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 May 5, 2022

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 ☒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 ☒

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 ☒

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 ☒

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 First Quarter ended April 2, 2022:

 

 

 

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OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

The following discussion should be read in conjunction with our Unaudited Interim Consolidated Statements of Income, Statements of Comprehensive Income, Balance Sheets, Statements of Cash Flows and Statements of Equity for the three months ended April 2, 2022 and Notes thereto included elsewhere in this Form 6‑K, and our annual report on Form 20‑F for the year ended December 31, 2021 as filed with the U.S. Securities and Exchange Commission (the “Commission” or the “SEC”) on February 24, 2022 (the “Form 20‑F”). The following discussion contains statements of future expectations and other forward‑looking statements within the meaning of Section 27A of the Securities Act of 1933, or Section 21E of the Securities Exchange Act of 1934, each as amended, particularly in the sections “Business Overview” and “Liquidity and Capital Resources—Financial Outlook: Capital Investment”. Our actual results may differ significantly from those projected in the forward‑looking statements. For a discussion of factors that might cause future actual results to differ materially from our recent results or those projected in the forward‑looking statements in addition to the factors set forth below, see “Cautionary Note Regarding Forward‑Looking Statements” and “Item 3. Key Information—Risk Factors” included in the Form 20‑F. We assume no obligation to update the forward‑looking statements or such risk factors.

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

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At STMicroelectronics N.V. (“ST” or the “Company”), we are 48,000 creators and makers of semiconductor technologies mastering the semiconductor supply chain with state-of-the-art manufacturing facilities. An independent device manufacturer, we work with more than 200,000 customers and thousands of partners to design and build products, solutions, and ecosystems that address their challenges and opportunities, and the need to support a more sustainable world. We develop industry-leading technologies that allow us to provide products and solutions that meet and exceed the needs and expectations of our customers now and into the future.

Critical Accounting Policies Using Significant Estimates

There were no material changes in the first three months of 2022 to the information provided under the heading “Critical Accounting Policies Using Significant Estimates” included in our Form 20-F for the year ended December 31, 2021, except for the impacts of the application of the new guidance on convertible instruments, as described in Note 5, Recent Accounting Pronouncements, of the consolidated financial statements for the three months ended April 2, 2022.

Fiscal Year

Under Article 35 of our Articles of Association, our fiscal year extends from January 1 to December 31. The first quarter of 2022 ended on April 2. The second quarter will end on July 2, the third quarter will end on October 1 and the fourth quarter will end on December 31, 2022. Based on our fiscal calendar, the distribution of our revenues and expenses by quarter may be unbalanced due to a different number of days in the various quarters of the fiscal year and can also differ from equivalent prior years’ periods, as illustrated in the below table for the years 2021 and 2022.

 

 

Business Overview

Our results of operations for each period were as follows:

Our total available market is defined as “TAM”, while our serviceable available market is defined as “SAM” and represents the market for products sold by us (i.e., TAM excluding major devices such as microprocessors, dynamic random-access memories, optoelectronics devices other than optical sensors, flash memories, consumer logic devices and wireless application specific products, such as baseband and application processors).

Based on the data published by World Semiconductor Trade Statistics, on a sequential basis, semiconductor industry revenues in the first quarter of 2022 remained substantially flat for our TAM and increased by approximately 2% for our SAM to reach approximately $152 billion and $69 billion, respectively. On a year-over-year basis, our TAM increased by approximately 23% and our SAM increased by approximately 24%.

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Our first quarter 2022 net revenues amounted to $3,546 million, decreasing 0.3% sequentially, about 130 basis points above the mid-point of our released guidance. On a sequential basis, Automotive and Discrete Group (ADG) revenues increased 2.5%, due to higher sales in Automotive. Analog, Micro-Electro-Mechanical Systems (“MEMS”) and Sensors Group (AMS) revenues decreased 13.8%, driven by lower Imaging revenues. Microcontrollers and Digital ICs Group (MDG) revenues increased 12.8%, primarily attributable to higher revenues in Microcontrollers.

On a year-over-year basis, first quarter net revenues increased 17.6% with higher sales in our three product groups and all sub-groups except, as expected, the Imaging sub-group. ADG revenues increased 20.5% with both Automotive and Power Discrete contributing to the increase. AMS revenues increased 0.4%, with Analog and MEMS increase partially offset by the decrease in Imaging and MDG revenues increased 35.2% on higher sales of both RFC and Microcontrollers.

Our revenue performance was below the performance of the SAM both on a sequential and on a year-over-year basis.

Our effective average exchange rate for the first quarter of 2022 was $1.15 for €1.00, compared to $1.17 in the fourth quarter of 2021 and $1.19 for €1.00 in the first quarter of 2021. For a more detailed discussion of our hedging arrangements and the impact of fluctuations in exchange rates, see “Impact of Changes in Exchange Rates”.

Our first quarter of 2022 gross profit was $1,655 million and gross margin was 46.7%, about 170 basis points above the mid-point of our guidance. On a sequential basis, gross margin increased 150 basis points, mainly due to improved product mix and favorable pricing. Gross margin increased 770 basis points year-over-year, mainly driven by improved sales price and a more favorable product mix.

Our aggregated selling, general & administrative (SG&A) and research & development (R&D) expenses amounted to $835 million, compared to $752 million and $769 million in the prior and year-ago quarters, respectively. The sequential increase was mainly due to higher number of calendar days, net of vacation (89 days in the first quarter of 2022 compared to 82 days in the fourth quarter of 2021). On a year-over-year basis, operating expenses increased by $66 million, mainly due to higher labor cost, partially offset by positive currency effects, net of hedging.

 

Other income and expenses, net, amounted to $57 million income, increasing by $25 million sequentially and by $23 million on a year-over-year basis, mainly due to a one-time positive impact on public funding.

In the first quarter of 2022, our operating income was $877 million, equivalent to 24.7% of net revenues, compared to $885 million (24.9% of net revenues) in the previous quarter, and to $440 million (14.6% of net revenues) in the year-ago quarter. On a sequential basis, our operating income remained substantially flat as improved gross margin profitability was offset by higher operating expenses. On a year-over-year basis, the increase is mainly driven by the combining effect of higher sales volume and improved gross margin profitability, partially offset by increased operating expenses.

In the first quarter of 2022, our cash decreased by $397 million, with net cash from operating activities of $945 million. Capital expenditure payments, for tangible and intangible assets, were $863 million.

Our free cash flow, a non-U.S. GAAP measure, amounted to $82 million in the first quarter of 2022 compared to $261 million in the first quarter of 2021. Refer to “Liquidity and Capital Resources” for the reconciliation of the free cash flow, a non U.S. GAAP measure, to our consolidated Statements of Cash Flows.

Looking at the second quarter, we expect a revenue increase of approximately 5.8% sequentially, plus or minus 350 basis points. Gross margin is expected to be approximately 46.0%, plus or minus 200 basis points.

This outlook is based on an assumed effective currency exchange rate of approximately $1.13 = €1.00 for the 2022 second quarter and includes the impact of existing hedging contracts. The second quarter will close on July 2, 2022.

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.

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Other Developments

On April 4, we announced the resolutions to be submitted for adoption at the Company’s Annual General Meeting of Shareholders (AGM), which will be held in Schiphol, the Netherlands, on May 25, 2022. The resolutions, proposed by the Supervisory Board, are:

 

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Results of Operations

 

Segment Information

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

Our reportable segments are as follows:

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, SG&A expenses and a part of R&D expenses. In compliance with our internal policies, certain costs are not allocated to the segments, but reported in “Others”. Those comprise unused capacity charges, including reduced manufacturing activity due to COVID-19, impairment, restructuring charges and other related closure costs, management reorganization expenses, phase-out and start-up costs of certain manufacturing facilities, and other unallocated income (expenses) such as: strategic or special R&D programs, certain corporate-level operating expenses, patent claims and litigations, and other costs that are not allocated to product groups, as well as operating earnings of other products. In addition, depreciation and amortization expense is part of the manufacturing costs allocated to the segments and is neither identified as part of the inventory variation nor as part of the unused capacity charges; therefore, it cannot be isolated in cost of sales. Finally, public grants are allocated to our segments proportionally to the incurred expenses on the sponsored projects.

 

Wafer costs are allocated to the segments based on actual cost. From time to time, with respect to specific technologies, wafer costs are allocated to segments based on market price.

 

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First Quarter 2022 vs. Fourth Quarter 2021 and First Quarter 2021

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

 

Net revenues

 

Sequentially, our first quarter 2022 net revenues decreased 0.3%, 130 basis points above the mid-point of our released guidance. The sequential decrease resulted from lower volumes of approximately 10%, partially offset by an increase of approximately 10% in average selling prices, driven by a more favorable product mix and sales price increase.

On a year-over-year basis, net revenues increased 17.6%, as a result of higher average selling prices of approximately 20%, mainly driven by a more favorable product mix and sales price increase, partially offset by lower volumes of approximately 2%.

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Net revenues by product group

On a sequential basis, ADG revenues increased 2.5%, driven by an approximate 19% increase in average selling prices, mainly due to a more favorable product mix and higher selling prices, offset by lower volumes of approximately 16%. AMS revenues decreased 13.8%, as a result of lower volumes of approximately 12% and lower selling prices of approximately 2%, mainly due to a less favorable product mix. MDG revenues increased 12.8%, due to better average selling prices of approximately 8%, driven by higher selling prices and a more favorable product mix, and higher volumes of approximately 5%.

On a year-over-year basis, ADG revenues increased 20.5%, due to higher average selling prices of approximately 29%, mainly due to a more favorable product mix and higher selling prices, partially offset by lower volumes of approximately 8%. AMS revenues remained substantially flat compared to the year-ago period, with higher averages selling prices of approximately 8% offsetting lower volumes of approximately 8%. MDG revenues increased 35.2% due to an increase in both average selling prices and volumes of approximately 18% and 17% respectively.

Net Revenues by Market Channel ⁽¹⁾

By market channel, our first quarter net revenues in Distribution amounted to 34% of our total net revenues, increasing from 33% in the prior and year-ago quarters.

Net Revenues by Location of Shipment ⁽¹⁾

 

On a sequential basis, EMEA revenues grew 11.6% mainly due to higher sales in Microcontrollers and Automotive. Americas revenues grew 19.9%, mainly due to higher sales in Microcontrollers, RF communications and Automotive. Asia Pacific revenues decreased 7.1%, mainly driven by lower sales in Imaging.

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On a year-over-year basis all regions registered double-digits revenue growth. EMEA revenues grew 26.2% mainly due to higher sales in Microcontrollers and Automotive. Americas revenues increased 31.7%, mainly due to higher sales in Microcontrollers, RF communications and Automotive. Asia Pacific revenues increased 12.3%, mainly due to higher sales in Microcontrollers and Automotive, partially offset by lower sales in Imaging.

Gross profit

 

In the first quarter of 2022, gross margin was 46.7%, about 170 basis points above the mid-point of our guidance. On a sequential basis, gross margin increased 150 basis points, principally due to improved product mix and favorable pricing.

On a year-over-year basis, gross margin increased 770 basis points, mainly driven by improved sales price and a more favorable product mix.

Operating expenses

 

The first quarter of 2022 operating expenses increased to $835 million compared to $752 million in the previous quarter, mainly due to higher number of calendar days, net of vacation (89 days in the first quarter of 2022 compared to 82 days in the fourth quarter of 2021).

On a year-over-year basis, operating expenses increased by $66 million, mainly due to higher labor cost, partially offset by positive currency effects, net of hedging.

As a percentage of revenues, our operating expenses amounted to 23.5% in the first quarter of 2022, increasing compared to 21.1% in the prior quarter and decreasing compared to 25.5% in the year-ago quarter.

R&D expenses were net of research tax credits, which amounted to $27 million in the first quarter of 2022, compared to $33 million and $31 million in the prior and year-ago quarters, respectively.

Other income and expenses, net

 

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In the first quarter of 2022, other income and expenses, net, amounted to $57 million income, increasing by $25 million sequentially and by $23 million on a year-over-year basis, mainly due to a one-time positive impact on public funding.

Impairment, restructuring charges and other related closure costs

 

In the first quarters of 2022 and 2021, there were no impairment, restructuring charges and other related closure costs.

In the fourth quarter of 2021, we recorded $4 million of restructuring charges, related to an additional charge on benefits paid to employees as part of prior year restructuring plans incurred in one of our back-end sites.

There are no pending restructuring initiatives in 2022.

Operating income

 

In the first quarter of 2022, operating income was $877 million, compared to an operating income of $885 million and $440 million in the prior and year-ago quarters, respectively.

On a sequential basis, our operating income remained substantially flat as improved gross margin profitability was offset by higher operating expenses.

On a year-over-year basis, the increase is mainly driven by the combining effect of higher sales volume and improved gross margin profitability, partially offset by increased operating expenses.

Operating income by product group

In the first quarter of 2022, ADG operating income was $235 million, increasing sequentially by $19 million driven by higher profitability in Automotive. AMS operating income was $246 million, decreasing sequentially by $89 million, mainly impacted, as expected, by lower profitability in Imaging. MDG operating income increased by $89 million sequentially, reaching $407 million, driven by Microcontrollers.

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ADG operating income increased by $150 million year-over-year, mainly reflecting higher profitability in Automotive. AMS operating income increased by $59 million, mainly driven by Analog and MEMS higher profitability. MDG operating income increased by $235 million, mainly due to Microcontrollers higher profitability.

Reconciliation to consolidated operating income

 

Interest income (expense), net

 

In the first quarter of 2022, we recorded a net interest income of $1 million, compared to $5 million of interest expense in the prior quarter and $9 million in the year-ago quarter. The first quarter net interest income was composed of $3 million of interest income partially offset by interest expense on borrowings and banking fees of $2 million.

On January 1, 2022, we adopted the new U.S. GAAP reporting guidance on distinguishing liabilities from equity and EPS, by applying the modified retrospective method, under which prior periods are not restated. Interest expense recorded in the prior and year ago quarter included a charge of $5 million and $11 million, respectively, related to the outstanding senior unsecured convertible bonds, mainly resulting from the non-cash accretion expense, as recorded under the previous accounting guidance. With the adoption of the new guidance, the finance cost of the convertible debt instruments outstanding at the date of adoption is limited to the amortization expense of debt issuance costs.

Income tax expense

 

During the first quarter of 2022, we registered an income tax expense of $129 million, reflecting a 14.8% estimated annual effective tax rate at consolidated level, applied to the first three months of 2022 consolidated income before income tax, consistent with the actual annual tax rate of 2021.

Net income attributable to parent company

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For the first quarter of 2022, we reported a net income attributable to parent company of $747 million, representing diluted earnings per share of $0.79, compared to $0.82 in the prior quarter and $0.39 in the prior-year quarter.

Diluted earnings per share for the first quarter of 2022 includes the full dilutive effect of our outstanding convertible debt upon adoption of the newly applicable U.S. GAAP reporting guidance on January 1, 2022. Prior periods have not been restated.

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Legal Proceedings

For a discussion of legal proceedings, see Note 25 Contingencies, Claims and Legal Proceedings to our Unaudited Interim Consolidated Financial Statements.

Impact of Changes in Exchange Rates

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

As a market practice, the reference currency for the semiconductor industry is the U.S. dollar and the market prices of semiconductor products are mainly denominated in U.S. dollars. However, revenues for some of our products are quoted in currencies other than the U.S. dollar, such as Euro-denominated sales, and consequently are directly affected by fluctuations in the value of the U.S. dollar. As a result of currency variations, the appreciation of the Euro compared to the U.S. dollar could increase our level of revenues when translated into U.S. dollars or the depreciation of the Euro compared to the U.S. dollar could decrease our level of revenues when reported in U.S. dollars. Over time and depending on market conditions, the prices in the industry could align to the equivalent amount in U.S. dollars, except that there is a lag between the changes in the currency rate and the adjustment in the price paid in local currency, which is proportional to the amplitude of the currency swing, and such adjustment could be only partial and/or delayed, depending on market demand. 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 Eurozone and other non-U.S. dollar currency areas, including Singapore, our costs tend to increase when translated into U.S. dollars when the U.S. dollar weakens or to decrease when the U.S. dollar strengthens.

Our principal strategy to reduce the risks associated with exchange rate fluctuations is 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 hedge certain line items on our Unaudited Interim Consolidated Statements of Income, in particular with respect to a portion of cost of sales, most of R&D expenses and certain SG&A expenses, located in the Eurozone, which we designate as cash flow hedge transactions. We use two different types of hedging instruments: forward contracts and currency options (including collars).

Our Unaudited Interim Consolidated Statement of Income for the three months ended April 2, 2022, included income and expense items translated at the average U.S. dollar exchange rate for the period, plus the impact of the hedging contracts settled during the period. Our effective average exchange rate for the first quarter of 2022 was $1.15 for €1.00, compared to $1.17 for €1.00 in the fourth quarter of 2021 and $1.19 for €1.00 in the first quarter of 2021. These effective exchange rates reflect the actual exchange rates combined with the effect of cash flow hedge transactions impacting earnings in the period.

The time horizon of our cash flow hedging for manufacturing costs and operating expenses may run up to 24 months, for a limited percentage of our exposure to the Euro, depending on currency market circumstances. As of April 2, 2022, the outstanding hedged amounts were €1,431 million to cover manufacturing costs and €813 million to cover operating expenses, at an average exchange rate of approximately $1.16 and $1.17 for €1.00 (considering the collars at upper strike), respectively, maturing from April 6, 2022 to November 28, 2023. As of April 2, 2022, measured in respect to the exchange rate at period closing of about $1.10 to €1.00, these outstanding hedging contracts and certain settled contracts covering manufacturing expenses capitalized in inventory resulted in a deferred unrealized loss of approximately $56 million before tax, recorded in “Accumulated other comprehensive income (loss)” in the consolidated statement of equity, compared to a deferred unrealized loss of approximately $48 million before tax on December 31, 2021.

We also hedge certain manufacturing costs denominated in Singapore dollars (SGD); as of April 2, 2022, the outstanding hedged amounts were SGD 202 million at an average exchange rate of approximately SGD 1.35 to $1.00 maturing from April 6, 2022 to March 2, 2023. As of April 2, 2022, the deferred unrealized gain (loss) of these outstanding hedging contracts were immaterial, consistent with the deferred unrealized gain reported as of December 31, 2021.

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Our cash flow hedging policy is not intended to cover our full exposure and is based on hedging a declining portion of our exposure in the next four quarters. In the first quarter of 2022, as a result of our cash flow hedging, we recycled to earnings a loss of $29 million, of which approximately $18 million impacted cost of sales, $9 million impacted R&D and $2 million impacted SG&A expenses, while in the comparable quarter of 2021, we recorded a gain of $23 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 foreign exchange forward contracts and currency options to cover foreign currency exposure in payables or receivables at our affiliates, which we do not designate for hedge accounting. We may in the future purchase or sell similar types of instruments. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk” in our Form 20-F. Furthermore, we may not predict on a timely basis the amount of future transactions in the volatile industry environment. No assurance may be given that our hedging activities will sufficiently protect us against fluctuations 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 in payables and receivables at our affiliates resulted in a net gain of $2 million recorded in “Other income and expenses, net” in our Unaudited Interim consolidated statement of income for the first quarter of 2022.

The assets and liabilities of subsidiaries whose functional currency is different from the U.S. dollar reporting currency 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 these currency translations have been, and may 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 currency translation are recorded directly in equity and are reported as “Accumulated other comprehensive income (loss)” in the Consolidated Statements of Equity. As of April 2, 2022, our outstanding indebtedness was denominated mainly in U.S. dollars and in Euros.

For a more detailed discussion, see Item 3. “Key Information — 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, short-term deposits and marketable securities, as well as the total interest expense paid on our financial debt.

Our interest income, net, as reported in our Unaudited Interim Consolidated Statements of Income, is the balance between interest income received from our cash and cash equivalents, short-term deposits and marketable securities and interest expense recorded on our financial liabilities or on the sale without recourse of receivables, if any and bank fees (including fees on committed credit lines). Our interest income is dependent upon fluctuations in interest rates, mainly in U.S. dollars and Euros, since we invest primarily on a short-term basis; any increase or decrease in the market interest rates would mean a proportional increase or decrease in our interest income. Our interest expenses are also dependent upon fluctuations in interest rates, since our financial liabilities include European Investment Bank (“EIB”) and Cassa Depositi e Prestiti SpA (“CDP”) Floating Rate Loans at Libor and Euribor plus variable spreads. See Note 20 to our Unaudited Interim Consolidated Financial Statements.

As of April 2, 2022, our total financial resources, including cash and cash equivalents, marketable securities and short-term deposits generated an average annual interest rate of 0.68%. At the same date, the average annual interest rate on our outstanding debt was 0.04%.

Impact of Changes in Equity Prices

As of April 2, 2022, we did not hold any significant investments in equity securities with a material exposure to equity price risk. However, on these equity investments, carrying value could be reduced due to further losses or impairment charges. See Note 18 to our Unaudited Interim Consolidated Financial Statements.

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Liquidity and Capital Resources

Treasury activities are regulated by our policies, which define procedures, objectives and controls. Our policies focus on the management of our financial risk in terms of exposure to currency rates and interest rates. Most treasury activities are centralized, with any local treasury activities subject to oversight from our head treasury office. The majority of our cash and cash equivalents are held in U.S. dollars and Euros and are placed with financial institutions rated at least as single A long-term rating, meaning at least A3 from Moody’s Investors Service (“Moody’s”) and A- from Standard & Poor’s (“S&P”) or Fitch Ratings (“Fitch”). 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 provides 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 three months of 2022, our net cash and cash equivalents decreased by $397 million. The components of the net cash variation for the comparable period are set forth below:

Net cash from operating activities. Net cash from operating activities is the sum of (i) net income adjusted for non-cash items and (ii) changes in net working capital. The net cash from operating activities for the first three months of 2022 was $945 million, increasing compared to $682 million in the prior-year period mainly due to higher net income.

Net cash used in investing activities. Investing activities used $1,140 million of cash in the first three months of 2022, increasing compared to $413 million in the prior-year period, mainly due to higher payments for the purchase of tangible and intangible assets, which totaled $863 million in the first quarter of 2022 compared to $423 million in the prior-year period, and higher net investments in marketable securities and short-term deposits of $277 million.

Net cash from (used in) financing activities. Net cash used in financing activities was $200 million for the first three months of 2022, compared to net cash from financing activities of $182 million in the first three months of 2021, and consisted of $86 million repurchase of common stock, $65 million repayment of long-term debt and $49 million of dividends paid to stockholders.

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

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Cash Flow may differ from definitions used by other companies. Free Cash Flow is determined from our consolidated Statements of Cash Flows as follows:

 

Free Cash Flow was positive $82 million in the first quarter of 2022, compared to positive $261 million in the prior-year period.

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

Our Net Financial Position represents the difference between our total liquidity and our total financial debt. Our total liquidity includes cash and cash equivalents, restricted cash if any, short-term deposits and marketable securities, and our total financial debt includes short-term debt and long-term debt, as reported in our Consolidated Balance Sheets. Net Financial Position is not a U.S. GAAP measure, but we believe it provides useful information for investors and management because it gives evidence of our global position either in terms of net indebtedness or net cash by measuring our capital resources based on cash and cash equivalents, restricted cash if any, short-term deposits and marketable securities and the total level of our financial debt. Our definition of Net Financial Position may differ from definitions used by other companies and therefore comparability may be limited. Our Net Financial Position for each period has been determined from our Consolidated Balance Sheets as follows:

Our Net Financial Position as of April 2, 2022 was $840 million, decreasing compared to $977 million as of December 31, 2021 and compared to $1,185 million as of April 3, 2021.

Cash and cash equivalents amounted to $2,828 million as of April 2, 2022.

Short-term deposits amounted to $427 million as of April 2, 2022, and consisted of available liquidity with original maturity over three months.

Marketable securities amounted to $139 million, and consisted of U.S. Treasury Bonds classified as available-for-sale.

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Financial debt was $2,554 million, as of April 2, 2022, and was composed of (i) $140 million of short-term debt and (ii) $2,414 million of long-term debt. The breakdown of our total financial debt included (i) $902 million in EIB loans, (ii) $152 million in the CDP loan, (iii) $1,494 million in our 2020 Senior Unsecured Convertible Bonds, including a $107 million increase in total financial debt in connection with the adoption on January 1, 2022 of the new U.S. GAAP reporting guidance applicable to convertible debt and (iv) $6 million in loans from other funding programs.

The EIB Loans are comprised of three long-term amortizing credit facilities as part of our public funding programs. The first, signed in August 2017, is a €500 million loan, in relation to R&D and capital expenditures in the European Union, fully drawn in Euros, of which $386 million was outstanding as of April 2, 2022. The second, signed in 2020, is a €500 million credit facility agreement with EIB to support R&D and capital expenditure programs in Italy and France. It was fully drawn in 2021, of which $516 million was outstanding as of April 2, 2022. The third one, signed in February 2022, is a €600 million loan to support R&D and capital expenditure programs in Italy and France, of which no amount was drawn as of April 2, 2022.

In 2021, we signed a new Facility Agreement with CDP for an amount of €150 million, fully drawn in Euros, of which $152 million was outstanding as of April 2, 2022.

On August 4, 2020, we issued a $1.5 billion offering of senior unsecured convertible bonds convertible into new or existing ordinary shares of the Company. The 2020 Senior Unsecured Convertible Bonds were issued in two $750 million principal amount tranches, Tranche A with a maturity of 5 years (47.5% conversion premium, negative 1.12% yield to maturity, 0% coupon) and Tranche B with a maturity of 7 years (52.5% conversion premium, negative 0.63% yield to maturity, 0% coupon). The conversion price is $43.62 on Tranche A and $45.10 on Tranche B. The 2020 Senior Unsecured Convertible Bonds are convertible by the bondholders if certain conditions are satisfied. Under the terms of the 2020 Senior Unsecured Convertible Bonds, we can satisfy the conversion rights either in cash or shares, or a combination of the two, at our election. Proceeds from the issuance of the bonds, net of $10 million transaction costs, amounted to $1,567 million. On January 1, 2022, we adopted the new guidance on distinguishing liabilities from equity, by applying the modified retrospective method, under which comparative periods have not been restated. Long-term debt as of April 2, 2022 reflects the nominal value of the 2020 senior unsecured convertible bonds less unamortized debt issuance costs at $1,494 million while long-term debt as of December 31, 2021 and as of April 3, 2021 reflects the accreted value at $1,387 million and $1,369 million, respectively.

Our long-term debt contains standard conditions but does not impose minimum financial ratios. We had unutilized committed medium-term credit facilities with core relationship banks totaling $1,312 million as of April 2, 2022.

As of April 2, 2022, debt payments at redemption value by period were as follows: