(b) Net revenues of "Others" includes revenues from sales of Subsystems, assembly services and other revenues.
(c) 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 Subsystems and Other Products Group. "Others" includes $2 million, $24 million and $16 million of unused capacity charges in the second and first quarters of 2013 and second quarter of 2012, respectively; and $43 million, $101 million and $56 million of impairment, restructuring charges and other related closure costs in the second and first quarters of 2013 and second quarter of 2012, respectively.
Sense & Power and Automotive Products (SPA) second quarter net revenues increased 7.3% sequentially, mainly driven by Industrial and Power products and Automotive. SPA revenues increased 4.6% compared to the year-ago quarter driven by MEMS. SPA operating margin was 3.5% in the 2013 second quarter compared to 5.1% and 8.3% in the prior and year-ago quarter, respectively, with the decrease principally driven by resources deployed from ST-Ericsson to strengthen R&D activities and price pressure within the Analog, MEMS and Sensors (AMS) group.
Embedded Processing Solutions (EPS) second quarter net revenues decreased 5.0% and 16.0% on a sequential and year-over-year basis, respectively, due to a significant decrease in ST-Ericsson sales and to a lesser extent, Digital Convergence (DCG). EPS segment operating margin improved to negative 12.8% in the 2013 second quarter, from negative 24.2% and negative 23.7% in the prior and year-ago quarter, respectively, mainly due to a significant reduction in expenses.
Cash Flow and Balance Sheet Highlights
Free cash flow* was negative $134 million in the second quarter, principally reflecting anticipated cash resources to fund ST-Ericsson, compared to negative $65 million in the prior quarter.
Capital expenditure payments, net of proceeds from sales, were $121 million during the second quarter of 2013 compared to $111 million in the prior quarter.
Inventory increased by $30 million to $1.34 billion at quarter end. Inventory in the second quarter of 2013 was at 4.1 turns or 88 days, substantially flat compared to the prior quarter.
As expected, ST's net financial position* decreased in the second quarter to a net cash position of $954 million at June 29, 2013, adjusted by $145 million of ST-Ericsson's debt to our joint venture partner, compared to $1.1 billion at March 30, 2013. ST's financial resources equaled $1.77 billion and total debt was $964 million at June 29, 2013.
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(*)Free cash flow and net financial position are non-U.S. GAAP measures. For additional information and reconciliation to U.S. GAAP, please refer to Attachment A.
Total equity, including non-controlling interest, was $5.68 billion at quarter end.
First Half 2013 Results
Net revenues decreased 2.6% to $4.05 billion from $4.16 billion in the year-ago period mainly reflecting lower ST-Ericsson sales. Net revenues for the first half of 2013, excluding the Wireless product line, increased 2.5% to $3.62 billion.
Gross margin was 32.1% of net revenues, compared to 32.0% of net revenues for the 2012 first half. The first half 2013 gross margin was impacted by unsaturation charges of $26 million compared to $87 million in the year-ago period. Net loss, as reported, was $322 million in the first half of 2013, or $(0.36) per share, compared to a net loss of $252 million, or $(0.28) per share in the first half of 2012. On an adjusted basis, net of related taxes, ST reported a non-U.S. GAAP net loss per share of $(0.19) excluding impairment, restructuring charges and one-time items in the first half of 2013, the same as in the first half of 2012.*
The effective average exchange rate for the Company was approximately $1.30 to EUR 1.00 for the first half of 2013, compared to $1.32 to EUR 1.00 for the first half of 2012.
First Half Revenue and Operating Results by Product Segment
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Operating Segment First First First First
(In Million US$) Half 2013 Half 2013 Half 2012 Half 2012
Net Operating Net Operating
Revenues Income Revenues Income
(Loss) (Loss)
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Sense & Power and Automotive
Products (SPA) 2,337 99 2,263 190
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Embedded Processing Solutions
includingWireless product line 1,692 (316) 1,882 (527)
(EPS)
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Others 26 (171) 20 (222)
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TOTAL 4,055 (388) 4,165 (559)
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