STMICROELECTRONICS
N.V.
ANNUAL
REPORT 2008
In
accordance with new statutory provisions, the sole member of the Managing Board
and the Chief Financial Officer of STMicroelectronics state that to the best of
their knowledge:
1.
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the
annual financial statements, as shown on pages 56 to 173 of this report
provide a true and fair view of the assets, liabilities, financial
position and result for the 2008 financial year of STMicroelectronics and
its subsidiaries included in the consolidated
statements;
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2.
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the
annual report, as shown on pages 7 to 173 of this report provides a true
and fair view of the state of affairs as at the balance sheet date and the
course of events during the 2008 financial year of STMicroelectronics and
its subsidiaries, details of which are included in the financial
statements; furthermore, the annual report provides information on any
material risks to which STMicroelectronics is
exposed.
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Carlo
Bozotti,
Sole
member of the Managing Board,
President
and Chief Executive Officer
2008
Annual Report of STMicroelectronics N.V.
This 2008
statutory annual report is been approved and duly signed on April 15 2009 for
presentation to the STMicroelectronics N.V. 2009 Annual General Meeting of
shareholders by:
THE
MANAGING BOARD
Carlo
Bozotti (President and Chief Executive Officer)
--------------------------------
Carlo
Ferro (Executive Vice President, Chief Financial Officer)
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THE
SUPERVISORY BOARD
Antonino
Turicchi (Chairman – reappointed as Chairman of the Supervisory Board on May 20,
2008)
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Gérald
Arbola (Vice Chairman)
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Raymond
Bingham
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Douglas
Dunn
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Didier
Lamouche
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Didier
Lombard
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Alessandro
Ovi
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Bruno
Steve
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Tom de
Waard
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Matteo
del Fante (Resigned from the Supervisory Board member on May
20,2008)
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2008
Annual Report of STMicroelectronics N.V.
Table
of contents1
Message
from the President
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5
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1. Corporate overview
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7
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1.1. History & development of
STMicroelectronics
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7
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1.2. Strategy &
objectives
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7
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1.3. Organization
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7
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1.4 Activities / product
range
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7
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1.5 Sales & marketing
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8
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1.6 Research &
Development
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8
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1.7 Sustainable Excellence
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8
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2. Report of the Managing
Board
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9
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2.1 General
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9
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2.2. Business overview &
performance
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9
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2.3 Risk management and internal
control
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31
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2.4 Decree article 10
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34
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3. Report of the supervisory
board
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41
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3.1. General
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41
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3.2. Composition of the Supervisory Board and its
committees
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41
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3.3. Meetings and activities of the Supervisory
Board
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42
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3.4 Supervisory Board
Committees
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46
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3.5. Supervisory Board
compensation
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50
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3.6.
Financial statements
2008
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50
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3.7.
Resolutions submitted to the AGM
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51
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4. Corporate Governance
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52
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5. Financial Statements
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56
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5.1.
Consolidated Financial statements
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57
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5.2.
Notes to the consolidated statement
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61
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6.
Other information
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174
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6.1.Auditor’s
report
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176
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7.
Important dates
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178
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8.
Glossary
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179
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1 The
director's report constitutes sections 1, 2 and 4 of this
report
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2008
Annual Report of STMicroelectronics N.V.
Message
from the President and CEO on the financial year 2008
Dear
Shareholder,
2008 was
a very challenging year for finance and industry worldwide. It was also a
challenging year for STMicroelectronics, as we were confronted with three
different - though somehow interconnected - crises.
We first
had to face the financial crisis which significantly slowed down the creation of
Numonyx, our flash-memory joint venture with Intel.
Then we
were confronted with the currency crisis, which for several months brought the
exchange rate between the European currency and the dollar to oscillate between
1.55 and 1.6. The very strong euro has shadowed the improvements we have made in
our operating performance, as on average the dollar deteriorated by about 20%
since 2006.
And then,
in the last part of the year, the global economic crisis – probably the most
dramatic one since the deep Depression of 1929 - hit us and the whole of the
semiconductor industry.
Within
this difficult context, 2008 was for STMicroelectronics a year of intense
achievements and of important strategic reshaping of STMicroelectronics, as we
focused our resources and investments in power applications and multimedia
convergence with wireless and digital consumer:
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·
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First
of all, thanks to a stronger product portfolio, our organic market share
gain was rather significant. Basically, the market that we serve grew
2.5%; organically we grew 5%, therefore twice as fast as the market. And
if we include the wireless business acquired from NXP our growth was as
high as 10%. Consequently, we estimate we are approaching a record level
of market share.
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·
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Second,
we concluded the de-consolidation of our flash-memory business, and made
giant steps in the consolidation of wireless business, moving towards the
creation of a true world leader in semiconductors and platforms for mobile
applications, first with the ST-NXP Wireless joint venture and, later on,
with the inclusion of Ericsson’s EMP
business.
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·
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Third, we moved further
on to an asset lighter configuration as we concluded the year, as
announced, with a 10% capital expenditure to sales ratio for fiscal year
2008.
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·
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And
fourth, we focused on cash generation, closing 2008 with 659 million
dollars net operating cash-flow before
acquisitions.
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Let me
add a note on the 2008 bottom line. Including flash memories before
deconsolidation, and the newly acquired NXP Wireless business, net revenues were
$9,84 billions, and we reported a net loss of 58 cents of a dollar per share.
However, looking closer into these numbers, we can see that because of
acquisitions and the creation of new joint ventures, our bottom line was
impacted by in-process R&D costs and impairment charges on tangible,
intangible and financial assets and on Numonyx equity investment. We estimate
that earnings per share, clean of those one-time or non-operating items and net
of tax, were actually equal to 40 cents in 2008.
2008
Annual Report of STMicroelectronics N.V.
Turning
to 2009, we have four key priorities for STMicroelectronics:
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·
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First,
2009 will be a year focused on improving our competitiveness as we execute
on the integration of the three components of the wireless joint venture
with Ericsson Mobile Platforms.
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·
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Second,
while we are working on re-modelling and resizing STMicroelectronics to
the new level of demand, we are targeting to reduce our costs by over $700
million in 2009 in respect to STMicroelectronics’s fourth quarter 2008
cost base. The actions are a combination of the ongoing restructuring
initiatives and additional programs, focused on resizing
STMicroelectronics’s manufacturing operations and streamlining expenses,
are being launched in January of this year. And I am afraid that this move
will unfortunately affect about 4,500 net jobs worldwide in 2009. It’s
always sad to take such decisions, but in the present extremely tough
market conditions, the management’s priority must be that of safeguarding
the competitiveness and long term viability of
STMicroelectronics.
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·
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Third,
we continue to advance our lighter asset strategy focused on careful
management of our capital investments. As a result, we have set a capex
budget of about $500 million for 2009, representing a 50% reduction in
comparison to 2008.
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·
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And
fourth, thanks to our strong and consistent investment in our product
portfolio we are in a solid position to provide innovative products that
will continue our momentum, driving STMicroelectronics to gain market
share also in 2009, just as we did in 2008. As you know, we see two major
blocks for STMicroelectronics as our domains for excellence: power
applications around industrial and power conversion and multimedia
convergence. Our goal is to maintain or increase our leadership
position in all those areas.
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Summing
it up, let me conclude by stating that this is a very difficult time for
individuals, companies and markets, as the global economy appears to be
resetting itself in a very compressed period of time. Nonetheless,
environments such as these also present opportunities. Looking at
STMicroelectronics, we have a number of strengths. First, we have a solid
balance sheet, a good credit rating and flexible funding
alternatives. Second, over the course of the last three years we have
significantly strengthened our product portfolio, leading to a record market
share.
Third, we
have made major advances in the overhaul of our cost structure and today we have
articulated a cost savings program of $700 million that will take effect in
2009.
I believe
that we, at STMicroelectronics, have made the right strategic choices and are
correctly executing on them. I also believe that, as we started our
restructuring process ahead of the severe economic downturn, we have a good
momentum in place and are well positioned, relatively to the overall industry
situation, in 2009. We are determined to take all of the appropriate initiatives
required to face the new challenges we are confronted with. And therefore, I am
confident we are correctly positioned to be among the companies that will emerge
from the downturn in a better competitive position than before.
Carlo
Bozotti
Sole
member of the Managing Board
President
and CEO
2008 Annual Report of
STMicroelectronics N.V.
1. Corporate overview
1.1.
History and development of STMicroelectronics
STMicroelectronics
N.V. (“STMicroelectronics”, “ST” or “STMicroelectronics”) is 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. According to the latest data from iSuppli,
STMicroelectronics is the world’s fifth largest semiconductor company and the
number one supplier of semiconductors for the industrial market,
application-specific analog chips and power conversion devices.
STMicroelectronics
was created in 1987 by the merger of SGS Microelettronica of Italy and Thomson
Semiconducteurs of France. STMicroelectronics totals more than 50,000 employees,
16 advanced R&D units, 39 design and application centers, 15 main
manufacturing sites and 78 sales offices in 36 countries.
We have
our corporate legal seat in The Netherlands. Our corporate headquarters and the
headquarters for Europe, the Middle East and Africa (EMEA) are seated in Geneva.
The U.S. Headquarters are in Carrollton (Texas), Asia-Pacific is in Singapore,
the Japanese operations in Tokyo and the ‘Greater China’ region is headquartered
in Shanghai. Our shares are traded on the New York Stock Exchange, on Euronext
Paris and on the Milan Stock Exchange.
1.2.
Strategy & objectives
The
current economic environment has been severe, marked by a strong decline in
demand for the semiconductor products declining sales, unsaturation of our
production capacities and reduced visibility on market trands. In this difficult
environment, we are focusing on maintaining and seeking to enhance our market
share through the development of new products and by targeting new customers and
sockets and increasing the loading of our fabs. In addition to the volatility in
the global economic environment, the semiconductor indutry continues to undergo
several significant structural changes. Our strategy within this challenging
environment is designed to focus on the following complementary key elements:
broad, balanced market exposure, product innovation, customer-based initiatives,
a global integrated manufacturing infrastructure, reduced asset intensity,
research and development partnerships, integrated presence in key regional
markets, product quality excellence, sustainable excellence and compliance and
creating shareholder value.
1.3.
Organizational structure
STMicroelectronics
is a multinational group of wholly controlled companies with management
organized in a matrix structure with geographical regions interacting with
product divisions, and both being supported by central functions. The objective
is to bring all levels of management closer to the customer and to facilitate
communication among research and development, production, marketing and sales
organizations.
While
STMicroelectronics N.V. is the parent company, we also conduct our operations
through our subsidiaries, which are organized and operated according to the laws
of their country of incorporation, and consolidated by our company. 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.
In 2008, we also entered into a major Flash Memory Joint Venture, Numonyx, in
which we hold 48.6% as well as into a Wireless Joint Venture, ST-NXP Wireless,
in which during 2008 we held 80%.
2008
Annual Report of STMicroelectronics N.V.
1.4
Products and activities
STMicroelectronics
produces one of the industry’s broadest ranges of semiconductor products, from
discrete diodes and transistors through complex System-on-chips (SoC) devices to
complete platform solutions that bundle chips with reference designs,
application software, and manufacturing tools and specifications. Our products
are manufactured and designed using a broad range of manufacturing processes and
proprietary design methods for a wide range of microelectronic
applications, including automotive products, computer peripherals,
telecommunications systems, consumer products, industrial automation and control
systems.
1.5
Sales
In 2008,
we operated regional sales organizations in Europe, North America, Asia Pacific,
Greater China, Japan, and Emerging Markets, which include Latin America, the
Middle East and Africa, Europe (non-EU and non-EFTA), Russia and India. As of
January 1, 2009, the Emerging Markets organization has been merged into our
Europe, North America and Asia Pacific organizations.
1.6
Research & Development
STMicroelectronics
has maintained an unwavering commitment to R&D and is one of the industry’s
most innovative companies. We believe that both Product & Technology and
research and development are critical to our success and therefore we spend a
major part of our revenues in R&D. The main challenge that we face is to
continually increase the functionality, speed and cost-effectiveness of our
semiconductor device, 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 partners, such as, among others, leading
universities and research institutions, certain competitors, key customers and
global equipment manufacturers. More information about our R&D activities
can be read in chapter 2.3 Business Overview & performance in the Report of
the Managing Board.
1.7
Sustainable Excellence
STMicroelectronics
was one of the first global industrial companies to recognize the importance of
environmental responsibility, its initial efforts beginning in the early 1990s.
Since then we have made outstanding progress. For example: energy and water
consumption per product unit have been reduced by 5% and 9% per year,
respectively since 1994. CO2 emissions have been reduced by 61% over the same
timescale. In 2006 and 2007 we achieved absolute reductions in CO2 emissions
despite increased production volumes. Over the past 15 years, our sites have
received more than 100 awards for excellence in all areas of Corporate
Responsibility, from quality to corporate governance, social issues and
environmental protection.
STMicroelectronics
is a member of the key sustainability indices DJSI (Dow Jones Sustainability
Index), FTSE4Good and ASPI (Advanced Sustainability Performance Index). Our
corporate responsibility policy is detailed in our Principles for Sustainable
Excellence, while our performance in terms of economic, social, environment,
health & safety, product responsibility and supply chain issues are reported
in detail in our annual Corporate Responsibility Report.
2008
Annual Report of STMicroelectronics N.V.
2.
Report of the Managing Board
2.1
General
In
accordance with Dutch law, our management is entrusted to the Managing Board
under the supervision of our Supervisory Board. Mr. Carlo Bozotti, sole member
of the Managing Board and President and Chief Executive Officer, was
re-appointed in 2008 for a three-year term to expire at the end of our Annual
Shareholders’ Meeting in 2011. Mr. Carlo Ferro, Chief Financial Officer and Mr.
Alain Dutheil, Chief Operating Officer, report to Mr. Bozotti.
2.2.
Business overview & performance
Full
Year 2008 results highlights
2008 was
marked by two major transactions which impacted our organization and
operations:
In the
field of flash memories, we created on March 30, 2008 an independent
semiconductor Flash Memory Company called Numonyx BV (“Numonyx”) in which we
hold 48.6% of the shares, Intel owns 45.1% of the shares, and Francisco Partners
the remaining 6.3%.
In the
field of wireless communication products, we have created as of August 2, 2008 a
new Wireless Product Sector resulting from the combination of our wireless
business with the wireless business of NXP Semiconductors in a joint venture
ST-NXP Wireless, in which we held 80% and NXP-Semiconductors 20% until February
1st,
2009. On August 20th, 2008
we announced an agreement with Ericsson for the combination of Ericsson Mobile
Platforms (EMP) business with ST-NXP Wireless in a 50/50 joint venture between
ST and Ericsson named “ST-Ericsson” which began operations effective February
1st,
2009
Our 2008
net revenues decreased 1.6% due to the deconsolidation of the Flash Memory Group
(FMG) at the end of the first quarter of 2008, following the creation of Numonyx
and 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 SAM’s performance.
Such growth was due, in particular, to an improved product mix and, partially,
to an increase in units sold.
Our gross
profit was slightly declining in 2008 compared to 2007 due to the lower
revenues, the significant negative impact of the U.S. dollar exchange rate, the
charges associated with unused capacity in our fabs and the inventory step-up
one-time charge related to the purchase accounting for the NXP wireless
business. However, excluding the inventory step-up one time charge, our gross
margin improved to 34.2% of net revenues compared to 33.0% in 2007.
Our
selling, general and administrative expenses increased by approximately 11%
mainly due to the impact of the weakening U.S. dollar exchange rate and the
additional expenses originated by the increased activities following the recent
acquisitions. In 2008, such expenses included $37 million for share-based
compensation, which was the same amount we had registered in 2007, and the
amortization of some intangible assets related to acquisitions.
Our
research and development expenses increased approximately 19% for several
reasons, mostly due to 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.
2008
Annual Report of STMicroelectronics N.V.
Research
and development expenses in 2008 also included $24 million of share-based
compensation charges, compared to $22 million in 2007. In 2008, however, we
benefited from $117 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 research and development expenses but
considered as ‘Other income’ in the Consolidated Statements of
Income.
Our
operating result significantly improved compared to 2007 moving from a loss to
an operating profit, primarily due to lower impairment charges and improved
business and operating performances during the period, despite the significant
negative impact of fluctuations in the U.S. dollar exchange rate. 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 $105 million
originated by the FMG assets disposal, while in 2007 they were $1,167 million
still mainly related to FMG assets disposal.
As of
December 31, 2008, we had Auction Rate Securities, representing interests in
collateralized obligations and credit linked notes, with a par value of $415
million that were carried on our balance sheet as available-for-sale financial
assets at an amount of $242 million after having recognized other than temporary
impairment charges. We have launched a legal action against Credit Suisse
Securities LLC seeking to reverse the unauthorized purchases of such Auction
Rate Securities and recover our losses including but not limited to the $173
impairment posted through December 31 2008.
In 2008
we registered a loss on equity investments related to our Numonyx investment,
which was comprised of $485 million as an impairment of our Numonyx evaluation
and $60 million as an equity loss related to our share of the Numonyx loss that
was recognized by us in the third and fourth quarters with 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 Numonyx’s 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.
In 2008,
we reported a net loss of $518 million, compared to a net loss of $433 million
in 2007. The net loss attributable to the Equity holders of STMicroelectronics
was $ 519 million, comparable to $ 439 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 $(0.58) compared to $(0.49) in
the prior year. The total impairment, restructuring charges and other specific
items accounted for an approximate $(1.27) 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.
2008
Annual Report of STMicroelectronics N.V.
2008 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. According to provisional industry data published
by iSuppli, we have been ranked the world’s fifth largest semiconductor company
based on forecasted 2008 total market sales and we held leading positions in
sales of Analog Products and Application Specific Integrated Circuits (or
“ASICs”). Based on provisional 2008 results published by iSuppli, we believe we
were ranked number one in industrial products, number two in analog products and
number three in wireless and automotive electronics. Based on most recent
industry results, we also believe we ranked as a leading supplier of
semiconductors in 2008 for consumer and portable applications of motion-sensing
chips (“MEMS”), set-top boxes, power management devices and for the inkjet
printer market. Our major customers include Bosch, Cisco, Continental, Delphi,
Delta, Garmin, Hewlett-Packard, LG Electronics, Nagra, Nintendo, Nokia, Philips,
Research in Motion, Samsung, Seagate, Sharp, Siemens, Sony Ericsson, Thomson and
Western Digital. We also sell our products through distributors and retailers,
including Arrow Electronics, Avnet, Future Electronics, Rutronik, and
Yosun.
The total
available market for semiconductor industry 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 (“MPU”), dynamic random access memories
(“DRAM”), optoelectronics devices and Flash Memories).
In 2008,
the semiconductor industry was negatively impacted by the difficult conditions
in the global economy, which resulted in a sharp downturn that started in the
beginning of the second half and further accelerated in the last quarter. These
deteriorated conditions caused the TAM to decline in 2008 compared to the
previous year, while the SAM registered low-digit growth overall, with a
significantly negative performance in the last quarter of 2008.
Based
upon recently published industry data by the World Semiconductor Trade
Statistics (“WSTS”), the TAM was $249 billion, a decline of 2.8% compared to the
previous year. The SAM reached $155 billion, which translated into an increase
of 2.5% year-over-year.
Our
revenues as reported in 2008 were $9,842 million, a decline of 1.6% over 2007.
Excluding the Flash segment and revenues from the recently consolidated NXP
wireless business, our growth in revenues was 4.8%, which was significantly
above the growth of the TAM and the comparable SAM. This performance reflected
double digit or high single digit growth rates in all main market applications
except for Computer, which experienced more moderate growth, and Automotive,
which declined on a year-over-year basis.
In 2008,
our effective exchange rate was $1.49 for €1.00, which reflects actual exchange
rate levels and the impact of cash flow hedging contracts, compared to an
effective exchange rate of $1.35 for €1.00 in 2007. In the fourth quarter of
2008 our effective exchange rate was $1.40 for €1.00, while in the third quarter
of 2008 and in the fourth quarter of 2007 our effective exchange rate was $1.54
and $1.43, respectively, for €1.00.
Our gross
margin as reported for the fiscal year 2008 increased with 50 basis points to
33.1%, mainly driven by the repositioning of our product portfolio (i.e., Flash
deconsolidation and the consolidation of the NXP wireless business) and an
overall improvement in our manufacturing performance. Our gross margin, however,
was negatively impacted by $110 million related to the fair-value step-up
adjustment required in the purchase accounting of the newly acquired NXP
wireless business inventory. Excluding such one-time item, the 2008 gross margin
would have increased to 34.2% of revenues.
2008
Annual Report of STMicroelectronics N.V.
Furthermore,
our 2008 gross margin was affected by currency fluctuations, which negatively
impacted our results by approximately 160 basis points, and significant
underutilization charges registered in the last quarter of the
year.
Our
operating expenses, comprising selling, general and administrative expenses as
well as research and development, increased in 2008 compared to 2007 due to the
increased activities associated with the recent acquisitions and the
significantly unfavorable U.S. dollar exchange rate and recent acquisitions. Our
R&D expenses in 2008 were net of $117 million of tax credits associated with
our ongoing programs following the amendment of a law in one of our
jurisdictions where these credits have been directly related to the amount of
the expenses. In 2007, similar credits were registered as Other
income.
In 2008,
we continued certain ongoing restructuring activities and also implemented new
headcount reduction programs to streamline our structure in light of the current
adverse market conditions. This resulted in a total impairment and restructuring
charges for the year 2008 of approximately $367 million, which included a cost
of $ 199 million in cost of sales related to our manufacturing programs, a cost
of $ 33 million and $ 31 million in SG&A and R&D respectively related to
our headcount reduction plans and a cost of $105 million in connection with the
FMG deal closure and changes in certain terms of the transaction.
Our Other
income in 2008 was supported by a favorable result in our currency exchange
transactions and by the fundings to our research and development activities;
Other expenses improved in 2008 mainly due to lower start-up costs.
Our as
reported operating result in 2008 was a profit of $139 million compared to a
loss of $406 million in 2007. In both years, our operating result was largely
impacted by impairment, restructuring charges and other related closure costs,
as well as specific one-time charges in 2008 associated with the purchase
accounting for our acquisitions. In 2008, excluding such factors, which were
booked for $105 million as impairment and
restructuring charges and $110 million as inventory step-up in cost of sales,
our operating performance would have been equivalent to a pro forma profit of
$354 million. (For more information on our pro forma performance, see Item 5
“2008 vs. 2007 - Operating loss” below). In 2007, the equivalent operating pro
forma profit, which also excluded one-time elements, would have been $840
million. The decrease in revenues and the material negative impact of the
weakening U.S. dollar exchange rate were the main contributors to such a
negative operating result.
The
valuation of the fair value of our Auction Rate Securities – purchased for our
account by Credit Suisse Securities LLC contrary to our instruction – required
recording an other-than-temporary impairment charge of $127 million in 2008,
bringing the total impairment on such Auction rate securities to $242 million at
the end of 2008.
In 2008
we have launched a legal action against Credit Suisse Securities LLC (Credit
Suisse), and on February 16, 2009 the arbitration panel of the Financial
Industry Regulatory Authority (“FINRA”) awarded us approximately $406 million
comprising compensatory damages as well as interests, attorneys’ fees and
authorized us to retain interest of approximately $25 million that has already
been paid. We have petitioned the United States court for the Southern District
of New York seeking enforcement of the award. Credit Suisse is contesting this
request. At collection of the payment we will transfer ownership of our
unauthorized auction rate securities to Credit Suisse. In addition, we recorded
a $11 million impairment on a Floating Rate Note issued by Lehman Brothers
following its Chapter 11 filing on September 15, 2008, whose recoverability has
been estimated at half the nominal value.
2008 Annual Report of
STMicroelectronics N.V.
Finance
income decreased slightly from $155 million as at December 31, 2007 to $145
million as at December 31, 2008 as a consequence of a decline in our available
cash and cash equivalents due to the payment of approximately $1.7 billion
related to the acquisition of NXP wireless and Genesis, in addition to less
interest income received on our financial resources as a result of significantly
lower U.S. dollar and Euro denominated interest rates compared to 2007.
Furthermore, our Finance costs were increasing due to some additional long term
debt proceeds.
In 2008,
due to the deterioration of both the global economic situation and the Memory
market segment, as well as the actual and projected results in our Numonyx
memory joint venture, we assessed the fair value of our investment and recorded
a $485 million other-than-temporary impairment charge on the line Earnings
(loss) on equity investment in associates in the consolidated statements of
income. 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 applied to Numonyx’s current and projected revenues
and EBITDA. In addition, in 2008 we registered a $60 million equity loss related
to our proportional stake in Numonyx.
In
summary, our profitability during 2008 was negatively impacted by the following
factors:
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The
negative pricing trend;
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-
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The
additional impairment and other restructuring charges related to our
ongoing programs;
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The
impairment loss recorded on our equity investment in
Numonyx;
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The
weakening of the U.S. dollar exchange
rate;
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The
one-time items related to the purchase accounting for acquisitions;
and
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The
other-than-temporary loss on financial
assets.
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The
factors above were partially offset by the following favorable
elements:
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Our
improved product mix, which contributed to our revenues;
and
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The
improvements in our manufacturing
performance.
|
2008 was
a critically important year for advancing the repositioning of our product
portfolio, with our resources and investments focused on power applications and
multi-media convergence with wireless and digital consumer.
For full
year 2008, we made significant progress as we gained market share with a strong
product portfolio, approaching a record level.
We also
generated net operating cash flow of $161 million for the fourth quarter of 2008
and $1,955 million for the full year, excluding payments for mergers and
acquisitions transactions. As a result, despite a more difficult market
environment, we maintain our objective to finish 2008 with a solid financial
position.
2008
Annual Report of STMicroelectronics N.V.
Product
segment reorganization
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. As of August 2, 2008, following the acquisition of the NXP wireless
business, our product families comprised differentiated application-specific
products (which we define as being our dedicated analog, mixed-signal and
digital ASIC and Application Specific Standard Products (“ASSP”) offerings and
semi-custom devices) that we organized under our Automotive, Consumer, Computer
and Telecom Infrastructure Product Groups (“ACCI”) and Wireless Products Sector
(“WPS”) and power devices, microcontrollers, discrete products, special
nonvolatile memory and Smartcard products organized under our Industrial and
Multi-segment Products Sector (“IMS”). Our ACCI and WPS products, which are
generally less vulnerable to market cycles than standard commodity products,
accounted for 42.0% and 20.6% of our reported net revenues in 2008,
respectively. Our IMS product accounted for 33.8% of our reported net revenues
in 2008, while sales of our deconsolidated FMG products, which occurred in Q1
2008 prior to the contribution of our Flash Memory business to Numonyx,
accounted for 3.0% of our reported net revenues in 2008.
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 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 intellectual property portfolio that
we also use to enter into broad patent cross-licensing agreements with other
major semiconductor companies.
Beginning
on January 1, 2007, and until August 2, 2008, we reported our semiconductor
sales and operating income in the following product segments:
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Application
Specific Groups (“ASG”), comprised of four product lines: Home
Entertainment & Displays Group (“HED”), Mobile, Multi-media &
Communications Group (“MMC”), Automotive Products (“APG”) and Computer
Peripherals (“CPG”);
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Industrial
and Multi-segment Sector (“IMS”), comprised of Analog, Power, and
Micro-Electro-Mechanical Systems (“APM”) segment, and Microcontrollers,
non-Flash, non-volatile Memory and Smartcard products;
and
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Flash
Memories Group (“FMG”). As of March 31, 2008, following the creation with
Intel and Francisco Partners of Numonyx, a new independent semiconductor
company from the key assets of our and Intel’s Flash memory business (“FMG
deconsolidation”), we ceased reporting under the FMG
segment.
|
2008 Annual Report of
STMicroelectronics N.V.
Starting
August 2, 2008, following the creation of ST-NXP, we reorganized our product
groups. A new segment called Wireless Product Sector (“WPS”) was created to
report wireless operations. The product line Mobile, Multi-media &
Communications Group (“MMC”), which was a part of the segment Application
Specific Groups (“ASG”) was abandoned and its divisions were reallocated to
different product lines. The remainder of ASG is now comprised of Automotive,
Consumer, Computer and Telecom Infrastructure Product Groups
(“ACCI”).
The new
organization is as follows:
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Automotive,
Consumer, Computer and Telecom Infrastructure Product Groups (“ACCI”),
comprised of three product lines:
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o
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Home
Entertainment & Displays (“HED”), which now includes the Imaging
division;
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o
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Automotive
Products Group (“APG”); and
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o
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Computer
and Communication Infrastructure (“CCI”), which now includes the
Communication Infrastructure
division.
|
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Industrial
and Multi-segment Products Sector (“IMS”), comprised
of:
|
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o
|
Analog,
Power and Micro-Electro-Mechanical Systems (“APM”);
and
|
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o
|
Micro,
non-Flash, non-volatile Memory and Smartcard products
(“MMS”).
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Wireless
Products Sector (“WPS”), comprised of three product
lines:
|
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o
|
Wireless
Multi Media (“WMM”);
|
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o
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Connectivity
& Peripherals (“C&P”); and
|
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o
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Cellular
Systems (“CS”).
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Our
principal investment and resource allocation decisions in the semiconductor
business area are for expenditures on technology research and development 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 research and development for process technology and manufacturing
capacity for most of their products.
2008 Annual Report of
STMicroelectronics N.V.
Strategy
Impacted
by the strong financial and economic difficulties affecting the global economic
environment, the semiconductor industry also 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 medical and technology
applications;
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the
importance of the Asia Pacific region, particularly China 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; and
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the
recent consolidation process, accelerated by current economic conditions,
which may lead to further strategic repositioning and reorganization
amongst industry players.
|
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, analog
and mixed-signal applications. Within our analog business, we have focused on
developing advanced analog products, which generally have long life cycles. 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, high definition DVDs,
high definition digital TVs, multi-media players and digital audio; (iv)
automotive, including engine, body and safety, car radio, car multi-media and
telematics; and (v) industrial and multi-segment products, including MEMS, power
supply, motor- control, lighting, 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 digital
consumer and car navigation; and (ii) power applications, which are driving
system solutions for customer specific applications.
2008 Annual Report of
STMicroelectronics N.V.
We have
the knowledge and financial resources to develop new, leading edge products,
such as digital base band and multi-media 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 biotech
applications.
In the
area of platform and Chipset solutions for wireless applications, in 2008 we
combined our wireless business with NXP’s to create ST-NXP Wireless and,
subsequently, combined that business with the Ericsson Mobile Platform business
to form a 50/50 joint venture, ST-Ericsson, which began operations on February
1, 2009.
Customer-based
initiatives
Our sales
strategy is to grow faster than the market. There are four tenets to this
strategy. 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,
Greater China and Japan, where we have launched important marketing
initiatives.
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.
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 10% of sales in 2008.
Our capital expenditure budget for 2009 is approximately $500 million,
representing a 50% reduction compared to 2008.
Research
and development partnership
The
semiconductor industry is increasingly characterized by higher costs and
technological risks involved in the research and development of state-of-the-art
processes. These higher costs and technological risks have driven us to enter
into cooperative partnerships, in particular for the development of basic CMOS
technology. From 2002 until December 2007, we cooperated with Freescale
Semiconductor and NXP Semiconductors under the Crolles2 Alliance to develop
process technology related to the deep submicron CMOS as well as to construct
and operate a twelve inch pilot line in Crolles. In 2008 we began cooperating
with IBM to develop the CMOS process technology for 32-nm and 22-nm
nodes.
2008
Annual Report of STMicroelectronics N.V.
Pursuing
our long lasting cooperation in Crolles with CEA Leti, we are also leading a
consortium of large companies and French government labs that will work under
the guise of a new R&D program, Nano 2012, whose purpose is to develop new
technologies for the creation and production of the next generation of embedded
circuits, as well as proprietary derivatives using advanced CMOS technology. For
such projects we plan to also benefit from funding provided by the French
Government pursuant to a program approved by the EU on January 28,
2009.
We remain
convinced that the shared R&D business development model contributes to the
fast acceleration of the semiconductor process technology development, and we
therefore remain committed to our strategy of forming alliances to reinforce
cooperation in the area of technology development. Furthermore, we are
continuing our development in the proprietary process technologies in order to
maintain our leadership in Smart Power, analog, discretes, MEMS and mixed signal
processes.
Integrated
presence in key regional markets
We have
sought to develop a competitive advantage by building an integrated presence in
each of the world’s economic zones that we target: Europe, Asia, China and
America. An integrated presence means having design and 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, Malta, Morocco, Singapore,
Philippines and China, 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
In 2008,
we continued our program focusing on sustainable excellence and compliance.
Ethics training deployed through all levels of our organizations is based on our
“Principles for Sustainable Excellence” (“PSE”) which requires us to integrate
and execute all of our business activities, focusing on our employees,
customers, shareholders and global business 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. In the
current economic environment, we are also focused on maintaining our financial
position.
2008 Annual Report of
STMicroelectronics N.V.
Sales, Marketing and
Distribution
In
2008, we operated regional sales organizations in Europe, North America, Asia
Pacific, Greater China, Japan, and Emerging Markets, which include Latin
America, the Middle East and Africa, Europe (non-EU and non-EFTA), Russia and
India. As of January 1, 2009, Emerging Markets has been reallocated to the
Europe, North America and Asia Pacific organizations.
The
European region is divided into seven business units: automotive, consumer and
computers, Smartcard, telecom, EMS, industrial, and distribution. Additionally,
for all products, we actively promote and support the sales through our sales
force, field application engineers, supply-chain management and
customer-service, and technical competence center for system-solutions, with
support functions provided locally.
In the
North America region, the sales and marketing team is organized into six
business units. They are headquartered near major centers of activity for either
a particular application or geographic region. Each regional business unit has a
sales force that specializes in the relevant business sector, providing local
customer service, market development and specialized application support for
differentiated system-oriented products. This structure allows us to monitor
emerging applications, to provide local design support, and to identify new
products for development in conjunction with the various product divisions as
well as to develop new markets and applications with our current product
portfolio.
In the
Asia Pacific region, the sales and marketing organization is managed from our
regional headquarters in Singapore and it is organized into seven business units
and central support functions. 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.
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.
We
believe that we were one of the leading semiconductor suppliers in China in
2008. The Greater China market is expected to grow faster than other regions in
the next few years according to industry analysts.
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 2008, our sales grew
by approximately 8% (43%, excluding FMG) in Japan, while the Japanese market
declined by 0.6%.
Our
Emerging Markets organization has included Latin America, the Middle East and
Africa, Europe (non-EU and non-EFTA) and Russia as well as our design and
software development centers in India and the Mediterranean area. As of January
1, 2009, Emerging Markets has been reallocated to the Europe, North America and
Asia Pacific organizations.
The sales
and marketing activities carried out by our regional sales organizations are
supported by the product marketing that is carried out by each product division,
which also include product development functions. This matrix system reinforces
our sales and marketing activities and our broader strategic objectives. We have
initiated a program to expand our customer base. This program’s key elements
include adding sales representatives, adding regional competence centers and new
generations of electronic tools for customer support.
2008
Annual Report of STMicroelectronics N.V.
Except
for Emerging Markets, each of our regional sales organizations operates
dedicated distribution organizations. To support the distribution network, we
operate logistic centers in Saint Genis, France; Phoenix, Arizona and
Singapore.
We also
use distributors and representatives to distribute our products around the
world.
Research
and Development in the area of new products
We believe that product research and development 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 research and development 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. The research
and development activities relating to new products are managed by the Product
Segments and consist mainly of design activities.
We
continue to make significant investments in R&D since we intend to increase
our focus on innovative product development. However, current economic
conditions may impair our ability to maintain our level of R&D investments.
Therefore, we may need to become more focused across our broad range of product
lines, and invest less in R&D to remain competitive in less performing
product lines that are not central to our strategy.
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.
Our
advanced R&D centers are strategically located around the world, including
in France (Crolles, Grenoble, Tours and Rousset), Italy (Agrate and Catania),
the United States (Phoenix, Carrollton, and San Diego), Canada (Ottawa), the
United Kingdom (Bristol and Edinburgh), Switzerland (Geneva), India (Greater
Noida and Bangalore), China (Beijing, Shenzhen and Shanghai), Singapore,
Netherlands (Nijmegen), Germany (Nurnberg) and Belgium (Zaventem).
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
Union’s IST (Information Society Technologies) programs.
Property, Plants and
Equipment
In
2008 we operated 17 main manufacturing sites around the world, including
Front-end manufacturing facilities which are wafer fabrication plants (fabs) and
back-end facilities which are assembly, packaging and final testing plants. 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 and customer demand. We had six
200-mm wafer production facilities in operation. Of these, three (at Crolles,
France; Agrate, Italy; and Catania, Italy) have full design capacity installed
as of December 31, 2008, and two Carrollton USA and Phoenix USA are in the
process of being closed down.
We own
all of our manufacturing facilities, except Crolles2 in France, which is the
subject of leases for the building shell and some equipment that represents
overall a small percentage of total assets.
2008
Annual Report of STMicroelectronics N.V.
Our
manufacturing processes are highly complex, require 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.
Our
existing capacity greatly exceeds current business demands as a result of the
ongoing industry downturn. There has been a severe under loading that has
resulted into unsaturation charges and cost inefficiencies despite our ongoing
measures to reduce the activity of the fabs. No assurance can be given that we
will be able to increase manufacturing efficiency in the future to the same
extent as in the past or that we will not experience production difficulties in
the future.
Finally,
so as to reduce our capital investment requirements, thereby decreasing the
burden of depreciation on our financial performance, as well as to address peaks
in demand we also rely on external contractors primarily for wafer manufacturing
services, but also for certain back end services. Any failure to perform by such
subcontractors could impact our relationship with our customers and could
materially affect our results of operations.
Intellectual
Property
Intellectual
property rights that apply to our various products include patents, copyrights,
trade secrets, trademarks and mask work rights (the two or three-dimensional
layout of an integrated circuit). Including patents owned by ST NXP Wireless but
excluding patents owned by Numonyx at the end of 2008, we owned close to 19,000
patents and pending patent applications which have been registered in several
countries around the world, and which correspond to more than 9,000 patent
families (each patent family containing all patents originating from the same
invention). We filed 554 new patent applications around the world in 2008
(including patent applications originating from Genesis, NXP and NXP-Wireless,
but excluding new patent applications transferred to Numonyx).
Our
success depends in part on our ability to obtain patents, licenses and other
intellectual property rights covering our products and their design and
manufacturing processes. 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 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.
We
believe that our intellectual property represents valuable assets and intends to
protect our investment in technology by enforcing all of our intellectual
property rights. We have used our patent portfolio to enter into several broad
patent cross- licenses with several major semiconductor companies. This enabled
us to design, manufacture and sell semiconductor products without fear of
infringing patents held by such companies. We intend to continue to use our
patent portfolio to enter into such patent cross-licensing agreements with
industry participants on favorable terms and conditions.
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.
Some may
have substantially greater financial and more focused resources than we do with
which to pursue engineering, manufacturing, marketing and distribution of their
products.
2008
Annual Report of STMicroelectronics N.V.
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.
Our main
competitors are: Analog Devices, Broadcom, Infineon Technologies, Intel,
International Rectifier, Fairchild Semiconductor, Freescale Semiconductor,
Linear Technology, LSI Logic, Marvell Technology Group, Maxim Integrated
Products, Microchip Technology, National Semiconductor, NEC Electronics, NXP
Semiconductors, ON Semiconductor, Qualcomm, Renesas, ROHM Semiconductor,
Samsung, Texas Instruments and Toshiba.
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. Our
ability to compete successfully depends on 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.
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, industrialization and the
economic development of underdeveloped regions. These programs are characterized
by direct partial support to research and development expenses or capital
investment or by low-interest financing.
Some of
our government funding contracts for research and development involve advance
payments that require us to justify our expenses after receipt of funds. Certain
specific contracts (Crolles2, Nano 2012, 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 (partial refund) if
these objectives are not fulfilled. Other contracts contain penalties for late
deliveries or for breach of contract, which may result in repayment obligations.
However, the obligation to repay such funding is never automatic.
In
France, we are also leading a consortium of large companies and French
government labs that will work under the guise of a new R&D program, Nano
2012, whose purpose is to develop new technologies for the creation and
production of the next generation of embedded circuits, as well as proprietary
derivatives using advanced CMOS technology.
The main
programs for R&D in which we are involved include: (i) the “Cluster for
Application and Technology Research in Europe on NanoElectronics” (“CATRENE”)
cooperative research and development program, which is the successor of MEDEA+;
(ii) EU research and development projects with FP6 and FP7 (Sixth and Seventh
Frame Program) for Information Technology; and (iii) national or regional
programs for research and development and for industrialization in the
electronics industries involving many companies and laboratories. The
pan-European programs cover a period of several years, while national or
regional programs in France and Italy are subject mostly to annual budget
appropriation.
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.”
2008
Annual Report of STMicroelectronics N.V.
Suppliers
We
use three main critical types of suppliers in our business:
1.
Equipment suppliers: 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. 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.
2. Raw
material suppliers: 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.
3.
External subcontractors: we also use external subcontractors to outsource wafer
manufacturing and assembly and testing of finished products.
Environmental
Matters
Our
manufacturing operations use many chemicals, gases and other hazardous
substances. Therefore we are subject to a variety of environmental, health and
safety regulations concerning 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 Principles for Sustainable Excellence, we have established proactive
environmental policies with respect to the handling of chemicals, gases,
emissions and waste disposals from our manufacturing operations. 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 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 ISO9001:2000 and with
the technical specification ISO/TS16949:2002. In addition, all 15 of our
manufacturing facilities have been certified to conform to the environmental
standard ISO14001, to the Eco Management and Audit Scheme (EMAS) and to the
Health and Safety standard OHSAS18001.
2008
Annual Report of STMicroelectronics N.V
2008
Key announcements
On
January 15, 2008, we announced that the following individuals had been appointed
as new executive officers, all reporting to President and Chief Executive
Officer Carlo Bozotti: Orio Bellezza, as Executive Vice President and General
Manager, Front-End Manufacturing; Jean-Marc Chery, as Executive Vice President
and Chief Technology Officer; Executive Vice President Andrea Cuomo, as
Executive Vice President and General Manager of our Europe Region, who also
maintains his responsibility for the Advanced System Technology organization
and, as of January 2009, is General Manager of Europe, the Middle East and
Africa; Loïc Lietar, as Corporate Vice President, Corporate Business
Development; Pierre Ollivier, as Corporate Vice President and General Counsel;
and Alisia Grenville as Corporate Vice President and Chief Compliance
Officer.
On
January 17, 2008, we acquired effective control of Genesis under the terms of a
tender offer announced on December 11, 2007. On January 25, 2008, we acquired
the remaining common shares of Genesis that had not been acquired through the
original tender by offering the right to receive the same $8.65 per share price
paid in the original tender offer. Payment of approximately $340 million for the
acquired shares was made through a wholly-owned subsidiary that was merged with
and into Genesis promptly thereafter. On closing, Genesis became part of our
Home Entertainment & Displays business activity which is part of the new
Automotive, Consumer, Computer and Telecom Infrastructure Product Groups
segment.
On March
30, 2008, we, together with Intel and Francisco Partners announced the closing
of our previously announced Numonyx joint venture. At the closing, we
contributed our flash memory assets and businesses in NOR and NAND, including
our Phase Change Memory (“PCM”) resources and NAND joint venture interest, to
Numonyx in exchange for a 48.6% equity ownership stake in common stock and
$155.6 million in long-term subordinated notes. These long-term notes yield
interest at appropriate market rates at inception. Intel contributed its NOR
assets and certain assets related to PCM resources, while Francisco Partners
L.P., a private equity firm, invested $150 million in cash. Intel and Francisco
Partners’ equity ownership interests in Numonyx are 45.1% in common shares and
6.3% in convertible preferred stock, respectively. The convertible stock of
Francisco Partners includes preferential payout rights. In addition, Intel and
Francisco Partners received long-term subordinated notes of $144.4 million and
$20.2 million, respectively.
In
liquidation events in which proceeds are insufficient to pay off the term loan,
revolving credit facility and the Francisco Partners’ preferential payout
rights, the subordinated notes will be deemed to have been retired. Also at the
closing, Numonyx entered into financing arrangements for a $450 million term
loan and a $100 million committed revolving credit facility from Intesa Sanpaolo
S.p.A. and Unicredit Banca d’Impresa S.p.A. The loans have a four-year term and
we and Intel have each granted in favor of Numonyx a 50% guarantee not joint and
several, for indebtedness. At closing of the transaction, Numonyx had a cash
position of about $585 million.
The
closing of the transaction also includes certain supply agreements and
transition service agreements for administrative functions between Numonyx and
us. The transition service agreements have terms up to one year with fixed
monthly or usage based payments. Numonyx’s cash position amounted approximately
to $500 million as at December 31, 2008.
On April
10, 2008, we announced our agreement with NXP, an independent semiconductor
company founded by Philips, to combine our respective key wireless operations to
form a joint venture company with strong relationships with all major handset
manufacturers. The new company is intended, through its scale, to better meet
customer needs in 2G, 2.5G, 3G, multi-media, connectivity and all future
wireless technologies. The transaction closed on July 28, 2008 and the joint
venture company, which is named ST-NXP Wireless, started operations on August 2,
2008.
2008
Annual Report of STMicroelectronics N.V.
At
closing, 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 our wireless
business. As at December 31, 2008, NXP owned a 20% interest in the venture;
however, we and NXP agreed on a future exit mechanism for NXP’s interest, which
involved put and call options based on the financial results of the business
that was exercisable prior to the closing of our agreement with Ericsson,
announced on August 20, 2008, to establish ST-Ericsson, as we had the right to
an accelerated call, which we exercised in the first quarter of 2009 for $92
million.
At our
annual general meeting of shareholders held on May 14, 2008, our shareholders
adopted, inter alia,
the following resolutions upon the proposal of our Supervisory
Board:
|
-
|
The
reappointment for a three-year term, expiring at the end of our 2011
Annual General Meeting of Shareholders, of Carlo Bozotti as the sole
member of the Managing Board and STMicroelectronics’s President and Chief
Executive Officer;
|
|
-
|
The
reappointment for a three-year term, expiring at the end of our 2011
Annual General Meeting of Shareholders, for the following members of the
Supervisory Board: Mr. Gérald Arbola, Mr. Tom de Waard, Mr. Didier Lombard
and Mr. Bruno Steve;
|
|
-
|
The
appointment for a three-year term, expiring at the end of our 2011 Annual
General Meeting of Shareholders, as a member of the Supervisory Board of
Mr. Antonino Turicchi;
|
|
-
|
The
distribution of a cash dividend of $0.36 per share, paid in four equal
quarterly installments to shareholders of record in the month of each
quarterly payment (our shares traded ex-dividend on May 19, 2008, August
18, 2008, November 24, 2008 and February 23, 2009;
and
|
|
-
|
Authorization
for 18 months to repurchase up to 10% of our issued share capital under
certain limitations and in accordance with applicable
law.
|
|
-
|
The
reappointment for a two-year term, expiring at the end of our 2010 Annual
General Meeting of Shareholders, of PricewaterhouseCoopers Accountants
N.V. as our external auditors.
|
On August
20, 2008, we announced our agreement to merge ST-NXP Wireless into a 50/50 joint
venture with EMP, and on February 3, 2009, the transaction closed. The joint
venture begins as a major supplier to four of the industry’s top five handset
manufacturers, who together represent about 80% of global handset shipments, as
well as to other exciting industry leaders. Ericsson contributed $1.1 billion
net to the joint venture, out of which $0.7 billion was paid to us. Prior to the
closing of the transaction, we exercised our option to buy out NXP’s 20%
ownership stake of ST-NXP Wireless. Alain Dutheil, presently CEO of ST-NXP
Wireless and our Chief Operating Officer, leads the joint venture as President
and Chief Executive Officer. Governance is balanced. Each parent appoints four
directors to the board with Carl-Henric Svanberg, President and CEO of Ericsson,
as the Chairman of the Board and Carlo Bozotti, our President and CEO, as the
Vice Chairman. Employing about 8,000 people - roughly 3,000 from Ericsson and
approximately 5,000 from us - the new global leader in wireless technologies is
headquartered in Geneva, Switzerland.
On
February 16, 2009, we 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 us, in connection with sales of
unauthorized auction rate securities made to us by Credit Suisse Securities
(USA) LLC (“Credit Suisse”), approximately $406 million, comprising compensatory
damages, as well as interest, attorney’s fees and consequential damages, which
were assessed against Credit Suisse.
2008
Annual Report of STMicroelectronics N.V.
In
addition, we are entitled to retain an interest award of approximately
$25 million that has already been paid. At collection of the payment, we
will transfer ownership of our portfolio of unauthorized auction rate securities
to Credit Suisse. On February 17, 2009, we filed a petition in the United States
District Court for the Southern District of New York seeking enforcement of the
award.
Liquidity
and financial position
At
December 31, 2008, cash and cash equivalents totaled $1,009 million, compared to
$1,855 million as of December 31, 2007. As at December 31, 2008,
STMicroelectronics had investments in marketable debt securities with an
aggregate fair value of $893 million, composed of $651 million invested in
senior debt floating rate notes issued by primary financial institutions with an
average rating excluding impaired debt securities as detailed below of Aa2/A+
and $242 million invested in auction rate securities, representing interest in
collateralized obligations and credit link notes. The floating rate notes are
reported as current assets on the line “Available-for-sale financial assets” on
the consolidated balance sheet as at December 31, 2008, since they represent
investments of funds available for current operations. The auction-rate
securities, which have a final maturity between 10 and 40 years are classified
as non-current assets on the line “available-for-sale financial assets” on the
consolidated balance sheet as at December 31, 2008. All these debt securities
are classified as available-for-sale and recorded at fair value as at December
31, 2008, with changes in fair value recognized as a separate component of
“Other reserves” in the consolidated statement of changes in shareholders’
equity, except for those changes recognized as impairment of the financial
assets in profit and loss.
As at
December 31, 2008, given STMicroelectronics’s exposure to Lehman Brothers senior
unsecured bonds for a maximum amount of €15 million, STMicroelectronics recorded
an impairment of $11 million on floating rate notes issued by Lehman Brothers
following its Chapter 11 filing on September 15, 2008. This impairment charge,
which represented 50% of the face value of these debt securities, was reported
on the line “Impairment charge on marketable securities” in the consolidated
statement of income for the year ended December 31, 2008. Fair value measurement
relies on the information received from a major credit rating entity based on
historical recovery rates. Except for the Lehman Brothers floating rate notes as
described above, STMicroelectronics reported as of December 31, 2008 an
after-tax decline in fair value on its floating rate note portfolio totaling $14
million due to the general widening of credit spreads associated with the
financial market turmoil. STMicroelectronics estimated the fair value of these
financial assets based on publicly quoted market prices. This change in fair
value was recognized as a separate component of "Other reserves” in the
consolidated statement of changes in shareholders’ equity since
STMicroelectronics assessed that this decline in fair value was temporary and
that STMicroelectronics was in a position to recover the total carrying amount
of these investments in subsequent periods. Since the duration of the
floating-rate note portfolio is only 2.45 years on average and the securities
have a minimum Moody’s rating of “A2/A”, STMicroelectronics expects the value of
the securities to return to par as the final maturity is
approaching.
On the
auction-rate securities, STMicroelectronics reported an impairment amounting to
$127 million and $46 million in 2008 and 2007, respectively, which were
immediately recorded in the consolidated statements of income on the line
“Impairment charge on marketable securities”. Until December 31, 2007, the fair
value of these debt securities, for which there are no observable secondary
market trades, was measured: (i) based on the weighted average of available
information from public indexes as described above and (ii) using ‘mark to
market’ bids and ‘mark to model’ valuations received from the structuring
financial institutions of the outstanding auction rate securities, weighting the
different information at 80% and 20% respectively. In 2008, no information
regarding “mark-to-market” bids and “mark-to-model” valuations from the
structuring financial institutions for these securities was available.
Consequently, the fair value measure of these securities was based on a
theoretical model using yields obtainable for comparable assets.
2008
Annual Report of STMicroelectronics N.V.
The value
inputs for the evaluation of these securities were publicly available indexes of
securities with 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
STMicroelectronics believes approximates the orderly exit value in the current
market.
The
additional impairment recorded in 2008 reflected downgrading events on the
collateral debt obligations comparing the relevant ABX indexes at a lower rating
category and a general negative trend of the corporate debt market. The
estimated value of the collateralized debt obligation could further decrease in
the future as a result of credit market deterioration and/or other downgrading.
The estimated value of the corporate debt securities could also further decrease
in the future due to a deterioration of the corporate industry indexes used for
the evaluation.
STMicroelectronics
sold $352 million of floating rate notes in 2008. The purpose of these sales was
primarily to generate cash to fund the payment for NXP wireless business
integration, as described in Note 4 to our Consolidated Financial Statements. In
2007, STMicroelectronics invested $536 million in floating-rate notes and $172
million in auction-rate securities, and sold $101 million of these debt
securities, of which $40 million for sale of floating rate notes and $61 million
for sale of auction-rate securities. No significant gain or loss was included in
earnings as a result of these sales, as reported in the consolidated statements
of income for the years ended December 31, 2008 and 2007.
Changes
in the instruments adopted to invest our liquidity in future periods may occur
and may significantly affect our finance income (costs).
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.
Net cash from operating
activities. Net cash from operating activities totaled $ 1,955 million in
2008, compared to $2,349 million in 2007, due to lower cash generated from
operations.
Net cash used in investing
activities. Net cash used in investing activities was $2,639 million in
2008, compared to $1,897 million in 2007. Payments for business acquisitions,
net of cash received, were the main utilization of cash in 2008 for an amount of
$1’694, including the NXP wireless business for $1,513 million and Genesis for
$176 million. Payments for purchases of tangible assets were $984 million for
2008, decreasing compared to $1,141 million in 2007 as a result of our plan to
control capital expenditures at or below 10% of revenues. We did not purchase
any marketable securities in 2008, although we sold $352 million of Floating
Rate Notes to finance part of our business acquisitions.
Capital
expenditures for 2008 were principally allocated to:
•
|
the
completion of capacity ramp-up as per Alliance program in our 300-mm fab
in Crolles (France) and the acquisition of a portion of the tools from our
partners
|
•
|
the
upgrading and expansion of our 200-mm fab in Agrate (Italy) for BCDs and
MEMS
|
•
|
the
completion of the program of capacity expansion and the upgrading to finer
geometry technologies of our 200-mm front-end facility in Rousset
(France)
|
•
|
the
capacity ramp-up for one of our discrete process families and upgrading of
our 150-mm fabs in Singapore;
|
2008
Annual Report of STMicroelectronics N.V.
•
|
the
upgrading to leading edge technologies, down to 45 nm, of our 200-mm
R&D fab in Agrate (Italy)
|
•
|
the
capacity expansion of our back-end plants in Muar (Malaysia) and Shenzhen
(China)
|
Net operating cash flow. We
define net operating cash flow as net cash from operating activities minus net
cash used in investing activities, excluding restricted cash, payment for
purchases of and proceeds from the sale of marketable securities and investment
in and proceed from short-term deposits. We believe net operating cash flow
provides useful information for investors because it measures our capacity to
generate cash from our operating activities to sustain our investments for our
operating activities. Net operating cash flow is determined as follows from our
Consolidated Statements of Cash Flow:
|
|
|
|
|
|
|
Net
cash from operating
activities
|
|
|
1,955 |
|
|
|
2,349 |
|
Net
cash used in investing
activities
|
|
|
(2,991 |
) |
|
|
(1,508 |
) |
Net
operating cash
flow
|
|
|
(1,036 |
) |
|
|
841 |
|
Restricted
cash, payment for purchase and proceeds from sale of marketable securities
and investment in and proceed from short-term deposits
|
|
|
352 |
|
|
|
(389 |
) |
We had
unfavorable net operating cash flow of $1,036 million in 2008, decreasing
compared to net operating cash flow of $841 million in 2007, because of payments
for the NXP wireless business and Genesis, which totaled $1,694 million – net of
available cash. Excluding these payments, the net operating cash flow would have
been $659 million in 2008.
Net cash used in financing
activities. Net cash used in financing activities was $99 million in
2008, decreasing compared to $296 million used in 2007. The proceeds from long
term debt, primarily from the European Investment Bank, to finance our
activities, were higher than in 2007. As at December 31, 2008, we had paid only
three-fourths of the quarterly dividends to shareholders, equivalent to $240
million, while the total amount of the prior year’s dividend, $269 million, had
been paid in one installment as at December 31, 2007; furthermore, during 2008
we executed our share repurchase program, spending an aggregate amount of $313
million.
Capital
Resources
Net
financial position
Our net
financial position: resources (debt), is representing 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 overdrafts, current portion of long-term debt and long-term
debt, as represented in our consolidated balance sheet. We believe our net
financial position 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, cash equivalents and
marketable securities and the total level of our financial
indebtedness.
2008 Annual Report of
STMicroelectronics N.V.
The
net financial position is determined as follows from our Consolidated Balance
Sheets as at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
|
Cash
and cash equivalents, net of bank overdrafts
|
|
$ |
989 |
|
|
$ |
1,855 |
|
Marketable
securities, current
|
|
|
651 |
|
|
|
1,014 |
|
Short-term
deposits
|
|
|
- |
|
|
|
- |
|
Restricted
cash
|
|
|
250 |
|
|
|
250 |
|
Marketable
securities, non-current
|
|
|
242 |
|
|
|
369 |
|
Total
financial resources
|
|
|
2,132 |
|
|
|
3,488 |
|
Current
portion of long-term debt
|
|
|
(123 |
) |
|
|
(103 |
) |
Long-term
debt
|
|
|
(2,554 |
) |
|
|
(2,117 |
) |
Total
financial debt
|
|
|
(2,677 |
) |
|
|
(2,220 |
) |
Net
financial position
|
|
$ |
(545 |
) |
|
$ |
1,268 |
|
The net
financial position as of December 31, 2008 resulted in a net debt position of
$545 million, representing a significant decrease from the net cash position of
$1,268 million as of December 31, 2007 due to the payments made for our business
acquisitions. In the same period, both our cash position and our current
marketable securities portfolio decreased significantly to $989 million and $651
million, respectively, while total financial debt increased to $2,667 million
due to new long terms borrowing.
On July
28, 2008 we closed our previously announced deal to create a company with NXP
from our wireless operations, which resulted in our providing a cash payment,
net of cash received, of $1,518 million to NXP. Following the announcement of
the transaction with Ericsson, we agreed in February 2009 to accelerate the call
option to purchase NXP’s 20% interest in our wireless joint venture company for
a payment of $92 million; Ericsson contributed $1.1 billion net to the joint
venture, out of which $0.7 billion was paid to us. We also expect additional use
of cash in the coming quarter due to the upcoming payment of the remaining
quarterly cash dividend. With regards to our buyback plan, it
was completed as of December 31, 2008.
At
December 31, 2008, the aggregate amount of our long-term debt, including the
current portion, was $2,541 million, including $822 million of our 2016
Convertible Bonds and $703 million of our 2013 Senior Bonds (corresponding to
the €500 million at issuance). Additionally, we had unutilized committed medium
term credit facilities with core relationship banks totaling $275 million.
Furthermore, the aggregate amount of our and our subsidiaries’ total available
short-term credit facilities, excluding foreign exchange credit facilities, was
approximately $816 million as at December 31, 2008. We also had two committed
credit facilities with the European Investment Bank as part of a R&D funding
program. 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 $20
million were paid back as at December 31, 2008. 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, 2008. We also
maintain uncommitted foreign exchange facilities totaling $773 million at
December 31, 2008. At December 31, 2008, available short-term lines of credit
were reduced by $20 million bank overdrafts. At December 31, 2007, amounts
available under the short-term lines of credit were not reduced by any
borrowing.
2008 Annual Report of
STMicroelectronics N.V.
Market
Risk — About Financial Instruments
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 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. Our
interest expenses are associated with our long-term convertible bonds (with a
fixed rate) and floating rate senior bonds whose rate is fixing quarterly at
LIBOR + 40bps. To manage the interest rate mismatch, in the second quarter of
2006, we entered into cancelable 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 cancelable 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%. Due to the high volatility in the interest
rates generated by the recent financial turmoil, 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 as at
December 31, 2008 for $34 million, since we intend to hold the derivative
instruments for a short period of time that will not exceed twelve months. An
unrealized gain was recognized in earnings from discontinuance date totaling $15
million and was reported on the line “Unrealized gain on financial assets” of
the consolidated statement of income for the year ended December 31, 2008. We
also have $250 million of restricted cash at fixed rate (Hynix Semiconductor-ST
JV) partially offsetting 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.
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 Moody’s Investor Service and A-
from Standard & Poor’s and Fitch Ratings, invested as term deposits 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. These FRN have a par value of $678
million, 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, 2008, after recent economic events and given our
exposure to Lehman Brothers’ senior unsecured bonds for a purchase price of
nearly €15 million, we recorded an other-than-temporary charge of $11 million,
which represents 50% of the face value of these Floating Rate Notes, according
to recovery rate calculated from a major credit rating company.
2008
Annual Report of STMicroelectronics N.V.
The
change in fair value of these instruments (excluding Lehman Brothers FRN)
amounting to approximately $14 million after tax for the year ended December 31,
2008. 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, 2008, we had Auction Rate Securities, representing interests in
collateralized obligations and credit linked notes, with a par value of $415
million that were carried on our balance sheet as available-for-sale financial
assets at an amount of $242 million.
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 above should be read in conjunction with Note 35 to our Consolidated
Financial Statements.
2.3
Risk management and Internal control
Below is
a list of the main risks factors related to the semiconductor industry and
specifically related to our operations, which may affect the result and
performance of STMicroelectronics and the ability of management to predict the
future:
·
|
Downturns
and swings in the semiconductor industry, which can negatively affect our
results of operations and financial
conditions;
|
·
|
Reduction
in demand or increase in production capacity for semiconductor products
may lead to overcapacity, which in turn may require plant closures, asset
impairments, restructuring charges and inventory
write-offs.
|
·
|
Future
developments of the world semiconductor market, in particular the future
demand for semiconductor products in the key application markets and from
key customers served by our
products.
|
·
|
Pricing
pressures, losses or curtailments of purchases from key customers all of
which are highly variable and difficult to
predict;
|
·
|
Changes
in the exchange rates between the U.S. dollar and the Euro and between the
U.S. dollar and the currencies of the other major countries in which we
have our operating infrastructure;
|
·
|
Our
ability to manage in an intensely competitive and cyclical industry where
a high percentage of our costs are fixed and difficult to reduce in the
short term, including our ability to adequately utilize and operate our
manufacturing facilities at sufficient levels to cover fixed operating
costs;
|
·
|
Our
ability to perform the announced strategic repositioning of our Flash
memories business in line with the requirements of our customers and
without adverse effect on existing alliances or other agreements relating
to this business;
|
·
|
Our
ability in an intensely competitive environment to secure customer
acceptance and to achieve our pricing expectations for high volume
supplies of new products in whose development we have or are currently
investing;
|
2008
Annual Report of STMicroelectronics N.V.
·
|
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;
|
·
|
The
anticipated benefits of research and development alliances and cooperative
activities;
|
·
|
Our
ability to obtain required licenses on third-party intellectual property
on reasonable terms and conditions, the impact of potential claims by
third parties involving intellectual property rights relating to our
business, and the outcome of
litigation;
|
·
|
The
ability of our suppliers to meet our demands for supplies and materials
and to offer competitive pricing;
|
·
|
Significant
variations in our gross margin compared to expectations based on changes
in revenue levels, product mix and pricing, capacity utilization,
variations in inventory valuation, 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 and execution of the manufacturing ramp and associated costs,
including start-up costs;
|
·
|
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;
|
·
|
The
results of actions by our competitors, including new product offerings and
our ability to react thereto; and
|
·
|
The
interests of our controlling shareholders, who are in turn controlled
respectively by the French and Italian governments, may conflict with
investors’ interests.
|
2008
Annual Report of STMicroelectronics N.V.
Internal
control
The
Managing Board is responsible for ensuring that STMicroelectronics complies with
all applicable legislation and regulations. As such, under the guidance of the
Executive Vice President and Chief Financial Officer, who reports to the
Managing Board, the Managing Board has established and implemented our internal
risk management and control systems. These controls and procedures are based on
the identification of external and internal risks factors that could influence
our operations and financial objectives and contain a system of monitoring,
reporting and operational reviews.
The
effectiveness of our internal controls and procedures is evaluated regularly,
and changes to such internal controls and procedures, as well as any significant
deficiencies and material weaknesses in the design or operation of internal
control over financial reporting, which are reasonably likely to affect our
ability to record, process or summarize and report financial information are
disclosed to our auditors and to the Audit Committee of our Supervisory
Board. Likewise any fraud, whether or not material, that involves
management or other employees who have a significant role in our internal
control over financial reporting are disclosed to our auditors, and to the Audit
Committee of our Supervisory Board.
In the
various areas of business risk management we have established corporate policies
and procedures which set forth principles, business rules of behavior and
conduct which are considered to be consistent with proper business management,
in line with our mission and strategic objectives.
We have
adopted ‘Corporate Standard Operating Procedures’ to describe the operational
flow of actions to perform a task or activity, or to implement a policy within a
given functional field. We have over one hundred standard operating
procedures which cover a wide range of activities such as approvals,
authorizations, verifications, reconciliations, review of operating performance,
security of assets and segregation of duties, which are deployed throughout our
organization, and which may be completed as and when required by local operating
procedures.
We have
an internal audit organization, which performs general scope internal audits
covering various areas, such as information technology, logistics and inventory
management, human resources and payroll, internal control systems, security,
purchasing, treasury, etc. The audit plans for our internal audit
organization are reviewed at least once a year by the Audit Committee of our
Supervisory Board.
In
short, our internal
risk management and control system cannot provide absolute assurance, but aims
at a reasonable level of assurance, that realization of strategic and
operational objectives is monitored, the financial reporting is reliable and
where relevant applicable laws and regulations are complied with.
The
Managing Board believes that the internal risk management and control systems in
place provide a reasonable level of assurance that STMicroelectronics’ financial
reporting does not include material misstatements. In relation to
STMicroelectronics’ financial reporting, these systems operated effectively
during 2008 and there are no indications that, in relation to
STMicroelectronics’ reporting, these systems will not operate effectively in
2009.
Our
internal risk management and control systems, including the structure and
operation thereof, were discussed and evaluated on several occasions with the
Audit Committee and the Supervisory Board during 2008 (in accordance with best
practice provision III.1.8 of the Dutch Coporate Governance Code).
2008 Annual Report of
STMicroelectronics N.V.
2.4
Decree article 10
Announcements
on the basis of Article 1 of the Dutch Decree on Article 10 of the Takeover
Directive:
a. The
authorized share capital of STMicroelectronics N.V. (the “Company”) amounts to
EUR 1,809,600,000, divided into 1,200,000,000 ordinary shares and 540,000,000
preference shares, with a nominal value of EUR 1.04 per share. As of December
31, 2008, 910,293,420 ordinary shares were issued of which 10,532,881were
repurchased (representing 3.96% of the issued share capital as per December 31,
2008). As of December 31, 2008, no preference shares were issued and
outstanding.
b.
STMicroelectronics does not have restrictions on the transfer of its ordinary
and preference shares.
c.
Holdings in STMicroelectronics that are subject to a disclosure obligation
pursuant to Chapter 5.3 of the Dutch Financial Markets Supervision Act (“Wet op het financieel
toezicht”) are2:
(i)
STMicroelectronics Holding N.V 250,704,754 ordinary shares (representing 27.55%
of the issued share capital as per December 31, 2008) through its wholly-owned
subsidiary STMicroelectronics Holding II B.V. (diluted to 17.29% of the issued
share capital if the option for preference shares held by Stichting Continuïteit
ST is fully exercised);
(ii)
Brandes Investment Partners, Inc3: 71,472,570 voting rights
(or 7.85% of the issued share capital) through Brandes Investment Partners
L.9P.; and
(iii) Stichting
Continuïteit ST option for 540,000,000 preference shares, representing up to
37.24% of the issued share capital post-issuance if fully exercised (and 59.33%
of the issued share capital pre-issuance).
Furthermore,
according to the information available on the website of the Dutch Authority for
the Financial Markets (“Autoriteit Financiële
Markten”) (the “AFM”), www.afm.nl, Capital Research and Management
Company notified the AFM of it holding 40,024,500 voting rights (or 4.4% of the
issued share capital).
d.
STMicroelectronics does not have special controlling rights attached to its
ordinary or preference shares.
e. STMicroelectronics
does not have any scheme granting rights to employees to subscribe for or
acquire shares in STMicroelectronics’s share capital or the share capital of a
subsidiary where the control is not directly exercised by the employees.
However, key employees as determined by STMicroelectronics’s Unvested Share
Award Plans are granted share awards (as part of their compensation)
with a staggered vested schedule pursuant to STMicroelectronics’s determined
criteria. Supervisory
board members are granted share awards that vest immediately.
2
|
The information is based on the
information available on the website of the Dutch Authority for the
Financial Markets (Autoriteit
Financiële Markten),
www.afm.nl.
|
3
|
Brandes Investment Partners held
79,686,369 ordinary shares, representing approximately 8.8% of the issued
share capital; according to information filed on Schedule 13G on February
12, 2009, Brandes Investment Partners’ ordinary shares in
STMicroelectronics’s share capital are beneficially owned by the following
group of entities: Brandes Investment Partners, L.P., Brandes Investment
Partners, Inc., Brandes Wordwide Holdings, L.P., Charles H. Brandes, Glenn
R. Carlson and Jeffry A. Busby. Further information is available on the
website of the U.S. Securities and Exchange Commission, www.sec.gov, and at the website
of STMicroelectronics, www.st.com.
|
2008
Annual Report of STMicroelectronics N.V.
f. STMicroelectronics
does not have any restrictions on voting rights nor has it cooperated in the
issuance of depositary receipts for shares. STMicroelectronics’s articles of
association currently provide that in order to be able to attend a shareholders’
meeting, address the meeting and, if applicable, exercise their voting rights at
such meeting, shareholders and other persons entitled to attend shareholders’
meetings must notify STMicroelectronics in writing of their intention to do so
no later than three business days prior to the meeting and at the place
mentioned in the notice convening the shareholders’ meeting. Shareholders and
other persons entitled to attend shareholders’ meetings may only exercise said
rights at the meeting for the shares from which they can derive said rights both
on the day of referred to above and on the day of the meeting. The Managing
Board or the Supervisory Board may determine a registration date determining
that shareholders and other persons entitled to attend shareholders’ meetings
are those persons who have such rights at a determined registration date and as
such are registered in a register designated thereto by the corporate body
convening the shareholders’ meeting, regardless of who is a shareholders or
otherwise a person entitled to attend at the time of the meeting if a
registration date would not have been determined. The registration date cannot
be set earlier than on the thirtieth day prior to the shareholders’ meeting. In
the notice convening the shareholders’ meeting the time of the registration
shall 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. On STMicroelectronics’s website,
www.st.com, under the caption “Investor Information – Annual General Meeting –
How to vote at Annual General Meeting” further information is provided for
(beneficial) shareholders holding shares through Euroclear France or Cede &
Co as nominee of the Depositary Trust Company.
g. STMicroelectronics
does not have any agreements with shareholders that may give rise to
restrictions on the transfer of shares or restrictions of voting rights.
STMicroelectronics has been informed that the shareholders’ agreement among
STMicroelectronics Holding N.V.’s shareholders (the “STH Shareholders’
Agreement”), to which STMicroelectronics is not a party, governs relations
between STMicroelectronics’s current indirect shareholders, Commissariat à
l’Energie Atomique (“CEA”), Areva Group (“Areva”), Cassa Depositi e Prestiti
S.p.A. (“CDP”) and Finmeccanica S.p.A. (“Finmeccanica”), each of which is
ultimately controlled by the French or Italian government. The STH Shareholders’
Agreement includes provisions requiring the unanimous approval by shareholders
of STMicroelectronics Holding N.V. before STMicroelectronics Holding N.V. can
make any decision with respect to certain actions to be taken by
STMicroelectronics. The STH Shareholders’ Agreement permits the respective
French and Italian indirect shareholders to cause STMicroelectronics Holding II
B.V. to dispose of its stake in STMicroelectronics at its sole discretion at any
time from their current level, and to reduce the current level of their
respective indirect interests in STMicroelectronics’s ordinary shares to
10.5%.
STMicroelectronics
was informed that on February 26, 2008, pursuant to its rights under the STH
Shareholders’ Agreement, FT1CI agreed to purchase 26,034,141 of
STMicroelectronics’s ordinary shares from Finmeccanica, with financing provided
by CEA, which, as a result of such financing became at the end of 2008 a
shareholder of FT1CI. There now exists a balance period between the shareholders
through to March 17, 2011, and the 9.5% threshold respectively for
STMicroelectronics’s French and Italian shareholders increased to
10.5%.
Furthermore,
as permitted by STMicroelectronics’s articles of association, the Supervisory
Board has specified selected actions by the Managing Board that require the
approval of the Supervisory Board. These requirements for the prior approval of
various actions to be taken by STMicroelectronics and STMicroelectronics’s
subsidiaries may give rise to a conflict of interest between
STMicroelectronics’s 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 the Managing Board to respond as may be
necessary in the rapidly changing environment of the semiconductor
industry.
2008
Annual Report of STMicroelectronics N.V.
Furthermore,
STMicroelectronics’s 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 STMicroelectronics’s ability to buy
back shares may be limited by Dutch law that may require shareholders that own
more than 30% of STMicroelectronics’s voting rights to launch a public offer for
STMicroelectronics’s outstanding shares. Dutch law, however, requires members of
the Supervisory Board to act independently in supervising our management and to
comply with applicable Dutch and non-Dutch corporate governance
standards.
On
October 28, 2007, the Dutch legislation implementing Directive 2004/25/EC on
takeover bids (the “Takeover Directive”) entered into force. This new Dutch
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 STMicroelectronics
repurchases 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.
Dutch law
provides for 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 STMicroelectronics’s preference shares after the announcement of a
public offer, but only for a maximum period of 2 years.
h. (i)
Managing Board.
The
Managing Board consists of such number of members as resolved by the
shareholders’ meeting upon the proposal of the Supervisory Board. The members of
the Managing Board are appointed for three-year terms, as defined in
STMicroelectronics’s articles of association, upon a non-binding proposal by the
Supervisory Board, by a simple majority of the votes cast at a meeting where at
least 15% of the issued and outstanding share capital is present or represented.
If the Managing Board were to consist of more than one member, the Supervisory
Board would appoint one of the members of the Managing Board to be chairman of
the Managing Board for a three-year term, as defined in STMicroelectronics’s
articles of association (upon approval of at least three-quarters of the members
of the Supervisory Board in office). The shareholders’ meeting may suspend or
dismiss one or more members of the Managing Board at a meeting at which at least
one-half of the outstanding share capital is present or represented. If the
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. Such a quorum is not required if a suspension or dismissal is
proposed by the Supervisory Board. In that case, a resolution to dismiss or to
suspend a member of the Managing Board can be taken by a simple majority of the
votes cast at a meeting where at least 15% of the issued and outstanding share
capital is present or represented. The Supervisory Board may suspend members of
the Managing Board, but a shareholders’ meeting must be convened within three
months after such suspension to confirm or reject the suspension.
2008 Annual Report of
STMicroelectronics N.V.
(ii) Supervisory
Board.
The
Supervisory Board consists of at least six members, the number to be determined
by the shareholders’ meeting upon the proposal of the Supervisory Board. Members
of the Supervisory Board are appointed by the shareholders’ meeting for a
three-year term, as defined in STMicroelectronics’s articles of association,
upon the proposal of the Supervisory Board, by a simple majority of the votes
cast at a meeting where at least 15% of the issued and outstanding share capital
is present or represented. Members of the Supervisory Board may be suspended or
dismissed by the shareholders’ meeting by a simple majority of the votes cast at
a meeting where at least 15% of the issued and outstanding share capital is
present or represented. The Supervisory Board may make a proposal to the
shareholders’ meeting for the suspension or dismissal of one or more of its
members.
(iii) Amendment
of STMicroelectronics’s articles of association.
STMicroelectronics’s
articles of association can be amended by the shareholders’ meeting, upon the
proposal of the Supervisory Board, by a simple majority of the votes cast at a
meeting where at least 15% of the issued and outstanding share capital is
present or represented. If the relevant amendment affects the rights of holders
of ordinary shares or holders of preference shares, the approval of the meeting
of holders of ordinary shares and the meeting of holders of preference shares,
respectively, is required.
i. For
a complete overview of the powers of the Managing Board pursuant to
STMicroelectronics’s articles of association, reference is made to
STMicroelectronics’s articles of association, which are posted on
STMicroelectronics’s website, www.st.com. Hereinafter a description is provided
for certain powers of the Managing Board as well as certain restrictions
thereto.
Under
Dutch law, the Managing Board is entrusted with STMicroelectronics’s general
management and the representation of STMicroelectronics. The Managing Board must
seek prior approval from the shareholders’ meeting for decisions regarding a
significant change in the identity or nature of STMicroelectronics. Under
STMicroelectronics’s articles of association, the Managing Board must obtain
prior approval from the 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 STMicroelectronics’s multi-year plans and
the budget for the coming year, covering investment policy, policy regarding
research and development, 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 the Supervisory Board. In addition,
under STMicroelectronics’s articles of association, the Supervisory Board and
the shareholders’ meeting each may specify by resolution certain additional
actions by the Managing Board that require its prior approval.
In
accordance with STMicroelectronics’s corporate governance charter, which is
posted on STMicroelectronics’s website, www.st.com under the caption “Investor
Information – Corporate Governance at ST”, the sole member of the Managing Board
and the Executive Officers may not serve on the board of a public company
without the prior approval of the Supervisory Board.
Pursuant
to the charter adopted by the Supervisory Board, which is posted on
STMicroelectronics’s website, www.st.com under the caption “Investor Information
– Corporate Governance at ST”, the following decisions by the Managing Board
with regards as applicable to STMicroelectronics and any of STMicroelectronics’s
direct or indirect subsidiaries require prior approval from the Supervisory
Board:
(i) any
modification of STMicroelectronics’s articles of association other than those of
STMicroelectronics’s wholly-owned subsidiaries;
2008
Annual Report of STMicroelectronics N.V.
(ii) any
change in STMicroelectronics’s authorized share capital, issue, acquisition or
disposal its own shares, change in any shareholder rights or issue of any
instruments granting an interest in STMicroelectronics’s capital or profits
other than those of STMicroelectronics’s wholly-owned subsidiaries;
(iii) any
liquidation or disposal of all or a substantial and material part of the assets
or any shares held in any subsidiaries;
(iv)
entering into any merger, acquisition or joint venture agreement (and, if
substantial and material, any agreement relating to intellectual property) or
formation of a new company;
(v)
approval of STMicroelectronics’s draft consolidated balance sheets and financial
statements or any profit distribution policy by STMicroelectronics’s
subsidiaries;
(vi)
entering into any agreement that may qualify as a related-party transaction,
including any agreement with STMicroelectronics Holding N.V., its wholly-owned
subsidiary STMicroelectronics Holding II B.V., or its shareholders Areva/CEA,
Cassa Depositi e Prestiti S.p.A. and Finmeccanica S.p.A.;
(vii) the
key challenges of STMicroelectronics’s five-year plans and its consolidated
annual budgets, as well as any significant modifications to said plans and
budgets, or any one of the matters set forth in article 16 paragraph 1 of
STMicroelectronics’s 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 although their financing was provided for in
the approved annual budget; and
(ix)
approval of the quarterly, semi-annual and annual consolidated financial
statements of STMicroelectronics prepared in accordance with U.S. GAAP and 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.
During a
meeting held on September 23, 2000, the Supervisory Board authorized the
Managing Board to proceed with acquisitions without prior consent of the
Supervisory Board subject to a maximum amount of $25 million per transaction,
provided the Managing Board keeps the Supervisory Board informed of progress
regarding such transactions and gives a full report once the transaction is
completed.
Pursuant
to STMicroelectronics’s articles of association, the Managing Board cannot be
designated by the shareholders’ meeting as the corporate body authorized to
issue shares, grant rights to subscribe for shares and to exclude existing
shareholders’ preemptive rights, but the Supervisory Board can be. Pursuant to a
shareholders’ resolution adopted at STMicroelectronics’s annual shareholders’
meeting held on April 26, 2007, the Supervisory Board has been authorized for a
period of five years to resolve to (i) issue any number of ordinary shares
and/or preference shares as comprised in STMicroelectronics’s authorized share
capital as this shall read from time to time; (ii) to fix the terms and
conditions of share issuances; (iii) to exclude or to limit preemptive rights;
and (iv) to grant rights to subscribe for ordinary shares and/or preference
shares, all for a period of five years from the date of such annual
shareholders’ meeting.
2008
Annual Report of STMicroelectronics N.V.
Pursuant
to a shareholders’ resolution adopted at STMicroelectronics’s annual
shareholders’ meeting held on May 14, 2008, the Managing Board was authorized,
subject to the approval of the Supervisory Board, to repurchase on the stock
exchange or otherwise up to 10% of STMicroelectronics’s issued share capital for
a price (i) per ordinary share which at such moment is within a range between
the par value of an ordinary share and 110% of the share price per common share
on Eurolist by Euronext™ Paris, the New York Stock Exchange or Borsa Italiana,
whichever at such moment is the highest, and (ii) per preference share which is
equal to the par value of a preference share increased with an amount equal to
the accrued but unpaid dividend on such preference share per the relevant
repurchase date, mutatis
mutandis calculated in accordance with article 37 paragraph 2 sub e of
STMicroelectronics’s articles of association. The aforementioned authorization
is granted for a period of eighteen months as of May 14, 2008. In addition,
pursuant to article 5 paragraph 2 of STMicroelectronics’s articles of
association, the Managing Board may, without being authorized thereto by the
shareholders’ meeting but subject to the approval of the Supervisory Board,
acquire shares in STMicroelectronics’s own share capital in order to transfer
those shares to the employees of STMicroelectronics or a group company under a
scheme applicable to such employees.
j. STMicroelectronics
is a party to an option agreement with Stichting Continuïteit ST dated February
7, 2007 (the “Stichting”) regarding STMicroelectronics’s preference shares. The
Managing Board and the Supervisory Board, along with the board of the Stichting,
have declared that they are jointly of the opinion that the Stichting is
independent of STMicroelectronics. The option agreement provides for the
issuance of up to a maximum 540,000,000 preference shares. Any such shares would
be issued to the Stichting upon its request and in its sole discretion and upon
payment of at least 25% of the par value of the preference shares to be issued.
The shares would be issuable in the event of actions considered hostile by the
Managing Board and the Supervisory Board, such as a creeping acquisition (in
such case up to 30% of the issued and outstanding share capital of
STMicroelectronics) or an offer on STMicroelectronics’s ordinary shares, which
are unsupported by the Managing Board and the Supervisory Board and which the
board of the Stichting determines would be contrary to the interests of
STMicroelectronics, STMicroelectronics’s shareholders or other stakeholders. 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 create a level-playing field in the event actions which are considered
to be hostile by the Managing Board and the Supervisory Board, as described
above, occur and which the board of the Stichting determines to be contrary to
the interests of STMicroelectronics and STMicroelectronics’s shareholders and
other stakeholders.
k.
Furthermore, the security holders’ agreement between STMicroelectronics, Intel
and Francisco Partners regarding Numonyx Holdings B.V. includes a change of
control provision. The effect of such change of control provision with respect
to STMicroelectronics inter
alia is that upon a change of control (i) the members of the supervisory
board of Numonyx Holdings B.V. nominated by STMicroelectronics shall resign and
(ii) STMicroelectronics can be forced to sell its shares in Numonyx Holdings
B.V.
l. The
employment contract of STMicroelectronics’s President and CEO, Mr. Bozotti,
provides that upon a change of control following a takeover bid (i) all unvested
stock awards granted to Mr. Bozotti will fully vest and (ii) the bonus payable
under STMicroelectronics’s Executive Incentive Plan will be due for the full
amount, which is 150% of the executive gross annual salary. Such benefits are
not linked to termination of the employment agreement.
m. 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 and CEO of France Telecom and a member of the Board of Directors
of 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
2008
Annual Report of STMicroelectronics N.V.
BESI and
one of the members of our Supervisory Board is a director of Oracle Corporation
(“Oracle”) and Flextronics International. Additionally, our CEO, and one of the
Members of our Supervisory Board are members of the Supervisory Board of
Numonyx, the Flash memory joint venture we set up with Intel and Francisco
Partners effective March 30, 2008. France Telecom, one of our indirect
shareholders and its subsidiaries Equant and Orange, as well as Oracle’s new
subsidiary PeopleSoft supply certain services to our Company. We have a
long-term joint research and development partnership agreement with LETI, a
wholly-owned subsidiary of CEA, one of our indirect shareholders. We have
certain licensing agreements with ARM, and have conducted transactions with
Soitec and BESI as well as with Thomson, Flextronics and a subsidiary of Groupe
Bull. We believe that each of the aforementioned arrangements and transactions
are negotiated without any personal, direct or indirect involvement of our
Supervisory Board Members, and are made on an arms-length basis in line with
market practices and conditions.
2008
Annual Report of STMicroelectronics N.V.
3.
Report of the supervisory board
3.1.
General
The
supervision of the policies and actions of the Managing Board is entrusted to
the Supervisory Board, which, in the two-tier corporate structure under Dutch
law, is a separate body and fully independent of the Managing Board. In
fulfilling their duties under Dutch law, the Supervisory Board members serve the
best interests of all STMicroelectronics’s shareholders and other stakeholders,
as well as those of STMicroelectronics’s business.
The
Supervisory Board supervises and advises the Managing Board in performing its
management tasks and setting the direction of STMicroelectronics’s affairs and
business. The members of the Supervisory Board are carefully selected on the
basis of their combined expertise, their knowledge of STMicroelectronics and its
affairs, and of the business in which STMicroelectronics operates. The
Supervisory Board is empowered to recommend to the general meeting of
shareholders persons to be appointed as members of the Supervisory Board or of
the Managing Board.
The
Supervisory Board, advised and assisted by its various committees, including the
Strategic Committee, the Audit Committee, the Compensation Committee and the
Nominating and Corporate Governance Committee which all report to it, supervises
the structure and management of systems of internal business controls, risk
management, strategy and the financial reporting process. In addition, it
determines the remuneration of the sole member of the Managing Board within the
remuneration policy adopted by the general meeting of shareholders.
The
Supervisory Board has established the following independence criteria for its
members: Supervisory Board members must have no material relationship with
STMicroelectronics or any of STMicroelectronics’s consolidated subsidiaries, or
STMicroelectronics’s 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.
The
Supervisory Board also adopted specific bars to independence. On that
basis, the Supervisory Board concluded, in its business judgment, that all
members qualify as independent based on the criteria set forth
above.
The above
mentioned independence criteria differ to a certain extent from best practice
provision III.2.2 of the 2003 Code.
The
Supervisory Board is pleased to report to STMicroelectronics’s shareholders the
various activities of the Supervisory Board and the Supervisory Board Committees
in 2008.
2008 Annual Report of
STMicroelectronics N.V.
3.2.
Composition of the Supervisory Board and its committees
The
Supervisory Board consists of such number of members as is resolved by the
general meeting of shareholders upon a non-binding proposal of the Supervisory
Board, with a minimum of six members. Decisions by the general meeting of
shareholders concerning the number and the identity of the Supervisory Board
members are taken by a simple majority of the votes cast at a meeting, provided
quorum conditions are met (15% of STMicroelectronics’s issued and outstanding
share capital present or represented).
The
Supervisory Board had the following nine members since the annual general
meeting of shareholders (“AGM”) held on May 14, 2008:
Name (1)
|
Position
|
Year Appointed (2)
|
Term Expires
|
Age
|
Nationality
|
Antonino
Turicchi
|
Chairman
|
2008
(3)
|
2011
|
43
|
Italian
|
Gérald
Arbola
|
Vice
Chairman
|
2004
|
2011
|
60
|
French
|
Raymond
Bingham
|
Member
|
2007
|
2010
|
63
|
American
|
Douglas
Dunn
|
Member
|
2001
|
2009
|
64
|
British
|
Didier
Lamouche
|
Member
|
2006
|
2009
|
49
|
French
|
Didier
Lombard
|
Member
|
2004
|
2011
|
67
|
French
|
Alessandro
Ovi
|
Member
|
2007
|
2010
|
65
|
Italian
|
Bruno
Steve
|
Member
|
1989
|
2011
|
67
|
Italian
|
Tom
de Waard
|
Member
|
1998
|
2011
|
62
|
Dutch
|
(1)
|
Mr. Matteo
del Fante was a Supervisory Board member until the end of the 2008 AGM, at
which time he was succeeded by Mr. Antonino
Turicchi.
|
(2)
|
As
a member of the Supervisory Board.
|
(3)
|
Mr.
Turicchi was also a Supervisory Board member from
2005-2007.
|
After the
2008 AGM, the Supervisory Board appointed Mr. Antonino Turicchi as Chairman of
the Supervisory Board and Mr. Gérald Arbola as Vice Chairman, each for a
three-year term.
As of
December 31, 2008, the composition of the Supervisory Board’s committees were 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.
At the
2009 AGM, the mandates of Messrs. Dunn and Lamouche will expire. The mandates of
Messrs. Ovi and Bingham will expire at the 2010 AGM and the mandates of Messrs.
Arbola, de Waard, Lombard, Steve and Turicchi will expire at the 2011
AGM.
There is
no mandatory retirement age for members of the Supervisory Board pursuant to
Dutch law. Members of the Supervisory Board may be suspended or dismissed by the
general meeting of shareholders. The Supervisory Board may make a proposal to
the general meeting of shareholders for the suspension or dismissal of one or
more of its members. Each member of the Supervisory Board must resign no later
than three years after appointment, as described in STMicroelectronics’s
Articles of Association, but may be reappointed following the expiry of such
member’s term of office.
2008
Annual Report of STMicroelectronics N.V.
The
Supervisory Board proposes to the 2009 AGM the re-appointment for a three year
term, until the end of the 2012 AGM, of Messrs. Doug Dunn and Didier
Lamouche.
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 and CEO of France Telecom and a member of the Board of Directors of
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.
Additionally,
our CEO, and one of the Members of our Supervisory Board are members of the
Supervisory Board of Numonyx, the Flash memory joint venture we set up with
Intel and Francisco Partners effective March 30, 2008. France Telecom, one of
our indirect shareholders and its subsidiaries Equant and Orange, as well as
Oracle’s new subsidiary PeopleSoft supply certain services to our Company. We
have a long-term joint research and development partnership agreement with LETI,
a wholly-owned subsidiary of CEA, one of our indirect shareholders. We have
certain licensing agreements with ARM, and have conducted transactions with
Soitec and BESI as well as with Thomson, Flextronics and a subsidiary of Groupe
Bull. We believe that each of the aforementioned arrangements and transactions
are negotiated without any personal, direct or indirect involvement of our
Supervisory Board Members, and are made on an arms-length basis in line with
market practices and conditions.
Biographies
of the members of the Supervisory Board
Antonino Turicchi was
re-appointed as a member of the 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 also the Chairman of our
Strategic Committee and Compensation Committee and he 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. He 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 treasury’s debt management functions.
Between 1999 and June 2002, Mr. Turicchi was 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. Previously he served as
Chairman of our Supervisory Board from March 18, 2005 till May 13, 2008. Mr.
Arbola serves on the Supervisory Board’s Compensation Committee, Strategic
Committee, Nomination and Corporate Governance Committee. Currently Mr. Arbola
is Managing Director of Areva S.A., where he had served as Chief Financial
Officer. He 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.
2008
Annual Report of STMicroelectronics N.V.
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 d’Etudes 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.
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.
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 addition, he has been nominated for appointment as a
Supervisory Board member of BE Semiconductor Industries N.V. ("BESI") at
the annual general meeting of shareholders to be held on May 12, 2009. 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 Motorola’s 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 and Infogrames Entertainment.
2008
Annual Report of STMicroelectronics N.V.
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 was appointed Chairman and Chief Executive
Officer of France Telecom in March 2005. 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 Telecom’s Senior Executive Vice
President in charge of technologies, strategic partnerships and new usages and
as a member of France Telecom’s 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 Thomson, 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 Master’s 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.
Until
April 2000, Mr. Ovi was the Chief Executive Officer of Tecnitel S.p.A., a
subsidiary of 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
Board’s 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 S. & A. S. S.p.A.,
Chairman of the Surveillance Body of Selex S. & A. S. S.p.A and a member of
the Statutory Auditors of Pirelli Tyres S.p.A. 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.
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 Board’s
Compensation Committee.
2008
Annual Report of STMicroelectronics N.V.
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 President of
the Netherlands Bar Association from 1993 through 1995. He received his law
degree from Leiden University in 1971. Mr. de Waard is a member of the
Supervisory Board of BE Semiconductor Industries N.V. (“BESI”) and of its
nominating committee. He is also chairman of BESI’s audit and compensation
committees. Mr. de Waard is a member of the board of the foundation “Stichting
Sport en Zaken”.
3.3
Meetings and activities of the Supervisory Board
Resolutions
of the Supervisory Board require the approval of at least three-quarters of its
members in office. The Supervisory Board must meet upon request by two or more
of its members or by the Managing Board. The Supervisory Board has established
procedures for the preparation of Supervisory Board resolutions and the calendar
for Supervisory Board meetings. The Supervisory Board meets at least five times
a year, including once a quarter to approve STMicroelectronics’s quarterly and
annual accounts and their release. The Supervisory Board has adopted a
Supervisory Board Charter setting forth its duties, responsibilities and
operations, as mentioned below. This charter is available on
STMicroelectronics’s website at
http://www.st.com/stonline/company/governance/index.htm. The Supervisory Board
focused its discussions on ensuring that STMicroelectronics’s mandate pursuant
to its strategic objectives were defined, carried out and achieved. For more
information, please refer to ‘2008 business overview’ in chapter
2.2.
3.4
Supervisory Board Committees
The Supervisory Board met 15 times in
the course of 2008. Detailed information on attendance at full
Supervisory Board and Supervisory Board Committee meetings during 2008
was as follows:
Number
of Meetings
Attended
in 2008(1)
|
Full Board
|
Audit
Committee
|
Compensation
Committee
|
Strategic
Committee
|
Nomination
and
Corporate
Governance
Committee
|
Ad
Hoc
Committee
|
Antonino
Turicchi(2)
|
8
|
—
|
3
|
1
|
1
|
1
|
Gérald
Arbola
|
15
|
—
|
6
|
3
|
3
|
|
Raymond
Bingham
|
15
|
10
|
—
|
1
|
—
|
|
Matteo
del Fante(2)
|
7
|
6
|
3
|
2
|
2
|
|
Douglas
Dunn
|
15
|
9
|
—
|
3
|
—
|
1
|
Didier
Lamouche
|
14
|
10
|
—
|
—
|
—
|
1
|
Didier
Lombard
|
15
|
—
|
5
|
2
|
3
|
|
Alessandro
Ovi
|
15
|
—
|
—
|
3
|
—
|
|
Bruno
Steve
|
15
|
5
|
6
|
2
|
3
|
|
(1)
Includes meetings attended by way of conference call.
(2) Mr.
Matteo del Fante was a Supervisory Board member until the end of the 2008 AGM,
at which time he was succeeded by Mr. Antonino Turicchi.
2008
Annual Report of STMicroelectronics N.V.
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 STMicroelectronics’s financial
reports as well as STMicroelectronics’s auditing practices, legal and regulatory
related risks, execution of STMicroelectronics’s auditors’ recommendations
regarding corporate auditing rules and the independence of STMicroelectronics’s
external auditors.
The Audit
Committee met 12 times during 2008. At many of these meetings, the Audit
Committee received presentations on current financial and accounting issues and
had the opportunity to interview STMicroelectronics’s CEO, CFO, General Counsel,
external and internal auditors. On several occasions, the Audit Committee also
met with outside U.S. legal counsel to discuss corporate requirements pursuant
to NYSE’s corporate governance rules and the Sarbanes-Oxley Act. The Audit
Committee also proceeded with its annual review of STMicroelectronics’s internal
audit function. The Audit Committee reviewed STMicroelectronics’s annual
Consolidated Financial Statements in U.S. GAAP for the 2008 financial year, and
the associated press release published on January 28, 2009. The Audit Committee
has also reviewed STMicroelectronics’s Annual Consolidated Financial Statements
in IFRS for the 2008 financial year, which are incorporated in this Annual
Report.
The Audit
Committee approved the compensation of STMicroelectronics’s external auditors
for 2008 and provisionally approved the scope of their audit, audit-related and
non-audit-related services for 2009.
At the
end of each quarter, prior to each Supervisory Board meeting to approve
STMicroelectronics’s results and quarterly earnings press release, the Audit
Committee reviewed STMicroelectronics’s interim financial information as
presented by the management 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 STMicroelectronics’s quarterly “Operating
and Financial Review and Prospects” and interim 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 STMicroelectronics’s Consolidated Financial
Statements contained in STMicroelectronics’s 2007 Annual Report on Form 20-F, as
well as STMicroelectronics’s financial reporting using IFRS as presented in
STMicroelectronics’s statutory 2007 Annual Report for the 2008 AGM held on May
14, 2008.
Also in
2008, the Audit Committee reviewed with STMicroelectronics’s external auditors
STMicroelectronics’s compliance with Section 404 of the Sarbanes-Oxley Act. In
addition, the Audit Committee regularly discussed the progress of implementation
of internal control over financial reporting and reviewed management’s
conclusions as to the effectiveness of internal control.
Furthermore,
the Audit Committee monitors STMicroelectronics’s compliance with the European
Directive and applicable provisions of Dutch law that require as from 2009
STMicroelectronics to prepare a set of annual and semi-annual accounts pursuant
to IFRS, the annual accounts to be adopted by the AGM.
As part
of each of its quarterly meetings the Audit Committee also reviewed
STMicroelectronics’s financial results as presented by Management and
whistle-blowing reports, including independent investigative reports provided by
internal audit or outside consultants on such matters.
On May
14, 2008, the Supervisory Board re-appointed Mr. de Waard as Chairman, and
appointed Messrs. Bingham, Dunn, Lamouche and Steve as members. All members of
the Audit Committee are financial experts and voting members.
2008
Annual Report of STMicroelectronics N.V.
Our
internal risk management and control systems, including the structure and
operation thereof, were discussed and evaluated on several occasions with the
Audit Committee and the Supervisory Board during 2008 (in accordance with best
practice provision III.1.8 of the Dutch Coporate Governance Code).
Compensation
Committee
The
Compensation Committee proposes to the Supervisory Board the compensation for
STMicroelectronics’s President and Chief Executive Officer and sole member of
the Managing Board as well as for STMicroelectronics’s Chief Operating Officer,
including the variable portion of such compensation based on performance
criteria recommended by the Compensation Committee. It also approves any
increase in the incentive component of compensation for STMicroelectronics’s
executive officers. The Compensation Committee is also informed of the
compensation plans for STMicroelectronics’s executive officers and specifically
approves stock-based compensation plans for STMicroelectronics’s executive
officers and key employees. The Compensation Committee met six times in
2008.
Among its
main activities, the Compensation Committee proposed the following initiatives
to the Supervisory Board, which approved them: (i) the performance criteria
which must be met by the CEO in order to benefit from both the bonus- and
stock-based compensation that was approved by the 2008 AGM, as well as the
performance criteria to be met by STMicroelectronics’s COO to be eligible for
his 2008 bonus, (ii) 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, (iii) a new three-year stock based compensation plan
for the members and professionals of the Supervisory Board, which was approved
at the 2008 AGM, (iv) a 2008 non-vested stock award plan for key employees and
(v) a program for STMicroelectronics to buy back up to 30 million of
STMicroelectronics’s issued shares over a five year period to fund
STMicroelectronics’s non-vested stock award plan.
In
particular, the Compensation Committee recommended the performance targets for
the base bonus of STMicroelectronics’s CEO and COO be based on new product
introductions, market share and budget targets, STMicroelectronics’s stock
performance versus the SOXX index and criteria related to corporate governance
and restructuring programs.
With
regard to the 2007 non-vested stock award plan for employees, the Compensation
Committee monitored the performance of the criteria relating to the vesting of
such awards and noted that the targets set in the prior year in terms of sales
and profits had been met, while the target for the return on net assets had
not.
For the
2008 non-vested stock award plan, the Compensation Committee established the
applicable performance criteria, which are based on sales, profit compared
against a panel of semiconductor companies and return on net assets, compared to
the budget. The Compensation Committee approved a total allocation of 6,100,000
shares for the 2008 non-vested stock award plan, which includes up to 100,000
shares approved to be allocated to STMicroelectronics’s CEO.
In
addition, the Compensation Committee received presentations and discussed
STMicroelectronics’s compensation policy for top management as well as
STMicroelectronics’s succession planning for key employees.
2008 Annual Report of
STMicroelectronics N.V.
The
remuneration of STMicroelectronics’s current sole member of its Managing Board
and President and CEO in 2008 was:
Sole
Member of
Our
Managing Board and President and CEO
|
|
|
|
|
|
|
|
|
|
|
|
|
Carlo
Bozotti
|
|
$ |
917,253 |
|
|
$ |
663,948 |
|
|
$ |
972,932 |
|
|
$ |
2,554,133 |
|
(1)
|
The
bonus paid to the sole member of our Managing Board and President and CEO
during the 2008 financial year was approved by the Compensation Committee,
and approved by the Supervisory Board in respect of the 2007 financial
year, based on fulfillment of a number of pre-defined objectives for
2007.
|
(2)
|
Our
Supervisory Board, upon the recommendation of our Compensation Committee,
approved an annual salary for 2008 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.
|
(3)
|
Including
stock awards, employer social contributions, company car allowance and
miscellaneous allowances.
|
On May
14, 2008, the Supervisory Board appointed Mr. Turicchi as Chairman of the
Compensation Committee, and Messrs. Arbola, de Waard, Lombard and Steve were
appointed as members.
Strategic
Committee
The
Strategic Committee was created to monitor key developments within the
semiconductor industry and STMicroelectronics’s overall strategy, and is
particularly involved in supervising the execution of strategic
transactions.
The
Strategic Committee met three times in 2008. and reviewed and recommended for
approval to the supervisory board the strategic initiatives proposed by the
Managing Board. Among its main activities, the Strategic Committee reviews
STMicroelectronics’s long-term plans and prospects and various possible
scenarios and opportunities to meet the challenges of the semiconductor market,
including the evaluation of possible acquisitions or divestitures.
In 2008,
the Strategic Committee monitored the negotiations that led to the announcement
in April 2008 of STMicroelectronics’s decision to create ST-NXP Wireless, which
began operations on August 2, 2008. They also continued monitoring the creation
of Numonyx, which was set up by STMicroelectronics, Intel and Francisco Partners
on March 30, 2008, following the contribution by STMicroelectronics of its Flash
Memory Business and by Intel of its NOR Memory business.
In
addition, the Strategic Committee received presentations related to the
Technology Council, STMicroelectronics’s 5-year plan and initiatives related to
STMicroelectronics’s product portfolio as well as other strategic
matters.
On May
14, 2008, the Supervisory Board appointed Mr. Turicchi as Chairman of the
Strategic Committee, and Messrs. Arbola, Dunn, Lombard, Ovi and Bingham were
appointed as members.
Nominating and Corporate Governance
Committee
The
Nominating and Corporate Committee was created to establish the selection
criteria and appointment procedures for the appointment of members to the
Supervisory Board and Managing Board, and to resolve issues relating to
corporate governance. The Nominating and Corporate Governance Committee met
three times in 2008.
2008
Annual Report of STMicroelectronics N.V.
The
Nominating and Corporate Governance Committee met to discuss the re-appointment
of Mr. Carlo Bozotti as the sole member of the Managing Board for an additional
three-year tem to expire at the end of the 2011 AGM, to evaluate candidates for
the Supervisory Board member position up for renewal at the 2008 AGM and to
recommend the appointment of Mr. Antonino Turicchi for a three-year term. In the
fourth quarter of 2008, the Nominating and Corporate Governance Committee
decided to recommend the re-appointment of Messrs. Doug Dunn and Didier Lamouche
as members of the Supervisory Board at the 2009 AGM.
On May
14, 2008, the Supervisory Board appointed Mr. de Waard as Chairman of the
Nominating and Corporate Governance Committee and Messrs. Arbola, Turicchi,
Lombard and Steve were appointed as members.
3.5
Supervisory Board Compensation
The
members of the Supervisory Board receive compensation as authorized by the
general meeting of shareholders. Detailed information on the compensation of the
Supervisory Board during 2008 was as follows:
Supervisory Board Member
|
Directors’ Fees
|
Antonino
Turicchi(1)
|
€144,250
|
Gérald
Arbola
|
€161,500
|
Raymond
Bingham
|
€94,625
|
Matteo
del Fante(1)
|
€23,250
|
Douglas
Dunn
|
€97,625
|
Didier
Lamouche
|
€88,500
|
Didier
Lombard
|
€98,250
|
Alessandro
Ovi
|
€81,875
|
Bruno
Steve
|
€109,000
|
Tom
de Waard(2)
|
€164,750
|
Total
|
|
(1) Mr.
Matteo del Fante was a Supervisory Board member until our 2008 annual
shareholders' meeting, at which time he was succeeded by Mr. Antonino
Turicchi.
(2)
Compensation, including attendance fees of $ 2,000 per meeting of our
Supervisory Board or committee thereof, was paid to Clifford Chance
LLP.
3.6
Financial Statements 2008
The
financial statements of STMicroelectronics for 2008, as presented by the
Managing Board, have been audited by PricewaterhouseCoopers Accountants N.V.,
independent auditors. Their report has been included in the [Other Information]
section of this statutory Annual Report. The Supervisory Board has approved the
financial statements for submission to the 2009 AGM.
2008 Annual Report of
STMicroelectronics N.V.
3.7
Resolutions submitted to the 2009 AGM
As in the
past, the Supervisory Board has prepared, with the Managing Board, the
resolutions to be submitted for adoption at STMicroelectronics’s 2009 AGM to be
held on May 20, 2009 in Amsterdam, the Netherlands. Except as stated below, the
resolutions are in line with the resolutions presented for shareholder adoption
/ approval at prior AGMs:
|
-
|
the
re-appointment of Messrs. Doug Dunn and Didier Lamouche as members of the
Supervisory Board for a three-year term, to expire at the end of the 2012
AGM;
|
|
-
|
the
approval of the maximum number of “restricted” Share Awards under
STMicroelectronics’s existing Employee Unvested Share Award Plan per year,
including any Unvested Stock Awards granted to STMicroelectronics’s
President and CEO as part of his
compensation;
|
|
-
|
the
amendment of STMicroelectronics’s Articles of Association, which is
proposed in light of changes in Dutch law and rules effective as of
January 1, 2009 or proposed changes in Dutch law which are expected to
become effective in the near future;
and
|
|
-
|
the
consent to provide information to STMicroelectronics’s shareholders and
other persons entitled to attend the AGM by way of electronic means of
communication.
|
Conclusion
Finally,
the Supervisory Board, in conjunction with the Managing Board, prepared the
agenda for the upcoming 2009 AGM. The Supervisory Board also voted on April 15,
2009 to adopt this report and recommend for adoption of the proposed
resolutions. The AGM materials, including the agenda and the text of the
proposed resolutions and shareholder information, are available on
STMicroelectronics’s website and at STMicroelectronics’s offices at Schiphol
Airport, the Netherlands.
Approved
by the Supervisory Board Members on April 15 th, 2009.
2008
Annual Report of STMicroelectronics N.V.
4.
CORPORATE GOVERNANCE
Our
Company is committed to implementing high and commercially accepted standards of
corporate governance at all levels which are evidenced by:
-
|
STMicroelectronics’s
corporate organization under Dutch law that entrusts STMicroelectronics’s
management
to a Managing Board acting under the supervision and control of a
Supervisory Board totally independent from the Managing
Board. Members of the Managing Board and of the Supervisory
Board are appointed and dismissed by STMicroelectronics’s
shareholders;
|
-
|
STMicroelectronics’s
adoption of policies on important issues such as “business ethics” and
“conflicts of interest” and STMicroelectronics’s strict policies to comply
with applicable regulatory requirements concerning financial reporting,
insider trading and public
disclosures;
|
-
|
STMicroelectronics’s
compliance with United States, French and Italian securities laws, because
STMicroelectronics’s shares are listed in these jurisdictions, and with
Dutch securities laws, because STMicroelectronics is a company
incorporated under the laws of the Netherlands, as well as
STMicroelectronics’s compliance with the corporate, social and financial
laws applicable to STMicroelectronics’s subsidiaries in the countries in
which STMicroelectronics does business;
|
-
|
STMicroelectronics’s
broad-based activities in the field of corporate social responsibility,
encompassing environmental, social, health, safety, educational and other
related issues;
|
-
|
STMicroelectronics’s
implementation, in conformity with applicable laws, 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 the 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 ST employees of concerns
regarding questionable accounting or auditing
matters;
|
-
|
STMicroelectronics’s
Principles for Sustainable Excellence, which require STMicroelectronics to
integrate and execute all of STMicroelectronics’s business activities,
focusing on STMicroelectronics’s employees, customers, shareholders and
global business partners;
|
-
|
STMicroelectronics’s
Ethics Committee, set up in 2007, whose mandate is to provide advice to
management and employees about STMicroelectronics’s Principles of
Sustainable Excellence and other ethical issues;
and
|
-
|
STMicroelectronics’s
appointment of a Chief Compliance Officer, who reports directly to the
Managing Board and to the audit committee regarding matters of financial
integrity, acts as Executive Secretary to the Supervisory Board and chairs
STMicroelectronics’s Ethics
Committee.
|
Our
Supervisory Board supports the Principles of Sustainable Excellence, which also
serves as STMicroelectronics’s Code of Conduct. The Principles are
communicated to all employees at STMicroelectronics and STMicroelectronics is
committed to ensuring that high standards of corporate governance are
implemented and maintained throughout in order to enhance both shareholder and
the long term value of STMicroelectronics.
These
Principles and practices, supported by existing internal controls processes, are
regularly audited and reviewed, to ensure transparency and accountability. The
Supervisory Board Charter, as adopted by the Supervisory Board, spells out
clearly the key business practices and authority that govern the
way
2008
Annual Report of STMicroelectronics N.V.
STMicroelectronics
conducts its business. The Principles have remained consistent ever
since, because the core values on which they were originally based have endured,
namely:
STMicroelectronics
also firmly believes in the fundamental importance of the promotion of trust,
openness, teamwork and professionalism and
pride in what it does. These underlying corporate values determine
STMicroelectronics’s principles. These Principles apply to all transactions,
large or small, and describe the behaviour expected of every employee in
STMicroelectronics in the conduct of its business, In turn, the
application of these Principles is underpinned by procedures within
STMicroelectronics, which are designed to ensure that our employees understand
the Principles and that they act in accordance with
them. STMicroelectronics recognizes that it is vital that its
behaviour matches its intentions.
As a
Dutch company, became subject to the Dutch Corporate Governance Code dated
December 9, 2003, effective January 1, 2004 (the “2003 Code”). As
STMicroelectronics is listed on the NYSE, Euronext Paris, the Borsa Italiana in
Milan, and also in Luxembourg but not in the Netherlands, STMicroelectronics’s
corporate governance principles and guidelines seek to achieve compliance with
the relevant practices in a variety of jurisdictions, always keeping in mind the
best interests of the shareholders, employees and other
stakeholders.
As a
result the corporate governance practices differ in certain cases from the “best
practices” recommended by the 2003 Code. However, by explaining the
corporate governance practices in the Corporate Governance Charter,
STMicroelectronics has endeavored to comply with the 2003 Code. STMicroelectronics
has summarized its policies and practices in the field of corporate governance
in STMicroelectronics’s Corporate Governance Charter, including
STMicroelectronics’s corporate organization, the remuneration principles which
apply to the Managing and Supervisory Boards, STMicroelectronics’s information
policy and STMicroelectronics’s
corporate policies relating to business ethics and conflicts of interest.
STMicroelectronics’s Charter was discussed with and approved by
STMicroelectronics’s shareholders at the 2004 AGM. STMicroelectronics’s
Corporate Governance Charter is periodically reviewed with the Supervisory Board
and updated and expanded whenever necessary or advisable. STMicroelectronics is
committed to informing its shareholders of any significant changes in its
corporate governance policies and practices at the AGM. Along with the
Supervisory Board Charter (which includes the charters of the Supervisory Board
Committees) which was last updated by the Supervisory Board in July 2008 and
STMicroelectronics’s Code of Business Conduct and Ethics, the current version of
STMicroelectronics’s Corporate Governance Charter is posted on
STMicroelectronics’s 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 (the
“Committee”), STMicroelectronics will include in its 2009 Annual Report a
chapter on the broad outline of its corporate governance structure and
compliance with the revised Dutch Corporate Governance Code dated December 10,
2008 (the “2008 Code”). The 2008 Code has come into force with effect from the
2009 financial year (but does not affect the 2008 Annual Report). Furthermore,
as recommended by the Committee, STMicroelectronics will present the chapter
referred to above for discussion as a separate agenda item at the 2010
AGM.
STMicroelectronics’s
corporate governance provisions, as highlighted by STMicroelectronics’s
Corporate Governance and Supervisory Board Charters posted on the website under
“Corporate Governance” can differ from the best practice provisions in the 2003
Code. In particular, STMicroelectronics believes that Supervisory Board members’
compensation should include stock-based compensation in order to
ensure
2008
Annual Report of STMicroelectronics N.V.
that they
best identify with the interests of all shareholders in line with international
practices (best practice provision III.7.1 of the 2003 Code) and to attract new
members with an international background.
STMicroelectronics
has adopted a profile for its Supervisory Board members, the composition of the
Supervisory Board committees, as well as a definition of independence regarding
the status of Supervisory Board members which is described in the Supervisory
Board Charter.
The
Supervisory Board is carefully selected based upon the combined experience and
expertise of its members. Certain of the
Supervisory Board members, as disclosed in their biographies attached to the
Supervisory Board and posted on STMicroelectronics’s website have existing
relationships or past relationships with Areva, CEA, Cassa Depositi e Prestiti
(“CDP”) and/or Finmeccanica, who are currently parties to the ST Holding
Shareholders’ Agreement. 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
STMicroelectronics’s stakeholders and of STMicroelectronics’s business and must
act independently in their supervision of STMicroelectronics’s management. One
of STMicroelectronics’s Supervisory Board members has been in office since 1989,
which is more than twelve years (best practice provision III.3.5 of the 2003
Code). Additionally, the Chairman of the Supervisory Board is also
the Chairman of the Compensation Committee (best practice provision III.5.11 of
the 2003 Code).
The
Supervisory Board has established the following independence criteria for its
members: Supervisory Board members must have no material relationship with
STMicroelectronics or any of STMicroelectronics’s consolidated subsidiaries, or
STMicroelectronics’s 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.
The
Supervisory Board also adopted specific bars to independence. On that
basis, the Supervisory Board concluded, in its business judgment, that all
members qualify as independent based on the criteria set forth
above.
The above
mentioned independence criteria differ to a certain extent from best practice
provision III.2.2 of the 2003 Code.
STMicroelectronics
is a party to an option agreement with Stichting
Continuïteit ST February 7, 2007 (the “Stichting”) regarding
STMicroelectronics’s preference shares. The Managing Board and the Supervisory
Board, along with the board of the Stichting, have declared that they are
jointly of the opinion that the Stichting is independent of Company. The option
agreement provides for the issuance of up to a maximum 540,000,000 preference
shares. Any such shares would be issued to the Stichting upon its request and in
its sole discretion and upon payment of at least 25% of the par value of the
preference shares to be issued. The shares would be issuable in the event of
actions considered hostile by the Managing Board and the Supervisory Board, such
as a creeping acquisition (in such case up to 30% of the issued and outstanding
share capital of STMicroelectronics) or an offer on STMicroelectronics’s
ordinary shares, which are unsupported by the Managing Board and the Supervisory
Board and which the board of the Stichting determines would be contrary to the
interests of STMicroelectronics, STMicroelectronics’s shareholders or other
stakeholders. 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 create a level-playing field in the
event actions which are considered to be hostile by the Managing Board and the
Supervisory Board, as described above, occur and which the board of the
Stichting determines to be contrary to the interests of STMicroelectronics, and
STMicroelectronics’s shareholders and other stakeholders. Such level-playing
field may influence STMicroelectronics to seek alternatives for such hostile
actions.
2008 Annual Report of
STMicroelectronics N.V.
STMicroelectronics
complies with the Corporate Governance Code by applying most of its principles
and best practice provisions that are addressed to the Managing Board and/ the
Supervisory Board or by explaining why it deviates from such provisions.
STMicroelectronics applies such principles and best practice provisions, with
the exception of the following best practice provisions:
1.
|
Best practice
provision II.2.3: the sole member of the Managing Board is granted
share awards (as part of his compensation) with a staggered vesting
schedule (i.e., 1/3 in the first year, 1/3 in the second year and 1/3 in
the third year). Although the sole member of the Managing Board has not
disposed of his shares under the share awards, there is no requirement
that he holds his shares for a minimum period of five years; Best practice
provisions II.2.6: The Supervisory Board has not prepared
regulations concerning ownership of and transactions in securities by the
sole member of the Managing Board, other than securities issued by
STMicroelectronics;
|
2.
|
Best practice
provisions II.2.9 and II.2.13: The Supervisory Board has not
prepared a separate remuneration report and is therefore not posted on
STMicroelectronics’s website;
|
3.
|
Best practice
provision III.2.1: The Supervisory Board as established its own
independence criteria based on the criteria of the New York Stock Exchange
which differ to a certain extent from the criteria as enumerated in best
practice provision III.2.2. These own independence criteria were approved
by the 2004 Annual General Meeting of Shareholders; consequently the
shareholders’ meeting has approved the deviation from this best practice
provision;
|
4.
|
Best practice
provision III.3.5: One of the members of the Supervisory Board is
more than twelve years in office; another member of the Supervisory Board
will at the end of his current term have been in office for more than
twelve years; the shareholders’ meeting has appointed these persons;
consequently the shareholders’ meeting has approved the deviation from
this best practice provision;
|
5.
|
Best practice
provision III.5.11: the chairman of the Supervisory Board is also
the chairman of the compensation
committee;
|
6.
|
Best practice
provision III.7.1: The members of the Supervisory Board receive
stock-based compensation;
|
7.
|
Best practice
provision III.7.3: The Supervisory Board has not prepared
regulations concerning ownership of and transactions in securities by the
members of the Supervisory Board, other than securities issued by
STMicroelectronics.
|
8.
|
It
is noted that STMicroelectronics’s Corporate Governance Charter as
published on STMicroelectronics’s website is incorporated by reference in
this annual report.
|
5.
Statutory Financial statements 2008
The
financial statements of STMicroelectronics for 2008, as presented by the
Managing Board, have been audited by PricewaterhouseCoopers Accountants N.V,
independent auditors. Their audit report has been included in chapter
6, ‘Other Information’ section of this Annual Report.
STMicroelectronics has approved the financial statements for submission to the
Annual General Meeting of shareholders.
This
chapter contains:
|
·
|
Consolidated
financial statements
|
|
·
|
Consolidated
statements of income for the periods ended December 31, 2008 and December
31, 2007
|
|
·
|
Consolidated
balance sheets as of December 31, 2008 and December 31,
2007
|
2008
Annual Report of STMicroelectronics N.V.
|
·
|
Consolidated
statements of changes in equity for the periods ended December 31, 2008
and December 31, 2007
|
|
·
|
Consolidated
statements of cash flows for the periods ended December 31, 2008 and
December 31, 2007
|
|
·
|
Notes
to the consolidated financial
statements
|
2008
Annual Report of STMicroelectronics N.V.
5.1
Consolidated financial statements
STMICROELECTRONICS
N.V. AND ITS SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
In
millions of U.S. dollars except per share amounts |
|
|
Note
|
|
|
|
Year
Ended
December
31, 2008
|
|
|
|
Year
Ended
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
38
|
|
|
|
9,792 |
|
|
|
9,966 |
|
Other
revenues
|
|
|
38
|
|
|
|
50 |
|
|
|
35 |
|
Total
revenues
|
|
|
|
|
|
|
9,842 |
|
|
|
10,001 |
|
Cost
of sales
|
|
|
27
|
|
|
|
(6,585 |
) |
|
|
(6,698 |
) |
Gross
profit
|
|
|
|
|
|
|
3,257 |
|
|
|
3,303 |
|
Selling,
general and administrative
|
|
|
27
|
|
|
|
(1,219 |
) |
|
|
(1,099 |
) |
Research
and development
|
|
|
27
|
|
|
|
(1,859 |
) |
|
|
(1,569 |
) |
Other
income
|
|
|
25
|
|
|
|
131 |
|
|
|
184 |
|
Other
expenses
|
|
|
25
|
|
|
|
(66 |
) |
|
|
(58 |
) |
Impairment
on assets held for sale and related costs
|
|
|
26
|
|
|
|
(105 |
) |
|
|
(1,167 |
) |
Operating
profit (loss)
|
|
|
|
|
|
|
139 |
|
|
|
(406 |
) |
Impairment
charge on marketable securities
|
|
|
5
|
|
|
|
(138 |
) |
|
|
(46 |
) |
Finance
income
|
|
|
28
|
|
|
|
145 |
|
|
|
155 |
|
Finance
costs
|
|
|
28
|
|
|
|
(121 |
) |
|
|
(105 |
) |
Share
of gain (loss) of associates
|
|
|
3
|
|
|
|
(60 |
) |
|
|
10 |
|
Impairment
on investments in associates
|
|
|
3
|
|
|
|
(494 |
) |
|
|
- |
|
Profit
(loss) before income tax
|
|
|
|
|
|
|
(529 |
) |
|
|
(392 |
) |
Income
tax benefit/(expense)
|
|
|
29
|
|
|
|
11 |
|
|
|
(41 |
) |
Net
result
|
|
|
|
|
|
|
(518 |
) |
|
|
(433 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
holders of STMicroelectronics
|
|
|
|
|
|
|
(519 |
) |
|
|
(439 |
) |
Minority
interests
|
|
|
|
|
|
|
1 |
|
|
|
6 |
|
Net
result
|
|
|
|
|
|
|
(518 |
) |
|
|
(433 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share (Basic)
|
|
|
24
|
|
|
|
(0.58 |
) |
|
|
(0.49 |
) |
Earnings
(loss) per share (Diluted)
|
|
|
24
|
|
|
|
(0.58 |
) |
|
|
(0.49 |
) |
The
accompanying notes are an integral part of these consolidated financial
statements.
2008
Annual Report of STMicroelectronics N.V.
STMICROELECTRONICS
N.V. AND ITS SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
In
millions of U.S. dollars
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Non-current
assets:
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
14
|
|
|
|
4,820 |
|
|
|
5,045 |
|
Goodwill
|
|
|
12
|
|
|
|
870 |
|
|
|
243 |
|
Intangible
assets
|
|
|
13
|
|
|
|
1,865 |
|
|
|
843 |
|
Deferred
income tax assets
|
|
|
29
|
|
|
|
536 |
|
|
|
355 |
|
Derivative
financial instruments
|
|
|
6
|
|
|
|
- |
|
|
|
8 |
|
Investments
in associates
|
|
|
3
|
|
|
|
510 |
|
|
|
- |
|
Available-for-sale
financial assets
|
|
|
5
|
|
|
|
447 |
|
|
|
408 |
|
Restricted
cash
|
|
|
35
|
|
|
|
250 |
|
|
|
250 |
|
Long-term
loans and receivables
|
|
|
15
|
|
|
|
413 |
|
|
|
203 |
|
Other
non-current assets
|
|
|
16
|
|
|
|
30 |
|
|
|
60 |
|
Total
non-current assets
|
|
|
|
|
|
|
9,741 |
|
|
|
7,415 |
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
8
|
|
|
|
1,841 |
|
|
|
1,355 |
|
Trade
accounts receivable
|
|
|
7
|
|
|
|
1,064 |
|
|
|
1,605 |
|
Other
receivables
|
|
|
10
|
|
|
|
307 |
|
|
|
336 |
|
Current
income tax receivable
|
|
|
29
|
|
|
|
68 |
|
|
|
142 |
|
Other
current assets
|
|
|
11
|
|
|
|
239 |
|
|
|
150 |
|
Derivative
financial instruments
|
|
|
6
|
|
|
|
71 |
|
|
|
13 |
|
Available-for-sale
financial assets
|
|
|
5
|
|
|
|
651 |
|
|
|
1,014 |
|
Cash
and cash equivalents
|
|
|
30
|
|
|
|
1,009 |
|
|
|
1,855 |
|
Total
current assets
|
|
|
|
|
|
|
5,250 |
|
|
|
6,470 |
|
Assets
held for sale
|
|
|
9
|
|
|
|
- |
|
|
|
1,017 |
|
TOTAL
ASSETS
|
|
|
|
|
|
|
14,991 |
|
|
|
14,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
attributable to the shareholders of STMicroelectronics
|
|
|
22
|
|
|
|
8,759 |
|
|
|
9,953 |
|
Minority
interests
|
|
|
|
|
|
|
474 |
|
|
|
53 |
|
Total
equity
|
|
|
|
|
|
|
9,233 |
|
|
|
10,006 |
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
19
|
|
|
|
2,403 |
|
|
|
1,887 |
|
Retirement
benefit obligations
|
|
|
18
|
|
|
|
264 |
|
|
|
333 |
|
Deferred
income tax liabilities
|
|
|
29
|
|
|
|
233 |
|
|
|
141 |
|
Long
term provisions
|
|
|
20
|
|
|
|
110 |
|
|
|
61 |
|
Other
non-current liabilities
|
|
|
21
|
|
|
|
500 |
|
|
|
332 |
|
Total
non-current liabilities
|
|
|
|
|
|
|
3,510 |
|
|
|
2,754 |
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
overdrafts
|
|
|
30
|
|
|
|
20 |
|
|
|
- |
|
Current
portion of long-term debt
|
|
|
19
|
|
|
|
138 |
|
|
|
103 |
|
Trade
accounts payable
|
|
|
17
|
|
|
|
840 |
|
|
|
1,065 |
|
Other
payables and accrued liabilities
|
|
|
17
|
|
|
|
866 |
|
|
|
702 |
|
Current
provisions
|
|
|
20
|
|
|
|
313 |
|
|
|
195 |
|
Derivative
financial instruments
|
|
|
35
|
|
|
|
5 |
|
|
|
1 |
|
Current
income tax liabilities
|
|
|
29
|
|
|
|
66 |
|
|
|
76 |
|
|
|
|
|
|
|
|
2,248 |
|
|
|
2,142 |
|
Total
liabilities
|
|
|
|
|
|
|
5,758 |
|
|
|
4,896 |
|
TOTAL
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
14,991 |
|
|
|
14,902 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
2008
Annual Report of STMicroelectronics N.V.
STMICROELECTRONICS
N.V. AND ITS SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
|
|
|
|
|
Equity
attributable to the shareholders of
STMicroelectronics
|
|
|
|
|
|
|
|
In
millions of U.S. dollars, except per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2006
|
|
|
|
|
|
1,156 |
|
|
|
1,981 |
|
|
|
(331 |
) |
|
|
6,209 |
|
|
|
1,113 |
|
|
|
52 |
|
|
|
10,180 |
|
Unrealized
profit on cash flow hedge, net of tax
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
|
|
- |
|
|
|
(1 |
) |
Unrealized
loss on debt securities
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3 |
) |
|
|
- |
|
|
|
(3 |
) |
Foreign
currency translation difference
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
458 |
|
|
|
(5 |
) |
|
|
453 |
|
Net
income recognized directly in equity
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
454 |
|
|
|
(5 |
) |
|
|
449 |
|
Net
result
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(439 |
) |
|
|
- |
|
|
|
6 |
|
|
|
(433 |
) |
Total
recognized income for 2007
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(439 |
) |
|
|
454 |
|
|
|
1 |
|
|
|
16 |
|
Employee
share award scheme:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
of services provided
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
78 |
|
|
|
- |
|
|
|
78 |
|
Distribution
of treasury shares
|
|
|
22
|
|
|
|
- |
|
|
|
- |
|
|
|
57 |
|
|
|
(57 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Exercise
of stock options
|
|
|
22
|
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
Dividends,
$0.30 per share
|
|
|
23
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(270 |
) |
|
|
- |
|
|
|
- |
|
|
|
(270 |
) |
|
|
|
|
|
|
|
- |
|
|
|
2 |
|
|
|
57 |
|
|
|
(327 |
) |
|
|
78 |
|
|
|
- |
|
|
|
(190 |
) |
Balance
as of December 31, 2007
|
|
|
|
|
|
|
1,156 |
|
|
|
1,983 |
|
|
|
(274 |
) |
|
|
5,443 |
|
|
|
1,645 |
|
|
|
53 |
|
|
|
10,006 |
|
Unrealized
loss on cash flow hedge, net of tax
|
|
|
16
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13 |
) |
|
|
- |
|
|
|
(13 |
) |
Unrealized
loss on debt securities
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(10 |
) |
|
|
- |
|
|
|
(10 |
) |
Foreign
currency translation difference
|
|
|
16
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(228 |
) |
|
|
(20 |
) |
|
|
(248 |
) |
Net
income recognized directly in equity
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(251 |
) |
|
|
(20 |
) |
|
|
(271 |
) |
Net
result
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(519 |
) |
|
|
- |
|
|
|
1 |
|
|
|
(518 |
) |
Total
recognized income for Jan. 1st –
Dec. 31st, 2008
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(519 |
) |
|
|
(251 |
) |
|
|
(19 |
) |
|
|
(789 |
) |
Employee
share award scheme:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
of services provided
|
|
|
22
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
76 |
|
|
|
- |
|
|
|
76 |
|
Issuance
of shares by subsidiaries
|
|
|
|
|
|
|
- |
|
|
|
131 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
131 |
|
Minority
interest arising on business combination
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450 |
|
|
|
450 |
|
Distribution
of treasury shares
|
|
|
22
|
|
|
|
- |
|
|
|
- |
|
|
|
(208 |
) |
|
|
(104 |
) |
|
|
- |
|
|
|
- |
|
|
|
(312 |
) |
Exercise
of stock options
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Dividends,
$0.36 per share
|
|
|
23
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(319 |
) |
|
|
- |
|
|
|
(10 |
) |
|
|
(329 |
) |
|
|
|
|
|
|
|
- |
|
|
|
131 |
|
|
|
(208 |
) |
|
|
(423 |
) |
|
|
76 |
|
|
|
440 |
|
|
|
16 |
|
Balance
as of December 31, 2008
|
|
|
|
|
|
|
1,156 |
|
|
|
2,114 |
|
|
|
(482 |
) |
|
|
4,501 |
|
|
|
1,470 |
|
|
|
474 |
|
|
|
9,233 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
2008
Annual Report of STMicroelectronics N.V.
STMICROELECTRONICS
N.V. AND ITS SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
In
millions of U.S. dollars
|
|
|
|
|
Year
Ended December 31, 2008
|
|
|
Year
Ended December 31, 2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Cash
generated from
operations
|
|
|
31
|
|
|
|
2,160 |
|
|
|
2,534 |
|
Interest
paid
|
|
|
28
|
|
|
|
(63 |
) |
|
|
(52 |
) |
Income
tax
paid
|
|
|
29
|
|
|
|
(154 |
) |
|
|
(133 |
) |
Net
cash from operating
activities
|
|
|
|
|
|
|
1,943 |
|
|
|
2,349 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
for purchase of tangible assets
|
|
|
14
|
|
|
|
(992 |
) |
|
|
(1,141 |
) |
Proceeds
from the sale of tangible assets
|
|
|
14
|
|
|
|
8 |
|
|
|
1 |
|
Investment
in intangible and financial assets
|
|
|
5,
9,11,13
|
|
|
|
(434 |
) |
|
|
(436 |
) |
Payment
for businesses acquired, net
|
|
|
4
|
|
|
|
(1,694 |
) |
|
|
(86 |
) |
Restricted
cash for equity investments
|
|
|
|
|
|
|
- |
|
|
|
(32 |
) |
Proceeds
from maturity of short-term deposits
|
|
|
31
|
|
|
|
- |
|
|
|
250 |
|
Purchase
of available for sale financial assets
|
|
|
5
|
|
|
|
- |
|
|
|
(708 |
) |
Proceeds
from available for sale financial assets
|
|
|
5
|
|
|
|
351 |
|
|
|
101 |
|
Interest
received
|
|
|
|
|
|
|
122 |
|
|
|
154 |
|
Net
cash used in investing
activities
|
|
|
|
|
|
|
(2,639 |
) |
|
|
(1,897 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of ordinary shares
|
|
|
22
|
|
|
|
- |
|
|
|
2 |
|
Proceeds
from issuance of long-term debt
|
|
|
19
|
|
|
|
663 |
|
|
|
102 |
|
Repayment
of long-term
debt
|
|
|
19
|
|
|
|
(187 |
) |
|
|
(125 |
) |
Repurchase
of common stock
|
|
|
22
|
|
|
|
(313 |
) |
|
|
- |
|
Dividends
paid to STMicroelectronics’s shareholders
|
|
|
23
|
|
|
|
(240 |
) |
|
|
(270 |
) |
Dividends
paid to Minority interests
|
|
|
|
|
|
|
(10 |
) |
|
|
(5 |
) |
Net
cash used in financing
activities
|
|
|
|
|
|
|
(87 |
) |
|
|
(296 |
) |
Effect
of changes in exchange
rates
|
|
|
|
|
|
|
(83 |
) |
|
|
40 |
|
Net
cash increase
(decrease)
|
|
|
|
|
|
|
(866 |
) |
|
|
196 |
|
Cash
and cash equivalents at beginning of period
|
|
|
|
|
|
|
1,855 |
|
|
|
1,659 |
|
Cash
and cash equivalents at end of period
|
|
|
|
|
|
|
989 |
|
|
|
1,855 |
|
Reconciliation
of cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents for balance sheet purposes
|
|
|
|
|
|
|
1,009 |
|
|
|
1,855 |
|
Bank
overdrafts
|
|
|
|
|
|
|
(20 |
) |
|
|
— |
|
Cash
and cash equivalents for cash flow statement purposes
|
|
|
|
|
|
|
989 |
|
|
|
1,855 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
2008
Annual Report of STMicroelectronics N.V.
5.2 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(in
millions of U.S. dollars, except per share amounts)
STMicroelectronics
N.V. (the “Company”) is registered in The Netherlands with its statutory
domicile in 265, Schiphol Boulevard, Amsterdam and its corporate headquarters
located in Geneva, Switzerland.
STMicroelectronics
was formed in 1987 to be the holding company for 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) whereby each company contributed their respective
semiconductor businesses in exchange for a 50% interest in
STMicroelectronics.
STMicroelectronics
and its subsidiaries (together “the Group”) are a global independent
semiconductor company that designs, develops, manufactures and markets a broad
range of semiconductor integrated circuits (“ICs”) and discrete devices. The
Group 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 Group has
focused on developing products that leverage its technological strengths in
creating customized, system-level solutions with high-growth digital and
mixed-signal content.
ST
Microelectronics is a publicly traded company that is listed on the New York
Stock Exchange, on Euronext Paris and on the Borsa Italiana (Italian Stock
Exchange).
These
consolidated financial statements have been approved on 15 April, 2009 for
submission to the annual general meeting of the shareholders by the Supervisory
Board.
2
— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
principal accounting policies applied in the preparation of these consolidated
financial statements are set out below. These policies have been consistently
applied to all the years presented, unless otherwise stated.
2.1
— Basis of preparation
These
consolidated financial statements are prepared for Dutch statutory purposes, in
accordance with International Financial Reporting Standards (“IFRS”) as adopted
by the European Union. Regulation (EC) No 1606/2002 requires that for each
financial year starting on or after 1 January 2005, publicly traded companies
governed by the law of a Member State are to prepare their financial
consolidated accounts in conformity with IFRS. In accordance with Article 402,
Title 9, Book 2 of the Dutch Civil Code STMicroelectronics's income statement is
presented in abbreviated form.
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 Group’s Articles of
Association, the financial year extends from January 1 to December 31, which is
the period-end of each fiscal year.
The
consolidated financial statements have been prepared under the historical cost
convention, as modified by available-for-sale financial assets and certain
financial assets and financial liabilities (including derivative instruments) at
fair value. The preparation of consolidated financial statements in conformity
with IFRS requires the use of certain critical accounting
estimates.
2008
Annual Report of STMicroelectronics N.V.
It also
requires management to exercise its judgment in the process of applying the
Group’s accounting policies. The areas involving a higher degree of judgment or
complexity, or areas where assumptions and estimates are significant to the
consolidated financial statements are disclosed in Note 2.28.
2.2
—Consolidation
The
Group’s consolidated financial statements include the assets, liabilities,
results of operations and cash flows of its subsidiaries. The ownership of other
interest holders is reflected as minority interest. Intergroup balances and
transactions as well as unrealized gains and losses on transactions between
affiliates have been eliminated in consolidation.
Subsidiaries
Subsidiaries
are all entities over which the Group has the power to govern the financial and
operating policies generally accompanying a shareholding of more than one half
of the voting rights. The existence and effect of potential voting rights that
are currently exercisable or convertible are considered when assessing whether
the Group controls another entity.
Subsidiaries
are fully consolidated from the date on which control is transferred to the
Group. They are de-consolidated from the date that control ceases.
Associates
Associates
include all entities over which the Group has significant influence but not
control, generally accompanying 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. They are presented on the face
of the consolidated balance sheet as “Investments in associates”.
The
Group’s share in its associate's profit and losses is recognized in the income
statement as “Share of gain (loss) of associates” and in the balance sheet as an
adjustment against the carrying amount of the associate while and its share of
post acquisition movement in reserves is recognized in reserves. The cumulative
post acquisition movements are adjusted against the carrying amount of the
investment. When the Group’s share of losses in an associate equals or exceeds
its interest in the associate, including any unsecured receivable, the Group
does not recognize further losses, unless it has incurred obligations or made
payments on behalf of the associate.
Unrealized
gains on transactions between the Group and its associates are eliminated to the
extent of the Group’s interest in the associates. Unrealized losses are also
eliminated unless the transaction provides evidence of an impairment of the
asset transferred. Accounting policies of associates are consistent with the
policies adopted by the Group.
2.3
— Business combinations
The Group
accounts for its business combinations in line with the requirements of IFRS 3.
All business combinations are accounted for by applying the purchase accounting
method. The purchase accounting method consists of identifying the acquirer,
determining the acquisition date and consideration transferred (purchase price),
recognizing and measuring the identifiable assets acquired, the liabilities
assumed and any non-controlling interest in the acquiree, and recognising
goodwill or, in the case of a bargain purchase, a gain.
The cost
of an acquisition is measured at the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed at the date of exchange,
plus costs directly attributable to the acquisition. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date,
irrespective of any minority interest.
2008
Annual Report of STMicroelectronics N.V.
The
excess of the cost of acquisition over the fair value of the Group’s share of
the identifiable net assets acquired is recorded as goodwill (Note 2.14). If the
cost of acquisition is lower than the fair value of the Group’s share in the net
assets of the entity acquired, the difference is recognized directly in the
income statement.
Estimates
related to business combinations are further disclosed in the note 2.28
"Critical accounting estimates and judgments."
2.4
— Foreign currency translation
Functional and presentation
currency
The U.S.
dollar is the functional and presentation currency for the Group, which is the
currency of the primary economic environment in which the Group operates. 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 Group’s
transactions are denominated in U.S. dollars, and revenues from external sales
in U.S. dollars largely exceed revenues in any other currency. However,
non-dollar labor costs are concentrated primarily in the countries of the Euro
zone.
Translation and
balances
The
functional currency of each subsidiary throughout the Group is either the local
currency or the US dollar, determined on the basis of the economic environment
in which each subsidiary operates. For consolidation purposes, assets and
liabilities included in the financial statements of the Group’s subsidiaries
having the local currency as functional currency are translated at current rates
of exchange at the balance sheet date. Income and expense items and cash flow
items are translated at the monthly exchange rate in which they are recognized.
This has been determined to be an adequate reflection of 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 “Other reserves” 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 during the month of the transaction. At
each balance sheet date, balances denominated in a currency other than the
recording entity’s functional currency are re-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” or “Other expense".
Changes
in the fair value of monetary securities denominated in foreign currency and
classified as available-for-sale are distinguished between translation
differences resulting from changes in the amortized cost of the security and
fair value changes in the carrying amount of the security. Translation
differences related to changes in amortized cost are recognized in the income
statement as finance cost or finance income below operating income, and fair
value in carrying amount are recognized in equity.
Translation
differences on non-monetary financial assets and liabilities are reported as
part of the fair value gain, or on the line “Other income” or “Other expense”
within the operating results. Translation differences on non-monetary financial
assets and liabilities such as equities held at fair value are recognized in the
income statement as part of the fair value gain or loss. Translation differences
on non-monetary financial assets such as equities classified as available for
sale are included in the available-for-sale reserve in equity.
Goodwill
and fair value adjustments arising on the acquisition of a foreign entity are
treated as assets and liabilities of the foreign entity and translated at the
transaction closing rate.
2008 Annual Report of
STMicroelectronics N.V.
2.5
— Revenue Recognition
Revenue
comprises the fair value of the consideration received or receivable from the
sale of goods and services, net of value-added tax, rebates and discounts and
after eliminating intercompany sales within the Group. Revenue is recognized as
follows:
Sales
Revenue
from the sale of products is recognized upon transfer of significant risks and
rewards of ownership to the customer, assuming that the revenue to be recognized
can be measured reliably and it is probable that economic benefits will flow to
the Group. Based on the standard shipping terms applied 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 Group’s
products to compensate them for declines in market prices. The ultimate decision
to authorize a distributor refund remains fully within the control of the
Group. The Group 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 have enabled the Group
to reliably estimate price protection provisions at period-end. The Group
records the accrued amounts as a reduction of revenue at the time of the
sale.
The
Group’s customers occasionally return the Group’s products for technical
reasons. The Group’s standard terms and conditions of sale provide that if the
Group determines that products are non-conforming, the Group 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 Group provides for such returns when they
are considered probable and can be reasonably estimated. The Group records the
accrued amounts as a reduction of revenue.
The
Group’s insurance policy relating to product liability only covers physical
damage and other direct damages caused by defective products. The Group does not
carry insurance against immaterial non-consequential damages. The Group 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 Group’s determination that the Group 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 express or implied by statute or common
law. The Group’s contractual terms and conditions limit its liability
to the sales value of the products which gave rise to the claims.
Distribution
costs are recorded in “cost of sales”.
Revenue
recognition from the rendering of services that can be measured reliably is
based on the stage of completion of the transaction at the balance sheet
date.
Other
revenues
Other
revenues primarily consist of license revenue and patent royalty income, which
are recognized ratably over the term of the agreements.
2008
Annual Report of STMicroelectronics N.V.
Fundings
Fundings
received by the Group are mainly from governmental agencies. Income is recorded
when all qualifying expenditures have been incurred and the Group has obtained
sufficient evidence from the relevant authorities that the credit will be
granted. The Group’s primary sources for government funding are French, Italian
and 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 funding that requires
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 the Group’s revenue recognition policy, funding related to these
contracts is recorded when the conditions required by the contracts are met. The
Group’s funding programs are classified under three general categories: funding
for research and development activities, capital investment, and
loans.
Funding
for research and development activities
Funding
for research and development activities is the most common form of funding that
the Group receives. Public funding for such activities is recorded as “Other
income” in the Group’s consolidated statements of income. Public funding 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. The majority of this public funding is not received for development
projects recognized by the Group as intangible assets, which would have supposed
that the Group would have recognized such funding as a reduction of the
corresponding intangible assets.
The Group
receives certain specific project-related research tax credits ("Credit Impot
Recherche") in its tax jurisdictions. Such credits can be recovered through the
reduction of income tax to be paid for the year. Nevertheless, the Group is
entitled to receive in cash such credit even if no income tax is expected to be
paid. The Group recognizes these credits as long term or short-term receivables
depending on the expected time to collection. Since 2008 in France
these credits are enacted on the basis of a new tax law and as such deducted
from “Research and development” in the consolidated statements of income. The
Group considers the tax credits received from French tax authorities as
government grant based on the fact, that the credit is granted independent of
tax payments of the Group. The Group does not discount the research tax credits
according to International Accounting Standard (IAS) 20 "Government
grants".
Capital
investments
Capital
investment funding is recorded as a reduction of “Property, plant and equipment”
and is recognized in the Group’s consolidated statements of income according to
the depreciation charges of the funded assets during their useful lives. The
Group also receives capital funding in Italy, which is recovered through the
reduction of various government liabilities, including income taxes, value-added
tax and employee-related social charges. When the funding has been classified as
long-term receivable, it is reflected in the balance sheet at its discounted net
present value. The subsequent accretion of the discount is recorded as
non-operating profit in “Finance costs”.
Loans
The Group
receives certain loans from public sources, related to large capital investment
projects. The Group records these loans at their nominal value as debt in its
consolidated balance sheets. The interest rate on such loans is considered to
reflect the fair value rate based on the terms of contracts.
2008
Annual Report of STMicroelectronics N.V.
Finance
income
Interest
income is recognized on a time-proportion basis using the effective interest
method. When a receivable is impaired, the Group reduces the carrying amount to
its recoverable amount, being the estimated future cash flow discounted at the
original effective interest rate of the instrument, and continues unwinding the
discount as interest income.
2.6
— Research and development
Research
and development expenditures include costs incurred by the Group, the Group’s
share of costs incurred by other research and development interest groups and
costs associated with co-development contracts. Research costs are charged to
expense as incurred and are presented net of French research tax credits. In the
financial statements released prior to 2008 the Group recorded research and
development tax credits as part of other income and expenses.
Expenditures
incurred on development projects, mainly related to the design and testing of
new or improved products are recognized as intangible assets when it is probable
that the project will be a success considering its commercial and technological
feasibility, and costs can be measured reliably. Research and tax credits are
also recognized as a reduction of intangible assets for the portion that can be
reliably allocated to development projects. Development expenditures recognized
as assets are amortized, when in use, over their estimated useful lives, not
exceeding three years (Note 2.13). Other development costs are recognized as an
expense as incurred. Development costs recognized as an expense are not
recognized as an asset in a subsequent period. The amortization expense
recognized on capitalized development costs is recorded as cost of sales.
Amortization expense on technologies and licenses purchased by the Group from
third parties or acquired in a business combination to facilitate the Group’s
research are recorded as research and development expenses.
An
impairment test is performed whenever a triggering event questions the future
recoverability, or at least annually, for the capitalized development projects
still not in use. A loss is recognized in the income statement for the amount by
which the asset’s carrying amount exceeds its recoverable amount.
2.7
— Start-up and phase-out costs
Start-up
costs represent costs incurred in the start-up and testing of the Group’s new
manufacturing facilities, before reaching the earlier of a minimum level of
production or 6-months after the fabrication line’s quality qualification. No
material sales are associated with these costs. Similarly the Group is recording
the phase out costs of its manufacturing facilities when the volume is dropping
below a minimum acceptable level as defined by corporate policy. Start-up and
phase-out costs are not included as part of cost of sales and are presented in
“Other expenses” in the consolidated statements of income.
2.8
— Income taxes
Income
tax expense 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. Income tax expense for specific tax assessments are
also estimated and recorded when an additional tax payment is determined
probable. Deferred tax assets and liabilities are recorded, using the liability
method, for 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. However, deferred income tax is not accounted for if it arises
from initial recognition of an asset or liability in a transaction other than a
business combination that, at the time of the transaction, affects neither
accounting nor taxable profit or loss. Deferred income tax is determined using
tax rates and laws that have been enacted or substantively 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.
2008
Annual Report of STMicroelectronics N.V.
Deferred
income tax assets are recognized to the extent that it is probable that future
taxable profit will be available against which the temporary differences can be
utilized.
The Group
does not provide deferred income taxes on temporary differences arising on
investments in subsidiaries and associates because the timing of the reversal of
the temporary difference is controlled by the Group, and it is probable that the
temporary difference will not reverse in the foreseeable future, or if reversed,
will not be subject to tax.
The group
receives certain research tax credits in some of its jurisdictions. Except for
the French tax credits granted after 2008 and described in the Note 2.5, these
research tax credits are deemed to benefit the income tax.
Income
taxes are recognized in the cash flows from operating activities in the
consolidated statements of cash flows.
2.9
— Earnings per share
Basic
earnings per share are computed by dividing net profit by the weighted average
number of ordinary shares outstanding during the period. Diluted earnings per
share are computed using the treasury stock method by dividing net profit
(adding-back interest expense, net of tax effects, related to convertible debt
if determined to be dilutive) by the weighted average number of ordinary shares
and potential ordinary shares outstanding during the period. The weighted
average shares used to compute diluted earnings per share include the
incremental shares of ordinary shares relating to stock options granted, non
vested shares and convertible debt to the extent such incremental shares are
dilutive. Non vested 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 the
conditions have not been satisfied by the end of the period, the number of
contingently issuable shares included in the diluted earnings per share
calculation is based on the number of shares that would be issuable if the end
of the period were the end of the contingency period.
2.10
— Cash and cash equivalents
Cash and
cash equivalents represents cash on hand, deposits at call with banks, highly
liquid investments purchased with an original maturity of ninety days or less.
Bank overdrafts are not netted against cash and cash equivalents and are shown
as part of current liabilities on the consolidated balance sheet.
2.11
— Restricted cash
Restricted
cash includes collateral deposits used as security under arrangements for
financing of an available-for-sale investment.
2.12
— 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
Group’s 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 cost to sell.
The Group
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 Group evaluates its product inventory to identify obsolete or
slow-selling stock by computing any excess inventory based on the previous
quarter sales, orders’ backlog and production plans. Inventory associated with
obsolete or uncommitted inventory is expensed to cost of sales.
2008
Annual Report of STMicroelectronics N.V.
2.13
— Intangible assets subject to amortization
Intangible
assets subject to amortization include the cost of technologies and licenses
purchased from third parties, purchased software, customer relationships, and
other intangible assets acquired in business combinations recorded at fair
value, internally developed software which is capitalized and costs incurred on
other development projects that meet all capitalization criteria as defined in
IAS 38 (revised), Intangible
Assets. 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 income statement for the
amount by which the asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less cost to sell and
value in use. In determining recoverability, STMicroelectronics usually
estimates the fair value based on the projected discounted future cash flows
associated with the intangible assets and compares this to their carrying
value.
Amortization
is computed using the straight-line method over the following estimated useful
lives:
Technologies
& licenses
|
3-7
years
|
Purchased
software
|
3-4
years
|
Internally
developed software
|
4
years
|
Capitalized
development costs
|
3
years
|
Customer
relationships acquired in business combinations
|
4-12
years
|
The
capitalization of costs for internally generated software developed for the
Group’s internal use begins when the preliminary project stage is completed and
when the Group, implicitly or explicitly, authorizes and commits to funding a
computer software project since it will be probable that the project will be
completed and will be used to perform the function intended.
Expenditures
incurred on development projects, mainly related to the design and testing of
new or improved products, are recognised as intangible assets net of any
research tax credit attributable to the specific projects when the Group can
demonstrate all of the following:
|
-
|
the
technical feasibility of completing the item under development so that it
will be available for use or sale;
|
|
-
|
its
intention to complete the item under development and to use it or sell
it;
|
|
-
|
its
ability to use or sell the intangible asset under
development;
|
|
-
|
how
the item under development will generate probable future economic
benefits;
|
|
-
|
the
availability of adequate technical, financial and other resources to
complete the development and to use or sell the item under development;
and
|
|
-
|
its
ability to measure reliably the expenditure attributable to the project
during its development.
|
Development
costs that have been capitalized are amortized on a straight-line basis over the
period of their expected benefits, not exceeding three years. Development costs
incurred before the Group can demonstrate the compliance with the capitalization
criteria described above and after the commencement of the generation of
benefits through the use or production of the developed item are not capitalized
and are recognized in the consolidated statements of income as research and
development expenses.
2008
Annual Report of STMicroelectronics N.V.
2.14
— Goodwill
Goodwill
represents the excess of the costs of the acquisition over the fair value of the
acquired net identifiable assets.
Goodwill
recognized in business combinations is not amortized but rather is 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 allocated to
cash-generating units (“CGUs”) for the purpose of impairment testing. These CGUs
represent a unit one level below the level of an operating segment for which
discrete financial information is available and which is subject to regular
review by segment management.
As
further described in detail in Note 12, the impairment test determines whether
the recoverable amount of each cash-generating unit, which is the higher of its
assets’ fair value less cost to sell and its value in use, is lower than its
total carrying amount. If lower, an impairment loss is recognized for the excess
of the carrying amount over the recoverable amount. If the impairment loss
exceeds the book value of goodwill, allocation is made on a pro rata basis over
the remaining assets of the CGU. In determining the value in use of a
cash-generating unit, the Group usually estimates the expected discounted future
cash flows associated with the unit. Significant management judgments and
estimates are used in forecasting the future discounted cash flows, including:
the applicable industry’s sales volume forecast and selling price evolution, the
cash-generating unit’s market penetration, the market acceptance of certain new
technologies, relevant cost structure, the discount rates applied are based on
various scenarios incorporating a weighted average cost of capital and the
perpetuity rates used in calculating cash flow terminal values.
2.15
— Property, plant and equipment
Property,
plant and equipment are stated at historical cost, net of government fundings,
depreciation and any impairment losses. Major additions and improvements are
capitalized as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of item
can be measured reliably; minor replacements and repairs are charged to the
consolidated statement of income.
Land is
not depreciated. Depreciation on fixed assets is computed using the
straight-line method over the following estimated useful lives:
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
|
In 2008,
STMicroelectronics launched its first 300 mm. facility. Consequently
STMicroelectronics assessed its useful life of its 300 mm. equipment and based
on relevant economic and technical factors concluded that the appropriate
depreciation period for this equipment was 10 years. This policy was applicable
starting January 2008.
The Group
evaluates in 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 Group 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. For the purposes of assessing impairment, assets
are grouped at the lowest levels for which there are separately identifiable
cash flows (cash-generating units). An impairment loss is recognized in the
income statement for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair
value less costs to sell and value in use. The fair value is normally estimated
by the Group based on independent market appraisals or using discounted
cash-flow procedure.
2008
Annual Report of STMicroelectronics N.V.
The value
in use corresponds to the sum of discounted future cash flows to be derived from
the particular asset, using market assumptions such as the utilization of the
Group’s fabrication facilities and their continual technological
competitiveness, change in the selling price and the adoption of new
technologies. The Group also evaluates, and adjusts if appropriate, the assets’
useful lives, at each balance sheet date or when impairment indicators exist.
Assets classified as held for sale are reflected 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
property, plant and equipment are retired or otherwise disposed of, the net book
value of the assets is removed from the Group’s books and the net gain or loss
is included in “Other income” in the consolidated statements of
income.
A
manufacturing line is composed of several individual equipments which are
individually recorded, depreciated and disposed of if needed.
Leasing
agreements in which a significant portion of the risks and rewards of ownership
are retained by the Group 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 income statement 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.
2.16
— Financial Assets
The Group
classifies its financial assets in the following categories: financial assets at
fair value through profit and loss, loans and receivables and available-for-sale
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. The Group did not hold at December 31,
2008 any investment classified as held-to-maturity financial asset.
Financial assets at fair
value through profit and loss
Financial
assets at fair value through profit and loss are financial assets held for
trading. A financial asset is classified in this category if acquired
principally for the purpose of selling in the short term. Assets in this
category are classified as current assets when they are expected to be realized
within twelve months of the balance sheet date. This category also includes
derivatives classified as held for trading including foreign currency forward
contracts and currency options.
Loans and
receivables
Loans and
receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They are included in current
assets, except for maturities greater than twelve months after the balance sheet
date, which are classified as non-current assets. Loans and receivables are
classified in the consolidated balance sheets as trade accounts receivable (Note
2.17), other receivables and long-term loans and receivables.
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 in any of the other categories. They are
included in non-current assets unless management intends to dispose of the
investment within twelve months of the balance sheet date.
2008
Annual Report of STMicroelectronics N.V.
Valuation
Regular
purchases and sales of financial assets are recognized on the trade date – the
date on which the Group commits to purchase or sell the asset. Investments are
initially recognized at fair value plus transaction costs for all financial
assets not carried at fair value through profit and loss. Financial assets
carried at fair value through profit and loss are initially recognized at fair
value, and transaction costs are expensed in the consolidated statement of
income. Financial assets are derecognized when the rights to receive cash flows
from the investments have expired or have been transferred and the Group has
transferred substantially all risks and rewards of ownership. Available-for-sale
financial assets and financial assets at fair value through profit and loss are
subsequently carried at fair value. Loans and receivables are carried at
amortized cost using the effective interest method.
Gains and
losses arising from changes in the currency / fair value of the financial assets
carried at fair value through profit and loss are presented in the consolidated
statement of income within “Other income” or “Other expenses” in the period in
which they arise.
Changes
in the fair value excluding translation differences of monetary and non-monetary
securities classified as available for sale are recognized as a separate
component of “Other reserves” in the consolidated statements of changes in
equity.
When
securities classified as available for sale are sold, the accumulated fair value
adjustments recognized in equity are included in the income statement as gains
and losses from investment securities.
The fair
values of quoted investments are based on current market prices. If the market
for a financial asset is not active (and for unlisted securities), the Group
establishes fair value by using valuation techniques. These include the use of
recent arm’s length transactions, reference to other instruments that are
substantially the same, discounted cash flow analysis and option pricing models
and reference indexes, making maximum use of market inputs and relying as little
as possible on entity-specific inputs.
The Group
assesses at each balance sheet date whether there is objective evidence that a
financial asset or group of financial assets is impaired. In the case of equity
securities classified as available for sale, a significant (50%) or prolonged
decline (at least 1 year) in the fair value of the security below its cost is
considered as an indicator that the securities are impaired. If any such
evidence exists for available-for-sale financial assets, the cumulative loss –
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- is removed from equity and recognized in the consolidated
statement of income. Impairment losses recognized in the consolidated statement
of income on equity securities are not reversed through the income statement if
the security recovers its value prior to disposal. Impairment testing of trade
receivables is described in note 2.17.
2.17
— Trade accounts receivable
The
accounts receivable are recognized initially at fair value and subsequently
measured at amortized cost using the effective interest method, less provision
for impairment. A provision for impairment of trade receivables is established
when there is objective evidence that the Group will not be able to collect all
amounts due according to the original terms of the receivables. Significant
financial difficulties of the debtor, probability that the debtor will enter
bankruptcy or financial reorganisation, and default or delinquency in payments
are considered indicators that the trade receivable is impaired. The amount of
provision is the difference between the asset’s carrying amount and the present
value of the estimated present cash flows, discounted at the effective interest
rate. The carrying amount of the asset is reduced through the use of an
impairment account, and the amount of the loss is recognized in the income
statement as “Selling, general and administrative”. When a trade receivable is
uncollectible, it is written-off against the impairment account for trade
receivable. Subsequent recoveries of amounts previously written off are credited
against “selling, general and administrative expenses” in the consolidated
statement of income.
2008
Annual Report of STMicroelectronics N.V.
2.18
— 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 resulting gain or loss depends on whether the
derivative is designated as a hedging instrument, and if so, the nature of the
item being hedged.
The Group
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 Group 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 the note 6.
Derivative financial
instruments classified as held for trading
The Group
conducts its business on a global basis in various major international
currencies. As a result, the Group is exposed to adverse movements in
foreign currency exchange rates. The Group 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 STMicroelectronics's
subsidiaries. In addition forward contracts and currency options are also used
by STMicroelectronics to reduce its exposure to U.S. dollar fluctuations in
Euro-denominated forecast intergroup transactions that cover a large part of
research and development expenditures and certain corporate expenses incurred on
STMicroelectronics's behalf by subsidiaries. These intergroup
transactions are not closely linked to ultimate transactions with third
parties. These instruments do not qualify as hedging instruments
under the requirements of the IAS 39 "Financial Instruments: recognition
and Measurement" and are marked-to-market at each period-end with the
associated changes in fair value recognized in “Other income" or "other
expenses" as well as transaction costs in the consolidated statements of
income.
Cash Flow
Hedges
To
further reduce its exposure to U.S. dollar exchange rate fluctuations,
STMicroelectronics also hedges a portion of its Euro-denominated forecasted
intercompany purchases of products whose underlying front-end manufacturing
production costs of semi-finished goods are incurred in euros, since these
transactions are considered highly probable to occur. The foreign currency
forward contracts and the currency options used to hedge exposures are reflected
at their fair value in the consolidated balance sheet and meet the criteria for
designation as cash flow hedges. The criteria for designating a derivative as a
hedge include the instrument’s effectiveness in risk reduction, close link to
ultimate sales to third parties and, in most cases, a one-to-one matching of the
derivative instrument to its underlying transaction. 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. For these derivatives, the gain or loss from the
effective portion of the hedge and the transaction costs are reported as a
component of “Other reserves” 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 income statement line item as
the impact of the hedged transaction, which is “Cost of sales”. The gain or loss
is recognized immediately in “other income” and “other expenses” in the
consolidated statements of income when an ineffective portion of the hedge is
identified.
When a
hedging instrument expires or is sold, or when a hedge no longer meets the
criteria for hedge accounting, any cumulative gain or loss existing in equity at
that time remains in equity and is recognized when the forecasted transaction is
ultimately recognized in the income statement. When a forecast transaction is no
longer expected to occur, the cumulative gain or loss that was reported in
equity is immediately transferred to the consolidated statement of income within
“other income” and “other expenses”.
2008
Annual Report of STMicroelectronics N.V.
2.19
— Employee benefits
Pension
obligations
The Group
sponsors various pension schemes for its employees. These schemes conform to
local regulations and practices of the countries in which the Group 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 Group pays fixed contributions into a separate
entity. The Group 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
pension plans is the present value of the defined benefit obligation at the
balance sheet date less the fair value of plan assets, together with adjustments
for unrecognized actuarial gains and losses and past service costs. Significant
estimates are used in determining the assumptions incorporated in the
calculation of the pension obligations, which is supported by input from
independent actuaries. The defined benefit obligation is calculated annually by
independent actuaries using the projected unit credit method. The present value
of the defined benefit obligation is determined by discounting the estimated
future cash outflows using interest rates of high-quality corporate bonds that
are denominated in the currency in which the benefits will be paid, and that
have terms to maturity approximating the terms of the related pension liability.
Actuarial gains and losses arising from experience adjustments and changes in
actuarial assumptions in excess of the greater of 10% of the value of plan
assets or 10% of the defined benefit obligation are charged or credited to
income over the employees’ expected average remaining working lives.
Past-service costs are recognized immediately in income, 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.
For
defined contribution plans, the Group pays contributions to publicly or
privately administered pension insurance plans on a mandatory, contractual or
voluntary basis. The Group 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.
Other long-term employee
benefits
The Group
provides long term employee benefits such as seniority awards in certain
countries. 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
income in the period of change. These obligations are valued annually
by independent qualified actuaries.
Termination
benefits
Termination
benefits are payable when employment is terminated before the normal retirement
date, or whenever an employee accepts voluntary redundancy in exchange for these
benefits. The Group recognizes termination benefits when it is demonstrably
committed to either: terminating the employment of current employees according
to a detailed formal plan without possibility of withdrawal; or providing
termination benefits as an offer made to encourage voluntary redundancy.
Benefits falling due more than twelve months after the balance sheet date are
discounted to present value. In the case of an offer made to encourage voluntary
redundancy, the Group bases the measurement of termination benefits on the
number of employees expected to accept the offer.
2008
Annual Report of STMicroelectronics N.V.
Profit-sharing and bonus
plans
The Group
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.
Share-based
compensation
All the
share plans of the Group are equity settled as further explained in Note
22.
The fair
value of the employee services received in exchange for the grant of share-based
awards is recognized as an expense and as a corresponding increase in
shareholders’ equity. The total amount to be expensed over the vesting period is
determined by reference to the fair value of the awards granted at date of
grant. Any applicable employee social charges are also expensed pro rata over
the same period as the share-based compensation expense.
2.20
— Financial Debt
Compound Financial
Instruments
At
December 31, 2008, the Group had convertible bonds issued in 2006 on a ten-year
maturity period.
Compound
financial instruments are assessed for separate accounting into debt and equity
components based on the circumstances at the inception of the instruments. The
Group recognizes separately the components of the financial instrument that a)
creates a financial liability and b) grants an option to the holder of the
instrument to convert it into an equity instrument of STMicroelectronics. A
conversion option embedded in the compound financial instrument is an equity
instrument when STMicroelectronics has an unconditional right through this
option to avoid settlement in cash or another financial asset as well as if the
amount is not settled by at a fixed amount of shares for a fixed price. When
separate accounting is applied, the fair value of the liability portion of the
convertible debt is determined using a market interest rate for an equivalent
non-convertible debt over the period of future probable cash flows as estimated
on the date of issuance. This amount is recognized as a financial liability on
an amortized cost basis until redeemed, extinguished on conversion or on the
maturity of the bonds. The remainder of the proceeds is allocated to the
conversion option. When separate accounting cannot be applied because settlement
in cash or another financial asset cannot be avoided, the conversion option is
recorded at fair value and reported as a liability component as part of
non-current liabilities on the consolidated balance sheet. Changes in fair value
are recognized immediately at each reporting date on the line “Other income” or
“Other expenses” in the consolidated statement of income.
For the
2016 convertible bonds, the holder has the right, in the event of any change in
control, to require STMicroelectronics to purchase for cash all or any part of
the holder’s convertible bonds. Consequently, STMicroelectronics
determines that it does not have the unconditional right to avoid settlement in
cash, since the event that would cause such settlement is beyond its control and
can not be considered at inception of the bonds as neither extremely rare,
highly abnormal nor very unlikely to occur. As such, the conversion option is
not recognized as an equity component but as a non-current liability. The
liability portion of the convertible debt was determined based on ten-year
timeframe until maturity. The embedded rights of STMicroelectronics to reacquire
for cash starting from March 10, 2011 the outstanding convertible bond are
included in the liability component of the compound instrument.
Debt
issuance and other transaction costs that relate to the issue of a compound
financial instrument are allocated to the liability and equity components of the
instrument in proportion to the allocation of proceeds. The costs allocated to
the liability component of the financial instrument are amortized in “finance
cost” until extinguishment of the liability component.
Interest
paid are considered as operating expenses and are thus reported as part of the
cash flows generated by operating activities in the consolidated cash flow
statement.
2008
Annual Report of STMicroelectronics N.V.
Bank loans and senior
bonds
Bank
loans and senior bonds, are recognized initially at fair value, 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 statement of income over the period of
the borrowings using the effective interest method.
Borrowings
are classified as current liabilities unless the Group has an unconditional
right to defer settlement of the liability for at least twelve months after the
balance sheet date.
2.21
— Share capital
Ordinary
shares are classified as equity. Incremental costs directly attributable to the
issue of new shares or options are shown in equity as a deduction, net of tax,
from the proceeds.
When
STMicroelectronics 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 STMicroelectronics’s
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
effects) is included in equity attributable to STMicroelectronics’s
shareholders.
2.22
— Other reserves
Other
reserves correspond to changes in equity of a business during a period except
those resulting from investment by shareholders and distributions to
shareholders. In the accompanying consolidated financial statements, “other
reserves” consists of fair value of services provided under share award schemes,
temporary unrealized gains or losses on financial assets classified as
available-for-sale and the unrealized gain (loss) on derivative instruments
designated as cash flow hedge, all net of tax as well as foreign currency
translation adjustments. The detailed information on other reserves is presented
further in the note 23.
2.23
— Trade payables
Trade
payables are recognized initially at fair value and subsequently measured at
amortized cost using the effective interest method when maturity of the payables
exceeds one year.
2.24
— Provisions
Provisions
for restructuring costs and legal claims are recognized when: the Group has a
present legal or constructive obligation as a result of past events; it is more
likely than not that an outflow of resources will be required to settle the
obligation; and the amount has been reliably estimated. Restructuring provisions
comprise lease termination penalties and employee termination payments.
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.
Provisions
are measured at the present value of the expenditures expected to be required to
settle the obligation using a pre tax rate that reflects current market
assessments of the time value of money and the risk specific to the obligation.
The increase in the provision due to passage of time is recognized as finance
cost.
2008
Annual Report of STMicroelectronics N.V.
2.25
– Contingencies
STMicroelectronics
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 STMicroelectronics, breach of contract claims, claims for
unauthorized use of third party intellectual property, tax claims and provisions
for specifically identified income tax exposures as well as claims for
environmental damages. In determining loss contingencies, STMicroelectronics
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.
STMicroelectronics regularly revaluates claims to determine whether provisions
need to be readjusted based on the most current information available to
STMicroelectronics. Changes in these evaluations could result in adverse,
material impact on STMicroelectronics’s results of operations, cash flows or its
financial position for the period in which they occur.
2.26
— Segment reporting
Operating
segments are defined as a component of the entity that (i) engages in business
activities from which it may earn revenues and incur expenses, (ii) whose
operating results are regularly reviewed by the entity’s Chief Operating
decision maker (Company's sole member of Managing Board) to make decision about
resources to be allocated to the segments and assess its performance and (iii)
for which discrete financial information is available.
For the
computation of the Groups’ internal financial measurements, STMicroelectronics
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 STMicroelectronics’s 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 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.
2.27
— Changes in accounting policies
Tax
credits
Since
2008 following the enacting of a new tax methodology to compute the R&D tax
credit in France, which is now directly linked to the amount of R&D
spending, STMicroelectronics has accounted for these tax credits as a reduction
in R&D expenses and not as Other income. No impact on net income occurred
due to this change.
Impairment, restructuring
charges and other related closure costs
In order
to properly reflect consolidated statement of income by function, the various
components which would previously have been included in "Impairment,
restructuring charges and other related closure costs" were reclassified in Cost
of sales, Research & development, General & administrative costs and
Impairment on assets held for sale and related costs. This approach has been
applied to 2007 retrospectively as well as to 2008. No impact on net income
occurred due to this change.
Changes in the segment
reporting
Starting
August 2, 2008, as a consequence of the creation of ST-NXP Wireless,
STMicroelectronics reorganized its groups. A new segment was created to report
wireless operations (“WPS”); 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.
2008
Annual Report of STMicroelectronics N.V.
The
remaining part of ASG is now comprised of Automotive Consumer Computer and
Telecom Infrastructure Product Groups (“ACCI”).
The new
segment organization is presented in the Note 37. STMicroelectronics has
restated its results in prior periods for illustrative comparisons of its
performance by product segment. No impact on net income occurred due to this
change.
2.28
— Critical accounting estimates and judgments
Estimates
and judgments are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to
be reasonable under circumstances.
The Group
makes estimates and assumptions concerning the future. The resulting accounting
estimates will, by definition, seldom equal the related actual results.
Estimates and assumptions that have a significant risk of causing material
adjustments to the carrying amounts of assets and liabilities within the next
financial year are described below.
Provision for sales returns
and sales deductions
Consistent
with standard business practice in the semiconductor industry, price protection
is granted to distribution customers on their existing inventory of the Group’s
products to compensate them for declines in market prices. The ultimate decision
to authorize a distributor refund remains fully within the control of the Group.
The Group 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 have enabled the Group to reliably estimate price protection
provisions at period-end. The Group records the accrued amounts as a deduction
of revenue at the time of the sale.
The
Group’s customers occasionally return the Group’s products for technical
reasons. The Group’s standard terms and conditions of sale provide that if the
Group determines that products are non-conforming, the Group 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 always associated with end-user customers, not with
distribution channels. The Group provides for such returns when they are
considered as probable and can be reasonably estimated. The Group records the
accrued amounts as a reduction of revenue.
The
Group’s insurance policy relating to product liability only covers physical
damage and other direct damages caused by defective products. The Group does not
carry insurance against immaterial non consequential damages. The Group 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 Group’s determination that the Group 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 Group’s contractual
terms and conditions limit its liability to the sales value of the products
which gives rise to the claims.
STMicroelectronics,
when acting as a guarantor, recognizes, at the inception of a guarantee, a
liability for the fair value of the obligation STMicroelectronics assumes under
the guarantee, in compliance with IAS 39, Financial Instruments: Recognition and
measurements. 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.
2008
Annual Report of STMicroelectronics N.V.
The
liabilities recognized for the obligations of the guarantees undertaken by
STMicroelectronics are measured subsequently on each reporting date, in
accordance with IAS 37 Provisions, Contingent Liabilities
and Contingent Assets, the initial liability being reduced as
STMicroelectronics, as guarantor, is released from the risk underlying the
guarantee.
Trade
receivables
The Group
maintains impairment for doubtful accounts for estimated losses resulting from
its customers’ inability to make required payments. The Group bases its
estimates on historical collection trends. Furthermore, the Group is required to
evaluate its customers’ credit ratings from time to time and take an additional
provision for any specific account that it estimates as doubtful. Although the
Group has determined that its most significant customers are creditworthy, if
the financial condition of these customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances could be
required.
Income
taxes
The Group
is required to assess the likelihood of recovery of deferred tax assets. As of
December 31, 2008, the Group believes that all of the deferred tax assets as
recorded on the consolidated balance sheet would ultimately be recovered.
However, should there be a change in the Group’s ability to recover deferred tax
assets or in the tax rates applicable in the various jurisdictions, this could
have an impact on the Group’s future tax provision in the periods in which these
changes could occur.
In
addition, the calculation of tax liabilities involves dealing with uncertainties
in the application of complex tax regulations. The Group recognizes liabilities
for anticipated tax audit issues based on estimates that probable additional
taxes will be due. The Group reverses the liability and recognizes a tax benefit
during the period if it ultimately determines that the liability is no longer
necessary. An additional charge is recorded in income tax expense in the period
in which the Group determines that the recorded tax liability is less than the
Group expects the ultimate assessment to be.
Inventory
The
valuation of inventory requires the Group to estimate obsolete or excess
inventory as well as inventory that is not of saleable quality. Inventory is
reduced to the expected realizable value for any excess uncommitted inventories
based on the previous quarter sales, order backlog and production plans. To the
extent that future negative market conditions worsen, increase excess capacity
and generate order backlog cancellations and declining sales, or if future
conditions are less favorable than the projected revenue assumptions, the Group
could be required to record additional inventory adjustments, which would have a
negative impact on the gross margin.
Impairment of long-lived
assets
Long-lived
assets are tested or reviewed for impairment in accordance with accounting
policies stated in Notes 2.13, 2.14 and 2.15. Considerable management judgments
are necessary to identify impairment indicators and to estimate future sales and
expenses, which underlie the discounted future cash flow projections. Factors
such as changes in the planned use of property, plant and equipment, the closure
of facilities, the change in the use or in the market acceptance of certain new
technologies, could result in shortened useful lives or impairment charges to be
recognized in the period in which such determination is made.
Pension
obligations
The Group
sponsors various pension schemes for its employees. The expense incurred under
the defined benefit retirement plans is based upon statistical and actuarial
calculations, and is impacted by assumptions on discount rates used to reach the
present value of future pension liabilities, expected return that will be made
on existing pension assets, future salary increases as well as future pension
increases and statistical-based assumptions covering future withdrawals of
participants from the plan and estimates of life expectancy.
2008
Annual Report of STMicroelectronics N.V.
The
actuarial assumptions used may differ materially from actual results due to
changes in market and economic conditions, higher or lower withdrawal rates or
longer or shorter life spans of participants and significantly impact the amount
of pension costs and pension liabilities to be recognized in the period in which
such determination is made.
Restructuring
charges
The Group
has undertaken, and may continue to undertake, significant restructuring
initiatives, which have required, or may require in the future, to develop
formalized plans for exiting activities or to dispose of certain activities. In
accordance with IAS 37 accounting requirements, the Group recognizes the fair
value of a liability for costs associated with an exit or disposal activity when
a present obligation exists and if it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation. Given the
significance and the 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. As the Group operates in a highly cyclical industry, it
continues to evaluate business conditions. If broader or new initiatives, which
could include production curtailment or closure of other manufacturing
facilities, were to be taken, the Group may be required to incur additional
charges as well as to change estimates of amounts previously recorded in the
period in which such determination is made.
Asset
disposal
The Group
has entered, and may in the future enter, into agreements to dispose of
operations, assets or groups of assets. In accounting for asset disposals, the
Group ensures that the conditions as stated in International Financial Reporting
Standard No. 5, “Non-current
assets and disposal groups held for sale” are met before reclassifying
these items as current assets and ceasing depreciation and amortization.
Furthermore, IFRS 5 requires an impairment analysis when assets are moved to
“Asset disposal held for sale” based on the difference between the Net Book
Value and the Fair Value, less costs to sell, of the group of assets (and
liabilities) to be sold. The final amount of impairment charge could be
different subject to adjustments due to business evolution before closing of the
potential transactions to sell.
Share-based
compensation
The Group
is required to expense its employees’ share-based compensation awards in
compliance with International Financial Reporting Standard No. 2, “Share based payment”. The
Group measures share-based compensation cost based on the 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. The Group’s share-based compensation
plans may award shares contingent on the achievement of certain financial
objectives, including market performance and financial results. In order to
assess the fair value of share-based compensation, the Group is required to use
certain assumptions, including the probability of reaching the market
performance and financial results targets, the forfeitures and the service
period of each employee.
Fair value of financial
instruments
The Group
holds certain financial instruments that are not traded in an active market. For
the valuation of the fair value of such instruments, the Group uses its
judgement to select a variety of methods and make assumptions that are mainly
based on market conditions existing at each balance sheet date as more fully
disclosed in Note 35.
Business
combinations
The Group
has entered, and may also in the future enter, into agreements to acquire
business activities. In accounting for business combinations, IFRS 3 requires
that the Group initially recognizes each identifiable asset and liability of the
acquired businesses at their acquisition date fair values. As technology,
research and development activities and customer relationships are the main
value drivers in the microelectronic industry, a significant amount of the
purchase price paid relates to the related identifiable intangible
assets.
2008
Annual Report of STMicroelectronics N.V.
As no
active market exists for most intangible assets, the determination of their
acquisition date fair value requires a considerable amount of estimates and
judgment. These estimates include, but are not limited to, estimates of future
cash flows related to these intangibles, charges for other assets used to
generate cash flows in combination with other assets (contributory asset
charges), the useful lives and the derivation of the appropriate cost of capital
to discount the projected cash flows. As the actual results may differ
materially from the cash flow projections impairment charges in subsequent
periods might be required.
The
purchase agreement regarding the acquisition of the NXP wireless business (Note
4) provides Group with a call option over NXP Wireless's non-controlling
interest in the acquired business. As a part of the total consideration paid by
the Group for the transaction relates to the call option, the Group is required
to determine the fair value of the call option at the acquisition date. Due to
the special terms of the call option no market price is available. Thus the
determination of the fair value requires estimates regarding the fair value of
the underlying asset (non-controlling interest in the business acquired), the
future strike price, the expected volatility of the fair value of the underlying
asset and the expected expiration date.
2.29
— Recent accounting pronouncements
a)
Interpretations effective in 2008 and early adopted by the Group:
IFRIC
Interpretation No. 11, Group
and Treasury Share Transactions (“IFRIC 11”) is effective for annual
periods beginning on or after March 1, 2007, with early application permitted.
This Interpretation addresses how to apply IFRS 2 to share-based payment
arrangements involving grants by subsidiaries to their employees of equity
instruments issued by the holding company of the Group. Specifically the
Interpretation:
|
-
|
requires
a share-based payment arrangement in which an entity receives goods or
services as consideration for its own equity-instruments to be accounted
for as an equity-settled share-based payment transaction, regardless of
how the equity instruments needed are
obtained;
|
|
-
|
provides
guidance on whether share-based payment arrangements in which suppliers of
goods or services of an entity are provided with equity instruments of the
entity’s parent should be accounted for as cash-settled or equity-settled
in the entity’s individual or separate financial
statements.
|
STMicroelectronics
early adopted IFRIC 11 in 2006. Consequently, STMicroelectronics’s subsidiaries
recognized the compensation expense, related too its share scheme plans with a
corresponding increase recorded in equity as a contribution from the
parent.
b)
Interpretations effective in 2008 and relevant for the Group’s
operations:
IFRIC
Interpretation No. 14, IAS 19-
The Limit of a Defined Benefit Asset, Minimum Funding Requirements and their
Interaction (“IFRIC 14”) was issued in July 2007. This Interpretation
provides guidance on assessing (1) the limit of the amount of surplus that can
be recognized as an asset and (2) the effect of a statutory or contractual
minimum funding requirement. Under the interpretation, no additional liability
will require recognition unless the contributions payable under the minimum
funding requirement cannot be returned to STMicroelectronics. IFRIC 14 is
mandatory for annual periods beginning on or after 1 January 2008, with early
application permitted. The Group adopted IFRIC 14 in 2008 and the interpretation
did not have any material effect on the Group’s financial position and results
of operations.
In
October 2008, the IASB issued amendments to IAS 39 and IFRS 7, Financial Instruments:
Disclosure. These amendments allow the reclassification of certain
financial assets previously classified as “held for trading” or “available for
sale” to another category, under limited circumstances. Certain exceptions
exist, as derivatives and assets designated at “fair value through profit and
loss” under the fair value option are not eligible for this reclassification.
The amendments have an effective date of July 1, 2008. In November 2008 the IASB
issued a further amendment to clarify the application of the retrospective
reclassification, the effective date and the transition requirements. The Group
applied this amended guidance when effective but it did not have an effect on
the Group’s financial position and results of operations.
2008 Annual Report of
STMicroelectronics N.V.
c) Interpretations affective in
2008 and not relevant for the Group’s operations.
|
o
|
IFRIC
12, Service Concession
Arrangements
|
|
o
|
IFRIC
13, Customer Loyalty
Programmes
|
|
o
|
IFRIC
Interpretation No. 16, Hedges of a Net Investment in
a Foreign Operation
|
d)
Standards and amendments to published standards that are not yet effective and
have been early adopted by the Group:
The Group
early adopted in 2007 International Financial Reporting Standard No. 8, Operating Segments (“IFRS
8”), effective for annual periods beginning on or after January 1, 2009. IFRS 8
replaces International Accounting Standard No. 14, Segment Reporting (“IAS 14”)
and aligns segment reporting with the requirements of the US Statement of
Financial Accounting Standard No. 131, Disclosures about Segments of an
Enterprise and Related Information (“FAS 131”). IFRS 8 requires an entity
to adopt the “management approach” to reporting on the financial performance of
its operating segments. The adoption of IFRS 8 only impacted the format and
extent of disclosures presented in STMicroelectronics’s consolidated financial
statements on segment information for the years ended December 31, 2008, 2007
and 2006, which is presented in note 38.
The
International Accounting Standards Board (“IASB”) issued in March 2007 revised
International Accounting Standard No. 23, Borrowing costs (“IAS 23”).
The revised standard eliminates the option of immediately recognizing as an
expense borrowing costs that relate to assets that take a substantial period of
time to get ready for use or sale. In issuing revised IAS 23, the IASB aims to
improve financial reporting by enhancing comparability between companies by
allowing only one accounting treatment for borrowing costs, which is the
capitalization of these borrowing costs as part of the cost of the asset. The
revisions to IAS 23 are effective for annual periods beginning on or after
January 1, 2009, with early application permitted. STMicroelectronics early
adopted revised IAS 23 in 2007. Such early adoption did not have any material
impact on the Group’s financial position and results of operations.
In
January 2008, the IASB amended IFRS 2. The amendment limits vesting conditions
to service conditions and performance conditions. Other features of a
share-based payment are not vesting conditions and must be included in the grant
date fair value for share-based payment transactions. The amendment also
specifies that all cancellations, whether by the entity or by other parties,
should receive the same accounting treatment, which is the acceleration of the
expense based on the grant date fair value. The amendment to IFRS 2 must be
applied to all share-based payments within the scope of IFRS 2 for annual
periods beginning on or after 1 January 2009, with early application permitted.
The Group early adopted IFRS 2, as amended, in 2008. Such early adoption did not
have any material impact on the Group’s financial position and results of
operations.
e)
Standards, amended standards and interpretations that are not yet effective and
have not been early adopted by the Group:
The IASB
issued in September 2007 revised International Accounting Standard No. 1, Presentation of Financial
Statements (“IAS 1”). The revised standard stems from IASB and Financial
Accounting Standards Board (“FASB”) joint effort to review and harmonize the
presentation of financial statements. The major change in IAS 1 is the new
requirement that all changes in equity arising from transactions with owners in
their capacity as owners be presented separately from non-owner changes in
equity. An entity will thus no longer be permitted to present components of
comprehensive income in the statement of changes in equity. Instead a new
“statement of comprehensive income” will be required. This new statement will
allow readers to better distinguish between transactions with owners in their
capacity as owners from transactions that constitute “non-owner” changes in
equity. The revised standard is effective for annual periods beginning on or
after January 1, 2009, with early adoption permitted. The Group is currently
reviewing the impact of revised IAS 1 on the presentation of its consolidated
financial statements.
2008 Annual Report of
STMicroelectronics N.V.
In
February 2008, the IASB issued amendments to IAS 32 and IAS 1. The amendments
are meant to improve the accounting for particular types of financial
instruments that have characteristics similar to ordinary shares but that are
classified as financial liabilities. IAS 32 as amended will require entities to
classify the following types of financial instruments as equity, provided, that
those instruments have particular features and meet certain conditions: (i)
puttable financial instruments; (ii) instruments, or components of instruments,
that impose on the entity an obligation to deliver to another party a pro rata
share of the net assets of the entity only upon liquidation. The amendments will
apply to annual periods beginning on or after January 1, 2009, with early
application permitted. The Group early adopted in 2008 IAS 32 and IAS 1 as
amended. Such early adoption did not have any material impact on the Group’s
financial position and results of operations.
In
January 2008, the IASB issued a revised version of International Financial
Reporting Standard No. 3, Business Combinations (“IFRS
3R”) and an amended version of International Accounting Standard No. 27, Consolidated and Separate Financial
Statements (“IAS 27R”). IFRS 3R is a further development of
the acquisition model: The standard now applies to more transactions, as
combinations by contract alone and combinations of mutual entities are brought
into the scope of the standard. The requirements for recognition of contingent
consideration have also been amended. Contingent consideration is now required
to be recognized at fair value even if it is not deemed to be probable of
payment at the date of acquisition. All subsequent changes in debt contingent
consideration are recognized in the income statement and not against goodwill.
The revised standard gives also the option, on a transaction-by-transaction
basis, to measure non-controlling interests (previously minority interest) at
the fair value of their proportion of identifiable assets and liabilities or at
full fair value. The “bargain purchase” guidance remains the same with the
requirement to recognize “negative goodwill” immediately in the income
statement. IFRS 3R has limited changes to the assets and liabilities recognized
in the acquisition balance sheet but while current guidance requires deferred
tax assets of the acquired business that are not recognized at the date of the
combination but subsequently meet the recognition criteria to be adjusted
against goodwill, the revised standard will only allow adjustments against
goodwill within the one-year window for finalization of the purchase accounting.
IAS 27R moves the consolidation standard to a mandatory adoption of the economic
entity model. A partial disposal of an interest in a subsidiary in which the
parent company retains control does not result in a gain or loss but in an
increase or decrease in equity under the economic entity approach. Purchase of
some or all of the non-controlling interest is treated as a treasury transaction
and accounted for in equity. A partial disposal of an interest in a subsidiary
in which the parent company loses control but retains an interest triggers
recognition of gain or loss on the entire interest. IFRS 3R applies
to business combinations with an acquisition date that is on or after the
beginning of the first annual reporting period that starts on or after July 1,
2009. IAS 27R takes effect in fiscal years beginning on or after the start of
the first annual reporting period that commences on or after July 1, 2009.
Earlier application is permitted, but if one of the standards is applied early,
the other one must also be applied. The Group is currently evaluating the effect
the adoption of these statements will have on its financial position and results
of operations.
As a
result of its first "Annual
Improvement Project" the IASB issued "Improvements to IFRSs" in May
2008. This document contains 35 amendments to 20 standards. The main amendments
are:
|
·
|
classifying
assets and liabilities of a subsidiary where the expected disposal results
in a loss of control as assets held for sale (IFRS
5),
|
|
·
|
recognizing
proceeds from the disposal of certain assets of property, plant and
equipment that were previously held for rental to others within revenue
(IAS 16),
|
|
·
|
clarifying
the differentiation between curtailments and negative past service cost
(IAS 19),
|
|
·
|
clarifying
that short term employee benefits are those that are due to be settled
within one year after rendering the respective service (IAS
19),
|
|
·
|
recognizing
government loans with a below market interest rate initially in accordance
with IAS 39 (IAS 20),
|
|
·
|
clarifying
that equity investments are tested for impairment as a single asset and
requiring that any impairment loss is not allocated to any asset,
including goodwill, that forms part of the carrying amount of the equity
investment (IAS 28),
|
2008 Annual
Report of STMicroelectronics N.V.
|
·
|
disclosure
of the valuation parameters in an impairment test, when the recoverable
amount is represented by a fair value less cost to sell determined using
discounted cash flow projections (IAS
36),
|
|
·
|
recognizing
advertising expenses when the entity has the right to access the goods
related to the promotional activities (IAS
38),
|
|
·
|
including
in the scope of IAS 40, Investment Property,
property that is being constructed or developed for future use as
investment property (IAS 16, IAS
40),
|
Most of
the amendments are effective for annual periods beginning on or after January 1,
2009. The Group is currently evaluating the effect the adoption of these
amendments will have on its financial position and results of
operations.
In July
2008, the IASB issued amendments to IAS 39, Financial Instruments: Recognition
and Measurement (“IAS 39”). The amendments makes two significant changes:
(1) it prohibits including time value in the one-sided hedged risk when
designating options as hedges and; (2) prohibits designating inflation as a
hedgeable component of a fixed rate debt unless it is a contractually specified
portion of cash flows of a recognized inflation-linked bond and the other cash
flows of the instruments are not affected by the inflation portion. The
amendments will be effective retrospectively for annual periods beginning on or
after July 1, 2009, with early application permitted. The Group is currently
evaluating the adoption of these amendments will have on its hedging strategies
since the Group, when designating currency options as hedging items in cash flow
hedge transactions, measures effectiveness based on the full fair value the
option.
IFRIC 17
Distributions of Non-cash
Assets to Owners was issued in November 2008. This interpretation
provides guidance on how to account for distributions of non-cash assets to
owners and distributions that give owners a choice of receiving either non-cash
assets or a cash alternative. The Interpretation clarifies that the liability to
pay a dividend should be recognized when the dividend is appropriately
authorized and is no longer at the discretion of the entity. A liability to
distribute non-cash assets shall be measured at the fair value of the assets to
be distributed. When the entity settles the dividend payable, it shall recognize
any difference between the carrying amount of the assets distributed and the
carrying amount of the dividend payable in profit or loss. The Interpretation is
effective for annual periods beginning on or after July 1, 2009, with early
adoption permitted. The Group is currently evaluating the effect the adoption of
the interpretation will have on its financial position and results of
operations.
f)
Interpretations that are not yet effective and not relevant for the Group’s
operations:
The
following standards and interpretations to existing standards have been
published and are mandatory for the Group’s accounting periods on or after
January 1, 2009 but are not relevant for the Group’s operations:
|
o
|
Amendment
to IFRS 1 and IAS 27 "Cost of an Investment in a
Subsidiary, Jointly Controlled Entity or
Associate",
|
|
o
|
Revised
IFRS 1, First-time
Adoption of International Financial Reporting
Standards,
|
|
o
|
IFRIC
15, Agreements for the
Construction of Real Estate.
|
|
o
|
IFRIC
18, Transfers of assets
from customers.
|
2008
Annual Report of STMicroelectronics N.V.
3
— INVESTMENTS
IN ASSOCIATES
As of
December 31, 2008, STMicroelectronics owns 41.2% of Veredus Laboratories Pte.
Ltd ("Veredus"), 8.1% of ATLab Inc. (“Atlab”) and 48.6% of Numonyx Holdings
B.V., ("Numonyx") and accounts for these investments in associates using the
equity method.
Numonyx
In 2007,
STMicroelectronics announced that it had entered into an agreement with Intel
Corporation and Francisco Partners L.P. to create a new independent
semiconductor company from the key assets of STMicroelectronics’s Flash Memory
Group ("FMG Deconsolidation") and Intel’s flash memory business. Under the terms
of the agreement, STMicroelectronics would sell its flash memory assets,
including its Hynix-ST investment, a NAND4 joint venture interest
with Hynix Semiconductor Inc. and other NOR5 resources, to the new
company, which was called Numonyx Holdings B.V., (“Numonyx”), while Intel would
sell its NOR assets and resources. Pursuant to the signature of the agreement
for the FMG deconsolidation and upon meeting criteria for assets held for sale
as set by IFRS 5, in 2007, STMicroelectronics reclassified the assets to be
transferred to Numonyx from their original balance sheet classification to the
line “Assets held for sale”. Coincident with this classification,
STMicroelectronics reported an impairment charge of $1,162 million to
adjust the value of these assets to fair value less costs to sell, on the line
"Impairment on assets held for sale and related costs" of the consolidated
statement of income for the year ended December 31, 2007. The total loss
calculation also included a provision of $139 million to reflect the value of
rights granted to Numonyx to use certain assets retained by STMicroelectronics.
No remaining amounts related to the FMG deconsolidation was reported as current
assets on the line “Assets held for sale” of the consolidated balance sheet as
of December 31, 2008.
The
Numonyx transaction closed on March 30, 2008. At closing, through a series of
steps, STMicroelectronics contributed its flash memory assets and businesses 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 5. 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,
STMicroelectronics incurred an additional pre-tax loss of $190 million for the
year ended December 31, 2008, which was reported on the line "Impairment on
assets held for sale and related 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
STMicroelectronics have each granted in favor of Numonyx a 50% debt guarantee
that is not joint and several. In the event of default and failure to repay the
loans from Numonyx, the banks will exercise STMicroelectronics’s 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 IAS 39 "Financial Instruments: Recognition
and measurement". 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 our investment in
Numonyx. The debt guarantee obligation was reported on the line “Other
non-current liabilities” in the consolidated balance sheet as at December 31,
2008. The Guarantee is being amortized on a pro-rata basis over its four-year
term.
4 NAND
Flash : a type of non-volatile memory circuit that can be electrically erased
and reprogrammed and allows for block-level access to memory
cells.
5 NOR Flash : a type of
non-volatile memory circuit that can be electrically erased and reprogrammed and
allows for random access to any memory cell.
2008
Annual Report of STMicroelectronics N.V.
For the
year ended December 31, 2008 STMicroelectronics reported on the line “Share of
gain (loss) of associates” on STMicroelectronics’s consolidated statement of
income $60 million of equity loss in Numonyx investment, including $4 million
related to interest expense on the Subordinated notes and corresponding to
STMicroelectronics’s equity interest in the financial expense of Numonyx, and $2
million of compensation on stock awards granted to employees subsequently
transferred to Numonyx.
Additionally,
due to deterioration of both the global economic situation and the Memory market
segment, as well as Numonyx’s current and projected results, STMicroelectronics
re-assessed the fair value of its investment in the associate and recorded a
$485 million impairment charge on the line “Impairment on investments in
associates” in the 2008 consolidated statement of income.
The
calculation of the impairment was based upon a combination of an income
approach, using discounted cash flows, and a market approach, using metrics of
comparable public companies. At December 31, 2008 STMicroelectronics’s
investment in Numonyx, including the amount of the debt guarantee, amounted to
$496 million.
STMicroelectronics’s
current maximum exposure to loss as a result of its involvement with Numonyx is
limited to its fair value of the investment in associate, including the debt
guarantee, and its investment in subordinated notes totaling $664
million.
In the
recognition of its share of results in Numonyx, STMicroelectronics applies a
one-quarter lag reporting. Consequently, its share of the results of Numonyx up
to September 2008 has been reported by STMicroelectronics in its results for the
period ended on December 31, 2008. Numonyx had no transactions in the three
months ended December 31, 2008 that would require an adjustment for
STMicroelectronics's results.
Summarized
IFRS financial information for Numonyx (unaudited), as of September 27, 2008 and
for the six months then ended that, because of the one-quarter lag discussed
above, corresponds to the amounts included in STMicroelectronics’s Consolidated
Financial Statements as of December 31, 2008 and for the twelve months then
ended, are as follows:
Statement
of income information:
|
|
|
|
Net
sales
|
|
|
1,165 |
|
Gross
profit
|
|
|
266 |
|
Net
result
|
|
|
(119 |
) |
Balance
sheet information:
|
|
|
|
|
Non-current
assets
|
|
|
1,427 |
|
Current
assets
|
|
|
1,614 |
|
Non-current
liabilities
|
|
|
865 |
|
Current
liabilities
|
|
|
512 |
|
Net
worth
|
|
|
1,664 |
|
Veredus
In 2008,
the Company acquired 41.2% of ownership interest in Veredus, a company located
in Singapore which sells diagnostic solutions to the medical market. The
acquisition amounted to $11 million and was fully paid in 2008. The investment
is aimed at joining forces with established and growing players in the medical
diagnostic market, accelerating thus market adoption of the Company’s LabOnCHip
technology and products. The Company accounted for its interest in Veredus under
the equity method. The Company’s share in the 2008 result of Veredus, reported
on the line “Share of gain (loss) of associates” of the consolidated statement
of income for the year ended December 31, 2008 was not material.
In the
recognition of its share of results in Veredus, the Company applies a
one-quarter lag reporting. Consequently, its share of the results of Veredus up
to September 2008 has been reported by the Company in its results for the period
ended on December 31, 2008. Veredus had no transactions in the three months
ended December 31, 2008 that would require an adjustment for the Company's
results.
2008
Annual Report of STMicroelectronics N.V.
ATLab
In 2008
the Company acquired 8.1% of ATLab Inc. (“Atlab”), a company located in the
Republic of Korea which is a fabless semiconductor company specialized in
mixed-signal System-on-Chip (SoC). The acquisition amounted to $3 million and
was fully paid in 2008. The Company reviewed the extent of its control over
Atlab in light of IAS28 and determined that it had significant influence. As a
result Atlab is considered as an associate and valued under the equity
method.
The
Company’s share in 2008 result of Atlab, reported on the line “Share of gain
(loss) of associates” of the consolidated statement of income for the year ended
December 31, 2008 was not material.
4
— BUSINESS COMBINATIONS
Genesis
Microchip Inc.
Additional
direct costs associated with the acquisition amounting to approximately $6
million were paid in 2008. On closing, Genesis Microchip became part of
STMicroelectronics’s Home Entertainment & Displays business activity which
is part of the Automotive Consumer Computer and Telecom Infrastructure Product
Groups segment.
The
acquisition of Genesis Microchip expands STMicroelectronics’s leadership in the
digital TV market. Genesis Microchip will enhance STMicroelectronics’s
technological capabilities for the transition to fully digital solutions in the
segment and strengthen its product intellectual property portfolio.
2008
Annual Report of STMicroelectronics N.V.
The
acquisition had the following effect on the Group's assets and liabilities on
January 17, 2008 the acquisition date:
|
|
Note
|
|
|
Pre-acquisition
carrying amounts
|
|
|
Fair
value adjustments
|
|
|
Recognised
values on acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
14
|
|
|
|
14 |
|
|
|
|
|
|
14 |
|
Intangible
assets:
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
technologies
|
|
|
|
|
|
|
8 |
|
|
|
36 |
|
|
|
44 |
|
Customer
relationships
|
|
|
|
|
|
|
- |
|
|
|
27 |
|
|
|
27 |
|
Trademarks
|
|
|
|
|
|
|
- |
|
|
|
2 |
|
|
|
2 |
|
IP
R&D
|
|
|
|
|
|
|
- |
|
|
|
21 |
|
|
|
21 |
|
Total
of intangible assets
|
|
|
|
|
|
|
8 |
|
|
|
86 |
|
|
|
94 |
|
Inventories
|
|
|
|
|
|
|
13 |
|
|
|
- |
|
|
|
13 |
|
Marketable
securities
|
|
|
5
|
|
|
|
11 |
|
|
|
- |
|
|
|
11 |
|
Cash
and cash equivalents
|
|
|
|
|
|
|
170 |
|
|
|
- |
|
|
|
170 |
|
Other
receivables
|
|
|
|
|
|
|
22 |
|
|
|
- |
|
|
|
22 |
|
Other
assets
|
|
|
|
|
|
|
13 |
|
|
|
(6 |
) |
|
|
7 |
|
Deferred
tax assets
|
|
|
|
|
|
|
- |
|
|
|
44 |
|
|
|
44 |
|
Other
liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable, trade
|
|
|
|
|
|
|
(13 |
) |
|
|
- |
|
|
|
(13 |
) |
Accrued
liabilities
|
|
|
|
|
|
|
(19 |
) |
|
|
- |
|
|
|
(19 |
) |
Income
tax payable
|
|
|
|
|
|
|
(9 |
) |
|
|
- |
|
|
|
(9 |
) |
Total
of Other liabilities
|
|
|
|
|
|
|
(41 |
) |
|
|
- |
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
identifiable assets and liabilities
|
|
|
|
|
|
|
210 |
|
|
|
124 |
|
|
|
334 |
|
Goodwill
on acquisition
|
|
|
12
|
|
|
|
- |
|
|
|
|
|
|
|
12 |
|
Minority
interest
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid
|
|
|
|
|
|
|
|
|
|
|
340 |
|
|
|
|
|
Direct
costs attributable to acquisition
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
Total
purchase consideration
|
|
|
|
|
|
|
|
|
|
|
346 |
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
of non-cash assets exchanged
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
Cash
and cash equivalents acquired
|
|
|
|
|
|
|
|
|
|
|
(170 |
) |
|
|
|
|
Cash
flow effect
|
|
|
|
|
|
|
|
|
|
|
176 |
|
|
|
|
|
The
purchase price allocation is based on a third party independent
appraisal.
The
acquired business contributed revenues of $131.5 million and net loss of $36.8
million to STMicroelectronics for the period of 17 January 2008, to December 31,
2008.
ST-NXP
Wireless
On August
2, 2008, ST-NXP Wireless, a subsidiary owned 80% by STMicroelectronics, began
operations based on contributions of the wireless businesses of
STMicroelectronics and NXP B.V., as the minority interest holder.
STMicroelectronics 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 STMicroelectronics’s wireless business.
Direct costs of $20 million were associated with the acquisition. On closing,
ST-NXP Wireless was determined to be a product segment of STMicroelectronics’s
business and is reported as the “Wireless Product Sector.”
2008 Annual Report of
STMicroelectronics N.V.
The
formation of ST-NXP Wireless creates a solid top-three industry player with a
complete wireless product and technology portfolio and a leading supplier to
major handset manufacturers who together ship more than 80% of all handsets.
ST-NXP Wireless will be one of the few companies with the R&D scale and
expertise to meet customer needs in 2G, 2.5G, 3G, multimedia, connectivity and
all future wireless technologies.
The
acquisition had the following effect on the Group's assets and liabilities on
August 2, 2008, the acquisition date:
|
|
Note
|
|
|
Pre-acquisition
carrying amounts
|
|
|
Fair
value adjustments
|
|
|
Recognised
values on acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
14
|
|
|
|
277 |
|
|
|
31 |
|
|
|
308 |
|
Intangible
assets:
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
technologies
|
|
|
|
|
|
|
- |
|
|
|
278 |
|
|
|
278 |
|
Customer
relationships
|
|
|
|
|
|
|
- |
|
|
|
506 |
|
|
|
506 |
|
IP
R&D
|
|
|
|
|
|
|
- |
|
|
|
95 |
|
|
|
95 |
|
Total
of intangible assets
|
|
|
|
|
|
|
- |
|
|
|
879 |
|
|
|
879 |
|
Inventories
|
|
|
|
|
|
|
194 |
|
|
|
110 |
|
|
|
304 |
|
Marketable
securities
|
|
|
5
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cash
and cash equivalents
|
|
|
|
|
|
|
33 |
|
|
|
- |
|
|
|
33 |
|
Trade
receivables
|
|
|
|
|
|
|
51 |
|
|
|
- |
|
|
|
51 |
|
Other
receivables
|
|
|
|
|
|
|
79 |
|
|
|
(5 |
) |
|
|
74 |
|
Other
assets
|
|
|
|
|
|
|
13 |
|
|
|
- |
|
|
|
13 |
|
Other
liabilities
|
|
|
|
|
|
|
(115 |
) |
|
|
- |
|
|
|
(115 |
) |
Deferred
tax liability
|
|
|
|
|
|
|
|
|
|
|
(40 |
) |
|
|
(40 |
) |
Net
identifiable assets and liabilities
|
|
|
|
|
|
|
532 |
|
|
|
975 |
|
|
|
1,507 |
|
Goodwill
on acquisition
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
621 |
|
Minority
interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(301 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
consideration
|
|
|
|
|
|
|
|
|
|
|
1,807 |
|
|
|
|
|
Direct
costs attributable to acquisition
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
Total
purchase consideration
|
|
|
|
|
|
|
|
|
|
|
1,827 |
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
of non-cash assets exchanged
|
|
|
|
|
|
|
|
|
|
|
(256 |
) |
|
|
|
|
Cash
and cash equivalents acquired
|
|
|
|
|
|
|
|
|
|
|
(33 |
) |
|
|
|
|
Costs
accrued
|
|
|
|
|
|
|
|
|
|
|
(20 |
) |
|
|
|
|
Cash
flow effect
|
|
|
|
|
|
|
|
|
|
|
1,518 |
|
|
|
|
|
The
acquired business contributed revenues of 491 million, contribution to its
operating profit was not material, excluding the impact related to purchase
accounting for the period of August 2, 2008, to December 31, 2008. The 2008
proforma figures for the period before acquisition included revenues contributed
by NXP Wireless of $801 million with a net loss of $ 42 million before
attribution to minority interest.
The
purchase price allocation is based on a third party independent appraisal. It
applies to the assets received by ST-NXP Wireless from the minority interest
holder. The assets acquired by ST-NXP are recorded at book value from the
minority interest holder plus an increase to reflect the fair
value.
2008
Annual Report of STMicroelectronics N.V.
In
addition to the amounts shown in the table above related to the minority
interest, the minority interest in STMicroelectronics’s equity also increased by
$149 million to reflect the book value of the non-cash assets included in the
consideration.
The
ST-NXP Wireless purchase agreement provides STMicroelectronics with a call and
NXP with a put option on NXP's non-controlling 20% stake in the new company.
Based on the original terms of the purchase agreement, the options could be
exercised three years after signing of the agreement. The strike price depends
on ST-NXP Wireless's performance and is determined by a weighted EBITDA and
revenue multiple. The put strike price is about 17.5% higher than the call
strike price.
Concurrently
to the signing of the ST-NXP Wireless transaction, STMicroelectronics entered
into negotiations to create a new group of entities with Ericsson mobile phone.
ST-NXP Wireless was planned to become a part of this new group of entities. In
this regard, STMicroelectronics and NXP agreed in a side letter just after
signing the initial agreement, that STMicroelectronics is eligible to accelerate
the call option in the event of the closing of the new transaction. The
agreement provides a future exit mechanism for NXP’s interest, which involved
put and call options based on the financial results of the business that was
exercisable prior to the closing of Company's agreement with Ericsson, announced
on August 20, 2008, to establish ST-Ericsson, as STMicroelectronics has the
right to an accelerated call. The accelerated call was valued at $24 million and
classified as a financial instrument.
The Joint
venture with Ericsson was effective on February 1, 2009. The accelerated call
option was exercised at a strike price of $92 million.
STMicroelectronics
and NXP had in the past pre-existing relationships before the business
combination described above through the alliance STMicroelectronics operated
jointly with Freescale Semiconductor, Inc. for certain research and development
activities and the operation of a 300mm wafer pilot line facility in Crolles
(France) (“Crolles2 alliance”). In January 2007, NXP Semiconductors B.V.
announced that it would withdraw from the alliance. Therefore, the Crolles2
alliance expired on December 31, 2007. Freescale Semiconductor, Inc. has also
notified STMicroelectronics that the Crolles2 alliance would terminate as of
such date. Following the termination of the Crolles 2 alliance,
STMicroelectronics entered into agreements to acquire all equipment in Crolles
from NXP and Freescale according to the following schedule: (i) the
acquisition of equipment amounting to $128 million from NXP on
December 31, 2007; (ii) the acquisition of equipment amounting to $140
million from Freescale on March 14, 2008; (iii) the acquisition of
equipment amounting to $135 million from Freescale on April 18, 2008
and (iv) the acquisition of equipment amounting to $129 million from
NXP on June 30, 2008. The March 14, 2008 installment has been executed by a
combination of direct purchase amounting $40 million and a finance lease for the
remainder of the equipment. The termination of the Crolles 2 alliance
did not result in other settlements, which could have generated gain or losses
in the consolidated statement of income for the year ended December 31,
2008.
2008 Annual Report of
STMicroelectronics N.V.
Combined
proforma information on acquisitions
The
unaudited proforma information below assumes that Genesis Microchip and the
ST-NXP Wireless were created on January 1, 2008 and incorporates the results of
Genesis Microchip and ST-NXP Wireless beginning on that date. Such results 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, 2008.
Pro
forma Statements of Income (unaudited)
|
|
Year
ended
|
|
|
|
December
31, 2008
|
|
In
millions of U.S. dollars, except per share amounts
|
|
|
|
Net
revenues
|
|
|
10,650 |
|
Gross
profit
|
|
|
3,577 |
|
Operating
expenses
|
|
|
(3,546 |
) |
Operating
profit / (loss)
|
|
|
31 |
|
Net
result
|
|
|
(408 |
) |
Loss
per share (basic)
|
|
|
(0.46 |
) |
Loss
per share (diluted)
|
|
|
(0.46 |
) |
|
|
|
|
|
Statements
of Income, as reported
|
|
Year
ended
|
|
In
millions of U.S. dollars, except per share amounts
|
|
December
31, 2008
|
|
Net
revenues
|
|
|
9,842 |
|
Gross
profit
|
|
|
3,257 |
|
Operating
expenses
|
|
|
(3,118 |
) |
Operating
profit / (loss)
|
|
|
139 |
|
Net
result
|
|
|
(518 |
) |
Loss
per share (basic)
|
|
|
(0.58 |
) |
Loss
per share (diluted)
|
|
|
(0.58 |
) |
The
unaudited pro forma information above includes cost of goods sold due to
increases in the fair value of inventory received in the business
combinations.
5
— AVAILABLE-FOR-SALE FINANCIAL ASSETS
Movements
on available-for-sale financial assets are presented as follows:
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
Beginning
of the year
|
|
|
1,422 |
|
|
|
806 |
|
Long
term subordinated notes, received in disposal of assets, plus interest
incurred.
|
|
|
168 |
|
|
|
- |
|
Exchange
differences
|
|
|
2 |
|
|
|
58 |
|
Purchase
of listed debt securities (floating rate notes)
|
|
|
0 |
|
|
|
536 |
|
Sale
of listed debt securities (floating rate notes)
|
|
|
(351 |
) |
|
|
(40 |
) |
Purchase
of unlisted debt securities (auction rate securities)
|
|
|
- |
|
|
|
172 |
|
Sale
of unlisted debt securities (auction rate securities)
|
|
|
- |
|
|
|
(61 |
) |
Floating
rate notes, received through business combination
|
|
|
11 |
|
|
|
- |
|
Change
in FV of unlisted equity securities
|
|
|
(2 |
) |
|
|
- |
|
Impairment
of listed debt securities (floating rate notes)
|
|
|
(11 |
) |
|
|
(3 |
) |
Change
in fair value of listed debt securities (floating rate
notes)
|
|
|
(14 |
) |
|
|
|
|
Impairment
on auction rate securities recognised in statements of
income
|
|
|
(127 |
) |
|
|
(46 |
) |
End
of the year
|
|
|
1,098 |
|
|
|
1,422 |
|
Less:
non-current portion
|
|
|
(447 |
) |
|
|
(408 |
) |
Current
portion
|
|
|
651 |
|
|
|
1,014 |
|
As
at December 31, 2008, STMicroelectronics had financial assets classified as
available-for-sale corresponding to equity and debt securities.
2008 Annual Report of
STMicroelectronics N.V.
Investments
in equity securities
The
amount invested in equity securities was $5 million at December 31, 2008 and
2007, respectively. These investments primarily correspond to
financial assets held as part of a long-term incentive plan in one of
STMicroelectronics’s subsidiaries. They are reported on the line
“Available-for-sale financial assets” on the consolidated balance sheet as at
December 31, 2008 and 2007. In 2008, STMicroelectronics recognized a temporary
decline on the fair value of one of these equity securities. Such deferred loss,
which amounted to $3 million after-tax, was recorded as a separate component of
equity as of December 31, 2008. STMicroelectronics did not record any
significant change in fair value on the equity securities classified as
available-for-sale in 2007.
Long-term
subordinated notes
Upon the
creation of Numonyx, STMicroelectronics received 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 notes are reported on the line
“Available-for-sale financial assets” on the consolidated balance sheet as at
December 31, 2008. In 2008, the nominal value of the notes increased in 2008 by
$11 million of paid-in-kind of interest receivable. The aggregate fair value of
Numonyx long-term notes as of December 31, 2008 was $168 million. Fair value
measurement is based on publicly available swap rates for fixed income
obligations with similar maturities. Fair value measurement information is
further detailed in Note 35.
Investments
in debt securities
As at
December 31, 2008, STMicroelectronics had investments in marketable debt
securities with an aggregate fair value of $893 million, composed of $651
million invested in senior debt floating rate notes issued by primary financial
institutions with an average rating excluding impaired debt securities as
detailed below of Aa2/A+ and $242 million invested in auction rate securities,
representing interest in collateralized obligations and credit link notes. The
floating rate notes are reported as current assets on the line
“Available-for-sale financial assets” on the consolidated balance sheet as at
December 31, 2008, since they represent investments of funds available for
current operations. The auction-rate securities, which have a final maturity
between 10 and 40 years, were purchased in STMicroelectronics’s account by
Credit Suisse Securities LLC contrary to STMicroelectronics’s instructions. They
are classified as non-current assets on the line “Available-for-sale financial
assets” on the consolidated balance sheet as at December 31, 2008. All of these
debt securities are recorded at fair value as at December 31, 2008, with changes
in fair value recognized as a separate component of “Other reserves” in the
consolidated statement of changes in shareholders’ equity, except for those
changes recognized as impairment of the financial assets in consolidated
statement of income.
As at
December 31, 2008, given STMicroelectronics’s exposure to Lehman Brothers senior
unsecured bonds for a maximum amount of €15 million, STMicroelectronics recorded
an impairment of $11 million on floating rate notes issued by Lehman Brothers
following its Chapter 11 filing on September 15, 2008. This impairment charge,
which represented 50% of the face value of these debt securities, was reported
on the line “Impairment charge on marketable securities” in the consolidated
statement of income for the year ended December 31, 2008. Fair value measurement
relies on information received from a major credit rating entity based on
historical recovery rates. Apart from Lehman Brothers floating rate notes as
described above, STMicroelectronics reported as of December 31, 2008 an
after-tax decline in fair value on its floating rate note portfolio totaling $14
million due to the general widening of credit spreads associated with the
financial market turmoil. Out of the 20 investment positions in floating-rate
notes, whose changes in fair value have been considered as temporary, 12
positions are in an unrealized loss position. The aggregate related fair value
of these investments amounted to $412 million, of which $200 million have been
in a continuous loss position for 12 months or longer. STMicroelectronics
estimated the fair value of these financial assets based on publicly quoted
market prices. This change in fair value was recognized as a separate component
of "Other reserves” in the consolidated statement of changes in shareholders’
equity since STMicroelectronics assessed that this decline in fair value was
temporary and that STMicroelectronics was in a position to recover the total
carrying amount of these investments in subsequent periods.
2008
Annual Report of STMicroelectronics N.V.
Since the
duration of the floating-rate note portfolio is only 2.45 years on average and
the securities have a minimum Moody’s rating of “A2/A”, STMicroelectronics
expects the value of the securities to return to par as the final maturity is
approaching.
On the
auction-rate securities, STMicroelectronics reported impairment charges
amounting to $127 million and $46 million in 2008 and 2007, respectively, which
were immediately recorded in the consolidated statements of income on the line
“Impairment on marketable securities”. Until December 31, 2007, the fair value
of these debt securities, for which there are no observable secondary market
trades, was measured: (i) based on the weighted average of available information
from public indexes as described above and (ii) using ‘mark to market’ bids and
‘mark to model’ valuations received from the structuring financial institutions
of the outstanding auction rate securities, weighting the different information
at 80% and 20% respectively. Since the fourth quarter of 2007, no information
regarding “mark-to-market” bids and “mark-to-model” valuations from the
structuring financial institutions for these securities was available.
Consequently, the fair value measure of these securities 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 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
STMicroelectronics believes approximates the orderly exit value in the current
market. The additional impairment recorded in 2008 reflected downgrading events
on the collateral debt obligations comparing the relevant ABX indexes at a lower
rating category and a general negative trend of the corporate debt market. The
estimated value of the collateralized debt obligation could further decrease in
the future as a result of credit market deterioration and/or other downgrading.
The estimated value of the corporate debt securities could also further decrease
in the future due to a deterioration of the corporate industry indexes used for
the evaluation.
STMicroelectronics
sold $352 million of floating rate notes in 2008. The purpose of these sales was
primarily to generate cash to fund the payment for NXP wireless business
integration, as described in Note 3. In 2007, STMicroelectronics invested $536
million in floating-rate notes and $172 million in auction-rate securities. In
2007 STMicroelectronics also sold $40 million of floating rate notes and $61
million of auction-rate securities. No significant gain or loss was reported in
the consolidated statements of income for the years ended December 31, 2008 and
2007 as a result of these sales.
The
maximum exposure to market risk is the fair value of the debt securities
classified as available for sale.
Available-for-sale
financial assets include the following:
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
Listed
securities:
|
|
|
|
|
|
|
Floating-rate
Notes in USD
|
|
|
359 |
|
|
|
449 |
|
Listed
shares
|
|
|
5 |
|
|
|
5 |
|
Floating-rate
Notes in EUR
|
|
|
292 |
|
|
|
560 |
|
|
|
|
|
|
|
|
|
|
Unlisted
securities:
|
|
|
|
|
|
|
|
|
Auction
rate Securities
|
|
|
242 |
|
|
|
369 |
|
Subordinated
notes
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unlisted
equity securities:
|
|
|
|
|
|
|
|
|
Equity
securities – Euro zone countries
|
|
|
10 |
|
|
|
12 |
|
Equity
securities – US
|
|
|
18 |
|
|
|
26 |
|
Other
|
|
|
4 |
|
|
|
1 |
|
Total
|
|
|
1,098 |
|
|
|
1,422 |
|
2008
Annual Report of STMicroelectronics N.V.
Available-for-sale
financial assets are denominated in the following currencies:
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
Euro
|
|
|
302 |
|
|
|
561 |
|
US
dollar
|
|
|
792 |
|
|
|
860 |
|
Other
|
|
|
4 |
|
|
|
1 |
|
Total
|
|
|
1,098 |
|
|
|
1,422 |
|
6
— DERIVATIVE FINANCIAL INSTRUMENTS
Derivative
financial instruments are detailed as follows:
|
|
December
31, 2008
|
|
|
|
Assets
|
|
|
Liabilities
|
|
Interest
rate swaps
|
|
|
34 |
|
|
|
- |
|
Asset
swap – held for trading
|
|
|
- |
|
|
|
- |
|
Forward
foreign exchange contracts – cash flow hedge
|
|
|
10 |
|
|
|
- |
|
Purchased
currency options – cash flow hedge
|
|
|
27 |
|
|
|
- |
|
Forward
foreign exchange contracts – held-for-trading
|
|
|
- |
|
|
|
5 |
|
Total
|
|
|
71 |
|
|
|
5 |
|
|
|
December
31, 2007
|
|
|
|
Assets
|
|
|
Liabilities
|
|
Interest
rate swaps
|
|
|
8 |
|
|
|
- |
|
Asset
swap – held for trading
|
|
|
- |
|
|
|
- |
|
Forward
foreign exchange contracts – cash flow hedge
|
|
|
3 |
|
|
|
- |
|
Purchased
currency options – cash flow hedge
|
|
|
9 |
|
|
|
- |
|
Forward
foreign exchange contracts – held-for-trading
|
|
|
1 |
|
|
|
1 |
|
Total
|
|
|
21 |
|
|
|
1 |
|
Less:
non-current portion
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
|
(8 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
13 |
|
|
|
1 |
|
Trading
derivatives are classified as current assets or liabilities. The full fair value
of a hedging derivative is classified as a non-current asset or liability if the
remaining maturity of the hedged item is more than twelve months and as a
current asset or liability if the maturity of the hedged item is less than
twelve months.
In 2006,
STMicroelectronics entered into cancellable swaps with a combined notional value
of $200 million in connection with the issuance of the convertible bonds due in
2016 carrying a fixed interest rate. The swaps were supposed to hedge the bond
but did not meet the criterias of IAS39 for hedging relationship and are
cancellable by STMicroelectronics only. For the period ended December 31, 2008
and December 31, 2007 gain from the derivative instruments amounted to $26
million and $8 million respectively. STMicroelectronics has sold the instruments
during the first quarter of 2009.
In 2006,
STMicroelectronics entered into a basis asset swap for one floating rate note
for a notional amount of $50 million purchased at par. Even if strictly related
to the underlying note, the swap is contractually transferable independently of
the marketable security to which it is attached. As such, the asset swap was
recorded separately from the underlying financial asset and was reflected at its
fair value in the consolidated balance sheet. The changes in the fair value of
this derivative instrument were recorded in the consolidated statement of income
as part of “Other income” and did not exceed $1 million for the periods ended
December 31, 2008 and December 31, 2007.
2008
Annual Report of STMicroelectronics N.V.
|
(c)
|
Forward
foreign exchange contracts and currency options designated as cash flow
hedge
|
For the
periods ended December 31, 2008 and December 31, 2007 the Group recorded a
positive impact on cost of sales of $4 million and $16 million respectively
related to the realized profit incurred on hedged transactions. No
ineffectiveness was recognized on these transactions in 2008 and 2007. The
notional amount of foreign currency forward contracts and currency options
designated as cash flow hedges and executed totalled €807.5 in 2008 and €753
million in 2007. As of December 31, 2008 and December 31, 2007, $11 million and
$6 million respectively of deferred profit on derivative instruments, net of tax
included in other reserves are expected to be reclassified as earnings during
the next six months based on the monthly forecasted semi-finished manufacturing
costs. As of December 31, 2008, foreign currency forward contracts and
currency option contracts were outstanding. The notional amount of the foreign
currency forward contracts was €162.5 million, the notional amount of knock-in
forward contracts totalled €35 million and the notional amount of currency
option contracts totalled €75 million at December 31, 2008. The notional amount
of the foreign currency forward contracts was €63 million and the notional
amount of currency option contracts totalled €95 million at December 31, 2007.
Foreign currency forward contracts and currency options designated as cash flow
hedges outstanding as of December 31, 2008 have remaining terms of 5 days to 10
months, maturing on average after 68 days. 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 while the risk of loss
linked to currency options is limited to the premium paid to purchase the
options.
|
(d)
|
Forward
foreign exchange contracts held for
trading
|
On
December 31, 2008, foreign currency forward contracts and currency options held
for trading were outstanding. The notional amount of the foreign currency
forward contracts was $716 million and the notional amount of currency option
contracts totaled $141 million on December 31, 2008. The notional amount of the
foreign currency forward contracts was $358 million and the notional amount of
currency option contracts totaled $147 million at December 31, 2007. The
principal currencies covered are Euro (EUR), Singapore dollar (SGD), Malaysian
ringgit (MYR), and Japanese yen (JPY). Foreign currency forward contracts and
currency options held for trading outstanding as of December 31, 2008 have
remaining terms of 5 days to11 months, maturing on average after 47 days. The
risk of loss associated with these forward contracts is equal to the exchange
rate differential from the balance sheet date and the time the contract is
settled.
7
— TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consisted of
the following:
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
1,089
|
|
|
|
1,626 |
|
Provision
for impairment
|
|
|
(25 |
) |
|
|
(21 |
) |
Total
|
|
1,064
|
|
|
|
1,605 |
|
The
carrying value less provision for impairment of trade receivables is assumed to
approximate the fair values of the trade receivables due to their short-term
nature. The amount of the provision was $25 million and $21 million as at
December 31, 2008 and December 31, 2007 respectively. Impairment losses
recognized in 2008 and 2007 were $1 million and $1 million, respectively.
Doubtful account expense is reported as selling, general and administrative
expenses in the consolidated statements of income. The individually impaired
receivables mainly relate to customers, who are unexpectedly in difficult
economic situations; a portion of such receivables is expected to be
recovered.
2008
Annual Report of STMicroelectronics N.V.
The
contractual terms of trade receivables are as follows:
|
|
|
|
|
|
|
0
to 3 months
|
|
|
1,064 |
|
|
|
1,599 |
|
3
to 6 months
|
|
|
16 |
|
|
|
27 |
|
Over
6 months
|
|
|
9 |
|
|
|
- |
|
Total
|
|
|
1,089 |
|
|
|
1,626 |
|
As at
December 31, 2008 and December 31, 2007 trade receivables of $170 million and of
$195 million respectively were past due but not impaired. These relate to a
number of independent customers for whom there is no recent history of default
and therefore STMicroelectronics is confident to receive the full past due
amount. The ageing analysis of these past due trade receivables is as
follows:
|
|
|
|
|
|
|
0
to 1 month
|
|
|
110 |
|
|
|
132 |
|
1
to 6 months
|
|
|
50 |
|
|
|
62 |
|
Over
6 months
|
|
|
10 |
|
|
|
1 |
|
Total
|
|
|
170 |
|
|
|
195 |
|
The
carrying amounts of the Group’s trade receivables are denominated in the
following currencies:
|
|
|
|
|
|
|
US
dollar
|
|
|
923 |
|
|
|
1,445 |
|
Euro
|
|
|
140 |
|
|
|
161 |
|
Japanese
yen
|
|
|
19 |
|
|
|
20 |
|
Other
currencies
|
|
|
7 |
|
|
|
- |
|
Total
|
|
|
1,089 |
|
|
|
1,626 |
|
Movements on the provision for
impairment of trade receivables are as follows:
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
Beginning
of the period
|
|
|
21 |
|
|
|
31 |
|
Exchange
differences
|
|
|
- |
|
|
|
- |
|
Charged
to costs and expenses
|
|
|
1 |
|
|
|
1 |
|
Additions
due to business combinations
|
|
|
8 |
|
|
|
- |
|
Deductions
|
|
|
(5 |
) |
|
|
(11 |
) |
End
of the period
|
|
|
25 |
|
|
|
21 |
|
Amounts
charged to the allowance account are generally written-off when there is no
expectation of recovering additional cash. The maximum exposure to credit risk
at the reporting date is the fair value of trade account receivables, net. In
2008 and 2007, one customer, the Nokia group of companies, represented 17.5% and
21.1% of consolidated net revenues, respectively. Nokia's sales are primarily
recorded in the WPS (Wireless Products Sector) segment.
2008 Annual Report of
STMicroelectronics N.V.
Inventories
consisted of the following:
|
|
|
|
|
|
|
Raw
materials
|
|
|
76 |
|
|
|
72 |
|
Work-in-process
|
|
|
1,125 |
|
|
|
809 |
|
Finished
products
|
|
|
640 |
|
|
|
474 |
|
Total
|
|
|
1,841 |
|
|
|
1,355 |
|
The fair
value adjustment arising from the purchase accounting for the acquisition of NXP
as described in Note 4 was totally expensed in cost of goods sold as at December
31, 2008.
As at
December 31, 2007 inventories amounting to $329 million were reported as a
component of the line “Assets held for sale” on the consolidated balance sheet
as part of the assets to be transferred to Numonyx, the newly created flash
memory company upon FMG deconsolidation.
The
amount of inventory write-off was $76 million as at December 31, 2008 and $80
million for the year 2007.
As
described in Note 3, STMicroelectronics announced in 2007 that it had entered
into an agreement with Intel Corporation and Francisco Partners L.P. to create a
new independent semiconductor company, Numonyx, from the key assets of
STMicroelectronics’s Flash Memory Group and Intel’s flash memory business. In
exchange of its flash memory assets, including its Hynix-ST investment (a NAND
joint venture interest with Hynix Semiconductors Inc.) and other NOR resources,
STMicroelectronics was expected to receive, at closing, a combination of cash
and a 48.6% equity ownership stake in Numonyx; Intel was expected to receive
cash and a 45.1% equity ownership stake; and Francisco Partners L.P. was to
invest $150 million in cash to purchase participating convertible preferred
stock with certain liquidation preferences and convertible into a 6.3% ownership
interest, subject to adjustments in certain circumstances. As a result of the
signing of the definitive agreement for the FMG deconsolidation and upon meeting
IFRS 5 criteria for assets held for sale, STMicroelectronics reclassified the
assets to be transferred to Numonyx from their original balance sheet
classification to the line “Assets held for sale” in the consolidated balance
sheet as at December 31, 2007. Coincident with this classification,
STMicroelectronics recorded an impairment charge
of $1,162 million, as described in Note 26, to adjust the value
of these assets to fair value less costs to sell, reporting the loss on the line
“Impairment on assets held for sale and related costs” of the consolidated
statement of income for the year ended December 31, 2007. Fair value less costs
to sell was based on the net consideration provided for in the agreement and
significant estimates.
In the
first quarter 2008, the terms of the transaction were further refined. Among
other things, STMicroelectronics and Intel agreed to guarantee the term debt and
revolving credit agreement of Numonyx, as described in Note 3.
STMicroelectronics and Intel also agreed to a reduction in the amount of
subordinated notes they would receive and it was agreed that Francisco Partners
would receive 6.3% of the total subordinated notes to be issued by Numonyx in
addition to its convertible preferred stock in exchange for its initial
investment of $150 million. The Numonyx transaction closed on March 30, 2008. At
closing, through a series of steps, STMicroelectronics contributed its flash
memory assets and businesses as previously announced. As a consequence of the
final terms of the transaction, the balance sheet at the closing date and
additional agreements on assets to be contributed, coupled with changes in
valuation for comparable Flash memory companies, STMicroelectronics incurred an
additional pre-tax loss of $190 million for the year, consisting of a $164
million impairment charge recorded upon disposal and an additional loss of $26
million, as a consequence of additional charges borne by STMicroelectronics in
relation to the contributed assets.
2008
Annual Report of STMicroelectronics N.V.
The loss
was reported on the line “Impairment on assets held for sale and related costs”
of the consolidated statement of income for the year ended December 31, 2008 and
is further detailed in note 26.
There are
no assets held for sale as of December 31, 2008. As of December 31, 2007 assets
held for sale consisted of the following:
|
|
December
31, 2007
|
|
|
|
|
|
Inventories,
net
|
|
|
329 |
|
Other
intangible assets, net
|
|
|
12 |
|
Property,
plant and equipment, net
|
|
|
398 |
|
Long
term deferred tax assets
|
|
|
6 |
|
17%
ownership in Hynix ST Investment (China)
|
|
|
272 |
|
Total
|
|
|
1,017 |
|
As
required under IFRS 5 held-for-sale model, STMicroelectronics ceased to record
amortization and depreciation on intangible and tangible assets classified as
assets held for sale.
Other
receivables consisted of the following:
|
|
|
|
|
|
|
Receivables
from government agencies
|
|
|
125 |
|
|
|
185 |
|
Advances
to suppliers
|
|
|
3 |
|
|
|
5 |
|
Advances
to employees
|
|
|
11 |
|
|
|
9 |
|
Insurance
prepayments
|
|
|
6 |
|
|
|
5 |
|
Rental
prepayments
|
|
|
2 |
|
|
|
3 |
|
License
and technology agreement prepayments
|
|
|
21 |
|
|
|
17 |
|
Other
prepaid expenses
|
|
|
35 |
|
|
|
17 |
|
Accrued
income
|
|
|
14 |
|
|
|
11 |
|
Loans
and deposits
|
|
|
18 |
|
|
|
15 |
|
Sundry
debtors within cooperation agreements
|
|
|
29 |
|
|
|
30 |
|
Interest
Receivable
|
|
|
16 |
|
|
|
- |
|
Receivables
for sale of long-lived assets
|
|
|
1 |
|
|
|
- |
|
Other
|
|
|
26 |
|
|
|
39 |
|
Total
|
|
|
307 |
|
|
|
336 |
|
The
carrying amounts are assumed to approximate fair value. Other receivables do not
contain significant impaired assets. As of December 31, 2008 and December 31,
2007, other receivables of $16 million and $22 million, respectively, were past
due but not impaired. These related mainly to receivables from government
agencies for which there is no recent history of default.
The
ageing analysis of the Group's other receivables is as follows:
|
|
|
|
|
|
|
0
to 6 months
|
|
|
125 |
|
|
|
118 |
|
Over
6 months
|
|
|
182 |
|
|
|
218 |
|
Total
|
|
|
307 |
|
|
|
336 |
|
2008
Annual Report of STMicroelectronics N.V.
The
carrying amounts of the Group’s other receivables are denominated in the
following currency:
|
|
|
|
|
|
|
US
dollar
|
|
|
79 |
|
|
|
169 |
|
Euro
|
|
|
192 |
|
|
|
154 |
|
Other
currencies
|
|
|
36 |
|
|
|
13 |
|
Total
|
|
|
307 |
|
|
|
336 |
|
Receivables
from government agencies relate to research and development contracts, research
tax credits, industrialization contracts and capital investment projects. The
maximum exposure to credit risk at the reporting date is the carrying amount of
other receivables.
11
— OTHER CURRENT ASSETS
Other
current assets consisted of the following:
|
|
|
|
|
|
|
Other
indirect tax receivable
|
|
|
170 |
|
|
|
116 |
|
Other
current assets
|
|
|
69 |
|
|
|
34 |
|
Total
|
|
|
239 |
|
|
|
150 |
|
Changes
in the carrying amount of goodwill are presented in the following segment-level
summary of goodwill allocation:
|
|
Automotive
Consumer Computer and Telecom Infrastructure Product Groups
(“ACCI”)
|
|
|
Wireless
Products Sector
|
|
|
Industrial
and Multisegment Products Sector (“IMS”)
|
|
|
Other
|
|
|
Total
|
|
December
31, 2006
|
|
|
16 |
|
|
|
89 |
|
|
|
69 |
|
|
|
2 |
|
|
|
176 |
|
Business
Combination
|
|
|
- |
|
|
|
58 |
|
|
|
- |
|
|
|
- |
|
|
|
58 |
|
Foreign
currency translation
|
|
|
- |
|
|
|
- |
|
|
|
9 |
|
|
|
- |
|
|
|
9 |
|
December
31, 2007
|
|
|
16 |
|
|
|
147 |
|
|
|
78 |
|
|
|
2 |
|
|
|
243 |
|
Business
combinations
|
|
|
12 |
|
|
|
621 |
|
|
|
- |
|
|
|
- |
|
|
|
633 |
|
Incard
goodwill impairment
|
|
|
- |
|
|
|
- |
|
|
|
(3 |
) |
|
|
- |
|
|
|
(3 |
) |
Foreign
currency translation
|
|
|
(1 |
) |
|
|
- |
|
|
|
(2 |
) |
|
|
- |
|
|
|
(3 |
) |
December
31, 2008
|
|
|
27 |
|
|
|
768 |
|
|
|
73 |
|
|
|
2 |
|
|
|
870 |
|
In 2008,
STMicroelectronics acquired 100% of Genesis Microchip Inc. and 80% of the NXP
wireless business. Amounts of $12 million and $621 million, respectively, of the
purchase price for these two transactions were allocated to goodwill. These
business combinations are described in details in Note 4.
2008
Annual Report of STMicroelectronics N.V.
During
the third quarter of 2008, STMicroelectronics performed the annual review of
impairment of goodwill and based on this test, impairment charges totaling $3
million were recorded on the line “Cost of sales” of the consolidated statement
of income for the year ended December 31, 2008. These impairment charges are
further described in Note 26.
On
November 1, 2007 STMicroelectronics acquired a portion of the integrated circuit
operations of one of the significant wireless customers of its new WPS product
segment. An amount of $58 million of the purchase price for this
transaction was allocated to goodwill as well as $10 million to technology
licences, $24 million to the customer relationships, $3 million to fixed assets
and $3 million to employee liabilities.
Goodwill
is allocated to the Group's cash-generating units ("CGUs"). The recoverable
amount of a CGU is determined based on value-in-use calculations. These
calculations use cash flow projections based on financial budgets approved by
management covering a five-year period.
The
key-assumptions used for value-in-use calculations are based on a five-year plan
of each CGU tested including average annual revenues growth, in aggregate for
relevant CGUs, higher than Group's average by approximately 5% resulting from
the forecasted faster growth for these businesses and their incoming new
products, and an average gross margin over the five-year period within a range
of 23% and 47%. A mid-point 11% pre-tax discount rate has been applied to the
cash flow projections.
These
assumptions have been used, as applicable, for the analysis of each CGU within
the product segments. Management determined budgeted gross margin based on past
performance and its expectations for the market development. The average yearly
growth rates used are consistent with the forecasts included in industry
reports. The discount rates used are pre-tax and reflect specific risks relating
to the relevant CGUs.
During
the fourth quarter of 2008, because STMicroelectronics’s market capitalization
declined to a level below its book value, STMicroelectronics also performed
further analyses using the most current long term financial plan available.
While STMicroelectronics recorded specific impairment charges related to the
carrying value of certain marketable securities and equity investments during
the period, no impairment was indicated by such analyses on the net value of its
assets subject to testing. However, many of the factors used in assessing fair
values for such assets are outside of STMicroelectronics’s 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 STMicroelectronics’s market value, STMicroelectronics will continue to
monitor the carrying value of its 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 STMicroelectronics’s product portfolio or
strategic transactions.
Intangible
assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
Purchased
technologies & licenses
|
|
|
773 |
|
|
|
(381 |
) |
|
|
392 |
|
Purchased
software
|
|
|
236 |
|
|
|
(183 |
) |
|
|
53 |
|
Internally
developed software |
|
|
275 |
|
|
|
(109 |
) |
|
|
166 |
|
Capitalized
Development
Costs
|
|
|
1,054 |
|
|
|
(309 |
) |
|
|
745 |
|
Contractual
Customer Relationships
|
|
|
532 |
|
|
|
(23 |
) |
|
|
509 |
|
Total
|
|
|
2,870 |
|
|
|
(1,005 |
) |
|
|
1,865 |
|
|
|
|
|
|
Accumulated
Amortization
|
|
|
|
|
Purchased
technologies & licenses
|
|
|
431 |
|
|
|
(303 |
) |
|
|
128 |
|
Purchased
software
|
|
|
230 |
|
|
|
(179 |
) |
|
|
51 |
|
Internally
developed
software
|
|
|
128 |
|
|
|
(69 |
) |
|
|
59 |
|
Capitalized
development
costs
|
|
|
711 |
|
|
|
(106 |
) |
|
|
605 |
|
Total
|
|
|
1,500 |
|
|
|
(657 |
) |
|
|
843 |
|
2008 Annual Report of
STMicroelectronics N.V.
Changes
in the net carrying amount of intangible assets are detailed as
follows:
|
|
Purchased
technologies & licenses
|
|
|
|
|
|
Internally
developed software
|
|
|
Capitalized
Development Costs
|
|
|
Contractual
Customer Relationships
|
|
|
|
|
December
31, 2006
|
|
|
95 |
|
|
|
44 |
|
|
|
72 |
|
|
|
518 |
|
|
|
— |
|
|
|
729 |
|
Additions
|
|
|
85 |
|
|
|
3 |
|
|
|
68 |
|
|
|
314 |
|
|
|
— |
|
|
|
470 |
|
Disposals
|
|
|
(7 |
) |
|
|
(1 |
) |
|
|
(44 |
) |
|
|
— |
|
|
|
— |
|
|
|
(52 |
) |
Transfers
|
|
|
— |
|
|
|
31 |
|
|
|
(31 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization
expense
|
|
|
(47 |
) |
|
|
(27 |
) |
|
|
(7 |
) |
|
|
(93 |
) |
|
|
— |
|
|
|
(174 |
) |
Impairment
charges
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
(134 |
) |
|
|
— |
|
|
|
(135 |
) |
Foreign
currency translation
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
December
31, 2007
|
|
|
128 |
|
|
|
51 |
|
|
|
59 |
|
|
|
605 |
|
|
|
— |
|
|
|
843 |
|
Additions
through acquisitions
|
|
|
323 |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
533 |
|
|
|
857 |
|
Additions
|
|
|
19 |
|
|
|
6 |
|
|
|
145 |
|
|
|
343 |
|
|
|
- |
|
|
|
513 |
|
Disposals
|
|
|
- |
|
|
|
— |
|
|
|
- |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Transfers
|
|
|
1 |
|
|
|
27 |
|
|
|
(28 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization
expense
|
|
|
(77 |
) |
|
|
(30 |
) |
|
|
(3 |
) |
|
|
(134 |
) |
|
|
(24 |
) |
|
|
(268 |
) |
Impairment
charges
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(9 |
) |
|
|
(69 |
) |
|
|
— |
|
|
|
(79 |
) |
Foreign
currency translation
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
December
31, 2008
|
|
|
392 |
|
|
|
53 |
|
|
|
166 |
|
|
|
745 |
|
|
|
509 |
|
|
|
1,865 |
|
As at
December 31, 2008, additions of intangible assets amounted to $1,370 million,
thereof $532 million are customer relationships acquired through business
combinations. $323 millions are technologies & licenses attributable to
business acquisitions of ST-NXP Wireless and Genesis. These business
combinations are discussed in details in Note 4.
|
-
|
Purchase
price allocation on the acquisition of Genesis resulted in $44 million of
core technologies, $27 million related to customer relationships, $2
million of trademarks and $21 million of IP R&D. 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.
|
|
-
|
Purchase
price allocation on the integration of NXP wireless business resulted in
the recognition of core technologies of $278 million, customer
relationships of $506 million and acquired IP R&D of $95 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.
|
The
aggregate amortization expense in 2008 and 2007 was $268 million and $174
million, respectively. The 2008 amortization expense included $145 million in
costs of sales, $78 million in research and development and $45 million in
selling general and administrative.
As at
December 31, 2007 other intangible assets amounting to $12 million were reported
as a component of the line “Assets held for sale” on the consolidated balance
sheet as part of the assets to be transferred to Numonyx.
The 2008
impairment charge consists of $69 million impairment on projects under
development booked into the income statement line "Research and development", $1
million of impairment on acquired technologies booked as "Cost of sales" and $1
million of impairment on purchased software booked as "Cost of
sales".
The 2007
impairment charges amounting to $134 million are mainly due to impairment of
capitalized development cost, of which $59 million attributable to FMG disposal
and $76 million to discontinued projects which include certain amounts that are
individually and in aggregate not material to the financial results and that
were abandoned in previous years for a total of $31 million.
2008
Annual Report of STMicroelectronics N.V.
14
— PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consisted of the following:
Land
|
|
|
89 |
|
|
|
- |
|
|
|
89 |
|
Buildings
|
|
|
1,007 |
|
|
|
(264 |
) |
|
|
743 |
|
PPE
in Finance lease
|
|
|
157 |
|
|
|
(67 |
) |
|
|
90 |
|
Facilities
and 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 |
|
Furniture
and other tangible fixed assets
|
|
|
187 |
|
|
|
(127 |
) |
|
|
60 |
|
Construction
in progress
|
|
|
49 |
|
|
|
- |
|
|
|
49 |
|
Total
|
|
|
18,870 |
|
|
|
(14,050 |
) |
|
|
4,820 |
|
Land
|
|
|
91 |
|
|
|
-- |
|
|
|
91 |
|
Buildings
|
|
|
1,036 |
|
|
|
(344 |
) |
|
|
692 |
|
Buildings
under finance lease
|
|
|
71 |
|
|
|
(49 |
) |
|
|
22 |
|
Facilities
and leasehold improvements
|
|
|
3,205 |
|
|
|
(1,975 |
) |
|
|
1,230 |
|
Machinery
and equipment
|
|
|
13,939 |
|
|
|
(11,183 |
) |
|
|
2,756 |
|
Computer
and R&D equipment
|
|
|
554 |
|
|
|
(458 |
) |
|
|
96 |
|
Furniture
and other tangible fixed assets
|
|
|
185 |
|
|
|
(128 |
) |
|
|
57 |
|
Construction
in progress
|
|
|
101 |
|
|
|
- |
|
|
|
101 |
|
Total
|
|
|
19,182 |
|
|
|
(14,137 |
) |
|
|
5,045 |
|
Changes
in the net carrying amount of tangible assets are detailed as
follows:
|
|
|
|
|
|
|
|
|
|
|
Facilities
and leasehold improvements
|
|
|
|
|
|
Computer
and R&D equipment
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
91 |
|
|
|
889 |
|
|
|
22 |
|
|
|
1,467 |
|
|
|
3,523 |
|
|
|
110 |
|
|
|
38 |
|
|
|
286 |
|
|
|
6,426 |
|
Additions
|
|
|
1 |
|
|
|
2 |
|
|
|
7 |
|
|
|
51 |
|
|
|
872 |
|
|
|
31 |
|
|
|
127 |
|
|
|
138 |
|
|
|
1,229 |
|
Disposals
|
|
|
(8 |
) |
|
|
(222 |
) |
|
|
(3 |
) |
|
|
(116 |
) |
|
|
(815 |
) |
|
|
(7 |
) |
|
|
(99 |
) |
|
|
(334 |
) |
|
|
(1,604 |
) |
Other
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
Depreciation
expense
|
|
|
— |
|
|
|
(36 |
) |
|
|
(7 |
) |
|
|
(270 |
) |
|
|
(970 |
) |
|
|
(46 |
) |
|
|
(10 |
) |
|
|
— |
|
|
|
(1,339 |
) |
Foreign
currency translation
|
|
|
7 |
|
|
|
59 |
|
|
|
3 |
|
|
|
98 |
|
|
|
147 |
|
|
|
8 |
|
|
|
1 |
|
|
|
11 |
|
|
|
334 |
|
December
31, 2007
|
|
|
91 |
|
|
|
692 |
|
|
|
22 |
|
|
|
1,230 |
|
|
|
2,756 |
|
|
|
96 |
|
|
|
57 |
|
|
|
101 |
|
|
|
5,045 |
|
Additions
through acquisitions
|
|
|
— |
|
|
|
79 |
|
|
|
— |
|
|
|
8 |
|
|
|
226 |
|
|
|
6 |
|
|
|
2 |
|
|
|
1 |
|
|
|
322 |
|
Additions
|
|
|
1 |
|
|
|
5 |
|
|
|
395 |
|
|
|
43 |
|
|
|
748 |
|
|
|
37 |
|
|
|
45 |
|
|
|
87 |
|
|
|
1,361 |
|
Disposals
|
|
|
— |
|
|
|
— |
|
|
|
(296 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3 |
) |
|
|
(33 |
) |
|
|
- |
|
|
|
(332 |
) |
Impairment
|
|
|
— |
|
|
|
(12 |
) |
|
|
— |
|
|
|
(17 |
) |
|
|
(93 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(6 |
) |
|
|
(130 |
) |
Transfer
|
|
|
— |
|
|
|
38 |
|
|
|
— |
|
|
|
74 |
|
|
|
16 |
|
|
|
1 |
|
|
|
4 |
|
|
|
(133 |
) |
|
|
- |
|
Depreciation
expense
|
|
|
— |
|
|
|
(34 |
) |
|
|
(35 |
) |
|
|
(268 |
) |
|
|
(896 |
) |
|
|
(44 |
) |
|
|
(10 |
) |
|
|
— |
|
|
|
(1,287 |
) |
Foreign
currency translation
|
|
|
(3 |
) |
|
|
(25 |
) |
|
|
4 |
|
|
|
(32 |
) |
|
|
(94 |
) |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(159 |
) |
December
31, 2008
|
|
|
89 |
|
|
|
743 |
|
|
|
90 |
|
|
|
1,038 |
|
|
|
2,663 |
|
|
|
88 |
|
|
|
61 |
|
|
|
48 |
|
|
|
4,820 |
|
As at
December 31, 2008, the additions of tangible assets amounted to $1,685 million,
of which $322 million were acquired through business combinations of ST-NXP
Wireless and Genesis. These business combinations are discussed in details in
Note 4.
|
-
|
Purchase
price allocation on the acquisition of Genesis resulted in $14 million of
equipment.
|
|
-
|
Purchase
price allocation on the integration of NXP wireless business resulted in
the recognition of building with a fair value of $79 million, $8 of
leasehold improvements, $212 million of equipment, $6 million of R&D
equipment, $2 million of furnitures and others and $1 million of
construction in process.
|
2008
Annual Report of STMicroelectronics N.V.
The
Depreciation charge in 2008 and 2007 was $1,287 million and $1,339 million
respectively.
In 2008,
STMicroelectronics launched its first 300-mm production facility. Consequently,
STMicroelectronics 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.
Capital
investment funding has totaled $4 million and $9 million in the periods ended
December 31, 2008 and December 31, 2007, respectively. Public funding reduced
the depreciation charge by $25 million and $33 million in 2008 and 2007,
respectively. For the years ended December 31, 2008 and 2007 STMicroelectronics
made equipment sales for cash proceeds of $8 million, and $4 million
respectively.
As at
December 31, 2007 property, plant and equipment amounting to $398 million were
reported as a component of the line “Assets held for sale” on the consolidated
balance sheet as part of the assets to be transferred to Numonyx, the newly
created flash memory company upon FMG deconsolidation. See also Note 9 "Disposal
group of assets held for sale" for the details to the
transaction.
15
— LONG-TERM LOANS AND RECEIVABLES
Long-term
loans and receivables consisted of the following:
|
|
|
|
|
|
|
Long-term
receivables related to funding
|
|
|
8 |
|
|
|
46 |
|
Long
term receivables from government agencies
|
|
|
378 |
|
|
|
130 |
|
Long-term
loans to third parties
|
|
|
13 |
|
|
|
13 |
|
Other
long-term loans and deposits
|
|
|
14 |
|
|
|
14 |
|
Total
|
|
|
413 |
|
|
|
203 |
|
These
non-current receivables are all due within 5 years from the balance sheet date
except certain receivables related to funding which are expected to be received
beyond 5 years.
Long-term
receivables related to funding are mainly public grants to be received from
governmental agencies in Italy as part of long-term research and development,
industrialization and capital investment projects.
Long-term
receivables from government agencies contain $ 337 million of CIR (research tax
credits) and $6 million tax credit received on Numonyx.
Long-term
loans to third parties are composed of individually insignificant amounts as of
December 31, 2008 and December 31, 2007.
Long-term
receivables are reflected in the balance sheet at their discounted net present
value. STMicroelectronics estimates that for individually insignificant amounts,
the carrying amounts as reported as of December 31, 2008 and December 31, 2007
approximate their related fair value. The effective interest rates on long-term
receivables related to funding were as follows:
|
|
|
|
|
|
|
Long-term
rate related to funding receivables
|
|
|
3.17 |
% |
|
|
4.88 |
% |
The fair
value of long-term loans related to funding amounts to $8 million and is based
on cash flows discounted using a rate based on the borrowings rate of
3.17%
2008
Annual Report of STMicroelectronics N.V.
As of
December 31, 2008 and December 31, 2007, only individually insignificant
long-term loans and receivables were fully impaired. No long-term loans and
receivables were past due but not impaired.
The
carrying amounts of the Group’s long-term loans and receivables are denominated
in the following currency:
|
|
|
|
|
|
|
US
dollar
|
|
|
25 |
|
|
|
4 |
|
Euro
|
|
|
376 |
|
|
|
184 |
|
Japanese
yen
|
|
|
4 |
|
|
|
4 |
|
Other
currencies
|
|
|
8 |
|
|
|
1 |
|
Total
|
|
|
413 |
|
|
|
203 |
|
The
maximum exposure to credit risk at the reporting date is the fair value of each
class of receivable mentioned above.
16
— OTHER NON-CURRENT ASSETS
Other
non-current assets amounted to $30 million and $60 million as of December 31,
2008 and December 31, 2007 respectively and primarily consisted of a debt
financial guarantee obligation towards a former associate.
17
— TRADE ACCOUNT PAYABLES, OTHER PAYABLES AND ACCRUED
LIABILITIES
Trade
account payables, other payables and accrued liabilities consisted of the
following:
|
|
|
|
|
|
|
Trade
account payables
|
|
|
840 |
|
|
|
1,065 |
|
|
|
|
|
|
|
|
|
|
Other
payables and accrued liabilities:
|
|
|
|
|
|
|
|
|
Dividends
due to shareholders
|
|
|
79 |
|
|
|
- |
|
Taxes
other than income taxes
|
|
|
85 |
|
|
|
91 |
|
Salaries
and wages
|
|
|
340 |
|
|
|
300 |
|
Social
charges
|
|
|
150 |
|
|
|
149 |
|
Pension
and termination benefits
|
|
|
5 |
|
|
|
23 |
|
Advances
from customers
|
|
|
7 |
|
|
|
10 |
|
Accounts
payable from Numonyx, net
|
|
|
7 |
|
|
|
- |
|
Advances
received on government fundings
|
|
|
44 |
|
|
|
28 |
|
Accrued
interest
|
|
|
8 |
|
|
|
6 |
|
Obligations
for Capacity Rights
|
|
|
29 |
|
|
|
- |
|
Royalties
|
|
|
14 |
|
|
|
- |
|
Other
accrued liabilities
|
|
|
98 |
|
|
|
95 |
|
Total
other payables and accrued liabilities
|
|
|
866 |
|
|
|
702 |
|
The
obligations for capacity rights consists of rights granted to Numonyx and rights
granted to NXP:
|
-
|
The
terms of the agreement for the inception of Numonyx included rights
granted to Numonyx to use certain assets retained by STMicroelectronics.
As at December 31, 2008 the value of such rights totaled $87 million, of
which $24 million was reported as a current liability.
|
|
-
|
The
terms of the agreement for the integration of the NXP wireless business
included rights granted to NXP to obtain products from STMicroelectronics
at preferential pricing. As at December 31, 2008 the value of such rights
totaled $8 million, of which $5 million was reported as a current
liability.
|
Other
accrued liabilities also include individually insignificant amounts as of
December 31, 2008 and December 31, 2007.
2008
Annual Report of STMicroelectronics N.V.
18
— RETIREMENT BENEFIT OBLIGATIONS
The Group
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. The Group uses December 31 as measurement date for all its plans.
Eligibility is generally determined in accordance with local statutory
requirements. In 2008 and 2007, the major defined benefit pension plans and
long-term employee benefit plans were in Italy and France. In 2007, a new
Italian regulation concerning employee retirement schemes was enacted (“Riforma
Previdenziale”) with a consequent change of the Italian pension plan from
defined benefit to defined contribution. All future contributions will be paid
by the Italian subsidiary to an external pension fund or to treasury
fund.
Major
changes as compared to previous periods are related to the FMG divestiture and
the NXP Wireless business combination.
The
amounts recognized in the balance sheet are determined as follows:
|
|
|
|
|
|
|
Benefit
obligations wholly or partially funded
|
|
|
(386 |
) |
|
|
(313 |
) |
Fair
value of plan assets
|
|
|
262 |
|
|
|
278 |
|
Benefit
obligations wholly unfunded
|
|
|
(172 |
) |
|
|
(246 |
) |
Unrecognized
actuarial gain (loss)
|
|
|
30 |
|
|
|
(50 |
) |
Reserve
against prepaid
|
|
|
(2 |
) |
|
|
- |
|
Unrecognized
past service cost
|
|
|
4 |
|
|
|
9 |
|
Total
pension liabilities
|
|
|
(264 |
) |
|
|
(322 |
) |
Post
employment benefit
The
movement in the liability recognized in the consolidated balance sheet is as
follows:
|
|
|
|
|
|
|
Beginning
of the year
|
|
|
322 |
|
|
|
333 |
|
Exchange
differences
|
|
|
(20 |
) |
|
|
35 |
|
Total
expense charged in the income statement
|
|
|
28 |
|
|
|
(13 |
) |
Changes
in reserve against prepaid
|
|
|
2 |
|
|
|
|
|
Plan
merger / acquisition
|
|
|
(31 |
) |
|
|
- |
|
Contributions
paid
|
|
|
(37 |
) |
|
|
(33 |
) |
End
of year
|
|
|
264 |
|
|
|
322 |
|
Change
in Defined Benefit Obligation
|
|
|
|
|
|
|
Beginning
of the year
|
|
|
559 |
|
|
|
570 |
|
Service
cost
|
|
|
20 |
|
|
|
19 |
|
Interest
cost
|
|
|
29 |
|
|
|
27 |
|
Employee
contributions
|
|
|
3 |
|
|
|
2 |
|
Plan
amendment – past service cost – non vested
benefits
|
|
|
(2 |
) |
|
|
2 |
|
Actuarial
gain (loss)
|
|
|
18 |
|
|
|
(42 |
) |
Acquisition
/ Transfer In
|
|
|
69 |
|
|
|
5 |
|
Divestiture
/ Transfer Out
|
|
|
(52 |
) |
|
|
- |
|
Effect
of curtailment
|
|
|
(1 |
) |
|
|
(32 |
) |
Effect
of settlement
|
|
|
(5 |
) |
|
|
(1 |
) |
Benefits
paid
|
|
|
(35 |
) |
|
|
(26 |
) |
Effect
of foreign exchange translation
|
|
|
(45 |
) |
|
|
35 |
|
End
of year
|
|
|
558 |
|
|
|
559 |
|
2008
Annual Report of STMicroelectronics N.V.
Change
in Plan Assets
|
|
|
|
|
|
|
Beginning
of the year
|
|
|
278 |
|
|
|
241 |
|
Expected
return on plan assets
|
|
|
18 |
|
|
|
15 |
|
Employer
contribution
|
|
|
16 |
|
|
|
16 |
|
Employee
contribution
|
|
|
3 |
|
|
|
2 |
|
Acquisition
/ Transfer In
|
|
|
54 |
|
|
|
- |
|
Sale
/ Transfer out
|
|
|
(5 |
) |
|
|
|
|
Effect
of settlement
|
|
|
(3 |
) |
|
|
(1 |
) |
Administration
fees
|
|
|
(1 |
) |
|
|
(1 |
) |
Benefits
paid
|
|
|
(11 |
) |
|
|
(10 |
) |
Actuarial
gain /loss
|
|
|
(59 |
) |
|
|
8 |
|
Effect
of foreign exchange translation
|
|
|
(28 |
) |
|
|
8 |
|
End
of year
|
|
|
262 |
|
|
|
278 |
|
The
actual return on plan assets was $(41) million and $23 million in 2008 and 2007
respectively.
|
|
2008
|
|
Expected
return on plan assets
|
|
|
18 |
|
Actual
return on plan assets
|
|
|
(41 |
) |
Actuarial
gain on assets
|
|
|
(59 |
) |
The
present value of the defined benefit obligation, the fair value of the plan
assets and the surplus or deficit in the pension plans for the current annual
period and previous four annual periods is presented as following:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Present
value of defined benefit obligation
|
|
|
558 |
|
|
|
559 |
|
|
|
570 |
|
|
|
450 |
|
|
|
421 |
|
Fair
value of pension plan assets
|
|
|
262 |
|
|
|
278 |
|
|
|
241 |
|
|
|
191 |
|
|
|
175 |
|
Deficit
on pension plans
|
|
|
296 |
|
|
|
281 |
|
|
|
329 |
|
|
|
259 |
|
|
|
246 |
|
Experience
adjustments on plan assets
|
|
|
48 |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Experience
adjustments on plan liabilities
|
|
|
41 |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
long-term employee benefit
Other
long term employee benefits include seniority and loyalty award
programs.
The
movement in the liability recognized in the consolidated balance sheet is as
follows:
|
|
|
|
|
|
|
Beginning
of the year
|
|
|
42 |
|
|
|
3 |
|
Exchange
differences
|
|
|
(4 |
) |
|
|
20 |
|
Total
expense charged in the income statement
|
|
|
8 |
|
|
|
20 |
|
Plan
merger / acquisition
|
|
|
3 |
|
|
|
- |
|
Contributions
paid
|
|
|
(8 |
) |
|
|
(1 |
) |
End
of year
|
|
|
41 |
|
|
|
42 |
|
2008 Annual Report of
STMicroelectronics N.V.
In 2007,
STMicroelectronics recorded a one time charge of $19 million, which is included
as a “Plan amendment” in the table below, for adjustments to the expenses of a
seniority program in prior periods. These prior period adjustments individually
and in the aggregate are not material to the financial results for previously
issued annual consolidated financial statements or for the consolidated
statements for the year ended December 31, 2008.
Change
in Defined Benefit Obligation
|
|
|
|
|
|
|
Beginning
of the year
|
|
|
42 |
|
|
|
3 |
|
Service
cost
|
|
|
4 |
|
|
|
2 |
|
Interest
cost
|
|
|
3 |
|
|
|
1 |
|
Plan
amendment – past service cost – vested benefits
|
|
|
0 |
|
|
|
19 |
|
Actuarial
(gain) loss
|
|
|
1 |
|
|
|
(2 |
) |
Acquisition
/ Transfer In
|
|
|
9 |
|
|
|
8 |
|
Sale
/ Transfer out
|
|
|
(5 |
) |
|
|
- |
|
Benefits
paid
|
|
|
(8 |
) |
|
|
(1 |
) |
Effect
of foreign exchange translation
|
|
|
(4 |
) |
|
|
12 |
|
End
of year
|
|
|
42 |
|
|
|
42 |
|
Experience
adjustments
|
|
|
|
2006
gain assumptions
|
|
|
32 |
|
2006
loss experience
|
|
|
(9 |
) |
2007
gain assumptions
|
|
|
61 |
|
2007
loss experience
|
|
|
(16 |
) |
2008
gain assumptions
|
|
|
41 |
|
2008
loss experience
|
|
|
(32 |
) |
The weighted average assumptions used
in the determination of the benefit obligations were as
follows:
|
|
|
|
|
|
|
Discount
rate
|
|
|
5.23 |
% |
|
|
5.43 |
% |
Expected
long-term rate of return on funds for the pension expense of the
year
|
|
|
5.69 |
% |
|
|
6.34 |
% |
Future
salary increases
|
|
|
3.46 |
% |
|
|
3.24 |
% |
Post
employment benefit
The
amounts recognized in the income statement are as follows:
|
|
Year
ended
December
31, 2008
|
|
|
Year
ended
December
31, 2007
|
|
Current
service cost
|
|
|
20 |
|
|
|
19 |
|
Interest
cost
|
|
|
29 |
|
|
|
27 |
|
Expected
return on plan assets
|
|
|
(18 |
) |
|
|
(15 |
) |
Amortization
of unrecognized prior service cost
|
|
|
2 |
|
|
|
1 |
|
Amortization
of actuarial net loss (gain)
|
|
|
(1 |
) |
|
|
- |
|
Effect
of settlement
|
|
|
(2 |
) |
|
|
1 |
|
Effect
of curtailment
|
|
|
(1 |
) |
|
|
(46 |
) |
Total
pension costs
|
|
|
29 |
|
|
|
(13 |
) |
2008 Annual Report of
STMicroelectronics N.V.
Other
long-term employee benefit
The
amounts recognized in the income statement are as follows:
|
|
Year
ended
December
31, 2008
|
|
|
Year
ended
December
31, 2007
|
|
Current
service cost
|
|
|
4 |
|
|
|
2 |
|
Interest
cost
|
|
|
3 |
|
|
|
1 |
|
Amortization
of unrecognized prior service cost
|
|
|
- |
|
|
|
19 |
|
Amortization
of actuarial net loss (gain)
|
|
|
1 |
|
|
|
(2 |
) |
Total
pension costs
|
|
|
8 |
|
|
|
20 |
|
The
weighted average assumptions used in the determination of pension costs were as
follows:
|
|
|
|
|
|
|
Discount
rate
|
|
|
5.23 |
% |
|
|
5.43 |
% |
Expected
long-term rate of return on funds for the pension expense of the
year
|
|
|
5.69 |
% |
|
|
6.34 |
% |
Future
salary increases
|
|
|
3.46 |
% |
|
|
3.24 |
% |
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 Group 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
expected return on plan assets was determined by considering the expected
returns available on the assets underlying the current investment policy.
Expected yield on fixed interest investments are based on gross redemption
yields as at the balance sheet date. Expected returns on equity and property
investments reflect long-term real rates of return experienced in the respective
markets.
Assumptions
regarding future mortality experience are set based on advice from published
statistics and experience in each territory.
STMicroelectronics
pension plan asset allocation at December 31, 2007 and 2008 and target
allocation for 2008 are as follows:
|
Target
allocation
|
Percentage
of Plan Assets at December
|
Asset
Category
|
2008
|
2008
|
2007
|
Equity
securities
|
36%
|
36%
|
54%
|
Fixed
income securities
|
37%
|
37%
|
27%
|
Real
estate
|
6%
|
6%
|
9%
|
Other
|
21%
|
21%
|
10%
|
Total
|
100%
|
100%
|
100%
|
2008 Annual Report of
STMicroelectronics N.V.
STMicroelectronics’s
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.
STMicroelectronics’s
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.
STMicroelectronics’s equity portfolios are managed in such a way as to achieve
optimal diversity. STMicroelectronics does not manage any assets
internally.
After
considering the funded status of STMicroelectronics’s defined benefit plans,
movements in the discount rate, investment performance and related tax
consequences, STMicroelectronics may choose to make contributions to its pension
plans in any given year in excess of required amounts. STMicroelectronics
contributions to plan assets were $16 million both in 2007 and 2008 respectively
and STMicroelectronics expects to contribute cash of $19 million in
2009.
Long-term
debt consisted of the following:
|
|
|
|
|
|
|
Bank
loans:
|
|
|
|
|
|
|
5.72%
due 2008, floating interest rate at Libor + 0.40%
|
|
|
- |
|
|
|
43 |
|
3.08%
due 2009, floating interest rate at Libor + 0.40%
|
|
|
50 |
|
|
|
50 |
|
4.09%
due 2010, floating interest rate at Libor + 1.00%
|
|
|
50 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Funding
program loans (held at nominal amount):
|
|
|
|
|
|
|
|
|
1.44%
(weighted average), due 2009, fixed interest rate
|
|
|
4 |
|
|
|
13 |
|
0.89%
(weighted average), due 2010, fixed interest rate
|
|
|
24 |
|
|
|
38 |
|
2.81%
(weighted average), due 2012, fixed interest rate
|
|
|
10 |
|
|
|
12 |
|
0.50%
(weighted average), due 2013, fixed interest rate
|
|
|
2 |
|
|
|
- |
|
0.50%
(weighted average), due 2014, fixed interest rate
|
|
|
10 |
|
|
|
9 |
|
3.33%
(weighted average), due 2017, fixed interest rate
|
|
|
72 |
|
|
|
80 |
|
3.22%
due 2014, floating interest rate at Libor + 0.017%
|
|
|
120 |
|
|
|
206 |
|
2.83%
due 2015, floating interest rate at Libor + 0.026%
|
|
|
65 |
|
|
|
- |
|
2.85%
due 2016, floating interest rate at Libor + 0.052%
|
|
|
136 |
|
|
|
- |
|
2.85%
due 2016, floating interest rate at Libor + 0.277%
|
|
|
180 |
|
|
|
- |
|
2.96%
due 2016, floating interest rate at Libor + 0.173%
|
|
|
200 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Finance
leases:
|
|
|
|
|
|
|
|
|
5.10%
(weighted average), due 2011, fixed interest rate
|
|
|
15 |
|
|
|
22 |
|
5.00%
due 2013, fixed interest rate
|
|
|
78 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Senior
Bonds:
|
|
|
|
|
|
|
|
|
5.36%,
due 2013, floating interest rate at EURIBOR + 0.40%
|
|
|
703 |
|
|
|
736 |
|
|
|
|
|
|
|
|
|
|
Other
long term liability
|
|
|
|
|
|
|
|
|
4.92%
liability component of 2016 convertible bond
|
|
|
822 |
|
|
|
779 |
|
|
|
|
|
|
|
|
|
|
Convertible
debt:
|
|
|
|
|
|
|
|
|
0.50%
convertible bonds due 2013
|
|
|
- |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Total
long-term debt
|
|
|
2,541 |
|
|
|
1,990 |
|
Less
current portion
|
|
|
(138 |
) |
|
|
(103 |
) |
|
|
|
|
|
|
|
|
|
Total
long-term debt, less current portion
|
|
|
2,403 |
|
|
|
1,887 |
|
The
carrying amounts and fair value of total debt are presented in the Note 35.3.
The fair value of short-term debt equals their carrying amount, as the impact of
discounting is not significant.
2008 Annual Report of
STMicroelectronics N.V.
Long-term debt is denominated in the
following currencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
dollar
|
|
|
925 |
|
|
|
1,083 |
|
Euro
|
|
|
1,616 |
|
|
|
907 |
|
Total
|
|
|
2,541 |
|
|
|
1,990 |
|
Aggregate
future maturities of long-term debt outstanding are as follows:
|
|
December
31, 2008
|
|
|
|
|
|
2009
|
|
|
138 |
|
2010
|
|
|
189 |
|
2011
|
|
|
955 |
|
2012
|
|
|
133 |
|
2013
|
|
|
830 |
|
Thereafter
|
|
|
296 |
|
Total
|
|
|
2,541 |
|
The
exposure of the Group’s debt to interest rate changes and the contractual
reprising dates at the balance sheet date are as follows:
|
|
December
31, 2008
|
|
|
|
|
|
6
months or less
|
|
|
1,504 |
|
6-12
months
|
|
|
- |
|
1-5
years
|
|
|
- |
|
Over
5 years
|
|
|
- |
|
Total
|
|
|
1,504 |
|
Convertible
debt
In August
2003, the Group issued $1,332 million principal amount at issuance of zero
coupon unsubordinated convertible bonds due 2013. The bonds were issued with a
negative yield of 0.5% that resulted in a higher principal amount at issuance of
$1,400 million and net proceeds of $1,386 million. The bonds are convertible at
any time by the holders at the rate of 29.9144 shares of the Group’s ordinary
shares for each one thousand dollar face value of the bonds. The holders had the
option to redeem their convertible bonds on August 5, 2006 at a price of
$985.09, on August 5, 2008 at $975.28 and on August 5, 2010 at $965.56 per one
thousand dollar face value of the notes. As a result of this holder’s redemption
option in August 2006, the outstanding amount of 2013 bonds was classified in
the consolidated balance sheet as “current portion of long-term debt” as of
December 31, 2005. At any time from August 20, 2006 the Group had the option to
redeem for cash at their negative accreted value all or a portion of the
convertible bonds subject to the level of the Group’s share price.
Pursuant
to the terms of the convertible bonds due 2013, STMicroelectronics was required
to purchase, at the option of the holders, 1,397,493 convertible bonds, at a
price of $985.09 each between August 7 and August 9, 2006. This resulted in a
cash payment of $1,377 million. On August 5, 2008, STMicroelectronics was
required to repurchase 2,317 convertible bonds, at a price of $975.28 each. This
resulted in a cash payment of $2 million. The outstanding long-term debt
corresponding to the 2013 convertible debt was not material as at December 31,
2008 corresponding to the remaining 188 bonds valued at August 5, 2010
redemption price. At any time from August 20, 2006 STMicroelectronics may redeem
for cash at their negative accreted value all or a portion of the convertible
bonds subject to the level of STMicroelectronics’s share price.
2008
Annual Report of STMicroelectronics N.V.
In
February 2006, STMicroelectronics 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 STMicroelectronics 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. 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. STMicroelectronics
can call the bonds at any time after March 10, 2011 subject to
STMicroelectronics’s share price exceeding 130% of the accreted value divided by
the conversion rate for 20 out of 30 consecutive trading days.
STMicroelectronics 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.
The Group
assessed the two elements of equity and liability of the compound instrument for
separate accounting at issuance of the bond. The bond terms enable the holder to
receive cash settlement under certain circumstances and, consequently, the Group
has classified the share conversion option as a financial liability in “Other
non-current liabilities” at December 31, 2006. This financial liability was
measured at fair value through profit and loss. Based on the existing market
conditions at issuance, management estimated that separately valuing embedded
share conversion would not be materially different from calculating the residual
amount of the equity conversion as total bond proceeds, net of the fair value of
the debt component. The fair value of the liability component of the
convertible debt amounted to $700 million at issuance and includes the value of
the holder’s redemption option and STMicroelectronics’s call options since these
embedded derivatives were considered to be closely related to the host debt
contract and could not be accounted for separately as freestanding derivatives.
The Group determined the fair value of the liability component using a market
interest rate for an equivalent non-convertible debt over the period of future
probable cash flows as estimated on the date of issuance. This was determined to
be a ten-year timeframe corresponding to the period from issuance to maturity.
The fair value was calculated using cash flows discounted at a rate based on the
non-convertible debt rate of 5.50%, reduced by 0.58% corresponding to the value
of the put and call options.
The
convertible debt recognized in the balance sheet is calculated as
follows:
Convertible debt
2013:
|
|
|
|
|
|
|
|
Face
value of the convertible debt issued on August 2003
|
|
|
1,400 |
|
Conversion
option
|
|
|
(136 |
) |
Accumulated
interest recognized in retained earnings
|
|
|
115 |
|
Repayment
in cash at redemption date
|
|
|
(1,379 |
) |
|
|
|
|
|
Liability
component as of December 31, 2007
|
|
|
2 |
|
Interest
expense recognized in 2008 consolidated statement of
income
|
|
|
(2 |
) |
Convertible
debt 2013 as of December 31, 2008
|
|
|
- |
|
Convertible debt
2016:
|
|
|
|
|
|
|
|
Face
value of the convertible debt issued in February 2006
|
|
|
974 |
|
Conversion
option classified as a financial liability
|
|
|
(274 |
) |
Accumulated
interest recognized in retained earnings
|
|
|
79 |
|
|
|
|
|
|
Liability
component at of December 31, 2007
|
|
|
779 |
|
Interest
expense recognized in 2008 consolidated statement of
income
|
|
|
43 |
|
Convertible
debt 2016 as of December 31, 2008
|
|
|
822 |
|
2008 Annual Report of
STMicroelectronics N.V.
Senior
Bonds
In March
2006, STMicroelectronics Finance B.V. (“ST BV”), a wholly owned subsidiary of
STMicroelectronics, issued floating rate senior bonds with a principal amount of
Euro 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 STMicroelectronics, 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
STMicroelectronics to repurchase all or a portion of the bonds
outstanding.
Securities
lending and borrowing
STMicroelectronics
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. STMicroelectronics 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.
STMicroelectronics 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
STMicroelectronics repurchased the pledged securities in accordance with the
terms of the repurchase agreements.
Credit
facilities
The Group
had unutilized committed medium term credit facilities with core relationship
banks totalling $275 million. In addition aggregate amount of
STMicroelectronics's and its subsidiaries' total available short-term credit
facilities, excluding foreign exchange credit facilities, was approximately $816
million as of December 31, 2008. STMicroelectronics also had two committed
credit facilities with the European Investment Bank as part of a R&D funding
program. 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 $20
million were paid back as at December 31, 2008. 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, 2008.
STMicroelectronics maintains also uncommitted foreign exchange facilities
totalling $773 million at December 31, 2008. At December 31, 2008, and December
31, 2007, amounts available under the short-term lines of credit were not
reduced by any borrowing. At December 31, 2008 the Group had a technical
temporary overdraft on a current bank account of $20 million resulting from a
delayed funding of year end settlement of transactions done on behalf of an
affiliate.
Undrawn borrowing facilities are
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate:
|
|
|
|
|
|
|
Expiring
within one year
|
|
|
1,589 |
|
|
|
1,368 |
|
Expiring
beyond one year
|
|
|
275 |
|
|
|
375 |
|
|
|
|
|
|
|
|
|
|
Fixed
rate:
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
1,864 |
|
|
|
1,743 |
|
STMicroelectronics
did not experience any breach of covenants related to long-term debts or
short-term credit facilities in the years 2008 and 2007.
2008
Annual Report of STMicroelectronics N.V.
|
|
Year
ended
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for restructuring
|
|
|
266 |
|
|
|
152 |
|
Warranty
and product guarantee provision
|
|
|
4 |
|
|
|
4 |
|
Tax
provision
|
|
|
153 |
|
|
|
100 |
|
Total
Provisions
|
|
|
423 |
|
|
|
256 |
|
Less
current provisions:
|
|
|
|
|
|
|
|
|
Provision
for restructuring (note 26)
|
|
|
(236 |
) |
|
|
(114 |
) |
Current
tax provision
|
|
|
(73 |
) |
|
|
(77 |
) |
Warranty
and product guarantee provision
|
|
|
(4 |
) |
|
|
(4 |
) |
Non-current
provisions
|
|
|
110 |
|
|
|
61 |
|
Description
of each category of provision and timing of payment:
Changes
in provisions
|
|
|
|
|
Warranty
& Product Guarantee
|
|
|
|
|
|
|
|
Provision
as at December 31, 2006
|
|
|
29 |
|
|
|
6 |
|
|
|
82 |
|
|
|
117 |
|
Charges
incurred in 2007
|
|
|
170 |
|
|
|
5 |
|
|
|
77 |
|
|
|
252 |
|
Reversal
of provision
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(59 |
) |
|
|
(63 |
) |
Amounts
paid
|
|
|
(45 |
) |
|
|
(5 |
) |
|
|
- |
|
|
|
(50 |
) |
Currency
translation effect
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Provision
as at December 31 2007
|
|
|
152 |
|
|
|
4 |
|
|
|
100 |
|
|
|
256 |
|
Charges
incurred in 2008
|
|
|
224 |
|
|
|
- |
|
|
|
59 |
|
|
|
283 |
|
Reversal
of provision
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
(3 |
) |
Amounts
paid
|
|
|
(110 |
) |
|
|
- |
|
|
|
(3 |
) |
|
|
(113 |
) |
Currency
translation effect
|
|
|
- |
|
|
|
- |
|
|
|
(3 |
) |
|
|
- |
|
Provision
as at December 31, 2008
|
|
|
266 |
|
|
|
4 |
|
|
|
153 |
|
|
|
423 |
|
Tax
provision is related to uncertain tax positions that remain open for review in
STMicroelectronics’s major tax jurisdictions.
Details
for the restructuring charges booked in 2008 are further disclosed in the Note
26.
21
— OTHER NON-CURRENT LIABILITIES
Other
non-current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share conversion
option of convertible debt 2016 classified as financial liability
(note 19)
|
|
|
274 |
|
|
|
277 |
|
Debt
financial guarantee (Hynix)
|
|
|
17 |
|
|
|
17 |
|
Debt
guarantee in favour of Numonyx (note 3)
|
|
|
56 |
|
|
|
- |
|
Numonyx
capacity rights (non current portion)
|
|
|
63 |
|
|
|
- |
|
Seniority
awards
|
|
|
30 |
|
|
|
29 |
|
Other
non-current liabilities
|
|
|
60 |
|
|
|
9 |
|
Total
|
|
|
500 |
|
|
|
332 |
|
2008 Annual Report of
STMicroelectronics N.V.
Debt
guarantee in favour of Numonyx
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
STMicroelectronics have each granted in favor of Numonyx a 50% debt guarantee
not joint and several. In the event of default and failure to repay the loans
from Numonyx, the banks will exercise STMicroelectronics’s rights, subordinated
to the repayment to senior lenders, to recover the amounts paid under the
guarantee through the sale of Numonyx’s assets. The debt guarantee was evaluated
under IAS 39. It resulted in the upfront recognition of a $69 million liability,
corresponding to the fair value of the guarantee at inception of the
transaction, which is being amortized on a pro rata basis over the four-year
term. The amortization amount for 2008 equals $13 million.
Debt
financial guarantee Hynix
STMicroelectronics
could not directly provide to its Hynix-ST joint venture $250 million long-term
financing as originally planned. As a result, in 2006, STMicroelectronics
entered into a ten-year term debt guarantee agreement with an external financial
institution through which STMicroelectronics guaranteed the repayment of the
loan by the joint venture to the bank. The debt guarantee was evaluated under
IAS 39 at $17 million liability, corresponding to the fair value of the
guarantee at inception of the transaction. The debt guarantee was originally
recorded against the value of the investment in the joint venture, and was
reclassified as a non current asset after the disposal of investment in the FMG
deconsolidation.
Other
non-current liabilities
Other
non-current liabilities include $35 million of an indemnification obligation
from the Group to one of its associates related to former employee pension fund,
$3 million of ST NXP Wireless capacity rights (non-current portion), and $6
million for the outstanding payment to STNV Orion (payment is due on October 31,
2010).
The
changes in share capital are detailed as follows:
|
|
Number
of
Shares
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2006
|
|
|
897,395,042 |
|
|
|
1,156 |
|
|
|
1,981 |
|
|
|
(331 |
) |
|
|
2,806 |
|
Employee
share award scheme:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rights
acquired on vested share-award
|
|
|
2,230,010 |
|
|
|
— |
|
|
|
— |
|
|
|
57 |
|
|
|
57 |
|
Exercise
of share options
|
|
|
135,487 |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
Conversion
of bonds
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance
as of December 31, 2007
|
|
|
899,760,539 |
|
|
|
1,156 |
|
|
|
1,983 |
|
|
|
(274 |
) |
|
|
2,865 |
|
Employee
share award scheme:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rights
acquired on vested share-award
|
|
|
4,022,629 |
|
|
|
— |
|
|
|
— |
|
|
|
105 |
|
|
|
105 |
|
Exercise
of share options
|
|
|
13,885 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Conversion
of bonds
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance
of shares by subsidiary
|
|
|
|
|
|
|
|
|
|
|
131 |
|
|
|
|
|
|
|
131 |
|
Repurchase
of common stock
|
|
|
(29,520,220 |
) |
|
|
— |
|
|
|
— |
|
|
|
(313 |
) |
|
|
(313 |
) |
Balance
as of December 31, 2008
|
|
|
874,276,833 |
|
|
|
1,156 |
|
|
|
2,114 |
|
|
|
(482 |
) |
|
|
2,788 |
|
22.1
— Outstanding shares
The
authorized share capital of STMicroelectronics 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, 2008 the number of shares of
common stock issued was 910,307,305 shares (910,293,420 at December 31,
2007).
As of
December 31, 2008 the number of shares of common stock outstanding was
874,276,833 (899,760,539 at December 31, 2007).
2008
Annual Report of STMicroelectronics N.V.
22.2
— Authorized 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 May 31, 1999, STMicroelectronics entered into an
option agreement with STMicroelectronics Holding II B.V. in order to protect
STMicroelectronics from a hostile takeover or other similar
action. The option agreement provided for 540,000,000 preference
shares to be issued to STMicroelectronics Holding II B.V. upon their request
based on approval by STMicroelectronics's Supervisory
Board. STMicroelectronics Holding II B.V. would be required to pay at
least 25% of the par value of the preference shares to be issued, and to retain
ownership of at least 30% of STMicroelectronics's issued share capital. An
amendment was signed in November 2004 which reduced the threshold required for
STMicroelectronics Holding II B.V. to exercise its right to subscribe preference
shares of STMicroelectronics, down to 19% issued share capital compared to the
previous requirement of at least 30%.
On
November 27, 2006 the Supervisory Board of STMicroelectronics approved the
termination of the existing option agreement between STMicroelectronics and
STMicroelectronics Holding II B.V. and the substitution of such agreement by a
new agreement of substantially similar terms between STMicroelectronics and a
Dutch independent Foundation, Stichting Continaïteit ST. The new option
agreement provides for the issuance of 540,000,000 preference shares. Any such
shares would be issued by STMicroelectronics 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) STMicroelectronics receiving an unsolicited offer or there
being the threat of such an offer; (ii) STMicroelectronics’s 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 STMicroelectronics and its stakeholders. The preference
shares may remain outstanding for no longer than two years. There was no
preference shares issued as of December 31, 2008.
22.3
— Treasury shares
Following
the authorization by the Supervisory Board, announced on April 2, 2008, to
repurchase up to 30 million shares of its common stock, STMicroelectronics
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 intents 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 STMicroelectronics’s
share based remuneration programs on non-vested shares including such plans as
approved by the 2005, 2006, 2007 and 2008 Annual General Meeting of
Shareholders. As of December 31, 2008, 6,889,748 of these treasury
shares were transferred to employees under STMicroelectronics’s share based
remuneration programs of which 4,022,629 in the year ended December 31, 2008,
following the full vesting of the 2005 stock-award plan, the vesting of the
first and second tranches of the 2006 stock-award plan, the vesting of the first
tranch of the 2007 stock-award plan together with the acceleration of the
vesting of a limited number of stock-awards.
As of
December 31, 2008, STMicroelectronics owned a number of treasury shares
equivalent to 36,030,472.
22.4
— Stock option plans
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.
2008
Annual Report of STMicroelectronics N.V.
In 2001,
the Shareholders voted to adopt the 2001 Employee Share Option Plan (the “2001
Plan”) whereby options for up to 60,000,000 shares may be granted in instalments
over a five-year period.
The
options may be granted to purchase ordinary shares 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, STMicroelectronics decided in 2005 to
accelerate the vesting period of all outstanding unvested share options. The
options expire ten years after the date of grant.
In 2002,
the Shareholders voted to adopt a Share 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 will vest 30 days after the date of grant. The options expire ten years
after the date of grant.
A summary
of share option activity for the plans for the Year Ended December 31, 2008 and
the year ended December 31, 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
56,325,252 |
|
|
$ |
12.03-$62.01 |
|
|
$ |
30.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
granted:
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
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:
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
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
- $62.01 |
|
|
$ |
27.3 |
|
The
related weighted average market price of options at the time of exercise was
$11.65 and $19.31 for the year ended December 31, 2008 and the year ended
December 31, 2007, respectively.
Share
options exercisable following acceleration of vesting for all outstanding
unvested share options were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable
|
|
|
39,431,433 |
|
|
|
46,765,635 |
|
Weighted
average exercise price
|
|
$ |
27.35 |
|
|
$ |
31.42 |
|
The
weighted average remaining contractual life of options outstanding as of
December 31, 2008 and December 31, 2007 was 3.9 and 4.3,
respectively.
The range
of exercise prices, the weighted average exercise price and the weighted average
remaining contractual life of options exercisable as of December 31, 2008 were
as follows:
|
|
|
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
contractual
life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,766 |
|
|
$ |
16.73
- $17.31 |
|
|
$ |
17.1 |
|
|
|
5.8 |
|
|
20,453,245 |
|
|
$ |
19.18
- $24.88 |
|
|
$ |
21.0 |
|
|
|
4.8 |
|
|
194,750 |
|
|
$ |
25.90
- $29.70 |
|
|
$ |
27.2 |
|
|
|
4.2 |
|
|
18,640,672 |
|
|
$ |
31.09
- $44.00 |
|
|
$ |
34.4 |
|
|
|
2.9 |
|
|
39,431,433 |
|
|
$ |
16.73
- $44.00 |
|
|
$ |
27.35 |
|
|
|
3.9 |
|
2008
Annual Report of STMicroelectronics N.V.
The range
of exercise prices, the weighted average exercise price and the weighted average
remaining contractual life of options exercisable as of December 31, 2007 were
as follows:
|
|
|
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
contractual
life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,191 |
|
|
$ |
16.73
- $17.31 |
|
|
$ |
17.06 |
|
|
|
6.8 |
|
|
21,094,641 |
|
|
$ |
19.18
- $24.88 |
|
|
$ |
21.03 |
|
|
|
5.8 |
|
|
202,060 |
|
|
$ |
25.90
- $29.70 |
|
|
$ |
27.18 |
|
|
|
5.2 |
|
|
19,357,388 |
|
|
$ |
31.09
- $44.00 |
|
|
$ |
34.37 |
|
|
|
3.9 |
|
|
5,962,355 |
|
|
$ |
50.69
- $62.01 |
|
|
$ |
59.09 |
|
|
|
0.6 |
|
|
46,765,978 |
|
|
$ |
16.73-$62.01 |
|
|
$ |
31.42 |
|
|
|
4.3 |
|
The fair
value of STMicroelectronics’s share options was estimated under IFRS 2 using a
Black-Scholes option pricing model since the simple characteristics of the share
options did not require complex assumptions. The Group has amortized the
compensation expense incurred on the grant of share options over the nominal
vesting period for employees based on the vesting of each plan.
Share
options were issued at market price. STMicroelectronics has determined the
historical share price volatility to be the most appropriate estimate of future
price activity. The historical share price volatility is based on statistical
analysis of daily share prices over the expected option life. The weighted
average fair value of share options granted during 2005 was $5.24.
22.5
— Nonvested share awards
In
2005, STMicroelectronics redefined its equity-based compensation strategy by no
longer granting options but rather issuing nonvested shares. In July 2005,
STMicroelectronics amended its latest Stock Option Plans for employees,
Supervisory Board and Professionals of the Supervisory Board
accordingly.
2005
Share award plan
As part
of this revised stock-based compensation policy, STMicroelectronics granted on
October 25, 2005 3,940,065 nonvested shares to senior executives and selected
employees (“The 2005 Employee Plan”). The Compensation Committee also
authorized the future grant of 219,850 additional shares to selected employees
upon nomination by the Managing Board of STMicroelectronics. These
additional shares were granted in 2006. The shares were granted for
free to employees and would vest upon completion of market and internal
performance conditions. Under the program, if the defined market
condition was met in the first quarter of 2006, each employee would receive 100%
of the nonvested shares granted. If the market condition was not
achieved, the employee could earn one third of the grant for each of the two
performance conditions. If neither the market or performance
conditions were met, the employee would receive none of the grant. In
addition to the market and performance conditions, the nonvested shares vested
over the following requisite service period: 32% after 6 months, 32% after 18
months and 36% after 30 months following the date of the grant. In
2006, STMicroelectronics failed to meet the market condition while the
performance conditions were reached. Consequently, one third of the
shares granted, amounting to 1,364,902 shares, was lost for
vesting. In March 2006 STMicroelectronics decided to modify the
original plan to create a subplan for the employees in one of its European
subsidiaries for statutory payroll tax purposes. The original plan
terms and conditions were modified to extend for these employees the requisite
service period as follows: 64% of the granted stock awards vest as at October
26, 2007 and 36% as at April 27, 2008 following the date of the
grant. 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. In compliance with
the graded vesting of the grant and pursuant to the acceleration of a limited
number of stock awards, the first tranche of the original plan, representing
637,109 shares, vested as at April 27, 2006. In 2007, the second
tranche of the original plan, representing 598,649 shares, vested as at April
27, 2007, and the first tranche of the subplan, representing 434,592 shares,
vested as at October 26, 2007. On April 27, 2008, the last tranche of
the original plan, representing 651,025 shares and the last tranche of the
sub-plan, representing 237,206 shares, vested.
2008
Annual Report of STMicroelectronics N.V.
In
addition, 15,150 additional shares were accelerated during 2008, of which 4,147
were under the subplan. These shares were transferred to employees
from the treasury shares owned by STMicroelectronics. At December 31,
2008, there were no shares outstanding under the 2005 Employee Plan.
STMicroelectronics registered a total pre-payroll tax and social contribution
compensation charge of $52 million for the 2005 Employee Plan.
On
October 25 2005, the Compensation Committee granted 66,000 stock-based awards to
the members of the Supervisory Board and professionals of the Supervisory Board
(“The 2005 Supervisory Board Plan”). These awards are granted at the
nominal value of the share of €1.04 and vest over the following period: one
third after 6 months, one third after 18 months and one third after 30 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
2006, in compliance with the graded vesting of the grant, the first tranche of
the plan, representing 17,000 shares, vested as at April 27, 2006. In 2007, the
second tranche of the plan, representing 17,000 shares vested as at April 27,
2007. In 2008, the last tranche of the plan, representing 17,000
shares, vested as at April 27, 2008. At December 31, 2008, there were
no shares outstanding under the 2005 Supervisory Board Plan.
2006
Share award plan
On April
29 2006, the Compensation Committee granted 66,000 stock-based awards 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. As of December
31 2008, 14,000 awards were outstanding under the 2006 Supervisory Board
Plan.
On
September 29, 2006 STMicroelectronics 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 also
authorized on September 29, 2006 the future grant of additional shares to
selected employees upon nomination by the Managing Board of
STMicroelectronics. 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 STMicroelectronics’s European
subsidiaries for whom a subplan was simultaneously created on September 29,
2006, the nonvested shares vest 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 is required for the nonvested shares granted
under the local subplan: 64% of the granted stock awards vest 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 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 STMicroelectronics. At December 31,
2008, 1,571,364 nonvested shares were outstanding, of which 404,684 under the
subplan.
On
December 19, 2006, the Compensation Committee granted additional 62,360 shares
to selected employees designated by the Managing Board of STMicroelectronics as
part of the 2006 Employee Plan. This additional grant has the same
terms and conditions as the original plan.
2008
Annual Report of STMicroelectronics N.V.
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 of December 20,
2008. In 2008, the second tranche of the plan, representing 8,885
shares, vested as at April 27, 2008. At December 31, 2008, 21,411 nonvested
shares were outstanding as part of this additional grant, of which 12,147 under
the local subplan.
2007
Share award plan
On
February 27, 2007, the Compensation Committee granted additional 215,000 shares
to selected employees designated by the Managing Board of STMicroelectronics as
part of the 2006 Employee Plan. This additional grant has 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 2008, the second tranche of
the plan, representing 47,551 shares vested as at April 27, 2008. In addition,
598 additional shares were accelerated during the year. At December
31, 2008, 109,894 nonvested shares were outstanding as part of this additional
grant, of which 56,840 under the local subplan.
On April
29 2007, the Compensation Committee 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 26, 2008. Furthermore, following the end of mandate of one of the members
of the Board, 7,500 shares were accelerated in 2008. As of December
31 2008, 90,000 awards were outstanding under the 2007 Supervisory Board
Plan.
On June
18, 2007, STMicroelectronics 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 also authorized the
future grant of additional shares to selected employees upon nomination by the
Managing Board of STMicroelectronics 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
STMicroelectronics’s 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, STMicroelectronics failed to meet one
performance condition during one semester. Consequently, one sixth of
the shares granted, totalling 926,121 shares, of which 242,233 on the first
sub-plan and 2,634 on the second subplan, were lost for vesting. In
compliance with the graded vesting of the grant, the first tranch of the
original plan, representing 1,097,124 shares, vested as at April 26, 2008. The
first tranch 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 STMicroelectronics. At
December 31, 2008, 3,444,111 nonvested shares were outstanding, of which
1,187,829 under the first subplan and 8,706 under the second one.
On
December 6, 2007, the Managing Board of STMicroelectronics, as authorized by the
Compensation Committee of the Supervisory Board, granted additional 84,450
shares to selected employees designated by the Managing Board of
STMicroelectronics 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.
2008
Annual Report of STMicroelectronics N.V.
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. At December 31, 2008,
48,342 nonvested shares were outstanding as part of this additional grant, of
which 2,502 under the first local subplan.
2008
Share award plan
On
February 19, 2008, the Managing Board of STMicroelectronics, as authorized by
the Compensation Committee of the Supervisory Board, granted additional 135,550
shares to selected employees designated by the Managing Board of
STMicroelectronics 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 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. At December 31, 2008, 60,363 nonvested shares
were outstanding as part of this additional grant, of which 12,821 under the
first local subplan.
On May
14, 2008, the Compensation Committee 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
forfaited. 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 2008, 142,500 awards were
outstanding under the 2008 Supervisory Board Plan.
On July
22, 2008, STMicroelectronics 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 STMicroelectronics. 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 STMicroelectronics’s 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 22,
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. At December 31, 2008, 5,667,120 nonvested shares were
outstanding, of which 1,540,370 under the first subplan and 55,300 under the
second one.
2008
Annual Report of STMicroelectronics N.V.
A summary
of the nonvested share activity for the years ended December 31, 2008 and 2007
is presented below:
|
|
|
|
|
|
|
Nonvested
Shares
|
|
Number
of Shares
|
|
|
Exercise
price
|
|
|
|
|
|
|
|
|
Outstanding
as at December 31, 2006
|
|
|
6,876,654 |
|
|
|
$0-€1.04 |
|
Awards
granted:
|
|
|
|
|
|
|
|
|
2006
Employee Plan
|
|
|
215,000 |
|
|
$ |
0 |
|
2007
Employee Plan
|
|
|
5,776,290 |
|
|
$ |
0 |
|
2007
Supervisory Board Plan
|
|
|
165,000 |
|
|
€ |
1.04 |
|
Awards
forfeited:
|
|
|
|
|
|
|
|
|
2005
Employee Plan
|
|
|
(42,619 |
) |
|
$ |
0 |
|
2006
Employee Plan
|
|
|
(120,295 |
) |
|
$ |
0 |
|
2007
Employee Plan
|
|
|
(73,490 |
) |
|
$ |
0 |
|
2007
Supervisory Board Plan
|
|
|
(22,500 |
) |
|
€ |
1.04 |
|
Awards
vested:
|
|
|
|
|
|
|
|
|
2005
Employee Plan
|
|
|
(1,039,544 |
) |
|
$ |
0 |
|
2005
Supervisory Board Plan
|
|
|
(17,000 |
) |
|
€ |
1.04 |
|
2006
Employee Plan
|
|
|
(1,190,466 |
) |
|
$ |
0 |
|
2006
Supervisory Board Plan
|
|
|
(17,000 |
) |
|
€ |
1.04 |
|
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 |
|
2008 Annual
Report of STMicroelectronics N.V.
Noninvested
Shares |
|
Number
of Shares
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
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 |
|
For the
2005 share award plan, STMicroelectronics recorded compensation expense for the
nonvested share awards based on the fair value of the awards at the grant date,
which represents the $16.61 share price at the date of the grant. The fair value
of the nonvested shares 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.
The
following assumptions were incorporated into the Monte Carlo pricing model to
estimate the 49.50% discount:
|
|
|
|
|
|
|
|
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,
STMicroelectronics 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 in 2005 was
$8.50.
In 2006,
STMicroelectronics evaluated the impact of the modification of the Employee 2005
Plan following the creation of a local sub-plan in one of its subsidiary.
However, in compliance with IFRS No. 2, Share-Based Payment, and
considering that the modification of the plan did not result in an increase of
the awards fair value, STMicroelectronics continued to recognize the
compensation expense of the whole original plan over the remaining original
requisite service period. No incremental cost is recognized over the modified
extended service period.
The
weighted average 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
(as per initial assumption). 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
weighted average 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
weighted average 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 the contrary, STMicroelectronics
estimates the number of awards expected to vest by assessing the probability of
achieving the performance conditions.
2008
Annual Report of STMicroelectronics N.V.
At
December 31, 2008, a final determination of the achievement of the performance
conditions had not yet been made by the Compensation Committee of the
Supervisory Board. However, STMicroelectronics has estimated that one third of
awards are expected to vest. Consequently, the compensation expense recorded for
the 2008 Employee Plan reflects the vesting of one 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 2009.
The
compensation expense recorded for nonvested shares in 2006 included a reduction
for future forfeitures, estimated at a pluri-annual rate of 4.99%, reflecting
the historical trend of forfeitures on past stock award plans. This estimate was
adjusted in 2007 at a pluri-annual rate of 4.40%, updated in 2008 at a rate of
4.10%. The adjustment related to this revision amounted to a reverse of
approximately $1 million as at December 31, 2008. This estimate is
adjusted for actual forfeitures upon vesting. For employees eligible
for retirement during the requisite service period, STMicroelectronics records
compensation expense over the applicable shortened period. For awards
for which vesting was accelerated in 2008, STMicroelectronics recorded
immediately the unrecognized compensation expense as at the acceleration
date.
The
following table illustrates the classification of share-based compensation
included in the statement of income for grants of nonvested shares during the
years ended at December 31, 2008 and 2007:
|
|
Year
ended
December
31, 2008
|
|
|
Year
ended
December
31, 2007
|
|
Cost
of sales
|
|
|
15 |
|
|
|
14 |
|
Selling,
general and administrative
|
|
|
37 |
|
|
|
40 |
|
Research
and development
|
|
|
24 |
|
|
|
23 |
|
Loss
on equity investment
|
|
|
2 |
|
|
|
- |
|
Total
share-based compensation expense
|
|
|
78 |
|
|
|
77 |
|
Compensation
cost, excluding payroll tax and social contribution, capitalized as part of
inventory was $3 million at December 31, 2008 and $6 million at December 31,
2007. As of December 31, 2008 there was $37 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 14.3
months.
The total
deferred income tax benefit recognized in the consolidated statements of income
related to share-based compensation expense amounted to $3 million for the year
ended December 31, 2008 comparing to $9 million for the year ended December 31,
2007.
2008 Annual Report of
STMicroelectronics N.V.
23.1
— Other reserves
The
accumulated balances related to each component of other reserves were as
follows:
|
|
|
|
|
|
|
|
Foreign
currency
translation
difference
|
|
|
|
|
|
Unrealized
gain
(loss) on
debt
Securities
|
|
|
Unrealized
gain
(loss) on
derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2006
|
|
|
— |
|
|
|
242 |
|
|
|
865 |
|
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
1,113 |
|
Convertible
debt — equity component
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Employee
share awards schemes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Value
of services provided
|
|
|
|
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78 |
|
Foreign
currency translation differences
|
|
|
|
|
|
|
|
|
|
|
458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
458 |
|
Available
for sale financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Transfer
to net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
Unrealized
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Tax
effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Cash
flow hedge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Transfer
to net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
(6 |
) |
Unrealized
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
5 |
|
Tax
effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Balance
as of December 31, 2007
|
|
|
— |
|
|
|
320 |
|
|
|
1,323 |
|
|
|
— |
|
|
|
(3 |
) |
|
|
5 |
|
|
|
1,645 |
|
Convertible
debt — equity component
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Employee
share awards schemes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Value
of services provided
|
|
|
|
|
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76 |
|
Foreign
currency translation differences
|
|
|
|
|
|
|
|
|
|
|
(228 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(228 |
) |
Available
for sale financial assets fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Transfer
to net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
(10 |
) |
Unrealized
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Tax
effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Cash
flow hedge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Transfer
to net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
(5 |
) |
Unrealized
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
(9 |
) |
Falcon
purchase accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
Balance
as of December 31, 2008
|
|
|
— |
|
|
|
396 |
|
|
|
1,095 |
|
|
|
|
|
|
|
(13 |
) |
|
|
(8 |
) |
|
|
1,470 |
|
23.2
— Dividends
At the
Annual General Meeting of Shareholders on May 14, 2008 shareholders approved the
distribution of $0.36 per share in cash dividends, payable in four equal
quarterly instalments. Through December 31, 2008, payments totalled $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 totalled $79 million and was reported as
Dividends due to shareholders within the line "Other payables and accrued
liabilities" in the consolidated balance sheet as at December 31, 2008 (see also
Note 17).
In 2007
and 2006, the cash dividend paid was of $0.30 for a total amount of $269
million, and $0.12 per share for a total amount of $107 million,
respectively.
2008
Annual Report of STMicroelectronics N.V.
24
— EARNINGS / (LOSS) PER SHARE
For the
period ended December 31, 2008 and the year ended December 31, 2007, earnings /
(loss) per share (“EPS”) were calculated as follows:
|
|
Year ended
December
31,
2008
|
|
|
Year ended
December
31,
2007
|
|
Basic
EPS
|
|
|
|
|
|
|
Net
result attributable to shareholders of STMicroelectronics
|
|
|
(519 |
) |
|
|
(439 |
) |
Weighted
average shares outstanding
|
|
|
891,955,940 |
|
|
|
898,731,154 |
|
Basic
EPS
|
|
|
(0.58 |
) |
|
|
(0.49 |
) |
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
Net
result attributable to shareholders of STMicroelectronics
|
|
|
(519 |
) |
|
|
(439 |
) |
Convertible
debt interest, net of tax
|
|
|
- |
|
|
|
- |
|
Net
result attributable to shareholders of STMicroelectronics
adjusted
|
|
|
(519 |
) |
|
|
(439 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
891,955,940 |
|
|
|
898,731,154 |
|
Dilutive
effect of share options
|
|
|
- |
|
|
|
- |
|
Dilutive
effect of nonvested shares
|
|
|
- |
|
|
|
- |
|
Dilutive
effect of convertible debt
|
|
|
- |
|
|
|
- |
|
Number
of shares used in calculating diluted EPS
|
|
|
891,955,940 |
|
|
|
898,731,154 |
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
(0.58 |
) |
|
|
(0.49 |
) |
At
December 31, 2008, if STMicroelectronics had reported an income, outstanding
stock options would have included anti-dilutive shares totalling approximately
39,431,433 shares. At December 31, 2007 and 2006, outstanding stock options
included anti-dilutive shares totalling approximately 46,722,255 and 56,113,482
shares, respectively.
There was
also the equivalent of 42,699,840 common shares outstanding for convertible
debt, out of which 5,624 for the 2013 bonds and 42,694,216 for the 2016 bonds.
None of these bonds have been converted to shares during 2008.
25
— OTHER INCOME AND EXPENSES
25.1
— Other income
Other
income consisted of the following:
|
|
Year ended
December
31, 2008
|
|
|
Year ended
December
31, 2007
|
|
|
|
|
|
|
|
|
Research
and development funding
|
|
|
83 |
|
|
|
152 |
|
Foreign
exchange forward contracts – held for trading
|
|
|
(3 |
) |
|
|
17 |
|
Net
foreign exchange gain
|
|
|
20 |
|
|
|
2 |
|
Gain
on sale of non-current assets
|
|
|
4 |
|
|
|
3 |
|
Change
in fair value of interest swap
|
|
|
15 |
|
|
|
5 |
|
Other
|
|
|
12 |
|
|
|
5 |
|
Total
|
|
|
131 |
|
|
|
184 |
|
2008 Annual Report of
STMicroelectronics N.V.
25.2
— Other expenses
Other
expenses consisted of the following:
|
|
|
|
|
|
|
Start-up
costs
|
|
|
(17 |
) |
|
|
(24 |
) |
Patent
litigation costs
|
|
|
(14 |
) |
|
|
(18 |
) |
Patent
pre-litigation costs
|
|
|
(10 |
) |
|
|
(10 |
) |
Write-off
of the ST-NXP Wireless call option
|
|
|
(24 |
) |
|
|
- |
|
Other
expenses
|
|
|
(1 |
) |
|
|
(6 |
) |
Total
|
|
|
(66 |
) |
|
|
(58 |
) |
STMicroelectronics
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 are met.
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
“Other income” were deemed to be grants in substance. However, unlike other
research and development funding, the amounts are determinable in advance and
accruable as research expenditures are made. Therefore, these credits, which
amounted to $117 million for the year ended December 31, 2008, were accounted
for as a reduction of research and development expenses.
Start-up
costs represent costs incurred in the start-up and testing of
STMicroelectronics’s new manufacturing facilities, before reaching the earlier
of a minimum level of production or six months after the fabrication line’s
quality certification. Phase-out costs for facilities during the
closing stage are treated in the same manner.
Exchange
gains (or losses) included in “Other income” (or "Other expenses" respectively)
represent the portion of exchange rate changes on transactions denominated in
currencies other than an entity’s functional currency which are not designated
as hedge and which have a cash flow effect.
Patent
litigation costs include legal and attorney fees and payment of claims, and
patent pre-litigation costs are composed of consultancy fees and legal fees.
Patent litigation costs are costs incurred in respect of pending litigation.
Patent pre-litigation costs are costs incurred to prepare for licensing
discussions with third parties with a view to concluding an
agreement.
Other expenses in 2008 also included the write-off of
the call option on the minority interest in ST-NXP Wireless business combination
as described in Note 4. The write-off was booked to align the value of the call
option included in the purchase accounting with its fair value as of December
31, 2008 which has been estimated as not material on the basis of the
parameters foreseen by the
contract.
26
— IMPAIRMENT ON ASSETS HELD FOR SALE AND RELATED COSTS
26.1
— Impairment on assets held for sale
In 2008
the Group incurred a total impairment charge of $79 million related to FMG
deconsolidation, consisting of:
|
·
|
$190
million impairment charge recorded upon disposal in the first half of
2008, of which $26 million was recorded after disposal as a consequence of
additional charges borne by the Group in relation to the contributed
assets and other related closure
costs;
|
|
·
|
$111
million of positive currency translation adjustment recycling on disposed
assets denominated in foreign
currencies.
|
2008
Annual Report of STMicroelectronics N.V.
The total
loss of the FMG deconsolidation amounted to $1,241 million, of which $1,162
million was recorded in the year ended December 31, 2007.
Additionally,
in 2008, the Group recorded $26 million of restructuring charges related to FMG
disposal, consisting primarily in phase-out costs.
Impairment
charges due to FMG disposal in 2007 totalled $1,167 million and were recorded as
follows:
|
·
|
$1,161
million impairment as a result of the signing of the definitive agreement
for the FMG deconsolidation and upon meeting IFRS 5 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.
|
|
·
|
$1
million impairment charge on certain specific equipment that could not be
transferred as part of FMG deconsolidation and for which no alternative
future use could be found in the
Group.
|
|
·
|
$5
million restructuring charges corresponding to transfer, maintenance and
decontamination costs.
|
In Note
37, Segment information, the impairment charge on FMG disposal is included in
the reconciliation to consolidated income (loss) table under the caption
“Impairment of assets held for sale and related costs”.
26.2.
— Restructuring charges reclassified as Costs of sales, Research and
development, and Selling, general and administrative
2008
restructuring initiatives:
In
relation to the new 2008 restructuring actions, the Group recorded $69 million,
consisting primarily of termination benefits for voluntary leaves and early
retirement arrangements in certain European locations. In connection with the
integration of Genesis and of the wireless business from NXP, the Group launched
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 integration. These costs were recorded
as cost of sales for $26 million, selling, general and administrative expenses
for $30 million and research and development expenses for $59
million.
2007
restructuring plan
The Group
announced on July 10, 2007 that management committed to a new restructuring plan
(“the 2007 restructuring plan”). Such plan aimed at redefining the Group’s
manufacturing strategy in order to contribute to be more competitive in the
semiconductor market. In addition to the prior restructuring measures undertaken
in the past years, this new manufacturing plan pursued, 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 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 2008,
the Group recorded the following charges related to the 2007 restructuring
plan:
|
·
|
$28
million for employee termination benefits related to the closure of the
manufacturing sites of Carrollton, Texas and Phoenix, Arizona; these
charges were primarily recorded as cost of
sales.
|
|
·
|
$10
million for the transfer of employees and equipment from Ain Sebbaa
back-end site to Bouskoura site in Morocco. These charges are recorded as
cost of sales.
|
|
·
|
$3
million related to the closure of one of the Group's design Center in
France, recorded as research and development
expenses.
|
2008
Annual Report of STMicroelectronics N.V.
The Group
recorded in 2007 a total restructuring charge for the 2007 restructuring plan
amounting to $133 million, mainly related to termination benefits for
involuntary leaves.
This
total amount was recorded as cost of sales for $117 million, as selling, general
and administrative expenses for $5 million and $11 million as research and
development expenses. The charge includes the provision for contractual, legal
or past practice termination benefits and retention and completion bonuses to be
paid for an estimated number of employees primarily in the United States, France
and Morocco.
Impairment
on goodwill and long-lived assets
In 2008
the Group also recorded $77 million of impairment charge on long-lived assets of
the Group’s manufacturing sites in Carrollton, Texas and in Phoenix, Arizona, of
which $75 million on Phoenix site which had previously been designated for
closure as part of the 2007 restructuring plan and that the Group decided in the
second quarter of 2008 to sell as a going concern. This impairment charge is
recorded as cost of sales. The assets are primarily property and other
long-lived assets that satisfied, as at June 28, 2008, all of the criteria
required for the “held-for-sale” status as set in IFRS 5. Consequently, the
Group reclassified as current assets on the consolidated balance sheet as at
June 28, 2008 these long-lived assets, which generated an impairment charge of
$114 million recorded in the first half of 2008. Fair value less costs to sell
was based on the consideration to be received upon the sale, which was expected
to occur within one year. In the second half of 2008, pursuant to a corporate
restructuring of the potential buyer, the sale was no longer deemed to be
probable. The Group ceased to apply the IFRS 5 held-for-sale model to the
Phoenix assets and reclassified the assets as held for use as at December 31,
2008. Therefore the assets were revalued based on the discounted cash flows
expected from their use, estimated at $99 million, which was higher than the
consideration to be received upon the sale. An adjustment of $39 million was
accordingly recorded in the second half of 2008 as a credit to the original
impairment charge
The
long-lived assets affected by the restructuring plans are owned by the Group 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 as set in IFRS 5.
In 2008 and 2007, apart from assets held for sale within FMG deconsolidation and
long-lived assets of the manufacturing site in Phoenix, Arizona, the Group did
not identify any significant tangible asset to be disposed of by
sale.
Additionally,
the Group recorded $3 million as cost of sales for impairment charge of
goodwill, pursuant to the impairment test on goodwill and indefinite long-lived
assets performed annually by STMicroelectronics. This impairment charge related
to Incard smart card business acquisition.
150mm
fab plan
In early
2008, the Group incurred restructuring charges on the 150mm fab plan totalling
$2 million, recorded as cost of sales, primarily related to transfer costs for
the site of Rousset (France). Restructuring charges incurred in 2007 on this
plan amounted to $26 million, primarily related to transfer, maintenance and
decontamination associated with the closure and transfer of production for the
sites of Rousset (France) and Agrate (Italy). In 2007, the Group reversed a $2
million provision recorded in 2003 to cover the Group’s legal obligation to pay
penalties to the French governmental institutions related to the closure of
Rennes production site since the French authorities decided in 2007 to waive the
payment of such penalties. The 150mm fab plan expenses incurred in 2007 were
also recorded as cost of sales.
2005
restructuring initiatives:
In 2008,
the Group recorded $7 million termination benefits, of which $5 million reported
in cost of sales and $2 million in selling, general and administrative expenses.
These charges primarily consisted in termination benefits paid within an early
retirement arrangement in one of the Group's subsidiaries in
Europe.
2008
Annual Report of STMicroelectronics N.V.
In 2007,
the Group recorded a total restructuring charge amounting to $6 million that
primarily impacted cost of sales and corresponded to workforce reduction
initiatives in Europe.
Finally,
the Group recorded in 2008 the following restructuring charges:
|
·
|
$4
million impairment charge on certain specific equipment for which no
alternative future use could be found in the Group. This impairment charge
was recorded as cost of sales;
|
|
·
|
$6
million impairment charges on certain equity investments carried at cost.
For one investment the impairment loss was based on the valuation for the
underlying investment of a new round of third party financing and for the
other the impairment loss was based on the value of the investment upon
liquidation. These impairment charges were recorded as research and
development expenses.
|
In 2007,
the Group recorded the following restructuring charges:
|
·
|
$2
million impairment on technologies without any alternative future use
based on the Group’s products’ roadmap (recorded in cost of
sales);
|
|
·
|
$3
million of impairment charge on a minority equity investment carried at
cost. The impairment loss was based on the valuation for the underlying
investment of a new round of third party financing (recorded in research
and development);
|
|
·
|
$11
million impairment on certain tangible assets, mainly equipment, that the
Group identified without alternative future use following its commitment
to the closure of two front-end sites and one back-end site as part of the
2007 restructuring plan (recorded in cost of
sales).
|
Expenses
recorded as cost of sales and operating expenses other than “impairment,
restructuring charges and other related closure costs” and “other income and
expenses” are detailed as follows:
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
(1,548 |
) |
|
|
(1,505 |
) |
Employee
benefit expense
|
|
|
(3,353 |
) |
|
|
(2,953 |
) |
Purchase
of materials and subcontracting services
|
|
|
(4,061 |
) |
|
|
(3,576 |
) |
Changes
in inventories
|
|
|
211 |
|
|
|
(25 |
) |
Transportation
|
|
|
(128 |
) |
|
|
(122 |
) |
Royalties
and patents
|
|
|
(101 |
) |
|
|
(115 |
) |
Advertising
costs
|
|
|
(11 |
) |
|
|
(12 |
) |
Other
expenses
|
|
|
(672 |
) |
|
|
(1,058 |
) |
Total
cost of sales, research and development, and selling, general and
administrative expenses
|
|
|
(9,663 |
) |
|
|
(9,366 |
) |
Employee
benefit expense is detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wages
and salaries
|
|
|
(2,545 |
) |
|
|
(2,314 |
) |
Compensation
of Sole Member of the Managing Board
|
|
|
(2 |
) |
|
|
(2 |
) |
Social
security costs
|
|
|
(692 |
) |
|
|
(554 |
) |
Stock-based
compensation expense
|
|
|
(76 |
) |
|
|
(76 |
) |
Pension
cost
|
|
|
(38 |
) |
|
|
(7 |
) |
Total
employee benefit expense included in cost of sales, research and
development, and selling, general and administrative
expenses
|
|
|
(3,353 |
) |
|
|
(2,953 |
) |
2008 Annual Report of
STMicroelectronics N.V.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
(1,448 |
) |
|
|
(1,281 |
) |
Selling,
general and administrative
|
|
|
(742 |
) |
|
|
(759 |
) |
Research
and development
|
|
|
(1,163 |
) |
|
|
(913 |
) |
Total
employee benefit expense included in cost of sales, research and
development, and selling, general and administrative
expenses
|
|
|
(3,353 |
) |
|
|
(2,953 |
) |
The
Compensation of Sole Member of the Managing Board includes a $1 million
contractual bonus accrued for to the sole member of the Managing Board and
President and CEO during the 2008 financial year that was approved by the
Compensation Committee and approved by the Supervisory Board in respect of 2008
financial year based on fulfilment of a number of predefined objectives for
2008.
28
— FINANCE INCOME AND FINANCE COSTS
Total
finance income and finance costs consisted of the following:
|
|
Year
ended
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income on restricted cash
|
|
|
15 |
|
|
|
15 |
|
Interest
income on short-term bank deposits
|
|
|
55 |
|
|
|
75 |
|
Numonyx
Bank Guarantee (Amortization)
|
|
|
13 |
|
|
|
- |
|
Interest
income on available-for-sale financial assets
|
|
|
62 |
|
|
|
65 |
|
Total
finance income
|
|
|
145 |
|
|
|
155 |
|
|
|
|
|
|
|
|
|
|
Bank
borrowings
|
|
|
(64 |
) |
|
|
(53 |
) |
Convertible
bond
|
|
|
(45 |
) |
|
|
(42 |
) |
Finance
lease interest expense
|
|
|
(5 |
) |
|
|
- |
|
Bank
charges and fees
|
|
|
(7 |
) |
|
|
(10 |
) |
Total
finance costs
|
|
|
(121 |
) |
|
|
(105 |
) |
No
borrowing cost was capitalized in 2008 or in 2007. Bank borrowing finance costs
include interest expense on Senior bonds amounting $39 million for the years
ended December31, 2008 and 2007 respectively.
Interest
income on floating rate notes classified as available-for-sale marketable
securities amounted to $37 million for the year ended December 31, 2008, and $41
million for the year ended December 31, 2007. Interest income on
auction rate securities totalled $14 million, and $24 million for the years
ended December 31, 2008 and 2007 respectively. Interest income on Numonyx long
term notes classified as available-for-sale amounted to $11 million for the year
ended December 31, 2008.
Profit
before income tax expense is comprised of the following:
|
|
Year ended
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Profit
(loss) recorded in The Netherlands
|
|
|
(1,243 |
) |
|
|
(82 |
) |
Profit
(loss) from foreign operations
|
|
|
714 |
|
|
|
(310 |
) |
Profit
(loss) before income tax expense
|
|
|
(529 |
) |
|
|
(392 |
) |
2008 Annual Report of
STMicroelectronics N.V.
STMicroelectronics
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
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
The
Netherlands taxes — current
|
|
|
(1 |
) |
|
|
(4 |
) |
Foreign
taxes — current
|
|
|
(153 |
) |
|
|
(129 |
) |
Current
taxes
|
|
|
(154 |
) |
|
|
(133 |
) |
|
|
|
|
|
|
|
|
|
Foreign
deferred taxes
|
|
|
165 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
Income
tax benefit / (expense)
|
|
|
11 |
|
|
|
(41 |
) |
The
principal items comprising the differences in income taxes computed at The
Netherlands statutory rate of 25.5% in 2008 and 2007 and the effective income
tax rate are the following:
|
|
Year
ended
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit (expense) computed at statutory rate
|
|
|
135 |
|
|
|
106 |
|
Non-deductible,
non-taxable and other permanent differences, net
|
|
|
- |
|
|
|
(20 |
) |
Loss
in investments in associates
|
|
|
(139 |
) |
|
|
- |
|
Impact
of final tax assessments relating to prior years
|
|
|
48 |
|
|
|
(25 |
) |
Effects
of change in tax rates on deferred taxes
|
|
|
- |
|
|
|
(21 |
) |
Current
year credits
|
|
|
66 |
|
|
|
7 |
|
Other
tax and credits
|
|
|
(16 |
) |
|
|
(4 |
) |
Benefits
from tax holidays
|
|
|
34 |
|
|
|
122 |
|
Current
year tax risk
|
|
|
(31 |
) |
|
|
- |
|
Impact
of FMG deconsolidation
|
|
|
(77 |
) |
|
|
(113 |
) |
Earnings
/ (losses) of subsidiaries taxed at different rates
|
|
|
(9 |
) |
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
Income
tax benefit / (expense)
|
|
|
11 |
|
|
|
(41 |
) |
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 Other Income were deemed
to be grants in substance. These tax credits, totaling $117 million, were
reported as a reduction of research and development expenses in the statement of
income for the year ended December 31, 2008.
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 $0.04 and $0.14 for the years ended
December 31, 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. STMicroelectronics’s tax holidays
expire at various dates through the year ending December 31, 2019.
2008
Annual Report of STMicroelectronics N.V.
Deferred
tax assets and liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
loss carry forwards and investment credits
|
|
|
250 |
|
|
|
144 |
|
Inventory
valuation
|
|
|
29 |
|
|
|
38 |
|
Impairment
charges and restructuring
|
|
|
114 |
|
|
|
102 |
|
Fixed
asset depreciation in arrears
|
|
|
64 |
|
|
|
61 |
|
Receivables
for government funding
|
|
|
17 |
|
|
|
10 |
|
Tax
risk
|
|
|
21 |
|
|
|
- |
|
Pension
service costs
|
|
|
48 |
|
|
|
18 |
|
Stock
plans
|
|
|
35 |
|
|
|
- |
|
Commercial
accruals
|
|
|
9 |
|
|
|
10 |
|
Other
temporary differences
|
|
|
91 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
678 |
|
|
|
458 |
|
Accelerated
fixed assets depreciation
|
|
|
(86 |
) |
|
|
(110 |
) |
Acquired
intangible assets
|
|
|
(221 |
) |
|
|
(83 |
) |
Advances
of government funding
|
|
|
(17 |
) |
|
|
(24 |
) |
Other
temporary differences
|
|
|
(51 |
) |
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
(375 |
) |
|
|
(244 |
) |
|
|
|
|
|
|
|
|
|
Net
deferred income tax asset
|
|
|
303 |
|
|
|
214 |
|
For a
particular tax-paying component of STMicroelectronics and within a particular
tax jurisdiction, all current deferred tax liabilities and assets are offset and
presented as a single amount, such as all non-current deferred tax liabilities
and assets. STMicroelectronics does not offset deferred tax liabilities and
assets attributable to different tax-paying components or to different tax
jurisdictions.
As of
December 31, 2008, STMicroelectronics and its subsidiaries have short term and
long term non current deferred tax assets and liabilities as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax asset to be recovered within 12 months
|
|
|
252 |
|
|
|
205 |
|
Deferred
tax asset to be recovered beyond 12 months
|
|
|
426 |
|
|
|
253 |
|
Deferred
tax assets
|
|
|
678 |
|
|
|
458 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax liability to be incurred within 12 months
|
|
|
(28 |
) |
|
|
(11 |
) |
Deferred
tax liability to be incurred beyond 12 months
|
|
|
(347 |
) |
|
|
(233 |
) |
Deferred
tax liabilities
|
|
|
(375 |
) |
|
|
(244 |
) |
|
|
|
|
|
|
|
|
|
Net
deferred income tax asset
|
|
|
303 |
|
|
|
214 |
|
The gross
movement of the deferred tax account is as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at the beginning of the year
|
|
|
214 |
|
|
|
84 |
|
Exchange
differences
|
|
|
(22 |
) |
|
|
28 |
|
Income
statement benefit (charge)
|
|
|
230 |
|
|
|
92 |
|
Tax
charge to equity
|
|
|
(119 |
) |
|
|
10 |
|
Balance
at the end of the year
|
|
|
303 |
|
|
|
214 |
|
2008
Annual Report of STMicroelectronics N.V.
Deferred
tax assets
|
|
|
|
|
Impairment
charge & restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
95 |
|
|
|
17 |
|
|
|
81 |
|
|
|
137 |
|
|
|
330 |
|
Exchange
differences
|
|
|
9 |
|
|
|
- |
|
|
|
8 |
|
|
|
14 |
|
|
|
31 |
|
Income
statement benefit (charge)
|
|
|
40 |
|
|
|
85 |
|
|
|
(28 |
) |
|
|
(10 |
) |
|
|
87 |
|
Tax
charge to equity
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10 |
|
|
|
10 |
|
December
31, 2007
|
|
|
144 |
|
|
|
102 |
|
|
|
61 |
|
|
|
151 |
|
|
|
458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
differences
|
|
|
(12 |
) |
|
|
(1 |
) |
|
|
(4 |
) |
|
|
(17 |
) |
|
|
(34 |
) |
Income
statement benefit (charge)
|
|
|
58 |
|
|
|
(13 |
) |
|
|
7 |
|
|
|
172 |
|
|
|
224 |
|
Tax
charge to equity
|
|
|
60 |
|
|
|
26 |
|
|
|
- |
|
|
|
(56 |
) |
|
|
30 |
|
December
31, 2008
|
|
|
250 |
|
|
|
114 |
|
|
|
64 |
|
|
|
250 |
|
|
|
678 |
|
Deferred
tax liabilities
|
|
Accelerated
tax depreciation
|
|
|
Acquired
intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
(118 |
) |
|
|
(72 |
) |
|
|
(56 |
) |
|
|
(246 |
) |
Exchange
differences
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
Income
statement benefit (charge)
|
|
|
9 |
|
|
|
(10 |
) |
|
|
6 |
|
|
|
5 |
|
Tax
charge to equity
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
December
31, 2007
|
|
|
(110 |
) |
|
|
(83 |
) |
|
|
(51 |
) |
|
|
(244 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
differences
|
|
|
3 |
|
|
|
- |
|
|
|
9 |
|
|
|
12 |
|
Income
statement benefit (charge)
|
|
|
21 |
|
|
|
(37 |
) |
|
|
22 |
|
|
|
6 |
|
Tax
charge to equity
|
|
|
- |
|
|
|
(101 |
) |
|
|
(48 |
) |
|
|
(149 |
) |
December
31, 2008
|
|
|
(86 |
) |
|
|
(221 |
) |
|
|
(68 |
) |
|
|
(375 |
) |
As of
December 31, 2008, STMicroelectronics and its subsidiaries have net operating
loss carry forwards and investment credits that expire starting 2009, as
follows:
|
|
|
|
2009
|
|
|
10 |
|
2010
|
|
|
7 |
|
2011
|
|
|
21 |
|
2012
|
|
|
53 |
|
Thereafter
|
|
|
159 |
|
|
|
|
|
|
Total
|
|
|
250 |
|
Deferred
tax assets not recognized in the consolidated balance sheet total $1,086 million
and mainly relate to an agreement granting the Group 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 5,36% per annum). The credits may be
utilized through 2020 or later depending on the Group meeting certain program
criteria. In addition to this agreement starting in 2007, the Group will
continue to receive tax credits on future years’ capital investments, which may
be used to offset that year’s tax liabilities. However, pursuant to the
inability to utilize these credits currently and in future years, the Group did
not recognize any of these deferred tax assets in its consolidated balance
sheets as of December 31, 2008 and 2007.
In
addition, other tax loss carryforwards for an amount of $192 million were not
recognized in the consolidated balance sheet and corresponded to net operating
losses acquired in business combinations, or generated in ongoing operations and
that will more likely than not, not be utilized against future
profits.
2008
Annual Report of STMicroelectronics N.V.
30
— CASH AND CASH EQUIVALENTS
Cash and
cash equivalents consisted of the following:
|
|
Year
ended
December
31,
2008
|
|
|
Year
ended
December
31,
2007
|
|
|
|
|
|
|
|
|
Cash
at bank and in hand (net of bank overdraft)
|
|
|
199 |
|
|
|
370 |
|
Deposits
at call with banks
|
|
|
790 |
|
|
|
1,485 |
|
Cash
and Cash equivalents
|
|
|
989 |
|
|
|
1,855 |
|
Cash at
bank includes $20 million of bank overdraft that are disclosed separately on the
liabilities side.
31
— CASH GENERATED FROM OPERATIONS
Cash
generated from operations is detailed as follows:
|
|
Year
ended
December
31,
2008
|
|
|
Year
ended
December
31,
2007
|
|
|
|
|
|
|
|
|
Net
result attributable to the equity holders of
STMicroelectronics
|
|
|
(519 |
) |
|
|
(439 |
) |
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,530 |
|
|
|
1,506 |
|
Amortization
of discount of convertible debt
|
|
|
18 |
|
|
|
18 |
|
Impairment
on financial assets
|
|
|
138 |
|
|
|
|
|
Gain
on financial assets
|
|
|
(15 |
) |
|
|
0 |
|
Other
non-cash items
|
|
|
108 |
|
|
|
200 |
|
Minority
interests in net result of subsidiaries
|
|
|
1 |
|
|
|
6 |
|
Deferred
income tax
|
|
|
(37 |
) |
|
|
(92 |
) |
Accrued
income tax
|
|
|
154 |
|
|
|
171 |
|
Share
of gain / (loss) of associates and impairment on investments in
associates
|
|
|
554 |
|
|
|
(14 |
) |
Impairment,
restructuring charges and other related closure costs, net of cash
payments
|
|
|
332 |
|
|
|
1,311 |
|
Trade
receivables, net
|
|
|
565 |
|
|
|
3 |
|
Inventories,
net
|
|
|
(299 |
) |
|
|
25 |
|
Trade
payables
|
|
|
(34 |
) |
|
|
19 |
|
Other
assets and liabilities, net
|
|
|
(336 |
) |
|
|
(180 |
) |
|
|
|
|
|
|
|
|
|
Cash
generated from operations
|
|
|
2,160 |
|
|
|
2,534 |
|
The
Group’s commitments as of December 31, 2008 were as follows:
In
million US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
|
339 |
|
|
|
70 |
|
|
|
49 |
|
|
|
42 |
|
|
|
33 |
|
|
|
53 |
|
|
|
92 |
|
Purchase
obligations
|
|
|
516 |
|
|
|
409 |
|
|
|
68 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
of
which:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
purchase
|
|
|
150 |
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foundry
purchase
|
|
|
106 |
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software,
technology licenses and design
|
|
|
260 |
|
|
|
153 |
|
|
|
68 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
obligations
|
|
|
359 |
|
|
|
163 |
|
|
|
86 |
|
|
|
53 |
|
|
|
48 |
|
|
|
7 |
|
|
|
2 |
|
Total
|
|
|
1,214 |
|
|
|
642 |
|
|
|
203 |
|
|
|
134 |
|
|
|
81 |
|
|
|
60 |
|
|
|
94 |
|
2008 Annual Report of
STMicroelectronics N.V.
As a
consequence of STMicroelectronics’s July 10, 2007 announcement concerning the
planned closures of certain of its manufacturing facilities, the future shutdown
of its plants in the United States will lead to negotiations with some of its
suppliers. As of December 31, 2008, none of the contracts as reported above have
been terminated nor do the reported amounts take into account any termination
fees.
Operating
leases are related mainly to building leases and to equipment leases. The amount
disclosed is composed of minimum payments for future leases from 2009 to 2013
and thereafter. STMicroelectronics leases land, buildings, plants and equipment
under operating leases that expire at various dates under non-cancellable lease
agreements. Operating lease expenses were $75 million and $62 million for the
year ended December 31, 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 a
cooperation agreement. In addition, on January 17, 2008 STMicroelectronics
acquired effective control of Genesis. There remains a commitment of $5 million
related to a retention program expected to be paid in 2009, which is also
included in Other obligations.
Other
commitments
STMicroelectronics
has issued guarantees totalling $731 million related to its subsidiaries’ debt.
Furthermore, STMicroelectronics has umbrella facilities for an amount of $480
million extendable to its subsidiaries on a fully guaranteed basis. In addition,
STMicroelectronics and Intel have each granted in favor of Numonyx, in which
STMicroelectronics holds a 48.6% equity investment, a 50% guarantee, 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.
The guarantees by Intel and STMicroelectronics are not joint and
several.
STMicroelectronics
has issued guarantees totaling $525 million related to its associates’ debt,
which is composed of the $250 million ten-year debt guarantee issued for the
Hynix-ST joint venture that was contributed to Numonyx and the $275 million 50%
debt guarantee not joint and several granted in favor of Numonyx, which entered
into financing arrangements for a $450 million term loan and a $100 million
committed revolving credit facility. See Note also 21 "Other non-current
liabilities" for details about the guarantees.
34
— CLAIMS AND LEGAL PROCEEDINGS
STMicroelectronics
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, STMicroelectronics may become involved
in costly litigation brought against STMicroelectronics regarding patents, mask
works, copy-rights, trade-marks or trade secrets. In the event that the outcome
of any litigation would be unfavorable to STMicroelectronics, STMicroelectronics
may be required to license the underlying intellectual property right 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 STMicroelectronics’s results
of operations, cash flows or financial position and ability to
compete.
STMicroelectronics
is otherwise also involved in various lawsuits, claims, investigations and
proceedings incidental to its business and operations. These matters mainly
include the risks associated with claims from customers or other parties.
STMicroelectronics has accrued for these loss contingencies when the loss is
probable and can be estimated. STMicroelectronics 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
STMicroelectronics. Legal costs associated with claims are expensed as
incurred.
2008
Annual Report of STMicroelectronics N.V.
In the
event of litigation which is adversely determined with respect to
STMicroelectronics’s interests, or in the event STMicroelectronics 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.
STMicroelectronics
is currently a party to legal proceedings with the International Trade
Commission (the “ITC”) with Tessera Technologies, Inc (“Tessera”) and LSI Corp
(“LSI”) as well as in litigation with SanDisk Corporation (“SanDisk”) regarding
same patents as previously and unsuccessfully asserted against
STMicroelectronics by SanDisk in the ITC. Based on management’s current
assumptions made with support of STMicroelectronics’s outside attorneys,
STMicroelectronics has not identified any probable loss, which may arise out of
such litigation.
35
— FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
35.1
— Financial risk factors
STMicroelectronics
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 Group’s activities expose it to a
variety of financial risks: especially currency, interest and
liquidity.
The
Group’s overall risk management program focuses on the unpredictability of
financial markets and seeks to minimize potential adverse effects on the Group’s
financial performance. The Group uses derivative financial instruments to hedge
certain risk exposures.
Financial
risk management is carried out by a central treasury department (Corporate
Treasury) reporting to the Chief Financial Officer (“CFO”). A Treasury Committee
chaired by the CFO, whose members are also the Corporate Treasurer, the
Corporate Controller and the Controller of ST NV, has the responsibility to
steer treasury activities and to ensure compliance with corporate policies
approved by the Board of Directors. Treasury activities are thus regulated
by the Group’s policies, which define procedures, objectives and controls. The
policies focus on the management of financial risk in terms of exposure to
market risk, credit risk for the cash and marketable securities investments 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 group’s operating
units. It provides written principles for overall risk management, as well as
written policies covering specific areas, such as foreign exchange risk,
interest rate risk, and 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 Moody’s Investor
Service and A- from Standard & Poor’s and Fitch Ratings. Marginal amounts
are held in other currencies. Foreign currency operations and hedging
transactions are performed only to hedge exposures deriving from industrial and
commercial activities.
Foreign
exchange risk
STMicroelectronics
conducts its business on a global basis in various major international
currencies. As a result, the Group is exposed to adverse movements in foreign
currency exchange rates, primarily with respect to the Euro. Foreign exchange
risk mainly arises from future commercial transactions and recognized assets and
liabilities at STMicroelectronics and at its subsidiaries.
Management
has set up a policy to require group companies to hedge their entire foreign
exchange risk exposure with STMicroelectronics through financial instruments
transacted by Corporate Treasury. To manage their foreign exchange risk arising
from recognized assets and liabilities, entities in the Group use forward
contracts and currency options, transacted by Corporate Treasury. Foreign
exchange risk arises when recognized assets and liabilities are denominated in a
currency that is not the entity’s functional currency.
2008
Annual Report of STMicroelectronics N.V.
In
addition, forward contracts and currency options are also used by
STMicroelectronics to reduce its exposure to U.S. dollar fluctuations in
Euro-denominated forecasted intercompany transactions that cover a large part of
research and development expenditures and certain corporate expenses incurred on
the Group’s behalf by subsidiaries. These intercompany transactions are not
closely linked to ultimate transactions with third parties. Consequently, these
instruments do not qualify as hedging instruments. The Group’s risk management
policy is to hedge between 50% and 80% of these Euro-denominated forecasted
intercompany transactions for the subsequent 12 months.
It is
STMicroelectronics’s 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 the same or very close exchange
rate to the standard rate at which the forecasted flows will be booked the
following month. As such, the foreign exchange exposure of the Group, consisting
in the balance sheet positions and other contractually agreed transactions
should be close to zero and any movement of the foreign exchange rates should
not therefore influence the exchange effect on income statement items unless
there are meaningful discrepancies from the forecasted foreign exchange
exposures. Therefore no sensitivity analysis is applicable to the Group policy.
Any discrepancies from the forecasted values and the actual results are
constantly monitored and prompt actions are eventually taken.
As for
the forward contracts and currency options entered into in order to hedge
certain Euro denominated forecasted transactions, a sensitivity analysis is
performed. The portion of these forecasted flows that is not covered with
forward contracts or currency options is thus hedged monthly as per the
procedure described above. Such sensitivity analysis quantifies the different
impacts on the consolidated statements of income from the hedging instruments
according to different scenarios of EUR-USD rate evolution. This analysis is
performed with the aim of better addressing the hedging strategy.
The
following sensitivity analysis was based on recognised assets and liabilities,
including non-monetary items, of STMicroelectronics and its subsidiaries. At
December 31, 2008 if the Euro had strengthened by 300 pips against the US dollar
with all other variables held constant, net income for the year would have been
$33 million higher, mainly as a result of foreign exchange gains on derivative
instruments designated as cash flow hedge. If the Euro had weakened by 300 pips
against the US dollar with all other variables held constant, impact in net
income would have been not material for the year, mainly as a result of not
exercised currency options. Equity would have been approximately $138 million
higher/lower if the Euro strengthened/weakened, arising mainly from translation
of net assets from subsidiaries which functional currency is the Euro. The
following sensitivity analysis was based on recognised assets and liabilities,
including non-monetary items, of STMicroelectronics and its subsidiaries. At
December 31, 2007 if the Euro had strengthened by 3% against the US dollar with
all other variables held constant, net income for the year would have been $20
million higher, mainly as a result of foreign exchange gains on derivative
instruments designated as cash flow hedge. If the Euro had weakened by 3%
against the US dollar with all other variables held constant, impact in net
income would have been not material for the year, mainly as a result of not
exercised currency options. Equity would have been approximately $114 million
higher/lower if the Euro strengthened/weakened, arising mainly from translation
of net assets from subsidiaries which functional currency is the
Euro.
Cash
flow and interest rate risk
In 2006,
STMicroelectronics entered into cancellable swaps with a combined notional value
of $200 million to hedge 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 bond due to 2016 to a variable interest rate
based upon adjusted LIBOR. For the period ended December 31, 2007 gain from the
hedging instrument amounted to $8 million and loss from the hedged item was $9
million. As a result of the cancellable swap transactions, the effective yield
on the $200 million principal amount of the convertible bonds has decreased from
1.95% as of December 31, 2007 to 1.16% as of December 31,
2008.
2008
Annual Report of STMicroelectronics N.V.
At the
beginning of February 2009, because of their ineffectiveness the two swaps have
been unwound with a net positive cash inflow of over $26 million.
In 2006
and 2007, STMicroelectronics entered into a 10 years fixed rate Collateral
Deposit for a notional amount of $250 million classified as restricted cash.
This deposit is naturally hedging part of the fixed rate
liabilities.
Since all
the liquidity of the Group is invested in floating rate instruments, the Group’s
interest rate risk arises from the mismatch of fixed rate liabilities and
floating rate assets.
At
December 31, 2008, if interest rates had been 300 basis points higher/lower with
all other variables held constant, net income for the year would have been $3
million higher/lower respectively, mainly as a result of a high level of liquid
assets in relation to debt. At December 31, 2007, if interest rates had been 300
basis points higher/lower with all other variables held constant, net income for
the year would have been $66 million higher/lower respectively, mainly as a
result of a high level of liquid assets in relation to debt.
During
2008 and 2007, the Group’s borrowings at variable rate were denominated in Euros
and in US dollars.
Credit
risk
Credit
risk is managed on a group basis. Credit risk arises from cash and cash
equivalents, marketable securities, derivative financial instruments and
deposits with banks and financial institutions, as well as credit exposures to
customers and third parties, including outstanding receivables and committed
transactions.
STMicroelectronics
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 within
a threshold of 20%. Due to the credit market turmoil, STMicroelectronics has
decided to further tighten the counterparty concentration and credit risk
profile. For liquidity investments the maximum outstanding counterparty risk has
been reduced and currently does not exceed 15% for major international banks
with large market capitalization. The 20% as maximum limit is still applied for
Foreign Exchange transactions outstanding.
The
credit risk exposure is calculated on 100% of cash and debt capital market
instruments and on positive marked-to-market foreign exchange forward contracts,
interest rate swaps and currency and interest rate options.
Except
for a Lehman Brothers senior unsecured bond for an amount of €15 million for
whom an impairment charge of $11 million was recorded (which represents 50% of
the face value of these floating rate notes) all other debt securities are
classified as available-for-sale and recorded at fair value as at December 31,
2008 and December 31, 2007, with temporary changes in fair value recognized as a
separate component of “Other reserves” in the consolidated statement of changes
in shareholders’ equity. As of December 31, 2008 STMicroelectronics reported a
pre-tax decline in fair value on the floating rate notes totalling $17 million
due to the widening of credit spreads. Out of the 20 investment positions in
floating-rate notes (excluding Lehman Brothers), 12 positions are in an
unrealized loss position. STMicroelectronics estimated the fair value of these
financial assets based on public quoted market prices. This change in fair value
was recognized as a separate component of “Other reserves” in the consolidated
statement of changes in shareholders’ equity since STMicroelectronics assessed
that this decline in fair value was temporary and that STMicroelectronics was in
a position to recover the total carrying amount of these investments on
subsequent periods. Since the duration of the floating-rate note portfolio in
only 2.5 years on average and the securities have a minimum Moody’s rating “A1”,
STMicroelectronics expects the value of the securities to tend at par as the
final maturity is approaching.
On the
auction-rate securities, STMicroelectronics reported a decline in fair value
amounting to $ 127 million in addition to the $46 million recorded in 2007,
which was immediately recorded in the consolidated statement of income on the
line “Impairment charge on marketable securities”.
2008
Annual Report of STMicroelectronics N.V.
Since the
fourth quarter of 2007, since there was no information available regarding ‘mark
to market’ bids and ‘mark to model’ valuations from the structuring financial
institutions for these securities. Consequently Company's estimation of fair
value was based 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 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 obligation could further
decrease in the future as a result of credit market deterioration and/or other
downgrading. The estimated value of the corporate debt securities could also
further decrease in the future due to a deterioration of the corporate industry
indices used for the evaluation. Based on the valuation method mentioned above,
a $55 million impairment charge was recorded in quarter ended December 31, 2008,
the Auction Rate Securities portfolio has an estimated fair value of
approximately $242 million.
On
February 12 2009, FINRA arbitration panel, in a full and final resolution of the
issues submitted for determination, awarded us, in connection with sales of
unauthorized auction rate securities made to us by Credit Suisse, approximately
$406 million, comprising compensatory damages, as well as interest, attorney’s
fees and consequential damages, which were assessed against Credit Suisse. In
addition, STMicroelectronics is entitled to retain an interest award of
approximately $25 million that has already been paid. At collection of the
payment, STMicroelectronics will transfer ownership of our portfolio of
unauthorized auction rate securities to Credit Suisse. On February 17, 2009
STMicroelectronics filed with the Federal Court for the Southern district of New
York a petition to confirm and enforce the FINRA arbitration award dated
February 12, 2009.
STMicroelectronics
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, 2008 and December 31, 2007 one customer, the Nokia Group of
companies represented 16.7% and 26.9% 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. Furthermore,
STMicroelectronics is not subject to externally imposed capital
requirements.
2008
Annual Report of STMicroelectronics N.V.
The table
below shows the credit limit and balance of the six major counterparties at the
balance sheet date:
|
|
|
|
|
Year
ended December 31, 2008
|
|
Counterparty
|
|
Rating
|
|
|
Credit
Limit
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity
investments
|
|
|
|
|
|
|
|
|
|
Financial
Institution A
|
|
Aa2
/ AA -
|
|
|
|
14 |
% |
|
|
270 |
|
Financial
Institution B
|
|
Aa2 /
AA-
|
|
|
|
12 |
% |
|
|
225 |
|
Financial
Institution C
|
|
Aa3
/ A+
|
|
|
|
10 |
% |
|
|
189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Institution A
|
|
Aa3/A+
|
|
|
|
20 |
% |
|
|
316 |
|
Financial
Institution B
|
|
A1
/ A
|
|
|
|
17 |
% |
|
|
280 |
|
Financial
Institution C
|
|
Aa2
/ A+
|
|
|
|
16 |
% |
|
|
251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
A
|
|
|
A
/ A1 |
|
|
|
283 |
|
|
|
120 |
|
Customer
B6
|
|
|
- |
|
|
|
68 |
|
|
|
54 |
|
Customer
C
|
|
Ba2
/ BB-
|
|
|
|
200 |
|
|
|
50 |
|
|
|
|
|
|
Year
Ended December 31, 2007
|
|
Counterparty
|
|
Rating
|
|
|
Credit
Limit
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity
investments
|
|
|
|
|
|
|
|
|
|
Financial
Institution A
|
|
Aa2/AA-
|
|
|
|
15 |
% |
|
|
473 |
|
Financial
Institution B
|
|
Aa1/AA+
|
|
|
|
9 |
% |
|
|
289 |
|
Financial
Institution C
|
|
Aa2/A+
|
|
|
|
9 |
% |
|
|
277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Exchange
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Institution A
|
|
Aa3/AA-
|
|
|
|
16 |
% |
|
|
118 |
|
Financial
Institution B
|
|
|
A1/A+ |
|
|
|
15 |
% |
|
|
114 |
|
Financial
Institution C
|
|
Aa1/AA
|
|
|
|
13 |
% |
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
A
|
|
|
A1/A+ |
|
|
|
1,256 |
|
|
|
431 |
|
Customer
B
|
|
BBB+/BBB+
|
|
|
|
314 |
|
|
|
150 |
|
Customer
C
|
|
BB+/BBB-
|
|
|
|
275 |
|
|
|
96 |
|
No credit
limits were exceeded during the year ended December 31, 2008 (except for very
specific needs where an higher concentration of liquidity was placed for few
days on a single counterparty in order to execute payments for M&A
activities) or during the year ended December 31, 2007 and management does not
expect any losses from non-performance by these counterparties.
Liquidity
risk
Prudent
liquidity risk management includes maintaining sufficient cash and cash
equivalents, short-term deposits and marketable securities, the availability of
funding from an adequate of committed credit facilities and the ability to close
out market positions. STMicroelectronics’s objective is to maintain a
significant cash position and a low debt to equity ratio, which ensure adequate
financial flexibility. Liquidity management policy is to finance the Group’s
investments with net cash provided from operating activities.
6 This
customer has provided the Group with a Promissory Note for $20 million as one of
the conditions for credit facility
he was granted.
2008
Annual Report of STMicroelectronics N.V.
In the
past few years the Group benefited from a favourable cash flow as a result of
cash generated from operations in excess of capital investments. Based on
current visibility and environment, and projected capital expenditures
approximating 10% of net revenues there is no evidence of a material change in
the cash flow trend. Management is continuously monitoring the expected cash
flow on a rolling forecast basis. Current cash flow projections coupled with the
current liquidity position indicates that the Group is expected to have
sufficient resources to meet its currently anticipated cash requirements in the
foreseeable future.
The table
below shows the future contractual cash out-flows long-term debt, including its
current portion, derivative financial assets and liabilities, net and trade
account payable and other payables at December 31, 2008:
|
|
2009
|
|
|
Between
2010
and
2011
|
|
|
Between
2012
And
2013
|
|
|
Thereafter
|
|
Long-term
debt
|
|
|
138 |
|
|
|
1,144 |
|
|
|
963 |
|
|
|
296 |
|
Derivative
financial assets and liabilities, net
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
account payable
|
|
|
841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
payables and accrued liabilities
|
|
|
791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The table
below shows the future contractual cash out-flows long-term debt, derivative
financial assets and liabilities, net and trade account payable and other
payables at and other payables at December 31, 2007:
|
|
Between
2008
and
2009
|
|
|
Between
2010
and
2011
|
|
|
Thereafter
|
|
Long-term
debt
|
|
|
174 |
|
|
|
864 |
|
|
|
849 |
|
Derivative
financial asset and liabilities, net
|
|
|
(13 |
) |
|
|
|
|
|
|
(
8 |
) |
Trade
payables and other payables
|
|
|
1,767 |
|
|
|
- |
|
|
|
- |
|
35.2
—Capital risk management
The
Group’s objectives when managing capital are to safeguard the Group’s 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 Group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, or issue new shares.
Consistent
with others in the industry, the Group monitors capital on the basis of the
debt-to-equity ratio. This ratio is calculated as the net financial position of
the Group, defined as the difference between total cash position (cash and cash
equivalents, marketable securities and 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
STMicroelectronics.
2008
Annual Report of STMicroelectronics N.V.
The
debt-to-equity ratio at December 31, 2008 and December 31, 2007 was at follows
–
Counterparty
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
1,009 |
|
|
|
1,855 |
|
Marketable
securities
|
|
|
1,098 |
|
|
|
1,383 |
|
Short-term
deposits
|
|
|
- |
|
|
|
- |
|
Restricted
cash
|
|
|
250 |
|
|
|
250 |
|
Total
cash position
|
|
|
2,357 |
|
|
|
3,488 |
|
|
|
|
|
|
|
|
|
|
Bank
overdrafts
|
|
|
20 |
|
|
|
- |
|
Current
portion of long-term debt
|
|
|
(138 |
) |
|
|
(103 |
) |
Long-term
debt
|
|
|
(2,403 |
) |
|
|
(1,887 |
) |
Total
financial debt
|
|
|
(2,521 |
) |
|
|
(1,990 |
) |
|
|
|
|
|
|
|
|
|
Net
financial position
|
|
|
(164 |
) |
|
|
1,498 |
|
|
|
|
|
|
|
|
|
|
Total
equity attributable to the shareholders of
STMicroelectronics
|
|
|
8,759 |
|
|
|
9,953 |
|
Net
debt-to-equity ratio
|
|
|
(0.02 |
) |
|
|
0.15 |
|
The
decrease in the debt-to-equity ratio during 2008 resulted from a decrease of the
net financial position particularly due to business combinations and a reduction
of the shareholders equity, including the effect of dividends and purchase of
treasury shares.
35.3
— Fair value estimation
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 STMicroelectronics is the bid price. If the market for
a financial asset is not active and if no observable market price is obtainable,
STMicroelectronics measures fair value by using significant assumptions and
estimates. In measuring fair value, STMicroelectronics makes maximum use of
market inputs and relies as little as possible on entity-specific
inputs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
|
|
|
|
|
|
|
|
|
|
—
Bank loans (including current portion)
|
|
|
938 |
|
|
|
937 |
|
|
|
472 |
|
|
|
465 |
|
—
Senior Bond
|
|
|
703 |
|
|
|
580 |
|
|
|
736 |
|
|
|
734 |
|
—
Convertible debt
|
|
|
822 |
|
|
|
918 |
|
|
|
781 |
|
|
|
691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
Floating rate notes
|
|
|
651 |
|
|
|
651 |
|
|
|
1,014 |
|
|
|
1,014 |
|
—
Auction rate securities
|
|
|
242 |
|
|
|
242 |
|
|
|
369 |
|
|
|
369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
receivables and assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
Foreign exchange forward contracts and currency options
|
|
|
37 |
|
|
|
37 |
|
|
|
13 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
investments and other non current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
Cancellable swaps
|
|
|
34 |
|
|
|
34 |
|
|
|
8 |
|
|
|
8 |
|
—
Equity securities classified as available for sale
|
|
|
32 |
|
|
|
32 |
|
|
|
5 |
|
|
|
5 |
|
—
Subordinated loan (Numonyx)
|
|
|
168 |
|
|
|
168 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
payables and accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
Foreign exchange forward contracts and currency options
|
|
|
5 |
|
|
|
5 |
|
|
|
1 |
|
|
|
1 |
|
The
methodologies used to estimate fair value are as follows:
2008
Annual Report of STMicroelectronics N.V.
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.
Marketable
securities
The fair
value of floating rate notes is estimated based upon quoted market prices for
the same or similar instruments, except for a Lehman Brothers senior unsecured
bond.
As at
December 31, 2008, given STMicroelectronics’s exposure to Lehman Brothers senior
unsecured bonds for a maximum amount of €15 million, STMicroelectronics recorded
an impairment of $11 million on floating rate notes issued by Lehman Brothers
following its Chapter 11 filing on September 15, 2008. This impairment charge,
which represented 50% of the face value of these debt securities, was reported
on the line “Impairment charge on marketable securities” in the consolidated
statement of income for the year ended December 31, 2008. Fair value measurement
relies on information received from a major credit rating entity based on
historical recovery rates. Apart from Lehman Brothers floating rate notes as
described above, STMicroelectronics reported as of December 31, 2008 an
after-tax decline in fair value on its floating rate note portfolio totaling $14
million due to the general widening of credit spreads associated with the
financial market turmoil. Out of the 20 investment positions in floating-rate
notes, whose changes in fair value have been considered as temporary, 12
positions are in an unrealized loss position. The aggregate related fair value
of these investments amounted to $412 million, of which $200 million have been
in a continuous loss position for 12 months or longer. STMicroelectronics
estimated the fair value of these financial assets based on publicly quoted
market prices. This change in fair value was recognized as a separate component
of "Other reserves” in the consolidated statement of changes in shareholders’
equity since STMicroelectronics assessed that this decline in fair value was
temporary and that STMicroelectronics was in a position to recover the total
carrying amount of these investments in subsequent periods. Since the duration
of the floating-rate note portfolio is only 2.45 years on average and the
securities have a minimum Moody’s rating of “A2/A”, STMicroelectronics expects
the value of the securities to return to par as the final maturity is
approaching.
For
auction rate securities, since the fourth quarter of 2007, since there was no
information available regarding ‘mark to market’ bids and ‘mark to model’
valuations from the structuring financial institutions for these securities,
STMicroelectronics's estimation was based 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 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 obligation could further decrease in the future as a result
of credit market deterioration and/or other downgrading. The estimated value of
the corporate debt securities could also further decrease in the future due to a
deterioration of the corporate industry indices used for the
evaluation.
Long-term
debt and current portion of long-term debt
The fair
values of long-term debt were 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 STMicroelectronics's incremental borrowing rates
for similar types of borrowing arrangements.
Foreign
exchange forward contracts and currency options
The fair
values of these instruments are estimated based upon quoted market prices for
the same or similar instruments.
2008
Annual Report of STMicroelectronics N.V.
Cancellable
swaps
The fair
values of these instruments are estimated based upon market prices for similar
instruments.
Equity
securities classified as available-for-sale
The fair
values of these instruments are estimated based upon market prices for the same
instruments.
36
— RELATED PARTY TRANSACTIONS
Transactions
with significant shareholders, their affiliates and other related parties were
as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
& other services
|
|
|
325 |
|
|
|
272 |
|
Research
and development expenses
|
|
|
(63 |
) |
|
|
(68 |
) |
Other
purchases
|
|
|
(77 |
) |
|
|
(85 |
) |
Other
income and expenses
|
|
|
(7 |
) |
|
|
(11 |
) |
Accounts
receivable
|
|
|
63 |
|
|
|
44 |
|
Accounts
payable
|
|
|
65 |
|
|
|
40 |
|
Other
assets
|
|
|
- |
|
|
|
2 |
|
For the
years ended December 31, 2008, and December 31, 2007, the related
party transactions were primarily with significant shareholders of
STMicroelectronics, or their subsidiaries and companies in which management of
STMicroelectronics perform similar policymaking functions. These include, but
are not limited to: Areva, France Telecom, Equant, Orange, Finmeccanica, Cassa
Depositi e Prestiti, Flextronics, Oracle and Thomson. The related party
transactions presented in the table above also include transactions between
STMicroelectronics and its associates as listed in Note 3.
Following
the completion of FMG deconsolidation and the creation of Numonyx,
STMicroelectronics performed certain purchasing, service and revenue on-behalf
of Numonyx. These services ended in November 2008 when Numonyx was in a position
to run the business by itself on a standalone basis. STMicroelectronics had a
net payable balance of $7 million to Numonyx as at December 31, 2008.
Additionally, STMicroelectronics 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 STMicroelectronics have each granted in favor of Numonyx
a 50% debt guarantee not joint and several. This debt guarantee is described in
details in Note 3. The final terms at the closing date of the agreements on
assets to be contributed included rights granted to Numonyx by
STMicroelectronics to use certain assets retained by STMicroelectronics.
STMicroelectronics recorded as at December 31, 2008 a provision amounting to $87
million to reflect the value of such rights granted to its investments in
associates. The parties also retained the obligation to fund the
severance payment ("trattamento di fine rapporto") due to certain transferred
employees by the defined amount of about $35 million which qualifies as a
defined benefit plan and was classified on the line " Other non-current
liabilities " as at December 31, 2008. Finally, STMicroelectronics recorded a
net long-term receivable amounting to $6 million corresponding to a tax credit
Numonyx will pay back to STMicroelectronics once received from the relevant
taxing authorities.
Additionally
STMicroelectronics incurred in 2008, and 2007 amounts on transactions with Hynix
Semiconductor Inc., with which STMicroelectronics had until March 30, 2008 a
significant equity investment, the Hynix ST joint venture. In 2007 and 2006,
Hynix Semiconductor Inc. increased its business transactions with
STMicroelectronics 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 STMicroelectronics. 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.
2008
Annual Report of STMicroelectronics N.V.
These
transactions significantly decreased in 2008 upon the transfer of the joint
venture to Numonyx. 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. STMicroelectronics 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.
Additionally,
upon integration of the wireless business acquired from NXP, as detailed in Note
4, certain purchasing and revenue transactions continue to be performed by the
minority interest holder on-behalf of ST-NXP Wireless. These services will
continue until such time that the needed systems are finalized and can be run by
the new combined entity. STMicroelectronics also has service agreements for
R&D, manufacturing and transitional services in place. The net expense for
those services amounted to $71 million for the year ended December 31, 2008. In
addition, STMicroelectronics purchased wafers from NXP in the amount of $85
million for the year ended December 31, 2008. STMicroelectronics had a net
payable balance of $2 million as at December 31, 2008 as the result of these
transactions. The terms of the agreement for the integration of the NXP wireless
business also included rights granted to NXP to obtain products from
STMicroelectronics at preferential pricing. STMicroelectronics recorded as at
December 31, 2008 a provision amounting to $8 million to reflect the value of
such rights.
In
addition, STMicroelectronics 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 STMicroelectronics as research and
development expenses incurred by E.I.G amounted to $9 million income in 2008 and
$1 million expense in 2007. At December 31, 2008 and 2007, STMicroelectronics
had no receivable or payable amount.
STMicroelectronics
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 Foundation’s Board are senior members of STMicroelectronics’s
management.
The
individual remuneration paid to the sole member of the Managing Board was as
follow:
|
|
Year
ended
December
31, 2008
|
|
|
Year
ended
December
31, 2007
|
|
|
|
|
|
|
|
|
Wages
and salaries
|
|
|
1 |
|
|
|
1 |
|
Bonus
|
|
|
1 |
|
|
|
1 |
|
The sole
member of the Managing Board was granted in 2008 and in 2007 for free 100,000
nonvested shares subject to the achievement of performance
objectives.
The total
amount paid as compensation in 2008 and 2007 to STMicroelectronics’s 25
(respectively 23) executive officers, including the sole Member of the
Managing Board, were as follows:
In
U.S. dollars
|
|
Year
ended
December
31, 2008
|
|
|
Year
ended
December
31, 2007
|
|
|
|
|
|
|
|
|
Wages
and salaries
|
|
|
11,674,465 |
|
|
|
9,700,148 |
|
Bonus
|
|
|
4,626,346 |
|
|
|
4,456,210 |
|
Other
Benefits
|
|
|
2,424,819 |
|
|
|
1,795,846 |
|
Termination
Benefits
|
|
|
- |
|
|
|
180,736 |
|
Social
Charges
|
|
|
3,859,864 |
|
|
|
3,927,472 |
|
Total
compensation
|
|
|
22,585,494 |
|
|
|
20,060,412 |
|
2008
Annual Report of STMicroelectronics N.V.
STMicroelectronics’s
25 executive officers, including the sole Member of the Managing Board, were
granted in 2008 for free 1,016,000 nonvested shares subject to the achievement
of performance objectives. The weighted average grant date fair value of
nonvested shares granted to employees under the 2008 Employee Plan was
$10.64.
In 2007,
STMicroelectronics’s 23 executive officers, including the sole Member of the
Managing Board, were granted in 2007 for free 926,000 nonvested shares subject
to the achievement of performance objectives. The weighted average grant date
fair value of nonvested shares granted to employees under the 2007 Employee Plan
was $19.35.
The bonus
paid to STMicroelectronics’s executive officers corresponds 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 the Groups’ overall performance.
The participants in the EIP must satisfy certain personal objectives that are
focused on return on net assets, customer service, profit, cash and market
share.
The
executive officers and the Managing Board were covered in 2008 and 2007 under
certain Group life and medical insurance programs, pension, state-run retirement
and other similar benefit programs and other miscellaneous allowances that are
included in the $6 million and $6 million of social charges and other benefits
for the year ended December 31, 2008 and 2007, respectively.
At the
end of the year 2005, the Compensation Committee recommended and the Supervisory
Board decided to grant an additional pension benefit plan to
STMicroelectronics’s sole member of the Managing Board and a limited number of
senior executives that have made key contributions to the Group’s success.
Pursuant to this plan, the Group will make annual contributions of $200,000 to
both its former and current sole members of the Managing Board, $150,000 to its
Chief Operating Officer and up to $100,000 to each other beneficiary per year.
In order to meet the Group’s future payment obligations under this plan or to
insure for them, the Group paid an amount of $2 million in
2008.
Individual
remuneration paid to Supervisory Board Members in 2008 and 2007 was recorded as
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B.
Steve
|
|
|
227,000 |
|
|
|
213,500 |
|
D.
Lamouche
|
|
|
123,000 |
|
|
|
98,500 |
|
A.
Ovi
|
|
|
113,000 |
|
|
|
— |
|
T.
de Waard
|
|
|
223,500 |
|
|
|
246,500 |
|
M.
Del Fante
|
|
|
147,500 |
|
|
|
129,000 |
|
G.
Arbola
|
|
|
228,500 |
|
|
|
215,500 |
|
D.
Lombard
|
|
|
156,500 |
|
|
|
132,000 |
|
D.
Dunn
|
|
|
133,500 |
|
|
|
105,000 |
|
R.Bingham
|
|
|
101,500 |
|
|
|
— |
|
R.
White
|
|
|
24,000 |
|
|
|
134,000 |
|
A.
Turicchi
|
|
|
18,000 |
|
|
|
138,500 |
|
F.
Gavois
|
|
|
— |
|
|
|
17,000 |
|
|
|
|
1,496,000 |
|
|
|
1,429,500 |
|
2008
Annual Report of STMicroelectronics N.V.
Stock
awards granted to Supervisory Board Members in 2008 and 2007 were:
|
|
|
|
|
|
|
|
|
Number
of stock awards granted
|
|
|
|
|
|
|
|
|
|
|
B.
Steve
|
|
|
15,000 |
|
|
|
1.04 |
|
|
|
15,000 |
|
|
|
1.04 |
|
R.
Bingham
|
|
|
15,000 |
|
|
|
1.04 |
|
|
|
15,000 |
|
|
|
1.04 |
|
A.
Turicchi*
|
|
|
15,000 |
|
|
|
1.04 |
|
|
|
— |
|
|
|
1.04 |
|
D.
Lamouche
|
|
|
15,000 |
|
|
|
1.04 |
|
|
|
15,000 |
|
|
|
1.04 |
|
T.
de Waard
|
|
|
15,000 |
|
|
|
1.04 |
|
|
|
15,000 |
|
|
|
1.04 |
|
G.
Arbola
|
|
|
15,000 |
|
|
|
1.04 |
|
|
|
15,000 |
|
|
|
1.04 |
|
D.
Lombard
|
|
|
15,000 |
|
|
|
1.04 |
|
|
|
15,000 |
|
|
|
1.04 |
|
D.
Dunn
|
|
|
15,000 |
|
|
|
1.04 |
|
|
|
15,000 |
|
|
|
1.04 |
|
A.
Ovi
|
|
|
15,000 |
|
|
|
1.04 |
|
|
|
15,000 |
|
|
|
1.04 |
|
L.
Chessa
|
|
|
7,500 |
|
|
|
1.04 |
|
|
|
— |
|
|
|
— |
|
C.
Duval
|
|
|
7,500 |
|
|
|
1.04 |
|
|
|
— |
|
|
|
— |
|
B.
Loubert
|
|
|
7,500 |
|
|
|
1.04 |
|
|
|
— |
|
|
|
— |
|
A.
Novelli*
|
|
|
7,500 |
|
|
|
1.04 |
|
|
|
— |
|
|
|
— |
|
M.
Del Fante
|
|
|
— |
|
|
|
1.04 |
|
|
|
15,000 |
|
|
|
1.04 |
|
* In 2008
the Supervisory Board members waived their right to the stock options they were
granted.
The Group
early adopted in 2007 International Financial Reporting Standard No. 8, Operating Segments (“IFRS
8”). The following describes the segment information.
Business
Segments
STMicroelectronics
operates in two business areas: Semiconductors and Subsystems.
In the
Semiconductors business area, STMicroelectronics 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,
STMicroelectronics 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.
Beginning
on January 1, 2007, and until August 2, 2008, to meet the requirements of the
market together with the pursuit of strategic repositioning in Flash memory,
STMicroelectronics reorganized its product segment groups into three
segments:
|
·
|
Application
Specific Product Groups (“ASG”)
segment;
|
|
·
|
Industrial
and Multisegment Sector (“IMS”) segment;
and
|
|
·
|
Flash
Memory Group (“FMG”) segment (until March 30,
2008).
|
Since
March 31, 2008, following the creation with Intel of Numonyx, a new independent
semiconductor company from the key assets of its and Intel’s Flash memory
business (“FMG deconsolidation”), STMicroelectronics has ceased reporting under
the FMG segment.
2008 Annual Report of
STMicroelectronics N.V.
Starting
August 2, 2008, as a consequence of the creation of the wireless company with
NXP, STMicroelectronics reorganized its groups. A new segment was created to
report wireless operations (“WPS”); 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 Telecom Infrastructure Product Groups segment
(“ACCI”), comprised of three product
lines:
|
|
1.
|
Home
Entertainment & Displays (“HED”), which now includes the Imaging
division;
|
|
2.
|
Automotive
Products Group (“APG”); and,
|
|
3.
|
Computer
and Communication Infrastructure (“CCI”), which now includes the
Communication Infrastructure
division.
|
|
-
|
Industrial
and Multisegment Products Sector (“IMS”), comprised
of:
|
|
1.
|
Analog
Power and Micro-Electro-Mechanical Systems (“APM”);
and
|
|
2.
|
Micro,
non-Flash, non-volatile Memory and Smart Card products
(“MMS”).
|
|
-
|
Wireless
Products Sector (“WPS”), comprised of three product
lines:
|
|
1.
|
Wireless
Multi Media (“WMM”);
|
|
2.
|
Connectivity
& Peripherals (“C&P”); and
|
|
3.
|
Cellular
Systems (“CS”).
|
STMicroelectronics
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 2007
presentation is consistent with 2008 and is using these comparatives when
managing STMicroelectronics.
STMicroelectronics’s
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.
In the
Subsystems business area, STMicroelectronics designs, develops, manufactures and
markets subsystems and modules for the telecommunications, automotive and
industrial markets including mobile phone accessories, battery charges, 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.
The
following tables present STMicroelectronics’s consolidated net revenues and
consolidated operating income by semiconductor product segment. For the
computation of the Groups’ internal financial measurements, STMicroelectronics
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 STMicroelectronics’s 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 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.
2008
Annual Report of STMicroelectronics N.V.
STMicroelectronics’s
management information is derived from US-GAAP which is the primary basis to
communicate to shareholders. Therefore reconciliation from the combined segment
results to company’s profit (loss) comprises US-GAAP to IFRS measurement
differences as well as items not allocated to segments. Typically the reporting
segments of STMicroelectronics do not include restructuring and impairment
expenses, or significant non-recurring items.
In 2007,
STMicroelectronics early adopted IFRS 8 "Operating Segments". Based on the
common interpretation of IFRS 8.23 and as supported by the IASB's view as laid
out in the Basis for Conclusion (IFRS 8, BC35), STMicroelectronics reported
total consolidated assets and total consolidated liabilities by product segment.
After issuance of the financial statements as of December 31, 2007, the IASB has
revised the requirements of IFRS 8 so that disclosure of total assets and
liabilities for each reportable segment is only required when such measures are
provided to the chief operating decision maker for decision making purposes. As
disclosed above, STMicroelectronics's principal investment and resource
allocation decisions in the Semiconductor business area are for expenditures on
research and development and capital investment in front-end and back-end
manufacturing facilities and are not made by product segments. Accordingly no
total asset and total liability measure is provided to the chief operating
decision maker for decision making purposes. Therefore STMicroelectronics
decided to cease presenting total consolidated assets and total consolidated
liabilities by product segments to provide information which are more in line
with the basic principles of IFRS 8 and thus provide more relevant information.
The segment information of the comparative year presented in the financial
statements as of December 31, 2008, has been restated accordingly.
Net
revenues by product segment
In
million of U.S dollars
|
|
Year
ended December 31, 2008
|
|
|
Year
ended December 31, 2007
|
|
Net
revenues by product segment:
|
|
|
|
|
|
|
Automotive
Consumer Computer and Telecom Infrastructure Product Groups
(ACCI)
|
|
|
4,129 |
|
|
|
3,944 |
|
Industrial
and Multisegment Products Sector (IMS)
|
|
|
3,329 |
|
|
|
3,138 |
|
Wireless
Products Sector (WPS)
|
|
|
2,030 |
|
|
|
1,495 |
|
Flash
Memory Group segment
|
|
|
299 |
|
|
|
1,364 |
|
Others7
|
|
|
55 |
|
|
|
60 |
|
Total
consolidated net revenues
|
|
|
9,842 |
|
|
|
10,001 |
|
Net
revenues by product segment and by product line
In
million of U.S dollars
|
|
Year
ended December 31, 2008
|
|
|
Year
ended December 31, 2007
|
|
Net
revenues by product lines:
|
|
|
|
|
|
|
Home
Entertainment & Displays (“HED”)
|
|
|
1,585 |
|
|
|
1,402 |
|
Automotive
Products Group (“APG”)
|
|
|
1,460 |
|
|
|
1,419 |
|
7 Includes
revenues from sales of subsystems and other products not allocated to product
segments
2008 Annual
Report of STMicroelectronics N.V.
In
million of U.S dollars
|
|
Year
ended December 31, 2008
|
|
|
Year
ended December 31, 2007
|
|
Computer
and Communication Infrastructure (“CCI”)
|
|
|
1,077 |
|
|
|
1,123 |
|
Others
|
|
|
7 |
|
|
|
- |
|
Automotive
Consumer Computer and Telecom Infrastructure Product Groups
(ACCI)
|
|
|
4,129 |
|
|
|
3,944 |
|
Analog
Power and Micro-Electro-Mechanical Systems (“APM”)
|
|
|
2,393 |
|
|
|
2,313 |
|
Micro,
non-Flash, non-volatile Memory and Smartcard products
(“MMS”)
|
|
|
936 |
|
|
|
825 |
|
Industrial
and Multisegment Products Sector (IMS)
|
|
|
3,329 |
|
|
|
3,138 |
|
Wireless
Multi Media (“WMM”)
|
|
|
1,293 |
|
|
|
1,288 |
|
Connectivity
& Peripherals (“C&P”)
|
|
|
416 |
|
|
|
207 |
|
Cellular
Systems ("CS")8
|
|
|
321 |
|
|
|
- |
|
Wireless
Products Sector (WPS)
|
|
|
2,030 |
|
|
|
1,495 |
|
Others
|
|
|
55 |
|
|
|
60 |
|
Flash
Memories Group (FMG)
|
|
|
299 |
|
|
|
1,364 |
|
Total
consolidated net revenues
|
|
|
9,842 |
|
|
|
10,001 |
|
Operating
income (loss) by product segment
In
million of U.S dollars
|
|
Year
ended December 31, 2008
|
|
|
Year
ended December 31, 2007
|
|
Automotive
Consumer Computer and Telecom Infrastructure Product Groups
(ACCI)
|
|
|
107 |
|
|
|
198 |
|
Industrial
and Multisegment Products Sector (IMS)
|
|
|
459 |
|
|
|
469 |
|
Wireless
Products Sector (WPS)
|
|
|
(70 |
)
|
|
|
105 |
|
Flash
Memory Group segment
|
|
|
16 |
|
|
|
(51 |
) |
Total
operating income by product segments
|
|
|
512 |
|
|
|
721 |
|
8 Cellular
Systems includes the largest part of the revenues contributed by NXP Wireless
and, as such, there are no comparable numbers available for
2007.
2008
Annual Report of STMicroelectronics N.V.
Reconciliation
from income (loss) by product segment to consolidated operating income
(loss):
In
million of U.S dollars
|
|
Year
ended December 31, 2008
|
|
|
Year
ended December 31, 2007
|
|
Total
operating income of product groups
|
|
|
512 |
|
|
|
721 |
|
|
|
|
|
|
|
|
|
|
Operating
items not allocated to segments:
|
|
|
|
|
|
|
|
|
Impairment
on assets held for sale and related costs
|
|
|
(105 |
) |
|
|
(1,167 |
) |
Strategic
R&D and other R&D programs
|
|
|
(24 |
) |
|
|
(20 |
) |
Start-up
costs
|
|
|
(16 |
) |
|
|
(24 |
) |
Seniority
awards
|
|
|
- |
|
|
|
(21 |
) |
Other non-allocated
provisions
|
|
|
(7 |
) |
|
|
21 |
|
Non-recurring
purchase accounting expense related to inventory step-up
|
|
|
(110 |
) |
|
|
- |
|
Total
operating items not allocated to segments:
|
|
|
(262 |
) |
|
|
(1,211 |
) |
|
|
|
|
|
|
|
|
|
Further
unallocated IFRS adjustments:
|
|
|
|
|
|
|
|
|
IP
R&D expensed in US-GAAP
|
|
|
116 |
|
|
|
- |
|
Net
impact on capitalized development costs
|
|
|
138 |
|
|
|
87 |
|
Expenses
considered as "Impairment and restructuring expenses" in US-GAAP and as
"Cost of Sales", "R&D" or "SG&A" in IFRS
|
|
|
(255 |
) |
|
|
(179 |
) |
French
Research tax credit classified as "Income tax
benefit/(expense)"
|
|
|
- |
|
|
|
56 |
|
Other
differences related to ST-NXP Wireless business
combination
|
|
|
(96 |
) |
|
|
- |
|
Pension
differences
|
|
|
4 |
|
|
|
55 |
|
Others
non allocated expenses and US-GAAP to IFRS differences
|
|
|
(18 |
) |
|
|
65 |
|
Total of
adjustments to US-GAAP accounts to comply with
IFRS:
|
|
|
(111 |
) |
|
|
84 |
|
Operating
profit/(loss)
|
|
|
139 |
|
|
|
(406 |
) |
The
following is a summary of operations by entities located within the indicated
geographic areas for 2008 and 2007. Net revenues represent sales to third
parties from the country in which each entity is located. Non-current assets
consist of property, plant and equipment, goodwill, and intangible assets. 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 STMicroelectronics operates. As such, STMicroelectronics
mainly allocates capital spending resources according to geographic areas rather
than along product segment areas.
2008 Annual
Report of STMicroelectronics N.V.
Net
revenues
In
million of U.S dollars
|
|
Year
ended December 31, 2008
|
|
|
Year
ended December 31, 2007
|
|
The
Netherlands
|
|
|
2,737 |
|
|
|
3,123 |
|
France
|
|
|
178 |
|
|
|
223 |
|
Italy
|
|
|
185 |
|
|
|
220 |
|
USA
|
|
|
1,032 |
|
|
|
1,027 |
|
Singapore
|
|
|
4,939 |
|
|
|
4,795 |
|
Japan
|
|
|
492 |
|
|
|
483 |
|
Other
countries
|
|
|
279 |
|
|
|
130 |
|
Total
|
|
|
9,842 |
|
|
|
10,001 |
|
Non-current
assets
In
million of U.S dollars
|
|
Year
ended December 31, 2008
|
|
|
Year
ended December 31, 2007
|
|
The
Netherlands
|
|
|
1,080 |
|
|
|
1,002 |
|
France
|
|
|
1,765 |
|
|
|
1,906 |
|
Italy
|
|
|
1,037 |
|
|
|
1,262 |
|
Other
European countries
|
|
|
2,089 |
|
|
|
186 |
|
USA
|
|
|
239 |
|
|
|
373 |
|
Singapore
|
|
|
678 |
|
|
|
735 |
|
Malaysia
|
|
|
306 |
|
|
|
288 |
|
Other
countries
|
|
|
361 |
|
|
|
379 |
|
Total
|
|
|
7,555 |
|
|
|
6,131 |
|
2008 Annual Report of
STMicroelectronics N.V.
Payments
for purchase of non-current assets
In
million of U.S dollars
|
|
Year
ended December 31, 2008
|
|
|
Year
ended December 31, 2007
|
|
The
Netherlands
|
|
|
22 |
|
|
|
44 |
|
France
|
|
|
472 |
|
|
|
407 |
|
Italy
|
|
|
141 |
|
|
|
288 |
|
Switzerland
|
|
|
375 |
|
|
|
375 |
|
Other
European countries
|
|
|
66 |
|
|
|
53 |
|
USA
|
|
|
2 |
|
|
|
47 |
|
Singapore
|
|
|
110 |
|
|
|
180 |
|
Malaysia
|
|
|
104 |
|
|
|
99 |
|
Other
countries
|
|
|
104 |
|
|
|
83 |
|
Total
|
|
|
1,396 |
|
|
|
1,576 |
|
38
— SIGNIFICANT CATEGORIES OF INCOME
|
|
Year
ended December
31, 2008
|
|
|
Year
ended December
31, 2007
|
|
|
|
|
|
|
|
|
Sales
of goods
|
|
|
9,792 |
|
|
|
9,966 |
|
License
revenue and patent royalty income
|
|
|
50 |
|
|
|
35 |
|
Research
tax credit recognized in Research and development
|
|
|
117 |
|
|
|
- |
|
Research
and development funding recognized in Other income
|
|
|
83 |
|
|
|
152 |
|
Finance
income
|
|
|
145 |
|
|
|
156 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,187 |
|
|
|
10,309 |
|
As
discussed in Note 4, on February 1, 2009, STMicroelectronics exercised its
option to purchase the 20% non-controlling interest of NXP in ST-NXP Wireless
for a price of $92 million.
Also as
discussed Note 32, on February 3, 2009, STMicroelectronics announced the closing
of a transaction to combine the businesses of Ericsson Mobile Platforms and
ST-NXP Wireless into a new group of entities, to be named ST Ericsson. The
transaction was completed on the terms originally announced on August 20, 2008.
ST Ericsson will be conducted through two sub-groups, one of which will be owned
and controlled as to 50% plus controlling shares by ST and be responsible for
the full commercial operation of the combined businesses, namely sales,
marketing, supply and the full product responsibility. The other will be owned
and controlled as to 50% plus controlling shares by Ericsson and will be focused
on selected strategic R&D activities. In addition to the contributions by ST
and Ericsson of their respective businesses to the venture, Ericsson contributed
$1,100 million net in cash to the new group of entities, out of which $700
million was paid to STMicroelectronics. The transaction will be
accounted for as a business combination, and it is anticipated that
STMicroelectronics will consolidate the venture entity that it controls and
account for its non-controlling interest in the other venture entity under the
equity method of accounting. The purchase price accounting for the transaction
has not yet been completed.
2008 Annual Report of
STMicroelectronics N.V.
As
previously disclosed in the Note 5 and in public filings, STMicroelectronics had
instituted arbitration proceedings against Credit Suisse in connection with the
unauthorized purchase by Credit Suisse of collateralized debt obligations and
credit link notes (the “Securities”) instead of the Federally guaranteed student
loan securities that had been specifically mandated by STMicroelectronics for
purchase. On February 12, 2009 an arbitration panel of the Financial Industry
Regulatory Authority (“FINRA”) awarded STMicroelectronics an amount of
approximately $406 million comprising compensatory damages, as well as interest,
attorney's fees, and consequential damages, which were assessed against Credit
Suisse. In addition, STMicroelectronics is entitled to retain the about $25
million interest award which had already been paid. In return,
STMicroelectronics will transfer ownership of the Securities to Credit Suisse.
On February 17, 2009, STMicroelectronics filed a petition in the United States
District Court for the Southern District of New York seeking confirmation of the
FINRA award. Credit Suisse has responded by seeking to vacate the FINRA award.
Pending final decision on the enforceability of the FINRA award, and as
described in Note 5, STMicroelectronics computes the value of the Securities
consistent with its accounting policies. Accordingly, the Securities, with a par
value of $415 million, were carried on STMicroelectronics’s books at
December 31, 2008 as non-current financial assets at a value of $242 million, as
the result of impairment charges recorded against income in 2007 and 2008.
During the first quarter of 2009, the valuation of the Securities, computed on
the same basis as described in Note 5, declined by $58 million. Payment by
Credit Suisse of the FINRA award is expected to result in a gain in
STMicroelectronics’s consolidated statement of income corresponding to the
difference between the amount of the FINRA award plus applicable interest to be
paid to STMicroelectronics by Credit Suisse, less related costs and the then
current carrying amount in ST books of the Securities, which will be transferred
by STMicroelectronics to Credit Suisse as required by the FINRA
award.
Due to
deterioration of both the global economic situation and the memory market
segment, as well as Numonyx’s revision to its 2009 projected results,
STMicroelectronics re-assessed the fair value of its equity investment in
Numonyx during the first quarter and, as a result, recorded a $200 million
impairment charge in the period. The calculation of the impairment was based
upon a combination of an income approach, using discounted cash flows, and a
market approach, using metrics of comparable public companies.
2008
Annual Report of STMicroelectronics N.V.
COMPANY
FINANCIAL STATEMENTS
COMPANY
BALANCE SHEETS AS AT DECEMBER 31, 2008 AND 2007
COMPANY
STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2008 AND 2007
NOTES TO
STMICROELECTRONICS FINANCIAL STATEMENTS
OTHER
INFORMATION
AUDITOR’S
REPORT
APPROPRIATION
OF RESULT
PROPOSED
CASH DIVIDENDS
SUBSEQUENT
EVENTS
2008
Annual Report of STMicroelectronics N.V.
STMICROELECTRONICS
N.V. COMPANY BALANCE SHEETS
(before
proposed appropriation of income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
million of U.S. dollars
|
|
Note
|
|
|
|
|
|
|
|
In
million of U.S. dollars
|
|
Note
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY AND LIABILITIES
|
|
|
|
|
|
|
|
|
|
Non-current
assets:
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
13 |
|
|
|
|
|
|
|
Goodwill
|
|
|
4 |
|
|
|
148 |
|
|
|
186 |
|
Issued
and paid in capital
|
|
|
|
|
|
|
1,331 |
|
|
|
1,394 |
|
Other
intangibles assets
|
|
|
4 |
|
|
|
694 |
|
|
|
795 |
|
Additional
paid in capital
|
|
|
|
|
|
|
1,719 |
|
|
|
1,588 |
|
Property,
plant and equipment
|
|
|
5 |
|
|
|
11 |
|
|
|
8 |
|
Retained
earnings
|
|
|
|
|
|
|
4,524 |
|
|
|
5,481 |
|
Investments
in subsidiaries
|
|
|
6 |
|
|
|
8,035 |
|
|
|
6,907 |
|
Legal
reserve
|
|
|
|
|
|
|
1,123 |
|
|
|
1,207 |
|
Investments
in associates
|
|
|
7 |
|
|
|
510 |
|
|
|
- |
|
Other
Reserves
|
|
|
|
|
|
|
581 |
|
|
|
722 |
|
Restricted
cash for equity investments
|
|
|
16 |
|
|
|
250 |
|
|
|
250 |
|
Result
for the year
|
|
|
|
|
|
|
(519 |
) |
|
|
(439 |
) |
Available-for-sale
financial assets
|
|
|
8 |
|
|
|
439 |
|
|
|
390 |
|
Total
shareholders’ equity
|
|
|
|
|
|
|
8,759 |
|
|
|
9,953 |
|
Long-term
loans and receivables
|
|
|
|
|
|
|
6 |
|
|
|
4 |
|
Provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
non-current assets
|
|
|
|
|
|
|
21 |
|
|
|
31 |
|
Retirement
benefit obligations
|
|
|
20 |
|
|
|
5 |
|
|
|
6 |
|
Subtotal
non-current assets
|
|
|
|
|
|
|
10,114 |
|
|
|
8,571 |
|
Deferred
tax liabilities
|
|
|
15 |
|
|
|
132 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Provisions
|
|
|
|
|
|
|
137 |
|
|
|
116 |
|
Long-term
deferred tax assets
|
|
|
15 |
|
|
|
73 |
|
|
|
31 |
|
Long-term
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-current assets
|
|
|
|
|
|
|
10,187 |
|
|
|
8,602 |
|
Long-term
debt
|
|
|
14 |
|
|
|
1495 |
|
|
|
984 |
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
non-current liabilities
|
|
|
16 |
|
|
|
450 |
|
|
|
303 |
|
Inventories
|
|
|
9 |
|
|
|
62 |
|
|
|
106 |
|
Total
long-term liabilities
|
|
|
|
|
|
|
1.945 |
|
|
|
1,287 |
|
Trade
account receivable
|
|
|
10 |
|
|
|
251 |
|
|
|
386 |
|
Short-term
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Group
companies short-term loans
|
|
|
11 |
|
|
|
592 |
|
|
|
638 |
|
Current
portion of long-term debt
|
|
|
14 |
|
|
|
29 |
|
|
|
2 |
|
Other
group companies receivables
|
|
|
12 |
|
|
|
1397 |
|
|
|
1,260 |
|
Trade
accounts payable
|
|
|
|
|
|
|
30 |
|
|
|
36 |
|
Assets
Held for Sale
|
|
|
|
|
|
|
- |
|
|
|
322 |
|
Group
companies short term notes payable
|
|
|
12 |
|
|
|
25 |
|
|
|
27 |
|
Other
Receivables
|
|
|
|
|
|
|
56 |
|
|
|
44 |
|
Other
group companies payable
|
|
|
12 |
|
|
|
2,317 |
|
|
|
1,317 |
|
Other
current assets
|
|
|
|
|
|
|
73 |
|
|
|
39 |
|
Other
payables and accrued liabilities
|
|
|
|
|
|
|
213 |
|
|
|
48 |
|
Available
for sale financial assets
|
|
|
8 |
|
|
|
357 |
|
|
|
454 |
|
Accrued
income tax
|
|
|
|
|
|
|
20 |
|
|
|
14 |
|
Cash
and cash equivalents
|
|
|
|
|
|
|
500 |
|
|
|
949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
|
|
|
|
3,288 |
|
|
|
4,198 |
|
Total
short-term liabilities
|
|
|
|
|
|
|
2,634 |
|
|
|
1,444 |
|
|
|
|
|
|
|
|
13,475 |
|
|
|
12,800 |
|
TOTAL
SHAREHOLDERS’ EQUITY AND LIABILITIES
|
|
|
|
|
|
|
13,475 |
|
|
|
12,800 |
|
The
accompanying notes are an integral part of these financial
statements.
2008
Annual Report of STMicroelectronics N.V.
STMICROELECTRONICS
N.V. COMPANY
STATEMENTS
OF INCOME
|
|
|
|
|
|
|
(In
million of U.S. dollars)
|
|
|
|
Result
after taxes
|
|
|
(1,395 |
) |
|
|
275 |
|
Result
from subsidiaries
|
|
|
876 |
|
|
|
(714 |
) |
Net
Result
|
|
|
(519 |
) |
|
|
(439 |
) |
The
accompanying notes are an integral part of these financial
statements.
2008
Annual Report of STMicroelectronics N.V.
STMICROELECTRONICS
N.V.
NOTES
TO STMICROELECTRONICS FINANCIAL STATEMENTS
A
description of STMicroelectronics N.V. (“STMicroelectronics”), its activities
and group structure are included in the Consolidated Financial Statements,
prepared on the basis of accounting policies that conform to International
Financial Reporting Standards (“IFRS”) as endorsed by European Union.
STMicroelectronics holds investments in subsidiaries operating in the
semiconductor manufacturing industry. Additionally, STMicroelectronics operates
through a branch in Switzerland, which markets a broad range of semiconductor
integrated circuits and devices used in a wide variety of microelectronic
applications.
2
— BASIS OF PRESENTATION
In
accordance with article 2:362 Part 8 of the Netherlands Civil Code,
STMicroelectronics N.V. (“STMicroelectronics”) has prepared its company
financial statements in accordance with accounting principles generally accepted
in the Netherlands applying the accounting principles as adopted in the
consolidated financial statements and further described in details in the
consolidated financial statements (Note 2).
The
functional and presentation currency of STMicroelectronics is the U.S.
dollar.
All
balances and values are in million of U.S. dollars, except otherwise
noted.
3
— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Subsidiaries
Subsidiaries
are all entities over which STMicroelectronics has the power to govern the
financial and operating policies generally accompanying a shareholding of more
than one half of the voting rights. The existence and effect of potential voting
rights that are currently exercisable or convertible are considered when
assessing whether STMicroelectronics controls another entity.
Subsidiaries
are fully consolidated from the date on which control is transferred to
STMicroelectronics. They are de-consolidated from the date that control
ceases.
Valuation
of Subsidiaries
Investments
in subsidiaries are stated at net asset value as STMicroelectronics effectively
controls the operational and financial activities of these investments. The net
asset value is determined on the basis of the IFRS accounting principles applied
by STMicroelectronics in its consolidated financial statements.
STMicroelectronics
records a provision for negative net asset values in its subsidiaries when
STMicroelectronics is fully or partially liable for the debts of its
subsidiaries. Guarantees given by STMicroelectronics to its subsidiaries are
further described in note 18.
Associates
Associates
include all entities over which STMicroelectronics has significant influence but
not control, generally accompanying 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. They are presented on the face
of the consolidated balance sheet as “Investments in associates”.
The
Group’s share in its associates' profit and losses is recognized in the
consolidated income statement as “Share of gain (loss) of associates” and in the
balance sheet as an adjustment against the carrying amount of the associate, and
its share of post acquisition movement in reserves is recognized in
reserves.
2008
Annual Report of STMicroelectronics N.V.
The
cumulative post acquisition movements are adjusted against the carrying amount
of the investment. When STMicroelectronics’s share of losses in an associate
equals or exceeds its interest in the associate, including any unsecured
receivable, the Group does not recognize further losses, unless it has incurred
obligations or made payments on behalf of the associate.
Unrealized
gains on transactions between STMicroelectronics and its associates are
eliminated to the extent of the Group’s interest in the associates. Unrealized
losses are also eliminated unless the transaction provides evidence of an
impairment of the asset transferred. Accounting policies of associates are
consistent with the policies adopted by STMicroelectronics.
|
|
|
|
|
Technologies
and licenses, internally developed software and purchase
software
|
|
|
Capitalized
development costs
|
|
|
|
|
HISTORICAL
COST
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2008
|
|
|
186 |
|
|
|
538 |
|
|
|
711 |
|
|
|
1,435 |
|
Additions
|
|
|
20 |
|
|
|
118 |
|
|
|
196 |
|
|
|
334 |
|
Disposal
|
|
|
(58 |
) |
|
|
(100 |
) |
|
|
(98 |
) |
|
|
(256 |
) |
Impairments
|
|
|
- |
|
|
|
(20 |
) |
|
|
(69 |
) |
|
|
(89 |
) |
Balance
at December 31, 2008
|
|
|
148 |
|
|
|
536 |
|
|
|
740 |
|
|
|
1424 |
|
ACCUMULATED
AMORTIZATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2008
|
|
|
- |
|
|
|
(349 |
) |
|
|
(105 |
) |
|
|
(454 |
) |
Disposal
|
|
|
- |
|
|
|
47 |
|
|
|
13 |
|
|
|
60 |
|
Charge
for the year
|
|
|
- |
|
|
|
(65 |
) |
|
|
(123 |
) |
|
|
(188 |
) |
Balance
at December 31, 2008
|
|
|
- |
|
|
|
(367 |
) |
|
|
(215 |
) |
|
|
(582 |
) |
NET
BOOK VALUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31 , 2008
|
|
|
148 |
|
|
|
169 |
|
|
|
525 |
|
|
|
842 |
|
At
December 31, 2007
|
|
|
186 |
|
|
|
190 |
|
|
|
606 |
|
|
|
982 |
|
|
|
|
|
|
Computer
and R&D equipment
|
|
|
|
|
|
|
|
HISTORICAL
COST
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2008
|
|
|
3 |
|
|
|
14 |
|
|
|
3 |
|
|
|
20 |
|
Additions
|
|
|
- |
|
|
|
11 |
|
|
|
1 |
|
|
|
12 |
|
Disposals
|
|
|
(1 |
) |
|
|
(8 |
) |
|
|
- |
|
|
|
(9 |
) |
Balance
at December 31, 2008
|
|
|
2 |
|
|
|
17 |
|
|
|
4 |
|
|
|
23 |
|
ACCUMULATED
DEPRECIATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2008
|
|
|
1 |
|
|
|
8 |
|
|
|
3 |
|
|
|
12 |
|
Charge
for the year
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
2 |
|
Disposals
|
|
|
- |
|
|
|
(2 |
) |
|
|
- |
|
|
|
(2 |
) |
Balance
at December 31, 2008
|
|
|
1 |
|
|
|
8 |
|
|
|
3 |
|
|
|
12 |
|
NET
BOOK VALUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2008
|
|
|
1 |
|
|
|
9 |
|
|
|
1 |
|
|
|
11 |
|
At
December 31, 2007
|
|
|
1 |
|
|
|
6 |
|
|
|
1 |
|
|
|
8 |
|
2008 Annual Report of
STMicroelectronics N.V.
6
— INVESTMENTS
IN SUBSIDIARIES
|
|
|
|
|
|
|
Balance
January 1,
|
|
|
6,907 |
|
|
|
7,438 |
|
Income
from subsidiaries
|
|
|
876 |
|
|
|
(714 |
) |
Changes
in other reserves of subsidiaries
|
|
|
116 |
|
|
|
196 |
|
Dividends
paid
|
|
|
(1,026 |
) |
|
|
(911 |
) |
Capital
increase (net of capital decreases)*
|
|
|
1,349 |
|
|
|
440 |
|
Translation
effect of exchange rates
|
|
|
(187 |
) |
|
|
458 |
|
Balance
at December 31,
|
|
|
8,035 |
|
|
|
6,907 |
|
Net
capital increases in 2008 reflect investments in ST-NXP Wireless and Genesis
Microchip (note 4 to our consolidated financial Statements) and the Numonyx
transaction (note 7 to our Company financial Statements below). 2007 capital
increase relates to capital contribution to subsidiaries in Malaysia and China,
for a total amount of $305 million.
The
investments in significant consolidated subsidiaries as at December 31, 2008 are
presented below:
Legal
Seat
|
Name
|
Percentage
ownership (direct or indirect)
|
|
|
|
Australia
– Sydney
|
STMicroelectronics
PTY Ltd
|
100
|
Belgium
– Leuven
|
NF
Belgium NV*
|
80
|
Belgium
– Zaventem
|
STMicroelectronics
Belgium N.V. *
|
80
|
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
– 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
|
China
– Shanghai
|
STMicroelectronics
(Shanghai) Co. Ltd
|
100
|
China
– Shanghai
|
STMicroelectronics
(Shanghai) R&D Co. Ltd
|
100
|
China
– Shanghai
|
Shanghai
Blue Media Co. Ltd
|
65
|
China
– Shanghai
|
STMicroelectronics
(China) Investment Co. Ltd
|
100
|
China
– Shanghai
|
Shanghai
NF Wireless Trading Co. Ltd*
|
80
|
China
– Shanghai
|
Shanghai
NF Wireless Technology Co. Ltd*
|
80
|
China
– Beijing
|
STMicroelectronics
(Beijing) R&D Co. Ltd
|
100
|
China
– Beijing
|
Beijing
T3G Technology Co. Ltd*
|
80
|
Czech
Republic – Prague
|
STMicroelectronics
Design and Application s.r.o.
|
100
|
Czech
Republic – Prague
|
STN
Wireless Sro*
|
80
|
Finland
– Lohja
|
STMicroelectronics
OY*
|
80
|
Finland
– Helsinki
|
STMicroelectronics
R&D OY*
|
80
|
France
– Crolles
|
STMicroelectronics
(Crolles 2) SAS
|
100
|
France
– Montrouge
|
STMicroelectronics
S.A.
|
100
|
France
– Paris
|
ST-NXP
Wireless France SAS*
|
80
|
2008 Annual
Report of STMicroelectronics N.V.
France
– Rousset
|
STMicroelectronics
(Rousset) SAS
|
100
|
France
– Tours
|
STMicroelectronics
(Tours) SAS
|
100
|
France
– Grenoble
|
STMicroelectronics
(Grenoble 2) SAS
|
100
|
France
– Grenoble
|
STMicroelectronics
Wireless SAS*
|
80
|
Germany
– Grasbrunn
|
STMicroelectronics
GmbH
|
100
|
Germany
– Grasbrunn
|
STMicroelectronics
Design and Application GmbH
|
100
|
Germany
– Grasbrunn
|
NXP
Falcon Germany GmbH*
|
80
|
Holland
– Amsterdam
|
STMicroelectronics
Finance B.V.
|
100
|
Holland
– Luchtaven
|
ST
Wireless (holding) NV*
|
80
|
Holland
– Eindhoven
|
NXP
Wireless Holding 1 BV*
|
80
|
Holland
– Eindhoven
|
NXP
Wireless Holding 2 BV*
|
80
|
Hong
Kong – Hong Kong
|
STMicroelectronics
LTD
|
100
|
India
– Noida
|
STMicroelectronics
Pvt Ltd
|
100
|
India
– Noida
|
STMicroelectronics
(Wireless) Private Limited*
|
80
|
India
– New Delhi
|
STMicroelectronics
Marketing Pvt Ltd
|
100
|
India
– Bangalore
|
Genesis
Microchip (India) Pvt Ltd
|
100
|
India
– Bangalore
|
NF
Wireless India Pvt Ltd*
|
80
|
Ireland
– Dublin
|
NXP
Falcon Ireland Ltd*
|
80
|
Israel
– Netanya
|
STMicroelectronics
Ltd
|
100
|
Italy
– Catania
|
CO.RI.M.ME.
|
100
|
Italy
– Aosta
|
DORA
S.p.a.
|
100
|
Italy
– Agrate Brianza
|
ST
Incard S.r.l.
|
100
|
Italy
– Naples
|
STMicroelectronics
Services S.r.l.
|
100
|
Italy
- Agrate Brianza
|
STMicroelectronics
S.r.l.
|
100
|
Italy
– Agrate Brianza
|
ST
Wireless Italy Srl*
|
80
|
Japan
– Tokyo
|
STMicroelectronics
KK
|
100
|
Japan
– Tokyo
|
NF
Wireless Japan KK*
|
80
|
Japan
– Tokyo
|
Genesis
Japan KK
|
100
|
Japan
|
ST
Wireless KK
|
80
|
Korea
– Seoul
|
ST-NXP
Wireless Korea Ltd*
|
80
|
Malaysia
- Kuala Lumpur
|
STMicroelectronics
Marketing SDN BHD
|
100
|
Malaysia
– Muar
|
STMicroelectronics
SDN BHD
|
100
|
Malaysia
– Muar
|
STMicroelectronics
(Wireless) SDN.BHD*
|
80
|
Malta
– Kirkop
|
STMicroelectronics
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
– Rabat
|
Electronic
Holding S.A.
|
100
|
Morocco
– Casablanca
|
STMicroelectronics
S.A.
|
100
|
Morocco
– Rabat
|
STMicroelectronics
Wireless Maroc SAS*
|
80
|
Philippines
– Calamba
|
STMicroelectronics
Wireless Inc. *
|
80
|
Philippines
– Calamba
|
NF
Philippines Inc*
|
80
|
Singapore
– Ang Mo Kio
|
STMicroelectronics
ASIA PACIFIC Pte Ltd
|
100
|
Singapore
– Ang Mo Kio
|
STMicroelectronics
Pte Ltd
|
100
|
Singapore
– Ang Mo Kio
|
ST
Wireless Asia Pac Pte Ltd*
|
80
|
Singapore
– Singapore
|
NF
Singapore Pte Ltd*
|
80
|
Spain
– Madrid
|
STMicroelectronics
S.A.
|
100
|
2008 Annual
Report of STMicroelectronics N.V.
Sweden
– Kista
|
STMicroelectronics
A.B.
|
100
|
Sweden
– Stockholm
|
ST
Wireless AB*
|
80
|
Switzerland
– Geneva
|
STMicroelectronics
S.A.
|
100
|
Switzerland
– Geneva
|
INCARD
SA
|
100
|
Switzerland
– Geneva
|
INCARD
Sales and Marketing SA
|
100
|
Switzerland
– Geneva
|
ST
Wireless SA*
|
80
|
Switzerland
– Zurich
|
ST-NXP
Wireless (Holding) AG*
|
80
|
Taiwan
– Taipei
|
NF
Taiwan Ltd*
|
80
|
Turkey
– Istanbul
|
STMicroelectronics
Elektronik Arastirma ve Gelistirme Anonim Sirketi*
|
80
|
United
Kingdom – Marlow
|
STMicroelectronics
Limited
|
100
|
United
Kingdom – Marlow
|
STMicroelectronics
(Research & Development) Limited
|
100
|
United
Kingdom – Bristol
|
Inmos
Limited
|
100
|
United
Kingdom – Bristol
|
STMicroelectronics
Wireless Ltd*
|
80
|
United
Kingdom – Reading
|
Synad
Technologies Limited
|
100
|
United
Kingdom
|
NF
UK, Ltd*
|
80
|
United
States – Carrollton
|
STMicroelectronics
Inc.
|
100
|
United
States – Carrollton
|
ST-NXP
Wireless Inc. *
|
80
|
United
States – Carrollton
|
Genesis
Microchip Inc, A Delaware Corporation
|
100
|
United
States – Carrollton
|
Genesis
Microchip (Del) Inc.
|
100
|
United
States
|
Genesis
Microchip LLC
|
100
|
United
States
|
Genesis
Microchip Limited Partnership
|
100
|
United
States
|
Sage
Inc
|
100
|
United
States
|
Faroudja
Inc
|
100
|
United
States
|
Faroudja
Laboratories, Inc.
|
100
|
United
States – Wilmington
|
STMicroelectronics
(North America) Holding, Inc.
|
100
|
United
States – Wilsonville
|
The
Portland Group, Inc.
|
100
|
* These
entities are part of ST-NXP Wireless, and as of February 1, 2009, they have been
transferred to ST-Ericsson, in which STMicroelectronics owns 50%.
7
— INVESTMENTS IN ASSOCIATES
|
|
|
|
|
|
|
Beginning
of the year
|
|
|
- |
|
|
|
261 |
|
Acquisition
of investments:
|
|
|
|
|
|
|
|
|
ATLab
Inc.
|
|
|
3 |
|
|
|
- |
|
Veredus
Laboratoires Pte. Ltd.
|
|
|
11 |
|
|
|
- |
|
Numonyx
Holdings B.V.
|
|
|
496 |
|
|
|
- |
|
Hynix
ST
Guarantee
|
|
|
- |
|
|
|
2 |
|
Share
of gain/ (loss) of
associates
|
|
|
- |
|
|
|
10 |
|
Foreign
currency translation
differences
|
|
|
- |
|
|
|
16 |
|
Transfer
of guarantee to non-current asset
|
|
|
- |
|
|
|
(17 |
) |
Sale
of investments:
|
|
|
|
|
|
|
|
|
Hynix
ST investment held for sale
|
|
|
- |
|
|
|
(272 |
) |
End
of the
year
|
|
|
510 |
|
|
|
- |
|
As of
December 31, 2008, STMicroelectronics owns 41.2% of Veredus, 8.1% of ATLab Inc.
(“Atlab”) and 48.6% of Numonyx B.V. and accounts for these
investments in associates using the equity method.
2008
Annual Report of STMicroelectronics N.V.
Numonyx
In 2007,
STMicroelectronics announced that it had entered into an agreement with Intel
Corporation and Francisco Partners L.P. to create a new independent
semiconductor company from the key assets of STMicroelectronics’s Flash Memory
Group and Intel’s flash memory business (“FMG deconsolidation”). Under the terms
of the agreement, STMicroelectronics would sell its flash memory assets,
including its Hynix-ST investment, a NAND9 joint venture interest
with Hynix Semiconductor Inc. and other NOR10 resources, to the new
company, which was called Numonyx Holdings B.V. (“Numonyx”), while Intel would
sell its NOR assets and resources.
STMicroelectronics’s
current maximum exposure to loss as a result of its involvement with Numonyx is
limited to its fair value of the investment in associate as per IFRS, including
its investment in subordinated notes and its debt guarantee obligation, totaling
$664 million.
In the
recognition of its share of results in Numonyx, STMicroelectronics applies a
one-quarter lag reporting. Consequently, its share of the results of Numonyx up
to September 2008 has been reported by STMicroelectronics in its results for the
period ended on December 31, 2008. Numonyx had no transactions in the three
months ended December 31, 2008 that would require an adjustment for
STMicroelectronics's results.
Summarized
IFRS financial information for Numonyx (unaudited), as of September 27, 2008 and
for the six months then ended that, because of the one-quarter lag discussed
above, corresponds to the amounts included in STMicroelectronics’s Consolidated
Financial Statements as of December 31, 2008 and for the twelve months then
ended, are as follows:
Statement
of Income Information:
|
|
Net
sales
|
1,165
|
Gross
profit
|
266
|
Net
result
|
(119)
|
Balance
sheet information:
|
|
Non
current assets
|
1,427
|
Current
assets
|
1,614
|
Non
current liabilities
|
865
|
Current
liabilities
|
512
|
Net
worth
|
1,664
|
For more
details on the Numonyx transaction and related balances, please see our Notes to
consolidated financial statements and specifically note 3. Numonyx Holdings B.V.
is registered in the Netherlands.
Veredus
In 2008,
the Company acquired 41.2% of ownership interest in Veredus Laboratories Pte.
Ltd (“Veredus”), a company located in Singapore which sells diagnostic solutions
to the medical market. The acquisition amounted to $11 million and was fully
paid in 2008. The investment is aimed at joining forces with established and
growing players in the medical diagnostic market, accelerating thus market
adoption of the Company’s LabOnCHip technology and products. The Company
accounted for its interest in Veredus under the equity method.
9 NAND
Flash : A type of non-volatile memory circuit that can be electrically erased
and reprogrammed and allows for
block-level access to memory cells.
10 NOR
Flash : A type of non-volatile memory circuit that can be electrically erased
and reprogrammed and allows for random access to any memory
cell.
2008
Annual Report of STMicroelectronics N.V.
The
Company’s share in 2008 result of Veredus, reported on the line “Share of gain
(loss) of associates” of the consolidated statement of income for the year ended
December 31, 2008 was not material.
In the
recognition of its share of results in Veredus, the Company applies a
one-quarter lag reporting. Consequently, its share of the results of Veredus up
to September 2008 has been reported by the Company in its results for the period
ended on December 31, 2008. Veredus had no transactions in the three months
ended December 31, 2008 that would require an adjustment for the Company's
results.
ATLab
In 2008
the Company acquired 8.1% of ATLab Inc. (“Atlab”), a company located in the
Republic of Korea which is a fabless semiconductor company specialized in
mixed-signal System-on-Chip (SoC). The acquisition amounted to $3 million and
was fully paid in 2008. The Company reviewed the extent of its control over
Atlab in light of IAS28 and determined that it had significant influence. As a
result Atlab is considered as an associate and valued under the equity method.
The Company’s share in 2008 result of Atlab, reported on the line “Share of gain
(loss) of associates” of the consolidated statement of income for the year ended
December 31, 2008 was not material.
8
— AVAILABLE-FOR-SALE FINANCIAL ASSETS
Movements
on available-for-sale financial assets are presented as follows:
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
Beginning
of the year
|
|
|
844 |
|
|
|
788 |
|
Exchange
differences
|
|
|
- |
|
|
|
16 |
|
Long
term subordinated notes
|
|
|
168 |
|
|
|
|
|
Purchase
of listed debt securities (floating rate notes)
|
|
|
- |
|
|
|
18 |
|
Sale
of listed debt securities (floating rate notes)
|
|
|
(90 |
) |
|
|
(40 |
) |
Purchase
of unlisted equity securities
|
|
|
18 |
|
|
|
- |
|
Impairment
on unlisted equity securities
|
|
|
(7 |
) |
|
|
- |
|
Purchase
of unlisted debt securities (auction rate notes)
|
|
|
- |
|
|
|
172 |
|
Sale
of unlisted debt securities (auction rate notes)
|
|
|
- |
|
|
|
(61 |
) |
Change
in fair value of listed debt securities (floating rate
notes)
|
|
|
(10 |
) |
|
|
- |
|
Impairment
of listed debt securities (floating rate notes)
|
|
|
- |
|
|
|
(3 |
) |
Net
losses on auction rate notes recognised in statements of
income
|
|
|
(127 |
) |
|
|
(46 |
) |
End
of the year
|
|
|
796 |
|
|
|
844 |
|
Less:
non-current portion
|
|
|
(439 |
) |
|
|
(390 |
) |
Current
portion
|
|
|
357 |
|
|
|
454 |
|
Long-term
subordinated notes
STMicroelectronics
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 notes are reported on the line “Available-for-sale
financial assets” (long-term). The nominal value of the notes was incremented in
2008 by $11 million of paid-in-kind of interest receivable. The aggregate fair
value of Numonyx long-term notes as of December 31, 2008 was $168 million. Fair
value measurement is based on publicly available swap rates for fixed income
obligations with similar maturities.
Investments
in debt securities
As at
December 31, 2008, STMicroelectronics had investments in marketable debt
securities with an aggregate fair value of $599 million, composed of $357
million invested in senior debt floating rate notes issued by primary financial
institutions with an average rating excluding impaired debt securities as
detailed below of Aa2/A+ and $242 million invested in auction rate securities,
representing interest in collateralized obligations and credit link
notes.
The
floating rate notes are reported as current assets on the line
“Available-for-sale financial assets” on the balance sheet as at December 31,
2008, since they represent investments of funds available for current
operations.
2008
Annual Report of STMicroelectronics N.V.
The
auction-rate securities, which have a final maturity between 10 and 40 years,
were purchased in STMicroelectronics’s account by Credit Suisse Securities LLC
contrary to STMicroelectronics’s instructions. They are classified as
non-current assets on the line “available-fro-sale financial assets” as at
December 31, 2008.
On the
auction-rate securities, STMicroelectronics reported an impairment amounting to
$127 million and $46 million in 2008 and 2007, respectively. Until December 31,
2007, the fair value of these debt securities, for which there are no observable
secondary market trades, was measured: (i) based on the weighted average of
available information from public indexes as described above and (ii) using
‘mark to market’ bids and ‘mark to model’ valuations received from the
structuring financial institutions of the outstanding auction rate securities,
weighting the different information at 80% and 20% respectively. In 2008, no
information regarding “mark-to-market” bids and “mark-to-model” valuations from
the structuring financial institutions for these securities was available.
Consequently, the fair value measure of these securities 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 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
STMicroelectronics believes approximates the orderly exit value in the current
market. The additional impairment recorded in 2008 reflected downgrading events
on the collateral debt obligations comparing the relevant ABX indexes at a lower
rating category and a general negative trend of the corporate debt market. The
estimated value of the collateralized debt obligation could further decrease in
the future as a result of credit market deterioration and/or other downgrading.
The estimated value of the corporate debt securities could also further decrease
in the future due to a deterioration of the corporate industry indexes used for
the evaluation.
STMicroelectronics
sold $90 million of floating rate notes in 2008. The purpose of these sales was
primarily to generate cash to fund the payment for NXP wireless business
integration. No significant gain or loss was included in earnings as a result of
these sales, as reported in the statement of income for the year ended December
31, 2008.
The
maximum exposure to market risk is the fair value of the debt securities
classified as available for sale.
Available-for-sale
financial assets include the following:
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
Listed
securities:
|
|
|
|
|
|
|
Floating-rate
Notes in U.S. dollars
|
|
|
357 |
|
|
|
454 |
|
|
|
|
|
|
|
|
|
|
Unlisted
securities:
|
|
|
|
|
|
|
|
|
Auction
rate Securities in U.S. dollars
|
|
|
242 |
|
|
|
369 |
|
|
|
|
|
|
|
|
|
|
Unlisted
equity securities:
|
|
|
|
|
|
|
|
|
Equity
securities – Euro zone countries
|
|
|
10 |
|
|
|
10 |
|
Equity
securities – US
|
|
|
187 |
|
|
|
11 |
|
Total
|
|
|
796 |
|
|
|
844 |
|
Available-for-sale
financial assets are denominated in the following currencies:
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
Euro
|
|
|
10 |
|
|
|
- |
|
US
dollar
|
|
|
786 |
|
|
|
844 |
|
Other
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
796 |
|
|
|
844 |
|
For
further details on STMicroelectronics’s available for sale financial asset, see
the consolidated financial statements of STMicroelectronics (Note
5).
2008
Annual Report of STMicroelectronics N.V.
The
balance for inventories contains only finished goods.
Trade
accounts receivable consisted of the following:
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
253 |
|
|
|
390 |
|
Provision
for impairment
|
|
|
(2 |
) |
|
|
(4 |
) |
Total
|
|
|
251 |
|
|
|
386 |
|
Trade
receivables are expected to be recovered within one year.
11
— GROUP COMPANIES SHORT-TERM LOANS
Group
companies short-term loans consisted of the following:
|
|
|
|
|
|
|
ST
Incard SA (Switzerland)
|
|
|
|
|
|
|
Loan
due 2009 bearing interest at 3-month LIBOR plus 0.50%
|
|
|
63 |
|
|
|
66 |
|
STMicroelectronics
Ltd. (Israel)
|
|
|
|
|
|
|
|
|
Interest-free
loan due 2009
|
|
|
5 |
|
|
|
5 |
|
STMicroelecronics
Finance B.V (Netherlands)
|
|
|
|
|
|
|
|
|
Loan
due 2009 bearing interest at 1-month EURIBOR
|
|
|
311 |
|
|
|
565 |
|
ST
Microelectronics Inc. (USA)
|
|
|
|
|
|
|
|
|
Loan
due 2009 bearing interest at 3-month LIBOR
|
|
|
212 |
|
|
|
- |
|
STMicroelectronics
A.S. (Turkey)
|
|
|
|
|
|
|
|
|
Loan
due 2009 bearing interest at 3-month LIBOR plus 0.0625%
|
|
|
1 |
|
|
|
2 |
|
Total
short-term intercompany loans
|
|
|
592 |
|
|
|
638 |
|
12
— OTHER GROUP COMPANIES
RECEIVABLES AND PAYABLES
|
|
|
|
|
|
|
Trade
receivables
|
|
|
1,230 |
|
|
|
1,199 |
|
Other
receivables (advances)
|
|
|
167 |
|
|
|
61 |
|
Total
group companies Receivables
|
|
|
1,397 |
|
|
|
1,260 |
|
|
|
|
|
|
|
|
|
|
Trade
payables
|
|
|
1,343 |
|
|
|
988 |
|
Other
payables
|
|
|
974 |
|
|
|
329 |
|
Other
group companies payables
|
|
|
2,317 |
|
|
|
1,317 |
|
Short-term
notes payable
|
|
|
25 |
|
|
|
27 |
|
Total
group companies Payables
|
|
|
2,342 |
|
|
|
1,344 |
|
Group
companies short-term notes payable consisted of the following:
|
|
|
|
|
|
|
STMicroelectronis
A.B (Sweden)
|
|
|
|
|
|
|
Note
due 2009 bearing interest at 3-month STIBOR plus 0.50%
|
|
|
4 |
|
|
|
7 |
|
Proton
World International N.V. (Belgium)
|
|
|
|
|
|
|
|
|
note
due 2009 bearing interest at 3-month EURBOR plus 0.0625%
|
|
|
21 |
|
|
|
20 |
|
Total
short-term intercompany notes payable
|
|
|
25 |
|
|
|
27 |
|
2008
Annual Report of STMicroelectronics N.V.
13
— SHAREHOLDERS’
EQUITY
|
|
Issued
and paid in capital
|
|
|
Additional
paid in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
January 1, 2008
|
|
|
1,394 |
|
|
|
1,588 |
|
|
|
5,482 |
|
|
|
(274 |
) |
|
|
997 |
|
|
|
1,205 |
|
|
|
(439 |
) |
|
|
9,953 |
|
Net
Result
|
|
|
|
|
|
|
|
|
|
|
(439 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
439 |
|
|
|
- |
|
Rights
acquired on vested stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(208 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(208 |
) |
Issuance
of shares **
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
(104 |
) |
|
|
|
|
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
(28 |
) |
Business
combination
|
|
|
|
|
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131 |
|
Dividends
paid
|
|
|
|
|
|
|
|
|
|
|
(319 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(319 |
) |
Net
result
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(519 |
) |
|
|
(519 |
) |
Unrealized
gain (loss) on debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
(10 |
) |
Development
expenditures
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
- |
|
Transfer
to Legal reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on derivatives, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
|
|
|
|
(12 |
) |
Translation
adjustment*
|
|
|
(63 |
) |
|
|
|
|
|
|
(92 |
) |
|
|
|
|
|
|
|
|
|
|
(74 |
) |
|
|
|
|
|
|
(229 |
) |
Balance
December 31, 2008
|
|
|
1,331 |
|
|
|
1,719 |
|
|
|
4,524 |
|
|
|
(482 |
) |
|
|
1,063 |
|
|
|
1,123 |
|
|
|
(519 |
) |
|
|
8,759 |
|
*
|
The
share capital of STMicroelectronics is denominated in euros and the
period-end balance is translated into U.S. dollars at the year-end
exchange rate (Euro/USD 1.406). The translation differences are taken to
legal reserves.
|
**
|
Issuance
of shares is free of tax.
|
The
authorized share capital of STMicroelectronics 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, 2008 the number of shares of
common stock issued was 910,307,305 shares (910,293,420 at December 31,
2007).
As of
December 31, 2008 the number of shares of common stock outstanding was
874,276,833 (899,760,539 at December 31, 2007).
The euros
equivalent of the issued share capital at December 31, 2008 amounts to euros
946,719,597 (2007: euros 946,705,157). For the changes in issued and paid in
capital, additional paid in capital and other reserves; see the consolidated
financial statements of STMicroelectronics.
Other
reserves and legal reserve consist of fair value of services provided
under share award schemes, unrealized gains or losses on marketable securities
classified as available-for-sale and foreign currency translation adjustments,
all net of tax.
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, STMicroelectronics
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 intents 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 STMicroelectronics’s
share based remuneration programs on non-vested shares including such plans as
approved by the 2005, 2006, 2007 and 2008 Annual General Meeting of
Shareholders. As of December 31, 2008, 6,889,748 of these treasury
shares were transferred to employees under STMicroelectronics’s share based
remuneration programs of which 4,022,629 in the year ended December 31, 2008,
following the full vesting of the 2005 stock-award plan, the vesting of the
first and second tranches of the 2006 stock-award plan, the vesting of the first
tranch of the 2007 stock-award plan together with the acceleration of the
vesting of a limited number of stock-awards.
2008
Annual Report of STMicroelectronics N.V.
As of
December 31, 2008, STMicroelectronics owned a number of treasury shares
equivalent to 36,030,472.
Non
Distributable Reserve
The
amount of the non distributable reserve was $2,454 million and $2,599 million in
the year 2008 and 2007, respectively and it represents the amount of issued and
paid-in capital and legal reserve of STMicroelectronics.
Long-term
debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
portion of convertible debt
2016
|
|
|
822 |
|
|
|
779 |
|
Long-term
credit
facilities
|
|
|
673 |
|
|
|
205 |
|
|
|
|
|
|
|
|
|
|
Total
long-term
debt
|
|
|
1,495 |
|
|
|
984 |
|
|
|
|
|
|
|
|
|
|
Current
portion of convertible debt
2013
|
|
|
- |
|
|
|
2 |
|
Current
portion of credit facilities
|
|
|
29 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total
current portion on long-term debt
|
|
|
29 |
|
|
|
2 |
|
14.1.
Convertible debt
In August
2003, the Group issued $1,332 million principal amount at issuance of zero
coupon unsubordinated convertible bonds due 2013. The bonds were issued with a
negative yield of 0.5% that resulted in a higher principal amount at issuance of
$1,400 million and net proceeds of $1,386 million. The bonds are convertible at
any time by the holders at the rate of 29.9144 shares of the Group’s ordinary
shares for each one thousand dollar face value of the bonds. The holders had the
option to redeem their convertible bonds on August 5, 2006 at a price of
$985.09, on August 5, 2008 at $975.28 and on August 5, 2010 at $965.56 per one
thousand dollar face value of the notes. As a result of this holder’s redemption
option in August 2006, the outstanding amount of 2013 bonds was classified in
the consolidated balance sheet as “current portion of long-term debt” as of
December 31, 2005. At any time from August 20, 2006 the Group had the option to
redeem for cash at their negative accreted value all or a portion of the
convertible bonds subject to the level of the Group’s share price.
Pursuant
to the terms of the convertible bonds due 2013, STMicroelectronics was required
to purchase, at the option of the holders, 1,397,493 convertible bonds, at a
price of $985.09 each between August 7 and August 9, 2006. This resulted in a
cash payment of $1,377 million. On August 5, 2008, STMicroelectronics was
required to repurchase 2,317 convertible bonds, at a price of $975.28 each. This
resulted in a cash payment of $2 million. The outstanding long-term debt
corresponding to the 2013 convertible debt was not material as at December 31,
2008 corresponding to the remaining 188 bonds valued at August 5, 2010
redemption price. At any time from August 20, 2006 STMicroelectronics may redeem
for cash at their negative accreted value all or a portion of the convertible
bonds subject to the level of STMicroelectronics’s share price.
In
February 2006, STMicroelectronics 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 STMicroelectronics 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.
2008
Annual Report of STMicroelectronics N.V.
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.
STMicroelectronics can call the bonds at any time after March 10, 2011 subject
to STMicroelectronics’s share price exceeding 130% of the accreted value divided
by the conversion rate for 20 out of 30 consecutive trading days.
STMicroelectronics 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.
The Group
assessed for separate accounting at issuance of the bond the two elements of
equity and liability of the compound instrument. The bond terms enable the
holder to receive cash settlement under certain circumstances and, consequently,
the Group has classified the share conversion option as a financial liability in
“Other non-current liabilities” at December 31, 2006. This financial liability
was measured at fair value through profit and loss. Based on the existing market
conditions at issuance, management estimated that separately valuing embedded
share conversion would not be materially different from calculating the residual
amount of the equity conversion as total bond proceeds, net of the fair value of
the debt component. The fair value of the liability component of the
convertible debt amounted to $700 million at issuance and includes the value of
the holder’s redemption option and STMicroelectronics’s call options since these
embedded derivatives were considered to be closely related to the host debt
contract and could not be accounted for separately as freestanding derivatives.
The Group determined the fair value of the liability component using a market
interest rate for an equivalent non-convertible debt over the period of future
probable cash flows as estimated on the date of issuance. This was determined to
be a ten-year timeframe corresponding to the period from issuance to maturity.
The fair value was calculated using cash flows discounted at a rate based on the
non-convertible debt rate of 5.50%, reduced by 0.58% corresponding to the value
of the put and call options.
2008
Annual Report of STMicroelectronics N.V.
The
convertible debt recognized in the balance sheet is calculated as
follows:
Convertible debt
2013:
|
|
|
|
|
|
|
|
Face
value of the convertible debt issued on August 2003
|
|
|
1,400 |
|
Conversion
option classified as a financial liability
|
|
|
(136 |
) |
Accumulated
interest recognized in retained earnings
|
|
|
115 |
|
Repayment
in cash at redemption date
|
|
|
(1,379 |
) |
|
|
|
|
|
Liability
component as of December 31, 2007
|
|
|
2 |
|
Interest
expense recognized in 2007 consolidated statement of
income
|
|
|
(2 |
) |
Convertible
debt 2013 as of December 31, 2008
|
|
|
- |
|
Convertible debt
2016:
|
|
|
|
|
|
|
|
Face
value of the convertible debt issued in February 2006
|
|
|
974 |
|
Conversion
option classified as a financial liability
|
|
|
(274 |
) |
Accumulated
interest recognized in retained earnings
|
|
|
79 |
|
|
|
|
|
|
Liability
component at of December 31, 2007
|
|
|
779 |
|
Interest
expense recognized in 2007 consolidated statement of
income
|
|
|
43 |
|
Convertible
debt 2016 as of December 31, 2008
|
|
|
822 |
|
14.2.
Credit facilities
The Group
had unutilized committed medium term credit facilities with core relationship
banks totalling $275 million. In addition aggregate amount of
STMicroelectronics's and its subsidiaries' total available short-term credit
facilities, excluding foreign exchange credit facilities, was approximately $816
million as of December 31, 2008. STMicroelectronics also had two committed
credit facilities with the European Investment Bank as part of a R&D funding
program. 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 $20
million were paid back as at December 31, 2008. 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, 2008.
STMicroelectronics maintains also uncommitted foreign exchange facilities
totalling $773 million at December 31, 2008. At December 31, 2008, and December
31, 2007, amounts available under the short-term lines of credit were not
reduced by any borrowing. At December 31, 2008 the Group had a technical
temporary overdraft on a current bank account of $20 million resulting from a
delayed funding of year end settlement of transactions done on behalf of an
affiliate.
STMicroelectronics
did not experience any breach of covenants related to long-term debts or
short-term credit facilities in the years 2008 and 2007
14.3
Long-term debt credit facilities
|
|
Year
ended
December
31,
2008
|
|
|
Year
ended
December
31,
2007
|
|
|
|
|
|
|
|
|
Balance
at January, 1
|
|
|
205 |
|
|
|
|
Credit
facilities increase
|
|
|
516 |
|
|
|
205 |
|
Credit
facilities repayment
|
|
|
(20 |
) |
|
|
|
|
Balance
at December, 31
|
|
|
701 |
|
|
|
205 |
|
|
|
|
|
|
|
|
|
|
Out
of which short-term
|
|
|
29 |
|
|
|
- |
|
Out
of which long-term
|
|
|
673 |
|
|
|
205 |
|
2008 Annual Report of
STMicroelectronics N.V.
15
— DEFERRED TAX ASSETS AND LIABILITIES
Deferred
tax assets and liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development
costs amortization
|
|
|
52 |
|
|
|
30 |
|
Tax
loss carry forward
|
|
|
19 |
|
|
|
- |
|
Other
temporary differences
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
73 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
Development
costs capitalization
|
|
|
(123 |
) |
|
|
(101 |
) |
Other
temporary differences
|
|
|
(9 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
(132 |
) |
|
|
(110 |
) |
|
|
|
|
|
|
|
|
|
Net
deferred income tax asset / (liability)
|
|
|
(59 |
) |
|
|
(79 |
) |
16
— OTHER NON-CURRENT LIABILITIES
Other
non-current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
conversion option of convertible debt 2016 classified as financial
liability (note 14)
|
|
|
274 |
|
|
|
277 |
|
Debt
financial guarantee in favour of Hynix
|
|
|
17 |
|
|
|
17 |
|
Debt
guarantee in favour of Numonyx
|
|
|
56 |
|
|
|
- |
|
Numonyx
capacity rights (non-current portion)
|
|
|
63 |
|
|
|
- |
|
Other
non-current liabilities
|
|
|
40 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
450 |
|
|
|
303 |
|
Due to
regulatory issues STMicroelectronics could not directly provide to Hynix (see
note 3 to our consolidated financial Statements) with the $250 million long-term
financing as originally planned. As a result, in 2006, STMicroelectronics
entered into a ten-year term debt guarantee agreement with an external financial
institution through which STMicroelectronics guaranteed the repayment of the
loan by the joint venture to the bank. The debt guarantee was evaluated under
IAS 39. It resulted in the recognition of a $17 million liability, corresponding
to the fair value of the guarantee at inception of the transaction. The
liability was originally recorded against the value of the equity investment,
and is reclassified as non current asset after the disposal of
investment.
Upon
creation, Numonyx (see note 3 to our consolidated financial statements) 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 STMicroelectronics have each granted in
favour of Numonyx a 50% debt guarantee not joint and several. In the event of
default and failure to repay the loans from Numonyx, the banks will exercise
STMicroelectronics’s rights, subordinated to the repayment to senior lenders, to
recover the amounts paid under the guarantee through the sale of Numonyx’s
assets. The debt guarantee was evaluated under IAS 39. It resulted in the
upfront recognition of a $69 million liability, corresponding to the fair value
of the guarantee at inception of the transaction, which is being amortized on a
pro rata basis over the four-year term. The amortization amount for 2008 equals
$13 million.
The terms
of the agreement for the inception of Numonyx included rights granted to Numonyx
to use certain assets retained by STMicroelectronics. As at December 31, 2008
the value of such rights totaled $87 million, of which $24 million was reported
as a current liability.
2008
Annual Report of STMicroelectronics N.V.
STMicroelectronics
has revolving lines of credit agreements with several financial institutions
totalling $275 million at December 31, 2008 (2007: $413 million). At December
31, 2008 no amounts were drawn on these available lines of credit (2007:
nil).
STMicroelectronics
maintains also uncommitted foreign exchange facilities of $773
million.
18
— GUARANTEES AND CONTINGENCIES
Guarantees
given by STMicroelectronics to its affiliates for the benefit of third parties
amounted to approximately $ 1,670 million at December 31, 2008 as detailed in
the Note 20 (2007: $1,292 million).
There is
no other type of contingencies as of December 31, 2008 and 2007.
19
— WAGES, SALARIES AND SOCIAL CHARGES
|
|
|
|
|
|
|
Wages
and salaries
|
|
|
47 |
|
|
|
48 |
|
Social
charges
|
|
|
6 |
|
|
|
6 |
|
Stock
award compensation expense
|
|
|
- |
|
|
|
- |
|
Pension
service costs
|
|
|
5 |
|
|
|
4 |
|
Complementary
pension scheme for executives
|
|
|
2 |
|
|
|
2 |
|
Other
employee benefits
|
|
|
1 |
|
|
|
2 |
|
|
|
|
61 |
|
|
|
62 |
|
The
average number of persons employed by STMicroelectronics during the year ended
December 31, 2008 was 223 out of which 208 outside The Netherlands (2007: 255
out of which 236 outside The Netherlands).
STMicroelectronics’s
commitments as of December 31, 2008 were as follows:
In
million US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
|
77 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
4 |
|
|
|
4 |
|
|
|
54 |
|
Purchase
obligations
|
|
|
349 |
|
|
|
226 |
|
|
|
82 |
|
|
|
40 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
Of
which Software, technology licenses and design
|
|
|
260 |
|
|
|
153 |
|
|
|
68 |
|
|
|
39 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Of
which other purchasing obligations
|
|
|
89 |
|
|
|
73 |
|
|
|
14 |
|
|
|
1 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
Long
term debt obligations (including current portion)
|
|
|
2,440 |
|
|
|
29 |
|
|
|
103 |
|
|
|
1,139 |
|
|
|
103 |
|
|
|
806 |
|
|
|
260 |
|
Pension
obligations
|
|
|
5 |
|
|
|
3 |
|
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
operational commitments
|
|
|
194 |
|
|
|
5 |
|
|
|
25 |
|
|
|
12 |
|
|
|
82 |
|
|
|
4 |
|
|
|
66 |
|
Total
|
|
|
3,065 |
|
|
|
268 |
|
|
|
217 |
|
|
|
1,196 |
|
|
|
190 |
|
|
|
814 |
|
|
|
380 |
|
2008 Annual Report of
STMicroelectronics N.V.
Other
commitments
STMicroelectronics
has issued guarantees totalling $1,670 million related to its subsidiaries debt
and other obligations. Out of this, $703 million related to STMicroelectronics
Finance B.V.’s obligation under the EUR500 million floating rate senior bond due
in 2013. Also included in this amount is the $275 million guarantee not joint
and several for 50% of Numonyx credit facilities.
21
— RELATED PARTY TRANSACTIONS
Transactions
with significant shareholders, their affiliates and other related parties were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
& other
services
|
|
|
80 |
|
|
|
69 |
|
Other
purchases
|
|
|
(48 |
) |
|
|
(45 |
) |
Accounts
receivable
|
|
|
38 |
|
|
|
13 |
|
Accounts
payable
|
|
|
(34 |
) |
|
|
(4 |
) |
22
— REMUNERATION TO MANAGING BOARD AND SUPERVISORY BOARD
MEMBERS
For
details on the remuneration to Managing Board and Supervisory Board members, see
the consolidated financial statements of STMicroelectronics (Note
36).
The
following audit fees were expensed in the income statement in the reporting
period:
In
U.S.dollars
|
|
2008
|
|
|
2007
|
|
Audit
of the financial statements
|
|
|
5,384,962 |
|
|
|
5,758,230 |
|
Other
audit procedures
|
|
|
15,360 |
|
|
|
194,940 |
|
Tax
services
|
|
|
40,880 |
|
|
|
- |
|
Total:
|
|
|
5,441,202 |
|
|
|
5,953,170 |
|
The fees
listed above relate only to the procedures applied to STMicroelectronics and its
consolidated group entities by accounting firms and external auditors as
referred to in Section 1(1) of the Dutch Accounting Firms Oversight Act (Dutch
acronym: WTA).
2008
Annual Report of STMicroelectronics N.V.
April 15,
2009
THE
MANAGING BOARD
Carlo
Bozotti (President and Chief Executive Officer)
Carlo
Ferro (Executive Vice President, Chief Financial Officer)
THE
SUPERVISORY BOARD
Antonino
Turicchi (Chairman – reappointed as Chairman of the Supervisory Board on May 20,
2008)
Gérald
Arbola (Vice Chairman)
Raymond
Bingham
Douglas
Dunn
Didier
Lamouche
Didier
Lombard
Alessandro
Ovi
Bruno
Steve
Tom de
Waard
Matteo
del Fante (Resigned from the Supervisory Board member on May 20,
2008)
2008 Annual Report of
STMicroelectronics N.V.
6.
Other information
STMICROELECTRONICS
N.V.
OTHER
INFORMATION
DECEMBER
31, 2008
The
report of the auditors, PricewaterhouseCoopers Accountants N.V., is presented in
the pages 176 and 177 of this annual report.
2.
|
APPROPRIATION
OF RESULT — PROVISIONS IN COMPANY’S ARTICLES OF
ASSOCIATION
|
The
Managing Directors, with the approval of the Supervisory Board, are allowed to
allocate net profit to a reserve fund. The Articles of Association provide that
the net result for the year, after deduction of the aforementioned allocation to
the reserve fund, is subject to the disposition by the AGM.
In the
case that a net loss for the year exceeds retained earnings, no dividend
payments are allowed until the loss has been recovered from net profit in future
years.
3.
|
PROPOSED
2008 CASH DIVIDEND AND RETAINED EARNINGS AND DIVIDEND
POLICY
|
Upon the
proposal of the Managing Board, the Supervisory Board decided to recommend to
the 2008 AGM a cash dividend of $0.12 per share.
This
recommendation is consistent with STMicroelectronics’s dividend policy as
communicated and discussed at the 2005 AGM whereby:
|
a.
|
STMicroelectronics
seeks to use its available cash in order to develop and enhance its
position in the very capital-intensive semiconductor market while at the
same time managing its cash resources to reward its shareholders for their
investment and trust in
STMicroelectronics.
|
|
b.
|
Based
on its 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 its earnings involving whenever deemed
possible and desirable in line with STMicroelectronics’s objectives and
financial situation, the distribution of a cash dividend,
and
|
|
c.
|
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.
|
2008
Annual Report of STMicroelectronics N.V.
As
discussed in Note 32, on February 1, 2009, STMicroelectronics exercised its
option to purchase the 20% non-controlling interest of NXP in ST-NXP Wireless
for a price of $92 million.
Also as
discussed Note 32, on February 3, 2009, STMicroelectronics announced the closing
of a transaction to combine the businesses of Ericsson Mobile Platforms and
ST-NXP Wireless into a new group of entities, to be named ST Ericsson. The
transaction was completed on the terms originally announced on August 20, 2008.
ST Ericsson will be conducted through two sub-groups, one of which will be owned
and controlled as to 50% plus controlling shares by ST and be responsible for
the full commercial operation of the combined businesses, namely sales,
marketing, supply and the full product responsibility. The other will be owned
and controlled as to 50% plus controlling shares by Ericsson and will be focused
on selected strategic R&D activities. In addition to the contributions by ST
and Ericsson of their respective businesses to the venture, Ericsson contributed
$1,100 million net in cash to the new group of entities, out of which $700
million was paid to STMicroelectronics. The transaction will be
accounted for as a business combination, and it is anticipated that
STMicroelectronics will consolidate the venture entity that it controls and
account for its non-controlling interest in the other venture entity under the
equity method of accounting. The purchase price accounting for the transaction
has not yet been completed.
As
previously disclosed in the Note 5 and in public filings, STMicroelectronics had
instituted arbitration proceedings against Credit Suisse in connection with the
unauthorized purchase by Credit Suisse of collateralized debt obligations and
credit link notes (the “Securities”) instead of the Federally guaranteed student
loan securities that had been specifically mandated by STMicroelectronics for
purchase. On February 12, 2009 an arbitration panel of the Financial Industry
Regulatory Authority (“FINRA”) awarded STMicroelectronics an amount of
approximately $406 million comprising compensatory damages, as well as interest,
attorney's fees, and consequential damages, which were assessed against Credit
Suisse. In addition, STMicroelectronics is entitled to retain the about $25
million interest award which had already been paid. In return,
STMicroelectronics will transfer ownership of the Securities to Credit Suisse.
On February 17, 2009, STMicroelectronics filed a petition in the United States
District Court for the Southern District of New York seeking confirmation of the
FINRA award. Credit Suisse has responded by seeking to vacate the FINRA award.
Pending final decision on the enforceability of the FINRA award, and as
described in Note 5, STMicroelectronics computes the value of the Securities
consistent with its accounting policies. Accordingly, the Securities, with a par
value of $415 million, were carried on STMicroelectronics’s books at
December 31, 2008 as non-current financial assets at a value of $242 million, as
the result of impairment charges recorded against income in 2007 and 2008.
During the first quarter of 2009, the valuation of the Securities, computed on
the same basis as described in Note 5 of the consolidated accounts, declined by
$58 million. Payment by Credit Suisse of the FINRA award is expected to result
in a gain in STMicroelectronics’s consolidated statement of income corresponding
to the difference between the amount of the FINRA award plus applicable interest
to be paid to STMicroelectronics by Credit Suisse, less related costs and the
then current carrying amount in ST books of the Securities, which will be
transferred by STMicroelectronics to Credit Suisse as required by the FINRA
award.
Due to
deterioration of both the global economic situation and the memory market
segment, as well as Numonyx’s revision to its 2009 projected results,
STMicroelectronics re-assessed the fair value of its equity investment in
Numonyx during the first quarter and, as a result, recorded a $200 million
impairment charge in the period. The calculation of the impairment was based
upon a combination of an income approach, using discounted cash flows, and a
market approach, using metrics of comparable public companies.
2008
Annual Report of STMicroelectronics N.V.
6.1.
Auditors Report
To
the General Meeting of Shareholders of STMicroelectronics N.V.
Report
on the financial statements
We have
audited the accompanying financial statements 2008 of STMicroelectronics N.V.,
Amsterdam as set out on pages 56 to 173. The financial statements consist of the
consolidated financial statements and the company financial statements. The
consolidated financial statements comprise the consolidated balance sheet as at
31 December 2008, the statements of income, statement of changes in equity and
cash flow statement for the year then ended, and a summary of significant
accounting policies and other explanatory notes. The company financial
statements comprise the company balance sheet as at 31 December 2008, the
company statements of income for the year then ended and the notes.
The
Managing Board's responsibility
The
Managing Board of the company is responsible for the preparation and fair
presentation of the financial statements in accordance with International
Financial Reporting Standards as adopted by the European Union and with Part 9
of Book 2 of the Netherlands Civil Code, and for the preparation of the
directors' report in accordance with Part 9 of Book 2 of the Netherlands Civil
Code. This responsibility includes: designing, implementing and maintaining
internal control relevant to the preparation and fair presentation of the
financial statements that are free from material misstatement, whether due to
fraud or error; selecting and applying appropriate accounting policies; and
making accounting estimates that are reasonable in the
circumstances.
Auditor's
responsibility
Our
responsibility is to express an opinion on the financial statements based on our
audit. We conducted our audit in accordance with Dutch law. This law requires
that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance whether the financial statements are free from
material misstatement.
An audit
involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the
auditor's judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In
making those risk assessments, the auditor considers internal control relevant
to the company's preparation and fair presentation of the financial statements
in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
company's internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting
estimates made by the Managing Board, as well as evaluating the overall
presentation of the financial statements.
We
believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
Opinion
with respect to the consolidated financial statements
In our
opinion, the consolidated financial statements give a true and fair view of the
financial position of STMicroelectronics N.V. as at 31 December 2008, and of its
result and its cash flows for the year then ended in accordance with
International Financial Reporting Standards as adopted by the European Union and
with Part 9 of Book 2 of the Netherlands Civil Code.
Opinion
with respect to the company financial statements
In our
opinion, the company financial statements give a true and fair view of the
financial position of STMicroelectronics N.V. as at 31 December 2008, and of its
result for the year then ended in accordance with Part 9 of Book 2 of the
Netherlands Civil Code.
2008 Annual Report of
STMicroelectronics N.V.
Report
on other legal and regulatory requirements
Pursuant
to the legal requirement under 2:393 sub 5f of the Netherlands Civil Code, we
report, to the extent of our competence, that the directors’ report is
consistent with the financial statements as required by 2:391 sub 4 of the
Netherlands Civil Code.
Amsterdam,
17 April 2009
PricewaterhouseCoopers
Accountants N.V.
Ronald M.
van Tongeren RA
2008 Annual Report of
STMicroelectronics N.V.
7.
Important dates
29
April 2009
|
Q1
2009 Earnings Release
|
30
April 2009
|
Q1
2009 Earnings Conference Call
|
20
May 2009
|
Annual
General Meeting
|
28
July 2009
|
Q2
2009 Earnings Release
|
29
July 2009
|
Q2
2009 Earnings Conference Call
|
20
October 2009
|
Q3
2009 Earnings Release
|
21
October 2009
|
Q3
2009 Earnings Conference Call
|
2008 Annual Report of
STMicroelectronics N.V.
8.
Glossary
fADSL
|
As
symmetrical 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
|
2008 Annual Report of
STMicroelectronics N.V.
|
|
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
|
|
|
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
|
|
|
VIPpower(TM)
|
vertical
integration power
|
|
|
VLSI
|
very
large scale integration
|
|
|
XDSL
|
digital
subscriber line
|
2008 Annual Report of
STMicroelectronics N.V.
SIGNATURES