[STMicroelectronics letterhead]
Mr. Kevin
L. Vaughn
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, N.E.
Washington,
D.C. 20549
Mail Stop
6010
Re: STMicroelectronics
N.V.
Form
20-F for the fiscal year ended December 31, 2007
Filed
March 3, 2008
File
No. 1-13546
Dear Mr.
Vaughn:
This
letter has been prepared by STMicroelectronics N.V. (the “Company”) in response
to the Comment Letter, dated November 20, 2008 (the “Comment Letter”) of the
staff (the “Staff”) of the Securities and Exchange Commission, addressed to Mr.
Carlo Ferro, the Company’s Executive Vice President and Chief Financial
Officer.
Set forth
below are the Company’s responses to the Comment Letter. The numbered
paragraphs and headings correspond to the Comment Letter, whose text is copied
below in italics for your reference.
Liquidity and Capital
Resources, page 76
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1.
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We
note that as of December 31, 2007 you held $1,014 million of marketable
securities composed of senior debt floating rate notes and $369 million of
auction rate securities. In light of current market conditions,
please revise future filings to address the
following:
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Discuss
the significant inputs in your fair value methodology and provide a
sensitivity analysis relating to these inputs. For example,
consider providing a range of values around the fair value amount you
arrived at to provide a sense of how the fair value estimate could
potentially change as the result of changes to assumptions used in your
estimate. Identify the key drivers of variability in your
estimates and discuss how you developed the most significant inputs you
used in determining the range.
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December 5,
2008
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If
material, discuss how increases and decreases in the aggregate fair value
of your marketable securities may affect your liquidity and capital
resources.
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Response:
The
Company respectfully notes the Staff’s comment and will revise its future
filings to address the aforementioned items in its Form 20-F.
Contractual Obligations,
Commercial Commitments and Contingencies, page 80
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2.
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We
note from your footnote that amounts presented for pension obligations,
other non-current liabilities and certain of your long-term debt
obligations are not reflected on your December 31, 2007 balance
sheet. Please revise your discussion on page 81 in future
filings to provide the reader with greater clarity as to why the amounts
are not reflected on the balance sheet. With respect to the
long-term debt obligations, please clarify for us the amounts that are not
reflected in the consolidated balance sheet and your basis for not
reflecting those amounts in the consolidated balance
sheet. Alternatively, revise this notation in future filings as
appropriate.
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Response:
The
Company respectfully notes the Staff’s comment and acknowledges that the
footnotes to the table “Contractual Obligations, Commercial Commitments and
Contingencies” could give rise to confusion. In fact, the footnote references in
the table were misnumbered by 1, i.e. references to note 1 should have been to
note 2, references to note 2 to note 3, etc. Thus note 2, which
indicated “Items not reflected on the Consolidated Balance Sheet at December 31,
2007” should not have been associated with pension obligations, other
non-current liabilities and long-term debt obligations, all of which were indeed
reflected in the Company’s December 31, 2007 balance sheet. The confusion was
the result of a formatting error in the table, and the Company will revise
future filings to correct this error.
Related-Party Transactions,
page 120
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3.
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Please
ensure that future filings include all transactions required to be
disclosed by Item 7(b) of Form 20-F. This disclosure should
include providing sufficient detail such as the terms of the partnership,
licensing and other agreements you have identified in your current
disclosure. Also, please tell us why you have not described the
transactions you disclose in Note 28 to your financial
statements.
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Response:
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December 5,
2008
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| Page 3 |
The
Company respectfully notes the Staff’s comments and acknowledges the confusion
that arises from the different disclosures of related party transactions as
contained on page 120 and in Note 28 of the Company’s Form 20-F.
FAS 57
establishes the disclosure requirements for related party transactions in the
financial statements, whereas Item 7(b) establishes the disclosure requirements
for Form 20-F. Both standards rely on a materiality threshold to determine the
related party transactions that must be disclosed. In Note 28, the Company
disclosed quantitative details for all related party transactions, thereby
providing more disclosure than what is required by FAS 57 and what would have
been required by Item 7(b) in the body of the Form 20-F.
In
response to the Staff’s comment, the Company will ensure that future filings
include all transactions required to be disclosed by Item 7(b) and will
undertake to match such disclosure with the disclosure of related party
transactions in the financial statements and notes.
Item 16A. Audit Committee
Financial Expert, page 152
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4.
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We
note your disclosure about Mr. de Waard being qualified as an audit
committee financial expert and your disclosure on page 93 regarding the
board’s independence criteria. Please tell us where you have
discussed Mr. de Waard’s independence as requested by Item 16A(a)(2) of
Form 20-F or please provide such disclosure in future
filings.
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Response:
The
Company respectfully notes the Staff’s comment. The question of Mr. de Waard’s
independence was addressed on page 152 of the Company’s Form 20-F. In
response to the Staff’s comment, the Company proposes to clarify its future
filings as follows:
“Our
Supervisory Board has concluded that Tom de Waard, a member of our Audit
Committee, qualified as an “audit committee financial expert” as defined in Item
16A and is independent as defined in the listing standards applicable to us as a
listed issuer as required by Item 16A(2) of Form 20-F.”
Note 2.4 – Financial assets,
page F-9
Note 2.5 – Derivative
financial instruments and hedging activities, page F-10
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5.
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We
note that you recognize gains and losses from the sale of marketable
securities and mark to market gains on your trading derivatives in “Other
income and expenses, net,” a component of your operating
income. Please tell us how your current presentation complies
with the guidance set forth in Rule 5.03-07 and 09 of Regulation S-X or
revise your future filings
accordingly.
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December 5,
2008
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| Page 4 |
Response:
The
Company respectfully notes the Staff’s comment and believes that its disclosure
related to the aforementioned items is in compliance with the guidance set forth
in Rule 5.03-07 and 09 of Regulation S-X. The Company enters into derivative
transactions to hedge currency exposures resulting from its operating
activities. For mark-to-market gains or losses on its trading
derivatives that do not qualify as hedging instruments under Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (“FAS 133”), the Company believes that these amounts
would be properly included in “Other income and expenses, net,” since the
transactions for such instruments would only occur within the Company’s
operating activities and, as such, should be included in operating income.
However, the Staff has correctly identified an inaccuracy in the disclosure in
the accounting policy footnote regarding marketable securities that are
classified as available-for-sale, which indicates that gains and losses from the
sale of these securities are included in “Other income and expenses,
net.” Although the Company has not had any material gains or losses
from the valuation or sale of its marketable securities that were included in
operating income, in the future, the Company will ensure that such amounts, if
any, are reported outside of operating income and stated separately in the
income statement or in a note thereto. The Company will also revise
its disclosure in future filings to ensure that its compliance with the guidance
provided in Rule 5.03-07 and 09 of Regulation S-X is clear.
Note 29 – Segment
Information, page F-63, comment 6
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6.
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We
note that in December 2006 you reorganized into three main
segments. We note that each of the segments is made up of
various product lines, some of which appear to have separate managers
responsible for the group. Please provide us with an analysis
of your segment presentation based on the guidance in paragraphs 10-24 of
SFAS 131. Specifically, discuss the information analyzed by the
chief operating decision maker in making resource allocation
decisions. In addition, to the extent that any of your
reportable segments represents the aggregation of more than one operating
segment, discuss how your aggregation of these operating segments meets
the criteria of paragraph 17 of SFAS
131.
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Response:
The
Company respectfully notes the Staff’s request for an analysis of its segment
presentation based on the guidance in paragraphs 10-24 of SFAS 131, including a
discussion of the information analyzed by the Chief Operating Decision Maker
(the “CODM”) in making resource allocation decisions.
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December 5,
2008
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| Page 5 |
The
Company operates in two business “Areas”: Semiconductor and
Subsystems. The Semiconductor Area, as described in Note 28 and in
Item 4 of the Company’s Form 20-F, included, at December 31, 2007, three
reportable segments that were made up of seven “Product Groups,” one of which
was the Flash Memory Group. The Subsystems Area, as determined by the Company,
does not meet the definition of a reportable segment under SFAS
131.
In
essence, the Company’s internal organization can be described as follows (in
descending order that corresponds to the various subsets of financial
information):
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2
Areas: Semiconductor and
Subsystems;
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3
Family Groups that have been defined as reportable
segments;
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7
Product Groups each managed by a
Vice-President;
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38
Divisions with divisional managers overseeing a combination of business
units; and
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144
Business Units representing a particular product application or a number
of closely related products.
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The CODM
is the Company’s Chief Executive Officer, who makes decisions under the
extensive oversight of the Company’s board of directors (“Supervisory
Board”). The Supervisory Board receives discrete financial
information based on the Company’s three Family Groups.
The CODM,
under the extensive oversight of the Company’s Supervisory Board, allocates
resources and assesses the performance of the Company based on financial
information received at multiple levels, including from the Semiconductor area,
the three Family Groups and the 38 Divisions. In some cases, the CODM
reviews performance at an individual Business Unit level.
The
Company’s internal financial reporting is “matrix based,” with Product Groups
and Divisions responsible for developing new product applications and reporting
their results based on standard margins and market
share. Manufacturing facilities, core research, distribution, and
sales and marketing efforts, however, are managed separately as individual cost
centers. While financial information may overlap based on geographic
segments (which concern primarily disaggregated revenues), the Company has
determined that its Family Groups constitute operating segments under paragraph
15 of SFAS 131.
The
Company has also evaluated the multi-level inputs being reviewed by the
Company’s CODM and has concluded that its Family Groups represent reportable
segments under the guidance offered in paragraphs 13 and 14 of SFAS
131. In addition, also in accordance with paragraphs 13 and 14 of
SFAS 131, the Company has analyzed other factors to conclude that its Family
Groups represent reportable segments, such as: i) the nature of the business
activities; ii) the existence of segment managers; and iii) information
presented to the Company’s Supervisory Board.
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December 5,
2008
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| Page 6 |
(i)
Similar nature of the business activities
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Commonalities
among the three Family Groups include manufacturing facilities,
manufacturing technology and, to a certain extent, the manufacturing
process. Key decisions regarding manufacturing resource
allocations, investments, equipment purchases and capacity loading are
decided at the Semiconductor Area level according to wafer size or at the
Family Group level depending on technology
nodes;
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research
and development decisions, which are decided at a Family Group level, are
technology-based and applied across the Product Groups using a common pool
of support engineers, but are not linked to any individual product
line;
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decisions
pertaining to marketing, product positioning and new product launches are
made by end-user applications that are more appropriately assessed at a
Family Group level and not by individual Product Groups, since similar
distribution channels are often used, and customer sales often made, from
multiple Product Groups.
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the
lowest level of “firm” discrete financial information is at the Family
Group level. Financial results below such level are less
reliable for assessing performance beyond product revenue and standard
margin calculations. The CODM and Supervisory Board rely on
Family Group financial information to manage the Company. Financial data
below that level have certain inconsistencies and distorted comparables
due to the incorporation of discretionary internal costs and investment
allocations that are very material to the results at such lower
levels.
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(ii)
Existence of segment managers
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Vice-Presidents
have been appointed for the Product Groups and the Divisions. As explained
above, the CODM utilizes a variety of inputs when allocating resources and
assessing performance, which involves all levels of his management
hierarchy and can vary between the Family Group level and the Divisions,
or even the Business Unit level, depending on the nature of detail
required. However, key decisions on capital expenditures,
capacity loadings or R&D and marketing spend are made at the
Semiconductor Area level or at the Family Group
level.
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(iii)
Information provided to the Supervisory Board
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December 5,
2008
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| Page 7 |
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the
discrete financial information received by the Supervisory Board, whose
oversight and approval is an important factor in the Company’s functions,
is based on the three Family
Groups.
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As
described by the analysis above, the Company notes that none of its reportable
segments represent the aggregation of more than one operating
segment.
The
Company also informs the Staff that, as stated on pages 14-15 of its 3Q 2008
results filed November 12, 2008 on Form 6-K, its reportable segments have been
reorganized in light of the following activities: (i) the contribution of the
Flash Memory Group (“FMG”) to a new venture that is currently held by the
Company as an equity investment and (ii) the creation of a new segment, Wireless
Products Sector (“WPS”), to report wireless operations following the acquisition
and creation of the ST-NXP venture. The Company will restate the
corresponding information for prior periods, as practically permissible, in
accordance with paragraph 34 of SFAS 131.
Note 29 – Segment
Information, page F-63, comment 7
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7.
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We
note that each of your reportable segments includes one or more different
product groups. For example, your Application Specific Product
Group segment includes your Automotive Product Group, Computer Peripherals
Group, Mobile, Multimedia and Communications Group and Home, Entertainment
and Display Group. Please revise future filings to disclose the
revenues for each group of similar services and products. Refer
to paragraph 37 of SFAS 131.
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Response:
The
Company respectfully notes the Staff’s comment. The Company will
revise future filings to disclose the revenue figures for each Product Group of
similar services and products as required by paragraph 37 of SFAS
131.
Note 29 – Segment
Information, page F-63, comment 8
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8.
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We
note your disclosure of long-lived assets by geographical area, which
appears to include goodwill and intangible assets. Please note
that the guidance in Question 22 of the FASB Staff Implementation Guidance
on Applying FASB Statement 131 states that goodwill and intangible assets
should not be included in this disclosure. Please revise future
filings as appropriate.
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Response:
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December 5,
2008
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| Page 8 |
The
Company respectfully notes the Staff’s comment and confirms that, in compliance
with Question 22 of the FASB Staff Implementation Guidance on Applying FASB
Statement 131, it will undertake to revise future filings to ensure that
goodwill and intangible assets are not included in its disclosure of long-lived
assets by geographical area.
*
* *
In
connection with responding to the Staff’s comments, the Company acknowledges
that it is responsible for the adequacy and accuracy of the disclosure in the
filing. The Company further acknowledges that Staff comments or changes to
disclosure in response to Staff comments do not foreclose the Commission from
taking any action with respect to the filing. Finally, the Company acknowledges
that it may not assert Staff comments as a defense in any proceeding initiated
by the Commission or any person under the federal securities laws of the United
States.
If you
have any questions or comments regarding the foregoing, please do not hesitate
to contact me at 011-41-22-929-2998.
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Very
truly yours,
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/s/ Carlo
Ferro
Carlo
Ferro
Executive
Vice President and Chief Financial Officer,
STMicroelectronics
N.V.
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cc:
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Martin
James
Senior
Assistant Chief Accountant, Securities and Exchange
Commission
Robert
Treuhold
Shearman
& Sterling LLP
Travis
Randolph
PricewaterhouseCoopers
SA
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