STMicroelectronics Reports 2017 Third Quarter and Nine Months Financial Results
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STMicroelectronics Reports 2017 Third Quarter and Nine Months Financial Results


Geneva, October 26, 2017 - STMicroelectronics (NYSE: STM), a global semiconductor leader serving customers across the spectrum of electronics applications, reported financial results for the third quarter and nine months ended September 30, 2017.

Third quarter net revenues totaled $2.14 billion, gross margin was 39.5%, and net income was $236 million, or $0.26 per share.

"In the third quarter we achieved a number of important milestones: quarterly revenues exceeded $2.1 billion, up almost 19% year-over-year; gross margin was 39.5% and operating margin before impairment and restructuring was 13.7%," said Carlo Bozotti, STMicroelectronics President & CEO.

"All product groups recorded double-digit year-over-year revenue growth, driven by strong demand across all geographies in our focus application areas of Internet of Things, Smartphones, Industrial and Smart Driving.

"ST's transformation, focused on sustainable revenue growth across our entire portfolio, is taking shape, driven by our technologies, products, people and diversified customer base. We are determined to continue on this growth and innovation trajectory, underpinned by a solid financial position and enhanced liquidity."

Quarterly Financial Summary (US$ Million)

U.S. GAAP Q3 2017 Q2 2017 Q3 2016
Net Revenues 2,136 1,923 1,797
Gross Margin 39.5% 38.3% 35.8%
Operating Income 278 178 90
Net Income attributable to parent company 236 151 71
Net cash from operating activities 463 369 332


Non-U.S. GAAP (1) Q3 2017 Q2 2017 Q3 2016
Operating Income before impairment and restructuring charges 292 184 119
Free cash flow 80 52 102
Net financial position 446 524 464

(1) Non-U.S. GAAP measure. See Appendix for reconciliation to U.S. GAAP and additional information explaining why the Company believes these measures are important.

Quarterly Financial Summary By Product Group (US$ Million)

Net Revenues By Product Group Q3 2017 Q2 2017 Q3 2016
Automotive and Discrete Group (ADG) 775 755 704
Analog and MEMS Group (AMG) 502 482 403
Microcontrollers and Digital ICs Group
(MDG) 		701 612 587
Others (a) 158 74 103
Total 2,136 1,923 1,797

(a) Net revenues of "Others" includes revenues from sales of Imaging Product Division, Subsystems, assembly services, and other revenue.

Third Quarter Review

Third quarter net revenues increased 11.1% sequentially, a better than seasonal performance and 210 basis points higher than the mid-point of the Company's guidance. On a sequential basis, Microcontrollers and Digital ICs Group (MDG) revenues were up 14.6%, led by general purpose microcontrollers which again posted record quarterly sales. Analog and MEMS Group (AMG) and Automotive and Discrete Group (ADG) also grew on a sequential basis, up 4.2% and 2.6%, respectively. Imaging Product Division revenues, reported in Others, registered a triple-digit sequential revenue growth reflecting the initial ramp in wireless applications of ST's new program, including the Company's Time-of-Flight and new specialized imaging technologies.

On a year-over-year basis, third quarter net revenues increased by 18.9% on double-digit growth across all product groups and strong traction with new products. Analog and MEMS Group (AMG) third quarter revenues grew 24.8% year-over-year due to a sharp recovery in Analog and strong growth in MEMS.   Microcontrollers and Digital ICs Group (MDG) revenues increased 19.4% on very strong growth for general purpose microcontrollers, in part offset by lower sales of businesses undergoing phase-out. Automotive and Discrete Group (ADG) third quarter revenues increased 10.0% compared to the year-ago quarter on strong results for both Automotive and Power Discrete. Imaging Product Division third quarter revenues increased very significantly year-over-year.

By region of shipment, revenues grew by double-digits on a sequential basis across all regions. Specifically, Americas revenues grew by 14.5%, Asia Pacific increased by 10.8%, and EMEA was up by 10.0%. On a year-over-year basis, EMEA revenues were up by 24.9%, Asia Pacific increased by 19.4% and the Americas grew by 6.4%.

Third quarter gross profit was $845 million and gross margin was 39.5%, 50 basis points above the mid-point of the Company's guidance. On a sequential basis, gross margin increased 120 basis points, mainly due to improved manufacturing efficiency and better product mix, partially offset by normal price pressure and negative currency effects, net of hedging.

Gross margin increased substantially on a year-over-year basis, increasing 370 basis points due to improved manufacturing efficiency and better product mix as well as improved fab loading, partially offset by normal price pressure.

Combined R&D and SG&A expenses were $558 million, decreasing by $9 million on a sequential basis, mainly benefiting from favorable seasonality. Combined R&D and SG&A increased $16 million, or 2.9%, in comparison to the year-ago quarter reflecting inflationary dynamics.

Third quarter other income and expenses, net, registered income of $5 million compared to $15 million and $18 million in the prior and year-ago quarter, respectively, mainly due to anticipated lower R&D funding.

Impairment and restructuring charges in the third quarter were $14 million compared to $6 million and $29 million in the prior and year-ago quarter, respectively, mainly related to the set-top box restructuring plan announced in January 2016.

Operating income of $278 million in the third quarter increased by $100 million and $188 million compared to the prior and year-ago quarter, respectively. By product group, MDG operating income had a very sharp sequential improvement of $54 million, resulting in an increase in its operating margin to 17.9% from 11.6% in the prior quarter. AMG operating income improved sequentially by $21 million, and expanded its operating margin to 18.1% from 14.5% in the prior period, benefiting from an improved product mix, as well as leveraging higher revenues and improved manufacturing performance. ADG operating income increased sequentially by $20 million from the prior quarter, and the operating margin improved to 10.9% compared to 8.6% in the prior period. Others, including the Imaging Product Division, reduced its losses to $23 million from $28 million in the prior quarter.

Third quarter operating income before impairment and restructuring charges(1) was $292 million, equivalent to 13.7% of net revenues compared to $184 million, equivalent to 9.6% of net revenues in the prior quarter driven by a higher level of revenues and improved gross margin. On a year-over-year basis, operating income before impairment and restructuring charges(1) increased by $173 million reflecting higher revenues, manufacturing efficiencies, improved product mix and better fab loading.

Third quarter net income was $236 million, equivalent to $0.26 per share, compared to net income of $151 million, equivalent to $0.17 per share, in the prior quarter. On a year-over-year basis, net income increased by $165 million, equivalent to $0.18 per share, from net income of $71 million, equivalent to $0.08 per share, in the year-ago quarter.

(1)Non-U.S. GAAP measure. See Appendix for additional information and reconciliation to U.S. GAAP.

First Nine Months Financial Summary By Product Group (US$ Million)

Net Revenues By Product Group 9M 2017 9M 2016
Automotive and Discrete Group (ADG) 2,238 2,096
Analog and MEMS Group (AMG) 1,427 1,148
Microcontrollers and Digital ICs Group
(MDG) 		1,905 1,676
Others 310 193
Total 5,880 5,113

Nine Months 2017 Review

Net revenues in the first nine months 2017 increased 15.0% to $5.88 billion from $5.11 billion in the first nine months 2016, or 16.4% excluding businesses undergoing a phase-out (mobile legacy products and set-top box). By product group, first nine months 2017 Analog and MEMS Group (AMG) revenues were up 24.3%, on strong growth in both Analog and MEMS. Microcontrollers and Digital ICs Group (MDG) revenues increased 13.7% compared to the prior period on strong growth in general purpose microcontrollers partially offset by lower revenues for products undergoing phase-out. Automotive and Discrete Group (ADG) revenues increased 6.8% in the first nine months 2017 compared to the first nine months 2016 on growth in both Automotive and Discrete. Imaging Product Division revenues, included in Others, increased very significantly in the first nine months 2017 compared to the prior year period.

Year-to-date gross profit was $2.27 billion. Gross margin in the first nine months 2017 improved by 410 basis points to 38.5% from 34.4% in the year-ago period. Specifically, the first nine-months 2017 gross margin benefited from manufacturing efficiencies, better product mix, and improved fab loading partially offset by normal price pressure.

Combined R&D and SG&A expenses were $1.69 billion in the first nine months 2017 compared to $1.68 billion in the year-ago period.

Other income and expenses, net, registered income of $37 million compared to $73 million in the year-ago period mainly due to a lower level of R&D grants.

On a year-to-date basis, impairment and restructuring charges were $25 million compared to $69 million in the year-ago period, mostly related to the set-top box restructuring plan.

Operating income in the first nine months of 2017 improved significantly by $500 million to $585 million compared to the prior year period.

Year-to-date operating income and operating margin before impairment and restructuring charges(1) increased sharply to $610 million or 10.4% of net revenues, compared to $154 million or 3.0% of net revenues, in the first nine months of 2016 mainly due to higher revenues and gross margin, improved product mix, manufacturing efficiencies and better fab loading.

First nine months 2017 net income was $494 million, equivalent to $0.55 per share, compared to net income of $53 million, or $0.06 per share in the year-ago period.

(1)Non-U.S. GAAP measure. See Appendix for additional information and reconciliation to U.S. GAAP.

Cash Flow and Balance Sheet Highlights

Capital expenditure payments, net of proceeds from sales, were $365 million and $891 million during the third quarter and first nine months of 2017, respectively. First nine months 2016 capital expenditures, net of proceeds from sales, were $379 million.

Inventory was $1.32 billion at quarter end, up 4.7% from the prior quarter. Inventory in the third quarter of 2017 was at 3.9 turns or 92 days.

The Company paid cash dividends totaling $59 million and $160 million for the third quarter and first nine months of 2017, respectively.

ST's net financial position(1) was $446 million at September 30, 2017 compared to $524 million at July 1, 2017. At September 30, 2017, ST's total financial resources were $2.62 billion; total financial debt was $2.18 billion; and total equity, including non-controlling interest, was $5.15 billion.

In the third quarter of 2017, ST issued a $1.5 billion dual-tranche offering of new senior unsecured convertible bonds (Tranche A and Tranche B for $750 million each) due 2022 and 2024. The Company simultaneously launched, and completed in the third quarter, a share buy-back program of 18.6 million shares for $297 million. In the second quarter of 2017, ST issued a redemption notice to inform bondholders of the early redemption of the Tranche A 2019 convertible bonds issued in 2014. As a consequence, in the third quarter of 2017 bondholders exercised their conversion rights for $598 million nominal value on the total of $600 million of the Tranche A. ST elected to net share settle the bonds and as a result the Company delivered $600 million in cash and about 13 million shares from treasury shares and completed the redemption of the full tranche as of the end of August 2017. Between September 13, 2017 and October 10, 2017, bondholders have exercised their conversion rights on Tranche B 2021 convertible bonds for $340 million nominal value. On October 11, 2017, ST issued a notice to inform bondholders of the early redemption of the remaining $60 million of Tranche B 2021 convertible bonds.

In August 2017, ST signed a new medium term credit facility with the European Investment Bank (EIB) for a total of €500 million in relation to ST's R&D and Capex investments in France, Italy and Malta for the years 2017 and 2018. The medium term line is available for drawings in Euro and US$ until Q1 2019 and has terms and conditions substantially in line with previous transactions signed by ST with the EIB.

(1)Non-U.S. GAAP measure. See Appendix for additional information and reconciliation to U.S. GAAP.

Fourth Quarter 2017 Business Outlook

Mr. Bozotti commented, "We see clear opportunities in front of us to continue to drive revenue growth, margin expansion and shareholder value and we are determined to capture this additional potential. Our targeted efforts in technology and products, focusing on high-growth markets, are enabling all of our product groups to strengthen their competitive position with major accounts as well as with the distribution channel.

"Looking at the fourth quarter, we continue to see solid demand across product groups and geographies. Based upon strong booking activity and the expected acceleration of growth of our new program serving wireless applications, we anticipate fourth quarter revenues to increase sequentially by about 10.0% at the mid-point and the gross margin to improve to about 39.9% at the mid-point.

"Looking at the year in total, based upon our nine months results and fourth quarter mid-point revenue guidance, we now expect that 2017 net revenues should grow year-over-year by about 18.0% accompanied by a substantial improvement in operating profitability and net income."

The Company expects fourth quarter 2017 revenues to increase about 10.0% on a sequential basis, plus or minus 3.5 percentage points. Gross margin in the fourth quarter is expected to be about 39.9% plus or minus 2.0 percentage points.

This outlook is based on an assumed effective currency exchange rate of approximately $1.15 = €1.00 for the 2017 fourth quarter and includes the impact of existing hedging contracts. The fourth quarter will close on December 31, 2017.

Recent Corporate Developments 

Q3 2017 - Product and Technology Highlights

Automotive and Discrete Group (ADG)

 Analog and MEMS Group (AMG)

Microcontrollers and Digital ICs Group (MDG)

Use of Supplemental Non-U.S. GAAP Financial Information

This press release contains supplemental non-U.S. GAAP financial information, including operating income (loss) before impairment and restructuring charges, operating margin before impairment and restructuring charges, adjusted net earnings per share, free cash flow and net financial position.

Readers are cautioned that these measures are unaudited and not prepared in accordance with U.S. GAAP and should not be considered as a substitute for U.S. GAAP financial measures. In addition, such non-U.S. GAAP financial measures may not be comparable to similarly titled information from other companies.

See the Appendix of this press release for a reconciliation of the Company's non-U.S. GAAP financial measures to their corresponding U.S. GAAP financial measures. To compensate for these limitations, the supplemental non-U.S. GAAP financial information should not be read in isolation, but only in conjunction with the Company's consolidated financial statements prepared in accordance with U.S. GAAP.

Forward-looking information

Some of the statements contained in this release that are not historical facts 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 anticipated by such statements, due to, among other factors:

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" included in our Annual Report on Form 20-F for the year ended December 31, 2016, as filed with the SEC on March 3, 2017. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this release 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 release to reflect subsequent events or circumstances.

STMicroelectronics Conference Call and Webcast Information

On October 26, 2017, the management of STMicroelectronics will conduct a live webcast of its conference call to discuss the Company's operating performance for the third quarter of 2017.

The conference call will be held at 9:30 a.m. CET / 8:30 a.m. BST / 3:30 a.m. U.S. Eastern Time (ET) / 12:30 a.m. U.S. Pacific Time (PT). The live webcast and presentation materials will be available by accessing investors.st.com Those accessing the webcast should go to the Web site at least 15 minutes prior to the call, in order to register, download and install any necessary audio software. The webcast will be available until November 10, 2017.

About STMicroelectronics
ST is a global semiconductor leader delivering intelligent and energy-efficient products and solutions that power the electronics at the heart of everyday life. ST's products are found everywhere today, and together with our customers, we are enabling smarter driving and smarter factories, cities and homes, along with the next generation of mobile and Internet of Things devices.

By getting more from technology to get more from life, ST stands for life.augmented.

In 2016, the Company's net revenues were $6.97 billion, serving more than 100,000 customers worldwide. Further information can be found at www.st.com.

For further information, please contact:

INVESTOR RELATIONS:
Tait Sorensen                                       
Group VP, Investor Relations
STMicroelectronics
Tel: +1 602 485 2064
tait.sorensen@st.com

MEDIA RELATIONS:
Alexis Breton                                        
Director, PR & Media Operations
STMicroelectronics
Tel: + 33 6 59 16 79 08
alexis.breton@st.com 

 

STMicroelectronics N.V.    
Consolidated Statements of Income    
(in millions of U.S. dollars, except per share data ($))    
     
  Three Months Ended
  (Unaudited) (Unaudited)
  September 30, October 01,
  2017 2016
     
Net sales   2,123   1,794
Other revenues   13   3
  NET REVENUES   2,136   1,797
Cost of sales   (1,291)   (1,154)
  GROSS PROFIT   845   643
Selling, general and administrative   (244)   (224)
Research and development   (314)   (318)
Other income and expenses, net   5   18
Impairment, restructuring charges and other related closure costs   (14)   (29)
  Total Operating Expenses   (567)   (553)
  OPERATING INCOME   278   90
Interest expense, net   (7)   (5)
Income (loss) on equity-method investments   -   (1)
Loss on financial instruments, net   (5)   -
INCOME BEFORE INCOME TAXES   266   84
  AND NONCONTROLLING INTEREST    
Income tax expense   (28)   (12)
  NET INCOME   238   72
Net income attributable to noncontrolling interest   (2)   (1)
  NET INCOME ATTRIBUTABLE TO PARENT COMPANY   236   71
     
  EARNINGS PER SHARE (BASIC) ATTRIBUTABLE TO PARENT COMPANY STOCKHOLDERS   0.27   0.08
  EARNINGS PER SHARE (DILUTED) ATTRIBUTABLE TO PARENT COMPANY STOCKHOLDERS   0.26   0.08
     
  NUMBER OF WEIGHTED AVERAGE    
  SHARES USED IN CALCULATING    
  DILUTED EARNINGS PER SHARE 901.0 886.7


STMicroelectronics N.V.    
Consolidated Statements of Income    
(in millions of U.S. dollars, except per share data ($))    
     
  Nine Months Ended
  (Unaudited) (Unaudited)
  September 30, October 01,
  2017 2016
     
Net sales   5,851   5,097
Other revenues   29   16
  NET REVENUES   5,880   5,113
Cost of sales   (3,614)   (3,355)
  GROSS PROFIT   2,266   1,758
Selling, general and administrative   (718)   (681)
Research and development   (975)   (996)
Other income and expenses, net   37   73
Impairment, restructuring charges and other related closure costs   (25)   (69)
  Total Operating Expenses   (1,681)   (1,673)
  OPERATING INCOME   585   85
Interest expense, net   (16)   (15)
Income (loss) on equity-method investments   (2)   8
Loss on financial instruments, net   (5)   -
INCOME BEFORE INCOME TAXES   562   78
  AND NONCONTROLLING INTEREST    
Income tax expense   (63)   (21)
  NET INCOME   499   57
Net income attributable to noncontrolling interest   (5)   (4)
  NET INCOME ATTRIBUTABLE TO PARENT COMPANY   494   53
     
  EARNINGS PER SHARE (BASIC) ATTRIBUTABLE TO PARENT COMPANY STOCKHOLDERS   0.56   0.06
  EARNINGS PER SHARE (DILUTED) ATTRIBUTABLE TO PARENT COMPANY STOCKHOLDERS   0.55   0.06
     
  NUMBER OF WEIGHTED AVERAGE    
  SHARES USED IN CALCULATING    
  DILUTED EARNINGS PER SHARE 904.7 885.4


STMicroelectronics N.V.      
CONSOLIDATED BALANCE SHEETS      
As at September 30, July 01, December 31,
In millions of U.S. dollars 2017 2017 2016
  (Unaudited) (Unaudited) (Audited)
ASSETS      
Current assets:      
Cash and cash equivalents 2,188 1,654 1,629
Marketable securities 433 335 335
Trade accounts receivable, net 1,057 1,012 939
Inventories 1,321 1,262 1,173
Other current assets 404 443 311
Total current assets 5,403 4,706 4,387
Goodwill 122 120 116
Other intangible assets, net 193 185 195
Property, plant and equipment, net 2,882 2,641 2,287
Non-current deferred tax assets 662 631 528
Long-term investments 57 57 57
Other non-current assets 442 406 434
  4,358 4,040 3,617
Total assets 9,761 8,746 8,004
       
LIABILITIES AND EQUITY      
Current liabilities:      
Short-term debt 486 117 117
Trade accounts payable 847 837 620
Other payables and accrued liabilities 867 792 750
Dividends payable to stockholders 112 171 59
Accrued income tax 47 34 42
Total current liabilities 2,359 1,951 1,588
Long-term debt 1,689 1,348 1,334
Post-employment benefit obligations 380 376 347
Long-term deferred tax liabilities 6 6 5
Other long-term liabilities 178 165 134
  2,253 1,895 1,820
Total liabilities 4,612 3,846 3,408
Commitment and contingencies      
Equity      
Parent company stockholders' equity      
Common stock (preferred stock: 540,000,000 shares authorized, not issued; common stock: Euro 1.04 nominal value, 1,200,000,000 shares authorized, 911,110,420 shares issued, 882,809,516 shares outstanding) 1,157 1,157 1,157
Capital surplus 2,866 2,836 2,818
Retained earnings 667 435 431
Accumulated other comprehensive income 677 608 371
Treasury stock (285) (201) (242)
Total parent company stockholders' equity 5,082 4,835 4,535
Noncontrolling interest 67 65 61
Total equity 5,149 4,900 4,596
Total liabilities and equity 9,761 8,746 8,004


STMicroelectronics N.V.      
       
SELECTED CASH FLOW DATA      
       
Cash Flow Data (in US$ millions) Q3 2017 Q2 2017 Q3 2016
       
Net Cash from operating activities   463   369   332
Net Cash used in investing activities   (482)   (317)   (230)
Net Cash from (used in) financing activities   546   (53)   (109)
Net Cash increase (decrease)   534   13   (7)
       
Selected Cash Flow Data (in US$ millions) Q3 2017 Q2 2017 Q3 2016
       
Depreciation & amortization   165 152 172
Net payment for Capital expenditures   (365)   (307)   (143)
Dividends paid to stockholders   (59)   (48)   (53)
Change in inventories, net   (41)   (26)   30


Appendix
STMicroelectronics
Supplemental Financial Information

  Q3 2017 Q2 2017 Q1 2017 9M

2017 		Q3 2016 Q2 2016 Q1

2016 		9M 2016
€/$ Effective Rate 1.13 1.09 1.08 1.10 1.12 1.12 1.10 1.12


Net Revenues By Market Channel(%) Q3 2017 Q2 2017 Q1 2017 9M 2017 Q3 2016 Q2 2016 Q1 2016 9M 2016
Total OEM 66% 66% 66% 66% 67% 66% 67% 67%
Distribution 34% 34% 34% 34% 33% 34% 33% 33%


Product Group Data

(Million US$) 		Q3

2017 		Q2

2017 		Q1 2017 9M 2017 Q3

2016 		Q2 2016 Q1 2016 9M

2016
Automotive & Discrete (ADG)                
 - Net Revenues 775 755 708 2,238 704 721 671 2,096
 - Operating Income (Loss) 85 65 38 188 58 61 39 158
Analog & MEMS (AMG)                
 - Net Revenues 502 482 443 1,427 403 376 369 1,148
 - Operating Income (Loss) 91 70 45 206 23 1 2 26
Microcontrollers & Digital ICs (MDG)                
 - Net Revenues 701 612 593 1,905 587 556 532 1,676
 - Operating Income (Loss) 125 71 60 256 44 9 (3) 49
Others (a)                
 - Net Revenues 158 74 77 310 103 50 41 193
 - Operating Income (Loss) (23) (28) (14) (65) (35) (43) (71) (148)
Total                
 - Net Revenues 2,136 1,923 1,821 5,880 1,797 1,703 1,613 5,113
 - Operating Income (Loss) 278 178 129 585 90 28 (33) 85

(a)    Net revenues of "Others" includes revenues from sales of Imaging Product Division, Subsystems, assembly services, and other revenue. Operating income (loss) of "Others" includes items such as unused capacity charges, impairment, restructuring charges and other related closure costs, phase out and start-up costs, and other unallocated expenses such as: strategic or special research and development 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 the Imaging Product Division, Subsystems and other products. "Others" includes $1 million, $1 million, $1 million, $11 million, $8 million and $10 million of unused capacity charges in the third, second and first quarters of 2017 and 2016, respectively; and $14 million, $6 million, $5 million, $29 million, $12 million and $28 million of impairment, restructuring charges, and other related closure costs in the third, second and first quarters of 2017 and 2016, respectively.

  
(Appendix - continued)
STMicroelectronics
Supplemental Non-U.S. GAAP Financial Information
U. S. GAAP - Non-U.S. GAAP Reconciliation
In Million US$ Except Per Share Data

The supplemental non-U.S. GAAP information presented in this press release is unaudited and subject to inherent limitations. Such non-U.S. GAAP information is not based on any comprehensive set of accounting rules or principles and should not be considered as a substitute for U.S. GAAP measurements. Also, our supplemental non-U.S. GAAP financial information may not be comparable to similarly titled non-U.S. GAAP measures used by other companies. Further, specific limitations for individual non-U.S. GAAP measures, and the reasons for presenting non-U.S. GAAP financial information, are set forth in the paragraphs below. To compensate for these limitations, the supplemental non-U.S. GAAP financial information should not be read in isolation, but only in conjunction with our consolidated financial statements prepared in accordance with U.S. GAAP.

Operating income (loss) before impairment and restructuring charges and one-time items is used by management to help enhance an understanding of ongoing operations and to communicate the impact of the excluded items, such as impairment, restructuring charges and other related closure costs. Adjusted net earnings and earnings per share (EPS) are used by management to help enhance an understanding of ongoing operations and to communicate the impact of the excluded items like impairment, restructuring charges and other related closure costs attributable to ST and other one-time items, net of the relevant tax impact.

The Company believes that these non-GAAP financial measures provide useful information for investors and management because they measure the Company's capacity to generate profits from its business operations, excluding the effect of acquisitions and expenses related to the rationalizing of its activities and sites that it does not consider to be part of its on-going operating results, thereby offering, when read in conjunction with the Company's GAAP financials, (i) the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results, (ii) the ability to better identify trends in the Company's business and perform related trend analysis, and (iii) an easier way to compare the Company's results of operations against investor and analyst financial models and valuations, which usually exclude these items.

Q3 2017

(US$ million, except per share data ($)) 		Gross Profit Operating Income Net Earnings Corresponding EPS
U.S. GAAP 845 278 236 0.26
Impairment & Restructuring   14 14  
Estimated Income Tax Effect     (1)
Non-U.S GAAP 845 292 249 0.28


Q2 2017

(US$ million, except per share data ($)) 		Gross Profit Operating Income Net Earnings Corresponding EPS
U.S. GAAP 736 178 151 0.17
Impairment & Restructuring   6 6  
Estimated Income Tax Effect     (1)
Non-U.S GAAP 736 184 156 0.17


Q3 2016

(US$ million, except per share data ($)) 		Gross Profit Operating Income Net Earnings Corresponding EPS
U.S. GAAP 643 90 71 0.08
Impairment & Restructuring   29 29  
Estimated Income Tax Effect     (4)
Non-U.S GAAP 643 119 96 0.11

(continued)
(Appendix - continued)

Net financial position: resources (debt), represents the balance between our total financial resources and our total financial debt. Our total financial resources include cash and cash equivalents, marketable securities, short-term deposits and restricted cash, and our total financial debt includes short-term borrowings, current portion of long-term debt and long-term debt, all as reported in our consolidated balance sheet. We believe our net financial position provides useful information for investors and management because it gives evidence of our global position either in terms of net indebtedness or net cash position by measuring our capital resources based on cash, cash equivalents and marketable securities and the total level of our financial indebtedness. Net financial position is not a U.S. GAAP measure.

Net Financial Position (in US$ millions) September 30, 2017 July 1, 2017 October 1, 2016
Cash and cash equivalents 2,188 1,654 1,675
Marketable securities 433 335 342
Total financial resources 2,621 1,989 2,017
Short-term debt (486) (117) (117)
Long-term debt (1,689) (1,348) (1,436)
Total financial debt (2,175) (1,465) (1,553)
Net financial position 446 524 464

Free cash flow is defined as net cash from operating activities minus net cash from (used in) investing activities, excluding payment for purchases (proceeds from the sale of) marketable securities, short-term deposits and restricted cash. We believe free cash flow provides useful information for investors and management because it measures our capacity to generate cash from our operating and investing activities to sustain our operating activities. 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. In addition, our definition of free cash flow may differ from definitions used by other companies.

Free cash flow (in US$ millions) Q3 2017 Q2 2017 Q1 2017 9M 2017 Q3 2016 Q2 2016 Q1 2016 9M 2016
Net cash from operating activities 463 369 289 1,121 332 192 141 665
Net cash used in investing activities (482) (317) (227) (1,026) (230) (144) (110) (484)
Payment for purchase and proceeds from sale of marketable securities, investment in short-term deposits and restricted cash 99 - - 99 - - - -
Free cash flow - Non-U.S. GAAP 80 52 62 194 102 48 31 181

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