board, established the applicable performance
criteria, which are based on sales and operating income as
compared against a panel of semiconductor companies and cash
flow before acquisitions as well as cash restructuring costs,
with the target to have it positive for the second half of 2009.
In addition, the Compensation Committee received presentations
and discussed our succession planning for key employees.
Strategic Committee. Our Strategic Committee
was created to monitor key developments within the semiconductor
industry and our overall strategy, and is, in particular,
involved in supervising the execution of strategic transactions.
The Strategic Committee met only once in 2009, as several of the
strategic discussions were extended to involve all Supervisory
Board members and occurred at extended Supervisory Board
meetings. Among its main activities, the Strategic Committee
reviewed prospects and various possible scenarios and
opportunities to meet the challenges of the semiconductor
market, including the evaluation of possible divestitures and
partnerships to invest in new markets.
Nominating and Corporate Governance
Committee. Our Nominating and Corporate
Governance Committee was created to establish the selection
criteria and appointment procedures for the appointment of
members to our Supervisory Board and Managing Board, and to
resolve issues relating to corporate governance. The Nominating
and Corporate Governance Committee met once during 2009 to
discuss modifications to the Supervisory Board
85
Charter for the Companys joint ventures, recent
developments in Dutch law regarding Dutch listed companies and
preparations for the Annual General Meeting.
Secretariat and Controllers. Our Supervisory
Board appoints a Secretary and Vice Secretary as proposed by our
Supervisory Board. Furthermore, the Managing Board makes an
Executive Secretary available to our Supervisory Board, who is
appointed by the Supervisory Board. The Secretary, Vice
Secretary and Executive Secretary constitute the Secretariat of
the Board. The mission of the Secretariat is primarily to
organize meetings, ensure the continuing education and training
of our Supervisory Board members and to maintain record-keeping.
Messrs. Bertrand Loubert and Luigi Chessa serve as
Secretary and Vice Secretary, respectively, for our Supervisory
Board, and for each of the Compensation, Nominating and
Corporate Governance and Strategic Committees of our Supervisory
Board. Our Chief Compliance Officer, Ms. Alisia Grenville,
serves as the Executive Secretary of our Supervisory Board.
Our Supervisory Board appoints and dismisses two financial
experts (Controllers). The mission of the
Controllers is primarily to assist our Supervisory Board in
evaluating our operational and financial performance, business
plan, strategic initiatives and the implementation of
Supervisory Board decisions, as well as to review the
operational reports provided under the responsibility of the
Managing Board. The Controllers generally meet once a month with
the management of the Company and report to our Supervisory
Board. The current Controllers are Messrs. Christophe Duval
and Andrea Novelli, who have served as controllers since our
2005 annual shareholders meeting.
The STH Shareholders Agreement between our principal
indirect shareholders contains provisions with respect to the
appointment of the Secretary, Vice Secretary and Controllers,
which are described in Item 7. Major Shareholders and
Related Party Transactions.
Managing
Board
In accordance with Dutch law, our management is entrusted to the
Managing Board under the supervision of our Supervisory Board.
Mr. Carlo Bozotti, re-appointed in 2008 for a three-year
term to expire at the end of our annual shareholders
meeting in 2011, is currently the sole member of our Managing
Board with the function of President and Chief Executive
Officer. Mr. Alain Dutheil serves as Chief Operating
Officer, reporting to Mr. Bozotti. Since its creation in
1987, our managing board has always been comprised of a sole
member. The member of our Managing Board is appointed for a
three-year term, as described in our Articles of Association,
which may be renewed one or more times in accordance with our
Articles of Association upon a non-binding proposal by our
Supervisory Board at our shareholders meeting and adoption
by a simple majority of the votes cast at the shareholders
meeting where at least 15% of the issued and outstanding share
capital is present or represented. If our Managing Board were to
consist of more than one member, our Supervisory Board would
appoint one of the members of our Managing Board to be chairman
of our Managing Board for a three-year term, as defined in our
Articles of Association (upon approval of at least
three-quarters of the members of our Supervisory Board). In such
case, resolutions of our Managing Board would require the
approval of a majority of its members.
Our shareholders meeting may suspend or dismiss one or
more members of our Managing Board at a meeting at which at
least one-half of the outstanding share capital is present or
represented. If a quorum is not present, a further meeting shall
be convened, to be held within four weeks after the first
meeting, which shall be entitled, irrespective of the share
capital represented, to pass a resolution with regard to the
suspension or dismissal of one or more members of our Managing
Board. Such a quorum is not required if a suspension or
dismissal is proposed by our Supervisory Board. In that case, a
resolution to dismiss or to suspend a member of our Managing
Board can be taken by a simple majority of the votes cast at a
meeting where at least 15% of our issued and outstanding share
capital is present or represented. Our Supervisory Board may
suspend members of our Managing Board, but a shareholders
meeting must be convened within three months after such
suspension to confirm or reject the suspension. Our Supervisory
Board shall appoint one or more persons who shall, at any time,
in the event of absence or inability to act of all the members
of our Managing Board, be temporarily responsible for our
management.
Under Dutch law, our Managing Board is entrusted with our
general management and the representation of the Company. Our
Managing Board must seek prior approval from our
shareholders meeting for decisions regarding a significant
change in the identity or nature of the Company. Under our
Articles of Association, our Managing Board must obtain prior
approval from our Supervisory Board for (i) all proposals
to be submitted to a vote at a shareholders meeting;
(ii) the formation of all companies, acquisition or sale of
any participation, and conclusion of any cooperation and
participation agreement; (iii) all of our multi-year plans
and the budget for the coming year, covering investment policy,
policy regarding R&D, as well as commercial policy and
objectives, general financial policy, and policy regarding
personnel; and (iv) all acts, decisions or operations
covered by the foregoing and constituting a significant change
with respect to decisions already taken by our Supervisory
Board. In addition,
86
under our Articles of Association, our Supervisory Board and our
shareholders meeting may specify by resolution certain
additional actions by our Managing Board that require its prior
approval.
In accordance with our Corporate Governance Charter, the sole
member of our Managing Board and our Executive Officers may not
serve on the board of a public company without the prior
approval of our Supervisory Board. We are not aware of any
potential conflicts of interests between the private interest or
other duties of our sole Management Board member and our
Executive Officers and their duties to our Company.
Pursuant to the charter adopted by our Supervisory Board, the
following decisions by our Managing Board with regards to the
Company and any of our direct or indirect subsidiaries (an
ST Group Company) require prior approval from our
Supervisory Board: (i) any modification of our or any ST
Group Companys Articles of Association or other
constitutional documents, other than those of wholly-owned
subsidiaries; (ii) any change in our or any ST Group
Companys authorized share capital or any issue,
acquisition or disposal by us of our own shares, or any ST Group
Companys shares, or change in share rights or issue of any
instruments granting an interest in our or an ST Group
Companys capital or profits other than those of our
wholly-owned subsidiaries; (iii) any liquidation or
dissolution of us or any ST Group Company or the disposal of all
or a substantial and material part of our business or assets, or
those of any ST Group Company, or of any shares in any such ST
Group Company; (iv) any merger, acquisition or joint
venture agreement (and, if substantial and material, any
agreement relating to IP) or formation of a new company to which
we or any ST Group Company is, or is proposed to be, a party, as
well as the formation of new companies by us or any ST Group
Company (with the understanding that only acquisitions above
$25 million per transaction are subject to prior
Supervisory Board approval); (v) approval of our draft
consolidated balance sheets and financial statements, as well as
our and our subsidiaries profit distribution policies;
(vi) entering into any agreement that may qualify as a
related party transaction, including any agreement between us or
any ST Group Company and ST Holding, ST Holding II, FT1CI,
Areva, CDP or CEA; (vii) the key parameters of our
5-year plans
and our consolidated annual budgets, as well as any significant
modifications to said plans and budgets, or any one of the
matters set forth in our Articles of Association and not
included in the approved plans or budgets; (viii) approval
of operations of exceptional importance which have to be
submitted for Supervisory Board prior approval even if their
financing was already provided for in the approved annual
budget; (ix) approval of our quarterly, semiannual and
annual Consolidated Financial Statements prepared in accordance
with U.S. GAAP and semiannual and annual accounts using
IFRS, prior to submission for shareholder adoption; and
(x) the exercise of any shareholder right in an ST joint
venture company (ST Joint Venture Company), which is
a company (i) with respect to which we hold directly or
indirectly either a minority equity position in excess of 25% or
a majority position without the voting power to adopt
extraordinary resolutions or (ii) in which we directly or
indirectly participate and such participation has a value of at
least one-third of our total assets according to the
consolidated balance sheet and notes thereto in our most
recently adopted (statutory) annual accounts.
Executive
Officers
Our executive officers support our Managing Board in its
management of the Company, without prejudice to our Managing
Boards ultimate responsibility. New corporate officers
during 2009 and the first quarter of 2010 include: Paul Grimme,
who joined the Company in September 2009 as Corporate Vice
President and General Manager of the Automotive Product Group
(APG) following Ugo Carenas retirement; and Tjerk
Hooghiemstra, who joined our company in February 2010 in the new
position of Executive Vice-President, Chief Administrative
Officer. In this role, Mr. Hooghiemstra reports to the
President and CEO, Carlo Bozotti. We created this new position
with the aim of generating synergies among many staff
organizations, by optimizing the functions of Human Resources,
Health & Safety, Education, Legal, Internal
Communication, Security, and Corporate Responsibility.
From August 2, 2008 through November 1, 2009, our
Chief Operating Officer, Alain Dutheil, was also the CEO of
ST-NXP Wireless, and briefly acted as CEO of the new ST-Ericsson
joint venture following the merger of ST-NXP Wireless with EMP.
The current CEO of ST-Ericsson is Gilles Delfassy.
87
As of February 2010, our organizational chart is as follows:
As a company committed to good governance, we hold several
corporate meetings on a regular basis. Such meetings, which
involve the participation of several of our executive officers,
include:
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Corporate Operation Reviews (COR), which meets once per
month to review monthly results and short term forecasts and
involve the following executive officers/groups: CEO; COO; CFO;
Infrastructures and Services; Product Quality Excellence;
Manufacturing (Front-End and Back-End); TR&D; Regions; and
Product Groups.
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Corporate Strategic Committee meetings, which
occur twice per quarter with the objective of defining the
strategic directions of the Company. They are attended by the
CEO, COO and the following executive officers: Orio Bellezza;
Jean-Marc Chery; Andrea Cuomo; Carlo Ferro; Tjerk Hooghiemstra;
Philippe Lambinet; Loic Liétar; and Carmelo Papa.
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Our executive officers during 2009 were:
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Years in
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Semi-
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Years with
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Conductor
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Name
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Position
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Company
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Industry
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Age
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Carlo Bozotti, Chairman
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President and Chief Executive Officer
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33
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33
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57
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Alain Dutheil, Vice Chairman
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Chief Operating Officer
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26
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40
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64
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Georges Auguste
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Executive Vice President, Quality, Education and Sustainable
Development
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23
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35
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60
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Orio Bellezza
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Executive Vice President and General Manager, Front-End
Manufacturing
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26
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26
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50
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Gian Luca Bertino
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Corporate Vice President, Computer and Communications
Infrastructure
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12
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23
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50
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Ugo Carena(1)
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Corporate Vice President, Automotive Products Group
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12
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32
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66
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Marco Luciano Cassis
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Corporate Vice President, Japan Region
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22
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22
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46
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Patrice Chastagner
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Corporate Vice President, Human Resources
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25
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25
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62
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Jean-Marc Chery
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Executive Vice President and Chief Technology Officer
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25
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25
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49
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Andrea Cuomo
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Executive Vice President and General Manager, Sales &
Marketing, Europe, Middle
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26
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26
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55
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East and Africa
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Claude Dardanne
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Corporate Vice President, General Manager, Microcontrollers,
Memories & Smartcards
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27
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30
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57
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Carlo Ferro
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Executive Vice President, Chief Financial Officer
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10
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10
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49
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Alisia Grenville
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Corporate Vice President, Chief Compliance Officer
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2
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2
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42
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Paul Grimme
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Corporate Vice President and General Manager, Automotive Product
Group
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1
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29
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50
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François Guibert
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Corporate Vice President, President, Greater China & South
Asia Region
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29
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32
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56
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Reza Kazerounian(2)
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Corporate Vice President, North America Region
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25
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25
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52
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Otto Kosgalwies
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Executive Vice President, Infrastructure and Services
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26
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26
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54
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Robert Krysiak
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Corporate Vice President and General Manager, Greater China
Region
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27
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27
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55
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Philippe Lambinet
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Executive Vice President, General Manager, Home Entertainment
& Displays Group
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16
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16
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52
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Loïc Lietar
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Corporate Vice President, Corporate Business Development
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24
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24
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47
|
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Pierre Ollivier
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Corporate Vice President and General Counsel
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20
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20
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54
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Carlo Ottaviani
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Corporate Vice President, Communication
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45
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45
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66
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Carmelo Papa
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Executive Vice President and General Manager, Industiral
Multi-segment Sector
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27
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27
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60
|
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Jeffrey See
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Executive Vice President, Central Packaging and Test
Manufacturing
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40
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40
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64
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Thierry Tingaud(3)
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Corporate Vice President, Emerging Markets Region
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25
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25
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50
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(1) |
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Retired in 2009. |
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(2) |
|
As of April 2009, Mr. Kazerounian is no longer with the
Company. |
|
(3) |
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Mr. Tingaud left ST in February 2009. |
89
Biographies
of our Current Executive Officers
Carlo Bozotti is our President, Chief Executive Officer and the
sole member of our Managing Board. As CEO, Mr. Bozotti is
the Chairman of our Executive Committee. Prior to taking on this
new role at the 2005 annual shareholders meeting,
Mr. Bozotti served as Corporate Vice President, Memories
Product Group (MPG) since August 1998.
Mr. Bozotti joined SGS Microelettronica in 1977 after
graduating in Electronic Engineering from the University of
Pavia. Mr. Bozotti served as Product Manager for the
Industrial, Automotive and Telecom products in the Linear
Division and as Business Unit Manager for the Monolithic
Microsystems Division from 1987 to 1988. He was appointed
Director of Corporate Strategic Marketing and Key Accounts for
the Headquarters Region in 1988 and became Vice President,
Marketing and Sales, Americas Region in 1991. Mr. Bozotti
served as Corporate Vice President, MPG from August 1998 through
March 2005, after having served as Corporate Vice President,
Europe and Headquarters Region from 1994 to 1998. In 2008,
Mr. Bozotti was appointed Chairman of the Supervisory Board
of Numonyx. As of February 1, 2009, he is Vice Chairman of
the Board of Directors of ST-Ericsson.
Alain Dutheil was appointed Chief Operating Officer in 2005,
with the endorsement of the Supervisory Board. He is also the
Vice Chairman of our Corporate Executive Committee. Prior to his
appointment as COO, he served as Corporate Vice President,
Strategic Planning and Human Resources from 1994 and 1992,
respectively. After graduating in Electrical Engineering from
the Ecole Supérieure dIngénieurs de Marseille
(ESIM), Mr. Dutheil joined Texas Instruments in
1969 as a Production Engineer, becoming Director for Discrete
Products in France and Human Resources Director in France in
1980 and Director of Operations for Portugal in 1982. He joined
Thomson Semiconductors in 1983 as General Manager of a plant in
Aix-en-Provence, France and then became General Manager of
SGS-Thomson Discrete Products Division. From 1989 to 1994,
Mr. Dutheil served as Director for Worldwide Back-end
Manufacturing, in addition to serving as Corporate Vice
President for Human Resources from 1992 until 2005. From August
2008 through January 2009, Mr. Dutheil acted as CEO for our
joint venture ST-NXP Wireless, and from February 1, 2009
through November 15, 2009, was the CEO of ST- Ericsson.
Georges Auguste currently serves as our Executive Vice
President, Quality, Education and Sustainable Development.
Mr. Auguste received a degree in Engineering from the Ecole
Supérieure dElectricité (SUPELEC) in
1973 and a diploma in Business Administration from Caen
University in 1976. Prior to joining us, Mr. Auguste worked
with Philips Components from 1974 to 1986, in various positions
in the field of manufacturing. From 1990 to 1997, he headed our
operations in Morocco, and from 1997 to 1999, Mr. Auguste
served as Director of Total Quality and Environmental Management.
Orio Bellezza, Executive Vice President and General Manager,
Front-End Manufacturing, is responsible for all of our wafer
fabrication operations and facilities. He graduated with honors
in Chemistry from Milan University in 1983. He joined SGS-ATES
in 1984 as a Process Engineer and after two years moved to the
Central R&D department, where he worked first as a
Development Engineer and later as the Process Integration
Manager, responsible for submicron EPROM (Erasable Programmable
Read-Only Memories) process technology modules. In 1996,
Bellezza was named Director of the Agrate R1 Research and
Development facility. In 2002, he was appointed Vice President
of Central R&D and then in 2005 was named Vice President
and Assistant General Manager of Front-End Technology and
Manufacturing. Bellezza also served on the Board of the ST-Hynix
memory-manufacturing joint venture established in Wuxi (China).
Gian Luca Bertino is our Corporate Vice President, Computer and
Communications Infrastructure. He graduated in 1985 in
Electronic Engineering from the Polytechnic of Turin. From 1986
to 1997 he held several positions within the Research and
Development organization of Olivettis semiconductor group
before joining ST in 1997. Previously, he was Group Vice
President, Peripherals, General Manager of our Data Storage
Division within the Telecommunications, Peripherals and
Automotive (TPA) Groups.
Marco Luciano Cassis is Corporate Vice President, Japan region.
He graduated from the Polytechnic of Milan with a degree in
Electronic Engineering. Cassis joined us in 1988 as a
mixed-signal analog designer for car radio applications. In
1993, Cassis moved to Japan to support our newly created design
center with his expertise in audio products. Then in 2000,
Cassis took charge of the Audio Business Unit and a year later
he was promoted to Director of Audio and Automotive Group,
responsible for design, marketing, sales, application support,
and customer services. In 2004, Cassis was named Vice President
of Marketing for the automotive, computer peripheral, and
telecom products. In 2005, he advanced to Vice President
Automotive Segment Group and joined the Board of the Japanese
subsidiary, STMicroelectronics K.K.
Patrice Chastagner is Corporate Vice President, Human Resources.
He is a graduate of the HEC business school in France and in
1988 became the Grenoble Site Director, guiding the emergence of
this facility to become one of the most important hubs in Europe
for advanced, complex silicon chip development and solutions. As
Human Resources Manager for the Telecommunications, Peripherals
and Automotive (TPA) Groups, which was our largest
90
product group at the time, he was also TQM Champion and applied
the principle of continuous improvement to human resources as
well as to manufacturing processes. Since March 2003, he has
also been serving as Chairman of STMicroelectronics S.A. in
France.
Jean-Marc Chery is our Executive Vice President and Chief
Technology Officer, where his responsibilities include our
corporate technology R&D, as well as the production at the
Companys 12 (300mm) Crolles wafer fab. He graduated
from the National Superior School for Engineering, ENSAM France
in 1984. He began his professional career in 1985 with MATRA SA
in its Quality organization and by the end of 1986 had joined
the Discrete Division of Thomson Semiconducteurs, located in
Tours, where he remained until the beginning of 2001, first as
Division Planning and Front-End Production Control Manager
and later as the Front-End Operation Manager. Early in 2001,
Chery joined our Central Front-End Manufacturing organization as
General Manager of the Rousset 8 (200mm) plant, eventually
assuming responsibilities for the 6 and 8 wafer fab
operations at the site. In 2005, Chery successfully led our
restructuring program for 6 front-end wafer manufacturing
and he moved to Singapore, where, in 2006, his efforts earned
him the responsibility for our Asia-Pacific Front-End
Manufacturing operations and EWS (electrical wafer-sort)
operations. In February 2009, he was appointed a member of
ST-Ericssons Board of Directors. He is also Chairman of ST
Microelectronics, Crolles 2, SAS, and, in September 2009, he was
appointed a deputy of ST-Ericssons Board of Directors.
Since October 2009, he has been in charge of Information
communication Technology.
Andrea Cuomo is Executive Vice President and General Manager,
Sales & Marketing, Europe, Middle East and Africa.
After studying at Milano Politecnico in Nuclear Sciences, with a
special focus on analog electronics, Mr. Cuomo joined us in
1983 as a System Testing Engineer, and from 1985 to 1989 held
various positions to become Automotive Marketing Manager, then
computer and industrial product manager . In 1989,
Mr. Cuomo was appointed Director of Strategy and Market
Development for the Dedicated Products Group, and in 1994 became
Vice President of the Headquarters Region, responsible for
Corporate Strategic Marketing and for Sales and Marketing to ST
Strategic Accounts. In 1998, Mr. Cuomo was appointed as
Vice President responsible for Advanced System Technology and in
2002, Mr. Cuomo was appointed as Corporate Vice President
and Advanced System Technology General Manager. In 2004, he was
given the additional responsibility of serving as our Chief
Strategy officer and was promoted to Executive Vice President.
Since 2008, he has been responsible for EVP, GM, EMEA and AST.
Claude Dardanne is Corporate Vice President and General Manager
of our Microcontrollers, Memories & Smartcards (MMS)
Group, part of our Industrial & Multi-segment Sector,
in January 2007. Mr. Dardanne graduated from the Ecole
Supérieure dIngénieurs en Génie Electrique
de Rouen in France with a Masters degree in Electronic
Engineering. After graduation, Mr. Dardanne spent five
years at Thomson Semiconducteurs in France before moving to
North America as a Field Application Engineer. From 1982,
Mr. Dardanne was responsible for marketing of
Microcontrollers & Microprocessor products in North
America and, in 1987, Mr. Dardanne was appointed
Thomsons Worldwide Marketing Manager for
Microcontrollers & Microprocessors in France. In 1989,
Mr. Dardanne joined Apple Computer, France, as Marketing
Director, responsible for business development in segments
including Industrial, Education, Banking and Communications.
From 1991 to 1994, Mr. Dardanne served as Marketing
Director at Alcatel-Mietec in Belgium and in 1994,
Mr. Dardanne rejoined Thomson (which by then had merged
with SGS Microelettronica) as Director of Central Marketing for
the Memory Products Group (MPG). In 1998, Mr. Dardanne
became the head of the EEPROM division. In 2002,
Mr. Dardanne was promoted to Vice President of the Memory
Products Group and General Manager of the Serial Non-Volatile
Memories division and in 2004, he was promoted to Deputy General
Manager, Memory Products Group, where his responsibilities
included the management of our Smartcard Division.
Carlo Ferro is Executive Vice President, Chief Financial
Officer. Mr. Ferro has been serving as our CFO since May
2003. Mr. Ferro graduated with a degree in Business and
Economics from the LUISS Guido Carli University in Rome, Italy
in 1984, and has a professional qualification as a Certified
Public Accountant in Italy. From 1984 through 1996,
Mr. Ferro held a series of positions in finance and control
at Istituto per la Ricostruzione Industriale-IRI S.p.A. (I.R.I),
and Finmeccanica. Mr. Ferro served as one of our
Supervisory Board Controllers from 1992 to 1996. Mr. Ferro
was also a part-time university professor of Planning and
Control until 1996. From 1996 to 1999, Mr. Ferro held
positions at EBPA NV, a process control company listed on the
NYSE, rising to Vice President Planning and Control and
principal financial officer. Mr. Ferro joined us in June
1999 as Group Vice President Corporate Finance, overseeing
finance and accounting for all affiliates worldwide, and served
as Deputy CFO from April 2002 through April 2003. Mr. Ferro
holds positions on the board of directors of several of our
affiliates. He is also a part-time professor of finance at the
University LUISS Guido Carli in Rome (Italy). As of
February 1, 2009, he is a member of ST-Ericssons
Board of Directors, as well as Chair of its Audit Committee. He
is also the Chairman of Incard SA, our fully owned affiliate.
91
Alisia Grenville is Corporate Vice President, Chief Compliance
Officer. She graduated from Queens University in Kingston,
Ontario with an honors degree in French and Italian and
from the University of Sussex with a bachelor in law (LLB).
Between 1999 and 2004, Grenville worked in
top-tier American law firms as a corporate associate,
specializing in bank finance, capital markets and M&A
transactions, as well as governance, based in both New York and
Frankfurt. In 2004, Grenville became a Senior Compliance Officer
at Zurich Financial Services in Zurich. In 2005, she became the
Head of Legal Compliance for Serono, S.A. in Geneva, and she
joined ST in December 2007. Grenville is also in charge of the
Executive Secretariat of the Supervisory Board, and supervises
the Companys Internal Audits in addition to chairing the
Companys Ethics Committee.
Paul Grimme was born in 1959 in Yankton, South Dakota, and
graduated from the University of Nebraska (Lincoln) with a
degree in Electrical Engineering and from the University of
Texas (Austin) with a Master of Business Administration. Grimme
began his career at Motorola, where he held positions of
increasing responsibility in product engineering, marketing and
operations management. He served as Corporate Vice President and
General Manager of the 8/16-bit Products Division. In 1999,
Grimme was promoted to Vice President and General Manager of the
Advanced Vehicle Systems Division. He was later appointed Senior
Vice President of the Transportation and Standard Products Group
and continued in that role at Freescale Semiconductor after
Motorola spun off its semiconductor business. Grimme also served
as Senior Vice President and General Manager of Freescale
Semiconductors Microcontroller Solutions Group. Grimme
joined STMicroelectronics as Deputy General Manager of the
Automotive Product Group in early 2009. Grimme was promoted as
Corporate Vice President and General Manager of
STMicroelectronics Automotive Product Group in September
2009.
François Guibert is Corporate Vice President, President,
Greater China & South Asia Region. He was born in
Beziers, France in 1953 and graduated from the Ecole
Supérieure dIngénieurs de Marseilles in 1978.
After three years at Texas Instruments, he joined Thomson
Semiconducteurs in 1981 as Sales Manager Telecom. From 1983 to
1986, he was responsible for ICs and strategic marketing of
telecom products in North America. In 1988 he was appointed
Director of our Semi-custom Business for Asia Pacific and in
1989 he became President of ST-Taiwan. Since 1992 he has
occupied senior positions in Business Development and Investor
Relations and was Group Vice President, Corporate Business
Development which includes M&A activities from 1995 to the
end of 2004. In January 2005, Mr. Guibert was promoted to
the position of Corporate Vice President, Emerging Markets
Region and in October 2006, he was appointed to his current
position. In 2008, Mr. Guibert was appointed a member of
Veredus Board of Directors.
Tjerk Hooghiemstra is Executive Vice President, Chief
Administrative Officer, responsible for the Companys Human
Resources, Health and Safety, Education, Legal, Internal
Communication, Security, and Corporate Responsibility. He has
held this position since February 2010 and is a member of our
Corporate Strategic Committee. He began his career at AMRO Bank.
Later he joined HayGroup, a leading global HR consultancy, where
he rose through the ranks to become the European head of
HayMcBer, the groups HR and leadership development arm, in
1991. Five years later, Hooghiemstra joined Philips Consumer
Electronics as Managing Director of Human Resources. In 2000, he
was appointed a member of Royal Philips Electronics Group
Management Committee, responsible for Corporate Human Resources
of the 160,000-employee global electronics group. In this
position, Hooghiemstra successfully developed global HR
processes, policies and tools across all Philips
businesses, establishing leading-edge talent and leadership
development programs. In
2007-2009,
Hooghiemstra served as Executive Vice President, Human
Resources, at the Majid Al Futtaim retail and real-estate group
in Dubai, UAE. Tjerk Hooghiemstra was born in Hoogeveen, The
Netherlands in 1956. He graduated with a degree in Economics
from the Erasmus University in Rotterdam, The Netherlands.
Otto Kosgalwies is Executive Vice President, Infrastructure and
Services, with responsibility for all of our corporate
activities related to Capacity Planning, Logistics, Procurement
and Material Management, with particular emphasis on the
complete supply chain between customer demand, manufacturing
execution, inventory management, and supplier relations.
Mr. Kosgalwies has been with us since 1984 after graduating
with a degree in Economics from Munich University. From 1992
through 1995, he served as European Manager for Distribution,
from 1995 to 2000 as Sales and Distribution Director for Central
Europe, and since 1997 as CEO of our German subsidiary. In 2000,
Mr. Kosgalwies was appointed Vice President for Sales and
Marketing in Europe and General Manager for Supply Chain
Management, where he was responsible at a corporate level for
the effective flow of goods and information from suppliers to
end users. In December 2007, he was promoted Executive Vice
President and became responsible for capacity and investment
planning at the corporate level.
Robert Krysiak is Corporate Vice President and General Manager,
Greater China Region, and focuses exclusively on our operations
in China, Hong Kong and Taiwan. He graduated from Cardiff
University with a degree in Electronics and holds an MBA from
the University of Bath. In 1983, Mr. Krysiak joined INMOS,
as a VLSI Design Engineer. Then in 1992, Mr. Krysiak formed
a group dedicated to the development of CPU products
92
based on the Reusable-Micro-Core architecture. Mr. Krysiak
was appointed Group Vice President and General Manager of our
16/32/64 and
DSP division in 1997. In 1999, Mr. Krysiak became Group
Vice President of the Micro Cores Development, and in 2001, he
took charge of our DVD division. He was a Marketing Director for
HPC before assuming his current responsibilities.
Philippe Lambinet is Executive Vice President, General Manager
Home Entertainment & Displays Group. He graduated from
the Paris Ecole Supérieure dElectricité in 1979
with a Masters Degree in Electronics. He began his
professional career as a software engineer with Control Data
Corporation in 1979 and in 1980 joined Thomsons
semiconductor subsidiary EFCIS to work in Application
Enginering. He later supervised ASIC Operations at
Thomsons Mostek Corporation in Carrollton, Texas and in
1990 took charge of design and marketing for Mixed Signal
Semi-custom Products within the Companys Programmable
Products Group. In 1997, he became Group Vice President and
General Manager of the Digital Video Division. He then joined
Advanced Digital Broadcast Group (ADB) as CEO of ADB-SA and
became COO of ADB Holdings SA and Vice Chairman.
Loïc Liétar is a Corporate Vice President and Chief
Strategic Officer of STMicroelectronics, and has held this
position since January 2008. He is responsible for the
Companys Strategic Planning, Corporate Business
Development, and Corporate Communication (since February 2010).
Liétar also sits on the Board of Directors of ST-Ericsson.
Liétar joined Thomson Semiconducteurs, a predecessor
company to STMicroelectronics, in 1985. After working in
R&D Management and Marketing, he was appointed Director of
the Companys Advanced Systems Technology (AST) labs in the
US in 1999. Four years later, Liétar became General Manager
of STs Cellular Terminals Division, and later moved to
head the Application Processor Division, which brought to market
STs leading-edge Nomadik mobile multimedia processor. In
2006, he was appointed Group Vice President, Strategies, and
contributed to establishing STs R&D partnership with
IBM and two joint ventures the Numonyx flash-memory
joint venture with Intel and ST-Ericsson, combining the wireless
operations of ST, NXP and Ericsson. Liétar sits on the
Board of Directors of the Global Semiconductor Alliance (GSA).
Loïc Liétar was born in Paris, France, in 1962. He
graduated with degrees in Engineering and Microelectronics from
the École Polytechnique and Orsay University in Paris,
respectively, and holds an MBA from Columbia University, New
York.
Pierre Ollivier is Corporate Vice President, General Counsel. He
obtained a Law Degree at Caen University in 1976 and a
postgraduate degree in International Business law at Paris 1
University in 1978. After graduation, he joined Clifford Turner
(now Clifford Chance) and then, in 1982, joined Stein Heurtey,
an engineering firm, where he was responsible for legal affairs.
In 1984, Ollivier joined Thomson CSF where he first worked in
the Electronics systems and equipment branch, later moving to
corporate headquarters. Ollivier became general counsel of
STMicroelectronics in 1990, a position he has held since. From
1994 until 2007, he also acted as Executive Secretary to the
Secretariat of the Supervisory Board. In January 2008, Ollivier
was promoted to Corporate Vice President, General Counsel. In
addition to legal matters involving contracts, litigation and
general corporate matters, his responsibilities include
developing the protection and extraction of value from STs
Intellectual Property, as well as the negotiation and management
of worldwide insurance programs for STs global group of
companies.
Carlo Emanuele Ottaviani is Corporate Vice President,
Communication. He began his career in 1965 in the Advertisement
and Public Relations Office of SIT-SIEMENS, today known as
ITALTEL. He later had responsibility for the activities of the
associated semiconductor company ATES Electronic Components.
ATES merged with the Milan-based SGS in 1971, and
Mr. Ottaviani was in charge of the advertisement and
marketing services of the newly formed SGS-ATES. In 1975, he was
appointed Head of Corporate Communication worldwide, and has
held this position since that time. In 2001, Mr. Ottaviani
was appointed by STMicroelectronics Foundation, an independent
charitable organization, as its President.
Carmelo Papa is our Executive Vice President and General Manager
of our Industrial & Multi-segment Sector. He received
his degree in Nuclear Physics at Catania University.
Mr. Papa joined us in 1983 and in 1986 was appointed
Director of Product Marketing and Customer Service for
Transistors and Standard ICs. In 2000, Mr. Papa was
appointed Corporate Vice President, Emerging Markets and in
2001, he took on additional worldwide responsibility for our
Electronic Manufacturing Service to drive forward this new
important channel of business. From January 2003 through
December 2004, he was in charge of formulating and leading our
strategy to expand our customer base by providing dedicated
solutions to a broader selection of customers, one of our key
growth areas. In 2005, he was named Corporate Vice President.
Jeffrey See is our Executive Vice President and General Manager,
Central Packaging & Test Manufacturing. After
Mr. See graduated from the Singapore Polytechnic in 1965,
he became a Chartered Electronic Engineer at the Institution of
Electrical Engineers (IEE) in the UK. In 1969, Mr. See
joined SGS Microelettronica, a forerunner company of ST, as a
Quality Supervisor at its first Assembly and Test facility in
Toa Payoh, Singapore and was promoted to Deputy Back-End Plant
Manager in 1980. In 1983, Mr. See was appointed to manage
the start-up
of the
93
regions first wafer fabrication plant
(125-mm) in
Ang Mo Kio, Singapore and became General Manager of the
front-end operations in 1992. In 2001, Mr. See was
appointed Vice President and Assistant General Manager of
Central Front-End Manufacturing and General Manager of the Asia
Pacific Manufacturing Operations, responsible for wafer
fabrication and electrical wafer sort in the region.
As is common in the semiconductor industry, our success depends
to a significant extent upon, among other factors, the continued
service of our key senior executives and research and
development, engineering, marketing, sales, manufacturing,
support and other personnel, and on our ability to continue to
attract, retain and motivate qualified personnel. The
competition for such employees is intense, and the loss of the
services of any of these key personnel without adequate
replacement or the inability to attract new qualified personnel
could have a material adverse effect on us. We do not maintain
insurance with respect to the loss of any of our key personnel.
See Item 3. Key Information Risk
Factors Risks Related to Our Operations
Loss of key employees could hurt our competitive position.
Compensation
Pursuant to the decisions adopted by our shareholders at the
annual shareholders meeting held on May 14, 2008, the
aggregate compensation for the members and former members of our
Supervisory Board in respect of service in 2009 was
993,875 before any withholding taxes and applicable
mandatory social contributions, as set forth in the following
table.
|
|
|
|
|
Supervisory Board Member
|
|
Directors Fees
|
|
|
Antonino Turicchi
|
|
|
146,875
|
|
Gérald Arbola
|
|
|
146,875
|
|
Raymond Bingham
|
|
|
98,375
|
|
Douglas Dunn
|
|
|
96,875
|
|
Didier Lamouche
|
|
|
86,250
|
|
Didier Lombard
|
|
|
88,125
|
|
Alessandro Ovi
|
|
|
75,875
|
|
Bruno Steve
|
|
|
97,375
|
|
Tom de Waard(1)
|
|
|
157,250
|
|
|
|
|
|
|
Total
|
|
|
993,875
|
|
|
|
|
|
|
|
|
|
(1) |
|
Compensation, including attendance fees of $2,000 per meeting of
our Supervisory Board or committee thereof, was paid to Clifford
Chance LLP. |
We do not have any service agreements with members of our
Supervisory Board.
The total amount paid as compensation in 2009 to our executive
officers, including Mr. Carlo Bozotti, the sole member of
our Managing Board and our President and CEO as well as
executive officers employed by us during 2009, was approximately
$15.3 million before any withholding taxes. Such amount
also includes the amounts of EIP paid to the executive officers
pursuant to a Corporate Executive Incentive Program (the
EIP) that entitles selected executives to a yearly
bonus based upon the individual performance of such executives.
The maximum bonus awarded under the EIP is based upon a
percentage of the executives salary and is adjusted to
reflect our overall performance. The participants in the EIP
must satisfy certain personal objectives that are focused,
inter alia, on return on net assets, customer service,
profit, cash flow and market share. The relative charges and
non-cash benefits were approximately $10.6 million. Within
such amount, the remuneration of our current sole member of our
Managing Board and President and CEO in 2009 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sole Member of Our Managing Board and
|
|
|
|
|
|
Non-cash
|
|
|
President and CEO
|
|
Salary(2)
|
|
Bonus(1)
|
|
Benefits(3)
|
|
Total
|
|
Carlo Bozotti
|
|
$
|
933,474
|
|
|
$
|
649,755
|
|
|
$
|
884,662
|
|
|
$
|
2,467,891
|
|
|
|
|
(1) |
|
The bonus paid to the sole member of our Managing Board and
President and CEO during the 2009 financial year was approved by
the Compensation Committee, and approved by the Supervisory
Board in respect of the 2008 financial year, based on
fulfillment of a number of pre-defined objectives for 2008. |
|
(2) |
|
Our Supervisory Board, upon the recommendation of our
Compensation Committee, approved an annual salary for 2009 for
our Managing Board and President and CEO of $700,000, with an
exchange rate for the salary paid in Euro fixed at 1.00 to
$1.20 and an exchange rate for the salary paid in Swiss Francs
of approximately CHF 1.00 to $0.90. |
94
|
|
|
(3) |
|
Including stock awards, employer social contributions, company
car allowance and miscellaneous allowances. |
Mr. Bozotti was re-appointed as sole member of our Managing
Board and President and Chief Executive Officer of our company
by our annual shareholders meeting on May 14, 2008
for a three-year period. At our annual shareholders
meeting in 2011, the mandate of Mr. Bozotti will expire. In
each of the years 2007, 2008 and 2009, Mr. Bozotti was
granted, in accordance with the compensation policy approved by
the shareholders meeting, up to 100,000 nonvested Stock
Awards. The vesting of such stock awards is conditional upon
certain performance criteria, fixed by our Supervisory Board,
being achieved as well as Mr. Bozottis continued
service with us.
In 2009, our Supervisory Board approved the terms of
Mr. Bozottis employment by us, which are consistent
with the compensation policy approved by our 2005 annual
shareholders meeting. Mr. Bozotti has two employment
agreements with us, the first with our Dutch parent company,
which relates to his activities as sole member of our Managing
Board and representative of the Dutch legal entity, and the
second in Switzerland, which relates to his activities as
President and CEO, EIP, Pension and other items covered by the
compensation policy approved by our shareholders.
Consistent with this compensation policy, the Supervisory Board,
upon the recommendation of its compensation committee, set the
criteria to be met for Mr. Bozotti for attribution of his
2009 bonus (based on new product introductions, market share and
budget targets, as well as corporate governance initiatives).
The Supervisory Board, however, has not yet determined the
amount of the CEO bonus for 2010.
With regard to Mr. Bozottis 2008 nonvested stock
awards, the Supervisory Board, upon the recommendation of its
Compensation Committee, noted that only two out of the three
performance criteria linked to sales, operations, income and
return on net assets had been met under the Employee stock award
Plan and concluded that Mr. Bozotti was entitled to 66,666
stock awards, which vest as defined by the Plan one year, two
years and three years, respectively, after the date of the
grant, provided Mr. Bozotti is still an employee at such
time (subject to the acceleration provisions in the event of a
change in control).
With regard to Mr. Bozottis 2009 stock awards, the
Supervisory Board upon recommendation of the Compensation
Committee, set the criteria for the attribution of the 100,000
stock awards permitted. The Supervisory Board, however, has not
yet determined whether the performance criteria which condition
the vesting (and which, like for all employees benefiting from
nonvested share awards, are linked to sales, operations, income
and return on net assets) have been met.
During 2009, Mr. Bozotti did not exercise any stock options
granted to him, and did not sell any vested stock awards or
purchase or sell any of our shares.
Our Supervisory Board has approved the establishment of a
complementary pension plan for our top executive management,
comprising the CEO, COO and other key executives to be selected
by the CEO according to the general criteria of eligibility and
service set up by the Supervisory Board upon the proposal of its
Compensation Committee. In respect to such plan, we have set up
an independent foundation under Swiss law which manages the plan
and to which we make contributions. Pursuant to this plan, in
2009 we made a contribution of $0.3 million to the plan of
our current President and Chief Executive Officer,
$0.6 million to the plan of our Chief Operating Officer,
and $0.4 million to the plan for all other beneficiaries.
The amount of pension plan payments made for other
beneficiaries, such as former employees retired in 2009 and no
longer salaried in 2009 were $0.5 million.
We did not extend any loans, overdrafts or warranties to our
Supervisory Board members or to the sole member of our Managing
Board and President and CEO. Furthermore, we have not guaranteed
any debts or concluded any leases with our Supervisory Board
members or their families, or the sole member of the Managing
Board.
For information regarding stock options and other stock-based
compensation granted to members of our Supervisory Board, the
Managing Board and our executive officers, please refer to
Stock Awards and Options below.
The current members of our Executive Committee and the Managing
Board were covered in 2009 under certain group life and medical
insurance programs provided by us. The aggregate additional
amount set aside by us in 2009 to provide pension, retirement or
similar benefits for our Executive Committee and our Managing
Board as a group is in addition to the amounts allocated to the
complementary pension plan described above and is estimated to
have been approximately $3.3 million, which includes
statutory employer contributions for state-run retirement,
similar benefit programs and other miscellaneous allowances.
95
Share
Ownership
None of the members of our Supervisory Board and Managing Board
or our executive officers holds shares or options to acquire
shares representing more than 1% of our issued share capital.
Stock
Awards and Options
Our stock options and stock award plans are designed to
incentivize, attract and retain our executives and key employees
by aligning compensation with our performance and the evolution
of our share price. We have adopted stock-based compensation
plans comprising either stock options or nonvested stock awards
that benefit our President and CEO as well as key employees
(employee stock options
and/or
employee nonvested stock award plans) and stock options or
vested stock awards that benefit our Supervisory Board members
and professionals (Supervisory Board stock options
and/or stock
award plans).
Pursuant to the shareholders resolutions adopted by our
2007, 2008 and 2009 annual shareholders meeting, our
Supervisory Board, upon the proposal of the Managing Board and
the recommendation of the Compensation Committee, took the
following actions:
|
|
|
|
|
amended grants pursuant to the 2005 stock-based compensation
plan for Supervisory Board members and professionals at our 2007
annual shareholders meeting;
|
|
|
|
adopted our 2007 nonvested Stock Award Plan for Executives and
Key Employees (the Employee USA Plan) with the goal
of enhancing our ability to retain key employees and motivate
them to work to create shareholder value and, in addition,
approved vesting conditions linked to our future performance and
continued service with us;
|
|
|
|
approved, for a five year period, our 2008 nonvested Stock Award
Plan for Executives and Key Employees, under which directors,
managers and selected employees may be granted stock awards upon
the fulfillment of restricted criteria, such as those linked to
our performance and continued service with us; and
|
|
|
|
approved conditions relating to our 2009 nonvested stock award
allocation under the 2008 Stock Award Plan, including
restriction criteria linked to our performance.
|
We use our treasury shares to cover the stock awards granted
under the Employee USA Plans in 2007, 2008 and 2009. As of
December 31, 2009, 3,532,201 stock awards granted in
relation to the 2007, 2008 and 2009 plans had vested, leaving
31,985,739 treasury shares outstanding. The 2009 Employee
nonvested stock award plan generated an additional charge of
$7.8 million in the consolidated statements of income for
2009, which corresponds to the cost per service in the year for
all granted shares that are (or are expected to be) vested
pursuant to the financial performance criteria being met.
The exercise of stock options and the sale or purchase of shares
of our stock by the members of our Supervisory Board, the sole
member of our Managing Board and President and CEO, and all our
employees are subject to an internal policy which involves,
inter alia, certain blackout periods.
Employee
and Managing Board Stock-Based Compensation Plans
2001 Stock Option Plan. At the annual
shareholders meeting on April 25, 2001, our
shareholders approved resolutions authorizing the Supervisory
Board, for a period of five years, to adopt and administer a
stock option plan (in the form of five annual tranches) that
provided for the granting to our managers and professionals of
options to purchase up to a maximum of 60 million common
shares (the 2001 Stock Option Plan). The amount of
options granted to the sole member of our Managing Board and
President and CEO is determined by our Compensation Committee,
upon delegation from our Supervisory Board and, since 2005, has
been submitted for approval by our annual shareholders
meeting. The amount of stock options granted to other employees
was made by our Compensation Committee on delegation by our
Supervisory Board and following the recommendation of the sole
member of our Managing Board and President and CEO. In addition,
the Supervisory Board delegated to the sole member of our
Managing Board and President and CEO the flexibility to grant,
each year, up to a determined number of share awards to our
employees pursuant to the 2001 Stock Option Plan in special
cases or in connection with an acquisition.
In 2005, our shareholders at our annual shareholders
meeting approved a modification to our 2001 Stock Option Plan so
as to provide the grant of up to four million nonvested stock
awards instead of stock options to our senior executives and
certain of our key employees, as well as the grant of up to
100,000 nonvested Stock Awards instead of stock options to our
President and CEO. A total of 4,159,915 shares have been
awarded pursuant to the modification of such Plan, which include
shares that were awarded to employees who subsequently left our
96
Company thereby forfeiting their awards. Certain forfeited share
awards were subsequently awarded to other employees.
Pursuant to such approval, the Compensation Committee, upon
delegation from our Supervisory Board, approved the conditions
that apply to the vesting of such awards. These conditions
related to both our financial performance, pursuant to certain
defined criteria in 2005 and during the first quarter of 2006,
and the continued presence of the beneficiaries of the nonvested
stock awards at the defined vesting dates in 2006, 2007 and
2008. Of the shares awarded, none remain outstanding but
nonvested as of December 31, 2009.
2001 Plan
(Employees)
April 25, 2001
(outstanding grants)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tranche 1
|
|
Tranche 2
|
|
Tranche 3
|
|
Tranche 4
|
|
Tranche 5
|
|
Tranche 6
|
|
Tranche 7
|
|
Date of the grant
|
|
27-Apr-01
|
|
4-Sep-01
|
|
1-Nov-01
|
|
2-Jan-02
|
|
25-Jan-02
|
|
25-Apr-02
|
|
26-Jun-02
|
Total Number of Shares which may be purchased
|
|
9,521,100
|
|
16,000
|
|
61,900
|
|
29,400
|
|
3,656,103
|
|
9,708,390
|
|
318,600
|
Vesting Date
|
|
27-Apr-03
|
|
4-Sep-03
|
|
1-Nov-03
|
|
2-Jan-04
|
|
25-Jan-03
|
|
25-Apr-04
|
|
26-Jun-04
|
Expiration Date
|
|
27-Apr-11
|
|
4-Sep-11
|
|
1-Nov-11
|
|
2-Jan-12
|
|
25-Jan-12
|
|
25-Apr-12
|
|
26-Jun-12
|
Exercise Price
|
|
$39.00
|
|
$29.70
|
|
$29.61
|
|
$33.70
|
|
$31.09
|
|
$31.11
|
|
$22.30
|
Terms of Exercise
|
|
32% on
|
|
32% on
|
|
32% on
|
|
32% on
|
|
50% on
|
|
32% on
|
|
32% on
|
|
|
27-Apr-03
|
|
4-Sep-03
|
|
1-Nov-03
|
|
2-Jan-04
|
|
25-Jan-03
|
|
25-Apr-04
|
|
26-Jun-04
|
|
|
32% on
|
|
32% on
|
|
32% on
|
|
32% on
|
|
50% on
|
|
32% on
|
|
32% on
|
|
|
27-Apr-04
|
|
4-Sep-04
|
|
1-Nov-04
|
|
2-Jan-05
|
|
25-Jan-04
|
|
25-Apr-05
|
|
26-Jun-05
|
|
|
36% on
27-Apr-05
|
|
36% on
4-Sep-05
|
|
36% on
1-Nov-05
|
|
36% on
2-Jan-06
|
|
|
|
36% on
25-Apr-06
|
|
36% on
26-Jun-06
|
Number of Shares to be acquired with Outstanding Options as of
December 31, 2009
|
|
7,309,350
|
|
0
|
|
43,500
|
|
19,400
|
|
2,709,996
|
|
7,661,061
|
|
123,706
|
Held by Managing Board/Executive Officers
|
|
323,500
|
|
0
|
|
0
|
|
0
|
|
126,300
|
|
335,030
|
|
0
|
2001 Plan
(Employees) (continued)
April 25, 2001
(outstanding grants)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tranche 8
|
|
Tranche 9
|
|
Tranche 10
|
|
Tranche 11
|
|
Tranche 12
|
|
Tranche 13
|
|
Tranche 14
|
|
Tranche 15
|
|
Tranche 16
|
|
Tranche 17
|
|
Date of the grant
|
|
1-Aug-02
|
|
17-Dec-02
|
|
14-Mar-03
|
|
3-Jun-03
|
|
24-Oct-03
|
|
2-Jan-04
|
|
26-Apr-04
|
|
1-Sep-04
|
|
31-Jan-05
|
|
17-Mar-05
|
Total Number of Shares which may be purchased
|
|
24,500
|
|
14,400
|
|
11,533,960
|
|
306,850
|
|
135,500
|
|
86,400
|
|
12,103,490
|
|
175,390
|
|
29,200
|
|
13,000
|
Vesting Date
|
|
1-Aug-04
|
|
17-Dec-04
|
|
14-Mar-05
|
|
3-Jun-05
|
|
24-Oct-05
|
|
2-Jan-06
|
|
26-Apr-06
|
|
1-Sep-06
|
|
31-Jan-07
|
|
17-Mar-07
|
Expiration Date
|
|
1-Aug-12
|
|
17-Dec-12
|
|
14-Mar-13
|
|
3-Jun-13
|
|
24-Oct-13
|
|
2-Jan-14
|
|
26-Apr-14
|
|
1-Sep-14
|
|
31-Jan-15
|
|
17-Mar-15
|
Exercise Price
|
|
$20.02
|
|
$21.59
|
|
$19.18
|
|
$22.83
|
|
$25.90
|
|
$27.21
|
|
$22.71
|
|
$17.08
|
|
$16.73
|
|
$17.31
|
Terms of Exercise
|
|
32% on
|
|
32% on
|
|
32% on
|
|
32% on
|
|
32% on
|
|
32% on
|
|
32% on
|
|
32% on
|
|
32% on
|
|
32% on
|
|
|
1-Aug-04
|
|
17-Dec-04
|
|
14-Mar-05
|
|
3-Jun-05
|
|
24-Oct-05
|
|
2-Jan-06
|
|
26-Apr-06
|
|
1-Sep-06
|
|
31-Jan-07
|
|
17-Mar-07
|
|
|
32% on
|
|
32% on
|
|
32% on
|
|
32% on
|
|
32% on
|
|
32% on
|
|
32% on
|
|
32% on
|
|
32% on
|
|
32% on
|
|
|
1-Aug-05
|
|
17-Dec-05
|
|
14-Mar-06
|
|
3-Jun-06
|
|
24-Oct-06
|
|
2-Jan-07
|
|
26-Apr-07
|
|
1-Sep-07
|
|
31-Jan-08
|
|
17-Mar-08
|
|
|
36% on
|
|
36% on
|
|
36% on
|
|
36% on
|
|
36% on
|
|
36% on
|
|
36% on
|
|
36% on
|
|
36% on
|
|
36% on
|
|
|
1-Aug-06
|
|
17-Dec-06
|
|
14-Mar-07
|
|
3-Jun-07
|
|
24-Oct-07
|
|
2-Jan-08
|
|
14-Mar-08
|
|
1-Sep-08
|
|
31-Jan-09
|
|
17-Mar-09
|
Number of Shares to be acquired with Outstanding Options as of
December 31, 2009
|
|
13,100
|
|
14,400
|
|
9,298,738
|
|
167,950
|
|
112,150
|
|
11,700
|
|
9,886,815
|
|
110,666
|
|
17,300
|
|
6,000
|
Held by Managing Board/ Executive Officers
|
|
0
|
|
0
|
|
402,200
|
|
0
|
|
31,000
|
|
0
|
|
486,400
|
|
0
|
|
0
|
|
0
|
2006
nonvested Stock Award Plan
In 2006, our shareholders at our annual shareholders
meeting approved the grant of up to five million nonvested stock
awards to our senior executives and certain of our key
employees, as well as the grant of up to 100,000 nonvested Stock
Awards to our President and CEO. 5,131,640 shares have been
awarded under such plan as of December 31, 2009, out of
which none remain outstanding as of December 31, 2009.
2007
nonvested Stock Award Plan
In 2007, our shareholders at our annual shareholders
meeting approved the grant of up to six million nonvested stock
awards to our senior executives and certain of our key
employees, as well as the grant of up to 100,000 nonvested Stock
Awards to our President and CEO. 5,911,840 shares have been
awarded under such plan as of December 31, 2009, out of
which up to 1,601,328 remain outstanding but nonvested as of
December 31, 2009.
97
2008
nonvested Stock Award Plan 2008
Allocation
In 2008, our shareholders at our annual shareholders
meeting approved the grant of up to six million nonvested stock
awards to our senior executives and certain of our key
employees, as well as the grant of up to 100,000 nonvested Stock
Awards to our President and CEO. 5,773,705 shares have been
awarded under such Plan as of December 31, 2009, out of
which up to 1,411,702 remain outstanding but nonvested as of
December 31, 2009.
2009
nonvested Stock Award Plan 2009
Allocation
In 2009, our shareholders at our annual shareholders
meeting approved the grant of up to six million nonvested stock
awards to our senior executives and certain of our key
employees, as well as the grant of up to 100,000 nonvested Stock
Awards to our President and CEO. 5,583,540 shares have been
awarded under such allocation as of December 31, 2009, out
of which up to 5,540,740 remain outstanding but nonvested as of
December 31, 2009.
Pursuant to such approval, the Compensation Committee, upon
delegation from our Supervisory Board has approved the
conditions which shall apply to the vesting of such awards.
These conditions relate both to our financial performance
meeting certain defined criteria in 2009, and to the continued
presence at the defined vesting dates in 2010, 2011 and 2012 of
the beneficiaries of the nonvested stock awards.
Furthermore, the Compensation Committee, on behalf of the entire
Supervisory Board and with the approval of the entire
Supervisory Board, approved the list of beneficiaries of the
unvested stock awards and delegated to our President and Chief
Executive Officer the right to grant certain additional unvested
stock awards to key employees, in exceptional cases, provided
that the total number of unvested stock awards granted to
executives and key employees shall not exceed for 2009 six
million shares.
The implementation of our Stock-Based Compensation Plan for
Employees is subject to periodic proposals from our Managing
Board to our Supervisory Board, and recommendations by the
Compensation Committee of our Supervisory Board.
Supervisory
Board Stock Option Plans
1999 Stock Option Plan for members and professionals of our
Supervisory Board. A plan was adopted in 1999 for
a three-year period expiring on December 31, 2001 (the
1999 Stock Option Plan), providing for the grant of
at least the same number of options as were granted during the
period from 1996 to 1999.
2002 Stock Option Plan for members and professionals of our
Supervisory Board. A 2002 plan was adopted on
March 27, 2002 (the 2002 Stock Option Plan).
Pursuant to this 2002 Plan, the annual shareholders
meeting authorized the grant of 12,000 options per year to each
member of our Supervisory Board during the course of his
three-year tenure (during the three-year period from
2002-2005),
and 6,000 options per year to all of the professionals. Pursuant
to the 1999 and 2002 Plans, stock options for the subscription
of 819,000 shares were granted to the members of the
Supervisory Board and professionals. Options were granted to
members and professionals of our Supervisory Board under the
1999, and 2002 Stock Option Plans as shown in the table below:
1999 and
2002 Plans
(for Supervisory Board Members and Professionals)
(outstanding grants)
|
|
|
|
|
|
|
|
|
|
|
Date of Annual
|
|
May 31, 1999
|
|
March 27, 2002
|
Shareholders Meeting
|
|
Tranche 2
|
|
Tranche 3
|
|
Tranche 1
|
|
Tranche 2
|
|
Tranche 3
|
|
Date of the grant
|
|
16-Jun-00
|
|
27-Apr-01
|
|
25-Apr-02
|
|
14-Mar-03
|
|
26-Apr-04
|
Total Number of Shares which may be purchased
|
|
103,500
|
|
112,500
|
|
132,000
|
|
132,000
|
|
132,000
|
Vesting Date
|
|
16-Jun-01
|
|
27-Apr-02
|
|
25-May-02
|
|
14-Apr-03
|
|
26-May-04
|
Expiration Date
|
|
16-Jun-08
|
|
27-Apr-11
|
|
25-Apr-12
|
|
14-Mar-13
|
|
26-Apr-14
|
Exercise Price
|
|
$62.01
|
|
$39.00
|
|
$31.11
|
|
$19.18
|
|
$22.71
|
Terms of Exercise
|
|
All exercisable
after 1 year
|
|
All exercisable
after 1 year
|
|
All exercisable
after 1 year
|
|
All exercisable
after 1 year
|
|
All exercisable
after 1 year
|
Number of Shares to be acquired with Outstanding Options as of
December 31, 2009
|
|
0
|
|
90,000
|
|
108,000
|
|
108,000
|
|
132,000
|
At December 31, 2009, options to purchase a total of 90,000
common shares were outstanding under the 1999 Stock Option Plan
and options to purchase 348,000 common shares were outstanding
under the 2002 Supervisory Board Stock Option Plan.
98
2005, 2006 and 2007 Stock-based Compensation for members and
professionals of the Supervisory Board. Our 2005
Annual Shareholders meeting approved the adoption of a
three year stock based compensation plan for Supervisory Board
members and Professionals. The plan provided for the grant of a
maximum number of 6,000 newly issued shares per year for each
member of the Supervisory Board and 3,000 newly issued shares
for each of the Professionals of the Supervisory Board at a
price of 1.04 per share, corresponding to the nominal
value of our share. Pursuant to our 2007 annual
shareholders meeting, the 2005 plan was modified as the
maximum number was increased to 15,000 newly issued shares per
year for each member of the Supervisory Board and 7,500 newly
issued shares per year for each professional of the Supervisory
Board for the remaining year of the plan.
In 2005, 66,000 shares were granted to the beneficiaries
under such plan, which had completely vested as of
December 31, 2008. In 2006, 66,000 shares were granted
to the beneficiaries under such plan, which had completely
vested as of December 31, 2009. In 2007,
165,000 shares were granted to the beneficiaries under such
plan, out of which 45,000 were outstanding as of
December 31, 2009.
The table below reflects the grants to the Supervisory Board
members and professionals under the 2005 Stock-Based
Compensation Plan as of December 31, 2009. See Note 16
to our Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2006
|
|
2007
|
|
Total number of Shares outstanding
|
|
|
0
|
|
|
|
0
|
|
|
|
45,000
|
|
Expiration date
|
|
|
25-Oct-15
|
|
|
|
29-Apr-16
|
|
|
|
28-Apr-17
|
|
2008, 2009 and 2010 Stock-based Compensation for members and
professionals of the Supervisory Board. Our 2008
annual shareholders meeting approved the adoption of a new
three-year stock-based compensation plan for Supervisory Board
members and professionals. This plan provides for the grant of a
maximum number of 15,000 newly issued shares per year for each
member of the Supervisory Board and 7,500 newly issued shares
for each of the professionals of the Supervisory Board at a
price of 1.04 per share, corresponding to the nominal
value of our share. In 2008, 165,000 shares were granted to
the beneficiaries under such plan, out of which 95,000 were
outstanding as of December 31, 2009. In 2009,
165,000 shares were granted to the beneficiaries under such
plan, out of which 157,500 were outstanding as of
December 31, 2009.
The table below reflects the grants to the Supervisory Board
members and professionals under the 2008 Stock-Based
Compensation Plan as of December 31, 2009. See Note 16
to our Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
Plan 2008
|
|
Plan 2009
|
|
Total number of Shares outstanding
|
|
|
95,000
|
|
|
|
157,500
|
|
Expiration date
|
|
|
14-May-18
|
|
|
|
20-May-19
|
|
Employees
The tables below set forth the breakdown of employees, including
the employees of the consolidated entities of ST-Ericsson JVS,
by main category of activity and geographic area for the past
three years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
France
|
|
|
10,960
|
|
|
|
10,790
|
|
|
|
10,560
|
|
Italy
|
|
|
8,290
|
|
|
|
8,200
|
|
|
|
10,090
|
|
Rest of Europe
|
|
|
3,200
|
|
|
|
2,320
|
|
|
|
1,730
|
|
United States
|
|
|
2,000
|
|
|
|
3,250
|
|
|
|
3,120
|
|
Mediterranean (Malta, Morocco, Tunisia)
|
|
|
4,630
|
|
|
|
5,840
|
|
|
|
6,990
|
|
Asia
|
|
|
22,480
|
|
|
|
21,410
|
|
|
|
19,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
51,560
|
|
|
|
51,810
|
|
|
|
52,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Research and Development
|
|
|
12,330
|
|
|
|
11,900
|
|
|
|
10,570
|
|
Marketing and Sales
|
|
|
2,640
|
|
|
|
2,670
|
|
|
|
2,870
|
|
Manufacturing
|
|
|
31,300
|
|
|
|
32,290
|
|
|
|
33,520
|
|
Administration and General Services
|
|
|
2,560
|
|
|
|
2,470
|
|
|
|
2,570
|
|
Divisional Functions
|
|
|
2,730
|
|
|
|
2,480
|
|
|
|
2,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
51,560
|
|
|
|
51,810
|
|
|
|
52,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our future success, particularly in a period of strong increased
demand, will partly depend on our ability to continue to
attract, retain and motivate highly qualified technical,
marketing, engineering and management personnel. Unions are
represented at several of our manufacturing facilities. We use
temporary employees, if required, during production spikes and,
in Europe, during summer vacations. We have not experienced any
significant strikes or work stoppages in recent years.
Management believes that our relations with employees are good.
|
|
Item 7.
|
Major
Shareholders and Related Party Transactions
|
Major
Shareholders
The following table sets forth certain information with respect
to the ownership of our issued common shares based on
information available to us as of February 15, 2010:
|
|
|
|
|
|
|
|
|
|
|
Common Shares Owned
|
|
Shareholders
|
|
Number
|
|
|
%
|
|
|
ST Holding II
|
|
|
250,704,754
|
|
|
|
27.54
|
|
Public
|
|
|
542,946,425
|
|
|
|
59.64
|
|
Brandes Investment Partners(1)
|
|
|
66,620,387
|
|
|
|
7.32
|
|
Capital World Investors(2)
|
|
|
18,050,000
|
|
|
|
1.98
|
|
Treasury shares
|
|
|
31,985,739
|
|
|
|
3.52
|
|
Total
|
|
|
910,307,305
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
According to information filed February 12, 2010 on
Schedule 13G, Brandes Investment Partners shares in
our company are beneficially owned by the following group of
entities: Brandes Investment Partners, L.P., Brandes Investment
Partners, Inc., Brandes Worldwide Holdings, L.P., Charles H.
Brandes, Glenn R. Carlson and Jeffrey A. Busby. |
|
(2) |
|
At December 31, 2008, Capital World Investors held 5.4% of
our shares. As of December 31, 2009, it held less than 5%
of our shares and has ceased to be a major shareholder of our
company. |
Our principal shareholders do not have different voting rights
from those of our other shareholders.
ST Holding II is a wholly owned subsidiary of ST Holding.
As of December 31, 2009, FT1CI (the French
Shareholder), controlled by Areva and CEA, and CDP (the
Italian Shareholder), directly held 50% each in ST
Holding. The indirect interest of FT1CI and CDP in us is split
on a 50%-50% basis. Through a structured tracking stock system
implemented in the articles of association of ST Holding and ST
Holding II, FT1CI and CDP each indirectly held 125,352,377 of
our common shares, representing 13.7% of our issued share
capital as of December 31, 2009. Any disposals or, as the
case may be, acquisitions by ST Holding II on behalf of
FT1CI or CDP will decrease or, as the case may be, increase the
indirect interest of respectively FT1CI or CDP in our issued
share capital. FT1CI was formerly a jointly held company set up
by Areva and France Telecom to control the interest of the
French shareholders in ST Holding. Following the transactions
described below, Areva and CEA are, as of December 31,
2009, the sole shareholders of FT1CI. Following CDPs
acquisition of all of Finmeccanicas remaining shares in
our company in December 2009, Finmeccanica no longer has a
shareholding in ST Holding. Areva (formerly known as
CEA-Industrie) is a corporation controlled by CEA. Areva is
listed on Euronext in the form of Investment Certificates. CEA
is a French government funded technological research
organization. CDP is an Italian financial institution 70% owned
by the Italian Ministero dellEconomia e delle Finanze (the
Ministry of Economy and Finance) and 30% owned by a
consortium of 66 Italian banking foundations.
ST Holding II owned 90% of our shares before our initial
public offering in 1994, and has since then gradually reduced
its participation, going below the 66% threshold in 1997 and
below the 50% threshold in 1999. ST Holding
100
may further dispose of its shares as provided below in
Shareholders Agreements STH
Shareholders Agreement and
Disposals of our Common Shares and
pursuant to the eventual conversion of our outstanding
convertible instruments. Set forth below is a table of ST
Holding IIs holdings in us as of the end of each of the
past three financial years:
|
|
|
|
|
|
|
|
|
|
|
Common Shares Owned
|
|
|
Number
|
|
%
|
|
December 31, 2009
|
|
|
250,704,754
|
|
|
|
27.5
|
|
December 31, 2008
|
|
|
250,704,754
|
|
|
|
27.5
|
|
December 31, 2007
|
|
|
250,704,754
|
|
|
|
27.5
|
|
Announcements about additional disposals of our shares by ST
Holding II on behalf of one or more of its indirect
shareholders, Areva, CEA, CDP or FT1CI may come at any time.
The chart below illustrates the shareholding structure as of
December 31, 2009:
|
|
|
(1) |
|
In addition to the 27.5% held by ST Holding and the 68.9% held
by the Public, 3.5% are held by us as Treasury Shares. |
Finmeccanica Finance, a subsidiary of Finmeccanica, has issued
501 million aggregate principal amount of
exchangeable notes, exchangeable into up to 20 million of
our existing common shares due 2010 (the Finmeccanica
Notes). Finmeccanica has entered into a call option
arrangement with Deutsche Bank for a corresponding amount of our
shares in the event the notes become exchangeable. As of
December 31, 2009, none of the Finmeccanica Notes had been
exchanged for our common shares.
On December 17, 2009, CDP acquired all of
Finmeccanicas remaining 33,707,436 shares in us, held
indirectly through ST Holding. Following this transaction,
Finmeccanica no longer holds any of our shares, whether
indirectly through ST Holding or directly, and is no longer a
party to the STH Shareholders Agreement and all of its
rights related thereto have been transferred to CDP.
Announcements about additional disposals by ST Holding II
or our indirect shareholders may come at any time. See
Item 3. Key Information Risk
Factors Risks Related to Our Operations
Our direct or indirect shareholders may sell our
existing common shares or issue financial instruments
exchangeable into our common shares at any time while at the
same time seeking to retain their rights regarding our
preference shares. In addition, substantial sales by us of new
common shares or convertible bonds could cause our common share
price to drop significantly.
Shareholders
Agreements
STH
Shareholders Agreement
We were formed in 1987 as a result of the decision by
Thomson-CSF (now called Thales) and STET (now called Telecom
Italia S.p.A.) to combine their semiconductor businesses and to
enter into a shareholders agreement
101
on April 30, 1987, which was amended on December 10,
2001, restated on March 17, 2004 and further amended on
February 26, 2008. The February 26, 2009 amended and
restated agreement (as amended, the STH Shareholders
Agreement) replaces all previous agreements. The current
parties to the STH Shareholders Agreement are Areva, CEA,
CDP and FT1CI. Following CDPs acquisition of all of
Finmeccanicas shares in us, held directly through
ST Holding, Finmeccanica is no longer a party to the STH
Shareholders Agreement and all of its rights and
obligations related thereto have been transferred to CDP.
Pursuant to the terms of the STH Shareholders Agreement
and for the duration of such agreement, FT1CI, on the one hand,
and CDP, on the other hand, have agreed to maintain equal
interests in our share capital. See further details below.
Restructuring
of the Holding Companies
If necessary, the parties agreed to restructure the two holding
companies (ST Holding and ST Holding II) to simplify the
structure to the extent possible or desirable. In any case, at
least one holding company will continue to exist to hold our
common shares. The Company that now holds or may hold our common
shares in the future for indirect shareholders is referred to
below as the holding company.
Standstill
The STH Shareholders Agreement contains a standstill
provision that precludes any of the parties and the
parties affiliates from acquiring, directly or indirectly,
any of our common shares or any instrument providing for the
right to acquire any of our common shares other than through the
holding company. The standstill is in effect for as long as such
party holds our common shares through ST Holding. The parties
agreed to continue to hold their stakes in us at all times
through the current holding structure of ST Holding and ST
Holding II, subject to exercising the preference share option
granted to ST Holding if ST Holding were to choose not to
exercise such rights directly.
Corporate
Governance
The STH Shareholders Agreement provides for a balanced
corporate governance of the indirect interests in us between
FT1CI and CDP (FT1CI and CDP are collectively defined as
STH Shareholders and individually defined as
STH Shareholder) for the duration of the
Balance Period, despite actual differences in
indirect economic interest in us. The Balance Period
is defined as (i) a period through March 17, 2011,
provided that each STH Shareholder owns at all times a voting
stake at least equal to 10.5% of our issued and outstanding
shares, and (ii) subject to the aforementioned condition,
thereafter as long as each STH Shareholder owns at any time,
including as a result of the exercise of the Re-balancing
Option (as defined below), a voting stake equal to at
least 47.5% of the total voting stakes. During the Balance
Period, each of FT1CI and CDP has an option to rebalance their
shareholdings, referred to as the Rebalancing
Option, as further described below.
During the Balance Period, the STH Shareholders agree that the
holding company will have a managing board comprised of two
members (one member designated by FT1CI, and one designated by
CDP) and a supervisory board comprised of six members (three
designated by FT1CI and three designated by CDP). The chairman
of the supervisory board of the holding company shall be
designated for a three-year term by one shareholder (with the
other shareholder entitled to designate the Vice Chairman), such
designation to alternate between CDP on the one hand and FT1CI
on the other hand. The current Chairman is Mr. Matteo del
Fante.
During the Balance Period, any other decision, to the extent
that a resolution of the holding company is required, must be
pursuant to the unanimous approval of the shareholders,
including but not limited to the following: (i) the
definition of the role and structure of our Managing Board and
Supervisory Board, and those of the holding company;
(ii) the powers of the Chairman and the Vice Chairman of
our Supervisory Board, and that of the holding company;
(iii) information by the holding companys managing
board and supervisory board, and those by us;
(iv) treatment of confidential information;
(v) appointment of any additional members of our Managing
Board and those of the holding company; (vi) remuneration
of the members of our Managing Board and those of the holding
company; (vii) internal audit of STMicroelectronics N.V.
and of the holding company; (viii) industrial and
commercial relationships between STMicroelectronics N.V. and CDP
or STMicroelectronics N.V. and either or both FT1CI
shareholders, or any of their affiliates; and (ix) any of
the decisions listed in article 16.1 of our Articles of
Association including our budget and pluri-annual plans.
With regards to STMicroelectronics N.V., during the Balance
Period: (i) each of the STH Shareholders (FT1CI on the one
hand, and CDP on the other hand) shall have the right to insert
on a list prepared for proposal by the holding company to our
annual shareholders meeting the same number of members for
election to the Supervisory Board, and the holding company shall
vote in favor of such members; (ii) the STH Shareholders
will cause the
102
holding company to submit to our annual shareholders
meeting and to vote in favor of a common proposal for the
appointment of the Managing Board; and (iii) any decision
relating to the voting rights of the holding company in us shall
require the unanimous approval of the holding company
shareholders and shall be submitted by the holding company to
our annual shareholders meeting. The STH Shareholders also
agreed that the Chairman of our Supervisory Board will be
designated upon proposal of an STH Shareholder for a three-year
term, and the Vice Chairman of our Supervisory Board will be
designated upon proposal of the other STH Shareholder for the
same period, and vice-versa for the following three-year term.
The STH Shareholders further agreed that the STH Shareholder
proposing the appointment of the Chairman be entitled to propose
the appointment of the Assistant Secretary of our Supervisory
Board, and the STH Shareholder proposing the appointment of the
Vice Chairman be entitled to propose the appointment of the
Secretary of our Supervisory Board. Finally, each STH
Shareholder is entitled to appoint a Financial Controller to the
Supervisory Board. Our Secretary, Assistant Secretary and two
Financial Controllers are referred to as professionals (not
members) of our Supervisory Board.
In addition, the following resolutions, to the extent that a
resolution of the holding company is required, must be resolved
upon by a shareholders resolution of the holding company,
which shall require the unanimous approval of the STH
Shareholders: (i) any alteration in the holding
companys articles of association; (ii) any issue,
acquisition or disposal by the holding company of its shares or
change in share rights; (iii) any alteration in our
authorized share capital or issue by us of new shares
and/or of
any financial instrument giving rights to subscribe for our
common shares; any acquisition or disposal by the holding
company of our shares
and/or any
right to subscribe for our common shares; any modification to
the rights attached to our common shares; any merger,
acquisition or joint venture agreement to which we are or are
proposed to be a party; and any other items on the agenda of our
general shareholders meeting; (iv) the liquidation or
dissolution of the holding company; (v) any legal merger,
legal de-merger, acquisition or joint venture agreement to which
the holding company is proposed to be a party; and (vi) the
adoption or approval of our annual accounts or those of the
holding company or a resolution concerning a dividend
distribution by us.
At the end of the Balance Period, the members of our Supervisory
Board and those of the holding company designated by the
minority shareholder of the holding company will immediately
resign upon request of the holding companys majority
shareholder, subject to the rights described in the previous
paragraph.
After the end of the Balance Period, unanimous approval by the
shareholders of the holding company remains required to approve:
(i) as long as any of the shareholders indirectly owns at
least equal to the lesser of 3% of our issued and outstanding
share capital or 10% of the remaining STH Shareholders
stake in us at such time, with respect to the holding company,
any changes to the articles of association, any issue,
acquisition or disposal of shares in the holding company or
change in the rights of its shares, its liquidation or
dissolution and any legal merger, de-merger, acquisition or
joint venture agreement to which the holding company is proposed
to be a party.
(ii) as long as any of the shareholders indirectly owns at
least 33% of the holding company, certain changes to our
Articles of Association (including any alteration in our
authorized share capital, or any issue of share capital
and/or
financial instrument giving the right to subscribe for our
common shares, changes to the rights attached to our shares,
changes to the preemptive rights, issues relating to the form,
rights and transfer mechanics of the shares, the composition and
operation of the Managing and Supervisory Boards, matters
subject to the Supervisory Boards approval, the
Supervisory Boards voting procedures, extraordinary
meetings of shareholders and quorums for voting at
shareholders meetings).
(iii) any decision to vote our shares held by the holding
company at any shareholders meeting of our shareholders
with respect to any substantial and material merger decision. In
the event of a failure by the shareholders to reach a common
decision on the relevant merger proposal, our shares
attributable to the minority shareholder and held by the holding
company will be counted as present for purposes of a quorum of
shareholders at one of our shareholders meetings, but will
not be voted (i.e., will be abstained from the vote in a way
that they will not be counted as a negative vote or as a
positive vote).
(iv) in addition, the minority shareholder will have the
right to designate at least one member of the list of candidates
for our Supervisory Board to be proposed by the holding company
if that shareholder indirectly owns at least 3% of our total
issued and outstanding share capital, with the majority STH
Shareholder retaining the right to appoint that number of
members to our Supervisory Board that is at least proportional
to such majority STH Shareholders voting stake.
Finally, at the end of the Balance Period, the unanimous
approval required for other decisions taken at the
STMicroelectronics N.V. level shall only be compulsory to the
extent possible, taking into account the actual power attached
to the direct and indirect shareholding jointly held by the STH
Shareholders in our company.
103
Disposals
of our Common Shares
The STH Shareholders Agreement provides that each STH
Shareholder retains the right to cause the holding company to
dispose of its stake in us at its sole discretion, provided it
is pursuant to either (i) the issuance of financial
instruments, (ii) an equity swap, (iii) a structured
finance deal or (iv) a straight sale. ST Holding II
may enter into escrow arrangements with STH Shareholders with
respect to our shares, whether this be pursuant to exchangeable
notes, securities lending or other financial instruments. STH
Shareholders that dispose of our shares through the issuance of
exchangeable instruments, an equity swap or a structured finance
deal maintain the voting rights of the underlying shares in
their ST Holding voting stake, provided that such rights remain
freely and continuously held by the holding company as though
the holding company were still holding the full ownership of the
shares.
As long as any of the parties to the STH Shareholders
Agreement has a direct or indirect interest in us, except in the
case of a public offer, no sales by a party may be made of any
of our shares or of FT1CI, ST Holding or ST Holding II to
any of our top ten competitors, or any company that controls
such competitor.
Re-adjusting
and Re-balancing options
The STH Shareholders Agreement provides that the parties
have the right, subject to certain conditions, to re-balance
their indirect holdings in our shares to achieve parity between
FT1CI on the one hand and CDP on the other hand. If at any time
prior to March 17, 2011, the voting stake in us of one of
the STH Shareholders (FT1CI on the one hand, and CDP on the
other hand) falls below 10.5% due either to (a) the
exchange by a third party of any exchangeable instruments issued
by an STH Shareholder or (b) to an issuance by us of new
shares subscribed to by a third party, such STH Shareholder will
have the right to notify the other STH Shareholder of its
intention to exercise a Re-adjusting Option. In such
case, the STH Shareholders will cause the holding company to
purchase the number of our common shares necessary to increase
the voting stake of such STH Shareholder to 10.5% of our issued
and outstanding share capital.
If by three months prior to March 17, 2010, the Balance
Period has not already expired and if on such date the voting
stake of one of the STH Shareholders (FT1CI on the one hand, and
CDP on the other hand) has fallen below 47.5% of the total
voting stake in ST Holding, such STH Shareholder will have the
right to notify the other STH Shareholder of its intention to
exercise a Re-balance Option no later than 30
Business Days prior to March 17, 2011. In such case, the
STH Shareholders will cause the holding company to purchase
before March 17, 2011 the number of our common shares
necessary to re-balance at
50/50%
the respective voting stakes of the STH Shareholders.
Change of
Control Provision
The STH Shareholders Agreement provides for tag-along
rights, preemptive rights, and provisions with respect to a
change of control of any of the shareholders or any controlling
shareholder of FT1CI, on the one hand, and CDP, on the other
hand. The shareholders may transfer shares of the holding
company or FT1CI to any of the shareholders affiliates,
which would include the Italian state or the French state with
respect to entities controlled by a state. The shareholders and
their ultimate shareholders will be prohibited from launching
any takeover process on any of the other shareholders.
Non-competition
Pursuant to the terms of STH Shareholders Agreement,
neither we nor ST Holding are permitted, as a matter of
principle, to operate outside the field of semiconductor
products. The parties to the STH Shareholders Agreement
also undertake to refrain directly or indirectly from competing
with us in the area of semiconductor products, subject to
certain exceptions, and to offer us opportunities to
commercialize or invest in any semiconductor product
developments by them.
Deadlock
In the event of a disagreement that cannot be resolved between
the parties as to the conduct of the business and actions
contemplated by the STH Shareholders Agreement, each party
has the right to offer its interest in ST Holding to the other,
which then has the right to acquire, or to have a third party
acquire, such interest. If neither party agrees to acquire or
have acquired the other partys interest, then together the
parties are obligated to try to find a third party to acquire
their collective interests, or such part thereof as is suitable
to change the decision to terminate the agreement. The STH
Shareholders Agreement will remain in force as long as
CDP, on the one hand, and any of Areva, FT1CI or CEA, on the
other hand, are shareholders of the holding company.
104
Preference
Shares
On November 27, 2006, our Supervisory Board decided to
authorize us to enter into an option agreement with an
independent foundation, Stichting Continuïteit ST (the
Stichting). Our Managing Board and our Supervisory
Board, along with the board of the Stichting, have declared that
they are jointly of the opinion that the Stichting is legally
independent of our Company and our major shareholders. Our
Supervisory Board approved this option agreement, dated
February 7, 2007, to reflect changes in Dutch legal
requirements, not in response to any hostile takeover attempt.
It provides for the issuance of up to a maximum of 540,000,000
preference shares. The Stichting would have the option, which it
shall exercise in its sole discretion, to take up the preference
shares. The preference shares would be issuable in the event of
actions considered hostile by our Managing Board and Supervisory
Board, such as a creeping acquisition or an unsolicited offer
for our common shares, which are unsupported by our Managing
Board and Supervisory Board and which the board of the Stichting
determines would be contrary to the interests of our Company,
our shareholders and our other stakeholders. If the Stichting
exercises its call option and acquires preference shares, it
must pay at least 25% of the par value of such preference
shares. The preference shares may remain outstanding for no
longer than two years.
The Stichting would have the option, which it shall exercise in
its sole discretion, to take up the preference shares. The
preference shares would be issuable in the event of actions
considered hostile by our Managing Board and Supervisory Board,
such as a creeping acquisition or an unsolicited offer for our
common shares, which are unsupported by our Managing Board and
Supervisory Board and which the board of the Stichting
determines would be contrary to the interests of our Company,
our shareholders and our other stakeholders. If the Stichting
exercises its call option and acquires preference shares, it
must pay at least 25% of the par value of such preference
shares. The preference shares may remain outstanding for no
longer than two years.
No preference shares have been issued to date. The effect of the
preference shares may be to deter potential acquirers from
effecting an unsolicited acquisition resulting in a change of
control or otherwise taking actions considered hostile by our
Managing Board and Supervisory Board. In addition, any issuance
of additional capital within the limits of our authorized share
capital, as approved by our shareholders, is subject to the
requirements of our Articles of Association.
Other
Shareholders Agreements
Italian
Shareholders Pact
In connection with the transfer of an interest in ST Holding
from Finmeccanica to CDP, Finmeccanica and CDP entered into a
shareholders pact (the Italian Shareholders
Pact) on November 26, 2004 setting forth the rights
and obligations of their respective interests as shareholders of
ST Holding. Pursuant to the terms of the Italian
Shareholders Pact, CDP became a party to the STH
Shareholders Agreement and had the right to exercise
certain corporate governance rights in the Company previously
exercised by Finmeccanica under the STH Shareholders
Agreement.
Following CDPs acquisition in December 2009 of all of
Finmeccanicas remaining shares in us, held indirectly
through ST Holding, Finmeccanicas rights granted under the
STH Shareholders Agreement have been transferred to CDP
and the Italian Shareholders Pact has been terminated.
French
Shareholders Pact
Following FT1CIs acquisition of approximately
26 million of our shares representing approximately 2.85%
of our share capital, which was financed by CEA, CEA has become
a minority shareholder of FT1CI and now adheres to the STH
Shareholders Agreement.
Statutory
Considerations
As is the case with other companies controlled by the French
government, the French government has appointed a Commissaire
du Gouvernement and a Contrôleur dEtat for
FT1CI. Pursuant to Decree
No. 94-214,
dated March 10, 1994, these government representatives have
the right (i) to attend any board meeting of FT1CI, and
(ii) to veto any board resolution or any decision of the
president of FT1CI within ten days of such board meeting (or, if
they have not attended the meeting, within ten days of the
receipt of the board minutes or the notification of such
presidents decision); such veto lapses if not confirmed
within one month by the Ministry of the Economy or the Ministry
of the Industry. FT1CI is subject to certain points of the
Decree of August 9, 1953 pursuant to which the Ministry of
the Economy and any other relevant ministries have the authority
to approve decisions of FT1CI relating to budgets or forecasts
of revenues, operating expenses and capital expenditures. The
effect of these provisions may
105
be that the decisions taken by us and our subsidiaries that, by
the terms of the STH Shareholders Agreement, require prior
approval by FT1CI, may be adversely affected by these veto
rights under French law.
Pursuant to Law Decree 269 of September 30, 2003 (as
subsequently amended) and Decree of the Ministry of the Economy
and Finance of December 5, 2003, CDP was transformed from a
public entity into a joint stock limited liability company
(società per azioni). While transforming itself into
a holding company, CDP maintained its public interest purpose.
CDPs core business is to finance public investments and
more specifically infrastructure and other major public works
sponsored by the Republic of Italy, regions, local authorities,
public agencies and other public bodies. By virtue of a special
provision of Law Decree 269, the Ministry of Economy and Finance
will always be able to exercise its control over CDP.
Related
Party Transactions
One of the members of our Supervisory Board is managing director
of Areva SA, which is a controlled subsidiary of CEA, one of the
members of our Supervisory Board is the Chairman of France
Telecom and a member of the Board of Directors of Technicolor
(formerly known as Thomson), another is the non-executive
Chairman of the Board of Directors of ARM Holdings PLC
(ARM), two of our Supervisory Board members are
non-executive directors of Soitec, one of our Supervisory Board
members is the CEO of Groupe Bull, one of the members of the
Supervisory Board is also a member of the Supervisory Board of
BESI and one of the members of our Supervisory Board is a
director of Oracle Corporation (Oracle) and
Flextronics International. France Telecom and its subsidiaries
Equant and Orange, as well as Oracles new subsidiary
PeopleSoft supply certain services to our Company. We have a
long-term joint R&D partnership agreement with LETI, a
wholly-owned subsidiary of CEA. We have certain licensing
agreements with ARM, and have conducted transactions with Soitec
and BESI as well as with Technicolor, Flextronics and a
subsidiary of Groupe Bull. Each of the aforementioned
arrangements and transactions are negotiated without the
personal involvement of our Supervisory Board members and we
believe that they are made on an arms-length basis in line with
market practices and conditions.
For the years ended, December 31,
2009 December 31, 2008 and December 31, 2007, our
related party transactions were primarily with our significant
shareholders, or their subsidiaries and companies in which our
management perform similar policymaking functions. These
include, but are not limited to: Areva, France Telecom, Equant,
Orange, Finmeccanica, CDP, Flextronics, Oracle and Technicolor.
In addition, our CEO, Carlo Bozotti is Chairman of the
Supervisory Board of Numonyx, the flash memory joint venture we
set up with Intel and Francisco Partners effective
March 30, 2008. Mr. Turicchi also serves on the
Supervisory Board of Numonyx.
See Note 26 for transactions with significant shareholders,
their affiliates and other related parties, which also include
transactions between us and our equity investments.
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Item 8.
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Financial
Information
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Financial
Statements
Please see Item 18. Financial Statements for a
list of the financial statements filed with this
Form 20-F.
Legal
Proceedings
As is the case with many companies in the semiconductor
industry, we have from time to time received, and may in the
future receive, communications from other semiconductor
companies or third parties alleging possible infringement of
patents. Furthermore, we may become involved in costly
litigation brought against us regarding patents, copyrights,
trademarks, trade secrets or mask works. In the event that the
outcome of such IP litigation would be unfavorable to us, we may
be required to take a license to patents or other IP rights upon
economically unfavorable terms and conditions, and possibly pay
damages for prior use,
and/or face
an injunction, all of which singly or in the aggregate could
have a material adverse effect on our results of operations and
ability to compete. See Item 3. Key
Information Risk Factors Risks Related
to Our Operations We depend on patents to protect
our rights to our technology.
In September 2009, we and SanDisk settled our dispute on
amicable and confidential terms. The related matters have been
dismissed with prejudice.
We are a party to legal proceedings with Tessera, Inc.
On January 31, 2006, Tessera filed suit against us, adding
us as a co-defendant, with several other semiconductor companies
to a lawsuit filed by Tessera on October 7, 2005 against
Advanced Micro Devices Inc. and Spansion in the United States
District Court of the Northern District of California. Tessera
is claiming that our BGA packages infringe certain patents owned
by Tessera, and that our U.S. affiliate, ST Inc. (ST
Inc.), has breached the terms of a license agreement with
Tessera.
106
On May 15, 2007, Tessera filed a complaint with the
International Trade Commission (ITC) against us, ATI
Technologies, Freescale, Motorola, Qualcomm and Spansion
claiming infringement of two Tessera U.S. patents, 5,892,326 and
6,433,419 (the 326 and 419 patents), and
seeking an exclusion order against infringing products. Since
the beginning of the ITC investigation, the proceedings filed in
California in January 2006 have been stayed.
Several claims contained in the 419 and 326 patents
asserted in the ITC lawsuit are under final rejection notice by
the U.S. Patent and Trademark Office, and the two patents
are set to expire in September 2010.
The Initial Determination from the Administrative Law Judge
(ALJ) at the ITC ruled that the 326 and
419 patents were valid but not infringed. However, the ITC
subsequently reversed the ALJs decision, ruling that the
patents were valid and infringed and ordering a partial
exclusion order applicable to the importation into the
U.S. of infringing products. We were not
concerned by the May 2009 ITC exclusion order because our
products are imported into the United States by ST Inc., which
has a preexisting license agreement with Tessera. The ITCs
ruling is currently under appeal with the Court of Appeals of
the Federal Circuit.
We are a party to a dispute with Credit Suisse Securities and
Credit Suisse Group concerning Auction Rate Securities.
In February 2008, we instituted arbitration proceedings against
Credit Suisse Securities (Credit Suisse) in
connection with the unauthorized purchase by Credit Suisse of
collateralized debt obligations and credit-linked notes (the
Unauthorized Securities) instead of the federally
guaranteed student loan securities that we had instructed Credit
Suisse to purchase. On February 12, 2009, an arbitration
panel of the FINRA awarded us approximately $406 million in
compensatory and consequential damages, plus interest, in
exchange for the transfer of all of the Unauthorized Securities
back to Credit Suisse. On February 17, 2009, we filed a
petition in the United States District Court for the Southern
District of New York (the Court) seeking
confirmation and enforcement of the FINRA award. Credit Suisse
has responded by seeking to vacate the FINRA award. All required
written submissions have to date been filed with the court by us
and Credit Suisse, and the court may rule at any time. We have
also filed a claim against Credit Suisse Group in the United
States District Court of the Eastern District of New York.
We are a party to arbitration proceedings following a complaint
filed by NXP Semiconductors.
On December 4, 2009, we were notified, by the International
Chamber of Commerce, of a request for arbitration filed by NXP
Semiconductors Netherlands BV NXP against us,
claiming alleged compensation in excess of $46 million for
underloading costs. Such costs are, according to NXP
allegedly due pursuant to a manufacturing services agreement
entered into between NXP and ST-NXP Wireless in August 2008, at
the time of the creation of the the wireless semiconductor
products joint venture with NXP. On February 12, 2010, we
filed our answer to the claim, which we are contesting
vigorously. The arbitration tribunal has recently been
constituted and its first meeting to decide how to proceed and
rule has yet to be established.
Other
matters:
On October 21, 2008, the EU Commission proceeded to a dawn
raid at our Montrouge premises near Paris, France, based on an
investigation being conducted by the EU Commission on alleged
anti-competitive practices pertaining to the manufacture of
integrated circuits for smartcards.
The Commission believes that the main manufacturers of ICs for
smartcards may have been in contact and exchanged confidential
information on future pricing, prices to certain customers,
future production capacities, and plans for new products during
a period between January 1999 and November 2006.
We have offered to support the EU in the pursuit of its
investigation. We have not received any further communication
from the EU since October 21, 2008.
We record a provision when it is probable that a liability has
been incurred and when the amount of the loss can be reasonably
estimated. We regularly evaluate losses and claims to determine
whether they need to be adjusted based on the most current
information available to us. Legal costs associated with claims
are expensed as incurred.
Risk
Management and Insurance
We cover our industrial and business risks through insurance
contracts with top ranking insurance carriers, to the extent
reasonably permissible by the insurance market which does not
provide insurance coverage for certain risks and imposes certain
limits, terms and conditions on coverage that it does provide.
Risks may be covered either through local policies or through
corporate policies negotiated on a worldwide level for the ST
Group of Companies. Corporate policies are negotiated when the
risks are recurrent in various of our affiliated companies.
107
Currently we have four corporate policies covering the following
risks:
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Property damage and business interruption;
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General liability and product liability;
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Directors and officers liability; and
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Transportation risks.
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Our policies generally cover a twelve-month period although may
be subscribed for a longer period if conditions for a longer
term arrangement are deemed beneficial to us. Such policies are
subject to certain terms and conditions, exclusions and
limitations, generally in line with prevailing conditions,
exclusions and limitations, in the insurance market. Pursuant to
such conditions, risks such as terrorism, earthquake, fire,
floods and loss of production, may not be fully insured and we
may not, in the event of a claim under a policy, receive an
indemnification from our insurers commensurate with the full
amount of the damage we have incurred. Furthermore, our product
liability insurance covers physical and direct damages, which
may be caused by our products, however, immaterial,
non-consequential damages resulting from failure to deliver or
delivery of defective products are generally not covered because
such risks are considered to occur in the ordinary course of
business and cannot be insured. We may decide to subscribe for
excess coverage in addition to the coverage provided by our
standard policies. If we suffer damage or incur a claim, which
is not covered by one of our corporate insurance policies, this
may have a material adverse effect on our results of operations.
We also perform annual assessments through an external
consultant of our risk exposure in the field of property
damage/business interruption in our production sites, to assess
potential losses and actual risk exposure. Such assessments are
provided to our underwriters. We do not own or operate any
insurance captive, which acts an insurer for our own risks,
although we may consider such an option in the future.
Reporting
Obligations in IFRS
We are incorporated in the Netherlands and our shares are listed
on Euronext and Borsa Italiana. Consequently, we are subject to
an EU regulation issued on September 29, 2003 requiring us
to report our results of operations and Consolidated Financial
Statements using IFRS. As from January 1, 2009 we are also
required to prepare a semi-annual set of accounts using IFRS
reporting standards.
We use U.S. GAAP as our primary set of reporting standards,
as U.S. GAAP has been our reporting standard since our
creation in 1987. Until the SEC adopted rules allowing foreign
private issuers to file financial statements prepared in
accordance with IFRS without reconciliation to U.S. GAAP,
U.S. GAAP was the sole admitted reporting standard for
companies like us whose shares are listed on the NYSE.
The obligation to report our Consolidated Financial Statements
under IFRS requires us to prepare our results of operations
using two different sets of reporting standards, U.S. GAAP
and IFRS, which are currently not consistent. Such dual
reporting could materially increase the complexity of our
investor communications. Given this risk, and the complexity of
maintaining and reviewing two sets of accounts, we are
considering reporting primarily under IFRS at some point in the
future.
Dividend
Policy
We seek to use our available cash in order to develop and
enhance our position in the very capital-intensive semiconductor
market while at the same time managing our cash resources to
reward our shareholders for their investment and trust in us.
Based on our annual results, projected capital requirements as
well as business conditions and prospects, the Managing Board
proposes each year to the Supervisory Board the allocation of
our earnings involving, whenever deemed possible and desirable
in line with our objectives and financial situation, the
distribution of a cash dividend.
The Supervisory Board, upon the proposal of the Managing Board,
decides each year, in accordance with this policy, which portion
of the profits shall be retained in reserves to fund future
growth or for other purposes and makes a proposal to the
shareholders concerning the amount, if any, of the annual cash
dividend. See Item 10. Additional
Information Memorandum and Articles of
Association Articles of Association
Distribution of Profits (Articles 37, 38, 39 and 40).
In the past five years, we have paid the following dividends:
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On May 20, 2009, our shareholders adopted the payment of a
cash dividend with respect to the year ended December 31,
2008 of $0.12.
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108
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On May 14, 2008, our shareholders adopted the payment of a
quarterly cash dividend with respect to the year ended
December 31, 2007 of $0.36.
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On April 26, 2007, our shareholders adopted the payment of
a cash dividend with respect to the year ended December 31,
2006 of $0.30.
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On April 27, 2006, our shareholders adopted the payment of
a cash dividend with respect to the year ended December 31,
2005 of $0.12 per share.
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On March 18, 2005, our shareholders adopted the payment of
a cash dividend with respect to the year ended December 31,
2004 of $0.12 per share.
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Future dividends will depend on our capacity to generate
profitable results, our profit situation, our financial
situation, the general economic situation and prospects and any
other factors that the Supervisory Board, upon the
recommendation of our Managing Board, shall deem important.
Trading
History of the Companys Shares
Since 1994, our common shares have been traded on the NYSE under
the symbol STM and on Euronext (formerly known as
ParisBourse) and were quoted on SEAQ International. On
June 5, 1998, our common shares were also listed for the
first time on the Borsa Italiana (Italian Stock Exchange), where
they have been traded since that date.
Since November 12, 1997, our common shares have been
included in the CAC 40, the main benchmark for Euronext which
tracks a sample of 40 stocks selected from among the top 100
market capitalization and the most active stocks listed on
Euronext, and which is the underlying asset for options and
futures contracts. The base value was 1,000 at December 31,
1987.
On December 1, 2003, the CAC 40 index shifted to free-float
weightings. As of this date, the CAC 40 weightings are based on
free-float capitalization instead of total market
capitalization. On February 21, 2005, Euronext created a
new range of indices; along with four existing indices including
the CAC 40, six new indices have been created.
On March 18, 2002, we were admitted into the S&P/MIB
(formerly the MIB 30 Index), which was comprised of the 40
leading stocks, based upon their industry, market capitalization
and liquidity, listed on the Borsa Italiana. It featured
free-float adjustment, high liquidity and broad, accurate
representation of market performance based on the leading
companies in leading industries. On June 1, 2009, the Borsa
Italiana introduced a new series of indexes and, as a result,
our shares were included in the new FTSE MIB Index, which
replaced the S&P/MIB Index. The new FTSE MIB Index is still
comprised of 40 leading stocks, selected on the basis of their
market capitalization, liquidity, free float and financial
viability. On January 29, 2010, the Borsa Italiana
announced the introduction of a new index, the FTSE MIB Dividend
Index. This new index relies on the composition of the FTSE MIB
Index, to which we belong, and will comprise the cumulative
value of ordinary gross dividends announced and paid by the
individual constituents of the underlying FTSE MIB Index,
calculated in terms of index points.
On June 23, 2003, we were admitted into the SOX. The SOX is
a widely followed, modified capitalization-weighted index
composed of companies primarily involved in the design,
distribution, manufacture and sale of semiconductors.
The tables below indicate the range of the high and low prices
in U.S. dollars for the common shares on the NYSE, and the
high and low prices in Euros for the common shares on Euronext,
and the Borsa Italiana annually for the past five years, during
each quarter in 2007 and 2008, and monthly for the past
18 months. In December 1994, we completed our Initial
Public Offering of 21,000,000 common shares at an initial price
to the public of $22.25 per share. On June 16, 1999, we
effected a 2-to-1 stock split and on May 5, 2000, we
effected a 3-to-1 stock split. The tables below have been
adjusted to reflect the split. Each range is based on the
highest or lowest rate within each day for common share price
ranges for the relevant exchange.
109
Euronext
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Average Daily Trading
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Volumes
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Number of
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Price Ranges
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Calendar Period
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Shares
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Capital
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High
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Low
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()
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()
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()
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Annual Information for the Past Five Years
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2005
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5,367,485
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72,641,065
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15.81
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10.83
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2006
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5,748,008
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78,944,778
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16.56
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11.34
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2007
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5,430,551
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71,352,748
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15.61
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9.70
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2008
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7,490,827
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54,414,076
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9.89
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4.52
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2009
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4,613,574
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23,933,547
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7.02
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2.97
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Quarterly Information for the Past Two Years
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2008
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First quarter
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7,826,688
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62,318,108
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9.89
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6.21
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Second quarter
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8,048,986
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60,926,675
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8.70
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6.55
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Third quarter
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8,051,424
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62,352,058
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9.49
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6.17
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Fourth quarter
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6,049,032
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34,975,690
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7.66
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4.52
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2009
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First quarter
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4,318,138
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17,103,184
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5.29
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2.97
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Second quarter
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5,127,833
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25,919,626
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5.96
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3.67
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Third quarter
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4,519,462
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25,896,652
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6.78
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4.96
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Fourth quarter
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4,504,956
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26,817,174
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7.02
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5.18
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Monthly Information for the Past 6 Months
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2009
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September
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5,540,498
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35,694,154
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6.78
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5.80
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October
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5,556,260
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34,655,655
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7.02
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5.44
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November
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4,642,508
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26,148,817
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6.16
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5.18
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December
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3,322,354
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19,848,345
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6.43
|
|
|
|
5.41
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
5,118,605
|
|
|
|
31,814,948
|
|
|
|
6.59
|
|
|
|
5.81
|
|
February (as of February 22, 2010)
|
|
|
5,126,795
|
|
|
|
30,994,039
|
|
|
|
6.45
|
|
|
|
5.73
|
|
Source: Bloomberg
110
Borsa
Italiana (Milan)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Daily Trading
|
|
|
Price Ranges
|
|
|
|
Number of
|
|
|
|
|
|
Volumes
|
|
Calendar Period
|
|
Shares
|
|
|
Capital
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
()
|
|
|
()
|
|
|
()
|
|
|
Annual Information for the past five years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
15,530,038
|
|
|
|
210,190,100
|
|
|
|
15.82
|
|
|
|
10.82
|
|
2006
|
|
|
10,316,084
|
|
|
|
141,689,828
|
|
|
|
16.55
|
|
|
|
11.33
|
|
2007
|
|
|
7,485,654
|
|
|
|
98,885,773
|
|
|
|
15.60
|
|
|
|
9.80
|
|
2008
|
|
|
7,194,358
|
|
|
|
52,370,415
|
|
|
|
9.90
|
|
|
|
4.52
|
|
2009
|
|
|
6,606,116
|
|
|
|
34,222,931
|
|
|
|
7.03
|
|
|
|
2.97
|
|
Quarterly Information for the past two years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
|
8,127,048
|
|
|
|
64,733,773
|
|
|
|
9.90
|
|
|
|
6.21
|
|
Second quarter
|
|
|
8,234,557
|
|
|
|
62,311,404
|
|
|
|
8.69
|
|
|
|
6.55
|
|
Third quarter
|
|
|
8,080,374
|
|
|
|
62,486,775
|
|
|
|
9.50
|
|
|
|
6.17
|
|
Fourth quarter
|
|
|
4,293,847
|
|
|
|
24,952,098
|
|
|
|
7.66
|
|
|
|
4.52
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
|
4,708,890
|
|
|
|
18,660,286
|
|
|
|
5.29
|
|
|
|
2.97
|
|
Second quarter
|
|
|
7,575,169
|
|
|
|
38,304,696
|
|
|
|
5.95
|
|
|
|
3.67
|
|
Third quarter
|
|
|
6,923,926
|
|
|
|
39,684,060
|
|
|
|
6.79
|
|
|
|
4.96
|
|
Fourth quarter
|
|
|
7,216,727
|
|
|
|
42,888,549
|
|
|
|
7.03
|
|
|
|
5.15
|
|
Monthly Information for the past 6 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
|
|
|
9,419,477
|
|
|
|
60,734,216
|
|
|
|
6.78
|
|
|
|
5.78
|
|
October
|
|
|
9,420,406
|
|
|
|
58,764,062
|
|
|
|
7.03
|
|
|
|
5.45
|
|
November
|
|
|
6,560,369
|
|
|
|
36,977,051
|
|
|
|
6.11
|
|
|
|
5.15
|
|
December
|
|
|
5,481,856
|
|
|
|
32,563,593
|
|
|
|
6.43
|
|
|
|
5.42
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
9,438,785
|
|
|
|
58,671,489
|
|
|
|
6.58
|
|
|
|
5.81
|
|
February (as of February 22, 2010)
|
|
|
7,826,391
|
|
|
|
47,278,742
|
|
|
|
6.45
|
|
|
|
5.71
|
|
Source: Bloomberg
111
New York
Stock Exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Daily Trading
|
|
|
|
|
|
|
|
|
|
Volumes
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Price Ranges
|
|
Calendar Period
|
|
Shares
|
|
|
Capital
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
(US$)
|
|
|
(US$)
|
|
|
(US$)
|
|
|
Annual Information for the past five years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
1,087,913
|
|
|
|
18,288,128
|
|
|
|
19.47
|
|
|
|
13.96
|
|
2006
|
|
|
1,069,476
|
|
|
|
18,428,607
|
|
|
|
19.90
|
|
|
|
14.55
|
|
2007
|
|
|
1,823,514
|
|
|
|
32,857,113
|
|
|
|
20.84
|
|
|
|
14.22
|
|
2008
|
|
|
2,615,829
|
|
|
|
28,015,734
|
|
|
|
14.35
|
|
|
|
5.90
|
|
2009
|
|
|
1,707,480
|
|
|
|
12,411,885
|
|
|
|
10.28
|
|
|
|
3.73
|
|
Quarterly Information for the past two years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
|
2,820,614
|
|
|
|
33,476,984
|
|
|
|
14.35
|
|
|
|
9.88
|
|
Second quarter
|
|
|
2,644,567
|
|
|
|
31,193,912
|
|
|
|
13.56
|
|
|
|
10.33
|
|
Third quarter
|
|
|
2,836,884
|
|
|
|
32,893,674
|
|
|
|
13.74
|
|
|
|
9.75
|
|
Fourth quarter
|
|
|
2,171,834
|
|
|
|
16,582,971
|
|
|
|
10.46
|
|
|
|
5.9
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
|
1,780,595
|
|
|
|
9,166,855
|
|
|
|
7.15
|
|
|
|
3.73
|
|
Second quarter
|
|
|
1,632,902
|
|
|
|
11,183,826
|
|
|
|
8.30
|
|
|
|
4.97
|
|
Third quarter
|
|
|
1,483,681
|
|
|
|
11,785,948
|
|
|
|
9.99
|
|
|
|
6.89
|
|
Fourth quarter
|
|
|
1,980,001
|
|
|
|
17,386,576
|
|
|
|
10.28
|
|
|
|
7.86
|
|
Monthly Information for the past 6 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
|
|
|
1,601,857
|
|
|
|
15,009,397
|
|
|
|
9.99
|
|
|
|
8.24
|
|
October
|
|
|
2,199,882
|
|
|
|
20,174,914
|
|
|
|
10.28
|
|
|
|
7.93
|
|
November
|
|
|
1,866,736
|
|
|
|
15,730,980
|
|
|
|
9.05
|
|
|
|
7.86
|
|
December
|
|
|
1,863,090
|
|
|
|
16,233,438
|
|
|
|
9.46
|
|
|
|
8.23
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
2,687,037
|
|
|
|
23,781,694
|
|
|
|
9.5
|
|
|
|
8.1
|
|
February (as of February 22, 2010)
|
|
|
1,867,142
|
|
|
|
15,549,559
|
|
|
|
8.77
|
|
|
|
7.87
|
|
Source: Bloomberg
Of the 878,333,566 common shares outstanding as of
December 31, 2009, 78,305,804, or 8.9%, were registered in
the common share registry maintained on our behalf in New York
and 581,333,347, or 66.2%, of our common shares outstanding were
listed on Euroclear France and traded on Euronext SA and on the
Borsa Italiana in Milan. Of the 874,276,833 common shares
outstanding as of December 31, 2008, 65,100,373, or 7.4%,
were registered in the common share registry maintained on our
behalf in New York and 558,471,706, or 63.9%, of our common
shares outstanding were listed on Euroclear France and traded on
Euronext SA and on the Borsa Italiana in Milan.
Market
Information
Euronext
General
On September 22, 2000, upon successful completion of an
exchange offer, the Paris-Bourse (SBF) SA, or the
SBF, the Amsterdam Stock Exchange and the Brussels
Stock Exchange merged to create Euronext, the first pan-European
stock exchange. Through the exchange offer, all the shareholders
of SBF, the Amsterdam Stock Exchange and the Brussels Stock
Exchange contributed their shares to Euronext N.V.
(Euronext), a Dutch holding company, and the
Portugal Exchange was included in Euronext in January 2002.
Following the creation of Euronext, the SBF changed its name to
Euronext Paris SA (Euronext Paris). Securities
quoted on exchanges participating in Euronext cash markets are
traded and cleared over common Euronext platforms but remain
listed on their local exchanges. UTP is the common
Euronext platform for trading and Clearing 21 for
clearing. In addition,
112
Euronext, through Euroclear, has a central settlement and
custody structure over a common system (ESES). In
January 2002, Euronext acquired the London International
Financial Futures and Options Exchange (LIFFE),
Londons derivatives market, and created Euronext.liffe.
Euronext.liffe is the international derivatives business of
Euronext, comprising the Amsterdam, Brussels, Lisbon, London and
Paris derivatives markets. Euronext.liffe creates a single
market for derivatives, by bringing all its derivatives products
together on the one electronic trading platform, LIFFE
CONNECTtm.
NYSE Group Inc. and Euronext combined in April 2007 to create
NYSE Euronext, the worlds largest and first transatlantic
stock exchange operator, with six cash equities exchanges in
five countries and six derivatives exchanges. NYSE Euronext is
the group holding company, and NYSE Group Inc. and Euronext are
its subsidiaries.
Euronext
Paris
In 2005, Euronext overhauled its listing arrangements, creating
a single list, Eurolist by Euronext (Eurolist), that
encompassed all of its regulated markets. In Paris, the markets
operated by Euronext Premier Marché,
Second Marché and Nouveau
Marché were amalgamated in February
2005, becoming Euronext Paris. Euronext Paris retains
responsibility for the admission of shares on, and regulation
of, the Paris market.
Our shares have been listed on the Premier Marché of
Euronext Paris since July 2001 and are now listed on compartment
A of Eurolist. In accordance with Euronext Paris rules, the
shares issued by domestic and other companies listed on Eurolist
are classified in capitalization compartments. The shares of
listed companies are distributed between the following three
market capitalization compartments:
|
|
|
|
|
Compartment A comprises the companies with market
capitalizations above 1 billion;
|
|
|
|
Compartment B comprises the companies with market
capitalizations from 150 million and up to and
including 1 billion; and
|
|
|
|
Compartment C comprises the companies with market
capitalizations below 150 million.
|
Our common shares are listed on the compartment A under the ISIN
Code NL0000226223.
Securities listed on Euronext Paris are placed in one of two
categories (Continu or Fixing) depending on
whether they belong to certain indices or compartments
and/or their
trading volume. Our common shares are listed in the category
known as Continu, which includes the most actively traded
securities. The minimum yearly trading volume required for a
security of a listed company on a regulated market of Euronext
Paris in the Continu category is 2,500 trades.
Securities listed on Euronext Paris are traded through providers
of investment services (investment companies and other financial
institutions). The trading of our common shares takes place
continuously on each business day from 9:00 a.m. to
5:30 p.m. (Paris time), with a pre-opening session from
7:15 a.m. to 9:00 a.m. (Paris time) and a pre-closing
session from 5:30 p.m. to 5:35 p.m. (Paris time)
during which transactions are recorded but not executed and a
closing auction at 5:35 p.m. (Paris time). From
5:35 p.m. to 5:40 p.m. (Paris time) (trading at
last phase), transactions are executed at the closing
price. Any trade effected after the close of a trading session
will be recorded, on the next Euronext Paris trading day, at the
closing price for the relevant security at the end of the
previous days session. Euronext Paris publishes a daily
official price list that includes price information on each
listed security. Euronext Paris has introduced continuous
electronic trading during trading hours for most actively traded
securities. Any trade of a security that occurs outside trading
hours is effected at a price within a range of 1% of the closing
price for that security.
Under the NSC trading manual, Euronext Paris may temporarily
interrupt trading in a security admitted to trading on the
Euronext Paris market if purchases and sales recorded in the
system would inevitably result in a price beyond a certain
threshold, determined on the basis of a percentage fluctuation
from a reference price. With respect to shares belonging to the
continu category, once trading has commenced, volatility
interruptions for a reservation period of 2 minutes (subject to
extension by Euronext Paris) are possible if the price varies
either by more than 5% from a reference price (e.g., opening
auction price) or by more than 2% (with respect to CAC 40
issuers like our company) from the last trade on such
securities. Euronext Paris may also suspend trading of a
security admitted to trading on the Euronext Paris market in
certain circumstances including the occurrence of unusual
trading activity in a security. In addition, in exceptional
cases, including, for example, upon announcement of a takeover
bid, the French market regulator (Autorité des
marchés financiers or AMF) may also
require Euronext Paris to suspend trading.
Under the UTP trading manual, for securities belonging to the
continu category, an order which breaches volatility
thresholds no longer triggers the interruption of the trading of
the security. Instead, until confirmed by the
113
ordering member, such order is automatically rejected by
Euronext Paris. If confirmed, the order is executed. In
addition, Euronext Paris still remains entitled to suspend
trading of a security belonging to the continu category
in case of repeated volatility threshold breaches.
All trades of securities listed on Euronext Paris are performed
on a cash-settlement basis on the third trading day after the
trade. Market intermediaries are also permitted to offer
investors a deferred settlement service (Service à
Réglement Différé or SRD) for a
fee. The SRD allows investors who elect this service to benefit
from leverage and other special features of the monthly
settlement market. The SRD is reserved for securities which have
both a total market capitalization of at least
1 billion and represent a minimum daily trading
volume of 1 million and which are normally cited on a
list published by Euronext Paris. Investors in securities
eligible for the SRD can elect on the determination date
(date de liquidation), which is, at the latest, the fifth
trading day before the end of the month, either to settle the
trade by the last trading day of the month or to deduct a margin
amount and postpone the settlement decision to the determination
date of the following month. Our common shares are eligible for
the SRD.
Ownership of securities traded on a deferred settlement basis
belongs to the market intermediary (in whose account they are
registered at the date set by market rules) pending registration
in the buyers account. According to the rules of Euronext
Paris, the market intermediary is entitled to the dividends and
coupons pertaining to the securities he has full title, provided
he is responsible for paying the buyer, when the settlement
matured, the exact cash equivalent of the rights received.
Prior to any transfer of securities held in registered form on
Eurolist, the securities must be converted into bearer form and
accordingly inscribed in an account maintained by an accredited
intermediary with Euroclear France SA (Euroclear), a
registered clearing agency. Transactions in securities are
initiated by the owner giving instructions (through an agent, if
appropriate) to the relevant accredited intermediary. Trades of
securities listed on Eurolist are cleared through Clearing 21, a
common Euronext platform, and settled through Euroclear using a
continuous net settlement system. A fee or a commission is
payable to the broker-dealer or other agent involved in the
transaction.
Our common shares have been included in the CAC 40, the
principal index published by Euronext Paris, since
November 12, 1997. The CAC 40 is derived daily by comparing
the total market capitalization of 40 stocks included in the
monthly settlement market of Euronext Paris to a baseline
established on December 31, 1987. Adjustments are made to
allow for expansion of the sample due to new issues. The CAC 40
indicates the trends in the French stock market as a whole and
is one of the most widely followed stock price indices in France.
Our common shares could be removed from the CAC 40 at any time,
and the exclusion or the announcement thereof could cause the
market price of our common shares to drop significantly.
Securities
Trading in Italy
The Mercato Telematico Azionario (the MTA), the
Italian automated screen-based quotation system on which our
common shares are listed, is organized and administered by Borsa
Italiana S.p.A. (Borsa Italiana) subject to the
supervision of the Commissione Nazionale per le Società e
la Borsa (CONSOB) the public authority charged,
inter alia, with regulating investment companies, securities
markets and public offerings of securities in Italy to ensure
the transparency and regularity of dealings and protect
investors. Borsa Italiana was established to manage the Italian
regulated financial markets (including the MTA) as part of the
implementation in Italy of the EU Investment Services Directive
pursuant to Legislative Decree No. 415 of July 23,
1996 (the Eurosim Decree) and as modified by
Legislative Decree No. 58 of February 24, 1998, as
amended (the Financial Act). Borsa Italiana became
operative in January 1998, replacing the administrative body
Consiglio di Borsa, and has issued rules governing the
organization and the administration of the Italian stock
exchange, futures and options markets as well as the admission
to listing on and trading in these markets. As of
October 1, 2007, upon a merger with the London Stock
Exchange, 99.9% of the share capital of Borsa Italiana is held
by the London Stock Exchange Group plc, which, as of
June 25, 2009, holds such interest through its subsidiary,
London Stock Exchange Group Holdings (Italy) LTD.
A cash settlement period of three open market days applies to
all trades of equity securities in Italy effected on a regulated
market. Any person, through an authorized intermediary, may
purchase or sell listed securities following (i) in the
case of sales, deposit of the securities; and (ii) in the
case of purchases, deposit of 100% of such securities
value in cash, or deposit of listed securities or government
bonds of an equivalent amount. No closing price is
reported for the electronic trading system, which requires the
daily publication of: (i) an official price for
each security calculated as a weighted average price of all
trades effected during the trading day; and (ii) a
reference price for each security calculated as the
closing-auction price or, in the event that no closing-auction
price is available, as a weighted average of the trades effected
during a ten-minute interval of the continuous trading phase.
114
If the opening price of an equity security contained in the FTSE
MIB Index (established each trading day prior to the
commencement of trading based on bids received) differs by more
than 5% or such other amount established by Borsa Italiana from
the previous days reference price, trading in that
security will not be permitted and a volatility bid takes place.
(For equity securities other than those contained in the FTSE
MIB Index, trading will not be permitted, and a volatility bid
takes place, if the opening price differs by more than 10% from
the previous days reference price). If in the course of a
trading day the price of a security fluctuates by more than 3.5%
from the last reported sale price, an automatic suspension in
the trading of that security will be declared by the Borsa
Italiana. (For equity securities other than those contained in
the FTSE MIB Index, this suspension will apply upon a 5%
fluctuation from the last reported sale price). In the event of
such a suspension a volatility bid takes place, lasting for ten
minutes plus a variable period of time, randomly determined by
the trading system, of up to one minute. Borsa Italiana has the
authority to suspend trading in any security, among other
things, in response to extreme price fluctuations. In urgent
circumstances, CONSOB may, where necessary, adopt measures
required to ensure the transparency of the market, orderly
trading and protection of investors.
Italian law requires that trading of equity securities, as well
as any other investment services, may be carried out
vis-à-vis the public on a professional basis by
financial intermediaries, banks and certain types of finance
companies. In addition, banks and investment firms organized in
any member state of the EU are permitted to operate in Italy
either on a branch or on a cross-border basis provided that the
intent of such bank or investment firm is communicated to CONSOB
and the Bank of Italy by the competent authorities of the member
state according to specific procedures. Non-EU banks and non-EU
investment firms may operate in Italy subject to the specific
authorization of CONSOB and the Bank of Italy.
The settlement of Italian stock exchange transactions is
facilitated by Monte Titoli S.p.A., a centralized securities
clearing system owned by Borsa Italiana. Most Italian banks and
certain Italian securities dealers have securities accounts with
Monte Titoli and act as depositories for investors. Beneficial
owners of shares may hold their interests through custody
accounts with any such institution. Beneficial owners of shares
held with Monte Titoli may transfer their shares, collect
dividends, create liens and exercise other rights with respect
to those shares through such accounts.
Participants in Euroclear and Clearstream may hold their
interests in shares and transfer the shares, collect dividends,
create liens and exercise their shareholders rights
through Euroclear and Clearstream. A holder may require
Euroclear and Clearstream to transfer its shares to an account
of such holder with an Italian bank or any authorized broker.
Our common shares are included in the FTSE MIB Index. Our common
shares could be removed from the FTSE MIB Index at any time, and
the exclusion or announcement thereof could cause the market
price of our common shares to drop significantly.
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Item 10.
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Additional
Information
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Memorandum
and Articles of Association
Applicable
non-U.S.
Regulations
Applicable
Dutch Legislation
We were incorporated under the laws of the Netherlands by deed
of May 21, 1987, and we are governed by Book 2 of the Dutch
Civil Code. Set forth below is a summary of certain provisions
of our Articles of Association and relevant Dutch corporate law.
The summary below does not purport to be complete and is
qualified in its entirety by reference to our Articles of
Association and relevant Dutch corporate law.
The summary below sets forth our current Articles of Association
as most recently amended on May 20, 2009.
We are subject to various provisions of the Dutch Financial
Markets Supervision Act (Wet op het financieel
toezicht) (the FMSA) and, in particular,
to the provisions summarized below.
Unless an exemption applies, we are subject to (i) a
prohibition from offering securities in the Netherlands without
the publication of an approved prospectus (and the same
prohibition applies for such offers in other jurisdictions of
the European Economic Area (the EEA)); (ii) a
prohibition of proceeding with any transaction in our financial
instruments admitted to trading on a regulated market in the EEA
or in any other financial instrument the value of which depends
in part on these instruments, in the event where we would
possess inside information; and (iii) certain restrictions
(related to market manipulation) in repurchasing our shares.
Furthermore, we are required to inform the Dutch Authority for
the Financial Markets (Autoriteit Financiële
Markten) (the AFM) immediately if our
issued and outstanding share capital or voting rights change by
1% or more since our previous
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notification. Other changes in our share capital or voting
rights need to be notified periodically. Also, the sole member
of our Managing Board and the members of our Supervisory Board
(unless they have already been notified pursuant to the
requirements described below in Disclosure of
Holdings), certain of their relatives, entities closely
related with them and (under certain circumstances) members of
senior management must notify the AFM of all transactions
conducted on their own account relating to our financial
instruments admitted to trading on a regulated market in the EEA
or in any other financial instrument the value of which depends
in part on these instruments. The AFM keeps a public register of
all notifications made pursuant to the FMSA. The provisions of
the FMSA regarding statements of holdings in our share capital
and voting rights are described below in
Disclosure of Holdings.
On October 28, 2007, the Dutch legislation implementing
Directive 2004/25/EC on takeover bids (the Takeover
Directive) entered into force. This legislation requires a
shareholder who (individually or jointly) obtains control to
launch an offer to all of our other shareholders. Such control
is deemed present if a (legal) person is able to exercise, alone
or acting in concert, at least 30% of the voting rights in our
shareholders meeting. The acquisition of control does not
require an act of the person who obtains control (e.g., if we
repurchase shares as a consequence of which the relative stake
of a major shareholder increases (and may result in control
having been obtained)).
In the event control is acquired, whether or not by acting in
concert, two options exist: (i) either a mandatory offer is
launched or (ii) within 30 days the relevant stake is
decreased below the 30% voting rights threshold, provided the
voting rights have not been exercised during this period and our
shares are not sold to a controlling shareholder. The Enterprise
Chamber of the Amsterdam Court of Appeal
(Ondernemingskamer) may extend this period by
an additional 60 days.
The Dutch legislation contains a substantial number of
exemptions to the obligation to launch a (mandatory) offer. One
of those exemptions is that Stichting Continuïteit ST, an
independent foundation, is allowed to cross the 30% voting
rights threshold when obtaining our preference shares after the
announcement of a public offer, but only for a maximum period of
2 years.
Applicable
French Legislation
As our registered offices are based in the Netherlands, the AMF
is not the competent market authority to control our disclosure
obligations. The AMF General Regulation only requires that the
periodic and ongoing information to be disclosed pursuant to the
EU Transparency Directive and which content is controlled by the
AFM (for instance the annual, half-yearly and quarterly
financial reports or any inside information) also be disclosed
at the same time in France and made available on our Internet
website.
In addition, as our shares are listed on Euronext Paris, in
France, we must (i) inform the AMF of any modification of
our bylaws and articles of incorporation (pursuant to
Article 223-20
of the AMF General Regulation); and (ii) disclose
information on the total number of shares and voting rights
composing our capital on a monthly basis (pursuant to
Article 223-16
of the AMF General Regulation).
Articles 241-1
to 241-6 of
the AMF General Regulation on buyback programs for equity
securities admitted to trading on a regulated market and
transaction reporting requirements are also applicable to our
company as well as
Articles 611-1
to 632-1 of
the AMF General Regulation on market abuse (insider dealing and
market manipulation).
As a general rule, the information disclosed to the public must
be accurate, precise and fairly presented.
Following the opening of Euronext Paris, all financial
instruments formerly traded on the Premier, the Second
and the Nouveau Marché are now distributed
between three capitalization compartments, A, B, and C, whose
regulations are generally applicable to us. See
Item 9. Listing.
Other provisions of French securities regulations are not
applicable to us.
Regarding the regulation of public tender offers,
articles 231-1
to 237-13 of
the AMF General Regulation shall apply to our shares, except for
the provisions concerning the standing offer, the mandatory
filing of a tender offer and the squeeze out.
Applicable
Italian Legislation
Because our common shares are listed on the MTA, as described in
Item 9. Listing above, we are required to
publish certain information in order to comply with (i) the
Financial Act and related regulations promulgated by the CONSOB
and (ii) certain rules of the Borsa Italiana. These
requirements are related to: (i) disclosure of
price-sensitive information (such as capital increases, mergers,
creation of joint subsidiaries, major acquisitions, approval
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of draft financial statements, proposals for dividend payments,
approval of financial statements and interim reports);
(ii) periodic information (such as financial statements to
be provided in compliance with the jurisdiction of the country
of incorporation) or information on the exercise of
shareholders rights (such as the calling of the
shareholders meeting or the exercise of pre-emptive
rights); (iii) the publication of research, budgets and
projections; and (iv) in certain circumstances,
dissemination to the public in Italy, and communication to
CONSOB, of any additional information that we provide to our
shareholders in countries other than Italy where our shares are
listed on a stock exchange.
As a result of our admission to the FTSE MIB Index, we now must
comply with certain additional stock market rules. These
additional provisions require that we announce through a press
release, within one month from our year-end closing (i) the
month in which the payment of the dividend for the year ended,
where applicable, is planned to take place (if different from
the month when the previous dividend was distributed), and
(ii) our intent, if any, of adopting a policy of
distributing interim dividends for the current year, mentioning
the months when the distribution of dividends and interim
dividends will take place. In the event of a modification of the
information referred to in (i) and (ii) above, we
shall be required to promptly update such information in another
press release. In addition, stock splits and certain other
transactions must be carried out in accordance with the Borsa
Italianas calendar. We must notify the Italian stock
market of any modification to the amount and distribution of our
share capital. The notification must be made no later than one
day after the modification has become effective under the rules
to which we are subject.
We are required to communicate to the CONSOB and the Borsa
Italiana the same information that we are required to disclose
to the AMF and the AFM regarding transactions in our securities
and any exercise of stock options by our Supervisory Board
members and executive officers, as described below.
Articles
of Association
Purposes
of the Company (Article 2)
Article 2 of our Articles of Association sets forth the
purposes of our company. According to Article 2, our
purposes shall be to participate in or take, in any manner, any
interests in other business enterprises; to manage such
enterprises; to carry on business in semiconductors and
electronic devices; to take and grant licenses and other
industrial property interests; to assume commitments in the name
of any enterprises with which we may be associated within a
group of companies; and to take any other action, such as but
not limited to the granting of securities or the undertaking of
obligations on behalf of third parties, which in the broadest
sense of the term, may be related or contribute to the
aforementioned objects.
Company
and Trade Registry
We are registered with the Chamber of Commerce and Industry in
Amsterdam (Kamer van Koophandel en Fabrieken voor Amsterdam)
under no. 33194537.
Supervisory
Board and Managing Board
Our Articles of Association do not include any provisions
related to a Supervisory Board members:
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power to vote on proposals, arrangements or contracts in which
such member is directly interested;
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power, in the absence of an independent quorum, to vote on
compensation to themselves or any members of the Supervisory
Board; or
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borrowing powers exercisable by the directors and how such
borrowing powers can be varied.
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Our Supervisory Board Charter, however, explicitly prohibits
members of our Supervisory Board from participating in
discussions and voting on matters where any such member has a
conflict of interest. Our Articles of Association provide that
our shareholders meeting must adopt the compensation of
our Supervisory Board members.
Neither our Articles of Association nor our Supervisory Board
Charter have a requirement or policy that Supervisory Board
members hold a minimum number of our common shares.
Compensation
of our Managing Board (Article 12)
Our Supervisory Board determines the compensation of the sole
member of our Managing Board, within the scope of the
compensation policy adopted by our shareholders meeting
upon the proposal of our Supervisory Board. Our Supervisory
Board will submit for approval by the shareholders meeting
a proposal regarding the
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compensation in the form of shares or rights to acquire shares.
This proposal sets forth at least how many shares or rights to
acquire shares may be awarded to our Managing Board and which
criteria apply to an award or a modification.
Compensation
of our Supervisory Board (Article 23)
Our shareholders meeting determines the compensation of
our Supervisory Board members. Our shareholders meeting
shall have the authority to decide whether such compensation
will consist of a fixed amount
and/or an
amount that is variable in proportion to profits or any other
factor.
Information
from our Managing Board to our Supervisory Board
(Article 18)
At least once per year our Managing Board shall inform our
Supervisory Board in writing of the main features of our
strategic policy, our general and financial risks and our
management and control systems.
Our Managing Board shall then submit to our Supervisory Board
for approval:
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our operational and financial objectives;
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our strategy designed to achieve the objectives;
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the parameters to be applied in relation to our strategy,
inter alia, regarding financial ratios; and
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corporate social responsibility issues that are relevant to the
enterprise.
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For more information on our Supervisory Board and our Managing
Board, see Item 6. Directors, Senior Management and
Employees.
Adoption
of Annual Accounts and Discharge of Management and Supervision
Liability (Article 25)
Each year, within four months after the end of our financial
year, our Managing Board must prepare our statutory annual
accounts, certified by one or several auditors appointed by our
shareholders meeting and submit them to our
shareholders meeting for adoption. Within this period and
in accordance with the statutory obligations to which we are
subject, our Managing Board must make generally available:
(i) our statutory annual accounts, (ii) our annual
report, (iii) the auditors statement, as well as
(iv) other annual financial accounting documents which we,
under or pursuant to the law, must make generally available
together with our statutory annual accounts.
Each year, our shareholders meeting votes whether or not
to discharge the members of our Supervisory Board and of our
Managing Board for their supervision and management,
respectively, during the previous financial year. In accordance
with the applicable Dutch legislation, the discharge of the
members of our Managing Board and the Supervisory Board must, in
order to be effective, be the subject of a specific resolution
on the agenda of our shareholders meeting. Under Dutch
law, this discharge does not extend to matters not disclosed to
our shareholders meeting.
Distribution
of Profits (Articles 37, 38, 39 and 40)
Subject to certain exceptions, dividends may only be paid out of
the profits as shown in our adopted annual accounts. Our profits
must first be used to set up and maintain reserves required by
Dutch law and our Articles of Association. Subsequently, if any
of our preference shares are issued and outstanding, preference
shareholders shall be paid a dividend, which will be a
percentage of the paid up part of the par value of their
preference shares. Our Supervisory Board may then, upon proposal
of our Managing Board, also establish reserves out of our annual
profits. The portion of our annual profits that remains after
the establishment or maintenance of reserves and the payment of
a dividend to our preference shareholders is at the disposal of
our shareholders meeting. No distribution may be made to
our shareholders when the equity after such distribution is or
becomes inferior to the fully-paid share capital, increased by
the legal reserves. Our preference shares are cumulative by
nature, which means that if in a financial year the dividend or
the preference shares cannot be (fully) paid, the deficit must
first be paid in the following financial year.
Our shareholders meeting may, upon the proposal of our
Supervisory Board, declare distributions out of our share
premium reserve and other reserves available for shareholder
distributions under Dutch law. Pursuant to a resolution of our
Supervisory Board, distributions adopted by the
shareholders meeting may be fully or partially made in the
form of our new shares to be issued. Our Supervisory Board may,
subject to certain statutory provisions, make one or more
interim distributions in respect of any year before the accounts
for such year have been adopted at a shareholders meeting.
Rights to cash dividends and distributions that have not been
collected within five years after the date on which they became
due and payable shall revert to us.
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For the history of dividends paid by us to our shareholders in
the past five years, see Item 8. Financial
Information Dividend Policy.
Shareholders
Meetings, Attendance at Shareholders Meetings and Voting
Rights
Notice
Convening the Shareholders Meeting (Articles 25, 26,
27, 28 and 29)
Our ordinary shareholders meetings are held at least
annually, within six months after the close of each financial
year, in Amsterdam, Haarlemmermeer (Schiphol Airport), Rotterdam
or The Hague, the Netherlands. Extraordinary shareholders
meetings may be held as often as our Supervisory Board deems
necessary, and must be held upon the written request of
registered shareholders or other persons entitled to attend
shareholders meetings of at least 10% of the total issued
share capital to our Managing Board or our Supervisory Board
specifying in detail the business to be dealt with. Such written
requests may not be submitted electronically. In the event that
the Managing Board or the Supervisory Board does not convene the
shareholders meeting within six weeks of such a request,
the aforementioned shareholders or individuals may be authorized
by a competent judicial authority.
Notice of shareholders meetings shall be given by our
Managing Board or by our Supervisory Board or by those who
according to the law or our Articles of Association are entitled
thereto. The notice shall be given in such manner as shall be
authorized or required by law (including but not limited to a
written notice, a legible and reproducible message sent by
electronic means and an announcement published by electronic
means), as well as in accordance with the regulations of a stock
exchange where our shares are officially listed at our request.
In addition, shareholders and other persons entitled to attend
the shareholders meetings that are registered in our share
register shall be notified by letter that the meeting is being
convened. The notice convening the shareholders meeting
shall be given with due observance of the statutory notice
period, which is currently 15 days prior to the meeting.
However, a draft bill, which will implement the EU Directive on
Shareholders Rights (Directive 2007/36/EC), is currently
pending with the First Chamber of Dutch Parliament which, if
enacted, will set the minimum notice period at 42 days
prior to the meeting.
The notice of the shareholders meeting states the business
to be transacted as well as other information prescribed by law
and our Articles of Association. The agenda is fixed by the
author of the notice of the meeting; however, one or more
shareholders or other persons entitled to attend
shareholders meetings representing at least one-tenth of
our issued share capital may, provided that the request was made
at least five days prior to the date of convocation of the
meeting, request that proposals be included on the agenda.
Notwithstanding the previous sentence, proposals of persons who
are entitled to attend shareholders meetings will be
included on the agenda, if such proposals are made in writing to
our Managing Board within a period of sixty days before that
meeting by persons who are entitled to attend our
shareholders meetings who, solely or jointly, represent at
least 1% of our issued share capital or a market value of at
least 50,000,000 unless we determine that such proposal
would conflict with our substantial interests. The requests
referred to in the previous two sentences may not be submitted
electronically. The aforementioned requests must comply with
conditions stipulated by our Managing Board, subject to the
approval of our Supervisory Board, which shall be posted on our
website.
We are exempt from the proxy solicitation rules under the United
States Securities Exchange Act of 1934. Euroclear France will
provide notice of shareholders meetings to, and compile
voting instructions from, holders of shares held directly or
indirectly through Euroclear France at the request of the
Company, the Registrar or the voting Collection
Agent. A voting collection agent must be appointed;
Netherlands Management Company B.V. acts as our voting
collection agent. DTC will provide notice of shareholders
meetings to holders of shares held directly or indirectly
through DTC and the New York Transfer Agent and Registrar will
compile voting instructions. In order for holders of shares held
directly or indirectly through Euroclear France to attend
shareholders meetings in person, such holders must
withdraw their shares from Euroclear France and have such shares
registered directly in their name or in the name of their
nominee. In order for holders of shares held directly or
indirectly through DTC to attend shareholders meetings of
shareholders in person, such holders need not withdraw such
shares from DTC but must follow rules and procedures established
by the New York Transfer Agent and Registrar.
Attendance
at Shareholders Meetings and Voting Rights
(Articles 6, 30, 31, 32, 33 and 34)
Each share is entitled to one vote.
All shareholders and other persons entitled to attend and to
vote at shareholders meetings are entitled to attend the
shareholders meeting either in person or represented by a
person holding a written proxy, to address the
shareholders meeting and, as for shareholders and other
persons entitled to vote, to vote, subject to our Articles of
Association. Subject to the approval of our Supervisory Board,
our Managing Board may resolve that shareholders and other
persons entitled to attend the shareholders meetings are
authorized to directly take note of the business
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transactions at the meeting via an electronic means of
communication. Our shareholders meeting may set forth
rules regulating, inter alia, the length of time during
which shareholders may speak in the shareholders meeting.
If there are no such applicable rules, the chairman of the
meeting may regulate the time during which shareholders are
entitled to speak if desirable for the orderly conduct of the
meeting.
Our Managing Board may, subject to the approval of our
Supervisory Board, resolve that each person entitled to attend
and vote at shareholders meetings is authorized to vote
via an electronic means of communication, either in person or by
a person authorized in writing, provided that such person can be
identified via the electronic means of communication and
furthermore provided that such person can directly take note of
the business transacted at the meeting. Our Managing Board may,
subject to the approval of our Supervisory Board, attach
conditions to the use of the electronic means of communication,
which conditions shall be announced in the notice convening the
shareholders meeting and must be posted on our website.
Provided the law does not prescribe a fixed registration date
(as described below), our Managing Board will establish a
registration date, which means that our Managing Board will
determine that shareholders and other persons entitled to attend
shareholders meetings are those persons who have such
rights at a determined date and, as such, are registered in a
register designated by our Managing Board, regardless of who is
a shareholder or otherwise a person entitled to attend
shareholders meetings at the time of the meeting if a
registration date as referred to in our Articles of Association
had not been determined. Currently, the registration date cannot
be set earlier than on the thirtieth day prior to the meeting.
However, a draft bill, which will implement the EU Directive on
Shareholders Rights (Directive 2007/36/EC), is currently
pending with the First Chamber of Dutch Parliament which, if
enacted, will set the registration date at 28 days prior to
the meeting. In the notice convening the shareholders
meeting the time of registration must be mentioned as well as
the manner in which shareholders and other persons entitled to
attend shareholders meetings can register themselves and
the manner in which they can exercise their rights.
Our Managing or Supervisory Board may also resolve that persons
entitled to attend and vote at shareholders meetings may
vote via an electronic means of communication determined by our
Managing or Supervisory Board within a period to be set by our
Managing or Supervisory Board prior to our shareholders
meeting, which period cannot commence earlier than the
registration date (as described above). Votes cast in accordance
with the provisions of the preceding sentence are equal to votes
cast at our shareholders meeting.
Shareholders and other persons entitled to attend meetings of
shareholders may be represented by proxies with written
authorization, which must be shown for admittance to the
meeting. All matters regarding admittance to the
shareholders meeting, the exercise of voting rights and
the result of voting, as well as any other matters regarding the
business of the shareholders meeting, shall be decided
upon by the chairman of that meeting, in accordance with the
requirements of Section 13 of the Dutch Civil Code.
Our Articles of Association allow for separate meetings for
holders of common shares and for holders of preference shares.
At a meeting of holders of preference shares at which the entire
issued capital of shares of such class is represented, valid
resolutions may be adopted even if the requirements in respect
of the place of the meeting and the giving of notice have not
been observed, provided that such resolutions are adopted by
unanimous vote. Also, valid resolutions of preference
shareholder meetings may be adopted outside a meeting if all
persons entitled to vote on our preference shares indicate in
writing that they vote in favor of the proposed resolution,
provided that no depositary receipts for preference shares have
been issued with our cooperation. Our managing board may,
subject to the approval of our Supervisory Board, resolve that
written resolutions may be adopted via an electronic means of
communication. Our Managing Board may, subject to the approval
of our Supervisory Board, attach conditions to the use of the
electronic means of communication, which conditions shall be
notified in writing to all holders of preference shares and
other persons entitled to vote on our preference shares.
Authority
of our Shareholders Meeting (Articles 12, 16, 19, 25,
28, 32 and 41)
Our shareholders meeting decides upon (i) the
discharge of the members of our Managing Board for their
management during the past financial year and the discharge of
the members of our Supervisory Board for their supervision
during the past financial year; (ii) the adoption of our
statutory annual accounts and the distribution of dividends;
(iii) the appointment of the members of our Supervisory
Board and our Managing Board; and (iv) any other
resolutions listed on the agenda by our Supervisory Board, our
Managing Board or our shareholders and other persons entitled to
attend shareholders meetings.
Furthermore, our shareholders meeting has to approve
resolutions of our Managing Board regarding a significant change
in the identity or nature of us or our enterprise, including in
any event (i) transferring our enterprise or practically
our entire enterprise to a third party, (ii) entering into
or canceling any long-term cooperation between us or a
subsidiary (dochtermaatschappij) of us and
any other legal person or company or as
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a fully liable general partner of a limited partnership or a
general partnership, provided that such cooperation or the
cancellation thereof is of essential importance to us, and
(iii) us or a subsidiary
(dochtermaatschappij) of us acquiring or
disposing of a participating interest in the capital of a
company with a value of at least one-third of our total assets
according to our consolidated balance sheet and notes thereto in
our most recently adopted annual accounts.
Our Articles of Association may only be amended (and our
liquidation can only be decided on) if amendments are proposed
by our Supervisory Board and approved by a simple majority of
the votes cast at a shareholders meeting at which at least
15% of the issued and outstanding share capital is present or
represented. The complete proposal for the amendment (or
liquidation) must be made available for inspection by the
shareholders and the other persons entitled to attend
shareholders meetings at our offices as from the day of
the notice convening such meeting until the end of the meeting.
Any amendment of our Articles of Association that negatively
affects the rights of the holders of a certain class of shares
requires the prior approval of the meeting of holders of such
class of shares.
Quorum
and Majority (Articles 4, 13 and 32)
Unless otherwise required by our Articles of Association or
Dutch law, resolutions of shareholders meetings require
the approval of a majority of the votes cast at a meeting at
which at least 15% of the issued and outstanding share capital
is present or represented, subject to the provisions explained
below. We may not vote our common shares held in treasury. Blank
and invalid votes shall not be counted.
A quorum of shareholders, present or represented, holding at
least half of our issued share capital, is required to dismiss a
member of our Managing Board, unless the dismissal is proposed
by our Supervisory Board. In the event of the lack of a quorum,
a second shareholders meeting must be held within four
weeks, with no applicable quorum requirement. Any decision or
authorization by the shareholders meeting which has or
could have the effect of excluding or limiting preferential
subscription rights must be taken by a majority of at least
two-thirds of the votes cast, if at the shareholders
meeting less than 50% of the issued and outstanding share
capital is present or represented. Otherwise such a resolution
can be taken by a simple majority at a meeting at which at least
15% of the issued and outstanding share capital is represented.
Disclosure
of Holdings under Dutch Law
Holders of our shares or rights to acquire shares (which
includes options and convertible bonds) may be subject to
notification obligations under Chapter 5.3 of the FMSA.
Under Chapter 5.3 of the FMSA, any person whose direct or
indirect interest (including potential interest, such as options
and convertible bonds) in our share capital or voting rights
reaches or crosses a threshold percentage must notify the AFM
either (a) immediately, if this is the result of an
acquisition or disposal by it; or (b) within 4 trading days
after such reporting, if this is the result of a change in our
share capital or votes reported in the AFMs public
register. The threshold percentages are 5, 10, 15, 20, 25, 30,
40, 50, 60, 75 and 95 percent. It is expected that in the
course of 2011 a legislative proposal will be adopted pursuant
to which the 5 percent threshold will be replaced by a
3 percent threshold. Under the same proposal each holder of
a 3 percent interest would need to declare, in a filing to
be publicly made with the AFM, whether it has any objections to
our strategy as publicly submitted to the AFM.
Furthermore, persons holding 5% or more in our voting rights or
capital interest must within four weeks after December 31 notify
the AFM of any changes in the composition of their interest
since their last notification.
The following instruments qualify as shares:
(i) shares, (ii) depositary receipts for shares (or
negotiable instruments similar to such receipts),
(iii) negotiable instruments for acquiring the instruments
under (i) or (ii) (such as convertible bonds), and
(iv) options for acquiring the instruments under
(i) or (ii). There is a possibility that in the course of
2011 legislation will be adopted pursuant to which holdings of
instruments of which the value is dependent on an increase in
value of the shares or dividend rights but that are not settled
in these shares (such as contracts for differences) will also
qualify as holdings of shares.
Among others, the following shares and votes qualify as shares
and votes held by a person: (i) those directly
held by him; (ii) those held by his subsidiaries;
(iii) shares held by a third party for such persons
account and the votes such third party may exercise;
(iv) the votes held by a third party if such person has
concluded an oral or written agreement with such party which
provides for a lasting common policy on voting; (v) the
votes held by a third party if such person has concluded an oral
or written agreement with such party which provides for a
temporary and paid transfer of the shares; and (vi) the
votes which a person may exercise as a proxy but in his own
discretion. Special rules apply to the attribution of the
ordinary shares which are part of the property of a partnership
or other community of property. A holder of a pledge or right of
usufruct in respect of our shares can also be subject
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to a notification obligation if such person has, or can acquire,
the right to vote on our shares. If a pledgor or usufructuary
acquires such voting rights, this may trigger a notification
obligation for the holder of our shares.
Under Section 5.48 of the FMSA, the sole member of our
Managing Board and each of the members of our Supervisory Board
must without delay notify the AFM of any changes in his interest
or potential interest in our share capital or voting rights.
The AFM will publish all notifications on its public website
(www.afm.nl).
Non-compliance with the notification obligations of
Chapter 5.3 of the FMSA can lead to imprisonment or
criminal fines, or administrative fines or other administrative
sanctions. In addition, non-compliance with these notification
obligations may lead to civil sanctions, including, without
limitation, suspension of the voting rights attaching to our
shares held by the offender for a maximum of three years,
(suspension and) nullification of a resolution adopted by our
shareholders meeting (if it is likely that such resolution
would not have been adopted if the offender had not voted) and a
prohibition for the offender to acquire our shares or votes for
a period of not more than five years.
Share
Capital
Our shares may not be issued at less than their par value; our
common shares must be fully paid up at the time of their
issuance. Our preference shares must be paid up for at least 25%
of their par value at the time of their issuance (and the
remaining 75% if and when requested by our Managing Board). Our
authorized share capital is not restricted by redemption
provisions, sinking fund provisions or liability to further
capital calls by us. Our Articles of Association allows for the
acquisition of own shares and the cancellation of shares. There
are no conditions imposed by our Memorandum and Articles of
Association governing changes in capital which are more
stringent than is required by law.
Type II shares are common shares in the form of an entry in
our shareholders register with the issue of a share certificate
consisting of a main part without a dividend coupon. In addition
to type II shares, type I shares are available. Type I
shares are common shares in the form of an entry in our
shareholders register without the issue of a share certificate.
Type II shares are only available should our Supervisory
Board decide to offer them. Our preference shares are in the
form of an entry in our shareholders register without issue of a
share certificate.
Non-issued authorized share capital, which is different from
issued share capital, allows us to proceed with capital
increases excluding the preemptive rights, upon our Supervisory
Boards decision, within the limits of the authorization
granted by our shareholders meeting of April 26,
2007. However, it is not possible to predict if we will request
such an authorization again and at what time and under what
conditions. The impact of any future capital increases within
the limit of our authorized share capital, upon the decision of
our Supervisory Board acting on the delegation granted to it by
our shareholders meeting, cannot therefore be evaluated.
Other securities in circulation which give access to our share
capital include (i) the options giving the right to
subscribe to our shares granted to our employees, including the
sole member of our Managing Board and our executive officers;
(ii) the options giving the right to subscribe to our
shares granted to the members of our Supervisory Board, its
secretaries and controllers, as described in Item 6.
Directors, Senior Management and Employees; (iii) the
exchangeable bonds convertible into our shares issued by
Finmeccanica Finance in August and September 2003, which are
described above in Item 7. Major Shareholders and
Related Party Transactions Major Shareholders;
(iv) our 2013 Convertible Bonds as described above; and
(v) our 2016 Convertible Bonds.
We do not have securities not representing our share capital.
Issuance
of Shares, Preemptive Rights, Preference Shares and Capital
Reduction (Articles 4 and 5)
Unless excluded or limited by the shareholders meeting or
our Supervisory Board according to the conditions described
below, each holder of common shares has a pro rata preemptive
right to subscribe to an offering of common shares issued for
cash in proportion to the number of common shares which he owns.
There is no preemptive right with respect to an offering of
shares for non-cash consideration, with respect to an offering
of shares to our employees or to the employees of one of our
subsidiaries, or with respect to preference shares.
Our shareholders meeting, upon proposal and on the terms
and conditions set by our Supervisory Board, has the power to
issue shares. The shareholders meeting may also authorize
our Supervisory Board, for a period of no more than five years,
to issue shares and to determine the terms and conditions of
share issuances. Our shares cannot be issued at below par and as
for our common shares must be fully paid up at the time of their
issuance. Our preference shares must be paid up for at least 25%
of their par value.
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Our shareholders meeting, upon proposal by our Supervisory
Board, also has the power to limit or exclude preemptive rights
in connection with new issuances of shares. Such a resolution of
the shareholders meeting must be taken with a majority of
at least two-thirds of the votes cast if at such
shareholders meeting less than 50% of the issued and
outstanding share capital is present or represented. Otherwise
such a resolution can be taken by a simple majority of the votes
cast at a shareholders meeting at which at least 15% of
our issued and outstanding share capital is present or
represented. Our shareholders meeting may authorize our
Supervisory Board, for a period of no more than five years, to
limit or exclude preemptive rights.
Pursuant to a shareholders resolution adopted at our
annual shareholders meeting held on April 26, 2007,
our Supervisory Board has been authorized for a period of five
years to resolve to (i) issue any number of common shares
and/or
preference shares as comprised in our authorized share capital
from time to time; (ii) to fix the terms and conditions of
share issuance; (iii) to exclude or to limit preemptive
rights of existing shareholders; and (iv) to grant rights
to subscribe for common shares
and/or
preference shares, all for a period of five years from the date
of such annual shareholders meeting.
Our Supervisory Board has not yet acted on its authorization to
increase the registered capital to the limits of the authorized
registered capital.
Upon the proposal of our Supervisory Board, our
shareholders meeting may, in accordance with the legal
provisions, reduce our issued capital by canceling the shares
that we hold in treasury, by reducing the par value of the
shares or by canceling our preference shares.
See Item 7. Major Shareholders and Related Party
Transactions for details on changes in the distribution of
our share capital over the past three years.
We may issue preference shares in certain circumstances. See
Item 7. Major Shareholders and Related Party
Transactions Major Shareholders
Shareholders Agreements Preference
Shares.
The effect of the preference shares may be to deter potential
acquirers from effecting an unsolicited acquisition resulting in
a change of control or otherwise taking action as considered
hostile by our Managing Board and Supervisory Board. See
Item 3. Key Information Risk Factors
Risks Related to Our Operations Our
shareholder structure and our preference shares may deter a
change of control.
No preference shares have been issued to date and therefore none
are currently outstanding.
Liquidation
Rights (Articles 42 and 43)
In the event of our dissolution and liquidation, after payment
of all debts and liquidation expenses, the holders of preference
shares if issued, would receive the paid up portion of the par
value of their preference shares. Any assets then remaining
shall be distributed among the registered holders of common
shares in proportion to the par value of their shareholdings.
Acquisition of Shares in Our Own Share Capital
(Article 5)
We may acquire our own shares, subject to certain provisions of
Dutch law and of our Articles of Association, if and to the
extent that (i) the shareholders equity less the
payment required to make the acquisition does not fall below the
sum of the
paid-up and
called-up
portion of the share capital and any reserves required by Dutch
law and (ii) the aggregate nominal value of shares that we
or our subsidiaries acquire, hold or hold in pledge would not
exceed one-tenth of our issued share capital. Share acquisitions
may be effected by our Managing Board, subject to the approval
of our Supervisory Board, only if the shareholders meeting
has authorized our Managing Board to effect such repurchases,
which authorization may apply for a maximum period of
18 months. We may not vote shares we hold in treasury. Our
purchases of our own shares are subject to acquisition price
conditions as authorized by our shareholders meeting.
Pursuant to a shareholders resolution adopted at our
annual shareholders meeting held on May 14, 2008, our
Managing Board, subject to the approval of our Supervisory
Board, was authorized for a period up to November 13, 2009
(inclusive) to acquire ST shares subject to the limits set forth
above and the acquisition price conditions set forth in such
shareholders resolution.
Our Articles of Association provide that we shall be able to
acquire shares in our own share capital in order to transfer
these shares under employee stock option or stock purchase
plans, without an authorization of our shareholders
meeting.
Limitations
on Right to Hold or Vote Shares
There are currently no limitations imposed by Dutch law or by
our Articles of Association on the right of non-resident holders
to hold or vote the shares.
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Material
Contracts
ST-NXP
On April 10, 2008, we entered into an agreement with NXP
B.V. to combine our respective key wireless operations to form a
joint venture company, ST-NXP Wireless, which started operations
on August 2, 2008. The agreement governs the terms on which
we received an 80% stake in the joint venture and paid NXP
$1,518 million net of cash received, including a control
premium that was funded from outstanding cash. The consideration
also included a contribution in kind, measured at fair value,
corresponding to a 20% interest in the wireless business.
Coincidentally with the closing of our agreement with Ericsson
to combine ST-NXP with EMP, we purchased NXPs 20% stake in
ST-NXP in the first quarter of 2009 for $92 million.
ST-Ericsson
On August 19, 2008, we entered into a Framework Agreement
with Telefonaktiebolaget L.M. Ericsson to create ST-Ericsson,
which began operations on February 1, 2009. The agreement
governs the terms on which Ericsson contributed certain
businesses and $1.1 billion net to the joint venture, out
of which $0.7 billion was paid to us, and we contributed
ST-NXP Wireless, following our purchase of NXPs 20% stake.
Exchange
Controls
None.
Taxation
Dutch
Taxation
The following is a general summary and the tax consequences
as described here may not apply to a holder of common shares.
Any potential investor should consult his tax adviser for more
information about the tax consequences of acquiring, owning and
disposing of common shares in his particular circumstances.
This taxation summary solely addresses the principal Dutch tax
consequences of the acquisition, ownership and disposal of
common shares. It does not consider every aspect of taxation
that may be relevant to a particular holder of common shares
under special circumstances or who is subject to special
treatment under applicable law. Where in this summary English
terms and expressions are used to refer to Dutch concepts, the
meaning to be attributed to such terms and expressions shall be
the meaning to be attributed to the equivalent Dutch concepts
under Dutch tax law. This summary also assumes that we are
organized, and that our business will be conducted, in the
manner outlined in this
Form 20-F.
A change to such organizational structure or to the manner in
which we conduct our business may invalidate the contents of
this summary, which will not be updated to reflect any such
change.
This summary is based on the tax law of the Netherlands
(unpublished case law not included) as it stands at the date of
this
Form 20-F.
The law upon which this summary is based is subject to change,
perhaps with retroactive effect. Any such change may invalidate
the contents of this summary, which will not be updated to
reflect such change.
Where in this Dutch Taxation paragraph reference is made to
your common shares, that concept includes, without
limitation, that:
1. you own one or more common shares and in addition to the
title to such common shares, you have an economic interest in
such common shares;
2. you hold the entire economic interest in one or more
common shares;
3. you hold an interest in an entity, such as a partnership
or a mutual fund, that is transparent for Dutch tax purposes,
the assets of which comprise one or more common shares; or
4. you are deemed to hold an interest in common shares, as
referred to under 1. to 3., pursuant to the attribution rules of
article 2.14a, of the Dutch Income Tax Act 2001 (Wet
inkomstenbelasting 2001), with respect to property that has
been segregated, for instance in a trust or a foundation.
Taxes
on income and capital gains
The summary set out in this section Dutch Taxation
applies only to a holder of common shares who is a Non-resident
holder of common shares.
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For the purposes of this section, you are a Non-resident
holder of common shares if you satisfy the following tests:
(a) you are neither resident, nor deemed to be resident, in
the Netherlands for purposes of Dutch income tax or corporation
tax, as the case may be, and, if you are an individual, you have
not elected to be treated as a resident of the Netherlands for
Dutch income tax purposes;
(b) your common shares and any benefits derived or deemed
to be derived from such common shares have no connection with
your past, present or future employment or membership of a
Management Board (bestuurder) or a Supervisory Board
(commissaris);
(c) your common shares do not form part of a substantial
interest or a deemed substantial interest in us within the
meaning of Chapter 4 of the Dutch Income Tax Act 2001
(Wet inkomstenbelasting 2001), unless such interest forms
part of the assets of an enterprise; and
(d) if you are not an individual, no part of the benefits
derived from your common shares is exempt from Dutch corporation
tax under the participation exemption as laid down in the Dutch
Corporation Tax Act 1969 (Wet op de vennootschapsbelasting
1969).
Generally, if a person holds an interest in us, such interest
forms part of a substantial interest, or a deemed substantial
interest, in us if any one or more of the following
circumstances is present:
1. You either alone or, in the case of an
individual, together with your partner (partner), if
any own, or pursuant to article 2.14a, of the
Dutch Income Tax Act 2001 (Wet inkomstenbelasting 2001) are
deemed to own, directly or indirectly, either a number of shares
in us representing 5% or more of our total issued and
outstanding capital (or the issued and outstanding capital of
any class of our shares), or rights to acquire, directly or
indirectly, shares, whether or not already issued, representing
5% or more of our total issued and outstanding capital (or the
issued and outstanding capital of any class of our shares), or
profit participating certificates (winstbewijzen)
relating to 5% or more of our annual profit or to 5% or more of
our liquidation proceeds.
2. Your shares, profit participating certificates or rights
to acquire shares or profit participating certificates in us
have been acquired by you or are deemed to have been acquired by
you under a non-recognition provision.
3. Your partner or any of your relatives by blood or by
marriage in the direct line (including foster-children) or of
those of your partner has a substantial interest (as described
under 1. and 2. above) in us.
If you are entitled to the benefits from shares or profit
participating certificates (for instance if you are a holder of
a right of usufruct), you are deemed to be a holder of shares or
profit participating certificates, as the case may be, and your
entitlement to benefits is considered a share or profit
participating certificate, as the case may be.
If you are a holder of common shares and you satisfy test a.,
but do not satisfy any one or more of tests b., c., and d, your
Dutch income tax position or corporation tax position, as the
case may be, is not discussed in this
Form 20-F.
If you are a Non-resident holder of common shares you will not
be subject to any Dutch taxes on income or capital gains (other
than the dividend withholding tax described below) in respect of
any benefits derived or deemed to be derived by you from your
common shares, including any capital gain realized on the
disposal thereof, except if
1. (i) you derive profits from an enterprise, as an
entrepreneur (ondernemer) or pursuant to a co-entitlement
to the net value of such enterprise, other than as a
shareholder, if you are an individual, or other than as a holder
of securities, if you are not an individual and (ii) such
enterprise is either managed in the Netherlands or carried on,
in whole or in part, through a permanent establishment or a
permanent representative in the Netherlands, and (iii) your
common shares are attributable to such enterprise; or
2. you are an individual and you derive benefits from
common shares that are taxable as benefits from miscellaneous
activities in the Netherlands. You may, inter alia, derive, or
be deemed to derive, benefits from common shares that are
taxable as benefits from miscellaneous activities in the
following circumstances:
a. if your investment activities go beyond the activities
of an active portfolio investor, for instance in the case of use
of insider knowledge (voorkennis) or comparable forms of
special knowledge, on the understanding that such benefits will
be taxable in the Netherlands only if such activities are
performed or deemed to be performed in the Netherlands; or
b. if you hold common shares, whether directly or
indirectly, and any benefits to be derived from such common
shares are intended, in whole or in part, as remuneration for
activities performed or deemed
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to be performed in the Netherlands by you or by a person who is
a connected person to you as meant by article 3.92b,
paragraph 5, of the Dutch Income Tax Act 2001 (Wet
inkomstenbelasting 2001).
Attribution
rule
Benefits derived or deemed to be derived from certain
miscellaneous activities by a child or a foster child who is
under eighteen years of age are attributed to the parent who
exercises, or the parents who exercise, authority over the
child, irrespective of the country of residence of the child.
Dividend
withholding tax
We are generally required to withhold Dutch dividend withholding
tax at a rate of 15% from dividends distributed by us.
The concept dividends distributed by us as used in
this section Dutch Taxation includes, but is not
limited to, the following:
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distributions in cash or in kind, deemed and constructive
distributions and repayments of capital not recognized as
paid-in for Dutch dividend withholding tax purposes;
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liquidation proceeds and proceeds of repurchase or redemption of
shares in excess of the average capital recognized as paid-in
for Dutch dividend withholding tax purposes;
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the par value of shares issued by us to a holder of common
shares or an increase of the par value of shares, as the case
may be, to the extent that it does not appear that a
contribution, recognized for Dutch dividend withholding tax
purposes, has been made or will be made; and
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partial repayment of capital, recognized as paid-in for Dutch
dividend withholding tax purposes, if and to the extent that
there are net profits (zuivere winst), unless
(a) the general meeting of our shareholders has resolved in
advance to make such repayment and (b) the par value of the
shares concerned has been reduced by an equal amount by way of
an amendment to our articles of association.
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If a Non-resident holder of common shares is resident in the
Netherlands Antilles or Aruba or in a country that has concluded
a double taxation treaty with the Netherlands, such holder may
be eligible for a full or partial relief from the dividend
withholding tax, provided such relief is timely and duly
claimed. Pursuant to domestic rules to avoid dividend stripping,
dividend withholding tax relief will only be available to the
beneficial owner (uiteindelijk gerechtigde) of dividends
distributed by us. The Dutch tax authorities have taken the
position that this beneficial-ownership test can also be applied
to deny relief from dividend withholding tax under double tax
treaties and the Tax Arrangement for the Kingdom
(Belastingregeling voor het Koninkrijk). A holder of
common shares who receives proceeds therefrom shall not be
recognized as the beneficial owner of such proceeds if, in
connection with the receipt of the proceeds, it has given a
consideration, in the framework of a composite transaction
including, without limitation, the mere acquisition of one or
more dividend coupons or the creation of short-term rights of
enjoyment of shares (kortlopende genotsrechten op
aandelen), whereas it may be presumed that (i) such
proceeds in whole or in part, directly or indirectly, inure to a
person who would not have been entitled to an exemption from,
reduction or refund of, or credit for, dividend withholding tax,
or who would have been entitled to a smaller reduction or refund
of, or credit for, dividend withholding tax than the actual
recipient of the proceeds; and (ii) such person acquires or
retains, directly or indirectly, an interest in common shares or
similar instruments, comparable to its interest in common shares
prior to the time the composite transaction was first initiated.
In addition, a Non-resident holder of common shares that is not
an individual is entitled to an exemption from dividend
withholding tax, provided that the following tests are satisfied:
1. it is, according to the tax law of a Member State of the
European Union or a state designated by ministerial decree, that
is a party to the Agreement regarding the European Economic
Area, resident there and it is not transparent according to the
tax law of such state;
2. any one or more of the following threshold conditions
are satisfied:
a. at the time the dividend is distributed by us, it holds
shares representing at least 5% of our nominal paid up
capital; or
b. it has held shares representing at least 5% of our
nominal paid up capital for a continuous period of more than one
year at any time during the four years preceding the time the
dividend is distributed by us, provided that such period ended
after December 31, 2006; or
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c. it is connected with us within the meaning of
article 10a, paragraph 4, of the Dutch Corporation Tax
Act 1969 (Wet op de vennootschapsbelasting 1969); or
d. an entity connected with it within the meaning of
article 10a, paragraph 4, of the Dutch Corporation Tax
Act 1969 (Wet op de vennootschapsbelasting 1969) holds at
the time the dividend is distributed by us, shares representing
at least 5% of our nominal paid up capital;
3. it is not considered to be resident outside the Member
States of the European Union or the states designated by
ministerial decree, that are a party to the Agreement regarding
the European Economic Area under the terms of a double taxation
treaty concluded with a third State; and
4. the holder of common shares does not perform a similar
function as an investment institution
(beleggingsinstelling) as meant by article 6a or
article 28 of the Dutch Corporation Tax Act 1969 (Wet op
de vennootschapsbelasting 1969).
The exemption from dividend withholding tax is not available if
pursuant to a provision for the prevention of fraud or abuse
included in a double taxation treaty between the Netherlands and
the country of residence of the Non-resident holder of common
shares, such holder would not be entitled to the reduction of
tax on dividends provided for by such treaty. Furthermore, the
exemption from dividend withholding tax will only be available
to the beneficial owner of dividends distributed by us. If a
Non-resident holder of common shares is resident in a Member
State of the European Union with which the Netherlands has
concluded a double taxation treaty that provides for a reduction
of tax on dividends based on the ownership of the number of
voting rights, the test under 2.a. above is also satisfied if
such holder owns 5% of the voting rights in us.
The convention of December 18, 1992, between the Kingdom of
the Netherlands and the United States of America for the
Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with respect to Taxes on Income (the U.S./NL
Income Tax Treaty) provides for an exemption for dividends
received by exempt pension trusts and exempt organizations, as
defined therein. In such case, a refund may be obtained of the
difference between the amount withheld and the amount that the
Netherlands was entitled to levy in accordance with the U.S./NL
Income Tax Treaty by filing the appropriate forms with the Dutch
tax authorities within the term set therein.
If we receive a profit distribution from a qualifying foreign
entity, or a repatriation of qualifying foreign branch profit,
that is exempt from Dutch corporate income tax and that has been
subject to a foreign withholding tax of at least 5%, we may be
entitled to a reduction of the amount of Dutch dividend
withholding tax that must be paid to the Dutch tax authorities
in respect of dividends distributed by us. Such reduction is the
lesser of:
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3% of the dividends paid by us in respect of which Dutch
dividend withholding tax is withheld; and
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3% of the qualifying profit distributions grossed up by the
foreign tax withheld on such distributions received from foreign
subsidiaries and branches prior to the distribution of the
dividend by us during the current calendar year and the two
preceding calendar years (to the extent such distributions have
not been taken into account previously when applying this test).
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Non-resident holders of common shares are urged to consult their
tax advisers regarding the general creditability or
deductibility of Dutch dividend withholding tax and, in
particular, the impact on such investors of our potential
ability to receive a reduction as described in the previous
paragraph.
See the section Taxes on income and capital gains
for a description of the term Non-resident holder of common
shares.
Gift
and inheritance taxes
If a holder of common shares disposes of common shares by way of
gift, in form or in substance, or if a holder of common shares
who is an individual dies, no Dutch gift tax or Dutch
inheritance tax, as applicable, will be due, unless:
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the donor is, or the deceased was, resident or deemed to be
resident in the Netherlands for purposes of Dutch gift tax or
Dutch inheritance tax, as applicable; or
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the donor made a gift of common shares, then became a resident
or deemed resident of the Netherlands, and died as a resident or
deemed resident of the Netherlands within 180 days of the
date of the gift.
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Other
taxes and duties
No Dutch registration tax, transfer tax, stamp duty or any other
similar documentary tax or duty, other than court fees, is
payable in the Netherlands by the holder of common shares in
respect of or in connection with (i) the
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subscription, issue, placement, allotment, delivery of common
shares, (ii) the delivery
and/or
enforcement by way of legal proceedings (including the
enforcement of any foreign judgment in the courts of the
Netherlands) of the documents relating to the issue of common
shares or the performance by us of our obligations under such
documents, or (iii) the transfer of common shares.
United
States Federal Income Taxation
The following discussion is a general summary of the material
U.S. federal income tax consequences to a U.S. holder
(as defined below) of the ownership and disposition of our
common shares. You are a U.S. holder only if you are a
beneficial owner of common shares:
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that is, for U.S. federal income tax purposes, (a) a
citizen or individual resident of the United States, (b) a
U.S. domestic corporation or a domestic entity taxable as a
corporation, (c) an estate the income of which is subject
to U.S. federal income taxation regardless of its source,
or (d) a trust if a court within the United States can
exercise primary supervision over the administration of the
trust and one or more U.S. persons are authorized to
control all substantial decisions of the trust;
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that owns, directly, indirectly or by attribution, less than 10%
of our voting power or outstanding share capital;
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that holds the common shares as capital assets;
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whose functional currency for U.S. federal income tax
purposes is the U.S. dollar;
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that is a resident of the United States and not also a resident
of the Netherlands for purposes of the U.S./NL Income Tax Treaty;
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that is entitled, under the limitation on benefits
provisions contained in the U.S./NL Income Tax Treaty, to the
benefits of the U.S./NL Income Tax Treaty; and
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that does not have a permanent establishment or fixed base in
the Netherlands.
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This summary does not discuss all of the tax consequences that
may be relevant to you in light of your particular
circumstances. Also, it does not address holders that may be
subject to special rules including, but not limited to,
U.S. expatriates, tax-exempt organizations, persons subject
to the alternative minimum tax, banks, securities
broker-dealers, financial institutions, regulated investment
companies, insurance companies, traders in securities who elect
to apply a
mark-to-market
method of accounting, persons holding our common shares as part
of a straddle, hedging or conversion transaction, or persons who
acquired common shares pursuant to the exercise of employee
stock options or otherwise as compensation. Because this is a
general summary, you are advised to consult your own tax advisor
with respect to the U.S. federal, state, local and
applicable foreign tax consequences of the ownership and
disposition of our common shares. In addition, you are advised
to consult your own tax advisor concerning whether you are
entitled to benefits under the U.S./NL Income Tax Treaty.
If a partnership (including for this purpose any entity treated
as a partnership for U.S. federal income tax purposes)
holds common shares, the tax treatment of a partner generally
will depend upon the status of the partner and the activities of
the partnership. If you are a partner in a partnership that
holds common shares, you are urged to consult your own tax
advisor regarding the specific tax consequences of the ownership
and the disposition of common shares.
This summary is based on the Internal Revenue Code of 1986, as
amended (the Code), the U.S./NL Income Tax Treaty,
judicial decisions, administrative pronouncements and existing,
temporary and proposed Treasury regulations as of the date of
this
Form 20-F,
all of which are subject to change or changes in interpretation,
possibly with retroactive effect.
Dividends
In general, you must include the gross amount of distributions
paid (including the amount of any Dutch taxes withheld from
those distributions) to you by us with respect to the common
shares in your gross income as foreign-source taxable dividend
income. A dividends-received deduction will not be allowed with
respect to dividends paid by us. The amount of any distribution
paid in foreign currency (including the amount of any Dutch
withholding tax thereon) will be equal to the U.S. dollar
value of the foreign currency on the date of actual or
constructive receipt by you regardless of whether the payment is
in fact converted into U.S. dollars at that time. Gain or
loss, if any, realized on a subsequent sale or other disposition
of such foreign currency will be
U.S.-source
ordinary income or loss. Special rules govern and specific
elections are available to accrual method taxpayers to determine
the U.S. dollar
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amount includible in income in the case of taxes withheld in a
foreign currency. Accrual basis taxpayers are urged to consult
their own tax advisors regarding the requirements and elections
applicable in this regard.
Subject to applicable limitations, Dutch taxes withheld from a
distribution paid to you at a rate not exceeding the rate
provided in the U.S./NL Income Tax Treaty will be eligible for
credit against your U.S. federal income tax liability. As
described in Taxation Dutch
Taxation above, under limited circumstances we may be
permitted to deduct and retain from the withholding a portion of
the amount that otherwise would be required to be remitted to
the taxing authorities in the Netherlands. If we withhold an
amount from dividends paid to you that we then are not required
to remit to any taxing authority in the Netherlands, the amount
in all likelihood would not qualify as a creditable tax for
U.S. federal income tax purposes. We will endeavor to
provide you with information concerning the extent to which we
have applied the reduction described above to dividends paid to
you. The limitation on foreign taxes eligible for credit is
calculated separately with respect to specific classes of
income. For this purpose, dividends distributed by us with
respect to the common shares generally will constitute
passive category income or in the case of certain
U.S. holders, general category income. The use
of foreign tax credits is subject to complex rules and
limitations. In lieu of a credit, a U.S. holder who
itemizes deductions may elect to deduct all of such
holders foreign taxes in the taxable year. A deduction
does not reduce tax on a
dollar-for-dollar
basis like a credit, but the deduction for foreign taxes is not
subject to the same limitations applicable to foreign tax
credits. You should consult your own tax advisor to determine
whether and to what extent a credit would be available to you.
Certain non-corporate U.S. holders (including individuals)
are eligible for reduced rates of U.S. federal income tax
(currently at a maximum of 15%) in respect of qualified
dividend income received in taxable years beginning before
January 1, 2011. For this purpose, qualified dividend
income generally includes dividends paid by a
non-U.S. corporation
if, among other things, the U.S. holders meet certain
minimum holding period and other requirements and the
non-U.S. corporation
satisfies certain requirements, including either that
(i) the shares of the
non-U.S. corporation
are readily tradable on an established securities market in the
United States, or (ii) the
non-U.S. corporation
is eligible for the benefits of a comprehensive income tax
treaty with the United States (such as the U.S./NL Income Tax
Treaty) which provides for the exchange of information. We
currently believe that dividends paid by us with respect to our
common shares should constitute qualified dividend
income for U.S. federal income tax purposes; however,
this is a factual matter and subject to change. You are urged to
consult your own tax advisor regarding the availability to you
of a reduced dividend tax rate in light of your own particular
situation.
Sale,
Exchange or Other Disposition of Common Shares
Upon a sale, exchange or other disposition of common shares, you
generally will recognize capital gain or loss in an amount equal
to the difference between the amount realized and your tax basis
in the common shares, as determined in U.S. dollars. This
gain or loss generally will be
U.S.-source
gain or loss, and will be treated as long-term capital gain or
loss if you have held the common shares for more than one year.
If you are an individual, capital gains generally will be
subject to U.S. federal income tax at preferential rates if
specified minimum holding periods are met. The deductibility of
capital losses is subject to significant limitations.
Passive
Foreign Investment Company Status
We believe that we will not be classified as a passive foreign
investment company (a PFIC) for U.S. federal
income tax purposes for the year ended December 31, 2009
and do not expect to become a PFIC in the foreseeable future.
This conclusion is a factual determination that must be made
annually at the close of each taxable year and therefore we can
provide no assurance that we will not be a PFIC in our current
or any future taxable year. If we were to be characterized as a
PFIC for any taxable year, the tax on certain distributions on
our common shares and on any gains realized upon the disposition
of common shares may be materially less favorable than as
described herein. In addition, if we were a PFIC in a taxable
year in which we pay dividends or the prior taxable year, such
dividends would not be qualified dividend income (as
described above) and would be taxed at the higher rates
applicable to other items of ordinary income. You should consult
your own tax advisor regarding the application of the PFIC rules
to your ownership of our common shares.
U.S.
Information Reporting and Backup Withholding
Dividend payments with respect to common shares and proceeds
from the sale, exchange, retirement or other disposition of our
common shares may be subject to information reporting to the
U.S. Internal Revenue Service (the IRS) and
possible U.S. backup withholding at a current rate of 28%.
Backup withholding will not apply to you, however, if you
furnish a correct taxpayer identification number or certificate
of foreign status and make any other
129
required certification or if you are otherwise exempt from
backup withholding. U.S. persons required to establish
their exempt status generally must provide certification on IRS
Form W-9.
Non-U.S. holders
generally will not be subject to U.S. information reporting
or backup withholding. However, these holders may be required to
provide certification of
non-U.S. status
(generally on
Form W-8BEN)
in connection with payments received in the United States or
through certain
U.S.-related
financial intermediaries. Backup withholding is not an
additional tax. Amounts withheld as backup withholding may be
credited against your U.S. federal income tax liability,
and you may obtain a refund of any excess amounts withheld under
the backup withholding rules by timely filing the appropriate
claim for refund with the IRS and furnishing any required
information.
Documents
on Display
Any statement in this
Form 20-F
about any of our contracts or other documents is not necessarily
complete. If the contract or document is filed as an exhibit to
this
Form 20-F
the contract or document is deemed to modify the description
contained in this
Form 20-F.
You must review the exhibits themselves for a complete
description of the contract or document.
Our Articles of Association, the minutes of our annual
shareholders meetings, reports of the auditors and other
corporate documentation may be consulted by the shareholders and
any other individual authorized to attend the meetings at our
head office at Schiphol Airport Amsterdam, the Netherlands, at
the registered offices of the Managing Board in Geneva,
Switzerland and at Crédit Agricole-Indosuez, 9, Quai du
Président Paul-Doumer, 92400 Courbevoie, France.
You may review a copy of our filings with the
U.S. Securities and Exchange Commission (the
SEC), including exhibits and schedules filed with
it, at the SECs public reference facilities in
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information. In addition, the SEC maintains an
Internet site at
http://www.sec.gov
that contains reports and other information regarding issuers
that file electronically with the SEC. These SEC filings are
also available to the public from commercial document retrieval
services.
WE ARE REQUIRED TO FILE REPORTS AND OTHER INFORMATION WITH THE
SEC UNDER THE SECURITIES EXCHANGE ACT OF 1934. REPORTS AND OTHER
INFORMATION FILED BY U.S. WITH THE SEC MAY BE INSPECTED AND
COPIED AT THE SECS PUBLIC REFERENCE FACILITIES DESCRIBED
ABOVE OR THROUGH THE INTERNET AT HTTP://WWW.SEC.GOV. AS A
FOREIGN PRIVATE ISSUER, WE ARE EXEMPT FROM THE RULES UNDER
THE EXCHANGE ACT PRESCRIBING THE FURNISHING AND CONTENT OF PROXY
STATEMENTS AND OUR OFFICERS, DIRECTORS AND PRINCIPAL
SHAREHOLDERS ARE EXEMPT FROM THE REPORTING AND SHORT- SWING
PROFIT RECOVERY PROVISIONS CONTAINED IN SECTION 16 OF THE
EXCHANGE ACT. UNDER THE EXCHANGE ACT, AS A FOREIGN PRIVATE
ISSUER, WE ARE NOT REQUIRED TO PUBLISH FINANCIAL STATEMENTS AS
FREQUENTLY OR AS PROMPTLY AS UNITED STATES COMPANIES.
In addition, material filed by us with the SEC can be inspected
at the offices of the New York Stock Exchange at 20 Broad
Street, New York, NY 10005 and at the offices of The Bank of New
York, as New York Share Registrar, at One Wall Street, New York,
NY 10286 (telephone: 1-888-269-2377).
|
|
Item 11.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We are exposed to changes in financial market conditions in the
normal course of business due to our operations in different
foreign currencies and our ongoing investing and financing
activities. Market risk is the uncertainty to which future
earnings or asset/liability values are exposed due to operating
cash flows denominated in foreign currencies and various
financial instruments used in the normal course of operations.
The major financial risks to which we are exposed are related to
the fluctuations of the U.S. dollar exchange rate compared
to the Euro and the other major currencies, the coverage of our
foreign currency exposures, the variation of the interest rates
and the risks associated to the investments of our available
cash. We have established policies, procedures and internal
processes governing our management of market risks and the use
of financial instruments to manage our exposure to such risks.
Our interest income, net, as reported on our consolidated
statements of income, is the balance between interest income
received from our cash and cash equivalent and marketable
securities investments and interest expense paid on our
long-term debt. Our interest income is dependent on the
fluctuations in the interest rates, mainly in the
U.S. dollar and the Euro, since we are investing on a
short-term basis; any increase or decrease in the short-term
market interest rates would mean an equivalent increase or
decrease in our interest income. See Item 5.
Operating and Financial Review and Prospects Impact
of Changes in Interest Rates.
130
We place our cash and cash equivalents, or a part of it, with
high credit quality financial institutions with at least single
A long-term rating from two of the major rating
agencies, meaning at least A3 from Moodys Investor Service
and A- from Standard & Poors or Fitch Ratings,
invested as term deposits, treasury bills and FRN marketable
securities and, as such we are exposed to the fluctuations of
the market interest rates on our placement and our cash, which
can have an impact on our accounts. We manage the credit risks
associated with financial instruments through credit approvals,
investment limits and centralized monitoring procedures but do
not normally require collateral or other security from the
parties to the financial instruments. The treasury bills have a
value of $484 million and the FRN have a value of
$548 million. They are classified as
available-for-sale
and are reported at fair value, with changes in fair value
recognized as a separate component of Accumulated other
comprehensive income in the consolidated statement of
changes in shareholders equity except if deemed to be
other-than temporary. For that reason, as at December 31,
2009, after recent economic events and given our exposure to
Lehman Brothers senior unsecured bonds for a purchase
price of nearly 15 million, we had an
other-than-temporary
charge of $11 million, recorded in 2008, which represents
50% of the face value of these Floating Rate Notes, according to
recovery rate calculated from a major credit rating company. The
change in fair value of these instruments (excluding Lehman
Brothers FRN) amounted to approximately $9 million before
tax for the year ended December 31, 2009. The estimated
value of these securities could further decrease in the future
as a result of credit market deterioration
and/or other
downgrading.
As of December 31, 2009, we had ARS, purchased by Credit
Suisse contrary to our instruction, representing interests in
collateralized obligations and credit linked notes, with a par
value of $261 million that were carried on our balance
sheet as
available-for-sale
financial assets at an amount of $42 million, including a
favorable revaluation of $15 million through Other
comprehensive income in our Total Equity. See Item 5.
Operating and Financial Review and Prospects
Liquidity and Capital Resources. In December 2009, Credit
Suisse, because of its contingent interest in certain securities
held by us and issued by Deutsche Bank, requested that we either
tender the securities or accept that the amount that would be
received by us pursuant to such tender ($75 million) be
deducted from the sum to be collected by us if and when the
FINRA award is confirmed and enforced. See Item 8.
Financial Information Legal Proceedings.
Pursuant to legal advice, and while reserving our legal rights,
we participated in the tender offer. As a result, we sold ARS
with a face value of $154 million, collected
$75 million and registered $68 million as realized
losses on Financial Assets. Through such action, we have
endeavored to protect our rights to immediately recover the full
amounts awarded to us pursuant to the FINRA award, upon
confirmation and enforcement of such award by the United States
District Court for the Southern District of New York.
We do not anticipate any material adverse effect on our
financial position, result of operations or cash flows resulting
from the use of our instruments in the future. There can be no
assurance that these strategies will be effective or that
transaction losses can be minimized or forecasted accurately.
The information below summarizes our market risks associated
with cash equivalents, marketable securities, debt obligations,
and other significant financial instruments as of
December 31, 2009. The information below should be read in
conjunction with Note 25 to our Consolidated Financial
Statements.
The table below presents principal amounts and related
weighted-average interest rates by year of maturity for our
investment portfolio and debt obligations (in millions of
U.S. dollars, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
2009
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,588
|
|
Average interest rate
|
|
|
0.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current marketable securities
|
|
$
|
1,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,032
|
|
Average interest rate
|
|
|
0.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current marketable securities
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
42
|
|
Average interest rate
|
|
|
3.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Cash
|
|
$
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250
|
|
Average interest rate
|
|
|
6.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
$
|
2,492
|
|
|
|
176
|
|
|
|
1,063
|
|
|
|
119
|
|
|
|
836
|
|
|
|
114
|
|
|
|
184
|
|
|
$
|
2,459
|
|
Average interest rate
|
|
|
1.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131
|
|
|
|
|
|
|
Amounts in
|
|
|
|
Millions of
|
|
|
|
U.S. Dollars
|
|
|
Long-term debt by currency as of December 31, 2009:
|
|
|
|
|
U.S. dollar
|
|
|
1,666
|
|
Euro
|
|
|
826
|
|
Total in U.S. dollars
|
|
|
2,492
|
|
|
|
|
|
|
|
|
Amounts in
|
|
|
|
Millions of
|
|
|
|
U.S. Dollars
|
|
|
Long-term debt by currency as of December 31, 2008:
|
|
|
|
|
U.S. dollar
|
|
|
1,840
|
|
Euro
|
|
|
837
|
|
|
|
|
|
|
Total in U.S. dollars
|
|
$
|
2,677
|
|
|
|
|
|
|
The following table provides information about our FX forward
contracts and FX currency options at December 31, 2009 (in
millions of U.S. dollars):
FORWARD
CONTRACTS AND CURRENCY OPTIONS AT DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
|
Average Rate
|
|
|
Fair Value
|
|
|
Buy
|
|
EUR
|
|
Sell
|
|
USD
|
|
|
1,669
|
|
|
|
1.4
|
|
|
|
4
|
|
Buy
|
|
USD
|
|
Sell
|
|
CAD
|
|
|
8
|
|
|
|
1.1
|
|
|
|
0
|
|
Buy
|
|
JPY
|
|
Sell
|
|
EUR
|
|
|
19
|
|
|
|
131.7
|
|
|
|
0
|
|
Buy
|
|
INR
|
|
Sell
|
|
USD
|
|
|
28
|
|
|
|
46.9
|
|
|
|
0
|
|
Buy
|
|
USD
|
|
Sell
|
|
JPY
|
|
|
31
|
|
|
|
90.5
|
|
|
|
0
|
|
Buy
|
|
JPY
|
|
Sell
|
|
USD
|
|
|
3
|
|
|
|
92.1
|
|
|
|
0
|
|
Buy
|
|
SGD
|
|
Sell
|
|
USD
|
|
|
96
|
|
|
|
1.4
|
|
|
|
0
|
|
Buy
|
|
MYR
|
|
Sell
|
|
USD
|
|
|
11
|
|
|
|
3.4
|
|
|
|
0
|
|
Buy
|
|
GBP
|
|
Sell
|
|
USD
|
|
|
39
|
|
|
|
1.6
|
|
|
|
0
|
|
Buy
|
|
USD
|
|
Sell
|
|
GBP
|
|
|
14
|
|
|
|
1.6
|
|
|
|
0
|
|
Buy
|
|
SEK
|
|
Sell
|
|
USD
|
|
|
84
|
|
|
|
7.3
|
|
|
|
2
|
|
Buy
|
|
USD
|
|
Sell
|
|
SEK
|
|
|
4
|
|
|
|
7.2
|
|
|
|
0
|
|
Buy
|
|
CZK
|
|
Sell
|
|
USD
|
|
|
1
|
|
|
|
18.3
|
|
|
|
0
|
|
Buy
|
|
CHF
|
|
Sell
|
|
USD
|
|
|
34
|
|
|
|
1.0
|
|
|
|
0
|
|
Buy
|
|
USD
|
|
Sell
|
|
CHF
|
|
|
12
|
|
|
|
1.0
|
|
|
|
0
|
|
Buy
|
|
CNY
|
|
Sell
|
|
USD
|
|
|
8
|
|
|
|
6.8
|
|
|
|
0
|
|
Buy
|
|
TWD
|
|
Sell
|
|
USD
|
|
|
4
|
|
|
|
32.3
|
|
|
|
0
|
|
Buy
|
|
PHP
|
|
Sell
|
|
USD
|
|
|
1
|
|
|
|
46.2
|
|
|
|
0
|
|
Buy
|
|
NOK
|
|
Sell
|
|
USD
|
|
|
5
|
|
|
|
5.8
|
|
|
|
0
|
|
Buy
|
|
USD
|
|
Sell
|
|
NOK
|
|
|
1
|
|
|
|
5.8
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,072
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
The following table provides information about our FX forward
contracts and FX currency options at December 31, 2008 (in
millions of U.S. dollars):
FORWARD
CONTRACTS AND CURRENCY OPTIONS AT DECEMBER 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
|
Average Rate
|
|
|
Fair Value
|
|
|
Buy
|
|
EUR
|
|
Sell
|
|
USD
|
|
|
1,031
|
|
|
|
1.4
|
|
|
|
23
|
|
Buy
|
|
USD
|
|
Sell
|
|
EUR
|
|
|
2
|
|
|
|
1.4
|
|
|
|
0
|
|
Buy
|
|
USD
|
|
Sell
|
|
CAD
|
|
|
8
|
|
|
|
1.3
|
|
|
|
0
|
|
Buy
|
|
JPY
|
|
Sell
|
|
EUR
|
|
|
3
|
|
|
|
120.7
|
|
|
|
0
|
|
Buy
|
|
INR
|
|
Sell
|
|
USD
|
|
|
24
|
|
|
|
49.5
|
|
|
|
0
|
|
Buy
|
|
USD
|
|
Sell
|
|
JPY
|
|
|
37
|
|
|
|
90.5
|
|
|
|
0
|
|
Buy
|
|
SGD
|
|
Sell
|
|
USD
|
|
|
96
|
|
|
|
1.5
|
|
|
|
3
|
|
Buy
|
|
MYR
|
|
Sell
|
|
USD
|
|
|
12
|
|
|
|
3.5
|
|
|
|
0
|
|
Buy
|
|
GBP
|
|
Sell
|
|
USD
|
|
|
23
|
|
|
|
1.5
|
|
|
|
1
|
|
Buy
|
|
SEK
|
|
Sell
|
|
USD
|
|
|
3
|
|
|
|
8.2
|
|
|
|
0
|
|
Buy
|
|
CZK
|
|
Sell
|
|
USD
|
|
|
1
|
|
|
|
18.8
|
|
|
|
0
|
|
Buy
|
|
CHF
|
|
Sell
|
|
USD
|
|
|
5
|
|
|
|
1.1
|
|
|
|
0
|
|
Buy
|
|
USD
|
|
Sell
|
|
CHF
|
|
|
6
|
|
|
|
1.0
|
|
|
|
0
|
|
Buy
|
|
CNY
|
|
Sell
|
|
USD
|
|
|
16
|
|
|
|
6.8
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,268
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 12.
|
Description
of Securities Other Than Equity Securities
|
We sell ordinary shares in the United States that are evidenced
by American registered certificates (New York
Shares). In connection therewith, a holder of our New York
Shares may have to pay, either directly or indirectly, certain
fees and charges, as described in Item 12D.3. In addition,
we receive fees and other direct and indirect payments from our
depositary, Bank of New York Mellon (BNY Mellon),
that are related to our New York Shares, as described in
Item 12D.4.
12.D.3
Fees and Charges that a holder of our New York Shares May
Have to Pay
BNY Mellon collects fees for the delivery and surrender of New
York Shares directly from investors depositing or surrendering
New York Shares for the purpose of withdrawal or from
intermediaries acting for them. BNY Mellon also collects fees
for making distributions to investors and may collect an annual
fee for New York Agent services. BNY Mellon has the right to
collect fees and charges by offsetting them against dividends
received and deposited securities.
Persons depositing or withdrawing our New York Shares must pay
to BNY Mellon:
|
|
|
|
|
$5.00 (or less) per 100 New York Shares (or portion of 100 New
York Shares) for the issuance of New York Shares, including
issuances resulting from a distribution of shares or rights or
other property, and cancellation of New York Shares for the
purpose of withdrawal, including if the New York Share agreement
terminates.
|
|
|
|
Taxes and other governmental charges BNY Mellon or the custodian
have to pay on any New York Shares or share underlying a New
York Share, such as stock transfer, stamp duty or withholding
taxes, as necessary.
|
|
|
|
Any charges incurred by the New York Agent or its agents for
servicing the deposited securities, as necessary.
|
12D.4
Fees and Other Payments Made by the New York Agent to
Us
From January 1, 2009 through February 24, 2010, a
total of $655,137 was paid by BNY Mellon on our behalf for our
New York Share program. Specifically, the following fees,
amongst others, were paid on our behalf: $170,753 for NYSE
annual listing fees; $398,251 for investor relations fees paid
to third party vendors; and $86,133 for standard
out-of-pocket
maintenance costs for the New York Shares (primarily consisting
of expenses related to our Annual General Meeting, such as those
for the production and distribution of proxy materials,
customization of voting cards and tabulation of shareholder
votes).
133
PART II
|
|
Item 13.
|
Defaults,
Dividend Arrearages and Delinquencies
|
None.
|
|
Item 14.
|
Material
Modifications to the Rights of Security Holders and Use of
Proceeds
|
None.
|
|
Item 15.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
We conducted an evaluation of the effectiveness of the design
and operation of our disclosure controls and
procedures (Disclosure Controls) as of the end of the
period covered by this
Form 20-F.
The controls evaluation was conducted under the supervision and
with the participation of management, including our CEO and CFO.
Disclosure Controls are controls and procedures designed to
reasonably assure that information required to be disclosed in
our reports filed under the Exchange Act, such as this
Form 20-F,
is recorded, processed, summarized and reported within the time
periods specified in the SECs 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 for purposes of providing the
management report which is set forth below.
The evaluation of our Disclosure Controls included a review of
the controls objectives and design, the companys
implementation of the controls and their effect on the
information generated for use in this
Form 20-F.
In the course of the controls evaluation, we reviewed identified
data errors, control problems or acts of fraud and sought to
confirm that appropriate corrective actions, including process
improvements, were being undertaken. This type of evaluation is
performed at least on a quarterly basis so that the conclusions
of management, including the CEO and CFO, concerning the
effectiveness of the Disclosure Controls can be reported in our
periodic reports 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, as of
January 2008, reports to our Chief Compliance Officer. 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.
We rely on ST-Ericssons CEO and CFO certification of
internal control at ST-Ericsson and their affiliates that are an
integral part of our Consolidated Financial Statements but act
as independent companies under the
50-50%
governance structure of their two parents.
Based upon the controls evaluation, our CEO and CFO have
concluded that, as of the end of the period covered by this
Form 20-F,
our Disclosure Controls were effective to provide reasonable
assurance that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified by the SEC, and that
material information related to STMicroelectronics and its
consolidated subsidiaries is made known to management, including
the CEO and CFO, particularly during the period when our
periodic reports are being prepared.
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for
external purposes in accordance with U.S. generally
accepted accounting principles.
Internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with U.S. generally
accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or
disposition of the companys assets that could have a
material effect on the financial statements.
134
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2009, the end
of our fiscal year. Management based its assessment on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Managements
assessment included evaluation of such elements as the design
and operating effectiveness of key financial reporting controls,
process documentation, accounting policies and our overall
control environment. Based on this assessment management
concluded that, as of December 31, 2009, our internal
control over financial reporting was effective.
Management excluded activities associated with ST-Ericsson AB
Sweden and ST-Ericsson AS Norway from our assessment of internal
control over financial reporting as of December 31, 2009
because they had been acquired by the Company in a purchase
business combination during 2009. ST-Ericsson AB Sweden and
ST-Ericsson AS Norway, whose main activities are research and
development, represent total assets of 0.44% and R&D costs
of 8.2% of the related consolidated financial statement amounts
as of and for the year ended December 31, 2009.
The effectiveness of the Companys internal control over
financial reporting as of December 31, 2009 has been
audited by PricewaterhouseCoopers SA, an independent registered
public accounting firm, as stated in their report which appears
in Item 18 of this
Form 20-F.
Attestation
Report of the Registered Public Accounting Firm
Please see the Report of Independent Registered Accounting
Firm included in our Consolidated Financial Statements.
Changes
in Internal Control over Financial Reporting
Other than for our wireless business, there were no changes in
our internal control over financial reporting that occurred
during the period covered by the
Form 20-F
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting. During 2009, our wireless business merged with EMP
into a new JV Company owned 50% plus + 1 share by us and
governed by a Board of Directors comprised of 8 members, half
designated by us and half by Ericsson. The design and operation
of ST-Ericssons internal control is under the
responsibility of ST-Ericssons CEO and CFO, on whose
certification we rely.
|
|
Item 16A.
|
Audit
Committee Financial Expert
|
Our Supervisory Board has concluded that Tom de Waard, a member
of our Audit Committee, qualified as an audit committee
financial expert as defined in Item 16A and is
independent as defined in the listing standards applicable to us
as a listed issuer as required by Item 16A(2) of
Form 20-F.
Policy on
Business Conduct and Ethics
Since 1987, we have had a corporate policy on Business Conduct
and Ethics (the Policy) for all of our employees,
including our chief executive officer and chief financial
officer. We have adapted this Policy to reflect recent
regulatory changes. The Policy is designed to promote honest and
ethical business conduct, to deter wrongdoing and to provide
principles to which our employees are expected to adhere and
which they are expected to advocate.
The Policy provides that if any officer to whom it applies acts
in contravention of its principles, we will take appropriate
steps in terms of the procedures in place for fair disciplinary
action. This action may, in cases of severe breaches, include
dismissal.
Our Policy on Business Conduct and Ethics is posted on our
internet website at
http://www.st.com.
There have been no amendments or waivers, express or implicit,
to our Policy since its inception.
|
|
Item 16C.
|
Principal
Accountant Fees and Services
|
PricewaterhouseCoopers has served as our independent registered
public accounting firm for each of the fiscal years since 1996.
The auditors are elected by the shareholders meeting once
every three years.
135
PricewaterhouseCoopers was reelected for a three-year term by
our May 2008 shareholders meeting to expire at our
shareholders meeting in 2011.
The following table presents the aggregate fees for professional
audit services and other services rendered by
PricewaterhouseCoopers to us in 2008 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
2009(1)
|
|
|
Total Fees
|
|
|
2008
|
|
|
Total Fees
|
|
|
Audit Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory audit, certification, audit of individual and
Consolidated Financial Statements
|
|
$
|
7,494,914
|
|
|
|
98
|
%
|
|
$
|
5,384,962
|
|
|
|
99
|
%
|
Audit-related fees
|
|
$
|
155,867
|
|
|
|
2
|
%
|
|
$
|
15,360
|
|
|
|
0.2
|
%
|
Non-audit Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax compliance fees
|
|
$
|
3,883
|
|
|
|
|
|
|
$
|
40,880
|
|
|
|
0.8
|
%
|
Other fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,654,614
|
|
|
|
100
|
%
|
|
$
|
5,441,202
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These figures include the fees paid for the audit of ST-Ericsson. |
Audit Fees consist of fees billed for the annual audit of our
companys Consolidated Financial Statements, the statutory
audit of the financial statements of the Companys
subsidiaries and consultations on complex accounting issues
relating to the annual audit. Audit Fees also include services
that only our independent auditor can reasonably provide, such
as comfort letters and carve-out audits in connection with
strategic transactions, certain regulatory-required attest and
certifications letters, consents and the review of documents
filed with U.S., French and Italian stock exchanges.
Audit-related services are assurance and related fees consisting
of the audit of employee benefit plans, due diligence services
related to acquisitions and certain
agreed-upon
procedures.
Tax Fees include fees billed for tax compliance services,
including the preparation of original and amended tax returns
and claims for refund; tax consultations, such as assistance in
connection with tax audits and expatriate tax compliance.
Audit
Committee Pre-approval Policies and Procedures
Our Audit Committee is responsible for selecting the independent
registered public accounting firm to be employed by us to audit
our financial statements, subject to ratification by the
Supervisory Board and approval by our shareholders for
appointment. Our Audit Committee also assumes responsibility (in
accordance with Dutch law) for the retention, compensation,
oversight and termination of any independent auditor employed by
us. We adopted a policy (the Policy), which was
approved in advance by our Audit Committee, for the pre-approval
of audit and permissible non-audit services provided by our
independent auditors (PricewaterhouseCoopers). The Policy
defines those audit-related services eligible to be approved by
the Audit Committee.
All engagements with the external auditors, regardless of
amount, must be authorized in advance by our Audit Committee,
pursuant to the Policy and its pre-approval authorization or
otherwise.
The independent auditors submit a proposal for audit-related
services to our Audit Committee on a quarterly basis in order to
obtain prior authorization for the amount and scope of the
services. The independent auditors must state in the proposal
that none of the proposed services affect their independence.
The proposal must be endorsed by the office of our CFO with an
explanation of why the service is needed and the reason for
sourcing it to the audit firm and validation of the amount of
fees requested.
We do not intend to retain our independent auditors for
permissible non-audit services other than by exception and
within a limited amount of fees, and the Policy provides that
such services must be explicitly authorized by the Audit
Committee.
The Corporate Audit Vice-President is responsible for monitoring
that the actual fees are complying with the pre-approval amount
and scope authorized by the Audit Committee. During 2009, all
services provided to us by PricewaterhouseCoopers were approved
by the Audit Committee pursuant to paragraph (c)(7)(i) of
Rule 2-01
of
Regulation S-X.
136
|
|
Item 16D.
|
Exemptions
from the Listing Standards for Audit Committees
|
Not applicable.
|
|
Item 16E.
|
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
of Securities that
|
|
|
|
Total Number of
|
|
|
|
|
|
Securities Purchased
|
|
|
May yet be
|
|
|
|
Securities
|
|
|
Average Price Paid
|
|
|
as Part of Publicly
|
|
|
Purchased Under
|
|
Period
|
|
Purchased
|
|
|
per Security
|
|
|
Announced Programs
|
|
|
the Programs
|
|
|
2009-01-01
to 2009-01-31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009-02-01
to 2009-02-28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009-03-01
to 2009-03-31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009-04-01
to 2009-04-30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009-05-01
to 2009-05-31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009-06-01
to 2009-06-30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009-07-01
to 2009-07-31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009-08-01
to 2009-08-31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009-09-01
to 2009-09-30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009-10-01
to 2009-10-31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009-11-01
to 2009-11-30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009-12-01
to 2009-12-31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 we held 31,985,739 of our common
shares in treasury pursuant to repurchases made in prior years,
and we currently hold 31,976,451 of such shares. We did not
repurchase our common shares in 2009 and we have not announced
any additional repurchase programs.
|
|
Item 16F.
|
Change
in Registrants Certifying Accountant
|
Not applicable.
|
|
Item 16G.
|
Corporate
Governance
|
Our consistent commitment to the principles of good corporate
governance is evidenced by:
|
|
|
|
|
Our corporate organization under Dutch law that entrusts our
management to a Managing Board acting under the supervision and
control of a Supervisory Board totally independent from the
Managing Board. Members of our Managing Board and of our
Supervisory Board are appointed and dismissed by our
shareholders.
|
|
|
|
Our early adoption of policies on important issues such as
business ethics and conflicts of
interest and strict policies to comply with applicable
regulatory requirements concerning financial reporting, insider
trading and public disclosures.
|
|
|
|
Our compliance with Dutch securities laws, because we are a
company incorporated under the laws of the Netherlands, as well
as our compliance with American, French and Italian securities
laws, because our shares are listed in these jurisdictions, in
addition to our compliance with the corporate, social and
financial laws applicable to our subsidiaries in the countries
in which we do business.
|
|
|
|
Our broad-based activities in the field of corporate social
responsibility, encompassing environmental, social, health,
safety, educational and other related issues.
|
|
|
|
Our implementation of a non-compliance reporting channel
(managed by a third party) for issues regarding accounting,
internal controls or auditing. A special ombudsperson has been
appointed by our Supervisory Board, following the proposal of
its Audit Committee, to collect all complaints, whatever their
source, regarding accounting, internal accounting controls or
auditing matters, as well as the confidential, anonymous
submission by our employees of concerns regarding questionable
accounting or auditing matters.
|
|
|
|
Our PSE, which require us to integrate and execute all of our
business activities, focusing on our employees, customers,
shareholders and global business partners;
|
|
|
|
Our Ethics Committee, whose mandate is to provide advice to
management and employees about our PSE and other ethical
issues; and
|
137
|
|
|
|
|
Our Chief Compliance Officer, who reports directly to the
Managing Board, acts as Executive Secretary to our Supervisory
Board and chairs our Ethics Committee.
|
As a Dutch company, we are subject to the Dutch Corporate
Governance Code as revised by the Dutch Corporate Governance
Monitoring Committee on December 10, 2008. As we are listed
on the NYSE, Euronext Paris, the Borsa Italiana in Milan, but
not in the Netherlands, our policies and practices cannot be in
every respect consistent with all Dutch Best
Practice recommendations. We have summarized our policies
and practices in the field of corporate governance in the ST
Corporate Governance Charter, including our corporate
organization, the remuneration principles which apply to our
Managing and Supervisory Boards, our information policy and our
corporate policies relating to business ethics and conflicts of
interests. We are committed to informing our shareholders of any
significant changes in our corporate governance policies and
practices at our annual shareholders meeting. Along with
our Supervisory Board Charter (which includes the charters of
our Supervisory Board Committees) and our Code of Business
Conduct and Ethics, the current version of our ST Corporate
Governance Charter is posted on our website, at
http:/www.st.com/stonline/company/governance/index.htm, and
these documents are available in print to any shareholder who
may request them. As recommended by the Dutch Corporate
Governance Monitoring Committee, we anticipate including a
chapter in our 2009 statutory annual report on the broad outline
of our corporate governance structure and our compliance with
the Dutch Corporate Governance Code and will present this
chapter to our 2010 annual shareholders meeting for
discussion as a separate agenda item.
Our Supervisory Board is carefully selected based upon the
combined experience and expertise of its members. Certain of our
Supervisory Board members, as disclosed in their biographies set
forth above, have existing relationships or past relationships
with Areva, CEA
and/or CDP,
who are currently parties to the STH Shareholders
Agreement as well as with ST Holding or ST Holding II, our major
shareholder. See Item 7. Major Shareholders and
Related Party Transactions Shareholders
Agreements STH Shareholders Agreement.
See also Item 3. Key Information Risk
Factors Risks Related to Our Operations
The interests of our controlling shareholders, which are in turn
controlled respectively by the French and Italian governments,
may conflict with investors interests. Such
relationships may give rise to potential conflicts of interest.
However, in fulfilling their duties under Dutch law, Supervisory
Board members serve the best interests of all of our
stakeholders and of our business and must act independently in
their supervision of our management. Our Supervisory Board has
adopted criteria to assess the independence of its members in
accordance with corporate governance listing standards of the
NYSE.
Our Supervisory Board has on various occasions discussed Dutch
corporate governance standards, the implementing rules and
corporate governance standards of the SEC and of the NYSE, as
well as other corporate governance standards.
The Supervisory Board has determined, based on the evaluations
by an ad hoc committee, the following independence criteria for
its members: Supervisory Board members must not have any
material relationship with STMicroelectronics N.V., or any of
our consolidated subsidiaries, or our management. A
material relationship can include commercial,
industrial, banking, consulting, legal, accounting, charitable
and familial relationships, among others, but does not include a
relationship with direct or indirect shareholders.
We believe we are fully compliant with all material NYSE
corporate governance standards, to the extent possible for a
Dutch company listed on Euronext Paris, Borsa Italiana, as well
as the NYSE. Because we are a Dutch company, the Audit Committee
is an advisory committee to the Supervisory Board, which reports
to the Supervisory Board, and our shareholders must approve the
selection of our statutory auditors. Our Audit Committee has
established a charter outlining its duties and responsibilities
with respect to the monitoring of our accounting, auditing,
financial reporting and the appointment, retention and oversight
of our external auditors. In addition, our Audit Committee has
established procedures for the receipt, retention and treatment
of complaints regarding accounting, internal accounting controls
or auditing matters, and the confidential anonymous submission
by our employees regarding questionable accounting or auditing
matters.
No member of the Supervisory Board or Managing Board has been
(i) subject to any convictions in relation to fraudulent
offenses during the five years preceding the date of this
Form 20-F,
(ii) no member has been associated with any company in
bankruptcy, receivership or liquidation in the capacity of
member of the administrative, management or supervisory body,
partner with unlimited liability, founder or senior manager in
the five years preceding the date of this
Form 20-F
or (iii) subject to any official public incrimination
and/or
sanction by statutory or regulatory authorities (including
professional bodies) or disqualified by a court from acting as a
member of the administrative, management or supervisory bodies
of any issuer or from acting in the management or conduct of the
affairs of any issuer during the five years preceding the date
of this
Form 20-F.
138
We have demonstrated a consistent commitment to the principles
of good corporate governance evidenced by our early adoption of
policies on important issues such as conflicts of
interest. Pursuant to our Supervisory Board Charter, the
Supervisory Board is responsible for handling and deciding on
potential reported conflicts of interests between the Company on
the one hand and members of the Supervisory Board and Managing
Board on the other hand.
For example, one of the members of our Supervisory Board is
managing director of Areva SA, which is a controlled subsidiary
of CEA, one of the members of our Supervisory Board is the
Chairman of France Telecom and a member of the Board of
Directors of Technicolor (formerly known as Thomson), another is
the non-executive Chairman of the Board of Directors of ARM, two
of our Supervisory Board members are non-executive directors of
Soitec, one of our Supervisory Board members is the CEO of
Groupe Bull, one of the members of the Supervisory Board is also
a member of the Supervisory Board of BESI and one of the members
of our Supervisory Board is a director of Oracle and Flextronics
International. France Telecom and its subsidiaries Equant and
Orange, as well as Oracles new subsidiary PeopleSoft
supply certain services to our Company. We have a long-term
joint R&D partnership agreement with LETI, a wholly-owned
subsidiary of CEA. We have certain licensing agreements with
ARM, and have conducted transactions with Soitec and BESI as
well as with Technicolor, Flextronics and a subsidiary of Groupe
Bull. We believe that each of these arrangements and
transactions are made on an arms-length basis in line with
market practices and conditions. Please see Item 7.
Major Shareholders and Related Party Transactions.
139
PART III
|
|
Item 17.
|
Financial
Statements
|
Not applicable.
|
|
Item 18.
|
Financial
Statements
|
|
|
|
|
|
|
|
Page
|
|
Financial Statements:
|
|
|
|
|
Report of Independent Registered Public Accounting Firm for
Years Ended December 31, 2009, 2008 and 2007
|
|
|
F-2
|
|
Consolidated Statements of Income for the Years Ended
December 31, 2009, 2008 and 2007
|
|
|
F-4
|
|
Consolidated Balance Sheets at December 31, 2009 and 2008
|
|
|
F-5
|
|
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2009, 2008 and 2007
|
|
|
F-6
|
|
Consolidated Statements of Changes in Equity for the Years Ended
December 31, 2009, 2008 and 2007
|
|
|
F-7
|
|
Notes to Consolidated Financial Statements
|
|
|
F-8
|
|
Numonyx Holdings B.V. Consolidated Financial Statements for the
Year Ended December 31, 2009 and the Nine Month Period
Ended December 31, 2008
|
|
|
F-79
|
|
Financial Statement Schedule:
|
|
|
|
|
For each of the three years in the period ended
December 31, Schedule II Valuation and Qualifying
Accounts
|
|
|
S-1
|
|
|
|
|
1.1
|
|
Amended and Related Articles of Associations of
STMicroelectronics N.V., dated May 20, 2009, as adopted by the
annual general meeting of Shareholders on May 20, 2009.
|
4.1
|
|
Sale and Contribution Agreement between STMicroelectronics N.V.
and NXP B.V. dated April 10, 2008 (incorporated by reference to
Form 20-F of STMicroelectronics N.V. filed on May 13, 2009).
|
4.2
|
|
Framework Agreement by and between STMicroelectronics N.V. and
Telefonaktiebolaget L.M. Ericsson dated August 19, 2008
(incorporated by reference to Form 20-F of STMicroelectronics
N.V. filed on May 13, 2009).
|
8.1
|
|
Subsidiaries and Equity Investments of the Company.
|
12.1
|
|
Certification of Carlo Bozotti, President and Chief Executive
Officer of STMicroelectronics N.V., pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
12.2
|
|
Certification of Carlo Ferro, Executive Vice President and Chief
Financial Officer of STMicroelectronics N.V., pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
13.1
|
|
Certification of Carlo Bozotti, President and Chief Executive
Officer of STMicroelectronics N.V., and Carlo Ferro, Executive
Vice President and Chief Financial Officer of STMicroelectronics
N.V., pursuant to 18 U.S.C. §1350, as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002.
|
15.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
15.2
|
|
Consent of Independent Registered Public Accounting Firm for
Numonyx Holdings B.V.
|
140
CERTAIN
TERMS
|
|
|
ADSL |
|
Asymmetrical digital subscriber line |
|
ASD |
|
application-specific discrete technology |
|
ASIC |
|
application-specific integrated circuit |
|
ASSP |
|
application-specific standard product |
|
BCD |
|
bipolar, CMOS and DMOS process technology |
|
BiCMOS |
|
bipolar and CMOS process technology |
|
CAD |
|
computer aided design |
|
CMOS |
|
complementary metal-on silicon oxide semiconductor |
|
CODEC |
|
audio coding and decoding functions |
|
CPE |
|
customer premises equipment |
|
DMOS |
|
diffused metal-on silicon oxide semiconductor |
|
DRAMs |
|
dynamic random access memory |
|
DSL |
|
digital subscriber line |
|
DSP |
|
digital signal processor |
|
EMAS |
|
Eco-Management and Audit Scheme, the voluntary European
Community scheme for companies performing industrial activities
for the evaluation and improvement of environmental performance |
|
EEPROM |
|
electrically erasable programmable read-only memory |
|
EPROM |
|
erasable programmable read-only memory |
|
EWS |
|
electrical wafer sorting |
|
G-bit |
|
gigabit |
|
GPRS |
|
global packet radio service |
|
GPS |
|
global positioning system |
|
GSM |
|
global system for mobile communications |
|
GSM/GPRS |
|
European standard for mobile phones |
|
HCMOS |
|
high-speed complementary metal-on silicon oxide semiconductor |
|
IC |
|
integrated circuit |
|
IGBT |
|
insulated gate bipolar transistors |
|
IPAD |
|
integrated passive and active devices |
|
ISO |
|
International Organization for Standardization |
|
K-bit |
|
kilobit |
|
LAN |
|
local area network |
|
M-bit |
|
megabit |
|
MEMS |
|
micro-electro-mechanical system |
|
MOS |
|
metal-on silicon oxide semiconductor process technology |
|
MOSFET |
|
metal-on silicon oxide semiconductor field effect transistor |
|
MPEG |
|
motion picture experts group |
|
ODM |
|
original design manufacturer |
|
OEM |
|
original equipment manufacturer |
141
|
|
|
OTP |
|
one-time programmable |
|
PDA |
|
personal digital assistant |
|
PFC |
|
power factor corrector |
|
PROM |
|
programmable read-only memory |
|
PSM |
|
programmable system memories |
|
RAM |
|
random access memory |
|
RF |
|
radio frequency |
|
RISC |
|
reduced instruction set computing |
|
ROM |
|
read-only memory |
|
SAM |
|
serviceable available market |
|
SCR |
|
silicon controlled rectifier |
|
SLIC |
|
subscriber line interface card |
|
SMPS |
|
switch-mode power supply |
|
SoC |
|
system-on-chip |
|
SRAM |
|
static random access memory |
|
SNVM |
|
serial nonvolatile memories |
|
TAM |
|
total available market |
|
USB |
|
universal serial bus |
|
VIPpowertm |
|
vertical integration power |
|
VLSI |
|
very large scale integration |
|
XDSL |
|
digital subscriber line |
142
SIGNATURES
The registrant hereby certifies that it meets all of the
requirements for filing on
Form 20-F
and that it has duly caused and authorized the undersigned to
sign this annual report on its behalf.
|
|
|
|
|
|
|
STMICROELECTRONICS N.V.
|
|
|
|
|
|
Date: March 10, 2010
|
|
By:
|
|
/s/ Carlo
Bozotti
|
|
|
|
|
|
|
|
|
|
Carlo Bozotti
President and Chief Executive Officer
|
143
CONSOLIDATED
FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-79
|
|
|
|
|
|
|
|
|
|
S-1
|
|
F-1
Report of
Independent Registered Public Accounting Firm
To the
Supervisory Board and Shareholders of STMicroelectronics N.V.:
In our opinion, the consolidated financial statements of
STMicroelectronics N.V. listed in the index appearing under
Item 18 of this 2009 Annual Report to Shareholders on
Form 20-F
present fairly, in all material respects, the financial position
of STMicroelectronics N.V. and its subsidiaries at
December 31, 2009 and December 31, 2008, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2009 in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
financial statement schedule of STMicroelectronics N.V. listed
in the index appearing under Item 18 presents fairly, in
all material respects, the information set forth therein when
read in conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Managements Report
on Internal Control over Financial Reporting, appearing
under Item 15 of this 2009 Annual Report to Shareholders on
Form 20-F.
Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the
Companys internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
F-2
As described in Managements Report on Internal
Control over Financial Reporting appearing under
Item 15, management has excluded ST-Ericsson AB Sweden and
ST-Ericsson AS Norway from its assessment of internal control
over financial reporting as of December 31, 2009 because
they were acquired by the Company in a purchase business
combination during 2009. Therefore, we have also excluded
ST-Ericsson
AB Sweden and
ST-Ericsson
AS Norway from our audit of internal control over financial
reporting. ST-Ericsson AB Sweden and ST-Ericsson AS Norway, are
consolidated subsidiaries whose total assets and total research
and development expenses represent 0.44% and 8.2%, respectively,
of the related consolidated financial statement amounts as of
and for the year ended December 31, 2009.
PricewaterhouseCoopers SA
|
|
|
/s/ Travis Randolph
|
|
/s/ Felix Roth
|
Travis Randolph
|
|
Felix Roth
|
Geneva, March 10, 2010
F-3
STMicroelectronics
N.V.
CONSOLIDATED
STATEMENTS OF INCOME
In
millions of U.S. dollars, except per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
|
8,465
|
|
|
|
9,792
|
|
|
|
9,966
|
|
Other revenues
|
|
|
45
|
|
|
|
50
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
8,510
|
|
|
|
9,842
|
|
|
|
10,001
|
|
Cost of sales
|
|
|
(5,884
|
)
|
|
|
(6,282
|
)
|
|
|
(6,465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,626
|
|
|
|
3,560
|
|
|
|
3,536
|
|
Selling, general and administrative
|
|
|
(1,159
|
)
|
|
|
(1,187
|
)
|
|
|
(1,099
|
)
|
Research and development
|
|
|
(2,365
|
)
|
|
|
(2,152
|
)
|
|
|
(1,802
|
)
|
Other income and expenses, net
|
|
|
166
|
|
|
|
62
|
|
|
|
48
|
|
Impairment, restructuring charges and other related closure costs
|
|
|
(291
|
)
|
|
|
(481
|
)
|
|
|
(1,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,023
|
)
|
|
|
(198
|
)
|
|
|
(545
|
)
|
Other-than-temporary impairment charge and realized losses on
financial assets
|
|
|
(140
|
)
|
|
|
(138
|
)
|
|
|
(46
|
)
|
Interest income, net
|
|
|
9
|
|
|
|
51
|
|
|
|
83
|
|
Earnings (loss) on equity investments
|
|
|
(337
|
)
|
|
|
(553
|
)
|
|
|
14
|
|
Gain (loss) on financial assets
|
|
|
(8
|
)
|
|
|
15
|
|
|
|
|
|
Gain on convertible debt buyback
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and noncontrolling interest
|
|
|
(1,496
|
)
|
|
|
(823
|
)
|
|
|
(494
|
)
|
Income tax benefit
|
|
|
95
|
|
|
|
43
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before noncontrolling interest
|
|
|
(1,401
|
)
|
|
|
(780
|
)
|
|
|
(471
|
)
|
Net loss (income) attributable to noncontrolling interest
|
|
|
270
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to parent company
|
|
|
(1,131
|
)
|
|
|
(786
|
)
|
|
|
(477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share (Basic) attributable to parent company
shareholders
|
|
|
(1.29
|
)
|
|
|
(0.88
|
)
|
|
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share (Diluted) attributable to parent company
shareholders
|
|
|
(1.29
|
)
|
|
|
(0.88
|
)
|
|
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these audited
consolidated financial statements
F-4
STMicroelectronics
N.V.
CONSOLIDATED BALANCE SHEETS
In million of U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
1,588
|
|
|
|
1,009
|
|
Marketable securities
|
|
|
1,032
|
|
|
|
651
|
|
Trade accounts receivable, net
|
|
|
1,367
|
|
|
|
1,064
|
|
Inventories, net
|
|
|
1,275
|
|
|
|
1,840
|
|
Deferred tax assets
|
|
|
298
|
|
|
|
252
|
|
Assets held for sale
|
|
|
31
|
|
|
|
|
|
Other receivables and assets
|
|
|
753
|
|
|
|
685
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
6,344
|
|
|
|
5,501
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,071
|
|
|
|
958
|
|
Other intangible assets, net
|
|
|
819
|
|
|
|
863
|
|
Property, plant and equipment, net
|
|
|
4,081
|
|
|
|
4,739
|
|
Long-term deferred tax assets
|
|
|
333
|
|
|
|
373
|
|
Equity investments
|
|
|
273
|
|
|
|
510
|
|
Restricted cash
|
|
|
250
|
|
|
|
250
|
|
Non-current marketable securities
|
|
|
42
|
|
|
|
242
|
|
Other investments and other non-current assets
|
|
|
442
|
|
|
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,311
|
|
|
|
8,412
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
13,655
|
|
|
|
13,913
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Bank overdrafts
|
|
|
|
|
|
|
20
|
|
Current portion of long-term debt
|
|
|
176
|
|
|
|
123
|
|
Trade accounts payable
|
|
|
883
|
|
|
|
847
|
|
Other payables and accrued liabilities
|
|
|
1,049
|
|
|
|
996
|
|
Dividends payable to shareholders
|
|
|
26
|
|
|
|
79
|
|
Deferred tax liabilities
|
|
|
20
|
|
|
|
28
|
|
Accrued income tax
|
|
|
126
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,280
|
|
|
|
2,218
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
2,316
|
|
|
|
2,554
|
|
Reserve for pension and termination indemnities
|
|
|
317
|
|
|
|
332
|
|
Long-term deferred tax liabilities
|
|
|
37
|
|
|
|
27
|
|
Other non-current liabilities
|
|
|
342
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,012
|
|
|
|
3,263
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,292
|
|
|
|
5,481
|
|
|
|
|
|
|
|
|
|
|
Commitment and contingencies
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Parent company shareholders equity
|
|
|
|
|
|
|
|
|
Common stock (preferred stock: 540,000,000 shares
authorized, not issued; common stock: Euro 1.04 nominal value,
1,200,000,000 shares authorized, 910,319,305 shares
issued, 878,333,566 shares outstanding)
|
|
|
1,156
|
|
|
|
1,156
|
|
Capital surplus
|
|
|
2,481
|
|
|
|
2,324
|
|
Accumulated result
|
|
|
2,723
|
|
|
|
4,064
|
|
Accumulated other comprehensive income
|
|
|
1,164
|
|
|
|
1,094
|
|
Treasury stock
|
|
|
(377
|
)
|
|
|
(482
|
)
|
|
|
|
|
|
|
|
|
|
Total parent company shareholders equity
|
|
|
7,147
|
|
|
|
8,156
|
|
Noncontrolling interest
|
|
|
1,216
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
8,363
|
|
|
|
8,432
|
|
Total liabilities and equity
|
|
|
13,655
|
|
|
|
13,913
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these audited
consolidated financial statements
F-5
STMicroelectronics
N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In million of U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,401
|
)
|
|
|
(780
|
)
|
|
|
(471
|
)
|
Items to reconcile net loss and cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,367
|
|
|
|
1,366
|
|
|
|
1,413
|
|
Amortization of discount on convertible debt
|
|
|
13
|
|
|
|
18
|
|
|
|
18
|
|
Other-than-temporary impairment charge and realized losses on
financial assets
|
|
|
140
|
|
|
|
138
|
|
|
|
46
|
|
Unrealized gain on financial assets
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
Loss on sale of financial assets
|
|
|
8
|
|
|
|
|
|
|
|
|
|
Gain on convertible debt buyback
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
Other non-cash items
|
|
|
(64
|
)
|
|
|
159
|
|
|
|
109
|
|
Deferred income tax
|
|
|
(24
|
)
|
|
|
(69
|
)
|
|
|
(148
|
)
|
(Earnings) loss on equity investments
|
|
|
337
|
|
|
|
553
|
|
|
|
(14
|
)
|
Impairment, restructuring charges and other related closure
costs, net of cash payments
|
|
|
(4
|
)
|
|
|
371
|
|
|
|
1,173
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables, net
|
|
|
(300
|
)
|
|
|
565
|
|
|
|
2
|
|
Inventories, net
|
|
|
553
|
|
|
|
(299
|
)
|
|
|
24
|
|
Trade payables
|
|
|
(54
|
)
|
|
|
(34
|
)
|
|
|
19
|
|
Other assets and liabilities, net
|
|
|
248
|
|
|
|
(251
|
)
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
816
|
|
|
|
1,722
|
|
|
|
2,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment for purchase of tangible assets
|
|
|
(451
|
)
|
|
|
(983
|
)
|
|
|
(1,140
|
)
|
Payment for purchase of marketable securities
|
|
|
(1,730
|
)
|
|
|
|
|
|
|
(708
|
)
|
Proceeds from sale of marketable securities
|
|
|
1,371
|
|
|
|
351
|
|
|
|
101
|
|
Proceeds from sale of non current marketable securities
|
|
|
75
|
|
|
|
|
|
|
|
|
|
Proceeds from matured short-term deposits
|
|
|
|
|
|
|
|
|
|
|
250
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
Disposal of financial instrument
|
|
|
26
|
|
|
|
|
|
|
|
|
|
Investment in intangible and financial assets
|
|
|
(138
|
)
|
|
|
(91
|
)
|
|
|
(208
|
)
|
Proceeds received in business combinations
|
|
|
1,155
|
|
|
|
|
|
|
|
|
|
Payment for business acquisitions, net of cash and cash
equivalents acquired
|
|
|
(18
|
)
|
|
|
(1,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from (used in) investing activities
|
|
|
290
|
|
|
|
(2,417
|
)
|
|
|
(1,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
1
|
|
|
|
663
|
|
|
|
102
|
|
Buyback of convertible debt
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
(134
|
)
|
|
|
(187
|
)
|
|
|
(125
|
)
|
Increase (decrease) in short-term facilities
|
|
|
(20
|
)
|
|
|
20
|
|
|
|
|
|
Capital increase
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(313
|
)
|
|
|
|
|
Dividends paid to shareholders
|
|
|
(158
|
)
|
|
|
(240
|
)
|
|
|
(269
|
)
|
Dividends paid to noncontrolling interests
|
|
|
(5
|
)
|
|
|
(10
|
)
|
|
|
(6
|
)
|
Purchase of equity from noncontrolling interests
|
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
Other financing activities
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(513
|
)
|
|
|
(67
|
)
|
|
|
(296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in exchange rates
|
|
|
(14
|
)
|
|
|
(84
|
)
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash increase (decrease)
|
|
|
579
|
|
|
|
(846
|
)
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of the period
|
|
|
1,009
|
|
|
|
1,855
|
|
|
|
1,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period
|
|
|
1,588
|
|
|
|
1,009
|
|
|
|
1,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
34
|
|
|
|
63
|
|
|
|
52
|
|
Income tax paid (refund)
|
|
|
(141
|
)
|
|
|
154
|
|
|
|
133
|
|
The accompanying notes are an integral part of these audited
consolidated financial statements
F-6
STMicroelectronics
N.V.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
In millions of U.S. dollars, except per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Capital
|
|
|
Treasury
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Stock
|
|
|
Surplus
|
|
|
Stock
|
|
|
Result
|
|
|
Income (Loss)
|
|
|
Interests
|
|
|
Equity
|
|
|
Balance as of December 31, 2006
|
|
|
1,156
|
|
|
|
2,021
|
|
|
|
(332
|
)
|
|
|
6,086
|
|
|
|
816
|
|
|
|
52
|
|
|
|
9,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of FIN 48 adoption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
Capital increase
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
74
|
|
|
|
58
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
74
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(477
|
)
|
|
|
|
|
|
|
6
|
|
|
|
(471
|
)
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
504
|
|
|
|
1
|
|
|
|
505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
Dividends, $0.30 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(269
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
(275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
1,156
|
|
|
|
2,097
|
|
|
|
(274
|
)
|
|
|
5,274
|
|
|
|
1,320
|
|
|
|
53
|
|
|
|
9,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(313
|
)
|
Issuance of shares by subsidiary
|
|
|
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
246
|
|
|
|
398
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
75
|
|
|
|
105
|
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
|
75
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(786
|
)
|
|
|
|
|
|
|
6
|
|
|
|
(780
|
)
|
Other comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(226
|
)
|
|
|
(19
|
)
|
|
|
(245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,025
|
)
|
Dividends, $0.36 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(319
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
1,156
|
|
|
|
2,324
|
|
|
|
(482
|
)
|
|
|
4,064
|
|
|
|
1,094
|
|
|
|
276
|
|
|
|
8,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of equity from noncontrolling interest
|
|
|
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(211
|
)
|
|
|
(92
|
)
|
Business combination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,411
|
|
|
|
1,411
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
38
|
|
|
|
105
|
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
|
38
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,131
|
)
|
|
|
|
|
|
|
(270
|
)
|
|
|
(1,401
|
)
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
15
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,316
|
)
|
Dividends, $0.12 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
1,156
|
|
|
|
2,481
|
|
|
|
(377
|
)
|
|
|
2,723
|
|
|
|
1,164
|
|
|
|
1,216
|
|
|
|
8,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these audited
consolidated financial statements
F-7
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
STMicroelectronics N.V. (the Company) is registered
in The Netherlands with its corporate legal seat in Amsterdam,
the Netherlands, and its corporate headquarters located in
Geneva, Switzerland.
The Company is a global independent semiconductor company that
designs, develops, manufactures and markets a broad range of
semiconductor integrated circuits (ICs) and discrete
devices. The Company offers a diversified product portfolio and
develops products for a wide range of market applications,
including automotive products, computer peripherals,
telecommunications systems, consumer products, industrial
automation and control systems. Within its diversified
portfolio, the Company is focused on developing products that
leverage its technological strengths in creating customized,
system-level solutions with high-growth digital and mixed-signal
content.
The accounting policies of the Company conform to generally
accepted accounting principles in the United States of
America (U.S. GAAP). All balances and values in
the current and prior periods are in millions of dollars, except
share and per-share amounts. Under Article 35 of the
Companys Articles of Association, the financial year
extends from January 1 to December 31, which is the
period-end of each fiscal year.
2.1
Principles of consolidation
The consolidated financial statements of the Company have been
prepared in conformity with U.S. GAAP. The Companys
consolidated financial statements include the assets,
liabilities, results of operations and cash flows of its
majority-owned subsidiaries. Subsidiaries are fully consolidated
from the date on which control is transferred to the Company.
They are de-consolidated from the date that control ceases.
Intercompany balances and transactions have been eliminated in
consolidation. In compliance with U.S. GAAP guidance, the
Company assesses for consolidation any entity identified as a
Variable Interest Entity (VIE) and consolidates any
VIEs, for which the Company is determined to be the primary
beneficiary, as described in Note 2.19.
When the Company owns some, but not all, of the voting stock of
an entity, the shares held by third parties represent a
noncontrolling interest. The consolidated financial statements
are prepared based on the total amount of assets and liabilities
and income and expenses of the consolidated subsidiaries.
However, the portion of these items that does not belong to the
Company is reported on the line Noncontrolling
interest in the consolidated financial statements.
2.2
Use of estimates
The preparation of financial statements in accordance with
U.S. GAAP requires management to make estimates and
assumptions. The primary areas that require significant
estimates and judgments by management include, but are not
limited to:
|
|
|
|
|
sales returns and allowances,
|
|
|
|
determination of best estimate of selling price for deliverables
in multiple element sale arrangements,
|
|
|
|
inventory reserves and normal manufacturing capacity thresholds
to determine costs capitalized in inventory,
|
|
|
|
accruals for litigation and claims,
|
|
|
|
valuation at fair value of acquired assets including intangibles
and assumed liabilities in a business combination, goodwill,
investments and tangible assets as well as the impairment of
their related carrying values,
|
|
|
|
the assessment in each reporting period of events, which could
trigger interim impairment testing,
|
|
|
|
estimated value of the consideration to be received and used as
fair value for asset groups classified as assets to be disposed
of by sale and the assessment of probability to realize the sale,
|
|
|
|
measurement of the fair value of debt and equity securities
classified as available-for-sale, including debt securities, for
which no observable market price is obtainable,
|
F-8
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
|
|
|
|
|
the assessment of credit losses and other-than-temporary
impairment charges on financial assets,
|
|
|
|
the valuation of noncontrolling interests, particularly in case
of contribution in kind as part of a business combination,
|
|
|
|
restructuring charges,
|
|
|
|
assumptions used in calculating pension obligations,
|
|
|
|
assumptions used to measure and recognize a liability for the
fair value of the obligation the Company assumes at the
inception of a guarantee,
|
|
|
|
deferred income tax assets including required valuation
allowances and liabilities as well as provisions for
specifically identified income tax exposures and income tax
uncertainties.
|
The Company bases the estimates and assumptions on historical
experience and on various other factors such as market trends
and latest available business plans that it believes to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities. While the Company regularly evaluates
its estimates and assumptions, the actual results experienced by
the Company could differ materially and adversely from
managements estimates. To the extent there are material
differences between the estimates and the actual results, future
results of operations, cash flows and financial position could
be significantly affected.
2.3
Foreign currency
The U.S. dollar is the reporting currency for the Company.
The US dollar is the currency of the primary economic
environment in which the Company operates since the worldwide
semiconductor industry uses the U.S. dollar as a currency
of reference for actual pricing in the market. Furthermore, the
majority of the Companys transactions are denominated in
U.S. dollars, and revenues from external sales in
U.S. dollars largely exceed revenues in any other currency.
However, labor costs are concentrated primarily in the countries
of the Euro zone.
The functional currency of each subsidiary of the Company is
either the local currency or the US dollar, depending on the
basis of the economic environment in which each subsidiary
operates. For consolidation purposes, assets and liabilities of
these subsidiaries having the local currency as functional
currency are translated at current rates of exchange at the
balance sheet date. Income and expense items are translated at
the monthly average exchange rate of the period. The currency
translation adjustments (CTA) generated by the
conversion of the financial position and results of operations
from local functional currencies are reported as a component of
Accumulated other comprehensive income (loss) in the
consolidated statements of changes in equity.
Assets, liabilities, revenues, expenses, gains or losses arising
from transactions denominated in foreign currency are recorded
in the functional currency of the recording entity at the
exchange rate in effect during the month of the transaction. At
each balance sheet date, recorded balances denominated in a
currency other than the recording entitys functional
currency are measured into the functional currency at the
exchange rate prevailing at the balance sheet date. The related
exchange gains and losses are recorded in the consolidated
statements of income as Other income and expenses,
net.
2.4
Financial assets
The Company classifies its financial assets in the following
categories: held-for-trading and available-for-sale. The Company
did not hold at December 31, 2009 any investment classified
as held-to-maturity financial assets. The classification depends
on the purpose for which the investments were acquired.
Management determines the classification of its financial assets
at initial recognition and reassesses the appropriateness of the
classification at each reporting date. On January 1, 2008
upon adoption of the new U.S. GAAP guidance allowing the
election of fair value treatment for any or all financial
assets, the Company did not elect to apply the fair value option
to any financial assets. Unlisted equity securities with no
readily determinable fair value are carried at cost, as
described in Note 2.19. They are neither classified as
held-for-trading nor as available-for-sale.
Regular purchases and sales of financial assets are recognized
on the trade date the date on which the Company
commits to purchase or sell the asset. Financial assets are
initially recognized at fair value, and transaction costs are
expensed in the consolidated statements of income.
Available-for-sale financial assets and held-for-trading
financial assets are subsequently carried at fair value.
Financial assets are derecognized when the
F-9
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
rights to receive cash flows from the investments have expired
or have been transferred and the Company has transferred
substantially all risks and rewards of ownership: the relevant
gain (loss) is reported as a non-operating element on the
consolidated statements of income.
The fair values of quoted debt and equity securities are based
on current market prices. If the market for a financial asset is
not active and if no observable market price is obtainable, the
Company measures fair value by using assumptions and estimates.
These assumptions and estimates include the use of recent
arms length transactions; for debt securities without
available observable market price, the Company establishes fair
value by reference to publicly available indices of securities
with the same rating and comparable underlying collaterals or
industries exposure, which the Company believes
approximates the orderly exit value in the current market. In
measuring fair value, the Company makes maximum use of market
inputs and relies as little as possible on entity-specific
inputs.
Held-for-trading
financial assets
A financial asset is classified in this category if it is a
security acquired principally for the purpose of selling in the
short term or if it is a derivative instrument not designated as
a hedge. Assets in this category are classified as current
assets when they are expected to be realized within twelve
months of the balance sheet date. As described in Note 2.5,
the Company enters into derivative transactions to hedge
currency exposures resulting from its operating activities. For
mark-to-market gains or losses on its trading derivatives that
do not qualify as hedging instruments, gains and losses arising
from changes in the fair value of the derivatives are reported
in the consolidated statements of income within Other
income and expenses, net in the period in which they
arise, since the transactions for such instruments would only
occur within the Companys operating activities and, as
such, should be included in operating income. Gains and losses
arising from changes in the fair value of financial assets not
related to the operating activities of the Company, such as
discontinued fair value hedge on interest rate risk exposure or
discontinued cash flow hedge for which the hedged forecasted
transaction is not probable of occurrence anymore, are presented
in the consolidated statements of income as a non-operating
element within Gain (loss) on financial assets in
the period in which they arise.
Available-for-sale
financial assets
Available-for-sale financial assets are non-derivative financial
assets that are either designated in this category or not
classified as held-for-trading. They are included in non-current
assets unless management intends to dispose of the investment
within twelve months of the balance sheet date.
Changes in the fair value, including declines determined to be
temporary, of securities classified as available-for-sale are
recognized as a separate component of Accumulated other
comprehensive income (loss) in the consolidated statements
of changes in equity. The Company ceases to defer gains or
losses in the consolidated equity and reports an income or
impairment charge in the consolidated statements of income as a
non-operating element when the Company will be required to sell
the security. The cumulative loss or gain is measured as the
difference between the acquisition cost and the current fair
value, less any impairment loss on that financial asset
previously recognized in profit or loss. If a credit loss
exists, but the Company does not intend to sell the impaired
security and is not more likely than not to be required to sell
before recovery, the impairment is other than temporary and is
separated into the estimated amount relating to credit loss, and
the amount relating to all other factors. Only the estimated
credit loss amount is recognized currently in earnings on the
line Other-than-temporary impairment charge and realized
losses on financial assets, with the remainder of the loss
amount recognized in accumulated other comprehensive income
(loss). Impairment losses recognized in the consolidated
statements of income are not reversed through earnings. The
Company assesses at each balance sheet date whether there is
objective evidence that a financial asset or group of financial
assets classified as available-for-sale is impaired.
When securities classified as available for sale are sold, the
accumulated fair value adjustments previously recognized in
equity are reported as a non-operating element on the
consolidated statements of income as gains or losses on
financial assets. The cost of securities sold and the amount
reclassified out of accumulated other comprehensive income into
earnings is determined based on the specific identification of
the securities sold.
2.5
Derivative financial instruments and hedging
activities
Derivative financial instruments are initially recognized at
fair value on the date a derivative contract is entered into and
are subsequently measured at their fair value. The method of
recognizing the gain or loss resulting from the
F-10
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
derivative instrument depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the
item being hedged. The Company designates certain derivatives as
either:
(a) hedges of the fair value of recognized liabilities
(fair value hedge); or
(b) hedges of a particular risk associated with a highly
probable forecasted transaction (cash flow hedge)
The Company documents, at inception of the transaction, the
relationship between hedging instruments and hedged items, as
well as its risk management objectives and strategy for
undertaking various hedging transactions. The Company also
documents its assessment, both at hedge inception and on an
ongoing basis, of whether the derivatives that are used in
hedging transactions are highly effective in offsetting changes
in fair values or cash flows of hedged items. Derivative
instruments that are not designated as hedges are classified as
held-for-trading financial assets, as described in Note 2.4.
Derivative
financial instruments classified as held for trading
The Company conducts its business on a global basis in various
major international currencies. As a result, the Company is
exposed to adverse movements in foreign currency exchange rates.
The Company enters into foreign currency forward contracts and
currency options to reduce its exposure to changes in exchange
rates and the associated risk arising from the denomination of
certain assets and liabilities in foreign currencies at the
Companys subsidiaries. These instruments do not qualify as
hedging instruments as per U.S. GAAP guidance, and are
marked-to-market at each period-end with the associated changes
in fair value recognized in Other income and expenses,
net in the consolidated statements of income, as described
in Note 2.4.
Cash Flow
Hedges
To further reduce its exposure to U.S. dollar exchange rate
fluctuations, the Company also hedges certain Euro-denominated
forecasted transactions that cover a large part of its projected
research and development, selling, general and administrative
expenses as well as a portion of its projected front-end
manufacturing production costs of semi-finished goods. The
foreign currency forward contracts and currency options used to
hedge foreign currency exposures are reflected at their fair
value in the consolidated balance sheet and meet the criteria
for designation as cash flow hedge. The criteria for designating
a derivative as a hedge include the instruments
effectiveness in risk reduction and, in most cases, a one-to-one
matching of the derivative instrument to its underlying
transaction, which enables the Company to conclude, based on the
fact that, at inception, the critical terms of the hedging
instrument and the hedged forecasted transaction are the same,
that changes in cash flows attributable to the risk being hedged
are expected to be completely offset by the hedging derivative.
Foreign currency forward contracts and currency options used as
hedges are effective at reducing the Euro/U.S. dollar
currency fluctuation risk and are designated as a hedge at the
inception of the contract and on an on-going basis over the
duration of the hedge relationship.
For derivative instruments designated as cash flow hedge, the
gain or loss from the effective portion of the hedge is reported
as a component of Accumulated other comprehensive income
(loss) in the consolidated statements of changes in equity
and is reclassified into earnings in the same period in which
the hedged transaction affects earnings, and within the same
consolidated statements of income line item as the impact of the
hedged transaction. For these derivatives, ineffectiveness
appears if the hedge relationship is not perfectly effective or
if the cumulative gain or loss on the derivative hedging
instrument exceeds the cumulative change in the expected future
cash flows on the hedged transactions. Effectiveness on
transactions hedged through purchased currency options is
measured on the full fair value of the option, including the
time value of the option.
When a forecasted transaction is no longer expected to occur,
the cumulative gain or loss that was reported in
Accumulated other comprehensive income (loss) in the
consolidated statements of changes in equity is immediately
transferred to the consolidated statements of income within
Other income and expenses, net. If the de-designated
derivative is still related to operating activities, the changes
in fair value subsequent to the discontinuance continue to be
reported within Other income and expenses, net in
the consolidated statements of income, as described in
Note 2.4. If upon de-designation, the derivative instrument
is held in view to be sold with no direct relation with current
operating activities, changes in the fair value of the
derivative instrument following de-designation are reported as a
non-operating element on the line Gain (loss) on financial
assets in the consolidated statements of income. When a
designated hedging instrument is either terminated early or an
improbable or ineffective portion of the hedge is identified,
the gain or loss deferred in Accumulated other
comprehensive income
F-11
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
(loss) in the consolidated statements of changes in equity
is recognized immediately in Other income and expenses,
net in the consolidated statements of income when it is
probable that the forecasted transaction will not occur by the
end of the originally specified time period.
In order to optimize its hedging strategy, the Company can be
required to cease the designation of certain cash flow hedge
transactions and enter into a new designated cash flow hedge
transaction with the same hedged forecasted transaction but with
a new hedging instrument. De-designation and re-designation are
formally authorized and limited to the de-designation of
purchased currency options with re-designation of the cash flow
hedge through subsequent forward contract when the Euro/US
dollar exchange rate is decreasing, the intrinsic value of the
option is nil, the hedged transaction is still probable of
occurrence and meets at re-designation date all criteria for
hedge accounting. At de-designation date, the net derivative
gain or loss related to the de-designated cash flow hedge
deferred in Accumulated other comprehensive income
(loss) in the consolidated statements of changes in equity
continues to be reported in net equity. From de-designation
date, the change in fair value of the de-designated hedging item
is recognized each period in the consolidated statements of
income on the line Other income and expenses, net,
as described in Note 2.4. The net derivative gain or loss
related to the de-designated cash flow hedge deferred in net
equity since de-designation date is reclassified to earnings in
the same period in which the hedged transaction affects
earnings, and within the same consolidated statements of income
line item as the impact of the hedged transaction.
The principles regulating the hedging strategy for derivatives
designated as cash flow hedge are established as follows:
(i) for R&D and Corporate costs between 50% and 80% of
the total forecasted transactions; (ii) for manufacturing
costs between 40% and 70% of the total forecasted transactions.
The maximum length of time over which the Company hedges its
exposure to the variability of cash flows for forecasted
transactions is 14 months.
Fair
Value Hedges
To the extent that cancellable swaps held as a hedge against the
Companys convertible bonds meet the criteria for
designation as a fair value hedge, both the interest rate swaps
and the hedged portion of the bonds are reflected at their fair
values in the consolidated balance sheets. The criteria for
designating a derivative as a hedge include evaluating whether
the instrument is highly effective at offsetting changes in the
fair value of the hedged item attributable to the hedged risk.
Hedged effectiveness is assessed on both a prospective and
retrospective basis at each reporting period. Any
ineffectiveness of the hedge relationship is recorded as a gain
or loss on derivatives as a component of Other income and
expenses, net, in the consolidated statements of income.
At the point that the cancellable swaps no longer meet the
criteria for designation as a fair value hedge, the swaps will
continue to be marked to fair value. At such point, the changes
in the fair value of the swaps are recorded in Gain (loss)
on financial assets. Also, the associated bonds will no
longer be marked to fair value and the difference between fair
value and amortized costs will be amortized to earnings as a
component of interest expense. Results on the sale of the swaps
are recognized in the line Gain (loss) on financial
assets in the consolidated statements of income, as
discussed in Note 25.
2.6
Revenue Recognition
Revenue is recognized as follows:
Net
sales
Revenue from products sold to customers is recognized when all
the following conditions have been met: (a) persuasive
evidence of an arrangement exists; (b) delivery has
occurred; (c) the selling price is fixed or determinable;
and (d) collection is reasonably assured. This usually
occurs at the time of shipment.
Consistent with standard business practice in the semiconductor
industry, price protection is granted to distribution customers
on their existing inventory of the Companys products to
compensate them for declines in market prices. The ultimate
decision to authorize a distributor refund remains fully within
the control of the Company. The Company accrues a provision for
price protection based on a rolling historical price trend
computed on a monthly basis as a percentage of gross distributor
sales. This historical price trend represents differences in
recent months between the invoiced price and the final price to
the distributor, adjusted if required, to accommodate a
significant move in the current market price. The short
outstanding inventory time period, visibility into the standard
inventory product pricing (as opposed to certain customized
products) and long distributor pricing history
F-12
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
have enabled the Company to reliably estimate price protection
provisions at period-end. The Company records the accrued
amounts as a deduction of revenue at the time of the sale.
The Companys customers occasionally return the
Companys products for technical reasons. The
Companys standard terms and conditions of sale provide
that if the Company determines that products are non-conforming,
the Company will repair or replace the non-conforming products,
or issue a credit or rebate of the purchase price. Quality
returns are not related to any technological obsolescence issues
and are identified shortly after sale in customer quality
control testing. Quality returns are usually associated with
end-user customers, not with distribution channels. The Company
provides for such returns when they are considered as probable
and can be reasonably estimated. The Company records the accrued
amounts as a reduction of revenue.
The Companys insurance policy relating to product
liability only covers physical damage and other direct damages
caused by defective products. The Company does not carry
insurance against immaterial non consequential damages. The
Company records a provision for warranty costs as a charge
against cost of sales, based on historical trends of warranty
costs incurred as a percentage of sales, which management has
determined to be a reasonable estimate of the probable losses to
be incurred for warranty claims in a period. Any potential
warranty claims are subject to the Companys determination
that the Company is at fault for damages, and such claims
usually must be submitted within a short period following the
date of sale. This warranty is given in lieu of all other
warranties, conditions or terms expressed or implied by statute
or common law. The Companys contractual terms and
conditions limit its liability to the sales value of the
products which gave rise to the claims.
While the majority of the Companys sales agreements
contain standard terms and conditions, the Company may, from
time to time, enter into agreements that contain multiple
elements or non-standard terms and conditions, which require
revenue recognition judgments. Where multiple elements exist in
an arrangement, the arrangement is allocated to the different
elements based upon verifiable objective evidence of the fair
value of the elements for periods 2008 and prior, while
allocation is based on verifiable objective evidence, third
party evidence or managements best estimate of selling
price of the separable deliverables beginning in 2009. In 2009,
the Company early adopted new US GAAP guidance for multiple
deliverable arrangements. This new guidance removes the previous
requirements of allocating revenue to delivered elements only to
the extent that there was verifiable objective evidence of the
fair value of all undelivered elements, and now requires the use
of relative fair values based on either vendor specific
objective evidence or third party evidence of fair values. If
neither of these is available, the guidance requires the use of
managements best estimate of selling price for each
separable deliverable. The early adoption of this new guidance
was retroactively adopted back to January 1, 2009; however,
it did not have a material effect on the consolidated statements
of income of the Company for the year ended December 31,
2009. These arrangements generally do not include performance-,
cancellation-, termination- or refund-type provisions.
Other
revenues
Other revenues consist of license revenue, service revenue
related to transferring licenses, patent royalty income, and
sale of scrap and manufacturing by-products.
Funding
Funding received by the Company is mainly from governmental
agencies and income is recorded as recognized when all
contractually required conditions are fulfilled. The
Companys primary sources for government funding are
French, Italian, other European Union (EU)
governmental entities and Singapore agencies. Such funding is
generally provided to encourage research and development
activities, industrialization and local economic development.
The EU has developed model contracts for research and
development fundings that require beneficiaries to disclose the
results to third parties on reasonable terms. The conditions for
receipt of government funding may include eligibility
restrictions, approval by EU authorities, annual budget
appropriations, compliance with European Commission regulations,
as well as specifications regarding objectives and results.
Certain specific contracts contain obligations to maintain a
minimum level of employment and investment during a certain
period of time. There could be penalties if these objectives are
not fulfilled. Other contracts contain penalties for late
deliveries or for breach of contract, which may result in
repayment obligations. In accordance with SAB 104 and the
Companys revenue recognition policy, funding related to
these contracts is recorded when the conditions required by the
contracts are met. The Companys funding programs are
classified under three general categories: funding for research
and development activities, capital investment, and loans.
F-13
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
Funding for research and development activities is the most
common form of funding that the Company receives. Public funding
for research and development is recorded as Other income
and expenses, net in the Companys consolidated
statements of income. Public funding for research and
development is recognized ratably as the related costs are
incurred once the agreement with the respective governmental
agency has been signed and all applicable conditions are met.
Furthermore, following the enactment of the French Finance Act
for 2008, which included several changes to the research tax
credit regime (Crédit Impôt Recherche),
French research tax credits that in prior years were recorded as
a reduction of tax expense were deemed to be grants in
substance. Unlike other research and development funding, the
amounts to be received are determinable in advance and accruable
as the funded research expenditures are made. They were thus
reported, starting from January 1, 2008, as a reduction of
research and development expenses. The 2008 French research tax
credits were classified as long term receivables in the
consolidated balance sheet as at December 31, 2008. The
2009 French research tax credits were classified as current
receivables in the consolidated balance sheet as at
December 31, 2009. The research tax credits are to be
reimbursed in cash by the French tax authorities within three
years in case they are not deducted from income tax payable
during this period of time. The Company considers such cash
settlement features of the French research tax credits as
long-term receivables.
Capital investment funding is recorded as a reduction of
Property, plant and equipment, net and is recognized
in the Companys consolidated statements of income
according to the depreciation charges of the funded assets
during their useful lives. The Company also receives capital
funding in Italy, which is recovered through the reduction of
various governmental liabilities, including income taxes,
value-added tax and employee-related social charges. The funding
has been classified as long-term receivable and is reflected in
the balance sheet at its discounted net present value. The
subsequent accretion of the discount is recorded as
non-operating income in Interest income (expense),
net.
The Company receives certain loans, mainly related to large
capital investment projects, at preferential interest rates. The
Company records these loans as debt in its consolidated balance
sheet.
2.7
Advertising costs
Advertising costs are expensed as incurred and are recorded as
selling, general and administrative expenses. Advertising
expenses for 2009, 2008 and 2007 were $9 million,
$10 million and $12 million respectively.
2.8
Research and development
Research and development expenses include costs incurred by the
Company, the Companys share of costs incurred by other
research and development interest groups, and costs associated
with co-development contracts. Research and development expenses
do not include marketing design center costs, which are
accounted for as selling expenses and process engineering,
pre-production or process transfer costs which are recorded as
cost of sales. Research and development costs are charged to
expense as incurred. The amortization expense recognized on
technologies and licenses purchased by the Company from third
parties to facilitate the Companys research is recorded as
research and development expenses. Research and development
expenses also include charges originated from purchase
accounting, such as in-process research and development
recognized on business combinations concluded before
January 1, 2009 and amortization of acquired intangible
assets. Finally, starting January 1, 2008 the research and
development expenses are reported net of research tax credits
received in the French jurisdiction, as described in
Note 2.6.
2.9
Start-up and
phase-out costs
Start-up
costs represent costs incurred in the
start-up and
testing of the Companys new manufacturing facilities,
before reaching the earlier of a minimum level of production or
6-months
after the fabrication lines quality qualification.
Start-up
costs are included in Other income and expenses, net
in the consolidated statements of income. Similarly, phase-out
costs for facilities during the closing stage are also included
in Other income and expenses, net in the
consolidated statements of income. The costs of phase-outs are
associated with the latest stages of facilities closure when the
relevant production volumes become immaterial.
2.10
Income taxes
The provision for current taxes represents the income taxes
expected to be paid or the benefit expected to be received
related to the current year income or loss in each individual
tax jurisdiction. Deferred tax assets and
F-14
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
liabilities are recorded for all temporary differences arising
between the tax and book bases of assets and liabilities and for
the benefits of tax credits and operating loss carry-forwards.
Deferred income tax is determined using tax rates and laws that
are enacted by the balance sheet date and are expected to apply
when the related deferred income tax asset is realized or the
deferred income tax liability is settled. The effect on deferred
tax assets and liabilities from changes in tax law is recognized
in the period of enactment. Deferred income tax assets are
recognized in full, but the Company assesses whether it is
probable that future taxable profit will be available against
which temporary differences can be utilized. A valuation
allowance is provided where necessary to reduce deferred tax
assets to the amount for which management considers the
possibility of recovery to be more likely than not. The Company
utilizes the flow-through method to account for its investment
credits, reflecting the credits as a reduction of tax expense in
the year they are recognized. Similarly, research and
development tax credits are classified as a reduction of tax
expense in the year they are recognized. As described in
Note 2.6, French research tax credits are recorded as
grants starting from January 1, 2008 and reported as a
reduction of research and development expenses. French research
tax credits prior to January 1, 2008 were recorded as a
reduction of tax expense and were reported as deferred tax
assets as at December 31, 2008. No French research tax
credits were reported as deferred tax assets as at
December 31, 2009.
Deferred taxes on the undistributed earnings of the
Companys foreign subsidiaries are provided for unless the
Company intends to indefinitely reinvest the earnings in the
subsidiaries. Additionally, a distribution of the related
earnings would not have any material tax impact. Thus, the
Company did not provide for deferred taxes on the earnings of
those subsidiaries.
A deferred tax is recognized on compensation for the grant of
stock awards to the extent that such charge constitutes a
temporary difference in the Companys local tax
jurisdictions. The measurement of the deferred tax asset is
based on an estimate of the future tax deduction, for the amount
of the compensation cost recognized for book purposes. Changes
in the stock price do not thus impact the deferred tax asset or
do not result in any adjustments prior to vesting. When the
actual tax deduction is determined, generally upon vesting, it
is compared to the estimated tax benefit as recognized over the
vesting period. When a windfall tax benefit is determined (as
the excess tax benefit of the actual tax deduction over the
deferred tax asset) the excess tax benefit is recorded in equity
on the line Capital surplus on the consolidated
statements of changes in equity. In case of shortfall, only the
actual tax benefit is to be recognized in the consolidated
statements of income. The Company writes off the deferred tax
asset at the level of the actual tax deduction by charging first
capital surplus to the extent of the pool of windfall benefits
from prior years and then earnings. When the settlement of an
award results in a net operating loss (NOL)
carryforward, or increase existing NOLs, the excess tax benefit
and the corresponding credit to capital surplus is not recorded
until the deduction reduces income tax payable.
At each reporting date, the Company assesses all material open
income tax positions in all tax jurisdictions to determine any
uncertain tax positions. The Company uses a two-step process for
the evaluation of uncertain tax positions. The recognition
threshold in step one permits the benefit from an uncertain tax
position to be recognized only if it is more likely than not, or
50 percent assured, that the tax position will be sustained
upon examination by the taxing authorities. The measurement
methodology in step two is based on a cumulative
probability approach, resulting in the recognition of the
largest amount that is greater than 50 percent likely of
being realized upon settlement with the taxing authority. The
Company classifies accrued interest and penalties related to
uncertain tax positions as components of income tax expense in
its consolidated statements of income. Uncertain tax positions,
unrecognized tax benefits and related accrued interest and
penalties are further described in Note 21.
2.11
Earnings per share (EPS)
Basic earnings per share are computed by dividing net income
(loss) attributable to parent company shareholders by the
weighted average number of common shares outstanding during the
period. Diluted earnings per share are computed using the
treasury stock method by dividing net income (adding-back
interest expense, net of tax effects, related to convertible
debt if determined to be dilutive) by the weighted average
number of common shares and common share equivalents outstanding
during the period. The weighted average number of shares used to
compute diluted earnings per share include the incremental
shares of common stock relating to stock-options granted,
nonvested shares and convertible debt to the extent such
incremental shares are dilutive. Nonvested shares with
performance or market conditions are included in the computation
of diluted earnings per share if their conditions have been
satisfied at the balance sheet date and if the awards are
dilutive. If all necessary conditions have not been satisfied by
the end of the period, the number of nonvested shares included
in the computation of the
F-15
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
diluted EPS shall be based on the number of shares, if any that
would be issuable if the end of the reporting period were the
end of the contingency period and if the result were dilutive.
2.12
Cash and cash equivalents
Cash and cash equivalents represent cash on hand and deposits
with external financial institutions with an original maturity
of ninety days or less that are readily convertible in cash.
Bank overdrafts are not netted against cash and cash equivalents
and are shown as part of current liabilities on the consolidated
balance sheets.
2.13 Restricted
cash
Restricted cash includes collateral deposits used as security
under arrangements for financing of certain entities.
2.14
Trade accounts receivable
Trade accounts receivable are recognized at their sales value,
net of allowances for doubtful accounts. The Company maintains
an allowance for doubtful accounts for potential estimated
losses resulting from its customers inability to make
required payments. The Company bases its estimates on historical
collection trends and records a provision accordingly. In
addition, the Company is required to evaluate its
customers financial condition periodically and records an
additional provision for any specific account the Company
estimates as doubtful. The carrying amount of the receivable is
thus reduced through the use of an allowance account, and the
amount of the loss is recognized on the line Selling,
general and administrative in the consolidated statements
of income. When a trade accounts receivable is uncollectible, it
is written-off against the allowance account for trade accounts
receivables. Subsequent recoveries, if any, of amounts
previously written-off are credited against Selling,
general and administrative in the consolidated statements
of income.
In the events of sale of receivables and factoring, the Company
derecognizes the receivables and accounts for them as a sale
only to the extent that the Company has surrendered control over
the receivables in exchange for a consideration other than
beneficial interest in the transferred receivables.
2.15
Inventories
Inventories are stated at the lower of cost or net realizable
value. Cost is based on the weighted average cost by adjusting
standard cost to approximate actual manufacturing costs on a
quarterly basis; the cost is therefore dependent on the
Companys manufacturing performance. In the case of
underutilization of manufacturing facilities, the costs
associated with the excess capacity are not included in the
valuation of inventories but charged directly to cost of sales.
Net realizable value is the estimated selling price in the
ordinary course of business, less applicable variable selling
expenses and cost of completion.
The Company performs on a continuous basis inventory write-off
of products, which have the characteristics of slow-moving, old
production date and technical obsolescence. Additionally, the
Company evaluates its product inventory to identify obsolete or
slow-selling stock and records a specific provision if the
Company estimates the inventory will eventually become obsolete.
Provisions for obsolescence are estimated for excess uncommitted
inventory based on the previous quarter sales, orders
backlog and production plans.
2.16
Goodwill
Goodwill represents the excess of the cost of an acquisition
over the fair value of the net identifiable assets of the
acquired business at the date of acquisition. Goodwill is
carried at cost less accumulated impairment losses. Goodwill is
not amortized but is tested annually for impairment, or more
frequently if indicators of impairment exist. Goodwill subject
to potential impairment is tested at a reporting unit level,
which represents a component of an operating segment for which
discrete financial information is available and is subject to
regular review by segment management. This impairment test
determines whether the fair value of each reporting unit for
which goodwill is allocated is lower than the total carrying
amount of relevant net assets allocated to such reporting unit,
including its allocated goodwill. If lower, the implied fair
value of the reporting unit goodwill is then compared to the
carrying value of the goodwill and an impairment charge is
recognized for any excess. In determining the fair value of a
reporting unit, the Company uses a market approach with
financial metrics of comparable public companies and estimates
the expected discounted future cash flows associated with the
reporting unit. Significant
F-16
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
management judgments and estimates are used in forecasting the
future discounted cash flows, including: the applicable
industrys sales volume forecast and selling price
evolution, the reporting units market penetration and its
revenues evolution, the market acceptance of certain new
technologies and products, the relevant cost structure, the
discount rates applied using a weighted average cost of capital
and the perpetuity rates used in calculating cash flow terminal
values.
2.17
Intangible assets
Intangible assets subject to amortization include the intangible
assets purchased from third parties recorded at cost and the
intangible assets acquired in business combinations recorded at
fair value, which include trademarks, technologies and licenses,
contractual customer relationships and computer software.
Trademarks
and technology licenses
Separately acquired trademarks and licenses are recorded at
historical cost. Trademarks and licenses acquired in a business
combination are recognized at fair value at the acquisition
date. Trademarks and licenses have a finite useful life and are
carried at cost less accumulated amortization. Amortization is
calculated using the straight-line method to allocate the cost
of trademarks and licenses over the estimated useful lives. The
estimate useful lives on licenses range from 3 to 7 years
while trademarks have a useful life ranging from 2 to
3 years.
Contractual
customer relationships
Contractual customer relationships acquired in a business
combination are recognized at fair value at the acquisition
date. Contractual customer relationships have a finite useful
life and are carried at cost less accumulated amortization.
Amortization is calculated using the straight-line method over
the expected life of the customer relationships, which ranges
from 4 to 12 years.
Computer
software
Separately acquired computer software is recorded at historical
cost. Costs associated with maintaining computer software
programmes are recognized as expenses as incurred. The
capitalization of costs for internally generated software
developed by the Company for its internal use begins when
preliminary project stage is completed and when the Company,
implicitly or explicitly, authorizes and commits to funding a
computer software project. It must be probable that the project
will be completed and will be used to perform the function
intended. Computer software recognized as assets are amortised
over their estimated useful lives, which does not exceed
4 years.
Intangible assets subject to amortization are reflected net of
any impairment losses. The carrying value of intangible assets
subject to amortization is evaluated whenever changes in
circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognized in the
consolidated statements of income for the amount by which the
assets carrying amount exceeds its fair value. The Company
evaluates the remaining useful life of an intangible asset at
each reporting period to determine whether events and
circumstances warrant a revision to the remaining period of
amortization.
2.18
Property, plant and equipment
Property, plant and equipment are stated at historical cost, net
of government funding and any impairment losses. Major additions
and improvements are capitalized, minor replacements and repairs
are charged to current operations.
Land is not depreciated. Depreciation on fixed assets is
computed using the straight-line method over their estimated
useful lives, as follows:
|
|
|
|
|
Buildings
|
|
|
33 years
|
|
Facilities & leasehold improvements
|
|
|
5-10 years
|
|
Machinery and equipment
|
|
|
3-10 years
|
|
Computer and R&D equipment
|
|
|
3-6 years
|
|
Other
|
|
|
2-5 years
|
|
F-17
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
In 2008, the Company launched its first
300-mm
production facility. Consequently, the Company assessed the
useful life of its
300-mm
manufacturing equipment, based on relevant economic and
technical factors. The conclusion was that the appropriate
depreciation period for such
300-mm
equipment was 10 years. This policy was applied starting
January 1, 2008.
The Company evaluates each period whether there is reason to
suspect that tangible assets or groups of assets might not be
recoverable. Several impairment indicators exist for making this
assessment, such as: significant changes in the technological,
market, economic or legal environment in which the Company
operates or in the market to which the asset is dedicated, or
available evidence of obsolescence of the asset, or indication
that its economic performance is, or will be, worse than
expected. In determining the recoverability of assets to be held
and used, the Company initially assesses whether the carrying
value of the tangible assets or group of assets exceeds the
undiscounted cash flows associated with these assets. If
exceeded, the Company then evaluates whether an impairment
charge is required by determining if the assets carrying
value also exceeds its fair value. This fair value is normally
estimated by the Company based on independent market appraisals
or the sum of discounted future cash flows, using market
assumptions such as the utilization of the Companys
fabrication facilities and the ability to upgrade such
facilities, change in the selling price and the adoption of new
technologies. The Company also evaluates, and adjusts if
appropriate, the assets useful lives, at each balance
sheet date or when impairment indicators exist.
Assets are classified as assets held for sale when the following
conditions have been met for the assets to be disposed of by
sale: management has approved the plan to sell; assets are
available for immediate sale; assets are actively being
marketed; sale is probable within one year; price is reasonable
in the market and it is unlikely that there will be significant
changes in the assets to be sold or a withdrawal to the plan to
sell. Assets classified as held for sale are reported as current
assets at the lower of their carrying amount or fair value less
selling costs and are not depreciated during the selling period.
Costs to sell include incremental direct costs to transact the
sale that would not have been incurred except for the decision
to sell. When the held-for-sale accounting treatment requires an
impairment charge for the difference between the carrying amount
and the fair value, such impairment is reflected on the
consolidated statements of income on the line Impairment,
restructuring charges and other related closure costs. If
the long-lived assets no longer meet the held-for-sale model,
they are reported as assets held for use and thus reclassified
from current assets to the line Property, plant and
equipment, net in the consolidated balance sheet. The
assets are measured at the lower of their fair value at the date
of the subsequent decision not to sell and their carrying amount
prior to their classification as assets held for sale, adjusted
for any depreciation that would have been recognized if the
long-lived assets had not been classified as assets held for
sale. The fair value at the date of the decision not to sell is
based on the discounted cash flows expected from the use of the
assets. Any required adjustment to the carrying value of the
asset that is reclassified as held and used is recorded in the
income statement at the time of the reclassification and
reported in the same income statement caption that was used to
report adjustments to the carrying value of the asset during the
time it was held for sale (line Impairment, restructuring
charges and other related closure costs). When property,
plant and equipment are retired or otherwise disposed of, the
net book value of the assets is removed from the Companys
books and the net gain or loss is included in Other income
and expenses, net in the consolidated statements of income.
Leasing arrangements in which a significant portion of the risks
and rewards of ownership are retained by the Company are
classified as capital leases. Capital leases are included in
Property, plant and equipment, net and depreciated
over the shorter of the estimated useful life or the lease term.
Leasing arrangements classified as operating leases are
arrangements in which the lessor retains a significant portion
of the risks and rewards of ownership of the leased asset.
Payments made under operating leases are charged to the
consolidated statements of income on a straight-line basis over
the period of the lease.
Borrowing costs incurred for the construction of any qualifying
asset are capitalized during the period of time that is required
to complete and prepare the asset for its intended use. Other
borrowing costs are expensed.
2.19
Investments
For investments in public companies that have readily
determinable fair values and for which the Company does not
exercise significant influence, the Company classifies these
investments as held-for-trading or available-for-sale as
described in Note 2.4. Investments in equity securities
without readily determinable fair values and for which the
Company does not have the ability to exercise significant
influence are accounted for under the cost method. Under the
cost method of accounting, investments are carried at historical
cost and are adjusted only for
F-18
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
declines in value. The value of a cost method investment is
estimated on a non-recurring basis when there are identified
events or changes in circumstances that may have a significant
adverse effect on the fair value of the investment.
Other-than-temporary impairment losses are immediately recorded
in the consolidated statements of income and are based on the
Companys assessment of any significant and sustained
reductions in the investments fair value. For unquoted
equity securities, assumptions and estimates used in measuring
fair value include the use of recent arms length
transactions when they reflect the orderly exit price of the
investments. Gains and losses on investments sold are determined
on the specific identification method and are recorded as a
non-operating element on the line Gain (loss) on financial
assets in the consolidated statements of income.
Equity investments are all entities over which the Company has
the ability to exercise significant influence but not control,
generally representing a shareholding of between 20% and 50% of
the voting rights. These investments are accounted for by the
equity method of accounting and are initially recognized at
cost. Equity investments also include entities which the Company
determines to be variable interest entities, as described below,
if the Company has the ability to exercise significant influence
over the entitys operations even if the Company owns less
than 20% and is not the primary beneficiary. Equity investments
are presented on the face of the consolidated balance sheet on
the line Equity investments. The Companys
share in its equity investments profit and loss is
recognized in the consolidated statements of income as
Loss on equity investments and in the consolidated
balance sheets as an adjustment against the carrying amount of
the investments. When the Companys share of losses in an
equity investment equals or exceeds its interest in the
investee, including any unsecured receivable, the Company does
not recognize further losses, unless it has incurred obligations
or made payments on behalf of the investee. At each period-end,
the Company assesses whether there is objective evidence that
its interests in the equity investments are impaired. Once a
determination is made that an other-then-temporary impairment
exists, the Company writes down the carrying value of the equity
investment to its fair value at the balance sheet date, which
establishes a new cost basis. The fair value of an equity
investment is measured on a non-recurring basis using a
combination of an income approach, based on discounted cash
flows, and a market approach with financial metrics of
comparable public companies.
The Company assesses entities identified as a Variable Interest
Entity (VIE) and consolidates the VIEs, if any, for
which the Company is determined to be the primary beneficiary.
The primary beneficiary of a VIE is the party that absorbs the
majority of the entitys expected losses, receives the
majority of its expected residual returns, or both as a result
of holding variable interests. Assets, liabilities, and the
noncontrolling interest of newly consolidated VIEs are initially
measured at fair value in the same manner as if the
consolidation resulted from a business combination.
For business combinations concluded before January 1, 2009,
the purchase method of accounting was used to account for a
business combination if the acquired entity met the definition
of a business. If the acquired entity was a development stage
entity and had not commenced planned principal operations, it
was presumed not to be a business, and the individual assets and
liabilities were recognized at their relative fair values with
no goodwill recognized in the consolidated balance sheet. In
case of acquisition of a business, the cost of the acquisition
was measured at the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed, plus
costs directly attributable to the acquisition. If part of the
consideration was contingent on a future event, the additional
cost was not generally recognized until the contingency was
resolved, the amount was determinable, or beyond a reasonable
doubt. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination were
measured initially at their fair values at the acquisition date.
Any acquired in-process research and development
(IPR&D) was expensed immediately in the
consolidated statements of income since it had no alternative
future use. The excess of the cost of acquisition over the fair
value of the identifiable net assets acquired was recorded as
goodwill. If the cost of acquisition was lower than the fair
value of the net assets of the entity acquired, the difference
was used to reduce proportionately the fair value assigned and
allocated on a pro-rata basis to all assets other than current
and financial assets, assets to be sold, prepaid pension assets
and deferred taxes. Any negative goodwill remaining was
recognized as an extraordinary gain. Goodwill arising from a
purchase of less than 100% of a business was valued as the
difference between the purchase price paid by the Company and
its proportionate share of the fair values of the identifiable
net assets acquired, while the noncontrolling interest was
reported based on the book value of net assets acquired.
Consequently, there was no step up for the noncontrolling
interests share of the excess of the fair value of net
assets over book value. When the Company acquired a business and
a portion of the consideration was a noncontrolling interest in
one or more of the Companys businesses, the Company valued
the net assets of the subsidiaries in which the interest was
being given at fair value and recorded the
F-19
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
difference between fair value and book value related to the
interest on the line Issuance of shares by
subsidiary in the consolidated statements of changes in
equity.
The purchase accounting method applied to all business
combinations concluded on or after January 1, 2009, was on
the basis of the amended purchase accounting guidance. The net
of the acquisition-date amount of the identifiable asset
acquired, equity instruments issued, and liabilities assumed is
measured at fair value on the acquisition date. Any contingent
purchase price, and contingent assets and liabilities are
recorded at fair value on the acquisition date, regardless of
the likelihood of payment and acquisition-related transaction
costs are expensed as incurred. Restructuring costs relating to
the acquired business are expensed as incurred. Acquired
in-process research and development (IPR&D)
costs are no longer written off to earnings upon the
acquisition; instead, IPR&D is capitalized and recorded as
an intangible asset on the acquisition date, subject to
impairment testing until the research or development is
completed or abandoned. The excess of the aggregate of the
consideration transferred and the fair value of any
noncontrolling interest in the acquiree over the net of the
acquisition-date amount of the identifiable assets acquired and
liabilities assumed is recorded as goodwill. In case of a
bargain purchase, the Company reassesses whether it has
correctly identified all of the assets acquired and all of the
liabilities assumed; the noncontrolling interest in the
acquiree, if any; the Companys previously held equity
interest in the acquiree, if any; and the consideration
transferred. If after this review, a bargain purchase is still
indicated, it is recognized in earnings attributed to the
Company. The purchase of additional interests in a partially
owned subsidiary is treated as an equity transaction as well as
all transactions concerning the sale of subsidiary stock or the
issuance of stock by the partially owned subsidiary as long as
there is no change in control of the subsidiary. If as a
consequence of selling subsidiary shares, the Company no longer
controls the subsidiary, the Company recognizes a gain or loss
in earnings.
2.20
Employee benefits
The Company sponsors various pension schemes for its employees.
These schemes conform to local regulations and practices in the
countries in which the Company operates. They are generally
funded through payments to insurance companies,
trustee-administered funds or state institutions, determined by
periodic actuarial calculations. Such plans include both defined
benefit and defined contribution plans. A defined benefit plan
is a pension plan that defines the amount of pension benefit
that an employee will receive on retirement, usually dependent
on one or more factors such as age, years of service and
compensation. A defined contribution plan is a pension plan
under which the Company pays fixed contributions into a separate
entity for which the Company has no legal or constructive
obligations to pay further contributions if the fund does not
hold sufficient assets to pay all employees the benefits
relating to employee service in the current and prior periods.
The liability recognized in the consolidated balance sheet in
respect of defined benefit pension plans is the present value of
the defined benefit obligation at the balance sheet date less
the fair value of plan assets. The overfunded or underfunded
status of the defined benefit plans are calculated as the
difference between plan assets and the projected benefit
obligations. Overfunded plans are not netted against underfunded
plans and are shown separately in the financial statements.
Significant estimates are used in determining the assumptions
incorporated in the calculation of the pension obligations,
which is supported by input from independent actuaries.
Actuarial gains and losses arising from experience adjustments
and changes in actuarial assumptions are charged or credited to
income over the employees expected average remaining
working lives. Past-service costs are recognized immediately in
earnings, unless the changes to the pension scheme are
conditional on the employees remaining in service for a
specified period of time (the vesting period). In this case, the
past-service costs are amortized on a straight-line basis over
the vesting period. The net periodic benefit cost of the year is
determined based on the assumptions used at the end of the
previous year.
For defined contribution plans, the Company pays contributions
to publicly or privately administered pension insurance plans on
a mandatory, contractual or voluntary basis. The Company has no
further payment obligations once the contributions have been
paid. The contributions are recognized as employee benefit
expense when they are due. Prepaid contributions are recognized
as an asset to the extent that a cash refund or a reduction in
the future payments is available.
F-20
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
|
|
(b)
|
Other
post-retirement obligations
|
The Company provides post-retirement benefits to some of its
retirees. The entitlement to these benefits is usually
conditional on the employee remaining in service up to
retirement age and to the completion of a minimum service
period. The expected costs of these benefits are accrued over
the period of employment using an accounting methodology similar
to that for defined benefit pension plans. Actuarial gains and
losses arising from experience adjustments, and changes in
actuarial assumptions, are charged or credited to income over
the expected average remaining working lives of the related
employees. These obligations are valued annually by independent
qualified actuaries.
Termination benefits are payable when employment is
involuntarily terminated, or whenever an employee accepts
voluntary termination in exchange for these benefits. For the
accounting treatment and timing recognition of the involuntarily
termination benefits, the Company distinguishes between one-time
termination benefit arrangements and on-going termination
benefit arrangements. A one-time termination benefit arrangement
is one that is established by a termination plan that applies to
a specified termination event or for a specified future period.
These one-time involuntary termination benefits are recognized
as a liability when the termination plan meets certain criteria
and has been communicated to employees. If employees are
required to render future service in order to receive these
one-time termination benefits, the liability is recognized
ratably over the future service period. Termination benefits
other than one-time termination benefits are termination
benefits for which criteria for communication are not met but
that are committed to by management, or termination obligations
that are not specifically determined in a new and single plan.
These termination benefits are all legal, contractual and past
practice termination obligations to be paid to employees in case
of involuntary termination. These termination benefits are
accrued for at commitment date when it is probable that
employees will be entitled to the benefits and the amount can be
reasonably estimated.
In the case of special termination benefits proposed to
encourage voluntary termination, the Company recognizes a
provision for voluntary termination benefits at the date on
which the employee irrevocably accepts the offer and the amount
can be reasonably estimated.
|
|
(d)
|
Profit-sharing
and bonus plans
|
The Company recognizes a liability and an expense for bonuses
and profit-sharing plans when it is contractually obliged or
where there is a past practice that has created a constructive
obligation.
|
|
(e)
|
Other
long-term employee benefits
|
The Company provides long-term employee benefits such as
seniority awards in certain subsidiaries. The entitlement to
these benefits is usually conditional on the employee completing
a minimum service period. The expected costs of these benefits
are accrued over the period of employment using an accounting
methodology similar to that for defined benefit pension plans.
Actuarial gains and losses arising from experience adjustments,
and changes in actuarial assumptions, are charged or credited to
earnings in the period of change. These obligations are valued
annually by independent qualified actuaries.
|
|
(f)
|
Share-based
compensation
|
Nonvested
shares
The Company grants nonvested shares to senior executives,
selected employees and members of the Supervisory Board. The
shares are granted for free to employees and at their nominal
value for the members of the Supervisory Board. The awards
granted to employees contingently vest upon achieving certain
market or performance conditions and upon completion of an
average three-year service period. Shares granted to the
Supervisory Board vest unconditionally along the same vesting
period as employees and are not forfeited even if the service
period is not completed. The Company measures the cost of
share-based service awards based on the grant-date fair value of
the award. That cost is recognized over the period during which
an employee is required to provide service in exchange for the
award or the requisite service period, usually the vesting
period. Compensation is recognized only for the awards that
ultimately vest. The compensation cost is recorded through
earnings over the vesting period against equity, under
Capital surplus in the consolidated statement of
changes in equity. The
F-21
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
compensation cost is calculated based on the number of awards
expected to vest, which includes assumptions on the number of
awards to be forfeited due to the employees failing to
provide the service condition, and forfeitures following the
non-completion of one or more performance conditions. When the
stock-award plan contains a market condition feature, the market
condition is reflected in the estimated fair value of the award
at grant date.
Liabilities for the Companys portion of payroll taxes are
not accrued for over the vesting period but are recognized at
vesting, which is the event triggering the measurement of
employee-related social charges, based on the intrinsic value of
the share at vesting date, and payment of the social
contributions in most of the Companys local tax
jurisdictions.
2.21
Long-term debt
Zero-coupon convertible bonds are recorded at principal amount
in long-term debt and are subsequently stated at amortized cost.
Debt issuance costs are reported as non-current assets on the
line Other investments and other non-current assets
of the consolidated balance sheets. They are subsequently
amortized through earnings on the line Interest income,
net of the consolidated statements of income until the
first redemption right of the holder. Outstanding bond amounts
are classified in the consolidated balance sheet as
Current portion of long-term debt in the year of the
redemption right of the holder.
|
|
(b)
|
Bank
loans and senior bonds
|
Bank loans, including non-convertible senior bonds, are
recognized at historical cost, net of transaction costs
incurred. They are subsequently stated at amortized cost; any
difference between the proceeds (net of transaction costs) and
the redemption value is recognized in the consolidated
statements of income over the period of the borrowings using the
effective interest rate method.
Borrowings are classified as current liabilities unless the
Company has an unconditional right to defer settlement of the
liability for at least twelve months after the balance sheet
date. The Company may from time to time enter into
repurchase agreements with certain financial
institutions and may give as collateral certain
available-for-sale debt securities. The Company retains control
over the pledged debt securities and consequently does not
de-recognize the financial assets from its consolidated balance
sheet upon transfer of the collateral. The Company accounts for
such transactions as secured borrowings and recognizes the cash
received upon transfer by recording a liability for the
obligation to return the cash to the lending financial
institution within a term which does not exceed three months.
Such obligation is extinguished when the Company repurchases the
pledged securities in accordance with the terms of the
repurchase agreements.
2.22
Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issuance of new shares or options
are shown in equity as a deduction, net of tax, from the
proceeds.
Where the Company purchases its equity share capital (treasury
shares), the consideration paid, including any directly
attributable incremental costs (net of income taxes), is
deducted from equity attributable to the Companys
shareholders until the shares are cancelled, reissued or
disposed of. Where such shares are subsequently sold or
reissued, any consideration received net of directly
attributable incremental transaction costs and the related
income tax effect is included in equity.
2.23
Comprehensive income (loss)
Comprehensive income (loss) is defined as the change in equity
of a business during a period except those changes resulting
from investment by shareholders and distributions to
shareholders. In the accompanying consolidated financial
statements, Accumulated other comprehensive income
(loss) consists of temporary unrealized gains or losses on
securities classified as available-for-sale, the unrealized gain
(loss) on derivatives designated as cash flow hedge and the
impact of recognizing the overfunded and underfunded status of
defined benefit plans , all net of tax, as well as foreign
currency translation adjustments.
F-22
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
2.24
Provisions
Provisions are recognized when: the Company has a present legal
or constructive obligation as a result of past events; it is
probable that an outflow of resources will be required to settle
the obligation; and the amount has been reliably estimated.
Provisions are not recognized for future operating losses. Where
there are a number of similar obligations, the likelihood that
an outflow will be required in settlements is determined by
considering the class of obligations as a whole. A provision is
recognized even if the likelihood of the outflow with respect to
any one item included in the same class of obligations may be
small.
The Company, when acting as a guarantor, recognizes, at the
inception of a guarantee, a liability for the fair value of the
obligation the Company assumes under the guarantee. When the
guarantee is issued in conjunction with the formation of a
partially owned business or a venture accounted for under the
equity method, the recognition of the liability for the
guarantee results in an increase to the carrying amount of the
investment. The liabilities recognized for the obligations of
the guarantees undertaken by the Company are measured
subsequently on each reporting date, the initial liability being
reduced as the Company, as a guarantor, is released from the
risk underlying the guarantee.
2.25
Recent accounting pronouncements
|
|
(a)
|
Accounting
pronouncements effective in 2009
|
The fair value measurement guidance specifically related to
nonfinancial assets and nonfinancial liabilities that are
recognized at fair value in the financial statements on a
nonrecurring basis, such as impaired long lived assets or
goodwill, was previously deferred by the Financial Accounting
Standards Board (FASB) and became effective as of
January 1, 2009. For goodwill impairment testing and the
use of fair value of tested reporting units, the Company
reviewed its goodwill impairment model to measure fair value
relying on external inputs and market participants
assumptions rather than exclusively using discounted cash flows
generated by each reporting entity. Such fair value measurement
corresponds to a level 3 fair value hierarchy in the
amended guidance, as described in Note 25. This new fair
value measurement basis, when applied in a comparable market
environment as in the last impairment campaign, had no
significant impact on the results of the goodwill impairment
tests as performed in 2009. However, as a result of the
continuing downturn in market conditions and the general
business environment, this new measurement of the fair value of
the reporting units, when used in future goodwill and impairment
testing, could generate impairment charges as the fair value
will be estimated on business indicators that could reflect a
distressed market.
In December 2007, the FASB issued guidance related to business
combinations and noncontrolling interests in consolidated
financial statements. The guidance significantly changed how
business acquisitions are accounted for and changed the
accounting and reporting for minority interests, which are
recharacterized as noncontrolling interests and classified as a
component of equity. The significant changes from past practice
are as follows: the new guidance expands the definitions of a
business and business combination; it requires the recognition
of contingent consideration at fair value on the acquisition
date; acquisition-related transaction costs and restructuring
costs are expensed as incurred; it changes the way certain
assets are valued and requires retrospective application of
measurement period adjustments. Additionally, for all business
combinations (whether partial, full, or step acquisitions), the
entity that acquires the business records 100% of all assets and
liabilities of the acquired business, including goodwill,
generally at their fair values. The significant changes from
past practice related to noncontrolling interests include that
they are now considered as equity and transactions between the
parent company and the noncontrolling interests are treated as
equity transactions as far as these transactions do not create a
change in control. Additionally, the guidance requires the
recognition of noncontrolling interests at fair value rather
than at book value as in past practice in cases of partial
acquisitions. Such guidance is effective for fiscal years
beginning on or after December 15, 2008 and was adopted by
the Company on January 1, 2009. The business combination
guidance has been applied prospectively. The noncontrolling
interest guidance required retroactive adoption of the
presentation and disclosure requirements for existing
noncontrolling interests. All other requirements of the
noncontrolling interest guidance was applied prospectively.
Acquisition-related costs, which amounted to $7 million and
were capitalized as at December 31, 2008, were immediately
recorded in earnings in the first quarter of 2009. Additionally,
presentation and disclosures of noncontrolling interests
generated a reclassification in all reporting periods as at
January 1, 2009 from the mezzanine line Minority
interests in the previously filed consolidated balance
sheet as at December 31, 2008 to equity for a total amount
of $276 million. No significant
F-23
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
changes were recorded upon adoption in valuation allowance for
acquired deferred tax assets and the resolution of assumed
uncertain tax positions on past business combinations.
In March 2008, the FASB amended the guidance on disclosures
about derivative instruments and hedging activities intended to
improve financial reporting about derivative instruments and
hedging activities and to enable investors to better understand
how these instruments and activities affect an entitys
financial position, financial performance and cash flows through
enhanced disclosure requirements. This amendment is effective
for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early
application permitted. The Company adopted the amendment in the
first quarter of 2009 and included the new disclosure
requirements in Note 25.
In November 2008, additional guidance was issued related to
equity method investment accounting considerations. The guidance
addresses a certain number of matters associated with the impact
that the December 2007 amended guidance on business combinations
and noncontrolling interests might have on the accounting for
equity method investments. This additional guidance is effective
for financial statements issued for fiscal years and interim
periods within those fiscal years beginning on or after
December 15, 2008, with no early application permitted.
This guidance must be applied prospectively to new investments
acquired after the effective date and was adopted by the Company
in the first quarter of 2009. There was no material effect on
its financial position and results of operations as a result of
adoption.
In November 2008, additional guidance was issued on accounting
for defensive intangible assets. This additional guidance
applies to all defensive assets, either acquired from a third
party or through a business combination. However, it excludes
from its scope in-process research and development acquired in a
business combination. The additional guidance states that a
defensive asset should be considered a separate unit of
accounting and should not be combined with the existing asset
whose value it may enhance. A useful life should be assigned
that reflects the acquiring entitys consumption of the
defensive assets expected benefits. The guidance is
effective prospectively to intangible assets acquired on or
after the beginning of the first annual reporting period
beginning on or after December 15, 2008, with no early
application permitted. The Company adopted the guidance in the
first quarter of 2009. The Company did not acquire significant
defensive intangible assets.
In April 2009, the FASB issued clarifying guidance on the
determination of fair values when volumes and levels of activity
for assets or liabilities have significantly decreased and on
identifying transactions that are not orderly. The guidance
clarifies the issue of determining the fair values of assets and
liabilities in non-active markets and that distressed or forced
sales are not considered to represent fair value. It also
requires additional disclosures in both interim and annual
financial statements of the inputs and valuation techniques used
in measuring fair value and disclosure of any changes in
valuation techniques. The clarifying guidance is effective for
interim and annual periods ending after June 15, 2009, with
early adoption permitted in certain circumstances for periods
ending after March 15, 2009. The Company adopted the
guidance in the second quarter of 2009 and included all required
disclosures in its consolidated financial statements beginning
in the period ended June 27, 2009. This guidance did not
have any impact on the Companys financial position and
results of operations.
In April 2009, the FASB also issued clarifying guidance on the
recognition and presentation of other-than-temporary
impairments. This guidance amends the impairment guidance for
certain debt securities and requires an investor to assess the
likelihood of selling the security prior to recovering its cost
basis. If an investor is able to meet the criteria to assert
that it will not have to sell the security before recovery,
impairment charges related to credit losses, or the inability to
collect cash flows sufficient to amortized cost basis, would be
recognized in earnings, while impairment charges related to
non-credit losses would be reflected in other comprehensive
income. The guidance, which is effective for interim and annual
periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009 required
adoption through a cumulative effect adjustment. It also
requires additional disclosures for both annual and interim
periods on debt and equity securities. The Company adopted the
guidance in the second quarter of 2009 and included all required
disclosures in its consolidated financial statements beginning
in the period ended June 27, 2009. The adoption did not
have any impact on the Companys financial position and
results of operations.
In June 2009, the FASB issued guidance on subsequent events,
which establishes general standards of accounting for and
disclosures of events that occur after the balance sheet date
but before the financial statements are issued or are available
to be issued. Although there is new terminology, the guidance is
based on the same principles as those that existed prior to
adoption. The guidance also includes a new required disclosure
of the date through which an entity has evaluated subsequent
events. The guidance is effective for interim and annual periods
F-24
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
ending after June 15, 2009 and was adopted by the Company
in the second quarter of 2009 with no material impact on the
consolidated financial statements.
In June 2009, the U.S. Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin No. 112
(SAB 112), which updates and amends the SEC
staffs previous interpretive guidance relating to business
combinations and noncontrolling interests. Specifically,
SAB 112 updates various sections of the Staff Accounting
Bulletin Series to bring it into conformity with the FASB
guidance on business combinations and noncontrolling interests.
The Company adopted SAB 112 in the second quarter of 2009,
which did not have a material impact on the Companys
financial position and results of operations.
In July 2009, the FASB issued the Accounting Standards
Codification (Codification). The Codification is a
single authoritative source for U.S. GAAP. While not
intended to change U.S. GAAP, the Codification
significantly changes the way in which the accounting literature
is organized. It is structured by accounting topic to identify
the guidance that applies to a specific accounting issue. The
Codification is effective for financial statements that cover
interim and annual periods ending after September 15, 2009.
The Company has adopted the Codification in its interim
consolidated financial statements for the period ending
September 26, 2009.
In October 2009, the FASB updated the Codification to provide
share lenders with guidance on how to account for own-share
lending arrangements. Specifically, a share lender should record
as debt issuance cost the fair value of a share lending
arrangement. The outstanding shares should be excluded from
basic and diluted earnings per share, unless the counterparty
defaults. When a default is probable, expense should be
recognized with an offset to equity for the fair value of the
shares less estimated recoveries. The guidance is effective for
new share lending arrangements for interim and annual periods
beginning on or after June 15, 2009. For existing
arrangements, the guidance is effective for fiscal years
beginning on or after December 15, 2009 and must be applied
retrospectively for arrangements outstanding as of the effective
date. The Company does not hold any share lending arrangements
and thus the guidance did not have any impact on the
Companys financial position and results of operations upon
adoption.
In October 2009, the FASB also released clarifying guidance on
arrangements with multiple deliverables. The new guidance
requires companies to allocate arrangement consideration in
multiple deliverable arrangements in a manner that better
reflects the transactions economics through the use of
relative fair values based on either vendor specific objective
evidence or third party evidence of fair values. If neither of
these is available, the guidance requires the use of
managements best estimate of selling price. The residual
method of allocating arrangement consideration is no longer
permitted. The new guidance also removes non-software components
of tangible products and certain software components of tangible
products from the scope of existing software revenue guidance.
It finally requires expanded qualitative and quantitative
disclosures. The new guidance is effective for fiscal years
beginning on or after June 15, 2010, with early adoption
permitted as early as interim periods ended September 30,
2009. The guidance may be applied either prospectively from the
beginning of the fiscal year for new or materially modified
arrangements or retrospectively. The Company has early adopted
the guidance on a prospective basis, with effect as of
January 1, 2009. The adoption resulted in no material
effects to the Companys financial position, timing of
revenue recognition, units of accounting, allocation of
consideration or results of operations and does not result in
the restatement of any prior interim periods.
|
|
(b)
|
Accounting
pronouncements expected to impact the Companys operations
that are not yet effective and have not been adopted early by
the Company
|
In June 2009, the FASB issued amendments to the guidance on
accounting for transfers of financial assets and the guidance on
consolidation of variable interest entities. The amendment
regarding accounting for transfers of financial assets includes:
(i) eliminating the qualifying special-purpose entity
(QSPE) concept; (ii) a new unit of account
definition that must be met for transfers of portions of
financial assets to be eligible for sale accounting;
(iii) clarifications and changes to the derecognition
criteria for a transfer to be accounted for as a sale;
(iv) a change to the amount of recognized gain or loss on a
transfer of financial assets accounted for as a sale when
beneficial interests are received by the transferor, and
(v) extensive new disclosures. The amendment regarding
consolidation of variable interest entities includes:
(i) the elimination of exemption for QSPEs; (ii) a new
approach for determining who should consolidate a
variable-interest entity and (iii) changes to when it is
necessary to reassess who should consolidate a variable-interest
entity. Both amendments are effective as of the beginning of an
entitys first fiscal year beginning after
November 15, 2009 and for interim periods within that first
year. Earlier adoption is
F-25
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
prohibited. The Company will adopt the amendments as of
January 1, 2010 and does not expect any significant impact
on the Companys financial position and results of
operations.
In September 2009, the FASB issued final guidance on measuring
the fair value of liabilities. It amends the Codification
primarily as follows: (i) it sets forth the types of
valuation techniques to be used to value a liability when a
quoted price in an active market is not available;
(ii) clarifies that when estimating the fair value of a
liability, a reporting entity is not required to include a
separate input or adjustment to other inputs relating to the
existence of a restriction that prevents the transfer of the
liability; (iii) clarifies that both a quoted price in an
active market for the identical liability at the measurement
date and the quoted price for the identical liability when
traded as an asset in an active market when no adjustments to
the quoted price of the asset are required are Level 1 fair
value measurements. The amended guidance is effective for the
first reporting period beginning after issuance. The Company
will adopt the amendment as of January 1, 2010 and does not
expect any significant impact on the Companys financial
position and results of operations.
Changes in the value of marketable securities, as reported in
current and non-current assets on the consolidated balance
sheets as at December 31, 2009 and December 31, 2008
are detailed in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in
|
|
Other than
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fair value
|
|
temporary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included in
|
|
impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OCI* for
|
|
charge
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
available-
|
|
and realized
|
|
|
|
|
|
exchange
|
|
Foreign
|
|
|
|
|
|
|
for-sale
|
|
losses
|
|
|
|
|
|
result
|
|
exchange
|
|
|
|
|
December 31,
|
|
marketable
|
|
on marketable
|
|
|
|
|
|
through
|
|
result
|
|
December 31,
|
|
|
2008
|
|
securities
|
|
securities
|
|
Purchase
|
|
Sale
|
|
P&L
|
|
through OCI
|
|
2009
|
|
|
In millions of U.S. dollars
|
|
Aaa debt securities issued by the U.S. Treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,060
|
|
|
|
(720
|
)
|
|
|
|
|
|
|
|
|
|
|
340
|
|
Aaa debt securities issued by foreign governments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
670
|
|
|
|
(543
|
)
|
|
|
14
|
|
|
|
3
|
|
|
|
144
|
|
Senior debt Floating Rate Notes issued by financial institutions
|
|
|
651
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
(108
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
548
|
|
Auction Rate Securities
|
|
|
242
|
|
|
|
15
|
|
|
|
(140
|
)
|
|
|
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
42
|
|
Total
|
|
|
893
|
|
|
|
23
|
|
|
|
(140
|
)
|
|
|
1,730
|
|
|
|
(1,446
|
)
|
|
|
14
|
|
|
|
|
|
|
|
1,074
|
|
|
|
|
*
|
|
Other Comprehensive Income
|
The floating rate notes and the government bonds are reported as
current assets on the line Marketable Securities on
the consolidated balance sheet as at December 31, 2009,
since they represent investments of funds available for current
operations. The auction-rate securities, which have a final
maturity up to 40 years, were purchased in the
Companys account by Credit Suisse Securities LLC contrary
to the Companys instructions; they are classified as
non-current assets on the line Non-current marketable
securities on the consolidated balance sheet as at
December 31, 2009. On February 16, 2009, the Company
announced that an arbitration panel of the Financial Industry
Regulatory Authority (FINRA), in a full and final
resolution of the issues submitted for determination, awarded
the Company, in connection with such unauthorized auction rate
securities, approximately $406 million, comprising
compensatory damages, as well as interest, attorneys fees
and consequential damages, which were assessed against Credit
Suisse. In addition, the Company is entitled to retain an
interest award of approximately $27 million, out of which
$25 million has already been paid, plus interest at the
rate of 4.64% on the par value of the portfolio from
December 31, 2008 until the award is paid in full. The
Company has petitioned the United States District Court for the
Southern District of New York seeking enforcement of the award.
Credit Suisse has responded by seeking to vacate the FINRA
award. Upon receipt of the award, the Company will transfer
ownership of the portfolio of unauthorized auction rate
securities to Credit Suisse. Until the award is executed, the
Company will continue to own the Auction Rate Securities and,
consequently, will account for them in the same manner as in the
prior periods. In December 2009, Credit Suisse, because of its
contingent interest in certain securities held by us and issued
by Deutsche Bank, requested that we either tender the securities
or accept that the amount that would be received by us pursuant
to such tender ($75 million) be deducted from the sum to be
collected by us if and when the FINRA award is confirmed and
enforced. Pursuant to legal advice, and while reserving our
legal rights, we participated in the tender offer and paid $0.49
per dollar of face value. As a result, we sold Auction Rate
Securities with a face value of $154 million, collected
$75 million and registered $68 million as realized
losses on financial assets. Losses as a result of this
transaction should be recovered upon collection of the award.
The
F-26
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
Company is seeking confirmation of the award from the United
States District Court of the Southern District of New York.
No significant gain or loss was included in earnings as a result
of floating rate notes sales. Out of the fifteen investment
positions in floating-rate notes, with the only exception of a
senior floating rate note of Euro 15 million issued by
Lehman Brothers whose impairment was recorded as
other-than-temporary in 2008, nine positions are in an
unrealized loss position, which has been considered as
temporary. For all floating rate notes, except the Lehman
Brothers senior unsecured bonds described below, the Company
expects to recover the debt securities entire amortized
cost basis. Since the duration of the floating rate note
portfolio is less than two years on average and the securities
have a minimum Moodys rating of A3 (with the only
exception of the Lehman Brothers senior unsecured bonds), the
Company expects the value of the securities to return to par as
the final maturity is approaching. In addition, the Company does
not expect to be required to sell the securities before
maturity. As such, no credit loss has been identified on these
instruments. Thus, under the new clarifying guidance on
other-than-temporary impairments issued in April 2009, as
described in details in Note 2.25, these declines in fair
value are considered as temporary. As a result, the change in
fair value is recognized as a separate component of
Accumulated other comprehensive income (loss) in the
consolidated statements of changes in equity and no cumulative
effect adjustment was recorded in 2009 upon adoption of such
guidance. The Company estimated the fair value of these
financial assets based on publicly quoted market prices, which
corresponds to a level 1 fair value measurement hierarchy.
For the Lehman Brothers senior unsecured bonds, the Company has
been measuring fair value since Lehman Brothers Chapter 11
filing on September 15, 2008 based on information received
from a major credit rating entity. Such fair value information
relies on historical recovery rates and is assessed to
correspond to a level 3 fair value hierarchy. At the date
of Lehman Brothers Chapter 11 filing, the Company did not
expect to recover the entire amortized cost basis of the
securities and reported in earnings an other-than-temporary
impairment charge representing 50% of the face value of the debt
securities. Since all of this other-than-temporary impairment
charge corresponded to credit losses, no cumulative effect
adjustment was recorded in 2009 upon adoption of the new
accounting guidance on recognition and presentation of
other-than-temporary impairment charges. As at December 31,
2009, the Company assessed that it expected to recover the
impaired amortized cost basis of the Lehman Brothers debt
securities amounting to $11 million and no additional
other-than-temporary impairment charge was recorded on the
Lehman Brothers senior unsecured bonds in 2009.
The Company invested in 2009 $1,730 million in French and
U.S. government bonds, of which $1,263 million was
sold or matured in 2009. In 2009, the Company realized in
earnings a $14 million exchange gain upon the sale of
Euro 100 million French Government bonds. The change
in fair value of the $484 million government debt
securities classified as available-for-sale was not material as
at December 31, 2009. The Company estimated the fair value
of these financial assets based on publicly quoted market
prices, which corresponds to a level 1 fair value
measurement hierarchy. The duration of the government bonds
portfolio is less than five months on average and the securities
are rated Aaa by Moodys.
Until the FINRA award is executed, the ownership of the
auction-rate securities must be considered as a separate unit of
accounting for impairment assessment. Consequently, upon
adoption of the new accounting guidance on recognition and
presentation of other-than-temporary impairment charges, the
Company determined that in the assumption that the FINRA award
was not executed the Company would not expect to recover the
entire amortized cost basis of the securities resulting in an
impairment of the securities based on credit losses.
Consequently, the Company reported an other-than-temporary
decline in fair value amounting to $72 million in 2009,
which was immediately reported in the consolidated statement of
income on the line Other-than-temporary impairment charge
on financial assets. As this impairment assessment was in
line with past accounting practice, no cumulative effect
adjustment was recorded in 2009 upon adoption of the new
accounting guidance. From the first quarter of 2008, the fair
value measure of these securities, which corresponds to a
level 3 fair value hierarchy, was based on a theoretical
model using yields obtainable for comparable assets. The value
inputs for the evaluation of these securities were publicly
available indexes of securities with the same rating, similar
duration and comparable/similar underlying collaterals or
industries exposure (such as ABX for the collateralized debt
obligation, ITraxx and IBoxx for the credit-linked notes), which
the Company believes approximates the orderly exit value in the
current market. In 2009, the value of the remaining ARS
securities increased in value by $15 million, which has
been recorded as a separate component of Accumulated other
comprehensive income (loss) in the consolidated statements
of changes in equity. The estimated value of these securities
could further decrease due to a
F-27
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
deterioration of the corporate industry indexes used for the
evaluation. Fair value measurement information is further
detailed in Note 25.
|
|
4.
|
TRADE
ACCOUNTS RECEIVABLE, NET
|
Trade accounts receivable, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Trade accounts receivable
|
|
|
1,386
|
|
|
|
1,089
|
|
Less valuation allowance
|
|
|
(19
|
)
|
|
|
(25
|
)
|
Total
|
|
|
1,367
|
|
|
|
1,064
|
|
Bad debt expense in 2009, 2008 and 2007 was $2 million,
$1 million and $1 million respectively. In 2009, 2008
and 2007, one customer, the Nokia group of companies,
represented 16.1%, 17.5% and 21.1% of consolidated net revenues,
respectively.
In 2009, $11 million of receivables due to ST Ericsson in
2009 were sold without recourse, with a financial cost of less
than 0.2% of the factored amount. The Company enters into
factoring transactions to accelerate the realization in cash of
some trade accounts receivable.
Inventories, net of reserve, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
Raw materials
|
|
|
73
|
|
|
|
76
|
|
Work-in-process
|
|
|
769
|
|
|
|
1,124
|
|
Finished products
|
|
|
433
|
|
|
|
640
|
|
Total
|
|
|
1,275
|
|
|
|
1,840
|
|
As at December 31, 2008, inventories included
$203 million related to the consolidation of the NXP
wireless business. The fair value adjustment arising from the
purchase accounting for the acquisition as discussed in
Note 7 was totally expensed in cost of sales as at
December 31, 2008.
|
|
6.
|
OTHER
RECEIVABLES AND ASSETS
|
Other receivables and assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
Receivables from government agencies
|
|
|
208
|
|
|
|
125
|
|
Taxes and other government receivables
|
|
|
272
|
|
|
|
238
|
|
Advances
|
|
|
79
|
|
|
|
83
|
|
Prepayments
|
|
|
50
|
|
|
|
64
|
|
Loans and deposits
|
|
|
14
|
|
|
|
18
|
|
Interest receivable
|
|
|
10
|
|
|
|
16
|
|
Financial instruments
|
|
|
36
|
|
|
|
37
|
|
Held-for-trading
cancellable swaps
|
|
|
|
|
|
|
34
|
|
Other current assets
|
|
|
84
|
|
|
|
70
|
|
Total
|
|
|
753
|
|
|
|
685
|
|
Due to the high volatility in the interest rates generated by
the recent financial turmoil, the Company assessed in 2008 that
the swaps, entered into to hedge the fair value of a portion of
the convertible bonds due 2016, had been no longer effective
since November 1, 2008 and the fair value hedge
relationship was discontinued. Consequently, the swaps were
classified as
held-for-trading
financial assets and reported at fair value as a component of
Other receivables and current assets in the
consolidated balance sheet as at December 31, 2008 since
the Company intended to hold the derivative instruments for a
short period of time which will not exceed twelve months. An
F-28
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
unrealized gain was recognized in earnings from discontinuance
date totaling $15 million and was reported on the line
Gain (loss) on financial assets of the consolidated
statement of income for the year ended December 31, 2008.
During the first quarter of 2009, the Company sold these
cancellable swaps and generated a loss of $8 million, which
is included in the line Gain (loss) on financial
assets.
Genesis
Microchip Inc.
On January 17, 2008, the Company acquired effective control
of Genesis Microchip Inc. (Genesis Microchip) under
the terms of a tender offer announced on December 11, 2007.
Payment of approximately $340 million for the acquired
shares was made through a wholly-owned subsidiary of the Company
that was merged with and into Genesis Microchip promptly
thereafter and received $170 million of cash and cash
equivalents from Genesis Microchip. Additional direct costs
associated with the acquisition amounting to approximately
$6 million were paid in 2008. On closing, Genesis Microchip
became part of the Companys Home Entertainment &
Displays business activity which is part of the Automotive
Consumer Computer and Communications Infrastructure Product
Groups segment. The acquisition of Genesis Microchip was
performed to expand the Companys leadership in the digital
TV market. Genesis Microchip will enhance the Companys
technological capabilities for the transition to fully digital
solutions in the segment and strengthen its product intellectual
property portfolio.
Purchase price allocation resulted in the recognition of
$11 million in marketable securities, $14 million in
property, plant and equipment, $44 million of deferred tax
assets, net of valuation allowance, while intangible assets
included $44 million of core technologies, $27 million
related to customer relationships, $2 million of
trademarks, $15 million of goodwill primarily related to
the workforce, and not deductible for tax purposes, and
$2 million of liabilities net of other assets. During the
course of 2008, the company reduced its estimate of direct cost
associated with the acquisition and made a corresponding
reduction in the amount of purchased goodwill. The Company also
recorded in 2008 $21 million of acquired IP R&D with
no alternative future use that the Company immediately wrote
off. Such in-process research and development charge was
recorded on the line research and development
expenses in the consolidated statement of income in the
first quarter of 2008. The core technologies have an average
useful life of approximately four years, the customers
relationship of seven years and the trademarks of approximately
two years. The Company obtained a third party independent
appraisal to assist in making its purchase price allocation
although the Company takes full responsibility for such
allocation.
NXP
Wireless
On August 2, 2008, ST-NXP Wireless, a joint venture owned
80% by the Company, began operations based on contributions of
the wireless businesses of the Company and NXP, as the
noncontrolling interest holder. The Company paid to NXP
$1.55 billion for the 80% stake, which included a control
premium, and received cash from the NXP businesses of
$33 million. The consideration also included a contribution
in kind, measured at fair value, corresponding to a 20% interest
in the Companys wireless business. Additional direct costs
associated with the acquisition amounted to $21 million and
were fully paid as at December 31, 2009. On closing, ST-NXP
Wireless was determined to be included in the Wireless segment.
Purchase price allocation resulted in the recognition of
$308 million in property, plant and equipment,
$72 million of tax receivables net of valuation allowances,
inventory of $282 million which includes $88 million
of step-up
in value that increased charges against earnings in 2008 as the
inventory was sold, deferred tax liabilities of
$14 million, restructuring reserves of $44 million and
$42 million in liabilities, net of other assets. In
addition, intangible assets recognized included core
technologies of $223 million, customer relationships of
$405 million, and acquired IP R&D of $76 million.
Such IP R&D did not have any alternative future use and was
written-off immediately in the consolidated statement of income
in 2008 to the line Research and development. The
resulting goodwill in the transaction was $669 million at
acquisition date. During 2009 the Company made final adjustments
to the acquisition related goodwill and reduced its value by
$12 million with offsetting adjustments in property, plant
and equipment, tax receivables and net other assets and
liabilities. The goodwill deductible for tax purposes amounts to
approximately $108 million. The core technologies have
useful lives ranging from approximately three and a half to six
and a half years and the customer relationships average
useful lives were estimated at 12 years. To assist in
making the purchase price allocation for the contribution from
the noncontrolling interest holder, the Company obtained a third
party independent appraisal although the Company remains fully
responsible for the allocation. The contribution by the Company
was carried over at its book value. The restructuring reserves
represent
F-29
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
estimated redundancy costs incurred to achieve the
rationalization of the combined organization as anticipated as
part of the transaction and cover approximately 500 people,
including
sub-contractors.
The plan affects mainly employees in Belgium, China, Germany,
India, the Netherlands, Switzerland and the United States of
America.
On February 1, 2009, the Company exercised its option to
purchase the 20% noncontrolling interest of NXP in ST-NXP
wireless for a price of $92 million. Transactions with
noncontrolling interests are summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
|
In millions of U.S. dollars
|
|
Net loss attributable to parent company
|
|
|
(1,131
|
)
|
|
|
(786
|
)
|
Transfers (to) from noncontrolling interests:
|
|
|
|
|
|
|
|
|
Increase in parent companys capital surplus for purchase
of outstanding 20% of ST-NXP shares
|
|
|
119
|
|
|
|
|
|
Change from net loss attributable to parent company and
transfers (to) from noncontrolling interests
|
|
|
(1,012
|
)
|
|
|
(786
|
)
|
Ericsson
Mobile Platforms
On February 3, 2009, the Company closed a transaction to
combine the businesses of Ericsson Mobile Platforms
(EMP) and ST-NXP Wireless into a new venture,
ST-Ericsson. ST-Ericsson combines the resources of the two
companies and focuses on developing and delivering a complete
portfolio of mobile platforms wireless semiconductor solutions
across the broad spectrum of mobile technologies. The operations
of ST-Ericsson are conducted through two groups of companies.
The parent of one of the groups is ST-Ericsson Holding AG
(JVS), which is owned 50% plus a controlling share
by ST. JVS is responsible for the full commercial operation of
the combined businesses, namely sales, marketing, supply and the
full product responsibility. The parent of the other group,
ST-Ericsson AT Holding AG (JVD), is owned 50% plus a
controlling share by Ericsson and is focused on fundamental
R&D activities. Both JVS and JVD are variable interest
entities. The Company has determined that it is the primary
beneficiary of JVS and therefore consolidates JVS, but that it
is not the primary beneficiary of JVD and therefore accounts for
its noncontrolling interest in JVD under the equity method of
accounting. JVD is discussed further in Note 11. In
addition to the contributions by ST and Ericsson of their
respective businesses to the venture entities, the consideration
received from Ericsson included $1,155 million in cash, of
which $700 million was paid directly to the Company. The
transaction has been accounted for as a business combination
under the amended business combination guidance adopted by the
Company as of January 1, 2009.
The purchase accounting results are the following, in millions
of U.S. dollars:
|
|
|
|
|
Consideration transferred:
|
|
|
|
|
Noncontrolling interest in the Companys business
contributed
|
|
|
1,105
|
|
Cash received by the Company
|
|
|
(700
|
)
|
Equity investment in JVD
|
|
|
(99
|
)
|
|
|
|
|
|
Total consideration transferred
|
|
|
306
|
|
Acquisition related costs included in SG&A
|
|
|
9
|
|
Assets acquired and liabilities assumed:
|
|
|
|
|
Cash in JVS
|
|
|
445
|
|
Other current assets and liabilities net
|
|
|
(47
|
)
|
Customer relationships
|
|
|
48
|
|
Property, plant and equipment
|
|
|
23
|
|
Total identifiable net assets
|
|
|
469
|
|
Noncontrolling interest in EMP business acquired
|
|
|
(306
|
)
|
Goodwill
|
|
|
143
|
|
Total
|
|
|
306
|
|
The goodwill arises principally due to expected synergies and
the value of the assembled workforce. It is tax deductible for
an amount of $26 million. In connection with this
transaction, the Company recognized acquisition
F-30
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
costs of $9 million, which were included in selling,
general and administrative expenses in 2009. The customer
relationships have a useful life of four years. There are no
contingent assets or liabilities recognized in the transaction.
The fair value of the noncontrolling interests was determined by
the Company with the assistance of a third party evaluation of
the fair values of the businesses contributed. Due to lack of
comparable market transactions, the EMP business was valued
using a discounted cash flow approach. The primary inputs used
to measure the fair value were the stand alone business plan for
the five-year period
2009-2013,
including certain cost synergies of the venture, and the
weighted average cost of capital, which was determined to be
8.9%. This represents a Level 3 measurement of fair value
in the fair value measurement hierarchy. The resulting value of
the EMP business was then allocated between the two entities of
the venture as follows: (a) specifically identifiable
assets as well as customer-related intangibles and the cost
synergies were allocated to the portion of the EMP business
contributed to JVS, and (b) specifically identifiable
assets as well as the value of the usage rights of the
technology were allocated to the portion of the EMP business
contributed to JVD. The fair value of the Companys
contribution of its ST-NXP Wireless business to JVS was
determined based upon the valuation of the EMP business
contributed to JVS and JVD and the cash consideration that was
agreed upon between the Company and Ericsson to compensate for
the difference in fair values between the two companies
contributions. This valuation is therefore also considered
Level 3. Due to the significant minority rights of the
Company and Ericsson in JVD and JVS respectively, no control
premium or discount was assigned in the valuation of the
noncontrolling interests. Upon closing, JVS was determined to be
included in the reportable segment Wireless.
The unaudited proforma information below assumes that JVS was
created on January 1, 2009 and 2008 and incorporates the
results of JVS beginning on those dates. The unaudited twelve
months ended December 31, 2009 and December 31, 2008
information has been adjusted to incorporate the results of JVS
on January 1, 2009 and January 1, 2008. Such results
include estimated results of the business acquired, adjustments
to conform to the Companys accounting policies, additional
depreciation and amortization resulting from the step up to the
fair values of the tangible and intangible assets, consequential
tax effects and noncontrolling interest adjustments. These
amounts are presented for information purposes only and are not
indicative of the results of operations that would have been
achieved had the acquisition taken place as of January 1,
2009 and January 1, 2008.
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Pro forma Statements of Income (unaudited)
|
|
2009
|
|
|
2008
|
|
|
|
In millions of U.S. dollars
|
|
|
Net revenues
|
|
|
8,536
|
|
|
|
10,485
|
|
Gross profit
|
|
|
2,640
|
|
|
|
4,027
|
|
Operating expenses
|
|
|
(3,688
|
)
|
|
|
(4,308
|
)
|
Operating loss
|
|
|
(1,048
|
)
|
|
|
(281
|
)
|
Net loss attributable to parent company
|
|
|
(1,113
|
)
|
|
|
(798
|
)
|
Loss per share (basic)
|
|
|
(1.27
|
)
|
|
|
(0.89
|
)
|
Loss per share (diluted)
|
|
|
(1.27
|
)
|
|
|
(0.89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Statements of Income, as reported
|
|
2009
|
|
|
2008
|
|
|
|
In millions of U.S. dollars
|
|
|
Net revenues
|
|
|
8,510
|
|
|
|
9,842
|
|
Gross profit
|
|
|
2,626
|
|
|
|
3,560
|
|
Operating expenses
|
|
|
(3,649
|
)
|
|
|
(3,758
|
)
|
Operating loss
|
|
|
(1,023
|
)
|
|
|
(198
|
)
|
Net loss attributable to parent company
|
|
|
(1,131
|
)
|
|
|
(786
|
)
|
Loss per share (basic)
|
|
|
(1.29
|
)
|
|
|
(0.88
|
)
|
Loss per share (diluted)
|
|
|
(1.29
|
)
|
|
|
(0.88
|
)
|
Net revenues of the EMP business for the period from the
acquisition date of February 3, 2009 to December 31,
2009 included in the consolidated statement of income were
$300 million. Net income (loss) during this period is no
F-31
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
longer separately identifiable, as the EMP business was
immediately integrated across a large number of legal entities
combining the cost structures of the EMP and ST-NXP Wireless
businesses.
Following the segment reorganization as described in
Note 27, the Company has restated its results in prior
periods for illustrative comparisons of its allocation of
goodwill by product segment.
Changes in the carrying amount of goodwill were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
Computer and
|
|
|
|
Industrial and
|
|
|
|
|
|
|
Communication
|
|
Wireless
|
|
Multisegment
|
|
|
|
|
|
|
Infrastructure
|
|
Sector
|
|
Sector
|
|
|
|
|
|
|
(ACCI)
|
|
(Wireless)
|
|
(IMS)
|
|
Other
|
|
Total
|
|
December 31, 2007
|
|
|
41
|
|
|
|
147
|
|
|
|
100
|
|
|
|
2
|
|
|
|
290
|
|
Business Combination
|
|
|
15
|
|
|
|
669
|
|
|
|
|
|
|
|
|
|
|
|
684
|
|
PGI goodwill impairment
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(6
|
)
|
Incard goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
Foreign currency translation
|
|
|
(1
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(3
|
)
|
December 31, 2008
|
|
|
51
|
|
|
|
816
|
|
|
|
91
|
|
|
|
|
|
|
|
958
|
|
Business Combination
|
|
|
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
131
|
|
Vision goodwill impairment
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
Foreign currency translation
|
|
|
(2
|
)
|
|
|
(11
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(12
|
)
|
December 31, 2009
|
|
|
43
|
|
|
|
936
|
|
|
|
92
|
|
|
|
|
|
|
|
1,071
|
|
Gross goodwill recognized amounted to respectively
$1,138 million and $1,019 million as at
December 31, 2009 and 2008. Accumulated impairment amounted
to respectively $67 million and $61 million as at
December 31, 2009 and 2008.
On February 3, 2009, the Company closed a transaction to
combine the businesses of Ericsson Mobile Platforms
(EMP) and ST-NXP Wireless into a new venture, named
ST-Ericsson. An amount of $143 million of the purchase
price for this transaction was allocated to goodwill. This
business combination is discussed in details in Note 7.
Additionally, at the beginning of the third quarter of 2009, the
Company made final adjustments to the NXP business combination
and decreased goodwill by $12 million.
In 2008, the Company acquired 100% of Genesis Microchip Inc. and
80% of the NXP wireless business. Amounts of $15 million
and $669 million, respectively, of the purchase price for
these two transactions were allocated to goodwill. These
business combinations are discussed in details in Note 7.
During the first half of 2009, the Company performed an
impairment test on goodwill and based on this test, impairment
charge totaling $6 million was recorded on the line
Impairment, restructuring charges and other related
closure costs of the consolidated statement of income for
the period ended December, 2009. This impairment charge is
further described in Note 19.
In the third quarter of 2009 and 2008, the Company performed its
annual impairment test on goodwill and indefinite long-lived
assets, which did not evidence any additional impairment charge
to be recorded in 2009 and charges totaling $13 million
were recorded on the line Impairment, restructuring
charges and other related closure costs of the
consolidated statement of income for the year ended
December 31, 2008. These impairment charges are further
described in Note 19.
F-32
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
|
|
9.
|
OTHER
INTANGIBLE ASSETS
|
Other intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
December 31, 2009
|
|
Cost
|
|
|
Amortization
|
|
|
Cost
|
|
|
Technologies & licences
|
|
|
787
|
|
|
|
(501
|
)
|
|
|
286
|
|
Contractual customer relationships
|
|
|
485
|
|
|
|
(70
|
)
|
|
|
415
|
|
Purchased software
|
|
|
302
|
|
|
|
(226
|
)
|
|
|
76
|
|
Other intangible assets
|
|
|
119
|
|
|
|
(77
|
)
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,693
|
|
|
|
(874
|
)
|
|
|
819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
December 31, 2008
|
|
Cost
|
|
|
Amortization
|
|
|
Cost
|
|
|
Technologies & licences
|
|
|
707
|
|
|
|
(365
|
)
|
|
|
342
|
|
Contractual customer relationships
|
|
|
436
|
|
|
|
(22
|
)
|
|
|
414
|
|
Purchased software
|
|
|
253
|
|
|
|
(200
|
)
|
|
|
53
|
|
Other intangible assets
|
|
|
125
|
|
|
|
(71
|
)
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,521
|
|
|
|
(658
|
)
|
|
|
863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The line Other intangible assets in the table above consists
primarily of internally developed software. The amortization
expense on capitalized software costs in 2009, 2008 and 2007 was
$20 million, $15 million, and $11 million,
respectively.
On February 3, 2009, the Company closed a transaction to
combine the businesses of Ericsson Mobile Platforms
(EMP) and ST-NXP Wireless into a new venture, named
ST-Ericsson. An amount of $48 million of the purchase price
for this transaction was allocated to customer relationships.
This business combination is discussed in details in Note 7.
The amortization expense in 2009, 2008 and 2007 was
$208 million, $141 million, and $82 million,
respectively.
The estimated amortization expense of the existing intangible
assets for the following years is:
|
|
|
|
|
Year
|
|
|
|
|
2010
|
|
|
235
|
|
2011
|
|
|
215
|
|
2012
|
|
|
155
|
|
2013
|
|
|
58
|
|
2014
|
|
|
39
|
|
Thereafter
|
|
|
117
|
|
Total
|
|
|
819
|
|
F-33
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
|
|
10.
|
PROPERTY,
PLANT AND EQUIPMENT
|
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
December 31, 2009
|
|
Cost
|
|
|
Depreciation
|
|
|
Cost
|
|
|
Land
|
|
|
96
|
|
|
|
|
|
|
|
96
|
|
Buildings
|
|
|
1,004
|
|
|
|
(294
|
)
|
|
|
710
|
|
Capital leases
|
|
|
79
|
|
|
|
(61
|
)
|
|
|
18
|
|
Facilities & leasehold improvements
|
|
|
3,158
|
|
|
|
(2,332
|
)
|
|
|
826
|
|
Machinery and equipment
|
|
|
13,765
|
|
|
|
(11,632
|
)
|
|
|
2,133
|
|
Computer and R&D equipment
|
|
|
544
|
|
|
|
(458
|
)
|
|
|
86
|
|
Other tangible assets
|
|
|
252
|
|
|
|
(146
|
)
|
|
|
106
|
|
Construction in progress
|
|
|
106
|
|
|
|
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
19,004
|
|
|
|
(14,923
|
)
|
|
|
4,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
December 31, 2008
|
|
Cost
|
|
|
Depreciation
|
|
|
Cost
|
|
|
Land
|
|
|
89
|
|
|
|
|
|
|
|
89
|
|
Buildings
|
|
|
1,001
|
|
|
|
(264
|
)
|
|
|
737
|
|
Capital leases
|
|
|
68
|
|
|
|
(53
|
)
|
|
|
15
|
|
Facilities & leasehold improvements
|
|
|
3,153
|
|
|
|
(2,115
|
)
|
|
|
1,038
|
|
Machinery and equipment
|
|
|
13,700
|
|
|
|
(11,037
|
)
|
|
|
2,663
|
|
Computer and R&D equipment
|
|
|
528
|
|
|
|
(440
|
)
|
|
|
88
|
|
Other tangible assets
|
|
|
187
|
|
|
|
(127
|
)
|
|
|
60
|
|
Construction in progress
|
|
|
49
|
|
|
|
|
|
|
|
49
|
|
Total
|
|
|
18,775
|
|
|
|
(14,036
|
)
|
|
|
4,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As described in note 7, an amount of $23 million of
the purchase price for the business of Ericsson Mobile Platforms
(EMP) was allocated to property, plant and equipment.
Upon the acquisition of Genesis, the Company recorded in January
2008 property, plant and equipment totaling $14 million.
The integration of NXP wireless business in 2008 resulted in the
consolidation of long-lived assets totaling $302 million,
of which $25 million corresponded to fair value
step-up on
the Companys 80% interest.
In 2008, as described in Note 19, the Company recorded
$77 million impairment charge on long-lived assets of the
Companys manufacturing sites in Carrollton (Texas) and in
Phoenix (Arizona), of which $75 million on Phoenix site
that had previously been designated for closure as part of the
2007 restructuring plan.
The depreciation charge in 2009, 2008 and 2007 was
$1,159 million, $1,225 million and
$1,331 million, respectively.
Capital investment funding has totaled $4 million,
$4 million and $9 million in the years ended December
31, 2009, 2008 and 2007, respectively. Public funding reduced
depreciation charges by $22 million, $25 million and
$33 million in 2009, 2008 and 2007 respectively.
For the years ended December 31, 2009, 2008 and 2007 the
Company made equipment sales for cash proceeds of
$10 million, $8 million and $4 million
respectively.
F-34
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
Equity investments as at December 31, 2009 and 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
|
|
|
Ownership
|
|
|
Carrying
|
|
|
Ownership
|
|
|
|
value
|
|
|
Percentage
|
|
|
value
|
|
|
Percentage
|
|
|
|
(In millions of USD, except percentages)
|
|
|
Numonyx Holdings B.V
|
|
|
193
|
|
|
|
48.6
|
%
|
|
|
496
|
|
|
|
48.6
|
%
|
ST-Ericsson AT Holding
|
|
|
67
|
|
|
|
49.9
|
%
|
|
|
|
|
|
|
|
|
Other equity investments
|
|
|
13
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
Total
|
|
|
273
|
|
|
|
|
|
|
|
510
|
|
|
|
|
|
Numonyx
In 2007, the Company entered into an agreement with Intel
Corporation and Francisco Partners L.P. to create a new
independent semiconductor company from the key assets of the
Companys Flash Memory Group and Intels flash memory
business (FMG deconsolidation). Under the terms of
the agreement, the Company would sell its flash memory assets,
including its NAND joint venture interest with Hynix as
described below and other NOR resources, to the new company,
which was called Numonyx Holdings B.V. (Numonyx),
while Intel would sell its NOR assets and resources. In
connection with this announcement, the Company reported in 2007
an impairment charge of $1,106 million to adjust the value
of these assets to fair value less costs to sell.
The Numonyx transaction closed on March 30, 2008. At
closing, through a series of steps, the Company contributed its
flash memory assets and businesses as previously announced, for
109,254,191 common shares of Numonyx, representing a 48.6%
equity ownership stake valued at $966 million, and
$156 million in long-term subordinated notes, as described
in Note 12. As a consequence of the final terms and balance
sheet at the closing date and additional agreements on assets to
be contributed, coupled with changes in valuation for comparable
Flash memory companies, the Company incurred an additional
pre-tax loss of $190 million for the year ended
December 31, 2008, which was reported on the line
Impairment, restructuring charges and other related
closure costs of the consolidated statement of income.
Upon creation, Numonyx entered into financing arrangements for a
$450 million term loan and a $100 million committed
revolving credit facility from two primary financial
institutions. The loans have a four-year term. Intel and the
Company have each granted in favor of Numonyx a 50% debt
guarantee not joint and several. In the event of default, the
banks will exercise the Companys rights, subordinated to
the repayment to senior lenders, to recover the amounts paid
under the guarantee through the sale of the assets. The debt
guarantee was evaluated under the FASB guidance on guarantee
liabilities. It resulted in the recognition of a
$69 million liability, corresponding to the fair value of
the guarantee at inception of the transaction. The same amount
was also added to the value of the equity investment. The debt
guarantee obligation was reported on the line Other
non-current liabilities in the consolidated balance sheet
as at December 31, 2009 and 2008. As at December 31,
2009, the guarantee was not exercised. As at December 31 2009,
Numonyx was current on their debt obligations, not in default of
any debt covenants and did not expect to be in default on these
obligations in the foreseeable future.
The Company accounts for its share in Numonyx under the equity
method based on the actual results of the venture. In the
valuation of Numonyx investment under the equity method, the
Company applies a one-quarter lag reporting. For the year ended
December 31, 2009 the Company reported on the line
Earnings (loss) on equity investments on the
Companys consolidated statement of income
$171 million of equity loss in Numonyx equity investment,
that represents the Companys proportional share of the
loss reported by Numonyx in the fourth quarter of 2008 and the
three first quarters of 2009, a benefit of $69 million
related to the amortization of basis differences arising
principally from impairment charges recorded by the Company in
prior periods. Furthermore, the Company evaluates on a quarterly
basis the fair value of the investment in Numonyx based upon a
combination of (i) an income approach, using net equity
adjusted for net debt, and (ii) a market approach, using
the metrics of comparable public companies, both in relation to
actual results and the most updated available forecast. In the
first quarter of 2009, the Company recorded an impairment charge
of $200 million considered as
other-than-temporary,
resulting from a re-assessment by the Company of the fair value
of its investment in Numonyx following the deterioration of both
the global economic situation and the memory market segment, as
well as a revision by Numonyx of its 2009 projected results. At
December 31, 2009 the Companys investment in Numonyx,
including the amount of the debt guarantee, amounted to
$193 million.
F-35
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
The Companys current maximum exposure to loss as a result
of its involvement with Numonyx is limited to its equity
investment, its investment in subordinated notes and its debt
guarantee obligation.
Summarized unaudited financial information for Numonyx, as of
September 26, 2009 and for the twelve months then ended
that, because of the one-quarter lag discussed above, correspond
to the amounts included in the Companys Consolidated
Financial Statements as of December 31, 2009 and for the
twelve months then ended, are as follows:
|
|
|
|
|
|
|
In million of US dollars
|
|
|
Statement of Income Information:
|
|
|
|
|
Net sales
|
|
|
1,673
|
|
Gross profit
|
|
|
289
|
|
Net income (loss)
|
|
|
(352
|
)
|
Financial Position Information:
|
|
|
|
|
Current assets
|
|
|
1,322
|
|
Noncurrent assets
|
|
|
1,220
|
|
Current liabilities
|
|
|
348
|
|
Noncurrent liabilities
|
|
|
894
|
|
Net worth
|
|
|
1,300
|
|
ST-Ericsson
AT Holding
As disclosed in Note 7, on February 3, 2009, the
Company announced the closing of a transaction to combine the
businesses of Ericsson Mobile Platforms (EMP) and
ST-NXP Wireless into a new venture, named
ST-Ericsson.
As part of the transaction, the Company received an interest in
ST-Ericsson AT Holding AG (JVD). JVD, in which the
Company owns 50% less a controlling share held by Ericsson, is
the parent company of a group of entities that perform
fundamental R&D activities for the ST-Ericsson venture. The
Company has determined that JVD is a variable interest entity,
but has determined that the Company is not the primary
beneficiary of the entity. Accordingly, the Company accounts for
its noncontrolling interest in JVD under the equity method of
accounting. The Companys investment in JVD at the date of
the transaction was valued at $99 million. In 2009, the
line Loss on equity investments in the
Companys consolidated statement of income included a
charge of $32 million related to JVD. This amount includes
the amortization of basis differences. The Companys
current maximum exposure to loss as a result of its involvement
with JVD is limited to its equity investment, which was shown at
$67 million on the consolidated balance sheet at
December 31, 2009.
Hynix-Numonyx
Joint Venture
In 2004, the Company signed a joint venture agreement with Hynix
Semiconductor Inc. to build a front-end memory manufacturing
facility in Wuxi City, Jiangsu Province, China. Under the
agreement, Hynix Semiconductor Inc. contributed
$500 million for a 67% equity interest and the Company
contributed $250 million for a 33% equity interest.
Additionally, the Company originally committed to grant
$250 million in long-term financing to the new joint
venture guaranteed by the subordinated collateral of the joint
ventures assets. On March 30, 2008, the investment in
the joint venture, which amounted to $291 million at the
time, was transferred to Numonyx upon the formation of that
entity. Due to regulatory and withholding tax issues the Company
could not directly provide the joint venture with the
$250 million long-term financing as originally planned. As
a result, in 2006, the Company entered into a ten-year term debt
guarantee agreement with an external financial institution
through which the Company guaranteed the repayment of the loan
by the joint venture to the bank. The guarantee agreement
includes the Company placing up to $250 million in cash on
a deposit account. The guarantee deposit will be used by the
bank in case of repayment failure from the joint venture, with
$250 million as the maximum potential amount of future
payments the Company, as the guarantor, could be required to
make. In the event of default and failure to repay the loan from
the joint venture, the bank will exercise the Companys
rights, subordinated to the repayment to senior lenders, to
recover the amounts paid under the guarantee through the sale of
the joint ventures assets. The $250 million, which
has been on deposit since 2007, has been reported as
Restricted cash on the consolidated balance sheet as
at December 2009 and 2008. The debt guarantee resulted in the
recognition of a $17 million liability, corresponding to
the fair value of the guarantee at inception of the transaction.
The debt guarantee obligation continues to be reported on the
line Other non-current liabilities in the
consolidated balance sheet as at December 31, 2009, since
the terms of FMG deconsolidation did not include the transfer of
the guarantee. As at
F-36
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
December 31, 2009, the guarantee was not exercised. To the
best of managements knowledge as at December 31,
2009, the joint venture was current on their debt obligations,
not in default of any debts covenants and did not expect to be
in default on these obligations in the foreseeable future. The
Companys current maximum exposure to loss as a result of
its involvement with the joint venture is limited to its
indirect investment through Numonyx and the debt guarantee
obligation.
|
|
12.
|
OTHER
INVESTMENTS AND OTHER NON-CURRENT ASSETS
|
Other investments and other non-current assets consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Investments carried at cost
|
|
|
29
|
|
|
|
32
|
|
Available-for-sale
equity securities
|
|
|
10
|
|
|
|
5
|
|
Long-term notes from equity investment
|
|
|
173
|
|
|
|
168
|
|
Held-for-trading
equity securities
|
|
|
7
|
|
|
|
7
|
|
Long-term receivables related to funding
|
|
|
8
|
|
|
|
8
|
|
Long-term receivables related to tax refund
|
|
|
170
|
|
|
|
206
|
|
Debt issuance costs, net
|
|
|
4
|
|
|
|
7
|
|
Prepaid for pension
|
|
|
2
|
|
|
|
1
|
|
Deposits and other non-current assets
|
|
|
39
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
442
|
|
|
|
477
|
|
|
|
|
|
|
|
|
|
|
Investments carried at cost are equity securities with no
readily determinable fair value. In 2009, the Company incurred
other-than-temporary
impairment charge on one of its investments for $3 million
that was recorded on the line Impairment, restructuring
charges and other related closure costs in the
consolidated statements of income for the year ended
December 31, 2009. The impairment is based on a review of
the valuation of the entity upon liquidation. In 2008, the
Company incurred
other-than-temporary
impairment charges on two of its investments, which totaled
$6 million and were recorded on the line Impairment,
restructuring charges and other related closure costs in
the consolidated statements of income for the year ended
December 31, 2008. For one investment, the impairment
charge was based on the valuation for the underlying investment
of a new round of third party financing. For the other one, the
valuation at fair value was based on the valuation of the entity
upon liquidation. The aggregate carrying amount of cost method
investments that the investor did not evaluate for impairment in
2009 and 2008 because there was no triggering event is
$29 million and $32 million, respectively.
The Company entered into a joint venture agreement in 2002 with
Dai Nippon Printing Co, Ltd for the development and production
of Photomask in which the Company holds a 19% equity interest.
The joint venture, DNP Photomask Europe S.p.A, was initially
capitalized with the Companys contribution of
2 million of cash. Dai Nippon Printing Co, Ltd
contributed 8 million of cash for an 81% equity
interest. In the event of the liquidation of the joint-venture,
the Company is required to repurchase the land at cost, and the
facility at 10% of its net book value, if no suitable buyer is
identified. No provision for this obligation has been recorded
to date. At December 31, 2009, the Companys total
contribution to the joint venture is $10 million. The
Company continues to maintain its 19% ownership of the joint
venture, and therefore continues to account for this investment
under the cost method. The Company has identified the joint
venture as a Variable Interest Entity (VIE), but has determined
that it is not the primary beneficiary of the VIE. The
Companys current maximum exposure to loss as a result of
its involvement with the joint venture is limited to its equity
investment.
Long-term receivables related to funding are mainly public
grants to be received from governmental agencies in Italy and
France as part of long-term research and development,
industrialization and capital investment projects.
Long-term receivables related to tax refund correspond to tax
benefits claimed by the Company in certain of its local tax
jurisdictions, for which collection is expected beyond one year.
The Company received upon the creation of Numonyx long-term
subordinated notes amounting to $156 million at inception,
bearing interest at market rates and with a maturity as at
March 30, 2038. These long-term notes yield 9.5% interest,
generally payable in kind for seven years and in cash
thereafter. In liquidation events in which proceeds are
insufficient to pay off the term loan, revolving credit
facilities and the Francisco Partners preferential
F-37
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
payout rights, the subordinated notes will be deemed to have
been retired. These notes are also classified as
available-for-sale
financial assets. The nominal value of the notes was accreted
since inception by $27 million of
paid-in-kind
interests receivable, of which $16 million was recognized
in 2009. Changes in fair value were recognized as a separate
component of Accumulated other comprehensive income
(loss) in the consolidated statements of changes in equity
and corresponded to a pre-tax cumulative $11 million
deferred loss as of December 31, 2009. This decline in fair
value was assessed to be temporary as the Company expects to
recover the debt securities entire amortized cost basis,
and, in compliance with the accounting guidance on
other-than-temporary
impairment charges on debt securities, it does not intend to
sell the securities or is not more likely than not to be
required to sell them before recovery. Consequently, no
cumulative effect adjustment was recorded upon adoption of the
new accounting guidance. Fair value measurement, which
corresponds to a level 3 fair value measurement hierarchy,
is based on publicly available swap rates for fixed income
obligations with similar maturities. Fair value measurement
information is further detailed in Note 25.
|
|
13.
|
OTHER
PAYABLES AND ACCRUED LIABILITIES
|
Other payables and accrued liabilities consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
Payroll
|
|
|
325
|
|
|
|
319
|
|
Social charges
|
|
|
149
|
|
|
|
146
|
|
Taxes other than income taxes
|
|
|
80
|
|
|
|
91
|
|
Advances
|
|
|
47
|
|
|
|
51
|
|
Payables to equity investments
|
|
|
30
|
|
|
|
7
|
|
Obligations for capacity rights
|
|
|
21
|
|
|
|
29
|
|
Financial instruments
|
|
|
34
|
|
|
|
5
|
|
Provision for restructuring
|
|
|
180
|
|
|
|
197
|
|
Pension and long-term benefits
|
|
|
30
|
|
|
|
21
|
|
Royalties
|
|
|
35
|
|
|
|
14
|
|
Acquisition-related expenses
|
|
|
0
|
|
|
|
17
|
|
Others
|
|
|
118
|
|
|
|
99
|
|
Total
|
|
|
1,049
|
|
|
|
996
|
|
The terms of the agreement for the inception of Numonyx included
rights granted to Numonyx to use certain assets retained by the
Company. As at December 31, 2009 and 2008 the value of such
rights totaled $65 million and $87 million
respectively, of which $18 million and $24 million
respectively were reported as a current liability. The remaining
obligations for capacity rights is due to the terms of the
agreement for the integration of NXP wireless business that
included rights for NXP to obtain products from the Company at
preferential pricing.
Other payables and accrued liabilities also include individually
insignificant amounts as of December 31, 2009 and
December 31, 2008.
F-38
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Bank loans:
|
|
|
|
|
|
|
|
|
2.10% due 2009, floating interest rate at Libor + 0.40%
|
|
|
|
|
|
|
50
|
|
1.79% due 2010, floating interest rate at Libor + 1.0%
|
|
|
40
|
|
|
|
50
|
|
Funding program loans:
|
|
|
|
|
|
|
|
|
2.00% (weighted average), due 2009, fixed interest rate
|
|
|
|
|
|
|
4
|
|
0.90% (weighted average), due 2010, fixed interest rate
|
|
|
12
|
|
|
|
24
|
|
3.27% (weighted average), due 2012, fixed interest rate
|
|
|
6
|
|
|
|
10
|
|
0.50% (weighted average), due 2013, fixed interest rate
|
|
|
3
|
|
|
|
2
|
|
0.50% (weighted average), due 2014, fixed interest rate
|
|
|
8
|
|
|
|
10
|
|
0.50% (weighted average), due 2016, fixed interest rate
|
|
|
2
|
|
|
|
|
|
3.24% (weighted average), due 2017, fixed interest rate
|
|
|
67
|
|
|
|
72
|
|
0.27% due 2014, floating interest rate at Libor + 0.017%
|
|
|
100
|
|
|
|
120
|
|
0.31% due 2015, floating interest rate at Libor + 0.026%
|
|
|
56
|
|
|
|
65
|
|
0.33% due 2016, floating interest rate at Libor + 0.052%
|
|
|
136
|
|
|
|
136
|
|
0.57% due 2016, floating interest rate at Libor + 0.317%
|
|
|
180
|
|
|
|
180
|
|
0.49% due 2016, floating interest rate at Libor + 0.213%
|
|
|
200
|
|
|
|
200
|
|
Capital leases:
|
|
|
|
|
|
|
|
|
5.39% (weighted average), due 2011, fixed interest rate
|
|
|
8
|
|
|
|
13
|
|
6.00% (weighted average), due 2014, fixed interest rate
|
|
|
9
|
|
|
|
|
|
5.29% (weighted average), due 2017, fixed interest rate
|
|
|
2
|
|
|
|
2
|
|
Senior Bonds:
|
|
|
|
|
|
|
|
|
1.12%, due 2013, floating interest rate at Euribor + 0.40%
|
|
|
720
|
|
|
|
703
|
|
Convertible debt:
|
|
|
|
|
|
|
|
|
-0.50% convertible bonds due 2013
|
|
|
|
|
|
|
|
|
1.50% convertible bonds due 2016
|
|
|
943
|
|
|
|
1,036
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
2,492
|
|
|
|
2,677
|
|
Less current portion
|
|
|
(176
|
)
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt, less current portion
|
|
|
2,316
|
|
|
|
2,554
|
|
|
|
|
|
|
|
|
|
|
Long-term debt is denominated in the following currencies:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
U.S. dollar
|
|
|
1,666
|
|
|
|
1,840
|
|
Euro
|
|
|
826
|
|
|
|
837
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,492
|
|
|
|
2,677
|
|
The European Investment Banks loans denominated in EUR,
but drawn in USD, are classified as USD denominated debt. The
2008 figures have been updated accordingly.
F-39
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
Aggregate future maturities of total long-term debt outstanding
(including current portion) are as follows:
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
176
|
|
2011
|
|
|
1,063
|
|
2012
|
|
|
119
|
|
2013
|
|
|
836
|
|
2014
|
|
|
114
|
|
Thereafter
|
|
|
184
|
|
|
|
|
|
|
Total
|
|
|
2,492
|
|
|
|
|
|
|
In August 2003, the Company issued $1,332 million principal
amount at issuance of zero coupon unsubordinated convertible
bonds due 2013 with a negative yield of 0.5%. Pursuant to the
terms of the convertible bonds due 2013, the Company repurchased
the largest part of the bonds in August 2006. The outstanding
long-term debt corresponding to the 2013 convertible debt was
not material as at December 31, 2009 corresponding to the
remaining 188 bonds valued at August 5, 2010 redemption
price. At any time the Company may redeem for cash at their
negative accreted value all or a portion of the remaining
convertible bonds subject to the level of the Companys
share price.
In February 2006, the Company issued $1,131 million
principal amount at maturity of zero coupon senior convertible
bonds due in February 2016. The bonds were issued at 100% of
principal with a yield to maturity of 1.5% and resulted in net
proceeds to the Company of $974 million less transaction
fees. The bonds are convertible by the holder at any time prior
to maturity at a conversion rate of 43.833898 shares per
one thousand dollar face value of the bonds corresponding to
42,694,216 equivalent shares. This conversion rate has been
adjusted from 43.363087 shares per one thousand dollar face
value of the bonds as at May 21, 2007, as the result of the
extraordinary cash dividend approved by the Annual General
Meeting of Shareholders held on May 14, 2008. This new
conversion has been effective since May 19, 2008. Upon a
change of control, the holders can also redeem the convertible
bonds on February 23, 2011 at a price of $1,077.58, on
February 23, 2012 at a price of $1,093.81 and on
February 24, 2014 at a price of $1,126.99 per one thousand
dollar face value of the bonds. The Company can call the bonds
at any time after March 10, 2011 subject to the
Companys share price exceeding 130% of the accreted value
divided by the conversion rate for 20 out of 30 consecutive
trading days. The Company may redeem for cash at the principal
amount at issuance plus accumulated gross yield all, but not a
portion, of the convertible bonds at any time if 10% or less of
the aggregate principal amount at issuance of the convertible
bonds remain outstanding in certain circumstances or in the
event of changes to the tax laws of the Netherlands or any
successor jurisdiction. During December 2009 the Company
repurchased 98 thousand bonds corresponding to
$106 million principal amount for a total cash
consideration of $103 million, realizing a gain on the
repurchase of $3 million. During January 2010, the Company
repurchased around 200 thousand bonds corresponding to
$215 million principal amount for a total cash
consideration of $212 million, realizing a gain on the
repurchase of $3 million. The total of bonds repurchased in
December and January represented approximately 30% of the total
amount originally issued. The repurchased bonds have been
cancelled in accordance with their terms. In 2006, the Company
entered into cancellable swaps with a combined notional value of
$200 million to hedge the fair value of a portion of these
convertible bonds. As a result of these cancellable swap hedging
transactions, which are described further in Note 25, the
yield on the $200 million principal amount of the hedged
convertible bonds has changed from a nominal interest rate of
1.50% to an effective yield of -0.27% as at November 1,
2008, date on which the fair value hedge relationship was
discontinued, as described in Note 6.
In March 2006, STMicroelectronics Finance B.V. (ST
BV), a wholly owned subsidiary of the Company, issued
floating rate senior bonds with a principal amount of
500 million at an issue price of 99.873%. The notes,
which mature on March 17, 2013, pay a coupon rate of the
three-month Euribor plus 0.40% on the
17th of
June, September, December and March of each year through
maturity. In the event of changes to the tax laws of the
Netherlands or any successor jurisdiction, ST BV or the Company
may redeem the full amount of senior bonds for cash. In the
event of certain change in control triggering events, the
holders can cause ST BV or the Company to repurchase all or a
portion of the bonds outstanding.
The Company entered in 2008 into repurchase agreements with
certain financial institutions and gave as collateral
$262 million principal amount of floating rate notes
classified as
available-for-sale.
The Company
F-40
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
retained control over the pledged debt securities and
consequently did not de-recognize the financial assets from its
consolidated balance sheet upon transfer of the collateral. The
Company accounted for such transactions as secured borrowings
and recognized the cash received upon transfer by recording a
liability for the obligation to return the cash to the lending
financial institution within a term which did not exceed
57 days. Such obligation, with a weighted average interest
rate of 2.94%, amounted to $249 million and was
extinguished during 2008 when the Company repurchased the
pledged securities in accordance with the terms of the
repurchase agreements.
Credit
facilities
The Company had unutilized committed medium term credit
facilities with core relationship banks totalling
$500 million. In addition, the aggregate amount of the
Companys and its subsidiaries total available
short-term credit facilities, excluding foreign exchange credit
facilities, was approximately $759 million as at
December 31, 2009. In addition, ST-Ericsson had
$25 million of unutilized committed line from Ericsson as
parent company. The Company also had two committed credit
facilities with the European Investment Bank as part of R&D
funding programs. The first one, for a total of
245 million for R&D in France was fully drawn in
U.S. dollars for a total amount of $341 million, of
which $49 million were paid back as at December 31,
2009. The second one, signed on July 21, 2008, for a total
amount of 250 million for R&D projects in Italy,
was fully drawn in U.S. dollars for $380 million as at
December 31, 2009. The Company maintains also uncommitted
foreign exchange facilities totalling $714 million at
December 31, 2009. At December 31, 2009 and 2008,
amounts available under the short-term lines of credit were not
reduced by any borrowing.
|
|
15.
|
POST-RETIREMENT
AND OTHER LONG-TERM EMPLOYEES BENEFITS
|
The Company and its subsidiaries have a number of defined
benefit pension plans, mainly unfunded, and other long-term
employees benefits covering employees in various
countries. The defined benefit plans provide for pension
benefits, the amounts of which are calculated based on factors
such as years of service and employee compensation levels. The
other long-term employees plans provide for benefits due
during the employees period of service after certain
seniority levels. The Company uses a December 31 measurement
date for the majority of its plans. Eligibility is generally
determined in accordance with local statutory requirements. For
Italian termination indemnity plan (TFR), generated
before July 1, 2007, the Company continues to measure the
vested benefits to which Italian employees are entitled as if
they retired immediately as of December 31, 2009, in
compliance with U.S. GAAP guidance on determining vested
benefit obligations for defined benefit pension plans.
F-41
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
The changes in benefit obligation and plan assets were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Long-Term Benefits
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
|
587
|
|
|
|
590
|
|
|
|
42
|
|
|
|
42
|
|
Service cost
|
|
|
22
|
|
|
|
20
|
|
|
|
4
|
|
|
|
4
|
|
Interest cost
|
|
|
25
|
|
|
|
32
|
|
|
|
2
|
|
|
|
3
|
|
Employee contributions
|
|
|
4
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(25
|
)
|
|
|
(35
|
)
|
|
|
(2
|
)
|
|
|
(8
|
)
|
Effect of settlement
|
|
|
(16
|
)
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
|
|
Effect of curtailment
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss
|
|
|
29
|
|
|
|
15
|
|
|
|
(1
|
)
|
|
|
1
|
|
Transfer in
|
|
|
12
|
|
|
|
70
|
|
|
|
1
|
|
|
|
8
|
|
Transfer out
|
|
|
(5
|
)
|
|
|
(53
|
)
|
|
|
(1
|
)
|
|
|
(5
|
)
|
Plan amendment
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
23
|
|
|
|
(46
|
)
|
|
|
1
|
|
|
|
(3
|
)
|
Benefit obligation at end of year
|
|
|
654
|
|
|
|
587
|
|
|
|
43
|
|
|
|
42
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at fair value at beginning of year
|
|
|
262
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets
|
|
|
16
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
46
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
Employee contributions
|
|
|
5
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(13
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
Effect of settlement
|
|
|
(14
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Actuarial gain (loss)
|
|
|
25
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
Transfer in
|
|
|
7
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
Transfer out
|
|
|
(6
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
11
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Plan assets at fair value at end of year
|
|
|
339
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
(315
|
)
|
|
|
(325
|
)
|
|
|
(43
|
)
|
|
|
(42
|
)
|
Net amount recognized in the balance sheet consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current assets
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(8
|
)
|
|
|
(5
|
)
|
|
|
(9
|
)
|
|
|
(2
|
)
|
Non Current liabilities
|
|
|
(309
|
)
|
|
|
(321
|
)
|
|
|
(34
|
)
|
|
|
(40
|
)
|
Net amount recognized
|
|
|
(315
|
)
|
|
|
(325
|
)
|
|
|
(43
|
)
|
|
|
(42
|
)
|
The components of accumulated other comprehensive income (loss)
before tax effects were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial
|
|
|
Prior service
|
|
|
|
|
|
|
(gains)/losses
|
|
|
cost
|
|
|
Total
|
|
|
Other comprehensive income as at December 31, 2007
|
|
|
12
|
|
|
|
10
|
|
|
|
22
|
|
Net amount generated/arising in current year
|
|
|
74
|
|
|
|
(2
|
)
|
|
|
72
|
|
Amortization
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
(5
|
)
|
Foreign currency translation adjustment
|
|
|
(9
|
)
|
|
|
|
|
|
|
(9
|
)
|
Other comprehensive income as at December 31, 2008
|
|
|
74
|
|
|
|
6
|
|
|
|
80
|
|
Net amount generated/arising in current year
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Amortization
|
|
|
(6
|
)
|
|
|
(2
|
)
|
|
|
(8
|
)
|
Foreign currency translation adjustment
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Effect of curtailment/settlement
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
Other comprehensive income as at December 31, 2009
|
|
|
72
|
|
|
|
4
|
|
|
|
76
|
|
In 2010, we expect to amortize $4 million of actuarial
losses and $1 million of past service cost.
F-42
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
The components of the net periodic benefit cost included the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Long-term Benefits
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Service cost
|
|
|
22
|
|
|
|
20
|
|
|
|
19
|
|
|
|
4
|
|
|
|
4
|
|
|
|
3
|
|
Interest cost
|
|
|
25
|
|
|
|
32
|
|
|
|
28
|
|
|
|
2
|
|
|
|
3
|
|
|
|
2
|
|
Expected return on plan assets
|
|
|
(16
|
)
|
|
|
(18
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial net loss (gain)
|
|
|
6
|
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
(4
|
)
|
Amortization of prior service cost
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
Effect of settlement
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of curtailment
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
39
|
|
|
|
34
|
|
|
|
30
|
|
|
|
5
|
|
|
|
8
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average assumptions used in the determination of
the benefit obligation and the plan asset for the pension plans
and the other long term benefits were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
Assumptions
|
|
2009
|
|
2008
|
|
2007
|
|
Discount rate
|
|
|
5.11
|
%
|
|
|
5.23
|
%
|
|
|
5.43
|
%
|
Salary increase rate
|
|
|
3.08
|
%
|
|
|
3.46
|
%
|
|
|
3.24
|
%
|
Expected long-term rate of return on funds for the pension
expense of the year
|
|
|
5.28
|
%
|
|
|
5.69
|
%
|
|
|
6.34
|
%
|
The discount rate was determined by comparison against long-term
corporate bond rates applicable to the respective country of
each plan. In developing the expected long-term rate of return
on assets, the Company modelled the expected long-term rates of
return for broad categories of investments held by the plan
against a number of various potential economic scenarios.
The Companys pension plan asset allocation at
December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets at December
|
Asset Category
|
|
2009
|
|
2008
|
|
Equity securities
|
|
|
38
|
%
|
|
|
36
|
%
|
Bonds securities remunerating regular interest
|
|
|
33
|
%
|
|
|
37
|
%
|
Real estate
|
|
|
9
|
%
|
|
|
6
|
%
|
Other
|
|
|
20
|
%
|
|
|
21
|
%
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
F-43
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
The Companys detailed pension plan asset allocation
including the fair-value measurements of those plan assets as at
December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
Significant
|
|
|
|
|
Active Markets
|
|
Significant Other
|
|
Unobservable
|
|
|
|
|
for Identical
|
|
Observable Inputs
|
|
Inputs
|
|
|
Total
|
|
Assets (Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Cash and cash equivalents
|
|
|
27
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
128
|
|
|
|
111
|
|
|
|
17
|
|
|
|
|
|
Government debt securities
|
|
|
57
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
56
|
|
|
|
52
|
|
|
|
4
|
|
|
|
|
|
Derivatives
|
|
|
22
|
|
|
|
16
|
|
|
|
6
|
|
|
|
|
|
Investment funds
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Real estate
|
|
|
30
|
|
|
|
3
|
|
|
|
20
|
|
|
|
7
|
|
Other (mainly insurance assets contracts and
reserves)
|
|
|
18
|
|
|
|
1
|
|
|
|
12
|
|
|
|
5
|
|
TOTAL
|
|
|
339
|
|
|
|
267
|
|
|
|
60
|
|
|
|
12
|
|
The Companys investment strategy for its pension plans is
to maximize the long-term rate of return on plan assets with an
acceptable level of risk in order to minimize the cost of
providing pension benefits while maintaining adequate funding
levels. The Companys practice is to periodically conduct a
review in each subsidiary of its asset allocation strategy. A
portion of the fixed income allocation is reserved in short-term
cash to provide for expected benefits to be paid. The
Companys equity portfolios are managed in such a way as to
achieve optimal diversity and in certain jurisdictions they are
entirely managed by the multi-employer funds. The Company does
not manage any assets internally.
After considering the funded status of the Companys
defined benefit plans, movements in the discount rate,
investment performance and related tax consequences, the Company
may choose to make contributions to its pension plans in any
given year in excess of required amounts. The Company
contributions to plan assets were $46 million and
$16 million in 2009 and 2008 respectively and the Company
expects to contribute cash of $18 million in 2010.
The Companys estimated future benefit payments as of
December 2009 are as follows:
|
|
|
|
|
|
|
|
|
Years
|
|
Pension Benefits
|
|
Other Long-term Benefits
|
|
2010
|
|
|
41
|
|
|
|
3
|
|
2011
|
|
|
21
|
|
|
|
2
|
|
2012
|
|
|
28
|
|
|
|
2
|
|
2013
|
|
|
28
|
|
|
|
3
|
|
2014
|
|
|
37
|
|
|
|
3
|
|
From 2015 to 2019
|
|
|
192
|
|
|
|
17
|
|
The Company has certain defined contribution plans, which accrue
benefits for employees on a pro-rata basis during their
employment period based on their individual salaries. The
Company accrued benefits related to defined contribution pension
plans of $13 million and $11 million, as of
December 31, 2009 and 2008 respectively. The annual cost of
these plans amounted to approximately $81 million,
$72 million and $66 million in 2009, 2008 and 2007,
respectively. Major changes as compared to previous periods are
mainly related to the acquisition of the NXP wireless business
and the formation of the ST-Ericsson joint-venture. The benefits
accrued to the employees on a pro-rata basis, during their
employment period are based on the individuals salaries.
16.1
Outstanding shares
The authorized share capital of the Company is
EUR 1,810 million consisting of 1,200,000,000 common
shares and 540,000,000 preference shares, each with a nominal
value of EUR 1.04. As at December 31, 2009 the number
of shares of common stock issued was 910,319,305 shares
(910,307,305 at December 31, 2008).
F-44
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
As of December 31, 2009 the number of shares of common
stock outstanding was 878,333,566 (874,276,833 at
December 31, 2008).
16.2
Preference shares
The 540,000,000 preference shares, when issued, will entitle a
holder to full voting rights and to a preferential right to
dividends and distributions upon liquidation.
On January 22, 2008, a new option agreement was concluded
between the Company and Stichting Continuïteit ST. This new
option agreement provides for the issuance of 540,000,000
preference shares. Any such shares should be issued by the
Company to the Foundation, upon its request and in its sole
discretion, upon payment of at least 25% of the par value of the
preference shares to be issued. The issuing of the preference
shares is conditional upon (i) the Company receiving an
unsolicited offer or there being the threat of such an offer;
(ii) the Companys Managing and Supervisory Boards
deciding not to support such an offer and; (iii) the Board
of the Foundation determining that such an offer or acquisition
would be contrary to the interests of the Company and its
stakeholders. The preference shares may remain outstanding for
no longer than two years. There were no preference shares issued
as of December 31, 2009.
16.3
Treasury stock
Following the authorization by the Supervisory Board, announced
on April 2, 2008, to repurchase up to 30 million
shares of its common stock, the Company acquired
29,520,220 shares as at December 31, 2008, for a total
amount of approximately $313 million, also reflected at
cost as a reduction of the shareholders equity. This
repurchase intends to cover the transfer of shares to employees
upon vesting of future share based remuneration programs.
The treasury shares have been designated for allocation under
the Companys share based remuneration programs of
non-vested shares including such plans as approved by the 2005,
2006, 2007, 2008 and 2009 Annual General Meeting of
Shareholders. As of December 31, 2009, 10,934,481 of these
treasury shares were transferred to employees under the
Companys share based remuneration programs of which
4,044,733 in the year ended December 31, 2009, following
the full vesting of the 2006 stock-award plan, the vesting of
the first and second tranches of the 2007 stock-award plan, the
vesting of the first tranche of the 2008 stock-award plan
together with the acceleration of the vesting of a limited
number of stock-awards.
As of December 31, 2009, the Company owned a number of
treasury shares equivalent to 31,985,739.
16.4
Stock option plans
In 1995, the Shareholders voted to adopt the 1995 Employee Stock
Option Plan (the 1995 Plan) whereby options for up
to 33,000,000 shares may be granted in installments over a
five-year period. Under the 1995 Plan, the options may be
granted to purchase shares of common stock at a price not lower
than the market price of the shares on the date of grant. At
December 31, 2008, under the 1995 plan, 42,300 of the
granted options originally vested 32% after two years, 32% after
three years and 36% after four years following the date of the
grant. The options expire 10 years after the date of grant.
During 2005, the vesting periods for all options under the plan
were accelerated with no impact on the consolidated statements
of income.
In 1996, the Shareholders voted to adopt the Supervisory Board
Option Plan whereby each member of the Supervisory Board was
eligible to receive, during the three-year period
1996-1998,
18,000 options for 1996 and 9,000 options for both 1997 and
1998, to purchase shares of common stock at the closing market
price of the shares on the date of the grant. In the same
three-year period, the professional advisors to the Supervisory
Board were eligible to receive 9,000 options for 1996 and 4,500
options for both 1997 and 1998. Under the Plan, the options vest
over one year and are exercisable for a period expiring eight
years from the date of grant.
In 1999, the Shareholders voted to renew the Supervisory Board
Option Plan whereby each member of the Supervisory Board may
receive, during the three-year period
1999-2001,
18,000 options for 1999 and 9,000 options for both 2000 and
2001, to purchase shares of capital stock at the closing market
price of the shares on the date of the grant. In the same
three-year period, the professional advisors to the Supervisory
Board may receive 9,000 options for 1999 and 4,500 options for
both 2000 and 2001. Under the Plan, the options vest over one
year and are exercisable for a period expiring eight years from
the date of grant.
F-45
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
In 2001, the Shareholders voted to adopt the 2001 Employee Stock
Option Plan (the 2001 Plan) whereby options for up
to 60,000,000 shares may be granted in installments over a
five-year period. The options may be granted to purchase shares
of common stock at a price not lower than the market price of
the shares on the date of grant. In connection with a revision
of its equity-based compensation policy, the Company decided in
2005 to accelerate the vesting period of all outstanding
unvested stock options. The options expire ten years after the
date of grant.
In 2002, the Shareholders voted to adopt a Stock Option Plan for
Supervisory Board Members and Professionals of the Supervisory
Board. Under this plan, 12,000 options can be granted per year
to each member of the Supervisory Board and 6,000 options per
year to each professional advisor to the Supervisory Board.
Options would vest 30 days after the date of grant. The
options expire ten years after the date of grant.
A summary of the stock option activity for the plans for the
three years ended December 31, 2009, 2008 and 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price Per Share
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of Shares
|
|
|
Range
|
|
|
Average
|
|
|
Outstanding at December 31, 2006
|
|
|
56,325,252
|
|
|
$
|
12.03 - $62.01
|
|
|
$
|
30.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Supervisory Board Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(7,566,170
|
)
|
|
$
|
24.88
|
|
|
$
|
24.88
|
|
Options forfeited
|
|
|
(1,861,960
|
)
|
|
$
|
16.73 - $62.01
|
|
|
$
|
31.19
|
|
Options exercised
|
|
|
(131,487
|
)
|
|
$
|
17.08 - $19.18
|
|
|
$
|
18.90
|
|
Outstanding at December 31, 2007
|
|
|
46,765,635
|
|
|
$
|
16.73 - $62.01
|
|
|
$
|
31.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Supervisory Board Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(5,923,552
|
)
|
|
$
|
44.00 - $62.01
|
|
|
$
|
59.1
|
|
Options forfeited
|
|
|
(1,410,650
|
)
|
|
$
|
16.73 - $62.01
|
|
|
$
|
27.9
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
39,431,433
|
|
|
$
|
16.73 - $39.00
|
|
|
$
|
27.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Supervisory Board Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(1,487,601
|
)
|
|
$
|
17.08 - $39.00
|
|
|
$
|
27.69
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
37,943,832
|
|
|
$
|
16.73 - $39.00
|
|
|
$
|
27.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercisable following acceleration in 2005 of
vesting for all outstanding unvested stock options were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Options exercisable
|
|
|
37,943,832
|
|
|
|
39,431,433
|
|
|
|
46,765,635
|
|
Weighted average exercise price
|
|
$
|
27.33
|
|
|
$
|
27.35
|
|
|
$
|
31,42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average remaining contractual life of options
outstanding as of December 31, 2009, 2008 and 2007 was 2.9,
3.9 and 4.3 years, respectively.
F-46
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
The range of exercise prices, the weighted average exercise
price and the weighted average remaining contractual life of
options exercisable as of December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
average
|
|
|
Option price
|
|
average
|
|
remaining
|
Number of shares
|
|
range
|
|
exercise price
|
|
contractual life
|
|
|
133,966
|
|
|
$
|
16.73 - $17.31
|
|
|
$
|
17.05
|
|
|
|
4.7
|
|
|
19,744,709
|
|
|
$
|
19.18 - $24.88
|
|
|
$
|
21.02
|
|
|
|
3.8
|
|
|
167,350
|
|
|
$
|
25.90 - $29.70
|
|
|
$
|
26.96
|
|
|
|
3.3
|
|
|
17,897,807
|
|
|
$
|
31.09 - $39.00
|
|
|
$
|
34.37
|
|
|
|
1.8
|
|
16.5
Nonvested share awards
On April 29, 2006 the Compensation Committee (on behalf of
the entire Supervisory Board and with its approval) granted
66,000 non vested shares to the members of the Supervisory Board
and professionals of the Supervisory Board (The 2006
Supervisory Board Plan), of which 15,000 awards were
immediately waived. These awards are granted at the nominal
value of the share of 1.04 and vest over the following
period: one third after 12 months, one third after
24 months and one third after 36 months following the
date of the grant. Nevertheless, they are not subject to any
market, performance or service conditions. As such, their
associated compensation cost was recorded immediately at grant.
In 2007, the first tranche of the plan, representing
17,000 shares vested as at April 27, 2007. In 2008,
the second tranche of the plan, representing 16,000 shares
vested as at April 27, 2008. Furthermore, following the end
of mandate of one of the members of the Board, 4,000 shares
were accelerated in 2008. In 2009, the third tranche of the
plan, representing 14,000 shares vested as at
April 27, 2009. As of December 31 2009, no awards were
outstanding under the 2006 Supervisory Board Plan.
On September 29, 2006 the Company granted 4,854,280
nonvested shares to senior executives and selected employees to
be issued upon vesting from treasury stock (The 2006
Employee Plan). The Compensation Committee and the
Supervisory Board also authorized on September 29, 2006 the
future grant of additional shares to selected employees upon
nomination by the Managing Board of the Company. These
additional shares were granted in 2006 and 2007, as detailed
below. The shares were granted for free to employees, and vested
upon completion of three internal performance conditions, each
weighting for one third of the total number of awards granted.
Except for employees in one of the Companys European
subsidiaries for whom a subplan was simultaneously created on
September 29, 2006 for statutory payroll tax purposes, the
nonvested shares vested over the following requisite service
period: 32% as at April 27, 2007, 32% as at April 27,
2008 and 36% as at April 27, 2009. The following requisite
service period was required for the nonvested shares granted
under the local subplan: 64% of the granted stock awards vested
two years from grant date and 36% as at April 27, 2009. In
addition, the sale by the employees of the shares included in
the subplan, once vested, is restricted over an additional
two-year period which is not considered as an extension of the
requisite service period. In compliance with the graded vesting
of the grant, the first tranche of the original plan,
representing 1,120,234 shares, vested as at April 27,
2007. In addition, 10,120 shares were accelerated during
the year, of which 340 under the subplan. In 2008, the second
tranche of the original plan, representing
1,079,952 shares, vested as at April 27, 2008, and the
first tranche of the subplan, representing 748,394 shares
vested as at September 30, 2008. In addition,
30,590 shares were accelerated during the year, of which
5,941 under the subplan. These shares were transferred to
employees from the treasury shares owned by the Company. In
2009, the third tranche of the original plan, representing
1,155,238 shares and the third tranche of the subplan,
representing 400,149 shares vested as at April 27,
2009. In addition, 9,446 shares were accelerated during the
year, of which 4,035 under the subplan. At December 31,
2009, no nonvested shares from the 2006 plan were outstanding.
On December 19, 2006, the Compensation Committee (on behalf
of the entire Supervisory Board and with its approval) granted
additional 62,360 shares to selected employees designated
by the Managing Board of the Company as part of the 2006
Employee Plan. This additional grant had the same terms and
conditions as the original plan. In compliance with the graded
vesting of the grant, the first tranche of this plan,
representing 8,885 shares, vested as at April 27,
2007, and the first tranche of the subplan, representing
21,648 shares vested as at December 20, 2008. In 2008,
the second tranche of the plan, representing 8,885 shares,
vested as at April 27, 2008. In 2009, the third tranche of
the plan, representing 9,264 shares and the third tranche
of the subplan representing 12,147 shares vested as at
April 27, 2009. As at December 31, 2009, no nonvested
shares were outstanding as part of this additional grant.
F-47
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
On February 27, 2007, the Compensation Committee (on behalf
of the entire Supervisory Board and with its approval) granted
additional 215,000 shares to selected employees designated
by the Managing Board of the Company as part of the 2006
Employee Plan. This additional grant had the same terms and
conditions as the original plan. In compliance with the graded
vesting of the grant, the first tranche of this plan,
representing 50,031 shares, vested as at April 27,
2007. In addition, 1,196 shares were accelerated during the
year. In 2008, the second tranche of the plan, representing
47,551 shares vested as at April 27, 2008. In
addition, 598 shares were accelerated during the year. In
2009, the first tranche of the subplan, representing
36,122 shares vested as at February 28, 2009. The
third tranche of the plan representing 51,514 shares and
the third tranche of the subplan representing 20,174 shares
vested as at April 27, 2009. In addition, 108 shares
were accelerated during the year. As at December 31, 2009,
no nonvested shares were outstanding as part of this additional
grant.
On April 28, 2007, the Compensation Committee (on behalf of
the entire Supervisory Board and with its approval) granted
165,000 stock-based awards to the members of the Supervisory
Board and professionals of the Supervisory Board (The 2007
Supervisory Board Plan), of which 22,500 awards were
immediately waived. These awards are granted at the nominal
value of the share of 1.04 and vest over the following
period: one third after 12 months, one third after
24 months and one third after 36 months following the
date of the grant. Nevertheless, they are not subject to any
market, performance or service conditions. As such, their
associated compensation cost was recorded immediately at grant.
In compliance with the graded vesting of the grant, the first
tranche of this plan, representing 45,000 shares, vested as
at April 28, 2008. Furthermore, following the end of
mandate of one of the members of the Board, 7,500 shares
were accelerated in 2008. The second tranche of this plan,
representing 45,000 shares, vested as at April 28,
2009. As of December 31, 2009, 45,000 awards were
outstanding under the 2007 Supervisory Board Plan.
On June 18, 2007, the Company granted 5,691,840 nonvested
shares to senior executives and selected employees to be issued
upon vesting from treasury stock (The 2007 Employee
Plan). The Compensation Committee and the Supervisory
Board also authorized the future grant of additional shares to
selected employees upon nomination by the Managing Board of the
Company as detailed below. The shares were granted for free to
employees, and will vest upon completion of three internal
performance conditions, each weighting for one third of the
total number of awards granted. Except for employees in two of
the Companys European subsidiaries for whom a subplan was
simultaneously created, the nonvested shares vest over the
following requisite service period: 32% as at April 26,
2008, 32% as at April 26, 2009 and 36% as at April 26,
2010. The following requisite service period is required for the
nonvested shares granted under the two local subplans: for the
first one, 64% of the granted stock awards vest as at
June 19, 2009 and 36% as at June 19, 2010. In
addition, the sale by the employees of the shares once vested is
restricted over an additional two-year period, which is not
considered as an extension of the requisite service period. For
the second subplan, 32% vest as at June 19, 2008, 32% as at
April 26, 2009 and 36% as at April 26, 2010. In 2008,
the Company failed to meet one performance condition during one
semester. Consequently, one sixth of the shares granted,
totaling 926,121 shares, of which 242,233 on the first
subplan and 2,634 on the second subplan, was lost for vesting.
In compliance with the graded vesting of the grant, the first
tranche of the original plan, representing
1,097,124 shares, vested as at April 26, 2008. The
first tranche of one of the local subplans, representing
4,248 shares, vested as at June 19, 2008. In addition,
31,786 shares were accelerated during the year, of which
2,999 under the subplans. These shares were transferred to
employees from the treasury shares owned by the Company. The
second tranche of the original plan, representing
1,048,429 shares and the second tranche of one of the local
subplans, representing 3,914 shares, vested as at
April 26, 2009. The first tranche of the other local
subplan, representing 768,157 shares, vested as at
June 19, 2009. In addition, 32,360 shares were
accelerated during the year, of which 4,974 under the subplans.
These shares were transferred to employees from the treasury
shares owned by the Company. At December 31, 2009,
1,539,083 nonvested shares were outstanding, of which 409,491
under the first subplan and 4,395 under the second one.
On December 6, 2007, the Managing Board of the Company, as
authorized by the Supervisory Board of the Compensation
Committee, granted additional 84,450 shares to selected
employees designated by the Managing Board of the Company as
part of the 2007 Employee Plan. This additional grant has the
same terms and conditions as the original plan. As a consequence
of the failed performance condition explained above,
14,023 shares were lost for vesting, of which 498 on the
subplan. In compliance with the graded vesting of the grant, the
first tranche of the original plan, representing
10,434 shares, vested as at April 26, 2008. In
addition, 11,311 shares were accelerated during the year.
The second tranche of the original plan, representing
21,585 shares, vested as at April 26, 2009. The first
tranche of the subplan, representing 1,602 shares, vested
as at December 7, 2009. At December 31, 2009, 24,711
nonvested shares were outstanding as part of this additional
grant, of which 900 under the local subplan.
F-48
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
On February 19, 2008, the Managing Board of the Company, as
authorized by the Supervisory Board of the Compensation
Committee, granted additional 135,550 shares to selected
employees designated by the Managing Board of the Company as
part of the 2007 Employee Plan. This additional grant has the
same terms and conditions as the original plan. As a consequence
of the failed performance condition explained above,
22,559 shares were lost for vesting, of which 5,887 on the
local subplan. In compliance with the graded vesting of the
grant, the first tranche of the original plan, representing
26,407 shares, vested as at April 26, 2008. In
addition, 320 shares were accelerated during the year. The
second tranche of the original plan, representing
21,978 shares, vested as at April 26, 2009. In
addition, 567 shares were accelerated during the year. At
December 31, 2009, 37,534 nonvested shares were outstanding
as part of this additional grant, of which 12,821 under the
local subplan.
On May 16, 2008, the Compensation Committee (on behalf of
the entire Supervisory Board and with its approval) granted
165,000 stock-based awards to the members of the Supervisory
Board and professionals of the Supervisory Board (The 2008
Supervisory Board Plan), of which 22,500 awards were
immediately waived. These awards are granted at the nominal
value of the share of 1.04 and vest over the following
period: one third after 12 months, one third after
24 months and one third after 36 months following the
date of the grant. Nevertheless, they are not subject to any
market, performance or service conditions. As such, their
associated compensation cost was recorded immediately at grant.
In compliance with the graded vesting of the grant, the first
tranche of this plan, representing 47,500 shares, vested as
at May 16, 2009. As of December 31, 2009, 95,000
awards were outstanding under the 2008 Supervisory Board Plan.
On July 22, 2008, the Company granted 5,723,305 nonvested
shares to senior executives and selected employees to be issued
upon vesting from treasury stock (The 2008 Employee
Plan). The Compensation Committee also authorized the
future grant of additional shares to selected employees upon
nomination by the Managing Board of the Company. The shares were
granted for free to employees, and will vest upon completion of
three internal performance conditions, each weighting for one
third of the total number of awards granted. Except for
employees in two of the Companys European subsidiaries for
whom a subplan was simultaneously created, the nonvested shares
vest over the following requisite service period: 32% as at
May 14, 2009, 32% as at May 14, 2010 and 36% as at
May 14, 2011. The following requisite service period is
required for the nonvested shares granted under the two local
subplans: for the first one, 64% of the granted stock awards
vest as at July 23, 2010 and 36% as at May 14, 2011.
In addition, the sale by the employees of the shares once vested
is restricted over an additional two-year period, which is not
considered as an extension of the requisite service period. For
the second one, 32% vest as at July 22, 2009, 32% as at
May 14, 2010 and 36% as at May 14, 2011. In 2009,
based on the final calculations, it turned out that the Company
failed to meet two performance conditions. Consequently, two
third of the shares granted, totaling 3,747,193 shares, of
which 1,020,134 on the first subplan and 35,598 on the second
subplan, was lost for vesting. In compliance with the graded
vesting of the grant, the first tranche of the original plan,
representing 427,324 shares, vested as at May 14,
2009. The first tranche of one of the local subplans,
representing 5,719 shares, vested as at July 23, 2009.
In addition, 15,588 shares were accelerated during the
year. These shares were transferred to employees from the
treasury shares owned by the Company. At December 31, 2009,
1,399,373 nonvested shares were outstanding, of which 509,324
under the first local subplan and 11,906 under the second local
subplan.
On February 27, 2009, the Managing Board of the Company, as
authorized by the Supervisory Board of the Compensation
Committee, granted additional 50,400 shares to selected
employees designated by the Managing Board of the Company as
part of the 2008 Employee Plan. This additional grant has the
same terms and conditions as the original plan. As a consequence
of the failed performance condition explained above,
33,589 shares were lost for vesting, of which 11,365 on the
first local subplan and 1,332 on the second local subplan. In
compliance with the graded vesting of the grant, the first
tranche of the original plan, representing 3,348 shares,
vested as at May 14, 2009. At December 31, 2009,
12,329 nonvested shares were outstanding as part of this
additional grant, of which 5,685 under the first local subplan
and 668 under the second local subplan.
On May 20, 2009, the Compensation Committee (on behalf of
the entire Supervisory Board and with its approval) granted
165,000 stock-based awards to the members of the Supervisory
Board and professionals of the Supervisory Board (The 2009
Supervisory Board Plan), of which 7,500 awards were
immediately waived. These awards are granted at the nominal
value of the share of 1.04 and vest over the following
period: one third after 12 months, one third after
24 months and one third after 36 months following the
date of the grant. Nevertheless, they are not subject to any
market, performance or service conditions. As such, their
associated compensation cost was recorded immediately at grant.
As of December 31 2009, 157,500 awards were outstanding under
the 2009 Supervisory Board Plan.
F-49
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
On July 28, 2009, the Company granted 5,575,240 nonvested
shares to senior executives and selected employees to be issued
upon vesting from treasury stock (The 2009 Employee
Plan). The Compensation Committee also authorized the
future grant of additional shares to selected employees upon
nomination by the Managing Board of the Company. The shares were
granted for free to employees, and will vest upon completion of
three internal performance conditions, each weighting for one
third of the total number of awards granted. Except for
employees in one of the Companys European subsidiaries for
whom a subplan was simultaneously created, the nonvested shares
vest over the following requisite service period: 32% as at
May 20, 2010, 32% as at May 20, 2011 and 36% as at
May 20, 2012. The following requisite service period is
required for the nonvested shares granted under the local
subplan: 64% of the granted stock awards vest as at
July 29, 2011 and 36% as at May 20, 2012. In addition,
the sale by the employees of the shares once vested is
restricted over an additional two-year period, which is not
considered as an extension of the requisite service period. At
December 31, 2009, 5,532,440 nonvested shares were
outstanding, of which 1,438,185 under the subplan.
On November 30, 2009, the Managing Board of the Company, as
authorized by the Supervisory Board of the Compensation
Committee, granted additional 8,300 shares to selected
employees designated by the Managing Board of the Company as
part of the 2009 Employee Plan. This additional grant has the
same terms and conditions as the original plan. At
December 31, 2009, 8,300 nonvested shares were outstanding
as part of this additional grant.
F-50
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
A summary of the nonvested share activity for the years ended
December 31, 2009 and December 31, 2008 is presented
below:
|
|
|
|
|
|
|
|
|
Nonvested Shares
|
|
Number of Shares
|
|
|
Exercise price
|
|
|
Outstanding as at December 31, 2007
|
|
|
10,510,030
|
|
|
$
|
0-1.04
|
|
Awards granted:
|
|
|
|
|
|
|
|
|
2007 Employee Plan
|
|
|
135,550
|
|
|
$
|
0
|
|
2008 Employee Plan
|
|
|
5,723,305
|
|
|
$
|
0
|
|
2008 Supervisory Board Plan
|
|
|
165,000
|
|
|
|
1.04
|
|
Awards forfeited:
|
|
|
|
|
|
|
|
|
2005 Employee Plan
|
|
|
(7,900
|
)
|
|
$
|
0
|
|
2006 Employee Plan
|
|
|
(62,162
|
)
|
|
$
|
0
|
|
2007 Employee Plan
|
|
|
(141,201
|
)
|
|
$
|
0
|
|
2008 Employee Plan
|
|
|
(56,185
|
)
|
|
$
|
0
|
|
2008 Supervisory Board Plan
|
|
|
(22,500
|
)
|
|
|
1.04
|
|
Awards cancelled on failed vesting conditions:
|
|
|
|
|
|
|
|
|
2007 Employee Plan
|
|
|
(962,703
|
)
|
|
$
|
0
|
|
Awards vested:
|
|
|
|
|
|
|
|
|
2005 Employee Plan
|
|
|
(903,381
|
)
|
|
$
|
0
|
|
2005 Supervisory Board Plan
|
|
|
(17,000
|
)
|
|
|
1.04
|
|
2006 Employee Plan
|
|
|
(1,937,618
|
)
|
|
$
|
0
|
|
2006 Supervisory Board Plan
|
|
|
(20,000
|
)
|
|
|
1.04
|
|
2007 Employee Plan
|
|
|
(1,181,630
|
)
|
|
$
|
0
|
|
2007 Supervisory Board Plan
|
|
|
(52,500
|
)
|
|
|
1.04
|
|
Outstanding as at December 31, 2008
|
|
|
11,169,105
|
|
|
$
|
0-1.04
|
|
Awards granted:
|
|
|
|
|
|
|
|
|
2008 Employee Plan
|
|
|
50,400
|
|
|
$
|
0
|
|
2009 Employee Plan
|
|
|
5,583,540
|
|
|
$
|
0
|
|
2009 Supervisory Board Plan
|
|
|
165,000
|
|
|
|
1.04
|
|
Awards forfeited:
|
|
|
|
|
|
|
|
|
2006 Employee Plan
|
|
|
(8,507
|
)
|
|
$
|
0
|
|
2007 Employee Plan
|
|
|
(52,896
|
)
|
|
$
|
0
|
|
2008 Employee Plan
|
|
|
(73,057
|
)
|
|
$
|
0
|
|
2009 Employee Plan
|
|
|
(42,800
|
)
|
|
$
|
0
|
|
2009 Supervisory Board Plan
|
|
|
(7,500
|
)
|
|
|
1.04
|
|
Awards cancelled on failed vesting conditions:
|
|
|
|
|
|
|
|
|
2008 Employee Plan
|
|
|
(3,780,782
|
)
|
|
$
|
0
|
|
Awards vested:
|
|
|
|
|
|
|
|
|
2006 Employee Plan
|
|
|
(1,694,162
|
)
|
|
$
|
0
|
|
2006 Supervisory Board Plan
|
|
|
(14,000
|
)
|
|
|
1.04
|
|
2007 Employee Plan
|
|
|
(1,898,592
|
)
|
|
$
|
0
|
|
2007 Supervisory Board Plan
|
|
|
(45,000
|
)
|
|
|
1.04
|
|
2008 Employee Plan
|
|
|
(451,979
|
)
|
|
$
|
0
|
|
2008 Supervisory Board Plan
|
|
|
(47,500
|
)
|
|
|
1.04
|
|
Outstanding as at December 31, 2009
|
|
|
8,851,270
|
|
|
$
|
0-1.04
|
|
|
|
|
|
|
|
|
|
|
The Company recorded compensation expense for the nonvested
share awards based on the fair value of the awards at the grant
date. The fair value of the awards granted in 2005 represents
the $16.61 share price at the date of the grant. On the
2005 Employee Plan, the fair value of the nonvested shares
granted, since they are affected by a market condition, reflects
a discount of 49.50%, using a Monte Carlo path-dependent pricing
model to measure the probability of achieving the market
condition.
F-51
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
The following assumptions were incorporated into the Monte Carlo
pricing model to estimate the 49.50% discount:
|
|
|
|
|
2005
|
|
|
Employee Plan
|
|
Historical share price volatility
|
|
27.74%
|
Historical volatility of reference index
|
|
25.5%
|
Three-year average dividend yield
|
|
0.55%
|
Risk-free interest rates used
|
|
4.21%-4.33%
|
Consistent with fair value calculations of stock option grants
in prior years, the Company has determined the historical share
price volatility to be the most appropriate estimate of future
price activity. The weighted average grant-date fair value of
nonvested shares granted to employees under the 2005 Employee
Plan was $8.50.
In 2006, the Company accounted for the impact of the
modification of the 2005 Employee Plan with the creation of a
local subplan in compliance with U.S. GAAP guidance. Such
modification did not generate any incremental cost since, when
measured as at the modification date, the fair value was
discounted at 100% due to the nil probability as at March 2006
to achieve the market condition.
The grant date fair value of nonvested shares granted to
employees under the 2006 Employee Plan was $17.35. On the 2006
Employee Plan, the fair value of the nonvested shares granted
did not reflect any discount since they are not affected by a
market condition. On February 27, 2007, the Compensation
Committee approved the statement that the three performance
conditions were met. Consequently, the compensation expense
recorded on the 2006 Employee Plan reflects the statement that
all of the awards granted will vest, as far as the service
condition is met.
The grant date fair value of nonvested shares granted to
employees under the 2007 Employee Plan was $19.35. On the 2007
Employee Plan, the fair value of the nonvested shares granted
did not reflect any discount since they are not affected by a
market condition. On April 1, 2008, the Compensation
Committee approved the statement that two performance conditions
were fully met and that for one condition only one half of it
was achieved. Consequently, the compensation expense recorded on
the 2007 Employee Plan reflects the statement that five sixths
of the awards granted will vest, as far as the service condition
is met.
The grant date fair value of nonvested shares granted to
employees under the 2008 Employee Plan was $10.64. On the 2008
Employee Plan, the fair value of the nonvested shares granted
did not reflect any discount since they are not affected by a
market condition. On March 23, 2009, the Compensation
Committee approved the statement that one performance condition
was fully met. Consequently, the compensation expense recorded
on the 2008 Employee Plan reflects the statement that one third
of the awards granted will vest, as far as the service condition
is met.
The grant date fair value of nonvested shares granted to
employees under the 2009 Employee Plan was $7.54. On the 2009
Employee Plan, the fair value of the nonvested shares granted
did not reflect any discount since they are not affected by a
market condition. On the contrary, the Company estimates the
number of awards expected to vest by assessing the probability
of achieving the performance conditions. At December 31,
2009, a final determination of the achievement of the
performance conditions had not yet been made by the Compensation
Committee of the Supervisory Board. However, the Company has
estimated that two third of awards are expected to vest.
Consequently, the compensation expense recorded for the 2009
Employee Plan reflects the vesting of two third of the awards
granted, subject to the service condition being met. The
assumption of the expected number of awards to be vested upon
achievement of the performance conditions is subject to changes
based on the final measurement of the conditions, which is
expected to occur in the first quarter of 2010.
The following table illustrates the classification of
pre-payroll tax and social contribution stock-based compensation
expense included in the consolidated statements of income for
the year ended December 31, 2009, December 31, 2008
and December 31, 2007, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cost of sales
|
|
|
7
|
|
|
|
15
|
|
|
|
14
|
|
Selling, general and administrative
|
|
|
19
|
|
|
|
37
|
|
|
|
37
|
|
Research and development
|
|
|
11
|
|
|
|
24
|
|
|
|
22
|
|
Loss on equity investment
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
Total pre-payroll tax and social contribution compensation
|
|
|
38
|
|
|
|
78
|
|
|
|
73
|
|
F-52
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
Compensation cost, excluding payroll tax and social
contribution, capitalized as part of inventory was
$2 million at December 31, 2009, $3 million at
December 31, 2008 whereas it amounted to $6 million at
December 31, 2007. As of December 31, 2009 there was
$27 million of total unrecognized compensation cost related
to the grant of nonvested shares, which is expected to be
recognized over a weighted average period of approximately
16.3 months.
The total deferred income tax expense recognized in the
consolidated statements of income related to unvested
share-based compensation expense amounted to $8 million for
the year ended December 31, 2009, including a shortfall
recorded on the 2006 Employee Plan closed during 2009 due to the
vesting fair value being significantly lower than the grant fair
value. The total deferred income tax benefit recognized in the
consolidated statements of income related to unvested
share-based compensation expense amounted to $3 million and
$9 million for the years ended December 31, 2008 and
2007, respectively.
16.6
Accumulated other comprehensive income (loss)
The accumulated balances related to each component of Other
comprehensive income (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Guidance on
|
|
|
|
|
|
|
Foreign
|
|
|
gain (loss) on
|
|
|
Unrealized
|
|
|
defined benefit
|
|
|
Accumulated
|
|
|
|
currency
|
|
|
available-for-sale
|
|
|
gain (loss) on
|
|
|
plans adoption
|
|
|
other
|
|
|
|
translation
|
|
|
financial assets,
|
|
|
derivatives,
|
|
|
adjustment,
|
|
|
comprehensive
|
|
|
|
income (loss)
|
|
|
net of tax
|
|
|
net of tax
|
|
|
net of tax
|
|
|
income (loss)
|
|
|
Balance as of December 31, 2006
|
|
|
860
|
|
|
|
0
|
|
|
|
13
|
|
|
|
(57
|
)
|
|
|
816
|
|
Other comprehensive income (loss)
|
|
|
467
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
40
|
|
|
|
504
|
|
Balance as of December 31, 2007
|
|
|
1,327
|
|
|
|
(2
|
)
|
|
|
12
|
|
|
|
(17
|
)
|
|
|
1,320
|
|
Other comprehensive income (loss)
|
|
|
(163
|
)
|
|
|
(14
|
)
|
|
|
(1
|
)
|
|
|
(48
|
)
|
|
|
(226
|
)
|
Balance as of December 31, 2008
|
|
|
1,164
|
|
|
|
(16
|
)
|
|
|
11
|
|
|
|
(65
|
)
|
|
|
1,094
|
|
Other comprehensive income (loss)
|
|
|
61
|
|
|
|
10
|
|
|
|
(5
|
)
|
|
|
4
|
|
|
|
70
|
|
Balance as of December 31, 2009
|
|
|
1,224
|
|
|
|
(6
|
)
|
|
|
6
|
|
|
|
(60
|
)
|
|
|
1,164
|
|
For the year ended December 31, 2009, the net amount of
accumulated other comprehensive income reclassified as earnings
was approximately $11 million related to cash flow hedge
transactions outstanding as at December 31, 2008, for which
the forecasted hedged transaction occurred in 2009.
16.7
Dividends
At the Companys Annual General meeting of Shareholders
held on May 20, 2009, the distribution of a cash dividend
of $105 million or $0.12 per common share to be paid in
four equal installments was adopted by the Companys
shareholders. Through December 31, 2009, payments were made
for an amount of $79 million including the payment of
$3 million for related withholding tax. The remaining $0.03
per share cash dividend to be paid in the first quarter of 2010
totaled $26 million and was reported as dividends
payable to shareholders on the consolidated balance sheet
as at December 31, 2009.
At the Annual General Meeting of Shareholders on May 14,
2008 shareholders adopted the distribution of $0.36 per
share in cash dividends, payable in four equal quarterly
installments. Through December 31, 2008, payments totaled
$0.27 per share or approximately $240 million. The
remaining $0.09 per share cash dividend to be paid in the first
quarter of 2009 totaled $79 million and was reported as
dividends payable to shareholders on the
consolidated balance sheet as at December 31, 2008.
In 2008 the cash dividend paid was of $0.36 per share for a
total amount of $319 million. In 2007, the cash dividend
paid was $0.30 per share for a total amount of $269 million.
F-53
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
|
|
17.
|
EARNINGS
(LOSS) PER SHARE
|
For the years ended December 31, 2009, 2008 and 2007,
earnings (loss) per share (EPS) was calculated as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(1,131
|
)
|
|
|
(786
|
)
|
|
|
(477
|
)
|
Weighted average shares outstanding
|
|
|
876,928,190
|
|
|
|
891,955,940
|
|
|
|
898,731,154
|
|
Basic EPS
|
|
|
(1.29
|
)
|
|
|
(0.88
|
)
|
|
|
(0.53
|
)
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(1,131
|
)
|
|
|
(786
|
)
|
|
|
(477
|
)
|
Net income (loss) adjusted
|
|
|
(1,131
|
)
|
|
|
(786
|
)
|
|
|
(477
|
)
|
Weighted average shares outstanding
|
|
|
876,928,190
|
|
|
|
891,955,940
|
|
|
|
898,731,154
|
|
Dilutive effect of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of nonvested shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in calculating diluted EPS
|
|
|
876,928,190
|
|
|
|
891,955,940
|
|
|
|
898,731,154
|
|
Diluted EPS
|
|
|
(1.29
|
)
|
|
|
(0.88
|
)
|
|
|
(0.53
|
)
|
At December 31, 2009, if the Company had reported an
income, outstanding stock options would have included
anti-dilutive shares totalling approximately
37,943,832 shares. At December 31, 2008 and 2007,
outstanding stock options included anti-dilutive shares
totalling approximately 39,431,433 and 46,722,255 shares,
respectively.
There was also the equivalent of 38,404,118 common shares
outstanding for convertible debt, out of which 5,624 for the
2013 bonds and 38,398,494 for the 2016 bonds, with no dilutive
effect. None of these bonds have been converted to shares during
2009.
|
|
18.
|
OTHER
INCOME AND EXPENSES, NET
|
Other income and expenses, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Research and development funding
|
|
|
202
|
|
|
|
83
|
|
|
|
97
|
|
Start-up and
phase-out costs
|
|
|
(39
|
)
|
|
|
(17
|
)
|
|
|
(24
|
)
|
Exchange gain, net
|
|
|
11
|
|
|
|
20
|
|
|
|
1
|
|
Patent costs, net of gain from settlement
|
|
|
(5
|
)
|
|
|
(24
|
)
|
|
|
(28
|
)
|
Gain on sale of long-lived assets, net
|
|
|
3
|
|
|
|
4
|
|
|
|
2
|
|
Other, net
|
|
|
(6
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
166
|
|
|
|
62
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company receives significant public funding from
governmental agencies in several jurisdictions. Public funding
for research and development is recognized ratably as the
related costs are incurred once the agreement with the
respective governmental agency has been signed and all
applicable conditions have been met.
Start-up
costs represent costs incurred in the
start-up and
testing of the Companys new manufacturing facilities,
before reaching the earlier of a minimum level of production or
six months after the fabrication lines quality
certification. Phase-out costs for facilities during the closing
stage are treated in the same manner.
Exchange gains and losses included in Other income and
expenses, net represent the portion of exchange rate
changes on transactions denominated in currencies other than an
entitys functional currency and the changes in fair value
of
held-for-trading
derivative instruments which are not designated as hedge and
which have a cash flow effect related to operating transactions.
F-54
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
Patent costs, net of settlement agreements, include legal and
attorney fees and payment for claims, patent pre-litigation
consultancy and legal fees, netted against settlements, which
primarily includes reimbursements of prior patent litigation
costs.
As at December 31, 2008 and 2007, the caption Other,
net included a $3 million and a $7 million
income respectively, net of attorney and consultancy fees that
the Company received in its ongoing pursuit to recover damages
related to the case with its former Treasurer as previously
disclosed.
|
|
19.
|
IMPAIRMENT,
RESTRUCTURING CHARGES AND OTHER RELATED CLOSURE COSTS
|
Impairment, restructuring charges and other related closure
costs incurred in 2009, 2008, and 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment,
|
|
|
|
|
|
|
|
|
|
|
|
|
restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
charges and other
|
|
|
|
|
|
|
Restructuring
|
|
|
Other related
|
|
|
related closure
|
|
Year Ended December 31, 2009
|
|
Impairment
|
|
|
charges
|
|
|
closure costs
|
|
|
costs
|
|
|
2007 restructuring plan
|
|
|
(25
|
)
|
|
|
(69
|
)
|
|
|
(32
|
)
|
|
|
(126
|
)
|
STE restructuring plan
|
|
|
|
|
|
|
(99
|
)
|
|
|
(1
|
)
|
|
|
(100
|
)
|
Goodwill annual impairment test
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
Other restructuring initiatives
|
|
|
(4
|
)
|
|
|
(53
|
)
|
|
|
(2
|
)
|
|
|
(59
|
)
|
Total
|
|
|
(35
|
)
|
|
|
(221
|
)
|
|
|
(35
|
)
|
|
|
(291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment,
|
|
|
|
|
|
|
|
|
|
|
|
|
restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
charges and other
|
|
|
|
|
|
|
Restructuring
|
|
|
Other related
|
|
|
related closure
|
|
Year Ended December 31, 2008
|
|
Impairment
|
|
|
charges
|
|
|
closure costs
|
|
|
costs
|
|
|
2007 restructuring plan
|
|
|
(77
|
)
|
|
|
(79
|
)
|
|
|
(8
|
)
|
|
|
(164
|
)
|
FMG deconsolidation
|
|
|
(190
|
)
|
|
|
(2
|
)
|
|
|
(24
|
)
|
|
|
(216
|
)
|
Goodwill annual impairment test
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
Other restructuring initiatives
|
|
|
(10
|
)
|
|
|
(75
|
)
|
|
|
(3
|
)
|
|
|
(88
|
)
|
Total
|
|
|
(290
|
)
|
|
|
(156
|
)
|
|
|
(35
|
)
|
|
|
(481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment,
|
|
|
|
|
|
|
|
|
|
|
|
|
restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
charges and other
|
|
|
|
|
|
|
Restructuring
|
|
|
Other related
|
|
|
related closure
|
|
Year Ended December 31, 2007
|
|
Impairment
|
|
|
charges
|
|
|
closure costs
|
|
|
costs
|
|
|
2007 restructuring plan
|
|
|
(11
|
)
|
|
|
(62
|
)
|
|
|
|
|
|
|
(73
|
)
|
FMG deconsolidation
|
|
|
(1,107
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
(1,112
|
)
|
Other restructuring initiatives
|
|
|
(5
|
)
|
|
|
(8
|
)
|
|
|
(30
|
)
|
|
|
(43
|
)
|
Total
|
|
|
(1,123
|
)
|
|
|
(70
|
)
|
|
|
(35
|
)
|
|
|
(1,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges and disposal loss
In 2009, the Company recorded impairment charges for
$35 million relating primarily to:
|
|
|
|
|
$25 million impairment linked to the 2007 restructuring
plan. These impairment charges were triggered by the
reclassification of the Companys long-lived assets of its
manufacturing site in Carrollton (Texas) (previously designated
for closure as part of the 2007 restructuring plan) on the line
Assets held for sale on the consolidated balance
sheets, pursuant to its decision to sell the facility. The
reclassified assets are primarily property and other long-lived
assets that satisfied all of the criteria required for the
held-for-sale
classification guidance. The carrying value of the assets to be
sold totalled $51 million at the date of the
reclassification, while fair value less costs to sell amounted
to approximately $30 million, which generated an impairment
charge of $21 million. Fair value less costs to sell was
based on the consideration to be received upon the sale, which
is expected to occur within one year. This fair value measure
corresponds to a level 2 fair value hierarchy for
nonfinancial assets measured at fair value on a nonrecurring
basis, as described in Note 25. The Company also recorded
impairment charges totalling
|
F-55
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
|
|
|
|
|
$4 million on certain specific equipment of the
Companys manufacturing site in Phoenix (Arizona), for
which no alternative future use existed within the Company. Fair
value was estimated based on broker prices available for similar
assets from past sales, which corresponds to a level 2 fair
value hierarchy for nonfinancial assets measured at fair value
on a nonrecurring basis, as described in Note 25.
|
The long-lived assets affected by the restructuring plans are
owned by the Company and were assessed for impairment using the
held-for-use
model when they did not satisfy all of the criteria required for
held-for-sale
status. In 2009, 2008 and 2007, apart from assets held for sale
within FMG deconsolidation and long-lived assets of the
manufacturing site in Carrollton (Texas), the Company did not
identify any significant tangible asset to be disposed of by
sale.
|
|
|
|
|
$6 million impairment on goodwill, pursuant to the interim
impairment test on goodwill performed during the first and
second quarter of 2009. As a result of this testing and a
decline in the business outlook for the Vision business acquired
in 1999, the Company recorded a $6 million impairment
charge. The Vision business is included in the Automotive
Consumer Computer and Communication infrastructure Product Group
reporting segment and is dedicated to image sensors, camera
modules and image processors for mobile phones.
|
|
|
|
$3 million
other-than-temporary
impairment on an investment carried at cost based on the
liquidation value of the investment.
|
|
|
|
$1 million of other non-cash charges.
|
In 2008, the Company recorded impairment charges and disposal
loss for $290 million corresponding primarily to:
|
|
|
|
|
$190 million loss on FMG deconsolidation, which, together
with the $1,107 million recorded in the year ended
December 31, 2007, gives the total loss of the FMG
deconsolidation of $1,296 million.
|
|
|
|
$75 million impairment charge on long-lived assets of the
Companys manufacturing site Phoenix (Arizona).
|
|
|
|
$13 million impairment on goodwill, pursuant to the annual
impairment test on goodwill and indefinite long-lived assets.
|
|
|
|
$6 million
other-than-temporary
impairment on investments carried at cost.
|
|
|
|
$4 million impairment on certain specific equipment with no
alternative future use.
|
In 2007, the Company recorded impairment charges for
$1,123 million corresponding primarily to
$1,107 million impairment as a result of the signing of the
definitive agreement for the FMG deconsolidation and upon
meeting the criteria for assets held for sale, to adjust the
value of the to-be-contributed assets to fair value less costs
to sell. Fair value less costs to sell was based on the net
consideration provided for in the agreement and significant
estimates.
Restructuring
charges and other related closure costs
The Company is currently engaged in two major restructuring
plans, the STE restructuring plan and the 2007 restructuring
plan that are briefly described hereafter. The Company is also
engaged in various initiatives launched in 2008 and 2009 aimed
at reducing the operating expenses through a workforce reduction.
In April 2009, ST-Ericsson announced a restructuring plan to be
completed by mid-2010 (the STE restructuring plan).
The main actions included in the restructuring plan are a
re-alignment of product roadmaps to create a more agile and
cost-efficient R&D organization and a reduction in
workforce of 1,200 worldwide to reflect further integration
activities following the merger. On December 3, 2009,
ST-Ericsson expanded its restructuring plan, targeting
additional annualized savings in operating expenses and
spending, along with an extensive R&D efficiency program.
The targeted time of completion of this new plan is the end of
2010.
The Company announced in 2007 that management committed to a
restructuring plan aimed at redefining the Companys
manufacturing strategy in order to be more competitive in the
semiconductor market (the 2007 restructuring plan).
In addition to the prior restructuring measures undertaken in
the past years, this manufacturing plan would pursue, among
other initiatives: the transfer of 150mm production from
Carrollton (Texas) to Asia, the transfer of 200mm production
from Phoenix (Arizona), to Europe and Asia and the restructuring
of the
F-56
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
manufacturing operations in Morocco with a progressive phase out
of the activities in Ain Sebaa site synchronized with a
significant growth in Bouskoura site.
In 2009, the Company incurred restructuring charges and other
related closure costs for $256 million relating primarily
to:
|
|
|
|
|
$100 million for the STE restructuring plan for on-going
termination benefits for involuntary leaves pursuant to the
closure of certain locations in Europe, the Unites States of
America and Asia.
|
|
|
|
$101 million for the 2007 restructuring plan primarily
related to closure costs and one-time termination benefits to be
paid to employees who render services until the complete closure
of the Carrollton (Texas) and Phoenix (Arizona) fabs.
|
|
|
|
$55 million restructuring charges related to former
committed restructuring initiatives. These restructuring charges
consisted primarily of termination benefits in Asia and
voluntary termination arrangements in certain European
locations. Additionally, the Company paid $39 million
related to the restructuring plan announced upon the integration
of NXP wireless business, as described in Note 7. The
amounts paid were charged against the liability recorded in 2008
in the purchase price allocation.
|
In 2008, the Company incurred restructuring charges and other
related closure costs for $191 million relating primarily
to:
|
|
|
|
|
$87 million for the 2007 restructuring plan primarily
related to $75 million accrued one-time termination
benefits for employees who provide services beyond the legal
retention period until the complete closure of the manufacturing
sites of Carrollton (Texas) and Phoenix (Arizona) and
$12 million of other costs in Morocco and France.
|
|
|
|
$26 million of restructuring charges related to FMG
disposal consisting primarily in phase-out costs.
|
|
|
|
$78 million of other restructuring initiatives, consisting
primarily of $69 million in termination benefits for
voluntary leaves and early retirement arrangements in certain
European locations and $9 million final costs relating to
the former restructuring plans of the Company.
|
|
|
|
In connection with the integration of Genesis and of the
wireless business from NXP, the Company launched in 2008 new
restructuring initiatives aimed at rationalizing its operations
and its worldwide workforce. The restructuring provisions
related to the newly integrated businesses amounted to
$46 million at acquisition date, of which $44 million
recorded on the ST-NXP business combination. The latter
represented estimated redundancy costs that will be incurred to
achieve the rationalization of the combined organization as
anticipated as part of the transaction. It covers approximately
500 people including
sub-contractors.
The plan affects mainly employees in Belgium, China, Germany,
India, the Netherlands, Switzerland and the United States.
|
In 2007, the company incurred restructuring charges and other
related closure costs for $105 million relating primarily
to:
|
|
|
|
|
$62 million for the 2007 restructuring plan
|
|
|
|
$5 million of other related closure costs incurred as a
result of the FMG deconsolidation
|
|
|
|
$38 million on other restructuring initiatives (150 mm fab
plan and the 2005 headcount reduction plan)
|
F-57
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
Changes to the restructuring provisions recorded on the
consolidated balance sheet of the company in 2009 and 2008 are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STE
|
|
|
2007
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Restructuring
|
|
|
Restructuring
|
|
|
FMG
|
|
|
restructuring
|
|
|
|
|
|
|
plan
|
|
|
plan
|
|
|
disposal
|
|
|
initiatives
|
|
|
Total
|
|
|
Provision as at December 31, 2007
|
|
|
|
|
|
|
60
|
|
|
|
2
|
|
|
|
20
|
|
|
|
82
|
|
Charges incurred in 2008
|
|
|
|
|
|
|
87
|
|
|
|
51
|
|
|
|
78
|
|
|
|
216
|
|
Provision on business combinations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
46
|
|
Amounts paid
|
|
|
|
|
|
|
(34
|
)
|
|
|
(33
|
)
|
|
|
(43
|
)
|
|
|
(110
|
)
|
Provision as at December 31, 2008
|
|
|
|
|
|
|
113
|
|
|
|
20
|
|
|
|
101
|
|
|
|
234
|
|
Charges incurred in 2009
|
|
|
100
|
|
|
|
101
|
|
|
|
|
|
|
|
55
|
|
|
|
256
|
|
Amounts paid
|
|
|
(17
|
)
|
|
|
(156
|
)
|
|
|
(20
|
)
|
|
|
(103
|
)
|
|
|
(296
|
)
|
Provision as at December 31, 2009
|
|
|
83
|
|
|
|
58
|
|
|
|
|
|
|
|
53
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment, restructuring charges and other related
closure costs
The 150mm fab plan and related manufacturing initiatives were
fully completed in 2008. The expected pre-tax charges to be
incurred under the plan were estimated to total
$330 million, while $347 million were incurred as of
December 31, 2008.
The 2005 headcount reduction plan, which was fully completed as
at December 31, 2008, was originally expected to result in
pre-tax charges of $100 million, while $102 million
were incurred as at December 31, 2008.
The 2007 restructuring plan is expected to result in pre-tax
charges in the range of $270 to $300 million, of which
$250 million have been incurred as of December 31,
2009. This plan is expected to be completed in the second half
of 2010.
The STE restructuring plan, which is expected to result in a
total pre-tax charge in the range of $135 million to
$155 million, registered a total charge of
$100 million as of December 31, 2009. This plan is
expected to be completed by end of 2010.
In 2009, total amounts paid for restructuring and related
closure costs amounted to $296 million. The total actual
costs that the Company will incur may differ from these
estimates based on the timing required to complete the
restructuring plan, the number of people involved, the final
agreed termination benefits and the costs associated with the
transfer of equipment, products and processes.
Interest income, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income
|
|
|
59
|
|
|
|
132
|
|
|
|
156
|
|
Expense
|
|
|
(50
|
)
|
|
|
(81
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9
|
|
|
|
51
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No borrowing cost was capitalized in 2009, 2008 and 2007.
Interest income on floating rate notes classified as
available-for-sale
marketable securities amounted to $8 million for the year
ended December 31, 2009, $37 million for the year
ended December 31, 2008 and to $41 million for the
year ended December 31, 2007. Interest income on auction
rate securities totaled $7 million, $14 million and
$24 million for the years ended December 31, 2009,
2008 and 2007 respectively. Interest income on Numonyx long term
notes classified as
available-for-sale
amounted to $16 million for the year ended
December 31, 2009 and $11 million for the year ended
December 31, 2008.
F-58
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
Income (loss) before income tax expense is comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Loss recorded in The Netherlands
|
|
|
(376
|
)
|
|
|
(1,232
|
)
|
|
|
(54
|
)
|
Income (loss) from foreign operations
|
|
|
(1,120
|
)
|
|
|
409
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense
|
|
|
(1,496
|
)
|
|
|
(823
|
)
|
|
|
(494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STMicroelectronics N.V. and its subsidiaries are individually
liable for income taxes in their jurisdictions. Tax losses can
only offset profits generated by the taxable entity incurring
such loss.
Income tax benefit (expense) is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
The Netherlands taxes current
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
(4
|
)
|
Foreign taxes current
|
|
|
(54
|
)
|
|
|
(25
|
)
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current taxes
|
|
|
(50
|
)
|
|
|
(26
|
)
|
|
|
(125
|
)
|
Foreign deferred taxes
|
|
|
145
|
|
|
|
69
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
95
|
|
|
|
43
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The principal items comprising the differences in income taxes
computed at the Netherlands statutory rate of 25.5% in 2009,
2008 and 2007, and the effective income tax rate are the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income tax benefit computed at statutory rate
|
|
|
382
|
|
|
|
210
|
|
|
|
126
|
|
Non-deductible, non-taxable and other permanent differences, net
|
|
|
(34
|
)
|
|
|
|
|
|
|
(20
|
)
|
Loss on equity investment
|
|
|
(84
|
)
|
|
|
(139
|
)
|
|
|
|
|
Valuation allowance adjustments
|
|
|
(56
|
)
|
|
|
(18
|
)
|
|
|
(1
|
)
|
Impact of prior years adjustments
|
|
|
21
|
|
|
|
48
|
|
|
|
(17
|
)
|
Effects of change in enacted tax rate on deferred taxes
|
|
|
(7
|
)
|
|
|
|
|
|
|
(21
|
)
|
Current year credits
|
|
|
76
|
|
|
|
66
|
|
|
|
63
|
|
Other tax and credits
|
|
|
(4
|
)
|
|
|
2
|
|
|
|
(3
|
)
|
Benefits from tax holidays
|
|
|
2
|
|
|
|
34
|
|
|
|
122
|
|
Current year tax risk
|
|
|
(23
|
)
|
|
|
(31
|
)
|
|
|
|
|
Impact of FMG deconsolidation
|
|
|
|
|
|
|
(77
|
)
|
|
|
(113
|
)
|
Earnings of subsidiaries taxed at different rates
|
|
|
(178
|
)
|
|
|
(52
|
)
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
|
95
|
|
|
|
43
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The lines Impact of prior years adjustments
and Current year tax risk include amounts that are
further disclosed in the uncertain tax position reconciliation
table included in this note.
As detailed in Note 2.6, following the passage of the
French Finance Act for 2008, which included several changes to
the research tax credit regime, beginning on January 1,
2008, French research tax credits that in prior years were
accounted for as a reduction in income tax expense were deemed
to be grants in substance. These tax credits, totaling
$146 million and $161 million, were reported as a
reduction of research and development expenses in the statement
of income for the years ended December 31, 2009 and 2008,
respectively.
In 2009 and 2008, the line Earnings of subsidiaries taxed
at different rates includes a decrease of
$123 million and $99 million, respectively, related to
significant losses in countries subject to tax holidays. In
2007, this line includes a $97 million decrease related to
the FMG deconsolidation for amounts that were deductible in tax
jurisdictions with statutory tax rates substantially below the
Netherlands statutory rate. In 2009, the Company
F-59
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
received $121 million for research tax credits for the
period prior to January 1, 2009 resulting in a decrease in
deferred tax assets of the same amount.
The tax holidays represent a tax exemption period aimed to
attract foreign technological investment in certain tax
jurisdictions. The effect of the tax benefits on basic earnings
per share was $0.00, $0.04, and $0.14 for the years ended
December 31, 2009, 2008, and 2007, respectively. These
agreements are present in various countries and include programs
that reduce up to and including 100% of taxes in years affected
by the agreements. The Companys tax holidays expire at
various dates through the year ending December 31, 2019.
Deferred tax assets and liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
Tax loss carryforwards and investment credits
|
|
|
639
|
|
|
|
460
|
|
Inventory valuation
|
|
|
34
|
|
|
|
29
|
|
Impairment and restructuring charges
|
|
|
95
|
|
|
|
102
|
|
Fixed asset depreciation in arrears
|
|
|
53
|
|
|
|
64
|
|
Receivables for government funding
|
|
|
18
|
|
|
|
189
|
|
Tax allowances granted on past capital investments
|
|
|
1,096
|
|
|
|
1,086
|
|
Pension service costs
|
|
|
41
|
|
|
|
39
|
|
Stock awards
|
|
|
11
|
|
|
|
26
|
|
Commercial accruals
|
|
|
7
|
|
|
|
9
|
|
Other temporary differences
|
|
|
62
|
|
|
|
45
|
|
Total deferred tax assets
|
|
|
2,056
|
|
|
|
2,049
|
|
Valuation allowances
|
|
|
(1,337
|
)
|
|
|
(1,283
|
)
|
Deferred tax assets, net
|
|
|
719
|
|
|
|
766
|
|
Accelerated fixed asset depreciation
|
|
|
(66
|
)
|
|
|
(86
|
)
|
Acquired intangible assets
|
|
|
(31
|
)
|
|
|
(61
|
)
|
Advances of government funding
|
|
|
(13
|
)
|
|
|
(17
|
)
|
Other temporary differences
|
|
|
(35
|
)
|
|
|
(32
|
)
|
Deferred tax liabilities
|
|
|
(145
|
)
|
|
|
(196
|
)
|
Net deferred income tax asset
|
|
|
574
|
|
|
|
570
|
|
For a particular tax-paying component of the Company and within
a particular tax jurisdiction, all current deferred tax
liabilities and assets are offset and presented as a single
amount, similarly to non-current deferred tax liabilities and
assets. The Company does not offset deferred tax liabilities and
assets attributable to different tax-paying components or to
different tax jurisdictions.
As of December 31, 2009, the Company and its subsidiaries
have gross deferred tax assets on tax loss carryforwards and
investment credits that expire starting 2010, as follows:
|
|
|
|
|
Year
|
|
|
|
2010
|
|
|
9
|
|
2011
|
|
|
23
|
|
2012
|
|
|
57
|
|
2013
|
|
|
16
|
|
Thereafter
|
|
|
534
|
|
|
|
|
|
|
Total
|
|
|
639
|
|
|
|
|
|
|
The valuation allowance for a particular tax jurisdiction is
allocated between current and non-current deferred tax assets
for that jurisdiction on a pro rata basis. The Tax
allowances granted on past capital investments mainly
related to a 2003 agreement granting the Company certain tax
credits for capital investments purchased through the year
ending December 31, 2006. Any unused tax credits granted
under the agreement will continue to increase yearly by a legal
inflationary index (currently 1.45% per annum). The credits may
be utilized through 2020 or later depending on the Company
meeting certain program criteria. In addition to this agreement,
starting in 2007 the
F-60
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
Company continues to receive tax credits on the yearly capital
investments, which may be used to offset that years tax
liabilities and increases by the legal inflationary rate.
However, pursuant to the inability to utilize these credits
currently and in future years, the Company did not recognize any
deferred tax asset on such tax allowance. As a result, there is
no financial impact to the net deferred tax assets of the
Company.
The amount of deferred tax benefit (expense) recorded as a
component of other comprehensive income (loss) was
($3) million and $17 million in 2009 and 2008
respectively and related primarily to the tax effects of the
recognized unfunded status on defined benefits plans and
unrealized gains on derivatives.
For the evaluation of uncertain income tax positions based on a
more likely than not threshold, the Company applies
a two-step process to determine if a tax position will be
sustained upon examination by the taxing authorities. The
recognition threshold in step one permits the benefit from an
uncertain position to be recognized only if it is more likely
than not, or 50 percent assured that the tax position will
be sustained upon examination by the taxing authorities. The
measurement methodology in step two is based on cumulative
probability, resulting in the recognition of the largest
amount that is greater than 50 percent likely of being
realized upon settlement with the taxing authority.
A reconciliation of the 2009 beginning and ending amount of
unrecognized tax benefits is as follows:
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
153
|
|
Additions based on tax positions related to the current year
|
|
|
38
|
|
Additions for tax positions of prior years
|
|
|
10
|
|
Reductions for tax positions of prior years
|
|
|
(9
|
)
|
Settlements
|
|
|
|
|
Reductions for lapse of statute of limitations
|
|
|
|
|
Foreign currency translation
|
|
|
1
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
193
|
|
|
|
|
|
|
The reconciliation of unrecognized tax benefits in 2008 was as
follows:
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
99
|
|
Additions based on tax positions related to the current year
|
|
|
20
|
|
Additions for tax positions of prior years
|
|
|
58
|
|
Reductions for tax positions of prior years
|
|
|
(18
|
)
|
Settlements
|
|
|
(3
|
)
|
Reductions for lapse of statute of limitations
|
|
|
|
|
Foreign currency translation
|
|
|
(3
|
)
|
Balance at December 31, 2008
|
|
$
|
153
|
|
The total amount of these unrecognized tax benefits would affect
the effective tax rate, if recognized. It is reasonably possible
that certain of the uncertain tax positions disclosed in the
table above could increase by up to $71 million based upon
tax examinations that are expected to be completed within the
next 12 months.
Additionally, the Company elected to classify accrued interest
and penalties related to uncertain tax positions as components
of income tax expense in its consolidated statements of income.
Interest and penalties are not material for the year or on a
cumulative basis.
The tax years that remain open for review in the Companys
major tax jurisdictions are from 1997 to 2009.
F-61
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
The Companys commitments as of December 31, 2009 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
|
In million US$
|
|
|
Operating leases
|
|
$
|
481
|
|
|
$
|
131
|
|
|
$
|
98
|
|
|
$
|
68
|
|
|
$
|
43
|
|
|
$
|
26
|
|
|
$
|
115
|
|
Purchase obligations
|
|
|
741
|
|
|
|
604
|
|
|
|
62
|
|
|
|
37
|
|
|
|
20
|
|
|
|
18
|
|
|
|
|
|
of which:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchase
|
|
|
267
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foundry purchase
|
|
|
182
|
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software, technology licenses and design
|
|
|
292
|
|
|
|
155
|
|
|
|
62
|
|
|
|
37
|
|
|
|
20
|
|
|
|
18
|
|
|
|
|
|
Other obligations
|
|
|
532
|
|
|
|
263
|
|
|
|
135
|
|
|
|
125
|
|
|
|
6
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,754
|
|
|
|
998
|
|
|
|
295
|
|
|
|
230
|
|
|
|
69
|
|
|
|
46
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a consequence of the Companys July 10, 2007
announcement concerning the planned closures of certain of its
manufacturing facilities, the shutdown of its plants in the
United States is ongoing and negotiations with some of its
suppliers continue. As no final date has been set, some of the
contracts as reported above have been terminated. The
termination fees for the sites still in operation have not been
taken into account.
Operating leases are mainly related to building and equipment
leases. The amount disclosed is composed of minimum payments for
future leases from 2010 to 2014 and thereafter. The Company
leases land, buildings, plants and equipment under operating
leases that expire at various dates under non-cancellable lease
agreements. Operating lease expenses was $174 million,
$92 million and $62 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Purchase obligations are primarily comprised of purchase
commitments for equipment, for outsourced foundry wafers and for
software licenses.
Other obligations primarily relate to firm contractual
commitments with respect to partnership and cooperation
agreements.
Other
commitments
The Company has issued guarantees totalling $733 million
related to its subsidiaries debt. Furthermore, the Company
has umbrella facilities for an amount of $480 million
extendable to its subsidiaries on a fully guaranteed basis. In
addition, the Company and Intel have each granted in favor of
Numonyx, in which the Company holds a 48.6% equity investment, a
50% guarantee not joint and several, for indebtedness related to
the financing arrangements entered into by Numonyx for a
$450 million term loan and a $100 million committed
revolving credit facility.
Subject to the terms of the revolving facility agreement signed
on December 4, 2009 between the Company and
Telefonaktiebolaget LM Ericsson as lenders on one side and
ST-Ericsson SA as borrower on the other side, the Company
committed itself to make available to the borrower the amount of
$25 million as a revolving facility.
The Company is subject to the possibility of loss contingencies
arising in the ordinary course of business. These include but
are not limited to: warranty cost on the products of the
Company, breach of contract claims, claims for unauthorized use
of third-party intellectual property, tax claims beyond assessed
uncertain tax positions as well as claims for environmental
damages. In determining loss contingencies, the Company
considers the likelihood of a loss of an asset or the incurrence
of a liability as well as the ability to reasonably estimate the
amount of such loss or liability. An estimated loss is recorded
when it is probable that a liability has been incurred and when
the amount of the loss can be reasonably estimated. The Company
regularly reevaluates claims to determine whether provisions
need to be readjusted based on the most current information
available to the Company. Changes in these evaluations could
result in an adverse material impact on the Companys
results of operations, cash flows or its financial position for
the period in which they occur.
F-62
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
|
|
24.
|
CLAIMS
AND LEGAL PROCEEDINGS
|
The Company has received and may in the future receive
communications alleging possible infringements, in particular in
the case of patents and similar intellectual property rights of
others. Furthermore, the Company periodically conducts patent
cross license discussions with other industry participants. The
Company may become involved in costly litigation brought against
the Company regarding patents, mask works, copy-rights,
trade-marks or trade secrets. In the event that the outcome of
any litigation would be unfavorable to the Company, the Company
may be required to license the patents
and/or other
intellectual property rights at economically unfavorable terms
and conditions, and possibly pay damages for prior use
and/or face
an injunction, all of which individually or in the aggregate
could have a material adverse effect on the Companys
results of operations, cash flows or financial position and
ability to compete.
The Company is otherwise also involved in various lawsuits,
claims, investigations and proceedings incidental to its
business and operations.
The Company is currently one amongst several co-defendants to
legal proceedings initiated with the International Trade
Commission (the ITC) by Tessera Technologies, Inc
(Tessera). See Item 8. Financial
Information Legal Proceedings.
On December 4, 2009 the Company has received from the
International Chamber of Commerce the notification of a request
for arbitration filed by NXP Semiconductors Netherlands BV
NXP against the Company, claiming in excess of
$46 million in alleged compensation for so called
underloading costs, pursuant to a Manufacturing Services
Agreement entered into between NXP and ST-NXP Wireless, at the
time of the creation of the Companys wireless
semiconductor products joint venture with NXP, in August 2008.
The Company is contesting this claim vigorously and filed its
answer with the ITC on February 12, 2010. The arbitration
tribunal has been constituted but has yet to meet.
The Company accrues loss contingencies when a loss is probable
and can be estimated. The Company regularly evaluates claims and
legal proceedings together with their related probable losses to
determine whether they need to be adjusted based on the current
information available to the Company. Legal costs associated
with claims are expensed as incurred. In the event of litigation
which is adversely determined with respect to the Companys
interests, or in the event the Company needs to change its
evaluation of a potential third-party claim, based on new
evidence or communications, a material adverse effect could
impact its operations or financial condition at the time it were
to materialize. As of December 31, 2009 provisions have
been recorded by the Company with respect to legal proceedings
when it is probable that a liability has been incurred and the
associated amount can be reasonably estimated.
|
|
25.
|
FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT
|
25.1
Financial risk factors
The Company is exposed to changes in financial market conditions
in the normal course of business due to its operations in
different foreign currencies and its ongoing investing and
financing activities. The Companys 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
Companys overall risk management program focuses on the
unpredictability of financial markets and seeks to minimize
potential adverse effects on the Companys financial
performance. The Company uses derivative financial instruments
to hedge certain risk exposures.
Risk management is carried out by a central treasury department
(Corporate Treasury) reporting to the Chief Financial Officer.
Simultaneously, a Treasury Committee, chaired by the CFO, steers
treasury activities and ensures compliance with corporate
policies approved by the Board of Directors. Treasury activities
are thus regulated by the Companys policies, which define
procedures, objectives and controls. The policies focus on the
management of financial risk in terms of exposure to market
risk, credit risk and liquidity risk. Treasury controls are
subject to internal audits. Most treasury activities are
centralized, with any local treasury activities subject to
oversight from head treasury office. Corporate Treasury
identifies, evaluates and hedges financial risks in close
cooperation with the Companys 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, credit risk, use of
derivative financial instruments and non-derivative financial
instruments, and investment of excess liquidity. The majority of
cash and cash equivalent is held in U.S. dollars and Euro
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 Moodys Investor
Service and A- from Standard & Poors and Fitch
Ratings. Marginal amounts are held in other currencies. Foreign
F-63
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
currency operations and hedging transactions are performed only
to hedge exposures deriving from industrial and commercial
activities.
Market
risk
Foreign
exchange risk
The Company conducts its business on a global basis in various
major international currencies. As a result, the Company is
exposed to adverse movements in foreign currency exchange rates,
primarily with respect to the Euro. Foreign exchange risk mainly
arises from future commercial transactions and recognized assets
and liabilities at the Companys subsidiaries.
Management has set up a policy to require the Companys
subsidiaries to hedge their entire foreign exchange risk
exposure with the Company through financial instruments
transacted by Corporate Treasury. To manage their foreign
exchange risk arising from foreign-currency-denominated assets
and liabilities, entities in the Company use forward contracts
and purchased currency options, transacted by Corporate
Treasury. Foreign exchange risk arises when recognized assets
and liabilities are denominated in a currency that is not the
entitys functional currency. These instruments do not
qualify as hedging instruments. In addition, forward contracts
and currency options are also used by the Company to reduce its
exposure to U.S. dollar fluctuations in Euro-denominated
forecasted intercompany transactions that cover a large part of
its research and development, selling general and administrative
expenses as well as a portion of its front-end manufacturing
production costs of semi-finished goods. The derivative
instruments used to hedge these forecasted transactions meet the
criteria for designation as cash flow hedge. The hedged
forecasted transactions are all highly probable of occurrence
for hedge accounting purposes.
It is the Companys policy to keep the foreign exchange
exposures in all the currency pairs hedged month by month
against the monthly standard rate. Each month end, the
forecasted flows for the coming month are hedged together with
the fixing of the new standard rate. For this reason the hedging
transactions will have an exchange rate very close to the
standard rate at which the forecasted flows will be recorded on
the following month. As such, the foreign exchange exposure of
the Company, which consists in the balance sheet positions and
other contractually agreed transactions, is always equivalent to
zero and any movement of the foreign exchange rates will not
therefore influence the exchange effect on consolidated
statements of income items. Any discrepancy from the forecasted
values and the actual results is constantly monitored and prompt
actions are taken, as needed.
Derivative
Instruments Not Designated as a Hedge
As described above, the Company enters into foreign currency
forward contracts and currency options to reduce its exposure to
changes in exchange rates and the associated risk arising from
the denomination of certain assets and liabilities in foreign
currencies at the Companys subsidiaries. These include
receivables from international sales by various subsidiaries in
foreign currencies, payables for foreign currency denominated
purchases and certain other assets and liabilities arising in
intercompany transactions.
The notional amount of these financial instruments totalled
$717 million, $505 million and $254 million at
December 31, 2009, 2008 and 2007, respectively. The
principal currencies covered are the Euro, the Singapore dollar,
the Japanese yen, the Swiss franc, the Swedish krona, the
British pound and the Malaysian ringgit.
The risk of loss associated with forward contracts is equal to
the exchange rate differential from the time the contract is
entered into until the time it is settled. The risk of loss
associated with purchased currency options is equal to the
premium paid when the option is not exercised.
Foreign currency forward contracts and currency options not
designated as cash flow hedge outstanding as of
December 31, 2009 have remaining terms of 4 days to
3 months, maturing on average after 35 days.
Derivative
Instruments Designated as a Hedge
To further reduce its exposure to U.S. dollar exchange rate
fluctuations, the Company hedges certain Euro-denominated
forecasted transactions that cover at year-end a large part of
its research and development, selling, general and
administrative expenses, as well as a portion of its front-end
manufacturing costs of semi-finished goods through the use of
currency forward contracts and currency options. The maximum
length of time over which the Company hedges its exposure to the
variability of cash flows for forecasted transactions is
12 months.
F-64
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
For the year ended December 31, 2009 the Company recorded a
reduction in cost of sales and operating expenses of
$29 million and $42 million, respectively, related to
the realized gain incurred on such hedged transactions. For the
year ended December 31, 2008 the Company recorded a
reduction in cost of sales of $4 million and an increase of
operating expenses of $3 million related to the realized
gain (loss) incurred on such hedged transactions. For the year
ended December 31, 2007 the Company recorded a reduction in
cost of sales and operating expenses of $16 million and
$20 million, respectively, related to the realized gain
incurred on such hedged transactions. No significant ineffective
portion of the hedge was recorded on the line Other income
and expenses, net of the consolidated statements of income
for the years ended December 31, 2009, 2008 and 2007.
The notional amount of foreign currency forward contracts and
currency options designated as cash flow hedges totalled $1,354,
$763 and $482 million at December 31, 2009, 2008 and
2007, respectively. The forecasted transactions hedged at
December 31, 2009 were determined to be probable of
occurrence.
As of December 31, 2009, $6 million of deferred gains
on derivative instruments, net of tax of $1 million,
included in Accumulated other comprehensive
income/(loss) were expected to be reclassified as earnings
during the next twelve months based on the monthly forecasted
research and development expenses, corporate costs and
semi-finished manufacturing costs. No amount was reclassified as
Other income and expenses, net into the consolidated
statements of income from Accumulated other comprehensive
income/(loss) in the consolidated statement of equity. As
of December 31, 2008, $13 million of deferred gains on
derivative instruments, net of tax of $2 million, included
in Accumulated other comprehensive income/(loss) have been
reclassified as earnings during the next six months based on the
monthly forecasted research and development expenses, corporate
costs and semi-finished manufacturing costs.
Foreign currency forward contracts and currency options
designated as cash flow hedges outstanding as of
December 31, 2009 have remaining terms of 8 days to
11 months, maturing on average after 119 days.
As at December 31, 2009, the Company had the following
outstanding derivative instruments that were entered into to
hedge Euro-denominated forecasted transactions:
|
|
|
|
|
|
|
|
|
|
|
Notional amount for
|
|
|
|
|
hedge on R&D and other
|
|
Notional amount for
|
|
|
operating expense
|
|
hedge on manufacturing
|
|
|
forecasted costs
|
|
forecasted costs
|
|
|
In millions of Euros
|
|
Forward contracts
|
|
|
388
|
|
|
|
272
|
|
Currency options
|
|
|
120
|
|
|
|
160
|
|
Cash
flow and fair value interest rate risk
The Companys interest rate risk arises from long-term
borrowings. Borrowings issued at variable rates expose the
Company to cash flow interest rate risk. Borrowings issued at
fixed rates expose the Company to fair value interest rate risk.
The Company analyses its interest rate exposure on a dynamic
basis. Various scenarios are simulated taking into consideration
refinancing, renewal of existing positions, alternative
financing and hedging. Since all the liquidity of the Company is
invested in floating rate instruments, the Companys
interest rate risk arises from the mismatch of fixed rate
liabilities and floating rate assets.
In 2006, the Company entered into cancellable swaps with a
combined notional value of $200 million to hedge the fair
value of a portion of the convertible bonds due 2016 carrying a
fixed interest rate. The cancellable swaps converted the fixed
rate interest expense recorded on the convertible bond due 2016
to a variable interest rate based upon adjusted LIBOR. As of
December 31, 2007 the cancellable swaps met the criteria
for designation as a fair value hedge and, as such, both the
swaps and the hedged portion of the bonds were reflected at
their fair values in the consolidated balance sheet. The
criteria for designating a derivative as a hedge include
evaluating whether the instrument is highly effective at
offsetting changes in the fair value of the hedged item
attributable to the hedged risk. Hedged effectiveness was
assessed on both a prospective and retrospective basis at each
reporting period. Any ineffectiveness of the hedge relationship
was recorded as a gain or loss on derivatives as a component of
Other income and expenses, net in the consolidated
statements of income. The net gain (loss) recognized in
Other income and expenses, net as a result of the
ineffective portion of this fair value hedge amounted to
$1 million gain and $1 million loss for the years
ended December 31, 2008 and 2007, respectively.
F-65
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
At December 31, 2008 the cancellable swaps were not
designated as fair value hedge and were reported as
held-for-trading
financial assets on the line Other receivables and
assets of the consolidated balance sheet, as described in
Note 6. The Company determined that the swaps had been no
longer effective at offsetting changes in the fair value of the
hedged bonds since November 1, 2008 and the fair value
hedge relationship was consequently discontinued on that date.
Unrealised gain recognized in earnings from discontinuance date
totalled $15 million and was reported on the line
Gain(loss) on financial assets of the consolidated
statements of income for the year ended December 31, 2008.
The swaps were sold in 2009, as described in Note 6.
Information on fair value of derivative instruments and their
location in the consolidated balance sheets as at
December 31, 2009 and December 31, 2008 is presented
in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2009
|
|
|
As at December 31, 2008
|
|
|
|
Balance sheet
|
|
Fair
|
|
|
Balance sheet
|
|
Fair
|
|
Asset Derivatives
|
|
location
|
|
value
|
|
|
location
|
|
value
|
|
|
|
In millions of U.S. dollars
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Other receivables and assets
|
|
|
24
|
|
|
Other receivables and assets
|
|
|
19
|
|
Currency options
|
|
Other receivables and assets
|
|
|
9
|
|
|
Other receivables and assets
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
33
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Other receivables and assets
|
|
|
3
|
|
|
Other receivables and assets
|
|
|
10
|
|
Currency options
|
|
Other receivables and assets
|
|
|
|
|
|
Other receivables and assets
|
|
|
|
|
Cancellable swaps
|
|
|
|
|
|
|
|
Other receivables and assets
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments:
|
|
|
|
|
3
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives
|
|
|
|
|
36
|
|
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-66
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2009
|
|
|
As at December 31, 2008
|
|
|
|
Balance sheet
|
|
Fair
|
|
|
Balance sheet
|
|
Fair
|
|
Liability Derivatives
|
|
location
|
|
value
|
|
|
location
|
|
value
|
|
|
|
In millions of U.S. dollars
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Other payables and accrued liabilities
|
|
|
(19
|
)
|
|
Other payables and accrued liabilities
|
|
|
(3
|
)
|
Currency options
|
|
Other payables and accrued liabilities
|
|
|
(8
|
)
|
|
Other payables and accrued liabilities
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
(27
|
)
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Other payables and accrued liabilities
|
|
|
(7
|
)
|
|
Other payables and accrued liabilities
|
|
|
(1
|
)
|
Currency options
|
|
Other payables and accrued liabilities
|
|
|
|
|
|
Other payables and accrued liabilities
|
|
|
|
|
Total derivatives not designated as hedging instruments:
|
|
|
|
|
(7
|
)
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives
|
|
|
|
|
(34
|
)
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect on the consolidated statements of income for the year
ended December 31, 2009 and December 31, 2008 of
derivative instruments designated as fair value hedge is
presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain
|
|
|
|
|
(loss) recognized in
|
|
|
Location of gain (loss)
|
|
earnings on derivative
|
|
|
recognized in earnings
|
|
December 31,
|
|
December,
|
|
|
on derivative
|
|
2009
|
|
2008
|
|
|
In millions of U.S. dollars
|
|
Cancellable swaps
|
|
Interest income, net
|
|
|
3
|
|
|
|
|
|
|
|
Other income and expenses, net
|
|
|
|
|
|
|
1
|
|
|
|
Gain(loss) on financial assets
|
|
|
(8
|
)
|
|
|
15
|
|
The effect on the consolidated statements of income for the year
ended December 31, 2009 and December 31, 2008 and on
the Other comprehensive income (OCI) as reported in
the statement of changes in equity as at
F-67
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
December 31, 2009 and December 31, 2008 of derivative
instruments designated as cash flow hedge is presented in the
table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) deferred in
|
|
Location of gain
|
|
|
|
|
|
|
OCI on derivative
|
|
(loss) reclassified
|
|
Gain (loss) reclassified from OCI into earnings
|
|
|
December 31,
|
|
December 31,
|
|
from OCI into
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
earnings
|
|
2009
|
|
2008
|
|
|
In millions of U.S. dollars
|
|
Foreign exchange forward contracts
|
|
|
2
|
|
|
|
11
|
|
|
Cost of sales
|
|
|
31
|
|
|
|
6
|
|
Foreign exchange forward contracts
|
|
|
1
|
|
|
|
2
|
|
|
Selling, general and administrative
|
|
|
7
|
|
|
|
(3
|
)
|
Foreign exchange forward contracts
|
|
|
6
|
|
|
|
4
|
|
|
Research and development
|
|
|
38
|
|
|
|
(5
|
)
|
Currency options
|
|
|
(1
|
)
|
|
|
1
|
|
|
Cost of sales
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Currency options
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
(1
|
)
|
|
|
1
|
|
Currency options
|
|
|
(1
|
)
|
|
|
|
|
|
Research and development
|
|
|
(2
|
)
|
|
|
4
|
|
Total
|
|
|
7
|
|
|
|
18
|
|
|
|
|
|
71
|
|
|
|
1
|
|
No significant ineffective portion of the cash flow hedge
relationships and no amount excluded from effectiveness
assessment was recorded on the line Other income and
expenses, net of the consolidated statements of income for
year ended December 31, 2009 and December 31, 2008.
The effect on the consolidated statements of income for the year
ended December 31, 2009 and December 31, 2008 of
derivative instruments not designated as a hedge is presented in
the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in
|
|
|
|
|
|
Earnings
|
|
|
|
Location of Gain Recognized in
|
|
December 31,
|
|
|
December 31,
|
|
|
|
Earnings
|
|
2009
|
|
|
2008
|
|
|
|
In millions of U.S. dollars
|
|
|
Foreign exchange forward contracts
|
|
Other income and expenses, net
|
|
|
20
|
|
|
|
(36
|
)
|
Credit
risk
The Company selects banks
and/or
financial institutions that operate with the group based on the
criteria of long term rating from at least two major Rating
Agencies and keeping a maximum outstanding amount per instrument
with each bank group not to exceed 20% of the total.
Due to the credit market turmoil, the Company has decided to
further tighten the counterparty concentration and credit risk
profile. The maximum outstanding counterparty risk has been
reduced and currently does not exceed 15% for major
international banks with large market capitalization.
The Company monitors the creditworthiness of its customers to
which it grants credit terms in the normal course of business.
If certain customers are independently rated, these ratings are
used. Otherwise, if there is no independent rating, risk control
assesses the credit quality of the customer, taking into account
its financial position, past experience and other factors.
Individual risk limits are set based on internal and external
ratings in accordance with limits set by management. The
utilisation of credit limits is regularly monitored. Sales to
customers are primarily settled in cash. At December 31,
2009 and 2008, one customer, the Nokia Group of companies,
represented 20.8% and 16.7% of trade accounts receivable, net
respectively. Any remaining concentrations of credit risk with
respect to trade receivables are limited due to the large number
of customers and their dispersion across many geographic areas.
Liquidity
risk
Prudent liquidity risk management includes maintaining
sufficient cash and cash equivalents, short-term deposits and
marketable securities, the availability of funding from
committed credit facilities and the ability to close out market
positions. The Companys objective is to maintain a
significant cash position and a low debt to
F-68
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
equity ratio, which ensure adequate financial flexibility.
Liquidity management policy is to finance the Companys
investments with net cash provided from operating activities.
Management monitors rolling forecasts of the Companys
liquidity reserve on the basis of expected cash flows.
25.2
Capital risk management
The Companys objectives when managing capital are to
safeguard the Companys ability to continue as a going
concern in order to provide returns for shareholders and
benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital. In order to
maintain or adjust the capital structure, the Company may adjust
the amount of dividends paid to shareholders, return capital to
shareholders, or issue new shares.
Consistent with others in the industry, the Company monitors
capital on the basis of the
debt-to-equity
ratio. This ratio is calculated as the net financial position of
the Company, defined as the difference between total cash
position (cash and cash equivalents, marketable
securities current and non-current-, short-term
deposits and restricted cash) net of total financial debt (bank
overdrafts, current portion of long-term debt and long-term
debt), divided by total equity attributable to the shareholders
of the Company.
25.3 Fair
value measurement
The fair values of quoted financial instruments are based on
current market prices. The fair value of financial instruments
traded in active markets is based on quoted market prices at the
balance sheet date. The quoted market price used for financial
assets held by the Company is the bid price. If the market for a
financial asset is not active and if no observable market price
is obtainable, the Company measures fair value by using
significant assumptions and estimates. In measuring fair value,
the Company makes maximum use of market inputs and relies as
little as possible on entity-specific inputs.
The table below details financial assets (liabilities) measured
at fair value on a recurring basis as at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
Significant Other
|
|
Significant
|
|
|
December 31,
|
|
Identical Assets
|
|
Observable Inputs
|
|
Unobservable Inputs
|
|
|
2009
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions of U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
marketable debt securities
|
|
|
1,032
|
|
|
|
1,021
|
|
|
|
|
|
|
|
11
|
|
Available-for-sale
non-current marketable debt securities
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
Available-for-sale
long term subordinated notes
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
173
|
|
Available-for-sale
equity securities
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
Equity securities held for trading
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
Derivative instruments designated as cash flow hedge
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Derivative instruments not designated as hedge
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
F-69
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
For assets measured at fair value on a recurring basis using
significant unobservable inputs (Level 3), the
reconciliation between January 1, 2009 and
December 31, 2009 is presented as follows:
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Measurements Using
|
|
|
|
Significant
|
|
|
|
Unobservable Inputs
|
|
|
|
(Level 3)
|
|
|
|
In millions of U.S. dollars
|
|
|
January 1, 2009
|
|
|
421
|
|
Increase in fair value included in OCI for
available-for-sale
marketable securities
|
|
|
15
|
|
Other-than-temporary
impairment charge and losses on auction-rate securities included
in earnings on the line
Other-than-temporary
impairment charge on financial assets
|
|
|
(140
|
)
|
Paid-in-kind
interest on Numonyx subordinated notes
|
|
|
16
|
|
Change in fair value on Numonyx subordinated notes
pre-tax
|
|
|
(11
|
)
|
Settlements and redemptions
|
|
|
(75
|
)
|
|
|
|
|
|
December 31, 2009
|
|
|
226
|
|
|
|
|
|
|
Amount of total losses for the period included in earnings
attributable to assets still held at the reporting date
|
|
|
72
|
|
The table below details financial and non financial assets
(liabilities) measured at fair value on a nonrecurring basis as
at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
Significant Other
|
|
Significant
|
|
|
December 31,
|
|
Identical Assets
|
|
Observable Inputs
|
|
Unobservable Inputs
|
|
|
2009
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions of U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in equity securities carried at cost
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
Numonyx equity investment
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
193
|
|
Assets held for sale
|
|
|
31
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
Total
|
|
|
253
|
|
|
|
|
|
|
|
31
|
|
|
|
222
|
|
For assets (liabilities) measured at fair value on a non
recurring basis using significant unobservable inputs
(Level 3), the reconciliation between January 1, 2009
and December 31, 2009 is presented as follows:
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Measurements Using
|
|
|
|
Significant
|
|
|
|
Unobservable Inputs
|
|
|
|
(Level 3)
|
|
|
|
In millions of U.S. dollars
|
|
|
January 1, 2009
|
|
|
528
|
|
Investments in equity securities carried at cost
|
|
|
(3
|
)
|
Impairment in Numonyx equity
|
|
|
(200
|
)
|
Equity share in Numonyx loss
|
|
|
(103
|
)
|
|
|
|
|
|
December 31, 2009
|
|
|
222
|
|
|
|
|
|
|
Amount of total losses for the period included in earnings
attributable to assets still held at the reporting date
|
|
|
(303
|
)
|
F-70
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
The following table includes additional fair value information
on other financial assets and liabilities recorded at amortized
cost as at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
Carrying
|
|
Estimated Fair
|
|
Carrying
|
|
Estimated Fair
|
Description
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
|
|
|
In millions of U.S. dollars
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans (including current portion)
|
|
|
829
|
|
|
|
829
|
|
|
|
938
|
|
|
|
937
|
|
Senior Bonds
|
|
|
720
|
|
|
|
712
|
|
|
|
703
|
|
|
|
580
|
|
Convertible debt
|
|
|
943
|
|
|
|
918
|
|
|
|
1,036
|
|
|
|
918
|
|
Total
|
|
|
2,492
|
|
|
|
2,459
|
|
|
|
2,677
|
|
|
|
2,435
|
|
The table below details securities that currently are in an
unrealized loss position. The securities are segregated by
investment type and the length of time that the individual
securities have been in a continuous unrealized loss position as
of December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Less than 12 months
|
|
|
More than 12 months
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
Description
|
|
Values
|
|
|
Losses
|
|
|
Values
|
|
|
Losses
|
|
|
Values
|
|
|
Losses
|
|
|
Senior debt floating rate notes
|
|
|
105
|
|
|
|
(2
|
)
|
|
|
209
|
|
|
|
(7
|
)
|
|
|
314
|
|
|
|
(9
|
)
|
Long-term subordinated notes
|
|
|
173
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
173
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
278
|
|
|
|
(13
|
)
|
|
|
209
|
|
|
|
(7
|
)
|
|
|
487
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The methodologies used to estimate fair value are as follows:
Marketable
securities
The fair value of floating rate notes is estimated based upon
quoted market prices for the identical instruments. For Lehman
Brothers senior unsecured bonds, fair value measurement was
reassessed in 2008 from a Level 1 fair value measurement
hierarchy to a Level 3 following Lehman Brothers
Chapter 11 filing. Fair value measurement for these debt
securities relies on an information received from a major credit
rating entity based on historical recovery rates.
For auction rate securities, which are debt securities without
available observable market price, the Company establishes fair
value by reference to public available indexes of securities
with the same rating and comparable or similar underlying
collaterals or industries exposure, as described in
details in Note 3.
Foreign
exchange forward contracts and currency options
The fair value of these instruments is estimated based upon
quoted market prices for identical instruments.
Cancellable
swaps held for trading
The fair value of these instruments was estimated based on
inputs other than quoted prices received from two market
counterparties which held the derivative contracts, which the
Company estimates reflected the orderly exit price of the
instruments when correlated to other observable market data such
as interest rates and yield curves observable at commonly quoted
intervals.
Equity
securities classified as
available-for-sale
The fair values of these instruments are estimated based upon
market prices for the same or similar instruments.
Equity
securities held for trading
The fair value of these instruments is estimated based upon
quoted market prices for the same instruments.
Equity
securities carried at cost
The non-recurring fair value measurement was based on the
valuation of the underlying investments on a new round of third
party financing or upon liquidation.
F-71
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
Numonyx
equity investment
The non-recurring fair value measurement was based upon a
combination of an income approach, using discounted cash flows,
and a market approach, using metrics of comparable public
companies, which the Company assesses as a fair approximation of
the orderly exit value in the current market.
Subordinated
notes received in Numonyx transaction
The fair value of these instruments is estimated based on
publicly available fixed interest swap rates for instruments
with similar maturities, taking into account the credit risk
feature of the issuer of the debt securities.
Long-term
debt and current portion of long-term debt
The fair value of long-term debt was determined based on quoted
market prices, and by estimating future cash flows on a
borrowing-by-borrowing
basis and discounting these future cash flows using the
Companys incremental borrowing rates for similar types of
borrowing arrangements.
Cash and
cash equivalents, accounts receivable, bank overdrafts,
short-term borrowings, and accounts payable
The carrying amounts reflected in the consolidated financial
statements are reasonable estimates of fair value due to the
relatively short period of time between the origination of the
instruments and their expected realization.
|
|
26.
|
RELATED
PARTY TRANSACTIONS
|
Transactions with significant shareholders, their affiliates and
other related parties were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Sales & other services
|
|
|
356
|
|
|
|
325
|
|
|
|
272
|
|
Research and development expenses
|
|
|
(201
|
)
|
|
|
(63
|
)
|
|
|
(68
|
)
|
Other purchases
|
|
|
(167
|
)
|
|
|
(77
|
)
|
|
|
(85
|
)
|
Other income and expenses
|
|
|
|
|
|
|
(7
|
)
|
|
|
(11
|
)
|
Accounts receivable
|
|
|
58
|
|
|
|
63
|
|
|
|
44
|
|
Accounts payable
|
|
|
60
|
|
|
|
65
|
|
|
|
40
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
2
|
|
For the years ended December 31, 2009, December 31,
2008 and 2007, the related party transactions were primarily
with significant shareholders of the Company, or their
subsidiaries and companies in which management of the Company
perform similar policymaking functions. These include, but are
not limited to: Areva, France Telecom Orange, Finmeccanica,
Cassa Depositi e Prestiti, Flextronics, Oracle and Thomson. The
related party transactions presented in the table above also
include transactions between the Company and its equity
investments as listed in Note 11.
Since the formation of ST-Ericsson, the Company purchases
R&D services from ST-Ericsson AT (JVD), a
significant equity investment of the Company. For the year ended
December 31, 2009, the total R&D services purchased
from ST-Ericsson AT amounted to $150 million and
outstanding trade payables amounted to $30 million as at
December 31, 2009.
Upon FMG deconsolidation and the creation of Numonyx, the
Company performed until November 2008 certain purchasing,
service and revenue on-behalf of Numonyx. The Company had a net
payable balance of $7 million as at December 31, 2008
as the result of these transactions. Additionally the Company
recorded in 2007 costs amounting to $26 million to create
the infrastructure necessary to prepare Numonyx to operate
immediately following the FMG deconsolidation. These costs were
reimbursed by Numonyx in 2008 following the closing of the
transaction. Upon creation, Numonyx also entered into financing
arrangements for a $450 million term loan and a
$100 million committed revolving credit facility from two
primary financial institutions. Intel and the Company have each
granted in favor of Numonyx a 50% debt guarantee not joint and
several. This debt guarantee is described in details in
Note 11. The final terms at the closing date of the
agreements on assets to be contributed included rights granted
to Numonyx by the Company to use certain assets retained by the
Company. The Company recorded a provision amounting respectively
to $65 million and $87 million, as at
December 31, 2009 and 2008, to reflect the value of such
rights granted to its equity investment. The parties also
retained the obligation to fund the severance payment
(trattamento di fine rapporto) due to certain
transferred employees which qualifies as a defined benefit
F-72
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
plan and was classified on the line Other non-current
liabilities. The liability amounted to respectively
$31 million and $35 million as at December 31,
2009 and 2008. Finally, the Company recorded in 2008 a net
long-term receivable amounting to $6 million corresponding
to a tax credit Numonyx will pay back to the Company once
cashed-in from the relevant taxing authorities. As at
December 31, 2009, this receivable is still outstanding.
Additionally the Company incurred in 2008 and 2007 amounts on
transactions with Hynix Semiconductor Inc., with which the
Company had until March 30, 2008 a significant equity
investment, Hynix Numonyx joint venture (formerly Hynix ST joint
venture), described in detail in Note 11. In 2007 and 2006,
Hynix Semiconductor Inc. increased its business transactions
with the Company in order to supply products on behalf of the
joint venture, which was not ready to fully produce and supply
the volumes of specific products as requested by the Company.
The amount of purchases and other expenses from Hynix
Semiconductor Inc. was $161 million in 2007. The amount of
sales and other services made in 2007 was $2 million. These
transactions significantly decreased in 2008 upon the transfer
of the joint venture to Numonyx, as described in Note 11.
The amount of purchases and other expenses and the amount of
sales and other services from Hynix Semiconductor Inc. was
$2 million and $5 million in 2008, respectively. The
Company had no significant payable or receivable balance as at
December 31, 2008, while it had a payable amounting to
$18 million as at December 31, 2007 towards Hynix
Semiconductor Inc.
Besides, the Company participates in an Economic Interest Group
(E.I.G.) in France with Areva and France Telecom to
share the costs of certain research and development activities,
which are not included in the table above. The share of income
(expense) recorded by the Company as research and development
expenses incurred by E.I.G was not material in 2009 and amounted
to $9 million income in 2008 and 1 million expense in
2007. As at December 31, 2009, 2008 and 2007, the Company
had no receivable or payable amount.
The Company made no contribution in 2009 and contributed cash
amounts totalling $1 million, for the years ended
December 31, 2008 and 2007 to the ST Foundation, a
non-profit organization established to deliver and coordinate
independent programs in line with its mission. Certain members
of the Foundations Board are senior members of the
Companys management.
The Company operates in two business
areas: Semiconductors and Subsystems.
In the Semiconductors business area, the Company designs,
develops, manufactures and markets a broad range of products,
including discrete and standard commodity components,
application-specific integrated circuits (ASICs),
full custom devices and semi-custom devices and
application-specific standard products (ASSPs) for
analog, digital, and mixed-signal applications. In addition, the
Company further participates in the manufacturing value chain of
Smartcard products through its Incard division, which includes
the production and sale of both silicon chips and Smartcards.
In the Subsystems business area, the Company designs, develops,
manufactures and markets subsystems and modules for the
telecommunications, automotive and industrial markets including
mobile phone accessories, battery chargers, ISDN power supplies
and in-vehicle equipment for electronic toll payment. Based on
its immateriality to its business as a whole, the Subsystems
segment does not meet the requirements for a reportable segment
as defined in the U.S. GAAP guidance.
Since March 31, 2008, following the creation with Intel of
Numonyx, a new independent semiconductor company from the key
assets of its and Intels Flash memory business (FMG
deconsolidation), the Company has ceased reporting under
the FMG segment.
Starting August 2, 2008, as a consequence of the creation
of the joint venture company with NXP, the Company reorganized
its groups. A new segment was created to report wireless
operations; the product line Mobile, Multimedia &
Communications Group (MMC) which was part of segment
Application Specific Groups (ASG) was abandoned and
its divisions were reallocated to different product lines. The
remaining part of ASG is now comprised of Automotive Consumer
Computer and Telecom Infrastructure Product Groups
(ACCI).
The new organization is as follows:
|
|
|
|
|
Automotive Consumer Computer and Communication Infrastructure
(ACCI), comprised of four product lines:
|
|
|
|
|
|
Home Entertainment & Displays (HED),
|
|
|
|
Automotive Products Group (APG);
|
|
|
|
Computer and Communication Infrastructure
(CCI); and
|
F-73
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
|
|
|
|
|
Imaging (IMG, starting January 1, 2009).
|
|
|
|
|
|
Industrial and Multisegment Sector (IMS), comprised
of:
|
|
|
|
|
|
Analog, Power and Micro-Electro-Mechanical Systems
(APM); and
|
|
|
|
Microcontrollers, non-Flash, non-volatile Memory and Smart Card
products (MMS).
|
|
|
|
|
|
Starting February 3, 2009, as a consequence of the merger
of ST-NXP Wireless and Ericsson Mobile Platforms to create
ST-Ericsson with Ericsson, the Wireless sector
(Wireless) has been adjusted and is comprised of:
|
|
|
|
|
|
Wireless Multi Media (WMM);
|
|
|
|
Connectivity & Peripherals (C&P);
|
|
|
|
Cellular Systems (CS);
|
|
|
|
Mobile Platforms (MP);
|
in which, since February 3, 2009, the Company reports the
portion of sales and operating results of
ST-Ericsson
as consolidated in the Companys revenue and operating
results, and
|
|
|
|
|
Other Wireless, in which the Company reports manufacturing
margin, R&D revenues and other items related to the
wireless business but outside the ST-Ericsson JVS.
|
The Company has restated its results in prior periods for
illustrative comparisons of its performance by product segment.
The preparation of segment information according to the new
segment structure requires management to make significant
estimates, assumptions and judgments in determining the
operating income of the segments for the prior reporting
periods. Management believes that the restated 2008 and 2007
presentation is consistent with 2009 and is using these
comparatives when managing the Company.
Starting January 1, 2010 there was a new organization
change within the Wireless sector, which is now comprised of the
following lines:
|
|
|
|
|
2 GE TD-SCDMA & Connectivity;
|
|
|
|
3G Multimedia & Platforms;
|
|
|
|
LTE & 3G Modem Solutions;
|
in which the Company reports the portion of sales and operating
results of ST-Ericsson as consolidated in the Companys
revenue and operating results, and
|
|
|
|
|
Other Wireless, in which the Company reports manufacturing
margin, R&D revenues and other items related to the
wireless business but outside the ST-Ericsson JVS.
|
The Companys principal investment and resource allocation
decisions in the Semiconductor business area are for
expenditures on research and development and capital investments
in front-end and back-end manufacturing facilities. These
decisions are not made by product segments, but on the basis of
the Semiconductor Business area. All these product segments
share common research and development for process technology and
manufacturing capacity for most of their products.
The following tables present the Companys consolidated net
revenues and consolidated operating income by semiconductor
product segment. For the computation of the Groups
internal financial measurements, the Company uses certain
internal rules of allocation for the costs not directly
chargeable to the Groups, including cost of sales, selling,
general and administrative expenses and a significant part of
research and development expenses. Additionally, in compliance
with the Companys internal policies, certain cost items
are not charged to the Groups, including impairment,
restructuring charges and other related closure costs,
start-up
costs of new
F-74
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
manufacturing facilities, some strategic and special research
and development programs or other corporate-sponsored
initiatives, including certain corporate-level operating
expenses and certain other miscellaneous charges.
Net
revenues by product segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
In million of U.S dollars
|
|
|
Net revenues by product segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Consumer Computer and Communication Infrastructure
(ACCI)
|
|
|
3,198
|
|
|
|
4,129
|
|
|
|
3,944
|
|
Industrial and Multisegment Sector (IMS)
|
|
|
2,641
|
|
|
|
3,329
|
|
|
|
3,138
|
|
Wireless
|
|
|
2,585
|
|
|
|
2,030
|
|
|
|
1,495
|
|
Flash Memory Group (FMG)
|
|
|
|
|
|
|
299
|
|
|
|
1,364
|
|
Others(1)
|
|
|
86
|
|
|
|
55
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated net revenues
|
|
|
8,510
|
|
|
|
9,842
|
|
|
|
10,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes revenues from sales of
subsystems and other products not allocated to product segments.
|
Net
revenues by product segment and by product line
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
In million of U.S dollars
|
|
|
Net revenues by product lines:
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Products Group (APG)
|
|
|
1,051
|
|
|
|
1,460
|
|
|
|
1,419
|
|
Computer and Communication Infrastructure (CCI)
|
|
|
932
|
|
|
|
1,077
|
|
|
|
1,123
|
|
Home Entertainment & Displays (HED)
|
|
|
787
|
|
|
|
1,086
|
|
|
|
963
|
|
Imaging (IMG)
|
|
|
417
|
|
|
|
499
|
|
|
|
439
|
|
Others
|
|
|
11
|
|
|
|
7
|
|
|
|
|
|
Automotive Consumer Computer and Communication Infrastructure
(ACCI)
|
|
|
3,198
|
|
|
|
4,129
|
|
|
|
3,944
|
|
Analog, Power and Micro-Electro-Mechanical Systems
(APM)
|
|
|
1,887
|
|
|
|
2,393
|
|
|
|
2,313
|
|
Microcontrollers, non-Flash, non-volatile Memory and Smart Card
products (MMS)
|
|
|
752
|
|
|
|
936
|
|
|
|
825
|
|
Others
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Industrial and Multisegment Sector (IMS)
|
|
|
2,641
|
|
|
|
3,329
|
|
|
|
3,138
|
|
Cellular Systems
(CS)(1)
|
|
|
748
|
|
|
|
321
|
|
|
|
|
|
Connectivity & Peripherals (C&P)
|
|
|
416
|
|
|
|
416
|
|
|
|
207
|
|
Mobile Platforms (MP)
|
|
|
300
|
|
|
|
|
|
|
|
|
|
Wireless Multi Media (WMM)
|
|
|
1,110
|
|
|
|
1,293
|
|
|
|
1,288
|
|
Others
|
|
|
11
|
|
|
|
|
|
|
|
|
|
Wireless
|
|
|
2,585
|
|
|
|
2,030
|
|
|
|
1,495
|
|
Others
|
|
|
86
|
|
|
|
55
|
|
|
|
60
|
|
Flash Memory Group (FMG)
|
|
|
|
|
|
|
299
|
|
|
|
1,364
|
|
Total consolidated net revenues
|
|
$
|
8,510
|
|
|
$
|
9,842
|
|
|
$
|
10,001
|
|
|
|
|
(1) |
|
Cellular Systems includes the
largest part of the revenues contributed by NXP Wireless and, as
such, there are no comparable numbers available for 2007.
|
F-75
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
Operating
income (loss) by product segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
In million of U.S dollars
|
|
|
Automotive Consumer Computer and Communication Infrastructure
(ACCI)
|
|
|
(91
|
)
|
|
|
136
|
|
|
|
198
|
|
Industrial and Multisegment Sector (IMS)
|
|
|
113
|
|
|
|
482
|
|
|
|
469
|
|
Wireless
|
|
|
(356
|
)
|
|
|
(65
|
)
|
|
|
105
|
|
Flash Memory Group (FMG)
|
|
|
|
|
|
|
16
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income of product groups
|
|
|
(334
|
)
|
|
|
569
|
|
|
|
721
|
|
Others(1)
|
|
|
(689
|
)
|
|
|
(767
|
)
|
|
|
(1,266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated operating loss
|
|
|
(1,023
|
)
|
|
|
(198
|
)
|
|
|
(545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Operating loss of
Others includes items such as unused capacity
charges, impairment, restructuring charges and other related
closure costs,
start-up
costs, and other unallocated expenses such as: strategic or
special research and development programs, acquired In-Process
R&D, certain corporate level operating expenses, certain
patent claims and litigation, and other costs that are not
allocated to the product segments, as well as operating earnings
or losses of the Subsystems and Other Products Group, including,
beginning in the second quarter of 2008, the remaining FMG
costs. The 2008 Others also includes non-recurring
purchase accounting items.
|
Reconciliation to consolidated operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
In million of U.S dollars
|
|
|
Total operating income of product groups
|
|
|
(334
|
)
|
|
|
569
|
|
|
|
721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic R&D, other R&D programs and R&D funding
|
|
|
(22
|
)
|
|
|
(24
|
)
|
|
|
(20
|
)
|
Phase-out and
start-up
costs
|
|
|
(39
|
)
|
|
|
(17
|
)
|
|
|
(24
|
)
|
Impairment & restructuring charges
|
|
|
(291
|
)
|
|
|
(481
|
)
|
|
|
(1,228
|
)
|
Unused capacity charges
|
|
|
(322
|
)
|
|
|
(57
|
)
|
|
|
|
|
Subsystems and Other Products Group
|
|
|
|
|
|
|
3
|
|
|
|
6
|
|
Acquired In-Process R&D and other non-recurring purchase
accounting(1)
|
|
|
|
|
|
|
(185
|
)
|
|
|
|
|
Seniority awards
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
Other non-allocated
provisions(2)
|
|
|
(15
|
)
|
|
|
(6
|
)
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating loss Others(3)
|
|
|
(689
|
)
|
|
|
(767
|
)
|
|
|
(1,266
|
)
|
Total consolidated operating income (loss)
|
|
|
(1,023
|
)
|
|
|
(198
|
)
|
|
|
(545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In 2008 non-recurring purchase
accounting items were related to Genesis business combination
with In-Process R&D charge for $21 million and to the
Wireless business acquisition from NXP for $164 million,
composed of $76 million as In-Process R&D charge and
$88 million as inventory
step-up
charge.
|
|
(2) |
|
Includes unallocated expenses such
as certain corporate level operating expenses and other costs.
|
|
(3) |
|
Operating loss of
Others includes items such as unused capacity
charges, impairment, restructuring charges and other related
closure costs,
start-up
costs, and other unallocated expenses such as: strategic or
special research and development programs, acquired In-Process
R&D, certain corporate level operating expenses, certain
patent claims and litigation, and other costs that are not
allocated to the product segments, as well as operating earnings
or losses of the Subsystems and Other Products Group, including,
beginning in the second quarter of 2008, the remaining FMG costs.
|
The following is a summary of operations by entities located
within the indicated geographic areas for 2009, 2008 and 2007.
Net revenues represent sales to third parties from the country
in which each entity is located. Long-lived assets consist of
property, plant and equipment, net (PP&E, net). A
significant portion of property, plant and equipment
expenditures is attributable to front-end and back-end
facilities, located in the different countries in which the
Company operates. As such, the Company mainly allocates capital
spending resources according to geographic areas rather than
along product segment areas.
F-76
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
Net
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
In million of U.S dollars
|
|
|
The Netherlands
|
|
|
1,553
|
|
|
|
2,737
|
|
|
|
3,123
|
|
France
|
|
|
139
|
|
|
|
178
|
|
|
|
223
|
|
Italy
|
|
|
121
|
|
|
|
185
|
|
|
|
220
|
|
USA
|
|
|
798
|
|
|
|
1,032
|
|
|
|
1,027
|
|
Singapore
|
|
|
4,697
|
|
|
|
4,939
|
|
|
|
4,795
|
|
Japan
|
|
|
300
|
|
|
|
492
|
|
|
|
483
|
|
Other countries
|
|
|
902
|
|
|
|
279
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,510
|
|
|
|
9,842
|
|
|
|
10,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived
assets
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
In million of U.S dollars
|
|
|
The Netherlands
|
|
|
24
|
|
|
|
14
|
|
France
|
|
|
1,623
|
|
|
|
1,728
|
|
Italy
|
|
|
850
|
|
|
|
1,000
|
|
Other European countries
|
|
|
158
|
|
|
|
229
|
|
USA
|
|
|
74
|
|
|
|
217
|
|
Singapore
|
|
|
546
|
|
|
|
675
|
|
Malaysia
|
|
|
264
|
|
|
|
306
|
|
Other countries
|
|
|
542
|
|
|
|
570
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,081
|
|
|
|
4,739
|
|
|
|
|
|
|
|
|
|
|
Payment
for purchase of tangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
In million of U.S dollars
|
|
|
The Netherlands
|
|
|
8
|
|
|
|
5
|
|
|
|
4
|
|
France
|
|
|
242
|
|
|
|
462
|
|
|
|
396
|
|
Italy
|
|
|
44
|
|
|
|
138
|
|
|
|
279
|
|
Other European countries
|
|
|
29
|
|
|
|
66
|
|
|
|
53
|
|
USA
|
|
|
6
|
|
|
|
2
|
|
|
|
47
|
|
Singapore
|
|
|
27
|
|
|
|
106
|
|
|
|
180
|
|
Malaysia
|
|
|
35
|
|
|
|
104
|
|
|
|
99
|
|
Other countries
|
|
|
60
|
|
|
|
100
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
451
|
|
|
|
983
|
|
|
|
1,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-77
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars, except share and per share
amounts)
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
In million of U.S. dollars
|
|
|
The Netherlands
|
|
|
37
|
|
|
|
47
|
|
|
|
60
|
|
France
|
|
|
430
|
|
|
|
497
|
|
|
|
432
|
|
Italy
|
|
|
249
|
|
|
|
287
|
|
|
|
327
|
|
Other European countries
|
|
|
186
|
|
|
|
93
|
|
|
|
56
|
|
USA
|
|
|
62
|
|
|
|
81
|
|
|
|
102
|
|
Singapore
|
|
|
207
|
|
|
|
195
|
|
|
|
284
|
|
Malaysia
|
|
|
83
|
|
|
|
79
|
|
|
|
75
|
|
Other countries
|
|
|
113
|
|
|
|
87
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,367
|
|
|
|
1,366
|
|
|
|
1,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On February 10, 2010, the Company announced that, together
with its partners Intel Corporation and Francisco Partners, has
entered into a definitive agreement with Micron Technology Inc.
(Micron), pursuant to which Micron will acquire
Numonyx in an all-stock transaction. Upon the closing of the
transaction, which is subject to customary regulatory approvals,
and based on Microns closing stock price on
February 9, 2010 of $9.08 per share, the Company will
receive in exchange for our 48.6% stake in Numonyx
and the cancellation of the
30-year note
due to the Company by Numonyx approximately
66.6 million shares of Micron common stock (taking into
account a payable of $77.8 million due by the Company to
Francisco Partners). At closing, Numonyx will repay the full
amount of its outstanding $450 million term loan, while
simultaneously terminating the Companys $225 million
guarantee of its debt. There is no guaranty as to when, or if,
the transaction will close.
F-78
NUMONYX
HOLDINGS B.V.
CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2009
AND THE NINE MONTH PERIOD ENDED DECEMBER 31, 2008
F-79
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
F-82
|
|
|
|
|
F-83
|
|
|
|
|
F-84
|
|
|
|
|
F-85
|
|
|
|
|
F-86
|
|
INDEX TO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-87
|
|
|
|
|
F-88
|
|
|
|
|
F-93
|
|
|
|
|
F-94
|
|
|
|
|
F-94
|
|
|
|
|
F-94
|
|
|
|
|
F-95
|
|
|
|
|
F-95
|
|
|
|
|
F-96
|
|
|
|
|
F-97
|
|
|
|
|
F-97
|
|
|
|
|
F-97
|
|
|
|
|
F-100
|
|
|
|
|
F-101
|
|
|
|
|
F-102
|
|
|
|
|
F-102
|
|
|
|
|
F-103
|
|
|
|
|
F-103
|
|
|
|
|
F-104
|
|
|
|
|
F-104
|
|
|
|
|
F-107
|
|
|
|
|
F-108
|
|
|
|
|
F-108
|
|
|
|
|
F-111
|
|
F-80
Report of
Independent Registered Public Accounting Firm
To the Board of Directors of Numonyx Holdings B.V.:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, comprehensive
loss, cash flows and changes in shareholders equity
present fairly, in all material respects, the financial position
of Numonyx Holdings B.V and its subsidiaries at
December 31, 2009 and December 31, 2008, and the
results of its operations and its cash flows for the year ended
December 31, 2009 and the period from March 30, 2008
to December 31, 2008 in conformity with accounting
principles generally accepted in the United States of America.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
PricewaterhouseCoopers SA
|
|
|
|
|
|
Rolf Johner
|
|
Kenneth Postal
|
Geneva, February 28, 2010
F-81
NUMONYX
HOLDINGS B.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended December 31, 2009 and nine month period
ended December 31, 2008
In thousands of US dollars
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Net sales
|
|
$
|
1,760,703
|
|
|
$
|
1,623,189
|
|
Other revenues
|
|
|
305
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
1,761,008
|
|
|
|
1,623,645
|
|
Cost of sales
|
|
|
(1,421,017
|
)
|
|
|
(1,280,463
|
)
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
339,991
|
|
|
|
343,182
|
|
Selling, general, and administrative expenses
|
|
|
(203,599
|
)
|
|
|
(223,984
|
)
|
Research and development expenses
|
|
|
(273,002
|
)
|
|
|
(207,685
|
)
|
Impairment and restructuring charges
|
|
|
(27,404
|
)
|
|
|
(74,350
|
)
|
Other income and expenses, net
|
|
|
607
|
|
|
|
(37,547
|
)
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(163,407
|
)
|
|
|
(200,384
|
)
|
Interest expense, net
|
|
|
(74,449
|
)
|
|
|
(57,060
|
)
|
Income from equity investment
|
|
|
11,605
|
|
|
|
5,748
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(226,251
|
)
|
|
|
(251,696
|
)
|
Income tax expense
|
|
|
(20,529
|
)
|
|
|
(19,125
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(246,780
|
)
|
|
$
|
(270,821
|
)
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-82
NUMONYX
HOLDINGS B.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the year ended December 31, 2009 and nine month period
ended December 31, 2008
In thousands of US dollars
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Net loss
|
|
$
|
(246,780
|
)
|
|
$
|
(270,821
|
)
|
Other comprehensive (loss) / income, net of tax:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(463
|
)
|
|
|
6,720
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
Actuarial loss during the period
|
|
|
(2,916
|
)
|
|
|
(414
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) / income
|
|
|
(3,379
|
)
|
|
|
6,306
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss
|
|
$
|
(250,159
|
)
|
|
$
|
(264,515
|
)
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-83
NUMONYX
HOLDINGS B.V.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2009 and December 31, 2008
In thousands of US dollars
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
546,979
|
|
|
$
|
476,810
|
|
Restricted cash
|
|
|
4,972
|
|
|
|
4,991
|
|
Trade accounts receivable, net
|
|
|
173,738
|
|
|
|
230,901
|
|
Inventories
|
|
|
511,000
|
|
|
|
582,140
|
|
Assets held for sale
|
|
|
78,000
|
|
|
|
|
|
Deferred tax assets
|
|
|
7,506
|
|
|
|
5,386
|
|
Other receivables and assets
|
|
|
81,760
|
|
|
|
159,058
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,403,955
|
|
|
|
1,459,286
|
|
Intangible assets, net
|
|
|
149,641
|
|
|
|
208,322
|
|
Property, plant and equipment, net
|
|
|
365,901
|
|
|
|
563,725
|
|
Restricted cash
|
|
|
20,620
|
|
|
|
24,795
|
|
Deferred tax assets
|
|
|
33,228
|
|
|
|
79,100
|
|
Equity investment
|
|
|
314,529
|
|
|
|
303,371
|
|
Other non-current assets
|
|
|
233,688
|
|
|
|
132,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,117,607
|
|
|
|
1,312,132
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
2,521,562
|
|
|
|
2,771,418
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Debt obligations to related parties
|
|
|
78,000
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
941
|
|
|
|
|
|
Trade accounts payable
|
|
|
214,744
|
|
|
|
245,645
|
|
Other payables and accrued liabilities
|
|
|
140,148
|
|
|
|
146,091
|
|
Deferred tax liabilities
|
|
|
1,962
|
|
|
|
3,995
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
435,795
|
|
|
|
395,731
|
|
Long-term debt
|
|
|
451,616
|
|
|
|
450,000
|
|
Debt obligations to related parties
|
|
|
296,297
|
|
|
|
341,822
|
|
Pension liability
|
|
|
31,290
|
|
|
|
28,941
|
|
Long-term deferred tax liabilities
|
|
|
|
|
|
|
3,640
|
|
Other non-current liabilities
|
|
|
45,862
|
|
|
|
40,423
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,260,860
|
|
|
|
1,260,557
|
|
Commitments and contingencies (Note 22)
|
|
|
|
|
|
|
|
|
Share Capital:
|
|
|
|
|
|
|
|
|
Common stock (Ordinary shares: 250,000,000 shares
authorized, 210,700,758 shares issued)
|
|
|
332,703
|
|
|
|
332,703
|
|
Preferred stock (Preferred A shares: 14,204,545 shares
authorized and issued, Preferred
A-1 shares:
142,045 shares authorized, none issued)
|
|
|
22,429
|
|
|
|
22,429
|
|
Additional paid-in capital
|
|
|
1,420,244
|
|
|
|
1,420,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,775,376
|
|
|
|
1,775,376
|
|
Accumulated deficit
|
|
|
(517,601
|
)
|
|
|
(270,821
|
)
|
Accumulated other comprehensive income
|
|
|
2,927
|
|
|
|
6,306
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
1,260,702
|
|
|
|
1,510,861
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
2,521,562
|
|
|
$
|
2,771,418
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-84
NUMONYX
HOLDINGS B.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31, 2009 and nine month period
ended December 31, 2008
In thousands of US dollars
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(246,780
|
)
|
|
$
|
(270,821
|
)
|
Adjustments to reconcile net loss to cash flows generated from /
(used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
243,048
|
|
|
|
171,349
|
|
Amortization of debt guarantees
|
|
|
36,999
|
|
|
|
27,750
|
|
Non-cash interest expense
|
|
|
32,475
|
|
|
|
22,734
|
|
Changes in deferred income taxes
|
|
|
1,979
|
|
|
|
(18,446
|
)
|
Income from equity investment
|
|
|
(11,605
|
)
|
|
|
(5,748
|
)
|
Impairment and restructuring charges, net of cash payments
|
|
|
17,942
|
|
|
|
70,541
|
|
Gain on sale of other non-current assets
|
|
|
(1,157
|
)
|
|
|
(2,770
|
)
|
Other non-cash items
|
|
|
6,445
|
|
|
|
(8,965
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts receivable, net
|
|
|
57,163
|
|
|
|
(230,901
|
)
|
Inventories
|
|
|
71,140
|
|
|
|
(1,035
|
)
|
Trade accounts payable
|
|
|
(30,901
|
)
|
|
|
58,052
|
|
Other assets and liabilities, net
|
|
|
(24,075
|
)
|
|
|
171,738
|
|
|
|
|
|
|
|
|
|
|
Net cash generated from / (used in) operating activities
|
|
|
152,673
|
|
|
|
(16,522
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Payment for purchase of tangible assets
|
|
|
(66,907
|
)
|
|
|
(78,100
|
)
|
Proceeds from sales of tangible assets
|
|
|
5,984
|
|
|
|
4,579
|
|
Investments in intangible assets
|
|
|
(16,500
|
)
|
|
|
(48,600
|
)
|
Changes in restricted cash
|
|
|
(4,194
|
)
|
|
|
(29,786
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(81,617
|
)
|
|
|
(151,907
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from borrowings, net of issuance costs
|
|
|
|
|
|
|
444,410
|
|
Proceeds from issuance of preference shares
|
|
|
|
|
|
|
131,155
|
|
Proceeds from issuance of related party loan note
|
|
|
|
|
|
|
19,087
|
|
Cash received as part of business combination
|
|
|
|
|
|
|
50,587
|
|
Repayments of debt
|
|
|
(887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) / provided by financing activities
|
|
|
(887
|
)
|
|
|
645,239
|
|
Net cash increase
|
|
$
|
70,169
|
|
|
$
|
476,810
|
|
Cash and cash equivalents at beginning of the period
|
|
|
476,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period
|
|
$
|
546,979
|
|
|
$
|
476,810
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
(5,500
|
)
|
|
|
(11,847
|
)
|
Income taxes paid
|
|
|
(22,040
|
)
|
|
|
(12,300
|
)
|
Supplemental disclosure of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
Upon formation, Numonyx Holdings B.V. acquired the contributed
assets of Intel
|
|
|
|
|
|
|
|
|
Corporations NOR flash business. Details of the
transaction were as follows:
|
|
|
|
|
|
|
|
|
Value of non cash assets contributed by Intel Corporation
|
|
|
|
|
|
|
771,313
|
|
Common stock issued
|
|
|
|
|
|
|
(677,472
|
)
|
Related party note issued
|
|
|
|
|
|
|
(144,428
|
)
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Preferred
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common
|
|
|
Stock
|
|
|
Preferred
|
|
|
Stock
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
Stock
|
|
|
(Shares)
|
|
|
Stock
|
|
|
(Shares)
|
|
|
Capital
|
|
|
Deficit
|
|
|
income
|
|
|
Equity
|
|
|
Balance at March 30, 2008
|
|
$
|
172,531
|
|
|
|
109,263,907
|
|
|
|
|
|
|
|
|
|
|
$
|
794,218
|
|
|
|
|
|
|
|
|
|
|
$
|
966,749
|
|
Issuance of common stock
|
|
|
160,172
|
|
|
|
101,436,851
|
|
|
|
|
|
|
|
|
|
|
|
517,300
|
|
|
|
|
|
|
|
|
|
|
|
677,472
|
|
Issuance of preferred stock
|
|
|
|
|
|
|
|
|
|
$
|
22,429
|
|
|
|
14,204,545
|
|
|
|
108,726
|
|
|
|
|
|
|
|
|
|
|
|
131,155
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(270,821
|
)
|
|
|
|
|
|
|
(270,821
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,306
|
|
|
|
6,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
332,703
|
|
|
|
210,700,758
|
|
|
$
|
22,429
|
|
|
|
14,204,545
|
|
|
$
|
1,420,244
|
|
|
$
|
(270,821
|
)
|
|
$
|
6,306
|
|
|
$
|
1,510,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(246,780
|
)
|
|
|
|
|
|
|
(246,780
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,379
|
)
|
|
|
(3,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
332,703
|
|
|
|
210,700,758
|
|
|
$
|
22,429
|
|
|
|
14,204,545
|
|
|
$
|
1,420,244
|
|
|
$
|
(517,601
|
)
|
|
$
|
2,927
|
|
|
$
|
1,260,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-86
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Numonyx Holdings B.V. (Numonyx or the
Company) is a global manufacturer of non-volatile memory
solutions (also commonly referred to as flash memory products).
Numonyx focuses on supplying non-volatile memory solutions for a
variety of consumer and industrial devices including cellular
phones, MP3 players, digital cameras, computers and other
high-tech equipment. The Company was formed in 2008 to be the
holding company for the combination of the entire flash memory
business of ST Microelectronics (STM), of part of
the NOR flash memory business of Intel Corporation
(Intel), and a cash investment from a private equity
firm, Francisco Partners (FP). STM, Intel and FP own
48.6%, 45.1% and 6.3% voting ownership in Numonyx, respectively.
Since the Companys formation, to support the establishment
and stabilization of Numonyx, STM and Intel provided certain
services to Numonyx including supply chain, procurement, site
manufacturing, information technology, human resource, and
finance & accounting services. Numonyx
compensated STM and Intel for such services in accordance with
the terms of the Transition Services Agreements which
govern the provision of these services. Details of these
transactions are included within Note 23, Related
Party Transactions, in the consolidated financial
statements.
In accordance with US GAAP, the formation of Numonyx was
considered a business combination and STM was considered the
accounting acquirer. The impact of this determination is that
Numonyx recorded assets contributed by STM at net book value,
and assets contributed by Intel at fair market value.
On March 30, 2008 the Company acquired the contributed NOR
flash business of Intel in exchange for a 45.1% equity interest
in the Company, representing 101,436,851 ordinary shares of
Numonyx Holdings B.V. and an interest-bearing long-term loan
note in the principal amount of $144.4 million. The results
of these operations have been included in the consolidated
financial statements since that date.
The aggregate purchase price of the business from Intel was
$822 million. The value of the business was determined
based on third party valuations of the contributed business
performed using a combination of discounted cash flows and
market comparable data.
The following table summarizes the fair values of the assets
acquired and liabilities assumed at the date of acquisition.
|
|
|
|
|
|
|
2008
|
|
|
At March 30, 2008 (In Millions)
|
|
|
|
|
Cash
|
|
$
|
51
|
|
Inventory
|
|
|
239
|
|
Fixed assets
|
|
|
356
|
|
Intangible assets
|
|
|
114
|
|
Fair value of favorable operating lease
|
|
|
70
|
|
Liabilities assumed
|
|
|
(8
|
)
|
|
|
|
|
|
Total
|
|
$
|
822
|
|
|
|
|
|
|
Of the $114 million of acquired intangible assets,
$5 million was assigned to research and development assets
that were written off at the date of acquisition in accordance
with US GAAP. Those write-offs are included in research and
development expenses. The remaining $109 million of
acquired intangible assets have a weighted-average useful life
of approximately 3 years. The intangible assets that make
up that amount include a loan guarantee of $79 million
(4-year
useful life), supply agreement of $19 million
(9-month
useful life) and product and process technology of
$11 million
(3-year and
7-year
useful lives respectively).
There was no goodwill associated with this business combination.
Given the Companys inception on March 30, 2008, the
2008 financial statements include only the 9 month period
ended December 31, 2008.
F-87
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The accounting policies of the Company conform to accounting
principles generally accepted in the United States of America
(U.S. GAAP). All balances and values in the
current period are shown in thousands of US dollars unless
otherwise stated.
2.1
Principles of Consolidation
The consolidated financial statements include the accounts of
Numonyx Holdings B.V. and its wholly owned subsidiaries.
Intercompany accounts and transactions have been eliminated. The
Company uses the equity method to account for equity investments
in instances in which it owns common stock or similar interests
and has the ability to exercise significant influence, but not
control, over the investee. The Companys share in its
equity investments profit and loss is recognized in the
consolidated statement of operations as Income from equity
investment and in the consolidated balance sheet as an
adjustment against the carrying amount of the investment.
Certain amounts for prior years have been reclassified to
conform with the current year financial statement presentation.
2.2
Use of Estimates
The preparation of consolidated financial statements and
disclosures in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and revenues and
expenses during the reporting period. The primary areas that
require significant estimates and judgments by management
include sales returns and allowances, allowance for doubtful
accounts, inventory reserves and normal manufacturing thresholds
to determine costs capitalized in inventory, restructuring
charges, assumptions used in calculating pension obligations and
deferred income tax assets and liabilities including required
valuation allowances. The actual results experienced by the
Company could differ materially and adversely from
managements estimates.
2.3
Foreign Currency
The U.S. dollar is the reporting currency of the Company.
The U.S. dollar is the currency of the primary economic
environment in which the Company operates since the worldwide
semiconductor industry uses the dollar as a currency of
reference for actual pricing in the market. The U.S. dollar
is the functional currency for the Company and its subsidiaries.
The Companys equity investment has a functional currency
other than the US dollar. Monetary transactions and accounts
denominated in
non-U.S. currencies,
such as cash or payables to vendors, have been remeasured to the
U.S. dollar at current exchange rates; non-monetary items
such as inventory and fixed and intangible assets, are
remeasured at historical exchange rates.
2.4
Revenue Recognition
In accordance with U.S. GAAP, revenue from products sold to
customers is recognized when all of the following conditions
have been met: (a) persuasive evidence of an arrangement
exists; (b) delivery has occurred; (c) selling price
is fixed or determinable; and (d) collection is reasonably
assured. This usually occurs at the time of shipment except for
sales to certain distribution customers.
During 2008, STM and Intel sold products to, and invoiced
customers on behalf of the Company. Billings and related returns
and provisions information was then communicated to the Company
and recorded in the Companys financial systems. Revenue
was therefore generated in accordance with the terms and
conditions of sale of STM and Intel, and recognized in
accordance with STM and Intels existing policies and
procedures. In December 2008, the arrangement with STM ceased
and Numonyx began to bill customers directly, in accordance with
the Companys own established terms and conditions.
During 2009, in addition to revenue generated directly by
Numonyx, Intel continued to sell products to customers, invoice
customers and collect monies due from customers on behalf of the
Company. Billings and related returns and provisions information
was then communicated to the Company and recorded in the
Companys financial systems. The revenue generated through
Intel continued to be generated in accordance with the terms and
conditions of sale of Intel, and therefore continued to be
recognized in accordance with Intels existing policies and
F-88
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
procedures. Differences exist between Numonyx terms and
conditions of sale and those of Intel. These are described below.
Consistent with standard business practice in the memory
industry, price protection is granted to distribution customers
on their existing inventory of the Companys products to
compensate them for declines in market prices. For revenue
generated directly by Numonyx to distribution customers which
relates primarily to revenues assumed from the legacy STM
business, revenue is recorded when inventory is shipped. At the
time revenue is recorded, the Company records estimated
reductions to sales based upon historical experience of product
returns, and the impact of price protection. In order to make
such estimates, the Company analyzes historical returns, current
economic conditions, customer demand and any relevant specific
customer information. If the Company is unable to reasonably
estimate the level of product returns or other revenue
allowances, it could have a significant impact on revenue
recognition, potentially requiring deferral of the recognition
of additional sales until customers sell the products to their
end customers.
For revenue generated through Intel for distribution customers,
the Company is unable to reasonably estimate the level of
product returns and the impact of price protection based on the
terms and conditions of arrangements entered into between Intel
and our customers. The Company defers revenue and its related
cost of sales, under agreements allowing price protection and
/or right of return until the distributors sell the merchandise
to their end customers. The net amount is recorded as deferred
income on shipments to distributors and is included within
Other payables and accrued liabilities in the
consolidated balance sheet.
Pricing allowances, including discounts based on contractual
arrangements with customers, are recorded when revenue is
recorded as a reduction to both accounts receivable and revenue.
The Companys customers occasionally return products for
technical reasons. The Companys standard terms and
conditions of sale provide that, if the Company determines that
the products are non-conforming, the Company will repair or
replace the non-conforming products, or issue a credit or rebate
of the purchase price. The Company estimates returns at the time
of sale and records the accrued amounts as a reduction of
revenue.
The Company includes shipping charges billed to customers in net
sales, and includes the related shipping costs in cost of sales.
2.5
Other revenue
Other revenues consist primarily of sales of materials or scrap
product.
2.6
Research and Development
Research and development costs are charged to expense as
incurred. The amortization recognized on technologies and
licenses acquired to facilitate the Companys research is
recorded as research and development expenses. Funding for
research and development is obtained from governmental agencies
and the amounts are recorded as a reduction to research and
development expenses.
2.7
Property, Plant and Equipment
Property, plant, and equipment contributed from STM and Intel
upon the formation of the Company were initially stated at
carrying value for the assets contributed by STM, and at fair
value for the assets contributed by Intel, consistent with the
treatment of the formation of the Company as a business
combination in accordance with U.S. GAAP and with the
determination of STM being the accounting acquirer in the
business combination. These assets are being depreciated over
their respective remaining useful lives at the time of the
transaction. Property, plant and equipment purchased since the
formation of the Company are stated at historical cost.
Additions and major improvements are capitalized, minor
replacements and repairs and maintenance are charged to
operations in the period in which they are incurred.
F-89
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Land is not depreciated. Depreciation on fixed assets acquired
after the formation of the Company is computed using the
straight-line method over the following estimated useful lives:
|
|
|
Buildings
|
|
33 years
|
Facilities and Leasehold Improvements
|
|
5-10 years
|
Machinery and Equipment
|
|
6 years
|
Computer and Research & Development Equipment
|
|
3-7 years
|
Reviews are performed if facts and circumstances indicate that
the carrying amount of assets may not be recoverable or that the
useful life is shorter than originally estimated. If an
impairment indicator exists, the Company assesses the
recoverability of its assets held for use by comparing the
projected undiscounted net cash flows associated with the
related asset or group of assets over their remaining estimated
useful lives against their respective carrying amounts.
Impairment, if any, is measured on the excess of the carrying
amount over the fair value of those assets. If the Company
determines that the useful lives are shorter than originally
estimated, the net book values of the assets are depreciated
prospectively over the newly determined remaining useful lives.
Property, plant and equipment is reclassified as held for sale
and depreciation ceases to be recorded when an asset or asset
group meets the held for sale criteria as defined under
U.S. GAAP. An impairment charge may be taken against the
assets if the estimated selling price is less than the carrying
value of the assets.
When property, plant and equipment are retired, sold, or
otherwise disposed of, the net book value of the assets is
removed from the Companys books and the net gain or loss
is included in Other income and expenses, net in the
consolidated statement of operations.
Leasing agreements in which a significant portion of the risks
and rewards of ownership are retained by the Company are
classified as finance leases. These leases are included in
Property, Plant and Equipment and depreciated over
the shorter of the estimated useful life or the lease term.
Leasing agreements classified as operating leases are
arrangements in which the lessor retains a significant portion
of the risks and rewards of ownership of the leased asset.
Payments made under operating leases are charged to the
consolidated statement of operations on a straight-line basis
over the period of the lease.
2.8
Inventories
Inventories are stated at the lower of cost or net realizable
value. Cost is based on the weighted average cost by adjusting
standard cost to approximate actual manufacturing costs over the
average period of inventory holding; the cost is therefore
dependent on the Companys manufacturing performance. In
the case of underutilization of manufacturing facilities, the
costs associated with the excess capacity are not included in
the valuation of inventories but charged directly to cost of
sales in the period incurred. Net realizable value is the
estimated selling price in the ordinary course of business, less
applicable variable selling expenses.
The Company continuously evaluates the net realizable value of
inventory and writes off inventory which has the characteristics
of slow-moving, old production date and technical obsolescence.
Additionally, the Company evaluates product inventory to
identify obsolete or slow-selling stock and records a specific
provision if the Company estimates the inventory will eventually
become obsolete. Provisions for obsolescence are estimated for
excess uncommitted inventory based on the previous quarter and
anticipated future sales, order backlog and production plans.
2.9
Income Taxes
The provision for incomes taxes represents the income taxes
expected to be paid or the benefit expected to be received
related to the current year income or loss in each tax
jurisdiction. Deferred tax assets and liabilities are recorded
for all temporary differences arising between the tax and book
basis of assets and liabilities and for the benefits of tax
credits and operating loss carryforwards. Deferred income tax is
determined using tax rates and laws that are enacted on the
balance sheet date and that are expected to apply when the
related deferred income tax asset is realized or the deferred
income tax liability is settled. Deferred income tax assets are
recognized in full but the Company assesses whether it is more
likely than not that future taxable profit will be available
against which the temporary differences will be utilized. A
valuation allowance is provided where necessary to reduce
deferred tax assets to the amount for which management considers
the possibility of recovery to be more likely than not.
F-90
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
2.10
Cash and Cash Equivalents
Cash and cash equivalents represent cash on hand with external
financial institutions with an original maturity of less than
ninety days.
2.11
Restricted Cash
Restricted cash includes collateral deposits used as security
for the provision of certain services to the Company, lease
deposits on office space and deposits required by customs
authorities. The restricted cash is held in highly liquid funds
placed with financial institutions.
2.12
Trade Accounts Receivable
Trade accounts receivable are recognized at their sales value,
net of allowances for doubtful accounts and sales returns. The
Company maintains an allowance for doubtful accounts for
potential estimated losses resulting from its customers
inability to make required payments. The Company bases its
estimates on historical collection trends and records a
provision accordingly. When a trade receivable is uncollectible,
it is written-off against the allowance account for trade
receivables. Subsequent recoveries, if any, of amounts
previously written-off are credited against Selling,
general and administrative expenses in the consolidated
statement of operations.
In addition to revenue generated directly by Numonyx, during
2009 Intel sold products to customers, invoiced customers and
collected monies due from customers on behalf of the Company,
under the terms of the Transition Services Agreement between
Numonyx and Intel. Trade accounts receivable disclosed on the
balance sheet related to revenue generated by Intel represent
monies owed from end customers which have not been collected by
Intel, and therefore not yet remitted to Numonyx.
2.13
Intangible Assets
Details of intangible assets held by the Company, and the
related amortization periods, are detailed below:
|
|
|
|
|
Loan guarantees
|
|
|
4 years
|
|
Loan arrangement fees
|
|
|
4 years
|
|
Contributed technology
|
|
|
3-7 years
|
|
Software and licenses
|
|
|
3-5 years
|
|
The carrying value of intangible assets subject to amortization
is evaluated whenever changes in circumstances indicate that the
carrying amount may not be recoverable.
The Company evaluates the remaining useful life of intangible
assets at each reporting period to determine whether events and
circumstances warrant a revision to the remaining period of
amortization.
2.14
Employee Benefits
Pension
Obligations
The Company sponsors various pension schemes for its employees.
These schemes conform to local regulations and practices in the
countries in which the Company operates. They are generally
funded through payments to insurance companies or
trustee-administered funds, determined by periodic actuarial
calculations. Such plans include both defined benefit and
defined contribution plans. A defined benefit plan is a pension
plan that defines the amount of pension benefit that an employee
will receive on retirement, usually dependent on one or more
factors such as age, years of service and compensation. A
defined contribution plan is a pension plan under which the
Company pays fixed contributions into a separate entity. The
Company has no legal or constructive obligations to pay further
contributions for a defined contribution plan if the fund does
not hold sufficient assets to pay all employees the benefits
relating to employee service in the current and prior periods.
The Company accounts for the overfunded and underfunded status
of defined benefit plans in its consolidated financial
statements as at December 31, 2009. The overfunded or
underfunded status of the defined benefit plans are calculated
as the difference between the fair value of plan assets and the
projected benefit obligations.
For defined contribution plans, the Company pays contributions
to publicly or privately administered pension insurance plans on
a mandatory, contractual or voluntary basis. The Company has no
further payment obligations
F-91
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
once the contributions have been paid. The contributions are
recognized as employee benefit expense when they are due.
Prepaid contributions are recognized as an asset to the extent
that a cash refund or a reduction in the future payments is
available.
Termination
Benefits
Termination benefits are payable when an employee is
involuntarily terminated, or whenever an employee accepts
voluntary termination in exchange for these benefits. All
termination benefits payable by the Company relate to one-time
benefit arrangements. A one time benefit arrangement is one that
is established by a termination plan that applies to a specified
termination event or for a specified future period. These
one-time involuntary termination benefits are recognized as a
liability when the termination plan meets certain criteria and
has been communicated to employees.
Stock
Options
During 2008, an equity incentive plan was established by the
Company but no equity grants were made. During 2009, the first
restricted stock unit grants were issued from the plan. Under
the terms of the plan, vesting is contingent upon a qualified
public offering of shares in the Company, or other change in
control of the Company occurring. As at December 31, 2009,
a qualified public offering was not imminent and a change in
control of the Company was not considered probable and therefore
no stock based compensation expense has been recorded in the
consolidated statement of operations for the year ended
December 31, 2009.
2.15
Long Term Debt and Debt Obligations to Related Parties
Bank loans are recognized at historical cost. Debt obligations
to related parties relate to long-term loan notes issued to
shareholders in partial consideration for the assets contributed
upon the formation of Numonyx, plus the interest accrued to
date. The bank loan is classified as a long term liability as it
is not repayable, either in part or fully, before
December 31, 2010. The element of debt obligations to
related parties which is expected to be repaid before
December 31, 2010 is classified as a short term liability,
the remainder are classified as long term liabilities.
2.16
Share Capital
Ordinary shares and preference shares are classified as equity.
2.17
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity
of a business during a period except those changes resulting
from investment by or distributions to shareholders. In the
accompanying consolidated financial statements,
Accumulated other comprehensive loss consists of the
after tax effects of foreign currency translation adjustments
relating to the Companys equity investment and the impact
of recognizing the underfunded status of defined benefit plans.
2.18
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board
(FASB) issued ASC 810 (originally issued as
SFAS No. 167, Amendments to FASB Interpretation
No. 46(R). Among other items, ASC 810 responds to
concerns about the application of certain key provisions of
FIN 46(R), including those regarding the transparency of
the involvement with variable interest entities. ASC 810 is
effective for calendar year companies beginning on
January 1, 2010. The Company does not believe the adoption
of ASC 810 will have a significant impact on its financial
position, results of operations, cash flows, or disclosures.
On September 23, 2009, the FASB ratified Emerging Issues
Task Force Issue
No. 08-1,
Revenue Arrangements with Multiple Deliverables
(EITF 08-1).
EITF 08-1
updates the current guidance pertaining to multiple-element
revenue arrangements included in ASC Subtopic
605-25,
which originated primarily from
EITF 00-21,
also titled Revenue Arrangements with Multiple
Deliverables.
EITF 08-1
will be effective for annual reporting periods beginning
January 1, 2011 for calendar-year entities. The Company
does not believe the adoption of
EITF 08-1
will have a significant impact on its financial position,
results of operations, cash flows, or disclosures.
F-92
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The Company has evaluated subsequent events through
February 28, 2010, the date the Companys consolidated
financial statements were issued.
Hynix
Numonyx Semiconductor Ltd.
Upon the formation of Numonyx, STM transferred a 17% equity
interest it had in a venture which it established with Hynix
Semiconductor Inc. This venture was originally established in
2004 via a signed agreement between STM and Hynix Semiconductor
Inc. to build a front-end memory-manufacturing facility in Wuxi
City, Jiangsu Province, China. Upon transfer of the interest to
Numonyx, the venture was renamed Hynix Numonyx Semiconductor Ltd.
Numonyx equity interest in the venture decreased to 16%
during the fourth quarter of 2008, due to an additional
investment made by a new investor in the venture, Hynix
Semiconductor Wuxi Ltd. Since then, Numonyx has invested an
additional $100 million in the joint venture
($50 million investment made in both 2008 and 2009) to
increase the Companys equity interest. However, at the
balance sheet date, Numonyx had not received final approval from
the Chinese authorities for these increases in equity
investment. As such, the $100 million investment is
recorded as a long term prepayment within Other
non-current assets in the consolidated balance sheet. Once
approval is obtained, the investment will be recorded as an
increase to Equity investment, and Numonyx
interest will increase to 21%. In 2008, the $50 million
investment made was originally recorded within Other
current receivables and assets in the consolidated balance
sheet. Due to the length of time being taken to obtain approval,
and absent a definitive date of when approval will be obtained,
the $50 million investment was reclassified to Other
non-current assets.
Under the terms of the joint venture, Numonyx has the option to
purchase from Hynix Semiconductor Inc. an additional
$150 million in share capital to increase the
Companys interest in the venture to approximately 25%. The
members of the joint venture also have certain put and call
rights (i.e., the right to put and sell their
interest to the other member or to call and purchase
the other members interest), with the price being based on
the book value, less liabilities, times the applicable ownership
percentage. In the case of the contemplated change in control of
Numonyx as described in Note 24, Subsequent
events, Numonyx would have the right to put
its interest to Hynix and this would also trigger the ability of
Hynix to call the Numonyx interest. In addition, as
happened with the transfer of STMs interest to Numonyx
upon formation of the Company, Hynix could be requested to agree
to the change of control and Numonyxs interest could be
transferred to the new controlling entity, Micron Technology
Inc. Such changes are also subject to and contingent upon
multiple levels of Chinese governmental approvals. The Company
believes that there is no fair value associated with these
options.
Although the Company does not currently own 20% of the venture,
the Company uses the equity method to account for this
investment based on the fact that it has the ability to exercise
significant influence, but not control, over this investee
coupled with the future ability to own more than 20% of this
investment.
Summarized financial information of the Companys equity
investment is shown below:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Operating results:
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,557,184
|
|
|
$
|
1,772,070
|
|
Net profit
|
|
|
74,392
|
|
|
|
14,442
|
|
Balance sheet:
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
3,732,933
|
|
|
$
|
4,103,446
|
|
Liabilities
|
|
|
1,691,583
|
|
|
|
2,168,779
|
|
F-93
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
4.
|
TRADE
ACCOUNTS RECEIVABLE, NET
|
Trade accounts receivable, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Trade accounts receivable
|
|
$
|
175,993
|
|
|
$
|
233,340
|
|
Less allowance for doubtful accounts
|
|
|
(2,255
|
)
|
|
|
(2,439
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
173,738
|
|
|
$
|
230,901
|
|
|
|
|
|
|
|
|
|
|
Bad debt expense in 2009 was $2.2 million (2008:
$2.4 million).
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw materials
|
|
$
|
3,612
|
|
|
$
|
2,712
|
|
Work in process
|
|
|
403,337
|
|
|
|
478,728
|
|
Finished goods
|
|
|
104,051
|
|
|
|
100,700
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
511,000
|
|
|
$
|
582,140
|
|
|
|
|
|
|
|
|
|
|
On December 30, 2009, an option agreement was signed by the
Company, granting STM the option to acquire the majority of the
assets at the Companys facility in Catania, Italy,
including the factory building, office building and the majority
of the tools and equipment located in the plant. In addition, a
number of employees would transfer to STM upon execution of the
option, along with all contracts related to the facilities and
any other assets, liabilities and rights relating to the
facilities. The agreement also specifies that the tax carrying
amount of assets and any non-operating losses would also be
transferred as part of the sale. Upon execution of the option,
the consideration payable would be the cancellation of
$78 million of long term notes held by STM. The option
agreement expires on June 30, 2010, with an option to
extend by a further three months, subject to agreement by the
Company.
As a result of entering into this agreement, and upon meeting
the held for sale criteria as defined under U.S. GAAP, the
Company reclassified the assets to be sold from their original
balance sheet classification to Assets held for Sale
and adjusted the values of these assets to fair value less costs
to sell at December 31, 2009, recording the charge within
Impairment and restructuring charges in the
consolidated statement of operations. Fair value less costs to
sell was based on the net consideration provided for in the
option agreement.
Assets held for sale consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Property, plant and equipment
|
|
$
|
45,733
|
|
|
|
|
|
Long term deferred tax assets
|
|
|
36,114
|
|
|
|
|
|
Less impairment charge
|
|
|
(3,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
78,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As required by U.S. GAAP, the Company has ceased to record
depreciation on the property, plant and equipment classified as
held for sale.
F-94
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
7.
|
OTHER
RECEIVABLES AND CURRENT ASSETS
|
Other receivables and current assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Receivables from related parties
|
|
$
|
1,622
|
|
|
$
|
2,491
|
|
Receivables from government agencies
|
|
|
54,460
|
|
|
|
65,716
|
|
Prepayments, advances and other debtors
|
|
|
25,678
|
|
|
|
90,851
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
81,760
|
|
|
$
|
159,058
|
|
|
|
|
|
|
|
|
|
|
In 2008, Prepayments, advances and other debtors included
$50 million relating to a payment made to increase the
Companys equity stake in Hynix Numonyx Semiconductor Ltd.
but for which approval from Chinese authorities had not been
obtained, as described in Note 3, Equity
Investment. During 2009, this payment was reclassified to
Other investments and non-current assets as approval
had still not been obtained and the date of final approval is
not known.
Intangible assets consisted of the following as at
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross Value
|
|
|
Amortization
|
|
|
Net Value
|
|
|
Loan guarantees
|
|
$
|
148,000
|
|
|
$
|
(64,749
|
)
|
|
$
|
83,251
|
|
Loan arrangement fees
|
|
|
6,750
|
|
|
|
(2,954
|
)
|
|
|
3,796
|
|
Product and process technology
|
|
|
10,800
|
|
|
|
(3,752
|
)
|
|
|
7,048
|
|
Software development and licenses
|
|
|
77,767
|
|
|
|
(22,221
|
)
|
|
|
55,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
243,317
|
|
|
$
|
(93,676
|
)
|
|
$
|
149,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2009, the Company capitalized $16.5 million (2008:
$48.6 million) of software and licenses and software
development costs related to significant system implementations
and changes that the Company has undertaken since its formation.
In addition the Company fully impaired self developed software
of $14.9 million during the year. The software was
contributed by STM upon the formation of Numonyx and had never
been put into use by the Company. The impairment is recorded
within Impairment and restructuring charges in the
consolidated statement of operations.
Intangible assets consisted of the following as at
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross Value
|
|
|
Amortization
|
|
|
Net Value
|
|
|
Loan guarantees
|
|
$
|
148,000
|
|
|
$
|
(27,750
|
)
|
|
$
|
120,250
|
|
Loan arrangement fees
|
|
|
6,750
|
|
|
|
(1,266
|
)
|
|
|
5,484
|
|
Product and process technology
|
|
|
10,800
|
|
|
|
(1,608
|
)
|
|
|
9,192
|
|
Software development and licenses
|
|
|
76,256
|
|
|
|
(2,860
|
)
|
|
|
73,396
|
|
Supply agreement
|
|
|
18,982
|
|
|
|
(18,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
$
|
260,788
|
|
|
$
|
(52,466
|
)
|
|
$
|
208,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In March 2008, the Company obtained a $450 million bank
loan plus $100 million revolving credit facility from
financial institutions. These facilities are repayable in full
on March 25, 2012. STM and Intel agreed to act as
guarantors of the facilities, each company guaranteeing 50% of
the outstanding balance in the event that Numonyx defaults on
repayment. Both guarantees were recorded as intangible assets in
order to recognize the fair value of the benefit to Numonyx of
these guarantees. The guarantees were recorded at fair value at
the date of issuance and are being amortized over the term of
the loan, 4 years. The amortization is recorded as interest
expense.
Loan arrangement fees are costs directly related to the securing
of the debt financing described above. These fees are also being
amortized over the 4 year period of the loan and are
recorded as part of Interest expense, net in the
consolidated statement of operations.
F-95
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Product and process technology relates to technologies
contributed by Intel to Numonyx upon formation of the Company.
The technologies were recorded at fair value and are being
amortized over their expected useful lives, 3 and 7 years
respectively, within cost of sales in the consolidated statement
of operations.
Software development and licenses consist of costs relating to
the development of IT systems and software and of software and
related licenses acquired. Software development costs include
external consulting costs and payroll costs directly associated
with development of the system infrastructure. These costs were
capitalized in accordance with U.S. GAAP. Software and
licenses are currently amortized over a period of between 3 and
5 years and amortization is recorded primarily within
Selling, general and administrative expenses within
the consolidated statement of operations, starting when the
software is placed in operation.
The aggregate amortization expense in 2009 was
$60.2 million (2008: $52.5 million).
The estimated amortization of the existing intangible assets for
the following years is:
|
|
|
|
|
|
|
Amortization
|
|
Year
|
|
Expense
|
|
|
2010
|
|
$
|
64,000
|
|
2011
|
|
|
60,000
|
|
2012
|
|
|
15,000
|
|
2013
|
|
|
5,000
|
|
2014
|
|
|
4,000
|
|
|
|
|
|
|
Total
|
|
$
|
148,000
|
|
|
|
|
|
|
|
|
9.
|
PROPERTY,
PLANT, AND EQUIPMENT
|
Property, plant, and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
570
|
|
|
$
|
2,515
|
|
Buildings, facilities and leasehold improvements
|
|
|
56,967
|
|
|
|
89,582
|
|
Machinery and Equipment
|
|
|
637,602
|
|
|
|
597,187
|
|
Computer and R&D Equipment
|
|
|
18,938
|
|
|
|
16,951
|
|
Other Tangible Assets
|
|
|
3,046
|
|
|
|
2,123
|
|
Construction in progress
|
|
|
7,276
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
Total Gross Cost
|
|
$
|
724,399
|
|
|
$
|
710,358
|
|
Total Accumulated Depreciation
|
|
$
|
(358,498
|
)
|
|
$
|
(146,633
|
)
|
|
|
|
|
|
|
|
|
|
Total Net Cost
|
|
$
|
365,901
|
|
|
$
|
563,725
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for 2009 was $219.8 million (2008:
$146.6 million). There is no depreciation expense on
construction in progress.
During 2008, the Company determined that due to changes in
market conditions the carrying value of its partially
constructed building in Catania, Italy should be re-assessed.
This building, in order to be placed into service, requires a
significant investment of additional capital to purchase and
install tools and equipment which cannot be currently justified.
The Company determined that the value at which this building was
recorded was in excess of a reasonable assessment of its fair
market value. The fair market value is based on a range of
values from a third party with the experience of valuing such
assets and its own assessment. The resultant impairment charge
recorded on this asset in 2008 was $62 million which is
included within Impairment and restructuring charges
in the consolidated statement of operations.
As at December 31, 2009, Property Plant and Equipment
totaling $43.8 million (comprising $45.7 million
original net book value less $1.9 million impairment) were
reported as a component of the line Assets held for
Sale on the consolidated balance sheet, relating to the
Companys facility in Catania, Italy for which a sale
option agreement was signed, as explained in Note 6,
Assets Held for Sale.
F-96
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
10.
|
OTHER
INVESTMENTS AND NON-CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Payments for additional equity investment
|
|
$
|
100,000
|
|
|
$
|
|
|
Fair value of the favorable operating lease
|
|
|
64,511
|
|
|
|
67,420
|
|
Long term receivable related to tax refund
|
|
|
42,128
|
|
|
|
40,423
|
|
Related party receivable
|
|
|
24,048
|
|
|
|
24,527
|
|
Deposits
|
|
|
3,001
|
|
|
|
449
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
233,688
|
|
|
$
|
132,819
|
|
|
|
|
|
|
|
|
|
|
The investment in related party relates to payments made to
Hynix Numonyx Semiconductor Ltd., to increase the Companys
equity stake in the Company, but which have not yet been
approved by Chinese authorities, as explained in Note 3,
Equity Investment. This includes $50 million
which in 2008 was recorded within Other receivables and
current assets and which was reclassified to Other
investments and non-current assets during 2009.
The favorable operating lease relates to the Companys
manufacturing facility in Israel. This relates to the fair value
of the future minimum lease payments that were included as part
of the assets contributed by Intel upon the formation of
Numonyx. This is being amortized over the period of the lease,
24 years.
The long term receivable related to tax refund is a tax credit
in Italy which was generated through the operations of STM
Italy, before the operations were contributed to Numonyx. Upon
the formation of Numonyx, a long term liability was established
as the amounts received from the Italian government will be
reimbursed to STM. Such amount is included within Other
non-current liabilities in the consolidated balance sheet.
The related party receivable relates to an end of employment
liability in Italy, for employees transferred from STM Italy to
Numonyx Italy and for which STM have agreed to reimburse
Numonyx. The payable portion of this balance is also included
within pension liability in the consolidated balance sheet.
Deposits relate mainly to rental deposits on leased office
buildings and deposits paid to service providers.
|
|
11.
|
OTHER
PAYABLES AND ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Taxes other than income tax
|
|
$
|
12,327
|
|
|
$
|
33,360
|
|
Salaries, wages and social charges
|
|
|
66,960
|
|
|
|
37,747
|
|
Provision for restructuring
|
|
|
4,041
|
|
|
|
8,541
|
|
Deferred income on shipments to distributors
|
|
|
12,649
|
|
|
|
4,525
|
|
Current portion of pension liability
|
|
|
2,268
|
|
|
|
2,155
|
|
Accrued income tax
|
|
|
9,350
|
|
|
|
13,035
|
|
Other accrued liabilities
|
|
|
32,553
|
|
|
|
46,728
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
140,148
|
|
|
$
|
146,091
|
|
|
|
|
|
|
|
|
|
|
Within current portion of pension liability above,
$1.4 million (2008: $2.1 million) relates to the Italy
end of employment fund. This amount is shown also as a
receivable from related party within Other investments and
non-current assets as the amount will be reimbursed to
Numonyx by STM.
|
|
12.
|
POST-RETIREMENT
AND OTHER LONG-TERM EMPLOYEE BENEFITS
|
The Company has a number of defined benefit pension plans
covering employees in various countries. The plans provide for
pension benefits, the amounts of which are calculated based on
factors such as years of service and employee compensation
levels. Eligibility is generally determined in accordance with
the local statutory requirements. The Companys major
defined benefit pension plans and long-term employee benefit
plans are in Israel, Italy, Switzerland, Japan, Korea, and
Philippines.
The Company adopted the provisions of U.S. GAAP which
require that the funded status of defined benefit
post-retirement plans be recognized on the consolidated balance
sheet, and changes in the funded status be reflected
F-97
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
in comprehensive income. U.S. GAAP also requires the
measurement date of the plans funded status to be the same
as the Companys financial year-end. The measurement date
for all plans was the Companys financial year end.
On December 31, 2009, the Company adopted changes issued by
the FASB to employers disclosures about postretirement
benefit plan assets. These changes provide guidance on an
employers disclosures about plan assets of a defined
benefit pension or other postretirement plan. This guidance is
intended to ensure that an employer meets the objectives of the
disclosures about plan assets in an employers defined
benefit pension or other postretirement plan to provide users of
financial statements with an understanding of the following: how
investment allocation decisions are made; the major categories
of plan assets; the inputs and valuation techniques used to
measure the fair value of plan assets; the effect of fair value
measurements using significant unobservable inputs on changes in
plan assets; and significant concentrations of risk within plan
assets. Other than the required disclosures, the adoption of
these changes had no impact on the consolidated financial
statements.
Funding
Policy
The Companys practice is to fund the various pension plans
in amounts at least sufficient to meet the minimum requirements
of applicable local laws and regulations. The assets of the
various plans are invested in corporate equities, corporate debt
securities, government debt securities, and other institutional
arrangements. The portfolio of each plan depends on plan design
and applicable local laws. Depending on the design of the plan,
local customs, and market circumstances, the liabilities of a
plan may exceed qualified plan assets.
Benefit
Obligation and Plan Assets
The changes in the benefit obligation and plan assets for the
plans described above were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of period
|
|
$
|
60,165
|
|
|
$
|
30,175
|
|
Service cost
|
|
|
5,018
|
|
|
|
4,149
|
|
Interest cost
|
|
|
3,143
|
|
|
|
2,703
|
|
Plan participant contributions
|
|
|
397
|
|
|
|
278
|
|
Actuarial (gain)/loss
|
|
|
3,521
|
|
|
|
(119
|
)
|
Benefits paid
|
|
|
(6,305
|
)
|
|
|
(5,375
|
)
|
Benefit obligation of acquired business
|
|
|
|
|
|
|
38,203
|
|
Currency exchange impact
|
|
|
5,138
|
|
|
|
(9,849
|
)
|
Other
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending projected benefit obligation
|
|
$
|
70,988
|
|
|
$
|
60,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of the assets at beginning of the period
|
|
$
|
29,069
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
3,184
|
|
|
|
176
|
|
Employer contributions
|
|
|
7,977
|
|
|
|
7,925
|
|
Plan participants contributions
|
|
|
397
|
|
|
|
278
|
|
Benefits paid
|
|
|
(6,305
|
)
|
|
|
(5,375
|
)
|
Plan assets of acquired business
|
|
|
|
|
|
|
31,161
|
|
Currency impact
|
|
|
1,486
|
|
|
|
(5,096
|
)
|
Other
|
|
|
1,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending fair value of plan assets
|
|
$
|
37,430
|
|
|
$
|
29,069
|
|
|
|
|
|
|
|
|
|
|
F-98
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Amounts recognized in the consolidated balance sheet are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Current liabilities
|
|
$
|
2,268
|
|
|
$
|
2,155
|
|
Non-current liabilities
|
|
|
31,290
|
|
|
|
28,941
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33,558
|
|
|
$
|
31,096
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive
income / (loss) net of taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Net actuarial loss
|
|
$
|
(2,916
|
)
|
|
$
|
(414
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,327
|
)
|
|
$
|
(417
|
)
|
|
|
|
|
|
|
|
|
|
The estimated amounts that will be amortized from
Accumulated other comprehensive loss at
December 31, 2009 into net periodic benefit cost (pre-tax)
in 2010 is $0.1 million.
Change in accumulated other comprehensive income (loss) net of
taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Net actuarial loss at beginning of the period
|
|
$
|
(417
|
)
|
|
$
|
|
|
Amortization of actuarial loss
|
|
|
370
|
|
|
|
|
|
Current year actuarial loss
|
|
|
(3,280
|
)
|
|
|
(417
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,327
|
)
|
|
$
|
(417
|
)
|
|
|
|
|
|
|
|
|
|
Included in the aggregate data in the tables below are the
amounts applicable to our pension plans with accumulated benefit
obligations in excess of plan assets, as well as plans with
projected benefit obligations in excess of plan assets. Amounts
related to such plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Plans with accumulated benefit obligations in excess of plan
assets:
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations
|
|
$
|
69,420
|
|
|
$
|
56,950
|
|
Fair value of plan assets
|
|
$
|
37,430
|
|
|
$
|
28,863
|
|
Plans with projected benefit obligations in excess of plan
assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligations
|
|
$
|
70,988
|
|
|
$
|
60,165
|
|
Fair value of plan assets
|
|
$
|
37,430
|
|
|
$
|
29,069
|
|
Assumptions
Weighted-average assumptions used in the determination of the
benefit obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Discount rate
|
|
|
5.09
|
%
|
|
|
5.19
|
%
|
Average increase in compensation
|
|
|
3.90
|
%
|
|
|
3.24
|
%
|
Weighted-average actuarial assumptions used to determine costs
for the plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Discount rate
|
|
|
5.19
|
%
|
|
|
5.64
|
%
|
Expected long term rate on plan assets
|
|
|
4.88
|
%
|
|
|
5.35
|
%
|
Average increase in compensation
|
|
|
3.24
|
%
|
|
|
4.30
|
%
|
The discount rate was determined by analyzing long term
corporate AA bond rates and matching the bond maturity with the
average duration of the pension liabilities. In certain markets
where there are not corporate bonds, government bond rates are
used.
F-99
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Net
Periodic Benefit Cost
The net periodic benefit cost for the plans included the
following components:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Service cost
|
|
$
|
5,018
|
|
|
$
|
4,149
|
|
Interest cost
|
|
|
3,143
|
|
|
|
2,703
|
|
Expected return on plan assets
|
|
|
(1,581
|
)
|
|
|
(1,322
|
)
|
Other
|
|
|
(632
|
)
|
|
|
678
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
5,948
|
|
|
$
|
6,208
|
|
|
|
|
|
|
|
|
|
|
Plan
Assets
The plans investments are managed predominantly by
insurance companies, and to a lesser extent by third-party
trustees, or pension funds consistent with regulations or market
practice of the country where the assets are invested.
Investments that are managed by qualified insurance companies or
pension funds under standard contracts follow local regulations,
and the Company is not actively involved in the investment
strategy. In general, the investment strategy followed is
designed to accumulate a diversified portfolio among markets,
asset classes, or individual securities in order to reduce
market risk and assure that the pension assets are available to
pay benefits as they come due. Alternatively, individual plan
members may decide on individual investment strategies for their
plan. As such, the Company does not set target allocations of
plan assets and does not measure actual allocations of plan
assets versus target allocations.
The fair value of plan assets by asset type as at
December 31, 2009 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Asset Category
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Insurance contracts
|
|
$
|
37,430
|
|
|
|
|
|
|
$
|
37,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,430
|
|
|
|
|
|
|
$
|
37,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funding
Expectations
Expected funding for the plans during 2010 is approximately
$7 million.
Estimated
Future Benefit Payments
Estimated benefits to be paid from the Companys pension
plans through 2019 are as follows:
|
|
|
|
|
Years
|
|
Pension Benefits
|
|
|
2010
|
|
|
4,192
|
|
2011
|
|
|
4,909
|
|
2012
|
|
|
4,610
|
|
2013
|
|
|
5,225
|
|
2014
|
|
|
5,628
|
|
From 2015 to 2019
|
|
|
28,324
|
|
|
|
13.
|
SHARE
BASED COMPENSATION
|
During 2008, an equity incentive plan was established by the
Company, but no equity grants were made. 25 million stock
units are available for issuance under the plan. During 2009,
the first restricted stock unit grants were issued from the
plan. The stock units vest over 3 or 4 years from the grant
date. However, vesting is also contingent upon a change in
control of the Company taking place. The vesting of certain
grants made to Executive Officers of the Company are contingent
on certain performance targets being met each year and the
change in control provision noted above.
F-100
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
As the share capital of the Company is not currently traded on
any Exchange, the value assigned to stock grants is based on the
fair value of the equity of the Company at the time the grants
were made.
Under the terms of the equity incentive plan, vesting is
contingent upon a qualified public offering of shares in the
Company, or other change in control of the Company occurring. As
at December 31, 2009, because any change in control was
contingent upon circumstances beyond the Companys control,
no stock based compensation expense has been recorded in the
consolidated statement of operations for the year ended
December 31, 2009.
Restricted stock unit activity during 2009 is detailed below (no
restricted stock units were issued in 2008):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
(In thousands, except weighted average fair value amounts)
|
|
Number of Shares
|
|
|
Average Fair Value
|
|
|
As at December 31, 2008
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
11,180
|
|
|
|
2.83
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(468
|
)
|
|
|
2.83
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2009
|
|
|
10,712
|
|
|
$
|
2.83
|
|
|
|
|
|
|
|
|
|
|
Expected to vest as of December 31, 2009
|
|
|
10,712
|
|
|
$
|
2.83
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
|
LONG-TERM
DEBT AND DEBT OBLIGATIONS TO RELATED PARTIES
|
Debt
obligations to related parties
Upon the formation of Numonyx, long-term notes were issued to
STM, Intel, and FP valued at $155,572, $144,428 and $19,087
respectively. The notes are payable upon the earlier of
liquidation of the Company, or March 31, 2038. The interest
rate applied to these notes is 9.5% and is payable in the form
of additional notes until 2015. Interest also accrues, at the
same rate, on the new notes issued. After 2015, the interest is
payable in the form of cash. Interest on these notes is recorded
as interest expense in the consolidated statement of operations.
Total interest accrued during the year ended December 31,
2009 was $32.5 million (2008: $22.7 million) and is
included within Debt obligations to related parties
in the consolidated balance sheet.
The long-term loan notes include covenants which prevent the
Company and its subsidiaries from taking on additional debt in
excess of $100 million if the total existing debt recorded
on the balance sheet is $1,250 million or less, or
additional debt in excess of $50 million if the total
existing debt recorded on the balance sheet is more than
$1,250 million. In addition, the Company may not issue new
equity or securities exchangeable into equity that would rank
senior to or on parity with the long-term loan notes and may not
make dividend distributions other than distributions between
subsidiaries of the Company and distributions on the preferred
shares. Repayment of the debt obligations to related parties is
subordinated to repayment of debt obligations to third parties.
On December 30, 2009 an option agreement was signed by
Numonyx and STM, granting STM the option to acquire from Numonyx
the majority of the assets held at the Companys facility
in Catania, Italy. In consideration for the assets, STM agreed
that $78 million of the notes issued to them by Numonyx
would be cancelled on completion of the sale. As the option
agreement expires on June 30, 2009 with an option to extend
by a further three months, these loan notes have been
reclassified to short term debt on the consolidated balance
sheet.
Debt
obligations to third parties
Long term debt obligations to third parties consisted of the
following as at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Bank loan
|
|
$
|
450,000
|
|
|
$
|
450,000
|
|
Finance lease obligations
|
|
|
1,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
451,616
|
|
|
$
|
450,000
|
|
|
|
|
|
|
|
|
|
|
Upon formation, the Company entered into a dollar term loan
facility in the amount of $450 million and a multicurrency
revolving loan facility in the amount of $100 million. As
at December 31, 2009, the $100 million revolving
facility had not been drawn down. The facilities are repayable
in full on March 25, 2012. Interest of three-
F-101
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
month LIBOR + 60 basis points is payable every
3 months and is recorded within interest expense in the
consolidated statement of operations.
Covenants on the loan facility include a mandatory prepayment of
50% of the facility by the borrowers if the credit rating of
either Intel or STM were to be downgraded to a rating by
Moodys that is below Baa3 or by Standard and Poors
that is below BBB-. In addition, should Intel or STM take on
debt at or in excess of $500 million, then the facility
would become immediately repayable.
The assessment of fair value of the debt obligation to third
parties would require the determination of an appropriate credit
spread over the benchmark rates for a facility similar to that
held by the Company and the application of an adjustment factor
for, amongst other factors, illiquidity. The Company has not
sought additional similar funding since formation, particularly
given market conditions impacting the availability of credit.
Finance lease obligations relate to Machinery and Equipment
purchased by the Company during the year. The short term element
of finance lease obligations is recorded within Current
portion of long-term debt in the consolidated balance
sheet.
Aggregate future maturities of total long term debt outstanding
(including current portion) are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
$
|
78,941
|
|
|
|
|
|
2011
|
|
|
1,077
|
|
|
|
|
|
2012
|
|
|
450,539
|
|
|
|
450,000
|
|
2013
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
296,297
|
|
|
|
341,822
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
826,854
|
|
|
$
|
791,822
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
|
OTHER
NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Related party payable
|
|
$
|
42,489
|
|
|
$
|
40,423
|
|
Other
|
|
|
3,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,862
|
|
|
$
|
40,423
|
|
|
|
|
|
|
|
|
|
|
The related party payable relates to a tax credit in Italy. This
tax credit, which is also shown as a long term receivable in the
consolidated balance sheet of Numonyx, was generated through the
operations of STM Italy, before the operations were contributed
to Numonyx. Since the tax credit was generated by STM, when the
tax credit is paid by the Italian authorities to Numonyx, the
Company will reimburse STM.
Outstanding
Shares
The authorized share capital of the Company amounts to
EUR 264,205,965. It is divided into:
|
|
|
|
|
250,000,000 ordinary shares of one Euro each;
|
|
|
|
14,204,545 convertible preferred shares A of one
Euro each; and
|
|
|
|
142,045 preferred shares A-1 of one eurocent (EUR
0.01) each.
|
As at December 31, 2009, 210,700,758 ordinary shares were
issued.
Preference
Shares
As at December 31, 2009, the Company had issued 14,204,545
convertible preferred shares A to FP. These
preference shares entitle the holder to full voting rights and
to a preferential right to distributions upon liquidation or
change in control of the Company. Specifically the holders are
entitled to a repayment of 1.85 times the original issue price
of the shares. The preferred shares A may be
converted into preferred shares A-1 or ordinary
shares,
F-102
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
on terms agreed between the Company and the holders of the
preferred shares A. Such terms must be unanimously
approved at a General Meeting of the shareholders.
The preferred shares A-1 entitle holders to a
repayment of 1.85 times the original issue price of the shares
and also to an amount out of the annual profits equal to 1% of
the weighted average of the par value of their shares during the
financial year. The dividend preference is non-cumulative. The
shares also carry voting rights. No preferred shares
A-1 had been issued at the balance sheet date.
|
|
17.
|
OTHER
INCOME AND EXPENSES, NET
|
Other income and expenses, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Start up costs
|
|
$
|
|
|
|
$
|
39,433
|
|
Foreign exchange gains
|
|
|
(1,777
|
)
|
|
|
(986
|
)
|
Gain on sale of other non-current assets, net
|
|
|
(1,157
|
)
|
|
|
(2,770
|
)
|
Other
|
|
|
2,327
|
|
|
|
1,870
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(607
|
)
|
|
$
|
37,547
|
|
|
|
|
|
|
|
|
|
|
Start up costs relate to costs incurred in the formation of
Numonyx in 2008.
|
|
18.
|
IMPAIRMENT
AND RESTRUCTURING CHARGES
|
Impairment and restructuring charges consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Impairment charges
|
|
$
|
18,703
|
|
|
$
|
62,000
|
|
Restructuring charges
|
|
|
8,701
|
|
|
|
12,350
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27,404
|
|
|
$
|
74,350
|
|
|
|
|
|
|
|
|
|
|
The impairment charges are explained in Note 6,
Assets held for Sale and Note 8,
Intangible Assets.
During 2008, the Company recorded charges of $8.6 million
in employee severance costs related to a workforce reduction
action in our California Technology Center and $3.4 million
in employee severance costs related to personnel at Pudong,
China which was originally to be part of the assets contributed
by Intel to Numonyx upon formation, but which the Company
decided not to acquire. These charges were incurred due to the
termination of approximately 700 employees. The Company may
incur additional restructuring charges in the future for
employee severance and benefit arrangements, and
facility-related or other exit activities.
In 2009, the Company reversed $3.7 million of the provision
related to the action in the California Technology Center as a
result of a subsequent decision to retain a number of employees
that were previously expected to be terminated.
During 2009, the Company incurred charges of $8.1 million
in employee severance costs related to a workforce reduction
action across multiple sites, as part of a program to reduce
costs in response to the global economic crisis. These charges
were incurred due to the termination of approximately
130 employees. The Company also incurred an additional
$4.3 million in employee severance costs related to
personnel at Pudong, China.
The Company may incur additional restructuring charges in the
future for employee severance and benefit arrangements, and
facility-related or other exit activities.
F-103
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Restructuring charges incurred during 2009 and 2008 are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Provision as at January 1, 2009
|
|
$
|
8,541
|
|
|
$
|
|
|
Charges incurred during the period
|
|
|
8,701
|
|
|
|
12,350
|
|
Change in estimate related to reduction in force
|
|
|
(3,739
|
)
|
|
|
|
|
Amounts paid
|
|
|
(9,462
|
)
|
|
|
(3,809
|
)
|
|
|
|
|
|
|
|
|
|
Provision as at December 31, 2009
|
|
$
|
4,041
|
|
|
$
|
8,541
|
|
|
|
|
|
|
|
|
|
|
|
|
19.
|
INTEREST
INCOME AND EXPENSES
|
Interest income and expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Amortization of loan guarantees
|
|
$
|
36,999
|
|
|
$
|
27,750
|
|
Interest on debt obligations to related parties
|
|
|
32,475
|
|
|
|
22,734
|
|
Interest on long-term debt
|
|
|
5,488
|
|
|
|
11,847
|
|
Other interest
|
|
|
827
|
|
|
|
1,266
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
75,789
|
|
|
|
63,597
|
|
Interest income
|
|
|
1,340
|
|
|
|
6,537
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net
|
|
$
|
74,449
|
|
|
$
|
57,060
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes consists of the following
components:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Netherlands
|
|
$
|
|
|
|
$
|
|
|
Foreign
|
|
|
20,800
|
|
|
|
22,229
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
20,800
|
|
|
|
22,229
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Netherlands
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
(271
|
)
|
|
|
(3,104
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(271
|
)
|
|
|
(3,104
|
)
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
20,529
|
|
|
$
|
19,125
|
|
|
|
|
|
|
|
|
|
|
The loss before provision for income taxes included a loss from
the Netherlands of approximately $57.6 million (2008:
$273.8 million) and losses of approximately
$168.7 million from other foreign subsidiaries during
fiscal year 2009 (2008: income of $84.2 million).
F-104
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The provision for income taxes differs from the amount estimated
by applying the statutory Netherlands income tax rate of 25.5%
to income before provision for income taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Provision computed at Dutch statutory rate
|
|
$
|
(57,694
|
)
|
|
$
|
(64,182
|
)
|
Foreign rate differential
|
|
|
(2,040
|
)
|
|
|
171
|
|
Permanent differences
|
|
|
463
|
|
|
|
3,534
|
|
Research and development tax credits
|
|
|
(2,055
|
)
|
|
|
(3,427
|
)
|
Current year losses not benefited
|
|
|
78,319
|
|
|
|
84,184
|
|
Others
|
|
|
3,536
|
|
|
|
(1,155
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
20,529
|
|
|
$
|
19,125
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
(9.1
|
)%
|
|
|
(7.6
|
)%
|
|
|
|
|
|
|
|
|
|
The components of deferred tax assets and liabilities consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued compensation
|
|
$
|
2,820
|
|
|
$
|
5,106
|
|
Other reserves and accruals
|
|
|
|
|
|
|
658
|
|
Accounts receivable
|
|
|
157
|
|
|
|
|
|
Fixed assets
|
|
|
60,438
|
|
|
|
118,280
|
|
Inventory
|
|
|
4,854
|
|
|
|
|
|
Unrealized foreign exchange loss
|
|
|
182
|
|
|
|
660
|
|
Research and development credit carryover
|
|
|
2,618
|
|
|
|
987
|
|
Net operating loss carryover
|
|
|
99,850
|
|
|
|
96,678
|
|
Others
|
|
|
1,607
|
|
|
|
5,332
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
172,526
|
|
|
|
227,701
|
|
Less: valuation allowance
|
|
|
(129,626
|
)
|
|
|
(142,229
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
42,900
|
|
|
|
85,472
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Accrued compensation
|
|
|
(1,643
|
)
|
|
|
|
|
Fixed assets
|
|
|
(2
|
)
|
|
|
(3,640
|
)
|
Inventory
|
|
|
(169
|
)
|
|
|
(1,776
|
)
|
Accounts receivable
|
|
|
(352
|
)
|
|
|
(3,205
|
)
|
Unrealized foreign exchange gain
|
|
|
(822
|
)
|
|
|
|
|
Others
|
|
|
(1,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(4,128
|
)
|
|
|
(8,621
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets
|
|
$
|
38,772
|
|
|
$
|
76,851
|
|
|
|
|
|
|
|
|
|
|
In addition to the net deferred tax assets shown above,
$36.1 million of deferred tax assets relating to the
Companys facilities in Catania, Italy are recorded within
Assets held for Sale on the consolidated balance
sheet.
In evaluating its ability to utilize its deferred tax assets in
future periods, the Company considered all available positive
and negative factors. The Company considered various sources of
taxable income including future reversals of existing taxable
temporary differences, taxable income in prior carryback years
if carryback is permitted under the tax law, tax planning
strategies that would, if necessary, be implemented to prevent a
loss carryforward or tax credit carryforward from expiring
unused and predictions of future taxable income exclusive of
reversing temporary differences and carryforwards. As a result,
the Company determined a valuation allowance of
$129.6 million was required as at December 31, 2009
(2008: $142.2 million). After consideration of the
valuation allowance, the Company had total net deferred tax
assets of approximately $74.9 million as at
December 31, 2009 ($36.1 million of which is
classified as Assets held for sale) and
$76.9 million as at December 31, 2008. The net
deferred tax assets
F-105
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
are primarily comprised of net operating loss carryforwards and
future deductible amounts relating primarily to fixed assets.
As at December 31, 2009, the Company had net operating loss
and capital allowance carryforwards of approximately
$339 million combined for The Netherlands and Switzerland
(2008: $270 million), $125 million in Singapore (2008:
$160 million), $25 million in Italy (2008:
$48 million) and $l million in the Philippines. For the
carryforwards related to The Netherlands and Switzerland, the
Company currently estimates that 100% relate to The Netherlands.
This assumption may change. The Company, however, has recorded a
full valuation allowance against this portion of the
carryforwards. In addition in 2008, the Company had
approximately $23 million of operating loss and capital
allowances carryforwards in Malaysia, but these have been
absorbed by profits earned during 2009. The net operating loss
carryforwards in The Netherlands and Italy can be carried
forward for 9 years and 5 years respectively. The net
operating loss carryforwards in the Philippines can be carried
forward for 3 years and the net operating loss
carryforwards in Singapore can be carried forward indefinitely.
The expiration of the tax losses carried forward as at
December 31, 2009, on which no deferred tax has been
recognized, is summarized below:
|
|
|
|
|
|
|
|
|
Expires by:
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
$
|
|
|
|
$
|
|
|
2011
|
|
|
23,768
|
|
|
|
|
|
2012
|
|
|
1,937
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
48,000
|
|
2014
|
|
|
|
|
|
|
|
|
After 2014
|
|
|
463,897
|
|
|
|
453,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
489,602
|
|
|
$
|
501,000
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax credits
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The valuation allowances are mainly provided against net
deferred tax assets in the Netherlands, Italy and Singapore. In
the event that all of the deferred tax assets become realizable,
the reversal of the valuation allowance would result in a
$129.6 million reduction in income tax expense.
Unrecognized
Tax Benefits
The changes in the gross amount of unrecognized tax benefits are
as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Beginning of the year
|
|
$
|
2,369
|
|
|
$
|
|
|
Gross amount of the decrease in unrecognized tax benefits of tax
positions taken during a prior year
|
|
|
(629
|
)
|
|
|
|
|
Gross amount of the increases in unrecognized tax benefits as a
result of tax positions taken during the current year
|
|
|
3,460
|
|
|
|
2,369
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
5,200
|
|
|
$
|
2,369
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2009, $5.2 million (2008:
$2.4 million) of unrecognized tax benefits would, if
recognized, reduce the effective tax rate.
No significant changes in unrecognized taxed benefits are
anticipated within the next 12 months. The Company will
re-evaluate its income tax positions on a quarterly basis to
consider factors such as changes in facts or circumstances,
changes in or interpretations of tax law, effectively settled
matters under audit, and new audit activity. Such a change in
recognition or measurement would result in recognition of a tax
benefit or an additional charge to the tax provision.
Upon adoption of ASC 740 the Company adopted an accounting
policy to classify interest and penalties on unrecognized tax
benefits as income tax expense. The total amount of interest and
penalties recognized in the consolidated statement of operations
during fiscal 2009 was $0.4 million (2008: $0). The Company
has filed its initial tax returns in most of its jurisdictions.
The Companys major jurisdictions include the Netherlands,
F-106
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Switzerland, U.S., Japan, Singapore, Israel, Italy, Malaysia,
and Philippines, all of which are subject to exam by income tax
authorities for 2009.
The Netherlands statute of limitations will remain open until
December 31, 2013. The Switzerland statute of limitations
will remain open until December 31, 2018. The U.S. and
Israel statutes of limitations will remain open until three
years after the returns are filed. In certain instances, Israel
may extend its statute of limitations. The Japan, Singapore, and
Malaysia statutes of limitations will remain open until
December 31, 2014. The Italy statute of limitations will
remain open until December 31, 2014. The Philippines
provides no statute of limitations with regard to transfer
pricing. Therefore, the Philippines return will remain open
indefinitely.
|
|
21.
|
FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT
|
Financial
Risk Factors
The Company is exposed to changes in financial market conditions
in the normal course of business due to its operations in
different foreign currencies and its ongoing investing and
financing activities. The Companys activities expose it to
a variety of financial risks: market risk (including currency
risk, interest rate risk, and price risk), credit risk and
liquidity risk. The Companys overall risk management
program focuses on the unpredictability of financial markets and
seeks to minimize the volatility on the Companys financial
performance. The Company uses forward exchange contracts and
currency options to hedge certain risk exposures.
Risk management is carried out by a central Corporate Treasury
Department, reporting to the Chief Financial Officer. Corporate
Treasury identifies, evaluates and hedges financial risks in
close cooperation with the Companys operating units.
Treasury activities are regulated by the Companys
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. Most
treasury activities are centralized, with any local activities
subject to oversight from the Company. The majority of cash and
cash equivalents is held in US dollars and is deposited with
financial institutions. Marginal amounts are held in Euro,
Japanese Yen and Singapore Dollar.
Foreign currency hedging transactions are performed only to
hedge exposures deriving from industrial and commercial
activities.
Foreign
exchange risk
The Company conducts its business on a global basis in various
major international currencies. Foreign exchange risk arises
when recognized assets and liabilities as well as cash flows are
denominated in a currency that is not the Companys
functional currency. The majority of these transactions relate
to purchases and certain other assets and liabilities arising in
intercompany transactions denominated in foreign currencies.
Management has established a policy to hedge significant foreign
exchange risk exposure through financial instruments transacted
by Corporate Treasury. Foreign currency hedging transactions are
performed only to hedge exposures deriving from industrial and
commercial activities. The Company uses forward exchange
contracts and options to hedge certain balance sheet risk
exposures. These instruments do not qualify as hedging
instruments and as such are accounted for at fair value with
changes in fair value accounted for in the consolidated
statement of operations. The notional value of these instruments
at December 31, 2009 totaled $100.8 million (2008:
$14.4 million). All of the transactions were entered into
during the fourth quarter of 2009 and the currencies covered
were the Euro, the Israeli Shekel, the Singapore Dollar and the
Swiss Franc. During 2009, the Company realized net losses of
$0.6 million for contracts settled during the year. The
losses are recorded within Other income and expenses,
net in the consolidated statement of operation. In 2008,
there were no contracts settled during the period and therefore
no realized losses or gains. The amounts recorded in the
consolidated balance sheets as at December 31, 2009 and
December 31, 2008 were $0 in both years.
Interest
rate risk
Interest rate risk is minimized as the Companys bank
borrowings and deposits are held on a floating rate basis.
F-107
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Credit
risk
The Company selects banks
and/or
financial institutions that operate with the group based on the
criteria of long term rating from at least two of the major
Rating Agencies and keeping within prescribed diversification
and limit guidelines.
The Company monitors the credit worthiness of its customers to
which it grants credit terms in the normal course of business.
For sales made by Intel on behalf of Numonyx, in line with the
Transition Services Agreements, this monitoring was
performed by Intel on behalf of Numonyx. If certain customers
are independently rated, these ratings are used. Otherwise, if
there is no independent rating, the Company assesses the credit
quality of the customer, taking into account its financial
position, past experience and other factors. Individual risk
limits are set based on internal and external ratings in
accordance with limits set by management. The utilization of
credit limits is regularly monitored. Reserves are provided for
estimated amounts of accounts receivable that may not be
collected.
At December 31, 2009, two customers represented
approximately 35% of trade accounts receivable, net. Any
remaining concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers and
their dispersion across many geographic areas.
Liquidity
risk
Prudent liquidity risk management includes maintaining
sufficient cash and cash equivalents, short term deposits, and
availability of funding from an adequate amount of committed
credit facilities. The Companys objective is to maintain
sufficient funds in instruments that can be easily converted to
cash.
The Companys commitments as at December 31, 2009 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Operating Leases
|
|
$
|
63,739
|
|
|
$
|
8,032
|
|
|
$
|
7,654
|
|
|
$
|
6,405
|
|
|
$
|
6,380
|
|
|
$
|
5,147
|
|
|
$
|
30,121
|
|
Purchase Commitments
|
|
|
486,556
|
|
|
|
320,608
|
|
|
|
54,631
|
|
|
|
53,623
|
|
|
|
32,125
|
|
|
|
25,569
|
|
|
|
|
|
of which:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and other asset purchases
|
|
|
29,060
|
|
|
|
28,762
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition Service and Supply Agreement Fees
|
|
|
2,988
|
|
|
|
2,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operational expenses
|
|
|
454,508
|
|
|
|
288,858
|
|
|
|
54,333
|
|
|
|
53,623
|
|
|
|
32,125
|
|
|
|
25,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
550,295
|
|
|
$
|
328,640
|
|
|
$
|
62,285
|
|
|
$
|
60,028
|
|
|
$
|
38,505
|
|
|
$
|
30,716
|
|
|
$
|
30,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company leases land, buildings and equipment under operating
leases that expire at various dates under non-cancellable
operating leases. Operating lease expense was approximately
$10 million in 2009 (2008: $13 million).
Purchase commitments consist primarily of purchases of tangible
fixed asset and goods and services under non-cancellable
contracts and of fees payable to Intel under the Transition
Services Agreement.
|
|
23.
|
RELATED
PARTY TRANSACTIONS
|
As described in Note 1, The Company STM, Intel
and FP own 48.6%, 45.1% and 6.3% voting ownership in Numonyx,
respectively. The Company has an eight member governing body
(Supervisory Board) which is composed of three
members nominated by STM, three members nominated by Intel and
two members nominated by FP. Each shareholder unilaterally
nominates its chosen members to the Supervisory Board as long as
there are no significant changes in their investment in Numonyx.
The ordinary shares in the Company are owned by STM and Intel
and the Preferred Shares A are owned by FP. The
ordinary shares have the same voting rights as the preferred
shares.
F-108
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31, 2009, and the nine month
period ended December 31, 2008, Numonyx recorded sales and
incurred expenses that related to business conducted with Intel,
STM, and Hynix and had transactions with FP. The following
tables and notes present the significant related party
transactions and account balances with these related parties.
Intel:
Transactions
during the year ended December 31, 2009 and period ended
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Net Sales to Intel
|
|
$
|
487
|
|
|
$
|
664
|
|
Supply
Agreement(1)
|
|
|
96,834
|
|
|
|
141,596
|
|
Service
Agreement(2)
|
|
|
14,664
|
|
|
|
28,561
|
|
Transition Service Agreement
Fees(3)
|
|
|
39,814
|
|
|
|
49,664
|
|
Period
Costs(4)
|
|
|
289,998
|
|
|
|
413,164
|
|
|
|
|
(1) |
|
During 2008 and 2009, Numonyx
purchased wafers from Intels facility in Ireland. These
costs are recorded within cost of sales. This supply agreement
ended during 2009.
|
|
(2) |
|
Intels Pudong facility
performs research and development and assembly/test services for
Numonyx. These costs are primarily recorded within cost of sales
and research and development expenses. This service agreement
substantially ended during 2009.
|
|
(3) |
|
These expenses include supply
chain, procurement, site manufacturing, information technology,
human resource, and finance and accounting services. These costs
are primarily recorded within cost of sales and selling, general
and administrative expenses. The transition service agreement
substantially ended in 2009.
|
|
(4) |
|
Intel incurs facility-related
expenses on Numonyx behalf for the Israel and Philippines
sites. These costs are recorded primarily within cost of sales.
These costs substantially ended during 2009.
|
Balances
as at December 31, 2009 and December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Trade Accounts Receivable from Intel,
net(1)
|
|
$
|
8,686
|
|
|
$
|
80,105
|
|
Prepaid operating lease with
Intel(2)
|
|
|
64,511
|
|
|
|
67,420
|
|
Accounts payable to
Intel(3)
|
|
|
37,586
|
|
|
|
149,188
|
|
Other receivables from Intel
|
|
|
1,589
|
|
|
|
4,700
|
|
Other accrued liabilities to Intel
|
|
|
|
|
|
|
5,717
|
|
|
|
|
(1) |
|
Trade accounts receivable from
Intel, net represents monies outstanding from customers to
Intel, and therefore not yet remitted to Numonyx, relating to
revenues generated by Intel on behalf of Numonyx.
|
|
(2) |
|
See Note 10, Other
Investments and Non Current assets for an explanation of
the prepaid operating lease.
|
|
(3) |
|
Accounts payable and other accrued
liabilities to Intel relate to amounts payable by Numonyx for
supply agreement, service agreement and other services provided
by Intel under the Transition Services Agreement.
|
In addition, as explained in Note 14 Long Term Debt
and Debt Obligations to Related Parties, Intel holds a
long-term loan note from Numonyx, valued at $144.4 million
plus accrued interest of $25.0 million at the balance sheet
date. Intel also acted as guarantor, in conjunction with STM, of
the bank loan obtained by Numonyx upon formation. The fair value
of the benefit of this guarantee is recorded within
Intangible Assets, Net in the consolidated balance
sheet.
STM:
Transactions
during the year ended December 31, 2009 and period ended
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Transition Services Agreement
Fees(1)
|
|
$
|
10,136
|
|
|
$
|
29,108
|
|
Cost sharing
arrangement(2)
|
|
|
29,669
|
|
|
|
54,879
|
|
Period
costs(3)
|
|
|
16,198
|
|
|
|
|
|
F-109
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
(1) |
|
These expenses include supply
chain, procurement, information technology, human resource, and
finance and accounting services provided by STM to Numonyx.
These costs are primarily recorded within cost of sales and
selling, general and administrative expenses. The transition
services agreement substantially ended during 2009.
|
|
(2) |
|
The cost sharing arrangement is an
agreement with STM in relation to the Companys facility in
Agrate, Italy, under which facilities and certain costs are
shared between STM and Numonyx. The number disclosed above is
the net costs paid by Numonyx to STM during the period.
|
|
(3) |
|
These costs relate primarily to
utilities costs at shared manufacturing facilities. The costs
incurred by Numonyx as disclosed above are net of recharges made
by Numonyx to STM and are primarily recorded within cost of
sales and selling, general and administrative expenses. Period
costs in 2008 are included within Transition Services Agreement
Fees in the table above.
|
Balances
as at December 31, 2009 and December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Trade accounts receivable from STM, net
|
|
$
|
|
|
|
$
|
111,682
|
|
Other current receivables from
STM(2)
|
|
|
1,622
|
|
|
|
13,200
|
|
Other long term receivable from
STM(1)
|
|
|
24,048
|
|
|
|
24,527
|
|
Accounts payable to
STM(3)
|
|
|
5,400
|
|
|
|
9,890
|
|
Other long term payable to
STM(4)
|
|
|
42,489
|
|
|
|
40,423
|
|
|
|
|
(1) |
|
The long term receivable from STM relates to the end of
employment fund in Italy (see Note 10, Other Investments
and Non-Current Assets). |
|
(2) |
|
Other current receivables from STM relate to non-trade
receivables. |
|
(3) |
|
Accounts payable to STM relate to Transition Services Agreements
fees and the Cost Sharing Arrangement in Italy. |
|
(4) |
|
The long term payable to STM relates to a tax refund in Italy
(see Note 10, Other Investments and Non-Current
Assets and Note 15, Other Non Current
Liabilities. |
In addition, as detailed in Note 14 Long Term Debt
and Debt Obligations to Related Parties, STM holds a
long-term loan note from Numonyx, valued at $155.6 million
plus accrued interest of $26.9 million at the balance sheet
date. The loan note is split into a short term element of
$78 million, and a long term element of
$104.5 million. STM also acted as guarantor, in conjunction
with Intel, of the bank loan obtained by Numonyx upon formation.
The fair value of the benefit of this guarantee is recorded
within Intangible Assets, Net.
Francisco
Partners:
As described in Note 1, The Company, upon
formation of Numonyx on March 30, 2008, FP contributed
$150 million in cash in exchange for preference shares
representing a 6.3% equity interest in the newly formed Company,
and a long-term loan note valued at $19.1 million, which is
classified within debt obligations to related parties on the
consolidated balance sheet. As at December 31, 2009,
accrued interest on the loan note totaled $3.3 million.
Hynix
Numonyx Semiconductor Ltd.:
As described in Note 3, Equity Investments, STM
contributed their interest in a venture with Hynix Semiconductor
upon formation of Numonyx.
Transactions
during the year ended December 31, 2009 and period ended
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Purchases of semi-finished product
|
|
$
|
268,000
|
|
|
$
|
77,470
|
|
Balances
as at December 31,2009 and December 31,2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Payments for additional equity interest
|
|
$
|
100,000
|
|
|
$
|
50,000
|
|
Accounts payable to Hynix Numonyx Semiconductor Ltd.
|
|
|
22,680
|
|
|
|
9,635
|
|
Other accrued liabilities to Hynix Numonyx Semiconductor Ltd
|
|
|
11,113
|
|
|
|
4,053
|
|
F-110
NUMONYX
HOLDINGS B.V.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
On February 9, 2010, the Company entered into a definitive
agreement with Micron Technology Inc. under which Micron has
agreed to purchase the entire share capital of Numonyx in
exchange for a minimum of 140 million Micron common shares.
An additional 10 million common shares may be payable to
Numonyx shareholders to the extent the volume weighted average
price of Micron shares for the 20 trading days, ending two days
prior to the close of the transaction, ranges between $7.00 and
$9.00 per share. As part of deal closing, the long term related
party loan notes will also be cancelled via a capital
contribution. The transaction is subject to regulatory review
and other customer closing conditions and is currently
anticipated to close within 4 to 6 months of the date this
definitive agreement was signed.
F-111
STMICROELECTRONICS
N.V.
VALUATION
AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Charged to
|
|
|
|
Balance
|
Valuation and Qualifying Accounts Deducted
|
|
Beginning
|
|
Translation
|
|
Costs and
|
|
Additions/
|
|
at End of
|
From the Related Asset Accounts
|
|
of Period
|
|
Adjustment
|
|
Expenses
|
|
(Deductions)
|
|
Period
|
|
|
(Currencymillions of U.S. dollars)
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
72
|
|
|
|
|
|
|
|
102
|
|
|
|
(124
|
)
|
|
|
50
|
|
Accounts Receivable
|
|
|
25
|
|
|
|
|
|
|
|
2
|
|
|
|
(8
|
)
|
|
|
19
|
|
Deferred Tax Assets
|
|
|
1,283
|
|
|
|
6
|
|
|
|
79
|
|
|
|
(31
|
)
|
|
|
1,337
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
39
|
|
|
|
|
|
|
|
108
|
|
|
|
(75
|
)
|
|
|
72
|
|
Accounts Receivable
|
|
|
21
|
|
|
|
|
|
|
|
1
|
|
|
|
3
|
|
|
|
25
|
|
Deferred Tax Assets
|
|
|
1,123
|
|
|
|
(6
|
)
|
|
|
170
|
|
|
|
(4
|
)
|
|
|
1,283
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
47
|
|
|
|
|
|
|
|
72
|
|
|
|
(80
|
)
|
|
|
39
|
|
Accounts Receivable
|
|
|
31
|
|
|
|
|
|
|
|
1
|
|
|
|
(11
|
)
|
|
|
21
|
|
Deferred Tax Assets
|
|
|
1,039
|
|
|
|
6
|
|
|
|
79
|
|
|
|
(1
|
)
|
|
|
1,123
|
|
S-1