Edgar Filing: STMICROELECTRONICS NV

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

Report on Form 6-K dated November 7, 2013

Commission File Number: 1-13546

STMicroelectronics N.V.

(Name of Registrant)

WTC Schiphol Airport

Schiphol Boulevard 265

1118 BH Schiphol Airport

The Netherlands

(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F Q Form 40-F £

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes £ No Q

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes £ No Q

Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

Yes £ No Q

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- __________

Enclosure: STMicroelectronics N.V.’s Third Quarter and Nine Months Ended September 28, 2013:

Operating and Financial Review and Prospects;

Unaudited Interim Consolidated Statements of Income, Statements of Comprehensive Income, Balance Sheets, Statements of Cash Flow, and Statements of Equity and related Notes for the three months and nine months ended September 28, 2013; and

Certifications pursuant to Sections 302 (Exhibits 12.1 and 12.2) and 906 (Exhibit 13.1) of the Sarbanes-Oxley Act of 2002, submitted to the Commission on a voluntary basis.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

The following discussion should be read in conjunction with our Unaudited Interim Consolidated Statements of Income, Statements of Comprehensive Income, Balance Sheets, Statements of Cash Flows and Statements of Equity for the three months and nine months ended September 28, 2013 and Notes thereto included elsewhere in this Form 6-K, and our annual report on Form 20-F for the year ended December 31, 2012 as filed with the U.S. Securities and Exchange Commission (the “Commission” or the “SEC”) on March 4, 2013 (the “Form 20-F”). The following discussion contains statements of future expectations and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, or Section 21E of the Securities Exchange Act of 1934, each as amended, particularly in the sections “Critical Accounting Policies Using Significant Estimates”, “Business Outlook” and “Liquidity and Capital Resources—Financial Outlook”. Our actual results may differ significantly from those projected in the forward-looking statements. For a discussion of factors that might cause future actual results to differ materially from our recent results or those projected in the forward-looking statements in addition to the factors set forth below, see “Cautionary Note Regarding Forward-Looking Statements” and “Item 3. Key Information—Risk Factors” included in the Form 20-F. We assume no obligation to update the forward-looking statements or such risk factors.

Our Management’s Discussion and Analysis of Financial Position and Results of Operations (“MD&A”) is provided in addition to the accompanying unaudited interim consolidated financial statements (“Consolidated Financial Statements”) and notes to assist readers in understanding our results of operations, financial condition and cash flows. Our MD&A is organized as follows:

Critical Accounting Policies using Significant Estimates, which we believe are most important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

Business Overview, a discussion of our business and overall analysis of financial and other relevant highlights of the three months and nine months ended September 28, 2013 designed to provide context for the other sections of the MD&A.

Business Outlook, our expectations for selected financial items for the fourth quarter of 2013.

Other Developments in the Third Quarter 2013, general information about our activities.

Results of Operations, containing a year-over-year and sequential analysis of our financial results for the three months and nine months ended September 28, 2013, as well as segment information.

Legal Proceedings, describing the status of open legal proceedings.

Related Party Transactions, disclosing transactions with related parties.

Discussion of the impact of changes in exchange rates, interest rates and equity prices on our activity and financial results.

Liquidity and Capital Resources, presenting an analysis of changes in our Balance Sheets and cash flows, and discussing our financial condition and potential sources of liquidity.

Backlog and Customers, discussing the level of backlog and sales to our key customers.

Disclosure Controls and Procedures.

Cautionary Note Regarding Forward-Looking Statements.

Critical Accounting Policies Using Significant Estimates

The preparation of our Consolidated Financial Statements in accordance with U.S. GAAP requires us to make estimates and assumptions. The primary areas that require significant estimates and judgments by us include, but are not limited to:

sales returns and allowances;

determination of the best estimate of the selling price for deliverables in multiple element sale arrangements;

inventory obsolescence reserves and normal manufacturing capacity thresholds to determine costs capitalized in inventory;

provisions for litigation and claims and recognition and measurement of loss contingencies;

valuation at fair value of assets acquired/sold in a business combination, including intangibles, goodwill, investments and tangible assets, as well as the impairment of their related carrying values, and valuation at fair value of assumed liabilities;

annual and trigger-based impairment review of our goodwill, intangible and tangible assets, as well as an assessment, in each reporting period, of events, which could trigger interim impairment testing;

estimated value of the consideration to be received and used as fair value for asset groups classified as assets to be disposed of by sale and the assessment of probability of realizing the sale;

assessment of credit losses and other-than-temporary impairment charges on financial assets, including equity investments;

restructuring charges and other related exit costs;

assumptions used in assessing the number of awards expected to vest on stock-based compensation plans;

assumptions used in calculating pension obligations; and

determination of the tax rate estimated on the basis of the projected tax amount for the full year, including deferred income tax assets, valuation allowance and assessment of provisions for uncertain tax positions and claims.

We base the estimates and assumptions on historical experience and on various other factors such as market trends, market information used by market participants and the latest available business plans that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. While we regularly evaluate our estimates and assumptions, the actual results we experience could differ materially and adversely from our estimates. To the extent there are material differences between our estimates and actual results, future results of operations, cash flows and financial position could be significantly affected.

Our Consolidated Financial Statements include the ST-Ericsson joint ventures; in particular, until the end of August 2013, we fully consolidated ST-Ericsson SA and related affiliates (“JVS”), which was owned 50% plus a controlling share by us. Following the transfer of one share to Ericsson and the new shareholder agreement, we ceased to hold control and to consolidate JVS and started to account for it under the net equity method as of September 1, 2013. The other joint venture, focused on fundamental R&D activities, whose parent company is ST-Ericsson AT SA (“JVD”), was owned 50% plus a controlling share by Ericsson and was therefore accounted for by us under the equity method until its sale to Ericsson on August 2, 2013.

We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our Consolidated Financial Statements:

Revenue recognition. Our policy is to recognize revenues from sales of products to our customers when all of the following conditions have been met: (a) persuasive evidence of an arrangement exists; (b) delivery has occurred; (c) the selling price is fixed or determinable; and (d) collectability is reasonably assured. Our revenue recognition 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 our products to compensate them for declines in market prices. We accrue a provision for price protection based on a rolling historical price trend computed on a monthly basis as a percentage of gross distributor sales. This historical price trend represents differences in recent months between the invoiced price and the final price to the distributor adjusted, if required, to accommodate for a significant change in the current market price. We record the accrued amounts as a deduction of revenue at the time of our sale to distributors. The ultimate decision to authorize a distributor refund remains fully within our control. The short outstanding inventory time period, our visibility into the standard inventory product pricing and our long distributor pricing history, have enabled us to reliably estimate price protection provisions at period end. If market conditions differ from our assumptions, this could have an impact on future periods. In particular, if market conditions were to deteriorate, net revenues could be reduced due to higher product returns and price reductions at the time these adjustments occur, which could severely impact our profitability.

Our customers occasionally return our products for technical reasons. Our standard terms and conditions of sale provide that if we determine that products do not conform, we will repair or replace them, or issue a credit note or rebate of the purchase price. In certain cases, when the products we have supplied have been proven to be defective, we have agreed to compensate our customers for claimed damages in order to maintain and enhance our business relationship. Quality returns are not related to any technological obsolescence issues and are identified shortly after sale in customer quality control testing. We provide for such returns when they are considered probable and can be reasonably estimated. We record the accrued amounts as a reduction of revenue.

Our insurance policy relating to product liability only covers physical and other direct damages caused by defective products. We carry limited insurance against immaterial, non-consequential damages. We record a provision for warranty costs as a charge against cost of sales based on historical trends of warranty costs incurred as a percentage of sales which we have determined to be a reasonable estimate of the probable losses to be incurred for warranty claims in a period.

Any potential warranty claims are subject to our determination that we are at fault for damages, and that such claims usually must be submitted within a short period following the date of sale. This warranty is given in lieu of all other warranties, conditions or terms expressed or implied by statute or common law. Our contractual terms and conditions typically limit our liability to the sales value of the products that gave rise to the claims.

We maintain an allowance for doubtful accounts for potential estimated losses resulting from our customers’ inability to make required payments. We base our estimates on historical collection trends and record a provision accordingly. Furthermore, we evaluate our customers’ financial condition periodically and record a provision for any specific account we consider as doubtful. In the third quarter of 2013, we did not record any new material specific provision related to bankrupt customers. If we receive information that the financial condition of our customers has deteriorated, resulting in an impairment of their ability to make payments, additional allowances could be required.

While the majority of our sales agreements contain standard terms and conditions, we may, from time to time, enter into agreements that contain multiple elements or non-standard terms and conditions, which require revenue recognition judgments. In such cases, following the guidance related to revenue recognition, the arrangement is allocated to the different elements based on vendor-specific objective evidence, third party evidence or our best estimates of the selling price of the separable deliverables.

Business combinations and goodwill. The purchase accounting method applied to business combinations requires extensive use of estimates and judgments to allocate the purchase price to the fair value of the identifiable assets acquired and liabilities assumed. If the assumptions and estimates used to allocate the purchase price are not correct or if business conditions change, purchase price adjustments or future asset impairment charges could be required. At September 28, 2013, the value of goodwill in our Balance Sheets amounted to $99 million.

Impairment of goodwill. Goodwill recognized in business combinations is not amortized but is tested for impairment annually in the third quarter, or more frequently if a triggering event indicating a possible impairment exists. Goodwill subject to potential impairment is tested at a reporting unit level, which represents a component of an operating segment for which discrete financial information is available, after performing a qualitative assessment to determine whether an impairment test is necessary, in cases when we have chosen such option. This impairment test determines whether the fair value of each reporting unit for which goodwill is allocated is lower than the total carrying amount of relevant net assets allocated to such reporting unit, including its allocated goodwill. If lower, the implied fair value of the reporting unit goodwill is then compared to the carrying value of the goodwill and an impairment charge is recognized for any excess. In determining the fair value of a reporting unit, we use the lower of a value determined by applying a market approach with financial metrics of comparable public companies compared to an estimate of the expected discounted future cash flows associated with the reporting unit. Significant management judgments and estimates are used in forecasting the future discounted cash flows, including: the applicable industry’s sales volume forecast and selling price evolution, the reporting unit’s market penetration and its revenues evolution, the market acceptance of certain new technologies and products, the relevant cost structure, the discount rates applied using a weighted average cost of capital and the perpetuity rates used in calculating cash flow terminal values. Our evaluations are based on financial plans updated with the latest available projections of the semiconductor market, our sales expectations and our costs evaluation, and are consistent with the plans and estimates that we use to manage our business. It is possible, however, that the plans and estimates used may prove to be incorrect, and future adverse changes in market conditions, changes in strategies, lack of performance of major customers or operating results of acquired businesses that are not in line with our estimates may require impairments.

We performed our annual impairment test of goodwill on each of the following reporting units containing goodwill during the third quarter of 2013. The table below presents the results of our annual impairment test:

Reporting Unit		% estimated fair value exceeds carrying value
AMS		556
DCG		*
MMS		640

*Estimated fair value below carrying value

Based upon the first step of the goodwill impairment test, no impairment was recorded for the AMS and MMS reporting units since the fair value of the reporting units exceeded their carrying values. However, we were required, based upon step one, to conduct the second step of the impairment test for the DCG reporting unit whose estimated fair value was lower than its carrying value. Before performing the second step of the goodwill impairment test, we tested for impairment the dedicated long-lived assets of DCG. The result was that all dedicated intangible assets, amounting to $18 million, were fully impaired due to the negative cash flow projected over their remaining useful life. Regarding the tangible fixed assets, their fair value was essentially equal to their carrying value. The second step of the goodwill impairment test was performed which requires a determination of the implied fair value of goodwill in a manner similar to a purchase price allocation exercise, and therefore to determine the fair value of all assets and liabilities of the DCG reporting unit. These fair values are considered only to determine the impairment charge but are not booked. No other unrecorded intangible assets have been identified and the implied fair value of goodwill is nil leading to an impairment charge for the third quarter of 2013 of $38 million. In summary, as a result of our impairment test in the third quarter of 2013, we recorded a non-cash impairment of $18 million relating to the dedicated intangible assets of the DCG reporting unit and a non-cash impairment of $38 million relating to the remaining goodwill of the DCG reporting unit.

Intangible assets subject to amortization. Intangible assets subject to amortization include intangible assets purchased from third parties recorded at cost and intangible assets acquired in business combinations recorded at fair value, comprised of technologies and licenses, trademarks and contractual customer relationships and computer software. Intangible assets with finite useful lives are reflected net of any impairment losses and are amortized over their estimated useful life. We evaluate each reporting period whether there is reason to suspect that intangible assets held for use might not be recoverable. If we identify events or changes in circumstances which are indicative that the carrying amount is not recoverable, we assess whether the carrying value exceeds the undiscounted cash flows associated with the intangible assets. If exceeded, we then evaluate whether an impairment charge is required by determining if the asset’s carrying value also exceeds its fair value. An impairment charge is recognized for the excess of the carrying amount over the fair value. Significant management judgments and estimates are required to forecast undiscounted cash flows associated with the intangible assets. Our evaluations are based on financial plans updated with the latest available projections of growth in the semiconductor market and our sales expectations. They are consistent with the plans and estimates that we use to manage our business. It is possible, however, that the plans and estimates used may be incorrect and that future adverse changes in market conditions or operating results of businesses acquired may not be in line with our estimates and may therefore require us to recognize impairment charges on certain intangible assets.

As noted above, following our annual impairment test of goodwill, we recorded an impairment charge of $18 million in the third quarter of 2013 for the intangible assets dedicated to the DCG reporting unit.

We will continue to monitor the carrying value of our assets. If market conditions deteriorate, this could result in future non-cash impairment charges against earnings. Further impairment charges could also result from new valuations triggered by changes in our product portfolio or by strategic transactions, particularly in the event of a downward shift in future revenues or operating cash flows in relation to our current plans or in case of capital injections by, or equity transfers to, third parties at a value lower than the one underlying the carrying amount.

At September 28, 2013, the value of intangible assets subject to amortization in our Balance Sheets amounted to $218 million.

Property, plant and equipment. Our business requires substantial investments in technologically advanced manufacturing facilities, which may become significantly underutilized or obsolete as a result of rapid changes in demand and ongoing technological evolution. We estimate the useful life for the majority of our manufacturing equipment, the largest component of our long-lived assets, to be six years, except for our 300-mm manufacturing equipment whose useful life is estimated to be ten years. This estimate is based on our experience using the equipment over time. Depreciation expense is a major element of our manufacturing cost structure. We begin to depreciate newly acquired equipment when it is placed into service.

We evaluate each reporting period if there is reason to suspect impairment on tangible assets or groups of assets held for use and we perform an impairment review when there is reason to suspect that the carrying value of these long-lived assets might not be recoverable, particularly in case of a restructuring plan. If we identify events or changes in circumstances which are indicative that the carrying amount is not recoverable, we assess whether the carrying value exceeds the undiscounted cash flows associated with the tangible assets or group of assets. If exceeded, we then evaluate whether an impairment charge is required by determining if the asset’s carrying value also exceeds its fair value. We normally estimate this fair value based on independent market appraisals or the sum of discounted future cash flows, using market assumptions such as the utilization of our fabrication facilities and the ability to upgrade such facilities, change in the selling price and the adoption of new technologies. We also evaluate and adjust, if appropriate, the assets’ useful lives at each Balance Sheet date or when impairment indicators are identified. Assets classified as held for sale are reported as current assets at the lower of their carrying amount and fair value less costs to sell and are not depreciated. Costs to sell include incremental direct costs to transact the sale that we would not have incurred except for the decision to sell.

In the third quarter of 2013 we recorded an impairment charge of $29 million on property, plant and equipment following the decision to shut down our 6’’ fab in Ang Mo Kio (AMKJ9 Singapore) and an impairment charge of $4 million on property, plant and equipment related to ST-Ericsson assets following our exit from the ST-Ericsson joint venture.

Our evaluations are based on financial plans updated with the latest projections of growth in the semiconductor market and our sales expectations, from which we derive the future production needs and loading of our manufacturing facilities, and which are consistent with the plans and estimates that we use to manage our business. These plans are highly variable due to the high volatility of the semiconductor business and therefore are subject to continuous modifications. If future growth differs from the estimates used in our plans, in terms of both market growth and production allocation to our manufacturing plants, this could require a further review of the carrying amount of our tangible assets and result in a potential impairment loss.

Inventory. Inventory is stated at the lower of cost or market value. Cost is based on the weighted average cost by adjusting the standard cost to approximate actual manufacturing costs on a quarterly basis; therefore, the cost is dependent on our manufacturing performance. In the case of underutilization of our manufacturing facilities, we estimate the costs associated with the excess capacity. These costs are not included in the valuation of inventory but are charged directly to cost of sales. Market value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses and cost of completion. As required, we evaluate inventory acquired in business combinations at fair value, less completion and distribution costs and related margin.

While we perform, on a continuous basis, inventory write-offs of products and semi-finished products, the valuation of inventory requires us to estimate a reserve for obsolete or excess inventory as well as inventory that is not of saleable quality. Provisions for obsolescence are estimated for excess uncommitted inventories based on the previous quarter’s sales, order backlog and production plans. To the extent that future negative market conditions generate order backlog cancellations and declining sales, or if future conditions are less favorable than the projected revenue assumptions, we could record additional inventory provisions, which would have a negative impact on our gross margin.

At September 28, 2013, the value of inventory in our Balance Sheets amounted to $1,316 million.

Restructuring charges. We have undertaken, and we may continue to undertake, significant restructuring initiatives, which have required us, or may require us in the future, to develop formalized plans for exiting any of our existing activities. We recognize the fair value of a liability for costs associated with exiting an activity when we have a present obligation and the amount can be reasonably estimated. Given the significance and timing of the execution of our restructuring activities, the process is complex and involves periodic reviews of estimates made at the time the original decisions were taken. This process can require more than one year due to requisite governmental and customer approvals and our capability to transfer technology and know-how to other locations. As we operate in a highly cyclical industry, we monitor and evaluate business conditions on a regular basis. If broader or newer initiatives, which could include production curtailment or closure of other manufacturing facilities, were to be taken, we may incur additional charges as well as change estimates of the amounts previously recorded. The potential impact of these changes could be material and could have a material adverse effect on our results of operations or financial condition. In the third quarter of 2013, the restructuring charges and other related closure costs amounted to $29 million before taxes, mainly in connection with our ongoing initiative to reduce quarterly net operating expenses, comprised of combined selling, general and administrative and research and development expenses, including R&D grants, to the $600 to $650 million range.

ST-Ericsson break-up. Pursuant to the memorandum of understanding with Ericsson, which described the principles for the break up and wind-down of the ST-Ericsson joint venture, ST-Ericsson activities were split into three main parts. The first part included the design, development and related expenses associated with the R&D costs for the LTE multimode thin modem products, which since March 2, 2013, has been fully funded by Ericsson. The second part related to the ST-Ericsson business on existing products, French and Italian employees and the Calamba and Muar facilities, which have been, since March 2, 2013, fully accounted for in our accounts with no attribution to non-controlling interest in our Consolidated Statement of Income. The third part was related to the wind-down activities remaining at ST-Ericsson, equally funded by both parties.

On July 17, 2013, we and Ericsson signed a Definitive Framework Agreement in line with the principles described above, which established the split of ST-Ericsson’s activities between ST and Ericsson, the form of the transfers, the allocation of intangibles, the allocation of intellectual property, the assumption of liabilities, the principle of a balanced break up applied through equal cash funding at closing and the tail payment by Ericsson to ST for an onward sale by Ericsson of the LTE multimode thin modem business. In addition, we and Ericsson also signed funding commitment letters to the residual joint wind-down operations to ensure solvency capped at $149 million for each partner.

On August 2, 2013, the transaction closed and various activities were transferred to the respective parents, including the sale of our shares in ST-Ericsson JVD, and the sale by ST-Ericsson JVS of its Swedish subsidiary, in each case, to Ericsson.

At the beginning of September 2013, we sold one share of ST-Ericsson JVS to Ericsson for its nominal value and signed the new shareholder agreement, changing the ownership structure of ST-Ericsson JVS to bring both partners to an equal ownership proportion. As a consequence, we determined that while we no longer have control over the entity, we retain a significant influence and account for it under the equity method.

As a result of the foregoing, the ST-Ericsson break-up was completed during the third quarter of 2013.

Share-based compensation. We measure the cost of share-based service awards based on the fair value of the award on the grant date. 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. In 2013, our share-based compensation plan awarded shares contingent on the achievement of certain performance conditions based on financial objectives, including our financial results when compared to certain industry performances. In 2013, approximately one-half of the shares awarded were contingent on the achievement of certain performance conditions. In order to determine share-based compensation to be recorded for the period, we use significant estimates on the number of awards expected to vest, including the probability of achieving the fixed performance conditions including those relating to industry performances compared to our financial results, and our best estimates of award forfeitures and employees’ service periods. Our assumptions related to industry performance are generally taken with a one quarter lag in line with the availability of market information. In the third quarter of 2013, we recorded a total charge of approximately $7 million relating to our outstanding stock award plans.

Income (loss) on Equity method Investments. We record our share in the results of entities that we account for under the equity method. This recognition is based on results reported by these entities, relying on their internal reporting systems to measure financial results. In case of triggering events, such as continuing difficult market conditions, which could lead to continued operating losses and negative cash flow, or in the case of a strategic repositioning by one or more of our partners, we determine whether our investment is temporarily or other than temporarily impaired. If impairment is considered to be other than temporary, we need to assess the fair value of our investment and record an impairment charge directly in earnings when fair value is lower than the carrying value of the investment. We make this assessment by evaluating the business on the basis of the most recent plans and projections or to the best of our estimates. In the third quarter of 2013, we recognized a loss of approximately $5 million related to our equity investment in MicroOLED SAS, primarily corresponding to the impairment of our remaining investment. In addition, we recognized a loss of $3 million related to other investments, including our share of the losses in ST-Ericsson JVS, which has been accounted for under the equity method since September 1, 2013. We are continuing to monitor our equity investments and, if required, additional other-than-temporary impairment charges could negatively impact our future results. As of September 28, 2013, the value in our Balance Sheets of our equity investments was $60 million.

Financial assets. We classify our financial assets in the following two categories, held for trading and available-for-sale. Such classification depends on the purpose for which the investments are acquired and held. We determine the classification of our financial assets at initial recognition. Unlisted equity securities with no readily determinable fair value are carried at cost; they are neither classified as trading nor as available-for-sale financial assets.

Trading and available-for-sale financial assets are valued at fair value. The fair value of quoted debt and equity securities is based on current market prices. If the market for a financial asset is not active, if no observable market price is obtainable, or if the security is not quoted, we measure fair value by using assumptions and estimates. For unquoted equity securities, these assumptions and estimates include the use of recent arm’s length transactions; for debt securities without available observable market price, we establish fair value by reference to publicly available indexes of securities with the same rating and comparable or similar underlying collaterals or industries’ exposure, which we believe approximates the amount that would be received from the sale of the asset in an orderly transaction between market participants. In measuring fair value, we make maximum use of market inputs and rely as little as possible on entity specific inputs. As of September 28, 2013, the value in our Balance Sheets of our financial assets was $91 million invested in senior debt floating rate notes classified as assets available-for-sale. This represents a reduction from $189 million as of June 29, 2013, following our sale of approximately $100 million of U.S. government bonds.

Income taxes. We make estimates and judgments in determining income tax for the period, comprising current and deferred income tax. We need to assess the income tax expected to be paid or the benefit expected to be received related to the current year income (loss) in each tax jurisdiction and recognize deferred income tax for all temporary differences arising between the tax bases of assets and liabilities and their carrying amount in the Consolidated Financial Statements. Furthermore, we assess all material open income tax positions in all tax jurisdictions to determine any uncertain tax positions, and to record a provision for those that are not more likely than not to be sustained upon examination by the taxing authorities, which could require potential tax claims or assessments in various jurisdictions. In such an event and in case any tax assessment exceeds our provisions, we could be required to record additional charges in our accounts, which could significantly exceed our best estimates and our existing provisions.

We also assess the likelihood of realization of our deferred tax assets originated by our net operating loss carry-forwards. The ultimate realization of deferred tax assets is dependent upon, among other things, our ability to generate future taxable profit available against loss carry forwards or tax credits before their expiration or our ability to implement prudent and feasible tax planning strategies. We record a valuation allowance against the deferred tax assets when we consider it is more likely than not that the deferred tax assets will not be realized, which would increase our provision for income taxes. During the third quarter of 2013, we recognized a valuation allowance of $23 million of the deferred tax assets registered in Canada, driven by the decrease in our Canadian business operations.

As of September 28, 2013, we had current deferred tax assets of $221 million and non-current deferred tax assets of $373 million, net of valuation allowances.

We could be required to record further valuation allowances thereby reducing the amount of total deferred tax assets, resulting in an increase of our income tax charge, if our estimates of projected future taxable income and benefits from available tax strategies are reduced as a result of a change in our assessment or due to other factors, or if changes in current tax regulations are enacted that impose restrictions on the timing or extent of our ability to utilize net operating losses and tax credit carry forwards in the future. Likewise, a change in the tax rates applicable in the various jurisdictions or unfavorable outcomes of any ongoing tax audits could have a material impact on our future tax provisions in the periods in which these changes could occur.

Patent and other Intellectual Property (“IP”) litigation or claims. As is the case with many companies in the semiconductor industry, we have from time to time received, and may in the future receive, communications alleging possible infringement of patents and other IP rights of third parties. Furthermore, we may become involved in costly litigation brought against us regarding patents, mask works, copyrights, trademarks or trade secrets. In the event the outcome of a litigation claim is unfavorable to us, we may be required to take a license for the underlying IP right on economically unfavorable terms and conditions, possibly pay damages for prior use, and/or face an injunction, all of which singly or in the aggregate could have a material adverse effect on our results of operations and on our ability to compete. See Item 3. “Key Information — Risk Factors — Risks Related to Our Operations — We depend on patents to protect our rights to our technology and may face claims of infringing the IP rights of others” included in our Form 20-F, which may be updated from time to time in our public filings.

We record a provision when we believe that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We regularly evaluate losses and claims to determine whether they need to be adjusted based on current information available to us. Such estimates are difficult to the extent that they are largely dependent on the status of ongoing litigation that may vary based on positions taken by the Court with respect to issues submitted, demands of opposing parties, changing laws, discovery of new facts or other matters of fact or law. As of September 28, 2013, based on our current evaluation of ongoing litigation and claims we face, we have not estimated any amounts that could have a material impact on our results of operations and financial condition with respect to probable risks. We currently estimate that possible losses for known claims are in the range of $30 million to $50 million. In the event of litigation that is adversely determined with respect to our interests, or in the event that we need to change our evaluation of a potential third party claim based on new evidence, facts or communications, unexpected rulings or changes in the law, this could have a material adverse effect on our results of operations or financial condition at the time it were to materialize. We are in discussion with several parties with respect to claims against us relating to possible infringement of IP rights. We are also involved in certain legal proceedings concerning such issues. See “Legal Proceedings”.

Other claims. We are subject to the possibility of loss contingencies arising in the ordinary course of business. These include, but are not limited to: warranty costs on our products not covered by insurance, breach of contract claims, tax claims beyond assessed uncertain tax positions as well as claims for environmental damages. We are also exposed to numerous legal risks which until now have not resulted in legal disputes and proceedings. These include risks related to product recalls, environment, anti-trust, anti-corruption and competition, as well as other compliance regulations. We may also face claims in the event of breaches of law committed by individual employees or third parties. In determining loss contingencies, we consider the likelihood of a loss of an asset or the occurrence of a liability, as well as our ability to reasonably estimate the amount of such loss or liability. An estimated loss is recorded when we believe that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We regularly re-evaluate any losses and claims and determine whether our provisions need to be adjusted based on the current information available to us. As of September 28, 2013, based on our current evaluation of ongoing litigation and claims we face, we have not estimated any amounts that could have a material impact on our results of operations and financial condition with respect to either probable or possible risks. In the event we are unable to accurately estimate the amount of such loss in a correct and timely manner, this could have a material adverse effect on our results of operations or financial condition at the time such loss was to materialize. For further details, see “Legal Proceedings” and Note 24 to our Consolidated Financial Statements.

There can be no assurance that all IP litigation or claims and other claims to which we are currently subject will be resolved in our favor or as currently anticipated. If the outcome of any claim or litigation were to be unfavorable to us, we could incur monetary damages, and/or face an injunction, all of which singly or in the aggregate could have an adverse effect on our results of operations and our ability to compete.

Pension and Post-Retirement Benefits. Our results of operations and our Balance Sheets include amounts for pension obligations and post-retirement benefits that are measured using actuarial valuations. At September 28, 2013, our pension and post-retirement benefit obligations net of plan assets amounted to $449 million based on the assumption that our employees will work with us until they reach the age of retirement. These valuations are based on key assumptions, including discount rates, expected long-term rates of return on funds and salary increase rates. These assumptions are updated on an annual basis at the beginning of each fiscal year or more frequently upon the occurrence of significant events. Any changes in the pension schemes or in the above assumptions can have an impact on our valuations. The measurement date we use for our plans is December 31.

Fiscal Year

Under Article 35 of our Articles of Association, our financial year extends from January 1 to December 31, which is the period end of each fiscal year. The first quarter of 2013 ended on March 30, 2013. The second quarter ended on June 29. The third quarter ended on September 28 and the fourth quarter of 2013 will end on December 31, 2013. Based on our fiscal calendar, the distribution of our revenues and expenses by quarter may be unbalanced due to a different number of days in the various quarters of the fiscal year and can also differ from equivalent prior years’ periods. There were 91 days in the third quarter of 2013, the same number of days as in the second quarter of 2013 and the third quarter of 2012.

Business Overview

The total available market is defined as the “TAM”, while the serviceable available market, the “SAM”, is defined as the market for products produced by us (which consists of the TAM and excludes certain product families such as Microprocessors (“MPUs”), MOS DRAMs, MOS SRAMs, optoelectronics devices, Flash Memories, MOS ROMs and EPROMs, but includes MOS Other Memory Circuits and Image Sensors). As a consequence of our exit from ST-Ericsson activities, our served market (SAM) has also been adjusted to exclude the Wireless Application Specific market (Broadband and Application Processor).

Based on the most recently published estimates by WSTS, semiconductor industry revenues increased in the third quarter of 2013 on a sequential basis by approximately 8% for both the TAM and the SAM to reach approximately $81 billion and $36 billion, respectively. On a year-over-year basis, in the third quarter of 2013, the TAM increased by approximately 9% while the SAM decreased by approximately 2%.

With reference to our revenue performance, our third quarter 2013 revenues amounted to $2,013 million, a 1.6% decrease on a sequential basis. The sequential decrease in our revenues is the result of a decrease of 0.4% in our Sense & Power and Automotive Products (SP&A) segment, while our Embedded Processing Solutions (EPS) segment decreased by 2.7%, mainly due to a drop in Wireless product line revenues by 23.6% and in DCG by 13.6%. Our 1.6% decrease on a sequential basis was within our guidance, which indicated it was to be about flat on a sequential basis, plus or minus 3.5 percentage points, but below the mid-point, mainly due to weaker demand, particularly in high-end smartphones and the mass market in Asia. Excluding the Wireless product line, our revenues increased 0.5%, within our guidance indicating an increase of about 3.5% at the mid-point, but below the mid-point.

On a year-over year basis, our revenues decreased by 7.1%, which is the result of an increase of 2.6% in our SP&A segment whereas our EPS segment decreased 18.2%, mainly driven by the phasing out of ST-Ericsson products for the Wireless product line and weak demand for set-top box legacy products in the Digital Convergence product line. Excluding the Wireless product line, on a year-over-year basis, our revenues in the third quarter of 2013 increased by 3.9%, which we estimate to be outperforming the SAM.

Our effective average exchange rate for the third quarter of 2013 was $1.31 for €1.00 compared to $1.30 for €1.00 for the second quarter of 2013 and $1.29 for €1.00 in the third quarter of 2012. Our effective average exchange rate for the first nine months of 2013 was $1.30 for €1.00 compared to $1.31 for €1.00 for the first nine months of 2012. For a more detailed discussion of our hedging arrangements and the impact of fluctuations in exchange rates, see “Impact of Changes in Exchange Rates” below.

Our third quarter 2013 gross margin was 32.4% of revenues, primarily due to the higher than expected weight of wireless legacy products, as well as negative currency effects. This was within our guidance indicating 33.5% plus or minus 2.0 percentage points, but below the mid-point. On a sequential basis, our third quarter 2013 gross margin decreased by 40 basis points, reflecting lower selling prices, partially offset by manufacturing efficiencies. On a year-over-year comparison, gross margin decreased 240 basis points, notwithstanding lower unsaturation charges and improved manufacturing efficiencies, principally due to a decrease in selling prices, a less favorable product mix and the high level of licensing revenues positively impacting the third quarter of 2012.

Our combined selling, general and administrative and research and development expenses, net of other income and expenses, amounted to $676 million, a significant decrease compared to $738 million in the prior quarter and $852 million in the prior year quarter. Sequentially, the decrease was principally due to the seasonal impact of summer vacations, the ST-Ericsson wind-down and the initial benefits of our ongoing restructuring initiatives.

Our operating losses were $66 million in the third quarter of 2013, improving compared to the loss of $107 million in the second quarter of 2013 and the loss of $792 million in the third quarter of 2012. Sequentially, the improvement in our operating losses in the third quarter of 2013 was mainly driven by our operating expenses reduction and the gain from sale of businesses, recorded in the line Other income and expenses, partially offset by an increased level of restructuring and impairment charges. By product segment, the main improvement was registered by EPS which was the primary beneficiary of the reduction in our operating expenses and the sale of businesses and non-current assets.

Our financial performance during the third quarter was mixed. On the one hand, we saw overall year-over-year revenue improvement of 3.9 percent across our business outside of the Wireless product line. We believe this exceeds the year-over-year performance of our served market. On the other hand, this growth was milder than expected due to a muted order pattern during the quarter driven by softness in high-end smartphones in Asia and the mass market in Asia, including the cable set-top box market in India. However, we did see sequential growth in Imaging, Microcontrollers, MEMS, and Automotive. In particular, Microcontrollers posted record quarterly billings led by our general purpose products. During the third quarter, the Company returned to operating profit before impairment and restructuring charges. Excluding these charges, our operating income was $54 million in the third quarter of 2013, improving by $118 million on a sequential basis. This is primarily due to the sale of ST-Ericsson’s Global Navigation Satellite System business along with lower operating expenses.

Business Outlook

In the third quarter we began to experience a softening of bookings with the exception of automotive. We believe this is a reflection of a demand correction in the semiconductor industry. For the fourth quarter, we anticipate a relatively flat sequential revenue performance. Nevertheless, we anticipate seeing a return to positive free cash flow generation as a result of the wind-down of ST-Ericsson. We are confident in our ability to turn our significant business opportunities into revenue. Our innovative products and technologies in MEMS and Sensors, Smart Power, Automotive, Microcontrollers and Set-top box/Home Gateway, are gaining greater traction with customers and will enable us to further expand our customer base. We continue to aggressively pursue our objective to reach an operating margin of about ten percent. Our initiatives to reduce costs, such as achieving our net operating expenses target, and improving our manufacturing operations, are on track. However, the timing for us to achieve our operating margin target will depend greatly on our level of revenues. Based on current visibility including market conditions, reaching this operating margin target is now expected in 2015.

We expect fourth quarter 2013 revenues to be about flat on a sequential basis, plus or minus 3.5 percentage points. Gross margin in the fourth quarter is expected to be about 33.0%, plus or minus 2.0 percentage points.

Net operating expenses target in the range of $600 million to $650 million average per quarter include SG&A and R&D expenses including R&D grants.

This outlook is based on an assumed effective currency exchange rate of approximately $1.34 = €1.00 for the 2013 fourth quarter and includes the impact of existing hedging contracts. The fourth quarter will close on December 31, 2013. These are forward-looking statements that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially; in particular, refer to those known risks and uncertainties described in “Cautionary Note Regarding Forward-Looking Statements” and Item 3. “Key Information — Risk Factors” in our Form 20-F as may be updated from time to time in our SEC filings.

Other Developments in the Third Quarter 2013

On July 22, we announced the Nano2017 Research and Development program, a five-year public-private strategic R&D program led by us to further advance our leadership in key embedded processing solutions and technologies. The project draws support from a broad coalition of French national, regional and local authorities as well as by the European community through the ENIAC Joint Technology Initiative. Funding for the program is subject to approval by the European Commission. Ultimately, Nano2017 strengthens our leadership in such key technologies as FD-SOI (low-power, high-performance processing), next-generation imaging (sensors and image signal processors), and next-generation embedded non-volatile memories. These technologies are at the core of our embedded processing solutions which include microcontrollers, imaging solutions, digital consumer products, application processors and digital ASICs.

On July 24, we announced the publication of our 2012 Sustainability Report. Our sixteenth annual Sustainability Report contains comprehensive details of our Sustainability strategy, policies and performance during 2012.

On August 5, we and Ericsson announced the closing of the split up of ST-Ericsson, less than nine months after we announced our new strategic plan, including the decision to exit ST-Ericsson. We have taken on some of the existing ST-Ericsson products, other than LTE multimode thin modems and the Global Navigation Satellite System (GNSS) connectivity solution that has been sold to a third party, as well as certain assembly and test facilities. In total, approximately 1,000 employees joined STMicroelectronics.

At the same time, we announced that Mr. Carlo Ferro returned to ST as Chief Financial Officer, with extended responsibilities that include leading legal, central operation planning, procurement, IT and investor relations. Mr. Ferro continues as ST-Ericsson President and CEO through the joint venture wind-down.

On August 20, we announced the posting of our IFRS 2013 Semi Annual Accounts for the six-month period ended June 29, 2013.

On September 20, we announced that we would propose a cash dividend of US$0.10 for each of the fourth quarter of 2013 and first quarter of 2014, per outstanding share of the Company’s common stock. The amount of the proposed dividend is stable with respect to the previous quarterly dividend distribution.

This was followed with an announcement, on September 27, of the resolutions to be submitted for shareholder adoption at the forthcoming Extraordinary General Meeting of Shareholders (the “EGM”), which will be held in Schiphol, The Netherlands, on December 2, 2013.

The resolutions, proposed by the Supervisory Board, are:

• The distribution of a cash dividend of US$0.10 per outstanding common share for each of the fourth quarter of 2013 and first quarter of 2014.

• An amendment of the Articles of Association of the Company authorizing the Supervisory Board, in addition to the General Meeting of Shareholders, to resolve upon the distribution of quarterly dividends from the reserves of the Company.

The record date for all shareholders to participate at the EGM is November 4, 2013. The complete agenda and all relevant detailed information concerning the EGM, as well as all related EGM materials, are available on our website (www.st.com) and have been made available to shareholders in compliance with legal requirements as of September 27, 2013.

Results of Operations

Segment Information

We operate in two business areas: Semiconductors and Subsystems.

In the Semiconductors business area, we design, develop, manufacture and market a broad range of products, including discrete and standard commodity components, application-specific integrated circuits (“ASICs”), full-custom devices and semi-custom devices and application-specific standard products (“ASSPs”) for analog, digital and mixed-signal applications. In addition, we further participate in the manufacturing value chain of Smartcard products, which include the production and sale of both silicon chips and Smartcards.

Effective January 1, 2013, our segment reporting reflects our strategy announced on December 10, 2012. Our strategy takes into account the evolution of the markets we are in and the environment we see in the years to come and is based on our leadership in our two product segments, supported by a Sales & Marketing organization with a particular focus on our major accounts, as well as expanding our penetration of the mass market and focusing on five growth drivers: Automotive Products, Application Processors, including Digital Consumer Products, MEMS and Sensors, Microcontrollers and Smart Power.

Our segments are as follows:

Sense & Power and Automotive Products (SP&A), including the following product lines:

Automotive (APG);

Industrial & Power Discrete (IPD);

Analog & MEMS (AMS); and

Other SP&A;

Embedded Processing Solutions (EPS), comprised of the following product lines:

Digital Convergence Group (DCG);

Imaging, BI-CMOS ASIC and Silicon Photonics (IBP);

Microcontrollers, Memory & Security (MMS);

Wireless (WPS); and

Other EPS.

In 2013, we revised our results from prior periods in accordance with the new segment structure. The preparation of segment information based on the current segment structure requires us to make estimates and assumptions in determining the operating income (loss) of the segments for the prior reporting periods. We believe that the revised 2012 presentation is consistent with that of 2013 and we use these comparatives when managing our company.

In the Subsystems business area, we design, develop, manufacture and market subsystems and modules for the telecommunications, automotive and industrial markets including mobile phone accessories, battery chargers, ISDN power supplies and in-vehicle equipment for electronic toll payment. Based on its immateriality to our business as a whole, the Subsystems business area does not meet the requirements for a reportable segment as defined in the guidance on disclosures about segments of an enterprise and related information. All the financial values related to Subsystems including net revenues and related costs, are reported in the segment “Others”.

The following tables present our consolidated net revenues and consolidated operating income (loss) by product segment. For the computation of the segments’ internal financial measurements, we use certain internal rules of allocation for the costs not directly chargeable to the segments, including cost of sales, selling, general and administrative (“SG&A”) expenses and a part of research and development (“R&D”) expenses. In compliance with our internal policies, certain cost items are not charged to the segments, including impairment, restructuring charges and other related closure costs including ST-Ericsson plans, unused capacity charges, certain one-time corporate items such as the first quarter 2012 NXP arbitration award charge, strategic and special R&D programs or other corporate-sponsored initiatives, including certain corporate-level operating expenses and certain other miscellaneous charges. In addition, depreciation and amortization expense is part of the manufacturing costs allocated to the product segments and is neither identified as part of the inventory variation nor as part of the unused capacity charges; therefore, it cannot be isolated in the costs of goods sold.

	Three Months Ended						Nine Months Ended
	September 28, 2013		June 29, 2013		September 29, 2012		September 28, 2013		September 29, 2012
	(Unaudited, in millions)						(Unaudited, in millions)
Net revenues by product line and product segment:

Automotive (APG)	$	418	$	416	$	391	$	1,219	$	1,186
Industrial & Power Discrete (IPD)		458		466		459		1,353		1,328
Analog & MEMS (AMS)		329		327		324		970		923
Other SP&A		-		-		1		-		-
Sense & Power and Automotive Products (SP&A)		1,205		1,209		1,175		3,542		3,437
Digital Convergence Group (DCG)		163		189		234		576		671
Imaging, BI-CMOS ASIC and Silicon Photonics (IBP)		144		108		85		335		337
Microcontrollers, Memory & Security (MMS)		360		351		296		1,010		855
Wireless (WPS)		135		176		359		567		994
Other EPS		-		-		6		5		6
Embedded Processing Solutions (EPS)		802		824		980		2,493		2,863
Others(1)		6		12		11		32		31
Total consolidated net revenues	$	2,013	$	2,045	$	2,166	$	6,067	$	6,331

____________

(1)	In the third quarter of 2013, “Others” includes revenues from the sales of Subsystems ($2 million) and sales of materials and other products not allocated to product segments ($4 million).

	Three Months Ended									Nine Months Ended
	September 28, 2013			June 29, 2013			September 29, 2012			September 28, 2013			September 29, 2012
	(Unaudited, in millions)									(Unaudited, in millions)
Operating income (loss) by product segment:

Sense & Power and Automotive Products (SP&A)	$	75		$	42		$	114		$	174		$	303
Embedded Processing Solutions (EPS)(1)		(18	)		(106	)		(175	)		(333	)		(701	)
Others(2)		(123	)		(43	)		(731	)		(294	)		(954	)
Total consolidated operating loss	$	(66	)	$	(107	)	$	(792	)	$	(453	)	$	(1,352	)

	(Unaudited, as percentage of net revenues)							(Unaudited, as percentage of net revenues)
Operating income (loss) by product segment:

Sense & Power and Automotive Products (SP&A)(3)		6.2	%	3.5	%	9.7	%		4.9	%	8.8	%
Embedded Processing Solutions (EPS) (1)(3)		(2.2	)	(12.8	)	(17.8	)		(13.4	)	(24.5	)
Others(2)		-		-		-			-		-
Total consolidated operating loss(4)		(3.3	)%	(5.2	)%	(36.6	)%		(7.5	)%	(21.4	)%

____________

(1)

The majority of Wireless’ activities included in EPS were run through ST-Ericsson JVS. In addition, Wireless includes other items affecting operating results related to the Wireless business. The non-controlling interest of Ericsson in ST-Ericsson JVS’ operating results (which are 100% included in Wireless) was credited on the line “Net loss (income) attributable to non-controlling interest” of our Consolidated Statements of Income until the deconsolidation. Starting from September 2013, ST Ericsson JVS is accounted for as an equity investment.

(2)

Operating loss of “Others” includes items such as impairment, restructuring charges and other related closure costs including ST-Ericsson plans, unused capacity charges, certain one-time corporate items such as the first quarter 2012 NXP arbitration award charge and other unallocated expenses such as: strategic or special R&D programs, certain corporate-level operating expenses and other costs that are not allocated to the product segments, as well as operating earnings of the Subsystems and Other Products Group.

(3)	As a percentage of net revenues per product segment.

(4)	As a percentage of total net revenues.

	Three Months Ended									Nine Months Ended
	September 28, 2013			June 29, 2013			September 29, 2012			September 28, 2013			September 29, 2012
				(Unaudited, in millions)						(Unaudited, in millions)
Reconciliation to consolidated operating loss:

Total operating loss of product segments	$	57		$	(64	)	$	(61	)	$	(159	)	$	(398	)
Unused capacity charges		-			(2	)		(19	)		(26	)		(106	)
Impairment, restructuring charges and other related closure costs		(120	)		(43	)		(713	)		(263	)		(788	)
Strategic and other research and development programs		(4	)		(6	)		(3	)		(14	)		(8	)
Start-up/phase-out costs		(1	)		-			-			(1	)		-
NXP arbitration award		-			-			-			-			(54	)
Other non-allocated provisions(1)		2			8			4			10			2
Total operating loss Others		(123	)		(43	)		(731	)		(294	)		(954	)
Total consolidated operating loss	$	(66	)	$	(107	)	$	(792	)	$	(453	)	$	(1,352	)

____________

(1)	Includes unallocated income and expenses such as certain corporate-level operating expenses and other costs/income that are not allocated to the product segments.

Net revenues by location of shipment and by market channel

The table below sets forth information on our net revenues by location of shipment:

	Three Months Ended						Nine Months Ended
	September 28, 2013		June 29, 2013		September 29, 2012		September 28, 2013		September 29, 2012
			(Unaudited, in millions)				(Unaudited, in millions)
Net Revenues by Location of Shipment(1):

EMEA	$	478	$	516	$	563	$	1,484	$	1,611
Americas		302		322		316		928		938
Greater China-South Asia		866		839		904		2,498		2,642
Japan-Korea		367		368		383		1,157		1,140
Total	$	2,013	$	2,045	$	2,166	$	6,067	$	6,331

____________

(1)

Net revenues by location of shipment are classified by location of customer invoiced or reclassified by shipment destination in line with customer demand. For example, products ordered by U.S.-based companies to be invoiced to Greater China-South Asia affiliates are classified as Greater China-South Asia revenues. Furthermore, the comparison among the different periods may be affected by shifts in shipment from one location to another, as requested by our customers.

The table below shows the percentage of our net revenues by market channel:

Net Revenues by Market Channel(1):

OEM	75.0	%	74.3	%	76.5	%	74.8	%	77.8
Distribution	25.0		25.7		23.5		25.2		22.2
Total	100	%	100	%	100	%	100	%	100	%

____________

(1)	Original Equipment Manufacturers (“OEM”) are the end-customers to which we provide direct marketing application engineering support, while Distribution customers refers to the distributors and representatives that we engage to distribute our products around the world.

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

	Three Months Ended (unaudited)						Three Months Ended (unaudited)						Three Months Ended (unaudited)
	September 28, 2013						June 29, 2013						September 29, 2012
	$ million			% of net revenues			$ million			% of net revenues			$ million			% of net revenues
Net sales	$	2,005			99.6	%	$	2,034			99.4	%	$	2,119			97.8	%
Other revenues		8			0.4			11			0.6			47			2.2
Net revenues		2,013			100.0			2,045			100			2,166			100
Cost of sales		(1,361	)		(67.6	)		(1,373	)		(67.2	)		(1,413	)		(65.2	)
Gross profit		652			32.4			672			32.8			753			34.8
Selling, general and administrative		(253	)		(12.6	)		(285	)		(13.9	)		(274	)		(12.7	)
Research and development		(423	)		(21.0	)		(453	)		(22.1	)		(578	)		(26.7	)
Other income and expenses, net		78			3.8			2			0.1			20			0.9
Impairment, restructuring charges and other related closure costs		(120	)		(5.9	)		(43	)		(2.1	)		(713	)		(32.9	)
Operating loss		(66	)		(3.3	)		(107	)		(5.2	)		(792	)		(36.6	)
Interest income (expense), net		(2	)		(0.1	)		7			0.4			(8	)		(0.3	)
Income (loss) on equity method investments		(8	)		(0.4	)		(89	)		(4.4	)		(4	)		(0.2	)
Loss before income taxes and non-controlling interest		(76	)		(3.8	)		(189	)		(9.2	)		(804	)		(37.1	)
Income tax benefit (expense)		(49	)		(2.4	)		16			0.8			(25	)		(1.1	)
Net loss		(125	)		(6.2	)		(173	)		(8.4	)		(829	)		(38.2	)
Net loss (income) attributable to non-controlling interest		(17	)		(0.9	)		21			1.0			351			16.1
Net loss attributable to parent company	$	(142	)		(7.1	)%	$	(152	)		(7.4	)%	$	(478	)		(22.1	)%

Third Quarter 2013 vs. Second Quarter 2013 and Third Quarter 2012

Net revenues

	Three Months Ended						% Variation
	September 28, 2013		June 29, 2013		September 29, 2012		Sequential			Year-Over-Year
	(Unaudited, in millions)
Net sales	$	2,005	$	2,034	$	2,119		(1.4	)%		(5.4	)%
Other revenues		8		11		47		(32.5	)		(83.7	)
Net revenues	$	2,013	$	2,045	$	2,166		(1.6	)%		(7.1	)%

Sequential comparison

On a sequential basis, our revenues decreased by 1.6%, resulting from an approximate 1% increase in units sold, offset by an approximate 3% decrease in average selling prices of which 2% was down due to a pure price effect and 1% was down due to a less favorable product mix. Excluding the Wireless product line, our revenues increased by 0.5%.

By product segment, our SP&A revenues decreased by approximately 0.4% while EPS registered a decrease of approximately 3%. Within the SP&A segment, APG and AMS increased their revenues by approximately 0.4% and 0.8% respectively. Within EPS, Wireless product line and DCG revenues decreased by approximately 24% and 14%, respectively, while IBP and MMS both increased their revenues sequentially by approximately 34% and 2%, respectively.

By market channel, the third quarter of 2013 showed a slight sequential decrease for Distribution, which reached a 25% share of revenues from the 26% share registered in the second quarter of 2013.

By location of shipment, all regions dropped sequentially except Greater China-South Asia which increased by approximately 3% on a sequential basis. However, we experienced a softening in demand during the third quarter of 2013 in high end smartphones and the mass market in Asia, including the cable set-top box market in certain countries.

Both in the second and third quarter of 2013, no customer exceeded 10% of our total net revenues.

Year-over-year comparison

Our third quarter 2013 net revenues decreased by approximately 7% as a result of an approximate 10% decline in average selling prices, partially offset by higher volume. The reduction in average selling prices resulted from a pure pricing effect, down by approximately 5%, and a less favorable product mix of about 5%.

By product segment, SP&A registered an increase of approximately 3%, while EPS revenues were down by approximately 18%. Within SP&A, all product lines except IPD increased their revenues with APG up by approximately 7% and AMS up by approximately 2%. Within EPS, Wireless product line sales registered a decline of approximately 63%, following the wind-down of the ST-Ericsson joint venture while DCG decreased by approximately 30%. IBP and MMS increased by about 69% and 22%, respectively, compared to the prior year quarter.

By market channel, our revenues registered an increase in Distribution, which was up by approximately 3 percentage points, reaching a 25% share of total revenues.

By location of shipment, all regions were negatively impacted mainly by the wind-down of ST-Ericsson.

Gross profit

	Three Months Ended									% Variation
	September 28, 2013			June 29, 2013			September 29, 2012			Sequential			Year-Over-Year
	(Unaudited, in millions)
Cost of sales	$	(1,361	)	$	(1,373	)	$	(1,413	)		1.0	%		3.7	%
Gross profit		652			672			753			(2.9	)		(13.4	)
Gross margin (as percentage of net revenues)		32.4	%		32.8	%		34.8	%		-			-

In the third quarter, gross margin was 32.4%, decreasing sequentially by 40 basis points, mainly due to lower selling prices, partially offset by improved manufacturing efficiencies.

On a year-over-year basis, gross margin decreased by approximately 240 basis points, mainly due to the negative impact of selling prices, partially offset by the absence of unused capacity charges, amounting to $19 million in the year-ago quarter. Moreover, the third quarter 2012 net revenues benefited from $47 million of other revenues from licensing.

Selling, general and administrative expenses

	Three Months Ended									% Variation
	September 28, 2013			June 29, 2013			September 29, 2012			Sequential			Year-Over-Year
	(Unaudited, in millions)
Selling, general and administrative expenses	$	(253	)	$	(285	)	$	(274	)		11.2	%		7.6	%
As percentage of net revenues		(12.6	)%		(13.9	)%		(12.7	)%		-			-

The amount of our SG&A expenses decreased both sequentially and year-over-year, primarily due to the wind-down of ST-Ericsson and, on a sequential basis, by seasonality. As a percentage of revenues, our SG&A expenses amounted to 12.6%, decreasing both sequentially and year-over-year.

Research and development expenses

	Three Months Ended									% Variation
	September 28, 2013			June 29, 2013			September 29, 2012			Sequential			Year-Over-Year
	(Unaudited, in millions)
Research and development expenses	$	(423	)	$	(453	)	$	(578	)		6.6	%		26.9	%
As percentage of net revenues		(21.0	)%		(22.1	)%		(26.7	)%		-			-

On a sequential basis, the third quarter 2013 R&D expenses decreased, mainly due to the seasonal impact of summer vacations, the ST-Ericsson wind-down and the initial benefits of our ongoing restructuring initiatives. On a year-over-year basis, the R&D expenses decreased mainly due to the ST-Ericsson wind-down and our ongoing cost realignment programs.

The R&D expenses were net of research tax credits, which amounted to $34 million in the third quarter of 2013, decreasing sequentially by $4 million.

As a percentage of revenues, the third quarter 2013 ratio decreased sequentially by 110 basis points.

Other income and expenses, net

	Three Months Ended
	September 28, 2013			June 29, 2013			September 29, 2012
	(Unaudited, in millions)
Research and development funding	$	9		$	10		$	19
Exchange gain, net		2			1			3
Patent costs		(12	)		(8	)		1
Start-up/phase-out costs		(1	)		-			-
Gain on sale of businesses and non-current assets		81			2			-
Other, net		(1	)		(3	)		(3	)
Other income and expenses, net	$	78		$	2		$	20
As percentage of net revenues		3.8	%		0.1	%		0.9	%

Other income and expenses, net, mainly included items such as the gain on sale of businesses and non-current assets and R&D funding, partially offset by patent costs. Income from R&D funding was associated with our R&D projects, which, upon project approval, qualifies as funding on the basis of contracts with local government agencies. In the third quarter of 2013, we recognized an income, net, of $78 million, increasing on a year-over-year basis, mainly due to the sale of businesses and non-current assets associated with the Global Navigation Satellite System business in ST-Ericsson and with the sale of Portland Compiler Group in ST. No grants from the recently announced Nano2017 R&D program were recognized in the third quarter of 2013.

Impairment, restructuring charges and other related closure costs

	Three Months Ended
	September 28, 2013			June 29, 2013			September 29, 2012
	(Unaudited, in millions)
Impairment, restructuring charges and other related closure costs	$	(120	)	$	(43	)	$	(713	)

In the third quarter of 2013, we recorded $120 million of impairment, restructuring charges and other related closure costs, primarily consisting of: $56 million in impairment charges on the DCG goodwill and dedicated intangible assets following our yearly impairment test, $35 million in impairment charges related to the manufacturing consolidation plans and $22 million in restructuring charges related to our headcount reduction initiative targeting quarterly net operating expenses in the range of $600 to $650 million by the beginning of 2014. See Note 8 to our Consolidated Financial Statements.

In the second quarter of 2013, we recorded $43 million of impairment, restructuring charges and other related closure costs, consisting of: $33 million in restructuring charges related to our headcount reduction initiative targeting quarterly net operating expenses in the range of $600 to $650 million by the beginning of 2014; $5 million in restructuring charges related to the previously announced ST-Ericsson restructuring plans; $1 million in restructuring charges in relation to our Digital restructuring plan announced in October 2012; $8 million in impairment charges primarily related to certain assets considered as assets held for sale as part of the ST-Ericsson exit, offset by $9 million net reduction of the restructuring provision in relation with the ST Ericsson exit; and $5 million in restructuring charges related to other restructuring initiatives.

In the third quarter of 2012, we recorded $713 million of impairment, restructuring charges and other related closure costs, primarily consisting of: $690 million as a non-cash impairment on our Wireless goodwill and $13 million recorded as an additional impairment on the Carrollton (Texas) building and facilities, reflecting the persistent difficulty in disposing of this asset. See Note 8 to our Consolidated Financial Statements.

Operating loss

	Three Months Ended
	September 28, 2013			June 29, 2013			September 29, 2012
	(Unaudited, in millions)
Operating loss	$	(66	)	$	(107	)	$	(792	)
In percentage of net revenues		(3.3	)%		(5.2	)%		(36.6	)%

The third quarter 2013 registered an operating loss of $66 million compared to an operating loss of $107 million in the prior quarter and an operating loss of $792 million in the year-ago quarter. The third quarter 2013 sequentially registered an improvement in our operating results, driven by lower operating expenses and higher other income related to the sale of the Global Navigation Satellite System business. Compared to the year-ago period, the improvement in our operating results was mainly due to the lower impairment and restructuring charges and higher gains on sale of businesses.

By product segment, SP&A reported an increase in its operating income compared to the prior quarter despite slightly lower revenues. Our EPS segment decreased sequentially its operating losses, mainly due to lower expenses and the positive impact of the sale of businesses and non-current assets. The segment “Others” increased its losses to $123 million, from $43 million in the prior quarter, mainly due to higher impairment and restructuring charges. On a year-over basis, our SP&A segment operating income decreased from $114 million in the year-ago quarter to $75 million while EPS improved its results from a loss of $175 million to a loss of $18 million, including the gain on sale of businesses. The segment “Others” significantly decreased its losses due to lower impairment and restructuring charges.

Interest income (expense), net

	Three Months Ended
	September 28, 2013			June 29, 2013		September 29, 2012
	(Unaudited, in millions)
Interest income (expense), net	$	(2	)	$	7	$	(8	)

We recorded a net interest expense of $2 million, improving on a year-over-year basis, because of the much lower cost of financing related to ST-Ericsson debt, but deteriorating sequentially mainly as a result of a one-time interest payment received with respect to a U.S. tax refund in the second quarter of 2013.

Income (loss) on equity method investments

	Three Months Ended
	September 28, 2013			June 29, 2013			September 29, 2012
	(Unaudited, in millions)
Income (loss) on equity method investments	$	(8	)	$	(89	)	$	(4	)

In the third quarter of 2013, we recorded a charge of $8 million, of which $5 million related to our investment in MicroOLED SAS, which consisted of approximately $1 million of our share of losses and approximately $4 million as non-cash impairment. Additionally, we recognized a loss of $3 million related to other investments, mainly 3Sun. This amount also included our share of the losses in ST-Ericsson JVS, which has been accounted for under the equity method since September 1, 2013. The loss in the third quarter of 2013 was lower than the $89 million loss in the second quarter of 2013, which was mainly due to a $91 million charge from our share in 3Sun, consisting of $22 million operating losses and $69 million as a non-cash item following an asset impairment.

Income tax benefit (expense)

	Three Months Ended
	September 28, 2013			June 29, 2013		September 29, 2012
	(Unaudited, in millions)
Income tax benefit (expense)	$	(49	)	$	16	$	(25	)

During the third quarter of 2013, we registered an income tax expense of $49 million. In the third quarter of 2013, income tax has been estimated adopting a discrete effective tax method as opposed to an estimated effective tax rate due to significant uncertainty in estimating the effective tax rate. Income tax expense includes the expense for a deferred tax assets valuation allowance ($23 million of the deferred tax assets registered in Canada) and re-alignment of the year-to-date tax expense to reflect updated projections for the full year.

Net loss (income) attributable to non-controlling interest

	Three Months Ended
	September 28, 2013			June 29, 2013		September 29, 2012
	(Unaudited, in millions)
Net loss (income) attributable to non-controlling interest	$	(17	)	$	21	$	351

In the third quarter of 2013, we recorded $17 million representing the income attributable to non-controlling interest relating to Ericsson’s interest in the ST-Ericsson joint venture prior to the deconsolidation as of September 1, 2013. In the second quarter of 2013, the corresponding amount was a loss of $21 million. All periods included the recognition of non-controlling interest related to our joint venture in Shenzhen, China for assembly operating activities and Incard do Brazil for distribution. Those amounts were not material.

Net loss attributable to parent company

	Three Months Ended
	September 28, 2013			June 29, 2013			September 28, 2012
	(Unaudited, in millions)
Net loss attributable to parent company	$	(142	)	$	(152	)	$	(478	)
As percentage of net revenues		(7.1	)%		(7.4	)%		(22.1	)%

For the third quarter of 2013, we reported a net loss of $142 million, slightly improving sequentially and significantly improving compared to the year-ago quarterly loss due to the aforementioned factors.

Earnings per share for the third quarter of 2013 was $(0.16) compared to $(0.17) in the second quarter of 2013 and $(0.54) per share in the year-ago quarter.

In the third quarter of 2013, the impact per share after tax of impairment, restructuring charges and other related closure costs and other one-time items, a non U.S. GAAP measure, was estimated to be approximately $(0.13) per share, while in the second quarter of 2013, it was estimated to be approximately $(0.11) per share. In the year-ago quarter, the impact of impairment, restructuring charges and other related closure costs and other one-time items was estimated to be approximately $(0.51) per share.

Nine Months of 2013 vs. Nine Months of 2012

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

	Nine Months Ended (Unaudited)						Nine Months Ended (Unaudited)
	September 28, 2013			September 28, 2013			September 29, 2012			September 29, 2012
	$ million			% of net revenues			$ million			% of net revenues
Net sales	$	6,042			99.6	%	$	6,269			99.0	%
Other revenues		25			0.4			62			1.0
Net revenues		6,067			100.0			6,331			100.0
Cost of sales		(4,115	)		(67.8	)		(4,246	)		(67.1	)
Gross profit		1,952			32.2			2,085			32.9
Selling, general and administrative		(817	)		(13.5	)		(876	)		(13.8	)
Research and development		(1,409	)		(23.2	)		(1,828	)		(28.9	)
Other income and expenses, net		84			1.3			55			0.8
Impairment, restructuring charges and other related closure costs		(263	)		(4.3	)		(788	)		(12.4	)
Operating loss		(453	)		(7.5	)		(1,352	)		(21.4	)
Interest expense, net		(2	)		0.0			(26	)		(0.4	)
Loss on equity method investments		(111	)		(1.8	)		(13	)		(0.1	)
Gain on financial instruments, net		-			-			3			0.0
Loss before income taxes and non-controlling interest		(566	)		(9.3	)		(1,388	)		(21.9	)
Income tax expense		(29	)		(0.5	)		(11	)		(0.2	)
Net loss		(595	)		(9.8	)		(1,399	)		(22.1	)
Net loss (income) attributable to non-controlling interest		131			2.1			669			10.6
Net loss attributable to parent company	$	(464	)		(7.7	)%	$	(730	)		(11.5	)%

Net revenues

	Nine Months Ended				% Variation
	September 28, 2013		September 29, 2012
	(Unaudited, in millions)
Net sales	$	6,042	$	6,269		(3.6	)%
Other revenues		25		62		(58.7	)
Net revenues	$	6,067	$	6,331		(4.2	)%

Our nine months 2013 net revenues decreased compared to the year-ago period, mainly due to the significant reduction of our Wireless product line revenues, also following our decision to exit the ST-Ericsson joint venture. Excluding the Wireless product line, our revenues increased by approximately 3% compared to the year-ago period. Net revenues decreased by approximately 4% as a result of about an 8% decline in average selling prices, partially offset by an increase of approximately 4% in volume.

By product segment, our revenues were down by approximately 13% for EPS, mainly due to the Wireless product line and DCG partially balanced by the strong performance in MMS, while SP&A registered an increase of approximately 3% mainly driven by AMS and APG.

By market channel, the major increase was in Distribution, which reached a 25% share of total revenues compared to approximately 22% in the first nine months of 2012.

By location of shipment, revenues in all regions except Japan-Korea decreased due to the exit of ST-Ericsson.

In the first nine months of 2013, Samsung Group represented approximately 10% of our total net revenues, while no customer exceeded 10% of our total net revenues in the first nine months of 2012.

Gross profit

	Nine Months Ended						% Variation
	September 28, 2013			September 29, 2012
	(Unaudited, in millions)
Cost of sales	$	(4,115	)	$	(4,246	)		3.1	%
Gross profit		1,952			2,085			(6.4	)%
Gross margin (as percentage of net revenues)		32.2	%		32.9	%		-

Gross margin was 32.2%, slightly decreasing compared to the year-ago period. We experienced an improvement in manufacturing efficiencies as well as lower unused capacity charges which accounted for approximately 40 basis points compared to 170 basis points in the year-ago period. This was offset by declining selling prices and a less favorable product mix, coupled with a lower level of IP licensing. Additionally, the first nine months of 2012 were impacted by a $54 million charge related to an arbitration award paid to NXP.

Selling, general and administrative expenses

	Nine Months Ended						% Variation
	September 28, 2013			September 29, 2012
	(Unaudited, in millions)
Selling, general and administrative expenses	$	(817	)	$	(876	)		6.7	%
As percentage of net revenues		(13.5	)%		(13.8	)%		-

The amount of our SG&A expenses decreased mainly associated with the exit of ST-Ericsson and by our cost savings initiatives. As a percentage of revenues, our SG&A expenses amounted to 13.5% slightly improving in comparison to 13.8% in the prior year’s nine months.

Research and development expenses

	Nine Months Ended						% Variation
	September 28, 2013			September 29, 2012
	(Unaudited, in millions)
Research and development expenses	$	(1,409	)	$	(1,828	)		23.0	%
As percentage of net revenues		(23.2	)%		(28.9	)%		-

R&D expenses decreased compared to the prior year’s first nine months, mainly due to the break-up of ST-Ericsson, which resulted in a $158 million reduction related to the charge back to Ericsson of the LTE multimode thin modem development expenses, the ST-Ericsson wind-down and our cost realignment programs.

Total R&D expenses were net of research tax credits, which amounted to $103 million in the first nine months of 2013, slightly decreasing compared to $110 million in the year-ago period.

Other income and expenses, net

	Nine Months Ended
	September 28, 2013			September 29, 2012
	(Unaudited, in millions)
Research and development funding	$	29		$	61
Exchange gain, net		6			4
Patent costs		(27	)		(15	)
Gain on sale of businesses and non-current assets		83			8
Start-up/phase-out costs		(1	)		-
Other, net		(6	)		(3	)
Other income and expenses, net	$	84		$	55
As percentage of net revenues		1.3	%		0.8	%

Other income and expenses, net, mainly included items such as the gain on sale of businesses and non-current assets and R&D funding. Income from R&D funding was associated with our R&D projects, which, upon project approval, qualifies as funding on the basis of contracts with local government agencies. In the first nine months of 2013, we recognized an income, net, of $84 million, increasing compared to $55 million in the first nine months of 2012, mainly due to the higher gain on sale of businesses and non-current assets.

Impairment, restructuring charges and other related closure costs

	Nine Months Ended
	September 28, 2013			September 29, 2012
	(Unaudited, in millions)
Impairment, restructuring charges and other related closure costs	$	(263	)	$	(788	)

In the first nine months of 2013, we recorded $263 million of impairment, restructuring charges and other related closure costs, primarily consisting of: $86 million in impairment and restructuring charges related to the ST-Ericsson exit, $69 million in restructuring charges related to our headcount reduction initiative targeting quarterly net operating expenses in the range of $600 to $650 million by the beginning of 2014, $56 million in impairment charges on the DCG goodwill and dedicated intangible assets following our yearly impairment test and $35 million in impairment and restructuring charges related to the manufacturing consolidation plans. See Note 8 to our Consolidated Financial Statements.

In the first nine months of 2012, we recorded $788 million of impairment, restructuring charges and other related closure costs, primarily consisting of: $690 million as a non-cash impairment on our Wireless goodwill, $50 million related to the ST-Ericsson restructuring plan announced in April 2012, $23 million related to the manufacturing restructuring plan as part of the closure of our Carrollton (Texas) and Phoenix (Arizona) sites and $21 million related to the ST-Ericsson restructuring plans previously announced in 2011 and 2009. See Note 8 to our Consolidated Financial Statements.

Operating loss

	Nine Months Ended
	September 28, 2013			September 29, 2012
	(Unaudited, in millions)
Operating loss	$	(453	)	$	(1,352	)
As percentage of net revenues		(7.5	)%		(21.4	)%

Our operating results improved compared to the first nine months of 2012, positively impacted by lower impairment charges and savings in operating expenses mainly in R&D, higher gains on sale of businesses and negatively impacted by a lower level of net sales and other revenues, including revenues from licensing.

SP&A registered operating income of $174 million or approximately 5% of revenues, down from $303 million or about 9% of revenues, driven by a less favorable mix. EPS registered an improvement in its operating loss from an operating loss of $701 million or about 25% of revenues in the first nine months of 2012 to an operating loss of $333 million or approximately 13% of revenues in the first nine months of 2013, mainly due to the exit from ST-Ericsson and gain from the sale of businesses. The segment “Others” decreased its losses to $294 million, from $954 million in the year-ago period, mainly due to lower impairment and restructuring charges.

Interest expense, net

	Nine Months Ended
	September 28, 2013			September 29, 2012
	(Unaudited, in millions)
Interest expense, net	$	(2	)	$	(26	)

In the first nine months of 2013, interest expense was $2 million, comprised of $18 million interest expense partially offset by $16 million of interest income, including the one-time interest payment received with respect to a U.S. tax refund in the second quarter of 2013. In the first nine months of 2012, interest expense on our borrowings was $26 million, mainly associated with the cost of ST-Ericsson financing.

Loss on equity method investments

	Nine Months Ended
	September 28, 2013			September 29, 2012
	(Unaudited, in millions)
Loss on equity method investments	$	(111	)	$	(13	)

In the first nine months of 2013, we recorded a charge of $111 million, out of which $99 million related to our share in 3Sun which consisted of a $30 million operating loss and $69 million as a non-cash item following their asset impairment. The remaining $12 million loss related to other investments, mainly MicroOLED SAS and ST-Ericsson JVD. In the first nine months of 2012, we recorded a charge of $13 million, out of which $10 million related to 3Sun, while the remaining $3 million loss related to our proportionate share in the loss of ST-Ericsson JVD.

Gain on financial instruments, net

	Nine Months Ended
	September 28, 2013		September 29, 2012
	(Unaudited, in millions)
Gain on financial instruments, net	$	-	$	3

In the first nine months of 2012, the $3 million gain on financial assets was mainly associated with the gain of $2 million related to the repurchase of our 2016 Convertible Bonds and $1 million related to the sale of some marketable securities.

Income tax benefit (expense)

	Nine Months Ended
	September 28, 2013			September 29, 2012
	(Unaudited, in millions)
Income tax benefit (expense)	$	(29	)	$	(11	)

During the first nine months of 2013, we registered an income tax expense of $29 million. In the third quarter of 2013, income tax has been estimated adopting a discrete effective tax method as opposed to an estimated effective tax rate due to significant uncertainty in estimating the effective tax rate. In addition, our income tax includes the estimated impact of provisions related to potential tax positions which have been considered uncertain. Our tax rate is variable and depends on changes in the level of operating results within various local jurisdictions and on changes in the applicable taxation rates of these jurisdictions, as well as changes in estimations of our tax provisions. Our income tax amounts and rates depend also on our loss carry-forwards and their relevant valuation allowances, which are based on estimated projected plans and available tax planning strategies; in the case of material changes in these plans, the valuation allowances could be adjusted accordingly with an impact on our tax charges. We currently enjoy certain tax benefits in some countries. Such benefits may not be available in the future due to changes in the local jurisdictions; our effective tax rate could be different in future periods and may increase in the coming years. In addition, our yearly income tax charges include the estimated impact of provisions related to potential tax positions which have been considered uncertain.

Net loss (income) attributable to non-controlling interest

	Nine Months Ended
	September 28, 2013		September 29, 2012
	(Unaudited, in millions)
Net loss (income) attributable to non-controlling interest	$	131	$	669

In the first nine months of 2013, we recorded $131 million income representing the loss attributable to non-controlling interest, mainly relating to Ericsson’s interest in the ST-Ericsson joint venture prior to the deconsolidation thereof as of September 1, 2013. In the first nine months of 2012, the corresponding amount was $669 million.

All periods included the recognition of non-controlling interest related to our joint venture in Shenzhen, China for assembly operating activities and Incard do Brazil for distribution. Those amounts were not material.

Net loss attributable to parent company

	Nine Months Ended
	September 28, 2013			September 29, 2012
	(Unaudited, in millions)
Net loss attributable to parent company	$	(464	)	$	(730	)
As percentage of net revenues		(7.7	)%		(11.5	)%

For the first nine months of 2013, we reported a net loss of $464 million, a significant decrease compared to the year-ago first nine months net loss despite lower revenues, mainly due to decreasing impairment charges, a much lower level of operating expenses and the gain on sale of businesses.

Legal Proceedings

As is the case with many companies in the semiconductor industry, we have from time to time received, and may in the future receive, communications from other semiconductor companies or third parties alleging possible infringement of patents. Furthermore, we may become involved in costly litigation brought against us regarding patents, copyrights, trademarks, trade secrets or mask works. In the event that the outcome of such IP litigation would be unfavorable to us, we may be required to take a license for patents or other IP rights upon economically unfavorable terms and conditions, and possibly pay damages for prior use, and/or face an injunction, all of which singly or in the aggregate could have a material adverse effect on our results of operations and ability to compete. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — We depend on patents to protect our rights to our technology and may face claims of infringing the IP rights of others” included in our Form 20-F, which may be updated from time to time in our public filings. We are also party to certain disputes which are not related to patents or other IP rights.

We record a provision when, based on our best estimate, we consider it probable that a liability has been incurred and when the amount of the probable loss can be reasonably estimated. As of September 28, 2013, provisions for estimated probable losses with respect to legal proceedings were not considered material. In addition, the amount we estimated for possible losses was between $30 million and $50 million. We regularly evaluate losses and claims to determine whether they need to be adjusted based on the most current information available to us and using our best judgment. There can be no assurance that our recorded reserves will be sufficient to cover the extent of our potential liabilities. Legal costs associated with claims are expensed as incurred.

We are a party to legal proceedings with Tessera, Inc. (“Tessera”)

In 2006, Tessera initiated a patent infringement lawsuit against us and numerous other semiconductor manufacturers in the U.S. District Court for the Northern District of California. Tessera then filed a complaint in 2007 with the International Trade Commission in Washington, D.C. (“ITC”) against us and numerous other parties. During the ITC proceedings, the District Court action was stayed. On May 20, 2009, the ITC issued a limited exclusion order as well as a cease and desist order, both of which were terminated when the Tessera patents expired. The patents asserted by Tessera in both the ITC and District Court actions, which relate to ball grid array packaging technology, expired in September 2010. The Court of Appeal subsequently affirmed the ITC’s decision and on November 28, 2011, the U.S. Supreme Court denied the defendants’ petition for review, and the ITC decision became final.

In January 2012, the District Court proceedings were revived in California. The Court has appointed a special master to advise it on technical issues whose report is expected by the end of the year. Trial is tentatively scheduled for August 25, 2014.

We and our subsidiaries are also involved in other legal proceedings, claims and litigation arising in the ordinary course of business.

All pending claims and litigation proceedings involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to prosecute and defend. The results of legal proceedings are inherently uncertain, and material adverse outcomes are possible, including the risk of an injunction. The resolution of intellectual property litigation may require us to pay damages for past infringement or to obtain a license under the other party’s intellectual property rights that could require one time license fees or ongoing royalties, which could adversely impact our product gross margins in future periods, or could prevent us from manufacturing or selling some of our products or limit or restrict the focus of employees involved in such litigation with regard to the work they normally perform for us. From time to time we may enter into confidential discussions regarding the potential settlement of pending litigation or other proceedings; however, there can be no assurance that any such discussions will occur or will result in a settlement. The settlement of any pending litigation or other proceeding could require us to incur substantial settlement payments and costs. Furthermore, the settlement of any intellectual property proceeding may require us to grant a license to certain of our intellectual property rights to the other party under a cross license agreement. If any of those events were to occur, our business, financial condition and results of operations could be materially and adversely affected. In addition, from time to time we are approached by holders of intellectual property to engage in discussions about our obtaining licenses to their intellectual property. We will disclose the nature of any such discussion if we believe that (i) it is probable an intellectual property holder will assert a claim of infringement, (ii) there is a reasonable possibility the outcome (assuming assertion) will be unfavorable, and (iii) the resulting liability would be material to our financial condition. We also constantly review the merits of litigation and claims which we are facing and decide to make an accrual when we are able to reasonably determine that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. To date, we have not determined on such basis that any of the litigation or claims which we are facing gives rise to a probable material liability, singly or in the aggregate.

Related Party Transactions

One of the members of our Supervisory Board is a member of the Board of Directors of Technicolor and one of the members of our Supervisory Board is a member of the Supervisory Board of BESI. A former member of our Supervisory Board, whose mandate ended in June 2013, is a director of Oracle Corporation (“Oracle”) and Flextronics International. One of our executive officers, who resigned effective March 31, 2013, is a member of the Board of Directors of Soitec and Adecco. Adecco, as well as Oracle’s subsidiary PeopleSoft, supply certain services to our Company. We have also conducted transactions with Soitec and BESI as well as with Technicolor and Flextronics. From time to time, we enter into transactions with subsidiaries of certain of our significant shareholders or other companies in which they invest (including but not limited to: Adecco, Areva, Altis, BESI, Flextronics, Oracle, Orange and Technicolor). Each of the aforementioned arrangements and transactions is negotiated without the personal involvement of our Supervisory Board members or, where applicable, the executive officer concerned, and we believe that they are made in line with market practices and conditions.

Impact of Changes in Exchange Rates

Our results of operations and financial condition can be significantly affected by material changes in the exchange rates between the U.S. dollar and other currencies, particularly the Euro.

As a market rule, the reference currency for the semiconductor industry is the U.S. dollar and the market prices of semiconductor products are mainly denominated in U.S. dollars. However, revenues for some of our products (primarily our dedicated products sold in Europe) are quoted in currencies other than the U.S. dollar and as such are directly affected by fluctuations in the value of the U.S. dollar. As a result of currency variations, the appreciation of the Euro compared to the U.S. dollar could increase, in the short-term, our level of revenues when reported in U.S. dollars. Revenues for all other products, which are either quoted in U.S. dollars and billed in U.S. dollars or in local currencies for payment, tend not to be affected significantly by fluctuations in exchange rates, except to the extent that there is a lag between the changes in currency rates and the adjustments in the local currency equivalent of the price paid for such products. Furthermore, certain significant costs incurred by us, such as manufacturing costs, SG&A expenses, and R&D expenses, are largely incurred in the currency of the jurisdictions in which our operations are located. Given that most of our operations are located in the Euro zone and other non-U.S. dollar currency areas, including Singapore, our costs tend to increase when translated into U.S. dollars when the dollar weakens or to decrease when the U.S. dollar strengthens.

In summary, as our reporting currency is the U.S. dollar, exchange rate fluctuations affect our results of operations: in particular, if the U.S. dollar weakens, our results are negatively impacted since we receive a limited part of our revenues, and more importantly, we incur a significant part of our costs, in currencies other than the U.S. dollar. On the other hand, our results are favorably impacted when the dollar strengthens. The impact on our accounts could therefore be material, in the case of a material variation of the U.S. dollar exchange rate.

Our principal strategy to reduce the risks associated with exchange rate fluctuations has been to balance as much as possible the proportion of sales to our customers denominated in U.S. dollars with the amount of materials, purchases and services from our suppliers denominated in U.S. dollars, thereby reducing the potential exchange rate impact of certain variable costs relative to revenues. Moreover, in order to further reduce the exposure to U.S. dollar exchange fluctuations, we have hedged certain line items on our Consolidated Statements of Income, in particular with respect to a portion of the costs of goods sold, most of the R&D expenses and certain SG&A expenses, located in the Euro zone, which we account for as cash flow hedging contracts. We use three different types of hedging contracts, consisting of forward contracts, collars and options.

Our Consolidated Statements of Income for the three months ended September 28, 2013 included income and expense items translated at the average U.S. dollar exchange rate for the period, plus the impact of the hedging contracts expiring during the period. Our effective exchange rate was $1.31 for the third quarter of 2013 and $1.30 for €1.00 for the second quarter of 2013 while it was $1.29 for €1.00 for the third quarter of 2012. Our effective average exchange rate was $1.30 for €1.00 for the first nine months of 2013 compared to $1.31 for €1.00 in the first nine months of 2012. These effective exchange rates reflect the actual exchange rates combined with the impact of cash flow hedging contracts that matured in the period.

The time horizon of our cash flow hedging for manufacturing costs and operating expenses may run up to 24 months, for a limited percentage of our exposure to the Euro and under certain currency market circumstances. As of September 28, 2013, the outstanding hedged amounts were €611 million to cover manufacturing costs and €452 million to cover operating expenses, both at an average exchange rate of about $1.34 for €1.00 (considering the options and the collars at strike), maturing over the period from October 1, 2013 to September 2, 2014. As of September 28, 2013, these outstanding hedging contracts and certain expiring contracts covering manufacturing expenses capitalized in inventory resulted in a deferred profit of approximately $35 million before tax, recorded in “Accumulated other comprehensive income (loss)” in the Consolidated Statements of Equity, compared to a deferred profit of approximately $24 million before tax at December 31, 2012.

We also hedge certain manufacturing costs denominated in Singapore dollars (SGD); as of September 28, 2013, the outstanding hedged amounts were SGD 199 million at an average exchange rate of about SGD 1.25 to $1.00 maturing over the period from October 1, 2013 to September 4, 2014.

Our cash flow hedging policy is not intended to cover our full exposure and is based on hedging a portion of our exposure in the next four quarters and a declining percentage of our exposure in each quarter thereafter. In the third quarter of 2013, as a result of our cash flow hedging, we recorded a net profit of $4 million, consisting of a profit of about $2 million to R&D expenses and a profit of about $2 million to costs of goods sold, while in the third quarter of 2012, we recorded a net loss of $32 million.

In addition to our cash flow hedging, in order to mitigate potential exchange rate risks on our commercial transactions, we purchase and enter into forward foreign currency exchange contracts and currency options to cover foreign currency exposure in payables or receivables at our affiliates, which we account for as fair value instruments. We may in the future purchase or sell similar types of instruments. See Item 11. “Quantitative and Qualitative Disclosures About Market Risk” in our Form 20-F, which may be updated from time to time in our public filings. Furthermore, we may not predict in a timely fashion the amount of future transactions in the volatile industry environment. No assurance may be given that our hedging activities will sufficiently protect us against declines in the value of the U.S. dollar. Consequently, our results of operations have been and may continue to be impacted by fluctuations in exchange rates. The net effect of our consolidated foreign exchange exposure resulted in a net gain of $2 million recorded in “Other income and expenses, net” in our Consolidated Statements of Income for the third quarter of 2013.

The assets and liabilities of subsidiaries are, for consolidation purposes, translated into U.S. dollars at the period-end exchange rate. Income and expenses, as well as cash flows, are translated at the average exchange rate for the period. The Balance Sheet impact, as well as the income statement and cash flow impact, of such translations have been, and may be expected to be, significant from period to period since a large part of our assets and liabilities and activities are accounted for in Euros as they are located in jurisdictions where the Euro is the functional currency. Adjustments resulting from the translation are recorded directly in equity, and are shown as “Accumulated other comprehensive income (loss)” in the Consolidated Statements of Equity. At September 28, 2013, our outstanding indebtedness was denominated mainly in U.S. dollars and in Euros.

For a more detailed discussion, see Item 3. “Key Information — Risk Factors — Risks Related to Our Operations” in our Form 20-F, which may be updated from time to time in our public filings.

Impact of Changes in Interest Rates

Interest rates may fluctuate upon changes in financial market conditions and material changes can affect our results of operations and financial condition, since these changes can impact the total interest income received on our cash and cash equivalents and marketable securities, as well as the total interest expense paid on our financial debt.

Our interest income (expense), net, as reported in our Consolidated Statements of Income, is the balance between interest income received from our cash and cash equivalents and marketable securities investments and interest expense paid on our financial liabilities (including the sale without recourse of receivables) and bank fees (including fees on committed credit lines). Our interest income is dependent upon fluctuations in interest rates, mainly in U.S. dollars and Euros, since we invest primarily on a short-term basis; any increase or decrease in the market interest rates would mean an equivalent increase or decrease in our interest income. Our interest expenses are also dependent upon fluctuations in interest rates, since our financial liabilities mainly consist of European Investment Bank Floating Rate Loans at Libor and Euribor plus variable spreads. On March 17, 2013, we repaid with available cash the residual Euro 350 million outstanding 2013 Senior Bonds (the “2013 Senior Bonds”) with a principal amount at issuance of Euro 500 million.

At September 28, 2013, our total financial resources, including cash and cash equivalents and marketable securities, generated an average interest income rate of 0.22%. At the same date, the average interest rate on our outstanding debt was 0.93%.

Impact of Changes in Equity Prices

As of September 28, 2013, we did not hold any significant equity participations, which could be subject to a material impact in changes in equity prices. However, we hold equity participations whose carrying value could be reduced due to further losses or impairment charges of our equity method investments. See Note 18 to our Consolidated Financial Statements.

Liquidity and Capital Resources

Treasury activities are regulated by our policies, which define procedures, objectives and controls. The policies focus on the management of our financial risk in terms of exposure to currency rates and interest rates. Most treasury activities are centralized, with any local treasury activities subject to oversight from our head treasury office. The majority of our cash and cash equivalents are held in U.S. dollars and Euros and are placed with financial institutions rated single A long-term rating, meaning at least A3 from Moody’s Investor Service (“Moody’s”) and A- from Standard & Poor’s (“S&P”) or Fitch Ratings (“Fitch”), or better. Marginal amounts are held in other currencies. See Item 11. “Quantitative and Qualitative Disclosures About Market Risk” in our Form 20-F, which may be updated from time to time in our public filings.

Cash flow

We maintain a significant cash position and a low debt-to-equity ratio, which provide us with adequate financial flexibility. As in the past, our cash management policy is to finance our investment needs mainly with net cash generated from operating activities.

During the first nine months of 2013, our net cash decreased by $816 million, due to the net cash used in investing and financing activities exceeding the net cash from operating activities, primarily due to the repayment of the residual outstanding 2013 Senior Bonds in the amount of $455 million, net payments for tangible assets and the dividend payments.

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

	Nine Months Ended
	September 28, 2013			September 29, 2012
	(In millions)
Net cash from operating activities	$	96		$	360
Net cash used in investing activities		(234	)		(289	)
Net cash used in financing activities		(658	)		(271	)
Effect of changes in exchange rates		(20	)		(26	)
Net cash decrease	$	(816	)	$	(226	)

Net cash from operating activities. The net cash from operating activities in the first nine months of 2013 was $96 million, decreasing compared to $360 million in the prior year period. Net cash from operating activities is the sum of (i) net income (loss) adjusted for non-cash items ($150 million in the first nine months of 2013 compared to $55 million in the prior year period) and (ii) changes in assets and liabilities (a negative $54 million in the first nine months of 2013 compared to positive $305 million in the prior year period). The decrease in net cash from operating activities in the first nine months of 2013 compared to the year-ago period is mainly due to the less favorable changes in assets and liabilities, which was partially balanced by the net loss adjusted for non-cash items. Changes in assets and liabilities generated a lower amount of cash, mainly due to a negative change in trade receivables and inventories. Furthermore, the negative trend in trade receivables also included an unfavorable net cash impact of $31 million, deriving from the sales, with no recourse, of trade and other receivables, compared to a favorable $71 million in the first nine months of 2012.

Net cash used in investing activities. Investing activities used $234 million of cash in the first nine months of 2013, mainly due to payments for the purchase of tangible assets and for intangible and financial assets, partially offset by the proceeds from the sale of marketable securities. Payments for purchase of tangible assets, net of proceeds, totaled $398 million, flat compared to the prior year period. Investing activity in the first nine months of 2012 used $289 million, mainly due to the payments for tangible, intangible and financial assets, partially balanced by the net cash from proceeds of the sale of certain marketable securities.

Net cash used in financing activities. Net cash used in financing activities was $658 million in the first nine months of 2013, increasing compared to the $271 million used in the first nine months of 2012, mainly due to the $455 million repayment of the residual outstanding 2013 Senior Bonds. The amount for the first nine months of 2013 included $257 million in dividends paid to stockholders, compared to $266 million paid in the first nine months of 2012.

Free Cash Flow (non U.S. GAAP measure).

We also present Free Cash Flow, which is a non U.S. GAAP measure, defined as (i) net cash from operating activities plus (ii) net cash used in investing activities, excluding payment for purchases (and proceeds from the sale) of marketable securities, short-term deposits and restricted cash, which are considered as temporary financial investments. The result of this definition is ultimately net cash from operating activities plus payment for purchase of tangible and intangible assets and payment for business acquisitions. We believe Free Cash Flow, a non U.S. GAAP measure, provides useful information for investors and management because it measures our capacity to generate cash from our operating activities to sustain our operating investing activities. Free Cash Flow is not a U.S. GAAP measure and does not represent total cash flow since it does not include the cash flows generated by or used in financing activities. Free Cash Flow reconciles with the total cash flow and the net cash increase (decrease) by including the payment for purchases (and proceeds from the sale) of marketable securities, short-term deposits and restricted cash, the net cash from (used in) financing activities and the effect of changes in exchange rates. In addition, our definition of Free Cash Flow may differ from definitions used by other companies. Free Cash Flow is determined as follows from our Consolidated Statements of Cash Flows:

	Three Months Ended			Nine Months Ended
	September 28, 2013			September 28, 2013			September 29, 2012
	(In millions)			(In millions)
Net cash from operating activities	$	14		$	96		$	360
Net cash used in investing activities		(7	)		(234	)		(289	)
Excluding:
Payment for purchase and proceeds from sale of marketable securities, restricted cash, net and net cash from joint ventures deconsolidation		(79	)		(132	)		(183	)
Payment for purchase and proceeds from sale of tangible and intangible assets (1)		(86	)		(366	)		(472	)
Free Cash Flow (non U.S. GAAP measure)	$	(72	)	$	(270	)	$	(112	)

_____________

(1)

Reflects the total of the following line items reconciled with our Consolidated Statements of Cash Flows relating to the operating investing activities: Payment for purchase of tangible assets, Proceeds from sale of tangible assets, Payment for purchase of intangible and financial assets, Proceeds from sale of intangible, financial assets and businesses.

Free Cash Flow was negative $270 million in the first nine months of 2013, deteriorating compared to negative $112 million used in the first nine months of 2012, due primarily to lower cash generated from operating activities.

Net Financial Position (non U.S. GAAP measure).

Our Net Financial Position represents the balance between our total financial resources and our total financial debt. Our total financial resources include cash and cash equivalents, marketable securities, short-term deposits and restricted cash, and our total financial debt includes bank overdrafts, short-term debt and long-term debt, as represented in our Balance Sheets. Net Financial Position is not a U.S. GAAP measure but we believe it provides useful information for investors because it gives evidence of our global position either in terms of net indebtedness or net cash by measuring our capital resources based on cash and cash equivalents and marketable securities and the total level of our financial indebtedness, which included 50% of ST-Ericsson’s indebtedness up to September 1, 2013 when we deconsolidated ST-Ericsson. Consequently, we have in prior periods presented the Net Financial Position attributable to ST (“ST Net Financial Position”), which did not include the ST-Ericsson indebtedness towards Ericsson, our partner in the JVS. Our Net Financial Position for each period has been determined as follows from our Balance Sheets:

	As at
	September 28, 2013			June 29, 2013			September 29, 2012
	(In millions)
Cash and cash equivalents	$	1,434		$	1,583		$	1,686
Marketable securities		91			189			237
Restricted cash		-			-			4
Short-term deposits		1			1			-
Total financial resources		1,526			1,773			1,927
Short-term debt		(168	)		(313	)		(1,260	)
Long-term debt		(619	)		(651	)		(298	)
Total financial debt		(787	)		(964	)		(1,558	)
Net Financial Position		739			809			369
ST-Ericsson net debt to Ericsson		-			145			695
ST Net Financial Position	$	739		$	954		$	1,064

Our Net Financial Position as of September 28, 2013 was a net cash position of $739 million, a $70 million decrease compared to our Net Financial Position of $809 million at June 29, 2013 net cash, as a result of our negative free cash flow.

Cash and cash equivalents amounted to $1,434 million as at September 28, 2013, declining sequentially from $1,583 million as a result of our cash flow evolution as presented above.

Marketable securities was composed of $91 million invested in senior debt securities at floating rate issued by primary financial institutions with an average rating of Baa1/A-/A from Moody’s, S&P and Fitch with an average maturity of less than three months. The Floating Rate Notes are classified as available-for-sale and reported at fair value. See Note 13 to our Consolidated Financial Statements.

Financial debt was $787 million as at September 28, 2013, composed of (i) $168 million of current portion of long-term debt and (ii) $619 million long-term debt. The breakdown of our total financial long-term debt included: (i) $762 million in European Investment Bank loans (the “EIB Loans”), (ii) $22 million in loans from other funding programs and (iii) $3 million of capital leases. The EIB Loans are comprised of four long-term amortizing credit facilities as part of our R&D funding programs. The first for R&D in France was drawn in U.S. dollars from 2006 to 2008 in a total amount of $341 million, of which $117 million remained outstanding as of September 28, 2013. The second for R&D projects in Italy was drawn in U.S. dollars in 2008 in a total amount of $380 million, of which $189 million remained outstanding as of September 28, 2013. The third, signed in 2010, is a €350 million multi-currency loan to support our industrial and R&D programs. It was drawn mainly in U.S. dollars for an amount of $321 million and only partially in Euros for an amount of €100 million. The fourth, signed in the first quarter of 2013, is a €350 million multicurrency loan which also supports our R&D programs; this line is currently undrawn. At September 28, 2013, the amounts available under our short-term lines of credit were unutilized.

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

In March 2006, STMicroelectronics Finance B.V. (“ST BV”), a wholly owned subsidiary, issued the 2013 Senior Bonds. The Bonds, which matured on March 17, 2013, paid a quarterly coupon rate of the three-month Euribor plus 0.40%. On March 17, 2013, we repaid at maturity with available cash the residual outstanding 2013 Senior Bonds in the amount of $455 million.

As of September 28, 2013, debt payments due by period were as follows:

	Payments Due by Period
	Total		2013		2014		2015		2016		2017		Thereafter
	(In millions)
Long-term debt (including current portion)	$	787	$	106	$	167	$	145	$	136	$	60	$	173

On December 13, 2012, Moody’s lowered our senior debt rating from “Baa1” to “Baa2” with stable outlook. On March 15, 2013, Moody’s changed the outlook to negative from stable. On December 18, 2012, S&P lowered our senior debt rating from “BBB+” to “BBB” with negative outlook. We are also rated “BBB-” from Fitch on an unsolicited basis.

Financial Outlook

Our policy is to modulate our capital spending according to the evolution of the semiconductor market. Based on current visibility on demand, we anticipate our capex expenditure to be approximately $500 million in 2013, to be adjusted based on demand thereafter. The most important of our 2013 capital expenditure projects are expected to be: (a) for our front-end facilities: (i) in our 300-mm fab in Crolles, technology evolution to consolidate the capability for 20-nm processes and mix evolution to support the production ramp up of the most advanced technologies; (ii) a few selective programs of mix evolution, mainly in the area of analog processes; and (iii) quality, safety, maintenance, and productivity and cost savings investments in both 150-mm and 200-mm front-end fabs; (b) for our back-end facilities, capital expenditures will mainly be dedicated to: (i) capacity growth on certain package families, mainly in the area of MEMS, to sustain market demand; (ii) modernization of package lines targeting cost savings benefits; and (iii) specific investments in the areas of factory automation, quality, environment and energy savings; and (c) an overall capacity adjustment in final testing and wafers probing (EWS) according to changes in demand.

We will continue to monitor our level of capital spending by taking into consideration factors such as trends in the semiconductor industry and capacity utilization. We expect to need significant financial resources in the coming years for capital expenditures and for our investments in manufacturing and R&D. We plan to fund our capital requirements from cash provided by operating activities, available funds and support from third parties, and may have recourse to borrowings under available credit lines and, to the extent necessary or attractive based on market conditions prevailing at the time, the issuance of debt, convertible bonds or additional equity securities. A substantial deterioration of our economic results, and consequently of our profitability, could generate a deterioration of the cash generated by our operating activities. Therefore, there can be no assurance that, in future periods, we will generate the same level of cash as in prior years to fund our capital expenditure plans for expanding/upgrading our production facilities, our working capital requirements, our R&D and manufacturing costs.

In support of our R&D activities, we recently signed with the French Government a new funding program called “Nano2017”, which will provide funding for our activities in the region of Grenoble, over the period 2013 to 2017, subject to regulatory approvals.

We have an equity investment in 3Sun. Under certain circumstances of evolution of the 3Sun joint venture and its business, there may be a need to provide additional resources to 3Sun.

Furthermore, as a result of the exit from the ST-Ericsson joint venture, we have launched a number of restructuring initiatives aimed at repositioning the Company for the “post-ST-Ericsson” period. We estimate that the cash to be incurred to complete the overall plan – including our share of the final liquidation of ST-Ericsson and the other restructuring initiatives – will be in the range of $130 million to $170 million.

While our cash flow was negative in the third quarter of 2013, we expect to have a positive Free Cash Flow in the fourth quarter of 2013 based on current market visibility.

We believe that we have the financial resources needed to meet our currently projected business requirements for the next twelve months, including capital expenditures for our manufacturing activities, working capital requirements, approved dividend payments and the repayment of our debts in line with their maturity dates.

Contractual Obligations, Commercial Commitments and Contingencies

Our contractual obligations, commercial commitments and contingencies are mainly comprised of: operating leases for land, buildings, plants and equipment; purchase commitments for equipment, outsourced foundry wafers and for software licenses; long-term debt obligations; our 50% share of the liquidation costs of ST-Ericsson; pension obligations and other long-term liabilities.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements at September 28, 2013.

Backlog and Customers

During the third quarter of 2013, our bookings plus frame orders, excluding the Wireless product line, decreased compared to the second quarter of 2013, reflecting lower demand in several product lines. We entered the fourth quarter of 2013 with a backlog lower than the level we had when entering the third quarter of 2013, excluding the Wireless product line. Backlog (including frame orders) is subject to possible cancellation, push back and a lower ratio of frame orders being translated into firm orders and, thus, it is not necessarily indicative of the amount of billings or growth to be registered in subsequent periods.

In the first nine months of 2013, Samsung group represented approximately 10% of our total net revenues while no customer accounted for more than 10% of our total net revenues in the first nine months of 2012. There is no guarantee that any customer will continue to generate revenues for us at the same levels as in prior periods. If we were to lose one or more of our key customers, or if they were to significantly reduce their bookings, not confirm planned delivery dates on frame orders in a significant manner or fail to meet their payment obligations, our operating results and financial condition could be adversely affected.

Disclosure Controls and Procedures

Evaluation

Our management, including the CEO and CFO, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this report. Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this periodic report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our quarterly evaluation of Disclosure Controls includes an evaluation of some components of our internal control over financial reporting, and internal control over financial reporting is also separately evaluated on an annual basis.

The evaluation of our Disclosure Controls included a review of the controls’ objectives and design, our implementation of the controls and their effect on the information generated for use in this periodic report. In the course of the controls evaluation, we reviewed identified data errors, control problems or acts of fraud and sought to confirm that appropriate corrective actions, including process improvements, were being undertaken. This type of evaluation is performed at least on a quarterly basis so that the conclusions of management, including the CEO and CFO, concerning the effectiveness of the Disclosure Controls can be reported in our periodic reports on Form 6-K and Form 20-F. The components of our Disclosure Controls are also evaluated on an ongoing basis by our Internal Audit Department, which reports directly to our Audit Committee. The overall goals of these various evaluation activities are to monitor our Disclosure Controls, and to modify them as necessary. Our intent is to maintain the Disclosure Controls as dynamic systems that change as conditions warrant.

Based upon the controls evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this periodic report, our Disclosure Controls (including those at ST-Ericsson) were effective.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls

No system of internal control over financial reporting, including one determined to be effective, may prevent or detect all misstatements. It can provide only reasonable assurance regarding financial statement preparation and presentation. Also, projections of the results of any evaluation of the effectiveness of internal control over financial reporting into future periods are subject to inherent risk that the relevant controls may become inadequate due to changes in circumstances or that the degree of compliance with the underlying policies or procedures may deteriorate.

Other Reviews

We have sent this report to our Audit Committee, which had an opportunity to raise questions with our management and independent auditors before we submitted it to the Securities and Exchange Commission.

Cautionary Note Regarding Forward-Looking Statements

Some of the statements contained in this Form 6-K that are not historical facts, particularly in “Overview— Business Outlook” and in “Liquidity and Capital Resources—Financial Outlook”, are statements of future expectations and other forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended) that are based on management’s current views and assumptions, and are conditioned upon and also involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those in such statements due to, among other factors:

uncertain macro-economic and industry trends;

customer demand and acceptance for the products which we design, manufacture and sell;

unanticipated events or circumstances which may either impact our ability to execute the planned reductions in our net operating expenses and / or meet the objectives of our R&D Programs which benefit from public funding;

future events or circumstances which may require a higher than anticipated cash injection concerning the wind-down of our ST-Ericsson joint venture;

the loading and the manufacturing performances of our production facilities;

the functionalities and performance of our IT systems, which support our critical operational activities including manufacturing, finance and sales;

variations in the foreign exchange markets and, more particularly, in the rate of the U.S. dollar exchange rate as compared to the Euro and the other major currencies we use for our operations;

the impact of IP claims by our competitors or other third parties, and our ability to obtain required licenses on reasonable terms and conditions;

restructuring charges and associated cost savings that differ in amount or timing from our estimates;

changes in our overall tax position as a result of changes in tax laws, the outcome of tax audits or changes in international tax treaties which may impact our results of operations as well as our ability to accurately estimate tax credits, benefits, deductions and provisions and to realize deferred tax assets;

the outcome of ongoing litigation as well as the impact of any new litigation to which we may become a defendant;

natural events such as severe weather, earthquakes, tsunami, volcano eruptions or other acts of nature, health risks and epidemics in locations where we, our customers or our suppliers operate;

changes in economic, social, political or infrastructure conditions in the locations where we, our customers or our suppliers operate including as a result of macro-economic or regional events, military conflict, social unrest or terrorist activities;

availability and costs of raw materials, utilities, third-party manufacturing services, or other supplies required by our operations; and

the possibility of widespread financial and business disruption on account of a default by the U.S. on U.S. government financial obligations.

Such forward-looking statements are subject to various risks and uncertainties, which may cause actual results and performance of our business to differ materially and adversely from the forward-looking statements. Certain forward-looking statements can be identified by the use of forward-looking terminology, such as “believes”, “expects”, “may”, “are expected to”, “should”, “would be”, “seeks” or “anticipates” or similar expressions or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans or intentions. Some of these risk factors are set forth and are discussed in more detail in “Item 3. Key Information — Risk Factors” in our Form 20-F. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in our Form 20-F as anticipated, believed or expected. We do not intend, and do not assume any obligation, to update any industry information or forward-looking statements set forth in this Form 6-K to reflect subsequent events or circumstances.

Unfavorable changes in the above or other factors listed under “Item 3. Key Information — Risk Factors” from time to time in our SEC filings, could have a material adverse effect on our business and/or financial condition.

STMICROELECTRONICS N.V.

UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

	Pages
Consolidated Statements of Income for the Three and Nine Months Ended September 28, 2013 and September 29, 2012 (unaudited)	F-1
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 28, 2013 and September 29, 2012 (unaudited)	F-3
Consolidated Balance Sheets as of September 28, 2013 (unaudited) and December 31, 2012 (audited)	F-5
Consolidated Statements of Cash Flows for the Nine Months Ended September 28, 2013 and September 29, 2012 (unaudited)	F-6
Consolidated Statements of Equity (unaudited)	F-7
Notes to Interim Consolidated Financial Statements (unaudited)	F-8

STMicroelectronics N.V.
CONSOLIDATED STATEMENTS OF INCOME

	Three months ended
	(Unaudited)
	September 28,			September 29,
In millions of U.S. dollars except per share amounts	2013			2012

Net sales		2,005			2,119
Other revenues		8			47
Net revenues		2,013			2,166
Cost of sales		(1,361	)		(1,413	)
Gross profit		652			753
Selling, general and administrative		(253	)		(274	)
Research and development		(423	)		(578	)
Other income and expenses, net		78			20
Impairment, restructuring charges and other related closure costs		(120	)		(713	)
Operating loss		(66	)		(792	)
Interest expense, net		(2	)		(8	)
Income (loss) on equity-method investments		(8	)		(4	)
Loss before income taxes and noncontrolling interest		(76	)		(804	)
Income tax expense		(49	)		(25	)
Net loss		(125	)		(829	)
Net loss (income) attributable to noncontrolling interest		(17	)		351
Net loss attributable to parent company		(142	)		(478	)

Earnings per share (Basic) attributable to parent company stockholders		(0.16	)		(0.54	)
Earnings per share (Diluted) attributable to parent company stockholders		(0.16	)		(0.54	)


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

F-1

STMicroelectronics N.V.
CONSOLIDATED STATEMENTS OF INCOME

	Nine months ended
	(Unaudited)
	September 28,			September 29,
In millions of U.S. dollars except per share amounts	2013			2012

Net sales		6,042			6,269
Other revenues		25			62
Net revenues		6,067			6,331
Cost of sales		(4,115	)		(4,246	)
Gross profit		1,952			2,085
Selling, general and administrative		(817	)		(876	)
Research and development		(1,409	)		(1,828	)
Other income and expenses, net		84			55
Impairment, restructuring charges and other related closure costs		(263	)		(788	)
Operating loss		(453	)		(1,352	)
Interest expense, net		(2	)		(26	)
Loss on equity-method investments		(111	)		(13	)
Gain on financial instruments, net		-